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Special Guest– Don Kaufman | Jeff Bishop invites you to a very special live interview with Former TD Ameritrade's Director of Trader Group and 22-year trading vet, Don Kaufman, of thinkorswim fame. |  | Don has appeared on numerous trading shows, including CNBC with Kevin O'Leary. |
| See why Don is one of the industry's LEADING financial strategists & educational authorities. Learn new option trading strategies & bring your questions for one of the most respected pros out there! | Join Tuesday @2pm HERE |
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Good evening, Folks! |
If you fail forty-three times in a row, it might be time to give up… wouldn't ya think? |
Especially if your company is rapidly running out of money! |
That's exactly where business partners Seymour Schulich and Pierre Lassonde found themselves. |
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They were sick and tired of paying for gold exploration and coming up empty-handed. But they desperately needed a steady stream of cash for their new company. |
On a whim, they decided to take a page out of the oil & gas playbook, bringing its ultra-successful royalty model to the gold industry. |
Their new mission was to find an explorer who didn't have the funds to take a mine all the way to production. Then, Schulich and Lassonde would trade up-front capital for a percentage of the potential future revenue or profits from mining. |
The idea is that other people would have paid to establish mineral resources; they'd only have to provide funding to try to get it out of the ground. |
But Schulich and Lassonde were essentially the first to try this new concept — so finding someone to go along with it was not easy. |
Eventually, a geologist found a classified ad in a Reno newspaper for a land package being sold by a Texas company. |
Lassonde and Schulich took more than half of their remaining funds — $2 million — and bought the whole 3,416-acre package. Except, they didn't actually purchase the land — what they bought was the rights to 4% of any gold mined on the land. |
As it turns out, their investment was successful, and the property was home to a small gold mine called Goldstrike. |
And with that purchase, the men had struck gold — and identified what I and many others think is one of the best business models in the gold world. |
Their company, Franco-Nevada (FNV), still doesn't do exploration. They don't run mines. They do zero mine operations. |
They just try to put their money where the gold is. |
And, in their case, it has paid off tremendously for Franco-Nevada, |
Today, Franco-Nevada makes more revenue per employee than Apple, Facebook or Google. |
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While Franco-Nevada is maybe the best success story in the sector and its results are obviously not representative of every company in the royalty sector, I think it is a good example to show just how great a model the royalty business is. |
Somehow, I think gold royalties are less risky than gold mining itself — and far more profitable. |
Let me explain why. |
As Good As Gold – No, Better |
The largest gold miners in the world, like Newmont or Barrick Gold, will have less than 20 operating sites. If the mining environment in a single country changes for the worse, or if a single site gets shut down, it can be a major blow to profitability. |
But typically, since gold royalties pay 1-3% of the production value of a mine to the royalty holder, royalty companies can hold dozens — even hundreds — of royalties. |
Franco-Nevada, for example, has more than 100 revenue streams — |
That high level of diversification means very low risk across the entire royalty portfolio. |
But here's the best part in my opinion… |
The Best Kind of Surprise |
Usually, the upfront payment is for the whole life of the mine. If an operator invests more capital to increase production, a percentage of the additional profit goes straight to the royalty holder provided that the royalty covers the area of production. |
Even better, deposits tend to grow organically over their lifespan due to exploration. Any expansion in the mine reserve on the same royalty ground, royalty companies get as upside. |
Recall Franco-Nevada's Goldstrike investment. |
It was originally a 3-million-ounce deposit. Three years after the investment, though, a new discovery took the reserves from 600,000 ounces to more than 20 million. |
Since then, Goldstrike has produced more than 50 million ounces — and the royalty is still kicking off $20 million a year. |
Again, Franco-Nevada and Goldstrike are exceptional success stories and not representative of every royalty or royalty company, many of which don't generate revenues. |
Remember: The mine is responsible for capital expenses, operating expenses and exploration expenses. That makes royalty companies relatively efficient, with a small handful of employees handling operations. The normal operations consist of finding, acquiring, and managing these passive royalty interests. |
It's the best kind of business — if you can get it and identify paying royalties or royalties with good operators that are ramping up into production. |
Because of course, there's a catch. |
Over the decades, Franco-Nevada has grown into a behemoth. Along with two other massive companies, it represents 80 percent of the value of all gold royalties. |
In my opinion, there's little upside left in their overweight, $20B+ stocks. They're trading at huge multiples that imply they have lots of growth left — but in my opinion, they don't. |
In the coming days, I am going to share with you a very specific stock that I think has enormous potential in the royalty space. |
Sometimes, Wall Street gets caught up in "hype" sectors like AI and semiconductors and misses out on some of the most obvious opportunities that are right in front of them. |
I am going to show you one such opportunity very soon, so keep your eyes peeled 👀. |
I'll be in touch soon! |
Jeff Bishop |
👊 By the way, if you are NOT getting my mobile text alerts – text "RAGE" to 1-(888) 404-5747 to get all of my latest HOT STOCK ideas delivered right to your phone (make sure you put the "1" at the front!). Don't miss out! |
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