Copper futures reached a ten-week high on Wednesday following the announcement by Panama’s government to shut down a controversial $10 billion copper mine owned by First Quantum Minerals Ltd. The decision came after the Supreme Court of the Central American country declared the 20-year concession given to the Canadian mining operator was unconstitutional.
“We have decided to unanimously declare unconstitutional the entire law 406 [granted mining concessions to First Quantum Minerals] of October 20, 2023,” Supreme Court President Maria Eugenia Lopez said on Tuesday.
Later that evening, President Laurentino Cortizo posted on social media platform X that the “transition process for the orderly and safe closure of the mine” had already begun. Production at Cobre mine has already been disrupted due to environmentalist protesters and labor unions.
The court’s ruling and resulting shuttering of Cobre Mine is a shock to investors and the industry as a whole. The mine produces about 1.5% of the world’s copper supply.
While many analysts on Wall Street have been forecasting a surplus of the industrial metal in 2024, the glut could be shortly wiped out if the Cobre Mine remains in limbo.
Craig Lang, principal analyst at researcher CRU Group, called the closing of Cobre Mine a “significant event, adding uncertainty to the supply outlook.”
“This is likely to place further downward pressure on copper concentrate market terms as smelters and traders look to cover Panama supply with alternative sources of material,” Lang said.
Bloomberg pointed out, “There are bigger concerns in the longer term, with a broad consensus that dozens of new copper mines are needed if the world is going to meet decarbonization goals.”
In an earlier advance, copper futures were at a ten-week high and have since traded flat late Wednesday morning.
Meanwhile, the market cap of the miner has crashed 63% in about a month’s time.
The closure of the mine has severe consequences for Panama’s fiscal outlook because the government relies on it for taxes.
Ricardo Penfold, a managing director at Seaport Global, said Panama is running a fiscal deficit of “5% of GDP, and this will increase it by about 0.6%.”
This negative fiscal outlook forced Barclays to downgrade Panama’s bonds to underweight due to increasing uncertainty.
And maybe billionaire mining investor Robert Friedland’s apocalyptic warning in a Bloomberg TV interview earlier this year that “copper prices might explode ten times” could be correct if supply quickly transitions into a shortage following the closure of the Panama mine.
Tyler Durden
Wed, 11/29/2023 – 15:25
