Following the controversy surrounding Chris Ellison’s tax dealings, Mineral Resources Ltd (ASX:MIN) will transition to a new CEO in the next 12 to 18 months.
MinRes has been reviewing various allegations and has identified several issues and shortcomings that warranted a robust and thorough governance response, including an expedited approach to leadership succession.
The company has taken the following measures to ensure its governance and reputation are not compromised in future:
- Introduction of new processes to strengthen corporate governance.
- Ellison to incur board-imposed financial penalties of $8.8 million and loss of remuneration of up to $9.6 million, reflecting the significance of corporate governance and reputational issues to the company.
- An acceleration of the leadership succession plan in a manner that protects shareholder value and investors’ interests.
- Ellison expected to remain in role of managing director while an orderly transition is effected within the next 12-18 months.
- James McClements to step down as chair at or before next year’s AGM.
Chairman James McClements said the board’s decisions had been shaped by what was in the best interests of the company, including shareholders, many of whom expressed their views in recent weeks.
“In reaching our position, the board has considered multiple factors, including the appropriate response to the identified governance issues and protecting long-term shareholder value,” he said.
“The board faced a unique set of circumstances, with a high-performing, value-creating managing director, and an array of governance issues that, in aggregate, created an environment that required us to make changes.
“The company’s rapid growth, particularly in the last five years, placed pressure on its governance systems and processes. While we have been working to improve those systems and processes, we recognise the need for accelerated change that reflects our status as a major ASX-listed company.
“We considered the best ways to achieve leadership succession and to make substantial advances in corporate governance, while also protecting value for shareholders.
“With the interests of shareholders absolutely front and centre, the board has determined there needs to be an orderly leadership transition, significant strengthening of governance protocols and a financial penalty imposed on Mr Ellison.
“There can be no doubt that the actions, decisions and behaviours of Mr Ellison have been profoundly disappointing and require sanction and penalty.”
Understanding tax implications
The board has examined Ellison’s private tax settlement with the Australian Taxation Office (ATO), his private business dealings and their potential impact on MinRes and its shareholders. The company has now confirmed several key points.
Between 2003 and 2014, Ellison had a stake in a British Virgin Islands entity, Far East Equipment Holdings Limited (FEEHL), which traded mining equipment.
In 2003 and 2004, FEEHL sold mining equipment to Crushing Services International Pty Ltd (CSI), a transaction that was not fully paid for at the time.
When MinRes acquired CSI in 2006, this liability was not disclosed in the company’s initial public offering (IPO) prospectus, nor at any subsequent point as a related party liability.
Following the IPO, MinRes and its subsidiaries made two payments to FEEHL in 2006 and 2008, amounting to $3,790,607, to settle the outstanding liability.
FEEHL was deregistered in 2014. In 2021, Ellison voluntarily disclosed to the ATO income earned from FEEHL and in May 2023, he paid the ATO $3,936,884, covering unpaid taxes, interest and administrative penalties.
The ATO has not issued any amended tax assessments to MinRes in relation to depreciation claims on assets purchased from FEEHL, and neither Ellison nor MinRes has repaid any depreciation claims as part of the settlement of Ellison’s private tax matters.
Importantly, Ellison did not inform the company of his private tax settlement until November 2023.
Ellison has apologised for his actions.
“I am deeply sorry for the events that have occurred and the impact they have had on MinRes’ reputation. I apologise to the rest of the board and to our people, who expect and deserve better from me," he said.
"I acknowledge that I made mistakes, some of which were driven by my wish to keep private certain events that cause me great personal embarrassment. I am committed to the leadership succession that the board has announced and I will work tirelessly to win back the confidence of investors and our whole MinRes team.”
Further allegations confirmed
Mineral Resources’ board has acknowledged several confirmed allegations involving Ellison.
Financial benefits were reportedly extended to related parties of Ellison, including rent payments to entities he is associated with, rent relief for an entity linked to his daughter and other indirect financial dealings involving his daughter’s interests.
While he disclosed these transactions to the board, he failed to prioritise the need for transparent, timely communication about potential conflicts of interest.
Upon awareness, the board reviewed and ensured disclosure of each case and has since enhanced its control and reporting measures for related-party transactions. These actions have not impacted recent financial statements.
The board also identified instances where Ellison directed company resources towards personal use. Examples include instructing employees to work on his private assets, manage personal finances and arrange goods and services for private purposes.
However, controls were in place to ensure Ellison reimbursed the company appropriately, and the board concluded that these actions did not cause financial harm to the business.
Additionally, the board reported that several emails connected to FEEHL were deleted in 2019, believed to be an attempt to prevent public disclosure, coinciding with Ellison’s self-disclosure process to the ATO.
Organisational reforms to strengthen governance
MinRes has introduced reforms aimed at reinforcing governance standards.
An independent Ethics & Governance Committee has been established to monitor compliance, ensuring alignment with legal and ethical expectations. This committee, composed of independent non-executive directors Denise McComish, Susie Corlett and Jacqui McGill, will oversee multiple governance areas.
Key responsibilities include reviewing related-party transactions involving Ellison, enhancing company-wide controls and approval processes, and assessing executive authority structures and compliance functions.
Additionally, the committee will oversee both internal and external investigations, manage whistleblower reports, reopen past investigations if new evidence emerges, and further strengthen conflict of interest procedures.
The board has also introduced a new compliance-focused role that will report directly to the board, with duties extending to oversight of the whistleblower process.
Company policies promoting honesty, integrity and ethics are being reinforced across the organisation, supported by ongoing external cultural training. These measures aim to accelerate organisational change and ensure robust compliance and ethical practices.
Ellison to transition out
The board has given Ellison 12-18 months to make a smooth transition out of the company. McClements will also step down and a suitable replacement will begin.
“Work on transition has, in fact, been underway for some time through an international recruitment firm and these recent events have accelerated that process,” McClements said.
“The same holds for my position as chair, which was always set for change by the 2025 AGM when I would have served as a director for 10 years.
“It’s appropriate my successor should be deeply involved in the appointment of the next CEO and, therefore, we will fast-track recruitment of the next MinRes chair through the Nomination Committee.”