China's Sinosteel Corp will likely turn its attention to Murchison Metals Ltd to further secure its supplies of iron ore after gaining control of Midwest Corporation.
Sinosteel, China's second largest iron ore trader, today secured 50.97 per cent of iron ore miner Midwest through a $1.36 billion takeover.
It was the first occasion where a Chinese state-backed group has gained control of an Australian resources company via a hostile takeover.
The commodities trader is targeting Midwest to gain control of the company's iron ore resources and cut dependence on Rio Tinto Ltd and BHP Billiton Ltd, amid rising prices for the steelmaking commodity.
Midwest and Murchison hold neighbouring ground and operate modest iron ore mines in Western Australia's mid-west region.
Analysts estimate cost savings up to $400 million could be achieved through a tie-up of the two companies.
Murchison proposed in May a merger with Midwest but was forced to terminate the proposal this week after failing to gain support from Sinosteel, Midwest's largest shareholder.
"Sinosteel have secured a production base by taking over more than 50 per cent of Midwest, so anything else is cherries on top and that's probably what Murchison would be," DJ Carmichael analyst James Wilson said.
"It is an obvious next step, it makes the right sense to have Murchison and Midwest together."
Sinosteel, which has a 2.4 per cent stake in Murchison, has applied to the Foreign Investment Review Board (FIRB) to increase that interest above 15 per cent.
Sinosteel President Tianwen Huang this week described the Midwest transaction "of great significance" and one that required "considerable focus and energy".
However, Murchison has vowed to stifle Sinosteel's attempt to swallow Midwest by not accepting the bid for its 10 per cent holding in the company, which effectively blocks a compulsory takeover.
Sinosteel's takeover attempt could be further frustrated by Murchison's largest shareholder - Harbinger Capital Partners - which holds a 9.11 per cent stake in Midwest.
Shares in Murchison gained six cents to $2.86 by 1511 AEST, while Midwest put on 10 cents to $6.50.
