Crocodile skin producer Padenga Holdings Limited has seen the contribution of its mining operation coming in at US$37,92 million in full-year 2020 with total revenue expected to improve by 158,9% from US$29,12 million to US$75,41 million.
This is mainly driven by the consolidation of Dallaglio, a mining company based in Zimbabwe. In August last year, Padenga shareholders gave the nod to the acquisition of a 50,1% stake in Dallaglio.
Based on assumptions from pro-forma statements provided in the initial transaction to acquire Dallaglio, financial services company IH Securities forecast a significant contribution from the transactions.
“We forecast revenue contribution from the mining operations to come in at US$37,92 million for full-year 2020. Total revenues for Padenga are expected to improve by 158,9% from US$29,12 million to US$75,41 million mainly driven by consolidation of Dallaglio. EBITDA (earnings before interest, taxes, depreciation and amortisation) margin is expected to increase from 24,2% to 31,5%, not so much a reflection of improved efficiencies but rather a result of the jump in revenues caused by carryover skins from 2019 and the consolidation of the gold operations,” said IH Securities.
Last year, Padenga could not consolidate financials for that subsidiary pending regulatory approval for the acquisition.Gold sales volumes for large-scale miners in the first quarter of full-year 2020 remained stable despite the Covid-19 lockdown. However, production in the local gold sector as a whole was temporarily disrupted during level one of the quarantine directive.
Meanwhile, Padenga projects its Zimbabwe operation will sell 55 000 premium quality skins in full-year 2020, with the volume increase driven by carryover skins from 2019.
While the company expects to achieve a Grade 1 result of between 83% to 85%, IH Securities said it expects a lower average price per crocodile skin as a number
of these skins will be channelled to alternative markets given increased difficulty in meeting clients’ quality criteria.
“The Zimbabwean operations are forecast to contribute USD$34,55 million to the total revenue in full-year 2020, up from US$25,53 million. In the United States market, 75% of skins produced annually are for the watchband market.
Watchband skins are oversupplied in the market and prices have dropped 25%. Only farms with access to eggs or hatchlings at low prices are viable at these prices. In contrast, the medium and large skin market is more specialised, requires greater managerial insight and more robust operational systems and a longer production period. Volumes are therefore reduced, and skin prices have remained high.
“Padenga’s US operation plans to optimise on this opportunity by buying in pre-selected yearlings, growing these out at reduced stocking densities and selling to the premium market,” said IH Securities.
Profitability is seen remaining compromised in 2020 but second-half skins are expected to be of premium quality.