Oceanica Receives Key Mexican Government Endorsement

| About: Odyssey Marine (OMEX)


Oceanica recently received an extraordinary endorsement from Inapesca, a division of Mexico’s SAGARPA (Secretariat of Agriculture and Fisheries). The news was overlooked by the market.

This is the first direct evidence of Don Diego’s political importance at the highest levels in Mexico.

Local fishermen acknowledge this support is more important to Don Diego than any of the mild opposition the project has faced. They even claim that SEMARNAT is behind the support.

SEMARNAT posed follow-up questions for Oceanica, triggering a clock-stopping mechanism in the evaluation process. A large proportion of MIA filings follow the exact same procedure.

No further studies are required of Oceanica. CEMDA estimates that MIA ruling from SEMARNAT will come in January. Lack of large, credible NGO protest is noteworthy.

The following is an update regarding Odyssey Marine's (NASDAQ:OMEX) MIA filing for its Oceanica project.


On December 1st, an article appeared on the "young enthusiast" blog site, BCS Noticias, noting that Inapesca, a division of the Secretariat of Agriculture and Fisheries (SAGARPA), had issued a report in support of OMEX's Oceanica (Don Diego) project. The importance of Inapesca's endorsement was not fully appreciated by the market. This may have been due to the fact that it appeared on a website that has dedicated itself to undermining the Don Diego project.

In terms US-based investors will more easily comprehend, this would be similar to the Department of Agriculture coming out in support of an agricultural project that the Environmental Protection Agency was evaluating. SAGARPA is a cabinet level Secretariat in the Mexican government, and this body's input likely represents the most important data point received by SEMARNAT with respect to the MIA (outside of the MIA itself). It is also the clearest signal yet of direct support for Don Diego from the highest levels in Mexico's federal government.

Inapesca, also known as the National Institute of Fisheries in Mexico, is widely respected for its expertise in matters related to fisheries. The fact that a national body, representing the interests of fishermen, would support Don Diego lends tremendous validity to the claim that this project will not compromise fishing interests. Since fishermen represent the commercial interests most at risk from a seabed mining project, the "all-clear" signal from Inapesca/SAGARPA signifies the clearance of one of the MIA's most important hurdles.

Even the Puerto Chale Fishing group, which stands in opposition to Don Diego, realizes the importance of the Inapesca support. In a statement published in BCS Noticias, a member of that group commented about the Inapesca endorsement, "We are concerned that these rulings have certain weight in a decision like approving the project or not. They don't base it on others, like Cibnor or the UABCS (negative)."

The Puerto Chale fishing group administrators, have since accused Inapesca scientists of not seeing the basic mistakes in the MIA that the group of fishermen have detected. BCS Noticias published another article about the matter where it made the serious allegation that Inapesca had a conflict of interest in issuing the report (without supplying specifics as to how this government agency was conflicted). Further, BCS Noticias claimed that Inapesca relied heavily on a SEMARNAT analyst to arrive at its positive opinion on the project.

This mini-tempest signifies a win-win for OMEX investors, as the controversy seems to shed light on a generally positive disposition within the Mexican government toward the Don Diego project. If BCS Noticias is correct about Inapesca relying on SEMARNAT, then we would have to conclude that SEMARNAT supports the project at some level. If BCS is wrong, we know that Inapesca supports Don Diego independently, and SEMARNAT's opinion would then likely be influenced by Inapesca's independent and supportive work.

The Inapesca endorsement is a function of the comprehensive scientific evidence behind the MIA application. That evidence is likely very similar to that supplied by Chatham Rock Phosphate in its environmental application in New Zealand. The data behind Chatham's application led scientists from both sides to agree that the proposed marine dredging operation would have little or no impact on fishing interests. When Green scientists, hired by environmental NGO's such as Greenpeace, agree that fishing interests will not be compromised by seabed phosphate extraction, this sends a clear signal that the science is sound and conclusive. (Chatham's stock has risen 90 percent from lows a few months ago in anticipation of an environmental approval.)

As part of Inapesca's support, the organization has made six recommendations for ongoing control and monitoring of the project. These suggestions would be well within what would be expected for the project. In most approvals, certain conditions would be present.


An article appearing on SA a couple weeks ago suggested that the suspension of Don Diego's application for additional information meant that the project had hit a wall. Yet the truth is that many, if not most, MIA filings are suspended for a period of time while additional data is gathered. The request for additional information marks progress in the road toward approval.

