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Cancelling Ganfeng's lithium concessions 'a worrying signal'

Bnamericas
Cancelling Ganfeng's lithium concessions 'a worrying signal'

The Mexican government’s decision to cancel nine lithium mining and exploration concessions held by Ganfeng Lithium is a “worrying signal” for investors, especially those from Canada, which are the ones that have allocated the most capital to the sector in Mexico, says mining industry advisor Armando Ortega (in photo).

Last week, it was made public that authorities notified the Chinese company that owns the Sonora lithium project – the most advanced in the country – that the concessions would be cancelled because "the minimum investment obligations had not been met." However, the company indicated that it is not sure whether the decision is final.

Ganfeng reported that its Mexican subsidiaries presented in a timely manner in May “ample evidence” of compliance with the minimum investment obligations and claims to have even exceeded them, as recorded in annual reports between 2017 and 2021.

Meanwhile, President Andrés Manuel López Obrador has justified the move under last year’s reform of the mining law, which states that lithium exploration and mining, and the metal’s value chain, are reserved for the State. However, Ganfeng and mining chamber Camimex argue that the law cannot be applied retroactively and the concessions were granted before the reform.

“It is a sign of concern and clearly investors in general are going to follow the development of this process very closely, because the issue of lithium in last year's reform was followed by unconstitutionality claims by the senate and, in turn, from Camimex, which filed for an injunction in which it alleged that it is not constitutional to reserve any mineral for the State without having modified the constitution," said Ortega in an analysis broadcast by journalist Mabella Centell on her Linkedin channel Noticias de la Semana.

“Whatever happens, for investors, especially those from Canadian companies, this message coming from the government is a worrying signal,” said Ortega, who is also president of the mining taskforce at the Canadian Chamber of Commerce in Mexico (CanChamMx).

The international lawyer and negotiator said it will be the supreme court that at some point will determine whether the April 2022 reform to the mining law was consistent with the Mexican constitution or if, as the private sector maintains, it is invalid.

Ortega added that reserving lithium for the State is also not valid under the free trade agreements that Mexico has signed, such as the USMCA deal with the US and Canada and the Trans-Pacific Partnership, because such measures must be previously negotiated with the signatories.

“These are the different aspects that the case highlights and, we will follow up promptly because its resolution will provide insight as to how reliable Mexico is as a partner in which investments can be made under the rule of law,” he said.

The governor of northern state Sonora, Alfonso Durazo, reported on Monday that Ganfeng challenged the revocation of the nine concessions. “The former concessionaire company has filed for an injunction. Let's hope the courts agree with the federal government's decision,” the governor told local media.

Information on official Vietnamese websites, which was later deleted, mentioned last week that Ganfeng and its subsidiaries submitted a request for an administrative review to Mexico’s economy ministry.

Ortega said that if Ganfeng proves that it has complied in a timely manner with the works and requirements at the Sonora project, the concessions cannot be cancelled. “And if this were done, one could rightly claim that this is a case of expropriation,” he said.

In the first instance, at the administrative level, it will be the economy ministry that will have to resolve the issue under a procedure provided for in the mining law itself, he said.

“If the hypothesis is confirmed and the concessions are cancelled, the Chinese company would have to make a decision to determine whether it continues through judicial means in Mexico or if it resorts to the investment protection agreement between China and Mexico,” Ortega said.

BNamericas contacted the ministry to request comment on Durazo's statements and what was published in on the Vietnamese sites but did not receive an immediate response.

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