annual report 05 - lkab · 2017-06-03 · ported as part of liquid assets. in-stead, they are...
TRANSCRIPT
F O R S K N I N G O C H U T V E C K L I N G
L K A B Å R S R E D O V I S N I N G 2 0 0 5 4
ANNUAL REPORT
05
A N I N T E R N AT I O N A L H I G H - T E C H M I N E R A L S G R O U P
F O R S K N I N G O C H U T V E C K L I N G
L K A B Å R S R E D O V I S N I N G 2 0 0 5 5
LKAB in briefLKAB is an international high-tech minerals group,
a world-leading producer of upgraded iron ore pro-
ducts for the steel industry and a growing supplier
of industrial minerals products to other sectors.
Most of the iron ore products are sold to European steelmills. Other important markets are North Africa, the Middle East and Southeast Asia. Sales of industrial minerals are mainly to custo-mers in Europe, but Asia and the USA are growing markets. The LKAB Group has more than 3,500 employees and consists of about 30 companies in 15 countries. There are iron ore mi-nes, processing plants and ore harbors in northern Sweden and northern Norway, and sales companies in Belgium, Germany and Singapore. Companies and production facilities for industrial minerals are located in Sweden, Finland, Greenland, the UK, Germany, the Netherlands, Greece, Turkey, Thailand, Hong Kong, China and the USA.
MISSION
LKAB’s mission is, based on the Swedish Orefi elds, to manufac-ture and deliver to the world market upgraded iron ore products and services that create added value for its customers. Other closely related products and services that are based on LKAB’s know-how and support the main business can also be included in the company’s operations.
VISION
LKAB will be perceived by the customers as the supplier that provides the most added value and is thereby the leader in its selected market segments.
OWNERSHIP AND MANAGEMENT
LKAB is wholly owned by the Swedish state, represented by the Ministry of Industry, Employment and Communications. Chair-man of the Board: Björn Sprängare. President and Group CEO: Martin Ivert
ORGANIZATION
Operations are organized in divisions:The Market Division sells iron ore products to the steel industry.
The Mining Division mines and upgrades iron ore and delivers iron ore products.
The Minerals Division develops, produces and marketsindustrial mineral products.
The Special Businesses Division supports Group companies with services and technical development.
Cover photo:Ice sculpture of the new ore caroutside Icehotel, Jukkasjärvi.
Contents 3 Summary
4 President’s report
6 Strategies
10 Divisional operations
18 Markets and competition
20 Investments and development projects
24 Prospecting, ore reserves and mineral
resources
26 Sustainability
38 Risks and risk management
40 Group overview
41 Report of the Directors
100 Auditors’ report
101 Corporate governance
106 Board of Directors and Auditors
108 Group Management
110 Addresses
111 Reporting dates 2006
Two generations of pelletizing plants in Malmberget. The steel belt plant (left) was built in 1973, and right, the new MK3, under construction.
Highlights of 2005• World production of crude steel increased by 6% and
trade in seaborne iron ore by 12%. Iron ore prices in-creased by 70-80%.
• LKAB’s production of iron ore products increased by1 million tonnes to 23.3 Mt. The price of LKAB’s blastfurnace pellets increased by 85%. Sales of industrialminerals increased by 35%.
• The Group’s net sales increased by 60% to MSEK 14 337 (8 988). The profi t margin increased to 45%. Return on equity amounted to 36.6%.
• Approved and ongoing capital expenditures totaling10 billion kronor for increased pellet production capacity in Kiruna and Malmberget as well as a new ore harbor in Narvik.
• Start of olivine mining in Greenland, and of a production facility for mica in Finland.
• Certifi ed quality management system throughout the en-tire group. Ongoing certifi cation of the environmental and energy management systems.
• Start of LKAB high school in the Orefi elds communities.
LINES OF BUSINESS
MSEK Mining** Minerals Special Eliminations, Division Division Businesses adjustments Group
External revenue 12 191 2 018 128 14 337
Intra-Group revenue 158 141 963 -1 262
Total revenue 12 349 2 159 1 091 -1 262 14 337
Operating income 5 720 148 100 141 6 109
– operating margin, % 46.3 6.9 9.2 42.6
NET SALES AND OPERATING INCOME
EARNING CAPACITY
EXTERNAL SALES PER DIVISION 2005
SALES PERMARKET REGION 2005Both iron ore products and industrialminerals are sold mainly to customersin Europe, but Minerals’ sales aregrowing in Asia.
0
3 000
6 000
9 000
12 000
15 000
0504030201
Net sales Operating income
MSEK
** Market Division’s sales included in sales for Mining Division.
GROUP SUMMARY
MSEK 2005 2004
Net sales 14 337 8 988
Operating income 6 109 1 941
– operating margin, % 42.6 21.6
Income after fi nancial items 6 451 2 023
– profi t margin % 45.0 22.5
Tax -1 904 -456
Net income for the year 4 547 1 567
Fixed assets 9 798 6 746
Current assets 10 776 6 911
Shareholders’ equity 14 802 10 044
Cash fl ow for the year * 544 -176
Return on equity, % 36.6 16.5
Equity/assets ratio, % 72.0 73.6
Capital expenditures 2 648 965
Average number of employees 3 563 3 482
* According to IFRS, certain short-term investments cannot be re-ported as part of liquid assets. In-stead, they are reported as part of investing activities. During the year, MSEK 1 846 (1 748) has beenplaced in short-term investments.
The price increase on iron ore products increased the Mining Division’s share of the Group’ssales. Earnings for Special Busi-nesses derive mainly from Intra-Group sales.
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Driven by demand from China, the iron ore market saw continued strong growth. There was a shortage of ore, which meant dramatic price increases of 70 to 80%. The price increases are, of course, the main reason for the strong earnings trend and the boost in sales for the Min-ing Division.
The Minerals Division has also seen positive develop-ment, not least in China. During 2005, mining of olivine commenced in Greenland. Olivine sales complement the iron ore business and have attracted great market interest.
Three years ago, we set a goal for the Mining Division. By 2006, we would produce 23 million tonnes (Mt) of iron ore products per year – without appreciable increases in capital expenditures and with the same number of em-ployees. The division reached this target in 2005, produc-ing 23.3 Mt, which exceeded the previous year’s produc-tion by 1 Mt.
Despite the pressure to meet demand, costs have been kept under control, a factor that has also contributed to the positive outcome. At the same time, we managed to maintain a high degree of service to our customers, which is important, since quality and service are two of our key competitive factors.
CLEAR GROWTH STRATEGY, STRONG BELIEF
IN THE FUTURE
For the Mining Division, we have a clearly defi ned stra-tegy based on the product that gives us the greatest com-petitive advantage: pellets. The strategy is scrutinized and revised each year, a process which has led during the past year to several major investment decisions.
Fifty years ago, LKAB built the fi rst pelletizing plant in Malmberget. The route that was then chosen proved to be a prerequisite for the company’s long-term survival. The focus on pellets has meant that LKAB has been able to stay in the competitive game, despite higher costs in comparison to those of open-pit mining operations in Bra-zil and Australia.
In late-2004, the Board took the decision to invest 2.6 bil-lion kronor in a new pelletizing plant in Malmberget that was to be operational at the turn of the year 2006/2007. The project has progressed well, and the production start-up will be about two months earlier than planned. This is particularly positive, considering the prevailing market situation.
At the same time, plans have been drawn up for a new pelletizing plant in Kiruna. In December 2005, the Board approved an investment of 6.4 billion kronor and a
President’s reportWith record-high production and earnings, 2005 was a fantastic year for LKAB.
A return on equity of 36.6% exceeds the return requirement of 12% measured
over a business cycle, by a wide margin. Targets for volumes, earnings and
profi tability throughout the Group were also reached.
planned production start-up during the fi rst half of 2008. In the long term, this implies an increase in production capacity from a current 23 Mt to 30 Mt.
Two thirds of our deliveries are shipped via the harbor in Narvik. To improve effi ciency and environment, this fa-cility will be rebuilt at a cost of nearly 1 billion kronor. To-taling 10 billion kronor, these three investment decisions send a clear message to our customers that we are willing and able to meet their volume demands.
FOCUS ON PRODUCTION AND MAINTENANCE
The strategy for the Mining Division is to develop pellet manufacture in terms of both volume and quality. Produc-tion increased in 2005 to 16.5 (16.0) Mt. Several produc-tion units set new volume records while maintaining or improving the level of quality.
A few years ago, we began a maintenance-improve-ment program that has subsequently become a very stra-tegically important activity. Developments in the past year have confi rmed that we chose the right path. The aim is to stabilize manufacturing at a higher production level, which will mean greater productivity, better quality, bet-ter delivery service and, not least, an improved working environment.
INDUSTRIAL MINERALS, COMPLEMENTARY BUSINESS
The Minerals Division has continued its investment in industrial minerals. Olivine mining has commenced in Greenland, and the fi rst deliveries have been shipped to customers and to our own pellet plants.
Sales of magnetite to non-steel customers are also growing. Access to suffi cient quantities is the limiting fac-tor, which is why it is strategically important to secure vol-umes for the Minerals Division.
COMMON VALUES AND SYSTEMS
In recent years, LKAB has grown from a Swedish iron ore producer into an international minerals group with global operations. The Board has adopted several policies that have been communicated throughout the Group. The in-tention is to make LKAB a group with shared values.
We have also decided to introduce a joint way of work-ing throughout the Group and to improve the effi ciency of administrative processes. The fi rst step is to implement a standardized business management system. Starting in the fi rst half of 2006, this will be rolled out through the entire Group.
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CertifiCAtion of quALity And environmentAL mAnAgement
Aswesee it,quality isnotonlyaquestionof technicalquality;italsoentailscontinuousimprovementinallas-pectsandwiththecommitmentofallemployees.Despitethegreatpressureonproduction,thequalityofourprod-uctshas improvedandwehavestrengthenedourposi-tionasaquality-leadingcompany.
The quality effort is largely a matter of maintaininggood order and following clearly-defined procedures.During2005,allofourISO9001certificateshavebeenre-assessedandapproved.
CertificationofourISO14001environmentalmanage-ment system began during the year. Our operations inSvappavaaraandourlogisticsoperation,whichincludesrailwaysandharbors,havebeencertified.Thegoalistoachieve full certification for the Group by 2007. At thesame time, implementation of an energy managementsystem according to a new Swedish standard began.Here,Svappavaarawasthefirstindustrialoperationinthecountrytobecertified.
Our organization is heavily burdened by the fact thatourproductionapparatusisoperatingunderpressureofgreatdemandatthesametimeasweareimplementingmajor investments and introducing new managementsystems.Thatwearesucceedingisindicativeofourde-termination,capabilityandcommitment.Iamverysatis-fiedwiththetotaleffort.
A sAfer, heALthier LKAB
Severalyearsago,weraisedourtargetsforimprovedoc-cupationalhealthandsafetyandaccident-freeworkplac-es.Zeroaccidentsistheundisputedgoal.
The driving force is, of course, consideration for thewellbeingofouremployees;butwealsowant tobeanattractivecompany for futureco-workers.Manypeople,notleastofallyoungpeople,considertheminingindus-trytobehazardous.Ifwearetosucceedincompetingforthebestpeopleinthelabormarket,wemustdispelthisreputation.
For2005,wesetthetargetoffewerthan10accidentsper million working hours. We reduced the number to10.5,whichishalfasmanyaccidentsastherewereade-cadeago.Thefiguresaremoving in the rightdirection,butnotquitequicklyenough.
Absenteeism due to illness has also been given a lotofattention,andhere, too,wearewitnessingahealthi-ertrend.Duringthepastthreeyears,therateofsicknessabsencehasfallenfrom6.2to4.3%.Short-termabsenceduringthepastyearwas2.4%.Inthisregard,LKABhasbecomeahealthiercompany.
ControL viA Key rAtios And inCentives
Two years ago, we abandoned the traditional budgetmethod in favorofasystembasedon12-monthrolling
forecasts thatarerevisedaftereachquarterandcontrolviakey ratios.Tobeable tomanage thecompanyopti-mally,thesystemofcontrolviakeyratiosisrefinedonanongoingbasis.
By “taking the company’s temperature” in differentwaysaftereachshift,dailyandweekly,weareabletode-termineifweareontherightcourseorwhetheradjust-mentshavetobemade.Thisapproachisfundamentallyimportant for developing a future, modern organizationinwhichresponsibilitiesandauthorityaredelegated.Byimplementingkey-ratiocontrol,wecanalsobreakdownourstrategiesandtherebygainacceptanceforthemwith-intheorganization.
Ourincentiveprogramwasmodifiedin2005tosupportthismanagementprocess.Thisisbasedonhowwellwemeetourproductionandqualitytargetsandhowwellwesucceedinourefforttoimproveoccupationalhealthandsafety.The important thing is thatallofouremployeescaninfluencetheseparameters.
The maximum reward is 30 000 kronor per year andfull-time employee. For 2005, the reward amounted to27000kronor,whichisagoodmeasureofouremployees’success.
the outLooK for 2006
WeforeseecontinuedpositivetrendsforalloftheGroup’slinesofbusiness,bothinthecomingyearandinthelongterm.
GrowthisstronginAsia,incountrieswithlargepopula-tions, where infrastructural expansion, housing construc-tion,etc.,requiresmuchsteel.Thismeansthatwearenowadaptingtothenewglobalmarketsituationthathasarisen.
Certainly, the iron ore and metal markets will fluctu-ateinthefuture,butourassessmentisthatthiswilltakeplaceatahigherlevelthanpreviously,andthattotalcon-sumptionwillremainhigh.
p r e s i d e n t ´ s r e p o r t
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MartinIvertPresident
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It was found that the company’s most important assets are the magnetite ore of the Orefi elds and the knowledge and expertise in production processes and products that has been amassed over the years. There are suffi cient ore reserves to ensure mining far into the foreseeable future; just how long the operation will continue is more a ques-tion of economics than of technology. The fundamental business concept, LKAB’s corporate mission, is essential-ly unchanged, but it has been updated and approved by the Board.
MISSION
LKAB’s mission is, based on the Swedish Orefi elds, to manufacture and deliver to the world market upgraded iron ore products and services that create added value for its customers. Other closely related products and services that are based on LKAB’s know-how and support the main business can also be included in the company’s opera-tions.
VISION
LKAB will be perceived by the customers as the supplier that provides the most added value and is thereby the leader in its selected market segments.
POLICIES
An important aspect of the strategy review was to estab-lish policies for quality management, environmental and energy management and ethics. These have subsequent-ly been clearly communicated throughout the Group. Dur-ing 2005, an information policy was established.
THE STRATEGIC PROCESS
The strategic plan is based on a thorough, annual busi-ness-intelligence analysis of markets and product, pro-cess and technological development. In addition, the company’s strengths, weaknesses, threats and opportuni-ties are analyzed. The entire process results in the strat-egy document that is adopted by the Board at the Decem-ber meeting.
The strategy document contains various business-in-telligence analyses and the conclusions that have been reached, all of which are expressed as a number of con-crete strategic activities. Finally, the strategy is comple-mented with fi nancial forecasts and simulations.
An important aspect of the management of operations
StrategiesDuring 2002 and 2003, LKAB’s mission, vision and strategies were
subjected to a thorough review. This review resulted in an annual
strategy process, which is revised in December when the Board
establishes a new rolling plan for the coming three years.
is that the strategy be broken down into activities that can be realized at different points within the organization. This is done in conjunction with the rolling prognoses that are revised after each interim report. Together with the rel-evant business-ratio control, this makes for a more dy-namic process than the classic budgetary control method that was formerly applied.
Each year, on about 20 occasions, the president gives presentations for employees in Sweden and Norway, out-lining the strategy and the current status of the various activities. Achieving consensus in this way is a very con-siderable undertaking, but when introducing a new strat-egy, one of the greatest obstacles is a lack of awareness or understanding among employees.
The general assessment is that demand for iron ore products will remain high in the coming years. This has created market conditions that will allow LKAB to grow by investing in, among other things, new pelletizing plants and main levels.
Exploration drilling in both Kiruna and Malmberget has indicated greater mineral resource potential at depth, which is, of course, a prerequisite for continued opera-tion. In Kiruna, particularly, the mineralization at depth is high-grade, wide and with low impurity content.
Another important factor is that LKAB can take advan-tage of the strong fi nancial platform upon which it now stands. The earnings trend shows that the company is ca-pable of fi nancing its extensive program of growth, pro-vided the current dividend policy is maintained.
LKAB will continue to have high fi xed costs in the form of depreciation and amortization. Self-fi nancing of capital expenditures allows the company to avoid the fi xed costs that are associated with borrowing.
According to the above reasoning, LKAB’s fi nancial strategy can best be expressed as: maintaining a high eq-uity-assets ratio that will enable self-fi nancing of capital expenditures while retaining a buffer to alleviate the ef-fects of a possible cyclical downturn.
OVERALL GROUP STRATEGY
The LKAB Group’s overall strategy can be summarized as follows:• Maintain a niche strategy based on pellets as the product,
with added value for the customer. Pellets give us consid-erable competitive and environmental advantages.
• Full utilization of production capacity. For reasons per-
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taining to cost and quality, the facilities now in opera-tion will be run at full capacity. A program is now under way to enable greater production fl exibility, i.e., shift production between different plants in the event of an economic downturn.
• Volume growth through better utilization of plant and human resources (lean growth). This program, based on an intensive maintenance effort, has been very suc-cessful in recent years.
• Selective and ongoing ‘lean’ expansion of pellet capac-ity. The most recent examples are the investments in new pelletizing plants in Malmberget and Kiruna, which imply a dramatic boost in production volume. These in-vestments are largely in line with our customers’ strat-egies and ambitions. The lean-growth philosophy will also be applied to increase capacity in the new plants.
• Organizational development for greater productivity and better work environment. We enable ‘good work’ when we delegate responsibility and authority in a sys-tematic way. Only by creating and offering attractive workplaces can we attract future co-workers and, not least, increase the number of women in the company.
• Development of industrial minerals. The intention is both to support the iron ore business (with among oth-er things, olivine) and to respond to growing demand in interesting application areas for iron ore products such as water treatment, coal washing and heavy concrete. Potential for profi table growth is also foreseen for other important industrial minerals for which we have know-how and resources.
MINING DIVISION
Increasing profi tability in order to satisfy the owner’s re-quirements cannot be realized simply by cutting costs; in-stead, growth must be achieved through greater volume and/or a higher degree of upgrading. Of decisive impor-tance is the volume LKAB can produce in existing facili-ties.
Since Mining has recently introduced new products for both blast furnaces and direct reduction, in the short term, customers seek product care (uniform quality) and adap-tations. To be able to maintain LKAB’s competitive posi-tion, continued efforts in product and process develop-ment are also necessary.
Research and development in pelletizing will assure a leading position where products are concerned. There-
fore, the groundwork is being laid for an Agglomeration Center (pelletizing center) linked to an experimental pel-letizing plant. The experimental blast furnace (EBF) is now a valuable asset, and an experimental pelletizing plant will help to optimize the total process: concentrate-pel-lets-blast furnace.
The importance of maintenance for production stabili-ty, in terms of both quality and volume, has been underes-timated in Swedish industry, even in the Mining Division. An ambitious program, begun in 2002, continues to have high priority. The production level is decided by the speed at which production facilities are operated, and it appears to be possible to gradually increase the rate of production without jeopardizing quality.
LKAB’s is a characteristically energy-intensive process industry in which energy issues are a primary concern, both in terms of cost and environment. In day-to-day op-erations and when new technology and new equipment is introduced, optimization of energy effi ciency must always be in focus.
One limiting factor is often the very extensive and time-consuming concession bargaining. Initially, the idea is to take full advantage of existing concessions, and in future to make use of simpler environmental impact assess-ments for marginal volumes.
The most important activities during the coming years:• Commissioning of the new pelletizing plant in Malm-
berget.• Construction of the new pelletizing plant in Kiruna.• Construction of the new ore harbor in Narvik.• Successive introduction of new, modern work organi-
zation.• Continued focus on the maintenance process.
MINERALS DIVISION
The division produces and markets selected minerals, customized for industries throughout the world. Control over fi rst-class mineral assets is the basis for long-term stability.
For Minerals, the objective is to gain full control, from raw-material source to end user, of several selected min-erals. At present, the selected minerals are magnetite, bentonite, olivine, mica and minerals with fl ame retardant properties (UltraCarb).
Products are often developed in collaboration with cus-tomers, and product differentiation is one of the keys to
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Minerals has started mining olivine in Greenland.The fi rst delivery was shipped in December 2005.
The Mining Division’s main product is iron ore pellets, a sampleof which is shown here by Seija Forsmo.
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success. Within its organization, the division now has con-siderable expertise concerning the various minerals, and development of more products and services is ongoing.
Growth areas for magnetite are, above all, applications for heavy concrete, water treatment and coal washing.Historically, the main market for Minerals has beenEurope, but the future growth is expected to take place in Asia and North America.
Thanks to the acquisition of the Seqi olivine deposit in Greenland, the division has entered the market with its own source of raw material. The customer structure is somewhat similar to that of the Mining Division; i.e., the European steel industry. Being able to supply both pellets and olivine, the Group has thereby strengthened its posi-tion. Other major application areas for olivine are in the foundry and refractory industries.
Minelco Asia Pacifi c has worked mainly with marketing and sales of external suppliers’ mineral products on the Asian market. The strategy is to successively expand the product portfolio with the company’s own products.
When Likya Minelco was formed in Turkey in 2004, Min-erals secured access to a signifi cant deposit of a unique mineral, thereby assuring the long-term supply of raw material for the manufacture of fl ame retardants (Ultra-Carb products).
With the acquisition of a mica plant in Finland, the divi-sion has gained exclusive access to a unique high-grade mineral deposit, thereby expanding its product portfolio. Investment to increase capacity for fi ne wet-ground prod-ucts in being implemented and a new plant will be opera-tional in Siilinjärvi, Finland, in mid-2006. This will mean a boost for the traditional markets for mica, with products for surface coating, building construction, sound damp-ening and plastics.
For Minerals, the most important activities in the coming years are:• Realization of full-scale olivine operations in Green-
land.• Establishment of upgrading of magnetite products in
the USA.
SPECIAL BUSINESSES DIVISION
The mission for Special Businesses is to support the Group through services and technical development of drilling systems, mining engineering and concrete work, explosives and property management.
Operations are organized in the subsidiaries Wassara AB (owned jointly by Sandvik), AB Kiruna Grus och Sten-förädling, with Kimit and KGS Mekaniska, and Fastighets AB Malmfälten.
With its main product, the patented Wassara Hammer, Wassara AB will develop and market systems that offer better total solutions for customers’ production drilling.
Wassara will establish the drilling systems on the mar-kets Mining and Construction within market niches in which rapid growth in sales volumes can be achieved. Wassara will apply the technical knowledge gained from external markets so as to help LKAB to reduce its drilling costs over the long term. Wassara’s organization will be-come successively more market oriented.
Kiruna Grus och Stenförädling AB (KGS) upgrades LKAB’s waste rock to road and concrete ballast, blasts, crushes and hauls mineral products, processes concrete and works with rock reinforcement in the mining and construction industry. KGS is planning for a dramatic in-crease in tunnel construction in the Mining Division, as well as increased concrete production. Shotcreting will be marketed in conjunction with Kimit’s sales of explosives for construction, mining and tunnel driving.
KGS Mekaniska fabricates technically advanced steel structures and mechanical components for the engineer-ing, mining and construction industries. For KGS Me-kaniska, together with the bogie manufacturer, a major activity is to realize LKAB’s transition to ore cars with a 30-tonne axle load.
Kimit’s mission is to support LKAB’s iron ore operation by developing, manufacturing, purchasing, stocking and delivering explosives, as well as developing explosives systems and providing consultancy services.
Kimit’s main business is to supply LKAB with effective and effi cient explosives and related services. To be able to quickly meet an increasing demand, Kimit is improv-ing its fl exibility and production and distribution capacity. The technical and product know-how gained by Kimit is transferred to LKAB and thereby strengthens the group’s competitiveness.
Over the long term and with good profi tability, Fas-tighets AB Malmfälten (FAB) will provide customers with well-maintained, well-situated residential properties in the locations where LKAB operates. This is important fac-tor for future recruiting and is part of our strategy for cre-ating attractive working and living environments.
FAB is LKAB’s resource for the transition that is tak-ing place in the communities of Kiruna and Malmberget. Business is conducted with normal requirements for fi -nancial returns. With respect to the deformation caused by underground mining activities, FAB will establish and update a plan for developing and decommissioning hous-ing in Kiruna and Malmberget-Gällivare.
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The new pelletizing plant in Malmberget is one of the major investment projects in the Orefi elds. The plant will be operational in autumn 2006.
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MINING DIVISIONThe Mining Division mines and upgrades iron ore for products for steelmaking, principally pellets, which are the division’s main product, and magnetite products for the Minerals Division’s customers. Sales to steel produc-ers are the responsibility of the Market Division, which has sales offi ces in Luleå, Essen, Brussels and Singapore.
The Mining Division’s process chain stretches all the way from the iron ore deposits to the customers. It starts with the production of crude ore in underground mines and upgrading of iron ore in processing plants at surface level, and continues with rail transport of fi nished prod-ucts to shipping harbors and loading to vessels for deliv-ery to the customers.
PRODUCTION RESULTS 2005
The focus during the year has been on improving capac-ity, speed and availability in the production facilities in order to increase the volume of mining and processing while maintaining high quality.
In the underground mines in Kiruna and Malmberget, 36.6 Mt of crude ore was mined. The volume of iron ore products produced reached 23.3 Mt, which exceeded the previous year’s production by 1 Mt.
Production of pellets was 16.5 (15.9) Mt and of fi nes 6.7 (6.3) Mt. Deliveries totaled 23.2 (22.8) Mt.
Through continuous improvement, greater effi ciency and the elimination of bottlenecks, production in existing
Divisional operations 2005LKAB’s operations are organized in the divisions Market, Mining, Minerals and Special
Businesses. The Market Division sells iron ore products to the steel industry and the
Mining Division is responsible for mining, processing and logistics. The Min erals Division
produces and markets customized industrial mineral products. Special Businesses
supports Group companies with services and technical development.
facilities has increased in the past four years from 20 to 23 Mt/yr.
MINING
Large-scale is a keyword where LKAB’s mining operations are concerned. Concentration to fewer and larger produc-tion units has yielded considerable gains in effi ciency and productivity.
Efforts are concentrated on improving the yield from mining operations, i.e., minimizing ore losses and extract-ing the maximum amount of iron in relation to the quan-tity of ore mined. Measures include improvements in drill-ing, blasting technology, loading and haulage.
As the orebodies are mined, new main levels must be built to continue mining at depth. In the past, main lev-els in the Kiruna mine have be built at the 275, 320, 420, 540 and 775- meter levels (below the original peak of Ki-irunavaara). The current main level is at 1 045 m. During 2005, the decision was taken to begin preliminary work for yet another new main level in Kiruna, at the 1 365-m level.
Malmberget consists of several orebodies, which from the beginning were mined at 50-meter intervals down to 450 meters below the original peak of Välkomma. Sub-sequently, deeper levels have been built at 600, 815 and1 000 meters.
FINANCIAL HIGHLIGHTS – MINING DIVISION(Parent company)
MSEK 2005 2004
Net sales 12 349 7 560
Operating income 5 720 1 669
Fixed assets 8 015 6 273
Current assets 10 597 6 900
Adjusted shareholders’ equity 13 153 9 581
Return on equity % 45.2 30.6
Return on operating assets 69.6 23.3
Average number of employees 2 797 2 694
Production, Mt 23.3 22.3
Deliveries, Mt 23.2 22.8
Stocks, Mt 1.9 2.3
SALES PER MARKET REGION
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More than 70% of Mining’s sales are to the NorthernEuropean steel industry.
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In2005,thedecisionwastakentoextendthe1000-me-terlevel.Thispresentsspecialconditions,sincesectionsofthecommunityliewithintheareaaffectedbytheexten-sion.Atthesametime,planningofthenextmainlevel,at1,250mhascommenced.
upgrAding, produCts
Intheoreprocessingplantsatsurfacelevel,thecrudeoreisupgradedtosinterfinesandpellets.pelletsaretheMin-ing Division’s main product and account for more than77%oforesales.
pelletsareproducedbymixingfinelygroundironorewithvariousbindersandadditives,andthenshapingthemixtureintocentimeter-sizedspheres,whicharesinteredatatemperatureof1250°C.LKAB’smagnetite-basedpel-letshavehighironcontentandarelessenergydemand-ing and therefore more environmentally friendly thancompetingpelletproducts.
Blastfurnacepellets(BFpellets)aredeliveredmainlytosteelmillsinEuropeandareusedinthecoke-basedblastfurnaceprocess,whichisthemostcommonmethodforproducing hot metal, the first stage in the steelmakingprocess.
DRpelletsareused in thedirect reductionprocess toproduce sponge iron, which in an alternative processroute, is also an initial stage in the chain of production
fromirontosteel.TheDRprocessisbasedontheuseofnaturalgasandhasbecomeincreasinglycommoninoil-producing countries and other countries with access toinexpensivenaturalgas.
unlike pellets, fines must be sintered to form largerpieces before being used in the blast furnaces. In Kiru-na, thefinesproduct isproducedby crushingand thengrinding the crude ore to a sand-like consistency. FinesfromMalmbergetisascreenedproductfromthemine.Itisprocessedinsortingandconcentratingplantsbygrind-ingandseparation.
The trend towards more customer-tailored productswill continue. Considerable effort is therefore being de-votedtoproducingthesameproductinseveralpelletizingplantsinordertoensuremaximumflexibility.
ConstructionofanewpelletizingplantinMalmberget(MK3)isnowinprogress,andtheplantisexpectedtobeoperationalintheautumnof2006.AnewpelletizingplantinKiruna(KK4)willbeoperationalin2008.
Followingtheexpansion,theKirunaprocessingplantswillproducedifferenttypesofironorepelletsexclusively,whichwillsimplifyproductionflowsattheKirunamine.productioncapabilityforfinesproductswillexistonlyinMalmberget.pelletswillcontinuetobethemainproductfromMalmberget.
LogistiCs
Thefinishedproductsaretransportedfromtheorepro-cessing plants to customers by rail and by ship via theshippingportsatNarvikandLuleå.Railtransportsareop-eratedunderthecompany’sownmanagement.
During2005,atotalofabout23.4MtwashauledtoNar-vikandLuleå,thehighestvolumein25years.Disruptionsinproductionanddeliveryhavebeenminimal.
Thetransportsystemisupgradedcontinuallythroughthe ongoing replacement of locomotives and ore cars.Newso-calleduADK-typecarshavebeentakenintooper-ationduringtheyear.Developmentofanewcardesignedfora30-tonneaxleloadisunderway,andthefirstcars,witha100-tonnepayload,havebeendelivered.
From the harbor in Luleå, ore products are deliveredmainly to customers in the near-lying market. The Nar-vikoreharborcanaccommodatevesselsofupto350000dwt.TheBoardhasfinalizedadecisiononmajorimprove-
pRODuCTIONANDpRODuCTIvITy
Production volume increased by 4% during �005. Productivity has increased successively in recent years.
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Intheconcentratingplant,theoreisgroundinrotatingmills. Fromhiscontrolpanel,DanielSedigcontrolsloadingofpelletstorailcars.
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ments in effi ciency and modernization of the harbor in Narvik. The new harbor will operational in autumn 2008.
OBJECTIVES
LKAB is exposed to tough competition from considerably larger iron ore producers who, in addition to their size, also enjoy the cost advantages associated with open-pit mining. LKAB’s goal is to cope with competition and ensure the company’s long-term survival by constantly improving cost-effectiveness, raising the quality and knowledge content of the products, and maintaining re-source-effi cient growth.
Improving maintenance, including preventive mainte-nance, is strategically very important. The aim is to stabi-lize production at a higher and more consistent level. This is aided by greater use of new technology and a focus on maintaining good order.
The work of assuring quality in the company’s process-es has high priority, and here, too, the keyword is stabil-ity. Consistent quality, the right quality and delivery assur-ance are the most important success factors for customer
relations. Work also focuses on establishing best practice and making production more fl exible to enable maximum capacity utilization.
MARKET TRENDS 2005
During 2005, the global demand for iron ore remained strong, pressing iron ore exporters to increase produc-tion to the limits of capacity. According to preliminary es-timates, global trade in seaborne iron ore increased to 650 (580) Mt, of which China’s share of imports rose by over 32% to about 275 Mt.
Preliminary statistics from the International Iron and Steel Institute indicate that world production of crude steel increased in 2005 by 6%. Production thereby reached a new benchmark of more than 1.1 billion tonnes. Asia, the Middle East and Africa accounted for most of the growth.
The greatest production increase was seen in China, where crude steel production reached about 350 Mt, an increase of 25%. Japan realized about the same produc-tion fi gure as in 2004, while production in the EU 15 fell by slightly more than 4 Mt or 2.5%.
During the year, Chinese authorities took measures to gain better control over the infl ow of iron ore. The intro-duction of import licences and restrictions on the number of importers did not appear to have any great impact on iron ore imports. China was only able to assure its supply of ore by increasing production in its own high-cost mines and by buying expensive iron ore on the spot market.
Globally, the production of hot metal, which is midway
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GLOBAL IRON ORE EXPORT AND PRODUCTION OF CRUDE STEEL
PRICE TRENDS, IRON ORE PRODUCTS
THE LARGEST STEEL-PRODUCING COUNTRIES
Change
Mt 2005 2004 between years
1. China 349.4 280.5 24.6%
2. Japan 112.5 112.7 -0.2%
3. USA 93.3 99.7 -6.4%
4. Russia 66.1 65.6 0.9%
5. South Korea 47.8 47.5 0.5%
6. Germany 44.5 46.4 -4.0%
7. Ukraine 38.6 38.7 -0.3%
8. India 38.1 32.6 16.7%
9. Brazil 31.6 32.9 -3.9%
10. Italy 29.2 28.5 2.6%
25. Sweden 5.7 6.0 -4.2%
World total 1 128.7 1 065.0 6.0%
Source: IISI, 21 January 2006
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between iron ore and steel in the process chain, rose by 8% to a new record of around 785 Mt. However, in LKAB’s important market area of Northwestern Europe, hot metal production declined; in Germany by 4%, in Belgium by 12% and in Sweden by 4%. In Southern Europe, produc-tion increased; in Italy by 8%, in Spain by 3% and in Tur-key by 2%.
Production of sponge iron (DRI/HBI), which in 2004 grew to a record 55 Mt, increased in 2005 by 7%, reaching yet a new record of more than 58 Mt.
As a result of the shortage of iron ore at the close of 2004, the world market prices of Brazilian and Australian iron ore were increased by as much as 71.5%. On the ba-sis of benchmark market prices, LKAB reached an initial agreement in March for price hikes of more than 70% on fi nes and nearly 85% blast furnace pellets.
Despite the shift in production from north to South-western Europe, LKAB’s deliveries of blast furnace pellets to contract customers in Northwestern Europe remained unchanged, indicating increased market shares in the near-lying market area. Other contributing factors were the strong demand for iron ore in Asia, high sea freight rates and the shortage of iron ore on the world market. LKAB’s deliveries of pellets to contract customers in the Middle East and North Africa increased considerably, while deliveries to the Far East ceased.
MARKET OUTLOOK 2006
For iron ore producers, favorable market conditions are expected to persist throughout 2006. Leading industry an-alysts foresee an increase in world crude steel consump-tion of 4 to 5%.
Increases in consumption are expected throughout the world, though these are expected to be somewhat weaker in Europe and stronger in Asia. In Europe, steel invento-ries appear to have normalized during the third quarter of 2005, and the major steel producers foresee increased de-mand and rising prices during the fi rst quarter of 2006.
In the Middle East, an important market for LKAB’s DR pellets, infrastructural expansion and industrial growth have resulted in a shortage of steel. Dramatic increases in the price of scrap and pig iron have stimulated investments in increased direct reduction capacity in the region.
The major iron ore producers have decided to invest several billion dollars to increase capacity. For example, during 2005, the decision was taken to build two new pel-letizing plants in Brazil. These investments have, howev-er, been largely covered by increased demand and will take several years to realize.
Many projects are burdened by rising costs and a short-age of qualifi ed labor. Consequently, it is expected that the world iron ore market will continue to face shortages in 2006. For LKAB, the potential for sales is expected to continue to exceed production capacity.
Kristina Nyström and Bernt Lundstedt monitor production from the control room of Malmberget’s concentrating plant.
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MINERALS DIVISIONThe Minerals Division, which operates under the name Minelco on the global market, develops, produces and markets industrial mineral products.
Minelco supplies industrial minerals to customers in many different industries and for many different appli-cations. Among the most important are applications for heavy concrete, building construction, the oil and gas industry, the rubber, plastics and paint industries, the chemical industry, the automotive industry, foundries and manufacturers of refractory materials.
Operations are managed from Sweden, with represen-tation in Europe, Asia and the USA. Minerals Division has about 400 employees, most of them outside Sweden.
There are subsidiaries with processing plants in Fin-land, Greenland, the UK, the Netherlands, Greece, Turkey and China. The company has additional subsidiaries in Germany, the USA and Hong Kong, as well as representa-tive offi ces in the Czech Republic and Thailand.
With sales of about 2.2 billion kronor, Minerals opera-tions are expansive, now accounting for 14% of the LKAB Group’s total sales. Thanks to greater market shares and sales volumes, the earnings trend developed favorably during 2005.
The Minerals Division focuses on selected minerals and ownership or control of the entire process chain from source to end user. Direct sale to end users and an ex-tensive knowledge of mining, production, processes, ap-plications and markets enable the company to customize products to meet specifi c customer needs, thereby ensur-ing maximum value for customers. This, in combination with Minelco’s expertise and service, will contribute to im-proved profi tability for the customers.
In many application areas, the Minerals Division has achieved a leading position. This position is based on a high degree of expertise in mineral technology, produc-tion, applications and markets, as well as the ability to de-
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velop materials and processes in close collaboration with customers.
Most of the division’s production facilities are now qual-ity-certifi ed according to ISO 9001:2000. Facilities underdevelopment in Turkey, Finland and Greenland will be certifi ed during 2006.
SALES AND EARNINGS 2005
The Minerals Division’s sales amounted to MSEK 2 159 (1 598), an increase of 35% over the previous year. Opera-ting income amounted to MSEK 148 (122).
Sales volumes increased within several business seg-ments and within all market areas. At the same time, high freight rates had a negative impact on earnings.
Compared to the previous year, the volume of sales of magnetite remained unchanged. In total, approximately1 Mt of magnetite was delivered, mainly for use in civil engineering projects, sponge iron for powder metallurgy, water treatment chemicals and coal washing.
The global expansion is evident. Growth in China con-tributed to a doubling in sales of industrial minerals in Asia, which now accounts for 30% of Minelco’s sales.
The Minerals Division’s capital expenditures, which were mainly attributable to investments in production in Greenland, Turkey and Finland, amounted in 2005 to MSEK 117 (85).
PRODUCTS AND PRODUCTION
The product portfolio includes more than 30 different industrial minerals. Priority minerals include magnetite, bentonite, olivine, mica and minerals with fl ame retardant properties (UltraCarb).
Magnetite
The world market for magnetite industrial applications is estimated at slightly more than 2 Mt per year. With sales
FINANCIAL HIGHLIGHTS – MINERALS DIVISION
MSEK 2005 2004
Net sales 2 159 1 598
Operating income 148 122
Fixed assets 750 545
Current assets 777 591
Adjusted shareholders’ equity 397 284
Return on equity % 24.2 25.1
Average number of employees 372 371
SALES PER MARKET REGION
Minerals’ sales are mainly to customers in Europe,but are growing in Asia.
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of 1 Mt, Minelco is a market leader. Currently, there is very high demand from customers who use magnetite prod-ucts in the manufacture of heavy concrete.
Magnetite from the Orefi elds offers strong competitive advantages, thanks to its high quality, which is especially evident in applications in which the chemistry of the prod-uct is important. For products intended for the chemical and polymer industries, the magnetite is processed in the company’s own production facilities.
Olivine
During 2005, the Seqi olivine deposit in Greenland was acquired. The acquisition will enable the division to ad-vance its position on the olivine market, a market that ab-sorbs approximately 4 Mt per year. The Minerals Division will handle about 1 Mt of olivine annually, and the deposit will satisfy demand for olivine for many years to come. The results of geophysical surveys and drilling campaigns indicate reserves in excess of 100 Mt.
