CORRECTED - CORRECTED-UPDATE 1-Australian miner Midwest rejects Murchison bi

(Corrects number of Midwest shares in par 6 to 1.08 instead of 1.03)

SYDNEY Nov 19 (Reuters) - Australian iron ore group Midwest Corporation Ltd MIS.AX on Monday advised shareholders to reject a more-than A$1 billion ($900 million) bid from Murchison Metals Ltd (MMX.AX), saying it undervalued Midwest's potential.

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

Midwest, Murchison and others are attempting to break a long-held grip by majors Rio Tinto Ltd./Plc (RIO.AX)(RIO.L) and BHP Billiton Ltd/Plc (BHP.AX)(BLT.L) on iron ore mining in Australia.

Midwest Managing Director Bryan Oliver told reporters that his company had not held discussions with any other potential suitors.

Oliver earlier this month had said Murchison's bid "premature," saying it had yet to accurately determine how much iron ore it could hope to mine in the Australian outback.

Midwest's shares have risen more than 50 percent since Murchison pitched the offer of one of its shares for every 1.08 Midwest shares on Oct. 10. Murchison is up nearly five-fold since January and is one of Australia's best performing stocks this year.

"Our directors cannot advise shareholders to accept Murchison shares when there is so much doubt about the underlying resources," Oliver told reporters in a telephone media conference after the offer was rejected.

Murchison executives were not immediately available for comment.

The rejection comes after Midwest spent much of this month gauging the opinion of its top 20 shareholders over the offer.

Murchison has about 97 million tonnes of known reserves and resources, while Midwest has about 114 million tonnes of reserves and resources. Reserves are the mineable part of a resource.

Updated resource assessments from both companies are expected in early 2008.

Murchison, in partnership with Japan's Mitsubishi Corp (8058.T), 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 Ltd, which has similar aspirations.

Murchison was 0.9 percent higher A$4.35, while Midwest was 0.2 percent lower at A$4.87. ($1=A$1.11) (Reporting by James Regan; Editing by James Thornhill)