First Quantum wants US$20bn compensation for Cobre Panamá closure

First Quantum Minerals is seeking US$20bn in compensation through international arbitration after Panama’s top court ordered it to close the Cobre Panamá mine after ruling that its contract was unconstitutional following nationwide protests against the operation. 

“As part of the free trade arbitration that is between Canada and Panama on the free trade agreement, and as required under the process, we have provided a minimum value sought in those proceedings of US$20bn, reflecting an estimated fair market value of the initial investment,” First Quantum CEO Tristan Pascall said in an earnings call.

“But in reality, with damages and interest, the award could be very much higher,” he added. Pascall also underscored that "although arbitration isn't our preferred outcome, we do have a strong case in arbitration. But we would really rather come to a resolution with the State of Panama that results in the best outcome for the people and for the company."

Although a new contract was agreed between the government and the Canadian company’s local subsidiary Minera Panamá last year after the original contract for the large-scale copper mine had been declared unconstitutional in 2017, thousands of protesters demonstrated against it on environmental grounds. 

The supreme court then annulled the new contract in late November, which led to the order to close the open pit mine.

First Quantum has filed for arbitration under the Canada-Panama free trade agreement and has also separately filed a case with the International Chamber of Commerce (ICC) for an arbitration process under the termination clause in the ICC contract.

The Toronto-based company also announced a series of capital restructuring measures that would strengthen its balance sheet and cut debt, a move that will help the miner deliver on its “operational objectives.”

According to Reuters data, First Quantum has lost over half its market value after Panama's order in November to shut the Cobre Panamá mine, one of the world's largest and the company's flagship operation, which accounted for about 40% of its revenues.

As part of the capital restructuring, First Quantum has extended its US$2.2bn corporate bank loan and extended its maturity to April 2027. It also announced a US$1bn common share offering to underwriters led by RBC Capital Markets, BMO Capital Markets and Goldman Sachs and launched a private offering of senior notes worth US$1.6bn and due in 2029.

In 2023, the company's total copper production was 707,678t, down 9% from 775,859t in 2022. In the fourth quarter, First Quantum produced 160,200t, a 28% drop from 3Q23. 

At Cobre Panamá, copper production dipped by 5.6% to 330,863t in 2023 from 350,438t in 2022. 

“The quarter-over-quarter decrease in production was impacted by the ramp down in operations at Cobre Panamá to a phase of P&SM [Preservation and Safe Management] due to illegal blockades around the mine site while lower production at Kansanshi and Sentinel [both in Zambia] also contributed to the decline,” the miner said in its Q4 results report. 

The company's 2024 copper production guidance is between 370,000t and 420,000t, and that is expected to increase to between 400,000t and 460,000t in 2025 and 2026 as the S3 expansion at Kansanshi comes online.