Mining World's Ultimate Deal-Maker Struggles in New Frugal Era

By FeaturesDow Jones Newswires

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.

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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 Then, the British-Australian giant rescinded the proposition after a group of investors raised concerns about Mr.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)