As protests escalated in Panama last month against one of the world’s largest copper mines, including appeals from Hollywood star Leonardo DiCaprio and climate activist Greta Thunberg, support from the country’s political class quickly evaporated.
Just weeks after Congress renewed the Cobre Panama mine’s contract, street blockades and social media claims of irreversible environmental damage and land sales to foreigners had turned the project, which supplied 1.5 per cent of the world’s copper, into political kryptonite.
In late November the court voided the 20-year concession for Canada’s First Quantum Minerals, while the government, which faces elections next May, said it would shut the site and lawmakers banned all future mining projects.
The project’s shock unravelling highlights the challenge of securing the supply of raw materials crucial for the green transition amid rising anti-mining sentiment and calls to protect the environment — and the cost to developing countries of cancelling lucrative extraction projects.
“It makes getting the supply response for the metals the world needs to go green even harder,” said Colin Hamilton, managing director of commodities research at BMO. “Emerging markets in election years are hard. The trend among governments is to look towards the short-term rather than the long-term with pressure coming from the voter base.”
Now Panama’s government faces what could be one of the largest ever arbitration cases and has to plug a large financial hole at a time of growing strains in the central American country’s growth model. The mine contributed 5 per cent of Panama’s gross domestic product.
“I’m still asking myself . . . how did this change happen?” said Lina Vega, president of Panamanian non-profit Fundación Libertad Ciudadana. “We’ve won a battle that was almost beautiful — but at some point we’ll have to pay the bill, and the bill will be expensive.”
Panama has slashed poverty rates in the past few decades with an open, business-friendly investment model. Its GDP per capita is now higher than several eastern European nations.
But the mass protests coincided with a historic drought that has limited freight traffic through the Panama Canal, threatening a valuable source of revenue. Congress is yet to approve a budget for next year, while the country’s 2036-maturing sovereign bond hit a 14-year low last month.
President Laurentino Cortizo’s government is now scrambling to close the mine in an environmentally responsible way while limiting damage to its business-friendly reputation. The mining industry was stunned at the rapid pace of the social media campaign, as well as protests and blockades in the streets, that led the country to close its largest foreign investment.
The shutdown of the site, 200km west of the capital Panama City, has been cast as a “victory for the people”, said Orlando Pérez, professor of political science at the University of North Texas.
“[But] courts aren’t supposed to react to protests,” he added. “I’d imagine a lot of the multinationals and corporations that are thinking of investing in Panama are also thinking, ‘am I going to get caught up in this?’”
First Quantum acquired Cobre Panama in 2013 through a takeover, but four years later the Supreme Court invalidated the law governing the original concession. Talks stalled until a new agreement was approved by Congress in October, stipulating a minimum annual revenue of $375mn for the country.
Now that the court has overturned that deal, Panama faces arbitration claims of up to $50bn related to the mine.
“We’re looking at something that by some standards could be the largest arbitration claim ever,” said Damien Nyer, international disputes partner at law firm White & Case. “Those numbers would be crippling for a country like Panama.”
In Panama, many hope that the two separate Supreme Court decisions against the project are enough to protect the government from costly claims. But Nyer, who is not involved in the case, said arbitration lawyers could tell a different story: the court was mostly political appointees acting quickly under public pressure.
“It’s a fairly classic case of an indirect expropriation,” he said. “It has all the makings of a fairly strong claim.”
Panama’s government did not respond to a request for comment.
The scale of protests has raised questions about whether First Quantum mishandled its interactions with local communities.
“We could have done a better job improving our communication engagement with stakeholders further afield, particularly in . . . Panama City, in Colón,” chief executive Tristan Pascall told the Financial Times. “We recognise mining has an environmental impact.”
Glynn Cochrane, a former adviser to the Panama government and mining group Rio Tinto, said First Quantum made an “undervaluation of the need for social acceptability”.
Pascall said the mine covers less than 4 per cent of the rainforest cleared in the country over the previous 25 years yet generated enough copper last year for 6mn electric vehicles.
Copper is used in wind turbines and electric cars as well as power transmission lines. As calls grew to close the site, copper rallied 6 per cent in the past five weeks, taking the price to $8,550 per tonne.
Panamanian protesters on TikTok and Instagram said the mine broke the law, polluted the environment and infringed national sovereignty. “The Canadians take most of the riches and leave Panama in misery,” one post said.
First Quantum has said it did its utmost to mitigate the environmental impact and abided by the laws based on advice and instruction from the government.
In the 1980s similar protests forced Rio Tinto and Texasgulf to halt plans to develop copper deposits at Cerro Colorado, 250km west of the capital. Ministers and companies were criticised for failing to engage effectively with the region’s indigenous population.
Decades later, the same mistakes were made, one former Cobre Panama executive said.
The fallout from Cobre Panama’s closure is still unfolding with some 7,000 people likely to lose their jobs. Its sovereign debt is trading at levels that suggest the market expects downgrades from its triple B investment-grade rating.
“The whole appearance of mining companies justifying developments through employment, GDP and taxes is lecturing and patronising,” the executive said. “The communities should look and say ‘we own this, and this is us’.”
Additional reporting by Mary McDougall in London
