Sumitomo Metal Mining Co. said it will post a second consecutive annual loss after taking a 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 to an earlier forecast of a 19 billion yen profit and a loss of 309 million yen last year, according to a statement. 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 it holds," 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 said.
The company’s shares rose as much as 4.5 percent in Tokyo and at 2:08 p.m. were 2.6 percent higher at 1,609 yen.
Sumitomo Metal holds a 31.5 percent stake in Sierra Gorda, and last year took a charge on the project of 68.9 billion yen. Poland’s state-controlled copper miner, KGHM Polska Miedz SA, owns 55 percent and Sumitomo Corp. the rest. Sumitomo Corp. made its own impairment on the mine of 33.6 billion yen, according to a separate statement.
Chile is home to Escondida, the world’s biggest 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.
