From: Reuters
Published February 20, 2008 02:33 AM

Australia's Midwest rejects $1 bln Sinosteel approach

By James Regan

SYDNEY (Reuters) - Australian prospector Midwest Corp <MIS.AX> rejected a $1 billion-plus takeover proposal from its major shareholder, the Chinese commodities trader Sinosteel, emboldened by another big hike in iron ore prices this year.

Sinosteel is the second suitor rejected by Midwest, which says its potential to capture a sizeable chunk of booming sales of iron ore to Asian steel makers is not fully appreciated.

Japan's Nippon Steel Corp <5401.T> and POSCO <005490.KS> of South Korea this week agreed with Brazilian mining giant Vale <VALE5.SA><RIO.N> to pay about 65 percent more for iron ore in 2008, which is likely to act as a benchmark for the industry. It is the sixth consecutive annual increase.

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"The agreement with Vale was at the top end of forecasts and the price could be even better for Australian ore," Midwest's chief executive, Bryan Oliver told Reuters on Wednesday.

"That gives us a lot of confidence there are still a lot of legs in the next couple of years in terms of our share price," Oliver said.

Shares in Midwest lost 7 percent to A$4.91 on Wednesday, but have more than tripled in the past year.

Oliver said Midwest had been unable reach an agreement with Sinosteel over its offer, pitched at A$5.60 a share and valuing the company at A$1.19 billion ($1.08 billion).

Sinosteel is a joint venture partner in Midwest's promising Mt Weld prospect, one of five projects it has on its books.

"As our pipeline of projects come on we're potentially in a better price range than the market has previously factored in and underpins our view that A$5.60 is too low," Oliver said.

Midwest is among a handful of prospectors seeking to develop mines in far western Australia's midwest region, where much of the ore was deemed uneconomical to mine until ore prices started soaring on Asia demand.

Merger plans with one of them, Murchison Metals Ltd <MMX.AX> collapsed early this month after Murchison failed to receive the support of Midwest's board.

MARKET TREMORS

Iron ore in Australia is also key to Rio Tinto Ltd/Plc's <RIO.L> <RIO.AX> rejection of a near $150 billion hostile offer from BHP Billiton Ltd/Plc <BHP.AX> <BLT.L>.

Both companies mine millions of tonnes of ore a year and together would control more than a quarter of the world market. Rio says the offer is too low, in part because it fails to take into account expansion plans promising to add hundreds of millions of tonnes more of ore each year.

BHP's overtures to Rio have caused tremors among steel mills, especially in China, which buys hundreds of millions of tonnes of iron ore each year from both companies, reinforcing moves by Chinese firms like Sinosteel to find alternative supplies.

Fortescue Metals Group Ltd <FMG.AX>, which expects to start mining ore in May, has earmarked its entire annual production run of 45 million tonnes to Chinese buyers.

Chinese steelmaker Shougang wants to buy just under 20 percent of the stock in another miner, Mount Gibson Iron Ltd, <MGX.AX> which is expanding.

Gindalbie Metals Ltd <GBG.AX> has signed a A$534 million funding agreement with China's Anshan Iron & Steel Group Corp <0347.HK> (Ansteel) to help pay for an iron ore mine in Australia and a factory in China.

Australia, with its vast outback reserves of minerals, has experienced gold rushes, nickel booms and a proliferation of new coal mines. Now, say analysts, it is iron ore's turn in the sun.

"We see very strong demand for Australian iron ore going into Asia for years to come," said DJ Carmichael & Co analyst James Wilson.

The iron ore price increase could exceed 65 percent for Australian suppliers if Rio Tinto manages to squeeze out a freight premium on top of the increase to compensate for shorter delivery times to Asia from Australia than from Brazil.

($1=A$1.09)

(Reporting by James Regan; Editing by Lincoln Feast)

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