Forum Topics MIN MIN Can this culture keep deliveri

Pinned straw:

Added 4 weeks ago

For those who still own or want to own MIN, while I wish you all the best, the latest insights from today's AFR article are worth deep consideration. Reading these comments, one surely has to ask whether this is a company that can be great for another 10 or 20 years, when you have a leader and culture like this...

While I know some shareholders are upset at the media for piling on, I am glad we still have some solid investigative journalists in Australia and what looks to be some brave staff willing to speak up about what's going on day to day.


Excerpt from AFR Weekend article 23.11.2024


Mineral Resources founder Chris Ellison has always prided himself on speaking plainly. The process can be brutal.

In the middle of last year, he held a meeting of senior executives in the MinRes boardroom, and he wasn’t a happy camper.

A whistleblower complaint filed 12 days later with a Herbert Smith Freehills partner accused Ellison of being a bully.

Ellison’s anger focused on a senior lawyer, whom he ordered to stand in front of them all and say, “I am a f--ing idiot,” the whistleblower claimed.

“Which [she] did, then went to her office and cried for a period. She went home and cried for three days and handed in her notice.

“I am led to believe Chris has threatened to destroy her career unless she signed a confidentiality deed, which I believe she has, essentially gagging her.”

AFR Weekend has been told that the executive, now employed elsewhere, says she is unable to comment on the matter.

In the same meeting Ellison turned on another female executive, declaring, “[she] just needs a good f—k”, the whistleblower claimed. The complaint also described a third woman executive that Ellison had berated in front of other staff, “yet all stand around and do nothing”.

This isn’t the message Ellison was pushing at the MinRes annual meeting on Thursday when he spoke of his concern for the mental health of the MinRes workforce.

Bear77
Added 4 weeks ago

23-Nov-2023: I think that a bit more of this article is worth sharing actually, so here it is:

Inside Chris Ellison’s brutal executive meetings

There are new questions about the culture of the $6.7 billion company that Chris Ellison created, a culture that is at the centre of MinRes’s governance crisis.

https://www.afr.com/companies/mining/inside-chris-ellison-s-brutal-executive-meetings-20241122-p5ksso

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Chris Ellison at the shareholder meeting on Thursday. “I’m really, really proud of, making sure that our people are creating safe and supportive environments.” Courtney McAllister


Neil Chenoweth, Senior writer (AFR), Nov 23, 2024 – 5.00am.


Mineral Resources founder Chris Ellison has always prided himself on speaking plainly. The process can be brutal.

In the middle of last year, he held a meeting of senior executives in the MinRes boardroom, and he wasn’t a happy camper.

A whistleblower complaint filed 12 days later with a Herbert Smith Freehills partner accused Ellison of being a bully.

Ellison’s anger focused on a senior lawyer, whom he ordered to stand in front of them all and say, “I am a f--ing idiot,” the whistleblower claimed.

“Which [she] did, then went to her office and cried for a period. She went home and cried for three days and handed in her notice.

“I am led to believe Chris has threatened to destroy her career unless she signed a confidentiality deed, which I believe she has, essentially gagging her.”

AFR Weekend has been told that the executive, now employed elsewhere, says she is unable to comment on the matter.

In the same meeting Ellison turned on another female executive, declaring, “[she] just needs a good f—k”, the whistleblower claimed. The complaint also described a third woman executive that Ellison had berated in front of other staff, “yet all stand around and do nothing”.

This isn’t the message Ellison was pushing at the MinRes annual meeting on Thursday when he spoke of his concern for the mental health of the MinRes workforce.

“We identified five years ago that mental health was as big an issue as safety or physical health,” he told shareholders.

“Another thing that we’ve done as a business that I’m really, really proud of, making sure that our people are creating safe and supportive environments is absolutely our main priority, because we can’t work if we don’t know that they’re working safe.”

But it’s this so-called safe place – the culture of the $6.7 billion company that Ellison has created – which is at the centre of MinRes’s governance crisis.

And it’s Ellison’s own character which is facing scrutiny. It is how the company that he built deals with people that in the end brought him undone.


The company is used to brushing off questions about how it treats its workforce, and anonymous emails like the August 2023 complaint might be expected to receive short shrift.

The Herbert Smith Freehills partner who received it replied, “Thank you for your email. We have forwarded it to the appropriate people at MRL for their consideration.”

But it wasn’t the whistleblower’s first complaint.

On June 3, 2022, the same Proton email account was used to file an extraordinary list of claims against Ellison and other MinRes executives, which was referred to Herbert Smith Freehills.

What is now clear is that almost everything that the board has confirmed after AFR Weekend broke the first MinRes story on October 18 – Ellison’s offshore tax scheme selling machinery to the company at inflated prices; his deal with the Australian Tax Office, leasing property to MinRes up to 70 per cent higher than market rates; rent-free offices for his daughter’s company; shipping arrangements; the extensive use of employees for his private business dealing; or to run his boat – was detailed in that June 2022 whistleblower complaint.

In turn that June 2022 complaint was prompted by media reports by the The Australian Financial Review and others about a lawsuit that MinRes brought four days earlier on May 30 against former MinRes procurement boss Steve Pigozzo, sacked in January 2022 in retaliation for whistleblowing about misconduct within the company. On June 1 Pigozzo countersued MinRes for unfair dismissal, seeking payment of entitlements.

