The company signed the binding agreement with an unnamed Chinese lithium chemicals company following the signing of a non-binding memorandum of understanding last year.

The offtake agreement is for the supply of 140,000 tonnes per annum of 6% chemical-grade spodumene concentrate over six years starting in the first quarter of 2018, with an option to extend for a further four years.

The $180 million Pilgangoora project is due to start production late next year, and the deal covers more than 40% of planned initial production.

The company said it was in talks to convert remaining MoUs into offtake agreements to largely cover the balance of expected production of 330,000tpa spodumene.

Strong demand from potential customers had led the company to consider Pilgangoora expansion studies.

Pilbara managing director Ken Brinsden said the signing of the agreement was a major milestone for the company.

“This crystallises the strong relationship we have developed with key offtakers over the past year, and cements a long-term partnership with one of the significant players in China’s rapidly evolving lithium chemicals and battery industry,” he said.

“It also underpins the financial and commercial fundamentals of the project, providing us with certainty around a large portion of our product sales and imparting significant momentum to our product marketing process, as we look to finalise additional binding off-take agreements in the coming weeks and months.”

The two parties have also signed a binding MoU to investigate the potential for the development of an offshore spodumene conversion plant.

“The ability to manufacture high-value battery-grade lithium products through downstream processing has the potential to deliver significant additional value for Pilbara in the years ahead, with global demand for lithium-ion batteries expected to experience unprecedented growth over the coming decades,” Brinsden said.

The customer has agreed to subscribe for $17.75 million worth of shares at 50c per share (a 7.2% discount) for 3% of the company.

If a formal decision is made to build a downstream processing facility – which could occur next year – the offtaker will acquire an additional 2% of Pilbara.

The move into downstream processing follows Pilbara’s agreement with Lithium Australia last week to evaluate the Sileach processing technology.

Pilbara had around $105 million cash in the middle of June after raising $100 million in April.

An upgrade to the current Pilgangoora resource of 80.2 million tonnes at 1.26% lithium oxide for over 1Mt of contained lithium, and 42.3Mt at 195ppm tantalum pentoxide for 8250t, is due any day now, which will underpin an upgrade to the current reserve of 29.5Mt at 1.31% lithium oxide and 134ppm tantalum pentoxide.

The definitive feasibility study for Pilgangoora is due next month.

Shares in Pilbara rose by nearly 10% to 67.5c.