Talks stagnate between First Quantum and Panama over tax credits and legal rights, sources say

Talks between Canadian copper miner First Quantum Minerals Ltd. and the government of Panama have stagnated once again, with both parties in a logjam over tax credits and legal rights.

Two sources familiar with the talks said the main points of contention have to do with a tax credit on ore depletion, and another credit related to the massive capital investment already made by First Quantum in Panama. The Vancouver-based miner spent US$6.8-billion building the Cobre Panama mine, which started production in 2019.

Other sticking points relate to First Quantum’s continuing legal rights to Cobre Panama, and safeguards against early termination of whatever agreement the parties may ultimately reach, one of the sources added.

Paul Holmes, a spokesperson for First Quantum, said in an e-mail that the company “remains committed to seeking a mutually beneficial agreement as soon as possible.”

Panama and First Quantum had been in talks for more than a year as they worked to hammer out an agreement on taxes. Discussions ended abruptly last month, putting the future of the mine in jeopardy. Panama’s President, Laurentino Cortizo, ordered Cobre Panama to close – a move that some interpreted as a tactic to give the government extra leverage should talks pick up again.

Earlier this week, the Canadian copper miner and Panama were back at the negotiating table, raising hopes that a resolution might be imminent.

First Quantum had previously said it was willing to pay Panama a minimum of US$375-million in taxes a year, but it wanted protection in case the price of copper were to fall below certain levels, or if the mine’s production were to drop below specific tonnage amounts.

Other Canadian miners have seen their assets expropriated after clashing with foreign governments. Centerra Gold Inc.’s CG-T +1.44% increase flagship Kumtor mine was nationalized by the Kyrgyz Republic in 2021, and later Centerra was forced to sell it at a fraction of its worth to the government.

That drastic scenario doesn’t appear likely in this instance. The Mining Chamber of Panama,which represents the industry, had feared the Central American country might nationalize the mine. But one of the sources, who works for the government of Panama, said the Cortizo administration is not an advocate of state intervention in private enterprise. The government’s priority is to sign a new contract with First Quantum, the source added.

Cobre Panama is the sixth-largest copper operation in the world, and a major engine of the Panamanian economy. The mine, which is First Quantum’s largest, is located 120 kilometres west of Panama City. Roughly 40,000 people work there.

Shares in First Quantum rose by 4.7 per cent to close at $29.84 each on the Toronto Stock Exchange on Friday.