The Wesfarmers Ltd (ASX: WES) share price is under the spotlight after the company announced a lithium expansion.
Wesfarmers owns various retail businesses including Kmart, Bunnings and Officeworks. It also has a division called WesCEF, which includes energy investments such as its Covalent Lithium stake.
Lithium expansion
Wesfarmers announced together with Sociedad Quimica y Minera de Chile (SQM) that they have approved the final investment decision (FID) to expand the Mt Holland lithium project.
This expansion will include the mine, concentrator and a new integrated ore sorting facility.
How will this help? It’s expected to double spodumene concentrate (lithium) production, lower unit operating costs and accelerate cashflows.
A definitive feasibility study for the expansion project is expected to increase the spodumene concentrate production from approximately 380,000 tonnes per year to 760,000 tonnes per year.
An ore sorting facility will also be constructed to recover stockpiled material currently unsuitable for processing, reportedly adding approximately 3mt of spodumene concentrate production over the life of the operation.
Construction of a second concentrator is expected to begin in the second half of the 2027 calendar year, with the first spodumene concentrate production volumes from the expansion expected in the first half of the 2030 calendar year.
The expanded production is expected to be sold as spodumene concentrate, though the expansion provides optionality to supply any future potential expansion of downstream processing at Covalent Lithium’s Kwinana refinery.
What is the cost of this?
Wesfarmers said its share of the capital expenditure for the project is expected to be between $645 million to $715 million.
The necessary government and regulatory approvals have either been secured or are underway.
Management commentary
The Wesfarmers Managing Director Rob Scott said the decision to proceed with the expansion of the mine and concentrator will “deliver economies of scale across mining and processing, and demonstrates WesCEF’s ability to leverage the existing asset base and infrastructure to deploy follow-on capital to lower overall unit costs and drive shareholder returns”. Scott also said:
Mt Holland is a world-class, integrated lithium business and this expansion improves its position on the cost curve. The expansion of Mt Holland will deliver an attractive return on capital for Wesfarmers shareholders, enabling us to meet strong demand for high quality product and will enhance the resilience of the business through commodity price cycles.
Final thoughts on the Wesfarmers share price
I definitely think this is a positive for Wesfarmers – it’s good for the company to diversify its earnings away from retail. Plus, lithium is in growing demand for the electric vehicle and industrial batteries. A rising lithium price considerably helps Covalent Lithium’s earnings.
However, the Wesfarmers share price has soared risen more than 10% this year when it already wasn’t cheap. I’d want to wait for a lower profit multiple before deciding to invest – there are lots of other opportunities out there.
