Australia's Peak Rare Earths Ltd said on Wednesday it would supply all of the rare earths concentrate from its Ngualla project in Tanzania to the Singapore-based unit of China's Shenghe Resources.

The agreement with Shenghe Singapore, which owns about 19.8% of the Australian-listed rare earths firm, will be for an initial term of seven years.

The companies also signed a memorandum of understanding to negotiate a fixed price for the supply deal while working on a funding solution for the project, which according to a bankable feasibility study published last year would cost $321 million to develop.

The Ngualla project is expected to begin construction by the end of May 2024, with completion eyed in early 2026.

"Peak and Shenghe have also agreed to co-operate around opportunities to further optimise the Ngualla project with respect to capital expenditure, operating costs and concentrate grade and recoveries," Peak said in a statement.

The MoU has an option for Shenghe to buy a non-controlling stake in the project to substantially reduce Peak's funding requirements.

"Shenghe regards the Ngualla project as the premier undeveloped rare earth project in the world," said Huang Ping, deputy executive chairman of Shenghe Resources.

Shenghe, the largest importer of rare earths in China, told the Shanghai Stock Exchange it was committed to ensuring stable supply and the agreement with Peak would play a positive role in accelerating the development of the Ngualla project.

(Reporting by Rishav Chatterjee in Bengaluru and Amy Lv in Beijing; Editing by Subhranshu Sahu and Jamie Freed)