SUMITOMO METAL MINING CO., LTD.

http://www.smm.co.jp

Annual Report 2010

11-3, Shimbashi 5-chome, Minato-ku, Tokyo 105-8716, Japan

Annual Report 2010

For The Year Ended March 31, 2010

The Sumitomo Business Spirit
Article 1	Sumitomo shall achieve strength and prosperity by placing prime importance on
integrity and sound management in the conduct of its business.
Article 2	Sumitomo shall manage its activities with foresight and flexibility in order to cope
effectively with the changing times. Under no circumstances, however, shall it pursue
easy gains or act imprudently.
"Business principles" forming the Rules Governing the House of Sumitomo (version formulated in 1928)

SMM Group Corporate Philosophy• Sumitomo Metal Mining Co., Ltd. (SMM), in accordance with the Sumitomo Business Sprit, shall,through the performance of sound corporate activities and the promotion of sustainable coexistence with the global environment, seek to make positive contributions to society and to fulfill
its responsibilities to its stakeholders, in order to win ever greater trust.
• 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.

Contents
Key Message
page 1

Consolidated Financial Highlights

Feature:Key Elements of New Growth Strategy
page 41

page 2

Targeting Sustained Growth

Learn from History, Live by the Spirit

Construction and Operation ofManagement Systems (Corporate Governance)

page 3

Overview of New Medium-Term Business Plan
page 14

Message to Stakeholders
page 18

Business Network
page 26

Review of Operations
page 32

page 50

Directors and Corporate Auditors
page 53

Corporate History
page 54

Financial Section
page 55

Glossary
page 98

Corporate Data and Investor Information
page 100SUMITOMO METAL MINING CO., LTD.

Annual Report 2010

Key Message

Sumitomo Metal Mining (SMM) was able to report better results for the year ended March2010 (fiscal 2009) due to a recovery in market conditions and the effects of various costreduction initiatives implemented by management. However, having engineered a turnaround,
we are not content to rest on our laurels. We are focusing intently on where SMM needs to
be in five or ten years from now, and how we will get there. Our business environment is in
the middle of a structural shift — one that presents challenges, but that also brings significant
future growth opportunities for SMM.
The new medium-term business plan that we have formulated to take us to the end of
fiscal 2012 is based on the promotion of a new growth strategy that takes into consideration
the long-term vision of a structural change within our business. In this Annual Report, we
explain the key themes of this plan and how they relate to SMM’s medium-to-long-term
growth prospects. We review our long corporate history, look to the future, and discuss thesteps that we have already taken on this path.

Unless specifically stated otherwise, information in this annual report is as of July 1, 2010.
Forward-looking Statements: Statements made in this annual report with respect to plans, strategies and future performance that are not historicalfacts are forward-looking statements. SMM cautions that a number of factors could cause actual results to differ materially from those discussed in theforward-looking statements.

1

Consolidated Financial Highlights
SUMITOMO METAL MINING CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Millions of yen (Except per share amounts and key ratios)Years ended March 31

2010

2009

2008

¥725,827
66,26587,791
53,952
26,09044,153(75,443)(19,322)793,797
10,53432,572
21,974
31,536
128,000(28,386)(74,086)

1,132,372
155,394
217,866
137,808
73,956
157,383(126,413)
55,727

981,458
629,684
132,311200,939

880,001
547,251
141,716
218,534

1,091,716
640,345
169,394
258,05496.26
1,043.50
20

38.87
913.92
13

238.13
1,017.96
30

5.80
9.89
59.8
20.5
0.34

2.23
4.02
57.3
24.8
0.43

13.64
25.39
54.0
23.6
0.44

Results for the year:
Net sales
Operating income
Recurring profit
Net income
Equity in earnings of affiliated companies
Net cash flows from operating activities
Net cash flows from investing activities
Net cash flows from financing activities
Financial position at Year-end:
Total assets
Net assets
Long-term debt due after one year
Interest-bearing debt
Amounts per share (Yen):
Net income
Shareholders’ equity
Cash dividends
Key ratios:
ROA (%)ROE (%)
Equity ratio (%)
Interest-bearing debt to total asset ratio (%)
Debt-to-equity ratio (times)

Review of Key Performance Indicators
Net sales:	Net sales in the year ended March 2010 (FY2009) declined 8.6% in year-on-year terms to ¥725.8 billion, reflecting alingering impact from the sharp fall in non-ferrous metal prices that occurred in FY2008.

Operating income:	Operating income recovered sharply to ¥66.3 billion. This was due to the success of a major cost-reduction
program, combined with higher earnings from overseas operations in the mineral resources and smelting & refining
segments and a turnaround in the materials business.

Net income:	Higher operating income and a sharp recovery in equity in earnings of affiliated companies helped to boost net
income to ¥54.0 billion, an increase of 145.5% compared with FY2008.

Equity ratio:	Higher shareholders’ equity contributed to an improvement of 2.5 percentage points in the equity ratio comparedwith the end of FY2008, to 59.8%. SMM aims to take advantage of its financial strength in the new three-year
medium-term business plan starting in April 2010.

Debt-to-equity (D/E) ratio:	The D/E ratio improved for the second consecutive year, declining to 0.34 times. This was mainly due to the growthin net income and the increase in shareholders’ equity.
2

SUMITOMO METAL MINING CO., LTD.

Annual Report 2010

Sumitomo’s involvement with copper mining spans over 420 years.
During that time, the business has faced several major challenges
due to changes in external conditions. In each case, management
responded to the changes with skill and tenacity to forge a new businesswith a revised strategy and organization. The enterprise’s sustained
growth has made a significant and wide-ranging contribution to thedevelopment of Japanese society.
Today, as the direct successor of Sumitomo’s original business,
SMM once again draws inspiration from this illustrious history to move
forward based on the Sumitomo Business Spirit.

Learn from History,
Live by the Spirit
Materials provided by Sumitomo Shiryokan

3

Learn from History, Live by the Spirit

1590 onward (Edo Period)
Early copper smelting to mining at Besshi
Following years of war-torn strife, Japan moved steadily toward the Edo Period, an era of relative
peace and tranquility. Around that time, the Sumitomo family firm succeeded in mastering the newtechnology of copper smelting. The start of operations at the Besshi mine later provided thefoundations for business development.

The start of copper smelting

First shaft dug at Besshi mine

The Sumitomo copper business began in 1590 in
Kyoto. Copper smelting and decorative copperwork were performed under the name Izumiya.
Copper ore from all parts of Japan was turned into
refined copper metal. Sumitomo was the first inJapan to perfect a smelting technique known as‘”Nanban-buki” for the separation of copper fromsilver. Prior to the development of this technology,
copper was exported with high levels of silver
impurities, which sharply reduced potential smelting profits. The competitive advantage gained
from this more advanced technology helped Sumitomo to establish a highly profitable base ofoperations.

In 1690, large outcrops of copper ore were foundon the southern slopes of the Akaishi Mountain
range in Ehime Prefecture. The Besshi copper minethat was developed at that location went on tooperate continuously for 283 years and substantially underpinned Sumitomo’s development. Oncethe first shaft was dug at Besshi, the Sumitomofamily firm shifted focus from just smelting copper
to become a full-fledged industrial resource
business.

Copper smelting during
the Edo Period
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SUMITOMO METAL MINING CO., LTD.

Annual Report 2010

Problems and breakthroughs
at Besshi
Operations at Besshi did not always proceedsmoothly. Within eight years of the first shaft
being dug, annual copper production had risen to
1,521t. Output then dipped, however. As the tunnels became deeper, operations were troubled by
the discharge of water which built up in the mine.
The transportation over long distances of thewood and charcoal required for smelting also
drove up production costs. Employing methods todrain away the water together with the periodic
use of forestry helped to stabilize operations.

The Besshi mine in the Meiji Period(photo) The Besshi mine today5

Learn from History, Live by the Spirit

1860s onward
At the end of the Edo Period and with the
Meiji Restoration crisis— Adoption of modern Western technology
As feudal society, in which the samurai class had played adominant role for over 670 years began to break down in Japan,
the Besshi mine, caught up in social transformation, faced a severecrisis. However, Sumitomo was able to overcome these challenges
at the dawn of a new age for the country.

Operations concentrated at Besshi mine
Sumitomo had to endure a serious crisis as Japan was racked bysocial convulsions from the end of shogun rule. Threatened bywarehouse seizures and the requisition of the Besshi mine, thecompany faced possible collapse. Sumitomo overcame the crisis
due largely to the unceasing efforts of Saihei Hirose (pleaserefer to the column at right), the general manager of Besshi at
the time. Yet management faced repeated crises as businessconditions worsened. Hirose fought to stop factions within the
Sumitomo family from selling the Besshi mine. The various measures he took laid the foundations for the mine’s ultimate
revival.

A technical revolution in mining
In 1874, Hirose hired the French mining engineer Larroque toadvise on the introduction of Western technology to revitalize
Besshi’s production capacity. Larroque wrote a detailed reporton how to reform methods at Besshi from a Western mining andmetallurgical viewpoint. Hirose introduced a number of technological innovations. Dynamite was first used for tunneling at
Besshi in 1882, and in 1891 the mine began using a rock drill.
Railway construction began at Besshi in 1890.

Adoption of Western smelting methods
On the metal refining side, in 1884 a pilot-scale Western-stylecopper smelter was constructed and began operating at a site in
Niihama. Full-scale smelting operations began in 1888. Transport capacity increased dramatically once the dedicated railway
was completed to connect the mine to the smelter. Copper
smelting volumes grew substantially at Niihama.
The adoption of Western methods revolutionized the technology employed at the Besshi mine. By 1897, annual copper
output had grown to 3,500t, some six times the production figure thirty years earlier.
The #4 support tunnel(Showa Period)

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SUMITOMO METAL MINING CO., LTD.

Annual Report 2010

Saihei Hirose (1828–1914) and the Besshi copper mine
Overcoming the crisis at Besshi
Hirose had lived on the mountain at Besshi from a young age. On occasion he had visited the mine tunnels, and he knew that
there were extensive ore deposits under the mountain. When Koichiro Kawada (a samurai from the victorious Kochi Prefecturebased Tosa clan who later became governor of the Bank of Japan) came to requisition the mine, Hirose argued forcefully that,while Besshi had been subject to Tokugawa shogunate rule, the Sumitomo family had always managed it independently. It
would not be in the national interest to confiscate the Besshi mine and put it in the hands of somebody with little experienceof its operations. Kawada was impressed by Hirose’s argument. The two men sought and obtained the formal approval of the
new Meiji government to continue operations under Sumitomo control.
Concentration of operations at Besshi
In 1871 the Meiji government ordered Hirose to inspect other mines at Ikuno. At Ikuno, Hirose met the advising Frenchengineer Coignet and learned about modern mining techniques using black powder. This trip convinced Hirose that he had noother choice but to introduce Western methods at Besshi to ensure the firm’s revival. Planning to concentrate operations at
Besshi, he set about closing down unprofitable operations in other parts of Japan. Following an inspection of a mine on theIzu peninsula, Hirose stopped over at Tokyo. At that time, steps were taken to close certain financial operations including the
Nakahashi commercial exchange office in Chuo-ku, Yaesu and a rice brokerage in Asakusa.
The modernization of the Besshi mine
Based on the report written by the French engineer Larroque, Hirose began modernizing the mining and transport methods
used at Besshi to extend the eastern sloping mine shafts and replace the ox carts still in use at that time. When dynamite was
first introduced to blast new support tunnels, it enabled the completion of 1,021 meters of new tunneling in just four years.
On his later travels to the West to celebrate his 60th birthday, in North America Hirose saw how a railway line had been cut
through the precipitous terrain of the Rockie Mountains to connect to the Colorado Central mine. He made plans to do thesame at Besshi.
(photo) Historical memorial to Saihei Hirose (in grounds of former residence)7

Learn from History, Live by the Spirit

1890s onward
Smelter relocation and the start of nickel
refining
Japan was now developing at a rapid pace as modernization proceeded. The Besshi
mine followed this trend, experiencing good fortune and the occasional crisis as it
made progress.

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SUMITOMO METAL MINING CO., LTD.

Annual Report 2010

Smelter relocated to offshore island
After expansion and upgrade, the copper smelter at
Niihama began full-scale operations in 1888. For the
first time, the mine at Besshi and the smelter at Niihama were operating in unison. However, smoke
damage due to the sulfur dioxide gas produced by thesmelter was creating major problems. Sumitomo
needed to take drastic action. The Besshi generalmanager at the time, Teigo Iba (who later became a
director of Sumitomo), decided to move the smelter
from the mainland to an offshore island in the Seto
Inland Sea called Shisaka.
Smelter on Shisaka Island (Meiji Period)

Start of electrolytic smelting
operations and ore purchasing
Business dipped after the end of WWI. Sumitomo
regained the recovery track by building a new refinery based on the use of electrolysis at Niihama whileat the same time substantially rebuilding the existing
Shisaka smelter. Showing an enthusiasm for innovation that remains to this day, Sumitomo introduced
new technology around this time and upgraded its
infrastructure. Up until that point the Niihama smelter
had processed the entire output of the Besshi mine.
From this point on, Sumitomo began purchasing copper ores and unrefined metal from other firms to supply the smelter. This was a major step on the way to
Sumitomo becoming a significant player in metal
refining.

Start of nickel operations amid global conflict
In 1933, on the assumption that Japan would requiredomestic nickel supplies in the future, Sumitomo
began developing nickel production technology. The
company also put a lot of effort into developing newinternational sources of ore. After the technical andraw material issues had been solved, construction
work on an electrolytic-nickel refinery commenced in
1938. The new facility began operating as soon as it
was complete.
Nickel refinery (early Showa Period)(photo) The nickel refinery today9

Learn from History, Live by the Spirit

1950s onward
Entry into the electronics sector
and the closure of Besshi
Japan’s economy recovered rapidly in the years following WWII. This led to demands from Westerncountries for Japan to liberalize trade and make its currency fully convertible. Japan eventuallydismantled tariffs and promoted free trade. SMM responded by undertaking fundamental businessreforms to ensure the company would be internationally competitive.

10

SMM enters the electronics
business

Spirit of Besshi lives on after
closure of mine

Domestic sales prices for metals in Japan declined
substantially in the 1950s due to the impact oftrade liberalization. In response, SMM adopted apolicy of seeking higher profits by processing themetal further to add to its sales value. In 1960,
SMM established Tokyo Electronic Metal Co., Ltd.
(later absorbed into the parent firm in 1966) tomanufacture electronic materials. Anticipating thedawn of the electronic age, SMM began making
functional metal materials for electronic components. Early products included high-purity germanium for use in radios, alloy preform for use intransistors and integrated circuits, and lead frames
for other IC applications. These operations developed into SMM’s electronic and advanced materials business. In this manner, SMM has continued to
add value to metals.

After an operating history lasting some 283 years,
the Besshi mine closed in March 1973. During thattime, a total of around 700km of tunnels were dugat the site, the deepest of which were 1,000 meters
below sea level. Cumulative production was about
650kt of copper equivalents. The Besshi mine was
not only the foundation of the various Sumitomo
businesses, but also made a significant contribution to the development of Japanese society. The
spirit inherited from the Besshi mine is also a majorpart of SMM.

SUMITOMO METAL MINING CO., LTD.

Annual Report 2010

Construction and operational start-up
of Toyo refining facility
Japanese demand for copper rose steadily while the country
maintained high rates of economic growth. To supply thisdemand and strengthen international competitiveness, in 1966
SMM began deliberating a plan to increase copper smelting
capacity. SMM decided not to upgrade the smelter on Shisakathat had underpinned the company’s operations for more than
60 years, and instead develop a new site to increase smelting
capacity. Production at the new Toyo facility began on its completion in 1971. The flame used at a special ceremony to light
the Toyo furnace was taken from the smelting furnace at
Shisaka, echoing a similar ceremony that had taken place in1904 when the Besshi kiln was transported to Shisaka to facilitate the lighting of the Shisaka furnace. Thus, the flame used toinitiate copper smelting at Besshi had been passed down overthe generations to Shisaka and then to Toyo.

Toyo facility

Trade liberalization and a major shift in business strategy
The impact of free trade
In 1959, Western nations put significant pressure on Japan to liberalize trade and currency controls as part of the negotiations
for the General Agreement on Tariffs and Trade (GATT). As far as the West was concerned, the country’s rapid post-war
economic growth had helped it to establish a strong economic base. For internationally uncompetitive Japan, however, tradeliberalization was a threat on a par with earlier market-opening demands. For the Japanese non-ferrous metals industry, free
trade would result in unlimited imports of copper and nickel that could even threaten the sector’s entire existence.
Convinced that free trade would happen, SMM made some major changes to its business strategy.
New strategy [1]: cut back mining in Japan
Having prospered by sourcing most of its copper ores from Besshi and other mining operations in Japan, SMM decided to cease
all domestic exploration and copper mine development activities. The company proceeded to cut back operations at threecopper mines and close two others.
New strategy [2]: source ore from overseas
SMM accelerated the prevailing trend of procuring smelting ore from overseas sources and borrowed funds to develop fresh
sources of ore. The proportion of unrefined ore and copper metal used in the production of electrolytic copper increased from
17% in 1956 to over 83% by 1968.
New strategy [3]: expand into new business areas
SMM established and expanded operations in new fields, including electronic materials, precious metal catalysts and rolled
copper products.
(photo) The smelting furnace at Toyo
11

Learn from History, Live by the Spirit

1970s onward
Hishikari mine operation
to growing international competitivenessAs the years of high growth started to come to an end, Japan’s largest manufacturers led corporate Japanin a dynamic campaign to develop global business franchises. SMM adopted this global challenge as well,and set about building an internationally competitive business platform.

Exploration success and minedevelopment at Hishikari

Investment in overseas copper
mines

The closure of the mines at Besshi in 1973 andSazare in 1979 brought an end to SMM’s mining
operations with a history of nearly 300 years. However, a major gold deposit was then discovered at
the Hishikari mine in Kagoshima Prefecture in
1981. Mining of this deposit began at Hishikari in
1985, putting SMM back in the mineral resourcesbusiness again. The Hishikari mine still continues
to yield high-grade gold ore. As well as being apillar of earnings, the mine has come to play animportant role in providing technical training to
new generations of mining engineers.

Non-ferrous metal prices remained depressed during the 1980s. Japanese copper producers wereforced to buy ore from abroad and try to boost
profits through smelting operations. In 1986, SMM
decided to invest in the Morenci copper mine in
the United States. This launched SMM’s initialsteps toward securing resources. As non-ferrous
metal prices started to rise around 1990, globalscale mine development and an increase in production progressed in earnest. SMM acquired a
production interest in the Candelaria copper minein Chile in 1992 and then took an equity stake in
the Northparkes copper and gold mine in Australia the following year.

Morenci copper mine

12

SUMITOMO METAL MINING CO., LTD.

Annual Report 2010

World-leading technicalinnovation
In 2001, SMM began construction of a new nickel
refining facility on the island of Palawan in thePhilippines. This plant utilized the High Pressure
Acid Leach (HPAL) method, a technology that was
first developed in Cuba in the 1950s but neveradopted commercially due to poor production
yields. Using refining technology cultivated overmany years, SMM was able to start operations at
the plant in 2005 and then increase production to
design capacity as planned.
*For more details of this project, please see the
Feature section.
Coral Bay Nickel Corporation(photo) Hishikari mine13

Overview of New Medium-Term Business Plan
2009 3-Year Business Plan
Promotion of New Growth Strategy Based on Long-Term Vision

Long-Term Vision[Mineral Resources][Smelting & Refining]

Cu interests: 180ktpa → 300ktpa
Ni: Solomons operational
Au interests: 20tpa → 30tpa

Cu: Application of R&D
Ni: 150ktpa set-up[Materials]
Earnings boosted via
radical reforms

In Top 5

Long-term vision
beyond FY2013

FY2010-FY2012
09 3-YrBusiness Plan

FY2004-FY2009
03 & 06 3-Yr
Business Plans

non-ferrous
majors

New long-term
Globally
vision-orientedcompetitive
growth strategy

Globallycompetitive(base)

Non-ferrous major

Enter non-ferrous major ranks

Key Point
A Change in Business Structure
Create stand-alone core businesses and channel business resources into growth sectors

Strategic Point

14[Mineral Resources][Smelting & Refining][Materials]

Cu/Au: secure mine interests

Cu: more cost competitive

Expand into E&E

Ni: Solomons project B-FS

Ni: progress at Taganito

Exit loss-making ops

SUMITOMO METAL MINING CO., LTD.

Annual Report 2010

1. Business environment

metals” and “electronic and advanced materials.” In the new

Our financial results improved steadily until FY2007, but wereplan, we designate “mineral resources,” “smelting & refin-then adversely impacted by the global financial crisis (GFC)ing” and “materials” as our three core businesses. Our plan isthat erupted in September 2008. In the wake of the GFC, fall-to channel our business resources into growth sectors where

ing metals prices affected our mineral resources and metals

we can continue to build international competitiveness. To

businesses. Our electronic and advanced materials businesscounteract pressures on the bottom line caused by deteriorat-also suffered severely due to the retrenchment in global

ing purchase terms for metal ores and rising energy costs, wedemand for electronic equipment. In the year ended March

also plan to reinforce our basic operating platform based on a2010 (FY2009), our earnings rebounded due to a recovery inrange of comprehensive measures to boost efficiency andmetals prices and in markets for electronic goods, which ben-reduce costs. This will enable SMM to target increased earn-

efited from demand stimulus measures by governments

ings growth. Finally, we will exit business sectors where weacross the world.

cannot pursue a growth strategy through divestments.

Nonetheless, our business environment remains extremely
harsh. In copper refining, purchasing terms for copper con-

3. Strategy by business segment

centrate on a global basis are becoming poorer as control■ Mineral resources

over copper mines becomes gradually concentrated in the

Under previous medium-term business plans, we pursued ahands of a few global super-major resource companies.

“mineral resources + refining” business model for ourMoreover, prospects for substantial growth in demand in the

upstream operations and focused efforts in this segment on

Japanese market remain lackluster in the electronic andthe supply of raw materials for our smelting & refining opera-

advanced materials sector.

tions. Under the new plan “mineral resources” is positioned
as a core business in its own right.

2. Core strategy

Non-ferrous metals prices have reached new, higher lev-

Against this backdrop, we have formulated a new medium-els since 2004 due to the growth in demand from industrial-

term business plan covering the three-year period of FY2010

izing economies. Over the same period, the degree of control–12(April 2010–March 2013). The “FY10–12 Plan” sets out aexerted by major resources players over global mining hascore strategy targeting enhanced long-term growth.

strengthened. To respond to these shifts in business condi-

For the purposes of the FY10–12 Plan, we will promote ations, we have invested in human resources and technicalnew growth strategy that takes into consideration the long-development while seeking to gain control of first-classterm vision of a structural change within our business. Under

resource assets. We have promoted exploration activities,

the previous two three-year medium-term business plans, weentered new resource development projects, and moved todefined our core businesses as “mineral resources andacquire majority interests in certain projects. In July 2009, we（億円）

Capex excl. o/seas interests

Mineral resources
Smelting & Refining

03 3-YrBusiness Plan
total
¥137.0bn

06 3-YrBusiness Plan
total
¥132.2bn

Materials
Others

09 3-YrBusiness Plan
total
¥190.0bn

Taganito(100% base)15

Overview of New Medium-Term Business Planpurchased an additional stake in the Pogo gold mine in■ Smelting & refining

Alaska, USA from Teck Resources Ltd. of Canada. This acquisi-

Our nickel refining business possesses world-leading techni-tion increased Japanese interests in the mine to 100% (ofcal capabilities in technologies such as High Pressure Acid

which we own 85%). It also made SMM the mine’s sole oper-

Leach (HPAL). Our aim is to raise earnings while continuing toator. Pogo is the first mine outside Japan in which we havereinforce our technical expertise. Over the course of the newgained sole operatorship. We also met our annual gold pro-plan, we expect to increase our overall nickel refining capacity

duction target for Pogo of 12t in 2009 for the first time. These

to 100ktpa. At our nickel refining facility in Ehime Prefecture,achievements have given us a solid foothold from which we

we are preparing new electrolytic nickel production capacity

can expand into other overseas mining operations.

of 65ktpa. In order to secure the necessary raw materials, ourIn copper, our long-term vision is to expand our total pro-Taganito Project located in the northeastern part of the island

duction interest to 300ktpa of copper equivalents. Our otherof Mindanao in the Philippines is due to enter commercial

goals are to establish at least one copper mine in which we

production in 2013. Once completed, it will become SMM’s

own a majority interest and to look at participating in further

second overseas refining facility.

copper resource development projects. In nickel, following on

Business conditions have become more difficult for cop-from our current goal of establishing a 100ktpa set-up for

per smelting in the Japanese market. The growing degree ofnickel by 2013, we have set a new goal of expanding supply

oligopoly in the mineral resources sector has resulted in

to 150ktpa. To reach this goal, we are currently exploring forpoorer terms for purchasing ore. Under these circumstances,

nickel deposits in the Solomon Islands. In March 2010 wecost reduction concerns have emerged as the most pressing

signed an agreement under which Japan Oil Gas and Metals

issue. Accordingly, our FY2010-12 Plan places the utmost

National Corporation (JOGMEC) will take an equity stake inemphasis on a wide range of cost reduction measures includ-

this project. Going forward, we plan to undertake an aggres-ing efforts to increase the efficiency of our operations and tosive exploration program in collaboration with our new min-improve our technological capabilities.

ing development partner. We are also actively exploring forgold and aim to boost our interest in gold production to
30tpa over time.

Exploration/R&D costs
Research and Development expenses
Exploration costs(Billions of yen)
35
30
25
20
15
10
5
0
03 3-YrBusiness Plan

06 3-YrBusiness Plan

09 3-YrBusiness Plan

16
Research and Development expenses

SUMITOMO METAL MINING CO., LTD.

Annual Report 2010

■ Materials

4. Research and development

Under the new plan, we have designated our semiconductor

R&D plays an important role in supporting divisional businessand advanced materials operations as our core materials busi-

strategies and in solving technical challenges. We will benesses. We see this field as a growth area, mainly because of

upgrading our R&D capabilities further during the course of

the expanding range of energy and environmental (E&E)

the new medium-term business plan.

applications. Battery materials is one area where we see

In E&E-related materials, our main development targets

demand growing in the future, especially for anode materials

for R&D are anode materials for secondary batteries, pastes

used in battery packs for hybrid electric vehicles or various

and high-performance copper-clad films. Taking advantage

secondary batteries for consumer applications. In line withof our integrated supply chain for nickel, we also plan to pro-the market’s growth potential, we are endeavoring to expand

mote research into battery material recycling, notably forand strengthen these businesses. Another field where demand

automotive battery packs. In other initiatives, based on theis expected to grow is that of sapphire substrates for use inprojected expansion in our Ni production capacity, we will

white LEDs. By exploiting our integrated production capabili-also focus on developing new nickel and cobalt products.

ties in crystal growth and fabrication, we aim to capture theleading share of the market for large substrates of this type.

5. FinanceIn copper-clad polyimide film, where we are the leading

It is also vital for us to maintain strong finances so that we can

global supplier, we are working to bolster our earnings struc-

implement our medium-to-long-term growth strategy forture based on quality improvements and higher productivity.

