Canadian mining company First Quantum is preparing to initiate arbitration proceedings against Panama, as confirmed by both the company and Panama’s trade ministry on Sunday. This move comes as Panama’s Supreme Court deliberates on the potential annulment of a contentious copper contract.
The contract in question, approved by the Panamanian government on October 20, grants First Quantum a 20-year mining right, with an option to extend for another 20 years, for operating the Cobre Panama copper mine. In exchange, the company agreed to pay Panama $375 million annually.
Critics of the contract argue that it disproportionately benefits First Quantum, given the mine’s significant contribution to Panama’s GDP (approximately 5%) and global copper production (around 1%). The contract has sparked protests, focusing on environmental concerns and alleged corruption in its approval process.
A spokesperson for First Quantum revealed to Reuters that the company has issued a notification of intent to commence arbitration. The trade ministry of Panama added that First Quantum, its local subsidiary Minera Panama, and Franco-Nevada Corp have sent two notifications to an international arbitration center. The ministry expressed its readiness to defend Panama’s interests in this dispute resolution process.
The top court in Panama began examining several constitutional challenges to the contract on Friday, with a decision expected soon. Damien Nyer, an expert in international arbitrations, commented to BNamericas that the court’s decision would not be the final word on the matter, highlighting Panama’s significant exposure in international arbitration.
Zorel Morales, head of Panama’s mining chamber, estimated that the country could face a minimum liability of $50 billion if it loses in arbitration. Moreover, the uncertainty surrounding First Quantum’s project could deter potential investors.
J.P. Morgan recently warned that Panama’s investment-grade rating could be at risk if the contract is revoked. The current situation has already impacted First Quantum’s operations, as the company was forced to halt commercial production due to blockades by protesters at a critical port, disrupting essential supply shipments.
These tensions escalated further when eight Panamanian workers of First Quantum were injured after protesters attacked their bus, as reported by a union leader.