Construction of production facilities began during the summer, and in December, the fi rst shipments were de-livered to European steel customers and to LKAB for use in pellet production. The mine has been planned for year-round operation and is equipped for a capacity of about 1.7 Mt per year. Full production will be possible during the latter half of 2006.
UltraCarb
Via a joint venture with a Turkish company in Likya Minel-co, the company has secured access to a signifi cant min-eral deposit, thereby assuring the long-term supply of raw material for the manufacture of one of the company’s most important products, UltraCarb.
UltraCarb has many unique properties that make it an ideal material for many different applications. Above all, it is a natural, and thereby environmentally friendly, fl ame retardant for use in the cable industry and other polymer industries.
During the year, the division has invested in both the mine and processing plant in Turkey. The plant was com-missioned in early-2006.
Mica
In late-2004, Minelco acquired a production plant for processing mica from Kemira GrowHow in Finland. The
agreement gives Minelco exclusive access to the mica that is produced as a byproduct at Kemira GrowHow’s mine in Siilinjärvi.
Mica is used in a range of applications, though princi-pally as a functional fi ller in the paint and plastics indus-tries. The Minerals Division has long been an important supplier on the market for mica products and is the Euro-pean market leader.
During 2005, deliveries of mica products from Finland began at the same time as a decision was taken to invest in increased capacity. A new plant is expected to be op-erational in mid-2006.
Other products
Zircon is a strategically important mineral for Minerals, and thanks to a long-term agreement with the world’s largest zircon producer, Australian Iluka, the division has secured a signifi cant market share in Asia. Zircon is used in many different industries; among others, the ceramics, glass, chemical and refractory industries.
More and more sales are made to areas applications in-volving liquid metals. Among other products, the division manufactures and sells slag darts for the steel industry and ceramic products for foundries. The trend is towards a greater number of proprietary products that bring great-er value to customers.
Europe accounts for more than half of sales. With raw material sources in Europe, Minelco is at a considerable advantage compared to competitors in e.g., China, when freight rates are high. Domestic consumption of industrial minerals in China is also driving price increases.
OBJECTIVES
The division’s objectives are based on the company’s position in strategic business areas, a broad geographic presence and an effective network of production facilities and logistics systems. The target for organic growth is on average at least 10% per year.
In addition to the growth target, improved capital ef-fi ciency is also an objective. With less capital tied up in inventories and accounts receivable, greater returns and profi tability will be realized. Furthermore, a continued ef-fort is being made to coordinate and take advantage of synergies within the division, and thereby improve cost effectiveness.
Loading of mineral products at the Minerals Division’s plant in Flixborough, England.
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LKAB has organized most of its subsidiaries under the Special Businesses Division. These companies are today mainly subcontractors to the Mining Division and the Minerals Division, but also support the Group by contrib-uting towards effi ciency improvement and technical de-velopment.
The companies in Special Businesses have their origin in LKAB’s know-how as a manufacturer and user of prod-ucts or services. Wassara AB develops drilling systems. AB Kiruna Grus- och Stenförädling (KGS) works with rock, concrete, explosives manufacture and engineering servic-es. Fastighets AB Malmfälten (FAB) manages properties in locations where LKAB operates.
Kimit AB, which is part of KGS, manufactures explo-sives. Together with its subsidiary MTAS, Malmtrafi k AB, which is responsible for rail transports from the mines to the harbors, has been integrated into the Mining Division during 2005 as Logistics. Minelco AB is part of the Miner-als Division.
The subsidiaries are wholly owned by LKAB, with the exception of Wassara AB, in which LKAB has a 40% in-
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FINANCIAL HIGHLIGHTS - SPECIAL BUSINESSES DIVISION
MSEK 2005 2004
Net sales 1 091 951
Operating income 100 94
Assets 1 808 1 180
Liabilities 1 056 397
Capital expenditures 205 286
Depreciation 128 135
Operating margin,% 9.2 9.9
Average number of employees 394 416
SPECIAL BUSINESSES DIVISIONterest. In addition to these subsidiaries, there are wholly owned foreign sales companies in the Market Division and several small companies associated with the opera-tion in Narvik.
LKAB also has an electricity network company with a concession as an electricity distributor, as well as its own insurance company. LKAB Försäkring AB works in the same way as most other insurance companies with property and risk insurance, though only within the LKAB Group.
WASSARA AB
Wassara develops and markets water-powered drilling systems. The method combines high productivity, sup-erior precision and long holes, which enables large-scale mining methods and greater cost effectiveness in produc-tion. Important markets are the Swedish mining industry, where LKAB is the largest customer, and mining compa-nies in South Africa and South America.
Wassara markets products to construction companies that do foundation work. In this area, Wassara has estab-lished itself as a principal supplier of hammers for work on Malmö’s City Tunnel project.
Development work is focused on extending product lifecycles. Two years of research and development work has resulted in the introduction of a new hammer model in 2005. LKAB has taken a number of decisions that con-fi rm the benefi ts of the Wassara method. The next gener-ation production drill rigs will be equipped with the Was-sara hammer.
MARKET OUTLOOK 2006
Thanks to investments made in 2005, Minerals Division has built a good foundation for continued growth.
The general upswing in the metal and minerals indus-try is expected to have positive consequences for the di-vision. Demand for the division’s products is expected to increase during 2006.
Acquisition of the unique mineral deposit in Turkey will allow the division to develop its product offerings and take a greater share of the market for fl ame retardants.
Acquisition of the mica plant in Finland enables Miner-als to offer a complete product portfolio of minerals with different characteristics for the paint and plastics industry.
Thanks to the investment in Greenland, enabling an an-nual production capacity of more than a million tonnes of olivine, the division can cover one quarter of the total olivine market.
Traditionally, Europe has been the Minerals Division’s home market, and it is here that the company still has the greater share of its business. Although Europe accounts for more than half of sales, the major growth is occurring in other markets.
In the future, Europe’s relative signifi cance will dimin-ish and sales will be more evenly distributed over Europe, Asia and the USA. Minelco’s rate of growth in Asia is ex-pected to exceed the general growth rate in the region, and there are good possibilities for increasing sales in the USA during 2006.
With considerable resources in production, application know-how and service, the division will strengthen itsofferings globally and win greater market shares.
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AB KIRUNA GRUS- OCH STENFÖRÄDLING (KGS)
The KGS Group has operations in four main areas: • Concrete manufacturing and rock reinforcement, main-
ly for LKAB, but also for other mining and construction companies.
• Mining and crushing of industrial minerals for the Min-ing Division’s pellet production and crushing of special product based on iron ore for the Minerals Division.
• Mechanical engineering, and fabrication of steel struc-tures and steel components, under the management of AB KGS Mekaniska.
• Development and manufacturing of explosives, under the management of Kimit AB.
Important events during 2005 included the opening of a new concrete plant in Malmberget and the production of new ore cars for the Mining Division.
In the past two years, 110 ore cars of the UADK type, with a 25-tonne axle load, have been manufactured for Mining. KGS Mekaniska, as part of a consortium with sev-eral other Orefi elds engineering fi rms, has participated in the manufacture of the new cars. The decision was taken in 2005 to build a new type of ore car with a 30-tonne axle load. The fi rst 70 cars in a trial series will be delivered in the spring of 2006.
At the close of 2005, the decision was taken to terminate the OKE joint venture, between Kimit and Orica, thereby enabling Kimit to sell its products on the Nordic market.
FASTIGHETS AB MALMFÄLTEN (FAB)
FAB manages about 2,000 apartments in Kiruna, Malm-berget and Koskullskulle. In 2005, the company achieved occupancy rates of 99% in Kiruna and 98% in Malmberget, which is indicative of the increased residential demand in the Orefi elds.
As a result of the expansion of mining operations, 60 apartments in Malmberget have been mothballed or cleared during the year. FAB is the LKAB Group’s resource for the transformation process in both mining locations and will help the company to meet the demand for hous-ing in connection with future construction projects.
The new concrete station in Malmberget was commissioned in 2005.
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IRON ORE PRODUCTS
Three large players, whose combined share of the market is more than 70%, dominate world trade in iron ore. In global terms, LKAB, with only 3%, is considered a small player, but commands a leading position as a pellet pro-ducer and a strong position on the home market, which is northern Europe.
Global trends in the steel industry indicate that hot metal is, and will in the near future continue to be, the dominating raw material for steel production. At the same time as blast furnace productivity increases, with fewer and larger production units, the use of coke is expected to diminish in favor of coal-powder injection, oil or natural gas. Reduction of carbon dioxide emissions is an impor-tant challenge for the future, and the regulatory system for trading in emissions rights affects competition. LKAB participates in an EU program for reducing carbon diox-ide emissions in steel production.
Developments in the blast furnace process are pro-gressing quickly, and the reduced use of coke places higher demands on the iron-bearing component of the blast furnace burden with respect to mechanical strength and other characteristics. Throughout the world, there are many plans for increased pelletizing capacity, and the supply of iron ore pellets is expected to increase by 12% in 2006.
Although the direct reduction processes are develop-ing quickly, they still account for no more than 7% of ore-based iron production. The growth is occurring in regions where there is an inexpensive supply of natural gas. Tech-nical developments in the DR processes also place new demands on LKAB’s products with respect to, among oth-er features, pellet size and coating.
During recent years, several of LKAB’s strong competi-tive factors have been further strengthened. Ore reserves have increased in terms of both quantity and quality; the company’s fi nancial position has been reaffi rmed by suc-cessively better earnings trends, and our position as a pel-let supplier has become an ever greater success factor.
Underground mining constitutes a competitive disad-vantage, since LKAB is now the only underground opera-tor among the larger ore producers. Other weaknesses include our US-dollar dependency, energy dependency, tight logistics from mine to harbor, the position of ore re-serves under urban areas, and the weak economic struc-ture of the Orefi elds region.
Markets and competitionThe Mining Division supplies customized iron ore products for production of hot metal
in blast furnaces and direct reduction processes. The main product is pellets. Blast
furnace pellets are delivered to steelmills in Europe (north of the Alps). DR pellets are
sold to North Africa and the Middle East. The Minerals Division produces and markets
customized mineral products for industrial applications throughout the world.
LKAB’s great competitive advantage is our high-quality magnetite ore, which is very energy-effi cient during the process of upgrading to pellets and sinter fi nes. Techno-logically, LKAB is very competitive when it comes to the actual pelletizing operation.
The positive market trend and growth via production increases and effi ciency improvement present the great-est opportunities for the company. Potential threats are seen in a possible collapse in China’s economic growth, a weak dollar, falling pellet prices, and the possibility that new environmental and energy legislation may distort competition.
INDUSTRIAL MINERALS
The Minerals Division has broad and extensive operations on an international market. Products are supplied to cus-tomers in the rubber and plastics industries, the chemi-cal industry, foundries and manufacturers of refractory materials, civil engineering, the oil and gas industry and others.
In terms of competition, the industrial minerals market is highly fragmented, with many different players of vary-ing sizes. Competition also varies depending on market region and application area.
Price trends on the Minerals Division’s markets differ from those on the iron ore market. Price developments on the industrial minerals markets have been consider-ably less dramatic. Industrial sector, application area and usage decide pricing. The global market for the product areas in which the Minerals Division is active is estimated at over 20 billion kronor.
The division’s most important strengths are its broad product portfolio and widespread geographic distribu-tion, as well as the fact that it is part of a fi nancially strong group with considerable intra-group use of minerals and process know-how. Opportunities are in, among other areas, olivine production, increased demand for mag-netite, positive environmental trends in water treatment products and fl ame retardants, and growth in China and the USA. The most apparent potential threats are a major economic downturn, higher freight rates and poorer ex-change rates.
The Chinese market is undergoing tremendous growth, and the Minerals Division is actively involved in the devel-opment of two production facilities in Tianjin, a seaport near Beijing. These factories produce ceramic and refrac-
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tory products, mainly for the Chinese steel and foundry industries. The company foresees good development for these ventures, which are being pursued in partner-ship with two leading producers in the respective productareas.
Selected minerals
In Europe, where Minelco is the market leader in magne-tite, competition is mainly from other minerals and tech-nologies. During 2005, market successes were achieved on among other continents Asia and North America, both of which are growth markets for the division.
Demand for magnetite products in the oil and gas in-dustry for underwater gas pipelines has remained strong. Greater environmental awareness throughout the world has become an important driver of growth in the mar-ket for water treatment chemicals, a market in which the Minerals Division’s importance as a supplier of magnetite products is increasing.
The olivine market comprises three major application areas: the steel, refractory and foundry industries. TheEuropean and North American market for olivine amounts to 4 Mt per year.
In steelmaking, olivine improves steel quality and con-tributes to lower energy consumption compared to alter-native products. For the foundry industry, olivine is more environmentally advantageous than competing products. The Mining Division is a large consumer of olivine, which is a key ingredient in pellet manufacture.
The potential for UltraCarb products is very good. Above all, continued global market growth is expected for environmentally friendly fl ame retardants in the cable in-dustry and other polymer industries. The Turkish deposit, which is the world’s largest, offers unique quality and is economically competitive, thanks to cost-effi cient produc-tion.
Mica is used in a range of applications, principally as a functional fi ller in the paint and plastics industries. Minel-
co has long been an important supplier on the market for mica products and is a market leader in Europe.
Collaboration with Finnish Kemira GrowHow has given the company exclusive access to mica that is produced as a byproduct at Kemira’s mine in Siilinjärvi.
OTHER OPERATIONS
The Special Businesses Division supports the Group by providing drilling systems and explosives, and carrying out mining engineering and concrete work. Outside the LKAB Group, the Division also has business with other mining companies and construction and civil engineering fi rms.
Wassara markets its patented drilling system to the mining industries in Sweden, South Africa and South America, as well as to companies in tunnel construction and oil and gas exploration. Wassara’s drilling system has promising business potential, and marketing efforts are being intensifi ed.
Compared to alternative drilling systems, the water-powered Wassara Hammer assures environmentally friendly drilling without any additives. Other systems are either driven with oil or use oil as an additive in the fl ush-ing agent, which directly contaminates the environment or increases the presence of oil products in the mine.
Kiruna Grus och Stenförädling AB is planning for a dra-matic increase in tunnel construction in the Mining Divi-sion, as well as increased concrete production. Shotcret-ing will be marketed to other mines and civil engineering and tunnel driving enterprises.
Kimit’s main business is to supply LKAB with effective and effi cient explosives and related services, but is also able to sell its products on the Nordic market, since the joint venture between Kimit and Orica is being terminated.
Fastighets AB Malmfälten owns rental properties and has a strong position on the local housing market.
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A basket of iron ore pellets at the metal-lurgical laboratory in Malmberget.
Olivine in the hands of Ken Green of Minelco Minerals in Flixborough.
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The development projects are being realized by the new unit, Technology & Business Development. The unit’s task is to assume responsibility for strategy issues, to develop new technology and build new production facilities, and to develop new products and business opportunities. Re-search and development is conducted within the strategic research areas metallurgy, mining engineering, process technology and logistics and infrastructure.
INVESTMENTS IN IRON ORE PRODUCTION
Global steel production has increased dramatically in recent years and demand is expected to remain strong. Several of LKAB’s pellet customers have planned, or are deciding to invest in, increased production capacity.
Investments in increased production and greater logis-tical effi ciency will raise LKAB’s delivery capacity for iron ore products from a current 23 million tonnes to 25 Mt by 2007 and to 30 Mt by 2008.
Ongoing projects:• New concentrating and pelletizing plants in Malmber-
get, ready in October 2006.• New pellet capacity in Kiruna; via increased haulage
capacity, new concentrating and pelletizing plants and loading terminal, ready in April 2008.
• New ore harbor in Narvik, ready in October 2008.• New ore cars with 100-tonne payload; fi rst deliveries
2005-2006.• Preliminary planning for new main levels in Malmber-
get and Kiruna, projected for commissioning in 2010 and 2012, respectively.
INDUSTRIAL MINERAL PROJECTS
During 2005, the Minerals Division began to launch oliv-ine products from the mining operation in Greenland. This has been done in close cooperation with LKAB’s sales or-ganization, which enables a faster commercialization of olivine within priority segments.
The investment in a mine and processing plant in Tur-key, owned jointly with a Turkish partner, will be com-pleted in early-2006. The new Turkish plant, together with a facility in Lund, England, will manage the future produc-tion of UltraCarb products, minerals with fl ame retardant properties.
Investments and development projectsTo increase the company’s capacity for producing iron ore pellets, an extensive program of
investment, amounting to about 10 billion kronor, is being implemented. The program in-
cludes new pelletizing and concentrating plants in Malmberget and Kiruna, increased capa-
city in the Kiruna mine, and investment in a new ore harbor in Narvik. The Minerals Division
has commenced mining of olivine in Greenland and completed construction of a production
facility for UltraCarb in Turkey.
In China, Minelco initiated a partnership in 2005 with a company that is a leading supplier of high-tech refractory products for steelmaking as well as innovative refracto-ries for the foundry market. The trend is towards an even greater number of highly upgraded proprietary products. The Minerals Division is expected to take advantage of the economic growth in China as a growing supplier to the domestic market.
NEW PELLETIZING PLANT AHEAD OF SCHEDULE
The investment decision for a new plant in Malmberget was taken in November 2004 and construction began im-mediately. The project includes, in addition to a pelletiz-ing plant for 4 Mt, extension of an existing concentrating plant and a terminal for rail transports.
Construction work will be carried out according to the Partnering principle, whereby the client, consultants and contractors form an integrated project organization to work towards agreed goals with respect to function, scheduling and total economy. The project is about two months ahead of the original schedule. At most, 370 peo-ple have been employed at the construction sites.
The investment amounts to MSEK 2 600 and production is expected to begin in October 2006. This will be LKAB’s fi fth pelletizing plant. For the fi rst few years, crude ore will
FACTS ON THE PELLETIZING PLANTS
As of January 2006, LKAB has four full-scale pelletizing plants in operation. These are in Kiruna, Malmberget and Svappavaara. The fi fth, MK3 in Malmberget, will be commissioned in the autumn of 2006 at the same time as the smaller, so-called steel-belt plant will be closed. KK4, the new plant in Kiruna, will be the sixth pelletizing plant in operation.
LKAB’s fi rst pelletizing plant, a so-called vertical shaft kiln, began operating in Malmberget in 1955. Kiruna’s fi rst pelletizing plant (KK1) started up 10 years later. Both plants have since been demolished.
Plant Starting year
Svappavaara, Svp 1969Malmberget, BUV 1973Kiruna, KK2 1979Kiruna, KK3 1995Malmberget, MK3 2006Kiruna, KK4 2008
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Construction of the new pelletizing plant in Kiruna started immediately after the decision was taken in December.
be supplied by the Kiruna mine. The plant will employee about 35-40 people.
INCREASED PELLET CAPACITY IN KIRUNA
The decision for the biggest investment in the company’s 115-year history was taken in December 2005. The total investment of 6.4 billion kronor will increase capacity in Kiruna by 5 Mt. The investment includes pelletizing and concentration plants, mine hoisting equipment, a rail-way terminal, and environmental improvement measures such as exhaust-gas cleaning.
This will be Kiruna’s third pelletizing plant and LKAB’s sixth in operation. The new plants will be built adjacent to the existing processing plants and will be operational in the spring of 2008.
Following the expansion, the Kiruna processing plants will produce different types of iron ore pellets exclusively. The transition to 100 percent pellets will streamline the fl ow of crude ore in the Kiruna mine, which will result in a greater tonnage of crude ore for pellet manufacture. It will only be possible to produce fi nes products in Malm-berget.
The new plants will initially produce about 5 Mt pellets per year. This means that LKAB’s total production capac-ity will increase, in the long term, to 30 Mt. The possibility exists for a further increase to 6 Mt through complemen-tary investments.
At most, 800 people will be involved in the project.
RENOVATION OF THE NARVIK HARBOR
The ore harbor in Narvik is a strategically important link in LKAB’s process chain, since most of the products are shipped from here. The Board voted in November 2005 to refurbish the ore harbor at a cost of MSEK 970. The up-grade will signifi cantly improve effi ciency as well as the environment.
Ore storage silos will be built underground, and the entire harbor structure will be adapted to handle larger ore trains and greater volumes of iron ore products. The heavier trains and greater volumes will necessitate a ma-jor structural overhaul of the harbor area.
Above a battery of storage silos blasted out of the rock, trains will enter a tunnel and bottom-discharge their loads into silos intended for the product they are carrying via so-called rolling discharge. The total storage volume will be about 1.5 Mt.
When the new harbor is fully operational, the person-nel requirement will be reduced from the current 237 to 108 workers.
GREATER RAIL CAPACITY
All nine of the new IORE locomotives have been ope-rating on the Ore Railway since 2004. The Malmberget-Luleå section of the line has been upgraded for a 30-tonne axle load and is now traffi cked by the fi rst train set of 100-tonne cars, which were delivered from South Africa.
LKAB, together with K-Industrier, has developed a new, larger ore car adapted for a 30-tonne axle load and with a 100-tonne payload. The fi rst car was delivered in autumn 2005, and during the winter, about four cars per week have been rolled out from the Kiruna Wagons assembly shop at LKAB in Kiruna. Final delivery of the 70 cars that have been ordered was made in march 2006. Later in the year, Group management will assess the demand for ad-ditional cars.
The amount of ore per car will be increased from 80 to 100 tonnes, while each train set will consist of 68 cars in-stead of 52. The tonnage per train set is thereby increased from 4 000 to nearly 7 000 tonnes, which means a reduc-tion in both energy consumption and freight costs.
Work on the upgrade of the Ore Railway’s northern section to Narvik to accommodate a 30-tonne axle load continues. Among other things, work remains to be done on sidings and terminals. Work will be completed by the time the new Narvik ore harbor is operational, in autumn 2008.
Once the Kiruna-Narvik section of the line has been fully upgraded for a 30-tonne axle load and all terminals, includ-ing the new Narvik ore harbor, are ready to receive the new cars, the capacity increase will have been realized.
THE MINING DIVISION’S ONGOING
DEVELOPMENT PROJECTS
In Kiruna, about MSEK 300 has been spent during the year on ongoing projects to improve the effi ciency of existing production processes. Several of these projects are: phosphorus sampling, indirect coal-powder com-bustion, pellet samplers, mine de-watering, the southern operating station, ground remediation and dam safety measures, and replacement of switchgear.
In Svappavaara, the concentrate transport equipment has been rebuilt to achieve higher pellet capacity. New
22
switchgear/substation is in the planning stage. LKAB is replacing or rebuilding switchgear/substations according to a 10-year plan. This will improve working environment and reduce hazards and magnetic fi elds.
In Malmberget, several development projects have been in progress: upgrading of hoisting equipment, re-placement of switchgear in the concentrating plant, new process water line to the high reservoir, renovation of tun-nels for media supply, and improvement of indoor climate in the steel-belt plant (pelletizing).
During 2005, the Board allocated funding for measures to improve working environment at the plant. Production has more than doubled since the start in 1973, but ventila-tion and other conveniences have not been modernized to a comparable degree.
PRE-STUDIES FOR NEW MAIN LEVELS
As production capacity is expanded, new main levels and hoisting systems for future mining operations are being studied. In Malmberget, mining will pass the present main level in 2010, while in Kiruna, this will occur in 2012.
Pre-studies have been done for both mines. In both cas-es, several alternatives have been considered, though no defi nitive choices have yet been made.
Certain critical and time-consuming projects have be-gun, such as driving of inclined drifts towards the new main levels. At the same time, the extent of the ore re-serves is being further verifi ed by extensive test drilling. For both mines, permits for developing new areas must be granted. This will also have consequences for urban planning.
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RESEARCH AND DEVELOPMENTLKAB invests about MSEK 150 annually in research. Part of the R&D strategy is to intensify collaboration with LuleåUniversity of Technology (LTU) through, among other initiatives, the Hjalmar Lundbohm Research Center forMining and Metallurgy. Research activities will be con-ducted in four main areas with the overall aim of satis-fying LKAB’s long-term technology needs.
MINING ENGINEERING PROJECTS
In the fi eld of rock mechanics, there are several activities having to do with the new main levels. These include geo-modeling of the mines in Kiruna and Malmberget.
In both mines, so-called chemical gassing to sensitize the explosive emulsion in development work has been in-troduced. In sublevel caving, the explosive is sensitized with micro-spheres. Here, a new method has been tested and will be further tested in large-scale production trials. Both methods will result in considerable savings.
Trials on a new caving layout with parallel drifts will continue during 2006. A system for online measurement of loader bucket weight has been tested and is being in-stalled on all LHD machines in Malmberget. Requirement specifi cations for the next generation of production drill-ing rigs have been produced and agreements have been reached for development and delivery of a prototype rig.
In applied research, two doctoral thesis projects have been started during the year. One project will increase knowledge concerning blasting against compacted rock, and another project seeks to improve the long-term prog-noses of hanging wall deformations with the help of nu-merical calculations. During 2005, an employee in the mining engineering department defended a thesis enti-tled “Interaction between shotcrete and rock”.
DEVELOPMENT OF PROCESS TECHNOLOGY
An overall goal is to increase production without jeopardi-zing product quality. The processes that are being develo-
level m
0
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1 045 m main haulage levelExploration pass
1 060 m
Exploration
drilling
Sea level
Crushing
Buffer
Hoisting and air
Railway to Narvik
Ore processing
plants
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Hoisting
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Upplandslaven
Allians-shaftTingvallskulle
JosefinaJohannes
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815 m level
600 m levelVitåfors shaft
Vitåforsindustrial siteGropen - The Pit
Hematite
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Allians shaft
Dennewitz
Kapten
Fabian
Parta
Vitåfors/Riddarstolpe
A cross-section of the Kiruna mine shows how mining progresses successively deeper. The orebody is about4 km long and has an estimated depth of 2 km.
The Malmberget mine consists of about 20 orebodies, of which ten are currently mined.
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ped are the pellet lines in Malmberget, Svappavaara and Kiruna. In addition to conventional sampling, multivariate analysis has been applied. In Kiruna, we are investing in an online monitoring system to gain a better understanding of the variables that infl uence the quality of DR pellets.
A simulation model has been created for determining production capacity in the Kiruna mine. The model cov-ers the fl ow from loading to product bin and includes con-trol and automation technology, statistics on disruptions, maintenance requirements and production speeds.
Possibilities for increasing sorting and concentrating capacity in Malmberget are being investigated. The in-crease will be gradual, and the ultimate goal is for Malm-berget to produce 8 Mt of pellets by 2010.
To test control of the new pelletizing plant in Malmber-get (MK3), a simulator with models of the process has been built. Results of the simulations have been used for dimensioning various sections of the plant. The system will be further used for training process operators and other production personnel, which will shorten the com-missioning time.
New electronic instruments for measuring green-pellet strength enable detailed study of the effects of different variables on the pelletizing process. Among other things, this has resulted in new knowledge about binding mecha-nisms that will have a direct impact on capacity and qual-ity in the production plants.
A pre-study for a pellet research center has been pre-sented. The study points out the potential for highlight-ing this research area, and thereby strengthening LKAB’s leading position in pelletizing.
Owing to the steadily increasing need for landfi lling and deposition of waste material, landfi ll sites in conjunction with mining operations entail high costs. In collaboration with Zinkgruvan, Boliden and the waste-management company Multiserve, a method for better utilizing these sites, and thereby lowering costs, is being developed.
PRODUCT DEVELOPMENT OF IRON ORE PELLETS
In a DR-product development project conducted in colla-boration with ANSDK in Egypt, new blends are being tes-ted in basket trials in the DR furnace shaft. The tests have
resulted in a new recipe in which some of the dolomite has been replaced with limestone, which results in bet-ter metallization, carburization and compression strength during reduction.
LKAB is involved in the research projects The New Blast Furnace and New Natural Gas Based Steelmaking. The fi rst project involves two campaigns in the experimental blast furnace (EBF), which is being rebuilt as an oxygen blast furnace with CO2 extraction. In the second project, two EBF campaigns have been carried out with pre-re-duced burden material. The results show that there is po-tential for reducing coke consumption in the blast furnace by up to 50%.
The ULCOS project is an initiative of the International Iron & Steel Institute (IISI) to investigate the possibilities for cutting steel-industry carbon dioxide emissions by 50%. LKAB has contributed the use of the EBF for stud-ies of how CO2 emissions from blast furnaces can be re-duced. Work has been completed and reports have been presented.
PRODUCT DEVELOPMENT – INDUSTRIAL MINERALS
Minerals research and product development are applica-tion-oriented and are conducted in close cooperation with customers. In addition to the LKAB Group’s research orga-nization, the resources of the Minerals Division’s UK sub-sidiary are available. Minerals also collaborates with uni-versities and research institutes in Europe and the USA.
Where the mineral olivine is concerned, the LKAB Group has a high level of expertise, combining unique knowledge of the product’s characteristics and a vast knowledge of the market and product applications. LKAB introduced olivine as an ingredient in pellets for ironmak-ing and has since become a world leader in this applica-tion area. The Minerals Division is now amassing knowl-edge of application areas even outside the steel industry.
One example of technical development is an environ-mentally friendly technique for producing foundry cores, a project that will have a signifi cant impact on the Miner-als Division’s business opportunities in the foundry indus-try, particularly with respect to the mineral olivine.
Anna-Karin Rosberg works with R&D in Malmberget.
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Prospecting, ore reservesand mineral resourcesA continuous supply of new ores and minerals is fundamental to all mining
and minerals companies. To ensure future operations, prospecting and sur-
veying are necessary to secure concessions for mining new deposits and to
defi ne and extend known deposits while they are being mined.
Within the Mining Division, prospecting and defi nition ex-ploration are conducted in conjunction with ongoing mi-ning operation in Kiruna and Malmberget. The intention is to further defi ne and verify the extent of the orebodies, mainly at depth, but also in terms of the area of ore within the existing mining area.
In the Minerals Division, mining concessions for new deposits are obtained mainly through acquisitions, and exploration is conducted to only a very limited extent by the company itself.
PROSPECTING – MINING DIVISION
The Mining Division’s strategy is to defi ne and verify mi-neable quantities of ore that will provide the basis for future mining beyond the current main levels, in Kiruna1 045 and in Malmberget 1 000 meters below pre-defi ned leveling points at the surface.
The orebodies must be defi ned so that the economic value of the requisite equipment for mining under current levels can be assessed, decided upon, built and commis-sioned before the current levels are mined out.
During 2005, LKAB invested MSEK 30 (40) on explora-tion work in extension to the mines in Kiruna and Malm-berget.
Kiruna
During the year, in Kiruna, exploration drilling has been done via drifts adjacent to the orebody. Work has focused mainly on determining the extent at depth of the northern and southern parts of the orebody.
Results thus far confi rm the continuity and extent of the ore and will provide a basis for development work and mining below the present main level. Continued mining under 1 045 meters will be assessed and a decision as to construction of new facilities for this will be taken. Preli-minarily, mining at a new main level will begin in 2012.
The extent of the orebody is such that future mining of the Kiruna ore will directly impact parts of the city of Kiruna. This mainly concerns LKAB’s residential area, as well as road and railway infrastructure, switchgear and substations. Concerned parties, the Municipality of Kiru-na, the County Administrative Board, the National Road Administration, the National Rail Administration, Vatten-
fall and LKAB have reached consensus in preparing al-ternative solutions for a new key plan and alterations to the road and railway infrastructure. Discussions are being held with other concerned parties.
After a new key plan with a new residential area has been established, tentatively by the end of 2006, prepara-tions for various public works projects can be made. Initi-ally, new switchgear and substations are planned, as well as rerouting of the railway by 2012.
Malmberget
During the year, exploration work has been focused on verifying the extent at depth of several orebodies. Explo-ration work under built-up areas of the town of Malmber-get has been conducted under existing permits, and three new permits have been granted during 2005 for which ex-ploration work has not yet begun. In the fi nal months of the year, the application process to obtain a mining con-cession for the Fabian orebody, under Elevhensområdet, was begun.
Exploration work focuses on defi ning the orebodies for future mining beyond current levels and to provide a basis for decisions on new equipment and infrastructure, with a preliminary production start in 2010. The results of exploration work during 2005 are not included in the cur-rent ore estimates due to the fact that new geological mo-deling of the orebodies in Malmberget is in progress.
Future mining operations will have an impact on parts of the community of Malmberget. LKAB is planning the necessary measures in cooperation with the Municipality of Malmberget and other public authorities. Closure of parts of LKAB’s residential areas Johannes and Hermelin has commenced.
PROSPECTING – MINERALS DIVISION
During the year, the Minerals Division has primarily up-graded raw material from Mining and purchased mate-rial from other sources. To a limited degree, the division upgrades material from deposits in Greece and Turkey in which the company has an ownership interest. LKAB has therefore elected not to report deposits partly owned by Mineral’s in the formal reporting of mineral resources and ore reserves.
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During 2005, the Seqi olivine deposit in Greenland was acquired. The acquisition will enable the division to ad-vance its position on the olivine market, a market that ab-sorbs approximately 4 Mt per year.
The Minerals Division will handle about 1 Mt of olivine annually, and the deposit will satisfy demand for olivine for many years to come. The results of geophysical sur-veys and drilling campaigns indicate reserves in excess of 100 Mt.
Results of geophysical surveys of the olivine deposit in Greenland do not enable full reporting of the extent of the mineral resources as of 31 December 2005. More detailed testing will be done during 2006.
MINERAL RESOURCES – MINING DIVISION
Prospecting and exploration provide a survey of minera-lizations which, according to certain criteria, can be clas-sifi ed as mineral resources; i.e., an occurrence of minerals in the bedrock.
Mineral resources are classifi ed as ‘inferred resources’ when quantities, grades and mineralizations can be esta-blished with a low degree of certainty. Detailed explora-
MINERAL RESOURCES IN ADDITION TOORE RESERVES
per 31 December 2005
(to dressing plant) Quantity, Mt Fe, %
KirunaMeasured 189 47.9Indicated 89 48.0 Inferred 166 46.9
SvappavaaraMeasured 80 47.1 Indicated 30 47.0 Inferred - -
MalmbergetMeasured 84 42.4Indicated 18 39.5 Inferred 84 43.0
ORE RESERVES MINING
per 31 December 2005
(to dressing plant) Quantity, Mt Fe, %
Kiruna Proven 695 48.6Probable 103 46.5
Malmberget Proven 104 43.6Probable 71 43.6
tion can result in the classifi cation of mineral resources as ‘indicated resources’.
The information that has been amassed from drilling campaigns and other sampling is suffi cient to enable technical and fi nancial calculations. After additional dril-ling campaigns and sampling, the deposit may be clas-sifi ed as ‘measured’, whereby mine plans and fi nancial assessments can be produced. The mine plans and pro-cesses form the basis of technical and fi nancial analyses that are performed to determine the potential profi tability of future mining of the deposit.
ORE RESERVES – MINING DIVISION
The sections of the measured and indicated mineralresources that can be mined and processed on the ba-sis of LKAB’s profi tability requirements are referred to as the company’s ore reserves. Ore reserves are classifi ed as either ‘probable’ or ‘proven’, the latter being the more precisely documented of the two.
Ore reserves and mineral resources are quoted in quantities and grades after mining; i.e., with allowance for losses during extraction.
LKAB reports ore reserves in compliance with re-commendations adopted by SveMin, applicable sec-tions of which correspond to the Ontario Securiti-es Commission’s (OSC) National Instrument 43-101, which stipulates how ore reserves and mineralresources are to be reported.
Mineral resources in Kiruna down to 1 500 meters (from leveling point) are reported. Below this level, there is in-suffi cient data to enable an estimate of grades and quanti-ties. Mineral resources in Malmberget, within existing concessions, are reported for the eastern fi eld down to 1 250 meters and between 600 and 800 meters for the western fi eld. At deeper levels, there is insuffi cient data to enable an estimate of grades and quantities. LKAB also has mining concessions for Gruvberget and Mertainen.
Estimates of LKAB’s mineral resources and ore reserves have been compiled under the direction of Carlos Quinteiro, Mineral Resources and Mineral Econo-mics Specialist with the Technology and Business Development unit. Carlos Quinteiro is recognized as a ‘Qualifi ed Person’ by SveMin and has more than 10 years of experience in the mining and minerals industry.
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SustainabilityLKAB’s information on sustainability covers the following areas: ethics and social re-
sponsibility, personnel, human-resources development, working environment, environ-
mental impact and energy consumption. The fundamental control documents for the
company’s sustainability are the ethics policy, quality policy, environmental and energy
policy, and information policy, which were adopted by the Board in 2005.
S U S T A I N A B I L I T Y
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ETHICS POLICYLKAB will strive to be perceived by customers, share-holders, suppliers, employees and the community as a company that conducts a sound and successful business operation with integrity and moral correctness.
• LKAB will always comply with the laws and regulations that apply in the countries in which LKAB operates, and in so doing LKAB will respect the United Nations Uni-versal Declaration of Human Rights and similar agre-ements.
• LKAB will strive to uphold impeccable business ethics.• In realizing its objective of maintaining a fi nancially
sound and successful business operation, LKAB will strive to protect the environment and use energy re-sponsibly.
• LKAB will strive to maintain strong and enduring rela-tions with its employees.
GENERAL PRINCIPLES
LKAB’s chief task is to develop and maintain a fi nan cially sound and successful business operation. LKAB has a long-term responsibility. In the countries, communities and environments in which LKAB operates, we have a long-term responsibility towards our employees, busi-ness partners and society in general.• We will always comply with the laws and regulations
that apply in the countries in which we operate. • We will respect the United Nations Universal Declara-
tion of Human Rights, and we will accept our responsi-bility to observe the rights of employees and society to the extent that they are affected by our operations.
• We will strive to manage our business operation with integrity and moral correctness.
• We will strive to adopt an attitude of openness india logue with those who are affected by our operations.
• Wherever possible and wherever we exercise infl uence, we will strive to ensure that our suppliers and subcon-tractors adhere to the principles of our ethical guide-lines.
BUSINESS ETHICS
LKAB will not use methods such as bribery and other cor-rupt and unfair competitive practices that distort markets and hinder economic, social and democratic develop-ment.• LKAB will not contravene applicable laws governing
competition. • Bribery is strictly prohibited in LKAB’s business
relations.
EMPLOYEE RELATIONS
It is very important for LKAB to uphold a strong and en-during relationship with employees that is based on mu-tual respect and dignity. The terms of employment offe-red will comply with national legislation.• LKAB will provide a working environment that is safe
and sound with respect to the nature of our operations, and we will strive continuously to implement improve-ments. *Special, written health and safety instructions shall be issued and will apply in all workplaces.
• LKAB acknowledges employees’ right to organize under the applicable labor laws and principles of the respec-tive countries in which we operate.
• LKAB strives to give all people equal opportunities, regardless of race, color, gender, nationality, religion, ethnic origin or any other distinguishing characteristic. LKAB does not tolerate discrimination or harassment. LKAB does not tolerate discrimination or harassment.
• LKAB prohibits forced labor and other forms of invo-luntary labor in our workplaces. LKAB does not tolerate the use of methods that restrict employees’ freedom of movement. LKAB does not tolerate the use of methods that restrict employees’ freedom of movement.
• LKAB does not employ persons younger than 15 years of age or the higher age that may be stipulated by local legislation.
ENVIRONMENT
LKAB’s work shall be characterized by concern for the en-vironment; for which reason LKAB has adopted an Envi-ronmental and Energy Policy that will guide our actions while acknowledging our objective to maintain a fi nan-cially sound and successful business operation.
27
QUALITY POLICYLKAB will exceed customers’ present and future expec-tations by involving all employees in the process of con-tinuous improvement. We will strive for zero defects in everything we do, and each employee is responsible for the quality of his or her own work.
CERTIFICATION OF MANAGEMENT SYSTEMS
The Total Quality Management unit is responsible for the Group’s quality and environmental management systems. For LKAB, a systematic quality effort is essential for deve-loping processes and product quality. The Total Quality concept stands for a holistic approach to quality mana-gement, covers all operations and is based on customer orientation and above all, continuous improvement.
LKAB’s quality management system has been certifi ed according to ISO 9001:2000 since 2002. In 2005, certifi ca-tion of the Minerals Division was conducted. Most of the plants operated by the division are quality-certifi ed accor-ding to ISO 9001:2000. All plants will achieve certifi cation during 2006.
After an audit of the entire quality management system in 2005, which resulted in approval of the system, LKAB will retain its certifi cate for a further year.
LKAB decided in 2003 to adopt an energy and en-vironmental management system, partly because the company’s operations are very energy-intensive and part-ly to meet the requirements of the new system of trade in emissions rights.
