Odyssey Marine: Disappointing Delay, But All Is Not Lost

| About: Odyssey Marine (OMEX)

Summary

Approval of Don Diego project was denied in order to address concerns about sea turtles.

There are multiple avenues by which approval can be achieved in the coming months.

Strategic investor MINOSA reiterated its support and commitment to get the project approved.

Don Diego asset has been valued around $2 billion.

Odyssey Marine (NASDAQ:OMEX) was dealt a blow this morning when environmental approval of the Don Diego phosphate deposit was denied yet again. While this is a devastating blow for the stock, down over 60% on the news, all is not lost. The encouraging news is that Mexican environmental agency SEMARNAT denied the approval because of just one issue regarding sea turtle mortality, which of all the issues it could have picked, is probably the easiest to address.

In the press release, OMEX made it clear that this decision was based on bad information. First of all, sea turtle mortality has been an issue in this area for a very long time, and isn't impacted at all by phosphate dredging. Second, by approving this project, OMEX has agreed to invest heavily in programs that will increase the sea turtle population over time. It also has marine biologists on board who specialize in sea turtles. These experts have made it clear that the Don Diego project will in no way cause any harm to the sea turtle population.

SEMARNAT provided three avenues by which OMEX can get the project approved. While we don't know specifically what those options are, the company sounded confident that it can work past this issue. Litigation is clearly an option as well.

Perhaps most encouraging is the continued support of the strategic partner and investor MINOSA, owned by Mexican billionaire Alonso Ancira. Ancira is quoted in the press release, reiterating his commitment to getting the project approved, commented on the tremendous benefits to the country of Mexico, and said that in the coming weeks, it will present new fishing and turtle management programs to SEMARNAT.

Keep in mind that just a couple weeks ago, Ancira loaned an additional $3 million to OMEX to ensure liquidity until project approval. Ancira is well aware that without the Don Diego project, OMEX would have no ability to repay that loan, so the fact that he put more money in, on top of the significant investment he's already made, shows that his level of confidence that the approval is coming is extremely high.

Based on the comments from Ancira about presenting new wildlife programs in the coming weeks, we hope that this issue can be resolved relatively quickly. However, if the delay drags on for more than a few weeks, we expect that Ancira will continue to provide funding in order to protect his sizable investment in OMEX, as he has done for the past year.

Another positive over the weekend is that the fisheries coop from the region just endorsed the project for approval. Previously, this coop has been some of the loudest opposition to the project. A change in its stance is a clear positive, as it now sees the benefits of OMEX contributing to local fish and turtle habitats, in addition to admitting that there are no adverse environmental impacts with this project.

The stock is up more than 100% from its low less than two months ago, so clearly the market is still seeing tremendous value in potential approval of an asset that is worth over $2 billion.

While the wait has been much longer than anticipated, and at times painful for investors, there have been many signs along the way that indicate that the wait would end up being a very profitable one for investors.

Disclosure: I am/we are long OMEX.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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