Item 1. Business
ITEM 1.
BUSINESS
Overview
Odyssey Marine Exploration, Inc. discovers, validates and develops high-value seafloor resources in an environmentally responsible manner, providing access to critical resources that can transform societies and economies for generations to come.
The company has a diversified mineral portfolio that includes projects controlled by us and other projects in which we are a minority owner and service provider. In addition, our team is continually working to add new projects to the portfolio by identifying potential new assets through a proprietary Global Prospectivity Program leading to the acquisition of appropriate rights. Our development focus is on projects that can meet stringent standards for environmental responsibility and sustainability while unlocking benefits for the host country. Environmental protection remains at the forefront of the strategic and tactical decision-making processes in all our work.
Each project in the portfolio is advanced along a defined development path, decreasing risk and increasing value along the way. These steps may include, but are not limited to, verification and quantification of the mineral asset, collection of baseline environmental data essential for environmental permitting, environmental impact studies and reports, design and verification of extraction systems and definition and verification of commercial programs. Odyssey may elect to sell equity in individual projects to fund continued advancement of the project.
For nearly 30 years, we have deployed cutting-edge ocean technology and processes at depths up to 6,000 meters, under the direction of some of the industry’s most skilled and successful ocean exploration professionals, scientists, and environmental specialists.
Importance of Seabed Mineral Exploration
There is growing global demand for critical mineral resources to power the green economy, feed the world’s growing population and provide vital infrastructure. Land based deposits of cobalt, manganese, rare earth minerals, phosphorite, gold, silver, copper and zinc are being depleted. As the worldwide population continues to grow, it is necessary to explore additional and alternative sources of these much-needed materials.
Climate change and the global transition to a lower carbon economy presents opportunities for Odyssey given the increased demand for raw materials for the future green economy including those that will be required for renewable energy generation and storage. Furthermore, as the worldwide population continues to grow, it is necessary to explore additional and alternative sources of these much-needed materials.
Subsea mineral deposits can provide these critical resources with less social and environmental impact. We have the expertise and technology to find and access these deposits and to prepare the project for extraction in an economically feasible and environmentally sensitive way.
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Benefits of Ocean Mineral Resource Development
Some of the benefits of ocean mineral resource development include:
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Infrastructure Expense: No site-specific infrastructure and generally low capital expenditures – ship-based extraction systems provide the ability to redeploy, repurpose or increase equipment productivity through cost/tonne or ship charter financing options.
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Overburden: Little overburden to be removed in most proposed seafloor mining projects which contributes to operational efficiencies.
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Flexibility: Extraction ships can move to different types of deposits/minerals to suit market conditions without infrastructure loss at minimal costs.
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Social Displacement: No people are displaced, no disruption of society or property.
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Environmental Impact: Seafloor mining can be done responsibly with limited biological impact and a manageable carbon footprint. No forested lands will be impacted, and freshwater systems are not affected. Seafloor dredging, aggregate and diamond mining have been carried out for many years in shallow waters around the world and with appropriate mitigation programs have posed minimal adverse impact to marine ecosystems.
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Shipping logistics are efficient as ore and materials are extracted and moved directly to bulk carriers, lowering the number of steps in the delivery process thus reducing costs.
Considering the benefits of subsea mineral resource extraction, we are convinced that in the future, ocean mining will be the best practice for responsible provision of critical resources required worldwide. Odyssey is taking the lead in preparing for this future through the validation and development of environmentally and socially responsible seafloor mineral projects.
Mineral and Offshore Services
We provide specialized mineral exploration, project development and marine services to clients (subsidiary companies, other companies and/or governments). As our business is focused on the development of a diversified portfolio of subsea resources, we may elect to receive equity for the provision of our services on select mineral projects. We have an extensive history conducting deep-ocean projects down to 6,000 meters in depth including deep-ocean resource explorations, ship and airplane wreck explorations, archaeological recovery and conservation and insurance documentation and applying this experience and expertise to advance our project portfolio.
Operational Projects and Status
We focus on projects that can meet stringent standards for environmental responsibility while unlocking benefits for the host community and country.
Our subsea project portfolio contains multiple projects in various stages of development throughout the world and across different mineral resources. We are regularly adding new projects through the development of new deposits, acquisition of mineral rights/deposits and through a leveraged contracting model, which allows the company to earn equity in deep-sea
mineral projects.
