Market speculation links Wesfarmers to lithium

As Wesfarmers sets Coles supermarkets adrift, the market is questioning what is the next move for the Perth-based conglomerate. Some believe its focus remains on chemicals.

Chief executive Rob Scott has given little away about where the company may outlay large sums of cash for an acquisition, but some chatter in the market suggests it has cast its eye over Mineral Resources’ Wodgina lithium project.

It may sound far-fetched, but apparently Wesfarmers, which now counts some of the country’s best private equity deal-makers within its ranks, is said to be conscious of deals in the lithium space.

IBISWorld says Australian lithium output has increased over the past five years in response to export demand.

Much of the strong interest is driven by anticipation of a growing use of electric vehicles, powered by lithium batteries.

Wodgina is a Port Hedland lithium project owned by Mineral Resources and a minority stake has been for sale through Macquarie Capital for some time.

Attention turned to Wesfarmers this month when speculation emerged that an Australia-based “downstream” company was looking at Wodgina.

Sources close to Mineral Resources have dismissed suggestions that Wesfarmers is a suitor, but others say that the company has shown interest.

Wesfarmers has declined to comment.

The structure of the Wodgina sale of 49 per cent of the business is said to be unusual and most of the prospective corporate buyers here are not thought to be in the mix due for this reason.

The company is selling some of the ore body and retaining the processing plant with potential the buyer of the ore body charged a fee to process their ore, according to sources.

For this reason, the buyer, some think, could quite likely be a party eager to secure the material.

Wesfarmers has a chemicals, energy and fertilisers division that manufactures and supplies ammonia, ammonium nitrate and industrial chemicals to the resource and industrial sectors.

It also makes and distributes chemicals for the Western Australian agricultural sector.

Some have questioned whether a deal unfolds between the chemicals arm of Incitec Pivot and Wesfarmers Chemicals or Orica, with the three businesses all said to have strong synergies.

Other suitors of Wodgina are thought to be leading lithium producer Shangdong Ruifu, among others from Asia, including Sumitomo, Mitsui, Gangfeng and Tianqi Lithium.

Its overall value is thought to be about $3.5bn.