Ruben Cano
Founding Partner
CR Legal Partners Mexico
/
Expert Contributor

Lithium and a Simplistic and Political Reform to the Mining Law

By Ruben Cano | Thu, 05/05/2022 - 10:00

A constitutional reform for the electricity industry that was going to generate legal uncertainty in Mexico failed to win approval on Sunday, April 17, 2022, in our Congress due to the collective and organized action of the political forces opposed to MORENA. This apparently angered our president, Andrés Manuel López Obrador, who in his daily morning press conference the next day called on congresswomen, congressmen, the senators of the ruling party and allies to "protect lithium" and begin to structure a "company,” similar to CFE (the state electricity company), that would handle all matters related to the metal, with the support of research centers throughout the country and the experience of other countries.

After the presidential order, the MORENA political party and allies in both chambers, even, according to some members of the opposition political parties, in clear violation of the legislative process regulated by the Mexican Constitution itself and by the Organic Law of the Congress, without prior discussion in committees, approved both in the Congress and in the Chamber of Senators, and published in the Official Gazette of the Federation, on April 20, 2022, the “Decree that amends and adds various provisions to the Mining Law,” which was going to enter into force the following business day; that is, on April 21, 2022. It is worth mentioning that our Mining Law had been entered into force originally on June 26, 1992, and had already been amended four times in 1996, 2005, 2006 and lastly in 2014 so this was its fifth reform. Never before, however, had it been amended without technical analysis, without debate, and much less, in just two business days.

According to the publication in the Official Gazette, articles 1; 9, first paragraph; 10, first paragraph; and an article 5 Bis, and a third paragraph were added, moving the current third and fourth paragraphs of this last article to article 10 of the Mining Law.

In article 1 of the new Mining Law, it is stated that everything related to the exploration, exploitation, beneficiation and use of lithium will be overseen by a new decentralized public body (company) referred to later in article 10 of the new law.

Article 5 Bis declares lithium to be of “public utility,” preparing the legal basis to allow the federal government to "expropriate" the surface of the places or areas where the Mexican Geological Service (SGM) could find the mineral, assuming that in the medium or long term they could do so. In addition, it is established that no concessions will be granted to individuals on lithium, which is redundant, given that the current administration maintains a public policy of not granting mining concessions and it was not necessary to amend the Mining Law for this purpose. Continuing with an almost poetic tone, it is established that: "It is recognized that lithium is the heritage of the Nation and its exploration, exploitation, benefit and usage is reserved in favor of the people of Mexico." This is absolutely unnecessary and redundant wording since we all know the content of Article 27 of the Constitution. Additionally, it is provided in article 5 Bis that it will be the SGM, at this moment under the direction of Flor de María Harp, that will be the body in charge of assisting the decentralized public body in charge of exploring, exploiting, benefiting and take advantage of lithium, guaranteeing the health of Mexicans, the environment and the rights of native peoples, Indigenous and Afro-American communities. That is quite a complex task for the SGM.

I believe that Harp is a prepared, competent, and objective person. Prior to the reform of the Mining Law, at the last International Mining Convention of Acapulco, organized by the Association of Mining Engineers, Metallurgists and Geologists of Mexico, in August 2021, she presented and has presented in several forums a presentation called "Generalities of Lithium," in which she has very professionally combated several "myths" about this element. For example, she has mentioned that in 2018, it was projected that by 2035 the main lithium producers in the world would be Australia, Chile, China, Argentina and the US (Mexico does not enter at this moment into the equation). She also pointed out that there are already certain studies on possible substitutes for lithium, such as sodium, a mineral whose presence is much more abundant and with a greater atomic radius. She transparently remarked that in 2021, the SGM explored 52 locations in the country and that in 2022, they expected to explore another 30, deploying an exploration team of 17 brigades, with 26 geologists and three supervisors and announcing that there would be up to 22 brigades with an investment close to MX$56 million (US$2.8 million). That is, at this moment, the size and the budget of the team of people that carries the heavy burden of the future of Mexican lithium on their shoulders.

In a more recent forum before the Mexican Geological Society at the end of March 2022, Harp confirmed that the SGM had already evaluated 66 geographic areas out of the 82 that had been included in the lithium exploration plan of the federal government and that they had added another 73 for evaluation, having identified, at least as of February 2022, eight areas where there "could" be Lithium: three in Puebla, three in Jalisco and two in San Luis Potosi. She also confirmed that they had already protected two areas, requested as “mining assignments:” Amonitas and San Sebastián.

In the serious and responsible mining industry, costs and risks must be analyzed. That is what the exploration stage is for, since locating a deposit does not mean that it is economically viable to extract it. If we consider that lithium (Li) is present in pegmatites, brines, oil wells and clay, among others, and that in Mexico, we will mainly find it in clay, we must also consider the cost of extraction and processing. Here, Harp has already recognized that a route for lithium extraction would have to be studied metallurgically, since the cost to extract lithium from clay is very high. She also accepted that Mexico does not have the necessary technology to carry out this work; technology and resources that, by the way, Bacanora Lithium has (it is one of the eight private companies that currently have a valid concession and permits to exploit lithium in our country). This is where you have to be sensitive to the convenience of alliances and collaboration between the private sector and the federal government.

