First Quantum Minerals Ltd. FM-T has failed to reach an agreement with the Panamanian government over a new royalty payment structure, and now there are fears its massive copper mine in the country could be nationalized.
Vancouver-based First Quantum faced a deadline of midnight yesterday to get a new royalty agreement in place with Panama regarding the Cobre Panama mine.
If an agreement wasn’t reached by that time, the Panama government said it would take “alternative measures” to ensure the operation of the mine.
In a statement, the Ministry of Commerce and Industries of Panama, said that First Quantum had made “unreasonable demands” that often moved the two sides further apart instead of closer together. The Ministry said it negotiated in good faith past the deadline last night, but early this morning First Quantum sent it a new proposal that “fundamentally changed” certain aspects of the agreement.
First Quantum said in a release that its proposal achieved the government’s revenue objectives but “legal protections on termination, stability and transition arrangements could not be agreed upon.”
The company added that it is open to further talks to try to end the impasse.
Later today, the Panama government will convene an extraordinary meeting of cabinet after which the President will address the nation.
While Panama has not explicitly said it might seize the mine, the Mining Chamber of Panama earlier this week raised 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 Mining Chamber of Panama said in a Dec. 12 release.
First Quantum and Panama have been in talks for more than a year to try to come to a new arrangement. Under the existing agreement, the Canadian miner pays 2 per cent of its revenue to the government, meaning the level fluctuates based on the company’s performance, and the price of copper. But in talks, Panama has pushed First Quantum to pay a minimum of US$375-million a year from now on, regardless of where copper trades at – a scenario that could put the big Canadian miner under significant financial strain if the commodity crashes.
First Quantum tried to get the government to agree to downside protection if the price of copper falls from its current elevated levels.
Earlier this week, in a note sent to employees of Cobre Panama, and seen by Tausi Insider, First Quantum said it wanted to make sure the minimum US$375-million contribution would “be subject to certain protections in case metal prices or profitability drop significantly.”
First Quantum is Canada’s biggest copper company and Cobre Panama is the sixth biggest copper mine in the world.
While mine seizures by foreign governments are a drastic step, Canadian miners have been targeted in the recent past. Centerra Gold Inc.’s flagship Kumtor mine was seized by the Kyrgyz Republic and eventually the gold miner was forced to sell it at a fraction of its worth to the government.
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