Panama has found itself embroiled in a contentious mining dispute that has far-reaching implications, resulting in significant market losses for Canadian miner First Quantum Minerals Ltd. (“FQM”) and potential economic and political ramifications for the country. The conflict began in 2017 when Panama’s highest court deemed the law governing FQM’s mine operations unconstitutional.
Despite subsequent legal challenges, the ruling was upheld in 2021, prompting negotiations for a new contract. The recent agreement between Panama and FQM, which granted a 20-year mining right with a revenue commitment of USD 375 million annually to Panama, has been met with protests led by the Suntracs labour union, alleging favouritism towards FQM, corruption and environmental risks.
The court ruling’s aftermath leaves the fate of FQM’s Panama mine uncertain, with potential scenarios including indefinite closure, nationalisation or renegotiation through international arbitration. The mining issue has become a pivotal factor in Panama’s upcoming presidential election, with candidates considering increased state control over the mine.
Efforts to resolve the conflict through arbitration or negotiations within a 90-day period are underway but, as a former deputy mayor of Panama and environmental activist reported, “from the messages that both the government and the mining company are sending out, it does not seem that they are on the road to an understanding, so I am inclined to think that this will end up in an arbitration court.”
While FQM is undertaking measures to close the mine, “the Supreme Court ruling sets a very questionable precedent for the legal security of the country,” cited the president of the mining chamber. “The productive sector, investors and other sectors of the economy are very concerned, we are talking about more than 7,000 people who will lose their jobs and join the ranks of the unemployed.” The situation echoes past events, like the shutdown of Rio Tinto’s operations in the 1980s, which collapsed due to inadequate community engagement, a criticism surfacing again.
“we are talking about more than 7,000 people who will lose their jobs and join the ranks of the unemployed.”
President of the Mining Chamber, Panama
This dispute’s ripple effects extend beyond FQM, as Orla Mining also faced a concession cancellation, intensifying challenges amid a moratorium on new mining contracts and extensions passed in November. Panama’s sovereign debt faces possible downgrading from triple-B due to investor confidence erosion following the FQM issue, thereby impacting the country’s 2024 revenues. “Going to arbitration could be highly detrimental to Panama,” the mining chamber president expanded, “if we lose the arbitration the economic cost will be very high and the consequences unpredictable. I think this episode will be remembered as the ‘Panamanian Brexit’.”
As Panama heads toward its presidential election, candidates are influenced by the populace’s anti-mining sentiment, compelling them to address revenue loss and arbitration uncertainties in their campaign strategies. “Remember that we are less than half a year away from the elections.” The President of the Mining Chamber continued, “the mining sector hope that whoever is elected to government will take on the issue responsibly and have the honesty to re-think the issue so that we can do damage control both economically and socially and safeguard the legal security of the country.”
Notably, former-President Martinelli, the front-runner, initially welcomed the Supreme Court’s annulment of FQM’s contract, raising questions about his stance, given his history of controversial dealings. A former deputy mayor of Panama declared, “the sovereign spoke in the streets and the mining companies that are here and those that are thinking of arriving had better turn around.”
“the sovereign spoke in the streets and the mining companies that are here and those that are thinking of arriving had better turn around.”
Environmental activist and former deputy mayor, Panama
The dispute’s significance extends beyond Panama, raising concerns about regional nationalisation, although “the Panamanian state is not in a position to deal with a mining project the size of Cobre Panama.” The environmental activist emphasised that “if a candidate wants to stand a chance in the May 2024 elections, he or she had better make clear his or her rejection of mining and start proposing other options that are not hostile to the environment.”
Conversely, the President of the Mining Chamber of Panama, expressed concern about the politicisation of the mining issue and the potential economic repercussions of mine closure and advocates for a reconsideration of future concessions. “It is important to make a correct reading of what happened in Panama, here justice failed because it took many years to pass a sentence in the case of the first contract and then in the case of the second contract it was done in an expeditious manner, but also influenced by the pressure from the streets.”
The fallout from the Panama-FQM mining dispute underscores the delicate balance between economic development, environmental stewardship and sovereignty. Resonating within Panama and rippling across the region, echoed by the warning that “a loose end can mean disaster and the owners of First Quantum must be regretting it.”