Forum Topics MIN MIN Management

Pinned straw:

Added a month ago

There were already some red flags, but understanding the article below has confirmed a lot.

You want 'honest and competent' management and I think this highlights Chris is definetly not honest.

I'm not sure how I feel about it re MinRes as a shareholder. I see the opportunity for MinRes given the set up, and Chris is key to the story, but there are also some serious red flags.

Chris Ellison’s offshore secret

An investigation by AFR Weekend has uncovered how Mineral Resources chief executive Chris Ellison, one of Australia’s richest men, allegedly evaded tax for years.

It was August 2007 and Chris Ellison received bad news in the mail. A year after he floated his iron ore and lithium company, Mineral Resources, the Australian Tax Office wrote to say it wanted to discuss his personal tax returns spanning “a number of years”.

It was terrible timing for the blunt-speaking New Zealander who has become one of Australia’s richest people on the back of the resources boom.

Coincidentally, Ellison was preparing to reshuffle his offshore business holdings. He decided not to tell the Tax Office about the scheme, which allegedly enabled him and four other MinRes executives to earn secret income while avoiding paying millions of dollars in Australian taxes. The scheme also meant MinRes shareholders missed out on millions in profits.

Twelve years later this omission would come back to haunt him. Fearing the scheme was about to catch up with him, he asked his lawyers to cut a deal with the ATO. He offered to share his secrets with the ATO, pay back any tax owing plus a multimillion dollar fine to avoid serious penalties.

Chris Ellison has cultivated an image as a straight-talking man of action.

The deal he proposed to the ATO contained an important condition: the tax office would never reveal its existence or its investigation to anyone including the Australian Federal Police or the Australian Securities and Investments Commission.

In a document obtained by AFR Weekend, the tax commissioner concluded this year one of the executives involved in the scheme exhibited “behaviour that amounted to evasion for the income years ending 30 June 2004, 30 June 2007, 30 June 2008 and 30 June 2009”.

Ellison has cultivated an image as a straight-talking man of action who has gone where others wouldn’t to build a multi-billion-dollar mining company based in Western Australia.

But an investigation by AFR Weekend demonstrates the scheme raises tough questions for Ellison. It also raises questions about the readiness of the Tax Office – itself under scrutiny over its settlement with beleaguered accounting giant PwC – to cut generous deals with powerful players rather than expose questionable conduct.

In response to questions from AFR Weekend, MinRes chairman James McClements said: “The MinRes Board acts in the best interests of shareholders and has full confidence in the company’s executive team.

“The Board takes seriously allegations regarding corporate governance practices and, where appropriate, investigates allegations with the assistance of external legal advisors.”

Building a fortune

A self-made billionaire, Chris Ellison boasts a brilliant career track that was recognised in 2022 with an investiture as a member of the New Zealand Order of Merit for his services to New Zealand-Australia relations.

Ellison built Mineral Resources out of three startup companies he launched in the 1990s, listed it as a $108 million company in 2006, then grew it to a business valued at $9 billion today thanks to ambitious iron ore and lithium plays.

He grew up in Dunedin in New Zealand’s South Island, leaving school the day he turned 15 and working on a farm, then a cattle station.

As Ellison tells it, when he came to Australia in 1977 aged 19, he and his brother would tell prospective employers they could do anything. Which meant, he explained on a MinRes video: “Well, we can ride pretty good, we can drive anything.”

Getting a crane driver ticket in Darwin set Ellison on his way. He moved to Port Hedland and in 1978, aged 21, started his first company, providing cranes for worksites, just as work on the North West Shelf exploded. “I was making $550,000 a month that I was banking as profit,” he says on the MinRes video.

Ellison sold out in 1982, aged 25, and went on to start a series of other businesses. In July 1992, “I decided I wanted to start another private company, so I started up MinRes,” he said on the 2023 corporate video. “I had $10,600 in the bank … but I had a credit card that had a $50,000 limit on it. I used all of that credit that I had to its absolute maximum. And I learned to appreciate it.”

That credit evolved into three businesses. First in 1993 was PIHA Pty Ltd, with former pipeline mechanic Bob Gavranich. PIHA built pipelines and site infrastructure for mining projects.

In 1995 Ellison founded Crushing Services International, which provided contract crushing for miners. And in 2003 he started the Process Minerals International business, after buying rights to low-grade “reject” manganese ores mined from the Woodie Woodie tenements in north-west Australia.

These three businesses – PIHA, CSI and PMI – would merge to form Mineral Resources for its float in July 2006.

Ellison worked with a tight group of senior executives who had shares in the three businesses. They went on to buy property together in joint holdings, which was then leased by the businesses that became MinRes.

But according to ATO documents, Ellison offered other remuneration to this close-knit group as well. It was offshore, and access was on a need to know basis.

The extraordinary events that followed can only be told because in 2021 and 2022 Ellison’s tax advisors provided extensive records to the ATO in their attempt to strike a deal. The Tax Office used these documents to produce a detailed summary of how the offshore remuneration scheme worked.

Mineral Resources CEO Chris Ellison in his early years.

Going offshore

In the 1990s RSM Bird Cameron in Perth was the auditor for CSI, PMI and PIHA. But it was another member of the global RSM network, RSM Nelson Wheeler, in Hong Kong, that introduced Ellison to the offshore world.

Nelson Wheeler’s corporate secretarial business traded as Asialink Services (HK) Ltd. Asialink set up a series of companies for Ellison and other MinRes executives domiciled In the British Virgin Islands, with nominee directors and shareholders. The British Virgin Islands are a tropical archipelago east of Puerto Rico in the Caribbean, with turquoise waters, palm-fringed beaches and a history of pirates. But the territory is better known for the zero tax rate it applies to companies domiciled there.

The ATO documents lay out an elaborate corporate structure that was constructed in the early 2000s. It enabled Ellison and his senior executives to move money into accounts held by the BVI companies, thereby avoiding paying Australian taxes, and to use credit cards to spend it.

