Mick Davis Follows Buffett's Advice By Investing In Mining When Others Are Fearful

Mick Davis, the second half of the double act which made Xstrata Xstrata one of the world’s biggest mining companies, is taking a leaf from Warren Buffett’s play book by investing in resources when others are fearful.

Days after quitting as chief executive of Xstrata, Davis has restarted his resources career reportedly commissioning Goldman Sachs to help raise funds for a new mining-focused fund.

Mining group Xstrata CEO Mick Davis leaves a shareholders assembly on November 20, 2012 in Zug. Shareholders of Swiss commodities giant Glencore overwhelmingly approved a tie-up with Swiss mining giant Xstrata, during an extraordinary general assembly meeting today wit Xstrata shareholders voting this afternoon to follow suit or not. (Image credit: AFP/Getty Images via @daylife)

For investors with memories that stretch back a decade the move to start building a mining fund has a déjà vu feeling to it because that’s exactly what Davis did in 2002 when he teamed up with long-time colleague, Ivan Glasenberg, to create Xstrata out of a moribund corporate shell.

Through a series of deals Davis and Glasenberg grew Xstrata from a business valued at $500 million into one valued at $50 billion.

As a team, Davis and Glasenberg were formidable with complementary skills. Davis as the mining project developer and deal maker. Glasenberg as the brains (and brawn) behind the big commodities trading house, Glencore.

During a decade of hectic corporate activity the duo outmanoeuvred most rivals to snap up control of some of the world’s biggest mining houses, including Canada’s Falconbridge and Australia’s Mt Isa Mines.

Their relationship ended during a dispute over the terms of a deal to forge a single business out of Xstrata and Glencore, with Glasenberg annoyed that Davis joined a push for more generous terms, a demand which was met but which also turned a so-called merger of equals into a hostile takeover and the break-up of the team.

Now, with Glasenberg busy bedding down the new-look “GlenStrata” as the business has been dubbed, Davis is striking out on his own, at an interesting time in the commodities cycle.

If he’s got the timing right again Davis could be shopping for mining assets at the bottom of the cycle, just as he was in 2002 with plenty to choose from as most of the big mining houses dump assets as part of an industry wide cost-cutting drive.

If he’s got the timing wrong and moved too soon on rebuilding he could be in for a rough ride.

Whatever the outcome there is no doubt that Davis is putting into practice one of Buffett’s famous sayings: “We simply attempt to be fearful when others are greedy, and to be greedy only when others are fearful”.

What Glasenberg makes of his ex-partner re-entering the resources sector is unknown, but it will be interesting to see if he emerges with a stake in the Davis return business.