MinRes CEO Hit with $18.4M Penalty Amid Governance Scandal and Leadership Transition

Mineral Resources (MinRes) Managing Director Chris Ellison faces substantial financial penalties and will step down from his role within 18 months following an investigation into corporate governance issues and historical transactions at the mining services company.

Governance Investigation

The MinRes board launched a comprehensive investigation into multiple allegations concerning Mr. Ellison, focusing particularly on his involvement with a British Virgin Islands company, Far East Equipment Holdings Limited (FEEHL), between 2003 and 2014. The investigation revealed that FEEHL, in which Ellison held an interest, sold mining equipment to a MinRes subsidiary without proper related-party disclosure during the company's 2006 IPO.

Tax Settlement and Personal Conduct

In 2021, Ellison made a voluntary disclosure to the Australian Taxation Office regarding undeclared income from FEEHL, resulting in a payment of $3.9 million in unpaid taxes, interest, and penalties. The board discovered that Ellison had failed to disclose this settlement to the company until November 2023. Furthermore, company emails relating to FEEHL were deleted in 2019, which the board concluded was an attempt to prevent the information from becoming public.

Property Dealings and Related Party Transactions

The investigation uncovered several instances where Ellison provided financial benefits to related parties, including rental arrangements involving properties owned by entities connected to him and his family. Independent valuations revealed that MinRes had been charged up to 70% above market rates for industrial properties leased from Ellison and other executives since 2006, potentially resulting in millions of dollars in excess payments.

Financial Penalties and Consequences

The board has imposed significant financial penalties on Ellison, totalling approximately $18.4 million. This includes:

• Repayment of $3.79 million for historical FEEHL transactions

• Forfeiture of up to $6.5 million in unvested long-term and short-term incentives

• Withdrawal of proposed incentives worth approximately $3.1 million

• A commitment to make $5 million in charitable contributions over five years

Leadership Transition & Government Improvements

In response to these findings, MinRes announced an accelerated leadership succession plan. Ellison will remain as Managing Director for 12-18 months while the company searches for his replacement. Additionally, Board Chairman James McClements will step down by or before next year's AGM, marking the end of his decade-long tenure on the board.

The company has announced several measures to strengthen its corporate governance, including:

• Establishing an independent Ethics & Governance Committee

• Creating a new Board-reporting role focused on compliance and whistleblower processes

• Reinforcing company policies on honesty, integrity, and ethics

• Enhancing controls over related party transactions

Mineral Resources Share Price