Aiming for a New Growth Model as a Non-Ferrous Company
Annual Report 2005
For The Year Ended March 31, 2005

Philosophy & Management Vision
SMM Group Corporate Philosophy
1. Sumitomo Metal Mining Co., Ltd.(“SMM”), in accordance with the Sumitomo’s Business Spirit,
shall, through the performance of sound corporate activities, seek to make positive contributions tosociety and to fulfill its responsibilities to its stakeholders, in order to win ever greater trust.
2. SMM shall, based on respect for all individuals and recognizing each person’s dignity and value,
seek to be a forward-minded and vibrant company.
SMM Group Management Vision
Based on the principles of compliance, environmental protection and operational safety, theSumitomo Metal Mining Group shall pursue maximum corporate value through the provision, via
its global network, of high-quality materials such as non-ferrous metals and electronics materials.

Contents
Consolidated Financial Highlights ..........................................................................................................................................
To Our Shareholders ..............................................................................................................................................................
Special Feature 1: Basic Strategy for Our Mineral Resources and Metals Segments ..............................................................
2: Basic Strategy for Our Electronics Materials and Advanced Materials Segment .......................................
3: Aggressive Capital Expenditure and the Financial Strategy behind It .......................................................
Our Approach to Corporate Governance and Compliance ....................................................................................................
Review of Operations .............................................................................................................................................................
Financial Section ....................................................................................................................................................................
SMM Group ...........................................................................................................................................................................
Corporate Data and Investor Information .............................................................................................................................
Corporate Officers ..................................................................................................................................................................

1
2
6
8
10
11
12
24
55
56
57

Unless specifically stated otherwise, information in this annual report is as of August 31, 2005.
Forward-looking Statements
Statements made in this annual report with respect to plans, strategies and future performance that are not historical facts areforward-looking statements. SMM cautions that a number of factors could cause actual results to differ materially from those
discussed in the forward-looking statements.

1| SUMITOMO METAL MINING CO., LTD.

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

Year-on-yearchange (%)

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

2005/2004

2005

2004

2003

2005

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

20.5
110.3
95.9
72.8
86.2
90.0
(21.6)
15.5
—
24.2
—
—
(43.4)¥484,585
47,89354,48653,91737,017
13,51336,48820,578(893)
40,150(31,725)
6,097
8,425

¥402,131
22,77827,811
31,194
19,882
7,112
46,54017,824(1,098)32,324(17,448)(9,293)
14,876¥355,242
16,593
14,559(7,505)(1,172)
3,400
18,92718,283(1,459)26,105(21,246)(14,163)
4,859$4,515,328
446,264
507,697502,395
344,922
125,913339,993
191,744(8,321)
374,115(295,611)
56,81178,504

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

10.8
12.2
8.2

573,925
283,897
160,533

517,930
253,071
148,351

470,774
223,341
154,799

5,347,792
2,645,332
1,495,835

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

86.3
12.2
33.3

64.77
497.578.0

34.76
443.296.0(2.05)
391.14
5.0

0.60
4.64
0.07

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

—
—
—
—
—

6.78
13.80
49.5
28.0
20.8

4.02
8.35
48.9
28.6
14.8

—
—
47.4
32.9
9.9

Years ended March 31

Notes: 1. Recurring profit = Operating income + Nonoperating income - Nonoperating expenses
2. The computation of net income (loss) per share is based on the weighted average number of shares of common stock issued during each fiscal year.
3. U.S. dollar figures are translated, for convenience only, at the rate of ¥107.32=U.S. $1, the effective rate of exchange prevailing on March 31, 2005.

Net Sales

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

600

50

40

500

40

400

30

300

20

200

10

100

0

30
20
10

0

0

-10
’01

’02

’03

’04

’05

-10
’01

’02

’03

’04

’05

’01

’02

’03

’04

’05

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

SUMITOMO METAL MINING CO., LTD.

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To Our Shareholders
Consolidated Results for Fiscal Year 2004—Powerful Profit Growth
Excluding Special Factors
Despite a correction in demand for semiconductors and electronic materials in the second
half of the fiscal year, the business environment in fiscal year 2004 (April 2004–March
2005) was favorable overall, supported by recovery in the domestic economy and strength in
the Chinese economy. Non-ferrous metal prices rose sharply amid favorable demand andglobal raw materials shortages, with the year’s average copper price rising 46.7% from theprevious fiscal year to 136.1 cents/lb and nickel price increasing 24.3% to $6.34/lb.
In this environment, our consolidated net sales increased 20.5% from the previous fiscal
year to ¥484.6 billion, exceeding our initial target by 5.3%. Consolidated operating income
increased 110.3% to ¥47.9 billion, consolidated recurring profit increased 95.9% to ¥54.5
billion, and consolidated net income increased 86.2% to ¥37.0 billion. These are all historical records and sharply exceeded our initial plan by 33.1%, 23.9%, and 37.0%, respectively.
In addition to historically high non-ferrous metal prices, however, these strong results are
attributable to the special factor of a one-off profit that resulted from changing the inventory
valuation method from “last-in, first out” to “first-in, first-out.” I believe that SMM’s “trueachievement” after deducting these factors was basically in line with our initial plan. And I
attribute this true achievement to the efforts we have made as a group thus far to reform ourbusiness structure. These include 1) almost a 30% increase in profit from fiscal year 2003 in
the Electronics Materials and Advanced Materials segment due to sales expansion centered on
its core products, 2) strong growth in profit to ¥1.2 billion in fiscal year 2004 in theConstruction Materials segment, which was profitable for the first time in 11 years due toradical restructuring measures in fiscal year 2003, and 3) the almost complete absence of losses at consolidated subsidiaries in fiscal year 2004 due to our efforts to withdraw from unprofitable businesses and to improve the bottom line at all of our affiliated companies (all on an
operating income basis).

Highlights of Fiscal Year 2004 Results¥25.1 billion improvement in operating income(from ¥22.8 billion to ¥47.9 billion)• Market prices, sales, raw material terms, etc. ........................................................ +¥11.5
1) Increase of metal prices, improvement of sales terms............................................ +¥21.3
2) Yen appreciation, deterioration of raw material terms ..........................................

-¥5.8

3) Increase of supplies prices ....................................................................................

-¥4.0• One-off profit owing to change in inventory asset valuation method .................. +¥11.1• Profit increase in Electronics Materials and Advanced Materials segment ..........

+¥1.7• Profitability achieved in Construction Materials segment ....................................

+¥1.2(Billions of yen)2

| SUMITOMO METAL MINING CO., LTD.

Mid-term Management Plan—
Establishing Earnings Base
Independent of the External
Environment and Attaching
Importance to Achievement of theLong-term Vision
We began working on a new three-year
Mid-term Management Plan in fiscal year
2004. Even though fiscal year 2004 results
topped the profit target for the last fiscal
year of this Plan (consolidated recurring
profit of ¥35.0 billion), a large portion ofthis was a result of the external andextraordinary factors mentioned above, so
that, in my view, we did not achieve thePlan. This is because the objectives of the
Koichi Fukushima, President
Plan must be met by building a stableearnings base that always achieves minimum profit growth without depending on upturns in the external environment so that inten years’ time we can grow into strong global presence as one of the “non-ferrous majors.”(1) The Mineral Resources and Metals Segments Aim to Transition from “OrePurchasing and Refining” to “Mineral Resources + Refining” Business Model
The Mid-term Management Plan’s basic strategy for the Mineral Resources and Metals
segments can be summarized in two points: 1) reinforcing the stability and profitability ofthe business by expanding the volume of mineral resources that we own by committing
more business resources to the development of top-quality overseas mines and 2) enhancing our existence value by differentiating ourselves from the overseas mineral resource
majors by leveraging our high level of refining technology.
• The Non-Ferrous Metals Industry’s Current Conditions and Issues
In the non-ferrous metals industry at present, a major issue for refining companies is securing a stable supply of raw materials as the mining companies fail to increase production
capacity to keep up with the huge product demand being created in China. This is a particularly serious problem for Japanese non-ferrous companies that run refining businesses by
procuring a major part of their raw materials from outside. For SMM, deterioration in theterms for copper concentrate transactions undermined the profitability of the copper smelting business, forcing us to cut production by 10% in fiscal year 2003 from fiscal year 2002
and posing challenges to the business stability in future. At the same time, profitability
must be increased further by cutting costs.

SUMITOMO METAL MINING CO., LTD.

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• Copper—Reinforcing Business Stability and Profitability through Equity Stake in Cerro
Verde Copper Mine
In order to resolve this situation, in our copper business we are actively seeking participation in top-quality new mines with the goal of boosting our in-house ratio (the ratio of
procurement from mines in which we have participating interest) from 40% to over 60%.
These efforts are alongside the reinforcement of our Toyo Smelter & Refinery to an annual
production capacity of 450,000 tonnes. As a result, in March 2005, we decided to acquire
an equity stake in Peru’s Cerro Verde Mine. From the fall of 2006, we will take 50% of thecopper concentrate produced there, which is equivalent to 90,000 tonnes of copper per
year. We have also decided to participate in the Phelps Dodge Mining Company’s copper
exploration and mining project in Chile.
These efforts will enable the Toyo Smelter & Refinery to fully leverage its one of thelargest copper production capacities in Japan, which promises to sharply boost the profitability of our copper business.
• Nickel—Success of HPAL Enables Differentiation through Refining Technology
Our refining business possesses a high level of technology that surpasses that of the overseas
non-ferrous majors. A representative example is our establishment of the HPAL (high-pressure acid leach) method which efficiently recovers nickel from low-content ore. In April
2005, we began commercial production at the Coral Bay Project on Palawan Island, thePhilippines, successfully launching a plant based on this technology. This not only secures
us a stable supply of nickel raw materials
for the future but also enables us to take
Outline of Mid-term Management Plan (FY2004-FY2006)
initiatives in the global nickel refining
Basic Strategy: By expanding and strengthening core businesses and developing new
business based on our technological comproducts, SMM aims to be one of the world’s “non-ferrous majors” in the Mineralpetence, which includes studies of securing
Resources and Metals segments in ten years’ time and acquire “top global shares in eachnew supplies of raw materials by leveragingof the products” in our Electronics Materials and Advanced Materials segment.
this technology.
Numerical Targets for Fiscal Year 2006 (Billions of yen)
Meanwhile, in April 2005, we decided to
FY2004 Results
FY2006 Targets
take an equity stake in world’s largest nickNet sales .........................................................
484.6
480.0
el development project in New Caledonia
Recurring profit .............................................
54.5
35.0
(Goro Project), which plans to begin proNet income ....................................................
37.0
25.0
duction in the fall of 2007. We consider
Equity ratio (%) .............................................
49.5%
40% or above
this a contribution to further reinforcing
Interest-bearing debt ......................................
160.5
165.0
the base of our nickel business.
Interest-bearing debt to total asset ratio (%) ...
28.0%
30% or below
Note: Recurring profit = Operating income + Nonoperating income – Nonoperating expenses

Assumptions
FY2004 Results

107.54110

Copper price (¢/lb) ........................................

136.1

90.7

Nickel price ($/lb) ..........................................

6.34

3.50

Gold price ($/toz) ..........................................

414.0

320.0

Zinc price ($/ton) ...........................................

1,109.8950

Note: Exchange rate represents an average for the fiscal year.

4

FY2006 Targets

Exchange rate (¥/$) ........................................

| SUMITOMO METAL MINING CO., LTD.

(2) Top Class Share and Profit
Expansion in the Electronics
Materials and Advanced Materials
Segments
Under our Mid-term Management Plan,
another earnings mainstay to which we
attach importance is the Electronics
Materials and Advanced Materials seg-ment. We are working to achieve large shares mainly in products that leverage our highlevel of processing technology. Foremost among these efforts, which also include bonding
wire, nickel paste, and lead frames, is our major reinforcement of copper-clad polyimide
film, demand for which continues to grow due to expanded adoption of the chip-on-film(COF) method despite the correction in LCD-related demand.
We are also devoting resources to new product development, and plan to invest 70% of
research and development expenses (¥13.0 billion) and research and development capital
expenditure (¥7.0 billion) scheduled under the three years of the Mid-Term Management
Plan in the Electronics Materials and Advanced Materials segment. One of our achievements in fiscal year 2004 was the development of a powder material that blocks heat byabsorbing infrared rays. A European automobile manufacturer has decided to use it and weare working towards having mass production on stream by September 2005. We are planning to have a few more new products available from fiscal year 2005. When their contribution to profit is included, we believe that by fiscal year 2006, this business will havegrown into an earnings mainstay on a par with our refining business.
Aiming for a New Growth Model as a Non-ferrous Company
Thus, striving to make our Mineral Resources and Metals segment a “non-ferrous major” is
not merely a question of ranking in terms of scale. In addition to securing sufficient mineral resources to allow us to fully leverage our refining technology, it signifies an existencevalue through the development of an original “Mineral Resources + Refining” type of business that leverages a global top class refining technology to the maximum degree. In addition, by establishing the Electronics Materials and Advanced Materials segment as a second
earnings mainstay alongside the Mineral Resources and Metal segments, we are boosting
the stability and profitability of our business and pursuing a new technology-centric
growth model as a non-ferrous company.
All of the projects that we are pursuing to that end are making favorable progress. They
are large-scale projects that require large investment. However, we limit investment risk to
the minimum when evaluating participation in each of these projects and attempt toensure their realization by avoiding overly demanding financial strategies.
While acknowledging that the present is a period of investment based on the Mid-termManagement Plan, we have increased our annual dividend, in line with earnings, by ¥2from the previous fiscal year to ¥8 per share.
We look forward to your continued support and understanding.

August 2005

Koichi Fukushima
President

SUMITOMO METAL MINING CO., LTD.

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Strengths and Weaknesses of Our
Mineral Resources and Metals
Segments

Director
Susumu Makino

Managing Executive Officer
Ichiro Abe

Special Feature 1:

Basic Strategy for Our
Mineral Resources andMetals Segments
Our Position in the Non-ferrous
Metals Industry
The strength of our Mineral Resources andMetals segments is the fact that we have avariety of products such as nickel, copper,
precious metals and zinc, which makes ourearnings structure relatively immune fromchanges in individual non-ferrous metal
prices and supply and demand conditions.
We have established a solid and distinctive
position as the top non-ferrous metals
company in the domestic market by 1)

6| SUMITOMO METAL MINING CO., LTD.

production of high-purity electrolytic nickel, demand for which is growing in electronics materials field, 2) ownership of oneof the largest domestic copper refining
facilities (Toyo Smelter & Refinery) and acopper refining business in China, which is
driving demand (Jinlong Copper Co.,
Ltd.), and 3) ownership of one of theworld’s highest-grade gold mines(Hishikari) and development of an overseas gold mine with a majority share of
51% (Pogo Gold Project, Alaska, U.S.).

However, compared with the bigger mining companies that are known as theworld’s mineral resource majors, our mineral resource holdings are not so large.
With oligopolization by mineral resources
majors under way, we must maintain ourcommitment to boosting profitability
through the ownership of superior mines
and to securing the necessary volumes ofores and raw materials for smelting andrefining even in a tight market.
Most of the mineral resource majors concentrate on mineral resource development.
One of our greatest strengths, which also
differentiates us, is that we have an integrated structure from mineral resource
development to the refining business that isbacked by the highest level of technology.
For example, our high-pressure acidleach (HPAL) technology makes it possible
to refine nickel from low-grade oxide ore(limonite ore) instead of nickel sulfide ore
and the high-grade nickel oxide ore (garnierite ore) that are generally used for nickel smelting and refining. By using limonite
ore, which exists in roughly twice the volume as nickel sulfide ore (130 million
tonnes of nickel) but whose low profitability has prevented even the mineral resources
majors from developing it, we haveachieved a stable supply of nickel resources
and made nickel refining highly cost-competitive.

Executing a Strategy that Fully
Leverages the Strengths of bothMineral Resources and Refining
In order to fully leverage our strengths insmelting and refining, securing raw materials is of the highest priority. In otherwords, increasing our own mineral
resources of superior quality will expand
the merits of scale of the refining business
and will enhance of our business stability.
The projects that we have pursued withthat goal in mind, most of which havebeen for overseas mineral resource development, have all produced excellent results inthe fiscal year under review (please refer tothe Review of Operations for details).
We will continue to work hard to realize
all of our projects, aiming for a “mineral
resources + refining” business model thatfully leverages and complements thestrengths in the mineral resources area andthe refining area.

Non-ferrous Metal Industry Trends—China Driving
Growth in Demand for Nickel and Copper
We expect demand for our key products nickel and copper,
driven by China, to continue to expand over the medium tolong term.
We estimate that the production volume of stainless steel, aprincipal use of nickel, will grow at an annual rate of 5%, andapplications for nickel in the field of electronics materials arealso expanding. Global consumption of nickel is currently
estimated at more than 1.3 million tonnes annually.
Meanwhile, as nickel producers have limited room to expand
production, we expect the supply and demand balance toremain tight for the time being.
China, moreover, has become the world’s largest consumerof copper, with annual consumption there topping 3 million
tonnes in 2003. We expect consumption volume to continue
to increase, reaching 5 million tonnes in 2010 as China builds
infrastructure for the Beijing Olympics in 2008 and theShanghai Expo in 2010. In terms of supply, meanwhile, weestimate that China will depend on imports for about half of
its consumption by 2010 as its domestic production capacity
will not be able to keep up with growth in demand.