SMM. As of the end of March 2010, the equity ratio was a

In nickel pastes, we plan to leverage our existing Ni supply

solid 59.8%. Going forward, we expect to deploy capital forchain to expand sales by developing fresh demand in China.

new investments while maintaining this ratio above 50%. We
also plan to maintain our dividend policy, which targets a consolidated payout ratio of at least 20%.

Financial indicators
Total assets
Interest-bearing debt
Shareholders’ equity

1,200

Equity ratio
Debt-to-equity ratio
ROE
(%)
60

1,000

50

800

40

600

30

400

20

200

10

(Billions of yen)00
06 3-Yr Plan
2009

2007

2008

2009

09 3-Yr Plan
2012

17

Message to Stakeholders

My main message to everyone within the SMM Group has
always been that we must achieve the targets that we haveset.
Business conditions remained highly challenging in fiscal
2009, but we were able to make progress on a number ofimportant fronts. First, we remained in profit. Second, we
formulated a new medium-term business plan. Third, we tookeffective steps to strengthen our business resource base.
In this message, I would like to share with all our stake­holders those targets that I have set for myself personally aswell as the results achieved to date.

18

SUMITOMO METAL MINING CO., LTD.

Annual Report 201019

Fiscal 2009 targets andachievements

We commenced the fiscal year ended March 2010 confronted by a harshbusiness environment, most notably characterized by the slump in metal
prices and weak economic conditions due largely to the global financial crisis.
At that time, I set two goals for SMM to ensure our future growth: first,
boost profits; second, reinforce competitiveness.
We recognized that, at the very least, SMM would need to maintainstrong finances to ensure that we could continue pursuing a growth strategy.
In light of this goal, I issued a stern directive to all of SMM’s operating divisions that every business group must generate a profit. At the same time, westarted to implement a company-wide series of emergency cost-reduction
measures to shave at least ¥15 billion off our cost base relative to fiscal 2008.
In the end, we succeeded in reducing costs by a total of more than ¥18
billion.
Identifying the drop in metal prices as an opportunity for action, we thenworked diligently to newly secure resource interests leveraging our strong
financial position. As a result, we purchased an additional equity stake in the
Pogo gold mine in Alaska, USA in July 2009. In doing so, we assumed operatorship of our first overseas mine as a company.
In addition, to boost SMM’s cost competitiveness, we began looking at
various initiatives to constrain processing costs and cut budgeted capital
expenditures on projects. For instance, at the Taganito nickel project, where
investment decisions had been postponed following steep increases in construction costs, we re-examined the project and set challenging hurdles interms of targeted cuts in both the upfront capital cost and running costs. We
were able to meet these new demanding conditions, and proceeded to project in September 2009.
While uncompetitive businesses were not clearly in evidence due to theunderlying strength provided by external environments during favorable economic periods, the downturn in the economy gave rise to substantial losses.
This prompted us to target further progress in terms of exiting those businesses and products with poor growth potential, notably within the materials
division.
Under these circumstances, and despite a fiscal year greatly impacted bysubstantial fluctuations in the external environment, I am personally convinced that we were able to accomplish the targets that we had set.

20

SUMITOMO METAL MINING CO., LTD.

Formulation of new
medium-term business plan

Annual Report 2010

In February 2010, we announced a new medium-term business plan for theperiod to March 2013. This was the first such plan that I had formulated aspresident of SMM. Since my appointment to the top job in 2007, I have been
pondering the future of the company while collecting information about allof our production, R&D and other facilities. Creating a medium-term businessplan is a test of management skill, because we must translate the future
vision for the company into actions for today’s business. In that sense, I
believe the year that we spent crafting this plan was extremely worthwhile.
This plan marks the culmination of our efforts to attain the long-termgoal that we set in a previous plan covering the period fiscal 2004–6. The
original goal was to enter the ranks of the non-ferrous metal majors within
ten years (that is, by the end of the third three-year medium-term businessplan to FY2012). In the wake of the global financial crisis of 2008, our business has undergone a dramatic shift in circumstances. As a result, we wereforced to accept that we may not be in the position to achieve all of the goals
established for each and every business by 2009, the final year of the
FY2007-9 Plan. For the latest plan to the end of March 2013, we have takena fresh look at the kind of company that we want SMM to be ten years fromnow. The major theme of the plan is to establish a new long-term vision forthe business and map out how we intend to follow the targeted path.
Under this new FY2010-12 Plan, we recognize that in steadfastly implementing the initiatives outlined beginning with the Taganito project will becompleted during the next plan, we are laying a major stepping stone for
future growth.

21

A change in business structure

As well as embarking on the new business plan, we are now pursuing a fresh
growth strategy based on our long-term business vision. A change in business structure is a critical element of our plans.
First and foremost, the structural shift within SMM’s operations is based on
accurately responding to changes in our operating environment. Business conditions have been changing ever since our predecessor firm’s copper refining
business was founded in 1590. We have selectively developed our business
operations over many intervening decades depending on the demands of thetimes.
For example, after its discovery by Sumitomo in 1690, the Besshi coppermine became the foundation of the development of Sumitomo’s extensive
business operations. By the 1960s and 1970s, however, domestic mining
operations in Japan were extremely inferior when compared with imported
overseas ores. At the time, many people declared that mining operations
could no longer play a profitable role in the Japanese economy. The Besshi
copper mine could not prevail against the trend, and we eventually closed it
in 1973 after 283 years of continuous operation. Then, metal refining operations again became the mainstay of SMM’s business. Over the past several
years, however, the emergence of the developing world has boosted demandfor copper and other base metals. With mine management showing renewedpromise, the mining for such resources is once again in the spotlight.
The business requirements of the times will always be in flux. The key toour sustained growth as an enterprise is always to select the best business mix.
Under the new plan, we have changed the definition of our core businesses from “mineral resources and metals” and “electronic and advanced
materials” to “mineral resources,” “smelting & refining” and “materials.” Wealso plan to target autonomous growth within each of these three corebusinesses.
In mineral resources, we have set-up a structure that aims to bolster overseas resource development. In this manner, we anticipate mineral resources
will serve as a core source of earnings and ensure further growth. Under the“mineral resources + refining” business model that we were pursuing in theprevious medium-term business plan, the main purpose of our resource mining operations was to supply ores for processing at our refining facilities inJapan. This strategic rationale dictated that we seek to acquire interests
mainly in the A sia- Pacific region, because this provided seaborne

22

SUMITOMO METAL MINING CO., LTD.

Annual Report 2010transportation options for mined ores. Going forward, we will also focus onbuilding up the earnings base of our mining business in its own right. We will
undertake exploration activities across a broader range of geographic
regions, including countries such as Brazil and Argentina.
Due to the growing influence of major overseas players within the
resources sector, profit margins in our copper smelting business have beensqueezed significantly. Processing fees have fallen to historical lows, making
it more difficult to generate profits from copper smelting operations alone.
Under these conditions, the way forward is to reinforce the earnings base by
reducing costs rather than relying on supply from in-house mining operations
to ensure smelting stays profitable. We have changed the name from the“Metals” to the “Smelting & Refining” to clarify the shift in emphasis toward
smelting as a stand-alone profit center.
Copper smelting was the original foundation of Sumitomo’s business.
Accordingly, it is often referred to as a primary source or lead off business for
the Sumitomo Group whose history extends over some 420 years. In thiscontext, I believe that we should therefore continue to maintain SMM’s
Japan-based smelting operations into the future and seek to rebuild earnings
in this sector.
Turning to our materials operations, this is a business segment where I
have received many tough questions from investors since we posted an operating loss for the segment of over ¥10 billion in fiscal 2008. I believe, however, that this should remain one of SMM’s core businesses and that it isimportant that we continue to develop it further going forward. All businesses go through good times and bad times, as SMM has experienced on
numerous occasions in the past. We have now been in the materials businessfor 50 years. I do not think that this is the time to abandon the sector, which
has a bright future. Maintaining confidence in the promise of this business,
we will continue to secure increased profit-earning capacity.
Yet we should not forget that this sector fell a long way short of expectations in FY2009, the final year of the previous medium-term business plan.
For this year we recorded segment operating income of ¥2.9 billion, compared with an initial target of ¥20 billion. We have set a fresh operating
income target of ¥15 billion for this business in the new plan. Taking the
aforementioned into consideration, we must engage in management activities with an even greater determination and resolve to ensure that weachieve this new earnings target for the materials business.

23

Our core areas of focus overthe next three years

While we will be implementing various measures across our operations overthe course of the new plan, the single most important project on which wewill focus is the nickel ore processing facility at Taganito in the Philippines.
Over the next three years, our nickel operations are set to absorb the vast
majority of a total capex budget of ¥190 billion. Our target completion date
for the Taganito project, the core of our nickel operations, is in fiscal 2013,
which will be the first year of the next medium-term business plan. Once thefacility comes on stream, SMM’s in-house nickel output will increase by
30ktpa overnight. We expect this to contribute substantially to earnings.
Another key long-term issue that we will be addressing is the acquisitionof additional copper production interests. In an effort to lift the proprietaryore ratio to two-thirds, and in further recognizing the depletion of ore
reserves at existing mines, we will work toward acquiring new mine interests
moving forward.
Turning to our materials operations, we will place particular emphasis onbattery materials for use in environmental and energy fields, which are projected to enjoy considerable growth. Priority will also be given to expanding
sapphire substrate activities.
No major projects made any significant contribution to the bottom line infiscal 2010. Going forward, we will continue to focus on cost reduction as
one of the key approaches to boosting earnings. Above all, I plan to manage
closely all of our major ongoing projects to ensure that we make progress asplanned.

24

SUMITOMO METAL MINING CO., LTD.

Building a solid platform
for the future

Annual Report 2010

Although we faced tough conditions in fiscal 2009, we did not neglect areasthat will help define SMM’s future such as human resources development
and R&D. We exempted these two specific areas from the company-wide
program of targeted cost reductions aimed at saving money.
People are a particularly valuable resource for SMM, and so developing
our workforce is a vitally important issue. Reflecting this approach, we havebuilt three new training facilities since the beginning of 2009. Each has a specific purpose. The first is a hands-on training facility for employees and managers alike. The second center will provide space for lectures, seminars andtraining courses, while the third is a strategic HR development facility aimed
primarily at training directors and senior staff. I believe these three new facilities will play a valuable role in the execution of SMM’s future growthstrategy.
On the R&D front, the imperative since SMM’s earnings collapsed in fiscal
2008 has been to increase the speed of research and development programsby 50%. One year on, I believe that we have started to see a tangible change
in the mindset of our research teams. The results have been especially goodin battery materials, which is an area with excellent prospects. I look forward
to seeing developments in these areas bolster our future performance.
Structural change is the core theme of our new medium-term businessplan. We have shifted to a set-up in which each of our three core businesses
has been tasked with securing and expanding profits on an autonomousbasis. While operating conditions are expected to remain harsh, each part of
SMM is now focused on pursuing our designated growth strategy to develop
consolidated earnings. I am confident in our ability to develop SMM’s next
generation of skilled and valuable employees. Looking ahead, we will work
ever more diligently to further strengthen our business platform.

August 2010

Nobumasa Kemori
President and Representative Director

25

Business Network

SMM's Mines and Refineries —Overseas—Gold
NickelCopper

Metals (SMM’s interest)[Annual production capacity]

Coral Bay Nickel Corporation (Philippines)

Jinlong Copper Co., Ltd. (27.1%)[copper 400,000 tonnes]

Jinlong Copper Co., Ltd. (China)

Coral Bay (54.0%)
nickel/cobalt mixed sulfide
Nickel 24,000 tonnes, cobalt 1,500 tonnes

Soroako (20.1%)

Batu Hijau (3.5%)

Figesbal (25.5%)
Goro (11.0%)

Northparkes (13.3%)

SMM’s Metal Shares and Estimated Values
By MineSMM share of reserves (end-Dec. ’09)
(Thousands of tonnes)

Copper

0

1,500

3,000

1,050
7,350

Morenci
355
2,485

Candelaria
16
Ojos del Salado 112

Cerro Verde89
623

Batu Hijau

137
959

0

SoroakoFigesbal

386
200

3,000

9,612
8,510
4,409
826

18,210Gold
10,000

SMM share of reserves (top) ■

26

1,500

Nickel Asia

20,000(Millions of U.S. dollars)

Estimated value (bottom)(Thousands of tonnes)

0
436

Goro
2,065
14,455

Northparkes

Nickel■HishikariPogo

150.2 (tonnes)

5,795

100.7 (tonnes)
3,886

0
10,00020,000
SMM share of reserves (top) ■ Nickel ■ Gold (Millions of U.S. dollars)
Estimated value (bottom)■

SUMITOMO METAL MINING CO., LTD.

Annual Report 2010

Pogo Gold Mine (USA)Morenci Copper Mine (USA)

Pogo (85.0%)

Morenci (12.0%)

Cerro Verde Copper Mine (Peru)

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

Candelaria Copper Mine (Chile)

By Metal

SMM share of reserves (end-Dec. ’09)
(Thousands of tonnes)

0

1,000

2,000

3,000

Copper1,848

Nickel
Gold

4,000
3,712

25,98440,741250.9(tonnes)
9,681

0

10,00020,00030,00040,000(Millions of U.S. dollars)■■■ SMM share of reserves (top) ■ Estimated value (bottom)

Notes:

1. Based on SMM equity interests
2. SMM share of reserves = reserves x SMM equity interest in mine (%)
3. Estimated value = SMM share of reserves x standard metal price
4. Standard metal price = average price in Apr–Jun 2010
(Copper: US$7,000/tonne; Nickel: US$10/lb; Gold: US$1,200/toz)27

Business Network

SMM’s Mines and Refineries —Domestic—Gold
Metals (SMM's interest)[Annual production capacity]

NickelCopperZinc/lead

Harima Smelter
Harima Smelter (Hyogo)[zinc 90,000 tonnes, lead 30,000 tonnes]

Hyuga Smelting Co., Ltd. (60%)[ferro-nickel 22,000 tonnes]

Hyuga Smelting Co., Ltd. (Miyazaki)

Hishikari Mine (Kagoshima)

28

Hishikari MineSUMITOMO METAL MINING CO., LTD.

Annual Report 2010

Toyo Smelter & Refinery (Ehime)

Toyo Smelter & Refinery[copper 450,000 tonnes, gold 60 tonnes,
silver 360 tonnes]

Niihama Nickel Refinery (Ehime)

Niihama Nickel Refinery[nickel 41,000 tonnes]

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

Shisaka Plant (Ehime)29

Business Network

SMM's Production Facilities for Materials

30

SUMITOMO METAL MINING CO., LTD.

■ Semiconductor materials

Annual Report 2010

■ Advanced materials■

Sumiko Kunitomi Denshi Co., Ltd.

■SMM Precision Co., Ltd.

■

Shinko Co., Ltd.

■

Sagami Plant■

Nittosha Co., Ltd.

■

Sumiko Tec Co., Ltd.

■Ome District Division■

Isoura Plant■

Niihama 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 Precision 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.

Ome District Division (Japan)

Isoura Plant (Japan)

Ohkuchi Electronics Co., Ltd. (Japan)

Sumiko Electronics Taiwan Co., Ltd. No. 2 Plant (Taiwan)

31

Review of Operations

Mineral Resources

Smelting & Refining

Tasked with the dual mission of boosting the earnings ofthe mineral resource business and securing raw materials
for the refining business, this segment is engaged in the
exploration for and development, production, and sales of
non-ferrous metal resources.

This segment refines raw materials procured from overseas
mining companies and the mineral resources segment into
metals such as gold, copper, nickel and zinc, which it thensells. 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 theindustry leader.

Net sales

Net sales

0

20

40

60

80

100 (Billions of yen)

0

200

400

2005
2006
2007
2008
2009
(FY)

2005
2006
2007
2008
2009
(FY)

Operating income

Operating income

0

10

20

30

40 (Billions of yen)

0

20

40

600

60

2005
2006
2007
2008
2009
(FY)

2005
2006
2007
2008
2009
(FY)

Sales composition

Sales composition(For the year ended March 2010)(For the year ended March 2010)

800

80

100

1,000 (Billions of yen)

120 (Billions of yen)

8.6%
66.5%
Main products

Main productsGold and silver ores

Gold

Copper concentrates

SilverCopperCopperGold

NickelGeological research

Ferro-nickel
Zinc
Chemical products
Copper and brass

Note: Operating income and net sales figures include inter-segment transactions.

32

SUMITOMO METAL MINING CO., LTD.

Annual Report 2010Materials

Other Businesses

In the semiconductor materials business, we apply thematerials and fabrication technologies that we havedeveloped as a non-ferrous metals producer to supply
high-quality materials that are critical to the manufacture ofsemiconductors and electronic equipment. In the advanced
materials business, we apply metals-related technologies tocreate a range of high-value-added materials with specificfunctions. These include thick-film pastes, battery, singlecrystal, thin-film and other materials.

This division includes plant engineering services as well as
different products that leverage the various technologies
developed in non-ferrous metal refining operations,
including catalysts, construction materials and lubricants. In
the catalysts business, SMM Group affiliate N.E. Chemcat
Corporation produces catalysts to purify vehicle exhaustgases as well as precious metal catalysts for chemicalengineering use, while Nippon Ketjen Co., Ltd. makes
catalysts used in oil refining.

Net sales

Net sales

0

100

200

300

500 (Billions of yen)

400

2005
2006
2007
2008
2009
(FY)

0

10

20

30

40

50

60

70 (Billions of yen)

12

15 (Billions of yen)

2005
2006
2007
2008
2009
(FY)

Operating income
-15

-10

-5

Operating income
0

5

10

15

20 (Billions of yen)

-3

0

3

6

9

2005
2006
2007
2008
2009
(FY)

2005
2006
2007
2008
2009
(FY)

Sales composition

Sales composition(For the year ended March 2010)(For the year ended March 2010)

3.4%

21.5%
Main products

Main products

Semiconductor materials

Petroleum refining and auto exhaust gas-use catalysts(lead frames, tape materials (CCPF, COF), bonding wire)

ALC products (Siporex)

Electronic component materials (alloy preform)

Environmental protection equipment

Thick-film materials (pastes, powder materials)
Thin-film materials (ITO, sputtering target materials)
Battery materials
Single-crystal materials
Printed wiring boards
Magnetic materials

33

Mineral Resources

Fiscal 2009 review

Mining operations generally pro-

Exploration activities

Divisional net sales increased by ¥797

ceeded smoothly across the division.

SMM prospected for copper, gold

million compared with the previous

Output of gold and silver ores fromand nickel in numerous over seas

year to ¥74,420 million, while oper-

th e H ishikar i min e am ounte d tolo c ations acros s the A sia - Pacificating income surged by ¥12,925 mil-

133,542t, a gain of 2,824t in year-

region in fiscal 2009. In the Solomonlion to ¥30,581 million. Profits wereon-year terms. Production of copper

Islands, where SMM is conducting

higher across all mining operations.

concentrates and electrolytic coppere x p l o r a t i o n a c t i v i t i e s fo r n i c ke l

At Hishikari (Kagoshima Prefecture,at the principal overseas copper min-deposit s, the Japan Oil, Gas andJapan), profits were bolstered bying operations in which SMM is a

Metals National Corporation (JOG-

higher gold prices and sales volumes

management participant through an

MEC) became an equity developmentof 7.5t were on a par with fiscal

operating subsidiary – namely Mor-partner in the project. This agree-

2008. Increased sales volumes due toenci (USA), Candelaria (Chile) andm ent w ill help ensure sm o oth er

the acquisition of an additional pro-

Cerro Verde (Peru) – rose steadily inprogress with this projec t going

duc tion interest and higher gold

general terms. At Pogo, gold produc-forward.

prices helped drive profits at Pogotion reached the initial 12tpa target(Alaska, USA). At SMM’s overseas

for the first time as the mine in -copper mining operations, cost-cut-

creased output successfully as far as

ting initiatives and other measuresdesign capacity. In July 2009, SMM

helped to offset the impact of lower

acquired the stake in Pogo owned bycopper prices, resulting in increaseda subsidiary of Teck Resources Ltd. ofearnings.

Canada. This transaction marked thefirst time that SMM had assumed
sole operatorship of any overseas
mine.

Financial highlights, by segment(Millions of yen)

FY2009FY2008FY2007

Net sales

74,42073,62391,360Operating income

30,581

17,65638,127

Operating margin (%)

41.09

23.98

41.73

Depreciation expense

7,225

6,432

5,537

Capital expenditures

2,110

7,890

9,427

FY2010FY2009FY2008FY2007(Budget)(Actual)(Actual)(Actual)

3.9

2.0

3.9

2.4

Exploration costs (Billions of yen)34

SUMITOMO METAL MINING CO., LTD.

Annual Report 2010

Copper price (LME)($/tonne)
10,000
8,000
6,000
4,000
2,000
0
00/1

01/1

02 /1

03 /1

04 /1

05 /1

06 /1

07 /1

08 /1

09 /1

10/1 10/6

03 /1

04 /1

05 /1

06 /1

07 /1

08 /1

09 /1

10/1 10/6

Gold price (London Fixing)($ /TOZ)
1,500
1,200
900
600
300
0
00/1

01/1

02 /1

Overseas principal affiliates
Name

Voting Shares(%)

Operations

Sumitomo Metal Mining America Inc.

100

Prospecting; Management of mining subsidiaries in U.S.A.

Sumitomo Metal Mining Arizona Inc.

80

Mining and related operations

Sumitomo Metal Mining Canada Ltd.

100

Prospecting; Consulting

Sumitomo Metal Mining Oceania Pty. Ltd.

100

Resource surveys, mine development and related operations in Oceania

Sumitomo Metal Mining Pogo LLC

100

Investment in Pogo Mine project

SMM Solomon LIMITED70

Prospecting in the Solomons Islands

Sumitomo Metal Mining Peru S.A.

100

Prospecting in South America

Sumitomo Metal Mining Chile LTDA

100

Prospecting in South America

Domestic principal affiliates
Name

Voting Shares(%)

Operations

Sumiko Consultants Co., Ltd.

100

Geological survey of resources and Test boring

Sumiｋo Solomon Exploration Co.,Ltd.

70

Prospecting in the Solomons Islands

35

Smelting & Refining

Fiscal 2009 review

recovery in demand for nickel used

The second ore-processing plant

D i v i s i o na l n e t s a l e s d e c lin e d byin specialt y steels and alloys forat Philippines-based Coral Bay Nickel¥39,363 million compared with theenergy- and transport equipment-

Corporation came on-stream in fiscal

previous year to ¥573,052 million,

related applications, but demand for2008. This facility uses High Pressure

but operating income rebounded

nickel used in the produc tion ofAcid Leach (HPAL) technology to

sharply, increasing by ¥32,058 million

stainless steel and electronic materi-facilitate the efficient processing ofto ¥34,491 million.

als began to exhibit signs of recovery

low-grade nickel oxide ores. Else-

Domes tic demand for copperin the first half of the year. Favorable

where in the Philippines, constructionused in the manufacture of electricsales of nickel for these types ofwork began on the Taganito projectwires and rolled copper products

applications resulted in positiveon the island of Mindanao. This facil-staged a gradual recovery toward thegrow th in nickel sales compared

ity is scheduled to enter commercial

end of the year. However, overallwith fiscal 2008. Meanwhile, sales

production in 2013.

sales volumes for the year were lowerof gold fell in year-on-year terms asthan in fiscal 2008, reflecting the lin-a result of lower sales volumes.

Capital investment plansgering impact of the sluggish sales

Co p p e r p ro du c t i o n tot al e dMajor items of capital expenditureenvironment that had first mani-

395,788t, an increase of 27,121t inplanned for fiscal 2010 include invest-

fested in the second half of fiscal

year-on-year terms. Gold production

ments totaling ¥0.9 billion at SMM’s

2008. Export sales volumes for cop-

dropped by 2,329kg to 36,818kg.

n i c ke l r e f i n e r y. I nv e s t m e nt s a r ep er were higher in year- on - year

Production of nickel (including fer-geared toward achieving an annual

terms, supported by demand fromronickel) increased by 2,459 t toelectrolytic nickel production capacity

Asia. The nickel sector saw a sluggish

54,617t.

to 65kt in 2012.

Financial highlights, by segment(Millions of yen)

FY2009FY2008FY2007

Net sales

573,052

612,415

910,574

Operating income

34,491

2,433

108,842

Operating margin (%)

6.02

0.40

11.95

Depreciation expense

14,722

13,475

10,071

Capital expenditures

18,427

24,77842,089

Capital expenditures(Billions of yen)

36

FY2010(Plan)

FY2009(Actual)

FY2008(Actual)

FY2007(Actual)Mineral Resources

3.9

2.1

7.9

9.4

Metals

57.6

17.6

24.8

42.1

Overseas Developmental Investments

4.0

30.0

8.8

5.2

Total

65.5

47.7

41.5

56.7

SUMITOMO METAL MINING CO., LTD.

Annual Report 2010

Global nickel production volume (forecast)(Thousands of tonnes)
1,500
1,200
900
600
300
0
2004

2005

2006

2007

2008

2010

2009

(CY)

Nickel price (LME)($ /lb)
25
20
15
10
5
0
00/1

01/1

02 /1

03 /1

04 /1

05 /1

06 /1

07 /1

08 /1

09 /1

10/1 10/6

Overseas principal affiliates
Name

Voting Shares(%)

Operations

P.T. International Nickel Indonesia

20

Nickel ore mining; Nickel smelting

FIGESBAL

26

Nickel ore mining; Harbor transportation

Jinlong Copper Co., Ltd.

27

Manufacture and sale of electrolytic copper and sulfuric acid

Coral Bay Nickel Corporation

54

Intermediate products manufacture of nickel and cobalt

Domestic principal affiliates
Name

Voting Shares(%)

Operations

Hyuga Smelting Co., Ltd.

60

Ferro-nickel smelting

Mitsui Sumitomo Metal Mining Brass ＆ Copper
Co., Ltd.

50

Manufacture and sale of copper and brass products and processed copperand brass products

Sumiko Logistics Co., Ltd.

100

Maritime trading; Harbor transportation and services; Land transportation

MS Zinc Co., Ltd.

50

Manufacture and sale of zinc and related operations

Acids Co., Ltd.

50

Manufacture and distribution of sulfuric acid and related products

Taihei Metal Industry Co., Ltd.

97

Manufacture of heat-, corrosion- and friction-resistant steel castings andprecision castings

37

Materials

Fiscal 2009 review

On an individual product basis,around the middle of the year, but

Divisional net sales fell by ¥3,605

orders for lead frames recovered toprice competition was more intense.

million compared with the previous

similar levels as those seen in the first

In thick-film pastes, which include

year to ¥184,321 million. Earnings at

half of fiscal 2008. Higher demand

nickel pastes for MLCC (multi-layer

the operating level rebounded fromfrom production regions in China,

ce ra m i c c a p a c i to r) a p p li c a t i o ns ,the loss that was recorded in fiscal

Ta i w a n a n d S o u t h e a s t A s i a w a sorders generally recovered to pre-cri-2008. Operating income of ¥2,875

driven by Chinese policy measures to

sis levels as well. Sales volumes formillion represented a year-on-year

boost purchases of household appli-

battery materials were also higher,

increase of ¥13,025 million.

ances. Orders for chip-on-film (COF)

driven by a trend toward environmen-

subs trates (ele c tronic packaging

tal impact re duction in automotive

materials used to make LCD panel

and consumer-related battery applica-

integrated circuits) and related tapetions. Under pinned by each of thebonding materials such as copper-

aforementioned factors, results in thisclad polyimide film tended to recoverdivision improved steadily due largely

ahead of the cycle, but fierce compe-

to the recovery in demand as well as

tition translated into stricter delivery,a strict adherence to measures aimed

qualit y and pricing requirements.

at minimizing the cost of operations.

