IGO’s battery chemical plant fizzes Elouise FowlerReporter
Updated Jul 31, 2023 – 6.00pm, first published at 1.26pm KEY POINTS
IGO has already signalled a nickel writedown between $880 million and $980 million.
The Greenbushes nickel mine enjoyed record quarterly production.
Prices for spodumene fell in the June quarter for the ASX’s lithium producers.
West Australian nickel and lithium miner IGO confessed output at its troubled battery metal refining plant was “well below expectation”, casting doubts over Australia’s plans to dent mainland China’s dominance in battery chemical refining.
The Kwinana lithium hydroxide refinery, south of Perth, produced a mere 142 tonnes in the June quarter, an 85 per cent drop on the March quarter and significantly lower than the plant’s annual nameplate capacity of 24,000 tonnes.
An IGO lithium hydroxide plant outside Perth.
Matt Dusci, IGO’s acting chief executive, said on a call with analysts on Monday that the result was “well below expectation”. The company’s shares closed 4.8 per cent lower to $13.78.
IGO owns and operates the Kwinana facility with Chinese lithium giant Tianqi via a joint venture in which they also own a majority stake in Greenbushes, the highest-grade and largest spodumene deposit in the world. New York-listed Albemarle owns the remaining 49 per cent of the mine, which is 240 kilometres south of Perth.
Battery-grade lithium and nickel are essential commodities for decarbonisation and are heavily sought after by electric car makers.
Australia mines 53 per cent of the world’s lithium supply, but almost all of Australian lithium is sent to China because that is where 56 per cent of the world’s lithium processing facilities are located.
The wave of new lithium hydroxide processing plants built in WA is slowly reducing China’s dominance of high-grade minerals, but will amount to only 10 per cent of world lithium hydroxide supply by the end of 2024.
IGO took a big step into downstream processing in 2021 when it acquired 49 per cent of the lithium hydroxide plant that Tianqi built at Kwinana, 35 kilometres south of Perth and 200 km north of Greenbushes.
Technical challenges
The plant was supposed be running at full tilt by the end of 2022 but has suffered a series technical setbacks, highlighting the challenges that Australian critical minerals producers face in their desire to go beyond extraction of the raw material and become suppliers of the high-purity chemicals needed.
Mr Dusci said on Monday after delivering the IGO June quarter result: “The team faced a number of technical challenges and plant delays coming out of the [scheduled] shutdown in May.” The plant has now been stabilised and has returned to approximately 20 per cent of nameplate capacity, the company said.
IGO aims to operate the plant at 50 per cent capacity by the end of this year.
“It’s fair to say there’s a list of things associated with the bottle necking in that back end around the dryer and material handling,” Mr Dusci said.
Despite the problems, he confirmed to investors IGO is standing by its proposed expansion of the refinery. “If for some reason that project was marginal, then your argument would set up. But we don’t believe that it is at this point in time,” he said.
In the three months to June 30, IGO posted a 19 per cent jump in earnings, boosted by record production at Greenbushes.
The June quarter result would have been even better but for lower commodity prices and poor output at the refiner, as well as the performance of IGO’s Nova nickel mine, which produced at the low end of guidance.
Greenbushes produced 395,000 tonnes of spodumene in the June quarter, 11 per cent more than the 356,000 tonnes in the previous quarter. That was above the top end of financial year 2023 guidance, the company said.
Despite lower prices for the mineral, increased production pushed up IGO’s underlying earnings before interest, tax, depreciation and amortisation to $636.2 million for the quarter, a 19 per cent jump from $533.2 million in the previous three months.
The average realised price for spodumene was $US5431 ($8116) a tonne compared with $US5783 a tonne in the March quarter.
Revenue rose 2 per cent to $240.6 million for the quarter, from $235.7 million.
Before Monday’s result, IGO had slashed nearly $1 billion from the value of two nickel mines it bought for $1.3 billion just a year ago and placed the project under review, casting doubt over the miner’s joint venture with Andrew Forrest to build a WA nickel processing hub to make sophisticated battery materials in Australia.
Despite the write-down, IGO said on Monday it was pressing ahead with the nickel processing plant feasibility study along with Dr Forrest’s Wyloo nickel group. They are eyeing a project partner and a final investment decision in mid-2024.
The miner revealed on July 17 that the Cosmos nickel project, which is in development, and the Forrestania nickel operation are worth 75 per cent less than their sticker price, signalling a write-down of between $880 million and $980 million.
The company said Forrestania produced 2981 tonnes of nickel, in line with guidance.
IGO had already withdrawn guidance for the Cosmos asset, located 30 kilometres north of Leinster. The review will be completed in the December quarter.
It expects to provide further details in its annual result, scheduled for August 31.
IGO also owns and operates the Nova nickel-copper-cobalt operation, but the nickel reserves have less than five years left, which cannot support a downstream nickel processing investment alone.
IGO also announced a formal capital management policy in which the miner targets a return range of 20 per cent to 40 per cent of underlying free cash flow when liquidity is below $1 billion.
When liquidity is above $1 billion, IGO’s board will use its discretion to consider a dividend payout of more than 40 per cent.
IGO Price at posting:
$13.80 Sentiment: None Disclosure: Held
(20min delay)
