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What’s mined is yours: Purdue graduate gives mineral rights worth millions to the Krannert School

Friday, February 7, 2020

Knoche

Allyn Knoche had returned to Purdue after a stint in the U.S. Navy with a change of plans in mind. The engineering major was looking for a different path when he took a financial analysis class.

“I came back not thinking I wanted to be an electrical or mechanical engineer” says Knoche, whose name is pronounced kuh-NOKE-ee. “I decided I was more business oriented and I switched into industrial economics. I took a financial analysis course and we learned about the stock market, and I thought, ‘Boy, that’s my thing.’”

And it was. Knoche spent his career as a stockbroker and an investment advisor, and at age 91, he still actively invests. He’s done well for himself…so well, in fact, that he was able to make a $5 million loan in 2015 to a Vancouver-based mining company.

In return, Knoche received a 1% Net Smelter Return (NSR) for a nickel mine in Canada that is set to begin production in the next several years. Knoche has created a charitable remainder unitrust with the Purdue Research Foundation serving as trustee. The Krannert School is a 1/3 income beneficiary, with his son and stepson each holding a 1/3 share. Krannert will receive those shares when each passes.

Based on the company’s estimates, the mine will be able to produce more than 90 million pounds of nickel every year for several decades.  At current prices, the mine is believed to be capable of producing an annual income of $630 million. In that scenario, the NSR’s share would be $6.3 million per year, or $2.1 million annually for each beneficiary. All indications point to the trust generating a healthy income stream for Knoche’s family and the Krannert School for many years to come.

That’s not a bad gift for someone who was on campus before the Krannert School was created.

 

Humble beginnings

Knoche came to Purdue in 1947 from Tuscola, an Illinois town located about 100 miles from West Lafayette. He spent a year and a half on campus before Uncle Sam beckoned. He spent a four-year tour in the U.S. Navy, stationed at Great Lakes near Chicago and Charleston, South Carolina, before serving on the USS Fitch. After he returned, the finance course taught by Muzaffer ErSelcuk set him on his future career trajectory.

(Ironically, ErSelcuk had his own career change. After teaching for nearly 30 years at Purdue, he joined TWA as director of marketing and development. Four of his five children attended Purdue, including one Krannert school graduate.)

Borrowing $70 to move west after graduation, Knoche worked for a year with the Bureau of Reclamation, which manages water and power. But he had his eyes on the stock market, and eventually landed a position in Spokane, Washington, with J.A. Hogle & Company, which was eventually bought by Goodbody & Company. It was in Spokane that he developed an interest in mining stocks while earning an MBA from Gonzaga University.

“There were between 50 and 100 companies that traded in silver, lead and zinc, and I traded on the Spokane stock exchange,” Knoche recalls. “I became a manager of the Goodbody Spokane office. When they wanted to open an office in Seattle, I went there.”

But the company went bankrupt in the late 1960s, and Knoche went to work with Wendell Smoot, a friend in Salt Lake City. The pair opened an investment advisory business from scratch. They both worked at all facets of the job with Knoche spending the majority of his time researching stocks while Smoot emphasized sales and operations. The company developed slowly but consistently outperformed the S&P index. In just over a decade, they were managing accounts in Utah, Idaho, Washington, Arizona and California worth close to $1 billion.

Wanting to add additional income, Knoche and Smoot started and sold a brokerage business. They also made a deal with Globe Union, which made DieHard batteries, to distribute batteries in Salt Lake City, eventually selling that distributorship at a profit.

 

Time to downsize

At that point, Knoche wanted to get smaller and do his own thing, so he retired from Smoot, Knoche & Co. in 1985 at the age of 55. After he left the firm, he met Dr. Lucy Hernried, a physician who needed help managing funds from an inheritance and her mother. The pair were married in 1996.

Knoche continued to manage family funds and keep a keen eye on the stock market, particularly those associated with mines. He held a lot of stock in Cleveland-Cliffs, the largest iron ore mining company in the United States. When the economy downturned in 2008, Cleveland-Cliffs held the FPX Nickel mine in central British Columbia but was looking to sell it off. “I called FPX and asked how much Cleveland-Cliffs wanted for the property. They said $5 million, and I said I would put up the money. They were a little skittish since no one else was willing to put up the money and they doubted my ability to do so. But it allowed FPX to regain 100 percent of the property.  That’s when my interests came in,” Knoche says.

Knoche negotiated the NSR as part of the sale. He’s well aware that the value of nickel figures to increase in the future. About 70% of nickel is used in stainless steel, and it’s also used in batteries in electric vehicles. As demand for those vehicles grow, so will the market for nickel. Once production begins in Canada, which could happen in the next five years, the mine will be one of the top 10 nickel producers in the world.

Knoche is adamant that he wants Purdue to hold onto the NSR for the long haul. “They’d better not sell it. It’s almost unlimited to what they can attain there,” he says.

 

Proper priorities

Knoche would like the money Krannert accrues from the NSR to go to four areas: scholarships, faculty positions, faculty research and facilities.

“Scholarships are important because you want to help out young people,” says Knoche, who has funded a scholarship in economics at the Krannert School since 2007. “We’d like it to fund chairs in finance and research about the roles of institutions versus individuals in the stock market. A lot of work could be done on how one influences the other.”

He says the key to being a successful player in the stock market is to mix the science and art of the industry.

“You do a lot of scientific studying to develop a good gut. Then you get the feel,” says Knoche, who keeps his television tuned to CNBC during all trading hours.

Knoche also plays bridge twice a week but now rarely travels far from his home in Green Valley, Arizona. He admits that he’s never been back to Purdue since his graduation, and hasn’t even been back to the Midwest.

He may not have physically returned to West Lafayette, but Knoche’s impact will be felt on campus for generations.

“This is a game-changing gift that will benefit countless students and scholars,” says David Hummels, Dr. Samuel R. Allen Dean of the Krannert School. “In addition to providing steady-state funding to important areas such as scholarships and faculty support, resources of this magnitude enable us to think bigger and imagine ways that we can transform our research and programs. The Krannert School will look back on this gift in the decades to come as one of the key moments in our history.

“We can’t thank Allyn and Lucy enough for their tremendous faith in Purdue and the Krannert School.”

So why has Knoche left such a generous gift to his alma mater, and to a business school that wasn’t even in existence when he was on campus in the 1940s and ‘50s?

“Well, you can’t take it with you,” he says. “Because I took this course with Professor ErSelcuk, it interested me in stocks and got me going. And it seems you always favor where you graduate.”

By Tim Newton