The Australian Securities and Investments Commission (ASIC) has launched a formal investigation into Mineral Resources (MinRes) managing director Chris Ellison, probing his alleged role in a tax evasion scheme involving British Virgin Islands-based entities.
Meanwhile, credit ratings agency Moody’s cut its outlook for MinRes to negative, citing “negative implications” of its governance issues.
MinRes’ board recently disclosed that Ellison would remain as managing director pending a planned leadership transition over the next 12 to 18 months, acknowledging instances where his actions may have compromised corporate integrity.
ASIC launches formal investigation
ASIC deputy chair Sarah Court disclosed the investigation into the iron ore miner and its co-founder Ellison during a Senate estimates hearing on Thursday, confirming that ASIC is engaging with the Australian Taxation Office (ATO) during the investigation.
Ellison has reportedly acknowledged his participation in a tax avoidance strategy that leveraged offshore entities to trade mining machinery.
He reached a settlement with the ATO to address unpaid taxes, penalties, and interest, but documents reveal that he sought assurances from the ATO to prevent the dissemination of details to ASIC or law enforcement.
ASIC’s decision to formalise the investigation follows two weeks after initial inquiries were confirmed by Court.
Court said the probe would evaluate potential breaches of laws within ASIC's purview, indicating a potential exercise of ASIC’s evidence-gathering authority. Ellison and Mineral Resources have not yet commented on the investigation.
Separately, the Future Fund’s Ralph Arndt confirmed a reassessment of its A$88 million investment in MinRes, stressing the severity of the allegations, which include financial gains for Ellison's related parties and reported employee misuse.
Moody’s cuts MinRes to negative
Meanwhile, credit ratings agency Moody’s has cut the lithium and iron ore miner to negative, citing the “negative implications” of its governance issues.
“Recent governance issues have damaged the company's reputation and could put further pressure to its already weak financial profile if there is a deterioration in the company's relationship with key stakeholders, including its customers, JV partners and lenders, which could result in contract losses and/or reduced funding access.
“The company's managing director transitioning from the role over the next 12 to 18 months also creates uncertainties around the company's future strategic direction and financial policy settings. We view the final financial, legal and reputational implications pertaining to these issues are still uncertain.”
While the negative outlook reflects the potential negative implications of MinRes’ corporate governance issues, it is not the only factor for the ratings downgrade.
Moody’s explained that expectation that the company’s leverage, as measured by adjusted gross debt to EBITDA, will remain above the broker’s tolerance level over the next 12 months reflecting elevated capital spending and weak lithium prices.
The negative outlook also reflects its “expectation for negative free cash flow over the next 12 to 18 months, which will require MinRes to manage future capital spending in a prudent manner to maintain adequate liquidity buffers”.