First Quantum Minerals Ltd. FM-T says it will use “all available legal means” to preserve the value of its Cobre Panama mine, after the Panamanian government ordered it to cease operations, and as fears persist that the asset could be either nationalized or sold to another mining company.
A source familiar with the negotiations said that Panama has been working with an investment bank to shop the mine to third parties. Tausi Insider is not identifying the source as the person was not authorized to speak publicly.
The government of Panama did not immediately respond to a request for comment.
In a dramatic televised address to the nation on Thursday night, President Laurentino Cortizo said that production would be halted at the mine after the Central American country clashed with the big Canadian copper miner over a profit-sharing agreement.
First Quantum and Panama had been in talks for more than a year to try to hammer out a new profit-sharing agreement to replace the existing pact that sees the company pay a royalty based on a percentage of its revenue.
Panama is demanding First Quantum pay it a minimum of US$375-million a year, regardless of how the mine performs and regardless of the price of copper. But that could put First Quantum under significant financial strain if the commodity crashed. First Quantum wanted downside protection against that scenario.
“Our goal remains to find a ‘win-win’ resolution with the government that will safeguard 40,000 jobs and protect our investment,” First Quantum said in a release on Friday morning.
“We are doing everything possible to support the Cobre Panama workforce, preserve the value and integrity of the mine and defend First Quantum and its stakeholders from the government’s unnecessary actions, including through all available legal means.”
While Panama has not explicitly said it might seize the mine, the Mining Chamber of Panama earlier this week said that the language coming out of the government points to it as a possibility.
“When our country needs to attract capital from abroad, to boost the economy, generate quality jobs and promote sustainable human development, it is sadly contradictory to send the message to the international community that in Panama there are inclinations towards the expropriation of private investment,” the Chamber said in a Dec. 12 release.
Cobre Panama is one of the most prized assets in the copper industry. It is currently the sixth biggest copper mine in the world and unlike many other mines it is early in its lifespan, having only gone into production in 2019.
First Quantum’s biggest shareholder, Jiangxi Copper Corporation Limited, a Chinese state-controlled company, in the past has been floated as a possible acquirer of the Canadian copper miner.
Jiangxi did not immediately respond to a request for comment on Friday.
Vancouver-based First Quantum is Canada’s biggest copper producer. Cobre Panama is its biggest mine, and accounts for more than half of the company’s net asset value.
Other Canadian miners have seen their assets seized after clashing with foreign governments. Centerra Gold Inc.’s flagship Kumtor mine was seized by the Kyrgyz Republic and the gold miner was forced to sell it at a fraction of its worth to the government.
Orest Wowkodaw, a mining analyst with Scotia Capital Inc. believes that First Quantum may still be able to reach an agreement with Panama.
“The operating suspension appears to be largely a negotiating tactic by the government, albeit a relatively heavy-handed one,” he said in a note to clients.
“We continue to anticipate an amicable resolution to this impasse, particularly given how close the two sides appeared to be on a new operating agreement before negotiations fell apart.”
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