BHP Billiton and Rio Tinto have signed a binding agreement to form a $116bn joint venture to work on their iron ore assets in Western Australia.
Work will be shared equally and will cover all current and future Western Australian iron ore assets and liabilities.
Under the joint venture the companies will combine their Western Australian iron ore operations in an effort to produce more iron ore at lower cost.
The companies will see substantial synergies created as a result of the deal, including the combination of adjacent mines, cost reductions through shorter rail hauls and more efficient port activities.
They will also be able to better prepare for future growth and combine management, procurement and general overhead activities.
BHP Billiton CEO Marius Kloppers said it is an important milestone towards delivering substantial additional benefits to both sets of shareholders, and to the shareholders of respective joint venture partners in the Pilbara region.
The net present value of these synergies will be in excess of $10bn, according to BHP and Rio.
Rio Tinto chief executive Tom Albanese said signing the binding agreement brings the companies one step closer to unlocking the full production potential of the Pilbara iron ore assets.