The pair have been at legal loggerheads for almost two years over the diamond project, also known as Project FalCon, which could produce 66 million carats over 34 years according to a 2018 preliminary economic assessment.
Rio Tinto Exploration Canada had moved in November 2019 to exercise its options, under a circa C$70 million 2017 agreement, to acquire a 60% stake years ahead of schedule.
However Star then accused RTEC of non-compliance and took the matter to court.
Under the agreement announced on Friday, RTEC said it took sole responsibility for expenditures from November 9, 2019, which were expected to amount to $103.6 million.
Star Diamond, which had recorded a $2 million loss for the September quarter, had no obligation to fund or contribute to carried interest costs until the commencement of commercial production, it said.
According, their joint venture interests were adjusted - with RTEC's stake increasing from 60% to 75% and Star's falling from 40% to 25%.
The duo also agreed to drop litigation.
"We are very pleased to have reached a constructive resolution with Rio Tinto that puts our differences in the past, fully aligns our interests and allows both of us to singularly focus on jointly and expeditiously moving forward with what Star Diamond believes is one of the most promising diamond projects in the world," Star chairman Ewan Mason said.
It became sole owner of the Diavik diamond mine in Canada's Northwest Territories last month, acquiring a 40% stake from Dominion Diamond Mines which had sought insolvency protection in 2019. The mine is expected to close in 2025.
Rio closed down 0.44% in London on Friday to GBP47.54, down 10.1% year-to-date, capitalising it at GBP78.9 billion (US$104.6 billion).
Star Diamond soared to a one-year high intraday of C36c, double its value of 12 months ago.
It closed up almost 22% to 25c, valuing it at $113.2 million (US$89 million).