The Mexican government announced the possible cancellation of nine concessions held by the Chinese company Ganfeng Lithium. One of these concessions is the Sonora Lithium project, which is currently the main lithium prospect in Mexico and is expected to start production in 2024.
The General Directorate of Mines (DGM) indicated that there is the possibility of canceling the concessions due to the non-compliance of Ganfeng Lithium's Mexican subsidiaries with their minimum investment obligations between 2017 and 2021. However, the company highlighted that there is evidence of their compliance. The company added that the investment amounts significantly exceed what is considered minimum under Mexican law.
Ganfeng Lithium stressed that the notification of the cancellations is not final, so it is unknown whether the government will revoke or maintain the concessions. "The cancellations of the lithium concessions issued by the DGM are not final. Depending on the progress of the company's future actions and the outcome of the aforementioned matters, it is still uncertain whether the cancellations will be revoked or confirmed," he says.
Experts explain that because China does not have a free trade agreement with Mexico, the case will be litigated in national courts. “Ganfeng Lithium has the ordinary route, like any person or entity subject to law in Mexico,” says Alejandro Gómez, Partner, Foley Arena.
Why Is the Government Canceling Ganfeng Lithium's Concessions?
In 2022, President López Obrador’s initiative to reform the Mining Law was approved after reaching a simple majority in Congress. The initiative modifies articles 1, 5, 9 and 10 of the Mining Law to grant the State exclusive control of the exploration and production of lithium. In addition, López Obrador’s announced that granted lithium concessions will be reviewed.
Ganfeng Lithium had promised that the Sonora Lithium mine complied with all applicable Mexican laws and regulations, so the company was confident that its concessions would remain in force. In addition, experts argued that companies with concessions were protected by the Constitution, which prohibits the government from retroactively changing mining laws. “The recent changes to mining laws concerning lithium only affect new claims, not claim holders with projects in good standing. Moreover, the USMCA also offers legal protection to the company,” says Alan Laboucan, CEO, Advance Lithium.
The Sonora Lithium project is Mexico’s main lithium prospect. This US$420 million development is expected to produce about 35,000 t of lithium per year. If these figures are achieved, Mexico could become a major international producer of lithium.