ABx Group Ltd $ABX has signed a lease agreement with Rio Tinto $RIO (-0.95%) for an industrial facility in Tasmania where it will build a pilot plant to demonstrate its world-first proprietary process for the production of industrial chemicals.

The agreement, signed by ABx subsidiary ALCORE, includes the lease of a 500 square meter facility adjacent to Rio Tinto Aluminium's Bell Bay smelter in northern Tasmania.

Under the terms of the agreement, ALCORE also has the option to purchase the site or lease it for ten years if the pilot plant proves successful and the decision is made to build a commercial plant.

ABx said the link between the two companies and their production goals was an "exemplary demonstration of the circular economy" as ALCORE focuses on producing chemicals such as hydrogen fluoride from a waste product of aluminum smelting.

More specifically, hydrogen fluoride will be converted into aluminum fluoride, an essential chemical for aluminum smelting that is currently 100% imported - according to plans for a commercial facility at the plant.

The lease agreement is a further step towards establishing the pilot plant after the Tasmanian Government announced the terms of a $1 million conditional loan for the pilot plant.

Mark Cooksey, Director and CEO of ABx Group, described this as a welcome milestone in the development of the company's chemical processing plans.

"Securing the Bell Bay facility is a critical step in moving our continuous pilot plant forward," he said. "The location is ideal as it is close to key infrastructure and allows us to move forward quickly with minimal upfront costs."

Mr. Cooksey added: "This is a significant advantage as we move closer to our goal of recycling fluorine waste on an industrial scale."