First Quantum Minerals [FQM] is a mining and metals company whose principal activities include mineral exploration, development, and mining. FQM is Canada’s largest producer of metal and the world’s leading copper miners. Cobre Panama in South America and Kansanshi Mining Plc in Zambia have a large role to play in FQM, being the leading copper miners.
This article will focus on the social impact of FQM concerning the Cobre Panama impasse with the Government. Secondly, the article will address the FQM and ZCCM-IH’s deal in respect of Kansanshi Mining Plc [KMP], the largest copper mine in Zambia.
In the news release made available by FQM on January 16, 2023, the company announced its 2022 preliminary production and 2023-2025 Guidance. The news release made from the FQM headquarters in Toronto Ontario, addresses the latest developments in the Cobre Panama impasse with the Government of Panama and the way forward.
According to FQM proposal contained in their 2023-2025 guidance, the miner is prepared to pay a minimum of $375 million per year to the government of Panamá. This is comprised of corporate taxes and a profit-based mineral royalty of 12 to 16 percent, with downside protections. Mining.com asserts that this would be an estimate of paying 5% of revenues in royalties.
Furthermore, FQM has also included “ESG- related projects within the 2.6 billion project capital expenditure within the three-year guidance.” These projects include:
• Investments at Cobre Panama and trident to enhance the social infrastructure to serve the workforce and local communities.
• Water initiatives to improve water quality.
• Reduce greenhouse gas emissions through various initiatives such as a wind farm and expansion of trolley assist infrastructure.
• Relocation and installation of in-pit crushers to optimize haul cycle efficiency and reduce mine fleet diesel consumption.
The social impact of FQM’s decision has several effects on the people and communities of Panama and FQM itself. These environmental protection measures and labor provisions will assure that the Cobre Panama mine not only benefits a small minority but the various communities and the overall environment which supports various ecosystems, thus preventing the needs of Panama to be ignored.
However, these various changes could have an impact on the profit margins for First Quantum Minerals and its various stakeholders.
Nevertheless, the overall 2023- 2025 Guidance, may positively impact FQM. It portrays the image that FQM does take its corporate social responsibilities seriously and is working toward a greener future. These various ESG-related projects could be looked at favorably by investors and the general population.
At the same time FQM was battling to reach an agreement that would serve both parties in the Cobre Panama mine, the miner was also busy with their partner ZCCM- IH.
ZCCM- IH is an investment holding company with significant interests in Zambia’s mining industry, which has aggreged with FQM the holding company of Kansanshi Mines Plc to convert its 20% dividend rights to a 3.1% revenue royalty.
According to ZCCM-IH news, this new deal guarantees ZCCM-IH to receive its share regardless of the status of the mining company. Revenue is guaranteed as shares will be received based on sales and not profits as it was previously. Thus, allowing ZCCM-IH to receive a higher revenue compared to previous years.
ZCCM-IH giving up its dividend rights and economic value in its 20 percent equity in Kansanshi Mining Plc (”KMP”) in exchange for a life of mine royalty. This conversation of rights now means that ZCCM IH will now have Class C type shares which will ensure the perpetual royalty payments as well as 2 board seats.
Pundits argue that while ZCCM-IH’s previous Class A 20% ownership did not allow them the power to influence decision making it did give them the power to take the miner to court should they be unsatisfied with their practices. The decision was more predictable income driven as opposed to activist investor driven.
FQM’s perceived sole ownership of KMP risks leaving communities and the environment in Zambia vulnerable to unethical mining practices and exploitation. Early signs of the risks are seen in the Conditions Precedents for the deal requesting for the dropping of charges against directors at the mine who were deemed to be non-compliant.
There is a further risk now that ZCCM- IH’s new revenue stream which is based on sales makes them incentivized towards maximizing income failing to take into consideration exploitive and unethical practices that could be detrimental to the environment and people of Zambia in the long-term.
FQM’s decision with the government of Panama might lower expected profits, as stated a projected 5% of revenue will go towards revenue royalties. However, FQM’s sole ownership of KMP allows them to increase profits, now that KMP has been revenue incentivized.
Additionally, giving out far less in revenue royalties to ZCCM-IH compared to Cobre Panama in a way allows FQM to retain profits and arguably use KMP to invest in their overseas expansions. It is a zero-sum comparative advantage that FQM which has investments across the world can leverage off.
Geopolitical environments continue to evolve. As in the case of Panama, the Government has followed through on its constitutional right for the people of Panama to benefit from the mines albeit with aggressively higher rates. One might argue that the Government of Panama reflected on the 90% ownership FQM had of Cobre Panama and implemented a strategy to hold onto power. In short, Panama fights to gain from the Cobre Panama mine and ensures there is a form of impact investment made by FQM.
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