MLG Oz: Leveraging Strategic Client Partnerships and Contract Diversification for Long-Term Growth

The mining services sector is undergoing a renaissance driven by surging demand for iron ore and gold, positioning companies like MLG Oz Limited (ASX:MLG) to capitalize on recurring revenue streams. At the core of this opportunity is MLG's 20-year partnership with Fortescue Metals Group (FMG) and its ability to diversify contracts across Western Australia's mining giants. For investors seeking exposure to scalable mining services, MLG's strategic retention of key clients, coupled with its pipeline of high-margin projects, presents a compelling case for long-term growth.

The Fortescue Contract: A Blueprint for Recurring Revenue

MLG's relationship with FMG dates back to 2014, with its Christmas Creek contract—completed five months early in June 2021—highlighting the company's operational agility. While the original six-year contract contributed 20% of MLG's FY2021 revenue ($241 million), its early termination was a strategic move to redeploy modular assets into higher-margin opportunities. Crucially, the partnership's success has cemented MLG's reputation as a reliable contractor, with FMG compensating MLG for demobilization costs and granting approval to leave equipment temporarily onsite—a rare endorsement of trust in the sector.

This flexibility underscores MLG's asset-light business model, where modular equipment can be swiftly redirected to new projects. Despite exiting the Christmas Creek contract, MLG's existing pipeline—including a $12M/year deal with Northern Star and a $14M/year extension with Norton Gold Fields—ensures revenue continuity. The company's ability to retain 80% of its workforce post-contract further signals operational efficiency and client loyalty.

Diversification: Mitigating Single-Client Reliance

MLG's diversification strategy is its strongest defense against sector volatility. Beyond FMG, the company has secured contracts with Rio Tinto, Westgold, and Evolution Mining, reducing its exposure to any single client. Notably, a $51M civil project with Evolution Mining (starting late 2024) to construct a 26km all-weather road at its Mungari mine demonstrates MLG's expansion into value-added services like infrastructure development. Combined with a three-year extension at Norton Gold Fields' Paddington Mill (through 2027), these contracts form a $80M+ revenue stream, signaling a shift toward longer-term, higher-margin agreements.

Valuation: A Stock Poised for Upside

Despite a 41.8% YTD gain in 2024, MLG's valuation remains undemanding relative to its contracted growth trajectory. With $30M+ in annualized revenue secured through new contracts and a pipeline extending into 2027, the company's earnings visibility is robust. Analysts estimate FY2025 EBITDA margins could expand to 25% as production constraints ease, supporting a target price of $1.80 (vs. current $1.45).

Why Investors Should Act Now

MLG's positioning as a plays on Pilbara iron ore stemming demand and goldfield expansion is underappreciated. With 65% of Australia's iron ore reserves concentrated in the Pilbara and global steel demand rebounding, MLG's modular crushing services are critical to mining efficiency. Additionally, its diversification into gold and civil projects aligns with Western Australia's $100B+ mining pipeline through 2025.

Risks to Consider

• Commodity price volatility could delay mine expansions.
• Labor shortages in regional Australia may impact project timelines.
• Equipment redeployment delays could strain margins temporarily.

Conclusion: A Strategic Addition to Mining Exposure

MLG Oz is not just a beneficiary of the mining boom—it's a strategic partner to Australia's largest miners. With a proven track record of client retention, a diversified contract pipeline, and a valuation that doesn't yet reflect its FY2025 upside, MLG offers investors a rare combination of stability and growth in the mining services sector. For portfolios seeking leveraged exposure to iron ore and gold demand, MLG is a must-watch stock.

Investment Thesis: Buy MLG at current levels, with a 12-month target of $1.80, supported by contracted revenue visibility and Pilbara's structural demand. Hold for investors with a 2–3 year horizon.