Odyssey Marine Exploration Inc (OMEX)

[Vexari]

Support For Oceanica Builds In Mexico

Green River Asset
Oct. 17, 2014 10:02 AM ET


Summary

•Letter from top NGOs signals lack of stiff environmental opposition.

•Lack of vocal opposition indicates strong environmental application.

•Popular Mexican newspaper emphasizes urgent need for new phosphate source.

This is a very brief update on recent news around Odyssey Marine's (NASDAQ:OMEX) Oceanica asset in Mexico. The update is divided into two parts. The first is a summary of recent NGO (Non Governmental Organization) activity. The second refers to a recent newspaper article regarding phosphate production.

1. NGOs

Oceanica submitted its Environmental Impact Assessment (MIA in Mexico) over a month ago. We have been waiting for a strong show of protest from credible NGOs in Mexico ever since, but have yet to see any.

Last week CEMDA (Mexican Center for Environmental Law), Mexico's leading environmental NGO, along with four other important environmental NGOs, issued a brief letter regarding Oceanica. The letter was notable for its lack of confrontation over the proposed phosphate extraction project. It rehashed the main areas of concern around Oceanica - fishing, sea turtle, and whale impact - and then urged academic institutions to study the situation to better understand the impact.


“The area where you intend to develop the project, has also been identified as a critical area for sea turtle population [6]. Therefore, it is important to know in depth and in detail the possible negative impacts that this activity may have on fisheries and organisms in risk category such as sea turtles and whales.

"In the coming days, as we do regularly in such projects, SEMARNAT will ask you to open the project to public consultation and to organize a public information meeting with the petitioner, to transparent assessment procedure environmental impact and that society as a whole is adequately informed of the potential impacts of this mining project. In this sense, we call for the academic and research institutions such as the Autonomous University of Baja California Sur and the Center for Biological Research of the Northwest to study the impact that the project could generate the region "Agustín Bravo Gaxiola finished coordinator of Cemda in the northwest.

Importantly, each of the issues brought up in the CEMDA letter is covered extensively in Oceanica's environmental assessment. The scientific data in the MIA attest to the fact that the project will have minimal environmental impact on fishing, whale migration, or sea turtles.

Notably, CEMDA's letter did not attack the project. It did not state that any part of the project was in danger of violating Mexican environmental law (as some have asserted), nor did it say the project was non-sustainable. Most importantly, the letter did not call for any lawsuits. A lawsuit is the normal course of action for CEMDA when the organization is opposed to a project and believes the project violates laws or regulations. See here and here.

Perhaps most important, the letter represents a marked change in tone from CEMDA. Remember that CEMDA issued its first letter regarding Oceanica last April (also authored by Agustín Bravo Gaxiola). That letter appeared well before the MIA filing, so Gaxiola would have been writing blindly at the time - not knowing most of the specifics of the project. In that first letter, Gaxiola questioned the legality of the project and its environmental viability. He also stressed the current production of phosphate in BCS (Baja California Sur). Virtually all of the accusatory language is missing in Gaxiola's most recent letter as Mr. Gaxiola has now had the benefit of seeing the application. Interestingly, I could not find reference to Gaxiola's first letter regarding Oceanica in CEMDA's archives. Either they have removed it or I am overlooking it.

CEMDA is a powerful force in Mexico. The organization has helped scuttle a number of projects which it opposed. At the same time, CEMDA is aware that responsible development is good for Mexico, and the firm appears to do a good job at weighing environmental costs versus societal benefits. Below is a quote from the Founder and President of CEMDA, Gustavo Alanis Ortega.

“
First of all, the objective of our organization is that things in this country be done in adherence to environmental law and respecting nature. If this is possible, then we say go ahead with the building and development. In other words, we don't oppose things just because we don't like them or don't want them to happen. We are very firm believers in investment and development, but obviously, not at the cost of nature. But we are brought a lot of cases involving projects that are not necessarily sustainable. Link

We would never expect to see support for Oceanica from environmental NGO's, however, the lack of vocal and venomous opposition from them is important. It is a credit to Oceanica management, and its technical team, for preparing a thorough environmental application. That application is filled with hard scientific data, models, and facts which make the environmental impact of the project clear, and help to satisfy the informational requirements of these NGOs. It is promising to see Oceanica begin the environmental approval process on solid footing.

