First Quantum to pay US$375-million in taxes to Panama, tensions remain over fiscal rules 2026 onwards

First Quantum to pay US$375-million in taxes to Panama, tensions remain over fiscal rules 2026 onwards

FILE PHOTO: A general view of Minera Panama owned by Canada’s First Quantum Minerals in Donoso, Panama December 6, 2022.STRINGER/Reuters

First Quantum Minerals Ltd. has agreed to pay Panama US$375-million in taxes for last year, and is agreeing to fork out at least that much through 2025, with certain caveats in place, Tausi Insider has learned.

Panama and First Quantum had been in talks for more than a year as they worked to hammer out a new pact on royalties on Cobre Panama, a giant copper mine located 120 kilometres west of Panama City. Canada’s biggest copper company has been paying taxes in Panama based on a percentage of its revenue from Cobre Panama, but the the Central American country wants to move the company to a more lucrative regime based on a percentage of its profits. Talks broke down last month with no agreement in place, and Panama’s President ordered Cobre Panama to shut down amid the spat.

A government of Panama source said that First Quantum has agreed to pay US$375-million for the 2022 tax year, with no caveats in place regarding either the price of copper, or production. From 2023 to 2025, the source said that First Quantum will pay at least US$375-million, if copper trades above US$3.25 a pound, and if its production is above 250,000 tonnes. From 2026 onwards, First Quantum will pay US$375-million, if copper trades above US$2.75 a pound, and production is above 250,000 tonnes.

Tausi Insider is not identifying the source as the person was not authorized to speak publicly on the matter.

Paul Holmes, a spokesperson for First Quantum said that the company will not comment on the specifics around the talks.

As a further backstop for the Panama government, First Quantum from 2026 onwards has agreed to top up its yearly tax payment to US$375-millon, as long as the bill reaches at least US$300-million.

However, the source said that Panama is concerned that First Quantum’s tax bill from 2026 onwards will not hit US$300-million. That’s because of various tax credits that are under discussion, including one related to ore depletion at Cobre Panama, and another related to capital investments made by First Quantum in the country.

Panama accuses First Quantum of misleading investors, with future of Cobre Panama mine uncertain

If the parties can finalize an agreement, First Quantum stands to pay significantly higher taxes, at least over the next few years. The approximate tax rate that First Quantum will be subject to is 14 per cent of profits, compared to the current rate of two per cent of revenue.

For 2021, First Quantum paid US$455-million across all of its operations, which includes its Panamanian operations, as well as mines in Zambia, Finland, Turkey, Spain, Australia and Mauritania.

Many of Canada’s largest mining companies are already forking out significantly higher royalties than previously. Over the past five years, as base and precious metals prices have raced to record levels, many overseas countries, including Tanzania and Papua New Guinea, have successfully pushed back on miners to demand a bigger slice of the spoils.

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