South Korean battery maker SK Innovation Co. signed an offtake agreement with Australian Mines Ltd. to receive supplies in cobalt and nickel sulphate, a key element to produce electric vehicle batteries, for seven years plus six more upon demand and an option to buy up to 19.9 percent of the Australian commodity producer’s ordinary shares.

The Korean company said Wednesday it will be supplied with an annual yield of 12,000 tons in cobalt sulphate and 60,000 tons in nickel sulphate, which would be the entire output from Australian Mines’ wholly-owned flagship Sconi project in Queensland.

The seven-year contract, which starts from 2020, could be extended to another six years, making it the longest supply deal between a Korean EV battery maker and a miner.

The financial terms of the deal were not disclosed.

Shares of SK Innovation closed Wednesday up 0.51 percent at 195,500 won ($181.66).

The agreement would provide SK Innovation 90 percent of cobalt needed to run its battery operations in Korea and Hungary.

The two companies have also agreed to collaborate in optimizing bankable feasibility study for Sconi and advancing processing plant and mining operation through sample validation at battery level for hybrids and EVs.

To ensure long-term partnership, SK has the right to buy up to 669 million shares at $0.12 each for a 19.9 percent stake in Australian Mines, whose proceeds would be used to fund the initial construction phase of the mine.

“The deal will help us get a secure hold on high-grade metals to power the growing demand for EV batteries,” said an official from SK Innovation.

“The signing of the agreement with SK Innovation is a landmark occasion for Australian Mines and its shareholders,” said Managing Director Benjamin Bell in a press statement.

The top producer of cobalt is the Democratic Republic of Congo, which holds almost half of the world’s cobalt reserves. But the country’s political instability has raised the appeal of Australia, the second largest supplier representing 15 percent of world reserves.

Production costs would also be saved as the cobalt and nickel sulphates from Australia do not require additional processing.

In November, SK Innovation announced plans to spend about 800 billion won ($734 million) to build an EV battery plant in northern Hungary with nearly twice the capacity of its 3.9 gigawatt-hour plant in Korea.

Sconi is located about 250 kilometers from Townsville and its maiden resources sit at 89 million tons grading 0.11 percent cobalt and 0.8 percent nickel with a forecasted 20-year mine life. Ongoing bankable feasibility study is due to be completed in April.

By Kang Doo-soon and Kim Hyo-jin

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]