Why did this ASX 300 share just jump 10%

Investors have been pleased with an announcement this afternoon.

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The Austal Ltd (ASX: ASB) share price is having a strong session.

In afternoon trade, the ASX 300 share was up as much as 10% to $2.05.

The shipbuilder's shares have pulled back since then but remain up 3% to $1.92.

Why is this ASX 300 share charging higher?

Investors have been buying the company's shares after it announced that it has signed a heads of agreement with the Commonwealth of Australia.

According to the release, the heads of agreement is to establish a strategic shipbuilding agreement (SSA) between Austal and the Commonwealth.

If ultimately signed, a SSA would see Austal selected as the Commonwealth's strategic shipbuilder at Henderson, Western Australia.

As part of a pilot program under the SSA agreement, it is proposed that Austal will construct and deliver the Birdon-designed Landing Craft capability to the Australian Army under the Commonwealth's LAND8710 project.

In addition, the Commonwealth has ordered two additional Evolved Cape Class Patrol Boats at an acquisition cost of $157 million. Austal notes that this is an important order for Defence to optimise its surface fleet and for Austal to ensure workforce stability.

The ASX 300 share's CEO, Paddy Gregg, said:

Austal has a proud record of delivering fit-for-purpose naval vessels to the CoA. In the past five years alone, we have completed and delivered 24 vessels for the Australia Government and Navy, plus a variety of other vessels for navies around the world.

That track record, which is a product of our exceptional design and construction teams, provides Austal with the confidence that we can collaborate with the Commonwealth to transition the Heads of Agreement into a SSA which benefits the naval industrial base in Australia and Australia's security.

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 positions in and has recommended Austal. 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.

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