Three Core Businesses Strategies under Second Medium-Term Management Plan

Transcription

1 Three Core Businesses Strategies under Second Medium-Term Management Plan Energy Business Integrated Energy Conversion Company for stable and efficient energy supply BUSINESS ENVIRONMENT DURING SECOND MEDIUM-TERM MANAGEMENT PLAN Petroleum Refining and Marketing Continued structural decline in domestic demand for fuel oils and ongoing competition with imports Domestic demand for fuel oils, such as gasoline, kerosene, gas oil, and heavy oil A, is gradually declining as a result of energy conservation initiatives and a shift toward alternative energy sources. On the other hand, competition with imported products continues. Reduced petroleum refining capacity Realized integration synergies and enhanced refinery efficiency Enhanced service station network During the First Medium-Term Management Plan, NOE reduced refining capacity by 400 thousand barrels per day. Moreover, we have decided to reduce refining capacity at the Muroran Refinery by 180 thousand barrels a day at the end of March 2014 and to restructure it into a petrochemical factory from June In addition, we realized a billion improvement in income by realizing integration synergies and enhancing the efficiency of refineries. In marketing, following the management integration in 2010, we moved quickly to integrate our brands into ENEOS, and we took steps to enhance our service station network. Furthermore, in July 2012 we acquired all shares of the IKKO Group, which has developed a nationwide network of service stations that can accommodate large trucks, and, in February 2013, it implemented a management integration with the SUZUYO Group, which is also a major in the business. In fiscal 2012, failures in the safety test under the High Pressure Gas Safety Act were found at the Mizushima B Refinery, and operations were suspended for an extended period of time. In addition, there were successive operational suspensions at multiple refineries due to equipment problems. We profoundly regret the fact that such issues have occurred at refineries and plants, where the highest priority should be given to safety and stable operation. Once again, we will take a rigorous approach to compliance and strengthen our initiatives for safe, stable operation. Electricity, Gas, Coal, New Energy, Others Government s re-examination of national energy policy taking shape Following the Great East Japan Earthquake, there has been a reexamination of national energy policy, including comprehensive reforms to the electric power and gas supply systems and measures targeting further progress in the application of independent and distributed power sources. Decided to construct Hachinohe and Kushiro LNG terminals Acquired concessions in coking coal development blocks in Canada Under the First Medium-Term Management Plan, NOE expanded the Mizushima LNG Terminal and decided to construct LNG terminals in Hachinohe and Kushiro. Also, we acquired concessions in coking coal development blocks in Canada from Xstrata Coal, of Australia. In new energy, we increased sales of residential-use solar power generation / fuel cell systems in conjunction with Dr. Ouchino Energy, a residential energy consulting service. Electricity wholesale (IPP) 840,000 kw (refineries, plants) Electricity retail (new electric power) 525,000 kw (Kawasaki Natural Gas Power Generation Co., Ltd., others) Electricity Mega solar power generation 3,000 kw (Sendai, Kudamatsu) Wind power generation 5,000 kw (Akita, Kashima, Kawasaki) Current electric power generating capacity 1,373,000 kw Gas Coal New energy Mizushima LNG Terminal In operation Annual volume of about 1.1 million tons, joint operation with Chugoku Electric Power Co., Inc. Hachinohe LNG Terminal Under construction, in operation in fiscal 2015 Annual volume of about 0.7 million tons, to be supplied to Tohoku Electric Power Co., Inc., and others Thermal coal Ownership of mining concessions in Australia About 9 million tons a year supplied to electric power companies and others Coking coal for steel manufacturing In 2012, acquired 25% concessions in development blocks in Canada (development under consideration; forecast for production: about 9.5 million tons a year) Solar power generation / fuel cells (ENE-FARM) Increasing sales of residential-use solar power generation / fuel cell systems / home energy management system in conjunction with Dr. Ouchino Energy service Hydrogen (accommodating the spread of fuel cell vehicles) Currently testing hydrogen filling equipment at service stations 32 JX Holdings, Inc. Annual Report 2013

