annual report 2007 - lkab · restructuring is already in progress, with the relocation of buildings...
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Annual Report2007
Contents
4 President’s report 7 Mission, vision, strategies, policies 10 2007 in summary 14 Market overview 17 Energy, climate, environment 27 Human Resources 31 Strategic investments 33 Research and development 37 Mining Division 43 Minerals Division 47 Special Businesses Division 51 Prospecting 54 Group overview
55 Contents, financial statements 56 Report of the Directors 64 Financial reports and notes 116 Proposed disposition of unappropriated earnings 117 Auditors’ Report
118 Organization, legal structure 119 Corporate Governance Report 124 Board of Directors and Auditors 126 Group Management 127 Addresses 128 Six years in brief 131 Reporting dates 2008
LKAB is an international high-tech minerals group that produces iron ore products for the steel industry and also, in addition to other min-eral products, for other industries and applications. The LKAB Group has about 3,800 employees and consists of about 30 companies in 15 countries. There are iron ore mines, processing plants and ore harbors in north-ern Sweden and northern Norway, and sales companies in Sweden, Belgium, Germany and Singapore. Industrial mineral operations are conducted in Sweden, Finland, Greenland, the UK, Germany, the Netherlands, Greece, Turkey, Slova-kia, Thailand, Hong Kong, China and the USA. LKAB’s main product is iron ore pellets for production of hot metal in blast furnaces and direct reduction processes. The product portfolio also includes many different industrial mineral products; mainly mag-netite, olivine, mica and minerals with flame-retardant properties. Iron ore products are sold mainly to customers in Northern Europe, North Africa and the Middle East. Industrial minerals are sold mainly to customers in Europe and to growing markets in Asia and the USA.
The Mining Division mines, processes and delivers iron ore products that are marketed and sold via the Market Division.The Minerals Division develops, produces and markets industrial mineral products.The Special Businesses Division supports the group with techni-cal services.
LKAB is a limited company, wholly owned by the Swedish state and represented by the Ministry of Industry, Employ-ment and Communications.President and CEO (as of 1 March 2008): Ola JohnssonChairman of the Board: Björn Sprängare
4 | PRESIDENT´S REPORT | LKAB ANNUAL REPORT 2007
A bright future with new challenges“Safety First” will continue to be a priority.
Martin Ivert, President
LKAB ANNUAL REPORT 2007 | PRESIDENT´S REPORT | 5
2007 was a very successful year for the LKAB Group. The year has been characterized by a hot market, increased deliveries and realization of our strategies, which include very substantial invest-ments for the future. These investments will enable us to continue expansion of both production and delivery capacity, which is crucial in the long term if LKAB is to retain and develop market shares in important customer segments. I am pleased to report that we have succeeded in reducing the number of accidents within the Group by 28 percent, and thereby also the accident frequency. Unfortunately, in early February 2008, a tragic fatal accident oc-curred in the Kiruna mine. One of our contractors lost his life. Of course, this was a terrible setback in our safety effort. All too clearly, the accident reminds us that “Safety First” must always be a priority. In comparison to other companies in related industries, we stand up well; but this is not good enough. We cannot be satisfied until we have achieved the long-term, zero-accidents objective throughout the Group. Nothing else is acceptable. From what has been a project concerning workplace studies and training programs, we are now moving toward the ultimate goal of “living accident-free”.
INCREASED DEMAND FOR IRON ORELKAB has further strengthened its market position in iron ore. Deliv-eries of pellets were record-high last year. This is due to three main factors: the renowned high quality of the magnetite ore, our advanta-geous geographic position close to successful European customers, and our own technical know-how, which enables us to offer custom-ers added value via our products. With the ongoing investments in research and development, facili-ties and processes, LKAB has positioned itself among the leading suppliers of iron ore pellets. During the year, our successful program of investment has con-tinued. The new pelletizing plant in Malmberget has quickly achieved planned capacities with very good product quality. In the second quarter of 2008, the pelletizing plant in Kiruna, the world’s biggest of its kind, will come on line. The investment decision was taken after close discussions with our most important customers, which illus-trates the importance of strong, long-term customer relations. Among our steel-producing customers, we see continued growth in demand for pellets. This is especially pleasing to note, considering the competitive advantage our pellets have on the world market. A steadily growing demand compensates well for LKAB’s disad-vantage of underground mining.
GROWTH FOR INDUSTRIAL MINERALSIt is also pleasing to note that the market for industrial minerals con-tinues to develop well. This development also points to a growth trend that brings about more even sales on markets in Europe, Asia and the USA. Within the product group industrial minerals, there is a growing demand for the division’s four selected minerals (magnetite, olivine, mica and UltraCarb) in expansive industrial sectors the world over. Sales of these minerals rose by 20 percent during the year. Global demand was great in construction and civil engineering as well as in the oil and gas industry. Over the next year, sales of magnetite are expected to increase at a rate that is at least comparable to that of 2007. To assure the sup-ply of magnetite, LKAB is investigating the possibility of re-opening the old Leveäniemi open pit and Gruvberget, both in Svappavaara. For mica and UltraCarb, demand is expected to rise to the level of
peak capacity. For olivine, the focus is on satisfying LKAB’s internal demand and supplying niches outside the steel industry. The division’s global market presence is being further reinforced with new sales offices and new sales staff to ensure broader inter-national coverage.
TOWARD NEW MAIN LEVELSManufacturing iron ore pellets is the cornerstone of our strategy. The use of magnetite in pellets improves efficiency and reduces overall environmental impact. With the addition of the two most recently built pelletizing plants, we are reaching completion of a journey that began more than fifty years ago. In the future, LKAB will be a 100-percent supplier of pel-lets to the steel industry. Important in this respect is that our customers continue to per-ceive LKAB as a reliable supplier, even in the future. We have there-fore intensified preparations to exploit the rich ore deposits at depth in both Kiruna and Malmberget. In Kiruna, deep drilling investigations are being conducted to as-certain the extent of the orebody at depth and towards the north. In Malmberget, we have been granted a permit for an extended mining concession for the Fabian orebody. Certain investments are now being made preparatory to final de-cisions on new main levels in both iron ore mines. On 21 February 2008, the Board approved plans for the construction of a new main level for the so-called Östra Fältet, at the 1,250 meter level, in the Malmberget mine, and an extension of the 1,000 meter main level to the Fabian orebody.
COLLABORATION FOR SUSTAINABLE DEVELOPMENTTogether with municipal authorities in the orefields communities, we face a big challenge in seeking economically feasible solutions that will enable long-term sustainable development while alleviating the impact our operations have on these communities. In Malmberget, restructuring is already in progress, with the relocation of buildings and a large number of property acquisitions. In Kiruna, a matter of immediate concern is that Banverket will find a reasonable alterna-tive for future rail traffic. An issue of crucial importance is the future supply and price of electricity. LKAB and many other primary-industry companies must secure a stable power supply that will allow us to maintain our com-petitive advantage. Therefore, within the framework of the process industry’s joint company BasEl, we are investigating our own alter-natives for producing electricity from renewable energy sources. An example of this is the power company VindIn, which plans to build wind-power units that, within four years, will produce one terawatt hour (TWh) per year. Unfortunately, both LKAB’s and our customers’ processes carbon dioxide and other greenhouse gases that have an impact on the global climate. Our ambition is to reduce these emissions as much as possible. This effort is exemplified by the EU-financed ULCOS project, which is conducted in part with our experimental blast fur-nace in Luleå as a base. Together with project partners including most of the major European steelmakers, the aim is to develop the blast furnace process so that hot metal can be produced with suc-cessively lower emissions of carbon dioxide. Trials conducted thus far have shown promising results, and it is essential that we con-tinue this effort. In manufacturing pellets from magnetite ore, LKAB releases far less carbon dioxide than our biggest competitors, whose products are based on hematite ore. It is therefore important that a global perspective is adopted when emissions rights are allocated, and that environmental taxes and charges do not restrict our competi-
minerals and metals generally and iron ore in particular. The new pel-letizing plant in Kiruna will further strengthen our market position. Most analysts agree that there will be further price increases in 2008, which was confirmed by the price agreements reached in mid-February between Vale and Asian customers for a 65 percent increse in the price of fines products. Thanks to these factors, in combination with the fact that our dollar incomes have been satisfactorily assured through forward ex-change contracts, we foresee a very positive 2008 and good years to come. However, we must be aware that prevailing unrest in global financial markets may have an impact on future growth in the indus-trial minerals, iron and steel industry. Costs incurred due to restructuring in the orefields, including, in the immediate future, costs for new railway infrastructure in Kiruna, will have a negative impact on LKAB’s financial outcome. On 21 February, fire struck the Malmberget concentrating plant and its transformer station, resulting in a serious production loss and increased costs.
MANY THANKS TO ALLI have had the pleasure and privilege of working in a very interesting and expansive company, with loyal and knowledgeable colleagues, during a period of fantastic growth. I am entirely convinced that LKAB’s good, stable development will have far-reaching, positive consequences for both the company and the communities in which we operate. I wish to express my sincere thanks to everyone in and around LKAB for six wonderful years. At the same time, I wish my successor Ola Johnsson and his staff every success with LKAB.
Luleå, February 2008
Martin IvertPresident and CEO
6 | PRESIDENT´S REPORT | LKAB ANNUAL REPORT 2007
tiveness. Otherwise, in a broader context, since greenhouse gases know no geographic boundaries, regardless of where emissions oc-cur, the environment is at a disadvantage. The challenge in the years to come will be to improve safety and increase production while at the same time improving energy ef-ficiency and reducing environmental impact.
THE GOOD WORKPLACEThe labor shortage in our industry of which I have warned for sev-eral years remains a concern. In the short term, it is a result of an economic boom, but a fundamental cause is that many employees are approaching retirement age. The lack of interest in engineering study programs and the fact that Norrbotten is still experiencing a high emigration rate give cause for concern. I am therefore pleased to report that interest in LKAB’s vocation-al highschools in Kiruna and Malmberget is on the upswing and that nearly half of the students are girls. It is very important that we achieve a more balanced gender distribution in LKAB, and espe-cially that more women are recruited to positions traditionally held by men. To win the workforce battle, we have to make potential employees aware that the mining industry is a technologically advanced and highly attractive industry of the future, and that LKAB is an attractive employer that offers opportunities for development and a good, safe working environment, and not least that we introduce an organiza-tional culture that is based on delegated responsibility, individual authority and international opportunties. A flatter organization helps to make the company more efficient and contributes to a more stimulating working environment. I am convinced that the transition that took place several years ago to a budgetless and activity-based business management system has helped to make all employees feel more motivated and committed to their work. In many ways, our employees carry the company; when everyone works towards the same goals, LKAB grows even stronger and bet-ter-equipped for the future.