Within hours MinRes had applied to suppress the details of Pigozzo’s case. What went unnoticed was that the case also prompted someone to file a complaint on the Deloitte whistleblower hotline. And it is this complaint that began the process which brought Ellison down.

“I have read Mr Pigozzo’s reports of misconduct at MIN published in the media this week,” the whistleblower wrote. “This is just the tip of the iceberg of the wrongdoing.”

The complaint was referred to Herbert Smith Freehills, who reached out to the whistleblower on June 24. In a subsequent email, an HSF partner stated they would speak “with relevant individuals” referred to in the complaint.

Ellison was the central focus of the allegations. So, did HSF ask him about the offshore tax scheme? HSF found no evidence for the claim and the board says it only began to hear details about the offshore trading from June 2023.

In May 2023 Ellison had finally settled with the Tax Office, but the board didn’t learn about it until October.

Pigozzo’s claim remains the subject of extensive suppression orders.

But it is public knowledge that sometime before January 2022, MinRes was warned by its own procurement boss that there had been misconduct.

AFR Weekend has learned that the suppression orders obtained by the MinRes lawyers, Bennett, were so extensive that only three MinRes executives saw the court documents and even directors were not provided copies.

Bennett was in an awkward position because it acted for Ellison in his dealings with the Tax Office over his voluntary disclosure of the offshore tax scheme and the subsequent tax settlement which was finalised only in May 2023.

The law firm now acts for both Ellison and MinRes, as well as the company’s chief financial officer Mark Wilson, in defending Pigozzo’s claims and seeking permanent suppression orders. Those orders include removing 19 documents from the Federal Court’s file.

The Pigozzo case ground on behind the scenes, racking up big legal costs, as MinRes doubled down on its claims that Pigozzo had taken secret commissions in deals; its legal team was headed by former NSW Bar Association president Noel Hutley, SC, who can charge up to $35,000 a day.

Because of the suppression orders it’s not known what role if any the Pigozzo proceedings had in the board’s eventual confirmation that Ellison had been involved in the offshore tax scheme. The board told the ASX it received a briefing on the matter from Herbert Smith Freehills last June.

In July, MinRes abruptly settled with Pigozzo for an undisclosed sum. By this time, it’s estimated that the two sides had spent more than $7 million in legal costs.

It looks like overkill: a lot of shareholders’ money lost in an attempt to deny entitlements to a mid-level executive.

Former MinRes executives say that it is a difficult company to leave, it refuses to pay out vested incentives and there is a constant threat of legal action. At times, it can appear vindictive.

These are not necessarily decisions by Ellison, but they reflect the corporate culture he has helped forge.

A MinRes spokesperson said the company does not comment on specific whistleblower complaints. “This approach is to protect the integrity of our processes and the confidentiality of the parties.”

“MinRes confirms that all legal matters relating to Mr Pigozzo have been settled. The terms of the settlement are confidential.”


Even now, Ellison remains a powerful force, and the board’s attempts to bring him to account appear underwhelming.

After discovering that Ellison’s daughter’s company, Ship Agency Services, worked rent-free for 10 years out of offices that MinRes leased from Ellison and other founding executives, the board required SAS to repay $158,000.

SAS has 10 staff. They appear to have taken all the 790 square metres of office space on the site, which also has 2635 sq metres of workshop area used by MinRes and 14,000 sq metres of hardstand area which MinRes could use to store equipment.

MinRes paid $5.2 million to lease the site over those 10 years.

The $158,000 repaid by SAS is 3 per cent of what MinRes paid for the entire site during that time.

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Ship Agency Services, worked rent-free for 10 years out of offices on this site. 


Directors have successively told shareholders, or been told themselves, that everything has been disclosed, that from now on tighter governance controls will prevent further abuse.

Despite the discovery that in late 2019 someone deleted email records of all trading with Ellison’s company Far East Equipment Holdings Ltd, the board is confident that after the 2006 listing MinRes made no payments to Far East except for two pre-contracted payments totalling $3.79 million in August 2006 and January 2008.

But Tax Office documents show Far East recorded profits of $6.7 million from MinRes dealings after the listing. A MinRes source has described paying $2 million to Far East in late 2008 for a crusher used in a Fortescue project which was bought in 2004 for $250,000.

This is in line with Tax Office documents which conclude Far East made a $2.9 million profit in the 2009 financial year from MinRes sales.

When Ellison, the tough talking, bad boy founder showed up at the MinRes annual meeting on Thursday, he appeared diminished, minus the swagger, reduced to a little black cloud.

While chairman James McClements on Thursday repeatedly spoke of Ellison stepping down within 18 months, it’s not clear how far he will go. Will he remain a consultant?

“Any time he has still got a desk in the building, he’s still got control,” says a former senior executive.

“I can’t stress enough how much I hate what I have done,” Ellison told shareholders in a four-minute mea culpa, describing the decade-long tax evasion scheme he ran as “a dark cloud in my life that I will live with forever”.

Ellison himself spoke only of winning back the trust of directors, conjuring a vision that he might be a bright little cloud in shareholders’ lives indefinitely.

--- ends ---


Related:

The Fin: Inside the MinRes investigation: how the secret tax deal came to light


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https://www.afr.com/companies/energy/inside-the-minres-investigation-how-the-secret-tax-deal-came-to-light-20241113-p5kqa6


Further Reading:

Ellison’s executives revealed as owners in blockbuster lithium IPO

Mark Di Stefano and Neil Chenoweth, AFR, Nov 1, 2024 – 8.00pm

https://www.afr.com/companies/mining/ellison-s-executives-revealed-as-owners-in-blockbuster-lithium-ipo-20241101-p5kn7j

Three senior Mineral Resources executives who report to managing director Chris Ellison personally bought shares in Kali Metals, the lithium explorer whose share price spiked by more than 200 per cent in January because of aggressive buying by MinRes.

