Dinner with a Billionaire Wine Connoisseur and a Secret of the Royalty Business

Yesterday, I told you the story of Franco-Nevada, one of the very first natural resource royalty companies. It made early investors as much as 20 times their money. The firm’s co-founder, Pierre Lassonde and I have enjoyed fine wine over dinner (he is the connoisseur-not me). It’s always a treat to go back and forthwith and bounce ideas off of one of the sharpest minds in the industry. But let me introduce you to another brilliant entrepreneur in the royalty industry. A man named Stan Dempsey who took the power of the royalty business model to make even bigger gains for himself and early shareholders. Trained as a lawyer and geologist, Stan Dempsey spent years in the natural resource business at various positions. In the 1980s, he tried his hand at operating conventional gold mines but didn’t find much success. Then, he had a brilliant idea. Instead of operating mines, he would employ the extremely profitable business model developed by Franco-Nevada. He called his firm “Royal Gold.” Later, he would say “we were a fairly shameless copy” of Franco-Nevada. Dempsey invested $1 million with two mining companies who were drilling for gold outside of Elko, Nevada. Dempsey structured the deal so he would get a cut of future profits if gold was discovered. The companies eventually found a large deposit – around 3 million ounces. The deal launched Royal Gold as a royalty company. When the mine started producing, Royal Gold started earning loads of cash. Revenues climbed 476% in a single year. Royal Gold’s share price climbed even higher. It shot up 11,566% in the first 12 months alone. Over the following years, Dempsey invested more money into gold royalties. In 2002, gold started on a major bull market that would eventually take it to $1,900 an ounce. The rising gold price caused Royal Gold’s royalty revenue to soar. Shares of Dempsey's company traded for $2.50 in 2001. His royalty program proved so successful that the shares soared to $20 by 2005 and nearly $55 in late 2009. Investors who jumped on the trend in 2001 made enormous gains of 1,800% in just eight years. Folks who stuck with Royal Gold through the 90s, when it traded for 25¢ a share, earned over 39,000%. Royal Gold is widely considered one of the greatest investments in history. It even produced bigger gains for early investors than Microsoft generated in the 1990s. As Dempsey said, “We have no costs involved. We just get the revenue.” The royalty model has been used a handful of other times to generate gigantic returns. It’s truly one of the great discoveries in the history of capitalism. This royalty model was repeated again by a friend, who I’ve had many dinner and cocktail with. He also sat on many panels at investment conferences with me. His name is Randy Smallwood. A decade and a half ago, Randy worked with another industry legend at WheatonRiver/Goldcorp by the name of Ian Telfer. (Ian was kind enough to write a wonderful testimonial for my New York Times Bestselling book – The Colder War. Ian is a man of his word and a gentleman). Influenced by Ian Telfer and the royalty concept, the group formed a new company called Silver Wheaton. Silver Wheaton (now Wheaton Precious Metals), did essentially the same thing in silver that Royal Gold did with gold. In the early 2000s, when the price of silver was very low, Silver Wheaton invested millions in silver royalties. Then, silver prices climbed more than 200%... and the value of Silver Wheaton’s royalties soared. In 2004, Silver Wheaton traded for as little as 10 cents per share. By 2011, shares traded as high as CAD$44.92, a return of over 44,000%. A $5,000 investment would have returned over $2.2 million. Because of their now-legendary gains and great business model, royalty firms like Royal Gold and Silver Wheaton are in high demand with resource investors. But here’s the secret: The biggest gains can only be made by getting in early. One, when the price of the resource rallies, the value of the royalties can climb 10, 20, even 50-fold. And two, when the price of the resource rallies, investors go wild for shares of the royalty company whose fortunes are on the rise. They will bid shares up to the sky, as they did with Royal Gold, Franco-Nevada, and Silver Wheaton. I’m telling you all this because as you read this, one relatively unknown company is forming what I believe will be the next great royalty winner. But it’s not a typical royalty company. Right now, the royalty part of this business is an industry secret... I call it “Independence Day Royalties,” for two reasons: One: Because starting July 4th, a new “toll-road” crossing three continents will completely disrupt this secretive industry—just like fracking did to the oil industry fifteen years ago… And two: Because it’s going to free this $80 billion global industry from the dark ages (over 100 years without any major disruptive change) and bring it into the 21st century. And by buying this stock, you’ll get a royalty on every single “toll.” If you missed the big gains in fracking, which made early investors (including me) a lot of money, this is your second chance to invest in the second truly disruptive technological change in the resource industry. That’s why I’m making this the single biggest investment I’ve made in my career. And if you get in before Independence Day, you could see the best long-term gains of anything you’ve ever seen before. I’ll send you the details on Wednesday at Noon EST via email. In the meantime… Tomorrow, I’ll introduce you to the 4 words that make resource investors rich. Regards, Marin Katusa Copyright © 2018 Katusa Research, All rights reserved. If you wish to stop receiving our emails or change your subscription options, please [Manage Your Subscription]( Katusa Research, Suite 530 - 800 West Pender St, Vancouver, BC V6C2V6, Canada