FQM to Launch Arbitration Against Panama Over Cobre Panama Mine Closure

TORONTO/PANAMA CITY – Canadian miner First Quantum Minerals is set to initiate formal arbitration proceedings against Panama in July, following the country’s decision to close the giant Cobre Panama mine last November, according to sources familiar with the matter.

This move coincides with the start of a new administration in Panama, which could determine the future of one of the world’s largest and newest copper mines, previously responsible for 1% of global copper output before its closure.

First Quantum’s shares fell by 2% on the Toronto Stock Exchange on Friday morning.

In December, First Quantum announced it had initiated proceedings against Panama at the International Court of Arbitration in Miami, Florida, seeking $20 billion in damages after Panama’s Supreme Court declared its contract unconstitutional.

During the initial stage of arbitration, parties negotiate for six months to avoid formal proceedings. With negotiations unsuccessful, the miner will now proceed with the formal arbitration process.

“First Quantum will meet the July 30 deadline to launch formal arbitration against Panama as it has a fiduciary duty to do so,” said one source, requesting anonymity.

First Quantum declined to comment directly on the arbitration but referred to a May 6 statement expressing its hope for dialogue with Panama’s new administration.

The Cobre Panama crisis has severely impacted First Quantum, wiping C$9 billion ($6.57 billion) from its market capital and prompting capital restructuring measures. For Panama, the dispute is expected to materially impact economic growth.

First Quantum’s share price has recovered to C$19 from C$10 in December.

Panama’s President-elect, Jose Raul Mulino, stated in May that he would not engage in talks with First Quantum unless the company dropped its arbitration claims.

However, First Quantum is proceeding with arbitration to avoid missing the July deadline, which would necessitate filing a new intent with another six months of negotiations.

Riyaz Dattu, Canada legal practice leader at law firm Arentfox Schiff, noted that arbitration against a government typically takes four years to conclude.

First Quantum has also been negotiating with Panama’s outgoing administration to sell 130,000 tonnes of copper concentrate currently stuck at the mine.

Panama’s new cabinet, to be sworn in on July 1, will play a crucial role in determining the mine’s future. Outgoing industry minister did not respond to queries about a potential settlement.

Incoming industry minister Julio Molto emphasized that resolving the disputed mine issue is a priority for the new government, stating, “Whatever solution we agree on, it is most likely that this issue will not be resolved with another contract.”

A recent report from the International Monetary Fund predicted Panama’s GDP would drop by 2.5% in 2024 due to the mine closure, highlighting risks including the loss of investment grade credit rating, social unrest, and fallout from the cessation of copper production.