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  • Odyssey Marine Exploration And The SS Central America 22 comments
    Mar 4, 2014 9:47 AM | about stocks: OMEX

    Odyssey Marine Exploration announced yesterday that the company was selected to conduct an archaeological excavation of the SS Central America, known widely as the "Ship of Gold." OMEX investors are now trying to put this news into perspective and understand the potential financial ramifications. I believe OMEX will ultimately net somewhere between $25 and $100mn from the excavation, but the range of possible outcomes runs from zero to north of $500mn.

    The SS Central America was first located and excavated by a group led by Tommy Thompson in the late 1980's. Thompson successfully extracted approximately two to three tons of coins, ingot, and dust, but was limited by technology, investor concerns, and legal battles, and was unable to complete the excavation and recovery.

    Though Thompson was an outstanding marine engineer who was meticulous with respect to the science and archaeology involved in the excavation, he didn't run his business very well. His investors never got a good accounting of the enterprise's finances, and they were ultimately left out in the cold despite a very successful recovery. Some of Thompson's investors and contractors brought lawsuits against him. After failing to show up in court on a number of occasions, a warrant was issued for Thompson's arrest. He is currently a fugitive.

    Needless to say, if anyone knows how much gold remains with the SS Central America, it's Thompson as well as his Chief Scientist/Historian, Bob Evans, and Ira Kane, court appointed receiver for Thompson's investors. Each of these parties believes there is significant value yet to be recovered.

    1. This article references Thompson's claim that an additional 18 tons of gold may be buried amongst the debris.
    2. Bob Evans, Chief Scientist for the original recovery authored an article where he notes," A great deal of treasure remains on the shipwreck site." He estimates that tens of thousands of gold double eagles lay in the wreckage.
    3. The Receiver's Plan filed with the Franklin County Court states, "Based on credible historical evidence, our research experts have determined that there remain sufficient amounts of Down Treasure in the S. S. Central America and its debris field to justify a further recovery effort commencing in the 2014 season."

    Depending on the source, the SS Central America carried between two and twenty tons of gold when she sank. Newspapers at the time cited a commercial shipment of somewhere in the range of $1.2 to $1.6mn of gold bound for east coast banks - this implies two or two-and-a-half tons of gold. Since this is the only semi-official record, it explains why some articles state that two or three tons of gold was onboard.

    This commercial gold is what Thompson excavated when he salvaged the site several times in the late '80s and early '90s. According to Bob Evans, they were successful in retrieving 532 ingots and 7,500 gold coins with a total weight of somewhere around two tons. In a research note yesterday, Mike Malouf at Craig Hallum noted that there may still be a small portion of this commercial load that was left on the bottom because it was difficult to reach. It is now much easier to recover due to advances in technology.

    The passengers also carried gold. According to Bob Evans, you can assume that the passengers carried gold roughly equal in amount to the commercial shipment, mostly in the form of coins. This implies somewhere around 61,000 oz. of coins (less if some gold was in ingot or dust form) in the debris and wreckage (assuming a low-end value of $1.2mn in passenger gold at $20/oz. in 1857). Much of that gold is likely to be in the form of $20 double eagles (1 oz.) which were a popular form of currency in San Francisco at the time.

    For conservatism's sake, let's assume Odyssey can only recover half of the passenger gold. Let's also assume that this gold all takes the form of coinage. Roughly 30,000 oz. of coins might be worth $150-$240mn in a wholesale transaction. This assumes a price of $5k to $8k per ounce. Many of the coins will likely be '56 and '57 double eagle $20 pieces. You find these coins retailing generally between $8k and $15k depending on condition. As a check on this calculation, note that OMEX was able to sell SS Republic coins wholesale at around $5k per coin, but many of these coins were $10 pieces.

    The commercial and passenger gold represent the high probability portion of the recovery. Yet these sources account for only four to five tons of gold, while various articles and a book claim that there were around twenty tons of gold aboard. The difference is explained by the inclusion of a "secret" shipment of Army gold that was said to be aboard the mail ship, destined for Eastern bank vaults to strengthen reserves.

    This "secret" shipment was verified by the military, following the information's declassification, in a letter from the Center of Military History (CMH) dated April 2, 1971. Yet the existence of this shipment remains controversial. An inquiry was made to the Center of Military History in 1984 as to the authenticity of the original letter and CMH responded that it had no information about the ship and could not authenticate the letter. I have subsequently heard from a marine historical expert that the original letter is signed by the correct authority at CMH, and that CMH does not believe the letter to be forged. I haven't confirmed any of this with CMH.

