Panama says First Quantum operating without contract in latest snag to Cobre mine talks

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The Panama government says there are “more than a few disagreements” with First Quantum Minerals Ltd., the latest snag in the rocky negotiations over the Canadian miner’s flagship copper mine.

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First Quantum has been negotiating a new contract for the rights of the Cobre Panama mine, situated about 120 kilometres west of Panama City, for about a year. Talks broke down briefly on Dec. 16 when the Panama government halted discussions and announced plans to suspend Quantum’s operations.

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On Jan. 10, First Quantum chief executive Tristan Pascall said during a call with analysts that the company was close to a deal, but hours later Panama’s industry ministry said the miner’s claims “do not reflect the reality of the situation.”

The ministry’s statement added that First Quantum’s contract to run the copper mine was annulled by the Supreme Court in 2017, and that the miner was running the mine without one.

Pascall said during the conference call that the Panama government had previously assured the company that the contract remained valid despite the court’s decision.

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Based on the latest negotiations, First Quantum has agreed to pay Panama’s government US$375 million per year through taxes and royalties, a commitment that Pascall described as “unique” in the world of taxation.

The Panama government, however, says its “proposed fiscal take is in line with international standards.”

Pascall said that the two sides were still negotiating over security of surface rights, a stable tax and royalty regime and protections against expropriation and early terminations. Since these issues remain unresolved, First Quantum continues to work on a plan to bring the mine under care and maintenance and stop production, as ordered by the Panama government in December.

Pascall called Panama’s decision to put the mine under care and maintenance “drastic” and “unnecessary,” and said if the mine does suspend operations, the company would be forced to cut a significant section of its local workforce.

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Panama’s industry ministry, however, said that the move was necessary since First Quantum has continued to operate the mine without a contract. “Panama has a duty to uphold its laws and Constitution,” it said.

Earlier on the call Pascall said that the company intends to initiate international arbitration under the Canada-Panama Free Trade Agreement.

First Quantum’s struggles in Panama come at a time when governments around the world are eager to earn more revenue from mining operations in their jurisdictions. Demand for green metals such as copper and lithium have surged as countries look for ways to meet their climate goals.

“You see the same concern in other major copper producing countries such as Peru and Chile,” said Patricia Mohr, an independent analyst who follows battery metals.

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“The demand for critical minerals of which copper is one is going to be very strong … governments around the world realize this and they want to ensure that their take is what they think adequate.”

Canada itself announced its first critical minerals strategy last month with an aim to boost the production of the minerals needed to build electric vehicles.

With three billion tonnes of reserves, Cobre Panama is one of the largest new copper mines to open globally in the past decade, according to First Quantum.

First Quantum shares were trading at $30.90, down 0.13 per cent, by late afternoon on Jan. 11. The company has a market cap of $21.1 billion.

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