IGO (ASX: IGO) Plunges—Refinery Writedown Saps Lithium Juice

IGO Ltd’s (ASX: IGO) share price took a heavy hit this week after the company revealed a major writedown on its Kwinana lithium hydroxide refinery. The company’s lithium hydroxide plant at Kwinana, once hailed as a cornerstone of Australia’s battery materials push, has been hit with a massive writedown. The news triggered a sharp sell-off, wiping hundreds of millions from IGO’s market value in a single day and raising uncomfortable questions about its downstream strategy. Is this a short-term stumble or a sign that the lithium juice is running dry?

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IGO in Focus: From Nickel to Lithium Powerhouse

IGO’s journey over the past decade has been one of the more striking transformations in the Australian resources sector. Once best known for its nickel operations, particularly the Nova mine in Western Australia’s Fraser Range, the company has repositioned itself as a key player in the global battery metals supply chain. This pivot wasn’t accidental; it was a calculated move to tap into the surging demand for lithium driven by electric vehicles and energy storage.

The turning point came in 2021, when IGO struck a landmark deal to acquire a 49% stake in Tianqi Lithium Energy Australia (TLEA). That transaction not only gave it a foothold in the Kwinana lithium hydroxide refinery but, more importantly, secured a 24.99% interest in Greenbushes, the crown jewel of hard-rock lithium mining. Located in the south-west of WA, Greenbushes boasts exceptional ore grade and scale, making it one of the lowest-cost spodumene producers in the world.

This strategic shift elevated IGO from a mid-tier nickel producer to a diversified battery metals powerhouse, with exposure to both upstream mining and downstream processing. It positioned the company to capture greater margins and exert more control over the value chain, a model investors were quick to reward when lithium prices surged to record highs in 2022.

However, moving downstream is never without risk. Processing lithium into battery-grade hydroxide is technologically challenging, capital-intensive, and far more operationally complex than mining alone. While Greenbushes continues to deliver robust returns, the Kwinana refinery has become a reminder that integration strategies can be double-edged swords. The question for shareholders now is whether IGO can still balance its ambitious growth story with the discipline needed to protect shareholder value.

The Kwinana Lithium Hydroxide Plant: Once a Flagship, Now a Headache

IGO’s entry into the Kwinana lithium hydroxide refinery was pitched as a transformational move, converting Greenbushes spodumene into higher-value hydroxide for the booming EV and energy storage markets. With its strategic location near Perth, secure feedstock supply, and alignment with Australia’s critical minerals strategy, it was meant to lock in higher margins and greater control over the value chain.
Instead, the project has been dogged by setbacks. Commissioning suffered repeated technical faults, throughput remained well below nameplate capacity, and operating costs ballooned. Then came the market downturn: lithium hydroxide prices have slumped more than 60% since their 2022 highs, turning already thin margins into outright losses.

The joint venture with Tianqi Lithium, while crucial in securing Greenbushes, has also complicated decision-making. Differing priorities between partners have slowed operational fixes and clouded the refinery’s future. What was once the centrepiece of IGO’s downstream ambitions is now a financial and strategic headache, and the biggest question mark over its growth story.

The Writedown: Scale, Timing, and Market Impact

The writedown on Kwinana is more than just an accounting adjustment; it’s a stark acknowledgment that the project’s economics have materially weakened. IGO has impaired the value of its 49% stake in the refinery, effectively conceding that the facility’s future cash flows will be far lower than originally forecast. Analysts estimate the impairment runs into the hundreds of millions of dollars, wiping away years of anticipated profits.

The timing is telling. Lithium hydroxide prices have fallen sharply since late 2022, dropping more than 60% as new supply has flooded the market, particularly from China. For a plant already operating well below nameplate capacity, the price collapse has been devastating, turning projected margins into losses.

Market reaction was swift and unforgiving. On the day of the announcement, IGO’s shares slumped sharply, with trading volumes spiking as both retail and institutional investors reduced exposure. Several brokers moved quickly to cut earnings forecasts, while others questioned the capital allocation discipline that led to such a large investment in downstream processing without fully mitigating the operational risks.

Beyond the immediate hit to earnings, the writedown has a psychological effect. It signals to the market that Kwinana, once positioned as a cornerstone of IGO’s growth strategy, is now firmly in “problem asset” territory. For investors, this raises fresh concerns about whether more impairments could follow and whether the company will need to divert cash from other projects to keep the refinery afloat or to fund its eventual exit.

Pivoting Back to Greenbushes: The Resilient Cash Cow

While Kwinana has turned into a drag, IGO’s stake in the Greenbushes lithium mine remains its crown jewel and arguably its lifeline. Situated in Western Australia’s south-west, Greenbushes is widely regarded as the largest and highest-grade hard-rock lithium deposit in the world. Its exceptional ore quality and scale give it a production cost advantage that few competitors can match, even in a weak pricing environment.
In FY25, Greenbushes delivered spodumene production of around 1.48 Mt, with cash costs averaging roughly A$325/t, keeping it firmly in the lowest cost quartile globally. This low-cost structure has been critical in maintaining profitability and generating robust cash flows despite a lithium price slump of more than 60% from its 2022 peak.

