Mick Davis' X2 Resources, the mining fund once touted as the driver of much-needed investment into the mining industry during the worst of the commodities price rout, is set to go under major changes after failing to close a single deal since launched in 2013.
Rumours circulated early this year that X2 had lost backers and was facing a looming overhaul. But it wasn't until the WSJ.com reported Friday that commodity trader Noble Group (SGX:N21) was pulling out of the mining investment vehicle, when it was clear X2 had touched bottom.
Recovering commodity prices and investors' veto on deals have frustrated Davis and his team in their search for mining and metals bargains.At the same time Noble withdrew its $500 million commitment, US private-equity firm TPG - also a founding investor of X2 - said it wouldn't renew its equivalent commitment when it expires in the first quarter of 2017.
That has left Davis, a mining veteran who led Xstrata from a $500 million business in the early part of the last decade to an operation so big that it - at one point - made a takeover offer for Anglo American (LON:AAL), with the only option of rethinking the venture. In WSJ.com's words:
X2 is looking at, for instance, whether it should continue to allow some larger investors to have the sort of veto that allowed them to block potential deals (...) That made it hard to buy anything, some of these people said. Some investors, for instance, didn't like coal assets given the increased attention to this fuel as a big pollutant, according to a person familiar with the matter.
Launched three years ago and with a later total of $5.6 billion as war chest, X2 Resources was supposed to get the many cheap assets that were up for grabs during the recent mining downturn.
The fund is believed to have tried buying BHP Billiton's unloved operations, which were later spun off and put under the South32 umbrella. It is also rumoured to have considered acquiring Vale's nickel business, some of Anglo American's assets, Rio Tinto's coal assets in Australia's Hunter Valley, and even a Canadian copper miner.
But with most commodities surging this year, especially thermal coal and gold, analysts believe the fund's window to grab bargains has closed, at least for now.