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MELBOURNE July 22 (Reuters) – Global miner BHP Group said on Thursday it signed a nickel supply agreement with Tesla Inc and will work with the electric carmaker on lowering carbon emissions in the battery supply chain.

Tesla said in June it expects to spend more than $1 billion a year on battery raw materials from Australia given the country's reliable mining industry and responsible production practices.

Western automaker are also seeking to diversify supply chains to lessen their dependence on China, in line with a policy by U.S. President Joe Biden's administration to rely on allies to supply of the bulk of metals for electric vehicles.

BHP said the metal will be supplied from its Nickel West project in Western Australia which is set to start producing nickel sulphate, a key battery chemical, and one that has much higher margins than nickel metal, in the September quarter.

Nickel makes batteries energy-dense, allowing cars to run further on a single charge.

BHP's nickel division accounts for less than 1 percent its earnings, which are dominated by iron ore.

BHP and Tesla will also look at end-to-end raw material tracing using blockchain, and work on energy storage solutions, the miner said in the statement. (Reporting by Melanie Burton and Nikhil Kurian Nainan in Bengaluru; Editing by Subhranshu Sahu and Richard Pullin)