Mexico reportedly drops lithium nationalization but tax hikes likely

Mexico’s government has seemingly dropped plans to nationalize lithium – but the emerging industry is likely to face higher taxes and potentially tougher regulations.

Senator Alejandro Armenta, who penned last year’s nationalization motion, confirmed the plans have been axed, telling Reuters the Morena administration will instead adopt a market-friendly approach and seek to attract private sector investment, with new legislation planned for September.

The Morena senator heads the upper house’s finance committee and is a close ally of President Andrés Manuel López Obrador (AMLO).

Demand for battery-grade lithium is expected to surge in the coming years amid a push for electric vehicles.

Mexico is not currently a lithium producer, but this is set to change with Bacanora Lithium and Ganfeng Lithium's US$420mn Sonora project, which is expected to begin production in 2023.

Output is forecast at 17,500t/y lithium carbonate, which will double following a US$380mn expansion.

UPHILL BATTLE

The nationalization proposal divided politicians and faced industry opposition, with warnings that it could spark an investor exodus and undermine progress at Sonora.

Experts, including government officials such as Flor de María Harp, head of geological service SGM, have also downplayed Mexico’s lithium potential amid claims it could solve the country's economic troubles.

Most of Mexico's lithium resources are in clay, which is much more costly to process than the brines that dominate in countries such as Argentina and Chile.

“Morena faced an uphill battle for lithium nationalization from the start,” Christian Wagner, senior analyst at UK-based consultancy Control Risks, told BNamericas, with Morena lacking a qualified majority in the senate and state-level support inconsistent.

And the more pragmatic approach, involving wooing private investment, may be a sign of things to come. 

The change of policy comes ahead of Sunday’s midterm elections, in which some commentators expect Morena to lose ground in part due to anger over the handling of the fatal Mexico City metro collapse last month.

“Now, with their prospects for the midterms pointing to them losing ground in the lower house as well, that uphill battle is getting steeper,” Wagner added.

“That they are choosing their battles is a show of the growing pragmatism that we expect with such a result.”

CHALLENGING ENVIRONMENT

Despite the decision to scrap the nationalization plans, the outlook is not all plain sailing for the lithium industry.

Armenta signaled some form of regulatory overhaul is coming in the new legislation.

In addition, the government is expected to push for a bigger slice of the mining pie.

“Instead of nationalizing lithium, Morena is likely to pursue higher royalties, taxes or social spending from the sector,” Wagner said.

AMLO has confirmed that a freeze on new mining concessions will continue to apply to lithium.

The president had previously appeared lukewarm toward nationalization, stating earlier this year that he had requested an evaluation of the proposal before making any decision.

Advice was being sought from the Bolivian government on this front, he added.

Bacanora Lithium did not respond to a request for comment on the nationalization rethink.

Partner Ganfeng appears to have viewed policy uncertainty as a buying opportunity, announcing plans last month for a possible offer for all shares in the London-based company it does not already own, which would hand it full ownership of Sonora.

Sonora is Latin America’s fourth biggest lithium deposit, according to figures compiled by BNamericas in October.

Other Mexican lithium assets remain at a much earlier stage.

Advance Gold announced sampling results from 13 salars it acquired this year in central Mexico, including highlights of 1.91% potassium, 650ppm (parts per million) boron and 620ppm lithium.

One World Lithium also announced a new drill program at its Salar del Diablo lithium brine project, starting in April.