    Another angle to consider when trying to assess the probability that this "secret" shipment exists comes from the history books. The SS Central America's demise has been referred to as a key catalyst in sparking the panic of 1857. Economic historian, Bray Hammond, believed that up to twenty percent of bank reserves were aboard the ship when it went down, stressing an already highly-distressed banking system. It's hard to imagine Hammond was referring to a $1.2mn shipment of commercial gold as making up twenty percent of the banking system's reserves. As this paper notes, reserves in the form of specie in New York City banks alone equaled over $11mn in 1857. It's equally hard to imagine that a nation-wide panic was sparked by the loss of $1.2mn in gold reserves. On the other hand, a loss of over $10mn of gold could have put a real stress on the system (15 tons = 480,000 oz. @ $20/oz. = $9.6mn + commercial load).

    Regardless of whether the Army gold exists amongst the wreckage of the SS Central America, Odyssey will likely find sufficient gold to make the excavation worthwhile. If the cache of Army gold is present, however, it would provide substantial upside to the base case. Fifteen tons of gold bars is worth over $600mn at current spot prices. Of course, these gold bars would likely fetch a premium to current spot prices due to their historic relevance. According to this story from a couple years ago, an ingot from the first SS Central America excavation was expected to be sold at auction for around $3,500/oz. If the Army gold were sold at wholesale rates of half this amount, it would imply $840mn worth of gold. Add this to the passenger gold and you can see the potential for a salvage worth north of $1bn as a "best case" scenario. This would translate to $500mn to Odyssey if we assume a 50% split (Mike Malouf used 50% in his note yesterday, but the company has yet to confirm).

    The worst case scenario is that there is no gold to be recovered. The likelihood that Thompson or someone else re-salvaged the site after the fact is not high, but is a possibility. Of note, however, deep sea salvaging equipment is a specialized field with few players. If someone were to build the capability to do this work, word would have probably gotten around in the equipment and salvage community. In addition, it's very difficult to do an excavation of this magnitude and not be noticed while on the water - Tommy Thompson found this out the hard way twenty-five years ago.

    If the passenger gold and the "secret" shipment exist, why weren't they excavated by Thompson? The answer is that the wreckage site is vast, Thompson's robot had limited functionality, and time was limited. The commercial gold was the easiest cache to find, and it was massive, so it took an enormous amount of time to excavate. The situation was exacerbated by the fact that Thompson went about the documentation of the recovery in a time-consuming, meticulous fashion. Because of the limited functionality of the robot, even some gold that was in sight couldn't be recovered. Thompson didn't have the technology or time to do a full excavation where he would have combed through silt for loose coins and unearthed parts of the wreckage to see what lay underneath.

    The SS Central America represents a low risk opportunity for OMEX that may bring high rewards. The salvage will be less costly and time consuming than most excavations. The company knows exactly where the wreck is so they don't have to spend time searching. They would also likely have access to all of Thompson's information about the site including pictures and diagrams. This means they'll likely know where to look and where not to look within the wreckage. Further, because they are doing contract work for an organization that has already settled the legal battles surrounding the treasure (including battles around the "secret" shipment) there are unlikely to be any legal obstacles.

    Despite all the bad press, legal issues, and mounting ugly evidence against Thompson, what he achieved twenty-five years ago is remarkable. He led the way in the use of science and technology to make deep sea salvage recoveries when few thought it was possible. Moreover, he did it using fantastic creativity while under a very tight budget. No one will argue the fact that Thompson did incredibly high-class work in the excavation, recording, and documenting of the wreck site.

    It's not surprising that Columbus Exploration wanted to carry on that tradition by contracting with an organization that is known for its significant technological feats (recovering SS Gairsoppa silver from three miles deep), its important and numerous wreck finds, its extensive library of scientific contributions, its conservation laboratory, and its expertise in the sale of recovered treasures. Odyssey Marine has distinguished itself in the field of deep sea archaeological salvage, and the company is enjoying promising new opportunities as a result.

    While Odyssey has been accused of being overly promotional in the past, the surprising SS Central America announcement provides further evidence of the company's new focus on under-promising and over-delivering. The transition to being quiet and guarded with information has been a difficult one for shareholders -- it has certainly left the company vulnerable to illegal and manipulative short attacks. All the same, investors may now begin to see the benefits of this new strategy. This announcement may give some short sellers pause as they consider what other game-changing developments may sneak up on them out of the deep blue sea.

