Wesfarmers readies for lithium sales without profit

Wesfarmers is preparing to sell spodumene into the market but doesn’t expect to make a profit, as it continues to ramp up its Mt Holland lithium asset.

The Rob Scott-steered group, whose profit was headlined by Kmart and Bunnings, said its share of spodumene concentrate production was expected to hit 50,000 tonnes in the 2024 financial year.

But it said any interim sales would not generate a profit due to higher cost of production while volumes ramp up at its Mt Holland concentrator, which was commissioned during the half. Mt Holland is a joint venture project, 50-50 owned by Wesfarmers and Chilean giant SQM. 

Speaking to the media at its half-year briefing, Mr Scott said the group had entered into some agreements with customers to sell some of the interim spodumene in the next six months to year. But he said it may be that group opts to delay some of the sales it had reserved for potential spot sales. 

In its half-year report, Wesfarmers divulged Mt Holland was closey monitored for any indications of impairment, given the current price volatility, immaturity of the lithium market and state of the project. However, it concluded not to record any impairment, as of December 31.

Wesfarmers said the high quality of its Mt Holland deposit was expected to enable the Covalent lithium hydroxide plant to operate with an attractive relative cost structure.

It also reiterated that good progress was being made on the construction of its Kwinana lithium hydroxide refinery.

When asked whether lithium prices had bottomed, Mr Scott said it was dangerous to predict the future in commodities.

“What I’d say is what’s playing out at the moment is prices have fallen to a point where there are many producers where their current costs are above the current price,” he said.

“Now we've already seen a situation where a number of producers and a number of new projects have stalled and we're starting to see supply cut out of the market.

“That is a classic action that occurs in these types of markets. Then what often happens is, given the strong demand that we are seeing in lithium, there could well be shortages of supply in the years ahead, which would then lead to further price volatility on the other side.”

Mr Scott said what differentiated Wesfarmers and SQM was that the partners weren’t capital constrained and were prepared to invest for the long term.

“There’s a lot of short-term focus and trading activity in the lithium business,” he said.

“But when you’re investing in assets that are going to last for twenty years plus, having that long-term focus and cost structure in good shape is what is ultimately going to deliver good returns.”

Further, Mr Scott said he felt the dynamics were still strong for the project, and that by adding low-cost structures, reliable production and getting the hydroxide plant working, it could provide another opportunity to capture additional margin within the lithium value chain.

Wesfarmers’ net profit after tax was $1.43 billion for the half-year ending December 31, lifting from 3 per cent from $1.38 billion in 2022.

Its revenue came in at $22.7 billion, up from $22.6 billion in the prior year and earnings before interest and tax was recoded at $2.19 billion, from $1.16 billion.

The group’s revenue was driven by Bunnings, which brought in $9.9 billion, up by 1.7 per cent, with the business expanding to offer pet products in the half.

Its Kmart group recorded revenue of $5.9 billion, up 4.8 per cent, backed by the popularity of the Anko brand, particularly in youth apparel and beauty products.

But WesCE F- the conglomerate's chemicals division- generated revenue of $1.1 billion, which was a drop of 21.2 per cent compared to 2022.