Did Oceanica Have Permission From SEMARNAT For Core Sample Drilling?

Jul.30.14 | About: Odyssey Marine (OMEX)

Summary

New investigative report by local reporter in Mexico exposes Oceanica as not having environmental permits from SEMARNAT for the core sample drilling announced by OMEX.

According to a source on the ground, Daniel de Narváez, Oceanica Director, has repeatedly been cancelling meetings over the last month with local fishing coops and politicians.

Daniel de Narváez owns Oceanica stock via DNA Ltd Inc, a Panamanian corp using unnecessary proxy directors with alleged criminal connections we documented October 2013.

Marcos Covarrubias, Governor of Baja state pledges to protect the fishing industry from Oceanica.

July 29 OMEX PR hyping EIA does not even have a timetable for submission: We believe OMEX will file bankruptcy before EIA is filed - only weeks of cash remaining.

Odyssey Marine Exploration (NASDAQ:OMEX)'s Oceanica underwater phosphate project is hitting even more trouble as exposed by a local reporter in Baja, Mexico.

Notably around the middle of the report (emphasis ours):

However, the SEMARNAT delegation in Baja California Sur rejected the existence of any paperwork. José Carlos Cota Osuna, the agency representative, said it had not currently started work on any permits held by Exploraciones Oceánicas, S. de R.L. de C.V. "It was months ago that the Puerto Chale Cooperative questioned if there was an ongoing project evaluation; there is no record", he explained.

Therefore, Oceánica Exploraciones is violating the provisions laid down in Section III of Article 28 of the General Law of Ecological Equilibrium and Environmental Protection (LEGEEPA)

This states that prior authorization for environmental impact is required from of the Ministry of Environment and Natural Resources (SEMARNAT), the "exploration, exploitation and processing of Federally restricted minerals and substances under the terms of the Mining Law and the regulation contained in Constitutional Article 27 on Nuclear matter".

This rule can also be found and confirmed on page 18 in the Mexican Mining Guide (translated to English)

July 28, 2014 Local Mexican Article (Translated to English):

Oceanic Exploration drilling conducted without permission of SEMARNAT

source: Article. Phosphate dredgingClick to enlarge

Exploraciones Oceánicas make 360 drills in Comondu without permission from SEMARNAT

La Paz, Baja California Sur (BCS). The gigantic bow of the boat cut through the small waves of the Gulf of Ulloa, and sped through the water like a hot knife slicing butter; the fishermen of Las Barrancas and San Juanico had never seen anything like it. It was not even close to resembling one of the flotilla ships that arrive each year to the Comundeña coast from Sinaloa and Sonora to trawl for shrimp, sardine or any other species that get stuck in the trawler nets. No, this ship was unquestionably looking for something else on the seabed: phosphate.

Sightings of this vessel have been coming in since January 2013. Thomas Camacho, a technical adviser wih the Puerto Chale Fishing Cooperative, leans back in his chair while he remembers the time when he saw the colossal floating metal beast for himself. He looked on in awe one day that month as he was busy preparing for the coming lobster season. It made him remember the huge transatlantic cargo ships that carry containers from one continent to another. It looked almost static. A few months later, people calming to be members of Oceanica Exploraciones, S. de. R.L., contacted the fishing group.

Before the interview with the fisheries engineer began, he was taking his time putting a pile of yellow folders on the left hand side of his desk. He apologized and warmly greeted me. Five minutes later, he clasped his hands together on his sky blue Hawaiian shirt, and explained the concerns that had surfaced in the presence of a Colombian representative of Oceánica Exploraciones, S. de. R.L, Daniel de Narvaez, and the whole idea of offshore mining. They want to exploit the marine areas of Don Diego, Don Diego Norte and Don Diego Sur. We know for sure that the company bought the rights for 740 thousand pesos from the Ministry of Economy, which gave them mining concessions covering more than 34,993 Hectares.

With the monitor turned to face me, he showed me charts representing lobster movements near the Gulf of Olloa, north of Bahia Magdalena, in an effort to illustrate the dearth of information that exists on the behavior of the Spiny Lobster. He was afraid that the movement of the larvae in the currents, and fishing activity in the area, would be affected by the dredging activity that sucks up the seabed in order to extract the phosphorous. But when he spoke of the behavior of the spiny lobster, the situation was different. He recalled the research carried out by Rogelio Gonzalez, an expert at the Northwest Center for Biological Research ((CIBNOR)) that the species is located north of the area given to the subsidiary of Odyssey Marine Exploration, of Tampa, Florida.