With respect to mineral deposits, Subpart 1300 of Regulations S-K
outlines the Securities and Exchange Commission’s basic mining disclosure policy and what information may be disclosed in public filings. The SEC has adopted amendments to the property disclosure requirements for mining registrants that must be complied with for the full fiscal year beginning on or after January 1, 2021, See Item 2 Properties.
Although Odyssey has a variety of projects in various stages of development, only projects with material operational activity in the past 12 months are included below.
ExO Phosphate Project:
The “Exploraciones Oceanicas” Phosphate Project is a rich deposit of phosphate sands located 70-90
meters deep within Mexico’s Exclusive Economic Zone. This deposit contains a large amount of high-grade phosphate rock that can be extracted on a financially attractive basis (essentially a standard dredging operation). The product will be attractive to Mexican and other world producers of fertilizers and can provide important benefits to Mexico’s agricultural development.
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The deposit lies within an exclusive mining concession licensed to the Mexican company Exploraciones Oceánicas S. de R.L. de CV (“ExO”). Oceanica Resources, S. de R.L., a Panamanian company (“Oceanica”) owns 99.99% of ExO, and Odyssey owns 56.29% of Oceanica through Odyssey Marine Enterprises, Ltd., a wholly owned Bahamian company (“Enterprises”).
In 2012, ExO was granted a 50-year
mining license by Mexico (extendable for another 50 years at ExO’s option) for the deposit that lies 25-40
km offshore in Baja California Sur. An NI 43-101 compliant
report was completed on the deposit in 2014 and has been periodically updated.
We spent more than three years preparing an environmentally sustainable development plan with the assistance of experts in marine dredging and leading environmental scientists from around the world. Key features of the environmental plan included:
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No chemicals would be used in the dredging process or released into the sea.
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A specialized return down pipe that exceeds international best practices to manage the return of dredged sands close to the seabed, limiting plume or impact to the water column and marine ecosystem (including primary production).
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The seabed would be restored after dredging in such a way as to promote rapid regeneration of seabed organisms in dredged areas.
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Ecotoxicology tests demonstrated that the dredging and return of sediment to the seabed would not have toxic effects on organisms.
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Sound propagation studies concluded that noise levels generated during dredging would be similar to whale-watching vessels, merchant ships and fisherman’s ships that already regularly transit this area, proving the system is not a threat to marine mammals.
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Dredging limited to less than one square kilometre each year, which means the project would operate in only a tiny proportion of the concession area each year.
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Proven turtle protection measures were incorporated, even though the deposit and the dredging activity are much deeper and colder than where turtles feed and live, making material harm to the species highly remote.
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There will be no material impact on local fisheries as fishermen have historically avoided the water column directly above the deposit due to the naturally low occurrence of fish there.
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The project would not be visible from the shoreline and would not impact tourism or coastal activities.
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Precautionary mitigation measures were incorporated into the development plan in line with best-practice global operational standards.
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The technology proposed to recover the phosphate sands has been safely used in Mexican waters for over 20 years on more than 200 projects.
Notwithstanding the factors stated above, in April 2016 the Mexican Ministry of the Environment and Natural Resources (SEMARNAT) unlawfully rejected the permission to move forward with the project.
ExO challenged the decision in Mexican Federal court and in March 2018, the Tribunal Federal de Justicia Administrativa (TFJA), an 11-judge
panel, ruled unanimously that SEMARNAT denied the application in violation of Mexican law and ordered the agency to re-take
their decision. Just prior to the change in administration later in 2018, SEMARNAT denied the permit a second time in defiance of the court. ExO is once again challenging the unlawful decision of the Peña Nieto administration before the TFJA. In addition, in April 2019, we filed a NAFTA Claim against Mexico to protect our shareholders’ interests and significant investment in the project.
Our claim seeks compensation of over $2 billion on the basis that SEMARNAT’s wrongful repeated denial of authorization has destroyed the value of our investment in the country and is in violation of the following provisions of NAFTA:
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Article 1102. National Treatment.
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Article 1105. Minimum Standard of Treatment; and
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Article 1110. Expropriation and Compensation.
We filed First Memorial in the NAFTA case in September 2020. It is supported by documentary evidence and 20 expert reports and witness statements. In summary, this evidence includes:
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MERITS: Testimony from independent environmental experts that the environmental impact of ExO’s phosphate project is minimal and readily mitigated by the mitigation measures proposed by ExO. Witnesses also testified that
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Mexico’s denial of environmental approval by the prior administration was politically motivated and not justified on environmental grounds, and that Mexico granted environmental permits to similar dredging projects in areas that are considered more environmentally sensitive than ExO’s project location.
