IGO’s CEO says $1.2b Kwinana refinery won’t make money even if it’s fixed and lithium price keeps rising

The misfiring Kwinana lithium refinery is a dud even if it starts running smoothly and lithium prices keep rising, IGO boss Ivan Vella declared in a spectacular escalation of his company’s dispute with joint venture partner Tianqi.

Mr Vella made the extraordinary admission at the company’s annual general meeting in Perth on Wednesday, signalling that tensions with China’s Tianqi have reached boiling point.

Tianqi owns a 51 per cent stake in the Kwinana refinery and IGO the remainder. IGO has written down the value of its 49 per cent stake to zero and wants the loss-making refinery, which cost $1.2 billion to build, mothballed.

Tianqi, however, wants to keep it running because the lithium hydroxide produced feeds its wholly-owned operations in China.

Tianqi has full control over whether the Kwinana plant stays open and IGO is contractually obliged to keep sinking cash into the venture. IGO lost $20 million last quarter propping up the refinery — which was operating at 46 per cent capacity.

“After three years it (Kwinana) is just not working,” Mr Vella said on Wednesday.

“We benchmarked plants in China and elsewhere in the world. We’ve looked at the technical studies, we’ve gone through it. This is a challenged asset and it’s not something that we think is is worth chasing down the road and trying to solve.

“Equally, if it was (at) nameplate (capacity) today, we still don’t believe that it would be economic . . . that’s a function of what it means to do downstream processing in Australia, when you look at the energy costs, when you look at the labour costs, when you look at the lack of broader clusters of capability around these assets.”

Mr Vella was then asked by a shareholder if resurgent lithium prices could make the plant viable if it reaches nameplate capacity.

“There is considerable excess capacity in China today. Probably about half of the capacity is being utilised at present,” he said in response.

“So even as the (lithium) cycle moves, it becomes very challenging to maintain the competitiveness when your underlying costs there are so high that, as I said, is a function of the underlying inputs — energy costs, gas, electricity, labour et cetera.

“The last thing you want to do is continue to invest in what, even at the best lifting price, is still a low-return asset.”

Mr Vella’s comments come three months after Tianqi chief executive Frank Ha likened his company’s JV with IGO as a “marriage” and the Kwinana refinery as the “child” both have responsibility for.

Mr Ha said Kwinana was a “very important part” of Tianqi’s “international strategy”. He also revealed IGO had not formally asked Tianqi to cut a deal for a reduced capital expenditure exposure to the refinery.

“They (IGO) didn’t say to me anything that they want to divorce,” Mr Ha said.

“If IGO does not want to spend money . . . they have to, as long as they are the partner. If they do not want to be the partner, they have to come to me, I’m open (to a deal).”

“(A joint venture) is like a marriage and it is immoral, against my rules, that I start to find a new partner before it’s finished.”

Mr Vella on Wednesday said talks with Tianqi about the refinery’s future were “ongoing”.