Rio Tinto has announced a deal with rival mining giant BHP Billiton to develop Western Australia’s iron ore assets, together with a share sale to slash its debts.

The joint venture will encompass all current and future Western Australian iron ore assets and liabilities, it was revealed today.

The announcement follows the collapse of a deal with China’s Chinalco, which was put together in February this year in a bid to halve Rio’s $38bn of debt.

Shares in Rio jumped as much as 13% to a seven-month high, while BHP’s shares rose 10%, as investors welcomed an alternative route to resolving Rio’s large debt burden, according to Reuters.

The new deal will come as a slap in the face for China, leaving the world’s biggest steelmaking nation at the mercy of just two suppliers – a Rio/BHP joint venture and Brazil’s Vale – controlling about 70% of the global iron ore trade.

“The joint venture will establish an unrivalled iron ore business with world-class assets and infrastructure. We believe it represents great value for shareholders and will create a business combination able to serve growing international markets with unparalleled efficiency,” Rio Tinto chairman Jan du Plessis said.

BHP Billiton chairman Don Argus added that the “combination of these two asset portfolios will unlock the scale benefits inherent in this world-class resource basin”.