Panama’s ratification of an agreement with a copper miner last month has been a formality. Instead, it sparked nationwide protests that crippled the economy, destabilized the government, and led to a nationwide ban on new mines.
The outburst of popular anger blinded investors, forced the government into a chaotic retreat and wiped out some $6. 5 billion in shareholder value in Canada’s First Quantum Minerals Ltd. , a company known as a savvy operator with decades of experience in future projects in Africa. A question mark now hangs over the future of its giant Cobre Panama mine.
Subscribe now to read the latest news in your city and across Canada.
Subscribe now to read the latest news in your city and across Canada.
Create an account or log in to continue your experience.
You do not have an account? Create an account
The protests were not limited to the mine. Panama was already seething with discontent over inflation, high unemployment, and corruption, but there was also a long-standing resentment over Cobre Panama’s environmental impact and contribution to the economy. As the elections approached, riots built up around the mine, leading to the government of President Laurentino Cortizo making a radical change to the mine’s operating contract.
This episode warns foreign investors about the vulnerability of mining projects to public hostility and resource nationalism, even in investor-friendly countries like Panama. This raises questions about the deployment of the billions of dollars of investment that will be needed in the coming decades to extract the copper and other critical minerals needed for the global transition away from fossil fuels.
When First Quantum and the government reached a new agreement for the mine in March, it seemed like everyone would win. The company granted a 20-year extension for its most lucrative asset and the government got a larger percentage of the windfall profits, allowing it to accumulate pensions before the May 5 election.
Get the latest headlines and columns.
By subscribing, you agree to the above newsletter from Postmedia Network Inc.
A welcome email is on the way. If you don’t see it, check your spam folder.
The next Headline News factor will soon be in your inbox.
We encountered a challenge with their registration. Double-check
Still, complaints about the deal continue to boil. The debate over the mine’s progress quickly passed through Congress without sufficient consultation, said Yarelys Gomez, an environmentalist who participated in the street protests. When the country’s largest industrial union joined the protests, they temporarily grew to a large degree.
As industrial unions, environmentalists and student teams blocked roads and battled police, food costs soared in the capital as farmers were cut off from the world. On Sunday, October 29, Cortizo attempted to restore calm by calling for a referendum on the mining contract.
The announcement caught First Quantum by surprise, and corporate officials in London rushed to Panama to meet with government officials, according to a user familiar with the matter. Panama’s bonds have fallen and its credit rating has been downgraded to one point above junk debt. bonds through Moody’s Investors Service.
In the two weeks since, the proposed referendum and pressure for Congress to repeal the contract have been abandoned, as everyone waits to see if the Supreme Court will overturn the agreement. Throughout the controversy, the mine – the largest investment in the sector in Panama, which generates thousands of jobs and generates about 1. 5% of the world’s copper – continued to operate.
Attorney Martita Cornejo, who has filed an appeal of unconstitutionality against the revised contract, argues that it violates public procurement procedures, contradicts foreign environmental agreements and violates a constitutional right to non-unusual welfare.
The court is considering seven other lawsuits opposing the mining agreement. The protesters vowed to stay in the streets until a resolution was adopted, which they demanded until mid-December.
Protester Gomez likens the mine to a “tumor” in the small country’s ecosystem.
“The dimensions of what they are digging and damaging, given the size of our country, are enormous,” Gomez said.
The fact that copper is needed for green technologies like electric cars and solar panels doesn’t make much difference to protesters (there was a similar backlash against lithium allocation in Serbia last year).
In response to written questions, the company said it had not received any reports of illnesses similar to air or water pollutants resulting from its operations and that it was in full compliance with all environmental regulations.
Cobre Panama has also pledged to reforest a domain to nearly double the project’s “disturbance footprint” of 5,900 hectares, more than a third of which has already been completed, the company said.
As Panama is a newcomer to the mining world, First Quantum was able to offer advantageous new terms in its previous contract. When it came time to enter into a new agreement, the country received higher tax rates and a minimum payment, as well as greater environmental coverage and network benefits.
Prior to its hostile takeover in 2013 of Inmet Mining Corp. , which owned the leases in Panama, First Quantum operated primarily in Africa.
Panama was “a region that was sometimes considered more of a jurisdiction,” said MacKenzie Davis, portfolio manager at Sailingstone Capital Partners, which began investing in First Quantum in 2013. “And they had a concentration of assets in Zambia — two big deals there — so it was an opportunity to diversify and get away from some of that concentration risk.
The narrow vote is helping lawmakers, hitherto pro-business, move in a matter of days from supporting the mining deal to banning all new mining contracts.
Although Cortizo can’t run for office, he does so with his center-left party, which is performing poorly in the polls. Cortizo’s approval rating fell to 19% in October. His party’s candidate in the May elections, Vice President José Gabriel Carrizo, came in last with 3%
Former President Ricardo Martinelli, who publicly supported a contract with First Quantum, is leading in polls ahead of the election but is facing corruption allegations in court. If you lose your appeal, you may be barred from running.
Romulo Roux, Martin Torrijos and Ricardo Lombana are tied for second. Roux, a lawyer, supported the mine but said he would abide by the Supreme Court’s decision. Former President Torrijos has said he opposes the mine, while Lombana has called for its closure and said he would sue the company for environmental damages, if elected.
The government will consider shutting down mining in the run-up to the election, when the economy is already affected by disruptions at the Panama Canal due to low water levels, according to BMO Capital Markets.
Panama has experienced one of the fastest developing economies in the Americas this century and now enjoys a standard of living similar to that of Poland. But expectations have also risen, according to economist Rene Quevedo, a business representative in Panama City.
The economy is creating fewer formal jobs than before the pandemic and informality is increasing, he said. A potential loss of tax revenue from the mine, combined with a decline in canal profits, could charge the country its investment-grade credits. qualification, Quevedo said.
“We are an unpredictable country for foreign investment,” he said. “We scare away foreign investors. “
— with Shelby Knowles Nikolaides
Bloomberg. com
Postmedia is committed to maintaining a civilized discussion forum and encourages all readers to share their perspectives on our articles. It can take up to an hour for comments to moderate before appearing on the site. We ask that your feedback be applicable and respectful. We’ve enabled email notifications: you’ll now receive an email if you get a response to your comment, if there’s an update to a comment thread you’re following, or if a user you follow comments. Check out our network rules for more facts and main points on how to adjust your email settings.
To contribute to the conversation, you must be logged in. If you haven’t signed up yet, create your account now; it’s FREE.
365 Bloor Street East, Toronto, ON M4W 3L4
© 2023 Montreal Gazette, a department of Postmedia Network Inc. All rights reserved. Unauthorized distribution or transmission is strictly prohibited.
This uses cookies to personalize your content (including ads) and allows us to analyze our traffic. Learn more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.