The Illegality of Odyssey Marine Exploration´s activities

On the second floor of the Puerto Chale Fishing Cooperative building in La Paz, leaning against a black railing, is Arturo Gonzalez Ramirez, an external business advisor for the fishing and mining sectors. He repeated his accusation for me: Odyssey Marine Exploration, through Oceánica Exploraciones, S. de. R.L, who registered the name on March 13, 2012 in the Public Registry of Property and Commerce of the Federal District, and which is held in Electronic Commerce File No. 469886-1, began exploration without prior authorization from the General Directorate of Ecological Balance (DGIRA), part of SEMARNAT.

Thanks to an article in the Wall Street Journal that reprinted the official page of NASDAQ (acronym of National Association of Securities Dealers Automated Quotations), Arturo learned that the company had submitted a preliminary technical report at the site of the phosphorus deposits belonging to Ocean Exploration. Up to the 7th of July this year, they calculated the possibility of extracting 327.2 million tonnes of ore, with 18.5 percent phosphorus pentoxide (P2O5): "an increase of 20% on the previous total of 273.5 million tons of ore from the preliminary assessment".

The president of the fishing group, Amado Navarro Higuera, hired Gonzalez Ramirez for his experience on the subject upon hearing of the rumoured offshore mining activity, and the Gulf of Ulloa Manifesto was born. After its publication, said Arturo, the investors organized a number of meetings through the Ministry of Economy delegation at the end of 2013 and during March 2014. In these meetings, representatives from the company denied having initiated operations along the coastal areas.

Straight away, Gonzalez Ramirez - who at the time was contracted by Oceánica Exploraciones to begin a dialog with the cooperative and fishermen of San Juanico and Las Barrancas - communicated with Daniel de Narvaez. The reason behind this was a publication about a "qualified person" producing a report containing information from samples taken from 199 drill holes in the offshore deposits, which in turn had been compared to others obtained in 161 pre-drilling holes. In the end, more than 760 samples have been tested in the Industrial Phosphate Research Institute in Florida.

To confirm that Exploraciones Oceánicas were lying, a couple of emails were delivered to BCS News. The first is the rebuke made by González Ramírez to the study showing that the seabed had been drilled.

"during multiple conversations with fishermen, it has been reported that the EXO (Exploraciones Oceánicas) project has drilled to obtain the cores. They have only said that they took temperature and current measurements using surface equipment. Although the memo is very clear in stating that this has not been carried out in areas under concession, it makes no difference to the mining project detractors. And I mean that in the future they would have to make matches between revealing" wrote at 19:58, on 07 July 2014, González Ramírez freelancebaja@yahoo.es in your account. And I allude to the fact that they will have to ensure that the future agrees with what is revealed today." Sent on 19:58, 07 July 2014 from the account of Gonzalez Ramirez, freelancebaja@yahoo.es.

Minutes later, he received a reply in his inbox from danieldenarvaez@yahoo.com, who was clearly angered by the consultant.

"They have never refuted the fact that drilling has been carried out, at least not in front of me. The research on organisms, the phosphate chemistry, and the contours and definition of the deposit can only be made with samples taken from the seabed. How else would you do it? By taking photos? No one with even the slightest knowledge of how to conduct underwater explorations could ever think you can do an EIA (Environmental Impact Assessment) without taking samples and coring. The perforations were done with the permissions from the Arturo case".

However, the SEMARNAT delegation in Baja California Sur rejected the existence of any paperwork. José Carlos Cota Osuna, the agency representative, said it had not currently started work on any permits held by Exploraciones Oceánicas, S. de R.L. de C.V. "It was months ago that the Puerto Chale Cooperative questioned if there was an ongoing project evaluation; there is no record", he explained.

Therefore, Oceánica Exploraciones is violating the provisions laid down in Section III of Article 28 of the General Law of Ecological Equilibrium and Environmental Protection (LEGEEPA)

This states that prior authorization for environmental impact is required from of the Ministry of Environment and Natural Resources (SEMARNAT), the "exploration, exploitation and processing of Federally restricted minerals and substances under the terms of the Mining Law and the regulation contained in Constitutional Article 27 on Nuclear matter".

Article 30 of the LEGEEPA also states that "in order to be granted the authorization referred to in Article 28 of this Law, the interested parties must provide the Ministry with an environmental impact statement, which must contain, as a minimum, a description of the possible effects on the ecosystem(s) that could be affected by the work or activity in question".

"In my opinion, they speculate in fictitious situations, it will be a huge bit of business, but it is all on paper, they cannot afford to actually mine it. They are searching for partners", stated Arturo González Ramírez.

