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Panama’s Buried Treasure: A copper-rich country prepares to cash in

The country is among a number in Latin America sitting on massive mineral reserves and wringing major concessions from mining companies

NATHAN VANDERKLIPPE INTERNATIONAL CORRESPONDENT

The Cobre Panama mine has been gouged from the rain forest at a scale only great underground wealth could achieve.

Its 38 ultraclass mining trucks, each loaded with 400 tonnes of ore, whiz past at 35 kilometres an hour, their speed boosted by electric trolley lines. They feed conveyor belts that move 300,000 tonnes of ore a day, the equivalent of 16 CN Towers in a week, in a place that can see more than seven metres of annual precipitation.

The mine’s generating station produces enough electricity to run 300,000 Canadian homes, sending 34,500 volts to some of the largest ore mills on the planet. Its warehouse can store enough olive-tinted copper dust to meet the entire world’s needs for nearly two days, a critical resource in a global sprint toward electrification that depends on ever more copper to make electric wires and motors.

Then there are the supersized cheques the mine, operated by Vancouver-headquartered First Quantum Minerals Ltd., is now promising the government of Panama.

After a bruising fight that forced it to suspend operations earlier this year, First Quantum signed a new concession agreement in March that increases government revenue by roughly tenfold.

The terms set a new benchmark for the value a country can extract from a foreign mining company, including a royalty rate that rises with operating margins – and a floor for government revenues with a US$375-million minimum annual contribution.

The new agreement promises to shower villages near the mine, which already contributes nearly 5 per cent of Panama’s GDP through direct and indirect spending, with millions of dollars a year. If that money arrives – an open question – it will constitute an almost unimaginable windfall for remote outposts that in some cases consist of no more than a few dozen homes.

For Panama, it’s the equivalent of building “another canal,” says Alberto Casas, the company’s community affairs manager for Latin America.

The opening of the Panama Canal a little more than a century ago did more than alter the economic course of Panama, of course. It changed the world.

Now, the new agreement for Cobre Panama has raised another possibility: Can a copper mine help do the same?

Geographically, the mine is an isolated pit dug into a distant jungle, its own port its sole connection to global markets. But in many ways, Cobre Panama stands at the centre of the currents buffeting miners around the world.

The industry’s work has perhaps never been more central to global political and environmental imperatives. Without sufficient copper, lithium and other critical minerals, the crucial drive to replace the gas-guzzlers on roads and smokestacks on power plants will stumble. The race to extract those minerals in sufficient quantities “could result in a huge lift for the sector. A huge lift,” says Jeff Killeen, policy director for the Prospectors and Developers Association of Canada. He cheers the “growing realization of how the mineral industry is inherently linked with everyday life.”

At the same time, political leaders around the world are demonstrating a new appetite to keep for themselves the revenues those minerals can produce, even as the industry struggles in an age-old fight to win the favour of those who live near the minerals it wishes to extract. Some of those lie in Panama itself, including one of the world’s greatest untapped copper deposits.

But to develop Cobre Panama and other potential mines, the industry needs to find a way to keep from being submerged beneath the waves of public interest and appetite, and instead navigate toward a new licence to explore and produce.

It’s an urgent imperative.

The International Energy Agency has already predicted that by 2030 – a date no longer in the distant future – mines either in production or under construction will meet only half the world’s demand for lithium and cobalt, and just four-fifths of its copper demand.

Without those minerals, needed battery-powered cars simply won’t get made, says Steve LeVine, a writer and observer of energy and politics who is an adjunct professor at the Georgetown University Center for Security Studies. If demand for zero-emission cars rises as expected, “it’s indisputable that there’s going to be a shortage of EVs in the second half of the decade,” he says.

He points to just the latest governmental zeroemission edict, a California ban on diesel heavy trucks by 2036. “This isn’t going to happen,” he predicts. “And one reason is these shortages.”

When mining chambers from across Latin America gathered in Panama in March, they had reason to celebrate. The region extracts 40 per cent of the world’s copper and 35 per cent of its lithium. It holds vast additional untapped deposits of those minerals, in addition to great troves of undeveloped graphite, nickel and rare earth – the mineral building blocks of the energy transition.

But the miners had reason to worry, too, in particular about the floor-price provision in the new concession agreement for Cobre Panama. For an industry constantly wary about the next crash in commodity prices, it amounts to an unusual guarantee.

“All of them were concerned about this,” says Zorel Morales, executive director of the Mining Chamber of Panama. “Because they said it could spread out.”

Panama is hardly the only Latin American country to covet the new value of these minerals.

In Mexico, lawmakers have demanded more cash from mines for local communities. In Bolivia, the government continues to treat lithium as a strategic mineral that can only be exploited by state-owned companies.

In Chile, meanwhile, President Gabriel Boric said in April he plans to nationalize the country’s lithium industry, creating a state lithium company and negotiating for government ownership in leases currently held by private interests.

Chile is already the world’s second-largest producer of lithium, but Mr. Boric has publicly lamented the disparity between its immensely valuable reserves and the condition of its rural people.