In June 2005, an audit of the energy management sys-tem in Svappavaara was carried out, and LKAB became the fi rst company in Sweden to be awarded a certifi cate stating that the system complies with the SS 627750 stan-dard. Svappavaara already has an approved environmen-tal management system.
During the autumn, the environmental and energy ma-nagement systems for Mining Logistics, which includes the Ore Railway and harbors in Narvik and Luleå, were certifi ed. Work on certifi cation of the processing plants in Kiruna and Malmberget continues and will be completed during the spring of 2006. The environmental and energy management system will be fully implemented and certi-fi ed throughout the LKAB Group during 2007.
LKAB has introduced a system for trade in emissions rights during the year. The system has been verifi ed by SP Certifi ering.
S U S T A I N A B I L I T Y
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ENVIRONMENTAL ANDENERGY POLICYThrough continuous improvement of the working envi-ronment, the natural environment and energy use, LKAB’s operations will promote long-term sustainability and pro-fi table development.• This policy applies to companies within the LKAB Group
as well as suppliers operating on LKAB’s premises. • Established laws, bylaws, regulations and other com-
mitments to which LKAB is subject are minimum re-quirements.
• LKAB shall strive to create a working environment that is safe and stimulating for employees.
• Our employees will receive ongoing training in environ-mental issues.
• New technologies and technical advances will be assessed with consideration to the working environment, environ-mental protection and the effi cient use of resources.
• Suppliers working outside LKAB’s facilities and premises will be encouraged to work in compliance with our policy.
• In dialogue and cooperation with public administrations and society, our attitude shall be characterized by open-ness and factuality.
INFORMATION POLICYLKAB’s employees will always be well informed with re-spect to the company’s operations, its business environ-ment, goals, strategies and results, and of their own work-place and their role in the company’s operations. LKAB’s others stakeholders will be given, on an ongoing basis, timely and correct information that provides a represen-tative view of the company and its operations.
GUIDELINES
The Group’s corporate communications will contribute to greater knowledge and trust among the company’s stake-holders. LKAB’s ethics policy, with guidelines, will also guide the work of corporate communications.
Each line manager is responsible for communication, the ongoing dialogue, in his or her workplace. Similarly,each line manager is responsible for ensuring thatco-workers have continuous access to current and nec -es sary information about their workplace and its role in the company’s operations.
The President has the overall responsibility for exter-nal communications. Members of Group Management are responsible for external communications with respect to their individual areas of responsibility. The Chairman of the Board issues statements pertaining to ownership issues.
The mass media are an important channel of infor-mation in society – and thereby for all of the company’sstakeholders. LKAB will work actively and openly with the mass media to present a positive image and foster confi -dence in the company. There must be particular reasons for declining to comment or give information. This may
be information pertaining to fi nance, safety, competition, ongoing negotiations or other information that might be detrimental to the company if disclosed. Great care must be taken to safeguard personal integrity.
LKAB will strive to follow the rules of corporate infor-mation disclosure that are recommended for companies listed on the Stockholm Stock Exchange. No fi nancial in-formation other than offi cial year-end or interim reports may be disclosed to external parties.
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HUMAN RESOURCESDuring 2005, the Group’s management structure was re-organized to achieve a greater focus on e.g., human re-sources and fi nance issues. At the same time, the number of levels of management below president was reduced from six to four in Finance and Human Resources.
The positive outlook for the future implies a conti-nued strong demand for labor. The company is applying a long-range strategy, preparing for planned production increases, higher demands on qualifi cation, and future re-tirements.
LONG-TERM COMPETENCE SUPPLY
To ensure the future supply of qualifi ed personnel, LKAB cooperates closely and extensively with universities and colleges, above all, Luleå University of Technology, the secondary schools in the region, training companies and others.
In all instances of cooperation in education, efforts are being made to increase the numbers of women in traditio-nally male-dominated study programs. This is important for ensuring the future supply of qualifi ed personnel, but also because we know that effi ciency and health improve in organizations with a more even gender distribution.
One of these education initiatives is the LKAB high school. The fi rst ten students began their studies in au-tumn 2005, at Välkommaskolan i Malmberget. The study programs include industrial technology, vehicles, electrical engineering and energy, and one third of study time is rela-ted specifi cally to LKAB. The program is very popular, and there were six applicants for every place. 40% of admis-sions were girls, which can be considered trend-setting.
In autumn 2006, a similar LKAB industrial technology program, for 16 students, will be offered at Hjalmar Lund-bohmsskolan in Kiruna. A study program in electrical au-tomation will also be included.
In the spring of 2005, seven trainees, of which fi ve were women, began a one-year program that combines regu-lar work duties with education and other activities. The objective is to facilitate networking and give participants insight into, and knowledge of, the entire LKAB organiza-tion. In 2006, a new group of trainees will be recruited.
EQUALITY AND DIVERSITY
Gender equality is a strategic issue for LKAB. Competence supply characterized by greater gender equality is expec-
ted to improve the working environment, productivity and effi ciency, as well as contributing to the company’s over-all development.
The fundamental control document for work with equa-lity and diversity in LKAB, adopted by the Board, is the ethics policy and guidelines for Employee Relations, which states: LKAB strives to give all people equal opportunities, regardless of race, color, gender, nationality, religion, eth-nic origin or any other distinguishing characteristic. LKAB does not tolerate discrimination or harassment.
Based on this policy and the Equal Opportunities Act, yearly action plans for equality are established by Group Management. More uniform gender distribution is the ul-timate goal. To reach this target, the plan of action focuses on sub-goals and activities that will ensure that workpla-ces function for both women and men, that employment can be combined with parenthood, that sexual harass-ment and wage discrimination do not occur, and that wo-men are actively recruited and developed in their work roles.
MORE UNIFORM GENDER DISTRIBUTION
The proportion of women and the number of women in managerial positions in the Group have increased in recent years. This trend has continued in 2005. The pro-portion of female employees is 10.2% and of women in managerial positions 11%. The number of women in tra-ditionally male-dominated occupations is growing at a slower rate than in other areas of the Group, but a change is under way, thanks to among other efforts, the ongoing educational initiatives with secondary school in the Ore-fi elds region.
The entire Group is characterized by low personnel tur-nover. During 2005, 197 employees have been recruited to LKAB. The proportion of employees over the age of 55 is 22%, or 770 people, which means that there will be large numbers of retirements in coming years, above all in mining production and ore processing in the Mining Division.
In 2005, the Minerals Division increased its workforce by 2.4%, with China accounting for the greatest increase. Two new companies have joined the division during the year: Minelco Oy in Finland and Minelco Likya in Turkey. The production plant in Knottingley, in the UK, was closed in 2005, affecting 5 persons, and the plant in Yate, where
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Students at the LKAB high school in Malmberget. Kristoffer Öberg and Josefi n Nilsson.
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16 employees will be affected, will be closed at the end of 2006.
Intra-Group recruitment has increased and will be a natural aspect of competence supply in future. The pro-cess began relatively recently, but continues to develop. Personnel mobility within the Group is important. We are convinced that this promotes development and positive operating results.
COMPETENCE DEVELOPMENT
LKAB’s strategic plan emphasizes the importance of de-legating greater responsibility and authority to the indi-vidual employee. The goal is to improve the company’s effi ciency by making workplaces even more attractive. Employeeship must be characterized by the will and the means to infl uence conditions in one’s own workplace and to deliver good results. Ultimately, this will result in fewer levels of management.
Work on the new pelletizing plant in Malmberget has in-tensifi ed, leading up to commissioning in 2006. In addition to new construction and technology, the project also in-volves the development of new working methods for pro-duction and maintenance personnel. In the workplace and in the work of continuous improvement, more responsibi-lity and authority will be delegated to employees.
The competence of each employee in and around LKAB is a key factor of success. Continuous learning is therefore a self-evident necessity, and training methods are adapted to employees’ different prerequisites and learning styles.
Traditional classroom teaching still predominates, but is complemented with other forms of training. One form that has been tested and has gained greater acceptance during 2005 is interactive training, so-called e-learning. For ex-ample, the safety training program for contractors is now interactive. This has led to more effective training with greater fl exibility, which is good for everyone involved.
Experience has shown that e-learning is very success-ful, and more interactive courses will be introduced in 2006. This will mean greater opportunity for fl exiblelearning, both for LKAB employees and our partners.
In the Minerals Division, an extensive sales seminar has been held. The aim has been to reach targets in the re-spective business areas more effectively by strengthening the sales force.
MANAGEMENT
Good management is decisive for LKAB’s success. LKAB has formulated very specifi c managerial requirements and is determined to recruit and develop managers who can lead and who like to lead others. The ability of our ma-nagers to implement changes that promote the develop-ment of operations and personnel will remain in focus.
Today, the LKAB Group is growing internationally and consists of about 30 companies in 15 countries. To strengthen the Group’s team spirit, an international ma-nagement seminar involving top-level managers was conducted in the autumn. The focus was on the Group’s strategy and cultural aspects.
Conditions differ among the Group’s various divisions and companies. Common to all is that each brings benefi t to the Group; but at the same time, distinct local differen-ces can be a point of departure for developing the opera-tions of the individual unit. The seminar opened channels for many contacts throughout the Group and laid a good foundation upon which to build.
TERMS OF EMPLOYMENT AND INCENTIVE SYSTEMS
During the year, a new wage system within the framework of Metall’s bargaining agreement has been established, a program that began in 2004. Objectives are being met and the system has contributed to increased competence de-velopment and delegation of responsibility and authority.
The incentive system that was introduced in 2004 has been retained in 2005. The reward is maximized at SEK 30 000 per year and full-time employee. The President and other senior executives are not entitled to rewards under the incentive system.
The system, which follows the owner’s guidelines for incentive schemes, is based on three factors: quality, work environment and production targets. The system has contributed to drawing greater attention to these im-portant factors. Quality has been high, production volume has increased signifi cantly in existing facilities, and com-mitment to improving the working environment has been strengthened.
Compared to the previous year, the outcome of the incentive program improved signifi cantly, increasing to SEK 27 400 per full-time employee. All three para meters warranted a high reward during the year, with the para-
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A crew in the Kiruna mine: Susanna Jokinen, Anders Salomonsson, Ann-Britt Häggroth, Örjan Lingebrand, Svante Kuru and Thomas Mikko.
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meters for production and working environment meriting maximum reward. The incentive system has been revie-wed and adjusted for 2006.
In LKAB, nearly half (49%) of employees work accor-ding to various shifts, which is necessitated by the fact that production facilities operate around the clock, all year round. However, shift work has certain negative ef-fects. To implement and assess various measures to alle-viate the negative effects of shift work, a project involving LKAB’s employer organization Metallgruppen, the trade union organization IFMetall and Arbetsmarknadsförsäk-ringar (AFA) is under way.
Increased awareness of health and lifestyle through training programs for shift workers and managers, chan-ges in working environment and trials of new shift sys-tems are activities that are planned or in progress. Health aspects and conditions for competence development are thereby being addressed more directly than previously and the demand for temporary labor will be reduced. The results will be discernable in the long term, but some de-gree of assessment in 2006 is deemed possible.
SAFER AND HEALTHIER WORKPLACES
LKAB’s workplaces must be safe and stimulating for em-ployees, and we actively encourage our suppliers to work according to our environmental policy. The total rate of sickness absence continues to decline. During 2005, the rate of absenteeism due to illness declined by 25%, i.e., from 5.6% to 4.3%, with 2.4% short-term and 1.9% long-term absence.
This trend is the result of preventive measures and me-asures to assist employees to return to work or to conti-nuing working in the event of ill health. An example is the training program, for all managers and safety offi cers, on recognizing the early warning signs of alcoholism and drug abuse as well as corrective measures for these con-ditions. Training programs on working environment con-tinue to constitute LKAB’s single largest training effort.
To further encourage employees to assume responsibility for adopting a healthier lifestyle, the company has extended opportunities for employer-paid use of fi tness training facili-ties in the operating locations in the Orefi elds and Luleå.
Where accident frequency is concerned, we are also seeing a long-term decline. The number or accidents per million working hours was 10.5, which is a decrease of 13% compared to 2004. However, this is still somewhat off the target, which is ten accidents per million hours.
Nearly all accidents and incidents in LKAB are the result of failure to follow correct procedure. Only a few are the result of unsafe environments. Efforts have been made to increase involvement in accident-prevention work. Among other things, this has led to a dramatic increase in incident reports, from about 30 incidents per accident resulting in absence in 2004 to 92 in 2005.
Our effort to continuously improve working environme-nts will persist; but, above all, attitudes to health and safe-ty must be changed for the better. Therefore, we are now introducing a working method under the concept “Safety First”, which will encourage and support the realization of the goal to create an accident-free working environment.
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SICKNESS ABSENCE WORK-RELATED ACCIDENTS
Two typical LKAB workplaces: the mill hall in the Svappavaara concentrating plant. Robert Wikström, control room operatorat the pelletizing plant in Kiruna.
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ENVIRONMENTAL AND
ENERGY REPORTING
Mining and processing of minerals impact the environme-nt through alteration of the landscape, energy consump-tion, emissions to the air and discharges to the water. LKAB seeks to limit this impact through good planning. Among other things, this means that the environmental consequences of decisions and measures are always ta-ken into consideration. The environmental work must be forward-looking and aimed at enabling the company to meet tougher environmental requirements in the future.
OVERALL ENVIRONMENTAL AND ENERGY OBJECTIVES
• LKAB will reduce the proportion of industrial waste that is deposited.
• LKAB will reduce the spread of particulate matter.• LKAB will reduce the specifi c fuel consumption in the
pelletizing process.• In planning and procurement, LKAB will seek to reduce
the proportion of road transports in favor of rail trans-port or other energy-effi cient modes.
ORGANIZATION AND RESPONSIBILITY
The President bears the overall responsibility for environ-mental issues. Operational responsibility is delegated to the heads of divisions and unit managers.
The specialist function External Environment is re-sponsible for the entire Group’s environmental work, ensuring that the company complies with terms, condi-tions and laws by applying for mandatory permits and providing advice and support. External Environment also handles sampling, surveys and reporting to authorities.
LKAB’s environmental monitoring is carried out by the company, in consultation with supervisory authorities, in accordance with established programs that measure both emissions/discharges and environmental impact. An en-vironmental report for each operating location is submit-ted annually to the authorities concerned.
The Chemicals Committee in LKAB handles all matters pertaining to chemical products, for example, approval of new products.
LKAB’s Occupational Health unit works above all with preventive measures. The unit’s work is based on a broad knowledge of medicine, technical and behavioral science, work organization and rehabilitation methodology.
Environmental and energy issues are also addressed in various trade organizations. LKAB is an active member of SveMin (the Association of Mines, Mineral and Metal Producers in Sweden, formerly the Swedish Mining As-sociation) and the Swedish Steel Producers Association. LKAB also supports and actively participates in a number of environmental research programs. The company is an active member of the Torne and Kalix Rivers’ Water Con-servation Association.
ENVIRONMENTAL AND ENERGY MANAGEMENT SYSTEM
To promote energy conservation and environmental im-provement, LKAB is working towards the implementa-tion of an environmental and energy management sys-tem that will be integrated with the company’s quality management system. The management system will also ensure that LKAB complies with current energy and en-vironmental legislation. The environmental and energy management system will be fully implemented and certi-fi ed throughout the LKAB Group during 2007.
PROGRAM FOR ENERGY EFFICIENCY
LKAB has applied and been accepted for participation in the Swedish Energy Agency’s Program for Energy Effi -ciency (PFE) during 2005. LKAB applied for participation for fi ve operating units: Svappavaara ore processing, Kiruna ore processing, Kiruna mining, Malmberget ore processing and Malmberget mining. The Energy Agency approved LKAB’s applications in June 2005.
Through participation in PFE, LKAB will introduce an energy management system according to Swedish Stan-dard (SS). In addition to introducing a standardized sys-tem, LKAB will carry out an energy audit and analysis. This means that energy consumption will be described and measures for conserving electricity will be defi ned. Special procedures for planning and purchasing will be introduced, which means that the most energy effi cient solutions will be chosen whenever technically feasible. Measures and results will be submitted for approval by the Swedish Energy Agency, which will also approve con-tinued participation in the program.
In June 2005, an audit of the energy management sys-tem for Svappavaara’s ore processing was carried out. LKAB became the fi rst company in Sweden to be award-ed a certifi cate according to the Swedish standard and elected to apply the PFE requirements.
INDUSTRY COLLABORATION IN BAS-EL
Electricity is an important resource for LKAB, and the company is concerned about the current energy supply and rising electricity prices.
Together with 19 other energy-intensive companies in Sweden, LKAB has therefore decided to form BasEl AB, a company that will safeguard the interests of member companies and Swedish primary industry with respect to the long-term stability and competitiveness of electri-cal power supply. BasEl was formed by its member com-panies’ in response to concerns that the current energy supply in Sweden cannot meet the demand for electricity at competitive prices.
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BasEl was formed together with several other electrici-ty-intensive companies, mainly in the forestry, steel, che-mical and mining industries with operations in Sweden and abroad. These companies have a combined power consumption of about 25 TWh (terawatt hours) per year, which corresponds to about half of Sweden’s total indu-strial electricity consumption.
The company will work with concrete projects of which the aim is to increase the availability of competitively pri-ced electricity in Sweden. These projects may concern power production, in Sweden or abroad, as well as trans-mission capacity. BasEl’s objective is to bring about an increase in the supply of electricity on the Swedish market of about 10 terawatt hours per year.
ENVIRONMENTAL PERMITS AND INVESTMENTS
The new pelletizing plant now under construction in Malmberget will be commissioned during 2006. The en-vironmental permit for Malmberget entitles LKAB to pro-duce 6.7 Mt of pellets per year. A new permit application for “Increased capacity in Malmberget”, which refers to the entire operation, is being made.
The Board of LKAB has voted to spend 1 billion Swedish kronor to build a new ore harbor in Narvik. This will impro-ve the effi ciency of operations as well as the harbor envi-ronment. Ore storage silos will be built underground, and the entire harbor structure will be adapted to handle larger ore trains and greater volumes of iron ore products.
The storage silos will be blasted out of the bedrock. Above the storage area, the ore trains will enter a tun-
nel and bottom-discharge their loads via so-called rolling discharge. This reduces noise and dust. The silos will be equipped for dust evacuation. A de-icing station will be installed near the tunnel entrance.
In December 2005, the Board voted to build additional concentrating and pelletizing plants in Kiruna. The Envi-ronmental Court of Appeal had already granted LKAB a permit for Kiruna to produce 14.8 Mt of pellets per year. The new plants are expected to be operational in 2008.
An application has been submitted to the Environ-mental Court regarding expansion of the dolomite quarry in Masugnsbyn to meet demand from increased pellet production in Kiruna.
The Minerals Division’s olivine mine in Greenland is now operational and complies with local environmental legislation.
Kiruna Grus- och Stenförädling (KGS) has invested in equipment that will signifi cantly reduce the company’s consumption of natural gas. This consists of a screen-ing plant for processing shotcrete gravel from waste rock from the Kiruna mine. KGS has also built a concrete sta-tion in Malmberget, which is advantageous from the point of view of both operations and environment.
THE ENVIRONMENTAL ADVANTAGES OF
LKAB’S PRODUCTS
Ore from LKAB’s mine consists mainly of magnetite. It re-quires lower energy input during processing, which re-sults in lower carbon dioxide emissions. It is therefore more environmentally friendly than other ores.
In LKAB’s pelletizing process, an oxidation from magnetite to hematite takes place, which liberates energy. Most of the thermal energy needed in pellet manufacture comes from this oxidation.
ENERGY SUPPLY IN LKAB’S PELLETIZING PROCESS
Thanks to systematic efforts, fuel economy in the pelletizing plants has successively improved.
ENERGY CONSUMPTION
Renovation of the ore harbor in Narvik has begun. Ore will be stored in underground silos for better environment.
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Pellet manufacture at LKAB’s mines results in one-se-venth the quantity of emissions compared with sintering at the steelmills. This is because thermal energy from the process is utilized in production. The environmental im-pact must be regarded in a global perspective. Pelletizing and sintering now take place to a greater extent at the mines. This means that some of the emissions have been moved from the steel mills to the mine locations.
The Minerals Division, which produces and markets selected industrial minerals, has operations in several countries on different continents. The division offers pro-ducts that are made from naturally occurring minerals, which is advantageous from a life-cycle perspective and means that materials with a negative environmental im-pact can in some cases be replaced.
In summer 2005, LKAB’s operation in Svappavaara was awarded the Municipality of Kiruna’s environment prize, thanks to the fact that Svappavaara achieved certifi cation of its environmental and energy management system, and was the fi rst in Sweden to do so.
In 2004, this prize was awarded to the subsidiary Kimit, which managed to reduce nitrogen emissions from its ex-plosives plant in Kiruna. Thanks to new procedures and better care of equipment, emissions had been reduced by more than 95% since 1995.
ENERGY CONSUMPTION
LKAB’s operations are energy-intensive. With more than 1% of Sweden’s total electricity consumption, the com-pany is one of the country’s largest electricity consumers. Energy consumption per tonne of iron ore produced and processed has declined steadily. Primarily, oil consump-tion has decreased. At the same time, there has been a changeover from oil to other energy sources.
The predominant iron mineral in LKAB’s mines is mag-netite, which has the advantage that energy is liberated
during oxidation from magnetite to hematite during the oxidation process. Approximately 65% of the thermal en-ergy needed during pellet manufacture comes from the iron ore, which reduces the need for external fuel.
Most other pellet producers in the world use hematite ore, which requires a greater input of energy in the up-grading process, approximately 15 liters of oil per tonne of fi nished product. By comparison, LKAB’s pellet plant in Malmberget uses only 5 liters of oil per tonne of pellets, with 10% hematite in the raw material.
Some of the most important energy effi ciency improve-ments have been the installation of waste gas boilers in the pellet plants, which has reduced energy consumption, and the changeover from oil to low-sulfur coal.
In Kiruna, LKAB recovers excess heat from the pelleti-zing process for space heating in its own plants. Some of the heat is also redirected to the municipal district heating system.
ATMOSPHERIC EMISSIONS
Most of LKAB’s atmospheric emissions come from pel-let manufacture, which gives rise to emissions of sulfur dioxide, fl uorides, chlorides, nitrogen oxides and particu-late matter. The environmental impact must be regarded in a global perspective. Pelletizing and sintering now take place to a greater extent at the mines. This means that some of the emissions have been moved from the steel mills to the mine locations.
Pellet manufacture at LKAB’s mines results in one-se-venth the quantity of emissions compared with sintering at the steelmills. This is because thermal energy from the sintering process is utilized in production. An increased use of pellets in the European steel industry has made it possible to reduce the total impact on the environment, since atmospheric emissions that exceed specifi ed limits have diminished substantially.
For several years, energy consumption has been directly proportionalto pellet production. Effi ciency improvements will contribute to areduction in energy consumption in relation to the number of tonnesof pellets produced.
ENERGY CONSUMPTION PER TONNE PELLETS
Carbon dioxide emissions are reduced when LKAB pellets are used as the iron raw material. A sinter-based steelmill releases seventimes as much carbon dioxide and emissions from hematite-based pellets are more than three times higher compared to LKAB pellets.
EMISSIONS OF CO2
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LKAB’s capacity expansion is taking place in keeping with strict en-vironmental standards. Since 1980, emissions of particulates, sulfur dioxide and fl uorine have been more than halved, at the same time as pellet production has more than doubled.
Mean values of emissions from the pelletizing plants in Kiruna, Svappavaara and Malmberget. The fl ue gas cleaning equipment in the pelletizing plants has reduced emissions of, above all, sul-fur and particulates.
ATMOSPHERIC EMISSIONSEMISSIONS PER TONNE PELLETS
LKAB has conducted pilot-scale trials of treatment of ni-trous oxides using so-called selective catalytic reduction (SCR). So far, the object of the trials has been to determi-ne how the SCR unit reacts to LKAB’s exhaust gases. The trials have been successful. However, a thorough evalua-tion of the trial period is necessary before any conclusions can be drawn.
In addition to investigating possible techniques for trea-ting NO, a project for reducing emissions through process improvement is now under way. During 2005, equipment for continuous monitoring of nitrous oxide has been in-stalled in Kiruna’s KK2 pelletizing plant. This is to verify previous measurements and the effects of process impro-vement measures.
The climatic impact resulting from emissions of fossil carbon dioxide (CO2) is clarifi ed by the following example: The total CO2 emissions from a modern sinter-basedsteelmill are on the order of 2,000 kg of CO2 per tonne of crude steel, where sintering accounts for about 254 kg per tonne of crude steel. If LKAB pellets are used as the iron raw material instead of sinter, emissions from pellet manufacture are only 35 kg per tonne of crude steel – a reduction of CO2 emissions by 85%.
If hematite-based pellets are used as the iron raw ma-terial, the CO2 emissions in pelletizing are on the order of 115 kg CO2 per tonne of crude steel, just under half com-pared with sintering, but still more than three times hig-her than for LKAB pellets.
TRADE IN EMISSIONS RIGHTS
LKAB is involved in the EU’s system of trade in greenhou-se gas (GHG) emissions rights. The period 2005-2007 is a trial period for the greenhouse gas carbon dioxide (CO2). Thereafter, all countries that are parties to the Kyoto Pro-tocol will be subject to a new trading period, 2008-2012.
One emissions right entitles the holder (the owner of
an industrial plant) to release one tonne of carbon dioxide during the course of a given trading period. Rights are al-located by the state or they can be purchased. A surplus of rights can be sold.
A reduction in emissions within the trade area is achie-ved by placing a limit on the total number of rights allo-cated, and thereby on the emissions within the area. For the period 2005-2007, all Swedish companies that applied for emissions rights have been allocated rights, free of charge, by the state.
In Sweden, more than 600 industrial plants are affected. Per defi nition, LKAB has three plants that are subject to the trading system. These are in Kiruna, Malmberget and Svappavaara. They include pelletizing plants and central boiler plants. Carbon dioxide emissions from these plants come from the combustion of coal and oil, the release of CO2 from organic binders and carbonate-based additives such as dolomite and limestone. Combustion of oil in cen-tral boiler plants generates carbon dioxide.
In autumn 2004, LKAB was granted permits for CO2-emitt-ing plants in accordance with the Emissions Trading Act. The granting authority is the County Administrative Board of Norrbotten. The permit regulates how LKAB, in a reliable way, controls, monitors and reports emissions. There are special rules for quality assurance of emissions trading.
LKAB has been allocated 1.35 million emissions rights for the period 2005-2007. This corresponds to about 90% of LKAB’s total requirement for planned production. LKAB must therefore purchase additional emissions rights during the current trading period. LKAB appealed the Swedish Environmental Protection Agency’s allocation decision, but the appeal was rejected by the County Ad-ministrative Court of Stockholm. A request for review dis-pensation has been submitted to the Administrative Court of Appeals.
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The 438,780 tonnes of carbon dioxide (emissions rights) allocated by the state to LKAB for 2005 are insuffi cient. To be able to produce more iron ore, LKAB must successively purchase more rights. During 2005, 10 000 emissions rights have been acquired, and in April 2006, LKAB must have suffi cient rights to cover actual CO2 emissions for 2005.
By purchasing emissions rights, LKAB can increase production and carbon dioxide emissions without contri-buting to any increase in total emissions in Sweden or Europe. Overall reduction of GHG emissions is the prime concern – not where these emissions occur.
NOISE, VIBRATION AND DUST
Noise and vibration are emitted from many sources in LKAB’s different activities; for example, from fans, vehic-les and blasting. Blasting in the mines causes vibration, which can be considered annoying in some residential areas even though the measured values lie below the re-commended limits.
Dust (particulate matter) is created during ore handling in harbors and outdoor stockpiles. Handling of waste rock for backfi lling of Kaptensgropen, the “Captain’s Pit”, in Malmberget, has at times also caused disturbances. Dust control measures have included paving of haulage roads and watering, as well as minimizing of the active dum-ping area.
Contractors inspect the area daily to determine if the-re is a dust risk. Watering is done whenever necessary. During spring 2005, dust-barrier nets were installed, and in 2006 installation of a new remote-controlled sprinkler system in Kaptensgropen in Malmberget is planned.
Renovation of the Narvik ore harbor will improve the environment in and around the harbor area. Storagesilos will be blasted out of the bedrock and equipped with dust evacuation systems. The ore trains will enter a tunnel above the storage and bottom-discharge their loads. This reduces noise and dust. There has been an environmen-tally effi cient ore harbor in Luleå since 1996.
DISCHARGES TO WATER
Most of LKAB’s process water is taken from mine drai-nage. After the water has been used in processing, it is led via an internal treatment system to LKAB’s dam system for separation of particulate matter. More than 75% of the process water is pumped back to the processing plants
through recirculation systems. The rest is discharged into lakes and rivers, which are recipients of surplus water.
The main pollutant that affects water quality is nitro-gen, which comes from the explosives used in the mines. A study is being conducted in Kiruna aimed at minimizing nitrogen discharges to water by more effi cient use of ex-plosives. The results of the investigation have been sub-mitted to the Environmental Court. The report presents the measures adopted in the project, proposals for addi-tional measures, and current discharges of nitrogen.
Waste rock dumping can also give rise to discharges to water. Weathering processes start after the waste is dump-ed. If the rock contains sulfi des, an acidic, metalliferous leachate is formed. Waste rock from LKAB’s mines has a relatively low sulfi de content and contains a surplus of neutralizing substances that counteract acidifi cation.
DAM SAFETY
LKAB has an extensive dam-safety program. LKAB devo-tes great efforts to dam safety. All of the company’s dams in Kiruna, Malmberget and Svappavaara are designed with the aid of independent experts in accordance with RIDAS (the Power Industry’s Guidelines for Power Dam Safety).
The dams are inspected every year, and regular checks are made by LKAB personnel. At all locations, control cen-ters are manned round-the-clock, and there are automatic alarms and daily inspections.
In the summer, after approval by the Environmental Court, preventive safety measures were implemented in Svappavaara. A review of the dam system in Malmberget has been carried out during and an application was sub-mitted to the Environmental Court regarding measures to enhance safety in increase deposition capacity.
In Svappavaara, pilot tests for depositioning higher proportions of solid matter have been carried out. Rais-ing the height of the tailings impoundment dams may be delayed or avoided if this technique is successful. Dam safety has improved as a result of greater geotechnical stability due to the low water content of the tailings sand impoundment.
An extensive review of future deposition has been con-cluded during the year. The main principle for deposition should be to raise the height of dams, instead of using more land.
Water quality in the lakes around the mines is monitored continuously. Rune Skarpvärd with a sample.
36
DEFORMATION AND ALTERATION OF THE LAND-
SCAPE IN THE OREFIELDS
The major visible effects of mining are open-pit mines, deformation zones, waste rock heaps, and pond systems for mine and process water.
Another visible impact of the Mining Division’s ope-rations in Malmberget is Kaptensgropen, the “Captain’s Pit”, a 20-hectare area in the middle of the community. In keeping with the remediation plan, the pit is now being backfi lled, which will stabilize the area.
LKAB has surveyed new ore deposits in the southernpart of Malmberget. The ore is a continuation of the so-called Fabian orebody and extends under residentialbuildings in Elevhemsområdet.
At the close of 2005, an application for a mining conces-sion was submitted, with the provision that the ground surface will not be affected. If and when a risk for impact to the ground surface is foreseen, LKAB will apply for a change in the terms of the concession.
In Kiruna, the southern portion of Luossajärvi Lake has been drained to permit mining of the Lake Ore – the por-tion of the orebody that extends in under the lake. Mining began in 2003. The dry lake bottom has been sown with seed to counteract dust formation, and trees and plants have been planted. Remediation costs for the area have totaled MSEK 15.
In Kiruna, investigations are being conducted to ascer-tain the extent of the orebody towards the north. Since 2004, two new investigation permits have enabled further test drilling. These deep-drilling campaigns are expected to provide a better picture of the extent of the orebody.
In Kiruna, the consequences of mining for the surroun-ding community, in the form of deformation, are now be-coming apparent. During autumn 2005, a new temporary bicycle and pedestrian path to LKAB’s industrial site was built, since the old pathway was within the deformation zone.
In early-2006, the road to LKAB’s industrial site will also be rerouted around the drained section of Luossajärvi Lake. The old road will be closed and a bicycle and pede-strian path will be built along the new road.
Underground infrastructure will also be altered. Today, water from Luossajärvi Lake is led via a culvert to Ala Lombolo Lake. Since it will no longer be possible to use this culvert, new alternatives for discharging Luossajärvi Lake are being studied.
As a consequence of the ground deformation resulting from mining operations, obligations (both formal and in-formal) with respect to structural transitions in Kiruna may arise, which may entail considerable costs for the compa-ny. For LKAB, the economic consequences are estimated to be in the order of 2.5 billion kronor. Some of these costs are attributable to LKAB’s own residential properties.
SITE REMEDIATION
Site remediation is a statutory obligation where conside-ration must be given to safety, environmental and esthe-tic aspects. LKAB cooperates with the environmental aut-horities in devising long-range remediation plans for the mining sites.
LKAB may have to provide fi nancial guarantees to co-ver possible remediation costs and other measures to remedy the effects of operations for which permits are granted. Following the most recent ruling of the Environ-mental Court with respect to increased concentrating and pelletizing capacity in Kiruna, a bank guarantee has been pledged to the supervisory authority (the County Admi-nistrative Board of Norrbotten).
Some examples of initiated measures are backfi lling of open pits, planned disposition of waste rock, grass so-wing and tree planting. The total cost for remediation of the mining sites cannot be accurately determined until complete and approved plans exist.
In Luleå, demolition work preparatory to site remedia-tion of the former ore harbor site has been completed. Here, two contaminated areas will be remediated in 2006.
Survey of contaminated areas in all operating locations has commenced. This so-called MIFO inventory will be re-ported to the supervisory authority during 2006.
During 2004, LKAB began remediation of a former de-position site for oil-contaminated soil. The soil is mixed with specially cultured bacteria. Decontamination conti-nued through 2005 and treatment of sections of the depo-sition area has been completed. The remaining sections will be treated during 2006.
Surveying, decontamination and remediation of areas in all operating locations is done on an ongoing basis.
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Mining operations have an impact on the landscape. Excavation for the new pelletizing plant in Kiruna.
37S U S T A I N A B I L I T Y
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In Malmberget, Kaptensgropen (the Captains Pit), has a visible impact on the community. To stabilize the area, the pit is being backfi lled.
RESOURCE CONSUMPTION, PRODUCTION AND EMISSIONS
2005 2004 2003 2002 2001 2000 1999 1998 1997 1996
Input materials
Crude ore (Mt) 37.3 35.9 34.7 31.5 33.0 33.4 30.6 33.4 32.9 32.9
Explosives (kt) 15.2 13.7 13.1 12.3 12.8 13.2 13.1 12.3 14.0 13.7
Additives1) (kt) 613 632 568 536 549 572 508 590 590 568
Energy2) (GWh) 3 069 2 930 2 919 2 741 2 676 2 854 2 669 3 053 2 659 2 727
Products and residual products, etc.
Pellets (Mt) 16.5 16.0 15.3 14.1 13.8 14.9 13.0 15.1 15.4 15.1
Fines (Mt) 6.8 6.2 6.2 6.2 5.7 5.7 5.9 5.9 6.5 6.3
Residual products:
Waste rock (Mt) 10.7 10.8 10.0 9.6 10.2 10.1 11.6 12.8 11.5 10.9
Tailings (Mt) 3.4 3.8 3.7 3.6 3.3 3.5 3.5 3.9 3.4 3.1
Recovered excess heat (GWh) 163 139 191 159 143 122 66 93 115 109
Atmospheric emissions
Particulates (tonnes) 2 450 1 360 1 565 1 760 1 575 2 000 1 355 1 850 1 490 1 500
SO (tonnes) 1 695 1 540 1 540 1 385 1 495 1 760 1685 1 695 1 900 1 775
HF (tonnes) 190 179 148 127 171 191 183 215 220 200
HCl (tonnes) 385 389 347 330 307 315 330 350 385 385
NOx (tonnes) 2 920 3 050 2 765 2 620 2 585 2 460 2 640 3 550 3 200 3 380
CO2 (kilotonnes) 4504) 433 479 434 401 438 337 381 383 388
Discharges to water
Nitrogen (tonnes) 468 379 237 211 283 315 273 250 200 190
Total phosphorus (kg) 644 478 366 364 641 691 398 500 300 295
Trace metals3) (kg) 378 303 171 187 265 315 177 174 205 194
1) Olivine, dolomite, bentonite, lime and quartzite. 2) Electricity, oil and coal. 3) Cr, Cd, Cu, Ni, Pb, Zn and As.4) Preliminary fi gure
38
LKAB’s major competitors mine their ore in open pits. They therefore face considerably lower production costs. For LKAB, consistently high quality and cost effi ciency are critical factors for remaining competitive.
The great advantage compared to competitors is our high-quality magnetite ore. Potential threats are seen in a possible collapse in China’s economic growth, a weak dol-lar, falling pellet prices, new environmental and energy legislation, and the availability of emissions rights.
The Minerals Division’s most important strengths are its broad product portfolio and widespread geographic distribution. The most apparent potential threats are a major economic downturn, higher freight rates and poo-rer exchange rates.
OPERATING RISKS
Volume dependence
Since pellets are largely used for the purpose of raising productivity during expansionary periods and can be re-placed by cheaper lump ore during recessionary periods, LKAB with a pellet share of 65-70% is particularly sensi-tive to business cycle fl uctuations.
In recent years, LKAB has been able to sell all of its pro-ducts, but the company must improve its preparedness for future cyclical fl uctuations. This is realized through greater fl exibility in production and fi nancial strength.
LKAB has a high proportion of fi xed costs; therefore, high capacity utilization is decisive for profi tability. An in-
Risks and risk managementDemand for LKAB’s iron ore products is determined largely by busi-
ness cycles on the global market for steel and iron. Most of LKAB’s
iron ore and industrial mineral products are sold on the European
market.
crease in capacity utilization by one percentage point leads to an earnings improvement in the order of MSEK 120.
Price dependence
Iron ore trading is conducted in US dollars and the pri-ce is set once a year in direct negotiations. Normally, an agreement between one of the major mining companies and the Japanese or European steel industry sets a global benchmark. A premium is paid for pellets compared with fi nes, and the price of DR pellets is generally higher than that of blast furnace pellets.
Ocean freight costs have a great infl uence on the to-tal price picture, since world market prices are compared with the freight cost included. LKAB is favored on the Eu-ropean market by high freight rates, while the competi-tiveness of more distant mines increases when ocean freight rates are low. Many sales include delivery to the customer’s premises, which entails a cost risk, since no extra charge can subsequently be added to compensate for higher freight costs.
Customer dependence
The global iron ore and steel market is subject to ongoing structural changes, and the number of players has dimi-nished. The Mining Division therefore has relatively few customers, which means that the importance of each in-dividual customer has increased.
Long-term customer relationships and a customer structure spread out among various markets have a cer-tain stabilizing effect. High and consistent product quality in combination with value-adding services is an important risk-mitigating factor.
In order to minimize the risk of bad debt losses, the Group is working actively with the payment systems allo-wed by the banking systems. The Group is judged to have an effective credit monitoring function.
With its diversifi ed customer base, the Minerals Divi-sion is able to spread its risks more effectively. To a de-gree, this helps to counteract the effects of fl uctuations in business cycles, since different customer segments are subject to different trends. However, the company is still affected by changes in general economic cycles.
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SENSITIVITY ANALYSIS (PARENT COMPANY)
Factor Exposure Change Effect on 2005 earnings
Deliveries 23.2 Mt 1 Mt 340 MSEK 1)Price 1% 130 MSEK 1)Personnel costs 1 949 MSEK 10% 195 MSEKEnergy costs 746 MSEK 10% 75 MSEKTransport costs 894 MSEK 10% 90 MSEKDepreciation 791 MSEK 10% 79 MSEKDollar rate– without hedging 1 506 MUSD 2) 10 öre 151 MSEKInterest level 5 750 MSEK 1% 58 MSEK
1) Average value, fi gured on unchanged product mix.2) The total exposure in 2005 was MUSD 1 506, of which MUSD 1 266 was hedged.
39
FINANCIAL RISKS
LKAB is exposed to various types of fi nancial risks. Finan-cial risks are associated with fl uctuations in the company’s earnings and cash fl ow as a result of currency exchange-rate fl uctuations, interest rates, refi nancing and credit risks.
