Panama's Supreme Court on Friday began deliberations that will decide the fate of First Quantum Mining Corp (TSX: FM) giant Cobre's Panama copper mine, the only mining operation in the Central American country.
The Supreme Court is expected to rule on several constitutional challenges to the contract the Canadian miner signed with the Panamanian government in October. Under the contract, the project will continue for the next 20 years.
The global copper market, investors and Panamanians are closely watching the outcome of these discussions. For the past few weeks, Panama has been paralyzed by massive anti-mining protests.
The court did not give a timetable for releasing the verdict, but local lawyers contacted by MINING.COM expected it to be released within days.
Protests on land and at sea have blocked the delivery of critical supplies to the mine, forcing First Quantum to halt operations again this week, and also affecting farmers, schools, emergency services and a long list of businesses that have been unable to stay open for lack of staff and supplies, stranded on many blockaded routes in and out of the capital.
The protesters claim the mining contracts were agreed quickly with little public input or transparency. Mary trinine Sea, an award-winning Panamanian journalist, wrote on Friday: "The book is available electronically but is not allowed to be downloaded... We're talking about a country where 40 percent of the population doesn't have the Internet."
Activists have also leveled corruption allegations against lawmakers and the company, which has denied any wrongdoing.
"First Quantum has always been an advocate for Panama and its people, committed to the rule of law, with the goal of bringing benefits to the country," the company said.
Greta and Leo chimed in
As demonstrations against the contract morphed into an anti-government mining end-to-end movement, public figures came out in support of the cause.
Hollywood actor Leonardo dicaprio joined Panamanian activists over the weekend, sharing a video calling for the "mega-mines" to cease operations.
Climate activist Greta Thunberg also spoke out on social media. Through her official Instagram account, she called on the nine justices of Panama's Supreme Court to save the Donoso Forest by finding the mine contract unconstitutional.
Opponents say Cobre Panama sits within a key biodiversity area of global significance.
"The road built for the mine cuts through the heart of Panama's Atlantic Mesoamerican Biological Corridor, which connects wildlife habitat in seven Central American countries to southern Mexico," Amy Upgren, director of international programs for the American Bird Conservancy, said in a statement.
"Ecological corridors are critical for animals to find food, habitat and mates," she noted.
The financial issues involved
A ruling against the mine would have huge implications. The uncertainty surrounding Cobre Panama has already wiped C $10 billion off First Quantum's market value in a month, almost 50 per cent of its market cap. It could also be a blow to the Central American country, as the mine accounts for about 5 percent of the country's GDP, 75 percent of Panama's merchandise exports and directly or indirectly supports at least 40,000 jobs.
Canadian miner Franco-Nevada (TSX: FNV), which struck a streaming deal with First Quantum's local subsidiary Minera Panama, has cut its production forecast for the year due to reduced business.
Cobre Panama, which has been in production since 2019, produced 112,734 tons of copper in the third quarter of 2023, contributing $930 million to First Quantum's total third quarter revenue of $2.02 billion.
Analysts at BMO Capital Markets believe First Quantum's financial position allows it to weather the storm in the near term.
"First Quantum has sufficient liquidity under our base scenario assuming Cobre Panama mine closes at the end of 2023," BMO analyst Jackie Przybylowski wrote.
She added that there will be challenges if Cobre Panama continues to shut down for 80 days in 2024, as it would reduce First Quantum's cash to zero under the bank's current commodity and cash outflow assumptions.
Przybylowski said a shutdown in the first half of the year, after the presidential election in May 2024, would result in a $267 million cash shortfall. This estimate does not include cash reserves needed for working capital.
If the court rules that the contract with First Quantum is unconstitutional, President Laurentino Cortizo will be in a tricky position since his government passed a bill on Nov. 2 banning all new mining concessions and extensions. That would prevent the two parties from negotiating a New Deal.