At first, when MinRes was still a private group, the big loser in this secret arrangement was the Australian tax man. But after MinRes floated in July 2006, the BVI profits were not only untaxed, they were paid from shareholder funds without being disclosed to MinRes directors.

ATO documents show the first two British Virgin Island companies, International Mining Supplier Limited (IMSL) and International Equipment Rentals, were operating by 2000.

The ATO documents don’t detail the activities of these two companies, but both had bank accounts in Hong Kong, and both held hundreds of thousands of dollars for Ellison, according to handwritten notes seen by AFR Weekend.

According to an ATO position paper produced this year, on May 27, 2003, Nelson Wheeler set up a third British Virgin Islands company called Far East Equipment Holdings Limited (FEEHL). And it’s this company which became the focus of a years-long ATO investigation.

FEEHL was owned by a nominee company on behalf of a trust set up for the five MinRes executives including Chris Ellison. Ellison took 51 per cent of the FEEHL earnings, while the other four executives held shares ranging from 5 per cent up to 21 per cent.

Just six weeks after FEEHL was set up, Crushing Services International (one of the original three Ellison companies that later formed MinRes) transferred $150,000 to the company on July 2, 2003.

FEEHL immediately sent $139,000 of this to one of the other BVI companies, IMSL, which in turn passed $5000 to the third BVI company, International Equipment Rentals.

IMSL had set up a string of Visa Gold credit cards. One of the cards went to Ellison, and two monthly statements obtained by AFR Weekend show how widely he used it.

His Visa billing statement for October 2003 shows he spent $7900 on shoes, curtains and paying $6866 in school fees at All Saints College Bull Creek, one of Perth’s top schools.

In February 2006 he spent $18,800, pulling the card out at Bunnings, flower shops and restaurants, spending $10,500 with Rosendorff’s Diamonds, and booking a $4800 New Zealand skiing vacation.

None of this could be traced back to Ellison as taxable income.

But the money funnelling into these companies was being used for more than just Ellison’s personal expenses.

Back in 2003, Crushing Services sent FEEHL a further $500,000 in August, then $400,000 more in September.

Chris Ellison as a teenager on a New Zealand cattle station.

At the time, Crushing Services (CSI) was regularly buying used mining equipment, sometimes for its own operations, sometimes to resell to other miners.

CSI bought Svedala scalping screens and belt feeders from the closed Mount Todd Gold Mine in the Northern Territory. There was a ball mill and small batching plant from St Barbara Mines, and five gyratory crushers from Mount Leyshon gold mine.

But when the paperwork went through – and without the knowledge of some of those who handled the deal – it turned out it was FEEHL that had bought the machinery, using CSI funds, so it was FEEHL that earned the profit from the resale.

More frequently FEEHL sold the equipment to one of the MinRes companies for as much as five or 10 times the original cost.

The Tax Office has concluded that FEEHL cleared $1.69 million profit in the 2004 financial year. But this does not seem to include almost $1 million which the ATO says was transferred to International Mining Supplier, which funded Ellison’s Visa Gold credit card, and $1.5 million which was transferred to an Australian trustee company that Ellison controlled, World Wide Infrastructure.

FEEHL’s activities slowed down in the two years leading up to the August 2006 float, when the newly merged MinRes group faced heightened governance and accounting scrutiny. The Tax Office concluded that FEEHL actually lost $1.3 million in fiscal 2005 and another $190,000 the next year.

But according to the ATO documents, soon after MinRes floated on July 28, 2006, FEEHL returned to making money for Ellison and his close-knit group of executives, at the expense of MinRes, the new public company.

The ATO position paper states that on August 30, 2006, just a month after the float, MinRes subsidiary Crushing Services paid $1.895 million to FEEHL, marked as “first payment for purchase of plant and equipment Ref 4704”.

Any such transfer involved the publicly listed company’s money. The ATO says it was an undeclared related-party transaction, a secret transfer arrangement that delivered huge untaxed profits to Ellison and the four execs, at the expense of MinRes shareholders.

MinRes was using the inflated prices it paid to FEEHL for machinery to claim depreciation at elevated levels. This was also at the expense of taxpayers.

FEEHL earned $1.8 million profit in the MinRes group’s first year as a public company, the ATO says. Six weeks later, in August 2007, the Tax Office knocked on Ellison’s door.

The auditors knew nothing of Ellison’s offshore activities. They were more concerned with apparent discrepancies in the multiple trusts and holding companies which held Ellison’s assets in Australia.

Ellison had other problems. The offshore accounts were now run by Singapore-based Boardroom Corporate Services, which bought Nelson Wheeler’s corporate secretarial arm Asialink Holdings (HK) in 2005.

On October 11, 2007, a MinRes executive instructed Boardroom “to close all the credit card accounts” in International Mining Supplier Ltd (the other BVI company, International Equipment Rentals Ltd, would be deregistered in May 2008).

That same day email correspondence shows Ellison asked Boardroom to set up a new sub-account for him at Standard Chartered Bank: “From time to time I will provide you with fund transfer instructions together with the relevant supporting documents.”

Ellison’s new sub-account would be held in the Asialink Holdings account at Standard Chartered.

Chris Ellison after the Mineral Resources AGM last year.

Ellison added a Letter of Wishes, which instructed Boardroom that in the event of his death the funds should be transferred to his then-wife, Debbie Ellison, and if she pre-deceased him, to his children.

Within a week similar sub-accounts had been set up by Asialink Holdings’ account for each of the other executives as well, with new credit cards. In December 2007, $2 million was transferred into these sub-accounts from FEEHL, of which $1.09 million went to Ellison’s sub-account, the ATO says.

But the Tax Office wasn’t going away. In early January 2008 they requested a meeting with Ellison. He agreed to meet them on Friday, January 18, in the Perth offices of accountancy firm RSM Bird Cameron.

