Timing all wrong for Ausdrill Ltd

OH, what could have been.

Ausdrill Limited’s directors must be watching, green with envy, reflecting on an opportunity gone begging, as their arch-rival, Brandrill Limited, rides on a wave of optimism.

Both companies started out on an equal footing, having raised about $7 million each for their drilling and blasting operations.

Today, Ausdrill’s share price is languishing at around 7 cents with a market capitalisation of just $5.69 million, having fallen 95 per cent over the past five years after a spell at $1.80.

Brandrill’s shares are hovering around $1.90 with a market capitalisation of $180 million – a 315 per cent increase since 1996.

Brandrill’s good fortune rests with the Penetrating Cone Fracture (PCF) technology, which it purchased in June 1998 for $8 million from the liquidators of US company Sunburst Excavation Inc.

PCF is non-explosive, meaning workers can stay underground when rock splitting is occurring, rather than being pulled out as occurs with traditional explosives.

What is less known is that Sunburst Excavation director Brian Mieke had first offered the rights to the PCF technology to friend and Ausdrill founder and managing director, Ronald Sayers. Mr Sayers, however, knocked back the offer, believing the PCF technology was not commercially viable.

“I looked at it personally but I wasn’t willing to put Ausdrill into it,” Mr Sayers told Business News.

He said Ausdrill did not have the money to fund any research and development of the technology.

Despite concerns about its commercial viability, Mr Sayers dug deep into his own pockets and poured $25,000 into the US company.

Mr Sayers said he provided the money to help out a friend in need and felt vindicated that he had made the right decision for Ausdrill despite subsequently losing his investment when Sunburst Excavations went under.

Brandrill than stepped in and the rest, as they say, is history.

Ausdrill continued its downward spiral after a number of deals did not go its way.

Ausdrill has maintained a large part of its revenue stream from exploration drilling, which has suffered a downturn as a result of poor economic conditions, unfavourable gold prices and Native Title concerns.

Brandrill has not been immune, although a larger portion of its revenue comes from production drilling, which has not suffered to the same extent.

The sale of Ausdrill’s self-created procurement and logistics arm, Supply Direct, for $12.15 million to the Singapore-based Petroglobal Group fell over, while its dabbling in telecommunication through Diamond Communications and ACE also proved unprofitable.

“We probably bought them at the most inopportune time,” Mr Sayers said.

There was a reduction of more than 30 per cent in work as the telcos pulled back on its cable-laying program.

Concern still exists in the South American drill and blast operations after it lost two major contracts.

So, travelling high, is Brandrill a better investment for shareholders, given its potential to revolutionise the explosive market and possibly take on explosive giant Orica Limited?

Not according to Peter Strachan, senior analyst for DJ Carmichael & Co, who recommended against investing in these companies at the moment.

“Both are not stocks that I would be running out to be in. Brandrill shares are pregnant with expectations. There’s a lot of hype in there for the technology and I think they are a bit overdone,” Mr Strachan said.

He said that, with earnings of only 4.5 cents a share, it was not hard to see Brandrill going down to $1 or even 70 cents.

Brandrill company secretary Mathew Whyte agreed, saying people were buying on future profits rather than current income.

“Its up to us to keep up the deliverables to the market,” he said. Mr Whyte said in March 2001 the company had indi-

cated that it hoped to maintain profits of about $3.2 million,

a figure it achieved for the

1999-2000 financial year.

Meanwhile, the company continues to plough in about $3 million a year into improving on the PCF technology.

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