Iron ore miners Rio Tinto and BHP Billiton have agreed to pay higher royalty rates to the Western Australian state government in return for approval for their $116 billion joint venture.

The agreement comes amid a row between Australia's miners and the federal government over plans to impose a hefty new tax on mines, with Canberra recently promising to hand A$2 billion of that revenue to Western Australia for infrastructure projects.

The miners said in separate statements on Monday they would pay the state government a royalty of 5.625 percent on sales revenue of iron ore fines, up from 3.75 percent, and 5 percent for beneficiated or lower grade ore, up from 3.25 percent.

The new rate is in line with the rate paid by other miners, ending an incentive that the world's no.2 and no.3 iron ore miners had been given decades ago to build up the iron ore industry in the Pilbara region in Western Australia.

The companies also agreed to make a one-off payment of A$350 million ($305 million) together, which the state said would go toward building a children's hospital.

Higher-valued lump ore will attract a royalty of 7.5 percent, already the prevailing rate for most of lump ore produced from BHP Billiton mines, BHP Billiton said.

The higher royalty rate will put an additional A$340 million into the state's coffers in the 2010-11 financial year, state premier Colin Barnett said.

This is a win-win deal which gives the companies greater flexibility to integrate their operations and ensures a better return to the community, Barnett said in a statement.

(Reporting by Mark Bendeich; Editing by Ed Davies)

Australia