2 Seiichi Isshiki Representative Director and President, JX Nippon Oil & Energy Corporation The JX Nippon Oil & Energy Group (NOE) engages in a wide range of business activities, centered on petroleum and petrochemicals but also including natural gas, coal, electric power, and new energy. Moving forward, NOE will strive to contribute to the development of a sustainable economy and society through the stable supply and efficient use of limited energy resources. INITIATIVES UNDER SECOND MEDIUM-TERM MANAGEMENT PLAN Strengthening profitability in petroleum refining and marketing, the core business of NOE Strengthening global competitiveness of refineries NOE will take steps to thoroughly reduce trouble with refinery equipment and follow a rigorous approach to implement safe, stable operations. We will also work to cut costs, such as reducing energy consumption through operational improvements. In addition, we will implement measures to increase added value. To that end, to facilitate the use of bottom oil, we will install equipment to obtain middle distillates from heavy distillates (solvent de-asphalting (SDA) equipment) and restructure the Muroran Refinery into a petrochemical factory. Establishing a strong supply chain NOE will take steps to increase the volume of fuel sales at all associated service stations, such as constructing new service stations and converting stations to self-service. In marketing, we will implement initiatives to further increase competitiveness. To that end, we will also renew Dr. Drive, which offers car care and maintenance service at service stations, and enhance the value of the ENEOS brand by, for example, advancing a strategy for cards, such as the ENEOS Card and the ENEOS T-Card, to provide added value and convenience for customers. REVIEW OF CORE BUSINESSES Enhancing business as an Energy Conversion Company In addition to strengthening profitability in petroleum refining and marketing, the core business, NOE is working to expand the following operations as an Energy Conversion Company that stably and efficiently converts primary energy that exists in nature such as crude oil, natural gas, coal, and sunlight into optimal energy for consumers, such as petroleum products, LP gas, electricity, and city gas. Electricity: We are expanding business in line with the Japanese government s reform of the nationwide electric power supply system. Gas: We will enhance our supply bases and capture new demand through the Hachinohe and Kushiro LNG terminals, which are scheduled to begin operations in Coal: By acquiring new domestic demand, we will work to increase sales, and we will also advance the coking coal development project in Canada. New energy: In the fuel cell business, we will continue working to reduce production costs and to establish the optimal mass production system. We will also strive to expand the Dr. Ouchino Energy business, including through an alliance with LIXIL Corporation. In addition, we will actively develop mega solar power generation projects using our idle land. Hydrogen: In April and May 2013, we opened hydrogen stations integrated with gasoline service stations. Through demonstration testing of these hydrogen stations, we will utilize our nationwide service station network to establish a hydrogen supply infrastructure and construct a business model. JX Holdings, Inc. Annual Report

3 Three Core Businesses Strategies under Second Medium-Term Management Plan BUSINESS ENVIRONMENT DURING SECOND MEDIUM-TERM MANAGEMENT PLAN Basic Chemical Products / Lubricants Continued growth in energy and materials markets, centered on Asia Continued growth is expected in energy and materials markets, centered on Asia. Against a background of economic growth and progress in motorization in emerging countries, substantial growth is expected in markets for paraxylene, a raw material for polyester and PET bottles, and for automotive and industrial lubricants. Decided to develop one million tons per year of paraxylene production capacity in South Korea Commenced production of high-quality base oil for lubricants in South Korea Basic chemical products: Under the First Medium-Term Management Plan, NOE decided to produce paraxylene through a joint venture with SK Global Chemical Co., Ltd., of South Korea. This venture has an annual production capacity of 1.0 million tons (NOE share: 500 thousand tons), which will be among the largest in the world. Currently, construction is under way, with the start-up of production scheduled for Lubricants: In fiscal 2012, NOE s domestic sales of lubricants (including exports) totaled about 1.25 million kiloliters, and overseas sales were about 0.42 million kiloliters. In lubricant markets, where substantial growth is expected, we will capture this growth in demand based on our technical strength. Under the First Medium-Term Management Plan, in October 2012 we commenced the production of base oil for high-quality lubricants (Group III) in a joint venture with SK Lubricants Co., Ltd., of South Korea. In addition, we have established production and sales bases in regions where growth in demand is expected, such as Indonesia and Vietnam. Paraxylene Project Construction of a paraxylene production facility with SK Global Chemical Co., Ltd., of South Korea Production capacity Equity interest Amount of investment 1.0 million tons per year JX Nippon Oil & Energy: 50% 1 share; SK Global Chemical: 50% + 1 share Approximately KRW1 trillion 2007: Strategic business alliance signed by Nippon Oil Corporation and SK Group. 2011: The two parties agreed to establish a joint venture for the construction of a new paraxylene plant. 