Sinosteel raises stake in Midwest

China’s Sinosteel has lifted its stake in Midwest Corporation, an Australian iron explorer that is fending off two takeover offers, to more than 10 per cent after buying shares in the market at A$5.30 ($4.70) each.

The purchase hampers the ability of rival predators – led by Murchison Metals, another Australian-listed iron ore miner that has had its A$1bn (US$882m) offer rejected – to take over Midwest.

Sinosteel in December made a highly conditional cash takeover proposal for Midwest worth A$1.19bn in what would represent one of the largest takeovers in the mining industry ever undertaken by a Chinese company. The proposal was worth A$5.60 a share, which compares with Friday’s close of A$5.04.

However, Midwest said on Friday it “understands that Sinosteel has no current intentions of making an unsolicited takeover offer”.

Sinosteel, a state-owned company that plans to list in Shanghai and Hong Kong this year, has been denied access by Midwest to a data room after refusing to sign certain confidentially agreements. It also declined to agree to a standstill arrangement that would prevent it from further stake building.

“It gives them [Sinosteel] the ability to buy shares in the market, especially when they are trading below A$5.60,” a person close to the situation said.

Midwest said last month it was in early stage takeover talks with another party, which it has declined to identify. However, those talks are understood to have ended.

Murchison Metals this week extended its takeover offer for Midwest until next month.

Sinosteel already has an option to acquire up to half of Midwest’s iron-ore projects while other Chinese backers are behind a separate venture that would build the supporting infrastructure on its behalf.

Sinosteel’s iron ore offtake agreement with Midwest would be in jeopardy in the event that Murchison, backed by Mitsubishi of Japan, succeeded with its takeover offer. Mitsubishi last year agreed to acquire 50 per cent of Murchison’s iron ore assets.