First Quantum faces Panama closure, more headwinds expected for miners

Breadcrumb Trail Links Mining Commodities Miners will need to focus…

Miners will need to focus more on building trust with local communities to retain their licence to operate, analysts say

Get the latest from Naimul Karim straight to your inbox

Article content

As First Quantum Minerals Ltd.’s lucrative copper mine faces a shutdown in Panama, some analysts warn that such events may occur more often as the energy transition away from fossil fuels focuses government and public attention on certain key metals.

Going forward, analysts say, miners will need to focus more on building trust with local communities to retain their licence to operate in their respective regions, especially in Latin America, which has abundant reserves of copper and lithium and whose leaders routinely gauge public opinion on mining-related issues.

Advertisement 2

Article content

Article content

“What we are seeing in Panama is not new,” Theo Yameogo, EY Americas and Canada mining and metals leader, said. “In today’s licensing operations, particularly in South America, leaders in those countries typically seek input from the public and elected officials … and the outcomes can vary. We should expect to see even more of this in the future.”

Vancouver-based First Quantum may lose its Cobre Panama mine after Panama’s top court on Nov. 28 said that a law linked to the company’s 20-year mining contract with the country was illegal. First Quantum is yet to confirm a shutdown as a result of the court’s decision, but it has been forced to stop production at the mine due to a blockade by protesters at its port.

Cobre Panama, located about 120 kilometres west of Panama City, is one of the world’s largest new copper mines to open in the past decade, according to First Quantum. It’s a key asset since the demand for metals such as copper and lithium has increased in recent years because they are considered important in the gradual energy transition from fossil fuels.

But the miner has faced a series of obstacles in the past two years in its bid to ink a new contract to run the mine. For example, talks between the Panama government broke down in mid-December last year after a deadline to sign a new contract was missed and the miner was ordered to temporarily suspend operations.

Advertisement 3

Article content

An aerial view of the Cobre Panama mine.
An aerial view of the Cobre Panama mine. Photo by Luis Acosta/AFP via Getty Images

In February, First Quantum said the Panamanian government was pressuring it to accept a new contract based on the government’s terms, which included allowing the country’s maritime authority to conduct “extraordinary and unusual” inspections at the company’s shipping terminal and instructing maritime pilots “not to provide service to vessels.”

But after months of negotiations, a new contract was agreed upon in October that went through the required legal procedures and was published in the official Gazette of Panama as Law 406.

While these agreements and legal procedures were taking place, thousands of environmentalists and Indigenous Peoples took to the streets to protest the contract. This was followed by “unconstitutionality challenges” against Law 406, which were admitted to the Supreme Court, First Quantum said on Oct. 31.

These events have been taking place as Panama gets set to elect a new national government.

After the court’s ruling on Nov. 28, some analysts following First Quantum predicted Panama would continue to allow First Quantum to mine until a new agreement is reached between the two parties since this was what happened five years ago after a similar court decision.

Advertisement 4

Article content

However, a tweet by Panama’s President Laurentino Cortizo on Nov. 28 suggested the mine would have to shut down. Authorities would start “the transition process for the orderly and safe closure of the mine,” he said. First Quantum has not commented on the president’s tweet.

But First Quantum has “formally initiated two parallel routes of international arbitration (under the Canada–Panama free trade agreement and via International Chamber of Commerce arbitration … to protect its rights with respect to the asset,” said Orest Wowkodaw, an analyst at the Bank of Nova Scotia, adding that company management has indicated it’s unclear as to when operations at Cobre Panama will resume. 

If the mine remains shut in 2024, global copper prices may be higher than originally forecast, Patricia Mohr, an economist and former vice-president at Bank of Nova Scotia, said.

A miner holds copper concentrate in Peru.
A miner holds copper concentrate in Peru. Photo by Dado Galdieri/Bloomberg

“There would have been a large global supply shortfall in any case by 2025-2026,” she said.

Mohr said maintaining a social licence to operate — including a good relationship with local communities and high environmental standards — is now “very important to mining companies in ensuring smooth operations.”

Advertisement 5

Article content

A licence to operate ranks third among the risks miners said they are concerned about, according to an annual EY survey published in October. Miners require the licence to operate on land, which they don’t own, and navigate a range of conditions around how minerals are extracted.

With more than half of the roughly 5,000 critical minerals projects currently under development on or near Indigenous lands, the survey said miners will need to better communicate with their stakeholders to ensure a smooth operation.

“Trust could be enhanced by doing more to meet increased expectations around greater stakeholder collaboration for mutual benefit. This requires transparency, listening to concerns and desires, and involving stakeholders in finding solutions,” the report said.

Related Stories

Barrick Gold Corp.’s chief executive Mark Bristow echoed a similar sentiment in November when he said people tend to forget that the “host country” is a company’s “biggest single stakeholder” in mining.

“I say that with humility because the reason Barrick got into trouble (in the past) … is that Barrick lost its social assets,” he said.

• Email:

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add to your bookmarks and sign up for our newsletters here.

Article content

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *