U.S. miner Peabody Energy faces an uphill battle to win support for its $3.8 billion bid for Macarthur Coal from the Australian miner's board and biggest shareholder.

Top shareholder CITIC Resources <1205.HK> said it had not yet decided whether to support the A$16 a share offer from Peabody, which trumped a rival bid and persuaded Macarthur to stall its own plan to take over Gloucester Coal , a smaller rival.

CITIC Resources, a founding shareholder of Macarthur with 22.4 percent, said it continued to support the rationale for Macarthur's takeover of Gloucester, but needed more information in order to evaluate Peabody's offer and make a final decision.

Macarthur shares eased a touch to A$16.50 on Monday, 3 percent above the offer price in a weaker overall market <.AXJO>, indicating investors expect bidding could still go a little higher.

Peabody's bid is now close to what will be accepted. It's now a question of negotiation unless Xstrata comes in. Then it's a different ball game, said Tom Elliott, head of hedge fund MM&E Capital.

BLACK GOLD

Macarthur is being stalked by other coal producers as it is the world's biggest exporter of pulverized coal, a cheaper, cleaner coal coveted by steelmakers at a time when coal prices have nearly doubled on hot demand from China and India.

Under Peabody's offer, Macarthur's top three shareholders -- CITIC Resources and steel giants ArcelorMittal and POSCO <005490.KS> -- would be allowed to retain their stakes.

POSCO, which owns 8.3 percent, backs the deal in principle and says it plans to keep its stake for now, while ArcelorMittal, with 16.6 percent, says the bid merits consideration.

The two steel producers bought into Macarthur two years ago at A$20 a share, when it was being chased by Swiss-based Xstrata, as they sought to ensure the company did not fall into the hands of a major coal producer.

MM&E's Elliott said CITIC was more of a financial investor, noting it, too, had bought into Macarthur at closer to A$20 a share and would want to hold out for a higher bid.

Macarthur hit an all-time high of A$21.21 in June 2008 but plunged all the way to A$2.32 in February 2009 in the grip of the global financial crisis, before heading north again.

Macarthur said on Friday it would enter into talks with Peabody, and postponed a vote on the Gloucester deal, which would give Gloucester's main shareholder, Hong Kong-based Noble Group , a near one-quarter stake in Macarthur.

Macarthur has told shareholders to take no action.

Peabody's bid last week topped an offer from Macarthur's local rival New Hope Corp . Both those bids are conditional on Macarthur dropping its planned acquisition of Gloucester Coal.

M&A FEVER

Adding to the flurry of interest in coal miners, Australian miner White Energy announced a cash and scrip offer worth A$39 million for South Australian Coal Ltd (SACL), aiming to use its own technology to upgrade SACL's coal for export.

SACL was spun off to Felix Resources shareholders last year when Felix was taken over by Chinese firm Yanzhou Coal Mining Co <1171.HK> for $3 billion.

At the same time, White Energy has poached the managing director of Felix, Brian Flannery, to work alongside Felix's former chairman, Travers Duncan, who together with a third investor plan to invest A$75 million in new SACL shares.

(Reporting by Sonali Paul and Narayanan Somasundaram; Editing by Mark Bendeich and Ian Geoghegan)

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