Financial risks are managed according to Group poli-cies established by the Board. LKAB has a centralized fi -nance function, LKAB Treasury Center, which manages most of the Group’s fi nancial risks. A selective strategy is applied, whereby potential costs and benefi ts are ba-lanced, the aim being to minimize and neutralize risks in commercial fl ows.
LKAB Treasury Center also acts as the Group’s internal bank and supports subsidiaries with fi nancing, invest-ment and currency trading, and functions as an advisor with respect to fi nancial issues.
Currency risks
Both LKAB’s future payment fl ows (transaction exposure) and revaluation of receivables and liabilities in foreign currencies (revaluation exposure) are exposed to risks as-sociated with fl uctuations in exchange rates. Other com-panies in the Group mainly conduct business in their local currencies, and both investment and fi nancing are done mainly in local currencies so as to minimize translation exposure.
Transaction exposure
The greatest transaction exposure within the LKAB Group is within the Mining Division.
All prices of iron ore are set in US dollars, which means that the transaction risk is high without hedging. The ex-act magnitude of this risk is diffi cult to ascertain far in ad-vance, since it is largely dependent on the market price of iron ore, which is normally set annually. During 2005, the transaction exposure amounted to MUSD 1 500, and the effect of a difference of SEK 0.1 in the USD/SEK exchange rate on LKAB’s operating profi t, without hedging, is there-fore MSEK 150 (Note 30).
The goal of LKAB’s current currency policy is to minimi-ze the impact of exchange rate fl uctuations on the income statement by means of selective risk-taking, so the value of future transaction exposure is periodically hedged.
The Board has set up a currency committee that conve-nes whenever necessary to advise the Board on hedging of the Mining Division’s commercial fl ows. For other compa-nies in the Group, transaction exposure arises mainly when raw materials are purchased in foreign currencies. All hed-ging of commercial transactions by subsidiaries must be done through the LKAB Treasury Center (Note 30).
Translation exposure
LKAB does not normally hedge its translation exposure. Over time, this is not considered to add any value for the
Group, even though the level of exposure has increased in recent years due to the expansion of the Minerals Divi-sion. (Note 30)
Interest rate risk
LKAB’s fi nancing sources are shareholders’ equity, provi-sions and short-term operating credits, which means that LKAB is mainly exposed to interest rate risks with regard to investments of liquid assets. According to LKAB’s in-vestment policy, the average duration of money-market investments may not exceed three years.
At maximum duration, a change of one percentage point in the market rate of interest affects LKAB’s earnings by about MSEK 80-120, depending on composition of the instruments in the portfolio.
As of 31 December 2005, LKAB’s investments in mo-ney-market instruments amounted to MSEK 5 947 (3 917). The duration was 356 (386) days. A one-percent increase in the market rate as of closing day would have affected income negatively by MSEK 54 (42).
Credit risk
LKAB’s credit risks are mainly associated with trade ac-counts receivable and short-term investments. As far as credit risks in trade accounts receivable are concerned, LKAB prioritizes long-term customer relations, which me-ans that the majority of the customers are well-establis-hed contacts. Export letters of credit are used when de-emed necessary. LKAB has not had any bad debt losses in the past fi ve years.
According to LKAB’s investment policy, investments may only be made in borrowers with high creditworthi-ness and high liquidity such as the Swedish state, com-panies wholly owned by the Swedish state, county coun-cils, municipalities or companies with the highest credit rating.
As of closing day, 96% (96%) of investments in money-market instruments were issued by the Swedish state and Swedish banks. LKAB has not had any bad debt losses in short-term investments in the past fi ve years. LKAB does not have any substantial concentration of credit risks in any single customer or counterparty.
Liquidity risks
LKAB maintains good fi nancial preparedness by following guidelines which regulate risk-taking and the investment horizon. LKAB has a high proportion of liquid assets and a low debt/equity ratio. A good balance between short and long investment horizons will meet the long-range fi -nancing need. Liquid assets are invested primarily on the Swedish money market in securities with high liquidity.
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Group overview
* according to IFRS, provisions are divided into long-term and short-term liabilitie
Defi nitions
Operating margin: Operating income as a percentage of net sales Profi t margin: Income after fi nancial items as a percentage of net sales for the yearReturn on total capital: Income after fi nancial items + fi nancial expenses as apercentage of average total assetsReturn on equity: Income after fi nancial items less tax as a percentage of averageshareholders’ equity
CONSOLIDATED STATEMENTS OF INCOME (MSEK) 2005 2004 2003 2002 2001 2000 1999 1998
Net sales 14 337 8 988 7 466 5 186 4 870 4 882 3 985 5 129Cost of goods sold -7 535 -6 180 -5 959 -4 515 -4 383 -4 150 -3 891 -4 023Gross income 6 802 2 808 1 507 671 487 732 94 1 106
Selling expenses -174 -289 -285 -135 -86 -80 -63 -67Administrative expenses -349 -353 -247 -192 -246 -218 -255 -276R&D expenses -159 -235 -116 -101 -116 -93 -118 -148Other operating revenues/expenses -11 10 64 50 28 132 -106 32Operating income/loss 6 109 1 941 923 293 67 473 -448 647
Financial items 550 227 181 191 125 198 246 369Financial expense -208 -145 -129 -88 -130 -80 -42 -56Income/loss after net fi nancial items 6 451 2 023 975 396 62 591 -244 960
Tax -1 904 -456 -286 -96 -15 -179 11 -281Net income for the year 4 547 1 567 689 300 47 412 -233 679
Attributable to: Parent Company shareholders 4 546 1 568 690 305 54 421 239 686Minority share 1 -1 -1 -5 -7 -9 -6 -7Includes depreciation according to plan 952 1 079 1 049 994 954 920 838 776
CONSOLIDATED BALANCE SHEETS (MSEK)
Intangible assets 477 211 182 22 8 8 10 11Tangible assets 7 928 6 316 6 476 6 583 7 056 6 970 6 962 6 821Financial assets 1 393 219 245 322 261 328 198 176Total fi xed assets 9 798 6 746 6 903 6 927 7 325 7 306 7 170 7 008
Inventories 1 423 1 006 976 870 870 707 675 585Accounts receivable 1 846 1 194 1 198 724 711 635 504 529Liquid assets 7 091 4 516 2 944 3 045 2 780 3 060 3 101 3 602Other receivables 416 195 316 117 245 317 200 481Total current assets 10 776 6 911 5 434 4 756 4 606 4 719 4 480 5 197
Total assets 20 574 13 657 12 337 11 683 11 931 12 025 11 650 12 205
Shareholders’ equity 14 802 10 044 9 004 8 673 8 609 8 789 8 412 8 882Minority interest 4 3 4 3 46 41 34 154Provisions* 2 209 2 154 2 160 2 096 2 278 2 210Long-term liabilities 3 598 2 230 2 2 41 66 96 5Current liabilities 2 170 1 380 1 118 851 1 075 1 033 830 954Total shareholders’ equity and liabilities 20 574 13 657 12 337 11 683 11 931 12 025 11 650 12 205
CONSOLIDATED STATEMENTS OF CASH FLOW (MSEK)
Cash fl ow before change in working capital 6 073 2 776 1 782 1 356 978 1 340 554 1 412Change in working capital -553 79 -556 -172 -19 -51 307 215Cash fl ow from operating activities 5 520 2 855 1 226 1 184 959 1 289 861 1 627
Investments in existing operations -2 525 -973 -592 -532 -1 050 -952 -1 004 -1 212Operating cash fl ow 2 920 1 882 634 652 -91 337 -143 415
Acquisition of operation/minority -75 -29 -384 -41 -124 Short-term investments -1 846 -1 748 Cash fl ow after investments 1 074 105 250 611 -91 337 -267 415
Dividends -520 -281 -351 -254 -233 -233 -233 -299Other from fi nancing activities -92 44 -145 -1 -12Cash fl ow for the year 554 -176 -101 265 -280 -41 -501 104
GROUP KEY RATIOS
Net sales MSEK 14 337 8 988 7 466 5 186 4 870 4 882 3 985 5 129Growth in net sales % 59.5 20.4 44.0 6.5 -0.2 22.5 -22.3 0.7Operating margin % 42.6 21.6 12.4 5.6 1.4 9.7 -11.2 12.6Profi t margin % 45.0 22.5 13.1 7.6 1.3 12.1 -6.1 18.7Return on total capital % 38.9 16.7 9.2 4.1 1.6 5.7 -1.7 8.5Return on equity % 36.6 16.5 7.8 3.5 0.5 4.8 -2.7 7.7
Equity/assets ratio, % % 72.0 73.6 73.0 74.3 72.5 73.4 72.5 74.0Average number of employees 3 563 3 482 3 433 3 078 3 172 3 210 3 279 3 568
41
Report of the Directors
R e p o R t o f t h e d i R e c t o R s
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The Board of Directors and the President and CEO of Luossavaara-Kiirunavaara AB (LKAB), (Corp. ID No. 556001-5835) hereby submit their Annual Report and consolidated financial statements covering operations in 2005.
owneR stRuctuRe
LKAB is wholly owned by the Swedish state. The company conducts business as a limited company and its registered office is in Luleå, Sweden.
GRoup
The consolidated financial statements cover the operations in 2005 of the Parent Company and its subsidiaries, together referred to as the Group. The Group also has ownership interests in joint ventu-re companies.
The LKAB Group includes the Mining Division (iron ore operations and the Parent Company), the Minerals Division and Special Busi-nesses.
MininG division
General
The Mining Division mines and processes iron ore for products for steelmaking. The Mining Division’s process chain stretches all the way from the iron ore reserve to the customers. It starts with the production of crude ore in underground mines and upgrading of iron ore in processing plants at surface level, and continues with rail transport of finished products to shipping harbors and loading to vessels for delivery to the customers. Operations are conducted in Luleå, Malmberget, Svappavaara, Kiruna and Narvik.
Pellets are the Mining Division’s main product and account for more than 77% of ore sales. Pellets are produced by mixing fine-ly ground iron ore with various binders and additives, and then sha-ping the mixture into centimeter-sized balls, which are sintered at a temperature of 1 250°C. LKAB’s magnetite-based pellets have high iron content and are less energy demanding than competing pellet products.
objectives
LKAB is exposed to tough competition from considerably larger iron ore producers who enjoy the cost advantages associated with open-pit mining. LKAB’s goal is to cope with competition and ensure the company’s long-term survival by constantly improving cost-effective-ness, raising the quality and knowledge content of the products, and maintaining resource-efficient growth. Therefore, efforts are direc-ted towards improving maintenance efficiency, including preventive maintenance. The aim is to stabilize production at a higher and more consistent level. The work of assuring quality in the company’s pro-cesses has high priority, and here, too, the keyword is stability. Con-sistent quality, the right quality and delivery assurance are the most important success factors for the division’s customer relations. Work also focuses on establishing best practice and making production more flexible to enable maximum capacity utilization.
the steel and iron ore market
During 2005, the global demand for iron ore remained strong, pres-sing iron ore exporters to increase production to the limits of capa-city. According to preliminary statistics from the International Iron and Steel Institute (IISI), world production of crude steel increased in 2005 by 6% to reach a new record level, for the sixth consecutive year, of more than 1.1 billion tonnes. Asia and Africa accounted for
most of the growth. The strongest growth was seen in China, where crude steel production reached 350 (280) Mt, an increase of 25%.
As a result of the shortage of iron ore at the close of 2004, the world market prices of Brazilian and Australian iron ore were in-creased by 71.5%. On the basis of benchmark market prices, LKAB reached an initial agreement in March for price hikes of more than 70% on fines and nearly 85% blast furnace pellets. Despite the shift in production from Northern to Southwestern Europe, LKAB’s deli-veries of blast furnace pellets to contract customers in Northwes-tern Europe remained unchanged, indicating increased market sha-res in the near-lying market area. Other contributing factors were the strong demand for iron ore in Asia, high sea freight rates and the shortage of iron ore on the world market. LKAB’s deliveries of pellets to contract customers in the Middle East and North Africa increased considerably, while deliveries to the Far East ceased.
production results 2005
In 2005, the focus has been on improving capacity, speed and avai-lability in the production facilities in order to increase the volume of mining and processing while maintaining high quality. Mining of iron ore during 2005 amounted to 36.6 (35.2) Mt of crude ore. The volu-me of upgraded products amounted to 23.3 (22.3) Mt, of which pel-lets accounted for 16.5 (15.9) Mt. Deliveries to customers totaled 23.2 (22.8) Mt. Through continuous improvement, greater efficien-cy and the elimination of bottlenecks, production in existing facilities has increased in the past four years from 20 to 23 Mt/yr, or 15%.
capital expenditures
Global steel consumption and steel production have increased dra-matically in recent years and demand is expected to remain strong. Several of LKAB’s pellet customers have planned, or are deciding to invest in, increased production capacity.
Investments in increased production and greater logistical effi-ciency will raise LKAB’s production capacity for iron ore products from a current 23 million tonnes to 25 Mt by 2007 and to 30 Mt by 2008. In order to achieve these capacity increases, the Board deci-ded in December 2005 to invest MSEK 6 400 in a new pelletizing plant, a concentrating plant and a new rail terminal in Kiruna. The new plants will initially produce 5 Mt pellets per year. The new pel-letizing plant in Kiruna (KK4) will be operational in 2008. At he same time, a decision has been taken to begin preliminary work for new main level in Kiruna, at the 1 365-m level.
The ore harbor in Narvik is a strategically important link in LKAB’s process chain, since most of the products (about 2/3) are shipped from here. The Board voted in November 2005 to spend MSEK 970 to refurbish the ore harbor. The upgrade will significantly improve ef-ficiency as well as the environment. Ore products will be stored in silos, and the entire harbor structure will be adapted to handle larger ore trains and greater volumes of iron ore products. The new harbor is expected to be fully operational in 2009.
Construction of a new pelletizing plant in Malmberget (MK3) is now in progress, and the plant is expected to be operational in the autumn of 2006.
Of the year’s investments in fixed assets amounting to MSEK 2 314 (614), MSEK 1 300 refers to the new pelletizing plant in Malmberget. MSEK 188 has been invested in new locomotives and ore cars. Other investments in capacity increases amount to more than MSEK 300.
Research and development (R&d)
Annually, LKAB invests about MSEK 150 in research, and the com-
42 R E P O R T O F T H E D I R E C T O R S
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pany has intensifi ed collaboration with Luleå University of Technolo-gy (LTU), through among other initiatives, the Hjalmar Lundbohm Re-search Centre.
Research and development in pelletizing will help LKAB to main-tain its leading position concerning product quality. Therefore, the groundwork is being laid for an agglomeration center (pelletizing center) linked to an experimental pelletizing plant. Today, LKAB’s experimental blast furnace (EBF) is now a valuable asset, and an ex-perimental pelletizing plant will help to optimize the total process: concentrate-pellets-blast furnace.
The overall objective of research activities is to secure the compe-titiveness of LKAB’s product portfolio. During the year, work on im-proving the process effi ciency of production facilities has continued to be a priority area. Ultimately, this will contribute to maximizing LKAB’s total production capacity and improving product quality.
LKAB is involved in the ULCOS research project (Ultra Low CO2 Steelmaking), an initiative of the International Iron & Steel Institute (IISI) to investigate the possibilities for reducing steel-industry car-bon dioxide emissions. LKAB has contributed the use of the EBF for studies of how CO2 emissions from blast furnaces can be reduced.
LKAB is involved in two of the sub-projects projects: The New Blast Furnace and New Natural Gas Based Steelmaking. The fi rst project involves two campaigns in the experimental blast furnace (EBF), which is being rebuilt as an oxygen blast furnace with CO2 ex-traction. In the second project, two EBF campaigns have been car-ried out with pre-reduced burden material. The results show that there is potential for reducing coke consumption in the blast furn-ace by about 50%.
Operating income
Net sales for Mining (Parent Company) amounted to MSEK 12 349 (7 560). Operating income amounted to MSEK 5 720 (1 669). The improvement is mainly attributable to price increases and greater delivery volumes. Income after fi nancial items reached MSEK 6 049 (1 869).
MINERALS DIVISION
General
The Minerals Division, which operates under the name Minelco on the global market, develops, produces and markets industrial min-eral products. Minelco supplies industrial minerals to customers in many different industries and for many different applications. Among the most important are building construction, the oil and gas indu-stry, the rubber, plastics and paint industries, the chemical industry, the automotive industry, foundries and manufacturers of refractory materials. Operations are managed from Sweden, with representa-tion in Europe, the USA and Asia. Operations are therefore global. The division has about 400 employees, most of them outside Sweden. There are subsidiaries with processing plants in Finland, the UK, the Netherlands, Greece, Turkey and China. The company has sales companies in Germany, the USA and Hong Kong, as well as representative offi ces in the Czech Republic and Thailand.
The division focuses on selected minerals, with control of the en-tire process chain from source to end user. Direct sale to end users and an extensive knowledge of mining, production, processes, appli-cations and markets enable the company to adapt products to meet specifi c customer needs, thereby ensuring maximum value for custo-mers. This, in combination with the organization’s expertise and ser-vice, will contribute to improved profi tability for the customers.
In many application areas for minerals, Minelco has achieved a leading position. This position is based on a high degree of expertise in mineral technology, production, applications and markets, as well as the ability to develop materials and processes in close collaboration
with customers. Most of the division’s production facilities are now quality-certifi ed. In Sweden, work on verifi cation of the quality ma-nagement system was concluded in 2005, when quality certifi cation according to ISO 9001:2000 was achieved.
Objectives
The Minerals Division’s objectives are based on the company’s posi-tion in strategic business areas, a broad geographic presence and an effective network of production facilities and logistics systems. The target for organic growth is an average at least 10% per year. Be-sides the ambition to grow in strategic areas, the division has also identifi ed a number of special priority areas. One of these is to conti-nue to improve capital effi ciency.
Market and production
Sales volumes increased within several business segments and within all market areas. At the same time, high freight rates had a ne-gative impact on earnings. The world market for industrial magnetite is estimated at slightly more than 2 Mt per year. With sales of 1 Mt, Minelco is a market leader.
Currently, the company is experiencing very high demand from customers who use magnetite products in the manufacture of hea-vy concrete. Compared to the previous year, the volume of sales of magnetite remained unchanged. In total, approximately 1 Mt of mag-netite was delivered, mainly for use in construction projects, sponge iron for powder metallurgy, water treatment chemicals and coal washing. The global expansion is evident. Growth in China contribu-ted to a doubling in sales of industrial minerals in Asia, which now ac-counts for 30% of Minelco’s sales.
Minelco’s product portfolio includes more than 30 different indu-strial minerals. Priority minerals include magnetite, bentonite, oliv-ine, mica and minerals with fl ame retardant properties (UltraCarb). For the selected minerals, the strategy is to control the process from deposit to customer. For bentonite, exclusive access to a raw-mat-erial source has not yet been secured.
Capital expenditures
During 2005, the Seqi olivine reserve in Greenland was acquired. The acquisition will enable Minelco to advance its position on the olivine market, a market that absorbs approximately 4 Mt per year. Minelco will handle about 1 Mt of olivine annually, and the results of geophysi-cal surveys and diamond drilling campaigns indicate that the reserve will satisfy demand for olivine for many years to come.
Construction of production facilities began during the summer, and in December, the fi rst shipments were delivered to European steel customers and to LKAB for use in pellet production. The mine, which will operate year-round, has been equipped for a capacity of about 1.7 Mt per year. Full-scale production will be possible during the latter half of 2006.
Minerals research and product development are application-orien-ted and are conducted in close cooperation with customers. In ad-dition to the LKAB Group’s research organization, the resources of the Minerals Division’s UK subsidiary are available. Minerals also collaborates with universities and research institutes in Europe and the USA.
Operating income
Net sales increased to MSEK 2 159 (1 598). Operating income amounted to MSEK 148 (122). The improvement is largely attribut-able to increased market shares and greater sales volumes.
SPECIAL BUSINESSES DIVISION
LKAB has organized most of its subsidiaries under the Special Businesses Division. These companies are today mainly subcontrac-
43R E P O R T O F T H E D I R E C T O R S
L K A B A N N U A L R E P O R T 2 0 0 5
tors to the Mining Division and the Minerals Division, but also sup-port the Group by contributing towards effi ciency improvement and technical development.
The companies in Special Businesses have their origin in LKAB’s know-how as a manufacturer and user of products or services. Was-sara AB develops drilling systems. AB Kiruna Grus- och Stenförädling (KGS) works with rock, concrete, explosives manufacture and engi-neering services. Fastighets AB Malmfälten (FAB) manages proper-ties in locations where LKAB operates.
Explosives manufacturer Kimit AB has been part of KGS since the close of 2004. Malmtrafi k AB manages rail transports from the mines to the harbors.
LKAB Nät AB is an electricity network company with a concession as an electricity distributor. The Group’s intra-group insurance com-pany is LKAB Försäkring AB. The company works globally to provide the LKAB Group with property and risk insurance.
The subsidiaries are wholly owned by LKAB, with the exception of Wassara AB, in which LKAB has a 60% interest.
Operating income
Net sales increased to MSEK 1 091 (951). Operating income amoun-ted to MSEK 100 (94). The improvement is mainly attributable to the increased volume of services delivered to the Mining Division.
GROUP
Sales and income
The Group’s net sales increased to MSEK 14 337 (8 988), which is mainly attributable to an increase in the price of iron ore for the year of more than 80 (25)%. As a direct result of price increases, operating income increased to MSEK 6 109 (1 941). In addition to the price increase, a higher delivery volume contributed to the im-provement in income. The Group’s net fi nancial income amounted to MSEK 342 (82). Capital gains of MSEK 89 realized on the sale of shares in SSAB are included. Return on market portfolios amounted during the year to MSEK 212 (24), of which unrealized appreciation amounts to MSEK 101 (-).
Capital expenditures
Of the year’s investments in fi xed assets amounting to MSEK 2 648 (965), MSEK 2 314 (614) refers to Parent Company expenditures.
Risks
Risks can be divided into three main categories: operating risks, fi nancial risks and other risks. Operating risks consist mainly of vol-ume dependency, price dependency and customer dependency. The fi nancial risks can be divided into currency risk, transaction expos-ure, translation exposure, interest risk, credit risk and liquidity risk (see Note 30). Among other signifi cant risks may be mentioned risks associated with environmental requirements, e.g., increased charges and taxes for energy and access to carbon-dioxide emissions rights.
LKAB’s major competitors mine their ore in open pits. They there-fore face considerably lower production costs and realize higher pro-ductivity in the mining process. For LKAB, cost effi ciency is crucial for remaining competitive. Operating costs are dependent on vol-ume, degree of upgrading and infl ation. Other operating costs follow price trends on the markets in which the Group operates.
Some of the operating risk is implicit in the nature of the business conducted; see the section below on Structural changes in the Ore-fi elds, and Note 33.
Environmental information
LKAB’s work will be characterized by concern for the environ-ment. For this reason, LKAB has adopted an Environmental and
Energy Policy that will guide LKAB’s actions while acknowledging the company’s objective to maintain a fi nancially sound and success-ful business operation.
In the Parent Company and the subsidiary Kimit, the Group con-ducts operations that are subject to regulations embodied in the Environmental Code. The biggest environmental impact factors are alteration of the landscape due to mining; emissions to air and discharges to water arising from production; noise, dust and vibra-tion, and energy consumption. Two environmental permits refer to handling of iron ore products and binders at the harbor facilities. The impact of these operations on the external environment is mainly a result of emissions of particulate matter and dust. Three environ-mental permits refer to large-scale mining and facilities for proces-sing iron ore products. Two environmental permits refer to mining of additives for ore processing. These operations impact the envi-ronment through alteration of the landscape, emissions to the air, discharges to the water, and noise.
Most of the Parent Company’s blue-collar employees are employ-ed in production, in the above-mentioned operations, that is sub-ject to environmental regulation. Two environmental permits refer to Kimit AB’s manufacture of explosives. The environmental impact of this activity is mainly the result of discharges of nitrogen compounds to the municipal sewage system. Site remediation, which can be done successively and/or after operations are concluded, is a statutory obli-gation where consideration must be given to safety, environmental, economic and esthetic aspects. LKAB cooperates with the environ-mental authorities in devising long-range remediation plans for the mining sites. The total cost for remediation of the mining sites cannot be accurately determined until complete and approved plans exist.
In 2003, the European Commission submitted a proposal for a mining waste directive, which has subsequently been reviewed by the European Parliament and Council of Ministers. The European Parliament and Council of Ministers reached an agreement on the directive proposal during a conciliation meeting in December 2005. The directive will be formally adopted in Feb.-March 2006, and mem-ber states will then have two years to transpose the directive into na-tional law. As a consequence of the new directive, LKAB may have to provide fi nancial guarantees for future remediation costs. Similar-ly, with respect to permit approval for dam systems, application of the current Environmental Code may also require posting of fi nancial guarantees for future site remediation. Following the Environ-mental Court’s ruling of November 2005, in accordance with the Environmental Code, with respect to ore processing in Kiruna, a guarantee amounting to MSEK 63 has been pledged in 2006 to the County Administrative Board of Norrbotten.
The EU’s solution for reducing greenhouse gas emissions (GHG) is based upon, among other measures, a system of trade in carbon-dioxide emissions rights. In the current system, which includes only EU member states, LKAB is the only pellet supplier that is active on the global market. The system also implies direct and indirect costs for the company. Ideally, the system of trade in emissions rights should become a global-market based system for reducing atmospheric emissions. At this level, such a system would increase competitive-ness among companies like LKAB that use energy and C02-effi cient technology, and consequently, emissions could be globally reduced. An assessment of carbon-dioxide emissions during 2005, which is the fi rst year of the EU’s three-year trial period, shows that actual emissions from the pellet plants and oil-fi red boiler plants exceed the allocated rights. Therefore, emissions rights have been acquired on the open market. The forecast for the entire trial period indicates a defi cit of 10%, which must be covered through the purchase of ad-ditional emissions rights.
LKAB appealed the allocation decision from 2004, but the appeal was rejected by the County Administrative Court of Stockholm in
44 R E P O R T O F T H E D I R E C T O R S
L K A B A N N U A L R E P O R T 2 0 0 5
December 2005. A request for review dispensation has been sub-mitted to the Administrative Court of Appeals.
Secured electricity deliveries
LKAB is one of Sweden’s largest electricity consumers and accounts for about 1% of the country’s electricity consumption. Assured deli-veries of competitively priced electricity are strategically very impor-tant. Via a long-term energy agreement reached with Vattenfall in 1998, LKAB secured power deliveries at a predetermined price. The third phase of the agreement, which expired in 2004, was renegoti-ated during 2005, whereby a 10-year agreement was reached. This also takes into consideration future power demands for the new pel-letizing plants to be built in Malmberget and Kiruna.Reward system
LKAB’s reward system was introduced at mid-year 2000. The Pre-sident and senior executives are not included. The system, which follows the owner’s guidelines for incentive schemes, is based on three factors: quality, work environment and production targets. The reward is maximized at SEK 30 000 per year and full-time employee. All three factors led to rewards in 2005. The outcome was 27 400 (2 500) kronor per full-time employee, which adds up to about MSEK 92 (10). An extra bonus of 10 000 kronor per full-time employee, totaling about MSEK 35, was paid out as a reward for the improve-ment in fi nancial results in 2004.
Foreign branch
LKAB currently has one foreign branch, in Narvik, Norge. The decisi-on has been taken to form a company for operations in Narvik. This is expected to be fi nalized by 2007.
Change in accounting principle
As of 1 January 2005, LKAB applies the EU-approved International Financial Reporting Standards (IFRS). Introduction of the new stan-dards has meant a change in accounting principles and has a con-siderable impact on the balance sheet for 2005. To achieve compara-bility regarding the Group’s performance and position, the compari-son year has been recalculated.
IAS 39 Financial Instruments: Recognition and Measurement will be applied from 1 January 2005. There is no requirement for conver-sion of fi nancial instruments for the comparative year. Valuation of fi nancial instruments at market (fair) value has entailed an effect of MSEK 1 212 as per 1 January 2005 and is reported directly against shareholders’ equity (see Note 39).
As from 1 January 2005, the Parent Company has adopted RR 32 Accounting for Legal Entities.
The Board of Directors during 2005
Up until the Annual General Meeting for 2005, the Board of Directors consisted of nine members elected by the Annual General Meeting, plus three members with three deputies appointed by the employ-ees. After the extraordinary meeting in September, the Boardhas consisted of eight AGM-elected members. At the Annual General Meeting, two board members, Hans Christer Olson and Carl Wilhelm Ros, stepped down from the Board. At an extraordinary meeting on 18 September, Anna-Greta Sjöberg was elected a mem-ber of the Board of Directors of LKAB.
The President is not a member of the Board.
The Board of Directors’ rules of procedure
Each year, the Board of Directors establishes its rules of procedure, essentially following the recommendation issued by the Ministry of Industry, Employment and Communications. The Board held seven ordinary meetings during fi nancial year 2005.
The meetings follow a set annual calendar aimed at satisfying the Board’s need for information and are otherwise governed by the spe-
cial rules of procedure followed by the Board. Normally, six meetings are held each year.
A board meeting held at the end of each quarter considers the in-terim fi nancial reports for the most recent quarter as well as the fore-cast for the coming four quarters. This allows the Board to make an ongoing assessment of strategies and delegations to the President and to decide on specifi c investment projects.
Normally the fi rst meeting of the year is at the year-end closing, when LKAB’s auditors also participate. The second is a strategy meeting with an emphasis on personnel issues. The third and fourth meetings also address issues pertaining to operations and strategy. The emphasis of the fi fth meeting is on the market situation. At the sixth and fi nal meeting, the strategic plan for the coming three to four years is revised.
Since 2004, the traditional annual budget has been replaced with a rolling business plan and 12-month forecast, updated after each quarter. The rolling business plan is then monitored with key ratios and is driven by activities of various kinds.
The work of the Board is evaluated once per year. A written sur-vey of the Board’s work, prepared annually, includes questions con-cerning how the Board collectively, and each member individually, has fulfi lled the tasks at hand. The evaluation report supports the work of the Board. The Chairman is responsible for following up the results, which form a basis for discussion and improvement. The work of the Chairman is normally assessed by the owner, but this may also be part of the work of the Board.
Dividend policy and proposed distribution of unappropriated
earnings
LKAB’s dividend policy entails that the dividend to the owner will, over the long term, amount to 30-50% of income after tax and be adapted to the average earnings level over a business cycle. The proposal for distribution of unappropriated earnings for the year is given on page 75.
Structural changes in the Orefields
LKAB’s expansion in the operating locations in the Orefi elds entails a successive expansion of deformation zones. Amendments to munici-pal plans are therefore inevitable in the long term. Together with oth-er concerned parties, government and local authorities, other com-panies and residents, LKAB is seeking to fi nd solutions. Discussions concerning the necessary measures and funding are in progress.
LKAB intends to assume its share of the costs. Therefore, as agre-ements are reached or where an informal obligation exists as a result of operations, LKAB is successively allocating funds for this purpo-se (see Note 28). As a consequence of the deformation zone resul-ting from mining operations thus far in Kiruna, considerable costs for LKAB will arise during the coming years. As soon as the necessary measures have been approved and the extent of commitments can be ascertained with reasonable certainty, an allocation for costing can be made, which will be duly noted in the annual strategy pro-cess (see Note 33).
During the year, LKAB has paid MSEK 60 to the Municipality of Gällivare for the acquisition of property for future mining in Malm-berget (see Note 13).
Anticipated future developmentLKAB foresees continued posi-tive trends for all of the Group’s lines of business, both in the co-ming year and in the long term. Growth is strong, mainly in Asia, and in countries with large populations, where infrastructural expan-sion, housing construction, etc., requires much steel. This means that LKAB is adapting to a new market situation.
For further information concerning the company’s fi nancial resultsand status, please see the following statements of income and balance sheets with accompanying comments.
45
Statement of Income - LKAB Group
1 January - 31 December
MSEK Note 2005 2004
1, 34
Revenue 2, 3 14 337 8 988
Cost of goods sold -7 535 -6 180
Gross profi t 6 802 2 808
Selling expenses -174 -289
Administrative expenses -349 -353
Research and development expenses -159 -235
Other operating income 4 248 207
Other operating expenses 5 -259 -197
Operating income 3, 6, 7, 8, 31 6 109 1 941
Financial income 550 227
Financial expenses -208 -145
Net fi nancial income/expense 9 342 82
Income before tax 6 451 2 023
Tax 11 -1 904 -456
Net income for the year 4 547 1 567
Attributable to:
Parent Company shareholders 4 546 1 568
Minority interest 1 -1
4 547 1 567
Earnings per share (kronor) 26 6 494 2 240
S T AT E M E N T O F I N C O M E – L K A B G R O U P
L K A B A N N U A L R E P O R T 2 0 0 5
NET SALES AND OPERATING INCOME COST STRUCTURE 2005
-1 000
1 000
3 000
5 000
7 000
9 000
11 000
13 000
15 000
0504030201009998
Net sales Operating income
MSEK
Group
46 B A L A N C E S H E E T – L K A B G R O U P
L K A B A N N U A L R E P O R T 2 0 0 5
As of 31 December 2005
MSEK Note 2005 2004
1, 34
Assets 16, 32
Intangible assets 12 477 211
Tangible assets 13,14 7 928 6 316
Participations in associated companies and joint ventures 15 4 33
Financial investments 19, 30 1 327 124
Long-term receivables 21 62 62
Total fi xed assets 9 798 6 746
Inventories, etc. 22 1 423 1 006
Income taxes recoverable 153 8
Receivables 23 1 846 1 194
Prepaid expenses and accrued revenues 24 69 83
Other receivables 21 194 104
Short-term investments 19, 30 4 049 2 028
Cash and bank balances 37 3 042 2 488
Total current assets 10 776 6 911
Total assets 20 574 13 657
Shareholders’ equity 25, 38, 39
Share capital 700 700
Other reserves 666 -11
Accumulated profi t or loss 13 436 9 355
Shareholders’ equity attributable to Parent Company shareholders 14 802 10 044
Minority interest 4 3
Total shareholders’ equity 14 806 10 047
Liabilities
Other long-term liabilities 2 2
Provisions for pensions 27, 28 1 690 1 504
Other provisions 28 303
Deferred tax liability 11 1 603 724
Total long-term liabilities 3 598 2 230
Accounts payable - trade 833 497
Income tax payable 77 168
Other liabilities 171 130
Accrued expenses and prepaid revenues 29 921 469
Provisions for pensions 27, 28 109 116
Other provisions 28 59
Total current liabilities 2 170 1 380
Total liabilities 5 768 3 610
Total shareholders’ equity and liabilities 20 574 13 657
For information concerning the Group’s assets pledged and contingent liabilities, see Note 33.
Balance Sheet - LKAB Group
47C O M P I L AT I O N S O F C H A N G E S I N S H A R E H O L D E R S ’ E Q U I T Y – L K A B G R O U P
L K A B A N N U A L R E P O R T 2 0 0 5
Shareholders’ equity attributable to Parent Company shareholders
MSEK Retained
earnings Total share-
Note Share incl. profi t Minority holders’
1 capital Reserves for the year Total interest equity
Opening balance 1 January 2004 700 8 304 9 004 4 9 008
Adjustment for change in accounting principle -240 -240 -240
Adjusted shareholders’ equity 1 Jan. 2004 700 8 064 8 764 4 8 768
Change in translation reserve for the year 25 -11 4 -7 -7
Net income recognized directly in
equity, excluding transactions with
the Company’s owners -11 4 -7 -7
Net income for the year 1 568 1 568 -1 1 567
Net income excluding transactions
with the Company’s owners -11 1 572 1 561 -1 1 560
Dividends -281 -281 -281
Shareholders’ equity 31 December 2004 700 -11 9 355 10 044 3 10 047
Shareholders’ equity attributable to Parent Company shareholders
MSEK Retained
earnings Total share-
Note Share incl. profi t Minority holders’
1 capital Reserves for the year Total interest equity
Opening balance 1 January 2005 700 -11 9 355 10 044 3 10 047
Adjustment for change in accounting principle 1 157 55 1 212 1 212
Adjusted shareholders’ equity 1 Jan. 2005 700 1 146 9 410 11 256 3 11 259
Change in translation reserve for the year 25 25 25 25
Change in fair value reserve for the year 25 355 355 355
Change in hedge reserve for the year 25 -860 -860 -860
Net income recognized directly in
equity, excluding transactions with
the Company’s owners -480 -480 -480
Net income for the year 4 546 4 546 1 4 547
Net income excluding transactions
with the Company’s owners -480 4 546 4 066 1 4 067
Dividends -520 -520 -520
Shareholders’ equity 31 December 2005 700 666 13 436 14 802 4 14 806
Compilations of changes in shareholders’ equity - LKAB Group
48
1 January - 31 December
MSEK Note 2005 2004
1, 37
Operating activities
Income after fi nancial items 6 451 2 010
Adjustments for items not included in cash fl ow, etc. 1 156 1 084
Income taxes paid -1 534 -318
Cash fl ow from operating activities before change in working capital 6 073 2 776
Cash fl ow from changes in working capital
Increase (-)/Decrease (+) in inventories -417 -32
Increase (-)/Decrease (+) in operating receivables -728 126
Increase (+)/Decrease (-) in operating liabilities 592 -15
Cash fl ow from operating activities 5 520 2 855
Investing activities
Acquisition of tangible assets -2 648 -965
Disposal of tangible assets 23 11
Acquisition of intangible assets -75 -22
Acquisition of shares in joint ventures -29
Disposal of fi nancial assets 100 3
Short-term investments -1 846 -1 748
Cash fl ow from investing activities -4 446 -2 750
Financing activities
Dividends paid to Parent Company shareholders -520 -281
Cash fl ow from fi nancing activities -520 -281
Cash fl ow for the year 554 -176
Liquid assets at start of period 2 488 2 664
Liquid assets at year-end 3 042 2 488
Statement of Cash Flow - LKAB Group (indirect method)
S T AT E M E N T O F C A S H F L O W – L K A B G R O U P ( I N D I R E C T M E T H O D )
L K A B A N N U A L R E P O R T 2 0 0 5
49S T AT E M E N T O F I N C O M E – PA R E N T C O M PA N Y
L K A B A N N U A L R E P O R T 2 0 0 5
1 January - 31 December
MSEK Note 2005 2004
1, 34
Revenue 2, 3 12 349 7 560
Cost of goods sold -6 158 -5 234
Gross profi t 6 191 2 326
Selling expenses -104 -214
Administrative expenses -249 -257
Research and development expenses -147 -220
Other operating income 4 210 162
Other operating expenses 5 -181 -128
Operating income 3, 6, 7, 8, 31 5 720 1 669
Financial items:
Income from participations in Group companies 17 55
Income from participations in associated companies -5 -1
Income from other securities and receivables held as fi xed assets 149 47
Other interest income and similar credits 305 182
Interest expense and similar charges -137 -83
Profi t after fi nacial items 9 6 049 1 869
Appropriations 10 -1 568 -173
Income before tax 4 481 1 696
Tax 11 -1 251 -460
Net income for the year 3 230 1 236
Statement of Income - Parent Company
NET SALES AND OPERATING INCOME DELIVERIES
-1 000
1 000
3 000
5 000
7 000
9 000
11 000
13 000
15 000
0504030201009998
Net sales Operating income
MSEKParent company
50 B A L A N C E S H E E T – PA R E N T C O M PA N Y
L K A B A N N U A L R E P O R T 2 0 0 5
As of 31 December 2005
MSEK Note 2005-12-31 2004-12-31
1, 34
ASSETS 32
Fixed assets
Intangible assets 12 119 1
Tangible assets 13 6 437 4 968
Financial assets
Participations in Group companies 35 607 607
Participations in associated companies 17 1 1
Receivables from Group companies 18 373 267
Receivables from associated companies 18 35 40
Other long-term securities held as fi xed assets 20, 30 110 121
Other long-term receivables 21, 30 107 77
Deferred tax asset 11 226 191
Total fi nancial assets 1 459 1 304
Total fi xed assets 8 015 6 273
Current assets
Inventories, etc. 22 993 697
Current receivables
Accounts receivable 23 1 555 936
Receivables from Group companies 904 705
Income taxes recoverable 154 -
Other receivables 21 155 88
Prepaid expenses and accrued revenues 24 26 54
Total current receivables 2 794 1 783
Short-term investments 19 3 874 2 028
Cash and bank balances 37 2 936 2 392
Total current assets 10 597 6 900
Total assets 18 612 13 173
Balance Sheet - Parent Company
INVESTMENTS AND DEPRECIATION LIQUID ASSETS AND SHORT-TERM INVESTMENTS
0
500
1 000
1 500
2 000
2 500
0504030201009998
Investments Depreciation
MSEK
51B A L A N C E S H E E T – PA R E N T C O M PA N Y
L K A B A N N U A L R E P O R T 2 0 0 5
MSEK Note 2005-12-31 2004-12-31
SHAREHOLDERS’ EQUITY AND LIABILITIES 1, 34
Shareholders’ equity 25
Restricted equity
Share capital (700,000 shares) 700 700
Statutory reserve 697 697
Non-restricted equity
Accumulated profi t or loss 5 241 4 792
Net income for the year 3 230 1 236
Total shareholders’ equity 9 868 7 425
Untaxed reserves 36 4 562 2 994
Provisions
Provisions for pensions and similar commitments 27, 28 1 542 1 349
Other provisions 28 360
Total provisions 1 902 1 349
Long-term liabilities
Liabilities to Group companies 13 13
Total long-term liabilities 13 13
Current liabilities
Accounts payable - trade 647 316
Liabilities to Group companies 929 461
Current income tax liabilities 147
Other liabilities 125 97
Accrued expenses and prepaid revenues 29 566 371
Total current liabilities 2 267 1 392
Total shareholders’ equity and liabilities 18 612 13 173
Pledged assets and contingent liabilities - Parent Company
As of 31 December 2005
MSEK Note 2005-12-31 2004-12-31
Assets pledged 33 148 55
Contingent liabilities 33 452 26
Balance Sheet - Parent Company
52 C O M P I L AT I O N S O F C H A N G E S I N S H A R E H O L D E R S ’ E Q U I T Y – PA R E N T C O M PA N Y
L K A B A N N U A L R E P O R T 2 0 0 5
see note 25 Restricted equity Non-restricted equity Total
Statutory Accumulated Net income shareholders’
MSEK Share capital reserve profi t or loss for the year equity
Opening balance 1 January 2004 700 697 5 178 6 575
Group contribution -146 -146
Tax 41 41
Net income recognized directly
in equity, excluding transactions with
the Company’s owners -105 -105
Net income for the year 1 236 1 236
Net income excluding transactions
with the Company’s owners -105 1 236 1 131
Dividends -281 -281
Shareholders’ equity 31 December 2004 700 697 4 792 1 236 7 425
Restricted equity Non-restricted equity Total
Statutory Accumulated Net income shareholders’
MSEK Share capital reserve profi t or loss for the year equity
Opening balance 1 January 2005 700 697 6 028 7 425
Group contribution -371 -371
Tax 104 104
Net income recognized directly
in equity, excluding transactions with
the Company’s owners -267 -267
Net income for the year 3 230 3 230
Net income excluding transactions
with the Company’s owners -267 3 230 2 963
Dividends -520 -520
Shareholders’ equity 31 December 2005 700 697 5 241 3 230 9 868
Compilations of changes in shareholders’ equity - Parent Company
SOLIDITY %
53S T AT E M E N T O F C A S H F L O W – PA R E N T C O M PA N Y ( I N D I R E C T M E T H O D )
L K A B A N N U A L R E P O R T 2 0 0 5
1 January - 31 December
MSEK Note 2005 2004
1, 37
Operating activities
Income after fi nancial items 6 048 1 869
Adjustments for items not included in cash fl ow, etc. 1 176 949
Income tax paid -1 483 -295
Cash fl ow from operating activities before change in working capital 5 741 2 523
Cash fl ow from changes in working capital
Increase (-)/Decrease (+) of inventories -296 -5
Increase (-)/Decrease (+) in operating receivables -857 169
Increase (+)/Decrease (-) in operating liabilities 1 022 -17
Cash fl ow from operating activities 5 610 2 670
Investing activities
Acquisition of tangible assets -2 314 -614
Disposal of tangible assets 21 11
Change in long-term receivables -136 2
Acquisition of fi nancial assets -100
Disposal of fi nancial assets 100 11
Short-term investments -1 846 -1 748
Cash fl ow from investing activities -4 175 -2 438
Financing activities
Dividends paid -520 -281
Group contribution -371 -145
Cash fl ow from fi nancing activities -891 -426
Cash fl ow for the year 544 -194
Liquid assets at start of period 2 392 2 586
Liquid assets at year-end 2 936 2 392
Statement of Cash Flow - Parent Company (indirect method)
54
Notes to the fi nancial statements
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
NOTE 1 Accounting principles
(a) Conformity with norms and legislation
The consolidated fi nancial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), published by the International Accounting Standards Board (IASB), and in accordance with interpretations by the International Financial Reporting Interpretations Committee (IFRIC) as approved by the European Commission for applica-tion within the EU. This annual report, together with the consolidated fi nancial statements, is the fi rst complete fi nancial report to be prepared in accordance with IRFS. In the transition to reporting in accordance with IFRS, IFRS 1 is used, which describes how the transition to IFRS is to be reported. In addition, Swedish Financial Accounting Standards Council (SFASC) recommendation RR 30 Complementary Reporting Rules for Groups is used.
