Just months after selling the last of its thermal coal assets, Wesfarmers – one of Australia’s leading business conglomerates – has made a $776 million play to enter the lithium market and tap into the opportunities of the global switch to electric vehicles.
The rest of the country should take note.
Last December, Wesfarmers complete the sale of the last of its thermal coal mines – the type used to power generators in Australia and overseas – and happily for its shareholders pocketed a massive profit of around $680 million from the $860 million sale price.
It said at the time that the Bengalla coal mine in New South Wales was a world-class asset. That probably made the buyer – New Hope Coal – feel good about its purchase. But it hasn’t turned out so well: New Hope’s shares have slumped badly as investors wake up to the idea that betting the house on a coal-based future may not be such a grand idea.
Under new CEO Rob Scott, Wesfarmers – after a busy year that has also seen it “de-merge” its Coles retail business (it still owns a stake in Coles, along with Kmart, Target and Officeworks) – has now switched its attention to a positive global trend, the inevitable shift to electric vehicles.
Its purchase of Kidman puts it into a joint venture with Chile-based lithium specialist SQM, and with a share in the Mt Holland lithium mine in the WA goldfields around Kalgoorlie, and with plans to invest together more than $1.2 billion in a concentrator and lithium refinery.
Wesfarmers has no doubts about the future of EVs. “Increasing penetration of electric vehicles (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,” it says.
And lithium, of course, is the critical raw material. Lithium-ion batteries will form the basis of electric drivetrains and lithium is needed to make battery grade lithium hydroxide, which is what Wesfarmers and its new partner plan to do.
Business analysts have described this move as a “chemical play” rather than a mining play (Wesfarmers is also big in chemicals, including fertiliser and ammonia nitrate), but this transaction points to a broader theme: It’s a clean energy transition play.
Scott was keen to downplay the idea that the company had been seduced by “global themes”, but the decision to exit and cash in on a sunset industry, and then invest that money and more in a sunrise industry – with huge opportunities in its own backyard, but no likely return until 2025 – is hugely significant.
It’s obvious to just about everyone – apart from the hold outs in the Coalition and conservative media – that the world is about to shift rapidly to EVs, possibly as quickly as it did to mobile phones, and to renewables. The long-term future for fossil fuels – coal, oil and gas – is poor.
Take a look at this graph published on Thursday by Australian lithium miner Orocobre about the amount that the world’s car-makers have committed to investments in EVs and batteries – a total of $US300 billion ($A426 billion).
Much of the credit for this must go to Tesla, which has changed the conversation about EVs by making a deliverable and desirable product, and to the falling cost of renewables that make clean transport a reality, and the decision by a growing number of countries to ban sales of petrol and diesel cars – because of their carbon emissions and because they are choking their cities.
The \good timing of the Wesfarmers play was highlighted by Tesla’s observations this week that the world is facing potential global shortages of nickel, copper and other electric-vehicle battery minerals due to underinvestment in the mining sector.
According to Reuters, its head of global supply Sarah Maryssael told a closed-door conference in Washington that Tesla thought there was “huge potential” to partner with mines in Australia or the United States to secure its supply chain.
Not everyone gets this shift to clean energy and an electric future, and it’s fair to say that the quality of a corporate is driven by the quality and vision of the people who run them.
Richard Goyder – the former Wesfarmers CEO and coal enthusiast (he used to push the line that Australian coal was good for global emissions) is now chairman of oil and gas producer Woodside, following the path of his own predecessor at Wesfarmers, Michael Chaney.
On the same day that Wesfarmers was announcing its investment in an EV future, Goyder was trying to warn Labor not to go too fast on energy policies, mindful – like Santos – of its own book and insisting that gas is still an important “clean transition fuel”, even if the evidence of its emissions, and its inability to compete with wind and solar and batteries – make that a harder call.
As the Australasian Centre for Corporate Responsibility said: “Woodside is a company that has no plan whatsoever for a life beyond fossil fuels.” It called for an overhaul of board and management.
At least though, they are not as bad as some gas players, like Blue Energy – feeling chirpy this week after Labor proposed a $1.5 billion subsidy for gas developments in northern Australia, a boost for players like Santos and Blue who have interests in the area.
Blue Energy’s managing director John Phillips clearly doesn’t like renewables, and let fly with an extraordinary rant in the company’s latest quarterly report.
“Australians are told constantly of our apparent need to ever reduce our CO2 emissions and then link this to a tardiness in our rate of roll out of more renewable energy sources to satisfy our need for “guilt free” energy (if solar and wind are silver bullets for a supposed CO2 problem),” he wrote.
“The logic for this is simplistically but emotionally communicated to the population as a need for Australia to “do our bit to reduce the global carbon emissions” from our terrible human activities so that we will avoid catastrophic man-made climate change for our grandchildren to still have a world to enjoy.
“So, the guilt foisted on the masses that we are recklessly accelerating the destruction of the planet by using cheap and reliable fossil fuel, becomes and unchallengeable ideological dogma.” (There’s more).
That could have been written by the Coalition, or the Murdoch media, and versions of it have been – all too often in the past and during this campaign.
They, like former prime minister Tony Abbott, don’t like experts. Abbott complained in a debate with challenger Zali Steggall on Thursday: “We sub-contract too much out to experts already”, before adding that we should not “save our planet at the expense of our neighbour”.
So, while we have some companies reviewing their membership of anti-action business lobbies like the Minerals Council of Australia and the Business Council of Australia, others are quite happy to elect climate science deniers such as David Murray as chairman of AMP, a guardian of a significant share of the country’s savings pool.
Wesfarmers may have seen the signs and make a move, but there is still a large part of Australia political and corporate brigade staying right where they are.
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