Turned Loss-Making YoY, Tianqi Lithium Expects a Loss of Over 7 Billion in 2024 and Plans to Terminate the Construction of the Second-Phase Lithium Hydroxide Project in Australia

Tianqi Lithium (002466.SZ), a leading lithium producer, reported its first loss in three years, nearly wiping out its entire profit from the previous year. Meanwhile, the company has also halted the construction of its second-phase lithium hydroxide project in Australia.

In an announcement released in the evening, Tianqi Lithium projected a net loss attributable to shareholders of publicly listed firms for 2024 to be between 7.1 billion yuan and 8.2 billion yuan, compared to a net profit of 7.297 billion yuan in the same period last year. Net profits for the first three quarters were -3.897 billion yuan, -1.309 billion yuan, and -496 million yuan, respectively. Based on these figures, Q4 net profit is estimated to be a loss of 1.398 billion yuan to 2.498 billion yuan.

This marks the largest annual loss since the company went public. Tianqi Lithium stated in the announcement that the performance decline was primarily due to four factors: a drop in lithium product prices and a mismatch in pricing mechanisms; a decline in the performance of its key associate company, Sociedad Química y Minera de Chile S.A. (SQM); increased asset impairment losses; and higher foreign exchange losses.

The first two reasons were already mentioned in the company's Q3 performance disclosure. For the full year of 2024, lithium carbonate prices showed a trend of rising first and then falling, continuing the overall downward trend from 2023.

From the first three quarters, Tianqi Lithium's performance showed a sequential reduction in losses. The company previously stated that the impact of the pricing mechanism mismatch had indeed eased. However, Q4 losses increased sequentially, likely due to the lithium hydroxide project in Australia. On January 21, Tianqi Lithium announced that it was making provisions for asset impairment for its lithium hydroxide project in Australia.

On the same day, Tianqi Lithium also announced that it expects to make total asset impairment provisions of approximately 2.163 billion yuan for 2024, which is expected to reduce the company's net profit attributable to shareholders by approximately 770 million yuan.

(Image source: Tianqi Lithium announcement)

The lithium hydroxide project in Australia is the main source of the impairment. Among the impairment provisions, 700 million yuan is for inventory write-downs, primarily related to inventory at the Kwinana plant in Australia. Since the first-phase lithium hydroxide project is still in the capacity ramp-up stage, the unit cost of finished products remains relatively high, while market prices for lithium hydroxide during the same period were relatively low.

Additionally, Tianqi Lithium has decided to terminate the investment and construction of the second-phase lithium hydroxide project. It expects to make impairment provisions for construction in progress and right-of-use assets totaling approximately 1.412 billion yuan in 2024.

Tianqi Lithium stated that, based on the current market conditions for its products, the operational status of the first-phase lithium hydroxide project, and the company's business development plans, after comprehensively reviewing the initial investment, future capital expenditures, operating costs, project execution progress, and future net cash flows of the second-phase lithium hydroxide project, the company believes that continuing the construction of the second-phase project is not economically viable. To avoid resource waste, reduce potential economic losses, and safeguard the interests of the company and all shareholders, the company has decided to terminate the second-phase lithium hydroxide project.

Tianqi Lithium's Australian lithium hydroxide project has been in planning for years. The company announced plans for the Australian lithium hydroxide project in 2016 and 2017, respectively, including the first-phase project with an annual capacity of 24,000 mt of battery-grade monohydrate lithium hydroxide and the second-phase project with the same capacity.

According to information disclosed by Tianqi Lithium, the first-phase plant began construction in September 2019 and, after nearly three years, entered the trial production stage in May 2022. In November 2022, Tianqi Lithium announced that the project had achieved commercial production capacity. As of the announcement disclosed this evening, the first-phase plant is still in the capacity ramp-up stage.