A reader of the article noted several specific cases where requests for additional information had occurred, and posted project numbers in the comments section. In looking at these projects, it appears that after answers were supplied by the applicant, SEMARNAT was quick to render a decision. No additional studies are required of Don Diego, so after supplying answers in the next few weeks (my guess), SEMARNAT will likely provide its decision soon thereafter (January timeframe according to CEMDA).

Readers can check the sequence themselves by visiting this website and entering the following project numbers: 15EM2014E0036, 29TX2014VD005, 06CL2014H0006, 15EM2014V0030. Alternatively, readers can also browse projects in the Federal Gazette and choose their own project numbers to check (choose projects where a decision has been made - projects that were recently opened won't have enough history to generate requests for more data).


The Biological Research Center of the Northeast (CIBNOR) is a research center belonging to the National System of Science and Technology (CONACYT). According to Wikipedia, the parent organization, CONACYT, is the equivalent to the National Science Foundation in the US. CIBNOR is government funded, but the organization has no mandate or authority to impose controls or make demands with respect to environmental applications submitted to SEMARNAT.

CIBNOR has requested that Oceanica supply more information about the project. CIBNOR has also requested ongoing monitoring and that certain controls be placed in the hands of SEMARNAT. CIBNOR's response is reasonable. In fact, it is seen by those within Mexican environmental circles as surprisingly modest, coming from an organization that is known to be passionately focused on environmental costs and not at all concerned with economic benefits.

CIBNOR's requests would likely have been incorporated into SEMARNAT's questions. Responses to those questions will not require further studies on the part of Oceanica. Any omissions and/or errors in the MIA will be addressed in the response (a 4,600 page document is bound to have a couple given that 20-40 people could have had a hand in writing it), and ongoing monitoring as well as the collecting of pre-mining baseline data would likely be agreed upon as preconditions.

One of the most pressing issues CIBNOR and others have cited is Don Diego's impact on fishing interests. Fortunately, investors now have confirmation from the Mexican government agency charged with representing the interests of fishermen nationally, that fishing interests will not be compromised.

As mentioned previously, another compelling data point regarding fishing interests comes from Chatham Rock Phosphate's environmental hearings. Those hearings took place over an eight week period where the Decision Making Committee questioned experts and scientists in sessions that often lasted eight hours per day. The opponents to Chatham Rock were numerous (including a powerful fishing lobby, indigenous tribes, Greenpeace, Kiwis Against Seabed Mining, The Royal Forest and Bird Society, and the EPA itself). The opponents were well organized, and were usually represented by scientists and lawyers who had done their homework. In other words, opposition to seabed phosphate extraction in New Zealand would, at least superficially, appear to be far more substantial than in Mexico.

After a careful and tedious vetting of the data, the scientists on each side were able to reach a consensus opinion that Chatham's activities would have either no or negligible impact on fish stocks, there were no concerns about radiological effects, and it was determined that environmental impacts were almost entirely confined to the immediate mining area. This would invalidate many fears about environmental costs connected to almost everything outside the benthic environment in the immediate mining area. The fact that scientists representing Green interests would have arrived at these important conclusions demonstrates the compelling nature of the data in support of safe phosphate extraction.

CIBNOR's concern for the interests of fishermen, and for marine life generally is understandable. Yet the evidence from Chatham, Don Diego's MIA, and Inapesca, indicating a lack of meaningful direct impact gives weight to the notion that environmental costs are limited, and the project stands a high likelihood of approval.

Citizens Contact of SEMARNAT (NYSE:ECC) and Consultative Council on Sustainable Development

BCS Noticias has cited objections to Don Diego from Citizens Contact of SEMARNAT. What is ECC? As seen on this website, the ECC functions as a physical contact point for SEMARNAT to foster communications with citizens in different regions of the country. Though the ECC is technically part of SEMARNAT, these contact points have no authority or responsibility to dictate policy or evaluate environmental applications.

The ECC panel, called the Consultative Council on Sustainable Development, is made up of students, academics, environmentalists, and a representative from the Association of Women. In the case of Don Diego (the BCS Chapter of the ECC), the group has shown itself to be highly political. It wrote a letter to Profepa (Profepa is the Federal Attorney for Environmental Protection), at the behest of the Puerto Chale fishing group, against Don Diego, before the MIA was even filed. The group would have had little idea about any of the basic specifics of the project, or the scientific evidence behind it, when they wrote the letter.

