2007年09月12日17時25分

Comp̲M45̲SQ̲175

天地297mm-左右424mm 背4mm

07116-0549 住友金属鉱山AR-英文 初校 F6000
秋山

Annual Report 2007

Annual Report 2007
For The Year Ended March 31, 2007
Printed on recycled paper in Japan

H4

H1

As of March 31, 2007

SMM Group Management Vision
Based on the principles of compliance, environmental protection and operational safety, the Sumitomo
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.

Investor Information

Founded:Incorporated:
Paid-in Capital:
Number of Employees:
Head Office:

1590
1950
¥91.8 billion
2,175
11-3, Shimbashi 5-chome, Minato-ku,
Tokyo 105-8716, Japan

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, Chiyoda-ku, Tokyo
Method of Public Notice:Electronic notification (However, if electronic notification is notpossible due to an accident or other unavoidable circumstances,notice will be published in the Nihon Keizai Shimbun newspaper.)The Company’s website: http://www.smm.co.jp/E/
Independent Public Accountant:
KPMG AZSA & Co.
1-2, Tsukudo-cho, Shinjuku-ku, Tokyo

Major Shareholders

Contents
Consolidated Financial Highlights .........................................................1
Chairman’s Message: To Our Shareholders..........................................2
Overview of FY2007–9 Medium-term Business Plan ............................4Interview with the President: taking the Initiative ..................................6
HPAL ..................................................................................................8Japan Trustee Services Bank, Ltd. (Trust accounts)
The Master Trust Bank of Japan, Ltd. (Trust accounts)
Goldman Sachs International
Japan Trustee Services Bank, Ltd. (Trust accounts 4)
State Street Bank and Trust Company 505103
Japan Securities Finance Co., Ltd.
Trust & Custody Services Bank, Ltd. (Trust accounts B)
Sumitomo Metal Industries, Ltd.
Sumitomo Mitsui Banking Corporation
Sumitomo Life Insurance Company

Number ofshares held
(thousands)

Shareholding
ratio
(%)

50,48345,764
15,182
10,167
9,056
7,856
7,808
7,806
7,650
7,474

8.8
7.9
2.6
1.8
1.6
1.4
1.4
1.4
1.3
1.3

Technologies ....................................................................................12
SMM at a Glance..............................................................................16
Mineral Resources and Metals.........................................................18
Electronics and Advanced Materials................................................24
Other Businesses .............................................................................28
Research and Development .............................................................29

Individuals
and Other
20.34%
116,857
Financial
Institutions
38.82%
223,110

Breakdownof
Shareholders(Thousands ofshare)
ForeignInvestors
27.94%
160,529

Note: Shareholding ratio is calculated excluding treasury stock.

Scale & Ownership ...........................................................................10
Review of Operations ..........................................................................15

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/E/

白川

Closing Date:
The Company’s books are closed on March 31 each year.
Regular General Meeting:
The regular general meeting of shareholders is held in June each year.
Common Stock:
Number of authorized shares: 1,000,000,000
Number of issued and outstanding shares: 578,790,870
Number of shareholders: 58,501
Exchange Listings: Tokyo Stock Exchange and Osaka Securities Exchange
Stock Transaction Unit: 1,000 sharesContact Information:
Publicity & IR Department

Other
Corporations
7.47%
42,918

Securities
Companies
5.43%
31,186

Note: Shareholdings of less than 1,000 shares have been omitted.

Stock Price and Trading Volume
SMM stock price (Yen)
TOPIX (Point)(Millions of shares)

3,500

60

3,000

50

2,500

40

2,000

30

1,500

20

1,000

10

The Sumitomo Business Spirit ............................................................30
Corporate Governance and Internal Controls .....................................31
Social and Environmental Initiative......................................................34
Corporate Officers ...............................................................................36
Financial Section .................................................................................37
SMM Group .........................................................................................74
Corporate Data and Investor Information ............................................75
500
05/4

0

05/6
SMM (left)

Unless specifically stated otherwise, information in this annual report is as of August 31, 2007.
Forward-looking Statements
Statements made in this annual report with respect to plans, strategies and future performance that are not historical 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.

H2

05/8

05/10

05/12

TOPIX (left)

06/2

06/4

06/6

06/8

06/10

06/12

07/2

07/4

07/6

07/8

Trading volume (right)

Note: TOPIX began on 4 January 1968 with a base level of 100.

SUMITOMO METAL MINING CO., LTD. Annual Report 2007

75

H3

天地297mm-左右424mm 背4mm

Corporate Data

Comp̲M45̲SQ̲175

SMM Group Corporate Philosophy
1. Sumitomo Metal Mining Co., Ltd. (“SMM”), in accordance with the Sumitomo Business Spirit,
shall, through the performance of sound corporate activities, seek to make positive contributions tosociety 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.

2007年09月15日15時15分

CORPORATE DATA AND INVESTOR INFORMATION

07116-0549 住友金属鉱山AR-英文 下版 F6000

CORPORATE PHILOSOPHY & MANAGEMENTVISIONCORPORATE PHILOSOPHY & MANAGEMENTVISION
SMM Group Corporate Philosophy
1. Sumitomo Metal Mining Co., Ltd. (“SMM”), in accordance with the Sumitomo Business Spirit,
shall, through the performance of sound corporate activities, seek to make positive contributions tosociety 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, the Sumitomo
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
Consolidated Financial Highlights .........................................................1
Chairman’s Message: To Our Shareholders..........................................2
Overview of FY2007–9 Medium-term Business Plan ............................4Interview with the President: taking the Initiative ..................................6
HPAL ..................................................................................................8
Scale & Ownership ...........................................................................10
Technologies ....................................................................................12
Review of Operations ..........................................................................15

CONSOLIDATED FINANCIAL HIGHLIGHTSSUMITOMO METAL MINING CO., LTD. AND SUBSIDIARIES
Years ended March 31

Year-on-yearchange (%)

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

2007/2006

2007

2006

2005

2007

54.5
96.5
105.9
121.2
100.7
113.1
2.0
11.9
(103.4)35.6
24.4(135.1)
158.7¥ 966,764
162,632
205,285
205,617
126,054
46,70851,567
25,693(2,606)
95,985(77,429)(10,073)
18,556¥ 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

$8,186,671
1,377,187
1,738,378
1,741,189
1,067,440
395,529436,675
217,571(22,068)
812,811(655,678)(85,300)
157,133

At Year-End:Total assets
Total net assets
Interest-bearing debt

20.3
33.9
(0.5)

929,208
528,921
189,910772,562
394,899
190,891

573,925—
160,533

7,868,643
4,478,966
1,608,180

Per Share (Yen and U.S. dollars):
Net income
Shareholders’ equity
Cash dividends

100.5
31.4
92.9

220.49859.8227.0

109.96654.1514.0

64.77
497.57
8.0

1.87
7.28
0.23

—
—
—
—
—

14.8
29.0
53.4
20.4
18.9

9.3
19.1
48.4
24.7
25.2

6.8
13.8
49.5
28.0
20.8

For the Year:Net sales
Operating income
Recurring profit
Income before income taxes
Net income
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

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

Notes: 1. Recurring profit = Operating income + Nonoperating income – Nonoperating expenses
2. The computation of net income 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 ¥118.09=U.S.$1, the effective rate of exchange prevailing on March 31, 2007.

SMM at a Glance..............................................................................16
Mineral Resources and Metals.........................................................18
Electronics and Advanced Materials................................................24

Net Sales

Net Income (Loss)

Operating Income(Billions of yen)(Billions of yen)
1,200

200

(Billions of yen)
150

Other Businesses .............................................................................28
Research and Development .............................................................29

1,000

120
150

The Sumitomo Business Spirit ............................................................30
Corporate Governance and Internal Controls .....................................31
Social and Environmental Initiative......................................................34

800
90
100

600

Corporate Officers ...............................................................................36
Financial Section .................................................................................37

60
400
50

SMM Group .........................................................................................74
Corporate Data and Investor Information ............................................75

30

200
0

0
’03
Unless specifically stated otherwise, information in this annual report is as of August 31, 2007.

’04

Mineral Resources’05
Metals

’06

’07

0
’03

Electronics and Advanced Materials

’04

’05

’06

’07

Housing and Construction Materials

’03

’04

’05

’06

’07

OthersNote: Sum of segments is not consistent with the actual figure because net sales and operating income of each segment include inter-segment transactions.
Forward-looking Statements
Statements made in this annual report with respect to plans, strategies and future performance that are not historical 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.

SUMITOMO METAL MINING CO., LTD. Annual Report 2007

1

CORPORATE PHILOSOPHY & MANAGEMENTVISION
SMM Group Corporate Philosophy
1. Sumitomo Metal Mining Co., Ltd. (“SMM”), in accordance with the Sumitomo Business Spirit,
shall, through the performance of sound corporate activities, seek to make positive contributions tosociety 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, the Sumitomo
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
Consolidated Financial Highlights .........................................................1
Chairman’s Message: To Our Shareholders..........................................2
Overview of FY2007–9 Medium-term Business Plan ............................4Interview with the President: taking the Initiative ..................................6
HPAL ..................................................................................................8
Scale & Ownership ...........................................................................10
Technologies ....................................................................................12
Review of Operations ..........................................................................15

CONSOLIDATED FINANCIAL HIGHLIGHTSSUMITOMO METAL MINING CO., LTD. AND SUBSIDIARIES
Years ended March 31

Year-on-yearchange (%)

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

2007/2006

2007

2006

2005

2007

54.5
96.5
105.9
121.2
100.7
113.1
2.0
11.9
(103.4)35.6
24.4(135.1)
158.7¥ 966,764
162,632
205,285
205,617
126,054
46,70851,567
25,693(2,606)
95,985(77,429)(10,073)
18,556¥ 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

$8,186,671
1,377,187
1,738,378
1,741,189
1,067,440
395,529436,675
217,571(22,068)
812,811(655,678)(85,300)
157,133

At Year-End:Total assets
Total net assets
Interest-bearing debt

20.3
33.9
(0.5)

929,208
528,921
189,910772,562
394,899
190,891

573,925—
160,533

7,868,643
4,478,966
1,608,180

Per Share (Yen and U.S. dollars):
Net income
Shareholders’ equity
Cash dividends

100.5
31.4
92.9

220.49859.8227.0

109.96654.1514.0

64.77
497.57
8.0

1.87
7.28
0.23

—
—
—
—
—

14.8
29.0
53.4
20.4
18.9

9.3
19.1
48.4
24.7
25.2

6.8
13.8
49.5
28.0
20.8

For the Year:Net sales
Operating income
Recurring profit
Income before income taxes
Net income
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

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

Notes: 1. Recurring profit = Operating income + Nonoperating income – Nonoperating expenses
2. The computation of net income 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 ¥118.09=U.S.$1, the effective rate of exchange prevailing on March 31, 2007.

SMM at a Glance..............................................................................16
Mineral Resources and Metals.........................................................18
Electronics and Advanced Materials................................................24

Net Sales

Net Income (Loss)

Operating Income(Billions of yen)(Billions of yen)
1,200

200

(Billions of yen)
150

Other Businesses .............................................................................28
Research and Development .............................................................29

1,000

120
150

The Sumitomo Business Spirit ............................................................30
Corporate Governance and Internal Controls .....................................31
Social and Environmental Initiative......................................................34

800
90
100

600

Corporate Officers ...............................................................................36
Financial Section .................................................................................37

60
400
50

SMM Group .........................................................................................74
Corporate Data and Investor Information ............................................75

30

200
0

0
’03
Unless specifically stated otherwise, information in this annual report is as of August 31, 2007.

’04

Mineral Resources’05
Metals

’06

’07

0
’03

Electronics and Advanced Materials

’04

’05

’06

’07

Housing and Construction Materials

’03

’04

’05

’06

’07

OthersNote: Sum of segments is not consistent with the actual figure because net sales and operating income of each segment include inter-segment transactions.
Forward-looking Statements
Statements made in this annual report with respect to plans, strategies and future performance that are not historical 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.

SUMITOMO METAL MINING CO., LTD. Annual Report 2007

1

Chairman’s Message

TO OUR SHAREHOLDERS
Steady growth achieved in fiscal 2006
During fiscal 2006, the year ended March 31,
2007, we made further steady progress in pursuing our growth strategy for the SMM Group to
maximize corporate value. In performance terms
we had an excellent year. Consolidated net sales
totaled ¥966.8 billion, an increase of more than
50% over the previous year. Consolidated earnings at every level were almost double the figuresposted in fiscal 2005. Operating income reached¥162.6 billion, recurring profit climbed to¥205.3 billion and net income soared to ¥126.1
billion. Cash dividends for fiscal 2006 totaled¥27 per share, comprising an interim dividendof ¥11 and a final dividend of ¥16. This marked
a year-on-year increase in dividends per share of¥13.
Although unexpectedly high non-ferrous
metals prices did exert a substantial effect on performance, they were not the only reason behind
this good set of results. The figures also demonstrated the synergistic benefits derived frommajor strategic investments that we have made in
our two core businesses of mineral resources andmetals and electronics and advanced materials.
Going forward, we intend to continue focusing
on internally generated growth.

Significant steps taken toward realizationof business vision
Fiscal 2006 marked the final year of the threeyear medium-term business plan (covering the
fiscal 2004–6 period) that we formulated as thefirst step in realizing the SMM Group Management Vision. The basic strategy behind the
FY2004–6 Plan was to expand and strengthen
our core businesses while also developing new
products. In the mineral resources and metals
business, we set a goal of entering the ranks ofthe major non-ferrous metals players within ten
years. In the electronics and advanced materials
business, our aim was to establish a leading
global presence for our products.
We recorded several major achievements inthe mineral resources and metals business during the three-year period. We acquired an equity
stake in the Cerro Verde Copper Mine in Peru;
2

we initiated commercial production at the Coral
Bay Nickel Project in the Philippines; and we
expanded annual production capacity for electrolytic copper at the Toyo Smelter & Refinery
to 450kt. In the electronics and advanced materials business, we achieved operating income of¥13.6 billion—comfortably exceeding our initial target of ¥12.5 billion—as the result ofefforts to supply rising demand for various
products. In addition, we made significant
progress in laying the groundwork for future
strategic growth. These initiatives included
preparations for doubling nickel production
capacity at Coral Bay, the start of exploratory
survey work for the Taganito Project in thePhilippines, and further expansion of our production capacity for copper-clad polyimide film.
Not everything went smoothly, however.
Output at the Pogo Gold Mine has not yet
reached design capacity. We are also experiencing delays in completion of the Goro Nickel
Project. I believe that we have drawn lessons
from these setbacks and that we are now in aposition to accelerate the implementation of our
growth strategy going forward.

Looking back on seven years as president
I was appointed SMM’s president in April 2000,
some six months after the serious incident that
occurred at JCO Co., Ltd. During the sevenyears of my tenure as president, I devoted myself
to the construction of a new SMM Group. In
the first two years to fiscal 2001, most of ourefforts focused on trying to revitalize the Company. During fiscal 2002–3 we implemented a
program of business restructuring. In the three
years of the FY2004–6 Plan, we pursued a strategy of growth aimed at expanding and strengthening our core businesses. To ensure the successful implementation of this strategy, we also
focused efforts on reinforcing our manufacturing capabilities, which count as one of the
major strengths of the SMM Group. In otherwords, we have concentrated on applying innovative technologies developed in-house to thecreation of products based on our technicalskills in manufacturing.

Chairman and Representative Director: Koichi Fukushima

Specifically, we have used the progress madeon major projects to stimulate greater awarenessof the importance of our manufacturing-related
skills base. At the same time, we have madeimprovements at existing operating sites to reinforce our manufacturing base with the aim ofdeveloping the capability to expand production
capacity while maintaining high quality standards. Most importantly, with the support andunderstanding of all parties, and through the
devoted efforts of all SMM Group employees,
we have been able to transform our situation
into one where we have a realistic and feasible
growth strategy for future development.

A new leader and medium-term businessplan
The second stage in the realization of the SMM
Group Management Vision is our three-year
FY2007–9 Medium-term Business Plan, whichbegan in April 2007. The aim of this new plan
is to accelerate further the growth strategy that
we have pursued to date.
This new stage of growth is a good opportunity to pass the baton to a new president, Nobumasa Kemori, as part of a fresh senior manage-

President and Representative Director: Nobumasa Kemori

ment team. I plan to provide support to management in my new capacity as chairman. Mr.
Kemori has proved his mettle in managing projects such as the expansion of electrolytic copper
production capacity to 450ktpa at the Toyo
Smelter & Refinery and the establishment of
our nickel-smelting technology at Coral Bay. He
has an exceptional record of site management
experience and related knowledge. Under his
leadership, our aim is to focus on attaining our
two strategic goals: to become a major within
the non-ferrous metals industry, and to secureleading global market shares for our products inthe electronics and advanced materials sector.
I ask our shareholders for their continued
support and understanding as we move forward.
August 2007

Koichi Fukushima
Chairman and Representative Director

SUMITOMO METAL MINING CO., LTD. Annual Report 20073

Overview of FY2007–9 Medium-term Business Plan
SMM embarked on a new medium-term business plan in April 2007. The FY2007–9 Plan covers the period toMarch 2010. The new plan aims to increase corporate value further by building on the results achievedin the previous medium-term business plan.

Basic strategy in Mineral Resources and Metals sector
With the aim of becoming a major player in non-ferrous metals, we will continue making progressin shifting from a business model based on purchasing and refining ore to a “mineral resources + refining” model by building up production capacity and by securing stable supplies of raw materials.
With a core focus on expanding and strengthening the nickel business, we plan to hone further thetechnologies such as High Pressure Acid Leach (HPAL) and Matte Chlorine Leach Electrowinning(MCLE) that we have developed in-house to achieve full-scale expansion of operations.

Nickel businessTo develop a nickel production set-up of 100ktpa capacity by 2013

Precious metals businessTo increase domestic annual electrolytic nickel production
capacity from 30kt to 65kt

To ramp up operations at the Pogo Gold
Mine (U.S.A.) to full design capacity

To inaugurate the second HPAL nickel refinery at Coral Bay (Philippines)
To develop another HPAL project at Taganito (Philippines)

To maintain stable operations at theHishikari Mine (Kagoshima
prefecture)

To achieve early completion of the Goro Nickel Project (New Caledonia)
To make progress with the exploration project in the Solomon Islands

Zinc businessTo boost recycling volumes

Copper businessTo increase distilled zinc ingot sales
volumes

To establish production capacity of 450ktpa at Toyo
Smelter & Refinery and to raise cost-competitivenessTo achieve stable operations at copper mines overseas,
notably Cerro VerdeTo raise our proprietary ore ratio to two-thirds
from around 40% at present

Results and Projections
Results (fiscal 2006)
Major financial indicators

4

Performance projections (fiscal 2009)
Major financial indicators(estimates)

Non-ferrous metal prices/FX rate

Net sales¥966.8 billion

Copper ($/tonne) 6,970

Recurring profit¥205.3 billion

Nickel ($/lb)

Net income¥126.1 billion

14.02

Non-ferrous metal prices/FX rate
(assumptions)

Net sales¥680 billion

Copper ($/tonne)

4,000

Recurring profit¥100 billion

Nickel ($/lb)

7.00

Gold ($/Toz)

629

Net income¥ 64 billion

Gold ($/Toz)

550

Ave. total assets ¥850.9 billion

Zinc ($/tonne)

3,579

Ave. total assets¥960 billion

Zinc ($/tonne)

2,250

ROA

USD-JPY rate

117.03ROA

7.0%

USD-JPY rate

110.0014.8%

Basic strategy in Electronics and Advanced Materials sector
We plan to develop a set-up capable of delivering stable annual operating income of¥20 billion by securing leading market shares with existing products while actively
developing new products and businesses.

Electronics businessTo achieve leading market shares in major
product groups
To develop full-scale operations of sapphire
substrates

Advanced materials business
Board materials: To strengthen cost-competitivenessthrough higher productivity
Battery materials: To increase production of lithium
nickel oxide (LNO)

Semiconductor packaging materials
Lead frames: To maintain and build on our top
global share
Tape bonding materials: To leverage thecompetitiveness of Taiwanese facility

Corporate strategy
To keep consolidated equity ratio above 50%
To shift profit distribution policy to stress correlation withperformance—consolidated payout ratio of at least 20%
from fiscal 2009
To ensure the internal control system
To retain and develop human resources neededfor overseas operations
To pursue initiatives to pass on and reinforce
manufacturing skills

Capital investment plans
Metals: ¥90 billion
Mineral Resources: ¥10 billion
Construction Materials
and Other: ¥10 billion
Electronics and Advanced
Materials: ¥30 billion

Total capital spending
over 3-year period:¥140 billion

SUMITOMO METAL MINING CO., LTD. Annual Report 2007

5

Interview with the President

taking theInitiative
In this section, new President Nobumasa Kemori
discusses the strategic focus behind SMM’s new
medium-term business plan for FY2007–9.
How do you see your duties as president?
I see the task ahead of me as one of raising the profile of the SMM Group within the global nonferrous metals industry by realizing our businessvision. In the mineral resources and metals business, our goal is to enter the ranks of the non-ferrous metals majors. In the electronics andadvanced materials business, we aim to secureleading global market shares for our products. To
attain these objectives, I aim to channel the effortsof the entire Company into making steadyprogress in realizing the goals of the FY2007–9
Plan, which we have formulated to cover theperiod to March 2010.
I believe that we will need to make momentous
decisions for the future of SMM during this next
growth phase of the business. The SMM Group
Corporate Philosophy will be an important guidein making such decisions. As one of the original
enterprises within the Sumitomo family, the SMM
Group must base its growth on sound ideology.
This means that we must have an effective system
of internal controls that operate to strict standardsof governance so that we can strive to meet the
expectations of stakeholders by being a company
that engenders a high level of trust. Only in thisway can we expect to earn profits while contributing to society.
Please explain the basic strategy behind the new
medium-term business plan.
In the non-ferrous metals sector, SMM is developing a vertically integrated business that spans
resource development, refining and materials processing. As part of the FY2004–6 Plan, which
ended in March 2007, we identified our core businesses as upstream and midstream operations
within the mineral resources and metals sector and6

downstream operations within the electronics andadvanced materials sector. During the three-yearplan period we invested a lot of effort to expand
and fortify these operations.
This policy is unchanged in the new
FY2007–9 Medium-term Business Plan, which
commenced in April 2007. Building on theachievements of the previous plan, our basic strategy is to continue expanding and strengthening
our core businesses. There are three major challenges in the new plan.
First, we aim to build further on the successes
achieved over the past three years. While raisingproduction safely to full design capacity at each ofour major mineral resource development projects,
we aim to scale up operations steadily in businesses
linked to new products such as battery materials
and sapphire substrates. Success in these various
areas will translate into a more secure and profitable earnings structure.
Our second main challenge is to build anannual refining capacity for nickel of 100kt. We
concentrated mainly on increasing copper smelting
capacity in the previous three-year plan. In the
FY2007–9 Plan, we will accelerate the shift to a“mineral resources + refining” business model byfocusing on our nickel operations.
The final challenge involves undertaking
exploratory activities and reinforcing our R&D
capabilities. The goal here is to realize multiple
potential products and sources of ore so that we
can develop new profit-building opportunities
during the next three-year medium-term businessplan starting in fiscal 2010. Steady progress inthese two areas will help ensure that we achieve
our two main goals of becoming a major player in
non-ferrous metals and of securing leading global
market shares for our downstream products.
The business environment has changed significantly for SMM in the past few years. The emergence of China and other countries as new andpowerful sources of demand has exceeded earlier

President and Representative Director: Nobumasa Kemori

expectations. At the same time, the consolidation
among the leading firms within the global non-ferrous metals industry has caused a rapid shift
toward a small group of major players. This meansthat we must now develop our business within aradically different balance of power. In such circumstances, I believe that it is vital for us to growby doing our own exploration and resource development. At the same time, it is imperative that weboost our competitiveness by cultivating astrengthened manufacturing base that other companies cannot readily emulate.
In the mineral resources and metals sector, weplan to continue shifting our business model froma “purchased ore refining” model based on importing raw materials from overseas mines at market
prices to a “mineral resources + refining” model, in
which we can procure raw materials based on ourequity interests in mining projects. By developing
stable raw material supplies and by building thecapacity to raise production, we plan to forge astronger business base for growth over the
medium-to-long term.