The Parent Company applies the same accounting principles as the Group, except in the cases indicated under the section ”Parent Company’s accounting principles”. The variations between Parent Company and Group accounting principles arise from the limitations in applying IFRS in the Parent Company as a result of the Swedish Annual Report Act and the Swedish Act on Safeguarding of Pension Commit-ments, and in certain cases for tax reasons.
Notes 38 and 39 provide a summary and explanation of how the transition to IFRS has affected the Group’s fi nancial outcome and repor-ted cash fl ows.
(b) Conditions applying to the preparation of Parent Company and
Group fi nancial reports
The presentation currency for the Group and Parent Company is the Swedish krona, which means that fi gures in the fi nancial reports are Swedish kronor. Unless otherwise indicated, all amounts are rounded off to the nearest million kronor. Assets and liabilities are stated at historical acquisition values, accept for certain fi nancial assets and liabilities that are reported at fair value. Financial assets and liabilities stated at fair value consist of derivatives, fi nancial assets classifi ed as fi nancial assets reported at fair value in the income statement, or as fi nancial assets that can be sold.
Fixed assets and disposal groups that are held for sale are reported at the lower of the earlier reported value and fair value after deduction for selling expenses.
To present the fi nancial reports in accordance with IFRS, the manage-ment must make certain estimates and assumptions that affect the app-lication of the accounting principles and the reported amounts pertaining to assets, liabilities, revenue and expenses. The estimates are based on historical experience and several other factors that are deemed reaso-nable under the prevailing circumstances. The result of such estimates and assumptions is then used to assess the reported value of assets and liabilities that cannot clearly be determined from other sources. Actual outcomes may differ from these estimates and assumptions.
The estimates and assumptions are regularly reviewed. Changes in estimates are reported in the period in which the change is made if the change affects only that period, or in the period in which the change is made and future periods if the change affects both the current and future periods.
The Group accounting principles listed below have been consistently applied to all periods presented in the Group’s fi nancial reports, unless otherwise stated below, and in preparing the Group’s balance sheet as of 1 January 2004, which explains the transition from previously applied accounting principles to IFRS. Group accounting principles have been consistently applied to the accounts and consolidation of subsidiaries, associated companies and joint venture companies.
Changed accounting principles
For the Group, the transition to reporting in accordance with IFRS is pre-sented according to IFRS 1 and is described in Note 38. In accordance with voluntary exceptions in IFRS 1, IAS 39 is not applied to the compa-rative fi gures for 2004, but is applied prospectively from 1 January 2005. Application of IAS 39 has had a net effect on shareholders’ equity of MSEK 1 212 Mkr per 1 January 2005. The effect of IAS 39 in the income statement during 2005 amounts to MSEK 101. For the comparative year 2004, the same accounting principles are applied with respect to fi nancial instruments as for the Parent Company.
New IFRS and interpretations that will be applied during coming
periods
As of 1 January 2006, IFRS 6 ”Exploration for and Evaluation of Mineral Assets” applies to LKAB. For LKAB, the effect of the transition is not ex-pected to entail any signifcant changes in existing accounting principles with respect to exploration and evaluation expenses.
The change implies that, e.g., in fi nancial reports, disclosures must be made concerning the amounts that arise as a result of exploration and evaluation of mineral assets, the purpose of which is to facilitate un-derstanding of the magnitude of, point in time and probability of, future revenue infl ows from each reported exploration and evaluation asset.
As Of 2006, a reviced IAS 19 ”Benefi ts to Employees” allows a further alternative for reporting actuarial gains and losses; namely, to re-cognize these directly in shareholders’ equity. The alternatives according to the earlier version IAS 19 are retained, which means that LKAB will continue to report pension commitments according to the same accoun-ting principles for 2004 and 2005.
(c) Segment reporting
In the accounts, a segment is an identifi able part of the Group that either offers products and services (lines of business), or goods or services within a certain economic environment (a geographic region) that is exposed to risks and opportunities that differ from those that apply to other segments.
Segment disclosures are reported in accordance with IAS 14 for the Group only.
(d) Classifi cation, etc.
Fixed assets and long-term liabilities in the Parent Company and Group consist for the most part solely of amounts that are expected to be recovered or paid more than twelve months after the balance sheet date. Current assets and long-term liabilities in the Parent Company and Group consist for the most part solely of amounts that are expected to be recovered or paid within twelve months of the balance sheet date.
(e) Consolidation principles
(I) Subsidiaries
Subsidiaries are companies in which the Parent Company exercises a controlling infl uence over the operational and fi nancial management. Controlling infl uence implies a direct or indirect right to decide the company’s fi nancial and operative strategies with an aim to realizing economic advantages. When assessing whether a decisive, controlling infl uence exists, potential shares with voting rights that can be utilized without delay shall be taken into account.
Subsidiaries are reported according to the purchase method. The acquisition of a subsidiary is considered a transaction through which the Group indirectly acquires the subsidiary’s assets and assumes its liabi-lities and contingent liabilities. The analysis establishes the acquisition value of the shares or business, and the fair value of acquired identifi able assets and assumed liabilities and contingent liabilities. The acquisition value of subsidiaries’ shares or business comprises the fair values as per date of transfer of the assets, accrued or assumed liabilities and emitted equity instruments given in payment for the acquired net assets and transaction costs that are directly attributable to the acquisition. Where the acquisition cost exceeds the net value of acquired assets, assumed liabilities and contingent liabilities, the difference is reported as goodwill. If the acquisition value is less than the fair value of the acquired company’s net assets, the difference is reported directly in the income statement.
The subsidiary’s fi nancial reports are included in the consolidated accounts as of the date of acquisition and are excluded from the consoli-dated accounts as of the date the decisive infl uence no longer exists.
(II) Associated companies
Associated companies are companies in which the Group has a signifi -cant, but not controlling, infl uence in the operational and fi nancial mana-gement, generally through a holding of 20-50% of the voting rights. From the point in time at which the signifi cant infl uence is acquired, the inte-rest in the associated company is reported in the consolidated accounts according to the equity method. According to this method, the value of
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the shares in the associated companies reported in the consolidated ac-counts corresponds to the Group’s interest in the associated companies’ stockholders’ equity, the consolidated goodwill, and other residual values that might exist in the consolidated fair value adjustments. In the Group income statement, the Group’s share in the associated companies’ net earnings after tax and minority interest adjusted for depreciation, write-downs and resolution of acquired fair value adjustments is reported under ’Participations in associated companies’. Dividends obtained from the associated company reduce the reported value of the investment.
On acquisition, any differences between the acquisition value of the holding and the owner’s share of the net fair value of the associated company’s identifi able assets, liabilities and contingent liabilities are reported in accordance with IFRS 3, Business Combinations.
When the Group’s share of reported losses in the associated com-pany exceeds the reported value of the shares in the Group, the value of the shares is reduced to zero. Deductions for losses are also made against unsecured long-term fi nancial transactions, which in their econo-mic substance constitute part of the owning company’s net investment in the associated company. Further losses are not reported unless the Group has undertaken to cover losses arising in the associated company. The equity method is applied until the signifi cant infl uence ceases to exist.
(III) Joint ventures
For accounting purposes, joint ventures are companies in which the Group has entered into collaboration agreements with one or several parties to share a controlling interest in their operational and fi nancial management. In the consolidated accounts, holdings in joint ventures are reported according to the principle of proportional consolidation. This method implies that the Group’s share of the joint venture’s assets, lia-bilities, revenue and expenses, is reported in the Group’s balance sheet and income statement. To do so, the joint owner’s share of assets, liabi-lities, revenue and expenses in a joint venture is combined item-by-item with corresponding items in the joint owner’s consolidated accounts. Only shareholders’ equity accruing after acquisition is reported in the Group’s shareholders’ equity. The proportional consolidation principle is applied from the point in time at which the joint controlling infl uence is obtained until it ceases to exist.
(iv) Transactions to be eliminated on consolidation
Intra-group receivables and payables, revenue or expenses, and un-realized profi ts or losses arising from intra-group transactions between subsidiaries are eliminated in their entirety when the consolidated accounts are prepared.
Unrealized profi ts arising from transactions with associated com-panies and jointly controlled companies are eliminated to an extent corresponding to the Group’s share of the ownership of the company. Unrealized losses are eliminated in a similar fashion to unrealized profi ts, but only if there is no indication that a write-down is required.
(f) Foreign currencies
(I) Transactions in foreign currencies
Foreign currency transactions are translated to the functional currency at the exchange rate applying on the transaction day. Functional currency is the currency in the primary economic environments in which the companies operate. In the assessment of the Group Management, in compliance with IAS 21, the Swedish krona is the functional currency for the Swedish operations. Monetary assets and liabilities in foreign cur-rency are translated to the functional currency at the rate prevailing on the balance sheet date. Exchange rate differences resulting from trans-lations are reported in the income statement. Non-monetary assets and liabilities reported at their historical acquisition value are translated at the exchange rate applying on the transaction day. Non-monetary assets and liabilities reported at fair value are translated to the functional currency at the rate applying at the time the fair value was established. Exchange rate fl uctuations are reported in the same way as other changes in value in respect of assets or liabilities.
(II) Financial reports in foreign entities
Assets and liabilities in foreign entities, including goodwill and other fair value consolidation adjustments, are translated from the functional cur-rency to Swedish kronor at the rate applying on the balance sheet date. Revenue and expenses in foreign entities are translated to Swedish kronor at the average rate that constitutes an approximation of the rates applying when the transaction occurred. Revenue and expenses in foreign entities in countries with hyperinfl ation are translated to the functional currency at the rate applying on the balance sheet date.
Differences that arise when translating currency in foreign entities are reported immediately in shareholders’ equity as a translation reserve.
Before currency translation of fi nancial reports in foreign entities in countries with hyperinfl ation, the fi nancial reports are adjusted with the help of a reliable infl ation index. This is done to take into account chan-ges in purchasing power in the company’s functional currency, which is normally the local currency. Only the fi nancial reports for the reported fi scal year in question are adjusted with the help of an infl ation index.
(III) Net investment in a foreign entity
The differences that occur in connection with translating a foreign net investment and the related effects of hedging net investments are repor-ted directly in the translation reserve in shareholders’ equity. On disposal of a foreign entity, the cumulative translation difference relating to the entity, after deductions for currency hedges, where applicable, is realized in the Group’s income statement.
The cumulative translation differences for foreign entities are presen-ted as a separate capital category and include the translation differences accumulated as of 1 January 2004. Accumluated translation differences prior to 1 January 2004 are distributed over other separate capital catego-ries and are not disclosed.
(g) Revenue recognition
(I) Sale of goods and rendering of services
Revenue from the sale of goods is reported in the income statement when signifi cant risks or benefi ts associated with ownership of the goods has been transferred to the buyer. Revenue from the rendering of services is reported in the income statement based on the degree of completion as per the balance sheet date. The degree of completion is measured via evaluation of work performed on the basis of completed surveys. Revenue is not recognized if it is probable that future economic benefi t will not accrue to the Group. If there is considerable uncertainty as to payment, associated costs or risk of returns, and if the seller re-tains the controlling interest that is normally associated with ownership, no revenue is recognized.
(II) Revenue from the sale of property
Unless the risks and benefi ts associated with ownership have been transferred to the buyer on an earlier date, revenue from the sale of property is normally recognized on the date on which posession is taken. Control over the asset may have been transferred at a point in time prior to the date when possession was taken; in which case, revenue from sale of the property is recognized on this earlier date. When establishing the date of revenue recognition, consideration is given to what has been agreed by the parties concerning risks and benefi ts, and controlling inte-rest in the management of the asset. In addition, consideration is given to circumstances beyond the control of the seller and/or buyer that may affect the outcome of the sale of the property.
(III) Rental income
Rental incomes from investment properties are reported in a linear man-ner in the income statement, based on the terms of the lease.
(IV) Government grants
Government grants are recognized on the balance sheet as deferred income when there is a reasonable assurance of compliance with condi-tions attached to the grants and that the grants will be received. Grants are periodized systematically; i.e., recognized in the same way and during the period in which the costs that the grants are intended to cover are reported. Government grants related to assets are recognized on the balance sheet as a reduction in the reported value of the assets.
(h) Operating expenses and fi nancial income/expenses
(I) Costs associated with operating leases
Costs associated with operating leases are recognized in the income statement on a straight-line method over the term of the lease. Benefi ts received upon entering a leasing agreement are recognized in the income statement on a straight-line method over the term of the lease. (II) Finance leases
Minimum lease payments are allocated to interest expenses and amortization of the outstanding liability. Interest expenses are distributed over the period of the lease, so that each accounting period is charged with an amount corresponding to a fi xed rate of interest for the liability reported in the respective period. Variable fees are expensed in the period in which they arise.
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(III) Financial revenue and expenses
Financial revenue and expenses include interest revenue from bank assets, receivables and interest-bearing securities, interest expenses related to loans, exchange rate differences, unrealized and realized gains on fi nancial investments, and derivative instruments used in fi nancial operations.
Interest revenue from receivables and interest expenses related to liabilities are estimated using the effective interest method. The effective interest is the rate that ensures that the present value of all future re-ceipts or payments through the expected life of a fi nancial instrument is the same as the reported value of the receivable or payable. The interest element of fi nancial leasing payments is reported in the income state-ment by using the effective interest method. Interest revenue includes periodized amounts of transaction expenses and discounts, premiums and other variations between the original value of the receivable and the amount received on maturity.
Dividend income is recognized as revenue when the right to obtain payment is certain.
The Group and Parent Company do not include capitalized interest in the acquisition value of assets.
(i) Financial instruments
Financial instruments are valuated and reported in the Group’s accounts as of 1 January 2005 in accordance with the rules specifi ed in IAS 39 without retroactive application to the comparative year.
Financial instruments reported as assets on the balance sheet include, on the assets side, liquid assets, accounts receivable, shares and other equity instruments, credit claims and bond premiums, and derivatives. Liabilities and shareholders’ equity include accounts payable, borrowing and derivatives.
Financial instruments are initially recognized at cost which cor-responds to the instrument’s fair value plus transaction costs for all instruments except those classifi ed as fi nancial assets, which are recognized at fair value in the income statement. The way in which they are recognized depends on how the fi nancial instruments are classifi ed, as described below.
A fi nancial asset or fi nancial liability is entered on the balance sheet when the company becomes engaged by contract. Accounts receivable are entered on the balance sheet when an invoice has been issued. Lia-bilities are entered when the counterparty has performed and the agreed liability is due for payment, even if an invoice has not yet been received. Accounts payable are entered when an invoice is received.
A fi nancial asset is removed from the balance sheet when the rights in the agreement are realized, expire or the company loses control over them. The same applies for a portion of a fi nancial asset. A fi nancial liability is removed from the balance sheet when the undertakings in the agreement have been fulfi lled or extinguished. The same applies for a portion of a fi nancial liability.
Acquisition and disposal of fi nancial assets is recognized on the trade day, i.e., the day upon which the company undertakes to acquire or dispose of the asset.
For listed fi nancial assets, fair values correspond to the asset’s buying rate on the balance sheet date. Fair value of non-listed fi nacial assets is determined by means of valuation and measurement concepts such as comparison with recent transactions, prices of similar instruments, and discounted cash fl ow.
On each reporting occasion, the company assesses whether there are objective indications that a fi nancial asset or group of fi nancial assets needs to be written down. If a write-down is required for an asset in the category available-for-sale assets, the previously reported accumulated depreciation recognized against shareholders’ equity is restored to the income statement.
IAS 39 classifi es fi nancial instruments in categories. Classifi cation depends on the intention underlying the acquisition of the fi nancial instrument. Corporate management determines the classifi cation on acquisition. The categories are as follows:
Financial assets recognized at fair value in the income statementThis category consists of two sub-groups: fi nancial assets held for trading and other fi nancial assets that the company initially decided to invest in this category. A fi nancial asset is classifi ed as held for trading if the intention is to sell it in the short term. Derivatives are classifi ed as held for trading, except when they are used in hedge accounting. Assets in this category are measured at fair value and changes in fair value are recognized in the income statement.
Loans and receivables Loans and receivable are non-derivative fi nancial assets with fi xed payments or determinable payments, which are not quoted on an active market. Receivables arise when companies provide money, goods or services directly to the borrower without intent to trade in receivables. The category also includes acquired receivables. Assets in this category are valued at the accrued acquisition value. Accrued acquisition value is determined based on the effective rate of interest calculated on acquisi-tion.
Held-to-maturity investments Held-to-maturity investments are fi nancial assets with fi xed or determi-nable payment fl ows, with a fi xed term, and which a company intends and is able to hold to maturity. Assets in this category are valued at the accrued acquisition value. Accrued acquisition value is determined based on the effective rate of interest calculated on acquisition. This means that fair value adjustments and direct transaction expenses are periodi-zed over the term of the instrument.
Available-for-sales assets/assets held for sale The available-for-sale category includes fi nancial assets that are not clas-sifi ed in any other category or fi nancial assets that the company initially classifi ed in this category. Assets in this category are valued continuously at fair value, with changes in value reported against shareholders’ equity. When the investments are derecognized from the balance sheet, the previously reported accumulated gain or loss in shareholders’ equity is restored to the income statement.
Other fi nancial liabilities Financial liabilities not held for trading are valued at their accrued acquisition value. Accrued acquisition value is determined based on the effective rate of interest calculated when the liability was recognized. Consequently, fair value adjustments and direct issue expenses are periodized over the term of the liability.
Derivatives used in hedge accountingAll derivatives are recognized at fair value on the balance sheet. Changes in fair value are recognized in the income statement when the fair value is hedged. When net investments in foreign currencies are hedged, changes in the fair value are recognized in equity until the hedged item is recognized in the income statement. Hedge accounting is described in detail below.
Liquid assets
Liquid assets are cash and immediately available credit in banks and similar institutions, and current investments with a maturity of less than three months from acquisition that are exposed to only very marginal risk for fl uctuations in value.
Financial investments
Financial investments are either fi nancial fi xed assets or current invest-ments depending on why they are held. If the term or the expected period for which they are held is longer than one year, they are fi nancial fi xed assets; if they are to be held for less than one year, they are current investments.
Financial investments consisting of shares belong either to the category of fi nancial assets valued at fair value through the income statement or available-for-sale fi nancial assets.
Interest-bearing securities acquired with the intention of being held until maturity are classifi ed as held-to-maturity investments and are valuated at accrued acquisition value. Interest-bearing securities not acquired with the intention of being held until maturity are classifi ed as fi nancial assets recognized at fair value in the income statement or available-for-sale fi nancial assets.
On fair value valuation through the income statement, the change in value is reported in net fi nancial items.
Long-term receivables and other receivables
Long-term receivables and other current receivables arise when the com-pany provides money directly to the borrower without intent to trade in receivables. If they are expected to be held for longer than one year, they are deemed long-term receivables, and if they are expected to be held for less than one year, they are categorized as other receivables. Such receivables are categorized under ’Loans and receivables’.
Accounts receivable
Accounts receivable are classed as ’Loans and receivables’. Accounts
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receivable are reported in the amount at which they are expected to be received, less a deduction for bad debts, which are assessed individually. The anticipated duration of accounts receivable is short, which is why the value is reported at nominal amount without discounting. Write-downs of accounts receivable are reported in operating expenses.
Liabilities
Liabilities are classifi ed as other fi nancial liabilities, which means that they are initially reported as the amount received after deductions for transaction expenses. After acquisition, the loans are valued at the accrued acquisition value according to the effective rate method. Long-term liabilities have an expected term of longer than one year, whereas current liabilities are expected to mature in less than one year.
Accounts payable
Accounts payable are classifi ed as other fi nancial liabilities. Accounts payable have a short expected term and are valued without discount at nominal value.
(j) Derivatives and hedge accounting
Derivative instruments consist of forward exchange contracts, options and swaps that are used to cover risks for fl uctuations in exchange rates. Fluctuations in fair value of derivative instruments are reported on the balance sheet based on the intention of the holding. In hedge accounting, the derivative’s accumulated change in value is transferred to the income statement, where it meets and matches the effects of the hedged transaction. Even if hedge accounting is not applied, increases or decreases in the value of the derivative are reported as income or expense, respectively, within the operating profi t/loss or net fi nancial income/expense, based on the intended use of the derivative instrument and whether that use relates to an operating item or to a fi nancial item. In hedge accounting, the ineffective part is reported in the same way as fl uctuations in the value of derivatives that are not used in hedge accounting.
To comply with IAS 39 requirements concerning hedge accounting, there must be a clear link between the hedging instrument and the corresponding hedged item. Furthermore, the hedging instrument must effectively protect the hedged item, hedging must be documented and the effectiveness must be measurable. Hedging gains and losses are reported in the income statement at the same point in time as gains and losses for the corresponding hedged items are reported.
In cases where the requirements for hedge accounting can no longer be fulfi lled, the derivative instrument is recognized at fair value with fl uctuations in value via the income statement, according to the principle above.
Receivables and liabilities in foreign currenciesTo hedge assets or liabilities against currency risk, forward exchange contracts are used. For these hedges, no hedge accounting is required, since both the hedged item and the hedging instrument are valuated at fair value with fl uctuations in value recognized over the income state-ment with respect to exchange rate differences. Changes in value with respect to operating-related receivables and liabilities are recognized in operating profi t/loss, while changes in value with respect to fi nancial receivables and liabilities are recognized in net fi nancial income/expense.
Transaction exposure - cash fl ow hedgesCurrency exposure with respect to future forecast fl ows is hedged either via forward exchange contracts or currency options. Forward exchange contracts or currency options that protect the forecast fl ow are to be recognized at fair value on the balance sheet. Changes in value are reported in a hedging reserve directly against shareholders’ equity until the hedged fl ow is reported on the balance sheet, whereby the hedging instrument’s accumulated change in value is transferred to the income statement, where it meets and matches the profi t/loss effects of the hedged transaction. The hedged fl ows can be either contracted or forecast transactions.
When the hedged future cash fl ow refers to a transaction that is capitalized on the balance sheet, the hedging reserve is dissolved when the hedged item is reported on the balance sheet. If the hedged item is a non-fi nancial asset or a non-fi nancial liability, the dissolved hedging reserve is included in the original acquisition value of the asset or liability. If the hedged item is a non-fi nancial asset or a non-fi nancial liability, the hedging reserve is dissolved successively against the income statement at the same rate at which the hedged item effects the profi t/loss.
When a hedging instrument expires, is sold or no longer qualifi es as a hedge, or when the company deems that a hedge no longer meets the
criteria for hedge accounting before the hedged transaction occurs and the forecasted transaction is still expected to occur, cumulative gains or loss on the hedging reserve recognized in equity is retained there until the forecasted transaction occurs.
If a hedged transaction is no longer expected to occur, the net cumu-lative gain or loss recognized is transferred to the income statement, according to the principles for derivative instruments described above.
(k) Tangible assets and investment properties
(I) Owned assets
Tangible assets are reported as assets on the balance sheet if it is likely that future fi nancial benefi ts will accrue to the company and the acquisi-tion value of the asset can be calculated in a reliable manner.
Tangible assets are reported in the Group accounts at acquisition va-lue after deductions for accumulated depreciation according to plan and any write-downs. The acquisition value includes the purchase price and expenses directly pertaining to the asset, such as the costs associated with delivery and installation of the asset such that it can be utilized to fulfi ll the purpose of the acquisition. Such costs include cost of delivery and handling, installation, title deeds, consulting services and legal servi-ces. Borrowing costs are not included in the acquisition value of tangible assets produced by the company.
The acquisition value of tangible assets produced by the company includes costs of material, payroll expenses, other fabrication costs di-rectly attributable to the tangible asset, if applicable, and estimated costs of disassembly and removal of the assets and remediation of the site or area in which it has been used.
Tangible assets whose parts differ with respect to useful life are treated as separate components of tangible assets.
The reported value of a tangible asset is struck from the balance sheet when the asset is retired or disposed of or when no future econo-mic value is expected to accrue from the use or retirement/disposal of it. Gain or loss arising from the disposal or retirement of an asset is the difference between the selling price and the asset’s reported value with deductions for direct selling expenses. Gain or loss is reported as other operating income/expense.
(II) Underground installations
Installations underground, from which iron ore is extracted, can be clas-sed as installations for waste rock mining and installations for iron ore mining. Waste rock mining consists of work done to expose the orebody in connection with the construction of a main haulage level, construc-tion pertaining to transport and maintenance functions such as railways, roads, tunnels, shafts, inclined drifts (a system of access for vehicle traffi c from surface level to the work site underground), and facilities for service and electrical and air supply. These expenses, referring to plant that intended to be used for more than a year, are activated on the balance sheet. The average useful life of this category of tangible assets is 12 years.
Iron ore mining consists mainly of activities including development, cave drilling and loading. Expenses for these activities have a useful life of at most one year, which is why they are expensed on a current basis.
(III) Investment properties
Investment properties are properties held for the purpose of receiving rental revenues or realizing appreciation in value, or a combination of the two. Investment properties are reported according to the same principles as tangible assets. Concerning fair value of investment properties, see Note 14.
Rental income and income from the sale of property is reported according to the principles described under the section on revenue recognition.
(IV) Leased assets
The LKAB Group applies IAS 17. Leases are classifi ed in the consolidated accounts as either fi nance leases or operating leases. A lease that trans-fers substantially all the risks and rewards of ownership to the lessee is classifi ed as a fi nance lease. All other leases are normally classifi ed as operating leases.
Assets leased under fi nance lease contracts have been reported as assets on the Group’s balance sheet. Commitments for future rental payments have been reported as long-term and current liabilities. The leased assets are depreciated according to plan, while rental payments are reported as interest and amortization on liabilities.
Operating leasing entails that rental payments are expensed over the entire period starting with the initial use of the asset, which may differ from what is in fact paid in rent over the course of a year.
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Assets leased out under fi nance leases are not recognized as tangible assets, since the risks associated with ownership are transferred to the lessee. Instead, future minimum rental payments are booked as a fi nancial receivable.
(V) Additional expenditures
Additional expenditures are added to the acquisition value if it is probable that future economic benefi t associated with the asset will accrue to the company, and if he acquisition value can be calculated in a reliable way. All other additional expenditures are expensed in the period in which they arise.
Whether additional expenditures are added to the acquisition value is decided on the basis of whether the expenditure refers to replacement of identifi ed components of the asset, or parts thereof, whereupon such expenditures are capitalized. In cases where a new component is created, the expenditure is also added to the acquisition value. Any unde-preciated reported values on replaced components, or parts thereof, are retired and expensed in connection with the replacement. Repairs are expensed on a current basis.
(VI) Depreciation principles
The assets are depreciated on a straight-line basis over useful life. Land is not depreciated. The Group applies component depreciation, whereby the estimated useful life of the component constitutes the basis for depreciation.Estimated useful life:
- operating properties, investment properties, 15 - 100 years- machinery and other technical plant 5 - 20 years- inventories, tools and installations 5 - 20 years- underground installations (average) 12 years
Operating properties are classifi ed mainly as buildings, land improve-ments and land. Buildings and land improvements consist of several components that are classifi ed on the basis of function; e.g., roads, surfacing, service facilities, processing plants, etc.
Investment properties consist of several components that differ with respect to useful life. The main classifi cations are buildings and land. The land component is not depreciated, since its useful life is considered to be unlimited. Buildings, however, consist of several components of varying useful life. The useful life of these components ranges from 15 to 100 years.
The following main groups of components have been identifi ed and are the basis for depreciation of investment properties.
- Framework, foundation and interior walls 100 years- Water, sewage, electrical and heating systems 50 years- Facade 40 years- Windows 50 years- Interior fi nishing and appliances 15 years
Machines and other technical plant consist of several components with varying useful life. The useful life of these components ranges from 5 to 20 years.
Residual value and useful life are assessed annually.
(l) Intangible assets
(I) Goodwill
Goodwill represents the difference between the acquisition value of a business acquisition and the fair value of the acquired assets, assumed liabilities and contingent liabilities.
In respect of acquisitions occurring before 1 January 2004, after amortization requirements are assessed, goodwill is recognized at an acquisition value corresponding to the value reported according to accounting principles applied earlier. Classifi cation and reporting of business acquisitions made prior to 1 January 2004 have not been reas-sessed according to IFRS 3 when preparing the Group’s opening balance per 1 January 2004 according to IFRS (see Note 38).
Goodwill is valued at the acquisition value less any accumulated write-downs. Goodwill is broken down into cash-generating units and is not amortized, but is instead tested annually for impairment. Goodwill arising from the acquisition of associated companies is included in the reported value of participations in associated companies.
Where the acquisition cost is less than the net value of acquired assets, assumed liabilities and contingent liabilities, the difference is reported directly in the income statement.
(II) Research and development
Expenditures for research aimed at acquiring new scientifi c or technical knowledge are expensed in the period in which they are incurred.
Development expenditures, i.e., expenses for research of which the results or other knowledge is applied to realize new or improved products or processes, are recognized as an asset on the balance sheet if the product or process is technically and commercially viable and the company has suffi cient resources to complete the development and sub-sequently use or sell the intangible asset. The reported value includes expenditures for material, direct payroll expenses or other indirect expen-ses that are reasonably and consistently attributable to the asset. Other expenditures for development are reported in the income statement as expenses in the period in which they are incurred. On the balance sheet, reported development costs are recognized at their acquisition value less accumulated amortization and write-downs.
Expenditures for survey/exploration work conducted underground are expensed when they are incurred.
(III) Other intangible assets
Other intangible assets that have been acquired by the Group are recognized at their acquisition value less accumulated amortization (see below) and write-downs.
(IV) Additional expenditures
Additional expenditures for capitalized intangible assets are recognized as an asset on the balance sheet only when they increase the future economic benefi ts for the specifi c asset to which they pertain. All other expenditures are expensed as they arise.
(V) Emissions rights
In January 2005, LKAB received carbon-dioxide emissions rights for the years 2005 - 2007. LKAB reports allocated emissions rights as intangible assets and these are valuated at the lowest of either the acquisition value or market (fair) value. The corresponding value is included in Provi-sions and Other liabilities. Settlement is made annually and any defi cit is reported as accrued expense.
(VI) Amortization
Amortizations are reported in the income statement straight-line across the estimated useful life of the intangible assets, provided such useful life can be determined. Goodwill and intangible assets with indetermi-nate useful life are assessed for write-down requirement, either annually or as soon as there are indications that the value of the asset in question has diminished. Depreciable intangible assets are written off from the date upon which they are available for use. The estimated periods of useful life are:
- Mining rights 30 - 50 years- Tenancy right 10 years
(m) Inventories, etc.
Inventories are valuated at the lower of acquisition value or net realizable value/net selling price. Net selling price is the estimated selling price (realizable value) in current operations, after deductions for estimated costs of completion and for realizing a sale.
In the case of manufactured and semi-manufactured inventories, cost consists of direct manufacturing costs and a reasonable portion of indi-rect costs. Normal capacity utilization is taken into account in valuation.
Acquisition value of other inventories is calculated on the basis of the fi rst-in, fi rst-out (FIFO) method and includes costs arising from the acquisition of the inventory assets and transport of them to their current location. In the case of manufactured goods and work in progress, acquisition value includes a reasonable portion of indirect costs based on normal capacity.
(n) Write-downs
Reported values for the Group’s assets - with the exception of invest-ment properties, inventories, plan assets used for fi nancing or remunera-tion to employees and deferred tax assets - are checked on each balance sheet date to ascertain whether any write-down need is indicated. If a need for write-down is indicated, the recoverable value of the asset is calculated. For the exceptional assets mentioned above, assessment is done according to the respective standard.
For goodwill and other intangible assets with indeterminate useful life, and intangible assets that are not yet ready for use, the recoverable amount is calculated annually.
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If largely independent cash fl ows attributable to a single asset cannot be ascertained, when the write-down requirement is assessed, assets will be grouped at the lowest level at which largely independent cash fl ows can be identifi ed (a so-called cash-generating unit). A write-down is reported when an asset or cash-generating unit’s reported value exceeds its recoverable value. A write-down is charged to the income statement.
Write-down of assets attributable to a cash-generating unit (group of units) is fi rst allocated to goodwill. Subsequently, a proportionate write-down of other assets in the unit (group of units) is done.
Goodwill and was assessed for write-down requirement as of 1 January 2004 (date of transition to IFRS), even though there was at that time no apparent indication of a need for write-down.
When impairment in fair value of fi nancial assets that can be sold has previously been reported directly against shareholders’ equity and there is objective evidence that there is need for a write-down, the accumula-ted loss that is booked in shareholders’ equity is to be transferred to the income statement. The impairment that is reported in the income state-ment is the difference between the acquisition value and the current fair value, with deductions for any previous expensed write-downs.
(I) Calculation of recoverable amount
The recoverable amount of assets belonging to the categories held-to-maturity securities and loan receivables and accounts receivable, which are reported at amortized cost, is calculated as the present value of expected future cash fl ows, discounted at the original effective interest rate (i.e., the effective interest rate computed at initial recognition of these fi nancial assets). Receivables with a short duration are not discounted.
The recoverable amount of other assets is the greater of their fair value minus selling expenses and value in use. In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects risk-free interest and the risks specifi c to the asset. For an asset that does not generate largely independent cash infl ows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
(II) Reversal of write-downs
Write-downs in respect of a held-to-maturity securities or loan recei-vables and accounts receivable, which are reported at amortized cost, are reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the write-down was recognized.
Write-downs in respect of goodwill are not reversed.In respect of other assets, write-downs are reversed if there has been
a change in the estimates used to determine the recoverable amount.A write-down is reversed only to the extent that the asset’s carrying
amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no write-down had been recognized.
(o) Shareholders’ equity
(I) Dividends
Dividends are recognized as a liability after they have been approved by the Annual General Meeting.
(p) Employee benefi ts
(I) Defi ned-contribution plans
For defi ned-contribution plans, costs are expensed in the income state-ment as the contributions are paid in.
(II) Defi ned-benefi t plans
The Group’s net obligation for defi ned benefi t plans is calculated separa-tely for each plan by estimating the future compensation that employees have earned through employment in present and previous periods. This compensation is discounted to present value and the fair value of plan assets is deducted.. The discount rate is the interest rate on the closing day for a fi rst-class corporate bond with a maturity corresponding to the Group’s pension obligations. When there is no active market for such corporate bonds, the market interest rate on government bonds with a similar maturity is used instead. The calculation is made by a qualifi ed actuary using the projected unit credit method.
When the compensation in a plan improves, the portion of the increased compensation attributable to the employees’ services in previ-ous periods is expensed through the income statement on a straight-line basis over the average period until the compensation is fully vested. If the compensation is fully vested, an expense is recognized directly through the income statement.
All actuarial gains and losses as of 1 January 2004, the date of transi-tion to IFRS, have been reported. For actuarial gains and losses that arise from the calculation of the Group’s obligations for different plans after 1 January 2004, the so-called corridor rule is applied. This means that the portion of the cumulative actuarial gains and losses exceeding 10 percent of the higher of the commitments’ present value and the fair value of plan assets is recognized over the expected average remaining period of employment of the employees covered by the plan. Actuarial gains and losses otherwise are not taken into account.
When the calculation leads to an asset, the carrying amount is limited to the lesser of the estimated asset and sum of unrecognized actuarial losses and unrecognized costs associated with employment in previous periods as well as the present value of future repayments from the plan or reduced future payments to the plan.When there is a difference in how the pension cost is determined for a legal entity and the Group, a provision or receivable for the special employer’s contribution arises based on this difference. No present-value computation for the provision or receivable is made.