Demand for its product remains steady, particularly from converters in China who prize Greenbushes’ high-grade spodumene for its superior conversion efficiency. With a secure offtake arrangement through the Tianqi Lithium Energy Australia joint venture, IGO’s share of Greenbushes’ output provides a reliable revenue stream that can help offset volatility in other parts of the business.

For management, the mine represents a core pillar of stability in an otherwise turbulent period. By focusing operational and financial resources on maximising output and efficiency from Greenbushes, IGO can lean on its most reliable asset while reassessing the long-term role of downstream processing in its portfolio. In a sector where cost discipline often decides who survives downturns, Greenbushes gives IGO a genuine competitive edge.

Strategic Implications: Retreat or Regroup?

IGO now finds itself at a pivotal crossroads. The writedown at Kwinana has forced a hard reassessment of its downstream strategy, not just in terms of financial viability, but also operational focus and investor expectations. The company has two broad options: double down and fix the refinery, or cut its losses and redirect capital toward its mining strengths.

Pushing ahead with Kwinana would require significant investment in both time and money. Operational issues need resolution, throughput must improve, and cost efficiency has to be restored. This would be a multi-year effort and heavily dependent on a sustained recovery in lithium hydroxide prices. For proponents of this approach, the reward is clear: a functioning refinery could eventually deliver higher-margin sales and deepen IGO’s role in the battery supply chain.

On the other hand, exiting or mothballing the refinery would free up capital and management bandwidth, allowing IGO to focus entirely on high-margin upstream production, particularly Greenbushes and its nickel operations. Such a move might initially be viewed as a retreat, but in volatile commodity markets, prioritising cash-generating assets over capital-draining projects can be the more disciplined choice.

Complicating matters further are the politics of Australia’s critical minerals push. Kwinana is part of a broader national strategy to move up the value chain and reduce reliance on offshore processing. A full withdrawal could draw criticism from policymakers and investors aligned with the “Made in Australia” narrative.

Whichever path IGO chooses, the decision will be scrutinised not just for its immediate financial impact but for what it says about the company’s long-term vision. For now, investors will be watching for concrete signals, whether it’s a turnaround plan with clear milestones for Kwinana, or a decisive move to sharpen the company’s upstream focus.

Lithium Market Outlook: Can the Juice Return?

Lithium hydroxide prices have fallen more than 60% since late 2022, pressured by a surge in new supply from China, Africa, and South America, alongside softer EV sales growth in China. Buyers are pushing for lower prices and delaying purchases, keeping margins tight for producers like IGO.

The longer-term story remains positive. BloombergNEF expects demand to more than triple by 2030 as EV adoption and energy storage expand. Many new projects sit at the higher end of the cost curve, meaning prolonged low prices could force supply cuts and help rebalance the market.

For IGO, the focus is on surviving the downturn while keeping optionality for an eventual recovery. Greenbushes’ low-cost profile gives it resilience, and a revived Kwinana could offer upside if prices rebound, but investors will need patience in this cyclical market.

Investor Takeaway

IGO’s Kwinana writedown is a stark reminder that vertical integration in mining carries real execution risk. While the refinery was meant to capture more margin and position the company deeper in the EV supply chain, operational setbacks and a brutal price downturn have turned it into a liability.

The good news is that IGO’s core assets remain strong. Greenbushes continues to generate robust cash flow thanks to its scale, grade, and low costs, giving the company a financial anchor in an otherwise turbulent lithium market. The Nova nickel operations also provide diversification, helping to buffer earnings. The share price weakness may tempt contrarians who see value in IGO’s world-class mining portfolio. But for now, sentiment is likely to remain tied to management’s ability to address Kwinana’s future, and to position the business to thrive whether the lithium market stays soft or begins its next upcycle.

FAQs

• How much is IGO’s writedown on the Kwinana refinery?

  While the company hasn’t disclosed the exact figure in this announcement, analysts estimate the impairment to be in the hundreds of millions of dollars, reflecting weaker price forecasts and underperformance at the plant.

• What percentage of Greenbushes does IGO own?

  IGO holds a 24.99% stake in the Greenbushes lithium mine through its joint venture with Tianqi Lithium Energy Australia.

• Why has Kwinana struggled since commissioning?

  The plant has faced technical issues, slow ramp-up, low throughput, and high costs — problems made worse by a sharp fall in lithium hydroxide prices since 2022.

• Could IGO exit the Kwinana joint venture?

  It’s possible, but any decision would depend on market conditions, negotiations with Tianqi, and whether management sees a path to economic viability.

• How important is Greenbushes to IGO’s earnings?

  Greenbushes is the company’s most profitable asset, delivering high-grade, low-cost spodumene that provides stable cash flow even in weaker markets.