2012: Ulsan Aromatics Co., Ltd., was established as a joint venture. 2014: Production is scheduled to start. Lubricants Project Commenced joint operations in the manufacture of high-performance base oil with SK Lubricants Co., Ltd., of South Korea Production capacity Commencement of joint operations Company owning production facilities 1.35 million KL per year October 2012 Yubase Manufacturing Asia Co., Ltd.* (YMAC) * Wholly owned subsidiary of SK Lubricants. JX Nippon Oil & Energy has purchased convertible bonds issued by YMAC. Specialty and Performance Chemical Products Growth in demand for high-value-added products in emerging countries Demand for high-value-added products is growing, centered on emerging countries, and in this setting NOE provides distinctive products that have high shares in the global market. These products include ethylidene norbornene (ENB), a raw material for synthetic rubber; functional films and liquid crystal polymers for use in mobile phones and other IT products; cell incubation mediums for industrial cell cultures and assisted reproductive technology; and the nonwoven fabrics CLAF and MILIFE. Principal final products Ethylidene norbornene (ENB) Functional films Cell incubation mediums Liquid crystal polymers CLAF and MILIFE Rubber automotive parts (wiper rubber blades, window frame rubber, radiator hose, etc.) Mobile phones, smartphones Media for industrial cell cultures, assisted reproductive technology (ART) products PCs, mobile phones, digital appliances and other electric components, connector parts Produce bags, housewrap, blinds, wallpaper 34 JX Holdings, Inc. Annual Report 2013

4 INITIATIVES UNDER SECOND MEDIUM-TERM MANAGEMENT PLAN Establishing presence in overseas markets Basic chemicals: A paraxylene plant operated with SK Global Chemical will start-up operation in fiscal This will increase NOE s paraxylene supply capacity from the current level of 2.62 million tons per year to 3.12 million tons. We will also work to secure new business opportunities by responding appropriately to major changes in the business environment, such as the petrochemical raw material shift from crude oil to gas resulting from the shale gas revolution. Lubricants: Through a joint venture with SK Lubricants, NOE is able to secure a stable supply of Group III base oil that is highly cost-competitive, and accordingly we will work to expand sales further in the high-quality lubricants market. In addition, our focus regions will be markets where demand will grow over the long term due to the progress of motorization, including China, Thailand, Vietnam, India, Indonesia, and South America, and we will strengthen our production and marketing systems in these regions. Demand for Paraxylene in Asia (Millions of tons) Demand for Lubricants (Millions of tons) (CY) % / year (CY) % / year + 3% / year REVIEW OF CORE BUSINESSES Source: NOE Global demand for lubricants Demand for lubricants in Asia Source: NOE Capturing demand for high-value-added products based on original technologies Specialty and performance chemicals: We will expand our overseas production network for specialty and performance chemicals ENB and petroleum resin and work to increase sales in the field of cell incubation for pharmaceutical manufacturing, where demand is expected to increase. ENB, which is used in rubber parts for automobiles CLAF, a nonwoven fabric that is used in produce bags JX Holdings, Inc. Annual Report

5 Three Core Businesses Strategies under Second Medium-Term Management Plan Oil and Natural Gas Exploration and Production (E&P) Business E&P company that generates sustainable growth, mainly through operatorship BUSINESS ENVIRONMENT DURING SECOND MEDIUM-TERM MANAGEMENT PLAN Demand for crude oil and natural gas shows firm growth, centered on emerging countries, while resource and energy prices are volatile but remain at high levels. Competition for natural resources escalates, environmental regulations are strengthened, and more-advanced technologies are needed for new oil and gas field development. Continued to advance the Papua New Guinea LNG Project Acquired multiple assets of oil and gas fields in the U.K. North Sea from Eni S.p.A., of Italy Production Activities NOEX is engaged in oil and natural gas production activities in 12 countries around the world, including Vietnam and Malaysia, where we act as an operator. We are working to ensure stable, safe operations while establishing strong relationships with host country Exploration and Development Activities Reserves and production of existing oil and gas fields will decline in accordance with continued production. In recent years, a number of factors have combined to make it extremely difficult to acquire assets at the development and production stages. These factors include an increase in resource nationalism in resource-rich countries, escalating competition with other countries to secure resources, and the rise in the price of oil. Accordingly, to expand reserves and production volume over the medium-to-long term, our basic policy is to participate in projects