Brandrill survives, just

A ten-bagger is a stock that soars to ten times your purchase price. And subscribers who followed our advice to take a punt at 31 cents would know what it's like for the opposite to happen. It's a sick feeling but it comes with the territory. The stocks on this page are called  High Stakes for exactly that reason.

High risk

The important question now is whether this contractor and one-time technology developer will be a ten-bagger from today's prices?

The answer is perhaps. But the prospectus issued late last year says it all. On page two, in bold print it declares that an investment in the company 'may not be appropriate for investors who require security of capital and income, or who are risk averse.' We couldn't agree more.

But let's look at how the current messy situation evolved and what shareholders should do now.

Until 1994 Brandrill was a sleepy little mining contractor. It then became aware of a new non-explosive rock breaking technology called PCF (Penetrating Cone Fracture).

By April 1998 Brandrill had acquired the world-wide patents to this technology and began an aggressive development program.

In short, management was seduced by PCF's potential and, eventually, undone by its cost. In June last year the heavy cash drain PCF development placed on the traditional contracting operations proved too much to bear. Basically, Brandrill ran out of money. At the time things were looking dire and it was not clear whether the company would survive.

Here we are eight months on and while the company isn't completely out of the mire, it is smelling a little better. Here's why.

In December $12.9m was successfully raised through the issue of 287m convertible notes and options. Secondly, the heavy research and development involved in furthering the potential applications of PCF technology has been abandoned.

Reduced upside

But this is a double-edged sword. While alleviating the critical short term cash problem, the company had always pinned its hopes on PCF's potential. Without it, the upside is not as great as it once was.

Thirdly, an agreement was recently reached for the sale of its 51% stake in Brandrill Torrex, a South African mining contracting business. The proceeds will bolster the company's financial position and, combined with the two measures described above, greatly increase Brandrill's chances of survival.

But at current prices we see the newly-listed convertible notes (BDLG - $0.045) as a better proposition than the ordinary shares (BDL - $0.042).

The reason is that the ordinary shares don't pay a dividend but the convertible notes pay 8.5% interest on their five cent face value. Better still, they are convertible into at least one ordinary share (and a maximum of five, based on the ordinary share price at the time) at any point up until 30 September 2005.

So while there is only a modest premium to buy the convertible notes at the moment, we see them as better value. Unless the brokerage will take a substantial chunk of your investment, SELL and SWITCH to the convertible notes (BDLG).