Offtake and prepayments
An offtake agreement secures a buyer for a mine's product. A prepayment is cash paid upfront by that buyer, repaid in future deliveries.
2 min read
An offtake agreement promises a mine's product to a buyer. A prepayment turns that promise into cash today.
What it is
An is a sales contract signed before or during construction. A smelter, refinery or commodity trader agrees to buy some or all of a mine's concentrate or metal for a set period, often years.
A prepayment goes one step further: the buyer pays part of the value upfront and is repaid by future deliveries. It works like a loan repaid in concentrate rather than cash.
What an offtake sets
| Term | What it covers |
|---|---|
| Volume | The share of output and the period, sometimes the whole life of the mine |
| Price | Linked to a market price, such as the London Metal Exchange, over a set averaging period |
| Charges | , either fixed or set yearly with the market |
| Payability and penalties | and deductions for impurities |
| Marketing fee | A fee to traders who sell the product on |
Why it matters for financing
- Lenders often require an offtake before lending for construction: it shows the product can be sold.
- Prepayments add funding without dilution, often from traders who want secure supply.
- Strategic offtake from a buyer seeking secure supply, such as a battery maker or a country securing critical minerals, can come with equity or loans attached.
Advantages and disadvantages
| For the miner | |
|---|---|
| Advantages | Secured sales; supports debt financing; prepayment adds funding without dilution |
| Disadvantages | Terms can be less favourable than selling on the open market later; long commitments limit flexibility |
Terms and ranges are indicative and vary by market, jurisdiction and project. This is educational material, not investment advice.
Key terms
Next in this track
Government supportGovernments fund exploration through grants and tax incentives, and increasingly fund critical-minerals projects through loans and equity.Related articles
- PayabilityA smelter or refinery does not pay for all the metal it receives. Payability is the share it pays for, and it differs widely between metals.Mining economics3 min read
- Cost of saleGetting a concentrate from the mine gate to a smelter, and paid for, costs money: treatment and refining charges, penalties, freight and insurance.Mining economics2 min read
- EquitySelling shares is the main way exploration is funded. It needs no repayment, but every raise dilutes existing shareholders.Mining finance2 min read
Educational material only. Nothing here is investment advice or an offer to buy or sell any security or mineral interest.