About this episode
Recording date: 11th March 2026Samuel Pelaez and Derek Macpherson of Olive Resource Capital recently discussed their strategic response to significant changes in the Arizona Sonoran Copper acquisition by Hudbay Minerals. The all-share transaction, announced at a $9.35 per share equivalent value, has declined to approximately $7.56 following broader market volatility triggered by Middle East geopolitical tensions. The sharp decline stems from systematic deleveraging across financial markets. Macro hedge funds operating on leverage faced forced position reductions as volatility increased, creating indiscriminate selling pressure across asset classes regardless of individual company fundamentals. This market-wide movement particularly affected industrial sectors and copper producers, driving down Hudbay's stock price and consequently reducing the value of their offer to Arizona Sonoran shareholders by nearly 20%. Rather than exiting the position as conventional wisdom might suggest following a merger announcement, Olive Resource Capital made the counterintuitive decision to increase their holdings. Their rationale centers on dual benefits: continued copper market exposure through the Hudbay share ratio, combined with a low but notable probability of a superior competing bid emerging. The firm estimates less than 10% odds of an alternative offer, which Pelaez characterizes as surprisingly high for friendly transactions. The unusually tight merger arbitrage spread, trading within 1% of transaction value, provides key supporting evidence. This tight spread suggests market participants are pricing some probability of alternative bids rather than treating the Hudbay transaction as certain. The deteriorated deal economics create plausible scenarios where cash bids previously deemed insufficient could now represent superior value. A hypothetical $8.50 cash offer that appeared unattractive compared to the original $9.35 consideration now looks competitive against the current $7.56 equivalent. This decision also reflects broader portfolio constraints. Olive Resource Capital seeks increased copper developer exposure as the next commodity bull market leg following gold, but faces limited high-conviction opportunities. The scarcity of quality copper development projects makes maintaining strategic sector allocation through Arizona Sonoran sensible despite the changed investment thesis post-announcement. Sign up for Crux Investor: https://cruxinvestor.com