Ahoy, Mateys!

Adventurous, sea-lovin' spirits around the world were treated to a story that made headlines in thousands of papers this weekend, a story that offers excitement, intrigue, tragedy, history, and the thrill of discovery all in one -- a story of sunken treasure, long lost at sea, suddenly found.

Well, not suddenly. For 12 years, a Florida-based salvage company has been searching for a steamer that left New York for New Orleans before going down in a hurricane off the coast of Georgia on October 25, 1865, with 81 souls and 20,000 gold coins aboard. The precious cargo on the SS Republic was intended to help rebuild the war-ravaged South. Most passengers escaped with their lives on rafts, but the gold went down, and down, and down. And down.

Formed in 1986 in Tampa, Fla., Odyssey Marine Exploration (OTC: OMEX) announced this weekend that, after combing 1,500 square miles of ocean floor with robotic, sonar, and magnetometer technology (a task begun in 1991), it has strong reason to believe it discovered the SS Republic. The majestic old lady is resting on her side approximately 100 miles southeast of Savannah, in 1,700 feet of water. Sharks, and presumably treasure, are included.

The ship's length, boilers, hull type, copper sheathing, and side-wheels all match those of the 210-foot long SS Republic. Odyssey's photos also show artifacts from the day strewn over the ocean floor, including fruit preserved in glass jars. (Salad, anyone?)

Peaches aside, Odyssey is most interested in the gold, which could be worth an estimated $120 million to $180 million. The company has been granted an "admiralty arrest" of the site by the federal government, giving it exclusive rights to salvage. Most found treasures have claims placed on them by governments from around the world or by families. In this case, Odyssey might maintain all rights, given the gold's history and location in international waters. Excavation will start in September, costing the company up to $3 million.

So, what could this mean for the stock? Oh, I'm sorry. That's right, Odyssey -- which probably just struck gold -- is a publicly traded company.

Treasure hunting is adventure, not business
Odyssey does not have enough assets to list on the Nasdaq National Market, so it trades on the highly speculative Bulletin Board exchange, a place investors should all but categorically avoid. We all dream of finding a hidden gem cheap and riding it to riches, but you're much more likely to find your fortune on the Nasdaq or NYSE, trading in double digits.

We're looking at Odyssey today as an exception, because it's August, half of you are on vacation, and this company has a heck of a fun story -- but all the fun is in the treasure hunting, not the stock.

Like flotsam (or a dead fish), the stock has drifted without purpose from moon to moon, just waiting for a current to carry it. In July, Odyssey announced the discovery of an unnamed steamer, and over the next month speculators lifted the shares from $1.50 to $2.95. After news of the SS Republic broke last weekend, Odyssey's stock opened Monday above $5, valuing the company at $140 million -- a price rivaling the maximum value of the discovery.

At this level, people buying the stock are getting much more downside risk than potential upside. There is risk that the treasure is degraded; risk that currents have carried some away; risk that it won't be there at all, or it's the wrong ship; risk that ownership complications arise; risk of a loss at sea (it's hurricane season again); risk that the market for the treasure will be spotty; and risk of pirates (I kid you not). You name it, there's risk.

For example, Odyssey carries $20,000 in inventory on its balance sheet (I love this) consisting of 758 raw emeralds, including an emerald of 17.5 carats, from previous salvaging. The emeralds are too difficult to value, so the company is essentially hand-tied to them, rather than risk undervaluing them in a sale. Apparently, it hasn't considered eBay (NASDAQ:EBAY).

Adventure is a gamble, not investment
Over its history, Odyssey has accumulated $10 million in net operating deficits and earned less than $150,000 in revenue. The firm recently had $660,000 in working capital before raising $5 million with a dilutive, private placement two weeks ago. According to recent sources, the company employs six full-time workers, and its officers each make about $200,000 annually in salary and bonus (great pay for work they love).

Assuming they've found the SS Republic and her gold, the haul would be the richest in salvage history, changing Odyssey forever. However, the stock has already all but priced in this find. The company has several other salvage ambitions, but we've seen how many years a find can take. The only other immediately lucrative salvage in the works involves a contract with the British government.

Odyssey has agreed to help the Brits excavate the wreck of the HMS Sussex, which sank off Gibraltar in 1694 en route to leading a fleet against France's Louis XIV. Historians believe the Sussex held nine tons of gold, likely meant to buy the Duke of Savoy's loyalty in war. This find could outstrip the SS Republic's treasure, and Odyssey will share it with Britain as follows:

      Cut of a Shared Booty
    Value of Sussex Treasure    The Brits   Odyssey$0 to $45 million             20%        80%$45 million to $500 million   50%        50%Above $500 million            60%        40%

By November 2004, Odyssey is obligated to start pulling up artifacts, and if Sussex proves lucrative, there might be more upside in the stock. But hold your horses: Odyssey has already sold rights to portions of this potential revenue to outside speculators, because it needed funds up-front. Either way, with only a few potential revenue sources coming anytime soon, we clearly can't talk about this stock as an investment. We're talking about outright gambling, Mates -- and leveraged gambling at that.

To its credit, Odyssey doesn't pretend to be much more than a gamble. Heck, its website is www.shipwreck.net, hardly a name to inspire investor confidence. When you click on the SEC link from the company's Investor page, you get a pop-up that warns: "You are now entering the Deep Zone... Odyssey's business should be considered extremely speculative and of an exceptionally high risk...." It goes on to list the many dangers of the "business."

Very Foolish, that pop-up. Much commended.

Entertainment is a business
Ultimately, management realizes that to be a sustainable business with a half-respectable stock, it needs a steady, renewable stream of income. The company hopes to have multiple revenue streams, including adventure tourism, opening artifact museums, the sale of related merchandise, archaeological services, and the sale of intellectual property (the company recently signed a book contract, although for only a $14,000 advance). Yet, for the next several years, treasure is expected to be the main revenue source.

That's not something to bank on, nor invest in, but sure is fun to watch.

$180 million may sound like a lot, but found over 12 years, it's just $15 million a year. Odyssey has several competitors, although the author could not find any public ones. Jeff Fischer doesn't own shares in Odyssey or any other salvage operations -- unless you consider eBay a salvage shop. You could find some treasure right away by visiting the Fool's 10 Ways to Make More Money Now.