ABX Barrick Gold Corp. (BC) (delisted)

X2 Resources, the massive fund once hailed as the leader of a new wave of investment into the beleaguered mining industry, is restructuring after losing two key investors and failing to execute any deals, according to people familiar with the matter.

Launched in 2013 by Mick Davis, the former chief executive of miner Xstrata PLC, the fund won commitments of $5.6 billion on the promise of picking up bargains as the commodities' bust forced fire sales.

X2 Resources was one of several private-equity style funds founded by high profile former mining executives and bankers that were trumpeted in the media and industry as a key source of funding for a sector that investors were fleeing. But none of these funds have made significant investments.

The fire sale didn't happen, and for X2, its structure, in which some key investors had a veto on proposed investments, meant that it was particularly hard to get deals done.

Now, Noble Group, the commodities trade house, has pulled its $500 million commitment and U.S. private-equity firm TPG won't renew its equivalent commitment when it expires in the first quarter of 2017, people familiar with the matter said.

Mr. Davis declined to comment.

The fund's other contributors included Abu Dhabi Investment Council, and three Canadian pension funds—PSP Investments, Ontario Teachers' Pension Plan, and Caisse de Depot et Placement du Quebec—as well as a number of smaller investors, according to the people familiar with the matter. The six key investors committed $500 million each, these people said.

X2 is currently restructuring and looking at, for instance, whether it should continue to allow some larger investors to have the sort of veto that allowed them to block potential deals, according to the people familiar with the matter. That made it hard to buy anything, some of these people said. Some investors, for instance, didn't like coal assets given the increased attention to this fuel as a big pollutant, according to a person familiar with the matter.

Other investors are also in negotiations on issues including changing their financial commitment to the fund, with potential for more to pull out of their commitments, one of these people said.

Mr. Davis built Xstrata into an empire valued at more than $50 billion. But the South African executive left the company after Glencore International PLC completed a $29.5 billion acquisition of it in May 2013. His idea was to create a new midsize mining and metals group from a diversified range of mining assets that would be sold amid falling prices following the commodities bust in 2011.

Mr. Davis was among a number of well known industry names who set up private-equity style vehicles in anticipation of cheap assets. Former J.P. Morgan resources banker Lloyd Pengilly started a venture called QKR, backed by money from the Qatar Investment Authority and a Polish investor. Aaron Regent, the former chief executive of mining giant Barrick Gold Corp formed Magris Resources Inc.

But none of these funds have been big spenders. Magris invested $500 million in a Canadian mine sold by IAMGOLD Corp. QKR bought a gold mine in Namibia for $110 million from AngloGold Ashanti. Last year its Qatari backers launched a review which appeared to signal a retreat from resource investments.

X2 has yet to buy at all.

Meanwhile, the mainstream private-equity giants, such as Blackstone and Apollo, that also began looking at mining takeover targets, have yet to follow their interest up with big deals.

The price of mined commodities, from copper to potash, plummeted from late 2011 as an expected increase in emerging market demand failed to match the extra supply that had been laid out to cater for it. But even as mining companies struggled with lower prices and high debts, the anticipated wave of cheap assets didn't come to market.

Believing their companies were undervalued, miners had high price expectations for their businesses even as their shares fell. Lenders have also been supportive of the sector and fewer-than-expected firms have gone bust as they rode out the downturn by stripping down operations and cutting costs.

Having not picked up assets as share prices fell, these funds now face a rising market. Commodities from gold to coal have gained this year and shares in the companies that mine them have followed. The S&P Global Natural Resources Index, for instance, is up around 22% year to date.

Matthew Jarzemsky and Nicolas Parasie contributed to this article.

Write to Ben Dummett at ben.dummett@wsj.com and Sarah McFarlane at sarah.mcfarlane@wsj.com

(END) Dow Jones Newswires

July 15, 2016 14:15 ET (18:15 GMT)

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