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Recently, mainland lithium giants have had a lot of trouble investing overseas.
First, the Canadian government asked our companies to divest their lithium investments in Canada, citing national security concerns. Subsequently, even the SQM project in Chile was put in jeopardy due to the joint venture plan between the government and the National Copper Corporation. Now, Mexico has also joined in the fun, canceling Ganfeng Lithium's lithium concession, citing insufficient investment, but anyone with a discerning eye can see that there may be deeper political and strategic considerations behind this. This series of events makes us have to think deeply: in the context of globalization, Chinese enterprises investing overseas must not only face business competition, but also be vigilant against those invisible political turmoil.
Cancellation of the concession of the lithium mine of the Chinese enterprise
Ganfeng Lithium, a leading company in the mainland's lithium industry, has recently faced unexpected challenges with its investment projects in Mexico.
According to media reports, the Mexican Mining Agency has revoked Ganfeng Lithium's local lithium concession, saying the company failed to meet the minimum investment requirements.
Ganfeng Lithium disagreed, explaining that its investment had exceeded the minimum required by Mexican law.
In fact, Ganfeng Lithium spent about 1.556 billion yuan in August 2022 to buy all the shares of the Sonora lithium project in the hands of the British company. The investment stems from the holding of multiple mining licences by Ganfeng Lithium's Mexican subsidiary, which is wholly owned by Ganfeng Lithium's operating entities in the UK and Canada.
As one of the world's largest lithium resource projects, the Sonora lithium project has about 8.82 million tons of lithium carbonate equivalent lithium resources, and after the equity acquisition, the company has invested tens of millions of US dollars and plans to establish a production line in the local area, and the first phase of the project is expected to form an annual production capacity of 20,000 tons of lithium hydroxide.
However, in August 2023, shortly after the completion of the acquisition, Ganfeng Lithium's nine mineral concessions in Mexico were cancelled by the Mexican General Directorate of Mines, which directly hindered the further development of the project.
Now that the money has been invested, the production line has been built, and the production and operation are waiting to start making a profit.
It all stems from a bill enacted in Mexico.
In 2023, the Mexican government passed the Amendment to the Mining Law, which prohibits private companies from holding lithium mining rights and characterizes lithium mineral resources as national strategic resources, granting mining rights exclusively to state-owned entities, essentially nationalizing lithium mineral resources.
Moreover, then-Mexican President Andrés López López also announced a decree to nationalize lithium resources in the state of Sonora, making it clear that after nationalization, foreign companies would not be able to mine lithium in Mexico.
Ganfeng Lithium expressed strong dissatisfaction and opposition to the decision of the Mexican Ministry of Economy, and submitted a request for administrative reconsideration. Unfortunately, as the time came in November 2023, the ministry still adhered to the original decision of the General Administration of Mines.
In response to this result, Ganfeng Lithium insisted that because the concession to the Sonora project was acquired before the reform of the mining law, it should not be directly affected by any reform measures. At the same time, they stressed that this practice fully embodies the principle of non-retroactivity enshrined in the Mexican Constitution.
Mining law experts on the mainland say the Mexican government's actions may have violated the constitution and could even undermine the "most-favored-nation" clause in the economic agreement between China and Mexico.
It can be said that Mexico's series of "riotous operations" have put Ganfeng Lithium's huge investment at risk, and compared with India's previous tough measures against mainland companies such as vivo, Mexico is even more unreasonable, at least India also bid to buy equity.
Chinese companies are frequently sniped when they go to sea
Lithium is known as "white oil" due to its importance in the energy transition.
It is understandable that some governments are trying to protect their own resources through policy measures, after all, resources such as lithium are important for a country's energy security and economic development.
However, restrictions should be imposed through reasonable and lawful means, rather than forcible expropriation.
According to media reports, some mainland companies have encountered challenges in lithium resources internationally.
For example, in November 2022, the Canadian government forced Sinomine Resources, Shengxin Lithium Energy, and Zangge Mining to reduce their equity investments in Canadian lithium mining companies, citing national security concerns.
As a result of this policy change, Sinomine Resources and Shengxin Lithium Energy had to sell their stakes in Canada, while Zangge Mining applied to extend the divestiture period until April 30, 2024.