(III) Other long-term employee benefi ts
The Group’s net obligation for other long-term compensation, besides pensions, corresponds to the value of future compensation earned by employees as remuneration for the services they have performed during the present period and previous periods. The obligation is calculated ac-cording to the so-called projected unit credit method and is discounted to present value and the fair value of plan assets is deducted. The discount rate is the interest rate on the closing day for a fi rst-class corporate bond with a maturity corresponding to the term of the obligations. When there is no active market for such corporate bonds, the market interest rate on government bonds with a similar maturity is used instead.
(IV) Severance
A provision is recognized in connection with termination of personnel only if the company is obligated to terminate an employment before the customary time, e.g., when compensation is paid in connection with a voluntary termination offer. In cases where the company terminates personnel, a detailed plan is drafted containing at the minimum the work-places, positions and approximate number of individuals affected as well as compensation for each personnel category or position and a schedule for the plan’s implementation.
(q) Provisions
A provision is recognized on the balance sheet when the Group has a legal or informal obligation owing to an event that has occurred and it is likely that an outfl ow of economic resources will be required to settle the obligation and a reliable estimate of the amount can be made. Where it is important when in time payment will be made, provisions are estima-ted by discounting the forecast future cash fl ow at a pre-tax interest rate that refl ects current market estimates of the time value of money and, where appropriate, the risks associated with the liability.
(I) Restructuring
A provision for restructuring is recognized when a detailed, formal restructuring plan has been established and the restructuring has either begun or been publicly announced. No provision is made for future operating losses.
(II) Remediation of contaminated land
In accordance with the Group’s publicly announced environmental principles and applicable legal requirements, provisions for soil and land remediation are recognized when the land/soil has been contaminated. Financial guarantees may have to be provided to cover possible remedia-tion costs.
(r) Taxes
Income taxes consist of current tax and deferred tax. Income taxes are recognized in the income statement unless the underlying transaction is recognized directly in shareholders’ equity, in which case the related tax effect is also recognized in shareholders’ equity.
Current tax is the tax paid or received for the current year, applying the tax rates that have been set or essentially set as of the closing day to taxable income and adjusting for current tax attributable to previous periods.
Deferred tax is calculated according to the balance sheet method ba-sed on temporary differences between the carrying value of assets and liabilities and their value for tax purposes. The following temporary dif-ferences are not taken into account: temporary differences arising when
60 N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
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goodwill is fi rst reported; the initial reporting of assets and liabilities in a transaction other than a business combination and which, at the time of the transaction, do not affect either the recognized or taxable result; temporary differences pertaining to shares in subsidiaries and associated companies that are not expected to be reversed in the foreseeable future. The valuation of deferred tax is based on how reported values of assets and liabilities are expected to be realized or paid. Deferred tax is calculated by applying the tax rates and tax legislation that has been determined, or in practice determined, on the balance sheet date.
Deferred tax assets from deductible temporary differences and tax loss carryforwards are only recognized to the extent it is likely that they will be utilized. The value of deferred tax assets is reduced when it is no longer considered likely that they can be utilized.
Any additional income tax arising on dividends is reported at the same time as the dividend is reported as a liability. (s) Contingent liabilities
A contingent liability is reported if there is a possible commitment stemming from events whose occurrence is dependent on one or more uncertain future events as well as when there is a commitment that is not recognized as a liability or provision because it is unlikely that an outfl ow of resources will be required.
THE PARENT COMPANY’S ACCOUNTING PRINCIPLES
The Parent Company complies with the Swedish Annual Accounts Act (1995:1554) and SFASC recommendation RR 32 Reporting for Legal Entities. RR 32 entails that the Parent Company in preparing the annual accounts for the legal entity shall apply all IFRS and statements approved by the European Union as far as possible within the framework of the Swedish Annual Report Act and taking into account the relationship bet-ween reporting and taxation. The recommendation states the exceptions and supplements that shall be made with respect to the IFRS.
Changed accounting principles
The change in Parent Company accounting principles has been reported in accordance with the stipulations in IAS 8, but also taking into account the transition regulations in RR 32.
Pursuant to the transition regulations in RR 32, the Company has chosen not to apply Chapter 4, §14a-e of the Swedish Annual Report Act, which permits the valuation of certain fi nancial instruments at fair value. As of 1 January 2006, the principles in Chapter 4, §14 a-e of the Swedish Annual Accounts Act will be applied. This will entail a change in accounting principles. The effect on shareholders’ equity as of 1 January 2006 amounts to MSEK 775.
Differences between Group and Parent Company accounting
principles
Differences between Group and Parent Company accounting principles are detailed below. The Parent Company accounting principles stated have been consistently applied during all the periods presented in the Parent Company’s fi nancial reports.
Subsidiaries, associated companies and joint ventures
Shares in subsidiaries, and holdings in associated companies and joint ventures are recognized by the Parent Company according to the acquisi-tion cost method. Revenue includes only dividends received, provided that they stem from profi ts earned after acquisition. Dividends exceeding those earnings are considered a repayment of the investment and reduce the carrying value of the shares.
Revenues
Sale of goods and rendering of services
In accordance with the Swedish Annual Accounts Act, Chap. 2, 4 §, revenue from service assignments is recognized in the Parent Company income statement when the service is completed. Until then, as-signment work in progress is reported at the lowest of either acquisition value or net selling price on the balance sheet date.
Anticipated dividends
Anticipated dividends from subsidiaries are reported only in cases where the Parent Company has the sole right to decide the size of the dividend and the Parent Company has decided the size of the dividend before the Parent Company has published its fi nancial reports.
Financial instruments
The Parent Company does not apply the valuation principles in IAS 39.
However, what has been written above in respect of fi nancial instru-ments also applies to the Parent Company. Financial fi xed assets are valued in the Parent Company at acquisition value less write-down, where applicable, and fi nancial current assets are valued at the lower of cost or net realizable value.
Derivatives and hedge accounting
Currency exposure with respect to future forecasted fl ows is hedged either via forward exchange contracts or currency options. Forward ex-change contracts or currency options that protect the forecasted fl ow are not reported on the balance sheet. Changes in value in forward contracts are reported in the same period as the forecasted fl ow occurs. Since at most 80% of the forecasted fl ow is hedged, no ineffi ciencies that should be taken to income arise. Forecasted fl ows can be either invoiced or forecasted transactions.
The hedged volume in US dollars is matched against the estimated net infl ow of US dollars. If the hedged volume exceeds the value of the expected net infl ow and there is an unrealized exchange loss, it is recognized as a fi nancial expense. If there is an unrealized exchange gain, it is not reported.
Other hedging is normally in GBP and EUR. These currencies can be tied to special orders concerning the purchase and sale of industrial minerals.
Accrual of forward exchange discounts and premiums is done in ac-cordance with recommendation No. 7 of the Swedish Accounting Stan-dards Board. The difference between the average exchange rate and the year-end rate on forward exchange contracts entered into is reported as a contingent liability if the year-end rate is higher than the average rate.
Tangible assets
Owned assets
Tangible assets are reported in the Parent Company accounts, in the same way as in the Group accounts, at acquisition value after deductions for accumulated depreciation according to plan and any write-downs, but also taking into account any possible write-ups.
Leased assets
In the Parent Company, all leasing contracts are reported according to the principles for operating leases.
Intangible assets
Research and development
In the Parent Company, all development expenditures are reported as expenses in the income statement.
Employee benefi ts
Defi ned-benefi t plans
In the Parent Company, principles other than those described in IAS 39 are applied when calculating defi ned-benefi t plans. The Parent Company complies with the provisions of the Law on Safeguarding of Pension Commitments and the regulations of the Financial Supervisory Authority, since this is a condition for tax deductibility. The essential differences, compared to IAS 39, are the way in which the discount rate is determi-ned, that calculation of defi ned-benefi t commitments is based on current salary levels without assuming any future salary increases, and that all actuarial gains and losses are reported in the income statement when they arise.
Taxes
In the Parent Company, deferred tax liabilities are recognized as part of untaxed reserves. In the consolidated accounts, untaxed reserves are divided between deferred tax liabilities and shareholders’ equity.
Group contributions and shareholders’ contributions for legal
entities
The company reports group contributions and shareholder contributions in accordance with pronouncement issued by the SFASC Emerging Issues Task Force. Shareholder contributions are taken directly to shareholders’ equity by the receiver and capitalized in the shares and participations by the giver, to the extent that no write-down is required. Group contributions are reported based on their economic signifi cance. This means that group contributions rendered for the purpose of minimi-zing the Group’s total tax are reported directly against retained earnings after deducting their current tax effect.
Group contributions equated with dividends are recognized as a dividend. This means that Group contributions received and the effect on current tax are recognized through profi t or loss. Group contributions
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The Group’s reporting system is designed to track the rate of return on the Group’s goods and services, due to which business segments are its primary segment reporting format.
Intra-group prices between segments are set based on the arm’s length principle, i.e., between parties that are independent of each other, well-informed and have a stake in the transactions.
Income, assets and liabilities for the segments include directly attribu-table items and items that can be distributed by segment in a reasonable and reliable manner. Non-distributed items consist of net fi nancial income/expense and tax expenses. The segments’ investments in intan-gible and tangible fi xed assets include all investments with the exception of those in short-term inventory and inventory of minor value.
NOTE 2 Revenue distribution Group Parent Company
MSEK 2005 2004 2005 2004
Revenue:
Iron ore 12 191 7 419 12 349 7 560
Industrial minerals 2 018 1 489
Other 128 80
Total 14 337 8 988 12 349 7 560
Lines of business Special
Group Mining Division Minerals Division Businesses Eliminations Group
MSEK 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004
External revenue 12 191 7 420 2 018 1 489 128 79 14 337 8 988
Internal revenue 158 140 141 109 963 872 -1 262 -1 121
Total revenue 12 349 7 560 2 159 1 598 1 091 951 -1 262 -1 121 14 337 8 988
Operating income per line of business 5 720 1 669 148 122 100 94 -6 5 974 1 879
Consolidation adjustments 141 62 141 62
Operating income 5 720 1 669 148 122 100 94 141 56 6 109 1 941
Net fi nancial income/expense 342 82
Income before tax 6 451 2 023
Tax expense for the year -1 904 -456
Net income for the year 4 547 1 567
Assets 18 612 11 594 1 527 1 093 1 808 1 180 -1 373 -210 20 574 13 657
Liabilities 5 459 3 118 1 130 241 1 056 397 -1 877 -149 5 768 3 607
Capital expenditures*) 2 314 614 192 85 205 286 12 31 2 723 1 016
Depreciation 791 919 33 31 128 135 8 952 1 093
Write-downs 3 3
*) refers to tangible assets
Lines of business
Lines of business are the Group’s primary segments. The Group consists of the following lines of business: • Mining Division The Mining Division mines and processes iron ore for products for steelmaking.• Minerals Division The Minerals Division develops, produces and markets industrial mineral products for several application areas and customers in many different industries throughout the world. • Special Businesses LKAB has organized most of its subsidiaries under the Special Businesses Division. These companies are mainly suppliers to the Mining Division and the Minerals Division. Geographic areas are the Group’s secondary segments. Information on the segment’s revenue refers to geographic areas grouped by customer locations. Segment assets and investments in tangible and intangible fi xed assets during the period are based on the geographic areas and are grouped on the basis of where the assets are located.
NOTE 3 Segment reporting
paid and the effect on current tax are recognized directly in retained earnings.
Group contributions equated with shareholders’ contributions are re-cognized by the recipient directly in retained earnings taking into account
the effect on current tax. The contributor recognizes Group contributions and the effect on current tax as an investment in shares in Group compa-nies to the extent that no write-down is required.
62
Lines of business Special
Parent Company Mining Division Minerals Division Businesses Eliminations Group
MSEK 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004
Revenue 12 349 7 560 - - - - - - 12 349 7 560
Geographic areas Parent
Parent Company Europe Asia Rest of world Company
MSEK 2005 2004 2005 2004 2005 2004 2005 2004
Revenue 8 982 5 465 2 310 1 582 1 057 513 12 349 7 560
Geographic areas
Group Europe Asia Rest of world Group
MSEK 2005 2004 2005 2004 2005 2004 2005 2004
External revenue: 9 964 6 295 3 053 1 924 1 320 769 14 337 8 988
Assets 20 418 13 545 88 77 68 35 20 574 13 657
Capital expenditures*) 2 720 1 016 3 - - - 2 723 1 016
*) refers to tangible assets
NOTE 3 Segment reporting (cont.)
NOTE 4 Other operating revenuesGroup
MSEK 2005 2004
Rental revenue, investment properties 115 111
Gain on sale of fi xed assets 18 6
Exchange rate gains on receivables/liabilities of an operating nature 12 12
Other 103 78
248 207
Parent Company
MSEK 2005 2004
Gain on sale of fi xed assets 18 11
Exchange rate gains on receivables/liabilities of an operating nature 8 6
Other 184 145
210 162
NOTE 5 Other operating expenses Group Parent Company
MSEK 2005 2004 2005 2004
Property expenses, investment properties 82 83
Other 177 114 181 128
259 197 181 128
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NOTE 6 Employees and staff costsAverage number of employees
2005 of which of which 2004 of which of which
women men women men
Parent Company
Sweden 2 615 9% 91% 2 515 9% 91%
Norway 182 12% 88% 179 11% 89%
Total, Parent Company 2 797 9% 91% 2 694 9% 91%
Subsidiaries
Sweden 323 9% 91% 340 9% 91%
China 49 18% 82% 40 22% 78%
Netherlands 22 18% 82% 22 18% 82%
Norway 73 1% 99% 79 3% 97%
UK 247 18% 82% 256 16% 84%
Germany 17 65% 35% 17 65% 35%
Other countries 35 34% 66% 33 33% 67%
Total in subsidiaries 766 14% 86% 789 14% 86%
Group total 3 563 10% 90% 3 482 10% 90%
Gender distribution in corporate management
2005 2005 2004 2004
Share of Share of Share of Share of
women men women men
Parent Company
Board of Directors 27% 73% 17% 83%
Other senior executives 0% 100% 0% 100%
Group total
Board of Directors 5% 95% 3% 97%
Other senior executives 0% 100% 0% 100%
Salaries, other remuneration and social security expenses
2005 2004
Salaries and Social security Salaries and Social security
MSEK Remuneration expenses Remuneration expenses
Parent Company 1 129 790 976 542
(of which pension expenses) 1) (418) (206)
Subsidiaries 287 136 278 101
(of which pension expenses) (66) (37)
Group total 1 416 926 1 254 643
(of which pension expenses) 2) (484) (243)
1) Of the Parent Company’s pension expenses, MSEK 13 (28) (inclu-
ding special employer’s contribution MSEK 3 (5)) refers to the group
Board, President and former President. Of this, MSEK -3 (16) refers
to former President and MSEK 6 (1) to former Vice President. The
company’s outstanding pension commitments to the group Board,
President and former President amount to MSEK 66 (57) (excluding
special employer’s contribution). Of this, MSEK 27 (28) refers to
former President and MSEK 13 (10) to former Vice President.
2) Of the Parent Company’s pension expenses, MSEK 19 (35) (inclu-
ding special employer’s contribution MSEK 3 (6)) refers to the group
Board, President and former President. The Group’s outstanding
pension commitments to these amount to MSEK 72 (64) (excluding
special employer’s contribution).
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Salaries and other remuneration by country and between Board members, other executives and other employees
2005 2004
Board Other Board Other
MSEK and President employees and President employees
Parent Company
Sweden 7 1 020 101) 888
Norway 102 78
Parent Company, total 7 1 122 10 966
(of which variable remuneration/incentive systems) (1)2) (100) (3)2) (34)
Subsidiaries in Sweden 6 125 5 118
(of which variable remuneration/incentive systems) (1) (0) (1)
Foreign subsidiaries
China 0 1 1
Netherlands 1 8 1 7
Norway 42 36
UK 10 68 9 75
Germany 3 7 1 9
Other countries 6 10 5 11
Subsidiaries, total 26 261 21 257
(of which variable remuneration/incentive systems) (0) (4) (0) (1)
Group total 33 1 383 31 1 223
(of which variable remuneration/incentive systems) (1) (104) (3) (35)
1) The amount includes total remuneration to Board members, MSEK 1.0 (0.9), approved by the AGM. It also includes
MSEK 0.5 (0.4) in remuneration to employee representatives on the Board.
2) Refers to former President, MSEK 0.1 (2.8) and former Vice President, MSEK 0.6 (0.5).
NOTE 6 Employees and staff costs (cont.)
SICKNESS ABSENCE (in Parent Company, employees in Sweden only)
2005 2004
Total sickness absence as percentage of regular working hours 4.7% 5.4%
Percentage of total sick leave related to extended absences of 60 days or more 61.7% 66.6%
Sickness absences by gender:
Men 4.8% 5.5%
Women 3.9% 4.7%
Sickness absences by age category:
29 years or younger 1.9% 1.8%
30-49 years 4.0% 4.2%
50 years or older 6.4% 8.1%
For information on post-employment benefi ts, etc., see Note 27 Employee benefi ts.
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NOTE 7 Auditors’ fees and compensation
Group Parent Company
MSEK 2005 2004 2005 2004
KPMG
Audit assignments 5 4 2 1
Other assignments 4 3 3 2
Other auditors
Audit assignments 0 0
NOTE 8 Operating expenses by nature of expense
Group Parent Company
MSEK 2005 2004 2005 2004
Personnel costs 2 394 1 973 1 949 1 564
Materials, etc. 2 272 1 806 1 181 1 035
Energy 832 631 746 551
Transport costs 512 372 894 964
Depreciation 959 1 080 791 919
Other operating expenses 1 507 1 392 1 278 1 020
8 476 7 254 6 839 6 053
Audit assignments involve examination of the annual report and
fi nancial accounting as well as the administration by the Board and
the President, other tasks related to the duties of the company’s
auditors and consultation or other services that may result from
observations noted during such examinations or implementation of
such other tasks.. All other tasks are defi ned as other assignments.
NOTE 9 Net fi nancial income/expense
Group
MSEK 2005 2004
Interest income 137 133
Dividends 47 36
Other investments including derivatives
Capital gain on sales of fi nancial assets held for sale 89
Return on market portfolio 212 24
Result from plan assets 41 34
Net change from revaluation of fi nancial assets -5
Net exchange rate differences 29
Income from fi nancial items 550 227
Interest expenses -191 -104
Write-down of receivables in associated companies -1
Net exchange rate differences -34
Other fi nancial expenses -17 -6
Financial expenses -208 -145
Net fi nancial income/expense 342 82
Of other operating expenses, MSEK 241 refers to costs arising from
mining operations in Kiruna, see Note 28. MSEK 104 for restructuring
of operations in Narvik is included in the Group’s personnel costs. The
corresponding amount for the Parent Company is MSEK 74.
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
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NOTE 9 Net fi nancial income/expense (cont.)
Parent Company
Income from participations Income from participations
in Group companies in associated companies
MSEK 2005 2004 2005 2004
Dividend 17 37
Write-downs -5 -1
Group contributions 18
17 55 -5 -1
The write-down of MSEK 5 refers to a long-term receivable in an associated company.
The receivable has been discounted to present value and a write-down requirement of MSEK 5 has arisen.
Parent Company
Income from other
securities and
receivables held Interest expense and
as fi xed assets similar profi t/loss items
MSEK 2005 2004 2005 2004
Interest income, Group companies 24 18 20 20
Interest income, others 131 131
Return on market portfolio 89 111 24
Dividends, shares 36 29 11 7
Exchange rate differences, foreign currency 32
149 47 305 182
Interest income and similar income statement items include returns
on money market instruments and bonds amounting to MSEK 121
(93).
Capital gains of MSEK 89 on the sale of available-for-sale fi nancial
assets refer to the sale of shares in SSAB. Return on market portfolio
refers to an increase in the market value of the market portfolio
of MSEK 212. The considerable change in comparison to 2004 is
explained by the fact that unrealized surplus value did not affect net
fi nancial income/expense for 2004. The change is due to application
of IAS 39, Financial Instruments: Reporting and Valuation.
Net change from revaluation of fi nancial assets refers to a write-
down on a long-term receivable in an associated company. The
receivable has been discounted to present value and a write-down
requirement of MSEK 5 has arisen.
Of interest expenses, MSEK 105 (101) refers to interest on
pension liabilities and MSEK 84 (0) refers to forward exchange
discounts/premiums.
Other fi nancial expenses consist mainly of bank and administra-
tion costs.
Parent Company
Interest expense and
similar profi t/loss items
MSEK 2005 2004
Interest expenses, Group companies -7 -5
Interest expenses, pension liability -34 -40
Forward exchange discounts/premiums -84
Interest expenses, other -1 -4
Exchange rate differences, foreign currency -30
Other -11 -4
-137 -83
Interest expenses on pension liabilities have been calculated at an interest rate of 4.2 (5.1) %.
Other fi nancial expenses consist mainly of bank and administration costs.
In income from securities held as fi xed assets, return on market
portfolios refers to redemption of shares in SSAB. Dividends refer to
dividends on holdings in SSAB.
Interest income and similar income statement items include re-
turns on money market instruments and bonds amounting to MSEK
121 (93). Return on shares amounted to MSEK 111 (24). Valuation of
shares and money market investments is done at the portfolio level.
This means that for instruments included in the same portfolio,
unrealized gains are offset against unrealized losses. Surplus losses
are reported as reduction in interest income. Surplus gains are not
reported.
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
67
NOTE 10 AppropriationsParent Company
MSEK 2005 2004
Difference between book depreciation and appreciation according to plan:
Underground installations 3 2
Buildings and land 2 2
Machinery and inventories -163 183
Tax allocation reserve, provisions for the year -1 410 -500
Tax allocation reserve, reversal for the year 140
Total -1 568 -173
Deferred tax on appropriations amounted to MSEK -439 (-48). Deferred tax is only reported in the consolidated income statement.
NOTE 11 TaxesReported in income statement
Group
MSEK 2005 2004
Current tax expense (-)
Tax expense for the period -1 297 -460
Adjustment for taxes related to previous years -1 3
-1 298 -457
Deferred tax expense (-) /tax recoverable (+)
Deferred tax related to temporary differences -606 1
Total reported tax expense in Group -1 904 -456
Parent Company
MSEK 2005 2004
Current tax expense (-)
Tax expense for the period -1 284 -467
Adjustment for taxes related to previous years -2 6
-1 286 -461
Deferred tax expense (-) /tax recoverable (+)
Deferred tax related to temporary differences 35 1
Total reported tax expense in Parent Company -1 251 -460
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
68
NOTE 11 Taxes (cont.)
Reconciliation of effective tax
Group
MSEK 2005 (%) 2005 2004 (%) 2004
Income before tax 6 451 2 023
Tax according to current tax rate for Parent Company 28.0% -1 806 28.0% -566
Effect of other tax rates for foreign Group companies 0.0%
Non-deductible expenses 0.7% -45 0.4 -8
Tax-exempt income -0.2% 11 -0.9 19
Tax related to previous years 0.0% -3 -0.1 3
Standard interest on tax allocation reserve 0.1% -9
Other 0.9% -52 -4.9 96
Reported effective tax rate 29.5% - 1 904 22.5 -456
Parent Company
MSEK 2005 (%) 2005 2004 (%) 2004
Income before tax 4 481 1 696
Tax according to current tax rate for Parent Company 28,0% -1 255 28.0 -475
Non-deductible expenses 0.1% -7 0.3 -5
Tax-exempt income -0.2% 8 -0.8 14
Tax related to previous years 0.0% -2 -0.4 6
Standard interest on tax allocation reserve 0.2% -8
Other -0.2% 13
Reported effective tax rate 27.9% -1 251 27.1 -460
Tax items reported directly in shareholders’ equity
Group
MSEK 2005 2004
Deferred tax attributable to change in accounting principles -471
Deferred tax attributable to fi nancial assets: forward exchange contracts -138
Deferred tax attributable to fi nancial assets: SSAB shares 334
-275
Parent Company
MSEK 2005 2004
Tax on Group contributions paid 104 41
104 41
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
69
NOTE 11 Taxes (cont.)
Reported on balance sheet
Reported deferred tax recoverable and liabilities
Deferred tax recoverable and liabilities refer to the following:
Group
Deferred Deferred
tax recoverable tax liability Net
MSEK 2005 2004 2005 2004 2005 2004
Buildings and land 16 -12 -12 16
Machinery and inventories -747 -650 -747 -650
Pension provisions 265 217 265 217
Tax allocation reserves -717 -312 -717 -312
Provisions for insurance claims -99 -42 -99 -42
Financial assets -320 -320
Forward exchange contracts 66 66
Short-term investments -49 -49
Loss carryforwards 3 3
Other liabilities -1 -2 -1 -2
Other 8 49 8 49
Tax recoverable/liabilities 342 282 -1 945 -1 006 -1 603 -724
Offset -342 -282 342 282
Tax recoverable/liabilities, net - - -1 603 -724 -1 603 -724
Parent Company
Deferred Deferred
tax recoverable tax liability Net
MSEK 2005 2004 2005 2004 2005 2004
Buildings and land 23 25 - - 23 25
Pension provisions 200 155 - - 200 155
Other 3 11 - - 3 11
Taxes recoverable 226 191 - - 226 191
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
70
NOTE 11 Taxes (cont)
Parent Company
MSEK Opening balance Reported in Reported in Closing balance
1 Jan. 2004 income statement Shareholders’ equity 31 Dec. 2004
Buildings and land 26 -1 - 25
Pension provisions 155 - - 155
Other 9 2 - 11
190 1 - 191
MSEK Opening balance Reported in Reported in Closing balance
1 Jan. 2005 income statement Shareholders’ equity 31 Dec. 2005
Buildings and land 25 -2 23
Pension provisions 155 45 200
Other 11 -8 3
191 35 226
Change in deferred tax in temporary differences and loss carryforwards
Group
MSEK Opening balance Reported in Reported in Other Closing balance
1 Jan. 2004 income statement Shareholders’ equity changes 31 Dec. 2004
Buildings and land 14 2 16
Machinery and inventories -689 39 -650
Pension provisions 162 51 4 217
Tax allocation reserves -209 -103 -312
Provisions for insurance claims -42 -42
Other liabilities -5 5 -2 -2
Other - 49 49
-727 1 2 -724
MSEK Opening balance Reported in Reported in Other Closing balance
1 Jan. 2005 income statement Shareholders’ equity changes 31 Dec. 2005
Buildings and land 16 -28 -12
Machinery and inventories -650 -97 -747
Pension provisions 217 48 265
Tax allocation reserves -312 -405 -717
Provisions for insurance claims -42 -57 -99
Financial assetsr -320 -320
Forward exchange contracts 66 66
Short-term investments -28 -21 -49
Loss carryforwards 3 3
Other liabilities -2 1 -1
Other 49 -43 2 8
-724 -606 -275 2 -1 603
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
71
NOTE 12 Intangible assets
Group
MSEK Mining
Goodwill rights Other Total
Accumulated acquisition values
Opening balance 1 Jan. 2004 176 161 18 355
Capital expenditures 20 20
Reclassifi cations 11 11
Exchange rate differences for the year -2 -2
Closing balance 31 Dec. 2004 205 161 18 384
Opening balance 1 Jan. 2005 205 161 18 384
Capital expenditures 75 75
Allocation of emissions rights 175 175
Disposal, emissions rights -57 -57
Reclassifi cations 17 45 62
Exchange rate differences for the year 13 13
Closing balance 31 Dec. 2005 235 281 136 652
Accumluated amortization and write-downsr
Opening balance 1 Jan. 2004 -161 -12 -173
Amortization for the year -1 -1
Exchange rate differences for the year
Closing balance 31 Dec. 2004 -161 -13 -174
Opening balance 1 Jan. 2005 -161 -13 -174
Write-downs for the year -1 -1
Reconciliation of emissions rights for the year -57 -57
Disposal, emissions rights 57 57
Closing balance 31 Dec. 2005 -1 -161 -13 -175
Reported values
1 Jan. 2004 176 0 7 183
31 Dec. 2004 205 0 6 211
1 Jan. 2005 205 0 6 211
31 Dec. 2005 234 120 123 477
Amortization and write-downs
Amortization and write-downs, and reconciliation of emissions rights, are reported in the following lines in the income statement
MSEK Koncernen
2005 2004
Cost of goods sold -58 -1
-58 -1
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
72
Parent Company
MSEK Mining
rights Other Total
Accumulated acquisition values
Opening balance 1 Jan. 2004 161 161
Other capital expenditures 1 1
Closing balance 31 Dec. 2004 161 1 162
Opening balance 1 Jan. 2005 161 1 162
Allocation of emissions rights 175 175
Disposal, emissions rights -57 -57
Closing balance 31 Dec. 2005 161 119 280
Accumulated amortization
Opening balance 1 Jan. 2004 -161 -161
Closing balance 31 Dec. 2004 -161 -161
Opening balance 1 Jan. 2005 -161 -161
Reconciliation of emissions rights for the year -57 -57
Disposal, emissions rights 57 57
Closing balance 31 Dec. 2005 -161 - -161
Reported values
1 Jan. 2004 0 -
31 Dec. 2004 0 1 1
1 Jan. 2005 0 1 1
31 Dec. 2005 0 119 119
Reconciliation of emissions rights is reported in the following lines in the income statement
MSEK Group
2005 2004
Cost of goods sold -57
-57
NOTE 12 Intangible assets (cont.)
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
73
NOTE 13 Tangible assetsGroup
Machinery inventories,
Buildings Underground and other tools and Construction
MSEK and land installations technical plant installations in progress Total
Acquisition value
Opening balance 1 January 2004 2 644 3 874 9 491 1 916 379 18 304
Acquisitions 44 74 146 293 408 965
Reclassifi cations 22 29 153 39 -226 17
Disposals and retirements -91 -148 -446 -163 -9 -857
Exchange rate differences -3 -4 0 -7
Closing balance 31 December 2004 2 616 3 829 9 340 2 085 552 18 422
Opening balance 1 January 2005 2 616 3 829 9 340 2 085 552 18 422
Acquisitions 37 49 409 72 2 0811) 2 648
Reclassifi cations -20 2 116 164 -355 -93
Disposals and retirements -4 -12 -52 -16 -41 -125
Exchange rate differences 19 22 5 46
Closing balance 31 December 2005 2 648 3 868 9 835 2 310 2 237 20 898
Assessment of write-down requirement is based on value in use.
This value is based on cash-fl ow forecasts over 17 years, of which
the fi rst three are based on the three-year business plan establis-
hed by the corporate management of the Minerals Division. The
total forecast period (17 years) corresponds to the useful life of the
unit’s most important assets. The cash fl ow forecast after the fi rst
three years has been based on an annual growth rate of 1%, which
corresponds to the long-term growth rate of the unit’s markets.
The forecast cash fl ows have been valuated at present value with a
discount rate of 11% before tax. Important assumptions with respect
to the three-year business plan are described below.
It is the corporate management’s assessment that no reasonable
changes in these assumptions will result in recoverable amounts
that are lower than the reported values of the units.
Write-downs for the year
A minor goodwill item attributable to holdings in Microfi ne Hellas
has been written down during the year by MSEK 1. Book value after
the write-down is 0 kronor. The write-down is due to the fact that
continued mineral extraction in the mine is no longer possible, since
the permit from the Greek authorities has expired and it has not
been possible to renew it.
NOTE 12 Intangible assets (cont.)
Important variables Method of estimating value
Market share and growth Historically, demand for these
products has kept pace with econo-
mic cycles. Expected market growth
is based on a transition from the
prevailing economic situation to the
expected long-term growth. The
forecast is in line with previous
experience.
Personnel costs The forecast for personnel costs
is based on the expected rate of
infl ation, certain real wage/sa-
lary increases (historical average) and
planned improvements in production
effi ciency (according to a fi xed plan).
The forecast is in agreement with
previous experience.
Exchange rates Exchange-rate forecasts are based
on currently quoted exchange rates.
Existing forward exchange contracts
have been taken into account.
Write-down requirements for cash-generating units containing goodwill
The following cash-generating units, which are part of the primary segment Minerals Division, have signifi cant
goodwill values in relation to the Group’s total reported goodwill value.
MSEK 2005 2004
Minelco Specialities Ltd 108 100
Minelco Minerals Ltd 46 43
Minelco OY 37 20
191 163
Units without signifi cant goodwill value, compiled 43 42
234 205
Assessment of the recoverable amounts of cash-generating units is based on the same important principles..
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
74
NOTE 13 Tangible assets (cont.)
Tax assessment value
Group 2005-12-31 2004-12-31
Tax assessment value, buildings (in Sweden) 708 701
Tax assessment value, land (in Sweden) 78 67
Depreciation and write-downs are included in the following lines in the income statement
Group
MSEK Depreciation
2005 2004
Cost of goods sold 931 1 052
Selling expenses 3 3
Administrative expenses 8 12
Research and development 11 11
953 1 078
Machinery inventories,
Buildings Underground and other tools and Construction
MSEK and land installations technical plant installations in progress Total
Depreciation and write-downs
Opening balance 1 January 2004 -1 749 -2 230 -6 819 -1 030 -11 828
Depreciation for the year -52 -231 -625 -170 -1 078
Reclassifi cations -31 16 -15
Disposals and retirements 85 134 444 148 811
Exchange rate differences 1 3 4
Closing balance 31 December 2004 -1 715 -2 327 -7 028 -1 036 -12 106
Opening balance 1 January 2005 -1 715 -2 327 -7 028 -1 036 -12 106
Depreciation for the year -50 -233 -502 -166 -951
Write-downs for the year -1 -1 -2
Reclassifi cations 46 2 -1 47
Disposals and retirements 3 12 38 14 67
Exchange rate differences -6 -15 -4 -25
Closing balance 31 December 2005 -1 723 -2 548 -7 506 -1 193 -12 970
Reported values
1 January 2004 895 1 644 2 672 886 379 6 476
31 December 2004 901 1 502 2 312 1 049 552 6 316
1 January 2005 901 1 502 2 312 1 049 552 6 316
31 December 2005 925 1 320 2 329 1 117 2 237 7 928
1) This includes MSEK 60 for the acquisition of land for future mining operations in Malmberget.
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
75
Parent Company
Machinery Inventories,
Buildings Underground and other tools and Construction
MSEK and land installations technical plant installations in progress Total
Acquisition value
Opening balance 1 January 2004 2 185 3 874 9 220 511 363 16 153
Acquisitions 40 74 86 20 393 613
Reclassifi cations 26 29 129 43 -227
Disposals and retirements -90 -148 -455 -89 -782
Closing balance 31 December 2004 2 161 3 829 8 980 485 529 15 984
Opening balance 1 January 2005 2 161 3 829 8 980 485 529 15 984
Acquisitions 29 49 372 27 1 8371) 2 314
Reclassifi cations 24 2 132 26 -184
Disposals and retirements -3 -12 -42 -11 -41 -109
Closing balance 31 December 2005 2 211 3 868 9 442 527 2 141 18 189
Depreciation
Opening balance 1 January 2004 -1 182 -1 782 -6 050 -392 -9 406
Depreciation for the year -43 -231 -604 -41 -919
Disposals and retirements 76 88 359 79 602
Closing balance 31 December 2004 -1 149 -1 925 -6 295 -354 -9 723
Opening balance 1 January 2005 -1 149 -1 925 -6 295 -354 -9 723
Depreciation for the year -41 -233 -477 -39 -791
Disposals and retirements 2 9 30 9 51
Closing balance 31 December 2005 -1 188 -2 149 -6 742 -384 -10 463
Write-downs
Opening balance 1 January 2004 -395 -448 -580 -11 -1 434
Disposals and retirements 8 46 85 2 141
Closing balance 31 December 2004 -387 -402 -495 -9 -1 293
Opening balance 1 January 2005 -387 -402 -495 -9 -1 293
Disposals and retirements 1 3 4
Closing balance 31 December 2005 -386 -399 -495 -9 -1 289
Reported values
1 January 2004 608 1 644 2 590 108 363 5 313
31 December 2004 625 1 502 2 190 122 529 4 968
1 January 2005 625 1 502 2 190 122 529 4 968
31 December 2005 637 1 320 2 205 134 2 141 6 437
1) This includes MSEK 60 for the acquisition of land for future mining operations in Malmberget.
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
NOTE 13 Tangible assets (cont.)
76
Tax assessment value
Parent Company 2005-12-31 2004-12-31
Tax assessment value, buildings (in Sweden) 612 605
Tax assessment value, land (in Sweden) 54 44
Depreciation is included in the following lines in the
Parent Company
MSEK income statement
2005 2004
Cost of goods sold 776 900
Selling expenses - -
Administrative expenses 5 10
Research and development 10 9
791 919
NOTE 13 Tangible assets (cont.)
NOTE 14 Investment propertiesGroup
Investment properties are reported, in the Group, according to the acquisition value method and are included under Buildings
and land according to Note 13.
Group
MSEK 2005-12-31 2004-12-31
Accumulated fair values*)
At start of year 70 342
At year-end 76 70
Group
MSEK 2005-12-31 2004-12-31
Accumulated acquisition values
At start of year 291 291
New acquisitions 3
294 291
Accumulated depreciation according to plan
At start of year -170 -165
Accumulated depreciation for the year -5 -5
-175 -170
Reported value at end of period 119 121
*) Fair values are based on valuations by qualifi ed, independent assessors who have current knowledge
of property assessment principles relevant to the type of property and locations in question.
Investment properties - effect on profi t/loss for the period
Group
MSEK 2005-12-31 2004-12-31
Rental income 115 111
Direct costs associated with investment properties -82 -83
Tax assessment value - investment properties
Group
MSEK 2005-12-31 2004-12-31
Tax assessment value, buildings (in Sweden) 224 224
Tax assessment value, land (in Sweden) 54 54
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
77
Parent Company
Information concerning fair value of investment properties (if acquisition value method is applied)
Investment properties are reported according to the acquisition value method.
Parent Company
MSEK 2005-12-31 2004-12-31
Accumulated fair values
At start of year 20 221
At year-end 19 20
Parent Company
MSEK 2005-12-31 2004-12-31
Accumulated acquisition values
At start of year 166 166
166 166
Accumulated depreciation according to plan
At start of year -78 -75
Accumulated depreciation for the year -3 -3
-81 -78
Reported value at end of period 85 88
Investment properties - effect on profi t/loss for the period
Parent Company
MSEK 2005-12-31 2004-12-31
Rental income 6 7
Direct costs associated with investment properties -1 -1
Tax assessment values - investment properties
Parent Company
MSEK 2005-12-31 2004-12-31
Tax assessment values, buildings (in Sweden) 153 153
Tax assessment value, land (in Sweden) 39 39
NOTE 14 Investment properties (cont.)
NOTE 15 Participations in associated companies and joint venturesGroup
MSEK 2005-12-31 2004-12-31
Reported value at start of year 33 5
Acquisitions 29
Reclassifi cation -29
Write-down -1
Reported value at year-end 4 33
During the year, the holding in the joint venture company Likya
Minelco, Turkey, has been reclassifi ed. As of 2005, this holding is
reported according to the proportional method, see Note 16.
Of the above stated MSEK 4, MSEK 3 refers to the subsidiary
Kimit’s holdings in the associated company Orica Kimit Explosives AB.
The Parent Company’s holdings in associated companies are repor-
ted in Note 17.
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
78
NOTE 16 Participations in joint venturesGroup
The Group has a 50-percent interest in the joint venture company Likya Minelco.
In the Group’s fi nancial reports, the following items comprise the Group’s share of the joint venture company’s assets,
liabilities, income and expenses.
MSEK 2005 2004
Net sales 2
Expenses -2
Profi t/loss 0
Intangible assets 32
Current assets 3
Total assets 35
Current liabilities -1
Long-term liabilities -2
Total liabilities -3
Net assets / net liabilities 32
NOTE 17 Parent Company’s participations in associated companiesParent Company
MSEK 2005-12-31 2004-12-31
Accumulated acquisition values
At start of year 2 2
Closing balance 31 December 2 2
Accumulated write-downs
At start of year -1
Write-downs for the year -1
Closing balance 31 December -1 -1
Reported value at year-end 1 1
Specifi cation of the Parent Company’s direct ownership of participations in associated companies Associate company Corp. ID No. and registered offi ce Voting and equity
2005 share in percent Reported value
Associated companies
Swedish associated companies
Progressum AB/556540-0768/Kiruna 42.8 0
Norrskenet AB/556537-7065/Kiruna 33.3 0
Expandum AB/556252-3281/Gällivare 33.3 0
Gruv Grus AB/556103-9933/Gällivare 50.0 0
MCC AB/556644-8295/Kiruna 33.3 0
Foreign associated companies
Nord Norsk Spedisjon AS/-/Narvik, Norway 40.0 1
Futurum AS/-/Narvik, Norway 23.8 0
1
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
79
NOTE 18 Receivables from Group companies and associated companiesParent Company Receivables from Receivables from
Group companies associated companies
MSEK 2005-12-31 2004-12-31 2005-12-31 2004-12-31
Accumulated acquisition values 267 277 40 40
Net change 106 -10
Closing balance 31 December 373 267 40 40
Accumulated write-downs
Write-downs for the year -5
Closing balance 31 December -5
Reported value at year-end 373 267 35 40
The write-down of MSEK 5 refers to a long-term receivable in Norrskenet AB.
