Guess which ASX small-cap stock has signed a new partnership with Rio Tinto

Rio Tinto is looking very closely at biofuels and this small cap stands to benefit.

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Midway Ltd (ASX: MWY) shares are rising on Wednesday morning.

In early trade, the ASX small cap stock is up 1% to $1.16.

Why is this ASX small cap stock rising?

Investors have been buying Midway's shares today thanks to an announcement out of mining giant Rio Tinto Ltd (ASX: RIO).

But firstly, what is Midway?

It is Australia's largest woodfibre processor and exporter with a strong and growing carbon abatement management business. Midway's fibre is used in recyclable paper and packaging, plastic replacement products.

What was announced?

This morning, Rio Tinto announced that it will develop Pongamia seed farms in Australia as part of a new biofuels pilot. This project will explore the potential of Pongamia seed oil as a feedstock for renewable diesel, a cleaner alternative to traditional fossil fuels.

The mining giant advised that the pilot aims to determine if Pongamia seed oil can contribute to Rio Tinto's renewable diesel needs while potentially contributing to the growth of a new biofuel sector in Australia.

It is in the final stages of acquiring approximately 3,000 hectares of cleared land near Townsville in north Queensland to establish farms to study growth conditions and measure seed oil yields.

As part of the process, Rio Tinto has partnered with Midway to oversee the planting and management of the Pongamia seed farms. The ASX small cap stock will engage with nurseries, agricultural experts and research organisations throughout the pilot, and prioritise opportunities for Traditional Owners and local communities.

Why is it doing this?

Rio Tinto notes that as part of its ongoing efforts to achieve net-zero Scope 1 and 2 carbon emissions by 2050, it is actively exploring the potential of biofuels in the low-carbon energy mix.

It sees biofuels as an avenue to reduce reliance on fossil diesel, while fleet electrification technologies mature. Rio Tinto is also investigating how biofuels could be used in scenarios where electrification may face practical limitations.

Rio Tinto's chief decarbonisation officer, Jonathon McCarthy, said:

Diesel accounts for around 10 percent of our emissions footprint in Australia. While we continue to pursue electrification as the long-term solution for displacing the majority of our diesel use, the Pongamia seed pilot is an important parallel pathway that could reduce our reliance on diesel in the mid-term. It also presents a compelling option for other applications that are challenging to electrify, including blasting and non-haul equipment.

The ASX small cap stock's managing director, Tony McKenna, was very pleased with the partnership. He said:

We are very excited to be partnering with Rio Tinto on this innovative pilot project. We are proud to be playing an important role in helping develop a sustainable domestic biofuel industry. The collaboration continues the growth of our position as trusted providers with the capability and experience to deliver a variety of projects for emitters who are committed to seeking alternative solutions to reduce their net emissions.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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