The world's no.1 and no.4 iron ore miners are in talks that could see Brazil's Vale taking a minority stake in Australia-based Fortescue Metals Group and the blending of their iron ore to win market share in China.
The proposal will help the pair match the quality of iron ore produced by rival Rio Tinto, seen as the benchmark in China, and comes just as beaten-down iron ore prices stage a recovery to eight-month highs.
The two companies have been in talks for around a year, Fortescue said on Tuesday, for what would be the first deal involving the "big four" iron ore miners following a collapse in the price of the steel-making commodity in recent years.
The non-binding memorandum of understanding could see Vale buy up to 15 percent of its Australian rival's shares on market, which up to Monday had been sitting not far off seven-year lows. It would also allow Vale to take stakes in Fortescue's existing or future mines, while joint blending operations in China could begin within six months.
"The key to this agreement is about creating efficiency and supply chain consistency and reliability to our customers," Fortescue Chief Executive Nev Power told reporters, adding the deal would make both companies more competitive.