EconomyFinancialLitioMx: how long will it take for the presidential...

LitioMx: how long will it take for the presidential project to take off?

The race to take advantage of the lithium boom has begun and Mexico could be a little late. The second firm step –after the reform of the Mining Law– was taken last week with the publication of the decree for the , the decentralized body that will lead the Mexican market.

The rush for lithium has shed its importance for the production of batteries for electric cars. It is not its only use, but it is the one that is growing by leaps and bounds. but some of the large markets have already set an expiration date for its sale: California – the state that consumes the most electricity in the United States – and the European Union have set a limit of 2035. With this, the time to extract the mineral also has started running.

The Mexican ambition is great: the new decentralized body, according to the state plan, must take charge of the entire mineral value chain, from the study of reserves, exploration, extraction and even the lithium carbonate production chain. There is no other country or example of a state-owned company in the world that has successfully achieved this goal. The closest case is Bolivia, but the South American country – which has increased its diplomatic closeness with the Mexican government – began the journey more than a decade ago, has invested more than 1,000 million dollars and, despite having the largest reserves in the world , its production is not yet listed on the market. A few months ago he decided to resort to private tenders to take advantage of the mineral.

President Andrés Manuel López Obrador, the main promoter of the formation of the state-owned LitioMx, has promised that with his strategy the economic benefits of the sale of the mineral will remain in the Mexican State, that lithium will only be extracted in favor of the people and This will avoid the social and environmental conflicts that the mining industry has historically caused in Latin America. But the path is not so simple, analysts say. In the speech, the country has closed the door to private investment, but in the decree published a few days ago, it leaves the possibility ajar.

“(LitioMx will be in charge of) managing and controlling 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,” the document says.

This has not necessarily excited the private sector. The dogmatism that has prevailed in the discussions regarding the mineral could alienate the interest of the big companies. And so, Mexico could be left in the middle of the race: with lithium in the subsoil and without the great economic benefits that have been compared since the political discourse with the oil boom of a few decades ago.

“Lithium represents the salt in a salad. The lithium battery is the salad and lithium is the salt, it is necessary, but not essential. If you have a production of very good quality salt in large quantities, I don’t see why you should be thinking of setting up a chain of salad restaurants: the business is totally different. Here it is the same, that you have lithium does not mean that it can produce good batteries or that you should produce them”, explains Jaime Alee, an industry consultant based in Chile.

The South American country – the second country with the most reserves in the world – took its first steps in the extraction of lithium more than two decades ago, but opted for a different formula: private companies have the concessions of lithium reserves, extract it and export. About 50% of the profits go to the Chilean state, says Alee. The lithium industry already brings more revenue to the South American government than Codelco, a state-owned company and the world’s leading copper producer.

The challenge of managing the entire lithium value chain

Analysts see two major challenges for the new Mexican state body to fulfill its purpose: the capital that must be invested in the lithium industry can be classified as risky – since it has a great possibility of not providing profits or, in a good scenario, let these be many – and the time in which the Mexican industry develops could take decades. “All this initial investment money is venture capital like any mining business,” says Martin Moscosa, a mining industry specialist. and the deposit in Bacadehuachi -concessioned to Gangfeng Lithium- is not yet in a productive phase.

“We are talking about a project that takes seven to 10 years until lithium can be extracted and refined. So the question is: how much will lithium cost in the next ten years when they can extract it? Mexico has deposits in clay, a kind of sand in which lithium is mixed with other minerals, which makes a chemical process necessary for its extraction. And this technology is barely under development and it is unknown if the extraction of lithium in this type of deposit is economically viable.

The federal government estimates that the state company will begin operations in the next six months, but the details of its operation are scarce. Even so, analysts estimate that the first production by the Mexican state company could arrive in a decade, when the peak of demand from the automotive industry has already been reached and the price of the mineral begins to fall as a result of an increase in the supply of countries such as Australia, Chile or Bolivia. “Of course one gets excited about current prices, but they won’t always stay that way,” says the specialist.

But the country has an ace up its sleeve that sets it apart from the rest: the Treaty between Mexico, the United States and Canada (T-MEC). “Mexico has characteristics that neither Bolivia nor Chile have, we have a strong presence of the main users of lithium batteries, which is the automotive industry,” says Fernanda Ballesteros, country manager for the Natural Resource Governance Institute for Mexico.

The government of President Joe Biden has encouraged the production and sale of electric cars in the neighboring nation since the beginning of his government as part of its ambitious plan against climate change. The three partners already had a strong integration resulting from the signing of the trade agreement, but the publication in early August of the White House Inflation Reduction Act could increase the interaction between the parties: the regulation raises a series of fiscal stimulus during the next decade for the production and purchase of electric cars, but it has set conditions and one of the main ones is that most of the raw materials come from North America. Mexico’s opportunity to join the lithium production chain could be found there. “So I think the key question is how the Mexican state can take advantage of this and focus its resources and efforts on this objective rather than on mining activity?” says Ballesteros.

But the trade deal per se won’t be able to work as a magnet for new companies, analysts say. The business would seem simple: the State owns the reserves and extracts the mineral in exchange for attracting investments so that companies bring the technology and start up battery-producing plants. But the Mexican government wants to take over the entire value chain. And if you change your mind and open up to national or foreign private investments, “having lithium would never work as the only incentive,” says Alee.

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