Tianqi Lithium Terminates Kwinana Lithium Hydroxide Refinery Phase 2 Construction in Australia

Tianqi Lithium Corporation announced on January 23 that it had conducted a comprehensive analysis and evaluation of its "Phase I 24,000 tonnes per annum (tpa) Battery-Grade Monohydrate Lithium Hydroxide Project" and "Phase II 24,000 tpa Battery-Grade Monohydrate Lithium Hydroxide Project," or the Kwinana Project in Australia, and decided to terminate the development, with subsequent impairment testing executed for these assets.

According to the company, the Board of Directors of Tianqi has determined that continuing the Phase II construction on this project is "economically unviable” upon an exhaustive review of the preliminary capital investments, projected future capital expenditures, operating expenses, project execution timelines, and anticipated net cash flows. The Board has made the decision to prevent further resource misallocation, mitigate potential financial losses, and safeguard the interests of the company and its shareholders.

Ⅰ. Development Timeline

2017: Feasibility Study and Project Approval

• On June 19, 2017, the Board of Directors of Tianqi approved the proposal to initiate feasibility studies and preliminary investment for the Phase II construction.

• On October 26, 2017, the Project was formally approved for construction, with a total estimated investment of AUD 328 million (approximately RMB 1.709 billion at the time). The construction was expected to span 26 months.

2020: Strategic Adjustment

• In early 2020, the company reassessed the commissioning schedule and objectives of the project, citing "financial constraints", resulting in a slowdown of the project timeline. The company said "considering the significant interdependencies between Phase I and Phase II, as well as changes in market conditions and the company’s liquidity position, the construction of the Phase II Project was temporarily suspended."

2023: Re-evaluation of Feasibility

• In September 2023, the Board of Directors of the company’s subsidiary, Tianqi Lithium Energy Australia Pty Ltd (TLEA), approved the Front-End Engineering Design (FEED) contract for the Phase II.

• In November 2023, Tianqi Lithium Kwinana Pty Ltd, a wholly owned subsidiary of TLEA, officially signed a FEED contract with the contractor. The purpose was to comprehensively assess the project’s economic feasibility and construction timeline.

• Concurrently, the company’s management began a thorough re-evaluation of the project schedule and capital investment plan, factoring in market conditions and the company’s long-term development strategy.

2025: Project Termination

• On January 23, 2025, the proposal to terminate investment in the Phase II Lithium Hydroxide Project was unanimously approved.

Ⅱ. Financial Implications of Termination and Basis for Asset Impairment Provisions

• As of December 31, 2024, the cumulative preliminary expenditure on the Phase II was approximately RMB 1.412 billion, representing 2.74% of the company’s audited net assets for the previous fiscal year.

• The termination of this project is expected to reduce the company's net profit attributable to shareholders for FY2024 by approximately RMB 501 million, which accounts for 6.86% of the company’s audited net profit for the most recent fiscal year.

(1) Inventory Write-Down Provisions

As of the balance sheet date, the company conducted impairment testing on its inventory. Based on the results, it is estimated that a provision for inventory write-downs of approximately RMB 700 million will be recorded for FY2024. The primary contributor to this provision is inventory at the Kwinana Plant in Australia. Since the Phase I Lithium Hydroxide Project is still in the capacity ramp-up stage, the unit cost of finished goods remains relatively high, while market prices for lithium hydroxide during the same period have been relatively low.

(2) Impairment Provisions for Construction in Progress (CIP) and Right-of-Use Assets

The company has preliminarily estimated that total impairment provisions of approximately RMB 1.412 billion will be recorded for construction in progress (CIP) and right-of-use assets in FY2024, which is primarily related to the lithium hydroxide project. The company is currently performing impairment testing for these assets, considering updated circumstances, and is in ongoing discussions with the management of TLEA to confirm relevant information.

(3) Impairment Provisions for Receivables

The company conducted impairment testing for accounts receivable and other receivables based on expected credit losses and recognized corresponding loss provisions:

• For accounts receivable, the company expects to record bad debt provisions of approximately RMB 59 million in FY2024.

• For other receivables, the company expects to record a reversal of bad debt provisions of approximately RMB 8 million in FY2024.

The company says that the continuing impairment testing related to Kwinana is still ongoing to incorporate the latest data and market conditions. Additionally, it is working closely with TLEA's management team to verify relevant assumptions and results. As of now, no final conclusions have been reached on the assumptions or outcomes of these impairment tests, and the process remains ongoing.

Author: Hongqiu Su | Battery Metals Analyst Associate | London Office, Shanghai Metals Market

Email: lilysu@smm.cn