JX Advanced Metals Corporation

In the Semiconductor Materials and Information & Communications Materials segments, there is a risk of losing competitive advantage due to insufficient response to customer requirements, the emergence of alternative products, and changes in customer needs. Since new products and businesses require considerable time and management resources to grow into a revenue base, if the loss of competitive advantage coincides with delays in creating new businesses, this could have a material impact on business performance and financial position. In response, the Company is working on securing intellectual property rights, strengthening the supply chain, expanding production capacity, and utilizing external partnerships.

The medium- to long-term business strategy and targets announced in May 2024 are based on assumptions such as growth of the semiconductor market and outlooks for foreign exchange rates, interest rates, and copper prices; if these assumptions do not materialize as expected, there is a risk that achieving the targets will become difficult. The effects of structural reform measures (working capital improvement, optimization of capital expenditure, cost optimization, etc.) are factored in, but improvement of financial indicators may be delayed depending on the feasibility and progress of these measures. In addition, unexpected changes in strategy due to changes in the business environment may also affect the achievement of targets.

While the semiconductor market is on a growth trend against the backdrop of the spread of generative AI and other factors, there is a risk that supply-demand balance could collapse due to fluctuations in global economic conditions and final product demand, causing the market size to fluctuate rapidly. In the event of market contraction, excess production and increased inventory may occur, while delays in the timing of capital expenditure or misjudgment of market growth scale may result in lost business opportunities. The Company addresses this through optimization of production and inventory volumes based on research and analysis of market and demand trends and flexible capital expenditure decisions, but it may not be able to fully respond to market changes that exceed expectations.

Since much of the Company's product sales and raw material/supply purchases are denominated in US dollars or local currencies, the Company is exposed to risks from fluctuations in metal prices and foreign exchange rates. If sharp and significant fluctuations occur, this could affect business performance and financial position. The Company works to reduce this risk through the use of futures hedging transactions and other means, but complete hedging is difficult.

The Company conducts resource development and raw material procurement around the world, including at the Caserones mine in Chile, South America, but there is a risk that raw material procurement could become difficult due to the advance of resource nationalism, conflict minerals issues, and moves by demand-side countries to secure raw materials for themselves. If the supply chain is disrupted due to deepening international political conflicts, this could affect business continuity. The Company responds through information gathering utilizing an in-group think tank and expert networks, but the manifestation of geopolitical risk can be difficult to control.

The Company conducts M&A and business alliances (investments, joint ventures, startup investments, etc.) to accelerate business growth and enhance competitive advantage, but there is a risk that invested funds may not be recovered if business development does not proceed as planned due to significant changes in market conditions despite prior due diligence. The Company conducts prior due diligence based on gathering and analyzing as much information as possible on financial condition and business content, but future uncertainties cannot be completely eliminated.

There is a risk that information assets could be leaked or damaged due to cyberattacks, operational errors, or internal misconduct, resulting in the suspension of production and business operations and serious impacts on customers and the supply chain. The Company addresses this through the introduction and operation of an information security management system based on ISO/IEC27001, review by the Information Security Committee, and employee training, but the methods of cyberattacks and industrial espionage are becoming more sophisticated, and if an information leak incident occurs, it could result in fines, penalties, and damages, as well as a decline in social credibility.

Demands from stakeholders regarding decarbonization, contribution to a circular society, biodiversity and water resource conservation, and respect for human rights are becoming stricter, and there is a risk that if the Company's response to tightening regulations in various countries is insufficient, it could be forced to terminate business relationships with customers or scale down operations. The Company Group has identified seven materiality issues and is promoting various measures, but if it cannot keep pace with the speed of changes in regulations and demands, this could have a material impact on business performance and financial position, as well as lead to a decline in the brand's social credibility.

The subsidiary Gould Electronics Inc. (a US corporation) bears environmental remediation responsibility as a potentially responsible party under the US Superfund Act and other laws, and the final amount of the burden may become considerably large depending on many factors, including the quantity and nature of the substances to be cleaned up, the financial condition of other responsible parties, and revisions to laws and regulations. In addition, there is a risk that management costs for mine drainage treatment and other measures at the numerous closed/abandoned mines held domestically could increase due to revisions to related laws and regulations or natural disasters. In both cases, provisions have been made based on reasonable estimates, but if the actual burden exceeds the amount provisioned, this could have a material impact on business performance and financial position.

Against the backdrop of a declining domestic working population due to the falling birthrate and aging population, and diversifying values and career orientations among younger generations, there is a risk that acquiring and retaining excellent talent will become difficult. The Company responds through improved treatment via revisions to personnel systems, flexible personnel transfers, and building systems that enable diverse talent to thrive, but if the response to changes in the labor market is insufficient, an increase in employee turnover and prolonged difficulty in new hiring could hinder business operations, potentially having a material impact on business performance and financial position.