Merger mania Monday is putting iron ore miners in the box-seat as the sector leads the market higher this morning.
The 3.5% surge in the iron ore price on Friday night to just under $US60 a tonne is helping, but the real kick in the pants for the likes of Fortescue Metals Group Limited (ASX: FMG) and BC Iron Limited (ASX: BCI) is coming from takeover speculation.
The speculation comes on the day that miner Independence Group NL (ASX: IGO) said it was acquiring Sirius Resources N.L. (ASX: SIR) and staffing services group Programmed Maintenance Services Limited (ASX: PRG) said it was willing to sweeten its offer for workforce solutions company Skilled Group Ltd. (ASX: SKE).
The Herald Sun reported on the weekend that the Australian Foreign Investment Review Board has received a number of applications over the past few weeks from foreign companies looking to buy iron ore assets in the country.
This could lead to a significant shake-up of the embattled sector that is struggling to keep its head above water due to the collapse of the iron ore price over the past year.
Mining giants BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) aren't interested in iron ore assets as they focus on bolstering shareholder returns but offshore entities that don't have shareholders breathing down their necks (this includes sovereign wealth funds and private equity interests) might be keen on picking up a potential bargain or three.
Those that can afford to hang on to these higher cost producers for more than two years are likely to reap the rewards as the iron ore price is expected to bottom in 2015 before making a lacklustre recovery.
But given that "flat is the new up" for iron ore (meaning investors should be grateful if the commodity doesn't fall) even a weak recovery would be enough to trigger a re-rating in the sector.
This premise is driving Fortescue Metals up 3.6% to $2.19 and BC Iron 1.9% higher to 41.5 cents during lunch time trade.
Fortescue is never media shy but the miner refused to comment on the speculation, which says a lot; while BC Iron said it has not received any approach.
Don't take your eyes off Atlas Iron Limited (ASX: AGO) either. The stock has been suspended from trade since early April as management restructures the miner to keep it afloat. This would be the perfect time for a cashed up buyer to pounce.
Having said all that, I still would not invest in iron ore stocks outside of BHP and Rio Tinto as I suspect I would be catching a falling knife if I tried to pick the bottom of the cycle for these stocks.
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