Mining operations expansion  to spur Padenga earnings The Government has adopted accelerated mining title backlog clearance strategy focusing on one province at a time (File Picture)

  Business Reporter

Equities research firm Inter-Horizon Securities (IH Securities) says expansion of mining operations will spur Padenga Holdings earnings as margins from its traditional crocodile skin continue to shrink.

The company had previously noted a shift in consumer dynamics in favour of smaller handbags and therefore smaller skins due to a defensive Asian market, resulting in negative effects on the Group’s earnings.

However, in 2020, the Group diversified into gold mining following the successful acquisition of a 50,01 percent shareholding in Dallaglio Investments. The group’s flagship gold mine, Eureka, was launched by President Emmerson Mnangagwa last year having been idle for the past 15 years.

“Overall revenues for Padenga are expected to remain on an upward trend carried by extension of the gold mining operations, as well as higher forex retention given the VFEX listing.

“Eureka mine recently started production and had reached full operating capacity by FY21.

The mining operations are forecasted to produce 1,296kg (41,679oz) gold for FY22,” said IH Securities.

According to the research company, mining volumes were 35 percent above the comparable previous period driven by production from the newly commissioned Eureka mine and revised open pit mine plan at Pickstone.

Dallaglio’s revenue came in at US$51,38 million, contributing 65 percent to Padenga’s revenue.

However, the mining segment recorded a loss of US$4,41 million from a profit of US$5,15 million due to pre-operating expenses incurred at Eureka mine.

IH Securities noted that the upside for the crocodile skins business will be limited as the group seems to be maturing around current levels of circa 40 000 skins annually; in the short term there may need to be some work to tailor skin sizes in line with current customer preference.

According to Padenga, there has been a shift in consumer dynamics in favour of smaller handbags.

As a result, the Group noted that during the year, skins 40cm/+ size were rejected regardless of quality and were/will be sold at reduced prices negatively impacting Padenga.

During the period under review, crocodile skin sales volumes remained firm at 39,936 skins compared to 43,254 in 2020.

“No export meat sales were made due to Covid-19 induced restrictions on sales of exotic meat across the globe. Revenue for the crocodile business was down 9 percent from US$27.28 million to US$24.70 million,” said Padenga.

According to IH, the business contributed 31 percent to Padenga’s total revenue but fair value adjustment fell as the larger crocodile skins in inventory are expected to fetch lower prices.

During the year 2021, the group’s Texas operation remained hamstrung by oversupply and reduced demand in the market for watch band size skins.

IH said the operation had been moving towards medium and large skin production because of improved margins in those size ranges but the shift to smaller skins that was also experienced by the crocodile business resulted in Tallow Creek having skins that could not be sold at viable prices.

Revenue for the alligator business was down 40 percent from US$3.96 million to US$2.36 million, a contribution of three percent to Padenga’s total revenue.

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