Some Latin American countries, such as Mexico, Brazil, Argentina and Colombia, have historically introduced foreign investment to promote economic development, but as the gap between rich and poor widens and people are dissatisfied with foreign investment, these countries often take measures to nationalize resources to calm public grievances and gain political support.
However, such policies often lead to inefficient economies, lack of international competitiveness, and eventually have to re-seek the path of marketization and internationalization.
This is the case of the Chilean SQM "public-private partnership" incident that fermented some time ago.
SQM, the world's second-largest lithium producer, is in the spotlight for its mining interests in the Atacama Salt Lake in Chile.
Tianqi Lithium, its second largest shareholder, has already invested $4.066 billion to acquire a considerable stake in the company.
However, the cooperation agreement between SJM and the state-owned Chilean National Copper Company (Codelco) to set up a joint venture to jointly develop the Atacama salt lake has had a direct impact on Tianqi Lithium.
According to the terms of the agreement, Codelco will hold a 51% stake in the joint venture, while SJM's stake will be reduced to 49%; In other words, SJM will lose its dominance of its core lithium operations in the Atacama salt lake in Chile from 2031.
It can be seen that the Chilean government, with the help of Codelco's controlling stake, has essentially promoted the process of nationalizing lithium resources.
Between 2025 and 2030, the Chilean government will receive 70% of the operating profits of the joint venture through Codelco and other related institutions; From 2031, this will increase to 85%.
Tianqi Lithium also expressed its dissatisfaction with this and actively took measures to protect its rights and interests, not only hiring Chilean legal experts to demonstrate the compliance of the joint venture between SQM and Codelco, but also trying to legally require SQM to convene an extraordinary general meeting of shareholders to consider the transaction.
Despite this, Tianqi Lithium's efforts have not been supported by the Chilean Financial Market Commission, and the final outcome of the incident remains inconclusive.
It can be said that the sudden change in the lithium resource policy of South American countries has made the "going overseas" of mainland enterprises in crisis.
Some industry insiders also said that in fact, South American countries are wary of some developed countries in Europe and the United States in the field of lithium mining, not China.
Or in connection with the United States
In the field of new energy, lithium ore has almost become a key point that cannot be bypassed.
Now, China's development in the field of new energy can be said to be fast, which not only benefits the domestic electric car and energy storage markets, but also greatly increases China's competitiveness in the world.
However, just as Chinese companies are preparing to make a big push into the international market, the problem arises, as is the case with Mexico's repossession of lithium concessions.
It stands to reason that the decision to abolish the right to operate minerals should be based on economic or legal considerations, but in reality, it is likely that the United States is behind it.
Why? Because lithium resources are not only an economic issue, but also a strategic issue.
The U.S. now realizes that if China is allowed to take advantage of lithium resources, it will be at a disadvantage in the global competition for the new energy industry.
As a result, the United States and its Western allies could take steps to limit or cut off China's lithium supply, which could effectively undermine China's competitiveness in this area.
This strategy is not new. In a globalized economy, control of critical resources can often have a decisive impact on the upstream and downstream of the industrial chain.
As a country that wants to maintain a leading position in many fields, the United States naturally does not want to see China take a piece of the cake of new energy.
Influencing the resource policies of other countries through political and economic means is also one way to achieve this goal.
The role of Mexico is more nuanced here. While the Mexican government ostensibly wants to protect its strategic resources, in reality, as a close neighbor of the United States, they are often unable to detach themselves from American influence. It is not impossible to take measures that are unfavorable to China under pressure from the United States.
For Chinese companies, this situation has undoubtedly increased the uncertainty of overseas investment. The various pre-investment research and risk assessments may not take into account the sudden intervention of political factors. This requires Chinese companies to pay more attention to such market changes caused by political factors in future international investments.
In general, the competition for lithium resources is not only a commercial competition, but also a strategic game between countries. For China, if it wants to go further in this game, it must learn to find its footing in the complex international political environment.
This is not only a test of corporate strategy, but also a test of national wisdom and strength. After all, on this uncertain world economic chessboard, every step may be related to the overall development of the future.
Information sources:
"Chinese Enterprises Initiate International Arbitration against Mexico" Reference News
"56 Billion Yuan Giant, Mention International Arbitration! Latest Response" Shanghai Securities News