Sumitomo Metal Mining - Company History

Besshi as the source of the Sumitomo zaibatsu’s capital cycle

The Sumitomo house’s mining business has its origin in the copper smelting trade it began in Kyoto at the end of the sixteenth century[1], and it learned early the technique of nanbanbuki (南蛮吹き), the separating out of silver from crude copper, which gave it a singular standing in the Japanese mining industry[2]. Having accumulated experience in developing and running mines, the house located the Besshi copper deposit in 1690, immediately obtained the permission of the bakufu (幕府), the Tokugawa shogunate, and set about opening Besshi[3], formally beginning extraction in 1691 in what is now Ehime Prefecture[4]. For more than two hundred years thereafter it was the core business of the Sumitomo house, and Besshi stood alongside the money-lending business conducted with the bakufu and the daimyo lords at the centre of the family’s enterprises[5]. The copper obtained from Besshi played an important role as a source of capital for a wide range of Sumitomo businesses — Sumitomo Machinery Industries (住友機械工業) for mining machinery, Sumitomo Chemical for chemical fertiliser, Sumitomo Electric for copper processing, Sumitomo Forestry for afforestation, Sumitomo Bank for finance — and supported from the foundations the formation and the maintenance of the composite enterprise group known as the Sumitomo zaibatsu. The know-how of mine management carried on from the Edo period was handed down as the origin point of the Sumitomo house’s management philosophy.

Besshi met the crisis of temporary seizure by the Tosa domain at the time of the Meiji Restoration, but came through it and entered the Meiji era[6]. Because it was worked with obsolete technology, high-grade ore gradually ran short and output stagnated; against this, Hirose Saihei (広瀬宰平) and the managers of the day actively adopted new Western technology to renew the mine[7]. In 1873 the French engineer Coignet (コワニー) inspected Besshi, and Louis Larroque followed by drawing up a prospectus for the Besshi copper mine[8]; by 1876 the mine was producing precipitation copper by the wet process[9]. Explosives and rock drills, a dedicated mine railway and a double aerial ropeway, a great inclined shaft, hydroelectric plant, a copper electrolysis works and a flotation mill were built one after another, output rose dramatically, and the foundation of the scale it holds today was laid. In step with the Meiji government’s shokusan kogyo (殖産興業) policy of promoting industry, the mechanisation and enlargement of the mine advanced, strengthening the economic base of the Sumitomo house’s formation as a zaibatsu. From the closing years of the nineteenth century through the 1920s Besshi was a production site recording one of the largest copper outputs in Japan, and its presence within the industry was marked.

The form of management was put in order as well. What had at first been a personal enterprise called the Sumitomo Sohonten (住友総本店), the house’s head office, passed in 1921 into the hands of the newly established Sumitomo Goshi Kaisha[10], and in July 1927 Sumitomo Honsha turned 236 years of long-running direct operation into a corporate mining business by formally establishing Sumitomo Besshi Mining Co.[11] It was the incorporation of the founding business with the longest history among the Sumitomo enterprises. The smoke pollution that had long been the greatest problem in working Besshi was not solved even by the removal of the smelter to Shisaka Island (四阪島) in 1905; the compensation paid out by 1939 exceeded $13.9M (¥5bn) when valued at 1968 prices[12], but in that same year a neutralisation plant that eliminated sulphurous gas from the flue smoke was completed and brought a fundamental solution[13]. In 1937 the company merged with Sumitomo Coal Mining and was reorganised as Sumitomo Mining[14]; in the course of the post-war dissolution of the zaibatsu it was renamed Seika Mining (井華鉱業) in 1946, and on the break-up of Sumitomo Honsha the following year it bought in a single block the group’s metal mines, centred on the Konomai gold mine, together with the Kunitomi smelter[15]. In 1950 Besshi Mining was formally launched by separating out the metals division[16], and began its course as an independent non-ferrous metals company. In 1952 Besshi Mining was renamed Sumitomo Metal Mining, making explicit in the company name itself its standing as the Sumitomo group’s non-ferrous metals company[17].

Building the smelters, and the structural shift that ended at Besshi’s closure

From the 1950s Sumitomo Metal Mining set out a policy of actively pushing forward the modernisation of its domestic operations, and in 1956 it established the subsidiary Hyuga Smelting Co. to accelerate the build-out of a production base for nickel smelting[18]. In 1965 it formally set up a Central Research Laboratory to strengthen its technical development organisation[19], and in 1967 it built the new Ome plant, broadening the range of its business by entering the electronic metals field in earnest[20]. In 1970 came a new nickel plant at Niihama and in 1971 the Toyo smelter, one after the other[21], in a phase in which a management strategy of raising the sophistication of smelting technology and expanding productive capacity in parallel was put forward.

