Panama and First Quantum reach agreement on new operating contract for flagship copper mine

After months of squabbling over a new operating contract, Canada's First Quantum and the Panamanian government have agreed to draft terms of a 20-year concession for the US$10bn Cobre Panamá mine.

The concession can be extended for another 20 years, according to the agreement signed by trade and industry minister Federico Alfaro Boyd and the legal representative of Frist Quantum subsidiary Minera Panamá, Manuel Aizpurúa.

Under the agreement signed on Wednesday, the contract guarantees an equitable distribution of royalties and taxes and is expected to mean minimum income for the State of US$375mn/y, according to a joint statement issued by the government and First Quantum.

Negotiations started after the supreme court ruled in 2018 that a 1990s law under which the original concession was granted was unconstitutional. 

Talks resumed around Christmas after the company missed a December 14 deadline to sign the new contract over differences over payment of royalties and taxes. 

First Quantum said in a separate statement the contract includes a payment by Minera Panamá of US$375mn plus an additional US$20mn to cover taxes and royalties until the end of 2022.

The payment of a minimum annual contribution of US$375mn beginning in 2023 includes corporate taxes, tax withholdings and a mining royalty based on profits of 12-16%, with downside protections depending on certain conditions. See the table here.

"Panama expects to receive approximately 10 times what it received under the 1997 contract. At the same time, the concession contract guarantees that Minera Panamá will receive a commercial return for its investment in Panama," Alfaro Boyd and Aizpurúa said in the joint statement.

Alfaro Boyd, who led the negotiations on behalf of the government, said the new contract is beneficial for the country and creates the conditions for Minera Panamá to continue its operations in a fair and equitable investment environment.

"After a lengthy and arduous negotiation process, the finalized proposed concession contract outlines the basis for the future of Cobre Panamá,” said First Quantum CEO Tristan Pascall.

Minera Panamá suspended mineral processing at Cobre Panamá on February 23 after exhausting the storage capacity due to an order from Panama’s maritime authority (AMP) to halt loading operations at the copper mine’s Punta Rincón port.

That suspension, according to the company, was causing losses of US$8mn a day.

The company said that AMP will issue a resolution so it can resume concentrate loading at the port, which would allow normal production to be restored in the coming days.

The agreement also implies greater labor and environmental protections, anti-corruption provisions, state supervision powers, and the right for the State to adopt measures against tax evasion, among other aspects.

The contract is subject to a 30-day public consultation process and approvals by the Panamanian cabinet, comptroller general and the national assembly before getting the green light from President Laurentino Cortizo.

Cobre Panama began producing in June 2019 and churned out 350,438t of copper in 2022. It contributes around 5% of the country's GDP, represents close to half of First Quantum's total production and accounts for 75% of Panama’s exports of goods, according to the company.