SQM will pay $30 million upfront for a 50% stake in Mt Holland, which contains the world-class Earl Grey lithium deposit, and staged payments of $80 million to fund the initial project development.

A 50:50 joint venture will be formed once Kidman receives the cash.

Once formal documentation is signed, which is expected to occur by the end of September, SQM will also provide a $21.5 million convertible loan to Kidman as an advance on the $80 million in project funding.

The remainder of the project development funding will be contributed on a 50:50 basis.

Kidman managing director Martin Donohue said the Earl Grey deposit had attracted global interest, and the decision to sign a binding letter agreement with SQM was justified by its unmatched lithium expertise.

“They are the world’s largest producer, with a depth of technical and marketing expertise that will benefit the joint venture,” he said.

“We see the partnership with one of the world’s leading lithium producers as compelling for shareholders.”

As reported by MNN yesterday, a delegation of SQM representatives visited Mt Holland in early May, and that was followed up by a further site visit by the leadership group, including chairman Eugenio Ponce, CEO Patricio de Solminihac, and vice president development & planning Pablo Altimiras.

The deal represents SQM’s first foray outside South America and into the hard rock lithium space.

A leading brine producer, as well as fertiliser products, SQM is listed in New York with a market capitalisation of just under $10 billion.

“We are very enthusiastic about both the project and investing in Western Australia,” de Solminihac said.

“There are plenty of examples of Australian mining companies investing in Chile. Now a Chilean company is making a significant investment in the Australian industry.”

SQM is hoping to create an integrated lithium business in WA and has already met with the state government.

WA Minister for Mines and Petroleum Bill Johnston welcomed today’s news and said the deal could create up to 780 jobs across the mine and refinery.

Kidman will have an option to participate in the refinery development for up to a 50% stake.

A feasibility study into a 50-year operation at Earl Grey is well advanced, and a study into the the refinery development is underway.

SQM said the initial production target would be approximately 40,000 tonnes per year of lithium carbonate equivalent (LCE) from 2021.

By comparison, Tianqi Lithium’s A$400 million Kwinana plant, under construction now, is set to produce an initial 24,000tpa LCE, but the company is already investigating a $317 million expansion to double capacity.

Albemarle Corporation is also considering building a hydroxide plant in WA.

Earl Grey is one of the world’s largest undeveloped lithium deposits with a resource of 128 million tonnes at 1.44% lithium oxide for 4.54Mt of LCE, based on only five and a half months of drilling.

Under the SQM deal, Kidman will retain the gold rights at Mt Holland. The project was initially acquired in late 2015 for its 1 million gold resource.

Shares in Kidman were down by 5.6% or 4c to 67c.