Director
Susumu Makino

Managing Executive Officer
Ichiro Abe

Global Supply and Demand of Nickel(Millions of tonne)

1.8
1.6
1.4
1.2
1.0
0.0
’00
Production

’01

’02

’03

’04

’05

Consumption

’06

’07
’08
’09
’10
Estimation
Surce: SMM’s estimate

Rapid Expansion of Copper Demand in China(Millions of tonne)

6
Coppermetal to beimported

42

Domestic
Supply0’86 ’88 ’90 ’92 ’94 ’96 ’98 ’00 ’02 ’04 ’06 ’08 ’10
Copper metal consumption

Copper metal production

Estimation
Copper concentrate production
Surce: SMM’s estimate

SUMITOMO METAL MINING CO., LTD.

| 7

Electronics Materials Segment—
Reinforcing Business Development
in China and Other Parts of Asia

Director
Yukio Ishikawa

Director
Nobuto Yamaguchi

Special Feature 2:

Basic Strategy for Our
Electronics Materials andAdvanced Materials Segment
Characteristics of the Products inThis Segment and Our Basic
Strategy for Them
Because the products in this segment arecharacterized by a market with a short life
cycle, the introduction of improved products and new products that incorporate
technological innovation is essential forsustaining the growth of the business. This
segment is centered on four principal areasin which we have superior processing technology and where we can make the most of
our special strengths of in-house procurement of raw materials and overseas networks: 1) bonding wire, 2) packaging
materials such as lead frames and tapematerials, 3) electric paste, and 4) copper-

8| SUMITOMO METAL MINING CO., LTD.

clad polyimide film. In addition to increasing added value of these four products, weare focusing on securing a large market
share and boosting competitiveness.
Specifically, in bonding wire and packaging materials, we have production bases in
China and other parts of the growth market of Asia and are developing business thatseeks to improve customer service andbecome more cost-competitive. In electric
paste and copper-clad polyimide film, weare differentiating our products from thoseof other companies through technology
and working to meet the volumes requiredby customers by reinforcing production
capacity, mainly at our domestic factories.
We aim to secure and maintain large market shares by implementing these measures.

In the Electronics Materials segment, in
addition to aggressively promoting sales inSouth Korea, Taiwan, and China, where
the semiconductor industry is concentrated, we are working to reinforcing our local
production system.
In China, in particular, as semiconductor
assembly manufacturers have moved into
Shanghai and the surrounding Huadong area
in rapid succession, the overall semiconductor market is expected to grow at an annual
rate of 13% (Compound Annual Growth
Rate 2004-2010; Survey by U.S.-based
Gartner) and the market for lead frames at astrong annual rate of 25%. Taking this situation into account, in January 2005 we completed a bonding wire production base inShanghai and in lead frames our second production base in China began operations in
Suzhou, Jiansu Province, in December 2004.
We expect these efforts to boost our monthly
production volume of lead frames in China
from 100 million units to 210 million units
by the end of 2005. We also have an etchingproduction factory scheduled to come on
stream in April 2006. Our fiscal year 2008
target for monthly production of lead frames
in China, combining press production andetching production, is 300 million units.
In November 2004, we began production in Taiwan of tape materials which areused as IC packaging materials for LCD
drivers. Previously we had produced thisproduct only in Japan. However, demandis expected to expand in Taiwan going forward, so based on our policy of producing
near our customers we decided to set up a
local supply system for the later processes.
This will enable to us supply products toour customers in a more flexible mannerthan previously.

Advanced Materials Segment —Expanding Market Share in
Copper-Clad Polyimide Film andOther New Areas
In the Advanced Materials segment, copper-clad polyimide film, which is used forthe semiconductor chips that drive LCDs,
is maintaining a high rate of growth as anearnings mainstay, as sales in fiscal year
2004 increased a strong 63% from the previous fiscal year. As their superior flexibility and strength make them suitable forflat-screen TVs, we expect demand to continue to grow at an annual rate of 25%
amid the shift away from conventional
type that uses copper leaf. While we are a
top manufacturer in large-scale LCD areawith a global share of 90%, in order tomaintain and strengthen this position, weare reinforcing monthly production capacity from the current 2.4 million m2 to 4.5
million m2 by the end of fiscal year 2005
and will aggressively reinforce capacity inline with future growth in demand.
Demand for battery materials is also
expected to grow as hybrid electric vehicles(HEV) become more popular. We areworking to achieve a solid position in thismarket with nickel hydroxide as our principal product. It is used as a positive electrodematerial for rechargeable batteries and amaterial for high-capacity primary batteries.

New Product Development
Efforts — Differentiation throughOur Superior Technology

Creating a Second Earnings
Mainstay by Establishing a Stable
High-profit Structure

As personal computers and LCD TVs
become smaller and thinner, the design
rule of semiconductor circuits becomesincreasingly fine. Our products leverage
our superior fine processing technology
and surface treatment technology and webelieve there is still much room to give
greater scope to these strengths.
Aware of the need to reinforce differentiation in growth areas through technology,
we are devoting resources to developing
new products in the Electronics Materials
and Advanced Materials segment. With
the goal of developing at least five new
products with annual sales of worth ¥1.0 3.0 billion each by fiscal year 2006, we arefocusing on the five areas of 1) battery
materials, 2) crystal materials, 3) materials
for forming thin films such as sputteringtargets, 4) functional powder materials,
and 5) thin package materials such as copper-clad polyimide film. We aim to bringthese products to market promptly andsecurely through efficient R&D activities.

Based on these efforts, we aim to develop
this segment into an earnings mainstay of
the Company pursuing a new growthmodel as a non-ferrous company.
By securing and maintaining large market shares with products that are differentiated through superior technology and costcompetitiveness, we will continue todevote efforts to implementing a strategy
of growth as a means of increasing the stability and profitability of our business base.

Market Trends of Our Products
Having entering a correction phase in the fall of 2004, we
expect growth in semiconductor and LCD-related demand tocontinue over the medium to long term. Factors propelling
this growth include 1) growth in popularity of digital homeelectronics in areas outside Japan and the U.S. such as Europe
and Asia and 2) expansion to other applications such as automobiles, where more electronic devices are being used.

Director
Yukio Ishikawa

Director
Nobuto Yamaguchi

Global Semiconductor Production
Equipment Orders (year-on-year)
(%)

300
200
100
0
-100
Apr-’99

Apr-’00

Apr-’01

Apr-’02

Apr-’03

Apr-’04

Apr-’05

Source: SEMI (Semiconductor Equipment and Materials International)

SUMITOMO METAL MINING CO., LTD.

| 9

Special Feature 3:

Aggressive Capital
Expenditure and the
Financial Strategy behind It
Capital Expenditure and Basic
Strategy
In order to achieve the goals of the Midterm Management Plan and become anon-ferrous major in 10 years’ time, we areplanning capital expenditure of ¥140 billion over the three years from fiscal year
2004, focusing on large-scale projects in
the Mineral Resources and Metals segment. Despite the enormous size of theinvestment, we basically plan to cover itwith depreciation and pre-tax profit while
maintaining the current level of interestbearing debt.
Capital Expenditure and Overseas
Mineral Resource Developmentrelated Investment — Fiscal Year
2004 Results and Future Plans

10| SUMITOMO METAL MINING CO., LTD.

Current Financial Position and
Future Fund Procurement Plans

trated. In addition to the 1) Cerro Verde
Copper Mine (¥21.2 billion) and 2) Goro
Project (¥11.6 billion) that we are planning as large-scale investments for overseas
mineral resource development, theseinclude investment to increase copper production to 450,000 tonnes (¥7.5 billion)
and investment to reinforce copper-cladpolyimide film (¥7.5 billion). We expect
capital expenditure and overseas mineral
resource development-related investment
to total only about ¥30 billion in fiscal
year 2006 as most of the large-scale invest-

In fiscal year 2004, we raised ¥18 billion
through long-term borrowings and corporate bond issuance. However, short-term
debt repayment limited the net increase ininterest-bearing debt from the previous fiscal year to a moderate ¥12 billion, basicallymaintaining the status quo. Our financial
position maintained its soundness as thedebt to equity ratio improved from 0.59 in
fiscal year 2003 to 0.57.
We plan to procure the funds required
for the large amount of capital expenditurethat we are planning for fiscal year 2005
through long-term borrowings.

Capital Expenditure andOverseas Mineral Resource
Development-Related Investment

Interest-Bearing Debt

(Billions of yen)(Billions of yen)

1.6
1.6
0.3
17.6

100

200

80

150

37.1

In fiscal year 2004, our capital expenditureand overseas mineral resource development-related investment totaled ¥34.4 billion. This included the Coral Bay Project(¥4.5 billion) the Pogo Project (¥7.5 billion) and copper-clad polyimide film
expansion (¥3.0 billion).
Total investment of ¥79.8 billion is budgeted for fiscal year 2005, in which manyof the Mid-term Management Plan’s
important investment projects are concen-

ment projects should be completed in fiscal year 2005.
Based on the above, we believe thatinvestment over the three years will total
approximately ¥150 billion, comparedwith the initial target of ¥140 billion.

1.6
3.0
56.0

0.2
56.0

60.0

60
100
40

20

0

0.2
1.2
0.3
12.6

48.5

37.6
30.0

15.2

50

55.5
43.8

7.0

FY2004(Result)

63.6
40.3

36.9

0
FY2005(Plan)

FY2006(Plan)

Mineral resources
MetalsElectronics & advanced materials
Construction materials
OthersCorporate

Note: The figures for capital expenditure and overseas
mineral resource development-related investment
all exclude the minority (outside the SMM
Group) interests of Coral Bay Nickel
Corporation, Sumic Nickel Netherlands b.v.
(investment company for the Goro Project), andSMM Cerro Verde Netherlands b.v. (investmentcompany for Cerro Verde).

FY2002(Result)
Bank loans
Long-term debt
Commercial paper
Others

FY2003(Result)
Bonds

FY2004(Result)

Basic Philosophy of Corporate
Governance
SMM positions corporate governance as
one of the most important issues for maximizing corporate value and ensuring soundmanagement. We believe that a statutory
audit system and executive officer system
are the most appropriate approach to maximizing the executive and auditing functions in a business. Based on these systems,
we have put in place a governance systemthat enables our directors, statutory auditors, and executive officers to effectively
exercise their functions.
Directors, Board of Directors
We have seven directors. We believe thissize is appropriate to ensure lively discussions and flexible decision-making by the
Board of Directors.
Executive Officer System
SMM has 19 executive officers, including
seven who also serve as directors, who carryout their work by being assigned specificauthority for important tasks such as divisional managers and headquarters officemanagers. Remuneration is linked to performance.

Compliance, Risk Management,
and Our Involvement in theEnvironment and Society
Taking to heart the lessons of the criticality
accident that occurred in September 1999
at JCO Co., Ltd., one of our subsidiaries,
we designed a Corporate Reform Plan in
April 2000 and have attached great importance to compliance in the conduct of ourbusiness.
In April 2004, we established the “SMM
Group Code of Conduct” that comprises
17 articles centered on compliance includ-ing safety, risk management, and consideration for the global environment, and wehave been actively promoting their implementation since then.
Anticipating situations in which there
may be doubts or problems in light of theCode of Conduct and action is not taken
after consultation with a superior or discussion with a superior is awkward, we
have set up an internal reporting system sothat the pertinent information can be presented directly to the responsible liaison
office inside the Company.

Organizational Chart of Corporate Governance
General Shareholders’ Meeting
Election
Board of Directors
Major decision and oversight

Auditing

Business Division
Operation of business

Review

Headquarters Divisions
ReviewPresident & Representative
Director, Executive Officers
Execution of business

Auditing Department
Internal audit

Auditing

Management
Committee
Deliberations

Independent Registered Accountant
Accounting audit

Election and supervision
Board of Statutory Auditors
Operation and accounting audit

Statutory Auditors, Board of Statutory
Auditors
Our Board of Statutory Auditors consistsof four statutory auditors, two of whom
are from outside the Company. These
internal and external auditors attend
meetings of the Board of Directors andManagement Committee and present
their views; those of the former are on
the full time basis as former employees
while preserving independence while
those of the latter are informed byknowledge of specialized fields in addition to heightening the objectivity of theauditing system.

Our Approach to
Corporate Governanceand Compliance

Auditing

SUMITOMO METAL MINING CO., LTD.

| 11

Review of Operations

At a Glance ..................................................................... 13
Mineral Resources and Metals ....................................... 14
Electronics Materials and Advanced Materials ............... 19
Other Businesses ............................................................ 23

At a Glance
Business Profile
Segment

Operations

Main Products and Services

Mineral Resources• In addition to the exploration, development, production, and sales of non-ferrous
metal resources, this segment is engaged ingeological consulting utilizing mineral
resource development techniques.
• This segment is engaged in the refining
and sales of base metals such as copper andnickel and of precious metals such as goldand platinum.
• This segment does business in the electronics field by leveraging the high-precision processing technologies in addition
to the material refining technologies that
we have developed as comprehensive nonferrous metal manufacturer.

• Gold and silver ores, copper concentrates

MetalsElectronics Materials

Advanced Materials• This segment develops highly advanced
new materials by leveraging the smelting
and refining technologies that we havedeveloped over many years.

Other Businesses• This segment is engaged in the construction materials and housing business as wellas the environmental business.

• Copper, nickel, zinc, lead, precious metals such as
gold, silver and platinum, sulfuric acid
• Electronics materials (bonding wire, alloy preform,
thick paste film, target materials for forming thinfilm, etc.)• Crystal-related materials (gallium phosphide forlight-emitting diodes, isolators for optical fiber, etc.)• Package materials (lead frames, tape materials, etc.)• Printed wiring boards (printed wiring boards, etc.)• Power materials (nickel powder, etc.)• Circuit board materials (copper-clad polyimide film,etc.)• Battery materials (nickel hydroxide, lithium
cobaltite, etc.)• Functional ink materials (heat-blocking, antistaticinks, etc.)• Siporex (ALC: autoclaved lightweight concrete)• Design and installation of environmental protection
equipment, design and execution of corrosion prevention construction• Design and installation related to assessment andremediation of soil and groundwater contamination• All types of environmental analysis including waterand soil quality• Recycling of valuable metals

Profit Structure by Segment
Net Sales by Segment
2.9%

Operating Income by Segment
4.7%

3.2%

30.5%

5.0%
20.5%

2.4%
15.0%
FY 2004
Net Sales:¥484.6 Billion

FY 2004
Operating Income:¥48.5 Billion
58.7%
57.0%

Mineral resources

MetalsElectronics & advanced materials

Note: Percentage of each segment is calculated with net sales to outside customers which does not include inter-segment transactions.

Construction materials

OthersNote: Percentage of each segment is calculated with operating
income including inter-segment transactions.

SUMITOMO METAL MINING CO., LTD.

| 13

Mineral Resources
and Metals

Net Sales by Metal(Non-Consolidated)(Billions of yen)

400

300

200

100

0
FY00

FY01

Mineral ResourcesGold and silver ores
Metallurgy
NickelCopper

FY02

FY03

Gold

FY04

Zinc

OthersResults for Fiscal Year 2004
The Mineral Resources segment posted net
sales of ¥33.1 billion, up 30.6% from theprevious fiscal year, supported by strong
growth in revenue, due to high copper
prices, from overseas copper mines in which
we own an interest such as the Morenci
Copper Mine (U.S.). Operating income was¥10.0 billion, up 123.6% from the previous
fiscal year. This is attributable, despite anincrease in expenses associated with the PogoGold Mine Development Project, to growth
in revenue from overseas copper mines andgrowth in profit from the Hishikari Mine on
the back of higher gold prices.
In the Metals segment, copper sales werestrong thanks to growth in domestic
demand in areas such as autos and construction. Nickel was also strong overall, supported by growth in demand for stainless steel
and energy-related special steels and alloys,
despite the movement of inventory correction in electronics materials in the second
half. As a result, net sales were ¥333.2 billion, up 21.9% from the previous fiscal year,
thanks to higher prices for copper and nickel
and to increased sales volume. Operating
income was ¥27.7 billion, up a strong
120.4% from the previous fiscal year. In
addition to improvement in the smelting
margins (the portion taken by the smelter,
which is the metal price less the ore price) in
conjunction with higher prices, this is attributable to a one-off increase in operating
income associated with a change in the valuation method for inventory assets.

Sales Volume by Metal (Non-Consolidated)

Copper (tonne)
Unit price: ¥1,000/tonne
Nickel (tonne)
Unit price: ¥1,000/tonne
Gold (kg)
Unit price: ¥1/g

14

| SUMITOMO METAL MINING CO., LTD.

