First Quantum Moves Forward With Two Arbitrations Against Panama

Unlike its partners, who have already begun the arbitration process against Panama for the closure of the copper mine located in the Donoso Mountains, First Quantum has indicated that it has up to 3 years to present its claim, in accordance with the provisions of the Free Trade Agreement (FTA) signed between Panama and Canada in 2010.  At the end of June, Franco-Nevada, also from Canada, filed an arbitration claim against Panama under the guidelines of the FTA with Canada, requesting compensation of 5 billion dollars. Franco-Nevada is a partner of First Quantum and they had an agreement for the purchase of gold, backed by financing of 1 billion dollars.  In its second quarter financial statement, First Quantum said it is pursuing two arbitration proceedings against Panama, seeking $20 billion in compensation. While the company maintains its position that arbitration is not the preferred outcome for the situation in Panama and that it remains committed to dialogue with the new government, it also notes that it has every right to seek any appropriate compensation through arbitration.

“The company has the right to file its claim for arbitration under the FTA within three years of Panama’s violation of the FTA,” the company said.  Regarding the lawsuit filed at the International Chamber of Commerce (ICC), Tristan Pascall, CEO of the Canadian mining company, commented that the final hearing is scheduled for September 25, 2025. The lawsuit was filed based on the arbitration clause of the concession contract that Laurentino Cortizo’s government signed at the end of October 2023, and which a month later was declared unconstitutional by the Supreme Court of Justice.  Arbitration claims were one of the main topics during the second quarter earnings conference call between First Quantum executives and financial market analysts. Analysts also wanted to know the company’s position on President José Raúl Mulino’s remarks regarding the closure of the copper mine.  Pascall said the company remains open to dialogue and sees the government’s decision to hire an independent auditor to assess the state of the mine as positive. They estimate that the issue will be discussed in depth by the authorities next year, although they acknowledge that they have held talks with officials, as Mulino recently revealed.

“I think the consequences of doing nothing at the mine will be very serious for the environment, so we welcome this audit, which we hope will understand that doing nothing now is not a good solution for the country,” Pascall said.  Esteban Tamayo, chief economist for Central America and the Andean countries at Citi, said that the arbitration claims that the country will face due to the closure of metal mining are the biggest risk facing the Mulino administration, although not the most urgent to resolve. He explained that first the new government must face the fiscal crisis and, second, the changes in social security to save the Social Security Fund. Once these obstacles are overcome, the government could focus on the mining issue.  “Arbitrations are processes that take years, and apparently, one of the processes will not be completed until September 2025, so this issue will not be on the government’s agenda this year,” said Tamayo, who believes that it would not be until 2026 or 2027 that the copper mine’s operations could be restarted.

Regarding Mulino’s comments that the mining issue will not be addressed in depth this year, Pascall commented that for the company the important thing is not when, “but reaching an appropriate agreement that benefits both parties, that guarantees a stable operation in the future and that makes sense for our shareholders,” which suggests that the Canadian mining company has not lost hope of maintaining the 13,000 hectare concession in the future.  Recently, the British bank Barclays addressed the future of the Cobre Panama project, pointing out that one solution would be the creation of a joint company where the Panamanian State would become a shareholder. However, it warns that, due to the magnitude of the investment made by First Quantum, estimated at 10 billion dollars, the country could obtain a significant percentage of shares.  “If Panama has an ownership stake in the project, then many Panamanians may feel that environmental protections are being rigorously observed and that a foreign-owned company is not infringing on the country’s sovereignty,” the bank said in its analysis.  The bank also concludes that the speed with which the contract was approved, after being reviewed by the National Assembly, upset and angered Panamanians, a discontent that was added to the worn-out opinion that a large sector of the country had about Laurentino Cortizo’s management.

A key issue for Barclays will be a decision on the 131,000 tons of copper concentrate still stored at the Donoso mine. Environment Minister Juan Carlos Navarro has said the material needs to be moved out of the mine to avoid environmental damage. First Quantum said the concentrate is worth $265 million at current prices, which can be used to fund the mine’s maintenance and upkeep program.  The company insists that the concentrate is its property because it was processed before the unconstitutionality ruling issued by the 9 judges of the Supreme Court of Justice. The Attorney General, Rigoberto González, has reiterated that the money obtained from the sale of the concentrate must be used exclusively to finance the maintenance plan of the mine.

In its financial statements, First Quantum reported that during the second quarter of the year it allocated 17 million dollars per month to cover the cost of the maintenance plan, in which 1,400 workers participate. For the third quarter, the company estimates a monthly expense of close to 20 million dollars.  Another issue that caught the attention of financial analysts during the Canadian company’s earnings call was the Supreme Court ruling that returned management of the watershed to the Panama Canal Authority, as established in 1999, and which includes the Indio River.  On this point, First Quantum spokespeople commented that Minera Panama’s concession is four basins away from the Panama Canal and rejected reports that the mining project was using water from the waterway.  “We are very far from the canal and, although I am aware that the Panama Canal Authority (ACP) is concerned about the long-term effects of climate change on the canal and how they will deal with that in the future, we would certainly be willing to be part of the solutions for the country and for the Panama Canal,” said Rudi Badenhorst, First Quantum’s COO.  On this point, the Canal administrator, Ricaurte Vásquez, believes that the ACP is not the owner of the watershed and clarified that, at the time, if required, they could issue an opinion on the care of water resources. However, he clarified that the Canal does not approve or reject the concessions that are established in the basin, as is the case of Minera Panamá.