Bird Cameron was in an awkward position: it was the auditor for Mineral Resources, while it was providing personal tax services to the CEO, Ellison.

The tax officers had a long list of queries for Ellison: trust records showing the wrong trustees, asset revaluations, loans to associates, and discrepancies in the reporting of transactions.

Business as usual

None of this attention from the tax man appeared to affect Ellison’s activities offshore.

Just three days after the meeting with the ATO, a statement of receipts for FEEHL dated January 21, 2008, showed: “’Funds received from Mineral Resources Limited for final payment for purchase of plant and equipment (ref. 4704) in the amount of $1,895,303.71.”

Almost all of it went straight to Ellison and the four executives. On January 30, 2008, Ellison instructed Boardroom to distribute $1.88 million in the FEEHL account to the five men. Ellison’s share was $958,800. The money was in their Standard Chartered accounts in Hong Kong by the next day.

There were further cash transfers to the five men, according to the ATO.

In August 2008, with new anti-money-laundering laws coming in, Boardroom notified the MinRes executives that they were no longer willing to house the five sub-accounts.

“Under advice from Boardroom Corporate Services the individual accounts had to be closed,” one of the executives advised the others in a handwritten note seen by AFR Weekend. “All the monies have been transferred back to FEEHL. Individual accounts have now been set up within FEEHL (see attached for details of your account).

“Authority is given that any individual can operate on his own individual account without the approval or reference to anyone (see attached – I leave it to you should you wish to set up a password).”

FEEHL closed its own account at Standard Chartered and opened a new one. Boardroom would administer “child accounts” for each of the new five executives within the new account. And everything was back to normal.

Meanwhile, the ATO completed its audit of Ellison’s personal tax affairs, finding he owed a modest amount of money – some say it was as low as $20,000. He told colleagues he counted this as a victory.

The ATO position paper does not detail any records for FEEHL after 2009. The company was deregistered in 2014.

But according to the ATO’s calculations, based on documents provided by Ellison, in MinRes’s first three years as a public company it made regular payments to FEEHL from which the British Virgin Islands company earned $6.6 million in profits. These profits were split between the five executives. Ellison’s share was $3.38 million.

This does not include multiple transfers from FEEHL to International Mining Suppliers, and to World Wide Infrastructure in Australia.

The Tax Office documents refer to a total of $13 million in undeclared income associated with the British Virgin Islands scheme, which appears to include MinRes’s claims for depreciation on the inflated purchase prices.

Staying ahead of the game

None of this might have come to light, but in December 2019 Mineral Resources executives began to worry that details of the British Virgin Islands companies might be exposed.

Ellison turned to well-known Sydney tax accountant Christopher Batten.

Correspondence shows that on December 16, 2019, Batten met with a director of integrated compliance at the ATO and two other tax officers to discuss a voluntary disclosure by five taxpayers OF undisclosed offshore income. Under Australian law, voluntary disclosures of undeclared income qualify for an 80 per cent reduction in any penalties that apply.

A month later Batten nudged the tax officer: “I hereby request a letter outlining the Commissioner’s agreement not to refer a disclosure that my clients intend to make to law enforcement agencies as well as other Federal Government agencies,” he wrote on January 14, 2020.

“The agencies are to include but not limited to the Australian Securities and Investment Commission, the Australian Federal Police and the office of the Director of Public Prosecutions.”

On February 4 the ATO wrote back to Batten: “The Commissioner will agree not to refer the disclosure to other Government agencies subject to the following conditions …”

These included the absence of any current criminal investigation, and that the five executives would disclose “approximately $10 million in income from Hong Kong previously not disclosed by five individuals resulting from transfer pricing concerning mining equipment; the excess depreciation claims of companies in relation to the mining equipment acquired from Hong Kong; [and] a finding of evasion resulting in amended notices of assessment for the years 2005-200? [sic]”

There was a lot at stake. ATO documents suggest that without the disclosure discount, a 75 per cent penalty could be applied to the unpaid tax.

Based on initial estimates that the undeclared income totalled $7.5 million, the nightmare scenario was that Ellison and the other executives could have faced a tax bill of up to $17 million. This would include tax and penalties, but the biggest cost would be the interest accrued over a decade.

If the deal was agreed, however, the base penalty would be 80 per cent lower. This saving, which would also lead to lower interest costs, would cut up to $5.8 million from the total tax bill owed.

But as Ellison’s advisors gathered more documents and records, estimates of the undeclared income jumped from $7.5 million to $10 million, then to $13 million, which would have produced even higher tax, penalty and interest payments.

On February 24, 2020, Batten was asking again: “Are we any closer? I have some anxious taxpayers.”

It wasn’t until May 2021 that Ellison’s advisors delivered the first tranche of documents to the Tax Office, the clearest signal that a deal with the ATO had been struck. More documents followed in September, then January 2022.

AFR Weekend has been unable to independently confirm if the deal was actually agreed. Neither the ATO nor Ellison would comment.

The documents provided by Ellison are the basis for a 98-page summary paper prepared by the Tax Office this year, which provides granular detail of the FEEHL transactions, and highlights Ellison’s role in orchestrating the scheme. His name appears 53 times in the document.

The explosion in the MinRes share price since 2006 has created share market windfalls worth tens and for some hundreds of millions of dollars for the five executives.

In comparison, the proceeds from the British Virgin Islands scheme are small beer. It begs the question why men who were wealthy even back then would engage in something so risky.

For Chris Ellison, public scrutiny is part of running a listed company. Last month he shrugged off concerns raised by governance group Ownership Matters over an estimated $10 million earned by his daughter’s shipping agency, which MinRes requests shipowners use when carrying its ores.

“We’re a public company, we’re open to scrutiny . . . and I need to be held to account, there’s no doubt about that,” he told The West Australian.

