Coal prices are soaring on demand from the Chinese steel industry
Australia's Macarthur Coal has rejected a 3.3bn Australian dollar ($3bn; £2bn) takeover bid from Peabody Energy.
But Macarthur's shares soared 20% as investors bet that the world's largest private coal firm would raise its bid.
The offer is the latest in a string of bids in resource-rich Australia as companies tap into booming demand from Chinese and India.
Macarthur said US firm Peabody's A$13-a-share bid did not fully value the company and its growth prospects.
Last year, Yanzhou Coal Mining paid A$3.5bn for Felix Resources. In the gas sector, Royal Dutch Shell and PetroChina agreed to buy Arrow Energy for A$3.44bn earlier this month.
Peabody, already a large player in the Pacific coal trade, will need to persuade Macarthur's leading shareholders that any increased offer is fair value.
These shareholders includes China's Citic Resources and ArcelorMittal, the world's largest steelmaker.
Coal prices have soared on the back of demand from steel mills and power stations in Asia's booming economies.
On Tuesday, a report from Scotiabank said that coking coal prices, currently about $128 per tonne, would rise to about $200 over the next few months.