United Cacao in Disarray?

An AIM-listed company charged with illegally clearing rainforests to make way for cacao and oil palm plantations in the Peruvian Amazon faces an uncertain future amidst financial turmoil and organisational upheaval.

I’m expecting significant news flow from you, say in January, February 2017…” These words from April 2016, addressed by an interviewer from ProActive Investors Stocktube to United Cacao Ltd. SEZC’s chairman and CEO, Dennis Melka, came during a buoyant interview at the UK Investors Show, in which the businessman outlined plans for the cacao company he founded – boasted to be developing one of the largest cacao plantations anywhere in the world – to enter into the production phase by late 2016 / early 2017. Now, in the early weeks of January 2017, the interviewer’s expectant words have adopted strong irony: a glance at United Cacao’s newsfeed on the London Stock Exchange (LSE) does indeed show significant news flow, but not of the kind Melka led us to expect.

On 22 December 2016, United Cacao, which lists on the LSE’s Alternative Investment Market (AIM), announced it would be “limiting its liquidity requirements while it evaluates its funding options”, explaining that it was considering paring back its operations and selling machinery from its plantation in light of the company’s financial troubles.

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Dennis Melka marks United Cacao’s listing on the Lima Stock Exchange in 2015 (Photo credit: Convoca.pe).

This announcement coincided with an abrupt fall in United Cacao’s share price, from 125p on 19 December, dropping 74% to an all-time low of 32p on 28 December.

The cacao company’s predicament was severely compounded less than a week later, on 4 January 2017, with the news that Strand Hanson Limited was resigning as United Cacao’s Nominated Advisor – or ‘nomad’ – a prerequisite for trading under AIM rules. As a result, the company has been suspended from trading on the AIM until it can secure another nomad; failure to do so within the next month means that United Cacao’s shares could be removed from trading on the AIM altogether.

On the same day that Strand Hanson tendered its resignation, the company’s directors “unanimously resolved” to seek Melka’s “immediate termination” [sic.] as Group Managing Director, the role which he assumed on stepping down from the board of directors in September of last year. Melka, a Czech-US citizen and resident of the Cayman Islands (which is also where United Cacao is registered), duly resigned the following day.

The non-executive directors have since indicated a raft of measures intended to help United Cacao weather its “significant financial constraints and operating challenges”, as they work out a longer-term solution to its liquidity issues. These measures range from special agreements with particular investors to the dismissal of 200 of the 450 workers currently employed at the company’s plantation, operated by Cacao del Perú Norte SAC, in Tamshiyacu, in the Loreto region of Peru.

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Deforestation at the plantation operated by United Cacao subsidiary, Cacao del Perú Norte SAC, near Tamshiyacu, in Loreto (Photo credit: EIA).

However, these events in and of themselves reveal little about the bigger picture surrounding United Cacao and Melka’s activities in Peru. As I described in an earlier post, and as has been well-detailed by a number of independent investigations (see here and here), since Melka first travelled to the Peruvian Amazon as a consultant several years ago, he has set about constructing a deliberately opaque web of at least 25 agribusiness companies, known in Peru as ‘El Grupo Melka’ (‘The Melka Group’).

According to the Peruvian authorities, since 2013, three of these companies – United Cacao’s aforementioned subsidiary, Cacao del Perú Norte SAC, and two connected companies, Plantaciones de Pucallpa SAC and Plantaciones de Ucayali SAC, which have received millions in financing from United Cacao in the form of related party transactions – have illegally destroyed at least 11,295 hectares of primary forests in the Loreto and Ucayali regions. Consequently, all three companies and their associated representatives, Dennis Melka amongst them, face possible prosecution and court proceedings for alleged crimes against forests and the environment, deforestation, illegal logging, the misappropriation and trafficking of lands, commencing operations without environmental permits and fraud, amongst other charges.

This is not the first time that United Cacao’s status on the AIM has been called into question. In May 2016, indigenous Shipibo leaders travelled to the London Stock Exchange to deliver a letter, signed by over 60 Peruvian and international organisations, calling upon the AIM to investigate, suspend and bar United Cacao for violating its rules and standards by making false statements about the legality of its activities in Peru. This was followed by a statement from the Peruvian National Forest and Forest Wildlife Service, SERFOR, in which it urged the London Stock Exchange to support the position of the Peruvian State “by demanding that their associated companies comply with the demands of the State.”

More recently, in an interview published on Peruvian business news site, Gestión, SERFOR’s director, Fabiola Muñoz, reaffirmed, “The objective now is that the State manages to stop [those companies]. We must not allow activities of that kind to develop in this country. We need to keep fighting until we stop it.”

Yet there is evidence to suggest that even as these efforts to stop the Melka Group are ongoing, Melka and his associates at United Cacao have been manoeuvring to extricate themselves from these now-notorious companies, possibly with the aim of evading further responsibility for the criminal charges levelled against them.

On 23 June 2016, an advert appeared in the Jakarta Post announcing that Melka’s plantations in Ucayali would soon be put up for auction in Lima. According to Lucila Pautrat, of the Peruvian organisation Kené, the plantations operated by Plantaciones Ucayali SAC and Plantaciones de Pucallpa SAC were subsequently acquired by Ocho Sur U SAC and Ocho Sur P SAC respectively. It is worth highlighting that the former companies are currently under investigation by both the Environmental and Criminal Prosecutors, as well as the Prosecutor for Organised Crime in Ucayali.

When I asked Pautrat for her views regarding United Cacao’s current situation, she offered the following response: “In my opinion, all of United Cacao’s companies should WITHDRAW from Peru. If foreign businessmen believe that they can come to Peru, corrupt the authorities, ally themselves with the drugs-trade, land grab, violate citizens’ rights and destroy our forests, they are mistaken. We are NOT going to stop until these men leave Peru once and for all and receive the due sentence for the crimes they have committed. In that sense, we ask foreign INVESTORS NOT TO INVEST IN CRIMES, not to invest in United Cacao Ltd SEZC. We, Peruvian citizens, will not allow it. We will not cease pursuing them until they pay for their crimes and they leave the country definitively. This is what we want, and what we can inform you of for now.”

With around $25 million invested in the Tamshiyacu plantation alone as of May 2016 and dealings already underway to substantially expand United Cacao’s ‘land bank’, including 2,135 hectares of primary forests, it remains far from clear how this situation is likely to play out. During the same interview at the UK Investors Show, Melka asserted, “We’ve done this before, in terms of build and develop [sic] a project and ultimately exit it when the time is right for shareholders.” As Melka’s forced exit signals, despite such assurances, things are rarely so straightforward.

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