Mujo

Added a month ago

Rio Tinto iron ore quality issues.

BHP Samarco settlement.

All the big miners in the news.

Bear77

Added a month ago

FMG too?

Maybe not so recently, but has been plenty going on over there too.

Thanks for sharing that AFR article @Mujo - which was posted at 7pm Friday evening on the AFR site, so assuming they didn't run it earlier in the day in their newspaper, the market hasn't had a chance to react to it yet in terms of applying an extra risk-discount to MIN because of management, however I doubt this will make any difference to insto's or retail investors, on the whole, as CE and his mates were always seen as being a little bit dodgy; In fact one of the earliest insto presso's on MinRes back in the day (over a decade ago) that I viewed when researching the company described them as the "Dodgy Brothers" of mining services, but that do-it-on-the-smell-of-an-oily-rag attitude is what made them so profitable and lowered their costs so much making them so attractive to mine owners to contract out their crushing & loading to (and sometimes their hauling - to port - as well) - because the miners themselves couldn't operate that ore crushing and loading side of their business anywhere near as cheaply as MinRes could operate.

For those too young to remember, "Dodgy Bros." was a regular skit on the ABC comedy show, "Australia You're Standing In It" back in the '80s that was presented each week as a different satirical advertisement for a ficticious company that kept changing their service offering - and were always dodgey but very focused on sales.

There maybe some investors who see these revelations - in this AFR article - as an orange or even red flag when it comes to the "G" of ESG, or who may review their own assessment of how much they feel they can trust CE and his mates in terms of making decisions that are in the best interests of ordinary shareholders rather than themselves - and I'd be in that latter camp myself - because I've always known that Chris was ruthless and had a different moral compass to me, but I had no idea of the extent of his offshore BVI-company tax dodging and siphoning profits out of MinRes to himself and his mates using those zero-taxed holding companies (that this AFR article has exposed in great detail) however I always knew that CE had little regard for those on the other side of any deals he makes, which we think of as "great business sense" when the counterparty is a large global player like Albemarle, but often view as cold, ruthless, and uncaring when it comes to small struggling Aussie miners forced out of business by lower prices and/or crippling debt where MinRes have swooped in and bought up their assets at firesale prices, or sometimes just accepted site rehab contracts from company administrators and got to keep all of the site equipment as an added benefit of those rehab jobs.

My thoughts were that it's business, not personal, and I was willing to accept a level of ruthlessness as long as he operated within the law and kept producing superb TSRs for MinRes shareholders. This article however alledges that not only has CE broken the law, i.e. tax evasion, but has also used these British Virgin Islands holding companies to service his lavish lifestyle - and that of his mates - at the expense of the rest of MinRes' shareholders since they became listed on the ASX.

That's not OK. MinRes is now on my blacklist - of companies I will henceforth avoid. I don't currently have any direct exposure to them, but I do have indirect exposure through WLE (one of my largest real life positions) assuming they haven't moved back out of MIN, but I don't get to have any say in what WLE hold, that's part of the price of admission with LICs.

Nothing more to add except this is alarming, and I'll be interested to see how The West Australian (WAN) reports this one, seeing as the major controlling shareholders of WAN are also WA billionaires, Ryan Stokes and his father Kerry Stokes, who have never really got on too well with Chris Elison or Andrew "Twiggy" Forrest and have not been afraid of printing unflattering photos of them alongside highly critical articles, and some of those with good reason, others perhaps a little biased. Andrew Forrest has been a vocal critic of WAN and Seven Group - both owned by Seven West Media (SWM.asx) which is 40.2% owned by a subsidiary of Seven Group Holdings (SVW.asx) which in turn is 50.93% owned by Kerry Stokes and associates (which includes son Ryan Stokes). Kerry Stokes was always an outsider and never really mixed with the WA billionaires club, who mostly have made their fortunes through either mining and/or mining-related services in CE's case - Kerry built his billions through shopping centres, property, then media (TV stations & newspapers), although his company Seven Group Holdings (SVW) does own Australia's largest Caterpillar (earthmoving gear) dealership (servicing WA, NSW and the ACT) as well as having an Energy division that owns a bee's whisker over 30% of Beach Energy (BPT) plus other oil/gas assets, but Kerry and Ryan haven't done deals with Twiggy, Chris or Gina along the way, to my knowledge, or competed directly against them either.

Not sure if anyone remembers the old "WA Inc." days when the earlier billionaires like Alan Bond (best remembered for winning the Americas' Cup rather than spending time in prison for corporate fraud and stuff, which is how that story did end) was in bed with the then-WA Government, and the then-WA Premier ended up in jail as well over fraud - see here: https://www.afr.com/politics/burke-faces-jail-after-being-found-guilty-of-fraud-19940714-jl1hw

In April 1995, Brian Burke was stripped of his Order of Australia honour, then in March 1997, he was found guilty of stealing $122,585 in campaign donations to the Labor Party to fund his stamp collection. He was sentenced to three years jail, but served six months before the conviction was quashed on appeal.

As is often the case, what Bond and Burke ultimately served jail time for, was the tip of the iceberg in terms of what they were accused of doing, but there were deals done, and the burden of proof meant that most of the charges against both were dropped and they ended up doing jail time for relatively minor offences, similar to American gangster Al Capone who only ever spent jail time for carrying concealed deadly weapons and then tax evasion, despite being accused of multiple murders and a litany of other crimes.

Stokes steered well clear of that "boys club". Twiggy and Chris weren't rich enough yet to be considered eligible for club membership back then, but I have no idea whether either of them would have been interested, pure speculation. I do know it ended badly for some, and others got out without a scratch. This was back in the early to mid '90s, so 30 years ago.

Anyway, no love lost nowadays between Kerry and the other WA billionaires, but between him and both Twiggy and Chris in particular. I have no idea what his opinion is on Gina.

