Cobre Panamá dispute unlikely to go to litigation, says economist

Toronto-based First Quantum Minerals’ dispute over the Cobre Panamá mine with the Central American nation’s government is unlikely to go to litigation, according to an economist. 

Felipe Chapman, a former Panama stock exchange general manager, sees little chance of protracted litigation between the government and First Quantum subsidiary Minera Panamá due to the importance of the mine for the country and how these issues have been resolved in the past.

Government figures show the mine represents about 3.5% of GDP, but First Quantum claims the figure is 5%.

"I assess that there will be an agreement. I don't see it going to litigation and that affecting country risk," the economist told BNamericas, adding that country risk has not deteriorated yet.

First Quantum expects production of 770,00-840,000t of copper this year, up from 2022 revised guidance of 755,000-785,000t and based on normal operations at Cobre Panamá. 

Cobre Panamá would contribute between 350,000t and 380,000t. First Quantum also has operating mines in Zambia. 

“Guidance involves estimates of known and unknown risks, uncertainties and other factors, which may cause the actual results to be materially different,” said the miner in a statement, adding that “First Quantum continues to engage with the government of Panama and the company remains ready to reach an agreement that is fair and equitable to both parties.

“At this time, the timing and impact of any care and maintenance regime enacted by the [trade and industry] ministry remain uncertain. Given this, production guidance is based on normal operations with no disruption to production.”

Negotiations on a new operating contract with Panama’s government started after the supreme court declared unconstitutional in 2018 a law from the 1990s under which the flagship mine’s concession was awarded.

On December 15, President Laurentino Cortizo ordered a halt to commercial operations of the mine, after subsidiary Minera Panamá missed a deadline to sign a new contract due to disagreements on royalties and tax payments.

Uncertain future

Both parties resumed talks over Christmas, but the future of the mine remains uncertain while the authorities insist on a halt to operations because there is no current contract. However, there is no clear date for this to happen.

First Quantum said that “the company had indicated to the government of Panama that it is prepared to accept and pay a minimum of US$375mn per year… comprised of corporate taxes and a profit-based mineral royalty of 12 to 16%, with downside protections.” 

In the meantime, Minera Panamá is working on a number of steps to address the resolution from the national directorate of mineral resources of the trade and industry ministry requiring it to suspend commercial operations at Cobre Panamá. 

Record production

First Quantum reported record copper production of 350,000t for 2022 at Cobre Panamá, up from 331,000t in 2021. 

Production guidance for the US$6.5bn copper mine was previously put at 330,000-360,000t copper for last year.

The Canadian miner, which also produces gold and nickel, achieved annual copper preliminary production of 776,000t, which was within the 2022 revised guidance range of 755,000t to 785,000t but 5% down from 2021. Copper production in Q4 was 206,000t, or 4,000t more than in 4Q21 and 11,000t more than in 3Q22.