BASICS ABOUT CONTRACTING WITH MINING COMPANIES IN CHILE – Part 2
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 SICEP. The mining companies in Chile use the different systems so depending on the client you are selling to, you may need to register with one or the other. For example, REGIC is used by Codelco and SICEP is used by BHP.
The REGIC registry is a private registry of small, medium and large companies, whether Chilean or foreign. The REGIC registry allows mining companies to have an overview of the commercial, financial and legal status of their future suppliers, thus reducing the risk in their bids, having the security and conviction that they are contracting with companies that meet international commercial standards. There are a number of benefits when registering with REGIC. It allows contractors to register and update all their corporate and background in one single place. REGIC uses a unique system for classifying contractors, which allows mining companies to use it as an objective tool to support the bidding processes. Additionally, mining companies can locate information on a specific supplier quickly, efficiently and reliably.
The other registry, SICEP, allows the evaluation and qualification of companies providing goods and services in Chile. SICEP evaluates and qualifies the state in which the supplier companies are located, under a methodology that combines documentary and practical review, generating a diagnosis of these that is periodically updated. The results of this process are translated into a system of qualification of suppliers, of private access, which is used by the Users (Mining and Industrial Companies) in the search and selection processes, for the supply of their goods and services. Benefits of SICEP include the centralization of company information (allowing relevant and up to date information to be available for customers all in one place) and it also has a rating system validated by its own clients. Additionally, it is a platform for the promotion of business opportunities. Additionally, your company is listed in one of the main Electronic Directories of the country, with your contact information, addresses, and items available to any interested party searching for specialised suppliers.
The process to register can take between 1-2 months. It requires a series of documentation that can increase the timeframe depending on how long it takes to compile everything they request. Generally, this should not slow down the sales process but the mining company will request that it be done.
Harris Gomez Group is a Common Law firm, with offices in Santiago, Bogotá, and Sydney. Over the last 16 years, we have been supporting foreign companies with their growth in Latin America. Many of our clients are technology companies, service providers and engineering companies that focus on the mining, energy and infrastructure markets.
To better understand how we can support your management team in the Region, please contact Cody Mcfarlane at email@example.com