5706 · Mitsui Mining & Smelting

Will it survive?

• Can it pay its interest? 61.9×
  Comfortable
  Operating income ¥130.9B ÷ interest expense ¥2.1B
  What this means

  Operating profit covers interest with the kind of margin Graham wanted for a defensive holding. Necessary, not sufficient, it says solvent, not cheap.

• How heavy is the debt, net of cash? ¥68.8B · 0.5× operating profit
  Modest net debt
  Cash ¥58.3B − debt ¥127.1B
  What this means

  Netting ¥58.3B of cash and short-term investments against ¥127.1B of debt leaves ¥68.8B owed, about 0.5× a year's operating profit (1.0× on the gross debt, before the cash). Net debt is the leverage figure that matters: the cash is already set against the debt. Strategic or illiquid investments aren't counted here.

• How long is cash tied up? 66d
  Long (60+ days)
  DSO 62 + DIO 44 − DPO 40 days
  What this means

  Days cash is tied up between paying suppliers and collecting from customers. Lower is better; a long cycle means growth itself eats cash.

Is it a good business?

• Return on invested capital 8%
  Below average through the cycle
  10-yr median, range 2%–22%; 22% latest = NOPAT ¥103.4B ÷ invested capital ¥461.2B
  Industry peers: median 16%
  What this means

  The rate the business earns on the money tied up in it, Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; a return below the cost of capital (~8%) erodes value as a business grows rather than building it — the test Buffett weighs most. The headline is the median of the last 10 years (it ran 22% most recently), so one peak or trough year doesn't set the verdict. Asset-light businesses (R&D expensed, little capital) read artificially high, pair this with Owner Earnings.

• Owner-earnings margin 7%
  Solid, recently turned positive
  latest ¥53.0B = operating cash ¥87.5B − maintenance capex ¥34.5B; positive each of the last 3 years, after an earlier loss stretch (10-yr median 2%)
  Industry peers: median 2%
  What this means

  What an owner could take out without starving the business: operating cash less the maintenance capital it must spend to hold its position — Buffett's owner earnings. That's 7% of revenue this year, a 2% median across 10 years.

• Are earnings backed by cash? 0.96×
  Mostly cash-backed
  Cash from ops ¥87.5B ÷ net income ¥91.3B
  What this means

  How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy, growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.

How is the cash used?

• Where do the earnings go? 21%
  Reinvests most of it
  Dividends + buybacks ¥10.9B ÷ Owner Earnings ¥53.0B
  What this means

  Of ¥53.0B Owner Earnings, ¥10.9B (21%) went back to shareholders, ¥10.9B dividends, ¥19M buybacks. Returning most of it is the mark of a mature business with little left to reinvest at a high return; reinvesting most could mean a long runway, or empire-building. The split doesn't say which; the return earned on it (see ROIC) does.

• Investing or harvesting? 1.16×
  Maintaining
  Capex ¥34.5B ÷ depreciation ¥29.8B
  What this means

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth, or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency, or a melting asset base). The ratio won't tell you which; the filings will.

Durability & moat, 2017–2026

Whether the record’s returns held, and what the capital reinvested earned.

• Profitable years 9 of 10
  What this means

  Lost money in 1 year(s), look at what happened there before trusting the average.

• Return on capital ≥ 15% 1 of 10 yrs
  What this means

  A moat shows up as a high return on invested capital that holds year after year, not one good vintage.

• Operating margin 7% → 11% (3-yr avg ends)
  What this means

  Through the cycle the operating margin widened — about 7% early to 11% lately, median 9% — pricing power intact or improving.

• Reinvestment, incremental ROIC returns capital
  What this means

  The capital base barely grew: this business returns cash through dividends and buybacks rather than reinvesting. Judge it on the cash returned, not on compounding.

• Owner earnings growth +16%/yr
  What this means

  Owner earnings grew about 16% a year over the record.

• Worst year 2023 · 1.9% op. margin
  What this means

  Stayed profitable even in its hardest year, the resilience that survives recessions.

• Dividend record rising
  What this means

  Paid and raised the dividend across the record, the continuity Graham prized.