First Quantum to appeal Panama order to halt giant copper mine
First Quantum Minerals (TSX: FM) said on Tuesday it planned to appeal an order by Panama's government to halt its giant copper mine in the country as the two sides remain in talks over a new contract that would increase royalties paid by the miner.
The Central American country's government decided in December to create a plan to halt operations at Cobre Panama copper mine. The move, unusual among Latin American countries, came after the Vancouver-based miner missed a deadline to ink a new contract due to disagreements on royalties and tax payments.
Panama has demanded First Quantum to pay a corporate tax of at least US$375 million a year, along with a profit-based mineral royalty of 12% to 16%, which represents a steep rise on the US$61 million the company paid in 2021.
First Quantum said on Tuesday it was prepared to agree with, and in part exceed, the objectives that the government outlined in a pre-agreement reached in January 2022 regarding revenues, environmental protections and labour standards.
"I don't think we're very far away," chief executive officer Tristan Pascall said in a Tuesday call with analysts to provide an update on the negotiations. "There has been progress and movements since Dec. 14 and these final items do need to be resolved, but they do need to be resolved fairly for us to close this out."
The company noted the minimum payment structure proposed is both unique and unprecedented in the mining industry.
"Under the newly proposed profit-based royalty, the government would receive revenue that is multiple times higher than under both the existing contract and the current Panam?? Mining Code," First Quantum said in the statement. "The proposed royalty rates would be amongst the highest, if not the highest, paid by copper miners in the Americas," it noted.
The company highlighted it was ready to place Cobre Panama, responsible for 1.4% of global copper supply, into "care and maintenance" if the country did not offer certain legal protections.
First Quantum has demanded assurances that the current revised mining code will be in place beyond the current administration, as Panama is gearing up for a general election, expected in May this year.
Operations continue as normal, the miner said, with no disruption to production for now.
The miner also noted it had notified the country about two arbitration proceedings, days after the order to halt operations.
Panama weighs mine options
The Panamanian government is reportedly working with a financial advisor to identify new potential partners for Cobre Panama, which raises concerns about the country nationalizing the asset or removing First Quantum's licence to operate, says BMO Capital Markets.
"Our base-case expectation is that the government's position is part of a broader negotiation; however, the recent escalation does raise uncertainty about First Quantum's ability to operate in the country long term, and the risk that investors will see in Panama going forward," BMO Metals and Mining analyst, Jackie Przybylowski, wrote in a note to clients.
From a copper market perspective, any sustained outage at the mine would further tighten global supplies, contributing to an expected annual deficit of 4.7 million tonnes by 2030.
"The government is prepared to face all potential legal scenarios that may arise and will continue to ensure that workers' labor rights are maintained and protected," the Commerce and Industry Ministry said earlier this month.
Cobre Panama is the biggest foreign investment in the Central American nation, supporting 40,000 jobs. (Image courtesy of Cobre Panama.)