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.

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“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.

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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.

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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.

I have initiated a half position today in MIN today and want to thank all the Straw people who have provided a valuable discussion, which I hope to add the below. 

Having flagged $40 as an “Looks interesting” price for MIN but already having enough Iron Ore exposure, I felt any issues with Iron Ore prices were mitigated at the $32 price point. 

My Thesis and also a summary of Gaurav Sodhi’s discussion of MIN on Stock Take that dragged my across the line to a buy:

Thesis: MIN is reeling from a 4-punch combo, but each is a temporary pain that should convert to long term gain:

1.     Lithium business is at best currently break even at current prices, having previously generated over $1b in EBITDA this is being valued at nil. Current prices may persist for a while but supply will drop eventually and provide profitable opportunities, not anywhere near previous records, but more than enough to add value. [modest upside optionality with moderate probability]

2.     Iron Ore prices have pulled back, making MIN’s current high-cost mines that had been profitable now marginal and loss making at lower prices. The new Onslow project will change this equation with EBITDA of $800m possible at US$90/t prices and a break even point around US$50/t. However, this will not start operating until mid-2025 and has required $3b in capital up front, which is the cause of it’s debt issue. [high upside opportunity with high probability]

3.     Mining Services business is being discounted with commodities generally but alone justifies the current share price with EBITDA of $550m. This will increase to $1b EBITDA once Onslow is online. [underlying value of business providing margin of safety]

4.     Debt levels of $4.4b are considerable given current commodity prices mean that the Lithium and Iron Ore parts of the business offer no debt servicing. However, the Services business can cover this cost and payment doesn’t start until 2027 by which time Onslow will have been operating for over a year providing additional cash along with almost doubling the Services business cash flows.

Buying now on the view that equity markets have viewed current low profits as long term and as such see debt burden as an excessive risk and unserviceable. I don’t expect any upside in share price for over a year until Onslow is online and will complete the position at below $30, or just enjoy upside on half the position if it bounces from here.

Gaurav Sodhi (MIN discussion notes): 4/5/24 Stock Take (Intelligent Investor)

·        Service Business EBITDA around $1b justifies current price, it’s a crushing business that continues irrespective of price so provides steady and stable cash flow.

·        MIN has transferred form one of the highest cost producers (A$100/t) to a low-cost producer (not as low as FMG, BHP, RIO but low enough).

·        Oslow mine online Jun25, Iron Ore costs of A$65-75/t so profitable at US$50/t price (20% ROC expected at US$70/t price). They get 90% of cashflow in first year so accelerated cash flows.

·        Debit will peak at $5b so scary BUT is relatively cheap due to being mostly US bonds and bond markets have not discounted it indicating that share market concerns of insolvency are overstated (bond market is always right…). Service business is able to pay for the debt and there are no payments on that debt due until 2027.

·        Expect 70% of global Lithium capacity is loss making at current prices, so supply should fall and price recover.

·        Issue at the moment is they have just deployed $4b on projects that are yet to produce any revenue, so PE out of whack. Also low probability events (disasters) are being priced as a certainty that would require sale of assets at fire sale values.

Disc: I own RL

Gaurav Sodhi (who I personally rate more highly than the various investment bank broker analysts - however he's an acknowledged MIN bull and also personally owns shares in MIN so ...) from Intelligent Investor has also just posted their updated report on MIN - if you're an II subscriber it's a worthwhile read

Key Points

• Lower commodity prices hit profits
• Debt levels continue to climb
• Lots of options remain

He say's "the risk is real", however ...

