Supply Bonds

What are supply bonds?

Supply bonds guarantee that a company will pay for goods and supplies delivered under a supply agreement. The most common form in Australia is the fuel bond — a guarantee to fuel suppliers (such as BP, Shell, Viva Energy and Ampol) that the mining or construction company will pay for diesel and other fuel products delivered to site.

For mining companies operating heavy equipment across remote sites, diesel consumption can run into millions of dollars per month. Fuel suppliers typically require either a cash deposit, a bank guarantee or a surety bond before extending credit at these volumes.

Why fuel bonds matter for mining companies

A mining services company consuming $2M in diesel per month needs a supply arrangement with their fuel provider. Without a bond, the fuel company will either require a substantial cash deposit or limit the credit terms available.

A surety fuel bond replaces the cash deposit, allowing the mining company to maintain full credit terms with their fuel supplier while keeping that capital available for operations. The annual premium on a fuel bond is a fraction of the cost of having equivalent cash locked up as a deposit.

How supply bonds work

The bond is issued in favour of the supplier, guaranteeing payment up to an agreed limit. If the company fails to pay for supplies delivered, the supplier can call on the bond to recover the outstanding amount.

Supply bonds are typically annual instruments, renewed each year as part of the overall surety facility review. The face value is set based on the expected supply volume and credit terms — typically one to three months of supply value.

Beyond fuel

While fuel bonds are the most common supply bond in the Australian market, the same instrument can be used for other high-value supply arrangements including explosives and blasting supplies, construction materials (concrete, steel, aggregate), chemical supplies for processing operations, and equipment hire and lease arrangements.

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