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The Incredible Utility of Nature’s Vault™

By Sarel Oberholster - BCom cum laude, CAIB(SA)

Gold miners extract gold bearing ore from the depths of the earth, digging as deep as 4 kilometres down[i], hoisting the ore chunks to the surface above, crushing the ore and melting it down into chunks of partially refined gold called a doré. These 25kg chunks of gold are then securely transferred to the nearest LBMA[ii] approved gold refinery where they are further refined to London Good Delivery Standard Bars weighing between 350 fine troy ounces and 430 fine troy ounces each.

 

Bars meant for investment purposes and for vaulting must be sent to a LBMA nominated vault where they are extensively checked and weighed to ensure that the bars meet the specified “Good Delivery” standards. Then the gold bars are returned to the bowels of the earth into the vaulting facilities for storage.

Anyone who removes a bar from the vaulting facilities will not be able to trade that bar under “London Good” delivery rules until the bar has been re-assayed and re-accepted back into the vaulting facilities, a process seldom undertaken as it is very expensive. Investors just do not want the expense or the hassles of removing a bar from the vaulting facilities and so bars can dwell in the vaults for decades while vaults trade vault certificates and traders trade unallocated bullion account balances.

Getting bars into LBMA approved storage costs money and keeping it there costs some more money. The investment in gold earns no interest so the Investor must pay to keep his gold. Gold is easy, try investing and storing physical lead or physical crude oil. Think of the logistics of moving around lead, the bulk of storing tons of it while attempting to achieve a profitable investment.

Commodities can yield fantastic investment returns for the astute Investor. Even humble lead can be an exceptional investment. A good example is the recent bull market in lead which saw the price leap from about $0.42c per kg in October 2002 to around $4 per kg in early October 2007, up about 850%. Gold over the same period rose from $320 per oz to $740 per oz for a pitiful 131% increase by comparison. Daily news overflowed with news about gold’s fantastic new bull market but very little ink was spilled on the profits Investors were making in lead. Oh yes - they were not making the profits as it was and is almost impossible to make a successful five year investment in lead.

How on earth would you propose that the average Investor invest in a few tons of lead in October 2002 and then store it for five years until October 2007 to earn that 850% return? Moving that bulk around and storing it would probably see the Investor paying in rather than turning a profit.

The question is what if someone could store it for the Investor free of charge for five years and then deliver it neatly to the market in accordance with spot market specifications, again free of charge? This is the promise of PurePlays™ - easily achievable and very attractive.

The solution is that all miners of lead have tons of lead in storage in the ground in their Proven and Probable Reserves. They have the know-how and often have track records stretching back decades attesting to their ability to extract the lead, refine it and deliver it to the market. Those are the two components needed for one side of a win-win relationship.

Lead miners, just as all miners, are always obliged to spend huge amounts of capital on finding the lead in the earth’s crust, then spend some more capital to prove that the “find” is economical and worthy of building a mine, then spend even more capital to build a mine before they can begin to extract the lead. Not only is the capital involved in getting a mine production-ready huge, it is also a process which ties up that capital for many years. Miners’ capital misery never ends. They must sustain their production even as the Reserves of a “find” are being mined out. So the process starts all over even before the first ton of lead from the initial find hits the market to ensure that the next mine is producing before the first mine runs out. The miners’ hunger for capital is the other side needed to build a special win-win relationship.

What if the miner can sell some of the lead that the miner has in Proven and Probable Reserves to Investors and then store that lead for them for five or ten years? That will solve the Investors’ storage logistics and delivery problems. What if Investors were to buy the Proven and Probable Reserves from miners? That would solve the capital hunger problems of the miners.

This elegant solution allows the miners to store the mineral for free, extract it, refine it and deliver it to the market for Investors. The miner can provide the service free of charge as it will not cost the miner anything extra to do it. The miner is content to provide this service as it will gain the cash when the Reserves are sold to Investors and can delay spending the cash to extract the mineral until a date just before the miner has to deliver the mineral to the Investors. Both sides get what they need and want from the exchange and both sides are gaining from the exchange in the true tradition of economics and of markets.

Minerals in storage need not be stored in above ground expensive storage facilities when they can be stored in Proven and Probable Reserves and be brought to the market as and when needed. Miners need not carry the full capital burden and price risk of a mineral reserve. Minerals once proved scientifically to a high degree of certainty to exist in a reserve will allow miners to facilitate Investor participation in holding it. Cost free storage, logistics and delivery will allow even the small retail Investor to pick a winning investment like lead in 2002 while at the same time providing cash for the miner to fund its capital needs.

We call a Proven and Probable Reserve Nature’s Vault™, where minerals are safely stored, cost free until miners bring it to the surface. Investors can choose Nature’s Vault™ and gain access to commodity investments only dreamt of before. Miners get access to interest free cash from selling Reserves. Everybody wins.

Using Nature’s Vault™ requires a fungible mineral and a quality miner to unlock the incredible utility and cost efficiency of commodity investment via Proven and Probable Reserves. No more storing crude in oil tankers around Malta when an investment in oil is desirable, rather buy crude, have the Producer store it in Nature’s Vault and sell it to the next Investor when you wish to take a profit.

 


[i] Tau Tona ultra deep mine in South Africa is 3.9km deep.

[ii] London Bullion Market Association.

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™.

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