Bullish former Xstrata boss vying for comeback
Trading house Noble Group and US private equity firm TPG Capital will each invest US$500 million ($537 million) in a private mining venture led by Davis, according to a statement on Monday. The business, called X2 Resources, is intended to create a mid-tier metals and mining company.
Mr Davis is credited with expanding Xstrata from a small collection of mining assets into one of the world's largest mining groups. He was ousted as chief executive this year after the company's takeover by its largest shareholder, Glencore, the commodity trading house based in Switzerland that was founded in 1974 by Marc Rich.
Mr Davis was supposed to become chief executive of the combined company, now known as Glencore Xstrata, but after a revised takeover offer, Glencore's chief, Ivan Glasenberg, took the post.
The name X2 appears to be a not-so-subtle suggestion that the new venture is an effort to replicate Mr Davis' success at Xstrata. Whether a similar opportunity exists today in mining is open to question. In his former role, Mr Davis was able to cash in on the huge rise in the price of iron ore, copper and other commodities earlier in the century that was generated by a building and industrial boom in China and other emerging markets.
"He was the most bullish of CEOs in the biggest bull cycle we have ever seen," said Paul Gait, a mining analyst with Bernstein Research in London. "We are not going to see that kind of structural change again."
After the boom years, the mining industry has been rocked by slower demand and cooling prices. Deals concluded at high prices no longer look smart, and most of the chief executives of large mining companies have lost their jobs. Mr Glasenberg, who is more trader than miner, is one of the few left.
Mr Gait said he believed X2 could profit from picking up assets as other mining companies, under pressure to raise money to finance continuing projects, are forced to sell cheaply in a downturn.
But X2 may need more capital than it has now. Even after the boom, good mining assets tend to cost several billion dollars, possibly putting them out of X2's reach. X2's statement says it is "in discussions with a further select group of potential investors".
Frequently Asked Questions about this Article…
Mick Davis is the former chief executive of Xstrata who was ousted after the company was taken over by Glencore. He is leading a new private mining venture called X2 Resources that aims to create a mid-tier metals and mining company, positioning it as a comeback vehicle based on his prior success growing Xstrata.
X2 Resources is a private mining business led by Mick Davis that intends to build a mid-tier metals and mining company. The name suggests an effort to replicate Davis’s past success at Xstrata by assembling mining assets that could deliver scale and returns for investors.
Trading house Noble Group and US private equity firm TPG Capital are each investing US$500 million (reported as $537 million) into X2 Resources, according to the venture’s statement.
Yes — mining analyst Paul Gait said X2 could potentially profit by picking up assets cheaply as other mining companies, under pressure to raise cash for ongoing projects, may be forced to sell in a downturn. That strategy relies on finding quality assets at discounted prices.
The article notes X2 may need more capital. Even after the boom years, good mining assets tend to cost several billion dollars, which could put some opportunities out of X2’s current reach. X2’s statement says it is in discussions with a further group of potential investors.
The mining industry has faced slower demand and cooling commodity prices since the boom years. Deals struck at high prices during the boom no longer look smart, and many large mining CEOs lost their jobs. Those headwinds could make asset acquisition and value creation more challenging for a new venture like X2.
Davis expanded Xstrata by taking advantage of a huge rise in prices for iron ore, copper and other commodities driven by a building and industrial boom in China and other emerging markets. Some analysts quoted in the article say that the kind of structural change that fueled that boom may not be seen again, making a straight repeat uncertain.
Davis was originally set to become chief executive of the combined company after Glencore’s bid for Xstrata, but Glencore’s chief Ivan Glasenberg instead took the post after a revised takeover offer. That outcome left Davis free to launch X2, which investors should view in the context of different leadership styles and the changing dynamics of mining and trading exemplified by Glencore.
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