Junior coal explorer Australian Pacific Coal Ltd. (AQC.AU) said Monday it has struck a deal to bring mining giant Rio Tinto PLC (RIO) on as a partner on its Mt. Hillalong project in central Queensland state.

Australian Pacific said Rio's exploration unit will make an initial payment of A$2.3 million and will fund and manage exploration worth at least A$700,000 on exploration tenement EPC 1824, with Rio holding an option to buy a 75% stake in the tenement within the first 24 months of exploration. Australian Pacific said it plans to transfer to Rio the title on three other tenements.

"Rio Tinto and others have major coal operations in the general vicinity. The area is a major hub for coal mining in Queensland, with multiple large-scale operations within 50 kilometers of the exploration projects," Paul Byrne, managing director of the Brisbane-based company, said in a statement.

Australian Pacific said it plans to use the funds from the deal with Rio to continue its exploration program.

According to the company's website, previous exploration at the Mt. Hillalong project has been superficial but the site contains both metallurgical and thermal coal.

-By Robb M. Stewart, Dow Jones Newswires; +61 3 9292 2094; robb.stewart@dowjones.com

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