Sumitomo Metal Mining : Updated Corporate Governance Report

Corporate Governance

Sumitomo Metal Mining Co., Ltd.

Last updated: February 16 , 2022

(English translation released on March 7, 2022)

Sumitomo Metal Mining Co., Ltd.

President & Representative Director: Akira Nozaki

Contact: [phone]

Securities Code: 5713

URL: https://www.smm.co.jp/en/

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

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

1. Basic philosophy

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

Corporate Governance Basic Policy

URL: https://www.smm.co.jp/en/ir/management/governance/

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

The Company writes this Corporate Governance Report by reference to all Principles of the Corporate Governance Code revised as of June 1, 2021 (including principles for the Prime Market that will apply from April 4, 2022).

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.

With regard to the candidate for the successor to the president, the Governance Committee (Chair: Kazuhisa Nakano, Director), composed of the chairman of the Board of Directors who is not an executive officer and three independent outside directors, has opportunities to deliberate on the environment and methods for fostering the next president as well as concerning the candidates, etc. Regarding the specific procedure for selecting the successor to the president, after consulting with the Governance Committee about the candidate recommended by the president and receiving advice on whether the candidate has the qualifications, knowledge, experience, abilities, and insight worthy of a president and director, the president makes the final proposal to the Board of Directors, which makes

the final decision after due deliberation.

With regard to the selection of the candidate executive officers who will constitute the pool of candidates for future president, the president, based on recommendations from the executive officers, consults with the Governance Committee regarding the best lineup to resolve the issues management faces, formulates the final proposal with reference to that advice, and submits the proposal to the Board of Directors. The Board of Directors then makes the final decision after due deliberation.

Supplementary Principle 4.2.1: Management remuneration as an incentive

The Company'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, the Company has considered how remuneration should operate as a healthy incentive for individual directors and managers and has consequently laid down its current remuneration system composed of performance-based remuneration 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 remuneration, please refer to section (iii) of "Principle 3.1: Full disclosure" below. At present, we do not believe that remuneration 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

The Company writes this Corporate Governance Report by reference to all Principles of the Corporate Governance Code revised as of June 1, 2021 (including principles for the Prime Market that will apply from April 4, 2022).

Principle 1.4: Cross-shareholdings

When advancing our business strategy, the Company 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 verifies aspects such as the objectives of holdings and whether the benefits therefrom cover the Company's cost of capital every year. As a result of this verification, with regard to shares whose holding is judged to have little significance, including shares considered no longer worth the cost of capital and shares judged to have become less relevant due to recent business changes, we will proceed with concrete consideration based on the premise of reduction. Furthermore, in cases where a company cross-holding the Company's shares expresses a desire to sell, we respond in a sincere manner with a view to proceeding with the sale.

With regard to the exercise of voting rights in cross-shareholdings, the Company 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 the Company's corporate value. Decisions on voting are made particularly cautiously in circumstances such as cases of companies affected by major scandals or by persistent losses.

In fiscal 2020, the Company sold all cross-shareholdings in three companies.

As of March 31, 2021, the Company maintained cross-shareholdings in 55 publicly-listed companies.

Each of the aforementioned cross-shareholdings was verified at the regular Board of Directors meeting held in June 2021 (excluding shares in one company that were sold in April 2021).

Principle 1.7: Related-party transactions

Transactions between the Company 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, the Company 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 the Company and our Directors. A major shareholder is one who holds 10% or more of the voting rights of the Company.

Supplementary Principle 2.4.1: Ensuring diversity in the promotion of core human resources

1. Approach to ensuring diversity

Based on the concept of respect for all individuals set forth in the SMM Group Corporate Philosophy and in line with the SMM Group Policy on Human Rights, the SMM Group respects the diverse values of each and every employee, strives to create a work environment that allows each employee to fully demonstrate his or her abilities, and works to secure, develop, and utilize human resources.

2. Voluntary and measurable goals for ensuring diversity and progress toward their achievement

1) Women in managerial positions

The number of women in managerial positions as of the end of fiscal 2020 was 11, and the Company aims to increase this number to 20 by the end of fiscal 2022 in the General Employers Action Plan based on the Act on Promotion of Women's Participation and Advancement in the Workplace. In the Company's "Vision for 2030," we aim to have 50 women in managerial positions by 2030. In order to promote our growth strategy, we will implement the necessary measures to develop these human resources from a medium- to long-term perspective.

2) Midcareer hires

The Company hired 24 midcareer career-track employees in fiscal 2020. As we continue to expand our business in line with our growth strategy, we will proactively increase the number of midcareer hires from the current level through to fiscal 2030.

3) Foreign nationals

The Company continues to hire regardless of nationality. As of 2021, the Company employs 12 non-Japanese employees in career-track positions, and as we expand our business domain and create opportunities for new business outside Japan, we will continue to increase the number of human resources who can play an active role globally, regardless of whether they are new graduates or midcareer hires. In addition, at business sites outside Japan, (particularly those operating under the Company's operatorship), we appoint locally employed staff to core positions.

