Taking the Royal Road
Annual Report 2006
For The Year Ended March 31, 2006

Philosophy & Management Vision

SMM Group Corporate Philosophy
1.Sumitomo Metal Mining Co., Ltd.(“SMM”), in accordance with the Sumitomo’s Business Spirit,
shall, through the performance of sound corporate activities, seek to make positive contributions
to society and to fulfill its responsibilities to its stakeholders, in order to win ever greater trust.
2.SMM shall, based on respect for all individuals and recognizing each person’s dignity and value,
seek to be a forward-minded and vibrant company.

SMM Group Management Vision
Based on the principles of compliance, environmental protection and operational safety, theSumitomo Metal Mining Group shall pursue maximum corporate value through the provision, via
its global network, of high-quality materials such as non-ferrous metals and electronics materials.

Contents
SMM’s Business Model ..........................................................................................................................
Consolidated Financial Highlights ........................................................................................................
To Our Shareholders and Investors .......................................................................................................
Special Feature: Taking the Royal Road ................................................................................................
The Royal Road, Part 1: Transitioning to a “Mineral Resources + Refining” Company ...............
The Royal Road, Part 2: Creation of Original Advanced Materials Rooted in Metal Processing ...
Review of Operations .............................................................................................................................
CSR (Corporate Social Responsibility) .................................................................................................
Financial Section ....................................................................................................................................
SMM Group ............................................................................................................................................
Corporate Data and Investor Information ............................................................................................
Corporate Officers ..................................................................................................................................
Unless specifically stated otherwise, information in this annual report is as of August 31, 2006.

1
2
4
9
10
14
16
30
32
65
66
67

Forward-looking Statements
Statements made in this annual report with respect to plans, strategies and future performance that are nothistorical facts are forward-looking statements. SMM cautions that a number of factors could cause actual
results to differ materially from those discussed in the forward-looking statements.

Photo: Pogo Gold Mine (Alaska, USA)

SMM’s Business Model

Mineral resourcesHigh GradeGold Ore

Copper Ore

Garnierite Ore

Non-ferrous metals

Gold

CopperNickelZinc

Electronics＆Advanced materials

Bonding
Wire

Packaging
Materials

Thick Film
Paste

S’PERFLEX

From Mineral Resource Development to Advanced Materials
By extracting ores from mines, refining these into metals and further processing these into cutting-edge electronic materials and advanced materials,
the Sumitomo Metal Mining Group has built a business model that is fully integrated from upstream to downstream in the field of non-ferrous metals.

SUMITOMO METAL MINING CO., LTD.

| 1

Consolidated Financial Highlights
SUMITOMO METAL MINING CO., LTD. AND SUBSIDIARIES
Year-on-yearchange (%)

Millions of yen(unless otherwise specified)Thousands of U.S. dollars(unless otherwise specified)

2006/2005

2006

2005

2004

2006

For the Year:Net sales ...................................................................
Operating income ....................................................
Recurring profit ........................................................
Income (loss) before income taxes ............................
Net income (loss) .....................................................
Equity in earnings of affiliated companies ................
Capital expenditures .................................................
Depreciation ............................................................
Net interest expense .................................................
Net cash flows from operating activities ....................
Net cash flows from investing activities ....................
Net cash flows from financing activities ....................
Free cash flows .........................................................

29.1
72.8
83.0
72.4
69.7
62.2
38.6
11.5
(43.4)
76.3(222.7)371.1(275.2)¥ 625,579
82,756
99,716
92,97462,80021,91550,56822,951(1,281)
70,772(102,384)
28,723(31,612)¥484,585
47,89354,48653,91737,017
13,51336,48820,578(893)
40,150(31,725)
6,097
8,425

¥402,131
22,77827,811
31,194
19,882
7,112
46,54017,824(1,098)32,324(17,448)(9,293)
14,876$5,324,983
704,426
848,791
791,403534,559
186,542
430,439
195,361
10,904602,417(871,502)
244,493(269,084)

At Year-End:Total assets ...............................................................
Shareholders’ equity .................................................
Interest-bearing debt ................................................

34.6
31.7
18.9

772,562
373,752
190,891

573,925
283,897
160,533

517,930
253,071
148,351

6,576,115
3,181,410
1,624,881

Per Share (Yen, U.S. Dollars):
Net income (loss) .....................................................
Shareholders’ equity .................................................
Cash dividends .........................................................

69.8
31.5
75.0

109.96654.1514.0

64.77
497.578.0

34.76
443.29
6.0

0.94
5.57
0.12

Ratios:ROA (%) .................................................................
ROE (%) ..................................................................
Equity ratio (%) .......................................................
Interest-bearing debt to total asset ratio (%) .............
Interest coverage ratio (times) ...................................

—
—
—
—
—

9.3
19.1
48.4
24.7
25.2

6.8
13.8
49.5
28.0
20.8

4.0
8.4
48.9
28.6
14.8

Years ended March 31

Notes: 1. Recurring profit = Operating income + Nonoperating income - Nonoperating expenses
2. The computation of net income (loss) per share is based on the weighted average number of shares of common stock issued during each fiscal year.
3. U.S. dollar figures are translated, for convenience only, at the rate of ¥117.48=U.S. $1, the effective rate of exchange prevailing on March 31, 2006.

Net Sales

Operating Income (Loss)Net Income (Loss)(Billions of yen)(Billions of yen)(Billions of yen)

800

100

80

80

60

600
60

40
400

40
20
20

200

0

0
0

-20
’02

’03

’04

’05

’06

-20
’02

’03

’04

’05

’06

’02

Mineral resources
MetalsElectronics & advanced materials
Construction materials
OthersNote: Sum of segments is not consistent with the actual figure because net sales and operating income of each segment include inter-segment transactions.

2| SUMITOMO METAL MINING CO., LTD.

’03

’04

’05

’06

The Market Environment Surrounding SMM

Driven by economic growth in China and other Asian countries, demand for copper, nickel, zinc andother raw, non-ferrous metals is expanding, and this trend is expected to continue. At the same time,against the backdrop of this vigorous demand, the supply of raw materials is becoming tight among
refiners, who are moving to enhance and increase production, and ensuring the stability of mineral
resources has become a major issue. The SMM Group, which aims to become a “non-ferrous major”,
will raise the level of global competitiveness of its refineries, while, as a basic strategy, shifting fromore-purchasing and refining, where it produces raw metal from purchased ore, to a business model of“mineral resources + refining”, where it possesses its own ore.

Nickel Price (LME) and
Our Production Volume

Copper Price (LME) and
Our Production Volume(¢/lb)(Thousands of tonnes)($/lb)(Thousands of tonnes)

250

500

8

80

200

400
6

60

4

40

2

20

150

300

100

200

50

100

0

0
’85

LME

’90

’95

’00

LME

Zinc Price (LME) and
Our Production Volume(Thousands of tonnes)

200

1.5

150

1.0

100

0.5

50

0

0

LME

’90

’95

Zinc Production Volume

’90

’95

’00

’05

Nickel Production Volume

Gold Price (LOCO LONDON) and
Our Production Volume

2.0

’85

0
’85

Copper Production Volume(Thousands of dollars/tonne)

0

’05

’00

’05

($/toz)(Thousands of kg)

600

60

400

40

200

20

0

0
’85

’90

LOCO LONDON

’95

’00

’05

Gold Production Volume

Note: Metal prices indicate the average prices for the previous six-month period.

SUMITOMO METAL MINING CO., LTD.

| 3

To Our Shareholders
and Investors
Our Mid-term Management Plan — the growth strategy upon which weembarked in fiscal year 2004 — is steadily yielding results. In fiscal
year 2005, moreover, supported by an extra boost from the market, weachieved record high profits. We will continue to focus our energies onaccomplishing our growth strategy of becoming a “non-ferrous major.”

Review of Fiscal Year 2005
Surges in Non-ferrous Metal Prices
Fiscal year 2005 turned out to be a far more favorable environment for earnings than
we had anticipated. Prices for non-ferrous metals such as copper and zinc hit record
highs mainly because of expanding demand, especially in China. Other factors
included accidents at mines and refineries in South and Central America and Asia, aseries of strikes and other production difficulties, and an almost constant influx ofspeculative money into a non-ferrous market of increasingly unstable supply anddemand. In fiscal year 2005, the average prices of the non-ferrous metals that are ourmain products were 185.8 cents/lb for copper (up 36.5% from the previous year),$6.63/lb for nickel (up 4.6%), and $476.6/oz for gold (up 15.1%). In addition tothis, demand for semiconductors and electronic materials began to recover as theinventory adjustment in the market for electronic devices and electronic componentsthat started in the second half of fiscal year 2004 had almost run its course by the
beginning of fiscal year 2005.
Growth in Both Revenue and Profit in All Segments
In response to the surging prices for non-ferrous metals and the recovery in demandin the markets for electronic devices and electronic components, we achieved growthin both revenue and profit in all segments. SMM’s fiscal year 2005 sales totaled¥625.6 billion (up 29.1% from the previous year), overshooting our initial target of¥480 billion by 30.3%. Moreover, operating income totaled ¥82.8 billion (up72.8% from the previous year), and recurring profit came to ¥99.7 billion (up4| SUMITOMO METAL MINING CO., LTD.

83.0%). Net income was ¥62.8 (up 69.7%), topping previous profit records by alarge margin.
* Recurring profit refers to the profit that a company earns from its standard, ongoing activities,
including its main business.

¥16 billion Growth in Profit Excluding Market Effects
As the sharp rises in non-ferrous metal prices obscure the results of what we accomplished through our own efforts, we calculate the change in our business profit
excluding the benefit of market factors by analyzing our recurring profit, which
increased by ¥45.2 billion from the previous year to ¥99.7 billion. Subtracting “theincrease in costs due to surges in commodity prices (e.g., energy-related)” from “theincrease due to overall market factors” yields ¥29.2 billion as the impact of non-ferrous metal prices on our results. Subtracting this amount from the increase in recurring profit (¥45.2 billion) yields ¥16 billion, which is the increase in profit that weachieved through our own efforts. Our core segments of Mineral Resources &Metals and Electronic Materials & Advanced Materials accounted for ¥12.4 billionof this increase and Other Businesses for the remaining ¥3.6 billion.
Solid Progress in Our Strategies
Our favorable results for fiscal year 2005 were thus not due merely to higher nonferrous metal prices; steady progress in the strategies that we have been pursuing todate also made a major contribution. Focusing on copper in our Metals and Mineral
Resources segment, we have been reinforcing our Toyo Smelter & Refinery into a
top global class, high-efficiency refinery. In the second half of fiscal year 2005, it

Koichi Fukushima, President

began operating with an annual capacity of 365,000 tonnes, up from the previous
300,000 tonnes of metal production annually. Turning to nickel, the Coral Bay
Project, which uses our HPAL (high-pressure acid leach) method to efficiently recover nickel from low-content ore, began commercial production in April 2005. It
achieved full production in November 2005 after a gradual raising of productionlevels. The results of progress in both of these projects combined to help this segment to get a boost from the market.
In the Electronic Materials and Advanced Materials segment, operating income
grew 54% to more than ¥10 billion. While our strategies for each field fully met
expectations, with copper-clad polyimide film, battery materials, and packaging
materials all doing well, copper-clad polyimide film in particular more than justified
the long years of effort we put into its development. Our affiliated companies arealso achieving strong earnings growth. They are all at the stage of realizing their individual strategies as we have pursued higher levels of business efficiency by withdrawing from unprofitable businesses and through tie-ups with other companies.

SUMITOMO METAL MINING CO., LTD.

| 5

Financial Position Stable
Our total assets were ¥772.6 billion (up ¥198.6 billion from the previous year) due
to investment in overseas mining companies as well as to large increases in tradereceivables and inventory assets as non-ferrous metal prices continued to set newhighs. Shareholders’ equity, meanwhile, was ¥373.8 billion (up ¥89.9 billion) due tothe growth in retained earnings accompanying the increase in net profit. As a result,the equity ratio was basically flat from the previous year at 48.4% despite a ¥30.4
billion increase (up 18.9% from the previous year) in interest-bearing debt as funds
for strategic investment.

Entering the Final Year of Our Mid-term Management Plan
(Fiscal Year 2006)
Our Objective is Stable Growth in Baseline Profit
The SMM Group began implementing its current three-year mid-term management
plan in fiscal year 2004. The earnings targets that we have set for fiscal year 2006,
the final year of the plan, have already been sharply exceeded by fiscal year 2005 due
to record high metal prices. However, the true goal of the SMM Group’s mid-term
management plan is not to boost profit on the back of price movements. Rather, it isfor our Mineral Resources and Metals segments to be among the “non-ferrous
majors” and our Electronic Materials and Advanced Materials segments to have “topglobal class shares in their respective products” as we steadily boost baseline profit
independently of metal prices. The mid-term plan’s fiscal year 2006 earnings target

Mid-term Management Plan (2004-2006)

Net Sales
Operating income
Recurring profit
Income (loss) before income taxes
Equity ratio
Interest-bearing debt
Interest-bearing debt ratio

FY2004
Actual

FY2005
ActualBillions of yen
FY2006
Mid-term Management
Plan Target

484.6
47.9
54.5
37.0
49.50%
160.5
28.00%

625.6
82.8
99.7
62.8
48.40%
190.9
24.70%

480.0
33.0
35.0
25.0
40% or above
165.0
30% or below

FY2004
Actual

FY2005
Actual

FY2006
Anticipated under
Midterm Management Plan

107.5
136.1
6.34
414
1,110

113.3
185.8
6.63
476.6
1,614

110
90.7
3.5
320
950

Prerequisite

Exchange rate (Yen/$)*Copper Price (¢/Ib)
Nickel Price ($/Ib)
Gold Price ($/toz)
Zinc Price ($/ton)*Exchange rate used is the average rate this fiscal year

6

| SUMITOMO METAL MINING CO., LTD.

(recurring profit of ¥35 billion) refers to this baseline profit. It is important toachieve this earnings target independently of the portion due to higher metal prices.
We Expect Metal Prices to Decline
During fiscal year 2005, non-ferrous metal prices surged to levels that were impossible to predict based on past experience. The non-ferrous metal market is usuallycharacterized by a shift to oversupply in the supply and demand balance when suppliers increase production in response to surging prices; however, production troubleat mines and refineries has led to supply shortages, inviting an influx of speculative
money. In other words, the increase in prices beyond the level that can be explainedby supply and demand is attributable to an influx of speculative money and that
increase is large. Assuming that the non-ferrous metal companies are able to reliably
provide their projected levels of capacity, the supply and demand balance should
improve and metal prices should gradually decline.
Steady Implementation of Our Basic Strategy
Mineral Resources and Metals— Aiming to Transition to “Mineral Resources + Refining”
Our basic strategy is to transition from an ore-purchasing and refining businessmodel that depends on external sources of ore to the “Mineral Resources + Refining”
type, in which we have our own ore, acknowledging that there is a limit to growthunder a business model focused on refining, while we continue to boost the competitiveness of our refineries to global levels. The mineral resources industry is coming
increasingly under the control of a group of the world’s largest mining companies
that are known as the “mineral resource majors.” And at the same time mineral
resource supply and demand is tightening amid brisk demand. Based on the conceptthat we must have in-house ores (mines in which we have rights and interests) toensure stable operations, we are building a system that can provide our customers
with stable supplies of metals that eliminate the impact of ore supply and demand byboosting our in-house ore ratio by investing business resources in the developmentof high-quality overseas mines.
Electronic Materials and Advanced Materials— Aiming for Top Global Class Shares
We are reinforcing and expanding our business base so that the downstream
Electronic Materials and Advanced Materials segments become a second businessmainstay in addition to the upstream Mineral Resources and Refining segment. In
the Electronic Materials segment, we are reinforcing our supply system in China,
which has become one of the world’s largest production bases for electronic equip-

SUMITOMO METAL MINING CO., LTD.

| 7

ment, with a view to winning the top global market share for all of this segment’s
products. In the Advanced Materials segment, we are increasing annual production
capacity for copper-clad polyimide film, which is booming on the back of LCD
growth, from 2.4 million m2 at the beginning of fiscal year 2005 to 6.5 million m2 at
the end of fiscal year 2006. At the same time, we are targeting the development of atleast five new products with annual sales of ¥1 billion-¥3 billion by fiscal year 2006
by focusing our efficient R&D on the five fields of 1) battery materials, 2) crystal
materials, 3) materials for forming thin films such as sputtering targets, 4) functional
powder materials, and 5) thin package materials such as copper-clad polyimide film.
Moreover, our implementation of these strategies is based on our recognition of theimportance of reinforcing our management base. This reinforcement consists of realizing efficient and wholesome corporate activities by reinforcing corporate governance, establishing and consistently applying a compliance system that takes to heart
the lessons learned from the criticality accident which occurred at our subsidiaryJCO Co.,Ltd. in 1999, establishing a culture of safety, and building a risk management system.
In Conclusion— Following the Royal Road of
the Non-ferrous Metal Industry Upstream and Downstream
In the non-ferrous metal industry, the companies that own the world’s mineral
resources are posting record high profit on the back of surging metal prices. We,
however, believe that expanding baseline profit independently of higher metal prices
and having our responsibility of providing metal consumers with stable supplies areimportant. Aiming to become a “non-ferrous major,” we are boldly following theroyal road of the non-ferrous metal industry upstream and downstream by means of
our original business development by exploiting our technologically powerful
Electronic Materials and Advanced Materials segments and by demonstrating ourvalue with a “Mineral Resources + Refining” business model that actively promotes
projects for developing mineral resources.
We look forward to your continued support and understanding.
August 2006

Koichi Fukushima
President

8| SUMITOMO METAL MINING CO., LTD.

Special Feature:

Taking the Royal Road

Exploration and development of mines,
refining metals from ore,and manufacturing high value-added
advanced materials by leveraging
our non-ferrous metal processing technology.

By boldly pursuingthe “non-ferrous metal manufacturer’s royal road”
in this manner,
the SMM Group aims to become
a global corporation ranking among
the major non-ferrous metal manufactures.

The Royal Road, Part 1: Transitioning to a “Mineral Resources + Refining” Company 10
The Royal Road, Part 2: Creation of Original Advanced Materials Rooted in Metal Processing 14

SUMITOMO METAL MINING CO., LTD.

| 9

The Royal Road, Part 1

Transitioning to a
“Mineral Resources + Refining”
Company
As the world’s largest consumer nation, as well as its top importer of raw materials, China—which has seen annual economic growth hit nearly 10%—now exerts considerable influence on world metal markets. SMM has laid out a growthstrategy based on becoming a non-ferrous major, while transitioning from ore purchasing and refining to a “Mineral
Resources + Refining” business model. Here, we examine our understanding of and strategy for the crucial Chinese market, with a particular focus on copper.

Factors behind Surging Copper
Prices
Copper Prices Rise More Than 5-Foldof events is why the dramatic jump towhile growth in demand in the U.S.,

US$8,000 a tonne cannot be explained by

Japan, and Europe has stayed relatively

supply and demand alone.

low; China is, in fact, driving the global

In the end, it was a convergence of all ofmarket. In 1998, the country’s nominalin Three Years

these factors that caused copper prices to

GDP cleared the US$1 trillion level, andAt the end of 2005, the price of copper onskyrocket to historical levels. Still, under-in December of 2001, it succeeded in join-

the London Metal Exchange hit a record

lying everything is the insatiable demanding the World Trade Organization

US$5,000 per tonne, and continued toin the Chinese market.

(WTO). By 2005, its nominal GDP had

strengthen in the new year, breaking
through the US$8,000 mark in May of2006. This more than five-fold increase inreached US$2.2 trillion, nearly doubling injust seven years, and representing a remark-Copper:
LME Prices & LME Stock(Thousands of tonne)(Thousands of dollars/tonne)

able growth rate of nearly 10% per year. In

price levels over the US$1,500 range seen

1,000

10

the midst of this economic expansion,in 2002 can be attributed in part to800

8China saw its consumption of copper grow600

6appliances and build up electrical infra-

400

4

in 2005, more than tripling in eight years

structure has continued to outstrip the200

2

to account for over 20% of worldwide

China, where the voracious demand forresources to fuel the production of homeavailable supply. At the same time, LME
copper inventories plunged from a record
high of 980,000 tonnes in May of 2002,

lion tonnes in 1997 to 3.67 million tonnes

0

0
’90

’95

LME STOCK (Left)

’00

’05

tion exacerbated by the declining quality

demand of 16.96 million tonnes.
(Source: WBMS–World Bureau of Metal Statistics–)

LME PRICE (Right)

to an all-time low of less than 30,000
tonnes by the end of June 2005, a situa-

at an annual rate of 14.3%, from 1.27 mil-Power Transmission Infrastructure

China: The World’s Largest
Consumer of Copper

Drives Copper Consumption
Copper is a vital component of power lines

of copper ore, mine accidents atand other essential infrastructure. As China

Indonesia’s Grasberg Mine and elsewhere,

produces an increasing portion of theand a wave of wage-related strikes that hit

Feeding China’s Ever-Growing Appetite

world’s goods, the demand for industrial

mines in both North and South America.

The worldwide market for copper has

power supplies continues to climb. At the

Further, just as prices were at their mostgrown steadily in the past ten years. Whensame time, the country’s newfound wealthvolatile, an outpouring of speculative

we drill down, however, we find that theis fueling a more comfortable consumer

investment hit the market, and this chain

Chinese market as nearly tripled in size,

lifestyle, driving more demand for electrici-

10| SUMITOMO METAL MINING CO., LTD.

ty in the home as well. These twin pressures

China, a look at a different set of statis-

demand will continue its strong growth,

are putting a strain on China’s inadequate

tics—a 2002 study of per capita copper

domestic production will likely top out at

power delivery infrastructure, and power

consumption—supports the assumption

4 million tonnes, creating an even wider

shortages have become a serious issue.

that demand will continue to expand.

gap, and a bigger opportunity for import-

In an attempt to address these shortages,

Worldwide, per capita consumption aver-ed metal.

the government is implementing a large-

ages 2.5kg. In leading developed nations,scale plan to generate more power in thethat average climbs to between 10 andwestern part of the country, where energy

20kg, with the U.S. at 11kg, Japan atresources are abundant, and deliver it to

10kg, and Germany at 15kg. China’s per

the eastern coastal areas, where continued

capita copper consumption, however, is aeconomic development has overtaxed

paltry 1.4kg. We believe that as lifestyles

existing supplies. Additional help willgrow more affluent, this per capita con-come from the Three Gorges (Sanxia)

sumption will continue to grow as well,Dam, which, when completed in 2009,and in a market the size of China’s, a 1kg

will be the largest hydroelectric dam in theincrease per person can represent an addi-

world, capable of generating as much astional 1.3 million tonnes, a positive

18.2 million kilowatts. While this repre-

prospect indeed for long-term expansion.

