Panama court strikes down First Quantum mining contract

Panama’s top court has ruled that the operating contract for First Quantum Minerals Ltd.’s (TSX-FM) Cobre Panama copper-gold mine is unconstitutional.

The court ruling likely plunges the open pit mine into months of uncertainty, including international arbitration. The ruling impacts First Quantum’s partner Franco Nevada Mining Corp. [TSX-FNV,NYSE], which recently revised its production targets following the curtailment of operations at Cobre Panama. Franco Nevada cited the risk of further disruptions at the mine site for its revised targets.

First Quantum shares eased 0.47% or $0.06 to $12.68 on volume of 2.68 million. The shares traded in a 52-week range of $39.13 and $12.73.

First Quantum is a diversified mining company that is engaged in the production of copper, nickel, gold and zinc. It has operating mines in Zambia, Finland, Turkey, Spain and Mauritania.

Cobre Panama is First Quantum’s flagship operation. It is a huge open-pit copper project located in the Panama jungle, about 120 kilometres west of Panama City and ranks as First Quantum’s key asset. Cobre Panama accounts for 1.0% of global copper output.

On March 8, 2023, First Quantum and the government of Panama reached an agreement covering terms and conditions for a refreshed concession contract at Cobre Panama. Panama’s government and the mining company agreed on a contract which would guarantee the Central American nation annual income of US$395 million while allowing First Quantum’s local unit to operate the Cobre Panama project, an open pit copper mine for at least 20 years.

However, protesters have criticized both the deal and the mine’s environmental costs, even after Panamanian President Laurentino Cortizo Cortizo on October 27, 2023, rejected all new mining projects.

Panama’s top court was widely expected to rule against the Canadian miner once it rendered a decision on the fate of the copper mine contract.

Franco Nevada is affected by any decision in relation to the contract as the Toronto based royalty and streaming company, recently garnered 15% of its revenue in a single quarter from Cobre Panama. Franco-Nevada bears no cost for the production that isn’t delivered the company has said.

First Quantum said it has always been an advocate of Panama and its people and is committed to the rule of law with the objective to achieve benefits for the country, its citizens, the company and its stakeholder.

Operations at Cobre Panama have been disrupted by an illegal blockade of small boats at the mine’s Punta Rincon port. First Quantum said the illegal actions at the port have affected the delivery of supplies for the mine’s on-site power generation plant, which is necessary for full operations and for safe environmental stewardship, including operation and maintenance of the tailings management facility. Without shipments arriving at the port, First Quantum said it expected to run out of supplies for the power plant during the week commencing November 20, 2023.

If the illegal actions continue to prevent the deliver of supplies necessary to operate the power plant, MPSA will ramp down the remaining processing train this week and temporarily halt production, the company said.