On the other hand, in the electronics andadvanced materials sector, the key challenge is how
to raise our global profile as a materials manufacturer. This involves reinforcing our product lineup
underpinned by innovative technology while at thesame time securing high global market shares forthese products. In practical terms this meansbuilding on the results that we achieved during theprevious three-year plan, both by pursuing strategies aimed at securing leading global market sharesfor our existing products and through the active
development and commercialization of new products that anticipate the needs of our customers.
As an adjunct to these strategic approaches, wewill also pursue a corporate strategy aimed at realizing our business philosophy and vision. Thisentails reinforcing our basic systems supporting
efforts in areas such as compliance, environmental
protection and occupational health. We also plan
to focus on HR policies to help us retain anddevelop a capable workforce.

SUMITOMO METAL MINING CO., LTD. Annual Report 20077

taking theInitiative through

HPAL
All eyes on our HPAL method
Despite the fact that oxide ores account for
about 70% of global nickel deposits, currently
the majority of nickel is produced either from sulfide ores or certain high-grade oxide ores.
Hence, not only are most of the world’s nickel
oxide deposits undeveloped, but the smelting of
low-grade oxide ores that have been developedis also considered problematic.
Our HPAL smelting method for nickel has
turned this situation upside down. At the Coral
Bay Nickel Project, we have been able to makeseveral proprietary improvements to the technique to clear a number of related technical hurdles. In doing so, we have now developed theknow-how to create stable operating conditionsfor HPAL-based nickel extraction. The industry’s
attention is now focused on our advanced nickelsmelting technology, which offers a potential
means for satisfying the rising global demand fornickel.

Nickel reserves, by deposit type (kt, ’000s)
Sulfide ores
44

In operation

17

Oxide ores
42

Global sources of nickel

Sulfide ores
Oxide ores

8

93

UndevelopedPlease tell us more about SMM’s strategic plan
to double nickel production capacity to
100ktpa.
Expanding and strengthening our nickel operations is a core element of the FY2007–9 plan.
However, our intention is not to grow simply by
expanding in terms of operational scale. Our strategy is rather one of emphasizing and reinforcing
our particular strengths so that we can speed ourascension to the ranks of the non-ferrous majors.
To do this, we aim to develop a refining system fornickel with an annual production capacity of
100kt. This would place SMM in the ranks of the
top five nickel producers worldwide by output.
In the nickel business, SMM’s greatest strengthis our efficient nickel-smelting technology basedon the HPAL (High Pressure Acid Leach) method.
HPAL is a technology that enables the extractionof nickel from low-grade oxide ores at low cost.
Efficient recovery of nickel, cobalt and other metals from such ores on a commercial scale used tobe considered infeasible from a technical standpoint. By implementing a series of our own
improvements at the Coral Bay Nickel Project in
the Philippines, we commenced commercial nickel
production using the HPAL method in April
2005. Today this technology is recognized asworld class. HPAL is not a technique that can beapplied simply by installing some state-of-the-art
equipment. It also requires sophisticated operational management know-how to maintain thefacilities as conditions change depending on the
precise mix of ores being processed at any one
time. In other words, you also need highly trained
technical personnel to make it work. I think thesecharacteristics make HPAL a sure-fire winner for
SMM.
To date, nickel has mainly been extracted fromhigh-grade primary deposits. Most of the world’s
low-grade nickel oxide ore deposits lie undeveloped. Our plan is to leverage the HPAL technol-ogy developed at Coral Bay, along with our related
in-house engineering expertise, to extract nickelfrom low-grade oxide ore deposits. In doing so we
aim to turn SMM into a major player within the
global non-ferrous metals industry.
This is a goal that my predecessor identified
for SMM. Now I intend to lead us in our wholehearted efforts to achieve it.
While reinforcing efforts to develop resources,
what is SMM doing to protect the naturalenvironment and to fulfill compliance-related
responsibilities in areas such as the safety ofmine workers?
To date our efforts in mineral resource development have focused on actively acquiring new
equity interests in mines. Going forward, however,besides just investing in projects, we must also takethe initiative to develop projects of our own. As
part of our focus on resource development, I
believe that we must also reinforce our efforts toprotect the natural environment and to ensure thehealth and safety of workers, among other issues.
Our interest in mine development stretches
back over 300 years to 1691, when the Sumitomofamily first began operating the copper mine at
Besshi. Extraction of copper ores from the Besshi
mine continued for 283 years, during which time
Sumitomo provided housing, schools, rail links
and other facilities around the site. Rapid modernization finally caused the Besshi mine to be abandoned, but today the mine has been returned to anatural state following a massive forestation project that involved the planting of over a million
trees per year. As part of the Sumitomo Group, formany years we have adhered to the belief of promoting sustainable co-existence with society.
In the Pogo Gold Mine Project, which is thefirst mine outside Japan where SMM is taking
the project development lead, we have incorporated various eco-friendly techniques in water

SUMITOMO METAL MINING CO., LTD. Annual Report 20079

taking theInitiative throughScale &
Ownership
The ability to pursue a winning
strategy
We are steadily pursuing our strategy. Our holdings of copper in mines where we have an interest have expanded from 1,546kt to 2,931kt in thepast three years. Successes such as the acquisition of off-take rights for copper-smelting ores
from the Cerro Verde mine significantly in excess
of our equity stake in the project have helped toboost our proprietary ore ratio for copper from alittle over 20% to around 40%. Besides copper,
over the past three years we have also significantly expanded our holdings of nickel from
817kt to 1,565kt. Moreover, underscored by ourtried-and-tested technology and expertise, wehave increased the scale of our refining and production operations while maintaining high quality
standards.
We continue to make progress from both
qualitative and quantitative angles in engineering
our transition to a “mineral resources + refining”
business model. The cumulative effects promise
to elevate SMM to the ranks of the world’s nonferrous metals majors in due course.

Growth in SMM’s metal mineral resources holdings(Thousands of tonnes)
Copper’07/03’04/03

2,931
1,546

Nickel’07/03’04/03

10

1,565
817

processing and other areas to minimize the impactof the development on the local ecosystem. At thenickel-smelting project in Coral Bay, we have also
adopted an eco-friendly stance by applying strict
North American standards for issues such as wastewater purification.
We intend to copy these individual examples
in all other development projects going forward.
By being consistent on such issues we hope to fulfill our social responsibilities as a company.
Please tell us more about SMM’s strategic plan
to expand copper smelting capacity at the Toyo
Smelter & Refinery.
We have invested a total of ¥29 billion at the Toyo
Smelter & Refinery to increase annual electrolytic
copper production capacity to 450kt, from 270kt
in fiscal 2004 (production capacity at the end of
fiscal 2006 was 410kt). The major capital expenditure phase was completed during fiscal 2006. We
plan to raise operating capacity gradually in fiscal
2007. I believe that capacity will have reached an
output level of 450kt by around the time that thisAnnual Report is published.
A capacity of 450ktpa makes Toyo one of thesingle largest copper-smelting lines worldwide. It
has been the foundation of SMM’s business in thisfield since its completion in 1971 due to its preeminent technical capabilities. Our goal has been
to extract maximum value from the technicaladvantages that we enjoy while expanding the scaleof operations. I believe that we have one of themost cost-competitive facilities of its kind in theworld.
Besides boosting capacity to the 450ktpa level,
the other major issue has been one of raw material
procurement. No matter how cost-competitive the
Toyo Smelter & Refinery is due to superior technology, the business cannot generate stable profits
if the price and volume of imported copper ores
vary wildly according to market supply anddemand. Our strategy is therefore not only toconclude long-term ore-purchasing contracts forcopper ores with overseas mines, but also to develop resources or acquire mining interests of ourown so that we can secure long-term stable prices

and volumes for the copper-smelting raw materials
processed at the Toyo Smelter & Refinery. This iswhat we refer to as a “mineral resources + refining”
business model.
We can gauge the extent of our transition
toward a “mineral resources + refining” businessmodel through our proprietary ore ratio* for copper. We acquired an interest in the Cerro Verde
Copper Mine in Peru in March 2005. Now that
this sulfide ore project has commenced production, our proprietary ore ratio has increased toaround 40% at present. Our results to date also
reflect the acquisition of improved expertise inresource development as well as strengthened relationships with business partners. We plan to makefurther use of these as we actively explore for new
resources, with the future goal being to boost our
proprietary ore ratio to around two-thirds.
*Proprietary ore ratio for copper:[(Copper proportional to SMM’s stakes in overseas mines) +(proportional Cerro Verde off-take rights)] ÷ [Electrolytic copper production at Toyo]SUMITOMO METAL MINING CO., LTD. Annual Report 200711

taking theInitiative through Technologies

The technical prowess of a “metals specialist”
Our extensive base of proprietary technologies has been the critical element
enabling us to secure an excellent reputation among clients on the demand side.
Technology has also allowed us to develop products where we continue to maintain and expand a leading share of the global market. We have made our R&D

Core technologies

activities highly efficient by cultivating a strong base of technical abilities as a“metals specialist” and by aligning development themes with business strategy.
These programs continue to create a stream of products that make SMM amajor presence across numerous sectors.
Our R&D activities are currently focused on five areas that we identify as core

Separation, refinement
and crystallization
technologies

Nano-powder
technologies

technologies. Our separation, refinement and crystallization technologies arecontributing to the creation of highly energy-efficient electronic and advanced
materials. We apply nano-powder technologies to produce high-performance,

Evaluation/analyticaltechnologies

ultra-fine powders to support the use of lighter, thinner and smaller electronics
components. Our surface treatment technologies help to supply the demand formaterials with characteristics such as thermal resistance and dimensional stability. We apply organic resin technologies to create materials that combine strong
magnetic properties with the ability to be molded into various forms. Finally, we
are also developing technologies for evaluation and analysis that form the basis
for other R&D activities. Our technical prowess across these different fields continues to support the development of a variety of products that lead global markets while providing unique offerings to customers.
12

Organic resin
technologies

Surface treatment
technologies

What are SMM’s growth products in theelectronics and advanced materials sector, andwhat characteristics are promoting expansion in
their sales?
Within our electronics and advanced materials
business, the effect of demand fluctuations ismuch greater than, say, the impact of non-ferrous
metal price changes on our other operations. In
this sense, our basic strategy for this business is todevelop products with leading global market sharesthat are unique within their sectors—in otherwords, with quality such that customers wouldfind it difficult to source an alternative. By developing a portfolio of such products, we aim tobuild a system capable of delivering high, stableearnings. Having such a range of products alsoenables us to develop strong relationships withcustomers, in turn realizing possibilities such as thejoint development of new products. This in turnallows us to anticipate customer needs, making it awin-win relationship for both sides.
Copper-clad polyimide film, bonding wire,
nickel paste and lead frames are all examples ofsuch products. Within each of these productranges, we plan to develop strategies to allow us tosecure, maintain and expand leading global market
shares. At the same time, we will devote increasing
resources to the cultivation and development of
new products to realize stable growth over the
medium and long term.
Please elaborate on the capital investment plansand performance forecasts for the medium-termbusiness plan that started in April 2007.
Our capital spending plan is to invest ¥140 billion
over three years to keep operations on the current
growth trajectory. The main expenditures areinvestments totaling about ¥60 billion—twothirds of our total investments of ¥90 billion in
the Metals segment—to build an annual production capacity of 100kt for nickel. These comprise
an investment of around ¥30 billion for the con-struction of the second-phase facility at Coral Bay(operations are due to start in April 2009), and of
approximately ¥26 billion in the Taganito Projectin the Philippines, which will be our next majority-stake HPAL project after Coral Bay. Construction at Taganito is due to begin in 2009, with thefacility coming on stream in 2012. Elsewhere,
we expect to invest ¥10 billion in the mineral
resources exploration project in the Solomon
Islands, about ¥30 billion to expand the scale ofelectronics and advanced materials operations, anda further ¥10 billion on other businesses. In termsof R&D spending, we plan to invest around ¥20
billion over three years, mostly to develop new
products in the electronics and advanced materials
sector.
Due to the difficulties involved in predicting
metals prices and the significant impact of related
price fluctuations on earnings, we have not set any
specific profit targets for the FY2007–9 Mediumterm Business Plan. We expect the supply situation to ease and non-ferrous metals prices to fall
during the plan period. Consequently, we havetentatively forecast a figure of ¥100 billion forconsolidated recurring profit in fiscal 2009.
While we realize that FY2007–9 could represent a window offering additional growth opportunities from aggressive investments, our financial
strategy is one that stresses the importance of
maintaining a healthy balance sheet. We aim to
maintain a consolidated equity ratio of at least
50%. Nonetheless, this does not preclude our

SUMITOMO METAL MINING CO., LTD. Annual Report 200713

making a major investment in an overseas mine if
an especially enticing opportunity were to arise.
We have shifted our profit distribution policy
to emphasize correlation with performance rather
than dividend stability. For fiscal 2009 onwards,
we aim to maintain a consolidated payout ratio ofat least 20%.
Please explain the nature and purpose of the
takeover defenses that SMM recently adopted.
At SMM, we believe that our value as a company
does not just derive from the proprietary technology and expertise that contribute to growth of ournon-ferrous metals operations or from our earnings structure. We believe that there are two othercritical elements that contribute to increased corporate value: first, the culture that we have developed as an enterprise based on the Sumitomo
business spirit over more than 400 years of history;
and second, our management of business operations based on the relationships of trust we havedeveloped and maintained with all stakeholders.
Based on this thinking, and reflecting thenature of the business environment today, in February 2007 we elected to institute takeover defenses that require prior warning of any large-scaleacquisitive moves. These defenses aim to preserveand increase corporate value while protecting thecommon interests of shareholders. Shareholders
approved the deployment of these defensive
takeover countermeasures for a three-year period
at the Ordinary General Meeting of Shareholders
held in June 2007.
Takeover defenses could be triggered in theevent of any share purchase in which the acquirer
gains a shareholding ratio of at least 20%, or inwhich a tender offer resulted in the acquirer gaining an overall shareholding ratio of at least 20%
once the shares of any parties having a special relationship with the acquirer are included. The
takeover defenses also require that parties undertaking large-scale acquisitive moves toward SMM
supply information about the planned acquisition14

in advance; allow sufficient time for the takeoverplans to be considered; provide the opportunity
for the Company to present an alternative plan toshareholders; and allow for negotiations to be heldwith any acquiring parties.
In cases where it is judged that there is a reasonable fear that the acquisition would encroachon corporate value and the common interests ofshareholders, the takeover defenses would allow
SMM to undertake the gratis allotment of stockacquisition rights to dilute the rights of the said
acquiring parties. However, please note that the
takeover defenses are also structured in such a waythat the directors of SMM would not be allowed
to make any arbitrary decision to undertake such a
gratis allotment. This would first require the permission of an independent committee composed
purely of outside experts. We would also makeevery effort to ensure that all information is disclosed transparently to shareholders in a timely
manner.
The executive officers and employees of SMM
share a business philosophy and our basic stance is
to work together to realize our common businessvision. Our aim is to be a company that continues
to earn increasing trust from all of our stakeholders. Going forward, we will focus intently on
implementing the strategy in the FY2007–9 planfor the benefit of shareholders. We intend to meetthe expectations of shareholders by building corporate value steadily and stably over time.
I hope that shareholders will continue to giveus their support as we seek to develop SMM’s
business further.
August 2007

Nobumasa Kemori
President and Representative Director

REVIEW OF OPERATIONS— From resource development to advanced materials —The SMM Group has developed a vertically integrated business modelin the non-ferrous metals sector that spans upstream and downstream operations.
We extract ore from mines, refine it to produce metals and then process these metals to
manufacture state-of-the-art electronics and advanced materials.
The extensive base of knowledge in the non-ferrous metals fieldthat we have accumulated enables us to develop more advanced technologies for refining ores
and processing metals. Such technologies help to open up the many possibilities
offered by non-ferrous metals.

Mineral Resources

High-Grade Gold Ore

Copper Ore

Garnierite Ore

MetalsGold

CopperNickelZinc

Electronics and Advanced Materials

Bonding Wire

Semiconductor Packaging Materials

Thick-film Paste

Copper-clad Polyimide Film

SUMITOMO METAL MINING CO., LTD. Annual Report 200715

Review of Operations: SMM at a Glance
Segment (Percentage of Group operating income)Operating Income (Billions of yen)

Net Sales (Billions of yen)

Fiscal Year

Fiscal Year

2006

MineralResources

20.6%

2006

33.5

2005

2005

17.1
10.0

2004

2003

4.5

2003

25.3

2002

24.7

2.7
0

5

10

15

20

25

30

35

Fiscal Year

2005

20

40

60

80

100

120

2005
2004
2003

400

600

800

2002

223.6
184.1
154.9

2003

5.6

142.7

2002

4.1
3

6

9

12

132.9
0

15

50

100

150

200

250

Fiscal Year

2006

2.2

2006

17.7

2005

2.1

2005

17.3

2004

1.2

2003

0.0

2002

0.5

1.0

1.5

2.0

4.3

2005
2.4

2004

15.4
16.7
0

5

10

15

20

2006

30.0

2005

28.8
23.1

2004

0.4

10.2

2003

0.6
0

2003

2.5

4.0

2002

15.8

Fiscal Year

2006

2003

2004

2002

–0.4
0

Fiscal Year

2.5%

200

2004

7.3

–0.5

Others

0

2005

11.2

Fiscal Year

1.3%

226.3

2006

13.6

0

Housing andConstruction
Materials

273.4

Fiscal Year

2006

8.3%

100

333.2

2002

8.3

Fiscal Year

Electronics
and Advanced
Materials

75

453.7

2003

12.6

0

50

758.8

2004

27.7

2002

25

2005

49.7

2003

0

2006

109.6

2004

33.1

Fiscal Year

2006

67.3%

43.7

2004

2002

Metals

82.2

1

12.4

2002
2

3

4

5

0

5

10

15

20

25

30

Notes: 1. Operating income ratio by segment is calculated based on operating income including inter-segment transactions for fiscal 2006, the year ended
March 31, 2007.
2. Operating income and net sales figures include inter-segment transactions.

16

Operations

Main Products and Services

Tasked with the dual mission of boosting the earnings of the mineral resource●

Gold and silver ores●

Copper concentrates and electrolytic
copper●Geological research●

CopperThis segment refines non-ferrous raw materials procured from overseas mining●

Nickelcompanies and the mineral resources segment into metals such as gold, copper,

●

Zinc

●

Lead

●

Precious metals such as gold,
silver and platinum●

Sulfuric acid●

Copper and brass●

Electronics materials (bonding wire,
electric paste, thin films, etc.)●

Semiconductor packaging materials(lead frames, tape materials, etc.)●

Advanced materials (copper-cladpolyimide film, battery materials, etc.)●

ALC (Autoclaved Lightweight aerated
Concrete)●

Recovery and sales of valuable metals
from used catalyst●

Survey and decontamination operations
for soil and groundwater●

Environment-related engineeringbusiness and securing raw materials for the refining business, this segment is engaged in the exploration for and development, production, and sales of nonferrous metal resources. It is also engaged in geological consulting utilizing mineral resource development techniques.

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-class refining technology and are the industry leader.

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 electronics materials segment provides the high-quality electronics materials that are indispensable to the manufacture of semiconductors and electronics devices. Moreover, the advanced materials segment creates new materials with highly advanced properties by leveraging
the metal-related technologies that we have accumulated, thereby providing abroad variety of advanced materials such as circuit board materials, powder materials, functional inks, battery materials, magnetic materials and rare metals.

This segment mainly engages in the 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 Sumitomo Metal Mining
Siporex Co., Ltd., manufactures and sells ALC under the product name Siporex.

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 and groundwaterand the manufacture of environmental preservation equipment—we, among otherthings, produce and sell chemical catalysts and operate a recycling business thatrecovers valuable metals from used catalyst.

SUMITOMO METAL MINING CO., LTD. Annual Report 200717

Review of Operations

Mineral Resources and Metals
Fiscal 2006 Review■ Mineral Resources
Operations at the Hishikari Mine (Japan) continued
steadily, with volumes of mined ore and recovered
gold in line with plans. Ore shipment volumes werelargely on a par with the previous year. At the Morenci
Copper Mine (Arizona, U.S.A.), where we are
involved in operational management, heavy rainscaused production volumes to slip slightly below target, as had also occurred in fiscal 2005. High copper
prices compensated, helping to push up profits.
At the Pogo Gold Project (Alaska, U.S.A.), a minethat we are developing in a joint venture with Teck
Cominco of Canada, production began in February
2006. Progress was delayed temporarily in October
2006 when fire caused damage to a power-supply
facility at the site.
Reflecting sharply higher overseas prices for copperand gold, net sales in the mineral resources segment
jumped 88.1% on a year-on-year basis to ¥82.2 billion. Operating income rose 96.0% to ¥33.5 billion.
■ Metals
Supported by buoyant global economic growth,demand for copper remained firm. Sales in Japan rosesignificantly. Demand from the electric machinery andautomobile sectors was robust, and sales to the wireand cable industry posted further favorable growth
due to a recovery in demand from the electric powerrelated sector. Sales of copper strip products also grewstrongly, reflecting increased demand from the mobile
phone and automotive sectors.
Nickel sales increased due to strong demand fromthe energy-related sector for nickel used in specialty
steels and alloys, along with a recovery in nickel
demand for electronic materials. Sales of nickel forstainless steel production also revived after the effects
of an inventory adjustment that began in fiscal 2005
tapered off in the second half of fiscal 2006. Sales also
benefited from the soaring prices for nickel. Although
there was evidence in some demand sectors of customers running down stocks and restricting purchases,
overall demand was firm, and sales increased sharply.

18

Reflecting sharply higher overseas prices for copper,
nickel and gold along with higher sales volumes ofcopper and nickel, net sales in the non-ferrous metals
segment climbed 67.3% on a year-on-year basis to¥758.8 billion. Operating income soared 120.5% to¥109.6 billion.

