Northern Rivers Funds invest in CymatTwo new positions in the LP and RSP Funds: Senesco (SNT on Amex) and Cymat (CYM on TSX)
https://www.northernriversfunds.com/assets/downloads/Cleland_April_2010.pdf
Both positions were entered via recent financings that bolstered the companies’ balance sheets; the pricing and terms of the financings gave us risk-reward profiles that are perfect for the Innovation mandate. In both cases, we established about a 1% position in the funds; in both cases, 12 month “worst case” downside should be no more than 50%, but upside potential is for a 5 to 10-fold move in the respective stock prices. I will give a brief outline of the investment hypothesis for Cymat in this letter, and save Senesco for a letter at a later date.
Cymat Technologies: a call option on an enormous US military opportunity
I have followed Cymat since 2001. They have an aluminum ‘foam’ technology that has potential applications in auto parts, blast/impact mitigation and architecture/design. For most of its history, Cymat has been a ‘bleeding edge technology’ in search of an end-market. Auto parts manufacturers have been pursued for years, so far bearing no fruit. Blast mitigation has appeared to be a promising market, but until recently, was also one that bore no fruit. The “game-changing” development for Cymat in this market occurred when two retired US generals joined Cymat’s newly-formed Advisory Board. According to a research report by Frederic Beausoleil of Laurentian Bank Securities, the two generals believe that Cymat has the best blast mitigation
technology for military vehicles (such as jeeps and HUMVs), and they are helping to position Cymat favourably in a bid for retrofitting 60,000 vehicles in the US Marines and Army. If Cymat wins the bid, it would represent somewhere between $300million and $700million in revenue to Cymat, depending on how much of the value-chain that Cymat participates in. A win here would position Cymat’s technology as the “industry standard” in blast mitigation systems for military vehicles, and would catapult the stock to multiples of where it currently trades. The financing we participated in was at
.18 per unit, where a unit is comprised of a common share at
.18, and a full purchase warrant at
.25 which expires 2 years from the closing date of the financing. With the two-fold exposure we have on the upside, and the one-fold exposure to downside risk, I think readers will understand the attractiveness of the risk-reward proposition that this investment
offers.