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RESOURCE: An independent certified marine geologist testified as to the size and character of the resource.
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OPERATIONAL VIABILITY: Engineering experts testified that the project uses established dredging and processing technology, and the project’s anticipated CAPEX and OPEX was reasonable.
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VALUE: A phosphate market analyst testified that the project’s projected CAPEX and OPEX would make the project one of the lowest cost phosphate rock resources in the world, and damages experts testified the project would be commercially viable and profitable.
Odyssey filed its First Memorial in the case on September 4, 2020. Mexico filed its Counter-Memorial on February 23, 2021. On June 29, 2021, we filed our reply to Mexico’s Counter-Memorial. Odyssey’s filings are available at www.odysseymarine.com/nafta. Mexico filed their Rejoinder on October 19, 2021. All filings are available on the ICSID website. The NAFTA’s Tribunal hearing took place from January 24 – January 29, 2022. After this evidentiary phase is closed by the Tribunal, deliberations will begin. Odyssey cannot predict the length of these deliberations or when a ruling will be issued, but we remain confident in the merits of our case.
On June 14, 2019, Odyssey executed an agreement that provided up to $6.5 million in funding for prior, current and future costs of the NAFTA action. On January 31, 2020, this agreement was amended and restated, as a result of which the availability increased to $10.0 million. In December 2020, Odyssey announced it secured an additional $10 million from the funder to aid in our NAFTA case. On June 14, 2021, the funder agreed to fund up to an additional $5.0 million for litigation costs. The funder will not have any right of recourse against us unless the environmental permit is awarded or if proceeds are received (See NOTE H – LOANS PAYABLE – Litigation Financing).
LIHIR Gold Project:
The exploration license for the Lihir Gold Project covers a subsea area that contains at least five prospective gold exploration targets in two different mineralization types: seamount-related epithermal and modern placer gold. Two subaqueous debris fields within the area are adjacent to the terrestrial Ladolam Gold Mine and are believed to have originated from the same volcanogenic source. The resource lies 500-2,000
meters deep in the Papua New Guinea Exclusive Economic Zone off the coast of Lihir Island, adjacent to the location of one of the world’s largest know terrestrial gold deposits. We have an indirect 85.6% interest in Bismarck Mining Corporation, Ltd, the Papua New Guinea company that holds the exploration license for the project.
Previous exploration expeditions in the license area, including a survey conducted by Odyssey, indicate a polymetallic resource with commercially viable gold content likely exists.
In August 2021, Papua New Guinea (PNG) issued a permit extension allowing Odyssey to continue with our exploration program. We have developed an exploration program for the Lihir Gold Project to validate and quantify the precious and base metal content of the prospective resource. The Company met with local regulatory authorities, specialists in local mining, environmental legal experts, and logistics support service companies in PNG to establish baseline business functions essential for a successful program to support upcoming marine exploration operations in the license area. This offshore work began in late 2021 and will continue, provided there are no constraints from the COVID-19
pandemic or other unexpected impediments. Bismarck and Odyssey value the environment and respect the interests and people of Papua New Guinea and Lihir and are committed to transparent sharing of all environmental data collected during the exploration program.
Offshore survey and mapping operations commenced in December 2021 in the Papua New Guinea, Lihir license area. Raw data is being processed to produce a report and full analysis. The goals of this work include producing a high-resolution acoustic terrain model of the seafloor in the area, as well as acquiring acoustic images of subseafloor sediments and lithology. This will provide a basis for characterizing the geologic setting of the area and essentially creating a “snapshot” of the environment. These activities will help us to further characterize the value of this project and allow informed decision making on how to proceed with environmentally sensitive direct geologic sampling.
Odyssey’s multi-year exploration program will focus on robust environmental surveys and studies that will accrue to environmental permitting in compliance with PNG’s requirements as well as the development of an EIA (Environmental Impact Assessment). During the exploration phase, steps to validate and quantify the precious and base metal content of the prospective resource will also be carried out. Once completed, if the data shows extraction can be carried out responsibly, Odyssey will apply for a Mining License.
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Further development of this project is dependent on the characterization of any present resources during exploration and license approvals.
CIC Project:
Odyssey is a member of the CIC Consortium, which is seeking an exploration license in an island nation’s Exclusive Economic Zone. The CIC Consortium was founded and is led by Odyssey co-founder
and former CEO, Greg Stemm, and includes Royal Boskalis Westminster NV and Odyssey Marine Exploration.
