William Gonzalez
Overview
The trend towards nationalizing lithium mining in Mexico and South America, particularly in countries like Chile, Bolivia, and Argentina, is a complex issue with significant economic, geopolitical, and technological implications. In Mexico, under President Andrés Manuel López Obrador, the state-owned company LitioMx was established to oversee lithium activities, aligning with a law that declares lithium a strategic national resource. However, Mexico faces challenges in efficiently extracting lithium, and the move towards nationalization has caused tensions between the U.S. and Canada. Mexico’s actions could potentially lead to trade disputes under the United States-Mexico-Canada Agreement (USMCA) agreement to address these concerns and potentially impose trade tariffs if necessary. Similarly, in South America, the push for lithium nationalization in key countries is vital for regional economic growth and impacts the global lithium market, especially industries dependent on lithium-ion batteries. These countries aim to leverage their lithium resources for economic and strategic market benefits while balancing environmental sustainability and local community concerns regarding resource management and equitable benefit distribution.
Mexico’s Current Efforts
On August 23, 2022, the President of Mexico, Andrés Manuel López Obrador, issued a decree that established a new state-owned company called LitioMx. The decree was officially published in the Diario Oficial de la Federación on August 24, 2022. LitioMx’s primary responsibilities involve supervising the exploration, mining exploitation, and refining of lithium throughout Mexico’s entire national territory, while also maintaining authority over the economic value chains associated with this valuable mineral. The amendment established lithium as a strategic mineral belonging to the nation and classified it as a “public utility.” As stated by the Mining Law, this declaration has significant legal consequences. It ensures that the exploration, mining exploitation, refining, and utilization of lithium are exclusively reserved for the benefit of the Mexican people, with these activities being supervised by a government agency. Moreover, no concessions, licenses, contracts, permits, or authorizations will be granted for such operations. Additionally, the management and control of the economic value chains related to lithium will be entrusted to a government agency as well.
The prospect of this new industry is not without significant backing. Mexico possesses the world’s ninth-largest identified lithium reserves, amounting to 1.7 million tons, as per the U.S. Geological Survey. However, there are no currently active commercial lithium mining operations in Mexico, with only a few exploration projects underway in the states of Jalisco, Guanajuato, Nogales, Sonora, and Puebla. The extent to which private companies can participate in Mexico’s lithium market is uncertain. While the amendment designated the state-owned company, LitioMx, responsible for primary activities like exploration, mining exploitation, and refining, the decree appears to also allow for potential collaboration between LitioMx and private companies in lithium by-product projects, including the manufacturing of batteries for electric vehicles and consumer electronics such as mobile phones and computers.
On February 18, 2023, President Andrés Manuel López Obrador issued his most recent presidential decree regarding lithium. This decree designates a vast lithium mining zone spanning over 900 square miles in the northern region of Sonora, Mexico. The newly implemented decree introduces the possibility that the government might employ expropriation as a means to initiate negotiations with companies that currently hold concessions within the designated zone. Mexico’s lithium deposits, situated in the northern state of Sonora, distinguish themselves from those found in the United States, Canada, and various other regions worldwide. Unlike the conventional extraction methods of lithium from rock formations or brine, Mexico’s lithium is located in clay-limestone soil. Currently, only a limited number of companies possess an economically feasible and cost-effective method for extracting lithium from clay deposits, including those found in Sonora. This scarcity of viable extraction methods from clays poses challenges to the long-term viability of the Mexican lithium industry.
South America’s Surge in Nationalization
Analyzing the movement for lithium mining nationalization across South America starts with a specific concentration in Chile. Chile, possessing the world’s largest lithium reserves, is moving towards nationalizing its lithium industry under the leadership of President Gabriel Boric. Chile’s plan involves transferring control of the vast lithium operations from private companies to a state-owned company. Unlike in Mexico, the Chilean government’s approach leans towards public-private alliances, with the state maintaining a majority in mining operations. This strategy aims to create mutually beneficial agreements and may result in the extension of existing contracts beyond their current expiry dates. Albemarle, the world’s largest lithium producer, has expressed willingness to align with the government’s strategy, emphasizing technological advancements in lithium extraction as a key part of the nationalization plan. Official negotiations with lithium operators, conducted through the state-owned mining company Codelco, are expected to commence soon, with a goal to finalize agreements by 2026. The new plan intends to broaden the geographical reach of Chile’s lithium production, which is presently concentrated in the Atacama Desert. Recognizing the potential of various uncharted salt flats within the nation, the scheme aims to promote their exploration and development. This initiative seeks to capitalize on the heightened global interest in Chile’s essential mineral resources.