“How is it possible that the people that live in the regions that produce the country’s greatest wealth are at the same time the poorest in the country?” he said.

Across the region, “governments are looking for more take from mining,” says Aaron Malone, a postdoctoral research fellow at the Colorado School of Mines who studies public policy in Latin America. “The pendulum between laissez-faire neo-liberalism and a more interventionist industrial policy mode is swinging back toward industrial policy. Countries are more willing to intervene.”

Historically, nationalization of mineral resources has mixed results, Mr. Malone says. But the prospect of increased government intervention today stands to inject new uncertainty into resource development, and “this could slow production of critical minerals.”

Retired mining executive Ross Gallinger was executive director of PDAC from 2011 to 2014.

He warns that creeping expropriation in critical minerals “could halt projects as they become less attractive from a financial perspective or investors see the jurisdiction as ‘risky.’ ”

Mexico’s mining industry has warned that new laws there could chase away $9-billion in investment. For First Quantum, the pain has been more immediate. Its first-quarter results showed an 80per-cent decrease in earnings, in part because of the suspension at Cobre Panama before it agreed to the new terms.

But that mine is now once again pouring great quantities of ore into its ball mills – which grind the ore as part of the mineral extraction process – and across the region, industry is holding out hope that government intervention won’t spell disaster. It may even bring opportunity.

Take Chile. Its new plans promise “a huge step forward” for those looking to further develop the world’s largest lithium reserves in the Atacama Desert, says Steve Cochrane, chief executive of Lithium Chile Inc., a small junior exchange-traded company based in Calgary.

Chile has asserted state ownership to lithium for nearly half a century. Creation of a national lithium miner will open avenues for partnerships with private companies, Mr. Cochrane believes.

Details on those partnerships remain to be seen. But “it will finally provide the pathway and the structure for companies like ourselves to actually go out and say we can produce and sell lithium,” he says.

Mr. Cochrane’s legal team has already begun conversations in Chile about exploring such an arrangement. He expects drills to begin turning on exploration holes later in May.

“Once people understand the situation, I think it’s going to create a land rush that will compare to the California gold rush.” Because, he says, “people are going to see that Chile is finally open for business.”

In the narrow neck between the Americas, meanwhile, the new agreement for Cobre Panama has raised similar hopes.

The mine has already begun to remake a place that has for decades drawn its livelihood as a middleman in trade and banking. Though Spanish colonialists extracted gold from what is now Panama, “Panama is not a traditional mining country,” says Stewart Redwood, a geologist in Panama who has written extensively about its mining history. Even the copper deposits now being mined by First Quantum were left undisturbed for decades after their discovery by the United Nations Development Programme in 1968.

Now, “suddenly it’s changing,” Mr. Redwood says. “I think the government will realize with Cobre Panama that mining is a serious business and can generate very significant revenues. It’s going to change the perception.”

If the industry and its supporters can convince enough people of mining’s merits, perhaps it can unlock an even richer copper deposit.

On paper, the new terms for Cobre Panama suggest a coming national bonanza. If the new agreement is finalized by the government, half of its additional bounty will go to social security, one-fifth to the country’s poorest pensioners and a quarter – more than $90-million a year – to the two districts situated closest to the mine. That’s nearly $2,000 a person.

It is money that will pour into some of the country’s poorest places. In Omar Torrijos, the community is still smarting from the disappearance of water buffalo, pineapple plantations and cacao processing. Some of those disappeared after the 1989 U.S. invasion that toppled the country’s military dictatorship, which had brought the buffalo to the area.

It wasn’t until Cobre Panama opened up nearby that the area’s fortunes began to reverse, says Humberto López Tirone, a former Panamanian ambassador who now operates a guest house.

“There are very few people still against it, because the benefits have been overwhelmingly bigger than expected,” he says. “This mining company is the first to actually try and restore old glory.”

He points to scholarships for local students, who have received training to qualify for work at the mine. A few dozen local farmers have formed a cooperative that last year sold more than $3-million in fruits and vegetables to the mine: yucca, cucumbers, peppers, cherry tomatoes, eggplant, pineapple and culantro.

The latter, an herb also known as Mexican coriander, has proven successful enough that some farmers are now selling to Nestlé.

The mine now operates what it calls the biggest nursery in Panama, growing numerous varieties of jungle trees for a reforestation project that aims to restore far more forest than the mine occupies. At the nursery, workers nurture seeds collected from the jungle into saplings of guayacan, elephant ear tree, Spanish cedar and rosewood.

Some will be planted on agroforestry plots. Coffee, in particular, grows well under shade. The mine has subsidized local farmers to plant coffee in reforested areas, and has built a small roaster beside the nursery. The resulting grind is sold as “born from copper.”

“It smells like honey and cinnamon,” boasts master roaster Paola Garcia. She previously worked as a cleaner at the mine for $600 a month. Last year, she sold $35,000 in coffee.

