Mining

Mining has become one of the fastest growing sectors in the Panamanian economy, and it is expected to expand even quicker after the government disclosed last week it has identified mineral reserves estimated at $200 billion at current prices

Mining has become one of the fastest growing sectors in the Panamanian economy, and it is expected to expand even quicker after the government disclosed last week it has identified mineral reserves estimated at $200 billion, at current prices.

Mining in Panama began in colonial times. Gold, silver, zinc, lead, manganese, iron and copper are some of the minerals that have been found in Panama. The country has two of the largest undeveloped copper deposits in the world.  Mining investments are aided by a favorable mining law, which encourages foreign investment. The Department of Mineral Resources of the Ministry of Commerce and Industries is the governmental agency responsible for formulating mining policies, overseeing mining operations, performing geological studies, preparing geological maps and statistics, and maintaining a file of mining concessions, among others.

Mining has become one of the fastest growing sectors in the Panamanian economy, and it is expected to expand even quicker after the government disclosed last week it has identified mineral reserves estimated at USD 200 billion, at current prices.

The geological structure of Panama, along with its geographical position, has allowed experts to find mineral deposits in the subsoil, of certain relevance, such as gold and mainly copper; these extractions are part of state policies which support mining activity that aims for a comprehensive development of towns around mining projects.

All of this development and creation of wealth and jobs is based on something so normal but yet unknown for an immense majority of the Panamanian society: geological-mining resources, in this case, rocks, basalt, sand, limestone, and clay which originate from rock aggregates which are used in the construction industry and are produced throughout the country in open pit mines called “quarry”.

In 2015, the mining industry in Panama contributed USD 645 Million to the Gross Domestic Product. This industry increase last year 7% compared to the previous year, which was 17% The mining industry is experiencing a constant growth since 2008, due to the fiscal benefits that the government has implemented to attract investors

Investment Opportunities

Cobre Panama is a US$6 billion large open-pit copper development project in Panama. The project is in the construction stage and it is located 120 kilometres west of Panama City and 20 kilometres from the Caribbean Sea coast, in the district of Donoso, Colon province, in the Republic of Panama. The concession consists of four zones totaling 13,600 hectares.

Expected to become one of the world's largest open-pit copper developments and Panama's biggest source of exports, the mine's first shipments are due in 2016, according to Minera Panama, a subsidiary of South Africa's First Quantum Minerals.

Following the completion of our acquisition of Inmet Mining in April 2013, First Quantum assumed an 80% equity interest in Minera Panamá, S.A. (“MPSA”), the Panamanian company that holds the Cobre Panama concession. MPSA was incorporated under the laws of the Republic of Panama in January 1997 and has a mineral concession to explore and exploit the Cobre Panama property.

The very large Cerro Colorado copper deposit is owned by the government. Other exploration targets are Cerro Quema (gold) and Cerro Chorcha (copper).

The current Panamanian administration has openly expressed its willingness to support and foster mining, and has been trying to modernize mining legislation. Article 257 of the Political Constitution of the Republic of Panama states that all mineral assets belong to the state. The Panamanian Constitution provides for the granting of mineral concessions enabling persons, other than the state, to explore for and exploit mineral deposits.

The Code of Mineral Resources of Panama, adopted by means of Law Decree No. 23 of 1963, as amended (the CMR), is the main legal body governing most activities relating to Panama’s subsurface estate (other than hydrocarbons), establishes the system of mining concessions and determines the relevant privileges and obligations of concession holders. In the case of minerals used in the construction industry (sand, gravel, clay, etc.) the CMR has been supplemented by Laws 55 and 109 of 1973, and Law 32 of 1996, in order to create a separate regime for the granting of concessions relating to those minerals.

The CMR states that the Ministry of Commerce and Industries, through its Directorate General of Mineral Resources (the DGMR), is the governmental entity in charge of overseeing mining activities in Panama. According to the CMR, the DGMR oversees the granting of mining concessions to particulars and ensures that mining is carried out in accordance with the law.

In the case of mining projects in Panama, there are two types of concession regimes:

Concession agreements granted by means of special legislation; and Ordinary concession agreements granted by the government pursuant to the terms of the CMR.