The Gap between China’s Copper
Production and Consumption(Millions of tonnes)

6

4

2

0
’90

’95

’00

’05

’10

Copper metal consumption
Copper metal production
Copper concentrate production(Source: Estimate by SMM)

sents a little less than 10% of China’s totalenergy consumption, it is estimated thatnearly 250,000 tonnes of copper will beneeded just for the electrical lines to deliver all of that power.

The World’s Three Largest
Consumers of Copper:
Actual & Estimates

Sumitomo Metal Mining andChina(Thousands of tonne)

5,000

Establishing a Sales Organization in

4,000

China, Enhancing Capacity at HomeAs a result of this large-scale push todevelop much needed infrastructure, related demand for copper continues to grow,and today, power and other infrastructureneeds represent approximately half of the

3,000

Annual production capacity at our Toyo

2,000

Smelter & Refinery is being increased

1,000from 365,000 tonnes in 2005, to a

0
’03

’04

’05

’06

’07

’08

China
US
Japan
(Source: World Bureau of Metal Statistics [WBMS])

country’s copper consumption.

Machinery

5%
Electronics

10%

10%
50%

Transportation

10%
15%

Light Industry

2007, making it the largest such facility inthe world. With imports to both China
and the rest of Southeast Asia expected toChina’s Copper Demand by Use
Otherplanned 450,000 tonnes by fiscal year

The Growing Gap between Supply andcontinue growing, the Toyo plant’s prox-

Demandimity to the region positions us to takeDomestic copper production in China

advantage of those opportunities, efforts

reached 2.58 million tonnes in 2005,

which are further supported through ourreflecting continued enhancement of thesales office in Shanghai, which opened incountry’s copper refining capacity in reac-

October of 2000, and which is the firsttion to vigorous demand; capacity is

step in the establishment of a local sales

expected to grow another 350,000 tonnes

network in China.

in 2006 alone. Still, while demand has
Electricall Generation/Transmission Equipment(Source: Estimate by SMM)

tripled in the eight years since 1997, pro-Japan’s Only Non-Ferrous Metals

duction capacity has barely doubled,

Company with a Copper Refining

Per Capita Copper Consumption Has

resulting in a growing gap between supply

Business in China

Room for Growthand demand which China now attempts

Our ability to take these strategic steps inWhile infrastructure needs drive much of

to fill via imported copper. Looking for-the growing Chinese market is due, in

the increased demand for copper inward to 2010, we believe that while

part, to the groundwork we have laid to

SUMITOMO METAL MINING CO., LTD.

| 11

gin (part of the ore purchase terms), an

Copper Metal Production by China’s Main Refiners
China’s Refiners

Copper Metal Production: thousands of tonnes
2005 Actual2006 Estimated

1. Jiangxi Copper
2. Jinlong
3. Yunnan Copper
4. Jinchuan
5. Daye
6. Tongling
Total for six main refiners

450
210

700
400

320
170
170
150
1,470

400
400
200
150
2,250

amount that represents its share. It thenSMM provides technology
Becomes equity-method
affiliate of SMM (27% stake)pays the remainder to the foreign mining
concern in the form of copper concentratefees. Ore purchase terms typically consistof two components: 1) the basic portion,
which is made up of smelting and refining
costs, and 2) the variable portion, also
known as price participation.

date, such as our equity stake in Jinlong

existing mines that were developed in the

Copper Co., Ltd. Our involvement with

1950s and 1960s, the equipment is worn

China in copper business goes all the way

out , and ore deposits have been exhaust-(basic portion):back to the 1970s, when the country wased. As a result, China, where copper

Calculated as a per-tonne price thatjust beginning its transition to a policy ofrefineries are being expanded one after thereflects movement in copper concen-

economic reform and greater openness.

other, has rapidly expanded its volume oftrate supply and demand.

We began by providing technology to thecopper concentrate* imports, making itself

Guixi Copper Smelter & Refinery, owned

the world’s second largest importer after

2. Price participationby the Jiangxi Copper Corporation, which

Japan in just a few years. At the same

(variable portion):

today is the largest company of its kind intime, however, this has tightened the sup-On top of processing charges, the refin-

China. Based on this proven record, theply of copper resources.

er takes a fixed percentage of the portion that exceeds the standard price set

Jinlong Copper Co., Ltd. then came to us
for similar technological support, and in
1995, we took an equity stake in the company. As China’s economy has continued
to grow, so has capacity at the Jinlong

Copper Concentrate Imports
by Country
China

exceeding 90 cents per pound).

22%

Ore purchasing terms represent the refin-

Philippines
U.S.

to 150,000 in 2002, and again to 210,000

Canadatonnes in 2005.

Germany

Our equity stake in Jinlong Copper Co.,

Japan

Ltd. was the first capital tie-up between a

Other

Chinese refining company and a foreign

India

CY1995

5%

Total: 2,278,000t
5%
6%
7%
7%

er’s gross profit, and can have a large
impact on earnings; they are determined
via biannual negotiations with the foreign

18%
35%

5%

we maintain close contact with the com-

Germany

5% Total: 3,635,000t

pany by, for example, sending executives

South Korea

8%

China

48%

mining companies.

Spain

to visit.

by LME (currently 10% of any portion

Other

Refinery, from 100,000 tonnes in 1992,

corporation. Owning 27% of its shares,

1. Smelting and refining costs

CY2004

9%

Schematic of Refining Margins:
Based on Copper Metal Price of
US$7,000/t$7,0001/10

Price Participation

9/10

Copper Concentrate
Charges

20%
Variable PortionJapan(Source: WBMS–World Bureau of Metal Statistics–)$1,980Stable Procurement of Raw
Material is Key Issue

Copper Concentrate Accounts for Mostof the Price of Copper

China is Poor in Copper Resources

A refiner which purchases copper concen-

Despite the fact that it is situated in the

trate and uses it to produce the copper

world’s second largest copper mineraliza-

metal end product will take the interna-tion zone, China currently has few

tional (LME) price of the metal it turns

deposits that can be developed or used. At

out and deduct from it the refining mar-

12

| SUMITOMO METAL MINING CO., LTD.

Smelting Costs,
Refining Costs
Basic Portion$1,442

Copper Concentrate
Charges* Copper concentrate: The average grade of ore extracted from major overseas mines is 1-2%. To minimize
transport costs, refiners will import copper concentrate from overseas mining companies as their raw
material. The concentration of copper in the concentrate is raised to around 30%.

Tight Supply for Concentrate Leads tooperations, and the other is to address thestrategy. Strong demand in China is also

Worsening Purchase Terms

vulnerability of our earnings to changes inleading to higher prices not only for cop-

Due to the earnings structure presented

ore purchasing terms. This strategy has led

per, but for nickel, zinc, and other metals

above, although refining companies can to

us to look at direct participation in theas well. As we continue to enhance oura certain extent directly benefit from pricedevelopment of new, quality mining proj-refining capability, our decision to also

participation when the copper priceects, an example of which is our equity

pursue aggressive acquisition of newsurges, smelting costs and refining costs

stake in Peru’s Cerro Verde mine.

resources through our ‘Mineral Resources

deteriorate when the supply and demand

Beginning in the October-December+ Refining’ model seems to be ideally suit-balance for copper concentrate tightens.

quarter of 2006, the mine is expected to

ed to the rapid growth in that country’s

Japan’s refiners find themselves in fierce

produce copper concentrate equivalent tomarket. We are convinced that thesecompetition with China over access to for-180,000 tonnes of copper metal annually,

moves will put us in the major leagues

eign ore, while at the same time the majorof which we are entitled to purchase 50%

among non-ferrous metals companies.

overseas mining companies are working toover the next ten years. This project willassert their control over pricing via a series

allow us to secure a long-term, stableof mergers. As a result, in recent years, it

source of raw material, boosting our cop-has become difficult for Japan’s refiners to

per division’s proprietary ore ratio (the

5,000

500

lead price negotiations by leveraging theiramount procured from mines in which we

4,000

400

position as major customers in the same

hold an ownership stake) from the current

3,000

300

way that they did in the past. The tighten-

40% to approximately 60%, a significant

2,000

200

ing of ore supply has thus become a major

improvement.

1,000

100

Growth in SMM’s Metal Mineral
Resource Holdings(Thousands of tonne)

00

issue for the country’s domestic refiners.

’04/3 ’06/3

CopperTaking the Lead in Transitioning to a
‘Mineral Resources + Refining’ Model(Tonne)Nickel’04/3 ’06/3

GoldThe ‘Mineral Resources + Refining’
Model: Pursuing the Royal Road

There are two reasons we have stepped
ahead of our competitors in moving fromTaking a closer look at the developments

being purely a purchaser of ore, andsurrounding copper in China, while there

toward a business model that combines

are certainly challenges in terms of mineralmineral resource development and refin-

resource acquisition, we are confident that

ing: One is to secure a stable supply of

the country represents an unparalleled

raw material for our growing refinery

opportunity for our group and its growth

Summary of Projects in Mid-term Management plan (FY2004-FY2006)
Five Projects

Coral Bay Project
Pogo Project
Cerro Verde Project
Goro ProjectToyo Smelter and Refinery,
Achieve Annual Production
Capacity of 450,000 tonnes

NationResources

Share ofthe Project (%)

Anticipated timing ofbusiness entry

Philippines

Nickel54.0

April 2005

U.S. (Alaska)
Peru
New Caledonia
Japan

Gold
CopperNickelCopper

51.0
16.8
11.0
—

February 2006
Fiscal year 2006
The autumn of 2007
After fiscal year 2007

Planned Production

5,000 tonnes in 2005 and 10,000 tonnes
in and after 2006
12 tonnes per year
180,000 tonnes per year
About 60,000 tonnes per year
365,000 tonnes in 2005, 450,000 tonnes
going forward

SUMITOMO METAL MINING CO., LTD.

| 13

The Royal Road, Part 2

Creation of Original Advanced
Materials Rooted in Metal
Processing
In addition to ore mining and metal refining, providing advanced materials that meet the needs of the era by using original technology to bring out the potential of metals is an important mission for a non-ferrous metal manufacturer. We
believe that this same mission plays an important role in maximizing our corporate value. Liquid crystal materials are one
example of these advanced materials. Our Electronic Materials and Advanced Materials division, which produces copperclad polyimide film, a material for LCD panels, achieved operating profit of more than ¥10 billion for the first time infiscal year 2005. In this special feature, we present our Electronic Materials and Advanced Materials division’s approachto achieving victories in the LCD area.

Copper-clad Polyimide Film
Grown as Driver of Earnings
Growthturers that have been able to meet theseminimizes the space required for wiring,

expectations have gained large shares of

makes it possible to reduce the number ofthe markets for materials.

driver ICs in an LCD panel by one-third,

Using our original metal processing
Winning a Dominant Share in Copper-

technology, we have worked to develop

clad Polyimide Filmand manufacture advanced materials that

Supported by rapid growth in demand

are superior to those of other companies

due to higher performance and lowerand have top global shares. A representa-

prices, global sales volume of flat-panel

tive example is our copper-clad polyimide

LCD TVs increased 2.4-fold in 2005

film, which has already gained an over-from the previous year and a further 1.9-

whelming share of the market. It is afold in 2006. In conjunction with thismaterial that is used in the chip-on-film

trend, LCD panel manufacturers are(COF) boards that package the semicon-

seeking high levels of technology andductors (driver ICs) used for controlling

massive investment from materials manu-

LCDs. Until 2004 the main method forfacturers, while those materials manufac-

packaging LCD driver ICs was tape auto-

thereby allowing LCD panel manufactur-

Copper-clad Polyimide Film

mated bonding (TAB), which uses adhe-

LCD Market Trend

sive to bond polyimide film and copper(Million of Yen)

into a board with a triple-layer structure.

2,000

We became the first company to develop
materials for boards with a double-layer

1,500

structure.
Copper-clad polyimide film is produced

1,000

by evenly applying a very thin layer ofcopper to the surface of polyimide film.

500

Thanks to its superior workability andflexibility, it can be inserted into extreme-

0’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09

Medium or small sized LCD

14

Large-sized LCD(Source: NetBrain)| SUMITOMO METAL MINING CO., LTD.

ly narrow spaces. The use of COF, which

Copper-clad Polymide Film used in Flat PanelLCD TV
Copper-clad Polymide Film is used in the placesindicated by the arrows

ers to cut costs. Leveraging the strength ofgressively larger, higher-resolution mod-ufactures and sells as it principal productour surface treatment technology that we

els appeared, rapidly boosting demand

IZO (indium zinc oxide) targets devel-

have accumulated over many years, cop-for our products that are used in COF.

oped by Idemitsu Kosan. Compared withper-clad polyimide film has helped us toExtremely popular with our customers,

the ITO (indium tin oxide) targets thatgain the top share in the market for mate-copper-clad polyimide film gained a large

preceded them, IZO targets offer advan-

rials for COF boards for large-scale LCD

share upon of the market its launch. In

tages such as low occurrence of surface

panels.

response to the rapid start of this market,

defects during the film deposition

we put in place a large amount of pro-

process, good uniformity of film deposi-

Pursuit of Quality That Merits Trust

duction capacity in a short term, boost-tion even on large panels, and high-

One company after another has made aing supply from 1.2 million m in fiscal

speed, high-precision etching of the

full-scale entry into the market for COF

year 2003 to 6.5 million m in 2006.

deposited film. IZO targets are widely

boards for large-scale LCDs as this mar-

This prompt construction of a supply

adopted in newly installed LCD panel

ket is steadily expanding in conjunction

system to meet our customers’ needs fur-production lines. Positioning IZO, whichwith the rapid growth in LCD panels.

ther enhanced our presence in the LCD

has superior properties for use in large-

Still our copper-clad polyimide film has

materials market.

scale LCD panels, as a strategic product22

in our transparent electrode material

boasted stable results since its development winning a high degree of trust from

Maintaining Our Advantage throughbusiness, we aim to achieve new victories

our customers. Competition is likely to

Top Market Sharein the LCD market as it continues tobecome harsher as more companies enterIn the market for COF boards for large-

expand.

the market; however, as the leader in thisscale LCDs, we maintain the top industry

field, we possess technology capable ofposition in terms of processing technolo-

achieving the ever-higher levels of quality

gy, manufacturing technology, andthat are required by the technologicalcapacity. We also have an accurate grasp

advances in the industry. We also contin-of trends in demand for end products asue to implement quality-boosting meas-

our overwhelming market share fosters aures that are one step ahead of the com-close exchange of information with pow-

petition in order to further solidify ourerful LCD manufacturers. Utilizing suchalready strong position.

advantages and our strength, we will also
continue to reinforce product lines for

Flexible Response to Demand

developing new applications in the

At the same time as the LCD panels that

future.

of rapid diffusion a few years ago, pro-

Production Capacity for
Copper-clad Polyimide Film

Developing New Products withTop Market Share

Section of
LCD (liquid crystal display) TV
Ttransparent electrode

R
G
B
R

Shine

Liquid crystal

G

Backlight (Illuminant)are used in flat-panel TVs entered a phase

IZO

B(Millions of m2/Year)

8

Following our success with polyimide
film in the LCD area, we have begun a

6

Color filter
TFT (Thin-Film Transistor)
Glassfull-scale entry into target materials. On
April 1, 2005, we set up a joint venture

4with Idemitsu Kosan Co., Ltd. for transparent electrode materials for LCDs.

2

Known as IS Electrode Materials
Co.,Ltd. (51% owned by Idemitsu, 49%0
FY ’03

FY ’04

FY ’05

FY ’06 FY ’06
Plan Mid-termPlanby the SMM Group), this company man-

SUMITOMO METAL MINING CO., LTD.

| 15

Review of Operations

16| SUMITOMO METAL MINING CO., LTD.

Our Group’s core business segments are
Mineral Resources and Metals,
and Electronic Materials and Advanced Materials.
With these core business segments, we are aiming
to become a “non-ferrous major.”
To achieve this goal, the Mineral Resources and Metals segment isshifting its business model from ore-purchasing and refining to“mineral resources + refining.”
Also, the Electronic Materials and Advanced Materials segment isenhancing its efforts to achieve the “top global market share,”and is actively launching new products in promising markets.

18 SMM at a Glance
20 Mineral Resources and Metals
25 Electronics Materials and Advanced Materials
29 Other Businesses

SUMITOMO METAL MINING CO., LTD.

| 17

SMM at a Glance
Segment (Percentage of Group Operating Income)Operating Income

MineralResources0

20.3%
Metals5

10Electronics andAdvanced
Materials

13.2%
Housing andConstruction
Materials

2.5%
Other Businesses| SUMITOMO METAL MINING CO., LTD.

2030

43.71924.672

2.682
0.838

0

23.292

10

20

30

40

50

0

100

200

300

333.178

12.567273.387
226.343

8.326

’02

3.533

-5

197.183

0

5

10

’06

15

0

50

100

’05

154.864

5.612

’03

200
184.075

7.265

’04

142.676

4.118

132.923110.985-4.388

-1

0

1

2

’06

3

0

10

20

2.140

’05

30

17.3181.180’04

15.7850.007

15.377’03 -0.352

16.741’02 -0.266

21.616

1

2

3

’06

’02

150

11.1760500

453.680

27.701

’04

’03

400

49.683’0350

25.315

’06

’04

40

33.071

4

5

0

10

20

30
28.7844.264
23.1192.448
10.2040.391

12.375

0.635
1.826

Notes: 1. Operating income ratio by segment is calculated based on operating income including intersegment transactions for year ended March 31, 2006.
2. Operating income and Net sales given above include intersegment transactions.

18

10

4.460

’03

’02

0

(Billions of yen)

9.971

’04

’02

20

Net Sales

17.107

’05

’05

5.1%

15

’06

’05

58.9%

(Billions of yen)

19.986

Operations

Main Products and Services

Tasked with the dual mission of boosting the earnings of the mining businessand securing raw materials for the refining business, this segment is engaged in
the exploration for and development, production, and sales of non-ferrous
metal resources. It is also engaged in geological consulting utilizing mineral
resource development techniques.

• Gold and Silver ores
• Copper concentrates andelectrolytic copper• Geological researchThis segment refines non-ferrous raw materials procured from overseas mining
companies and the Mineral Resources segment into metals such as gold, copper, nickel and zinc, which it then sells. Having achieved the world’s first commercially viable method of recovering nickel from low-grade ore, which had
been considered difficult with conventional technology, we possess world-classrefining technology and are the industry leader.

• Copper• Nickel• Zinc• Lead• Precious metals such as gold,
silver and platinum• Sulfuric acid
• Copper and Brass

By supplementing the foundation of material refining technologies that we havedeveloped as a comprehensive non-ferrous metal manufacturer with a variety ofhigh-precision processing technologies, the Electronic Materials segment provides
the high-quality electronic materials that are indispensable in the manufacture ofsemiconductors and electronic devices. Moreover, the Advanced Materials segment creates new materials with highly advanced properties by leveraging themetal-related technologies that we have accumulated, thereby providing a broad
variety of advanced materials such as circuit board materials, powder materials,
functional inks, battery materials, magnetic materials and rare metals.

• Electronic materials(bonding wire, electric paste, thin films, etc.)• Semiconductor package materials(lead frames, tape materials, etc.)• Advanced materials(copper-clad polyimide film, battery materials, etc.)

This segment mainly engages in manufacture and sale of building materials.
As a pioneer of ALC (Autoclaved Lightweight aerated Concrete), we introduced the technology from Sweden in 1962, and have since been a manufacturer of ALC for building materials. Currently, our subsidiary, the Sumitomo
Metal Mining Siporex Co.,Ltd., manufactures and sells ALC under the productname Siporex.

• ALC: Autoclaved Lightweight aerated Concrete

Leveraging the technology that we have developed through the refining of nonferrous metals, in addition to our environmental improvement business—
which includes the assessment and remediation of contaminated soil andgroundwater, and the manufacture of environmental preservation equipment—
we, among other things, produce and sell chemical catalysts, and operate a recycling business that recovers valuable metals from used catalyst.

• Recycling and sales of valuable metals fromused catalyst• Assessment and remediation ofcontaminated soil and groundwater• Environment-related engineering

SUMITOMO METAL MINING CO., LTD.

| 19

Mineral Resources and Metals
Left:

Ichiro Abe
Managing Executive Officer
General Manager, Mineral Resources Div.
Right: Nobumasa Kemori
Director/Managing Executive Officer
General Manager, Non-Ferrous Metals Div.

Financial Highlights by Segment
Mineral Resources
Net sales
Operating income
Operating margin
Depreciation expense
Capital expenditures
Metals
Net sales
Operating income
Operating Margin
Depreciation expense
Capital expenditures(Millions of yen)
FY2005

FY2004

FY2003¥43,719
17,10739.13%
3,250
14,014¥33,071
9,971
30.15%
2,751
7,036¥25,3154,460
17.60%
2,947
3,001¥453,680
49,68310.95%
7,478
16,195¥333,178
27,701
8.31%
6,354
15,192¥273,387
12,567
4.60%
4,676
27,878

Fiscal Year 2005 Results
In our Mineral Resources segment, production at theHishikari Mine in Japan was healthy, while copper production
volume at our overseas copper mines was down from the previous fiscal year due to the impact of heavy rains at the

Net Sales by Products(Non-Consolidated)

Morenci Copper Mine (U.S.). Supported by high copper and(Billions of yen)500

gold prices, however, this segment’s sales increased 32.2%
from the previous fiscal year to ¥43.7 billion and operating400

income surged 71.6% from the previous fiscal year to ¥17.1
billion.

300

In our Metals segment, copper sales were strong, supported
by growth in exports to Asia driven by the Chinese market in

200

addition to higher demand for wire for construction, electricalequipment, and automobiles triggered by domestic economic

100

recovery. Nickel sales volume decreased 8% from the previous
fiscal year, despite strong sales in energy related materials suchas special steels and alloys, due to a slowdown in demand fornickel for Chinese stainless steel and the impact of inventory
adjustment in nickel for electronic materials.
Sales in this segment rose 36.2% from the previous fiscal
year to ¥453.7 billion, mainly due to higher overseas copperand gold prices and larger copper sales volume. Operating
income surged 79.4% from the previous fiscal year to ¥49.7
billion due to increases in smelting margins (the refiner’s margin, which is the price of metal minus the price of ore) causedby higher metal prices and due to the impact of inventory valuation gains that occur when prices rise.

20| SUMITOMO METAL MINING CO., LTD.

0
FY ’01 FY ’02 FY ’03 FY ’04 FY ’05

Mineral ResourcesGold and silver ores
Metallurgy
CopperNickelGold

Zinc

OthersSMM’s Mines and Refineries*Five Projects are indicated by boldface.

