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.

In the meantime, global mining conglomerates want to maintain their influence over the industry. In September 2021, companies accounting for more than half of the world’s lithium output set up a global trade association headquartered in London (where else?) to represent their interests. The five founding members of the International Lithium Association (ILiA) are Chile’s SQM; China’s Ganfeng Lithium; AMG Brazil, a subsidiary of the Dutch firm AMG< Orocobre ORE.AX and Pilbara Minerals PLS.AX, both from Australia, currently the world’s largest lithium producer.

Back in Chile, mining firms and investors are fretting about two proposals that have been put before the constitutional convention, one of which would pave the way for the nationalisation of Chile’s mines while the other would place strict time-limits on mining concessions. The first has already been approved. As the business intelligence portal BNAmericas recently reported, if the two proposals were passed they would utterly transform Chile’s mining industry:

Earlier this week, a commission of the convention that is writing the country’s new constitution approved a proposal to nationalize Chile’s natural resources such as copper, lithium, gold, silver, uranium, molybdenum, cobalt, rare earths, manganese, liquid hydrocarbons and boron to ensure the development of a sustainable economic model where there is a balance between economic activity and the protection of nature.

In 1971, Chile’s congress approved the nationalization of the copper industry, which led to the formation of state-owned Codelco in 1976. However, since the 1990s the industry has seen multibillion dollar investments by the private sector, including foreign companies, in new mines. The head of national mining association Sonami, Diego Hernández, says the current proposal would mean nationalizing mining companies rather than copper, as that is already owned by the nation.

“With what they approved, the mining institutional framework would disappear and all the mining companies would be nationalized. There’s no distinction between major or small-sized [companies],” he told Radio Cooperativa on Thursday.

In an interview with CNN Chile, the promoter of the initiative, constituent member Ivanna Olivares, said that if the proposal became part of Chile’s new constitution, the president would have a year “to order the seizure of transnational and private major mining companies.” Compensation would be based on book value, according to the proposal.

“There are no parameters, everything will be nationalized,” she added.

AMLO wants to do much the same in Mexico. In Peru the Castillo government wants the mining companies operating within its borders not only to extract and refine lithium into a raw material for export, but also to invest in lithium-ion battery plants to transform it into a product with a higher market value, generating more and better paid jobs.

More and more governments in Latin America want greater control over the increasingly valuable raw materials that underpin their economic models (as well as the so-called “green” energy revolutions being pursued by governments in North America, Europe, China and elsewhere), which is perfectly justifiable and long overdue. But in so doing they are pitting themselves against some very powerful interests. In 2019, Bolivia’s then President Evo Morales suffered a coup which he blames in large part on companies with commercial interests in the lithium sector, including TESLA whose CEO Elon Musk famously tweeted: “We will coup whoever we want. Deal with it!”