Did you know you're investing in lithium when you buy Wesfarmers shares?

Lithium is part of Wesfarmers' future.

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Key points

  • Wesfarmers may not be known as a lithium miner, but it has plans
  • It’s part of a joint venture that is developing the Mt Holland lithium resource
  • Wesfarmers plans to utilise its existing operations to help make the best of the lithium value chain

The Wesfarmers Ltd (ASX: WES) share price could become increasingly influenced by lithium as the company builds exposure to the resource.

Wesfarmers is best known for being a leading retailer. It has some of the largest retail businesses within its portfolio including Bunnings, Officeworks, Target, and Kmart. The e-commerce business Catch is another name in its portfolio.

However, Wesfarmers is not only a retailer. It has a portfolio of businesses, including industrial businesses and a chemicals, energy, and fertiliser division called WesCEF.

So how does lithium fit in?

Mt Holland

In May 2019, Wesfarmers launched a successful bid to acquire Kidman Resources which was an ASX share at the time.

Kidman's major asset was a 50% interest in the Mt Holland project based in Western Australia, which it owns jointly with Sociedad Quimica y Minera de Chile, one of the world's largest producers and marketers of lithium products. It included the construction of a mine and co-located concentrator at Mt Holland as well as a lithium hydroxide refinery in Kwinana. Wesfarmers pointed out that lithium hydroxide is key to the electric vehicle value chain.

Why did Wesfarmers buy this business?

Not only does Wesfarmers see attractive long-term growth trends for lithium (thanks to electric vehicles), but the company can also utilise the WesCEF business' ability to "design, construct, commission and operate complex plants".

The Wesfarmers managing director Rob Scott said:

The acquisition of Kidman provides an opportunity to invest and develop a large-scale, long-life and high-grade lithium hydroxide project in Western Australia. It also creates a unique partnership with SQM, a global leader in the lithium industry with a long operating history and deep market knowledge.

Wesfarmers said that the increasing global uptake of electric vehicles in the longer term will be driven by "significant reductions in manufacturing costs, lower operating costs relative to traditional vehicles, increasing battery range and the transition of major auto manufacturers to electric drivetrains".

In July 2021, the Mt Holland project received ministerial approval which was the last critical approval. Construction and project development started last year.

Progress on Mt Holland

Wesfarmers said that first production from the refinery is expected in the second half of the 2024 calendar. The life of the project is expected to be around 50 years. The production capacity is expected to be 50kt per annum. Wesfarmers' share of the capital expenditure is around $950 million.

In terms of progress on the site, the Mt Holland village and aerodrome construction has been completed.

Construction of the concentrator and refinery are underway. Pre-strip mining has commenced.

Despite the impact of inflation, Covalent (which is the name of the lithium business) said it's currently containing the impacts of this challenging environment to remain in line with the original guidance.

Further growth opportunities

Wesfarmers outlined in a recent presentation that it is investigating expansion opportunities for the mine and refinery to improve investment returns.

It's also evaluating "adjacent step-out opportunities and downstream investments" within the battery minerals theme.

Wesfarmers said that it is considering options for the sale of spodumene concentrate.

Foolish takeaway

So, there you have it, Wesfarmers could be a sizeable lithium miner later this decade. Investors can already get exposure to the progress that Wesfarmers is making with its lithium plans.

The Wesfarmers share price has gone up around 4% over the last month.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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