Copper Market Inefficiencies Emerge as Supply Disruptions Meet Muted Price Action

Compass, episode 17

Our previous interview: https://www.cruxinvestor.com/posts/why-resource-stocks-dip-in-spring-rise-in-fall-7159

Recording date: 30 May 2025

Olive Resource Capital delivered exceptional Q1 2025 results, reporting over $1.1 million in net returns—equivalent to one cent per share—while their stock trades between three and four cents. The portfolio gained 17% during the quarter, with net asset value per share rising over 20% due to strategic share buybacks.

Executive Chairman Derek Mcpherson and President/CEO Sam Pelaez attribute the record performance to a fundamental shift in investment strategy. The firm abandoned diversified holdings in favor of concentrated, high-conviction positions in companies like Omai and Troilus. "We weren't winning enough" with their previous approach, Pelaez explained, prompting the move toward fewer but stronger positions.

The strong Q1 was primarily driven by precious metals exposure, particularly gold, though momentum has flattened through May. This has shifted focus toward copper opportunities, where the managers see significant potential despite market inefficiencies.

A key catalyst emerged from operational problems at Ivanhoe Mines' Kamoa-Kakula facility in the Democratic Republic of Congo—one of the world's top five copper assets. Despite the flooding-related shutdown, copper prices remained surprisingly stable. "Normally when a top five copper asset shuts down the market moves," Mcpherson noted, suggesting the muted response may create entry opportunities.

The copper investment landscape presents unique challenges, with only five to eight meaningful mid-cap companies available, each carrying specific drawbacks that stretch valuations. Olive Resource maintains copper exposure through junior developers including Arizona Metals, backed by Rio Tinto and Hudbay, and Sterling Metals, which recently announced impressive drill results of 359 meters at 0.36% copper equivalent.

The firm's dual-portfolio approach—maintaining liquid positions for tactical trading while holding concentrated junior positions for fundamental plays—reflects sophisticated market understanding. With major copper assets going offline while demand projections grow, Olive Resource appears well-positioned for potential copper market inflection points.

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