WA lithium plants back in focus as IGO, Wesfarmers pivot to battery metals

IGO (ASX:IGO) has completed its full pivot to the battery metals sector as major miners demonstrate their confidence in the rebounding lithium space.

The company’s $900 million sale of its 30 per cent share of the giant West Australian Tropicana gold mine to mid-tier Regis Resources (ASX:RRL) paves the way for it to go full throttle on its investment in spodumene mining and lithium hydroxide production.

It takes some gumption to turn your back on a minority stake which delivered more than 100,000 ounces of gold a year at a time of climbing gold prices.

Before news emerged last year that IGO were reviewing their ownership of Tropicana, it had been one of the few remaining diversified mid-caps trading in both precious and base metals.

Indeed, as recently as late 2016, during the development of the Nova nickel mine, boss Peter Bradford told reporters the company’s next move would likely be a return to gold.

Within a couple of years, tying the company’s emerging Nova operation into the future-facing lithium-ion battery and EV narrative was far more appealing, with IGO stating it was actively seeking opportunities in the lithium space.

Those came to fruition with the purchase last December of 49 per cent of struggling Chinese major Tianqi’s Kwinana lithium hydroxide plant and 24.99% of Greenbushes in WA’s south west, the world’s highest grade hard rock lithium mine.

“Tropicana has been a wonderful asset for IGO however, our strategic focus on clean energy metals and pending lithium transaction with Tianqi meant a divestment at this juncture was the best outcome for our shareholders,” IGO’s Bradford said.

Green light for Wesfarmers

The big update in the local lithium space yesterday came from retail behemoth Wesfarmers (ASX:WES) and Chilean lithium company SQM’s Covalent Lithium joint venture.

They received the green light – with conditions – from WA’s EPA for their own proposed lithium hydroxide refinery in Kwinana.

Wesfarmers and SQM already announced a final investment decision on the $1.9 billion development in February.

Using spodumene from the Mt Holland mine near Southern Cross, the plant will produce about 50,000 tonnes of battery grade lithium hydroxide a year from 2024.

Before construction can begin the decision still requires the approval of WA’s Environment Minister after a public feedback period. But it is largely a formality, with the EPA stating it is confident the proponents can deliver the plant with a series of strict conditions.

Reinforcing the “green energy” credentials of the development, mitigation measures have been proposed to reduce the operation’s greenhouse gas emissions by two thirds from 6,394,960 to 2,129,308 tonnes CO2-e over its 40-year life.

The start of construction on the refinery, along with the rejuvenation of the stalled Tianqi-IGO plant would signify growing confidence in the long-term sustainability of the lithium chemical market from the big players.

Lithium outlook

It goes without saying that the outlook for listed lithium companies is far rosier now than it was a year ago, with most producers reporting massive price increases for both spodumene concentrate and downstream chemical products.

Lithium remains a key input in the rechargeable batteries central to the supply chain for electric vehicles.

Ford last week drove more positive sentiment in the battery metals sphere by announcing an US$8 billion lift in its planned EV spend to US$30 billion by 2025, with plans to make 40 per cent of its global fleet all electric by 2030.

Ford intends to boost spending on electric vehicles by about a third to $30 billion through 2025. The carmaker said EVs would make up 40% of production by 2030, and it announced it has 70,000 reservations for electric versions of its F-150 pickup truck. https://t.co/OAf3JeDM6V

— The New York Times (@nytimes) May 26, 2021

With EV sales expected to pick up as the decade progresses, that has led prices and forecasts to rise.

According to Roskill battery-grade lithium carbonate prices in China have increased by 72% quarter on quarter to more than US$11,500/t and have continued to rise, exceeding US$13,800/t in May 2021.

Lithium hydroxide has followed the same trend, increasing 32% to US$9,400/t in Q1, 2021 to above US$12,750/t by May.

Fitch Solutions meanwhile anticipates Chinese hydroxide prices averaging US$11,950/t in 2021 before rising to US$14,300/t next year.