TPG & Mick Davis Just Pulled $1B Out Of The Mining Sector by Dave Forest, Pierce Points
This past weekend, I discussed the problems facing big natural resource investment funds. Noting how deep-pocketed buyers have been unable to find quality assets to pick up, even at the depths of the recent commodities downturn.
And news over the weekend shows some other big observers are also watching these issues.
In his 2021 year-end letter, Baupost's Seth Klarman looked at the year in review and how COVID-19 swept through every part of our lives. He blamed much of the ills of the pandemic on those who choose not to get vaccinated while also expressing a dislike for the social division COVID-19 has caused. Q4 2021 Read More
One of the funds I highlighted in my analysis was X2 Resources, run by former Xstrata head Mick Davis. An outfit that has raised $5.6 billion in funding, but has failed to complete a single deal in three years.
And now, some of X2’s biggest backers want their money back.
The Wall Street Journal reported late Friday that commodity trader Noble Group is pulling out of X2. Withdrawing a $500 million commitment it gave as one of the original financiers of the fund.
At the same time, U.S. private equity firm TPG — also a founding investor of X2 — said it will not renew its $500 million commitment to the fund when it expires in the first quarter of 2017.
That makes a full $1 billion in cash fleeing this high-profile mining vehicle. Representing nearly 20% of X2’s capital.
And it will be interesting to see what happens with X2’s remaining investors — rumored to include Abu Dhabi Investment Council and a number of Canadian pension funds. All of whom are surely feeling less secure now that the foundational investors are heading for the hills.
The withdrawal of Noble and TPG’s capital is also a critical sign of the times. Showing that big investors are losing their patience with mining “vulture” funds — in light of these firms’ near-complete inability to execute on asset purchases.
That could mean more withdrawals coming from X2 and similar funds. Which will make it interesting to see if some of these funds rush to do deals over the next several months — in order to use capital before it gets snatched away, and show that they’re getting more active in deploying money.
If so, the rest of 2016 could be an opportune time for project developers seeking funding — especially larger amounts, in the hundreds of millions or even billions. Watch for deals being announced in this space.
Here’s to getting off the pot,