Mineral Resources (MIN): This morning, the diversified miner and mining services company confirmed in the press that five senior executives were using a British Virgin Islands company to buy machinery with shareholder funds between 2003 and 2011. The HNW Growth & Income Portfolios have a 3% weight to MIN

Key Points:

  • From 2003 to 2009, MinRes staff would buy machinery both for mining clients and the group’s own use, but paperwork would later show the equipment was actually purchased by Far East Equipment Holdings Limited (Which was owned by five senior Executives and set up in British Virgin Island for tax reasons). Far East would sell crushers, ball mills, batching plants and other equipment to MinRes companies for multiples of the original cost, and MinRes would then use the inflated purchase price to claim depreciation in its tax returns.
  • The total cost to shareholders was $7 million across the three years after the MinRes IPO, with the payments being stored on the balance sheet as liabilities.
  • Ellison Self-Reported: Chris Ellison, the CEO of MinRes, currently owns 12% of Mineral Resources and self-reported the undeclared payments to the ATO, repaid amounts owed and disclosed all matters to the board. With the board stating they have full confidence in Mr Ellison and his leadership of Mineral Resources executive team.

Our Take: Atlas’ view is that this event currently has no bearing on the operation side of Mineral Resources.  While the share price reaction today is unpleasant, this historic conduct does not impact future profits, and the market will look past this once the dust settles and time passes. Obviously, these transactions occurred over a decade before we first purchased MIN.

 CEP Strategy: MIN is a diversified miner and mining services with four main business segments: mining services, lithium, iron ore and gas. Lithium is the jewel in MIN’s crown, with the company now the world’s 5th largest lithium miner with two operating Tier 1 hard rock mines in Western Australia as well as downstream processing. The company has a unique business model of owning assets and providing mining services to its own and external clients. This gives investors a per-tonne annuity income stream that is not correlated with commodity prices.

MIN finished down -14% to $39.55, not a good day on the ASX for founders of businesses up to regrettable behaviour.