The letter was concerning for its inaccuracies. It accused Oceanica of using seismic procedures which led to marine mammal death, despite the fact that Oceanica's vessel does not have seismic equipment. It accused Oceanica of taking core samples in violation of SEMARNAT regulations when those regulations clearly did not prohibit Oceanica's core sampling work. It also alleged that the mine would overlap fishing concessions when the authors didn't even know where the mine would operate within the large Don Diego tenement.

Also, note that one of the Council's lead authors is a vocal critic of Don Diego. Rafael Riosmena, a professor at UABCS, is hardly an objective source. Riosmena comments regularly in support of Carlos Ibarra's articles in BCS Noticias, even when those articles contain material inaccuracies. For more on Riosmena, please see this article on Harvest.

The letter that the Council issued on November 3rd revealed that basic concepts of the project were not understood, and the MIA was likely not read in its entirety prior to submitting feedback. The organization seems to lack a thorough scientific understanding of the material, and is citing concerns about "red tide" and fishing interests despite scientific conclusions from (less politically inclined) third parties that these are non-issues (such as Inapesca, and Chatham's opposition).

Non-Governmental Organizations

Large and credible NGOs would have represented the biggest threat to Oceanica, however, they have been noticeably absent from the debate. Where is Greenpeace? Where is the World Wildlife Fund? What about the most powerful NGO in Mexico, CEMDA? If CEMDA didn't want this project to move forward, the organization would have launched a lawsuit against Don Diego months ago. These are the organizations that might have some influence on SEMARNAT, yet they have chosen to sit on the sidelines.

Why are the credible NGO's not more vocal? This website which opposes Don Diego on behalf of all the surfers out there (zero impact on waves, BTW) reveals that there is a very good reason for this.

Authorities close to the project claim that their EIS has been vetted and approved by multiple NGO's in Mexico, although none have been found yet who can verify this claim.

This quote seems to confirm something that many OMEX investors have long suspected. Namely that Oceanica likely vetted its environmental work with important environmental NGOs in Mexico prior to filing the MIA. This may explain the long delay in filing the MIA with SEMARNAT. Oceanica may have been working with these groups to get feedback, incorporate data, and make changes to meet with their approval. If we are correct, this would also lend a great deal of confidence to the prospects for an MIA approval. A tacit stamp of approval from a large environmental NGO, such as CEMDA, bodes well for a positive SEMARNAT ruling.

Short-sellers have long promised that strong NGO opposition is just around the corner. In this article, the author attempts to rekindle this fear, "Expect to see more of the NGOs, including US-based ones speaking out against the project as it does not to have even [sic] considered the impacts on the fisheries."

What are we to make of this statement? How would the author know that more NGOs would come to speak out against the project? He is certainly not a scientist, and he has demonstrated a basic lack of knowledge regarding phosphate mining. So, why would these groups consult with him about the environmental viability of the project? For more on the subject, please reference the above-linked Harvest article.

Will ill-conceived NGO protest letters lead to an embarrassing outcome for NGOs who haven't seriously vetted the 4,600 page MIA, consulted with experts, and who then proceed to make a series of mistakes in their opposition? Do NGOs risk damaging their credibility with benefactors by opposing a form of mineral extraction that can replace or reduce more environmentally unfriendly terrestrial phosphate mining? If scientists representing Green and fishing interests in New Zealand have come to the conclusion, after an exhaustive eight week hearing process, that seabed phosphate extraction is of little or no risk to fish stocks in a sensitive Benthic Protected Area, would other NGO's in the US wish to contradict these scientists? Wouldn't other NGOs look to CEMDA, the most respected NGO in the host country, for guidance, and take cues from CEMDA's lack of strong opposition?

What if a US-based NGO does voice opposition at this late stage? I have been told by consultants that as a rule, Mexico is not overly pleased to have US-based NGO's impose their moral agenda on the country. Regardless, it may not matter as we are so late in the process. The public hearing date has long since passed. If you look at the data from past approved projects, you will see that once an applicant has submitted responses to questions from SEMARNAT, a decision is often very rapid. In this light, the time for opposition is likely over.

BCS Noticias

It is odd that outside of the BCS Noticias blog site, no other news source in Baja California Sur, or in Mexico more broadly, is giving significant coverage to the Don Diego MIA application process. BCS Noticias publishes almost daily on the "controversy," always in a one-sided and ill-informed fashion, and sometimes in what appears to be a deliberately misleading manner.

