Mining Reform May Cause Capital Outflow, Discourage Investors

Experts warn about a possible outflow of capital caused by the Mining Law reform. Another consequence is the discouragement of potential investors. Patricia Vivar, Founding Partner, Tete a Tete Consultores, argues that the government has attacked and disqualified the mining sector to the point that companies prefer to invest in other jurisdictions.

President López Obrador's new initiative to reform the Mining Law, which sought to nationalize lithium and ensure state control over the resource, was approved this week, after reaching a simple majority in Congress. Many experts worry this new law will cause legal uncertainty for both national and foreign investors.

What is more, it could lead to amparos and even reach international arbitration. Mexico could be sued through the United States-Mexico-Canada Agreement (USMCA), since any restrictive measure, not only in the constitutional framework but also regarding secondary law, encroaches on the commitments Mexico made in the treaty. 

For others, reserving lithium for state activities shows a lack of judgment, because it is not yet certain that Mexico has enough feasible reserves to be exploited. Furthermore, experts have said that the administration may not be able to produce the resource for another 7 to 13 years, as it lacks the knowledge, experience and technology to do so.

Jaime Gutiérrez, President, CAMIMEX, said the chambers considers the reform to be unnecessary because lithium is already protected in the constitution as a state asset. He emphasized the uncertainty regarding the quantity and volume of lithium that Mexico could benefit from. “There are many incongruencies… what must be done is support the mining industry by incentivizing it rather than place more obstacles. The country needs adequate policies to incentivize mining,” said Gutiérrez.

Armando Alatorre, President, the College of Mining Engineers, Metallurgists and Geologists of Mexico (CIMMGM), told Milenio that the government must first invest around US$100 million to explore the country's lithium deposits, since so far only one deposit has been identified. Alatorre explained that the country's lithium exploration program may take between 5 and 10 years, while the construction of the necessary infrastructure may take another 3 years.

Moreover, experts have argued that Mexico's lithium deposits require a lot of technology and resources that the country does not have. In general, lithium can be found in rocks, brines, oil wells, geothermal fields, clays and oceans. However, only brines and rocks have proven to be viable for extraction methods. In Mexico, most of the lithium reserves are found in hard-to-extract clay deposits, which are very expensive and difficult to access, reported MBN.

The new reform initiative was sent after the Chamber of Deputies announced the rejection of López Obrador's energy reform, which sought to strengthen CFE at the expense of private companies in the electricity sector and leave the exploitation of lithium in the hands of the government.