Iron ore miner Fortescue Metals Group has merged some of its lower grade assets with Chinese state-owned steel giant Baosteel.

The company’s shares shot up on news of the deal with one of the world’s largest steel producers.

Fortescue shares shot up over three per cent to an intraday high of $4.72 early on Wednesday afternoon, before closing the day at $4.68.

The groups will consolidate their magnetite interests in the Glacier Valley and Northstar mining leases into Fortescue-owned, Hong Kong-based FMG Iron Bridge.

Fortescue will own 88 per cent of the entity and Baosteel 12 per cent, subject to regulatory approval.

The Northstar (100 per cent Fortescue) and Glacier Valley (65 per cent Fortescue, 35 per cent Baosteel) magnetite deposits have a Joint Ore Reserves Committee compliant resource of 3.2 billion tonnes.

Fortescue chief executive Nev Power said the deal consolidated one of the world’s most prospective magnetite projects, with close proximity to customers and rail and port infrastructure.

Magnetite iron ores contain less iron and is more labour intensive than high-grade hematite, with higher start-up and processing costs.