Sinosteel boosts stake in target Midwest to 40 pct

SYDNEY (Reuters) - Chinese metals trader Sinosteel extended its offer for Midwest Corp MIS.AX after boosting its voting stake in the Australian iron ore prospector to 40 percent, raising its chances of blocking a rival A$1.43 billion ($1.35 billion) offer from Murchison Metals.

Sinosteel and Midwest's rival Murchison Metals Ltd (MMX.AX) are battling for control over Midwest for its iron ore reserves in the Yilgarn region of Western Australia, which could be transformed into a major iron ore province by a planned new railway and port.

If Sinosteel gets more than 45 percent of Midwest it will be in a strong position to stop Murchison's offer, which needs a majority of Midwest shareholders' votes cast to secure approval.

Murchison said on Friday it was monitoring events and assessing their impact on its merger proposal.

"We remain strongly of the belief that there is compelling logic to the merger," a Murchison spokesman said.

Sinosteel has offered A$6.38 per share for Midwest against Murchison's all-share bid that equates to about A$6.73 per Midwest share based on Murchison's share price on Friday.

Midwest shares last traded up 0.9 percent at A$6.50, well below Murchison's offer price, 1.9 percent above Sinosteel's offer but 3 percent below Murchison's, suggesting investors see a stalemate in the offing.

Sinosteel said in regulatory filings on Friday it had increased its voting stake in Midwest to 40 percent from one-third the previous day and would extend its offer to July 18.

When Murchison first launched its reverse takeover plan in May, Midwest's board recommended the proposal but at the same time continued to recommend Sinosteel's offer while it assessed the market reaction to Murchison's offer.

The Midwest board was meeting on Friday and was expected to update the market on its view.

Sinosteel expects the Yilgarn region to flourish and wants Midwest to lead its development, as the Chinese company seeks stable supplies of raw materials to feed surging demand.

Murchison is being backed by its main shareholder, U.S. hedge fund Harbinger Capital, which also owns a stake in Midwest.

($1=$1.04)

(Reporting by Sonali Paul)