Forced shutdown of $10-billion mine signals to companies: invest in rule-of-law countries only
Published Feb 02, 2024
Published on madaraka.online on 13th February 2024
Canada’s First Quantum Minerals, sixth largest copper producer in the world, has learned the hard way: a US$10-billion mining project can be cancelled after several years in operation with the support of several successive governments. In December, the Panamanian government ordered the closing of FQM’s Cobre Panamá mine, which produced 350,000 tonnes of copper in 2022. This represents 1.5 per cent of global copper supply and five per cent of Panama’s GDP, neither a trivial number.
The shutdown follows a Supreme Court decision in late November declaring that a new mining contract with FQM was unconstitutional despite its having undergone a process involving government and international legal experts. The court’s verdict followed mass demonstrations by social and environmental groups after Congress’ October approval of the new contract, which would have yielded substantially more taxes for Panama and a minimum fiscal payment of $375 million by FQM, something not seen anywhere in the world.
at the mercy of government, which can raise taxes, tighten employment standards and other regulations or, as in the case of an unpopular Panamanian government, simply cancel mining projects opposed by populist groups.
To mitigate these major risks, mining companies must tread carefully. They can leave more money on the table, either as taxes, or let’s be frank, various forms of bribes for politicians. And they can build community support by funding infrastructure and environmental safeguards for affected populations. If these extra costs of doing business are greater than other countries require, that will hurt competitiveness. And there’s still the chance accommodation won’t work. FQM had agreed to higher taxes and minimized environmental damage, but the opposition made up its mind.
Which leaves firms with one other strategy: only invest in politically stable countries whose politicians have a record of keeping their word. Re-writing the rules after a firm has invested large sums is always tempting but a farseeing government knows that breaking promises will only deter future investments. With its new reputation for tearing up contracts, Panama is discouraging investment, not just in mining, but in manufacturing and other areas as well.
Critical mining will be the next target of social and environmental activists. Panama’s shutting down of Cobre Panamá will have companies reassessing their investments everywhere, and that will raise the cost of capital in many countries. The likely result is less mining and even higher mineral prices if green electrification proceeds as planned. Energy and electric-vehicle prices will rise. Pity the politician who promises a bright clean green future but then faces the wrath of voters who can’t pay for food, heating or transportation.
SOURCE: https://financialpost.com/opinion/closure-first-quantum-panama-copper-mine-threatens-e-transition
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