Mexico lithium nationalization sparks investor jitters

Mexico’s nationalization of lithium was a major blow to investor confidence across the mining industry – and the shock move will continue to undermine spending in the sector in the near-term, according to mining executives.

President Andrés Manuel López Obrador (AMLO) fast-tracked a law in April restricting lithium mining and exploration to the State, through a new state-run company due to be created this month.

Mexico is not a lithium producer, but this is set to change when Ganfeng Lithium begins operations at its US$420mn Sonora project, expected in 2H24.

Despite initially signaling that Ganfeng would not be allowed to advance Sonora, AMLO has said the Sonora concessions will now be respected, as long as the concession contracts are in order.

Initial reactions to the nationalization among industry insiders ranged from shock to bafflement – and growing unease over what is to come in AMLO’s final years in office.

“What does that mean? There is no lithium industry in Mexico,” James Anderson, CEO at silver-focused Guanajuato Silver told BNamericas.

“Then it’s an open question. What is the government trying to do there? Is that an opening salvo to try and nationalize something else? Maybe,” he added.

Business leaders were also surprised at the move due to Mexico’s track record on managing extractive industries, with state-owned Pemex among the world’s most indebted oil and gas firms.

“One would think the federal government would look at that [Pemex] and say maybe we’re not so good at running these extractive industries, maybe we should let industry do it,” Anderson said.

“But the socialists in charge of these countries they make decisions that are philosophical rather than pragmatic in nature.”

ROLLOUT RISK

While AMLO has not announced plans to nationalize other minerals, concerns have been raised over the text of the nationalization law, with applies to “lithium and other minerals deemed strategic by the State.”

And this threat of a precedent is something that institutional investors really do not like, Michael Wood, CEO of Mexico-focused gold explorer Reyna Gold, told the Mexico Mining Forum 2022 Echo event last month.

“Okay, you nationalize lithium, what says you are not going to nationalize bigger assets like silver, copper or gold,” said Wood.

And the results on investment are likely to last.

“It’s going to take a bit of time for that to calm down. [For] a lot of investors we talk to, Mexico is off their radar now, because of this,” he said.

“Until that’s backtracked or there’s confirmation to the market that there will be nothing else along those lines, there’s hesitancy from a lot of the bigger investors.”

SHOCK FACTOR

Christine West, CFO at Endeavour Silver, whose two silver mines are both in Mexico, said the lithium nationalization coupled with AMLO’s freeze on new mineral concessions have resulted in increased investor concerns.

“There have been no new mining taxes, overall it’s been fairly stable, but there have been this couple of events that maybe triggered a little bit more uncertainty and concern regarding investment in Mexico.”

Part of the negative impact of the nationalization was its “shock factor,” said West, as it was passed in days and came as a surprise to the industry.

“One of the ways that it can be addressed is maybe better signaling from the government, as opposed to quick action that takes people by surprise. [It] clarifies some of that uncertainty and allows people to proceed accordingly,” she said.