Lithium Appears to be a Bet for the Long-Term

Mexico’s lithium production has entered the energy industry’s spotlight, as comments by President López Obrador shed light on the potential of the so-called “white gold” to phase out oil, thereby revealing the urgency to nationalize its production. Forming part of the polarizing new constitutional energy reform, the nationalization of lithium remains a somewhat understated issue, though it has created controversy regarding its shorter-term potential.

On the back of continuous attempts to achieve energy sovereignty, the president included an initiative that “establishes that the nation takes advantage of its lithium [reserves] as a strategic mineral for the country’s development.” He also commented that lithium as a state industry could eventually help Mexico phase out oil. This notion was originally fostered in Nov. 2020, by MORENA Senator and Chairman of Congress’ the Finance and Public Credit Commission Alejandro Armenta Mier, who published a reform proposal to change Article 27 of the Constitution to nationalize the lithium production on the basis that “the world will run on lithium in the coming years,” and Mexico would heavily rely on its development. However, this claim has been doubted by experts, like Sergio Almazán, President of the Association of Geologists and Mining Engineers (AIMMGM), who told Tec Review that the future of mining in Mexico does not lie in lithium, but rather on “all of the research that is required in all the metals that the country has.”

While Severo López-Mestre, Partner, Galo Energy, argues that lithium is indeed a very abundant material, he also emphasized that it “is hard and expensive to extract and develop [so] it takes between six and nine years to develop,” as mentioned in an interview with El CEO. Similarly, Jaime Gutiérrez, President, CAMIMEX, has expressed his concerns regarding the country’s ability to raise the required funds, as it does not have the necessary technology and infrastructure to start operations successfully. During a webinar organized by the AIMMGM, Gutiérrez commented that although lithium’s potential has raised expectations, “we still do not know exactly what quantity or quality of lithium we have in the country. This is fundamental because the [known] resources are very different from those that exist in Argentina or Chile.”

Notably, Mexico is not a lithium producer yet, which is only starting to change due to future developments in Sonora by the British Bacanora Lithium and the Chinese Gangfeng Lithium, companies with projects that are set to start operations by the end of 2023. Aside from these developments, other lithium projects are still in the early stages of exploration.

Some experts fear that if the reform initiative is approved, lithium production will face a similar fate to oil when it was nationalized in 1938. According to CAMIMEX, lithium production could peak within 30 to 35 years. Furthermore, Fluvio Ruíz, former independent advisor to PEMEX, told El CEO that lithium has only recently acquired strategic value, unlike crude oil’s intrinsic economic worth. Furthermore, he argues that should the government end concessions to the private sector, profiting from lithium production will remain a long-term bet.

López-Mestre alluded to the Chilean 50-50 Utility Scheme, which divides profits so “50 percent goes to the private company and the other 50 percent is shared between the State and the communities,” he said. Overall, more precise information on how the lithium industry will shape up will materialize once Congress reaches a verdict on the reform initiative. Until then, the white gold’s true potential remains to be seen.