Australian mining giant Rio Tinto secured a new water deal in Pilbara Friday in exchange for surrendering its entitlement from the Millstone aquifer.

In exchange, Rio Tinto will develop its own alternative water supply to be sourced from the Bungaroo Valley. The cost of developing the new source is placed at $292 million.

The deal also lets the West Australian government postpone the $370 million planned West Pilabara Desalination Project for the region since enough water supply is secured for the towns of Karratha, O'Roebourne, Dampier and Wickham. It would also, in effect, drive the growth of Karratha and expansion of the nearby communities as part of the Pilbara Cities vision.

"It also allows other businesses and industries to plan investment projects, knowing that water is available to meet the needs of an expanded population," Regional Development Minister Brendon Grylls told Herald Sun.

Another benefit for Rio Tinto is that some of the company's secondary iron core processing obligations with the state government would be changed. It would also help Rio Tinto reach its planned hike at its Pilabara iron ore production site to more than 330 million tonnes a year by 2015 from the current 220 million tones.