Sumitomo Metal Mining : Updated Corporate Governance Report

Corporate Governance

Sumitomo Metal Mining Co., Ltd.

Last updated: December 21, 2018

(English translation released on December 21, 2018)

Sumitomo Metal Mining Co., Ltd.

President & Representative Director: Akira Nozaki

Contact: [phone]

Securities Code: 5713

URL:http://www.smm.co.jp/E/

The corporate governance of Sumitomo Metal Mining Co., Ltd. ("SMM") is as set out below.

I Basic Philosophy of Corporate Governance, Capital Structure, Corporate Data, and Other Basic Information

1. Basic philosophy

SMM's basic philosophy pertaining to corporate governance is set out in "Corporate Governance Basic Policy, 2. Basic philosophy" and is displayed publicly on the SMM website at the address below.

Corporate Governance Basic Policy

URL:http://www.smm.co.jp/E/ir/management/governance/

Reasons for not applying a particular principle of Japan's Corporate Governance Code Updated

SMM writes this Corporate Governance Report by reference to all Principles of the Corporate Governance Code revised as of June 1, 2018.

Supplementary Principle 4.1.3: The board's engagement in succession planning for the CEO and other top executives

The succession planning for holders of the office of chief executive officer (president and director) is conducted and executed appropriately on the basis of our corporate philosophy and business plans.

In order to enhance transparency and objectivity with regard to the selection of candidate ofpresident and director, the president and director in office asks the Governance Committee advice concerning whether candidate has qualifications, knowledge, experience, abilities, and insight worthy of a president and director. The Governance Committee is composed of the chairman of the Board of Directors who is not an executive officer, and three independent outside directors. After that the Board of Directors makes the final decision on the appropriate candidate.

Supplementary Principle 4.2.1: Management compensation as an incentive

SMM's financial results are significantly impacted by prevailing metal market conditions and exchange rates, and thus do not necessarily correspond with the progress of management strategies and projects. Furthermore, projects related to resource development and the construction of smelting and refining plants require extremely long time periods from start to completion, and it is not unusual for the composition of management to have changed by the time the fruits of those projects can be reaped.

Given these characteristics of its business, SMM has considered how compensation should operate as a healthy incentive for individual directors and managers, and has consequently laid down its current compensation system composed of performance-based compensation and bonuses based on consolidated financial results and assessment factors such as the degree of attainment of personal targets under medium-to-long-term management strategies. For the basic policies and procedures for compensation, please refer to section (iii) of "Principle 3.1: Full disclosure" below. At present, we do not believe that compensation in the form of Company stock would effectively operate as a healthy incentive for management, and thus have not introduced it.

Disclosures pursuant to specific principles of Japan's Corporate Governance Code Updated

SMM writes this Corporate Governance Report by reference to all Principles of the Corporate Governance Code revised as of June 1, 2018.

Principle 1.4: Cross-shareholdings

When advancing our business strategy, SMM may engage in strategic shareholdings with business partners or other companies if it is judged that doing so will contribute to strengthening our business base over the mid to long term. With regard to existing cross-shareholdings, the Board of Directors takes decisions including on the possibility of reducing the holdings on the basis of the Board of Directors' verification.

The Board of Directors verifies aspects such as the objectives of each individual holding and whether the benefits therefrom cover the Company's cost of capital every year.

With regard to the exercise of voting rights in cross-shareholdings, SMM determines whether to vote for or against each proposal after giving comprehensive consideration, based on the financial results and other aspects of the financial condition of each of the issuing companies, to matters such as whether each proposal will contribute to increasing the corporate value of that company over the medium to long term, and what impact it will have on SMM's corporate value. Decisions on vote are made particularly cautiously in circumstances such as cases of companies affected by major scandals or by persistent losses

Principle 1.7: Related-party transactions

Transactions between SMM and our Directors or Audit & Supervisory Board Members will require the prior approval of the Board of Directors so as to ensure that the interests of the Company and the common interests of our shareholders are not harmed. Additionally, SMM will survey whether or not such transactions have been carried out and report our findings to the Board of Directors semiannually.

If any transaction with a major shareholder arises, it will be handled under the same standards as transactions between SMM and our Directors. A major shareholder is one who holds 10% or more of the voting rights of SMM.

