OMEX MONTH: FINANCIAL UPDATE-IS BANK SEEKING EXIT BEFORE OME CRASH?

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OMEX analysts are suddenly asking “What is so special about 17 December 2015?”

In an 8K filing of material information to the US financial regulator, the Securities and Exchange Commission [SEC] issued on 15 September 2015, the financially beleaguered, NASDAQ quoted [for now] treasure hunters Odyssey Marine Exploration announced that they had, at a cost of $25,000, amended the three loans which the company had taken out with Fifth Third Bank and consolidated the repayment dates to 17 December 2015.  At the same time OME finally confirmed it had received a delisting notice from the NASDAQ stock exchange because of the continued poor performance of its shares and now faces a hearing in front of a NASDAQ panel at the end of October.  When the panel convenes OMEX must convince the NASDAQ experts that the company’s financial strength, general market overview and historical pricing, all support continued listing.   A difficult prospect seeing as the company currently has huge and increasing debts, no known current revenue streams, and no viable cash generating projects which are not mired in ongoing legal or licensing processes.  Two days later on 17 September a press release from the company announced that in order to release equity it was seeking a buyer for its Tampa, Florida HQ and hoped, that in the event of a sale, it could reach a lease back arrangement.  The company gives the reason for the latest move, which comes on top of the earlier disposal of the company’s conservation laboratory, as a “short-term cash impact” caused by delays to the “Don Diego” phosphate dredging project in Baha California, Mexico, caused by environmental objections from local fishermen, environmental groups and politicians and the resubmission of an application for environmental approval to the Mexican Government.

The $1.4m payment on a loan which originally became due on 31 August was on top of the monthly cash burn of in the region of $2 million, which was confirmed by OMEX chief financial high wire artist, Chief Financial Officer Philip Devine, in a conference call following the company’s quarterly SEC filing in August.   On published figures analysts had already concluded that the Florida based treasure hunters could run out of cash as soon as the end of September this year [ 2015], so the extra million dollar plus hit would have only made that situation worse. In other words, even with the rescheduled payment, the situation is still that OMEX’s money might run out at the end of September.

Analysts also note that the 8K filing reveals that the company have also brought forward an additional $4m of loan repayments from 2016 and the total they now owe in December is $11.7m. This suggests to some that the bank is looking for a total exit as soon as possible to reduce its exposure if OMEX’s financial situation becomes terminal.  However, the fact that the Bank allowed the amendments, which includes an extension to the repayment which had been due on 31 August,  suggests that OMEX must have put a convincing case to the bank that they will at least survive to 17 December and analysts admit they do not know what that case is.   The immediate thought is that the company is confident that it can close the refinancing deal with Mexican mining giant MINOSA by then.  However, the question is can OMEX obtain environmental approval for the controversial “Don Diego” seabed phosphate dredging project as soon as December?  Certainly an article published on 10 September on a Spanish language website suggests opposition to the project on environmental grounds is growing, both locally and in Mexico City where the Chamber of Deputies has apparently been asked to block the project.

“La Paz, Baja California Sur (BCS). La Diputada federal del PAN, Jisela Paes Martínez, presentó un punto de acuerdo ante la Cámara de Diputados de la Ciudad de México, para pedir a sus compañeros exhortar a la Secretaría del Medio Ambiente y Recursos Naturales (Semarnat) para que le niegue autorización al proyecto denominado ‘Don Diego’, de la empresa Exploraciones Oceánicas, que se pretendería establecer en el Golfo de Ulloa, en aguas del municipio de Comondú.”

Free translation

“La Paz, Baja California Sur (BCS). The federal Member of the PAN , Jisela Paes Martínez , presented an agreement with the Chamber of Deputies of Mexico City, to urge the Ministry of Environment and Resources Natural (Semarnat) to deny permission to the ‘Don Diego’ project which the company Oceanica Exploration hopes will be established in the Gulf of Ulloa, in waters belonging to the municipality of Comondu.”

http://www.bcsnoticias.mx/solicitan-en-camara-de-diputados-que-semarnat-niegue-permiso-a-proyecto-don-diego/

 

The Partido Acción Nacional [PAN ] is the current ruling party in the state of Baja California and any suggestion that the party’s Deputies might oppose the Oceanica project might be politically disastrous and sufficient to bury the project at sea.  As it is the postponement is causing OMEX major financial problems, as the company admitted in its most recent press release dated 17 September 2015.

 

In what analysts see as yet another indication of the dire financial predicament OMEX finds itself in just as this article was about to be published OMEX slipped out the announcement that the company was seeking a buyer for its Tampa HQ.  The press release stated

 

” The company has also recently increased coin sales from its inventory and is evaluating options to sell its headquarters building. Odyssey has received expressions of interest for the purchase of its building, which is located in an area of Tampa that is currently undergoing substantial re-development. Odyssey has significant equity in the building, and it is envisioned that any potential sales transaction would include a lease back of existing office space, so that this potential transaction will cause no disruption to the business.”

 

The reason for the latest fire sale of company assets comes in the preceding paragraph of the press release which states

“Due to the extra time it has taken for the project to work its way through the regulatory process in Mexico, Odyssey has implemented multiple cash management strategies to minimize the short-term cash impact. This includes generating additional cash and curtailing expenses as appropriate. To this end, and in agreement with its bank, Odyssey changed the maturity date of its bank loans in order to postpone until December the $1.4 million payment originally due to the bank in August, freeing that cash for immediate use in general operations.”
http://ir.odysseymarine.com/releasedetail.cfm?ReleaseID=932048

 

Translated from the dialect of American English called “Public Relations Speak”, this statement effectively says the the Don Diego phosphate dredging project is our only game town and the delays are killing us financially.  Therefore we have been forced to make further cuts and take on further debt in the form of fees and interest payments on rescheduling the loans, just to generate enough cash flow to keep going.

Of course, OME management and the remaining long term investors can hope there might yet be a breakthrough in the legal wrangle over the ownership and thus the monetization, of material recovered from the paddle steamer Central America in 2014, or in the licensing of the HMS Victory 1744 Project, but neither of these outcomes could offer a significant injection of cash in the short term.  Particularly cash which was not already required to service OMEX’s huge levels of debt.  Indeed, even allowing for the rescheduling of the loan payments and the rapid identification of a buyer for the Tampa headquarters who is willing to lease the building back to OME and not level the site and build something profitable and of use to the community [thus also committing OME to additional cash burn], one seasoned OMEX watcher told thePipeLine

“I don’t understand how they aren’t totally out of cash right now…”

while another simply said

“This is desperate stuff.”

Indeed, cynics might observe that rather than recovering the Balchen family silver for profit from HMS Victory 1744, Odyssey Marine Exploration has been forced to sell the company’s own family silver, in the shape of its most obvious corporate assets, its conservation laboratory and now even its Headquarters.  The Ministry of Defence must be asking how long is it before the chosen commercial contractor for a charity headed by one of the Prime Minister’s closest advisers on Education matters, working on one of the UK’s most sensitive historic Royal Navy wreck sites, is nothing more than an archived web site, an e-mail address and endless re-runs of the glory days of “Treasure Quest” on the Discovery Channel?