Further Reading on MinRes - this one is from WAN:

Chris Ellison’s Mineral Resources slows down the drill bit to save some extra cash amid cost crunch

by Adrian Rauso and Simone Grogan, The West Australian, Fri, 11 October 2024 5:44PM

Chris Ellison’s Mineral Resources is tightening its belt on exploration spending. Credit: Ian Munro/The West Australian

Chris Ellison’s Mineral Resources is tightening its belt on exploration spending, marking the latest leg of a cost-cutting crusade to combat commodity price pressures.

MinRes workers tasked with either finding new mining deposits across WA or breathing life into the soon-to-be mothballed Yilgarn iron ore hub have bore the brunt of a trimmed exploration budget announced internally this month.

A wind down of mining operations at Yilgarn by the end of this year was flagged in June, but exploration looked set to continue at the hub — 116 holes were drilled at three targets according the company’s most recent quarterly report.

“Consistent with our focus on costs in the current commodity price environment, the exploration team has recently been informed of a reduction in personnel,” a MinRes spokesman told The West Australian.

“Near-mine exploration and resource definition work is continuing at our iron ore and lithium operations, including at Central Pilbara Hub, Wodgina, Mt Marion and Bald Hill.”

The spokesman said fewer than 45 jobs were no longer required as part of the dial back in exploration. He declined to disclose an exact figure.

MinRes reining in a hunt for more paydirt also shows the top end of town has not been immune from a general lull in exploration spending.

Recent research from BDO found explorers in the State had pulled right back on searching for the next big thing, with spending dropping to a two-year low in March this year.

There was a slight recovery in the June quarter — exploration dollars of $826m were up 10 per cent on the March trough but still well below historical averages.

MinRes has been stung by a downturn in its two key commodities, lithium and iron ore, triggering mass a cost-cutting exercise as the business grapples with a debt-heavy balance sheet.

Hundreds of roles have been culled from the company’s Osborne Park headquarters and WA mine sites since the middle of this year.

On September 10, MinRes told the market it had managed to find $300 million in savings, aided in part by changing up the rosters of some 800 workers from two weeks on, two weeks off, to two weeks on, one week off.

A fortnight later it pocketed $1.1 billion after three months prior auctioning off a 49 per cent stake in a privately-owned Pilbara haul road.

Improving lithium and iron ore sentiment, plus banking the $1.1b after rumours swirled the sale would not receive Foreign Investment Review Board approval, has been the catalyst for MinRes’ share price to stage a recent rebound.

The stock is up nearly 70 per cent over the past month, despite short sellers piling in over this period.

Australian Super — the nation’s largest super fund — believes MinRes can fend off the detractors and maintain its recent resurgence. ASX filings on Thursday revealed the super fund has become a substantial shareholder.

The market will get another look under the MinRes bonnet when its September quarterly results are lodged later this month.

--- ends ---

Mujo

Added a month ago

@Bear77 you really are a treasure trove of information, thanks for the additional detail there.

Bear77

Added a month ago

Thanks @Mujo - MinRes is a company I have followed for a long time but have only invested in periodically, and not since June this year when they were clearly at the start of a downtrend that I thought had some legs. [Additional - just checked - I sold the last of my real-money MIN shares in July, not June, but I had sold most of them in June, so didn't hold much in July when I fully exited MinRes in my real-money portfolios; I sold the last my MinRes shares here out of my Strawman.com virtual portfolio on August 2nd.]

I remember that they lost their crushing and loading contract with FMG, one of their biggest clients at the time, back in the second half of 2013 after an electrician working for CSI (Crushing Services International), a division of MinRes, was killed on the job while working on one of CSI's ore crushers. Deaths on large minesites are not uncommon, but this one was in FMG's opinion absolutely MinRes' fault, and Twiggy's opinion was that MinRes' safety culture and focus was severely lacking compared to where FMG themselves claimed to be and aspired to be - see here: https://www.abc.net.au/news/2014-08-12/mining-contractor-pleads-guilty-over-death-of-electrician/5665972

Mining contractor pleads guilty over death of electrician at Fortescue Metals Christmas Creek mine

By resources reporter Sue Lannin, Tue 12 Aug 2014

The incident happened at the iron ore crushing plant at Christmas Creek. (ABC News: Sue Lannin)

Mining contractor Crushing Services International (CSI) has pleaded guilty over the death of an electrician at Fortescue Metal's Christmas Creek mine in WA's Pilbara.

Kurt Williams was greasing an electric motor when he was crushed by a ladder attached to a tripper unit, at the top of an iron ore crushing facility at the mine in August 2013.

The WA Department of Mines and Petroleum took the matter to court and CSI was charged with failing to provide a safe working environment.

A sentencing hearing will take place next month.

In a statement, the department's head of resources safety, Simon Ridge, said he was satisfied with the guilty plea.

"I am sure it will be a relief to the victim's family that this court matter will not continue to be a protracted process," he stated.

"It should also serve as a reminder that safety needs to be the number one priority for everyone, especially mine operators."

CSI ran the iron ore processing plant for Fortescue Metals Group (FMG).

After the death of Mr Williams, CSI was sacked as the contractor and FMG took over responsibility for iron ore processing at all its WA mines.

CSI is owned by Mineral Resources, which is run by mining Perth entrepreneur Chris Ellison.

FMG chief executive Nev Power told journalists earlier this year that CSI was sacked because FMG was dissatisfied with its performance.

"We stepped into the operations of the plant to ensure the safe operations so obviously we wanted to make sure the safety and hazard-free operations going forward was maintained," he said.

An accident in which a contractor was seriously injured in October and the death of a second contractor in December last year prompted the department to order Fortescue to improve safety at all of its mines.

FMG also appointed external consultants to review safety with a focus on contractors.

The department spent three months doing safety audits of FMG's mines in the Pilbara.