A BRIGHT HORIZONToday, we see no signs of decline in the minerals boom. It is largely driven by the demand for steel, which goes hand-in-hand with eco-nomic growth. The economic growth of populous countries such as China and India has had a very positive effect on the demand for
The Group’s mission, vision, strategies, policies and guidelines
greater access to magnetite. Another important factor is that LKAB can take advantage of the strong financial platform which it has created. LKAB’s financial strat-egy is to maintain a high equity-assets ratio that will enable self-financing of large capital expenditures, including some changes in local infrastructure necessitated by the continuation of mining in the orefields, while retaining a buffer to alleviate the effects of a possible cyclical downturn. The western world will soon face a shortage of qualified labor, which will require that LKAB, as a company, is visible and able to offer interesting employment and opportunities for development in a safe environment. �Therefore, LKAB has also pronounced in the strategy that organi-zational/human resources development is also of great strategic im-portance for the future. A vital aspect of this work is an unwavering commitment to a zero-accidents goal. QUALITY POLICYLKAB will exceed customers’ present and future expectations by in-volving all employees in the process of continuous 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.
ENVIRONMENT AND ENERGY POLICYThrough continuous improvement of the working environment, the natural environment and energy use, LKAB’s operations will pro-mote long-term sustainability and profitable 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 commitments to which LKAB is subject are minimum requirements.
• LKAB shall strive to create a working environment that is safe and stimulating for employees. Our employees will receive ongoing training in environmental issues.
LKAB’S MISSIONLKAB’s mission is, based on the Swedish orefields, to manufacture and deliver to the world market upgraded iron ore products and services that create added value for customers. Other closely re-lated products and services that are based on LKAB’s know-how and support the main business can also be included in the compa-ny’s operations.
VIS IONLKAB will be perceived by the customers as the supplier that pro-vides the most added value and is thereby the leader in its selected market segments.
STRATEGIESThe Group’s overall strategies can be summarized as follows:
• Maintain a niche strategy based on pellets as the product, with added value for the customer• Full capacity utilization as a basic strategy• Volumetric growth via better utilization of plant• Selective and ongoing ‘lean’ expansion of pellet capacity• Development of industrial minerals• Organizational/human resources development for greater productivity and betterworking environment
LKAB’s strategy is set, and the established strategic activities are pursued resolutely to lead the company forward. The pellet strategy has resulted in the construction of LKAB’s fifth operational pelletizing plant, which was inaugurated in late-2006 and produced about 2.9 Mt pellets in 2007. Another, larger pelletizing plant, under construction in Kiruna, is reaching completion. When it is commissioned during the second quarter of 2008, LKAB will have taken a further major step in real-izing the ambition of becoming a 100% supplier of pellets to the steel industry. This is one example of the many ways in which LKAB is fulfilling its mission and realizing its vision. Demand for iron ore products, particularly pellets, is expected to remain strong. This will enable LKAB to grow volume-wise, for ex-ample, through investment in new pelletizing plants and plans for new main levels in both iron ore mines. Another factor that bodes well for LKAB’s products is the short-age of good, low contaminant scrap, a raw material for steel pro-duction that can be replaced by sponge iron. The demand for iron ore pellets for sponge iron production will therefore increase. At the same time, the use of pellets, especially LKAB’s pellet products, of-fers clear environmental advantages. Demand for the Group’s other mineral products, principally oliv-ine, mica and UltraCarb (minerals with flame retardant properties) is also expected to remain high. Access to mineable ores is a fundamental prerequisite for our operations. LKAB has sufficient iron ore reserves to ensure mining far into the foreseeable future. As for industrial minerals, the LKAB Group has secured exclusive access to reserves of olivine, mica, huntite and hydromagnesite, and is investigating the possibilities for
LKAB ANNUAL REPORT 2007 | MISSION, VISION, STRATEGIES, POLICIES | 7
• New technologies and technical advances will be assessed with consideration to the working environment, environmental protec-tion, energy consumption and the efficient 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 socie-ty, our attitude shall be characterized by openness and factuality.
ETHICS POLICYLKAB will strive to be perceived by customers, shareholders, sup-pliers, 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 Universal Declaration of Human Rights.
• LKAB will strive to uphold impeccable business ethics.• In realizing its objective of maintaining a financially sound and suc-
cessful business operation, LKAB will strive to protect the environ-ment and use energy responsibly.
• LKAB will strive to maintain strong and enduring relations with its employees.
GENERAL PRINCIPLESLKAB’s chief task is to develop and maintain a financially sound and successful business operation. LKAB has a long-term responsibility. In the countries, communities and environments in which LKAB op-erates, we have a long-term responsibility towards our employees, business 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 Declaration of Human Rights, and we will accept our responsibility 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 in dialogue with those who are affected by our operations.
• Wherever possible and wherever we exercise influence, we will strive to ensure that our suppliers and subcontractors adhere to the principles of our ethical guidelines.
BUSINESS ETHICSLKAB will not use methods such as bribery and other corrupt and unfair competitive practices that distort markets and hinder eco-nomic, social and democratic development.
• LKAB will not contravene applicable laws governing competition. • Bribery is strictly prohibited in LKAB’s business relations.
ENVIRONMENT LKAB’s work shall be characterized by concern for the environment; for which reason LKAB has adopted an Environmental and Energy Policy that will guide our actions while acknowledging our objective to maintain a financially sound and successful business operation.
EMPLOYEE RELATIONSIt is very important for LKAB to uphold a strong and enduring
relationship with employees that is based on mutual respectand dignity. The terms of employment offered will complywith 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 improvements. Special, written health and safety instructions shall be issued and will apply in all work-places.
• LKAB acknowledges employees’ right to organize under the ap-plicable labor laws and principles of the respective 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 discrimina-tion or harassment. LKAB does not tolerate discrimination or har-assment.
• LKAB prohibits forced labor and other forms of involuntary 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.
PERSONNEL POLICY LKAB’s personnel policy will contribute to making LKAB a company that is an attractive employer and is perceived as such.
• We will strive to ensure that our workplaces are safe, secure and developmental, and that each individual assumes responsibility for his or her own safety and the safety of others. Conditions will be conducive to the long-term health of our employees.
• Our view is that all LKAB employees can, and will, contribute posi-tively to the development of the company.
• The commitment and diligence of our employees is a prerequisite for long-term competitive advantage, profitability and productivity. This will in turn create the conditions for good terms and condi-tions of employment.
• Our managers will create the right conditions for their co-workers. Managers will encourage personal initiative and development with respect to present and future job duties, make clear demands, and give clear and constructive feedback.
• We offer competence development on an ongoing basis to equip employees for present and future job duties.
• We will strive to ensure open, clear communication.
INFORMATION POLICYLKAB’s employees will always be well informed with respect to the company’s operations, its business environment, goals, strategies and results, and of their own workplace and their role in the com-pany’s operations. LKAB’s customers, shareholders, suppliers and the community will be given, on an ongoing basis, timely and correct information that provides a representative view of the company and its operations.
GUIDELINESThe Group’s corporate communications will contribute to greater knowledge and trust among the company’s stakeholders.
INTRA-GROUP INFORMATION Each line manager is responsible for communication, the ongoing
8 | MISSION, VISION, STRATEGIES, POLICIES | LKAB ANNUAL REPORT 2007
taken to safeguard personal integrity. LKAB will strive to follow the rules of corporate information disclo-sure that are recommended for companies listed on the Stockholm Stock Exchange. No financial information other than official year-end or interim reports may be disclosed to external parties.
dialogue, in his or her workplace. Similarly, each line manager is responsible for ensuring that co-workers have continuous access to current and necessary information about their workplace and its role in the company’s operations.
EXTERNAL INFORMATION The President has the overall responsibility for external communica-tions. Members of Group Management are responsible for external communications with respect to their individual areas of responsi-bility. The Chairman of the Board issues statements pertaining to ownership issues. The mass media are an important channel of information in society – and thereby for all of the company’s stakeholders. LKAB will work actively and openly with the mass media to present a positive image and foster confidence in the company. There must be particular reasons for declining to comment or give information. This may be information pertaining to finance, safety, competition, ongoing negotiations or other information that might be detrimental to the company if disclosed. Great care must be
LKAB’s iron ore pellets are in hot demand as a burden material for the blast furnaces of the international steel industry.
F INANCIAL POLIC IESThe Board has established the following financial policies: Credit Policy, Currency Policy and Policy for Managing Financial Assets and Liabilities. Full versions of these are published on LKAB’s website under the heading About LKAB/Corporate gov-ernance/Control documents. In consultation with the owner, the Board has established a Dividend Policy, which is presented in the Corporate Governance Report..
LKAB ANNUAL REPORT 2007 | MISSION, VISION, STRATEGIES, POLICIES | 9
SALES PER MARKET REGION
Asia 21%
Others 7%
Europe 72%
Both iron ore products and industrial minerals are sold mainly in Europe.
02 03 04 05 06 07
15 000
12 000
9 000
6 000
3 000
0
Net sales Operating income
NET SALES AND OPERATING INCOME MSEK
Revenue increased, mainly due to higher delivery volumes and higher prices. Operating income fell by 2% over the previous year, which is due in part to increased operating costs owing to expansion in the operating locations in the orefields.
02 03 04 05 06 07
50
40
30
20
10
0
8,5%
RETURN ON EQUITY %
Return on equity (after tax)
Target return on equity (after tax)
The targeted return on equity is 8.5% over a business cycle.
10 | 2007 IN SUMMARY | LKAB ANNUAL REPORT 2007
2007 in summary
Demand for iron ore continued to grow as global production of crude steel remained high. The prices of iron ore and upgraded iron ore products increased: by 7 percent for iron ore pellets and 11 per-cent for fines. LKAB’s total deliveries of iron ore products amounted to 25.1 (23.3) Mt. The share of pellets increased to 17.9 (15.9) Mt.
The market for industrial minerals was also characterized by continued strong growth. Total deliveries of magnetite from the Minerals Division increased to more than 0.8 (0.7) Mt. Sales of the selected strategic minerals rose by 20 percent.
The Group’s revenue increased by 12% to MSEK 16,385 (14,615), which is mainly attributable to a net increase in the price of iron ore and a greater share of pellet products.
Operating income decreased by 2 percent to MSEK 6,148 (6,256). Operating income has been affected positively by increased prices and increased volume of pellets, but negatively by higher costs in the Mining Division in the form of higher prices for exter-nal services, material and mine development for future production. LKAB’s expansion in the operating locations in the orefields entails a successive expansion of deformation zones as a result of mining, which meant that earnings were charged with costs amounting to MSEK 337 (-). Within the Minerals Division, a consolidated write-down of MSEK 94 on fixed assets has impacted earnings.
