Impossible for Panama's next government to ignore mining, says First Quantum CEO

Canadian miner holds out hope May elections will bring change in fortune for its besieged Cobre Panama mine

Author of the article:Naimul Karim
Published Feb 12, 2024 •

First Quantum Minerals' Cobre Panama is one of the world’s largest new copper mines to open in the past decade. 

The Panamanian government’s order to shut down Toronto-based First Quantum Minerals Ltd.‘s lucrative copper mine in December seemed like the final straw for the company, which has faced several issues in the Central American country in recent years.

Panama and First Quantum initially tussled over the terms of a new contract to run the mine. Although a deal was reached, thousands of protestors demonstrated against it on environmental grounds. The nation’s Supreme Court then intervened and annulled the deal, which led to the order to close the Cobre Panama mine, about 120 kilometres west of Panama City.

Two months on, however, things have taken a slightly positive turn for First Quantum, according to chief executive Tristan Pascall. The protests have cooled down and there may be a space opening up to discuss mining’s contribution to Panama’s economy as the country heads to an election in May.

“We see that some of the emotion (from the protests) has really dialled back,” he said. “There’s significant economic challenges emerging in the country … and we believe it’s impossible for the next government to ignore the contribution that a responsible mining sector can make.”

Cobre Panama is one of the world’s largest new copper mines to open in the past decade. It’s a key asset since the demand for metals such as copper and lithium has increased in recent years due to their importance in the world’s gradual energy shift away from fossil fuels.

The mine also plays a key role for the country’s economy since it accounts for about five per cent of Panama’s gross domestic product. In addition, Cobre Panama employs about 7,000 people, with another 33,000 individuals dependent on the mine indirectly, First Quantum said.

As the mine gets set to shut down — a process that may take several years — “there’s more questioning around the decision” regarding the impact the move could have on the country’s economy, Pascall said.

Panama’s former finance minister Dulcidio De La Guardia said the order to shut down the mine was “very unfortunate” and expects the country’s economy to be “significantly” hit.

“The expected growth rate for Panama this year is between one and two per cent,” he said. “In contrast, last year, Panama grew in excess of six per cent. We are going to see a significant slowdown because of the loss of the output of the mine.”

Joana Abrego, a legal manager at the Environmental Advocacy Center of Panama (CIAM), which protested against the mine, said there were concerns “for a potential reactivation of the mine” due to recent statements made by several presidential candidates. But she added there would be significant legal obstacles for First Quantum to reactivate the mine.

The CIAM has opposed mining in Panama for nearly two decades, but even though the protests against Cobre Panama are no longer active, Abrego said people expect the mine closure process to continue.

“(Metal mining) is environmentally and socially unviable in the country,” she said.

Pascall, however, said Cobre Panama has a net-zero environmental impact and that a lot of the anti-mining emotion was sparked because of fake news and misleading information, which he hopes to correct as the space for debate and discussions on the mine widens.

For example, he said there were rumours about how the company was taking water from the Panama Canal, which he said was “absolutely not the case.”

There were also allegations about the company clearing large swathes of forestry. Pascall said the company had cleared 3,000 hectares, but had a licence to clear 5,900 hectares. He said this was a very small percentage compared to the overall clearing of forests in Panama.

“By some sources, Panama has cleared 78,000 hectares of tropical rain forest since 2020,” he said, adding that First Quantum has already reforested 4,200 hectares and has committed to reforesting 11,175 hectares.

Despite the apparent change in mood, Pascall won’t indulge in speculation about whether this could lead to a possible restart of the mine. He didn’t provide a timeline either.

“Obviously, it’s up to the Panamanian people to decide that,” he said. “We are ready to be part of a long-term solution for the country.”

Currently, Pascall is more focused on the company’s preservation and safe management plan, which will address issues such as the fate of the mine’s employees, management of the mine to ensure there’s no environmental degradation and questions about who is going to foot the bill.

This entire process could cost between $15 and $20 million per month. The company met with Panamanian ministers and submitted a draft of the plan in mid-January. So far, Pascall said engagement with the government has been “constructive.”

First Quantum could also try to seek compensation through an international arbitrator, which would be legally binding. The company has publicly announced two arbitration processes, but even though Pascall said the company’s legal case is “extremely strong,” it wouldn’t be the company’s preferred route.

“We would rather get to a resolution with the government of Panama in a sensible fashion,” he said.

Still, the waiting process and the production shutdown are hurting First Quantum. Cobre Panama was responsible for nearly half of First Quantum’s revenue in 2023 and the company’s stock has been cut in half in the past five months.

As a result, the company is considering selling stakes of its larger businesses in Zambia and some of its smaller mines. Overall, the plan is to cut costs and strengthen its finances. But it’s still holding out hope for Cobre Panama.

“We are absolutely committed to Panama. We put $10 billion into the country,” Pascall said. “Ultimately, we will see resolutions. I am confident in that.”