    Disclosure: I am long OMEX.

    Stocks: OMEX
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Comments (22)
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  • zeus5
    , contributor
    Comments (25) | Send Message
     
    GRA do you know if Odyssey will use one of it's ships for the salvage, or lease? I think with 9 bids considered and Odyssey got the job it says a lot about the company. Thank you for the info, because like you said info is hard to come by.
    4 Mar 2014, 02:31 PM Reply Like
  • Green River Asset
    , contributor
    Comments (309) | Send Message
     
    Author’s reply » Hey Zeus, Since the Explorer was just outfitted with some new equipment and doesn't seem to be working a site right now, maybe they'll bring it over. The Central America project may be finished by the end of June so perhaps the OE would then go on to a commodity salvage job. Sorry I don't have more info for you.
    4 Mar 2014, 03:34 PM Reply Like
  • zeus5
    , contributor
    Comments (25) | Send Message
     
    Thanks GRA, keeping my fingers crossed and hope the shorts get caught with their pants down.
    5 Mar 2014, 08:34 AM Reply Like
  • Papaoomowmow
    , contributor
    Comments (365) | Send Message
     
    Fine work (as per usual) GR! Thanks!
    5 Mar 2014, 09:12 AM Reply Like
  • Green River Asset
    , contributor
    Comments (309) | Send Message
     
    Author’s reply » Glad it helped Papa.
    5 Mar 2014, 09:50 AM Reply Like
  • NJTGK
    , contributor
    Comments (8) | Send Message
     
    Do you believe the Judge's approval of Odyssey is simply a formality. If so, it should be forthcoming very soon. With Odyssey, it's always that last "T" to be crossed and that last "i" to be dotted.
    5 Mar 2014, 11:03 AM Reply Like
  • Green River Asset
    , contributor
    Comments (309) | Send Message
     
    Author’s reply » Nothing's done until the judge signs. I'm guessing, however, that the judge probably defers to the Receiver's expertise when it comes to the details around coordinating the salvage. As long as it doesn't look like the Receiver is running a poor process, or is acting in bad faith as a steward for the investors' assets, the judge is likely to approve.

     

    Just my opinion.
    5 Mar 2014, 11:14 AM Reply Like
  • james immke
    , contributor
    Comments (5) | Send Message
     
    As one of the original investors in RLP, I welcome Odyssey to the project. It is very exciting to finally see an end to this extraordinary venture to the bottom of the Sea.
    5 Mar 2014, 12:27 PM Reply Like
  • Green River Asset
    , contributor
    Comments (309) | Send Message
     
    Author’s reply » James, thank you for your comment. Please feel free to share any of your perspectives on the SSCA salvage here. Odyssey investors love learning about the history of these wrecks almost as much as earning returns from them.
    5 Mar 2014, 12:42 PM Reply Like
  • james immke
    , contributor
    Comments (5) | Send Message
     
    This is an Epic story...I believe we have found the answer to T.T,s chosen path. The lack of technology to finish the project at the time he decided to pursue other avenues. With that now behind us along with most of the court battles I believe now its a pretty straight forward salvage operation. We always referred to the gold already retrieved as the "Up Treasure". In Thompson,s words just enough to perfect claim and fight the court battles. I believe that to be true. I have touched the treasure been involved in shareholder only meetings since the 80,s. It was one of the last partnerships I did with my late Father..It means so much for me to see an ending for him..My Mom is still alive. I will never forget the calls to RLP from the ship to let us all know there was a bonus..See the ship fought hard for days but in Thompson,s words At capacity for crew and passengers Loaded with their gold plus what he believed and later confirmed was the "ARMY SHIPT"from then known to us as the "Down Treasure". I responded to your story because it is very much the story I heard back in 1987....I was a young man then now facing my 60,s this year in August, Happy BIRTHDAY to me LOL.
    6 Mar 2014, 11:18 AM Reply Like
  • tincupinhand
    , contributor
    Comments (94) | Send Message
     
