The investment vehicle launched by mining executive Mick Davis has released investors from their financial commitments after the fund failed to agree any deals in three years.
X2 Resources has restructured the fund and changed its governance so that key investors no longer have a veto over potential acquisitions, according to sources close to the fund. It will consider raising capital on a deal-by-deal basis as Mr Davis and his team continue their search for bargains in metals and mining.
Mr Davis is one of the highest profile figures in the mining industry. He made a fortune building Xstrata into a FTSE 100 company before selling it to Glencore in a $30bn deal.
X2 was launched three years ago with total commitments of $5.6bn, including $500m from each of six key sponsors. Mr Davis’s vision was to create a metals and mining group from assets he expected miners to sell following the end of the so-called commodities supercycle.
But the overhaul of X2 highlights some of the difficulties private buyers have faced prising assets from large mining houses during the worst downturn in commodity markets for a generation.
X2 declined to comment on the restructuring, which was flagged earlier this year.
A number of former mining executives and bankers have set up private equity-style funds in anticipation of being able to pick up assets from cash-strapped miners. But none of them have been able to pull off a significant transaction because of the relatively high valuations demanded by sellers and more recently a rebound in commodity prices.
X2’s ability to do deals was hampered by its structure, which gave some key backers a veto on proposed investments. This made it difficult to complete transactions. Several North American investors with strict environmental mandates baulked at plans by X2 to acquire a group of Australian coal mines from Rio Tinto.
Mr Davis also approached BHP Billiton with an offer to buy a collection of its non-core mines, but the Anglo-Australian miner decided to stick with a plan to spin-off the assets into a newly listed company, which it said would generate more value for shareholders.
The decision to overhaul the fund came as two early backers — Noble Group, the heavily indebted commodity trader, and private equity group TPG — pulled their backing or indicated they would not renew their three-year commitment early next year.
The new structure is designed to make the vehicle more flexible and better suited to the current market environment. While it will consider funding transactions on a deal-by-deal basis, X2 will also examine other financing alternatives, people close to the fund said.
Private equity groups including Blackstone Group and Apollo Global Management are also scouring the sector for deals. They have also struggled to complete large acquisitions as miners have clung on to their best assets. But that could change if Apollo is able to complete a $1.5bn-plus deal to buy two coking coal mines from Anglo American.
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