Panama City — After a three-month standoff between the Panamanian government and Canadian mining company First Quantum Minerals, during which the former ordered the company to cease mining operations and the latter launched arbitration proceedings, the government announced Wednesday that the two sides have reached an agreement on the final text of the concession contract and the payment of royalties.
The agreement also extends the concession for the Cobre Panamá project for 20 years, and which can be extended further.
“The contract guarantees an equitable distribution of royalties and taxes for Panama’s natural resources, in line with other countries in the region,” a statement from the presidency reads. “As announced by President [Laurentino] Cortizo Cohen in January 2022, the state expects to achieve a minimum income of $375 million per year during the lifespan of the contract,” the statement reads.
Panama expects to receive approximately 10 times more than what it had been receiving under the 1997 contract, and guarantees that Minera Panama, the local subsidiary of the Canadian company that operates the mine, will receive a commercial return for its investment in Panama, according to the official note.
During the negotiations, which took place behind closed doors, the clauses and modifications to the original contract were left in place, a move that has been criticized by observers.
Among the highlights of the new contract that replaces the former one, and which was declared unconstitutional by the Supreme Court in December 2017, are the stipulation of “greater labor and environmental protections, anti-corruption provisions, transparency obligations on the part of Minera Panama, the obligation for Minera Panama to transition to clean energy sources, and greater supervisory powers for the government, as well as the adoption of tax evasion measures”.
“After a lengthy and arduous negotiation process, the finalized proposed concession contract outlines the basis for the future of Cobre Panamá for all stakeholders, including the government, our investors and the country of Panama,” said Tristan Pascall, CEO of First Quantum Minerals.
“I am pleased that we now have a pathway to continuing our ongoing substantial investments in the country. I wish to thank our Panamanian and international employees and their families and our suppliers for their patience and resilience during this time. We now await formal approval of the proposed concession contract and look forward to a long and constructive partnership with the government of Panam for many years to come,” he added.
Negotiations toward a new contract began in September 2021 and ended in January 2022, with the government giving the company a final deadline of December 2022 to sign it, but the company’s failure to do so resulted in a confrontation between the parties that concluded with the order to cease mining and ore processing operations at the mine, which is the largest copper mine in Central America.
The proposed concession contract will include the following principal economic terms once it takes effect, according to a statement by First Quantum Minerals (MPSA):
- Payment by MPSA of $375 million plus an additional $20 million to cover taxes and royalties up to the year end 2022
- Payment by MPSA starting in 2023 of an annual minimum contribution of $375 million in Government income, comprised of corporate taxes, withholding taxes and a profit-based mineral royalty of 12-16%, with downside protections
- Downside protections to the annual minimum contribution under the following conditions:
Until the end of 2025, copper price below $3.25 per pound. From 2026 and beyond, a total tax contribution for that year of less than $300 million
The contract will be available for public consultation, and will be presented to the cabinet for authorization by the minister of commerce and industries. It will also be reviewed by the Comptroller General of the Republic, for its final approval by the National Assembly and signature by President Cortizo.