FY2003Results

FY2004
Results

PercentchangeFY2006
Targets

293,302242
58,9091,219
58,471
1,380

320,767335
59,406
1,547
53,105
1,441

9.4%
38.4%
0.8%
26.9%
-9.2%
4.4%

410,000—
63,000—76,000—SMM’s Mines and Refineries
Pogo (under construction)(51%)

Morenci (12%)
Jinglong Copper Co., Ltd. (copper 210,000 tonnes)
Coral Bay (nickel/cobalt mixed sulfide–nickel 10,000 tonnes,
cobalt 700 tonnes)
Soroako (20.1%)
Cerro Verde (16.8%)

Batu Hijau (copper, gold) (5%)

La Candelaria(16%)

Figesbal (25.5%)
Goro (under construction) (11%)
Northparkes (13.3%)

Harima Smelter (zinc 90,000 tonnes , lead 30,000 tonnes)
Toyo Smelter & Refinery (copper 365,000 tonnes,
gold 60 tonnes, silver 360 tonnes)
Niihama Nickel Refinery (nickel 36,000 tonnes)
Shisaka Plant (zinc oxide 120,000 tonnes *processing capacity)
Hyuga Smelting Co., Ltd. (ferro-nickel 21,000 tonnes)
Hishikari Mine Dept. (100%)

Mine (SMM’s interest)
Gold
NickelCopperRefinery (annual production capacity)

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

8,000

1,200

(Thousands of tonne)(Millions of U.S. Dollars)

4,000

20,000

7,394

1,064

19,180

966

900
5,251

6,000

3,000

4,000

2,000

5,106

600

559
397

300

269

2,000

77

1,031

780
223

0.152

Copper

Gold

3,040

108

0.078

Nickel

5,000

1,000

1,429

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

1,450

386

2,009

1,278

0

10,000
8,166

3,085

2,800 441

15,0002,817

Estimated Value (right)

0

0.230

0

CopperGold

0

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

Notes: 1. Only the Company’s own mines are covered.
2. SMM’s metal share = Ore reserves (tonne) x Metal grade x SMM’s interest of mine (%)
3. Estimated value = SMM’s metal share (tonne) x Standard metal price
4. Standard metal price = Copper: 131.5¢/lb, Gold: 425$/toz, Nickel: 6.0$/lb

SUMITOMO METAL MINING CO., LTD.

| 15

Coral Bay Project

Project Overview and Progress
ReportNickel Price (LME)($/lb)

8.0
FY2004 average 6.34

6.0
FY2003 average 5.09

4.0

2.0

0.0
’03/4 716

10 ’04/1 4

7

10 ’05/1 4

7| SUMITOMO METAL MINING CO., LTD.

Nickel1) Coral Bay Project—Successful
Implementation of HPAL, a
Processing Technology for Low-grade
Nickel Oxide Ore
The Coral Bay Project, which SMM developed employing the HPAL (high-pressureacid leach) technology for processing lowgrade nickel oxide ore, successfully begancommercial production in April 2005.
SMM takes all of the nickel/cobalt
mixed sulfide that this project produces as
an intermediate product and refines it into
high-purity electrolytic nickel that is usedin special steels and electronics materials.
Nickel production targets for this projectare 7,000 tonnes in 2005 and 10,000
tonnes in and after 2006. The production
target for cobalt, which is used mainly as amaterial for rechargeable batteries, is 700
tonnes.

Acquiring the HPAL process technology
promises SMM a stable nickel raw materials source, and it enables SMM to take theinitiative in the global nickel refining business as well.
SMM will pursue application of the
HPAL process technology in other projects
going forward and study the possible
expansion of the Coral Bay Project.
2) Goro Project—Participating in theWorld’s Largest Nickel Project
In April 2005, SMM decided to take partin the Goro Nickel-Cobalt Project that isbeing developed in New Caledonia by
Inco Ltd. of Canada, the world’s second
largest nickel producer. This project is
expected to have the world’s largest nickel
ore reserves and be in operation for a significant length of time. By participating inthis project, SMM acquires a long-term
supply of nickel resources.
Once production begins in the autumn
of 2007, SMM’s annual share of production, based on its 11% equity position, will
be 6,600 tonnes of nickel in the form ofnickel oxide and 500 tonnes of cobalt in
the form of cobalt carbonate. We plan tomarket the nickel mainly in China and therest of Asia as a raw material for stainlesssteel and the cobalt in Japan as a raw material for rechargeable batteries.

Copper
1) 450,000-Tonne Toyo Smelter &Refinery—Working towards Top
Global Class Production Capacity
We are expanding the Toyo Smelter &Refinery, our domestic copper production
site, to achieve annual production capacityof 450,000 tonnes. In June 2005, we completed construction that brought capacity
to 365,000 tonnes and are aiming for
410,000 tonnes in fiscal year 2006. This
expansion will give the Toyo Smelter &Refinery top global class production capacity. Located in Ehime Prefecture, it has theadvantage of being close to the East Asianmarkets where demand is growing rapidly.
In March-April 2005, we also expanded
production capacity of Jinlong Copper
Co., Ltd., our joint venture in China(27.07% equity position), from 150,000
tonnes to 210,000 tonnes. The Jinlong
Copper Co., Ltd., moreover, is the only
copper refining business operated in China
by a Japanese non-ferrous metal company.
We plan to aggressively pursue sales in
China and the rest of East Asia by making
the most of these advantages.
2) Equity Stake in New Mine at Cerro
Verde—Aiming for In-house Ratio
over 60%
In addition to reinforcing copper refining
capacity, we have been making efforts toacquire new mines in order to secure raw
materials. In March 2005, these efforts
resulted in an agreement to acquire anequity stake (16.8%) in the Cerro Verdecopper mine in Peru. For ten years startingin fiscal year 2006, we will take 50% of thecopper concentrate production (equivalent
to 90,000 tonnes of copper).
Subsequently, our share of the copper
concentrate will be at least in line with ourequity position. We expect this to boost
our copper business’s in-house ore ratio(the ratio of procurement from mines inToyo Smelter & Refinery

which we have participating interest) fromthe current 40% to 50%.
In June 2005, moreover, we decided toparticipate in a copper exploration andmining project in Chile that is being conducted by a subsidiary of Phelps Dodge
Corporation. This gives us the right topurchase, in quantities that are in line with
our equity stake at the minimum, the copper concentrate from the Ojos del Salado
copper mine and any copper concentrate
resulting from future development in the
Punta del Cobre prospecting area.
We aim to reach our goal of an in-houseore ratio exceeding 60% through these
efforts.

Copper Price (LME)(¢/lb)

200

150
FY2004 average 136.09

100
FY2003 average 92.80

50

0’03/4 7

10 ’04/1 4

7

10 ’05/1 4

7

Cerro Verde copper mine

SUMITOMO METAL MINING CO., LTD.

| 17

Precious Metals
1) Pogo Gold Project—Smooth Progress
toward March 2006 Start ofOperations
SMM owns a 51% interest and takes theinitiative in the development of the PogoGold Project, which is located in Alaska,
U.S. We began construction in May 2004
and are making smooth progress towards
starting operations in March 2006. We
plan to operate this mine, one of the highest quality in the world with an estimated
152 tonnes of gold deposits, for approximately ten years. We estimate annual gold
production at 12 tonnes. In line with ourequity position, we will take roughly halfof that, or six tonnes per year.
2) Hishikari Mine—Achieving Stable
Gold Production over the Long Term
Annual gold production from theHishikari Mine, the largest in Japan and100% owned by SMM, is 7.5 tonnes.
Gold output from the mine has continued
to be stable since the mining began 20
years ago. While the ore of the world’s
gold mines has an average grade of 5g per
tonne, that of the Hishikari Mine isextremely high at 45-50g. The mine’s gold
reserves are estimated at 152 tonnes (as ofDecember 2004).

Pogo Gold Project18| SUMITOMO METAL MINING CO., LTD.

3) Precious Metal Refining—Boosting
Precious Metal Recovery Rates with
New Processes Developed In-house
Precious metals—gold, silver, and platinum group metals—are refined after separation and collection in the copper refining
process. In February 2004 we introduced a
new precious metal refining process that
we developed in-house at the Toyo Smelter& Refinery in order to boost precious
metal refining capacity in conjunction
with the copper production expansion at
the site.
By shortening the time required torecover gold from 45 days to seven days,
this process should cut costs by making theinterest burden lighter. In addition to gold,
silver, platinum, palladium, and rhodium,it makes possible the recovery of otherplatinum-group metals such as iridium andruthenium. Introduction of the process
boosted annual refining capacity by 67%
to 60 tonnes for gold and by 20% to 360
tonnes for silver.

Gold Price (LOCO LONDON)($/toz)500

FY2004 average 413.99

400
FY2003 average 377.54

300’03/4 7

10 ’04/1 4

7

10 ’05/1 4

7

Electronics Materials
and Advanced
Materials
Results for Fiscal Year 2004
The business environment was strong in
the first half of fiscal year 2004, supported
by growth in digital home appliances suchas digital cameras, flat-panel televisions,and DVD recorders as well as replacement
demand for personal computers. In thesecond half, however, sales volumes
declined as the semiconductor and electronic parts industries entered a phase of
inventory adjustment.
These businesses responded to the situation by confidently executing strategies foreach product that were timed to a turnaround in the market environment. In theElectronics Materials business, this resulted
in relatively strong sales of bonding wire,
electric paste, target materials, and printed
wiring boards. In the Advanced Materials
business, as growth in demand for copperclad polyimide film continued on the backof expanded use of the chip-on-film(COF) method for LCD panels, we
expanded production capacity. As a resultof the above and a surge in the price of therare metal indium, net sales in these businesses increased 8.5% from the previous
fiscal year to ¥154.9 billion. Operating
income grew 29.5% from the previous fiscal year to ¥7.3 billion, as a result of ourefforts to cut costs and reduce inventories
in addition to the sales growth effect.

Net Sales by Product
Electronics Materials

Advanced Materials(Billions of yen)(Billions of yen)

200

15

150
10
100
5
50

0

0
FY00

FY01

FY02

FY03

FY04

Packaging materials
Crystal materials
Printed wiring boards
Electronics materials
Others

FY00

FY01

Powder materials
Battery materials
Magnet materials

FY02

FY03

FY04

Functional materials
Circuit board materials
OthersNote: Net sales include in-house transactions.

SUMITOMO METAL MINING CO., LTD.

| 19

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

Runs IC packaging
materials business

Ohkuchi Electronics Co., Ltd.
Niihama Electronics Co., Ltd.
Sumitomo Metal Mining Asia Pacific Pte. Ltd.

Regional management ofoverseas lead frame business

M-SMM Electronics SDN. BHD.
Sumiko Leadframe Singapore Pte. Ltd.
P.T.SUMIKO LEADFRAME BINTAN
Sumiko Electronics Taiwan Co., Ltd.
Sumiko Leadframe (Thailand) Co., Ltd.
Sumiko Leadframe Chengdu Co., Ltd.

• Bonding Wire
Ohkuchi Electronics Co., Ltd.

Kunitomi District Division
SMM KOREA Co., Ltd.

20

| SUMITOMO METAL MINING CO., LTD.

Kagoshima, Japan

Tape materials, Bonding wire, Recovery andrecycling of precious metals

Ehime, Japan
Singapore

Kagoshima, Japan

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

• Advanced Materials
Isoura Plant

Other Products
Tape materials

Malaysia
Singapore
Indonesia
TaiwanThailandChengdu,Sichuan Province, China
Suzhou,Jiangsu Province, China

Sumiko Electronics Suzhou Co., Ltd.

• Electronics Materials
Electronics Division
SMM Precision Co., Ltd.
Shinko Co., Ltd.
Ajimu Electronics Co., Ltd.
Shanghai Sumiko Electronic Paste Co., Ltd.
SMM USA, Inc.
SMMEP Pte. Ltd.

Location
Tokyo, Japan

Malaysia
TaiwanShanghai, China

Paste, Crystal materials, etc.
Optical components
Printed wiring boards
Solder plating of IC
Paste
TV frameTV frame

Tokyo, Japan
Akita, Japan
Nagano, Japan
Oita, Japan
Shanghai, China
the U.S.
Singapore

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

Ehime, Japan
Hokkaido, Japan
South Korea

Lead frame, Tape materials, Recovery and recycling of precious metals
PasteMain Product Strategies
Bonding Wire
This is used to connect the electrodes ofsemiconductor chips to lead frames. In
high-density ICs, gold wire is generally
used because of its superior workability
and conductivity. While leveraging theadvantage of being able to procure the gold
metal raw material in-house, we offer
products that combine the high strengthand superior bonding characteristics
required by increasingly multi-pin, narrow-pitch ICs.
While the market is expected to maintain an annual growth rate of around 8%,
prices are likely to fall amid harsher competition. For this reason, we are reinforcing
our cost-competitiveness by shifting our
production base from Japan to other partsof Asia. In addition, in order to strengthen
our response to the Chinese market, which
continues to grow at a high rate, we completed a production base in Shanghai in
January 2005 and have initiated production and sales there. We are also focusing
on enhancing production capacity in
Malaysia with a view to increasing the current total for the Company 1.3-fold by fiscal year 2006. This should boost our current 25% share of the global market to30%.

Bonding Wire

Electric Paste
Electric paste is widely used in the chipcomponents installed in electronic equipment such as mobile phones, personal
computers, and home appliances. The
nickel paste that we originated for theinternal electrodes of multilayer ceramic
capacitors (MLCC) has been especiallywell received by the market and has
secured a top-class share globally. By
expanding sales of this product and fully
entering the market for external electrodepaste, we aim to increase sales volume fromthe current monthly production of 40
tonnes to 50 tonnes by fiscal year 2006. In
addition, we plan to launch new highvalue-added products such as paste forplasma display panels (PDP) and paste forwhite light-emitting diodes (LEDs).

Lead Frames
Lead frames are metal frames that form theexternal leads for semiconductor devices.
SMM has a top 15% share of the global
market. While lead frames are principallyused in personal computers and mobile

Electric Paste

SUMITOMO METAL MINING CO., LTD.

| 21

phones, demand is also expanding forautomobiles, which are increasingly featuring electronic equipment.
The production bases that we havedeveloped in seven countries in Asia are,based on the policies of each customer’s
location, providing highly cost-competitive
products for the semiconductor industries
of Japan, Korea, Taiwan, and China. In
particular, we are working to provide a
local supply system that can handle thestrong market in China, where semiconductor assembly manufacturers are setting
up operations in rapid succession.
In December 2004, we completed our
second production site in China, inSuzhou, Jiangsu Province, and began production of lead frames. In terms of production capacity, we aim to expand monthly
production to 110 million units by the endof fiscal year 2005. In May 2005, moreover, we decided to build a new lead frame
etching factory and have begun construction with a view to starting operations in
April 2006. Etching products do not
require initial investment in tools and,compared with press processing, are well
suited to multi-product, low-volume production. As further latent demand is likely
to be realized, therefore, sales volume canbe expected to expand going forward. We
are planning monthly production volumeof 10 million units and aim to expand thisto 60 million units by fiscal year 2008.
As a result of these efforts, SMM is the
only lead frame manufacturer in China
with a full complement of processes
including plating for both press and etching products. In addition, we are also planning to expand sales of lead-free and otherhigh value-added products with a view tofurther solidifying our current global top
share position.

Copper-clad Polyimide Film
Copper-clad polyimide film is a board
material whose main usage is in the chipon-film (COF) boards that package the ICs
that drive LCDs. Unlike the conventional
type with copper strips, COF boards using
this product are highly flexible and fit intight spaces. For these reasons, in addition
to their use in personal computers, they are
increasingly being used in LCD TVs,
which are becoming flatter and smaller. In
particular, our global share for COF boards
for large-scale LCDs exceeds 90%.

In order to be able to meet rapidly
expanding demand, in fiscal year 2004 weenhanced our production capacity from
1.2 million m2 to 2.4 million m2. In fiscal
year 2005, moreover, we are constructing a
new factory in Niihama in order to reinforce annual production to 4.5 million m2
by the end of the fiscal year. Going forward we will proactively reinforce production capacity in line with demand growth.
We are also devoting energy to expanding
our business by developing new products.

Copper-clad Polyimide Film

22

| SUMITOMO METAL MINING CO., LTD.

Lead FramesOther Businesses
Construction Materials BusinessOur construction materials business mainly manufactures and sells Siporex (autoclaved lightweight aerated concrete), a
building material incorporating technology
from Sweden. Blending the solid feel ofconcrete and the light weight of wood,
Siporex is also known as “unsinkable concrete” and “non-flammable wood.”
Following a number of years of operating
losses due to the impact of the prolonged
construction slump, the Construction
Materials segment posted operating
income of ¥7 million in fiscal year 2003 asa result of a radical restructuring aimed at
producing a cost reduction effect. In fiscal
year 2004, net sales grew 2.7% comparedwith the previous fiscal year to ¥15.8 billion and operating income surged to ¥1.2
billion. This was in part due to the fullcontribution from the cost reduction
effect. It was also a result of our efforts toimprove selling prices amid increasing
nationwide shipments of Siporex after abottoming in demand and sharply higher
materials and energy costs.
Recycling Business andEnvironmental Improvement
Business
While the environmental business is
expected to enjoy market growth going
forward, competition is also likely to
become increasingly harsh as companies

from various types of businesses enter themarket. Our focus is on the recycling business, which recovers valuable metals suchas zinc, copper, nickel, precious metals,
and rare metals and is a field in which we
can leverage the technologies that we havedeveloped in our mineral resources andmetals businesses, and on the environmental improvement business, which includes
assessment and remediation of soil andgroundwater contamination.
In fiscal year 2004, net sales of environmental business (six environmental

improvement businesses in the list below
and the Nippon Catalyst Cycle Co., Ltd.)
increased 47% compared with the previous
fiscal year to ¥20.9 billion and operating
income grew a strong 105% to ¥2.2 billion. This was a result of strength in thevaluable metal recovery business on theback of sharply higher prices for the
molybdenum and other metals it recoveredfrom used desulfurization catalysts. For fiscal year 2005, moreover, the environmental business is targeting net sales of
upwards of ¥20 billion.

