In our last blog post, we discussed the typical clauses found in contracts with Chilean mining companies. This week we are discussing two other areas that are important when contracting with Chilean mining companies which are bank guarantees and being part of a Chilean mining suppliers association.
In Chile, it is very rare to come across a mining contract that does not have a bank guarantee that either guarantees the quality and operation of the goods and/or services provided, guarantees the faithful compliance of the contract, or guarantees the performance of the goods or services provided. Some contracts will even impose all three guarantees.
This type of bank guarantee in Spanish is known as a boleta de garantia. It is a bond issued by a Bank at the request of its client (called the "Taker") in favor of someone else (called the "Beneficiary").
There are two ways to get the Bank to issue a boleta de garantia. The first is against a deposit of money, and the second is charged to a loan. One of the main reasons they are used is because they are in most cases payable on demand or within the expiration of a certain term. They can be issued in Chilean or foreign currency or expressed in foreign currency payable in Chilean currency. Given its nature as security, it cannot be used for a purpose other than that for which it was taken. As for the amounts of this guarantee, this will depend on factors such as the nature of the goods or services provided and the timeframe of the contract and the parties involved, but it will generally be for between 10% and 30% of the total value of the contract.
It is very rare to be able to negotiate the elimination of this Boleta de Garantia. If more than one type of guarantee has been requested, you may be able to eliminate either one or two or bring otherwise down the percentages, but the possibility of signing a bank guarantee free contract is practically impossible. So, it's always important prior to beginning negotiations in Chile to see if you have a bank that will provide you with this type of guarantee. This can be done via your national bank by means of a letter of credit, issued to a Chilean bank who will then, in turn, provide the boleta de garantia.
Mining Suppliers Association
Another key consideration for METS companies when doing business in Chile is the need to register to a Mining suppliers' association. There are 2 associations that a company can register to - REGIC and/or...