UPDATE 3-Australia's Arrium rejects $1 bln bid from Noble, POSCO group; shares soar

* Arrium rejects bid, calling it undervalued and conditional

* Arrium shares soar as much as 29 percent to one-month high

* Follows others aiming to cash in on low valuations of miners

* Bidding group expected to respond later on Monday afternoon

(Recasts lead) By Narayanan Somasundaram and Victoria Thieberger

SYDNEY/MELBOURNE, Oct 1 (Reuters) - Australian miner and steel maker Arrium rejected a A$1.01 billion ($1.04 billion) takeover offer from a consortium including Noble Group

and POSCO calling the approach undervalued.

Arrium's shares jumped as much as 29 percent on Monday to a one-month high as investors anticipated the company would remain in play. The bidding consortium, called Steelmakers Australia, is expected to respond to the rebuff on Monday afternoon.

The consortium, which also includes National Pension Service of Korea, Korea Investment Corp and Korea Finance Corp, offered 75 cents a share or a 37.6 percent premium to Arrium's close on Friday. Arrium's shares traded above A$0.75 as recently as Aug. 29.

The consortium joins a string of firms aiming to cash in on a drop in the value of resource firms due to tumbling commodities prices. Its bid comes just weeks after Arrium produced its first iron ore from its expanded production.

"There has been a lot of consolidation in the global steel industry for a long time. This is a further working through of the globalisation of the industry," said Richard Morrow, director at E.L. & C. Baillieu Stockbroking in Melbourne.

The bid propelled larger rival BlueScope Ltd's shares up as much as 8 percent on Monday on hopes of further consolidation in the sector.

A shake-out from sliding iron ore and coal prices has touched off a spate of asset sales as tough times spread from Australia to Indonesia in what has been a lean year in the mining sector.

Iron ore prices, while recovering from a low of $86 a tonne, remain nearly a third below this year's high of $150 a tonne as Chinese demand cools. This has rattled share prices, and forced miners including BHP Billiton to put some expansion on hold.

Asia-Pacific mining deals so far this year total $47.6 billion, down 23 percent from a year earlier, Thomson Reuters data shows, but signs of a revival in appetite were evident as near record-low valuations spur deals.

Cashed-up Japanese, Korean and Chinese buyers are cherry-picking mining assets, investment bankers and lawyers say.

Activity has picked up in recent weeks, led by a $960 million bid by Thai state-controlled energy company PTT to privatise coal miner Sakari Resources .

POSCO and others are in talks to buy a 20 percent stake in PT Borneo , which aims to reduce $1 billion in debt incurred last year when it bought a stake in London-listed Bumi Plc .

Shares in Arrium had fallen by over a fifth this year to Friday's close. D eclines have been exacerbated in the last month, thanks to the uncertain demand outlook. As of 0408 GMT, Arrium shares were trading up 22.9 percent at A$0.67 while the broader market was flat.


"We have carefully considered the proposal. We believe that the proposal undervalues Arrium, and is not in the best interests of Arrium shareholders," Arrium's chairman, Peter Smedley, said in a statement on Monday.

"We also believe that the highly conditional nature of the proposal carries significant risk."

The conditional offer represents a premium of 8 percent over the volume weighted average price of Arrium's shares during the last three months, the firm said in a statement.

Conditions to the offer included a six-week due diligence period, negotiations with existing lenders, no dividend payment and a requirement for no material adverse change to Arrium's operations or capital structure.

Arrium plans to raise iron ore capacity to 11 million tonnes a year by mid-2013 from 6 million tonnes now. It posted an underlying net profit of A$195 million on sales of A$7.6 billion in 2011/12 and had net debt of A$2.14 billion.

The bulk of its sales comes from steel and mining consumables, with iron ore mining contributing just A$819 million to revenue in 2011/12, filings showed. The bid comes .

The company earlier this year changed its name from One Steel Ltd to reflect its shift towards a diversified global mining and materials business and to attract new investors.

Arrium has retained UBS as its financial adviser and Allens Linklaters as its legal adviser. The bidding consortium is being advised by Bank of America Merrill Lynch , according to two people familiar with the bid. ($1 = 0.9616 Australian dollars)

(Reporting by Narayanan Somasundaram and Victoria Thieberger; Editing by Ed Davies and Ken Wills)

((narayanan.somasundaram@thomsonreuters.com)(+61 2 93731815)(Reuters Messaging: narayanan.somasundaram.reuters.com@reuters.net))