A general view of Cobre Panama mine owned by Canada’s First Quantum Minerals in Donoso, Panama.STRINGER/Reuters
Panama’s maritime authority is crimping First Quantum Minerals Ltd.’s efforts to ship copper out of the country, as the big Canadian copper miner faces the prospect of shutting down its giant Panamanian mine in a matter of weeks.
Late last year, Panama’s government ordered the Cobre Panama mine to close after the Central American country fell out with First Quantum FM-T over terms of a new fiscal agreement. The site had remained open pending an appeal with the Ministry of Commerce and Industries.
On Monday, First Quantum said Panama had issued a resolution requiring the company to suspend the loading of copper concentrate at the Punta Rincon port. That effectively prevents First Quantum from shipping its copper to export markets.
Because there is limited storage capacity at the port, the Canadian miner says it could be forced to cease operations at the mine by the middle of the month.
The order by Panama is “part of a series of escalating attempts by the government to pressure the company into accepting a refreshed concession contract on the government’s terms,” First Quantum said in a release.
First Quantum earlier agreed to pay Panama a minimum of US$375-million a year in taxes from now on, which is about eight times higher than its last publicly disclosed tax bill.
But sticking points remain over a final pact, including the size and amount of tax credits the company is allowed to use to offset its fiscal burden, and legal clauses to prevent early termination of the agreement and expropriation of the asset.
Last month, First Quantum indicated that an agreement with the government was within sight, but the latest salvo from Panama has put that thesis in jeopardy.
“Clearly we’re not done getting some headlines,” said Shane Nagle, an analyst with National Bank Financial Inc. “Everyone is waiting for someone to blink.”
Occasionally, fiscal negotiations between overseas states and Canadian companies can stretch for years, with mines shut down in the interim. That kind of drastic scenario punishes the mining company, which loses revenue, and the host country, which forfeits tax revenue and jobs.
Toronto-based Barrick Gold Corp. spent almost three years negotiating a new profit-sharing agreement with Tanzania, in East Africa, while being subject to a punishing gold export ban, before finally reaching a pact in 2020.
Mr. Nagle says it’s extremely difficult to predict whether First Quantum and Panama will go down a similar route. At the moment, both sides appear to be entrenched.
First Quantum has shown it is willing to push back hard when faced with tax uncertainty abroad. In Zambia, where the company also has extensive copper operations, First Quantum withheld new investment pending the outcome of tax talks, Mr. Nagle said.
Located 120 kilometres west of Panama City, Cobre Panama is Vancouver-based First Quantum’s biggest operation.
In 2021, First Quantum paid US$42.6-million to Panama for Cobre Panama, a fraction of what it paid for its mines in Zambia. But that was in large part because of tax credits amassed during Cobre Panama’s construction. The mine cost First Quantum US$6.8-billion to build, and was only completed in 2019, meaning the company can still avail itself of years of tax credits.
Panama has joined scores of other mining countries – including Mexico, the Democratic Republic of Congo, Pakistan, Peru, Bolivia, Colombia, Chile, Zambia, Mali, Papua New Guinea and Australia – that have pushed through, or have pushed for, royalty hikes, income tax increases and bigger ownership stakes in mines.
After spending big on social programs early in the COVID-19 pandemic, many countries are trying to raise funds as their economies slow. With metals such as gold and copper trading near record-high levels, foreign mining companies reaping windfall profits look like an easy target.
Shares in First Quantum fell by 8 per cent on Monday on the Toronto Stock Exchange to close at $25.65 apiece.