First Quantum agrees to pay US$375M a year in royalties to Panama

First Quantum Minerals (TSX: FM) has reached a deal with Panama’s government to increase royalty payments at the giant Cobre Panama copper mine, the company’s flagship operation.

The Canadian miner’s subsidiary, Minera Panama, said it considered “reasonable” the US$375 million a year-figure the country has asked for. In return, the company asked authorities to guarantee the continuity of operations during the mine’s productive life.

The Vancouver-based miner had been in talks with Panama since September last year, a period during which copper prices have traded at record levels.

Sources close to the matter told MINING.COM that the Central American nation’s government had proposed a royalty of between 12% and 16% of the mine’s gross profits, compared to the previously agreed 2% of revenue. They also said the US$375 million figure was the minimum annual amount the company would have to pay.

The minister of commerce and industries, Ramón Martínez, said in a recent press conference that he also wanted to end a “tax holiday” that allowed First Quantum to put off taxes until the capital costs of building the mine were recouped.

The official stressed that the proposed agreement would place Panama in a similar position than other Latin American copper producers such as Chile and Peru, which charge royalties on gross profits on top of taxes.

A “shocker”

Jefferies analyst Christopher LaFemina said the magnitude of the proposed royalty hike was a “shocker,” adding that the consultancy had estimated the miner would end up paying 5% of revenues in royalties.

Cobre Panama, which began operations in 2019, is estimated to hold 3.1 billion tonnes in proven and probable reserves. It has generated some US$6.7 billion in private investment, and includes two open pits, a processing facility, two power plants and a port.

The mine complex, located about 120 km west of Panama City and 20 km from the Atlantic coast, contributes 3.5% of the Central American country’s gross domestic product, according to government figures. It can produce more than 300,000 tonnes of copper per year at full capacity.

Minera Panama’s concession was approved in 1997 and initially granted to Canada’s Inmet Mining Corporation, which was acquired by First Quantum in 2013.

Record production

First Quantum announced in a separate statement it produced 816,000 tonnes of copper last year, a 5% increase from 2020, mainly due to record production at Cobre Panama.

The mine churned out 331,000 tonnes in 2021, 125,000 tonnes more than in the previous year. Despite facing Covid-19 restrictions for over three quarters of the year, the company noted that Cobre Panama’s performance exceeded initial 2021 guidance.

The company, which is the world’s sixth largest copper miner and Canada’s largest producer of the metal, said during its virtual Capital Markets Day on Jan. 18 that it plans to build a molybdenum plant on site next year, which is expected to generate annual concentrate production of 3,000 to 4,000 tonnes per annum. 

First Quantum said Cobre Panama will be mined in five phases, starting in the Botija pit and ending in the Balboa pit in 2054. The company is currently developing the Colina pit, with mining slated to begin in 2023.