Summary of Recycling Businesses
Business

Activities

Sumitomo Metal Mining• Recovers zinc from the electric arc furnace dust generated
in steel production, copper and nickel from the effluent
produced by the plating process, and precious metals from
scrapped electronics materials• Recovers valuable metals such as molybdenum and vanadium from the used desulfurization catalyst produced when
oil is refined*Processing capacity for about 50% of the desulfurization
catalyst produced in Japan

Nippon Catalyst Cycle Co., Ltd.

Summary of Environmental Improvement Businesses
Business

Activities

Sumitomo Metal Mining• Integrated management of group companies and affiliations(Energy & Environment Business Division) with our research centers• Development and sale of processing equipment such as NFree, N-Free E and F-Free, which render the nitrate-nitrogen and ammonium-nitrogen in plant effluents harmless
Sumicon Certech Co., Ltd.
• Assessment and remediation of contaminated soil andgroundwater
Sumiko Eco-engineering Co., Ltd.
• Environment-related engineering such as exhaust gas treatment; Corrosion control for harbor facilities
Sumiko Techno-Research Co., Ltd.
• Environmental assessment and analysis
Japan Irradiation Service Co., Ltd.
• Radiation processing for sterilization of food packaging
materials and medical devices as well as for use in modification of industrial materials
Nippon Ketjen Co., Ltd• Manufacture and sale of desulfurization catalysts for oil
refining

SUMITOMO METAL MINING CO., LTD.

| 23

Financial Section
Contents
Management’s Discussion and Analysis ......................... 25
Eleven-Year Financial Summary ..................................... 32
Consolidated Balance Sheets .......................................... 34
Consolidated Statements of Operations ......................... 36
Consolidated Statements of Shareholders’ Equity .......... 37
Consolidated Statements of Cash Flows ......................... 38
Notes to Consolidated Financial Statements .................. 39
Independent Auditor’s Report ....................................... 54

Management’s Discussion and Analysis
Overview of Businesses
In addition to itself, the businesses of Sumitomo Metal
Mining Co., Ltd. (SMM) include 64 subsidiaries and 11 affiliated companies. The three core segments of operations are:1) Mineral Resources, which mines gold, silver, and copper;
2) Metals, which consists of the smelting business, centered ongold, copper, nickel, and zinc, and the metal process business, which manufactures copper elongation products; and3) Electronics Materials and Advanced Materials, whose electronics materials business manufactures electronic components such as IC packaging materials, crystal materials, andprinted circuit boards, and whose advanced materials business
manufactures copper-clad polyimide film, nickel, palladium,and other metal powders, and battery and magnetic materials.
In addition to these three core businesses there are theConstruction Materials segment, which manufactures Siporex(autoclaved lightweight concrete, or ALC), and the Others
segment, which runs a nuclear power engineering business andan environmental business.
This Annual Report presents the consolidated results of theCompany, 47 domestic and overseas consolidated subsidiaries,and eight affiliates accounted for by the equity method.
Consolidated Statement of Income
Net Sales
Net sales in fiscal year 2004 (from April 1, 2004 to March 31,2005) increased ¥82,454 million (20.5%) from the previous
fiscal year to ¥484,585 million (US$4,515 million). The
Metals segment accounted for 68.8% of net sales.
In fiscal year 2004, the non-ferrous metal industry was characterized by continued overall strength in demand thanks tomoderate recovery in the Japanese economy and strong

growth in the Chinese economy. The prices of non-ferrous
metals such as copper and nickel rose sharply amid favorable
demand and global raw material shortages. Although the foreign exchange rate was relatively stable in the first half, the yen
strengthened in the second half. In the electronics-relatedindustry, meanwhile, the semiconductor and electronic parts
markets became brisk in the middle of the first half, supported
by growth and recovery in demand for such products as digital
home appliances, mobile phones, and personal computers.
The second half, however, marked the beginning of an inventory adjustment phase.
As a result of the above, Mineral Resources segment sales
increased ¥7,756 million from the previous year to ¥33,071
million (US$308 million) due to smooth operations at the
Morenci Copper Mine and Hishikari Mine and to higher copper and gold prices despite the decrease due to the strong yen
impact. Metals segment sales increased ¥59,791 million fromthe previous fiscal year to ¥333,178 million (US$3,105 million), supported mainly by high prices for and sales growth innickel and copper. Electronics Materials and Advanced
Materials sales rose ¥12,188 million from the previous year to¥154,864 million (US$1,443 million). This was supported bya sharp rise in the price of the rare metal indium in addition
to relative strength in the main products on which sales
expansion efforts were focused. Net sales by business segment
also include inter-segment sales.
Costs and Expenses
Cost of sales in fiscal year 2004 increased ¥53,290 million(15.3%) from the previous fiscal year to ¥401,707 million(US$3,743 million), supported by the higher raw materials
prices resulting from higher non-ferrous metals prices. The

Net Sales

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

(%)

600

100

25

23.1
15.8
154.9

500
400

15.1
24.9
146.3

300

20.0
21.6
111.0

12.4
16.7
132.9

10.2
15.4
142.7

204.8

197.2

14.6
63.4

226.3

11.6

51.8

15

13.4
53.7

10
38.2

5

20

23.6

FY200023.3

FY200124.7

FY2002

20

17.1

60

40

100
0

82.9
16.9

333.2
273.4

200

80

25.3

FY200333.1

FY2004

Electronics & advanced materials
Mineral resources
MetalsConstruction materials
Others00FY2000FY2001

FY2002

FY2003

FY2004Gross Margin (right)

SUMITOMO METAL MINING CO., LTD.

| 25

gross margin rose sharply from 13.4% to 17.1% due to theturnaround in the refining margin.
Sales, general, and administrative (SG&A) expenses
increased ¥4,049 million (13.1%) from the previous fiscal yearto ¥34,985 million (US$ 326 million). This is mainly attributable to a ¥1,209 million (18.3%) increase in salaries andbenefits and a ¥526 million increase (12.3%) in research anddevelopment increases.
Operating Income
Operating income grew ¥25,115 million (110.3%) from theprevious year to ¥47,893 million (US$446 million) as profit
increased in all business segments.
In the Mineral Resources segment, in addition to the profit
growth that resulted mainly from higher revenue from overseas
copper mines, Hishikari Mine profit increased due to higher
gold prices. In the Metals segment, in addition to the turnaround in the refining margin due to higher overseas prices forcopper and nickel, the high level of non-ferrous metal prices
expanded the one-off increase in operating income resulting
from a change in the valuation method for inventory assets
from last-in, first-out to first-in, first-out. Profit grew in theElectronics Materials and Advanced Materials segment asstronger sales of its main products boosted revenue. Profit also
became established in the Construction Materials segment due
to the success of reconstruction measures.

earnings of affiliated companies from the previous fiscal year to¥13,513 million (US126 million) and a decrease in writedowns of investment securities to zero from ¥998 million in theprevious fiscal year. Negative factors include a large decrease ingains on the sale of investment securities to ¥71 million(US$662,000) from ¥4,848 million in the previous term and¥3,636 valuation loss on derivatives in fiscal year 2004. In addition, a ¥1,263 million impairment loss was posted due theadoption of impairment loss accounting for fixed assets.
Net financial expenses (interest received + dividends
received – interest paid) improved ¥205 million, from ¥1,098
million (US$10 million) in the previous fiscal year to ¥893
million (US$8 million).
Tax-effect accounting has been in effect since fiscal year
1999 and a negative tax adjustment of ¥5,276 million (US$49
million) was posted.
Net Income
In fiscal year 2004, the SMM Group posted net income of¥37,017 million (US$345 million), a large increase from
¥17,135 million (86.2%) in the previous fiscal year.
Net income per share in fiscal year 2004 was ¥64.77(US$0.64), compared with ¥34.76 in the previous fiscal year.

Other Income (Expenses)
Other income (expenses) in fiscal year 2004 was ¥6,024 million(US$56 million) from ¥8,416 million in the previous fiscal
year. This is attributable to several factors. Positive factors
include a large ¥6,401 million (90.0%) increase in the equity

Impact of Exchange Rate Fluctuations
Non-ferrous metal profit is closely linked to foreign exchange
rates, which affect all phases of operations, from procurementof ores to sales of finished products.
A strong yen is a negative factor for SMM’s earnings. This isbecause although a strong yen makes procurement costs lower
for SMM, it also leads to lower finished product prices, reducing
smelting margins, which are generally denominated in U.S. dol-Oparating Income and Operating Margin

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

50

10.0

40

9.9

40
7,2

30

20

4.7

0.4
5.6

20
15.4

0.6
4.1

10
2.4
-0.3

-10
FY2000

0.3

6.0

5.7

0.3
10.0

3.5
0.8
-4.4
-0.3

FY2001

1.8

12.6

15.1

10
2.0

8.3
2.7
-0.4

19.9

4.0

10.0
4.5

0

0
-1.2
-6.6

-2.0
FY2002

FY2003

FY2004

Electronics & advanced materials
Mineral resources
MetalsConstruction materials
OthersOperating Margin (right)

26

37.0

8.0

27.7

30

0

2.4
1.2
7.3

| SUMITOMO METAL MINING CO., LTD.

-10
FY2000FY2001

FY2002

FY2003

FY2004lars. Although the foreign exchange rate was relatively stable in
the first half, the yen strengthened in the second half. As a result,the exchange rate for fiscal year 2004 was US$1=¥107.54, compared with US$1=¥113.06 in the previous fiscal year.
An average strengthening over the full year of the Japanesecurrency by one yen against the U.S. dollar results in a ¥500
million deterioration in SMM’s consolidated results.
Results by Business Segment
The following sections are based on segment data. Net sales andoperating income for each area include inter-segment transactions.
Mineral Resources
Net sales in this segment increased ¥7,756 million (30.6%)
from the previous fiscal year to ¥33,071 million (US$308 million). This is attributable to higher revenue at the Morenci
Copper Mine due to higher overseas copper prices and at theHishikari Mine due to higher overseas gold prices despite adecrease due to the stronger yen.
Operating income increased ¥5,511 million (123.6%) fromthe previous fiscal year to ¥9,971 million (US$93 million).
This is attributable to the profit growth effect resulting fromhigher revenues at the Morenci Copper Mine and Hishikari
Mine despite the posting of expenses in conjunction with
progress at the Pogo Gold Mine Development Project.
Metals
Net sales in this segment increased ¥59,791 (21.9%) to¥333,178 million (US$3,105 million). This is attributable tohigher overseas prices and increased sales volume for both copperand nickel. Sales of copper were strong to both the domestic wire
industry and copper elongation industry. Despite an adjustment

phase in the second half in some electronics materials applications, nickel did well due to the overall strength in demand forstainless steel and for energy-related special steels and alloys.
Operating income increased ¥15,134 million (120.4%) fromthe previous fiscal year to ¥27,701 million (US$258 million). In
addition to the increase due to higher overseas prices for copperand nickel, this is because the high level of non-ferrous metal
prices expanded the one-off increase in operating income resulting from a change in the valuation method for inventory assets.
Electronics Materials and Advanced Materials
Net sales in this segment increased ¥12,188 million (8.5%) to¥154,864 million (US$1,443 million). Sales were strong infirst half, supported by replacement demand for personal computers in addition to growth in digital home appliances suchas digital cameras, flat-panel TVs and DVD recorders. In thesecond half, however, sales volumes fell as inventories of theseproducts entered an adjustment phase.
Despite such fluctuations in demand, this segment confidently executed strategies for each product that were timed toa turnaround in the market environment, resulting in relatively strong sales throughout the year of bonding wire, electric
paste, target materials, thin film materials, and printed wiringboards. Demand for the advanced material copper-clad polyimide film continued to expand due to LCD market growth
and the switchover by panel makers to the chip-on-film(COF) method and we responded by reinforcing production
capacity. Revenue increased, moreover, due to sharply higher
prices of the rare metal indium.
This growth in sales volume boosted revenue. As a result,operating income grew ¥1,653 million (29.5%) to ¥7,265 million (US$68 million).

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

140133.25130123.90120120.20110107.32105.69100
FY2000FY2001

FY2002

FY2003

FY2004

SUMITOMO METAL MINING CO., LTD.

| 27

Construction Materials
Net sales in this segment increased ¥408 million (2.7%) to¥15,785 million (US$147 million). In addition to an increasein shipment volume in ALC (autoclaved lightweight concrete)compared with the previous fiscal year amid an apparent bottoming of real estate prices, mainly in urban areas, this is
attributable to our efforts to improve sales prices against abackground of surging raw materials and energy prices.
Operating income increased ¥1,173 million from the previous fiscal year to ¥1,180 million (US$11 million). This is
attributable to appearance of the cost reduction effect resulting from the radical restructuring of the ALC business.

Research and Development Expenses
Research and development expenses in fiscal year 2004
increased ¥526 million (12.3%) from the previous fiscal yearto ¥4,812 million (US$45 million). Priority R&D projects bysegment are as follows. The Mineral Resources segment isdeveloping concentration processes for non-ferrous raw material ores and a variety of leaching techniques. The Metals segment is developing non-ferrous smelting and electrolysis technologies. The Electronics Materials and Advanced Materials
segment is developing new electronics materials technologies,
focusing on new semiconductor packaging materials.

Capital Expenditures and Depreciation
Capital expenditure in fiscal year 2004 totaled ¥36,488 million (US$340 million), down ¥10,052 million (21.6%) fromthe previous fiscal year. The Metals segment accounted for¥15,192 million of this (41.6% of the total) and theElectronics Materials and Advanced Materials segment for¥12,578 million (34.5% of the total). Major investment projects include investment to develop overseas mineral resources(Pogo Gold Mine Development Project) in the Mineral
Resources segment, investment to reinforce smelting andrefining facilities (Toyo Smelter & Refinery) and constructionof a new low-grade nickel oxide ore processing facility (Coral
Bay Project) in the Metals segment, and expansion of copperclad polyimide film production facilities in the Electronics
Materials and Advanced Materials segment.
Depreciation increased ¥2,754 million (15.5%) from theprevious fiscal year to ¥20,578 million (US$192 million).

Financial Position and Liquidity
Financial Position
Total assets as of March 31, 2005, stood at ¥573,925 million(US$5,348 million), up ¥55,995 million from the end of theprevious fiscal year. Current assets rose ¥35,868 million (18.8%)
to ¥226,846 million (US$2,114 million). The main factors
behind this was a ¥37,813 million (58.2%) increase in inventory
assets from the previous fiscal year in conjunction with higher
non-ferrous metal prices and change in valuation method.
Net property, plant and equipment stood at ¥207,745 million (US$1,936 million), up ¥16,848 million (8.8%) from theend of the previous fiscal year, due mainly to large-scale project implementation.
Investments and long-term receivables stood at ¥133,610
million (US$1,245 million), up ¥4,512 million (3.5%). The
main factor behind this was a ¥4,566 million increase ininvestment securities due to the consolidation of affiliatedcompanies for the first time.

Capital Expenditures

Depreciation(Billions of yen)(Billions of yen)

50

30
2.1
1.2
0.2
12.2

40

30

20

0.8
0.3
0.2
15.0

10

0

7.4
4.4

FY20009.3

FY2001

1.4

FY2002

0.8
0.5
0.6
8.8

0.8
0.5
0.7
8.3

4.0

4.0

4.4

4.7

3.0

3.2
3.2

2.9

FY2002

FY2003

0.6
1.3
0.7
8.9

10
6.4
7.0
3.0

FY20030
FY2004

Electronics & advanced materials
Mineral resources
MetalsConstruction materials
OthersElimination or corporate

28

0.7
0.5
0.7
8.7

0.6
0.5
0.7
8.0

15.2
2.4
0.4
0.1
9.5
5.0

2.8

20

27.9

1.1
0.4
0.5
11.2

0.2
1.2
0.3
12.6

| SUMITOMO METAL MINING CO., LTD.

FY2000FY2001

2.8

FY2004

Electronics & advanced materials
Mineral resources
MetalsConstruction materials
OthersElimination or corporate

Composition of Interest-Bearing Debt
Millions of yen

2004

At year-end

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

¥ 50,756
109,777
283,897¥573,925

2003(12.0)(16.7)(48.9)(100.0)¥ 61,914
86,437253,071¥517,930(8.8)(19.1)(49.5)(100.0)2002¥ 78,329
76,470223,341¥470,774(16.6)(16.2)(47.4)(100.0)( ):Percentage to total assets

Meanwhile, current liabilities stood at ¥140,464 (US$1,309
million), up ¥2,281 million (1.7%) from the end of the previous fiscal year. The current ratio increased from 138% in theprevious fiscal year to 161%.
In terms of long-term liabilities, long-term debts due after
one year increased ¥23,340 million (27.0%) from the end of
the previous fiscal year to ¥109,777 million (US$1,023 million), due to appropriations such as fund raising for large-scale
project investments. As a result, total liabilities excluding
minority interests stood at ¥281,099 million (US$2,619 million), up ¥24,834 million (9.7%).
Total shareholders’ equity stood at ¥283,897 million(US$2,645 million), up ¥30,826 million (12.2%) from theend of the previous fiscal year. The increase in retained earnings (¥32,552 million) due to the sharp turnaround in net
income compared with the previous fiscal year was far larger
than the decrease in foreign currency translation adjustment(¥645 million) mainly against the U.S. dollar.
The equity ratio rose from 48.9% in the previous fiscal year
to 49.5%.

