(Reuters) -Australia's Champion Iron said on Thursday Japanese steelmaker Nippon Steel and trading house Sojitz will buy a 49% stake in the company's Kami project in Canada for A$245 million ($152 million).

Nippon and Sojitz will hold a 30% and 19% stake respectively in the iron ore project in Canada's northeast, and share development and construction costs based on their share in the mine, Champion said in a statement.

Kami, which Champion acquired in 2021, is also expected to receive as much as A$490 million ($305 million) through future contributions from Nippon and Sojitz, it added.

Champion's CEO David Cataford said the deal underlined Kami's potential.

"The financial support and collaboration provided by the Partners mark an important milestone," Cataford said in the statement.

Nippon, Japan's largest and the world's No. 4 steelmaker, is looking to optimise its supply chain from Kami, the company's Managing Executive Officer Ryuichi Nagai said.

Nippon Steel, which currently has a global production capacity of 65 million tons a year, is looking to raise that to 100 million tons a year in the long term.

It is currently trying to secure U.S. approval for its acquisition of U.S. Steel, a key part of that strategy, and has also been looking to buy stakes in coking coal and iron ore mines to ensure a stable supply of essential raw materials.

Nippon will invest C$150 million ($104 million) for its stake in Kami, while incurring about C$1.16 billion in development costs by the project's completion, the company said in a statement. The costs will be subject to investor approval of the project's development and the results of a future feasibility study, it added.

Kami is an advanced-stage open-pit iron ore mining project and offers an opportunity to secure the supply of direct reduction iron ore, Nippon Steel said.

Direct reduced iron, along with high-quality scrap, are necessary for the production of high-grade steel from large electric arc furnaces, which Nippon Steel aims to build to reduce carbon emissions.

"Iron ore to be produced at Kami will be used for hot briquetted iron (HBI), not as conventional iron ore for blast furnaces... so this is an investment for future production," Shingo Nakamura, a senior executive at Nippon Steel, told reporters in Tokyo.

The project feasibility study is expected be completed in mid-2026, and construction would take about four years once the final investment decision is agreed, the statement said.

Nippon Steel estimated costs for all partners in the Kami project at nearly C$4 billion.

Kami is in Newfoundland and Labrador, a few kilometres from Champion's operating Bloom Lake mine in Quebec.

Champion filed a pre-feasibility study for Kami in March 2024.

($1 = 1.4439 Canadian dollars)