Kali Metals is a Perth-based lithium hopeful with prospective ground in Western Australia, NSW and Victoria that made its sharemarket debut on January 8 after raising $15 million from investors at an offer price of 25¢ a share.

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MinRes chief financial officer and company secretary Mark Wilson, and managing director Chris Ellison. Michaela Pollock


The popular float was oversubscribed as it emerged that Mr Ellison, the billionaire founder of MinRes, had secured a 4.8 per cent stake before the listing. Mr Ellison’s business partner and construction billionaire, Tim Roberts, and mother-in-law Jennifer Robinson also held stakes in the company. As soon as Kali Metals went public, Mr Roberts sold his 2.8 per cent shareholding.

Share registers dated January 29 obtained by AFR Weekend reveal MinRes chief financial officer and company secretary Mark Wilson bought 600,000 shares in Kali Metals using a private investment company that shielded his identity. The register shows MinRes lithium chief Joshua Thurlow bought 400,000 shares in his own name, while Yenna Ong, MinRes’s director of international trade and strategy, acquired 200,000 shares.

It is not clear whether the three MinRes executives bought stocks before or after the sharemarket float. A MinRes spokesman dismissed questions, claiming its involvement with Kali Metals had been “widely reported in the past”.

“As previously disclosed, the approval and oversight of the Board Chair James McClements and restrictions on share trading were in place for management prior to Kali’s listing on the ASX.”

Kali Metals shares shot up in the days after its listing, helped by aggressive market activity from MinRes. ASX disclosures show MinRes bought 14.3 million shares or almost 10 per cent of Kali Metals on January 8, accounting for most of the share trading on the company’s first day.

A second disclosure a week later shows MinRes had bought enough shares to take its stake to 14 per cent. Kali Metals hit a high of 76¢ two days after listing.

MinRes was founded by Mr Ellison and has expanded from mining services to own iron ore projects, lithium developments and energy assets. It has grown into a company with a market capitalisation of more than $7 billion, making Mr Ellison and many close to him rich.

He has emerged as a key figure in Perth’s business establishment, lauded as a visionary entrepreneur who went from being a crusher, to owning his own mines and providing services to Rio Tinto and BHP.

But major shareholders are increasingly uneasy about the company’s governance. AFR Weekend revealed last month that Mr Ellison and other senior figures had run an offshore tax scheme that made them money at MinRes’ expense.

The Australian Securities and Investments Commission has launched a preliminary probe into the matter, while the board disclosed this week that it had been investigating Mr Ellison’s entanglements with the Australian Taxation Office for more than two years.

The internal probe into the company’s founder and managing director had never been declared to shareholders. The board has committed to present findings this Monday.

MinRes shares fell 30 per cent after the Financial Review revealed the undisclosed tax matters. They rebounded this week after the company said it would sell gas assets to billionaire mining mogul Gina Rinehart for more than $1.1 billion.

‘Heavily oversubscribed’

Kali Metals was spun out of Kalamazoo Resources and Karora Resources last year. In November, Bell Potter and Canaccord sought investors for its $15 million raise, opening the bookbuild process. Within less than 20 minutes it had closed “heavily oversubscribed”.

MinRes later said it had been prevented from taking part. But it did not stop Mr Ellison, who acquired a 4.8 per cent personal stake using his Wabelo private investment vehicle.

The Kali Metals share register dated January 29 and obtained by AFR Weekend shows Yolson Pty Ltd held 600,000 shares in the lithium hopeful. Corporate records show Yolson is a vehicle co-owned by MinRes CFO Mr Wilson and his wife. Mr Thurlow bought 400,000 shares under his own name. He joined MinRes in 2022 and runs its lithium mines, reporting directly to Mr Ellison.

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Mineral Resources lithium boss Joshua Thurlow. Ross Swanborough


The register shows Ms Ong owned her 200,000 shares, also under her own name. Her association with Mr Ellison stretches back to MinRes’ own IPO in 2006. She has held senior roles in the company, including general manager of sales and marketing, which was said to include lithium trading and commercial activities in Australia and China.

It’s not clear whether any of the senior executives were aware that MinRes intended to move on Kali Metals. Another Kali Metals share register several months later shows all three executives had held on to their shareholdings.

MinRes remains the largest shareholder of Kali Metals, but the lithium miner’s price has deteriorated to 14¢ a share – more than 80 per cent down from its January peak.

Others who got into the company did not hang around. Before Kali Metals went public, Mr Roberts’ Warburton family office got its hands on 4 million shares, becoming the miner’s fourth-largest shareholder.

A story in The West Australian would later reveal the mystery joint fifth-largest holder – a woman named Jennifer Robinson. She is Mr Ellison’s mother-in-law, and shared an address with the MinRes managing director’s private vehicle.

The Perth tabloid reported Mr Roberts had sold his entire stake in Kali Metals, while Ms Robinson sold almost 80 per cent. Navitas founder Rod Jones, who was also among the largest Kali Metals shareholders, dumped his entire holding by the end of January.

