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AMM analysis: The return of Mick Davis

Keywords: Tags  Mick Davis, Ivan Glasenberg, Glencore Xstrata, X2 Resources, X2 Partners, Noble Group, TPG, Andrea Hotter


LONDON — Former Xstrata Plc chief executive officer Michael "Mick" Davis is back.

His new venture, X2 Partners Inc., has set up a $1-billion partnership with commodities trader Noble Group Ltd. and private investment firm TPG Capital LP to create a new mid-tier diversified mining and metals group through the acquisition of assets and businesses (amm.com, Sept. 30).

The new venture, X2 Resources, is already in talks to attract additional investment from other potential participants. Glencore Xstrata Plc is unlikely to be on the list of potential investors Davis is targeting.

Baar, Switzerland-based Glencore, one of the largest mining companies globally and already the biggest in metals marketing and trading, recently stuck the knife somewhat into the Xstrata way of doing business, in particular criticizing its decentralized management approach.

"At Xstrata, each division had a corporate office in every city; they were running a silo effect. Each guy didn’t know what the other was doing; IT wasn’t even working together. It was a frustration with me," Glencore Xstrata chief executive officer Ivan Glasenberg said during an investor day presentation. "Mick (Davis) ran the silo effect. Mining engineers were serving as chief executive officers; we like mining engineers to run mines."

Glencore Xstrata expects to save $2 billion from the merger integration next year, well above more recent analyst predictions of $1 billion to $1.5 billion and quadruple the savings it had anticipated.

It was a bit of a slap in the face for Davis, who has kept a dignified silence on his feelings toward the merger with Glencore, and who has said in the past that one of the reasons Xstrata’s market capitalization grew to $50 billion from $500 million within 10 years was management’s light touch from the center.

"I think it’s appropriate to be very centralized when you’re running trading companies, because you need to see the risks that are being created and you want the people with the risks to be sitting outside your door, so you know what they’re doing," he told AMM earlier this year. "But for running a company that operates in so many different geographies, and with so many different issues on the ground that need to be managed, a decentralized basis is advantageous."

By picking Noble Group over Glencore Xstrata as its preferred marketer and provider of supply chain management and logistics services, X2 Resources has already shown the relationship with the Swiss trading arm of the merged company will be at arm’s length at best.

Noble chief executive officer Yusuf Alireza also made it clear that the company isn’t trying to leverage its new relationship with X2 Resources into a merger some day. "The investment (in X2 Resources) is consistent with our previously communicated strategy of focusing primarily on our core competence as a supply chain manager rather than a producer of natural resources," he said.

In all likelihood, both X2 Resources and Glencore Xstrata will target some of the same assets and businesses for acquisition in the coming months.

During Glencore Xstrata’s release of interim results in August, Glasenberg said that the company was looking opportunistically at "many, many assets" around the world and had the balance sheet to match its ambitions.

Game on.


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