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PROJECT FINANCE WITH PUREPLAY® NOTES

A PurePlay Note is the instrument used to embody a sale of unmined minerals held in Reserves by a miner.

We’ll use gold as a proxy for minerals for the sake of simplicity but a PurePlay Note will be possible for virtually any minerals including oil and gas.

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PRUDENTIAL GUIDELINES

Inevitably, with a new and innovative product, the market takes some time to mature and reach a stage where issuers are comfortable with the level of PurePlays that they can handle without strain on their production resources, and Investors are comfortable with assessing the risk and reward balance of a particular issue.

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PurePlay® Case Study

Diversified Mining Corporation (“DMC”)

A Practical Case Study using PurePlay® Instruments to convert a highly indebted mining corporation into a secure debt free entity.

DMC has $4bn in debt and is paying an average interest rate of 5.75% on that debt.

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It is useful and informative to generally describe PurePlay® Instruments by way of comparison to exchange traded fund instruments, which are usually created as “baskets”, “shares” in a ring fenced commodity portfolio or “debentures” which are claims against a ring fenced commodity portfolio.

The most basic description of the commodity exchange traded fund investment is:

“The gold (or any other commodity) exchange traded fund instrument is an investment in gold (or any other commodity) in storage”

The PurePlay® Instrument has exactly the same most basic description:

“The PurePlay® Gold Instrument (or in any other commodity) is an investment in gold (or any other commodity) in storage”

The most significant differentiation between the two products is the characteristics of the storage used.

Exchange traded funds in physical commodities use the vaulting and custodian services of specialised storage facilities to store the commodity. The storage is usually combined with a system of “allocated” and “unallocated” accounts. These claims against the specialist storage facilities are given legal form by way of “vault certificates”. Thus the holder of an exchange traded fund instrument will have a legal claim against the exchange traded fund, which in turn will have legal claims against storage facilities in the form of commodity accounts, which in turn are settled between storage facilities in the form of vault certificates. Most exchange traded funds make use of custodians, sub custodians and even sub custodians to the sub custodians. “Allocated” accounts offer some protection against competing claims in case of a liquidation of the specialist storage facility, provided that the allocation did in fact take place.  However nothing protects the allocated account holder against fraud or any loss other than a claim of ownership of the commodity from liquidators. Most exchange traded funds do not insure the commodity and often the Investors would not be able to pinpoint which specific storage facility or facilities hold the commodity or how often it is moved between storage facilities or by whom. The true risks of investing via specialist storage facilities are mostly opaque and generally leave the Investor with a concurrent claim or chain of concurrent claims against an entity or entities not readily identifiable or static. It would in fact be almost impossible to accurately assess the storage risk that the Investor is exposed to at any point in time or over time.

By contrast the PurePlay® Instrument uses the Proven and Probable Reserves of reputable commodity Producers to store the mineral in what we refer to as Nature’s Vault™. Storing the commodity investment in Nature’s Vault™ is not without risk but the risks can readily be identified and can be assessed in accordance with the risk profile of the Investor. The risks are Producer specific (can the Investor rely on the Producer to deliver in 10 years’ time) or reserve specific (do the Reserves really exist, and how good is the Producer’s title to them). The most common risks are:

  • Diversification of the Reserves across national, legal and geographical distributions. These risks will be readily apparent where most platinum Producers would have a concentrated risk to Southern Africa while larger multi-national, multi-commodity Producers will have well-diversified portfolios of Reserves. Each Investor can judge its own risk profile against its own risk assessment before making a decision to invest or not;
    • The estimate of the Proven and Probable Reserve may differ from the actual mining results. The estimations are made with scientific care and have a high degree of reliability. We would generally recommend that a Producer should not sell more than 10-15% in total of Proven and Probable Reserves of its core commodity produced (by-products could be sold off in greater percentages but with due care and cognisance of the merits). The effect is that a Proven and Probable Reserve estimate must be wrong by more than 85% to prejudice the Producer’s ability to honour the PurePlay® Instrument.  This is highly improbable.  The Investor’s investment in PurePlay® Instruments is accordingly covered multiple times by the Producer’s Reserves, compared to rather than less than once in the case of an ETF. Investors can define this risk and invest in accordance with the merits.
    • Institution risk is the risk that the Producer as a business unit may go insolvent and be unable to honour the PurePlay® Instrument storage, extraction and delivery obligations. This risk can be defined by Investors and matched with their risk profiles.

 

The storage risks of a PurePlay® Instrument would be better known and would in most cases be less than the unknown and opaque risks of storage via specialist storage facilities.

Patents and Trade Marks

The Intellectual Property of PurePlay Holdings (Pty) Ltd is protected by world-wide pending Patents.

Trademarks awaiting registration are PurePlay™, Nature’s Vault™, As Good as Gold™ and Sp☼t True Value™.

Contact Details

5 Jan Smuts Avenue,Winston Park
Durban, 3610,South Africa


Tel: +27 31 7670156
Cell: +27 82 4515864
E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.