The agreement is for an initial five-year term which can be extended by a further five years, with start of commercial delivery set for 2025.

LGES to purchase 5,000 tonnes of battery-grade lithium hydroxide from the Zero Carbon lithium project in Germany in the first year of production, ramping up to 10,000 tonnes per year from years 2-5.

Pricing will be based on market prices for lithium hydroxide.

"This is the first binding lithium offtake term sheet for the Zero Carbon lithium project, so it is fitting that it is with the largest EV battery producer in the world," Vulcan managing director Dr Francis Wedin said.

"LGES's operations are of course global, but it is already producing batteries in Europe.

"The agreement is in line with our strategy to work with tier one battery and automotive companies in the European market. We look forward to a long and productive relationship with LGES."

LGES is planning to expand its 6GWh lithium-ion battery factory in Poland to 65GWh.

The parties will work towards the signing of a definitive agreement by the end of November.

Argonaut Securities analyst George Ross said given battery grade lithium hydroxide has been trading at a spot price of about US$14,000 per tonne, the first 5000t of product would be valued at $70 million.

"Signing of this deal is consistent with our previous assertion that low-carbon sources of EV related metals (nickel, copper, lithium etc) will be increasingly sought after by OEMs," he said.

The Zero Carbon lithium project, in Germany's Upper Rhine Valley, hosts Europe's largest lithium resource of 15.85 million tonnes of lithium carbonate equivalent.

The definitive feasibility study began this month and is expected to take 12 months.

As well as up to 40,000t per annum of lithium hydroxide, the project will also produce geothermal energy.

Shares in Vulcan rose as high as A$9.98 this morning, but last traded nearly 4% higher at $9.70, valuing the company at just over $1 billion.