Orders for fine wire recovered from

Financial highlights, by segment(Millions of yen)

FY2009FY2008FY2007

Net sales

184,321

187,926

255,002

Operating income

2,875(10,150)

8,215

Operating margin (%)

1.56(5.40)

3.22

Depreciation expense

9,785

11,064

11,709

Capital expenditures

4,206

12,534

11,862

Capital expenditures(Billions of yen)

38

FY2010(Plan)

FY2009(Actual)

FY2008(Actual)

FY2007(Actual)

7.9

4.2

12.6

11.8

SUMITOMO METAL MINING CO., LTD.

Annual Report 2010

Semiconductor monthly shipment value

Asia Pacific(Millions of U.S. dollars)

Japan

EuropeAmerica

30,00025,00020,00015,00010,0005,000
02002/1

2003/1

2004/1

2005/1

2006/1

2007/1

2008/1

2009/1

2010/1

Source: WSTS (World semiconductor trade statistics)
（億円）

(m2)
その他

60,000Overseasprincipal affiliates
Name
50,000

Voting Shares
(%)

日

本

Operations

25,00020,00040,000 Electronics Materials SDN. BHD
Malaysian100

Manufacture and sale of bonding wire and thick-film paste

Taiwan30,000Sumiko Materials Co., Ltd.

100

Manufacture and distribution of bonding wire

Sumitomo Metal Mining Electronic Materials (Shanghai)
20,000Co., Ltd.

100

Manufacture and distribution of bonding wire

Shanghai
10,000 Sumiko Electronic Paste Co., Ltd.

69

Manufacture and distribution of thick-film paste

Dongguan Sumiko Electronic Paste Co., Ltd.

85

Manufacture and distribution of rare earth iron garnet (RIG)

100
2007

Regional2008
headquarters
for overseas lead frame businesses2008 Q.1( 年度(RHQ))

0

Sumitomo Metal
2004Mining Asia Pacific2005Pte. Ltd.
Sumiko Leadframe Chengdu Co., Ltd.

2006

15,00010,0005,000
02008 Q.2 2008 Q.3

Manufacture and sale of lead frames70
出典：社団法人電子情報技術産業協会

Sumiko Precision Chengdu Co., Ltd.

70

Manufacture and sale of lead frames

M-SMM Electronics SDN. BHD.

100

Manufacture and sale of lead frames

Sumiko Electronics Taiwan Co., Ltd.

70

Lead frame and tape materials production

Sumiko Leadframe (Thailand) Co., Ltd.

100

Manufacture and sale of lead frames

Sumiko Electronics Suzhou Co., Ltd.

100

Manufacture and sale of lead frames

SMM KOREA Co., Ltd.

100

Marketing support for semiconductor materials and related operations

Domestic principal affiliates
Name

Voting Shares(%)

Operations

Sumiko Kunitomi Denshi Co., Ltd.

100

Production of crystal materials and magnet materials

Ohkuchi Electronics Co., Ltd.

100

Semiconductor packaging materials production; Recovery of precious
materials; Manufacture of functional inks

Shinko Co., Ltd.

94

Design, manufacture and distribution of printed circuit boards

SMM Precision Co., Ltd.

100

Production of optical communications components

GRANOPT Ltd.

50

Manufacture and distribution of rare earth iron garnet (RIG)

Niihama Electronics Co., Ltd.

100

Lead frame production; Copper-clad polyimide film production

Nittosha Co., Ltd.

100

Metal product plating and surface treatment

Sumiko Tec Co., Ltd.

100

Manufacture of electronic device terminals, connectors and sales

39

Other Businesses

Fiscal 2009 review

Operational overview of SMM

with the development of new catalysts

Divisional net sales decreased byGroup affiliatesthat will contribute to future commer-¥14,602 million compared with the

SMM Group affiliate N.E. Chemcat

cialization of fuel cell technology.

previous year to ¥29,604 million. The

Corporation is one of Japan’s largest

Another SMM Group affiliate, Nip-

division booked an operating loss ofmanufacturers of precious metal cata-pon Ketjen Co., Ltd., manufactures cat-¥129 million in fiscal 2009, represent-lysts and coating chemicals. Principal

alysts used in oil refining. The firm

ing a year-on-year fall of ¥697 million.

activities encompass the development

develops, produces and sells hydropro-

Challenging market conditions

and manufacture of catalysts used to

cessing catalysts; offers services for

impacted sales of ALC (autoclaved

purify hazardous substances contained

off-site catalyst regeneration and pre-lightweight concrete) products, within automobile exhaust gases and chem-

sulfuration of regenerated catalysts;

depressed construction demand lead-

ical catalysts used in such fine chemical

provides other technical services; anding to fierce sales competition. Lower

fields as petrochemicals and pharma-

conducts related process licensing.

levels of private-sector capital invest-

ceuticals. N.E. Chemcat is also develop-

Nippon Ketjen aims to help corporate

ment negatively affected sales reve-ing new businesses in fuel-reforming

clients do more to protect the global

nues from plant engineering

catalysts for in situ hydrogen genera-

environment by developing businesses

operations.

tion and in electro catalysts for fuel cellthat deliver more technically advanced

applications. Based on its accumulated

and economic solutions in oil refining.

wealth of expertise in catalyst technology, the company is pushing ahead

Financial highlights, by segment(Millions of yen)

FY2009FY2008FY2007

Net sales

29,604

44,20640,708

(129)

568

3,662

Operating income

40

SUMITOMO METAL MINING CO., LTD.

Annual Report 2010

At the same time as we embark on a new medium-term business plan,
we are focused on securing the long-term future of the enterprise by
pursuing a new growth strategy while seeking to reinforce SMM’s
global competitiveness.
The establishment of a 100ktpa set-up for nickel together withinitiatives aimed at strengthening management resources that help toaccelerate a range of growth strategies will serve collectively as a
powerful driving force. We are convinced that realizing theseendeavors will provide SMM with a precious springboard for future
success.

Feature:Key Elements of New Growth Strategy

41

Feature: Key Elements of New Growth Strategy

Development of 100ktpa
Nickel Set-up

42

SUMITOMO METAL MINING CO., LTD.

Annual Report 201043

Development of 100ktpa Nickel Set-up

SMM issued a press release in July 2001 declaring the company’s intention to maintain and build its
position as a leading global nickel producer through the establishment of new technology forprocessing low-grade nickel oxide ores extracted from laterite deposits. This section reviews the
progress made over the past nine years.

Join Top 5 non-ferrous majors
（Kt）
400

expansion
existing(Capacity)

300

200

End-2009

2013

Long-term vision

Electrolytic Ni

41

65

65

Ferronickel

22

22

22

Refined Ni products

6

10

10

Nickel oxide sinter (Goro)

0

7

7

New Ni products

—

—

50

Total

69

Over 100

Over 150

100

0Vale Inco

Norilsk+
OMG

Jinchuan

SMM

X Fal

SMM 2013

ErametSherritt

PAMCO

MurrinMurrinNickel mining in the Philippines

HPAL technology

SMM’s Coral Bay Nickel plant is located in the southern partHigh Pressure Acid Leach (HPAL) is the technology we use toof the island of Palawan, which is around 800km from theprocess nickel oxide ores mined from laterite deposits. As thecapital Manila. Rio Tuba Nickel Mining Corporation, a subsid-name suggests, it involves dissolving the ore in sulfuric acidiary of Nickel Asia Corp. (NAC), started mining nickel ore onunder high pressure to leach out the nickel. Originally devel-

Palawan in 1977.

oped in Cuba around 1960, HPAL technology was applied to

The local geology features near-surface laterite ores over-a number of projects in Australia during the 1990s. However,laying more valuable garnierite, which is a high-grade nickel

HPAL remained highly problematic when applied commer-

ore that yields nickel used primarily in ferronickel. However, tocially to large-scale production, and no project successfully

extract the garnierite, it is first necessary to remove the low-managed to reach its design processing capacity.

grade laterite deposits near the surface. These “waste” nickel

SMM first began refining nickel in 1939. In the 1980s, weores had been accumulating in storage, since they wereconverted our nickel refining facilities in Japan to the hydro-

extremely difficult to process on a commercial basis.

metallurgical MCLE (Matte Chlorine Leach Electrowinning)

In 2000, SMM was targeting possible new sources ofprocess. As a world leader in using hydro-metallurgical meth-nickel ore, but most of the significant garnierite deposits had

ods to extract metals from dissolved ore solutions, we werealready been mined. If new refining technology could be

confident that we could make full use of this accumulated

developed, this would open up the possibility of refining thetechnical expertise through the HPAL method and decided toextensive deposits of laterite ores. After studying numerous

employ it at our Coral Bay project.

potential mine sites to see which might be commercially viable, SMM decided to pursue the Coral Bay Nickel project in
the Philippines.

44

BHPB

SUMITOMO METAL MINING CO., LTD.

Annual Report 2010

Success at Coral Bay

Development of Taganito

The initial design output of the first processing facility at Coral

Operating conditions in the nickel business have changed

Bay was 10ktpa of nickel. We quickly ramped up to this target

substantially since we initiated the Coral Bay project in 2001.

capacity after the plant entered commercial operation in April

Reflecting changes in the structural demand for the metal,

2005. In 2006, we commenced construction of a second pro-nickel prices have risen sharply from the $3/lb level that pre-cessing line of similar scale. Currently the Coral Bay facility hasvailed a decade ago – the average nickel price was US$7.7/lb

an annual nickel output of 24kt.

in fiscal 2009.

In 2009, building on our involvement in Coral Bay as a

In 2009, SMM gave approval for the Taganito project. At

project partner, we decided to purchase a 25% equity stakea capital cost of US$1.3 billion, this is the largest single invest-

in NAC, which is now the largest nickel producer in the Philip-

ment in the company’s history. Based on the Philippine islandpines. The Rio Tuba and Taganito mining operations are bothof Mindanao, the Taganito project will involve the construc-part of NAC’s project portfolio. The considerable mining

tion of a new HPAL processing plant producing 30kt of nickel

experience gained by NAC and its subsidiaries as well as theannually from 2013. The wealth of experience gained at Coral

benefits to accrue through robust relationships with quality

Bay is being more than adequately applied to the Taganito

project partners have made a substantial contribution to theproject. In this manner, SMM is building a platform for the

success of our nickel refining operations in the Philippines.

production of 100kt of nickel and is taking steps toward thenext project driven by its growth strategy.

45

Feature: Key Elements of New Growth Strategy

Strengthening Management
Resources

46

SUMITOMO METAL MINING CO., LTD.

Annual Report 201047

Strengthening Management Resources

Critical to the success of the various components of SMM’s growth strategy as outlined in the new
medium-term business plan are the people who will execute it. The development and utilization ofhuman resources (HR) are both key aspects of the plan.
Several training and personnel development facilities are being completed in 2010, which marks
SMM’s 60th anniversary year. This section introduces these facilities and related HR development
programs.

A trio of HR development facilities

the SMM Group. The benefits of the training provided at this■ Oji-kan/Hoshigoe-kan

new facility will manifest in coming years as clear strategic

Officially opened from 2009 through to 2010, the Oji-kan andmanagement thinking and professional execution.

Hoshigoe-kan are new parts of SMM’s main HR development
center within the Besshi district of the city of Niihama, Ehime■ Personnel development training

Prefecture. The Oji-kan has been designed for hazard aware-

In addition to new training facilities, SMM is also investing in

ness and other safety training. The Hoshigoe-kan provides

training programs aimed at executive and middle manage-

lecture, seminar and related spaces for a range of training

ment. These programs are designed to teach those employees

purposes.

expected to lead the SMM in the future in the art of strategic

Besshi is a where the Sumitomo Business Spirit hasthought. Positioned as a method for proposing to manage-

breathed life into the community. The area has had mining

ment future strategies and initiatives for each business, theseand related operations ever since the first shaft of the Besshi

programs are available for participation by select employees.

copper mine was dug 320 years ago. Today, the Group con-

HR development programs target employees at different

ducts a wide variety of operations beginning with its copper

managerial levels, as well as offering functionally specific skills

smelter (Toyo), nickel refinery and a factory that makes

development courses for employees working in certain areas

advanced materials (Isoura) staffed by more than 1,000

such as sales.

employees. The aforementioned two training facilities cater to

Besides developing tomorrow’s leaders, SMM also offers

the needs of employees who have just joined the company totraining courses that provide workers with the knowledge andveterans with many years of experience, and provide venues

skills necessary for daily operations. A vital area for this kind of

for all employees to apply themselves and to improve by learn-training is the range of regulations and operating proceduresing from one another.

used at SMM’s factories, since any serious breach could resultin a major incident with social implications. For this reason, we■ SMM Strategy Planning Centerput a lot of effort into training all employees in the operation

Located in Shizuoka Prefecture, the new SMM Strategy Plan-of internal environmental and risk management systems.

ning Center is due to open in October 2010. It is designed as a

These training courses emphasize the importance of risk-

facility to help train and develop the next generation of senior

related procedures and controls.

managers to support the creation of business strategies for48

SUMITOMO METAL MINING CO., LTD.

Annual Report 2010

HR development center (Oji-kan facility)
SMM’s new Oji-kan HR development facility commenced training courses in October 2009. SMM faces the challenge offewer employees having many years of experience of frontline operations. While most processes are subject to mechanicalcontrols, people still need to manage plant operations and oversee maintenance. With this in mind, the Oji-kan training
facility was established to provide a framework for practical learning with a particular emphasis on instilling a culture ofsafety while passing on prerequisite production-related engineering skills.
The facility is composed of two separate zones that provide training related to hazard awareness and production engineering skills development.
The “hazard training zone” is equipped to particularly demonstrate some of the potential dangers associated with factory operations. Internal analysis of the criticality incident that occurred at an SMM Group facility over ten years ago
pointed to the need for providing workers with realistic illustrations of potential hazards.
For example, one installation demonstrates the impacts that could occur from a five-meter fall to enhance sensory
awareness of the dangers involved in working at heights. This installation also helps to visually confirm the level of damage inflicted on machinery by a tool accidentally dropped from a considerable height. In another section dealing with hazards related to heavy machinery, trainees can gain experience of the dangers posed by incorrect handling of a forklift
truck. The realistic nature of the installations helps to reinforce awareness of the safety hazards involved, thereby contributing to the cultivation of a stronger internal safety culture.
The “engineering skills development zone” features a mock production set-up to show the changes in the plant’sinternal operations that result from using the external controls. In utilizing this zone, training in numerical adjustment
based on an image of internal workings can be undertaken at the time of actual plant facility operation.
Many SMM Group employees work in the facilities located in the Besshi area. As a result, the risk of accidents is correspondingly greater. While people do not expect accidents to happen, cultivating a factory culture to prevent accidents
from occurring is a time-consuming and ongoing challenge. This new training facility will help mitigate workplace safetyrelated risks to ensure that every employee returns home safe each day.

49

Targeting Sustained Growth

Construction and Operation of Management Systems (Corporate Governance)
To gain the trust and satisfy the expectations of shareholders and other stakeholders, SMM iscommitted to building and maintaining an optimized framework for business management based onhigh levels of transparency and efficiency.

Basic policy stance— SMM views corporate governance as a disciplinary framework both for maximizing the enterprise value of the SMM
Group and for ensuring sound management practices. As such, it is an important management issue.
— SMM has instituted the SMM Group Corporate Philosophy based on the Sumitomo Business Spirit, and has also formulated the SMM Group Code of Conduct as a set of behavioral standards to guide executives and employees inrealizing SMM’s business philosophy.
— SMM is committed to striving to achieve the goals contained in the business philosophy; to conducting efficient andsound business activities; to making a valuable social contribution; and to fulfilling responsibilities to stakeholders.
— SMM has adopted executive officer and corporate auditor systems to ensure that the execution, monitoring and oversight of business management each function effectively within governance systems.

Corporate governance framework
General Meeting of Shareholders
Decision-making andSupervision

Auditing

Board of Directors

Board of Corporate Auditors

Independent Public Accountant

Business Execution

President(Social Responsibility)(Execution of Business)

Executive Officers

Management Committee

6 CSR subcommittees(Headquarters)

Internal Control Committee
Human Rights and Human
Resources Development

Compliance WG

Auditing Department

Risk Management WG

Execution of Business

CSR Committee

Efficient Resource Utilization
Environmental Protection
Corporate Citizenship
Occupational Health & Safety
Communications

1) Operational execution
SMM introduced an executive officer system in June 2001. Under

the following important business matters:

tive officers to establish a clear delineation of authority and respon-— Matters requiring Board approval that also need prior deliberation

sibilities with respect to execution functions, while directors focus— Matters deemed to require discussion but not items for the Board

mainly on decision-making and supervision.

50•Chairedbythepresident,theManagementCommitteedeliberates

the system, significant operational authority is delegated to execu-

agenda•Reportingtothepresident,theexecutiveofficersassumeresponsi-

Through such deliberations, the Management Committee facilitates

bility for business execution, both in terms of divisional operating

rational business discussion and decision-making while helping toactivities and the fulfillment of social responsibilities (CSR activities

promote efficient management based on appropriate internal

and internal controls).

controls.

SUMITOMO METAL MINING CO., LTD.

Annual Report 2010

2) Directors■ Operation of the Board of Directors
SMM’s articles of incorporation set the maximum number of direc-

In the year ended March 2010, the Board of Directors convened

tors to ten as a way of promoting lively debate at Board meetings.

24 times (12 regular meetings and 12 extraordinary sessions). The

Directors serve for terms of one year. The Board of Directors con-outside director attended 23 of these meetings (12 regular and 11

venes regularly once a month and in extraordinary session as

extraordinary) to ask the proper questions and state opinions, based

required to ensure flexible decision-making. Board minutes are circu-

on his specialist knowledge and experience as a lawyer and tax

lated to all executive officers to share information.

attorney.

■ Relationships with outside directors
Name (Profession)

Tsutomu Ushijima (Lawyer)

Relationship with SMM

Mr. Ushijima has signed a limited liability agreement with SMM, and serves as an outside auditor of other companies
as well.

Reason for appointment

Based on his specialist knowledge and wealth of experience as a lawyer, he was appointed an outside director toprovide advice to SMM on business matters, particularly from a compliance perspective.

3) Corporate auditors■ Operation of the Board of Corporate Auditors
SMM’s articles of incorporation set the maximum number of corpo-

the Board of Corporate Auditors. Both of these outside auditors per-rate auditors to five. The in-house corporate auditors work in a full-formed audit-related functions, such as asking proper questions andtime capacity and state opinions at meetings of the Board and otherstating opinions at meetings, based on their substantial experience

senior executive meetings from an independent standpoint, basedin their respective specialist fields and knowledge of corporate

on audit results. The outside auditors also attend these meetings,

business.

basing opinions on expertise in specialized fields. The Board of Cor-

Both the full-time auditors and the outside auditors visit SMM

porate Auditors meets each month on the same day as regular Board

Group operating sites and factories as required to conduct site audits.

meetings, but at an earlier time. Extraordinary sessions can also be

The full-time auditors compile audit reports relating to any audits of

convened as necessary.

operating sites, subsidiaries or affiliates; these reports are also sub-Auditors Katsumi Maeda and Takayuki Kurata attended all 24

mitted to the outside auditors. In addition, the full-time auditors aremeetings of the Board of Directors (12 regular and 12 extraordinary)required to report to the Board of Corporate Auditors what hap-

held in the year ended March 2010, in addition to all 17 meetings ofpened at any meetings not attended by the outside auditors.

■ Relationships with outside auditors
Name (profession)

Katsumi Maeda (CPA)
Takayuki Kurata (previously with Japan Bank for International Cooperation, etc.)

Relationship with SMM

Both outside auditors have signed a limited liability agreement with SMM and neither has any relationship with SMM
Group companies.

Reason for appointment

Mr. Maeda was appointed due to his many years of experience with corporate audits at a professional auditing firm
and his wealth of accounting knowledge. Mr. Kurata was appointed due to his vast experience of financial institutions
and his knowledge of company management.

514) Remuneration and incentive systems for directors and auditors
Paid to directors¥344 million

Paid to outside director¥13 million

Paid to auditors¥80 million

Paid to outside auditors¥21 million

Remuneration system

The system of retirement and severance benefits for directors and auditors was abolished with effect from theend of the 80th Ordinary General Meeting of Shareholders held on June 29, 2005. Remuneration for directors(with the exception of outside directors) is based on corporate financial performance and varies from year to year.

5) Social responsibility (CSR activities and internal controls)■ CSR activities
Chaired by the president, the CSR Committee comprises the heads

better risk management, based on a corporate revitalization planof SMM’s various operating and central divisions. SMM re-launchedthat SMM created in April 2000, the Risk Management Committee

its program of CSR activities in a systematized format at the start ofoversees development of an original program of activities designed

October 2008.

to prevent major incidents as well as minimize the damage caused•Forabout400years,SMMhasbeeninvolvedintheextractionof

by any accidents that do occur. This working group has generated

resources to produce metal ores for further refining. SMM recog-

significant results over the past ten years.

nizes that such business activities damage the planet, and that this•T he Compliance Committee ensures SMM’s compliance-related

requires striking a balance between minimizing such damage andsystems are functioning well. This second working group engages

using these finite resources for the greater good of society. In thisin education and training activities in an effort to ensure that allcontext, SMM views CSR as a way of earning the trust of society

employees from top management to rank-and-file employees areby promoting sustainable, eco-friendly operations and undertaking

fully aware of such key items as the SMM Group Code of Conduct

sound corporate activities. Based on this thinking, SMM publishedand the importance of compliance. It also works to promote com-a newly formulated “CSR Vision for 2020” in October 2008 thatpliance across the SMM Group by investigating the causes of com-

had been deliberated in-house at management level for 18

pliance breaches so that strict measures can be implemented tomonths. The program of CSR activities was re-launched in a sys-

prevent any recurrence.

tematized format. The CSR Committee is one of the bodies with

Please refer to SMM’s CSR Report 2010 (scheduled for publication

input into SMM’s business strategy. CSR subcommittees focus onin October 2010) for further details on CSR activities. It has beeneach of the six key CSR areas as defined in the 2020 vision. Annualcompiled in accordance with the 2006 edition of the GRI Sustainabil-targets have been set to help in realizing this vision.

ity Reporting Guidelines (G3).

•EstablishedfollowingtheJCOcriticalityaccidentin1999topromote6) Institution and purpose of takeover defenses
The Board of Directors approved the adoption of takeover defenses

June 2010, and were subsequently re-approved at the 85th Ordinary

at a meeting held on February 19, 2007. These measures received

General Meeting of Shareholders held on June 25, 2010 in a partiallythe necessary approval of at least two-thirds of shareholders at theamended form.

82nd Ordinary General Meeting of Shareholders held in June 2007.

In the interests of both the company and its shareholders, these

The takeover defenses were set to remain in effect for an initial

takeover defenses aim to prevent any moves that would be detri-

period until the Ordinary General Meeting of Shareholders held in

mental to the creation of enterprise value.

7) Other governance-related mattersa. Quorum for director appointments

The articles of incorporation permit the distribution of an interim

shareholder vote at an Ordinary General Meeting of Shareholders

dividend each year to those shareholders registered on the record

where the voting rights of at least one third of all shareholders aredate of September 30 by resolution of the Board of Directors, inrepresented.

line with the provisions of Article 454 Section 5 of the Company

b. Acquisition of treasury stock

Law. Payment of a final dividend based on the distribution of

The articles of incorporation permit acquisitions of treasury stock

retained earnings requires the approval of shareholders, in line

by means of open-market purchases by resolution of the Board ofwith the provisions of the Company Law. The record date for the

Directors, in line with the provisions of Article 165 Section 2 offinal dividend is March 31.

the Company Law.
(No treasury stock purchases were made in the year ended March

52

c. Interim and final dividends

Resolutions to appoint directors require approval by majority2010).

SUMITOMO METAL MINING CO., LTD.

Annual Report 2010

Directors and Corporate Auditors

Representative Directors:

Nobumasa Kemori (President)
Masashi Koike

Directors:

Ichiro Abe
Kouzou Baba
Yoshiaki Nakazato
Takeshi Kubota
Takashi Itou
Tsutomu Ushijima*(Standing) Senior Corporate Auditor: Naoki Tajiri(Standing) Corporate Auditor:

Toshikazu Yakushiji

Corporate Auditors:

Katsumi Maeda**
Takayuki Kurata*** Outside Director under the Companies Act** Outside Corporate Auditor under the Companies Act

53

Corporate History

1590 Soga Riemon established copper smelting and coppersmithingin Kyoto. He developed a smelting technique called "Nanbanbuki" to separate silver from copper and then worked on minedevelopment.

1990 The company integrated three copper and brass companies toestablish Sumitomo Metal Mining Brass & Copper Co., Ltd.
The company took equity participation in Ballande (currently
Figesbal in New Caledonia).

