DryFlow Magnetics announced plans to test its technology at a South Australian mine on Tuesday, months after completing a $10 million seed-funding round.
If successful, the technology that uses magnets in place of water could unlock a premium export industry for the nation as demand for lower-quality iron ore falls.
The announcement comes after The Superpower Institute found Australia could generate $386 billion a year from green iron by 2060, and after the federal government launched a $1 billion fund to support the industry, including early projects.
Green iron is produced using renewable energy rather than coal or gas and has the potential to cut 90 per cent of emissions from the steelmaking process.
But electric arc furnaces require high-grade iron ore often extracted using water, which is difficult to access near Australia's iron-rich mines.
DryFlow Magnetics instead uses solid-state magnets to extract higher-grade material for green iron, chief executive Brett Boynton said, cutting 95 per cent of water from the process.
"We are 100 per cent focused on unlocking those water-stranded assets," he said.
"We think with our technology, Australia can re-take the lead and become the dominant supplier in high-purity iron."
The Adelaide-based company will build its first commercial pilot at Peak Iron Mines' Hawks Nest project, southeast of Coober Pedy.
The first plant will process 20 tonnes of material per hour when installed in July, Mr Boynton said, and the company would seek investment to scale up to 200 tonnes per hour.
"This is an engineering problem; now the physics has been solved," he told AAP.
"We know the magnetics works. We've run hundreds of samples. We've tested extensively on the magnetics.
"All the engineering looks very good but until we test it and demonstrate it, we're not going to get the likes of a Rio (Tinto) or a BHP to say, 'let's install some of these at one of our sites and work with it'."
The technology could help unlock valuable iron ore reserves, DryFlow mining and minerals principal advisor Rob Thomas said, to create more environmentally friendly exports.
"For a state with the magnetite endowment that South Australia has, and with Whyalla's future front of mind, that's not a minor improvement - it's exactly the kind of breakthrough the industry needs," he said.
A report by The Superpower Institute found Australia could generate $386 billion a year if it replaced iron ore exports with green iron by 2060, and could cut almost four per cent of global emissions.
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