Financial Highlights, by Segment(Millions of yen)

FY2006

FY2005

FY2004Mineral Resources
Net sales¥ 82,248 ¥ 43,719 ¥ 33,071

Operating income

33,532

17,107

9,971

Operating margin (%)

40.77

39.13

30.15

Depreciation expense

4,539

3,250

2,751

Capital expenditures

9,288

14,014

7,036

Metals
Net sales¥758,836 ¥453,680 ¥333,178

Operating income

109,564

49,68327,701

14.44

10.95

8.31

Operating Margin (%)
Depreciation expense

8,433

7,478

6,354

Capital expenditures

18,833

16,195

15,192Net Sales, by Product (Non-Consolidated)(Billions of yen)

350
300
250
200
150
100
50
0
FY’01

FY’02

FY’03

FY’04

Mineral Resources■ Gold and silver ores
Metals■ Nickel ■ Copper ■ Gold ■ Zinc

FY’05

FY’06

Core Strategies Under FY2007–9
Medium-term Business Plan
Our goal in mineral resources and metals is to becomea major force in the non-ferrous industry. We continue to make progress toward this goal so that we cantransform our business model from one based largelyon the refining of purchased ore to a “mineral resources+ refining” model. As we strive to boost production
capacity and secure stable supplies of mineral resources,
we have identified the following four core strategic
issues.
■ Building a nickel-refining capacity of 100ktpa
By 2013 we plan to raise our annual nickel production
capacity to 100kt, from 57kt at present. This will help
to propel us into the ranks of the non-ferrous industry
majors. To realize this aim, we have honed technologies developed in-house such as HPAL (High Pressure
Acid Leach) and MCLE (Matte Chlorine Leach Electrowinning) to facilitate the full-scale development of
low-grade laterite ores which had not been developed
due to their less profitability.
Projected Increase in SMM’s Nickel Production
Capacity
(kt)

100
80
60
40

■ Nickel in oxide form
(Goro Nickel Project*)20■ Nickel sulfate,
Nickel chloride■ Ferronickel0■ Electrolytic nickel

2005 2006 2007 2008 2009 2010 2011 2012 2013
Mid-2013: Nickel refinery
production capacity to 65ktpa
Mid-2012: Taganito start-up
Mid-2009: Nickel refinery production
capacity to 41ktpa

Progress at specific nickel projects remains on
track. We expect to bring the expansion of HPAL
nickel smelter at Coral Bay in the Philippines on
stream in April 2009. Construction at the Taganito
Project (Philippines) is due to begin in 2009, withsmelting operations slated to commence in 2012. We
aim to complete the construction of Goro Nickel
Project (New Caledonia) as soon as possible.
■ Establishing production capacity of 450ktpa at
Toyo Smelter & RefineryWe have steadily expanded capacity at Toyo, which is
our principal smelting facility for copper. Annual
capacity has risen from 270kt to 410kt over the past
three years, and is slated to reach 450kt by the second
half of fiscal 2007. The Toyo facility is now the largest
copper smelter in Japan. Under the FY2007 – 9Medium-term Business Plan, our aim is to exploit fullcapacity operation so that we can increase our costcompetitiveness and boost profits.
■ Securing additional sources of ore
To secure nickel resources, we are developing lowgrade ores using the HPAL method and undertaking
an exploration project in the Solomon Islands. To
secure copper resources, we are actively exploring forcopper with the aim of securing majority stakes incopper mining developments. Once the Cerro Verde
Copper Mine is operating at full capacity, we projectthat our proprietary ore ratio will increase to 40%,from a little over 20%.
■ Realizing full design capacity at Pogo Gold Mine
The production delays caused at the Pogo Gold Minein Alaska by damage to power supply facilities following a fire in October 2006 were resolved by the end ofthat year. Additional filter installations were also completed in March 2007. Efforts are now focusing on
increasing production to full capacity.

April 2009: Coral Bay II start-up
End-2008: Goro start-up
April 2005: Coral Bay start-up* Based on proprietary mine interests

SUMITOMO METAL MINING CO., LTD. Annual Report 2007

19

Review of Operations
SMM’s Mines and Refineries

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

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]
Sorowako (20.1%)
Figesbal (25.5%)
Goro (11.0%)

Batu Hijau (5.0%) [copper, gold]

Cerro Verde (16.8%)
Ojos del Salado (16.0%)
Candelaria (16.0%)

Northparkes (13.3%)

SMM’s Metal Shares and Estimated Values
By Mine(Thousands of tonnes)

0500

Morenci

1,000
991

5,947

Candelaria

1,500

Toyo Smelter & Refinery[copper 410,000 tonnes, gold 60
tonnes, silver 360 tonnes]

279

1,674

68
Northparkes 408

Cerro Verde

Niihama Nickel Refinery[nickel 36,000 tonnes]

1,371

8,227

20
Ojos del Salado 120

Shisaka Plant[zinc oxide 120,000 tonnes* processing capacity]

202

Batu Hijau

1,212

Hishikari 0.150 2,982

Hyuga Smelting Co., Ltd.
[ferro-nickel 22,000 tonnes]

Pogo 0.078
1,545
620

Sorowako

SMM’s Metal Share (left)
CopperGold
Nickel

21,870197

Coral Bay

6,956

Figesbal

386

Goro

362

0

Harima Smelter[zinc 90,000 tonnes,
lead 30,000 tonnes]

10,00013,616

Hishikari Mine Dept. (100%)

Estimated Value (right)

12,76920,00030,000(Millions of U.S. dollars)

By Metal(Thousands of tonnes)

0

1,000

Copper

3,000
2,931

17,588

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

0.257
5,124

Gold

1,565

NickelNotes: 1. Only the Company’s own mines are covered.
2. SMM’s metal share = Ore reserves (tonnes) x Metal grade x SMM’s
60,000interest in mine (%)
3. Estimated value = SMM’s metal share (tonne) x Standard metal price(Millions of U.S. dollars)
4. Standard metal price = Copper: $6,000/tonne, Gold: $620/Toz,
Nickel: $16/lb
55,211

0

20

2,000

20,00040,000COPPER
Business environment and basic strategy
Demand for copper is expected to continue expanding
in the future, supported by economic growth in China
and other Asian countries. To supply the sharp rise indemand, the capacity of copper smelters within theregion is set to increase progressively, notably in
China. However, since most Chinese smelting firms
source their raw materials from overseas, the industry
is structured in such a way that the competition for
raw material supplies between different smelting facilities tends to be fierce. Hence, securing stable suppliesof raw material is the pre-eminent issue for Japan’s
non-ferrous metal refiners, which operate on a “purchased ore refining” business model that relies onimporting smelting ores from copper mines aroundthe world.
Against this backdrop, we are continuing to makeprogress in shifting away from the “purchased ore refining” business model toward a “mineral resources + refining” model so that we can secure stable supplies of raw
materials and boost profitability. Going forward, thegoal is to raise our proprietary ore ratio to around twothirds. To this end, we are aggressively exploring thedevelopment of new copper mining projects. We arealso investing to expand copper-smelting capacity sothat we can derive greater economies of scale andbecome more cost-competitive globally.

States. Ore production commenced in November
2006. Our stake entitles us to purchase 50% of mine
output—or 50% of around 180kt of copper concentrate per year (in recovered copper equivalents)—for aten-year period, along with off-take rights in subsequent years at least equivalent to our equity stake. We
expect this project to boost our proprietary ore ratio toabout 40%.
*In March 2007 Phelps Dodge Corporation became part ofFreeport-McMoRan Copper & Gold Inc.

■ Toyo Smelter & Refinery (Japan)
This is our core facility for smelting copper and boasts
world-class processing capacity. At the end of fiscal
2006, we realized annual production capacity for copper of 410kt and completed a major investment toincrease this figure further to achieve a 450ktpa set-up.
Production output is expected to reach 450kt during
fiscal 2007, putting us in a good position to supply
increasing copper demand in the East Asian market
and other regions.

Status of major projects■ Cerro Verde Copper Mine Project (Peru)
SMM took a 16.8% equity stake in March 2005 inthis project, which is being led by Phelps Dodge Corporation*, the largest copper producer in the United

Cerro Verde Copper Mine (Peru)

Toyo Smelter & Refinery (Japan)■ Jinlong Copper Smelter & Refinery (China)
SMM took an equity stake in 1995 in Jinlong Copper
Co., Ltd. (currently 27.1%) in what remains the only
capital tie-up between a Japanese non-ferrous metals
producer and a Chinese copper-smelting enterprise.
The relationship has continued to develop over theyears. Copper output in fiscal 2006 equaled 210kt.
Plans call for expanding annual capacity to over 300kt
in fiscal 2008.

SUMITOMO METAL MINING CO., LTD. Annual Report 200721

Review of Operations
NICKEL
Business environment and basic strategy
The addition of nickel to iron boosts the metal’s resistance to corrosion, heat and abrasion, among otherbenefits. These properties have helped to make nickel
an indispensable raw material in the production ofmany advanced materials in sectors such as semiconductors, aerospace and energy development. The
growth in future demand is expected to be robust. For
instance, more oil and gas exploration projects now
involve drilling at much greater depths or under harsh
operating conditions. Seamless steel pipes used in exploratory wells must be resistant to high temperatureand pressure and have anti-corrosive qualities. This isboosting demand for high-grade ferronickel alloys
used to produce such steel. Demand for nickel is also
rising as a raw material in applications such as battery
materials, particularly for use in hybrid vehicles.
On the supply side, the global industry is developing low-grade laterite ores for nickel smelting due tofalling ore production from nickel sulfide deposits, themain ore type developed to date. Development of laterite ores is technically challenging for a number ofreasons, which has prompted market concerns about
whether production volumes can maintain growth in
the future.
As Japan’s only producer of electrolytic nickel, we
are focused on boosting our presence within the global
nickel industry. In addition to raising our nickel refining capacity to 100ktpa, we are also undertaking
exploration to secure new sources of this metal.

Status of major projects■ Coral Bay Nickel Project (Philippines)
The SMM Group is the lead partner in this nickelsmelting project with a 54% equity stake. Since April
2005 the plant has been using the HPAL method to
produce mixed nickel/cobalt sulfide products, anintermediate in the nickel-smelting process. Production volumes reached 8kt (in recovered nickel equivalents) in fiscal 2006, and are projected to rise to 10kt
in fiscal 2007. The second phase of the project is targeted to begin operation in April 2009. Constructionof a second facility with a refining capacity of 10ktpa
is currently under way.

22

■ Goro Nickel Project (New Caledonia)
SMM owns an 11% equity stake in this project, which
has nickel reserves estimated among the world’s
largest. Our annual off-take rights from the project areequivalent to approximately 6.6kt of nickel oxide and0.5kt of cobalt carbonate. Although completion delays
are currently expected to raise construction costs, we
are working in conjunction with project leader CVRD
Inco of Canada toward an end-2008 target date for
production start-up. The HPAL technology will be
the processing method employed, as at the Coral Bay
project.
■ Taganito Project (Philippines)
In March 2007, we signed an agreement with Taganito Mining to undertake a joint feasibility study for anickel-smelting project in the Taganito region in thenortheastern part of Mindanao island in the Philippines. Plant construction is due to commence in 2009
if the feasibility study results are satisfactory. Plans callfor a smelting facility capable of producing 30kt per
year (in recovered nickel equivalents) from mixed
nickel/cobalt sulfide ores, starting in 2012.

Solomon Islands* Exploration ProjectThis project is positioned to give us an initial boost in
raising annual nickel refining capacity further once wehave reached 100ktpa. It is a “grassroots” operation inwhich we are exploring from scratch on land where wehave secured exclusive exploration rights. The exploration zone has a total area of 182km2, which is equivalent to about two times the size of Manhattan.
Currently we are conducting a geological survey ofthe area to gauge the level of nickel reserves in approximate terms. This involves gathering soil samples androcks from the exploration zone and usingchemical analysis todetermine the amountsof subterranean nickelore deposits present.
*The Solomon Islands lie in
the South Pacific.

PRECIOUS METALSBusiness environment and basic strategy
Gold, silver, platinum and other precious metals benefit from stable demand due to their unique properties.
For instance, gold has low chemical reactivity, whilesilver provides high thermal conductivity with highoptical reflectance. Precious metals can be separated
and recovered during copper smelting. Higher copper
smelting volumes thus translate into increased production capacity for precious metals.
We have expanded our processing capacity for precious metals through the introduction of improved
refining processes at the Toyo Smelter & Refinery. We
have also developed and begun using special extraction
technology to enable recovery of rare metals such as
iridium and ruthenium, which were previously
thought too difficult to recover. We are also applying
the mining technology developed at the Hishikari
Mine in exploration activities to secure new gold
resources.

Status of gold mines■ Hishikari Mine
The largest gold mine in Japan, Hishikari is 100%
owned by SMM. Production of gold was 7.5t in fiscal
2006, a similar figure to the previous year. The gradeof the ore obtained from Hishikari is among the highest in the world, yielding 45-50g/t of gold, or about
ten times the global average. The mine’s estimatedresidual gold reserves were 150t at the end of December 2006.

Hishikari Mine (Japan)■ Pogo Gold Project
SMM owns an equity stake of 51% in this mine.
Located in Alaska, U.S.A., it is the main mine outside
Japan in which we have a majority interest. The mine’s
estimated gold reserves were 150t at the end of
December 2006. Operation remained below design
capacity after production began in February 2006 due
to inadequate filtration capabilities. Production successfully ramped up after the installation of additional
facilities was completed in April 2007. The mine’s estimated annual gold production at full capacity isapproximately 12t,
which is expected togenerate around 6tpa
of gold for SMM
based on our equity
stake in the project.
Pogo Gold Mine (U.S.A.)

CAPITAL INVESTMENT PLANS
Our aim in the mineral resources and metals segments
is to expand the scale of operations further so that we
can move toward a business model based on “mineral
resources + refining.” To this end we plan to invest
aggressively in capital expenditure projects in fiscal
2007. Major planned capital expenditures comprise¥21.4 billion on the construction of the second-phase

plant at the Coral Bay Nickel Project (where operations are scheduled to start in April 2009), ¥2.4 billion
to boost the ore-dressing capacity at the Toyo Smelter& Refinery, and ¥0.5 billion to expand the production
capacity for electrolytic nickel. No capital investments
in major overseas development projects are planned
for fiscal 2007 in these segments.

Capital Expenditures
Mineral Resources
Metal and Metal Processing
Overseas Developmental Investments
Total(Billions of yen)

FY2007 (Plan)

FY2006 (Actual)

FY2005 (Actual)

FY2004 (Actual)

FY2003 (Actual)

¥ 6.5
38.7
—
¥45.2

¥ 9.3
18.8
10.9
¥39.0

¥14.0
15.6
37.3
¥66.9

¥ 7.0
15.2
—
¥22.2

¥ 3.0
27.9
—
¥30.9

SUMITOMO METAL MINING CO., LTD. Annual Report 200723

Review of Operations

Electronics and Advanced Materials
Fiscal 2006 Review
The electronics industry posted favorable growth overthe previous year. This reflected the continued expansion of markets for flat-panel televisions, mobile
phones and other products, along with relatively
strong growth in the markets for PCs and onboard
automotive electronics.
In the electronics materials segment, products generating solid growth in sales included bonding wire forsemiconductors, used in PCs and other products;
nickel paste for multi-layer ceramic capacitors(MLCCs), which are employed in mobile phones, flatpanel TVs and other items; and gallium phosphide(GaP) wafers for use in light-emitting diodes (LEDs).
Signs of an inventory adjustment emerged during thesecond half of fiscal 2006 with semiconductor packaging materials such as lead frames.
In the advanced materials segment, higher demandfor copper-clad polyimide film (CCPF) led to higher
sales over the full year, despite the appearance of signsof an inventory correction in the LCD-related sector
during the middle of fiscal 2006 (CCPF is a substratematerial used in chip-on-film (COF) boards, a type ofbuild-up packaging for the integrated circuits used in
LCD screen drivers). In battery materials, sales ofnickel hydroxide rose for use in hybrid vehicle
batteries.
Net sales in the electronics and advanced materials
segment increased 21.5% over the previous year to¥223.6 billion, while operating income climbed
21.5% to ¥13.6 billion.

Core Strategies Under FY2007–9
Medium-term Business Plan
In our electronics and advanced materials businesses,
our strategy is to boost the quality of earnings in two
ways: first, by raising profits from existing products bysecuring leading market shares; and, second, by
actively developing new products and businesses.
With the aim of securing leading market shareswith existing products, we plan to make steady gains
in growth markets such as China to expand sales ofour existing product portfolio, notably in thick-film
pastes and bonding wire. In addition, with products
such as sapphire substrates and lithium nickel oxide
where demand is expected to grow going forward, ourgoal is to maintain a level of quality that will earn
enduring customer trust while upgrading towardmass-production capabilities as quickly as possible.
With products such as copper-clad polyimide film
where we have already secured benchmark status
within the industry, we are seeking to entrench ourdominant market share by targeting productivity
improvements that bolster cost competitiveness.
In the semiconductor packaging materials business,
we aim to maintain and build on our number one
share of the global market for lead frames. In tapebonding materials, we plan to leverage the competitiveness of our facility in Taiwan to secure the leading
share of the Taiwanese and Chinese markets.

Operating Income Target for Electronics andAdvanced Materials Segment(Billions of yen)

Financial Highlights

20(Millions of yen)

FY2006

Net sales
Operating income
Operating margin (%)

FY200520.0

FY2004¥223,580 ¥184,075 ¥154,864
13,584

11,176

7,265

6.08

6.07

4.69

Depreciation expense

10,073

9,647

8,943

Capital expenditures

22,563

18,783

12,578

15
13.6
10

5

0
FY2006
actual24

FY2009targetOur new product development strategy involves
maintaining and building on our leading market
shares in certain sectors to derive advantages in thedevelopment of new products. We are also trying toaccelerate new product commercialization and business development by focusing R&D activities on alimited selection of development themes.

In terms of numerical performance, our goal is tobuild a structure capable of generating consolidated
operating income of ¥20 billion on a stable basis fromfiscal 2009 (compared with the fiscal 2006 result of¥13.6 billion).

SMM’s Production Facilities for Electronics and Advanced Materials■ Semiconductor packaging materials■ Bonding wire
■ Electronics materials(except Bonding wire)■ Advanced materials■■

Kunitomi District Division■

SMM Precision Co., Ltd.

■

Shinko Co., Ltd.

■■Electronics Division■

Sumitomo Metal Mining Package Materials Co., Ltd.

■

Isoura Plant■■

Niihama Electronics Co., Ltd.

■

Ajimu Electronics Co., Ltd.

■■■ Ohkuchi Electronics Co., Ltd.

■ SMM KOREA Co., Ltd.
■ Shanghai Sumiko Electronic Paste Co., Ltd.
■ Sumitomo Metal Mining Electronics Materials(Shanghai) Co., Ltd.
■ Sumiko Electronics Suzhou Co., Ltd.
■ Sumiko Leadframe Chengdu Co., Ltd.
■ Sumiko Electronics Taiwan Co., Ltd.
■ Taiwan Sumiko Materials Co., Ltd.
■ Dongguan Sumiko Electronic Paste Co., Ltd.
■ Sumiko Leadframe（Thailand）Co., Ltd.
■ M-SMM Electronics SDN. BHD.
■ Malaysian Electronics Materials SDN. BHD.
■ Sumitomo Metal Mining Asia Pacific Pte. Ltd.
■ P.T. SUMIKO LEADFRAME BINTANSUMITOMO METAL MINING CO., LTD. Annual Report 200725

Review of Operations
ELECTRONICS MATERIALSBonding wire

Single-crystal materials

SMM is currently the world’s second-ranked supplierof bonding wire, with a market share of around 25%.
One of our major strengths in this sector is that we
can source the gold required to make this productinternally. Through our local subsidiary Sumitomo
Metal Mining Electronics Materials (Shanghai) Co.,
Ltd. (SMS), we aim to boost our global market shareby focusing on raising our share of the Chinese market, where demand is expected to grow going forward.
Our goal is to secure the leading share of the global
market over the course of the 2006 Medium-TermBusiness Plan.

Sapphire substrates for high-intensity white LEDs arean emerging sector where we plan to develop full-scale
operations. The market for high-intensity white LEDs
is expected to grow rapidly going forward. We aim tosecure the leading share of this market by focusing ourefforts on completing a mass-production set-up.

New applications are expected in energy-efficient light sources,
including backlighting for large-scale LCD, automobile headlamps
and general illumination products.

Semiconductor packaging materials

Global demand for this gold wire used in semiconductors is
expected to grow steadily as the electronics market expands
worldwide.

Paste
Nickel paste used in MLCC internal electrodes is themainstay of this product range. Besides raising sales ofthis line, we also aim to increase our market share by
expanding sales through development of pastes for use
in external electrode applications. In pastes used forchip resistors, we are trying to raise our competitiveness by positioning Shanghai Sumiko Electronic Paste
Co., Ltd. (SEP) as our primary production facility.
Eco-friendly lead-free resistive pastes constituteanother area where we have recently started to focus
sales promotion efforts.

Supported by favorable market conditions, we plan togenerate higher sales of lead frames. Our aim is tomaintain and build on our leading global share of thismarket by exploiting the advantages inherent in our
integrated production process, which combines thestamping and photo-etching steps. In tape bonding
materials, we plan to secure the top share of the markets in Taiwan and China by leveraging the competitiveness of our Taiwan-based facility.

Our lead frames enjoy a high reputation for quality with customers
not only for the high-precision super-fine etching processes we
employ, but also for other aspects such as electrical and thermal
conductivity.

Pastes are used to make material films with conductive, insulating,resistive or protective properties. Prospective demand growth isstable owing to their use in various areas such as PCs, mobile
phones, LEDs and integrated circuits.

26

ADVANCED MATERIALS
Copper-clad polyimide film (CCPF)

Battery materials

Our copper-clad polyimide film claims the leading
share of the market in COF (Chip On Film) due torapid uptake in the large-panel LCD sector, reflecting
the high reliability that this material has demonstrated
in such applications. As LCD panels have become
more commonly used in flat-screen televisions inrecent years, demand for the high-quality CCPF that
we supply has increased sharply due to widespread
adoption of COF boards in large, high-resolution panels. We have responded to rising demand from customers by expanding SMM Group supply capacity for
CCPF substantially over a short period—from 1.2
million m2 in fiscal 2003 to 6.5 million m2 in fiscal
2006. Going forward, we plan to work on reinforcing
cost competitiveness by improving productivity so that
we can solidify our leading market position in board
materials.

We supply nickel hydroxide as an anode material forhigh-performance primary batteries and for secondary
batteries used in hybrid electric vehicles (HEVs).
Going forward, besides continuing full production ofnickel hydroxide, we plan to develop lithium nickel
oxide (LNO) as a second major source of earnings inthis field due to rising demand for LNO as an anodematerial in lithium-ion batteries used in PCs andmobile phones.

Due to advantages in terms of both cost and volume, LNO has
excellent prospects as an anode material for use in the next
generation of secondary lithium-ion batteries.

The bending durability and optimization for fine patterning shownby our copper-clad polyimide film have made it the leading choice
for COF applications in large LCD panels.

CAPITAL INVESTMENT PLANS
During fiscal 2006, we constructed a fourth plant at
the Niihama site in Ehime prefecture in response tostrong customer demand for CCPF. Completion ofthis project in December 2006 boosted annual CCPF
production capacity to 6.5 million m2. In fiscal 2007
we plan to invest ¥16.5 billion in capital spending
projects, both to develop businesses with new products such as sapphire substrates and to expand capacity
so that we can boost our market share of other products.

