First Quantum Panama copper mine deadline passes without a deal  

The government of Panama has rejected a last-minute proposal by First Quantum Minerals (TSX: FM) to amend its US$375 million a year royalty agreement, casting the operation of the Cobre Panama copper mine into doubt.  

Panama President Laurentino Cortizo plans to hold a Cabinet meeting and address the nation today on the government’s next steps, according to Federico Alfaro Boyd, minister of commerce and industries. 

Shares in First Quantum fell 5.7% in Toronto on Thursday to $30.50 each, within a 52-week range of $18.68 and $45.38, valuing the company at $21.2 billion. 

The Central American country gave the Vancouver-based miner until yesterday to ink a contract after the two agreed in January to the royalty plan and improvements for workers, the environment and the local community.  

Negotiations ran all night past an extended 6 a.m. Thursday deadline, then First Quantum’s local unit Minera Panama submitted a new proposal.  

“The company did not agree to sign the contract proposed by the government that reflected the January 2022 agreement,” Boyd said in an email through a spokesman. “Instead, the company sent at 6:16 am a new proposal that, among other things, fundamentally changed economic aspects, such as a modification to the previously agreed royalty regime. This action is regrettable.”  

First Quantum said today it accepted the $375 million a year in payments which it says would make Cobre Panama pay some of the highest royalties and taxes among copper mines in the Americas. Negotiations failed because legal protections on termination, stability and transition arrangements could not be agreed, it said.  

“Our goal remains to find a mutually acceptable resolution, which we believe is in the best interests of all parties,” First Quantum chief executive officer Tristan Pascall said in a statement today. “Over the past 25 years, First Quantum and its predecessor have invested at least US$10 billion to build one of the world’s largest, safest and most advanced copper mines.”  

Negotiations to renew the mine’s contract began in September 2021. But in the past month First Quantum “made unreasonable demands that have often moved us further apart from the original points of the January 2022 agreement, instead of closer together,” Boyd said.  

The January agreement also included the miner paying the government 12% to 16% of its gross profit, which would replace a 2% revenue royalty, and to start paying a 25% corporation tax that hadn’t applied while the miner recovered its investment costs.  

The new contract was slated to include a closure plan and better working conditions at the site about 120 km west of Panama City and 20 km from the Atlantic coast. It also called for the government to earn more than US$400 million a year from the mine based on copper prices. 

Cobre Panama began operations in 2019. It includes two open pits, a processing facility, two power plants and a port. The mine is estimated to hold 3.1 billion tonnes in proven and probable reserves. Last year it produced 331,000 tonnes of copper, exceeding an original target of 300,000 tonnes. 

First Quantum wants to expand output to as much as 380,000 tonnes next year and to as much as 400,000 tonnes in 2024, it said in February. 

The operation has generated some US$6.7 billion in private investment and 3.5% of Panama’s gross domestic product, according to government figures.