Bordering the northern part of Chile sits another epicenter for the nationalization of lithium – Bolivia. Under President Luis Arce, Bolivia is seeking to establish a monopoly on its vast untapped lithium reserves, primarily in the Uyuni salt flat. The current government is considering proposals from six international mining companies vying to establish a monopoly on the world’s largest untapped lithium deposit in the Uyuni salt flat and other areas in Potosí. This region, part of the “Lithium Triangle” alongside Argentina and Chile, contains an estimated 21 million tons of lithium. However, Bolivia has struggled to attract foreign investment in lithium, as the country has been marred by protests and concerns over environmental impacts and fair compensation. Successful lithium mining in Bolivia hinges on balancing these factors. Local communities, wary of the environmental and economic impacts of lithium mining, are actively involved in shaping industry regulations.
Argentina highlights a continued legislative fight that each nation endures for the nationalization of resources. In Argentina, legislative proposals have been made to declare lithium a strategic resource, with the state having the entitlement to acquire lithium extracted in the country. Key points of the proposed bill include declaring lithium mineral reserves as a strategic natural resource, applying the law to concessions already granted to private companies, and allowing the state to limit or prohibit lithium import or export based on public interest. The initiative follows the significant growth of the lithium industry in Argentina, which saw exports worth approximately $700 million and the hiring of 1,492 workers in 2022. These mining initiatives are part of a broader debate about the state’s ownership of lithium resources. The Argentinian proposal faces opposition from provincial councils and the Federal Mining Council (COFEMIN), which argue that the nationalization efforts go against the Argentine Constitution. In Argentina, the lithium sector is seen as a bright spot despite the country’s complex mining landscape. The industry’s expansion, however, faces challenges such as protests over water access, environmental concerns, and indigenous disputes, as seen in the recent protests in Buenos Aires by indigenous people from the Jujuy province.
Argentina’s lithium mining sector is gaining rapid momentum, positioning the country to potentially surpass Chile as Latin America’s top lithium producer by 2030. Currently, Latin America supplies about 35% of the world’s lithium, with Argentina and Chile being major contributors. Argentina, which currently has two operational lithium extraction projects in the providences of Catamarca and Salta, is predicted to see a significant increase in production, with expectations of a fivefold growth next year and tenfold by 2027. The situation in Argentina contrasts with that in Chile, where the state has taken a majority stake in the lithium industry, a move seen as quasi-nationalization. This has led to concerns among private companies and investors about state intervention in the industry.
Implications of Lithium Nationalization to International Relations
The actions taken by Mexican President Andrés Manuel López Obrador have faced strong opposition from both the United States and Canada. In response, these countries have issued warnings of a potential trade conflict if Mexico persists in limiting lithium access to international corporations. Tensions have heightened between the United States and Mexico due to the increasingly isolationist actions of President Obrador. In response, the Biden administration intends to present an ultimatum to the Mexican government, urging them to open up their energy markets to American companies. Failure to comply may result in the imposition of trade tariffs. Specifically, the United States plans to initiate an independent dispute settlement panel under USMCA, the trade agreement that replaced the North American Free Trade Agreement (NAFTA) in 2020.
The United States, which imports about 91% of its lithium from the Lithium Triangle, primarily from Chile, faces significant implications from these moves to nationalize. Major companies like Tesla have engaged with Chilean authorities and lithium producers to secure lithium supplies, reflecting the growing dependence on this resource for green technology, such as solar panels and electric vehicles. The development of new battery technologies, like the solid-state lithium battery from MIT, indicates an increasing demand for lithium. Bolivia’s current position allows it to play a more assertive role in regional bodies like the Union of South American Nations (UNASUR) and the Community of Latin American and Caribbean States (CELAC). Moreover, Bolivia’s lithium reserves could become a strategic asset in negotiations with major economies, particularly those heavily invested in the electric vehicle industry, such as China and the United States. China’s role in developing Argentina’s lithium sector is significant, with the potential to be further affected by the upcoming presidential election in Argentina. Far-right libertarian economist Javier Milei, who gained traction in Argentina’s presidential primary, has expressed opposition to working with “communist” regimes, which could impact Beijing’s involvement in Argentina’s lithium and infrastructure projects. This precarious situation underscores the importance of political powers in shaping the future of Argentina’s burgeoning lithium industry.
Overall, the trend toward lithium nationalization in South America could lead to a more cohesive regional approach to managing and leveraging natural resources. This unity could strengthen South America’s position in global forums such as the G20 and United Nations climate change conferences. However, it might also create tensions with nations outside the region, especially those reliant on South American lithium for their tech industries. The United States, in particular, may view these nationalization efforts with concern, given its interest in securing stable lithium supplies for its burgeoning electric vehicle industry. The United States might instead seek to strengthen diplomatic and trade relations with these countries to ensure a steady lithium supply, potentially leading to new bilateral or multilateral agreements.