What will Panama’s new government mean for copper?

In a year of heightened copper supply disruptions, the November 2023 closure of Cobre Panama has been the biggest by far.

Now, the market is now watching to see whether the election of right-leaning Jose Raul Mulino as Panama’s new president could bring the asset back online.

“If Mulino is indeed eyeing a restart, his greatest challenge will be to change public perceptions of mining in Panama,” said Piotr Ortonowski, project manager at Benchmark. “As our base case, we do not foresee Cobre Panama producing a single tonne of copper until 2026.”

Why does Cobre Panama matter to the copper market?

Cobre Panama made up over 1% of global copper supply. Its shutdown has been the biggest single squeeze on concentrate supply over the last half-year, representing over a third of all reported copper supply removals since late 2023.

It also coincided with an unusually high rate of global copper supply disruptions, sharpening focus on a looming refined copper deficit.

Why did the Cobre Panama mine close?

On 29 November 2023, Panama’s Supreme Court ruled it would be unconstitutional to extend Canadian miner First Quantum’s contract over the mine.

This thwarted an unpopular October 2023 decision by the Panama government to approve the contract for a further 20 years.

The approval had sparked month-long protests that paralysed the country. Demonstrators argued the mine damaged a wildlife corridor essential for indigenous communities and the Panama Canal’s water supply. They also claimed contract negotiations lacked transparency and undermined Panamanian interests.

The Supreme Court upheld these concerns in its ruling.

What is Mulino’s stance on Cobre Panama?

Business-friendly Mulino became the new president after Panama’s 5 May general elections.

Elected on a mandate of reviving economic growth, Mulino is probably favourable to restarting the asset, which generated around 3.5% of Panama’s 2021 GDP.

Yet Mulino will have to deliver on promises of growth and public spending without an immediate mine restart. Public and judicial opinion remain aligned against the project and ignoring this risks a major crisis, particularly with an electorate already deeply distrustful of the political class.

Mulino signalled his allegiance to the popular mood days after his election, responding to First Quantum’s offer of “dialogue” by stating contract renewal cannot be a solution and that any temporary mine restart would only be to reduce asset closure costs. He also stated First Quantum would have to drop its ongoing $2 billion IMF lawsuit against Panama for any talks to begin.

Is there a legal route to mine reopening?

The composition of congress would make it challenging for Mulino to push for a mine restart through legal means, even if he were willing to risk his political popularity on doing this without popular consent.

First, the mine contract would need to be changed so that it would be compatible with the constitution.

The government would also have to revoke or amend the November 2023 law that banned permits for new metal mining. To achieve this, Mulino would need support from other parties and independents as his own party holds just 18% of seats.

“The group in congress with the most seats is comprised of independent lawmakers, many of whom participated in and encouraged anti-mining protests last year,” said Bryan Bille, principal policy analyst at Benchmark.

Could the financial fallout sway the public?

Panama was already grappling with government revenue losses from its drought-stricken canal before the mine protests. Cobre Panama’s closure has only put more pressure on public finances.

“The loss of government revenue will come to be felt across Panama from this year. Public investment spending – a driver of longer-term growth – will likely be cut as the government continues efforts to consolidate its finances,” according to Jonathan Humphrey, economist at Benchmark.

Yet fiscal tightening is unlikely to cause enough economic pain to shift voter opinion on Cobre Panama. On top of the fact that the state has pursued financial consolidation since Covid, the prospect of losing revenue and jobs did not dampen opposition to the mine last year.

Could public opinion shift?

Protests against Cobre Panama were successful at mobilising the public because Panamaians saw it as an example of official corruption, a major voter issue.

This does mean, however, that the protests were not a rejection of mining per se, opening avenues for Mulino to win public favour by overhauling governance of the sector and negotiating a new, more acceptable contract

Yet convincing the public would be a long process and recent history suggests politicians should be wary of ignoring popular opinion as it stands.

2011 saw demonstrations against proposed mining code liberalisation by the government of Ricardo Martinelli, former president and Mulino’s political patron. These restarted in 2012 when Martinelli was seen to renege on his promises. Three protestors died in this period.

Pushing for a mine restart too soon could again spark renewed unrest, worsening public distrust of the political class while further shaking investor confidence.

“Even if and when the green light is given for operations to restart, bringing the mine back on line will be no easy task. Workers will need to be re-hired, contracts for services, consumables and equipment will need to be renegotiated, pits will need to be dewatered. The longer the mine is down, the longer it will take to ramp up,” said Piotr Kulas, principal copper supply analyst.

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