Australia's Midwest backs $1.3 bln Sinosteel bid

SYDNEY (Reuters) - Midwest Corp Ltd MIS.AX on Tuesday recommended a revised A$1.36 billion ($1.27 billion) offer from Sinosteel, ending resource-hungry China's first hostile foray into Australia's mining sector.

The A$6.38 per share offer falls short of the A$7 price target set by Midwest's chief executive Bryan Oliver, but represents a 13.9 percent increase over Sinosteel's previous offer of A$5.60 a share.

Midwest was last quoted at A$6.10 before trading in its shares was halted early on Tuesday.

The new offer by Sinosteel, which already owns 19.9 percent of Midwest, is conditional on it winning at least 50.1 percent acceptance.

Oliver told reporters the offer provides Midwest's shareholders with a degree of certainty amid market volatility.

He said the unanimous recommendation by Midwest's board, subject to no higher offer emerging, did not necessarily mean directors would sell Sinosteel their own shares, representing about 16 percent of the company's outstanding stock.

"At this stage the directors have not had a chance to consider their own personal positions," Oliver said.

Midwest earlier this year fought off an unsolicited offer from neighboring prospector Murchison Metals Ltd (MMX.AX).

Murchison is in partnership with Japan's Mitsubishi Corp (8058.T) and, like Midwest, plans to build railways and a port from scratch to tap the vast reserves of iron ore in the midwest region of Western Australia, where both companies have pegged out promising ground.

The two companies are among a handful of prospectors seeking to develop mines in the region, where much of the ore was deemed uneconomical to mine until ore prices started soaring on stepped up Asian demand.

Analysts had said a tie up between Midwest and Murchison was logical and both would benefit from shared rail and port operations.

Murchison said on Tuesday Sinosteel had acquired 2.4 percent of its stock.

Oliver has called Sinosteel's initial moves on Midwest the first salvo in a "mandate" by Beijing directing Chinese companies to acquire mining companies in Australia to break a dependence on ore from heavyweights Rio Tinto Ltd/Plc (RIO.AX) (RIO.L) and BHP Billiton Ltd/Plc (BHP.AX) (BLT.L).

"Japan's steel industry owns 60 percent of the iron ore it imports. But China's steel industry is only at something more than 10 percent," Luo Bingsheng, secretary-general of the China Iron and Steel Association told reporters on Tuesday.

"We should be like Japan, controlling up to 60 percent of our imports. We should invest directly overseas."

In some cases, stock purchases would be better than direct investments in mines, Luo added, since that would allow investment in mines that were closer to production.

China has emerged as the world's top steel maker and rising demand for imported raw materials has helped drive up iron ore prices, with some mills paying double what they did last year.

Sinosteel dropped a friendly buyout proposal for Midwest in January after Malaysian David Law, a Midwest director holding a 13.3 percent stake, said he would not accept A$5.60 a share.

Oliver said Law, a Midwest director, had not indicated whether he would accept the new offer.

($1=A$1.07)

(Additional reporting by Lucy Hornby in BEIJING, Editing by Ian Geoghegan)