We should all understand that Oceanica is the best thing that has ever happened to the young enthusiast blog site, BCS Noticias. One look at Google Trends confirms that search traffic to the site increased ten-fold when a certain SA author began linking to BCS stories in July. The bottom-line is that we should expect more biased "coverage" of this issue from BCS Noticias - it's paying the bills.

For more on BCS Noticias, please see the above-linked Harvest article.


Opposition to Oceanica has been mild, and limited to a few narrow interest groups. These groups (fishing co-op, biologists, local politician, etc.) are only interested in highlighting the potential environmental costs of the project relative to their specific interest - they have no expertise to understand the project's benefits. Nor do they have the range of scientific skills, or the manpower, to understand important portions of the MIA. Since they do not have data that can show how the project will adversely affect their interest in a material manner, they try to inject uncertainty into the equation in hope that they can cloud the picture. This is to be expected, just as we would expect a prosecutor to argue only one side of a criminal case.

Fortunately SEMARNAT's obligation requires a much different perspective than those of these narrow interests. SEMARNAT has a responsibility to the President of Mexico, and to the Mexican population broadly. Thus, SEMARNAT must have a clear understanding of not only the potential environmental impacts of the project, but also the dramatic benefits the project promises. It should be of great comfort to OMEX shareholders to know that SEMARNAT's review process is driven by empirical facts, historical data, logic, and proven modeling.

Evaluating environmental impact assessments (MIAs) means understanding risks. Which environmental factors are at risk? What is the probability that those risks are realized? What is the downside if the risk is realized with respect to a specific environmental factor?

Uncertainty is a given in any MIA. Citing uncertainty without characterizing the risk associated with that uncertainty is a pointless exercise. This is where many of the special interests fall down. They can cite risks and talk about "precautionary principles," but they fail to characterize risk. Don Diego's MIA, on the other hand, has thoroughly contextualized these risks and demonstrated that the risks are very manageable.

The science behind Oceanica's MIA is similar to that of Chatham so we would expect to have solid support for believing that the following scientific consensus applies to Oceanica:

  • The factor most at risk due to Don Diego is the benthic environment (limited to the mined area)
  • Impact on fish stocks and fishermen is negligible or non-existent
  • The operation will not lead to population effects on marine mammals
  • There are no radiological effects
  • Environmental impacts are almost entirely confined to the immediate mining area.

Again, these are conclusions reached by scientists from both sides of the debate in the case of Chatham.

Don Diego is not located on the Chatham Rise, so some may question the ability to transfer these conclusions to Mexico. I would argue, however, that the Chatham operation is in a more sensitive location from an environmental perspective. Further, the processes and materials are similar enough to assume, with a high degree of confidence, that these conclusions will apply to Don Diego.

Chatham's project is not only inside a designated Benthic Protected Area (a fishing industry designation) but it also involves dredging a substrate of corals at a depth of 400 meters. At these depths, the periods for benthic recolonization are slower than in shallower waters (such as Don Diego). Of course, dredging living corals in New Zealand is also going to have greater environmental costs than dredging sand in Mexico. Don Diego is in a patch of ocean known as the "mud pits" due to its lack of sea life and biologic diversity. It is apparently a relatively barren sea floor, similar to a desert above ground; thus while the benthic risks are high, the costs are not.

While Don Diego's environmental costs are limited, the project's benefits to Mexican society can be extremely significant. Some of these benefits have been outlined in other articles, so I'm not going to review them in detail. Suffice it to say that when a project lines up perfectly with the President's National Crusade Against Hunger, and his action plan to develop a large domestic fertilizer industry in the name of that Crusade, it is obvious that the political will is there to put this project in motion. Thus, it is not a surprise to see support for the project at high levels of government, and a lack of opposition at the preeminent NGO's. In my opinion, an MIA approval is very likely.

Disclosure: The author is long 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: This note is solely a reflection of my opinion based on my knowledge of the circumstances. I consulted with experienced professionals in making my assessments, and we are in broad agreement on these issues. All the same, these are my words, not those of the experts. The Author has obtained all information herein from sources he believes to be accurate and reliable. However, such information is presented "as is," without warranty of any kind - whether express or implied. The Author makes no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. All expressions of opinion are subject to change without notice, and the Author does not undertake to update or supplement this report or any information contained herein. This is not a recommendation to buy or sell any investment. We may transact in the securities of OMEX at any time subsequent to publication. Green River is a holder of OMEX shares.

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