Exploration concessions grant the concessionaire three key rights: first, the right to engage in preliminary geological work (as would also be conferred by a Prospecting Permit); second, the exclusive right to engage in all necessary exploration and related activities with respect to specific types of minerals within the zone constituting the concession; and third, the exclusive right to be awarded an extraction concession over the relevant area should minerals in commercial quantities be discovered during exploration activities. Exploration concessions are available for initial periods of four years, subject to two discretionary extension periods of two years each.

A holder of a valid exploration concession benefits from the exclusive right to apply for an extraction concession on the same area. The CMR also provides for the award of extraction concessions over minerals not then subject to exploration activities. Extraction concessions are granted for:

  • An initial period of 25 years and for a maximum area of 5,000 hectares for base metals;
  • An initial period of 20 years and for a maximum area of 5,000 hectares for alluvial precious metals; and
  • An initial period of 10 years and a maximum area of 3,000 hectares for non-alluvial precious metals.
  • Extraction concessions may be extended, at the discretion of the DGMR, for three periods, the first two of 10 years each and the last one of five years. In the case of construction materials, such concessions are granted for an initial period of 10 years and a maximum area of 500 hectares, and their term may be extended for an additional 10-year period.

Panama still presents many opportunities in mining exploration. There are many greenfield properties and local groups looking for partners. If you are interested, please contact us

Benefits / Incentives

Since the enactment of the CMR in 1963, concessionaires have been expected to contribute to the government:

  • a fixed annual duty for the area comprising mining concessions; and
  • royalties for the product extracted.

In early 2012, two laws addressing mineral resources were enacted. Law 11 of 2012 prohibits, with some limited exceptions, the exploitation of mineral resources within the Ngäbe-Buglé native reservation. The law also annulled any existing mining concessions located within the reservation. The Ngäbe-Buglé native reservation covers almost one-tenth of the territory of the Republic of Panama. The prohibition included in Law 11 of 2012 also extends to the Cerro Colorado copper deposit. On the other hand, Law 13 of 2012 was also enacted in order to re-enact some of the amendments to the Code of Mineral Resources that the government had attempted to introduce in early 2011.

Law 13 of 2012 introduced a set of amendments to the CMR, which, inter alia, include a new regime regarding duties and royalties applicable to mining concessions:

  • in the case of exploration concessions, a fixed annual surface tax, ranging from $1 to $3 per hectare, with the amount increasing progressively with the length of the concession;
  • in the case of extraction concessions, the surface tax and royalties vary depending on the mineral: the surface tax will range from $1.50 to $8 per hectare and the royalties will range from 4 per cent to 8 per cent. Royalties are calculated as percentages of the “gross negotiable production”. “Gross negotiable production” is defined as:
  • in case the royalties are to be paid in kind, the gross mineral production minus production losses, other minerals extracted that have no commercial value, etc.
  • in the case of royalties paid in cash, the gross sales receipts minus transportation and other expenses, calculated in accordance with the international financial reporting standards.

Concessionaires are also required to post performance bonds. The 2012 amendments to the CMR state that these bonds would range from $0.10 per hectare in the case of exploration concessions to $0.25 per hectare in the case of extraction concessions.

Performance bonds may be posted in cash, delivery of bonds issued by the government of Panama or surety bonds issued by insurance companies qualified to do business in Panama.

Any payments to the government may be made in dollars of the United States of America.

Failure to pay to the government amounts due under the concession contracts and the law will trigger defaults under the concession contracts and will give right to the government to terminate concessions. The CMR allows a grace period of one year for payment defaults. In practice, third parties (such as creditors) may step in and pay the duties owed to the government

The BusinessPanama Group together with Pardini & Asociados, an international law firm with 35 years of experience, provide a convenient One Stop Shop offering the services of:

  • Setting up or acquiring the business
  • Locating office and living premises for the company and its executives
  • Forming a company, llc or branch
  • Legal services for setting up all operations, contracts, permits, etc.
  • Accessing special tax incentives
  • Applying for visas, work and residence permits for expats
  • Relocation services
  • Others

For more information, please contact us.

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