Link: http://www.reuters.com/article…rticleId=UKT7600220070928
UPDATE 1-Japan's Sumitomo Corp expanding metal portfolio
Fri Sep 28, 2007 9:45am EDT
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By Yuko Inoue
TOKYO, Sept 28 (Reuters) - Japan's Sumitomo Corp (8053.T: Quote, Profile, Research), said its 35-percent owned San Cristobal zinc, lead and silver mine in Bolivia, which made its first shipments last week, would likely yield net profit of $60-70 million in the next business year.
The third-biggest trading company in Japan recently suffered a surprise $120 million quarterly hedging loss from the mine, one of the world's biggest developments in silver and zinc, owned 65 percent by U.S. mining and exploration company Apex Silver Mines Ltd (SIL.A: Quote, Profile, Research).
That knocked down Sumitomo's net profit by 3.2 percent from a year earlier to 51 billion yen ($442.2 million) in the April-June first quarter.
"We expect a net profit of 7-8 billion yen in the next business year," Mitsuhiko Yamada, Sumitomo's executive officer, told Reuters about the mine in an interview on Friday.
Sumitomo, Japan's major copper producer, is boosting investment in non-ferrous metals betting on strong demand from emerging economies and Japanese high-tech companies who consume such metals. It plans to spend $550 million in the Ambatovy nickel project in Madagascar, one of the biggest nickel projects in the world.
"We plan to diversify our asset portfolio and foster gold, silver, lead, zinc and nickel as our new earnings drivers while maintaining our strength in copper," Yamada, who duplicates as the general manager at the mineral resources division No.1, said. "We hope to take a stake of 25-30 percent in major projects and have a big say."
RISKS
But rapid consolidation among global major miners, surges in asset prices and the rising competition from China are making investments increasingly difficult for mining and trading companies in resource-poor Japan.
"We are being forced to make forays in less developed areas with higher political and economic risks in search for assets," Yamada said.
Forming alliances with global mining companies and government financial institutions is a vital strategy to diversify risks, Yamada said.
The Ambatovy project, which is owned 40 percent by Canadian mining and energy company Sherritt International Corp (S.TO: Quote, Profile, Research), is the first instance Sumitomo linked up with South Korea's state-owned Korea Resources Corp, with each having a 27.5 percent stake.
The project, due to start production in the mid-2010, has also secured $2.1 billion in financing from a broad range of government institutions in Japan, Korea and Canada, among others.
Yamada said Sumitomo was considering accelerating the development of copper mines in the United States and Latin America to make up for a planned divestiture of its holdings in the Batu Hijau copper and gold mine in Indonesia.
"Developments in African countries or Russia would be too time consuming due to a lack of infrastructure, for instance," he said.
Foreign investors, including Sumitomo and Newmont Mining Corp (NEM.N: Quote, Profile, Research) of the United States, are obliged to gradually cut their stakes in the Indonesian mine to a combined 49 percent from around 80 percent now by the end of 2011 and to sell stakes to local interests.
That will reduce Sumitomo's holdings in Asia's second-biggest copper mine to 16 percent from 26 percent.
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