Croc breeding Source: Google Images

Zimbabwean crocodile and alligator skin exporter, Padenga, is seeking more glitter from foreign markets after diversifying into gold mining, as strategy analysts say this represents an “unusual pairing”, but is “value accretive” through diversification and enhancement of forex earnings in light of a cash crunch afflicting local Zimbabwean companies.

Padenga has moved in to acquire a 50.1percent stake in Dallaglio Investments, which has interests in Zimbabwe gold mining projects that include Pickstone Peerless and Eureka gold mines.

This is despite gold miners in Zimbabwe having their own challenges, such as surrendering a portion of their forex proceeds to the central bank and delayed payments for bullion among others.

However, Padenga is seeing value in the gold mining resources and assets owned by Dallaglio as they represent a diversification away from the group’s crocodile and alligator operations.

Analysts at IH Securities also say that there has been “increasing pressure from animal rights groups protesting the use of leather in the fashion sector” in the past few years.

Additionally, drought conditions mean that Padenga’s operations will take a knock from declining water levels at Kariba Dam, where the company grows its crocodiles. Climatic change conditions occasioning extremely hot weather conditions are also seen as a major risk factor for the company.

“Product and customer concentration risk is exacerbated by the nature of Padenga’s core product, with receding water levels in Lake Kariba at 24percent of maximum capacity coupled with increasingly unpredictable and extreme climate conditions posing a threat to livestock farming,” analysts at IH Securities said this week in a note on the transaction.

The diversification into gold mining “enhances the business’ earnings, while remaining purely export focused”, which puts it on a sound footing in terms of value generation. This diversification, according to the analysts, is key, especially considering that 79percent of Padenga’s sales in 2018 went to one luxury goods brand in Europe, which heightens “client concentration” risks. The price of gold on the other hand has recovered from $1200 an ounce last year to around $1500 (R23070) an ounce this year. Resource analysts say they expect this momentum to persist.

“The group’s (Padenga’s) current resources provide some scope to develop and grow the mining operation with the prospect of an unbundling and separate listing of the mining operation once the economy stabilizes,” further highlights IH Securities.

Padenga will now seek approvals from shareholders for the acquisition of Dallaglio at an extraordinary general meeting set for August 28. The transaction, according to a notice to shareholders, will be settled by way of a cash injection of ZWL$90.36 per share and the equivalent of US$19million which will be paid in kind through delivery of mining equipment to Dallaglio.

Gold production from Dallaglio accounted for about 7percent of Zimbabwe’s gold output of 33 tons in 2018.