Broker data from Kali Metals’ first day of trading shows Bell Potter on both sides of two large block trades – for 4 million and 3½ million shares. It was the co-lead of the Kali Metals float, and has long-been associated with MinRes and Mr Ellison.

Bell Potter broker Brad Shallard declined to comment when asked by the Financial Review’s Rear Window this week about whether the trades were done for MinRes.

This masthead also revealed last week the New Zealand alpine property co-owned by Mr Ellison and Mr Roberts acquired heavy machinery from a MinRes subsidiary at prices that appeared to be discounted. Mr Roberts was on the board of MinRes at the time of the acquisitions by Halfway Bay.

He denied Halfway Bay bought “undervalued” equipment, or that he requested that it be supplied “at a discount”.

--- ends ---

[That one was from Nov 1st]


Shareholders torpedo Mineral Resources pay report as chairman admits Kali deal didn’t pass the pub test


Sean Smith, The West Australian, Fri, 22 November 2024 4:30AM

https://thewest.com.au/business/ceos/shareholders-torpedo-mineral-resources-pay-report-as-chairman-admits-kali-deal-didnt-pass-the-pub-test-c-16829227

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Mineral Resources AGM Chair James McClements. Courtney McAllister


Mineral Resources chairman James McClements has for the first time disclosed concerns over the controversial Kali Metals float in January as the beleaguered group was hit by a “first strike” over its governance scandals.

Fronting shareholders at a tightly controlled and sometimes tense annual general meeting on Thursday, Mr McClements admitted that MinRes’ decision to follow chief executive Chris Ellison and other senior MinRes staff on to the Kali share register had provided a governance challenge for the group’s board.

“We recognised, once we became aware of it (MinRes employees being invested in Kali), that it was not going to pass the pub test,” Mr McClements, said in response to a shareholder question.

Kali’s $15 million float, which issued shares at 25¢ apiece, was oversubscribed after it emerged that Mr Ellison had taken up a 4.8 per cent personal stake before the lithium minnow’s listing. It has since been been reported that other MinRes executives, including chief financial officer Mark Wilson and lithium chief Joshua Thurlow, also bought shares before Kali went public.

MinRes bought 10 per cent of the company when the junior listed, fuelling a surge in its share price to 76¢.

Mr McClements reiterated on Thursday that the board imposed trading restrictions on the executives invested in Kali to control conflicts of interest ahead of the company’s investment.

“We put blackouts around the management transacting in their shares for an extended period of time,” he told the AGM.


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‘I hate what I’ve done’: Embattled Chris Ellison breaks his silence at tense Mineral Resources AGM

[Adrian Rauso, The West Australian, Thu, 21 November 2024 7:06PM]


The float, which was also backed by friends and family of Mr Ellison, has attracted new media scrutiny in light of disclosures over the past month that the billionaire evaded tax on offshore entities and benefited from a string of related-party dealings with MinRes over nearly 20 years.

Having apologised for his “lapse of judgment”, Mr Ellison has agreed to step down as chief executive, though his exit could take as long as 18 months.

Investors expressed their displeasure over the scandals by delivering a hefty “first strike” at the AGM, with 75.6 per cent of shares voted against the pay report on the recommendation of proxy advisers.

The scandals, which have smashed MinRes shares, dominated questioning at the meeting, despite Mr McClements’ reminder to investors of Mr Ellison’s role in building “a company of the depth, breadth and success of MinRes”.

Mr Ellison was remorseful, addressing his governance failings for several minutes during which he admitted “to some mistakes along the way”.

But while he made no reference to the timing of his departure, he insisted MinRes would be unaffected.

“This business will transition through to the next level of management and this business will go on long down the track,” he said.

“It’s all backed by the great people we have got at MinRes, they continue to work incredibly hard, as I do, I turn up every day and make sure we are delivering. I have had many shareholders around lately come out and support the business and I thank you all for that, I understand and acknowledge some of them have got different voices at the moment, it is what it is.”

However, he said, “I’ve built a great company, delivered extremely good returns to MinRes shareholders, employed thousands of people, created a great working environment for my employees and provided huge benefits to Australia”.

Mr McClements who will also step down before next year’s AGM, has already foreshadowed significantly strengthened governance, including a new ethics and governance board committee and new whistleblowing protocols.

Incoming director Jacqui McGill, a former BHP mining boss, promised shareholders on Thursday “a different way of doing many things across management and governance, things more befitting a major scale organisation”.

While the company has hired a recruitment firm to seek out a new chief executive, it has yet to do the same to replace Mr McClements. That looms as the board’s immediate priority given the new chair will play a major part in choosing Mr Ellison’s successor.

Some investors want the chief executive gone quicker, but Mr McClements repeated on Thursday that “a sudden departure was not considered in the best interests of the company”.

MinRes shares closed 2.5 per cent lower at $33.84, down 26 per cent since the scandals broke.

--- ends ---


opinion

Sean Smith: Forget the fanfare, Chris Ellison’s position is untenable

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Sean Smith, The West Australian, Fri, 22 November 2024 4:30AM

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There’s no disputing Chris Ellison is a business success story, a high-school dropout who built one of Australia’s biggest miners on hard work, smarts and determination.

But there can be no doubt either that no-one but Chris Ellison is to blame for the scandals that have beset Mineral Resources and stripped billions of dollars from its value.

To hear some shareholders talk at Thursday’s annual meeting at the West Coast Eagles headquarters in Lathlain named for his mining group, you’d be forgiven for thinking that the former New Zealander is the victim of a media beat-up.