from the exploration stage. Now, the number of projects requiring advanced technologies and higher development costs, such as deepwater and unconventional oil and gas resources, is increasing. Therefore, the strengthening of technologies and appropriate risk management will be important requirements. Under such circumstances, during the First Medium-Term Production Volume by Project Company / Reserves by Region Management Plan, NOEX advanced exploration activities in regions around the world. We acquired large operator projects in Malaysia and Qatar. We also acquired working interests in projects in the U.K. North Sea, UAE, Myanmar, and Australia and then conducted exploration and development. For example, we made the final investment decision to develop the Finucane South oil field in Australia in 2012 and commenced production in May And we made the final investment decision on the Papua New Guinea LNG Project and are advancing it toward start-up in In addition, in December 2012, we acquired multiple oil and natural gas assets in the U.K. North Sea from Eni S.p.A., a major Italian energy company, and, in February 2013, we made the final investment decision to develop the Mariner oil field, which is the largest of these assets. We are striving to commence commercial production from the Mariner oil field in NOEX ownership ratio Ownership in oil/natural gas/ LNG project Fiscal 2012 sales volume (Thousands of BOED*) Fiscal 2012 reserves (Millions of BOE*) Country and region Project company U.S. Gulf of Mexico JX Nippon Oil Exploration U.S.A. Limited JX Nippon Oil Exploration (Gulf) Limited 100.0% 11.6%~100.0% 4 23 Canada Japan Canada Oil Company Limited 100.0% 5.0% U.K. North Sea JX Nippon Exploration and Production (U.K.) Limited 100.0% 2.1%~85.0% Vietnam Japan Vietnam Petroleum Co., Ltd. 97.1% 46.5%~64.5% 8 Myanmar Nippon Oil Exploration (Myanmar), Ltd. 50.0% 19.3% 9 Malaysia JX Nippon Oil & Gas Exploration (Malaysia), Ltd. 78.7% 75.0% JX Nippon Oil & Gas Exploration (Sarawak), Ltd. 76.5% 37.5% 19 Indonesia Nippon Oil Exploration (Berau), Limited 51.0% 12.2% 17 Papua New Guinea Merlin Petroleum Company 79.6% 4.7%~73.5% 5 Southern Highlands Petroleum Co., Ltd. 80.0% 99 Australia JX Nippon Oil & Gas Exploration (Australia) Pty Ltd % 15.0%~25.0% 1 UAE, Qatar, and others United Petroleum Development Co., Ltd. 45.0% 97.0% Abu Dhabi Oil Co., Ltd. 31.5% 100.0% Total * NOEX net sales volume; crude oil equivalent 36 JX Holdings, Inc. Annual Report 2013 governments, national petroleum companies, and business partners. In fiscal 2012, NOEX produced and sold around 117 thousand BOED (barrels of oil equivalent per day).

6 Shigeo Hirai Representative Director and President, JX Nippon Oil & Gas Exploration Corporation The JX Nippon Oil & Gas Exploration Group (NOEX) engages in oil and natural gas exploration, development, and production activities in 14 countries around the world, acts as an operator, and takes a leadership role in the implementation of projects in such areas as Vietnam, Malaysia, and the U.K. North Sea. We are striving to increase our reserves and production over the long term by enhancing our competitiveness through preferred allocation of our management resources to Core Countries and Core Technologies. Major Results to Fiscal 2012 Country (Block) Type Acquisition of interests Discovery of oil and/ or gas reservoir Confirmation of spread of hydrocarbon Renewal of contract for producing oil field Jan Vietnam (16-2) Natural gas Feb UAE (new + renewed) Crude oil Vietnam (05-1b/1c) Crude oil/natural gas Mar U.K. North Sea (Culzean) Natural gas Apr Australia (WA-290-P) Natural gas Papua New Guinea (PPL219) Crude oil May 2011 Qatar (Block A) Natural gas Australia (Finucane South) Crude oil Jan Malaysia (Deepwater Block R) Crude oil Sep Myanmar (M-11) Natural gas Oct Australia (WA-435-P, WA-437-P) Natural gas U.K. North Sea (new) Crude oil/natural gas Dec U.K. North Sea (Mariner) Crude oil/natural gas Exploration and Development Schedule for Principal Oil and Gas Fields Oil/gas field May 2013 Commencement of production Feb Made decision on development Schedule REVIEW OF CORE BUSINESSES Mubarraz oil field (Abu Dhabi, UAE) 1973 Commencement of production 2011 Signed new concession agreement 2012 New concession agreement takes effect Helang gas field (Block SK10, Malaysia) 1990 Successful test drilling Jintan gas field (Block SK8, Malaysia) 1992 Successful test drilling Tangguh LNG project (Indonesia) 1997 Successful test drilling Kutubu oil field (Papua New Guinea) 1990 Asset acquired Magnus oil field (U.K. North Sea) 1996 Asset acquired Rang Dong oil field (Block 15-2, Vietnam) 1994 Successful test drilling 2014 Scheduled start-up of production LNG project (Papua New Guinea) 2009 Final decision on investment Mariner oil field (U.K. North Sea) Culzean structure (Block 22/25a, U.K. North Sea) Block 05-1b/c (Vietnam) 2012 Asset acquired 2013 Final decision on investment 2008 Successful test drilling 2011 Confirmed extent of reserves with appraisal wells 2010 Successful test drilling 2017 Scheduled start-up of production 2012 Confirmed natural gas flow Block 16-2 (Vietnam) 2009 Successful test drilling 2010 Successful test drilling Exploration stage Development stage Production stage JX Holdings, Inc. Annual Report

