First Quantum faces ‘shocker’ in Panama as president calls referendum on Cobre Panama contract

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First Quantum Minerals Ltd.’s FM-T ability to continue operating in Panama is uncertain, after the country’s president called a referendum over a recently approved contract for the Canadian company’s Cobre Panama mine.

The government of Panama signed the new 20-year Cobre Panama contract into law just over a week ago, after reaching a tentative agreement with the Vancouver-based miner earlier in the year. The deal would result in First Quantum paying drastically higher Panamanian taxes.

But as the contract was making its way through Panama’s legislature, public opposition boiled over into boisterous street protests attended by thousands. The contract was denounced by environmentalists, Indigenous groups, labour activists and religious groups, who opposed it both because of its financial terms and because of the impact the open-pit mine has on the environment.

Amid escalating protests after the law was passed, Panamanian President Laurentino Cortizo, who had broadly been supportive of First Quantum, made a sudden reversal over the weekend.

In a televised national address on Sunday, he announced that a referendum will be held on Dec. 17 to let the Panamanian people decide whether or not to repeal the law that legalized the contract.

“The vote will legitimize the will of the people,” he said. “The result will be binding.”

Panama cabinet approves modified contract with Canada’s First Quantum

Cobre Panama is First Quantum’s largest copper mine. It represents close to 60 per cent of the company’s net asset value. The mine is also a major economic driver for Panama. It accounts for about 5 per cent of the country’s GDP.

Shares in First Quantum fell by 28.5 per cent in trading on the Toronto Stock Exchange on Monday, to close at $20 each. It was the company’s worst single-day performance in two decades.

Christopher LaFemina, an analyst with Jefferies, wrote in a note to clients that news of the referendum is a “shocker” for the company.

The Canadian miner has several options at its disposal Mr. LaFemina wrote, including making concessions to satisfy the people of Panama and using international arbitration. But he added that he is not optimistic the matter will be resolved any time soon.

“This issue is likely to be an overhang on First Quantum’s shares until the outcome of elections in Panama next May, if not longer,” he wrote.

Regulation of mining companies has become a major issue for voters in the Central American country.

Several candidates vying to replace Mr. Cortizo in the country’s 2024 election had already opposed First Quantum’s new contract with Panama.

Mr. Cortizo, a member of the Democratic Revolutionary Party, said on Friday that he was halting approvals for all new mining projects in the country as the protests over Cobre Panama continued.

Under the now-uncertain tax agreement, First Quantum was expected to pay a minimum of US$375-million in taxes a year, or about nine times more than it had previously been paying.

Located 120 kilometres west of Panama City, the mine has created at least 40,000 direct and indirect jobs. Cobre Panama started production in 2019, cost US$6.8-billion to build, and accounts for about 1.5 per cent of global copper production.

On Saturday, First Quantum’s Panamanian subsidiary said in a statement that protesters had entered the company’s port.

The “illegal and violent” incident threatened its operations and jeopardized the safety of its staff, the company said.

Editor’s note: A previous version of this article stated incorrectly that the mine employs about 40,000 people. It has created at least 40,000 direct and indirect jobs. This version has been updated.