Sumitomo Metal Mining : Updated Corporate Governance Report

Corporate Governance‌‌‌‌‌‌‌

Sumitomo Metal Mining Co., Ltd.‌

Last updated: July 5, 2017

Sumitomo Metal Mining Co., Ltd.

President & Representative Director: Yoshiaki Nakazato

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 Supplementary Principle 4.2.1: Management compensation as an incentive Supplementary Principle 4.2.1 is not being applied.‌‌

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. At present, we do not believe that compensation in the form of Company stock (a stock-option scheme) would effectively operate as a healthy incentive for management, and thus have not introduced it.

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

SMM will examine the exercise of voting rights in each of such companies and will determine whether to vote for or against each proposal after considering all related matters including without limitation whether doing so will contribute to increasing the corporate value of that company and how the corporate value of SMM will be affected.

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 3.1: Full disclosure

1. 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/

2. 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/

3. Basic policies and procedures for the compensation of directors

   Maximum limits on the total amounts of compensation for Directors 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.

4. Policies and procedures in the nomination of director and executive-officer candidates

   The policy when nominating Director candidates and Executive Officers will be 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. Similarly, the policy when nominating Audit & Supervisory Board Member candidates will be for the President to select candidates under the same standards, obtain the consent of the Audit & Supervisory Board, and propose the qualified candidates to the Board of Directors, which will then determine the nominations. Reasons for the nomination of Director candidates and Audit & Supervisory Board Member candidates will be stated in the reference materials of the General Meeting of Shareholders.

   Updated

5. Reasons for individual nominations of candidates for directors and Audit & Supervisory Board members

The reasons for individual nominations of candidates for directors and Audit & Supervisory Board members at the 92nd ordinary general meeting of shareholders (held on June 27, 2017) are stated in the reference documentation for that meeting. The said reference documentation is displayed on the following SMM website.

URL: http://www.smm.co.jp/E/ir/stock/meeting/

Supplementary Principle 4.1.1: Outline of scope of matters delegated to the management by the board

In accordance with laws and regulations and SMM's Articles of Incorporation, decisions for business execution are delegated to the management by the Board of Directors.

Specifically, pursuant to the Regulations of the Board of Directors it lays down, the Board of Directors adopts resolutions concerning important matters such as those relating to general meetings of shareholders, directors, executive officers, management policies, business plans, risk management,