From 1962, meanwhile, a shift towards closing the domestic mines advanced, and management decisions responding to the harsh change in external conditions — the falling grade of the ore bodies and the advance of a stronger yen — were handed down one after another. In responding to these structural changes, Sumitomo Metal Mining came to place at the centre of its management strategy a direction of moving from the extraction business into smelting and processing. The transformation of the business model — shrinking the domestic extraction sites and concentrating on smelting and processing — amounted to a fundamental management reform accompanied by an updating of the company’s definition of itself, from a resource company to a materials company, and formed an important phase constituting a historic transition.

In March 1973 Besshi, the founding business of the Sumitomo house, at last closed, and the company passed a historic milestone at which a formal end was set to the long history of Besshi, continued without a break for 282 years from the 1690s[22]. After the closure Sumitomo Metal Mining moved the centre of gravity of its business from extraction to smelting and processing, and remade itself into a new business structure whose main pillars were the procurement of raw material from overseas and the creation of added value at its domestic smelters. The weight of that historical experience — the ending of the founding business at the origin of the Sumitomo house’s management philosophy — became an internal driving force behind the later expansion into overseas resource development and advanced materials, and was engraved on Sumitomo Metal Mining’s management culture.

The ¥10m Hishikari claim that turned the company round

In 1969 the company took the management decision to acquire the rights to the Hishikari mining claim in Kagoshima Prefecture for a mere $27,778 (¥10m), a symbolic move that offered a new way forward to an engineering staff left dispirited by the tide of domestic mine closures. Management itself is said to have been reluctant at first, but the company’s own history records that the engineers, whose morale had fallen with the contraction of the domestic extraction business, pressed strongly for it and the acquisition went through. Exploration by Sumitomo Metal Mining made little headway for a long stretch, but the Metal Mining Agency of Japan (金属鉱業事業団) carried out boring surveys from 1980, and when all eighteen boreholes struck gold veins the claim proved excellent in both scale and grade.

In July 1985 ore extraction at the Hishikari mine formally began, and the company passed the historic milestone of establishing it as the only commercially producing mine in Japan, yielding some six tonnes of gold a year. President Fujisaki Akira (藤崎章) is remembered for having said inside the company that the Kyushu claim alone must never be let go, and he made it known within and outside the firm that Hishikari’s earnings would be put actively into research and development in the diversified divisions. With estimated reserves of 250 tonnes, Hishikari has served Sumitomo Metal Mining as a stable long-term source of earnings and has at the same time long carried an important function as the field site at which the able engineers indispensable to developing and running mines abroad are trained. It came to bear strongly on later management decisions as well.

The existence of Hishikari became the decisive support by which Sumitomo Metal Mining held on to its identity as a resource company through the headwind of the phased closure of the domestic mines, and it was drawn on over the long term as the technical and managerial backing for the challenge of overseas mine development. The experience of a small initial investment of $27,778 (¥10m) producing the seed of a later mainstay business was handed down inside the company as a lesson symbolising the importance of exploration and long-term investment, and became something referred to repeatedly as a basis for decision-making in resource development strategy thereafter.

Overseas expansion, and the structure the Sierra Gorda loss revealed

In 1986 the company acquired an interest in the Morenci copper mine in the United States, and in 1988 it took shares in PT International Nickel Indonesia, turning Sumitomo Metal Mining towards an acceleration of overseas resource development. In 2006 it began production at the Pogo gold mine in the United States, and in 2009 it took an equity stake in Nickel Asia Corporation of the Philippines, in a management strategy of actively pursuing interests in the principal resource countries. This accumulation of overseas interests, running in parallel with the contraction of the domestic mines, was a strategy aimed at dispersing the resource portfolio geographically and structurally reducing the risk of dependence on any single region. The series of decisions became an occasion for strengthening Sumitomo Metal Mining’s distinctive standing in the non-ferrous metals industry, and came to be widely recognised as an important groundwork for later developments.

