14 May 2008

Nestle Blinks

In this update to the Nestle-McCloud story (see here), Nestle is backing away from its current contract for exporting 500 million gallons (1,540AF or 1,900GL) from the area (at a price of about $0.70/1,000 gallons). Claiming that high fuel costs are changing the economics of the deal, Nestle is now saying they want to export mine 200 million gallons/year from a smaller facility -- probably for less money.

Critics of the new plan say that the agreement should be renegotiated and expire sooner than the 100 years currently on the table. They are right.

Bottom Line: Given that bottled spring water costs about $0.70/liter ($2.66/gallon) and Nestle is paying $0.70/1,000 gallons, I figure that McCloud can get more than its 0.026 percent share of the the retail price. Five percent of the retail price would mean that McCloud would make about $27 million per year (instead of $130,000/year) for its water. Now that's real money. Oh, and the agreement should also run for no more than 20 years. Water is only going to get more valuable.