Whitney Tilson has released a presentation about what he’s calling the “Chaffee Royalty Program,” which centers around investing in mining royalty companies.
And according to Tilson, he’s discovered a “Chaffee Royalty” opportunity you can get into for around $16 per share that could “top 10x gains in just 12 months from now.”
That’s a pretty bold claim.
I wouldn’t recommend rushing into ANY company expecting to make gains like that in such a short time, as it’s unlikely to happen.
Still, Tilson is a pretty smart guy. And I have found some of his past presentations interesting. So, while I didn’t buy the $1,495 newsletter he was pitching (Empire Insider Alert), I did look into his clues to find out what company he was teasing.
And in this post, I’ll show you what I think it is. I’ll also share my thoughts on four other companies he teased at the end of the presentation.
So with that said, let’s get rolling!
What Is the Chaffee Royalty Program?
The “Chaffee Royalty Program” is a term Whitney Tilson made up to describe (or should I say, add excitement to) the idea of investing in oil and gas mining royalty companies.
And he said he named it that because a guy named Jerome B. Chaffee is the one who “first discovered” the type of investment his thesis centers around.
“I call this new opportunity the ‘Chaffee Royalty Program’ after the man who first discovered it, a former schoolteacher and wealthy American millionaire, Jerome B. Chaffee. ..
“Of course this isn’t an ‘official’ program, but rather these are opportunities to invest in companies that are rich in mineral rights…
“Yet in a similar way to traditional royalties, you can watch as these companies collect wealth without a lot of effort or overhead costs…”
[…]
“With one simple investment, you can essentially buy into mineral rights which collect royalties from these critical resources…
“That is why I call them ‘Chaffee Royalties’; you are buying stocks from companies that collect income derived from royalty agreements that are made with mining companies.”
Source: https://web.archive.org/web/20230718224322/https://secure.empirefinancialresearch.com/?cid=MKT747462&eid=MKT749270&assetId=AST306010&page=2
What exactly is an oil and gas royalty company?
In this context, a royalty company is a company that generates revenue by allowing mining companies to drill for oil and gas on land they own the rights to. They basically get a cut of the profits by letting other companies do the “dirty work” of extracting oil and gas.
They also finance oil and gas mining companies in return for a cut of the profit they make.
This article on Investopedia goes into more detail if you want to know more, but that’s the gist of how it works. Royalty companies don’t do any exploration or drilling themselves; they just bankroll mining companies and earn a royalty (aka kickback) in the process.
Tilson makes it seem like these companies are the best thing since sliced bread, but as with any investment, there are risks involved.
For example, royalty companies typically need to raise a lot of capital to buy land and invest in mining projects (on which they hope to earn a return), and this exposes them to interest rate risk because the higher interest rates go, the more it costs them to borrow. And this is noteworthy, considering where interest rates have been heading lately (much higher).
Anyways, that’s the gist of what “Chaffee Royalties” are about. And with that out of the way, let’s turn our attention to the actual company Tilson’s pitching.
Tilson’s “Chaffee Royalty” Stock Revealed
The company Whitney Tilson is teasing is a Texas-based company run by “a man named Tom” that earns royalties on oil and gas projects throughout the U.S.
“…this company collects royalties on one of the most important resources on Planet Earth… energy from oil and natural gas.”
[…]
“And this small company, based in Texas, has one of the best business models in the world to collect from the world’s unstoppable demand for oil and gas…”
[…]
“In 1987, a man named Tom took over his father’s lumber company…”
Other than that, Tilson revealed that the company has 98 employees:
“Today, Tom runs his royalty company with only 98 employees.”
And he shed some light on the company’s operations:
“In return for financing oil and gas interests, Tom’s company gets a piece of the action. In fact, 92% of Tom’s current deals are in pure royalties…
“Meaning, in nearly all their deals, Tom and his team don’t spend any time drilling or operating any wells.
“Instead, they get paid a ‘Chaffee Royalty’ every time someone else drills gas or oil on their mineral rights.”
[…]
“Tom’s company already owns the rights to some of the biggest shale energy plays in the United States, across 41 states.
“Including the Permian Basin and Eagle Ford in Texas and Bakken in Montana and North Dakota…
“In total, Tom’s company has acquired mineral interests in approximately 20 million acres.
“Consider in the Bakken play alone, drillers pull out about 1 million barrels of oil and over 2 billion cubic feet of natural gas per day.”
And lastly, he said its shares are sitting at around $16 a pop (note that the presentation is dated June 2023):
“They control a HUGE pile of ‘Chaffee Royalties’ on energy, for only around $16 per share in Tom’s company.”
What company is he teasing?
It looks like Tilson’s pick here is Black Stone Minerals LP (BSM):
The clue that led me to that conclusion was actually a photo he shared in the presentation of the company’s founder, Tom Carter, which I did an image search on.
From there, I looked into the other clues (stock price, what the company does, its operations) and found that it lines up well. There’s even a map on the company site of its operations that matches what Tilson shared in the teaser.