Principle 2.6: Roles of corporate pension funds as asset owners

SMM has established the Asset Management Committee and a structure to ensure appropriate investment and management of corporate pensions. The committee advises the president, who has responsibility for pension management, in such areas as the formulation and revision of basic management policy and the strategic asset mix, and the evaluation of asset managers. The committee also endeavors to enhance the expertise of secretariat personnel by such means as having them participate in pension-related seminars.

Principle 3.1: Full disclosure

(i) Business principles and strategies

The SMM Group Corporate Philosophy and its source, Sumitomo Business Spirit, the SMM Group Management Vision, which delineates what the Company aims to become on the basis of the corporate philosophy, and the SMM Group Code of Conduct, which sets out the standards of conduct required of officers and employees to fulfill its corporate philosophy, are displayed publicly on the SMM website at the addresses below.

SMM Group Corporate Philosophy

URL:http://www.smm.co.jp/E/corp_info/philosophy/principle/ Sumitomo Business Spirit

URL:http://www.smm.co.jp/E/corp_info/philosophy/principle/ SMM Group Management Vision

URL:http://www.smm.co.jp/E/corp_info/philosophy/vision/ SMM Group Code of Conduct

URL:http://www.smm.co.jp/E/corp_info/philosophy/conduct/

Also, the 2015 3-Year Business Plan, which covers the period from fiscal 2016 through fiscal 2018, is displayed publicly on the SMM website at the address below.

URL:http://www.smm.co.jp/E/ir/management/plan/

• (ii) Basic views and basic policy on corporate governance

  The basic policy on corporate governance, including the basic philosophy on corporate governance, has been compiled as the "Corporate Governance Basic Policy" and is displayed publicly on the SMM website at the address below.

  URL:http://www.smm.co.jp/E/ir/management/governance/

• (iii) Basic policies and procedures for the compensation of senior management and directors

  Maximum limits on the total amounts of compensation for Directors (including directors who are also executive officers, both here and elsewhere in this section (iii)) will be determined by resolution of the General Meeting of Shareholders. If bonuses are paid to Directors, then the total amount of bonuses to Directors, excluding Outside Directors, will be determined in the same way.

  The President & Representative Director, with the authorization of the Board of Directors, will determine the amount of Director compensation as follows.

  The specific amount of compensation other than bonuses for each Director will be calculated by reflecting the individual performance of the Director (which is calculated with position-specific

evaluation items such as division performance, the degree to which individual targets set in accordance with mid- to long-term business strategies are being achieved, and safety results (number of labor accidents) as standards) on a base compensation amount determined in consideration of the consolidated performance of the SMM Group; the compensation amount will then be determined after receiving the advice of the Governance Committee. The specific amount of bonuses for each Director will be calculated by reflecting the individual performance of the Director, which is calculated with the same position-specific evaluation items as above as standards, on a base bonus amount determined in consideration of the consolidated performance of the SMM Group; the bonus amount will then be determined after receiving the advice of the Governance Committee. However, because of the importance placed on the Outside Directors fulfilling a supervisory function from a standpoint independent from business execution, individual performance will not be reflected and only the base compensation amount with no bonuses will be paid to Outside Directors.

(iv) Policies and procedures in the nomination of director candidates, appointment or dismissal of senior management, and nomination of Audit & Supervisory Board member candidates

The policy when nominating Director candidates and appointing Executive Officers who serve concurrently as directors is for the President to comprehensively consider the knowledge, experience, abilities, and insight of the candidates, receive the advice of the Governance Committee, and propose the qualified candidates to the Board of Directors, which will then determine the nominations. In the event that an executive officer has rendered him or herself markedly ineligible, for example by having acted unlawfully, improperly, or disloyally, and a dismissal recommendation is made to the Board of Directors after the Governance Committee gives advice on the matter, the individual concerned may be dismissed by resolution of the Board of Directors.

With regard to the nomination of Audit & Supervisory Board member candidates, the policy is for the President to comprehensively consider the qualifications, knowledge (including that of finance, accounting, and law), experience, abilities, and insight of the candidates and, after obtaining the prior approval of the Audit & Supervisory Board, to propose the qualified candidates to the Board of Directors, which will then determine the nominations.

Reasons for the nomination of director (including directors who are executive officers) candidates and Audit & Supervisory Board member candidates will be stated in the reference materials of the General Meeting of Shareholders.