Mexico has created a state-owned company called LitioMx (Litio para México) with exclusivity to explore, extract, and refine lithium across the country. The creation comes four months after the official nationalization announcement by president López Obrador.
Will such a broad mandate turn LitioMx into the new Pemex and virtually close the market to the private sector? With lithium prices skyrocketing (currently at all-time highs, above $72K per ton) and the volume of Mexican reserves still unclear, private interest is bound to be stronger than ever — and will not be limited to mining.
Below we discuss three opportunities for players across the value chain in Mexico’s lithium industry after the nationalization.
#1 Exploration and Extraction Technology
LitioMx will fall under the control of the Secretariat of Energy (Sener) and not the country’s Geological Survey (SGM), a move that immediately raised concerns because only the SGM has the technical expertise to effectively find and exploit lithium. Sener is heavily politicized, with president López Obrador and his entourage allegedly influencing the appointment of subsecretaries and other high-ranking positions in addition to the leading secretary, who is a direct presidential appointee.
Politicians don’t tend to get involved with technical matters. And lithium is highly technical — especially finding it. Flor de María Harp, SGM’s director, has acknowledged that “the first thing to do with any mineral is to locate it,” and the assessments of mineral reserves in Mexico have greatly changed over the years, as outlined below.
|Date||Lithium reserves (short tons)||Locations||Source|
|End of 2016||5.4 million||Sonora, San Luis Potosí and Zacatecas states||Prospectors’ estimated reserves|
|January 2017||200,000||Countrywide||U.S. Geological Survey|
|January 2018||180,000||Countrywide||U.S. Geological Survey|
|February 2019||1.7 million||Countrywide||U.S. Geological Survey|
|December 2019||268.7 million||Sonora state||Mining Technology|
|End of 2020||141.9 million||Sonora and Baja California states||Prospectors’ estimated reserves|
|February 2022||Unspecified||18 out of 32 states||SGM|
On October 2021, Harp announced the SGM would invest $55 million pesos ($2.7 million USD at the current exchange rate) to fully identify the country’s lithium reserves. The figure is extremely conservative, and likely to be the first of many installments. The College of Mining Engineers, Metallurgists and Geologists of Mexico (CIMMGM) has argued that closer to $100 million USD will be required to this effect, and the government will be forced to front any resources necessary if it truly hopes to leverage its lithium prospects.
In addition, while most lithium is found in rocks, brines, and clays, only brines and rocks have proven to be economically viable for extraction. In Mexico, most of the lithium reserves are thought to be in clay deposits where extraction is expensive and difficult.
It is possible that either the SGM or LitioMx itself partner with private companies with the technology to determine the feasibility of mining clay deposits — and eventually exploit them. Such companies already exist. For example, Advance Lithium, a junior explorer with claims in central Mexico, has filed a patent on an extraction method to process lithium clay and also produce potassium, an essential resource for Mexican farmers. The process would be energy-efficient, so much it could be powered by solar — a factor that could be the tipping point between making or not making clay extraction economically viable.
In another example, Euro Lithium, a European mining technology developer, has tested Hydraulic Borehole Mining, a process that uses a drill pipe to spray water and extract lithium-hosting clays. Any unwanted materials can be delivered back down below the surface as opposed to being stored above ground, which adds a layer of sustainability and cost-effectiveness to the business case for using this technology.
Public-private collaborations have become strained during the López Obrador administration, but lithium demand is here to stay and will prevail beyond the incumbent central government politics. AMI helps investors who operate in highly regulated industries to be knowledgeable of the full political risk their projects face and remain aware of its changing dynamic. We also apply a 6-phase partner research approach specifically customized to Latin America, that has delivered great success in finding LatAm partners of all types — including government organizations.
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#2 Mining Project Finance
LitioMx will take over future activities — but existing concessions will be respected despite claims by president López Obrador that privately owned lithium projects will be blocked. All these projects will require significant capital outlays and specialized financers will be on the lookout for opportunities that materialize in a variety of ways.