Pogo (51%)

Morenci (12.0%)
Jinglong Copper Co., Ltd. (27.1%)[copper 210,000 tonnes]
Coral Bay (54.0%)[nickel/cobalt mixed sulfide nickel 10,000 tonnes,
cobalt 700 tonnes]
Soroako (20.1%)
Cerro Verde (16.8%)

Batu Hijau (5.0%)[copper, gold]

Candelaria(16.0%)

Figesbal (25.5%)
Goro (11.0%)
Northparkes (13.3%)

Mine (SMM’s interest)
Gold
NickelCopperRefinery (SMM’s interest) [Annual production capacity]

Harima Smelter [zinc 90,000 tonnes , lead 30,000 tonnes]
Toyo Smelter & Refinery [copper 410,000 tonnes,
gold 60 tonnes, silver 360 tonnes]
Niihama Nickel Refinery [nickel 36,000 tonnes]
Shisaka Plant [zinc oxide 120,000 tonnes *processing capacity]
Hyuga Smelting Co., Ltd. [ferro-nickel 21,000 tonnes]

ppHishikari Mine Dept. (100%)

SMM’s Metal Share and Value
By MineBy Metal(Thousands of tonnes)(Millions of U.S. Dollars)

6,000

1,500
5,251

1,287 5,147(Thousands of tonnes)(Millions of U.S. Dollars)

4,000

20,00017,857

5,106
4,788

3,000

15,000

3,010

4,000

1,000 993 3,971

12,038

2,506

2,000

2,712

2,506

2,000

500
397

359 1,436
260 1,040

0

10,00082 328386

Copper

0.152

Gold

5,000

205
0.152

Morenci
Northparkes
Batu Hijau
Pogo
Coral Bay
Goro
Candelaria
Soroako
Cerro VerdeHishikari
Figesbal
SMM’s Metal Share (left)

1,350
5,533

1,000

362

NickelEstimated Value (right)

0

0.356

0

CopperGold

0

NickelSMM’s Metal Share (left)
Estimated Value (right)

Notes: 1. Only the Company’s own mines are covered.
2. SMM’s metal share = Ore reserves (tonnes) x Metal grade x SMM’s interest of mine (%)
3. Estimated value = SMM’s metal share (tonne) x Standard metal price
4. Standard metal price = Copper: 181.4¢/lb, Gold: 530$/toz, Nickel: 6.0$/lb

SUMITOMO METAL MINING CO., LTD.

| 21

Copper
Basic Strategy

Copper Price (LME)

Copper has a wide variety of applications such as electronic materials and(¢/lb)

alloys, as well as wire and cable, because of its high workability and resist-

400

ance to corrosion, in addition to its being the second best conductor of electricity after silver. Due to the rapid growth of demand in emerging markets

300

such as China and India, expanding copper production capacity has become
an urgent issue together with raw material supply for copper smelters. Toyo

200

Copper Smelter and Refinery has been taking steps to boost annual copper
refining capacity to 450,000 tonnes. We aim to supply 60% of the raw
material for Toyo Smelter from mines in which we have invested. We have,moreover, been involved in the rapidly growing Chinese market from an

100
FY2004 average 136.1

0’04/4 7

10 ’05/1 4

early stage, having taken an equity stake in Jinlong Copper Co.,Ltd. (27.1%
stake) in 1995. The Jinlong Copper Smelter and Refinery (production
capacity of 210,000 tonnes) is the only copper-refining business run inChina by a Japanese non-ferrous metal company. We are working to
expand sales in China and the rest of East Asia by leveraging this strength.
Project Overview and Progress Report
Reinforcing Toyo Smelter & Refinery Production Capacity
The Toyo plant is the core smelter and refinery of our copper business. We
are investing ¥29 billion to reinforce its production capacity to a top global

Electrolytic copperclass 450,000 tonnes annually. Up to now we have boosted capacity gradually, from 270,000 tonnes initially to 365,000 tonnes in fiscal year 2005.
Our target for fiscal year 2006 is 410,000 tonnes.
Cerro Verde Copper Mine Project
In conjunction with our reinforcement of copper smelting and refining
capacity, we have been making efforts to secure raw materials for copper. In
March 2005, together with Sumitomo Corporation, we entered into a basic
agreement with Phelps Dodge Corporation, the largest copper producing
company in the U.S., concerning an equity stake in the Cerro Verde
Copper Mine, in Peru. This project, will develop a sulfide deposit at a costof US$850 million, and begin production in the 4th quarter of 2006.
While our equity stake is 16.8%, we are entitled to 50% of the copper concentrate the mine produces (equivalent to 90,000 tonnes of copper) over aten-year period. Having acquired a secure source of raw material throughthis investment, our in-house ore ratio will be 60%.

22

| SUMITOMO METAL MINING CO., LTD.

Jinlong Copper Co.,Ltd.

FY2005 average 185.8

7

10 ’06/1 4

6

NickelBasic Strategy

Nickel Price (LME)

Nickel, used in stainless steel and other materials for its corrosion-resistant($/lb)

properties, is also a critically important metal in cutting-edge fields such as
semiconductors and the aerospace industry. Ferronickel, an alloy of iron108and nickel, is the basic ingredient in stainless steel, and thus finds its way
into a wide range of everyday products, from flatware and other household
utensils to construction materials, while electrolytic nickel is seeing

6
4increased use as a key component in battery materials, including those powering the current generation of hybrid electric cars. As Japan’s only produc-

FY2004 average 6.34

FY2005 average 6.63

2

er of electrolytic nickel, we are focused on expanding our nickel business, byworking to secure new sources of ore through exploration, and by deploying

0’04/4 7

10 ’05/1 4

7

10 ’06/1 4

6refining technologies that enable efficient recovery of mineral resourcesfrom low-grade ore.
Project Overview and Progress Report
Coral Bay Nickel ProjectWith an equity stake of 54%, we are the lead developer and operator in thisnickel refining project, located on Palawan Island in the southwestern partof the Republic of the Philippines. The refining plant we built uses the
HPAL (High Pressure Acid Leach) process, and in April of 2005, it began
production of nickel-cobalt mixed sulfide, an intermediate product in the

Nickelnickel refining process. HPAL is a breakthrough process which recovers
nickel-cobalt from low-grade ore, something which was previously considered impractical, and this technology brings momentum to our efforts tosecure a stable supply of raw material for nickel. Production for fiscal year
2006 is expected to reach 10,000 tonnes in terms of nickel recovered , butwith the addition of a second plant of identical scale adjacent to the first,
plans are to double production capacity by fiscal year 2009.
Goro Nickel ProjectThis large-scale nickel development project, in which we have an 11% equi-Coral Bay Nickel Projectty stake, is located in the Goro region on the southern coast of New
Caledonia, and is being led by the world’s second-largest nickel producer,
Inco Limited of Canada. In line with our equity participation in the project, which has nickel reserves estimated to be among the world’s largest, wehold the right to off-take as much as 6,600 tonnes of nickel in the form ofoxide and 500 tonnes of cobalt in the form of carbonate per year. As with
the Coral Bay nickel project, the Goro project employs the HPAL process,and production is expected to begin in the autumn of 2007.

SUMITOMO METAL MINING CO., LTD.

| 23

Precious Metals
Basic Strategy

Gold Price (LOCO LONDON)

Precious metals such as gold, silver, and platinum-group metals are separat-($/toz)ed and recovered during the process of refining copper. Most of these pre-800

cious metals are found in copper ore in addition to the gold ore from ourHishikari Mine. This means that boosting copper output at the Toyo

600

Smelter & Refinery also increases the supply of precious metals, therefore
we have expanded our precious metal processing capacity by introducing a

400
FY2004 average 414.0

new refining process. Using our own new extraction technology that wedeveloped in house, we are also able to recover iridium and ruthenium,

FY2005 average 476.6

200which had previously been considered difficult to do. We are also seeking
new gold ore resources and their development by utilizing the mining tech-0’04/4 7

10 ’05/1 4

7

10 ’06/1 4

nology that we developed at the Hishikari Mine.
Project Overview and Progress Report
Pogo Gold Project
SMM holds a 51% stake in this project in Alaska, U.S.A. and leads its
development. Production began in February 2006, and will be at full production after modification work is completed in the first quarter of 2007.
When the mine is fully operating, we expect gold production of 12 tonnes
per year.

Hishikari Mine, Japan’s Largest Gold Mine
Japan’s largest gold mine is 100% owned by SMM.
The Hishikari Mine boasts an extraordinarily highgrade of gold of 45-50g per tonne of ore, which isapproximately ten times the global average. It has
been producing approximately 7.5 tonnes of gold
annually on a stable basis since it began operations
more than 20 years ago for a total output of 151
tonnes. Its gold reserves are estimated at 152 tonnes(as of the end of December 2005).

Mineral Resource Development and Capital Expenditure Plans
In our Mineral Resources and Metals segment, we are actively seeking tosecure mineral resources by transitioning to a “Mineral Resources +Refining” business model. We are currently exploring for copper at eightsites and for nickel at two, and have boosted our exploration budget for fiscal year 2006 to ¥2.2 billion (including exploration near mines currently inoperation). Meanwhile, our capital expenditure budget for this segment for
fiscal year 2006 is ¥31.5 billion. This amount has decreased by 52.9% fromthe previous year due to the progress of large-scale overseas investment (theCerro Verde Copper Mine, etc.). Please refer to the table below for moredetails on fiscal year 2006 capital expenditure.
Capital Expenditures

24(Billions of yen)
FY2006

FY2005

FY2004

FY2003

FY2002

Plan

ActualActualActualActualMineral Resources

6.6

14.0

7.0

3.0

1.4

Metal and Metal Processing
Overseas Developmental
Investments

15.2

15.6

15.2

27.9

8.9

9.7

37.3

—

—

—

Total

31.5

66.9

22.2

30.9

10.3

| SUMITOMO METAL MINING CO., LTD.

Cerro Verde Copper Mine

6

Electronics Materials andAdvanced Materials
Susumu Makino :Left
Director/Managing Executive Officer
General Manager, Advanced Materials Div.
Etsu Senda :Right
Executive Officer
General Manager, Electronics Div.

Financial Highlights by Segment
FY2005Net sales
Operating income
Operating margin
Depreciation expense
Capital expenditures¥184,075
11,176
6.07%
9,647
18,783(Millions of yen)
FY2004
FY2003¥154,864
7,265
4.69%
8,943
12,578¥142,676
5,612
3.93%
8,273
12,168

Fiscal Year 2005 Results
In the business environment for fiscal year 2005, we saw thenear completion of inventory adjustments in the semiconducNet Sales by Products(Billions of yen)250

tor and electronic component industries in the first half of theyear, and the recovery of the strengthening of demand forelectronic and advanced materials for PCs, mobile phones,
flat-panel TVs, and automobile-related devices. In our

200Electronic Materials segment, this helped our bonding wires
for semiconductors that are used in PCs and our thick-film

150

pastes that are used in a variety of chip components to maintain strength and helped demand for our transparent conduc-100

tive film materials to expand.
Our Advanced Materials segment enjoyed growth in50

demand for copper-clad polyimide film, for which we havereinforced production capacity. This growth was supported by0
FY ’01 FY ’02 FY ’03 FY ’04 FY ’05

Electronics materials
Packaging materials
Printed wiring boards
Advanced Materials
OthersNote: Net sales include inter-segment transactions.

expansion of the LCD market and by the panel manufacturers’ switchover to the chip-on-film (COF) method. Demand
was also strong for our nickel hydroxide, which is used as apositive electrode material for rechargeable batteries for hybridcars as well as for high-capacity primary dry-cell batteries.
As a result, sales in the Electronic Materials and Advanced
Materials segments grew 18.9% from the previous fiscal yearto ¥184.1 billion and operating income increased 53.8% fromthe previous fiscal year to ¥11.2 billion.

SUMITOMO METAL MINING CO., LTD.

| 25

SMM’s Core Areas

SMM’s Production Facilities ofElectronics Materials andAdvanced Materials• Lead Frames
Sumitomo Metal Mining Package Materials Co.,Ltd.

Runs IC packaging
materials businessNiihama Electronics Co.,Ltd.
Ohkuchi Electronics Co.,Ltd.
Sumitomo Metal Mining Asia Pacific Pte. Ltd.

Regional management ofoverseas lead frame business

Sumiko Electronics Taiwan Co.,Ltd.
Sumiko Leadframe (Thailand) Co.,Ltd.
M-SMM Electronics SDN. BHD.
P.T.SUMIKO LEADFRAME BINTAN• Bonding Wire
Ohkuchi Electronics Co.,Ltd.

26| SUMITOMO METAL MINING CO., LTD.

Tape materials, bonding wire, recovery andrecycling of precious metals

Singapore

Kagoshima, Japan

Sumitomo Metal Mining
Electronics Materials (Shanghai) Co.,Ltd.
Taiwan Sumiko Materials Co.,Ltd.
Malaysian Electronics Materials SDN. BHD.

Kunitomi District Division
SMM KOREA Co.,Ltd.

Tape materials

Suzhou,Jiangsu Province, China
Chengdu,Sichuan Province, China
TaiwanThailand
Malaysia
Indonesia

Sumiko Leadframe Chengdu Co.,Ltd.

• Advanced Materials
Isoura Plant

Other ProductsTokyo, Japan
Ehime, Japan
Kagoshima, Japan

Sumiko Electronics Suzhou Co.,Ltd.

• Electronics Materials
Electronics Division
Kunitomi District Division
SMM Precision Co.,Ltd.
Shinko Co.,Ltd.
Ajimu Electronics Co.,Ltd.
Shanghai Sumiko Electronic Paste Co.,Ltd.
Dongguan Sumiko Electronic Paste Co.,Ltd.

Location

Tape materials

Lead frame, tape materials, recovery and recycling of precious metals

Shanghai, China
Taiwan
Malaysia

Paste, crystal materials, etc.
Crystal materials
Optical components
Printed wiring boards
Solder plating of IC
Paste
Paste

Tokyo, Japan
Hokkaido, Japan
Akita, Japan
Nagano, Japan
Oita, Japan
Shanghai, China
Dongguan,
Guangdong, China

Metal powder,
Circuit board materials,
Battery materials, etc.
Magnet materials
Circuit board materials etc.

Ehime, Japan

Hokkaido, Japan
South Korea

Paste

Magnet Materials

Crystal materials

Strategies for our Principal ProductsElectronic Materials
Bonding Wire
Leveraging our strength of being able to procure raw materials in-house, wehave gained a 25% share, the second largest globally, for this product. We
plan to boost our global share to 30% by reinforcing production capacity
mainly at overseas sites, starting with the launch of a new factory inShanghai.
Paste
We have the top global share in nickel paste for internal electrodes for mul-

Bonding Wire
Used for connecting the electrodes of semiconductor
chips to lead frames, these wires are made of gold
because of its superior workability and conductivity.

tilayer ceramic capacitors (MLCCs). In fiscal year 2006, we plan to boost
monthly sales volume to 50 tonnes by targeting external electrodes in addition to further expanding sales for internal electrodes. As a result of ourefforts to develop a variety of new products, moreover, we have launched an
insulating paste for white light-emitting diodes (LEDs).
Thin Film Materials
Having set up a joint venture with Idemitsu Kosan, Co., Ltd. in April 2005
for manufacturing and selling transparent electrode materials for flat-panel
displays, we are working to expand sales of IZO (indium zinc oxide), which
has superior characteristics for use in large-scale LCDs (please see the

Paste
These are colloids that are variously made using metal
powders, glass powders, etc. They are used for the formation by screen-printing of conductive, insulating,resistive, and protective films.

Special Feature on page 15).
Packaging Materials
We are reinforcing our overseas production capacity, mainly in China, forlead frames, in which we have a top global share (15%) and film-basedtape materials. At Sumiko Electronics Suzhou Co.,Ltd., our Chinese production base for lead frames, we are adding new etching lines to the factory’s existing lines for press processing. Thus equipped with both press andetching lines, the factory will become China’s most fully integrated factory for lead frames, capable of meeting a broad variety of customer needs.
We are also reinforcing production lines in Taiwan in order to double

Thin Film Materials
These materials are used to form thin films by sputtering and vapor deposition. Transparent electrode materials have the unique characteristic of conducting electricity despite being transparent and are essential for the
manufacture of LCDs.

production capacity for COF, a packaging material for semiconductors
for LCD drivers.

Lead Frames
Metal frames that serve as the foundation for semiconductor chip circuits. These are made by applying silver
plate to the connector.

SUMITOMO METAL MINING CO., LTD.

| 27

Advanced Materials (please see Special Feature on page 14)
Battery Materials
As the only producer of electrolytic nickel in Japan, we provide raw materials for batteries. In conjunction with the spread of hybrid-type electric automobiles, our production volume of nickel hydroxide increased five-fold,from 500 tonnes in 2003 to 2,500 tonnes in 2005. We are working in close
collaboration with automobile manufacturers to develop battery materials
for hybrid-type electric automobiles, which are characterized by the frequent and demanding charging and discharging of their batteries. We arealso devoting resources to expanding lithium nickel oxide, demand for

Nickel Hydroxide
Nickel hydroxide is used as a positive electrode material
for rechargeable batteries for hybrid-type electric cars aswell as high-capacity dry-cell batteries

which is growing as a positive electrode material for lithium ion batteries for
PCs and mobile phones.
Copper-clad Polyimide Film
We have an overwhelmingly dominant global share of the market for copper-clad polyimide film COF boards for large-scale LCDs. Demand has
been growing, supported by the rapid shift in the method for packaging
LCD driver ICs from a triple-layer structure to double-layer COFs as largescale flat-panel LCD TVs achieve mainstream popularity. For this reason,
we are planning annual capacity of 6.5 million m2 (4.6 million m2 in fiscal
year 2005) by building a new plant in Ehime Prefecture (scheduled to start
operation in October 2006). We are also reinforcing quality to meet the

Copper-clad Polyimide Film
A board material consisting of polyimide film on whichcopper has been vapor-deposited, this is mainly used in
the COF boards that package the ICs that drive LCDs.

needs of the ever higher resolutions of LCD screens.

Capital Expenditure Budget
For our Electronic Materials and Advanced Materials segments, we areplanning capital expenditure of ¥24.3 billion (up 29.3% from the previous
fiscal year) as we pursue an aggressive strategy of achieving top global market shares for each of our products. A major portion of the capital expenditure we are budgeting for fiscal year 2006 will be for the construction of anew plant in Niihama, Ehime Prefecture, and for reinforcing production
bases in China and Taiwan.
Copper-clad Polyimide Film factory under construction(Ehime Prefecture)

Capital Expenditures

Electronics Materials andAdvanced Materials

28(Billions of yen)
FY2006

FY2005

FY2004

FY2003

FY2002

Plan

ActualActualActualActual

24.3

18.8

12.6

12.2

9.5

| SUMITOMO METAL MINING CO., LTD.

Other Businesses
Financial Highlights by Segment
FY2005(Millions of yen)
FY2004
FY2003

Housing and Construction Materials BusinessNet sales¥17,318¥15,785
Operating income
2,140
1,180
Operating margin12.36%
7.48%
Depreciation expense
656
653
Capital expenditures
241
257
Other BusinessNet sales¥28,784¥23,119
Operating income
4,264
2,448
Operating margin14.81%
10.59%
Depreciation expense
1,329
1,290
Capital expenditures
1,735
1,179

Construction Materials
This business consists mainly of the manufacture and¥15,377
7
0.05%
656
233

sales of Siporex (autoclaved lightweight aerated concrete), a building material incorporating technology
from Sweden. In fiscal year 2005, sales in this business increased 9.7% from the previous fiscal year to¥10,204
391
3.83%
472
1,153

¥17.3 billion, supported mainly by improvement insales prices on the back of sharp rises in materials andenergy prices. Operating income surged 81.4% to¥2.1 billion due to the effect of radical restructuringthat we implemented in fiscal year 2003 with a view
to cutting costs.

Summary of Other BusinessBusiness
Main Activities

Construction Materials Business
Sumitomo Metal Mining Siporex Co.,Ltd.
Manufacture and sale of ALC (Autoclaved Lightweight aerated Concrete)

Environmental Improvement Business
Sumitomo Metal Mining Co., Ltd.
(Energy & environment Business Division)
Unify management of group businesses, Sale and development of water treatment
installations

Sumicon Certech Co.,Ltd.

Siporex
Blending the solidness of concrete and the light ness of wood, Siporex isalso known as “unsinkable concrete” and “non-flammable wood.” It is also
environmentally friendly as it contains no harmful substances suchasbestos or formaldehyde.

Assessment and remediation of contaminated soil and groundwater

Sumiko Eco-engineering Co.,Ltd.
Environment-related engineering of exhaust gas treatment,etc. and Corrosion control

Sumiko Techno-Reserch Co.,Ltd.
Environmental assessment and analysis, Analysis of metals

Recycling and Environmental Improvement

Japan Irradiation Service Co.,Ltd.
Radiation processing for sterilization as well as for use in modification of industrial materials

Catalyst and Recycling BusinessNippon Ketjen Co.,Ltd.
Manufacture and sale of desulfurization catalyst for petroleum processing

Nippon Catalyst Cycle Co.,Ltd.
Recovers valuable metals from the used desulfurization catalyst produced when oil
is refined

N. E. Chemcat Corporation
Manufacture and sale of chemical and automotive catalysts, Recover and refiningof precious metals from used catalysts

Leveraging the technologies that we have developedin the refining area, we operate a recycling businessthat recovers valuable metals and an environmental
improvement business, which includes assessment
and remediation of soil and groundwater contamination. Both revenue and earnings increased in thisbusiness in fiscal year 2005 as the manufacturing andsales of desulfurization catalysts for oil refining andthe recovery of valuable metals from used desulfurization catalysts performed favorably in response tohigher prices for metals such as molybdenum. As aresult, Other Businesses, which include these businesses, saw sales rise 24.5% to ¥28.8 billion andoperating income surged 74.2% to ¥4.3 billion.

SUMITOMO METAL MINING CO., LTD.

| 29

CSR

(Corporate Social Responsibility)
Corporate GovernanceDirectors, Board of Directors
Our articles of association set the maximum number of directors

We position corporate governance, a framework of corporate disci-

at ten. At present, however, our Board of Directors has eightpline for both maximizing the SMM Group’s corporate value andmembers, an appropriate size for lively discussion and flexible

ensuring sound management, as one of the most important aspects

decision-making. Remuneration is linked to performance.

of management.
Management Committee

Governance System

The membership of our Management Committee consists of the

Our core Mineral Resources and Metals business and Electronicpresident, executive vice president and other executive officers.

Materials and Advanced Materials business differ in terms of cus-

Corporate auditors also have access to its meetings. In addition

tomers, business environment and business characteristics. For thisto discussing from a broad point of view those matters thatreason, we have adopted an executive officer system that separates

require discreet discussion because they are important enough tothe decision-making and executive functions and a corporate audit

warrant to a Board of Directors resolution or presidential deci-

system that ensures objectivity as the governance system that bestsion and deciding whether or not to place them on the Board of

maximizes the executive and auditing functions in our businesses.

Directors’ agenda, the Management Committee fulfills the function of supporting decisions made by the president.

Organizational Chart of Corporate Governance
General Shareholders’ Meeting
Election

Election

Election

Election and supervision
Auditing

Management
Committee
Deliberations

Auditing Department
Internal Audit

President & Representative Director

Auditing

Executive officer
Execution of business

Auditing

Headquarters Division
Review

ReviewBusiness Division

Auditing

Affiliated company’s Board of
Corporate Auditors

Auditing
Auditing

30| SUMITOMO METAL MINING CO., LTD.

