Most Mount Holland spodumene to hit market until 2027

The majority of production from the Mount Holland, WA lithium mine will ultimately go to the integrated refinery its joint venture (JV) owners are developing at Kwinana. But, despite the processing facility being on track for first production in the middle of this year, lithium analysts should not factor in significant spodumene offtake from the facility for almost two years.

Aaron Hood, deputy managing director of WesCEF — the chemical subsidiary of sprawling Australian conglomerate Wesfarmers, which is a JV partner on the Covalent project with Chilean miner SQM —answered in the affirmative late last month to an analyst call question from Richard Barwick, head of research at investment firm CLSA, on whether material refining volumes from Kwinana was “probably even more likely a second half FY ’27 story”. With Wesfarmers’ financial year (FY) running from July to June, this would translate to the first half of 2027 in calendar year terms.

The Kwinana facility is still on schedule for first production in the middle of this year, with construction 95pc and commissioning 50pc complete by the end of December, the latter hitting 64pc by mid-February. But, while Wesfarmers has always said it will have an 18-month ramp-up period, it is now being more explicit that this start-up process will be “back-ended”, i.e. with material volumes only emerging late in this window.

“From what we have seen, whether it is our existing operations when we have ramped those up or looking at other refineries, it is probably unlikely to be a linear journey from day zero to the end of that 18-month period,” Hood admits. “I think it is fair to assume it is probably more back-ended as you start to make improvement.”

For certain, analysts can factor in large volumes of Mount Holland spodumene hitting the market in the period July ’25-Jun ’26. For one thing, customer contracts will take time to seal. “In parallel with ramp-up, product qualification with contracted customers will also commence which could take up to nine months,” says Wesfarmers CEO Rob Scott.

 “We are going into FY ’26 still selling, or required to sell, spodumene into the market,” Hood adds. “It will be challenging in FY '26 to generate profit on the hydroxide side.” This not least because “clearly, in the early phase of the lithium hydroxide project coming online, [it is] not going to be our long-run target cost per tonne production”.

It could also remain challenging on the spodumene front. WesCEF’s sale of spodumene concentrate in the first half of FY’25 contributed a loss of A$24mn ($15.1mn), owing to “lower market pricing and higher unit cost of production as volumes from the concentrator continued to ramp up through the half”.

Australia not a refinery red light

Wesfarmers continues to back the Covalent project to deliver profit, albeit it admits to a range of uncertainties that surround the project. It does, though, reject comments reportedly made by the CEO of US miner Albemarle — perhaps mindful of his own firm's challenges at its Kemerton facility as well as those faced by Australian miner IGO at its Kwinana plant — that WA lacks the technical skills to make a refinery project work.

“As you would imagine, before we made this investment, we asked ourselves the same question, and it was a real benefit of partnering with SQM. Someone with SQM's international expertise and expertise in processing; that provided a level of technical knowledge and experience that complemented the very significant capabilities that Aaron and his team have in developing and operating major chemical facilities in Western Australia,” says Scott.

“So far, at least, the team in Covalent have done an exceptional job of developing a project in a highly inflationary environment in line with budget. And we feel that we have adequate experience, capability, together with our team at SQM, to commission this and run it successfully.

“We also benefit from the fact that we committed a lot of this capex before the inflationary cycle really started to hit. Probably it is stating the obvious, but to try to build what we are building, if you try to start today, it would cost a hell of a lot more than what it cost us when we started this process a number of years ago,” the Wesfarmers chief adds.

And that lower capex could be critical, as Hood suggests it is the higher upfront investment costs that hamper Australian refining projects in competition with China — not operating costs, given the transportation the freight savings from having spodumene on plants’ doorsteps.

“You need to remember, we are obviously procuring spodumene from the mine gate ourselves. We are avoiding all of the transport costs that Chinese refiners etc. have to deal with,” Hood says. “When you look at that vertically integrated operation, once we hit full production run rates and get to fractionalise that cost, we still think it is a viable and beneficial project for Wesfarmers.

“I think the challenges on building a refinery in a place like Western Australia versus Asia is probably more on the capex side of things,” Hood continues. Inflation is “clearly an element that makes building these kind of operations more challenging here versus other locations”.

“But when you look at the opex side of things, there are significant benefits in being [able] to feed a refinery from a wholly owned West Australian mine, rather than having to transport spodumene over large distances from Australia to China etc. So there are wins and losses on the opex side; I think it is probably more of a capex argument,” he continues.

Uncertain short-term outlook

The current depressed hydroxide market is clearly on Wesfarmers’ mind, even though Hood maintains that “we do have benefits — like many players in the lithium industry — when selling to Tier 1 customers there are pricing mechanisms and structures in those agreements where we are not necessarily facing into the spot price”. But Scott returned to the point that initial profitability of the refinery remains challenging on three separate occasions:

·        “Obviously, the next six months are critical.”

·        “At the end of the day, time will tell, and we will be able to answer your question a lot more precisely in 12 to 18 months' time.”

·        “We are cautiously optimistic… but at the end of the day, time will tell in the next 6 to 12 months.”

It is left to Hood to make an impassioned defence of the project’s long-term economic rationale. “Our investment case was very much predicated on not making predictions on long-run prices and really benchmarking starting with the core asset in Mount Holland and understanding where that would sit on the cost curve,” he says.

“Since the time we have invested in Mount Holland and made the acquisition, there has clearly been new discoveries and new entrants into the global supply chain for lithium. But when we benchmark the mine and have a look at what is likely to come into the supply towards the end of the decade, Mount Holland is still very competitive from a grade, tonnage and just where, logistically, it is located to be able to feed the refinery in Kwinana.

“When we look at overall demand for lithium chemical, we are still confident that you need many more Mount Holland or brine assets around the world to come into the supply chain to meet a base case forecast of the increase in demand. There has been some upside, I think, in energy storage and larger scale batteries that we probably did not factor into our view,” he concludes.