Resource Nationalism on Rise in Latin America, As Fever for “White Gold,” aka Lithium, Grips the World

Countries in the region are taking greater control of the revenues generated by the minerals and hydrocarbons produced within their borders, in particular when it comes to lithium. 

Mexico’s President Andrés Manuel Lopéz Obrador (AMLO for short) may be on course for a showdown with China, the world’s second largest economy. During his February 1 morning press conference, AMLO told reporters that Mexico’s large lithium deposits were not there to be exploited by Chinese, Russian or American companies. The day after, he announced his government would set up a state-owned company to mine and refine the silvery-white metal.

“It has already been decided that lithium is going to be exploited for the benefit of Mexicans.,” said AMLO. “We are going to create a Mexican company, of the nation, for lithium.”

Chinese Interests

This is unlikely to have pleased Chinese company Ganfeng, the world’s largest lithium miner, which recently acquired UK-based Bacanora, with whom it owns a stake in a huge lithium mining project in Mexico’s Sonora state. Once the acquisition is approved, Ganfeng, which recently closed a deal to supply Tesla with lithium batteries, will have complete control over the mine.

But AMLO’s government seems to have other ideas. Although AMLO had formerly pledged to respect the concessions awarded to mining firms by previous administrations, he now contends that those mining rights were granted for other minerals, not lithium:

“When these concessions were granted, it was not for lithium but the exploitation of other minerals, and lithium is a whole other matter. It is a strategic mineral and it belongs to the nation. It is not like gold, silver, copper, it is something else. It is more like a national strategic resource such as oil.

The shift in policy has also raised the hackles of U.S. business leaders and policy makers, which elicited the following response from AMLO:

“Of course there were complaints from the United States because they have different commercial interests. We don’t want confrontation with anyone, we just want to defend what is ours.”

Mexico is not the only nation in Latin America that is considering nationalising its lithium reserves, as so-called “white-gold fever” grips the planet. Lithium is a critical component of the green energy transition plans of countries like China as well as the EU. Also known as “the new oil,” the metal is used to make the lithium-ion batteries that power electric vehicles (EVs), smartphones, and wearables.

Lithium Central

Latin America has the largest lithium reserves on the planet. Bolivia has the largest known reserves in the region (and by extension the planet) with an estimated 21 million tons of the mineral, though it is yet to find a way of successfully exploiting those reserves. Together with neighbouring Argentina (14.8 million tons) and Chile (8.3 million tons), it comprises the so-called “lithium triangle” which accounts for 63% of the planet’s known reserves. Peru and Mexico also have large deposits of the mineral.

The price of lithium is going through the roof, as demand for battery cells outpaces supply. At by end of 2021 there was a “structural shortage” of the metal, meaning there isn’t enough capacity in the industry to satisfy demand. Spot prices for battery-grade lithium in China — where three quarters of all battery-making capacity is located — have more than quadrupled in the past year, from $11,000 per metric ton to $50,000 per metric ton, according to Benchmark Mineral Intelligence. Prices elsewhere are lower, but also going up.

Governments of lithium-rich countries in Latin America, starved of cash by the virus crisis and struggling to keep their economies afloat, want to make sure they (and hopefully by extension their voters) benefit from the lithium rush. This is part of a broader trend of growing resource nationalism in the region that has global mining companies and their investors extremely concerned. As the UK-based global risk and strategic consulting firm Verisk Maplecroft noted in August 2021, more and more countries are taking greater control of the revenues generated by the minerals and hydrocarbons produced within their borders: 

Mexico stands out as seeing the largest increase in risk out of the 198 countries assessed by the RNI, driven by AMLO’s nationalist agenda that wields community and environmental arguments as justification for greater state involvement in the extractive sector. Worryingly for miners and energy firms, its performance is indicative of a wider regional trend. South America’s three largest economies, Brazil, Argentina and Colombia are also experiencing substantial negative shifts in the index, while the once stable mining destinations of Peru and Chile are on the cusp of political changes that will alter the operating environment for the industry.

Since then both countries have elected left-wing governments, though Pedro Castillo’s coalition government in Peru, now on its fourth cabinet in seven months, is desperately weak while Chile’s new president, the 35 year-old former student leader Gabriel Baric, is still waiting to take office.

Before that happens, in a month’s time, the outgoing Pineda government has been trying to sell off the mineral rights to the country’s recently discovered lithium deposits to mining companies. They include the rights to 400,000 tons of metallic lithium or 2.129 million tons of lithium carbonate equivalent (LME) discovered in Chile’s Atacama Desert.

The contract would have awarded 20 years’ exploitation rights to the company or companies that won the concession. That would have probably included the Chilean mining giant Soquimich (SQM), which is majority owned by the late dictator Augustin Pinochet’s son-in-law Julio Ponce Lerou and which is accused of widespread corruption practices, including tax evasion, bribing ministers and government officials, breaking campaign finance laws and signing fake invoices. In the end, a judge blocked the sale of the rights to the lithium deposits in Atacama citing environmental concerns.

Environmental Risk

This raises another major issue with the lithium fever sweeping across Latin America: the potential damage it could visit on the continent’s environment. Boric plans to turn Chile into a strategic supplier not only of minerals – mainly copper, lithium and rare earths – but also a global powerhouse in renewable energy, by exploiting the Atacama’s bountiful wind and solar power. With the revenues generated, the president elect plans to finance an ambitious program of pensions, education and public health that will help to reduce Chile’s extreme inequality. But this project could also end up doing serious harm to Chile’s environment.

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