First Quantum Minerals Ltd. suspended operations at its lucrative copper mine in Panama after the country’s maritime authority refused a permit the company needs to load its copper for export — a standoff that indicates further deterioration in the miner’s relationship with Panama’s government.
The Vancouver-based company has been negotiating a new deal for control of the Cobre Panama mine, situated about 120 kilometres west of Panama City, for about a year. First Quantum warned earlier this month that it might be forced to suspend the processing of ore because of the impasse with the maritime authority over the renewal of a permit to load at its port. First Quantum said it was running out of storage space because it was unable to export.
“The company believes that all of the Panamá Maritime Authority’s (AMP) requirements … have been duly met and exceeded, however, the AMP has continued to block … export operations,” First Quantum said in a statement on Feb.23.
Panama’s industry ministry said in its own statement that it has worked “tirelessly” over the last few months to finalize an agreement with First Quantum’s Panamanian subsidiary, but that the company had “demonstrated the opposite” by refusing to sign the agreement with “previously accepted terms” and not “honouring” its word.
The country’s government alleged that First Quantum is “engaging in delay tactics that have lengthened the process for more than a year, seeking to change the agreement so the Government of Panama does not receive the fair compensation.” It urged First Quantum to “refrain from creating unrest and uncertainty about the stability of the thousands of workers and suppliers who depend on the mining activity.”
Cobre Panama represents one of the most significant deposits of copper on the planet. The metal is currently in high demand and is expected to play a key role in the shift away from fossil fuels, given it is essential for most electricity-related infrastructure, including wind turbines and solar photovoltaic panel wiring, and to transfer electricity.
Earlier this month, First Quantum said that it was asked to produce a third-party assessment confirming that its scales at the port that weighs the copper concentrates had been properly balanced. The company, which submitted the proof, said that the regulator’s demand deviated from prior practice.
As a result of the suspension, First Quantum has begun letting go some of the mine’s 8,000 employees and contractors.
“The impact is expected to increase significantly in the coming weeks if concentrate shipments do not resume,” the company said. “In addition to workforce reductions, the mine has ceased purchasing supplies and services that are equivalent to $20 million in weekly revenues to more than 2,000 Panamanian companies.”
Meanwhile, negotiations with the government about a new contract to control the mine are continuing, the company said.
Statements from Panama’s industry minister and First Quantum in the past few months suggest an increasingly strained relationship, as the parties try to agree to a new contract.
Talks broke down temporarily in mid-December after a deadline to sign a new contract was missed and the Panama government ordered the miner to make plans to temporarily suspend operations.
The company’s chief executive Tristan Pascall had said on a Jan. 10 conference call that First Quantum and Panama weren’t “far away” from a new agreement. First Quantum had agreed to pay Panama’s government US$375 million per year through taxes and royalties.
But Panama’s industry minister, Frederico Alfaro Boyd, told The Financial Post just days later that there was still a “significant gap” between the two sides on certain terms of the contract, including the amount of money the government would pay First Quantum if the contract was terminated and tax provisions.
First Quantum’s previous contract to run the mine was annulled by Panama’s Supreme Court in 2017 and according to Panama’s industry minister, the miner has been running the mine without a contract ever since.
Pascall said the Panama government had previously assured the company that the contract remained valid despite the court’s decision.
Bank of Montreal analyst Jackie Przybylowski, who follows First Quantum, expects the latest move to have a negative impact on the company’s shares. In a note sent to clients on Feb. 23, she dropped the company’s one-year target to $22 per share from $23. “We are optimistic that First Quantum and the government of Panama will reach agreement,” she said. “There is a risk that the mine is closed for longer if government negotiations do not lead to a resolution.”
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Bank of Nova Scotia analyst Orest Wowkodaw echoed a similar sentiment in his note. He said the latest news indicates a “strained relationship” between the two parties.
First Quantum shares were down about four per cent at mid-morning in Toronto, trading at about $25 per share, within a 52-week trading range of $18.67 and $45.38. The company has a market cap of $17.8 billion.