It remains unclear whether Wesfarmers (ASX:WES) will generate an acceptable return on investment from the Covalent Lithium project in Western Australia due to uncertainty and volatility in lithium prices, Jefferies said in a Wednesday note.

The project is an integrated operation comprising the Mt Holland mine and concentrator and the Kwinana refinery.

The company recently approved a final investment decision to expand the Mt Holland mine and concentrator capacity with joint venture partner Sociedad Quimica y Minera de Chile.

The expansion will increase nameplate spodumene concentrate production to 760,000 tonnes per year from about 380,000 tonnes per year on a 100% basis, while reducing unit operating costs and accelerating cash flows.

Wesfarmers said its share of capital expenditure for Mt Holland is estimated at between AU$645 million and AU$715 million in nominal terms to be funded through existing cash and debit facilities.

The company incurred roughly AU$2.8 billion of costs related to the project, Jefferies said.

Jefferies maintained a hold rating and AU$73 price target on Wesfarmers.

Wesfarmers shares fell nearly 2% in midday trade Thursday.