Sumitomo Metal Mining Seeks Mines in Latin America

By Yoshifumi Takemoto

Sept. 24 (Bloomberg) -- Sumitomo Metal Mining Co., Japan's second-biggest copper smelter, is seeking deposits in Latin America to increase its raw material supply from captive mines to as much as 70 percent from 40 percent in four years.

``May be in Peru and Chile,'' Mikinobu Ogata, executive officer, non-ferrous metals division, said in response to a question. ``We're doing aggressive exploration. The only way for us to survive is to have more mines.''

Copper has tumbled 22 percent from its July 2 peak of $8,940 a metric ton on concern the global credit crunch will slow economic growth, reducing demand for industrial metals. World copper demand outpaced production by 130,000 tons in the first half, compared with a shortfall of 264,000 tons a year earlier, according to the International Copper Study Group.

Sumitomo Metal Mining joins Pan Pacific Copper Co., the world's biggest buyer of copper concentrate, and LS-Nikko Copper Inc. in the search for their own deposits as the fees they receive from mining companies for treating raw material tumble, curbing earnings. Japan competes with China, the largest user of metals, and Korea for global supplies of raw materials.

The company already has stakes in mines including Morenci in the U.S., Candelaria in Chile, Northparkes in Australia and Batu Hijau in Indonesia, according to the company web site.

Treatment fees are so low, below cash costs, that there is no economic reason to run smelters, Ogata said. The treatment and refining fees are 10-11 cents a pound while the cash costs are 16-17 cents, he said in a Sept. 12 interview in Tokyo.

Reduced Costs

The company has lowered unit costs by increasing the Toyo smelter capacity in Japan to 450,000 tons. Annual production in the year ending March 31, 2009, will be 400,000 tons after a maintenance shutdown in May and June, he said.

Chinese producers, the biggest processors of imported concentrate after Japan, will suffer from lower sulfuric acid prices and lower Shanghai copper prices next year, he said.

The price of sulfuric acid, a by-product of smelting which supplements earnings, has declined in China because of increased taxes on fertilizer exports, he said. Sumitomo Metal Mining has a 27 percent stake in Jinlong Copper Co., an Anhui-based producer, according to its web site.

Domestic copper demand in China is growing at 9-10 percent annually and its production capacity is increasing by 15-20 percent a year, leading to oversupply, he said.

Copper for three-month delivery traded up 0.3 percent at $7,000 a ton on the London Metal Exchange today.

To contact the reporter on this story: Yoshifumi Takemoto in Tokyo at ytakemoto@bloomberg.net