Mineral Resources shares sell-off 'overdone': RBC analysts
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More news: RBC Capital Markets analysts have described the Mineral Resources sell-off over its governance issues as “overdone”.
The company's share price was down 10.86% at 1:43pm AEDT after the miner's billionaire managing director, Chris Ellison, admitted to involvement in an alleged tax evasion scheme involving offshore companies. The board has engaged external legal counsel to look into the matter and advise the board.
RBC analysts said that the added scrutiny and rigour this places on corporate governance should, ultimately, be positive for the organisation.
What they said: “... at face-value there appears to be no adverse impact to operations/management. The key rebuttal by MIN is that there were no sales contracts/undeclared transaction post IPO… this is contrary to media reports and a key rebuttal,” the analysts said.
“... Findings from the board's investigation will be released in time. Currently, there appears to be confidence in Chris Ellison's ability to manage/run the company, however until the investigation is finalised there will likely be an overhang on the stock.”
“... the tax payments have been settled after an extensive ATO investigation and are personal in nature. This issue should have no repercussion to MIN's share price, in our view.”
Mineral Resources shares dive over Chris Ellison tax matter
More news: Shares in Minerals Resources have slumped nearly 11% to $40.85 after the miner's billionaire managing director, Chris Ellison, admitted to involvement in an alleged tax evasion scheme involving offshore companies.
Ellison, who holds an 11.5% stake is the company's biggest shareholder, called the matter "a serious lapse of judgement".
The company's board said it had full confidence in Ellison and his leadership, but said it has engaged external legal counsel to look into the matter and advise the board.
MinRes' Chris Ellison admits 'lapse of judgement' over tax scheme
The news: Chris Ellison, Mineral Resources' managing director and founder, admitted to involvement in an alleged tax evasion scheme involving offshore companies registered in the British Virgin Islands, The Australian Financial Review reported.
The context: The admission came after the paper revealed the billionaire ran the scheme for years before self-reporting undeclared revenue totalling millions of dollars to the Australian Taxation Office, on the condition the ATO would cut any penalty payments by 80%.
Ellison and MinRes chair James McClements on Sunday released statements in response to the AFR's initial reporting.
Ellison, who repaid the tax owed after self-reporting to the ATO, described his actions as a "serious lapse of judgment."
McClements also said the company had hired external legal counsel to investigate the matter and advise the board. He also said the board still had “full confidence” in Ellison’s leadership.
The context: Ellison, one of Australia’s richest people, owns 11.5% of the $9 billion West Australian mining company.
According to the AFR’s investigation, the undisclosed income seems to involve payments transferred from MinRes to Ellison-controlled entities registered in the British Virgin Islands, leading to related-party transactions that affected shareholder returns.
An example involved a company that Ellison incorporated in 2003 called Far East Equipment Holdings. MinRes would purchase equipment from Far East at multiples of the original cost, according to the AFR report. The company would then use the inflated purchase price to claim depreciation in its tax returns, the windfall profits shared between Ellison and four other senior executives.
The scheme was uncovered when Sydney accountant Christopher Batten approached the ATO in December 2019, offering voluntary disclosures on behalf of five MinRes executives. At the time, some of them were concerned their Hong Kong bank accounts, used to access profits from Far East, were about to be discovered, the AFR said.
The disclosure deal included a request for an 80% reduction in penalty payments and a promise from tax authorities not to pass the information to other law enforcement agencies like ASIC or the Federal Police.
On February 4, 2020, the ATO confirmed to Batten that “the Commissioner will agree not to refer the disclosure to other government agencies” if the matters were not the subject of a current investigation,” the paper reported.
What they said: “Mr Ellison self-reported to the Australian Taxation Office, repaid amounts owed and disclosed these matters to the board,” McClements told the AFR in a statement. “While this does not diminish what happened, Mr Ellison profoundly regrets his errors of judgment.”
Ellison told the paper that before MinRes listed in 2006, “we also operated entities overseas for acquiring mining equipment and parts to import into Australia and on sell. Some equipment, prior to MinRes’ listing, was sold to our then-privately owned Australian businesses.
“Regrettably, revenue generated by the overseas entities that we were beneficiaries of was not disclosed to the Australian Taxation Office at that time. This was a poor decision and a serious lapse of judgment.
“I have since voluntarily disclosed these matters to the ATO in full. All outstanding tax, penalties and interest that should otherwise have been paid by me has been fully repaid, and the matter has been settled with the ATO.
“These circumstances have also been disclosed to the MinRes board.”
The sources: Australian Financial Review, ASX announcement, RBC Capital Markets research