In December 2021, the Cook Islands Seabed Minerals Authority’s (SBMA) Licensing Panel evaluated three applications and announced that CIC LIMITED (CIC) met the qualification criteria for an exploration license. On February 23, 2022, CIC was awarded a five-year exploration license by the Cook Islands
Through a wholly owned subsidiary, we have earned and now hold approximately 13.4% of the current outstanding equity units of CIC. We have the ability to earn up to 20.0 million equity units over the next several calendar years, which represents an approximate 16.0% interest in CIC based on the currently outstanding equity units. This means we can earn approximately 3.5 million additional equity units in CIC. We achieved our current equity position through the provision of services related to resource assessment, project planning, research and project management. We receive cash and equity for services rendered to this venture, see NOTE G.
Antigua and Barbuda:
In September 2021, Odyssey entered into a Memorandum of Understanding (MoU) with the Government of Antigua and Barbuda to determine the feasibility of a sustainable seabed mineral resource program from highly prospective areas in their Exclusive Economic Zone. There is a high probability for polymetallic nodule formation based on legacy data, regional analysis and seafloor conditions which are similar to and adjacent to our target area. Development of an exploration program, which will be the basis for a definitive agreement between the parties, is in late-stage development. Additional information will be released upon execution of the definitive agreement, which is expected in the coming months.
Brazilian Phosphate Project:
Odyssey reached an exclusive agreement early in 2022 with BlueSea Minerals, Ltd. and BlueSea Minerals Brasil Ltda, (collectively BlueSea Group) to create a new joint venture (JV) company in which Odyssey will own a 75% interest. The new company will have exclusive rights to 19 highly prospective phosphate areas in the Exclusive Economic Zone (EEZ) of Brazil. Legacy data and desktop research indicate high-grade phosphate deposits in the concession areas.
Pending execution of the definitive agreement, Odyssey will manage the overall Brazilian Phosphate Project development and BlueSea Group will manage business operations in Brazil. A related party to BlueSea Group, SeaSeep, a Brazilian entity, will provide marine operations services, supervised by Odyssey.
The 19 licenses to be developed by the JV include 366 square kilometres of seabed in the Brazilian EEZ. The geological setting of these licenses is similar to the geology Odyssey identified off the coast of Mexico, which is now known as the ExO Phosphate deposit (“ExO”). The NI 43-101
for the ExO deposit estimated 588 million tonnes of high-grade resource, even though the NI 43-101
only considered 206.5 square kilometres of the 1147 square kilometres covered by the ExO mining concession. Even based on 2016 phosphate pricing, the ExO project had extremely compelling economics that demonstrated that ExO could have been one of the lowest cost producers in the world. Since then, phosphate prices have surged and the need for phosphate to combat world hunger continues to grow. It is anticipated that the Brazilian deposits can be dredged with the standard technology and engineering solutions already identified for the ExO Project, which will allow the phosphate to be recovered in an environmentally responsible manner without the addition of any chemicals into the sea.
Legal and Political Issues
Odyssey works with several leading international maritime lawyers and policy experts to constantly monitor international legal initiatives that might affect our projects.
To the extent that we engage in mineral exploration or marine activities in the territorial, contiguous or exclusive economic zones of countries, we work to comply with verifiable applicable regulations and treaties.
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We believe there will be increased interest in the recovery of subsea minerals throughout the oceans of the world. We are uniquely qualified to provide governments and international agencies with knowledge and skills to help manage these resources.
Related to mineral exploration, we evaluate the political climate and specific legal requirements of any areas in which we are working. We may partner with third parties who have unique industry experience in specific geographical areas to assist with navigation of the regulatory landscape.
Competition
We conduct mineral exploration on both shallow and deep-sea
terrains. There are several companies that publicly identify themselves as engaged in aspects of deep-ocean mineral exploration or mining, including DSMF (OTCM:NUSMF), Neptune Minerals, Deep Green Resources, Inc., which recently combined with the Sustainable Opportunities Acquisition Corporation to go public as The Metals Company (NASDAQ:TMC), GSR, and Chatham Rock Phosphate, Ltd. (CRP.NZ), as well as countries that are evaluating options to mine deep-ocean mineralized materials. As our mineral exploration business plan includes partnering with others in the industry, we view these entities as potential partners rather than pure competitors. As mineral rights are generally granted on an exclusive basis for a specific area or tenement, once licenses are granted, we do not anticipate any competitive intrusion on those areas. It is possible that one of these companies or some currently unknown group may secure licenses on an area desired by us or one of our partners; but since exploration work does not start until licenses are secured, we do not believe that competition from one or more of these entities, known or unknown, would materially affect our operating plan or alter our current business strategy. For offshore mineral exploration, there are providers of vessels and equipment that could be competitors or partners for certain projects. These companies generally service the oil, gas and telecom industries with survey capabilities. We view these companies as potential strategic partners or services providers for our projects.
