Pulacayo Project Feasibility Study - Apogee Silver

Pulacayo 1 000 t/d Phase I Feasibility Study - NI 43-101 Technical Report
090644-3-0000-20-IFI-100
agreements, very few terms are left undefined, with typically only the treatment charges,
escalators/de-escalators and refining charges, as applicable, and any Quotational Periods
subject to annual adjustment. Other terms, such as metal accountabilities and payment terms are
typically fixed for the life of the contract.
The annual TC/RC adjustment to be agreed under such long-term agreements is typically
referenced off market benchmarks. As the zinc concentrate market tends to be relatively
transparent with information regarding settlements readily available via market sources
(merchants, press reports, industry analysts such as Brook Hunt or CRU, etc.), it has traditionally
been fairly easy to establish the applicable annual benchmarks. Although these sources can also
be used for establishing reference lead TC/RCs, as discussed above, the market for lead
concentrates has become somewhat more opaque over the past few years so careful
consideration should go into which references are chosen and how such references might apply
under evolving market conditions.
There is no consistent market structure for the duration of the TC/RCs agreed – they can be set
according to various formats. For example, TC/RCs can be negotiated annually to cover 100% of
the contractual year’s deliveries. Alternatively, terms can be fixed for two or three year periods (or
longer).
For annually negotiated agreements, and particularly where the agreement is tied to project
financing, clear definitions as to how terms are to be determined must be set out in the contract.
Under such agreements, failure by the parties to agree in any given year will subject the parties
to a referee mechanism whereby an independent third-party referee (or referees) will determine
the appropriate treatment and refining charges to apply to a given year’s contractual deliveries.
Where there is no such referee mechanism, failure by the parties to agree terms in any given
year will typically lead to a “holiday” i.e. the tonnage contracted for that year’s (or those years)
deliveries will be cancelled.
Medium-Term (2-5 Year) Contracts
Essentially, TC/RCs under medium-term contracts can be established using TC/RC conventions
as per the long-term agreements. However, it is uncommon to have a referee mechanism
available for failure to agree on annually negotiated terms, such that failure to agree will lead to a
contract holiday which will result in cancellation of that year’s (or those years) deliveries.
Short Term/Spot Contracts
Shorter term or spot contracts are usually negotiated basis prevailing spot market conditions. All
contractual terms (TC, RCs, escalators/de-escalators, if any, Quotational Period, payment terms,
etc.) are up for negotiation in such contracts. While many of these contracts are entered into with
merchants or brokers, it is not entirely uncommon for a mine to deal direct with a smelter. Shortterm/spot
contracts can be for single or multiple shipments but would typically be defined as
deliveries, which are to occur within no more than a year of the agreement date.
For purposes of the Feasibility Study, it is recommended that the following charges be used:
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