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."
Copper production from top ten companies to increase by 3.8%
Copper production from the world’s top companies is set to increase by up to 3.8% this year, following a fall of 0.2% in 2020, GlobalData analysis reveals. Last year’s marginal slump saw production drop to 11.76 million tonnes (Mt).
The initial impact of the COVID-19 pandemic on mining operations was immense, however, six of the ten largest copper producers succeeded in increasing output last year. In 2021, copper production from the top ten copper companies is expected to bounce back, rising by up to 3.8%, to reach 12.2Mt, according to GlobalData, a leading data and analytics company.
The highest increase in copper production was by Canada’s First Quantum, which, despite all the challenges, reported 10.4% growth in 2020. The company’s Sentinel mine in Zambia and Cobre Panama were key contributors to this growth. While the latter remained under care and maintenance between April and August 2020, it delivered record production levels during the subsequent months.
Codelco, the world’s largest producer of the red metal used in electric vehicles, also bucked the trend.
Vinneth Bajaj, Associate Project Manager at GlobalData, commented: “Despite Codelco reporting over 3,400 active cases during July 2020, the company achieved 1.2% growth in its production in 2020. The company implemented a four-phase plan, as part of the COVID-19 measures, to ensure the health and safety of its employees, while also avoiding any significant impact to its copper output.”
Although the overall impact was minimal, declines in production were observed from Glencore (8.2%), Antofagasta (4.7%), BHP (3.9%) and Freeport McMoRan (1.3%). Reduced operational workforces due to COVID-19 measures, lower ore grades and production halts due to maintenance were the key disruptors to output during 2020.
The move towards electric vehicles and clean energy from renewables sources such as solar panels and wind turbines has driven the copper price to all-time highs. Copper has been among the best performers over the last month where metals ranging from aluminum to iron ore have surged to their highest prices in years. The rally is being fueled by stimulus measures, near-zero interest rates and signs that economies are recovering from the global pandemic.