** Shares in Australia's Fortescue FMG.AX rise 1% to A$19.1

** Gains in-line with 0.2% rise in local mining index .AXMM

** FMG on Tuesday offered to buyout smaller iron ore miner Red Hawk RHK.AX for A$254 mln ($158.37 mln)

** Red Hawk is the owner of a key iron ore deposit near Fortescue's existing Pilbara mines

** FMG is the logical owner of the asset given proximity to its existing infrastructure at Solomon Hub in Pilbara, says Morgan Stanley analysts

** Brokerage expects FMG to generate EBITDA of around A$2/ton at the potentially newly acquired Blacksmith iron ore project to offset the transaction price

** The asset would also add extra mine life to the depleting Solomon hub - MS

** FMG up 4.6% YTD; RHK shares up 0.8%

($1 = 1.6038 Australian dollars)

(Reporting by Rishav Chatterjee in Bengaluru)

((Rishav.Chatterjee@thomsonreuters.com;))