Within the Group the total number of accidents resulting in absence decreased by 28 percent as a consequence of the safety issue being given priority. Short-term absence declined to 2.1 and long-term absence to 1.2 percent, thanks to extensive measures in the area of working environment, including rehabilitation.
Of the Group’s net capital expenditures totaling MSEK 6,192 (4,476), the new pelletizing plant in Kiruna and new storage and handling facilities in Narvik (Project SILA) have accounted for the greatest share of disbursements.
MSEK 2007 2006 2005
Net sales 16 385 14 615 14 337Operating income 6 148 6 256 6 109 - operating margin, % 37,5 42,8 42,6Profit after financial items 6 344 6 382 6 451- profit margin % 38,7 43,7 45,0Tax -1 665 -1 785 -1 904Net income for the year 4 679 4 597 4 547Fixed assets 19 447 14 341 9 798Current assets 10 233 11 524 10 776Shareholders’ equity 22 251 19 076 14 802Cash flow for the year -1 159 70 554Return on equity, %* 22,6 27,1 36,6Equity/assets ratio, % 75 73,8 72,0Capital expenditures (fixed assets) 5 968 4 844 2 648Average number of employees 3 885 3 737 3 563
* After tax.
GROUP SUMMARY
LKAB ANNUAL REPORT 2007 | 2007 IN SUMMARY | 11
The long-term program of investment in a modern logistics structure, including a uniform fleet of locomotives and ore cars, shorter turnaround times and efficient terminals continues. In Kiru-na, a refurbished terminal with new loading and discharge stations will be operational in the summer of 2008. Construction of a whole new discharge and storage facility is under way in Narvik and will be operational by the autumn of 2009.
Planning of new main levels in Kiruna and Malmberget has proceeded according to plan. LKAB’s expansion of mining opera-
tions entails a successive expansion of deformation zones that will continue to have an impact on the structure of Kiruna and Malmber-get. Together with several concerned parties, extensive studies and planning are under way to find joint solutions to problems posed by the structural transformation.
In 2007, the subsidiary Fastighets AB Malmfälten (FAB) acquired the property management company I22 Vasallen AB in Kiruna. In addition to premises, a large area of land was included in the deal.
12 | 2007 IN SUMMARY | LKAB ANNUAL REPORT 2007
Captions for title pages, from upper left:
Energy, climate, environment: Nature.
Human Resources: Ice-fishing on Torneträsk.
Strategic investments: KA3/KK4, the new concentrating and pelletizing plants in Kiruna.
Research and development: Sampling at LKAB’s experimental blast furnace.
Mining Division: Kiln (pellet kiln) in the new pelletizing plant in Kiruna.
Minerals Division: Gas pipeline containing magnetite.
Special Businesses Division: Fabrication of ore cars in Kiruna.
Prospecting: Gruvberget in Svappavaara.
Market (right): Construction of skyscraper in Shanghai.
A hot world market with continued strong growth in AsiaLKAB ANNUAL REPORT 2007 | MARKET OVERVIEW
Market overview
LKAB’s position on the home markets, i.e., northern Europe, North Africa and the countries around the Persian Gulf, is very strong. In addition, the company has an excellent worldwide reputation for the high quality of its magnetite ore, which also offers great environmen-tal advantages. LKAB has a very strong position as a world-leading brand in pel-letization or iron ore. LKAB’s main product, iron ore pellets for pro-duction of hot metal in blast furnaces and sponge iron in direct re-duction processes, accounted for more than 71% of delivery volume of iron ore products during the year. During 2008, deliveries of fines from Kiruna (KBF) will be discon-tinued and replaced by pellets. LKAB’s long-term ambition is to pro-duce only pellets for the steel industry.
PRICE INCREASESIron ore prices for 2007 reached a record-early benchmark when the Chinese steelmakers reached an agreement in December 2006 with Vale (formerly CVRD) for a 9.5% price hike on fines. Immediately afterwards, Vale reached an agreement with Italian Ilva for a 5.28% price increase on blast furnace pellets. These agreements set the standard for other iron ore prices on both the Asian and European markets. In March 2007, LKAB reached an agreement with the Anglo-Dutch steel group Corus for a price increase of 7.2% on blast fur-nace pellets and price increases of 11.1% and 11.0%, respectively, on Kiruna B fines (KBF) and Malmberget A fines (MAF). The industry’s first benchmark agreement for 2008 was reached in February, indicating a 65 percent increase on fines.
SUCCESS FACTORSLKAB’s sales regions for iron ore products include the Nordic region, Europe, North Africa, the Middle East and Southeast Asia. Above all, three factors have been instrumental in establishing and maintaining
The iron ore market is characterized by scarcity and great de-mand. There is also a very large demand for industrial miner-als, and with the exception of magnetite (iron ore), these can be produced at a rate that satisfies market demand. The high-quality magnetite, close proximity to the customers, and lead-ing-edge technical know-how are three strong competitive ad-vantages for LKAB.
IRON OREWorld production of crude steel, which drives the demand for iron ore, increased in 2007 to a new record high for the ninth consecu-tive year. According to the International Iron and Steel Institute (IISI), production increased by more than 7.5% to 1,343 billion tonnes. The greatest rise in production was seen in China, where crude steel production reached 490 Mt, an increase of about 16%. Pro-duction also increased in India, by more than 7% to about 53 Mt, and in the other major iron ore import regions. Consolidation of the world’s steel and iron ore industry into fewer financially strong entities continues. During 2007, Tata Steel ac-quired, among others, Europe’s second-largest steelmaker, Corus, to become the world’s sixth-largest steel group. The multinational minerals group BHP Billiton has expressed an interest in acquir-ing the mammoth Rio Tinto group, a merger that would create the world’s biggest mining company and metal producer. European demand for steel remains stable. Within the EU-15, the countries that were EU member nations prior to the 2004 enlarge-ment, LKAB’s principal market for blast furnace products, hot metal production amounted during the year to more than 95 Mt.
THE PELLETS BRANDThe Group’s Mining Division mines, upgrades and transports LKAB’s iron ore to the market. In global terms, LKAB, with only 3% of the total market for seaborne iron ore, is considered a small player.
LKAB has strong competitive advantages.
14 | MARKET OVERVIEW | LKAB ANNUAL REPORT 2007
Finished iron ore products from the orefields are hauled by train to the harbors at Narvik and Luleå. From those locations, 25.1 Mt was delivered in 2007 to customers throughout the world.
stagnating western markets to dynamic markets in the east. Once a dominating net exporter of minerals, to meet its domestic demand, China is once again becoming a net importer, after the introduction in 2007 of export tariffs on industrial minerals. For the Minerals Division, this has had a noticeable effect on the market, with reduced deliveries of industrial minerals from China to Europe during the year. Consequently, prices have risen. Within the product group industrial minerals, there is a growing demand for the division’s four selected minerals (magnetite, olivine, mica and UltraCarb) in expansive industrial sectors the world over. Sales of these minerals rose by 20 percent during the year. Global demand was great in, for example, construction and civil engineer-ing and the oil and gas industry, which are important market seg-ments for the division. Demand for magnetite products continued to exceed supply. In Europe, Minelco is the market leader in magnetite. A greater demand for magnetite, in combination with limited sup-ply, has resulted in price increases. On the whole, price trends for in-dustrial minerals were positive. However, in comparison with iron ore products for the steel industry, the pricing mechanisms differ, which is why prices of industrial minerals have not risen at the same rate.
OUTLOOKFor industrial minerals, favorable market conditions are expected to prevail throughout 2008. Increased demand for, above all, magnetite-based products should mean greater delivery volumes. The Minerals Division is growing in the energy sector. Similarly, de-mand for flame retardant products is rising in Europe and the USA. The market for water treatment chemicals, in which magnetite is an important additive, is steadily growing. The Minerals Division’s oliv-ine products for foundries offer environmental advantages not seen in competing products. Olivine improves the working environment in foundries when it is used instead of quartz sand. In the steel indus-try, olivine has advantages over dolomite, in that it results in lower energy consumption and reduced carbon dioxide emissions.
MARKET OUTLOOK IN THE LONG TERMThe high rate of economic growth in Asia has driven demand in the minerals and metals-based industry. Much of China’s east coast is industrialized, but there is a huge political drive under way to industrialize the interior of the country.
LKAB’s strong position on these markets.
• High-quality magnetite• Geographic proximity• Technical know-how
The high quality of the magnetite adds value for customers who pro-duce steel via the direct reduction route, while giving LKAB a great degree of freedom in customizing the chemical composition of blast furnace pellets to meet customer needs. Magnetite ore requires lower energy input during pellet produc-tion and thus results in lower carbon dioxide emission during hot metal production. Approximately 60% of the thermal energy needed during pellet manufacture comes from oxidation, which reduces the need for external fuel. LKAB is relatively close to its customers. This gives the company considerable competitive advantage, not least with respect to the dramatic increase in sea freight rates. Longstanding relations have enabled high-level technical coop-eration with customers. This is exemplified by LKAB’s experimental blast furnace (EBF), in which LKAB develops products and, together with customers, blast furnace burdens according customer require-ments. In addition, LKAB offers the valuable advantage in being able to provide customers with metallurgical and technical know-how based on more than 50 years of pelletizing iron ore.
OUTLOOKThe iron ore market is characterized by shortage, which for LKAB means high demand for deliveries in excess of contracted volumes. Furthermore, LKAB is favored by a strong market for sea freight, thanks to close proximity to its principal markets. LKAB’s nearlying markets are characterized by stability, while the Gulf region is extremely expansive. The favorable market trend is expected to continue over the next few years. A persistent shortage of iron ore strengthens the compa-ny’s competitive advantage.
