The agreement, which improves Rio's previous offer of a 20 percent stake for Guinea, ends a protracted impasse over the Simandou project, a joint venture with China's Chalco expected to produce vast quantities of high-grade ore.

Rio Tinto iron ore chief Sam Walsh said the deal, signed late Friday, cleared the way for the $10 billion venture to go ahead, following about 12 years of fraught negotiations stymied by political upheaval.

The Anglo-Australian miner will pay the government $700 million up front "in recognition of the resolution of all outstanding issues" once its mining concession has been granted.

On ice while talks continued with Guinea, Chalco's $1.35 billion plan to take a 44.65 percent stake in Rio's southern Simandou tenement can now go ahead, said Rio, adding that it expected its first shipment by mid-2015.

"(This) agreement gives us the certainty we need to allow us to invest and move forward quickly so we can bring this great resource into production," Walsh said.

"This is a major project and a significant undertaking and we expect a total investment of more than $10 billion to bring the mine and associated infrastructure onstream."

Guinea will be offered a 15 percent holding at no cost and has the option to extend its share to 35 percent within 20 years under the deal, which also gives them the right to own 51 percent of the project's new rail line and port.

The infrastructure would automatically become government property 25-30 years after being built, Rio said.

Royalties of 3.5 percent would be payable for the life of the mine, with an income tax grace period of eight years from first profit, followed by a general rate of 30 percent.

Analysts say the Simandou field, a 2.5-billion-tonne seam of ultra-high grade iron ore stretching for some 110 kilometres (70 miles), could produce up to 200 million tonnes a year and make Guinea one of the world's top exporters.

That is the equivalent of Rio's yearly output from Western Australia's mineral-rich Pilbara but with a higher ore quality for steelmakers in rapidly industrialising China, India and other Asian markets.

Rio originally intended to take control of the entire Simandou concession but Guinea's government split it into four blocks, only half of which went to Rio.

Switzerland's BSG Group took the rest and sold on its majority stake to Brazilian resources giant Vale, a major rival to Rio.

-- Dow Jones Newswires contributed to this report --

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