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Panama says First Quantum operating without contract

Canadian miner’s struggles come as governments around the world look to earn more revenue from mining operations

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The Panama government says First Quantum Minerals Ltd. has been operating without a contract since 2017, the latest sally in rocky negotiations over the Canadian miner’s flagship copper mine.

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First Quantum has been negotiating a new contract for the rights of the Cobre Panama mine, situated about 120 kilometres west of Panama City, for about a year. Talks broke down briefly on Dec. 16 when the Panama government halted discussions and announced plans to suspend Quantum’s operations.

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Earlier this week the Canadian miner said it was close to a deal, but on Jan. 10, Panama’s industry ministry said the miner’s contract was annulled by the Supreme Court in 2017, and First Quantum continued to operate as a new deal was being negotiated, Reuters reports. 

First Quantum chief executive Tristan Pascall said in a call with analysts on the same day that despite the court’s decision, the Panama government had assured the company that the contract remained valid.

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Based on the latest negotiations, First Quantum has agreed to pay Panama’s government US$375 million per year through taxes and royalties, a commitment that Pascall described as “unique” in the world of taxation.

“We want to reach an agreement on the outstanding items without further delays, but it must be a mutually beneficial outcome that provides legal certainty,” Pascall said during the Jan. 10 call.

The two sides were still negotiating over security of surface rights, a stable tax and royalty regime and protections against expropriation and early terminations. Since these issues remain unresolved, First Quantum continues to work on a plan to bring the mine under care and maintenance and stop production, as ordered by the Panama government in December.

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Pascall called Panama’s decision to put the mine under care and maintenance as “drastic” and “unnecessary.” He added that if the mine does suspend its operations, the company would be forced to cut a significant section of its local workforce.

“This is not something that we want to do,” Pascall said. “We are doing everything possible to avoid the outcome; we asked for a reconsideration of the decision, which the ministry of commerce and industries has rejected. As a next step we are submitting an appeal to the minister.”

The CEO also said the company intends to initiate international arbitration under the Canada-Panama Free Trade Agreement.

First Quantum’s struggles in Panama come at a time when governments around the world are looking to earn more revenue from mining operations in their jurisdictions. Demand for green metals such as copper and lithium have surged as countries look for ways to meet their climate goals.

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“You see the same concern in other major copper producing countries such as Peru and Chile,” said Patricia Mohr, an independent analyst who follows battery metals.

“The demand for critical minerals of which copper is one is going to be very strong … governments around the world realize this and they want to ensure that their take is what they think adequate.”

Canada itself announced its first critical minerals strategy last month with an aim to boost the production of the minerals needed to build electric vehicles.

With three billion tonnes of reserves, Cobre Panama is one of the largest new copper mines to open globally in the past decade, according to First Quantum.

First Quantum shares were trading at $31.09, up 0.48 per cent, by midday on Jan. 11. The company has a market cap of $21.1 billion.

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