Fortescue Metals, an Australian mining company with a focus on iron ore, has signed a co-operation agreement with one of China’s leading steel mills, Hunan Valin Iron and Steel Group, to increase iron ore sales to Valin and to research new technologies to process lower grade iron ores. Fortescue and Valin have agreed to establish a joint venture (JV) to develop lower grade resources from some of Fortescue’s tenements and to give Valin the option to participate in any additional new projects Fortescue undertakes.

“The co-operation agreement creates business opportunities for Valin, supply opportunities for Fortescue and potential product development opportunities for the Pilbara,” Fortescue Metals Group Chief Executive Officer Andrew Forrest said. “The Pilbara is the world’s premiere iron ore address and the increased off take agreements and proposals to study the establishment of a processing facility to further value add various iron ore types including lower-grade deposits, will enable the Pilbara to realise its true potential.

“This agreement cements more than just a close relationship between Fortescue and Valin, it illustrates the developing partnership Australia and China now enjoy. It provides Fortescue with a high calibre, cornerstone Chinese partner which will lead to the development of further opportunities for both companies.”

Key components of the agreement are:

• Xiangtan Steel (a subsidiary of Valin) has an existing off take arrangement with Fortescue for up to 1 Mt/y. Under this agreement and subject to expanded production, Fortescue agrees to increase that supply arrangement to up to 4 Mt/y from 2010 onwards
• Fortescue and Valin will use reasonable endeavours to negotiate a new supply arrangement with the Valin parent entity which will grow from an initial base of up to 1.4 Mt/y to a maximum of up to 6 Mt/y by 2013. This agreement would, again, be dependent on Fortescue expanding current production
• The companies will seek to progress a feasibility study by 30 June 2009, which will investigate the commercial and technical feasibility of further processing iron ore that comes directly from Fortescue’s surface miners onto the run of mine stockpile. The initial studies will look at opportunities in China however if this is considered not feasible, then the study will investigate opportunities within the Pilbara. The study will not commence until global economic conditions improve
• If the ultimate outcome of the study supports the feasibility of the project, Valin and Fortescue will advance to the formation of a JV with the objective of constructing a processing facility. It is proposed that this facility would be supplied with iron ore by Fortescue on terms yet to be formally agreed
• A JV with China Central South University (CSU) to review the feasibility of exploiting lower grade hematite ore with an iron grade Fe content at or around 50% will be established. Fortescue has had a broad relationship with CSU for many years and the JV would formalise this relationship in regards to this specific potential processing venture.