Feb.27 (NBD) -- Chinese rubber equipment systems maker Mesnac Co., Ltd. (Mesnac) signed a Letter of Intent with Canadian mine developer Ecobalt Solutions Inc. (eCobalt) last Saturday to enhance its arrangements in the upstream of the new-energy industry chain, said the company filings of Mesnac.

eCobalt is a well-established TSX-listed company committed to providing clean cobalt products.

According to the filings, Mesnac plans to buy up to 19.9 percent of eCobalt's newly issued shares in cash and offers loans to support the latter's daily operations. It is estimated that the total value of shares purchased and loans offered will not exceed 80 million U.S. dollars.

Mesnac to extend industrial chain

The latest filings said Mesnac's net profits attributable to shareholders stood at 85.15 million yuan (13.48 million U.S. dollars) in the first three quarters of 2017, a year-on-year increase of 340.36 percent.

In contrast, in the 12 months ended February 28 of 2017, eCobalt reported a net loss of about 2.2 million Canadian dollars (1.79 million U.S. dollars). In the following six months, it lost approximately 1.3 million Canadian dollars (1.07 million U.S. dollars).  

Despite the big loss, the company is still in normal operation.

An insider from Mesnac's securities department told NBD that actually the company is eyeing the cobalt mines held by eCobalt. 

It is noteworthy that as of August 31, 2017, eCobalt's unaudited gross assets were valued at about 86.2 million Canadian dollars (69.9 million U.S. dollars) and its net assets at around 79.2 million Canadian dollars (64.2 million U.S. dollars).

More financial details of eCobalt will be disclosed after being audited, added the person mentioned above.

Mesnac claimed it aims to deploy on the upper stream of the new energy industry chain, namely, essential materials for electric cars' lithium batteries.

Cobalt falls far short of demand

The income from cobalt mines will be even more tempting to Mesnac. The Letter of Intent agreed by both parties shows that upon gaining the necessary government approvals, the Chinese company will be able to sell 50 percent of the cobalt that eCobalt exploits each year.

Zhang Wei, metal analyst of SCI99.com, a website for news of large commodities, said to NBD that viewing from the whole industry chain, cobalt belongs to the seller's market. In addition, China is the largest cobalt market. Investing in companies who produces such material will be easier to control prices.

It was estimated by Morgan Stanley that around 1,300 tonnes of cobalt were used to produce batteries for electric cars in 2014, and the amount of usage will increase to 11,320 tonnes by 2018 and to 62,940 tonnes by 2025.

In the past year, cobalt price saw significant growth in London. According to data revealed by Thomson Reuters, the growth rate of cobalt price has exceeded 230 percent since the end of 2015.

Earlier in 2017, consultancy CRU forecast a cobalt deficit of 900 tonnes this year. By 2020, the demand for cobalt will reach 150,000 tonnes, of which 35,600 tonnes will be used to produce ternary-based batteries for new-energy vehicles, an increase of 10 times compared with that in 2015.  

Essence Securities said the growth of production capacity of cobalt mines will slow down in 2018. Large cobalt mines have almost reached the production climax, while new mines are numbered. Moreover, many cobalt companies are reluctant to sell their products in very large amount, which further worsened the shortage of cobalt supply.

China is the largest cobalt market, but cobalt reserve in the country only accounts for 3 to 4 percent of the global total. Therefore, many sino-foreign companies have started to seek opportunities overseas.

Statistics show that 70 percent of the global cobalt output are in the hands of 3 large companies, among which two come from China, namely China Molybdenum Co., Ltd. and Jinchuan Group International Resources Co. Ltd.

Email: tanyuhan@nbd.com.cn