4) Persons with disabilities

The Company is working across the organization to improve the environment for persons with disabilities so that they can have pride, motivation, and joy in their work. The employment rate of persons with disabilities in the SMM Group (in Japan) is 2.51% as of 2021, and in the Company's "Vision for 2030," we aim to raise this rate to at least 3% by 2030-higher than the legally mandated rate.

3. Policies for human resource development and internal environment development to ensure diversity, and the status of their implementation

The SMM Group has set "a company where all employees can take a vibrant and active part" as a key component of its "Vision for 2030," and aims to be a company that respects the humanity of each and every employee, and where employees feel pride, motivation, and joy in work, as well as a company that provides each and every employee with opportunities to improve his/her capabilities, and grows together with employees. For more information, refer to the Company's Integrated Report

below.

URL: https://www.smm.co.jp/en/ir/library/integrated_report/

Principle 2.6: Roles of corporate pension funds as asset owners

The Company 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

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 Company's website at the addresses below.

SMM Group Corporate Philosophy

URL: https://www.smm.co.jp/en/corp_info/philosophy/principle/ The Sumitomo Business Philosophy

URL: https://www.smm.co.jp/en/corp_info/philosophy/sumitomo/ SMM Group Management Vision

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

URL: https://www.smm.co.jp/en/corp_info/philosophy/conduct/

Also, the 2018 3-Year Business Plan, which covers the period from fiscal 2019 through fiscal 2021, is displayed publicly on the Company's website at the address below.

URL: https://www.smm.co.jp/en/ir/management/plan/

1. 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 Company's website at the address below.

URL: https://www.smm.co.jp/en/ir/management/governance/

1. Basic policies and procedures for the remuneration of senior management and directors

The policy regarding the determination of remuneration, etc. of individual directors (including directors who concurrently serve as Executive Officers) is as follows.

1. Basic Policy

Remuneration for Directors of the Company is linked to the business performance of the Company, and designed to motivate Directors to achieve mid to long-term goals, based on the business structure of the Company, so that it functions as a sufficient incentive to contribute to sustainable growth, increase the corporate value of the Group over the mid to long term, and to strengthen and maintain the management base. When determining the remuneration of individual Directors, the amount of

remuneration is calculated using a predetermined formula in order to ensure fairness, and the Company maintains a basic policy of setting remuneration at an appropriate level based on the responsibilities of each Director.

Specifically, the remuneration for Directors (excluding Outside Directors) shall consist of base remuneration and bonuses. Basic remuneration shall consist of fixed remuneration (remuneration which is neither performance-based nor non-monetary) and performance-based remuneration, etc., while bonuses shall be performance-based remuneration, etc. Outside Directors shall receive only basic remuneration and no bonuses.

Basic remuneration is calculated on an annual basis for each individual and paid each month in monthly installments, while bonuses are paid once annually after approval is obtained at the ordinary general meeting of shareholders.

2. Basic Remuneration

1. Policy on determination of remuneration, etc. for the President and Director

Basic remuneration for the President and Director is composed of fixed remuneration and performance-based remuneration.

The amount of fixed remuneration will be set at a specified standard amount, referencing the remuneration trends of domestic companies in the same industry and domestic manufacturing companies of the same size as the Company, and will be adjusted to a certain extent each year based on employee wage trends.

As an evaluation of corporate management performance, performance-based remuneration, etc., is paid as an amount calculated in accordance with the degree of achievement of targets for net income attributable to owners of the parent and safety during the previous fiscal year.

1. Policy on determination of remuneration, etc. for the Chairman of the Board

Basic remuneration for the Chairman of the Board shall be the base amount of the basic remuneration for the President and Director, multiplied by a predetermined position-specific coefficient.

1. Policy on determination of remuneration, etc. for Outside Directors

Basic remuneration for Outside Directors shall be the base amount of the basic remuneration for the President and Director, multiplied by a position-specific coefficient.

1. Policy on determination of remuneration, etc. for Directors who concurrently serve as Executive Officers with special titles (Executive Vice President, Senior Managing Executive Officers, Managing Executive Officers)

Basic remuneration for directors who concurrently serve as executive officers with special titles is determined based on the basic remuneration of the President and Director, and takes into account job responsibilities, departmental performance, and individual performance evaluations.

Representative Directors who concurrently serve as Vice President or Senior Managing Executive Officers and Directors who concurrently serve as Managing Executive Officers shall be paid fixed remuneration predetermined in consideration of their positions and responsibilities in addition to the

basic remuneration above.

1. Policy on determination of remuneration, etc., for Directors who concurrently serve as Executive Officers (excluding Executive Officers with special titles)

Basic remuneration for Directors who concurrently serve as Executive Officers shall be composed entirely of fixed remuneration predetermined in consideration of their job responsibilities and other factors. However, the basic remuneration for their role as an executive officer shall be paid separately as an employee salary.

3. Bonuses

Bonuses for Directors shall be paid to Directors, excluding Outside Directors, as a reward for their performance in the corresponding fiscal year, and shall be proposed and deliberated at the ordinary general meeting of shareholders for the corresponding fiscal year in the case that net income