By Alistair MacDonald 

One of mining's heavyweights is betting on batteries to power his comeback.

Mick Davis, a key figure in the megamergers of BHP Ltd. and Billiton as well as Glencore and Xstrata, is raising money to invest in companies that mine the metals required to store power.

His wager: Efforts to move to low-carbon energy will require more batteries and provide a permanent shift in metals demand.

Once the preserve of consumer products, batteries are disrupting the automotive and energy industries by enabling electric vehicles and making it possible to store wind and solar power. Those trends have pushed many miners to expand into the metals used to make batteries, such as lithium, cobalt, graphite and nickel.

The last big secular change Mr. Davis said he bet on was China in 2002, when he became chief executive of Xstrata. Driven by a belief that resources like coal, copper and zinc would be in demand as China developed, he helped transform the small Switzerland-based miner via a string of deals into a more than $50 billion giant.

However, bankers say Mr. Davis will have to raise a considerable amount more than his current commitments to make a meaningful impact in battery metals. The market values of listed producers are already high and rising, while investing in explorers is a long-term bet, they say.

The 63-year-old is looking to bounce back after a recent venture, the mining fund X2 Resources, failed to make any investments despite raising $5.6 billion. Since then, the man nicknamed "Mick the Miner" has focused more on his involvement in Britain's governing Conservative Party than mining.

Mr. Davis said he realized the strength of the move toward greener fuels several years ago as global leaders criticized the Trump administration's environmental policies, including withdrawing the U.S. from the Paris climate accord.

"Donald Trump shone a light that there is a global consensus, that this was an inevitable direction of travel, and I wanted to be into it," he said.

Mr. Davis's new fund Vision Blue Resources Ltd. has so far raised $60 million and plans to amass a war chest of several hundred million. In its first deal, the fund recently invested $29.5 million in NextSource Materials, which is developing a graphite mine in Madagascar.

"There is a secular change in demand, not driven by GDP growth but by a consensus in government," he said.

Mr. Davis said he wants to invest in projects that he could help to bring to fruition, scale up quickly and that don't require big investments in infrastructure, such as roads and train tracks.

He expects demand for battery metals to be driven by electric vehicles and the need to store energy from renewable sources, whose output can be volatile.

Analysts are positive about demand for battery metals. The average amount of metal in an electric-vehicle battery today is 50 kilograms to 200 kilograms, which at current costs is $500 to $2,000 per vehicle, according to Bernstein Research.

"Multiply that by one billion electric vehicles, and you can see the potential for tremendous demand," Bernstein said in a recent report. Car makers say that within the next five years electric vehicles will cost the same amount to build as their gas-powered counterparts, propelling further demand.

Born and raised in South Africa, Mr. Davis first came to prominence as the finance chief of miner Billiton, which he helped list on the London Stock Exchange and later merge with BHP to create what is now the world's largest miner by market capitalization.

Mr. Davis then became CEO of Xstrata, which he rapidly grew. When the company combined with Glencore in 2013, it was Glencore's CEO, Ivan Glasenberg, who ultimately got the top job.

Since then, Mr. Davis has yet to replicate his early success. He set up X2 Resources in 2013 to buy mining assets but ended up returning the billions it raised to shareholders after failing to invest their cash.

Mr. Davis blamed X2's structure, which gave investors a veto on investments. "I made a fundamental mistake in the governance structure, which inhibited my ability to complete" deals, he said.

In 2018, Mr. Davis joined Niron Metals to invest in industrial metals such as iron ore, nickel and manganese. Along with the government of Guinea, the company is developing an iron ore deposit that was owned by Israeli businessman Beny Steinmetz.

A Swiss court in January sentenced Mr. Steinmetz to five years in jail for corruption related to a separate Guinea mining investment. The association with Mr. Steinmetz brought Mr. Davis negative headlines at a time when he was the CEO of the Conservative Party.

Through a spokesman, Mr. Davis declined to comment on Mr. Steinmetz. A lawyer for Mr. Steinmetz said he is appealing the conviction.

Mr. Davis, who has been knighted for his charity work for Britain's Jewish community, stepped down from his roles in the Conservative Party in 2019.

Mr. Davis said mining has changed since he was in charge at Xstrata. Pressure from investors means that miners are more focused on returning cash than investing in new projects, he said.

"One thing that has also changed is companies that own assets that have large carbon footprints are going to struggle to gain shareholders," he said, adding that investing in battery metals is a way to capture demand for commodities.

Write to Alistair MacDonald at alistair.macdonald@wsj.com

 

(END) Dow Jones Newswires

February 22, 2021 19:19 ET (00:19 GMT)

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