INDUSTRIAL MINERALSThe Group’s Minerals Division delivers a large number of industrial minerals, including magnetite, for many different application areas. Demand for industrial minerals has in recent years shifted from
LKAB ANNUAL REPORT 2007 | MARKET OVERVIEW | 15
THE LARGEST STEEL-PRODUCING COUNTRIES
% Country Ranking 2007 2006 07 / 06
China 1 489,0 422,7 15,7
Japan 2 120,2 116,2 3,4
USA 3 97,2 98,6 -1,4
Russia 4 72,2 70,8 2,0
India 5 53,1 49,5 7,3
South Korea 6 51,4 48,5 6,0
Germany 7 48,5 47,2 2,8
Ukraine 8 42,8 40,9 4,7
Brazil 9 33,8 30,9 9,3
Italy 10 32,0 31,6 1,2
Sweden 29 5,7 5,5 3,8
(Source: IISI, 23 January 2008)
60 70 80 90 00 07
1 500
1 200
900
600
300
0
GLOBAL IRON ORE EXPORT AND PRODUCTION OF CRUDE STEEL Mt
Global iron ore exports (prel. 2007)
World production of crude steel
02 03 04 05 06 07
160
140
120
100
80
60
40
20
0
PRICE TRENDS, IRON ORE PRODUCTS US Cents
LKAB Pellets (fob Narvik)
Tubarao pellet (fob Tubarao)
Kiruna B Fines (fob Narvik)
Carajas Fines (fob Ponta de Madeira)
16 | MARKET OVERVIEW | LKAB ANNUAL REPORT 2007
At the same time, industrial growth is accelerating in other parts of Asia, not least in India. LKAB’s increased pellet capacity in 2008, above all from the new pelletizing plant in Kiruna (KK4), will be absorbed by long-term con-tracted sales with established customers.In terms of volume, blast furnace pellets for the steel industry are LKAB’s biggest product. LKAB’s assessment is that hot metal from the blast furnaces is, and will in the foreseeable future continue to be, the dominating raw material for steel production. Aside from blast furnace pellets, LKAB delivers DR pellets to cus-tomers with access to inexpensive natural gas. The direct reduc-tion processes now account for seven percent of ore-based steel production. LKAB’s assessment, based on the facts at hand, is that
demand for DR pellets will increase considerably in the future. There is good reason for optimism. It is important to bear in mind, however, that prevailing unrest in global financial markets may have an impact on future growth in the industrial minerals, iron and steel industry. Stagnation in the growth trend in China would, for example, affect demand and thereby prices. Other threats include a falling dollar rate, increased energy costs, and certain environmental require-ments that distort competition. LKAB’s assessment, however, is that the market will continue to be characterized by strong demand in the foreseeable future, for both iron ore and industrial minerals, with stable prices and assured sales.
Largest export nations Million tonnes
Australia 295
Brazil 275
India 100
South Africa 28
Canada 27
Sweden 19
Largest import nations
China 383
The EU 186*
Japan 139
South Korea 44
Taiwan 17
*Figures refer to 2006.
( Source: Dagens Industri / Raw Material Group19 February 2008).
GLOBAL TRADE IN IRON ORE 2007
FOCUS AREAS 2007 OUTCOME 2007 FOCUS AREAS 2008
FOLLOW-UP
The Market Division (Market) wil l guarantee long-term sales of additional pellet volumes generated by optimization of existing processes and expan-sions (MK3). Market wil l cooperate systematically with LKAB’s customers with an aim to achieving continuous improvement.
During 2007, Market has sold all additional pellet volumes and worked systematically with LKAB’s customers to achieve continuous improvement. Market has contracted future expansion (KK4) and has phased out fines deliveries via the Northern circuit (KBF).
Market wil l guarantee long-term demand for ad-ditional pellet volumes generated by optimization of existing processes and expansions (KK4). By arranging technology seminars and other activities, Market wil l cooperate systematically with LKAB’s customers with an aim to achieving continuous improvement.
The big issues for the future are also big issues for LKABLKAB ANNUAL REPORT 2007 | CLIMATE • ENERGY • ENVIRONMENT
Energy, climate and environmentThree vital concerns for LKAB’s future and our future.
Although the mining, processing and use of minerals help so-cieties to grow and prosper, they also impact the environment through alteration of the landscape, energy consumption, emis-sions to the air and discharges to the water. LKAB is taking many steps to minimize this impact.
LKAB is working hard to limit the impact of its operations and has therefore implemented an environmental and energy management system. This has been integrated with the company’s quality man-agement system to enable better utilization of energy resources and to improve the environment. The purpose of the management system is to ensure continuous improvement and LKAB’s compliance with current energy and en-vironmental legislation. The system was introduced and certified in the Parent Company and in the subsidiaries MTAB and MTAS during 2007. Certification of Minelco A/S in Greenland was also conducted with good results during the year. The system was introduced and certified in the Mining Division during 2007. Certification of the Min-erals Division’s system in Greenland was also conducted with good results during the year. Introduction of the environmental and energy management system is planned for the subsidary AB KGS during 2008. Energy and environment issues are strategically important for LKAB. Improving the efficiency of energy use is a priority area, not least with respect to economy, process technology and climate im-pact.
ENERGYLKAB is one of Sweden’s largest electricity consumers and accounts for about one percent of the country’s total electricity consumption. By 2010, when the planned investments in increased production have been implemented, annual consumption is expected to rise from about 1.8 to more than 2 terawatt hours (TWh), which is about
1.5 percent of Sweden’s electricity consumption. Rising energy prices imply a risk that energy costs within the Group will soon exceed personnel costs. Thus, increased energy prices mean greater production costs. For LKAB, a price increase of SEK 0.01 per kWh translates to 20 million kronor per year. To meet the power demand, LKAB and about 20 other compa-nies in the energy-intensive primary industries have formed BasEl, a company that will generate power-producing projects that may significantly boost the supply of competitively-priced electricity. The BasEl companies together account for half of all industrial consump-tion of electricity in Sweden. At the same time, LKAB is investing in sources of renewable en-ergy. Via BasEl, LKAB is playing an important role in the primary industries’ wind-power company VindIn, which plans to build wind-power units that, within four years, will produce one terawatt hour (TWh) per year. The energy and environmental management system is the foun-dation for the efforts LKAB is making to improve the efficiency of energy utilization in accordance with the Swedish Energy Agency’s Program for Energy Efficiency (PFE). Special procedures for planning and purchasing are implemented, which means that the most energy efficient solutions are chosen whenever technically feasible. Measures and results are presented to the Swedish Energy Agency, which also approves continued par-ticipation in the program. As compensation, LKAB has been granted a reduction in electric-ity tax of SEK 0.005 per kWh.
CLIMATEThere is broad consensus among the world’s researchers that our cli-mate is changing. There is much evidence to indicate that both tem-perature and precipitation will increase. The amount of greenhouse gases released therefore influences future impact on the climate.
18 | ENERGY • CLIMATE • ENVIRONMENT | LKAB ANNUAL REPORT 2007
Via BasEl, LKAB is playing an important role in the primary industries’ wind-power company VindIn, which plans to build wind-power units that, within four years, will produce one terawatt hour (TWh) per year.
The energy and environment issue must therefore also be re-garded from a climate perspective. Increased production implies increased emissions to the air and water. LKAB’s use of fossil fuels and carbonate-based additives results in the formation of the green-house gas carbon dioxide. The company has an ongoing program of measures to minimize emissions. For example, use of fossil fuels is being reduced in the heat sector, where more and more residual heat from processes is being used.
RESEARCH COLLABORATIONLKAB is working in several areas, via international research collabo-ration and other initiatives, to reduce climate impact. The ULCOS project is an initiative of the International Iron and Steel Institute to investigate the possibilities of reducing steel industry carbon dioxide emissions by 50 percent. LKAB has made its experimental blast fur-nace in Luleå available for studies of how C02 emissions from blast furnaces can be reduced. Another current project concerns the development of a method for sequestering carbon dioxide in waste rock. The carbon dioxide is allowed to react with water and waste rock, so that minerals are dissolved and precipitate as carbonates, which bind carbon dioxide over the long term. A third project seeks to reduce carbon dioxide in the atmosphere by increasing forest production. LKAB and other project participants are conducting trials with an aim to increasing forest production within defined land areas. In the long term, it may be possible to sequester LKAB’s carbon dioxide emissions in forests.
EMISSIONS RIGHTSLKAB is involved in the EU’s system of trade in greenhouse gas (GHG) emissions rights. The period 2005-2007 was a trial period for carbon dioxide (CO2). The new trading period is 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 acquired through allocation by the state or via purchase. A surplus of rights can be sold. LKAB has three sites that are subject to the trading system: 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 central boiler plants generates carbon dioxide. In 2007, LKAB was granted renewed permits for carbon diox-ide emissions. The granting authority is the County Administrative Board of Norrbotten. The permits regulate how LKAB, in a reliable way, controls, monitors and reports emissions. The 472,664 tonnes of carbon dioxide (emissions rights) allocated by the state to LKAB for 2007 were insufficient. Therefore, to be able to produce pellets, LKAB has successively purchased more rights. Previously, LKAB has purchased 30,000 emissions rights and must, in April 2008, acquire additional rights in order to cover the compa-ny’s actual carbon dioxide emissions for 2007. By purchasing emissions rights, LKAB can increase production and carbon dioxide emissions without contributing to any increase in total emissions within the trade area. Overall reduction of GHG emissions is the prime concern – not where these emissions occur.
ENVIRONMENT
ATMOSPHERIC EMISSIONSAlthough LKAB’s production leads to carbon dioxide emissions, our
products offer customers great environmental advantages. Most of LKAB’s atmospheric emissions come from pellet pro-duction, which gives rise to emissions of sulfur dioxide, fluorides, chlorides, nitrogen oxides and particulate matter. The environmental impact must be regarded in a global perspective. LKAB’s pellet pro-duction results in one-seventh the quantity of emissions compared with sintering at the steelmills. This is because thermal energy is utilized in the pellet process and is used in production. The predominant iron mineral in LKAB’s mines is magnetite, which has the advantage that energy is liberated during the pelletizing process. Approximately 60% of the thermal energy needed during pellet production comes from oxidation, which reduces the need for external fuel. Most of the other pellet producers base their produc-tion on hematite ore, which requires a greater input of energy in the upgrading process, approximately 15 liters of oil per tonne of finished product. By comparison, LKAB’s pelletizing plant in Malm-berget uses only 5 liters of oil per tonne of pellets. The effort to reduce emissions of nitrogen oxides (NOx) has been a priority during the year. A series of development projects and studies of reduction of nitrogen oxides and internal process systems has been conducted. During the year, the Municipality of Kiruna lodged a complaint against LKAB concerning high particulate emissions in Svappavaara.
LKAB ANNUAL REPORT 2007 | ENERGY • CLIMATE • ENVIRONMENT | 19
Various environmental measurements are taken on an on-going basis by LKAB personnel. Here, Joakim Björnström measures particulate content in outdoor air in Malmberget.
LKAB’s iron ore consists mainly of magnetite, which implies major environmental advantages:
• During sintering in the pelletizing process, energy is liberated when oxidation takes place.
• 60% of the thermal energy needed for production comes from oxidation.
• Less addition of coal and oil is necessary, which implies lower emissions.
• LKAB’s pellet manufacture results in one-seventh the quantity of emissions compared with sintering at the steelmills.
The Minerals Division supplies products made from naturally occurring minerals:
• Minerals with flame-retardant properties replace synthetic products.
• Magnetite is used for water treatment and desulphurization of coal.
• Olivine improves the working environment in foundries and reduces carbon dioxide emissions from steel production.
