The mineral deposits that exist in the subsoil of the Republic of Panama belong to the State. Such ownership is stipulated in Article 257 of Panama's Political Constitution. Because mineral deposits in the subsoil of the Republic of Panama belong to the State, the Government of Panama has, in general, regulated the mining industry by means of Law Decree 23 of 22 August 1963 (as amended to date, "Law Decree 23"), which approved the Code of Mineral Resources of Panama. The Code of Mineral Resources regulates matters concerning the mining industry in Panama including, without limitation, the granting of concessions for exploration for mineral resources, as well as concessions for extraction of the same; the duration and extension of such concessions; the granting of concessions for transportation of mineral resources; and the classification of minerals, among others.
There are various other laws that regulate matters relevant to the mining industry, such as Law 109 of 8 October 1973 (as amended to date, "Law 109"), which regulates the exploration and exploitation of non-metallic minerals, which are used as construction materials, ceramics, refractory and metallurgical minerals. Furthermore, there are legal rules that pertain to the use of explosives (which are frequently employed in mining activities) as well as regulations pertaining to environmental standards and indigenous reserves, among others.
Note that the mining industry is regulated independently and by regulations that are different from existing and separate regulations for the oil (hydrocarbons) and gas industry.
The Code of Mineral Resources created the National Directorate of Mineral Resources (hereinafter, the "NDMR") in order to ensure the efficacy of the technical and administrative functions related to the application of the Code of Mineral Resources. The NDMR is directed and under the immediate responsibility of the Ministry of Commerce and Industries of Panama. Therefore, the Ministry of Commerce and Industries of Panama, through the NDMR, is the main authority in the mining industry.
Concession for mining activities
The process for authorizing or obtaining a concession for mining activities depends on the particular activity to be conducted, that is, prospecting, transportation, exploration, or extraction.
A mining prospecting permit is required to be obtained from the NDMR in order to engage in prospecting. To obtain a prospecting permit or a mining exploration concession an application must be filed with the NDMR. Prospecting permits are granted by means of NDMR-issued resolutions. The party requesting a prospecting permit it must indicate the type of minerals that it wants to prospect for and the name of the Province, District, or area that it wants included in the concession.
To obtain a transportation concession, an application must also be filed with the NDMR. To obtain the concession, the applicant does not need to hold a mining concession. However, if the applicant is in fact the holder of a mining concession, then the granting of the transportation concession shall be mandatory. Transportation concession applications may be denied when the granting of said concession would be contrary to the nation's interests. Transportation concessions shall be granted only as a means to establish mining transport facilities.
Mining exploration concessions are granted by a contract between an applicant and the Ministry of Commerce and Industries of Panama, which has to be countersigned by the Comptroller of the Republic of Panama. To obtain a mining exploration concession, an applicant must file a formal written request with the NDMR.
In addition, a mining extraction concession, granted by the NDMR, is required to engage in mining. Such mining extraction concessions are granted through contracts signed between an applicant and the Ministry of Commerce and Industry of the Republic of Panama and need to be approved by the Cabinet Council of the President of the Republic of Panama, and countersigned by the Comptroller of the Republic of Panama.
Mining extraction concessions may be obtained either by means of a formal written request to the NDMR or by the presentation of an offer at a public bid process. Article 20 of the Code of Mineral Resources stipulates that if a request for a mining extraction concession is presented by a person or entity that does not have a mining exploration concession for the same zone and involving the same minerals, such request must be accompanied by a fee proposal payable to the Republic of Panama for the right to the concession. On the other hand, Article 21 of the Code of Mineral Resources establishes that the granting of a mining extraction concession is mandatory in cases where the person requesting the concession is already a title-holder of a mining exploration concession.
It is important to mention that the following persons are prohibited from obtaining mining concessions, and may not utilise or benefit from them: i) foreign governments or states or any entity or official or semi-official foreign institution; ii) public officers or employees that directly or indirectly have the duty to intervene (due to their functions as a public officer or employee) in the adjudication, operation or exploitation of mining concessions; iii) persons that have any pending payments to make to the Ministry of Economy and Finance of Panama's General Directorate of Taxes with respect to any payment or tax in connection with any mining concession (except in the case that said person has provided an acceptable guarantee or deposited enough money with the national treasury to satisfy said debts).
The Code of Mineral Resources provides that no mining concessions shall be granted if (aside from the aforementioned guarantee in connection to pending debts to the state) an acceptable guarantee has not been put in place by the concession's applicant for the benefit of third parties in relation to damages that may result from the concession's use. Note that the Ministry of Commerce and Industries of Panama may also deny a mining exploration concession request when the granting of said concession would be contrary to the nation's interests, taking into account all pertinent elements for said decision, or when the granting of said concession would not be permitted by any other dispositions under the Code of Mineral Resources.
