Photographer: Matthew Lloyd/Bloomberg

Sumitomo Metal Sees Annual Loss After Copper Charge

  • Japanese firm raises operating profit forecast on prices, yen
  • Executives including president to take pay cut after loss

Sumitomo Metal Mining Co. said it will post a second consecutive annual loss after taking another charge on its Sierra Gorda copper mine in Chile. At the same time, it lifted its operating profit outlook due to a recovery in metals prices and a fall in the yen.

The Tokyo-based company, one of Japan’s top three base metals producers, forecast a net loss for the year through March of 15 billion yen ($134 million), compared with an earlier forecast of a 19 billion yen profit and a loss of 309 million yen last year, according to a statement Tuesday. For operating profit, it expects a gain to 76 billion yen, from an earlier forecast of 48 billion yen and 59.7 billion yen a year ago.

While copper has risen more than a quarter over the last 12 months as China’s growth stabilized and the U.S. economy improved, Sumitomo Metal said its assessment of the Sierra Gorda operation and price trends means “it will be difficult to recover the full value of the fixed assets,” leading to an impairment of 79.9 billion yen. Executives including the president will take pay cuts as a result of the loss.

The company has revised its long-term copper price outlook to $2.95 a pound from $3.21, and that means an expansion of Sierra Gorda is off the table, Senior Managing Executive Officer Mikinobu Ogata said at a briefing in Tokyo. Copper currently trades around $2.65.

Substantial Expansion

“We had anticipated substantial expansion under phase two of the project, but we had to review the plan,” Ogata said. Instead of doubling capacity, the company is looking at a smaller expansion that levers off productivity gains even as investment is reduced. Executive pay cuts, meanwhile, serve to “clarify management’s responsibility” for what amounts to Sumitomo Metal’s biggest loss on a project, he said.

The company’s shares closed 3.7 percent higher in Tokyo at 1,626 yen. The shares have risen almost 40 percent in the past year compared with an 11 percent gain for the Nikkei 225 Stock Average.

Sumitomo Metal holds a 31.5 percent of Sierra Gorda, and last year wrote down its stake by 68.9 billion yen. Poland’s state-controlled copper miner, KGHM Polska Miedz SA, owns 55 percent and trading house Sumitomo Corp. the rest. Sumitomo Corp. took its own charge on the mine of 33.6 billion yen, according to a separate statement.

Chile is home to Escondida, the world’s largest copper mine, where workers are in dispute with owner BHP Billiton Ltd. over pay. A strike could see copper prices rise as the market swings to a deficit, according to Barclays Plc.

Sumitomo Metal is Japan’s biggest nickel producer and the owner of its only gold mine. A year ago, it extended its bet on copper with the $1 billion purchase of an additional stake in Freeport-McMoRan Inc.’s Morenci mine in Arizona.

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