THE ENVIRONMENTAL ADVANTAGES OF LKAB’S PRODUCTS
During the spring of 2007, LKAB noted increased emissions of par-ticulates in the Svappavaara pelletizing plant and that the 150 mg/Nm3 guideline value had been exceeded. Corrective measures have been taken and particulate readings later during the year indicated that emissions had resumed acceptable levels.
DISCHARGES TO WATERProcess water derives from two main sources: water pumped from the mines and precipitation. 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. Via recirculation sys-tems, more than 75 percent of the process water is pumped back to be used again in the processing plants. The rest is discharged into lakes and rivers, which are recipients of surplus water. Different industrial processes contribute to changes in the com-position of the process water. Process water chemistry is primarily influenced by the mineral content of the ore. After use in process-ing, the water has a relatively high pH level, a high concentration of soluble inorganic ions, and low levels of heavy metals. In addition, the process water contains a relatively high level of nitrogen that originates from explosives residues and are dissolved in the proc-ess water. To minimize discharge of nitrogen to the water, special projects are under way to improve efficiency in the use of explosives. The results of a study have been submitted to the Environmental Court. The report presents the measures adopted in the project and pro-posals for additional measures. Waste rock dumping can also give rise to water pollution. Weath-ering processes start after the waste is dumped, and if the rock contains sulfides, an acidic, metalliferous leachate is formed. Waste rock from LKAB’s mines has a relatively low sulfide content and con-tains a surplus of neutralizing substances that counteract acidifica-tion.
PERMITSThe Group conducts operations that are subject to regulations em-bodied in the Environmental Code. Two permits refer to mining and mineral processing in Kiruna and Svappavaara (the latter not cur-rently applicable), and one permit refers to mining and processing of ore in Malmberget. One permit refers to mining of additives used in ore processing and two refer to the manufacture of explosives. Sev-eral permits refer to water management in connection with LKAB’s dam facilities, and two permits refer to the handling of products at the harbors.
New environmental permitsDuring 2007, LKAB was granted a permit by the Environmental Court for existing and expanded operations in Malmberget. The permit will enable LKAB to increase annual production of crude ore from 14 to 20 Mt and to manufacture 14 Mt of finished products, of which 9 Mt can be prime pellets. The permit covers deposition of inert waste rock amounting to 6.3 Mt/yr, deposition of non-hazardous waste in the form of sand from the concentrating process amounting to 2.2 Mt/yr, and receipt, treatment, storage and deposition of non-hazardous waste from the desulphurization process amounting to 30,000 t/yr. According to the Environmental Court ruling, LKAB must investi-gate possibilities for the reduction of emissions of nitrogen oxides to air recipients, the reduction of diffuse dusting, and reduction of nitrogen discharges to water recipients. In 2005, construction of new concentrating and pelletizing plants began in Kiruna. The Environmental Court had already granted LKAB a permit for Kiruna to produce 14.8 Mt of pellets per year. During 2006, the ruling was appealed with the Environmental Court of Appeal by, among others, the Swedish Environmental Protection Agency, with respect to the time for presentation of studies of inter-nal process measures and reduction of nitrogen oxides, as well as possibilities for the improvement of energy efficiency. According to the ruling by the Environmental Court of Appeal of February 2007, LKAB must, by 30 September 2009, investigate the possibilities for reducing emissions of nitrogen oxides and improv-ing energy efficiency. The Swedish Environmental Protection Agen-cy participates, via advisory meetings, in these investigations. The new plants are expected to be operational in the second quarter of 2008. In 2007, an application was submitted to the Environmental Court for amendment to the conditions regarding ground deformations in Kiruna, since the applicable conditions are thought to have no rel-evance with respect to protection of people and the environment. The present conditions also imply difficulties in determining whether deformations, at the edge of the area in question, are due to natural events or whether they are linked to mining activity. The proposed condition defines a difference in movement be-tween two measurement points instead of the allowable cumulative movement at one point. Several studies concerning the susceptibili-ty of buildings and objects to damage are the basis for the proposed condition. The application was announced in October 2007 and a ruling is expected during 2008.
Countries Operations
Sweden Mining of iron ore and dolomite, production of iron ore pellets/fines.
Rail transports, discharging, storage, loading and shipping
Norway Discharging, storage, loading, shipping
Finland Mica production
Greenland Mining of olivine
England Storage of mineral products
The Netherlands Storage of mineral products
Turkey Mining of huntite and hydromagnesite, production
China Manufacturing of ceramic and refractory products
OPERATIONS WITH ENVIRONMENTAL IMPACT
20 | ENERGY • CLIMATE • ENVIRONMENT | LKAB ANNUAL REPORT 2007
During 2006, an application was submitted to the County Ad-ministrative Board of Norrbotten concerning a minor change in op-erations with the introduction of flotation in the Svappavaara con-centrating plant. The flotation plant is expected to be in operation during the summer of 2008. In 2007, application was made to the County Administrative Board of Norrbotten for a permit for test mining at Gruvberget in Svappavaara. The application refers to mining of 50,000 tonnes of magnetite ore to be used in mineral processing trials. The tests are to be conducted at Gruvberget because the LKAB Group requires an additional supply of magnetite products. The permit application process concerning emptying of the open pit in Svappavaara also began in 2007. An application will be sub-mitted to the Environmental Court during 2008. Kimit AB intends to apply, during 2008, for permits allowing a production increase at the plant in Kiruna.
DEFORMATION AND ALTERATION OF THE LANDSCAPEMining and processing of minerals impact the environment, which also means alteration of the landscape. The major visible effects of mining are open-pit mines, deformation zones, waste rock heaps, and pond systems for mine and process water. LKAB’s expansion in the operating locations in the orefields en-tails a successive expansion of deformation zones, which is a result of mining. Amendments to municipal plans are therefore inevitable in the long term. Together with the state (the owner), local authorities, public ad-ministrations, property owners, other companies and other stake-holders, LKAB is working actively to find joint solutions for the struc-tural transformation. Therefore, as agreements are reached, LKAB is successively allocating funds for agreed measures. Dialogue with stakeholders concerning necessary measures and financing to implement these measures continues. As new knowl-
LKAB ANNUAL REPORT 2007 | ENERGY • CLIMATE • ENVIRONMENT | 21
View looking north over the Kiruna mine and the town of Kiruna.
edge is gained, we acquire a better insight into the implications of structural transition. The transition will entail considerable expen-ditures in coming years. LKAB’s point of reference is the Minerals Act and LKAB’s formal obligation to replace existing functions and structures.
KirunaIn Kiruna, drilling investigations are being conducted to determine the extent of the orebody towards the north and to ascertain the position of the orebody at depth. LKAB will submit an application during 2008 to the Swedish Mining Inspectorate (Bergstaten) for an extension of the mining concession towards the north-east. The consequences of mining, in the form of deformations, are now be-coming apparent for the surrounding community. During 2006, the road known as Gruvvägen, between the town and mine-industrial area, was rerouted along the shore of the drained Lake Södra Lu-ossajärvi and Sjöbangården. Lines that ran parallel to the old road were replaced during the summer of 2007. The Municipality of Kiruna has begun the task of replacing the present wastewater pipeline. This work is expected to be complete by the autumn of 2008. Vattenfall’s work on the construction of two new transformer stations with power line structures is essentially complete. Banverket is building a converter station to replace the existing station. This work will be completed during the first half of 2008. To enable mining of the northern part of the orebody (the so-called lake ore) the existing dam surrounding the southern part of Lake Norra Luossajärvi must be replaced with a new structure, farther north in the lake, to prevent uncontrolable seepage into the mine. The discharge from Norra Luossajärvi will also be affected, which means that a new spillway will have to be excavated farther to the north. Application for construction of a new dam structure and spill-way for Norra Luossajärvi will be submitted to the Environmental Court in the autumn of 2008.
MalmbergetAnother visible impact of the mining operations 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 being backfilled, which will stabilize the area.
Near Kaptensgropen lies the Fabian orebody. Here, seismic activ-ity indicates that blocking is occurring. This means that rock masses in the mined area are caving in and a new pit may be forming, which is according to plan. The Mining Inspectorate of Sweden has granted LKAB an extend-ed mining concession for the Fabian orebody. The company is work-ing to begin the relocation of buildings situated in Elevhemsområdet, since the ore extends under residential properties in the area. In 2007, blocking of the hanging wall of the so-called Hensmal-men orebody occurred. The pit resulting from this event is approxi-mately 90x140 meters in area. In the eastern part of Malmberget, blocking of the so-called ViRi orebody has also occurred, with a visible result in the form of a new pit. The newly formed pits lie within enclosed industrial areas and constitute no direct third-party risk.
MONITORING OF DEFORMATION ZONESDeformation and seismic events within LKAB’s area in Kiruna and Malmberget are monitored on a continuous basis with the help of modern technology, for example, with micro-seismic measurements and GPS. This is done so that ground movements can be followed on an ongoing basis and boundaries around deformation zones can be extended well in advance. The seismic systems have proven to be very valuable tools for forecasting the blocking events that occurred during 2007 around the orebodies in Kiruna and Malmberget. In Malmberget the system has been augmented with the addition of six more geophones, high-ly sensitive sensors that are placed in the ground, which enables monitoring of the area around the PrintzSköld orebody. When a seismic event occurs, it is recorded by a number of instru-ments placed around the mine and in settlement areas. Geophones give an immediate indication of the location and magnitude of an event. Mining engineers also perform visual inspection of the sites, both under ground and at surface level. Special reports are issued where seismic events are registered, and if many residents have noticed activity and contacted LKAB. Information is sent to the responsible parties at LKAB, to the mu-nicipal emergency services, local officials and public authorities. If
02 03 04 05 06 07
250
200
150
100
50
0
EMISSIONS PER TONNE PELLETS PRODUCED g/tonne pellets
Nitrogen oxide Carbon dioxide, kg/t
Particulates Hydrogen chloride
Sulfur dioxide Hydrogen fluoride
Mean values of emissions from the pelletizing plants in Kiruna, Svappavaara and Malmberget. The flue gas cleaning equipment in the pelletizing plants has reduced emissions of, above all, sulfur and particulates.
80 85 90 00 05 07
5 000
4 000
3 000
2 000
1 000
0
20
16
12
8
4
095
ATMOSPHERIC EMISSIONS
Particulates Pellet production
Sulfur dioxide
Hydrogen fluoride
LKAB’s capacity expansion is taking place in keep-ing with strict environmental standards. Since 1980, emissions of particulates, sulfur dioxide and fluorine have been more than halved at the same time as pellet production has more than trippled.
