TOKYO (Reuters) - Japan’s Sumitomo Corp sees its Ambatovy nickel-cobalt project in Madagascar and Sierra Gorda copper project in Chile turning profitable within three years, as the mines recover from repeated delays and damage from inclement weather.
While the 99-year-old trading house managed to turn in a record net profit in the year ended March 2018 on robust metal prices, its results continue to be pressured by losses from the two projects.
“We hope the two projects to turn profitable within three years,” Sumitomo President Masayuki Hyodo told Reuters.
“Sierra Gorda may reach full utilization and turn profitable next year,” Hyodo said, adding that for Ambatovy, he wants “the turn-around to happen this year”.
Earlier this month, the company projected losses from its Sierra Gorda stake would widen 38 percent to 1.1 billion yen ($10 million) in the year to March 2019, while narrowing about 30 percent from its Ambatovy stake to 9.8 billion yen.
Sumitomo owns 47.7 percent of Ambatovy and 13.5 percent of Sierra Gorda. Hit by technical problems and damages caused by cyclone, Sumitomo has booked a total impairment loss of 77 billion yen on Ambatovy and 47.6 billion yen on Sierra Gorda over the past few years.
However, stronger profit contributions from its silver, zinc and lead project in Bolivia and iron ore project in South Africa helped boost its profit in the resource segment last year.
To reinforce its natural resources and chemical business, Sumitomo plans to invest 190 billion yen in the segment over the next three years, up 6 percent from the previous three years.
Hyodo said the company was looking to invest in upstream assets in both metals and energy.
Japanese trading houses are scouting for assets as they enjoy their best profit outlook in six years. But smarting from huge writedowns in the last investment cycle, big debt-fueled acquisitions still look to be off the agenda.
“We will selectively invest in the metals and energy which will attract higher demand as global population grows,” Hyodo said, adding copper, nickel and cobalt as well as natural gas and oil were potential targets.
The 58-year old Hyodo, who became president for the trading house last month, has expertise in electric power business, having spent considerable time on Sumitomo’s Tanjung Jati B coal-fired power project in Indonesia.
Sumitomo, a major power producer with global capacity of about 7,500 megawatt, aims to reduce the ratio of coal-fired power in its portfolio to 30 percent by 2035 from 50 percent while raising renewable energy to 30 percent from 20 percent.
“We won’t build any more pure coal-fired stations in developed countries including Japan,” he said.
“But we’ll continue to provide coal-fired power plants in developing countries,” he said, citing financial and technical difficulties in supplying all additional power through renewable energy and natural gas.
($1 = 109.7000 yen)
Reporting by Yuka Obayashi and Ritsuko Shimizu; Editing by Himani Sarkar