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Minera IRL (MIRL.cse): The mailer to shareholders (from IKN653)

With luck, this is the last serious note on MIRL here on the blog for a while (believe me, you’re not the only one bored with this story). Please find below the house response to MIRL’s whitewash attempt, sent by MIRL chair Perez to shareholders on Saturday:

Minera IRL (MIRL.cse) and its mailer to shareholders

This weekend, the board of Minera IRL (MIRL.cse) sent a mailer to shareholders of Minera IRL outlining the results of its internal inquiry, in which it has self-exonerated CEO Benavides and all other members of staff and his personal circle of friends and family of any type of wrongdoing.

At least, that is what we are expected to believe.

This desk urges all shareholders to get a copy of the mailer and send it as part of their deposition to the relevant market authorities, its annual auditors PKF Littlejohn LLP (link to contact auditors here (19)) but particularly to mega mining company Rio Tinto (RTZ), owners of over 44m shares (over 19%) of the MIRL. This weekend saw MIRL show how companies with dirty secrets try legalese to attempt to avoid scrutiny and, ultimately, its fiduciary duty to shareholders. There are several glaring issues in the mailer and I’m of the opinion that Chair Pérez would not have published it in the form he did if he realized what he was doing, but history shows that liars will always fail to cover all their tracks, there’s always something that gives them away. In this case there are several suspicious matters, not least the way MIRL chose Baker Tilly (Peru) as its independent auditors. Any reasonable company would not go to the same independent bureau that it used in 2016 to investigate the same type of accusations of wrongdoing and what’s more, even if offered the contract, Baker Tilly (Peru) should not have accepted and under the same argument. There are quite literally dozens of auditing firms to choose from, why go to the same one a second time and sow extra doubt? Then there’s the lack of information given regarding the employment of Susan Gabbie, Pedro Valdez and Steve Ngatai in the first place, as summed up by a fellow shareholder in his reply to Gerardo Perez yesterday (he CC’d me, you can read it here (20)):

“…how many candidates did the company consider for the positions eventually filled by Gabbie, Ngatai and Valdez? Were the positions advertised? Was a headhunter engaged? I simply don’t find it credible that the best possible candidates happened to be people who were already friends with Mr. Diego Benavides.”

The company was very selective in its disclosure in the mailer and was also quick to deflect on the question of job titles. First it used a weak excuse to justify changing their job titles, then went on to justify their jobs under the titles of “manager” only, the ones given to them on September 27th. We were given information about their movements and acts as from October, but MIRL carefully avoided all talk of the things they did and said in the period they had titles of Chief Communications Officer, VP IR and VP Projects. The fact is, anyone can claim to be “qualified” as a manager because “manager” doesn’t mean much, but to be a C-suite at VP level a persons needs 1) qualifications 2) experience and most importantly 3) to justify those to the relevant market authorities.

All the above offers more evidence of suspicious behaviour and motives at MIRL, if it were needed. However, one matter now lays the whole sorry affair to rest, the house of deception of lies created by CEO Diego Benavides and covered-up by his complicit board of directors will now come crashing down and due to their own words. Please read this section of the mailer sent and signed by Chair Pérez yesterday Saturday:

These are the ‘relatives’ of Diego Benavides that were the subject of your complaint, and they are the only relatives of Mr. Benavides that work for, or worked for, our Company.  As Baker Tilly pointed out in its Report, our Company’s own policies – which were implemented by our Company while the late Courtney Chamberlain was still alive and the Chairman of our Company – permit the hiring of related persons.  We note that none of these three was hired by Diego Benavides, though he is certainly aware that they were hired, and none of them report directly to him.

On the Silicon Investor board yesterday, which has become central to the Concerned Shareholder movement, I started my post about this subject (21) with the Spanish expression “Por la boca muere el pez”, which translates as “The fish dies by its mouth” and is similar to the English expression on how a caught fish, if left unattended, will rot from the head first. Once you strip away the rhetoric and spin from Chair Perez’s paragraph, we are left with undisputable facts:

1) They admit three relatives of Diego Benavides have worked for the company

2) In no previous quarterly or annual financial statements has the company declared a Related Party Transaction

3) This is a clear infringement of IFRS rules

4) MIRL reports under IFRS rules

Please note, this is not about who hired or did not hire the people in question (i.e the way Pérez framed the issue), nor is it about their longevity or otherwise in the company (though that may come back to haunt them, too). This is about public financial statements and IFRS rules, which can be found on this link at the IFRS website (22) and I’m now going to bore you with an extended extract from the page on the International Accounting Standard (IAS) rule 24 regarding Related Party Disclosure (RPD) and Related Party Transactions (RPT):

The objective of IAS 24 is to ensure that an entity’s financial statements contain the disclosures necessary to draw attention to the possibility that its financial position and profit or loss may have been affected by the existence of related parties and by transactions and outstanding balances, including commitments, with such parties.

A related party is a person or an entity that is related to the reporting entity: 

  • A person or a close member of that person’s family is related to a reporting entity if that person has control, joint control, or significant influence over the entity or is a member of its key management personnel.
  • An entity is related to a reporting entity if, among other circumstances, it is a parent, subsidiary, fellow subsidiary, associate, or joint venture of the reporting entity, or it is controlled, jointly controlled, or significantly influenced or managed by a person who is a related party. 

A related party transaction is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged. If an entity has had related party transactions during the periods covered by the financial statements, IAS 24 requires it to disclose the nature of the related party relationship as well as information about those transactions and outstanding balances, including commitments, necessary for users to understand the potential effect of the relationship on the financial statements.

