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From A to Z: Panama's Mining Rules

Background.

Panama greatly benefits from having a very high concentration of copper per unit area. Approximately 50 billion pounds of copper reserves, 12 million ounces of gold, 25 thousand ounces of silver, and 250 tons of molybdenum have been identified in Panama. The largest on-going project is Cobre Panama, administered by Canadian company First Quantum Minerals, covers over 12 thousand hectares, and recently initiated the production phase. Other relevant mine projects include the Molejon gold mine, Cerro Quema, and Santa Rosa gold mine. 

There are approximately 15 awarded metallic minerals exploration and/or extraction concessions for a combined area of 50 thousand hectares.  Nonmetallic minerals concessions are far more common and include continental/submarine sand, limestone, clay, and gravel.  

Sources of Law and Regulator.

Panama’s National Constitution determines that all mineral deposits are deemed the property of the State and may only be exploited by means of concessions. The main source of law for the mining industry is the Code of Mineral Resources (Decree Law 23 of 1963). The regulator is the Ministry of Commerce and Industry by means of the National Directorate of Mineral Resources (from now on “the authority”).  

The Code of Mineral Resources focuses only on metallic and non metallic minerals. Other natural resources such as hydrocarbons are regulated separately in Decree Law 36 of 2003.  

Concessions and Permits.

Any person, whether national or foreigner, may obtain a mining concession, provided that they have the financial and technical capacity. Foreign governments and semi-official institutions are legally prohibited to hold or exercise mining concessions. Mining concessions may be granted separately or all together: explore, exploit, transport and benefit from mineral resources. They are granted by way of a contract with the State (represented by the Ministry of Commerce) and require the approval of the General Comptroller. Exploitation concessions require further approval of the Cabinet Council of the Executive Branch.

The authority can also grant a separate (1) superficial reconnaissance permit to conduct preliminary geological investigations on a nonexclusive basis or (2) special permit for the collection of semi-precious stones in the soil surface or rivers.

There are two ways to obtain a concession: Request or Public Tender.

Generally, they are granted by a request made to the Ministry of Commerce. It must specify the general information of the applicant, type of concession, area, and minerals to be worked with. All the technical information such as classification of the mine, maps, pictures of the area, blueprints and other materials must also be provided.  Requests may be uncontested (if there is only one interest party) or contested (multiple interested parties). When contested concession applications occur, the authority will notify all the parties and initiate a process to select the proposal that best fits the interest of the State.

All concession holders are required to provide an acceptable guarantee in favor of the State and also in favor of any third party that may suffer damages. 

The term for reconnaissance permits is six (6) years. Exploration concessions have an initial term of four (4) years and may be extended twice for two (2) year periods. Exploitation concessions are granted for periods from ten (10) to twenty five (25) years depending on the classification and surface extension of the concession and may be extended three times for five (5) year periods. 

Royalty Rates and Concessions Classes are established in relation to the applicable minerals.

Class

Mineral

Royalty Rate

Class I

Nonmetallic Minerals

0%

Class II

Metallic Minerals: Copper, Iron, Zinc, Lead, Aluminum

5%

Class III

Alluvial Precious Metals: Gold and Silver

8%

Class IV

Non-Alluvial Precious Metals: Gold, Silver and Diamonds

4%

Class V

Energetic Minerals: Carbon and other radioactive elements (excluding hydrocarbons)

4%

Class VI

Reserve Minerals: those determined by the State

6%

 

Royalty rates are calculated on the basis of the gross negotiable production of the mine, thus applicable for exploitation concessions. Royalties are payable to the State in US dollars or in kind, calculation of the gross negotiable production depends on payment method. All concession holders are subject to an additional lease fee. 

Exploration concessions are charged on a per hectare basis, the rate of charge varies depending on the duration of the concession (ranges from USD$1 to $3 per hectare). 

Exploitation concessions are charged on a per hectare basis, the rate of charge varies depending on the (1) class and (2) age of the concession (ranges from USD$1.50 to $8 per hectare). 

Extraction of materials such as sand, gravel, rocks, limestone and clay are charged on a per cubic meter basis, the rate of charge varies depending on the material (ranges from USD$0.50 to $3 per cubic meter).

Mining concessions may be transferred or encumbered with a lien as security (for example, a mortgage), provided that prior consent is given by the Ministry of Commerce and Industry of the Republic of Panama. The Ministry of Commerce and Industry will give its consent once it conducts an investigation into the technical competence, and financial and legal capabilities of the transferee.

An exploration concession can easily be fully or partially converted, into an exploitation concession.  Concessions can also be assigned or granted as collateral with prior consent from the Ministry of Commerce and Industry.

Environmental Considerations

Regulation seeks to protect and restore the environment during and after the lifetime of the mine. Mining companies are expressly  prohibited from concluding or abandoning the mine before re-establishing the environment.  The authority is in charge of regulating and enforcing waste management and other safety standards to ensure public health and conservation of nature.

In addition to such rules, mining companies must comply with Law 41 of 1998 which is the general environmental law. Concession holders must have an approved environmental impact study before commencing operations as well as a plan for environmental management, both of which are approved and supervised by the Ministry of the Environment.

Other relevant provisions of the Code of Mineral Resources: 

  • Reserve areas in which mining is not allowed. For example: sites close by of national monuments, water reservoirs, water treatment plants, among others;
  • Regulates the use of contractors;
  • Establishes minimum standards for hiring nationals in the workforce;
  • Special rules for import and export of equipment and materials;
  • Criteria for granting a guarantee bond;
  • Reporting standards and information obligations of concession holders;
  • Accounting and tax deduction standards;

Investment Protection Treaties & Free Trade Agreements

Panama has duly signed and ratified over 20 investment protection treaties with jurisdictions such as: Canada, Chile, France, Mexico, Koream, United Kingdom, USA and several others. 

Currently Panama has 10 free trade agreements, including: Canada, Chile, European Union, Peru, and USA. 

 

Author(s)

Alejandro Vásquez V

Senior Associate

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