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UPDATE 1-Brazil's Vale agrees to new terms with Mitsui for coal mine stake

(Adds details on terms of deal, share price)

RIO DE JANEIRO, Sept 29 (Reuters) - Vale SA said on Thursday it has agreed to new terms for the sale of stakes in a coal mine and railway project in Mozambique to shareholder Mitsui & Co, in a deal that will raise $768 million and could help Vale free up to $2.7 billion in funding commitments for both projects.

The sale of Vale’s stakes in the Moatize coal mine and the Nacala Corridor railway and port hinge on the approval of a project finance plan, Rio de Janeiro-based Vale said in a statement. The deal reworks terms of a prior accord over the mine and the infrastructure project.

It is a further step in attempts by Vale Chief Executive Murilo Ferreira to reduce the Brazilian miner’s capital spending burden and cut debt by $10 billion through asset sales over the next couple of years.

The Moatize and Nacala transactions should help reduce Vale’s fundraising needs in coming years as the world’s No. 1 iron ore producer adjusts to an era of lower commodities prices.

The deal with Mitsui was first struck in December 2014 but had not closed due to challenges in securing long-term financing for the project, which is one of Africa’s biggest with an estimated total cost of $4.4 billion. Vale has already poured about $2 billion into it.

“We have concluded the reworking of these terms at a moment when the market for coal is beginning to gain some momentum,” Ferreira said in a video posted on Vale’s website.

Common American depositary receipts of Vale recouped part of their earlier losses following the news. The stock fell 1.9 percent to $5.5450 at 3:45 p.m. New York time, after falling as much as 2.9 percent earlier.

Under the new terms, Mitsui will contribute up to $450 million for 15 percent of Vale’s 95 percent stake in the mine. Of this, $255 million is guaranteed while the remaining $195 million is dependent on attaining unspecified performance goals.

Mitsui will also contribute $348 million for 50 percent of Vale’s 70 percent stake in the Nacala Corridor, through a mix of equity and so-called hybrid instruments, which often combine features of equity and debt securities.

Mitsui will also provide the Nacala Corridor project with $165 million in a long-term loan. (Reporting by Stephen Eisenhammer; Additional reporting by Jeb Blount and Marta Nogueira in Rio de Janeiro, and Gustavo Bonato in São Paulo; Editing by Lisa Shumaker and Leslie Adler)