The Sierra Gorda copper mine in Chile, on the other hand, acquired jointly with Sumitomo Corporation in 2011, met the worst possible market conditions when the timing of its start-up in 2015 coincided with a sharp fall in the international copper price, and in 2016 the company was driven to record an equity-method investment loss of $633M (¥69bn). In the year to March 2017 it went through the severe position of falling to a net loss of $164.9M (¥19bn), and the scale of the market risk inherent in overseas projects was thrown into relief before management and investors alike. Thereafter the sale of the Sierra Gorda interest to South32 of Australia in 2021 recovered the loss to a degree, booking a gain on disposal of $677.7M (¥74bn). The Sierra Gorda experience taken as a whole — the $633M (¥69bn) loss over the operating period set against the $677.7M (¥74bn) recovered on disposal, an instructive contrast — became a valuable lesson that impressed on Sumitomo Metal Mining’s management the scale of the timing risk in overseas resource projects, and an occasion that pushed forward the sophistication of the screening organisation and of project management on subsequent deals. Sensitivity analysis of exchange rates and market conditions in decisions on projects of the order of tens of billions of yen, and the refinement of long-term earnings forecasts, came to be pursued far more systematically in the light of the Sierra Gorda experience, and the ground was laid for raising the resilience of Sumitomo Metal Mining’s management base. It came to bear strongly on later management decisions as well.

The mid-term plan’s battery materials and three flagship resource projects

In February 2022 Sumitomo Metal Mining formally published a mid-term management plan, setting out a policy of actively pursuing overseas resource development projects in parallel with increased production of battery materials — nickel-based cathode material. The Pomalaa project in Indonesia, the Quebrada Blanca copper mine in Chile and the Côté gold mine in Canada were placed at the core of the management strategy as the three deals to concentrate on, showing a structure in which the securing of long-term resource interests and the strengthening of the earnings base would advance together. Through the publication of the mid-term plan, Sumitomo Metal Mining set out widely, inside the company and outside it, a two-track management strategy of maintaining its base as a resource company while also drawing up its line in the growth field of battery materials.

In October 2023 the Quebrada Blanca copper mine in Chile formally opened, and in August 2024 commercial production began at the Côté gold mine in Canada, so that the resource projects raised in the mid-term plan started up in sequence as planned. In the case of Côté, the company acquired an interest of about thirty per cent for $191.7M (¥22bn) in 2017 and then postponed construction for a time on the grounds of a weak gold price, before a full start of construction was decided in response to the rise in the gold price in 2020. Lending to the operating subsidiary had reached $877.9M (¥133bn) as at the end of March 2024, making it for Sumitomo Metal Mining a long-term project accompanied by a commitment of funds on that scale.

All three of these resource projects are strategically important deals that will decide the future of Sumitomo Metal Mining’s resource business, and management recognises the achievement of long-term stable operation and a contribution to earnings as its highest priority. Careful selection of projects and careful judgement of investment timing are being exercised in the light of the bitter lesson of Sierra Gorda, and, combined with a financial strategy that raises resistance to swings in metal markets and exchange rates, work is proceeding to improve the earnings stability of the resource portfolio as a whole. A virtuous circle has also formed in which the mine-operating know-how built up at Hishikari is put to use as the basis of operational management on the overseas projects.

A formation in which battery materials and metal prices lift earnings together

In the battery materials field, investment to increase production of nickel-based cathode material for electric vehicles has continued, and Sumitomo Metal Mining has entered cathode-material manufacture in earnest with its nickel smelting technology as the starting point. A vertically integrated supply chain is being built by combining the procurement of nickel raw material in the Philippines and Indonesia with smelting sites at home and abroad, and a phased raising of productive capacity in line with the medium- to long-term expansion of the EV market is the axis of the management plan. The cathode-material business is positioned as a medium- to long-term earnings driver and a growth field for the future, and a plan to switch to new grades from the 2026 financial year onward is also under way.

For the year to March 2024 Sumitomo Metal Mining’s consolidated revenue stood at $9.5B (¥1.45tn) and net profit at $386.8M (¥59bn), and the company maintains its position as an integrated non-ferrous metals company running resource development, smelting, electronic materials and battery materials on several fronts at once. Its management style — actively drawing on the technical accumulation of a mining business continuing unbroken from the 1690s while accelerating in parallel its expansion into advanced materials — is regarded as a strength peculiar to Sumitomo Metal Mining. The standing side by side of a resource business symbolised by the Hishikari gold mine and a materials business represented by nickel-based cathode material forms the basic shape of the company’s present business structure.

Several growth factors are acting at once — the high level at which non-ferrous metal prices are running, the phased start-up of the overseas resource projects, and increased production in the battery-materials business — and management has indicated the prospect that Sumitomo Metal Mining’s medium-term earnings base will be strengthened further still. With its long history reaching back to the 1690s and the accumulation of modern mining behind it, Sumitomo Metal Mining continues to evolve its business model in a way that captures the new market opportunity of materials demand in the age of the electric vehicle, and stands at a stage of showing a distinctive presence within the industry as an integrated non-ferrous metals company advancing tradition and innovation at the same time.