First Quantum and Panama restart Cobre Panama talks with early Jan. deadline

First Quantum Minerals (TSX: FM) says production is continuing normally at its giant copper mine in Panama after the head of the Canadian miner flew down to restart talks with the government this week while a care and maintenance deadline looms. 

Panama President Laurentino Cortizo has given the miner until Jan. 6 to mothball the Cobre Panama copper mine unless talks begun again this week under arbitration resolve the dispute over a US$375 million a year royalty agreement, a 25% corporate tax and other contract items for the mine to operate. Earlier negotiations failed to meet a Dec. 14 deadline. 

The Toronto-based miner said Wednesday in a statement it remains committed to seeking a mutually beneficial agreement as soon as possible. It said operations at Cobre Panama about 120 km west of Panama City were continuing without disruption to production. It generates about 3.5% of the central American country’s gross domestic production. 

“The preferred option for both sides is to achieve a balanced agreement that will benefit all parties for many years,” chief executive officer Tristan Pascall said in the statement. “An agreement would pave the way for additional investment in Panama and its people.”

On Dec. 21, Panama gave First Quantum 10 business days to suspend the mine’s operations and put it on care and maintenance. Then the company used the court to take the negotiations, which have been going on since September, 2021, to arbitration. Talks resumed Dec. 26. 

BMO Capital Markets said it expects negotiations to continue over the coming days.

“We see elevated risk to Cobre Panama,” BMO mining analyst Jackie Przybylowski wrote in a note on Wednesday. “Recent tensions raise uncertainty about First Quantum’s ability to operate in Panama and investors’ perceived risks.” 

Przybylowski also mentioned how the dispute is affecting royalty company Franco-Nevada (TSX: FNV), which has a stream on Cobre Panama.

The two sides agreed in January to the royalty plan and improvements for workers, the environment and the local community. The miner agreed to pay the government 12% to 16% of its gross profit, which would replace a 2% revenue royalty, and to start paying a 25% corporation tax that hadn’t applied while the miner recovered its investment costs.  

The miner said this month negotiations failed because legal protections on termination, stability and transition arrangements couldn’t be agreed. The government said First Quantum made unreasonable demands in the past month that moved the sides further apart. 

The new contract was slated to include a closure plan and better working conditions. It also called for the government to earn more than US$400 million a year from the mine based on copper prices. 

Cobre Panama began operations in 2019. It includes two open pits, a processing facility, two power plants and a port. The mine is estimated to hold 3.1 billion tonnes in proven and probable reserves. Last year it produced 331,000 tonnes of copper, exceeding an original target of 300,000 tonnes. 

First Quantum wants to expand output to as much as 380,000 tonnes next year and to as much as 400,000 tonnes in 2024, it said in February. It says it and previous owners have invested some US$10 billion in the project. 

Shares in First Quantum rose 3.6% in Toronto on Wednesday to $28.87 each, within a 52-week range of $18.68 and $45.38, valuing the company at $19.9 billion. 

Correction: an earlier version of this story said the new deadline is Jan. 4 (based on analyst reports and 10 working days from First Quantum receiving the order to file and enact a care and maintenance program). However, Panama has additional holidays and the correct date is Jan. 6.