Australian-based iron ore company Fortescue Metals Group and Brazilian mining giant Vale have signed a memorandum of understanding (MoU) to create a joint venture and combine selected volumes of iron ore from both companies.
The companies will also pursue long-term opportunities to create value for customers in the Chinese steel industry.
Fortescue said that the new product will be developed to fit the long-term needs of its customers.
Under the agreement, Vale will also invest in Fortescue through a minority acquisition of shares on market and / or investment in existing or future mining assets.
The MoU is subject to agreement on the final terms of any resulting transaction documents and any other required approvals.
Fortescue Metals Group CEO Nev Power said: "The memorandum of understanding 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."
The latest announcement comes after the prices of iron ore increased 19% overnight to $63.74 per tonne.
Bloomberg quoted China Merchants Futures in Shenzhen analyst Zhao Chaoyue saying: "The iron ore and steel markets have gone berserk, they've departed from fundamentals and are heavily driven by sentiment."
Vale is a logistics operator in Brazil and produces iron ore, while Fortescue exports 165 million tonnes of iron ore per annum.