Lithium Nationalization Will Not Affect Sonora Lithium Project

Bacanora Lithium has stated that the electricity reform proposed by President López Obrador will not affect its lithium concessions since the company has already started exploration work, and has also met all licensing requirements.

Bacanora Lithium provided an update on the status of the its Sonora Lithium Project, after López Obrador sent to Congress an initiative to strengthen the CFE and grant exclusive control over lithium reserves to the state. Last week, López Obrador reiterated that the government was not seeking to expropriate; however, he recently announced that all concessions that have not started exploration or production could be withdrawn.

The Mexican government said that all private companies that work with lithium reserves must demonstrate that they have the capacity to invest and extract lithium to maintain their concessions. López Obrador said that there are eight  concessions granted for the exploration of lithium in Mexico. However, only one meets the new criteria and Bacanora Lithium believes it is that company, since its plan is on the right track.

The company started the first construction works in February, focusing on the preparatory work necessary to access the main road to the site so that the construction can begin. In addition, the company has started to work with green companies for the rescue and removal of vegetation and topsoil where the processing plant will be located and has also launched a tender program to search for local construction and engineering groups in Sonora. Bacanora Lithium said that the production of battery grade lithium is expected to start in 2023, with an annual lithium production of 35,000 tons, reported Mining.com.

The uncertainty in the sector has worsened after López Obrador's announcement that many companies and investors could lose their projects. “We are very concerned about some of President Lopez Obrador’s proposals. If a government can unilaterally break existing contracts and nationalize an industry, foreign investors will generally reduce or avoid investing in all Mexican sectors,” says Bradford Cooke, Founder and CEO of Endeavour Silver.

Last year, as rumors mounted that the government was seeking lithium nationalization, Wang Xiaoshen, Ganfeng CEO, told FT.com, “nationalization may not be a good idea; there are many bad examples of nationalization of resources. An example is Bolivia. There are big lithium resources there but for many years no project has been built because Bolivians do not allow foreign companies to own mining properties. That is a big hurdle for attracting investment.”

Analysts are skeptical about whether the reform will make constitutional changes since MORENA, López Obrador's party, and its allies hold the majority of seats in Congress. However, this is not the first time that a reform proposed by López Obrador has been blocked because it seems It does not respect free competition. “I really doubt that [the authorities] can successfully cancel or revoke those lithium concessions that have already been granted. Any attempt to do so would face legal challenges,” added Jorge Ruiz of Baker McKenzie.