A short drive away, a local recruitment office for the mine sees 60 people on some days. Some come from three hours away. John Barrera, a mine employee, helps some with the most basic of application steps, such as fashioning their own resumé. “Many people come to talk,” he says, “to see if maybe we have an opportunity.”

For miners, though, the biggest opportunity isn’t at Cobre Panama. It’s 130 kilometres away, at what the U.S. Geological Survey calls one of Earth’s largest undeveloped copper deposits. Cerro Colorado contains an estimated billion tonnes of ore boasting an even higher grade than what First Quantum is now mining.

Cerro Colorado has been an unfulfilled dream of generations in Panama. It was the promise of work there decades ago that led expectant young Panamanians to study engineering in the USSR, Bulgaria and Poland.

But “when we came back after finishing our degrees, the project was already shut down,” says Mr. Morales, from the Chamber of Mines. In 2011, a renewed government effort to develop the deposit was met with protests that shut down a Panamanian highway and forced the president at the time to acknowledge that three-quarters of his population didn’t want mineral development.

For years, Cerro Colorado and another copper deposit, Cerro Chorcha, have been untouchable. Both are located within the Indigenous territory of the Ngäbe-Buglé, which occupies roughly 8 per cent of Panama’s land mass. A law passed in 2012 prohibits mineral development there.

Mining work can only be revived at the request of Ngäbe-Buglé leadership, which has previously led opposition efforts.

Now that Cobre Panama is in production, the mining industry believes the money pouring out will change minds, by reducing inequality and spreading what Mr. Morales calls a new “vision of mining” in the country.

Mining Chamber president Alfredo Burgos predicts the Ngäbe-Buglé will form a joint-venture company to develop those deposits and request an end to the mining prohibition. It could happen soon – “three years from now,” he says.

Canada, he suggests, shows it can be done. Indigenous leaders from mining areas in British Columbia and Saskatchewan have visited Panama to speak about their own experiences. In late March, Pierre Gratton, president of the Mining Association of Canada, also travelled to Panama City, to mark the Mining Chamber’s adoption of Towards Sustainable Mining. It’s a standard that is one of the industry’s attempts to ensure mining is done in a way that doesn’t turn local populations against it.

Nearly two decades ago, British Columbia concluded an accord that provided for sharing of resource revenues with Indigenous groups. Today, “there are several operating mines in B.C. that probably would not have proceeded without that policy,” says Mr. Gratton, who was previously CEO of the Mining Association of British Columbia. “It really made a difference.”

Could Panama be next?

On the dusty roads outside Cobre Panama, the lucrative promise of critical minerals meet one of the industry’s oldest problems. Money may be pouring out from the burnt shine of copper that bubbles to the surface in its flotation tanks. For the people living nearby, though, there is often little evidence of it.

“Even though we are 10 minutes away” from the mine, “we have not seen benefits,” says Pacifico Vergara, a political leader in San Juan de Turbe. There is new employment: He figures roughly 10 per cent of residents in his community now work for the mine. Elsewhere, little change has come.

“In our town, there’s no school. There’s no water. There’s no clinic. There’s no internet. There’s no cellphone signal,” he says. The Mining Chamber describes one municipality where millions of dollars have “just disappeared.”

Another town has yet to receive a clinic the mine promised. Cobre Panama says it’s not for lack of trying. Local authorities rejected a design submitted by the company because it “didn’t have parking for an ambulance,” says Mr. Casas, First Quantum’s community affairs manager. “But the community doesn’t have roads. You can only get there by boat.”

Local complaints about insufficient cash from resource projects are hardly a new problem for the mining industry. Countering that by establishing proof of benefits “takes years,” says Agustin Sanz, a legal consultant to Three Crowns, a Washingtonbased law firm that specializes in international mediation. It can be done. He points to the oil and gas industry, which has found an increasingly warm welcome in parts of Latin America.

But the race to address climate change depends on minerals, not fossil fuels, which lends a much broader importance to local dissatisfaction over Cobre Panama.

The country’s Indigenous communities aren’t unanimous in their rejection of developing other deposits, like Cerro Colorado. Perhaps a direct deal between a mining company and Indigenous communities “could be done,” says Manuel Martinez, a project officer with the Ngäbe-Buglé.

For now, however, the experience of local communities with Cobre Panama has done little to build confidence.

“I don’t see anything positive,” says Marcelo Guerra, the president of the National Co-ordinating Body of Indigenous Peoples in Panama.

He remains wholly opposed to pursuing additional copper mines, pointing to past experience with other projects that have poisoned waters.

“Of course Indigenous communities want progress,” he says. “But not at that cost.”

For the rest of the world, copper may be one of the most important ingredients for fighting climate change, which is also bringing new hardships to Panama.

Mr. Guerra, however, is unmoved.

“For Indigenous communities, what matters are the forest and the rivers,” he says. “The rest of the world has a very different way of thinking. And when you allow these companies to explore copper in our territory, what you are going to have in the future is destruction.”

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2023-05-27T07:00:00.0000000Z

2023-05-27T07:00:00.0000000Z

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