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Panama’s Supreme Court ruled on Tuesday that First Quantum Minerals’ (TSX: FM) contract to operate its giant Cobre Panama copper mine, the only mining operation in the Central American country, is unconstitutional.
Challenges against the contract, which would have allowed Cobre Panama to keep operating for the next 20 years, piled up in court following public protests against the deal inked in October by the government and First Quantum’s local subsidiary, Minera Panama.
The court began deliberations on Friday and continued over the weekend. It announced a 12-hour break at the end of Monday’s session, delivering its verdict in in the early hours of Tuesday morning. The announcement was streamed live and watched by almost 24,000 people just in the first hour.
The court’s president Maria Eugenia Lopez said the vote against the contract had been unanimous, adding the ruling will now be published in the country’s official government newspaper.
President Laurentino Cortizo said in a post on X Tuesday that his government was ready to start “the transition process for the orderly and safe closure of the mine.”
First Quantum said in a statement that it was reviewing the ruling and that it “continues to reserve all its local and international legal rights in regards to developments in Panama.”
The Supreme Court decision adds to a growing list of questions surrounding First Quantum’s Cobre Panama mine and its implications.
Lawyers contacted by MINING.COM agree that the most immediate effect would be a freeze of First Quantum’s operations in the country. This doesn’t mean much though, they said, as Cobre Panama has been halted since Friday.
A previous contract was ruled illegal once before, in 2017, but the mine continued to operate as usual while both parties negotiated a new deal. Unprecedented public anger against the project this time may force the government to adopt a stricter approach, local sources said.
The ruling will have consequences for the copper market, as Cobre Panama mine accounts for about 1.5% of global production of the metal.
It will also affect the government’s coffers. The mine accounts for about 5% of its GDP and makes up 75% of Panama’s export of goods, supporting at least 40,000 jobs, directly and indirectly.
It is also likely to lead to international arbitration. First Quantum on Sunday sent Panamanian authorities a notification of intent to start arbitration proceedings. It later clarified the move was not the beginning of a legal procedure, but rather “a formality required by international treaties, with the purpose of opening a dialogue period of at least 90 days between the parties.”
“Pursuing international arbitration to recoup the massive financial loss of Cobre Panama would likely take years to resolve,” Orest Wowkodaw, analyst with Scotia Capital Inc. wrote in a note to clients. “However, we believe this course of action could ultimately bear fruit.”
Panama legislators had ratified the new contract between the executive and First Quantum, but reconsidered their decision after massive protests — the largest since a cost of living crisis last July — almost paralyzed the country.
The land and sea ongoing demonstrations blocked the delivery of crucial supplies to the mine, forcing First Quantum to halt operations again this week. The protests have also affected farmers, schools, emergency services and a long list of businesses unable to keep up activities due to lack of staff and supplies, stranded along the many blocked routes in and out the capital city.
Over the weekend, demonstrators received endorsements from climate activist Greta Thunberg and Hollywood actor Leonardo Di Caprio, who shared a video calling for the “mega mine” to cease operations.
Cobre Panama, in production since 2019, generated 112,734 tonnes of copper in the third quarter of 2023, contributing $930 million to First Quantum’s overall third-quarter revenue of $2.02 billion.
Analysts at BMO Capital Markets believe that First Quantum is in a financial position that allows it to weather the storm in the short term.
“Under our base-case scenario which assumes Cobre Panama mine closure through 2023 year-end, First Quantum has sufficient liquidity,” BMO analyst Jackie Przybylowski wrote.
Challenges, she added, would arise if Cobre Panama remained halted for 80 days in 2024, as this would draw First Quantum’s cash down to zero at the bank’s current commodity and cash outflow assumptions.
A closure for the first half of the year, beyond the May 2024 presidential election, would result in a $267 million cash shortfall, Przybylowski said. This estimation doesn’t including cash reserves required for working capital.
“The primary goal of the government and courts today appears to be calming the protests,” Przybylowski wrote on Tuesday. “We are optimistic that this approach will be successful, and that protests around the Cobre Panama port will subside, with mining operations likely to resume relatively quickly if protests are lifted.”
Shares in First Quantum were down 3% to A$9.07 in Toronto on the news Tuesday. Uncertainty around its flagship mine in Panama had already wiped about C$10 billion off First Quantum’s market value, almost 50% of it, since Cortizo decided to call a referendum on the contract. The popular vote was cancelled and the final decision was ultimately placed in hands of the Supreme Court.
Amid protests and the failed referendum, Panama legislators passed a bill that originally sought to revoke First Quantum’s contract, but ended up banning all future mining concessions, including exploration, extraction and transportation of minerals, as well as contract renewals in Panama.
13 Comments
Victor Vasquez- Lacayo
FQM, GO HOME! Your presence in Panama is illegal, and you are not wanted in this country
Andy S
Victor, your country begged for foreign investors to come in and invest to diversify your economy. You welcomed the 10 billion USD investment and then changed your mind. This will not go unnoticed in the international community.
Bobby44
Andy.. you are correct. Panama will pay in real dollars for this blunder. No bananas accepted. They will pay out for changing their minds and they will pay out in lost future investment. First Quantum must learn that when you deal in countries like this you must payoff the right people because they can change. I sold my investment because they were dealing with African republics. Missed this one! Missed this one.
