Mining heavyweights Rio Tinto and BHP Billiton will combine their large Australian iron ore operations. It follows the collapse of a controversial deal that would have seen the Chinese take an 18 percent stake in Rio Tinto, which is beset with large debts.
For a company laden with nearly $40 billion in debt, Rio Tinto will find much-needed relief in its agreement with BHP Billiton.
BHP will hand over almost $6 billion to Rio, which will also issue new shares to raise money.
The iron ore producers will combine their efforts in Western Australia, sharing port and rail facilities.
The partnership was announced after the collapse of Rio Tinto's planned tie-up with China's state-owned aluminium company, Chinalco. It would have given Beijing valuable influence on the supply side of Australia's lucrative minerals industry. The proposal encountered strong political opposition in Australia.
Shareholders and politicians worried about foreigners having too much control over Australia's resources.
In a statement, Chinalco said it was "very disappointed" with the outcome.
But in Australia, conservative opposition lawmaker, Senator Barnaby Joyce, welcomes the new deal.
"It is great for the Australian people that this deal falls over and we do not have the complications of the Communist People's Republic of China government owning the wealth of Australia in the ground in Australia," he said.
The collapse of Rio's deal with the Chinese spares the Australian government the diplomatic headache of deciding whether to accept such a massive foreign investment into a key industry or to block it on national security grounds.
The joint Rio-BHP venture is likely to upset Chinese steel makers. They often complain that the big Australian producers hold too much power over iron ore prices.
The stock market, though, has been enthusiastic about the agreement between the Anglo-Australian heavyweights.
Shares in both gained more than eight percent Friday.
Rio's chief executive Tom Albanese says the decision made "industrial logic," while his counterpart at BHP, Marius Kloppers, said the two miners had been looking to work together for more than a decade.