IGO plays down Kwinana technology risks

Kwinana, Australia’s only battery grade lithium hydroxide facility, has had a tough start since its late 2022 debut — with its first train underperforming and its second unceremoniously cancelled. Now there are fears that a mooted ban on exporting Chinese processing technology could throw another spanner in its works.

“I did note that there was a headline article a couple of weeks ago talking about the Chinese banning export of processing intellectual property. Is that influencing Tlea discussions at the moment?” asked Jon Bishop, director of equity research at New Zealand investment firm Jarden on Kwinana part-owner IGO’s FY'25 Q2 results call last week. He also wondered if the prospect of a ban risked “negative dragging on the ability to improve the operational performance of that asset”.

Kwinana is owned by Tianqi Lithium Energy Australia (Tlea), a 51:49pc joint venture between China’s Tianqi Lithium and Australian miner IGO. And the latter’s CEO Ivan Vella admits that any future restrictions on Chinese technology being used abroad could be an issue — albeit in a Kwinana context, it “has not come up as an issue or has not been a specific area of focus”.

“I am following that news as well. It is still not entirely clear how that plays out. I think the intent has been stated by China,” Vella acknowledges.

“Could it be an advantage or a disadvantage? I could imagine both,” he continues. “We do rely on providers from outside of China to support Kwinana. It is not a case of it all being based on Chinese input.”

But he has to confess that IGO’s Chinese partner has “got such deep experience”. “Most of, well, virtually all of, the working refineries in the world are in China and they are all performing,” Vella adds.

Mercury rising

The potential technology transfer issue is a reminder of increasing political risk around lithium, with a Sinophobic administration in the White House ratcheting up the global temperature. “There is obviously a lot of moving parts around the lithium and energy storage industry right now, lots of geopolitics,” Vella admits.

Australia, despite previous tensions with its Pacific neighbour, has been relatively sanguine about Chinese involvement in its EV value chain — from upstream lithium mining and processing through to welcoming Chinese BEVs into its market. Obviously, however, there could be future disadvantages for Australian lithium mined or processed in partnership with Chinese firms should other jurisdictions press on with reshoring/'friend-shoring' policies that incentivise battery value chains free from Chinese fingerprints.

But, for now, IGO’s main priority is to try to improve performance at Kwinana, where all works on train 2 were put on ice in late January and IGO took a A$525mn ($332mn) impairment charge at the end of its financial second quarter.

“The impairment recognises the current market conditions as well as the ramp up challenges of train 1. It also recognises the cessation of train 2 activity as we announced last month, due to the project being deemed uneconomic by both the partners,” says IGO CFO Kathleen Bozanic.

More work to do

IGO and Tianqi Lithium “are continuing to develop a pathway for Kwinana which is acceptable to both parties”. But Rob Stein, resources research an analyst at Australian bank Macquarie, is concerned at IGO’s guidance on production costs.

These fell by 40pc year-on-year in the first half of IGO’s financial year ’25 compared to the same period in FY’24, from A$45,432/t to A$27,136/6. While IGO is guiding for a further squeezing lower to A$22,000-25,00 for FY’25 as a whole, at an equivalent of c.$15,000/t at the midpoint, that remains too rich for Stein’s tastes.

“Obviously that is not going to be acceptable to your Chinese JV partners,” he says. “It is significantly higher than refining costs in China and, even more broadly, in some other countries in Asia. How can we expect that number to come down over time?”

Vella leans largely on average costs coming down as production goes up, given that fixed costs will not rise. “Like anything, when you are operating a big plant like that, as the volumes come up that will amortise down,” he suggests.

“Naturally not having more tonnes through train 2 makes that harder, so the problem is not easier looking forward,” the IGO chief continues. “The issue in front of the team is to get the volume up as quickly as possible and that is what will move the dial on the cost per tonne processed.”

And he is clear that IGO will not just throw money at its Kwinana problems. “When I talk about capital allocation… unless we can see that pathway — at least with a reasonable sensitivity — that generates an appropriate return, then we are going to push back on that capital and say, ‘we want more clarity, we want a different pathway, we want another solution, we want another way of doing things to get to the kind of performance that we expect,’” Vella says.

At the same time, when pressed by Tim Hoff, analyst at financial services firm Canaccord Genuity if there was “a drop-dead date for when you have got to make a decision as to whether this asset just gets turned off”, he maintains that simply walking away from Kwinana is not on the table at present.