Toho Zinc Co.,Ltd.

The equity ratio remains at a low level of 13.8%, and comprehensive income fluctuates significantly due to the impact of deferred hedge gains/losses arising from fluctuations in precious metal prices such as gold and silver, giving rise to a situation raising material doubt about the going concern assumption. In response, the company concluded an inter-creditor agreement with all transacting financial institutions in February 2025, agreeing on a five-year repayment plan, entered into a total of ¥10.0 billion loan commitment agreement and overdraft agreement with MUFG Bank (concluded in January 2026), and is strengthening its capital base through the issuance in March 2026 of stock acquisition rights with exercise price adjustment provisions (exercise period from March 2026 to March 2028). As of the end of the fiscal year under review, cash and deposits stood at ¥11,133 million, and while the company has determined that no material uncertainty exists, the fragility of the financial base remains the most critical risk requiring continuous monitoring.

Raw ore prices and product prices in the Smelting business are based on international market prices such as those on the LME (London Metal Exchange), which can fluctuate significantly due to supply-demand balance, speculative trading trends, and political and economic conditions. If prices fluctuate more sharply and significantly than expected, this may affect business results and financial condition. In response, the company utilizes hedging measures against market fluctuations such as commodity forward transactions, while working to expand and stabilize earnings from businesses that are relatively less affected by market conditions.

Since the ore that constitutes the main raw material is imported from overseas, smelting charges (T/C) are denominated in US dollars, and domestic selling prices are also based on yen conversion of US dollar-denominated prices, the structure is such that yen appreciation adversely affects performance while yen depreciation has a favorable effect. If exchange rates fluctuate more sharply and significantly than expected, this may affect business results and financial condition. In response, the company utilizes hedging tools such as forward exchange contracts and option transactions.

The manufacturing processes of the Smelting business and the Environment & Recycling Business consume large amounts of electricity, coke, heavy oil, etc., and electricity and coke prices are significantly affected by the prices of energy resources such as crude oil, LNG, and coal. If energy resource prices rise substantially, manufacturing costs could deteriorate significantly, potentially affecting business results and financial condition. In response, the company addresses higher energy costs through improvements in manufacturing methods and supplier arrangements.

The ore that is the main raw material for the Smelting business is entirely procured from overseas mines, and if global changes in ore supply-demand or unforeseen events such as mining accidents occur, this could lead to production cuts due to raw material shortages, loss of sales opportunities, and deterioration of per-unit costs. In response, the company has concluded long-term ore purchase contracts with major mines in Peru, Australia, and elsewhere to ensure stable procurement, while promoting diversification of raw materials through expanded use of recycled materials such as used batteries and steelmaking dust.

If production as planned cannot be carried out due to natural disasters such as earthquakes and floods, the spread of infectious diseases, or operational accidents and troubles, this could result in loss of sales opportunities due to production cuts and deterioration of per-unit costs, potentially affecting business results and financial condition. Since the Smelting business is a business form that is susceptible to market conditions, securing sales opportunities through production as planned is particularly important for business performance. In response, the company implements preventive equipment maintenance based on long-term plans and various measures for safe operations.

Revisions to environmental laws and regulations at domestic and overseas business sites may result in new costs, and efforts toward decarbonization aimed at achieving carbon neutrality may result in additional costs or changes to business forms in raw material procurement and manufacturing processes. In addition, the company faces issues concerning some previously shipped non-ferrous slag exceeding soil environmental standards and being used inappropriately, and to prevent recurrence, has established a “Quality Assurance Office” and “Environment & Safety Office” at head office to strengthen its systems. The company conducts analysis based on the TCFD framework and strives to identify climate change risks and opportunities.

If information assets are leaked or tampered with due to employee operational errors, unauthorized access, cyberattacks, computer virus infections, etc., this could significantly affect business results and financial condition through loss of social credibility, incurrence of countermeasure costs, interruption of production processes, and suspension of transactions. In response, the company has established information security-related regulations and set up an “Information Security Management Committee” (chaired by the executive officer in charge of the Corporate Planning Department) directly under the president, conducting regular reviews of its operational systems through a PDCA cycle.