The fourth plant for CCPF
Sapphire single-crystal

Capital Expenditures
Electronics and Advanced Materials(Billions of yen)

FY2007 (Plan)

FY2006 (Actual)

FY2005 (Actual)

FY2004 (Actual)

FY2003 (Actual)

¥16.5

¥22.6

¥18.8

¥12.6

¥12.2

SUMITOMO METAL MINING CO., LTD. Annual Report 200727

Review of Operations

Other Businesses
Fiscal 2006 Review■ Construction Materials
This division is primarily engaged in the manufactureand sale of Siporex (Autoclaved Lightweight aerated
Concrete (ALC)), a construction material based ontechnology from Sweden. Sales of Siporex in fiscal
2006 were broadly on a par with the previous year,
reflecting flat demand in Japan. Our efforts to pass on
sharp increases in the prices of materials and energy inthe face of strong demands from customers for sales
price discounts were broadly successful. Overall, divisional sales rose 2.0% on a year-on-year basis to ¥17.7
billion, while operating income increased 0.6% to¥2.2 billion.
■ Recycling and environmental improvement
Our recycling-related business involves the recovery ofvaluable metals using technology originally developed
in refining. The environmental improvement businesscomprises site pollution survey and decontamination
operations for soil and groundwater. A fall in metals
prices reduced the sales revenues generated by the excatalyst metal recovery business during fiscal 2006,
but this was offset by higher sales on project completions booked by our plant engineering operations.
Total sales posted by the others division (including all
recycling and other environment-related operations)rose by 4.1% over the previous year, to ¥30.0 billion.
Segment operating income fell 5.3% to ¥4.0 billion,

reflecting lower prices for recovered metals such as
molybdenum.
Financial Highlights, by Segment(Millions of yen)

FY2006

FY2005

FY2004

Housing and Construction Materials
Net sales¥17,661¥17,318¥15,785

Operating income

2,153

2,140

1,180

Operating margin (%)

12.19

12.36

7.48

Depreciation expense

659

656

653

Capital expenditures

240

241

257

Others
Net sales¥29,954¥28,784¥23,119

Operating income

4,037

4,264

2,448

Operating margin (%)

13.48

14.81

10.59

Depreciation expense

1,373

1,329

1,290

Capital expenditures

1,314

1,735

1,179

Construction material Siporex

Summary of Other Businesses
Business

Main Activities

Housing and Construction Materials
Sumitomo Metal Mining Siporex Co., Ltd. ................Manufacture and sale of ALC (Autoclaved Lightweight aerated Concrete)
Others (Catalyst and Recycling)
Nippon Ketjen Co., Ltd. ...........................................Manufacture and sale of desulfurization catalyst for petroleum processing
Nippon Catalyst Cycle Co., Ltd. ...............................Recovery of valuable metals from the used desulfurization catalyst produced when oil isrefinedN. E. Chemcat Corporation......................................Manufacture and sale of chemical and automotive catalysts; Recovery and refining of
precious metals from used catalysts
Others (Environmental Improvement)
Sumitomo Metal Mining Co., Ltd..............................Unify management of Group businesses; Sale and development of water treatment
Energy & Environmental Business Div.
installations
Sumicon Certech Co., Ltd. ......................................Survey and decontamination operations for soil and groundwater
Sumiko Eco-engineering Co., Ltd. ...........................Environment-related engineering of exhaust gas treatment; Corrosion control
Sumiko Techno-Research Co., Ltd. .........................Analysis of metals; Environmental assessment and analysis
Japan Irradiation Service Co., Ltd. ...........................Radiation processing for sterilization and for modification of industrial materials

28Research and Development
Basic strategy and overview
Proactive and efficient R&D activities are a criticalpart of realizing sustained business growth throughefficient generation of competitive next-generation
products. In particular, we strive to make our R&D
efforts more dynamic by constructing systems to focus
efforts on prioritized user needs and by trying to boost
the motivation of researchers. Our R&D programs
created three new products with annual sales in the¥1–3 billion range during the three-year medium-termbusiness plan that ended in March 2007. Under the
new plan, we are applying greater selectivity and focus
to R&D themes at the SMM Group level to reinforce
specialization in core technologies while accelerating
the creation of new products.
The SMM Group operates research laboratories on
three sites at Ichikawa (Chiba prefecture), Niihama(Ehime prefecture) and Ome (Tokyo). Together these
employ around 200 people. Of these, 18 seniorresearchers occupy positions as team leaders withresponsibility for activities covered by each R&D
theme. To encourage commercial innovation while
maintaining a degree of research independence, eachteam leader is given budget and personnel assignment
authority over a particular R&D theme. We also try to
generate positive results in cutting-edge fields throughcollaborative projects involving academia, public-sector organizations and other parts of industry. This
often involves assigning researchers to various joint
research projects.

Core technologies and development
themes
The technological heritage of SMM can be traced
back more than 400 years to the development of theNanban-buki smelting technique by one of thefounders of Sumitomo. To this day we remain an
active developer of new and innovative technologies.
We have identified five core technological areas: separation, refinement and crystallization technologies;
nano-powder technologies; surface treatment technologies; organic resin technologies; and technologies
for evaluation and analysis. All of these technologies
have been developed over many years as part of ourcore metal-processing businesses, and many of them
are unique to SMM.
Under the new medium-term business plan thatbegan in April 2007, we are targeting five priority
development themes employing these various coretechnologies: 1) development of new smelting andrefining techniques for copper and nickel; 2) development of LNO and other battery materials for use aslithium-ion battery anode materials; 3) developmentof crystal materials, particularly sapphire substrates; 4)
development of thin-film materials for applications
such as sputtering targets; and 5) development of thinfilm advanced packaging materials, including CCPF
and printed circuit board materials. Going forward,
we aim to accelerate development by concentrating
resources in these particular areas.

Core Technologies■ Separation, refinement and crystallization technologies

Separation and refinement technologies form the basis for metal smelting and refining. Technologies such as HPAL, MCLE and the new processes that we havedeveloped to refine precious metals are the source of the SMM Group’s high competitiveness in this business.
Crystallization technologies support the stable growth of single crystals along with increased precision for fabricating highly energy-efficient materials from thesecrystals. These technologies enable us to supply high-performance electronic materials such as sapphire substrates.
■ Nano-powder technologies
These include nanotechnologies to enable the manufacture of nano-powders of metal oxides with particular properties such as heat shielding or electrical conductivity, orto deliver these materials in non-powder forms such as liquid suspensions, pellets or pastes. Amid the ongoing drive to make parts lighter, thinner and smaller, suchtechnologies are becoming vital for the manufacture of many types of advanced electronic components. Examples include transparent electrodes and semiconductor
packaging.
■ Surface treatment technologies
These technologies are used to coat or treat the surfaces of semiconductor packaging materials such as lead frames. CCPF, which is made by laying a thin film ofcopper directly onto polyimide film, relies on such technology. The process not only creates a light, compact product, but also realizes a number of high-quality
characteristics, including excellent thermal resistance and dimensional stability.
■ Organic resin technologies
Many advanced functional materials now comprise hybrids of inorganic and organic compounds. Bonded magnets are one example: the use of the hybrid approachenables materials that possess strong magnetic properties but can also be molded into a wide variety of shapes. This is critical when devising high-efficiency magnet
solutions for miniaturized electronic devices. Our R&D program is developing materials for use in high-performance rare earth bonded magnets and related molding
technologies.
■ Evaluation/analytical technologies
Technologies for material evaluation and analysis form an important platform for all materials-related R&D activities. We are working on four main types of technologies
in this field: inorganic analysis, for examining the elements contained in a sample; organic analysis, for polymers, surfactants and related materials; solid-state analysis,
for assessing properties at the atomic level and crystalline structures to guide the development of new materials; and simulation-based analytical techniques for specificanalysis of fluids, stress or electromagnetic field effects.

SUMITOMO METAL MINING CO., LTD. Annual Report 200729

THE SUMITOMO BUSINESS SPIRIT
Based on the Sumitomo Business Spirit, a business philosophy that has been handed down overmore than 400 years, we have formulated the SMM Group Corporate Philosophy and SMM Group
Code of Conduct to guide the growth of our Company. These statements relate to our responsibilities as a corporate citizen in areas such as respect for human rights, the promotion of safety
and sustainable co-existence with society and the environment.

The Sumitomo Business Spirit
SMM’s roots can be traced back to the late 16th
century, when a technique for smelting copper
known as Nanban-buki was developed. Since thattime, the Sumitomo family has been continuously
involved in copper smelting and related mining
operations.
Masatomo Sumitomo, a founding member of
the Sumitomo family enterprise, left a memorandum (“Monjuin Shiigaki”) that laid down principles for commercial success. These tenets evolved
into the Sumitomo Business Spirit. Today, theseprinciples form the backbone of the corporate philosophy adopted by all companies in the Sumitomo Group. Two of the five principles are shown
below.
Principle 1:
Integrity and sound management are of prime
importance to ensure the prosperity and stabilityof the organization.
Principle 2:Sound business management demands foresightand flexibility to cope with the changing times,
while eschewing the pursuit of speculative profit
or other imprudent actions.
(From Business Principles in the Sumitomo corporate regulations, c. 1928)

Principle 1 means that, above all, firms muststrive to develop business through sincerity andreliability, placing great importance on the faith ofsociety in the enterprise and on the developmentof mutually trusting relationships.
Principle 2 means that companies must notsink into bad habits that reflect the old ways of
doing business. Instead, firms always need tochange with the times, gauging social demands
and trends accurately to forge new operations andwhere necessary curtailing obsolete businesses.
Such a stance requires a highly proactive attitude
on the part of managers. At the same time, it isincumbent on an enterprise to seek profits by ethical means no matter what the circumstances. Thismeans that companies should avoid the narrow
pursuit of short-term profit and never proceedwithout doing proper research or taking all relevant factors into consideration.
The predecessors of SMM honed the implementation of these principles of business over a
period of approximately 400 years, in the processcreating a business that has lasted generations. Oneof the reasons that the business proved sustainable
was that we heeded a key lesson from our ancestors, which is that an enterprise must be of majorsocial significance tosurvive. Our actions
over the generations
have observed this ruleby being of use tosociety. Another lesson that we haveinherited is the set ofvalues and ethicalbusiness principles
that are encapsulated
in the Sumitomo The Nanban-buki smelting
technique allowed theBusiness Spirit, which separation of both copperremain valuable today. and silver from mineral ore.
This stance emphasizes the strength accruing to an enterprise fromtrust-based relationships with society. It is anapproach that we intend to continue pursuing in
future years.
Corporate philosophy and code of conduct
Based on the Sumitomo Business Spirit, we haveformulated the SMM Group Corporate Philosophy (refer to the inside front cover page) and the
SMM Group Code of Conduct (refer to page 33).
The SMM Group Code of Conduct is designed to
guide the behavior of individual employees.

SMM Group Code of Conduct

30

CORPORATE GOVERNANCE AND
INTERNAL CONTROLS
Corporate governance provides a disciplinary framework both for maximizing the corporate valueof the SMM Group and for ensuring sound management practices. As such, we regard it as amanagement issue of prime importance.

Management structure of corporate governance
SMM has adopted an executive officer system tomaximize the effectiveness of execution, monitoring and oversight functions within management.
Along with the system of corporate auditors, thisensures the functional separation of executive decision-making from operational execution. SMM
has also set up the Management Committee toprovide deliberation with respect to importantmanagement matters. The governance system isthus structured to provide rational analysis frommultiple perspectives prior to major decisions. In
June 2007, to strengthen corporate governancefunctions further, SMM appointed an outside
director to provide additional external input to thedecisions made by senior management.

■ Directors and Board of Directors
SMM’s articles of association limit the maximum
number of directors to ten as a way of promoting
lively debate at meetings of the Board of Directors.
With eight members as of July 2007, the Board
meets regularly each month and on special occasions as required to ensure flexible decision-making. Information is shared between the Board of
Directors and the Executive Committee, which
receives reports on all matters decided at Board
meetings. The system of remuneration for directors is based on corporate financial performance.
The General Meeting of Shareholders held in
June 2007 approved a measure to shorten theterms of directors from two years to one year,
which will mean that the membership of theBoard will become subject to an annual vote ofconfidence. This move is intended to bolster corporate governance functions.

Organizational Chart of Corporate GovernanceG e n e r a l M e e t i n g o f S h a re h o l d e r s
Election
Election

Election

Board of Directors
Directors
Major decisions and oversightElection and supervision
Board ofCorporate
Auditors
Operationandaccounting
audit

Auditing

President andRepresentative Director

Management
Committee
Deliberations

Auditing
Department
Internal audit

Independent
PublicAuditing Accountant

Executive officers
Execution of business

Auditing

Accounting
audit

Headquarters Review
Division
ReviewBusiness
Division

Auditing
Auditing

Auditing
Affiliated companies

Auditing
Affiliated companies’ Boards ofCorporate Auditors

Auditing
Affiliated companies’ Independent
Public Accountants

SUMITOMO METAL MINING CO., LTD. Annual Report 200731

■ Management Committee
The Management Committee is composed of thepresident, senior managing executive officers andother executive officers. Corporate auditors also
attend its meetings. The purpose of the Management Committee is to provide a forum for broadranging discussion of serious issues that are either
matters for the Board agenda or fall under the
direct authority of the president. The Management Committee provides functional support tothe president and approves which matters areplaced on the Board agenda.
■ Executive officer system
This system reinforces executive functions by
establishing a clear delineation of authority andresponsibilities and by delegating significant
authority to each executive officer. As of July
2007, SMM had 18 executive officers, including
six with concurrent roles as directors. The executive officers occupy senior management positions
with specifically assigned operational responsibilities for divisions, central departments and otherkey parts of the organization. All executive officers
report on a monthly basis to the Executive Committee that oversees the status of operations. SMM
is introducing a corporate financial performancebased remuneration system for executive officers
similar to that for directors.
■ Corporate auditors
The articles of association limit the number of corporate auditors to five. As of July 2007, SMM had
four corporate auditors, including two outside
auditors that work for the Company on a parttime basis. Neither outside auditor has connections with any company in the SMM Group: one
is a university professor, and the other is a CPA.
The full-time internal auditors base their independent opinions on internally conducted audits,
while outside auditors state opinions based on
their knowledge from specialist fields. Corporate
auditors attend meetings of the Board of Directors
and of the Management Committee. The Board of
Corporate Auditors meets once per month incoordination with Board meetings, and also convenes in extraordinary session if required.

32

Status of system of internal controls
To aim at ensuring full regulatory compliance,
The SMM Group drew up the SMM Group Codeof Conduct to set corporate behavioral standards
for all employees and corporate officers. Drawing
lessons from the critical nuclear accident that
occurred in 1999 at our subsidiary JCO, we formulated a corporate revitalization plan in 2000 topromote the deep-rooted adoption of management
practices firmly oriented toward compliance andsafety. In December 2003, we instituted a revisedGroup management philosophy based on the
Sumitomo Business Spirit.
In May 2006, the Board of Directors approved
an initiative to develop a system of internal controls. We have since adopted measures tostrengthen compliance, to bolster risk management, to raise transparency and improve the reliability of corporate disclosure, and to establish
appropriate internal controls governing operational execution.
■ Initiatives to bolster compliance
We believe that strengthening compliance at the
SMM Group is synonymous with improving theawareness and implementation of the SMM
Group Code of Conduct. The code comprises 17
items, with compliance placed at the top of thelist. Other key topics covered include the maintenance of safety, risk management and global environmental consciousness. Rather than using prohibitive language, the code emphasizes thosebehaviors that are expected of our employees andcorporate officers. Since 2001, we have organizedannual compliance-related training seminars forthe entire SMM Group to improve basic compliance knowledge and to raise awareness of recent
regulatory developments and related trends.
We have also established an internal reporting
system to assist employees with any queries regarding the standards set out in the SMM Group Codeof Conduct, or in cases where employees cannot
resolve compliance-related doubts through consultation with superiors. The system allows employees to report compliance-related matters directly
through this channel.

■ Strengthening risk management
The SMM Group faces various risks relating toissues such as compliance, the environment, disasters, quality and information security. We havedrafted internal regulations relating to such risks tosupport systematic risk-reduction measuresthroughout the organization. We have also established the Risk Management Promotion Department as a dedicated team to tackle related issues.
Specialist committees help to oversee promotion ofrisk management programs across the Company.
During fiscal 2006, we brought together thework begun a year earlier on business continuity
plans as part of improving risk-management capabilities to respond to major disasters. Work is progressing on the further development of these plans
to improve the effectiveness of projected measures.
This includes discussions with related departments
and the organization of training drills.
■ Ensuring proper financial reporting andoperational execution
In addition to disclosing financial information prepared in accordance with proper accounting standards, we also strive to improve the reliability ofsuch information through monitoring carried out
by the Auditing Department along with the checks
provided by the independent financial accounting
audit. We are also constantly working to improve
operational processes with the aim of making
information-gathering processes faster and morecomprehensive; analytical and decision-making
processes more timely, compliance-oriented, precise and transparent; and disclosure processes morefair and proactive.
We also aim to ensure the appropriateness ofoperations by working to foster a corporate culturethat is conducive to the proper fulfillment of duties
based on observance of the SMM Group Code of
Conduct. We try to ensure that multiple and specialist points of view are taken into account throughthe use of meetings and document circulation procedures that are based on internal regulations.
Internal audits undertaken by the Auditing Department provide an additional safeguard to monitor
the appropriateness of operational execution.
Controls affecting Group subsidiaries and affiliates include prior consultation with SMM on
important matters; regular reporting of financial
performance; assignment of executives to subsidiaries; and internal audits conducted by the
Auditing Department to monitor operational execution at subsidiaries.

SMM Group Code of Conduct(for corporate officers and employees)
1. Compliance with Laws and Regulations• We shall observe laws, rules, and morals.
• We shall not conduct ourselves in anything which isagainst laws or morals even though it may benefit us.
2. Respect for Individuals• We respect each individual’s character and humanrights, and shall not take any discriminatory action
against them.
3. Securing of Safety and Health• We shall place top priority on the safety of life andhealth of our customers and employees.
4. Development of Human Resources• While making efforts at self-enlightenment, we shalleducate our subordinates and juniors to train our
successors.
5. Risk Management• We shall introduce the idea of risk management into
our business operations.
6. Enterprising Attitude• We shall do our work in an enterprising attitude so that
we can create technologies and systems a step aheadof the changes of the times.
7. Emphasis on Teamwork and Good Communications• We shall value teamwork among employees andorganizations.
• We shall make efforts to foster an open and active corporate culture where necessary information is shared ina timely and smooth fashion.
8. Relationship with the Local Community• We shall aim for a harmonious relationship with thelocal community.
9. Distinction between Private and Public Matters• We shall make a clear distinction between private andpublic matters and act sensibly.
10. How to Collect, Use, and Handle Information• We shall collect and use information speedily, legally,
appropriately, and effectively.
• We shall use the information obtained through ourbusiness activities only for business purposes andnever disclose it to third parties.
11. Handling of Intellectual Property Rights• We recognize intellectual property rights as important
assets that support our technology-oriented group andmake efforts to create them.
• We shall protect our intellectual property rights appropriately and use them effectively. At the same time, weshall respect the intellectual property rights of others.
12. Quality Assurance• We shall play the role expected from customers, baseon our quality assurance system.
• We shall provide customers with products and services
that satisfy their needs with due consideration to safety
and security.
13. Attitude toward Business and Purchasing Operations• We shall perform our business and purchasing operations through free and fair transactions under appropriate conditions.
14. Attitude toward Corporate Entertainment andExchanges of Gifts• When we provide entertainment or gifts to our customers, we do so in a legally and socially acceptable way.
• When we are provided with entertainment or gifts, weshall behave in the same way as mentioned above.
15. No Relationship with Antisocial Forces• We shall face up to antisocial forces or organizations
and have no relationship with them.
16. Consideration to Global Environment• We shall make efforts to contribute to the solution or
improvement of the global-level problems regarding
resources, energy, and the environment.
17. Attitude toward Overseas Operations• In our overseas operations, we shall respect the cultures and customs of the countries or regions that weare involved with and make efforts to promote international exchanges.

SUMITOMO METAL MINING CO., LTD. Annual Report 2007

33

SOCIAL AND ENVIRONMENTALINITIATIVE
We recognize that the sustainability of our enterprise and business development is heavily reliant
on making operations compatible with the needs of the environment and of society in general. We
are engaged in various initiatives that aim from a number of angles to make a positive social andenvironmental contribution while cultivating a culture of safety.

Basic thinking on global environmental
protection
The Sumitomo family enterprise developed originally through copper smelting and mining operations. In particular, the Besshi copper mine, which
operated for a total of 283 years from 1691 to its
closure in 1973, was one of the main assets of theSumitomo business. Since copper smelting andmining are both businesses that involve harvesting
the riches of nature, this demands that we adopt
an eco-conscious business stance. Our predecessors
also managed the business without forgetting theneed for harmony with the environment.
We have formulated an environmental philosophy as the heirs to a thriving business and ecoconscious business stance. Our related ongoingprogram of initiatives aims to turn this philosophy
into reality.
Environmental management system (EMS)
Since the institution of the SMM Environmental
Philosophy in October 1997, one of the main initiatives that we have undertaken to realize it is tocontinue with an ongoing program to develop
environmental management systems for all divisions, including affiliates, and to gain related
ISO14001 certification.
A total of 50 SMM Group operating sites (44in Japan and six overseas) had completed
ISO14001 certification procedures for EMS by

February 2003. Sites have since continued gaining
certification to strengthen our environmental
management systems. Disused mining sites arealso included in the list of SMM Group operations
that must acquire ISO14001 certification.
Business activities and global environmental
protection
SMM has developed a vertically integrated business model in the non-ferrous metals sector thatspans upstream and downstream operations, frommineral resource development and metal refining
to materials fabrication. Each of these businesses
has an intimate relationship with the environment.
In mineral resource development, we conductvarious activities to minimize the impact on thelocal ecosystem and surrounding environment. In
metal refining processes, we make efforts to conduct operations in an eco-friendly manner byimplementing environmental impact-reduction
measures to boost energy efficiency, prevent
atmospheric and water pollution and maintainstrict standards for the handling of chemical substances. We are also engaged in research on thesmelting of low-grade ores to develop technologies
that make the most effective use of limited
resources. Moreover, in the area of materials fabrication, our efforts are focused on supplying customers with products that have a low environmental impact.

SMM Environment Philosophy
Sumitomo Metal Mining Co., Ltd. shall positively promote the preservation of the global environment as oneof its basic managerial principles. In order to leave a comfortable and convenient environment for the next
generation through our corporate activities in harmony with the environment, we shall do the following voluntarily and continuously:
1. Effective use and recycling of resources and energy saving
2. Reduction of environmental burdens
by making full use of our technologies and know-how for environmental preservation that we have accumulated over years and developing new technologies in addition to strictly observing laws and regulations.

34

Examples of social and environmental
initiatives■ Operations at Pogo Gold Mine begun only
after clearing strict environmental standards
The Pogo Gold Mine in Alaska, U.S.A., which isthe first mining project outside Japan in which
SMM has a majority interest, began operations in
February 2006. Gold deposits were first discoveredin the area in 1994. Environmental concerns were
fully taken into consideration from the design
stage, with every effort made to gain the approvalof local communities for development. The
United States was one of the first countries in theworld to introduce the use of environmental
assessments for mining projects. The environmental protection standards are especially strict in
Alaska, which has an abundance of national parks
and protected wildlife areas. These various rules
required 83 separate approvals for the project. In
the case of the Pogo Gold Mine development, we
took the utmost care to take measures to minimize
the impact on ecosystems, to avoid harming therivers that salmon ascend and protect local populations of animals such as elk.
We expect environmental protection-related
demands to become even stricter for future mining
projects. The Pogo project provides us with a valuable case study in how to address such environmental concerns effectively.

Elk living around Pogp Gold Mine

■ Battery materials for hybrid vehicles
The batteries used in eco-friendly hybrid vehicles
need to provide energy for short bursts of acceleration. Demand for frequent power inputs and outputs is another reason why the battery electrodes
must be able to cope with much larger loads thanconventional batteries can typically handle. Nickelhydroxide products made by SMM are one material capable of withstanding the severe stress of theelectrical loads involved. We supply nickel hydroxide for use in the hybrid vehicles made by Toyota
Motor Corporation. By minimizing emissions ofharmful substances such as CO2, our battery materials are expected to contribute substantially to
reducing environmental impact.