Furthermore, in order to carry out commercial or industrial activities in Panama, legal entities will have to obtain an Operations Notice. The Operations Notice is granted by the Ministry of Commerce and Industries of Panama's General Directorate of Interior Commerce. As part of the Operations Notice obtainment process, a Tax Identification Number, issued by the Ministry of Economy and Finance of Panama's General Directorate of Taxes, is required. Furthermore, Panamanian law requires employers to register with the Social Security Office. The Operation Notice registration process automatically notifies the Social Security Office (the Social Security Office requires additional documents to be presented to it as well as part of said registration).
Application for mining
All requests must be filed with the NDMR and must include: (i) a brief description of the nature and purpose of the request or offer, along with the identification symbol that has been assigned to the matter, (ii) the name of the person or entity that is presenting the request or offer (in the case of a natural person, the request would need to include the personal identification number, marital status, nationality, domicile, and physical address in Panama where the person can receive notifications or citations, in the case of a legal entity, the request must include the complete legal name of the entity, its agent or representative's name, domicile and physical address in Panama where notifications and citations can be sent to); (iii) the nature and scope of the privileges and exemptions that are being requested, (iv) description of the concession areas or zones; (v) clear identification of any previous requests or documents presented that may be appropriate or useful; (vi) a declaration of why the request should be granted, or the offer accepted; (vii) an invoice or authenticated copy that evidences the payment of any rights or surety bonds required; and (viii) any other documents that may be required by the Code of Mineral Resources.
Furthermore, Article 155 of the Code of Mineral Resources specifies that in the event of a request for a mining exploration or extraction concession, or for the modification of the area or layout of the zone covered by a concession, the party making the request will need to specify the minerals and their classification, a description of the location and limits of the affected zone, the hectares, and provide a proper map with aerial photographs, if available.
Period for a mining concession
The initial period for a mining exploitation concession depends on the classification. For Class I, the initial period is twenty five (25) years and covers an area of five thousand (5,000) hectares. For Class II, the initial period is twenty five (25) years and covers an area of five thousand (5,000) hectares. For Class III, the initial period is ten (10) years and covers an area of three thousand (3,000) hectares. For Class IV, the initial period is twenty (20) years and covers an area of five thousand (5,000) hectares. For Class V, the initial period is twenty five (25) years and covers an area of ten thousand (10,000) hectares. For Class VI, the initial period is twenty five (25) years and covers an area of five thousand (5,000) hectares.
Exploration concessionaires are required to pay a varying fees depending on the duration of the concession. Concessions granted for one (1) to two (2) years have to pay US$ 1.00 per hectare; concessions granted for three (3) to four (4) years have to pay US$ 2.00 per hectare, and concession for five (5) or more years have to pay US$ 3.00 per hectare. Moreover, when the concession covers Class III minerals, as defined by Article 41 of Law Decree 23, the concessionaire shall pay a 5% royalty over the negotiable gross production.
Extraction concessionaires are also required to pay fees and production royalties depending on the duration of the concession and the mineral's classification.
- Concessions for the extraction of Class I minerals pay no royalties on negotiable gross production, plus US$ 1.50 per hectare for the first five (5) years of the concession, US$ 3.50 per hectare from year six (6) through year ten (10), and US$ 4.50 per hectare thereafter.
- For the extraction of Class II minerals, the concessionaire shall pay 5% royalties on gross production, plus US$ 2.00 per hectare for the first five years of the concession, US$ 4.00 per hectare from year six (6) through year ten (10), and US$ 6.00 per hectare thereafter.
- For the extraction of Class III minerals, the concessionaire shall pay 8% royalties on negotiable gross production, plus US$ 2.00 per hectare for the first five years of the concession, US$ 4.00 per hectare from year six (6) through year ten (10), and US$ 6.00 per hectare thereafter.
- For the extraction of Class IV minerals, the concessionaire shall pay 4% royalties on negotiable gross production, plus US$ 2.00 per hectare for the first five years of the concession, US$ 5.00 per hectare from year six (6) through year ten (10), and US$ 7.00 per hectare thereafter.
- For the extraction of Class V minerals, the concessionaire shall pay 4% royalties on negotiable gross production, plus US$ 1.50 per hectare for the first five years of the concession, US$ 3.00 per hectare from year six (6) through year ten (10), and US$ 4.00 per hectare thereafter.
