Australian miner Fortescue to team up with Brazil's Vale

Australia's Fortescue Metals on Tuesday opened the door to joint ventures and other investment deals with the world's biggest iron ore producer Vale under an agreement aimed at serving Chinese customers.

As iron ore prices jumped a record 19 percent overnight on the prospect of more Chinese stimulus, Fortescue Metals Group said it had entered into a non-binding memorandum of understanding with the Brazilian giant.

"(It) will allow us to work together to deliver long-term value to our customers, through the efficient supply of an attractive and competitive new iron ore blend in China," Fortescue chief executive Nev Power said.

Fortescue, of which billionaire Andrew "Twiggy" Forrest is a major shareholder, said the memorandum of understanding proposed the formation of one or more joint ventures for the blending of selected volumes of iron ore from both companies.

It also provided a framework for potential investment by Vale in Fortescue "through a minority acquisition of shares on market and/or investment in current or future mining assets", a statement said.

After the announcement, Fortescue issued a clarifying statement, saying the memorandum of understanding "contemplates an acquisition of its listed shares of between 5 percent and 15 percent, as agreed between the parties".

Iron ore producers had been battling a supply glut and softening Chinese demand, which has seen the price of the key steel-making ingredient plunge.

But commodity markets surged on Monday with iron ore spiking 19 percent to US$63.73 on China's weekend announcement to expand spending, with the prospect of increased steel consumption boosting iron ore.

Shares in Fortescue, which exports 165 million tonnes of iron ore annually from its deposits in Western Australia's Pilbara region, soared 23.7 percent on Monday, but closed down 9.42 percent after Tuesday's announcement at Aus$2.79 in an overall falling market.

Fortescue said the Vale agreement, which had been under discussion for about a year, was subject to board and regulatory approvals.