Nickel hydroxide powder■ Contributions to society through theSumitomo Foundation
The Sumitomo Foundation was established in1991 as part of the 300th anniversary celebrationsof the opening of the first shaft at the Besshi copper mine, the common forebear of all the Sumitomo Group businesses. The mission of the foundation is to contribute to the building of anaffluent society for the benefit of humankind.
SMM has consistently given financial support tothe foundation, which was established initiallywith capital of ¥20 billion donated by 20 companies from the Sumitomo Group. Currently thefoundation donates ¥300 million every year tofund activities and programs in five areas, including basic scientific research, environmental
research, cultural heritage preservation activities inJapan and abroad, and international exchanges.
A thorough attitude toward safety
Cultivating a culture of safety underpins all business activities within SMM. We believe that this isa critical part of how we earn the trust of all stakeholders. A core part of the program of safetyrelated activities has been the introduction of an
Occupational Safety and Health Management System (OSHMS). The key benefit of the OSHMS
approach is that it seeks to identify and anticipate
latent health and safety-related risks by determining possible hazards, evaluating risks and devising
suitable countermeasures.
Based on the thinking that it is better to “makehaste slowly,” our program of safety measures is
not one that seeks instant results, but rather a careful and thorough initiative that is being implemented steadily and reliably.

SUMITOMO METAL MINING CO., LTD. Annual Report 200735

CORPORATE OFFICERS
As of June 28, 2007

From left: Tsutomu Ushijima (Director), Ichiro Abe (Director), Susumu Makino (Director), Koichi Fukushima (Representative Director),
Nobumasa Kemori (Representative Director), Takuro Mochihara (Director), Masashi Koike (Director), Yoshiaki Nakazato (Director)

Directors and Corporate Auditors

Executive Officers

Representative Directors:
Koichi Fukushima
Nobumasa Kemori

President: Nobumasa Kemori

Directors: Takuro Mochihara
Susumu Makino
Masashi Koike
Ichiro Abe
Yoshiaki Nakazato
Tsutomu Ushijima*(Standing) Senior Corporate Auditor:
Hirosuke Chihara(Standing) Corporate Auditor:
Motoki Kitamura
Corporate Auditors:
Hajime Ohta**
Katsumi Maeda****Outside Director under the Commercial
Code**Outside Corporate Auditors under theCommercial Code36

Senior Managing Executive Officers:
Takuro Mochihara*
Susumu Makino*(General Manager, Advanced Materials Div.)

Masashi Koike*
Ichiro Abe*
(General Manager, Mineral Resources Div.)Managing Executive Officers:
Naoki Tajiri(General Manager, Finance & Accounting Dept. andManagement Service Center)

Yoshiaki Hashinaka(General Manager, Besshi-Niihama District Div.)

Etsu Senda(General Manager, Electronics Div.)

Kozou Baba
(General Manager, Technology Div.)

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

Yukio Kawaguchi(Deputy General Manager, Mineral Resources Div.)

Yoshiaki Nakazato*(General Manager, Corporate Planning Dept. and
Affiliated Business Administration Dept.)

Toru Yamasaki(General Manager, Energy & Environmental Business
Div.)

Takahito Kusada(General Manager, Safety & Environmental Control
Dept.)

Takeshi Kubota(General Manager, Non-Ferrous Metals Div.)

Toshikazu Yakushiji(Deputy General Manager, Energy & Environmental
Business Div.)

Yasushi Hashimoto(Deputy General Manager, Advanced Materials Div.)

Naoyuki Tsuchida(Deputy General Manager, Non-Ferrous Metals Div.)*Those Double as Director and Executive Officer

Financial Section

Eleven-Year Financial Summary

38

Financial Analysis

40

Consolidated Balance Sheets48

Consolidated Statements of Income

50

Consolidated Statements of Changes in Net Assets

51

Consolidated Statements of Cash Flows53

Notes to Consolidated Financial Statements

54

Independent Auditors’ Report73

SUMITOMO METAL MINING CO., LTD. Annual Report 200737

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

2007

2006

2005

2004

Results 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 ....................................................

¥966,764
203,180
162,632
42,985
205,617
126,054
46,70851,567
25,693(2,606)
95,985(77,429)(10,073)
18,556¥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

Financial position at year-end:
Total assets..........................................................
Net assets*1 ..........................................................
Shareholders’ equity ............................................
Long-term debt due after one year.......................
Interest-bearing debt ...........................................
Working capital ..................................................

929,208
528,921—93,800189,910
103,791

772,562
394,899—
114,405
190,891
72,228573,925—
283,897
109,777
160,533
86,382517,930—
253,071
86,437
148,351
52,795

Amounts per share (Yen):
Net income (loss)— Basic........................................................
— Diluted....................................................
Shareholders’ equity*2 ..........................................
Cash dividends....................................................

220.49213.67859.8227.0

109.96108.87654.15
14.0

64.77
—
497.578.0

34.76—
443.29
6.0

Years ended March 31

Key ratios:
ROA (%) ............................................................
14.81
9.33
6.78
4.02
*2
ROE (%) ..........................................................
28.99
19.10
13.79
8.35
Equity ratio (%)*2................................................
53.4
48.4
49.5
48.9
Interest-bearing debt to total assets ratio (%).......
20.4
24.7
28.0
28.6
Debt-to-equity ratio (times)*2 ..............................
0.38
0.51
0.57
0.59
Current ratio (times) ...........................................
1.39
1.33
1.61
1.38
*1 Sections under “Net assets” are newly provided to conform to Japanese accounting regulation revisions.
See note 2 to the consolidated financial statements “Accounting standard for presentation of net assets in the balance sheet.”
The fiscal 2006 figures have also been restated to reflect this change.
*2 From 2006, basis of calculation of shareholders’ equity is figured out as follows:
Shareholders’ equity = Total shareholders’ equity (refer to page 49) + Total valuation and translation adjustments (refer to page 49)

38

Millions of yen (Except per share amounts and key ratios)

2003

2002

2001

2000

1999

1998

1997

¥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¥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———

470,774—
223,341
76,470154,799
35,945

518,756—
236,31373,972167,077
23,371530,080—
237,470
83,839176,998
33,259544,121—235,231
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
62,726(2.05)—
391.145.0(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—
417.20
6.0

—
—
47.4
32.9
0.69
1.26

—
—
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

SUMITOMO METAL MINING CO., LTD. Annual Report 200739

Financial Analysis
SUMITOMO METAL MINING CO., LTD. AND SUBSIDIARIES

Overview of Consolidated Operations
The SMM Group comprised the parent company (Sumitomo
Metal Mining Co., Ltd.), 58 subsidiaries and 18 affiliatedcompanies as of March 31, 2007. The SMM Group operates
three main businesses, which are outlined below.
(1) Mineral resources: mining of ores to extract gold, silver,
copper and other metals(2) Metals: smelting and refining of non-ferrous metals suchas gold, copper, nickel and zinc; manufacture of fabricatedmetal products such as copper strip products(3) Electronics and advanced materials: manufacture of electronics materials such as IC packaging materials, singlecrystal materials and PCB substrates (electronics materials
business); manufacture of advanced materials, including
copper-clad polyimide film, powdered materials such as
nickel powder, battery materials and magnetic materials(advanced materials business)
Other consolidated operations include the housing andconstruction materials business, which manufactures Siporex(Autoclaved Lightweight aerated Concrete), and others business, which primarily comprises nuclear power-related engineering services and environment-related operations.
The results presented in this Annual Report comprise theconsolidated performance of the parent company, 48 domestic and overseas subsidiaries, and 13 equity-method affiliates.

Operating Performance (Consolidated)
Impact of Foreign Exchange Fluctuations(Reference Note)
Exchange rates are closely linked to the non-ferrous metals
business, from the purchase of ore to sales of final products.
In our refining business, a weaker yen pushes up the price ofpurchased ore and raises the sales prices of manufactured
products. In general terms, a weaker yen has a positive impact
on earnings because U.S. dollar-denominated refining margins are worth more when translated into yen. The yen depreciated steadily during fiscal 2006, the year ended March 31,
2007. The average exchange rate against the U.S. dollar was¥117.03, compared with ¥113.32 during the previous fiscal
year (April 1, 2005–March 31, 2006, A depreciation of the
yen against the U.S. dollar during fiscal 2006 of ¥3.71 translated into an improvement in earnings of approximately¥5,000 million at the consolidated level.

40

U.S. Dollar–Yen Exchange Rate (Ave.)(¥/US$)

130125
121.94120
117.03115
113.32113.06110107.54105
100
Years ended
March 31

2003

2004

2005

2006

2007

Net Sales
Note: Net sales of business segments include inter-segment transactions.

Demand in the non-ferrous metals industry remained robustin fiscal 2006, supported by rising capital investment, strong
economic growth in emerging nations such as China and firm
demand in the United States and Europe, among otherfactors. Non-ferrous metals prices rose even higher than theprevious year’s elevated levels due to a combination of growing demand, the emergence of production constraints in a
number of areas and a market influx of trading capital. In
addition, the yen remained relatively weak.
In the electronics sector, total demand for electronics
devices and components grew favorably in year-on-year terms,
despite an inventory correction during the middle of the year
for LCD-related products. PCs, mobile phones and automotive components remained the major demand drivers.
Against this backdrop, the SMM Group pursued a growthstrategy aimed at maximizing corporate value in the final yearof the FY2004–6 Medium-term Business Plan. Primarilyreflecting sharply higher prices and increased sales volumes forboth copper and nickel, among other factors, consolidated net
sales totaled ¥966,764 million in fiscal 2006, an increase of¥341,185 million (54.5%), compared with the previous year.
The metals segment accounted for 69.5% of consolidated net
sales.

By business segment, the mineral resources segment
recorded net sales of ¥82,248 million, a year-on-year increaseof ¥38,529 million (88.1%); the metals segment posted net
sales of ¥758,836 million, a year-on-year increase of ¥305,156
million (67.3%); and the electronics and advanced materials
segment posted net sales of ¥223,580 million, a year-on-yearincrease of ¥39,505 million (21.5%).

Gross Profit and Gross Margin(Billions of yen)

(%)

250

25
21.0

200

20
203.2

19.2

150

14.6

15

17.1

13.4

10

82.9

(Billions of yen)

50

1,200
30.0
17.7

1,000

223.6

800

5
51.8

53.7

2003

2004

0
Years ended
March 31

0
2005

2006

2007

Gross Margin (RH scale)
28.8
17.3

600
400

12.4
16.7
132.9

184.1

23.1
15.8

10.2
15.4
142.7

Operating Income

154.9
758.8

200

453.7
226.3

0
Years ended
March 31

120.1

100

Net Sales

24.7

2003

2004

273.4

333.2

25.3

33.1

2005

82.2

43.7

2006

2007

Mineral Resources
MetalsElectronics and Advanced Materials
Housing and Construction Materials
Others

Reflecting higher overseas prices for non-ferrous metals, alongwith increased sales of non-ferrous metals and electronics andadvanced materials due to robust demand in both sectors,
operating income rose significantly across all core businesses.
Consolidated operating income increased by ¥79,876 million(96.5%) in year-on-year terms to ¥162,632 million.

Note: Net sales of business segments include inter-segment transactions.

Other Income (Expenses)
Cost of Sales and SG&A Expenses
Reflecting higher raw materials prices associated with the
sharp increases in non-ferrous metals prices, the cost of sales
increased by ¥258,142 million (51.1%) in year-on-year terms
to ¥763,584 million. However, the gross margin increased
from 19.2% to 21.0%, due mainly to positive inventory valuation effects amid rising metals prices, along with an increase
in refining margins associated with the continued surge inmetals prices.
Selling, general and administrative (SG&A) expenses roseby ¥3,167 million (8.5%) to ¥40,548 million. The main factors pushing up SG&A expenses were selling, transportationand miscellaneous expenses (up by ¥1,518 million, or
20.6%), salary bonuses and benefits (up by ¥312 million, or3.7%), and other expenses (up by ¥1,870 million, or 13.4%).
These factors were partially offset by a fall in retirement benefit expenses of ¥1,010 million, or 68.2%.

Other income, net, was ¥42,985 million, a gain of ¥32,767
million (320.7%) compared with fiscal 2005. The major contributory factor was equity in earnings of affiliated companies,
which increased by ¥24,793 million (113.1%) to ¥46,708
million due to higher earnings recorded by equity-method
affiliates such as SMMA Candelaria Inc., SMM Cerro Verde
Netherlands B.V. and P.T. International Nickel Indonesia.
Offsetting negative factors included financial income (interestand dividend income, less interest expense), which recorded a
net loss of ¥2,606 million that was ¥1,325 million (103.4%)
greater than in fiscal 2005, and a valuation loss on gold loansof ¥1,803 million, which represented a year-on-year increasein the extent of the loss of ¥748 million (70.9%).

SUMITOMO METAL MINING CO., LTD. Annual Report 2007

41

Net Income
Consolidated net income rose by ¥63,254 million (100.7%)
in year-on-year terms to ¥126,054 million. Net income pershare was ¥220.49, compared with ¥109.96 in the previous
year.
Net Income (loss)(Billions of yen)

150
120

126.1

90

due to a recovery in demand from the electric power-related
sector. Sales of copper strip products also grew strongly due tohigher demand from the mobile phone and automotive sectors. Export sales of copper products were slightly down on
fiscal 2005 levels. Sales of nickel increased due to firmer overall demand, although there was evidence in some demand sectors of customers running down stocks and restricting purchases due to surging prices for the metal. The specialty steels
and alloys sector saw strong nickel demand from the energyrelated sector, along with a recovery in nickel demand forelectronics materials. Sales of nickel for use in stainless steel
revived during the second half of fiscal 2006 after the lingering effects of the inventory adjustment from fiscal 2005 faded.

60
62.8

Copper Price (LME)
30

37.0

(US$/tonne)

10,000

19.9

0

8,000

-1.2

-30
Years ended
March 31

6,000
2003

2004

2005

2006

2007
4,000
2,000

Segment Performance Analysis’05 FY average
4,097

0
’05/4

Note: Net sales and operating income of each business segment in theanalysis below include inter-segment transactions.

’05/10’06/4’06 FY average
6,970’06/10’07/4 ’07/7

Nickel Price (LME)

Mineral Resources
Reflecting sharply increased overseas prices for copper andgold, along with higher sales of copper ores sourced fromoverseas mines and precious metal ores sourced from domestic
mining operations at Hishikari, net sales in the mineral
resources segment rose by ¥38,529 million (88.1%) on a yearon-year basis to ¥82,248 million.
Higher prices for copper ores sourced from overseas mines
helped to boost profits. Gold and silver ores from theHishikari Mine also contributed to higher earnings due to anincrease in the price of gold. Segment operating income
increased by ¥16,425 million (96.0%) to ¥33,532 million.

(US$/lb)

25
20
15
10
5
’05 FY average
6.63

0
’05/4

’05/10’06/4’06 FY average
14.02’06/10’07/4 ’07/7

Gold Price (LOCO London)(US$/Toz)

800
600

Metals
Reflecting sharply higher overseas prices for copper, nickel
and gold and increased sales volumes for copper and nickel,
net sales in the metals segment rose by ¥305,156 million(67.3%) on a year-on-year basis to ¥758,836 million.
Sales of copper in Japan expanded. Demand from the electric machinery and automobile sectors was robust, and sales tothe wire and cable industry posted further favorable growth

42

400
200
’05 FY average
476.6

0
’05/4

’05/10’06/4’06 FY average
628.6’06/10’07/4 ’07/7

Reflecting sharply higher overseas prices and increased
sales volumes for both copper and nickel, segment operating
income rose by ¥59,881 million (120.5%) in year-on-year
terms to ¥109,564 million.

Operating Income and Operating Margin(%)(Billions of yen)

20

200
16.8

4.0
2.2 15150

Electronics and Advanced Materials
The recovery in demand in Japan for electronics devices andcomponents that began in the second half of fiscal 2005
extended into fiscal 2006. The year also saw more market
penetration of flat-panel televisions plus robust demand
within the PC, mobile phone and onboard automotive electronics sectors. Reflecting these and other factors, net sales inthe electronics and advanced materials segment increased by¥39,505 million (21.5%) on a year-on-year basis to ¥223,580
million.
In the electronics materials business, products generating
solid growth in sales included bonding wire for semiconductors, used in PCs and other products; alloy preform for electronics components, used in items such as mobile phones andflat-panel televisions; and nickel paste for multi-layer ceramic
capacitors (MLCCs). Signs of an inventory adjustment
emerged during the second half of fiscal 2006 with semiconductor packaging materials such as lead frames. In theadvanced materials business, higher demand for copper-cladpolyimide film (CCPF) boosted sales in fiscal 2006; sales ofnickel hydroxide materials for use in hybrid vehicle batteriesalso grew. In other sectors, functional inks with infrared
shielding properties posted a steady increase in sales volume.
Reflecting the above factors, segment operating income
increased by ¥2,408 million (21.5%) in year-on-year terms to¥13,584 million.
Housing and Construction Materials
Demand in Japan for Autoclaved Lightweight aerated Concrete, the main product of this business, was expected to be on
a par with the previous year. Consolidated sales volumes wereroughly equal to fiscal 2005. Despite strong demands from
customers for sales price discounts, the SMM Group was
broadly successful in passing on sharp increases in the prices
of materials and energy.
Reflecting such factors, net sales in the housing and construction materials segment rose by ¥343 million (2.0%) on a
year-on-year basis to ¥17,661 million. Segment operating
income increased by ¥13 million (0.6%) to ¥2,153 million.

13.2

9.9

100

10

5.7

50

13.6

2.4
1.2

4.7

0

109.6

5

7.3

0.4
0.0
5.6
12.6

0.6
4.1
8.3
2.7
-0.4

4.3
2.1
11.2

49.7

27.7

33.5
17.1

10.0

0

4.5

-50
Years ended
March 31

2003

Mineral Resources

2004

2005

MetalsElectronics and Advanced Materials

Housing and Construction Materials

2006

2007

OthersOperating Margin (RH scale)Note: Operating income in each segment is calculated taking into account intersegment sales transactions.

Capital Expenditures and Depreciation
Total capital expenditures during fiscal 2006 amounted to¥51,567 million, an increase of ¥999 million (2.0%) over theprevious year. Of this figure, the mineral resources and metals
segments accounted for ¥28,121 million (54.5% of the total)
and the electronics and advanced materials segment accountedfor ¥22,563 million (43.8% of the total).
In the mineral resources segment, the major capital spending programs for the year focused on exploration and development activities, primarily at the Hishikari Mine; on copper
extraction and production facilities at the U.S.-based Morenci
Copper Mine; and on facilities for the extraction and refiningof gold at the Pogo Gold Mine, also in the United States. In
the metals segment, besides undertaking capital investments
to expand, upgrade and rationalize capacity at smelting andrefining facilities for copper, nickel, lead and zinc, various
investments were also made to boost wet-process smelting
capacity for low-grade nickel oxide ores at Coral Bay and torenovate the ferronickel production facilities at Hyuga Smelting Co., Ltd.
In the electronics and advanced materials segment, themajor items of capital expenditure in fiscal 2006 included
investments to increase and upgrade production facilities for
CCPF and other advanced materials, the construction of new
manufacturing facilities in China and Taiwan for COF (Chipon Film) products, and investments in increased production
capacity for lead frames.
Depreciation increased by ¥2,742 million (11.9%) compared with the previous year to ¥25,693 million.

SUMITOMO METAL MINING CO., LTD. Annual Report 200743

Capital Expenditures(Billions of yen)

60
50

1.7
0.2

1.3
0.2

18.8

22.6

2.1
1.2
0.2

40

0.2
1.2
0.3

12.2

30

12.6

20

16.2

2.4
0.4
0.1

10

9.5

0

5.0
1.4

18.8
15.2

27.9

14.0
9.3
3.0

7.0
-0.7

-0.4

-10
Years ended
March 31

2003

Mineral Resources

2004
Metals

Housing and Construction Materials

2005

2007

2006

the development of manufacturing technologies for rolled
copper foil products. R&D expenses in the electronics andadvanced materials segment totaled ¥2,034 million. Major
project themes included the development of technologies,
processes and related equipment for creating high-performance and related value-added electronics materials and thedevelopment of new advanced materials. In other businessareas, R&D spending of ¥232 million in the housing andconstruction materials segment focused on the developmentof long-life Siporex and other new products, and R&D spending of ¥106 million in the others segment was directed toward
the development of technologies in the areas of environmental
protection and non-ferrous metals recycling.

Electronics and Advanced Materials
OthersElimination or corporate

Financial Position and Liquidity
Depreciation(Billions of yen)

30
25

0.6

20

0.6

15

0.8
0.5
0.6

0.8
0.5
0.7

10

8.8

8.3

1.4
0.7

0.6
1.3
0.7

1.3
0.7

10.1
9.6

8.9

8.4

5

4.4

4.7

0

3.2

2.9

Years ended
March 31

2003

Mineral Resources

2004
Metals

Housing and Construction Materials

7.5

6.4

2.8

2005

4.5

3.3

2006

2007

Electronics and Advanced Materials
OthersElimination or corporate

Research and Development (R&D) Expenses
Total R&D expenses in fiscal 2006 amounted to ¥5,392 million, an increase of ¥95 million (1.8%) compared with theprior year. An overview of the spending breakdown by business segment is provided below.
R&D expenses in the mineral resources segment totaled¥101 million. Major projects focused on ore-dressing
processes for non-ferrous metal ores, the development of different types of leaching technologies for metal refining, andon development of water-resistant processing technologies.
R&D expenses in the metals segment totaled ¥2,919 million.
Major project themes included the development of nonferrous metal refining, electrolytic technologies and newmetal-refining processes; pilot-scale trials for original in-housewet-process copper-smelting technologies for actively separating, refining and purifying trace amounts of other metals contained in ores; development of alloys and related casting technologies; development of surface-treatment technologies; and44

Assets
As of the fiscal 2006 year-end (March 31, 2007), total assets
amounted to ¥929,208 million, an increase of ¥156,646 million (20.3%) compared with a year earlier.
Current assets rose by ¥77,100 million (26.4%) to¥368,688 million. This was mainly the result of respective
increases in notes and accounts receivable and in inventoriesof ¥24,790 million (29.6%) and ¥40,393 million (31.3%)
linked to the significant increases in metals prices during fiscal
2006. Total investments and other assets rose by ¥61,153 million (25.3%) to ¥303,273 million due to a gain in the valueof investment securities, mainly relating to the Group’s investments in overseas mining companies and favorable results
posted by overseas mining affiliates accounted for by theequity method. Net property, plant and equipment increasedby ¥18,362 million (7.9%) to ¥250,700 million, mainlyreflecting the expansion and upgrade of production facilities.
Liabilities
Total liabilities amounted to ¥400,287 million as of the fiscal
2006 year-end, an increase of ¥22,624 million (6.0%) compared with a year earlier.
Current liabilities rose by ¥45,537 million (20.8%) to¥264,897 million. This mainly reflected increases in shortterm debt at overseas mining subsidiaries and higher accrued
income taxes. The current ratio increased to 1.39 times from1.33 times at the previous fiscal year-end. Reflecting successful efforts to squeeze long-term debt, total long-term liabilities
declined by ¥22,913 million (14.5%) to ¥135,390 million.
Net Assets
Following the adoption of revised Japanese accounting standards relating to presentation of the shareholders’ equity section of the balance sheet, effective fiscal 2006 the presentation

of shareholders’ equity has been aggregated with that ofminority interest as “net assets.”
As of the fiscal 2006 year-end, total net assets amounted
to ¥528,921 million. This was the result of net income
recorded for fiscal 2006 of ¥126,054 million, among otherfactors. Subtracting minority interest and valuation and translation adjustments, total shareholders’ equity amounted to¥458,280 million as of March 31, 2007, which represented a
year-on-year increase of ¥116,805 million, or 34.2%. The
equity ratio was 53.4%.
Composition of Interest-Bearing Debt
(Millions of yen)March 31

Short-term debt
Long-term debt
Shareholders’ equity*
Total assets

2007

2006

2005

¥ 96,110(10.3%)
93,800(10.1%)
495,844(53.4%)¥929,208(100.0%)¥ 76,486(9.9%)
114,405(14.8%)
373,752(48.4%)¥772,562(100.0%)¥ 50,756(8.8%)
109,777(19.1%)
283,897(49.5%)¥573,925(100.0%)Figures in parentheses refer to proportions of total assets.
*including total valuation and translation adjustments

Long-Term Debt and Debt-to-Equity Ratio(Billions of yen)(Times)125

1.0

Cash FlowsNet cash provided by operating activities totaled ¥95,985 million, an increase of ¥25,213 million compared with the previous year. This primarily reflected a significant rise in income
before income taxes and minority interests. Negative offsetting factors included effects of higher trade receivables andinventories along with increased income tax payments.
Net cash used in investing activities in fiscal 2006 equaled¥77,429 million, which marked a year-on-year fall in cash
outflow of ¥24,955 million. Although funds were stillrequired to finance some major facility investments, demand
for funds to finance acquisitions of overseas mining interests
was curtailed in fiscal 2006.
Net cash used in financing activities equaled ¥10,073 million in fiscal 2006. Compared with the prior year, this represented an increase in cash outflow of ¥38,796 million, reflecting higher repayments of long-term debt and a substantial
increase in cash dividend payments.
Factoring in the effects of exchange rate fluctuations, theyear-end balance of cash and cash equivalents amounted to¥44,333 million at March 31, 2007, an increase of ¥10,083
million compared with the previous year-end.

