Panama legislators approved a bill on Thursday that blocks all future mining concessions including exploration, extraction and transportation of minerals as well as contract renewals in the Central American country.
The National Assembly at the last minute pulled a provision that would have rescinded a contract signed last week for First Quantum Minerals’ (TSX: FM) Cobre Panama copper mine. Instead, it referred the agreement, enshrined in Law 406, to the country’s Supreme Court for a ruling.
Production at Cobre Panama remains uninterrupted for now, First Quantum said on Friday.
“However, like many businesses across Panama, protests, including blockades of key roads, have caused disruptions on site as well as shortages in certain supplies,” it said.
BMO Capital Markets said the country would be unlikely to pass a new mining code before a national election next May if the court ruled Law 406 is unconstitutional. President Laurentino Cortizo can’t run again because of term limits and the situation remains uncertain, the bank said.
But it said First Quantum will likely continue to operate the mine for the time being because the law is till in place. Also, the government of Cortizo probably won’t hold a national poll on the contract next month as it had planned.
“We do not expect that either First Quantum or the government intends to disrupt mining operations (as it likely didn’t intend to cause temporary mine closure in February), especially into an election when Panama is already facing drought-related disruptions to canal operations,” BMO mining analyst Jackie Przybylowski said in a note to clients late Thursday.
“We expect the mine will continue to operate through this period of uncertainty; revisions to the mining code in 2024 will not be so severe as to justify or force closure. We do see risk to temporary disruptions from protest activities at the port,” Przybylowski wrote.
Protests
Other companies active in Panama include Franco-Nevada (TSX: FNV; NYSE: FNV), Orla Mining (TSX: OLA), Antler Gold (TSXV: ANTL) and A.I.S. Resources (TSXV AIS). It remains unclear how the new law will affect their projects and operations.
Legal experts told The Northern Miner before the vote that First Quantum could probably take the contract fight to international arbitration if the government rescinded the agreement.
Last month, the government and First Quantum reached a multi-billion dollar agreement, which was enacted into law by parliament, triggering a series of violent protests that have almost paralyzed Panama City, the capital.
Demonstrators claim the new contract was fast-tracked with little public input or transparency and also made corruption allegations against lawmakers.
Locals worry about the mine’s effects on drinking water and the Panama Canal, already driven by El Niño to its driest October since 1950. First Quantum has repeatedly said the operation is far from any drinking water sources.
Analysts had estimated early this year that a decision to cancel the Cobre Panama mine’s contract would cut Panama’s economic growth from a forecast 6% in 2023 to 1%.
The Vancouver-based company, which lost about 50% of its value between Monday and Wednesday, is one of the world’s top copper miners. It was valued at about $11 billion on Thursday with a closing share price of $15.72 compared with $27.96 last Friday.
It is also Canada’s largest producer of the coveted metal, churning out 816,000 tonnes of copper in 2021, its highest ever, thanks mainly to record output at Cobre Panama.
Resources held by Countries other than Panama will be more strictly reviewed, especially those in third world countries.
Look for this to be the norm in the future as resources do not last forever and governments can be expected to be part of the contract settlement.