Reports of interest in Rio Tinto’s coal assets in New South Wales and Queensland from a private equity fund called X2 first surfaced in London, a location which was also the first clue that a ball had been kicked into play – and that the a tricky turn had taken place in the sale process.
X2 is led by former Xstrata boss, Mick Davis, a man with a deep understanding of coal which makes him a potentially perfect new manager for the assets Rio Tinto is seeking to sell, if only because he is more likely to keep them operating than close them down.
But, and this when it gets interesting, X2 does not have any nearby mining interests and would not achieve any “synergy” savings by integrating what it might buy from Rio Tinto with its own mines.
In fact, X2 doesn’t own anything, anywhere. It’s just a pile of cash, estimated to stand at $US5.6 billion ($A7.33 billion), looking for a deal – or a bit of fun.
The company with the synergy assets that could be integrated with Rio Tinto’s mines, especially those in the Hunter Valley, is Glencore. It could make immediate savings measured in the tens of millions of dollars by running adjoining mines as a single operation.
Glencore has certainly been running a ruler over Rio Tinto’s coal assets but is reported to have suggested a price which is roughly half what Rio Tinto wants.
According to some reports Rio Tinto wants $4 billion and Glencore has hinted at $2 billion, a low-ball proposal which would leave Rio Tinto with egg on its face, and a $1 billion asset-value write-down in its next set of accounts, an event which is unthinkable to the Rio Tinto board given the pasting from critics over previous huge asset write-downs.
Enter X2 or, more importantly enter Davis, a man once close to the boss of Glencore, Ivan Glasenberg, but now a man who appears to be harbouring a grudge over the way he was forced out of Xstrata when it merged with Glencore.
Whether there really is ongoing animosity between the two one-time school friends from their formative years in South Africa has never been confirmed but it’s a reasonable assumption that Davis and Glasenberg have a competitive history that often continues with men well after their school days.
So, in the years since Davis and Glasenberg parted company over the Xstrata/Glencore merger there have been no reports of the men spending any time together socially, and certainly not doing business deals, or bumping into each other in an asset-sale process.
The might be about to change because it is possible that Rio Tinto’s planned exit from coal in Australia has created the perfect situation for Davis to score a win over Glasenberg, something the man from X2 would love to do.
Speculation as these suggestions might be it seems that the disagreement between Rio Tinto and Glencore over what’s a fair value for coal assets in NSW and Queensland has created an opportunity for Davis to stir-up the process.
Whether Davis has made an offer for Rio Tinto’s coal mines is not known. Nor is it known whether he invited himself to the party – or was invited by Rio Tinto.
It’s the second possibility which is interesting because it would be in Rio Tinto’s interest to have Davis take a look at what it’s selling, not just because it’s always better to have more than one potential buyer, but also because the entry of Davis could spur Glasenberg into upping his price if only to avoid having Davis as a coal-mine neighbour.
What also needs to be considered is that London connection mentioned earlier, and the fact that talk of X2 entering the sale of Australian coal assets first surfaced in Britain rather than closer to the action.
London is where all three principal players in Rio Tinto’s proposed sale of Australian coal assets live and work within a few kilometres of each other, and where a remarkably convenient meeting spot would be the Ritz Hotel in Piccadilly.
For Glasenberg it’s just a short walk down Berkeley Street from his office at No. 50 to the Ritz. For Davis it’s a short walk up St James’s Street, and for Rio Tinto’s Sam Walsh it’s a short drive from his new office near Paddington train station, or a pleasant stroll across Hyde Park.
The point of that lesson in London geography is that the location of the key men is critical to what happens next, just as their history of past encounters is critical – not to mention any personal dislikes, or scores to settle.
How easy it would have been for Walsh to invite Davis for a cuppa at the Ritz – and how easy it would have been to ensure that Glasenberg knew about that meeting.
As they say at the opening of the Olympics: “Let the games begin.”