US copper futures shook off a couple of weak days on Friday to climb nearly 2%, settling at $US4.5680 a pound ahead of the important elections in Panama on Sunday (yesterday).
But before even the first vote was cast, Reuters revealed a major negative in the story for the Canadian mining giant, First Quantum, and its former biggest asset, the Cobre Panama mine.
On Friday, Reuters reported that Panama said it will stop First Quantum from processing copper during the closure of the mine it lost the rights to run last year.
Reuters reported that Panama’s trade minister, Jorge Rivera Staff, made this comment in discussing what will happen to the huge mine that was shut late last year – a move that took upwards of 350,000 to 400,000 tonnes of copper off global markets and helped send prices surging back over $US4 a pound.
Comex prices are up more than 17% so far this year thanks to the shortage of copper concentrates from the Cobre Panama mine and from mines owned by Anglo American, which has cut production for a couple of years.
As well, BHP has taken hundreds of thousands of tonnes of concentrates off the market via its takeover of the two OZ Minerals copper-gold mines in South Australia last year. BHP is now processing concentrates from the Prominent Hill and Carapateena mines of OZ Minerals at the Olympic Dam hub nearby.
There are reported to be over 121,000 tonnes of concentrates at Cobre Panama – their ownership is uncertain and is believed to have a current market value of around $US200 million. Reuters said that miners around the world tend to keep mining during closure processes as they use those profits to finance shutdowns.
The closure costs are also reported to be more than $US800 million.
The decision to strip Canada's First Quantum of the mine, which accounted for about 40% of its revenue last year, came amid nationwide protests that also led authorities to ban all metal mining activities.
Panama last year ordered the closure of the Cobre Panama mine, which accounted for about 1% of global copper output, following a top court ruling declaring its contract unconstitutional.
"There are two alternatives to finance the closure process. One is for the company to pay for it, if it continues to handle the shutdown, and another is for the government to cover it. Where would the funds come from? That is part of the discussions we are having," Rivera Staff told Reuters.
Traders and investors are closely watching the election outcome to see if a new government could bring back mining but Rivera Staff told Reuters that it could take months or even years to see any shift in Panamanians' current strong opposition to mining.
Panama and the Canadian miner are working together to draft a plan – to be made public in the next two weeks – for the mine to be in "care and maintenance mode" while details on the final closure are sorted out.
Current plans call for First Quantum to handle the closure process but the country could choose an alternative if better terms were offered, the minister said, adding the shutdown is expected to take at least eight years.
Another sticking point between Panama and First Quantum revolves around who owns the 121,000 tons of copper concentrate stored in the mine.
First Quantum said last week it believed that it was going to be able to extract it after the election, but Rivera Staff said the government has yet to decide who owns it.
Panama is working to find out if the copper ore was converted into concentrates before or after the court ruling invalidating the contract.
First Quantum has opened one commercial arbitration process against Panama over the voided contract, but another four arbitrations, focused on investments, are in their first stages.
These will go for several years as well.
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Gold prices went a little higher on Friday but lost 1.5% for the week, settling on Comex at $US2,308.60.
Comex copper, though, rose 1.9% for the day on Friday to end at $US4.5680 a pound, leaving the red metal up more than 17% year to date.
Singapore iron ore prices went nowhere, closing down 43 US cents over the week at $US117.05 on Friday.
