Inmet keeps wary eye on smouldering Panama policy debate

Toronto-based Inmet Mining (IMN-T) is on the periphery of a pitched battle between Panamanian President Ricardo Martinelli and indigenous groups protesting the government’s 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 Corporation (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 contained lbs. copper and 5 million contained oz. gold. 

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

Inmet received approval of its environmental and social impact assessment in early January and a basic engineering study is scheduled for completion in the second quarter. 

In late February during a presentation at BMO Capital Markets’ Global Metals and Mining conference in Hollywood, Fla., Inmet confirmed that copper concentrate shipments could 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 focused on infrastructure development and industrial expansion policies. Panama is one of the fastest growing Latin American economies and has averaged 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 Ngobe and Bugle people since early last year following the government’s attempt 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 assessments.

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

Apparently little has changed in Panama since then. In early February the Ngobe-Bugle communities again blocked highways, and clashed with police in anti-mining 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 peoples’ policy model has similarities with Canada’s amended Indian Act. 

In 1997 Panama’s government ratified Law No. 10, which deals with the Ngobe and Bugle communities. Like the Canadian provisions, the Panamanian legislation entitles its “first people” to a tract of comarca  land — which is 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 km north of the San Felix township, in the Ngobe-Bugle indigenous land claims. 

The government announced the tender of Cerro Colorado in early 2011. Thought to be one of the world’s largest untapped copper reserves, Cerro Colorado has remained nearly untouched since its discovery in the 1970s owing to volatile political conditions in the country and insufficiently high 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 stated in an interview with Reuters at the BMO conference that the company is exploring alternative financing options. 

Following the US$155-million deal with KPMC that was announced in January, Inmet publicized its intent to divest a further 20% to 40% interest in the project for 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 (capex), which would likely be raised by debt or market financing.

Under the second option, Inmet would divest 50% of its 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 told the CBC. “The people know and can witness the company’s commitment to the communities.” 

Despite what Inmet describes as sunny relations with local groups, one larger question is whether Martinelli has enough political support to advance his political agenda. 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.

Inmet’s expected capex for 2012 equals 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 $69.78 high in the second week of February before falling to a $57.38 low in the first week of March. Overall share prices have declined 12%, or $7.65, since the Jan. 3 trading session, on average volumes of 305,200 shares per day, to a presstime close of $57.85.