Affiliated company

Auditing
Auditing

Affiliated company’s
Independent Registered Accountant

Independent Registered Accountant
Accounting audit

Board of Corporate Auditors
Operation and accounting audit

Board of Directors
Directors
Major decision and oversightExecutive Officer Systemmere list of “don’ts.” Anticipating situations in which doubts or

We are reinforcing the executive function of our executive offi-

problems remain after referring to the Code and consultation

cers by clarifying their authority and responsibilities and transfer-with a superior is awkward or fails to result in the appropriate

ring a greater measure of authority to them. SMM has 19 execu-

response, we have set up an internal reporting system so that thetive officers (eight of whom also serve as directors) who carry out

pertinent information can be presented directly to the responsi-

their work by being assigned specific authority for important

ble liaison office inside the Company.

tasks such as divisional managers and headquarters office managers. Moreover, they report once a month to the Executive

Compliance Training Seminar

Committee on the execution of business. Remuneration is linked

Since 2001 we have held annual compliance training seminars

to performance.

for the executives and regular employees of the SMM Group.
These seminars deepen their basic knowledge of compliance andCorporate Auditors

bring them up to date on recent revisions of the law.

We currently have four Corporate auditors, two of whom arefrom outside the company (part-time). These internal and external auditors attend meetings of the Board of Directors andLiving with the Environment

Management Committee and present their views; the auditorsfrom SMM form their views based on audits as full-time employ-

In order to leave a healthy and pleasant environment for future

ees who maintain independence, while those of the external audi-

generations, the SMM group engages in corporate activities thattors are informed by knowledge of specialized fields.

are in harmony with the environment such as the efficient use ofmineral resources by making full use of the environmental protec-

Developing an Internal Control Systemtion technology and expertise that it has acquired through its refin-

We are working to create a corporate culture that fosters the lawful

ing business. We are also committed to environmental improve-and healthy execution of business by preparing an internal control

ment activities as part of our management system and havesystem. The SMM Group is building a risk management system

acquired ISO14001 certification for almost all of our productionthat is capable or rapidly and appropriately dealing with a varietysites in Japan and overseas including Group companies.

of risks inside and outside the company by promoting the company-wide and organized setting up of specialized posts.

Coral Bay Nickel ProjectThis project, which commercially produces an intermediate
product for nickel on Palawan Island, Republic of theThorough Enforcement of Compliance

Philippines, has paved the way for making a major contribution
to the efficient use of a limited mineral resource. It is based on

Taking to heart the lessons of the criticality accident that occurred

our unique HPAL* method, the world’s first commercially viable

in 1999 at JCO Co.,Ltd., one of our subsidiaries, we designed atechnology for refining low-grade nickel ore that had previously

Corporate Reform Plan in the following year and have striven to

been considered unusable.

achieve thorough compliance and safety management. In 2003, we* Acronym for High Pressure Acid Leach, a technology for recovering nickel

committed ourselves afresh to thorough compliance by basing ourand cobalt in a high-temperature, high-pressure environment by dissolving

business philosophy on Sumitomo’s Business Spirit and establishing

low-grade ore (laterite) in sulfuric acid.

the “SMM Group Code of Conduct,” which comprises 17 articles.
Establishment of Green Procurement Standards
SMM Group Code of Conduct

Our Electronics Division has taken steps to prevent harmful

Based on the concept that a corporation is a key member of soci-chemicals from entering the production chain by establishing

ety that sincerely cares about coexistence with nature, prosperity

Green Procurement Standards for suppliers. It is also working toin balance with society, and sympathy with humanity, our Codereduce harmful chemical substances by setting up a chemical sub-of Conduct is studied by all employees of the SMM Group. It is

stance database which it sues for managing data for the entire

a guide for pro-actively putting ideas into practice, rather than aElectronics Group including the subsidiaries under its control.

SUMITOMO METAL MINING CO., LTD.

| 31

Financial Section

Management’s Discussion and Analysis
Eleven-Year Financial Summary
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditor’s Report

32| SUMITOMO METAL MINING CO., LTD.

33
40
42
44
45
46
47
64

Management’s Discussion and Analysis
Overview of Businesses
In addition to itself, the businesses of Sumitomo Metal
Mining Co., Ltd. (SMM) consist of 64 subsidiaries and 18
affiliated companies. The three core segments of business are:1) Mineral Resources, which mines gold, silver, and copper;
2) Metals, which consists of the smelting and refining businessfor gold, copper, nickel, and zinc, and the metal process business, which manufactures, copper elongation products; and3) Electronics Materials and Advanced Materials, whose
advanced materials business manufactures copper-cladpolyimide film, nickel and other powder materials, battery
materials, and magnetic materials, and whose electronicmaterials business manufactures electronic components
such as IC packaging materials, crystal materials, and printed circuit boards.
In addition to these three core businesses there are theConstruction Materials segment, which manufactures Siporex(autoclaved lightweight concrete, or ALC), and the Other
Businesses segment, which runs a nuclear power-related engineering business and an environmental business.
This Annual Report presents the consolidated results of theCompany, 49 domestic and overseas consolidated subsidiaries,
and 13 affiliates accounted for by the equity method.

yen was on a moderately weakening trend throughout this fiscal
year. As a result, the average exchange rate for fiscal year 2005
was US$1=¥113.32, compared with US$1=¥107.54 in the previous fiscal year (from April 1, 2004 to March 31, 2005).
An average strengthening over the full year of Japanese currency by one yen against the U.S. dollar results in a ¥500 million deterioration in SMM’s consolidated results.
Net Sales
Net sales by business segment also include inter-segment sales.

Consolidated Statement of Income
Impact of Foreign Exchange Rate Fluctuations (for Reference)
The non-ferrous metal business in Japan is closely linked to foreign exchange rates, which affect all phases of operations, fromprocurement of ores to sales of finished products. A strong yen
is a negative factor for SMM’s earnings. This is because
although a strong yen brings down procurement costs for
SMM, it also lowers finished product prices, reducing smelting
margins, which are generally denominated in U.S. dollars. The

Net sales in fiscal year 2005 (from April 1, 2005 to March 31,
2006) increased ¥140,994 million (29.1%) from the previous
fiscal year to ¥625,579 million. The Metals segment accounted for 62.4% of net sales. In fiscal year 2005, the non-ferrous
metal industry enjoyed continued strength in demand inJapan and overseas as capital expenditure increased and theChinese economy expanded. The prices for non-ferrous metals such as copper maintained historically high levels as actual
demand increased and the flow of funds into the market accelerated. Moreover, the yen was on a moderately weakening
trend. In the electronics-related industries, meanwhile, theinventory adjustment in electronic equipment and electronic
components came to an end and demand, centered on PCs,
LCDs, and automobile-related products, recovered.
In this environment, Mineral Resources segment sales
increased ¥10,648 million (32.2%) from the previous fiscal
year to ¥43,719 million, supported by higher prices for copperand gold from the beginning of the year and despite a decline
in copper production volume at overseas copper mines fromthe previous year due to heavy rain. Metals segment sales grew
¥120,502 million (36.2%) to ¥453,680 million on the back ofhigher overseas prices for copper and gold and increased vol-Net Sales

Gross Profit and Gross Margin(Billions of yen)(Billions of yen)

800

125
28.8
17.3
184.1

600

400
20.0
21.6
111.0

200

0

197.2

23.3

FY2001

12.4
16.7
132.9

10.2
15.4
142.7

23.1
15.8
154.9

(%)

25
120.1

100

20
19.2

17.1
453.7

75

14.6

82.9

15

13.4

11.6
333.2

50

51.8

273.4
226.3

10

53.7

38.2

25

24.7

FY200225.3

FY200333.1

FY200443.7

FY2005

Electronics & advanced materials
Mineral resources
MetalsConstruction materials
Others(Note) Net sales include inter-segment sales

500
FY2001

FY2002

FY2003

FY2004

FY2005Gross Margin (right)

SUMITOMO METAL MINING CO., LTD.

| 33

umes of copper sales. Electronics Materials and Advanced
Materials segment sales rose ¥29,211 million (18.9%) fromthe previous fiscal year to ¥184,075 million as early in the fiscal year inventory adjustment in the markets for electronicequipment and electronic components ran its course, putting
demand on a recovery trend.
Costs and Expenses
Cost of sales in fiscal year 2005 increased ¥103,735 million(25.8%) from the previous fiscal year to ¥505,442 million due
to the higher raw materials prices resulting from higher nonferrous metal prices. However, the gross margin rose from
20.6% to 23.8%, supported by the impact of inventory valuations amid rising prices in addition to the increases in smelting
margins accompanying surging metal prices.
Sales, general, and administrative (SG&A) expenses increased¥2,396 million (6.8%) from the previous term to ¥37,381 million. This is mainly attributable to increases in sales, transportation & miscellaneous expenses, salaries & benefits; andresearch and development expenses of ¥520 million (7.6%);¥699 million (9.0%); and ¥485 million (10.1%), respectively.
Operating Income
Operating income surged ¥34,863 million (72.8%) from theprevious fiscal year to ¥82,756 million, supported by sharply
higher earnings in all business segments.
In the Mineral Resources segment, higher prices for copperand gold boosted profit for overseas copper mines and goldand silver ores (Hishikari mine). In the Metals segment, profit
rose sharply, supported by a turnaround in smelting margins
on the back of large increases in overseas prices and by a valuation gain of inventory assets (¥10.4 billion) due to higher
prices. The Electronics Materials and Advanced Materials seg-

Oparating Income and Operating Margin(Billions of yen)

13.2

4.3
2.1
11.2
49.7

9.9

60
40

4.7

20
0

0.3

1.8
3.5 0.8
-4.4
-0.3

0.6
4.1
8.3
2.7
-0.4

0.4
5.6
12.6
4.5

FY2003(%)(Billions of yen)

80

10.0

60

62.8

7.5
37.0

20
19.9

2.5
17.1
10.0

0

FY2004

FY2005

Electronics & advanced materials
Mineral resources
MetalsConstruction materials
OthersOperating margin (right)(Note) Operating income include inter-segment sales

34

Mineral Resources
Net sales in this segment grew ¥10,648 million (32.2%) fromthe previous fiscal year to ¥43,719 million. This growth isattributable to continued high price levels for copper and gold

12.5

-2.5
FY2002

Results by Business Segment
The following sections are based on segment data. Net sales
and operating income for each area include inter-segment
transactions.

5.0

-20
FY2001Net Income
As a result of the above, net income increased ¥25,783 million(69.7%) from the previous fiscal year to ¥62,800 million. In
conjunction with this, moreover, net income per share was¥109.96, compared with ¥64.77 in the previous fiscal year.

40

2.4
1.2
7.3
27.7

5.7

Other Income (Expenses)
Other income (expenses) increased ¥4,194 million from theprevious year to a net profit of ¥10,218 million. Positive factors include an increase in the equity earnings of affiliatedcompanies of ¥8,402 million (62.2%) from the previous fiscal
year to ¥21,915 million as overseas mining companies
accounted for by the equity method contributed. Negative
factors include the posting of a ¥1,825 million impairment
loss due to the application of impairment accounting in addition to a ¥3,033 million loss on fixed asset write-offs.
Net financial expenses (interest received + dividends
received - interest paid) deteriorated ¥388 million, from ¥893
million in the previous fiscal year to ¥1,281 million.

Net Income (Loss)100
80

ment and the Construction Materials segment enjoyed strong
profit growth, supported by growth in sales of mainstay products and by improvement in profitability, respectively.

| SUMITOMO METAL MINING CO., LTD.

0
-6.6

-1.2

-20
FY2001

FY2002

FY2003

FY2004

FY2005

despite a decline from previous year in the copper production
volume at the Morenci Copper Mine (U.S.) of which we haveparticipated in the management due to heavy rain.
Operating income grew a strong ¥7,136 million from theprevious fiscal year to ¥17,107 million. This is attributable to
growth in earnings at overseas copper mines on the back ofhigher copper prices and in earnings on domestic gold and silver ore (Hishikari mine) due to higher gold prices.
Metals
Net sales in this segment increased ¥120,502 million (36.2%)
from the previous fiscal year to ¥453,680 million. This is
attributable mainly to higher overseas prices for copper andgold and to increased sales volume of copper. Copper sales
benefited from growth in demand for copper for the domestic
wire industry due to continued strength in demand for wirefrom construction, electrical equipment, and automobiles;
they also benefited from the growth in exports to Asia accompanying China’s economic growth. Nickel sales, meanwhile,
stagnated due to weaker demand from Chinese stainless steel
and electronics materials despite continued strength indemand from energy-related special steels.
Operating income surged ¥21,982 million (79.4%) form
the previous fiscal year to ¥49,683 million. This is attributable
to a turnaround in the smelting margins on the back of
sharply higher overseas prices and to the impact of inventory
valuation when prices rise (¥10.4 billion impact comparedwith the previous year due to the impact of the period of valuating inventory assets using the first-in, first-out method).
Electronics Materials and Advanced Materials
Net sales in this segment grew ¥29,211 million (18.9%) fromthe previous year to ¥184,075 million. The inventory adjust-ment that continued from the second half of the previous term
had basically run its course early in fiscal year 2005, when themarkets for PCs, mobile phones, flat-panel TVs, and automobile-related equipment expanded and demand for electronicequipment and electronic components began a recovery trend.
Electronics Materials revenue grew, supported by strength inalloy preforms for mobile phone components and in thebonding wire for semiconductors that are used in PCs as well
as by the switchover across the country in telecommunications-related optical isolators to optical fiber. In the Advanced
Materials business, demand for copper-clad polyimide film
has been growing due to the expansion of the LCD market
and the switchover to chip-on-film (COF) method by thepanel manufacturers, and our expansion of production capacity to meet this contributed. In battery materials, moreover,increased sales of the nickel hydroxide that is used as a positiveelectrode material for rechargeable batteries for hybrid electricvehicles (HEV) and as a material for high-capacity primary
batteries boosted revenue further.
As a results of the above, operating income increased ¥3,911
million (53.8%) from the previous term to ¥11,176 million.
Construction Materials
Net sales in this segment rose ¥1,533 million (9.7%) from theprevious fiscal year to ¥17,318 million. While domestic
demand for ALC (autoclaved lightweight concrete) was
unchanged from the previous fiscal year, efforts to improvesales prices in response to recovery in the domestic economy
produced results.
Operating income surged ¥960 million (81.4%) from theprevious fiscal year to ¥2,140 million, supported by the contribution from cost-cutting in addition to improvement insales prices.

Yen-Dollar Exchange Rate (Year-End)(Yen / Dollar)

140133.25130120.20120

117.48110105.69107.32100
FY2001

FY2002

FY2003

FY2004

FY2005

SUMITOMO METAL MINING CO., LTD.

| 35

Capital Expenditures and Depreciation
Capital expenditure in fiscal year 2005 totaled ¥50,568 million, up ¥14,080 million (38.6%) from the previous fiscal year.
The Mineral Resources and Metals segment accounted for¥30,209 million (59.7% of the total) and the Electronics
Materials and Advanced Materials segment for ¥18,783 million (37.1% of the total). Specifically, in the Mineral Resources
segment, capital expenditure was centered on exploration anddevelopment in the Hishikari Mine and we invested to develop

overseas mineral resources (Pogo Gold Mine Development
Project), in the Metals segment we invested to expand smelting
and refining equipment (Toyo Smelter & Refinery) and tobuild new wet-processing equipment for low-grade nickel
oxide ore (Coral Bay Project), and in the Electronics Materials
and Advanced Materials segment we expanded copper-cladpolyimide film and other production equipment.
Depreciation increased ¥2,373 million (11.5%) from theprevious fiscal year to ¥22,951 million.

Capital Expenditures
Millions of yen
At year-end

FY2005

FY2004

FY2003

FY2002

FY2001

Mineral resources
MetalsElectronics & advanced materials
Construction materials
OthersElimination or corporate
Total¥ 14,014
16,19518,783
241
1,735
(400)
¥ 50,568¥ 7,036
15,192
12,578
257
1,179
249
¥ 36,488¥ 3,001
27,878
12,168
233
1,153
2,107
¥ 46,540¥ 1,414
5,005
9,506
133
427
2,442
¥ 18,927¥ 2,794
9,336
11,236
515
418
1,080
¥ 25,379

Capital Expenditures

Depreciation(Billions of yen)(Billions of yen)

60

25

50
2.1
1.2
0.2
12.2

40
30
20
10
0

1.1
0.4
0.5
11.2

27.9

9.3

2.4
0.4
0.1
9.5

2.8

5.0
1.4

1.7
0.2
18.8
0.2 1.2
0.3
12.6

20

15
16.2

15.2

0.8
0.5
0.6
8.8

0.8
0.5
0.7

7.5
6.4

14.0

5

7.0

0.6
1.3
0.7
9.6

8.3

10
4.0

4.4

4.7

3.2

3.2

2.9

2.8

3.3

FY2001

FY2002

FY2003

FY2004

FY2005

3.0
-0.4

-10

0
FY2001

FY2002

FY2003

FY2004

FY2005

Electronics & advanced materials
Mineral resources
MetalsConstruction materials
OthersElimination or corporate

36

0.7
0.5
0.7
8.7

0.6
1.3
0.7
8.9

| SUMITOMO METAL MINING CO., LTD.

Electronics & advanced materials
Mineral resources
MetalsConstruction materials
OthersElimination or corporate

Research and Development Expenses
Research and development expenses in fiscal year 2005 rose
¥485 million (10.1%) from the previous fiscal year to ¥5,297
million. Priority R&D project spending by segment was asfollows: ¥118 million in the Mineral Resources segment fordeveloping concentration processes for non-ferrous raw material ores and a variety of leaching techniques, ¥2,871 million
in the Metals segment for developing non-ferrous smelting &electrolysis technologies and new processing technologies,¥1,917 million in the Electronics Materials and Advanced
Materials segment for developing higher-performance, higherresolution technologies for contact and joining materials anddeveloping various electronic materials, and ¥254 million in
the Construction Materials segment for developing new products using the long-lasting Siporex.
Financial Position and Liquidity
AssetsTotal assets as of March 31, 2006, stood at ¥772,562 million,up ¥198,637 million (34.6%) from the end of the previous
fiscal year. Current assets rose ¥64,742 million (28.5%) fromthe end of the previous year to ¥291,588 million. This ismainly attributable to increases of ¥20,351 million (32.1%) in
notes and accounts receivable and ¥26,123 million (25.4%) in
inventories in conjunction with higher non-ferrous metal
prices. Net property, plant and equipment stood at ¥232,338
million, up ¥24,593 million (11.8%) from the end of the pre-Long-Term Debt Due After One Yearand Debt to Equity Ratio(Times)

125

1.0
109.8
0.71

(Billions of yen)

114.4

0.8

400

0.6

300

50
45.6

47.4

48.9

49.5

76.5

0.59

0.57

40

0.51

0.4

200

25

0.2

100

0

0

0

Debt to equity ratio (right)

FY2003

30
283.9

50

FY2002

48.4

373.8
86.4

FY2001

(%)

500

0.69

75
74.0

Liabilities and Shareholders’ Equity
On the liabilities side, current liabilities stood at ¥219,360
million, up ¥78,896 million (56.2%) from the end of the previous fiscal year. The current ratio decreased from 161% at
the end of the previous term to 133%.
In terms of long-term liabilities, total liabilities stood at¥377,663 million, up ¥96,564 million (34.4%). In addition to a¥4,628 million (4.2%) increase in long-term debts due after one
year to ¥114,405 million to cover large investments, this is attributable to a ¥13,271 million (111.7%) increase in deferred tax liabilities due to higher market prices for investment securities.
Total shareholders’ equity stood at ¥373,752 million, up¥89,855 million (31.7%) from the end of the previous fiscal
year. This is attributable to the increase in retained earnings(¥58,184 million) resulting from a large increase in net
income and to the increase in net unrealized holding gains onavailable-for-sale securities (¥19,617 million) resulting fromhigher market prices for investment securities. Because of thelarge increase in total assets, however, the equity ratio
decreased from 49.5% in the previous fiscal year to 48.4%.

Shareholders’ Equity and Equity Ratio(Billions of yen)100

vious fiscal year, mainly due to large-scale project implementation and existing facility reinforcement.
Investments and long-term receivables stood at ¥243,665
million, up from ¥109,667 million (81.8%). The main factor
behind this was a ¥102,703 million increase in investment
securities due to investment in overseas mining companies.

FY2004

FY2005

236.3

253.1
223.3

20

10

0
FY2001

FY2002

FY2003

FY2004

FY2005Equity ratio (right)

SUMITOMO METAL MINING CO., LTD.

| 37

Composition of Interest-Bearing Debt
Millions of yen

FY2005

At year-end

Short-term interest-bearing debt due within one year ....
Long-term interest-bearing debt due after one year ........
Total shareholders’ equity ..............................................
Total assets ....................................................................

¥ 76,486
114,405
373,752¥ 772,562(9.9)(14.8)(48.4)(100.0)FY2004¥ 50,756
109,777
283,897¥ 573,925(8.8)(19.1)(49.5)(100.0)FY2003¥ 61,914
86,437253,071¥ 517,930(12.0)(16.7)(48.9)(100.0)( ):Percentage to total assets

Consolidated Statement of Cash FlowsNet cash flows from operating activities in fiscal year 2005
improved ¥30,622 million from the previous fiscal year to¥70,772 million, mainly due to a ¥39,057 million increase
from the previous fiscal year in net income before income
taxes and minority interests.
Cash flows from investing activities saw outflows increase¥70,659 million from the previous fiscal year to ¥102,384
million. In addition to a ¥51,969 million increase from theprevious fiscal year in acquisitions of affiliated companies
because of the intensive investment in core businesses, this wasdue to a ¥10,672 million increase from the previous fiscal yearin acquisitions of property, plant and equipment.
Net cash flow from financing activities saw an inflow of¥28,723 million. This was because as much of the abundant
cash flow from operating activities as possible was used for theheavy investment in core businesses, minimizing the increase
in interest-bearing debts and limiting the increase in procured
funds from the previous year to ¥22,626 million.
As a result of the above and foreign exchange rate fluctuations,the year-end balance of cash and cash equivalents was ¥34,250
million, down ¥535 million from the beginning of the year.

Net Cash Flows(Billions of yen)

100
75

70.8

50
25

33.4

40.2

32.3

26.1

28.7

0
-25

48.4
-16.2 -14.3

-21.2

-14.2

-17.4

6.1

-9.3
-31.7

-50
-75
-100

-102.4-125
FY2001

FY2002

FY2003

Net cash flows from operating activities
Net cash flows from financing activities

38

FY2004

FY2005

Net cash flows from investing activities| SUMITOMO METAL MINING CO., LTD.

