(Bloomberg) -- Mineral Resources Ltd. founder Chris Ellison will step down as managing director after an internal probe into undeclared payments found he had engaged in “profoundly disappointing” conduct, with the news wiping as much as A$800 million ($528 million) off the company’s market value.
Ellison did not act with integrity when he financially benefited from Mineral Resources’ payments made to companies owned by him, the miner said in a filing Monday. He was fined A$8.8 million by the company and will forfeit his salary and other incentives worth as much as A$9.6 million.
The move to expel Ellison, regarded as a no-nonsense leader who grew Mineral Resources from a small mining services contractor into a diversified miner, hit the stock price, with the shares falling as much as 10% in Sydney. Ellison will step down within 18 months, and remain as managing director until a successor is found.
“While we appreciate there’s financial penalties, strengthening corporate governance and a timeline for chair and MD transition, the slow pace of change will likely weigh on the stock,” Citigroup Inc. analyst Kate McCutcheon said in a note. The bank downgraded the company from “neutral” to “sell”.
The investigation found Mineral Resources had made payments of A$3.8 million to an offshore company owned by Ellison for mining equipment and parts. Ellison had not declared the income and the transactions took place after Mineral Resources had been listed in Sydney, raising questions over the transparency of the deals. He has agreed to repay the amount.
The miner’s probe also revealed Mineral Resources had been paying rent on properties owned by Ellison along with other rent-related financial benefits to his daughter. On occasion, he also used company resources and staff for work on his private boat and properties, and to manage his personal finances.
“There can be no doubt that the actions, decisions and behaviors of Mr Ellison have been profoundly disappointing and require sanction and penalty,” the company said in the statement.
Some inquiries into the matter were still ongoing, Mineral Resources said, adding that Chairman James McClements will step down at or before next year’s annual meeting. The Australian Securities and Investments Commission, the country’s corporate watchdog, is also investigating Mineral Resources and Ellison.
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The Australian Council of Superannuation Investors - which represents some of Mineral Resources’ biggest shareholders - said it still harbored concerns over Ellison’s conduct and corporate governance at the company.
“The board’s announcement raises serious concerns about the use of company resources for personal benefit, deleting of company emails and related party transactions,” ACSI Stewardship Executive Manager Ed John said in a statement. He called on the board to invite ASIC to review the company’s internal investigation.
Ellison has fully accepted the board’s decisions, he said in the company statement. “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,” he said.
Ellison said on Oct. 21 that revenue generated by the overseas entities that he was a beneficiary of was not disclosed to the Australian Taxation Office at that time, describing that as a “poor decision and a serious lapse of judgment.”
According to a report in the Australian Financial Review, Ellison struck a deal with the Australian Taxation Office to pay up the outstanding amount. In exchange, authorities did not disclose the figure owed and he will avoid a police or regulatory investigation.
Earlier this year, Ellison — a larger-than-life figure even by the standards of Australian business — made headlines after stating he wanted to prevent employees at the company’s office from leaving the building to buy coffee.
Given Ellison’s history in the company, he may stay involved even after he steps down as managing director, RBC Capital Markets analyst Kaan Peker said in a note.
“The key concern over the medium term will be centered around who will replace” him, Peker said. “Despite the recent governance issues, Chris Ellison still appears well regarded by the market, as the founder-led company is entrepreneurial, has lower bureaucracy, and clarity of vision.”
--With assistance from Georgina McKay.
(Updates with comment from Australian Council of Superannuation Investors from 9th paragraph.)
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