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Iluka Resources approached its acquisition of London-listed Sierra Rutile with its "eyes open" and could not have detected alleged corruption within the business through its due diligence process, managing director Tom O'Leary says.
Iluka recently discovered alleged misconduct at Sierra Rutile, which it acquired in December, and reported it to regulatory authorities.
Fairfax Media revealed on Wednesday the Perth-based miner had discovered alleged bribes paid to government officials to secure licences in Sierra Leone, allegedly overseen by its former chief executive, London businessman John Sisay.
Iluka has not confirmed the nature of the misconduct, saying only it occurred prior to Iluka taking control of the business and that it emerged during a post-acquisition review.
So far, the company has said its response to the revelations included relinquishing three exploration licences granted before the acquisition "under circumstances inconsistent with Iluka's code of conduct". It has since reapplied for the licences "according to proper procedure".
Mr O'Leary , who delivered a strong interim result on Wednesday, would not comment on what else the Perth-based mineral sands miner had reported to authorities, but said the exploration licences were the most material. Even then, the licences were not ascribed any value in the acquisition and recouping the licences is not financially material for Iluka, he said.
"[Iluka chairman Greg Martin] has reported what we regard as the most material and he has also reported that that is not financially material," Mr O'Leary said.
Questions about the scandal overshadowed a positive first-half result from the Perth-based mineral sands miner.
Iluka's operational performance met analyst expectations and delivered strong cash flow as market conditions improved, which allowed Iluka to significantly reduce net debt and declare a better than expected interim dividend.
Shares in the company closed up just 0.9 per cent, or 8¢, at $9.33 per share.
Citi analyst Clarke Wilkins said the revelations about Sierra Rutile would likely weigh on the miner's share price until more information emerged.
It is understood there is potential for regulators to hit Sierra Rutile with fines but, because such fines have historically been in line with the benefit gained by the misconduct, the company does not expect the fines to be significant.
Mr O'Leary, who took the helm of the company in September 2016 following the retirement of longstanding chief David Robb, said he was content with the company's due diligence process in the lead-up to the $375 million deal.
The acquisition was announced in July 2016, before Mr O'Leary joined the company, but did not complete until December after a lengthy competition review and due diligence raised concerns about the stability of tailings dams.
"I think due diligence can take you so far, but where matters are not of the nature that are going to be uncovered by typical processes then they are not [going to be uncovered]," Mr O'Leary said.
"I think the sort of matters that have been reported are probably of that nature. I think it would a wrong conclusion to reach that the due diligence was deficient because these sorts of matters emerged."
Mr O'Leary said he had not fielded concerns from shareholders, did not expect the matter to weigh on Iluka's shares and intended to continue to invest in Africa.
'Eyes open'
"We went into the acquisition with our eyes open and as you would expect we did a thorough review post acquisition once we were in control," he said.
"We have taken the steps that anyone would expect of us in terms of voluntarily reporting those and we have received very strong support from the Sierra Leonean government in respect to our actions so no, it hasn't changed our view [on Africa]."
Iluka said its first-half net loss for the six months ended June 30, 2017 widened to $81.5 million, from $20.9 million a year ago, weighed down by about $165 million of previously flagged impairments and redundancy costs.
But stronger revenue and earnings during the period revealed better mineral sands market conditions were starting to flow through to the company's results, Campbell Morgan, an analyst at Iluka shareholder Sandon Capital, said.
Revenue from mineral sands sales climbed to $503.6 million from $338 million in the previous corresponding period while underlying group earnings before interest, taxes, depreciation and amortisation increased 147 per cent to $155 million.
After reducing its net debt by 40 per cent to $305 million during the period, Iluka increased its fully franked interim dividend to 6¢ per share, from 3¢ per share in the first half of 2016.
"Prices are moving in the right direction, they are doing well from a production perspective, they are paying down debt much faster than the market expected and as a result they can return some of that cash to shareholders," Mr Morgan said.
Iluka expects the positive momentum to continue in the second half, increasing its full year production guidance to 795,000 tonnes from 720,000 tonnes previously and flagging planned price increases.