Risk Information
The following types of information contained in this reportconcerning the Group’s businesses and management may substantially affect the investor’s judgment. Moreover, the forwardlooking statements contained herein are based on the views of
the Group as of the end of consolidated fiscal year 2005.
1) Fluctuations in Non-ferrous Metal Prices and Foreign
Exchange Rates
Slump in Non-Ferrous Metal Prices
The prices of non-ferrous metals such as copper, nickel, and gold
are determined by the London Metal Exchange (LME) and otherinternational markets (the prices determined by these markets are
hereinafter referred to as "LME and other market prices"). LME
and other market prices vary in response to impacts such as theinternational balance of supply and demand, political and economic conditions, speculative transactions, and the cost-competitiveness of substitute materials. Any significant and sustained
decline in the LME and other market prices of copper, nickel,
and gold due to such impacts may cause serious deterioration in
the Group’s financial position and business performance.
Foreign Exchange Rate (Strong Yen)
The prices of imported raw materials such as copper concentrate and nickel matte are determined according to the U.S.
dollar-denominated LME and other market rates. This is also
true of the sales prices of metals in Japan. For this reason, theGroup’s smelting margins are effectively denominated in U.S.
dollars. The revenue generated by our investments in overseas
mines and electronics materials businesses and by exports ofelectronics materials products is also denominated in foreign
currencies. Any large and sustained impact of a strong yen on
exchanges rates may therefore cause serious deterioration in
the Group’s financial position and business performance.
In response, the Group is promoting various policies in order toovercome deterioration in the environment by reinforcing its competitiveness in raw materials procurement and manufacturing.
2) Non-Ferrous Metal Raw Materials: Deterioration in
Purchase Contract Terms and Supply Difficulties
The Group intends to increase the proportion of non-ferrous
metal raw materials such as copper concentrate and nickel
matte that it procures from producers in which it has an equi-ty stake (referred to below as “in-house ore ratio”). Currently,
however, we procure the majority of these raw materials
through long-term ore-purchasing contracts with third parties.
Although these contracts’ terms for purchasing raw materials
are renegotiated annually, it is not always possible to purchasethe required amounts at reasonable prices due to a variety ofmarket factors. Moreover, as product prices are largely determined by factors directly related to the non-ferrous metals themselves such as supply and demand, it is generally difficult to shiftdeterioration in raw material purchasing terms to product prices.
In addition, raw material supply can be delayed or suspended
due to uncontrollable factors such as bad weather, major earthquakes, operational accidents, and labor disputes. Any constraint
on the Group’s production due to these factors may cause deterioration of its financial position and business performance.
In response, the Group is working to secure stable raw material sources by boosting its in-house ore ratio through, forexample, investment high-quality overseas mines.
3) Uncertainties of Mining Investment
As mentioned above, the Group has a policy of investing in minesin order to boost the in-house ore ratio of its raw material procurement. However, minable reserves and mining costs may prove todiffer from prospecting-based estimates, impairing the expected
return on investment. In mine development, a variety of factors
including environmental administration procedures may delay thestart of production and increase development costs. Additional
investment or higher mining costs resulting from these uncertainties inherent in mining investment may cause deterioration in theGroup’s financial position and business performance.
In response, the Group makes carefully selected investments
by cautiously determining profitability based on its long years
of prospecting experience and mine assessment expertise.
4) Risks Associated with Environmental Protection andCompliance
The Group’s businesses, in particular its mining business andnon-ferrous metal refining business, are subject to a broad rangeof laws including those regulating worker safety, worker hygiene,
environmental protection, prevention of pollution caused bymining, mine waste product processing, and toxic substancemanagement. These laws can require a business to pay compensation whether or not it was at fault and to pay to maintain andmanage mines after they have been closed down. Moreover, newenvironmental regulations can cause additions to the expenseburden. The mining business and non-ferrous metal refining
business also bear the risks and liabilities associated with environmental pollution and mine waste products. Managing businesses
in compliance with the relevant laws mentioned above may
entail a substantial cost burden and the expenses required to deal
with new risks brought about by unforeseen circumstances may
exceed assumptions. These cost burdens may cause deteriorationof the Group’s financial position and business performance.

In response, in addition to taking all possible measures toensure environmental protection and compliance by strictly
applying its environmental management system and risk management system, the Group aims for a reasonable cost burden.
5) Risks Associated with Market Volatility, New ProductDevelopment, and Intellectual Property
The markets targeted by the Group’s Electronics Materials andAdvanced Materials segment are characterized by rapid changes intechnologies used, customer requirements, and product life cycles
on the one hand, and the need for large investments of funds andhuman resources due to the longer time required to develop new
products on the other. In addition, when a new product is outmoded by technological advances after it has been introduced tothe market, when it fails to meet changing customer requirements,
or when a competitor begins to take over the market with a similar
product, returns on the investment may fall short of plan.
The sales volumes of the Electronics Materials andAdvanced Materials segment’s main products depend on thelevels at which our clients produce mobile phones, PCs, home
appliances, and other products and vary according to factors
such as cyclical changes in demand for the clients’ products,
technological innovation, and general economic trends.
When new product development and existing product sales
in the Electronics Materials and Advanced Materials segment
do not go according to plan due to these factors, the Group’s
financial position and business performance may be impacted.
Recognizing the importance of acquiring and managing intellectual property rights, the Group takes all the legal measuresrequired for claiming and protecting them. As it is not always
possible to establish secure measures to protect intellectual
property rights, however, disputes with third parties and unauthorized implementations by third parties can threaten our benefiting from the results of our research and development.
In response, the Group aims to mitigate any impact with aresearch and development system that produces results in atimely manner. In addition, we have set up a special office forthe management of intellectual property rights and are making
every effort to securely acquire and protect them.
6) International Operations
The Group is developing its businesses internationally by
locating production bases and seeking markets for its products
overseas. These overseas activities are subject to political andeconomic risks in each country, including 1) political instability, 2) changes in laws and regulations governing the environment, labor, taxes, currency exchange, and trade, 3) limited
legal protection of intellectual property rights or inadequate
enforcement, 4) foreign exchange volatility, and 5) confiscation or nationalization of assets. Any of these could prevent
the Group from achieving a return on its investment.
In response, the Group makes investment decisions basedon ample investigation of country risk.
SUMITOMO METAL MINING CO., LTD.

| 39

Eleven-Year Financial Summary
SUMITOMO METAL MINING CO., LTD. AND SUBSIDIARIES

2006

2005

2004

2003

For the year:
Net sales ....................................................................................
Gross profit ...............................................................................
Operating income .....................................................................
Other income (expenses) ...........................................................
Income (loss) before income taxes .............................................
Net income (loss) ......................................................................
Equity in earnings of affiliated companies ..................................
Capital expenditures ..................................................................
Depreciation .............................................................................
Net interest expense ...................................................................
Net cash flows from operating activities ....................................
Net cash flows from investing activities .....................................
Net cash flows from financing activities .....................................
Free cash flows ..........................................................................

¥ 625,579
120,137
82,756
10,21892,97462,80021,91550,56822,951(1,281)
70,772(102,384)
28,723(31,612)¥ 484,585
82,87847,893
6,024
53,91737,017
13,51336,48820,578(893)
40,150(31,725)
6,097
8,425

¥ 402,131
53,714
22,7788,416
31,194
19,882
7,112
46,54017,824(1,098)32,324(17,448)(9,293)
14,876¥ 355,242
51,764
16,593(24,098)(7,505)(1,172)
3,400
18,92718,283(1,459)26,105(21,246)(14,163)4,859

At year-end:
Total assets ................................................................................
Shareholders’ equity ..................................................................
Long-term debt due after one year .............................................
Interest-bearing debt .................................................................
Working capital ........................................................................

772,562
373,752
114,405
190,891
72,228573,925
283,897
109,777
160,533
86,382517,930
253,071
86,437
148,351
52,795

470,774
223,341
76,470154,799
35,945Per share (Yen):
Net income (loss)— Basic .................................................................................
— Diluted .............................................................................
Shareholders’ equity ..................................................................
Cash dividends ..........................................................................

109.96108.87654.15
14.0

64.77
—
497.578.0

34.76—
443.296.0(2.05)—
391.14
5.0

Ratios:ROA (%) ..................................................................................
ROE (%) ..................................................................................
Equity ratio (%) ........................................................................
Interest-bearing debt to total asset ratio (%) ..............................
Debt to equity ratio (times) .......................................................
Current ratio (times) .................................................................

9.33
19.10
48.4
24.7
0.51
1.33

6.78
13.79
49.5
28.0
0.57
1.61

4.02
8.35
48.9
28.6
0.59
1.38

—
—
47.4
32.9
0.69
1.26

Years ended March 31

40| SUMITOMO METAL MINING CO., LTD.

Millions of yen (unless otherwise specified)

1997

1996

2002

2001

2000

1999

1998

¥ 330,194
38,152
1,147(13,735)(12,588)(6,611)
1,535
25,37917,822(1,775)33,370(16,246)(14,267)
17,124¥ 375,352
63,372
26,930(11,359)
15,571
15,103
4,078
28,078
16,774(2,129)23,339(4,248)(26,089)
19,091¥ 360,299
45,061
8,990(4,342)
4,648
4,740
2,406
20,49016,611(2,492)(800)
4,143(9,086)3,343¥ 350,288
41,190858(12,932)(12,074)(12,495)
326
32,49923,095(1,907)
22,912(23,287)
4,047
(375)

¥ 431,950
62,641
24,622(3,605)
16,876
10,157(2,599)27,96821,638(2,447)43,056———¥ 525,076
57,836
21,665(4,294)
14,617
12,884(2,789)24,73020,702(3,145)
43,135———¥ 511,887
55,904
19,947(7,553)
12,394
10,683(5,022)
25,722
19,889(4,877)
6,100
—
—
—

518,756
236,31373,972167,077
23,371530,080
237,470
83,839176,998
33,259544,121235,231
107,266
197,624
38,910544,519
226,795
124,535
207,82150,518566,088
243,436
82,356
201,515
26,529586,948
238,056
117,021
224,736
62,726624,419
225,296
171,596285,871
104,854(11.56)—413.284.0

26.41—
415.256.0

8.29—
411.345.0(21.85)—396.593.0

17.77—
425.686.0

22.65—
417.206.0

19.18—
398.35
6.0

—
—
45.6
32.2
0.71
1.14

2.81
6.39
44.8
33.4
0.75
1.20

0.87
2.05
43.2
36.3
0.84
1.23

—
—
41.7
38.2
0.92
1.31

1.76
4.22
43.0
35.6
0.83
1.13

2.13
5.56
40.6
38.3
0.94
1.31

1.76
4.95
36.1
45.8
1.27
1.53

SUMITOMO METAL MINING CO., LTD.

| 41

Consolidated Balance Sheets
SUMITOMO METAL MINING CO., LTD. AND SUBSIDIARIESASSETS

Investments and long-term receivables:
Investment securities (Notes 3 and 7):
Non-consolidated subsidiaries and affiliated companies ...................................................................
Other ...............................................................................................................................................
Loans:
Non-consolidated subsidiaries and affiliated companies ...................................................................
Other ...............................................................................................................................................
Other long-term receivables .................................................................................................................
Allowance for doubtful accounts ..........................................................................................................

Property, plant and equipment (Notes 6 and 7):
Land ....................................................................................................................................................
Buildings and structures .......................................................................................................................
Machinery and equipment ...................................................................................................................
Construction in progress ......................................................................................................................
Accumulated depreciation ....................................................................................................................
Net property, plant and equipment ...........................................................................................
Deferred tax assets (Note 8) .................................................................................................................
Other assets ...........................................................................................................................................
The accompanying notes are an integral part of these balance sheets.

42| SUMITOMO METAL MINING CO., LTD.

Thousands of
U.S. dollars(Note1)

2005

2006

34,785 $305

291,539
3,907

78,4685,374

57,294
6,197

667,926
45,744

4,183
6,542
(384)
128,940
5,280
28,476
291,588

4,468
5,121
(441)
102,8172,299
14,001
226,846

35,606
55,686(3,269)1,097,549
44,944242,390
2,482,022

140,698
94,85969,262
61,613

1,197,634
807,448

6
692
6,323
(458)
242,120

19
771
2,468
(523)
133,61051
5,890
53,823(3,899)2,060,947

29,330142,357
305,578
29,143
506,408(274,070)
232,338

29,005
137,794289,20915,396
471,404(263,659)
207,745249,660
1,211,755
2,601,107
248,068
4,310,590(2,332,909)
1,977,681

2006

As of March 31, 2006 and 2005

Current assets:
Cash and cash equivalents ....................................................................................................................
Time deposits ......................................................................................................................................
Receivables:
Notes and accounts receivable:
Trade ............................................................................................................................................
Non-consolidated subsidiaries and affiliated companies ................................................................
Loans and others:
Non-consolidated subsidiaries and affiliated companies ................................................................
Other ............................................................................................................................................
Allowance for doubtful accounts ......................................................................................................
Inventories (Note 5) ............................................................................................................................
Deferred tax assets (Note 8) .................................................................................................................
Other current assets .............................................................................................................................
Total current assets ....................................................................................................................

Millions of yen¥

34,250
459

1,545
4,971
¥ 772,562¥

388
13,151
5,336
42,314¥ 573,925 $ 6,576,115

LIABILITIES AND SHAREHOLDERS’ EQUITYAs of March 31, 2006 and 2005

Current liabilities:
Bank loans (Note 7) .............................................................................................................................
Long-term debt due within one year (Note 7) ......................................................................................
Notes and accounts payable:
Trade ...............................................................................................................................................
Non-consolidated subsidiaries and affiliated companies ...................................................................
Other ...............................................................................................................................................
Accrued income taxes (Note 8) ............................................................................................................
Accrued expenses .................................................................................................................................
Advances received ................................................................................................................................
Accrued restructuring charges ..............................................................................................................
Accrued repair construction of lots for sale ...........................................................................................
Deferred tax liabilities (Note 8) ............................................................................................................
Other current liabilities ........................................................................................................................
Total current liabilities ..................................................................................................................
Long-term debt (Note 7) ......................................................................................................................
Deferred tax liabilities (Note 8) ...........................................................................................................
Accrued retirement benefits (Note 9) ...................................................................................................
Accrued environmental measures ........................................................................................................
Accrued restructuring charges .............................................................................................................
Accrued indemnification loss on damages caused by a consolidated subsidiary ...............................
Accrued liquidation loss of subsidiaries ..............................................................................................
Other accruals ......................................................................................................................................
Other long-term liabilities ...................................................................................................................
Total long-term liabilities ...........................................................................................................
Minority interest ..................................................................................................................................

Millions of yen

Thousands of
U.S. dollars(Note1)

2006

2005

2006

¥ 46,730
29,756¥ 36,871
13,885

48,7396,294
10,47327,250
4,386
1,126
975
191
54
43,386219,360
114,405
25,148
11,120
573
—
792
1,051
2,446
2,768
158,30332,357
6,128
7,071
9,729
4,360
1,319
100
—
63
28,581
140,464
109,777
11,877
12,753
—
220
1,026
1,469
1,454
2,059
140,635

414,871
53,57589,147
231,954
37,334
9,585
8,299
1,626
460
369,305
1,867,212
973,825
214,062
94,654
4,877
—
6,742
8,946
20,821
23,562
1,347,489

21,147

8,929

180,005$

397,770
253,286

Contingent liabilities (Note 13)
Shareholders’ equity (Note 12):
Common stock
Authorized - 1,000,000,000 shares
Issued 572,971,694 shares .....................................................................................................
Capital surplus .....................................................................................................................................
Retained earnings (Note 11) ................................................................................................................
Net unrealized holding gain on available-for-sale securities ..................................................................
Foreign currency translation adjustment ..............................................................................................
Treasury stock, at cost ..........................................................................................................................
Total shareholders’ equity .............................................................................................................

88,90681,750171,946
34,897(2,620)(1,127)373,752¥ 772,562

756,776
88,355695,863
81,191
1,463,619
113,762
297,046
15,280(22,302)(13,912)(9,593)(779)
3,181,409
283,897¥ 573,925 $ 6,576,115

SUMITOMO METAL MINING CO., LTD.

| 43

Consolidated Statements of Income
SUMITOMO METAL MINING CO., LTD. AND SUBSIDIARIES

Years ended March 31, 2006, 2005 and 2004

Net sales (Note 14) .........................................................................................................
Costs and expenses (Note 14):
Cost of sales ..................................................................................................................
Selling, general and administrative expenses (Note 10) ..................................................
Operating income (Note 14) .........................................................................................
Other income (expenses):
Interest and dividend income ........................................................................................
Interest expense .............................................................................................................
Gain on sale of investment securities .............................................................................
Write-down of investment securities .............................................................................
Gain (Loss) on sales of subsidiaries and affiliated companies securities ..........................
Gain (Loss) on sale and disposal of property, plant and equipment ...............................
Loss on impairment of fixed assets ................................................................................
Gain (Loss) on liquidation of subsidiaries ......................................................................
Reversal of (Provision for) doubtful accounts ................................................................
Reversal of allowance for loss on investments ...............................................................
Provision for repair construction of lots for sale .............................................................
Provision for environmental measures ...........................................................................
Gain (Loss) from valuation of gold loans .......................................................................
Exchange gain (loss) ......................................................................................................
Restructuring charges ....................................................................................................
Provision for realignment of operations .........................................................................
Maintenance cost for ceased projects .............................................................................
Write-off of obsolete inventories ...................................................................................
Casualty loss .................................................................................................................
Gain (Loss) from valuation of derivative instruments ....................................................
Amortization of consolidation difference .......................................................................
Equity in earnings of affiliated companies .....................................................................
Gain on change in interests in an affiliated company .....................................................
Other, net .....................................................................................................................
Income before income taxes and minority interests .....................................................
Income taxes (Note 8):
Current .........................................................................................................................
Deferred ........................................................................................................................

Minority interests in net income of consolidated subsidiaries ....................................
Net income: .................................................................................................................

Millions of yen

Thousands of
U.S. dollars(Note1)

2006

2005

2004

2006

¥ 625,579¥ 484,585¥ 402,131$ 5,324,983

505,442
37,381
542,823
82,756

401,707
34,985436,692
47,893

348,41730,936379,353
22,7784,302,367
318,190
4,620,557
704,426

1,673(2,954)356(60)—(3,407)(1,825)
418
54
—
(191)
(573)
(1,055)845(1,092)
—
(816)
—
(409)
(2,029)33
21,915—(665)
10,21892,974957(1,850)
71
—
1,390
(757)
(1,263)
(78)
(41)
—
—
—
(271)
(313)
(185)
—
(743)
(478)
(622)
(3,636)27
13,513
1,313(1,010)6,024
53,917

1,023(2,121)
4,848
(998)
(360)
1,746
—
(1,131)
710
271
—
—
138
(642)
(790)
(720)
(745)
—
(108)
1,280
32
7,112
—
(1,129)8,416
31,194

14,241(25,145)
3,030
(511)
—
(29,001)(15,535)
3,558
460
—
(1,626)(4,877)(8,980)7,193(9,295)—(6,946)—(3,481)(17,271)281
186,542—(5,660)86,977
791,403

31,932(3,557)28,37564,599(1,799)¥ 62,800

10,246
5,276
15,52238,395(1,378)¥ 37,017

1,330
9,400
10,73020,464(582)¥ 19,882 $

271,808(30,277)
241,531549,872(15,313)534,559
U.S. dollars(Note1)yen

Amounts per share of common stock:
Net income (Note 16)— Basic .....................................................................................................................
— Diluted .................................................................................................................
Cash dividends applicable to the year ............................................................................
The accompanying notes are an integral part of these statements.

44| SUMITOMO METAL MINING CO., LTD.

¥ 109.96
108.87
14.00

¥

64.77
—
8.00

¥

34.76
—
6.00

$

0.94
0.93
0.12

Consolidated Statements of Shareholders’ Equity
SUMITOMO METAL MINING CO., LTD. AND SUBSIDIARIES

Millions of yen

Years ended March 31, 2006, 2005 and 2004

Balance at March 31, 2003 .......................................
Net income .............................................................
Foreign currency translation adjustments ................
Adjustments for unrealized gains on securities ........
Treasury stock ........................................................
Gain on sale of treasury stock .................................
Cash dividends paid ................................................
Balance at March 31, 2004 ........................................
Net income ............................................................
Increase due to change in consolidationof subsidiaries .....................................................
Foreign currency translation adjustments ................
Adjustments for unrealized gains on securities ........
Treasury stock ........................................................
Gain on sale of treasury stock .................................
Executive bonuses ...................................................
Decrease due to change in consolidationof subsidiaries ......................................................
Decrease due to change in consolidationof affiliated companies ........................................
Cash dividends paid ................................................
Balance at March 31, 2005 .......................................
Net income .............................................................
Conversion of convertible bonds ............................
Foreign currency translation adjustments ................
Adjustments for unrealized gains on securities ........
Treasury stock ........................................................
Gain on sale of treasury stock .................................
Executive bonuses ...................................................
Cash dividends paid ................................................
Balance at March 31, 2006 .......................................

Shares ofcommon stock(thousands)

Commonstock

CapitalsurplusRetainedearnings

571,873¥ 88,355¥ 81,184¥ 64,183
19,882Net unrealized
holding gain (loss)
on available-forsale securities¥ (2,217)

Foreign currencytranslation
adjustments

Treasurystock¥ (7,763) ¥ (401)(5,504)

18,328(124)
3571,873¥ 88,355¥ 81,187(2,855)¥ 81,210
37,017¥ 16,111¥ (13,267) ¥ (525)

1,049
(645)
(831)
(254)
4
(37)
(1,071)

571,873¥ 88,355¥ 81,191

551

551

(981)
(3,425)¥ 113,762
62,800¥ 15,280¥ (13,912) ¥ (779)

11,292
19,617(348)
8572,972¥88,906¥81,750(52)(4,564)¥171,946¥34,897¥ (2,620) ¥(1,127)

Thousands of U.S. dollars (Note 1)

Year ended March 31, 2006

Commonstock

CapitalsurplusRetainedearnings

Balance at March 31, 2005 .................................................................. $ 752,085 $ 691,105 $ 968,352
Net income ........................................................................................
534,559
Conversion of convertible bonds .......................................................
4,691
4,691
Foreign currency translation adjustments ..........................................
Adjustments for unrealized gains on securities .....................................
Treasury stock ...................................................................................
Gain on sale of treasury stock ............................................................
67
Executive bonuses ..............................................................................
(443)
Cash dividends paid ...........................................................................
(38,849)
Balance at March 31, 2006 .................................................................. $756,776 $695,863 $1,463,619

Net unrealized
holding gain (loss)
on available-forsale securities$ 130,065

Foreign currencytranslation
adjustments

Treasurystock$ (118,420) $(6,631)

96,118
166,981(2,962)$297,046$ (22,302) $(9,593)

The accompanying notes are an integral part of these statements.

