Buying into Chile’s Sierra Gorda, and selling out after two write-downs (2011)

The appraisal that comes ten years later

The month after the second impairment was booked, President Nakazato Yoshiaki said that whether this had been a good purchase would be judged ten years on. In 2011, when the company joined the project, metal prices were still climbing and the immediate worry was the slow decline of a smelting business that owned no ore of its own. What was misread was not the market but the estimate of difficulty — roughly US$2.9 billion to raise, from bare ground, a mine with 1.3 billion tonnes of recoverable ore. Production began in July 2015, a year behind plan, and operations were unsteady from the start.

The two write-downs, equity-method investment losses of ¥68,941 million and ¥79,926 million, came to more than ¥140 billion and pulled the company into two consecutive years of red ink. The ¥74,374 million gain realized on the sale ten years later does not reach half of that. Even so, the target of 300,000 tonnes of equity copper was not withdrawn, and the money and the people were moved to Quebrada Blanca in Chile. The ten-year appraisal Nakazato spoke of has been carried over to the next mine.