S&P cuts outlook to negative due to mining crisis

Risk Assessment Agency Standard & Poor’s (S&P) cut the outlook for Panama from “stable” to “negative” due to “the risk of potential damage to investor confidence and future private investment arising” from the crisis over a questionable mining contract, the government reported this Wednesday.

Road blockades that lasted two weeks caused shortages of food, fuel and serious economic damage, as well as deaths in Panama, due to the refusal to renew the 20-year extension concession of the subsidiary company of Canada’s First Quantum Minerals (FQM), which operates the largest open-pit copper mine in the Central America.

Last week saw the largest peaceful protests in decades to demand an end to the project, a context in which the executive and parliament approved a moratorium on metal mining and left the future to a new dealor mining law in the hands of the Supreme Courtwhich has accepted several complaints of unconstitutionality against him.

“Although the rating agency maintained an investment grade rating for Panama,” the BBB ratified a new negative outlook last August “reflects the risk of potential damage to investor confidence and future private investment, stemming from the current contract dispute with Minera Panamá, the FQM subsidiary that operates the Cobre Panamá mine.

There is “uncertainty about the fate of the project” and “the recent moratorium on new mining projects”, which “could weaken private investment and hinder the country’s long-term growth prospects, a situation that would lead to a downgrade for Panama in the next 12 months,” the official statement said. .

Rating Agency “still expects an average economic growth of 4.4% in the coming yearsmore than in comparable countries, thanks to a diversified economy and a good portfolio of projects from the public and private sectors.

In this regard, S&P also highlights Panama’s relationship “with the United States as part of the ‘CHIPS’ program to explore the possibility of expanding the semiconductor manufacturing sector,” the MEF noted.

The Cobre Panamá mine, which began production in 2019, is First Quantum’s largest copper operation and accounts for about 60% of the company’s net asset value, whose shares have fallen sharply since the start of the crisis.

The Canadian company said the mine is the largest private investment in Panama at nearly $10,000 million, contributing nearly 5 percent to the gross domestic product (GDP), and creating about 9,000 direct jobs and about 40,000 indirect jobs.

Presidential executive power Laurentino Cortizo defends that the new contract with Minera Panama multiply by 10 the economic contribution to the treasury, which will receive a fixed contribution of 375 million dollars per year, and environmental monitoring is guaranteed.

On October 31, Moody’s downgraded Panama to Baa3 from Baa2 and changed the outlook from negative to stable, as a result of the authorities’ lack of “effective response” to address structural fiscal challenges.