BMI's Executive Summary

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The mining industry in many developing countries can be seen as a pyramid, with large-scale, high volume ore mining operations at the bottom and relatively little high-value added mineral and metal processing and manufacturing activities at the top. In Japan, a highly developed economy, the pyramid is inverted. The country has relatively few indigenous natural resources and is heavily dependent on imports for almost all of its crude oil, natural gas, metals and minerals. It imports, processes and manufactures raw materials on a gigantic scale and is therefore a major force in the world mining industry, more so as a consumer than as a producer.

Japan no longer has a significant mining industry, but it does have a world-class metallurgical industry. After the closure of the Toyoha lead/zinc mine in March 2006, the only metal mine still in production was the Hishikari gold mine, one of the world's richest, operated by Sumitomo Metal Mining. The country's mineral resource industry is made up of three general sectors: the non-ferrous metal industry, the nonmetal mining industry and the quarrying industry. Japan has been adopting various measures and policies to ensure the future supply of raw materials to meet demand from its domestic construction and manufacturing sectors, and to maintain its exports to other major economies such as China, South Korea, Taiwan and ASEAN members. The government has outlined some of its priorities for securing mineral resources to meet demand. They include promotion of overseas exploration, promotion of recycling, building up a stockpile of rare metals (nickel, chrome, tungsten, cobalt, molybdenum, manganese and vanadium), and technological development of essential metals and materials as short- to mid-term measures.

BMI tracks and forecasts the Goldman Sachs Industrial Metals (GSIN) index, whose movements are then incorporated into our expectations for the value of output/export of specific metals. Our end-2006 forecast for the GSIN was, at 440, just 1.1% below the actual figure of 445. We have slightly revised our 2007 forecasts in line with our view on global growth, which we see falling to 4.6% in 2006 from our expectation of 5.1% growth last year. Slowing US growth and speculation over the effect of rising commercial bank reserve requirements on China's economy is weighing and reducing overall demand.

We expect this to deepen the price falls seen since Q406, which we first anticipated back in September, when the Commodity Research Bureau index broke below 330, and we have remained medium-term bearish ever since. Industrial metal prices look particularly weak at present, and we set an end-year target of 380 for the GSIN, a 13.6% fall.

In our five-year forecast for Japan, BMI sees actual mine output continuing to dwindle. This is less a function of international market conditions than a reflection of the exhaustion of reserves of mineral deposits. Extractive mining GDP will fall by an average of 1.4% per annum over the 2007-2011 period, according to our projections. It will remain only a small fraction of the country's GDP, dwindling from 0.06% in 2005 to 0.05% in 2011 – equivalent in the latter year to around JPY284.1bn or US$2.6bn.

However, at the same time, Japan will remain an important force in the international mining business through the international activities of its mining and metals companies, through its significant role as an importer of mineral ores for smelting, refining and fabricating, and, of course, through its importance as an end-user of metals in manufacturing and coal for its power plants.

Contents

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Executive Summary

Chapter 1 - Industry Trends And Developments

Overview

Regulatory Structure & Developments

Chapter 2 - Key Projects

Metals

Gold

Gold - Recent Developments

Iron Ore

Iron Ore - Recent Developments

Copper

Copper - Recent Developments

Lead

Lead - Recent Developments

Nickel

Zinc

Zinc - Recent Developments

Minerals

Coal

Coal - Recent Developments

Chapter 3 - Political Environment

Mining Sector Business Environment Ratings

Table: Philippines Regional Ave. Scores 1

Chapter 4 - Industry Forecast Scenario

Lower Metal Prices, But Still Historically High

Risks To Outlook

Global Overview

Regional Analysis

Competitive Landscape

Chapter 5 - Company Monitors

Nippon Mining Holdings Ltd

Mitsubishi Materials Corp

Sumitomo Metal Mining Co Ltd

Appendix A: Mining Ratings: Methodology

Introduction

Breakdown Of Ratings

Breakdown Of Components

Appendix B: The World Economy

Outlook And Risks

Table: Global Assumptions

United States

Soft Landing Ahead

Risks To Outlook

Europe

Moderating, But Solid Economic Growth

Medium-Term Growth Outlook

Japan

Japan In 2007 & 2008

Japan's Medium-Term Prospects

China

China In 2007 And 2008

China's Medium-Term Prospects

Commodities

Oil

Appendix C: Regional Demographic Data

Table: Manufacturing Wages (ave. per annum), US$

Table: Population

Table: Household Spending Per Capita, US$

Table: Private Consumption Per Capita, US$ PPP

Table: Market Size, GDP, US$bn