Odyssey Marine Exploration Inc (NASDAQ:OMEX) has taken a beating recently from the shorts. A number of publications have served up reason after reason why the company is headed to zero, and this has weighed on sentiment considerably. Most of the negative sentiment has been derived from a decision made by the Mexican Government back in April that saw an application for authorization to dredge the seabed for phosphorous off the coast of Mexico declined. The decision initiated an overnight loss of nearly 70%, and Odyssey has since struggled to recover.
We believe that the negative sentiment is overexpressed, if not entirely unjustified, and that the current valuation offers up an opportunity to get into Odyssey at a discount rate ahead of a market revaluation. Here’s why.
First, a quick introduction to the company. Odyssey is a deep-ocean exploration company. It explores shipwrecks for valuable goods, metals etc. and also explores the seabed for minerals. Currently, and as a means of bridging the gap between the decline and the approval of the Mexico dredging plan (we’ll get to this in a little more detail shortly) it carries out charter exploration services.
The company has had trouble generating income since its inception, but in its most recent financials it reported a doubling of revenues quarter over quarter to $ 1.2 million, and a narrowing of its net loss to $ 1.9 million during the second quarter of this year from $ 6.1 million during the same quarter a year earlier.
The financials are moving in the right direction, and the charter work that the company is carrying out has lent a certain consistency to Odyssey’s revenues – a consistency that has been sorely lacking since inception.
That’s not what we are looking at as a buy thesis, however.
We’re looking at the above mentioned Mexico situation – the so called Don Diego project. As mentioned, it’s a project to dredge the seabed off the coast of Mexico for phosphorous. The company has identified rich deposits that it could sell into the market for phosphorous and derivatives – a market estimated to be worth a massive $ 76 billion by 2020.
In April, the Mexican government said it wouldn’t allow the dredging, and declined an application from Odyssey. Markets read this as the end of the matter, and sold off on the stock. Since then, however, Odyssey has been working away in the background to get the Don Diego project back on track.
It all came down to sea turtles. The ruling from the Mexican government was rooted in the potential environmental impact of the dredging on sea turtles. Consider this: the issue arose out of over 16,000 pages of submissions from Odyssey, with more than 2,700 subsections and responses to more than 90 specific questions posed by the Mexican government’s scientists and technicians. Out of all this data, only sea turtles proved an issue.
Of course, this doesn’t make it an invalid issue – sea turtles are a big concern in the region – but it has presented Odyssey with an opportunity to revise its application and get an approval for the project. Here’s what Mark Gordon, CEO of the company, had to say:
“Fortunately, in parallel with the MIA process, as a component of developing our operational plans for the project, we have been working with the world’s foremost experts in sea turtle biology and management to develop turtle protection, habitat enhancement and monitoring programs. We believe that once we present this information to SEMARNAT and other Mexican Government agencies, it will be clear that the Don Diego project will have a significant positive impact on the local and migratory turtle populations, and that the ultimate approval of our project will enhance the local turtle populations.”
So, the company is planning to work with the government in Mexico to help protect the sea turtle population, and in doing so, facilitate an approval for its project. Markets don’t seem to recognize this fact right now, and it’s weighing on sentiment substantially.
Yes, there is no confirmation that the project will get final approval, but out of all the potential issues that could have arisen from an in depth application process, that the one that did is resolvable is a big bonus.
Further, Odyssey expects to get the approval during the second half of this year. Once it does, the market should quickly recover, as the company pivots to become a phosphorous recovery operation.
We’ve got our ear to the ground so as we get ahead of the market when the Mexican government finally approves Odyssey’s project. Subscribe below and we’ll let you know as it happens, and before the wider markets react.
Disclosure: We have no position in OMEX and have not been compensated for this article.