Anglo American, the worlds second-largest mining group, is in exclusive talks to acquire control of two iron ore projects for $5.5bn from MMX Mineração, the Brazilian mining company. Once completed, the deal will significantly increase Anglos long-term involvement in iron ore.
The commodity is likely to remain in strong demand because of rapid industrial growth in China and India. In a statement, Anglo said it was in talks to buy a 63.6 per cent share of MMX via the Brazilian companys controlling shareholder, Eike Batista.
The deal should leave Anglo in full control of the Minas-Rio iron ore project and with 70 per cent of the Amapa project in Brazil.
Cynthia Carroll, chief executive of Anglo American, said she expected her companys iron ore production to reach 150m tonnes by 2017 on the back of the proposed acquisition and planned expansions at Kumba Iron Ore, Africas largest iron ore producer, in which Anglo holds a 65 per cent share.
This would make Anglo a significant rival to Vale, formerly known as CVRD, the worlds biggest iron ore producer.
Vale produced 300m tonnes of iron ore last year and estimates that this will rise to 325m this year.
Rising commodity prices have spurred mining companies to consider stepping up their acquisitions and have triggered a frenzy of take-over activity, including BHP Billitons recent bid for Rio Tinto.
Several industrial companies have stepped up their exposure to iron ore. In April Anglo paid $1.15bn (£580m) for its first 49 per cent of the Minas-Rio iron ore project.
Contract prices for the commodity have increased threefold in the past five years and some analysts believe iron ore prices could rise beyond 25 per cent, up to 50 per cent this year.
Anglo has shifted focus on to commodities such as copper and iron ore since Ms Carroll became the companys chief executive in March, selling off gold, steel and paper assets.
Anglo American shares fell 110p, or 4 per cent, to £26.03.
Some analysts felt that the price was at the high end but that it at least gave the company a stronger foothold in a commodity in demand.
The Amapa project has a capacity of 6.5m tonnes a year.
The Minas-Rio project is not expected to start production until 2010.