SUMITOMO METAL MINING CO., LTD.

| 45

Consolidated Statements of Cash Flows
SUMITOMO METAL MINING CO., LTD. AND SUBSIDIARIES

Millions of yen

Thousands of
U.S. dollars(Note1)

2006

2005

2004

2006

92,974¥ 53,917¥ 31,194$ 791,403

Adjustments to reconcile income before income taxes and minority interests to
net cash provided by operating activities:
Depreciation .............................................................................................................................
Loss on impairment of fixed assets .............................................................................................
Loss (Gain) on sale and disposal of property, plant and equipment ...........................................
Gain on sale of investment securities .........................................................................................
Write-down of investment securities .........................................................................................
Gain on change in interests in an affiliated company .................................................................
Decrease in allowance for loss on investments ...........................................................................
Loss (Gain) on sales of subsidiaries and affiliated companies securities .......................................
Loss (Gain) from valuation of derivative instruments ................................................................
Provision for (Reversal of) doubtful accounts ............................................................................
Increase (Decrease) in retirement benefits ..................................................................................
Loss (Gain) on liquidation of subsidiaries ..................................................................................
Interest and dividend income ....................................................................................................
Interest expense .........................................................................................................................
Equity in earnings of affiliated companies .................................................................................
Provision for (Reversal of) realignment of operations .................................................................
Restructuring charges ................................................................................................................
Casualty loss ..............................................................................................................................
Loss from indemnification of damages caused by a consolidated subsidiary ...............................
Maintenance cost for ceased projects .........................................................................................
Decrease (Increase) in trade receivables ......................................................................................
Decrease (Increase) in inventories ..............................................................................................
Increase in trade payables ..........................................................................................................
Others .......................................................................................................................................
Sub total ................................................................................................................................
Interest and dividend received ...................................................................................................
Interest paid ..............................................................................................................................
Payments for additional retirement benefits by realignment of operations .................................
Payments for maintenance costs for ceased project ....................................................................
Payments for recovery costs .......................................................................................................
Payments for indemnification of damages caused by a consolidated subsidiary ..........................
Payments for income taxes ........................................................................................................
Net cash provided by operating activities ...............................................................................

22,951
1,825
3,407
(356)
60
—
—
—
2,029
(122)
(1,613)(418)(1,673)
2,954(21,915)
—
441
409
—
816
(18,971)(24,964)
8,804
8,298
74,936
14,350(2,811)
—
(816)
(409)
—
(14,478)
70,772

20,578
1,263
757
(71)
—
(1,313)—(1,591)
3,636(72)(2,458)
(608)
(957)
1,850
(13,513)
(69)
70
622
—
743
9,624
(37,061)
2,886
3,556
41,7893,597(1,923)
(95)
(743)
(589)
—
(1,886)40,15017,824—(1,746)(4,848)
998
—
(814)
360
(1,280)
(886)
368
1,225
(1,023)
2,121(7,112)
720
—
108
7
745
(7,363)
2,632
8,288(6,620)34,8982,206(2,177)
(632)
(717)
(108)
(7)
(1,139)32,324

195,361
15,53529,001(3,030)511———
17,271(1,038)(13,730)(3,558)(14,241)
25,145(186,542)
—
3,754
3,481
—
6,946
(161,483)(212,496)
74,94070,632637,862
122,148(23,928)—(6,946)(3,481)—(123,238)
602,417

Cash flows from investing activities:
Payments for acquisition of property, plant and equipment .......................................................
Proceeds from sale of property, plant and equipment ................................................................
Payments for purchases of investment securities ........................................................................
Payments for purchase of subsidiaries and affiliated companies securities ..................................
Proceeds from sale of investment securities ................................................................................
Proceeds from sales of subsidiaries and affiliated companies securities .......................................
Increase in loans receivable ........................................................................................................
Collection of loans receivable ....................................................................................................
Other ........................................................................................................................................
Net cash used in investing activities .......................................................................................

(48,728)
3,103(1,204)(51,969)510
5(1,621)956(3,436)(102,384)(38,056)
2,615
(416)
—
235
4,018
(1,575)
2,105(651)(31,725)(35,245)
4,848(2,046)—
18,438944(3,224)
1,392(2,555)(17,448)(414,777)
26,413(10,249)(442,365)
4,341
43(13,798)
8,138(29,248)(871,502)

Cash flows from financing activities:
Proceeds from issuance of long-term debt ..................................................................................
Repayments of long-term debt ..................................................................................................
Net increase (decrease) in bank loans .........................................................................................
Net decrease in commercial paper .............................................................................................
Payments for redemption of bonds ............................................................................................
Proceeds from issuance of bonds ...............................................................................................
Contribution from minority in consolidated subsidiaries............................................................
Increase in treasury stocks ..........................................................................................................
Cash dividends paid ..................................................................................................................
Other ........................................................................................................................................
Net cash provided by (used in) financing activities ................................................................

31,867(4,337)
7,682—(10,000)
—
9,288
(338)
(4,564)(875)
28,723

16,785(2,586)(6,970)—(16,000)
20,000—(254)(3,425)(1,453)
6,097

17,180(9,818)(10,529)(3,000)(10,000)
10,000—(124)(2,855)(147)(9,293)

271,255(36,917)
65,390—(85,121)—79,060(2,877)(38,849)(7,448)244,493

Effect of changes in exchange rate on cash and cash equivalents ................................................
Net increase (decrease) in cash and cash equivalents ..................................................................
Cash and cash equivalents at beginning of fiscal year .................................................................
Increase in cash due to newly consolidated subsidiaries ..............................................................
Other decrease in cash and cash equivalents ..............................................................................
Cash and cash equivalents at end of fiscal year ...........................................................................

2,354
(535)
34,785——34,25055
14,577
19,304904—¥ 34,785

(772)
4,811
13,581
1,299(387)¥ 19,304

20,038(4,554)
296,093——$ 291,539

Years ended March 31, 2006, 2005 and 2004

Cash flows from operating activities:
Income before income taxes and minority interests ......................................................................

The accompanying notes are an integral part of these statements.

46| SUMITOMO METAL MINING CO., LTD.

¥¥

Notes to Consolidated Financial Statements
SUMITOMO METAL MINING CO., LTD. AND SUBSIDIARIES
1. Basis of presenting consolidated financial statements
The accompanying consolidated financial statements have been
prepared in accordance with the provisions set forth in theJapanese Securities and Exchange Law and its related accounting regulations, and in conformity with accounting principles
generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to application and disclosure
requirements of International Financial Reporting Standards.
The accounts of overseas subsidiaries are based on theiraccounting records maintained in conformity with generally
accepted accounting principles prevailing in the respective countries of domicile. The accompanying consolidated financial
statements have been restructured and translated into English(with some expanded descriptions and the inclusion of consolidated statements of shareholders’ equity) from the consolidated
financial statements of the Company prepared in accordancewith Japanese GAAP and filed with the appropriate Local
Finance Bureau of the Ministry of Finance as required by the
Securities and Exchange Law. Some supplementary information
included in the statutory Japanese language consolidated financial statements, but not required for fair presentation, is not presented in the accompanying consolidated financial statements.
The translations of the Japanese yen amounts into U.S. dollars are included solely for the convenience of readers outside
Japan, using the prevailing exchange rate at March 31, 2006,
which was ¥117.48 to U.S. $1. The convenience translations
should not be construed as representations that the Japanese yenamounts have been, could have been, or could in the future be,converted into U.S. dollars at this or any other rate of exchange.

and the underlying equity in its net assets at the date of acquisition is being amortized over five years.

2. Summary of significant accounting policies
Consolidation — The consolidated financial statements include
the accounts of the Company and its significant subsidiaries (49subsidiaries in 2006, 47 in 2005 and 40 in 2004). All significant
intercompany balances and transactions have been eliminated.
Investments in affiliates over which the Company has the ability
to exercise significant influence over operating and financial policies of the investees, are accounted for by the equity method (13affiliated companies in 2006, 8 in 2005 and 6 in 2004).
Investments in the remaining unconsolidated subsidiaries andaffiliates are carried at cost because of their immaterial effect on
the consolidated financial statements.
In the elimination of investments in subsidiaries, the assets andliabilities of the subsidiaries, including the portion attributable tominority shareholders, are recorded based on the fair value at thetime the Company acquired control of the respective subsidiaries.
The consolidation difference between the cost of an investment

Derivatives and hedge accounting — Derivative instruments are stated at fair value. Changes in the fair values arerecognized as gains and losses unless derivative transactions areused for hedging purposes.
If derivative transactions are used as hedges and meet certain
hedging criteria, the Company and its domestic consolidated
subsidiaries defer recognition of gains or losses resulting fromchanges in fair value of derivative transactions until the related
losses or gains on the hedged items are recognized.
However, in cases where forward foreign exchange contracts
are used as hedges and meet certain hedging criteria, forward
foreign exchange contracts and hedged items are accounted
for in the following manner:

Cash and cash equivalents and cash flow statements — For
the purpose of the consolidated statements of cash flows, theCompany and its consolidated subsidiaries classify cash on
hand, readily-available bank deposits and short-term highly
liquid investments with maturities of not exceeding threemonths at the time of purchase as cash and cash equivalents.
Allowance for doubtful accounts — The Company and its
consolidated domestic subsidiaries provide a general allowancefor doubtful accounts. Calculation of this allowance is basedon actual collection losses incurred in the past. Additionally,
for accounts receivable considered at risk (bankruptcy, companies under rehabilitation plan, or other similar conditions), an
allowance is booked based on an estimation of the uncollectible amount, on a case by case basis.
Investment securities — Securities are classified into two categories based on the intent of holding; available-for-sale securities and securities issued by non-consolidated subsidiaries
and affiliated companies.
Available-for-sale securities with available fair values are statedat the fair value. Unrealized gains and losses on these securities
are reported, net of applicable income taxes, as a separate component of shareholders’ equity. Other available-for-sale securities with no available fair values are stated at moving-averagemethod. Securities issued by non-consolidated subsidiaries andaffiliated companies are stated at moving-average costs.

(1) If a forward foreign exchange contract is executed to hedge
an existing foreign currency receivable or payable,(a) the difference, if any, between the Japanese yen amount
SUMITOMO METAL MINING CO., LTD.

| 47

of the hedged foreign currency receivable or payabletranslated using the spot rate at the inception date of
the contract and the book value of the receivable orpayable is recognized in the income statement in the
period which includes the inception date, and(1) (b) the discount or premium on the contract (that is, the difference between the Japanese yen amount of the contract
translated using the contracted forward rate and thattranslated using the spot rate at the inception date of thecontract) is recognized over the term of the contract.
(2) If a forward foreign exchange contract is executed to hedge
a future transaction denominated in a foreign currency,
the future transaction will be recorded using the contracted forward rate, and no gains or losses on the forward foreign exchange contract are recognized.
Also, if interest rate swap contracts are used as hedge and meetcertain hedging criteria, the net amount to be paid or received
under the interest rate swap contract is added to or deductedfrom the interest on the assets or liabilities for which the swap
contract was executed.
The Company evaluates hedge effectiveness monthly bycomparing the cumulative changes in cash flows from or thechanges in fair value of hedged items and the corresponding
changes in the hedging derivative instruments.
Foreign currency translation — Receivables and payables
denominated in foreign currencies are translated into Japanese
yen at the year-end rates.
Balance sheets of consolidated overseas subsidiaries are translated into Japanese yen at the year-end rates except for shareholders’equity accounts, which are translated at the historical rates.
Income statements of consolidated overseas subsidiaries are translated at average rates except for transactions with the Company,
which are translated at the rates used by the Company.
Inventories —(1) Merchandise, finished products, semi-finished products,
work in process and raw materials – Merchandise, finishedproducts, semi-finished products, work in process and raw
materials of metals and electronics are stated at cost basedon the first-in first-out (FIFO) method. Others are statedat cost based on the last-in, first-out (LIFO) method.

48| SUMITOMO METAL MINING CO., LTD.

(2) Supplies – Supplies are stated at the moving average cost.
(Change for the accounting policy of inventory valuation)
The costs of the Company’s inventories except for precious
metals and electronics and advanced materials had been determined using the last-in, first-out (LIFO) methods until the year
ended March 31, 2004, but they have been determined using thefirst-in, first-out (FIFO) methods for year starting April 1, 2004.
This change was made in order to present the Company’s
financial presentations more appropriately by reflecting the current trading price of those non-ferrous metals such as copper,
nickel and zinc in the international market to the balance sheet
amounts of these inventories, by which also enable the Company
to recognize the periodic allocation of income and expenses
properly by eliminating the price volatility of the metals.
As the result of the change of the accounting policy, in theyear ended March 31, 2005, inventories were increased by¥11,113 million and the operating income, income before
income taxes and minority interests increased by the sameamount above.
Also refer to the section of business segment informationand geographic segment information for the impact of thechange to the Company’s segment information.
Property, plant and equipment — Property, plant andequipment are stated at cost.
Depreciation of property, plant and equipment is computedby the straight-line method, based on the estimated useful
lives of the assets. The depreciation period generally ranges
from 3 years to 50 years for buildings and structures and 5
years to 17 years for machinery and equipment.
(Adopting the new accounting standard for impairment of
fixed assets)
The Company and consolidated domestic subsidiaries adopted
early from April 1, 2004, the new accounting standard for
impairment of fixed assets (“Opinion Concerning Establishmentof Accounting Standard for Impairment of Fixed assets” issued
by the Business Accounting Deliberation Council on August 9,2002) and the implementation guidance for accounting standard
for impairment of fixed assets (the Financial AccountingStandard Implementation Guidance No. 6 issued by the
Accounting Standards Board of Japan on October 31, 2003).
As the result of adopting the accounting policy, in the year
ended March 31, 2005, income before income taxes andminority interests was decreased by ¥1,263 million.
Also refer to the section of business segment information for
the impact of adopting the new accounting standard.

Retirement benefits — Under the terms of the Company’s
retirement plan, substantially all employees are entitled to a
lump-sum payment at the time of retirement. The amount of
retirement benefits is, in general, based on the length of service, base salary at the time of retirement or severance and thecause thereof.
The Company and certain consolidated domestic subsidiaries also have a non-contributory funded pension plan,
which covers substantially all employees.
The Company may make payments for additional retirement
benefits for employees which payments have not been includedin the actuarial calculation of the projected benefit obligation.
The Company and its consolidated domestic subsidiaries
provided allowance for employees’ severance and retirement
benefits based on the estimated amounts of projected benefit
obligation and the fair value of the plan assets at those dates.
Actuarial gains and losses are recognized in expenses using thestraight-line method over the average of the estimated remaining
service lives of ten years commencing with the following period.
Accrued retirement benefits in the consolidated balance
sheets also include estimated liabilities for the unfunded lumpsum benefit plan covering directors and corporate auditors.
(Revision to accounting policy for employees’ retirement benefits)
In line with public announcement of “Partial Revision of
Accounting Standard for Retirement Benefit (Corporate
Accounting Standard No.3)” as well as “Implementation
Guidance for Partial Revision of Accounting Standard for
Retirement Benefit (Implementation Guidance No.7 forapplying Corporate Accounting Standards), ” both issued by
the Accounting Standards Board of Japan on March 16, 2005,
the company elected to apply these standards to its consolidated financial statements for the year ended March 31, 2006.
As the result of the revision of the accounting policy, in the year
ended March 31, 2006, both operating income and income
before income taxes and minority interests increased by ¥454 million ($3,864 thousand). Also refer to the section of business segment information and geographic segment information for the
impact of the change to the Company’s segment information.
Accrued restructuring charges — Accrued restructuring
charges are provided by the Company and its consolidated
subsidiaries to cover the costs of business reconstruction.
Accrued repair construction of lots for sale — Accrued
repair construction of lots for sale is provided to cover thecosts of repair construction and compensation that an ex-consolidated subsidiary built and sold.

Accrued indemnification loss on damages caused by a consolidated subsidiary — Accrued indemnification loss ondamages caused by a consolidated subsidiary is provided tocover the indemnification loss of the accident incurred by thesubsidiary.
Accrued liquidation loss of subsidiaries — Accrued liquidation loss of subsidiaries are provided by the Company to liquidate business.
Accrued environmental measures — The provision for environmental measures is estimated and recorded to provide for
future potential costs, such as costs related to disposal of polychlorinated biphenyl (PCB).
Research and development — Research and development
costs are charged to income as incurred.
Bond issue expense — Bond issue expense is charged toincome as incurred.
Accounting for certain lease transactions — Finance leases
which do not transfer ownership to lessees are accounted forin the same manner as operating leases.
Income taxes — The Company and its consolidated subsidiaries recognize tax effects of temporary differences between
the financial statement basis and the tax basis of assets and liabilities. The provision for income taxes is computed based on
the pretax income included in the statement of operations.
The asset and liability approach is used to recognize deferred
tax assets and liabilities for the expected future tax consequences of temporary differences.
Sales — Sales of merchandise and finished products are recognized when the products are shipped to customers.
Bonuses to directors and corporate auditors — Bonuses todirectors and corporate auditors, which are subject to shareholders’ approval at the annual shareholders’ meeting under
the Commercial Code of Japan, are accounted for as an
appropriation of retained earnings.
Amounts per share of common stock — Basic net income
per share is computed based on the weighted-average numberof shares of common stock in issue during each fiscal year.
Diluted net income per share assumes that outstanding convertible bonds were converted into common stock at the
SUMITOMO METAL MINING CO., LTD.

| 49

beginning of the period at the curreint conversion price.
Cash dividends per share represent the actual amount applicable to the respective fiscal year.

Reclassifications — Certain prior year amounts have been
reclassified to conform to the 2006 presentation. Thesechanges had no impact on previously reported results of operations or shareholders’ equity.

3. Securities(1) The following tables summarize acquisition costs and book values (fair values) of available-for-sale securities with available fairvalues as of March 31, 2006 and 2005:
Securities with book values exceeding acquisition costs
Millions of yen

2006
Equity securities .............................................................
Others ............................................................................
Total ............................................................................

2005

Acquisition cost

Book value

Difference

Acquisition cost

Book value

Difference¥ 30,33650¥ 30,386¥ 87,952
149¥ 88,101¥ 57,616
99¥ 57,715¥ 28,67450¥ 28,724¥ 54,27580¥ 54,355¥ 25,60130¥ 25,631

Thousands of U.S. dollars

2006
Equity securities .............................................................
Bonds .............................................................................
Total ............................................................................

Acquisition cost

Book value

Difference$ 258,223
426$ 258,649$ 748,655
1,268$ 749,923$ 490,432
842$ 491,274

Securities with book values not exceeding acquisition costs
Millions of yen

2006
Equity securities .............................................................
Total ............................................................................

2005

Acquisition cost

Book value

Difference

Acquisition cost

Book value

Difference¥ 1,664¥ 1,664¥ 1,662¥ 1,662

¥ (2)
¥ (2)

¥ 1,996¥ 1,996¥ 1,961¥ 1,961¥ (35)¥ (35)

Thousands of U.S. dollars

2006
Equity securities .............................................................
Total ............................................................................

Acquisition cost

Book value

Difference$ 14,164$ 14,164$ 14,147$ 14,147$ (17)$ (17)(2) The following tables summarize book values of the securities with no available fair values as of March 31, 2006 and 2005:
Available-for-sale securities

Unlisted equity securities ........................................................................................................................
Others ....................................................................................................................................................
Total ....................................................................................................................................................

50| SUMITOMO METAL MINING CO., LTD.

Millions of yen

Thousands of
U.S. dollars

2006

2005

2006

¥ 4,411—¥ 4,411¥ 4,43928¥ 4,467$ 37,547—$ 37,547

(3) Available-for-sale securities with maturities as of March 31, 2006 and 2005 are as follows:
As of March 31, 2006

Millions of yen
Within one year

Mutual funds .............................................................................................................

¥ 149

Over one year but Over five years but
within five years
within ten years¥—

As of March 31, 2006¥—

Mutual funds .............................................................................................................

$ 1,268

Over one year but Over five years but
within five years
within ten years$—$—

As of March 31, 2005

Total

$ 1,268
Millions of yen

Within one year

Mutual funds .............................................................................................................

4. Derivative transactions
Status of derivative transactions — The Company and its
consolidated subsidiaries utilize derivative transactions inorder to hedge various risks, such as fluctuation of metal
prices, exchange rates and interest rates, in the normal courseof business; such as futures contracts for hedging fluctuationof international price of metals, forward foreign exchange contracts and currency swaps for hedging fluctuation of exchange
rates, and interest swaps for hedging fluctuation of interests offloating-rate bonds and term loans payable.
Derivative transactions of the Company and its consolidated
subsidiaries cause market risk and credit risk. Market risk is
the potential loss the Company and its consolidated subsidiaries may incur as a result of changes in the market value.
The Company’s and its consolidated subsidiaries’ exposure tomarket risk are determined by a number of factors, including
fluctuation of market prices, exchange rates and interest rates.
Credit risk is the potential loss the Company and its consolidated subsidiaries could incur if the counterparties madedefault on their obligation. The derivative transactions aresolely made with highly rated financial institutions, their subsidiaries or LME (London Metal Exchange) brokers guaranteed by banks, so that the Company and its consolidated subsidiaries might reduce the risk of default on an obligation.

¥ 149

Thousands of U.S. dollars
Within one year(4) Total sales of available-for-sale securities sold amounted to¥510 million ($4,341 thousand), ¥235 million and¥18,438 million, and the related gains amounted to ¥356
million ($3,030 thousand), ¥71 million and ¥4,848 mil-

Total

¥ 28

Over one year but Over five years but
within five years
within ten years

¥ 80

¥—

Total

¥ 108

lion in the years ended March 31, 2006, 2005 and 2004,
respectively. No losses were recognized in the years ended
March 31, 2006, 2005 and 2004.

Each department of the Company and its consolidated subsidiaries involving derivative transactions have their own rules
for derivative transactions which stipulate purposes and scopeof using derivatives, standards for choosing transaction counterparties, and procedures of reporting and administration.
The derivative transactions are subject to approval by theGeneral Manager of the department in charge after consultingwith related departments. Based on these rules, the person in
charge sets up the position. Then, the results are reported to
the Directors monthly.
The derivative positions are confirmed semi-annually with thetransaction counterparties. Also, the internal audit departmentof the Company regularly examines derivative transactions.
The Company and its consolidated subsidiaries are notexposed to market risk arising from commodity derivative transactions, because the risk of fluctuation of market prices, that iscaused by time lag between purchase and sale of materials andproducts, is hedged by the corresponding future contracts. The
Company and its consolidated subsidiaries also utilize currency
derivative transactions to hedge market risk of exchange rates orinterest rates. Taking receivables and payables denominated inforeign currencies into account, the Company and its consolidated subsidiaries are not exposed to market risk.