Consolidated Statement of Cash FlowsNet cash flows from operating activities in fiscal year 2004
improved ¥7,826 million from the previous fiscal year to ¥40,150
million (US$374 million), mainly due to in increase in consolidated operating income compared with the previous year and to adecrease in receivables despite an increase in inventory assets.
Net cash flows from investing activities saw outflows
increase to ¥31,725 million (US$296 million) in fiscal year
2004 from ¥17,448 million in the previous fiscal year. This ismainly attributable to a ¥18,203 million decrease from theprevious fiscal year in proceeds from the sale of investment
securities and a ¥2,233 million decrease in proceeds from thesale of property, plant and equipment, despite a ¥3,074 million increase from the previous fiscal year in proceeds from thesale of subsidiaries’ securities.
Net cash flow from financing activities saw an inflow of¥6,097 million (US$57 million) in fiscal year 2004, comparedwith an outflow of ¥9,293 million in the previous fiscal year.
This is attributable to revenue from bond issuance increased¥10,000 million from the previous fiscal year, to a ¥6,559 million decrease in payments from the previous fiscal year due toLong-Term Debt Due After One Yearand Dept to Equity Ratio

Shareholders’ Equity and Equity Ratio(Billions of yen)(Times)125

1.0(Billions of yen)

(%)

300

60
283.9

109.8

100
0.75

75

0.71

0.69

83.8
74.0

76.5

200

86.4
0.59

0.8

237.5
44.8

236.3

47.4

45.6

223.3

253.1
48.9

49.5

40

0.6
0.57

0.4

50

100
25

20

0.2

0

0
FY2000FY2001

Debt to Equity Ratio (right)

FY2002

FY2003

FY200400FY2000FY2001

FY2002

FY2003

FY2004Equity Ratio (right)

SUMITOMO METAL MINING CO., LTD.

| 29

the reining in of short-term debt and commercial paper repayment and redemption, and to a ¥7,232 million decrease fromthe previous fiscal year in payments for long-term debt repayment while a ¥6,000 million increase from the previous fiscal
year in payments for bond redemptions.
As a result of the above, including the effect of foreignexchange rate fluctuations and consolidated subsidiarychanges, the year-end balance of cash and cash equivalents was¥34,785 million (US$324 million), up ¥15,481 million fromthe beginning of the year.
Risk Information
The following types of information contained in this reportconcerning the Group’s businesses and management may substantially affect the investor’s judgment. Moreover, the forwardlooking statements contained herein are based on the views of
the Group as of the end of consolidated fiscal year 2004.
1) Fluctuations in Non-ferrous Metal Prices and Foreign
Exchange Rates
1. Slump in Non-Ferrous Metal Prices
The prices of non-ferrous metals such as copper, nickel, andgold are determined by the London Metal Exchange (LME)and other international markets (the prices determined bythese markets are hereinafter referred to as LME and othermarket prices). LME and other market prices vary in response
to impacts such as the international balance of supply anddemand, political and economic conditions, speculative transactions, and the cost-competitiveness of substitute materials.
Any significant and sustained decline in the LME and othermarket prices of copper, nickel, and gold due to such impacts

Net Cash Flows(Billions of yen)

50
40.2

40
33.4

30
20

32.3
26.1

23.3

10

6.1

0
-10

-4.2

may cause serious deterioration in the Group’s financial position and business performance.
2. Foreign Exchange Rate (Strong Yen)
The prices of imported raw materials such as copper concentrate and nickel matte are determined according to the U.S.
dollar-denominated LME and other market rates. This is also
true of the sales prices of metals in Japan. For this reason, theGroup’s smelting margins are effectively denominated in U.S.
dollars. The revenue generated by our investments in overseas
mines and electronics materials businesses and by exports ofelectronics materials products is also denominated in foreign
currencies. Any large and sustained impact of a strong yen on
exchanges rates may therefore cause serious deterioration in
the Group’s financial position and business performance.
In response, the Group is promoting various policies in order toovercome deterioration in the environment by reinforcing its competitiveness in raw materials procurement and manufacturing.
2) Non-Ferrous Metal Raw Materials: Deterioration in
Purchase Contract Terms and Supply Difficulties
The Group intends to increase the proportion of non-ferrous
metal raw materials such as copper concentrate and nickel
matte that it procures from producers in which it has an equity stake (referred to below as “in-house ore ratio”). Currently,
however, we procure the majority of these raw materials
through long-term ore-purchasing contracts with third parties.
Although these contracts’ terms for purchasing raw materials
are renegotiated annually, it is not always possible to purchasethe required amounts at reasonable prices due to a variety ofmarket factors. Moreover, as product prices are largely determined by factors directly related to the non-ferrous metals themselves such as supply and demand, it is generally difficult to shiftdeterioration in raw material purchasing terms to product prices.
In addition, raw material supply can be delayed or suspended
due to uncontrollable factors such as bad weather, major earthquakes, operational accidents, and labor disputes. Any constraint
on the Group’s production due to these factors may cause deterioration of its financial position and business performance.
In response, the Group is working to secure stable raw material sources by boosting its in-house ore ratio through, forexample, investment high-quality overseas mines.

-9.3

-20
-30

-14.2

-16.2 -14.3
-21.2

-17.4

-26.1
-31.7

-40
FY2000FY2001

FY2002

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

30

FY2003

FY2004

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

3) Uncertainties of Mining Investment
As mentioned above, the Group has a policy of investing inmines in order to boost the in-house ore ratio of its raw material procurement. However, minable reserves and mining costsmay prove to differ from prospecting-based estimates, impairing the expected return on investment. In mine development,a variety of factors including environmental administration
procedures may delay the start of production and increasedevelopment costs. Additional investment or higher mining
costs resulting from these uncertainties inherent in mining
investment may cause deterioration in the Group’s financial
position and business performance.
In response, the Group makes carefully selected investments
by cautiously determining profitability based on its long years
of prospecting experience and mine assessment expertise.
4) Risks Associated with Environmental Protection andCompliance
The Group’s businesses, in particular its mining business andnon-ferrous metal refining business, are subject to a broad
range of laws including those regulating worker safety, worker
hygiene, environmental protection, prevention of pollution
caused by mining, mine waste product processing, and toxic
substance management. These laws can require a business to
pay compensation whether or not it was at fault and to pay tomaintain and manage mines after they have been closed down.
Moreover, new environmental regulations can cause additions
to the expense burden. The mining business and non-ferrous
metal refining business also bear the risks and liabilities associated with environmental pollution and mine waste products.
Managing businesses in compliance with the relevant laws
mentioned above may entail a substantial cost burden and theexpenses required to deal with new risks brought about by
unforeseen circumstances may exceed assumptions. These costburdens may cause deterioration of the Group’s financial position and business performance.
In response, in addition to taking all possible measures toensure environmental protection and compliance by strictly
applying its environmental management system and risk management system, the Group aims for a reasonable cost burden.
5) Risks Associated with Market Volatility, New ProductDevelopment, and Intellectual Property
The markets targeted by the Group’s Electronics Materials
and Advanced Materials segment are characterized by rapidchanges in technologies used, customer requirements, andproduct life cycles on the one hand, and the need for large

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

SUMITOMO METAL MINING CO., LTD.

| 31

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

2005

2004

2003

2002

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

¥ 484,585
82,87847,893
6,024
53,91737,017
13,51336,48820,578(893)
40,150(31,725)
6,097
8,425

¥ 402,131
53,714
22,7788,416
31,194
19,882
7,112
46,54017,824(1,098)32,324(17,448)(9,293)
14,876¥ 355,242
51,764
16,593(24,098)(7,505)(1,172)
3,400
18,92718,283(1,459)26,105(21,246)(14,163)4,859¥ 330,194
38,152
1,147(13,735)(12,588)(6,611)
1,535
25,37917,822(1,775)33,370(16,246)(14,267)
17,124

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

573,925
283,897
109,777
160,533
86,382517,930
253,071
86,437
148,351
52,795

470,774
223,341
76,470154,799
35,945

518,756
236,31373,972167,077
23,371Per Share (Yen):
Net income (loss) ......................................................................
Shareholders’ equity ..................................................................
Cash dividends ..........................................................................

64.77
497.578.0

34.76
443.296.0(2.05)
391.145.0(11.56)413.28
4.0

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

6.78
13.8
49.5
28.0
0.57
1.61

4.02
8.35
48.9
28.6
0.59
1.38

—
—
47.4
32.9
0.69
1.26

—
—
45.6
32.2
0.71
1.14

Years ended March 31

32| SUMITOMO METAL MINING CO., LTD.

Millions of yen (unless otherwise specified)

1996

1995

2001

2000

1999

1998

1997

¥ 375,352
63,372
26,930(11,359)
15,571
15,103
4,078
28,078
16,774(2,129)23,339(4,248)(26,089)
19,091¥ 360,299
45,061
8,990(4,342)
4,648
4,740
2,406
20,49016,611(2,492)(800)
4,143(9,086)3,343¥ 350,288
41,190858(12,932)(12,074)(12,495)
326
32,49923,095(1,907)
22,912(23,287)
4,047
(375)

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

¥ 464,843
40,2625,169(2,384)
2,785
1,292(2,214)—
20,917(5,076)721———

530,080
237,470
83,839176,998
33,259544,121235,231
107,266
197,624
38,910544,519
226,795
124,535
207,82150,518566,088
243,436
82,356
201,515
26,529586,948
238,056
117,021
224,736
62,726624,419
225,296
171,596285,871
104,854591,446
205,940
197,884
277,289
101,11026.41
415.256.0

8.29
411.345.0(21.85)396.593.0

17.77
425.686.0

22.65
417.206.0

19.18
398.356.0

2.32
370.17
5.0

2.81
6.39
44.8
33.4
0.75
1.2

0.87
2.05
43.2
36.3
0.84
1.23

—
—
41.7
38.2
0.92
1.31

1.76
4.22
43.0
35.6
0.83
1.13

2.13
5.56
40.6
38.3
0.94
1.31

1.76
4.95
36.1
45.8
1.27
1.53

0.22
0.62
34.8
46.9
1.35
1.63

SUMITOMO METAL MINING CO., LTD.

| 33

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

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

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

34| SUMITOMO METAL MINING CO., LTD.

Thousands of
U.S. dollars(Note1)

2004

2005

19,304 $449

324,124
2,842

57,294
6,197

64,1982,013

533,861
57,743

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

8,395
9,021
(1,219)65,004
4,431
19,382
190,978

41,63347,717(4,109)958,041
21,422
130,460
2,113,734

69,262
61,613—64,93861,371(555)

645,378
574,105
—

19
771
2,468
(523)
133,610

203
711
2,904
(474)
129,098

177
7,184
22,997(4,873)
1,244,968

29,005
137,794289,20915,396
471,404(263,659)
207,745

30,780124,390
265,125
22,066442,361(251,464)
190,897

270,266
1,283,955
2,694,829
143,459
4,392,509(2,456,755)
1,935,754

2005

As of March 31, 2005 and 2004

Current assets:
Cash and cash equivalents ....................................................................................................................
Time deposits ......................................................................................................................................
Receivables:
Notes and accounts receivable (Notes 7 ):Trade ............................................................................................................................................
Non-consolidated subsidiaries and affiliated companies ................................................................
Loans and others:
Non-consolidated subsidiaries and affiliated companies ................................................................
Other ............................................................................................................................................
Allowance for doubtful accounts ......................................................................................................
Inventories (Note 5) ............................................................................................................................
Deferred tax assets (Note 8) .................................................................................................................
Other current assets .............................................................................................................................
Total current assets ....................................................................................................................

Millions of yen¥

34,785
305

388
5,336
¥ 573,925

¥

3,615
642
49,7206,315¥ 517,930 $ 5,347,791

LIABILITIES AND SHAREHOLDERS’ EQUITYAs of March 31, 2005 and 2004

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

Millions of yen

Thousands of
U.S. dollars(Note1)

2005

2004

2005

¥ 36,871
13,885¥ 43,798
18,11632,357
6,128
7,071
9,729
4,360
1,319
100
63
28,581
140,464
109,777
11,877
12,753
220
1,026
1,469
1,454
2,059
140,635

34,6302,767
12,339
1,298
3,713
1,888
800
54
18,780138,183
86,437
8,545
15,034
220
1,053
4,018
511
2,264
118,082

301,500
57,10065,88790,654
40,626
12,290932
587
266,316
1,308,832
1,022,894
110,669
118,832
2,050
9,560
13,68813,54819,186
1,310,427

8,929

8,594

83,200$343,561
129,379

Contingent liabilities (Note 13)
Shareholders’ equity (Note 12):
Common stock
Authorized - 1,000,000,000 shares
Issued 571,872,794 shares .....................................................................................................
Capital Surplus ....................................................................................................................................
Retained earnings (Note 11) ................................................................................................................
Net unrealized holding gain (loss) on available-for-sale securities .........................................................
Foreign currency translation adjustment ..............................................................................................
Treasury stock, at cost ..........................................................................................................................
Total shareholders’ equity .............................................................................................................

88,355
81,191
113,762
15,280(13,912)(779)
283,897¥ 573,925

88,355823,286
81,187756,532
81,2101,060,026
16,111
142,378(13,267)(129,631)(525)(7,259)253,0712,645,332¥ 517,930 $ 5,347,791

SUMITOMO METAL MINING CO., LTD.

| 35

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

2004

2003

2005

¥ 484,585¥ 402,131¥ 355,242$ 4,515,328

401,707
34,985436,692
47,893

348,41730,936379,353
22,778303,478
35,171
338,649
16,593

3,743,077
325,988
4,069,065
446,263957(1,850)
71
—
1,390
(757)
(1,263)
—
(78)
(41)
—
(313)
(185)
—
(743)
—
—
(478)
(622)
(3,636)27
13,513
1,313(1,281)
6,024
53,917

1,023(2,121)
4,848
(998)
(360)
1,746

1,074
(2,533)
108(17,247)
(465)
(766)

—
(1,131)
710
271
(642)
(790)
(720)
(745)
—
—
—
(108)
1,280
32
7,112
—
(991)
8,416
31,194

1,845
—
(851)
(301)
(838)
(3,613)
(225)
—
(990)
(398)
(1,391)
—
240
49
3,400
—
(1,196)(24,098)(7,505)

8,917(17,238)662—
12,952(7,054)(11,769)
—
(727)
(382)
—
(2,917)(1,724)—(6,923)——(4,454)(5,796)(33,880)252
125,913
12,234(11,936)
56,130502,393

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

1,330
9,400
10,73020,464(582)¥ 19,882

329(6,755)(6,426)(1,079)(93)¥ (1,172) $95,471
49,161
144,632
357,761(12,840)
344,921

Operating income (Note 14) .........................................................................................
Other income (expenses):
Interest and dividend income ........................................................................................
Interest expense .............................................................................................................
Gain on sale of investment securities .............................................................................
Write-down of investment securities .............................................................................
Gain(Loss) on sales of securities of subsidiaries and an affiliated company .....................
Gain (Loss) on sale and disposal of property, plant and equipment ...............................
Loss on impairment of fixed assets ................................................................................
Gain on securities contributed to employee retirement benefits trust ............................
Loss on liquidation of subsidiaries .................................................................................
Reversal of allowance (provision) for doubtful accounts ................................................
Reversal of allowance (provision) for loss on investments ..............................................
Exchange gain (loss) ......................................................................................................
Restructuring charges ....................................................................................................
Loss from realignment of operations .............................................................................
Maintenance cost for ceased projects .............................................................................
Loss from suspension of operating activity of a consolidated subsidiary .........................
Loss from disposal of inventories ...................................................................................
Write-off of obsolete inventories ...................................................................................
Casualty loss .................................................................................................................
Gain (loss) from valuation of derivative instruments .....................................................
Amortization of consolidation difference .......................................................................
Equity in earnings of affiliated companies .....................................................................
Gain on change in interests in an affiliated company .....................................................
Other, net .....................................................................................................................
Income (Loss) before income taxes and minority interests ..........................................
Income taxes (Note 8):
Current .........................................................................................................................
Deferred ........................................................................................................................

Minority interests in net income (loss) of consolidated subsidiaries ..........................
Net income (loss) ........................................................................................................

Thousands of
U.S. dollars(Note1)

2005

Years ended March 31, 2005, 2004 and 2003

Net sales (Note 14) ........................................................................................................
Costs and expenses (Note 14):
Cost of sales ..................................................................................................................
Selling, general and administrative (Note 10) ................................................................

Millions of yen

yen

Amounts per share of common stock:
Net income (loss) ..........................................................................................................
Cash dividends applicable to the year ............................................................................
The accompanying notes are an integral part of those statements.

36| SUMITOMO METAL MINING CO., LTD.

