Ellison has divided MinRes shareholders, and he has considerable support from some big investors. L1 Capital, a Melbourne hedge fund that is one of the company’s biggest backers, has previously said it wanted Ellison to keep running MinRes if better governance structures were in place.
MinRes also told investors that its dealings with Kali Metals, a lithium minnow which listed last year, was being investigated by the Australian Securities and Investment Commission. The corporate regulator has previously said it was investigating MinRes over the tax scheme.
Many of Ellison’s friends and family acquired significant holdings in Kali before it listed on the ASX last year. Within hours of trading, MinRes was buying up Kali shares, more than tripling the value of the stock. That left those buyers, including Ellison’s mother-in-law, with a windfall.
“As has been noted publicly, ASIC is investigating certain matters including in relation to related party transactions; the Kali Metals initial public offer; continuous disclosure and general corporate governance and directors’ duties,” the company said in a statement to shareholders on Tuesday.
Ellison remains MinRes’ largest shareholder with an 11.5 per cent stake.
MinRes said King & Wood Mallesons had been hired to advise the company about any gaps in its governance arrangements, adding that “a targeted compliance, education and training program will be implemented” following the law firm’s review. “KWM [has been] engaged to conduct review of governance framework and provide gap analysis of overall landscape to promote best-in-class practices,” the company said.
MinRes on Monday appointed two non-executive directors – former Origin Energy chief financial officer Lawrie Tremaine and former Macmahon Holdings managing director Ross Carroll. The move came two months after the resignations of Denise McComish, Jacqueline McGill and Susie Corlett, who ran the company’s three-person ethics and governance committee.
The ethics and governance committee was created in November after The Australian Financial Review revealed a series of undisclosed related party transactions and leadership failings at the miner. Despite demands by major superannuation investors that MinRes make clear why those directors have quit, the miner has not offered any explanation for the exodus.
“The appointment of new independent [directors] represents further progress on MinRes’ governance overhaul milestones that is in turn critical to the investment thesis,” UBS analyst Lachlan Shaw said in a note to clients. “These appointments will strengthen the board’s ability to embed updated governance behaviours and guard rails throughout the organisation.”
“We’re really excited with the whole renewal process that’s been announced over the last few weeks,” L1’s co-chief investment officer Raphael Lamm said on Tuesday ahead of meeting with Bundey as part of a roadshow next week.
The appointment of a new chairman and the new directors meant the company was “heading in the direction of best practice corporate governance in a really rapid fashion,” Lamm said in an interview.
“It’s come a long way over the last six or 12 months, and we think they’re making all the right decisions,” he said, adding that MinRes’ flagship Onslow iron ore project was “from an operations’ perspective, going really well”.
But the project, located in a remote corner of the Pilbara, is not without its setbacks. A 147-kilometre private haul road – jointly owned by MinRes and Morgan Stanley Infrastructure Partners – has deteriorated significantly despite being relatively new. Erosion along key stretches has contributed to a series of haul-truck crashes, forcing MinRes to spend $230 million on repairs and further inflating its net debt, which now stands at $5.8 billion – exceeding its market capitalisation of $4.79 billion market.
The miner’s challenges with Onslow come amid the backdrop of a softening iron ore prices and declining Chinese steel output. The company is also exposed to the collapse of the lithium price, which has forced it to mothball some of its other operations including Bald Hill in WA.
MinRes slid 25¢, or 1 per cent, to close at $24.21 on Tuesday. The company’s market capitalisation has slumped 57 per cent in 12 months.