Offshore phosphate mining: a geopolitical issue

The dredging of phosphatic particles in the Pacific Ocean along the coast of Comondú, would be equivalent to the amount of work done in England to extract stone materials, i.e. sand, from the seabed, which is used in construction; said Daniel Narvaez, director of Exploraciones Oceánicas, in an exclusive interview with BCS News. The barge sucks up the sea bed through a long hose. 55 percent of which is linked to phosphate. The surplus passes through a vibrating sieve connected to a hydrocyclone system. The unwanted remains are deposited back to the ocean floor without applying any chemicals, he added.

In the interview, Daniel Narvaez was accompanied by his environmental consultant, Richard Newell, co-author of the research paper "The direct and indirect impacts of aggregate dredging", and by the underwater anthropology expert, Claudio Lozano de Librero. "Phosphate is essential for life; nothing can replace it", argued the Oceánica Exploraciones representative, as if trying to convince those present. The planet earth depends on Morocco, which produces 85 percent in world's largest non-renewable natural resource reserve. It is in the Western Sahara where the Spanish colonialists and Moroccan groups contest these monumental reserves.

It is used in agriculture and food production, he went on, and Mexico could become fully self-sufficient by exploiting the seam. "In 2002, Mexico imported about 20 percent of its food. In 2018 it will be importing 70 to 80% because it has no way to produce what is needed to create fertilizers", he revealed as the silence of the two researchers went unnoticed due to the background noise of clattering dishes, conversations and music in the restaurant.

"This deposit has great geopolitical repercussions, because independent of the impact of dumping the surplus, it would involve treaties with neighbours, and could reduce the need for the 93 percent of phosphate that is currently imported from Morocco; the reserves in the United States are dwindling. The global view of phosphate - continued the businessman - specifically for marine phosphate, is based on flawed concepts and speculation, such as the death or the end the environment. This is simply not true".

Given the importance of the deposits, Odyssey Marine Exploration, co-founded in 1994 by Greg Stemm, diverted their efforts from salvaging ancient shipwrecks carrying shipments of precious metals in different parts of the ocean. They forgot about marketing or selling their treasures or television reports about the recovery process, in order to join with DragaMex, who since 1994, has carried out ​​220 ​​dredging projects in Mexican ports and rivers, Narváes said. DragaMex owns the immense boat that houses the equipment needed to extract the seabed, and which was used to carry out the unauthorized analysis.

"We made a collection of data including seabed samples and current temperature measurements. We have taken various samples in the field, with permission from SEMARNAT, in order to do an Environmental Impact Assesment (NYSEMKT:EIA), and to identify the zone. We could not make predictions on the project without first visiting the site (…). So we are carrying out a campaign to collect biological and chemical data. That we have done." The Colombian businessman confessed.

He even recalled that an expedition set sail in July 2013 with scientists from the National Autonomous University of Mexico (NASDAQ:UNAM) to conduct investigations. They have not drilled, he said, in the whole of the natural reservoir of phosphates. The results are used to motivate potential Mexican partners from the agribusiness sector, and above all, seek the participation of Mexican agencies to "take care of Mexico; the rest would be for export".

Job creation in the local community is non-existent. Close to 160 people are needed to operate the boat, a large percentage of that are to be skilled jobs in hydraulics, computer or electromechanical systems. The Dutch dominate the dredging industry, but through the link with DragaMex, they have all their staff needs taken care of, "I cannot speak for DragaMex as to who we will subcontracted out" he explained.

This is not the first seabed mining concession

On January 24, 2007, the PhosMex Corporation announced that the Mexican government had granted them the first mining concession in the Pacific Ocean for 50 years. The concession contains 250 million tonnes of phosphate rock (P2O5), which, a few years ago had a market value of more than 12 billion dollars.

"The deposit of phosphate rock is found in a large area of water about 120 feet deep on the continental shelf off the coastal areas of the Mexican state of Baja California Sur. The phosphate-bearing formations crop out both on land and at sea on the east and west coasts and also in the interior of the peninsula", the company said in a press release.

Furthermore, Exploraciones Oceánica stated that the extraction zone is limited to an area 4 km wide and 60 km long, with a depth of between 50 and 80 meters. It is divided into five rectangular areas, which can be worked for 50 years. "Each has surface phosphate. It is similar to tar: sticky, nasty, and black; where there is little life, and next to no wildlife", said Daniel de Narvaez.

In an article published on the financial website Seekingalpha.com, the viability of Odessey Marine Exploration rolling out the project through its subsidiary Oceánica Exploraciones was questioned. The reasoning behind this was its lack of experience in the sector, the excessive costs of the mining and its sustainability, with the only objective of Greg Stemm, the director general, to capture more capital from investors in order to finance his continual losses. In 2013, he received 1.311 billion dollars in tax rebates relating to loses.