¥

64.77
8.00

¥

34.76
6.00

¥

(2.05) $5.00

U.S. dollars(Note1)

0.60
0.07

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

Millions of yen

Years ended March 31, 2005, 2004 and 2003

Balance at March 31, 2002 .......................................
Increase due to merger of non-consolidated
subsidiaries ..........................................................
Decrease due to change in consolidation ofsubsidiaries ..........................................................
Net loss ..................................................................
Adjustments from translation of foreign currency
financial statements .............................................
Adjustments for unrealized losses on securities ........
Treasury stock ........................................................
Cash dividends paid (¥4.00 per share) ....................
Balance at March 31, 2003 .......................................
Net income .............................................................
Adjustments from translation of foreign currency
financial statements .............................................
Adjustments for unrealized gains on securities ........
Treasury stock ........................................................
Gain on sale of treasury stock .................................
Cash dividends paid (¥5.00 per share) ....................
Balance at March 31, 2004 ........................................
Net income ............................................................
Increase due to change in consolidationof subsidiaries .....................................................
Adjustments from translationof foreign currency financial statements ..............
Adjustments for unrealized gains on securities ........
Treasury stock ........................................................
Gain on sale of treasury stock .................................
Executive bonuses ...................................................
Decrease due to change in consolidationof subsidiaries ......................................................
Decrease due to change in consolidationof affiliated companies ........................................
Cash dividends paid (¥6.00 per share) ....................
Balance at March 31, 2005 ........................................

Shares ofcommon stock(thousands)

Commonstock

CapitalSurplusRetainedearnings

Net unrealized
holding gain (loss)
on available-forsale securities

571,873¥ 88,355¥ 81,184¥ 67,856¥ 2,344

Foreign currencytranslation
adjustments

Treasurystock¥ (3,391)¥ (35)

164(378)(1,172)(4,372)(4,561)(366)
571,873¥ 88,355¥ 81,184(2,287)¥ 64,183
19,882¥ (2,217)¥ (7,763)¥(401)(5,504)
18,328(124)
3571,873¥ 88,355¥ 81,187(2,855)¥ 81,210
37,017¥16,111¥ (13,267)¥(525)

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

571,873¥88,355¥81,191(981)(3,425)¥113,762¥15,280¥(13,912)¥(779)

Thousands of U.S. dollars (Note 1)

Years ended March 31, 2005, 2004 and 2003

Commonstock

CapitalSurplusRetainedearnings

Balance at March 31, 2004 ................................................................... $ 823,286 $ 756,495 $ 756,709
Net income ........................................................................................
344,922
Increase due to change in consolidation of subsidiaries ......................
9,775
Adjustments from translation of foreign currency financial statements ..
Adjustments for unrealized gains on securities ...................................
Treasury stock ...................................................................................
Gain on sale of treasury stock ............................................................
37
Executive bonuses ..............................................................................
(345)
Decrease due to change in consolidation of subsidiaries ......................
(9,980)Decrease due to change in consolidation of affiliated companies ........
(9,141)
Cash dividends paid ($0.06per share) ................................................
(31,914)
Balance at March 31, 2005 ................................................................... $823,286 $756,532 $1,060,026

Net unrealized
holding gain (loss)
on available-forsale securities$ 150,121

Foreign currencytranslation
adjustments

Treasurystock$ (123,621) $(4,892)(6,010)(7,743)(2,367)$142,378$(129,631) $(7,259)

The accompanying notes are an integral part of those statements.

SUMITOMO METAL MINING CO., LTD.

| 37

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

Millions of yen

Thousands of
U.S. dollars(Note1)

2005

2004

2003

2005

Income (Loss) before income taxes and minority interests ............................................................

¥ 53,917¥ 31,194¥ (7,505)$ 502,395

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

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

18,283—766(108)
17,247
301
—
465
(240)
485
(658)
(1,074)
2,533(3,400)—90
3,042(1,845)
—
233
—
990
1,069
4,269
9,387
(3,769)(9,024)
31,537
2,338(2,633)(3,198)
—
(962)
(201)
—
(233)
(460)
(83)
26,105

191,744
11,769
7,054
(662)
—
—
—
(14,825)
33,880(671)(22,903)(8,917)
17,238(125,913)(12,234)
(643)
652
—
5,796
—
6,923
—
(5,665)89,676(345,332)
26,89233,135389,389
33,517(17,918)(885)(6,923)——(5,488)—(17,574)—
374,118

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

(38,056)
2,615
(416)
—
235
4,018
(1,575)
2,105(651)(31,725)(35,245)
4,848(2,046)—
18,438944(3,224)
1,392(2,555)(17,448)(21,723)
5,715(60)(4,566)
1,976
702(3,381)
648(557)(21,246)(354,603)
24,366(3,876)—
2,190
37,439(14,676)
19,614(6,066)(295,612)

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

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

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

12,875(8,367)(7,393)3,000(22,000)
10,000(366)(2,287)375(14,163)

156,401(24,096)(64,946)—(149,087)
186,359(2,367)(31,914)(13,539)
56,811

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...............................................................
Increase in cash and cash equivalents due to merger of non-consolidated subsidiaries ................
Other decrease in cash and cash equivalents ..............................................................................
Cash and cash equivalents at end of fiscal year ...........................................................................

55
14,577
19,304904——¥ 34,785

(772)
4,811
13,581
1,299
—
(387)
¥ 19,304(58)(9,362)
22,76355
125—¥ 13,581

512
135,829
179,873
8,422——$ 324,124Years ended March 31, 2005, 2004 and 2003

Cash flows from operating activities:

The accompanying notes are an integral part of those statements.

38| SUMITOMO METAL MINING CO., LTD.

Notes to Consolidated Financial Statements
SUMITOMO METAL MINING CO., LTD. AND SUBSIDIARIES
1. Basis of presenting consolidated financial statements
The accompanying consolidated financial statements have been
prepared in accordance with the provisions set forth in theJapanese Securities and Exchange Law and its related accounting regulations, and in conformity with accounting principles
generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to application and disclosure
requirements of International Financial Reporting Standards.
The accounts of overseas subsidiaries are based on theiraccounting records maintained in conformity with generally
accepted accounting principles prevailing in the respective
countries of domicile. The accompanying consolidated financial statements have been restructured and translated into
English (with some expanded descriptions and the inclusionof consolidated statements of shareholders’ equity) from theconsolidated financial statements of the Company prepared inaccordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as
required by the Securities and Exchange Law. Some supplementary information included in the statutory Japanese language consolidated financial statements, but not required forfair presentation, is not presented in the accompanying consolidated financial statements.
The translations of the Japanese yen amounts into U.S. dollars are included solely for the convenience of readers outside
Japan, using the prevailing exchange rate at March 31, 2005,
which was ¥107.32 to U.S. $1. The convenience translations
should not be construed as representations that the Japanese yenamounts have been, could have been, or could in the future be,converted into U.S. dollars at this or any other rate of exchange.
2. Summary of significant accounting policies
Consolidation — The consolidated financial statements
include the accounts of the Company and its significant subsidiaries (47 subsidiaries in 2005, 40 in 2004 and 39 in 2003).
All significant intercompany balances and transactions havebeen eliminated. Investments in affiliates over which theCompany has the ability to exercise significant influence over
operating and financial policies of the investees, are accounted
for by the equity method (8 affiliated companies in 2005 and
6 affiliated companies in 2004 and 2003). Investments in theremaining unconsolidated subsidiaries and affiliates are carriedat cost because of their immaterial effect on the consolidated
financial statements.
In the elimination of investments in subsidiaries, the assets
and liabilities of the subsidiaries, including the portion attributable to minority shareholders, are recorded based on the fairvalue at the time the Company acquired control of the respective subsidiaries.
The consolidation difference between the cost of aninvestment and the underlying equity in its net assets at thedate of acquisition is being amortized over five years withminor exceptions.
Cash and cash equivalents and cash flow statements — For
the purpose of the consolidated statements of cash flows, theCompany and its consolidated subsidiaries classify cash on
hand, readily-available bank deposits and short-term highly
liquid investments with maturities of not exceeding threemonths at the time of purchase as cash and cash equivalents.
Allowance for doubtful accounts — The Company and its
consolidated domestic subsidiaries provide a general allowancefor doubtful accounts. Calculation of this allowance is basedon actual collection losses incurred in the past. Additionally,
for accounts receivable considered at risk (bankruptcy, companies under rehabilitation plan, or other similar conditions), an
allowance is booked based on an estimation of the uncollectible amount, on a case by case basis.
Investment securities — Securities are classified into two categories based on the intent of holding; available-for-sale securities and securities issued by non-consolidated subsidiaries
and affiliated companies.
Available-for-sale securities with available fair values are statedat the fair value. Unrealized gains and losses on these securities
are reported, net of applicable income taxes, as a separate component of shareholders’ equity. Other available-for-sale securities with no available fair values are stated at moving-averagemethod. Securities issued by non-consolidated subsidiaries andaffiliated companies are stated at moving-average costs.
Derivatives and hedge accounting — Derivative instruments are stated at fair value. Changes in the fair values arerecognized as gains and losses unless derivative transactions areused for hedging purposes.
If derivative transactions are used as hedges and meet certain
hedging criteria, the Company and its domestic consolidated
subsidiaries defer recognition of gains or losses resulting fromchanges in fair value of derivative transactions until the related
losses or gains on the hedged items are recognized.
However, in cases where forward foreign exchange contracts
are used as hedges and meet certain hedging criteria, forward
foreign exchange contracts and hedged items are accounted
for in the following manner:
SUMITOMO METAL MINING CO., LTD.

| 39

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

40| SUMITOMO METAL MINING CO., LTD.

(2) Supplies – Supplies are stated at the weighted average cost.
(Change for the accounting policy of inventory valuation)
The costs of the Company’s inventories except for precious
metals and electronics and advanced materials had been determined using the last-in, last-out (LIFO) methods until theyear ended March 31, 2004, but they have been determinedusing the first-in, first-out (FIFO) methods for year starting
April 1, 2004.
This change was made in order to present the Company’s
financial presentations more appropriately by reflecting the current trading price of those non-ferrous metals such as copper,
nickel and zinc in the international market to the balance sheet
amounts of these inventories, by which also enable the Company
to recognize the periodic allocation of income and expenses
properly by eliminating the price volatility of the metals.
As the result of the change of the accounting policy, inventories were increased by ¥11,113 million ($103,550 thousand)and the operating income, income before income taxes
increased by the same amount above.
Also refer to the section of business segment informationand geographic segment information for the impact of thechange to the Company’s segment information.
Property, plant and equipment — Property, plant andequipment are stated at cost.
Depreciation of property, plant and equipment is computedby the straight-line method, based on the estimated useful
lives of the assets. The depreciation period generally ranges
from 3 years to 50 years for buildings and structures and 5
years to 17 years for machinery and equipment.
(Adopting the new accounting standard for impairment of
fixed assets)
The Company and consolidated domestic subsidiaries
adopted early from April 1, 2004, the new accounting standard for impairment of fixed assets (“Opinion Concerning
Establishment of Accounting Standard for Impairment of
Fixed assets” issued by the Business Accounting Deliberation
Council on August 9, 2002) and the implementation guidance for accounting standard for impairment of fixed assets(the Financial Accounting Standard Implementation
Guidance No. 6 issued by the Accounting Standards Board ofJapan on October 31, 2003).
As the result of adopting the accounting policy, income
before income taxes was decreased by ¥1,263 million($11,769 thousand).
Also refer to the section of business segment information for
the impact of adopting the new accounting standard.

Retirement benefits — Under the terms of the Company’s
retirement plan, substantially all employees are entitled to a
lump-sum payment at the time of retirement. The amount of
retirement benefits is, in general, based on the length of service, base salary at the time of retirement or severance and thecause thereof.
The Company and certain consolidated domestic subsidiaries also have a non-contributory funded pension plan,
which covers substantially all employees.
The Company may make payments for additional retirement
benefits for employees which payments have not been includedin the actuarial calculation of the projected benefit obligation.
The Company and its consolidated domestic subsidiaries
provided allowance for employees’ severance and retirement
benefits at March 31, 2005 and 2004 based on the estimatedamounts of projected benefit obligation and the fair value ofthe plan assets at those dates.
Actuarial gains and losses are recognized in expenses using
the straight-line method over the average of the estimatedremaining service lives of ten years commencing with the following period.
Accrued retirement benefits in the consolidated balance
sheets also include estimated liabilities for the unfunded lumpsum benefit plan covering directors and corporate auditors.
Research and development — Research and development
costs are charged to income as incurred.
Bond issue expense — Bond issue expense is charged toincome as incurred.
Accounting for certain lease transactions — Finance leases
which do not transfer ownership to lessees are accounted forin the same manner as operating leases.
Income taxes — The Company and its consolidated subsidiaries recognize tax effects of temporary differences between
the financial statement basis and the tax basis of assets and lia-

bilities. The provision for income taxes is computed based on
the pretax income included in the statement of operations.
The asset and liability approach is used to recognize deferred
tax assets and liabilities for the expected future tax consequences of temporary differences.
Sales — Sales of merchandise and finished products are recognized when the products are shipped to customers.
Bonuses to directors and corporate auditors — Bonuses todirectors and corporate auditors, which are subject to shareholders’ approval at the annual shareholders’ meeting under
the Commercial Code of Japan, are accounted for as an
appropriation of retained earnings.
Earnings per share — Effective April 1, 2002, the Company
and its consolidated domestic subsidiaries adopted the new
accounting standard for earnings per share and related guidance (Accounting Standards Board Statement No.2,“Accounting Standard for Earnings Per Share” and Financial
Standards Implementation Guidance No.4, “Implementation
Guidance for Accounting Standard for Earnings Per Share”,
issued by the Accounting Standards Board of Japan on
September 25, 2002).
The adoption of the new accounting standard had no
impact on the consolidated financial statements.
Amounts per share of common stock — Net income pershare is computed based on the weighted-average number ofshares of common stock in issue during each fiscal year.
Cash dividends per share represent the actual amount applicable to the respective fiscal year.
Reclassifications — Certain prior year amounts have been
reclassified to conform to the 2005 presentation. Thesechanges had no impact on previously reported results of operations or shareholders’ equity.

SUMITOMO METAL MINING CO., LTD.

| 41

3. Securities(1) The following tables summarize acquisition costs, bookvalues and fair value of available-for-sale securities withavailable fair values as of March 31, 2005 and 2004.

Securities with book values exceeding acquisition costs
Millions of yen

2005
Equity securities .............................................................
Others ............................................................................
Total ............................................................................

2004

Acquisition cost

Book value

Difference

Acquisition cost

Book value

Difference¥ 28,67450¥ 28,724¥ 54,27580¥ 54,355¥ 25,60130¥ 25,631¥ 25,53450¥ 25,584¥ 52,58878¥ 52,666¥ 27,05428¥ 27,082

Thousands of U.S. dollars

2005
Equity securities .............................................................
Bonds .............................................................................
Total ............................................................................

Acquisition cost

Book value

Difference$ 267,182
466$ 267,648$ 505,731
745$ 506,476$ 238,549
279$ 238,828

Securities with book values not exceeding acquisition costs
Millions of yen

2005
Equity securities .............................................................
Others ............................................................................
Total ............................................................................

2004

Acquisition cost

Book value

Difference

Acquisition cost

Book value

Difference¥ 1,996—¥ 1,996¥ 1,961—¥ 1,961¥ (35)—¥ (35)¥ 1,263—¥ 1,263¥ 1,168—¥ 1,168¥ (95)—¥ (95)

Thousands of U.S. dollars

2005
Equity securities .............................................................
Others ............................................................................
Total ............................................................................

Acquisition cost

Book value

Difference$ 18,599—$ 18,599$ 18,272—$ 18,272$ (327)—$ (327)(2) The following tables summarize book values of the securities with no available fair values as of March 31, 2005 and 2004:
Available-for-sale securities

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

42| SUMITOMO METAL MINING CO., LTD.

Millions of yen

Thousands of
U.S. dollars

2005

2004

2005

¥ 4,43928¥ 4,467¥ 6,620—¥ 6,620$ 41,362
261$ 41,623

(3) Available-for-sale securities with maturities as of March 31, 2005 and 2004 are as follows:
As of March 31, 2005

Millions of yen
Within one year

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

¥ 28

Over one year but Over five years but
within five years
within ten years¥ 80

As of March 31, 2005¥—

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

$ 261

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

$ 745

$—

As of March 31, 2004

Total

$ 1,006
Millions of yen

Within one year

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

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

¥ 108

Thousands of U.S. dollars
Within one year(4) Total sales of available-for-sale securities sold in the year
ended March 31, 2005 amounted to ¥235 million ($2,190
thousand) and the related gains amounted to ¥71 million($662 thousand). No losses were recognized in the year
ended March 31, 2005.

Total

¥—

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

¥ 78

¥—

Total

¥ 78

Total sales of available-for-sale securities sold in the year
ended March 31, 2004 amounted to ¥18,438 million andthe related gains amounted to ¥4,848 million. No losses
were recognized in the year ended March 31, 2004.