Those shareholders, together with some more influential investors, are prioritising money over ethics and want their hard-nosed boss to keep running the miner rather than keep to the company’s plan for him to stand down.

As it is, Ellison won’t be going for at least a year anyway, and perhaps not for 18 months, until MinRes has a replacement.

Some investors clearly reckon he’s irreplaceable. Others counter he’s no Steve Jobs.

However, for all the wealth he has created, and Ellison reminded shareholders on Thursday of his achievements — “I’ve built a great company” — his position is untenable.

And MinRes should not be pressured by sections of its shareholder base into changing its mind to let him go.

Business ethics and personal conduct should matter, they need to matter.

It’s very simple, so simple that seemingly some companies and their bosses still don’t get it. They can’t demand behavioural standards from their employees if they don’t uphold the same standards.

The rank hypocrisy of some corporate behaviour, together with a string of scandals, regulatory lawsuits and oversized executive pay packets, is contributing to diminished community trust in Australian big business.

No-one expects company bosses to be angels. But neither should those bosses be evading tax and doing myriad deals for personal benefit with the companies they are entrusted with managing on behalf of shareholders.

Ellison was contrite on Thursday, talking about the “dark cloud in my life that I will live with forever”.

But the real test will be when the time comes for him to hand over the reins to a successor.

MinRes itself still appears to be struggling with its commitment to higher standards of governance, insisting on Thursday that a deal done in just May to buy into a Bullsbrook property consortium partly owned by Ellison was not a related party transaction as defined by the rules and hence his involvement did not need to be disclosed.

Let’s not quibble. If you’ve been investigating your chief executive’s dealings for two years and are now partnering with him in a deal, why wouldn’t you just come clean with your shareholders?

--- ends ---


Disclosure: Not holding.

13

edgescape
Added 4 weeks ago

This is the MinRes recording from ABC "The Business". To correct my earlier comment, the old guy just wanted to throw a punch at somebody, not management He since walked back on that statement.

https://www.abc.net.au/news/programs/the-business/2024-11-21/chris-ellison-fronts-shareholders-at-minres-agm/104632746

But can totally understand what he is going through when you put your life savings into a company that would generate some returns on your investment.

I wonder if things would be different if MinRes had kept their equity stake with Develop. Then there would be potentially Beament as successor. Suppose one can wonder...

I think what you need is a total board renewal at MinRes. In meantime I will still watch for a reentry at a lower price and then X-fingers that board renewal comes sooner rather than later.

15

Bear77
Added 2 weeks ago

07-Dec-2024: The following is a free article from the Intelligent Investor, by Gaurav Sodhi, published on November 5th, so 5 weeks ago, and sent out in II's "Pecuniary Interest" free fortnightly newsletter for former members (such as myself) and people who they hope might be interested in their trial subscription offer; this particular newsletter was sent to me on Fri 8th Nov:

https://www.intelligentinvestor.com.au/recommendations/mineral-resources-unhappily-ever-after/154029

Mineral Resources: Unhappily ever after

The consequences of the past few weeks will change MinRes forever.

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By Gaurav Sodhi·5 Nov 2024

Key Points

  • Ellison will leave
  • Chair of the board will leave
  • How will the business change?

For 20 years, the story of Mineral Resources has been a fairy tale. A mercurial founder who became a businessman; the businessman who became a billionaire. Now, in the final act, the founder has fallen. The fairy tale is over.

The MinRes board announced its findings into various scandals involving the managing director, Chris Ellison. It found that Ellison had not acted with integrity and had used company resources for personal benefit. Ellison will step down as MD within 18 months while a hunt for a replacement begins.

He will pay penalties worth almost $9m, $3.8m of which will go to the company. He will also forgo $6.5m in options, while a request for $3.1m in fresh equity payments has been pulled.

In all, Ellison's bad behaviour will cost him his job and more than $10m in income. It's a satisfactory outcome for what has been a baffling series of misjudgments and errors.

The chairman of the board will also leave within a year, and we expect several board changes to follow. Commitments to stronger governance have been made. These are all more forceful actions than we had expected.

A mere five months ago, MinRes's stock was at $80 and the notion of Ellison leaving was unthinkable. It's worth considering what has changed.

Financial risks have fallen

Operationally, the business is arguably less risky now and in a stronger financial position. The sale of a 49% interest in its Onslow haul road has been approved and finalised. About $1.1bn in cash will hit the balance sheet shortly.

MinRes also announced the effective sale of its energy business for up to $1.1bn, with $800m to be paid upfront and the rest in contingent payments. This is a business most investors had valued at zero, and its sale should remove any questions about a capital raising. The balance sheet is stronger now than it was then.

Iron ore prices remain above US$100 a tonne, where they will generate stupendous cash flows from the Onslow project.

We note that while MinRes owns 60% of the project, it financed the whole venture and is therefore entitled to 80% of project cash flows until the debt is repaid. If iron ore prices persist at current levels, accelerated debt repayment should be expected.

Lithium remains in the doldrums although MinRes has savagely cut costs at its three mines. At Wodgina and Mt Marion, the two largest, output is likely to fall as expenditures have not allowed fresh rock to be cut. This is sensible considering where prices are.

If investors were perfectly rational, the combination of asset sales, project development and commodity prices should lead them to conclude that the business's position had strengthened, and risks had fallen.

