Padenga diversifies into gold to reduce risk

Listed crocodile breeder, Padenga’s proposed diversification into alternative export oriented business will help the company reduce concentration risk.

The group will seek shareholder approval for the acquisition of a 50,1 percent shareholding in Dallaglio Investments that is into gold mining, in a transaction to be settled by way of a cash injection of $90,36 percent and an equivalent of US$19 million to be paid in kind by delivery of mining equipment at Dallaglio.

Padenga is a highly concentrated export business with virtually all revenue coming from skin sales, with to some extend a small portion from crocodile meat sales into the European Union.

The company was originally concentrated in Nile crocodile production but diversified in 2012 to include the alligator production in United States of America. According to Padenga, although the business is growing, it is represented only 9 percent the group’s revenue in 2018.

A circular to its shareholders shows that the firm has a significant client concentration risk, with 79 percent of sales in 2018 being ultimately to one luxury goods brand in Europe.

According to Padenga, its product and customer concentration risk has been worsened by the nature of its core product.

Indications are that generational changes in end users have placed too much power on social licence compliance which have necessitated material changes to the operational and production systems paying attention to good husbandry and ethical production systems.

While there are assurances leather will continue to remain a fundamental part of its product offering, the pressures to constantly verify credible and ethical operational procedures will likely continue into the future.

Market watchers contend diversifying into gold mining will be a good feat for the company as the gold sector has always been attractive especially with the historic global demand for the yellow metal and its capacity to produce foreign currency, which is currently scarce on the local market.

Padenga has been listed on the Zimbabwe Stock Exchange since November 2010 primarily in the business of production of premium quality crocodile skins for the luxury leather goods market.

On the other hand, Dallanglio was incorporated in Zimbabwe in 2005 and owns Pickstone-Peerless Mine near Chegutu which produces approximately 61kg to 65kg of gold per month.

The group also owns Eureka Mine near Guruve, an open pit gold mine currently under development set for a 2020 commissioning and anticipated to produce 140kg a month. These assets have a total measured and indicated resource of 1,6 million ounces, and a total resource of 2,2 million ounces in its 2018 financial year.

In 2018, Pickstone recorded a US$26,7 million turnover and profit after tax of US$2,7 million.–

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