Rio Tinto and BHP Billiton have struck a 50:50 joint-venture deal covering all of their Western Australian iron ore assets.
The ABC reports the move follows the collapse of a proposed tie-up between Rio and the Chinese state-owned company Chinalco.
That investment would have been China's largest in a foreign company.
Under the deal, Chinalco would have held 18% of Rio. It is currently the largest shareholder in the company.
BHP will pay $A7.2 billion to Rio as part of the deal. Shareholder approval is still required.
Despite the collapse of the deal, the Federal Government says it welcomes foreign investment in Australian companies.
Prime Minister Kevin Rudd says Australia remains open to Chinese investment. He noted the previous government approved $A15 billion of Chinese investment.