Federico Alfaro Boyd, Panama’s Minister of Commerce and Industries, said there is “no reason,” to think its tentative tax agreement with First Quantum Minerals Ltd. FM-T won’t be approved by the government in a timely fashion.
After almost three months of uncertainty, Vancouver-based First Quantum and the Central American country earlier this week agreed to a 20-year tax deal on the Cobre Panama copper mine.
The pact prevented a shutdown of the mine that was ordered in December by Panamanian President Laurentino Cortizo, after First Quantum missed a key deadline to sign a new agreement.
The agreement is subject to a 30-day public consultation period, and afterward must be approved by Panama’s government.
Mr. Alfaro Boyd said the consultations should start in the next week or two, and government approval could happen as early as April 30.
“We will just try to work and make sure that it happens as quickly as possible,” he said in an interview.
One of the main sticking points that held up the agreement centred around depletion tax credits that First Quantum can use. The credits are common in the mining industry, and help offset the huge capital costs of building mines.
Mr. Alfaro Boyd said for the first 10 years of the contract, First Quantum will be able to use a 70 per cent depletion credit on its taxable income. For the remaining 10 years, the credit goes down to 30 per cent.
Several important factors will determine the company’s taxable income, including the price of the commodity and its production volumes.
If production targets are hit and the commodity price remains elevated, the Canadian miner is expected to pay a minimum of US$375-million in taxes a year from now on, or about nine times more than it paid previously.
Under Wednesday’s agreement, the Canadian company is set to move from paying a 2-per-cent royalty on its 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 government’s targeted minimum of US$375-million if the commodity falls below US$3.25 a pound. On Friday, copper traded at around US$4 a pound.
Located 120 kilometres west of Panama City, Cobre Panama is First Quantum’s biggest copper mine. It accounts for roughly 5 per cent of Panama’s GDP, and employs about 40,000 people. The mine was finished in 2019, and cost the Canadian company US$6.8-billion to build.
As part of the new agreement, First Quantum will also be subject to more stringent environmental terms. The company must submit a mine closing plan, something that under the previous agreement it did not have to do, and which is already commonplace in Canada. First Quantum is also committing to moving away from coal for its energy usage to renewables over about a five-year period.
“Panama, through this contract, will have upped the ante when it comes to standardized environmental protections that Canada has, and other countries like the U.K., the U.S., Australia,” Mr. Alfaro Boyd said. “It was very important that these new environmental standards are compliant with international norms.”
Despite the protracted tension with First Quantum over the new tax agreement, Mr. Alfaro Boyd said that Panama has shown itself to adhere to the rules of international law, and he’s confident the country will continue to attract investment from the mining community.
“We are open to foreign direct investment,” he said. “But an investment that is fair, not only for international investors, but also fair for the Panamanian people, who in the end are the owners of the natural resources.”