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Tianqi Kwinana lithium hydroxide plant cost blowout

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Tianqi reveals extent of Kwinana lithium hydroxide plant cost blowout

Sean SmithThe West Australian
Thu, 23 July 2020 7:14AM
Sean Smith


Regulatory scrutiny in China has forced the lithium produce to reveal the cost of the delayed plant. Credit: Tianqi Lithium

The extent of the cost blowout at Australia’s first lithium hydroxide plant has finally been revealed, with the first stage of the delayed Kwinana project completed at nearly double the initial budget of $400 million.

Company disclosures triggered by regulatory scrutiny in China show that Chinese lithium producer Tianqi has put the revised cost of Kwinana’s first stage alone at $770m.

That’s $70m more than the company had planned to spend on both stages of the plant, which has been put on ice to await better lithium prices.

However, Tianqi insists the increased development costs have not affected its investment proposition, pointing to existing sales contracts for Kwinana’s battery-grade product with offshore buyers and forecast long-term demand for lithium.

Tianqi began building the plant in October 2016, with the original aim of kicking off a long commissioning in late 2018.
The $700m budget included $300m for a second-stage expansion to double production to 48,000 tonnes a year.
But the complexity of the fully-automated plant, a shortage of local experience in dealing with such projects, tweaks to the plant design and higher-than-expected costs for labour and materials quickly contributed to construction delays.

The complexity of the project, a shortage of local experience and design tweaks added to the cost. Credit: Tianqi Lithium

Responding to a query this week from its home stock exchange in Shenzhen about an auditor’s qualification in its 2019 annual report, Tianqi revealed that the cost of the project had blown out to $591 million by March last year.

In October, the budget was increased again, to $770 million. Tianqi revealed just weeks ago that the plant is not expected to enter production until next year, with the suspended second stage unlikely to be completed until mid-2023 at best.

When announced, the plant was hailed as a landmark project for WA’s emerging lithium industry. 
But its future ownership is now in question as Tianqi mulls asset sales, including a potential sell-down or exit from Kwinana, due to a financial squeeze blamed on the downturn in lithium prices and COVID-19.

It is also believed to be fielding interest in its 51 per cent stake in the Greenbushes lithium mine, south-east of Perth, which has been expanded to supply the Kwinana plant.

The Kwinana development has been further complicated by a Supreme Court writ by the construction contractor, MSP Engineering, over a disputed $36m claim. Tianqi has rejected the claim and “asserted its entitlement in any case to recover an amount which is in excess of the amounts claimed by MSP”.

Tianqi is struggling to repay loans taken out to buy a 23.8 per cent stake in Chilean miner SQM for $US4.1 billion ($5.8b) two years ago.
Prices for lithium have fallen about 70 per cent since Tianqi agreed to buy the SQM stake.

The Greenbushes joint venture has already warned that it could be forced to withhold dividends to cover nearly $120m in overdue payments racked up by Tianqi.
As of March, $US73.5m of the $US107.1m owed by Tianqi to the mine partnership with US group Ablemarle for delivered lithium concentrate was an average of seven weeks overdue.