Canadian mining company First Quantum Minerals (FM.TO) is set to launch formal arbitration proceedings against Panama in July over the country’s decision to close down the giant Cobre Panama mine last November, according to two people familiar with the matter.
The move comes as Panama transitions to a new administration, which could determine the future of one of the world’s newest and biggest copper mines that had been responsible for 1% of global output prior to its shutdown.
First Quantum had initiated proceedings against Panama at the International Court of Arbitration in Miami, Florida in December, seeking $20 billion in compensation for the closure of the Cobre Panama mine. The company had said the country’s Supreme Court decision to declare its contract unconstitutional was behind the mine’s shutdown.
According to the sources, who spoke on the condition of anonymity, First Quantum will now go ahead with the next stage of the arbitration process, as it has a “fiduciary duty to do so” and meet the July 30 deadline.
The initial stage of the arbitration process involves a six-month negotiation period between the concerned parties in an attempt to avoid formal proceedings. However, the sources indicated that First Quantum is pressing on with the formal arbitration, as missing the deadline would mean having to file a new intent of arbitration and wait another six months.
The dispute over the Cobre Panama mine has had a significant impact on First Quantum, wiping C$9 billion ($6.57 billion) from its market capitalization and prompting the company to undertake a series of capital restructuring measures to strengthen its balance sheet. For Panama, the closure of the mine is expected to have a material impact on the country’s economic growth.
The incoming Panamanian administration, led by President-elect Jose Raul Mulino, has indicated that it is not open to negotiations with First Quantum unless the company drops its arbitration claims. However, the sources stated that the Canadian miner is determined to proceed with the formal arbitration process.
According to legal experts, it can take an average of four years for an arbitration settlement against a government to be concluded.