Emissions ton Pellets Mt
Sinter Hematite- based pellets
LKAB-pellets
CO2-EMISSIONS FROM MINES TO SINTER AND PELLETS kgCO2 /tonne crude steel
The total carbon dioxide emissions from production of crude steel, about 2,000 kg CO2/tonne, are reduced when LKAB pellets are used as the iron raw material. LKAB’s pellet manufacture results in one-seventh the quantity of CO2 emissions compared with sintering at the steelmills and one-third of the emissions from hematite-based pellet manufacture.
300
250
200
150
100
50
0
22 | ENERGY • CLIMATE • ENVIRONMENT | LKAB ANNUAL REPORT 2007
the vibrations have been noticed in several locations in the commu-nity, or if they have a magnitude of 1.5 mm/s or more, information is also published on LKAB’s website. In the autumn of 2007, LKAB distributed an information brochure on mining and its possible con-sequences to all households in the Malmberget area.
DAM SAFETYLKAB has an extensive dam-safety program. 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). These facilities are monitored daily and inspected four times each year. Inspections are conducted regularly by independent experts. Inspection intervals depend on each dam’s classification. Class-1 dams are inspected
Another visible impact of the mining operations in Malmberget is Kaptensgropen, the “Captain’s Pit”, a 20-hectare area in the middle of the community.
70 80 90 00 07
1 000
800
600
400
200
0
FUEL CONSUMPTION IN LKAB’S PELLETIZING PLANTS MJ/tonne pellets
Thanks to systematic efforts, fuel economy (coal+oil) in the pelletizing plants has successively improved.
02 03 04 05 06 07
0,25
0,20
0,15
0,10
0,05
0,00
ENERGY CONSUMPTION PER TON PELLETS MWh/tonnepellets
Efficiency improvements will contribute to a reduc-tion in energy consumption in relation to the number of tonnes of pellets produced.
02 03 04 05 06 07
3 500
3 000
2 500
2 000
1 500
1 000
500
0
21
18
15
12
9
6
3
0
ENERGY CONSUMPTION
Pellet production
Oil Coal Electricity
For several years, energy consumption has been directly proportional to pellet production. Pellet production increased by nearly 2 Mt in 2007.
GWh Mt
every other year and Class-2 dams every third year. In collaboration with other mining companies and SWEMIN, LKAB has completed compilation of GruvRIDAS (the Mining Industry’s Guidelines for Mining Companies’ Dam Safety), which will apply to sand containments. For settling ponds, the RIDAS guidelines will continue to apply. For the sand containment in Kiruna, measures to increase capac-ity will be necessary during 2008. Application for a permit to raise the level of one of the dam structures in Kiruna by three meters was submitted to the Environmental Court in 2007.The Luossajärvi dam in Kiruna has been re-classiified as a Class-1b dam, partly due to the rerouting of Gruvvägen, for safety reasons. This means that the spillway must be designed for a 10,000-year return period (i.e., a 1:10,000 year rainfall event). During the year,
LKAB ANNUAL REPORT 2007 | ENERGY • CLIMATE • ENVIRONMENT | 23
LKAB has studied several alternative spillway routes for this up-grade. In 2008, instruments will be installed on the settling pond and re-cipient pond dams in Svappavaara and sand containment in Malm-berget to measure movement.
NOISE, VIBRATION AND DUSTMachines, vehicles, fans, blasting and other activities give rise to vibrations and noise. In some residential areas, vibrations caused by blasting are considered annoying. During 2007, the Municipality of Kiruna brought legal action against LKAB for contravention of provisions concerning noise levels in Svappavaara. The County Administrative Board, which is the su-pervisory authority, sent the case to the prosecutor in January 2008. During the period 2005-2007 LKAB, has had difficulty maintaining noise levels below the applicable guideline limits. The sources of noise, mainly the discharge station and processing plants, were sur-veyed in 2006. Noise-control measures have been implemented in the processing plants. Near-field measurements, performed in 2007 as part of LKAB’s revised noise-control program, indicate that the corrective measures have been successful. For the remaining critical noise source, the discharge station, LKAB is conducting detailed studies to determine relevant noise-reduction measures. Large amounts of fine-grained material are handled in LKAB’s operations, which can give rise to dust or discharge of particulate matter. Dust and particulate matter originates mainly from ore com-minution, loading and discharging of material in harbors, and han-dling at outdoor stockpiles. Handling of waste rock for backfilling of Kaptensgropen, the “Captain’s Pit”, in Malmberget, has at times also caused disturbances. Dust control measures have included treatment of haulage roads with dust-binding lignosulfate and watering, as well as minimizing of the active deposition area, lowering levels for trucks when loading,
and a sprinkler system in Kaptensgropen. LKAB inspects the areas daily to determine if there is a dust risk. In 2006, the sprinkler system was installed in Kaptensgropen. The watering system was improved during 2007 and a weather station with a visibility camera was installed in the area. Renovation of the Narvik ore harbor will significantly improve the environment in and around the harbor area. Storage silos, blasted out of the bedrock, will be equipped with dust evacuation systems. When discharging, the ore trains will enter a tunnel above the stor-age silos. This reduces noise and dust. For more than a decade, the ore harbor in Luleå has met the requirements of an environmentally efficient ore harbor.
SITE REMEDIATIONSite remediation is a statutory obligation where consideration must be given to safety, environmental and esthetic aspects. LKAB co-operates with the environmental authorities in devising long-range remediation plans for the mining sites. Revision of plans for waste-rock landfills for the operations in Malmberget and Svappavaara has proceeded during the year. LKAB is required to provide financial guarantees to cover the costs of remediation and other remedial measures Following the most recent ruling of the Environmental Court with respect to increased concentrating and pelletizing capacity in Kiru-na, a bank guarantee of MSEK 63 has been pledged to the super-visory authority (the County Administrative Board of Norrbotten). A ruling on the same matter by the Environmental Court of Appeal required LKAB to present a revised remediation plan for the Kiruna mine-industrial site before 31 December 2007. The remediation plan was submitted to the County Administrative Board within the speci-fied time. According to the 2007 ruling by the Environmental Court with re-spect to fulfillment of obligations with respect to depositioning op-
All of the company’s dams in Kiruna (pictured), Malmberget and Svappavaara are designed with the aid of independent experts in accordance with RIDAS (the Power Industry’s Guidelines for Power Dam Safety). Right: processing plants, with the new concentrating and pelletizing plants. Far right: the town of Kiruna.
24 | ENERGY • CLIMATE • ENVIRONMENT | LKAB ANNUAL REPORT 2007
erations in Malmberget, a bank guarantee of MSEK 45 has been pledged to the County Administrative Board of Norrbotten. Some examples of measures initiated at the mine sites are back-filling of open pits, planned disposition of waste rock, grass sowing and tree planting. In 2007, LKAB completed remediation measures at a total cost of MSEK 2.7. Previously identified contamination areas in Luleå have been fur-ther surveyed and remediation of these is planned for 2008. Remediation of a former deposition site with oil-contaminated soil began in 2004. The soil is mixed with specially cultured bacteria. The project was successfully completed in 2007. Depositioning of lime sludge in Svappavaara will cease in 2008 and remediation will take place during 2008-2009, during which time decontamination and remediation of spill oil and grease pits in Svappavaara is also planned. Surveying, decontamination and remediation of areas in all operat-ing locations take place on an ongoing basis. A MIFO survey (MIFO = method for inventory of contaminated areas) provides the basis for planning of decontamination measures and the ongoing work of environmental impact assessment and prioritization of areas, as well as for communicating LKAB’s coming program of decontamination.
PLANNING ISSUESDuring 2007, LKAB has taken an active part in the revision of the Municipality of Gällivare’s detailed municipal key plan for Gällivare/Malmberget. In this regard, LKAB has contributed information on current and future mining. The ambition has been to provide the clearest possible information based on the present knowledge of mineral resources, production conditions and economy. At the request of LKAB, the process of revising the detail plan for Elevhemsområdet in Malmberget has been brought forward by the Municipality of Gällivare, while an application for a mining conces-sion for the Fabian orebody has at the same time been submitted.
The Municipality’s ruling, effective 7 March 2007, means that the concession will not affect any area subject to the detail plan or con-flict with any zoning bylaws. In Kiruna, the process of amending the current detail plan for the Kiirunavaara mine-industrial site has begun, the aim of which is to enable the construction of a new road leading into the site.
OPERATIONS OUTSIDE OF SWEDEN
NORWAYThe Mining Division has operations at the ore harbor in Narvik, which is LKAB’s largest shipping harbor. For the operation, a permit specifies the conditions for handling of iron ore products, olivine and quartzite. The environmental impact is mainly from dusting and discharge of particulates. The supervisory authority in Norway has requested that LKAB apply for a new environmental permit that is more commensurate with current production and environmental standards. Emissions limits for particulate matter are set for the discharge station, screening plant and pellet fines stockpiles. A new ore harbor is under construction. The ore silos are being built into the bedrock, which will significantly improve the environment. For discharges to the water, conditions are specified for water use in the discharge station, bulk storage facilities, and discharge of grey water, water containing oil, and dredging.
GREENLANDThe Minerals Division mines olivine in Greenland. Production began at the Seqi mine during 2005 and amounted in 2007 to 690,000 tonnes. Minelco A/S has been granted permits for the operation by Greenland’s Råstofdirektoriatet. For the operation, an environmental monitoring plan, in which background and follow-up exploration are regulated, has been established.
2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 Raw materials/Additives
Crude ore (Mt) ) 41,0 40,5 37,3 35,9 34,7 31,5 33,0 33,4 30,6 33,4Explosives (ktonne) 17,3 16,4 15,2 13,7 13,1 12,3 12,8 13,2 13,1 12,3Tillsatsämnen (kton)1) 615 627 613 632 568 536 549 572 508 590Energy (GWh) 2) 3 377 3 145 3 028 2 892 2 867 2 706 2 635 2 832 2 648 3 023
Products and byproducts, etc.
Pellets (Mt) 18,8 16,9 16,5 16,0 15,3 14,1 13,8 14,9 13,0 15,1Fines (Mt) 5,0 5,6 6,8 6,2 6,2 6,2 5,7 5,7 5,9 5,9Byproducts:Waste rock (Mt) 16,5 12,7 10,7 10,8 10,0 9,6 10,2 10,1 11,6 12,8Concentrating sand (Mt) 3,6 3,2 3,4 3,8 3,7 3,6 3,3 3,5 3,5 3,9Surplus heat recovered (GWh) 161 162 163 139 149 92 102 99 53 84
Atmospheric emissions
Particulates (tonnes) 2 125 2 490 2 450 1 360 1 565 1 760 1 575 2 000 1 355 1 850Sulfur dioxide (tonnes)) 2 212 1 985 1 695 1 540 1 540 1 385 1 495 1 760 1 685 1 695Hydrogen flourides (tonnes) 325 218 190 179 148 127 171 191 183 215Hydrogen chlorides (tonnes) 688 672 385 389 347 330 307 315 330 350Nitrogen oxides (tonnes) 3 807 3 386 2 920 3 050 2 765 2 620 2 585 2 460 2 640 3 550Carbon dioxide (ktonne) 511 440 439 419 427 395 362 426 385 439
Discharges to water
Nitrogen (tonnes) 415 398 468 379 237 211 283 315 273 250Total phosphorus (kg) 660 492 644 478 366 364 641 691 398 500Trace metals (kg) 3) 321 250 378 303 171 187 265 315 177 174
1) Olivine, dolomite, bentonite, lime and quartzite. 2) Electricity, oil and coal minus pre-sold. 3) Chromium, cadmium, copper, nickel, lead, zinc and arsenic.
