[Exclusive] Following Breakdown of Gwangsan Negotiations... Korea Considers 'ISD Lawsuit' Against Panama

Kobre Panama Mine Dispute... Royalty Negotiation Breakdown
Gwanghae Mining Corp Holds 10% Stake... One of World's Top 10 Copper Mines
Royalty Increase Demand in Panama... From Existing 2% to 16%

Panama Cobre Panama Mine landscape managed by Korea Mine Reclamation Corporation.
[Photo by Asia Economy DB]

[Asia Economy Sejong=Reporter Lee Jun-hyung] It has been confirmed that the Korea Mine Reclamation Corporation (KMRC) is considering filing an Investor-State Dispute Settlement (ISD) lawsuit against the Panamanian government. This comes after the Panama government declared the suspension of KMRC’s operation of the Cobre Panama mine due to a breakdown in royalty negotiations. KMRC has entered a crisis response mode, keeping in mind the possibility of having its mining rights for Cobre Panama confiscated.

According to comprehensive reporting on the 23rd, KMRC recently formed the ‘Cobre Panama Crisis Response Task Force (TF)’ and began reviewing the possibility of filing an ISD lawsuit against the Panama government. According to the contract between KMRC’s Cobre Panama mine operator MPSA and the Panama government, any disputes must be resolved through international arbitration. Since the Korea-Central America Free Trade Agreement (FTA) came into effect in March last year, KMRC believes that filing an ISD lawsuit against Panama is possible. If an FTA partner country violates most-favored-nation treatment or other provisions, it meets the requirements for an ISD lawsuit.

The Cobre Panama mine is one of the world’s top 10 copper mines, with estimated reserves of approximately 3.147 billion tons. KMRC acquired a 10% stake in the Cobre Panama mine in 2009. Production began in 2019, and over the past three years, 684,000 tons of copper have been mined. Last year alone, the mine generated a net profit of $750 million (approximately 960 billion KRW). KMRC expects to be able to mine hundreds of thousands of tons of copper annually from the Cobre Panama mine until 2054.

Panama Demands Eightfold Increase in Royalties

However, negotiations have stalled as the Panama government demanded a significant increase in royalties. Initially, MPSA paid the Panama government 2% of the Cobre Panama mine’s sales as royalties. Last year, the Panama government notified MPSA that the royalty rate would be raised from 2% to between 12% and 16%, and set an annual minimum payment of $375 million (approximately 480 billion KRW). This means that regardless of the mine’s production volume or profitability, MPSA must pay the Panama government at least $375 million annually as compensation for holding the mining rights.

Since early this year, MPSA has been negotiating royalties with the Panama government but has failed to reach an agreement. The Panama government rejected MPSA’s requests to reduce royalties when production or copper prices fall below certain levels or to set an annual payment cap. With no progress in negotiations, the Panama government sent a letter to MPSA in mid-last month, setting a final deadline of the 14th of this month.

Korean Mining Rights May Be Confiscated

Ultimately, the Panama government declared the suspension of operations at the Cobre Panama mine on the 15th of this month. Although the Panama government has not yet taken any compulsory administrative measures, the mine is reported to be operating normally. However, KMRC is preparing for the worst-case scenario, including the possibility of having its mining rights for Cobre Panama confiscated. This is because the Panama government stated in a letter to MPSA last month that if a new contract is not agreed upon, it will hold a public bidding for the Cobre Panama mining rights.

There is also speculation that the Panama government may partially accept MPSA’s demands and reach an agreement. This is because the Cobre Panama mine project involves the interests of three countries: Korea, the United States, and Canada. KMRC and Canadian mining company First Quantum Minerals (FQM) hold 10% and 90% stakes in the Cobre Panama mine, respectively. Furthermore, FQM’s major shareholders include U.S. capital groups such as Capital Group and Fidelity Group. This is why the ambassadors of Korea, the United States, and Canada to Panama held a joint meeting with high-ranking local officials on the 14th, the negotiation deadline set by the Panama government.

The government is also closely monitoring the situation. A government official said, “We are closely communicating with KMRC’s TF and monitoring the situation,” adding, “I understand there are differences regarding setting upper and lower limits on royalties.” The official also noted, “Since KMRC holds only a 10% stake in the Cobre Panama mine, it is somewhat difficult to take an aggressive stance in negotiations compared to Canada.”

This content was produced with the assistance of AI translation services.