Silvia Antonioli and Freya Berry London
MORE than a year after he launched his private fund, former Xstrata boss Mick Davis is coming under pressure to build a new mining empire with the $6 billion (R72.5bn) in capital he has raised.
The renowned dealmaker set up X2 Resources 18 months ago after Glencore’s $46bn takeover of Xstrata, when he was passed over for the top job in favour of his Glencore counterpart, Ivan Glasenberg.
Davis had since approached most large mining companies looking to buy a variety of assets, banking and industry sources said, but nobody has agreed to sell given a feeling that current prices are at rock bottom and may turn up again before long.
“Mick’s team has been looking at so many assets closely. But nobody wanted to sell to them. Vale didn’t want to sell, Rio didn’t want to sell, BHP (Billiton) didn’t want to sell,” said an industry source close to Davis.
Patience
With his portfolio still empty, some sources expressed concern that some investors’ patience with Davis may run thin.
A banking source said: “Not all those investors are stuck on mining. So they say: “‘If we can’t spend on this, we’ll go buy a bank or a supermarket.’ I think Mick is feeling the pressure to do something but the sector is as cheap as it gets.”
The spokesman for X2 declined to comment.
Davis has gathered $5.6bn backing from investors – including private equity group TPG Capital, commodities trader Noble Group and sovereign wealth and pension funds – who have been drawn by his reputation.
The former Eskom, Gencor and BHP Billiton executive first set about building his own empire in 2002, when Xstrata first listed, and acquired a collection of coal assets from giant commodity trader Glencore.
The cashflow from those mines then financed a series of mostly successful deals that over a decade transformed Xstrata from a $500 million minnow into a $50bn FTSE-100 company until it was taken over by Glencore, one of its largest shareholders.
Davis set up X2 with the clear intent to repeat Xstrata’s success – motivated also, the sources said, by some antagonism to Glasenberg who was a student at the University of the Witwatersrand in Johannesburg when Davis was an accountancy lecturer there.
“Mick will want to prove that he can buy assets cheap and turn them around,” said another banking source, who has dealt with Davis over the years. “You get these jobs at the top because you’re a street fighter.”
That said, receiving expressions of interest from a turnaround king has only encouraged some asset owners to hang on to them.
BHP Billiton, the world's largest mining company, decided for example to spin off its unloved assets into a separate firm, South32, whose shares would be distributed to its investors.
“You don’t want to look like an idiot in hindsight,” a third banker said. “BHP said to themselves: ‘We think we’re in a trough, but we can’t be sure. We’ve a pretty good idea what these assets are worth but we can’t be wrong if we demerge.’”
Davis has not been put off by BHP Billiton’s action, however, but is still looking at South32, as well as some of Anglo American’s base metals and energy assets.
– Reuters