China is Leading Lithium-Focused Mergers, Acquisitions

Chinese companies are leading in lithium-related mergers and acquisitions (M&A), reports S&P Global. Nonetheless, China-based companies are facing challenges in acquiring stakes in developed countries’ mining companies, making developing countries like Mexico more attractive and strategic. 

The UN labeled lithium-ion batteries as a “critical pillar in a fossil fuel-free economy,” and the US labeled it an essential mineral for its national security. However, despite the importance of the mineral, the US is not leading in lithium-focused M&As, instead, Chinese companies have taken the lead, reports S&P Global. 

Companies involved in lithium production, like Ganfeng Lithium and Tianqi Lithium, are actively seeking to ensure a stable supply of raw materials for expanding their operations. On the other hand, mining companies like Zijin Mining Group are stepping into the lithium market to take advantage of the mineral's promising growth prospects. 

Investments from Chinese upstream and midstream companies are also being directed to cobalt and nickel projects. Nevertheless, these transactions are relatively smaller in scale and are predominantly taking place in Indonesia and Australia. For example, Lygend Resources & Technology, Zhejiang Huayou Cobalt and Tsingshan Holdings Group have initiated the establishment of nickel smelters in Indonesia. According to S&P Global, most of these investments are fueled by internally generated cash owing to the recent commodity upcycle. 

However, Chinese companies are facing difficulties in acquiring projects in developed countries like Australia, which produced over 363,309t of lithium carbonate equivalent in 2022 or 47% of the global lithium production. Australia is the largest lithium producer and an attractive destination for lithium-focused investments. However, the country is increasing restrictions on foreign investments.
 

For example, recent bids by Yuxiao Fund and Tianqi Lithium faced obstacles like "national interest" concerns and approval issues from Australian regulatory bodies. Similar difficulties are also taking place in Canada, as new rules under the Investment Canada Act have raised financial risks for foreign state-owned enterprises in the critical minerals sector, potentially leading to orders for divesting existing investments.
 

Amid this context, Chinese companies are looking for alternatives in developing countries, however, these opportunities are limited due to the concentration of reserves in a few emerging markets. This scenario introduces execution and regulatory risks for newcomers, especially if local authorities demand a larger share of economic benefits from natural resources, as is happening in Mexico. Ganfeng is expanding its presence in Argentina, China, Mali and Mexico. BYD is exploring investment opportunities in lithium projects across Chile, Argentina and Africa. CATL is leading a consortium with a US$1.4 billion investment plan in Bolivia for the construction of lithium extraction facilities. 

In Mexico, Chinese companies are present in three projects, two in the early stages and one in the pre-production phase. The most important project is Ganfeng Lithium’s Bacanora project located in Bacadehuachi, Sonora, which is in the pre-production phase. The other two projects, both at the early stages, are Pozo Hondo in Zacatecas, in which Alien Metals is the optionee, and Salar del Diablo in Baja California, in which a private owner has 100% of the project’s interest.