The X factor – how well timed is Davis’ return to mining? – by Lawrence Williams (Mineweb.com – October 3, 2013)posted in Commodity Super-Cycle, Glencore-Xstrata PLC, International Media Resource Articles |
Former Xstrata CEO, Mick Davis, has raised $1 billion towards what appears to be his aim of creating a new major diversified mining company from scratch.
LONDON (MINEWEB) - Given the low commodity prices currently facing the sector, Mick Davis, former highly successful dealmaking CEO of Xstrata, could well have picked the perfect time to start a new company.
On Monday, Davis announced his return and, importantly, that he has already raised $1 billion with which he hopes to become a major player in the diversified mining sector – in short birthing another Xstrata (he has even named his new company X2 Resources). Buying when prices are depressed would seem to be the ideal time for a well-funded entity to enter the market, provided prices don’t fall too much further.
But even if commodity prices do fall further, the downside is probably relatively low given the extent of the fall to date, which has left companies really focusing on savings and cost cutting which should leave them in a far better position to weather any continuing storm. And in setting up a new major mining company you don’t invest for the short term anyway, but look for long term growth – and the depths of a market downturn are obviously the best time to do this.
As London’s Financial Times put it “The lower valuations, and the expectation that many mining companies are looking to sell off assets to curb cost overruns and lift returns for shareholders, are seen as an opportunity for the likes of Mr Davis, who hope to draw in money to invest on the strength of their experience in the industry during a decade of tearaway growth.”
This key finance for X2 Resources, is coming from the Hong Kong based commodities trader, Noble Group, and private equity group TPG Capital, which are each putting in $500 million.
In many ways Davis is drawing on his experience with Xstrata and Glencore, the former initially being based on assets spun off from the latter. Glencore handled the market for Xstrata’s output and Davis is looking to repeat this with Noble Group providing the market for X2’s production – whatever this will be.
Also, in partnering with his former Xstrata finance director Trevor Reid in the new venture and with a number of other ex-Xstrata senior employees, the prospects of raising more money as necessary to build a new global diversified mining entity will probably be made easier – particularly when two such heavy hitters as Noble and TPG are already on board.
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