The world's second largest iron ore producer has agreed to purchase the steelmaking product from Iron Ore Holdings Ltd's (IOH) Phils Creek mine, 90 kilometres from Newman in the Pilbara region of WA.
"It demonstrates our preferred alternative to the growing demands from government and industry for access to our rail infrastructure," Rio Tinto iron ore chief executive Sam Walsh said in a statement.
A host of companies led by Fortescue Metals Group Ltd are seeking access to the railways of Rio Tinto and BHP Billiton Ltd in the Pilbara to export iron ore amid rising prices for the commodity.
IOH shares gained five cents, or 8.77 per cent to close at 62 cents, while Rio Tinto dropped $4.90 to $115.20.
"This commercial agreement represents an excellent opportunity for Rio Tinto to gain access to extra tonnage and, importantly, in a way that does not jeopardise the efficiency of our fully integrated production system," Walsh said.
The National Competition Council (NCC) last month called for public comment on its draft recommendation that three separate railways owned by the majors be opened for access by third parties to improve competition in the haulage market for iron ore.
The NCC will make its final recommendations to Federal Treasurer Wayne Swan following the public submission period.
Under the agreement with Rio Tinto, IOH will deliver the ore to the Yandicoogina stockyard where Rio Tinto would take ownership and transport it for sale to customers.
IOH's Phils Creek project is the feasibility stage but it is envisaged the operation will produce about 1.5 million tonnes of iron ore per year from the second half of 2010.
"It is a solution that favours both parties and does not require regulation or an arbitrated outcome," IOH managing director Matt Rimes said in a statement.
