First Quantum, government reach deal on Cobre Panama

COPPER | Operations at mine, shipping of ore to resume

BY BLAIR MCBRIDE

First Quantum Minerals’ (TSX: FM) shares rose on Mar. 8 after the company said its local unit Minera Panama inked a draft agreement with the Panamanian government for the Cobre Panama mine. A finalized deal came on the same day.

The agreement, which followed months of difficult negotiations, meets the goals the government outlined in January 2022 regarding government revenues, environmental protections, labour standards and legal protections for both sides, First Quantum said in a news release.

The contract will have an initial 20-year term, with a 20-year extension option and additional extensions for the life of the giant copper mine. However, the document is still subject to a 30-day public consultation process and approvals by Panamanian government bodies.

The Panama Maritime Authority has also confirmed Minera Panama can resume copper concentrate loading at the Punta Rincon port, which had been suspended since early February. Ore processing was also expected to resume, bringing the mine back to full production levels in March. Operations at the mine, located 120 km west of Panama City and 20 km from the Atlantic coast were halted by the government in December amid an impasse in negotiations.

First Quantum had estimated the suspensions cost it up to US$8 million per day.

The main economic terms of the contract include a US$375 million payment by Minera Panama, plus US$20 million to cover taxes and royalties up to the year ending 2022. Starting in 2023, Minera Panama will also pay a minimum of US$375 million annually to the government, comprised of corporate taxes, withholding taxes and a profit-based mineral royalty of 12% to 16%, with downside protection until the end of 2025 if the copper price sinks below $3.25 per lb.

Royalty rates would be set at operating margins accordingly, with a 0%-20% margin tied to a rate of 12% at the low end and a margin of over 50% tied to an effective royalty rate of 16%.

“After a lengthy and arduous negotiation process, the finalized proposed concession contract outlines the basis for the future of Cobre Panama for all stakeholders, including the government, our investors and the country of Panama,” said CEO Tristan Pascall. “I am pleased that we now have a pathway to continuing our ongoing substantial investments in the country.”

BMO Capital Markets mining and metals analyst Jackie Przybylowski wrote in a research note on Mar. 8 that the agreement is positive for First Quantum because it removes risk from Cobre Panama and the deal’s parameters are within those anticipated by the market.

The contract’s initial 20-year stability term, the option to extend for that period and mine life extensions provides certainty to First Quantum and the markets, Przybylowski wrote.

The downside protections in the deal are better than previous BMO estimates, she said, noting that the company will be protected against low copper prices over the next two years and against low profitability for 2026 and beyond.

BMO maintains its ‘market perform’ rating and its $22 one-year target on First Quantum shares.

First Quantum shares rose more than 3% on the contract news, reaching $31.12 apiece in Toronto on Mar. 8. At press time, it traded at $27.28 in a 52-week window of $18.67 and $45.38. The company has a market cap of roughly $18.8 billion. TNM