Kwinana Shutdown Signals Economic Strain for IGO Despite Greenbushes Success

Strong Greenbushes Performance Amidst Group Challenges

IGO Limited’s quarterly report for the period ending 31 December 2024 highlights a tale of two operational realities. The Greenbushes lithium mine continues to deliver above expectations, exceeding planned production and maintaining healthy margins and cash flows. This performance underscores Greenbushes’ position as a cornerstone asset capable of generating sustainable returns even as the company navigates broader market and operational headwinds.

Despite this bright spot, the group reported an underlying EBITDA loss of $79 million, excluding anticipated impairments related to the Kwinana Lithium Hydroxide Refinery. This loss reflects a combination of factors including lower revenue contributions from the Tianqi Lithium Energy Australia (TLEA) joint venture, foreign exchange losses on USD-denominated debt, and inventory write-downs at Kwinana.

Kwinana Expansion Halted and Impairment Looms

In a significant strategic pivot, IGO and its partner Tianqi Lithium Corporation have ceased all works on Kwinana’s Lithium Hydroxide Plant 2 (LHP2). The decision follows a detailed reassessment of project economics, operational performance of the existing Plant 1, and future capital and operating cost projections. The conclusion that LHP2 is not economically viable under current conditions signals the capital intensity challenges faced by lithium downstream processing projects in Australia.

IGO has foreshadowed a substantial impairment charge related to Kwinana, expected to be disclosed with its first half 2025 results. This impairment will materially impact the group’s financials and reflects the broader volatility and pricing pressures in the lithium hydroxide market.

Nova Operation Faces Production and Cost Pressures

The Nova nickel operation experienced a downturn in production due to lower ore grades and reduced plant availability. Nickel grades fell to 1.25% from 1.41% in the prior quarter, pushing production toward the lower end of full-year guidance. This decline, coupled with increased unit cash costs, highlights the operational challenges as the mine approaches its later years.

Despite these pressures, Nova’s sales revenue remained relatively stable, supported by steady nickel and copper prices. The operation’s ability to maintain exports through Esperance Port provides some logistical resilience amid these challenges.

Financial Position and Safety Initiatives

IGO’s balance sheet remains robust with $247 million in net cash and $720 million of undrawn debt facilities, providing financial flexibility to manage ongoing operational challenges and invest in future opportunities. The company’s focus on safety continues to yield incremental improvements, with the Total Recordable Injury Frequency Rate (TRIFR) marginally reduced to 11.3, reflecting sustained efforts in safety leadership and risk management.

Looking ahead, IGO is prioritising the optimisation of its existing assets and exploring pathways to enhance project economics at Kwinana in collaboration with Tianqi. The company’s exploration activities remain active, with promising developments at Cosmos and other projects, underpinning a longer-term growth strategy.