The deal will see MinRes develop the mine on IOH’s behalf, with construction to begin early in the September quarter once IOH secures the final approvals.

MinRes will operate the mine and buy a minimum annual tonnage of product from IOH, with prices to be structured in a way that protects both parties against operational and economic conditions, while allowing for benefits of a higher iron ore price.

The deal will run for 20 years, or 200 million tonnes of product, whichever comes first, with MinRes targeting ramp-up over 3-4 years.

The companies estimate production of 4-6Mtpa could generate annual earnings of $A20-$75 million with a pre-tax net present value of $180-$500 million, depending on iron ore prices and exchange rates.

Earlier this month IOH announced a maiden probable ore reserve for Iron Valley of 134.7Mt grading 58.5% iron, based on a cut-off grade of 53% iron.

MinRes will truck the ore to Port Hedland to be shipped, but will investigate a cheaper transport solution.

MinRes managing director Chris Ellison said the agreement allowed both companies to work to their strengths.

“It further cements Mineral Resources’ presence in the Pilbara iron ore region and provides the opportunity to expand its iron ore business,” he said.

IOH MD Alwyn Vorster said the deal was a milestone for IOH, with it believing the Iron Valley project had a higher asset value than the current market worth of the company.

It’s not the first time the two companies have made a deal, with IOH selling a bunch of satellite Pilbara tenements to MinRes for $42 million in 2011.

Since then, MinRes has brought one of the tenements, Phil’s Creek, into production, shipping first ore in November and even highlighting the potential to share common resources between it and Iron Valley.

The latest transaction comes after FMG chose not to exercise an option over Iron Valley and the Maitland project earlier this month.

FMG said the joint decision to terminate the option agreement was based on a mutual understanding that Iron Valley and Nyidinghu “would not be developed as an integrated mine in the timeframe as contemplated in the original transaction”

IOH shares jumped 20% or 19c to $1.17 on the deal, while MinRes shares were up 3.5c to $11.495.