BHP (ASX:BHP) and Rio Tinto (ASX:RIO) Sign Historic Pilbara Deal to Unlock 200 Million Tonnes of Iron Ore

BHP and Rio team up to mine more Pilbara ore

BHP (ASX: BHP) and Rio Tinto (ASX: RIO) announced a landmark collaboration on January 15, ending decades of fierce rivalry in Western Australia’s Pilbara region. The two mining giants signed non-binding Memoranda of Understanding to jointly develop iron ore deposits at their neighbouring Yandicoogina and Yandi operations. For investors, this signals a shift from expansion-at-all-costs to a more disciplined, capital-efficient approach, one that could strengthen both companies’ long-term earnings power while reducing risk.

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Why Two Rivals Are Finally Working Together

The partnership solves a simple problem: valuable iron ore sits along the shared boundary between BHP and Rio Tinto properties. Neither company could mine it alone without spending huge amounts of money. By joining forces, both miners can unlock ore that would otherwise stay in the ground.

Here’s how it works. BHP will send ore from its Yandi deposit to Rio Tinto’s nearby processing plants. This saves BHP from building expensive new facilities, potentially cutting its capital costs by 30 to 40 per cent. Rio Tinto benefits by putting its spare processing capacity to work and earning extra revenue.

This isn’t the first time these rivals have teamed up. The deal follows a successful 2023 agreement to mine the Mungadoo Pillar along their shared border. That project proved collaboration can work. If everything goes to plan, the first ore from the new partnership should arrive in the early 2030s.

What This Deal Means for Shareholders

The benefits for shareholders are straightforward. Lower costs mean better profit margins. Using existing infrastructure instead of building new facilities preserves cash that can go towards dividends or other growth projects.

Rio Tinto’s iron ore boss, Matthew Holcz, put it simply: “By working smarter, we can better leverage existing infrastructure to unlock additional production with minimal capital requirements.”

There’s also a defensive angle here. If iron ore prices fall due to weaker Chinese demand, companies with lower costs survive better. This partnership positions both BHP and Rio Tinto to stay profitable even in tougher market conditions. For long-term investors, that’s an important safety net.

The Investor’s Takeaway – BHP vs Rio Tinto

Both stocks have had strong runs and are trading near 52-week highs. BHP enters the week around A$49, while Rio Tinto sits near A$148. So, should you buy now or wait?
On valuation, Rio Tinto looks cheaper. It trades at roughly 12 to 13 times earnings, compared to BHP’s 16 to 18 times. Rio also pays a higher dividend yield of around 4.4 per cent versus BHP’s 3.6 per cent.

BHP costs more, but it offers better diversification. Its copper and potash operations have stronger long-term demand outlooks than iron ore alone. For growth-focused investors, that broader mix may justify the higher price.

We believe this partnership strengthens the investment case for both stocks over time. However, with prices near multi-year highs and the deal still in early stages, patient investors may find better entry points ahead.

The main risks are worth noting. The agreement is non-binding, meaning it could fall apart. Execution will take five-plus years. And China’s steel demand remains the biggest driver of iron ore prices; if it weakens significantly, even cost savings won’t fully protect earnings.

For those wanting exposure now, Rio Tinto offers slightly better value on current numbers. But given elevated prices across the sector, building positions gradually on any pullback seems the smarter approach. Investors should also keep an eye on Rio Tinto’s ongoing merger talks with Glencore, as a deal of that magnitude could further shift the valuation landscape for the entire iron ore sector.