What an idle copper mine in Panama says about the green transition

Earlier this month, board members from the Canadian mining company First Quantum Minerals assembled in a conference room in Panama with a view of one of their prize assets: a vast, open-pit copper mine, set in the lush green Central American rainforest.

The snag? The Cobre Panamá mine, one of the biggest and most modern of its kind in the world, has been closed since November 2023. It has no immediate prospect of reopening.

The mine’s closure after just four years in production was greeted with jubilation by environmental activists and unions. But it also provided a stark reminder of how difficult it can prove to extract the metals the world needs for the transition to green energy.

For First Quantum, which has invested around $10bn in the project since it acquired a controlling stake in 2013, the closure has been a disaster. It has also torpedoed Panama’s national finances. The country was counting on billions of dollars in royalties to help fund social spending, but now faces huge compensation claims instead.

The saga could barely have come at a worse time for the Latin American nation, which is reeling from a major diplomatic crisis with its traditional ally, the US, after President Donald Trump’s vow to “take back” the US-built Panama Canal and his demand that the government curb investment from China, which put $1.4bn into Panama in 2023.

“If you shut down your largest FDI project on record, people might have second thoughts about putting money to work in the country,” says JPMorgan economist Steven Palacio, who covers Panama.

And the ramifications of the shutdown are also being felt further afield. Global demand for copper, which is used for electrical grids, undersea cables and wiring, is set to soar by 45 per cent by 2040 compared with 2021 levels, according to the International Energy Agency. An electric vehicle uses nearly four times as much copper to make as a petrol-driven one.

The industry is struggling to develop the mines needed to meet this demand — and the loss of what was the world’s 10th-largest copper mine is still being felt. “We don’t see mines getting shut down all that often,” says Ben Davis, analyst at RBC. “To see that high-quality copper supply coming out of the market was quite a surprise.”

So how did a mine whose owners say it meets the highest global standards get closed down — and can it reopen? And is there a way to balance rainforest conservation with obtaining the raw materials essential to the shift from fossil fuels?

Cobre Panamá lies in the Donoso Protected Area, a 113,000-hectare nature reserve home to rare species such as the poison dart frog and the great green macaw.

Approached from the air, the mine looks like a giant industrial site, bristling with machinery and conveyors, stretching over 6,000 hectares carved from the surrounding lush green forest.

At its heart is Botija, a 190m-deep giant pit which was producing around 1.5 per cent of the world’s copper supply when it was shut down abruptly nearly 18 months ago, following an intense protest campaign led by environmentalists and one of the country’s biggest unions, Suntracs.

“Panama doesn’t have the ecological capacity to carry out an activity with such a high impact as the Donoso mine without causing irreversible loss, damage and pollution,” says Raisa Banfield, director of the Fundación Panamá Sostenible environmental group and a former deputy mayor of Panama City.

Now, an eerie silence hangs over the mine. A network of giant conveyors, 65m high, stands idle. Nearby, a fleet of huge motor graders, used for levelling roads, stands parked, their chassis jacked up.

When the Financial Times visited last month, a group of local residents was standing in the bucket of a mammoth shovel, used to scoop up 90 tonnes of copper ore at a time. They were posing for photos — part of a public relations drive by FQM aimed at Panamanians.

“What we would prefer is that people come and understand,” says Tristan Pascall, FQM’s chief executive. “Not many people come to mines these days to understand where . . . all the things around us, lawnmowers and iPhone and iPads and your iWatch, come from.”

Yet the PR effort has a long way to go. According to a poll last year by CIEPS, a research centre, nearly two-thirds of Panamanians want Cobre Panamá closed for good. Only 16 per cent favoured restarting it under a new contract. (A second poll, by Doxa, showed a higher proportion favouring reopening.)

“The Panamanian state has no plans to open the mine,” environment minister Juan Carlos Navarro told a local newspaper in January. “That could change over time, but at the moment . . . the mine is closed.”

Cobre Panamá’s history began in 1997, when a 20-year contract to develop the site was signed with Petaquilla, another mining company. A majority stake was held by Inmet, a Canadian miner taken over by FQM in 2013. The mine opened in 2019.

