Mexico lithium reform faces legal pitfalls

Mexico’s government could face lawsuits now that a bill to nationalize lithium has been approved by congress, as mining companies may pursue claims to protect their interests in the country’s fledgling battery metal industry.

President Andrés Manuel López Obrador (AMLO) introduced fast-track legislation Monday aimed at reserving lithium exploration and mining for the state, pledging to protect the resources of the battery metal.

The bill was approved by the lower house that same day, and by the senate on Tuesday with 87 votes in favor and 20 against. The law was published Tuesday in the federal gazette.

Originally, the bill had been included in AMLO’s controversial electric power constitutional reform, which failed to secure the two-thirds majority needed for constitutional amendments.

Industry experts have warned that the legislation faces a rough ride in the courts.

LEGAL CHALLENGES

“There are going to be many problems, many lawsuits, many injunctions,” Armando Alatorre, president of Mexico’s college of mining engineers, metalworkers and geologists (CIMMGM) told local radio station Heraldo Radio.

The law could also be subject to an unconstitutionality lawsuit due to matters relating to articles 27 and 28 of the constitution, according to Alatorre. The articles relate to ownership of natural resources and monopolies and concessions, respectively.

“The matter is going to be complicated and lengthy, and it is not going to have an easy solution either,” Alatorre added.

AMLO’s decision to shift focus to amending the country’s mining law, after the constitutional reforms were blocked, may fail to deliver on his aims to establish a state-controlled lithium industry.

Through amendments to articles 1, 5, 9 and 10 of the mining law, the bill aims to limit exploration, exploitation and use of lithium to a new decentralized public body, and halt concessions or permits for lithium projects.

But constitutional changes may still be required to achieve this, according to Mexico’s association of mining engineers (AIMMGM), one of the most powerful industry bodies.

“If the issue is to reserve the utilization of lithium exclusively for the state, it is not appropriate to reform the mining law. What would need to be changed is the constitution,” the association said on Twitter.

This is because the constitution establishes the system of concessions for mineral exploitation, and only reserves oil, hydrocarbons and radioactive minerals for the state.

As a result, the amendments to the mining law are at odds with the constitution, according to the AIMMGM.

EXISTING CONCESSIONS

Another area of uncertainty which has not been clarified or addressed in the bill relates to existing lithium concessions.

While government officials previously stated that existing concessions would not be impacted by the lithium nationalization proposals, AMLO has taken a different line on the matter.

Asked in February about whether Bacanora Lithium and Ganfeng Lithium’s Sonora lithium project concessions will allow the asset to be mined by the companies, AMLO said: “No, no. The nation will exploit lithium.”

The US$420mn Sonora project (in picture) is Mexico’s only large, advanced lithium asset, with production currently expected to start in 2H24.

“The bill that the president sent says absolutely nothing about the concessions that have already been awarded and explored,” CIMMGM’s Alatorre said. “This creates great legal uncertainty for these investments that have already been made.”

According to the AIMMGM, concession holders' rights will not be affected by the changes outlined in the bill.

OTHER MINERALS AFFECTED?

A further concern about the bill is that it opens the door for other minerals to be reserved for the State if they too are deemed strategic.

While lithium was selected as a key component of batteries, demand for which is expected to soar as the electric vehicle industry expands, industry players fear other minerals could come under under state control, potentially including copper, one of Mexico’s most valuable minerals.

“This is the moment to stop this plundering of the nation and to put the riches of the subsoil to the service of the people of Mexico,” the bill’s explanatory memorandum said. “Such is the case with lithium and of other minerals that, in line with how the science and technology evolve, will become strategic for the development of the country.”

This vagueness generates great uncertainty, the AIMMGM warned.

PRACTICAL CONSIDERATIONS

Industry bodies also repeated previous warnings that proposals to bring lithium under state control will run into practical considerations, particularly the government’s lack of technological know-how in lithium mining and financial restraints.

“The question is, from where is the government going to take the resources to make this kind of investment?” Alatorre said.

“What would be the ideal world? For the government to dedicate itself to governing, giving us laws that allow us to work, for the private sector to invest, and if it finds something and puts it into production, [for the government] to dedicate itself to collecting all the taxes [the industry] pays, and without using any resources of the treasury, and without putting those resources at risk, and to attend to the other priorities of the country.”

He added, “the resources of any government are finite.”

Mexico's geological service (SGM), which has been tasked with searching for possible lithium deposits, has also warned that exploration could take 10-15 years, with three or four more years needed to develop a processing plant.