SUMITOMO METAL MINING CO., LTD.

| 51

The following tables summarize market value information as of March 31, 2006 and 2005 of derivative transactions for which
hedge accounting has not been applied:
Millions of yen

2006

2005

Contracted amountContracted amount

Total

Over oneyear

Currency:
Forward contracts:
Sell position—U.S. dollars ....... ¥—Buy position—U.S. dollars .......
6,550¥ 6,550

¥—
—
¥—

¥

—
6,544
¥
—

¥

¥—
—

¥ 1,184
13,375

¥

—
—
¥—

—
97
—

Commodity:
Forward contracts:
Sell position—Metal ................ ¥796
Buy position—Metal ................ 11,794
Option contracts:
Zero cost option .......................
—
Put position-Metal ...................
131¥ 12,721

Marketvalue¥

Recognized
gains (losses)

Total

Over one
year

—
(6)
(6)

59
5,684
¥ 5,743

¥—
—
¥—

¥

60
5,780
¥
—

¥

(388)
1,581

¥ 14,408—¥——¥ 16,090—¥ (1,682)——(34)¥ 1,159

3,082—¥ 17,490

—
—
¥—

(490)
—
—

(490)
—
¥ (2,172)¥¥

Marketvalue¥

Recognized
gains (losses)

¥

(1)
96
95

Thousands of U.S. dollars

2006
Contracted amount
Total

Over oneyear

Currency:
Forward contracts:
Sell position—U.S. dollars ....... $—Buy position—U.S. dollars .......
55,754$ 55,754

$—
—
$—

$

—
55,703
$
—

$

$—
—

$ 10,078
113,849$ (3,302)
13,457

—
—
$—

—
826
—

—
(289)
$ 9,866

Commodity:
Forward contracts:
Sell position—Metal ................ $ 6,776
Buy position—Metal ................ 100,392
Option contracts:
Zero cost option .......................
—
Put position-Metal ...................
1,115$ 108,283

Marketvalue$

Recognized
gains (losses)

$

—
(51)
(51)

5. Inventories
Inventories at March 31, 2006 and 2005 consists of the following:
Millions of yen

Thousands of
U.S. dollars

2005

2006

2006
Merchandise ...........................................................................................................................................
Finished products ...................................................................................................................................
Semi-finished products and work in process ...........................................................................................
Raw materials and supplies .....................................................................................................................

52| SUMITOMO METAL MINING CO., LTD.

¥

1,011
30,67858,20339,048¥ 128,940¥

2,021
22,27440,98237,540¥ 102,817$

8,606
261,134
495,429
332,380$ 1,097,549

6. Loss on impairment of fixed assets
Loss on impairment of fixed assets for the year ended March 31, 2006 consists of the following:
Millions of yen
Location

Major use

Asset category

Hyuga City, Miyazaki Prefecture, Japan
Singapore
Ocean Side, California, USA
Iwanai-gun, Hokkaido, Japan
New South Wales, Australia

Idle Land
Manufacturing facilities for electronic parts
Manufacturing facilities for electronic parts
Manufacturing facilities for electronic crystal materials
Mining and concentrating facilities for copper ore

LandMachinery and equipment
Machinery and equipment
Machinery and equipment
Machinery, equipment,
and mining rights

Total

Loss

¥

9
118
172
512
1,014

¥ 1,825

The Company categorized operating assets by business unit
such as a plant and manufacturing process, based on the division of managerial accounting.
The breakdown of major use is as follows.
(1) The book value of manufacturing facilities for crystal
materials was reduced to the recoverable amount because it
is difficult to achieve the planned sales volume due to adelay of demand recovery.
(2) The book value of mining and concentrating facilities for apart of copper deposits will be less than discounted cash flow
including restitution costs due to the increase of investment
amount, and it was reduced to the recoverable amount.
(3) The book value of manufacturing facilities for electronicparts in U.S.A. and Singapore was reduced due to withdrawal from a TV frame business.

Thousands of
U.S. dollars

$

77
1,005
1,464
4,358
8,631

$ 15,535

The Company principally used the value in use for calculating
the recoverable amount. The discounted rates used for computing the value in use of “Manufacturing facilities for crystal
materials” and “Mining and concentrating facilities for copperore,” were 7.9% and 9.4% respectively. The book value of
manufacturing facilities for electronic parts was reduced to ¥1 asmemorandum price because no net cash inflows were expected.
As for the idle land which was acquired for future factory sites, thebook value of the assets was reduced to the recoverable amount due
to a decline in the market price. Net sales prices of the assets are usedas their recoverable amounts for the measurement of the impairment loss. The market price information was obtained on the basisof values provided by real estate appraisers and other specialists.

Loss on impairment of fixed assets for the year ended March 31, 2005 consisted of the following:
Millions of yen
Location

Major use

Asset category

Kashima City, Ibaraki Prefecture, and other 8 places
Nishinomiya City, Hyogo Prefecture
Nishinomiya City, Hyogo Prefecture
Ocean Side, California, USA and an other place
Ocean Side, California, USA and an other place
Minato-ku, Tokyo
Total

Idle Land
Rental apartment
Rental apartment
Idle facilities
Idle facilities
Fine art

Land
Land
Buildings and Structures
Machinery and equipment
Machinery and equipment
Machinery and equipment

As the result of the early adoption of the new accounting standards, income before income taxes was decreased by ¥1,263
million.
As for the idle land which was acquired for future factory sites,
rental apartment and fine art, the book value of the assets was
reduced to the recoverable amount due to a decline in themarket price of each asset.

Loss

¥

794
178
73
155
1
62
¥ 1,263

Net sales prices of these assets are used as their recoverable
amounts for the measurement of the impairment loss. The
market price information was obtained on the basis of values
provided by real estate appraisers and other specialists.
As for the idle facilities, the book value of the assets was
reduced to ¥1 as memorandum price since the TV frame facilities became so obsolete that no net cash inflows were expected from the disposal of those facilities.

SUMITOMO METAL MINING CO., LTD.

| 53

7. Bank loans and long-term debt
Bank loans are generally represented by short-term notes(most of which are unsecured) and bank overdrafts, and boreinterest at annual rates of 0.30% to 6.33% and 0.44% to6.13% at March 31, 2006 and 2005, respectively.
The Zero-coupon convertible bonds due in 2009 are current-

ly convertible at ¥1,001 ($8.52) per share until June 15, 2009.
As of March 31, 2006, 18,881 thousand additional shares ofcommon stock in aggregate could be issued upon full conversion at the current conversion price.

Long-term debt at March 31, 2006 and 2005 consists of the following:
Millions of yen

Thousands of
U.S. dollars

2005

2006

2006
Long-term loans from:
Banks, insurance companies and other financial institutions, maturing through2015 at interest rates of 0.69% to 6.51%:
Secured ..............................................................................................................................................
Unsecured .........................................................................................................................................
Government owned banks and government agencies, maturing through2020 at interest rates of 0.65% to 4.75%:
Secured ..............................................................................................................................................
Unsecured .........................................................................................................................................
2.00% domestic bonds due in 2005 .....................................................................................................
0.88% domestic bonds due in 2006 .....................................................................................................
1.08% domestic bonds due in 2007 .....................................................................................................
0.51% domestic bonds due in 2008 .....................................................................................................
Zero coupon convertible bonds due in 2009 ........................................................................................
Amount due within one year ..................................................................................................................

¥

¥

90
49,896

154
41,424$766
424,719

111,645
273,740

9,976
12,108

13,11632,159—10,00085,121
10,00085,121
10,00085,121
10,000160,878
20,0001,227,111
123,662(253,286)(13,885)¥ 109,777 $ 973,825—
10,00010,00010,00018,900144,161(29,756)¥ 114,405

The 2.00% domestic bond was redeemed during the year ended March 31, 2006.

The aggregate annual maturities of long-term debt at March 31, 2006 is as follows:Year ending March 31,

Millions of yen

Thousands of
U.S. dollars¥ 29,756
29,224
20,76427,3407,608
29,469$ 253,286
248,757
176,745
232,720
64,760250,843

Millions of yen

Thousands of
U.S. dollars

2005

2006

2007 .............................................................................................................................................................................
2008 .............................................................................................................................................................................
2009 .............................................................................................................................................................................
2010 .............................................................................................................................................................................
2011 .............................................................................................................................................................................
Thereafter .....................................................................................................................................................................

Assets pledged as collateral for bank loans and long-term debt at March 31, 2006 and 2005 are as follows:

2006
Investment securities
Subsidiaries ..........................................................................................................................................
Other ...................................................................................................................................................
Property, plant and equipment, at net book value ..................................................................................

54| SUMITOMO METAL MINING CO., LTD.

¥131
16,52356,735¥ 73,389¥

131
12,102
51,399¥ 63,632$

1,115
140,645482,933$ 624,693

8. Income taxes
Income taxes in the accompanying consolidated statements ofincome comprise corporation taxes, inhabitants taxes andenterprise taxes.

Consolidated overseas subsidiaries are subject to income taxesof the countries in which they domicile.

The following table summarizes the significant differences between the statutory tax rate and the Company’s and its consolidated
subsidiaries’ effective tax rate for financial statement purposes for the years ended March 31, 2006, 2005 and 2004:

Statutory tax rate .......................................................................................................................................
Equity in earnings of unconsolidated subsidiaries and affiliated companies ................................................
Effect of elimination of intercompany dividends received ..........................................................................
Difference in tax rates among the Company and its consolidated subsidiaries ............................................
Permanently nondeductible expenses .........................................................................................................
Permanently nontaxable dividends received ...............................................................................................
Per capita inhabitant tax ............................................................................................................................
Refunded corporation tax ..........................................................................................................................
Increase in valuation allowance ..................................................................................................................
Others .......................................................................................................................................................
Effective tax rate ........................................................................................................................................

2006

2005

2004

40.7%
(7.2)
4.0
0.3
0.3
(3.5)
0.1
(2.5)
(0.8)
(0.9)
30.5%

40.7%
(7.0)
6.7
(0.5)
0.3
(8.8)
0.2
—
(1.0)
(1.8)
28.8%

42.1%
(9.6)
2.6
(1.0)
0.6
(1.5)
0.4
—
0.6
0.2
34.4%

Significant components of the Company’s and its consolidated subsidiaries’ deferred tax assets and liabilities as of March 31, 2006
and 2005 are as follows:
Millions of yen

Thousands of
U.S. dollars

2005

2006

2006
Deferred tax assets:
Retirement benefits ..............................................................................................................................
Net operating loss carry forwards .........................................................................................................
Accrued enterprise taxes .......................................................................................................................
Allowance for bonus payable ................................................................................................................
Loss from valuation of gold loans .........................................................................................................
Loss on impairment of fixed assets .......................................................................................................
Loss from valuation of derivative instruments ......................................................................................
Accrued liquidation loss of subsidiaries ................................................................................................
Depreciation ........................................................................................................................................
Accrued indemnification loss of damages caused by a consolidated subsidiary ......................................
Others .................................................................................................................................................
Gross deferred tax assets ...................................................................................................................
Less valuation allowance ......................................................................................................................
Deferred tax assets-less valuation allowance ......................................................................................

¥

7,337
2,560
2,059
1,383
1,019
830
672
426
420
312
5,215
22,233(4,950)17,283

¥

7,624
4,428
551
1,198
—
454
715
597
349
405
4,848
21,169(7,053)
14,116$62,453
21,791
17,526
11,772
8,674
7,065
5,720
3,626
3,575
2,656
44,391
189,249(42,135)
147,114

Deferred tax liabilities:
Net unrealized holding gain on available-for-sale securities ..................................................................
Depreciation ........................................................................................................................................
Deferred gains on properties for tax purpose ........................................................................................
Reserve for losses on overseas investment ............................................................................................
Accumulated earnings of overseas subsidiaries ......................................................................................
Reserve for explorations .......................................................................................................................
Gain on securities contributed to employee retirement benefits trust ...................................................
Accrual for special depreciation of fixed assets ......................................................................................
Others .................................................................................................................................................
Deferred tax liabilities ......................................................................................................................

(22,920)(4,306)(3,491)(2,071)(1,030)
(676)
(594)
(274)
(298)
(35,660)(10,496)(2,781)(4,097)(1,284)(2,695)
(740)
(594)
(238)
(444)
(23,369)(195,097)(36,653)(29,716)(17,629)(8,767)(5,754)(5,056)(2,332)(2,537)(303,541)

Net deferred tax assets ............................................................................................................................

¥ (18,377)¥ (9,253)$ (156,427)

SUMITOMO METAL MINING CO., LTD.

| 55

9. Retirement benefits and pension costs
The liabilities for severance and retirement benefits included in the liability section of the consolidated balance sheets as of March
31, 2006 and 2005 consists of the following:

Projected benefit obligation ....................................................................................................................
Fair value of pension assets .....................................................................................................................
Excess of projected benefit obligation over pension assets .......................................................................
Unrecognized actuarial differences .........................................................................................................
Unrecognized prior services costs ...........................................................................................................
Retirement benefits ..........................................................................................................................

The Company contributed securities to employee retirement
benefit trust, which are included in the pension assets.
Retirement benefits in the consolidated balance sheets as ofMarch 31, 2006 and 2005 also include estimated liabilities
for the unfunded lump-sum benefit plan covering directors

Millions of yen

Thousands of
U.S. dollars

2006

2005

2006

¥ (49,617)
49,574¥(43)(8,388)(2,213)¥ (10,644)¥ (45,666)
34,356¥ (11,310)
3,636(4,583)¥ (12,257)$ (422,344)
421,978$(366)(71,399)(18,837)$ (90,602)

and corporate auditors of ¥476 million ($4,052 thousand)and ¥496 million, respectively.
The Company and certain domestic subsidiaries have transferred their pension plan from approved retirement annuity
system to defined benefit plan as of April, 2004.

Included in the consolidated statements of income for the years ended March 31, 2006, 2005 and 2004 are severance and retirement benefit expense comprised of the following:

Service cost–benefits earned during the year ....................................................................
Interest cost on projected benefit obligation ....................................................................
Expected return on plan assets .........................................................................................
Amortization of actuarial differences ...............................................................................
Amortization of prior services costs ..................................................................................

The amounts for additional retirement benefits the Company
made for employees for the year ended March 31, 2004 was¥632 million.
The discount rates used by the Company are primarily 2.0%
for the years ended March 31, 2006 and 2005, and 2.5% for
the year ended March 31, 2004. The rates of expected returnon plan assets used by the Company are primarily 3.5%,

Millions of yen

Thousands of
U.S. dollars

2006

2005

2004

2006

¥ 1,837
798
(639)
632
(461)
¥ 2,167¥ 1,866
892
(530)
445
(509)
¥ 2,164¥ 1,973
986
(466)
867
—
¥ 3,360$ 15,637
6,793(5,439)5,380(3,924)$ 18,447

respectively for the years ended March 31, 2006, 2005 and2004. The estimated amount of all retirement benefits to be
paid at the future retirement date is allocated equally to eachservice year using the estimated number of total service years.
Actuarial gains and losses are recognized in income statement
using the straight-line method in ten years.

10. Research and development expense
Research and development expense included in selling, general and administrative expenses for the years ended March 31, 2006,
2005 and 2004 are ¥5,297 million ($45,089 thousand), ¥4,812 million and ¥4,286 million, respectively.
11. Special reserves
For the purpose of obtaining tax benefits, the Company andsome consolidated subsidiaries have set up special reserves
mainly for losses on overseas investments and explorations inaccordance with the Special Taxation Measures Law of Japan.

56| SUMITOMO METAL MINING CO., LTD.

Such reserves, which are included in retained earnings, are¥35,852 million ($305,175 thousand) and ¥19,877 million
at March 31, 2006 and 2005, respectively.

12. Shareholders’ equity
Under the Commercial Code of Japan, the entire amount of
the issue price of shares is required to be accounted for as capital, although a company may, by resolution of its Board of
Directors, account for an amount not exceeding one-half of
the issue price of the new shares as additional paid-in capital,
which is included in capital surplus.
The Commercial Code requires that an amount equal to atleast 10% of cash dividends and other cash appropriations
shall be appropriated and set aside as a legal earnings reserve
until the total amount of legal earnings reserve and additional
paid-in capital equals 25% of common stock. The total
amount of legal earnings reserve and additional paid-in capitalof the Company has reached 25% of common stock, andtherefore the Company is not required to provide legal earn-ings reserve any more. The legal earnings reserve and additional paid-in capital may be used to eliminate or reduce a
deficit by resolution of the shareholders’ meeting or may becapitalized by resolution of the Board of directors. On condition that the total amount of legal earnings reserve and additional paid-in capital remains equal to or exceeds 25% ofcommon stock, they are available for distribution by the resolution of shareholders’ meeting. Legal earnings reserve is
included in retained earnings in the accompanying consolidated financial statements.
The maximum amount that the Company can distribute as
dividends is calculated based on the non-consolidated financial statements of the Company in accordance with the Code.

13. Contingent liabilities
Contingent liabilities at March 31, 2006 are as follows:
Millions of yen

Thousands of
U.S. dollars¥ 7,535$ 64,139

743
4,614¥ 12,892

6,324
39,275$ 109,738

Notes and accounts receivable sold to factoring companies with recourse .....................................................................
As guarantor for loans of:Non-consolidated subsidiaries and affiliated companies ..............................................................................................
Other .........................................................................................................................................................................

Besides the above, as to providing electric power to Pogo gold mine, there are ¥1,408 million ($11,985 thousand) to guarantee
construction costs of electric facilities.
14. Segment information
Business segment information
The primary business segments of the Company and its consolidated subsidiaries include mineral resources, metals, elec-

tronics and advanced materials, construction materials andothers. Also refer to the section of “Review of Operatons” forthe details of each business.

Business segment information for the years ended 31 March 2006, 2005 and 2004 are as follows:
2006

Millions of yen
Mineralresources

MetalsElectronics& advanced
materials

Net sales:
Outside customers .......................................... ¥ 29,617
Inter segment .................................................
14,102
Total ...........................................................
43,719¥ 390,369
63,311
453,680¥ 174,989
9,086
184,075¥ 17,001
317
17,318¥ 13,603
15,181
28,784

Costs and expenses ............................................
26,612
Operating income (loss) .................................... ¥ 17,107
Identifiable assets .............................................. ¥ 125,562
Depreciation expense ........................................
3,250
Loss on impairment of fixed assets ....................
1,014
Capital expenditures .........................................
14,014

403,997¥ 49,683¥ 350,695
7,478
9
16,195

172,899¥ 11,176¥ 132,227
9,647
802
18,783

15,178¥ 2,140¥ 15,428
656—
241

24,520¥ 4,264¥ 49,225
1,329
—
1,735

Construction
materials

Others¥¥¥Eliminationor corporate

Consolidated—(101,997)(101,997)¥ 625,579—
625,579(100,383)(1,614)
99,425591—(400)

542,823¥ 82,756¥ 772,562
22,951
1,825
50,568SUMITOMO METAL MINING CO., LTD.

| 57

2005

Millions of yen
Mineralresources

MetalsElectronics& advanced
materials

Net sales:
Outside customers ..........................................
Inter segment .................................................
Total ...........................................................

¥ 22,715
10,35633,071¥ 284,332
48,846333,178¥ 147,987
6,877
154,864¥ 15,316
469
15,785

Costs and expenses ............................................
Operating income (loss) ....................................
Identifiable assets ..............................................
Depreciation expense ........................................
Loss on impairment of fixed assets ....................
Capital expenditures .........................................

23,100¥ 9,971¥ 64,384
2,751
—
7,036

305,477¥ 27,701¥ 265,667
6,354—
15,192

147,599¥ 7,265¥ 112,837
8,943
156
12,57814,605¥ 1,180¥ 14,248
653
251
257

Mineralresources

MetalsElectronics& advanced
materials

Construction
materials

Others

Net sales:
Outside customers ..........................................
Inter segment .................................................
Total ...........................................................

¥ 16,437
8,878
25,315¥ 226,148
47,239273,387¥ 136,272
6,404
142,676¥ 15,370
715,377

Costs and expenses ............................................
Operating income (loss) ....................................
Identifiable assets ..............................................
Depreciation expense ........................................
Capital expenditures .........................................

20,855¥ 4,460¥ 52,326
2,947
3,001

260,820¥ 12,567¥ 219,816
4,676
27,878137,064¥ 5,612¥ 116,395
8,273
12,16815,370¥7¥ 14,125
656
233

MetalsElectronics& advanced
materials

Construction
materials

Others252,102 $ 3,322,855 $ 1,489,522
77,341
538,909
120,037
1,566,863
372,139 3,861,764$ 144,714
2,698
147,412$ 115,790
129,222
245,012$

1,471,731
226,524 3,438,858
95,132$ 145,615 $ 422,906 $$ 1,068,795 $ 2,985,146 $ 1,125,528
82,11663,653
27,664
6,827
77
8,631
159,883
137,853
119,288

129,196$ 18,216$ 131,324
5,584
—
2,051

208,717$ 36,295$ 419,008
11,313—
14,768(854,469) 4,620,557$ (13,738) $ 704,426$ 846,314 $ 6,576,115
195,361
5,031
15,535—
430,438(3,405)

Eliminationor corporate

Consolidated¥ 14,235
8,884
23,119¥—(75,432)(75,432)¥ 484,585—
484,585

20,671¥ 2,448¥ 49,087
1,290
—
1,179

(74,760)¥(672)¥ 67,702
587
856
246

436,692¥ 47,893¥ 573,925
20,5781,263
36,488Construction
materials

Others

2004

Millions of yen
Eliminationor corporate

Consolidated¥ 7,904
2,300
10,204¥—(64,828)(64,828)¥ 402,131—
402,131

9,813
¥
391
¥ 39,869
472
1,153(64,569)¥(259)¥ 75,399
800
2,107

379,353¥ 22,778¥ 517,930
17,82446,5402006

Thousands of U.S. dollars
Mineralresources

Net sales:
Outside customers ....................................
Inter segment ............................................
Total .....................................................
Costs and expenses ......................................
Operating income (loss) ..............................
Identifiable assets .........................................
Depreciation expense ..................................
Loss on impairment of fixed assets ...............
Capital expenditures ....................................

$(The effects of changes in accounting policies on segment
information)
Revision to accounting policy for employees’ retirement benefits
In line with public announcement of “Partial Revision of
Accounting Standard for Retirement Benefit (Corporate
Accounting Standard No.3)” as well as “Implementation
Guidance for Partial Revision of Accounting Standard for
Retirement Benefit (Implementation Guidance No.7 for applying Corporate Accounting Standards), ” both issued by the58| SUMITOMO METAL MINING CO., LTD.

Eliminationor corporate

Consolidated— $ 5,324,983—(868,207)(868,207) 5,324,983

Accounting Standards Board of Japan on March 16, 2005, thecompany elected to apply these standards to its consolidated
financial statements for the year ended March 31, 2006. As theresult of the change of the accounting policy, in the year ended
March 31, 2006, operating income increases by ¥115 million($979 thousand) in Mineral resources, ¥219 million ($1,864
thousand) in Metallurgy, ¥94 million ($800 thousand) inElectronics & advanced materials and ¥26 million ($221 thousand) in Others.