Cash Flows
114.4

109.8

100

0.8

0.69

75

100

93.8
86.4

(Billions of yen)

0.6

96.0

75

70.8

76.5
0.59

50

0.51

0.57

50

0.4

25

40.2

32.3

26.1

28.7

0.38

6.1

0
25

0.2

-25
-50

0
March 31

-9.3

-14.2
-21.2

-17.4

-10.1
-31.7

0
2003

2004

2005

2006

-75

2007

Debt-to-Equity Ratio (RH scale)

-77.4

-100
-102.4-125
Years ended
March 31

Shareholders’ Equity and Equity Ratio(Billions of yen)

(%)

2003

2004

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

2005

2006

2007

Net cash flows from investing activities

60

600
53.4

500

47.4

48.9

49.5

50

48.4

495.8

40

400
373.8

30

300
283.9

200

253.1

20

223.3

10

100

0

0
March 31

2003

2004

2005

2006

2007

Equity Ratio (RH scale)

SUMITOMO METAL MINING CO., LTD. Annual Report 2007

45

Risk Information
The following section provides an overview of the risk factorsthat could exert a significant effect on the business performance and financial position of the SMM Group. All forwardlooking statements in the text refer to management decisions
based on the best information available at the end of fiscal
2006.
Fluctuations in non-ferrous metals prices and exchange
rates■ Sustained downturn in non-ferrous metals prices
Prices of copper, nickel, gold and other non-ferrous metals are
influenced by a number of factors, including international
supply and demand, political and economic circumstances,
speculative trading and competition from alternative materials. A sharp and sustained downturn in non-ferrous metals
prices could have a significant negative impact on the Group’sbusiness performance and financial position.
■ Appreciation of the yen
The refining margins earned by SMM are effectively denominated in U.S. dollars. Returns on investments in overseas mining developments, income earned from investments in theelectronics materials business and revenues from exports ofproducts in the electronics materials and other segments arealso denominated in foreign currencies. A substantial appreciation of the yen against these currencies over a sustained
period could exert a significant negative impact on theGroup’s business performance and financial position.
To mitigate these external risks, the SMM Group continues
to make progress in implementing a variety of measures aimed
at boosting competitiveness, both in materials procurement
and manufacturing.
Deterioration in terms of non-ferrous metal orepurchasing contracts and supply disruptions
Currently the SMM Group procures the majority of copper
ores, nickel matte and other raw materials for non-ferrous
metal refining operations based on long-term ore-purchasing
contracts with third-party producers. This exposes the Groupto the risk that shifts in supply and demand or various otherfactors affecting markets could prevent the purchase of
required volumes of ore at reasonable prices. Supplies of ore

46

are also subject to unpredictable disruptive events such as natural disasters and operational stoppages due to accidents orindustrial disputes. Such factors could impose various constraints on Group production volumes, which as a result
could exert a negative impact on the Group’s business performance and financial position.
To mitigate such risks, the Group continues to seek toinvest in high-grade overseas mines to secure reliable (inhouse) supplies of ore.
Uncertainty inherent in mining investments
As described above, the raw materials procurement policy of
the SMM Group is to develop in-house mining resources toboost the proprietary ore ratio. Amounts of extractable ore
and extraction costs can only be estimated based on the resultsof exploratory surveys prior to mine development. In addition, the development costs of a mining project can rise as theresult of a variety of situations such as compliance with environmental or regulatory actions. Any additional investment orincrease in the burden of extraction costs arising from theinherent uncertainty associated with mining developments
could have a negative impact on the Group’s business performance and financial position.
To mitigate such risks, the SMM Group employs a selective investment policy and undertakes strict assessments of thepotential profitability of individual mining developments
based on extensive experience in mining extraction and mine
valuation accumulated over many years.
Environmental protection and regulatory compliance risks
SMM Group businesses, notably the mining and non-ferrous
metal smelting and refining operations, are subject to a broad
range of laws and regulations in areas such as occupationalsafety and health, environmental protection, pollution prevention, industrial waste disposal and management of potentially
toxic substances. Ongoing regulatory compliance costs aresubstantial and subject to unexpected increases as the result of
the sudden emergence of previously unknown risks. The costsof ensuring regulatory compliance could therefore exert a negative impact on the Group’s business performance and financial position.
To mitigate such risks, the Group seeks to ensure that operations are in full compliance with environmental protectionand other laws and regulations through the operation of environmental and risk management systems based on strict standards. The Group also endeavors to manage operations so that
related compliance costs are kept within reasonable limits.
Risks associated with market shifts, new productdevelopment and intellectual property rights
Demand changes rapidly in markets targeted by the SMM
Group’s electronics and advanced materials operations, evenas product development programs in these areas require theinvestment of increasingly large amounts of time andresources. Expected returns on investment from related new
product development programs may not materialize due toobsolescence caused by technological progress, delays causedby responding to customer requests or the launch of competitor products, among other factors. Customer demand for
products may also decline in the future. All these various factors could have a negative impact on the Group’s businessperformance and financial position.
The SMM Group recognizes the importance and value ofacquiring intellectual property rights and managing suchrights properly in accordance with related laws and regulations. Although the Group strives to observe such laws, itremains exposed to risks such as failure to acquire certain
rights or damage done to the results of the Group’s R&D
activities due to illegal actions by third parties.
To mitigate such risks, the Group strives to minimize
related problems by structuring R&D activities to realize
commercial opportunities as quickly as possible. The Group
has also created dedicated in-house teams to manage issues
related to intellectual property rights to ensure that suchrights are acquired and protected properly.

To mitigate such risks, the SMM Group makes overseas
investment decisions based on careful consideration of all relevant country risks.
Disaster-related risks
The SMM Group locates manufacturing operations based on
considerations such as customer relationships, raw material
procurement, the links to other Group operations and effective use of management resources. Unexpected large-scale natural disasters such as earthquakes or typhoons that affect theregions where such facilities are located could result in major
financial losses arising from factors such as on-site damage
and loss of production.
To mitigate such risks, the Group insures such facilities
where this is possible at reasonable cost and has made plans
containing suitable countermeasures to minimize any secondary effects due to such disasters.

Overseas investments
Overseas operations are subject to political and economic risks
that vary by country. The emergence of various developments
could prevent the Group from earning a suitable return on
overseas investments. Such risks include the development ofmineral resource projects by organizations funded by nationalor regional governments against the backdrop of high nonferrous metals prices, or the levying of higher taxes on suchoperations. Increased environmental demands from various
quarters constitute a further risk.

SUMITOMO METAL MINING CO., LTD. Annual Report 200747

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

Millions of yen

Thousands of
U.S. dollars(Note 1)

2007

2006

2007

¥ 44,333
314¥ 34,250
459

101,660
6,972

78,4685,374

860,869
59,040

4,808
6,899
(304)
169,333
4,499
30,174
368,688

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

40,71558,422(2,574)
1,433,932
38,098
255,515
3,122,093

188,943
108,507(16)

140,698
94,859—1,599,992
918,850
(135)

—
1,142
5,080
(383)
303,273

6
692
6,323
(458)
242,120—
9,671
43,016(3,243)2,568,151

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 ...............................................

29,188155,034
341,289
9,000
534,511(283,811)
250,700

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

247,167
1,312,846
2,890,075
76,213
4,526,301(2,403,344)
2,122,957

Deferred tax assets (Note 8) ......................................................................
Other assets ...............................................................................................
Total assets...................................................................................

1,843
4,704
¥ 929,208

1,545
4,971
¥ 772,562

15,607
39,835$ 7,868,643

ASSETSAs of March 31, 2007 and 2006

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........................................................................

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

The accompanying notes are an integral part of these balance sheets.

48$

375,4172,659

Millions of yen

Thousands of
U.S. dollars(Note 1)

2007

2006

2007

¥ 67,163
28,947¥ 46,730
29,756

51,131
6,132
17,43544,742
4,772
1,433
479
86
115
45
42,417
264,897

48,7396,294
10,47327,250
4,386
1,126
975
191
—
54
43,386219,360

432,983
51,926
147,642
378,881
40,41012,135
4,056
728
974
381
359,192
2,243,179

93,80026,682
9,510
632
75
552
—
2,265
1,874
135,390

114,405
25,148
11,120
573
—
792
1,051
2,446
2,768
158,303794,309
225,946
80,532
5,352
635
4,674
—
19,18015,8701,146,498

91,821
84,668283,568(1,777)458,280

88,90681,750171,946(1,127)
341,475

777,551
716,979
2,401,287(15,048)3,880,769

34,5581,170
1,836
37,56433,077528,921¥ 929,208

34,897—(2,620)32,277
21,147394,899¥ 772,562

292,642
9,908
15,547
318,097
280,100
4,478,966$ 7,868,643

LIABILITIES AND NET ASSETS
As of March 31, 2007 and 2006

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 ..............................................
Accrued bonus to directors and corporate auditors ..................................
Deferred tax liabilities (Note 8) ...............................................................
Other current liabilities ...........................................................................
Total current liabilities ..................................................................
Long-term 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 .................................................................
Contingent liabilities (Note 13)
Net assets:
Shareholders’ equity (Note 12):
Common stock
Authorized — 1,000,000,000 shares
Issued — 578,790,870 shares...............................................................
Capital surplus ........................................................................................
Retained earnings (Note 11)....................................................................
Treasury stock, at cost .............................................................................
Total shareholders’ equity.................................................................
Valuation and translation adjustments:
Net unrealized holding gain on securities ................................................
Deferred gain or losses on hedges ............................................................
Foreign currency translation adjustment..................................................
Total valuation and translation adjustments .....................................
Minority interest.........................................................................................
Total net assets ..........................................................................................
Total liabilities and net assets...................................................................

$

568,744245,127

SUMITOMO METAL MINING CO., LTD. Annual Report 200749

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

Years ended March 31, 2007, 2006 and 2005

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 ...
Write-down of subsidiaries and affiliated securities.........................
Gain (Loss) on sale and disposal of property, plant and equipment....
Loss on impairment of fixed assets..................................................
Reversal of loss on impairment of fixed assets .................................
Gain (Loss) on liquidation of subsidiaries .......................................
Reversal of (Provision for) doubtful accounts .................................
Provision 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) .......................................................................
Reversal of (Provision for) restructuring charges .............................
Maintenance cost for ceased projects ..............................................
Write-off of obsolete inventories.....................................................
Casualty loss...................................................................................
Gain (Loss) from valuation of derivative instruments .....................
Amortization of negative goodwill ..................................................
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....................................................................................

Years ended March 31, 2007, 2006 and 2005

Amounts per share of common stock:
Net income (Note 17)— Basic ...................................................................................
— Diluted...............................................................................
Cash dividends applicable to the year .............................................
The accompanying notes are an integral part of these statements.

50

Millions of yen

Thousands of
U.S. dollars(Note 1)2007
¥ 966,764

2006¥ 625,579

2005¥ 484,585

2007$ 8,186,671

763,584
40,548804,132
162,632

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

401,707
34,985436,692
47,893

6,466,119
343,365
6,809,484
1,377,187

2,829(5,435)
76
(6)
400
(302)
(1,026)
—
939
63
355
(16)
(73)
(57)
(1,803)
1,207
37
(605)
—
(103)
380
10
46,708—(593)
42,985
205,617

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

23,956(46,024)
644
(51)
3,387
(2,557)(8,688)
—
7,952
533
3,006
(135)
(618)
(483)
(15,268)
10,221313(5,123)
—
(872)
3,218
85
395,529—(5,024)364,002
1,741,189

68,1491,203
69,352
136,265(10,211)¥ 126,054

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

2007

2006

¥ 220.49
213.6727.00¥ 109.96
108.8714.00

10,246
577,094
5,276
10,187
15,522587,281
38,395
1,153,908(1,378)(86,468)¥ 37,017 $ 1,067,440¥

Yen

U.S. dollars(Note 1)

2005

2007

64.77
—
8.00

$

1.87
1.81
0.23

Consolidated Statements of Changes in Net Assets
SUMITOMO METAL MINING CO., LTD. AND SUBSIDIARIES

Years ended March 31, 2007, 2006 and 2005

Numberof shares
issued(thousands)

Balance at March 31, 2004............................................ 571,873
Net income ................................................................
Increase due to change in consolidation of 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 consolidation of subsidiaries..
Decrease due to change in consolidation of affiliated companies..
Cash dividends paid ...................................................
Balance at March 31, 2005............................................ 571,873
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............................................ 572,972
Net income ................................................................
Conversion of convertible bonds................................
Foreign currency translation adjustments ...................
Adjustments for unrealized gains on securities............
Decrease due to change in consolidation of subsidiaries..
Treasury stock............................................................
Gain on sale of treasury stock.....................................
Deferred gains or losses on hedges..............................
Executive bonuses ......................................................
Minority interest........................................................
Cash dividends paid ...................................................
Balance at March 31, 2007............................................ 578,791

Years ended March 31, 2007

Commonstock

CapitalsurplusRetainedearnings¥ 88,355¥ 81,187¥ 81,210
37,017
1,049

Shareholders’ Equity
Total
Treasuryshareholders’stockequityMillions of yen¥ (525)¥ 250,227
37,017
1,049

(254)

(254)
4
(37)
(1,071)(981)(3,425)¥ 282,529
62,8001,102

4¥ 88,355¥ 81,191

551

551

(37)
(1,071)(981)(3,425)¥ 113,762 ¥ (779)
62,800(348)
8¥ 88,906¥ 81,750

2,915

2,910

(52)
(4,564)¥ 171,946 ¥ (1,127)
126,054

(348)
8
(52)
(4,564)¥ 341,475
126,054
5,825

(75)

(75)
(657)
15

(657)
7

8
(73)

¥91,821

Commonstock¥84,668

Capitalsurplus(14,284)¥283,568(73)¥(1,777)(14,284)¥458,280

Shareholders’ Equity
Total
Retained
Treasuryshareholders’earnings
stock
equityThousands of U.S. dollars (Note 1)

Balance at March 31, 2006........................................................... $ 752,866 $ 692,269 $ 1,456,059 $ (9,544) $ 2,891,650
Net income...............................................................................
1,067,440
1,067,440
Conversion of convertible bonds...............................................
24,68524,642
49,327
Foreign currency translation adjustments ..................................
Adjustments for unrealized gains on securities...........................
Decrease due to change in consolidation of subsidiaries.................
(635)
(635)
Treasury stock...........................................................................
(5,564)(5,564)Gain on sale of treasury stock....................................................
68
59
127
Deferred gains or losses on hedges.............................................
Executive bonuses .....................................................................
(618)
(618)
Minority interest.......................................................................
Cash dividends paid ..................................................................
(120,959)(120,959)
Balance at March 31, 2007........................................................... $777,551 $716,979 $2,401,287 $(15,049) $3,880,768
The accompanying notes are an integral part of these statements.
SUMITOMO METAL MINING CO., LTD. Annual Report 200751

Consolidated Statements of Changes in Net Assets (continued)
SUMITOMO METAL MINING CO., LTD. AND SUBSIDIARIES

Years ended March 31, 2007, 2006 and 2005

Balance at March 31, 2004............................................
Net income ................................................................
Increase due to change in consolidation of 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 consolidation of subsidiaries..
Decrease due to change in consolidation of 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............................................
Net income ................................................................
Conversion of convertible bonds................................
Foreign currency translation adjustments ...................
Adjustments for unrealized gains on securities............
Decrease due to change in consolidation of subsidiaries..
Treasury stock............................................................
Gain on sale of treasury stock.....................................
Deferred gains or losses on hedges..............................
Executive bonuses ......................................................
Minority interest........................................................
Cash dividends paid ...................................................
Balance at March 31, 2007............................................

Net unrealized
holding gain on
securities

Deferredgain onhedges¥ 16,111—

Valuation, translation adjustment and others
Foreign currency
Total valuationtranslationand translation
Minority
adjustment
adjustment
interests¥(13,267)¥ 2,844

(645)

(645)
(831)

¥(13,912)¥ 1,368

11,292

11,292
19,617¥ (2,620)¥ 32,277

4,456

4,456
(339)

(831)

¥ 15,280—

19,617¥ 34,897—(339)¥1,170——¥ 21,147

1,170
11,930¥1,170Net unrealized
holding gain on
securities

Deferredgain onhedgesValuation, translation adjustment and others
Foreign currency
Total valuationtranslationand translation
Minority
Total netadjustment
adjustment
interests
assetsThousands of U.S. dollars (Note 1)

Balance at March 31, 2006............................................ $ 295,512—
Net income ................................................................
Conversion of convertible bonds................................
Foreign currency translation adjustments ...................
Adjustments for unrealized gains on securities............
(2,871)
Decrease due to change in consolidation of subsidiaries..
Treasury stock............................................................
Gain on sale of treasury stock.....................................
Deferred gains or losses on hedges..............................
$9,908
Executive bonuses ......................................................
Minority interest........................................................
Cash dividends paid ...................................................
Balance at March 31, 2007............................................ $294,641 $9,908$(22,186) $273,326 $ 179,075 $ 3,344,051
1,067,440
49,32737,73437,73437,734(2,871)(2,871)(635)(5,564)
127
9,908
9,908
(618)
101,025
101,025(120,959)$ 15,548 $318,097 $280,100 $4,478,965

The accompanying notes are an integral part of these statements.
52¥37,564¥33,077¥ 253,071
37,017
1,049
(645)
(831)
(254)
4
(37)
(1,071)(981)(3,425)¥ 283,897
62,8001,102
11,292
19,617(348)
8(52)(4,564)¥ 394,899
126,054
5,825
4,456
(339)
(75)
(657)
15
1,170
(73)
11,930(14,284)¥528,921¥34,558

Years ended March 31, 2007

¥ 1,836

Total net
assetsMillions of yen

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

Millions of yen

Thousands of
U.S. dollars(Note 1)

2007

2006

2005

2007

¥ 205,617¥ 92,974¥ 53,917$ 1,741,189

25,693
—
(939)
1,026
(76)
6
—
16
(400)
(380)
(154)
(350)
(1,030)(2,829)5,435(46,708)
—
—
103
605
(24,454)(40,413)
3,017
4,020
127,805
23,904(5,087)
—
(605)
(103)
(49,929)
95,985

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)40,150217,571—(7,952)
8,688
(644)
51
—
135
(3,387)(3,218)(1,304)(2,964)(8,722)(23,956)
46,024(395,529)
—
—
872
5,123
(207,079)(342,222)
25,54834,042
1,082,266
202,422(43,077)—(5,123)(872)(422,805)
812,811

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 ..............................................

(48,314)
4,033(14,118)(21,564)263
1,195(2,500)2,015
1,561(77,429)(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)(409,129)
34,152(119,553)(182,606)
2,227
10,119(21,170)
17,063
13,219(655,678)

Cash flows from financing activities:
Proceeds from long-term debt..............................................................
Repayments of long-term debt.............................................................
Net increase (decrease) in bank loans ...................................................
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 .......................

5,671(20,759)
18,880(10,000)
9,944
5,731
(642)
(14,284)(4,614)(10,073)

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

48,023(175,790)
159,878(84,681)
84,20748,531(5,437)(120,959)(39,072)(85,300)

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 ........................
Decrease in cash and cash equivalents due to exclusion from consolidation..

1,602
10,08534,250
9
(11)

2,354
(535)
34,785——55
14,577
19,304904—

13,56685,399290,033
76(91)

Cash and cash equivalents at end of fiscal year................................

¥ 44,333¥ 34,250¥ 34,785$ 375,417

Years ended March 31, 2007, 2006 and 2005

Cash flows from operating activities:
Income before income taxes and minority interests .................................
Adjustments to reconcile income before income taxes and minority
interests to net cash provided by operating activities:
Depreciation ........................................................................................
Loss on impairment of fixed assets .......................................................
Reversal of 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 ...........................
Increase (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 ........................................................................................
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 income taxes ...................................................................
Net cash provided by operating activities ......................................

The accompanying notes are an integral part of these statements.
SUMITOMO METAL MINING CO., LTD. Annual Report 200753

Notes to Consolidated Financial Statements
SUMITOMO METAL MINING CO., LTD. AND SUBSIDIARIES

1. Basis of presenting consolidated financial
statements
The accompanying consolidated financial statements havebeen prepared in accordance with the provisions set forth in
the Japanese 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 anddisclosure requirements of International Financial ReportingStandards.
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 theinclusion of consolidated statements of changes in net assets
for 2006 and 2005) from the consolidated financial
statements of Sumitomo Metal Mining Co., Ltd. (the“Company”) prepared in accordance with Japanese GAAP
and filed with the appropriate Local Finance Bureau of the
Ministry of Finance as required by the Securities andExchange Law. Some supplementary information included in
the statutory Japanese language consolidated financial
statements, but not required for fair presentation, is notpresented in the accompanying consolidated financial
statements.
As discussed in Note 2 “Accounting Standard for Statement of Changes in Net Assets”, the consolidated statementsof changes in net assets for 2006 and 2005 has been prepared
for the purpose of inclusion in the consolidated financial
statements although such statements were not required to be
filed with Local Finance Bureau prior to 2007.
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,
2007, which was ¥118.09 to U.S.$1.00. The conveniencetranslations should not be construed as representations that
the Japanese yen amounts have been, could have been, or
could in the future be, converted into U.S. dollars at this or
any other rate of exchange.

operating and financial policies of the investees, are accounted
for by the equity method (13 affiliated companies in 2007
and 2006 and 8 in 2005). Investments in the remaining
unconsolidated subsidiaries and affiliates are carried at costbecause of their immaterial effect on the consolidated
financial statements.
In the elimination of investments in subsidiaries, the assets
and liabilities of the subsidiaries, including the portion
attributable to minority shareholders, are recorded based on
the fair value at the time the Company acquired control of therespective subsidiaries.
The goodwill (consolidation difference between theinvestment cost and the underlying equity in its net assets atthe date of acquisition) is amortized over five years on astraight-line basis.
Cash and cash equivalents and cash flow statements — For
the purpose of the consolidated statements of cash flows, cashon hand, readily-available bank deposits and short-term
highly liquid investments with maturities of not exceeding
three months at the time of purchase are considered to be cash
and cash equivalents.
Allowance for doubtful accounts — The allowance for
doubtful receivables is provided at an amount determinedbased on the historical experience of bad debt with respect toordinary receivables, plus an estimate of uncollectible amountdetermined by reference to specific doubtful receivables from
customers who are experiencing financial difficulties.

