The Panamanian government has ordered First Quantum Mining to cease operations at its Cobre Panama copper mine after it failed to agree with the government on the terms of a new contract.
The move, which is unusual among Latin American countries, comes after First Quantum missed a Wednesday night deadline to sign a new royalty deal that has been in the works since September 2021.
First Quantum said on Friday it was doing everything possible to support its operations in Panama, "including through all available legal means". It also expressed disappointment at the government's "unnecessary actions."
Ebrahim Asvat, a lawyer and member of the Panamanian negotiating team, said the closure would not happen immediately. "The national government has decided to order all departments to take the necessary measures to adequately maintain the mine."
A deal was reached in January in which the company pledged to increase royalties for the mine. It also agreed to give Panama between 12 and 16 percent of gross profits, instead of a 2 percent revenue cut.
First Quantum has also agreed to start paying 25 percent corporation tax until its investment in the mine is recouped.
Finalizing the deal dragged on for months until President Laurentino Cortizo's government set a Wednesday night deadline for First Quantum to sign a new contract.
At issue appears to be a provision that would require the Vancouver-based mining company to pay at least $375 million in royalties to the country.
The Panamanian government has "shown all the necessary patience, good faith and best will to get the mining company to ratify the agreement reached, which is why we expect a return from the company, which has not happened."
The president added, "This is unacceptable to me as president, it is unacceptable to the government, and it is unacceptable to the Panamanian people."
From a copper market perspective, any continued shutdown of the mine would further tighten global supply, with a projected shortfall of 4.7 million tonnes a year by 2030.
First Quatum's Cobre Panama reached commercial production in September 2019. The asset is estimated to have proven and probable reserves of 3.1 billion tonnes and could produce more than 300,000 tonnes of copper per year at full capacity, accounting for about 1.5 per cent of global copper production.
The company said it had invested about $10 billion in Panama Cobre, the largest private investment ever in the country, and was considering expanding the mine's processing capacity from 85 million tonnes to 100 million tonnes a year in 2023. This will allow the company to increase copper production to nearly 360,000 tonnes by the end of this year and 350,000 to 380,000 tonnes by 2023.
First Quantum is one of the world's largest copper miners and Canada's largest copper producer. The company produced an all-time high of 816,000 tonnes of copper in 2021, largely thanks to record production from Cobre Panama.
The company is expected to meet its 2022 copper production target of 790,000 to 855,000 tonnes by the end of the year.
The Cobre Panama mine, about 120 kilometers west of Panama City and 20 kilometers off the Atlantic coast, contributes 3.5 percent of Panama's gross domestic product, according to government data.
