The agreement ensures Aquila will be able to sell coal at least through June next year, which is crucial as it needs the revenue to help fund its other projects, including an iron ore project in Western Australia.

Brazil's Vale had tried to stop Aquila shipping coal from the Isaac Plains mine last year and threatened to end their joint venture, saying the companies' agreement did not allow them to make separate shipments from the mine.

The pact marks a thaw in the relationship between the two companies which have been locked in several court fights over their joint ventures, including two coking coal projects in Queensland, Eagle Downs and Belvedere.

Aquila said it had entered a new coal lifting agreement with Vale effective through June 2013, replacing an agreement that was due to expire this week, and would drop damages claims against Vale.

"Aquila considers that the resolution of these issues will now enable (Aquila unit) IP Coal and Vale IP to focus their efforts on delivering value from the Isaac Plains Coal Mine for the benefit of their respective stakeholders," Aquila's executive chairman, Tony Poli, said in a statement.

Aquila's shares fell 1.2 percent to A$4.92 after the announcement, in a flat broader market.

The stock has been under pressure for some time as investors worry the company may have to resort to a large share sale to pay for its more than A$3 billion ($3 billion) share of the West Pilbara iron ore project.

($1 = 0.9563 Australian dollars)

(Reporting by Sonali Paul; Editing by Sugita Katyal)

• A Permanent Economic Emergency