Cost of Environmental Compliance
With the exception of marine operations, our general business operations do not expose us to environmental risks or hazards. We carry insurance that provides a layer of protection in the event of an environmental exposure resulting from the operation of vessels we may utilize. The cost of such coverage is not material on an annual basis. Our seabed mineral business is currently in the exploration and validation phase and has thus not exposed us to any significant environmental risks or hazards, other than those which are standard to basic marine operations.
Executive Officers of the Registrant
The names, ages and positions of all the executive officers of the Company as of March 1, 2022, are listed below.
Mark D. Gordon (age 61) has served as Chief Executive Officer since October 1, 2014, and was appointed to the Board of Directors in January 2008. Mr. Gordon also served as President from October 2007 to June 2019, when he was appointed Chairman of the Board. Previously, Mr. Gordon served as Chief Operating Officer since October 2007 and as Executive Vice President of Sales and Business Development since January 2007 after joining Odyssey as Director of Business Development in June 2005. Prior to joining Odyssey, Mr. Gordon owned and managed four different ventures.
Christopher E. Jones (age 48) has served as Chief Financial Officer since June 15, 2021. Prior to joining Odyssey, Mr. Jones served as Vice President of Corporate Finance at Mohegan Gaming & Entertainment (MGE) since 2017; Managing Director at Buckingham Research Group from 2016 to 2017; Managing Director at Union Gaming from 2014 to 2016 and Managing Director at Telsey Advisory Group (TAG) from 2008 to 2014. He has also held positions at Oppenheimer & Company, Merrill Lynch and Lehman Brothers.
Jay A. Nudi, CPA (age 58) has served as Principal Accounting Officer since January 2006 and Treasurer since May 2010. Previously, Mr. Nudi served as the Chief Financial Officer from 2016 to 2021. Mr. Nudi joined the Company in May 2005 in the Corporate Controller capacity. Prior to joining Odyssey, Mr. Nudi served as Controller for The Axis Group in Atlanta (2003 to 2004).
John D. Longley, Jr. (age 55) has served as Chief Operating Officer since October 1, 2014 and was appointed President on June 3, 2019. Previously Mr. Longley served as Executive Vice President of Sales and Business Development since February 2012. Mr. Longley was originally the Director of Sales and Business Operations when he joined the Company in May 2006. Prior to joining Odyssey, Mr. Longley served as Vice President of Sales and Marketing for Public Imagery from 2003 to 2005 and Director of Retail Marketing for Office Depot North American stores from 1998 to 2003.
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Laura L. Barton (age 59) was appointed as Chief Business Officer in March 2021 and was elected to the Board of Directors in June 2019 and has served as Corporate Secretary since June 2015. She formerly served as Vice President and Director of Corporate Communications from November 2007 to June 2012 and Executive Vice President and Director of Communications from 2012 until 2021. Ms. Barton previously served as Director of Corporate Communications and Marketing for Odyssey since July 2003. Ms. Barton was previously President of LLB Communications, a marketing and communications consulting company whose customers included a variety of television networks, stations and distributors and the Company (1994 to 2003).
Human Capital Management
As of December 31, 2021, we had 13 full-time employees, most working from our corporate offices in Tampa, Florida. Additionally, we contract with specialized technicians to perform technical marine survey and recovery operations and from time to time hire subcontractors and consultants to perform specific services.
Odyssey has historically experienced low voluntary employee turnover. We believe this is a testament to our culture of treating our employees well, providing them with the tools and flexibility to be productive, and maintaining an environment of mutual trust and respect. We offer competitive compensation and generous health benefits and flexible work schedules which in turn helps foster employee loyalty.
As the company continues to grow, we recognize our continued success will depend on our ability to recruit, develop and retain skilled employees, including those from younger generations, whose backgrounds and skills will be critical to drive innovation and meet future challenges. Enhancing gender and racial/ethnic diversity in management and our broader workforce is among Odyssey’s priorities for the coming years.
Internet Access
Odyssey’s Forms 10-K,
10-Q,
8-K
and all amendments to those reports are available without charge through Odyssey’s web site on the Internet as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission, www.sec.gov
. They may be accessed as follows: www.odysseymarine.com
(Investors/Financial Information Link).