RESOURCE CONSUMPTION, PRODUCTION AND EMISSIONS
LKAB ANNUAL REPORT 2007 | ENERGY • CLIMATE • ENVIRONMENT | 25
ENGLANDIn England, the Minerals Division has facilities for storing and han-dling industrial minerals such as dolomite, bauxite, olivine, mica and UltraCarb products. During 2007, six facilities were in operation: Derby, Flixborough, Foxfield, Lund, Shoreham and Stockton. In ac-cordance with the Environmental Protection Act, each facility oper-ates under permits from local environmental protection authorities.
THE NETHERLANDSIn the Netherlands, the Minerals Division has a facility in Moerdijk for stocking and handling magnetite and dolomite. Minelco BV has permits for the operation.
CHINAIn China, the Minerals Division has plants in Tianjin that produce ceramic and refractory products. Operations are in compliance with local environmental legislation, with permits for current product.
TURKEYIn Turkey, the minerals huntite and hydromagnesite are mined by the part-owned subsidiary Likya Minelco, which has environmental permits for extraction and production. These minerals have flame-retardant properties and replace synthetic products in, for example, the cable industry. The minerals are marketed under the product name UltraCarb. The production facility began operating in 2006.
FINLANDIn Finland, the Minerals Division has a production plant for mica, which is a by-product from Kemira GrowHow’s apatite mine in Siilinjärvi. Environmental impact from the plant is relatively limited and is mainly the result of dust in the drying air. Minelco Oy and Kemira GrowHow, which is responsible for waste management and inspection, together hold the necessary environmental permits. Dur-ing 2007, new environmental permits were granted for the opera-tion, which is certified according to the ISO 14001 environmental management system.
• The President bears the overall responsibility for environmental issues. Operational responsibility is delegated to the heads of divisions and unit managers.
• The specialist function External Environment is responsible for the entire Group’s environmental work: provides advice, applies for the necessary permits and veri-fies compliance with permit conditions and laws, sampling, investigations and re-porting to supervisory authorities.
• LKAB’s environmental monitoring is carried out, in consultation with superviso-ry authorities, in accordance with established programs that measure both emis-sions/discharges and environmental impact. An environmental report for each op-erating location is submitted annually to the authorities concerned.
ENVIRONMENTAL MANAGEMENT ORGANIZATION AND RESPONSIBILITY
• The Chemicals Committee in LKAB handles all matters pertaining to chemical products, for example, approval of new products for use in LKAB.
• LKAB’s Occupational Health unit works above all with preventive measures. The unit’s work is based on a broad knowledge of medical, technical and behavioral science, work organization and rehabilitation methodology.
• Environmental and energy issues are also addressed in various trade organiza-tions. LKAB is an active member of SveMin (the Association of Mines, Mineral and Metal Producers in Sweden, formerly the Swedish Mining Association) and the Swedish Steel Producers’ Association. LKAB also supports and actively partici-pates in a number of environmental research programs. The company is an active member of the Torne and Kalix Rivers’ Water Conservation Association.
FOCUS AREAS 2007 OUTCOME FOCUS AREAS 2008
FOLLOW-UP
- Implement noise-reduction measures in Svappavaara
- Final certif ication of the Parent Company’s envi-ronmental and energy management system
- Rectify dust problems arising from Kaptens- gropen
- Noise-reduction measures in the processing plants have shown good results. A reduction of about 3 dB(A) has been achieved.
- Certif ication of the entire Parent Company was completed in the autumn of 2007 with good results.
- Different types of dust-reduction measures have been implemented with varying results.
- Final rectif ication of the noise situation in Svappavaara
- Ascertain and improve the status of the environ-mental and energy management system.
- Ongoing work to alleviate the dust problem at Kaptensgropen
26 | ENERGY • CLIMATE • ENVIRONMENT | LKAB ANNUAL REPORT 2007
Safety and recruiting are priorities for the futureLKAB ANNUAL REPORT 2007 | HUMAN RESOURCES
Employees are a decisive factor for LKAB’s success.
Human Resources
Organizational and human-resources development are impor-tant strategic activities for improving productivity and the work environment. Management of human-resources issues is a group-wide function. Working environment, recruiting, human-resources development and the individual’s commitment are important deciding factors for LKAB’s successes.
Personnel are clearly a strategic resource for LKAB’s business op-eration. Healthy employees, safe workplaces, training and compe-tence development, greater gender equality, and farreaching indi-vidual responsibility are decisive for quality improvement, increased production, efficiency improvement and, not least, reduced risk of injury.
GREATER SAFETY WITH LESS ABSENCE DUE TO ILLNESS“Safety First” is a priority focus area within LKAB. Several years ago, a strategic and employee-oriented effort towards the long-term goal of zero accidents was initiated. This issue is crucial for LKAB’s long-term success and for making the company an attractive employer that is perceived as such by both present and future co-workers and contractors. The fewer the risks, the fewer the accidents. This is the starting point of the accident prevention work. All injuries and work-related illnesses can be prevented; each individual is responsible for im-proving the working environment, and all safety hazards must be eliminated quickly. This effort is largely a matter of introducing a new safety culture that will have an impact on each individual’s attitude and behavior in all aspects of our operations, major and minor. Priority actions include reporting of evident risks, incidents and
accidents, and subsequently, corrective measures. Special courses for managers, employee training programs, safety inspection rounds to encourage dialogue on safe behavior with crews and colleagues, workplace meetings and discussions on working environment at the individual level. The effort has been successful to the extent that the rate of ac-cidents in the Group has been reduced from 13.5 per million work hours in 2006 to 9.5 in 2007. In actual numbers, this translates to 62 (86) accidents resulting in absence due to illness, which represents a reduction of 28 percent. The aim was a 20-percent reduction, and even though we have surpassed this goal, the figures show that the drive to improve safety is far from complete. Much remains to be done before we have achieved the zero-accidents objective. During 2008, “Safety First”, of which the primary focus has been our iron ore operations, will be intensified throughout the Group. We are pleased to report that absence due to illness continues
28 | HUMAN RESOURCES | LKAB ANNUAL REPORT 2007
“Our conviction about safety”
• All injuries and work-related illnesses can be prevented.
• Safety at work is a condition for employment and contract work.
• Each of us is responsible for preventing work-related injuries and illnesses.
• All employees are visibly and clearly involved in improving the working environment.
• All deficiencies in safety must be remedied quickly.
• Ongoing safety training for all employees is essential for creating a safe workplace.
• Safety is just as important outside of work as it is at work.
• Preventing work-related injuries and illnesses is good for business.
WORKING-ENVIRONMENT ASSESSMENTS
LKAB’s workplaces are suitable for all employees, regardless of gender, ethnic origin, faith or sexual orientation.
02 03 04 05 06 07
500
400
300
200
100
0
25
20
15
10
5
0
TOTAL MANAGERS (PER 31 DEC)
Total managers of which women %
Total managers
Of which women
to decline. Short-term absence in the Group decreased to 2.1 (2.3) percent and long-term absence dropped to 1.2 (1.5) percent. The objective set in 2004 to halve long-term absence by 2009 has there-by been achieved. One of the reasons for this success has been goal-oriented re-habilitation. The basic precept is that each individual in need of rehabilitation will be given the opportunity to return to work. The primary goal is for the individual to return, if possible, to his of her normal place of work, which may require some form of adaptation of the tasks performed. Rehabilitation involves close cooperation of the individual with his or her supervisor, LKAB’s occupational health unit, our trade unions and the Swedish Social Insurance Agency – a collaborative effort that has led to very successful results for the company and individual employees.
RECRUITING WITH A FOCUS ON DIVERSITY AND EQUALITYThe large number of employees who are approaching retirement age and the successive increase in demand for competence develop-ment necessitate and enable many interdependent measures that will ensure the future supply of qualified labor. Special plans of action ensure diversity within the company, as well as the suitability of LKAB’s workplaces for all employees, re-gardless of gender, ethnic origin, faith, or sexual orientation. LKAB-oriented upper secondary-school programs in Malmberget and Kiruna constitute an important recruitment base. In just three years the schools have developed attractive study programs with high admission requirements. In 2008, the first ten students in Gäl-livare-Malmberget will graduate from the three-year program. Cooperation with the schools is also important for LKAB from the point of view of gender equality. Nearly half of the students admit-ted to the industrial program during the current year of study are girls, which is a record for upper secondary-school engineering pro-grams. The LKAB high schools are also important for LKAB from the point of view of gender equality. Nearly half of the students admitted to the industrial program during the current year of study are girls, which is a record for secondary-school engineering programs. This is very good news, since LKAB is striving to achieve a more balanced gender distribution, with more women in different func-tions in the organization, especially in positions traditionally held by men. A better balance between the sexes leads to greater efficiency and increased safety.
The average number of employees in the Group increased in 2007 by 148 to 3,885. Within the Group, the average number of women is 484 (435), which is 12.5 percent (11.6). The target, 13 percent women by 2007, has not been reached. This is explained by the fact that there have been too few female ap-plicants for our job vacancies. We will therefore continue to develop the necessary activities to improve conditions for recruiting more women. Within the Group, 382 (264) new employees were hired during the year. Of the new recruits, 65, or about 17 percent, were women. About 100 people were recruited to the new concentrating and pel-letizing plants in Kiruna. The retirement rate remains high, which is why the need for hiring will also remain high. 17 percent of LKAB’s employees work outside of Sweden. The single largest foreign operation is that of the Minerals Division, which has about 400 employees abroad. The greatest number of foreign employees in the Division is in the UK, where Minelco employs more
LKAB ANNUAL REPORT 2007 | HUMAN RESOURCES | 29
02 03 04 05 06 07
10
8
6
4
2
0
SICKNESS ABSENCE %
Total sickness absence in the Group, as per-centage of total working hours.
