Shares of Kidman Resources (ASX:KDR) jumped 14 percent on Thursday (November 1), after the Australia-listed company announced a binding heads of agreement (HoA) with Mitsui & Co. (TSE:8031) for lithium hydroxide from its Mt Holland project.

The deal is set to initially last 2 years, but comes with 2 additional two-year extension options. It will also see supply volumes agreed upon by the company gradually increase to equate to less than 15 percent of Kidman’s share of nameplate production from the refinery—docketed at 22,600 tonnes per year.

Through the agreement, Kidman’s supply obligation is subject to 2 main conditions: the finalization of product specifications, and the lithium hydroxide produced from the Mt Holland project being qualified for use by Mitsui customers. Pricing for the offtake will be variable and dependent on the price Mitsui customers achieve and prevailing international prices.

“We are pleased to be announcing this agreement with Mitsui. This follows the announcement in May 2018 of our offtake agreement with Tesla (NASDAQ:TSLA) and is further evidence of the demand for the high-quality lithium hydroxide to be produced from the Mt Holland lithium project,” Kidman CEO and managing director Martin Donohue said in a statement.

“Kidman continues to progress its strategy of entering into a limited number of significant offtake agreements to develop long term customer relationships and support its proposed debt financing, while leaving a minority portion of its future supply uncontracted,” Donohue added.

Both companies have agreed to enter a definitive supply agreement by June 30, 2019; if an agreement is not met by that time, each company has the option to end the agreement. The two companies are also discussing a potential spodumene offtake agreement, which would encapsulate any excess spodumene concentrate produced from Mt Holland that isn’t needed for the refinery.

Going forward, Kidman is discussing other offtake deals with “high quality counterparties” with the goal of securing further binding contracts to cover about 75 percent of Kidman’s share of production in the project’s early years.

In late October, the company released a prefeasibility study and updated scoping study for the Mt Holland project, which indicated strong credentials such as a life-of-project revenue of US$33.5 billion and a 47-year project life.

The project as a whole consists of the Kwinana lithium refinery and the Mt Holland lithium mine and concentrator, and is a 50/50 joint-venture between Kidman and major lithium producer Sociedad Quimica y Minera de Chile (NYSE:SQM).

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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.