1691 Operation of the Besshi Copper Mine started.

1991 Malaysian Electronics Materials SDN. BHD. (MEM) wasestablished. Production of bonding wires started in Malaysia.

1905 A refinery was established on Shisaka Island.
1927 The management of the Sumitomo Joint-stock Company andthe Besshi Mining Company was divided in order to establish
Sumitomo Besshi Mining Co., Ltd.
1937 Sumitomo Besshi Mining Co., Ltd. and Sumitomo Coal Mining
Co., Ltd. merged to establish Sumitomo Mining Co., Ltd.
1939 A plant for neutralization was completed in the refinery on
Shisaka Island. This led to the complete solution of 50 years
worth of smoke pollution at the end of the same year. (It was in
September, 1893 that the Niihama smoke problem occurred.)
Production of electrolytic nickel started.
1946 The company name was changed to Seika Kogyo (Mining) Co.,Ltd.
1950 The Metal Division of Seika Kogyo Co., Ltd. was divided toestablish Besshi Mining Co., Ltd.
1952 The company name was changed to Sumitomo Metal Mining
Co., Ltd.
1956 The company established Hyuga Smelting Co., Ltd. and started
production of ferronickel.
1960 The company established Tokyo Electronic Metal Co., Ltd. It thenstarted to manufacture germanium dioxide, and expanded its
business to electronic materials.
1965 Central Research Laboratories (currently Ichikawa ResearchLaboratories) was completed.
1966 The company absorbed Tokyo Electronic Metal Co., Ltd., and set
up the Electronic Metal Division (currently Advanced MaterialsDiv.). The Harima Smelter of Sumiko I.S.P. Co., Ltd. wascompleted and production of zinc and lead started.
1967 The Ome Plant of the Electronic Metal Division was completed.
1970 The company established Nippon Ketjen Co., Ltd. and expanded
its business to the field of desulphurization catalyst.
1971 The Toyo Smelter was completed.
1973 The Besshi Copper Mine was closed.
The Kounomai Mine was closed.
1977 Sumitomo Metal Mining Singapore Pte. Ltd. (currently Sumitomo
Metal Mining Asia Pacific Pte. Ltd.) was established. Productionof lead frames started in Singapore.
Niihama Research Laboratories was established.
1979 The Sazare Mine was closed.
1981 High-grade gold ore veins were discovered in the Hishikari Minein Kagoshima Pref. by the Metal Mining Agency of Japan.
1983 The Hishikari Mine was opened.
1985 The ore veins of the Hishikari Mine were reached and removalof ores started.
1986 The company invested in the Morenci Copper Mine (Arizona,USA), owned by Phelps Dodge Corporation (currently Freeport
McMoRan Copper & Gold Inc.).
1988 The company took equity participation in P.T. International
Nickel Indonesia in Indonesia.
1989 M-SMM Electronics SDN. BHD. (M-SMME) was established.
Production of lead frames started in Malaysia.
54

1992 The company participated in the Candelaria Copper Minedevelopment project by Phelps Dodge Corporation.
1993 The Niihama Nickel Refinery completely changed its metal
refining process to the MCLE (Matte Chlorine Leach
Electrowinning) method.
The company participated in the Northparkes Copper and Gold
Mine development project by North Broken Hill Peco Ltd.
(currently Rio Tint plc.).
1994 Sumiko Electronics Taiwan Co., Ltd. (SET) was established.
Production of lead frames started in Taiwan.
1995 The company took equity participation in Jinlong Copper Co.,
Ltd. in China.
Shanghai Sumiko Electronic Paste Co., Ltd. (SEP) wasestablished. Production of paste started in China.
1996 Sumiko Leadframe (Thailand) Co., Ltd. (SLT) was established.
Production of lead frames started in Thailand.
1997 The accumulated amount of gold yielded in the Hishikari Mine
(83 tons) became the largest in Japan.
1998 The company took equity participation in the Batu Hijau Copperand Gold Mine development project in Indonesia.
The company acquired shares in Teck Corporation (currently Teck
Resources Limited, Canada).
It was confirmed that the amount of gold in the Liese Deposit inStoneboy, Alaska was 162 tons.
Sumiko Leadframe Chengdu Co., Ltd. (SLC) was established. A
lead frame business in China was also started.
1999 A critical accident occurred in the Tokai Division of JCO Co., Ltd.
2001 The project for developing low-grade nickel oxide ore from the
Riotuba Mine in the Philippines started.
2002 A business alliance was formed with Mitsui Mining & Smelting
Co., Ltd., concerning zinc refining business, to establish a joint
venture, MS Zinc Co., Ltd.
2003 Concerning sulphuric business, a business alliance was formed
with Dowa Holdings Co., Ltd. to establish a joint venture, Acids
Co., Ltd.
Sumiko Electronics Suzhou Co., Ltd. (SES) was established. This
company is our second lead frame production base in China.
2004 A basic agreement was made to take equity participation in the
Cerro Verde Copper Mine development project in Peru.
A basic agreement was made to take equity participation in the
project for developing Goro Nickel Mine in New Caledonia.
2005 Commercial production by the Coral Bay Nickel project in thePhilippines started.
We took equity participation in the Ojos del Salade Copper
Mine project in Chile.
2006 Production at the Pogo Gold Mine (Alaska, USA) started.
2009 The company and Sumitomo Corporation acquired all rightsfrom Teck Resources Limited’s Pogo gold mine.
The company took equity participation in Nickel Asia
Corporation (the Philippines).
The company decided to implement the Taganito Project (thePhilippines).
2010 Concerning the consolidation of the copper and copper alloy
fabricated businesses of Mitsui Mining & Smelting Co., Ltd. and
Sumitomo Metal Mining Co., Ltd.

Financial Section
Eleven-Year Financial Summary

56

Management’s Discussion &Analysis of Financial Position and Business Results

58

Consolidated Balance Sheets

62

Consolidated Statements of Income

64

Consolidated Statements of Changes in Net Assets

65

Consolidated Statements of Cash Flows67

Notes to Consolidated Financial Statements

68

Independent Auditors’ Report

97

SUMITOMO METAL MINING CO., LTD. Annual Report 201055

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

Years ended March 31

Results for the year:
Net sales

2010

2009

2008

2007

¥725,827¥793,797¥1,132,372¥966,764

Gross profit

105,956

56,887

198,147

203,180

Operating income

66,265

10,534

155,394

162,632

Other income (expenses)

16,511

12,408

61,11042,985

Income (loss) before income taxes
and minority interest

82,776

22,942

216,504

205,617

Net income (loss)

53,952

21,974

137,808

126,054

Equity in earnings of affiliated companies

26,09031,53673,956

46,708

Capital expenditures

26,41447,72365,14551,567

Depreciation

34,74634,26830,50525,693

(654)

(271)

(2,209)(2,606)

Net cash flows from operating activities

44,153

128,000

157,383

95,985

Net cash flows from investing activities(75,443)(28,386)(126,413)(77,429)

Net cash flows from financing activities(19,322)(74,086)

55,727(10,073)

Free cash flows(31,290)

99,61430,97018,556

Total assets

981,458

880,001

1,091,716

929,208

Net assets

629,684

547,251

640,345528,921

—

—

—

—

Long-term debt due after one year

132,311

141,716

169,394

93,800Interest-bearing debt

200,939

218,534

258,054

189,910Working capital

229,259

206,123

266,250

103,791— Basic

96.26

38.87

238.13220.49— Diluted

88.75

36.18

231.50213.67

1,043.50

913.92

1,017.96

859.82

20.0

13.0

30.0

27.0

5.80

2.23

13.64

14.81

9.89

4.02

25.39

28.99

59.8

57.3

54.0

53.4

Net interest expenses

Financial position at Year-end:

Shareholders’ equity*1

Amounts per share (Yen):
Net income (loss)

Shareholders’ equity
Cash dividends
Key ratios:
ROA (%)ROE (%)*1

Equity ratio (%)

*1

*1

56

Interest-bearing debt to total asset ratio (%)

20.5

24.8

23.6

20.4

Debt-to-equity ratio (times)*1
Current ratio (times)

0.34
2.19

0.43
2.17

0.44
2.04

0.38
1.39

Shareholders’ equity are defined as following equation.
Shareholders’ equity = Total shareholders’ equity + Total valuation and translation adjustment

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

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

2006

2005

2004

2003

2002

2001

2000

¥625,579¥484,585¥402,131¥355,242¥330,194¥375,352¥360,299

120,137

82,87853,714

51,764

38,152

63,37245,06182,75647,893

22,778

16,593

1,147

26,9308,990

10,218

6,024

8,416

(24,098)(13,735)(11,359)(4,342)

92,97453,91731,194(7,505)(12,588)

15,571

4,648

62,80037,017

19,882(1,172)(6,611)

15,103

4,740

21,915

13,513

7,112

3,400

1,535

4,078

2,406

50,56836,48846,54018,92725,37928,07820,49022,951

20,57817,824

18,283

17,822

16,774

16,611(1,281)(893)(1,098)(1,459)(1,775)(2,129)(2,492)70,77240,15032,324

26,10533,37023,339(800)(102,384)(31,725)(17,448)(21,246)(16,246)(4,248)4,143

28,723

6,097(9,293)(14,163)(14,267)(26,089)(9,086)(31,612)8,425

14,876

4,859

17,12419,091

3,343

772,562

573,925

517,930

470,774

518,756

530,080

544,121394,899

—

—

—

—

—

—

—

283,897

253,071

223,341

236,313

237,470

235,231

114,405

109,777

86,43776,47073,972

83,839107,266

190,891

160,533

148,351

154,799

167,077

176,998

197,624

72,22886,382

52,79535,94523,371

33,25938,910109.96

64.77

34.76

(2.05)(11.56)

26.41

8.29

108.87

—

—

—

—

—

—

654.15497.57443.29391.14413.28415.25411.34

14.0

8.0

6.0

5.0

4.0

6.0

5.0

9.33

6.78

4.02

—

—

2.81

0.87

19.10

13.79

8.35

—

—

6.39

2.05

48.4

49.5

48.9

47.4

45.6

44.8

43.2

24.7

28.0

28.6

32.9

32.2

33.4

36.3

0.51
1.33

0.57
1.61

0.59
1.38

0.69
1.26

0.71
1.14

0.75
1.20

0.84
1.23

SUMITOMO METAL MINING CO., LTD. Annual Report 201057

Management’s Discussion & Analysis of Financial Position and Business Results

Medium- to long-term business strategy and financial policies
The short-term performance of SMM’s three core businesses of “smelting & refining,” “metal refining” and “materials” is strongly
affected by fluctuations in non-ferrous metals prices and by the conditions in markets for electronic materials. At the same time,development of metal resources is an area where it takes a long time before investments start to generate returns.
Due to the operating characteristics of the business, SMM believes that it is important to maintain healthy corporate finances toensure business strategy can be implemented properly. In the medium-term business plan formulated in fiscal 2006 (covering thethree-year period from April 2007 to March 2010), SMM set a performance target of maintaining a consolidated equity ratio inexcess of 50%. In the new medium-term business plan formulated in fiscal 2009 (for the period from April 2010 to March 2013),
SMM plans to pursue a growth strategy for the medium-to-long term by leveraging its robust financial base to invest aggressively inthese core businesses. SMM also intends to ensure that it remains in strong financial health, based on financial policies of maintaining a consolidated equity ratio of at least 50% alongside low gearing as measured by the debt-to-equity (D/E) ratio.

The SMM Group comprised the parent company (Sumitomo

Net Assets

Metal Mining Co., Ltd.), 63 subsidiaries and 18 affiliated com-

As of the fiscal 2009 year-end, net assets amounted to ¥629,684

panies as of March 31, 2010. The SMM Group’s operations are

million, an increase of ¥82,433 million compared with a year ear-organized into four business divisions: Mineral Resources, Metals,lier. This mainly reflected net income of ¥53,952 million for fiscal

Electronics and Advanced Materials, and Others. The figures in2009, as well as higher valuation and translation adjustments due

this Annual Report refer to the results of the parent company, 54

to an increase in net unrealized holding gains on securities associ-consolidated subsidiaries and 13 equity-method affiliates (bothated with the recovery in share prices. Treasury stock was also

domestic and overseas). This section provides an overview ofissued in line with the exercise of stock subscription rights, reduc-

SMM’s financial position and business results for fiscal 2009.

ing the value of treasury stock holdings.
Shareholders’ Equity and Equity Ratio

Financial Position(Billions of yen)

(%)
59.8

600

Assets
As of the fiscal 2009 year-end (March 31, 2010), total assets
amounted to ¥981,458 million, a rise of ¥101,457 million compared with a year earlier.
Current assets increased by ¥40,285 million. This was mainly
the result of increases in inventories and notes and accounts
receivable associated with a significant recovery in non-ferrous

53.4

500

48.4

589.6
54.0

495.8

57.3

60

586.6

50

504.6

400

40
373.8

300

30

200

20

100

10

metals prices. Total fixed assets increased by ¥61,172 million
compared with the previous year-end. This reflected higher market values for equities held as part of the Group’s portfolio ofinvestment securities due to a general rise in share prices. The
increase in assets was also due to the acquisition of an additional

00March 31

2006

2007

2008

2009

2010

Equity Ratio (RH scale)interest in the Pogo gold mine.

Liabilities

Financial Indicators

Total liabilities amounted to ¥351,774 million as of the fiscal 2009

The equity ratio rose to 59.8% at March 31, 2010, from 57.3% at

year-end, an increase of ¥19,024 million compared with a year

the previous fiscal year-end, while the D/E ratio declined fromearlier.

0.43 to 0.34 times.

Current liabilities increased by ¥17,149 million. Although

Under the new medium-term business plan, management

long-term debt due within one year declined following the

expects to make substantial capital investments in the Taganito

redemption of convertible bonds, there was an increase in trade

project and other resource developments. SMM is also consider-notes and accounts payable associated with higher non-ferrous

ing aggressive investments in overseas mines. Given the healthy

metals prices. Other factors included a rise in accrued income

financial position of the Group, management does not believetaxes associated with higher corporation, resident’s and enterprisethat financing these business investments will present any majortaxes. Total long-term liabilities increased by ¥1,875 million,

problem.

reflecting an increase in deferred tax liabilities. This offset theeffect of long-term debt repayments.
58

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

Pre-tax and Net Income

Debt-to-Equity Ratio and Long-Term Debt
(Billions of yen)(Times)300

Income before income taxes and minority interests increased by

1.0¥59,834 million in year-on-year terms to ¥82,776 million.

0.8

of ¥31,978 million compared with the fiscal 2008 result.

0.6

Capital Expenditures

Net income for fiscal 2009 was ¥53,952 million, an increase
240

258.1
218.5

180

200.9

189.9

190.9
0.51

0.44

Total capital expenditures in fiscal 2009 were ¥26,414 million,

0.43

120

0.4
0.38

mainly relating to investments aimed at maintain or increasing
production activity and to boost productivity. By business seg-

0.34

60

0.2

0

0

ment, capital expenditures were ¥2,110 million by the Mineral
Resources Division, ¥18,427 million by the Metals Division, andMarch 31

2006

2007

2008

2009

2010

¥4,206 million by the Electronics and Advanced Materials
Division.

Debt-to-Equity Ratio (RH scale)Research and Development (R&D) Expenses

Operating Performance

Total R&D expenses in fiscal 2009 amounted to ¥4,746 million. By
segment, R&D expenses were ¥167 million at the MineralIndustry Trends

Resources Division, ¥2,499 million at the Metals Division, and

Demand recovered gradually in the non-ferrous metals industry,¥2,070 million at the Electronics and Advanced Materials

due mainly to an economic rebound in China. In the second half

Division.

of fiscal 2009 non-ferrous metals prices recovered to levels close

R&D investments in the mineral resources segment focused on

to those prevailing prior to the crash in fiscal 2008. In foreignore-dressing processes to improve non-ferrous metal ore grades;

exchange markets, the yen appreciated against many currencies

development of various types of leaching technologies for metal

due to the uncertainty surrounding economic prospects in Europe

refining; and the development of technologies to process waste-

and the United States.

water emissions from mines. In the metals segment, the major

In the electronics sector, demand from Taiwan and Southeast

R&D themes included the development of non-ferrous metal refin-

Asia recovered due to the positive effect of the large-scaleing, electrolytic technologies and new metal-refining processes, as

economic stimulus measures put in place by the Chinese

well as the development of technologies for actively separating,government.

refining and purifying trace amounts of other metals contained in
non-ferrous metal ores. In the electronics and advanced materials

Net Sales

segment, the major R&D themes included the development of

The lingering effects of the lower non-ferrous metals prices thattechnologies, processes and equipment for electronics materials,

prevailed in fiscal 2008 depressed sales revenues generated by theespecially in the field of semiconductor packaging.

Mineral Resources Division for copper and by the Metals Division
for nickel. Consolidated net sales totaled ¥725,827 million in fis-

Cash Flowscal 2009, a decline of ¥67,970 million in year-on-year terms.

The year-end balance of cash and cash equivalents amounted to¥100,452 million at March 31, 2010, a decrease of ¥49,835 mil-Operating Income

lion compared with the previous year-end. This reflected signifi-

Consolidated operating income increased by ¥55,731 million incant increases in notes and accounts receivable and inventories

year-on-year terms to ¥66,265 million. This was the result of

associated with a recovery in non-ferrous metals prices, whichhigher earnings contributions from the overseas operations of themore than offset the effect of substantial year-on-year growth inMineral Resources Division and Metals Division (specifically the

income before income taxes and minority interests to ¥82,776

Pogo gold mine and Coral Bay Nickel Corporation); the positive

million.

impact of the turnaround and cost reductions implemented by

Net cash provided by operating activities totaled ¥44,153 mil-the Electronics and Advanced Materials Division; and of a signifi-

lion, a decrease of ¥83,847 million compared with the previous

cant increase in inventory values associated with the recovery inyear. This mainly reflected the significant increases in notes andnon-ferrous metals prices.

accounts receivable and inventories, which more than offset net
cash inflows due to substantially higher income before income
taxes and minority interests and a refund of corporation taxes.
Income received from dividends was also lower than in fiscal
2008.
SUMITOMO METAL MINING CO., LTD. Annual Report 2010

59

Net cash used in investing activities in fiscal 2009 equaled¥75,443 million, which marked a year-on-year increase in cash

period could exert a significant negative impact on the Group’sbusiness performance and financial position.

outflow of ¥47,057 million. Compared with cash inflows attribut-

To mitigate these external risks, the SMM Group continues toable to the withdrawal of negotiable certificates of deposit in fis-

make progress in implementing a variety of measures aimed atcal 2008, this result reflected such factors as the continued invest-

boosting competitiveness, both in materials procurement andment in overseas resource development projects, an increase in

manufacturing.

fixed assets due to the acquisition of an additional interest in the
Pogo gold mine and the increase in investment securities. SMM’s
withdrawal of negotiable certificates of deposit had generated a
relative increase in cash flow in fiscal 2008.

(2) Deterioration in terms of non-ferrous metal ore purchasing contracts and supply disruptions
Currently the SMM Group procures the majority of copper ores,

Net cash used in financing activities in fiscal 2009 equaled

nickel matte and other raw materials for non-ferrous metal refin-¥19,322 million, representing a year-on-year decrease in cash

ing operations based on long-term ore-purchasing contracts that

outflow of ¥54,764 million. This was mainly due to a significant

are not backed by investment.

reduction in funding requirements due to the conversion of con-Each year, the raw materials purchasing terms and conditions

vertible bonds. In fiscal 2008, share buybacks and corporate bondof long-term ore-purchasing contracts are subject to negotiation.

redemptions had absorbed cash.

In each case, there are instances in which required volumes cannot be purchased at an appropriate price due to a variety of market factors. Furthermore, as product prices are generally deter-

Risk Information

mined by such factors as supply and demand, and particularly

The following section provides an overview of the risk factors thatfactors relating specifically to nonferrous metals, there are

could exert a significant effect on the business performance andinstances where the transfer of any deterioration in the purchas-financial position of the SMM Group. All forward-looking state-

ing terms and conditions of raw materials to product prices isments in the text refer to management decisions based on the

difficult.

best information available at the end of fiscal 2009.

Supplies of ore can also be delayed or suspended due tounpredictable disruptive events beyond the control of the com-

(1) Fluctuations in non-ferrous metals prices and exchange
ratespany such as extreme weather conditions, large-scale earthquakes,
supplier operational accidents and industrial disputes. Such fac-

1. Sustained downturn in non-ferrous metals prices

tors could impose various constraints on Group production vol-The prices of copper, nickel, gold and other non-ferrous metals

umes, which as a result could exert a negative impact on theare essentially determined by the London Metal Exchange (LME)Group’s business performance and financial position.

and other international markets (hereinafter referred to as “LME

To mitigate such risks, the Group continues to seek to invest

and other market prices”). LME and other market prices are influ-

in high-grade overseas mines to secure reliable (in-house) supplies

enced by a number of factors, including international supply andof ore.

demand, political and economic circumstances, speculative trading and competition from alternative materials. A sharp and sus-

(3) Uncertainty inherent in mining investments

tained downturn in non-ferrous metals prices could have a signifi-

As described above, the raw materials procurement policy of thecant negative impact on the Group’s business performance and

SMM Group is to develop in-house mining resources to boost thefinancial position.

proprietary ore ratio. Amounts of extractable ore and extraction
costs can only be estimated based on the results of exploratory60

2. Appreciation of the yen

surveys. With respect to mining development, the development

Not only imported raw materials including copper concentrates

costs of a mining project can rise as the result of a variety of situa-

and nickel matte, but also the domestic prices of nonferrous met-

tions such as compliance with environmental or regulatory actions.

als are determined under U.S. dollar-denominated LME and otherAny additional investment or increase in the burden of extraction

market standards. Accordingly, the refining margins earned bycosts arising from the inherent uncertainty associated with mining

SMM from its refining business are effectively denominated indevelopments could have a negative impact on the Group’s busi-

U.S. dollars. In addition, returns on investments in overseas min-ness performance and financial position.

ing developments, income earned from investments in the semi-

To mitigate such risks, the SMM Group employs a selective

conductor as well as advanced materials businesses and revenues

investment policy and undertakes strict assessments of the poten-from exports of products in the each of the aforementioned busi-

tial profitability of individual mining developments based onnesses are also denominated in foreign currencies. A substantial

extensive experience in mining extraction and mine valuation

appreciation of the yen against these currencies over a sustained

accumulated over many years.

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

(4) Environmental protection and regulatory compliancerisks

and sales of existing products in the Company’s materials operations may not progress in accordance with plans. This in turn

SMM Group businesses, notably the mining and non-ferrous

could exert a negative impact on the Group’s business perfor-

metal smelting and refining operations, are subject to a broadmance and financial position.

range of laws and regulations in areas such as occupational safety

The SMM Group recognizes the importance and value of acquir-

and health, environmental protection, pollution prevention, indus-

ing intellectual property rights and managing such rights properly intrial waste disposal and management of potentially toxic sub-accordance with related laws and regulations. Although the Groupstances. In accordance with these statutory and regulatory require-

strives to observe such laws, it remains exposed to risks such as fail-ments, operators may be charged with compensation for loss or

ure to acquire certain rights or damage done to the results of thedamages, irrespective of the existence of negligence or otherwise,Group’s R&D activities due to illegal actions by third parties.

or demands for the maintenance and management of abandoned

To mitigate such risks, the Group strives to minimize related

mines. Moreover, operators may incur the burden of additional

problems by structuring R&D activities to realize commercial

expenses due to requirements imposed under new environmental

opportunities as quickly as possible. The Group has also createdstandards and regulations. At the same time, both the mining anddedicated in-house teams to manage issues related to intellectual

nonferrous metals refining industries incur the risks and associ-property rights to ensure that such rights are acquired and pro-ated responsibilities for environmental pollution as well as thetected properly.

disposal of mining and industrial waste. Ongoing regulatory compliance costs are substantial and subject to unexpected increases(6) Overseas investments

as the result of the sudden emergence of previously unknown

The Company strives to develop its business overseas both inrisks. The costs of ensuring regulatory compliance could therefore

terms of the location of manufacturing bases as well as the sale ofexert a negative impact on the Group’s business performance andits products. In the conduct of its business overseas however,financial position.

SMM is subject to a wide range of political and economic risks

To mitigate such risks, the Group seeks to ensure that opera-that vary by country. These include but are not limited to politicaltions are in full compliance with environmental protection andinstability, changes in statutory and regulatory requirements withother laws and regulations through the operation of environmen-

respect to the environment, labor, taxes, currency management

tal and risk management systems based on strict standards. The

and controls as well as trade, limited protection under the law orGroup also endeavors to manage operations so that related com-inadequate enforceability in connection with intellectual andpliance costs are kept within reasonable limits.

other property rights, fluctuations in foreign currency exchange
rates and the confiscation or nationalization of assets. The emer-(5) Risks associated with market shifts, new product development and intellectual property rights

gence of various developments could prevent the Group from
earning a suitable return on overseas investments. Such risks

In those markets related to the Company’s materials operations,

include the development of mineral resource projects by organiza-

increasingly longer periods are required for the development oftions funded by national or regional governments against the

new products due largely to rapid changes in applied technolo-

backdrop of high non-ferrous metals prices, or the levying ofgies, customer requirements and product life. This is even as

higher taxes on such operations. Increased environmental

product development programs in these areas require the invest-

demands from various quarters constitute a further risk.

ment of increasingly large amounts of time and resources.

To mitigate such risks, the SMM Group makes overseas invest-

Expected returns on investment from related new product devel-

ment decisions based on careful consideration of all relevant

opment programs may not materialize due to obsolescence

country risks.

caused by technological progress, delays caused by responding tocustomer requests or the launch of competitor products, among(7) Disaster-related risks

other factors. Customer demand for products may also decline in

The SMM Group locates manufacturing operations based on con-the future. All these various factors could have a negative impact

siderations such as customer relationships, raw material procure-on the Group’s business performance and financial position.

ment, the links to other Group operations and effective use of

In addition, sales volumes of the Company’s mainstay materi-management resources. Unexpected large-scale natural disasters

als operations products are dependent upon customer production

such as earthquakes or typhoons that affect the regions wherelevels of such items as mobile phones, personal computers andsuch facilities are located could result in major financial losses aris-

electrical household appliances. Accordingly, performance is sub-ing from factors such as on-site damage and loss of production.

ject to a variety of factors including cyclical demand for the prod-

To mitigate such risks, the Group insures such facilities whereucts manufactured by customers, advances in technological inno-

this is possible at reasonable cost and has made plans containing

vation and general economic trends.

suitable countermeasures to minimize any secondary effects due

As a result of such factors, the development of new products

to such disasters.
SUMITOMO METAL MINING CO., LTD. Annual Report 201061

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

Thousands of U.S. dollars(Note 1)Millions of yen

As of March 31, 2010 and 2009

2010

2010

2009

Current assets:

2008¥100,452¥ 150,287$ 1,079,549

34

190

365

Trade

97,70147,401

1,049,984

Unconsolidated subsidiaries and affiliated companies

3,302

2,069

35,486

(262)

(247)

(2,816)

149,575

106,248

1,607,469

Deferred tax assets (Note 9)

2,889

8,052

31,048Other current assets

68,43067,836735,412422,121381,836

4,536,497

Unconsolidated subsidiaries and affiliated companies

197,917

171,7072,126,996

Other71,034

48,713

763,396

(64)

(16)

(688)

16,203

10,843

174,133

(245)

(251)

(2,633)284,845

230,996

3,061,204

Land

28,38328,170305,030

Buildings and structures

165,971

156,319

1,783,675

Machinery and equipment

389,630

353,452

4,187,319

Construction in progress

15,06036,317

161,848

599,044574,258

6,437,872(341,040)(314,092)(3,665,126)

258,004

260,166

2,772,746

Deferred tax assets (Note 9)

1,380

2,282

14,831Other assets

15,108

4,721

162,363¥981,458¥ 880,001$10,547,641

Cash and cash equivalents
Time deposits
Receivables:
Notes and accounts receivable:

Allowance for doubtful accounts
Inventories (Note 6)

Total current assets

Investments and long-term receivables:
Investment securities (Notes 4 and 8):

Allowance for loss on investments
Other long-term receivables
Allowance for doubtful accounts
Total investments and other assets

Property, plant and equipment (Notes 7 and 8):

Accumulated depreciation
Net property, plant and equipment

Total assets
The accompanying notes are an integral part of these financial statements.