2. Popular Mexican Newspaper Makes Case for Increased Phosphate Production

The Dinero En Imagen, a popular business newspaper (one of the most widely circulated according to my source), and part of the Excelsior family (Excelsior was ranked 8th amongst the top 20 Mexican newspapers and news sites), recently ran an in-depth story on the urgent need to develop more phosphate reserves and production in Mexico. (Picture of article)

Investors should read the article in its entirety to get a feel for how Mexico views the strategic importance of the phosphate market. Below are a few excerpts.

“
But the government's plan to boost fertilizer production from 2015 seems not to take into account the situation of the ore from rock phosphates and whose scarcity, both in Mexico and in the world, begins to alarm experts. Today we have to import. It is very focused on Morocco and the Western Sahara is home to the largest amount of phosphorus in the world. There's the rock phosphate used as fertilizer that contains all elements for fertilizers. The shortage is so severe as global warming. We are not aware of the problem. The resource is finite, "says Jesús Valdés, researcher at the Institute of Chemistry of the National Autonomous University of Mexico, for this report. Link

The story also notes the long-term strategic importance of developing new sources of phosphates.

“
Experts envision a critical situation of long-term phosphorus and in which demand could exceed supply. Because of its importance, the subject has taken a geopolitical aspect….. "The problem is that Morocco and realized she has her white oil and will start pushing up the market price, "said Jesus Valdes, a researcher at the Institute of Chemistry of UNAM. (University of Mexico)

The threat of scarcity and its impact on food security was one of the axes of the fourth edition of the Sustainable Phosphorus Summit.

At that meeting, Nathaniel P. Springer, Academic Agricultural Sustainability Institute at the University of California, presented his study The vulnerability of food systems to global phosphorus scarcity: an analysis of economic scenarios s, which presented a scenario wherein the extraction and transportation of unprocessed ore from North Africa it becomes unavailable for geopolitical reasons, resulting in higher regional prices phosphate.

In their study of phosphorus Vulnerability: a new framework for assessing the vulnerability of national and regional food systems , Cordell and Tina-Simone Schmid Neset, the Centre for Climate Science and Policy Research Unit of the Department of Water and Environmental Studies at the University Linköping, exposed 26 biophysical, technical, geopolitical, socioeconomic and institutional factors that can lead to the vulnerability of food systems, of which Mexico is no exception.

The Excelsior line of newspapers is known to back Mexico's dominant political party, PRI. My reading of this article is that it is aimed to support President Pena Nieto's "Crusade Against Hunger." Integral to that plan is increased access to inexpensive sources of fertilizer (as Mexico is known to under-fertilize vast portions of its arable lands) by developing more domestic fertilizer feedstocks. This goal of Nieto's, to develop more domestic fertilizers, is codified in Pemex's five year plan, and can be seen in the firm's recent acquisition strategy (noted in the above story).

While messages supporting both phosphate mining and Oceanica are benefiting from relatively wide distribution in Mexico, this is not the case with most of the oppositional reports. A casual reader of Seeking Alpha OMEX research would undoubtedly be left with the impression that there is a large and vocal opposition to Oceanica in Mexico. The fact is, however, that opposition to the project has largely been confined to one source. That source is a small blog site run by "young enthusiasts," BCS Noticias. BCS Noticias ranks 482nd in Mexico based on web traffic, and does not appear to have a physical newspaper.

Oceanica has a number of tailwinds helping it toward the goal of gaining environmental approval from SEMARNAT. None of these tailwinds, however, is as important as the 4,600 page application which is backed by compelling science, data, and facts. Yet, even with a very strong application, nothing is assured, as the environmental approval process is always somewhat unpredictable. So, as much as a certain short-seller would like you to believe that he has everything figured out, and Oceanica is "dead in the water," remember that this particular short-seller's work has shown to be biased. We won't know until we know, but the winds appear to be at Oceanica's back.


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http://seekingalpha.com/article/2570075-odyssey-marine-support-for-oceanica-builds-in-mexico


Additional disclosure: DISCLOSURE: This note is solely a reflection of my opinion based on my knowledge of the circumstances. I consulted with experienced professionals in making my assessments, and we are in broad agreement on these issues. All the same, these are my words, not those of the experts. The Author has obtained all information herein from sources he believes to be accurate and reliable. However, such information is presented "as is," without warranty of any kind - whether express or implied. The Author makes no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. All expressions of opinion are subject to change without notice, and the Author does not undertake to update or supplement this report or any information contained herein. This is not a recommendation to buy or sell any investment. We may transact in the securities of OMEX at any time subsequent to publication. Green River is a holder of OMEX shares.