AAP

Takeover target Midwest Corp Ltd has formally rejected an unsolicited bid for the company by rival Murchison Metals Ltd, saying it fails to recognise the target's future potential.

Midwest directors unanimously rejected the offer of one Murchison shares for every 1.08 Midwest shares, that values the iron ore explorer at around $1.04 billion.

"The offer fails to recognise Midwest's potential as a stand alone iron ore explorer and producer in the mid-west region" of Western Australia, the directors said in a target's statement released on Monday.

"The offer is opportunistically timed and significantly undervalues Midwest's relative contribution to a combined group."

The target's statement included a technical analysis by independent resources industry consultant AMC, which was asked by Midwest to report on the mineral resource and potential of its iron ore assets and those of Murchison.

Both companies are developing iron ore projects in Western Australia's mid-west region.

Murchison operates the Jack Hills iron ore project, north east of Geraldton, and has about 97 million tonnes of reserves and resources.

AMC concluded in its report that Murchison's Jack Hills project bears a higher resource risk than Midwest's Weld Range project near Meekatharra.

AMC estimated Murchison's total resource potential at the Jack Hills Project in Western Australia at 128 million tonnes.

Midwest said this was lower than Murchison's stated production target of 25 million tonnes a year for 15 years.

"Based on the AMC report, the Jack Hills project has significantly less upside potential than the Weld Range project," Midwest said.

Midwest shareholders, holding 45 per cent of its stock, have already indicated they will reject Murchison's offer.

Murchison's offer values Midwest shares at $4.93 each, based on the stock price the business day before the offer was announced on October 15.

Investment group UBS earlier this month valued Midwest at $4.12 per share on a standalone basis.

But it also estimated the potential for up to $300 million to $400 million in synergies with Murchison represented $1 to $1.50 per share in additional value.

"Additional upside could come from Midwest's growth projects, which could see production lift to 45 million tonnes per annum and add about $7 per share in value," UBS said in a report.