Next Panama govt could mean a window of opportunity for First Quantum's flagship copper mine

First Quantum Minerals suspended its flagship Cobre Panamá copper mine after the Central American country’s supreme court ruled at the end of November that the operating contract was unconstitutional.

The government and the Canadian company’s subsidiary Minera Panamá signed the new contract after the original agreement for the mine was declared unconstitutional in 2017, but thousands of protesters opposed the new contract on environmental grounds.

After the ruling, authorities ordered the closure of the open pit mine, although the company and local mining chamber Camipa argue that the supreme court's decision does not stipulate that Cobre Panamá must be permanently shuttered.

Martin Carotti, an independent geologist and international mining expert with 30 years of experience, considers that with the change of government after the May 5 elections, now is a good time for the company and the State to begin creating a social climate to convert the closure into a suspension and restart the copper mine under conditions acceptable to all parties.

BNamericas: What reasons do you mainly attribute to the fact that the contract with Minera Panamá was declared unconstitutional and the copper mine was ordered to close?

Carotti: Well, it was a perfect storm. We know Cobre Panamá, with more than US$10bn of investment and production for five years; a company that did not get it right in its communications with the community, in its relationship with the community; an inopportune contract, in the middle of the electoral process; the presence of radicalized unionism that took advantage of the opportunity; the presence of anti-mining activists; a population sensitized against mining; and the government weakened before the end of its mandate. 

And to that we add the opposition of the local church. It's like the perfect combo of social protest and conflict. We already know the consequences.

Why does the supreme court rule what it rules? I'm not going to get involved, it's not my intention to get into the legal distinction. I'm not a lawyer, I'm a geologist.

But it keeps acting with a large dose of political correctness, trying to do what supreme courts normally do, which is to tone down the conflict.

So, legally right or not, I'm totally unaware, it declares the contract unconstitutional. The mine then ceases operations, and the government appears to be insisting that an early closure must be made, 30 years ahead of schedule. And there begins the first conflict. Who pays for it? The company or Panama?

And then the consequences: claims before international courts, amounting to tens of billions of dollars, 40,000 people who have their jobs at risk, or have already lost them. They estimate in a news story that 30,000 have lost their jobs. I was talking with mining suppliers, who were suppliers of the company, who have reduced their staff by 50% because when you have a job commitment for 30 or more years, you hire personnel, install plants, install workshops. And all that went flat.

A 5% drop in GDP, a drop in tax revenue, and ratings downgrades for Panamanian debt, which not only means less and more expensive credit for the State, but also for private individuals. The problem is, what is happening with this? How is it solved? If there is a solution.

BNamericas: How should the current and next governments handle the crisis with the mining company, considering that there is fear of new protests that could destabilize the country again?

Carotti: Always when elections approach, new opportunities appear, times of change come. It's possible that the new government understands the need to promote economic growth, generate more employment, and solve, at least in part, its fiscal constraints, which Panama has. Not only because of the closure or suspension, whatever we want to call it, of the mine, but because it has previous fiscal problems.

It seems to me that it's a good time, and from what we have discussed in Panama, to take advantage of that opportunity and for the company and the State to begin to create a social climate to convert the idea of hasty closure into a suspension of activity, with the objective of being able to reopen the copper mine in acceptable conditions, both for the government and for society. That is to say, I believe that there is a new opportunity with the new government. I'm not an expert in politics and in predicting the outcome of the elections in Panama, but it seems to me that there is room to do that, which is the only possible opportunity.

If the mine is not reopened within a reasonable period of time and with social consensus, Panama would lose a great opportunity and it would be a terrible situation, a sad precedent in Latin America for a mine in operation for five years that closes. There are others, but it’s not so serious, like El Escobal in Guatemala.

BNamericas: But do you see an opportunity despite the imminent threat of new protests that destabilize the country? Because opposition has been strong.

Carotti: Here it's also a time problem. I'm not saying that the mine could be reopened and the process of communication, socialization, the new political approach of the incoming government, I don't know if that will be resolved in weeks, or in months. It can take a while, obviously.

But I imagine that the threat of five, six or seven, according to the last figure that was communicated to me, claims before international courts also gives a certain amount of urgency to the government to try to agree and put the mine back into operation. Which is impossible if a minimum social consensus is not achieved, of course.

