First Quantum to appeal order to put Cobre Panamá on C&M

Bnamericas Published: Tuesday, January 10, 2023

First Quantum Minerals is appealing the order by Panama's trade and industry ministry to put its Cobre Panamá mine under care and maintenance (C&M), CEO Tristan Pascall said Tuesday during a conference call. 

On December 21, the ministry ordered the Canadian company to cease commercial operations at the copper mine and have a care and maintenance plan within 10 business days, which expired last Wednesday. The decision came after First Quantum missed a December 14 deadline to sign a new operating contract due to disagreements on royalties and tax payments.

"The next step is we are submitting an appeal to the minister today, the 10th of January. As required by the government, we are currently working on a plan for how we would operate the mine, pending local legal and administrative action," said Pascall.

Vancouver-based First Quantum reported earlier that local subsidiary Minera Panamá is working to address the resolution from the government requiring it to suspend commercial operations at Cobre Panamá, adding that the miner will deliver a plan to put the mine under care and maintenance to the government for review. 

"At this time, the timing and impact of any care and maintenance regime enacted by the ministry remain uncertain. In the interim, operations at Cobre Panamá continue as normal, with no disruption to production as yet," First Quantum said in a statement on Tuesday.

"We are concerned that the government will require us to put the mine under care and maintenance. This is a drastic and, in our view, unnecessary step, which could potentially have a significant impact on employees, our suppliers, and the communities around us," said Pascall. 

In a letter sent to employees of Minera Panamá last week, First Quantum’s general manager Alan Delaney said the company could suspend a "significant amount" of its workforce if the government forces it to put the mine on care and maintenance.

Pascall said Cobre Panamá has created at least 40,000 jobs directly and indirectly while contributing some 5% of Panama's GDP. 

According to the government, the company breached a pre-agreement last January under which Panama would receive a minimum annual contribution of US$375mn from the mine in royalties and taxes.

A new contract was needed after Panama's highest court declared illegal in 2018 a law under which the Cobre Panamá concession was granted in the 1990s.

Sticking point

First Quantum and Minera Panamá said Tuesday that they are "prepared to agree with, and in part exceed, the objectives that the government outlined in January 2022 related to revenues, environmental protections, and labor standards. This includes a minimum of US$375mn per year in government income, comprised of corporate taxes and a profit-based mineral royalty of 12% to 16%, with downside protections aligned with the government's position." 

According to Pascall, discussions with authorities continue in a "respectful" way and "in good faith," with President Laurentino Cortizo personally involved. And even though there has been good progress on the economic side, the major "sticking point" is principally on the legal side. 

The CEO said the company is asking for conditions to ensure legal protections and that the contract is durable and long term. "They are the security of surface rights, the stability of the tax and royalty regime, and reasonable protections against lawful expropriation and early termination and the clause around termination. 

"Those are the main points outstanding. I don't think we're very far away. You know, there has been progress and movement since December 14. And these final items do need to be resolved but do need to be resolved fairly for us to close this out," he added.

Pascall clarified that Cobre Panama is taking "precautionary measures" and has initiated an arbitration process under the existing concession contract, as previously informed to authorities. "We have also notified the government of our intent to initiate international arbitration under the Canada-Panama free trade agreement. Both of these processes are underway in the initial stages," he said. 

Production guidance for the US$6.5bn mine was previously put at 330,000-360,000t copper for 2022.

Later Tuesday, cabinet ministers were due to appear before lawmakers to explain the status of the new contract that the government is negotiating with Minera Panamá.

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