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As Made in Australia odds dwindle, it’s down to Wesfarmers for one last roll of the lithium dice

With billions of dollars sunk and hundreds of jobs lost, the “Made in Australia” lithium dream hinges on the might of WA conglomerate Wesfarmers to become a reality. Albermarle’s $1.5 billion lithium hydroxide operations in the South West ended with a whimper last week and with barely four years of operation under its belt. Expensive energy, high labour costs, low prices for its product, and the seemingly inescapable fact that WA just can’t compete with Asia on costs, were all blamed by the American company as the hammer came down on 250 local jobs. WA has an abundance of supply and great competency in mining the lithium-bearing rock, spodumene concentrate, that these products come from, but far less in battery chemical production. With Kemerton out of the picture there are now just two plants pumping out the battery making chemical in Australia — compared with more than 15 in China, where many are running multiple production trains at a time, according to Bloomberg data. Australia’s remaining hydroxide hopes are in the Kwinana industrial estate. One run by IGO and China’s Tianqi under the Tianqi Lithium Energy Australia (TLEA) venture, and the other by Covalent Lithium, a joint venture between Wesfarmers and Chilean lithium expert SQM. But the entire value has already been wiped off one of them after running into countless technical troubles, with minority owner IGO making it abundantly clear that it wants to switch the troubled plant off. While pre-dating Anthony Albanese’s “Made in Australia” policy, the demise of the Kemerton plant has emboldened local manufacturing naysayers as being yet another failed attempt at economic progress beyond digging up dirt. Commercially, the closure has raised the question as to whether the infrastructure supporting WA’s industrial estates was ever really geared up in the first place to host such a complex operation like Albemarle’s refinery, and match that of more experienced operators in China. While a recent half-year update from the company suggested that revenues from its own downstream product were improving, IGO’s chief viewed the Albemarle closure as not “all that surprising” and in his mind “points to the challenges that we see in the sector in Australia.” “Ultimately, it’s a very, very competitive industry, because China does this so well. They produce at a very low cost and it’s effectively a tolling business,” Ivan Vella said on Thursday. “I struggle to see how you would ever justify the materially higher costs in Australia for the same work against China.” The same themes regarding energy infrastructure and high wages also came up in comments from Dale Henderson, who runs the country’s biggest lithium miner PLS. During a results call on Thursday he said that onshore processing in Australia was a “noble ambition” but is steering PLS lithium-value adding efforts towards “mid-stream” processing, rather than complex chemicals. “There isn’t a lithium ion battery ecosystem here, there’s no consumers of the batteries in the main, no cathode makers . . . the essence of that makes you less competitive,” he said. “If Australia is to compete, it has to compete on costs”. PLS still has skin in the lithium hydroxide game via a joint venture with Ganfeng, one of the world’s biggest producers, but has kicked the can down the road on their studies together while it susses the market out. The fact that lithium hydroxide prices got to about $US18,000 a tonne in January from the $US10,000 mark just months before, has raised questions as to why Kemerton couldn’t start to get a handle on costs. “Historically that’s been a good price, that’s certainly where we think you’d need pricing to be at least this level to stimulate more supply into the market,” Canaccord senior mining analyst Tim Hoff told The West Australian. While hydroxide prices had improved, he said spodumene concentrate’s revival had been stronger because Chinese factories had been able to push conversion costs far lower, and could therefore afford to buy more of the hard rock feedstock. “Chinese converters have pushed conversion costs down to approximately $US3,000 a tonne . . . compare that to IGO and Tianqi (TLEA), who are running at about, let’s call it $US9500 a tonne for the cost of conversion,” the analyst said. Industry eyes were keen to see the half-year result out of Wesfarmers on Thursday. In the days before that result came out, Mr Hoff said if the Covalent venture indicated it could make money at current prices, the spotlight would go back on IGO and Albemarle. “If they do, I think the spotlight should be put back on TLEA and Albermarle because it suggests there are bigger issues with how those plants were built and how the businesses were structured,” he said. Albemarle flatly denied that the Kemerton plant’s design had constrained the viability of the operation. “The decision to idle operations at Kemerton is based on market conditions and the economics of maintaining Western-based hard-rock lithium conversion,” a spokesman told The West Australian. “We’ve spoken many times about the market conditions and economics of Western hard rock lithium conversion. Obviously Kemerton fits within that envelope and that has led us to make the difficult decision to idle the facility.” But Wesfarmers managing director Rob Scott struck an optimistic tone about 50,000 tonnes-a-year plant’s ramp-up when asked on Thursday. He suggested that an integrated producer using its own ore — as Albemarle does from Australia’s biggest lithium mine — should be able to turn a profit. “On the basis of the plant operating at full capacity, then the unit costs would be such that it would be competitive,” Mr Scott said “Now obviously, if you’re not operating your plant at full capacity, then your unit costs are going to be lot higher.” He prefaced the comments by saying that the $95 billion behemoth he leads “didn’t go into an investment of a refinery lightly”. “We went in with our eyes widen open as to what the challenges were, we feel we have a lot of experience and great technical expertise with SQM to help us navigate many of the challenges that others have faced getting these plants up and running in Australia.” Wesfarmers sources ore from the Mt Holland mine it jointly owns with SQM about 500km from Perth. The venture has also been able to lean on the existing expertise’ though Wesfarmers’ existing fertiliser and chemicals business WesCEF, which operates in the same industrial estate in Kwinana. “Any arrangements between the two are very much at arm’s length. But without doubt, the very deep chemical engineering and development experience our WesCEF team have having built and operated chemical plants in Kwinana over decades and decades, that has certainly been helpful to recommissioning of the refinery,” Mr Scott said. Jardens’ Perth-based director of equity research Ben Lyons said Wesfarmers had “engineered the thing to 99 per cent” before starting construction, and that location was also working in its favour. “I think it’s highly important that you build these lithium hydroxide plants in an established industrial park where you can source things like acids and reagents from facilities right next door. Kwinana is now a very well-established industrial estate.” Asked whether Wesfarmers might consider buying Kemerton if it came on the market, Mr Scott said the company would sooner plough more money into cranking up capacity at Mt Holland to bring down unit costs. Albemarle didn’t rule out being open to a sale. “The only decision we’ve made is at this stage is to idle operations at Kemerton. Our intent is to keep Kemerton in care and maintenance and continue discussions with the market about a pricing model that supports Western hard rock lithium conversion.” Listed Belmont-based contractor NRW emerged as an unlikely contributor to the refining rhetoric, telling analysts on its results call last week it had completed its third pilot plant producing lithium carbonate, another battery making compound. “If we can build something at half the cost of a current lithium processing plant, which they don’t really work here, we might be onto something,” chief executive Jules Pemberton said. The Federal Government has tried to incentivise downstream processing through the introduction of a Production Tax Credit, due to kick in by 2027. At a State level, and when prices were far lower, WA Premier Roger Cook threw the lithium industry $150m worth of loans and waived fees. “I think we need to ask ourselves ‘what is the goal of establishing the industry,” Canaccord analyst Tim Hoff said. “We don’t use the lithium produced in Australia. If we actually used the lithium in Australia I might have different thoughts about subsidising. “Sometimes it’s a matter of build it and they will come. But if they don’t, what is the plan for what’s left over? I think that’s perhaps relevant for some of the discussions going on in critical minerals right now.”

The West Australian exclusiveAs Made in Australia odds dwindle, it’s down to Wesfarmers for one last roll of the lithium dice

exclusive
As Made in Australia odds dwindle, it’s down to Wesfarmers for one last roll of the lithium dice