Pressure Mounting for Mick Davis to Find New Mining Deals
X2 Resources CEO Mick Davis is struggling to find new mining deals despite raising more than $5.6 billion in capital earlier this month.
Davis, who built Xstrata into one of the most successful companies of the last mining boom, is actively seeking opportunities in the mining industry for acquisition, including a list of potential assets held by Rio Tinto, BHP Billiton and Anglo American. There’s only one problem: no one is selling.
"Mick's team has been looking at so many assets closely. But nobody wanted to sell to them. Vale didn't want to sell, Rio didn't want to sell, BHP didn't want to sell," said an industry source close to Davis.
With an empty portfolio and cash in hand, some sources expressed concern that some investors’ patience with Davis may run thin.
A banking source said: "Not all those investors are stuck on mining. So they say: if we can't spend on this, we'll go buy a bank or a supermarket."
"I think Mick is feeling the pressure to do something, but the sector is as cheap as it gets."
Under pressure to build a new mining empire, Davis is reportedly eyeing BHP Billiton’s myriad of mines and projects. Davis knows the assets well - they used to belong to Billiton, where Davis used to be chief financial officer before its 2001 merger with BHP. Another possibility could be BHP’s new venture, South32.
"Maybe it's a bit of a stretch but that could still work. Mick is quite clever is terms of structuring innovative deals," said Investec fund manager and former Xstrata executive Hanré Rossouw, a shareholder in BHP Billiton.
Another option for Davis could be acquiring other companies from public stock markets. However, the environment for mining companies has become increasingly precarious.
“We continue to carefully review a number of opportunities in the sector in detail,” 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.”
Since launching X2 Resources a little over a year ago, Davis has made it clear he wants to repeat Xstrata’s success. The former CEO helped transform Xstrata from a small fry $500 million company into a $50 billion juggernaut.
"Mick will want to prove that he can buy assets cheap and turn them around," said another banking source, who has dealt with Davis over the years. "You get these jobs at the top because you're a street fighter."
Vale invests $150mn to extend life of Manitoba operations
Vale has announced a $150mn CAD investment to extend current mining activities in Thompson, Manitoba by 10 years while aggressive exploration drilling of known orebodies holds the promise of mining well past 2040.
Global energy transition is boosting the market for nickel
The Thompson Mine Expansion is a two-phase project. The announcement represents Phase 1 and includes critical infrastructure such as new ventilation raises and fans, increased backfill capacity and additional power distribution. The changes are forecast to improve current production by 30%.
“This is the largest single investment we have made in our Thompson operations in the past two decades,” said Mark Travers, Executive Vice-President for Base Metals with Vale. “It is significant news for our employees, for the Thompson community and for the Province of Manitoba.
“The global movement to electric vehicles, renewable energies and carbon reduction has shone a welcome spotlight on nickel – positioning the metal we mine as a key contributor to a greener future and boosting world demand. We are proud that Thompson can be part of that future and part of the low carbon solution.”
Vale continues drilling program at Manitoba
Coupled with today’s announcement, Vale is continuing an extensive drilling program to further define known orebodies and search for new mineralization.
“This $150mn investment is just one part of our ambitious Thompson turnaround story. It is an indicator of our confidence in a long future for the Thompson operations,” added Dino Otranto, Chief Operating Officer for Vale’s North Atlantic Base Metals operations.
“Active collaboration between our design team, technical services, USW Local 6166, and our entire Thompson workforce has delivered a safe, efficient and fit-for-purpose plan that will enable us to extract the Thompson nickel resources for many years to come.”
The Thompson orebody was first discovered in 1956 by Vale (then known as Inco) following the adoption of new exploration technology and the largest exploration program to-date in the company’s history. Mining of the Thompson orebody began in 1961.
“We see the lighting of a path forward to a sustainable and prosperous future for Vale Base Metals in Manitoba,” said Gary Annett, General Manager of Vale’s Manitoba Operations.