20th July 2012  Investing in Treasure Under the Sea.

While space: the final frontier is still out of bounds to us, Odyssey Marine Exploration Inc. (OMEX) is a company breaking through underwater frontiers in search of sunken treasure and doomed shipwrecks.

In the future companies like the Larry Page and James Cameron backed Planetary Resources Inc. may allow us exploit the mineral reserves of asteroids, but until then there are still plenty of challenges facing adventurers here on Earth. Odyssey Marine Exploration has been in the headlines recently after recovering 48 tonnes of silver from the wreck of the SS Gairsoppa off the west coast of Ireland. The Gairsoppa was a British vessel on route from India to England in 1941 when it was torpedoed by a Nazi U-boat with the loss of all bar 1 of the 85 crewmembers. The vessel was insured and after it sank the British government paid out, meaning they became the owners of the wreck and its contents. At 4.6 kilometres under the sea the Gairsoppa's final resting place is deeper than that of the Titanic and it's only now, 71 years later, that companies like Odyssey have developed the technology to allow them locate and investigate these wrecks and extract their contents.

In its deal with the British Department of Transport Odyssey is entitled to 80% of the silvers value after costs. At current value the 48 tonnes is worth around $38 million but this figure represents only 20% of the total silver that may have been on board. The 240 tonnes the Gairsoppa may have left port with would today be valued at around $190 million.

The 48 tonnes pulled from 4.6 kilometres under the sea near Galway represents a record for the heaviest and deepest ever recovery of precious metals from a shipwreck according to a company press release. Odyssey expects to complete the operation in the third quarter of 2012.

Odyssey's share price jumped on July 17th on the back of the news, rising from $3.63 to close at $4.25. However the price has been falling since, reaching $3.86 on the 20th. Investors in Odyssey tend to sell heavily when a discovery is made and then wait for the share price to drop, weighed down by high exploration costs or long periods without reporting a discovery, to get back in. Odyssey is expected to report revenues of $1.4 million for the second quarter ending June 30th 2012, down $5.3 million on the same period last year. It has spent $4.4 million on the on-going operations on the Gairsoppa and the SS Mantola which was sank off the east coast of Britain in 1917 and found while they searched for the Gairsoppa. The 600,000 ounces of silver on board the Mantola when it went down could be worth up to $16 million and a similar agreement exists between Odyssey and the British Department of Transport for it to be salvaged.

These discoveries mark a change in fortune for the company after the fairly disastrous Black Swan project. Odyssey first came to major prominence with the search for the HMS Sussex which sank in 1694 with 10 tons of gold ($480 million by today's prices) on board. Odyssey believed they found the shipwreck off the cost of Gibraltar but before excavation began in 2003 they discovered the location of the SS Republic, a merchant ship captured by Confederate forces and then recaptured by Union forces during the Civil War before sinking in a storm in 1865.

In 2005 they returned their attention to the HMS Sussex and they in turn came to the attention of Spanish authorities and thus began a tragedy. In May 2007 they flew 17 tons of silver coins from Gibraltar to a secure location in Florida and to date little is known of the type, date or nationality of the coins, or where they were found. The Spanish Government filed a claim demanding the coins, claiming they came from a Spanish vessel, the Nuestra Senora de las Mercedes which sank off Portugal in 1804. In a modern tale of the high seas the story involved Peruvian descendants of the coins original owners, Courts in the US brushing up on Admiralty Law, Spain's refusal to recognise Gibraltar's territorial waters which further pulled in Britain and Panama when they boarded an Odyssey vessel, under Panamanian flag, out of port in Gibraltar, and a wikileaks document linking US assistance to Spain by providing information on Odyssey to a painting hanging in a Spanish gallery which had been seized by the Nazis in 1941. In the end US courts ruled against Odyssey and they were forced to hand over the haul to Spain.

With its fate now unknown Odyssey's agreement with the British Department of Transport still stands surrounding the SS Sussex. By the 4th quarter of 2012 or the 1st quarter of 2013 the company should be in a position to announce profits from the Gairsoppa venture and it still has the Mantola to excavate as well as an agreement to raise the HMS Victory, which sank in a large storm in 1744, for the Maritime Heritage Foundation. Odyssey further believes there to be billions of dollars under the ocean in as yet to be found and discovered shipwrecks. The company also has a minority stake in Neptune Minerals which engages in exploration and minerals extraction of seafloor deposits.

A company dependent on finding and extracting (and keeping!) precious metals from shipwrecks may not be able to provide a stable cash flow or return for investors; even high value finds will be at the mercy of a wide number of factors, both natural and regulatory. But for now it's an easy way for investors to live a life on the high seas safe from the safe confines of their couch and in the immediate future it should post some strong numbers due to its current finds.