Panama鈥檚 Supreme Court聽 that First Quantum Minerals鈥� (TSX: FM) contract to operate its giant Cobre Panama copper mine, the only mining operation in the Central American country, is unconstitutional.
Challenges against the聽contract, which would have allowed Cobre Panama to keep operating for the next 20 years, piled up in court following public protests against the deal inked in October by the government and First Quantum鈥檚 local subsidiary, Minera Panama.
The court began deliberations on Friday and continued over the weekend. It announced a 12-hour break at the end of Monday鈥檚 session, delivering its verdict in in the early hours of Tuesday morning. The announcement and watched by almost 24,000 people just in the first hour.
The court鈥檚 president Maria Eugenia Lopez聽said the vote against the contract had been unanimous, adding the ruling will now be published in the country鈥檚 official government newspaper.
President Laurentino Cortizo that his government was ready to start 鈥渢he transition process for the orderly and safe closure of the mine.鈥�
First Quantum that it was reviewing the ruling and that it 鈥渃ontinues to reserve all its local and international legal rights in regards to developments in Panama.鈥�
The Supreme Court decision adds to a growing list of questions surrounding First Quantum鈥檚 Cobre Panama mine and its implications.聽
Lawyers contacted by 九游下载apk agree that the most immediate effect would be a freeze of First Quantum鈥檚 operations in the country. This doesn鈥檛 mean much though, they said, as Cobre Panama has been halted since Friday.
A previous contract was ruled illegal once before, in 2017, but the mine continued to operate as usual while both parties negotiated a new deal. Unprecedented public anger against the project this time may force the government to adopt a stricter approach, local sources said.
Multi-layer earthquake
The ruling 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, supporting at least 40,000 jobs, directly and indirectly.
It is also likely to lead to international arbitration. First Quantum on聽Sunday sent Panamanian authorities . 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�
Panama legislators had ratified the new contract between the executive and First Quantum, but reconsidered their decision after massive protests 鈥� the largest since a cost of living crisis last July 鈥� almost paralyzed the country.
罢丑别听land and sea ongoing demonstrations聽 blocked the delivery of crucial supplies to the mine,聽forcing First Quantum聽to halt operations again聽this week. The protests have also affected聽, schools, emergency services and a long list of businesses unable to keep up activities due to lack of staff and supplies, stranded along the many blocked routes in and out the capital city.
Over the weekend, demonstrators received endorsements from climate activist聽Greta Thunberg and Hollywood actor Leonardo Di Caprio, who calling for the 鈥渕ega mine鈥� to cease operations.聽
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
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�
Shares in First Quantum were down 3% to A$9.07 in Toronto on the news Tuesday. Uncertainty around its flagship mine in Panama had already wiped about C$10 billion off First Quantum鈥檚 market value,聽almost 50% of it, since Cortizo decided to call a referendum on the contract. The popular vote was cancelled and the final decision was ultimately placed in hands of the Supreme Court.
Amid protests and the failed referendum, Panama legislators passed a bill聽that originally sought to revoke First Quantum鈥檚 contract, but ended up banning all future mining concessions, including聽exploration, extraction and transportation of minerals, as well as contract renewals in Panama.聽