NOTE 19 Financial investmentsGroup
MSEK 2005-12-31 2004-12-31
Financial investments that are tangible assets
Financial assets held for sale
Shares and participations 1 253 121
Financial assets attributable to reserves for pension commitments 74 3
1 327 124
Short-term investments that are current assets
Financial assets held for sale
Shares and participations 784 341
Interest-bearing securities 3 265 1 687
4 049 2 028
Financial investments that are tangible assets refer to shares in SSAB and are valuated at fair value as of 31 Dec. 2005 in accordance with IAS 39.
Parent Company
MSEK 2005-12-31 2004-12-31
Market value Reported Market value Reported
or similar value or similar value
Specifi cation of securities
Money market instruments 5 961 5 951 3 928 3 917
Listed shares/mutual funds 784 619 404 341
Transfer to liquid assets1) -2 696 -2 696 -2 230 -2 230
4 049 3 874 2 102 2 028
Short-term investments include both money market and stock market investments.
1) Liquid assets include short-term investments that have been classifi ed as liquid assets according to IAS 7.
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
80
NOTE 20 Other long-term securities held as fi xed assetsParent Company
MSEK 2005-12-31 2004-12-31
Accumulated acquisition values
At start of year 121 121
Sales -11
Closing balance 31 December 110 121
The change for the year of MSEK 11 refers to redemption of shares in SSAB.
Parent Company
Specifi cation of other long-term securities 2005-12-31 2004-12-31
Market value Reported Market value Reported
MSEK or similar value or similar value
SSAB 1 253 109 770 120
Other - 1 - 1
1 253 110 770 121
NOTE 21 Long-term receivables and other receivablesGroup
MSEK 2005-12-31 2004-12-31
Long-term receivables that are tangible assets
Receivables from associated companies 35 40
Other 27 22
62 62
Other receivables that are current assets
Receivables from associated companies 2 2
Receivables from related parties 2
Custody accounts 107 19
Other 83 83
194 104
Parent Company
MSEK 2005-12-31 2004-12-31
Long-term receivables
Company-owned endowment insurance 85 57
Other 22 20
107 77
Other receivables (current)
Custody accounts 107
Other 48 88
155 88
Parent Company
MSEK 2005-12-31 2004-12-31
Long-term receivables
Accumulated acquisition values
At start of year 77 69
Net change 30 -8
Closing balance 31 December 107 77
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
81
NOTE 22 Inventories, etc.Group
MSEK
2005-12-31 2004-12-31
Raw materials and consumables 750 563
Work in progress 2 9
Finished products and goods for resale 671 434
1 423 1 006
Stocks of fi nished products were reduced during the year. A change in product mix increased the inventory value.
Write-downs on inventories, according to the lowest-value principle, amounted to MSEK 3 (-).
Parent Company
MSEK
2005-12-31 2004-12-31
Raw materials and consumables 539 373
Finished products and goods for resale 454 324
993 697
Of the Parent Company’s stocks of fi nished iron ore products, MSEK 1 (136) or 0 (42)% has been valuated at net selling price.
NOTE 23 Accounts receivableAccounts receivable are reported taking into account bad debts that have arisen in the Group. These amounted during the year to MSEK 2 (-).
NOTE 24 Prepaid expenses and accrued revenues Group Parent Company
MSEK 2005-12-31 2004-12-31 2005-12-31 2004-12-31
Interest, forward exchange contracts 30 30
Insurance premiums 5 3
Other 64 53 23 24
69 83 26 54
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
82
NOTE 25 Shareholders’ equity The Group’s specifi cation of the shareholders’ equity item reserves
Translation reserve
MSEK 2005 2004
Opening translation reserve -11
Transfer, opening translation reserve -4
Translation differences for the year 25 -7
Closing translation reserve 14 -11
Fair value reserve
MSEK 2005 2004
Opening fair value reserve 468
Revaluation to fair value 1 January 2005 650
Tax attributable to revaluation item -182
Financial assets held for sale:
Revaluations reported directly in shareholders’ equity 558
Dissolved through income statement -47
Tax attributable to revaluations for the year -156
Closing fair value reserve 823 468
Hedge reserve
MSEK 2005 2004
Opening hedge reserve 689
Revaluation to fair value 1 January 2005 957
Tax attributable to revaluation item -268
Cash-fl ow hedges
Reported directly in shareholders’ equity -237
Dissolved through income statement -689
Tax attributable to hedges for the year 66
Closing hedge reserve -171 689
Total reserves
MSEK 2005 2004
Opening reserves 1 146
Change in reserves for the year
Translation reserve 25
Fair value reserve 355
Hedge reserve -860
Closing reserves 666 1 146
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
83
Note 26 earningspersharethenumberofsharesfortheyears2005and2004,respectively,is700,000.netincomeattributable
toparentCompanyshareholdersamountstomSeK4,546(1,568).earningspersharetherebyamount
to6,494(2,240)kronorpershare.
MseK 2005 2004
2143(743)SeKpercommonshare 1500 520
1500 520
share capital
Asof31december2005,theregisteredsharecapitalcomprised
700000(700000)commonshares.
theholderofcommonsharesisentitledtoadividendthatis
decidedbytheAnnualgeneralmeeting,andeachshareentitlesthe
holdertoonevotingright.
translation reserve
thetranslationreservecoversallexchangeratedifferencesthat
ariseinthetranslationoffinancialreportsofforeignsubsidiaries
andassociatedcompanieswhosecountsarereportedinacurrency
otherthanthegroup’sreportingcurrency.theparentCompanyand
groupaccountsarereportedinSwedishkronor.
fair value reserve
financial assets
thefairvaluereserveincludesthenetchangeinfairvalueofavaila-
ble-for-salefinancialassetsupuntiltheassetsareremovedfromthe
balancesheet.
hedge reserve
thehedgereserveincludestheeffectiveshareoftheaccumulated
netchangeinfairvalueofacash-flowhedginginstrumentattributa-
bletohedgingtransactionsthathavenotyetoccurred.
dividend
Afterthebalancesheetdate,theBoardhasproposedthefollowing
dividend.thedividendissubjecttoapprovalbytheAnnualgeneral
meetingon25April2006.
Note 25 Shareholders’equity(cont.)
n o t e s t o t h e f i n A n c i A L s t At e M e n t s
L K A B A n n u A L R e p o R t 2 0 0 5
parent company
Restricted reserves
Restrictedreservesmaynotbereducedthroughdividends.
statutory reserve
thepurposeofthestatutoryreserveistosaveapartofthenet
profitthatisnotusedtocoverlossbroughtforward.
non-restricted equity
profit brought forward
Comprisesthepreviousyear’snon-restrictedequityafteranypro-
visionsforreservesandafteranydividendhasbeenpaid.together
withnetprofitfortheyearandanyfairvaluereserve,itmakesup
non-restrictedequity,i.e.,thesumthatisavailabletobepaidasa
dividendtoshareholders.
84
NOTE 27 Employee benefi tsGroup
MSEK 2005 2004
Present value of wholly or partially funded obligations 947 707
Fair value of assets under management -891 -655
Net, wholly or partially funded obligations 56 52
Present value of unfunded obligations 1 961 1 527
Present value of net obligation 2 017 1 579
Unreported actuarial gains (+) and losses (-) -282 36
Unreported costs for previous years’ employment -10 2
Net reported obligation, defi ned-benefi t plans (see below) 1 725 1 617
The net amount is reported in the following balance sheet items:
Other fi nancial assets -74 -3
Provisions for pensions 1 799 1 620
Net balance sheet amount 1 725 1 617
Defi ned-benefi t plans
Most of LKAB’s pension plans for employees in Sweden are defi ned-
benefi t plans, which means that LKAB guarantees pensions based
on a certain percentage of salary. Pension commitments are secured
by the company mainly through credit insurance, but also via provi-
sions reported on the balance sheet. Promises of future retirement
before the age of 65 are to a degree contingent upon underground
work and are secured by the company via provisions reported on
the balance sheet.
Commitments for retirement pensions and survivor benefi ts
for salaried employees in Sweden are insured by Alecta. Accor-
ding to a pronouncement from the Swedish Financial Accounting
Standards Council’s Emerging Issues Task Force, URA 42, this is
a defi ned-benefi t plan that involves several employers. For the
fi nancial year 2005, the company has not had access to the informa-
tion that is necessary for reporting this plan as a defi ned-benefi t
plan. The ITP pension plan insured via Alecta is therefore reported
as a defi ned-contribution plan. Alecta’s surplus can be distributed
to the policyholders and/or the insured parties. At year-end 2005,
Alecta’s surplus in the form of the collective funding ratio amounted
to 128.5 percent (128.0). The collective funding ratio is the market
value of Alecta’s assets as a percentage of the insurance obligations
calculated according to Alecta’s actuarial assumptions, which does
not conform to IFRS.
For employees in Belgium, Norway, the UK and Germany, LKAB
has defi ned-benefi t plans as a complement to social insurance. In
Belgium, pensions are secured via pension insurance; in the UK, via
two company-managed pension funds; in Germany, via provisions
reported in the balance sheet and through credit insurance, and in
Norway via a company-managed superannuation fund, via provi-
sions reported in the balance sheet and through credit insurance.
Changes in the net obligation for defi ned-benefi t plans reported on the balance sheet
Group
MSEK 2005 2004
Net obligation for defi ne-benefi t plans as of 1 January 1 617 1 654
Compensation paid -109 -104
Deposits to pension fund -137 -95
Cost reported in income statement 328 165
Effects of acquired/sold operations - -3
Exchange rate differences 26
Net obligation for defi ned-benefi t plans as of 31 December 1 725 1 617
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
85
Cost reported in income statement
Group
MSEK 2005 2004
Costs for employment during current period 222 98
Interest expense for obligation 105 101
Assumed return on assets under management -41 -34
Reported actuarial gains (-) and losses (+) 4
Effects of reductions and settlements 38
Total net cost in income statement 328 165
The cost is reported on the following lines in the income statement:
Group
MSEK 2005 2004
Cost of goods sold 264 98
Income from fi nancial items -41 -34
Financial expenses 105 101
328 165
Assumptions for defi ned-benefi t obligations
Signifi cant actuarial assumptions as of closing day (expressed as weighted averages)
Group
Percent 2005 2004
Dicount rate, 31 December 4.0 5.0
Assumed return on assets under management, 31 December 5.0 6.0
Future salary increase 3.0 3.0
Employee turnover 3.5 3.5
Future increase in pensions 2.0 2.0
Parent Company’s pension obligation
MSEK 2005 2004
Provisions subject to the Act on Income Security 818 794
Provisions not subject to the Act on Income Security 724 555
1 542 1 349
Of which credit guarantees via FPG/PRI 472 466
MSEK Group Parent Company
2005 2004 2005 2004
Amount of provision expected to be paid after 12 months 1 690 1 504 1447 1255
NOTE 27 Employee benefi ts (cont.)
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
86
NOTE 27 Employee benefi ts (cont.)
Defi ned-contribution plans
In Sweden, the Group has defi ned-contribution pension plans for
which the company assumes full cost. For the Group, the ITP plan
premiums fi nanced in Alecta amounted to MSEK 11 (11), and for
the SAF-LO Collective Pension fi nanced via premiums to FORAM
amounted to SEK 41 (42). The corresponding amounts for the Pa-
rent Company were MSEK 10 (10) and MSEK 37 (36), respectively.
In foreign subsidiaries, defi ned-contribution plans are fi nanced
partly by the companies and partly by contributions paid by the
employees.
Premiums for these plans are paid on a current basis in accor-
dance with regulations for each plan.
Personnel costs
Senior executives’ remuneration
Senior executives
Senior executives include members of the highest level of Group
Management and other senior executives. Members of the highest
level of Group Management are the Chairman of the Board, and
the Group President and CEO. The group ’other senior executives’
includes eight employees who are members of Group Management,
which also includes the President.
The preparation and decision process for establishing remuneration
to senior executives
Compensation for the President as well as salary setting principles
are drafted and determined by a compensation committee that is ap-
pointed by the Board. The committee consists of the Chairman and
two other board members. The Board votes on the proposals of the
committee. The Chairman of the Board approves the annual salary
review of other members of Group Management.
Principles for remuneration to senior executives
The President and seven other members of Group Management
are paid a fi xed salary. Remuneration to the Vice President, Market
Division, is a combination of a fi xed salary and variable remunera-
tion. The variable remuneration amounts to a maximum of 50% of
the fi xed salary, at 15% return on the Parent Company’s Operating
assets over a period. Both portions of the salary are pensionable.
Retirement age for the President is 60 years. Pension is payable
at 65% of the pension-carrying salary (defi ned according to ITP plan,
and free car benefi t) at the time of retirement for the period up to the
age of 65. The pension commitment is secured via endowment or
pension insurance taken out by LKAB with an insurance company.
The pension commitment is benefi t-defi ned and vested.
From the age of 65, pension is payable in accordance with the ITP
plan with a supplement for old-age pension of at least 50% of the
pension-carrying salary (defi ned according to ITP plan) at the time
of retirement. The supplementary pension commitment is secured
via endowment or pension insurance taken out by LKAB with an
insurance company. In addition to the ITP plan’s family pension
(survivor annuity), a special family pension is payable (extended
survivor annuity).
Any bonus paid on endowment or pension insurance policies ac-
crues in its entirety to the President as increased pension.
The President is entitled to a period of notice of two years on
termination by the company and six months on termination by the
President. No severance payments are made.
For other senior executives (eight persons, of which two retired
during 2005) who were members of Group Management at the start
of 2005, the retirement age is 60 years. Pension is payable at 65%
(75% for the two persons who retired in 2005) of the pension-carry-
ing salary (defi ned according to ITP plan, and free car benefi t) at the
time of retirement for the period up to the age of 65. The pension
commitment is secured via endowment or pension insurance taken
out by LKAB with an insurance company. The pension commitment
is benefi t-defi ned and vested.
From the age of 65, pension is payable in accordance with the
ITP plan with a supplement for salary segments between 30 and 50
base amounts. The supplement is 32.5% of the pensionable salary
(defi ned according to the ITP plan). The obligation above and bey-
ond the general pension plan is secured via endowment insurance
taken out by LKAB with an insurance company. In addition to the ITP
plan’s family pension (survivor annuity), a special family pension is
payable (extended survivor annuity).
Any bonus paid on endowment or pension insurance policies ac-
crues in its entirety to the senior executives as increased pension.
For the senior executives (two persons) who were appointed to
Group Management during 2005, the retirement age is 62 years. The
pension is contribution-defi ned and is secured via endowment in-
surance taken out by LKAB with an insurance company. Premiums
amount to 14-17% of basic annual salary.
For other senior executives, notice of termination is six months
for both parties. When notice of termination of employment is given
by the company, the severance pay is the equivalent of 18 monthly
salaries.
The term of notice for the former President expired on 31 Decem-
ber 2005.
Remuneration and benefi ts to Board members and senior manage-
ment
The Chairman of the Board, Björn Sprängare, received a director’s
fee of MSEK 0.2 for 2005. Other members of the Board, elected by
the Annual General Meeting, received MSEK 0.1 (0.1) each. Remune-
ration in addition to a director’s fee was not paid to Board members
who are not employed by the company. Employee representatives
who are Board members have each received MSEK 0.1 (0.1). A sum-
mary of taxable remuneration and benefi ts, as well as pension costs
for the President and other senior executives in 2005 is given below
(amounts in SEK ’000).
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
87
Remuneration and other benefi ts during the year
Variable Other Total Pension
Salary remuneration benefi ts 3) remuneration costs 4)
President and CEO Martin Ivert 3 898 69 3 967 10 412*
VP Håkan Sundin 1) 1 145 608 38 1 791 6 046
VP Lars-Eric Aaro 1 876 101 1 977 1 340
VP Leif Boström 2) 796 31 827 356
VP Anders Furbeck 1 630 76 1 706 1 034
VP Bengt Hjärpe 1 441 723 14 2 178 7 155
VP Jan-Erik Jatko 1 766 75 1 841 2 724
VP Ola Johnsson 2 012 66 2 078 1 099
VP Mats Pettersson 2) 835 31 866 317
VP Leif Rönnbäck 1) 1 534 794 66 2 394 7 589
VP Per-Erik Lindvall 1 851 121 1 972 1 677
Total 18 784 2 125 688 21 597 39 749
1) VP Håkan Sundin retired from LKAB with pension 15 September 2005.
VP Leif Rönnbäck retired from LKAB with pension 31 December 2005.
2) Only part of 2005.
3) Other benefi ts include allowances for car, food, life insurance benefi ts and housing allowances for two people.
4) Pension cost includes special employer’s contribution (tax).
* the corresponding pension cost for 2004 amounted to 11 130 000 kronor, of which 843 000 kronor was prepaid for 2005.
In accordance with the Board’s decision, the system of variable remuneration to members of Corporate Management, with the exception
of those who have only a short time remaining until retirement or who have retired during the year, has been terminated during 2005.
NOTE 27 Employee benefi ts (cont.)
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
88
NOTE 28 ProvisionsGroup
MSEK 2005-12-31 2004-12-31
Provisions that are long-term liabilities
Pensions 1 690 1 504
Deferred tax liability 1 891 724
Other provisions 303
Totalt 3 884 2 228
Provisions that are current liabilities
Pensions 109 116
Emissions rights 59
Total 168 116
Parent Company
MSEK 2005-12-31 2004-12-31
Provisions
Pensions and similar commitments 1 542 1 349
Other provisions 360
Total 1 902 1 349
Payments
MSEK 2005-12-31 2004-12-31
Group
Amount of provision expected to be paid after more than 12 months 3 716 2 112
Parent Company
Amount of provision expected to be paid after more than 12 months 1 807 1 255
MSEK 104 for restructuring of operations in Narvik is included in
the Group’s pension provisions. The corresponding amount for the
Parent Company is MSEK 74.
Other provisions include MSEK 241 attributable to ground
deformations in Kiruna that have been caused by mining. LKAB
has reached agreements with Vattenfall and Banverket concer-
ning compensation for facilities that must be relocated as a result
of deformations. In addition, MSEK 119 is included for allocated
emissions rights for 2006 and 2007, of which MSEK 59 is reported as
short-term liability in the Group.
NOTE 29 Accrued expenses and prepaid revenues Group Parent Company
MSEK 2005-12-31 2004-12-31 2005-12-31 2004-12-31
Electricity 52 37 46 31
Payroll and employee costs 335 281 294 245
Forward exchange contracts, deduction 61 61
Forward exchange contracts 237
Accrued accounts payable 160 91 136 64
Other 76 60 29 31
921 469 566 371
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
89
LKAB is exposed to various types of fi nancial risks. Financial risks
are associated with fl uctuations in the company’s earnings and cash
fl ow as a result of currency exchange-rate fl uctuations, interest
rates, refi nancing and credit risks. Financial risks are managed ac-
cording to policies established by the Board. LKAB has a centralized
fi nance function, LKAB Treasury Center, which manages most of
the Group’s fi nancial risks. A selective strategy is applied, whereby
potential costs and benefi ts are balanced, the aim being to minimize
and neutralize risks in commercial fl ows. LKAB Treasury Center also
acts as the Group’s internal bank and supports subsidiaries with
fi nancing, investment and currency trading, and functions as an
advisor with respect to fi nancial issues.
Currency risk
Both LKAB’s future payment fl ows (transaction exposure) and
revaluation of receivables and liabilities in foreign currencies (reva-
luation exposure) are exposed to risks associated with fl uctuations
in exchange rates. Other companies in the Group mainly conduct
business in their local currencies, and both investment and fi nancing
are done mainly in local currencies so as to minimize revaluation
exposure.
Transaction exposure
The greatest transaction exposure within the LKAB Group is within
the Mining Division. All prices of iron ore are set in US dollars,
which means that the transaction risk is high without hedging. The
exact magnitude of this risk is diffi cult to ascertain far in advance,
since it is largely dependent on the market price of iron ore, which
is normally set annually. During 2005, the transaction exposure
amounted to MUSD 1 500, and the effect of a difference of SEK 0.1
in the USD/SEK exchange rate on LKAB’s operating profi t, without
hedging, is therefore MSEK150.
The goal of LKAB’s current currency policy is to minimize the
impact of exchange rate fl uctuations on the income statement by
means of selective risk-taking, so the value of future transaction
exposure is periodically hedged. The Board has set up a currency
committee that convenes whenever necessary to advise the Board
on hedging of the Mining Division’s commercial fl ows. For other
companies in the Group, transaction exposure arises mainly when
raw materials are purchased in foreign currencies. All hedging of
commercial transactions by subsidiaries must be done through the
LKAB Treasury Center.
NOTE 30 Financial risks and fi nance policies
The Group’s transaction exposure, distributed over the following
contract currencies:
Group
2005 Effect on
Currency Amount Change profi t
USD +1.500 SEK 0.01 MSEK 15
NOK -200 SEK 0.01 MSEK 2
GBP +10 SEK 0.01 MSEK 0.1
Transaction exposure in US dollars during 2005 was hedged to 84%
via currency derivatives.
Outstanding forward exchange contracts at closing day
Maturity MUSD Hedging rate
2006 -1.035 7.60
2007 -180 8.03
The Group applies hedge accounting and classifi es its forward cont-
racts used to hedge forecasted transactions as cash fl ow hedges.
The net fair value of forward exchange contracts used to hedge fore-
casted fl ows amounted to MSEK -298 (987) as of 31 December 2005.
Translation exposure
LKAB does not normally hedge its translation exposure. Over time,
this is not considered to add any value for the Group, even though
the level of exposure has increased in recent years due to the expan-
sion of the Minerals Division
Group
2005
Currency Amount in millions
EUR 22
GBP 22
USD 10
DKK 66
Interest rate risk
LKAB’s fi nancing sources are shareholders’ equity, provisions and
short-term operating credits, which means that LKAB is mainly
exposed to interest rate risks with regard to investments of liquid
assets. According to LKAB’s investment policy, the average dura-
tion of money-market investments may not exceed three years. At
maximum duration, a change of one percentage point in the market
rate of interest affects LKAB’s earnings by about MSEK 80-120, de-
pending on composition of the instruments in the portfolio. As of 31
December 2005, LKAB’s investments in money-market instruments
amounted to MSEK 5 947 (3 917). The duration was 356 (386) days.
A one-percent increase in the market rate as of closing day would
have affected income negatively by MSEK 54 (42).
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
90
NOTE 30 Financial risks and fi nance policies (cont.)
Fair value
Fair value and reported value are stated on the balance sheet below.
Group
Reported Fair Reported Fair
value value value value
MSEK 2005 2005 2004 2004
Financial fi xed assets 1 253 1 253 121 771
Interest-bearing instruments, short-term holdings 3 265 3 265 1 687 1 699
Shares, short-term holdings 784 784 341 404
Trade accounts receivable and other receivables 2 102 2 102 1 360 1 360
Liquid assets (incl. short-term investments, equated with liquid assets) 3 042 3 042 2 488 2 488
Forward exchange contracts (USD) -298 -298 30 987
Embedded derivatives -4 -4 - 1
Accounts payable and other liabilities -1 006 -1 006 -629 -629
9 138 9 138 5 398 7 081
Undisclosed profi ts 1 683
Parent Company
Reported Fair Reported Fair
value value value value
MSEK 2005 2005 2004 2004
Financial fi xed assets 110 1 253 121 771
Interest-bearing instruments, short-term holdings 3 255 3 265 1 687 1 699
Shares, short-term holdings 619 784 341 404
Trade accounts receivable and other receivables 3 129 3 129 2 113 2 113
Liquid assets (incl. short-term investments, equated with liquid assets) 2 936 2 936 2 392 2 392
Forward exchange contracts (USD) -61 -298 30 987
Embedded derivatives 0 -4 0 1
Accounts payable and other liabilities -1 714 1 714 -887 -887
8 274 9 351 5 797 7 480
Undisclosed profi ts 1 077 1 683
Fair value calculation
The following is a summary of the principal methods and assump-
tions used in determining the fair value of fi nancial instruments
reported in the table above.
Securities
For listed fi nancial assets, fair values correspond to the asset’s
buying rate on the balance sheet date.
Derivative instruments
Forward exchange contracts are valuated at current market price by
using quoted market prices. The discount rate used is the market
interest rate on similar instruments quoted on closing day.
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
Credit risk
LKAB’s credit risks are mainly associated with trade accounts
receivable and short-term investments. As far as credit risks in
trade accounts receivable are concerned, LKAB prioritizes long-term
customer relations, which means that the majority of the customers
are well-established contacts. Export letters of credit are used when
deemed necessary. LKAB has not had any bad debt losses in the
past fi ve years.
According to LKAB’s investment policy, investments may only
be made in borrowers with high creditworthiness and high liquidity
such as the Swedish state, companies wholly owned by the Swedish
state, county councils, municipalities or companies with the highest
credit rating. As of closing day, 96% (96%) of investments in money-
market instruments were issued by the Swedish state and Swedish
banks. LKAB has not had any bad debt losses in short-term invest-
ments in the past fi ve years. LKAB does not have any substantial
concentration of credit risks in any single customer or counterparty.
Liquidity risks
LKAB maintains good fi nancial preparedness by following guideli-
nes which regulate risk-taking and the investment horizon. LKAB
has a high proportion of liquid assets and a low debt/equity ratio. A
good balance between short and long investment horizons will meet
the long-range fi nancing need. Liquid assets are invested primarily
on the Swedish money market in securities with high liquidity.
91
NOTE 31 Operating leasingLeasing agreements in which the company is the lessee
Non-cancelable lease payments amount to:
Group
MSEK 2005 2004
Within one year 5
Between one and fi ve years 12
Longer than fi ve years 10
27
NOTE 33 Assets pledged and contingent liabilities Group Parent Company
MSEK 2005-12-31 2004-12-31 2005-12-31 2004-12-31
Assets pledged
In the form of assets pledged for liabilities and provisions
Chattel mortgaes 3 3
Company-owned endowment insurance 86 55 85 55
Deposit of liquid assets 63 - 63 -
Total assets pledged 152 58 148 55
Contingent liabilities
Guarantees, FPG/PRI 9 9 9 9
Guarantees, GP plan 1 1 2 1
Sureties 8 - 16
Other 48 - -
Forward exchange contracts 441 -
Total contingent liabilities 66 10 452 26
The Group’s future leasing fees are dominated by a land lease. The
remaining term of the leasing agreement is 13 years. In the fi nancial
statement for 2005, an expense that refers to operating leasing in
the Group is reported at MSEK 3 (-), of which MSEK 3 (-) is attributa-
ble to minimum leasing fees and MSEK - (-) variable fees.
There are no signifi cant leasing agreements in the Parent
Company.
NOTE 32 Contractual obligations
At year-end, the Group’s remaining contractual obligations to
acquire tangible fi xed assets amounted to MSEK 4 125. Of these
obligations, MSEK 1 997 is expected to be paid during the fi scal
year 2006. The Parent Company’s obligations amounted to 3 926, of
which MSEK 1 882 is expected to be paid during 2006.
There are obligations (both formal and informal) with respect to
structural transitions in Kiruna. As a consequence of the deforma-
tion zone resulting from mining operations, considerable costs for
LKAB can arise during the coming years. The future costs, or the
share of costs to be assumed by LKAB, cannot be estimated in a
reliable way, which is why no provisions have yet been made.
Future closure of operations may entail statutory requirements
for site remediation, etc. The future costs cannot be estimated in a
reliable way, which is why no provision for costs is made.
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
92
NOTE 34 Related parties
Deliveries of iron ore to SSAB have amounted during the year to
5.3 (5.4) Mt. For information concerning related-party transactions
with Vattenfall AB, please refer to the section on Secured electricity
deliveries in the Report of the Directors.
In 1997, LKAB made a participating loan with a nominal amount
of MSEK 40 to the associated company Norrskenet AB.
The loan has a remaining maturity of 6 years. Interest is paid an-
nually and amounted to SEK 172 000 (80 000) in 2005.
Related-party relations
The Group is subject to the controlling infl uence of the Swedish
state. Aside from the close relationships that the Parent Company
has with its subsidiaries (see Note 35), the Group has related-party
transactions with Svenskt Stål AB (SSAB) via shareholding, and with
Vattenfall AB via a long-term energy agreement.
Summary of related-party transactions
Group
Sales of Purchase of Liabilities to Receivables from
goods to goods from Related parties Related parties
Related-party relation Year Related parties Related parties 31 December 31 December
Associated companies 2005 13 1 37
Associated companies 2004 11 - 42
Parent Company
Sales of Purchase of Liabilities to Receivables from
goods to goods from Related parties Related parties
Related-party relation Year Related parties Related parties 31 December 31 December
Subsidiaries 2005 237 1 102 942 1 277
Subsidiaries 2004 203 978 474 972
Associated companies 2005 13 1 35
Associated companies 2004 11 - 40
The principal will be repaid in full in 2011, at which time profi t
shares will also be distributed.
Transactions with key individuals in leading positions are repor-
ted in Note 6 and Note 27.
Transactions with related parties are priced and conducted in ac-
cordance with commercial principles.
NOTE 35 Group companiesParent Company
MSEK 2005-12-31 2004-12-31
Accumulated acquisition values
At start of year 607 518
Purchases 100
Sales -11
Closing balance 31 December 607 607
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
93
Specifi cation of the Parent Company’s ownership of participations in associated companies
Ownership Ownership 2005-12-31 2004-12-31
in % in % Reported Reported
Subsidiary / Corp. ID No. / Registered offi ce Total shares 2005 2004 value value
Swedish subsidiaries
Fastighets AB Malmfälten /556009-8849/ Kiruna 5 000 100.0 100.0 0 0
Wassara AB /556331-8566/ Stockholm 12 000 60.0 60.0 5 5
AB Kiruna Grus & Stenförädling /556074-8237 /Kiruna 24 000 100.0 100.0 47 47
LKAB Nät AB /556059-9796/ Kiruna 10 100.0 100.0 0 0
Minelco AB /556223-1786 /Luleå 2 000 000 100.0 100.0 200 200
LKAB Försäkrings AB /516406-0187 / Luleå 10 000 100.0 100.0 100 100
Malmtrafi k i Kiruna /556031-4808 / Kiruna 208 000 100.0 100.0 252 252
Foreign subsidiaries
AS Bukserbåter /918 271 252/ Narvik, Norway 99 99.0 99.0 0 0
AS Taraldsvik /918 400 184/ Narvik , Norway 200 100.0 100.0 0 0
LKAB Far East Pte Ltd /198401144W/ Singapore, Singapore 200 000 100.0 100.0 1 1
LKAB S.A. /403 455 761/ Brussels 100 100.0 100.0 0 0
LKAB Schwedenerz GmbH /HRB 718/ Essen 100 100.0 100.0 2 2
Total, Parent Company 100.0 100.0 607 607
Indirect ownership via the subsidiary Minelco AB
Minelco B.V /24236591/ Breda, Netherlands 100.0 100.0
Minelco Inc /02-0551509/ Cincinnati, USA 100.0 100.0
Minelco GmbH /HRB 16692/ Essen, Germany 100.0 100.0
Minelco Asia Pacifi c Ltd /876455/ Hong Kong, Hong Kong 100.0 100.0
Minelco Ltd /0245817/ Welton, UK 100.0 100.0
Minelco OY /1934671-4/ Helsingfors, FInland 100.0 100.0
Likya Minelco/-/Izmir, Turkey 50.0
Seqi Olivine AS/A/S277716/Nuuk, Greenland 100.0 50.0
Minelco Holding Ltd / 04621769/ Derby, UK 100.0 100.0
Minelco Tianjin Minerals Co /70051551-5/ Dongli District Tianjin, China 100.0 100.0
Minelco Minerals Ltd /00103751/ Derby, UK 100.0 100.0
Quay Minerals Ltd /02732626/ Flixborough, UK 100.0 100.0
Tianjin Jindalai Mineral /60089030-X/ Dongli District Tianjin, China 100.0 100.0
Fergusson Wild & Co Ltd /2529921/ West Sussex, UK 100.0 100.0
Fordamin Company Ltd /00925517, UK 100.0 100.0
Minelco Specialities Ltd /1151578/ Derby, UK 100.0 100.0
Microfi ne Hellas A.E./-/Thessaloniki, Greece 100.0 100.0
Indirect ownership via the subsidiary AB Kiruna Grus & Stenförädling
AB KGS Mekaniska /556013-3059/ Kiruna 100.0 100.0
AB KGS Contracting /556412-5010/ Kiruna 100.0 100.0
Kimit AB /556190-6115/ Kiruna 100.0 100.0
Indirect ownership via the subsidiary Malmtrafi k i Kiruna AB
Malmtrafi kk AS /974 644 991/ Narvik, Norway 100.0 100.0
Indirect ownership via the subsidiary AS Taraldsvik
LKAB Norge AS /930 033 510/ Narvik, Norway 100.0 100.0
NOTE 35 Group companies (cont.)
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
94
NOTE 36 Untaxed reservesParent Company
MSEK 2005-12-31 2004-12-31
Accumulated depreciation in excess of plan:
Buildings and land
Opening balance 1 January 15 17
Accelerated depreciation -2 -2
Closing balance 31 December 13 15
Machinery and inventories
Opening balance 1 January 1 882 2 065
Accumulated depreciation in excess of plan 163
Accelerated depreciation -183
Closing balance 31 December 2 045 1 882
Construction in progress
Opening balance 1 January 69 69
Closing balance 31 December 69 69
Underground installations
Opening balance 1 January 14 16
Accumulated depreciation in excess of plan
Disposals, retirements and dissolution -3 -2
Closing balance 31 December 11 14
Tax allocation reserves
Allocated at 2001 assessment 73 73
Allocated at 2003 assessment 147 147
Allocated at 2004 assessment 294 294
Allocated at 2005 assessment 500 500
Allocated at 2006 assessment 1 410
Closing balance 31 December 2 424 1 014
Total untaxed reserves 4 562 2 994
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
95
NOTE 37 Cash fl ow statementLiquid assets - Group
MSEK 2005-12-31 2004-12-31
The following sub-components are included in liquid assets
Cash and bank balances 336 238
Short-term investments, equated with liquid assets 2 706 2 250
Total according to balance sheet 3 042 2 488
Total according to cash fl ow statement 3 042 2 488
Liquid assets - Parent Company
MSEK 2005-12-31 2004-12-31
The following sub-components are included in liquid assets
Cash and bank balances 240 162
Short-term investments, equated with liquid assets1) 2 696 2 230
Total according to balance sheet 2 936 2 392
Total according to cash fl ow statement 2 936 2 392
1) Liquid assets include short-term investments that have been classifi ed as liquid assets according to the following:
• They entail insignifi cant risk for value fl uctuations
• They can be easily converted to cash
• They have a maturity of at most three months from date of acquisition
Interest paid and dividends received
Group Parent Company
MSEK 2005 2004 2005 2004
Dividends received 47 35 65 91
Interest received 362 125 400 161
Interest paid -2 -2 -8 -8
407 158 457 244
Adjustments for items not included in cash fl ow
Group Parent Company
MSEK 2005 2004 2005 2004
Depreciation 951 1 079 791 919
Write-downs 8 - 5
Unrealized exchange rate differences -34 5
Changes in value of fi nancial instruments -101
Income from sale and retirement of tangible assets 55 37 34 27
Income from sale of fi nancial assets -89 - -89
Provisions for pensions 108 -37 193 2
Other items that do not affect liquidity 14 - 1
Other provisions 244 - 242
1 156 1 084 1 176 949
Tax paid
Group Parent Company
MSEK 2005 2004 2005 2004
Tax expense according to income statement -1 904 -456 -1 251 -460
Change in tax recoverable/liability -236 161 -302 145
Adjustment for deferred tax 606 -3 -35 -1
Regulation of provisions for taxes - -20 - -20
Adjustment for tax effect of Group contributions 105 41
- 1 534 -318 -1 483 -295
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
96
This fi nancial report for the Group is the fi rst prepared according to
IFRS, as indicated in Note 1.
The accounting principles in Note 1 have been applied in the pre-
paration of the Group’s fi nancial reports for fi scal year 2005 and for
the comparative year, 2004, as well as for the Group’s opening ba-
lance on January 1, 2004, with the exception of IAS 32 and 39, which
in accordance with exceptions in IFRS 1,are applied only to 2005.
NOTE 38 Explanations with regard to the transition to IFRS
In the preparation of the Group’s opening balance sheet, amounts
reported according to previously applied accounting principles have
been adjusted to IFRS. Explanations on how the transition from
previous accounting principles to IFRS has affected the Group’s
fi nancial position, fi nancial results and cash fl ows are provided in
the following tables and explanations.
With regard to the application of IAS 32 and 39 as of January 1,
2005, see Note 39.
Reconciliation of shareholders’ equity
Effect of Effect of
Previous transition Previous transition
principles to IFRS IFRS principles to IFRS IFRS
MSEK Note 1 Jan. 2004 31 Dec. 2004
Assets
Intangible assets A 182 182 198 13 211
Tangible assets 6 476 6 476 6 316 6 316
Participations in associated companies and joint ventures 4 4 33 33
Financial investments 121 121 124 124
Long-term receivables 71 71 62 22
Total fi xed assets 6 855 6 855 6 733 13 6 746
Inventories, etc. 976 976 1 008 -2 1 006
Taxes recoverable 9 9 8 8
Accounts receivable 1 198 1 198 1 194 1 194
Prepaid expenses and accrued revenues 106 106 83 83
Other receivables 201 201 102 2 104
Short-term investments 712 -432 280 2 690 -662 2 028
Cash and bank balances 2 232 432 2 644 1 826 662 2 488
Total current assets 5 434 5 434 6 911 6 911
Total assets 12 289 12 289 13 644 13 13 657
Shareholders’ equity
Share capital 700 700 700 700
Other reserves -11 -11
Accumulated profi t or loss B 8 064 8 064 9 342 13 9 355
Shareholders’ equity attributable to Parent Company shareholders 8 764 8 764 10 031 13 10 044
Minority interest 4 4 3 3
Total shareholders’ equity 8 768 8 768 10 034 13 10 047
Liabilities
Other long-term liabilities 2 2 2 2
Provisions for pensions 1 654 1 654 1 620 -116 1 504
Other provisions 20 20 1 1
Deferred tax liability 727 727 724 724
Total long-term liabilities 2 403 2 403 2 347 -116 2 231
Accounts payable - trade 523 523 497 497
Income tax payable 8 8 168 168
Other liabilities 161 161 129 129
Accrued expenses and prepaid revenues 426 426 469 469
Provisions for pensions 116 116
Total current liabilities 1 118 1 118 1 263 116 1 379
Total liabilities 3 521 3 521 3 610 3 610
Total shareholders’ equity and liabilities 12 289 12 289 13 641 13 13 657
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
97
NOTE 38 Explanations with regard to the transition to IFRS (cont.)
Notes to reconciliation of shareholders’ equity
(A) In the Group’s fi nancial reports, IFRS 3 has been applied with respect to all acquisitions made from 1 January 2004, the date of transition
to IFRS. As of 1 January 2004, goodwill is no longer amortized. Instead it is tested for impairment annually or when there is an indication of
diminished value.
As a result of the above-stated adjustments, the reported value of goodwill has increased by MSEK 13. Reversals of goodwill amortization
from 2004 amount to SEK 13 (reported among cost of goods sold).
(B) The effect of the above-stated adjustments on accumulated profi t or loss is reported in the table below.
