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 Panama's Economy

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From Reuters on December 20, 2013:

ECONOMICS OF PANAMA GREW 8.9 PERCENT IN THIRD QUARTER FROM A YEAR AGO

Dec 20 (Reuters) Panama economy grew 8.9 percent in the third quarter from the same period last year, as massive infrastructure spending continued to buoy one of Latin America's fastest-growing economies, the government statistics agency said on Friday. Growth picked up from the second quarter, when the economy expanded by an upwardly revised 7.7 percent. The rapid growth was spurred by ongoing spending on the $5.3 billion expansion of Panama's namesake canal, which began in 2007, and the $1.8 billion construction of Central America's first metro system expected to open in early 2014. Large government projects also include the cleaning of the Panama Bay and the building of new hospitals and roads. The construction industry expanded by 35 percent in the July-September period, picking up 10 percent from the second quarter, the agency said. Growth was also boosted by the ongoing construction and development of a $6.2 billion copper mine on the country's Atlantic coast, helping to expand the mining industry by a third for the quarter. Expected to become one of the world's biggest 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 Canada's First Quantum Minerals Ltd. Logistical and transportation services linked to the canal have expanded over the past six years as Panama has positioned itself as a regional hub.

Growth in the transport and communications industry accelerated 11 percent in the third quarter, the agency said.  One of the fastest-growing economies in the world, Panama mostly evaded the global recession, expanding by double-digits for four of the past six years. But growth, while still high, is expected to slow slightly. Panama's Economy Ministry expects overall growth of 8.5 percent in 2013, while the United Nations Economic Commission for Latin America predicts annual growth of 7.5 percent. The worldwide economic slowdown has dampened trade through the canal and ports, partly due to a delay in the waterway's expansion, now expected to finish by mid-2015. That persuaded shippers such as Danish oil and shipping group A.P. Moller-Maersk to use alternative routes from Asia such as the Suez Canal, which fits bigger ships carrying more goods cheaply. The sluggish canal and port activity that has defined the year continued in the third quarter, dropping about 2 percent. Panama's economy has also been affected by a dispute with two of its biggest trading partners, Colombia and Venezuela, which has disrupted Panama's Colon Free Trade Zone, the world's largest duty-free area after Hong Kong. Venezuelan traders owe the free trade zone about $1.2 billion because of difficulties exchanging the Venezuelan Bolivar for dollars. Meanwhile, Colombia has imposed additional surcharges on importing items such as clothes and shoes. Activity in the free trade zone fell 7 percent in the July-September period.


By News From Panama of January 21, 2014:

PANAMA MINERAL RESERVES WORTH US$200BN

Panama's mining sector grew by 25% last year and the country boasts proven mineral reserves worth about US$200bn. By Business News Americas staff reporter – Friday, January 17, 2014 Panama's mining sector grew by 25% last year, and the country boasts proven mineral reserves worth about US$200bn, according to Zorel Morales, executive president of the mining chamber. Here is more on Panama's largest operation and others planned for the future.

Cobre Panama Financing Deal Reflects Both Opportunities And Challenges Panama's Mining

Inmet Mining's recent announcement that is has secured financing for its Cobre Panama 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 Panama 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 Panama, 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 in October 29, 2012), cost overruns are increasingly common throughout Latin America and are caused by a number of factors, including labor 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 favorable 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.


 


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