Mick Davis says commodities prices close to bottoming out

Mick Davis, one of the mining sector's most prolific dealmakers, on Tuesday declared that commodities prices were close to bottoming out, and signalled that this may be the year his X2 private equity vehicle starts buying assets.

The sector has been eager to see how the former Xstrata chief executive would invest after he raised up to $5.6bn to fund his ambition of building a mid-tier diversified miner.

At the FT Commodities Global Summit in Lausanne, Mr Davis said there were now "squeaks of distress" from some companies, with plunging commodities prices hitting corporate valuations.

"Are we towards the bottom of the market? Yes. Whether we have reached the bottom of the market, I would not know," he added.

Mr Davis said that copper and zinc were attractive assets to invest in, adding that some markets which "people are completely out of love with", such as coal, also offered buying opportunities.

"When I look at where multiples have gone to on listed entities, and what is becoming available in potentially bilateral private transactions . . . I think this year seems to me a year when deals will be done," he said.

During the previous decade, Mr Davis turned Xstrata into one of the world's largest mining companies during a boom period for commodities triggered by Chinese growth.

After leaving Xstrata following its takeover by Glencore in 2013, he set up X2 with funds from backers including Noble Group, the commodities trading house, and TPG, the private equity firm.

Mr Davis said that he had not lost conviction about robust long-term demand for commodities but criticised the "short-termism" of public equity markets, adding that he preferred private capital from "people who had a long-term perspective . . . and share my conviction".

"I didn't want to be backed by people who turn around to me in six months' time and say 'Why aren't you doing this?' or 'Have you done that?'" he added.

A lot of investors in public companies think that the mining sector "is run by a bunch of muppets and wants to withdraw their money as opposed to investing their money", he said.

Mr Davis said that X2 had been "quite careful in waiting" to find investments, and that the company was expected to combine the equity committed by investors with debt funding to do deals. "I don't feel under pressure to invest precipitously . . . I felt conditions would move more in our favour and I think that has happened."

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Anglo American is selling coal and copper operations, while X2 held talks with BHP Billiton over potentially buying a portfolio of assets that the miner deems non-core.

BHP instead decided on a plan to spin off the assets into South32, a separately listed company, with shareholders set to vote on the proposal next month.

Mr Davis said that copper and zinc were attractive because there was likely to be constrained supply coupled with broad demand.

With regard to thermal coal, burnt in power stations, he said that the commodity was "at the lowest ebb in terms of investor confidence . . . yet there are assets there in the right geographies, that can supply the right markets, which could well be interesting."

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