Group
MSEK 1 January 31 December
2004 2004
Goodwill 13
Total adjustments in shareholders’ equity 13
Attributable to:
the Parent Company’s shareholders 13
Minority interest 13
Reconciliation of income statement for 2004
Group
Effect of
According to transition According
MSEK Note Sw GAAP to IFRS to IFRS
Net sales 8 988 8 988
Cost of goods sold A -6 193 13 -6 180
Gross margin 2 795 13 2 808
Selling expenses -289 -289
Administrative expenses -353 -353
Research and development expenses -235 -235
Other operating expenses -197 -197
Other operating revenues 207 207
Operating income 1 928 13 1 941
Income from fi nancial items 227 227
Financial expenses -145 -145
Net fi nancial income/expense 82 13 82
Income before tax 2 010 13 2 023
Tax -456 -456
Net income for the year 1 554 13 1 567
Attributable to:
Parent Company shareholders 1 555 13 1 568
Minority interest -1 -1
Earnings per share 2 221 2 240
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
98
Reconciliation of shareholders’ equity
Effect of
transition to
MSEK 2004-12-31 IAS 39 2005-01-01
Assets
Intangible assets 211 211
Tangible assets 6 316 6 316
Participations in associated companies and joint ventures 33 33
Financial investments 124 650 774
Long-term receivables 62 62
Total fi xed assets 6 746 650 7 396
Inventories, etc. 1 006 1 006
Taxes recoverable 8 8
Accounts receivable 1 194 1 194
Prepaid expenses and accrued revenues 83 959 1 042
Other receivables 104 104
Short-term investments 2 028 74 2 102
Cash and bank balances 2 488 2 488
Total current assets 6 911 1 033 7 944
Total assets 13 657 1 683 15 340
Shareholders’ equity
Share capital 700 700
Other reserves -11 1 157 1 146
Accumulated profi t or loss 9 355 55 9 410
Shareholders’ equity attributable to Parent Company shareholders 10 044 1 212 11 256
Minority interest 3 3
Total shareholders’ equity 10 047 1 212 11 259
Liabilities
Other long-term liabilities 2 2
Provisions for pensions 1 504 1 504
Other provisions 1 1
Deferred tax liability 724 471 1 195
Total long-term liabilities 2 231 471 2 702
Accounts payable - trade 497 497
Income tax payable 168 168
Other liabilities 129 129
Accrued expenses and prepaid revenues 469 469
Provisions for pensions 116 116
Total current liabilities 1 379 1 379
Total liabilities 3 610 471 4 081
Total shareholders’ equity and liabilities 13 657 1 683 15 340
According to IFRS, fi nancial assets are classifi ed as ”Financial assets
held for sale” and all derivative instruments have been recognized
at fair value.
The effect of recognizing shares and share-related securities, clas-
sifi ed as fi nancial assets held for sale, at fair value is that fi nancial
assets and fair value reserve increase by MSEK 650 and MSEK 468,
respectively, as of 1 January 2005. Deferred tax amounts to MSEK
182.
NOTE 39 Change in accounting principles 1 January 2005
Valuation of forward exchange contracts at fair value has
increased the reported value of derivative instruments and the
hedging reserve by MSEK 959 and MSEK 691, respectively, as of 1
January 2005. Deferred tax amounts to MSEK 268.
The income for 2005 has not been affected, since all changes in
value have been booked against shareholders’ equity.
For further information, see the note on ”Compilations of chan-
ges in shareholders’ equity - LKAB Group”.
N O T E S T O T H E F I N A N C I A L S T AT E M E N T S
L K A B A N N U A L R E P O R T 2 0 0 5
99P R O P O S E D D I S P O S I T I O N O F U N A P P R O P R I AT E D E A R N I N G S
L K A B A N N U A L R E P O R T 2 0 0 5
The Board of Directors and President propose that unappropriated earnings of MSEK 8 471 be distributed as follows:Dividend, 700 000 shares x 2 143 kronor per share MSEK 1 500Funds to be carried forward MSEK 6 971
Total MSEK 8 471
The Board of Directors and the President certify that, to the best of our knowledge, the fi nancial statements have been prepared in accordance with generally accepted accounting principles. The information presented is consistent with the actual conditions and that nothing of material importance has been omitted that would affect the picture of the Group and Parent Company presented in the fi nancial statements.
Luleå, 22 February 2006
Proposed disposition of unappropriated earnings
The Annual Report and consolidated fi nancial statements have, as stated above, been approved for publication by the Board of Directors on 22 February 2006. The consolidated income statement and balance sheet, and the Parent Company income statement and balance sheet will be subject to approval by the Annual General Meeting on 25 April 2006.
Our Audit Report was submitted on 7 March 2006.
KPMG Bohlins AB
Roland Nilsson Annicka Brännström Authorized public accountant Authorized public accountant Chief accountant
Björn Sprängare Chairman
Christer Berggren Stina Blombäck Per-Ola Eriksson
Lars-Åke Helgesson Anna-Greta Sjöberg Ursula Tengelin Egil M. Ullebø
Tomas Nilsson Bertil Thornberg Karl Wikström Employee representative Employee representative Employee representative
Martin Ivert President and CEO
100 R E V I S I O N S B E R Ä T T E L S E
L K A B A N N U A L R E P O R T 2 0 0 5
We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the board of directors and the managing director of Luossavaara-Kiirunavaara AB for the year 2005. The board of di-rectors and the managing director are responsible for these accounts and the administration of the company as well as for the application of the Annual Accounts Act when preparing the annual accounts and the application of Interna-tional Financial Reporting Standards IFRSs as adopted by the EU and the Annual Accounts Act when preparing the consolidated accounts. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit.
We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards re-quire that we plan and perform the audit to obtain high but not absolute assurance that the annual accounts and the consolidated accounts are free of material misstatement. An audit includes examining, on a test basis, evidence sup-porting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the board of directors and the managing director and signifi cant estimates made by the board of directors and the managing director when preparing the annual accounts and the consolidated accounts as well as evaluating the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined signifi cant decisions, actions taken and circumstan-ces of the company in order to be able to determine the liability, if any, to the company of any board member or the managing director. We also examined whether any board member or the managing director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below.
The annual accounts have been prepared in accordance with the Annual Accounts Act and give a true and fair view of the company’s fi nancial position and results of operations in accordance with generally accepted accounting princi-ples in Sweden. The consolidated accounts have been prepared in accordance with International Financial Reporting Standards IFRSs as adopted by the EU and the Annual Accounts Act and give a true and fair view of the group’s fi nan-cial position and results of operations. The statutory administration report is consistent with the other parts of the an-nual accounts and the consolidated accounts.
We recommend to the annual meeting of shareholders that the income statements and balance sheets of the pa-rent company and the group be adopted, that the profi t of the parent company be dealt with in accordance with the proposal in the administration report and that the members of the board of directors and the managing director be discharged from liability for the fi nancial year.
Audit ReportTo the annual meeting of the shareholders of Luossavaara-Kiirunavaara ABCorporate identity number 556001-5835
Luleå, 7 March 2006KPMG Bohlins AB
Roland Nilsson Annicka Brännström Authorized public accountant Authorized public accountant
Chief accountant
Corporate Governance of LKABLKAB is wholly owned by the Swedish state. The basis for corporate governance
of LKAB is Swedish legislation, guidelines from the state and internal guidelines.
The State Ownership Policy dictates that the Swedish Code of Corporate Governance (the Code) must serve as part of the government’s framework for ownership admi-nistration.
LKAB has decided to adhere as much as possible to the Code, accept in areas where state ownership does not permit. Introduction of appropriate sections of the Code is expected to be completed during 2006.
LKAB’S OPERATIONS
LKAB’s operations are capital intensive. Compared to oth-er iron ore companies, nearly all of which mine their ore in open pits, LKAB has a heavier capital burden, since under-ground mining demands more extensive investments.
The operation is also strongly dependent on business cycles. Therefore, LKAB must have substantial fi nancial strength to be able to cope with cyclical fl uctuations over several years and to be able to fi nance the heavy invest-ments that will secure the company’s future.
Against this background, the long-term requirement on rate of return on operating assets has been set at 10%, measured over a business cycle. During the years 2002-2005, return on operating assets has been 2, 11, 23 and 58%, respectively.
LKAB has built up a high proportion of liquid assets and has a low debt/equity ratio. Liquid assets are inves-ted primarily on the Swedish money market in securities with high liquidity and low credit and interest-rate risk. The goal is that the rate of return on managed cash as-sets should exceed the money-market index over the long term.
LKAB is in a phase of strong development, due in part to the broadening into new minerals and market seg-ments that is now under way, and partly owing to strong growth in the Mining Division. Our assessment is that de-mand for LKAB’s products will grow in the coming years. This will create conditions for further growth through in-vestments in, for example, new pelletizing plants and new main levels.
The Board believes that the company is capable of ma-naging this growth if the current dividend policy is main-tained. LKAB can then use the strong fi nancial platform the company now has to ensure continued profi table de-velopment within its business areas.
OWNERSHIP
LKAB is wholly owned by the Swedish state, represen-ted by the government and the Ministry of Industry,
Employment and Communications. The owner’s princi-pal objective is to create value. State-owned companies can in principle be divided into two groups: companies that primarily have special societal interests to fulfi ll and companies operating under market conditions and requi-rements. LKAB, which belongs to the latter category, will develop a successful business operation by mining, pro-cessing and marketing minerals.
The owner’s income and yield requirements for LKAB are on normal market terms. LKAB’s dividend policy en-tails that the dividend to the owner will, over the long term, amount to 30-50% of income after tax and be adapted to the average earnings level over a business cycle. The state exercises its ownership via an established owner-ship policy, nominations to the Board and requirements for fi nancial and other reporting. The state’s requirement of insight is assured by direct owner representation on the Board. Reports to the owner are important steering instruments for the ongoing monitoring and assessment of the companies. State-owned companies should have at least the same level of transparency as listed companies.
In the Board’s instructions, distribution of responsi bility between the Board and the owner is regulated. According to the Board’s statutory instructions, the Board, via the Chairman, coordinates its views on issues of decisive im-portance with the owner’s representatives. Such issues include strategic changes in the company’s operations, major acquisitions, mergers or divestments, as well as decisions affecting signifi cant changes in the company’s risk profi le or balance sheet.
ANNUAL GENERAL MEETING
LKAB’s Annual General Meeting is open to the public. No-tice of the Annual General Meeting is made via LKAB’s website and via newspaper advertisements. The public is entitled to submit questions to the AGM. Questions to the AGM may also be submitted via the website. As of 2005, the minutes of Annual General Meetings are posted on LKAB’s website.
The meeting decides on remuneration to the Chairman and other board members, as well as any remuneration for committee work.
The Annual General Meeting for 2005, which was LKAB’s fi rst shareholders’ meeting open to the public, was held on 28 April. About 100 people attended the meeting. An extraordinary general meeting was held on 18 September.
CORPORATE GOVERNANCE REPORT
C O R P O R AT E G O V E R N A N C E O F L K A B
L K A B A N N U A L R E P O R T 2 0 0 5 101
NOMINATIONS/ APPOINTMENT OF MEMBERS OF
THE BOARD AND AUDITORS
Since LKAB is wholly state-owned, it does not have a no-mination committee per se, as defi ned by the Code. The nomination committee prepares the meeting’s decisions on matters relating to appointments. The chair of the meetings is appointed by the owner’s representative at the meeting.
BOARD OF DIRECTORS
According to LKAB’s Articles of Incorporation, the Board of Directors will consist of not less than six and not more than 11 members with not more than seven deputies. The President is responsible for ensuring that newly elected board members undergo an introductory course. Owing to the introduction of the Code and the new Companies Act, the Articles of Incorporation will be updated during 2006.
Normally six ordinary meetings are held each year: in February, April, June, August, November and December. The meetings follow a fi xed calendar to ensure that the Board’s need for information is satisfi ed.
A board meeting held at the end of each quarter consi-ders the interim fi nancial reports for the most recent quar-ter as well as the forecast for the coming four quarters. This allows the Board to make an ongoing assessment of strategies and delegations to the President and to decide on specifi c investment projects.
Normally the fi rst meeting of the year is at the year-end closing, when LKAB’s auditors also participate. The second is a strategy meeting with an emphasis on person-nel development matters combined with a presentation of the interim accounts. The third and fourth meetings also address issues pertaining to operations and strategy.
The emphasis of the fi fth meeting is on the market si-tuation. At the sixth and fi nal meeting, the strategic plan for the coming three to four years is revised.
Each year, the Board of Directors establishes its rules of procedure, essentially following the recommendation issued by the Ministry of Industry, Employment and Com-munications.
COMPOSITION OF THE BOARD
The Board of Directors of LKAB has consisted during the year of eight members who have no relation to the com-pany or its senior management and have been elected by the Annual General Meeting, plus three members withthree deputies appointed by the employees. Deputies of the employee representatives also participate in board meetings. The Board has an independent legal advisor who is also the permanent secretary. The President is not a member of the Board, but attends meetings of the Board. The Chairman is elected, as are the other board members, by the general meeting of shareholders, for one year.
THE WORK OF THE BOARD OF DIRECTORS DURING 2005
At the Annual General Meeting on 28 April, two board members, Hans Christer Olson and Carl Wilhelm Ros, stepped down from the Board. At an extraordinary meetingon 18 September, Anna-Greta Sjöberg was elected a mem-ber of the Board.
During the year, the Board has held seven meetings, one via telephone. Meetings are normally held in loca-tions where LKAB has operations, in Stockholm, or in conjunction with trips to LKAB’s market areas. In 2005, the Board visited Brazil. Attendance of the members of the Board is presented in the table below.
BOARD COMMITTEES
Currency committee
The Board has appointed a currency committee that will prepare and oversee the hedging program. The com-mittee, which is led by the Chairman of the Board, Björn
ATTENDANCE OF THE MEMBERS OF THE BOARD DURING 2005
24/2 28/4 20-21/6 25/8 4/11 19-23/11 15/12 (telephone)
Björn Sprängare x x x x x x x
Christer Berggren x x x x x x x
Stina Blombäck x x x x x x
Per-Ola Eriksson x x x x x x
Lars-Åke Helgesson x x x x x x x
Hans Christer Olson x
Carl Wilhelm Ros x
Anna-Greta Sjöberg x x x
Ursula Tengelin x x x x x x x
Egil M Ullebö x x x x x x x
Bertil Tornberg x x x x x x x
Tomas Nilsson x x x x x x x
Karl Wikström x x x x x x x
Hans Fängvall x x x x x x x
Tomas Kohkoinen x x x x x x x
Torsten Thorneus x x x x x x
C O R P O R AT E G O V E R N A N C E O F L K A B
L K A B A N N U A L R E P O R T 2 0 0 5102
Sprängare, includes board members Anna-Greta Sjöberg and Christer Berggren, Martin Ivert, President, Leif Boström, Vice President Finance, Clas-Göran Bergbom and Karl Wikström (employee representative on LKAB’s Board). The committee held three meetings during 2005. Minutes and reports from the meetings are submitted to LKAB’s Board.
Remuneration committee
The Board appoints a remuneration committee to prep-are decisions on terms of employment for the President. The remuneration committee can also support the work of the President in establishing the salaries of senior ex-ecutives and other key personnel. Proposals for incentive programs or other remuneration are prepared by the re-muneration committee for the decision of the Board or presentation to the annual general meeting of sharehol-ders. Decisions are documented and kept on record by the secretary of the Board.
Audit committee
The Board is responsible for the company having a for-malized and transparent system which ensures that the established principles for fi nancial reporting and internal control are complied with and that functional relations with the company’s auditors are maintained. The normal tasks of the audit committee have been performed by the Board during 2005.
An audit committee has been appointed in February 2006.
ASSESSMENT OF THE WORK OF THE BOARD
A written survey of the Board’s work, prepared annually, includes questions concerning how the Board collective-ly, and each member individually, has fulfi lled the tasks at hand. The evaluation report supports the work of the Board. The Chairman is responsible for following up the re-sults, which form a basis for discussion and improvement. The work of the Chairman is normally assessed by the ow-ner, but this may also be part of the work of the Board.
In recent years, the Board has assessed its work bymeans of a questionnaire completed by each board mem-ber. For 2004, this procedure was replaced by an in-depth interview, whereby the Chairman interviewed each AGM-elected board member and the employee representatives. The entire Board has access to the results of this evalua-tion, as does the President, where applicable.
ASSESSMENT OF THE WORK OF THE PRESIDENT
Evaluation of the President’s work is a fundamental task of the Board. A summary of the Board’s views is made by the Chairman, who presents a detailed outline of the President’s strengths and weaknesses as identifi ed by the Board.
FINANCIAL REPORTING AND INTERNAL CONTROL
The Board ensures the quality of fi nancial reporting and internal control in consultation with the company’s audi-
tors, who normally attend the fi rst board meeting of the year, which normally concerns the year-end fi nancial sta-tements.
To ensure the quality of the fi nancial statements, the Board considers all critical accounting questions and the fi nancial reports presented by the company. The Board also considers issues of internal control, compliance with regulations, signifi cant uncertainties in reported values, non-remedied errors, events after closing day, changes in estimates, any possible improprieties, and other condi-tions affecting the quality of fi nancial reporting.
EXTERNAL AUDITORS
The Annual General Meeting of 2003 appointed as the company’s auditors KPMG Bohlins until the close of the Annual General Meeting of 2007. The Chief Accountant is Roland Nilsson.
Remuneration to the auditors is stated in Note 7 of the Report of the Directors.
The auditors are engaged to review the interim reports as of 2005.
EXECUTIVE MANAGEMENT
The executive management consists of nine persons. The President’s duties and obligations are stated in the ins-tructions and formal work plan for the Board and Presi-dent. According to these, the President shall:• manage, plan, develop and control the company’s op-
erations in accordance with goals and strategies estab-lished by the Board;
• make provisions to ensure that the company’s accoun-ting complies with the law and that fi nancial assets are managed in a satisfactory manner;
• oversee the company’s operations with respect to com-pliance with legislation and regulations, ensure that the decisions of the Board and other decided measures per-taining to the operation of the company are implemen-ted, and that the company’s operations are organized in a functional manner and conducted in accordance with the Articles of Incorporation;
• assume responsibility for presentations and other re-porting to the Board;
• establish instructions and functional descriptions that are deemed necessary but have not been established by the Board;
• assume responsibility for the company’s ongoing media contacts; media contacts with respect to issues pertain-ing to ownership and major structural considerations are the responsibility of the Chairman;
• ensure that introductory courses are provided for newly elected members of the Board.
The Chairman of the Board approves any directorships held by the President outside of the company.
Luleå, 22 February 2005Board of Directors
C O R P O R AT E G O V E R N A N C E O F L K A B
L K A B A N N U A L R E P O R T 2 0 0 5 103
According to the Swedish Companies Act and the Swe-dish Code of Corporate Governance, the Board of Direc-tors is responsible for internal control. This report has been prepared according to the Swedish Code of Corpo-rate Governance, sections 3.7.2 and 3.7.3, and accordingly is limited to internal control over fi nancial reporting. This report is not a part of the formal annual report.
Description of the internal control over
fi nancial reporting
CONTROL ENVIRONMENT
The basis of internal control is the control environment within LKAB. This includes the organization, decision-ma-king processes, authorities and responsibilities, as well as the management culture adopted by the Board and Ma-nagement. The keyword within the Group is quality. As expressed in the quality policy, the basis for quality is that each individual must assume responsibility for the quality of his or her work and strive for zero-defects in everything he or she does. Upholding these values entails a process of continuous improvement. Personnel turnover is low, and policies and procedures are well established within the Group. This is indicative of a long-term approach and stability in the company. Controlling documents such as the policies for ethics, fi nance, currency, information and quality are published on the company’s intranet. LKAB has an incentive system, but this is not directly dependent on the company’s fi nancial outcome.
Responsibilities and roles concerning fi nancial re-porting have been defi ned and communicated to employ-ees in the fi nance and fi nancial control functions.
FINANCIAL MANUAL/INSTRUCTIONS
To maintain a good level of expertise within the fi nance function, regular training programs are given. During the past year, controllers have received instruction in among other areas, IFRS requirements. Finance personnel meet regularly throughout the year, and prior to preparation of the year-end statements, instructions for year-end fi nan-cial reporting are distributed.
The most important procedures and principles for fi -nancial reporting have been summarized in a fi nancial manual.
RISK ASSESSMENT
Where fi nancial information is concerned, LKAB’s objec-tive, as established by the Swedish state, is that fi nancial reporting should maintain the same level as that of listed companies.
The company identifi es, analyzes and decides on ma-nagement of risks, both in operations and with respect to fi nancial reporting. Work on structuring this process has
begun. Where the balance sheet and income statement are concerned, the most important processes have been identifi ed, and these will be successively documented as risks are identifi ed. Work on identifying and structuring the Group’s most central processes began during 2005 and is expected to be completed during 2006.
The company has successfully introduced quality and environmental and energy management systems. Accor-ding to the same model and philosophy, a management system for quality assurance of fi nancial reporting will also be introduced.
CONTROL ACTIVITIES
Important aspects of LKAB’s control structure are autho-rization manuals, descriptions of authorities, and instruc-tions for year-end fi nancial reporting. In addition, there are specifi c control procedures for managing unique risks of errors in fi nancial reporting. Together with the identi-fi ed risks, the control activities are being documented in the ongoing process review.
INFORMATION AND COMMUNICATION
Information on the applicable control structure is avail-able on LKAB’s intranet, to which all employees haveaccess. Procedures for managing identifi ed shortcomings are being updated. The aim is to be able, as of 2006, to re-gularly review the changes in, and underlying reasons for, the existing controls, and to develop these so that good internal control of fi nancial reporting can be maintained.
FOLLOW-UP
In conjunction with review of the control structure, re-sponsibility for ensuring that the control structure is in place and is known, and that controls are carried out in the manner prescribed, is identifi ed. This follow-up pro-cedure is also documented.
Controllers in each line of business receive the fi nancial information and comment upon it. During 2006, the con-trollers will review the fi nancial information with mana-gers at the operational level.
LKAB’s central fi nance and control function follows up the fi nancial outcome and key ratios on an ongoing ba-sis and closely monitors current investments and capital expenditures within LKAB. Expenditures exceeding MSEK 10 are subject to the approval of the President.
STATEMENT 2005
In accordance with pronouncements by the Swedish Cor-porate Governance Board, the Board of Directors will not express an opinion on how well the internal control has functioned during the year.
LKAB has at present no internal auditing function. The
THE BOARD OF DIRECTORS’ REPORT ON INTERNAL CONTROL
C O R P O R AT E G O V E R N A N C E O F L K A B
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Board fi nds that the existing structures for follow-up and evaluation of the internal control provide a satisfactory basis for the Board’s assessment of the internal control. For certain special audits, external auditing work may also be done. The decision is reviewed annually.
In February 2006, the Board has established an audit committee whose tasks will include preparation of the Board’s work towards quality assurance of the company’s fi nancial reporting.
Luleå, 22 February 2006Board of Directors
Sweden’s “State ownership policy 2005” outlines the Government’s principles for ownership control and guidelines for employment and exter-nal reporting. Below, LKAB’s compliance with these guidelines is summarized.
GOVERNMENT GUIDELINES
Requirement
C O R P O R AT E G O V E R N A N C E O F L K A B
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Ethical policy ✓ Page 26Environmental policy ✓ Page 27Global Responsibility - Ambition, see Ethical policyGender equality ✓ Page 28Diversity ✓ See Ethical policy page 26Healthier workplaces ✓ Page 30, Note 6Public AGM ✓ As of 2005Swedish Code for Corporate Governance ✓ Full implementation 2006
Guidelines concerning terms of employment
The Annual Report must provide information on terms of employmentfor persons in managerial positions: Note 27 – Salary, pension costs, all remuneration and benefi ts ✓
– Terms of pension and severance agreements ✓
Fees for the Board of Directors: Note 27 – Chairman ✓
– Board members ✓
Incentive schemes for employees: Page 30 – should include all personnel except the president ✓
– should be directly linked to the company’s overall performance ✓
– clear relationship between goals and the performance of the individual employee ✓
– reasonable in relation to the company’s performance; no reward if a loss is posted ✓
– time-limited, scope for revision, can be terminated ✓
– rules for different forms of employment and upon termination of employment ✓
– no incentive programs introduced for persons in senior management ✓
Guidelines for external reporting
Interim reports, year-end statements and annual reports will comply with theAnnual Accounts Act, generally accepted accounting principles andStockholmsbörsens Listing Agreement. ✓
Environment-related information must be integrated with other reporting. ✓ Page 31
The company shall submit quarterly reports within two months of the close of the reporting period ✓
Quarterly reports, year-end statements and annual reports will be published on the company’s website. ✓
The annual report will contain:– General description of market conditions ✓ Page 6 – Financial goals, operating objectives and performance reports ✓ Page 3, 4, 10, 11, 12, 14, 15, 30, 101– Risk and sensitivity analysis, operating risks and fi nancial risks ✓ Page 38, Note 30 – Gender equality policy, diversity, and incentive schemes ✓ Page 28, 30 – Composition of the Board and the work of the Board ✓ Page 102, 106 – An account of dividend policy ✓ Page 44 – Environmental policy, environmental targets and impact, energy and resource consumption and environmental management systems ✓ Page 31
Compliance Remarks
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B O A R D O F D I R E C T O R S A N D A U D I T O R S
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Board of Directors and Auditors
Chairman, Björn Sprängare (1940)
DirectorElected to the Board in 1997.Graduate Forester 1967; Dr. of Forestry Skogshögskolan 1973; President and CEO Mo och Domsjö AB 1981-1986; President and CEO Trygg Hansa 1986-1994; Governor of the Royal Palaces 1996-2004. Other directorships: Chairman of Concert House Foundation in Stockholm; Chairman of Skogssällskapet; member of the Royal Swedish Academy of Engineering Sciences; member of the Royal Swedish Academy of Agriculture and Forestry.
Christer Berggren (1944)
Deputy Director, Ministry of Industry, Employment and CommunicationsDeputy director of the Board in 2001, elected to the Board in 2002.MA Pol. Sci., Stockholm University 1972; employed with Statens Pris- och Kartellnämnd (SPK) 1971-1978; employed with the Ministry of Industry, Employment and Communi-cations since 1978.Other directorships: Board member of AB Göta kanalbo-lag, IRECO Holding AB, the Swedish Ships’ Mortgage Bank, SP Swedish National Testing and Research Institute, and Zenit Shipping AB.
Stina Blombäck (1951)
President of Billerud Karlsborg ABElected to the Board in 2002.MSc Chem. Eng., Royal Institute of Technology 1974.Various positions in the Swedish forestry industry 1974-1999: ASSI Karlsborg, Billerud Gruvön, ASSI Kraftliner, ÅF-IPK and AssiDomän. Director of Research AssiDomän 1999-2001 and President Billerud Karlsborg since 2001.Other directorships: Member of the Business Executives’ Council of the Royal Swedish Academy of EngineeringSciences; STFI-Packforsk AB and Swedish Paper and Cel-lulose Engineers Association – SPCI.
Per-Ola Eriksson (1946)
Governor, County of NorrbottenBoard Member 1991-1999 and since 2004.Member of Parliament 1982-1998; Chairman and Vice Chairman of the Standing Committee on Finance 1991-1998; Chairman, Landshypotek AB 1994-2005; Director General, NUTEK 1999-2003, Chairman, Teracom AB 2001-2003, and Governor of Norrbotten County since 2004. Other directorships: Chairman, Längmanska företagar-fonden, Norrbottens läns Hushållningssällskap, Läns-arbetsnämnden i Norrbotten and Skogsvårdsstyrelsen Norrbotten.
Karl Wikström Hans Fängvall Torsten Thorneus Tomas Kohkoinen
Björn Sprängare Christer Berggren Stina Blombäck Per-Ola Eriksson Lars-Åke Helgesson
Anna-Greta Sjöberg Ursula Tengelin Egil M Ullebø Tomas Nilsson Bertil Thornberg
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B O A R D O F D I R E C T O R S A N D A U D I T O R S
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Lars-Åke Helgesson (1941)
DirectorElected to the Board in 2000.Secondary Engineer; MBA, Handelshögskolan Göteborg 1971; President and CEO,Haldex 1981-1988; Division Mana-ger, Stora 1988-1992; President and CEO, Stora 1992-1998. Other directorships: Chairman of the Boards of Ballingslöv International AB, Generic Sweden AB, TransLink Holding AB, and Swedish Academy of Directors. Vice Chairman, British-Swedish Chamber of Commerce. Board member Axel Christiernsson AB, Crane AB, and the Royal Swedish Academy of Engineering Sciences.
Anna-Greta Sjöberg (1967)
COO Royal Bank of Scotland, Nordic Region and CFO and VP RSB Nordisk Renting AB.Elected to the Board in 2005.MBA, Handelshögskolan Stockholm 1989; Sandvikde Mexico 1989-1991; BPA 1991-1993; Bergaliden AB1993-1998 (VP 1997-1998), and RSB Nordisk Renting ABsince 1998.
Ursula Tengelin (1956)
Secretary-General of the Swedish Cancer SocietyElected to the Board in 1999.BA, Lund University 1983; Executive MBA Handelshögsko-lan Stockholm 2000; employed with Roussel Nordiska AB 1979-1995 (VP 1989-1995); VP Hoechst Marion Roussel AB, Nordic and Baltic region 1995-1999; VP Proffi ce Sverige AB 2000-2002 and Swedish Cancer Society since 2003.Other directorships: Samhall AB and Norrland Center AB.
Egil M. Ullebø (1941)
DirectorElected to the Board in 2001.MSc Norges tekniske høgskole; MSc Bus. Adm. Norges Handelshøgskole, and studies at Tempelton College,Oxford. Employed in executive positions with the Orkla Group since 1970, current assignments with Orkla Foods AS, Bor-regaard Industries Ltd.,Borregaard Skoger AS and Salve-sen & Thams Communicastions AS.Other directorships: Chairman, Østfold Energi AS and Rygge Sivile Lufthavn AS. Board member of Hustadmar-mor AS, Northern East West Freight Corridor AS and Inno-vasjon Norge Oslo/Akershus/Østfold.
EMPLOYEE REPRESENTATIVES
Tomas Nilsson (1965)
Ore developerElected to the Board in 2004.Secondary school and Runöskolan. Employed with LKAB since 1985.Other directorships: Chairman of the Swedish Metal-workers’ Union chap. 604, Malmberget.
Bertil Thornberg (1950)
Process operatorElected to the Board in 2003.Commercial secondary school. Employed with LKAB since 1970.Other directorships: Chairman, SAK-klubben; Secretary and Treasurer, Swedish Metalworkers’ Union chap. 612, Kiruna.
Karl Wikström (1951)
Head of operations for mining law mattersElected to the Board in 2003, Deputy director 1993-1999; Employee representative for PTK.Mining engineering qualifi cation. Employed with LKAB since 1969.Other directorships: Vice Chairman and Treasurer,Ledarklubben LKAB.
Hans Fängvall (1963)
Process servicemanDeputy director since 2003.Secondary school, natural sciences, and training in forestry management. Formerly employed with Modo and Domän-verket. LKAB since 1989; Other directorships: Chairman of the Swedish Metalworkers’ Union chap. 635, Svappavaara.
Torsten Thorneus (1946)
Ore harbor workerDeputy director since 1999.Trade school. Employed with LKAB since 1968.Other directorships: Chairman,Klubb Svartöstaden,Swedish Metalworkers’ Union chap. 179, Luleå.
Tomas Kohkoinen (1965)
Chief design engineerDeputy director since 1999. Employee representativefor PTK.Secondary engineer, el/tel and training in electricalengineering/design, maintenance. Employed withLKAB since 1986.
SECRETARY
Göran Ekdahl (1940)
Attorney in the law fi rm of Bird & Bird Advokatbyrå.Secretary of the Board since 1984.
AUDITORS
KPMG Bohlins AB
Roland Nilsson (1943)
Authorized public accountant Chief accountantAnnicka Brännström (1958)
Authorized public accountant
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G R O U P M A N A G E M E N T
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Group Management
Martin Ivert (1948)
President and Group CEO.Education: MSc, Royal Institute of Technology, 1972.Employment: SKF 1974-2001, divisional manager1995-2001; LKAB since 2002.Directorships: Chairman, SveMin and Underhållsföretagen.
Lars-Eric Aaro (1956)
Vice President, Technology & Business Development.Education: MSc, Luleå University of Technology, 1981.Employment: LKAB 1976-1986. Boliden 1988-1989 and 1992-1998; Secoroc 1989-1992; ASSI Domän 1998-2001; LKAB since 2001.Directorships: Board member, Luleå University ofTechnology and Mefos.
Leif Boström (1959)
Vice President, Finance.Education: MBA, Luleå University of Technology, 1990.Employment: NCC 1980-1992; LKAB since 1992.
Anders Furbeck (1957)
Vice President, Total Quality Management.Education: MBA, Göteborg University, School of Business, Economics and Law, 1985.Employment: LKAB since 1985.Directorships: Board member, WM-Data i Norr ABand Euromines.
Bengt Hjärpe (1947)
Vice President, Market Division.Education: MSc, Royal Institute of Technology, 1972.Employment: SKF 1974-1994; LKAB since 1994.
Martin Ivert Lars-Eric Aaro Leif Boström Anders Furbeck Bengt Hjärpe
Jan-Erik Jatko (1949)
Vice President, Special Businesses Division.Education: MBA, Stockholm University, 1976Employment: LKAB since 1976.Directorships: Board member, SveMin, Expandum ABand Norrskenet AB.
Ola Johnsson (1955)
Vice President, Mining Division.Education: MSc Mechanical Engineering, Luleå University of Technology, 1980.Employment: HTM 1980-1982; Luleå University ofTechnology 1982-1984; LKAB since 1984.Directorships: Board member, Progressum AB.
Per-Erik Lindvall (1956)
Vice President, Minerals Division.MSc, Luleå University of Technology, 1980.Employment: LKAB 1980-1989; Bergbygg AB 1989-1991; Boliden 1991-2000; LKAB since 2001.Directorships: Board member, SGU.
Mats Pettersson (1965)
Vice President, Human Resources.Education: MBA Umeå University, Umeå School ofBusiness, 1991.Employment: LKAB since 1991.
Jan-Erik Jatko Ola Johnsson Per-Erik Lindvall Mats Pettersson
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G R O U P M A N A G E M E N T
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ORGANIZATION
LKAB is organized according to a clear division of operations and business development. Operations are organized in four divisions. Development work and issues pertaining to quality, environment, human resources, fi nance and information within the entire group are managed by several units.
In order to achieve a greater focus on recruiting and human-resour-ces development to meet future needs, during 2005, the organiza-tion was changed to the extent that Administration was divided into the units Finance, Human Resources and Communication.
As of 2006, all development work has been organized in the Techno-logy & Business Development unit, enabling a clearer management structure for investment programs, ongoing process and product development, and long-term research and development efforts.
PRESIDENT AND GROUP CEOMartin Ivert
TECHNOLOGY & BUSINESS DEVELOPMENTLars-Eric Aaro
FINANCELeif Boström
TOTAL QUALITY MANAGEMENTAnders Furbeck
COMMUNICATIONMartin Ivert
HUMAN RESOURCESMats Pettersson
MARKET DIVISIONBengt Hjärpe
MINING DIVISIONOla Johnsson
MINERALS DIVISIONPer-Erik Lindvall
SPECIAL BUSINESSES DIVISION
Jan-Erik Jatko
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A D D R E S S E S
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Addresses
LKAB
Group Offi ce, Box 952, SE-971 28 Luleå, Sweden.Phone +46 920 380 00. Fax +46 920 195 05
Martin Ivert, President and Group CEO
MARKET DIVISION
LKAB Norden
Sweden, Norway, Finland, Denmark, IcelandBox 952, SE-971 28 Luleå, Sweden.Phone +46 920 380 00. Fax +46 920-148 [email protected]
Stig Nordlund, Sales Manager
LKAB S.A.
Benelux, France, UK, Italy, Spain,Portugal, Turkey, Africa, AmericaChaussée de la Hulpe 150, BE-1170 Bryssel, Belgium.Phone +32 2 663 36 70. Fax +32 2 675 05 [email protected]
Staffan Stenström, President
LKAB SCHWEDENERZ GmbH
Germany, Austria, Central EuropeRüttenscheider Strasse 14, DE-45128 Essen, GermanyPhone +49 201 879 440. Fax +49 201 879 [email protected]
Göran Ottoson, President
LKAB FAR EAST Pte. Ltd
Far East, Southeast Asia, Middle East, Australia300 Beach Road #29-02, The Concourse, Singapore 199555Phone +65 6392 49 22. Fax +65 6392 49 [email protected]
Johan Heyden, President
MINING DIVISION
LKAB
SE-981 86 Kiruna, Sweden.
Phone +46 980 710 00. Fax +46 980 109 02.
LKAB
983 81 Malmberget, Sweden.Phone +46 970 760 00. Fax +46 970 236 00.
LKAB, Narvik malmhamn
Postboks 314, NO-8504 Narvik, Norway.Phone +47 769 238 00. Fax +47 769 449 25.Svein Sivertsen, General Manager
LKAB, Luleå malmhamn
Box 821, SE-971 25 Luleå, Sweden.Phone +46 920 380 50. Fax +46 920 380 60.Lars Andersson, General Manager
MINERALS DIVISION
MINELCO AB
Box 952, SE-971 28 Luleå, Sweden.Phone +46 920 381 60. Fax +46 920 190 [email protected] Lindvall, President
Minelco Oy
P.O. Box 57Phone +358 17 266 0160. Fax +358 17 266 0161FI-718 01 Siilinjärvi, Finland
Kari Laukkanen, President
Minelco Inc.
2020 Scripps Center, 312 Walnut StreetCincinnati, OH 45202, USAPhone +1 513 322 5530. Fax +1 513 322 [email protected] Drugge, President
Minelco Specialities Ltd.
Raynesway, Derby, DE21 7BE, EnglandPhone +44 1332 673131. Fax +44 1332 [email protected] Larbey, President
Minelco Minerals Ltd
Flixborough Industrial Estate, Flixborough, North Lincolnshire,DN15 8SG, EnglandPhone +44 1724 277411. Fax +44 1724 [email protected] Boulton, President
Minelco GmbH
P.O. Box 10 25 54, DE-450 25 Essen, GermanyPhone +49 201 45060. Fax +49 201 4506 [email protected] Yates, President
Minelco B.V.
Vlasweg 19, Harbour M164, P.O. Box 16,NL-4780 AA Moerdijk, The NetherlandsPhone +31 168 388 500. Fax +31 168 388 [email protected] Peter Duifhuis, President
Minelco Asia Pacifi c Ltd.
4502 China Resources Building, 26 Harbour Road, Wanchai, Hong KongPhone +852 2827 4138. Fax +852 2827 [email protected] Engel, President
Minelco (Tianjin) Minerals Co., Ltd.
Yicun Industrial Park, Jungliangcheng, Dongli District, Tianjin,P.R. China 300301
Phone +86 22 8845 1706. Fax +86 22 8845 1708
Bin Zhou, President
Minelco Thailand
Representative Offi ce Bangkok, 36th Floor, CRC Tower, All Seasons Place, 87/2 Wireless Road, Phatumwan, Bangkok 10330, ThailandPhone +66 625 3121. Fax +66 625 3171Nick Mellor, President
Seqi Olivine A/S
Boks 1329.Phone +299 1991 10DK-3900 Nuuk, GreenlandRobert Näslund, President
SPECIAL BUSINESSES DIVISION
Wassara AB
Group Offi ce, Götgatan 62, SE-118 26 Stockholm, Sweden.Phone +46 8 84 95 50. Fax +46 8 84 02 [email protected] Gustafsson, President
AB Kiruna Grus & Stenförädling
KGS Mekaniska, Box 817, SE-981 28 Kiruna, Sweden.Phone +46 980 681 90. Fax +46 980 832 79Kjell Klippmark, President
Fastighets AB Malmfälten
SE-981 86 Kiruna, Sweden.Phone +46 980 710 00, Fax +46 980 728 95Lennart Thelin, President
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F O R S K N I N G O C H U T V E C K L I N G
L K A B Å R S R E D O V I S N I N G 2 0 0 5 7
Annual General Meeting: 25 April 2006
LKAB will publish the following fi nancial reports for 2006:> 25 April 2006, Interim report for the period 1 January – 31 March.> 21 August 2006, Interim report for the period 1 January – 30 June.> 25 October 2006, Interim report for the period 1 January – 30 September.
Financial information is available on the Group’s website: www.lkab.com
Printed versions are available on request from:LKAB Information, Box 952, SE-971 28 Luleå, Sweden.Phone: +46 (0)920-380 00, fax: +46 (0)920-195 05, e-mail: [email protected]
Reporting dates 2006
LKAB ANNUAL REPORT 2005 Produced by LKAB in cooperation with JOB media & reklambyrå AB, Luleå. Photo: Jennie Segerberg and LKAB. Translated by: Mark Wilcox. Printed by: Luleå Alltryck AB, Luleå 2006.
F O R S K N I N G O C H U T V E C K L I N G
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www.lkab.com