Australia’s largest company by revenue, Wesfarmers, completed its AUS$1.5 billion deal to acquire lithium developer Kidman Resources in September.
The purchase by the multibillion-dollar conglomerate, which has major interests in chemicals, coal and fertilisers, could have wide repercussions for the global lithium market and the wider Australian resources sector.
On completion of the deal, Wesfarmers’ Managing Director Rob Scott said, “this acquisition and our planned future investment is an attractive opportunity to participate in the development of a large-scale, long-life and high-grade lithium hydroxide project in Western Australia in partnership with a global leader in the lithium industry”.
He continued, “it leverages and builds on the existing strengths and chemical processing capabilities within our chemicals, energy and fertilisers business, while supporting Western Australia’s ambition to become a global hub for downstream lithium processing.”
As the largest Australian company by revenue, Wesfarmers adds a major stamp of approval to Kidman Resources and the lithium growth tailwind. In a period where the lithium prices are under pressure and the lithium industry is struggling to attract investment from outside of the sector this is a vote of confidence in lithium’s long-term prospects.
By choosing to pursue opportunities in lithium via M&A instead of bolstering its large specialty chemicals or coal portfolio, Wesfarmers could be the first in a wave of large diversified conglomerates that contemplate serious plays in the battery metals space.
It also represents the migration of capital towards the energy storage supply chain, from companies that typically operate in larger, established commodity markets.
Wesfarmers has likely had the opportunity to study Kidman’s supply agreements with Tesla, Mitsui, and LG Chem. The deal would indicate that the offtake contracts are serious and bankable enough for a solid investment justification to shareholders.
This lends further credibility to the involvement of automotive OEMs and major battery producers’ in the development of new projects.
With a strong asset portfolio and balance sheet, Wesfarmers is likely in a better position to execute the construction and ramp up of a battery-grade lithium chemicals facility.
Furthermore, based on the structure of the Mt Holland 50:50 joint venture with SQM, we believe SQM would have been party to discussions with Wesfarmers about their ability to complete this project together.
The acquisition moving ahead indicates that SQM has likely given a stamp of approval for Wesfarmers as a credible JV partner. As such, this event could foreshadow a wave of similar partnerships forming across industry players in the future.