7 Three Core Businesses Strategies under Second Medium-Term Management Plan INITIATIVES UNDER SECOND MEDIUM-TERM MANAGEMENT PLAN 1 Expanding reserves and production volume, mainly through exploration, to increase our production volume to 200 thousand BOED by 2020 Completion of projects under development and make final investment decisions on projects under exploration NOEX will steadily advance the Papua New Guinea LNG Project (scheduled to commence production in 2014) and the Mariner oil field in the U.K. North Sea (scheduled to commence production in 2017). In addition, we will try to make final investment decisions on projects under exploration, such as the Culzean gas field in the U.K. North Sea and the 3rd train of the Tangguh LNG Project in Indonesia, after detailed feasibility studies. Promotion of large exploration operator projects We are planning to invest 90 billion in exploration over the three years of the Second Medium-Term Management Plan. We are acting as operator and taking a leadership role in large-scale projects in such regions as Malaysia (Block SK333, Deepwater Block R) and Qatar (Block A). 2 Establishing superiority by focusing on Core Countries and Core Technologies We strive to secure leadership in business and obtain more access to business opportunities by preferred allocation of our management resources to certain areas and technologies accumulated through operating projects. We have categorized areas as Core Countries or Core Candidates. In Core Countries Malaysia, Vietnam, and the U.K. we expect to expand our activities by using the existing business foundation. Then, we will continue exploration, development, and resource acquisition activities by utilizing our knowledge and relationships with national petroleum companies accumulated through our business activities. In Core Candidates UAE, Qatar, Myanmar, and Australia we will further strengthen our business foundation. Then, we will try to obtain access to business opportunities and enhance our business foundation to promote those areas to our future Core Countries. From a technical aspect, we have categorized certain technologies as Core Technologies, such as the development of deep-water assets (deeper than 300 meters), the utilization of enhanced oil recovery (EOR), and the development of tight oil and gas. We will try to accumulate technical advantages through operating our projects. Core Technologies Deepwater Regions Offshore Sabah, Malaysia (Deepwater Block R); U.K., west of Shetland Enhanced oil recovery Vietnam (Rang Dong oil field HCG-EOR) Tight oil / gas Qatar (Block A) Maintaining and Expanding Production Volume over Medium Term Production Schedule (Thousands of BD) Production scheduled to commence Papua New Guinea LNG U.K. North Sea (Kinnoull oil field) 2013 Production commenced Australia (Finucane South oil field) Production scheduled to commence U.K. North Sea (Mariner oil field) 200 Promoting exploration projects, others Before FID Major oil and gas fields before final investment decision (FID) Malaysia (Layang gas field) U.K. North Sea (Culzean gas field) Indonesia Tangguh LNG Project 3rd Train Papua New Guinea LNG Project 3rd Train In development (CY) 50 In production JX Holdings, Inc. Annual Report 2013

8 3 Restructuring business portfolio quickly while responding to changes in the business environment In order to maximize the value of assets while distributing risk in response to changes in the business environment, we will replace assets flexibly and efficiently and optimize our asset portfolio. Overview of Papua New Guinea LNG Project Indonesia Papua New Guinea Juha Elevation: 950m Hides Elevation: 1,700m to 2,800m Kutubu oil facility (existing) Oil export platform (existing) Gas conditioning plants Liquids line to Kutubu Crude oil/gas production region Kopi LNG plant (under construction) Production facility Rich gas line Liquids line Overview of Project Pipeline Port Moresby LNG tanker Gas resources Gas fields: Hides, Angore, and Juha Oil fields: Kutubu, Moran, and Gobe (using associated gas) Pipeline Onshore: about 400km, offshore: about 400km LNG plant production capacity 6.6 million tons / year (3.3 million tons / year two trains) Project status Under development (Production to be commenced in 2014) Gas line to Kopi Gas line Liquids line Partners (Figures show ownership ratio) ExxonMobil: 33.20% (operator) Oil Search: 29.00% Santos: 13.53% Merlin Petroleum: 4.68%* Papua New Guinea government / landowners: 19.58% * JX Nippon Oil & Gas Exploration ownership: 79.6% REVIEW OF CORE BUSINESSES Acquisition of Oil and Gas Field Rights in the U.K. North Sea Mariner oil field Magnus oil field, others Kinnoull oil field, Andrew oil field, others Shetland Islands Orkney Islands Main Features of This Oil/Gas Field Acquisition Oil/gas field Kinnoull oil field Culzean gas field Mariner oil field Blocks 16/23a, 16/24a 22/25e 9/11a U.K. Culzean gas field, others Partners and interests BP 77.06% (operator) JXNEPUK* 22.94% Of which, existing 6.27% Additional from this acquisition 16.67% Maersk 49.99% (operator) JXNEPUK* 34.01% Of which, existing 17.06% Additional from this acquisition 16.95% Statoil 65.11% (operator) JXNEPUK* 28.89% Of which, existing % Additional from this acquisition 28.89% BP 16.00% Cairn 6.00% Project status Under development (Production to be commenced in 2014) Under exploration (Before FID) Under development (Production to be commenced in 2017) * JX Nippon Exploration and Production (U.K.) Limited JX Holdings, Inc. Annual Report