Ganfeng Lithium’s Sonora property is Mexico’s largest, most advanced-state lithium project, with a total capex of $407 million USD plus working capital of $37 million. Hopes are that production will start in 2024. Prior to Ganfeng taking over the company last year, a deal was struck with Hanwa Co., a leading Japan-based global trading company and one of the largest traders of battery chemicals in Asia, for both an initial 10% equity investment and an offtake agreement for up to 100% of the battery grade lithium carbonate produced. In offtake agreements, traders prepay mining companies to deliver mineral product in the future. Offtake finance does not lead to shareholder dilution, and with traditional investors wary of Mexico’s seeming hostility, miners may take advantage of their own product to bring projects forward with these and other innovative financing options.
There will also be a need by miners looking to divest. Silver Valley Metals (formerly Organimax Nutrient) is planning to sell or bring in a partner to advance its Santa Clara, Caliguey and La Salada lithium assets to focus on silver, and Rockland Resources has suspended activities at its Elektra lithium project pending clarification of its status from Mexican authorities.
For miners in exploration or feasibility stages, disinvestment finance (whereby capital can be raised by selling non-core assets) may prove useful if more traditional mechanisms, such as equity finance, fail to attract investors. Cash raised in the sale of an asset can be used for developing other projects, an especially interesting alternative for geographically diversified miners. For miners in more advanced stages, such as mine design and construction (there are currently no active lithium operations in Mexico), Development Finance Institutions (DFIs) can be a viable alternative when commercial banks cannot fund their projects. DFIs can provide credit in the form of loans, equity stakes and risk guarantee instruments.
The different types of capital depend on the mine development stage, but overall the exploration and feasibility stages of a mining project have fewer financing possibilities than the phases of mine design, construction and operation. AMI can help quantify risk for investors at every stage, as well as help miners collect the necessary market intelligence to substantiate a strategic plan — and bring forward a business case to investors.
#3 Infrastructure, Energy, and Logistics
AMI’s blend of market research, competitive intelligence, political, regulatory, and economic risk analysis is put to work both to help companies seek opportunity as well as mitigate risk. We have seven industry practices, and our senior consultants are experienced in enhancing a plan’s likelihood of success by resourcefully integrating their diverse understanding and knowledge.
Efficiency has always been vital to supply chains that cater to mining companies, helping control costs and improve processes. Supply chain optimization (especially for low-margin products) will be met with port congestion, container shortages, and trade lane imbalances inherited from 2020 and 2021. Our logistics & industry practice is a one-stop solution that helps companies make strategic decisions in Latin America by collecting reliable market intelligence from customers, competitors, governments, and subject matter experts. Commodity traders can leverage our thirty years of region-specific experience to convert market research into actionable intelligence.
Traditional sectors that are not public facing, such as mining, chemicals, energy, or agriculture, tend to be slowest to make the transition to cleaner energy. Due to a lack of understanding of the long-term cost efficiencies of renewables, and the need for consistent power 24/7, traditional sectors often resort to what has worked in the past — diesel or coal plants. And these sectors tend to consume large swaths of energy. In fact, mining companies are the largest customers of corporate PPAs in Latin America.
But as outlined in a recent whitepaper by AMI’s Energy practice, albeit more slowly, the transition into renewables is also happening among traditional sectors such as mining. And as discussed previously, energy efficiency may be the difference between success and failure for lithium projects in Mexico. Appropriate risk management and timely advice have never been more important, and AMI provides Latin America energy market intelligence that helps investors prioritize opportunities.
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Contact us if you are interested in leveraging these opportunities with Mexico’s lithium industry but need help with partner research, quantifying investment risk, opportunity benchmarking, obtaining a deeper understanding of logistical issues surrounding lithium extraction in Mexico and other possible above-ground risks or challenges.
Also, please explore our free whitepaper, which quantifies mining risk in Mexico and 15 other Latin American markets, to obtain a greater understanding of our experience in the sector and analytical capabilities.