Managing risk is a key task for any business and any investor. It is not the same as avoiding risk altogether. We accept that higher debt has raised risk levels and the swift crash in MinRes's share price results from concern about the balance sheet

Yet MinRes retains the assets, the experience and the track record to navigate this period. The share price now counts little more than the services business. A significant iron ore business and one of the world's largest lithium miners is being ignored. Value is now on offer

The times of greatest opportunity aren't signalled with trumpets and flags but with trepidation and doubt. This is one such moment. BUY

DISC: Held in SM & RL (and added a little more in RL today)

MIN handed in thier 'report Card' in Release Date: 28/08/24 19:22

Its a B - minus - the markets have played havoc here:

• Revenue of $5,278M, up 10% (FY23: $4,779M). -
• Underlying EBITDA of $1,057M, down 40% (FY23: $1,754M).
• - Underlying Net Profit After Tax (NPAT) of $158M, down 79% (FY23: $769M).
• Statutory NPAT of $114M, down 53% (FY23: $244M).
• - Operating cash flow before financing and tax of $1,909M, up 9% (FY23: $1,750M), including iron ore customer prepayments of $600M. Excluding the iron ore prepayments, cash conversion was 124%

• Strong liquidity position maintained during peak investment for Onslow Iron
• - Completed US$1,100M Senior Unsecured Notes Offering in October 2023.
• - Executed an iron ore customer prepayment of US$400M ($600M).
• - Available liquidity of $2,833M (FY23: $1,791M), including cash of $908M (FY23: $1,379M). -
• Net debt of $4,428M (FY23: $1,896M).

Presentation

Performance:

CommSec | Quotes & Research

Return (inc div)   1yr: -30.44%   3yr: -4.00% pa   5yr: 31.93% pa

26-Aug-2024: MinRes' corporate governance has always been a little questionable, as it often is when it's one guy runnning the company as he sees fit - similar to Andrew ("Twiggy") Forrest at FMG, which is why the senior management at Fortescue don't seem to last long. Chis Ellison's MinRes (MIN) does not have those same issues with heaps of senior turnover, but this AFR article this morning is worth noting:

Chris Ellison’s daughter earns millions for MinRes shipping work

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

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. 

Ownership Matters said port records showed that Ship Agency Services “is listed as shipping agent for hundreds of ships loaded with MinRes product that have sailed from the ports of Esperance, Dampier and Port Hedland over multiple financial years as far back as 2016”.

A review of hundreds of cargoes showed that all but a dozen shipments or fewer were handled by Ms Craker’s company.

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.

Mineral Resources CEO Chris Ellison.  

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 ---

Source: https://www.afr.com/companies/mining/chris-ellison-s-daughter-earns-millions-for-minres-shipping-work-20240824-p5k51h [Today, 26-Aug-2024]

Disclosure: I am not directly exposed to MIN, FMG, BHP, RIO or any other iron ore companies at this point. I have also stepped aside from direct investing in any lithium companies for the time being. I admire and appreciate what Chris has achieved with MinRes and what Twiggy has achieved with FMG, and I have certainly made money from both companies, however I don't want exposure to either of them at this point in time for a variety of reasons, but underlying commodity exposure is the main one.

I hear lots of bear cases and chartists calling MIN overvalued due to possible balance sheet pressure especially in regards to the Ashburton hub.

However it appears MIN is addressing this with divestments of non core assets (including their sale of DVP and AZS shares). Definitely got lots of options on the table to relieve the balance sheet.

I don't know but I think I can only see upside from here.

Pity I missed buying the dip around $52 back in February..Should have just gone a bit generous on my order.

On another note I got blocked by some guy on Twitter when they were calling $60 and I said it is now $70. Some people are too sensitive...

But I wouldn't mind seeing a pullback which may never happen now.

The AFR released an article this afternoon titled, "Billionaire MinRes founder slams critics over balance sheet".

Mineral Resources founder Chris Ellison slams critics over balance sheet

Just a few things that made me smile, highlighting why I like this company, and love the way Chris Ellison goes about it.

• “We have so many friggin’ levers we can pull,” he said in response to the balance sheet doubters.
• Mr Ellison suggested he felt pressure to sell a 49 per cent stake in a 150-kilometer private haul raod that connects the mine to the Port of Ashburton on the west Pilbara coast.“The pressure I’m under at the moment with everyone whining and bitching, [I’m] going to go out and sell half of it [the haul road] just to put the money in the bank and go like ‘f--- you’,” he told analysts.
• Mr Ellison said MinRes would limit production at the Wodgina lithium mine it owns in partnership with New York-listed Albemarle until prices improved in a market dominated by China. “When Mr. China decides to pay us enough [for lithium], we’ll turn it on,” he said.

