Mick Davis in $1bn bid to build mining giant

by Allan Seccombe, 01 October 2013, 06:01

Allan Seccombe

Mick Davis in $1bn bid to build mining giant

MICK Davis and his tight-knit team, which grew Xstrata into one of the world’s largest resources companies, have secured $1bn and are in talks with other investors around building a new mid-tier mining company.

Port Elizabeth-born Mr Davis left as head of Glencore Xstrata shortly after Glencore took over Xstrata. A number of his senior managers have joined him in a venture called X2 Partners, including former Xstrata chief financial officer Trevor Reid and strategist Thras Moraitis.

Mr Davis’s current team is the one that built Xstrata from a market capitalisation of $500m to $54bn in about a decade. In its initial public offering on the London Stock Exchange in March 2002, Xstrata raised nearly £1bn, buying Australian and South African coal assets.

The market is awash with speculation about what X2 wants to buy and where, with suggestions ranging from the Las Bambas copper project in Peru that Glencore Xstrata has to sell as a condition of the merger, to assets held by Rio Tinto and Anglo American, both of which have said they want to sell projects deemed not core.

"Investors hope the group will repeat the success Davis had with the creation of value with Xstrata’s ferrochrome and zinc assets and with the well-timed acquisition of MIM in Australia in 2003," SP Angel analyst John Meyer said.

The $2.9bn deal to buy MIM was described by some analysts at the time as a "company maker", giving Xstrata copper and zinc assets in Australia.

"The majors continue to offer subscale assets, including some better-quality but smaller operations as they refocus on their larger cash generators," Mr Meyer said. "Investors who follow Davis and other turnaround specialists in the sector could make a killing from these assets."

A number of similar specialist funds have sprung up recently, with investors hoping to make large returns on investments in commodities in the next three to five years, Mr Meyer said.

Mr Davis was said to be frustrated with the bureaucracy and inaction of the Department of Mineral Resources during his tenure at the helm of Xstrata. It raises the question whether he will invest in South Africa or focus on places such as Canada and Australia and elsewhere in Africa.

X2 is expected to look at buying assets in production, seeking cash flow, and wants to be an owner and operator of mines rather than a passive investor.

"You must consider how quickly Mick and his team have raised this kind of money and that they will secure more in quite a difficult market. There is clearly a big bet that he and his team can do it again," said a market source.

X2 said on Monday that it had secured $500m from bulk agricultural and energy commodities handling group Noble, which is headquartered in Hong Kong, and $500m from TPG, a global private investment firm.

The $1bn will be invested in newly created private mining company X2 Resources, which will be developed as a "new mid-tier diversified mining and metals group by leveraging the extensive track record of the X2 team in identifying and acquiring assets and businesses at an opportune time in the cycle and applying their proven approach to integration and value enhancement to the resulting portfolio of operations".

"We see this as a great time to acquire assets in the mining sector," said Mr Meyer. Company "valuations have been hammered by a flow of funds out of the sector led by a trend for ETF (exchange-traded funds) sales in the first half of this year".

Noble will fulfil the role commodity trader Glencore played for Xstrata before the merger. Noble will be the preferred marketing company for the commodities X2 produces, as well as providing logistics.

"The partnership with Noble brings significant advantages, including market intelligence, proprietary deal flow, acquisition support and post-acquisition services such as supply chain and risk management," the parties said.

TPG, with $55bn worth of assets under management, will bring access to investors.

"X2 Partners is in discussions with a further select group of potential investors who are also seeking to benefit from opportunities in the natural resources arena by investing in X2 Resources," Mr Davis said.

October 01 2013, 06:01

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Xstrata CEO Mick Davis. Picture: FINANCIAL MAIL

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MICK Davis and his tight-knit team, which grew Xstrata into one of the world’s largest resources companies, have secured $1bn and are in talks with other investors around building a new mid-tier mining company.

Port Elizabeth-born Mr Davis left as head of Glencore Xstrata shortly after Glencore took over Xstrata. A number of his senior managers have joined him in a venture called X2 Partners, including former Xstrata chief financial officer Trevor Reid and strategist Thras Moraitis.

Mr Davis’s current team is the one that built Xstrata from a market capitalisation of $500m to $54bn in about a decade. In its initial public offering on the London Stock Exchange in March 2002, Xstrata raised nearly £1bn, buying Australian and South African coal assets.

The market is awash with speculation about what X2 wants to buy and where, with suggestions ranging from the Las Bambas copper project in Peru that Glencore Xstrata has to sell as a condition of the merger, to assets held by Rio Tinto and Anglo American, both of which have said they want to sell projects deemed not core.

"Investors hope the group will repeat the success Davis had with the creation of value with Xstrata’s ferrochrome and zinc assets and with the well-timed acquisition of MIM in Australia in 2003," SP Angel analyst John Meyer said.

The $2.9bn deal to buy MIM was described by some analysts at the time as a "company maker", giving Xstrata copper and zinc assets in Australia.

"The majors continue to offer subscale assets, including some better-quality but smaller operations as they refocus on their larger cash generators," Mr Meyer said. "Investors who follow Davis and other turnaround specialists in the sector could make a killing from these assets."

A number of similar specialist funds have sprung up recently, with investors hoping to make large returns on investments in commodities in the next three to five years, Mr Meyer said.

Mr Davis was said to be frustrated with the bureaucracy and inaction of the Department of Mineral Resources during his tenure at the helm of Xstrata. It raises the question whether he will invest in South Africa or focus on places such as Canada and Australia and elsewhere in Africa.

X2 is expected to look at buying assets in production, seeking cash flow, and wants to be an owner and operator of mines rather than a passive investor.

"You must consider how quickly Mick and his team have raised this kind of money and that they will secure more in quite a difficult market. There is clearly a big bet that he and his team can do it again," said a market source.

X2 said on Monday that it had secured $500m from bulk agricultural and energy commodities handling group Noble, which is headquartered in Hong Kong, and $500m from TPG, a global private investment firm.

The $1bn will be invested in newly created private mining company X2 Resources, which will be developed as a "new mid-tier diversified mining and metals group by leveraging the extensive track record of the X2 team in identifying and acquiring assets and businesses at an opportune time in the cycle and applying their proven approach to integration and value enhancement to the resulting portfolio of operations".

"We see this as a great time to acquire assets in the mining sector," said Mr Meyer. Company "valuations have been hammered by a flow of funds out of the sector led by a trend for ETF (exchange-traded funds) sales in the first half of this year".

Noble will fulfil the role commodity trader Glencore played for Xstrata before the merger. Noble will be the preferred marketing company for the commodities X2 produces, as well as providing logistics.

"The partnership with Noble brings significant advantages, including market intelligence, proprietary deal flow, acquisition support and post-acquisition services such as supply chain and risk management," the parties said.

TPG, with $55bn worth of assets under management, will bring access to investors.

"X2 Partners is in discussions with a further select group of potential investors who are also seeking to benefit from opportunities in the natural resources arena by investing in X2 Resources," Mr Davis said.

http://www.bdlive.co.za/business/mining/2013/10/01/mick-davis-in-1bn-bid-to-build-mining-giant