Cascade of negative effects to hit Panama due to mine shutdown

Panama is facing economic and legal troubles in the wake of a supreme court ruling to close the flagship Cobré Panamá copper mine.

Local media cited a report by economic advisory Oxford Economics that found “the economic and fiscal prospects ... have weakened after the supreme court of Panama ruled that a new mining contract was unconstitutional.”

In addition, South Korean state miner Komir, which owns 10% of Minera Panamá,the local unit of the mine’s Canadian owner, First Quantum Minerals, is pursuing a 1tn-won (US$750mn) investor-state dispute settlement over expected losses due to the shutdown, The Korea Economic Daily reported last week.

ECONOMIC TROUBLES

Oxford Economics estimates “that suspending operations at Minera Panamá could reduce GDP growth to 1.9% from 4.2% in 2024, and to 2.9% from 4.1% in 2025, and only return to long-term growth in 2026.” 

The firm also expects that “rating agencies will soon downgrade Panama’s credit rating due to weaker growth fundamentals and increasing risks to the country’s ability to achieve its fiscal goals.”

The most recent downgrade occurred in October 2023, when Moody’s cut Panama's rating to 'BBB-', following Fitch Ratings, whose decision two months earlier reflected growing uncertainty about Panama’s fiscal position and expectations of a permanent loss in its potential output. 

Similarly, S&P rated the country 'BBB' with a “negative” outlook.

DISPUTE SETTLEMENT

Komir’s dispute settlement figure is based on the sale of a 10% stake in Minera Panamá by LS MnM, formerly LS Nikko Copper, to First Quantum for US$665mn in 2017, according to the newspaper.

The state miner has contracted law firm Kim & Chang to handle the dispute.

First Quantum, which owns 90% of Minera Panamá, filed a claim against Panama with the International Chamber of Commerce in November.

The Toronto-based company said it achieved copper production of 708,000t in 2023, some 68,000t less than in 2022. The mine accounted for about 5% of Panama’s GDP and represented up to 75% of exports.

The supreme court ruled in December that a 20-year contract between the company and the government was unconstitutional and that the mine had to close. In its ruling, the court cited environmental and human rights concerns raised by the local community.

Before the decision, Minera Panamá experienced weeks-long blockades of the mine’s power plant and parts of the Pan-American highway by environmental activists.