9 Three Core Businesses Strategies under Second Medium-Term Management Plan Metals Business Global resources and materials company centered on copper BUSINESS ENVIRONMENT DURING SECOND MEDIUM-TERM MANAGEMENT PLAN Resources Development and Copper Smelting and Refining Businesses Copper demand increases, centered on Asia, and copper prices remain high. Increasingly advanced technologies and growth in the amount of funds required lead to the concentration of capital and the development of oligopolies in the resources development industry. Mine development is proceeding, but there is little potential for significant improvement in TC/RC. Commenced production at the Caserones Copper and Molybdenum Deposit Acquired a mining interest in the Frontera Area In the resources development business, NMM has taken equity stakes in the Escondida Copper Mine, the Collahuasi Copper Mine, and the Los Pelambres Copper Mine, which began operations in 1990, 1999, and 2000, respectively, to secure a stable supply of copper concentrate for its copper smelting and refining operations. In 2012, equityentitled copper production volume was about 100 thousand tons. With the recent copper price increases, these equity stakes have made a significant contribution to NMM s earnings In addition, in March 2013, we commenced the production of refined copper by the SX-EW method* at the Caserones Copper and Molybdenum Deposit in Chile, which had been in development since We plan to start copper concentrate production in the October-to-December quarter of 2013, which will make a significant contribution to expanding equity-entitled copper mine production. In the copper smelting and refining business, Pan Pacific Copper Co., Ltd. (PPC) a joint venture with Mitsui Mining & Smelting Co., Ltd. and LS-Nikko Copper Inc., of South Korea, have a combined annual production capacity of 1,170 thousand tons of refined copper. Thanks to economic growth in China and other emerging countries, demand for refined copper is increasing, and the copper price has been showing healthy movement. On the other hand, the demand-supply balance for the raw material copper concentrate has remained tight since the middle of the 2000s. In the short term, the balance is improving due to the start-up of new mines, but nonetheless treatment charges and refining charges remain at a low level, and, as a result, we have been forced to decrease refined copper production since fiscal Against this backdrop, we are working to bolster our competitiveness through increased efficiency and reduced costs. * SX-EW (solvent extraction-electrowinning) method: A copper production method by first making a copper sulfate solution by selectively extracting copper ions from a copper leaching solution (solvent extraction) and subsequently producing refined copper from the copper sulfate solution through electrowinning. Global Demand for Refined Copper and LME Copper Price (Millions of tons) ( /lb) Movement in TC/RC* 1 ( /lb) *1. TC/RC (Treatment Charge/Refining Charge): smelting and refining charge Purchasing term decided through negotiations between smelters and mining companies, with the smelter paying to the mining company, as payment for copper concentrate, an amount calculated by subtracting the TC/RC from the LME refined copper price. *2. Smelting and refining margin at the end of 2010 comprises multiple agreements in accordance with contract counterparties, contract periods, etc. * 2 (CY) Source: WBMS Global demand for refined copper (left scale) LME copper price (right scale) (CY) 0 mid 2007 end mid end mid end mid end mid end Periods of negotiation for coming years mid 2012 end Outline of Resources Development and Copper Smelting and Refining Businesses Overseas Mines Caserones Copper Deposit (Chile) 49.5%* 1 Los Pelambres Copper Mine (Chile) 15.0%* 1 Escondida Copper Mine (Chile) 3.0%* 1 Collahuasi Copper Mine (Chile) 3.6%* 1 Investment Investment return Stable procurement of copper concentrate 40 JX Holdings, Inc. Annual Report 2013 Smelting and Refining Alliances JX Holdings 100% JX Nippon Mining & Metals 66.0% 39.9%* 1 Pan Pacific Copper (PPC) LS-Nikko Copper 610 thousand tons / year (Japan) 560 thousand tons / year (South Korea) Saganoseki Smelter & Refinery, Hitachi Refinery Tamano Smelter, Hibi Kyodo Smelting Co., Ltd. Onsan Smelting Plant 450 thousand tons / year 160 thousand tons / year* % 5.0% Mitsui Mining & Smelting Co., Ltd. *1. Indirect ownership of JX Nippon Mining & Metals *2. PPC owns 63.51% of the total of 260 thousand tons per year production capacity.

