Panama’s ratification of a deal with a copper miner last month should have been a formality. Instead, it triggered nationwide protests that paralyzed the economy, destabilized the government and led to a nationwide ban on new mines.

The explosion of popular rage blindsided investors, forced authorities into a chaotic retreat and wiped out about $6.5 billion of value for shareholders of Canada’s First Quantum Minerals Ltd., a company regarded as a canny operator with decades of experience developing projects in Africa. A question mark now hangs over the future of its giant Cobre Panama mine.

Protests quickly became about more than just the mine. Panama was already seething with discontent over inflation, high unemployment and corruption, but there were also long-standing resentments over Cobre Panama’s environmental impact and its contribution to the economy. With a looming election, the unrest coalesced around the mine, prompting the government of President Laurentino Cortizo into a sudden U-turn on the mine’s operating contract.

The episode provides a cautionary tale for foreign investors on the vulnerability of mining projects to public hostility and resource nationalism, even in relatively investor-friendly countries such as Panama. It raises questions about the deployment of the billions of dollars in investment that will be required in the decades to come to extract copper and other critical minerals needed for the world to transition away from fossil fuels.

When First Quantum and the government reached a new arrangement for the mine in March, it seemed like a win-win. The company got a 20-year extension at its most lucrative asset, and the government received a bigger share of the windfall, which would allow it to boost pensions ahead of elections on May 5.

Read more: Panama’s Investor-Friendly Image at Risk

Yet criticism of the deal simmered. The debate over the arrangement for the mine was rushed through congress without enough consultation, said Yarelys Gomez, an ecologist who took part in the street protests. When the nation’s biggest labor union joined the demonstrations, they swiftly snowballed.

As unions, environmentalists and student groups blocked highways and fought police, food prices shot up in the capital as farmers were cut off. On Sunday, Oct. 29, Cortizo tried to restore calm by calling for a referendum on the mine contract.

Caught Off Guard

The announcement caught First Quantum off guard, and company officials in London rushed to Panama to meet with government officials, according to a person familiar with the matter. Panama’s bonds fell and its credit rating was cut to one level above junk by Moody’s Investors Service.

In the two weeks since, the referendum proposal and a push for congress to repeal the contract have both been shelved, as everyone waits to see if the Supreme Court will kill the agreement. Throughout the controversy, the mine — Panama’s largest single private sector investment, generating thousands of jobs and producing about 1.5% of the world’s copper — has continued to operate.

Read more: Panama Cut to One Level Above Junk by Moody’s on Fiscal Outlook

Eight Lawsuits

Attorney Martita Cornejo, who filed a constitutional challenge against the revised contract, says it violated public procurement procedures, contradicts international environmental accords and breaks a constitutional right to common wellbeing.

The court is considering seven other suits against the mine deal. Protesters have vowed to stay in the streets until there’s a ruling, which protesters have demanded by mid-December.

Protester Gomez compares the mine to a “tumor” in the small nation’s ecosystem.

“The dimensions of what they are excavating and damaging, for the size of our country, is enormous,” said Gomez.

First Quantum’s Response

It doesn’t cut much ice with protesters that copper is needed for green technologies like electric cars and solar panels. (There was a similar backlash against a lithium project in Serbia last year.)

In reply to written questions, the company said it hasn’t received reports of illness related to air or water pollution from its operations, and that it fully complies with all environmental regulations.

Cobre Panama has also committed to reforesting an area equivalent to almost double the project’s “disturbance footprint” of 5,900 hectares (14,580 acres), more than a third of which has already been done, the company said.

With Panama a newcomer to the mining world, First Quantum was able to broker favorable terms in its previous contract. When it came to negotiate a new arrangement, the nation secured higher tax rates and a minimum payment, as well as greater environmental protections and community benefits.

Before its 2013 hostile takeover of Inmet Mining Corp., which owned the concessions in Panama, First Quantum mainly operated in Africa.

Panama was “an area that was generally viewed as a reasonably safe jurisdiction,” said MacKenzie Davis, a portfolio manager with Sailingstone Capital Partners, which started investing in First Quantum in 2013. “And they had a concentration of assets in Zambia — two large operations there. And so this was an opportunity to diversify away from some of that concentration risk.”

Upcoming Election

The approaching vote helps explain why hitherto business-friendly lawmakers swung in a few days from supporting the mine deal to banning all new mining contracts.

While Cortizo can’t run for reelection, he’s looking to garner support for his center-left party that’s been polling poorly. Cortizo’s approval rating fell to 19% in October. His party’s candidate for May’s election, Vice President José Gabriel Carrizo, is polling near last with 3% support.

Former President Ricardo Martinelli, who has publicly supported a contract with First Quantum, is leading polls ahead of the election, but faces corruption allegations in the courts. Should he lose his appeal, he could be barred from running.

Tied for second are Romulo Roux, Martin Torrijos and Ricardo Lombana. Roux, an attorney, has supported the mine, but said he will respect the Supreme Court’s decision. Former President Torrijos said he opposes the mine while Lombana has called for its closing and said he would sue the company for environmental damages, if elected.

Investment Grade

The government will seek to avoid mining stoppages heading into elections with the economy already affected by disruptions to the Panama Canal due to low water levels, according to BMO Capital Markets.

Panama has been one of the fastest-growing economies in the Americas this century, and now enjoys a standard of living similar to Poland’s. But expectations have also risen, according to economist Rene Quevedo, a business consultant in Panama City.

The economy is adding fewer formal jobs now than it did before the pandemic, and informality is rising, he said. A potential loss of tax revenue from the mine, combined with lower canal revenues could cost the country its investment grade credit rating, Quevedo said.

“We are becoming an unpredictable country for foreign investment,” he said. “We are scaring foreign investors.”

--With assistance from Shelby Knowles Nikolaides.

Author: Michael McDonald, James Attwood and Jacob Lorinc