62

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

LIABILITIES AND NET ASSETS

Thousands of U.S. dollars(Note 1)Millions of yen

2010

2009

¥ 63,1042008¥ 58,001

5,524

18,81759,366Trade38,322

29,918411,843

Unconsolidated subsidiaries and affiliated companies

6,541

3,435

70,296

Other

15,94014,658

171,306

As of March 31, 2010 and 2009

Current liabilities:
Bank loans (Note 8)Long-term debt due within one year (Note 8)

2010$

678,173

Notes and accounts payable:

Accrued income taxes (Note 9)

13,919977

149,586

Accrued expenses

3,790

5,212

40,731

Advances received

2,244

1,168

24,116

Accrued restructuring charges

106

62

1,139

Accrued bonus to directors and corporate auditors

65

30

699

Accrued environmental measures

506

—

5,438

Deferred tax liabilities (Note 9)
Other current liabilities

119
42,682

22
43,413

1,279
458,699

Total current liabilities

192,862

175,7132,072,670

Long-term liabilities:
132,311

141,716

1,421,934

Deferred tax liabilities (Note 9)

7,334

923

78,818

Accrued retirement benefits (Note 10)

8,050

8,438

86,513

164

643

1,762

Accrued restructuring charges
Accrued indemnification loss on damages caused by a consolidated subsidiary

1,781
2

357
2

19,14021

Other accruals
Other long-term liabilities

3,202
6,068

2,261
2,697

34,412
65,213

158,912

157,037

1,707,813

1,002,063

Long-term debt (Note 8)

Accrued environmental measures

Total long-term liabilities
Commitments and contingent liabilities (Note 14)
Net assets:
Shareholders’ equity (Note 13):
Common stock
Authorized — 1,000,000,000 shares

93,242

93,242

Capital surplus

86,06286,091

924,901

Retained earnings (Note 12)
Treasury stock, at cost

454,896(21,633)

405,946(32,678)

4,888,726(232,488)

612,567

552,601

6,583,203

Issued — 581,628,031 shares

Total shareholders’ equity
Valuation and translation adjustments:
Net unrealized holding gains (losses) on securities

16,043(752)

172,414

Deferred gains (losses) on hedges
Foreign currency translation adjustments(2,439)(39,595)(2,432)(44,821)(26,212)(425,524)(25,991)
43,108(48,005)
42,655(279,322)
463,278

629,684¥ 981,458

547,251¥ 880,001

6,767,159$10,547,641

Total valuation and translation adjustments:
Minority interests
Total net assets
Total liabilities and net assets

SUMITOMO METAL MINING CO., LTD. Annual Report 201063

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

Thousands of
U.S. dollars(Note 1)Millions of yen

2010

2009

2008

2010

¥ 725,827¥ 793,797¥ 1,132,372$ 7,800,398

619,871
39,691

736,910
46,353

934,225
42,753

6,661,698
426,556

659,562783,263

976,978

7,088,254

66,265

10,534

155,394

712,144

For the years ended March 31, 2010, 2009 and 2008

Net sales (Note 15)
Costs and expenses (Note 15):
Cost of sales
Selling, general and administrative expenses (Note 11)

Operating income (Note 15)
Other income (expenses):
Interest and dividend income

2,334

4,052

4,088

25,083

Interest expense(2,988)(4,323)(6,297)(32,112)—(4,607)(458)—

Write-down of investment securities

(557)

(624)

23

(5,986)

Loss on impairment of fixed assets (Note 7)(2,087)(3,514)(941)(22,429)

Loss from valuation of gold loans(1,384)(68)(2,351)(14,874)

Exchange loss

(2,004)(9,489)(2,142)(21,537)

Provision for restructuring charges(2,303)

(697)

(274)

(24,750)

Maintenance cost for ceased projects

(476)

(701)

(666)

(5,116)——(2,449)—Equity in earnings of affiliated companies

26,09031,53673,956280,387

Derivative instruments loss

(1,286)——(13,821)

992
180

—
843

—
(1,379)10,661
1,936

Gain (Loss) on sale and disposal of property, plant and equipment

Loss from valuation of derivative instruments

Amortization of consolidation difference
Other, net

Income before income taxes and minority interests
Income taxes (Note 9):
Current
Deferred

Minority interests in net income of consolidated subsidiaries
Net income

16,511

12,408

61,110177,442

82,776

22,942

216,504

889,586

17,0406,127

4,052(8,818)57,9383,812

183,127
65,84623,167(4,766)61,750248,973

59,609(5,657)¥ 53,952

27,708(5,734)¥ 21,974

154,754(16,946)
137,808

640,613(60,795)
579,818¥$

U.S. dollars(Note 1)

Yen

2010

For the years ended March 31, 2010, 2009 and 2008

2009

2010

2008

Amounts per share of common stock:
Net income (Note 19)—Basic—Diluted
Cash dividends applicable to the year
The accompanying notes are an integral part of these financial statements.

64

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

¥

96.26
88.75
20.00

¥

38.87
36.18
13.00

¥

238.13231.50
30.00

$

1.03
0.95
0.21

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

Shareholders’ Equity
FFor the years ended March 31, 2010, 2009 and 2008

Numberof shares
issuedCommonstock

CapitalsurplusRetainedearnings¥91,821¥84,668 ¥283,568
137,808
1,419(thousands)

Balance at March 31, 2007
Net income
Conversion of convertible bonds
Foreign currency translation adjustments
Adjustments for unrealized gains on securities
Acquisition of treasury stock
Sale of treasury stock
Deferred gains or losses on hedges
Minority interests
Cash dividends paid
Balance at March 31, 2008
Net income
Foreign currency translation adjustments
Adjustments for unrealized gains on securities
Acquisition of treasury stock
Sale of treasury stock
Deferred gains or losses on hedges
Decrease resulting from unification of an accounting
policy of overseas subsidiaries
Minority interests
Cash dividends paid
Balance at March 31, 2009
Net income
Foreign currency translation adjustments
Adjustments for unrealized gains on securities
Decrease resulting from decrease in the number ofconsolidated subsidiaries
Acquisition of treasury stock
Sale of treasury stock
Deferred gains or losses on hedges
Minority interests
Cash dividends paid
Balance at March 31, 2010

578,791

TreasurystockMillions of yen

1,421¥(1,777)¥458,280
137,808
2,840

(770)
18

(770)
35

¥(2,529)(17,917)¥580,276
21,974(30,238)89(30,238)76

17581,628¥93,242(17,917)¥86,104 ¥403,459
21,974(13)

581,628¥93,242(3,459)(3,459)(16,028)¥86,091 ¥405,946 ¥(32,678)
53,952(16,028)¥552,601
53,952(18)¥93,242(18)(175)
11,220(175)
10,142(3,935)¥86,062 ¥454,896 ¥(21,633)(3,935)¥612,567(29)

581,628

Total
shareholders’equity(1,049)

Shareholders’ Equity
For the year ended March 31, 2010

Commonstock

CapitalsurplusRetainedearnings

Treasury
stock

Total
shareholders’equityThousands of U.S. dollars (Note 1)

Balance at March 31, 2009
Net income
Foreign currency translation adjustments
Adjustments for unrealized gains on securities
Decrease resulting from decrease in the number ofconsolidated subsidiaries
Acquisition of treasury stock
Sale of treasury stock
Deferred gains or losses on hedges
Minority interests
Cash dividends paid
Balance at March 31, 2010

$1,002,063$925,212 $4,362,665 $(351,188) $5,938,752
579,817579,817

(193)
(312)

$1,002,063(11,274)(193)(1,881)
120,580(2,074)120,268(172,251)(172,251)$924,900 $4,758,764 $(232,489) $6,453,238

The accompanying notes are an integral part of these financial statements.

SUMITOMO METAL MINING CO., LTD. Annual Report 201065

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

Valuation and translation adjustments

For the years ended March 31, 2010, 2009 and 2008

Foreign
Net unrealized
Total
Deferredcurrency
holding gains
valuation andgains (losses)(losses) on
translationtranslation
on hedges
securities
adjustments adjustments

Minority
interests

Total
net assets

Millions of yen

Balance at March 31, 2007
Net income
Conversion of convertible bonds
Foreign currency translation adjustments
Adjustments for unrealized gains on securities
Acquisition of treasury stock
Sale of treasury stock
Deferred gains or losses on hedges
Minority interests
Cash dividends paid
Balance at March 31, 2008
Net income
Foreign currency translation adjustments
Adjustments for unrealized gains on securities
Acquisition of treasury stock
Sale of treasury stock
Deferred gains or losses on hedges
Decrease resulting from unification of an accounting
policy of overseas subsidiaries
Minority interests
Cash dividends paid
Balance at March 31, 2009
Net income
Foreign currency translation adjustments
Adjustments for unrealized gains on securities
Decrease resulting from decrease in the number ofconsolidated subsidiaries
Acquisition of treasury stock
Sale of treasury stock
Deferred gains or losses on hedges
Minority interests
Cash dividends paid
Balance at March 31, 2010

¥ 34,558¥ 1,170¥ 1,836¥ 37,564(5,289)(5,289)(22,531)(22,531)¥ 12,027

¥

(380)

(380)

790

¥ (3,453) ¥ 9,364(41,368)(12,779)(41,368)(12,779)(3,222)(3,222)¥33,077 ¥ 528,921
137,808
2,840(5,289)(22,531)
(770)
35
(380)
17,628
17,628(17,917)¥50,705 ¥ 640,345
21,974(41,368)(12,779)(30,238)76(3,222)(3,459)(8,050)¥(752)¥ (2,432) ¥ (44,821) ¥ (48,005)
5,226

5,226
16,795

16,765(8,050)(16,028)¥42,655 ¥ 547,251
53,952
5,226
16,795(18)(7)¥ 16,043(7)¥(2,439) ¥ (39,595) ¥ (25,991)(175)
10,142(7)453
453(3,935)¥43,108 ¥ 629,684

Valuation and translation adjustments

For the year ended March 31, 2010

Foreign
Net unrealized
Total
Deferredcurrency
holding gains
valuation andgains (losses)(losses) on
translationtranslation
on hedges
securities
adjustments adjustments

Minority
interests

Total
net assets

Thousands of U.S. dollars (Note 1)

Balance at March 31, 2009
Net income
Foreign currency translation adjustments
Adjustments for unrealized gains on securities
Decrease resulting from decrease in the number ofconsolidated subsidiaries
Acquisition of treasury stock
Sale of treasury stock
Deferred gains or losses on hedges
Minority interests
Cash dividends paid
Balance at March 31, 2010
The accompanying notes are an integral part of these financial statements.

66

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

$ (8,082)$(26,136) $(481,687) $(515,905)
56,163

180,495

56,163
180,494$458,409 $5,881,257
579,817
56,163
180,494
(193)

(75)

$172,413(75)$(26,211) $(425,524) $(279,323)(2,074)120,268
(75)
4,868
4,868
(172,251)$463,277 $6,637,192

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

Thousands of
U.S. dollars(Note 1)Millions of yen
For the years ended March 31, 2010, 2009 and 2008

2010

2009

2008

2010

¥ 82,776¥ 22,942¥ 216,504

34,746
2,087
557
—
48
1,286
(2,334)
2,988(26,090)519(54,706)(43,113)
6,899
9,176
14,83921,569(3,038)(476)(67)
11,32644,15334,268
3,514
624
4,607
—
(1,568)(4,052)
4,323(31,536)304
73,93060,698(31,622)(10,159)
126,273
42,988(4,515)(701)(21)(36,024)
128,000

30,505
941
(23)
458
—
2,449
(4,088)
6,297(73,956)
69(20,026)(1,148)
13,971
2,995
174,948
72,231(6,330)(666)(41)(82,759)
157,383

373,41222,4295,986—
516
13,821(25,083)
32,112(280,387)
5,578(587,920)(463,332)
74,143
98,615
159,476
231,800(32,649)(5,116)(720)
121,720474,511(40,416)(12,071)
1,182——(5,886)(18,285)308(5,476)
5,064
137(75,443)(46,898)(4,415)2,238(25,000)
68,000(640)(19,936)—(5,834)
4,032
67(28,386)(64,883)
(564)
1,852
(43,000)—(3,216)(13,804)—(7,955)
4,992
165(126,413)(434,347)(129,726)
12,703——(63,256)(196,507)
3,310(58,850)
54,422
1,472(810,779)

3,916(16,836)
4,100
(105)
120
(163)
(3,935)(6,419)(19,322)746(49,866)
150,287
31¥ 100,452

2,021(15,504)(2,125)(10,000)
262(30,162)(16,028)(2,550)(74,086)(7,716)
17,812
132,475—¥ 150,287

98,888(18,990)
3,180(10,000)
6,502
(735)
(17,917)(5,201)
55,727
1,445
88,14244,333—¥ 132,475

42,085(180,935)
44,062(1,128)1,290(1,752)(42,289)(68,984)(207,651)
8,017(535,902)
1,615,121333$ 1,079,549

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
Loss (Gain) on sale and disposal of property, plant and equipment
Write-down of investment securities
Increase in allowance for loss on investments
Loss (Gain) from valuation of derivative instruments
Interest and dividend income
Interest expense
Equity in earnings of affiliated companies
Restructuring charges
Decrease (Increase) in trade receivables
Decrease (Increase) in inventories
Increase (Decrease) in trade payables
Others
Sub totalInterest and dividend received
Interest paid
Payments for maintenance costs for ceased project
Payments for recovery costs
Payments (Refund of) for income taxes
Net cash provided by operating activities$

889,586

Cash flows from investing activities:
Payments for acquisition of property, plant and equipment
Payments for acquisition of Intangible assets
Proceeds from sale of property, plant and equipment
Payments for purchases of negotiable certificates of deposits
Proceeds from sales of negotiable certificates of deposits
Payments for purchases of investment securities
Payments for purchase of securities of subsidiaries and affiliated companies
Proceeds from sales of securities of subsidiaries and affiliated companies
Payments for loans lended
Collection of loans repaid
Other
Net cash used in investing activities

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
Contribution from minority in consolidated subsidiaries
Increase in treasury stocks
Cash dividends paid
Cash dividends paid to minority in consolidated subsidiaries
Net cash provided by (used in) financing activities
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
Cash and cash equivalents at end of fiscal year
The accompanying notes are an integral part of these financial statements.
SUMITOMO METAL MINING CO., LTD. Annual Report 201067

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

1. Basis of presenting consolidated financial statements
The accompanying consolidated financial statements have been
prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Act, and in conformity
with accounting principles generally accepted in Japan (“Japanese
GAAP”), which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards (“IFRSs”).
The accounts of consolidated overseas subsidiaries are basedon their accounting records maintained in conformity with generally accepted accounting principles prevailing in the respective
countries of domicile. However, as described in Note 2, necessary
adjustments such as the influence of applying Practical Issues Task
Force (PITF) No.18 are made upon consolidation. The accompanying consolidated financial statements have been restructured andtranslated into English with some expanded descriptions from theconsolidated 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 Ministryof Finance as required by the Japanese Financial Instruments andExchange Act. Some supplementary information included in thestatutory Japanese language consolidated financial statements,
but not required for fair presentation, is not presented in theaccompanying consolidated financial statements.
The translations of the Japanese yen amounts into U.S. dollars
are included solely for the convenience of readers outside Japan,
using the prevailing exchange rate at March 31, 2010, which was¥93.05 to US$1.00. The convenience translations should not be
construed as representations that the Japanese yen amounts havebeen, could have been, or could in the future be, converted into
U.S. dollars at this or any other rate of exchange.

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 atthe time the Company acquired control of the respective
subsidiaries.
The goodwill (consolidation difference between the investment cost and the underlying equity in its net assets at the date ofacquisition) is amortized within five years on a straight-line basis.
With respect to subsidiaries in the United States, goodwill is amortized within twenty years on a straight-line basis in accordancewith PITF No. 18. In addition, negative goodwill applicable tosubsidiaries in the United States is amortized in a lump sum inaccordance with the Statement of Financial Accounting Standards(“SFAS”) “Business Combinations.”(Change for unification of accounting policies applied to overseas
subsidiaries for consolidated financial statements)
Effective from the fiscal year ended March 31, 2009, the Company adopted “Practical solution on unification of accounting
policies applied to overseas subsidiaries for consolidated financial
statements” PITF No.18, issued by the Accounting Standard Boardof Japan (ASBJ) on May 17, 2006. PITF No.18 prescribes that: (i)the accounting policies and procedures applied to a parent company and its subsidiaries for similar transactions and events undersimilar circumstances should in principle be unified for the preparation of consolidated financial statements; (ii) financial statements prepared by overseas subsidiaries in accordance with either
International Financial Reporting Standards (IFRSs) or the generally
accepted accounting principles in the U.S. (U.S.-GAAP) tentatively
may be used for the consolidation process; (iii) however, the following items should be adjusted in the consolidation process sothat net income is accounted for in accordance with Japanese
GAAP unless they are not material;(1) Amortization of goodwill

2. Summary of significant accounting policies
Consolidation — The consolidated financial statements include
the accounts of the Company and its significant subsidiaries (54subsidiaries in 2010, 50 in 2009 and 50 in 2008). All significant
inter-company balances and transactions have been eliminated.
Investments in affiliates over which the Company has the ability to
exercise significant influence over operating and financial policiesof the investees, are accounted for by the equity method (13 affiliated companies in 2010, 12 in 2009 and 12 in 2008). Investmentsin the remaining unconsolidated subsidiaries and affiliates arecarried at cost because of their immaterial effect on the consolidated financial statements.

(2) Actuarial gain and loss of defined benefit plans recognizedoutside profits and loss
(3) Capitalization of intangible assets arising from development
phases(4) Fair value measurement of investment properties, and therevaluation model for property, plant and equipment, andintangible assets(5) Retrospective application when accounting policies arechanged(6) Accounting for net income attributable to minority interest
As a result of this change, operating income decreased by ¥86
million and income before income taxes and minority interests
decreased by ¥689 million for the fiscal year ended March 31,
2009.

68

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

Cash and cash equivalents and cash flow statements — Cashcontract and the book value of the receivable or payable ison hand, readily available bank deposits, negotiable certificates ofrecognized in the income statement in the period which

deposits and short-term highly liquid investments with maturities

includes the inception date, andnot exceeding three months at the time of purchase are consid-(b) the discount or premium on the contract (that is, the dif-ered to be cash and cash equivalents. Negotiable certificates ofference between the Japanese yen amount of the contract

deposits with maturities exceeding three months are presented astranslated using the contracted forward rate and thatnegotiable certificates of deposits.

translated using the spot rate at the inception date of thecontract) is recognized over the term of the contract.

Allowance for doubtful accounts — The allowance for doubtful accounts is provided at an amount determined based on the(2) If a forward foreign exchange contract is executed to hedge ahistorical experience of bad debt with respect to ordinary accounts,

future transaction denominated in a foreign currency, theplus an estimate of uncollectible amount determined by reference

future transaction will be recorded using the contracted for-to specific doubtful accounts from customers who are experienc-

ward rate, and no gains or losses on the forward foreign

ing financial difficulties.

exchange contract are recognized.

Investment securities — Securities are classified into two catego-Also, if interest rate swap contracts are used as hedges andries based on the intent of holding: available-for-sale securities;

meet certain hedging criteria, the net amount to be paid or

and securities issued by unconsolidated subsidiaries and affiliatedreceived under the interest rate swap contract is added to orcompanies.

deducted from the interest on the assets or liabilities for which the

Available-for-sale securities with available fair values (market-

swap contract was executed.

able securities) are stated at the fair value. Unrealized gains and

The Company evaluates hedge effectiveness monthly by com-losses on these securities are reported, net of applicable income

paring the cumulative changes in cash flows from or the changes

taxes, presented as a separate component of net assets. Otherin fair value of hedged items and the corresponding changes inavailable-for-sale securities with no available fair values (non-mar-the hedging derivative instruments.

ketable securities) are stated at moving-average method. Securities issued by unconsolidated subsidiaries and affiliated companies

Foreign currency translation — Receivables and payables

are carried at cost. The cost of securities sold is determined by thedenominated in foreign currencies are translated into Japanesemoving-average method.

yen at the fiscal year-end rates.

Derivatives and hedge accounting — Derivative instruments

lated into Japanese yen at the fiscal year-end rates except forare stated at fair value. Changes in the fair values are recognizedaccount components of net assets, which are translated at his-

as gains and losses unless derivative transactions are used for

torical rates. Income statements of consolidated overseas sub-hedging purposes.

sidiaries are translated at average rates except for transactions

Balance sheets of consolidated overseas subsidiaries are trans-

If derivative transactions are used as hedges and meet certain
hedging criteria, the Company and its consolidated domestic sub-with the Company, which are translated at the rates used by theCompany.

sidiaries defer recognition of gains or losses resulting from changes
in fair value of derivative transactions until the related losses orInventories —gains on the hedged items are recognized.

(1) Merchandise, finished products, semi-finished products, work

However, in cases where forward foreign exchange contracts

in process and raw materials –Merchandise, finished products,

are used as hedges and meet certain hedging criteria, forwardsemi-finished products, work in process and raw materials

foreign exchange contracts and hedged items are accounted forprior to April 1, 2008, are stated at cost determined by thein the following manner:

first-in first-out (FIFO) method. Effective April 1, 2008, theCompany and its consolidated domestic subsidiaries adopted a(1) If a forward foreign exchange contract is executed to hedge

new accounting standard for the measurement of inventories,

an existing foreign currency receivable or payable,

which are stated at the lower of cost or net selling value of(a) the difference, if any, between the Japanese yen amountinventories regarded as the decreased profitability of assets,of the hedged foreign currency receivable or payable trans-

whose write-downs are included in cost of sales.

lated using the spot rate at the inception date of the

SUMITOMO METAL MINING CO., LTD. Annual Report 201069

(2) Supplies — Prior to April 1, 2008, supplies are stated at costand its disposition after use. This standard covers land, factories,

based on the moving-average method. Effective April 1, 2008,

buildings, and other forms of property, plant and equipment as

the Company and its consolidated domestic subsidiaries

well as intangible assets. Fixed assets are to be grouped at the

adopted a new accounting standard for the measurement oflowest levels for which there are identifiable cash flows which areinventories, which are stated at the lower of cost or net selling

independent from the cash flows of other groups of assets.

value of inventories regarded as the decreased profitability ofassets, whose write-downs are included in cost of sales.

(Change in accounting policy)
In accordance with the revised Japanese Corporate Tax Law and(Change in the accounting policy for the measurement of

its regulation, the Company and its domestic subsidiaries haveinventories)changed the depreciation method from the fiscal year ended

Previously, inventories held for sale in the ordinary course of busi-

March 31, 2008 for tangible fixed assets acquired on or after April

ness have been stated at cost primarily determined by the first-in,

1, 2007.

first-out (FIFO) method. Effective from the fiscal year ended March

The effect of adopting the new depreciation method on

31, 2009, the Company and its consolidated domestic subsidiaries

income before income taxes and minority interests is not

adopted the “Accounting Standard for Measurement of Invento-material.

ries” (ASBJ Statement No. 9 released on July 5, 2006) and statedinventory values at the lower of cost, which is primarily deter-(Additional Information)mined by the FIFO method or net selling value, which is defined as

In accordance with the revised Japanese Corporate Tax Law andselling price less additional estimated manufacturing costs andits regulation, the Company and its domestic subsidiaries haveestimated direct selling expenses. The replacement cost may be

adopted a new depreciation method for tangible fixed assets

used in place of net selling value, if appropriate. As a result of thisacquired on or before March 31, 2007 from the fiscal year ended

change, operating income decreases by ¥7,477 million for the fis-

March 31, 2008. Under the new method, the residual book value

cal year ended March 31, 2009.

of those assets which had been fully depreciated to the allowable

The effect on segment information are described in the relevant notes.

limit prescribed under the previous corporate tax code is depreciated in equal amounts over a five-year period.
As a result, depreciation increased by ¥1,024 million andProperty, plant and equipment — Property, plant and equip-

operating income and income before income taxes and minority

ment are stated at cost.

interests decreased by ¥942 million, respectively, for the fiscal year

Depreciation of property, plant and equipment is computed by

ended March 31, 2008.

the straight-line method, based on the estimated useful lives ofrespective assets. The depreciation period generally ranges from 3

The effects on segment information are described in the relevant notes.

years to 50 years for buildings and structures and 5 years to 17
years for machinery and equipment.

(Additional Information)

The Company and consolidated domestic subsidiaries have

In accordance with the revised Japanese Corporate Tax Law andadopted an accounting standard for the impairment of fixed

its regulation, the Company and its domestic subsidiaries haveassets. This standard requires that tangible and intangible fixed

adopted a new useful life for tangible fixed assets from the fiscal

assets be carried at cost less depreciation, and be reviewed foryear ended March 31, 2009.

impairment whenever events or changes in circumstance indicatethat the carrying amount of an asset may not be recoverable.
In addition, the Company and consolidated domestic subsid-

The effect of adopting this new useful life on both operating
income and income before income taxes and minority interests
was ¥2,959 million for the fiscal year ended March 31, 2009.

iaries are required to recognize an impairment loss in their consolidated statements of income if certain indicators of asset

Accrued retirement benefits — Under the terms of the Com-

impairment exist and if the book value of an asset exceeds thepany’s retirement plan, substantially all employees are entitled to aundiscounted sum of its future cash flows. This standard states

lump-sum payment at the time of retirement. The amount ofthat impairment losses should be measured as the excess of theretirement benefits is, in general, determined by reference to theirbook value over the higher of (i) the fair market value of the asset,

current basic rate of pay, the length of service and the cause

net of disposition costs; and (ii) the present value of future cash

thereof.

flows arising from the ongoing utilization of the asset

70

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

The Company and certain consolidated domestic subsidiaries
also have a non-contributory funded pension plan, which covers

Research and development — Research and development costs
are charged to income as incurred.

substantially all employees.
The Company may make payments for additional retirement
benefits for employees which payments have not been included in

Bond issue expense — Bond issue expense is charged to income
as incurred.

the actuarial calculation of the projected benefit obligation.
The Company and its consolidated domestic subsidiaries pro-Accounting for certain lease transactions — Finance leases,

vided accrued retirement benefits based on the estimated amounts

except for certain immaterial leases, are capitalized and depreci-of projected benefit obligation and the fair value of the plan

ated over their estimated useful lives or lease term, as applicable.

assets at those dates.

Finance leases commencing prior to April 1, 2008, which do not

Actuarial gains and losses are recognized in expenses using
the straight-line method over the average of the estimatedtransfer ownership of the leased property to lessees are accounted
for in the same manner as operating leases.

remaining service lives of ten years commencing with the following period. Prior service costs are recognized in expenses using the(Change in accounting policy)

straight-line method over the average of the estimated remaining

The Company and its domestic subsidiaries adopted ASBJ State-service lives of ten years.

ment No.13 “Accounting Standard for Lease Transaction” andAccrued retirement benefits in the consolidated balance

ASBJ Guideline No.16 “Guidance on Accounting Standard forsheets also include estimated liabilities for the unfunded lump-

Lease Transaction,” originally issued by the Business Accounting

sum benefit plan covering directors and corporate auditors.

Deliberation Counsel on June 17, 1993 and by the Japanese Institute of Certified Public Accountants on January 18, 1994, respec-(Change in accounting policy)
Application of the Partial Amendments to Accounting Standard

tively, and both revised by the ASBJ on March 30, 2007.
In the consolidated fiscal year ended March 31, 2009, financefor Retirement Benefits (Part 3).

leases are recognized on the balance sheet. Depreciation or amor-

Effective from the fiscal year ended March 2010, the Company

tization expense is recognized on a straight-line basis over theand consolidated domestic subsidiaries has adopted Partial

lease period.

