While the probe was initially believed to have been triggered by an exclusive report in The Australian Financial Review last month, which alleged Ellison’s involvement in tax evasion dating back to 2004, MinRes clarified that the executive had been under board investigation since 2022.
The AFR has since continued to publish allegations against Ellison, including reports on Monday stating that he and other senior executives had leased properties to MinRes at up to 70% above market rates since 2006.
MinRes responded by saying that its board had uncovered “a range of issues and shortcomings that demanded a strong and comprehensive governance response” and found that Ellison had not consistently acted with integrity.
The findings
The investigation confirmed that from 2003 to 2014, Ellison held an interest in Far East Equipment Holdings Limited (FEEHL), a company incorporated in the British Virgin Islands. In 2003 and 2004, FEEHL sold mining equipment to Crushing Services International (CSI), with payments outstanding at the time of CSI’s acquisition by MinRes in 2006.
MinRes listed on the ASX in 2006, but the liability to FEEHL was not disclosed in its prospectus or any subsequent report. The company later made two payments totaling A$3.79 million ($2.57 million) to FEEHL in 2006 and 2008 to settle the liability.
In 2021, Ellison voluntarily disclosed income earned from FEEHL to the Australian Taxation Office (ATO) and paid A$3.9 million in unpaid taxes in May 2023, though he did not inform MinRes of this disclosure until November 2023. MinRes found that certain emails relating to FEEHL were deleted in 2019 to prevent this information from becoming public.
The board also acknowledged that related-party financial benefits had been provided to Ellison’s associates, including rent paid to entities in which he held an interest, rent relief given to entities affiliated with his daughter, and indirect financial arrangements involving her. While Ellison had disclosed these instances, the board determined he failed to grasp the importance of transparency and timely disclosure of potential or actual conflicts of interest.
Additional findings revealed that Ellison directed company employees to work on his boat and properties, manage his personal finances, and procure goods and services for his private use. The board, however, found these actions did not financially impact MinRes materially.
‘Deeply Sorry’
Ellison, a New Zealander who left school at 15 and went on to become a self-made billionaire, founded MinRes in 1992. MinRes chairman James McClements described Ellison’s actions as serious, noting that they had severely impacted his reputation and, by extension, that of the company.
The scandal has wiped about 20% from MinRes’ share price since Oct. 21, underscoring the investment risk of having a company operating under the shadow of a single dominant corporate figure.
Ellison agreed to repay MinRes A$3.8 million, equivalent to the payments made to FEEHL in 2006 and 2008 without appropriate related-party disclosure. Additionally, he will donate A$5 million to charity over five years, forfeit up to A$6.5 million in unvested incentives, and withdraw a proposal for an additional A$3.1 million in incentives.
“There can be no doubt that Mr. Ellison’s actions, decisions, and behavior have been profoundly disappointing and demand sanction and penalty,” McClements stated.
Ellison, who has agreed to step down within 12 to 18 months to facilitate a smooth leadership transition, expressed remorse, saying he was “deeply sorry” for the events that have occurred and their impact on MinRes’ reputation. “I apologize to the board and our people, who expect and deserve better from me,” he said.
McClements to go
McClements, who has been the miner’s chairman since May 2015 and is also managing partner at Resource Capital Funds, announced he would also leave once a suitable successor for Ellison is found. He anticipates stepping down by the next AGM, marking his tenth year on the MinRes board and two years as chairman.
“There can be no doubt that Mr. Ellison’s actions, decisions, and behavior have been profoundly disappointing and demand sanction and penalty”
MinRes chairman James McClements
The AFR also alleged that McClements’ predecessor, Peter Wade, had an interest in FEEHL and was involved in the tax evasion scheme. Spencer Stuart, an international recruitment firm, is aiding in the search for Ellison’s successor. McClements noted, “The transition process has been underway for some time, and recent events have accelerated it. It’s appropriate that my successor is involved in appointing the next CEO, so we will fast-track recruitment of the next MinRes chair.”
An independent Ethics & Governance Committee, including MinRes directors Denise McComish, Susie Corlett, and Jacqui McGill, will be formed to oversee compliance.
McClements acknowledged the pressures that MinRes’ rapid growth in recent years had placed on its governance systems, saying, “The board faced a unique set of circumstances, with a high-performing managing director and a range of governance issues that required us to take action.”
‘Critical Time’
This controversy comes at a pivotal moment for MinRes as it contends with weak lithium prices and ramps up operations on its largest project, Onslow Iron. As of June 2024, MinRes employed 8,500 people, up from 5,600 the previous year. However, the company has recently reduced its workforce, cutting 570 jobs since July.
Concerns over MinRes’ gross debt of A$5.3 billion, set to peak in the current half, were alleviated somewhat by the company’s recent sale of a 49% stake in the Onslow Iron haul road to Morgan Stanley Infrastructure Partners for A$1.1 billion and the sale of its Perth Basin gas interests to Gina Rinehart’s Hancock Prospecting for an additional A$1.1 billion.
Kaan Peker, an analyst at RBC Capital Markets, said that the board’s recent moves have eased short-term uncertainty regarding leadership. “This is a critical time for the company with the Onslow project ramping up and efforts to reduce debt,” he wrote.
Given Ellison’s history in the company, he may stay involved even after he steps down as managing director, Peker commented
Despite the governance challenges, Peker added that Ellison, who holds over 11% of MinRes, remains well-regarded in the market, noting that as the company matures, a transition to a less active role for Ellison aligns with its evolving strategic goals.
MinRes shares have declined from nearly A$80 in May to an intraday low of A$36.51 on Monday, though RBC has maintained an outperform rating with a price target of A$64.