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

SUMITOMO METAL MINING CO., LTD.

| 43

The following tables summarize market value information as of March 31, 2005 and 2004 of derivative transactions for which
hedge accounting has not been applied:
Millions of yen

2005

2004

Contracted amountContracted amount

Total

Over oneyear

Currency:
Forward contracts:
Sell position—U.S. dollars ....... ¥59
Buy position—U.S. dollars .......
5,684¥ 5,743

¥—
—
¥—

¥

60
5,780
¥
—

¥

(1)
96
95

¥

¥—
—

¥ 16,090
—

—
—
¥—

(490)
—
—

Commodity:
Forward contracts:
Sell position—Metal ................ ¥ 14,408
Buy position—Metal ................
—
Call option contracts:
Sell position—Metal ................
3,082
Buy position—Metal ................
—¥ 17,490

Marketvalue¥

Recognized
gains (losses)

Total

Over one
year

70
4,110
¥ 4,180

¥—
—
¥—

¥

68
4,003
¥
—

¥

¥ (1,682)—¥—
10,069

¥—
—

¥

¥

(490)
—
¥ (2,172)—34¥ 10,103

—
—
¥—

¥

Marketvalue—
11,382

Recognized
gains (losses)

2(107)¥ (105)

—
1,313

—
325
—

—
291
¥ 1,604

Millions of yen

Thousands of
U.S. dollars

2005

2004

2005

2,021
22,27440,98237,540¥ 102,817¥ 1,902
17,71524,646
20,741¥ 65,004$ 18,832
207,548
381,867
349,795$ 958,042¥

Thousands of U.S. dollars

2005
Contracted amount
Total

Over oneyear

Currency:
Forward contracts:
Sell position—U.S. dollars ....... $550
Buy position—U.S. dollars .......
52,963$ 53,513

$—
—
$—

$

559
53,858
$
—

$

$—
—

$ 149,925—$ (15,672)
—

—
—
$—

(4,566)—$—(4,566)—$ (20,238)

Commodity:
Forward contracts:
Sell position—Metal ................ $ 134,253
Buy position—Metal ................
—
Call option contracts:
Sell position—Metal ................
28,718
Buy position—Metal ................
—$ 162,971

Marketvalue

Recognized
gains (losses)

$

(9)
895
886

5. Inventories
Inventories at March 31, 2005 and 2004 consists of the following:

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

44| SUMITOMO METAL MINING CO., LTD.

¥

6. Loss on impairment of fixed assets
Loss on impairment of fixed assets for the year ended March 31, 2005 consisted of the following.
Location

Major use

Asset category

Loss

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

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

Land
Land
Buildings and Structures
Machinery and equipment
Machinery and equipment
Machinery and equipment¥ 794 million¥ 178 million¥
73 million¥ 155 million¥
1 million¥
62 million¥ 1,263 million

As the result of the early adoption of the new accounting standards, income before income taxes was decreased by ¥1,263
million ($11,769 thousand).
As for the idle land which was acquired for future factory sites,
rental apartment and fine art, the book value of the assets was
reduced to the recoverable amount due to a decline in themarket price of each asset.

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

7. Bank loans and long-term debt
Bank loans are generally represented by short-term notes(most of which are unsecured) and bank overdrafts, and boreinterest at annual rates of 0.44% to 6.13% and 0.53% to6.27% at March 31, 2005 and 2004, respectively.

Long-term debt at March 31, 2005 and 2004 consists of the following:
Millions of yen

Thousands of
U.S. dollars

2004

2005

2005
Long-term loans from:
Banks, insurance companies and other financial institutions, maturing through2015 at interest rates of 0.69% to 5.25%:
Secured ..............................................................................................................................................
Unsecured .........................................................................................................................................
Government owned banks and government agencies, maturing through2019 at interest rates of 0.84% to 5.30%:
Secured ..............................................................................................................................................
Unsecured .........................................................................................................................................
2.2% domestic bonds due in 2004 .......................................................................................................
2.225% domestic bonds due in 2004 ...................................................................................................
2.0% domestic bonds due in 2005 .......................................................................................................
0.88% domestic bonds due in 2006 .....................................................................................................
1.08% domestic bonds due in 2007 .....................................................................................................
0.51% domestic bonds due in 2008 .....................................................................................................
Zero coupon convertible bonds due in 2009 ........................................................................................
Amount due within one year ..................................................................................................................

¥

154
41,424

9,976
12,108——10,00010,00010,00010,00020,000123,662(13,885)¥ 109,777¥

83
35,188

5,017
8,265

$

1,435
385,986

92,956112,821—6,000—
10,00093,17910,00093,17910,00093,17910,00093,17910,000186,359—
1,152,273
104,553(129,379)(18,116)¥ 86,437 $ 1,022,894

The 2.2% domestic bond was redeemed during the year ended March 31, 2004.
The 2.225% domestic bond was redeemed during the year ended March 31, 2004.

SUMITOMO METAL MINING CO., LTD.

| 45

The aggregate annual maturities of long-term debt at March 31, 2005 is as follows:Year ending March 31,

Millions of yen

Thousands of
U.S. dollars¥ 13,885
25,342
29,40023,61023,731
7,694$ 129,379
236,135
273,947
219,996
221,124
71,692Millions of yen

Thousands of
U.S. dollars

2004

2005

2006 .............................................................................................................................................................................
2007 .............................................................................................................................................................................
2008 .............................................................................................................................................................................
2009 .............................................................................................................................................................................
2010 .............................................................................................................................................................................
Thereafter .....................................................................................................................................................................

Assets pledged as collateral for bank loans and long-term debt at March 31, 2005 and 2004 are as follows:

2005
Investment securities
Subsidiaries ..........................................................................................................................................
Other ...................................................................................................................................................
Property, plant and equipment, at net book value ..................................................................................

8. Income taxes
Income taxes in the accompanying consolidated statements ofoperations comprise corporation tax, inhabitants taxes andenterprise tax. In terms of calculation of deferred tax assets andliabilities as of March 31, 2004, the Company and its consolidated domestic subsidiaries used the aggregate statutory tax
rate of 40.69% since the income tax rates for enterprise taxes
were reduced as a result of revision of the Japanese local tax law¥

131
12,102
51,399¥ 63,632¥

131
12,90649,750¥ 62,787$

1,221
112,766
478,932$ 592,919

effective from the year commencing on April 1, 2004. The
aggregate statutory tax rates in Japan were approximately
40.69% for the year ended March 31, 2005 and 42.5% for theyears ended March 31, 2004 and 2003.
Consolidated overseas subsidiaries are subject to income taxes of
the countries in which they domicile.

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

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

The Company has not disclosed the significant differences
between the statutory tax rate and the Company’s and its consolidated subsidiaries’ effective tax rate for the years ended
March 31, 2003, because it has incurred a loss before income
taxes and minority interests.

46| SUMITOMO METAL MINING CO., LTD.

2005

2004

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

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

Significant components of the Company’s and its consolidated subsidiaries’ deferred tax assets and liabilities as of March 31, 2005
and 2004 are as follows:
Millions of yen

Thousands of
U.S. dollars

2004

2005

2005
Deferred tax assets:
Net operating loss carry forwards .........................................................................................................
Retirement benefits ..............................................................................................................................
Allowance for bonus payable ................................................................................................................
Loss (Gain) from valuation of derivative instruments (Consolidated overseas subsidiaries) ...................
Depreciation ........................................................................................................................................
Accrued liquidation loss of subsidiaries ................................................................................................
Accrued enterprise taxes .......................................................................................................................
Loss on impairment of fixed assets .......................................................................................................
Allowance for losses on investments .....................................................................................................
Accrued indemnification loss of damages caused by a consolidated subsidiary ......................................
Write-down of investment securities ....................................................................................................
Accrued restructuring charges ..............................................................................................................
Others .................................................................................................................................................
Gross deferred tax assets ...................................................................................................................
Less valuation allowance ......................................................................................................................
Deferred tax assets-less valuation allowance ......................................................................................

¥

4,428
7,624
1,198
715
349
597
551
454
—
405
—
—
4,848
21,169(7,053)
14,116

¥

9,029
8,079
1,144
—
190
1,635
—
—
225
416
558
413
2,705
24,394(7,219)17,175$41,26071,04011,163
6,662
3,252
5,563
5,134
4,230
—
3,774
—
—
45,173
197,251(65,719)
131,532

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

(10,496)(1,284)(238)(4,097)(740)(594)(2,781)(2,695)(444)(23,369)(11,041)
(313)
(253)
(4,114)(797)(751)(1,601)(1,573)(258)(20,701)(97,801)(11,964)(2,218)(38,176)(6,895)(5,535)(25,913)(25,112)(4,137)(217,751)

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

¥ (9,253)¥ (3,526)$ (86,219)

9. Retirement benefits and pension costs
The liabilities for severance and retirement benefits included in the liability section of the consolidated balance sheets as of March
31, 2005 and 2004 consists of the following:

Projected benefit obligation ....................................................................................................................
Fair value of pension assets .....................................................................................................................
Excess of projected benefit obligation over pension assets .......................................................................
Unrecognized actuarial differences .........................................................................................................
Unrecognized prior services costs ............................................................................................................
Net pension liability recognized in the consolidated balance sheet .......................................................
Prepaid pension expenses .......................................................................................................................
Retirement benefits ..........................................................................................................................

The Company contributed securities to employee retirement
benefit trust, which are included in the pension assets.
Retirement benefits in the consolidated balance sheets as ofMarch 31, 2005 and 2004 also include estimated liabilities
for the unfunded lump-sum benefit plan covering directors

Millions of yen

Thousands of
U.S. dollars

2005

2004

2005

¥ (45,666)
34,356¥ (11,310)
3,636(4,583)¥ (12,257)—¥ (12,257)¥ (46,855)
29,684¥ (17,171)
2,521—¥ (14,650)
14¥ (14,664)$ (425,512)
320,127$ (105,385)
33,880(42,704)$ (114,209)—$ (114,209)

and corporate auditors (¥496 million ($4,622 thousand) ,¥370 million, respectively).
The Company and certain domestic subsidiaries have transferred their pension plan from approved retirement annuity
system to defined benefit plan as of April, 2004.
SUMITOMO METAL MINING CO., LTD.

| 47

Included in the consolidated statements of operations for the years ended March 31, 2005, 2004 and 2003 are severance andretirement benefit expense comprised of the following:

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

The Amounts for additional retirement benefits the Company
made for employees for the years ended March 31, 2004 and2004 were ¥632 million and ¥3,198 million respectively.
The discount rates used by the Company are primarily 2.0%
for fiscal year 2005 and 2.5% for fiscal years 2004 and 2003.
The rates of expected return on plan assets used by theMillions of yen

Thousands of
U.S. dollars

2005

2004

2003

2005

¥ 1,866
892
(530)
445
(509)
¥ 2,164¥ 1,973
986
(466)
867
—
¥ 3,360¥ 2,337
969
(495)
588
—
¥ 3,399$ 17,387
8,312(4,939)4,146(4,743)$ 20,163

Company are primarily 3.5%, respectively for fiscal years 2004,
2003 and 2002. The estimated amount of all retirement benefits to be paid at the future retirement date is allocated equally
to each service year using the estimated number of total service
years. Actuarial gains and losses are recognized in income
statement using the straight-line method in ten years.

10. Research and development expense
Research and development expense included in selling, generaland administrative expenses for the years ended March 31,
2005, 2004 and 2003 are ¥4,812 million ($44,838 thousand),¥4,286 million and ¥3,763 million, respectively.
11. Special reserves
For the purpose of obtaining tax benefits, the Company andsome consolidated subsidiaries have set up special reserves
mainly for losses on overseas investments and explorations inaccordance with the Special Taxation Measures Law of Japan.
12. Shareholders’ equity
The diluted net income per share for the years ended March
31, 2005, 2004 and 2003 are not calculated because there
were no securities with dilutive effect.
Under the Commercial Code of Japan, the entire amount of
the issue price of shares is required to be accounted for as capital, although a company may, by resolution of its Board of
Directors, account for an amount not exceeding one-half of
the issue price of the new shares as additional paid-in capital,
which is included in capital surplus.
The Commercial Code requires that an amount equal to atleast 10% of cash dividends and other cash appropriations
shall be appropriated and set aside as a legal earnings reserve
until the total amount of legal earnings reserve and additional
paid-in capital equals 25% of common stock. The total
amount of legal earnings reserve and additional paid-in capital48| SUMITOMO METAL MINING CO., LTD.

Such reserves, which are included in retained earnings, are¥19,877 million ($185,212 thousand) and ¥6,202 million atMarch 31, 2005 and 2004, respectively.

of the Company has reached 25% of common stock, andtherefore the Company is not required to provide legal earnings reserve any more. The legal earnings reserve and additional paid-in capital may be used to eliminate or reduce a
deficit by resolution of the shareholders’ meeting or may becapitalized by resolution of the Board of directors. On condition that the total amount of legal earnings reserve and additional paid-in capital remains equal to or exceeds 25% ofcommon stock, they are available for distribution by the resolution of shareholders’ meeting. Legal earnings reserve is
included in retained earnings in the accompanying consolidated financial statements.
The maximum amount that the Company can distribute as
dividends is calculated based on the non-consolidated financial statements of the Company in accordance with the Code.

13. Contingent liabilities
Contingent liabilities at March 31, 2005 are as follows:

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

14. Segment information
Business segment information
The primary business segments of the Company and its
consolidated subsidiaries include mineral resources, metals,

Millions of yen

Thousands of
U.S. dollars¥ 5,331$ 49,674

390
4,916¥ 10,637

3,634
45,807$ 99,115

electronics and advanced materials, construction materials
and others.

Business segment information for the years ended 31 March 2005, 2004 and 2003 are as follows:
2005

Millions of yen
Mineralresources

MetalsElectronics& advanced
materials

Construction
materials

Others

Net sales:
Outside customers .......................................... ¥ 22,715
Inter segment .................................................
10,356
Total ...........................................................
33,071¥ 284,332
48,846333,178¥ 147,987
6,877
154,864¥ 15,316
469
15,785

Costs and expenses ............................................
23,100Operating income (loss) .................................... ¥ 9,971
Identifiable assets .............................................. ¥ 64,384
Depreciation expense ........................................
2,751
Loss on impairment of fixed assets ....................
—
Capital expenditures .........................................
7,036

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

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

Mineralresources

MetalsElectronics& advanced
materials

Construction
materials

Others

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

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

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

20,855¥ 4,460¥ 52,326
2,947
3,001

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

Eliminationor corporate

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

20,671¥ 2,448¥ 49,087
1,290
—
1,179

(74,760)¥(672)¥ 67,702
587
856
246

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

2004

Millions of yen
Eliminationor corporate

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

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

379,353¥ 22,778¥ 517,930
17,82446,540SUMITOMO METAL MINING CO., LTD.

| 49

2003

Millions of yen
Mineralresources

MetalsElectronics& advanced
materials

Net sales:
Outside customers ..........................................
Inter segment .................................................
Total¥ 15,566
9,106
24,672¥ 186,442
39,901
226,343¥ 127,788
5,135
132,923¥ 16,456
285
16,741

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

21,990¥ 2,682¥ 50,981
3,238
1,414

218,017¥ 8,326¥ 183,202
4,419
5,005

128,805¥ 4,118¥ 111,101
8,792
9,506

17,093¥ (352)¥ 16,542
622
133

MetalsElectronics& advanced
materials

Construction
materials

Others

Net sales:
Outside customers .......................................... $ 211,657 $ 2,649,385 $ 1,378,932
Inter segment .................................................
64,079455,143
96,496
Total ........................................................... 308,153 3,104,528
1,443,011$ 142,713
4,370
147,083$ 132,641
82,780215,421$

Costs and expenses ............................................ 215,244 2,846,413
1,375,317
Operating income (loss) .................................... $ 92,909 $ 258,115 $
67,694
Identifiable assets .............................................. $ 599,925 $ 2,475,466 $ 1,051,407
Depreciation expense ........................................
83,33059,20625,634
Loss on impairment of fixed assets ....................
1,454
—
—
Capital expenditures .........................................
117,201
141,558
65,561

136,088$ 10,995$ 132,762
6,085
2,339
2,395

192,611$ 22,810$ 457,389
12,020—10,986(696,608) 4,069,065$ (6,260) $ 446,263$ 630,842 $ 5,347,791
191,745
5,470
11,7697,976
339,993
2,292

Eliminationor corporate

Consolidated¥ 8,990
3,385
12,375¥—(57,812)(57,812)¥ 355,242—
355,242

11,740¥635¥ 35,790
456
427(58,996)¥ 1,184¥ 73,158
756
2,442

338,649¥ 16,593¥ 470,774
18,28318,927

Construction
materials

Others2005

Thousands of U.S. dollars
Mineralresources(The effects of changes in accounting policies on segment
information)
Change for the accounting policy of inventory valuation
The costs of the Company’s inventories except for precious
metals and electronics and advanced materials had been determined using the last-in, last-out (LIFO) methods until theyear ended March 31, 2004, but they have been determined

Eliminationor corporate

Consolidated— $ 4,515,328—(702,868)(702,868) 4,515,328

using the first-in, first-out (FIFO) methods for year starting
April 1, 2004. As the result of the change of the accounting
policy, operating income increases by ¥14 million ($130 thousand) in Mineral resources, ¥10,605 million ($98,817 thousand) in Metallurgy, ¥494 million ($4,603 thousand) inElectronics & advanced materials.

Geographic segment information
Geographic segment information for the years ended March 31, 2005, 2004 and 2003 are summarized as follows:
2005

Millions of yen
Eliminationor corporate

Consolidated¥ 10,819
2,452
13,271¥—(28,338)(28,338)¥ 484,585—
484,585

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

436,692¥ 47,893¥ 573,925

Domestic

North
AmericaSoutheast
Asia

Others

Net sales:
Outside customers ................................................................ ¥ 419,109
Inter segment .......................................................................
25,604
Total ................................................................................. 444,713¥ 20,560—
20,560¥ 34,097
282
34,379Costs and expenses .................................................................. 403,820
Operating income (loss) .......................................................... ¥ 40,893
Identifiable assets .................................................................... ¥ 433,342

15,145¥ 5,415¥ 48,872

33,733¥646¥ 39,468

50| SUMITOMO METAL MINING CO., LTD.