In my view, there is a lot of criticism of Chris Ellison... a man who has proven himself as a great CEO who makes very sound and strategic decisions time and time again.

Half Year Results - FY2024 - Mineral Resources Group

The SP has been hit since the start of the year, aligned similarly with commodity pricing - with highs of around $91, it has been on a steady decline to where we see it today at around $60.

In my humble opinion, this is an underrated company that is treated like a producer, however potentially shouldn't be treated quite the same...

A few key financial points from todays announcement:

• Revenue increased by 7% to $2,514.7 million.
• Statutory net profit after tax rose by 33% to $518 million.
• Underlying EBITDA was $674.9 million, a 28% decrease.
• Iron ore segment revenue up by 37% to $1,329.4 million.
• Significant expansion and acquisition activities in the lithium segment.
• Declared a fully franked interim dividend of $0.20 per share.

They've also provided a review on their operations for the first half:

Mining Services:

• Production volumes were within guidance and delivered an underlying EBITDA of $253 million.
• Awarded five (5) new contracts and renewed three (3) contracts with Tier 1 clients.

Iron Ore:

• Construction of Onslow Iron remaining on budget and on track for shipments in June 2024.
• Sales volumes reaching 8.7 million wet metric tones, aligned with guidance.
• Underlying EBITDA of $266.2 million, up from $37.1 million in 1H23.

Lithium:

• Commissioning of Mt Marion plant expansion, resulting in 99,000 dry metric tons of SC6 equivalent spodumene concentrate shipped, up 39%.
• Pre-strip activities at Wodgina were well advanced, with an increase in shipped concentrate of 36%.
• Acquisition of Bald Hill, effective 1 November 2023, and the completion of the MARBL joint venture restructure in October 2023, which increased Mineral Resources' ownership in Wodgina to 50%.

Energy:

• High-quality clean gas intersected through drilling activities at the Lockyer-3 appraisal well.
• A development application for a gas processing facility was submitted, with a Final Investment Decision expected in 2H24, subject to WA Government agreement for partial export.

A few risk areas from my point of view:

Lithium and iron ore price along with market and economic conditions:

• An obvious one, however the lithium and iron ore segments of the business could take a hit dependent on the price of both.
• The lithium segment already saw some performance issues, despite the offset of lower costs due to higher plant recoveries and increased volumes.
• To some extent, the global economic environment with overall fluctuations in commodity prices and demand for these resources.

High capex and failure to execute:

• They've made some significant capital investments through the development of Onslow Iron, the expansion of Mt Marion and the acquisition of Bald Hill - Yes, there is no doubt that these are strategic investments, they were also a substantial outlay of funds.
• If these investments don't hit the mark for the expected returns, or their delayed, the market may not look at them too favorably.

The following is directly from the Director's Report:

Underlying operating cash flow before financing and tax7 of $820.8M was up $261.5M on pcp, representing a conversion rate from Underlying EBITDA of 122 per cent.

• Progressed development of Onslow Iron, with all major approvals received and equipment orders placed. Construction is expected to be within budget and remains on track to deliver first ore-on-ship in June 2024. Drill and blast and load and haul operations commenced in the period. The Onslow 300- room construction village has been completed and is fully occupied. The transshipping wharf was completed and the shiploader was installed in December 2023. Successfully completed first transhipper sea trials, with the first two transhippers scheduled to arrive in 2H24.
• Mt Marion expansion commissioned and ramping up.
• Pre-stripping of Stage 2 and 3 at Wodgina.
• Continued focus on gas exploration in the Perth Basin. Commenced assembly of a new automated drill rig, expected to be operational from mid-2024.
• Investment to support new Mining Services contract wins.
• Acquisition of Bald Hill with project control assumed on 1 November 2023.

As I write this today, the market has seen these results as positive, and the SP has increased by around 4% to $61.50.

I'll be doing my own valuation on the financials this evening (pending my 11 month old daughter's sleep routine... which is ever-changing) and I'll post that at some stage. Might even give the McNiven's Formula a whirl, thanks to @Rick's presentation the other night.

Cheers,

Tom.

Disclosure: I hold both in my real-life portfolio and on Strawman.