Two Rivers Water Company gains momentum

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In recent years, several water companies have recognized investors’ interest in gaining more direct exposure to source water.

Multiple private equity funds and publicly traded companies have begun scrambling to assemble pure-play water investment vehicles. In doing so, these firms have attracted major investment dollars and have deployed capital in watershort basins throughout the western United States to acquire significant water resource portfolios. Among water resourcefocused public equities, Two Rivers Water Company (OTC: TURV) is one of the newest arrivals to the market.

Two Rivers is a farming and water development company based in Denver. The firm’s current activities are focused along Colorado’s Front Range, one of the most populous and water-short areas of the United States. Two Rivers’ business model involves acquiring and managing high-yield irrigated farmland with the associated senior water rights. These farms are located in areas characterized by severe over-allocation of water supplies such as the Arkansas River Basin, where a water shortage of more than 28,000 acre-feet is projected to occur by 2030. Senior water rights in the basin are valued highly and are actively pursued by municipal and industrial water users.

In contrast to some water resource development firms, Two Rivers is not sitting back and waiting for the next major drought to motivate water buyers. Instead, Two Rivers actively farms thousands of acres of irrigated grain and vegetable crops. The company anticipates that farming alone will generate nearly $33 million in annual revenue by 2016. The approach Two Rivers is taking to grow is to acquire distressed, under-producing farm properties and improve the land and water assets to increase farm production. As a result, Two Rivers offers investors direct exposure not only to water resource values, but also to rising global prices and demand for food. In addition, farming provides stable annual income that will keep the company profitable during what may be a lengthy water asset holding period.

Already this year, Two Rivers has made several major purchases that are increasing the company’s visibility in the water sector. Some recent developments are described below.

In early April, Two Rivers announced its acquisition of Dionisio Produce & Farms, LLC, including a 150-acre Arkansas River Basin vegetable farm as well as 150 Bessemer Ditch Company shares. Bessemer Ditch shares have been some of the most sought-after water rights in the Arkansas Basin for several years, with Pueblo Board of Water Works investing $59 million to acquire more than 5,500 shares since 2009. The Dionisio farm has a long history of yielding significant highvalue crops and helps jump-start the company’s farm revenue.

The acquisition also complements the company’s longer-term investments in farm and water development projects on the Huerfano and Cucharas Rivers in southern Colorado.

In June, Two Rivers acquired 22 percent of its outstanding stock from a group of seven investors. Immediately following this transaction, the company initiated a series of non-deal roadshows to expand investor awareness and understanding of its story. The objective of the roadshows was to increase the company’s share price and enable listing on the NYSE. The roadshows have reportedly generated significant investor interest, with trading volume increasing over the past few weeks.

On July 9, Two Rivers announced its acquisition of the Sunset Metropolitan District, a wholesale municipal water district near Colorado Springs. Working through Sunset, Two Rivers has executed a memorandum of understanding with neighboring water-short districts to explore development of the company’s water rights in a manner that will expand urban supplies as well as facilitate continued farming.

Most recently, all of Two Rivers’ farms in Huerfano County were granted organic certification by the USDA. Organic alfalfa and other crops commonly attract a significant premium above non-organic crops. Organic production represents a key element of the company’s strategy.

These recent activities have driven Two Rivers’ stock price to nearly double from $0.90 per share at the end of May to $1.75 per share as of July 12 (see chart above). If Two Rivers keeps up its recent momentum, it could become the pure water resource play that investors have been waiting for.

Clay Landry is managing director and a principal at WestWater Research LLC, a leading advisory firm in the water rights market based in Boise, Idaho. He and associate Matt Payne, who contributed to this column, can be reached at (208) 433-0255.