Yet the loss of Ellison is devastating for confidence and for the future direction of the business.

The maverick

Ellison's track record of capital allocation is unmatched in the industry. Over many years, he has shown a penchant for madness along with a license to act on that disposition.

How else could an upstart crusher, who started crushing ore for marginal mines, end up with the best and biggest as clients. How else to explain the manic moves into lithium when no one was interested, into iron ore without any infrastructure or energy without any experience. No professional manager would make those moves; it was borderline reckless to do so, yet each time it has paid off.

Ellison's wild streak was ultimately his undoing. The board and management sound like they will be more professional and conventional from now on. That is necessary. The business will gain the governance structures and oversight that it has clearly lacked for years.

Yet it will undoubtedly lose something for it. How will a more professional board and management allocate capital? Will they chase projects unafraid of mistakes, or will they dull the entrepreneurial edge that has been the hallmark of this business?

These are important questions, and they are impossible to answer today. We need to rethink what we are willing to pay for the business.

What to pay

In simple numbers, we think the mining services business is worth about $40 a share; iron ore about $30 a share; and lithium about $20 a share. It's hard to get a valuation much less than $90 a share with realistic commodity prices. There is undoubtedly value at today's share price.

We suggest caution, however. In the short term, the business remains vulnerable to sustained falls in the iron ore price. Until Onslow is running, and the debt repaid, risks remain.

The larger risk is how the trauma of the past month will change the business. As we have suggested, gaining better governance may mean losing the magic that built the business into what it is today.

The best way to deal with that risk is to manage your portfolio limits. We suggest a 4-5% position size is plenty, and conservative investors should consider a lower weighting. We are cutting our Buy price from $65 to $45 and our Sell price from $120 to $90 as we lower our future return on capital assumptions.

With Ellison's departure, the battle for MinRes is now over. The fight to get Onslow ramping, and cash flowing, is still ongoing. There is no guarantee of a happy ending. The fairy tale is over. BUY.

Disclosure: The author owns shares in Mineral Resources.

The Intelligent Investor Australian Equity Income Fund (ASX:INIF)Intelligent Investor Australian Equity Growth Fund (ASX:IIGF)Intelligent Investor Select Value Share Fund (ASX:IISV) owns shares in Mineral Resources Limited (ASX: MIN).

IMPORTANT: Intelligent Investor is published by InvestSMART Financial Services Pty Limited AFSL 226435 (Licensee). Information is general financial product advice. You should consider your own personal objectives, financial situation and needs before making any investment decision and review the Product Disclosure Statement. InvestSMART Funds Management Limited (RE) is the responsible entity of various managed investment schemes and is a related party of the Licensee. The RE may own, buy or sell the shares suggested in this article simultaneous with, or following the release of this article. Any such transaction could affect the price of the share. All indications of performance returns are historical and cannot be relied upon as an indicator for future performance.

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Disclosure: I do not hold MIN at this time, and have them on an "Avoid" list now. I note Gaurav's "conservative" $90/share MinRes valuation "with realistic commodity prices" and that he's reduced II's (Intelligent Investor's) recommended buy price for MIN from $65 to $45 and their sell price from $120 down to $90, however I strongly feel those numbers are not very realistic in the short-to-medium term. I estimate MIN could recover to between $50 and $60/share, but I don't think they're going back up to $90 any time soon. The company already had people who wouldn't go near them BEFORE all of these revelations about their founder and his friends and family benefiting at the expense of ordinary MinRes shareholders, and that group of people who won't consider MinRes to be within their own investable universe has certainly grown a lot larger in the past couple of months.

I should also note that Gaurav published that piece in early November (5th) and there have been more allegations that have surfaced since then, and most of those have been admitted to by the MinRes Board at their AGM on Nov 21st. I don't know if Gaurav's opinion on MinRes or his price targets have further evolved/changed as a result of that (since Nov 5th) but it should be remembered that he did write the above piece in early November. That's the context of it.

MinRes has tried to bounce a few times, but seems to get whacked back down each time, although not back to under $30 again, so far.

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It does look like the share price is settling into a channel between $30 and $40/share now, but when we zoom out to a 5 year chart (below), it just looks like the company is in a strong downtrend that has yet to be broken.

38eb5f82ddd6961b640a590de3956452ca13e6.png

I'm not into TA much at all, but I do know that's a downtrend, and I guess what current and prospective investors in MinRes need to ask themselves is what's going to turn the market's frown upside down when it comes to this company, i.e. what are the near-term catalysts that should cause a positive market rerating of this company?

For a longer term play, they're probably OK, if you hold your nose and don't mind being underwater in the near term, and also don't mind the stink (another reason to hold your nose), but perhaps there's opportunity cost in holding them right now. After all, if the company remains in your own investable universe (they're no longer in mine, but each to their own) you don't HAVE to hold them through the doldrums; you could instead just buy back in when they have some tailwinds again instead of headwinds, and you might even be able to pick them up at even lower levels. And you could put that money to work in something with better near-term potential in the meantime.

18

mikebrisy
Added 2 weeks ago

@Bear77 I find Gaurav's comment:

"It's hard to get a valuation much less than $90 a share with realistic commodity prices. There is undoubtedly value at today's share price."

rather strange.

I know he's always been super-billish on $MIN and CE, but contrast his view with the rest of the analyst community. 12-month price targets average $44.31, ranging from $31.20 - $67.00 (n=16; tradingview.com). Clearly, quite a few others don't find it that hard to get a valuation below $90.

