Soft sentiment around cobalt has persuaded gold explorer E2 Metals to cancel its planned acqusition of a NSW cobalt and nickel play.

E2 — a microcap explorer with gold and silver projects in NSW and New Zealand — agreed in June to buy privately held Cobalt Magnetic, which owns a Cootamundra cobalt and nickel project in central western NSW.

But on Friday E2 (ASX:E2M) issued an after-market announcement saying it had terminated the deal, blaming “a lower cobalt price and softening of sentiment”.

The price of cobalt has fallen 30 per cent since May after quadrupling from 2016 to 2018.

The cobalt price rise came largely on the back of expected demand from electric car makers and uncertainty over restricted supply from its major source, the Democratic Republic of the Congo.

But supply out of the Congo has since increased and there’s now an oversupply of the refined cobalt sulfate product used in electric car batteries, reports Reuters.

Sentiment was further knocked around this year when electric car maker Tesla and its battery maker Panasonic vowed to reduce the amount of cobalt they use in lithium batteries.

That’s contributed to a steep fall in the cobalt price:

The price of cobalt is down by almost a third since May
The price of cobalt is down by almost a third since May

Cobalt still has strong backing from the likes of First Cobalt (ASX:FCC) which says lower cobalt prices will only stimulate the electric car market and Bloomberg New Energy Finance which says the sheer scale of energy storage needs will shore up demand.

But that wasn’t enough to save the E2 Metals deal.

E2 debuted on the ASX in April 2017 after raising $6 million at 20c. The stock closed Friday at 6.7c.

E2 — which has shut down its website while “under maintenance” — had no cash receipts last year and burned $893,000, leaving $3.7 million in the kitty.

“The E2 Metals board remains fully committed to acting in the best interests of the company and maximising value for its shareholders,” the company told investors on Friday.