Column: Trump 2.0 won’t reverse Biden’s critical minerals push
Donald Trump has described the Inflation Reduction Act (IRA) as a "green scam" and vowed to repeal it after he returns to the White House in January.
Panama has asked Canadian miner First Quantum Minerals (TSX: FM) to halt its Cobre Panama copper mine following a ruling by the Supreme Court that declared the mining contract for the operation unconstitutional.
President Laurentino Cortizo took to social media late on Tuesday to announce his government had started “the transition process for the orderly and safe closure of the mine.”
The top court’s ruling capped six weeks of protests and official announcements over a contract that gave First Quantum 20 years of mining rights over the giant copper asset, with an option to extend the deal for another 20 years in return for $375 million in annual revenue to the Central American nation.
Challenges against the contract piled up in court following massive protests against the contract, which almost paralyzed the country.
Public figures including climate activist Greta Thunberg and Hollywood actor Leonardo Di Caprio backed the protests and shared a video calling for the “mega mine” to cease operations, which quickly went viral.
First Quantum’s local unit Minera Panama said in a statement on Wednesday that is interested in pursuing dialogue with the country’s government. It warned the court’s decision doesn’t touch several important points, such as how the government plans to prevent the arrival of illegal miners or what is going to happen to the more than 40,000 people directly and indirectly employed by Cobre Panama.
Workers staged demonstrations across the country later in the day, asking the government to protect their jobs or at least ensure they receive compensation if they are laid off.
Panama’s decision 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.
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.”
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.”
Lawyers contacted by MINING.COM said both the Panamanian government and First Quantum are now in a “tricky spot” since Cortizo’s administration passed a bill on Nov. 2 banning all new mining concessions and extensions. That could prevent the two parties from negotiating a new deal.
Check this brief timeline explaining how First Quantum got to this point:
6 Comments
OTOH/IMHO
““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.” OMG- It’s Crystallex all over again. Hugo Chavez managed to kill that golden goose before it got a chance to even lay it first egg. President Laurentino Cortizo, who from the picture seems to like surrounding himself with shiny gold objects took to social media late on Tuesday to announce his government had started “the transition process for the orderly and safe closure of the mine.” Will the exit of investors from Panama’s mining industry be orderly as well? Someone might remind El Presidente that those nuggets he likes refined unto gold leaf covering everything in sight do not just spring from the bowels of the Earth on their own either.
Oredigr
Wow! “An orderly and safe closure…” Does that mean grab anything you can and run for the door? You can just about bet the locals have sized up the booty to be divided with each other. Makes you wonder who is going to pay for long term water treatment.
Then again, the tone of the article suggests the operation will be back in full swing by the end of Q1 ’24. Someone gonna have to explain to me how they can close the mine and then restart it like nothing happened.
C
Miners know other mines can ramp up and increase production over time. Tourism is more in favor for some of these small countries looking to save the ecological balance via environmental.
Economics and corporatism probably isn’t everything. Save yourselves, small countries can’t compete with a world hell bent with self destructive like willfully ignorant tendencies, why try.
Oscar Winning Performance
Welcome to the world where a mentally challenged teenager and a celebrity can ruin a business which 40’000 people rely on to make a living and many more rely on the tax revenue.
This is madness.
Eve
The people of Panama don’t want the mine, for whatever their reasons may be, it’s their country and their land. The $375mil compensation they offer the country is ludicrous compared to what profit they make annually.. Rich countries taking advantage of poor countries, with enough people in power to corrupt, reminds me of my home -Africa. It’s time the people take back their power and gave a say in their governments!
GORDON CHAN
I live in Panama. Look at the Panama Canel. Blasting its way though 100km for rain forest and mountains while the mine itself is less that 2 km2 in area. Sure there is a hole in the gound but all the claims of enviromental damage is total bull. I have listens to 10 complaints from the protestors and I see complete mis-information. The consequences is very dramatic and it will become obvious. Businiess investors will now either pull out of Panama or simply look else where. Think about it….companies looking to invest anywhere in the world would consider Panama as too very unstable and politically charged country. Now…without manufacturing, mining, softw and any other export, where is the country going to balance income/expense. Panama Canel….hardly enough to cover all the social works. Banking that provides support for money laundry facilities….It has dried. What I am sure is that with this negative saga that drag an innocent investor organization into this political slow stew, the future of Panama is now very bleak and the question is how deep it will fall for the ext 20 plus years. With no growth in GDP or foreign intake of money, Panama will remain a third world place and even Costa Rica now has a chance have higher GDP than Panama. Now that all the political groups has “won”, everyone will suffer the consequences . There is no way out for people living here. Things will become really bad economically with more unrest from other political driven complaints.