Trident Royalties downplays exposure to Mexico’s lithium nationalization

Trident Royalties (AIM: TRR; US-OTC: TDTRF) shares fell to a fresh 12-month low Friday after China’s Gangfeng Lithium announced that Mexico has cancelled its Sonora lithium claims, on which Trident has the option to acquire a 1.5% royalty. The project is Mexico’s largest, most advanced lithium deposit, but has been caught up in Mexico’s nationalization of lithium assets earlier this year.

Trident issued a news release in response to Ganfeng’s Aug. 29 update that the Mexican General Directorate of Mines (DGM) has cancelled nine lithium concessions associated with the project. This move aligns with President Andres Manuel Lopez Obrador’s (AMLO) decision to nationalize the country’s lithium reserves.

However, Trident says the way it structured a deal to earn the royalty on the Sonora project last year should provide it some protection against losses associated with the cancellation.

In a release Friday, Trident warned it reserves its right to collect a US$2.5 million loan should the project risk profile become unbearable.

Trident can own a royalty on the Sonora project, which stems from a January 2022 agreement to form a 50/50 joint venture with Marmottes Capital. The venture bought a 3% gross revenue royalty from the Sonora lithium project in January  2022 for US$52 million, with Trident’s share amounting to 1.5%.

The royalty’s acquisition completion has a deadline of Jan. 31, 2025, or six months after the first royalty payment.

Trident laid down specific conditions for its funding towards the royalty’s acquisition, including no significant regulatory shifts in Mexico that could harm the project and that all Ganfeng’s ongoing litigations around the royalty see a favourable resolution.

Trident CEO Adam Davidson said in a statement the developments “add risk to the transaction in addition to the ongoing litigation in Alberta, whereby the validity of the royalty is being challenged.”

“We were cognizant of these risks at the time of the original transaction and structured the deal accordingly to protect against both political and litigation risk, such that we may recover our initial $2.5 million secured loan. We will continue to monitor the situation carefully and, at the present time, intend to maintain our rights in respect of the asset,” he said.

This strategic move grants Trident the leeway to pull out of the JV if deemed too risky. If such a decision arises, the loan agreement has safeguarded its interests, expecting repayment of the loan it extended to Sonoroy, due six months after ending any formal contracts.

Ganfeng asserts that the cancellations violate Mexican and international law. It is now pursuing an administrative review against the resolutions after insisting it has fulfilled all requirements.

In mid-February, AMLO suddenly nationalized lithium deposits and established a dedicated mining zone, Li-MX-1, in Sonora. This region encompasses nearly all of Mexico’s lithium resources, valued at 12 trillion Mexican pesos (about US$653 billion). Ganfeng’s Sonora project hosts a total resource of 8.82 million tonnes of lithium carbonate equivalent – nearly all of Mexico’s known lithium mineralization.

Trident has a broad portfolio of royalty assets on lithium, gold, copper, silver, iron ore and mineral sands projects in geographically diverse locations, including the U.S., Mexico, Zambia, Peru, Australia and Kenya.

Trident shares closed down 2.4% in London Friday at 40.5p apiece, having tested 35.15p and 60.4p to trend lower more than 13% over the past 12 months. It has a market capitalization of £129 million ($220.9 million).