The statement is also odd, when you consider that all of these analyst views represent central cases or "expected" valuations. If you asked them all to publish a range of likely scenarios around their expected valuations, you'd get an even wider spread. Sure, some high cases would go well over $90, but equally some low cases would go well below $30.

But what a difference a couple of years can make. Two years ago, the range of valuations in the analyst community was $75 - $125. Now $MIN hasn't changed that much, we've just moved into a different phase of the commodity cycle.

I think this case illustrates the challenge of investing in integrated miners. Analysts, with their short horizons, are unduly skewed by where you are in the cycle. This is even true of the large investment banks that have smart commodity research teams that model the industry cost curves in detail, which is what you need to model the price cycles (even if it doesn't make you any better at predicting them!) For example, Macquarie have most recently predicted that lithium supply and demand will be back in balance by 2028. Really? Good luck with that.

I'm not a mining specialist, but over the decades I've found exactly the same phenomenon in oil. The forward curve is a very poor predictor of the actual future oil price, even though the financial markets which it serves have a volume some 10x the physical markets. So, it is important!

So just because the unanimous body of analysts violently disagree with Gaurav, doesn't mean that Gaurav is wrong. After all, his valuations of $MIN have been relatively stable over recent years. A good valuation should move around a bit because at the low point in the cycle, your near term cash flows are lower and at the high point they are higher, and so with the time value of money, this should impact the value of all future cashflows.

A few year's back. I tried the II service on a special offer. However, I didn't renew, because it's difficult to get underneath their recommendations, the basis of which are usually quite opaque. I gave this feedback on the "Tell us why you are leaving" survey. Having knocked them, I have to balance this and say that several years ago Gaurav published a compelling note which put me on to $LOV,... which eventually paid for my subscription 15x.

Coming back to $MIN, did he really mean what he wrote, or was it just sloppy language?

To be clear, I don't have a view on fair value of this one.

Disc: Not held

22

Bear77
Added 2 weeks ago

Agreed @mikebrisy - and your comment about Gaurav putting you onto LOV back in the day rings true with me also - but different companies, not LOV for me. In my case it was mostly mining companies like Alumina Limited (AWC), South32 (S32) and Pilbara Minerals (PLS) at various times in prior years where Gaurav's write-ups helped me understand the future value based on expected demand vs supply, and the sum-of-the-parts valuations of those companies, and I did make money on all three, although I did also have a couple of losing trades on PLS and S32 as well, but overall I made money and the money I made was multiples of what I paid for my II subscription.

However, as I said in my post last night, I strongly disagree with that "minimum $90" val that Gaurav had for MIN in early November. Far too bullish, despite him saying "The fairy tale is over", which I believe it is in terms of MIN being that same entrepreneurial and high-risk taking company where the majority of that risk taking pays off big time for shareholders. Firstly, they have gone hard into iron ore and lithium mine ownership and also very hard into logistics and infrastructure in the case of iron ore in particular at a time during which the prices of both iron ore and lithium have not only declined to levels they likely did not expect, but have the headwinds to stay down here or even go lower for some time to come. Lower prices for longer is not what these investments were based on, but it's what they've got to deal with right now.

On top of that, the culture has obviously got to change at MIN, and CE is going to face a significantly increased level of scrutiny from his Board and from the broader market, so I doubt he'll still have the bravado and the "10 foot tall and bulletproof" mindset that he's had in the past. In short, MinRes has to be viewed as a totally different investment proposition today than it did two years ago. Even two months ago. And their outlook has NOT improved, it's got significantly worse, IMO.

Just one quick example of where Gaurav has made another call that hasn't worked out so well, has been PLS where he couldn't understand why Pilbara was consistently the most shorted stock on the ASX with over 20% of their shares sold short for months, beyond the obvious fact that PLS were the largest and most obvious ASX-listed pure-play lithium name, so they were an obvious company to short if you were negative on lithium due to a view that supply vs demand would keep the price low, and possibly drive it even lower in the near-term.

Gaurav's bull points on PLS were that they had a good M&A track record (investing counter-cyclically in good strategic assets that made a lot of sense in relation to PLS' existing assets), had zero debt, and billions (at the time) of net cash on tha balance sheet, so while they were borderline profitable, moving to unprofitable, at the lithium prices at that point in time, of all the lithium plays you could back on the ASX, PLS seemed to have the rock solid balance sheet and huge cash warchest to enable them to be the last lithium producer standing while those around them went to the wall. PLS looked like the strongest player in the sector, despite not having the cheapest costs. Pilbara's costs were low enough and they could withstand a period of lower lithium prices.

What actually happened was the PLS kept producing at the same rate even when they became loss making, rather than curtail production until prices rose, and they kept investing in their own growth - not too worrying so far - and THEN PLS announced they were acquiring Latin Resources Ltd (LRS.asx) for the equivalent of 19.95 cents per share in an all-scrip deal, which represented a 66.3% premium to its undisturbed share price at the time. Certainly more counter-cyclical M&A, tick, but LRS' assets were in Brazil, not Australia, so the market was quick to sell down PLS even further when that deal was announced in mid-August.

71ac5cf8ee323152d63d45227063d8bdc07cc7.png

Perplexing decision by PLS management in August and certainly changed my opinion of their management - I removed PLS from my investable universe well before I removed MIN.

