Odyssey Marine (OMEX) announced Monday (9/24/12) the postponement of their Gairsoppa and Mantola recovery projects until the 2nd quarter of 2013. As a result, the stock has lost nearly 25% of its value in intraday trading. While some investors and speculators are no doubt disappointed with the supposed lack of results, a closer look at the facts is necessary to determine whether the drop in value is warranted.
Odyssey has previously proven itself adept at discovering and recovering shipwrecked treasure with the recovery of gold specie from the Civil War-era steamer SS Republic and $500 million in silver specie from the Spanish frigate-cum-merchant vessel Mercedes (codenamed Black Swan). Odyssey has also proven itself adept at under-delivering with its previous projects and diluting its shareholders with secondary offerings. The company did not find a large portion of the SS Republic's gold cargo and lost an epic legal battle with the Spanish government over possession of the silver specie.
To many investors, Odyssey appears to have yet again under-delivered by not completing a project they had declared would be finished at the end of the 2012 recovery season. What these investors fail to realize, though, is the progress Odyssey has made at transforming itself from a speculative company with seasonal projects to one with solid year-round prospects. There are three key reasons for this transformation:
- Change in Business Model - Odyssey learned its lesson with the loss of the Black Swan and is now guaranteeing its ownership rights before recovering a treasure. In the case of the SS Gairsoppa and SS Mantola this meant signing a salvage contract with the UK government before beginning operations. The company announced today that it is finalizing another government contract that is not specific to any shipwreck, but rather to a geographic area and would award Odyssey 75% of any recovery. The area is described by the company as "thought to contain valuable shipwrecks" and is one that Odyssey would be able to work during the winter months. Previously, Odyssey had been limited to seasonal exploration and recovery operations and as a result the company muddled through the winter months with next to no activity. Investors should be pleased with this result as it ends the "sell in the fall and buy back in the spring" mentality many investors had with regards to the stock.
- Commodity Shipwreck Program - Odyssey successfully recovered 1,218 silver ingots worth $44 million in current prices from the Gairsoppa. The company did this while working at record depths and subject to the vagaries of the rough North Atlantic weather. Odyssey's success with the Gairsoppa has proven the company's capabilities and resulted in a pipeline of four additional commodity wrecks. Under the contract for these wrecks, Odyssey will receive 90% of any recover with the wreck value being approximately $230 million - roughly the current market capitalization of the entire company. This pipeline should reassure investors that Odyssey is no one trick pony, but is instead a market leader with a pipeline of profitable projects. Nor should investors worry about dilutive secondary offerings coming over the horizons as the company's balance sheet has been successfully strengthened by the Gairsoppa recovery.
- Changes in Perception of its Recovery Methods - The archaeological community has often thumbed its nose at companies like Odyssey as being mere treasure hunters, however, Odyssey's work on the HMS Victory has given the company the opportunity to prove it can protect archaeological sites whilst producing a profit for shareholders. The Maritime Heritage Foundation is overseeing Odyssey's recover work on the Victory and their chairman, Lord Lingfield has stated, "The Foundation is delighted with the excellent scientific work accomplished to date by Odyssey on the site of HMS Victory (lost 1744)." Even if Odyssey fails to locate the rumored $1 billion in gold on the wreck site, the company's efforts will make other cultural departments more amenable to hiring the company to locate, document and excavate the wrecks lying in their waters.
It is for these reasons that Odyssey has transformed itself from a merely speculative stock to one with the credibility to be a tour de force in an emerging industry. Odyssey is also continuing to push the envelope of deep sea operations for profit with its investment in deep sea mining companies Neptune Minerals and Chatham Rock Phosphate as well as continued technological developments in the location of shipwrecks. While the share price may have been torpedoed today, Odyssey's hull has not been breached, and the company will sail on unimpeded.
Disclosure: I am long OMEX.