SYDNEY--Glencore PLC (GLEN.LN) has struck a deal with Peabody Energy Corp. (BTU) to develop an open-cut coal mine in between existing operations run by the two companies in Australia's New South Wales state.

The 50-50 joint venture will dig the pit between Glencore's United Collieries coal mine in the Hunter Valley--5% owned by the Construction, Forestry, Mining and Energy Union--and Peabody's Wambo operations nearby, the companies said in separate statements Tuesday.

The project is expected to start in mid-2017, subject to the necessary regulatory approvals, they said.

The companies said the alliance would help cut costs for both producers, at a time when coal miners are battling to stay profitable in the wake of falling commodity prices. "It will deliver optimal resource recovery and infrastructure use, and significantly reduce operating and capital costs," Glencore said in an emailed statement.

Glencore, which will manage the joint venture, said the project wouldn't increase its overall shipments from the Hunter Valley, but rather offset falling output from other mines.

"Output from some of Glencore's existing operations will decline by 2017, so the joint venture enables us to grow value for shareholders without growing volume," said Glencore.

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

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