The recent news of First Quantum’s Cobre Panama contract being ruled unconstitutional by the Panamanian government has left the company in disarray. It is not yet known what the full extent of the consequences will be for the Canadian-based mining giant, but the ruling is likely to have a significant impact on its operations.
The contract in question was granted in 2016 by the Canadian-headquartered firm for the construction and operation of a massive copper mine in the Donoso District. When the project was announced, it was hailed as a major boost to the national economy, estimated to bring in US$8.8 billion in revenue over more than 20 years.
However, the Court of Auditors of the Republic recently deemed the contract to be illegal, on the grounds that it was granted without the proper consultation with Panamanian citizens in the region. More specifically, the court argued that First Quantum had failed to comply with the requirements of the Panamanian constitution and certain environmental and social regulations.
First Quantum has yet to issue a formal response to the judgement, but the company strongly disputes the ruling. Its executive vice president for organic growth, Clive Newall, stated “First Quantum remains convinced that its contractual arrangements with the Government of Panama have been in compliance with the law.”
For now, the financial repercussions of the decision remain uncertain for First Quantum, who spent the last decade investing in the project. However, the company announced it would be taking legal action well, though the outcome of such action remains to be seen.
The regional ramifications of this case are yet to make themselves felt as well. While there is still potential for a successful partnership to form between First Quantum and Panama, the unconstitutional nature of the contract could have a chilling effect on future foreign investment in the country. This could not only hurt the Panamanian economy in the short-term, but also lead to the loss of much-needed jobs over the long-term.
The First Quantum Cobre Panama contract has proved to be a contentious issue, as demonstrated by the government’s ruling. It is yet to be seen how this will affect the future of both First Quantum and the Panamanian economy, but hopefully the two parties can find a way to reach an agreement that serves the best interests of all involved.