Xstratas Davis prepares record deal in mining

London, May 17 | Updated: May 18 2006, 05:30am hrs
Xstrata Plc Chief Executive Officer Mick Davis, a year after losing to his former employer in the bidding for Australias WMC Resources Ltd., is now poised to pull off the biggest takeover in the mining industry.

Davis on Wednesday made an unsolicited C$20 billion ($18.1 billion) bid for Canadian nickel miner Falconbridge Ltd., topping a proposal from rival Inco. Ltd. In March last year, Xstratas hostile offer for WMC was trumped by an offer from BHP Billiton, where Davis was finance chief for almost four years to 2001. Were not always losers, you know, Davis said in a telephone interview in London today. This will create a marvelous diversified mining company.

Winning Falconbridge would catapult Zug, Switzerland-based Xstrata into the ranks of the worlds four biggest miners, behind BHP Billiton, Anglo American Plc and Rio Tinto Group. The deal would double the companys sales to about $17 billion and make it the biggest miner of zinc and fourth largest of copper.

Xstrata will pay C$52.50 a share for the 80% of Falconbridge it doesnt already own, it said in a statement. The proposal is 12% more than Incos May 13 offer and values Falconbridge at C$20 billion, Xstrata said.

Its a very typical, clever deal for Mick Davis, said Graham Birch, who helps manage about $8.5 billion in mining assets for Merrill Lynch Investors Managers Ltd. in London. If Xstrata succeeds, Davis will look like a hero.

Since joining Xstrata almost five years ago, Davis, 48, has presided over a 300 percent increase in the companys share price, transforming it from a small-time producer of vanadium into the worlds largest exporter of thermal coal with interests in four continents and 26,000 employees.

Davis is a growth-orientated manager and wants to be one of the bigger players, Mark Pervan, head of research at Daiwa Securities SMBC in Melbourne, said today. He cant do that organically; they dont have the quality asset base.

Buying Falconbridge would put Xstratas acquisitive strategy back on track, after its failure to buy Southbank, Australia-based WMC Resources. Xstrata last March offered $7.2 billion for the nickel miner before being outbid by BHP Billiton, which paid $8.2 billion.

Xstrata sold 870 million pounds ($1.57 billion) of shares in March 2002, and used the proceeds to buy coal mines from Glencore International AG, a closely held Swiss commodity trader that is also its largest shareholder. The next year it paid $2.2 billion for Australian nickel producer M.I.M. Holdings Ltd.

Xstrata bought a 20% stake in Falconbridge in August. Davis said at the time the purchase gave Xstrata the option to make a full takeover offer or sell the stake in the future for a profit. Fueled by rising metal prices, shares of Falconbridge have surged 85 percent.

In March, Xstrata agreed to buy a third of Colombias Cerrejon, the worlds largest coal mine for $1.7 billion. On Tuesday, Xstrata said it will pay BHP $750 million for the Tintaya copper mine in Peru.

Davis, a South African, earned a bachelors degree at Rhodes University in South Africa before becoming an accountant at Peat Marwick Mitchell & Co. He left in 1986 to join Eskom Holdings Ltd., Africas largest power supplier, as executive director.

In 1994, Davis was hired as finance director of South African miner Gencor Ltd. after narrowly losing out on the appointment as CEO of Eskom, said former Gencor chairman Brian Gilbertson. The two then turned Gencor into what became Billiton Plc.

Hes one of the most competent people Ive met in my career, said Gilbertson, whos now the president of Sual Group, Russias second-biggest aluminum producer. He does an excellent job of deciding whether to do any transaction and then carrying it through, he said by telephone from Moscow.

Billiton moved to London in 1997 and the following year acquired nickel producer QNI Ltd. and South Africas Ingwe Coal Corp. In 2001, Billiton was acquired by Australias BHP Ltd.

Since its 2002 London share sale, Xstratas stock has risen 363%. Shares of BHP Billiton have gained 313% in that time. Rios stock has advanced 231 percent and shares of Anglo American, the No. 2 miner by sales, have risen 215%.