Taiwan's Formosa Plastics Group has agreed to invest $1.15 billion as part of a deal to buy nearly a third of a new iron ore project in Australia from partners Fortescue Metals Group and China's Baoshan Iron & Steel (Baosteel).

Formosa, which is building a steel mill in Vietnam, will invest in the FMG Iron Ore Bridge project in Western Australia's Pilbara iron ore belt, Fortescue said. The project is 88% owned by Fortescue and 12% by Baosteel.

The investment comes as increased purchases by Asian steel mills have helped drive spot iron ore prices to their highest in five months.

Formosa will prepay $500 million to a Fortescue subsidiary, The Pilbara Infrastructure Pty Ltd (TPI), allowing it access to the Australian miner's coveted Indian Ocean rail port facilities as part of the deal.

It will also pay $123 million for a 31% stake in the project.

Fortescue, which has amassed $10 billion in debt on its way to becoming the world's fourth-largest iron ore exporter, has been courting potential minority investors in TPI, aimed at yielding the firm as much as $3 billion.

"Importantly, the transaction also delivers a further strengthening of Fortescue's balance sheet," Fortescue Chief Executive Nev Power said in a statement.

The deal with Formosa could also have implications for efforts by neighboring mining companies in the Pilbara attempting to access Fortescue's rail lines and port berths - efforts Fortescue has resisted, saying there was no room.

Australian regulators this week rejected Fortescue's arguments that giving access to one such company, Brockman Mining, could interfere with its own shipments.

The infrastructure assets include 280 km of rail lines and access to Port Hedland, the world's largest iron ore terminal.

The FMG Iron Bridge development is located 100 km from Fortescue's Port Hedland operations and is within 25km of the company's existing rail line.

The development comprises two deposits, North Star and Glacier Valley, as well as two exploration sites that could be developed at later dates, Fortescue said.

As part of the deal, Formosa will also provide $527 million of capital expenditure on the project, Fortescue said.

Construction of the first stage is expected to take 12 months and start producing 1.5 million tons of iron ore annually in early 2015, according to the company.

The ore differs from Fortescue's other deposits - mined at annual rate approaching 155 million tons - and known as hematite that retains magnetic properties. It is therefore amenable to magnetic separation that allows for extraction of a higher iron ore content.

A second 9.5-million tons-per-year project remains subject to joint venture approval with construction expected to commence in 2015, Fortescue said.

There was speculation last year of a float of the Iron Bridge project on the Hong Kong Stock Exchange.

Formosa, the largest private conglomerate in Taiwan, is building an integrated steelworks in the Vung Ang Economic Zone of Ha Tinh province in Vietnam.

Formosa had agreed to buy up to 3 million tons of iron ore at market prices when the steelworks is commissioned.

The Australian miner was advised by Deutsche Bank, New Tone International and DLA Piper and Formosa was advised by ANZ Bank.

Fortescue said it expects to receive approvals from foreign investment regulators in China and Australia in September 2013.