Change for the accounting policy of inventory valuation
The costs of the Company’s inventories except for precious metals and electronics and advanced materials had been determinedusing the last-in, first-out (LIFO) methods until the year ended
March 31, 2004, but they have been determined using the first-in,

first-out (FIFO) methods for year starting April 1, 2004. As theresult of the change of the accounting policy, operating income
increases by ¥14 million in Mineral resources, ¥10,605 million in
Metallurgy and ¥494 million in Electronics & advanced materials.

Geographic segment information
Geographic segment information for the years ended March 31, 2006, 2005 and 2004 are summarized as follows:
2006

Millions of yen
Eliminationor corporate

Consolidated¥ 14,766
4,678
19,444¥—(40,346)(40,346)¥ 625,579—
625,579

18,590¥854¥ 77,544(39,574)¥(772)¥ 58,197

542,823¥ 82,756¥ 772,562

Southeast
Asia

OthersEliminationor corporate

Consolidated¥ 20,560—
20,560¥ 34,097
282
34,379¥ 10,819
2,452
13,271¥—(28,338)(28,338)¥ 484,585—
484,585

15,145¥ 5,415¥ 48,872

33,733¥646¥ 39,468

12,317¥954¥ 24,637(28,323)¥(15)¥ 27,606

436,692¥ 47,893¥ 573,925

Domestic

North
AmericaSoutheast
Asia

OthersEliminationor corporate

Consolidated

Net sales:
Outside customers ................................................................ ¥ 348,074
Inter segment .......................................................................
21,159Total ................................................................................. 369,233¥ 14,842—
14,842¥ 29,121
758
29,879¥ 10,094
1,309
11,403¥—(23,226)(23,226)¥ 402,131—
402,131

Costs and expenses .................................................................. 347,562
Operating income (loss) .......................................................... ¥ 21,671
Identifiable assets .................................................................... ¥ 388,929

14,164¥678¥ 33,748

29,274¥605¥ 38,928

11,324¥79¥ 13,776(22,971)¥(255)¥ 42,549

379,353¥ 22,778¥ 517,930

Domestic

North
AmericaSoutheast
Asia

Others

Net sales:
Outside customers ................................................................ ¥ 547,665
Inter segment .......................................................................
31,015
Total ................................................................................. 578,680¥ 25,358—
25,358¥ 37,790
4,653
42,443

Costs and expenses .................................................................. 505,648
Operating income (loss) .......................................................... ¥ 73,032
Identifiable assets .................................................................... ¥ 514,881

16,114¥ 9,244¥ 74,365

42,045¥398¥ 47,575

Domestic

North
America

Net sales:
Outside customers ................................................................ ¥ 419,109
Inter segment .......................................................................
25,604
Total ................................................................................. 444,713
Costs and expenses .................................................................. 403,820
Operating income (loss) .......................................................... ¥ 40,893
Identifiable assets .................................................................... ¥ 433,342

2005

Millions of yen

2004

Millions of yen

2006

Thousands of U.S. dollars
Eliminationor corporate

Domestic

North
AmericaSoutheast
Asia

Net sales:
Outside customers ...........................................................
Inter segment ...................................................................
Total ............................................................................

$ 4,661,772
264,0024,925,774$ 215,850—
215,850$ 321,672
39,607361,279$ 125,689 $— $ 5,324,983
39,820(343,429)—
165,509(343,429)
5,324,983

Costs and expenses .............................................................
Operating income (loss) .....................................................
Identifiable assets ...............................................................

4,304,120$ 621,654$ 4,382,712

137,164$ 78,686$ 633,001

357,891$ 3,388$ 404,963

158,239(336,857)
4,620,557$ 7,270 $ (6,572) $ 704,426$ 660,061 $ 495,378 $ 6,576,115

OthersConsolidated

SUMITOMO METAL MINING CO., LTD.

| 59

(The effects of changes in accounting policies on segment
information)
Revision to accounting policy for employees’ retirement benefits
In the line with public announcement of “Partial Revisionof Accounting Standard for Retirement Benefit (Corporate
Accounting Standard No.3)” as well as “Implementation
Guidance for Partial Revision of Accounting Standard for
Retirement Benefit (Implementation Guidance No.7 forapplying Corporate Accounting Standards),” both issued by
the Accounting Standards Board of Japan on March 16, 2005,
the company elected to apply these standards to its consolidated financial statements for the year ended March 31, 2006. As
the result of the change of the accounting policy, in the year

ended March 31, 2006, operating income in Domestic section
increases by ¥454 million ($3,864 thousand).
Change for the accounting policy of inventory valuation
The costs of the Company’s inventories except for precious
metals and electronics and advanced materials had been determined using the last-in, first-out (LIFO) methods until theyear ended March 31, 2004, but they have been determinedusing the first-in, first-out (FIFO) methods for year starting
April 1, 2004. As the result of the change of the accounting
policy, in the year ended March 31, 2005, operating income in
Domestic section increases by ¥11,113 million.

Information for overseas sales
2006

Overseas net sales ...........................................................................................
Consolidated net sales ....................................................................................
Share of overseas net sales ..............................................................................

Millions of yen
North
AmericaSoutheast
Asia

East
Asia

OthersTotal¥ 30,082—
4.8%¥ 45,216—
7.2%¥ 128,921—
20.6%¥ 7,844—
1.3%¥ 212,063¥ 625,579
33.9%

North
AmericaSoutheast
Asia

East
Asia

OthersTotal¥ 25,296—
5.2%¥ 35,441—
7.3%¥ 97,674—
20.2%¥ 3,550—
0.7%¥ 161,961¥ 484,585
33.4%

North
AmericaSoutheast
Asia

East
Asia

OthersTotal¥ 18,896—
4.7%¥ 28,916—
7.2%¥ 75,452—
18.8%¥ 3,111—
0.7%¥ 126,375¥ 402,131
31.4%

2005

Overseas net sales ...........................................................................................
Consolidated net sales ....................................................................................
Share of overseas net sales ..............................................................................

Millions of yen

2004

Overseas net sales ...........................................................................................
Consolidated net sales ....................................................................................
Share of overseas net sales ..............................................................................

Millions of yen

2006

Thousands of U.S. dollars
North
America

Overseas net sales ........................................................................................... $ 256,061
Consolidated net sales ....................................................................................
—
Share of overseas net sales ..............................................................................
4.8%

60

| SUMITOMO METAL MINING CO., LTD.

Southeast
Asia

East
Asia

$ 384,883 $ 1,097,387
—
—
7.2%
20.6%

OthersTotal$ 66,768 $ 1,805,099— $ 5,324,983
1.3%
33.9%

15. Information for certain leases
As a lessee
A summary of assumed amounts inclusive of interest of acquisition cost, accumulated depreciation and net book value of financeleases accounted for in the same manner as operating leases at March 31, 2006 and 2005 are as follows:
Millions of yen

2006
Acquisition cost

Machinery and equipment ............................................
Others ..........................................................................
Total ..........................................................................

¥ 1,362430¥ 1,792

Accumulated Net book value
depreciation¥ 1,040374¥ 1,414

¥ 322
56
¥ 378

2005
Acquisition cost

¥ 1,565377¥ 1,942

Accumulated Net book value
depreciation¥ 1,074317¥ 1,391

¥ 491
60
¥ 551

Millions of yen

Thousands of
U.S. dollars

2006

2005

2006

¥ 195
183
¥ 378

¥ 295
256
¥ 551

$ 1,660
1,558$ 3,218

Thousands of U.S. dollars

2006
Acquisition cost

Machinery and equipment ............................................
Others ..........................................................................
Total ..........................................................................

$ 11,593
3,660$ 15,253

Accumulated Net book value
depreciation$ 8,853
3,184$ 12,037$ 2,740476$ 3,216

Future lease payment, inclusive of interest at March 31, 2006 and 2005 under such leases are as follows:

Due within one year ...............................................................................................................................
Due after one year ..................................................................................................................................
Total ....................................................................................................................................................

Total lease expenses and assumed depreciation charges for the years ended March 31, 2006, 2005 and 2004 are as follows:

Total lease expenses .........................................................................................................
Assumed depreciation charge ...........................................................................................

Millions of yen

Thousands of
U.S. dollars

2006

2005

2004

2006

¥ 319
319

¥ 342
342

¥ 330
330

$ 2,715
2,715

SUMITOMO METAL MINING CO., LTD.

| 61

As a lesser
A summary of acquisition cost, accumulated depreciation and net book value at March 31, 2006 and 2005 were as follows:
Millions of yen

2006
Acquisition cost

Machinery and equipment ............................................
Others ..........................................................................
Total ..........................................................................

¥ 377
1
¥ 378

Accumulated Net book value
depreciation

¥ 255
1
¥ 256

¥ 122
0
¥ 122

2005
Acquisition cost

Accumulated Net book value
depreciation

¥ 377
1
¥ 378

¥ 225
1
¥ 226

¥ 152
0
¥ 152

Millions of yen

Thousands of
U.S. dollars

2006

2005

2006

¥ 31
76
¥ 107

¥ 32
107
¥ 139

Thousands of U.S. dollars

2006
Acquisition cost

Machinery and equipment ............................................
Others ..........................................................................
Total ..........................................................................

$ 3,2099$ 3,218

Accumulated Net book value
depreciation$ 2,1719$ 2,180$ 1,0380$ 1,038

Future lease receipt, inclusive of interest, at March 31, 2006 and 2005 under such lease were as follows:

Due within one year ...............................................................................................................................
Due after one year ..................................................................................................................................
Total ....................................................................................................................................................

$
$

264
647
911

Total revenue and depreciation charges for the years ended March 31, 2006, 2005 and 2004 were as follows:

Total revenues .................................................................................................................
Depreciation charge ........................................................................................................

62| SUMITOMO METAL MINING CO., LTD.

Millions of yen

Thousands of
U.S. dollars

2006

2005

2004

2006

¥ 31
29

¥ 32
30

¥ 35
30

$ 264
247

16. Earnings per share
Reconciliation of the difference between basic and diluted net income per share (“EPS”) for the year ended March 31, 2006 was
as follows:

Basic net income per share calculation
Numerator:
Net income .................................................................................................................
Amounts not belonging to common stock (bonuses to directors from retained earnings) ....
Net income available to common stockholders ...........................................................
Denominator (thousands of shares):Weighted average number of shares ............................................................................
Basic EPS (yen and U.S. dollars) ...................................................................................
Diluted net income per share calculation
Numerator:
Net income .................................................................................................................
Amounts not belonging to common stock (bonuses to directors from retained earnings) ....
Net income available to common stockholders ...........................................................
Adjusted net income ...................................................................................................
Denominator (thousands of shares):Weighted average number of shares ............................................................................
Assumed conversion of convertible bonds ...................................................................
Adjusted weighted average number of shares ...............................................................
Diluted EPS (yen and U.S. dollars) ...............................................................................

Millions of yen

Thousands of
U.S. dollars

2006

2005

2004

2006

¥ 62,800
73
62,727¥ 37,017
52
36,965¥ 19,882
37
19,845$ 534,559
621
533,938

570,477¥ 109.96¥¥ 62,800
73
62,72762,727570,477
5,680
576,157¥ 108.87

¥

¥

—
—

—
—
—
—
—
—
—
—

¥

¥

¥

—
0.94

—
—

$

—
—
—
—

$ 534,559
621
533,938
533,938

—
—
—
—

—
—
—
0.93

$

The diluted net income per share for the year ended March 31, 2006 is ¥108.87 because there were securities with dilutive effect.
The diluted net income per share for the years ended March 31, 2005 and 2004 are not calculated because there were no securities with dilutive effect.
17. Subsequent events(1) The following appropriations of retained earnings at March 31, 2006 were approved at the annual general meeting of shareholders of the Company held on June 29, 2006.

Year-end cash dividends (¥14.00 ($0.12) per share) ......................................................................................................
Bonuses to directors ......................................................................................................................................................

Millions of yen

Thousands of
U.S. dollars¥ 7,99773$ 68,071
621

SUMITOMO METAL MINING CO., LTD.

| 63

Independent Auditor’s Report

64| SUMITOMO METAL MINING CO., LTD.

SMM Group
Name

Voting Shares (%)

Operations

Mineral Resources
Sumiko Consultants Co.,Ltd.
Sumitomo Metal Mining America Inc.
Sumitomo Metal Mining Arizona Inc.
SMMA Candelaria Inc.
Sumitomo Metal Mining Canada Ltd.
Sumitomo Metal Mining Oceania Pty. Ltd.
SMM Pogo LLC
SMM Cerro Verde Netherlands B.V.

100
100
80
100
100
100
100
80

Geological survey on resources and civil engineering, Test boring
Prospecting, Management of mining subsidiaries in the U.S.
Joint operation at the Morenci Mine, the U.S.
Joint operation at the Candelaria Mine, Chile
Prospecting, Consulting
Joint operation at the Northparks Mine, Australia
Owing an interest of Pogo mine project
Investments in Peru’s local companies engaged in the Cerro Verde Mine operation

Non-Ferrous Metals
Hyuga Smeting Co.,Ltd.
Sumitomo Metal Mining Brass & Copper Co.,Ltd.
Sumiko Logistics Co.,Ltd.
MS Zinc Co.,Ltd.
Acids Co.,Ltd.
P.T. International Nickel Indonesia
FIGESBAL
Jinlong Copper Co.,Ltd.
Coral Bay Nickel Corporation
Sumic Nickel Netherlands B.V.

60
100
100
50
50
20
26
27
54
52

Ferro-nickel refining
Manufacture of brass & copper products
Maritime trading, Harbor transportation and services, Land transportation
Purchase of raw materials for zinc, Manufacture and distribution of zinc products
Manufacture and distribution of sulfuric acid and related products
Nickel ore mining, Nickel smelting
Nickel ore mining, Harbor transportation
Manufacture and distribution of electrolytic copper and sulfuric acid
Intermediate products manufacture of nickel and cobalt
Investments in nickel and cobalt development businesses, Distribution of nickel
and cobalt

Electronics
Ohkuchi Electronics Co.,Ltd.
Ajimu Electronics Co.,Ltd.
Shinko Co.,Ltd.
SMM Precision Co.,Ltd.
GRANOPT Ltd.
IS Electrode Materials Co.,Ltd.

100
100
94
100
50
49

Niihama Electronics Co.,Ltd.
Sumitomo Metal Mining Package Materials Co.,Ltd.

100
100

Malaysian Electronics Materials SDN. BHD.
Taiwan Sumiko Materials Co.,Ltd.
Sumitomo Metal Mining
Electronics Materials (Shanghai) Co.,Ltd.
Shanghai Sumiko Electronics Paste Co.,Ltd.
Dongguan Sumiko Electronic Paste Co.,Ltd.
Sumitomo Metal Mining Asia Pacific Pte. Ltd.
Sumiko Leadframe Chengdu Co.,Ltd.
M-SMM Electronics SDN. BHD.
Sumiko Electronics Taiwan Co.,Ltd.
Sumiko Leadframe (Thailand) Co.,Ltd.
P.T. SUMIKO LEADFRAME BINTAN
Sumiko Electronics Suzhou Co.,Ltd.

100
100
100

Semiconductor packaging materials production, Recovery of precious materials
IC package plating
Design, manufacture and distribution of printed circuit boards
Commission-based assembly of optical communications components
Manufacture and distribution of rare earth iron garnet (RIG)
Manufacture and distribution of IZO targets and ITO targets for LCDs & organic
EL displays
Lead frame production
Manufacture and distribution of semiconductor package materials such as leadframes and tape materials
Manufacture and distribution of bonding wire
Manufacture and distribution of bonding wire
Manufacture and distribution of bonding wire

51
51
100
85
100
70
100
100
100

Manufacture and distribution of thick-film paste
Manufacture and distribution of thick-film paste
Regional headquarters (RHQ) for overseas lead frame businesses
Lead frame production
Lead frame production
Lead frame and tape materials production
Lead frame production
Lead frame production
Lead frame production

Advanced Materials
SMM KOREA Co.,Ltd.
Nittosya Co.,Ltd.

100
90

Marketing support for advanced materials and related operations
Metal product plating, Electromagnetic shielding processing

Energy & Enviorment
Sumicon Certech Co. ,Ltd.
Sumiko Eco-engineering Co.,Ltd.
Sumiko Techno-Resarch Co.,Ltd.
Nippon Catalyst Cycle Co.,Ltd.
Japan Irradiation Service Co.,Ltd.

81
100
100
100
100

Assessment and remediation of contaminated soil and groundwater
Environmental engineering such as exhaust gas treatment, Corrosion business
Environmental assessment and analysis, Analysis of metals
Valuable metals recovery business
Radiation processing for serialization as well as for use in modification of industrial
materials
Management of facilities dealing with uranium and related waste
Manufacture and sale of desulfurization catalyst for pertoleum processing

JCO Co.,Ltd.
Nippon Ketjen Co.,Ltd.
OthersTaihei Metal Industry Co.,Ltd.
SumikoTec Co.,Ltd.
Sumitomo Metal Mining Siporex Co.,Ltd.
Igeta Heim Co.,Ltd.

100
50
97
100
100
100

N. E. Chemcat Corporation

42

Sumiko Lubricant Co.,Ltd.
Sumiko Technical Service Co.,Ltd.
SMM Plant Enginieering Co.,Ltd.

100
100
100

Manufacture of heat, corrosion and friction-resistant steel castings and precision castings
Manufacture of electronic device terminal and connector
Manufacture and distribution of ALC and other construction materials
Sub-contractor of ALC (Autoclaved Light-weight Concrete) and ferro-concrete
housings
Manufacture of precious metal catalyst and surface treatment chemical, Recovery
and refining of precious metals
Manufacture and distribution of various fabricants
Trustee, security and personnel services for non-ferrous metals refining businesses
Design, production and repaire of non-ferrous metals refining equipmenets

SUMITOMO METAL MINING CO., LTD.

| 65

Corporate Data and Investor Information
As of March 31, 2006

Corporate Data
Founded

1590

Head Office11-3, Shimbashi 5-chome, Minato-ku,
Tokyo 105-8716, Japan

Incorporated

1950

Paid-In Capital¥88.9 billion

Number of Employees

2,131Contact Information
Publicity Department:
11-3, Shimbashi 5-chome
Minato-ku, Tokyo 105-8716, Japan
Phone:
81-3-3436-7705
Facsimile: 81-3-3434-2215
Homepage: http://www.smm.co.jp/

Investor Information
Public Notices
The Company’s public notices appear in
the Nihon Keizai Shimbun published inTokyo, Japan.

Listing of Shares
Tokyo, Osaka

Closing Date
The Company’s books are closed on
March 31 each year.

Stock Transaction Units
1,000-share units

Regular General Meeting
The regular general meeting of shareholders is held in June each year.

Independent Public Accountants
KPMG AZSA & Co.
1-2, Tsukudo-cho, Shinjuku-ku, Tokyo

Registrar of Shareholders
The Sumitomo Trust and Banking
Company, Limited
Head office:5-33, Kitahama 4-chome, Chuo-ku,
Osaka
Stock Transfer Agency Department:
4-4, Marunouchi 1-chome, Chiyodaku, Tokyo

Common Stock
Number of authorized shares:
1,000,000,000 shares
Number of issued and outstanding
shares:572,971,694 shares
Number of shareholders:
64,751
Major Shareholders

Breakdown of Shareholders(Thousands of share)

Number of shares held Shareholding ratio(thousands)(%)

Japan Trustee Services Bank. Ltd. (Trust accounts) ....................
The Master Trust Bank of Japan, Ltd. (Trust accounts) .............
Japan Securities Finance Co., Ltd. .............................................
Separately managed money trustee, Mitsui Asset Trust andBanking Company Limited “1” ...............................................
State Street Bank and Trust Company (505103) .......................
Sumitomo Mitsui Banking Corporation ....................................
Trust & Custody Services Bank, Ltd. (Trust accounts B) ...........
Sumitomo Life Insurance Company ..........................................
Goldman Sachs International .....................................................
BNP Paribas Securities (Japan) Limited .....................................

54,303
42,102
11,360

9.5
7.3
2.0

7,965
7,718
7,650
7,394
7,104
6,964
5,999

1.4
1.3
1.3
1.3
1.2
1.2
1.0

Individuals and Other
24.1%
136,892

Financial Institutions
39.6%
225,040

Securities
Companies
4.5%
25,632Other Corporations
6.1%
34,747

Foreign Investors
25.7%
146,106

Share Performance(Share index: April 1, 2005=100)(Millions of shares)

250

40

200

30

150

20

100

10

50

0
’05/4

SMM (left)

66

’05/5

’05/6

TOPIX (left)

’05/7

’05/8

’05/9

Trading volume (right)| SUMITOMO METAL MINING CO., LTD.

’05/10’05/11’05/12

’06/1

’06/2

’06/3

’06/4

’06/5

’06/6

’06/7

Corporate Officers
As of June 29, 2006

Yoshiaki Nakazato
Director

Nobumasa Kemori
Director

Takuro Mochihara
Director

Yukio Ishikawa
Director

Koichi Fukushima
Representative
Director

Directors and Statutory Auditors

Executive Officers

Representative Directors
Koichi Fukushima
Nobuto Yamaguchi

President
Koichi Fukushima*

Directors
Yukio Ishikawa
Takuro Mochihara
Susumu Makino
Masashi Koike
Nobumasa Kemori
Yoshiaki Nakazato(Standing) Senior Corporate Auditor
Hirosuke Chihara(Standing) Corporate Auditor
Motoki Kitamura
Corporate Auditors
Hajime Ohta*
Tsutomu Ushijima**Outside Corporate Auditors under theCommercial CodeNobuto Yamaguchi
Representative
Director

Executive Vice President
Nobuto Yamaguchi*
Senior Managing Executive Officers
Yukio Ishikawa*
General Manager, Technology Div.

Takuro Mochihara*Managing Executive Officers
Ken Yamane
General Manager, AffiliatedBusiness Administration Dept.

Susumu Makino*
General Manager,
Advanced Materials Div.

Masashi Koike*
General Manager,
General Affairs Dept.

Ichiro Abe
General Manager,
Mineral Resources Div.

Naoki Tajiri
General Manager, Finance &Accounting Dept. andManagement Service Center

Nobumasa Kemori*
General Manager, Non-Ferrous
Metals Div.

Susumu Makino
Director

Masashi Koike
Director

Executive Officers
Kotaro Tomino
Deputy General Manager,
Non-Ferrous Metals Div.

Yoshiaki Hashinaka
General Manager, Personnel Dept.

Etsu Senda
General Manager, Electronics Div.

Kozo Baba
Deputy General Manager,
Technology Div.

Yukio Kawaguchi
Deputy Division Manager,
Mineral Resources Div.

Yoshiaki Nakazato*
General Manager, Corporate Planning Dept.

Toru Yamasaki
General Manager, Energy &Environmental Business Div.

Takahito Kusada
General Manager, Safety &Environmental Control Dept.

Takeshi Kubota
Deputy General Manager,
Non-Ferrous Metals Div.

*Those Double as Director and Executive Officer

SUMITOMO METAL MINING CO., LTD.

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