Padenga diversifies from crocs to unlock shareholder value

CROCODILE skins producer, Padenga Holdings’ diversification programme is expected to unlock shareholder value at a time crocodile farming faces pressure from animal rights movements, which may affect growth.

There has been pressure from animal rights activist groups on the ethical issues related to the production of luxury accessories from skins produced from commercially raised livestock.

The diversified group, originally constituted as a crocodile farming enterprise operates three crocodile breeding and production farms in Zimbabwe, Kariba Crocodile Farm, Ume Crocodile Farm, and Nyanya Crocodile Farm with the capacity to breed circa 15 000 hatchlings per year each.

However, the group identified a potential opportunity for the diversification of the Padenga group through the acquisition of the remaining 49,9 percent of the issued share capital in gold producer Dallaglio.

Now, market watchers say the consolidation of the diversification drive will be “value accretive to existing shareholders.”

“Padenga would extend its control of Dallaglio, resulting in full (100 percent) control of its business lines, therefore, resulting in the alignment of its operations with those of Padenga’s objectives,” said stock broking firm, IH Securities.

“The combined value of 100 percent of Padenga and 100 percent of Dallaglio would likely result in the trading of the combined entity at a higher value, resulting in greater value for shareholders,” added IH Securities.

Padenga diversified into mining in 2019, and made an investment in Dallaglio, a gold mining operation, by acquiring a 50,1 percent equity shareholding in the company. This was done through the injection of US$19,9 million.

The transaction has boosted the group’s earnings with the bulk of revenue coming from the mining operation.

With the restructuring approved, there is going to be further improvement in the bottom line due to profits from the mining operations accruing value to shareholders.

“Padenga will benefit from a more robust balance sheet as a result of a larger capital base which would be able to be leveraged for capital raising,” said IH Securities.

Meanwhile, the group is projected to record a 32 percent jump in revenue for the financial year 2023 (FY23) to US$169,62 million.

Earnings before interests, taxes, depreciation and amortisation (EBITDA) is expected to grow 54 percent to US$49,61 million over the same period owing to expected economies of scale at Pickstone mine as production expands and the normalization of skins sales.

Gold production is expected to jump 16 percent to 2 291kg according to analysts’ projections.

The group is scheduled to complete the first phase of refurbishment of the underground mine at Pickstone Peerless Mine in Chegutu in August.

While no underground mining has started yet at Eureka, this is likely to be developed in the future considering the resources available at the mine.

However, it is not all rosy for the group as the operating environment remains challenging due to a number of factors like power supply deficits, a rapidly devaluing currency, foreign currency shortages and low forex retention levels.

“Operations may not be optimally cost-effective as power cuts imply that the business incurs extra costs for alternative energy sources.

“Any reduction of the retention threshold could be catastrophic to the company’s cash flows. Retention levels for gold miners are currently at 75 percent of gold proceeds with the remainder liquidated at the interbank market at the prevailing rate, where the 75 percent falls short of foreign exchange requirements for the gold industry which is at least 80 percent,” said IH Securities.-herald