Monday, 26 January 2009

Recessionary Blues Backstops AeroMechanical

AeroMechanical Services Ltd. (TSX:V-AMA)
Basic Shares: 82.5 million
Fully Diluted: 88 million

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Odd how an extraordinary move to suspend redemptions from Northern Rivers' Innovation Fund also sends an extraordinary signal that AeroMechanical is a promising story.

As most will recall, Northern River's co founder and portfolio manager, Hugh Cleland, gobbled up over 10 % of AMA's shares before the markets tumbled.

Mr. Cleland didn't want to sell off those shares as well as positions in other promising junior companies because he firmly believes there is considerable value to be realized by hanging on through this chaotic period in the market.

So he announced the temporary redemption suspension - that will last for two years - to ensure his fund can hang on to AMA shares and the other companies in the fund's core holdings until the market and AMA's share prices rise again.

"We are not halting redemptions to liquidate. Instead, we are suspending them to allow us to get through this difficult period and ultimately to allow to thrive," Mr. Cleland said in email correspondence.

"Continued cash redemptions at this time could necessitate forced selling of securities by the manager at levels far below their expected longer term value, which would be to the detriment of the funds generally," the Financial Post quoted Mr. Cleland saying.

The vast majority of Mr Cleland's net worth outside of his home is in the Innovation Funds and associated positions.

Three of Northern Rivers' mutual funds, limited partnerships and the Innovation RSP Fund are not affected by the suspension decision.

Funds around the world have had to take the same steps as a result of the steep market slide. Bill Tempany, AMA's Chairman and CEO, said he has always appreciated Northern River's support and guidance.

"We are very excited to be in the core group of companies in Mr. Cleland's fund and we expect to remain in the fund for the long term," Mr. Tempany added.

From the Howard Group's perspective, we're very pleased Mr. Cleland has adopted this strategy as it signifies his strong belief in the future of the company and its potential.

It was in early 2006 that we first introduced Mr. Cleland to AMA, which led to his participation in two private placements and a considerable amount of open market purchases of the stock.