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Panama president directs First Quantum to shut copper mine after court ruling

Published Nov 28, 2023 07:30 Updated Nov 28, 2023 18:58
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© Reuters. FILE PHOTO: View of the Cobre Panama mine, of Canadian First Quantum Minerals, in Donoso, Panama, December 6, 2022. REUTERS/Aris Martínez/File Photo

By Elida Moreno and Valentine Hilaire

PANAMA CITY (Reuters) - Panama's president said on Tuesday that Canadian miner First Quantum (TSX:FM)'s lucrative copper mine Cobre Panama would be shut down, hours after the country's Supreme Court declared its contract unconstitutional.

President Laurentino Cortizo said in a televised address on Tuesday evening that "the orderly and safe closure of the mine" would begin as soon as the Supreme Court's ruling was formerly published in the official gazette.

Cobre Panama has sparked public anger in the country that has spilled into street protests. The protests began as small, environmental ones against the mine but have morphed into broader demonstrations against the government amid charges the contract was too generous.

First Quantum said on Tuesday it had suspended commercial production at the mine and was putting in into care and maintenance.

The ruling puts the company on the long and unpredictable road of international arbitration, although it has suggested it would seek to avoid the process if possible through pre-arbitration talks with the Panamanian government.

The contract in dispute was agreed last month by Panama's government and provided First Quantum a 20-year mining right with an option to extend for another 20 years, in return for $375 million in annual revenue to Panama.

"We have decided to unanimously declare unconstitutional the entire law 406 of October 20, 2023," Supreme Court President Maria Eugenia Lopez said on Tuesday.

First Quantum acknowledged the ruling and affirmed its "unwavering commitment to regulatory compliance in all aspects of our operations within the country."

Protester groups on social media said they would keep demonstrating until the ruling was published in the official gazette.

First Quantum shares closed down 0.8%. The company has lost more than C$10 billion ($7.4 billion) of its market value since the protests started in late October and the mine was later forced to suspend production.

The ruling will also have consequences for the copper market, as Cobre Panama accounts for about 1% of global copper production. Benchmark copper on the London Metal Exchange was up 0.9% at $8,441 a metric ton.

Dwindling copper supply from Panama and Peru could wipe out global surplus in 2024, analysts said.

ELECTION FACTOR

Cobre Panama is an equally significant business for the Central American nation, contributing about 5% of Panama's GDP. J.P. Morgan warned this month that the odds of Panama losing its investment-grade rating would rise significantly if the contract was revoked.

The fierce opposition toward the deal was becoming a major factor in the country's May 2024 presidential election, with candidates pushing for more state control of the mine.

The company's Panama unit in a statement on Tuesday said it would "remain attentive to constructive dialogue" on the mining contract before deciding its course of action.

A spokesperson for Canada's foreign ministry said it respects the decision of Panama's Supreme Court of Justice and was closely following the contract negotiations.

Former president, millionaire businessman and leading presidential candidate Ricardo Martinelli last week proposed that Panama renegotiate the contract with the Canadian firm to secure higher royalties and a stake in the project.

But in response to the protests, Panama's government enacted a bill in November banning all new mining concessions and extensions that legal experts have said would prevent the two parties from negotiating a new deal.

    The country's top court ruled against First Quantum's previous contract in 2017. The decision was upheld in 2021, but the current government allowed the miner to keep operating while both parties negotiated a new deal.

For First Quantum, the Panama ruling would be a repeat of its experience in the Democratic Republic Of Congo, where it exited in 2012 after filing an arbitration procedure against the African country for cancelling its mining contract.

First Quantum sold its assets to Eurasian Natural Resources Corporation PLC for $1.25 billion and settled the dispute.

The company has spent about $10 billion in developing the Cobre Panama mine over a decade. The mine produced 112,734 tonnes of copper in the third quarter and accounted for about 46% of its overall third-quarter revenue of $2.02 billion, according to the company.

($1 = 1.3590 Canadian dollars)

Panama president directs First Quantum to shut copper mine after court ruling
 

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