Founding Attorney
Canadian miner First Quantum Minerals has started arbitration proceedings against the Republic of Panama. The First Quantum arbitration responds to a government order halting operations at the flagship Cobre Panama copper mine. The dispute began when the government ordered First Quantum to pause operations after the company failed to meet a deadline for finalizing a deal. That deal 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. The increase amounted to at least $375 million over five years, without changing any other terms or conditions in the contract.
But talks stalled Monday over what kind of guarantees to include in case First Quantum missed any payment deadlines. In response, 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. Consequently, First Quantum filed for arbitration under Chapter 11 of the North American Free Trade Agreement (NAFTA).
Options Going Forward
According to a statement released Wednesday, First Quantum is seeking “prompt resolution” through arbitration. The company wants to avoid further disruption for customers who rely on copper produced from Cobre Panama. 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) Binding arbitration will issue a final ruling. It remains unclear which path the First Quantum arbitration will take. Similarly, no one knows whether both sides can reach a compromise that serves their respective interests without further legal recourse.
How the First Quantum Arbitration May 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 the deadline for finalizing the enhanced payment deal passed, 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. The company hopes to achieve “prompt resolution” with minimal financial losses or disruption for its copper customers. It remains unclear how the First Quantum arbitration will play out. Nevertheless, a mutually agreeable outcome seems likely, given both sides’ desire to avoid legal recourse beyond NAFTA proceedings.
If a government measure has halted your mining or infrastructure project abroad, treaty arbitration may provide leverage and recovery options. Contact our team to discuss the protections available for your investment.
Related reading: our international arbitration practice and our guide to resolving international trade disputes.
Further reference: the UNCITRAL legal texts govern much of cross-border commercial law.
