‘Big Mick’ returns to mining – and he’s hungry for acquisitions

Share

Mick Davis is back in the mining game.

Known as "Big Mick" because of his imposing size and voracious appetite for acquisitions, Mr. Davis transformed Xstrata PLC from a grab-bag of second-tier assets into a global resources powerhouse, bolstered by the takeover of Canada's Falconbridge Ltd.

Now Mr. Davis, older, leaner but still hungry, along with a few former Xstrata executives, has launched X2 Resources, a private company that has raised $1-billion (U.S.) and plans to raise more. The goal is to give it the firepower to pounce on mining assets that the X2 executives consider undervalued in a market that has lost its love for commodities.

In an interview in London, Mr. Davis, 55, and Trevor Reid, 52, who was Xstrata's finance director, said they are talking to Canadian investors, among others. "We're still in the fundraising mode and we'd like some more investors," Mr. Reid said, adding that Canadian names are on the potential investor list.

Noble Group Ltd. and TPG are each contributing $500-million to X2, with an undisclosed amount from Mr. Davis and his colleagues.

Noble, based in Hong Kong and listed on the Singapore exchange, is one of the world's largest commodities trading, transportation and infrastructure companies and competes with Switzerland's Glencore, Xstrata's new owner. Noble will market the commodities produced by X2 and provide supply management.

TPG is a U.S. private investment firm with $55.3-billion of assets under management. Its portfolio includes hundreds of businesses, ranging from biotechnology to energy.

Mr. Davis is bullish on commodities and thinks the selloff that sent mining company values plummeting is overdone, although he does not see a return to the "explosive" demand that turned mining companies such as Xstrata into some of the biggest wealth generators of the pre-2008 era. "We still have a lot of conviction about the resources industry," he said. "We're seeing ongoing demand in the developing world and the rise of consumer markets there."

Mr. Davis built his career on this "stronger-for-longer" theory that was centred on he belief that urbanization in China, India and some parts of sub-Saharan African would send the prices soaring for the copper used in everything from plumbing to the coal burned in electricity plants.

Backed by Glencore, which owned 34 per cent of Xstrata before the companies merged in the spring, Xstrata went from a $500-million operation in the early part of the last decade to a company so big that it, at one point, made a takeover offer for mighty Anglo American PLC.

Its biggest acquisition, in 2006, was Falconbridge, the Canadian miner that attempted a merger with Inco to try to thwart Xstrata's hostile pursuit. Xstrata paid about $22-billion (Canadian) for Falconbridge after a bruising battle that overhauled the Canadian mining landscape and delivered Inco to Brazil's Vale.

The 2008 financial collapse and subsequent recessions in Europe and North America burst the commodities bubble. Since then, commodities prices have recovered somewhat, but are mostly well below their peak. Many mining companies have cut capital expenditures, taken massive writedowns and left some projects idle.

Mr. Davis thinks the lower valuations will provide takeover opportunities. "We want to build a diversified, mid-cap company," he said.

He said X2 is attracted to copper and zinc assets, but would not say if the new company is close to making an investment. He said X2 is likely to remain private, although he is not ruling out taking the company public at some point, and that he and his team will "share in the upside" performance of X2.

Mr. Davis was CEO of Xstrata until the Glencore takeover. His attempt to leave the company with €140-million ($195-million) in retention awards for himself and his top executives and managers came under fire and was not approved by Xstrata's shareholders. Mr. Davis reportedly walked away from the company with about €15-million.

In a statement, Jim Coulter, TPG's founding partner, said it invested in X2 because "the X2 team has an impressive track record of building metals and mining platforms around the world."