The Securities and Exchanges Commission (SEC) has found Compass Minerals International, Inc. in violation of numerous provisions of the Securities Act and the Exchange Act. Compass intentionally misled investors about unexpected setbacks in upgrades to their principal asset, the Goderich salt mine, and about environmental regulations violations of a subsidiary’s Brazilian chemical plant.
The SEC fined Compass $12 million and required the appointment of an independent inspector. Per their 2021 fiscal year report, Compass reported $836.6 million in total sales.
As per the order, in late 2014, Compass’ then board of directors approved a multi-year plan to upgrade the Goderich salt mine, the largest of its type in the world, from drill and blast extraction to a continuous mining and continuous haulage system. They anticipated the upgrades costing $70–$80 million and then saving the company about $27 million per year after 2018.
However, upgrades took longer and reduced production more than anticipated. This reduced production resulted in increased per-unit costs and the company even had to purchase additional salt from third parties to meet contractual obligations. Compass even had to pay contractual fees for undersize salt crystals.
In multiple calls with investors in 2017 and 2018, Compass executives reportedly repeatedly underreported these costs and projected all was well. Finally, in October 2018, the company announced its accurate poor Q3 profits, and subsequently the share price dropped 32%.
The order also details executives’ misrepresentations of violations in Brazilian environmental testing standards at a subsidiary’s plant. Following an ethics hotline complaint in 2017, Compass’s management and then Board of Directors learned of a plant that was outputting excessive quantities of mercury into local waters. Following an investigation, the manager of said plant was fired, but Compass executives still underplayed the severity of this issue in calls with investors.
Taking into account Compass’ own efforts to improve accountability and accounting, the SEC fined Compass Minerals $12 million as punishment and deterrence against future infractions. They also set out requirements for an independent inspector to be appointed to monitor and audit Compass’ operations and prevent further violations of the Securities Act, the Exchange Act, and generally accepted accounting principles.