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Mick Davis

Rachel Idzerda/The Globe and Mail

There's a lot less to Mick Davis than there used to be.

Let's start with the man himself. When he was running Xstrata, the mining company he sold to Glencore, the world's biggest commodities trader, in 2013, he was a big man – "Big Mick," they called him. He topped out at 317 pounds and had developed Type 2 diabetes. In the interests of survival, he launched a hostile raid on his own girth. Today, Big Mick is on the verge of skinny, at 196 pounds, a downsizing so successful that he no longer has to take diabetes medications.

I ask him how he did it. "You eat less, exercise more, and stick to it," he says. "I took up cycling and I love it."

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His day job has shrunk too, even more so. At its peak just before the 2008 financial crisis, Xstrata, which bought Canada's Falconbridge in 2006, had a market value of about $85-billion (U.S.), making it the fourth- or fifth-largest mining company in the world, with almost 70,000 employees and contractors.

Today, he runs X2 Resources, which has 10 employees and zero assets other than $4-billion of investor capital, some of it from Canadian pension funds, sitting idly in the bank.

X2 was launched a year ago and has been shopping for mining assets or operating companies, but has come up short. Mr. Davis admits he is finding it harder to buy now than in the previous decade, when he spent $35-billion on 40 rapid-fire acquisitions in one of the greatest bull runs in history. "We've given some people an expression of interest," he said. "I expect to do a deal this year."

I meet the slim edition of Mr. Davis at X2's offices in Almack House, in the heart of imperial London, just off Pall Mall and St. James's Square. His offices are instantly familiar. In fact, they are the same offices used by Xstrata. Bowls of fruit are placed here and there, just like in the old Xstrata days, though I could not imagine any visitor gobbling a banana before meeting the boss. I certainly don't, though I sneak a grape or two.

Mr. Davis's own office is big and comfortable, with a red sofa and two red armchairs. It's 10 a.m. – too late for breakfast, too early for lunch – and Mr. Davis's assistant, Joyce, arrives with a caffe Americano for me, a tea for Mr. Davis and a plate of biscuits. They go untouched, of course, for Mr. Davis, 56, has no intention of breaking his rigorous, anti-sugar diet.

He is wearing his trademark John Lennon-style round glasses, a blue jacket, blue tie, pink shirt, suspenders, silver cufflinks, an apparently inexpensive electronic watch and, on his right wrist, a hefty silver bracelet. It is engraved with the opening sentence of the Shema, an important prayer in Judaism. It was a gift from his wife, Barbara, a lawyer who is also an accomplished silversmith. His children – two daughters and a son – wear similar bracelets.

Mr. Davis is wealthy. He recently donated £1.1-million ($1.5-million) to David Cameron's Conservative party to support its re-election bid in the May general election. He admits he doesn't need to launch X2 to support his lifestyle, though he would like to donate more money to his charities. What's really driving him is the urge to build once again.

"I still think I am pretty young," he says. "My philanthropic activities don't fill an entire day, so why not do it again? I think there is a great opportunity to capture value where the market has lost its conviction."

I first met Michael Lawrence Davis, who was born in South Africa, attended Rhodes University and is a chartered accountant by profession, in 2006. We talked in the lush garden of his 1950s house – a near mansion, really – in Hampstead, north London.

At the time, he was 48 and in the end stage of the biggest, nastiest takeover battle that Canada had ever seen – one that reshaped the country's entire mining industry. It pitted Xstrata against Inco for control of Canadian nickel giant Falconbridge.

At one point, Inco recruited Phelps Dodge Corp. of the United States as its partner – Phelps's audacious plan was to buy both Inco and Falconbridge. Then, if things weren't complicated enough, Vancouver's Teck Resources dived into the maelstrom with an offer for Inco.

In the end, it was Brazil's Vale (then called Companhia Vale do Rio Doce) that won Inco. Xstrata took Falconbridge, paying almost $19-billion in a deal that doubled Xstrata's size and vaulted it into the upper ranks of the London market's FTSE 100 index.

Not bad for a company that began life five years earlier as a small lump of coal assets discarded by Glencore. Big Mick had emerged as the industry's premier predator. "What motivates me is to be able to create and build," he said back then. "If you're going to be productive in your time in this world, you have to add to it. I have the capability of adding commercially."

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Even the financial crisis didn't deter him. In 2009, he went after mighty Anglo American, only to be rebuffed. By then, however, it was pretty much game over for Mr. Davis at Xstrata, not because he was sent packing by Anglo, but because he and Glencore CEO Ivan Glasenberg decided they didn't much like one another any more.

