Inmet keeps wary eye on smouldering Panama policy debate

Vancouver — Toronto-based Inmet Mining (IMN-T) is on the periphery of a pitched battle between Panamanian President Ricardo Martinelli and indigenous groups protesting the regimes aggressive resource expansion policies.

Inmet owns 80% of the Cobre Panama copper-gold project 120 km west of Panama City with joint-venture partner Korea Panama Mining (KPMC). Cobre Panama is one of the world’s largest undeveloped copper-porphyry deposits and has reserves of 2.1 billion tonnes grading 0.41% copper and 0.07 gram gold per tonne for 19.6 billion lbs. of contained copper and 5 million oz. of contained gold.

The company increased total measured and indicated resources on the property by 19% in early March through the addition of the Balboa copper-gold porphyry discovery, which holds 602 million tonnes of 0.36% copper and 0.1 gram gold totaling 4.8 billion lbs. contained copper and 1.9 million oz. contained gold at a 0.15% copper equivalent cut-off.

Inmet received approval on its environmental and social impact assessment in early January and a basic engineering study is scheduled for completion in the second quarter. Late last month during a presentation at the BMO Capital Markets Global Metals and Mining Conference in Hollywood, Florida, Inmet confirmed that copper concentrate shipments will begin in 2016. The company has invested around US$800 million in the project.

“We’re building roads, we’re building some major parts of the infrastructure, we’re already moving forward,” Jochen Tilk, the company’s president and chief executive, said at the conference, “The major milestone will come after the basic engineering report. As things move along we expect first production in mid-to-late 2016”.

President Martinelli’s administration is pro-business and focuses on infrastructure development and industrial expansion policies. Panama is one of the fastest growing Latin American economies, averaging an 8% growth rate over the past five years, according to reports from the World Bank.

The government has been at loggerheads with the country’s indigenous Ngabe and Bugle peoples since early last year following the regimes attempts to amend the country’s Code of Mineral Resources. The amendment was tailored to open up Panama’s resource development to foreign ownership and expedite environmental assessment processes.

What followed were aggressive populist protests aimed at the Martinelli regime and pro-business interests, led by representatives from the country’s indigenous groups.

Little has changed in Panama since then. In early February the Ngabe-Bugle communities again blocked highways, and clashed with police in what they have labeled “anti-mine protests”.

Negotiations mediated by the Catholic Church of Panama, and assisted by the United Nations resumed on March 5. Despite nearly a year of talks, the parties have made little progress.

The Panamanian indigenous people’s policy model has similarities with Canada’s amended Indian Act. In 1997 Panama’s government ratified Law No.10, which deals with the Ngabe and Bugle communities. Like the Canadian provisions, the Panamanian legislation entitles its “first people” to a tract of land — a “comarca,” similar to a reservation — as well as government autonomy within the region and “the right to participate and to be consulted on any natural resource developments in the comarca.”

Panama’s year-long debate began over the Cerro Colorado copper-molybdenum porphyry deposit 30 kilometers north of the town of San Felix, in the Ngabe-Bugle indigenous land claims.

The government announced the tender of Cerro Colorado in early 2011. Thought to be one of the larger untapped copper reserves in the world, Cerro Colorado has remained basically untouched since its discovery in the 1970s due to volatile-political conditions in the country and low copper prices.

“More than a dozen multinational companies have knocked on the doors of the ministry to show their interest in exploiting the site, but for now there is no definite date for beginning this process.” Roberto Henriquez, the then-head of the Trade Department, said at a press conference in January 2011.

Though Inmet maintains that the social unrest will not affect its ownership of the Cobre Panama project, Tilk did state in an interview with Reuters at the BMO conference that the company will continue to explore alternative financing options.

Following the announcement of the US$155 million deal with KPMC in January, Inmet made public its intent to divest a further 20% to 40% interest in the project to assist with financing the development costs.

Inmet has designed two ownership options for Cobre Panama’s development. The first option would entail the company retaining 80% ownership of the mine and providing US$3.7 billion in cash, while KPMC would contribute US$1.35 billion. The plan would leave the project short US$950 million of the projected US$6 billion capital expenditure, which would likely be raised via debt or market financing.

Under the second option, Inmet would divest 50% of its current stake in the project to a joint-venture partner interested in 40% ownership. The “40-40-20” schedule would see Inmet pay the US$3.7 billion figure, but would increase partner contributions to US$4.55 billion, leaving the project with a cash excess of US$2.2 billion assuming the US$6 billion capex.

Despite Panama’s vocal anti-mining interests, Inmet reports good relations with local groups surrounding the Cobre Panama site.

“It is generally well supported by people who live in the area.” Tilk noted during his presentation at the BMO conference.

In early February, Inmet subsidiary Minera Panama hosted a news team from the Canadian Broadcasting Corporation (CBC) to document the company’s efforts to maintain strong indigenous support.

“We have the support of the local population to move forward with the development of Cobre Panama, and this is most important.”  Minera Panama’s director of external relations, Mercedes Morris said in an interview with CBC, “The people know and can witness the company’s commitment to the communities.”

Despite what Inmet describes as sunny relations with local groups, the larger question is whether Martinelli’s boom-growth model is sustainable over the long term. According to a poll conducted by Central American research firm Dichter & Neira in early February, the president’s approval rating has fallen to 30% — down from the 73% rating he enjoyed at this time last year.

Expected capital expenditures for 2012 will equal US$183 million with the majority spent on the development at Cobre Panama. At the end of 2011, Inmet had US$1.7 billion cash.

Since the new year, Inmet’s market performance has been mixed.  The company picked up momentum after it received environmental approvals for Cobre Panama. Its shares rose to a high of $69.78 in the second week of February before falling to a low of $57.38 in the first week of March. Overall share prices have declined 12% or $7.65 since the January 3 trading session, on average volumes of 305,200 shares per day, to a presstime close of $57.85.