Fortescue Metals Group (FMG) has signed a memorandum of understanding (MoU) with Iron Ore Holdings (IOH) for the Iron Valley project in Pilbara region, Western Australia.

Fortescue Metals Group CEO Nev Power said with more than 2 billion tonnes of iron ore resource already identified at Nyidinghu, the project is large scale and a core focusing in the company’s plan to expand production beyond 155 million tonnes per annum.

Mr Power said: "Iron Valley’s location as a contiguous ore body to Nyidinghu would provide Fortescue with infrastructure layout and mining operations flexibility."

The transaction remains subject to the finalisation of all relevant legal documentation.

The news follows IOH’s announcement that it has sold FMG an option to develop the iron ore project for $25m, with further payments to come if the company takes up the option by March 2013.

Iron Valley sits next to FMG’s Nyidinghu deposit and is believed to be part of the same orebody.