Also, one thing I forgot to mention earlier is that Tilson talked about how company “insiders” (CEO, management, board members, etc) have been buying shares.
And he specifically said that insiders own more than 23% of the company, which is another clue that lines up with Black Stone Minerals LP because, according to Yahoo Finance, over 23% of shares are held by company insiders.
“… insiders at this opportunity are gobbling up the shares (they already own more than 23% of this opportunity)…”
[…]
“No fewer than 13 big-time company insiders have scooped up shares of Tom’s company over the past 5 months…
“Including the Chairman, CEO, President, Chief Financial Officer, Vice President, and several key members of the board of directors…
“Tom himself bought 31,000 shares of his own company in May 2023.”
As for whether or not it’s a good investment, I’ll leave that to you to decide, as I don’t provide investment advice.
That said, I did find this article on Seeking Alpha that you may find interesting if you are wanting to do more research on the company.
And Tilson shares his full analysis of the company he’s recommending in a report titled “The New’ Chaffee Royalty Program’ That Could Pay 10x in 12 Months,” which comes with a subscription to his $1,495 Empire Insider Alert service.
Recommended: Go here to see my #1 rated stock advisory of 2024
What About the Other 4 “Insider Buying” Picks?
Before finishing up the presentation, Tilson teased four other companies that he reveals in a report called “4 More’ Insider Buying’ Trades To Make a Killing in 12 Months.”
So, let’s see if we can solve these.
Pick 1
Tilson’s clues:
“A second royalty play I’ve discovered… but instead of collecting royalties on resources, this tiny California-based company collects royalties on medicines. (In fact, it expects to collect a whopping $1 billion in royalties over the next 5 years from just one product: a revolutionary inhaler that treats both asthma and COPD. And just like with ‘Chaffee Royalties’ this company doesn’t have to do anything more than collect. The pharma giant GSK – you might remember them as GlaxoSmithKline – does all the hard work of marketing and manufacturing the inhaler. It’s no wonder one man, named one of the ‘most influential people in biopharma history,’ is scooping up shares. In fact, this man just picked up even more shares in June 2023 for a total of 7 million shares…)”
I think this one might be Innoviva Inc (INVA), a California-based company that manages a respiratory royalty portfolio (among other things).
Here’s why I say that:
- The “revolutionary inhaler” Tilson’s referring to appears to be something called Breo Ellipta, which the company he mentioned, GSK, is involved with.
- My research on what companies earn royalties on Breo Ellipta led me to Innoviva (source).
- And according to benzinga.com, Alex Denner (who has been named one of the most influential people in biopharma history) owns over 7 million shares of Innoviva.
Pick 2
Tilson’s clues:
“A trade on a small Las Vegas-based energy company whose shares are being bought by Carl Icahn, one of the richest men in America. (Icahn now controls 12% of shares of this small company… I suspect because he knows something everyone else doesn’t!)”
I’m not 100% sure about this one, but Carl Icahn appears to own shares in a Las Vegas utility company called Southwest Gas Holdings Inc (SWX), and its market cap is under $5 billion, which some do consider to be a “small company” compared to large-cap stocks.
Picks 3 & 4
Tilson’s clues:
“A ‘second chance’ to get into a history-making trade with Bill Ackman, very similar to the one that made me 15 times my money back in 2009. (With this ‘sequel’ trade, Bill is again buying up shares like crazy, just like he did with the original trade for General Growth Properties. You couldn’t ask for a stronger insider buying signal than this! And unlike General Growth Properties, this stock is on extremely solid footing, making it an even better bet…)”
[…]
“A chance to invest right along with a multi-millionaire’ Take-Over King’ from Brazil. (The CEO of this Ohio-based company is engaging in an ambitious ‘roll-up’ of a $112 billion industry. But more importantly, as his company acquires players in this space, he’s positioning his company to become a ‘king’ in the electric vehicles market. So far, his stock is up as much as 281% over the past three years. Yet the ‘Take-Over King’ is planning on eating more of his own cooking, as he recently bought 100,000 shares of his own company…)”
I’m not sure what these last two are, but if you have any ideas, let me know in the comments below!
Bottom Line
Tilson is pretty well-known for his tech-related investment predictions, but he has been talking more and more about the oil and gas sector over the past couple of years.
For instance, I wrote about his “energy supercycle” prediction back in September 2022, which was actually one of his most interesting presentations (I thought, anyway).
So if you want to know more about his take on the energy sector, you might find that helpful. And if you want to know more about how Tilson’s other picks have worked out before deciding if his newsletter, Empire Insider Alert, is a good idea or not, check out my review of his flagship service, Empire Stock Investor.
At the end of the day, no one knows what will happen within any sector, let alone individual company. But at least now you have a better idea of what his so-called “Chaffee Royalty” pitch is about and what some of his picks are.
Anyways, that’s all from me for this post.
Thanks for reading, and all the best!
Thank you! Your articles are clarifying and most helpful!!