Panama's approval of a deal with a copper miner last month was supposed to be a formality. Instead, it sparked nationwide protests that crippled the economy, destabilized the government, and led to a nationwide ban on new mines.
The outburst of public anger caught investors off guard, forced a chaotic retreat by authorities and wiped out an estimated $6.5 billion in value for shareholders of Canada's First Quantum Minerals Ltd. The company is considered a savvy operator with decades of experience in development projects in Africa. Now a question mark hangs over the future of the company's huge Cobre Panama mine.
The protests soon became more than just about coal mines. Panama is already unhappy with inflation, high unemployment and corruption, but there is also long-standing dissatisfaction with Cobre Panama's environmental impact and its contribution to the economy. As elections approached, riots gathered around the mine, prompting the government of President Laurentino Cortizo to make a sudden U-turn on the mine's operating contract.
The episode provides a cautionary tale for foreign investors: even in relatively investor-friendly countries such as Panama, mining projects are vulnerable to public hostility and resource nationalism. That raises questions about deployment that will require billions of dollars of investment in the coming decades to extract copper and other key minerals the world needs to transition away from fossil fuels.
In March, First Quantum reached a new arrangement with the government for the mine, which appeared to be a win-win. The company received a 20-year extension on its most profitable asset, while the government received a bigger share of the windfall that will allow it to raise pensions ahead of the May 5 election.
However, criticism of the deal is brewing. Yarelys Gomez, an ecologist who took part in the street protests, said the debate over the mine arrangements was rushed through Congress without adequate consultation. When the largest labor union in the United States joined the demonstrations, they quickly snowballed.
As unions, environmentalists and student groups blocked highways and clashed with police, food prices soared in the capital as farmers were cut off. On Sunday, October 29, Cortisso tried to restore calm by calling for a referendum on the mine contract.
