Mineral Resources Ltd (ASX: MIN) shares are sinking on Monday.
At the time of writing, the mining and mining services company's shares are down 7% to $37.76.
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Why are Mineral Resources shares sinking?
Investors have been selling the company's shares this morning after it released an update on its investigation into its founder and managing director Chris Ellison, as well as others.
According to the release, the Mineral Resources board has announced a number of "major actions" that it will take.
The first bombshell is that Ellison and the company's chair, James McClements, will be stepping down from their respective roles. However, Ellison will "remain in role of Managing Director while an orderly transition is effected within the next 12-18 months." Whereas McClements will step down at or before next year's annual general meeting. It is important to note that his exit is not in relation to any wrongdoing.
Mineral Resources also revealed that Ellison will incur board-imposed financial penalties of $8.8 million, and loss of remuneration of up to $9.6 million. It notes that this reflects "the significance of corporate governance and reputational issues to the Company."
Commenting on events and his exit, Ellison said:
I am deeply sorry for the events that have occurred and the impact they have had on MinRes' reputation. I apologise to the rest of the Board and to our people, who expect and deserve better from me. I acknowledge that I made mistakes, some of which were driven by my wish to keep private certain events that cause me great personal embarrassment. I am committed to the leadership succession that the Board has announced, and I will work tirelessly to win back the confidence of investors and our whole MinRes team.
What actually happened?
The release notes that the Mineral Resources board identified a range of issues and shortcomings that demanded a strong and comprehensive governance response. This included an acceleration of leadership succession.
Its investigation found the following:
Between 2003 and 2014, Mr Ellison had an interest in a British Virgin Islands company, Far East Equipment Holdings Limited (FEEHL), which bought and sold mining equipment. In 2003 and 2004, FEEHL sold mining equipment to Crushing Services International Pty Ltd (CSI), which was not fully paid for at the time of purchase.
CSI was then acquired by the company in 2006, but a liability to FEEHL was not disclosed in the Company's IPO prospectus in 2006 (or at any other time) as a related party liability.
Following its IPO, the Company and its subsidiaries made only two payments to FEEHL in 2006 and 2008, totalling $3,790,607, to extinguish the liability. FEEHL was deregistered in 2014.
In 2021, Mr Ellison made a voluntary disclosure to the ATO of income that he had earned from FEEHL, and in May 2023 he paid the ATO $3,936,884 in unpaid taxes (including interest and administrative penalties).
The ATO has not issued any amended assessments to Mineral Resources with respect to depreciation claims made on assets acquired from FEEHL. Neither Mr Ellison nor the company repaid depreciation claims made by the Company, as part of, or in connection with, the voluntary disclosure and settlement of Mr Ellison's private tax affairs.
It also notes that a number of company emails relating to FEEHL were deleted in 2019. It has concluded that this was an attempt to avoid information becoming public.
What else?
The board also concluded that Mr Ellison, on occasions, used company resources for his personal benefit. This includes:
[D]irecting Company employees to work on his boat and properties; directing a Company employee to manage his personal finances; and using the Company to procure goods and services for his private use. The Board is satisfied that the use of MinRes resources and assets in this way has not caused material financial detriment to the Company. Where Mr Ellison has used the Company to procure goods and services, procedures existed to ensure that he paid the Company for these goods and services.
It then adds:
Mr Ellison's conduct is serious. It reflects neither his values nor those of the Company. Mr Ellison deeply regrets his actions. His conduct in relation to this matter is a profound source of embarrassment for him. It has undoubtedly affected his reputation, which is so closely tied to the reputation of the Company.
