Is LitioMx a Good Idea?

On the afternoon of Aug. 23, 2022, we learned through the evening edition of the Official Journal of the Federation of the creation of a new decentralized public agency called Litio para Mexico (LitioMx).

This presidential decree is a continuation of that published on April 20, where lithium was declared of public utility and it was established that the exploration, exploitation, benefit, and use of the element would be exclusively under the charge of the government. It is intended that LitioMx will begin activities only with the support of the federal budget, so, under a government obsessed with the so-called “Franciscan poverty,” a good startup is not expected.

Mining exploration requires large investments with low probabilities of success; however, with considerably significant returns on investment when planning, follow-up and transparency guide the implementation. LitioMX will have its legal domicile in Mexico City, which will require additional costs, considering that governmental mining exploration is developed by the Mexican Geological Service (SGM), based in Pachuca de Soto, capital of the state of Hidalgo.

The powers of this new government agency are:

1. To elaborate the medium- and long-term strategic programs for the exploration, exploitation, benefit and use of lithium and its economic value chains.

2. To develop and execute engineering projects, research, geological activities, and all those related to the exploration, exploitation, benefit, and use of lithium.

3. Investigate and develop the technology required in the industry related to the use of lithium.

4. To locate and recognize the geological areas in which there are probable reserves of lithium with the help of the SGM.

5. Generate the basic geological information of lithium located in the national territory with the support of the SGM.

6. Promote the sustainable use of lithium for the energy transition, for the benefit of the population in general.

7. To manage and control the activities necessary for the production, transformation and distribution of products derived from lithium, for which it may associate with other public and private institutions.

8. Any other activities necessary for the full compliance of its purpose.

Let's start with a particular fact: LitioMx was not constituted as a productive company of the state like PEMEX or Federal Electricity Commission (CFE). Nor is it a regulatory body like the National Agency for Industrial Safety and Environmental Protection of the Hydrocarbons Sector (ASEA). LitioMx will have many functions that the SGM has been performing since its origins as the Mexico Mineral Resources Steering Committee in 1944, except it will focus exclusively on lithium. It adds functions of applied research, production management, processing and even distribution, but not marketing.

What does this new Frankenstein, molded in an environment of budget cuts, have in store for us? Is it not easier to establish a new framework for lithium exploitation, where the government only receives royalties?

Let us remember that today, any company in the sector must pay 35 percent of its profits as income tax, along with the Special Mining Tax (7.5 percent of profits), plus local taxes, such as payroll and property taxes, which amount to just under 53 percent. Yes, 53 percent for a partner that does practically nothing, not even providing security to develop the business. Let us remember the theft of gold bars that occurred in Sahuaripa, Sonora, a couple of years ago, not to mention the illegal mining in Michoacan and Colima with the extraction of iron.

Restricting an economic activity to be carried out only by the government, particularly when it lacks experience, technology, infrastructure, human resources and, above all, financial resources, is a way to dissipate the public budget with minimal, if not zero probability of success. At the other extreme of this bipolarity syndrome, the interest of the current federal executive administration in the exploitation of lithium goes beyond its indoctrinated aversion to mining. 

What does the current government think the possible extraction will be like? Only underground mining? Without removing vegetation cover? Outside protected natural areas? Without using quantities of water, which seem immense to SEMARNAT, in areas where water resources are scarce? Without generating a single gram of waste? Let us hope it is not like the Mayan Train, of which we were told that its construction would not bring down a single tree, even though recent photographs shamefully contradict the present administration.

In this regard, Article 4 of the decree of creation is striking when it states that LitioMx is obliged to comply with the Constitution, in addition to the legislation and international treaties on environmental protection and the rights of native peoples, Indigenous communities and Afro-Mexican communities. Should that be interpreted as meaning that the Inter-Agencies Agreement of November 2021 will not apply to it? No. This agreement orders SEMARNAT to grant the environmental impact authorization five days after the application is filed, with which it may begin activities, and in turn grants the promoter one year to develop its Environmental Impact Statement (MIA). The Impact Assessment, both in its environmental and social aspects, has to do with the economic viability of the projects.

Will we see how, when the first lithium project starts, even from an exploration stage, the activity is classified as a national security activity?

The lithium potential in Mexico is still uncertain, so the attitude of the federal executive, which started with a Subsecretary of Mining that it never paid attention to and then shut down, arguing republican austerity, now returns to continue hindering the sector with this entity that will demand more budget and scare off investment.

Fortunately, mining is a business of cycles, so the real players know how to wait. Unfortunately, our communities of Mexicans in distant, isolated, and marginalized areas do not.