Western Australia Premier Colin Barnett said Thursday he doesn't personally favor a joint venture proposed between Rio Tinto Plc (RTP) and BHP Billiton Ltd. (BHP).

"I have a concern about having the Pilbara dominated by one" entity, Barnett said at the Australia China Bilateral Investment Seminar, referring to an Australian region rich in iron ore, where both BHP and Rio have operations.

The Rio-BHP proposal would require approval from the Western Australia state government, Barnett said.

He said he would apply close scrutiny to the proposed deal between the miners.

"I can assure you I will be taking a far stronger hand in assessing how the (Rio-BHP joint venture) relates to its customers in China, Japan, Korea and elsewhere."

Barnett struck a critical note on the way he felt miners have allowed commercial pursuits to spill over into diplomatic tensions.

"One of the problems we've had in recent times is that the relationship between Australia and China, and between Western Australia and China, has been partly determined by the actions of individual companies," he said.

"It's fine for them to pursue commercial interests, but governments have a role in the relationship between nations and policies that have been affected."

The proposed Rio-BHP deal "has a fair way to go," he said.

"I suspect the (joint venture) will occur, but not in a way that Rio and BHP might currently imagine."

The two Anglo-Australian miners' joint venture in iron ore operations emerged from the collapse of Rio's failed alliance with Aluminum Corp. of China, or Chinalco, in early June.

The proposed BHP-Rio joint venture has attracted fierce criticism in China as concerns about monopolistic tendencies in iron ore supply further cloud already troubled negotiations on this year's iron ore term prices.

Barnett told reporters he had no new details to disclose on Rio Tinto employee Stern Hu, an Australian citizen held by the Chinese government on charges of stealing state secrets and bribery in the course of the miner's iron ore price talks with China.

Western Australia has a high stake in making sure it retains Chinese goodwill.

Its A$4 billion ($3.3 billion) Oakajee port and rail project, critical in opening up a region rich with magnetite iron ore, needs capital infusion.

The area is populated with mining projects, but no single investor there is big enough to develop desperately needed infrastructure to transport the ore. The Oakajee venture is the state government's attempt to create a single vehicle to develop, in particular, a deep sea port on the Indian ocean for its magnetite, a lower-grade form of ore.

"We are prepared to have the Chinese come in as full partners of the Oakajee port and rail project," Barnett said.

Barnett encouraged Sinosteel Corp., China's largest iron ore trader, to participate in the Oakajee project, currently a venture between Mitsubishi Corp. (MSBHY) and Murchison Metals Ltd. (MMX.AU). Last September, Australia granted Sinosteel the right to acquire up to 49.9% of Murchison; Sinosteel currently holds 5.86%.

"They have the opportunity to increase to 49.9% of Murchison, which I would support," Barnett said. "It would give them greater ownership over mines and iron ore resources and automatically bring them in as full partners on the Oakajee project."

-By Chuin-Wei Yap, Dow Jones Newswires; 8610 6588 5848; chuin-wei.yap@dowjones.com