Panama shuts down its giant copper mine to First Quantum

The mining company said on Friday that it is doing everything it can to support its operations in Panama, “including through all available legal means.” She also expressed her disappointment at what she considered “unnecessary measures” by the government.

According to Brahim Assfat, a lawyer and part of the negotiating team in Panama, the mine closure is not immediate.

“What the national government has decided is to order each ministry to take the necessary steps to maintain the copper mine with adequate care and maintenance,” he told Eco TV.

An agreement was reached in January, with the company committing to increasing royalty payments for the mine. It also agreed to give Panama between 12% and 16% of its total profits, which would replace the previous 2% royalties.

First Quantum has also agreed to begin paying the 25% corporate tax, from which it was previously exempt, until its investment in the mine is recouped.

The deal dragged on for months, until President Laurentino Cortizo’s administration set a Wednesday night deadline for First Quantum to sign the new contract.

The Ministry of Commerce and Industry said Thursday morning that the mine had then sent a new proposal that “radically” changed the economics of the deal.

The sticking point appears to be a clause that would have made the Vancouver miner pay at least $375 million in royalties to the state.

According to Bloomberg, First Quantum has been pushing for an exception in the event of lower metals prices and earnings.

‘We expected reciprocity’

During a live televised address to the nation Thursday night, Cortizo said his government had “exerted whatever patience, good faith and best will were necessary to get the mining company to ratify what was agreed upon, and for that reason we expected reciprocity from the company, which did not happen.”

“This is unacceptable to me as president, nor to the government, nor to the people of Panama,” Cortizo said in the televised address.

The president also said that his administration will search for the best options to ensure the sustainable operation of the mine, noting that he has ordered the Minister of Environment to supervise the site and the Ministry of Labor to ensure the jobs of workers.

He concluded by noting that the measures taken are intended to guarantee the principle enshrined in the country’s constitution, which states that Panama’s mineral resources belong to the Panamanian people.

The nation is said to be working with a financial advisor to identify new potential partners for Cobre Panama, which raises concerns about the state nationalizing the asset or removing First Quantum’s license to operate, experts at BMO say.

Our basic expectation is that the government’s position is part of a broader negotiation; However, the latest escalation raises uncertainty about First Quantum’s ability to operate in the country in the long term, and the risks investors will see in Panama going forward, wrote BMO Metals and Mining analyst Jackie Przybylowski.

From a copper market perspective, any continued mine outage would further tighten global supplies, contributing to a projected annual shortfall of 4.7 million tonnes by 2030.

“We have important plans for the future of the Panama Bridge that will benefit all Panamanians, and our goal remains to find a win-win solution with the government,” the miner said on Friday.

Quatum’s Panama subsidiary achieved commercial production in September 2019. The asset is estimated to have 3.1 billion tons of proven and probable reserves and at full capacity could produce more than 300,000 tons of copper per year, or about 1.5% of global production of the metal. .

The company says it has invested about $10 billion in the Panama Bridge, the largest private investment ever in the country, and was considering increasing the mine’s processing capacity from 85 million tons per year to 100 million tons per year in 2023. This would have allowed it to increase production to Approximately 360 thousand tons of copper by the end of this year and to 350 thousand to 380 thousand tons in 2023.

First Quantum is one of the largest copper miners in the world and the largest producer of the metal in Canada. It produced 816,000 tons of copper in 2021, its highest level on record, thanks mainly to record production at the Panama Bridge.

The company is expected to reach its 2022 target of between 790,000 and 855,000 tons of copper by the end of the year.

The Panama Cobre mine complex, located about 120 kilometers west of Panama City and 20 kilometers from the Atlantic coast, contributes 3.5% of the Central American country’s gross domestic product, according to government figures.

The mining company first ran into trouble in 2018 when, in a lawsuit brought by environmental groups, Panama’s Supreme Court ruled that a mining law at the time of allowing the operation was unconstitutional. This forced the parties to begin renegotiating the contract.

A somewhat uncommon move

Panama’s decision is a heavy blow to CEO Tristan Pascal, who succeeded his father Philippe in May.

Risk advisory firm Verisk Maplecroft estimates that Latin America is the jurisdiction where the risks of asset seizures and tax increases have increased the most in the past two years.

However, this practice was rare in Latin America’s recent past. One of the last major expropriations was in 2012, when the government of Argentine President Cristina Fernandez de Kirchner seized a 51% stake in the country’s largest oil and gas producing company, YPF SA, from Repsol SA.

Almost ten years later, in April 2022, Mexican President Andrés Manuel López Obrador declared lithium a “strategic metal” whose exploration, exploitation and use is the exclusive right of the country, through a new state corporation called Litio para Mexico, or Lithium for Mexico.