A commercial marketing contract or purchase agreement for a base metal concentrate such as copper, lead or zinc contains a wide range of commercial, logistical and legal clauses. These clauses exist to protect the interests of both the buyer, seller, and their agents, while at the same time providing a clear document to manage the transfer in title and risk of the concentrates. The agreed quantity can be delivered in one or more independent shipments — sometimes over a number of years or the life of a mine.

Generally speaking, these contracts are written in pragmatic and plain English so as to provide a working document that is used to manage the commercial relationship between the parties. This is very important because typically, such agreements are also frequently referred to by non-legal professionals — individuals with backgrounds in corporate finance, marketing or logistics.

In order to ensure that the correct value is calculated for each shipment and that transactions run smoothly, payments are made on schedule and with a minimum amount of fuss.

The clauses in a purchase contract can be grouped into a number of categories: legal, payment, shipping, price determination, quotational period and quantity determination. Below are some questions to consider when making a contract to ensure that all potential concerns have been considered in advance.

Legal

• Who are the parties in the contract?
• What is being agreed in principle?
• Who is buying and who is selling?
• What are the specific terms and how will they be interpreted?
• How can a party default on their obligations and what happens then?
• When does the title and risk pass from buyer to seller?
• What happens if an unexpected or uncontrollable event occurs?
• If any disputes arise, how will they be resolved?
• How can parties transfer their obligations to a third party?
• How will the parties communicate to manage the agreement?
• Which jurisdiction’s law will be used in the event of a dispute?
• How will information be governed, respected commercially and kept confidential?

Payment

• When does the Seller receive payment?
• What documentation does the Seller have to furnish?
• How is the provisional value calculated?
• What happens if the prices used to calculate provisional value change significantly?
• When are a re-measurement of trade receivables and a repayment required?
• When is the final payment made?

Shipping

• What is the size of each delivery?
• Where shall the material be delivered?
• What are the required characteristics of the vessel to be used?
• What, if any, are the restrictions at the loading or discharge port?
• How shall a suitable vessel be nominated and approved?
• Which party will pay for loading, shipping and unloading expenses?
• How will the time spend loading and unloading be calculated?
• Who will compensate the vessel for delays in loading and unloading?
• Is there an agreed shipping or delivery schedule? If so, what is it?

Price Determination

• What is the core transaction or typically the “what” and “where”?
• For the sake of clarity, what technical terms or units need to be defined?
• What currency is used for payments?
• What metals are payable?
• Are there any minimum or percentage deductions?
• What official metal price is used?
• What happens if the official metal prices cease to exist?
• Are there any penalty elements?
• Is there a penalty charged and at what level of impurity does it apply?
• Is there a treatment charge?
• What official metal price is used to calculate the treatment charge?
• How does the treatment charge modified with changes in the official metal price?
• Which party will pay export and import taxes, tariffs or duties?

Quotational Period

• What official metal price is used to calculate the value of the concentrate?
• How long is the quotational period?
• Is there a quotational period option? If so, in whose favour?
• When does it have to be declared?
• How frequently can it be declared?
• Is it determined by the price curve of the official metal price?

Quantity Determination

• How will the final wet and dry weight be determined?
• What shall be the same size?
• How many sets of samples?
• Who retains the samples?
• How will the quantity of payable metals and impurities be analysed?
• What happens if the parties assay results do not agree?

Ideally, a well written commercial sales or purchase agreement should clearly outline all aspects in the determination of value and settlement of base metal concentrate purchases.

Or in the words of Kipling, it should serve all “honest serving-men. Their names are What and Why and When and How and Where and Who”.