By Scott Patterson
LONDON -- The troubles of Mick Davis, a mining executive behind
some of the industry's biggest mergers, epitomize the sector's
cautious mood.
Mr. Davis earned the moniker "Mick the Miner" as he engineered
the blockbuster tie-ups of BHP and Billiton and Glencore and
Xstrata. But this year he had to close a $5.6 billion investment
fund, X2 Resources, without a single deal.
Last month, Rio Tinto PLC, the world's second-largest listed
mining company, offered Mr. Davis a job as chairman. Then, the
British-Australian giant rescinded the proposition after a group of
investors raised concerns about Mr. Davis's past deal-making. Rio
instead turned to board member Simon Thompson, a former Anglo
American PLC executive seen as a safe, steady hand.
"I was excited to do it," Mr. Davis said in his first interview
since news of his potential appointment broke. He said he isn't
bitter about losing the job. "They'll do very well with someone
else as chairman."
The mining industry is slowly recovering from a collapse in
commodity prices in recent years that forced many companies to
slash jobs and sell assets. Most big mining companies are wary of
doing deals, focusing instead on raising cash, shedding debt and
delivering meaty dividends to investors.
Year-to-date, $40.2 billion worth of mining transactions have
been announced in 2017, compared with $45 billion last year and
well below a record $131.3 billion worth of deals struck in 2011,
according to Dealogic.
That's not an ideal environment for a deal-maker.
Mr. Davis has "always been viewed as a guy who's going to grow
things, whereas investors are of a mind-set that they want capital
returned to them," said Colin Hamilton, managing director of
commodities research at Canadian bank BMO Capital Markets.
Mr. Davis said mining companies have become too risk-averse and
are hoarding their cash, due in part to investors who can't stomach
the gut-wrenching twists and turns of commodity cycles and want
short-term results.
"They're driving the behavior of boards and management teams in
a way which is reflecting that short-term outlook," he said.
Mr. Davis, 59 years old, remains a leading figure in the global
mining industry and maintains a high profile in his home, the U.K.
He is chief executive of the British Conservative Party, holds a
leadership role in London's Jewish community and was knighted by
Queen Elizabeth II for work commemorating the Holocaust.
The South Africa native achieved early success as financial
director of Australian mining giant Billiton. He was a central
figure in its 2001 megamerger with BHP, which created the world's
largest mining operation, BHP Billiton Ltd.
From there, he took the reins of Xstrata PLC, which in 2006
purchased Canadian miner Falconbridge Ltd. for $17 billion. In
2013, Xstrata merged with Swiss trading goliath Glencore, forming
the world's fourth-largest mining company and its biggest
commodities trader.
The Glencore merger led to a feud with shareholders who objected
to a pricey pay package Mr. Davis helped arrange for himself and
Xstrata board members and executives. Mr. Davis, pegged to become
chief executive of the merged company, eventually stepped aside to
make way for Glencore's current CEO, Ivan Glasenberg.
"It was a very unpleasant era in my life," Mr. Davis said,
adding that he thought the deal was good for Xstrata's
shareholders.
In 2013, Mr. Davis launched X2. It was supposed to be the leader
of a new wave of investments in mining amid a collapse in commodity
prices, propping up the industry as debt-laden firms
retrenched.
But Mr. Davis failed to strike any deals. The reason, he says,
was that he gave six cornerstone investors the ability to block a
deal.
"That was really stupid of me," he said.
In 2015, for instance, he was on the verge of signing a deal to
buy thermal coal assets from Rio Tinto for about $2.4 billion, he
says. But some investors -- skittish about coal as new regulations
to reduce carbon emissions emerged across the world -- refused to
back the agreement, he said.
"It would have been a fantastic deal," he said, noting that
thermal coal was trading at about $50 a ton at the time, about 70%
below where it trades today.
He says he decided to close X2 and "call it day." He isn't sure
he will start another fund but if he did he said he would be clear
with his backers that they have to trust him.
"If you can't do that, don't invest," he said.
(END) Dow Jones Newswires
December 16, 2017 08:14 ET (13:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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