aurora
Enacy Mapakame
Diversified crocodile breeder, Padenga Holdings Limited is counting on its recent mining acquisition to offset the depressed performance of its crocodile skins business.
Market watchers opine the company’s drive to diversify its business into other export-oriented units come at a crucial time when there is pressure for high quality skins while animal rights groups are piling pressure on the industry.
But, Padenga recently diversified into gold mining with 51 percent acquisition of Dallaglio and is also carrying out a feasibility study into plantation cropping of avocados and macadamia nuts as the group diversifies risk.
Already, the mining operation made significant revenue contribution during the half year to June 30, 2020, a trend that is expected to obtain for the full year and beyond.
This comes as global gold prices are forecast to rise to US$1 793 an ounce from a monthly average of US$1 392 per ounce during the financial year 2019.
Gold is a store of value and Zimbabwe’s single largest foreign currency earner.
For Padenga, the mining operations are forecasted to produce 688kg (22 120 oz) gold for FY20, while revenue contribution will come in at US$34,70 million which stockbrokers IH Securities sees making a significant contribution to overall revenue.
“Total revenues for Padenga are expected to improve by 114 percent from US$29,13 million to US$62,46 million mainly driven by consolidation of Dallaglio.
“EBITDA margin is expected to improve from 24 percent to 27 percent, as the weak performance of the alligator business is offset by the consolidation of the gold operations,” said IH Securities.
Beyond the current financial year, the rehabilitation of mining and processing works at Eureka Mine made considerable progress, with full mining operations expected to commence in July 2021.
The mine’s long- term average gold production is expected to be more than 140 kilograms a month.
Apart from the mining business, increased Nile skins should also boost revenues as post the reporting date saw 18 629 skins graded and invoiced following the lifting of travel restrictions in October.
Indications are that there has been a strong recovery in the high-end leather goods market across Asia as lockdown restrictions eased in that area.
“We expect a marginally higher average price per skin for FY20 for the crocodile business given the new harvesting strategy implemented in 1Q20,” said IH Securities.
The group has indicated it expects to achieve a Grade 1 result of between 83 percent to 85 percent.
However, IH Securities projects the Zimbabwean operations will contribute US$24,73 million to total revenue in FY20, flat from US$25,53 million notwithstanding the improved prices.
The US operations — with 75 percent of annual skins production being watchband skins – is also expected to remain under pressure as watchband skins are oversupplied in the market.
Depressed demand for alligator skins is likely to impact prices while profitability will be compromised in FY20 as the operation cleared out the last of its stock impacted by Double Scale.
According to the group, the alligator business is expected to produce 6 percent more skins in FY20, to 18 149 from 17 176 in FY19 leading to a forecasted revenue contribution of US$3,01 million, down from US$3,59 million.
IH maintained a buy recommendation for the group.
Bongani Ndlovu