    Green: your range of value potential illustrates just how speculative the valuation of gold species can be, based on where the coins were minted and condition. The Republic had one coin sell wholesale for over $500k. Much easier to find bullion than small catches of species. So key will be the updated equipment available...starting with the Odyssey Explorer which has both the capability (and availability as you correctly highlighted) and experience in performing at these depths and oceanic conditions (Mercedes was not dissimilar). At this depth, the new ROV is working in "shallow" water. The singular piece of equipment that may allow for the scattered site to be worked intelligently is the magnetometer technology previously tested at the Victory site.
    Remember, even if the recovery is at a low-end of potential value, this would be enough to cover an additional year of op exp while the Victory and Oceanica plays continue to work their way to a liquidity event. The shorts awaiting a dilutive financing will be disappointed.
    5 Mar 2014, 02:59 PM Reply Like
  • Green River Asset
    , contributor
    Comments (309) | Send Message
     
    Author’s reply » Thanks Tincup, great points. Thompson was a pioneer and he was using pioneering technology that he custom-built for the job. It was incredibly impressive, state-of-the-art stuff in the late 80's. Yet the technology has evolved quite a bit over the last 25 yrs.. The magnetometer is a big deal. So is some of the sifting and digging equipment, and the IT infrastructure. The maneuverability of the equipment is also a large improvement and I'm guessing there are some innovations that we don't know about as well. It's going to be an interesting few months.
    5 Mar 2014, 03:58 PM Reply Like
  • mykie
    , contributor
    Comments (526) | Send Message
     
    Thanks GRA,

     

    Nice write up and I'm in for the ride already, having not been shaken out by the shorts who, it looks like, will take it in the shorts very soon. :_)
    5 Mar 2014, 11:12 PM Reply Like
  • Green River Asset
    , contributor
    Comments (309) | Send Message
     
    Author’s reply » Glad you stuck with it, Mykie. Let us know if you hear anything interesting re Oceanica from Cabo/Baja?
    6 Mar 2014, 07:53 AM Reply Like
  • Green River Asset
    , contributor
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    Author’s reply » The judge has approved the deal allowing OMEX to help with the salvage of the SSCA. We should get a PR within a few days with more details about the work.

     

    http://bit.ly/1e5ODuN
    6 Mar 2014, 10:57 AM Reply Like
  • Papaoomowmow
    , contributor
    Comments (365) | Send Message
     
    Looks like a very sensible and timely gamble. Their general expertise certainly improves all the odds.

     

    As a minor aside, CNBC ran a 2013 collectable category performance list yesterday. Rare cars did best. Coins second.
    6 Mar 2014, 12:22 PM Reply Like
  • Treasure Hunter 81
    , contributor
    Comment (1) | Send Message
     
    Greg Stemm, the co-founder and current CEO of Odyssey Marine Exploration, and John C. Morris, the co-founder of Odyssey Marine Exploration, were both sued by the Securities and Exchange Commission.

     

    It appears that Neptune Minerals is insolvent. Oceanica is extremely unlikely to get an environmental permit. Oceanica’s cofounding shareholder, DNA Ltd, Inc, is tied to a Panamanian entity whose principal members are connected to a number of alleged financial crimes – why did Odyssey Marine Exploration structure it this way?

     

    Isn’t it weird that Odyssey Marine Exploration has been unable to address any of the serious questions posed by concerned shareholders? It’s concerning that John Morris, the founder of Odyssey Marine, is currently being sued by members of Seagrass Recovery. Odyssey Marine Exploration and Neptune Minerals have been tied to brokerage firms with many FINRA sanctions, this is very alarming – would you invest in this company? Buyer beware.

     

    Odyssey Marine Exploration has disappointed 100% of the time on its estimated project recoveries, can you trust anything they say? Why does Odyssey Marine Exploration have opaque and unexplained offshore subsidiaries in the Bahamas and Panama? These are completely unnecessary for Odyssey’s operations.

     

    Based on its current cash reserves and negative cash flow Odyssey Marine Exploration could very well go bankrupt in 2014. Odyssey Marine Exploration was held in contempt of court after it lost the Blackswan case. World-class phosphate mining companies have previously evaluated and passed on the Oceanica asset – Odyssey is the only company interested in this uneconomic asset.

     

    Didn’t Odyssey’s chairman Brad Baker get exposed for signing on both sides of a deal? Why does Odyssey Marine Exploration use an auditor that has been sanctioned multiple times by the Public Company Accounting Oversight Board? Based on accurate historical records, there was never any secret army gold aboard the SS Central America.

     

    It’s alarming that Odyssey Marine Exploration started as a shell purchased by Timothy Brasel, who was later cited by an SEC civil action for stock manipulation. It’s shocking that the predecessor of Odyssey Marine Exploration, Seahawk, went bankrupt – but it’s even more shocking that every other reverse merger treasure hunting company (six in total!) have also gone bankrupt.

