Panama orders suspension of First Quantum’s large copper mine

Panama’s authorities has ordered First Quantum Minerals (TSX: FM) to halt operations at its Cobre Panama copper mine after it didn’t agree phrases for a brand new contract with the Canadian miner.

The transfer, uncommon amongst Latin American international locations, got here after First Quantum missed a Wednesday evening deadline to ink a brand new royalty deal that has been within the works since September 2021.

The miner stated on Friday it was doing all the pieces potential to help its operations in Panama, “together with by means of all accessible authorized means.” It additionally expressed disappointment at what it considers “pointless actions” by the federal government.

In line with Ebrahim Asvat, lawyer and a part of Panama’s negotiating staff, the mine closure will not be speedy. 

“What the nationwide authorities determined was to order every ministry to take the required steps to take care of the copper mine with ample care and upkeep,” he instructed Eco TV.

An settlement was reached in January, with the corporate committing to up its royalty funds for the copper mine. It additionally accepted to present Panama between 12% and 16% of its gross revenue, which might substitute the earlier 2% income royalty.

First Quantum agreed as effectively to start out paying 25% company tax, from which it was beforehand exempted, till its investments on the mine had been recovered.

Sealing the deal dragged on for months, till President Laurentino Cortizo’s administration set a Wednesday evening deadline for First Quantum to ink the brand new contract.

The miner then despatched a brand new proposal that “essentially” modified the deal’s economics, the Ministry of Commerce and Industries stated on Thursday morning.

The purpose of rivalry appears to be a clause that may make the Vancouver-based miner pay a minimal of $375 million in royalties to the state.

In line with Bloomberg, First Quantum had been pushing for an exception within the case of a lot decrease steel costs and revenue.

‘We anticipated reciprocity’

Throughout a dwell tv handle to the nation on Thursday evening, Cortizo stated his authorities had put “all the required persistence, good religion and one of the best of wills to get the mining firm to ratify what was agreed, and that’s the reason we anticipated reciprocity from the corporate, which didn’t occur.”

“This isn’t acceptable for me as president, nor for the federal government, nor for the individuals of Panama,” Cortizo stated within the televised speech.

The President additionally stated his administration will search one of the best choices to make sure the sustained operation of the mine, noting he had ordered the atmosphere minister to supervise the positioning and the labour ministry to ensure the roles of staff. 

He concluded by noting that the motion take sought to ensure the precept established within the nation’s Structure, stating that Panama’s mineral assets belong to the Panamanian individuals.

The nation is reportedly working with a monetary advisor to establish new potential companions for Cobre Panama, which raises issues concerning the nation nationalizing the asset or eradicating First Quantum’s licence to function, consultants at BMO say.

Cobre Panama is the largest international funding within the Central American nation, supporting 40,000 jobs. (Picture courtesy of Minera Panama.)

“Our base-case expectation is that the federal government’s place is a part of a broader negotiation; nonetheless, the latest escalation does increase uncertainty about First Quantum’s capacity to function within the nation long run, and the danger that traders will see in Panama going ahead,” BMO Metals and Mining analyst, Jackie Przybylowski, wrote.

From a copper market perspective, any sustained outage on the mine would additional tighten world provides, contributing to an anticipated annual deficit of 4.7 million tonnes by 2030.

First Quantum’s Cobre Panama achieved business manufacturing in September 2019. The asset is estimated to carry 3.1 billion tonnes in confirmed and possible reserves and at full capability can produce greater than 300,000 tonnes of copper per 12 months, or about 1.5% of worldwide manufacturing of the steel.

The corporate says it has invested round $10 billion in Cobre Panama, the biggest personal funding ever within the nation, and was considering increasing the processing capability of the mine from 85 million tonnes per 12 months to 100 million tonnes per 12 months in 2023. This is able to have allowed it to spice up manufacturing to just about 360,000 tonnes of copper by the top of this 12 months and to 350,000-380,000 tonnes in 2023.

First Quantum is likely one of the world’s high ten copper miners and Canada’s largest producer of the steel. It produced 816,000 tonnes of copper in 2021, its highest ever, thanks primarily to report output at Cobre Panama.

The corporate is anticipated to achieve its 2022 goal of between 790,000 and 855,000 tonnes of copper by year-end.

The Cobre Panama mine advanced, situated about 120 km west of Panama Metropolis and 20 km from the Atlantic coast, contributes 3.5% of the Central American nation’s gross home product, based on authorities figures

The miner first bumped into hassle in 2018 when Panama’s Supreme Court docket, performing on a go well with filed by environmental teams, dominated the mining code on the time of permitting the operation was unconstitutional. This compelled the events to start renegotiating the contract.

Pretty unusual transfer

Panama’s resolution is a serious blow to chief govt Tristan Pascall, who succeeded his father, Phillip, in Might.

Latin America is the jurisdiction the place dangers of asset seizures and taxes hikes have elevated probably the most prior to now two years, threat consultancy Verisk Maplecroft estimates.

The observe, nonetheless, has been uncommon in Latin America’s latest previous. One of many final main expropriations was in 2012, when then-Argentina President Cristina Fernandez de Kirchner’s authorities seized a 51% stake within the nation’s largest oil and fuel producer, YPF SA, from Repsol SA.

Virtually 10 years later, in April 2022, Mexican President Andres Manuel Lopez Obrador declared lithium a “strategic mineral” whose exploration, exploitation, and use are the unique proper of the nation, by means of a brand new state-run firm known as Litio para Mexico, or Lithium for Mexico.

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