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Swelling protests in Panama against a large copper mine have shocked politicians and investors, with the strength of opposition to the project and the government response casting a cloud over the country’s investor-friendly reputation.
The open pit mine, owned by Canada’s First Quantum Minerals, is one of the world’s largest sources of copper and has faced multiple legal challenges. Thousands took to the streets of Panama City to protest after congress approved a renegotiated contract for the project last month.
A broad group bolstered by labour unions, students and indigenous groups has repeatedly demonstrated across the country, closing roads as they carried national flags and signs saying “enough of destroying our land”.
The visible fury put pressure on President Laurentino Cortizo’s government, which has promised a referendum on whether to cancel the 20-year contract for the mine, which accounts for almost 5 per cent of gross domestic product.
Congress this week banned all new metals mining concessions after holding emergency sessions, but this will not affect the existing contract.
“We won’t stop until the mining law is struck down,” teachers’ union leader Álvaro del Cid told local television at a protest this week, referring to legislation approving First Quantum’s latest contract.
Mining has long been controversial over its environmental impact and perceptions of corruption, but the protests were also fuelled by high living costs and an unpopular government, said Orlando Pérez, professor of political science at the University of North Texas at Dallas.
“This issue is not new, but it has now lit the match over a large woodpile of grievances,” Pérez said.
“It could [scare] investors, particularly for other extractive industries, if investors start doubting how secure the Panamanian legal and political environment is.”
Over the past three decades Panama has grown more than 5 per cent per year on average, slashing poverty rates and bucking lacklustre economic trends in a region plagued by instability.
But the economic progress belies anger over political corruption and inequality. In recent weeks, that fused with worry, especially among younger Panamanians, about climate change as the country’s canal suffers record droughts.
“What young people are saying is that they want a model that isn’t an extractivist model,” said Brooke Alfaro Hart, chair of the board of environmental non-profit Centro de Incidencia Ambiental.
Rating agency Moody’s this week downgraded Panama’s debt to Baa3 from Baa2 — the lowest investment-grade rating — citing structural fiscal problems but also noting social and political tensions.
The possibility of Panama losing its investment-grade rating went from a “tail risk” to a “sizeable risk” after the protests and referendum call, said analysts at JPMorgan.
“If the contract is revoked, we think that the probability that Panama loses its investment-grade rating in the short term rises significantly, as lower trust in the country’s institutional framework would likely drive in lower investment and lower medium-term growth,” they added.
The analysts said it was more likely that the mine deal would be renegotiated, handed to another company or taken under state control rather than shut down.
The project’s opponents argue the original 1990s concession — awarded to a different company — was unconstitutional because it lacked an open bidding process. They also allege the process to approve the latest contract was illegal and possibly corrupt.
First Quantum, one of the world’s largest copper producers, has said it operates in an environmentally sensitive manner and that the mine has directly and indirectly created more than 40,000 jobs with more than $10bn invested. It said on Friday it was confident with respect to its legal position and conforms to high standards of ethical behaviour.
About half of the company’s 750,000 tonnes of annual production comes from the flagship Cobre Panama mine in a rural, little-populated area near the Caribbean coast. First Quantum’s market capitalisation dropped more than a third this week.
Mackenzie Davis, managing partner at SailingStone Capital Partners and an investor in First Quantum, said maintaining rule of law and due process were essential for attracting foreign investment.
“I appreciate that there are concerns about the mining industry . . . But the reality is that we need the raw materials and we need the raw materials to be produced as responsibly as possible.”
Mining industry executives widely lament that despite huge expected demand for copper, partly from the green energy transition, it is becoming more difficult to develop multibillion-dollar projects for reasons including troubled community relations and unstable government policy.
Presidential elections are due in Panama next year, with former president Ricardo Martinelli, who faces a 10-year prison sentence for money laundering, far ahead in the polls.
Additional reporting by Harry Dempsey in London
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