10 Yoshimasa Adachi Representative Director and President, JX Nippon Mining & Metals Corporation The JX Nippon Mining & Metals Group (NMM) engages in integrated copper and other nonferrous metals operations extending from its business in resources development, smelting and refining, electronic materials, and recycling and environmental services. By pursuing a stable supply and the effective use of value-bearing metal resources, NMM will dedicate itself to developing a sustainable economy and society. INITIATIVES UNDER SECOND MEDIUM-TERM MANAGEMENT PLAN (Resources Development) Establishing highly profitable structure by increasing copper mine equity interests Expanding operations, targeting 350 thousand tons per year of equity-entitled copper mine production NMM will advance construction work at the Caserones Project in Chile, targeting the start-up of copper concentrate production in the October-to-December quarter of 2013, and quickly move to full production in fiscal We will take steps to increase copper mine equity interests. Specifically, we will consider moving to the development stage at the Quechua copper deposit (Peru), for which the feasibility study has already been completed, and advance exploration at the Frontera Area (Chile/Argentina), for which equity interest was acquired in September Caserones Copper and Molybdenum Deposit Production Volume Equity-Entitled Copper Mine Production (Thousand tons / year) (CY) 350 Additional production from Quechua, Frontera, etc Second Medium-Term Management Plan Caserones 3 mines in Chile (existing) (Los Pelambres, Escondida, Collahuasi) (Thousands of tons) Annual average for first 10 years Annual average for 28 years (mine life) Total for 28 years (mine life) Copper content in copper concentrate 150 / year 110 / year 3,140 Copper production volume Refined copper (SX-EW process) 30 / year 10 / year 410 Total 180 / year 120 / year 3,550 Molybdenum concentrate production volume 3 / year 3 / year 87 REVIEW OF CORE BUSINESSES (Resources Development) Acquiring mining equity interests utilizing original technology Developing next-generation smelting technology NMM conducted a pilot plant project for the Nikko Chloride (N- Chlo) process, in Perth, Australia, and it is studying the results of that project with a view to using this technology with gold concentrate. Concurrently, we are developing bio-mining technology in collaboration with CODELCO, and demonstration testing of this technology is currently under way at CODELCO s Radomiro Tomic copper mine. These new technologies will allow us to efficiently recover metals, such as copper, gold, and silver, from low-grade copper concentrate. As a result, with competition among resource developers intensifying in the area of rights acquisition, we expect to establish a competitive edge using these original technologies. (Copper Smelting and Refining) Establishing a copper smelting and refining business structure with world-class cost-competitiveness Securing safe and stable operation, improving smelting margin We will minimize the risk of decreased production by securing safe and stable operation of refineries. Also, we will raise production efficiency and profitability by using high-grade copper concentrate from the Caserones Copper Deposit and increasing the processing of high-margin materials, such as gold and silver concentrate, as well as by beginning the operation of a two-vessel system of copper concentrate and sulfuric acid multiple carriers. In these ways, we will work to build an operating system with world-class cost-competitiveness. JX Holdings, Inc. Annual Report

11 Three Core Businesses Strategies under Second Medium-Term Management Plan BUSINESS ENVIRONMENT DURING SECOND MEDIUM-TERM MANAGEMENT PLAN Electronic Materials Business Increasing demand for electronic materials and components from the fields of advanced IT, automobiles, and medicine Enhanced manufacturing facilities for cathode materials for lithium-ion batteries Built integrated production facility for connectors in Kakegawa City In the electronic materials business, NMM manufactures a diverse range of electronic materials by drawing on such advanced technologies as high-purification, high-density sintering, surface treatment, and precision rolling and processing. By developing and supplying high-quality and highly functional products that meet market needs, we command large shares in the global market. In fiscal 2012, we consistently began sales of super low roughness treated rolled copper foil, ultra-thin treated rolled copper foil, thick foil (electro-deposited copper foil), and highconductivity, high-strength copper alloys. In addition to our traditional focus on IT, we are working to increase the share of our sales accounted for by the automotive industry, where the market for eco-friendly cars is recording growth. To that end, in September 2012 we enhanced manufacturing facilities at the Isohara Works for cathode materials for automotive lithium-ion batteries, thereby establishing a framework for the stable supply of high-purity products of consistent quality. In addition, in April 2013, in Kakegawa City, Shizuoka Prefecture, we commenced OEM operation of a plant with an integrated manufacturing process for automotive connectors. JX Metals Precision Technology Corporation, which operates the plant, was merged with the Group s precision fabricating related companies in January From precision rolled products as raw materials to