Panama’s government took another step toward shutting a major open-pit copper mine in a standoff with operator First Quantum Minerals Ltd. that has captured the industry’s attention.
(Bloomberg) — Panama’s government took another step toward shutting a major open-pit copper mine in a standoff with operator First Quantum Minerals Ltd. that has captured the industry’s attention.
The Ministry of Commerce and Industries issued a resolution that gives the company 10 business days to submit a plan for putting the Cobre Panama mine on care and maintenance, a status that would cease commercial operations.
Once the plan is approved by authorities, First Quantum would have two days to begin executing it, the ministry said in a statement late Monday. The Vancouver-based firm wasn’t immediately available for comment.
It’s the latest twist in an impasse over new tax terms after negotiations failed to produce an accord by last week’s deadline. Tearing up contracts would be a major blow to the company’s value, Panama’s reputation as an investor-friendly jurisdiction and the industry’s confidence in building new mines just as demand for the wiring metal is set to grow in the energy transition. Still, given the shutdown time-frame, there’s scope for an eleventh-how deal, with neither side closing the door on further talks.
“Like many other stoppages, this seems to us an aggressive negotiating tactic,” Wolfe Research analysts including Timna Tanners wrote in a note to clients dated Monday.
The resolution doesn’t affect the state’s rights over extracted minerals or to receive royalties, the ministry said.
The mine, which cost at least $10 billion to build, is First Quantum’s biggest asset and an economic engine for the Central American nation. First Quantum acquired the project in 2013 and began commercial production in 2019. The mine can churn out as much as 300,000 metric tons a year, roughly 1.5% of the global copper output.
In 2017, First Quantum boosted its interest in the Panamanian company that holds the concession to 90%. But Panama’s Supreme Court deemed the law governing the current concession as unconstitutional. One of the sticking points in talks has been over a minimum $375 million annual contribution, with First Quantum pushing for protections in the case of much lower metal prices.
Substantial disruptions to mining or agreeing to pay much higher royalties could hamper First Quantum’s cash flow, pushing up leverage, S&P wrote in a note that placed the firm on negative watch.
(Adds comment by analysts in fifth paragraph)
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