Orla files for arbitration against Panama and First Quantum could be next

Vancouver-based Orla Mining (TSX: OLA; NYSE: ORLA) has filed for international arbitration against Panama over the cancellation of permits for its Cerro Quema gold project. The company is seeking damages of at least US$400 million, plus interest, in a claim filed with the International Centre for Settlement of Investment Disputes (ICSID) in Washington, D.C.

The conflict arose after Panama’s Commerce and Industry Ministry rejected Orla’s request to extend permits for three mining concessions in December. The decision came after the government declared the area a reserve, effectively cancelling the concessions. The move followed a new law passed by Panama’s national assembly in November, which imposed a moratorium on granting or renewing mining concessions.

Orla claims that Panama’s recent actions violate the Canada-Panama Free Trade Agreement and international law. The Vancouver-based miner first signalled its intention to seek arbitration in March, but had hoped to resolve the issue through consultations.

“Although the company intends to vigorously pursue these legal remedies, the company’s preference is a constructive resolution with the government of Panama that results in a positive outcome for all stakeholders,” the company said in a release on Wednesday.

More companies are turning to international arbitration as a last resort when things go awry with host governments and domestic court actions fail to resolve disputes, the ICSID’s figures show. Panama’s biggest legal battles in its mining sector has been with First Quantum Minerals (TSX: FM), after the government ordered the Vancouver-based miner to shut its Cobre Panama mine amid protests. Reuters reported last week that First Quantum would file its own arbitration request against Panama before the end of July.

Cerro Quema, located on the Azuero Peninsula, includes plans for open-pit mining and a heap leach gold operation. According to a 2021 prefeasibility study, the project could produce 81,000 oz. gold over six years.

Orla, which also operates the Camino Rojo mine in Mexico and has the Railroad project in Nevada, saw shares closing flat at $5.29 in Toronto on Wednesday, having touched $3.53 and $6.52 over the past 12 months. It has a market capitalization of $1.7 billion.