Part of the attraction for FQM was the original contract, which offered an unusually low royalty rate paid to the government: just 2 per cent. Pascall says it reflected the country’s need to attract mining companies; by international standards, this was a large but relatively low-grade copper deposit in a country with no history of mining. “It was definitely a sweetheart deal,” says one mining executive.

But the concession also came with legal problems. Petaquilla’s original concession had been the subject of a court challenge, which alleged that it was granted without the necessary environmental safeguards.

When Panama’s Supreme Court ruled that the law ratifying the original concession was illegal in 2017, the company argued that the decision didn’t affect the contract itself. The government allowed FQM to continue development.

While legal wrangling continued, the copper mine started production. That same year, a new centre-left president, Laurentino Cortizo, won election and vowed to renegotiate the contract to “provide more public benefit”.

Cortizo’s government opened negotiations with FQM in September 2021, demanding a minimum royalty payment of $375mn a year and a royalty rate of 12-16 per cent — hugely above the $37mn which the company paid in 2021.

Changes were also afoot at FQM. In 2022, the company’s charismatic Zimbabwean-born founder Philip Pascall handed the reins to his son Tristan while the negotiations were under way, and Pascall senior died the following year.

FQM initially resisted the Panamanian government’s demands, and in January 2023 threatened to close the mine if it was compelled to meet all of them.

But the government hit back, accusing the company publicly of failing to keep its word. In March 2023, FQM eventually agreed to the higher minimum royalty sum and most of the other terms.

The matter appeared settled. But the damage to the mine’s reputation had been done. “In the process of extracting these concessions, [the government] demonised [the company] before society, holding them up as abusive,” says Jorge Guajardo, a former Mexican diplomat and global risk consultant at DGA. “The company thought that the only negotiation which mattered was with the government, and that they didn’t need to engage with the community.”

FQM concedes that it should have made more effort to explain the wider benefits that the mine would bring to Panama and how the mine could contribute to a greener global economy, arguing that the world will not reach net zero, or a fossil-free future, without mining.

The public anger against Cobre Panamá began with a few hundred demonstrators in the streets but snowballed in October 2023, when Congress overwhelmingly passed a law sanctioning the new contract and Cortizo then signed it.

Flooding social media with posts hashtagged #PanamaTeQuieroVerde (Panama, I Want You Green), opponents alleged that Cobre Panamá was taking water needed by the Panama Canal, contaminating rivers, endangering local communities and ripping off the country — allegations denied by the company, which says it follows the highest global environmental standards.

That month, riot police used tear gas to subdue protesters in the streets of Panama City. Demonstrators burnt tyres and blocked highways. International celebrities piled in, with Hollywood actor Leonardo DiCaprio reposting on social media an emotive video appeal featuring an indigenous woman. “Panama is worth much more without mining,” she declared. Swedish activist Greta Thunberg started an online petition against the project.

Protests only grew in intensity. Demonstrators blockaded the mine’s port and prevented supplies of coal reaching its power plant, cutting off electricity. By late November 2023, First Quantum had suspended operations. The same month, the company says it paid Panama $567mn in taxes and royalties.

Guajardo, the risk consultant, believes the protests were “more about corruption” than the environment. “There were doubts about the original concession . . . and the environment was what the protesters used, as with all mines,” he says. “But the anger here was more about shadiness and lack of transparency.”

Some Panamanians privately note that other environmental issues have not aroused anything like the same popular anger. Last year, for example, the environment ministry announced that Panama had lost nearly 353,000 hectares of forest — an area more than 50 times the size of the mine concession — in just two years. Reaction was muted.

Cobre Panamá’s sudden shutdown was seen in the industry as a cautionary tale about how difficult it has become to operate large mines, even in relatively stable jurisdictions.

Other major sites that have recently faced protests include Rio Tinto’s planned Jadar mine in Serbia, which tens of thousands of people demonstrated against last summer. That project is still waiting for approval. Last year, the Las Bambas copper mine in Peru, majority owned by China, was also temporarily shut down by protests.