Environmental agencies are unaware of the matter

On July 9, 2014, The Federal Attorney for Environmental Protection (PROFEPA) said that it had found no trace of any evidence that Exploraciones Oceánicas, S. de R.L. de C.V. had carried out offshore mining activities on the coast opposite the town of Comondú.

Indeed, the Baja California Sur Core Advisory Council of the Ministry of Environment and Natural Resources (SEMARNAT) filed a complaint with PROFEPA about the fishermen from the port of Chale, who claimed they had been approached by the company in question.

Valerio Castro Santana, representing Profepa, said that inspectors had begun their investigations "and we have not been made aware of those facts in the department". They later confirmed that there were no permissions for exploration or exploitation in SEMARNAT.

Meanwhile, Castro Santana said, "Everybody talks, but nobody is specific or concise about where they are carrying out these operations. Where is the mining concession?"

The National Commission of Natural Protected Areas (CONANP) admitted that the study of mortality rates in the Olive Ridley Turtles in the Gulf of Ulloa, and although no conclusions were announced, offshore mining formed no part of the conclusions relating to the causes listed by researchers.

In the meantime, the environmental authorities pledged to continue their expeditions around the coast to ensure the ecological balance of Baja California Sur is not affected.

Puerto Chale Cooperative opposes the project

Amado Navarro Higuera, president of the Puerto Chale cooperative, rejected the activities proposed by Exploraciones Oceánicas, S. de R.L. de C.V. "They approached us for meetings with members of the cooperative, never with us alone. We had one in a Constitution and another approach here in La Paz", he said while holding a wad of newspaper clippings from state publications on the issue.

"No one from the authorities knew about this. Maybe at the federal level, but in the state or the municipality of Comondú, no. He demanded that research bodies such as the Autonomous University of Baja California Sur (UABCS), the Northwest Center for Biological Research (CIBNOR) and the Interdisciplinary Center of Marine Sciences (CICIMAR), come to show them whether or not any harm will be caused" stressed the cooperative.

On November 11, 2013, the federal government by way of the Ministry of Foreign Affairs (NYSE:SRE) held a workshop on opportunities for Mexico in mining the international seabed and deep sea exploration.

It was attended by Foreign Minister, Jose Antonio Meade Kuribreña; Secretary General of the Seabed Odunton Nii A.; Secretary of Economy, Ildefonso Guajardo Villarreal; the rector of the National Autonomous University of Mexico, Jose Narro Robles; the CEO of the National Council of Science and Technology, Enrique Cabrero; and the Vice President of International Affairs at Grupo Mexico, Juan Rebolledo Gout.

In the Gulf of Ulloa Manifesto, the Puerto Chale fishing collective stated its position before the arrival of offshore mining in the fishing corridor San Carlos-Las Barrancas-San Juanico, where coincidentally, a high mortality rate was recorded in yellow tortoise and other species. The environmental authority as well as Exploraciones Oceánicas, S. de R.L. de C.V. deny the accusation.

"To rationally exploit the mineral resources of the seabed, an appropriate legal framework, sustainable technology, participation from the private sector, correct leadership from the authorities, and research institutes to develop skills and new legal frameworks are all needed; along with the Social license from the Fishing Communities" reads the text signed by Amado Navarro, leader of the fishing group.

The civil society organization (CSO), Environment and Society (NYSE:MAS), has reiterated that "marine phosphate mining has never been done before anywhere in the world. There were similar projects in New Zealand and Namibia, but both were stopped because of the adverse effects they would cause to fisheries and the environment".

picture from article 2Click to enlarge

July 30:

Seek to strengthen fisheries sector in BCS

(article translated:)

La Paz, Baja California Sur (BCS). Governor Marcos Covarrubias said the government is willing to support the fishing industry of the state, so the schemes seek to detonate the sector.

In the context of a meeting with members of the FEDECOOP of La Paz, and the Minister of Fisheries and Aquaculture, José Fernando García Romero, the state governor said the momentum of the three levels of government have achieved a modern fishing fleet and ongoing training.

Covarrubias Villaseñor said that on the issue of monitoring and surveillance have made great strides in working where the producers caring marine resources, the government through FONMAR, and with the support of the Navy.

Meanwhile, the President of the FEDECOOP, Alejandro Martínez Tirado, thanked the governor always available to meet the demands of fishermen and fish farmers.

source: Google imagesClick to enlarge

Upon detailed inspection, Oceanica does not appear to be as attractive as OMEX has represented to investors

As detailed in our cash flow model previously, OMEX only appears to have perhaps 2 weeks of cash remaining. Given the PR hyping the EIA delay yesterday morning was so vague it did not even include a timeline for submission, we think it is highly likely that OMEX will file for chapter 7 bankruptcy prior to any submission of an EIA in Mexico.

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 omextruth.com