BNamericas: And what is the most likely political outlook after the elections? Which candidate has the best chance of winning and what would be the position of the new administration regarding the issue of Cobre Panamá? 

Carotti: In pre-election times it's clear that no candidate, especially the two or three who have a chance, is going to commit and talk about the issue because it's complicated... It's understandable, I don't agree with it, but it's understandable that they don't want to address the issue nor stir the waters on this issue because it's very hot and very recent.

It seems to me that the main candidates [right-winger José Raúl Mulino and the former social democrat president Martín Torrijos], at least the first two who are in the polls, and I'm not an expert on electoral issues in Panama, are open to trying to consider the issue. 

And the fact is losing 4.8% of GDP and having to face claims before international courts with the cost that this implies makes it an issue to be resolved.

Of course, Panama has other issues to resolve and we have to see on what issues the new government is going to use its silver bullets that it has in the early days of its mandate, but that is completely beyond the consideration of a geologist/communicator like me.

BNamericas: And in this window of opportunity that you believe is opening with the new government, namely instead of a closure, a suspension of the mine, if operations are resumed would that be with the same company or a new operator?

Carotti: It seems to me that, as a geologist and defender of mining, I personally don't defend companies, I defend projects. The projects are in the places where they are, the communities are around those projects, the economic impact of those projects when they're put into operation is for the country and, deep down, I'm not too interested in which company does it. The problem is that, if it's not First Quantum, Panama is exposed to more international lawsuits, more claims.

It seems difficult to me that the candidate is not the same company that there is now, unless the company decides to sell it, but that is completely beyond what one can anticipate.

BNamericas: The moratorium on mining also led to permits being denied for the Cerro Quema project. Would the next government have to lift the moratorium on mining activity in general?

Carotti: There we have another claim before the courts or a potential claim. The problem is that Cerro Quema is gold, and here other types of interests come into play, another type of game. Let's see if I'm clear: there is illegal mining here that's promoting this.

That is to say, a copper project is not going to be occupied by illegal miners. A gold project, yes. I don't know if there are interests involved in this issue, if the gold that there may be or is, for example, in Cerro Quema, is of interest for illegal mining.

The problem is when illegal mining gets involved, and I've been informed in Panama that there is illegal mining. We know perfectly well what happens in Latin America and Central America when illegal mining begins to arrive and those who have the knowledge, the structure, the know-how to do illegal mining begin to arrive, when the organized mafias arrive.

BNamericas: What lessons should mining companies learn from what happened in Panama with the closure of the copper mine? In other words, what should they not do? What should they do?

Carotti: What you have to do is communicate, communicate from the beginning, but not communicating only at an informative level.

Communication is just the first step in opening up to participation. Why participation? Because when people, communities, neighbors participate in a mining project, even from exploration, bonds of trust are created that cause conflicts to dissipate.

The trust that is generated is capital, a capital that one is going to have to spend one day; you're going to have to spend it when an accident happens... when the price drops and activity decreases and people are left on the streets; you're going to need the community to trust you, trust that what you're doing is correct, it's good, it's tolerable.

For this you have to communicate, you have to be involved and work together with the communities and you have to generate that level of trust.

Sometimes companies don't do it from the beginning, they don't do it permanently, they don't do it in an empathetic way and then they generate a level of mistrust that when a contract appears, a negotiation appears, a possibility of conflict appears, a dismissal happens, an accident happens, complicated conflicts arise that then escalate because there are always people in Latin America who take advantage of these conflicts to carry out their anti-mining activism and, of course, then the politically correct reactions of governments, courts of justice and all that begin, doing what people want to hear to legitimize themselves morally.

But what you have to do is communicate and socialize from the beginning, from the moment a conflict arises.

BNamericas: What other reflections does this crisis that First Quantum Minerals is going through in Panama leave?

Carotti: The important thing is that we know that the technology, legislation and control mechanisms exist to do mining. And that we can, that we must, respect the environment without impeding economic development. And we must generate trust to do socially sustainable mining.

It seems to me that Panama can do mining well. Panama has a new opportunity with the next government.