- For the extraction of Class VI minerals, the concessionaire shall pay 6% royalties on negotiable gross production, plus US$ 3.00 per hectare for the first five years of the concession, US$ 6.00 per hectare from year six (6) through year ten (10), and US$ 8.00 per hectare thereafter.
Fees are paid in annual advancements and royalties are paid within the next 60 days following each quarter's end.
Furthermore, the Code of Mineral Resources establishes that mining concessionaires dedicated to the extraction of sand, gravel, quarry rock, limestone, clay and coarse rock non-metallic mineral materials in public or private properties shall pay the following royalties to the state:
- submarine sand, B/. 3.00 per cubic metre;
- continental sand, B/. 3.00 per cubic metre;
- continental gravel, B/. 1.50 per cubic metre;
- river gravel B/. 0.50 per cubic metre;
- quarry rock, B/. 0.50 per cubic metre;
- limestone, B/. 0.50 per cubic metre;
- ornamental stone, B/. 3.00 per cubic metre;
- coarse rock for fillings, B7. 0.50 per cubic metre; and
- clay, B/. 0.80 per cubic metre.
To this effect, concessionaires dedicated to the abovementioned extractions must file a monthly sworn tax declaration to the General Directorate of Income of the Ministry of Economy and Finance. Furthermore, the payment of such royalties may be deductible for income tax purposes.
Additionally, Law 109 establishes that for the extraction of the non-metallic minerals covered under said law, contracts shall establish a royalty, no less than 2% and no more than 4%, which is to be paid monthly during the month immediately following the month in which the extraction was carried out.
Finally, note that as per Article 74 of Law 106 all industrial, commercial or profitable activities, of any class, that are carried out within a district may be taxed by a municipality. Therefore, if a certain municipality's district has much mining activity a law may require that said municipality receives royalties and/or fee payments or taxes in connection to said mining activity.
Transfer of mining rights
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.
Specially protected areas
The Code of Mineral Resources provides that two classes of reserve areas exist: i) those established expressly by the Code of Mineral Resources and in which no mining concessions of any class may be granted; and ii) those created by means of the devolution of mining concession areas to the state or by Administrative Resolutions, for which it is prohibited to grant mining concessions of exploration and extraction.
The reserve areas expressly established as such by the Code of Mineral Resources are the following:
- all land (including the subsoil) within 60 metres of historical or religious sites or monuments, pump stations, sewage treatment plants or dams used for drinking water, or from public roads, railways, or airports;
- all land (including the subsoil) within the limits of populated areas, cities or metropolitan areas;
- all land (including the subsoil) conceded by means of international treaties for uses not including (or different than) mining operations.
These types of reserve areas may be incorporated to the mining concession regime (meaning they may be made available to be granted as mining concessions) only if a law is passed for that specific purpose.
The other type of reserve areas are those mining concessions that terminate and are returned to the nation to become reserve areas, and, finally, those areas of land which the Ministry of Commerce and Industry of the Republic of Panama considers not convenient, at certain period of time, to be used for exploration or extraction purposes. These types of reserve areas may be incorporated to the mining concession regime (meaning they may be made available to be granted as mining concessions) by means of a resolution issued by the Ministry of Commerce and Industry of the Republic of Panama for that specific purpose.
Law 109 also establishes that for the extraction of the non-metallic minerals covered under said law, will not be allowed in the following areas:
- all land (including the subsoil) within 500 metres of historical or religious sites or monuments, pump stations, sewage treatment plants or dams, water treatment plants, or from public roads, railways, airports, bridges, tourism development areas, and beaches;
- all land (including the subsoil) within 500 metres of the limits of populated areas, cities or metropolitan areas;
- all mining reserves established as such by the Executive Branch.
Finally, there are Protected Areas for which Management Plans are issued by the Ministry of the Environment, in which specific regulations may be included with respect to mining activity within those areas.
General considerations regarding mining and environmental matters
The principal environmental law that affects the mining industry is Title IV of Law 41 of 1 July 1998. The General Environment Law of the Republic of Panama (as amended, Law 41) regulates said law's application to natural resources, and, within said Title IV, its Chapter IX is specific to mineral resources.
Law 41 provides that the Ministry of the Environment is responsible for regulating that which relates to the environmental impact that mining activities generate. Furthermore, Law 41 also establishes that the Ministry of the Environment, in co-ordination with the competent authority, shall have the responsibility to supervise, control and be vigilant of the correct application of the respective Environmental Management Plan.
Law 41 provides that a mining concession title-holder is responsible for the emissions, dumping and waste that are produced as a result of processes carried out in its installations. Thus, as previously mentioned, a mining concession title-holder needs to comply with the respective environmental impact study's approval resolution, which includes having any necessary permits for its operations (such as a tree-felling permit, for example), and also to comply with and carry out the respective Environmental Management Plan.
