Founding Attorney
Canadian miner First Quantum Minerals has started arbitration proceedings against the Republic of Panama in response to a government order halting operations at its flagship Cobre Panama copper mine. The dispute began when the government ordered First Quantum to pause operations after failing to meet a deadline for finalizing a deal that would have increased payments to the government by at least $375 million.
Details of the Disagreement
At issue is an agreement between First Quantum and Panama regarding the company’s rights to operate the open-pit copper mine, which produces about 4% of the global supply. Under its existing deal, First Quantum pays 2% of revenue from sales into a fund administered by Panama’s mining regulator. However, following negotiations with Panama’s government, First Quantum had agreed to increase those payments substantially—by at least $375 million over the course of five years—without changing any other terms or conditions in their contract.
But when talks stalled Monday over what kind of guarantees should be included in case First Quantum missed any payment deadlines, Panama’s government issued an administrative order suspending all construction and operations at Cobre Panama until further notice. The order also froze two bank accounts belonging to a subsidiary of First Quantum and said failure to comply could lead to fines and other punitive measures. In response, First Quantum filed for arbitration under Chapter 11 of the North American Free Trade Agreement (NAFTA).
Options Going Forward
First Quantum is seeking “prompt resolution” through arbitration as soon as possible to avoid any further disruption for customers who rely on copper produced from Cobre Panama, according to a statement released Wednesday. At this time, it appears that there are three possible outcomes: 1) The parties can reach an agreement outside arbitration; 2) An arbitrator will decide on a mutually agreeable outcome; or 3) A court ruling will be issued by binding arbitration. It remains unclear which option will be pursued and whether or not both sides will agree on an acceptable compromise that adheres to their respective interests without further legal recourse being necessary.
It is unclear how the situation will play out
The dispute between Canadian miner First Quantum Minerals and the Republic of Panama over operating rights for its flagship Cobre Panama copper mine has reached an impasse. After missing a deadline for finalizing a deal that would have increased payments owed by at least $375 million, Panamanian authorities suspended all construction and operations at Cobre Panama until further notice earlier this week. As a result, First Quantum has opted for arbitration under Chapter 11 of NAFTA in hopes of achieving “prompt resolution” with minimal financial losses or disruptions for customers who rely on copper from their mines. It remains unclear how this situation will play out but it’s likely we will see some sort of mutually agreeable outcome soon enough given both sides’ desire to avoid any legal recourse beyond NAFTA arbitration proceedings.