It issued a number of safety notices and said in April that Fortescue's safety record met all requirements.

--- ends ---

Chris Ellison even made money out of CSI being sacked by FMG because FMG paid a large Christmas Creek contract termination payment to MinRes - which UBS estimated at the time to be in the order of $1 billion. See here: https://fnarena.com/index.php/2013/09/26/mineral-resources-setback-at-christmas-creek/

I'm not sure if that included plant and equipment, because MinRes usually operate on a BOO basis, i.e. Build-Own-Operate, so they tend to own the crushing plants wherever they operate them, and in this case if CSI (i.e. MinRes) did own the Christmas Creek crushing plant and associated infrastructure, FMG would likely have just paid MinRes for that gear and then upgraded it and added a bunch of safety protocols and instilled their own safety culture into its operation, but there would also have been a serious contract break-fee - or termination fee - that Chris tends to build in to all of his crushing contracts - to protect his revenue and cashflow and to prevent negative earnings surprises when these sort of events occurred. He might come across as a redneck - or Kiwi who got lucky in Australia - but Mr. Ellison is not dumb. You don't become that successful just on dumb luck - and he was certainly shrewd, strategic and often a few steps ahead of most of his competitors, although not so much lately it seems with being caught out by both lithium and iron ore being so low at the same time. But a few years ago he often looked like the smartest guy in the room during many negotiations.

Smart like a fox.

But that "dodgy brothers" tag did stick there for a while a few years back, and with good reason. The MinRes safety culture was said to be almost non-existent back in the day - it was all about "can do" rather than "do safely".

I'm sure things have changed for the better over the years, in part because of financial penalties and extra regulation, plus mine owner expectations, but he's always looked for different and alternative ways to make money, both personally and for his companies. He owned three of them before rolling them into MinRes and floating the company.

Twiggy sacked MinRes (CSI) from FMG's Christmas Creek crushing contract in 2013 after one CSI employee was seriously injured and then a second employee was killed on site (as discussed above) however there was also the background of MinRes' ambitions to become a significant iron ore mine OWNER - as they have become - alongside their mining services business, so in that respect FMG would have viewed MinRes as direct competitors as well as mining services contractors, as explained here: https://www.intelligentinvestor.com.au/investment-news/the-case-of-fortescue-v-mineral-resources/150100 [Tim Threadgold, Intelligent Investor, 13-July-2021]

Solvetheriddle

Added a month ago

@Mujo we seem to have much the same coverage. my 2c. anyone who has followed MIn and been on the conference calls will quickly realise the CE is not your usual CEO which is good and bad. MIN is also a new large company, not long ago it was a midcap. that brings extra scrutiny and governance issues. I have written on SM before, MIN is about as risky as I want to go in non-spec investing. i still feel that way.

on the specific issues, the tax issue is a private issue and is/was a sport for Australian businessmen, that said it speaks to character, the "above the law" type mentality. To me, that means that risk-taking could be beyond what i can stomach. especially now with the Fe/Li/Debt issues, MIN could and does face.

re the related party transactions, common in private companies, can get very murky in public companies, even if disclosed. if one side wins the other is upset, better off avoiding them entirely. that said these were a long time ago, from what i can see and appear to be cleaned up.

interesting two small to big glamour companies facing issues at the same time MIN/WTC puts pressure on the boards and ESG investors as well. more than just coincidence in that.

the most disconcerting aspect of this is that one of my chief criteria for my core investments is that if a share price falls, all else equal i will buy more because they are all quality. MIN is the one where i dont think i can say that at this stage. i am not increasing but holding. i feel im caught in no mans land here, lol

Strawman

Added a month ago

Well said @Bear77 @Solvetheriddle

I hate paying tax as much as the next person (or, more accurately, it's usually how it's spent that irks me), but why anyone would risk so much when they are loaded either way is beyond me. I think you're right @Solvetheriddle, it reveals an 'above the law mentality' and very much speaks to the character of the person.

There’s truth in the saying, 'never bet against self-interest.' Most of CE's wealth seems tied up in MIN, and he’s proven to be an effective, albeit unconventional, operator. Still, these revelations would definitely give me pause as an investor.

Mujo

Added a month ago

I've decided to exit. I think it will probably do well from here, but there are other companies out there without these issues especially when you add commodity prices into the mix.

Bear77

Added a month ago

Good points all. @Solvetheriddle - I would not say that related party transactions are in the past - there's still CE's propping up of his brother's company Resource Development Group (RDG) both via MinRes being the majority shareholders (with 64.31%) of RDG and also awarding that company contracts, like this one: https://thewest.com.au/business/mining/chris-ellisons-mineral-resources-awards-140-million-to-andrew-ellisons-resource-development-group-c-12185415 [12-Oct-2023, i.e. only 1 year ago]

And then there's this: https://www.afr.com/companies/mining/chris-ellison-s-daughter-earns-millions-for-minres-shipping-work-20240824-p5k51h [25-Aug-2024, 2 months ago]

Chris Ellison’s daughter earns millions for MinRes shipping work

by Neil Chenoweth, Senior writer, Aug 26, 2024 – 5.00am, AFR

The daughter of Mineral Resources chief executive Chris Ellison has earned millions of dollars in undisclosed fees after her company was given preferential treatment to help ship the group’s iron ore exports, according to governance advisory group Ownership Matters.

An analysis of port records shows that Ship Agency Services, founded by Kristy-Lee Craker in 2011, has made as much as $10 million through hundreds of ships that have loaded Mineral Resources iron ore since SAS was set up in 2011.

Ship owners have been required since at least 2016 to use Ms Craker’s company when carrying the group’s iron ore exports.

Kristy-Lee Craker, managing director at Ship Agency Services.

Shipping agents provide myriad services, from organising documentation to port authorities and shippers to monitoring vessel operations, transport and crew arrangements.

