Panama: Uncertainty over First Quantum’s future has cut its stock price in half in the past month
NIALL McGEE MINING REPORTER
Globe and Mail
REPORT ON BUSINESS
First Quantum Minerals Ltd. says it will likely soon suspend production at its giant copper mine in Panama in the face of continuing protests, as its licence to operate hangs on an impending legal decision in the country. Vancouver-based First Quantum has been in crisis mode since last month after Panamanian President Laurentino Cortizo announced that a referendum will be held on whether to repeal the law that legalized its latest mining contract. The government only last month signed a new 20-year contract on First Quantum’s Cobre Panama mine into law. But as the contract was making its way through the legislature, thousands of environmentalists, Indigenous groups and labour activists took to the streets to protest against the Canadian miner. Soon after the referendum was called, Panama’s government said it would instead let the country’s Supreme Court decide on the constitutionality of the recently negotiated mine contract. On Friday, the court will hear the matter, and will remain in session until there is a resolution. A few weeks ago, protesters entered First Quantum’s port in Panama, preventing supplies from reaching its processing plant. First Quantum on Monday said that if the port blockade continues, it will be forced to temporarily halt production at the mine this week. Orest Wowkodaw, an analyst with Scotia Capital Inc., said on Monday in a note to clients that he’s concerned about First Quantum’s highly leveraged balance sheet in light of a possible extended shutdown of the mine. As of Sept. 30, the company was carrying US$6.8-billion in debt. Located 120 kilometres west of Panama City, the Cobre Panama mine is a major engine of the Panamanian economy. The mine has created around 40,000 direct and indirect jobs, and accounts for about 5 per cent of the country’s gross domestic product. Cobre Panama started production in 2019, cost the company US$6.8-billion to build and is its biggest mine by far. First Quantum’s stock market value has been cut in half over the past month because of uncertainty over its future. Juan Carlos Araúz, a lawyer specializing in international private law and a former president of the National Bar Association of Panama, in an interview predicted that the Supreme Court will rule in favour of First Quantum and ultimately decide the contract is constitutional. He estimates that the court will take about a week to make its decision. If the court finds the contract to be unconstitutional, the government may reopen talks with the mining company with the aim of extracting tougher terms on a new contract. But a more drastic scenario would be a government-mandated shutdown of the mine. If that were to happen, First Quantum would be expected to launch international arbitration proceedings against Panama, a process that could take years to play out. Regulation of the mining sector has become a major issue for voters in the Central American country. Several candidates vying to replace Mr. Cortizo in the country’s 2024 election had already opposed First Quantum’s new contract with Panama. Concerns have been raised not only about the contract’s financial terms, but also the potential damage the open-pit mine may wreak on the densely forested local environment. The protests have attracted huge international media attention and become a cause célèbre with Hollywood movie star Leonardo DiCaprio voicing his support to protesters in an Instagram post flagging environmental concerns about the mine’s impact. Under First Quantum’s existing mining contract, the company had agreed to pay a minimum of US$375-million in taxes a year to Panama, or about nine times more than it had previously been paying. Last week, it made a payment of US$567-million to Panama, which accounted for the period from December, 2021, to October of this year. Shares in First Quantum fell by 3.5 per cent on the Toronto Stock Exchange on Monday to close at $14.77 apiece.