Nassir El Hadj
I notice a racist tint to your comment.
octavio
Dear sir, FQM is no saint, yes, they paid bribes, there is no doubt about it in mind of Panamenian honest people. No one changed their minds, the country is overly against mining, what happened was that the greed of top corrupt government officials is such that they aproved a contract which is easy to demosntrate that violates the constitution. What the government did not expect was in this one case was that the people would react as we did. They counted on the usual behaviour which is to let things slide and getting away with their dirty actions. Not this time. Sorry for all who, like you, thinks that the government chnaged its mind, it is not the case here. The government and FQM, both, knew that the contract was flawed and inconstitutional, we the people knew it also and fought to right the wrong doing. The current government and many will pay the price for this wrong doing many years, we all hope. As for begging for foreign investors, we welcome those who help the country grow ina balance and sustainable way. As for “paying off the right people when dealing with countries like this” we rather you keep your money and dont help corrupt public officials, we already have a difficult task at hand trying to erradicate corruption, we dont need or appreciate people or companies like FQM who come and assume thay they can buy the freedom, health or wellbeing of a country to make a coin. Panama is better of without mining, go mine somewhere else.
octavio
Yes, we want investment in the form of nondestructive activities, activities that are ecofriendly and also improve the quality of life and health of our people. Open sky mining is not such activity. Mining undeniably generates jobs but in exchange of pollution, water poisoning, health isues for the neighboring locals and destruction of the surroundings. One thing is to mine in the middle of a desert, a totally diferent one is to mine in the mioddle of a rich biodiverse ecosystem. Tha fault is not with the mine itself, is with the corruptr goverment oficials that negociated an operation without taking in considerationthe public sentiment nor included sufficient clauses for preservation of the nature, health guaranteees for compensating the inhabitants who get poisoned which has proven to be a common fact in similar operations in Chile. As with anything you can do a good job to contain damage and guarantee health and restoration of the affected lands if this is included and supervised in the contract, or you can do a piss poor job of taking for granted all this things in exchange for a pretty penny. Just because you can does not mean you should and in the case of mining in Panama, the people choose not to have this destruction and poisoning, even if we must relinquish a meagre income. The mine does not pay taxes nor shares the income, it mearly pays a projected fee according to “declared” exportations of Cooper, leaving out the other precios minerals taht it is also extracting which increase the earnigs manyfold. The answer is still thanbks but no thanks. We will definetly find other sustainable ways to grow. Bye FQM, go exploit someone else.
DENNIS D SMITH
The standard of living in a country depends on multiple items, the most important is exporting more value than you import. In addition, the loss of 40,000 jobs is a major setback. Panama has violated the fundamental rule of law which is required in order to attract any investment. The country is unfit for business, domestic or foreign. There will be consequences, just ask Venzuela, Iran, S. Africa, DRC, early 1900’s Mexico and many many more failed economies due to failed rule of law.
Karen
What in the hell are you talking about? Do you reside in Panama? I do. Panama’s future doesn’t depend on mining. Sanctions (an act of war) were placed on Iran and Venezuela, not failures to honor contracts. Please, get your facts straight.
Anton
Das sehe ich auch so. Kürzlich war ich vor vier Wochen in Panama, sodass ich die Sperren live miterlebt habe. Das Problem ist nicht Mining, sondern eine mehr als korrupte Regierung. Hier werden arme Menschen von Gewerkschaften manipuliert. Und Umweltschutz, dass ich nicht lache. An jeder Strassensperre gibt es haufenweise Müll, und gegen eine Luftverschmutzung tut auch keiner was, es werden Autoreifen verbrannt. Die Menschen sollten sich an der eigenen Nase fassen, bevor Steine auf andere geworfen wird. Und Thunberg, Caprio und co wollen ja auch nur in den Medien präsent sein. Der Verlierer bei den Streiks wird Panama sein, wer will dann noch dort investieren….
Carlos Gardel
This is not going to go well for Panama. As a recent example YPF was appropriated by the Peronist govermentin 2014. 9 years later thety lost an arbitration award of US$16B and the judge ordered that Argentina has to start paying straight away. Minera Cobre Panamacost US$10B to build, so they will claim recovery of capital and lost profit over a 20 year life of mine and your talking another $10B. This is going to cost every Panamaenian for the next 30 years.
Nassir El Hadj
Environmentally, open-pit mining is devastating. It consumes enormous amounts of water, heavily pollutes water and air, disfigures landscapes, and permanently destroys habitat.3 Even after pits are exhausted and sites are rehabilitated, the pit area retains elevated risks of erosion and flooding. Panama is avoiding a huge environmental disaster in its horizon by rejecting this one sided
20 year contract with First Quantum Minerals.
octavio
Hello Carlos, No one is talking about expropiation of the mine operation. We want the Mine to close down completely, as well as any other mining operations. We want a proper closing including remediating damages to the ecosystem and rivers as much as possible. The closure if properly negotiated will take som years but once it happens the dmages to environment should be properly managed and a fund should be left for the health care of all affected as the region wher the mine operates has incresed dramatically in child mortality, child deformations and pancreatic cancer due to the pollution of the plant. Watch this documentary by DW “cobre sucio” https://www.youtube.com/watch?v=nVERa8sSML4 | “dirty copper” https://www.youtube.com/watch?v=jNUbroQ2XZ4 to get a better idea of what is happening in panama near the mine. Panama is better off without mining.
KJ Osbourne
I am a foreigner so I do not understand this completely. From what I see, this mine has been in planning, construction and operation for 6-7 years. Why has this only caught the attention of the average Panamanian now?
What set off the protests?