First Quantum cuts back on ore processing amid port blockades

Protesters have expressed concerns over a mining contract signed between the government and the company late last month, arguing that it was tainted with corruption and was highly favorable to the Canadian miner.

The company said the blockade of small boats at the mine’s Punta Rincon port has affected the delivery of supplies for its on-site power generation plant and is impacting the loading of copper concentrates into vessels.

The company said it had ramped down operations at one ore processing train, while two remain operational.

Shares of the miner were down 2.8%.

The Cobre Panama mine accounts for 1% of global copper output and is operated by a local unit of First Quantum.

A Reuters survey found that a majority of lawyers believe that Panama’s top court would revoke First Quantum’s contract for the mine, which contributes 5% to Panama’s gross domestic product.

The contested contract, which was approved on Oct. 20, provides First Quantum a 20-year mining right with an option to extend for another 20 years, in return for $375 million in annual revenue to Panama.

The miner’s contract has snowballed into a lightning rod ahead of the May 2024 Panama election. Meanwhile, Standard & Poor’s has revised Panama’s economic outlook to negative from stable due to potential risks to investors’ confidence.

The uncertainty has also wiped about C$8 billion ($5.80 billion) from First Quantum’s market value. Amid the rout, China’s Jiangxi Copper, First Quantum’s biggest shareholder, last week raised its stake in the Canadian company to 18.5%.

Two Panamanian prosecutors have deemed the contract unconstitutional after examining legal challenges submitted to the court.

However, Maritza Cedeno, the president of the country’s bar association, noted that past rulings have deviated from the initial positions of these officials.

She declined to disclose her stance, saying the court should work without pressures.

Four out of the seven lawyers polled by Reuters predicted the top court will nullify the contract, possibly as soon as mid-December. Two others believe the court will uphold the contract, while one remains uncertain.

“There is precedent…,” said lawyer Ariel Corbetti, pointing out that the contract has similarities to the initial First Quantum deal, which was scrapped by the court in 2017.

That contract was inherited by First Quantum in 2013 after it became the operator of the mine. However, Panama’s top court in 2017 deemed unconstitutional the law under which First Quantum was operating the mine.

The ruling was upheld in 2021, resulting in last month’s fresh deal with the government.

A representative for Panama’s top court declined to comment on the possible outcome, and directed Reuters to a statement saying resolving the challenges is the body’s “number one priority.”

First Quantum did not reply to a request for comment on the future of the contract pending court proceedings.