It's definitely possible that MGX could acquire AGO but I reckon full exploitation of AGO's assets in terms of volume, cost and surplus port capacity requires the acquirer to provide rail access rather than to rely exclusively on the use of road transport as a shipping solution for its iron ore.
A scrip bid from the likes of FMG or BHP might be a chance as either could provide rail access and also fully utilize AGO's surplus port allocation in the future. But absent such a bid, AGO's current operating model will continue to be marginal at current ore prices and operating costs and I think will struggle to attract a 'non-rail providing' bidder.
A merger with MGX could prove to be attractive (to AGO at least) as it would provide access to a large wad of cash and enable the AGO/MGX combo to comfortably ride out the rationalization process for iron ore producers globally that will almost certainly dominate 2015 and perhaps 2016 as well. Such a merger could see AGO's share price jump as it becomes somewhat de-risked from a financial perspective and it would also give AGO more time to see if it could negotiate rail access of some form in the future which would provide further impetus for a re-rating upwards of its share price and prospects.
AGO Price at posting:
15.0¢ Sentiment: None Disclosure: Not Held
