Mineral Resources Ltd (ASX:MIN) experienced a sharp drop in its share price, plunging by as much as 13.5% to A$39.66, marking its largest intraday percentage loss since November 2009.
The plunge came after managing director Chris Ellison admitted to failing to properly disclose revenue transfers from Australian businesses to offshore companies to the Australian Taxation Office.
MinRes is one of Australia’s largest producers of lithium and iron ore.
Ellison, who owns an 11.5% stake in the company and is its largest shareholder, described the incident as "a serious lapse of judgement".
The company's stock has declined 41.4% year-to-date.
Future under a cloud
Ellison could face an uncertain future after chair James McClements confirmed that the company had engaged a law firm to conduct an investigation and provide advice to the board.
The investigation centres on Ellison’s use of credit cards and a series of companies established for him and other executives in the British Virgin Islands during the early 2000s.
McClements noted that Ellison regrets his "errors of judgment".
A report over the weekend revealed that Ellison had asked his lawyers to negotiate with the ATO, offering to repay any taxes owed, along with a multi-million-dollar fine.
The offer was made years after the offshore companies were established and on the condition that the ATO would not disclose the investigation to the police or the Australian Securities and Investments Commission (ASIC).
It is believed that the undeclared income could amount to around A$13 million, involving Ellison and other executives. Under ATO regulations, voluntary disclosures of undeclared income can result in an 80% reduction in penalties.
In a statement to shareholders, Ellison sought to explain his actions.
“More than 20 years ago, and prior to MinRes’s listing, we also operated entities overseas for acquiring mining equipment and parts to import into Australia and on sell. Some equipment, prior to MinRes’s listing, was sold to our then-privately owned Australian businesses,” he said.
“Regrettably, revenue generated by the overseas entities that we were beneficiaries of was not disclosed to the ATO 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.
“I deeply regret and apologise for these actions, and have since ensured that I have put the matter right with the ATO.”
Board is still backing Ellison
While MinRes has announced an investigation into payments made to offshore entities connected to Ellison, the board is still backing its CEO.
McClements stated that the company’s board was committed to robust corporate governance.
Payments made to offshore entities since MinRes listed on the ASX in 2006 were recognised as liabilities in the company’s statements, according to McClements. Additionally, Ellison disclosed his private tax matters to the board and self-reported to the ATO, repaying amounts owed.
The board maintains confidence in Ellison’s leadership despite these issues.
It remains unclear whether the ATO provided an assurance not to pass on information to other regulatory bodies. Recent documents allege substantial sums were transferred to British Virgin Island companies, benefiting Ellison and others at shareholders' expense. These transfers were possibly undeclared related-party transactions.
Ellison, a self-made billionaire, has faced prior scrutiny from governance advisory groups over related-party business dealings.