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An aerial view of Cobre Panama mine in Donoso, 120 km west of Panama City.LUIS ACOSTA/Getty Images

First Quantum Minerals Ltd. FM-T has reached a tentative agreement with Panama that would end a bitter tax dispute and head off a shutdown of the company’s biggest copper mine.

The Vancouver-based miner announced on Wednesday it would pay a minimum of US$375-million in taxes a year to Panama, with built-in downside protection that would reduce the payments if there were a steep fall in the price of copper.

The pact is subject to a 30-day public consultation period, and must be approved by Panama’s government. It has a term of 20 years and carries an option to extend for an additional 20 years.

Late last year, Panama ordered First Quantum’s giant Cobre Panama mine to close after the company missed a deadline to sign a new tax agreement. While the mine had remained open pending an appeal, the Central American country recently prevented First Quantum from sending copper out of the country, and forced it to halt the processing of ore.

On Wednesday, First Quantum said Panama has issued a resolution that will allow it to resume exports. Cobre Panama is expected to be back to full production in a few days.

In an interview after a meeting with Panamanian president Laurentino Cortizo, Tristan Pascall, First Quantum’s chief executive, said the final agreement could be approved as early as the end of next month.

“We’re pleased that we have an outcome that now focuses on the future,” he said.

Cobre Panama is located 120 kilometres west of Panama City and went into production in 2019. The mine accounts for about 5 per cent of Panama’s GDP, and about 40,000 people work there.

Panama’s Ministry of Commerce and Industries said in a statement that the new agreement “creates stability for mine workers, suppliers and the local and national economy.”

Up to now, First Quantum has paid relatively small amounts of tax to Panama, compared to what it pays in other places it operates such as Zambia. In 2021, First Quantum paid US$42.6-million to Panama for Cobre Panama. Under the new agreement, it stands to pay the country US$395-million for 2022, a more-than-ninefold increase.

Under Wednesday’s agreement, the Canadian company would also move from paying a 2-per-cent royalty on revenue to a 12-per-cent to 16-per-cent royalty on its profits.

From 2023 to 2025, First Quantum could end up paying less than the targeted minimum of US$375-million to Panama if the price of copper falls below US$3.25 a pound. On Wednesday, the commodity traded at around $4.05 a pound.

From 2026 onward, First Quantum could also pay less than the minimum if, using the new royalty calculation, its tax bill drops below US$300-million.

But Mr. Pascall said that even with the increase in taxes over the next 20 years, First Quantum should still be profitable over the long term.

“We believe we’ve got to an outcome here which allows for the business to prosper in Panama,” he said.

Shares in First Quantum rose by 0.7 per cent in trading on the Toronto Stock Exchange Wednesday, to close at $29.99. The company’s stock had recovered strongly in the previous few weeks, as signs emerged that an agreement was near.

Last week, Ebrahim Asvat, a member of the government of Panama’s negotiating team, told The Globe and Mail that, as a result of the contributions of First Quantum chief financial officer Ryan MacWilliam, talks were going more smoothly and the two sides were close to an agreement.

While First Quantum had agreed as early as January, 2022, to pay a materially higher yearly tax amount to Panama, other sticking points held up a final agreement. Legal rights protecting First Quantum against early termination of the tax agreement were one point of contention, and the depletion tax credits were another.

Mr. Pascall said the company agreed to two separate terms on the depletion tax credits, one that would cover the first 10 years, and another for the remaining 10 years. He declined to provide details on how much the tax credits would be worth.