WesCEF progresses five major projects despite cost pressues

Wesfarmers is pushing ahead with a pipeline of five major projects under its chemicals, energy and fertilisers division despite cost pressures.

In the strategic briefing report released to market today, Wesfarmers said it was continuing to manage a challenging construction environment around its half-owned Covalent Lithium project after disclosing a cost blow out earlier this year.

But despite construction-related pressures, the conglomerate said timing and capital expenditure remained in line with its February 2023 guidance.

Wesfarmers also said it was undertaking a mine and concentrator expansion study for the project and that it would consider refinery capacity expansion following commissioning.

In February, Wesfarmers revealed a significant cost blow out to build the Covalent Lithium project, which encompasses the Mt Holland lithium mine in the Goldfields and a Kwinana refinery.

Wesfarmes also detailed the position of its Kwinana Ammonia expansion project, which involves increasing ammonia production capacity from 270 kilotonne per annum to 570 kilotonne per annum.

The expansion project is waiting on approval from the WA Environmental Protection Authority and its final investment decision is subject to commercial assessment, including gas supply.

Wesfarmers also made mention of the “rapid decline” in ammonia pricing in recent months.

“Though market forecasts vary significantly, ammonia prices are generally expected to improve to above historical average levels in the medium and long term,” Wesfarmers said in the report.

“While a recovery in ammonia pricing is anticipated, WesCEF’s FY24 earnings are likely to be adversely impacted by lower global ammonia pricing than the highs experienced in FY22 and FY23, as well as the impact of the sales price lag mechanism in customer contracts.”

Wesfarmers said it was undertaking engineering design for debottlenecking to increase production capacity at its nitric acid ammonium nitrate plants.

The expansion study for Wesfarmers’ Sodium Cyanide expansion plant at Kwinana is nearly complete, with the aim of increasing production capacity.

For its Dongara Carbon Capture and Storage and blue ammonia concept project, Wesfarmers said it was working on the early-stage feasibility study in partnership with Mitsui & Co.

Alongside the cost blow out of the Covalent Lithium project, Wesfarmers pushed back the project’s completion date by six months with first production of lithium hydroxide at Kwinana now expected in the first half of the 2025 calendar year. 

The impact of the delay is expected to be partially offset by the early sale of spodumene concentrate during the 2024 calendar year.

At the time, Wesfarmers said several factors had contributed to higher costs for the project, including pressures around labour availability, supply chain constraints and refinery engineering delays.

Wesfarmers’ share of capital expenditure for the overall project is now expected to be between $1.2 billion and $1.3 billion, excluding capitalised interest.