To provide another example, Harp clarified before the Mexican Geological Society that the term to conclude a serious lithium exploration process in Mexico would take between 10 and 15 years, or maybe even more; however, once a truly worthwhile deposit is located, is affordable and complies with environmental regulations and respects Indigenous peoples and communities, the construction of a processing plant of a reasonable capacity without going into many technical details, would take another three to four years. The cost of such a plant would be several billion dollars (which Mexican taxpayers would pay through their taxes, and in my personal opinion, it is unnecessary for any government to operate companies since that is not the main purpose of any state, and in the case of Mexico, it has been catastrophic in the past: it is enough to analyze the cases of PEMEX, of the defunct Luz y Fuerza or of CFE itself). In the most optimistic of scenarios, and after a very expensive investment in exploration, development and, of course, equipment, technology and infrastructure for the exploitation processes by Mexican taxpayers, Mexico could have an operating lithium exploitation mine between 2035-2040, or in a more realistic scenario, between 2040-2050. Do the math, dear readers: how old will you be when this happens? That is what mining is like. It is a serious and patient industry, a long-term investment industry with a long-term vision.

Finally, and what worries me the most about the reform, is the amendment to article 10 of the Mining Law that states: “With the exception of lithium, and other minerals declared strategic by the State, in terms of articles 27 and 28 constitutional provisions, the exploration and exploitation of the minerals or substances referred to in article 4 (...) may only be carried out by natural persons of Mexican nationality, ejidos and agrarian communities, Indigenous peoples and communities referred to in article 2.”  I am going to repeat that worrying phrase: “and other minerals declared strategic by the State.” Imagine that tomorrow our president wakes up on the wrong side of the bed and through a decree says that gold, silver, and copper are also strategic for our country. We are talking about that kind of risk.

I had previously expressed that the legislative process must be serious and that the law in Mexico must be general, abstract, impersonal, permanent, fair, and clear. These types of phrases do not create legal certainty; instead, they generate uncertainty. The irresponsible legislators who approved the amendment to the Mining Law in a simplistic way, through a political order from their leader, forgot who they legislate for, and above all, forgot that the spirit of the law goes and must go beyond personal and authoritarian whims. In recent days, I have heard legislators from MORENA in various forums calling lithium the new "white gold," or the "oil of the 21st century," or that with lithium, the Mexican government "will pay its external debt" or that lithium is the “mineral of the future” or that it is “the mineral most used in smartphones and Tesla batteries.” I have seen them applauding the simplistic and redundant reform and I must tell you, congresswomen and congressmen, clearly and emphatically, that you are wrong, very wrong. Mining is not an industry to be used neither for jokes nor simplicities.

An average smartphone cell contains minerals such as copper, gold, silver, iron, nickel, zinc, silver, rhodium, palladium, beryllium and magnesium. Most of these are extracted in Mexico. In a Tesla car, we find minerals such as copper, bauxite, titanium, steel, iron, boron, coal, copper, nickel, aluminum, cobalt, lithium, and small amounts of gold and silver. Most of those metals are also mined in Mexico.

Not everything is about lithium in the electric and sustainable future (in fact, lithium in Mexico, at the time of writing this article, seems to be scarce, expensive to extract and extremely difficult to find), congresswomen and congressmen of MORENA and its allies, I don't know why you are celebrating that Mexico is “keeping” the lithium cake (which by the way it already had with the article 27 of the Constitution) if the cake doesn't even exist yet; but even more seriously, with your simplistic legislative and political reforms, you are causing Mexico to lose credibility before the world. Because of you, close to US$24 billion that could be invested in Mexico in the next six years in responsible mining that actually creates jobs, that actually pays taxes and actually respects the environment, is now faltering, and because of you, 3 million direct and indirect jobs that represent practically 8.5 percent of industrial GDP and 2.5 percent of national GDP will be threatened just because you received an authoritarian order to amend, without thinking, the Mining Law, which regulates one of the most serious and noblest industries in the country.

Sometimes our politicians and legislators forget that just like lithium, before they arrived at their temporary power position and after they retire, the sovereign power of us as citizens is also protected in the Constitution, since article 39 clearly cites: “national sovereignty resides essentially and originally in the people, all public power emanates from the people and is instituted for their benefit.” Even the lectern from which President López Obrador ordered the amendment of the Mining Law is borrowed, and he will have to return it on Oct. 1, 2024, fewer and fewer days to go every day.

To conclude, my personal predictions for the matter of lithium in Mexico by the year 2030 assumes two scenarios, with and without political transition in the presidency:

1. Without a political transition. If MORENA continues to govern from 2024 to 2030, we will continue with the exploration stage, even without having a lithium mine in operation, but perhaps the current text of the Mining Law will be maintained due to the high influence that AMLO could have on the next person who occupies the presidency. The company that operates the exploration and exploitation of lithium will be in the red and in debt. It will cost Mexican taxpayers a lot of money and the Mexican people will not be seeing any benefit.

2. With political transition. If there is a change in power and MORENA no longer governs from 2024 to 2030, I would expect the Mining Law to be reformed for the sixth time and all the deficiencies described above that create legal uncertainty to be corrected. That is, to allow the exploration, exploitation and co-investment between private investors and the federal government, allowing the development, with a long-term vision, of responsible, sustainable lithium mining that is respectful of the environment and of the human rights of the Indigenous communities and peoples. We will still continue to be in the exploration stage, even without having a lithium mine, but we will be, by far, on a much better path.

Photo by:   Ruben Cano