First Quantum Minerals Ltd. (TSX: FM)’s subsidiary Minera Panama, S.A. has agreed and finalized the draft of a concession contract with the Government of Panamá for the Cobre Panamá mine which recently halted operations because of a tax dispute.
On Wednesday, the company announced the contract which meets the objectives outlined by the government in January 2022 related to government revenues, environmental protections and labour standards. It also provides legal protections necessary to both parties to ensure durability and stability.
The “Proposed Concession Contract” will undergo a 30-day public consultation process and require approvals from the Panamanian Cabinet, the Comptroller General of the Republic and the National Assembly.
Once it becomes effective, the Proposed Concession Contract will outline the following key economic terms:
- MPSA will pay $375 million, plus an additional $20 million to cover taxes and royalties up to the end of 2022.
- Starting in 2023, MPSA will make an annual minimum contribution of $375 million to the government’s income. This amount will consist of corporate taxes, withholding taxes, and a profit-based mineral royalty ranging from 12 to 16 percent, with downside protections.
- Downside protections will be provided for the annual minimum contribution under the following circumstances:
- If the copper price falls below $3.25 per pound until the end of 2025.
- If the total tax contribution for a given year is less than $300 million from 2026 onwards.
El Gobierno de Panamá y Minera Panamá acuerdan el texto final del Contrato de Concesión para el proyecto #CobrePanamá pic.twitter.com/bug9awZryU
— Cobre Panamá (@Cobre_Panama) March 8, 2023
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If approved, the contract will have an initial term of 20 years and can be extended for another 20 years with the option for further extensions for the life of the mine.
Furthermore, the Panamá Maritime Authority has confirmed that it will release a resolution Wednesday allowing authorities to resume loading concentrate at the Punta Rincón port.
The mine’s ore processing is expected to continue and production levels are anticipated to return to normal in the next few days.
“After a lengthy and arduous negotiation process, the finalized Proposed Concession Contract outlines the basis for the future of Cobre Panamá for all stakeholders, including the Government, our investors and the country of Panamá,” CEO Tristan Pascall said in a statement.
“I am pleased that we now have a pathway to continuing our ongoing substantial investments in the country.”
“I wish to thank our Panamanian and international employees and their families and our suppliers for their patience and resilience during this time. We now await formal approval of the Proposed Concession Contract and look forward to a long and constructive partnership with the Government of Panamá for many years to come,” he added.
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The company is a partner of Franco-Nevada Corporation (TSX: FNV) (NYSE: FNV) and last year it failed to reach an agreement with Panamanian authorities over the amount of taxes and benefits the company should pay based on its revenue at the Cobre mine.
As of January 26, the Panama Maritime Authority started preventing copper concentrate loading at the Punta Rincon port. Before an arrangement was reached, the company said it will be forced to start winding down mining operations at Cobre Panama and laying off its workforce of 8,000 people in the next few weeks if it isn’t allowed to resume concentrate shipments.
In response to the potential layoffs announcement, protests in the capital city and nearby cities erupted. Panama’s Ministry of Commerce and Industries Federico Alfaro Boyd urged First Quantum to “refrain from creating unrest and uncertainty,” about the stability of the thousands of workers.
En el día de hoy, brindé información a los medios de comunicación sobre el nuevo contrato con la empresa Minera Panamá, mediante una conferencia de prensa. pic.twitter.com/5payeQNbd2
— Federico Alfaro Boyd (@FedericoAlfaroB) March 9, 2023
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