Japan's sole gold mine owner readies for overseas acquisitions

[TOKYO] Sumitomo Metal Mining Co, the copper and nickel producer that also owns Japan's only gold mine, is scouring the world for bullion deals as assets become more affordable.

The Tokyo-based company signaled its appetite for overseas expansion in February with the US$1 billion purchase of an additional stake in Freeport-McMoRan Inc's Morenci copper mine in Arizona. Now, gold is the priority, President Yoshiaki Nakazato said in an interview.

Projects under consideration include a venture with Gold Road Resources Ltd to develop the Perth-based explorer's Gruyere assets in Western Australia, Mr Nakazato said at the company's headquarters this week.

The Japanese company is among several considering a stake in the A$455 million (S$476 million) Gruyere project, people with knowledge of the matter said last month.

It's a turnaround from last year, when Sumitomo Metal was prepared to secure deposits only under its own steam. "Last autumn I was saying we would never buy stakes in gold mines," Mr Nakazato said. "I depended on our engineers at the resources division to find assets through our exploration endeavors."

Gold assets are becoming more affordable and those on offer via financial intermediaries look "worth examining," Mr Nakazato said. "There might be a chance for us to buy a stake in an existing mine or launch a new development project."

Although gold was one of the best performing commodities last quarter, mines are being offered at a discount as their owners seek sales to cut debts.

Sumitomo Metal, which in its original form began as a copper smelter some 400 years ago, is one of Japan's top three copper producers and its largest nickel smelter.

It's less of a gold play, operating the Hishikari mine on Japan's southern island of Kyushu and the Pogo mine in Alaska. The combined output of the two is about 16 tons a year, and Mr Nakazato has said he wants the company to boost production to 30 tons.

The Japanese company is looking for mines close to home in the Pacific-Rim region, Mr Nakazato said, with investments in individual assets likely to amount to hundreds of millions of dollar rather than the US$1 billion spent on Morenci. It could end up vying for deals with Chinese gold mining companies, which plan to extend their biggest buying spree in four years, according to comments from executives this month.

Sumitomo Metal doesn't see an urgent need to buy more copper assets after Morenci, Mr Nakazato said. While necessary for securing raw materials for its smelters, the acquisition is also a step toward Sumitomo eventually becoming a copper miner.

Although the Morenci purchase was viewed by some as expensive, the mine is profitable at a cash cost of about US$1.50 per pound, he said. Copper in New York is trading around US$2.26 a pound.

Sumitomo Metal warned of lower profits in February after booking an impairment on copper assets in Chile and is slated to report full-year earnings May 12.

Mr Nakazato said he expects the tough environment to continue this year and metals prices to remain at low levels despite their recent rally. Over three years, he reiterated his view that copper prices will rise to US$6,000 a ton, from a current level of around US$5,000, as the global economy experiences moderate expansion.

"The conditions are not yet there to judge that the markets have already bottomed out and entered an upswing cycle," he said.

BLOOMBERG