Mexico court ruling increases legal uncertainty for lithium concession holders

The nationalization of lithium in Mexico continues to generate uncertainty more than two years after the law's promulgation, with a supreme court ruling boding ill for companies with concessions.

In early December, the supreme court reaffirmed the State's exclusive right to extract lithium and unanimously dismissed an appeal Grupo Bararal filed in 2022 to challenge the reform of the mining law, according to EFE news agency.

The reform was promoted by the administration of former president Andrés Manuel López Obrador, who left office on October 1, and declares lithium and other minerals of public utility, giving the State the rights to extraction and prohibiting concessions for private actors.

The supreme court based its ruling on "constitutional supremacy" and said that, even if protection was granted with respect to the articles of the mining law, a subsequent constitutional reform prohibits lithium-related concessions.

This reform relates to strategic areas and companies and was published in the official gazette on October 31. It modifies, among others, article 27 of the constitution to prohibit the granting of concessions for lithium and radioactive minerals.

Another constitutional reform promoted during the López Obrador administration, in force since November 1, modified article 105 and established that “constitutional controversies or actions of unconstitutionality that aim to challenge additions or reforms to the constitution are inadmissible.”

Meanwhile, the amendment to article 107 of the constitution adds that "the amparo [appeal] measure against additions or reforms to the constitution will not apply."

Bararal, holder of mining concession 246359 for the San Pedro lot in Satevó, Chihuahua state, argued that the 2022 reform affected its concession title, which is valid until 2068 and permits exploration and extraction of various minerals, according to EFE.

Precedent

The Bararal ruling constitutes a bad precedent for other companies with concessions awarded started before the reform.

Mining lawyer Alberto Vázquez told BNamericas that “from a legal point of view and regardless of the declaration of strategic mineral, if the concessions are prior to the reform, from my point of view they are bringing back effects that affect the individual… The deposit was found by the concessionaire and now it is being taken away.”

He added, "I don't know if [Grupo Bararal] was paid under the concept of expropriation, but it goes against the theory of the concession." Vázquez described the court's decision as "unfair" as it violates the universal principle of non-retroactivity when it affects individuals.

Various lawyers and mining experts have criticized this type of ruling and warn that it affects the rule of law, which increases legal uncertainty.

Projects at risk

In an investors presentation last month, Canadian company Silver Valley Metals updated its MexiCan project located in Zacatecas and San Luis Potosí states, where it owns the Santa Clara, La Salada and Caliguey lithium and sulfate of potash (SOP) sediment deposits.

According to the Vancouver-based company, these contain 12.3Mt of SOP and 243,000t of lithium carbonate equivalent from 120Mt of defined sediments from surface to an average depth of 5m, highlighting the opportunity for expansion.

Silver Valley said high-priority targets not included in the resource will be evaluated and there is brine potential in 32 near-surface wells at La Salada ranging from 4.5-26m in depth. It added there is also potential for a large deep basin aquifer defined by a regional geophysical survey near Santa Clara, which can also be interpreted as the potential depth of the lithium and SOP sediment base.

Since Silver Valley is a Canadian company, it could start arbitration under a mechanism provided for in the USMCA trade agreement, or even its predecessor Nafta, if it wanted to appeal the mining law reforms or if its concessions were canceled once the Mexican legal options are exhausted, according to Vázquez. 

“Much also depends on the company’s actions and whether it has not consented to any act of authority by which the concessions can be legally canceled,” he said. He explained that some mining companies saw their concessions canceled for having submitted updated expert reports, which differed from the originals, at the request of authorities but not within the specified time, since the deadline is 20 calendar days from the submission of the concession application.

A report NGO Rema and Mining Watch Canada published last year said that China's Ganfeng Lithium, and Canadian firms Rockland Resources, Advance Lithium, Silver Valley Metals and One World Lithium have lithium concessions in Mexico.

Ganfeng's Sonora project is suspended, and Rockland Resources' Elektra project, also in Sonora, has been suspended since 2022. Advance Lithium and Silver Valley Metals have 16 salt flats in the states of Zacatecas and San Luis Potosí, and One World Lithium has the Salar del Diablo project in Baja California.

Sonora is the only advanced-stage lithium project in Mexico, with the other private lithium projects “showing very little exploration and being in the hands of junior mining companies that have little financial and technological capital,” the report said. 

BNamericas' project profile database lists 11 lithium projects in Mexico, ranging from early-stage exploration assets to Ganfeng's Sonora project, which had nine lithium exploration concessions canceled by authorities in August 2023.

In response, Ganfeng started arbitration at the World Bank's International Centre for Settlement of Investment Disputes in June this year, joined by UK companies Bacanora Lithium and Sonora Lithium.v