Cobre Panama Financing Deal Reflects Both Opportunities And Challenges
BMI View: Inmet Mining ' s recent announcement that is has secure d financing for its Cobre Panamá project underscores our positive outlook for the Panamanian mining sector , while reflecting rising costs for firms in the region . The project is one of several gold-copper projects in development in Panama and has the potential to be a major supplier to metals markets in the coming years. However, rising costs throughout the region and slackening demand for base metals may render Cobre Panamá and other projects in the region uneconomical.
The large investment reflects the potential for growth in Panama's mining sector in the coming years. Inmet holds an 80% stake in the mine, with the other 20% owned by Korea Panama Mining Corp. The company announced in late November 2012 that it secured all necessary financing to develop the project, with US$1.3bn for earthwork, US$1.2bn for a processing plant, US$670mn for construction of a power plant, and US$500mn for a port. Cobre Panamá, holding an estimated 14.5mnt (million tonnes) of copper and 9moz (million ounces) of gold and with large, additional inferred resources, could reshape Panama's mining sector by significantly increasing mining output. We forecast gold prices to average US$1,775/oz and US$1,875/oz in 2013 and 2014, which bodes well for Inmet. At the same time however, we forecast copper prices to fall on the back of decreasing demand growth from China and a well-supplied market. For 2013 and 2014, we see copper prices averaging US$7,400/tonne and US$7,200/tonne, respectively. Given the sector's increasing costs, if copper prices remain weak for a sustained number of years, development of the mine's copper ore may become economically unfeasible.
|Gold & Copper Attract Investment|
|Panama - Gold & Copper Projects|
Potential Costs Loom
The company also announced that a US$1bn contingency "buffer" will be raised from multiple sources. Such financial contingency planning is notable given the trend of rising costs around the region. As we have highlighted before ( see "Capital Expenditure To Slow," October 29, 2012), cost overruns are increasingly common throughout Latin America and are caused by a number of factors, including labour costs, regulatory burdens, project delays due to social and environmental opposition, and declining ore grades. The bright spot however, is that we do not anticipate any hostile regulatory or tax plans in the coming years. Indeed, the Panamanian government has emphasized economic development and desires to maintain the country's strong growth rate of recent years. Furthermore, the government's desire to transform Panama into a regional financial and logistics hub should guarantee that Panama's business environment remains favourable for miners. However, the country's indigenous population has opposed projects in the past, and despite government overtures to consult with local citizens regarding mining development, protests could easily escalate as in other Latin American countries.
|Source: Bloomberg, BMI|
|Molejon Gold Mine||Petaquilla Minerals Ltd||Operational|
|Remance Gold Mine||Pacific Rim Mining Corp||Operational|
|Cobre Panama Copper/Gold Deposit||Inmet Mining Corp||Planned/Announced|
|Cerro Chorcha Copper Deposit||Dominion Minerals Corp||Planned/Announced|
|Rio Liri Gold Deposit||Bellhaven Copper & Gold Inc||Planned/Announced|
|Pitaloza Gold Project||Bellhaven Copper & Gold Inc||Planned/Announced|
|Cerro Quema Gold Mine||Bellhaven Copper & Gold Inc||Planned/Announced|
|Cerro Colorado Copper Deposit||Republic of Panama||Planned/Announced|