Mining veteran Mick Davis looks poised to pull the trigger on some big deals at a time of cheap mineral prices and willing sellers.
The former Xstrata PLC chief executive has raised $5.6 billion for his mining fund, X2 Resources, and plans to start deploying cash in the next few months, according to people familiar with his plans. The people said that X2 has closed itself to new investors after having raised cash from sovereign-wealth funds, pension funds and private-equity firms such as TPG Capital.
Potential targets include assets held by mining giants such as Rio Tinto PLC, BHP Billiton Ltd. and Anglo American PLC, and X2 has held talks with all three companies, one of the people said. The companies declined to comment. X2 is expected to disclose on Thursday that it has wrapped up fund-raising.
X2’s emergence gives the mining industry something its executives and observers have long anticipated: a deal-savvy operator armed with a wad of cash and looking for acquisitions in an arena stricken by collapsing prices for commodities, such as iron ore.
Mr. Davis formed X2 in London in September 2013, about four months after taking part in the largest mining deal: the $29.5 billion Glencore PLC acquisition of Xstrata. Mr. Davis began raising money soon after he and several top lieutenants left Glencore.
“We continue to carefully review a number of opportunities in the sector in detail,” Mr. Davis said in a statement. “The long-term nature of our strategy provides us with the flexibility to target those opportunities where we see the greatest potential for value creation.”
X2 has $4 billion in so-called committed capital, which it can immediately deploy for deals, according to a person familiar with the terms. The remaining $1.6 billion in capital is conditional upon certain undisclosed requirements by the firm’s investors, the person said.
Some experts say Mr. Davis could find it hard to find enough solid mining assets for sale. Big miners are unlikely to dispose of quality mines, and X2 will have to compete with giants such as Glencore for other attractive deals. Mr. Davis’s backers say he put together a world-class portfolio at Xstrata and can do it again at X2.
In addition to assets at major miners, X2 is also looking at midtier miners in financial distress and junior mining outfits near production, according to the person familiar with the fund’s plans. It is looking at commodities such as copper, zinc and nickel, among others, in regions such as Latin America, the U.S. and Africa, the person said. An advisory board, whose members have committed at least $500 million apiece, will review the firm’s investment decisions.
Among its investors is Noble Group Ltd. , a Singapore-listed commodities trader whose shares have fallen sharply recently amid questions about its accounting practices. Noble has defended its accounting practices and said its auditors had signed off on its results.
The launch of X2’s fund comes during a long-running lull in deal-making activity in the mining industry, which is struggling as demand in China and elsewhere wanes.
Deal volume declined 23% to 544 in 2014 from the previous year, marking the fourth straight year of declining volume, according to consultants Ernst & Young LLP. The valuation of deals plunged even more, sliding 49% last year to $44.6 billion. Megadeals have been even more scarce, with just 11 deals of more than $1 billion in 2014, down from 18 in 2013, Ernst & Young reported.
The top of the latest deal cycle, which rode a wave of surging commodity prices, was marked by the Glencore-Xstrata tie up.
Other mining executives, such as former Vale CEO Roger Agnelli, have also embarked on fundraising campaigns. But so far little money has been spent amid uncertainty about the course of commodity prices.
Big mining companies such as BHP, Rio and Anglo haven’t signaled they plan major acquisitions. BHP is planning the opposite, spinning off some of its assets into a new midsize mining company called South32, whose value analysts have pegged at roughly $15 billion
Activity could heat up later this year, especially if firms such as X2 begin to deploy capital, some analysts and bankers say.
One major mining outfit X2 hasn’t discussed deals with is Glencore, the person familiar with the matter said. The Swiss miner and commodities trader opened talks with Rio about a takeover last year but was rebuffed. Glencore could approach Rio again in April. But recent declines in commodity prices central to Glencore’s business, such as copper and coal, could make a deal tough to pull off, market experts say.
Glencore still could be on the hunt for less-hard-to-swallow assets. If so, that potentially could pit Mr. Davis against Glencore CEO Ivan Glasenberg, a dynamic that would add some heat to what has been an ice-cold deals market in mining.
The Journal Wall Street Journal