IAS 24 requires an entity to disclose key management personnel compensation in total and by category as defined in the Standard.

This is not a small thing, ladies and gentleman readers; As any accountant worth their salt knows, it’s the type of rule you learn in your freshman year and then apply assiduously to any public financial statement. Non-compliance with IAS24 is a grave infraction of IFRS rules and means any third party auditor cannot sign off on the annual financials. That is the situation we have today at MIRL; Perhaps CEO Benavides thought he could get away with not declaring RPTs because only the Chair and the CFO sign off on the financials, that is not the rule and not the case (note “…or significant influence over the entity or is a member of its key management personnel …” above, the rule is crystal clear). We could then debate as to whether MIRL should or should not have declared RPTs before Diego Benavides became CEO of Minera IRL Ltd in 2016, but from that point until 2021 it really is an open-and-shut case: Yesterday Saturday, Minera IRL admitted for the first time that three relatives of its CEO had received (in fact, at least one continues to receive) payments from the company, but at no point were they declared in any quarterly or annual financial statement. And that, ladies and gents, is very naughty indeed. Por la boca muere el pez.

From this point, MIRL may try to argue whether the payments were material or not so let us pre-empt that conversation a little:

  • Marco Arevalo provided and provides legal counsel to MIRL. Unless he is only advising on frivolous matters that’s material, period.
  • As for Patricia Kent and Felipe Benavides, we do not know the frequency or amount of their payments from the mailer yesterday, but according to IFRS they must be disclosed on a quarterly basis and in dollar terms. That means MIRL must at least tell the market and accounting authorities (and should tell us the shareholders, too). If, as one may suspect, these payments were frequent and over a long period of time (Felipe Benavides from 2007, Patricia Kent from 2014, Marco Arevalo from 2018) that alone would qualify them as material.

With the grave accounting and financial disclosure deficiencies now explained, we return to what we the shareholders can do about it and here’s a list:

  • Vote against the board and management at the upcoming AGM (natch)
  • Inform IFRS
  • Inform the CSE market authorities, who will then be obliged to CTO the company
  • Inform the annual auditor PKF Littlejohn LLP, who then cannot possibly sign off the 2021 annual financials and must insist that all previous financial that included RPTs to these three people are re-stated
  • Inform Rio Tinto and, for what it’s worth, this is probably the best idea to get us on the path to our ultimate objective of adding shareholder value.
  • Other (you may have a better idea)

It’s not even necessary to be a lawyer in order to see the glaring holes in the MIRL position, however RTZ has all the legal firepower one could ever need and more besides. What’s particularly unfortunate for the now obviously complicit board of directors at Minera IRL is that in 2020, RTZ tried a similar type of legal covering of tracks on its own shareholders! We refer readers to the infamous Juukan Gorge scandal, which eventually cost the CEO at the time his job (23) in September 2020. Here’s the RTZ dedicated page on Juukan Gorge (24) and here’s a quote from the new CEO, there for all to see:

We know that we cannot change the past. But we can continue to seek out, listen to and respect different voices and perspectives, to ensure that in the future, cultural heritage sites of significance are treated with the care they deserve. And the changes we make should improve, over time, our engagement with Indigenous and First Nations communities in every region where we operate worldwide. This is the legacy we aim to create, together.”

Jakob Stausholm, Chief Executive

Plenty about RTZ’s change in attitude toward CSR on that page, too. That’s why RTZ is now as hot as it is on this type of matter and why those of you who make a deposition to RTZ will be in for a pleasant surprise, as its whistleblower system has been completely re-vamped after the scandal and is both user-friendly and responsive. Several MIRL shareholders have reported to this desk about getting positive feedback from the system in the last seven days, there are human beings on the other end who truly do read and respond. Find RTZ’s whistleblower link here (25) and here (26).

As noted on the blog yesterday Saturday while sharing a copy of the mailer (27), even the lapse of fiduciary duty that started this ball rolling back in August is still glaring at us, i.e. the continued presence of Gabbie, Valdez and Ngatai that shows the nature of the complicity between board and C-suite management. That alone would be enough for a competent board focused on its fiduciary responsibilities to have dismissed CEO Benavides with cause months ago, instead, the pretence continues and while we should not have expected anything less than an attempted whitewashing (this board populated by lawyers who are also personal friends of CEO Benavides), they seem not to have understood how much trouble they are in already and want more. They shall have more, as frankly they would have been better off remaining quiet than publishing their legal sophistry of this weekend. Finally, as for “independent auditor” Baker Tilly (Peru), they need to explain how the chair of the company they investigated can write something like this…

Baker Tilly invested roughly 300 man-hours over a period of three weeks, at a considerable cost to the Company.  We have today received their confidential report, and I am pleased to inform you that they, too, have concluded that all allegations are unfounded.

I am quite sure that before this scandal is over, Baker Tilly International will have asked some pointed questions to Baker Tilly (Peru). The local branch will surely fall back on the statement used in their Comfort Letter, by stating they were merely charged with investigating allegations made via the MIRL ethics hotline. That being the case, I strongly urge shareholders to submit the new information in this note today to the MIRL Ethics Hotline. It will give Baker Tilly (Peru), Noles Monteblanco & Assoc and Señor Guillermo A. López a final chance to make some money off us, all while covering their collective backs before their world comes crashing down.

Yours sincerely, “a blogger”.

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