Final hours! Save up to 55% OFF InvestingProCLAIM SALE

Analysis-Panama, First Quantum harden battle lines over key copper mine

Published 01/03/2023, 11:37 AM
Updated 01/03/2023, 09:40 PM
© Reuters. FILE PHOTO: A general view of Cobre Panama mine owned by Canada’s First Quantum Minerals in Donoso, Panama December 6, 2022. REUTERS/Aris Martinez
HG
-
QMCO
-
FQVLF
-

By Valentine Hilaire

PANAMA CITY (Reuters) -Panama and First Quantum Minerals (OTC:FQVLF) are hardening battle lines in a dispute over how much tax the Canadian miner should pay on its concession for the Central American country's only major copper mine in operation, a key asset for both parties.

First Quantum (NASDAQ:QMCO)'s Chief Executive Tristan Pascall flew to Panama over Christmas and met with government officials for talks. However, no agreement was forthcoming, prompting the two sides to raise the stakes to protect their interests in the mine, known as Cobre Panama.

The dispute, which began at the end of 2021, has become a litmus test of Panama's ability to remain attractive to business even as the government seeks to reduce inequality by reviewing longterm deals that many analysts regard as too generous to business.

"Cobre Panama is the only metal mine operating in the country and many foreign companies started operations in Panama with its arrival. What happens will have a huge impact that seems to have not been properly weighed by both parties," said Zorel Morales, director of Panama's mining chamber.

Failure to reach a deal could spook foreign investors at a time when Panama is looking to develop three other copper deposits that could bring in investments similar to Cobre Panama's, said Morales.

Panama's demand that the company pay at least $375 million in annual tax has been at the center of the dispute, and during last week's talks First Quantum raised points it wanted included in its contract after a Dec. 14 deadline to reach agreement expired, according to a source linked to the government.

Exclusive rights to explore other minerals, enlarge the area of its concession, a $1 billion tax credit for its investment and a demand that no laws enacted after the new contract affect its operations were among the issues raised, the source said.

The company declined to comment on details of the negotiations. A spokesperson for the government did not reply to a request for comment.

Panamanian President Laurentino Cortizo said on Monday the government had presented a final contract offer to the company.

On Tuesday, lawmakers voted to summon the country's commerce and industry minister and environment minister to answer questions on the company, covering operating permits, royalties, sanctions for environmental offences and the progress of negotiations on the new contract.

The company did not immediately reply to a request for comment.

First Quantum paid $61 million in royalties to Panama's government in 2021, while the Cobre Panama mine posted sales revenues of $3.2 billion for the year, company data showed.

Meanwhile, other businesses circle the mine, which started production in 2019. Government records show at least two requests are under review to explore gold and other metals near First Quantum's concession.

Both parties have publicly said they want to strike a deal, but their failure to do so before the latest government deadline expired prompted Panama to order a halt to the mine's operations and the company to start arbitration proceedings.

LUCRATIVE ASSET

In 2021, Cobre Panama represented more than half of First Quantum's earnings before interest, tax depreciation and amortization (EBITDA). It also accounts for about 3.5% of Panama's gross domestic product.

The firm has invested over $10 billion in the mine and paid only nominal dividends to shareholders during its initial years, according to company data.

Cobre Panama represents about 40,000 direct and indirect jobs, interacts with some 1,800 suppliers and is the country's biggest private investment, according to business adviser Rene Quevedo, from consultancy GS&S Consultores.

Mining was the country's most dynamic sector during 2021, more than doubling in output. Fitch Ratings revised Panama's credit outlook to stable from negative in February, highlighting booming copper exports.

The mining row could hamper government plans as Cortizo wants to pump some $190 million from the miner's annual payments into Panama's national pension scheme, which risks running out of funds in 2024, according to the International Labor Organization.

"If there's no agreement, the damage would be serious," Quevedo said.

The company has said the cost of halting operations remains "uncertain". Cortizo's government has not disclosed any assessment of how the dispute could affect Panama.

Panama's government says it is prepared to face all legal scenarios to defend the national interest.

© Reuters. FILE PHOTO: A general view of Cobre Panama mine owned by Canada’s First Quantum Minerals in Donoso, Panama December 6, 2022. REUTERS/Aris Martinez

"It's a Panama Canal type of negotiation," said Hernan Arboleda, director of public policies at the economy and finance ministry, pointing to the country's experience in negotiating with the United States to secure control of its famous waterway.

"Panama can demonstrate to international authorities that this is not an equitable contract," he told Reuters.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.