Saturday, July 4, 2009

Whose Treasure is it?

Time to double-down.

Back in February, we suggested you might want to invest in Odyssey Marine Exploration (OMEX) at a little over $4 a share. The company hunts sunken treasure beneath the seas (with proprietary, side-scanning radar), and they're currently sitting on at least three big caches of silver and gold.


And that's only what they've told us about. For reasons so aptly illustrated by current developments, OMEX likes to bring the treasure home and lock it up before they tell anybody they've found it.

Treasure hunting isn't easy. Not even when you find the gold. If you check out this chart, you'll see OMEX has fallen below $2 a share on an adverse court ruling concerning one of their biggest finds: Here's the month-old news from Dow Jones.

"NEW YORK (Dow Jones, June 4)--Shares of Odyssey Marine Exploration Inc. (OMEX) plunged as much as 64% Thursday to a six-year low after the shipwreck explorer was recommended Wednesday to return an estimated half a billion dollars in sunken cargo it had found two years ago in the Atlantic Ocean to Spain.

"Investors had expected Odyssey to succeed in the case, in part because no ship was found, only valuable debris, and admiralty laws concerning sovereign immunity only apply to sunken ships. However, Odyssey said Thursday that a federal court indicated there was sufficient evidence to confirm the site is that of the Neustra Senora de las Mercedes, a Spanish vessel that exploded in 1804, and that the vessel and its cargo are subject to sovereign immunity."

Ouch! Some investors believe this is it for OMEX. The company will have to return that Spanish treasure, and no country will ever let them pick up gold and silver again. Lawsuits will ruin them. Well, we don't think so. International Marine Law is pretty clear: If the ship is a sovereign nation's property -- usually a warship -- than the treasure belongs to the host country, but ...

Everything else is finders keepers, and this first court ruling was a Magistrate's recommendation, not a decision. OMEX says, one, nobody found a ship. There is no evidence of one, save for the cargo-- 500,000 silver and gold coins. Two, evidence showing the Mercedes was on a merchant trip was ignored, including the testimony and claims of shipping heirs. Marine Law says if a warship was being paid commercially for transporting goods, its cargo can't be sovereign. OMEX expects a reversal upon a appeal, and also notes the Magistrate's recommendation says the U.S. court does not have jurisdiction. Really.

For now, however, headlines say OMEX has to give this huge treasure -- worth up to $500 million -- back to Spain. Ya? How is Spain going to
collect it? OMEX has that treasure locked up at a secret location in the United States. If the U.S. court says they don't have jurisdiction, whose going to make OMEX give that gold back? The Spanish courts? I don't think so. Much more likely is some negotiated settlement. Plus, everybody seems to be forgetting the Sussex (another treasure OMEX has gps numbers on, and the Victory (yet another), plus the multiple locations they're not talking about in the English Channel.

This puppy ain't dead. It's a rip roaring buy.

Thanks to E-Trade for the chart.

WARNING: You are considering financial advice from a fictional stockbroker.


Anonymous said...

1. It is almost certain the recommendation is going to stand. If you would read the legal briefs and the magistrate's recommendation, instead of listening to Odyssey's propaganda, you would discover that Odyssey has been misrepresenting the situation from the get go. 2. A little research would also show that the "treasure" is probably worth less than $50 million, not the $500 million that has been bandied about. 3, If Odyssey doesn't return the "treasure" when Spain finally prevails, the Court retains enough jurisdiction to throw the officers of Odyssey in jail. 4. Odyssey's long term prospects are dim. Only 5 more ratifications, and an international treaty goes into effect treating all underwater wrecks over 100 years old as archaeological sites where commercial salvage will not be permitted.

Austin Carr said...

Pretty scary stuff, except for two things. Anonymous doesn't cut it, not when you claim expertise on law and the future. You sound more like a short. Two, anyone who thinks 200 year old silver coins are worth $100 a piece doesn't know coins.

gopherbro said...

Well, I'd say that I know a little more than you, apparently. The "treasure" from the Mercedes (and the ship is clearly the Mercedes) consists of several hundred Spanish American gold coins, approximately 590,000 silver 8-reale pieces, and a few odds and ends. The 8-reale pieces are almost all dated from the mid 1790s to 1804 and are from the Lima and Potosi mints. These are among the most common coins of the period.

Gold does not corrode in sea water and the gold coins are probably in good shape (a general remark, not a grading assessment) except for some sand abrasion. Depending on condition, date, mint and denomination they are worth from several hundred to several thousand dollars each. My estimate, given a premium for their history is that they are worth between $1 and $2 million at auction (although I doubt they will ever be placed on the market).

The silver coins are another story. Silver corrodes in salt water. The silver 8-reale pieces were most likely packed in canvas bags and placed in wooden chests. Salt water infiltrated after the vessel sunk and the coins corroded into balls of approximately 1000 coins. Once the surface of the balls corroded solid, corrosion stopped in the interior of the balls since there was no new sea water to react to. The chests and bags eventually disintegrated on the ocean floor leaving piles of these silver balls. This is how much of the silver from the 1715 wrecks and the 1633 wrecks was found. In order to free the coins strong chemical and electrical cleaning is needed. This destroys most of the numismatic value of the coins. They will all show signs of corrosion, the coins from the outer layers of the balls will show a lot while the ones from the interior of the balls will generally show much less.

How much are the coins worth? Their value is primarily as curios of the wreck and not as numismatic items. Directly comprable are the 8-reale pieces recovered from the wreck of "El Cazador". This was another historic wreck that sank 20 years before the Mercedes(if the ship hadn't sunk, Louisiana might be part of Mexico). Approximately 100,000 8-reale pieces were recovered from El Cazador's wreck. They are earlier and somewhat rarer that the coins from the Mercedes. The Franklin mint sells individual coins, in nice wooden boxes, for $500.00, but when one of the owners tries to get rid of the item of eBay it generally brings between $100 and $150.

Authenticated slabbed 8-reales from El Cazador generally bring between $50 and $150 on eBay depending on condition. You can check this out yourself by using the key words "8 reales" and "El Cazador". The last seven sales on eBay were from $51 to $127.50 for an average of $82 per coin.

There are very high marketing costs associated with these "treasure" finds. Slabbing and authentication alone generally runs a minimum of $10 per coin.

With all this in mind $50 million is much closer to the actual market value of the treasure than the $500 million bandied about.