SS Central America Comes Up Short: Bankruptcy Countdown

| About: Odyssey Marine (OMEX)


SS Central America recovery coming up short: “only a few small containers” recovered over the last month: We now believe the project will be clearly unprofitable overall.

We model cash balance hitting zero, with likely corresponding required bankruptcy filing July 16th after mid-month payroll & bills are paid.

Oceanica EIA still not filed, local environmental opposition appears to be building strength.

Creditors and vendors likely to be impaired at this point given high liabilities and little bill-paying cash liquid assets, will get worse with time and continued cash burn.

Odyssey Marine Exploration (NASDAQ:OMEX)'s fate appears to be coming down to the wire with their two key projects, SS Central America and Oceanica entering their "show me" phase in typical OMEX over-promise, under-deliver fashion. Just filed yesterday afternoon, the court has lifted the seal on the inventory of the treasure and… It's about time to tear up those lottery tickets and move on, the numbers have been called.

July 9, 2014 Letter To Court overseeing SS Central America: (emphasis ours)

Dear Judge Smith:

Pursuant to the Court's June 12, 2014 Order, we are writing regarding the upcoming arrival of the vessel [Odyssey Explorer] in Charleston on July 14. It is anticipated that there will be only a small number of artifacts available for offload and transport to the substitute custodian, likely comprising only a few small containers. All of these containers would easily fit into the trunk of a small vehicle.

(Click for Full Letter from case 2:14-cv-00160-RBS-LRL)

Treasure is Not A Renewable Resource

Announced and inferred recoveries have been on a decline curve, which makes sense as the best treasure would surely be recovered first. Things have declined from 1,000oz of treasure in the first 3 hours to only 5,000oz in the first 6 weeks and now just "a few small containers" after last month's work.

source Meson and OMEX PRs

SS Central America Likely To Be An Unprofitable Project

We now believe there is strong evidence that the SS Central America, like every other treasure hunting project, ever (Treasure Hunting Is the World's Worst Investment), will ultimately be unprofitable at a project level given the high expenses and extremely unprofitable when overhead costs are included:

source: Meson estimates, 10Q

Creditors and Vendors Likely to be Impaired At this Point

Based on our estimates (below) and in more detail here of the cash and liability balances, we believe a bankruptcy filing on July 16th is highly probable. We certainly hope at a minimum that OMEX does not bounce the paychecks of the men who have been working out in the stormy seas and puts their interests ahead of executive paychecks. It does seem likely at this point that there is no way that trade creditors will come out whole and likely that Fifth Third will be impaired on their "secured" loan on the SS Central America find, given that monetization is a long way away and there will likely be additional expenses incurred between now and ultimate realization.

This Certainly Contrasts to CEO Greg Stemm's statements at the AGM just recently:

We've already recovered over $100,000 in 1857 face value of ingots and other gold

As for the site itself, there is one thing that I can tell you without any qualification - and that is that anyone who thought that the previous operations twenty years ago recovered all the gold and valuables from the site was clearly mistaken. Nearly every day of seafloor operations produces new discoveries and recoveries of gold in a dazzling array of different forms.

Now that we've completed recovery of most of the gold and valuable artifacts on the surface outside the hull structure, we're starting on the excavation inside the hull itself.

Our estimates of cash and liabilities indicate best case OMEX has cash to last until August without a dilutive equity raise

source: Meson estimates, 10Q

Recall - the Fifth Third $10mm credit line is available for up to 50% of the appraised value of ingots or $2,000 per coin for the first $5mm borrowed and half of this for the second.

So with generous assumptions that all the gold was coins (it was stated as less valuable ingots…) at $100,000 face value = 5,000 oz * $20/oz. This would provide collateral for up to $7.5mm on this credit line ($5mm/$2,000/coin + $2.5mm/$1,000/coin = 5,000 oz), or $7mm unrestricted cash (there is a $500k restricted cash required as collateral that cannot be touched). In this "best case" cash may last another 2-3 weeks given the rapid $3mm/month cash burn.

Oceanica Monetization Appears Unlikely Given EIA Still Not Filed and Local Environmental Opposition Appears to be Strengthening

6-4-2014 AGM Presentation: CEO, Greg Stemm: I am pleased to report that this [EIA] filing - all 1,200 pages of it - is completed and ready to be filed shortly

See our other article for more details on this but it now appears there is substantial local pushback from environmental groups and the projects is facing challenges that have not been disclosed to shareholders.

Local newspaper article on environmental opposition and another:

(Google Translated from Spanish):

La Paz, Baja California Sur -. Advisory Council for Sustainable Development of the Northwest Region denounced attempts to establish a submarine in San Juanico phosphate mine authorized by the Ministry of Economy not submitted its Environmental Impact Statement to the SEMARNAT.

Disclosure: The author is short OMEX. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Ryan Morris, President, Meson Capital, has pledged to donate his personal profits from OMEX short sales to charity. Full disclaimer at