Summary

• Many of the items in this article have already covered almost identically by Green River Asset….five months before this piece was written.  Unfortunately, this article was written with their piece entirely unbeknownst to this author….until this article was nearly finished.  Consider this piece more of an update and refresher than exceptional new analysis.
• As Green River suggests, this wreck’s potential high end is much greater than most recognize, with a potential billion dollar wreck value, with a potential resulting gain of $500 million dollars for Odyssey.
• We suggest that despite OMEX’s challenges, the SS Central America project will easily cover current operations through the end of this dive season and into the next.
• In addition, Odyssey has managed to evolve its business model and leverage good news into business sustainability more times and better than most companies.

Forget their stalled seafloor massive sulfide (SMS) deposits work. Brush off the fraught Mexican phosphates project. Ignore the half dozen or so other shipwreck projects which have generated little positive movement or news in the past year, including the storied HMS Victory. Even discount Odyssey Marine’s (NASDAQ:OMEX) rumored bid to find Malaysia Airlines flight MH370. After reviewing Green River Asset’s and Meson Capital Partner’s recent Seeking Alpha articles covering the SS Central America salvage by Odyssey Marine Exploration, which came to opposite conclusions, it was clear that a wide focus look at this important wreck salvage would be beneficial. It appears that the potential returns on the salvage of the SS Central America could be more significant than even current optimistic expectations.

To quickly recap, Odyssey Marine Exploration, a shipwreck salvage company (and ocean mining hopeful) has been retained by a court-appointed receiver to conduct the salvage of the SS Central America, a 280 foot sidewheel steamer which sank in September of 1857 carrying an unknown amount of gold. Courts are involved because a previous salvage left a number of investors without recompense due to the rapscallion ways of now fugitive salvager Tommy Thompson.

Current Salvage Net

As of mid-July, The Tampa Bay Times reports that Odyssey has raised “…43 solid gold bars, 1,300 $20 double eagle gold coins and thousands more gold and silver coins.” Coin experts will argue what the value of these double eagles will be on the open market, but even at a conservative $8,000 a piece, those ALREADY RECOVERED SS CA coins could be worth over $10 million. Not knowing the current sizes and conditions of the salvaged bars (which at one point during the current salvage ranged from 96.5 to 313.5 ounces) makes it difficult to value them, but these kinds of bars regularly sell for many times their melt value. Finally, subtracting the 1,300 double eagles from the 13,500 total coins raised means that approximately 12,000 additional, mostly silver coins have been raised from the deep so far.

Remaining Sunken Gold – How Unknown?

Depending on what you know about Thompson’s late 1980’s / early 1990’s salvage, the historical research upon which you are relying, and your contemporary sources, remaining potential salvage totals can vary widely.

For example, relying on the Amazon blurb for Gary Kinder’s excellent book “Ship of Gold”, which covers the SS Central America’s original sinking, Tommy Thompson’s life, and his implementation of a brilliant salvage, we find the claim that “Over four hundred lives and twenty-one tons of California gold were lost.”

Twenty one tons of gold is 752,640 ounces of gold, which at $1,300 an ounce is $978,432,000 of just bullion value for the gold. A recent NPR interview with Gary Kinder had him recently reiterate the potential 21 ton figure.

The Wikipedia entry for the SS Central America claims that “…30,000 pounds (14,000 kg) of gold” was on the ship and elsewhere in the entry, “The ship was heavily laden with 10 short tons (9.1 t) of gold prospected” is noted. Thirty thousand pounds is 480,000 ounces which, at $1,300, totals $624,000,000 in just bullion value.

So where does this leave Odyssey? Let’s work our way through the factors that can determine this. First, there are estimates of Thompson’s salvage. Some coverage focuses on what the gold sold for, which ranges from $40 million to $60 million in 2000 dollars. However, some of that coverage, like the previously linked DailyMail article and this 2006 Forbes article, mention that the gold was valued at between $100 and $400 million.” According to this SF Gate article, both coins and ingots made up the over 7,000 items retrieved and sold from the original salvage, so an estimate of bullion salvaged is difficult without additional information since many of the coins sold for many times their bullion value.

For those interested in playing the estimate game, an important piece of your calculation will be the value of gold bullion at the time of the sale of the previous salvage, which was going for the paltry sum of around $275 an ounce in 2000 (wow!).

What isn’t well covered in the media, and may not be known except by Thompson and a few close associates, is what percent of the wreck Thompson truly salvaged, and of that salvage what he hid, kept, and/or otherwise prevented from appearing in the official record. The Columbus Dispatch notes that Thompson ‘…stashed 600 pounds of gold coins and ingots in the basement of his offices in the 1990s, and “we still don’t know whether Thompson or others helped themselves to any of this gold.”‘

SS Central America – Triptych of the Year

But there is more potential value to be found in this operation. Three powerful stories surround this ship; the original with its large loss of life and theorized contribution to the economic Panic of 1857. The second story is the one of the original salvage of the ship, complete with the genius fugitive salvor Tommy Thompson. And finally, the third story of Odyssey Marine Exploration, taking a risk on the salvage of a vessel of unknown value, one which perhaps may not even cover the cost of the salvage operation. Will Odyssey even stay in business, or will it find enough to fund one or more dive seasons and do it all over again?

Some great television can be had from these three SS Central America stories, television of a kind which already has a proven track record. While the continued success of the History Channel is notable generally in this realm, Odyssey Marine specifically has already been featured in successful television broadcasts. These include shows covering its previous salvages of the SS Republic in multiple National Geographic specials, by Discovery in “Silver Rush” covering the huge SS Gairsoppa silver haul, as well as during multiple seasons of the reality series “Treasure Quest” covering multiple salvage operations of Odyssey Marine.

Odyssey Marine could once again work with television producers to bring these stories to the public and make the most of their involvement.

Odyssey’s Cut

So, what will Odyssey’s cut be for this operation? To get a rough estimate of Odyssey’s cut, we must refer to the terms of the agreement Odyssey has with the receiver:

“The archaeological excavation, valuable cargo recovery and ship-board conservation will be conducted and underwritten by Odyssey. In return, the company will receive 80% of recovery proceeds until a fixed mobilization fee and a negotiated day rate are paid. Thereafter, Odyssey will receive 45% of the recovery proceeds. Odyssey is presently preparing its recovery vessel, the Odyssey Explorer, to begin work on the site in April utilizing the company’s equipment and personnel.”

While I will leave the finer points of day rates, employee wages, performance bonuses and other contractual issues to those more patient and knowledgeable than I (and covered in Green River’s and Meson Capital’s previously mentioned articles), I suspect that even a relatively small recovery of what was (is?) a potential billion dollar wreck – say between $10 and $15 million – would assure Odyssey Marine this dive season and probably the next for continued work on the SS Central America site and other projects.

Conclusion

Regardless of what one believes about Odyssey Marine Exploration, its highly speculative business model and long-term future, probability suggests that we will once again find Odyssey diving for more treasure next summer, wondering what those dives will bring and what the company’s future holds. To paraphrase Jay Z, Odyssey Marine Exploration has 99 problems, but imminent bankruptcy ain’t one.

Disclosure: The author is long OMEX as of publication but may choose to change that trade at anytime, including reversal and the addition of derivatives in one or more forms. The author wrote this article himself, it expresses his own opinions, and he is only receiving compensation for it from ads displayed around it or from links embedded within and around the article. The author has no business relationship with any company whose stock is mentioned in this article.