- June 11, 2020
- Posted in LOCAL
The Competition and Tariff Commission (CTC) has approved Padenga Holdings’ acquisition of a 50,1 percent stake in gold mining company Dallaglio Investments, in a move expected to boost the group’s earnings.
The group made the announcement at its virtual annual general meeting (AGM) on Tuesday, which was the first online AGM held in Zimbabwe, which was done using Escrow AGM.
This follows the Zimbabwe Stock Exchange’s approval of such meetings recently.
According to the group, the mining operations will now be incorporated in its financials for the FY20.
Market watchers say the deal will be fruitful for the crocodile breeder as gold is a safe investment option on the back of its foreign currency generation capacity.
Gold is the largest foreign currency earner for Zimbabwe followed by tobacco.
Brokerage firm, IH Securities, projects a surge in revenue for Padenga driven by the consolidation of the mining business.
“Total revenues for Padenga are expected to improve by 158,9 percent from US$29,12 million to US$75,41 million mainly driven by the consolidation of Dallaglio,” said IH Securities.
EBITDA margin is expected to increase to 31,5 percent from 24,2 percent as a result of the jump in revenues caused by carry-over skins from 2019 and the consolidation of the gold operations.
Despite the Covid-19 pandemic, which caused economies to experience a meltdown, gold sales during the first quarter of the year 2020 remained stable although there were also some disruptions to operations as businesses implemented social distancing and lockdown.
Prices of gold are projected to rise to US$1 696 by end of financial year 2020 as the yellow metal is safe haven during economic uncertainties.
As such, Dallaglio is expected to make a significant revenue contribution to Padenga’s figures.
Said IH Securities: “We have made assumptions from Pro-forma statements provided in the initial transaction to acquire Dallaglio; we forecast revenue contribution from the mining operations to come in at US$37,92 million for FY20.
“Policies pertaining to foreign currency retention levels significantly impact operations for the company and its mining subsidiary.”
The government recently reviewed retention levels for gold miners to 70 percent from 55 percent with the remainder liquidated at the interbank market at the prevailing rate.
Padenga, which is an export-oriented business, is expected to further cash-in on the deal as it consolidates its foreign currency earnings with the mining operations.
Dallaglio 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 anticipated to produce 140kg a month.
Overall, the group anticipates a good year also on enhanced skins production from its Zimbabwe crocodile operations.
The group projects to sell 55 000 premium quality skins for FY20, a volume increase driven by carry-over skins from the prior year.
Padenga also expects to achieve a grade 1 result of between 83 percent and 85 percent.
IH Securities has maintained a buy recommendation for the stock on the local bourse.