Fungible mineral commodity trading company PurePlay Holdings was officially launched with the signing of a memorandum of understanding with its first issuer last month.

PurPlay Holdings CEO Peter Dawe explains that the company addresses a number of voids in commodity markets, such as the need for investors to access commodity investments in a cost-efficient manner, particularly with reference to the logistics and storage challenges that such investments pose.

“The PurePlay instrument, which complies with the Mineral and Petroleum Resources Development Act as well as the Precious Metals Act, offers a cost-efficient product across all fungible minerals, irrespective of bulk or market value. “The cost efficiency is achieved without prejudicing the trading of the investment at or slightly above spot,” says PurePlay executive director Saarel Oberholster, adding that the PurePlay instrument is an investment in a commodity which is in storage, in the same way that gold and similar exchange-traded funds (ETFs) are investments in gold, platinum, silver or palladium.

Dawe explains that mining reserves, which are scientifically established and independently verified assets that are tangible and are the most valuable assets of almost all mining companies, are treated by markets, accountants and the mining industry as intangible, that is, as off- balance-sheet assets worth only the cost incurred to establish them, with no recognition of the value of the content of the reserves.

“As a consequence, mining reserves are only given a value after they have been mined and refined, and are ready for delivery. However, the value in the reserves has been there from the outset. PurePlay instruments unlock the rational market value of mining reserves and will allow this most valuable asset to play a proper asset role for all mining entities,” he says.

Oberholster notes that the PurePlay instrument has the ability to assist a mining company, which includes producers of oil and natural gas, to sell a portion of the contents of its fungible mineral reserves to an investor.

“The mining company will receive the spot market price of the mineral on the date of the sale, store the gold in the ground in an unmined form for ten years and, at the end of the ten years, the miner will extract, refine and deliver the gold to the investor,” he says.

He adds that the sale will be recorded in a tradable note, which can listed on the JSE, and the investor can move in and out of the note exactly as if he were trading physical gold, for example.

He further explains that the miner stores the gold free of charge for the investor for ten years. At the end of the ten years, it will be delivered to whoever holds the note at that time, although provision is also made for the gold to be sold on behalf of the investor.

Dawe comments that there are no structuring or storage costs applicable to a PurePlay instrument.
“Since the transaction is a sale of gold or any other fungible mineral, there is no element of borrowing in the transaction and no interest is payable. The miner has the full purchase price to use in his business for ten years, without paying interest on it and without diluting his equity,” he says.

Dawe points out that, for an investor in other fungible minerals, the appeal of the investment is that the investor will gain capital appreciation on his investment.

“The downside of investments in gold, as currently structured in the marketplace, is that the investor must pay for the gold to be stored. If he takes physical gold himself, he must pay the storage cost himself to the vaulting system. If he takes an investment in an ETF, which is the more common way of investing in physical gold, the ETF sells the investor’s gold yearly to meet its costs,” he says, explaining that ETF costs in South Africa run at between 2% and 3% a year.

“This means that, at the end of the ten-year lifetime of the PurePlay instrument, the ETF holds between 70 oz and 80 oz of gold for the investor who originally purchased 100 oz. The PurePlay instrument holds the original 100 oz, not diminished by any costs over any period. “In addition, because the PurePlay instrument will be listed, the investor can buy and sell exactly as if he had physical gold or an ETF instrument,” Oberholster states.
Interest

Dawe notes that PurePlay Holdings is in serious discussions at the moment with three large mining houses and one midtier mining house.
“The midtier mining house is keen to be the first to list, and we have already briefed its listing attorneys,” he says.