China's Baosteel is in the box seat to secure a massive iron ore holding in Western Australia after Mineral Resources failed to take control of explorer Aquila Resources.
Aquila on Wednesday said it had rejected mining contractor Mineral Resources' takeover offer, and is still recommending its shareholders accept the offer from Baosteel and Aurizon.
Analysts say the move paves the way for the Chinese state-owned company to shore up new iron ore supply and reduce the risk of higher iron ore prices in the future.
Mineral Resources bought a near 13 per cent stake in Aquila Resources last week, and on Monday made a share-swap takeover offer for the Pilbara explorer that valued it at $1.5 billion.
Aquila is already the target of a lower $1.4 billion cash takeover bid from steelmaker Baosteel and rail operator Aurizon, as the companies involved look to kickstart the stalled $10 billion West Pilbara Iron Ore Project.
Aquila chairman Tony Poli, who holds a 29 per cent stake in the company, intends to accept the Baosteel and Aurizon offer while other shareholders have until July 11 to accept it.
Mineral Resources plans to discuss its potential involvement in the construction of the mine, rail and port project, as well as the operation of the mines as it considers what to do with its stake in Aquila.
Analysts say the Baosteel bid is likely to go ahead as the Chinese look to establish a large stable supply of the steel making ingredient.
Morningstar Resources analyst Mathew Hodge said Baosteel wanted control of Aquila.
"If you're a pessimist you would say they want to have something sizeable where they can add meaningful supply to the global market to reduce the cost of iron ore for China," he said.
The West Pilbara Iron Ore project would only be financed with Chinese money, he said.
"That's key to the project and Baosteel's got a pretty strong hand."
He said it appeared the WA state government was trying to breathe some life into the project with the release of the Anketell Port Master Plan in the Pilbara on Wednesday.
There was not a huge amount of competition for Aquila and a stalemate would be the worst outcome for Mineral Resources, Mr Hodge said.
CMC Markets analyst Michael McCarthy said Mineral Resources had already had close dealings with the Aquila board and would try to maintain friendly relations in the hope of securing future contracts.
Aquila shares were up 23 cents, or 7.3 per cent, at $3.36 at 1355 AEST, while Mineral Resources shares were down 28 cents, or 2.8 per cent, at $9.28.
