Day to day discussions on S/P, page-12401

Rob Scott defends plunge into batteryminerals, SQM partnership

Wesfarmers boss Rob Scott says theconglomerate must take measured risks to grow after he was forced to defend apotential $3 billion-plus plunge into electric vehicle commodities withtakeover offers in lithium and rare earths.

Mr Scott rejected suggestions that with its takeover tiltsat Kidman Resources and Lynas Corporation, Wesfarmers was in danger ofrepeating the Bunnings UK hardware blunder, He flagged making more investmentsin the electric vehicle sector.

He was also moved to defend the corporate governance andownership structure of Sociedad Quimica y Minera de Chile (SQM), Wesfarmers' partner-in-waiting in developing the Mount Holland lithium mine and a 45,000 tonne-a-year lithium hydroxide plant in Western Australia.

China's Tianqi Lithium, which owns a 24 per cent stake inSQM, controls half of the world's biggest lithium mine in WA's south-west andis completing a lithium hydroxide plant in Kwinana, south of Perth, whereWesfarmers and SQM plan to build their plant.

Mr Scott faced tough questions from analysts about thewisdom of electric vehicle-based investments and teaming up with SQM during astrategy briefing on Thursday.

The concerns centred on Wesfarmers' ability to manageshort-term risks while it looked to the long term, with one analyst raising thespectre of the Bunnings UK mess that Mr Scott had to clean up soon after takingthe reins as managing director.

Wesfarmers is on track to complete the $776 takeover of lithium play Kidman in August and has committed to spending another $700 million alongside SQM in developing the Mount Marion mine and the hydroxide plant.

Meanwhile, Wesfarmers isnot giving up hope of securing rare earths miner and processor Lynas despite its conditional $1.5 billion takeover offer being left, in the wake of a spike in Lynas's value driven by trade wars, and more clarity from Malaysia on operating licence renewals.

Mr Scottsaid Wesfarmers continued to evaluate other opportunities in the broaderelectric vehicles space.

He also acknowledged the volatility in the sector – with values in the lithium space "moving wildly day-in, day-out" – and the high capital costs involved in developing resources and processing capacity.

"There is a fair bit of share price volatility in the electric vehicles commodity sector, a lot of speculation around pricing, and this has been amplified because of speculation about what the trade wars might mean," he said.

"There are other factors influencing valuations of various companies, such as associated capital expenditure or the risk associated with the major project developments that are required to realise the potential of some of these resources."

Mr Scott said Wesfarmers was not a speculative investor but happy to put its balance sheet to work where it saw value and that was the case with Kidman.

Wesfarmers is confident it can leverage off the expertise in its WA-based industrials division and SQM's experience in lithium to become one of the lowest cost providers of lithium hydroxide to global markets.

Asked about SQM's Chinese shareholders and the Chilean producer's historic connection to the family of one-time military dictator Augusto Pinochet, Mr Scott said Wesfarmers had done a lot of due diligence on SQM and regarded it as a fantastic partner.