Sumitomo Metal Mining : Updated Corporate Governance Report

SMM views corporate governance as a disciplinary framework both for maximizing the corporate value of the SMM Group and for ensuring sound management practices. As such, it is one of the most important management issues.

SMM has instituted the SMM Group Corporate Philosophy based on the Sumitomo Business Spirit and will seek to (1) make positive contributions to society and fulfill our responsibilities to our stakeholders through the performance of sound corporate activities and the promotion of sustainable co-existence with society and the global environment in order to win ever greater trust from our stakeholders and (2) be a forward-minded and vibrant company based on respect for all individuals and recognizing each person's dignity and value.

Through striving to enhance our corporate governance, SMM will conduct efficient and sound business activities, make positive contributions to society, and fulfill our responsibilities to our shareholders and all other stakeholders in order to realize the SMM Group Corporate Philosophy.

SMM has adopted Audit & Supervisory Board and executive officer systems to ensure effective execution, monitoring, and supervisory functions within management. The Company is managed by three systems, namely (i) the Board of Directors, in charge of major decisions and supervision, (ii) representative director and executive officers, in charge of the execution of business, and (iii) the Audit & Supervisory Board members and independent public accountant, in charge of auditing.

Maximum limits on the total amounts of compensation for directors and compensation for Audit & Supervisory Board members 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. The specific amount of compensation other than bonuses for each director will be calculated by reflecting the individual performance of the director (calculated with positionspecific 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), etc. 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 each director's bonus will be calculated by reflecting the individual performance of each director, which is calculated with the same positionspecific evaluation items as the above 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.

The amount of compensation for each individual Audit & Supervisory Board member will be determined by consultation among the Audit & Supervisory Board members at the Audit & Supervisory Board within the total compensation amount approved by the General Meeting of Shareholders.

At the 91st Ordinary General Meeting of Shareholders in June 2016, SMM received approval for the partial renewal of 'takeover defense measures.' The period of validity of the revised takeover defense measures will last for three years until the conclusion of the 94th Ordinary General Meeting of Shareholders in June 2019.

The Company believes that the persons who control decisions on the Company's financial and business policies need to be persons who understand the sources of the Company's corporate value and who will make it possible to continually and steadily ensure and enhance the Company's corporate value and, in turn, the common interests of its shareholders. Hence, the Company has adopted takeover defense measures to protect its corporate value and the common interests of shareholders against an aggressive acquisition that would harm that corporate value and those common interests of shareholders.

The takeover defense measures set out procedures that acquirers must adhere to in advance and include requirements for acquirers to furnish information. Under the Japanese legal system, a party making an acquisition proposal does not have a duty to furnish information. Having takeover defense measures in place guarantees that a party making an acquisition proposal will furnish information and allows shareholders to compare statements by the acquirer and SMM management before deciding which course of action is preferable.

Additionally, if certain conditions specified in the takeover defense measures are met, such as the acquisition having the potential to harm the Company's corporate value or the common interests of shareholders, the gratis allotment of Stock Acquisition Rights will be exercised and the ratio of voting rights in the Company held by the acquirer will be diluted. Exercise of this measure requires the decision by an Independent Committee comprised of outside directors (independent officers), etc. in order to guarantee fairness and objectivity.

SMM formulated Corporate Governance Guidelines on February 15, 2016.
The Guidelines, which cover the main provisions of the Corporate Governance Code formulated by the Tokyo Stock Exchange, are intended to convey our basic philosophy on corporate governance and our corporate governance framework, including our relationship with stakeholders.

Building an internal control system to secure proper and efficient supervision of business operations leads to an enhancement of the legality, efficiency, and transparency of corporate management. We consider this system to be one of the most important tools to ensure the sustained growth of our group.