The day Cobre croaked: what now for copper?

At the end of November, Panama’s President Laurentino Cortizo announced in a televised address the shutdown of First Quantum Minerals’ (TSX:FM) Cobre Panama copper mine.

Environmental activists rejoiced the Vancouver-based mining giant declared force majeure, and every metric seeking to predict the future supply of copper was thrust more or less into obsolescence. 

Accounting for an estimated 1% of global supply, the absence of that output could threaten to flip what had been rather optimistic predictions for a copper surplus in 2024, which had in turn buoyed the outlook for a quick and meaningful transition to greener sources of energy.

Behold the might of public opinion

First Quantum — which inherited the Cobre contract from Petaquilla Gold in 2013 — can trace its regulatory headache back to 2017, when Panama’s Supreme Court declared the law under which the company would operate the mine unconstitutional. Challenges to the decision were rejected, the ruling was ultimately upheld in 2021, and First Quantum was left to face the lengthy process of negotiating an entirely new deal.

Signed into law on 20 October 2023, the fresh contract outlined a 20-year mining right with the option to extend it by another two decades. In exchange, Panama would receive a minimum of $375 million in annual revenue.

Concerned that the Canadian miner would take more than it gives, those opposed were quick to criticise the deal for being too generous, and even made allegations of corruption in some instances.

Demonstrations initially began as small environmentally-focused street rallies, but quickly spiralled into widespread protests that led to street closures in the capital, while criticism ballooned to include matters such as Panama’s sovereignty.

A small fleet of fishing boats has also been posted at the entry to one of the country’s key ports for more than a month, blocking off shipments of coal and supplies to the mine, located 120km west of Panama City in Colon province.

“We have decided to unanimously declare unconstitutional the entire law 406 of October 20, 2023,” Supreme Court President Maria Eugenia Lopez said on 28 November.

First Quantum, meanwhile, confirmed its “unwavering commitment to regulatory compliance in all aspects of our operations within the country.”

What happens now, exactly, remains a matter of some conjecture. But there are some theories.

An uncertain future

In a statement on Friday (1 December), First Quantum said it had suspended its current-year outlook for the Cobre mine and initiated international arbitration over the contested contract. The company had previously said it would seek to avoid that process through discussions with the Panamanian Government.

Those with a finger on the pulse of the matter seem to have identified three separate outcomes: Panama could close the mine indefinitely, it could nationalise the asset, or a more constitutionally-aligned contract could be negotiated between the country and First Quantum.

At a mining conference held by Toronto-based Scotiabank at the end of November, First Quantum CFO Ryan MacWilliam said it was both too early and too challenging to bring in a partner to assist.

He also noted that without the influence of Cobre Panama, which generated $1 billion in profit last year as First Quantum’s chief money-maker, the company could risk violating some of its debt covenants. According to Citigroup, the company is facing an estimated $625 million in debt maturities next year and another $1.8 billion in 2025.

Perhaps it’s little wonder shares in FQM have sunk more than 60% since 27 October to a more than three-year low.

Copper outlook

Copper prices, however, seem to have gone the other way, advancing to a three-month high in early December.

“The closure of Cobre Panama and the latest conflicts at Las Bambas, two of the world’s largest copper mines, have again highlighted the risk of supply disruptions, project delays and brought into question how tight the physical copper market might currently be. This has provided support to nearer-term pricing,” Sam Spring, Managing Director of Kincora Copper (ASX:KCC), tells Mining.com.au.

“The closure of Cobre Panama and the latest conflicts at Las Bambas, two of the world’s largest copper mines, have again highlighted the risk of supply disruptions, project delays and brought into question how tight the physical copper market might currently be. This has provided support to nearer-term pricing

Owned by China’s MMG (HKG:1208), the Las Bambas mine in Peru — which produced 221,160 tonnes of copper from January to September this year — was the focus of a two-day strike last week as workers demanded greater profit sharing and better transport conditions.

Originally organised to run indefinitely, the protest came to an early conclusion, according to secretary general of the mine’s union Erick Ramos.

“The labour authority declared the strike improper and, in order to avoid reprisals against the workers, it was decided to shorten the duration of the protest,” Ramos told Reuters.

“The company does not want to consider our demands, and the relationship between the company and the union has broken down.”

It’s the latest in a long string of operational upsets at La Bamba, including road blockages by anti-government protestors and demonstrations by nearby Indigenous groups calling for more benefits from the mine. 

An assessment by BloombergNEF on 12 October, prior to the shutdown at Cobre, found demand for copper would continue to rise and even exceed primary supply in the next four years. Such a mismatch could drive copper prices 20% higher by 2027, the report added.

“It appears there might also be scope for a deficit in the market this year and potentially into next year; a year where a surplus was generally expected as new tonnage and investment from the previous supply cycle peaks before moving into a more favourable and sustained environment for prices,” Spring adds.

Write to Oliver Gray at Mining.com.au

Images: First Quantum 
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Written By Oliver Gray
Originally from Perth, Oliver has a keen interest long-form journalism. He has written for a number of publications and was most recently Contributing Editor of The Market Herald’s opinion section, Art of the Essay.