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Cazaly Resources has lost its second David and Goliath battle with mining giant Rio Tinto, after the Warden's Court quashed its bid to wrest control of the $227 billion Rhodes Ridge iron ore deposit.

Nine months after Cazaly's bid to peg the 3.26 billion-tonne deposit was heard in the Perth Warden's Court, Warden Graeme Calder on Friday rejected Cazaly's argument that Rio had lost its right to hold on to the lucrative project by failing to renew its rights properly. Cazaly had also argued Rio had wasted the past three decades by not developing it.

The 93-page judgment found Rio and its joint venture owners still held valid tenure over what is believed to be WA's biggest undeveloped high-grade deposit under a 37-year-old State Agreement, which protected its owners' rights to explore and develop any iron ore found in the area.

Rio owns 50 per cent of the deposit, with the descendants of the Hancock-Wright iron ore dynasty, Gina Rinehart's Hancock Prospecting and Wright Prospecting, each holding 25 per cent.

A spokesman for Rio Tinto said last night the group was still working through the complex judgment but welcomed the warden's finding upholding the partners rights to tenure over the site.

Based on the current sale price of $US61 a tonne, the Rhodes Ridge deposit contains more than $US197 billion ($226.6 billion) of iron ore.

Importantly, Warden Calder ruled Rio's right of occupancy did not bar Cazaly from pursuing an exploration licence for the area, but such a move is likely to be pointless given the State Agreement rules anyone else out from exploring for iron ore.

The case had been watched keenly by the junior end of town for its potential to set a precedent in the development of WA's mineral wealth by helping smaller players gain a toehold in tightly held mining provinces such as the Pilbara, the Mid-West and the Goldfields.

But Warden Calder's ruling appears to cement Rio's and BHP Billiton's hold over the most prospective parts of the iron ore-rich Pilbara. Both miners hold licences over vast tracts of land in the area as part of their long-term planning for future development prospects.

It comes after Cazaly failed in 2007 to wrest the much smaller Shovelanna deposit off Rio using a similar argument. Cazaly boss Nathan McMahon took that bid to the High Court.

A spokesman for Cazaly said last night the company's legal team was reviewing the decision and had yet to decide whether it would launch an appeal, although a negative decision was unlikely to have a major effect on the company. Cazaly's value lay in its Parker Range iron ore project in the South-West.

A spokesman for Fortescue Metals Group, which had agreed to fund and develop the site if Cazaly's application for an exploration licence was granted, said the company was also working through the decision and was unable to comment.

The warden scheduled a hearing on October 15 to allow Cazaly to pitch its bid for an exploration licence, but it is not expected to continue with its application in light of Friday's ruling.

Cazaly shares, which have rallied strongly recent months, were placed in a trading halt on Friday ahead of the decision and are not expected to begin trading again before Wednesday.

The stock last traded at 34¢, down 1¢ on its Thursday closing price. Fortescue shares fell 8¢ to $4.01 on Friday. Rio Tinto lost 94¢ to $59.98.