2004

Millions of yen
Eliminationor corporate

Consolidated¥ 10,094
1,309
11,403¥—(23,226)(23,226)¥ 402,131—
402,131

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

379,353¥ 22,778¥ 517,930

Southeast
Asia

OthersEliminationor corporate

Consolidated¥ 15,04225
15,067¥ 23,686
964
24,650¥ 9,212
1,758
10,970¥—(17,124)(17,124)¥ 355,242—
355,242

15,559¥ (492)¥ 32,725

24,243¥407¥ 17,846

10,576¥394¥ 12,947(16,890)¥(234)¥ 57,270

338,649¥ 16,593¥ 470,774

Domestic

North
AmericaSoutheast
Asia

OthersEliminationor corporate

Net sales:
Outside customers ................................................................$ 3,905,227
Inter segment ....................................................................... 238,576
Total ................................................................................. 4,143,803$ 191,577—
191,577$ 317,713
2,628
320,341— $ 4,515,328$ 100,811 $—(264,052)
22,8484,515,328(264,052)
123,659

Costs and expenses .................................................................. 3,762,766
Operating income (loss) ..........................................................$ 381,037
Identifiable assets ....................................................................$ 4,037,849

141,120$ 50,457$ 455,386

314,322$ 6,019$ 367,760

4,069,065(263,912)
114,769(140) $ 446,263$ 8,890 $$ 229,566 $ 257,230 $ 5,347,791(The effects of changes in accounting policies on segment
information)
Change for the accounting policy of inventory valuation
The costs of inventories of the Company, except for supplies, of metallurgy segment and the other inventories except
for electronics and advanced material segment had been deter-

mined using the last-in, last-out (LIFO) methods until theyear ended March 31, 2004, but they have been determinedusing the first-in, first-out (FIFO) methods for year starting
April 1, 2004. As the result of the change of the accounting
policy, operating income in Domestic section increases by¥11,113 million ($103,550 thousand).

Domestic

North
AmericaSoutheast
Asia

Others

Net sales:
Outside customers ................................................................ ¥ 348,074
Inter segment .......................................................................
21,159Total ................................................................................. 369,233¥ 14,842—
14,842¥ 29,121
758
29,879Costs and expenses .................................................................. 347,562
Operating income (loss) .......................................................... ¥ 21,671
Identifiable assets .................................................................... ¥ 388,929

14,164¥678¥ 33,748

29,274¥605¥ 38,928

Domestic

North
America

Net sales:
Outside customers ................................................................ ¥ 307,302
Inter segment .......................................................................
14,377
Total ................................................................................. 321,679
Costs and expenses .................................................................. 305,161
Operating income (loss) .......................................................... ¥ 16,518
Identifiable assets .................................................................... ¥ 349,986

2003

Millions of yen

2005

Thousands of U.S. dollars
Consolidated

Information for overseas sales
2005

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

Millions of yen
North
AmericaSoutheast
Asia

East
Asia

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

SUMITOMO METAL MINING CO., LTD.

| 51

2004

Millions of yen
North
AmericaSoutheast
Asia

East
Asia

OthersTotal¥ 18,896—
4.7%¥ 28,916—
7.2%¥ 75,452—
18.8%¥ 3,111—
0.8%¥ 126,375¥ 402,131
31.4%

North
AmericaSoutheast
Asia

East
Asia

OthersTotal¥ 18,075—
5.1%¥ 25,385—
7.1%¥ 61,743—
17.4%¥ 2,386—
0.7%¥ 107,589¥ 355,242
30.3%

North
AmericaSoutheast
Asia

East
Asia

Overseas net sales ........................................................................................... $ 235,706
Consolidated net sales ....................................................................................
—
Share of overseas net sales ..............................................................................
5.2%$ 330,237—
7.3%$ 910,119—
20.2%

Overseas net sales ...........................................................................................
Consolidated net sales ....................................................................................
Share of overseas net sales ..............................................................................
2003

Millions of yen

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

Thousands of U.S. dollars
OthersTotal$ 33,079 $ 1,509,141— $ 4,515,328
0.7%
33.4%

15. Information for certain leases
As a lessee
A summary of assumed amounts inclusive of interest of acquisition cost, accumulated depreciation and net book value of financeleases accounted for in the same manner as operating leases at March 31, 2005 and 2004 are as follows:
Millions of yen

Acquisition cost

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

¥ 1,565377¥ 1,942

2005

2004

Accumulated Net book value
depreciation

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

¥ 491
60
¥ 551

Acquisition cost

¥ 1,490367¥ 1,857¥857
309¥ 1,166

¥ 633
58
¥ 691

Millions of yen

Thousands of
U.S. dollars

2005

2004

2005

¥ 295
256
¥ 551

¥ 296
395
¥ 691

$ 2,749
2,385$ 5,134

Thousands of U.S. dollars

2005
Acquisition cost

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

$ 14,583
3,513$ 18,096

Accumulated Net book value
depreciation$ 10,007
2,954$ 12,961$ 4,576559$ 5,135

Future lease payment, inclusive of interest at March 31, 2005 and 2004 under such leases are as follows:

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

52| SUMITOMO METAL MINING CO., LTD.

Total lease expenses and assumed depreciation charges for the years ended March 31, 2005, 2004 and 2003 are as follows:

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

Millions of yen

Thousands of
U.S. dollars

2005

2004

2003

2005

¥ 342
342

¥ 330
330

¥ 466
466

$ 3,187
3,187

As a lesser
A summary of acquisition cost , accumulated depreciation and net book value at March 31, 2005 and 2004 were as follows:
Millions of yen

Acquisition cost

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

¥ 377
1
¥ 378

2005

2004

Accumulated Net book value
depreciation

Accumulated Net book value
depreciation

¥ 225
1
¥ 226

¥ 152
0
¥ 152

Acquisition cost

¥ 382
1
¥ 383

¥ 201
1
¥ 202

¥ 181
0
¥ 181

Millions of yen

Thousands of
U.S. dollars

2005

2004

2005

¥ 32
107
¥ 139

¥ 34
157
¥ 191

Thousands of U.S. dollars

2005
Acquisition cost

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

$ 3,5139$ 3,522

Accumulated Net book value
depreciation$ 2,0979$ 2,106$ 1,4160$ 1,416

Future lease receipt, inclusive of interest, at March 31, 2005 and 2004 under such lease were as follows:

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

$

298
997
$ 1,295

Total revenue and depreciation charges for the years ended March 31, 2005, 2004, and 2003 were as follows:

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

Millions of yen

Thousands of
U.S. dollars

2005

2004

2003

2005

¥ 32
30

¥ 35
30

¥ 42
35

$ 298
280

16. Subsequent events(1) The following appropriations of retained earnings at March 31, 2005 were approved at the annual general meeting of shareholders of the Company held on June 29, 2005.

Year-end cash dividends (¥8.00 ($0.07) per share) ........................................................................................................
Bonuses to directors ......................................................................................................................................................

Millions of yen

Thousands of
U.S. dollars¥ 4,56452$ 42,527
485

SUMITOMO METAL MINING CO., LTD.

| 53

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, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity and cash flows
for each of the three years in the period ended March 31, 2005, 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 weplan 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 all material respects, the consolidated
financial position of Sumitomo Metal Mining Co., Ltd. and subsidiaries as of March 31, 2005 and 2004, and the consolidated
results of their operations and their cash flows for each of the three years in the period ended March 31, 2005, in conformity withaccounting principles generally accepted in Japan.

Without qualifying our opinion, we draw attention to the followings.
(1) As discussed in Note 2 to the consolidated financial statements, effective April 1, 2004, Sumitomo Metal Mining Co., Ltd.
changed the accounting policy of inventory valuation. The costs of inventories except for precious metals and inventories inelectronics and advanced material segment had been determined using the last-in, last-out (LIFO) methods until the year
ended March 31, 2004, but they were determined using the first-in, first-out (FIFO) methods for year starting April 1, 2004.

(2) As discussed in Note 2 to the consolidated financial statements, effective April 1, 2004, Sumitomo Metal Mining Co., Ltd.
and consolidated domestic subsidiaries adopted early the new accounting standards for impairment of fixed assets.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2005
are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our
opinion, such translation has been made on the basis described in Note 1 to the consolidated financial statements.

Tokyo, Japan
June 29, 2005

54

| SUMITOMO METAL MINING CO., LTD.

SMM GroupAs of March 31, 2005
Name

Voting Shares (%)

Branches, Divisions and Laboratories
Head OfficeOsaka Branch
Nagoya Branch
Besshi-Niihama District Division
Harima Smelter
Kunitomi District Division
Electronics Division
Hishikari Mine Department
Ichikawa Research Laboratories
Niihama Research Laboratories
Ome Research Laboratories
London Office
Shanghai Office
Domestic Major Subsidiaries and Affiliated Companies
Mineral Resources
Sumiko Consultants Co., Ltd.
100
MetalsHyuga Smelting Co., Ltd.
60
Sumitomo Metal Mining Brass & Copper Co., Ltd.
100
Taihei Metal Industry Co., Ltd.
96
Acids Co.,Ltd.*
50
MS Zinc co., Ltd.*
50
Electronics and Advanced Materials
Ohkuchi Electronics Co., Ltd.
100
Shinko Co., Ltd.
94
Niihama Electronics Co., Ltd.
100
Ajimu Electronics Co., Ltd.
100
Sumitomo Metal Mining Package Materials Co., Ltd.
100
Sumiko Tec Co., Ltd.
100
Fuji Electronics Industries Co., Ltd.
99
Sumico Lubricant Co., Ltd.
100
Nittosha Co., Ltd.
90
Construction Materials
Sumitomo Metal Mining Siporex Co., Ltd.
100
Igeta Heim Co., Ltd.
100
Other Services
Sumiko Eco-engineering Co., Ltd.
100
Sumiko Technical Service Co., Ltd.
100
SMM Plant Engineering Co., Ltd.
100
Sumiko Information Systems Co., Ltd.
100
N. E. Chemcat Corporation*
42
Nippon Ketjen Co., Ltd.*
50
Overseas Major Subsidiaries and Affiliated Companies
Sumitomo Metal Mining America Inc.
100
Sumitomo Metal Mining Arizona Inc.
80
SMMA Candelaria Inc.
100
Sumitomo Metal Mining Canada Ltd.
100
Sumitomo Metal Mining Oceania Pty. Ltd.
100
SMM Pogo LLC
100
Coral Bay Nickel Corporation
54
Sumitomo Metal Mining Asia Pacific Pte. Ltd.
100
M-SMM Electronics SDN. BHD.
100
Malaysian Electronics Materials SDN. BHD.
100
Sumiko Electronics Taiwan Co., Ltd.
70
Sumiko Leadframe (Thailand) Co., Ltd.
100
P.T.SUMIKO LEADFRAME BINTAN
100
Sumiko Leadframe Singapore Pte. Ltd.
100
Sumiko Leadframe Chengdu Co., Ltd.
85
SMM USA, Inc.
100
SMMEP Pte. Ltd.
100
COMPAÑIA CONTRACTUAL MINERA CANDELARIA* 20
P.T. International Nickel Indonesia*
20
FIGESBAL*
26
Jinlong Copper Co.,Ltd.*
27

Phone

Operations

81-3-3436-7701
81-6-6223-7714
81-52-963-2360
81-897-37-4800
81-794-37-8651
81-135-72-1211
81-428-31-1181
81-995-26-3111
81-47-372-7221
81-897-37-7171
81-428-31-4140
44-020-7246-3865
86-21-6219-4077

81-3-3827-6134

Geological surveys etc.

81-982-52-8101
81-3-3847-8011
81-46-274-1606
81-3-6402-7533
81-3-3591-3110

Ferro-nickel refining
Brass & Copper production
Casting alloy production
Sulfuric acid business
Zinc business

81-995-22-7511
81-265-79-0121
81-897-37-2411
81-978-44-2345
81-42-527-7246
81-45-921-2341
81-54-257-2800
81-3-3344-6835
81-466-48-6200

IC packaging materials production etc.
Printing wiring board production
Lead frame production
Solder plating of IC
IC packaging materials businessElectronic device terminal and connector production
Electronic device precision components production
Lubricants production
Metal product plating etc.

81-3-3435-4660
81-3-5452-7591

Construction materials (ALC) production
Ferro-concrete, ALC housing (subcontractor)

81-3-5685-1311
81-897-33-1050
81-897-37-4820
81-3-3436-7788
81-3-3435-5490
81-3-5442-5061

Environmental engineering etc.
Construction, refining etc. (subcontractor)
Refining facility engineering etc.
IT system development
Precious metal catalysts production etc.
Oil refining catalysts production etc.

1-206-405-2800
1-206-405-2800
1-206-405-2800
1-604-685-3274
61-2-9266-0400
1-206-405-2800
63-2-750-1536
65-6293-4377
60-3-5519-8140
60-3-5519-8302
886-7-365-3592
66-35-226303
62-770-696020
65-6293-4377
86-28-8515-5577
1-760-941-4500
65-6863-1123
56-2-251-1200
62-21-5249003
687-27-2031
86-562-3868006

Manages mining affiliates in U.S.
Jointly manages Morenci Mine, U.S.
Jointly manages La Candelaria Mine, Chile
Prospecting, consulting
Jointly manages Northparkes Mine, Australia
Pogo Project, Alaska, U.S.
Nickel cobalt mixed sulfide production
Manages overseas lead frame business
Lead frame production
Bonding wire production
Lead frame production
Lead frame production
Lead frame production
Lead frame production
Lead frame production
TV frame production
TV frame production
Manages La Candelaria Mine, Chile
Nickel ore mining and refining
Nickel ore mining etc.
Electrolytic copper and sulfuric acid production*Affiliated company

SUMITOMO METAL MINING CO., LTD.

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Corporate Data and Investor Information
As of March 31, 2005

Corporate Data
Head Office11-3, Shimbashi 5-chome, Minato-ku,
Tokyo 105-8716, JapanFounded

1590

Incorporated

1950

Paid-In Capital¥88.3 billion

Number of Employees

2,058

Contact Information
IR Department:
11-3, Shimbashi 5-chome
Minato-ku, Tokyo 105-8716, Japan
Phone:
81-3-3436-7921
Facsimile: 81-3-3436-7879
Homepage: http://www.smm.co.jp/

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

Listing of Shares
Tokyo, Osaka

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

Stock Transaction Units
1,000-share units

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

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

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

Common Stock
Number of authorized shares:
1,000,000,000 shares
Number of issued and outstanding
shares:571,872,794 shares
Number of shareholders:
55,416
Major Shareholders

Breakdown of Shareholders(Thousands of share)

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

Japan Trustee Services Bank. Ltd. (Trust accounts).....................
The Master Trust Bank of Japan, Ltd. (Trust accounts)..............
Separately managed money trustee, Mitsui Asset Trust andBanking Company, Limited “1” ..............................................
Japan Securities Finance Co., Ltd. ..............................................
The Chase Manhattan Bank NA London SL Omnibus Account
Sumitomo Mitsui Banking Corporation ....................................
The Mitsubishi Trust and Banking Corporation (Trust accounts)
Sumitomo Life Insurance Company ..........................................
State Street Bank and Trust Company (505103) .......................
BNP Paribas Securities (Japan) Limited ......................................

68,67852,332

12.0
9.2

9,354
8,656
8,279
7,650
7,504
7,104
6,267
6,129

1.6
1.5
1.4
1.3
1.3
1.2
1.1
1.1

Individuals and Other
20.7%
117,523

Financial Institutions
43.8%
248,277

Foreign Investors
27.0%
153,183

Securities Companies
3.1%
17,332Other Corporations
5.4%
30,662

Share Performance(Share index: April 1, 2004=100)(Millions of shares)

120

60

100

40

80

20

0

60
’04/4

SMM (left)

56

’04/5

’04/6

TOPIX (left)

’04/7

’04/8

’04/9

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

’04/10’04/11’04/12

’05/1

’05/2

’05/3

’05/4

’05/5

’05/6

’05/7

Corporate Officers
As of June 29, 2005

Director
Susumu Makino

Director
Nobuto Yamaguchi

Representative Director
Chitsura Arakawa

Representative Director
Koichi Fukushima

Directors and Statutory Auditors

Executive Officers

Representative Directors
Koichi Fukushima
Chitsura Arakawa

President
Koichi Fukushima

Directors
Hirosuke Chihara
Nobuto Yamaguchi
Yukio Ishikawa
Susumu Makino
Masashi Koike(Standing) Senior Auditor
Isao Shima(Standing) Auditor
Motoki Kitamura
Auditors
Hajime Ohta
Tsutomu Ushijima

Director
Yukio Ishikawa

Executive Vice President
Chitsura Arakawa
Senior Managing Executive Officers
Hirosuke Chihara
Nobuto Yamaguchi
Yukio Ishikawa
Managing Executive Officers
Takeshi Yamane
Susumu Makino
Takuro Mochihara
Masashi Koike
Ichiro Abe

Director
Masashi Koike
Director
Hirosuke Chihara

Executive Officers
Kotaro Tomino
Naoki Tajiri
Yoshiaki Hashinaka
Etsu Senda
Kouzou Baba
Nobumasa Kemori
Kawaguchi Yukio
Nakazato Yoshiaki
Yamasaki Toru

SUMITOMO METAL MINING CO., LTD.

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Printed on recycled paper in Japan