The Ownership Matters report says her firm has chartered more than 1000 ships since it was set up. Industry standard rates for bulk carriers in Australian ports range between $5500 and $10,000 per engagement. Estimates of the fees paid to Ship Agency Services run as high as $10 million.

MinRes confirmed to Ownership Matters that Ship Agency Services was the group’s preferred shipping agent. However, it said payments to the firm did not have to be disclosed as related party transactions, because Ship Agency Services is engaged under contract with, and is paid by, the ship owner.

Mineral Resources said it was common within the industry to nominate a shipping agent. Ownership Matters is not suggesting the arrangements are improper.

MinRes also uses a marine surveyor company, Propel Marine, set up by Ms Craker in 2018, to perform vessel draft surveys, inspections and marine warranty surveys on ships carrying the group’s iron ore. This leads to the unusual position where safety checks on MinRes ships are the responsibility of the daughter of the CEO.

“These services were performed at arm’s length rates,” a spokesman told Ownership Matters.

“It is common in the commodity industry for industry participants to recommend the use of a preferred ship agency. This enhances efficiency, safety and productivity in the loading or cargoes.

“MinRes has a process in place to ensure its shipping arrangements are in line with the market, and at commercial rates.”

Ownership Matters noted that “unlike BHP, Rio and Fortescue, ship agency at MIN has never been subject to a competitive open tender process.”

SAS also acts as shipping agent for ships owned and operated by Mineral Resources. These direct payments to SAS from MinRes as the shipowner are caught by the related party rules and should be disclosed. A Mineral Resources spokesman said that “direct transactions” between MinRes and SAS over almost 10 years were only “approximately $0.5 million in aggregate”.

In 2023, MinRes reported $428,000 in related party transactions involving SAS for “import/export services”, following $247,000 paid in 2022, but said the figures would be higher in 2024.

“This is due to the critical role played by SAS in facilitating the importation of key items for the Onslow Iron Project,” a spokesman said, an apparent reference to the acquisition of trans-shippers.

Until last year both Propel Marine and Ship Agency Services operated out of offices leased by Mineral Resources from a trust in which Mr Ellison has a 51 per cent interest. A MinRes spokesman told Ownership Matters that SAS paid rent for the offices.

An earlier Ownership Matters report in June raised questions over related party issues when MinRes invested in Wildcat Resources and Kali Metals.

--- ends ---

As you say, tends to be pushing the boundaries of what's legal and what's not, and in this case the award of contracts to his daughter's companies may be legal, but they may also not pass the "pub test" especially when a proper tender process for these services, some of which may not have been needed at all, would have certainly cost MinRes less money, so, once again, there is the possibility - and I would say a strong possibility - that Chris' looking after his mates and family members is happening at the expense of MinRes shareholders.

Solvetheriddle

Added a month ago

@Bear77 yes i guess i meant the undisclosed stuff. all these contracts should be left to the board to ok with CE having no input. You do get the feeling that CE is a "my way or the highway" type of guy, so your faith in an independent board may be undermined. Justin Langer what a jibberer! interesting i don't know any of the other board members. the bottom line is that investing in MIN is CE having effective carte blanche so you have to be ok with that, the good and the bad. not for everyone, i guess. casts the large insto involvement in an interesting ESG light.

Bear77

Added a month ago

Additonal: I have just mistakenly posted the following paragraph into a Wisetech (WTC) forum, but it actually refers to MIN:

AustralianSuper is the largest industry super fund in Australia and they manage over $341 billion of retirement savings on behalf of over 3.4 million members and a fair chunk of that is through their "Members Direct" option where their members can choose to directly invest up to 80% of their super balance into ASX300 companies and a bunch of ETFs if they so choose, and even journo's seem to forget that those members who choose to invest in companies like MinRes (MIN) are causing AustralianSuper to buy more MIN shares which are held in AustralianSuper's name, not the name of the individual super members. This means that movements in and out of "Subs" lists of ASX300 companies by AustralianSuper may be more about their underlying members' personal choices than any decisions made by AustralianSuper themselves or their own fund managers.

While MIN do have AustralianSuper on their "Subs" list at this point, AustralianSuper do move on and off that list regularly, and the above needs to be considered to put that into context.

Arizona

Added a month ago

@Bear77 Not hard to mix MIN with WTC or vice versa, on a day like today.

Bear77

Added 4 weeks ago

Chris Ellison Confirms Tax Evasion: What Next for MinRes?

Source: Money of Mine (youtube video of Monday's podcast)

Karmast

Added 4 weeks ago

@Mujo @Bear77 @Solvetheriddle @Strawman @Arizona @NewyRookie With the issues that are playing out presently at MIN and WTC, I think Warren and Charlie have a perfect philosophy that can be applied to all of us lowly investors who have no real insight into their Boardrooms...

Based on what is reliably reported and currently known, "Do you trust management?"

If you can't answer yes to this question, do you really want to have your hard earned money invested in the business? I know I certainly don't and with thousands of other businesses to invest in, it's a simple case of not requiring that kind of risk to exist in my portfolio.

Doesn't mean they mightn't overcome it and go on to be good performers for shareholders but inverting that possible outcome, it's such a simple filter to minimise possible losses.

It's why I recently sold CTD. Not because I have a current reason to not trust entrepreneurial founder and CEO Jamie Pherous, but because digging in I haven't got confidence the current Board would find out or put a stop to any grey issues if they did arise.

Contrast that with JIN, where Founder Mike Verveka has allowed significant improvement of governance and remuneration at the company as it's grown from minnow to a midcap or similarly at DTL who no longer have a founder on Board but still have that mentality and also are improving governance most years.

Disclosure is I own JIN and DTL but not MIN, WTC or CTD

Bear77

Added 4 weeks ago

Excellent points there @Karmast - and that's why MIN is now on my "Avoid" list. I think that as you have highlighted with CTD, the Boards of WTC and MIN are unlikely to do much to upset the founders and major shareholders - who are the same people - and in that respect there is a governance vacuum at all 3 companies.

