* Davis' mining venture has raised $3.75 bln for new assets
* Slowing Chinese growth adds to challenge this time
* Insiders say he feels keen rivalry with Glasenberg
* Behind some of mining industry's most important deals
By Silvia Antonioli and Sonali Paul
LONDON/MELBOURNE, April 30 Former Xstrata boss
"Big Mick" Davis wants to build another mining giant, partly
driven by what several sources say is a keen sense of rivalry
with Glencore's Ivan Glasenberg, but it won't be easy even for
someone with his proven track record.
Davis has been involved in some of global mining's biggest
and most formative deals, including the creation of BHP Billiton
and its smaller rival Xstrata.
He expanded Xstrata over a decade from a $500 million
company to a $46 billion one taken over by Glencore,
which was already its largest shareholder, last year.
Now he has set up a fund, X2 Resources, which is looking to
buy up mines again and is reportedly targeting some of the very
assets he traded more than a decade ago.
Unlike then, when miners rode a boom powered by double-digit
growth in China, coal prices now languish near
four-and-a-half-year lows and the outlook for coal demand growth
Yet armed with $3.75 billion and rising, and planning to
raise three times as much in debt, Davis was reported this week
to be lining up a bid for BHP's thermal coal assets, along with
aluminium, manganese and nickel assets that BHP wants to
The PR company representing X2 Resources declined to comment
on the newspaper report or on other details and opinions
contained in this article.
Davis knows the shunned assets better than any other
potential bidder, as most of them went into Australian miner BHP
when it merged with Billiton in 2001, a deal he helped to
engineer as finance director of the London-listed mining firm.
"With coal he is totally within his comfort zone," said
Investec analyst Hunter Hillcoat.
"If he was to acquire coal assets at this point he'd be
doing what he's got a history of doing: buying assets at the
bottom of the cycle and therefore benefiting extremely when the
cycle turns ... It's a classic Mick Davis tactic."
It is a tactic that some people with close knowledge of the
business believe can work, despite the challenges.
"I think he's got very good chances of success. He has done
it once and wants to do it again," said a London-based
investment banker who has worked on various deals with Xstrata.
Others are not so sure, citing slowing growth in China and
its likely impact on commodity prices.
"I question whether the same value creation is possible this
time around," said a second investment banker involved in
"You can create value, but whether you can create value that
PE (private equity) investors would expect, I think that is an
open question. I am not swayed by the magic dust being sprinkled
on this at the moment. I am a bit of a cynic."
Private equity firms would expect an annual rate of return
at least in the high teens but generally much higher, while
mining companies have lower returns, the second banker said.
Anglo American, one of the largest London-listed mining
companies, for example, posted a return on capital employed of
11 percent last year and is aiming to boost it to above 15
percent by 2016.
FRUITS OF SUCCESS
After walking away with a 14 million pound payout and
millions more in cashed-in options when Glencore swallowed
Xstrata last year, Davis, now 56, could easily have retired.
Davis had originally agreed to stay at the merged group
subject to a three-year retention deal for himself and his top
executives, worth a total of $220 million, that was eventually
opposed by shareholders.
Several people who know him said his drive was as strong as
ever, partly fuelled by a rivalry with Glencore CEO Glasenberg
who got the top job after the Xstrata takeover.
"I think he still feels like he's got something to prove,"
said a former colleague who remembers Davis as intelligent and
driven and also aggressive and ruthless in the business arena.
Davis has enjoyed the fruits of his success, even managing
to work out a deal to use Xstrata's corporate jet for personal
use for 30 hours after he had left the company. He is also known
as a philanthropist and leader in London's Jewish community.
"He always wanted to have the biggest office. In South
Africa you could have put a tennis court in his office," the
former colleague said. "He did like the trappings of power and
Davis is still known as "Big Mick", despite losing
considerable weight in the last couple of years. "He looks like
a different character," the first banker said.
With his new, leaner image, the former accountant who
qualified as South Africa's youngest professional cricket
umpire, is gearing up for a fresh round of dealmaking.
"CARDS CLOSE TO CHEST"
Davis shot up the corporate ranks as a young man, moving
from an accounting firm to South African power company, Eskom,
where he was made finance director in his early 30s. He quit to
join miner Gencor when he missed out on the top job at Eskom.
Over seven years, he and Brian Gilbertson reshaped Gencor,
bought Royal Dutch Shell's minerals business Billiton, listed it
in London and then eventually merged it with BHP in 2001.
"He is very much a visionary but he plays his cards
extremely close to his chest," said the first banker.
The biggest hurdle to his ambitions now could be that BHP is
unlikely to sell for less than full value, especially as it is
considering spinning off unwanted assets into a separately
listed company if it does not get a satisfactory offer.
"The thing about BHP is they're in a position now where they
are not forced sellers of anything," said Brenton Saunders, a
portfolio manager at BT Investment Management.
"The flip side of that coin is it's going to be hard for
anybody to buy (the assets) on the cheap."
Deutsche Bank values the assets expected to be on the
spin-off list at $12.3 billion, comprising BHP's nickel,
manganese, and alumina assets, the Cannington silver mine and
South African thermal coal assets.
Those who know Davis believe the element of the unexpected
could have a major say in the outcome of any agreement.
"I think he'll come out with a deal that will surprise
everybody," said the first banker. "Mick will come out with some
sort of structure where he'll make a lot of money for his
(Editing by Mike Collett-White)