2. Summary of significant accounting policies

Investment securities — Securities are classified into two
categories based on the intent of holding; available-for-salesecurities and securities issued by non-consolidated
subsidiaries and affiliated companies.
Available-for-sale securities with available fair values(marketable securities) are stated at the fair value. Unrealized
gains and losses on these securities are reported, net of
applicable income taxes, presented as separate component of
net assets. Other available-for-sale securities with no available
fair values (non-marketable securities) are stated at movingaverage method. Securities issued by non-consolidated
subsidiaries and affiliated companies are carried at cost. The
cost of securities sold is determined by the moving-averagemethod.

Consolidation — The consolidated financial statements
include the accounts of the Company and its significant
subsidiaries (48 subsidiaries in 2007, 49 in 2006 and 47 in2005). All significant intercompany balances and transactions
have been eliminated. Investments in affiliates over which theCompany has the ability to exercise significant influence over

Derivatives and hedge accounting — Derivative instruments are stated at fair value. Changes in the fair values arerecognized as gains and losses unless derivative transactions
are used for hedging purposes.
If derivative transactions are used as hedges and meet54

certain hedging criteria, the Company and its domestic
consolidated subsidiaries defer recognition of gains or losses
resulting from changes in fair value of derivative transactions
until the related losses or gains on the hedged items arerecognized.
However, in cases where forward foreign exchange
contracts are used as hedges and meet certain hedging criteria,
forward foreign exchange contracts and hedged items areaccounted for in the following manner:(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 yenamount of the hedged foreign currency receivable orpayable translated using the spot rate at the inception
date of the contract and the book value of thereceivable or payable is recognized in the income
statement in the period which includes the inception
date, and(b) the discount or premium on the contract (that is, thedifference between the Japanese yen amount of thecontract translated using the contracted forward rate
and that translated using the spot rate at the inception
date of the contract) is recognized over the term of thecontract.
(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 thecontracted forward rate, and no gains or losses on theforward 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 aretranslated into Japanese yen at the year-end rates except foraccount components of net assets, which are translated at thehistorical rates. Income statements of consolidated overseas
subsidiaries are translated at average rates except fortransactions with the Company, which are translated at therates 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.
(2) Supplies – Supplies are stated at cost based on the moving
average method.
(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 the first-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 thecurrent trading price of those non-ferrous metals such ascopper, nickel and zinc in the international market to thebalance sheet amounts of these inventories, by which alsoenable the Company to recognize the periodic allocation ofincome and expenses properly by eliminating the pricevolatility 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.
Property, plant and equipment — Property, plant andequipment are stated at cost.
Depreciation of property, plant and equipment iscomputed by the straight-line method, based on the estimateduseful lives of respective assets. The depreciation period
generally ranges from 3 years to 50 years for buildings andstructures and 5 years to 17 years for machinery andequipment.
The Company and consolidated domestic subsidiaries
have adopted an accounting standard for impairment of fixed
assets from April, 2004. This standard requires that tangible
and intangible fixed assets be carried at costs less depreciation,and be reviewed for impairment whenever events or changes
in circumstance indicate that the carrying amount of an asset
may not be recoverable.
SUMITOMO METAL MINING CO., LTD. Annual Report 200755

In addition, the Company and consolidated domestic
subsidiaries are required an impairment loss in theirconsolidated statements of income if certain indicators of asset
impairment exist and if the book value of an asset exceeds theundiscounted sum of its future cash flows. This standard
states that impairment losses should be measured as the excessof the book value over the higher of (i) the fair market valueof the asset, net of disposition costs, and (ii) the present valueof future cash flows arising from the ongoing utilization of theasset and its disposition after use. This standard covers land,factories, buildings, and other forms of property, plant andequipment as well as intangible assets. Fixed assets are to begrouped at the lowest levels for which there are identifiable
cash flows which are independent from the cash flows fromother groups of assets.
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, determined by reference totheir current basic rate of pay, the length of service, 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 notbeen included in 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
the straight-line method over the average of the estimatedremaining service lives of ten years commencing with thefollowing 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 (Statement No.3
issued by the Accounting Standards Board of Japan on March
16, 2005)” as well as “Implementation Guidance for Partial

56

Revision of Accounting Standard for Retirement Benefit (theFinancial Accounting Standard Implementation Guidance
No.7 issued by the Accounting Standards Board of Japan on
March 16, 2005)”, both issued by the Accounting Standards
Board of Japan on March 16, 2005, the Company elected toapply these standards to its consolidated financial statements forthe year ended March 31, 2006.
As the result of the revision of the accounting policy, in theyear ended March 31, 2006, both operating income andincome before income taxes and minority interests increased by¥454 million ($3,864 thousand). Also refer to the section ofbusiness 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 exconsolidated subsidiary built and sold.
Accrued indemnification loss on damages caused by aconsolidated 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 — Accruedliquidation loss of subsidiaries is provided by the Company todiscontinue business.
Accrued environmental measures — The provision forenvironmental measures is estimated and recorded to provide
for future potential costs, such as costs related to disposal ofpolychlorinated biphenyl (PCB).
Accrued bonuses to directors and corporate auditors —Provision for directors’ bonuses are provided by the Company
and its consolidated domestic subsidiaries to be accounted foras an expense of accounting period in which such bonuses
were incurred.
(Adopting the new accounting standard for bonuses todirectors and corporate auditors)
The Company and its consolidated domestic subsidiaries
adopted from April 1, 2006, the new accounting standard fordirectors’ bonus (the Financial Accounting Standard for
Directors’ Bonus issued by the Accounting Standards Boardof Japan on November 29, 2005).
As the result of adopting the accounting policy, in the year
ended March 31, 2007, both operating income and income
before income taxes and minority interests decreased by ¥115
million ($974 thousand).
Accounting standard for presentation of net assets in thebalance sheet — Effective from the year ended March 31,
2007, the Company and its consolidated subsidiaries adopted
the new accounting standard, “Accounting Standard for
Presenting of Net Assets in the Balance Sheet” (Statement
No.5 issued by the Accounting Standards Board of Japan on
December 9, 2005), and the implementation guidance for theaccounting standard for presentation of net assets in thebalance sheet (the Financial Accounting Standard
Implementation Guidance No. 8 issued by the AccountingStandards Board of Japan on December 9, 2005) .
Under the New Accounting Standards, the balance sheet
comprises the assets, liabilities and net assets sections.
Previously, the balance sheet comprised the assets, liabilities,
minority interests and shareholders’ equity sections. The net
assets section includes deferred gain on hedges and minority
interests, which were not included in the previous shareholders’ equity section.
The adoption of the New Accounting Standards had no
impacts on the consolidated statement of income for the year
ended March 31, 2007. Also, if the New AccountingStandards had not been adopted at March 31, 2007, theshareholders’ equity amounting to ¥495 million ($4,192
thousand) would have been presented.
Accounting standard for statement of changes in net assets— Effective from the year ended March 31, 2007, theCompany and its consolidated subsidiaries adopted the new
accounting standard, “Accounting Standard for Statement of
Changes in Net Assets” (Statement No. 6 issued by the
Accounting Standards Board of Japan on December 27, 2005)
and the implementation guidance for the accounting standard
for statement of changes in net assets (the Financial
Accounting Standard Implementation Guidance No. 9 issued

by the Accounting Standards Board of Japan on December 27,2005), (collectively, “the Additional New AccountingStandards”).
The Company prepared the accompanying consolidated
statement of changes in net assets for the year ended March
31, 2007 in accordance with the Additional New AccountingStandards. The accompanying consolidated statements ofchanges in net assets for the years ended March 31, 2006 and2005, which was voluntarily prepared for inclusion in the
consolidated financial statements, has not been adapted to thenew presentation rules of 2007.
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 — Deferred tax assets and liabilities are
determined based on the differences between financial
reporting and the tax bases of assets and liabilities, andmeasured using the statutory tax rates which will be in effectwhen the differences are expected to be realized.
Sales — Sales of merchandise and finished products arerecognized when the products are shipped to customers.
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
beginning of the period at the current conversion price.
Cash dividends per share represent the actual amountapplicable to the respective fiscal year.
Reclassifications — Certain prior year amounts have been
reclassified to conform to the 2007 presentation.

SUMITOMO METAL MINING CO., LTD. Annual Report 200757

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, 2007 and 2006:
Securities with book values exceeding acquisition costs
Millions of yen

2007
Equity securities ...................................
Others ..................................................
Total .................................................

2006

Acquisition cost

Book value

Difference Acquisition cost

Book value

Difference¥44,877—¥44,877¥102,113—¥102,113¥57,236—¥57,236¥87,952
149¥88,101¥57,616
99¥57,715¥30,33650¥30,386

Thousnds of U.S. dollars

2007
Equity securities ...................................
Others ..................................................
Total .................................................

Acquisition cost

Book value

Difference$380,024—$380,024$864,705—$864,705$484,681—$484,681

Securities with book values not exceeding acquisition costs
Millions of yen

2007
Equity securities ...................................
Total .................................................

2006

Acquisition cost

Book value

Difference

Acquisition cost

Book value

Difference¥1,261¥1,261¥1,179¥1,179

¥(82)
¥(82)

¥1,664¥1,664¥1,662¥1,662¥(2)¥(2)

Thousnds of U.S. dollars

2007
Equity securities ...................................
Total .................................................

Acquisition cost

Book value

Difference$10,678$10,678$9,984$9,984$(694)$(694)(2) The following tables summarize book values of the securities with no available fair values as of March 31, 2007 and 2006:
Available-for-sale securities

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

2007¥4,299¥4,299Millions of yen

Thousands of
U.S. dollars

2006¥4,411¥4,411

2007$36,404$36,404(3) As of March 31, 2006, available-for-sale securities with maturities included mutual funds due within one year in the amount of¥149 million. There was no available-for-sale security with maturities as of March 31, 2007.
(4) Total sales of available-for-sale securities sold amounted to¥263 million ($2,227thousand), ¥510 million and ¥235
million, and the related gains amounted to ¥76 million($644 thousand), ¥356 million and ¥71 million in the58

years ended March 31, 2007, 2006 and 2005, respectively.
No losses were recognized in the years ended March 31,
2007, 2006 and 2005.

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 ofinterests of floating-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 to market risk are determined by anumber 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 made default on their obligation.
The derivative transactions are solely made with highly rated
financial institutions, their subsidiaries or LME (London
Metal Exchange) brokers guaranteed by banks, so that theCompany and its consolidated subsidiaries might reduce therisk of default on an obligation.

Each department of the Company and its consolidated
subsidiaries involving derivative transactions have theirown rules for derivative transactions which stipulate purposesand scope of using derivatives, standards for choosing
transaction counterparties, and procedures of reporting andadministration.
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 withthe transaction counterparties. Also, the internal audit
department of the Company regularly examines derivativetransactions.
The Company and its consolidated subsidiaries are notexposed to market risk arising from commodity derivativetransactions, because the risk of fluctuation of market prices,that is caused by time lag between purchase and sale ofmaterials and products, is hedged by the corresponding futurecontracts. The Company and its consolidated subsidiaries alsoutilize currency derivative transactions to hedge market risk of
exchange rates or interest rates. Taking receivables andpayables denominated in foreign currencies into account, theCompany and its consolidated subsidiaries are not exposed tomarket risk.

The following tables summarize market value information as of March 31, 2007 and 2006 of derivative transactions for which
hedge accounting has not been applied:
Millions of yen

2007
Contracted amountOver one
Total
year

Currency:
Forward contracts:
Buy position—U.S. dollars................. ¥11,680
Buy position—Euro ...........................
2,290
Buy position—A.U. dollars ................
845.................................................... ¥14,815
Commodity:
Forward contracts:
Sell position—Metal .......................... ¥—Buy position—Metal.......................... 14,754
Option contracts:
Put position—Metal ..........................
—.................................................... ¥14,754

Marketvalue

Recognized
gains (losses)¥

2006
Contracted amountOver one
Total
year

Marketvalue

Recognized
gains (losses)

¥—
—
68
¥—

¥11,741
2,466
932
¥
—

61
176
87
¥ 324

¥ 6,550——¥ 6,550¥———¥—¥ 6,544
—
—
¥
—

¥

¥—
—

¥
—
17,053

¥ —
2,299

¥ 796
11,794¥——¥ 1,184
13,375¥ (388)
1,581

—
¥—

¥

—
—

—
¥2,299131¥12,721

—
¥—

¥

97
—

(34)
¥1,159¥SUMITOMO METAL MINING CO., LTD. Annual Report 2007

(6)
—
—
(6)

59

Thousands of U.S. dollars

2007
Contracted amountOver one
Total
year

Currency:
Forward contracts:
Buy position—U.S. dollars................. $ 98,908
Buy position—Euro ........................... 19,392
Buy position—A.U. dollars ................
7,156.................................................... $125,456
Commodity:
Forward contracts:
Sell position—Metal .......................... $—Buy position—Metal.......................... 124,939
Option contracts:
Put position—Metal ..........................
—.................................................... $124,939

Marketvalue

Recognized
gains (losses)

$ —
—
576
$ —

$ 99,424
20,882
7,892
$
—

516
1,490
736
$ 2,742$ ——$—144,407$—
19,468

—
$ —

—
—

—
$19,468$$

5. Inventories
Inventories at March 31, 2007 and 2006 consist of the following:

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

2007¥ 1,970
45,31776,72845,318¥169,333

Millions of yen

Thousands of
U.S. dollars

2006¥ 1,01130,67858,20339,048¥128,940

2007$ 16,682
383,750649,742
383,758$1,433,932

6. Loss on impairment of fixed assets
Loss on impairment of fixed assets is not recorded for the year ended March 31, 2007.
Loss on impairment of fixed assets for the year ended March 31, 2006 consisted of the following:
Millions of yen
Location

Major use

Asset category

Hyuga City, Miyazaki Prefecture, Japan

Idle Land

Land

Singapore

Manufacturing facilities for electronic parts

Machinery and equipment

Loss

¥

9
118

Ocean Side, California, USA

Manufacturing facilities for electronic parts

Machinery and equipment

172

Iwanai-gun, Hokkaido, Japan

Manufacturing facilities for electronic crystal materials

Machinery and equipment

512

New South Wales, Australia

Mining and concentrating facilities for copper ore

Machinery, equipment, andmining rights

Total

60

1,014
¥1,825

The Company categorized operating assets by business unit
such as a plant and manufacturing process, based on thedivision 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 fora part of copper deposits will be less than discounted cash
flow including restitution costs due to the increase ofinvestment 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.

The Company principally used the value in use forcalculating the recoverable amount. The discounted rates used
for computing the value in use of “Manufacturing facilities forcrystal materials” and “Mining and concentrating facilities forcopper ore,” were 7.9% and 9.4% respectively. The bookvalue of manufacturing facilities for electronic parts was
reduced to ¥1 as memorandum price because no net cash
inflows were expected.
As for the idle land which was acquired for future factory
sites, the book 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 used as their recoverable amounts forthe measurement of the impairment loss. The market priceinformation was obtained on the basis of values provided byreal 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

Loss

Kashima City, Ibaraki Prefecture, and other 8 places

Idle Land

Land

¥794

Nishinomiya City, Hyogo Prefecture, Japan

Rental apartment

Land

178

Nishinomiya City, Hyogo Prefecture, Japan

Rental apartment

Buildings and Structures

73

Ocean Side, California, USA

Idle facilities

Machinery and equipment

155

Ocean Side, California, USA

Idle facilities

Machinery and equipment

1

Minato-ku, Tokyo

Fine art

Machinery and equipment

62

Total

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 theassets was reduced to the recoverable amount due to a decline
in the market price of each asset.

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 0.85% to 6.00% and 0.30% to6.33% at March 31, 2007 and 2006, respectively.
The Zero-coupon convertible bonds due in 2009 are¥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.

currently convertible at ¥1,001 ($8.48) per share until June15, 2009.
As of March 31, 2007, 13,062 thousand additional sharesof common stock in aggregate could be issued upon fullconversion at the current conversion price.

SUMITOMO METAL MINING CO., LTD. Annual Report 2007

61

Long-term debt at March 31, 2007 and 2006 consists of the following:
Millions of yen

Thousands of
U.S. dollars

2006

2007

2007
Long-term loans from:
Banks, insurance companies and other financial institutions, maturing
through 2015 at interest rates of 0.82% to 7.45%:
Secured.............................................................................................
Unsecured ........................................................................................
Government owned banks and government agencies, maturing through2020 at interest rates of 0.95% to 4.65%:
Secured.............................................................................................
Unsecured ........................................................................................
0.88% domestic bonds due in 2006 ........................................................
1.08% domestic bonds due in 2007 ........................................................
0.51% domestic bonds due in 2008 ........................................................
1.42% domestic bonds due in 2012 ........................................................
Zero coupon convertible bons due in 2009 .............................................
......................................................................................................
Amount due within one year.......................................................................
......................................................................................................

¥—
37,105¥90
49,896$—314,210

11,82630,741

13,11632,159100,144
260,318—
10,00010,00010,00013,075
122,747(28,947)¥ 93,800

10,00010,00010,000—18,900144,161(29,756)¥114,405—
84,681
84,681
84,681
110,721
1,039,436(245,127)$ 794,309

Millions of yen

Thousands of
U.S. dollars

The 0.88% domestic bonds were redeemed during the year ended March 31, 2007.

The aggregate annual maturities of long-term debt at March 31, 2007 are as follows:
Years ending March 31,

2008 ...............................................................................................................................................
2009 ...............................................................................................................................................
2010 ...............................................................................................................................................
2011 ...............................................................................................................................................
2012 ...............................................................................................................................................
Thereafter .......................................................................................................................................

¥28,947
19,825
21,688
7,585
21,672
23,030$245,127
167,880
183,657
64,231
183,521
195,021

Assets pledged as collateral for bank loans and long-term debt at March 31, 2007 and 2006 are as follows:

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

8. Income taxes
Income taxes in the accompanying consolidated statements ofincome comprise corporation taxes, inhabitants taxes and62

Millions of yen

Thousands of
U.S. dollars

2007

2006

2007

¥ 131
16,42257,330¥73,883¥ 131
16,52356,735¥73,389$ 1,109
139,063
485,477$625,649

enterprise taxes. Consolidated overseas subsidiaries are subject
to income taxes of 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, 2007, 2006 and 2005:

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 (decrease) in valuation allowance........................................................
Others .............................................................................................................
Effective tax rate ..............................................................................................

2007
40.7%
(5.6)
8.4
(2.3)
0.1
(5.0)
0
0
0.7
(3.3)
33.7%

2006
40.7%
(7.2)
4.0
0.3
0.3
(3.5)
0.1
(2.5)
(0.8)
(0.9)
30.5%

2005
40.7%
(7.0)
6.7
(0.5)
0.3
(8.8)
0.2
—
(1.0)
(1.8)
28.8%

Significant components of the Company’s and its consolidated subsidiaries’ deferred tax assets and liabilities as of March 31, 2007
and 2006 are as follows:
Millions of yen

Thousands of
U.S. dollars

2007

2006

2007

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 or 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 ..........................................

¥ 6,499
3,463
3,292
1,540
1,918
596
—
—
318
—
8,117
25,743(7,749)¥ 17,994¥ 7,337
2,560
2,059
1,383
1,019
830
672
426
420
312
5,215
22,233(4,950)¥ 17,283$ 55,034
29,32527,877
13,041
16,242
5,047
—
—
2,693
—
68,736217,995
65,620$ 152,375

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 ..........................................................................

¥(22,529)(3,518)(3,399)(2,018)(3,949)
(787)
(594)
(175)
(1,410)(38,379)¥(22,920)(4,306)(3,491)(2,071)(1,030)
(676)
(594)
(274)
(298)
(35,660)$(190,778)(29,791)(28,783)(17,089)(33,441)(6,664)(5,030)(1,482)(11,940)(324,998)

Net deferred tax liabilities ...........................................................................

¥(20,385)¥(18,377)$(172,623)

SUMITOMO METAL MINING CO., LTD. Annual Report 2007

63

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, 2007 and 2006 consist 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 ................................................................
Net retirement benefits ...............................................................................
Prepaid pension 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 asof March 31, 2007 and 2006 also include estimated liabilities

Millions of yen

Thousands of
U.S. dollars

2006¥(49,617)
49,574¥(43)(8,388)(2,213)¥(10,644)—¥(10,644)

2007$(434,321)
464,442$ 30,121(84,249)(16,039)$ (70,167)(7,858)$ (78,025)

2007¥(51,289)
54,846¥ 3,557(9,949)(1,894)¥ (8,286)(928)¥ (9,214)

for the unfunded lump-sum benefit plan covering directors
and corporate auditors of ¥296 million ($2,507 thousand)and ¥476 million, respectively.

Included in the consolidated statements of income for the years ended March 31, 2007, 2006 and 2005 are severance andretirement 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 discount rates used by the Company are primarily 2.0%
for the years ended March 31, 2007, 2006 and 2005.
The rates of expected return on plan assets used by theCompany are primarily 3.5%, respectively for the years ended
March 31, 2007, 2006 and 2005.

2007¥ 2,003884(1,161)
(557)
(214)
¥ 955

2006
¥1,837
798
(639)
632
(461)
¥2,167

Millions of yen

Thousands of
U.S. dollars

2005¥1,866
892
(530)
445
(509)
¥2,164

2007$16,962
7,486(9,831)(4,717)(1,812)$ 8,088

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, 2007,
2006 and 2005 are ¥5,392 million ($45,660 thousand), ¥5,297 million and ¥4,812 million, respectively.

64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.

Such reserves, which are included in retained earnings, are¥91,978 million ($778,881 thousand) and ¥35,852 million atMarch 31, 2007 and 2006, respectively.

12. Net assets
As described in Note 2, net assets comprises three subsections,which are shareholders’ equity, accumulated gain (losses) fromvaluation and translation adjustments, and minority interests.
The Japanese Corporate Law (“the Law”) became effective
on May 1, 2006, replacing the Japanese Commercial Code(“the Code”). The Law is generally applicable to events andtransactions occurring after April 30, 2006 and for fiscal years
ending after that date.
Under the Japanese laws and regulations, the entire
amount paid for new shares is required to be designated ascommon stock. However, a company may, by resolution of
the Board of Directors, designate an amount not exceeding
one-half of the price of the new shares as additional paid-in
capital, which is included in capital surplus.
Under the Law, in cases where a dividend distribution of
surplus is made, the smaller of an amount equal to 10% of
dividend or excess, if any, of 25% of common stock over the
total of additional paid-in capital and legal earnings reserve
must be set aside as additional paid-in-capital or legal earnings
reserve. Legal earnings reserve is included in retained earnings
in the accompanying consolidated balance sheets.
Under the Code, companies were required to set aside anamount equal to at least 10% of the aggregate amount of cash
dividends and other cash appropriations as legal earnings
reserve until the total of legal earnings reserve and additional
paid-in capital equaled 25% of common stock.

