First Quantum Minerals Ltd. (TSX: FM)’s subsidiary Minera Panama, S.A. is ceasing copper ore processing at its giant mine in Panama and could soon face a total shutdown of mining operations if a tax dispute with the government is not resolved.
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 until further permissions are granted.
Despite believing that it has met all requirements outlined in the resolution, Minera Panama is still unable to proceed with copper concentrate loading operations due to non-permission from the port authorities.
However, the company says that if the AMP grants permission for concentrate loading operations to resume, it is prepared to quickly resume shipping concentrate and return to full-scale operations. The government of Panama and Minera Panama’s parent company, First Quantum, are currently in ongoing negotiations.
“The company considers that the suspension of ore processing operations as a consequence of the Government of Panama’s actions is unnecessary given ongoing progress in this regard,” said First Quantum in a statement.
Minera Panama to lay off 8,000 workers, protests erupt
In the meantime, 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.
The company said this is to ensure the safety of its employees, prevent equipment damage and degradation, and maintain the mine’s integrity.
This Thursday, Minera Panama mine workers in Panama City and other nearby cities started protesting in response to the layoffs. Miners are looking for an explanation of what will happen to their jobs and why the company has issued the layoffs.
Panama’s Ministry of Commerce and Industries urged First Quantum to “refrain from creating unrest and uncertainty,” about the stability of the thousands of workers.
“Using pressure mechanisms does not contribute to improving the levels of understanding that both the government and First Quantum require for a fair, balanced and satisfactory relationship of both national interests and foreign investment,” the ministry added.
The mine has also stopped purchasing supplies and services totalling $20 million in weekly revenues to more than 2,000 local companies.
According to First Quantum, Cobre Panamá contributes to approximately 5 per cent of Panama’s GDP, making up 75 per cent of the country’s export of goods and has created at least 40,000 jobs that support an estimated 100,000 or more Panamanians.
Última actualización sobre el estado de las conversaciones con MPSA. pic.twitter.com/ymh4G05DYd
— Ministerio de Comercio e Industrias de Panamá (@MICIPMA) February 23, 2023
First Quantum’s largest operation, Cobre Panama, is located west of Panama City. Despite being ordered to close by the Panama government in December, the mine has continued production pending an appeal filed by the Canadian copper miner.
According to local reports, First Quantum has paid only small amounts of tax to Panama due to generous credits negotiated previously. As part of a new fiscal agreement, First Quantum has proposed paying Panama a minimum of US$ 375 million annually in taxes, which is approximately eight times higher than their last disclosed tax bill.
The final agreement is facing significant challenges as the two sides disagree on the number and amount of tax credits and legal clauses that would prevent early termination of the agreement and expropriation of the asset. These proposed payments are based on copper trading at elevated levels and the company meeting certain production metrics.
Negotiations between Canadian companies and other countries have taken years in the past, leading to mine shutdowns during the interim. Toronto-based Barrick Gold Corporation (NYSE: GOLD) (TSX: ABX). spent nearly three years negotiating a new profit-sharing agreement with Tanzania while being subjected to a gold export ban before finally reaching a pact in 2020.