Fortescue Metals Group (FMG) of East Perth has struck a non-binding agreement to enter a joint venture with Vale.  The deal lays the groundwork for the Brazilian iron ore giant to buy a stake of up to 15 percent in Fortescue or equity in its mining assets.

The joint venture involves the two companies selling between 80 million and 100 million tons of Aussie Pilbara ore and Brazilian iron ore to China, with blending to take place at port in China.  Blending allows the companies to mine less attractive ores, and blend them up to marketable standards.  This would provide the companies with "long-term opportunities to create additional value for customers in the Chinese steel industry and enhance the competitiveness of their operations", according to a statement released to the ASX.

Although the deal gives Vale - the world's biggest iron ore miner - a foothold in Australia, FMG's chief executive Nev Power doesn't see it as a step towards a takeover.

"I don't see it as a precursor to any further action," Mr. Power was quoted by Fairfax Media.  "We have talked to Vale about a minority interest in Fortescue, we just think it would improve the strength of the relationship between the two companies but other than that we wouldn't expect it to go any further." he added.