Eco Investor October 2015

Pre-Profit Securities

Game-Changing Contract for Phoslock Water Solutions

Phoslock Water Solutions has talked about its hopes to land some big contracts and has now done so with a consortium that has won a $10 million contract. Chairman Laurence Freedman said the deal is a game-changer for Phoslock.

The water body clean-up company is a major partner in the Phoslock Consortium and its share of the contract is the sale of $5 million worth of Phoslock. There may also be additional revenue in monitoring and controling the dosage. To get this in perspective, Phoslock's revenue for 2014-15 was $838,632. The year before it was $1.1 million.

The project is to complete the environmental remediation of a large inner city lake in a major metropolitan city in Brazil. Application of Phoslock will commence in the next three months and will continue over 12 to 15 months.

Phoslock said commercial sensitivities around the project precludes more information being given at present but on the signing of the formal contract, expected within a month, further information will be disclosed.

Mr Freedman said the deal was three years in the making. The project is the culmination of substantial public works including the dredging of the lake, laying of over 100 kilometres of sewerage connector pipes, four pumping stations and connection to over 4,000 customers. This construction work allows the project to proceed to the final stage, which is in-lake Phoslock treatment.

Mr Freedman said the international consortium won the contract from a field of stiff competition.

An advantage is that the authority is a quick payer and so the cashflow should be quick. In some other cases clients pay later on results.

Mr Freedman is also hopeful of winning follow up applications as is the case with almost all of Phoslock's clients. The initial application of Phoslock clears the waters but new pollutants and nutrients entering the water can cause new algal outbreaks that need new treatment.

About 20 other large potential deals are on the burner, he said, some smaller than this one and some very much larger. One is pretty close to a decision and three are quite close.

If they come through, these deals have the potential to transform Phoslock's balance sheet, as the company currently has net equity of minus $3.6 million. This number is the same as its financial liabilities, which include $2.6 million in convertible notes and $0.67 million in borrowings - so it is not inconceivable that a few big deals will seriously smarten the balance sheet.

Some of these liabilities are to Mr Freedman, who since becoming a director in 2010 has become Phoslock's largest shareholder and has played the role of mentor and occasional financier to the company.

Mr Freedman said commercializing the technology has taken longer than he had thought but he is delighted with this latest success and with more big deals possible he is hopeful the company will soon be able to stand on its own feet.

As a previously successful professional investor, Mr Feeedman undertakes philanthropic and personal investments and much of this is in the areas of doing good for the planet and in medicine.

Phoslock's key product, also called Phoslock, was developed in the 1990s by the CSIRO and can remove excess phosphate from water to prevent algal blooms and re-establish a healthy water environment. Mr Freedman acknowledged the many years of hard work by managing director Robert Schuitema in commercializing the technology and getting it to this point. Over the years Phoslock has made around 150 applications of Phoslock and each is a happy customer, he said.

Mr Freedman sees a potentially big role ahead for Phoslock as almost every body of water in the world has some problem. (ASX: PHK)

Phoslock is a clay product that can be used to restore water bodies where algae has taken over.





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