Why might Panama cancel a copper mine contract?

Nov 28 (Reuters) – Panama’s top court on Tuesday ruled that First Quantum Minerals Ltd’s new contract unconstitutional after unprecedented protests against the mining contract that the Canadian miner signed with the government last month.

The decision puts the company’s Panama mine on a long path of uncertainty that includes international arbitration. The company has already lost more than 50% of its market share since the protests started and was forced to shut the mine.

Panama’s moves raises questions about copper supplies, as Cobre Panama accounts for about 1% of global output. The $10-billion copper mine produces a critical metal for production of electric vehicles.

Here are some questions surrounding Panama’s actions.

WHAT IS THE DISPUTE ABOUT?

The dispute dates back to 2017 when Panama’s top court deemed unconstitutional the law under which First Quantum was operating the mine.

First Quantum inherited the contract after it replaced Petaquilla Gold as operator of the mine in 2013.

Challenges against the court’s decision were rejected and the ruling was upheld in 2021, forcing the company to start negotiations for a fresh deal with the government.

The new contract, agreed to on Oct. 20, was signed into law by Panama’s government, which provides First Quantum a 20-year mining right with an option to extend for another 20 years, in return for $375 million in annual revenue to Panama.

While the government has said the new contract offers better terms than the previous one, Panamanian protesters disagree.

WHAT ARE THE PROTESTERS’ DEMANDS?

The protesters led by the country’s main labour union Suntracs say the contract is overly generous to the Canadian miner and allege corruption. They also argue the mine poses environmental risks and demand the annulment of the contract and a ban on all new mining projects.

WHAT HAPPENS NEXT?

Panama’s government allowed the miner to operate while negotiations for the contested contract took place earlier this year. Following Tuesday’s ruling, Panama’s president said the country will abide by the decision.

People aware of First Quantum’s operations in Panama said there could be three possibilities- Panama closes the mine indefinitely, the mine is nationalized, or a constitutionally correct contract could be negotiated by First Quantum and Panama, as the arbitration goes for international arbitration.

Ahead of the court ruling, lawmakers approved a bill banning new mining concessions. The fierce opposition toward the deal is becoming a major factor in the country’s May 2024 presidential election and candidates are pushing for more state control of the mine as they seek to assuage public anger.

But the Panama’s government has not publicly said if it was planning to nationalize the mine.

WHAT ARE LOCAL EXPERTS SAYING?

First Quantum said this week that it still hopes to avoid arbitration procedure with the country and want to resolve the issue during the 90-day period of talks.

Panama has said it will defend its rights in case of a arbitration procedure. Local mining chamber of Panama has estimated that the First Quantum could claim arbitration worth $50 billion from Panama, but these figures could not be independently verified by Reuters.

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