Canada's First Quantum Minerals (TSX: FM) hopes a new contract for its flagship copper mine in Panama will be approved soon after negotiations with the government conclude last month, and the company has agreed to pay higher royalties.
The Vancouver-based miner has been in talks with the government since September and agreed in January to pay $375 million a year from Cobre Panama. It also agreed to provide the government with 12 to 16 per cent of its gross profit, which would replace the previous 2 per cent of revenue royalties.
First Quantum also agreed to start paying a 25 per cent corporate tax, which is tax-free until it recoups its investment in the mine.
The new contract has not yet been approved by the Panamanian Congress and must be signed by both parties.
"the parties will continue to finalize the details behind these principles, including the appropriate mechanisms to achieve this result, providing the necessary protection for companies for the downward price of copper and production scenarios, and ensuring that new contracts and legislation are both lasting and sustainable," First Quantum said in its recently released 2021 production report.
After the final document is prepared, it will be submitted to the National Assembly for debate.
"the company welcomes the transparency of the strong Council of Ministers process and hopes this will be over soon," First Quantum added.
Shortly after accepting the increased royalties, First Quantum's local department received a request to stop withdrawing electricity from the country's last remaining plant that still burns coal to generate electricity.
This is why the final contract agreement contains a clause indicating that miners must begin technical research six months after signing the agreement. The Department of Energy said earlier this month that the goal was to implement clean energy technologies to replace coal burning in existing power plants.
Panama, which generated 82 per cent of its electricity from renewable energy last year, is upgrading its legal framework and operating price forecasts to encourage the use of cleaner energy, including the production of sugarcane ethanol and the installation of distributed power plants.
Another part of Panama's clean energy agenda is a 670MW natural gas power plant near Cologne, a $1 billion project jointly developed by AES's InterEnergy Group and a government consortium. Construction of the facility began last month.
The government also plans to call a consulting firm this month to seek advice on reforming Panama's hydrocarbon law, with a view to updating regulations for downstream projects, the minister said.
Cobre Panama began operating in 2019 and has an estimated 3.1 billion tons of proven and possible reserves. It has generated about $6.7 billion in private investment, including two open-pit mines, a processing facility, two power plants and a port.
According to government data, the mine complex is located about 120 km west of Panama City and 20 km from the Atlantic coast, accounting for 3.5% of the gross domestic product of Central American countries. It was originally designed to produce about 300000 tonnes of copper a year at full capacity, but First Quantum hopes to increase production to 370000-400000 tonnes of copper and 170000 ounces of gold by 2024, it said on Wednesday's earnings call.
Cobre Panama is expected to account for more than 40 per cent of its total global copper and gold production this year.
The current annual throughput of the business is 85 million tons (MTPA), is expected to reach 90 MTPA, this year and 100 MTPA by the end of 2023.
Minera Panama's concession was approved in 1997 and was originally awarded to Canada's Inmet Mining Corporation, which was acquired by First Quantum in 2013.
The miner, the world's sixth-largest copper company and Canada's largest metal producer, produced 331000 tons of metal in Cobre, Panama in 2021, an increase of 125000 tons over the previous year and more than double the 147000 tons of copper and 60, 000 ounces of gold produced in the first year of commercial operation in 2019.
By 2022, the company expects to produce 330000-360000 tons of copper, rising to 350000-380000 tons next year and 370000-400000 tons by 2024.
