Panama court says First Quantum contract unconstitutional

Panama court says First Quantum contract unconstitutional

The court began its deliberations on Friday and continued over the weekend. She announced a 12-hour break at the end of Monday’s session, and delivered her ruling in the early hours of Tuesday morning. The ad was broadcast live and was viewed by nearly 24,000 people in just the first hour.

Court President Maria Eugenia Lopez said the vote against the contract was unanimous, adding that the ruling will now be published in the country’s official government gazette.

The Supreme Court’s decision adds to a growing list of questions surrounding First Quantum’s Panama Bridge mine and its impacts.

Lawyers contacted by MINING.COM agree that the most immediate impact would be to freeze First Quantum’s operations in the country. They said this does not mean much, as the Panama Bridge has been closed since Friday.

A previous contract had been ruled illegal once before, in 2017, but the mine continued to operate as usual while the two parties negotiated a new deal. Local sources said that the unprecedented public anger against the project this time may force the government to adopt a more stringent approach.

Multilayer earthquake

The ruling will have consequences for the copper market, as the Cobre Panama mine accounts for about 1.5% of global production of the metal.

It will also affect government coffers. The mine represents about 5% of the gross domestic product, 75% of Panama’s exports of goods, and supports at least 40,000 jobs, directly and indirectly.

It is also likely to lead to international arbitration. On Sunday, First Quantum sent notice to the Panamanian authorities of its intention to initiate arbitration proceedings. She later explained that this step was not the beginning of a legal procedure, but rather “a formality required by international treaties, with the aim of opening a period of dialogue of no less than 90 days between the two parties.”

“Seeking international arbitration to recoup the massive financial loss incurred by the Panama Bridge will likely take years to resolve,” Oreste Wukudau, an analyst at Scotia Capital, wrote in a note to clients. “However, we believe this course of action can ultimately bear fruit.”

Panamanian lawmakers ratified the new contract between the executive and First Quantum, but reconsidered their decision after mass protests — the largest since the cost of living crisis last July — nearly paralyzed the country.

The demonstrations against the contract turned into an anti-government, anti-mining movement. (Image: Screenshot of stock video.)

Ongoing demonstrations on land and at sea have prevented the delivery of vital supplies to the mine, forcing First Quantum to halt operations again this week. The protests have also affected farmers, schools, emergency services and a long list of businesses unable to continue their activities due to a lack of staff and supplies, stranded along the many closed roads in and out of the capital.

Over the weekend, protesters received endorsements from Hollywood actor Leonardo DiCaprio and climate activist Greta Thunberg, who shared a video calling on the “mega mine” to cease its operations.

Copper Panama, which has been in production since 2019, produced 112,734 tons of copper in the third quarter of 2023, contributing $930 million to First Quantum’s total third-quarter revenue of $2.02 billion.

Analysts at BMO Capital Markets believe First Quantum is in a financial position to weather the storm in the short term.

“Under our base scenario that assumes the Panama Bridge mine is closed until the end of 2023, First Quantum has sufficient liquidity,” BMO analyst Jackie Przybylowski wrote.

She added that challenges would arise if the Panama Bridge remained idle for 80 days in 2024, as this would take First Quantum’s cash down to zero under the bank’s current commodity and cash flow assumptions.

Przybylowski said the shutdown in the first half of the year, after the presidential election in May 2024, would result in a cash shortfall of $267 million. This estimate does not include cash reserves required for working capital.

“The primary goal of the government and the courts today appears to be to calm the protests,” Przybylowski wrote on Tuesday. “We are optimistic that this approach will be successful, and that the protests around the Panama Bridge port will subside, with mining operations likely to resume relatively quickly if the protests are lifted.”

Shares in First Quantum fell 3% to A$9.07 in Toronto on the news on Tuesday. Uncertainty surrounding its main mine in Panama has erased about C$10 billion from First Quantum’s market value, nearly 50% of it, since President Laurentino Cortizo decided to call a referendum on the contract. The popular vote was overturned and the final decision was ultimately placed in the hands of the Supreme Court.

Amid protests and a failed referendum, Panama lawmakers passed a bill that originally sought to cancel First Quantum’s contract, but ended up banning all future mining concessions, including mineral exploration, extraction, and transportation, as well as contract renewals in Panama.

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