The Panama Incident Is Another ESG Flashpoint For Miners

In the face of escalating protests, First Quantum this week began reducing operations at its Cobre Panama mine.
The Canadian miner is caught in a perfect storm of environmental, social and governance (ESG) issues that threaten to derail one of the world's largest and newest copper mines.
Panama has a long mining history, but Cobre Panama is the first major new investment project this century. The mine, which started production in 2019, produced 350,000 tonnes of copper-containing copper last year, accounting for 1 per cent of global copper production and 5 per cent of Panama's gross domestic product.
However, it also sparked a protest movement that spread from environmental groups to trade unions, students and the public at large.
There are now calls not only for the Cobre Panama mine to be closed, but also for Panama to refrain from any further mining in the future.
How First Quantum's $10bn copper mine went from a promised economic boom to sparking massive popular unrest is a story unique to Panama, but with lessons for the global mining industry.
A troubled past
Even before First Quantum bought the Cobre Panama mine in 2013 and began construction a year later, environmentalists opposed the project.
In 2009, the Center for Environmental Impact, known by its Spanish acronym CIAM, filed a lawsuit with Panama's Supreme Court, claiming that the concession originally awarded in 1997 was illegal because there was no public tender.
The Supreme Court agreed in a 2017 ruling, at a time when environmental and governance issues are intertwined.
Neither the government nor the company seem eager to negotiate the new contracts required by the court ruling. In 2019, lawmakers threw out a bill that largely reaffirmed the old contract when Cobre Panama was making its first shipment of copper concentrate.
By the time detailed negotiations for a new contract begin in 2021, the mine is already in full production.
The final text took more than two years to hammer out, with the government at one point blocking exports from the mine and the company threatening international arbitration in retaliation.
Lawmakers were supposed to sign the new contract into law in September, but adjourned debate to allow for further changes. The bill was eventually passed in October, but by then small protests, mostly by environmental groups, had morphed into larger and more widespread anti-government demonstrations.
Some of those protesters blocked the mine's port of Puntalincon, affecting supplies to power plants, which is why First Quantum began reducing processing activities.
Both sides are currently waiting for the country's Supreme Court to rule on a number of legal challenges to the contract. It is quite possible that the contract will be cancelled.
Either way, given the upcoming general election next year, this is unlikely to be the final chapter in Panama's copper saga.
What's the problem?
It all starts with the "E" in "ESG." Located in a pristine rainforest, Panama was an environmental problem even before the first shovel landed.
In 2010, when Canada was negotiating a free trade agreement with Panama, MiningWatch Canada cited the project as an example of "existential threats to indigenous peoples and the environment" in testimony to lawmakers.
While First Quantum was keen to emphasise its green mining credentials - such as replanting deforested land - both the company and the government apparently failed to win over the wider arguments of environmental activists in the decade that followed.
Governance of the project became an issue after the country's Supreme Court ruled on the original contract in 2017. But it took four years and one failed appeal attempt before the government and the company sat down to discuss a new contract.
The simple fact is that one of the world's largest copper mines has been operating without a legal contract since it shipped its first ore.
The protracted negotiations that followed pitted the company against the government, with little or no mention of the Panamanian people.
The lack of transparency in the negotiations has become a major grievance in itself, combined with a broader dissatisfaction with the government.
For failing to address environmental and governance concerns, Cobre Panama now risks losing its social operating license, no matter what the court judge says.
No digging?
In fact, such is the current anti-mining sentiment in Panama that there is a good chance the country will ban all future projects.
To appease the protesters, the government has suspended the approval of all new mining concessions.
If Panama bans all mining, it would not be the first. El Salvador took the measure in 2017 after a similar escalation of protests over a planned gold mine.
Social opposition to new mines is growing, and not just in Central America.
Europe is desperately seeking its own supply of battery metals such as lithium. Europe's largest lithium resource is Serbia's Jadar project, but it has been put on indefinite hold due to massive violent protests across the country.
It's also a story of environmental opposition snowballing into broader issues of governance and government.
The mining industry is still struggling to adapt to the new reality that if you don't handle 'ESG' properly, you can't mine.
The Panama story is an object lesson in what went wrong.
Sweden's Sami Association, which represents indigenous peoples living in northern Scandinavia and Russia, last week called on the European Union to guarantee the right to free, prior and informed consent (FPIC) for any new important mineral projects under the UN Charter.
Regrettably, in the 26 years since Cobre's Panama concession was granted, the Panamanian government has never considered it necessary to seek the consent of its own people.
It may still seek to do so - but it may be too late.