Perth-based Grange will acquire 100% of Ever Green Resources and Shagang Mining Australia, the entities that control the assets of ABM, via an all scrip transaction.

ABM is an unlisted company owned by Chinese steel producer Jiangsu Shagang Group, Chinese iron and steel trader RGL Group, Hong Kong-based iron ore and coking coal importer Pacific Minerals and London-based steel distributer Stemcor Pellets.

Under the deal, existing Grange shareholders will hold 26.1% of the merged group's fully diluted share capital, while ABM shareholders will hold the remaining 73.9%.

Shagang will be the largest shareholder, owning 45.3% of the merged entity.

Grange managing director and chief executive officer Russell Clark, who will retain the roles on the new board, said the merger was a huge opportunity for the company.

"This is a marriage made in heaven," he said.

The merged company, which will retain the Grange name and be based in Perth, will hold two key assets - ABM's 2.3 million tonne per annum Savage River magnetite and pellet operation in Tasmania and Grange's 70%-owned Southdown magnetite project in Western Australia.

Savage River has resources of 323Mt of magnetite grading 50.3% iron and reserves of 131Mt of magnetite grading 48.9% iron.

ABM managing director Dave Sandy, who will remain on the board of the merged company, said Savage River has a poor reputation, particularly in Western Australia, and was known as "a bit of a dog"

He said it had run for 30 years from 1965 and, when ABM reopened it in 1997, the mine and its infrastructure were run down.

"It was a big task to restore it," he said.

Sandy said the mine is now performing well, after the company spent $106 million on improvements since August 2007.

Southdown has a resource of 479Mt of magnetite grading 37.3% iron and reserves of 388Mt grading 35.5% iron.

Grange chairman Anthony Bohnenn, who will become a non-executive director of the new entity, told reporters the merged company would be the largest pellet producer in Australasia.

He added that once Southdown came into production in late 2012, the merged company would be producing close to 8Mtpa of pellets.

Clark said the courting process had taken around six months as the companies got to know each other and the projects.

"This is far and away the best result for Grange," he said.

The merger is subject to approvals from Grange shareholders, Chinese authorities and the Foreign Investment Review Board.

Shares in Grange Resources were 5c up this morning to $1.94.