connectors as final products, the new facility will offer stable and efficient integrated processing, including the press, plating, and fabrication processes. Principal Electronic Materials Product name Worldwide market share (As of 2011) Primary uses Treated rolled copper foil No. 1 75% Flexible printed circuit boards Sputtering targets for LSIs No. 1 60% CPUs, memory chips, etc. Sputtering targets for FPDs* No. 1 30% Transparent electrodes Sputtering targets for magnetic applications No. 2 30% Hard disk drives, etc. Corson alloys (C7025) No. 1 45% Lead frames, connectors Titanium copper alloys No. 1 70% High-quality connectors, etc. Phosphor bronze alloys No. 1 20% Connectors, springs for electronic components * FPDs: Flat panel displays Recycling and Environmental Services Business Increasing demand for related materials and resource recycling in line with growing concern about the realization of an eco-friendly society Flow of the Recycling and Environmental Services Business Strengthened collection of recycled materials in Taiwan Operated pilot plant for recycling of lithium-ion batteries Intensifying worldwide competition for natural resources and the necessity to reduce the environmental burden have led to increasing importance of recycling metal resources. In the recycling and environmental services business, NMM efficiently recovers copper, precious metals, rare metals, and other value-bearing metals by utilizing its copper smelting and refining facilities. In 2009, we launched the HMC (Hitachi Metal Recycling Complex) Department of the Hitachi Works, which is located in an urban area that generates substantial recycled materials. In this way, we expanded our capacity. To obtain recycled materials, we have built a nationwide collection network that comprises operating sites extending from Hokkaido to Kyushu. However, in recent years a rising number of electronic component companies have shifted their operations overseas, and there has been a trend toward the reduced use of metals. These factors have reinforced the trend toward a lower volume of recycled materials generated in Japan. In this environment, we are enhancing our profitability by increasing the collection of recycled materials overseas and by conducting detoxification treatment for a wider range of recycled materials. We have received shipments of materials from the Chiongpin Recycling Center in Taiwan since In addition, we continue to investigate the commercialization of the recycling of lithium-ion batteries, which are expected to be the focus of growing recycling demand in the future. Recycled materials containing copper and precious metals (purchased) Collecting used products Rendering recycled materials harmless (four core environmental services companies) JX Nippon Environmental Services Co., Ltd. (Kanto region) JX Nippon Tsuruga Recycle Co., Ltd. (Kansai, Tokai, and Hokuriku regions) JX Nippon Tomakomai Chemical Co., Ltd. (Hokkaido and Tohoku regions) JX Nippon Mikkaichi Recycle Co., Ltd. (Hokuriku and Chubu regions) Metals recovery process Saganoseki Smelter & Refinery, PPC HMC Dept. of Hitachi Works, JX Nippon Mining & Metals Consumers Electric appliances and electronic devices Electronic materials 42 JX Holdings, Inc. Annual Report 2013

12 INITIATIVES UNDER SECOND MEDIUM-TERM MANAGEMENT PLAN Securing world s top share in each product market Working to rapidly monetize integrated production of connectors as well as cathode materials operations NMM will strive to rapidly monetize the integrated OEM production of connectors at the Kakegawa Works, which commenced operation in 2013, and of the cathode materials business for lithium-ion batteries at the Isohara Works, where capacity was increased in Improving profitability by developing new fields and materials In the future, we will work to develop and expand sales of new materials for fields where growth is anticipated advanced IT, next-generation eco-friendly vehicles, and medicine. These materials will include ultra-thin electro-deposited copper foil, highly functional precision rolled products, sputtering targets for OLEDs, sputtering targets for next-generation LSIs, and new materials for medical radiation sensors. Enhancing our overseas network We will consider increasing overseas production capacity in response to the overseas shift of domestic customers and to the needs of customers for BCP and cost cutting. Building an international resource recycling business with an environmentally friendly zero emission system REVIEW OF CORE BUSINESSES Enhancing our ability to collect recycled materials overseas To respond to decreasing quantities of recycled materials generated in Japan, we will strengthen collection from overseas markets, such as North America in addition to Taiwan and other Asian markets. In this way, we will strive to contribute to the establishment of a worldwide recycling-oriented society. Advancing and expanding new business We will work to rapidly commercialize the recycling of used lithium-ion batteries. Also, we will differentiate our operations by expanding our business in the detoxification of harmful materials, such as waste asbestos and materials containing small amounts of PCB. Consolidating production sites for each metal and reducing costs We will take steps to consolidate production sites for each metal, including revising the HMC process. In this way, we will strive to raise production efficiency and reduce costs. JX Holdings, Inc. Annual Report