Sumitomo Metal Mining Co., Japan's largest nickel smelter, is increasing efforts to develop copper and nickel mines overseas because of rising ore costs.

The company needed to build more smelters in mining nations to lower the risk that governments may curb ore exports, Nobumasa Kemori, president of the company, said in an interview in Tokyo.

Japan has no commercial copper or nickel mines and competes with China and South Korea for global mineral deposits as commodity prices rise to records. Sumitomo Metal Mining, which plans 140 billion yen ($1.36 billion) in mine and smelter investments in the three years to March 2010, forecasts a 34 percent decline in net income this year.

``Given tighter mine supplies and lower grades of copper ore, smelters are concerned about the risk that they may not be able to secure enough supplies and that processing fees may decline,'' Daiwa Institute of Research analyst Takashi Murata said by phone from Tokyo today.

Copper for three-month delivery on the London Metal Exchange climbed to a record $8,880 a metric ton April 17 as a strike in Chile disrupted output. The metal rose 0.7 percent to close at $8,180 a ton on May 23. Nickel, which reached a record $51,800 a ton on May 9 last year, ended at $24,100 a ton.

Sumitomo Metal, based in Tokyo, needs to source 67 percent of its copper ore from its own supplies, up from 40 percent currently, Kemori said on May 22.

The company, Japan's second-largest copper smelter, planned to develop at least one new overseas copper mine by 2011, he said. The company is also studying nickel projects, including an expansion of its ore processing operations in the Philippines.

``Developing copper mines is our priority,'' along with the nickel project in the Philippines, Kemori said. Overseas copper mine investment ranked ahead of a possible Solomon Islands nickel development, he said.

The company is expanding its Coral Bay nickel project in the Philippines and may make a decision on a mine and processing plant on Mindanao Island by November.

``The plant will cost $10 billion at least and may cost as much as $15 billion as engineering companies are busy with oil rig projects and construction costs are soaring,'' Kemori said.

Sumitomo Metal Mining has doubled its exploration budget this fiscal year to 4.7 billion yen from last year, and is searching for gold and copper ore in 11 locations globally.

To protect against the risk that Chile and other producers could follow China in restricting mineral exports, Sumitomo Metal Mining ``needs to build smelters abroad,'' Kemori said.

China will cut coal export licenses to 53 million metric tons this year from 70 million tons in 2007, the Tex Report said last month. The country sold 53.2 million tons abroad last year, it reported.

Copper smelters including Pan Pacific Copper Co. and Tongling Nonferrous Metals Group Co. agreed this year to reduce fees for converting ore to metal amid a surplus of capacity relative to supply. Sumitomo Metal Mining is receiving 25 percent less in treatment and refining charges from BHP Billiton Ltd., the world's biggest mining company.

Sumitomo Metal Mining fell 2.2 percent to close at 1,831 yen on the Tokyo Stock Exchange. The stock is down 4.1 percent this year, compared with a 10.6 percent drop in the Nikkei 225 Stock Average.

Net income will probably drop to 91 billion yen in the year started April 1 from 137.8 billion yen in the previous year, the company said April 28.