KUNIMINE INDUSTRIES CO., LTD.

The Bentonite Business, Clay Science Business, and Agri Business are all exposed to intense market competition, and the development of new technologies and products as well as price competition with competitors may affect operating results and financial condition. Given the structural reliance on specific business segments, there is a risk that changes in the competitive environment could spread to overall earnings. The Company has not disclosed specific hedging measures, and continued product development capability is key to maintaining competitiveness.

The Group conducts crude ore mining at three domestic mining companies, and there is a risk of mining suspension, quality deterioration, or ore depletion due to disasters or accidents. In addition, some crude ore is imported from overseas, and changes in the international situation or disasters/accidents could make importation difficult. Although exploratory drilling is conducted annually to secure reserves, such risks cannot be completely eliminated.

Heavy oil, electricity, and other energy sources are used in the manufacturing process, and fluctuations in energy prices directly affect manufacturing costs. In addition to imported crude ore, various other raw materials are procured from external sources, and there is a risk that purchase prices may rise due to exchange rate fluctuations or crude oil price movements. If such cost increases cannot be passed on to sales prices, this may adversely affect operating results and financial condition.

Since a portion of raw materials is imported from overseas, a weakening yen would increase import costs and could affect operating results. Although risk is hedged through forward foreign exchange contracts and other means, it is impossible to completely eliminate the impact. Due to the limitations of hedging measures, an effect on financial condition may remain in the event of substantial exchange rate fluctuations.

The Company holds multiple licenses and permits essential for business continuity, including quarry operator registration and approval of rock extraction plans under the Quarrying Act, and agrochemical registration under the Agricultural Chemicals Regulation Act. Business activities could be constrained if laws are amended or their interpretation changes due to shifts in social conditions, or if business suspension or revocation occurs due to legal violations. It is disclosed that no factors currently exist that would impede the continuation of these licenses and permits.

Although products are manufactured under thorough quality control, liability for damages to customers may arise in the event of product defects. While the Company maintains product liability insurance, there is no guarantee that insurance will cover the full amount of damages, and any excess losses could affect operating results and financial condition. Quality problems also carry the risk of damaging corporate credibility.

Although safety measures are implemented at mines and factories, production and shipment could be significantly reduced in the event of a large-scale earthquake, eruption of a nearby volcano, fire, accident, or similar event. Mining operations in particular are susceptible to natural disasters, and if alternative procurement means are limited, supply disruptions could become prolonged. Such events could have a material effect on operating results and financial condition.

The Company holds personal and confidential information of customers and business partners, as well as confidential business and technical information, and faces the risk of information leakage due to cyberattacks, unauthorized access, computer virus intrusion, or destruction, falsification, or system outages affecting critical data. Although management systems are being strengthened and employee training is being conducted, cyberattacks exceeding expectations may not be fully addressed. If an information leak occurs, it could affect business performance and financial condition due to loss of credibility.

While the Company works to reduce CO2 emissions and make effective use of resources, the introduction of new CO2 emission regulations could constrain business activities, particularly in the Bentonite Business, or increase compliance costs. Given the nature of the business, which is centered on manufacturing and mining, many processes are energy-intensive, making the Company structurally susceptible to the effects of tightening regulations. Continued efforts to reduce environmental impact are required.

Although sufficient credit management is implemented, if unexpected bad debts occur with business partners, additional losses or increased provisions may be required, potentially affecting operating results and financial condition. While the sophistication of credit management mitigates such impacts, this risk tends to materialize during economic downturns or when specific business partners experience deteriorating financial conditions.