Under the Code, legal earnings reserve and additional
paid-in capital could be used to eliminate or reduce a deficit
by a resolution of the shareholders’ meeting or could becapitalized by a resolution of the Board of Directors. Under
the Law, both of these appropriations generally require aresolution of the shareholders’ meeting.
Additional paid-in capital and legal earnings reserve may
not be distributed as dividends. Under the Code, however, on
condition that the total amount of legal earnings reserve andadditional paid-in capital remained equal to or exceeded 25%of common stock, they were available for distribution by
resolution of shareholders’ meeting. Under the Law, alladditional paid-in-capital and all legal earning reserve may betransferred to other capital surplus and retained earnings,
respectively, which are potentially available for dividends.
The maximum amount that the Company can distributeas dividends is calculated based on the non-consolidated
financial statements of the Company in accordance withJapanese laws and regulations.
At the annual shareholders’ meeting held on June 28,
2007, the shareholders approved cash dividends amounting to¥9,227 million ($78,135 thousand). Such appropriations havenot been accrued in the consolidated financial statements as ofMarch 31, 2007. Such appropriations are recognized in the
period in which they are approved by the shareholders.

13. Contingent liabilities
Contingent liabilities at March 31, 2007 are as follows:

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

Millions of yen

Thousands of
U.S. dollars¥18,539$156,990

4,637
4,527
¥27,703

39,26738,335$234,592

Besides the above, as to providing electric power to Pogo gold mine, there are ¥1,415 million ($11,982 thousand) to guarantee
construction costs of electric facilities.

SUMITOMO METAL MINING CO., LTD. Annual Report 200765

14. Effect of bank holidays on March 31, 2007
As financial institutions in Japan were closed on March 31,
2007 due to holidays, amounts that would normally be settled
on March 31, 2007 were collected or paid on the following
business day, April 2, 2007 and the Company and its

consolidated domestic subsidiaries accounted for accordingly.
The effects of the settlements on April 2 as compared withwhat would have been settled on March 31 are summarized
below:

2007
Millions of yen
Notes receivable trade ........................................................................................... Increased by ¥44
Notes payable trade............................................................................................... Increased by ¥263

15. Segment information
Business segment information
The primary business segments of the Company and its
consolidated subsidiaries include mineral resources, metals,
electronics and advanced materials, construction materials andThousands of
U.S. dollars

Increased by $373
Increased by $2,227

others. Also refer to the section of “Review of Operations” forthe details of each business.

Business segment information for the years ended March 31, 2007, 2006 and 2005 are as follows:
2007

Millions of yen
Mineralresources

Net sales:
Outside customers.............................. ¥ 55,482
Inter segment .....................................
26,766
Total ...........................................
82,248

MetalsElectronics& advanced Construction
materials
materials

OthersEliminationor corporate

Consolidated¥671,471 ¥209,515
87,365
14,065758,836 223,580¥17,029632
17,661¥13,267 ¥— ¥966,764
16,687 (145,515)—
29,954 (145,515) 966,764

Costs and expenses ................................
48,716649,272 209,996
Operating income (loss)......................... ¥ 33,532 ¥109,564 ¥ 13,584
Identifiable assets................................... ¥142,652 ¥456,056 ¥151,451
Depreciation expense.............................
4,539
8,433
10,073
Reversal of loss on impairmentof fixed assets .......................................
(939)
—
—
Capital expenditures ..............................
9,288
18,83322,563

15,508¥ 2,153¥14,370659

25,917 (145,277) 804,132¥ 4,037 ¥(238) ¥162,632¥50,086 ¥ 114,593 ¥929,208
1,373
616
25,693

—
240

—
1,314

—
(671)

2006

Millions of yen
Electronics& advanced Construction
materials
materials

Mineralresources

Metals

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

¥ 29,617
14,102
43,719¥390,369
63,311
453,680¥174,989
9,086
184,075

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

26,612¥ 17,107¥125,562
3,250
1,014
14,014

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

172,899¥ 11,176¥132,227
9,647
802
18,78366(939)
51,567

OthersEliminationor corporate

Consolidated¥17,001317
17,318¥13,603
15,181
28,784¥—(101,997)(101,997)¥625,579—
625,579

15,178¥ 2,140¥15,428656—
241

24,520¥ 4,264¥49,225
1,329
—
1,735

(100,383)¥ (1,614)¥ 99,425
591
—
(400)

542,823¥ 82,756¥772,562
22,951
1,825
50,568

2005

Millions of yen
Electronics& advanced Construction
materials
materials

Mineralresources

Metals

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

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

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
12,578OthersEliminationor corporate

Consolidated¥15,316469
15,785¥14,235
8,884
23,119¥—(75,432)¥(75,432)¥484,585—
484,585

14,605¥ 1,180¥14,248
653
251
257

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
36,488

2007

Thousands of U.S. dollars
Mineralresources

MetalsElectronics& advanced Construction
materials
materials

Net sales:
Outside customers.............................. $ 469,828 $5,686,095 $1,774,198
Inter segment .....................................
226,658
739,817
119,104
Total ...........................................
696,486 6,425,912 1,893,302
Costs and expenses ................................
412,533 5,498,112 1,778,271
Operating income (loss)......................... $ 283,953 $ 927,800 $ 115,031
Identifiable assets................................... $1,207,994 $3,861,936 $1,282,505
Depreciation expense.............................
38,437
71,41285,299
Reversal of loss on impairmentof fixed assets .......................................
(7,952)——
Capital expenditures ..............................
78,652
159,480
191,066(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 (Statement No.3
issued by the Accounting Standards Board of Japan on March
16, 2005)” as well as “Implementation Guidance for Partial
Revision of Accounting Standard for Retirement Benefit (theFinancial Accounting Standard Implementation Guidance

OthersEliminationor corporate

Consolidated$144,204
5,352
149,556$112,347 $— $8,186,671
141,307 (1,232,238)—
253,654 (1,232,238) 8,186,671

131,324$ 18,232$121,687
5,580

219,468 (1,230,223) 6,809,485$ 34,186 $ (2,015) $1,377,187$424,134 $ 970,387 $7,868,643
11,627
5,216
217,571—
2,032—
11,127—(5,682)(7,952)436,675

No. 7 issued by the Accounting Standards Board of Japan on
March 16, 2005)”, both issued by the Accounting Standards
Board of Japan on March 16, 2005, the Company elected toapply these standards to its consolidated financial statements
for the year ended March 31, 2006. As the result of thechange of the accounting policy, in the year ended March 31,
2006, operating income increases by ¥115 million in Mineral
resources, ¥219 million in Metals, ¥94 million in Electronics& advanced materials and ¥26 million in Others.

SUMITOMO METAL MINING CO., LTD. Annual Report 200767

Geographic segment information
Geographic segment information for the years ended March 31, 2007, 2006 and 2005 are summarized as follows:
2007

Millions of yen
Domestic

North
AmericaSoutheast
Asia

OthersEliminationor corporate

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

Consolidated¥846,581
42,159888,740¥46,682—
46,682¥47,349
20,61867,967¥ 26,152
12,31938,471¥—(75,096)(75,096)¥966,764—
966,764

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

758,171¥130,569¥608,940

29,133¥17,549¥75,62955,052¥12,915¥66,275

33,672¥ 4,799¥119,053(71,896)¥ (3,200)¥ 59,311

804,132¥162,632¥929,208

Southeast
Asia

OthersEliminationor corporate

Consolidated

2006

Millions of yen
Domestic

North
America

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

¥547,665
31,015
578,680¥25,358—
25,358¥37,790
4,653
42,443¥14,766
4,678
19,444¥—(40,346)(40,346)¥625,579—
625,579

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

505,648¥ 73,032¥514,881

16,114¥ 9,244¥74,365

42,045¥ 398¥47,575

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

542,823¥ 82,756¥772,562

Domestic

North
AmericaSoutheast
Asia

OthersEliminationor corporate

Consolidated

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

¥419,109
25,604
444,713¥20,560—
20,560¥34,097282
34,379¥10,819
2,452
13,271¥—(28,338)(28,338)¥484,585—
484,585

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

403,820¥ 40,893¥433,342

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

Net sales:
Outside customers ............................ $7,168,947
Inter segment ....................................
357,007
Total..............................................
7,525,954
Costs and expenses ...............................
6,420,281
Operating income (loss) ....................... $1,105,673
Identifiable assets.................................. $5,156,575

2005

Millions of yen

2007

68

OthersThousands of U.S. dollars
Eliminationor corporate
Consolidated$395,309—
395,309$400,957 $ 221,458
174,596
104,319575,553
325,777$— $8,186,671(635,922)—(635,922) 8,186,671

246,702$148,607$640,435

466,187
285,138$109,366 $ 40,639$561,224 $1,008,155(608,824) 6,809,484$ (27,098) $1,377,187$ 502,253 $7,868,643

(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 (Statement No.3
issued by the Accounting Standards Board of Japan on March
16, 2005)” as well as “Implementation Guidance for Partial
Revision of Accounting Standard for Retirement Benefit (theFinancial Accounting Standard Implementation Guidance

No.7 issued by the Accounting Standards Board of Japan on
March 16, 2005)”, both issued by the Accounting Standards
Board of Japan on March 16, 2005, the Company elected toapply these standards to its consolidated financial statements
for the year ended March 31, 2006. As the result of thechange of the accounting policy, in the year ended March 31,
2006, operating income in Domestic section increases by¥454 million.

Information for overseas sales
2007
Overseas net sales ........................................................
Consolidated net sales .................................................
Share of overseas net sales............................................

Millions of yen
North
AmericaSoutheast
Asia

East
Asia

OthersTotal¥46,792—
4.8%¥74,731—7.7%¥184,556—
19.1%¥11,795—
1.2%¥317,874¥966,764
32.9%

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

2006
Overseas net sales ........................................................
Consolidated net sales .................................................
Share of overseas net sales............................................

Millions of yen

2005
Overseas net sales ........................................................
Consolidated net sales .................................................
Share of overseas net sales............................................

Millions of yen

2007
Overseas net sales ........................................................
Consolidated net sales .................................................
Share of overseas net sales............................................

Thousands of U.S. dollars$396,240—
4.8%$632,831 $1,562,842
—
—
7.7%
19.1%

OthersTotal$99,881 $2,691,794— $8,186,671
1.2%
32.9%

SUMITOMO METAL MINING CO., LTD. Annual Report 200769

16. 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, 2007 and 2006 are as follows:
Millions of yen

2007
Machinery and equipment....................
Others ..................................................
Total .................................................

2006

Acquisition
cost

Accumulated
depreciation

Net bookvalue

Acquisition
cost

Accumulated
depreciation

Net book
value

¥440
418
¥858

¥295
416
¥711

¥145
2
¥147

¥1,362430¥1,792¥1,040374¥1,414

¥322
56
¥378

Thousands of U.S. dollars

2007
Machinery and equipment....................
Others ..................................................
Total .................................................

Acquisition
cost

Accumulated
depreciation

Net bookvalue$3,726
3,540$7,266$2,4983,523$6,021$1,22817$1,245

Future lease payment, inclusive of interest at March 31, 2007 and 2006 under such leases are as follows:
Millions of yen

Thousands of
U.S. dollars

2006
¥195
183
¥378

2007
$ 661
584
$1,245

2007
¥ 78
69
¥147

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

Total lease expenses and assumed depreciation charges for the years ended March 31, 2007, 2006 and 2005 are as follows:

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

70

2007
¥160
160

2006
¥319
319

Millions of yen

Thousands of
U.S. dollars

2005
¥342
342

2007
$1,3551,355

As a lessor
A summary of acquisition cost, accumulated depreciation and net book value at March 31, 2007 and 2006 were as follows:
Millions of yen

2007
Machinery and equipment....................
Others ..................................................
Total .................................................

2006

Acquisition
cost

Accumulated
depreciation

Net bookvalue

Acquisition
cost

Accumulated
depreciation

Net book
value

¥124
1
¥125

¥111
1
¥112

¥13
—
¥13

¥377
1
¥378

¥255
1
¥256

¥122
0
¥122

Thousands of U.S. dollars

2007
Machinery and equipment....................
Others ..................................................
Total .................................................

Acquisition
cost

Accumulated
depreciation

Net bookvalue$1,0508$1,058

$940
8
$948

$110
—
$110

Future lease receipt, inclusive of interest, at March 31, 2007 and 2006 under such lease were as follows:
Millions of yen

Thousands of
U.S. dollars

2006
¥ 31
76
¥107

2007
$127
—
$127

2007
¥15
—
¥15

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

Total revenue and depreciation charges for the years ended March 31, 2007, 2006 and 2005 were as follows:

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

2007
¥20
19

2006
¥31
29

Millions of yen

Thousands of
U.S. dollars

2005
¥32
30

2007
$169
161

SUMITOMO METAL MINING CO., LTD. Annual Report 200771

17. Earnings per share
Reconciliation of the difference between basic and diluted net income per share (“EPS”) for the years ended March 31, 2007 and2006 were 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

2007

2006

2005

2007

¥126,054¥ 62,800¥37,017$1,067,440—
126,05473
62,72752
36,965—
1,067,440

571,708¥ 220.49

570,477¥ 109.96—¥ 64.77$¥126,054¥ 62,800¥—$1,067,440—
126,054
126,05473
62,72762,727————
1,067,440
1,067,440

571,708
18,249589,957¥ 213.67

570,477
5,680
576,157¥ 108.87

—
—
—
—

—
—
—
1.81

¥

$

—
1.87

The diluted net income per share for the years ended March 31, 2007 and 2006 is ¥213.67 and ¥108.87, respectively because
there were securities with dilutive effect.
The diluted net income per share for the year ended March 31, 2005 is not calculated because there were no securities withdilutive effect.

72

INDEPENDENT AUDITORS’ REPORTSUMITOMO METAL MINING CO., LTD. Annual Report 200773

SMM GROUP
As of March 31, 2007

Name

Voting Shares(%)■ 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.

Operations

100
100
80
100
100
100
100
80

Geological survey of resources and civil engineering; Test boring
Prospecting; Management of mining subsidiaries in U.S.A.
Joint operation at the Morenci Mine, U.S.A.
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 local Peruvian companies engaged in the Cerro Verde Mine operation

60

Ferro-nickel smelting■ MetalsHyuga Smelting 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.

100

Manufacture of brass and copper products

100
50
50
20
26
27
54
52

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

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 and organic EL
displays
Lead frame production; Copper-clad polyimide film production
Manufacture and distribution of semiconductor packaging materials such as lead frames andtape materials
Manufacture and distribution of bonding wire
Manufacture and distribution of bonding wire

100
51
76
100
85
100
70
100
100
100
100
100

Manufacture and distribution of bonding wire
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
Marketing support for advanced materials and related operations
Metal product plating■ Energy and Environment
Sumicon Certech Co., Ltd.
Sumiko Eco-engineering Co., Ltd.
Sumiko Techno-Research Co., Ltd.
Nippon Catalyst Cycle Co., Ltd.
Japan Irradiation Service Co., Ltd.
JCO Co., Ltd.
Nippon Ketjen Co., Ltd.

81
100
100
100
100
100
50

Assessment and remediation of contaminated soil and groundwater
Environmental engineering such as exhaust gas treatment; Corrosion business
Analysis of metals; Environmental assessment and analysis
Valuable metals recovery business
Radiation processing for sterilization and for modification of industrial materials
Management of facilities dealing with uranium and related waste
Manufacture and sale of desulfurization catalyst for petroleum processing■ Others
Taihei Metal Industry Co., Ltd.
SumikoTec Co., Ltd.
Sumitomo Metal Mining Siporex Co., Ltd.

97
100
100

Igeta Heim Co., Ltd.
N. E. Chemcat Corporation

100
42

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

100
100
100

Manufacture of heat-, corrosion- and friction-resistant steel castings and precision castings
Manufacture of electronic device terminals and connectors
Manufacture and distribution of ALC (Autoclaved Lightweight aerated Concrete) and otherconstruction materials
Sub-contractor of ALC and ferro-concrete housings
Manufacture of precious metal catalyst and surface treatment chemicals; Recovery andrefining of precious metals
Manufacture and distribution of various fabricants
Trustee, security and personnel services for non-ferrous metals refining businesses
Design, production and repair of non-ferrous metals refining equipment

74

100
100

CORPORATE DATA AND INVESTOR INFORMATIONAs of March 31, 2007

Corporate Data
Founded:Incorporated:
Paid-in Capital:
Number of Employees:
Head Office:

1590
1950
¥91.8 billion
2,175
11-3, Shimbashi 5-chome, Minato-ku,
Tokyo 105-8716, Japan

Contact Information:
Publicity & IR 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/E/

Investor Information
Closing Date:
The Company’s books are closed on March 31 each year.
Regular General Meeting:
The regular general meeting of shareholders is held in June each year.
Common Stock:
Number of authorized shares: 1,000,000,000
Number of issued and outstanding shares: 578,790,870
Number of shareholders: 58,501
Exchange Listings: Tokyo Stock Exchange and Osaka Securities Exchange
Stock Transaction Unit: 1,000 shares

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, Chiyoda-ku, Tokyo
Method of Public Notice:Electronic notification (However, if electronic notification is notpossible due to an accident or other unavoidable circumstances,notice will be published in the Nihon Keizai Shimbun newspaper.)The Company’s website: http://www.smm.co.jp/E/
Independent Public Accountant:
KPMG AZSA & Co.
1-2, Tsukudo-cho, Shinjuku-ku, Tokyo

Major Shareholders

Japan Trustee Services Bank, Ltd. (Trust accounts)
The Master Trust Bank of Japan, Ltd. (Trust accounts)
Goldman Sachs International
Japan Trustee Services Bank, Ltd. (Trust accounts 4)
State Street Bank and Trust Company 505103
Japan Securities Finance Co., Ltd.
Trust & Custody Services Bank, Ltd. (Trust accounts B)
Sumitomo Metal Industries, Ltd.
Sumitomo Mitsui Banking Corporation
Sumitomo Life Insurance Company

Number ofshares held
(thousands)

Shareholding
ratio
(%)

50,48345,764
15,182
10,167
9,056
7,856
7,808
7,806
7,650
7,474

8.8
7.9
2.6
1.8
1.6
1.4
1.4
1.4
1.3
1.3

Individuals
and Other
20.34%
116,857
Financial
Institutions
38.82%
223,110

Breakdownof
Shareholders(Thousands ofshare)
ForeignInvestors
27.94%
160,529

Note: Shareholding ratio is calculated excluding treasury stock.

Other
Corporations
7.47%
42,918

Securities
Companies
5.43%
31,186

Note: Shareholdings of less than 1,000 shares have been omitted.

Stock Price and Trading Volume
SMM stock price (Yen)
TOPIX (Point)(Millions of shares)

3,500

60

3,000

50

2,500

40

2,000

30

1,500

20

1,000

10

500
05/4

0

05/6
SMM (left)

05/8

05/10

05/12

TOPIX (left)

06/2

06/4

06/6

06/8

06/10

06/12

07/2

07/4

07/6

07/8

Trading volume (right)

Note: TOPIX began on 4 January 1968 with a base level of 100.

SUMITOMO METAL MINING CO., LTD. Annual Report 200775

2007年09月12日17時25分

Comp̲M45̲SQ̲175

天地297mm-左右424mm 背4mm

07116-0549 住友金属鉱山AR-英文 初校 F6000
秋山

Annual Report 2007

Annual Report 2007
For The Year Ended March 31, 2007
Printed on recycled paper in Japan

H4

H1

As of March 31, 2007

SMM Group Management Vision
Based on the principles of compliance, environmental protection and operational safety, the Sumitomo
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.

Investor Information

Founded:Incorporated:
Paid-in Capital:
Number of Employees:
Head Office:

1590
1950
¥91.8 billion
2,175
11-3, Shimbashi 5-chome, Minato-ku,
Tokyo 105-8716, Japan

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, Chiyoda-ku, Tokyo
Method of Public Notice:Electronic notification (However, if electronic notification is notpossible due to an accident or other unavoidable circumstances,notice will be published in the Nihon Keizai Shimbun newspaper.)The Company’s website: http://www.smm.co.jp/E/
Independent Public Accountant:
KPMG AZSA & Co.
1-2, Tsukudo-cho, Shinjuku-ku, Tokyo

Major Shareholders

Contents
Consolidated Financial Highlights .........................................................1
Chairman’s Message: To Our Shareholders..........................................2
Overview of FY2007–9 Medium-term Business Plan ............................4Interview with the President: taking the Initiative ..................................6
HPAL ..................................................................................................8Japan Trustee Services Bank, Ltd. (Trust accounts)
The Master Trust Bank of Japan, Ltd. (Trust accounts)
Goldman Sachs International
Japan Trustee Services Bank, Ltd. (Trust accounts 4)
State Street Bank and Trust Company 505103
Japan Securities Finance Co., Ltd.
Trust & Custody Services Bank, Ltd. (Trust accounts B)
Sumitomo Metal Industries, Ltd.
Sumitomo Mitsui Banking Corporation
Sumitomo Life Insurance Company

Number ofshares held
(thousands)

Shareholding
ratio
(%)

50,48345,764
15,182
10,167
9,056
7,856
7,808
7,806
7,650
7,474

8.8
7.9
2.6
1.8
1.6
1.4
1.4
1.4
1.3
1.3

Technologies ....................................................................................12
SMM at a Glance..............................................................................16
Mineral Resources and Metals.........................................................18
Electronics and Advanced Materials................................................24
Other Businesses .............................................................................28
Research and Development .............................................................29

Individuals
and Other
20.34%
116,857
Financial
Institutions
38.82%
223,110

Breakdownof
Shareholders(Thousands ofshare)
ForeignInvestors
27.94%
160,529

Note: Shareholding ratio is calculated excluding treasury stock.

Scale & Ownership ...........................................................................10
Review of Operations ..........................................................................15

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/E/

白川

Closing Date:
The Company’s books are closed on March 31 each year.
Regular General Meeting:
The regular general meeting of shareholders is held in June each year.
Common Stock:
Number of authorized shares: 1,000,000,000
Number of issued and outstanding shares: 578,790,870
Number of shareholders: 58,501
Exchange Listings: Tokyo Stock Exchange and Osaka Securities Exchange
Stock Transaction Unit: 1,000 sharesContact Information:
Publicity & IR Department

Other
Corporations
7.47%
42,918

Securities
Companies
5.43%
31,186

Note: Shareholdings of less than 1,000 shares have been omitted.

Stock Price and Trading Volume
SMM stock price (Yen)
TOPIX (Point)(Millions of shares)

3,500

60

3,000

50

2,500

40

2,000

30

1,500

20

1,000

10

The Sumitomo Business Spirit ............................................................30
Corporate Governance and Internal Controls .....................................31
Social and Environmental Initiative......................................................34
Corporate Officers ...............................................................................36
Financial Section .................................................................................37
SMM Group .........................................................................................74
Corporate Data and Investor Information ............................................75
500
05/4

0

05/6
SMM (left)

Unless specifically stated otherwise, information in this annual report is as of August 31, 2007.
Forward-looking Statements
Statements made in this annual report with respect to plans, strategies and future performance that are not historical 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.

H2

05/8

05/10

05/12

TOPIX (left)

06/2

06/4

06/6

06/8

06/10

06/12

07/2

07/4

07/6

07/8

Trading volume (right)

Note: TOPIX began on 4 January 1968 with a base level of 100.

SUMITOMO METAL MINING CO., LTD. Annual Report 2007

75

H3

天地297mm-左右424mm 背4mm

Corporate Data

Comp̲M45̲SQ̲175

SMM Group Corporate Philosophy
1. Sumitomo Metal Mining Co., Ltd. (“SMM”), in accordance with the Sumitomo Business Spirit,
shall, through the performance of sound corporate activities, seek to make positive contributions tosociety 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.

2007年09月15日15時15分

CORPORATE DATA AND INVESTOR INFORMATION

07116-0549 住友金属鉱山AR-英文 下版 F6000

CORPORATE PHILOSOPHY & MANAGEMENTVISION