Amendments to Accounting Standard for Retirement Benefits(Part 3) (ASBJ Statement No. 19 issued on July 31, 2008).

There was no effect on income before income taxes andminority interests as a result of adopting the new standard.

There was no effect on income before income taxes andminority interests as a result of adopting the new standard.

Income taxes — Deferred tax assets and liabilities are determinedbased on the differences between financial reporting and the tax

Accrued restructuring charges — Accrued restructuring charges

bases of assets and liabilities, and measured using the statutory

are provided by the Company and its consolidated subsidiaries totax rates which will be in effect when the differences are expected

cover the costs of business reconstruction.

to be realized.

Accrued bonuses to directors and corporate auditors — Pro-

Sales — Sales of merchandise and finished products are recog-

visions for directors’ bonuses are provided for by the Company

nized when the products are shipped to customers.

and its consolidated domestic subsidiaries and to be accounted
for as an expense in the accounting period in which such bonuses

Accounting standard for recognizing revenues and costs of con-were incurred.

struction contracts(Change in accounting policy)

Accrued environmental measures — The provision for environ-Previously, revenues and costs of construction work had been rec-mental measures is estimated and recorded to provide for future

ognized under the percentage-of-completion method for contract

potential costs, such as costs related to the disposal of polychlori-amounts of ¥5,000 million or more with construction periods ofnated biphenyl (PCB).

more than two years. For other construction work, the completedcontract method was applied. Effective from the fiscal year ended

Accrued indemnification loss on damages caused by a con-March 31, 2010, the Company and its consolidated domestic

solidated subsidiary — Accrued indemnification loss on dam-

subsidiaries have applied the “Accounting Standard for Construc-ages caused by a consolidated subsidiary is provided to cover thetion Contracts” (ASBJ Statement No. 15, released on December

indemnification loss of the accident incurred by the subsidiary.

27, 2007) and the “Guidance on Accounting Standard for
SUMITOMO METAL MINING CO., LTD. Annual Report 201071

Construction Contracts” (ASBJ Guidance No. 18, released on

specific procurement methods and financial instruments.

December 27, 2007). Accordingly, with respect to construction

Accordingly, steps are taken to ensure a balanced funding

contracts under which construction work commenced during theportfolio from both the short and long term as well as

fiscal year ended March 31, 2010, when the outcome of individual

direct and indirect financing perspectives. Temporary sur-contract can be estimated reliably, the percentage-of-completion

plus funds are utilized only for highly safe financial assets

method (the percentage of completion at the end of the fiscal

for which there is a low probability of a loss of principal.

year is measured based on the percentage of the cost incurred to

Derivative transactions are only used to avoid the risks

the estimated total cost) has been applied for that portion in

attributable to fluctuations in the prices of non-ferrous met-

progress through to the end of the fiscal year ended March 31,

als as well as foreign currency exchange and interest rates.

2010. For other construction work, the completed-contract

The Group does not engage in derivative translations formethod has been applied. As a result of this change, net sales

speculative purposes.

increased by ¥678 million ($7,286 thousand) operating income
and income before income taxes and minority interests increased(2) Details of and risks associated with financial instrumentsby ¥154 million ($1,655 thousand), respectively, for the fiscal year

Notes and accounts receivable, which are trade receivables,

ended March 31, 2010.

are exposed to the credit risk of customers. In addition, foreign currency-denominated trade receivables, which are

Amount per share of common stock — Basic net income per

generated by global business operations, are also exposed

share is computed based on the weighted-average number ofto fluctuations in foreign currency exchange rates. Turning

shares of common stock issued during each fiscal year.

to the metals business, trade receivables are also exposed to

Diluted net income per share assumes that outstanding con-the risk of movements in the prices of non-ferrous metals.

vertible bonds were converted into common stock at the begin-

Investment securities, which largely represent shares ofning of the period at the current conversion price.

companies with whom the Group trades or has formed an

Cash dividends per share represent the actual amount appli-

equity alliance, are exposed to the risk of changes in theircable to the respective fiscal year.

market prices.

Reclassifications — Certain reclassifications have been made intions, generally have maturity dates of one year or less. In

the 2009 and 2008 financial statements to conform to the pre-similar fashion to trade receivables, trade obligations in thesentation of 2010.

metals business are subject to the risk of movements in theNotes and accounts payable, which are trade obliga-

prices of non-ferrous metals. A certain portion of tradeobligations are related to the import of raw and other3. Notes to financial instruments

materials and as such are denominated in foreign currencies. On this basis, they too are open to the risk of fluctua-

The fiscal year under review ended March 31, 2010

tions in the foreign currency exchange rates. Within loans(April 1, 2009 to March 31, 2010)

and bonds payable, bank loans payable primarily represent
funding applicable to operating transactions while long-

1. Status of financial instruments(1) Policies on the handling of financial instruments

72

term debt (with a maximum maturity up to March 21, 2024)
and bonds mainly concern funding relating to capital

The Sumitomo Metal Mining Group procures the funds

expenditures. A certain portion of loans and bonds payablenecessary for its capital expenditure, investment and loan

is provided on a floating rate of interest basis. Accordingly,

plans mainly through bank loans and the issuance of bonds.

this portion is exposed to the risk of fluctuation in interest

Short-term operating funds are funded through bank loans

rates.

as required. In the event of a need for new funds, theDerivative transactions employed in an effort to offset

Group, in principle, looks to the issuance of short-term

the aforementioned risks include forward foreign currency

bonds (commercial paper). This is supplemented by bankexchange rate contracts; forward and option transactionloans and the use of liquidation schemes applicable to notes

agreement; and interest rate swap transaction agreements,

and accounts receivable. The Group takes great care towhich seek to provide hedges for the risks of fluctuations inmonitor the status of its funding needs and financial posi-

the foreign currency exchange rates of trade receivables

tion. This is to ensure that the Group does not overly rely on

and trade obligations; the prices of non-ferrous metals

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

applicable to non-ferrous metal trade receivables and trade

With respect to investment securities, the Group regu-

obligations; and interest rates applicable to loans and bonds

larly monitors fair values as well as the financial status of

payable, respectively. For hedge instruments and hedge tar-issuers (counterparties), and reviews it holdings on a con-gets, hedging policy, the method of assessing the effective-

tinuous basis taking into consideration its relationships withness of hedges and other details in connection with hedge

counterparties.

accounting, refer to the “Derivative and hedge accounting”

As for derivative transactions, in accordance with deriv-

described in the note 2 Summary of significant accounting

ative transaction management rules and regulations thatpolicies.

outline the purpose and objectives of derivative transactions
while providing authority and setting limits and scope, indi-(3) Risk management systems relating to financial instruments

vidual departments and divisions are responsible for formu-(i) Management of credit risk (risk relating to non-perfor-

lating operating rules with respect to the implementation ofmance of a contract obligation by a counterparty, etc.)

derivative transactions, executing and booking transactions

With respect to trade receivables, each operating depart-and reconciling balances with counterparties on a regularment and division within the Sumitomo Metal Mining

basis. Consolidated subsidiaries also adhere to the Compa-

Group is guided by its own set of management rules andny’s derivative transaction management rules and regula-

regulations. Sales and marketing departments and divisions

tions while working to build the aforementioned

regularly monitor the status of customers, managing due

management structure under which derivative transactions

dates and balances on an individual customer basis. In thisare managed.

manner, every effort is made to ensure early detection andthe mitigation of concerns regarding collection due to dete-(iii) Management of liquidity risks associated with the pro-rioration in financial standing or other factors.

curement of funds (the risk of being unable to make pay-

With respect to the use of derivative transactions, steps

ments on due dates)

are taken to engage in transactions with highly rated finan-

The Sumitomo Metal Mining Group manages liquidity riskcial institutions only. These steps are taken with the aim ofby preparing and updating a cash management plan six

mitigating counterparty risk.

months in advance based on reports from each department

The maximum amount of the credit risk as of March 31,

and division. Certain domestic consolidated subsidiaries

2010 is shown in the value of financial assets on the bal-

have adopted a cash management system and are effi-

ance sheet which are subject to credit risk.

ciently maintaining appropriate levels of liquidity and cashon hand.

(ii) Management of market risks (risks associated with fluctuations in the price of non-ferrous metals, foreign currency(4) Supplementary explanation for Fair values, etc. of financial

exchange as well as interest rates, etc.)

instruments

The Sumitomo Metal Mining Group (“the Group”) employs

Fair values of financial instruments are determined by mar-commodity forward transaction and commodity option

ket prices. If no market price is available, the fair value istransaction agreements, which seek to provide hedges forbased on the value that is calculated in a reasonable man-the risks of fluctuations in the prices of imported raw mate-ner. The determination of such values contains variable fac-rials with respect to non-ferrous metals as well as the sales

tors and as such the adoption of wide ranging and differing

prices of commodity metals and copper concentrate on

assumptions may cause values to change. In addition, withinternational commodities markets. At the same time, therespect to contract and other amounts applicable to deriva-

Group utilizes forward foreign currency exchange rate con-tive transactions outlined as follows in “2. Fair values, etc.

tracts in an effort to offset the risks of movements in foreignof financial instruments” such amounts themselves do notcurrency exchange rates in connection with trade receiv-

indicate the size of market risks associated with derivative

ables and obligations denominated in foreign currencies,

transactions.

and interest rate swap transaction agreements aimed atconverting floating rates of interest applicable to loans andbonds payable to fixed rates of interest.

SUMITOMO METAL MINING CO., LTD. Annual Report 201073

(Note 1)

2. Fair values, etc. of financial instruments
Amounts on the consolidated balance sheet, fair values andFair values of financial instruments, and matters pertaining to

the differences between the two as of March 31, 2010 are

securities and derivative transactions

shown as follows. Certain financial instruments were excluded
from the following table as the fair values were not available(Refer to the note 2 below).

Time Deposit
Notes and accounts receivable(trade & Unconsolidated)
Investment securities(Unconsolidated & others)
Total Assets

1. Cash and cash equivalents
The book values approximate to the fair values due to their

Millions of yen

Cash and cash equivalents

Assetshigh liquidity.

Book values ofConsolidated
Balance Sheets

Fair Values

Difference¥ 100,452¥ 100,452

¥ —

34

34

—

101,003

101,003—

260,136

260,136—

their high liquidity.

—

4. Investment securities

2. Notes and accounts receivable
The book values approximate to the fair values due to shortterm maturities of these instruments.
3. Marketable securities
Marketable securities are limited to negotiable certification ofdeposit. The book values approximate to the fair values due to¥ 461,625¥ 461,625

The fair values of investment securities are based on the market
Notes and accounts payable(trade & Unconsolidated)¥ 44,863¥ 44,863¥ —Bank loans

68,62868,628—Long-term debt due after one year

132,311

132,504

193

Total Liabilities

245,802245,995

193

Derivative transactions¥ (2,040)* ¥ (2,087)*

prices of securities exchanges on which shares are listed.
For details regarding marketable securities on an individual
holding purpose basis refer to the note 4. Securities.
Liabilities
1. Notes and accounts payable, 2. Bank loans¥ (47)

term settlement of these instruments.

Thousands of U.S. dollars
Book values ofConsolidated
Balance Sheets

Cash and cash equivalents

Fair Values$1,079,549 $1,079,549

3. Bonds

Difference

$

—

365

365

—

1,085,470

1,085,470—

2,795,658

2,795,658—

Total Assets$4,961,042 $4,961,042—

Notes and accounts payable(trade & Unconsolidated)$ 482,139 $ 482,139

Time Deposit
Notes and accounts receivable(trade & Unconsolidated)
Investment securities(Unconsolidated & others)$—

737,539

737,539—

Long-term debt due after one year

1,421,934

1,424,009

2,075

Total Liabilities

2,641,612

2,643,687

2,075

Derivative transactions$ (21,924)* $ (22,429)* $ (505)Bank loans*: Net receivables and obligations arising from derivative transactions
are shown as a net amount and items for which aggregated results
lead to net obligations are shown in asterisk.

74

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

The book values approximate to the fair values due to short-

The fair values are based on market prices.
4. Long-term debt
The discounted cash flow method was used to estimate the fairvalues, based on marginal borrowing rates as discount rate.
Derivative transactions
Refer to the note 5. Derivative transactions.

(Note 2)
The financial instruments excluded from the above table were as follows:
Millions of yen

Thousands of U.S. dollars

Book values ofConsolidated Balance Sheets

Book values ofConsolidated Balance Sheets¥8,815$94,734

Non-listed equity securities

These instruments were not included in “Investment securities” (refer to above table) as the fair values were not available.
(Note 3)
The aggregate maturities subsequent to March 31, 2010 for financial assets were as follows:
Millions of yen

Thousands of U.S. dollars

Due within
one year

Due after
one year andwithin 5 year

Due after
5 year andwithin 10 year

Due over10 yearDue within
one year

Due after
one year andwithin 5 year

Due after
5 year andwithin 10 year

Due over10 yearCash and cash equivalents¥100,486

¥—

¥—

¥—

$1,079,914

$—

$—

$—

Notes and accounts
receivable

101,003———

1,085,470

—

—

—

Total

¥201,489

¥—

¥—

¥—

$2,165,384

$—

$—

$—

(Note 4)
The amount scheduled to be repaid after the consolidated account settlement date of bonds, long-term debt, lease obligations and otherinterest-bearing liabilities
Refer to the note 8 Bank loans and long-term debt.
(Additional information)
Effective from the fiscal year ended March 31, 2010, the “Accounting Standard for Financial Instruments” (ASBJ Statement No. 10 revisedon March 10, 2008) and the “Guidance on Disclosures about Fair Value of Financial Instruments” (ASBJ Guidance No. 19 revised on
March 10, 2008) have been adopted.

4. Securities(1) The following tables summarize acquisition costs and book values (available fair values) as of March 31, 2010 and 2009:
Available-for-sale securities
Securities with book values (available fair values) exceeding acquisition costs
Millions of yen

2010
Equity securities

2009

Acquisition cost

Book value

Difference

Acquisition cost

Book value

Difference¥24,334¥49,097¥24,763¥20,598¥28,448¥7,850Thousands of U.S. dollars

2010
Equity securities

Acquisition cost

Book value

Difference$261,515$527,641$266,126

SUMITOMO METAL MINING CO., LTD. Annual Report 201075

Securities with book values (available fair values) not exceeding acquisition costs
Millions of yen

2010

2009

Acquisition cost

Book value

Difference

Acquisition cost

Book value

Difference¥23,599¥18,961¥(4,638)¥26,047¥17,102¥(8,945)

Equity securities

Thousands of U.S. dollars

2010
Acquisition cost

Book value

Difference$253,616$203,772$(49,844)

Equity securities(2) The following tables summarize book values of the securities with no available fair values as of March 31, 2010 and 2009:
Available-for-sale securities
Millions of yen

Unlisted equity securities

Thousands of U.S. dollars

2010

2009

2010

¥8,815¥3,822$94,734(3) As of March 31, 2010 and 2009, there were no available-for-sale securities with maturities.
(4) Total sales of available-for-sale securities sold during the fiscal
year ended March 31, 2010 amounted to ¥27 million (US$290

hedging against fluctuations in the interest rates of floating-ratebonds and term loans payable.

thousand) and the related losses amounted to ¥2 million

Derivative transactions of the Company and its consolidated(US$21 thousand). No gains on sales of available-for-sale

subsidiaries are subject to market and credit risks. Market risk issecurities were recognized for the period.

the potential loss the Company and its consolidated subsidiaries

Total sales of available-for-sale securities sold during the

may incur as a result of changes in market values. The Company’s

fiscal year ended March 31, 2009 amounted to ¥42 million.

and its consolidated subsidiaries’ exposure to market risk are

No gains and losses on sales of available-for-sale securities

determined by a number of factors, including fluctuations in mar-were recognized for the period.

ket prices, exchange rates and interest rates. Credit risk is the

Total sales of available-for-sale securities sold during thepotential loss the Company and its consolidated subsidiaries could

fiscal year ended March 31, 2008 amounted to ¥106 million

incur if counterparties default on their obligations. Derivative

and the related gains and losses amounted to ¥83 million andtransactions are entered into solely with highly rated financial¥2 million, respectively.

institutions, their subsidiaries or London Metal Exchange (LME)
brokers guaranteed by banks, so that the Company and its consolidated subsidiaries might reduce the risk of default on an

5. Derivative transactions

76

obligation.
Each department of the Company and its consolidated subsid-

Status of derivative transactions — The Company and its con-iaries involving derivative transactions have their own rules forsolidated subsidiaries utilize derivative transactions in order toderivative transactions which stipulate the purposes and scope ofhedge various risks, such as fluctuations in the price of metals,

using derivatives, standards for choosing transaction counterpar-

exchange rates and interest rates, in the normal course of busi-ties and procedures with respect to reporting and administration.

ness. Derivative instruments include futures contracts for hedging

Derivative transactions are subject to approval by the General

against fluctuations in the international price of metals, forward

Manager of the department in charge after consulting with related

foreign exchange contracts and currency swaps for hedging

departments. Based on these rules, the person in charge sets up aagainst fluctuations in exchange rates and interest swaps for

position. Then, the results are reported to directors monthly.

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

Derivative positions are confirmed semi-annually with thematerials and products is hedged by corresponding future con-transaction counterparties. Also, the internal audit department oftracts. The Company and its consolidated subsidiaries also utilize

the Company regularly examines derivative transactions.

currency derivative transactions to hedge against the market risk

The Company and its consolidated subsidiaries are notof exchange rate or interest rate fluctuation. Taking receivables

exposed to market risks arising from commodity derivative trans-

and payables denominated in foreign currencies into account, theactions, because the risk of a fluctuation in market prices that is

Company and its consolidated subsidiaries are not exposed tocaused by the time lag between the purchase and sale ofmarket risk.

The following tables summarize the market value information as of March 31, 2010 and 2009 of derivative transactions for which hedge
accounting has not been applied:
Millions of yen

2010

2009

Contracted amountContracted amount

Total

Over oneyear

Marketvalue

Recognized
gains (losses)

Total

Over oneyear

Marketvalue

Recognized
gains (losses)¥10,517—¥10,517

¥—
—
¥—

¥ 276
—
¥ 276

¥ 276
—
¥ 276

¥ 5,082—¥ 5,082¥——¥—¥ 5,106
—
¥
—

¥ 24
—
¥ 24

¥

¥—
—
¥—

¥ 149
—
¥ 149

¥ 149
—
¥ 149

¥

¥—
—
¥—

¥

¥ —
126
¥126

Currency:
Forward contracts:
Buy position—U.S. dollars
Buy position—A.U. dollars

Commodity:
Forward contracts:
Sell position—Metal
Buy position—Metal

¥

717
176
893

81
458
¥ 539

81
584
¥
—

Thousands of U.S. dollars

2010
Contracted amount
Total

Over oneyear

Marketvalue

Recognized
gains (losses)$ 113,025—$ 113,025$——$—$ 2,966—$ 2,966$ 2,966—$ 2,966

$

$—
—
$—

$ 1,601—$ 1,601$ 1,601—$ 1,601

Currency:
Forward contracts:
Buy position—U.S. dollars
Buy position—A.U. dollars

Commodity:
Forward contracts:
Sell position—Metal
Buy position—Metal

$

7,706
1,891
9,597

SUMITOMO METAL MINING CO., LTD. Annual Report 201077

Derivative transactions for which hedge accounting has been applied for the fiscal year ended March 31, 2010 consisted of thefollowing:
Millions of yen
Contracted
amountand otherType of transaction

Type of derivative transaction

Currency:

Forward contracts:
Buy position

Accounts receivable
326
¥

Total

Commodity:Interest rate swap contracts:

Fair Value

Major hedged items

U.S. dollars
Interest:

Contracted
amountover one year

326

—
¥

—

11
¥

11

Long-term loans

Paid fixed • received floating

100,000

100,000(1,592)

Total¥ 100,000¥ 100,000¥ (1,592)¥¥—¥ (513)

205

1,896

Forward contracts:
Sell position
Metal

Accounts receivable

8,539

Buy position
Metal

14,156

Account payable

Option contracts**:
Sell position
Call
Metal
Interest*:

161,081

161,081(2,267)¥ 183,776¥ 161,286¥ (884)

3,300

3,300

(47)

Accounts receivable

Total
Interest rate swap contracts:
Paid fixed • received floating
Total

Long-term loans
¥

3,300

¥

3,300

¥

(47)

* The following interest rate swap contracts are used as hedges and meet certain hedging criteria. The net amount to be paid or received under theseinterest rate swap contracts is added to or deducted from the interests on the assets or liabilities for which these interest rate swap contracts were executed. Main items hedged are long term loans.
** All commodity option contracts are based on zero cost option contracts. There is no transfer of option fees.

78

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

Thousands of U.S. dollars
Contracted
amountand other

Contracted
amountover one year

3,503

—

3,503

—

Paid fixed • received floating

1,074,691

1,074,691(17,109)

Total$1,074,691$1,074,691$ (17,109)

$

$

—

$ (5,513)

2,203

20,376

Type of transaction

Type of derivative transaction

Currency:

Forward contracts:
Buy position

Major hedged items
Accounts receivable

U.S. dollars$

TotalInterest:

Commodity:Interest rate swap contracts:

Fair Value

118
$

118

Long-term loans

Forward contracts:
Sell position
Metal

Accounts receivable

91,768

Buy position
Metal

152,133

Account payable

Option contracts**:
Sell position
Call
Metal
Interest*:

1,731,123

1,731,123(24,363)$1,975,024$1,733,326$ (9,500)

35,46535,465(505)

Accounts receivable

Total
Interest rate swap contracts:
Paid fixed • received floating

Long-term loans
$

Total

35,465$35,465$(505)* The following interest rate swap contracts are used as hedges and meet certain hedging criteria. The net amount to be paid or received under theseinterest rate swap contracts is added to or deducted from the interests on the assets or liabilities for which these interest rate swap contracts were executed. Main items hedged are long term loans.
** All commodity option contracts are based on zero cost option contracts. There is no transfer of option fees.

6. Inventories
Inventories as of March 31, 2010 and 2009 consists of the following:
Millions of yen

Thousands of U.S. dollars

2010
Merchandise

¥

2010

2009

815

¥

1,472

$

8,759

Finished products

35,236

26,977

378,678

Semi-finished products and work in process

76,35750,303820,602

Raw materials and supplies

37,16727,496399,430¥149,575¥106,248$1,607,469

SUMITOMO METAL MINING CO., LTD. Annual Report 201079

7. Loss on impairment of fixed assets
Loss on impairment of fixed assets for the fiscal year ended March 31, 2010 consists of the following:
2010

Millions of yen
Location

Major use

Asset category

Niihama City, Ehime Prefecture, Japan

Manufacturing facilities for the recovery and recycling Building and structures, machinery andof non-ferrous metals
equipment, and other assets

Niihama City, Ehime Prefecture, Japan

Facilities for milling

Saijo City, Ehime Prefecture, Japan

Manufacturing facilities for chemical products

Usa City, Oita Prefecture, Japan

Facilities for IC package platingThousands of
U.S. dollars

Loss¥1,918$20,613

Machinery and equipment

75

806

Machinery and equipment

25

269

Building and structures and machinery andequipment

24

258

Kamiina District, Nagano Prefecture, Japan Manufacturing facilities for printed circuit boards

Building and structures

21

226

Matsudo City, Chiba Prefecture, Japan

Facilities for soil contamination survey and asbestos
analysis

Building and structures and machinery andequipment

13

140

Kaohsiung, Taiwan

Manufacturing facilities for certain chip on film (COF)

Machinery and equipment

Total

11

118

¥2,087$22,430

The Company categorized operating assets by such business units(5) The book value of manufacturing facilities for printed circuitas plants and manufacturing processes based on the division ofboards were reduced to their recoverable amounts because ofmanagerial accounting.

expectations that these facilities would cease to operate

A breakdown of major use is as follows.
(1) The book values of manufacturing facilities for the recovery

following withdrawal from the chip scale package (CSP)
business.

and recycling of non-ferrous metals were reduced to their(6) The book value of facilities for soil contamination survey andrecoverable amounts because of the Company’s decision toasbestos analysis were reduced to their recoverable amounts

withdraw from these operations. This decision was based on

because of expectations that these facilities would cease to

the forecast of the shrikage in the domestic petroleum market

operate following the decision to withdraw from these opera-

leading to a decrease in the waste and raw material catalysts

tions. This decision was based on the sharp increase in com-

produced by the petroleum refining process; as well as thepetition in line with the growing number of survey institutions

existing levels of excess processing capacity in Japan.

and generalization of know-how.

(2) The book values of existing facilities for milling were reduced(7) The book value of manufacturing facilities for certain chip on

to their recoverable amounts because of expectations thatfilm (COF) were reduced to their recoverable amounts because

these facilities would cease to operate following the installa-of expectations that these facilities would cease to operatetion of new facilities.

due to their aging.

(3) The book value of manufacturing facilities for chemical products were reduced to their recoverable amounts because of

The net sales prices (fair value less cost to sell) of assets are used

expectations that these facilities would cease to operate fol-as their recoverable amounts for the measurement of impairment

lowing the termination of production of certain products dur-

losses.

ing the fiscal year ended March 31, 2010.
(4) The book value of facilities for IC package plating werereduced to their recoverable amounts because of the Company’s decision to withdraw from these operations. This decision
was based on the ongoing shift of production by domestic
semiconductor assembly manufacturers to overseas locations
and the changeover to semiconductors packages that nolonger require solder plating.

80

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

Loss on impairment of fixed assets for the fiscal year ended March 31, 2009 consisted of the following:
2009

Millions of yen
Location

Major use

Asset category

Loss

Kamiina District, Nagano Prefecture, Japan

Manufacturing facilities for printed circuit boards

Machinery and equipment and other assets¥1,183

Usa City, Oita Prefecture, Japan

Facilities for IC package plating

Land, building and structures, machinery andequipment, and other assets

640

Niihama City, Ehime Prefecture, Japan

Manufacturing facilities for copper-clad polyimide film

Building and structures and machinery and equipment

550

Isa City, Kagoshima Prefecture, Japan

Manufacturing facilities for lead frames

Machinery and equipment

476

Niihama City, Ehime Prefecture, Japan

Manufacturing facilities for battery materials

Machinery and equipment and other assets

275

Iwanai District, Hokkaido, Japan

Manufacturing facilities for single-crystal materials

Building and structures and machinery and equipment

247

Yokohama City, Kanagawa Prefecture, Japan

Manufacturing facilities for electronic terminals andconnectors

Machinery and equipment

Miscellaneous

Miscellaneous

Machinery and equipment

141
2

Total

¥3,514
based on the sales volume for domestic customers because

The Company categorized operating assets by such business units

the Company has decided to focus on the domestic market.

as plants and manufacturing processes based on the division of(5) The book value of manufacturing facilities for battery materi-managerial accounting.

als in Ehime Prefecture was reduced to the recoverable amountA breakdown of major use is as follows.

because they were no longer expected to be in use.

