Steel manufacturer POSCO has signed a partnership deal to buy lithium from Australia-based Pilbara Minerals and set-up a downstream processing joint venture in South Korea.

Under the off-take agreement, Posco will purchase an initial 80,000tpa of chemical- grade spodumene concentrate from Pilbara’s Pilgangoora Stage 2 project.

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The off-take will eventually scale-up to 240,000tpa, subject to Pilbara’s participation in a downstream 30,000tpa lithium carbonate/lithium hydroxide conversion plant in South Korea under a JV with Posco.

Pilbara is expected to have a 30% interest in the processing plant, which will use PosLX conversion technology.

Posco is required to make an upfront direct equity investment of A$79.6m ($62.31m) in Pilbara in exchange for ownership of 4.75% of the issued shares.

Proceeds will be used to bring the 5Mtpa stage two expansion of the Pilgangoora project into production.

Posco is rapidly expanding its capabilities in the production of battery-grade products and cathode materials for the burgeoning battery materials market in the Asian region.

“This deal provides the basis to effectively transform Pilbara Minerals into a vertically integrated producer of lithium-ion battery materials.”

Pilbara Minerals managing director and CEO Ken Brinsden said: “The binding off-take agreement further diversifies our spodumene concentrate sales portfolio and means that output from stage two will be directly linked to Pilbara’s participation in the Downstream JV.

“At the same time, this deal provides the basis to effectively transform Pilbara Minerals into a vertically integrated producer of lithium-ion battery materials, helping to achieve one of our key longer-term growth objectives and allowing us to capture value across both the mining and downstream processing stages of the raw materials supply chain.”

The partnership will allow Posco to secure supply of raw materials for manufacturing batteries, while Pilbara will have the opportunity to expand into North Asia and diversify its customer base outside the Chinese market.

Pilbara’s participation in the downstream JV is subject to certain conditions, including a final investment decision for stage two expansion of the project.

Posco has also agreed to make additional investment A$79.6m ($62.31m) by way of an unsecured convertible bond to fund Pilbara’s investment in the conversion plant.