Also, Law 32 of 9 February 1996 modified Law 109 regarding the exploration and extraction of non-metallic mineral resources "with the objective of adopting measures that conserve the ecological equilibrium and guarantee the adequate use of mineral resources." Among the measures introduced by such modifications is the establishment of a commission for non-metallic mineral resources used for construction; the prohibition of the adjudication of coral reefs as non-metallic mineral resources concessions (except for coral reefs that have perished naturally at the time of adjudication); and the empowerment of municipalities to sanction those persons infringing this law.
The General Environment Law of the Republic of Panama, Law 41 of 1998 (as amended, Law 41), provides in Article 7 that any public or private activities, works or projects that by their nature, characteristics, effects, location or resources may generate environmental risks shall be required to undergo an environmental impact study approval, prior to their commencement.
Law Decree 123 of 4 August 2009, by which Chapter II of Title IV of Law 41 is regulated, provides a list of activities, works or projects for which environmental impact studies are required. Within said list, under the "Mining Section," it is established that the exploration of metallic minerals that requires mechanical perforation works, dredging, trenches, the opening of internal roads and camps construction, as well as the extraction of metallic and non-metallic minerals, shall undergo the environmental impact evaluation process.
Therefore, said activities, works or projects require an approval from the Ministry of the Environment of their respective environmental impact studies, prior to their commencement. Depending on the environmental impact, the studies are organised into three categories:
- Category I Environmental Impact Studies: for activities, works or projects that generate non-significant negative environmental impact and do not carry significant negative environmental risks;
- Category II Environmental Impact Studies: for activities, works or projects which could generate a significant negative environmental impact that partially affects the environment, and that may not be eliminated or mitigated with known and easily applicable measures; and
- Category III Environmental Impact Studies: for activities, works or projects which could generate a cumulative and synergetic negative environmental impact of quantitative or qualitative significance, which requires a more substantial analysis.
The environmental impact study, depending on the category, requires that the activity, work or project be presented to (for consultation with) the public.
After approval of the respective environmental impact study, via a resolution issued by the Ministry of the Environment, the approved activity, work or project may commence within a two-year period. The approved resolution also contains various obligations that must be complied with during the development and execution of the activity, work or project. One such obligation is that an Environmental Management Plan must be developed for said activity, work or project by the person promoting said activity, work or project. This will allow the Ministry of the Environment to monitor said Environmental Management Plan's application.
According to Law 6 of 1997, which regulates the supply of electric public services ("Law 6"), the Public Services National Authority (ASEP, for its name in Spanish) is in charge of establishing rules and regulations over electricity providing companies. In 2010, through Resolution AN 3932-Elec (hereinafter, the "Resolution") the ASEP established the safety standards and technical conditions that dam operators must adhere to during the construction, and operation of dams. The law categorizes dams depending on the potential impact that a failure of the structure of the dam could have on human lives, essential services, property, and the environment.
The safety policies required by the Resolution are responsibility of the dam operator and should be put in place from the moment that the construction of the dam starts. Dam operators are required to have a Technical Control Team in place and should eliminate any condition that could lead to the deterioration or destruction of the dam.
The safety policies established by the Resolution contemplate all stages of the project, starting with the design of the dam, which must have monitoring systems in place and must consider the seismic activity around the project, hydrologic planning, and structural safety.
During the construction stage, the dam operator must have an inspection team to monitor all the systems and structures that are installed in the dam. Moreover, when the filling of the dam happens, the dam operator must cooperate with the ASEP to ensure that the dam is safe to operate. The dam operator must have efficient communication channels between the parties responsible for the filling and the ASEP. The dam operator must also have a manual that details the procedure to follow during the first filling. Also, there must be an Emergency Action Plan in place for the first filling.
During the operation of the dam, the dam operator is responsible for reporting, through oral and written, channels all incidents to the ASEP. If an incident causes injury or death to persons, the dam operator must include the corrective measures it has taken following the incident. Moreover, any modifications to the dam must be reported to the ASEP, and if the modification is in response to an incident that affected the security of the dam and its auxiliary buildings, the dam operator must make a formal report to the ASEP.
The top recent development in the Panamanian mining industry, in our view, is the "Cobre Panamá" Project, a mining concession granted to Minera Panamá, S.A. over a copper deposit located in Panama. The "Cobre Panamá" Project represents, at US$ 7 billion, the largest private investment in Panama's history. The concession consists of 12,955.1 hectares. In the second quarter of 2019, Cobre Panamá achieved its first full quarter of production, and in June 2019, it dispatched its first copper concentrate shipment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.