United Cacao Ltd (LON:CHOC) Chief Executive Officer Dennis Melka caught up with DirectorsTalk for an exclusive interview to discuss the visit from the President of Peru, the Lima listing and the recent cacao price movements
Q1: We understand that the President of Peru visited the company in Tamshiyacu. Is that correct?
A1: Absolutely. Last week we were very excited to receive the president in Tamshiyacu, he came with about 40 other government officials; the Mayor, the state president. It was really a wonderful event and he was very warmly welcomed by the community and there was quite a bit of discussion on the need for more private investment, more agricultural investment and job creation so it was a great event, a great day. Rest assured, we’re working to increase our staff levels and employing more people in the area which is essential for companies like us that operate in these poorer parts of the world.
Q2: How is the Lima listing process going and what does it mean for the company?
A2: The Lima listing is excellent, it’s done, it was completed yesterday in fact and the shares are trading under the ticker ‘CHOC’ on the Lima stock exchange. It means several things, number one it means local Peruvian investors, retail, institutional, and ultimately over time, pension funds can participate in the growth of the company. I think from a foreign perspective, people may not realise that the business model that we have in Peru has been done many times before in other sectors for example fisheries, asparagus, grapes, avocado. So Peruvian investors have seen this business model about Peru being a low cost export platform for agricultural and food product, it’s been done time and time again so it’s a story that they understand and they’re quite familiar with. Our Lima listing allows local investors to participate and I think also over time as we start to pay a dividend when we become that income positive that allows pension funds to participate and so what people may not realise, Peru has a totally privatised pension fund system and so there’s literally billions and billions of soles coming into the system every month. These are private pension fund regulated by the government and they have certain criteria in order to invest in stocks, one of them is they need an investable market cap of $100 million but over time as we achieve those levels, we become eligible for those pension fund dollars which I think is excellent for the pension funds and also a long term route for the company to maximise value for current shareholders.
Q3: Speaking of share prices, what do you make of the recent price movements in cacao?
A3: Well what’s been happening, two or three weeks back, there was incredible news that came out of Ghana where everyone this year had been expecting Ghana to do about 900,000 to 1 million tonnes of cacao, the government in Ghana reported that they would be lucky to get 700,000 tonnes. A week later it emerged that they’d over-sold this years’ production by 200,000 tonnes so they over-sold what they thought they would have and you’re talking plus 20% so this is an incredible information and news flow so you’ve seen cacao price respond a little bit to these news developments, frankly I don’t think it’s responded that much. The fascinating thing about this Ghana announcement a couple of weeks back is that nobody has an answer as to why, why did all of a sudden production plummet? So there’s a lot of speculation, it’s more gold mining, people leaving to the cities but whatever the answer is, it’s not good for the industry there, it’s a fundamental trend and where this industry is going to have, in Ghana, serious challenges to grow and if anything, to slow the rate of descent of production. So I think it’s good news for producers in other parts of the world, obviously it means that supply is tightening, this is probably one of the only commodities in the world where there’s less production today that there was four or five years ago. I think it’s a great industry to be in and I would expect to see more of this type of news flow i.e. production problems in West Africa, as a continuing trend over the next several years.
