Panama open to negotiating again with First Quantum, as it shops giant copper mine to third parties

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Panama is extending an olive branch to embattled First Quantum Minerals Ltd. FM-T that opens the door to solving a bitter tax dispute that has hit the valuation of Canada’s biggest copper miner hard over the past 48 hours.

A source familiar with the situation said that Panamanian government representatives have told First Quantum it is willing to reopen talks to solve the impasse.

The Globe and Mail is not identifying the source as the person was not authorized to speak publicly.

The government of Panama did not immediately respond to a request for comment.

First Quantum and the Central American country had been in talks for more than a year to try to hammer out a new profit-sharing agreement to replace the existing pact that sees the company pay a royalty based on a percentage of its revenue from Cobre Panama. The mine, which is First Quantum’s biggest, is located 120 kilometres west of Panama City.

During talks, Panama demanded First Quantum pay it a minimum of US$375-million a year, regardless of how the mine performs and regardless of the price of copper. But that could put First Quantum under significant financial strain if the commodity crashed. First Quantum wanted downside protection against that scenario.

After talks broke down on Thursday, the president of Panama, Laurentino Cortizo, went on national television to announce that he was taking steps to shut down the Cobre Panama mine.

Panama has been working behind the scenes with an investment bank to potentially sell the mine to third parties, The Globe reported on Friday.

First Quantum’s biggest shareholder, Jiangxi Copper Corp. Ltd., a Chinese state-controlled company, in the past has been floated as a possible acquirer of the Canadian copper miner.

Jiangxi did not respond to a request for comment on Friday.

On Thursday, shares in First Quantum fell by 14.7 per cent at the Toronto Stock Exchange, the biggest single-day drop in more than 2½ years. On Friday, the stock lost another 1 per cent amid the uncertainty.

First Quantum said Friday that it remained open to dialogue with the government, but also warned that it will use “all available legal means” to preserve the value of Cobre Panama.

“Our goal remains to find a ‘win-win’ resolution with the government that will safeguard 40,000 jobs and protect our investment,” the company said in a release.

“We are doing everything possible to support the Cobre Panama work force, preserve the value and integrity of the mine and defend First Quantum and its stakeholders from the government’s unnecessary actions.”

Cobre Panama is one of the most prized assets in the copper industry. It is currently the sixth-biggest copper mine in the world and unlike many other large mines, it is early in its lifespan, having only gone into production in 2019.

While Panama has not said it was prepared to seize the mine, the Mining Chamber of Panama said that the language coming out of the government points to it as a possibility.

“It is sadly contradictory to send the message to the international community that in Panama there are inclinations towards the expropriation of private investment,” the chamber said in a Dec. 12 release.

Other Canadian miners have seen their assets expropriated after clashing with foreign governments. Centerra Gold Inc.’s flagship Kumtor mine was nationalized by the Kyrgyz Republic last year, and later Centerra was forced to sell it at a fraction of its worth to the government.

Orest Wowkodaw, a mining analyst with Scotia Capital Inc., is optimistic that First Quantum won’t meet a similar fate.

“The operating suspension appears to be largely a negotiating tactic by the government, albeit a relatively heavy-handed one,” he said in a note to clients on Friday.

“We continue to anticipate an amicable resolution to this impasse, particularly given how close the two sides appeared to be on a new operating agreement before negotiations fell apart.”