Brazilian mining giant Vale and Australian iron ore producer Fortescue Metals announced in March they will pursue “opportunities to enhance competitiveness in their operations” by signing a Memorandum of Understanding (MoU).

The MoU sets out the principles on which Vale and Fortescue have agreed to follow up on long-term opportunities in the iron ore market, as well as create additional value to the Chinese steel industry.

These opportunities, according to the two companies, include formation of one or more joint ventures for blending and distribution of Vale’s and Fortescue’s respective products in China in order to develop an iron ore blend specifically designed to meet the long-term needs of existing and new Chinese customers. It also provides the option to undertake joint mining developments in Australia, as well as for Vale to take a minority stake in Fortescue’s holding company.

Peter Poppinga, Vale’s executive director for ferrous minerals, said, “The Memorandum of Understanding is one more important step toward optimizing Vale’s supply chain, creating new platforms for future mine development and offering a new world-class alternative product to the Chinese steel industry. We are looking more than 10 years ahead.”

Both companies stated that the MoU does not constitute a contract and is not legally binding on the parties. It remains subject to agreement on the final terms of any resulting transaction documents and receipt of all required approvals, including board approval and any relevant regulatory approvals.

Shortly after the joint announcement, Vale issued a statement clarifying that that the MoU “defines only certain general principles on which Vale and Fortescue Metals Group Ltd. wish to progress discussions. These discussions include, among others, the optionality to undertake joint mining developments together with Fortescue in Australia and the optionality to take a minority stake in Fortescue in the long term.

“Vale states that its short- to medium-term strategic priorities are to complete the S11D project and to deleverage its balance sheet in order to improve its financial flexibility,” the clarification statement said.

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