Panama's Stance on Cobre Panama: A Shift in Mining Policy and Its Investment Implications

Panama’s President José Raúl Mulino has ruled out the creation of a new mining contract law to resolve the protracted dispute over the Cobre Panama copper mine, signaling a decisive pivot toward sovereignty-driven negotiations. This decision, announced in April 2025, underscores the government’s refusal to backtrack on its stance that the original mining contract was unconstitutional—a ruling by Panama’s Supreme Court in late 2023 that led to the mine’s abrupt shutdown. For investors, this move carries significant implications for Panama’s economic recovery, global copper markets, and the future of First Quantum Minerals (TSX: FM), the Canadian firm at the center of the controversy.

The Economic Fallout: A Crisis with Global Ripples

The mine’s closure since November 2023 has had a devastating impact on Panama’s economy. In 2024, GDP growth plummeted to 2.9%, a stark decline from 7.4% in 2023, as the mine once contributed 5% of GDP and 75% of total exports. The economic strain has also triggered credit rating downgrades: Fitch cut Panama’s sovereign rating to junk status in March 2024, while S&P warned that potential liabilities from First Quantum’s arbitration could reach 20% of GDP, further complicating borrowing costs.

Legal and Political Stakes: No Quick Fixes

The dispute hinges on Panama’s rejection of a new legal framework for the mine. Mulino has emphasized the need for a “real association” model—where Panama asserts clear ownership—rather than a binding contract. This position aligns with the Supreme Court’s 2023 ruling that voided the original concession, citing constitutional violations. For First Quantum, this means negotiations must proceed without the leverage of arbitration, which the company suspended in April 2025 after years of seeking $20 billion in damages.

However, reopening the mine faces multiple hurdles:
1. Congressional Approval: A revised agreement requires legislative backing, but Panama’s fragmented National Assembly—dominated by Mulino’s Realizing Goals coalition—has shown reluctance to greenlight mining projects amid public backlash.
2. Environmental Opposition: Grassroots movements, such as the “Panama is Worth More Without Mining” coalition, have mobilized protests demanding stricter safeguards and a permanent moratorium on mining. A December 2024 report highlighted risks at the mine’s tailings dam, which could fail without remediation.
3. Global Copper Demand: Cobre Panama accounted for 1.5% of global copper production before its closure, a critical loss for markets facing a projected 70% surge in copper demand by 2050. The U.S. views the mine as a strategic partner to diversify supply chains away from China, but policy uncertainty complicates this calculus.

Investment Implications: Risks and Opportunities

For Panama:

• Economic Recovery Hinges on Compromise: Reopening the mine could revive GDP growth, but Mulino’s government must navigate environmental and social demands. A temporary export of 120,000 metric tons of stockpiled copper in March 2025 provided a modest revenue boost, but full operations require resolving technical and legal disputes.
• Credit Ratings at Risk: With S&P and Fitch citing arbitration liabilities as a key risk, Panama’s fiscal stability depends on minimizing legal exposure while securing revenue streams.

For First Quantum:

• Stock Volatility: The company’s shares have fluctuated sharply amid the dispute. As of April 2025, FM’s stock price had declined by 15% year-to-date, reflecting investor skepticism about the mine’s future. A resolution could stabilize or boost the stock, but delays or setbacks could deepen losses.

• Operational Costs and Revenue Losses: First Quantum faces monthly maintenance costs of $11–$13 million and lost revenue from the mine, which contributed 40% of its 2023 revenue. A restart would require renegotiating terms, including royalties and environmental compliance.

For Global Investors:

• Copper Supply Chain Risks: The dispute underscores vulnerabilities in global copper markets. Investors in renewable energy, electric vehicles, and infrastructure projects may seek alternatives to Cobre Panama, such as increased investment in recycling or African mining projects.
• Sovereignty Risks: The case serves as a cautionary tale for firms operating in jurisdictions with shifting regulatory priorities. Investors should analyze political stability and environmental governance before committing to mining ventures.

Conclusion: A Delicate Balancing Act

Panama’s refusal to enact a mining contract law marks a turning point in the Cobre Panama dispute, prioritizing sovereignty and environmental accountability over rapid economic gains. For investors, the path forward is fraught with risks but offers potential rewards:

1. Economic Recovery Potential: If negotiations succeed, the mine’s revival could lift Panama’s GDP growth back toward 5%, easing fiscal pressures and improving credit ratings.
2. Global Copper Security: Reopening Cobre Panama would add 330,863 tons of annual copper production to global markets, easing supply constraints for industries reliant on the metal.
3. Investor Caution: The dispute’s unresolved legal and environmental challenges mean risks remain high. First Quantum’s stock and Panama’s sovereign debt will continue to face volatility until a definitive agreement is reached.

In the absence of compromise, Panama’s economy and global copper markets may remain in limbo—a reminder that resource nationalism and environmental activism are reshaping investment landscapes worldwide.