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Heavy equipment prepares a road at Inmet’s massive Cobre Panama project.

Panama has ordered First Quantum Minerals Ltd.’s FM-T Cobre Panama mine to cease commercial operations, after the Central American country clashed with the big Canadian copper miner over a profit-sharing agreement.

Panama’s President Laurentino Cortizo made the announcement late Thursday in a dramatic televised address to the nation.

Cobre Panama is First Quantum’s biggest mine, and accounts for more than half of its net asset value. Vancouver-based First Quantum is Canada’s biggest copper producer.

First Quantum and Panama had been in talks for more than a year to try to hammer out a new profit-sharing agreement to replace the existing pact that sees the company pay a royalty based on a percentage of its revenue. First Quantum faced a deadline of midnight Wednesday to strike a new pact, but on Thursday morning the two sides announced they were at an impasse.

Panama had wanted First Quantum to pay a minimum of US$375-million a year, regardless of how the mine performs and regardless of the price of copper. That scenario could put the big Canadian miner under significant financial strain if the commodity crashes. First Quantum tried to get Panama to agree to certain conditions in case metal prices fall and its profitability drops significantly. First Quantum said in a release that “legal protections on termination, stability and transition arrangements” were the sticking points.

While the move by Panama’s President to shut down the mine is drastic, it’s far from the worst-case scenario for First Quantum, because it leaves the door open for the two to reach an agreement at a later date. Other Canadian miners have seen their mines nationalized after clashing with foreign governments. Centerra Gold Inc.’s flagship Kumtor mine was seized by the Kyrgyz Republic and eventually the gold miner was forced to sell it at a fraction of its worth to the government.

In the Thursday evening address, Mr. Cortizo said he will seek the best outcome for the people of Panama who own the mineral riches in the ground.

The Mining Chamber of Panama earlier this week urged the government to reach an agreement with First Quantum, saying in a release that Pamana needs to attract international investment to boost the economy, and create jobs. First Quantum is the biggest private sector investor in Panama and along with its predecessor company, it has invested in excess of US$10-billion into the country.

The development once again shows the risks Canadian mining companies face when they operate abroad.

Kinross Gold Corp. earlier this year sold its Russian mines for a fraction of their worth after the invasion of Ukraine.

First Quantum shares fell by 14.7 per cent on Thursday on the Toronto Stock Exchange, the biggest single-day drop in more than 2½ years.

Many of Canada’s largest mining companies are already forking out significantly higher royalties than previously. Over the past five years, as base and precious metals prices have raced to record levels, many overseas countries, including Tanzania and Papua New Guinea, have successfully pushed back on miners to demand a bigger slice of the spoils.

Cobre Panama went into production in 2019 and First Quantum incurred a sizable debt load from its construction. The company’s other major mines are Sentinel and Kansanshi, both in Zambia.

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