First Quantum Minerals Ltd. FM-T and the government of Panama are at loggerheads over hundreds of millions of dollars in royalties the Canadian copper miner is expected to pay from 2026 onward, with the two sides unable to agree on the treatment of tax credits.
Panama and First Quantum have been in talks for more than a year, trying to hammer out a new pact on royalties on Cobre Panama, a giant copper mine 120 kilometres west of Panama City. Talks broke down last month with no agreement in place, and Panama’s President ordered Cobre Panama to shut down amid the spat.
Canada’s biggest copper company has been paying taxes in Panama based on a percentage of its revenue from Cobre Panama, but the Panamanian government wants to move the company to a more lucrative regime based on a percentage of profits. If the parties can finalize an agreement, First Quantum stands to pay significantly higher taxes, at least over the next few years. The company’s approximate tax rate will be 14 per cent of profits, compared with the current rate of 2 per cent of revenue.
A Panamanian government source said First Quantum has agreed to pay US$375-million for the 2022 tax year, with no caveats regarding either the price of copper or production. From 2023 to 2025, the source said, First Quantum will pay at least US$375-million if copper trades above US$3.25 a pound and if its production is more than 250,000 tonnes. From 2026 onward, First Quantum will pay US$375-million if copper trades above US$2.75 a pound and production exceeds 250,000 tonnes.
The Globe and Mail is not identifying the source because they were not authorized to discuss the matter publicly.
Paul Holmes, a spokesperson for First Quantum, said in an e-mail that the company will not comment on the details of the talks.
As a further backstop for the Panamanian government, from 2026 onward First Quantum has agreed to pay US$375-millon even if the targets regarding production and copper prices aren’t met, as long as the amount of tax owed is at least US$300-million.
However, the source said Panama is concerned that First Quantum’s tax tab from 2026 onward will not hit US$300-million. That’s because of various tax credits under discussion, including one related to ore depletion at Cobre Panama and another regarding capital investments.
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For 2021, First Quantum paid US$455-million in taxes across all its operations, which include its Panamanian properties and mines in Zambia, Finland, Turkey, Spain, Australia and Mauritania.
Copper is currently trading at about US$3.90 a pound, and First Quantum’s production guidance for Cobre Panama last year was 345,000 tonnes.
Many of Canada’s largest mining companies are already paying significantly higher royalties than in previous years. Over the past five years, as base and precious metals prices have soared to record levels, countries such as Tanzania and Papua New Guinea have successfully squeezed miners to get a bigger share of the spoils.
Cobre Panama is the sixth-largest copper operation in the world and a major engine of the Panamanian economy. Roughly 40,000 people work there.
First Quantum spent US$6.8-billion building the mine, which only started production in 2019. It is expected to remain operational for at least three decades.