Panama has asked Canadian miner First Quantum Minerals (TSX: FM)聽to halt its Cobre Panama copper mine following a ruling by the Supreme Court that declared the mining contract for the operation unconstitutional.
President Laurentino Cortizo took to to announce his government had started 鈥渢he transition process for the orderly and safe closure of the mine.鈥�
The top court鈥檚 ruling capped six weeks of protests and official announcements over a contract that gave First Quantum 20 years of mining rights over the giant copper asset, with an option to extend the deal for another 20 years in return for $375 million in annual revenue to the Central American nation.
Challenges against the聽contract piled up in court following massive protests against the contract, which almost paralyzed the country.
Public figures including climate activist聽Greta Thunberg and Hollywood actor聽Leonardo Di Caprio backed the protests and 聽calling for the 鈥渕ega mine鈥� to cease operations, which quickly went viral.聽
First Quantum鈥檚 local unit Minera Panama that is interested in pursuing dialogue with the country鈥檚 government. It warned the court鈥檚 decision doesn鈥檛 touch several important points, such as how the government plans to prevent the arrival of illegal miners or what is going to happen to the more than 40,000 people directly and indirectly employed by Cobre Panama.
Workers staged demonstrations across the country later in the day, asking the government to protect their jobs or at least ensure they receive compensation if they are laid off.
Panama鈥檚 decision will have consequences for the copper market, as Cobre Panama mine accounts for about 1.5% of global production of the metal.
It will also affect the government鈥檚 coffers. The mine accounts for about 5% of its GDP and makes up 75% of Panama鈥檚 export of goods.
It is also likely to lead to international arbitration. First Quantum on聽Sunday sent Panamanian authorities聽.
It later clarified the move was not the beginning of a legal procedure, but rather 鈥渁 formality required by international treaties, with the purpose of opening a dialogue period of at least 90 days between the parties.鈥�
鈥淧ursuing international arbitration to recoup the massive financial loss of Cobre Panama would likely take years to resolve,鈥� Orest Wowkodaw, analyst with Scotia Capital Inc. wrote in a note to clients. 鈥淗owever, we believe this course of action could ultimately bear fruit.鈥�
Cobre Panama, in production since 2019,聽generated 112,734 tonnes of copper in the third quarter of 2023, contributing $930 million to First Quantum鈥檚 overall third-quarter revenue of $2.02 billion.
Analysts at BMO聽Capital Markets believe that First Quantum is in a financial position that allows it to weather the storm in the short term.
鈥淯nder our base-case scenario which assumes Cobre Panama mine closure through 2023 year-end, First Quantum has sufficient liquidity,鈥� BMO聽analyst Jackie聽Przybylowski wrote.
Challenges, she added, would arise if Cobre Panama remained halted for 80 days in 2024, as this would draw First Quantum鈥檚 cash down to zero at the bank鈥檚 current commodity and cash outflow assumptions.聽
鈥淭ricky鈥� spot
A closure for the first half of the year, beyond the May 2024 presidential election, would result in a $267 million cash shortfall, Przybylowski said. This estimation doesn鈥檛 including cash reserves required for working capital.
鈥淭he primary goal of the government and courts today appears to be calming the protests,鈥� Przybylowski wrote on Tuesday. 鈥淲e are optimistic that this approach will be successful, and that protests around the Cobre Panama port will subside, with mining operations likely to resume relatively quickly if protests are lifted.鈥�
Lawyers contacted by 九游下载apk聽said both the Panamanian government and First Quantum are now in a 鈥渢ricky spot鈥� since Cortizo鈥檚 administration passed a bill on Nov. 2聽banning all new mining concessions and extensions. That could prevent the two parties from negotiating a new deal.
Check this brief timeline explaining how First Quantum got to this point: