ASX-listed minerals company Charger Metals has reached a farm-in deal with Rio Tinto Exploration (RTX), a unit of Rio Tinto, for its Lake Johnston lithium project in Yilgarn, Western Australia (WA).

Simultaneously, Charger Metals also agreed to acquire the remaining 30% stake in the project from Lithium Australia for A$2m. With this move, it will now own a 100% stake in the lithium project.

For the farm-in agreement, RTX will reimburse Charger with A$500,000 for the exploration expenditure.

RTX will secure rights to earn a 51% stake in the project by providing sole funding of A$10m in exploration and associated expenditure during the four-year period.

It will include a minimum exploration commitment of A$3m within the first 12 months, followed by A$1m for every calendar year.

The exploration programmes will be managed by Charger, in consultation with RTX in the first year.

It will also pay A$500,000 to Charger at the end of the exploration commitment.

Besides, it will pay another A$500,000 if significant results greater than 20m width with lithium oxide (Li₂O) concentrations of more than 1.2% are intersected during the drilling programme.

After the stage one earn-in is completed, RTX will earn an exclusive right to a further 24% stake in the project through sole funding of a definitive feasibility study and an additional $30m in exploration and associated expenditure for stage two earn-in.

If RTX elects to proceed with the second stage, it will have to pay Charger an additional A$1m as well.

On electing not to complete this stage, it will have to transfer a 2% stake back to Charger, so that its stake will remain at 51%.

The terms of the agreement also include provisions related to dilution. If a party dilutes a stake of less than 10% in the project, its stake will be converted into a 1.25% gross revenue royalty for the first 15 years of commercial production.

Charger Metals managing director Aidan Platel said: “The Rio Tinto exploration farm-in agreement is an excellent result for Charger and its shareholders and reaffirms our belief that the Lake Johnston project has the potential to host a large-scale lithium deposit.

“The planned significant investment by RTX will allow thorough systematic exploration over all of the project tenure, with initial exploration focused on fast-tracking the Medcalf Spodumene Prospect as well as progressing the Mt Day and Mt Gordon lithium prospects.”

The Lake Johnston lithium project is located 450km from Perth, Western Australia.

Some of the target areas include the Medcalf spodumene prospect, the Mt Gordon lithium prospect and much of the Mount Day lithium-caesium-tantalum (LCT) pegmatite field.