On November 1st, according to international media reports, the beleaguered Canadian mining company First Quantum Minerals (FM) is facing a difficult path. As Panama takes action to cancel its contract to operate one of the world’s largest copper mines, TO faces a challenging road.
Surprisingly, Panama decided on Sunday to hold a binding referendum on whether to cancel the recently reached 20-year contract for the copper mine, leading to a sell-off of First Quantum’s stock, headquartered in Vancouver. This week, investors have wiped out approximately CAD 8.35 billion (approximately USD 6 billion) of the company’s market value, representing a 48% drop in market capitalization. This demonstrates investor doubt about First Quantum’s ability to operate its crown jewel.
President Laurentino Cortizo decided to hold a nationwide referendum after thousands of people held several days of protests, concerned that the contract was too favorable to the First Quantum company, involved corruption, and was harmful to the environment.
First Quantum reaffirmed its commitment to the rule of law on Tuesday, with the goal of benefiting Panama. First Quantum and its subsidiary Minera Panama in Panama declined to comment further.
The government is also pushing a bill in Congress to overturn the law that awarded the contract and ban all future concessions. Panama’s Supreme Court has also agreed to consider six lawsuits challenging the contract.
This decision is critical for both First Quantum and Panama’s economy. Cancelling the Cobre Panama mine contract could reduce Panama’s GDP growth rate from the projected 6% in 2023 to only 1%, without the mine’s operation.
The mine accounts for approximately 5% of the country’s GDP, providing over 49,000 direct and indirect jobs and serving as Panama’s second-largest source of income, only after the Panama Canal.
J.P. Morgan warned on Tuesday that the likelihood of Panama losing its investment-grade rating would significantly increase if the contract is rescinded. Despite this risk, the protests demanding the contract’s termination continue.
Protester Adriana Linares said Panama should not “sell itself for a few cents.” “The people on the streets have a very clear goal, and that is to overturn the approved contract,” she added.
The government has not commented on whether the mine would have to cease operations if the contract is rejected.
A spokesperson for Global Affairs Canada, in an email to Reuters, stated that Canada has been advocating for a resolution that benefits all Panamanians and is closely monitoring the situation.
The mine opened in 2019, representing 1% of global copper production with a construction cost of $11 billion. Copper is considered crucial for global energy transition due to its minimum 20-year lifespan and its importance in manufacturing electric vehicle batteries.
This week, at least six analysts downgraded the stock rating.
“This process has not followed any script we have seen before,” said Jackie Przybylowski, a mining analyst at the Bank of Montreal.
Michael Camacho, leader of the mine workers’ union, told Reuters that the number of workers per shift at the mine has decreased due to roadblocks and protests, causing food shortages.
Panamanians will elect a new president in May 2024 and renew seats in Congress and local governments.
“The timing is very bad,” said former Finance and Economy Minister Frank De Lima, adding that the situation might be different if not for the upcoming general election.
Most presidential candidates support approving a contract in the negotiations. Members of the ruling party currently hold the majority of seats in Congress and support the new contract.
Independent legislator Juan Diego Vásquez, who does not support the contract, told Reuters that the ongoing protests show that “Panamanians are very clear about the damage that bad lawmakers can cause,” adding that the protests will impact the results of the next elections.
Another independent legislator, Edison Broce, stated that open-pit mining is damaging Panama’s environment, and Panama should focus on promoting tourism.
Broce pledged to close the mine in an orderly, gradual, and complete manner because “the mining costs outweigh the benefits.