Dec. 7 (Bloomberg) -- Sinosteel Corp., China's second- biggest iron-ore trader, offered A$1.2 billion ($1.1 billion) to buy Midwest Corp. to secure supplies ahead of a proposed merger of two of the world's largest producers of the raw material.

Sinosteel bid A$5.60 a share, Perth-based Midwest said today in an e-mailed statement, 16 percent more than the stock's last traded price and 54 percent more than an offer from Australian rival Murchison Metals Ltd.

A takeover would be the largest overseas metals acquisition by a Chinese company, according to Bloomberg data. BHP Billiton Ltd.'s bid for Rio Tinto Group to create a company controlling almost half the Asian iron-ore market has sparked concerns among Chinese companies who need raw materials to maintain a decade- long economic boom.

``The potential merger of BHP-Rio Tinto has prompted Chinese companies to speed up overseas acquisitions to grab more resources,'' said Ma Hatian, an analyst with Beijing Antaike Information Development Co. ``China is repeating what Japan had done in 1980s, that is to boost overseas investment to secure raw materials for development of its heavy industries.''

Midwest has risen fivefold this year and last traded at A$4.85 today on the Australian Stock Exchange before the stock was suspended. It rejected an offer from Murchison, which has bid one new share for every 1.08 Midwest stock.

Sinosteel has an initial joint venture with Midwest to develop two iron ore projects in Western Australia. Murchison is backed by Japan's Mitsubishi Corp., and has bid for Midwest to remove competition to build a port and railways on Australia's west coast to ship ore to China and Japan.

``They want to get their hands on iron ore direct,'' Gavin Wendt, a senior resource analyst at Fat Prophets Funds Management, said in Sydney. ``It isn't surprising given the extraordinary level of Chinese interest in Australian iron ore.''

Iron Ore

Prices for iron ore, a key steelmaking raw material, have risen for five straight years on increased demand from China, the world's largest steelmaker. Prices may rise 50 percent next year, Macquarie Group Ltd. and Goldman Sachs JBWere Pty have said.

Australia's benchmark iron ore price, which doesn't include shipping and insurance costs, was set at $51.47 a ton for the year starting April 1, 2007. Cash prices are four times higher than contract prices because of rising shipping costs and demand.

Chinese companies have been funding iron ore miners in Australia, as they seek to reduce reliance on BHP and Rio. Anshan Iron & Steel group, China's third-largest steelmaker, agreed in September to a A$1.8 billion venture with Australia's Gindalbie Metals Ltd. to develop two iron ore projects. Fortescue Metals Group Ltd., building a A$2.7 billion project, has agreed to sell ore to Chinese steelmakers.

Rio has rejected a $134 billion all-stock takeover proposal from BHP, saying the offer undervalues its assets and prospects.

Incomplete Proposal

The Sinosteel proposal ``is incomplete, non-binding, subject to due diligence and a number of other conditions,'' Midwest said in the statement today.

John McGlue, a spokesman for Murchison Metals, couldn't immediately comment when reached by phone in Perth. Li Kejie, Sinosteel's spokesman, couldn't be reached for immediate comments.

Sinosteel may sell a combination of domestic yuan- denominated shares and Hong Kong-quoted stock as early as this year to raise between $800 million and $1 billion, a person familiar with the situation has said. Sinosteel president Huang Tianwen has said that the company may sell shares to investors in five of its units, including iron ore mining and steelmaking, to overseas investors.

To contact the reporter on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net; Helen Yuan in Shanghai at hyuan@bloomberg.net

Last Updated: December 7, 2007 04:19 EST