Cobre Panama Legal Blow: As Panama’s Supreme Court declares First Quantum’s Cobre Panama contract unconstitutional, the ramifications extend beyond the closure of the lucrative copper mine. The legal blow not only prompts the suspension of commercial production but also sets the stage for a potentially lengthy and unpredictable journey of international arbitration.
In a televised address, President Laurentino Cortizo announced the “orderly and safe closure of the mine” following the court’s ruling, sparking concerns about the economic repercussions for both the mining company and the Central American nation. The contract, agreed upon just last month, granted First Quantum a 20-year mining right with the option to extend for another 20 years, in exchange for a substantial $375 million in annual revenue to Panama.
The decision to shut down Cobre Panama comes amid growing public unrest, initially rooted in environmental concerns that evolved into broader demonstrations against the government, with accusations of an overly generous contract fueling the protests. First Quantum responded promptly by suspending commercial production and initiating care and maintenance measures.
The international arbitration route looms large for First Quantum, even as the company expresses a willingness to explore pre-arbitration talks with the Panamanian government to avoid the protracted legal process. The stakes are high, considering the substantial financial impact on the mining giant, which has already witnessed a loss of over C$10 billion ($7.4 billion) in market value since the onset of protests in late October.
Beyond the corporate battlefield, the global copper market feels the tremors of the Cobre Panama closure, given that the mine contributes approximately 1% of the world’s copper production. As the news unfolds, benchmark copper prices on the London Metal Exchange experience a 0.9% increase, reaching $8,441 per metric ton.
Also Read: Protests Rock First Quantum: Cobre Panama Mine Faces Disruptions
The significance of Cobre Panama extends beyond its role in the copper market, constituting about 5% of Panama’s GDP. The mine’s closure could impact the country’s credit rating, with J.P. Morgan warning of potential downgrades if the contract revocation proceeds. The situation becomes increasingly entwined with Panama’s upcoming May 2024 presidential election, where candidates are advocating for more state control over the mine.
First Quantum’s Panama unit expresses a commitment to constructive dialogue, leaving room for potential negotiations on the mining contract. However, the political landscape, shaped by the public’s strong opposition and a recent bill banning new mining concessions, presents challenges for renegotiation.
For First Quantum, the Cobre Panama ruling echoes a past experience in the Democratic Republic of Congo, where the company exited in 2012 after filing an arbitration procedure against the African country for canceling its mining contract. The company eventually settled the dispute by selling its assets to Eurasian Natural Resources Corporation PLC for $1.25 billion.
As the legal saga unfolds, the Cobre Panama closure marks a critical juncture for First Quantum, Panama’s economic landscape, and the broader dynamics of the global copper market. The intricacies of international arbitration, political maneuvering, and market fluctuations will determine the lasting impact of this chapter in the mining industry.
Our Reader’s Queries
What was the ruling on Panama mining?
On December 2nd, it was reported by Reuters that Panama has declared Canadian mining company First Quantum’s contract for an open-pit copper mine in the country as unconstitutional. This ruling was published in the official gazette on Saturday.
Who owns Cobre Panama mine?
The Colon Province of Panama is home to the Cobre Panama copper mine, a massive open-pit operation. First Quantum Minerals, a Canadian mining company, is the primary stakeholder with a 90% interest and serves as the mine’s operator. The remaining 10% is owned by Korea Resources Corporation (Kores).
How much cash did cobre Panama cost?
The C1 cash cost of copper has been adjusted to $1.75 – $1.85 per lb, which takes into account the updated production guidance. If there are any additional top-up tax payments required to meet the minimum contribution at Cobre Panamá, they will be recognized within operating profit and AISC.
What is the first quantum minerals controversy?
The dispute stems from a ruling made by Panama’s highest court in 2017, which declared the law that First Quantum was operating under to be unconstitutional. The mining company had taken over the contract from Petaquilla Gold in 2013.