merrill lynch say buy: target 300 to 360

from ML report today .........

Shareholder change should be ignored for now

Shougang’s proposed purchase of 19.7% stake in MGX, if combined with 22% in which they also have an interest, could mean that Shougang is forced to bid $2.81/sh. At this stage, we do not believe that Shougang intends to bid for the minorities. We also believe the MGX board will seek to minimise Shougang’s influence, in the absence of a full bid at a price reflection a control premium.

We have upgraded earnings on the quarterly report

Operationally the company is very strong, with production above our expectations,H1 profit of $32m ahead of our $25m, entirely on revenue, due to elimination of
Geraldton selling discount. The production report included the unaudited H1 NPAT but no other data. We believe the main difference was currency hedging and the end of the Geraldton price discount.

Earnings forecast changes

FY09 up 4%, FY10 up 2.7%, FY11 up 2.4%.
Price target to $3.60/sh
Our price target represents 10.5 x FY09E EPS, and a 20% premium to our NPV,
which we believe is justified because of the scarcity of iron ore pure plays, and the upside potential to our current iron ore forecasts. MGX is clean leverage to the iron ore settlement Iron prices looking strong, and contract price expectations continue to rise. A 70%
iron ore price increase puts the company on 5.9x in FY09, and 3.6x FY10, and we recommend purchase for leverage to above expectation increases. At our 40% price increase forecast, the NPV of MGX is $3/sh.