The Shanshan booth at an exhibition in Guangzhou. The company has successfully expanded its business beyond textiles.
Chinese menswear brand Shanshan has secured for itself a reliable supplier of raw material for its subsidiary dry battery production business.
The Ningbo-based company said it has reached an agreement with Australia Heron Resources Ltd for the joint development of the Yerilla nickel cobalt project near Kalgoorlie in western Australia.
Nickel cobalt is the essential raw material in the manufacture of lithium ion batteries, which has now become an important contributor to Shanshan's sales, rivaling that of garments.
The Shanghai-listed company said in a statement that it inked the agreement with Heron, which is listed on the Australian Securities Exchange, on May 28 in Perth.
Shanshan said it would establish a joint venture (in which the company would have a 70 percent interest) to process raw nickel cobalt ore into concentrates used in lithium ion batteries at its facilities in China.
As part of the agreement, Shanshan has proposed to acquire 12.046 million Heron shares, or 4.99 percent of the Australian company's outstanding share capital, at a 20 percent premium to the 15-day average price, with an option to subscribe to a further 10 percent.
The annual processing capacity of the joint venture has been set at 1 million tons of ore, yielding 5,000 tons of concentrates.
Shanshan is currently constructing a pilot plant at its facilities in the city of Changsha, Hunan province, to test the compatibility of Yerilla ore with its existing processing technology.
Fan Kaiyu, an energy analyst at Rising Securities, said Shanshan was keen to exploit the potential of lithium ion batteries, which find wide application in hybrid automobiles that are becoming increasingly popular. "It is obvious that Shanshan would like to secure a reliable supply of basic raw material for this new business," he said.
Though the transaction has yet to get approvals from the commerce departments of China and Australia, investors have started buying up Shanshan shares.
The company's share price surged 4.5 percent from 14.6 yuan apiece on May 27 to close at 15.26 yuan yesterday.
"In fact, Shanshan has been making great efforts to develop its new energy business ever since 1999 in a bid to diversify its business and get into those industries with high added value. It has become one of China's key producers," said Fan.
The lithium ion battery business has become a key venture for Shanshan and also its most profitable. The company's 2008 annual report showed that 40 percent of its sales revenue came from the new energy sector, which amounted to 98.66 million yuan in 2008, a year-on-year increase of 40.1 percent.
"The deal helps Shanshan stretch into the raw materials supply chain, securing its further development," said Fan.
The lithium ion battery market is promising, given the ever-increasing demand for green products in the world. A report by the Illinois Institute of Technology showed that, lithium ion battery consumption around the world reached 2.87 billion pieces last year, and is expected to grow 20 percent this year. It predicted that market demand would hit 3.39 billion pieces by 2013 and exceed 5 billion by 2016.
"In addition to rising needs, the Chinese government's policy of marking out the new energy industry as the engine of development is bound to favor Shanshan," said Li Shengmao, an analyst at China Investment Consulting.
