By Divya Rajagopal, Valentine Hilaire and Elida Moreno
TORONTO (Reuters) -Shares in First Quantum Minerals (OTC:FQVLF) closed down 28% on Monday after Panama's government said it will hold a referendum on whether to scrap a mining contract awarded to the Canadian mining company earlier this month.
The sell-off wiped C$5.6 billion ($4.1 billion) from the miner's Toronto-listed shares.
The decision from Panama's president to hold a binding referendum on Dec. 17 comes after thousands of people took to the streets to protest the contract finalized on Oct. 20 for the Canadian company's local unit to operate open-pit mine Cobre Panama.
Nonetheless, Panama's electoral board said on Monday that the conditions for a referendum were not favorable amid factors including lack of legal provisions and the short time frame for arranging the vote, adding further complexity to the process.
Shortly after, Panama's interior minister presented a bill in Congress to mandate the vote.
Demonstrations continued on Monday, with protesters criticizing both the deal and the mine's environmental costs and calling for the government to annul the contract.
The company's operations were also disrupted over the weekend as protesters stormed a port used by the company.
First Quantum (NASDAQ:QMCO) said that it condemned the "illegal and violent" attempt to disrupt operations. It did not respond to a request for further comment.
Panama's government and the company agreed to a contract, that would guarantee Panama annual income of $375 million while allowing First Quantum's local unit to operate the Cobre Panama mine for at least 20 years.
Cobre Panama represents nearly 5% of Panama's gross domestic product and 1.5% of global copper production, according to RBC Capital Markets.
Panamanian authorities have said scratching the contract could wipe out its economic growth and cost the country 40,000 jobs.
"If the contract is revoked we think that the probability that Panama loses its investment-grade rating in the short term rises significantly," according to an analysis note by JP Morgan.
The issue is likely to be an "overhang" on First Quantum's shares until the outcome of elections in Panama next May, Jeffries said.
($1 = 1.3844 Canadian dollars)