In Panama, the public reaction caught FQM off guard, analysts say. “With hindsight, there are things that could have been done differently. But I also think there was an element of bad luck, a lot of things kind of swelled up at the same time,” says Alex Hacking, a mining analyst at Citi. “The company has operated the mine in a very responsible way. Safety was world-class, environmental performance was world-class.”

Palacio of JPMorgan estimates that the mine’s closure wiped out about 3.5 to 4.0 per cent of the country’s GDP. The initial impact was muted, as heavy government spending in an election year kept the economy humming. Official GDP figures are not yet available, but Palacio estimates that Panama grew 4.7 per cent last year, well above the 2 per cent initially expected.

Yet Palacio says the potential impact on FDI makes him “concerned about the medium-term outlook”. Prices for Panama’s government bonds reflect the damage, with the risk premium over US Treasuries still about 100 basis points higher than in mid-2023.

The cost of the mine’s closure will grow significantly over time. According to an FQM estimate, the mine would have contributed $18.8bn of tax and social security revenue to Panama’s coffers over the next 31 years. A report from Conep, a business lobby, estimates that in addition to the 7,000 jobs at risk at the mine, another 38,000 jobs would be lost in the wider economy from a final closure, as well as $18.7bn in economic activity.

FQM’s subsidiary Minera Panama is seeking damages of more than $20bn in arbitration claims. People familiar with the case say the Panama mine litigation will be heard in the US and is likely to lead to a final decision by the middle of 2026, with very limited grounds for appeal to a US federal court.

Other companies with interests in the site are pursuing their own actions, including a $5bn claim brought by Canadian mine royalty firm Franco-Nevada Corporation, a $2bn claim brought by the Korean state-owned infrastructure firm Komir, and a $133mn claim by the ​German-Swiss equipment manufacturer Liebherr.

People living nearby are divided over the project’s future. Those who worked at the mine, or benefited from its community projects such as coffee-growing, want their jobs back.

“The impact of the closure has been huge,” says Arcenia, who runs a restaurant in the nearby village of Coclesito. “The local economy has gone right down, there’s no work. Some days I sell just four or five meals . . . I used to sell 50 to 60.” In a sign of official concern over the impact of the mine closure on employment, this month Mulino agreed to meet suppliers to the project who said they were now facing bankruptcy.

Others are still against it. “My father taught me to live from the land,” says Carmelo Yangüez, a 67-year-old subsistence farmer. “We can’t exchange the economic benefits of a company, or of the people who are supposedly benefiting from it, for damage and contamination of the environment.”

Suntracs, the powerful construction union which led protests against the mine in 2023, remains implacably opposed to the idea of the mine reopening. Its general secretary Saúl Méndez says that Panamanians have already decided to end open-pit mining because of the ecological damage it causes and “one-sided, traitorous contracts”.

“It’s not true that the mine can solve Panama’s structural problems,” he adds. “These problems have to do with the . . . dependence capitalism which has been advanced in Panama. We should develop a green economy instead.”

Time is running out before the arbitration hearings begin next year, and the cost and complication of reopening the mine are increasing. Billions of dollars of specialist equipment and machinery are standing idle in humid tropical heat, and FQM says it is spending $12mn-$13mn a month to maintain a skeleton staff to keep the site secure. Some 120,000 tonnes of copper concentrate worth around $300mn lie stranded in a warehouse.

The mine may soon reopen — but only so it can be shut down responsibly. Panama’s new president, José Raúl Mulino, a pro-business conservative, said last year he hoped to start considering the matter this month — but his attention has now been consumed by the tussle with Trump over the Panama Canal.

Pascall of FQM remains optimistic that a solution can be found. “We see a momentum building and we look to the government,” he says.

“The language they use here is ‘open [the mine] to close’ and I think really that’s phrased around: ‘What is a responsible way to manage the mine for the best environmental outcome?’ At least, that’s how I interpret it.”

Additional reporting by Milagro Vallecillos in Panama City