Murchison jumped more than 6 percent to A$4.16 on bets that FIRB clearance would then empower Midwest to make its own bid for Murchison, before it pulled back to A$4.12.
Midwest said on Friday there was no certainty Sinosteel's overtures would lead to a transaction, worth A$5.60 a share -- a 15 percent premium to Midwest's last share price on Friday.
High demand for iron ore, fueled by dramatic increases in Chinese steelmaking amid a boom in the world's fourth-biggest economy, is unlikely to cool before the middle of the next decade, analysts believe.
Midwest stock has risen sharply since Murchison pitched its offer of one share for every 1.08 Midwest shares on Oct. 10.
The Murchison offer, worth A$810.6 million (US$711 million) at Murchison's current share price, remains open until Dec. 20, with an option for an extension.
Murchison, in partnership with Japan's Mitsubishi Corp, wants to build railways and a port from scratch to tap the vast reserves of iron ore in Western Australia's midwest region, where both it and Midwest have pegged out promising ground.
Midwest is aligned with soon-to-be-listed Yilgarn Infrastructure, which has the backing of Sinosteel and has similar aspirations.
Neither Midwest or Murchison have as yet mined a single ton of ore.