Guess which ASX lithium stock is crashing 22% despite announcing a deal with Rio Tinto

Charger Metals NL (ASX: CHR) shares are taking a bit of a hammering on Monday.

At the time of writing, the ASX lithium stock is down over 22% to 29.5 cents.

This is despite the company announcing a major deal with Rio Tinto Ltd (ASX: RIO).

What's going on with this ASX lithium stock today?

This morning, Charger revealed that it has entered into a binding agreement with Lithium Australia Ltd (ASX: LIT) to purchase its minority interest in the Lake Johnston Lithium Project in Western Australia for $2 million. This increases Charger's interest in the project to 100%.

However, it has immediately given Rio Tinto the rights to earn a 75% ownership in the project via a farm-in agreement.

According to the release, the mining giant's subsidiary, Rio Tinto Exploration (RTX), will pay the ASX lithium stock $500,000 and invest $1.2 million prior to commencement of the farm-in. It will also spend a minimum of $3 million on exploration expenditure over the first 12 months.

After which, RTX can earn 51% by sole funding $10 million in exploration expenditure and paying Charger a further $1.5 million.

Finally, RTX will then be able to take its ownership to 75% interest by sole funding a further $30 million in exploration expenditure or completing a Definitive Feasibility Study (DFS).

Management believes that the RTX deal reaffirms the prospectivity of the Lake Johnston Lithium Project and its potential to host a large-scale lithium deposit. Though, it's a shame the ASX lithium stock will only ultimately have a minority stake in it.

Nevertheless, Charger's managing director, Aidan Platel, was pleased with the deal. He commented:

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 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 post Guess which ASX lithium stock is crashing 22% despite announcing a deal with Rio Tinto appeared first on The Motley Fool Australia.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2023