Gaurav penned an update for PLS on 30th September, after that Latin Resources acquisition announcement, and claimed that despite the lithium market having declined further, PLS were still best placed to withstand the lower prices for longer. He moved his Buy price from $3.50 to $3 and said PLS were a HOLD up to $7. PLS closed at $3.27 that day, but now, 10 weeks later, they've just closed (on Friday) -31% lower at $2.25.

Short term share price movements don't determine whether a longer term investment thesis is right or wrong, however I would suggest that management deciding to do an acquisition of a Brazilian lithium project using their own scrip (shares) when their shares have been smashed and are being heavily shorted is somewhat of a red flag.

Gaurav has been more right than wrong over the years I reckon, but I haven't been overly impressed with his continued backing of MIN and PLS despite the fact that his original investment thesis for each of those companies appears well and truly busted now, to me at least. He has modified his theses and his target buy and sell prices, sure, but it seems more like thesis creep to me than a logical and rational exploration of the new facts and how they impact the thesis in terms of whether the original thesis still holds up.

I probably sell out of companies too quickly now, when I see trouble, but it's only because I've been burned in the past from engaging in thesis creep and holding on to losing positions for longer than I needed to and losing more money than I needed to.

As George Soros said, it's not whether you're right or wrong [or even how often you're right or wrong] but how much money you make when you're right, and how much you lose when you're wrong, so my focus in recent years has been more about loss limitation. You can't avoid losses altogether, they are part of the game, and unavoidable, but we can certainly take steps to limit the extent of those losses, and one obvious step is to re-examine the investment thesis each time any significant new data comes to light [or event occurs] and see if the thesis is still solid, and sell out if there's signifcant doubt about that.

And my view is that Gaurav's and my investment theses for MIN and PLS six months ago are busted, and I'm out, but Gaurav is not; he's just adjusted his price targets in response to the new data and events. As you say Mike, Gaurav may well prove to be right, over the next few years. He certainly got his thermal coal play calls right a few years ago. But I do not share his bullishness for either MIN or PLS now.

21

mikebrisy
Added 2 weeks ago

@Solvetheriddle and @Bear77 great perspectives on $MIN (and $PLS).

For the record, I am not contemplating an investment in $MIN. I only tend to invest in resources in deep troughs and we aren't in one, as Iron Ore >$100,

The kind of scenario I'd invest in would potentially be deep trouble for $MIN - were it to occur in a year or so. I know that means I might not invest in resources for another 5-10 years, but that doesn't bother me.

I've always been suspicious of $MIN. I get nervous when CEO's start to get lionised by market commentators. After all, as you say, they are all human. When this happens the external narrative can turn them into something they never were. And what's worse, is when they start believing that themselves.

Regarding $MIN, it seems an untenable situtation for people to be talking about the need for culture change, yet the CEO remains in place for 18 months. There is no culture change without a change at the top, and that probably includes the board as well. A red-faced mea culpa for past misdemeanours coming to light is pretty meaningless. Also, the $MIN board doesn't look like I'd expect a board of a $7bn miner to look like.

I understand your comment @Solvetheriddle about the importance of a good capital allocator in an industry with a terrible record for capital allocation. But I wonder to what extent the foundations are in place: mining services; iron ore; and lithium, with options for incremental capital allocation around these core parts. Surely a half decent CEO can now run this business? There is a big difference in capital allocation to 1) foundational, greenfield assets vs. 2) incremental capital to maximise lifetime value. The latter is a more operational role, less reliant on commercial brilliance.

Anyway, I think this one is largely academic for me, for now. I can't see myself investing here any time soon.

17

edgescape
Added 2 weeks ago

Bullish Iron???? I was reading this thread today. Not sure if we see Iron below $100.

This may be the saving grace that MIN needs.

b5627b1b2f8173e977038eeae63481e5f9db86.png

https://x.com/EdConwaySky/status/1864981479891054973

12

Bear77
Added 2 weeks ago

Not sure that the iron required for LFP batteries is going to move the dial much regarding the iron ore price. There's not much iron required for lithium iron phosphate (LiFePO4) battery cathodes compared to the iron used in building and infrastructure construction, such as structural steel and the "reo bar" used in concrete pours. Iron used in batteries will never fully compensate for reduced demand for steel in construction.

Also, it is China that has specialised in LFP batteries and they're about to be in a trade war with the USA with massive tariffs slapped on Chinese imports into the USA, especially vehicles.

I think a sub-$100 iron ore price is still a very real possibility in 2025.

17

Solvetheriddle
Added 2 weeks ago

@mikebrisy fully understand where you are coming from. My top 10 holdings are quality compounders with little or no hairs on them, most of the time fair or fully priced, the next group are cheaper with obvious hairs (turnarounds, operational/management issues etc), and there is no need to measure the value added from each group too closely, its a landslide. lol

14

edgescape
Added 2 weeks ago

Agree about the iron in the batteries. It will merely replace the fall in ICE vehicles.

I think China will find a way through those tariffs but it will take time.

Never underestimate the resilience of China.

10

edgescape
Added 2 weeks ago

Iron Ore popping on more China Stimulus

Calls for under $100 and MIN < $30, FMG < $15 still premature at this stage

China really wants the party to roll on.

Borrowing a Star trek quote

Resistance (against IO price falls) is futile...

961d16c88b79694f2e7e3bf7cf2d4b51816650.png

15

Bear77
Added 2 weeks ago

Hope China has something left in the armoury when the tariffs start biting in 2025.

6