(1) The book value of manufacturing facilities for printed circuitboards in Nagano Prefecture was reduced to the recoverable(6) The book value of manufacturing facilities for single-crystal
materials was reduced to the recoverable amount due to aamount because the products were not profitable.

decline in demand, the strong yen and an unfavorable mix of(2) The book value of facilities for IC package plating in Oita Pre-

products.

fecture was reduced to the recoverable amount due to a(7) The book value of manufacturing facilities for electronic ter-decline in sales volume.
(3) The book value of manufacturing facilities for copper-clad

minals and connectors in Kanagawa Prefecture was reduced

polyimide film in Ehime Prefecture scheduled for diversion toto the recoverable amount because the products were notanother use was reduced to the recoverable amount because

profitable due to a decline in the market price.

the Company has found an alternative method more effective
and efficient and because the Company has decided not to

The Company used the value in use or net selling prices for calcu-

divert them.

lating the recoverable amount. The discounted rate used for cal-(4) The book value of manufacturing facilities for lead frames inculating the value in use was 11%.

Kagoshima Prefecture was reduced to the recoverable amount
Loss on impairment of fixed assets for the year ended March 31, 2008 consisted of the following:
2008

Millions of yen
Location

Niihama City, Ehime Prefecture, Japan

Major use

Asset category

Manufacturing facilities for copper-clad polyimide film

Loss

Buildings and Structures¥218

Niihama City, Ehime Prefecture, Japan

Manufacturing facilities for copper-clad polyimide film

Machinery and equipment489

Ichihara City, Chiba Prefecture, Japan

Manufacturing facilities for decontamination for soil

Buildings and Structures

22

Ichihara City, Chiba Prefecture, Japan

Manufacturing facilities for decontamination for soil

Machinery and equipment

181

Okuchi City, Kagoshima Prefecture, Japan

Manufacturing facilities for packaging materials

Machinery and equipment

29

Nasu District, Tochigi Prefecture, Japan

Idle Land

Land

Total

2
¥941

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

81

The Company categorized operating assets by such business units(3) The book value of manufacturing facilities for packaging

as plants and manufacturing processes based on the division ofmaterials in Kagoshima Prefecture was reduced to the recov-

managerial accounting.

erable amount because its products were not profitable andthe Company has decided not to continue its operation.

The breakdown of major use is as follows.
(1) The book value of existing manufacturing facilities for copperclad polyimide film in Ehime Prefecture was reduced to the

As for the idle land which was acquired for future factory sites,

recoverable amount because the facilities were completely

the book value of the assets was reduced to the recoverable

idle due to the installation of the latest manufacturing facili-amount due to a decline in the market price. Net sales prices ofties which were suitable for the current market size.

the assets are used as their recoverable amounts for the measure-(2) The book value of facilities for decontamination of soil inment of the impairment loss. Market price information was

Chiba Prefecture was reduced to the recoverable amount due

obtained on the basis of values provided by real estate appraisers

to withdrawal from its business.

and other specialists.

8. Bank loans and long-term debt
Bank loans are generally represented by short-term notes (most of

through a loan with stock acquisition rights. By executing thiswhich are unsecured) and bank overdrafts, and bore interest at

loan agreement, the Company procures ¥100 billion from Febru-

annual rates of 0.74% to 4.86% and 0.89% to 5.31% as ofary 15, 2008 to February 13, 2015. The exercise price of the stock

March 31, 2010 and 2009, respectively.

acquisition rights will be revised in accordance with market prices.

On January 31, 2008, the Company passed a resolution to

The stock acquisition rights have a structure that prevents dilution

issue stock acquisition rights by way of third-party allotment andof the share price to a price lower than ¥1,749 (US$19) as of

to execute a loan agreement for the purpose of procuring funds

March 31, 2010.

Long-term debt as of March 31, 2010 and 2009 consists of the following:
Millions of yen

Thousands of U.S. dollars

2010

2010

2009

Long-term loans from:
Banks, insurance companies and other financial institutions,maturing through 2015 at interest rates of 0.82% to 2.81%:
SecuredUnsecured¥—
110,114¥—116,107$—1,183,385

Government owned banks and government agencies, maturing
through 2025 at interest rates of 0.60% to 3.70%:
Secured

3,370

8,106

36,217

Unsecured

14,351

16,085

154,229

10,00010,000107,469—

10,235—

137,835

160,533

1,481,300(5,524)(18,817)(59,366)¥ 132,311¥ 141,716$1,421,934

1.42% domestic bonds due in 2012
Zero coupon convertible bonds due in 2010
Amount due within one year
The zero coupon convertible bonds were redeemed during the year ended March 31, 2010.

82

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

The aggregate annual maturities of long-term debt as of March 31, 2010 are as follows:
Years ending March 31,

Millions of yen

2011

¥

Thousands of U.S. dollars

5,524

$

59,366

2012

20,539220,731

2013

2,588

27,813

2014

2,463

26,4702015

102,299

1,099,398

4,422

47,522

Thereafter

Assets pledged as collateral for bank loans and long-term debt as of March 31, 2010 and 2009 are as follows:
Millions of yen¥

Investment securities
Property, plant and equipment, at net book value

Thousands of U.S. dollars

2010

2009

2010

—

¥ 5,034

53,97957,199$580,107—¥ 53,979¥ 62,233$ 580,107

9. Income taxes
Income taxes in the accompanying consolidated statements ofenterprise taxes. Consolidated overseas subsidiaries are subject toincome comprise corporation taxes, inhabitants’ taxes andincome taxes of the countries in which they are domiciled.

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 fiscal years ended March 31, 2010, 2009 and 2008:
2010

2009

2008

Statutory tax rate
Equity in earnings of unconsolidated subsidiaries and affiliated companies

40.7%
(9.8)

40.7%
(43.1)

40.7%
(9.1)

Effect of eliminating intercompany dividends received

17.4

46.4

12.1

Difference in tax rates among the Company and its consolidated subsidiaries

(6.7)

(6.6)

(4.3)

Permanently nondeductible expenses

0.2

4.2

0.4

Permanently nontaxable dividends received(11.4)(25.8)(5.6)

Tax credit(1.1)(14.1)(3.9)

Effect of Mining Tax

(2.9)

(4.2)

(1.8)

Effect of consolidated taxation

2.1

—

—

Increase (decrease) in valuation allowance

(0.6)

7.3

1.2

Undistributed earnings of foreign subsidiaries
Others
Effective tax rate

—
0.1
28.0%

(24.6)(1.0)(20.8)%

—
(1.2)
28.5%

SUMITOMO METAL MINING CO., LTD. Annual Report 201083

Significant components of the Company’s and its consolidated subsidiaries’ deferred tax assets and liabilities as of March 31, 2010 and2009 are as follows:
Millions of yen

Deferred tax assets:
Retirement benefits

2009

2010

¥ 5,504¥ 5,656$ 59,151

Net operating loss carry forwards

5,058

8,246

54,358Loss on impairment of fixed assets

1,732

2,253

18,614

Loss from valuation of gold loans

1,269

1,184

13,638

Allowance for bonus payable
Contribution gains on securities to employee retirement benefits trust

1,152
870

1,582
795

12,3809,350

Deferred losses on hedges

656

1,683

7,050

Unrealized profits

563

572

6,051

Loss from devaluation of inventories

398

988

4,277

Exploration expenses (overseas subsidiaries)

516

—

5,545

Loss from write-down of investment securities
Others

—
5,587

2,198
4,854

—
60,04323,30530,011

250,457(11,529)(11,384)(123,901)

11,776

18,627

126,556(4,343)(2,019)(46,674)

Deferred gains on properties for tax purpose(2,878)(3,093)(30,930)

Net unrealized holding gain on available-for-sale securities(2,348)—(25,234)

Accumulated earnings of overseas subsidiaries(2,014)(550)(21,644)

Reserve for explorations

Gross deferred tax assets
Less valuation allowance
Deferred tax assets-less valuation allowance
Deferred tax liabilities:
Depreciation

84

Thousands of U.S. dollars

2010(1,836)(1,856)(19,731)

Gain on securities contributed to employee retirement benefits trust

(594)

(594)

(6,384)Enterprise taxes to be refunded
Others

—
(947)

(768)
(358)

—
(10,177)

Deferred tax liabilities(14,960)(9,238)(160,774)

Net deferred tax assets (liabilities)¥ (3,184)¥ 9,389$ (34,218)

SUMITOMO METAL MINING CO., LTD. Annual Report 201010. Retirement benefits and pension costs
Accrued retirement benefits included in the liability section of the consolidated balance sheets as of March 31, 2010 and 2009 consist of
the following:
Millions of yen

Thousands of U.S. dollars

2010

2009

2010

Projected benefit obligation
Fair value of pension assets¥(53,111)
40,845¥(51,899)
33,435$(570,779)
438,958

Excess of projected benefit obligation over pension assets
Unrecognized actuarial differences
Unrecognized prior services costs¥(12,266)
6,910
(941)

¥(18,464)
13,442(1,173)$(131,821)
74,261(10,113)

Net retirement benefits
Prepaid pension costs
Accrued retirement benefits¥ (6,297)(1,555)¥ (7,852)¥ (6,195)(2,048)¥ (8,243)$ (67,673)(16,711)$ (84,384)

The Company contributed securities to the employee retirement

unfunded lump-sum benefit plan covering directors and corporate

benefit trust, which are included in pension assets.

auditors of ¥198 million (US$2,128 thousand) and ¥195 million,

Retirement benefits in the consolidated balance sheets as ofrespectively.

March 31, 2010 and 2009 also include estimated liabilities for the
Included in the consolidated statements of income for the years ended March 31, 2010, 2009 and 2008 are severance and retirement
benefit expenses comprised of the following:Thousands of
U.S. dollars

Millions of yen

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
Severance and retirement benefit expenses

2010

2009

2008

2010

¥1,984
923
(664)
1,573
(319)
¥3,497¥3,165
907
(824)
402
(296)
¥3,354¥2,323
856
(574)
(836)
(271)
¥1,498$21,322
9,919(7,136)
16,905(3,428)$37,582

The discount rates used by the Company are primarily 2.0% forusing the estimated number of total service years. Actuarial gains

the fiscal years ended March 31, 2010, 2009 and 2008.

and losses are recognized in the income statement using the

The rates of expected return on plan assets used by the Com-straight-line method over ten years commencing with the follow-

pany are primarily 3.5%, respectively for the years ended Marching period. Prior service costs are recognized in expenses using the31, 2010, 2009 and 2008.

straight-line method over the average of the estimated remaining

The estimated amount of all retirement benefits to be paid atservice lives of ten years.

the future retirement date is allocated equally to each service year

11. Research and development expense
Research and development expense included in selling, general and administrative expenses for the fiscal years ended March 31, 2010,2009 and 2008 are ¥4,746 million (US$51,005 thousand), ¥5,896 million and ¥6,111 million, respectively.

SUMITOMO METAL MINING CO., LTD. Annual Report 201085

12. Special reserves
For the purpose of obtaining tax benefits, the Company and some

Such reserves, which are included in retained earnings, areconsolidated subsidiaries have set up special reserves mainly for¥218,808 million (US$2,351,510 thousand) and ¥218,458 million

losses on overseas investments and explorations in accordance

as of March 31, 2010 and 2009, respectively.

with the Special Taxation Measures Law of Japan.

13. Net assets
Net assets comprise three subsections, which are shareholders’in retained earnings in the accompanying consolidated balance

equity, accumulated gain (losses) from valuation and translation

sheets.
Under the Code, legal earnings reserve and additional paid-in

adjustments, and minority interests.
Under Japanese laws and regulations, the entire amount paid
for new shares is required to be designated as common stock.

capital could be used to eliminate or reduce a deficit, or could
capitalize by a resolution of the shareholders’ meeting.

However, a company may, by resolution of the Board of Directors,

Additional paid-in capital and legal earnings reserve may notdesignate an amount not exceeding one-half of the price of thebe distributed as dividends. Under the Law, however, all additional

new shares as additional paid-in capital, which is included in capi-

paid-in-capital and all of the legal earning reserve may be trans-

tal surplus.

ferred to other capital surplus and retained earnings, respectively,

Under the Japanese Corporate Law (“the Law”), in cases

however which are potentially available for dividends.

where a dividend distribution of surplus is made, the smaller of an

The maximum amount that the Company can distribute as

amount equal to 10% of dividend or excess, if any, of 25% ofdividends is calculated based on the unconsolidated financial

common stock over the total of additional paid-in capital andstatements of the Company in accordance with Japanese laws

legal earnings reserve must be set aside as additional paid-in-

and regulations.

capital or legal earnings reserve. Legal earnings reserve is included

14. Commitments and contingent liabilities
Contingent liabilities as of March 31, 2010 are as follows:

Notes and accounts receivable sold to factoring companies with recourse

Millions of yen

Thousands of U.S. dollars¥ 512$ 5,502

1,900

20,41960

645¥2,472$26,566

As guarantor for loans of:Unconsolidated subsidiaries and affiliated companies
Other

Besides the above, as to providing electric power to Pogo gold mine, there are ¥1,301 million (US$13,982 thousand) to guarantee construction costs of electric facilities.

86

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

15. Segment information
Business segment information
The primary business segments of the Company and its consoli-

and advanced materials and others. Also refer to the section of

dated subsidiaries include mineral resources, metals, electronics“Review of Operations” for the details of each business.

Business segment information for the fiscal years ended March 31, 2010, 2009 and 2008 are as follows:
2010

Millions of yen
Mineralresources

MetalsElectronics &advanced materials

Others¥ 47,327¥486,362¥170,170¥21,968

27,09386,69014,151

7,636

74,420573,052

184,32129,604(135,570)

725,827

Eliminations
or corporate

Consolidated¥—¥725,827(135,570)—

Net sales:
Outside customers
Inter segment
Total

43,839538,561

181,446

Operating income (loss)¥ 30,581¥ 34,491¥

Identifiable assets¥168,655¥526,936¥119,288

7,225

14,722

—

100

2,110

18,427

Costs and expenses

Depreciation
Loss on impairment of fixed assets
Capital expenditures2009

29,733(134,017)

659,562(1,553)¥ 66,265¥74,715¥ 91,864¥981,458

9,785

2,665

349

34,746

56

1,931

—

2,087

4,206

1,092

579

26,414

Eliminations
or corporate

Consolidated¥¥793,797

2,875

¥

(129)

¥

Millions of yen
Mineralresources

MetalsElectronics &advanced materials

Others¥ 52,844¥534,587¥175,945¥ 30,421

20,77977,828

11,981

13,785(124,373)—

73,623

612,415

187,926

44,206(124,373)

793,797

55,967609,982

198,076

43,638(124,400)

783,263

Net sales:
Outside customers
Inter segment
Total
Costs and expenses
Operating income (loss)¥ 17,656¥

2,433¥ (10,150)¥

27¥ 10,534

Identifiable assets¥159,203¥416,338¥106,147¥ 63,615¥ 134,698¥880,001

6,432

13,475

11,064

2,608

689

34,268Depreciation
Loss on impairment of fixed assets
Capital expenditures

568

¥

—

—

—

3,512

2

—

3,514

7,890

24,77812,5342,213

308

47,723Mineralresources

MetalsElectronics &advanced materials

OthersEliminations
or corporate

Consolidated¥ 67,825¥797,914¥237,703¥28,930¥—¥1,132,372

23,535

112,660

17,299

11,778(165,272)—

91,360910,574

255,00240,708(165,272)

1,132,372

2008

Millions of yen

Net sales:
Outside customers
Inter segment
Total
Costs and expenses

53,233

801,732

246,787

37,046

Operating income (loss)¥ 38,127¥108,842¥

8,215¥ 3,662¥

Identifiable assets¥176,234¥521,362¥154,075

5,537

10,071

—

—

9,427

42,089Depreciation
Loss on impairment of fixed assets
Capital expenditures(161,820)

976,978(3,452)¥ 155,394¥62,133¥ 177,912¥1,091,716

11,709

2,132

1,056

30,505

736

205

—

941

11,862

1,779

(12)

65,145

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

87

2010

Thousands of U.S. dollars
Mineralresources

MetalsElectronics &advanced materials

Others$ 508,619$5,226,889$1,828,802$ 236,088

Eliminations
or corporate

Consolidated—$ 7,800,398

Net sales:
Outside customers
Inter segment
Total

$

291,166

931,649

152,080

82,063(1,456,958)—

799,785

6,158,538

1,980,882

318,151(1,456,958)

7,800,398

471,134

5,787,867

1,949,984

319,538

Operating income (loss)$ 328,651$ 370,671$

30,898$ (1,387)$(16,689)$

Identifiable assets$1,812,520$5,662,934$1,281,977$ 802,955$

987,254$10,547,640

77,646

158,216

105,159

28,641

3,751

373,413

—

1,075

602

20,752—

22,42922,676

198,033

45,202

11,736

6,222

283,869

Costs and expenses

Depreciation
Loss on impairment of fixed assets
Capital expenditures(1,440,269)

7,088,254
712,144(The effect of change in accounting policy on construction contracts)(The effect of change in accounting method for measurement of

Effective from the fiscal year ended March 31, 2010, the Company

inventories)

and its consolidated domestic subsidiaries have applied the

For product inventories, the Company principally used the first-in,“Accounting Standard for Construction Contracts” (ASBJ State-

first-out (FIFO) method. Beginning this consolidated fiscal year, thement No. 15, released on December 27, 2007) and the “GuidanceCompany adopted the “Accounting Standard for Measurement ofon Accounting Standard for Construction Contracts” (ASBJ Guid-

Inventories” (ASBJ Statement No. 9, announced on July 5, 2006)”

ance No. 18, released on December 27, 2007). As a result of adopt-and calculated inventory values using the first-in, first-out method

ing the new standard, net sales for the Mineral resources and(For figures shown on the balance sheet, values are written down

Others business segments increased by ¥539 million ($5,793 thou-

to their book values based on their decreased profitability). As asand) and ¥139 million ($1,494 thousand), respectively. Operating

result of the change of the accounting method, operating income

income for the Mineral resources and Others business segments

decreased by ¥3,203 million in Metals, ¥2,895 million in Electronics

increased by ¥131 million ($1,408 thousand) and ¥23 million ($247& advanced materials and ¥1,379 million in Others for the fiscal

thousand) in the Others, respectively for the fiscal year ended Marchyear ended March 31, 2009.

31, 2010.
(The effect of change in accounting policy on non-ownership trans(The effect of change in depreciation method)

fer finance lease agreement)

In accordance with the revised Japanese Corporate Tax Law, for

Non-ownership transfer finance lease agreements which weretangible fixed assets acquired on or before March 31, 2007, thebased on the accounting method for ordinary lease transactions are

Company and its consolidated domestic subsidiaries have started to

now based on the accounting method for sales transactions begin-depreciate the remaining balance of assets over a five year periodning this fiscal year as per “Accounting Standard for Lease Transac-

using the straight-line method from the following fiscal year after

tions” (ASBJ Statement No. 13 [Business Accounting Council

the book value of the assets decreases to 5% of the acquisition

Committee No. 1, June 17, 1993; revised March 30, 2007]) and thecosts under the method of depreciation based on the Tax Law“Guidance on Accounting Standard for Lease Transactions” (ASBJ

before revision. As a result of the change of depreciation method,

Guidance No. 16 [The Japanese Institute of Certified Public Accoun-depreciation increases by ¥42 million in Mineral resources, ¥669

tants (JICPA) Accounting Standard Committee, January 18, 1994;

million in Metals, ¥287 million in Electronics & advanced materials

revised March 30, 2007]). There is no impact from this change on

and ¥26 million in Others. And operating income decreases by ¥39

operating income for the fiscal year ended March 31, 2009.

million in Mineral resources, ¥591 million in Metal, ¥286 million inElectronics & advanced materials and ¥26 million in Others for the
fiscal year ended March 31, 2008.

88

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

(The effect of change in the depreciation period for property, plant(The effect of change in unification of accounting policies appliedand equipment)

to foreign subsidiaries for consolidated financial statements)

In accordance with the revised Japanese Corporate Tax Law, the

Accounting methods applicable to overseas subsidiaries and used

Company and its domestic consolidated subsidiaries changed thefor the consolidated financial statement. Beginning this fiscal

depreciation period for property, plant and equipment beginning

year, the Company adopted the “Practical Solution on Unifica-

this fiscal year. As a result of the change, operating incometion of Accounting Policies Applied to Foreign Subsidiaries for Con-decreased by ¥47 million in Mineral resources, ¥1,629 million insolidated Financial Statements” (PITF No. 18, May 17, 2006). As a

Metals, ¥916 million in Electronics & advanced materials and ¥367

result of the change, operating income decreased by ¥115 million

million in Others for the fiscal year ended March 31, 2009.

in Mineral resources and increased by ¥29 million in Electronics &advanced materials for the fiscal year ended March 31, 2009.

Geographic segment information
Geographic segment information for the fiscal years ended March 31, 2010, 2009 and 2008 are summarized as follows:
2010

Millions of yen
Domestic

North
AmericaSoutheast
Asia

Others¥ 613,778¥40,713¥40,378¥ 30,958

41,417

4,146

22,1695,089

655,195

44,85962,54736,047(72,821)725,827

Eliminations
or corporate

Consolidated¥—¥ 725,827(72,821)—Net sales:
Outside customers
Inter segment
Total
Costs and expenses

611,359

29,75956,183Operating income (loss)¥ 43,836¥15,100¥ 6,364¥

Identifiable assets¥ 652,336¥99,183¥79,146

2009

33,554(71,293)

659,5622,493¥ (1,528)¥ 66,265¥ 166,630¥ (15,837)¥ 981,458

Eliminations
or corporate

Consolidated¥

Millions of yen
Domestic

North
AmericaSoutheast
Asia

Others¥ 678,737¥47,293¥38,552¥ 29,215—¥ 793,797

40,764—

15,964

3,565(60,293)—

719,501

47,29354,51632,780(60,293)793,797

719,437

39,72652,98536,676(65,561)

783,263

Net sales:
Outside customers
Inter segment
Total
Costs and expenses
Operating income (loss)¥

64¥ 7,567¥ 1,531¥ (3,896)¥ 5,268¥ 10,534

Identifiable assets¥ 546,360¥77,261¥68,383¥ 152,967¥ 35,030¥ 880,001

Eliminations
or corporate

Consolidated¥¥1,132,372

2008

Millions of yen
Domestic

North
AmericaSoutheast
Asia

Others¥ 986,469¥57,649¥53,405¥ 34,849

Net sales:
Outside customers
Inter segment—

53,986

123

34,462

6,447(95,018)—

1,040,455

57,772

87,867

41,296(95,018)

1,132,372

929,789

35,687

66,90937,874(93,281)

976,978

Operating income (loss)¥ 110,666¥22,085¥20,958¥

3,422¥ (1,737)¥ 155,394

Identifiable assets¥ 647,305¥95,265¥81,667¥ 169,290¥ 98,189¥1,091,716

Total
Costs and expenses

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

89

2010

Thousands of U.S. dollars
Domestic

North
AmericaSoutheast
Asia

Others$6,596,217$ 437,539$ 433,939$ 332,703

Eliminations
or corporate

Consolidated$$ 7,800,398

Net sales:
Outside customers—

445,105

44,557238,248

54,691(782,601)—

7,041,322

482,096

672,187

387,394(782,601)

7,800,398

Costs and expenses

6,570,220

319,817603,794

360,602(766,179)

7,088,254

Operating income (loss)$ 471,102$ 162,279$ 68,393$

26,792$ (16,422)$

Identifiable assets$7,010,596$1,065,911$ 850,575$1,790,758$ (170,199)$10,547,641

Inter segment
Total

712,144(The effect of change in accounting policy on construction contracts)

impact from this change on operating income for the fiscal year

Effective from the fiscal year ended March 31, 2010, the Com-

ended March 31, 2009.

pany and its consolidated domestic subsidiaries have applied“Accounting Standard for Construction Contracts” (ASBJ State-(The effect of change in the depreciation period for property,

ment No. 15, released on December 27, 2007) and the “Guidance

plant and equipment)on Accounting Standard for Construction Contracts” (ASBJ Guid-In accordance with the revised Japanese Corporate Tax Law, theance No. 18, released on December 27, 2007). As a result of

Company and its domestic consolidated subsidiaries changed theadopting the new standard, net sales and operating income fordepreciation period for property, plant and equipment beginning

Japan increase by ¥678 million ($7,286 thousand) and ¥154 mil-this fiscal year. As a result of the change, operating income

lion ($1,655 thousand), respectively for the fiscal year ended

decreased by ¥2,959 million in Japan for the fiscal year ended

March 31, 2010.

March 31, 2009.

(The effect of change in accounting method for Measurement of(The effect of change in unification of accounting policies applied

Inventories)

to foreign subsidiaries for consolidated financial statements)

For product inventories, the Company used the first-in, first-out

Accounting methods applicable to overseas subsidiaries and usedmethod principally. Beginning this consolidated fiscal year, thefor the consolidated financial statement. Beginning this fiscal year,

Company adopted the “Accounting Standard for Measurement

the Company adopted the “Practical Solution on Unification ofof Inventories” (ASBJ Statement No. 9, announced on July 5,

Accounting Policies Applied to Foreign Subsidiaries for Consoli-2006)” and calculated inventory values using the first-in, first-out

dated Financial Statements” (PITF No. 18, May 17, 2006). As amethod (For figures shown on balance sheet, the book value

result of the change, operating income decreased by ¥115 million

write-down method based on decreased profitability). As a resultin North America and increased by ¥29 million in Southeast Asiaof the change of the accounting method, operating income

for the fiscal year ended March 31, 2009.

decreases by ¥7,477 million in Japan for the fiscal year ended
March 31, 2009.

(The effect of change in depreciation method)
In accordance with the revised Japanese Corporate Tax Law, for(The effect of change in accounting policy on non-ownershiptangible fixed assets acquired on or before March 31, 2007, thetransfer finance lease agreement)

Company and its consolidated domestic subsidiaries have started

Non-ownership transfer finance lease agreements which were

to depreciate the remaining balance of assets over a five year

based on the accounting method for ordinary lease transactions

period using the straight-line method from the following fiscal

are now based on the accounting method for sales transactions

year after the book value of the assets decreases to 5% of the

beginning this fiscal year as per “Accounting Standard for Leaseacquisition costs under the method of depreciation based on theTransactions” (ASBJ Statement No. 13 [Business Accounting

Tax Law before revision. As a result of the change of depreciation

Council Committee No. 1, June 17, 1993; revised March 30,

method, operating income decreases by ¥942 million in Japan for2007]) and the “Guidance on Accounting Standard for Leasethe fiscal year ended March 31, 2008.

