First Quantum’s Panama contract issues are minor: BMO

More contract negotiations between Panama’s government and First Quantum Minerals (TSX: FM) won’t impact operations at the giant Cobre Panama copper mine and should be resolved rapidly, an analyst says.

The government on Thursday suspended ratification of a contract signed in March so it and the Toronto-based miner could hammer out five points. But the issues aren’t critical to the site’s economics, BMO Capital Markets wrote in a note on Thursday.

The contract was signed after the government closed the mine in February for several weeks in a dispute over royalties and taxes. Those issues were resolved but a government committee raised other points on the road to ratification.

The new delay caused shares in First Quantum to fall 2.2% from their intra-day high on Thursday before regaining most of it to close at $30.88. On Friday morning they had risen 3.5% to $31.96, valuing the
company at $22.1 billion. The shares have traded in the range of $21.32 to $39.13 for the past year.

“We believe the parties will come to resolution quickly,” BMO mining analyst Jackie Przybylowski said in the note. “First Quantum continues to expect ratification before the National Assembly’s October 31 recess.”

The issues concern authority to close airspace above the mine for safety reasons like when blasting, rights to draw water from Panama Canal, the process to acquire additional land, gold exploration rights, and large shareholder disclosure.

Airspace control will likely rest with the government, the mine hasn’t used Panama Canal water, and the contract will probably clarify that the miner can’t unilaterally expropriate more land, Przybylowski said. And the disclosure item isn’t an issue because First Quantum already does so as a public company.

Protests this month against the contract led by the union SUNTRACS, which doesn’t have workers at Cobre Panama according to BMO, should subside because it’s raising most of the same issues, the analyst said. Non-governmental organizations have also protested against the contract.

After the five items are settled, the contract would be approved by Panama’s nine-member Commerce Committee, then head to the 71-member National Assembly for a majority vote. Public debate concluded and is not expected to resume. Panama President Laurentino Cortizo could call a special session of the assembly if the contract isn’t signed before the recess, BMO noted.

“We view near-term volatility as an attractive buying opportunity,” Przybylowski said.