Mr. Davis won't talk about his relationship with Mr. Glasenberg, other than to confirm that there isn't one any more. But the broad outline of the end of what had once been the mining industry's most productive partnerships is well known.

Glencore owned 35 per cent of Xstrata and their relationship was symbiotic. Glencore bought into Xstrata's rights issues and backed Mr. Davis's takeover frenzy. As Xstrata expanded, so did the value of Glenore's equity in Xstrata, which was used as collateral for Glencore loans.

It all worked fairly well until late 2007 when Vale, a year past its Inco kill, began to negotiate a takeover of Xstrata. Together, the two companies would have displaced BHP Billiton as the top mining group.

It was not to be. Glencore cherished the trading rights for the enlarged group's iron ore, aluminum and nickel output, which Vale was loath to offer. With Glencore unwilling to support the Vale-Xstrata merger unless it came with the trading rights, the deal of the decade died in early 2008, angering Mr. Davis.

While Mr. Davis won't talk about the incident, an X2 investor who did not want to be identified said that X2's management presentation states: "Carefully crafted sale to Vale at the top of the market in 2008 blocked by major shareholder."

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The relationship between Mr. Davis and Mr. Glasenberg went downhill from there. Glencore initially opposed Xstrata's £4-billion rights issue, launched in early 2009. In 2012, as Glencore and Xstrata were plotting their merger, Mr. Davis and his lieutenants negotiated a lavish, £173-million retention package that was approved by Glencore's directors and Xstrata's independent directors. But the package was fiercely criticized and ultimately rejected by the independent shareholders.

At one point, Mr. Davis was to become chief executive officer of the merged company. But that idea also went nowhere, thanks to the soured relationship between the two men. Mr. Davis stepped down in early 2013 and all his top Xstrata men left with him. Mr. Glasenberg emerged as the supreme boss of the new company.

Mr. Davis has no intention of turning X2 into the next Xstrata. Still, it is his comeback vehicle – same senior team. But the mining market and the opportunities it presents to investors and wannabe buyers such as Mr. Davis are radically different than they were a decade ago.

Commodities recovered shortly after the 2008 financial crisis, then went into a long slump that continues today – copper is down more than 15 per cent in the past year, iron ore by 50 per cent. The culprit was not waning demand, Mr. Davis explains; it's still rising, albeit at a slower pace. Instead, it was epic miscalculation by the corporate captains and the investors who threw money at them. When prices were strong, the biggies invested fortunes in new mines and smelters and all the ports, ships and railways that went with them. These projects were vast, expensive and took many years to build.

All that new production is now hitting the market like a sledgehammer. "We have this synchronized, across-the-industry capacity expansion that was built on the assumption that the rate of growth and demand would remain at extraordinary levels," Mr. Davis says. "The product from those expansions are now arriving when growth in demand is slowing, principally in China."

At the same time, he notes, almost no mining CEO is willing to shut surplus capacity to bring supply and demand back into balance. Blame testosterone-fuelled CEO psychology: No one wants to lose the game of chicken.

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Just as the mining companies overinvested, Mr. Davis is gambling that they will underinvest as prices come down. That's why he wants to buy soon – at some point in the next few years, prices should bounce back, potentially sharply.

The trouble is, the mining companies have not, so far, been willing to sell unloved assets. "They might say, 'What happens if I sell now and the market turns tomorrow,'" Mr. Davis says.

There may be another factor: Perhaps Mr. Davis has been too smart for his own good.

Indeed, the industry is well aware that Mr. Davis knows the value-creation game better than most mining bosses. "If [Mick Davis] is a buyer, the question is, why are you a seller?" Bernstein Research analyst Paul Gait said recently in an SNL Metals & Mining Daily article.

But betting that Mr. Davis won't find a home for the billions that investors have handed him would be moronic. Mick Davis may never regain the Big Mick status of his Xstrata days, but there is little doubt he is about to pounce.

"I think 2015 could well be the sweet spot for us," he says.

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***

Mick Davis's favourite things

Book: Team of Rivals: The Political Genius of Abraham Lincoln, by Doris Kearns Goodwin

Movie: Gandhi

Music: The opera La Fille du Régiment, by Gaetano Donizetti

TV program: Foyle's War

Holiday destination: The Bushveld, in southern Africa

Sport: Cricket

Car: Bentley

Cuisine: Italian

Collection: South African art

Tailor: Canali

Mobile device: iPhone

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