     

    It’s alarming that Odyssey Marine Exploration has lost nearly $200,000,000 of shareholder capital while insiders have personally made millions – how much longer can this continue?

     

    Isn’t it ironic that Odyssey Marine Exploration has posted enormous financial losses but CEO Greg Stemm makes enough money to afford five houses for himself and his family? That doesn’t seem fair at all. Why does Odyssey host closed conference calls in which only their investment bankers get to ask questions? Why won’t Odyssey answer questions from other shareholders? Are they hiding something?

     

    http://www.omextruth.com
    3 Apr 2014, 01:46 AM Reply Like
  • Green River Asset
    , contributor
    Comments (309) | Send Message
     
    Author’s reply » Treasure Hunter, You sound a bit desperate. I understand that the short case has largely fallen apart, but rehashing the half-truths that Ryan Morris first published isn't going to fool anyone into adopting your cause.

     

    I think you're feeling the heat because you realize that OMEX is on a roll. Oceanica has been shown to be a massive resource, and the Mexican government has publicly acknowledged the importance of sourcing domestic fertilizer feedstocks. This seems like a very friendly environment for the endeavor. The SS CA is a bonus that none of us was counting on, but it could provide tens if not hundreds of millions of dollars to the balance sheet. And there are likely more shipwreck surprises to come.

     

    Keep the bankruptcy dream alive if that floats your boat, but you're at great risk in doing so. OMEX has so many liquidity levers to pull that it would boggle your mind. When they put that concern behind investors, the squeeze will be fun to watch!
    3 Apr 2014, 08:22 AM Reply Like
  • Green River Asset
    , contributor
    Comments (309) | Send Message
     
    Author’s reply » An interesting news story from Namibia. The government there has done a U Turn on phosphate mining. See this link for details: http://bit.ly/1kuTGJw

     

    It sounds like the ministry in Namibia has had a change of heart, "The environmental assessment will enable the ministry to develop an environmental management plan for sustainable co-existence of marine phosphate mining and fisheries, which is a first of its kind and will have global implications."

     

    The first environmental application to mine phosphates off the coast of Namibia had no scientific field-work behind it and this is cited as the chief reason for the initial failure. This is quite different from Oceanica and Chatham Rock who have each spent millions of dollars to support their environmental position. Also, the Namibian venture would infringe on some fish hatcheries - neither Oceanica nor Chatham face that battle.
    3 Apr 2014, 09:15 AM Reply Like
  • Green River Asset
    , contributor
    Comments (309) | Send Message
     
    Author’s reply » Just to close the loop here.....today Judge Smith ruled in favor of RLP and made the Receiver the substitute custodian for the SS CA salvage. This removes any obstacles to a rapid monetization for OMEX (even if appealed). It also will most likely mean more disclosure from RLP about the progress of the recovery. Good news for OMEX and shareholders!
    9 Jul 2014, 06:56 PM Reply Like
  • Papaoomowmow
    , contributor
    Comments (365) | Send Message
     
    Despite your aggravating experiences with all the hassle in the SA castle, drop on by when you can, GR. We Need Ya!

     

    Besides if nothing else all us OMEX longs have had a crash course in enduring minor unendurables for awhile : - )

     

    PS as you know Russell continues to get hammered (for now). And early on today 85% decliners on the NASDAQ

     

    the fear of the moment

     

    http://nyti.ms/TV4Xej

     

    though it really does not look at all like a Screamin Lehman event

     

    folks of course move in and out of broad categories...it always ends up coming down to the performance of the individual company ....I continue to believe that Odyssey, riding the learning curve, has a very good shot at turning around their rough history
    10 Jul 2014, 11:22 AM Reply Like
  • Papaoomowmow
    , contributor
    Comments (365) | Send Message
     
    Despite your aggravating experiences with all the hassle in the castle, drop on by when you can, GR. We Need Ya!

     

    Besides if nothing else all us OMEX longs have had a crash course in enduring minor unendurables for awhile : - )

     

    PS as you know Russell continues to get hammered (for now). And early on today 85% decliners on the NASDAQ

     

    the fear of the moment

     

    http://nyti.ms/TV4Xej

     

    though it really does not look at all like a Screamin Lehman event

     

    folks of course move in and out of broad categories...it always ends up coming down to the performance of the individual company ....I continue to believe that Odyssey, riding the learning curve, has a very good shot at turning around their rough history
    10 Jul 2014, 11:23 AM Reply Like
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