The main elements or clauses considered in commercial contracts.
The minerals and metals trade are highly complex, characterized by the properties or grades of minerals, prices, quality, treatment costs, transportation costs, freight and insurance, among others.
The main elements or clauses considered in commercial contracts for mineral concentrates are:
The amount and duration: the type of contract can be short or long term, and depending on it, the amounts and duration are defined, either in years or in a specific period. The validity of the purchase agreement must be established, as well as the conditions for each period.
Quality: the nature and specifications of the contents of the concentrate must be specified.
Shipment: indicates the time, frequency and size of shipments. Date and tonnages, destination ports and general transport conditions are specified.
Delivery: specify the exact point of delivery according to the corresponding incoterm. Most of the contracts between smelters and miners are made on the CIF position, whereby the seller (mining producer) assumes the insurance and freight costs to the destination port, while the buyer assumes the costs of unloading and transportation to your smelter or refinery. In the case of FOB deliveries, the buyer (trader or refiner) bears the costs of ocean freight and insurance.
Price: the payment formula that varies according to the mineral or mineral concentrate or refined metal is consigned.
Quotation period: annual contracts with partial deliveries are generally not traded at a fixed price but at a quotation referred to a certain period of time during which the payable metallic content will be valued or called “Quotation Period”.
Payments: payments, advances or financing that must be made for deliveries of concentrates are established. The usual ones are: advances of 80% of the provisional value in the shipping warehouse or other delivery point. Being this a financing, generally it applies interests until the contractual date of the provisional payment; provisional payment of 85% of the provisional value, usually based on the information of prices, weights and analysis of the shipment date; final payment, which is made once the weights, laws and final prices are known.
Total or partial loss: these are the bases on which payment must be made in the event of total or partial loss of cargo. For example, in a CIF delivery, the buyer must be responsible for the loss of the merchandise from the moment the seller delivered the product. For this, the seller had to obtain the insurance at his own cost and provide it to the buyer. Said insurance must cover, at least, the price established in the contract plus 10% (that is, 110%). The insurance must cover the merchandise from the fixed delivery point to at least the designated destination port.
Insurance: according to the established Incoterms 2010. Example: in a FOB delivery, the seller assumes the cost of the insurance until the merchandise crosses the ship’s rail at the port of shipment.
Incoterms: designates the incoterms that will be applicable for the execution of the contract (CIF, FOB or others). These allow determining the responsibilities of the buyer and the seller with respect to the cargo. Currently the Incoterms 2010 edition of the International Chamber of Commerce is in force.
It should be noted that contracts for the sale of mineral concentrates differ from contracts for the sale of metals sold by refineries to the market due to their structure. The value of the concentrate is made up of a series of formulas for metallurgical recoveries and deductions based on its metal content. Meanwhile, metal sales contracts refer only to the product of the weight of the metal (bars or ingots) and the price of the LME listing.
By Orlando G.