Cobre Panama copper mine contract could be ready next month, ministry says

Copper shipments. (Image courtesy of Cobre Panama.)

Canada’s First Quantum Minerals (TSX: FM) could receive a long-awaited contract for its flagship copper mine in Panama in November, the country’s trade and industry ministry has said.

The Vancouver-based miner has been waiting for the document since September 2021, when it began negotiations with the government of Panama to renew the contract.

The end of the hold off seemed very near in January, when First Quantum agreed to up its royalty payments for the giant Cobre Panama copper mine to $375 million a year.

As part of that deal, the miner also accepted to give the government between 12% and 16% of its gross profit, which would replace the previous 2% revenue royalty.

First Quantum agreed as well to start paying 25% corporation tax, from which it was previously exempted until its investments at the mine were recovered.

More than nine months later, the new contract has yet to be completed.

Panama’s trade and industry minister Federico Alfaro brought back hope of a near resolution this week, as he said he expected the final contract to be drawn up in November.

Speaking to local news outlet Eco TV Panamá, Alfaro said that once the final document sees the light, it would be subject to a 30-day public consultation and then it will go to Congress for debate.

“We must be ready for any scenario, including the possibility that the final contract is not signed,” he said during the broadcast.

New power source

Shortly after accepting the royalty increase, First Quantum’s local unit received a request to stop drawing power from the country’s only remaining plant that still burns coal for power generation.

That is why the final agreement will include a clause indicating the miner must start technical studies six months after signing the deal. The goal is to implement cleaner energy technologies to replace burning coal at an existing power plant, the energy ministry said in February.

Panama, which last year produced 82% of its electricity from renewable sources, is upgrading its legal framework and running price forecasts to encourage cleaner energy sources, including the production of sugarcane-based ethanol and the installation of decentralized power generation plants.

Cobre Panama, which began operations in 2019, is estimated to hold 3.1 billion tonnes in proven and probable reserves. It has generated some $6.7 billion in private investment, and includes two open pits, a processing facility, two power plants and a port.

The mine complex, located about 120 km west of Panama City and 20 km from the Atlantic coast, contributes 3.5% of the Central American country’s gross domestic product, according to government figures.

It originally was designed to produce about 300,000 tonnes of copper per year at full capacity, but last year it generated 331,000 tonnes of the orange metal. 

First Quantum wants to boost production 350,000 and 380,000 tonnes of copper next year, increasing to 370,000-400,000 tonnes in 2024, it said in February.

Mining at Cobre Panama has continued during the process and the mine is expected to account for more than 40% of First Quantum’s total copper and gold output this year.