Transactions” (ASBJ Guidance No. 16 [The Japanese Institute ofCertified Public Accountants (JICPA) Accounting Standard Committee, January 18, 1994; revised March 30, 2007]). There is no90

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

Information for overseas sales
2010

Millions of yen

Overseas net sales

North
AmericaSoutheast
Asia

East
Asia

OthersTotal¥46,869¥76,878¥197,541¥6,814¥328,102

Consolidated net sales
Share of overseas net sales

—

—

—

—

¥725,827

6.5%

10.6%

27.2%

0.9%

45.2%

2009

Millions of yen

Overseas net sales

North
AmericaSoutheast
Asia

East
Asia

OthersTotal¥48,249¥56,417¥159,585¥17,903¥282,154

Consolidated net sales
Share of overseas net sales

—

—

—

—

¥793,797

6.1%

7.1%

20.1%

2.2%

35.5%

2008

Millions of yen

Overseas net sales

North
AmericaSoutheast
Asia

East
Asia

¥58,265¥85,721¥242,835¥7,908¥ 394,729

—

—

—

—

¥1,132,372

5.1%

7.6%

21.4%

0.7%

34.9%

North
AmericaSoutheast
Asia

East
Asia

OthersTotal$503,697$826,201$2,122,955$73,229$3,526,083

Consolidated net sales
Share of overseas net sales
2010

Others

Total

Thousands of U.S. dollars

Overseas net sales
Consolidated net sales
Share of overseas net sales

—

—

—

—

$7,800,398

6.5%

10.6%

27.2%

0.9%

45.2%

16. Information for certain leases
Lease assets
Lease assets related to non-ownership transfer finance leases. Leases can depreciate assets over the lease period using the straight-line
method with no residual value. For finance lease transactions other than those involving a transfer of title that began prior to the application of the new accounting standards, the previous operating lease method will continue to be applied.
As a lessee
A summary of assumed amounts inclusive of interest of acquisition cost, accumulated depreciation and net book value of finance leases
accounted for in the same manner as operating leases as of March 31, 2010 and 2009 are as follows:
Millions of yen

2010

Machinery and equipment

2009

Acquisition
cost

Accumulated
depreciation

Net bookvalue

Acquisition
cost

Accumulated
depreciation

Net book
value

¥97

¥75

¥22

¥140

¥95

¥45

SUMITOMO METAL MINING CO., LTD. Annual Report 201091

Thousands of U.S. dollars

2010

Machinery and equipment

Acquisition
cost

Accumulated
depreciation

Net bookvalue$1,042$806$236

Future lease payment, inclusive of interest as of March 31, 2010 and 2009 under such leases are as follows:
Millions of yen

Thousands of U.S. dollars

2010

2009

2010

Due within one year

¥13

¥22

$140

Due after one year

9

22

97

¥22

¥44

$237

Total

Total lease expenses and assumed depreciation charges for the fiscal years ended March 31, 2010, 2009 and 2008 are as follows:
Millions of yen

Thousands of U.S. dollars

2010

2009

2008

2010

Total lease expenses

¥22

¥38

¥83

$236

Assumed depreciation charge

22

38

83

236

As a lessor
As of March 31, 2010 and 2009, there was no lease asset related to non-ownership transfer the Company leased as a lessor.
Total revenue and depreciation charges for the fiscal years ended March 31, 2010, 2009 and 2008 were as follows:
Millions of yen

Thousands of U.S. dollars

2010

2009

2008

2010

Total revenues

¥—

¥—

¥15

$—

Depreciation charge

—

—

7

—

17. Business Combination(Matters relating to business combination)(b) Name and business of the acquiree
Company name: Sumitomo Metal Mining Package Materials

The previous fiscal year ended March 31, 2009 (April 1, 2008
to March 31, 2009)

Co., Ltd.
Description of business: Manufacturing and distribution of

Sumitomo Metal Mining Package Materials Co., Ltd. was merged

semiconductor package materials such as lead frameswith the Company

and tape materials.

(1) OUTLINE OF THE TRANSACTIONS(a) Name and business of the acquirer

92(c) Outline and details of the purpose of the transaction

Company name: Sumitomo Metal Mining Co., Ltd.

In an effort to further strengthen and expand its business

Description of business: Exploration and development ofoperations in electronics and advanced materials, the Com-

mines; smelting/refining and sales of copper, gold, nickelpany reorganized its activities in each of these areas on

and other non-ferrous metals; manufacturing and distri-

October 1, 2008. Under this reorganization the Electronics

bution of high-quality semiconductor materials and high-Division and the Advanced Materials Division were reorga-value-added advance materials.

nized into the Semiconductor Materials Division and a newly

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

constituted Advanced Materials Division. Historically, the(b) Outline and details of the purpose of the transaction

manufacture and sale of lead frames and COF tape materi-

The principal reason for business combination Sumitomo

als within the semiconductor materials business had been

Metal Mining Co., Ltd. continues to pursue its objective ofconducted by Sumitomo Metal Mining Package Materials

becoming a major player in the global non-ferrous metals

Co., Ltd. and its subsidiary companies. The decision tomarket. Currently, SMM Pogo LLC, a consolidated subsid-

merge the operations of Sumitomo Metal Mining Packageiary of the Company’s wholly owned subsidiary Sumitomo

Materials Co., Ltd. was made taking into consideration

Metal Mining America Inc., holds a 51% in the mine. Using

efforts to maximize collaboration and synergies with other

SMM Pogo LLC as its vehicle, the Company acquired Tecksemiconductor material operations throughout the Group,

Pogo Inc., which holds a 34% interest in the subject mine.

promote closer-knit information exchange among top man-

In completing this acquisition, the Company gained aagement and ensure timely and agile businessmajority share in the Pogo Gold Mine enabling it to manage

management.

and operate the mine in its own right. This acquisition also
serves to further advance the Company’s overseas resource(d) Effective date of business combination

development business.

November 1, 2008(c) Effective date of business combination(e) The name of the company after business combination

July 7, 2009

Sumitomo Metal Mining Co., Ltd.
(d) The legal structure of the business combination and the(f) The legal structure of the business combination

name of the company after business combination

The two companies were merged by way of a short form

The legal structure of the business combination: Acquisition

merger as prescribed under Article 796, Paragraph 3 of theof shares whose consideration was cash was executedCompany Act with Sumitomo Metal Mining Co., Ltd. as thebased on the share purchase agreement

surviving company. Following the merger, Sumitomo Metal

The name of the company after business combination:

Mining Package Materials Co., Ltd. was dissolved ceasing toAfter reorganization of the structure of Teck Pogo Inc. toexist.

Teck Pogo LLC, the name of the company was changed
to Sumitomo Metal Mining Pogo LLC(2) OUTLINE OF THE ACCOUNTING PROCEDURE IMPLEMENTED
The Company adopted the accounting procedures for a commonly-controlled business combination based on the(e) Share of voting rights acquired
100%

accounting standards, “Accounting Standards for Business
Combination” issued by Business Accounting Council on Octo-(2) THE PERIOD OF THE OPERATING RESULT OF THE ACQUIREE

ber 31, 2003, “Guidance on Accounting Standard for Business

INCLUDED IN CONSOLIDATED FINANCIAL STATEMENTS

Combination and Accounting Standard for Business Divesti-

The account settlement date of the company involved in thetures” (Guidance No.10 issued by the Accounting Standards

relevant acquisition is December 31. The operating results for

Board of Japan on November 15, 2007).

the period from July 7, 2009 to December 31, 2009 have beenbrought to account.

The fiscal year ended March 31, 2010 (April 1, 2009 to March
31, 2010)
Acquisition of Teck Pogo Inc. by the purchase method(3) ACQUISITION COST
¥20,203 million(1) OUTLINE OF THE TRANSACTIONS(a) Name and business of the acquiree
Company name: Teck Pogo Inc.
Description of business: Participation in the management(4) GOODWILL(a) The amount of negative goodwill¥985 million

and operation of the Pogo Gold Mine, located in thestate of Alaska in the U.S., based on the company’s 34%
equity interest.

SUMITOMO METAL MINING CO., LTD. Annual Report 201093

(b) Principal reason for the incidence of negative goodwill
After confirming the acquisition cost applicable to the Teck

Type of business: A business whose principal function is the
manufacture of crystalline and magnetic materials

Pogo shares with its parent company Teck Resources Ltd.

Description of business activities: Primarily the manufacture

the market price of gold increased. This gave rise to anof crystalline and magnetic materials at the Company’s

unrealized gain on the transaction.

former Kunitomi District Division(c) The amortization method and amortization period(b) Outline and details of the purpose of the transaction

The amortization of negative goodwill is subject to the

In an effort to further strengthen and expand its businessprovisions outlined under the US accounting standard for

operations in electronics and advanced materials, the Com-business combinations. Negative goodwill has been amor-pany reorganized its activities in each of these areas on

tized as a lump sum in the accounting period in which it

October 1, 2008. Under this restructuring the Electronics

occurred.

Division and the Advanced Materials Division were reorganized into the Semiconductor Materials Division and a newly(5) BREAKDOWN OF MAJOR ASSETS AND LIABILITIES RECEIVED

constituted Advanced Materials Division. Historically, theA N D T H E I R A M O U N T S O N T H E D AT E O F B U S I N E S S

former Kunitomi District Division served as a manufacturing

COMBINATION

base for crystalline materials including tantalic acid lithium
and niobic acid lithium crystals as well as such magnetic

Millionsof yenThousands of
U.S. dollars

Current assets¥ 1,920$ 20,634

however, continue to feel the effects of sharp and dramatic

Long-term assets

21,514

231,211market adjustments peculiar to electronics-related industries

materials as samarium iron-nitrogen. These businesses,

Current liabilities(798)(8,576)

as well as unforeseen substantial declines in prices. Buffeted

Long-term liabilities(1,448)(15,561)

by a harsh operating environment, the crystalline and mag-

Negative goodwill(985)(10,586)

netic materials businesses which had been operated at the¥20,203$217,120

Acquisition cost of the company
involved in the relevant acquisition(6) ESTIMATED IMPACT ON THE CURRENT FISCAL YEAR’S CONSOLIDATED FINANCIAL STATEMENTS IF THE BUSINESS COMBINATION HAD OCCURRED AT THE BEGINNING OF THE FISCALYEAR (UNAUDITED)

former Kunitomi District Division were transferred as a shortform corporate split to the Sumitomo Kunitomi Denshi Co.,
Ltd, which was newly established, on April 1, 2009.
(c) Effective date of business combination
April 1 2009(d) The name of the company after business combination

Millionsof yenThousands of
U.S. dollars

Net sales¥5,448$58,549

Operating income

1,787

19,205

Ordinary income

1,357

14,584

Income before income taxes andminority interests

1,357

14,584The business combination was accomplished utilizing an

Net income¥ 811$ 8,716

incorporation-type corporate split method (short form

Net income per share(yen and dollars respectively)¥ 1.45$ 0.016

Note: The pro forma information disclosed in the above table expressed
the difference between the estimated sales and earnings assuming that the business combination had been completed at the
beginning of the current fiscal year and the actual sales andearnings presented in the consolidated statements of income of
the acquirer.

Sumiko Kunitomi Denshi Co., Ltd. (a consolidated subsidiary of the Company)(e) The legal structure of the business combination

merger) with the Company as the corporate split company
and Sumiko Kunitomi Denshi Co., Ltd., a company engaged
in the manufacture of crystalline and magnetic materials, as
the newly established company.
(2) OUTLINE OF THE ACCOUNTING PROCEDURE IMPLEMENTED
The Company adopted the accounting procedure for a commonly controlled business combination based on the “Account-

Establishment of Sumiko Kunitomi Denshi Co., Ltd.

ing Standards for Business Combinations” issued by the(1) OUTLINE OF THE TRANSACTIONSBusiness Accounting Council on October 31, 2003 and the(a) The name of the subject business and the content of its
business
94

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

“Guidance on Accounting Standard for Business Combination
and Accounting Standard for Business Divestitures” (GuidanceNo. 10 issued by the Accounting Standards Board of Japan,
revised on November 15, 2007).
Absorption merger between Sumitomo Metal Mining Pogo LLC
and SMM Pogo LLC(1) OUTLINE OF THE TRANSACTIONS(a) Name and business of the acquirer
Company name: Sumitomo Metal Mining Pogo LLC
Description of business: Holder of an equity interest in the
Pogo Gold Mine located in the state of Alaska in the
United States while at the same time serving as minemanager and operator.

18. Condensed financial information of a major affiliatedcompany
ASBJ Statement No.11, “Accounting Standard for Related Party
Disclosures” and ASBJ Guidance No.13, “Guidance on Accounting Standard for Related Party Disclosures” issued by the Accounting Standards Boards of Japan on October 17, 2006, require
certain additional related party disclosures effective for the fiscal
years beginning on or after April 1, 2008. Pursuant to the new
accounting standards, condensed financial information of Sociedad Minera Cerro Verde S.A.A. disclosed for the year ended
December 31, 2008 is as follows.
Millions of yen(b) Name of the company of the acquiree
Name of the combining company: SMM Pogo LLC

Total current assets
Total long-term assets¥ 77,752
102,832

Description of business activities: Holder of an equity inter-

Total current liabilities

54,566

est in the Pogo Gold Mine located in the state of Alaska

Total long-term liabilities

in the United States.
(c) Outline and details of the purpose of the transaction
With the aim of managing and operating the Pogo Gold
Mine in its own right, the Company utilizing SMM Pogo
LLC, a consolidated subsidiary which held a 51% interest in
the mine, acquired all of the issued and outstanding sharesof Teck Pogo Inc., a company which held a 34% interest in

5,465

Total net assets

120,553

Net sales

189,980

Net income before tax
Net income

115,027
74,343Pursuant to the relevant accounting standards, condensed financial information of Sociedad Minera Cerro Verde S.A.A., which isdisclosed for the year ended December 31, 2009 is as follows.
Millions of yen

the mine (following the acquisition of shares, the name ofPogo LLC). In order to unify management of such subsidi-

Total current assets
Total long-term assets¥ 71,081
105,120aries with interests in the Pogo Gold Mine as Sumitomo

Total current liabilities

24,841

Teck Pogo Inc. was changed to Sumitomo Metal Mining

Metal Mining Pogo LLC and SMM Pogo LLC, they undertook an absorption-type merger.
(d) Date of the merger

Total long-term liabilities

18,175

Total net assets

133,185

Net sales

164,608

Net income before tax
Net income

105,099
66,361

July 8, 2009(e) The name of the company after business combination
Sumitomo Metal Mining Pogo LLC(f) The legal structure and method of the business combination
The business combination was accomplished utilizing anabsorption-type merger method with Sumitomo Metal Mining Pogo LLC as the surviving company and SMM Pogo LLC
as the liquidated company.
(2) OUTLINE OF THE ACCOUNTING PROCEDURE IMPLEMENTED
Accounting procedures implemented for the merger were inaccordance with accounting standards and practices generally
accepted in the United States. These accounting procedures
had no impact on the consolidated financial statements.
SUMITOMO METAL MINING CO., LTD. Annual Report 201095

19. Earnings per share
Reconciliation of the difference between basic and diluted net income per share (“EPS”) for the fiscal years ended March 31, 2010, 2009
and 2008 were as follows:
Thousands of
U.S. dollars

Millions of yen

2010

2009

2008

2010

¥ 53,952¥ 21,974¥137,808$579,817

53,952

21,974

137,808

579,817560,485

565,338

578,707—38.87¥ 238.13$¥ 21,974¥137,808$579,817

Basic net income per share calculation
Numerator:
Net income
Net income available to common shareholders
Denominator (thousands of shares) :Weighted average number of shares
Basic EPS (yen and U.S. dollars)

¥

96.26

¥

1.03

Diluted net income per share calculation
Numerator:
Net income¥ 53,952
864

864

109

9,286

54,816

22,838137,917589,103

Weighted average number of shares

560,485

565,338

578,707—

Assumed conversion of convertible bonds

57,176

65,842

17,053—

631,180
36.18

595,760¥ 231.50

Interest in respect of convertible borrowings
Adjusted net income
Denominator (thousands of shares):

Adjusted weighted average number of shares
Diluted EPS (yen and U.S. dollars)¥

566,201
88.75

¥

$

—
0.95

20. Subsequent event
The following appropriation of retained earnings of the Company, which has not been reflected in the accompanying consolidated financial statements for the year ended March 31, 2010, was approved at a shareholders’ meeting held on June 25, 2010:

Year-end cash dividends of ¥13.00 per share

96

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

Millions of yen

Thousands of U.S. dollars¥7,308$78,538

Independent Auditors’ Report

Independent Auditor’s Report
To the Board of Directors of Sumitomo Metal Mining Co., Ltd.

We have audited the accompanying consolidated balance sheets of Sumitomo Metal Mining
Co., Ltd. and consolidated subsidiaries as of March 31, 2010 and 2009, and the related
consolidated statements of income, changes in net assets and cash flows for each of the three
years in the period ended March 31, 2010, all expressed in Japanese yen. These consolidated
financial statements are the responsibility of the Company’s management. Our responsibility
is to independently express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan.
Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of Sumitomo Metal Mining Co., Ltd.
and consolidated subsidiaries as of March 31, 2010 and 2009, and the consolidated results of
their operations and their cash flows for each of the three years in the period ended March 31,
2010 in conformity with accounting principles generally accepted in Japan.
Without qualifying our opinion, we draw attention to the followings:
As discussed in Note 2 to the consolidated financial statements, effective April 1 2008,
Sumitomo Metal Mining Co., Ltd. and consolidated domestic subsidiaries adopted the
new accounting standard for measurement of inventories.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect
to the year ended March 31, 2010 are presented solely for convenience. Our audit also
included the translation of yen amounts into U.S. dollar amounts and, in our opinion, suchtranslation has been made on the basis described in Note 1 to the consolidated financial
statements.

Tokyo, Japan
June 25, 2010

SUMITOMO METAL MINING CO., LTD. Annual Report 201097

Glossary

Mineral resources and metals
1) Metal trading
London Metal Exchange (LME)The LME specializes in trading of non-ferrous metals such ascopper, nickel, aluminum, lead and zinc. The LME trading prices for metals are used as the international pricing benchmarks
for sales of refined metal and purchases of refining ores.
TC/RC
Treatment Charge (TC) and Refining Charge (RC) are commonly used in the terms of purchase for copper concentrate or
nickel ore for refining. They are amounts designed to coverrefining costs. For example, copper concentrate contracts may
define a purchase price based on the LME price at a certain
date, minus the TC or RC being used at the time.
London fixing
Gold is not traded on the LME. Its price is determined for eachtransaction between market participants. The financial institutions in the London Bullion Market Association (LBMA) agree astandard price for gold based on these transactions and publish it on the morning and afternoon of each trading day. This
“London fixing” price is the benchmark for trading in gold.
Pound (lb)Part of the imperial system of measures, the pound is the standard unit of weight used in measuring and pricing base metals
such as copper and nickel, and in TC/RC calculations. One
pound is equal to 453.59 grams; an imperial ton equals
2,204.62lb.
Troy ounce (toz)The troy ounce is the standard unit of weight for precious metals such as gold and silver. It equals approximately 31.1 grams.
It is named after Troyes, a city in the Champagne region ofcentral France that was the site of a major market in Europe inmedieval times. Originally used as a unit of exchange for valuing goods in terms of gold or silver weights, the troy ounce isstill used today in gold trading.

2) Metal refining
Smelting and refining
Refining processes extract valuable metals from ores or otherraw materials. They fall into two basic types: pyrometallurgical(dry) and hydrometallurgical (wet). At SMM’s Toyo facilities in
Ehime Prefecture, the copper concentrate pre-processing undertaken at Saijo uses pyrometallurgical processes and thenickel refining at the Niihama site uses hydrometallurgical processes entirely. The term ‘smelting’ is used for the extraction of98

SUMITOMO METAL MINING CO., LTD. Annual Report 2010

metal from ores using melting and heating (pyrometallurgy).
The term ‘refining’ refers to any process that increases thegrade or purity of a metal.
Pyrometallurgical refining
The precursor ore is melted at high temperature in a furnace,
and refining techniques are applied to separate the metal in a
molten state.
Hydrometallurgical refining
The ore and impurities are dissolved in a solution, and chemical
reactions are used to separate out the metal.

3) Metal ores
Sulfide ores
These ores contain copper, nickel or other metals chemicallybonded to sulfur. Since the application of heat breaks thesebonds, releasing the sulfur, such ores are generally refined using pyrometallurgical techniques.
Oxide ores
These ores contain metals in oxidized forms. Unlike sulfide
ores, oxides need much more energy to achieve melting. For
this reason, the hydrometallurgical approach is generally used
to refine these ores.
Copper concentrates
Used as raw materials in copper smelting, copper concentrates
have a copper content of about 30% by weight. The remainder consists mostly of sulfur and iron. Copper concentrates are
made mostly from sulfide ores. Ores extracted from overseas
mines have a typical grade of about 1%. The ores are then“dressed” at the mine to increase the purity and produce concentrate. Most of the copper ores imported by SMM for smelting in Japan are concentrates.
Nickel oxide ores
Whilst the higher-grade sulfide ores are used predominantly innickel refining, nickel oxide ores are more prevalent than nickel
sulfides. The sulfide-oxide ratio in current nickel reserves is believed to be about 3:7. High refining costs and technical issues
have limited use of oxide ores in nickel refining to date, but
SMM has succeeded in refining nickel from low-grade oxide
ores based on HPAL technology.
Mixed sulfide (MS) ores
CBNC produces a mixed nickel-cobalt sulfide intermediatecontaining about 60% nickel by weight. This is used as a raw
material in electrolytic nickel production.

MatteA matte is another term for metal sulfides. For raw material,
electrolytic nickel production at SMM also uses a nickel matte(of about 75–80% purity) sourced from PT Inco.

Ferronickel
Ferronickel is an alloy containing nickel (about 20%) and iron.
Its main use is in the manufacture of stainless steel, which isabout 10% nickel by weight. Based in Hyuga, Miyazaki Prefecture, SMM Group firm Hyuga Smelting produces ferronickel.

Proprietary ore ratio
This ratio is the proportion by volume of ore procured fromoverseas mining interests relative to the overall volume ofsmelting ores used as raw materials. Typically, off-take rights
are proportional to the equity interest in a mine. In the case of
Cerro Verde, SMM has secured 50% off-take rights for the firstten years of production from 2006, based on a 21% equity
interest.

Gold
Gold is in demand worldwide for investment and decorative
purposes. Gold is widely used in industry within the electronics
sector because of its high malleability and ductility. Part of
SMM’s gold production goes to SMM Group companies engaged in fabricating and selling bonding wire.

4) Nickel production process

Electronics and advanced materials

Coral Bay Nickel Corporation (CBNC)
Based in the Philippines, this SMM subsidiary produces mixed
nickel-cobalt sulfides using HPAL technology and exports theraw materials to the SMM Group’s nickel refining facilities in
Niihama, Ehime Prefecture.
High Pressure Acid Leach (HPAL)
HPAL technology enables the recovery of nickel from nickel oxide ores that traditionally were difficult to process. SMM was
the first company in the world to apply it successfully on a commercial scale. The oxide ores are subjected to high temperatureand pressure and reacted under stable conditions with sulfuric
acid to produce a nickel-rich refining intermediate.
Matte Chlorine Leach Electrowinning (MCLE)
MCLE is the technology used in the manufacturing process at
SMM’s nickel refinery. The matte and mixed sulfide ores are
dissolved in chlorine at high pressure to produce high-grade
nickel using electrolysis. MCLE is competitive in cost terms, butposes significant operational challenges.

5) Main applications for metals
CopperCopper is fabricated into wires, pipes and other forms. Besides
power cables, copper is used widely in consumer applications
such as wiring in vehicles or houses, and in air conditioning
systems.
Electrolytic nickel
This form of nickel, which has a purity of at least 99.99%, isused in specialty steels, electronics materials and electroplating, among other applications. SMM is the only producer ofelectrolytic nickel in Japan.

Copper-clad polyimide film (CCPF)
CCPF is a polyimide film that is coated using a copper base. It
is used as a material for making COF substrates. SMM commands a top share of the CCPF supplied for use in large liquid
crystal displays.
Chip-on-film (COF) substrates
COF substrates are electronic packaging materials used tomake integrated circuits for LCD drivers. They connect thesecircuits to the LCD panel.
Lead frames (L/F)
Lead frames are electronic packaging materials used to form
connections in semiconductor chips and printed circuit boards.
They contain thin strips of a metal alloy containing mostly nickel or copper.
Bonding wire
Composed of gold wire that is just a few micrometers thick,bonding wire is used to make electrical connections between
lead frames and the electrodes on semiconductor chips.
Secondary batteries
Secondary batteries are ones that can be recharged and usedagain. SMM supplies battery materials that are used in the anodes of nickel metal hydride batteries and lithium-ion rechargeable batteries, which supply power for hybrid vehicles or notebook computers, among other consumer applications.

SUMITOMO METAL MINING CO., LTD. Annual Report 201099

Corporate Data and Investor Information

Corporate Data
Founded:

1590(Contact Information)

Incorporated:

1950

Public Relations & Investor Relations Department:

Paid-In Capital:¥93.2 billion *As of March 31, 2010

11-3, Shimbashi 5-chome, Minato-ku,

Number of Employees: 2,183 *As of March 31, 2010
Head Office:Tokyo 105-8716, Japan

11-3, Shimbashi 5-chome,

Phone:

81-3-3436-7705

Minato-ku, Tokyo 105-8716, Japan

Facsimile:

81-3-3434-2215

Homepage:

http://www.smm.co.jp/E/

Investor Information (As of March 31, 2010)
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 Juneeach year.
Common Stock:
Number of authorized shares:
1,000,000,000 shares
Number of issued and outstanding shares: 581,628,031 shares
Number of shareholders:
62,853
Listing of Shares:

Tokyo, Osaka

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: 3-1, Yaesu 2-chome, Chuo-ku, Tokyo
Method of Public Notice:Electronic notification (However, if electronic notification is not possible
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
As of June 25, 2010

Major Shareholders (As of March 31, 2010)
Number ofshares held
(thousands)

Shareholding
ratio (%)

Japan Trustee Services Bank, Ltd. (Trust accounts)
The Master Trust Bank of Japan, Ltd. (Trust accounts)

43,96435,588

7.8
6.3

THE CHASE MANHATTAN BANK, N. A. LONDON SECS LENDINGOMNIBUS ACCOUNT

10,393

1.8

8,715
7,650
7,474
7,000
6,912
6,715

1.6
1.4
1.3
1.2
1.2
1.2

5,920

1.1

Sumitomo Metal Industries, Ltd.
Sumitomo Mitsui Banking Corporation
Sumitomo Life Insurance Company
Sumitomo Corporation
NT RE GOVT OF SPORE INVT CORP P.LTD
SSBT OD05 OMNIBUS ACCOUNT CHINA TREATY CLIENTS

Trust & Custody Services Bank, Ltd. (Securities investment
trust accounts)

Treasury Stock
3.35%
19,507

Government andMunicipalities
0.01%
31

Individuals andOther
21.51%
125,095

Financial
Institutions
34.09%
198,366

Breakdownof
Shareholders(Thousands of shares)Securities
Companies
3.92%
22,824
Other
Corporations
7.78%
45,262Foreign Investors

29.34%
170,544

Note: Shareholding ratio is calculated excluding treasury stock.

Stock Price and Trading Volume
SMM stock price (Yen)

TOPIX (Point)(Millions of shares)
40

2,500

SMM (left)

Trading volume (right)
30

1,500

20

1,000

10

500

0

08/4

100

TOPIX (left)

2,000

08/6

08/8

08/10

08/12

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

09/2

09/4

09/6

09/8

09/10

09/12

10/2

10/4

10/6

SUMITOMO METAL MINING CO., LTD.
Annual Report 2010

11-3, Shimbashi 5-chome, Minato-ku, Tokyo 105-8716, Japan
http://www.smm.co.jp

Annual Report 2010

For The Year Ended March 31, 2010