First Quantum (FM-T) has this week started reducing operations at its Cobre Panama mine in the face of escalating protests.
The Canadian miner is caught in a perfect storm of environmental, social and governance (ESG) issues that threatens to derail one of the world’s biggest and newest copper mines.
Panama has a long mining history but Cobre Panama is the first major new investment this century. The mine started up in 2019 and produced 350,000 metric tons of contained copper last year, contributing 1% to global copper production and 5% to Panama’s gross domestic product.
However, it has also generated a protest movement that has spread beyond environmental groups to trade unions, students and large swaths of the general public.
There are now calls not just for the Cobre Panama mine to be closed but for Panama to shun all future mining as well.
How First Quantum’s $10 billion copper mine went from promised economic boom to cause of mass popular unrest is a story peculiar to Panama but one that has a moral for the global mining industry.
TROUBLED PAST
Environmentalists were opposed to the Cobre Panama mine even before First Quantum bought the property in 2013 and started construction work a year later.
The Center for Environmental Impact, also known by its Spanish acronym CIAM, brought a lawsuit before Panama’s Supreme Court of Justice in 2009, claiming the original award of the concession in 1997 was illegal since there had been no public tender.
The Supreme Court agreed in a 2017 ruling, at which point environment and governance issues become intertwined.
Neither government nor company appear to have been in a rush to negotiate the new contract required by the court’s ruling. A bill largely reaffirming the old contract was thrown out by lawmakers in 2019, at which stage Cobre Panama was making its first shipments of copper concentrates.
By the time detailed negotiations on a new contract started in 2021, the mine was already ramping up to full production.
It took over two years to get a final text, the government at one stage blocking export shipments from the mine and the company threatening international arbitration in retaliation.
Lawmakers were supposed to sign the new contract into law in September but suspended debate to allow for further revisions. It was finally passed in October, but by then small protests of largely environmental groups had morphed into much bigger and broader demonstrations against the government.
Some of those protesters have been blocking the mine’s Punta Rincon port, impacting supplies to the power plant, which is why First Quantum has started reducing processing activities.
Both sides of the stand-off are now waiting for the country’s top court to rule on a number of legal challenges to the contract. There is a distinct possibility the contract will be voided.
Either way, it’s unlikely to be the last chapter in this Panamanian copper saga, given next year’s looming elections.
WHAT WENT WRONG
This all started with the “E” in “ESG.” Cobre Panama, located in primary rainforest, was something of an environmental cause célèbre even before the first shovel hit the ground.
When Canada was negotiating a free-trade agreement with Panama in 2010, MiningWatch Canada cited the project as an example of the “existing threats to Indigenous peoples and the environment” in testimony to lawmakers.
Although First Quantum is keen to stress its green mining credentials - replanting deforested area, for example - both it and the government have evidently failed to win the broader argument with environmental activists over the ensuing decade.
Governance of the project became a problem as soon as the country’s top court ruled against the original contract in 2017. But it took four years and a failed attempt to appeal before the government and company sat down to thrash out a new contract.
The subsequent protracted talks have pitted company against government with little or no reference to the people of Panama.
The lack of transparency around the negotiations has itself become a major grievance and one that has coalesced with broader dissatisfaction with the government.
By failing to address environmental and governance issues, the Cobre Panama mine is now at risk of losing its social license to operate, whatever the court judges might say.
NO MINING?
Indeed, such is the anti-mining mood in Panama right now, there is a real possibility the country might ban all future projects.
In a sop to protesters, the government has already put a moratorium on all new mine concession approvals.
If Panama were to ban all mining activity, it wouldn’t be the first. El Salvador did so in 2017 after a similar escalation of protests against a planned gold mine.
Rising social opposition to new mines isn’t just a Central American thing.
Europe is desperately seeking its own supplies of battery metals such as lithium. The biggest lithium resource on European soil is the Jadar project in Serbia but it’s on indefinite hold after large-scale, often violent protests across the country.
This too is a story of environmental opposition snowballing into broader issues of governance and government.
The mining industry is still struggling to adjust to the new reality that if you don’t get the “ESG” right, you don’t get to mine.
The tale of Cobre Panama is an object lesson in getting it wrong.
The Swedish Sámi Association, representing an Indigenous people living across the northern part of Scandinavia and Russia, last week called on the European Union to guarantee the right of Free, Prior and Informed Consent (FPIC) under U.N. charter for any new critical mineral projects.
First Quantum sought and received an FPIC with the Ngabe-Bugle Indigenous people. But it’s a shame that at no stage in the 26 years since awarding the Cobre Panama concession did the Panamanian government think it worth seeking such consent from its broader population.
It may still seek to do so - but it may be too late.
Editor’s note: An earlier version of this story included an incorrect reference to the legality of the mine’s contract. It has been updated to clarify that First Quantum sought and received an FPIC from the Ngabe-Bugle Indigenous people.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.