A MINE drilling company thought it had the answer to dangerous explosives underground — until its global ambitions exploded in the face of reality. By *Tim Treadgold.
Innovative, low-vibration explosives helped save the lives of two gold miners trapped underground at Beaconsfield, Tasmania, last year. But the same headline-grabbing technology has done nothing for the balance sheet of Brandrill, a specialist mineral drilling company which has returned to its roots after almost innovating itself to death.
Penetrating cone fracture explosive was hailed as the material which successfully cracked the final 1.5 metres of hard rock trapping Todd Russell and Brant Webb after an earth tremor triggered the partial collapse of the mine in which they were working.
International publicity put PCF in the headlines and featured in a special section in last year’s annual report of Brandrill. However, the business story behind PCF is far more interesting because it is about a company that had one bright idea, thought the world would buy it, risked everything, almost lost, and is now re-building.
“It is a clever technology,” Brandrill chief executive Ken Perry says. “But it has limited and highly specialised applications. What happened in the 1990s is that Brandrill thought it had a world beater which would catapult the company into a new league, and that meant taking its eye off the core business of drilling and blasting for mining clients.
“Over the past few years we’ve spent much of our time extracting ourselves from the mess created by over-extending and setting up a worldwide marketing and distribution system for a product which simply didn’t sell that well.”
Brandrill’s PCF experience is a sobering business lesson about a well-run, well-respected family company that allowed marketing to get ahead of sensible management, and for a new but unproven and tricky product to dominate investment decisions.
The result was that Brandrill posted a series of heavy losses, including a $59 million shortfall in 2002 alone, spending much of that year with its shares suspended from trading on the Australian Stock Exchange then limping along as it underwent a series of re-financing exercises, including the innovative use of a “creditors’ trust” to avoid outright insolvency.
It was the creditors’ trust, which saw Brandrill emerge in a restructured format after just five months in limbo, that earned the company the close scrutiny of the Australian Securities and Investments Commission. It became concerned about the legal process which it fears may minimise the quality of information being made available to creditors about distressed companies.
Perry, however, has no doubt that the creditors’ trust was a key plank in Brandrill’s survival from its PCF-induced, near-death experience. “Without the trust, it would have taken much longer to re-build,” he says.
The financial and legal problems encountered by Brandrill, followed by its remarkable restoration to robust health, have masked the reason why the company fell in a hole in the first place — and that was all because management fell in love with a technology in which it had total belief but the world did not want in large quantities.
“We’re very much a back to basic business today,” says Perry, who was called in to fix Brandrill’s problems after PCF almost destroyed it. “We’ve got 75 [drilling] rigs operating for a who’s who of the Australian mining sector, including BHP Billiton, Rio Tinto, Xstrata and AngloCoal, and the major mine contractors, such as Leighton Holdings, Downer EDI and Macmahon Holdings.
“Last [financial] year was the first after our restructuring and we posted a profit of $6.2 million, on turnover of $103 million. This year will see another increase in profit to around $10 million because demand for drill and blast services is strong, and growing.”
The revitalisation of Brandrill, thanks partly to the resources boom, is best reflected on the stockmarket, where the company’s share price has almost tripled over the past 12 months from a low of 11¢ to recent trades of about 30¢, capitalising the company at almost $100 million.
Five years ago, at the height of the PCF fiasco, it was a different story. When not suspended, Brandrill shares were trading at less than 2¢, hitting an all-time low of 1.4¢ in mid 2003.
For followers of management theory, especially those who advocate a company adopting innovative technologies, Brandrill’s experience is one for the “how not to” category. It started in the mid 1990s after a worldwide search for a smarter way to break rock.
Conventional explosives, used in civil and mining applications, are more than just dangerous. They work by emitting a powerful and destructive force over which there is limited control.
PCF works by using a smokeless propellant that, when ignited, produces gas that fractures rock or concrete. Vibration is minimised to the point where PCF has been used on dam-wall remedial work and in inner-city foundation work under high-rise buildings.
The name even comes from the controlled “cone-like” shape produced by each charge.
But PCF is also a slow way to crack rock, and did not prove to be as pollution free as was hoped when used in its big underground mining test, the deep gold mines of South Africa. It was there that Brandrill pinned its hopes, as well as in the United States, Europe and Asia, where an excited management opened expensive marketing offices and appointed its own staff or negotiated joint ventures with local agents.
While the international market development costs soared, PCF itself was not living up to its promise in South Africa, where mine operators have spent decades looking for a way to avoid the expensive process of moving thousands of underground workers to the surface every time there is a mine-face blast.
PCF, it was claimed, would enable the mine process — the actual digging and skip filling — to continue while a controlled PCF “blast” occurred at the mine face, creating a near-continuous process. It didn’t.In the ultra-deep South African mines, some of which plunge four kilometres underground, there were two problems. Gas given off by PCF exceeded safety limits and miners remained fearful that blasting, even if in a very controlled way such as that seen at Beaconsfield, could trigger earth tremors which, in South Africa, are known as seismic events — and which, to a layman, simply mean the mine roof collapsing.
Whatever the reason, and however complicated Brandrill’s corporate relationships became in South Africa — Perry spent a year unwinding the situation — the simple fact was that PCF was not the corporate hit that had been expected.
Today, PCF appears almost as a footnote in the Brandrill accounts as a business unit called RockTek. It employs 10 people out of a group payroll of 470. Last year, while the rest of Brandrill was profitable, RockTek lost $484,000.“We’re slowly growing RockTek,” Perry says. “It certainly has a range of applications, especially in civil works, and in breaking over-sized rocks in mines and quarries.
But there is also a need to train operators, and it can be a slow process in gaining import permits, as well as the transport and storage of the cartridges.“It remains a division of the company, but when measured against the overall business it is barely material. What we need to break even [at RockTek] is sales of $150,000 to $200,000 a month, and we’re getting there.”
*This article was first published in BRW June 21-27 2007. Tim Treadgold is a contributor to BRW.
27 Quill Way
Henderson WA 6166
27 Quill Way
Henderson WA 6166