Can’t fish, can’t swim: Making money from China’s pollution fight

China spends twice Australia’s GDP each year on water, air and land remediation, offering a remarkable opportunity.

Polluted water in China

China has spent 25 years getting rich and will spend the next 100 years cleaning up the environmental mess its wealth creation has left behind. This is the long-term bet that has finally started to pay big dividends for Laurence Freedman, the canny investor who took Australian funds management group Equiticorp global and knew when to cash in his chips on the Channel Ten television network in 2004, having rescued it from receivership a decade before.

Freedman sees China’s burgeoning middle class as driving the push for a cleaner environment. “In China the pollution in water and air is terrible and the people are very upset,” he says. “They now have money but they can’t swim, they can’t fish, they can’t go for picnics. People are driving past waterways and saying to their kids: ‘I used to swim there when I was young but I have to close the window of the car now because of the stench.’”

Freedman estimates the Chinese government spends twice Australia’s GDP each year on water, air and land remediation, offering a remarkable opportunity to a man for whom water repair has been a slow burn.

Freedman began by dabbling in a company with technology developed by the CSIRO. When he first bought in to what is now Phoslock Environmental Technologies, the company was worth about $6 million. Three years ago it was worth about $12 million. Last month it had a market capitalisation of $734million with its share price showing a 12 month increase of 215 per cent.

Phoslock uses a combination of bentonite clay and rare earth ingredient Lanthanum to clean up waterways by trapping phosphate that feeds toxic algae and sending it to the bottom. The product is non-toxic, does not affect fish or plants and has been certified globally for use in drinking water reservoirs.

“It has no side effects, does not affect fish or plants and is very simple to apply,” Freedman tells The Deal. “You can spray it onto the water from a barge and in 24 hours it will remove about 90 per cent of the phosphorous.”

Fish come back and plant life starts to regenerate within weeks. “It doesn’t kill the algae”, Freedman says. “It removes the phosphorous and the algae starves so there is still plenty of food and the whole cycle starts immediately.”

Phoslock is expanding internationally but with about 80 per cent of its work in China the potential already is huge. “We have just done a deal in Hunan province in central China where we started doing a lake on a massive trial basis,” Freedman says. “After the first two weeks they said we are now going to ask you to do the entire water catchment area for this lake, which is about the size of Sydney Harbour. There are about eight other lakes in that area of a similar size that are all heavily polluted to the point of putrefaction.”

Before it even gets to the lake, Phoslock is working to clean up the flows that discharge into the water body. “This is just one lake and one task,” Freedman says. “There are literally thousands of these problems around the world.” Trials are now underway in the Everglades in the United States.

‘A lot of people go in there and say ‘we are from the West and we have got all the technology’, but that doesn’t work in China’

Freedman says doing business in China is all about relationships. “If you have a great product and don’t have the relationships with the right people you won’t have a huge success because China works quite differently from the rest of the world,” he says. “A lot of people go in there and say ‘we are from the West and we have got all the technology’, but that doesn’t work in China. You have got to be aware of the relationships and talking to people and making sure there is initial trust and mutual benefit.”

As a result, China is not a predictable place to do business. “If you are not conscious of the cultural differences you may not be aware of the reaction because there is a very subtle interrelationship between people there. In the West we are not aware of much of the subtleties of the Chinese,” Freedman says.

Phoslock, he says, has worked very hard to be as close to China as possible without being Chinese. “We are a Chinese company in China. We are established as a Chinese company. We buy our product in China, we have factories there and export to the world,” Freedman says.

“The serendipitous thing is the reserves of clay are in China and the rare earths needed do not compete with the production of lithium ion batteries. When used in lithium batteries the rare earth has to be about 93 per cent pure but our product requires about 3 per cent and is basically the throwaway from the huge battery demand,” Freedman says.

“We are one of the few applications for that low-grade rare earth.”

Despite the phenomenal growth to date, Freedman says Phoslock’s story is only beginning. “People will look at it and say ‘you have had your big growth’ but I say we have only just started,” he says. “We are now seriously commercial and we are very seriously global (in a way) that we weren’t two and a half years ago. We are now in phase two which is in a serious environmental and ethical space. We have done it all with no debt and are building a new factory two to four times the size of what we have now.”

Freedman says the company is not worried about the trade war or other tensions with China. “Our margins are high, we are a hugely domestic company in China and with the rest of the world it is only America that tariffs will apply and the US is not as yet a major part of our supply.”