Who is Japan's largest domestic gold producer? Sumitomo Metal Mining (SMM, 5713)? No, its Asahi Pretec (5855), who recovered 15 tons of gold in 2007 from electronic parts, jewelry and other scrap items, versus 7 to 8 tons of gold produced a year at SMM's Hisikari gold mine. At current prices of gold, that's worth US4.1 billion at $800/ounce, assuming that 15 tonnes is equal to 34.2857 ounces.

Waste products from photo development and scrap items retrieved from electronics parts factories are brought to Asahi Pretec's plant in Sugito, Saitama Prefecture. Asahi Pretec estimates its current-year sales will grow 11% to 130 billion yen, with net profit rising 9% to 7 billion yen. Matsuda Sangyo Co. (7456), operates a similar business, but also operates food-importing and other businesses. It projects a net profit of 6.1 billion yen, up 15%.

Asahi Pretec has developed an electrolytic device installed in client production lines to directly retrieve precious metals, which is helping the company to expand market share at the expense of competitors. The recycling firm also retrieves indium from manufacturers of liquid crystal display panels for televisions. It expects to recover 200 tons of indium this year, almost double the amount from three years ago. It also expects to retrieve about 6 tons of platinum from catalyst for automobiles, up 50% from fiscal 2005. The Company's waste disposal unit is also collecting dental crowns and metal scraps containing gold and plalladium, and has a 70% share of the dental material recycling business.

Recyclers customarily decide prices of effluent or scrap based on precious metal prices. Asahi Pretec can offset higher procurement even if market prices rise because prices of bullion, produced from recycled industrial waste, will also rise. Market prices however affect the value of products in production and in inventories. Last year, the Company reported appraisal gains on inventories of some JPY1.1 billion, or about 10% of pretax profit.

Conversely, appraisal losses with falling market prices will weigh on the company's earnings. Falling market prices for palladium, for example, caused net profit to drop by half in FY2002.
Asahi Pretec established subsidiaries in Shanghai in 2003 and in Seoul in 2006 and is increasing imports from Asia. In recycling of mobile phones and computers, however, the Company lags mining major Dowa Holdings (5714).

The stock is down to under JPY3,000 from a high of JPY4,000, which represented a four-fold increase from 2005 lows. The stock hasn't been sold off as heavily as the mining stocks like Sumitomo Mining, but still looks a little pricey at 15X earnings, dividend yield of 1.82% and a PBR of 2.94X. A good time to reconsider the stock is after they report appraisal losses from the current sell-off in gold and other precious metals.