Atlas Iron has signed a memorandum of understanding with rail freight carrier QR National to explore the feasibility of an independent railway in Western Australia's Pilbara region costing around A$3.5bn ($3.6bn).
The standard gauge railway would connect iron-ore mines in the east and south east, to Port Hedland.
The proposed line would allow Atlas Iron and other mining companies to bypass dealing with the major miners operating in the region who own the existing rail infrastructure.
The initial phase of the proposed rail line could commence operation as early as 2015.
QR National Strategy and Business Development executive vice president Ken Lewsey said the company believes the Pilbara offers outstanding growth opportunities where it can leverage existing capability in heavy-haul rail.
"We've been constructing and operating multi-user heavy-haul railways in Queensland's coalfields for decades. This coal network has a current capacity for 250 million tonnes per annum, potentially growing to 300mtpa by 2015,"Lewsey said.
"This capability is readily transferrable to the Pilbara, where a number of independent miners are seeking rail transport solutions."
"The value of an independent railway is that we can achieve the economies of scale by aggregating the tonnages of multiple parties, as well as delivering efficiency gains across a co-ordinated supply chain."
Atlas and QR National will share the costs and resources required for the Pilbara Independent Rail Project, which is expected to be completed by the end of this year.
Atlas Iron predicts the new rail line to help the company increase its rail haulage to about 46 million tonnes every year, from a current of 15 million tonne a year, to take advantage of Port Hedland's capacity.
The new rail will have the capability to carry 75 million tonne a year of iron ore to be produced by small and mid-sized mining groups in the central Pilbara and east Pilbara regions.