The country has faced nationwide protests and roadblocks since Congress approved a law in October allowing First Quantum Minerals to operate a copper mine for 20 years, with an option to extend for another two decades.
Protesters were concerned over the potential environmental impacts of Central US’ largest open-pit copper mine, as well as other terms of the deal.
“We have unanimously decided to declare the entire law 406 unconstitutional,” said Supreme Court president Maria Eugenia Lopez, referring to the law governing the contract with the Canadian mining firm.
The decision came after four days of deliberations between the nine members of the court.
The announcement was followed by celebrations by a group of protesters who spent the night in front of the court.
“It is a victory for popular democracy,” environmentalist Raisa Banfield, who was among those outside the court, told the Telemetro television channel.
Protesters also began to remove some of the roadblocks they had set up, local media reported.
Panama’s president Laurentino Cortizo wrote on social media, “I receive and abide by the decision of the Supreme Court.”
The protests were the largest in the country since the fall of dictator Manuel Antonio Noriega in 1989. Roadblocks, including of the Pan-American Highway, have led to more than US$1.7 billion in losses, report business associations.
The Supreme Court had declared the original mining contract unconstitutional in 2017, but the government argued that the new version set out a minimum annual contribution from the mining company to the state of US$375 million, 10 times the amount of the initial agreement.
In addition, the company and the government pointed out that the mine would generate 8,000 immediate jobs and 40,000 indirect jobs, and would contribute 4% to Panama’s gross domestic product.
Since February 2019, the open-pit mine has been producing about 300,000 tonnes of copper concentrate per year.
Critics say the mine has wrought destruction on forest areas in a key biological corridor linking Central US and Mexico.
First Quantum Minerals, which has invested more than US$10 billion dollars in Panama, has notified the government of its intention to “present arbitration claims”, under a free trade agreement between the two nations.
However, the company has said it prefers to resolve the situation through dialogue.
Panama’s government said Sunday on social media that it was prepared to “defend” its national interests in the face of an arbitration process.
However, experts believe that the Supreme Court’s ruling could make it easier for the government to break the contract.