A proposed new mining contract between Panama’s government and Canada’s First Quantum Minerals Ltd. would protect the company against a drop in copper prices, while giving the nation a boost in revenue from its mineral wealth, according to the government.
(Bloomberg) — A proposed new mining contract between Panama’s government and Canada’s First Quantum Minerals Ltd. would protect the company against a drop in copper prices, while giving the nation a boost in revenue from its mineral wealth, according to the government.
The deal is a “win-win” for both sides, and will serve as the standard for future mining contracts in the country, Panama’s Minister of Commerce and Industry Federico Alfaro Boyd said Friday, in a phone interview.
“The downside price protection, which obviously the company had requested, makes sense from a financial point of view, because we want the company to continue its operations and be profitable,” Boyd said. “The better for the company, the better for the country.”
If approved by congress, the new contract would replace the original contract from 1997, which was deemed unconstitutional by Panama’s high court. That would allow the company to continue operating in the country for 20 years with the option of an additional 20, and provide a clearer legal environment for other potential investors in the sector.
On Friday, the company’s shares weakened 1.7% to C$27.00 in Toronto trading. The shares have lost investors 30% over the last year.
The new contract boosts royalties to between 12-16% of gross profits and requires the company to pay a minimum of $375 million in taxes and royalties to the government through 2025 as long as the price of copper is above $3.25 per pound.
After 2025, the price protection drops to $2.75 per pound, Boyd said. The new contract will also require the company to pay additional taxes and limit tax credits the firm can claim.
The government will use the funds for social security and pension programs, infrastructure projects and construction of a teacher training facility, Boyd said.
The contract requires a 30-day public consultation period and will then be sent to the comptroller and congress for approval before being signed by President Laurentino Cortizo. Boyd said the government plans to begin the public consultation within the next two weeks and send the new contract to the legislature before April 30, or the start of July at the latest.
“I don’t expect the process to change what was agreed between the company and the state,” Boyd said.
If approved and signed into law, the new contract would be retroactive to December 2021 and the company has committed to payments between December 2021 and the date the new contract enters into force.
Arbitration Suits
First Quantum has suspended two arbitration suits against Panama and agreed to withdraw them completely once the new contract is signed, he said.
Panama’s Maritime Authority recently re-opened the port First Quantum uses to export copper after resolving a calibration issue with the scales used for loading. The company has not yet renewed copper shipments, Boyd said.
The new contract allows the miner to extract copper from its Cobre Panama concession over an area of roughly 13,000 hectares, unchanged from the original contract. The company has explored only a portion of the area under concession and may explore additional sites within the stipulated area, Boyd said.
“Once this contract becomes law it will be the new standard governing future mining operations,” he said. “Panama has historically been a country that values foreign investment.”
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