Panama’s top court to rule on First Quantum copper mine fate

The Supreme Court of Panama began on Friday deliberations that will decide the fate of First Quantum Minerals’ (TSX: FM) giant Cobre Panama copper mine, the only mining operation in the Central American country.

The top court is expected to rule on several constitutional challenges to the contract signed in October between the Canadian miner and the Panamanian government, which allows the operation to keep going for the next 20 years.

The outcome of these deliberations is keenly watched by the global copper market, investors and Panamanians, as the whole country has been paralyzed by widespread anti-mining protests in the past weeks.

The court has not given a timeline to release the verdict, but local lawyers contacted by MINING.COM expects it to come in a matter of days.

The land and sea protests have blocked not only the delivery of crucial supplies to the mine, which forced First Quantum to halt operations again this week. They have also affected farmers, schools, emergency services and a long list of businesses unable to keep up activities due to lack of staff and supplies, stranded along the many blocked routes in and out the capital city.

Protestors claim the mining contract was fast-tracked with little public input or transparency. “It was published digitally, but its download was not allowed (…) We are talking about a country where 40% of the population lacks internet,” award-winning Panamanian journalist Mary Triny Sea, wrote on Friday.

Campaigners have also made corruption allegations against lawmakers and the company, which has denied any wrongdoing. 

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

Greta and Leo chip in

As the demonstrations against the contract turned into an anti-government, end-to-all-mining movement, public figures have expressed their support to the cause.

Hollywood actor Leonardo DiCaprio joined Panamanian activists over the weekend, sharing a video that calls for the “mega mine” to cease operations.

Climate activist Greta Thunberg also took to social media. Through her official Instagram account she called the nine judges of Panama’s Supreme Court to save the Donoso forest by deeming the mine contract unconstitutional. 

Opponents say Cobre Panama is located within a key biodiversity area of global significance.

“A road built for the mine goes through the heart of the Panama Atlantic Mesoamerican Biological Corridor, which connects wildlife habitats in seven countries of Central America to southern Mexico,” Amy Upgren, director of international programs at the American Bird Conservancy said in a statement. “Ecological corridors are critical for animals to be able to move to find food, habitat, and mates,” she noted.

Financial disaster

A ruling against the mine will have vast implications. Uncertainty around the mine has already wiped about C$10 billion of First Quantum’s market value, almost 50% of it, in about a month. It could also be a blow to the Central American nation as the mine accounts for about 5% of its GDP and makes up 75% of Panama’s export of goods, supporting at least 40,000 jobs, directly and indirectly.

Canadian miner Franco-Nevada (TSX: FNV), which has a streaming deal with First Quantum’s local unit Minera Panama, has already lowered its production outlook for the current year, due to reduced operations.

Cobre Panama, in production since 2019, generated 112,734 tonnes of copper in the third quarter of 2023, contributing $930 million to First Quantum’s overall third-quarter revenue of $2.02 billion.

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

“Under our base-case scenario which assumes Cobre Panama mine closure through 2023 year-end, First Quantum has sufficient liquidity,” BMO Jackie Przybylowski wrote.

Challenges, she added, would arise if Cobre Panama remained halted for 80 days in 2024, as this would draw First Quantum’s cash down to zero at the bank’s current commodity and cash outflow assumptions. 

A closure for the first half of the year, beyond the May 2024 Presidential election, would result in a $267 million cash shortfall, Przybylowski said. This estimation doesn’t including cash reserves required for working capital.

President Laurentino Cortizo would be in a tricky spot if the court rules the contract with First Quantum unconstitutional, as his government passed a bill on Nov. 2 banning all new mining concessions and extensions. That would prevent the two parties from negotiating a new deal.