That said, I just added WTC to my SMSF - and hopefully here too if prices land within my expected range of possibilities. My reasoning is that I now believe CE at MinRes is not only dishonest, and has broken tax laws, but he has also made money for himself and close friends at the expense of MinRes shareholders, so that is a triple whammy in my book. So, no longer interested in MinRes - they are no longer in my investable universe.

In contrast, RW at WTC hasn't done anything illegal to my knowledge, is not accused of any crimes, and his shenanigans appear to have been done entirely with his own money, and not had any impact on total shareholder returns for WTC shareholders until yesterday, and those were only paper losses for those who already held.

So I view WTC as an opportunity in that Richard's private life is none of my business and I don't think it has impacted Wisetech in terms of anything other than the share price move yesterday - and since I didn't hold WTC yesterday, I figure today is a good time to finally get some exposure to one of Australia's best remaining SAAS/IT companies - now that Altium is off the table.

I have also fully exited AD8 everywhere today because I think I need to classify them as a "turnaround" now - albeit through circumstances outside of their own control. I haven't turned bearish on them, I just don't want to hold them for the next 12 to 18 months when their share price is, in my opinion, more likely to be lower than where it is today than higher. So I'm looking to jump back onboard Audinate when the newsflow turns positive again. I can hold companies through downturns when there is an income element to the investment via dividends, but that's not the case with AD8 - they were in my SMSF as a growth company, and I'm thinking that growth won't be there until at least FY26 now, so no real need to hold them through FY25 when there are better options.

Arizona

Added 4 weeks ago

@Karmast With the wave of Management issues hitting the market in the last few days and weeks, it certainly gives one pause for thought. While the WTC situation has been "handled" now, I'm not convinced that this is the end of the issues and it has raised further questions.

This WTC/MIN discussion has been great to dig into over the last few days and I appreciate the healthy back and forth on SM. Trust in management is high front of mind for me right now.

mikebrisy

Added 4 weeks ago

@Bear77 and @Karmast A couple of points (Lord knows, I've over shared the last few days.)

$MIN is not an issue for me, because I only buy resources at the unambiguous bottom-of-cycle ,,,, once in a decade. (And alway make a killing). So I'm not following CE that closely.

$WTC, I'm on the same page as @Bear77 . I have complete confidence in RW as CEO of $WTC. For all the salacious and frankly distasteful reporting of his personal life and choices, there is only one issue I judge him for. And that is, he has misjudged (I believe) how his personal conduct would play out in the public arena. Reasonably knowing that, he could have made different choices. But if his principles drove him to pursue his case, then I accept he had that right. I imagine he has learned something from this. But ultimately, his conduct hurt him financially and reputationally more than anyone. In fact, I've traded on his conduct and will profit from it. His position is so large he could never do that. In the end, he did the right thing - to choose to focus on his business and drive shareholder value. Anyone who has held on, will be kept whole over the medium term I am certain. But ultimately, this is a business with a unique position in its sector. Wisetech will outlive its founder. From a governance perspective, the Board (as far as we can tell) has engaged appropriately. I expect the action started soon after initial stories broke on 2 October, and they were only forced to make a statement when volumes and SP started moving. They didn't over-react. They made it clear RW had options. In truth, I am a little more wary going forward. My position size has been as high as 10%. Today it is 5%. But this is a highly profitable and strongly growing company on a journey to create the operating system for global logistics.

On $AD8 I disagree with @Bear77. Several commentators have over recent months referred to $AD8 as a "turnaround" or ""cyclical" business. It is not. The stocking and destocking dynamics of several global supply chains, including $AD8 in the electronics industry are well-known for being susceptible to the "bullwhip" effect. This is an industry or supply chain-specific dynamic. In this case it's origin was the pandemic, followed by the chip crisis and customer behaviour that followed. Generally speaking, if you survive the bullwhip, the dynamic is self-correcting. It is an event. It is not a cycle. It is not some period of underperformance that requires management to do something special. All it requires management to do is to keep their nerve and manage the balance sheet. $AD8 is doing that. However, my posts today have explored another idea - one that is new to me as an investor. Because the effect is not well understood, there are likely multiple opportunities for the market to misprice the business. And I think there is an opportunity here. In 3-5 years, 2024/5 will be a blip on the historical chart. I am almost as confident of that as I have been of anything in investing.

But, hey, what a great week to be an investor on the ASX! Thank you to all for the discourse. Such fun.

Karmast

Added 4 weeks ago

Fair enough @mikebrisy and everyone needs to come to their own conclusions on these kinds of "judgement" calls. I agree RW has been creating something really valuable with the business so hopefully things settle down from here rather than get even more salacious...because there is a lot of key person risk there and it has to have been very distracting so far. And agreed, it has been a very busy few weeks on the ASX and more mentally stimulating than usual!

Mineral Resources Limited

Mineral Resources Limited

Set Price Alert for MIN

Chris Ellison’s offshore secret

Building a fortune

Going offshore

Business as usual

Staying ahead of the game

Mujo

Bear77

Chris Ellison’s Mineral Resources slows down the drill bit to save some extra cash amid cost crunch

Mujo

Bear77

Mining contractor pleads guilty over death of electrician at Fortescue Metals Christmas Creek mine

Mining contractor Crushing Services International (CSI) has pleaded guilty over the death of an electrician at Fortescue Metal's Christmas Creek mine in WA's Pilbara.

Solvetheriddle

Strawman

Mujo

Bear77

Chris Ellison’s daughter earns millions for MinRes shipping work

Solvetheriddle

Bear77

Arizona

Bear77

Chris Ellison Confirms Tax Evasion: What Next for MinRes?

Karmast

Bear77

Arizona

mikebrisy

Karmast

Place trade