02 03 04 05 06 07
100
80
60
40
20
0
25
20
15
10
5
0
WORK-RELATED ACCIDENTS RESULTING IN ABSENCE
Number of accidents Million working hours
Total number of accidents resulting in absence, Group.
Total accidents per million working hours.
04 05 06 07
10 000
8 000
6 000
4 000
2 000
0
INCIDENT REPORTING Total
Total reported incidents and risks.
The proportion of women in managerial posi-tions in LKAB increased by nearly one per-cent in 2007 to 12 percent.
30 | HUMAN RESOURCES | LKAB ANNUAL REPORT 2007
than 200 people. In Norway, the Mining Division has more than 200 employees who are employed principally in ore transport and han-dling at the Narvik ore harbor.
GREATER PARTICIPATION IN COMPETENCE DEVELOPMENTDelegating greater responsibility and authority to employees is one of the company’s strategies for improving efficiency and creating attractive workplaces. Various initiatives have been taken to stimu-late individual responsibility, for example, in operations and working environment. LKAB also encourages job mobility among employees, both na-tionally and internationally. During the year, an international manage-ment development program was started. The aim is to strengthen the individual managerial role and to foster a common leadership identity in the Group. Another example is the trainee program that was initiated in 2004. The objective is to broaden the recruitment base and to make is eas-
INCENTIVE SYSTEMS AND EMPLOYEE SUGGESTION PROGRAMS CONTRIBUTE TO GREATER COMMITMENTThe generally higher level of commitment to the company’s opera-tions is evident. The positive trend towards a lower rate of absence due to illness is reflected in the incentive system, which involves most employees in Sweden and Norway. The aim is to encourage each individual employee to contribute to reaching targets with respect to product quality, production volume and fewer accidents. The incentive system has been revised during the year. The reward has been raised by 10,000 kronor to a maximum of SEK 40,000 per year and full-time employee. For 2007, incentive payments aver-aged about 21,400 kronor per employee. Employee commitment was also evidenced by the fact that per-sonnel submitted a record number of suggestions for changes and improvements during the year. Compared with 2006, the number of suggestions increased by 21 percent to 3,612, which is about one suggestion per employee. 2007 also saw a great increase in the number of suggestions that were reviewed, from 2,499 to 3,598, which is an increase of 44 percent. It is particularly interesting to note that more than 800 suggestions referred to the Safety First campaign. It is apparent that a growing number of employees believe that the suggestion program contrib-utes to the company and its competitive advantage.
GRANTS AND SPONSORINGLKAB awards several grants with an aim to encouraging young peo-ple to study in subject areas that are of relevance for the Group. Particularly noteworthy among these are LKAB’s future grants for post-secondary studies in engineering, and grants for high school students and people who are active in athletics and culture. LKAB’s strong social commitment is clearly expressed through local sponsoring of athletics and culture. An important aspect of sponsoring is to encourage not-for-profit youth activities. In the ore-fields, sponsoring is usually conditional upon the recipient having a policy on drugs and working actively to reduce drug use. LKAB also assists talented young athletes who compete at the elite level. Two young stars of the Swedish national ski team, Char-lotte Kalla and Marcus Hellner, both compete for clubs in Norrbot-ten and are sponsored by LKAB. These two skiers are important local role models who adopt a professional approach in their field of endeavor.
ier for young people to begin working in the Group. Great emphasis is placed on the program’s on-the-job practice periods, whereby the 2007 trainees worked abroad during their final practice period. Many employee training programs have been conducted in a wide range of areas to raise the level of expertise and improve skills. The aim is that each employee should participate in 10 days of compe-tence development per year, of which 5 should be training days. In 2007 the number of training days per employee in the Group was 6 (5.8). Important areas included work environment and safety, computing and IT, quality, management, personal development and ore processing.
FOCUS AREAS 2007 OUTCOME 2007 FOCUS AREAS 2008
FOLLOW-UP
Improve safetyImprove wellnessSecure long-term competence supply
The accident frequency was reduced from 13.5 to 9.5.A greater commitment to preventive work, which is apparent in the increased number of risk and incident reports.The rate of absence due to illness has declined from 3.8% to 3.3%.It is still relatively easy to recruit personnel, which is a good indication of our attractiveness as an employer in a competitive labor market. The number of women is increasing, but not on level with our ambitions.
Improve safety. The accident frequency will be reduced to at most 7.5; the number of risk reports will continue to increase.Improve wellness. Maintain and preferably reduce the rate of absence due to illness via intensified measures to improve health and fitness.Secure long-term competence supplyBetter systematization in cooperation with schools and other training providers. The proportion of female per-manent employees will be increased to at least 13.5%.
2007 2006
Number of training days 18 023 15 074
Training days/employee 6,0 5,8 (women / men) (9,0 / 5,5) (7,8 / 5,6)
Training days, managers 7,9 8,2
TRAINING
The number of training days increased in 2007 due mainly to introductory programs for employees in the new processing plants and safety training for all employees.
Business growth via strategic investmentsLKAB ANNUAL REPORT 2007 | STRATEGIC INVESTMENTS
Strategic investmentsMajor expenditures for a profitable future
LKAB is strengthening its business. The industrial minerals op-eration is expanding, and volumetric growth in the iron ore busi-ness will mean an increase from 23 Mt to 30 Mt. All the prereq-uisites are in place: a strong market, ore reserves and financial strength. Growth has entailed several strategic billion-kronor investments in the operation in recent years.
Throughout 2007, major development of the iron ore operation con-tinued. The program includes the new concentrating and pelletizing plants in Kiruna, and upgrading of the harbor in Narvik and rail trans-port infrastructure between the production sites and the harbors in Narvik and Luleå. To increase the supply of magnetite for the industrial minerals market, initial studies have commenced on alternative deposits, among others, the old Leveäniemi open pit and Gruvberget, both in Svappavaara. An application was submitted to the County Adminis-trative Board in 2007 for mining of 50,000 tonnes of magnetite ore from Gruvberget to be used in mineral processing trials. In December 2007, the subsidiary Fastighets AB Malmfälten (FAB) acquired the property management company I22 Vasallen AB in Kiruna.
CURRENT INVESTMENT PROJECTS
INCREASED PELLET CAPACITYPelletizing plant MK3 in Malmberget, which came on line in late-2006, has contributed to a significant capacity increase that has improved LKAB’s conditions for maintaining market shares with key customers and remaining a stable supplier to the Nordic steelmills. Construction of new concentrating and pelletizing plants in Kiru-na (KA3/KK4) is under way. This is the largest single investment in LKAB’s history. Groundwork, construction and installation of ma-chinery reached completion during the year and about 100 produc-tion personnel have been recruited and trained. Commissioning of different sections of the new plants began during the fourth quarter of 2007 and will continue until the start of production during the second quarter of 2008. Deliveries for the coming years have been contracted with established customers.
MODERN LOGISTICAL STRUCTUREThe program of investment in the new logistical structure began in the early 2000s and is expected to be completed by 2010. The main objective is to increase capacity for locomotives, ore cars and ter-minals. Shorter turn-around times for trains will be achieved through the use of a uniform fleet of rolling stock equipped for a minimum 30-tonne axle load. LKAB is therefore investing in an additional four new regular traffic locomotives of the same type as the nine engines that have already been delivered. Three terminal locomotives are being rebuilt to han-dle the new 750-meter-long trains, which have a payload weight of more than 6,500 tonnes. Efforts to successively bring new ore cars into operation also con-tinued during 2007. The investment includes 750 ore cars equipped for a 30-tonne axle load. Each ore car carries a payload of 100 tonnes.
All terminals are being upgraded to accommodate trains with a 30-tonne axle load. Upgrading of the terminals in Luleå and Malm-berget has been completed. In Kiruna, a new terminal structure, with loading of ore trains at surface level, is being built. The so-called K Terminal has been trans-formed into a new and efficient loading station with two towering product silos that create a new landmark on Kiruna’s industrial park. The loading station is also being linked to the new KK4 pelletizing plant by a kilometer-long belt conveyor. In addition, work is under way to extend track at the railyard, Sjöbangården. The K Terminal is expected to be complete and operational during the summer of 2008. Since 2006, a major refurbishment project has been in progress to modernize the ore harbor in Narvik (Project SILA). This includes construction of a whole new storage and discharging structure with 11 underground silos. Blasting and rock work for this technically advanced project has been completed and concrete structures are now taking shape. SILA is expected to reach completion by the autumn of 2009. Most of the work with the new logistical structure will be finished in 2010. The Svappavaara terminal is also being adapted to handle the new, longer, heavier trains.
NEW MAIN LEVELS IN THE IRON ORE MINESA mine must be sunk at regular intervals to enable the mining op-eration to continue. How often this is done depends, among other things, on the status of the orebody and the annual production vol-ume. Planning for new main levels in both the Kiruna and Malmberget mines has advanced during the year.
Kiruna: During 2007, major activities have included the construc-tion of two roads (inclined drifts), which are being driven down to what will be the new main level at 1,365 meters and to its deepest point, at 1,525 meters. For this project, a completely new ventilation system has been installed and is operational. A final decision on the new main level is expected during 2008.
Malmberget: Construction work on the extension of the current main level into the Fabian orebody advanced during 2007, as did preparations for a new main level at 1,250 meters. The inclined drift (road) has been driven past the planned new main level and is ap-proaching the deepest point (shaft bottom), which is at a depth of 1,390 meters. On 21 February 2008, the Board approved plans for the construc-tion of a new main level for the so-called Östra Fältet, at the 1,250 meter level, in the Malmberget mine, and an extension of the 1,000 meter main level to the Fabian orebody, an investment of several billion kronor.
32 | STRATEGIC INVESTMENTS | LKAB ANNUAL REPORT 2007
Leading-edge technology is a mustLKAB ANNUAL REPORT 2007 | RESEARCH AND DEVELOPMENT
The company has achieved this position thanks to determined and customer-oriented investment in advanced research and development. This work is organized within the unit Technology & Business development, which also organizes special projects and technical service.
Research is a key factor of LKAB’s business operation and is pri-marily based on the needs of each individual customer. To have a thorough understanding of the customer’s requirements and to be able to meet and surpass them is of vital commercial importance for LKAB. LKAB’s research is therefore scientifically and technologically ap-plication-oriented. It must be possible to accommodate the custom-ers’ technical parameters in LKAB’s own production processes, so that the features of the delivered product match the specific needs of the customers. Metallurgical research is an important piece of the puzzle.
IRON ORE PRODUCT DEVELOPMENT
AGGLOCENTERWith respect to iron ore products, LKAB’s long-term ambition is to produce only pellets for the steel industry. To strengthen the compa-ny’s expertise in pellet production, LKAB has studied the possibility of establishing a laboratory for pellet research (AggloLab) and an ex-perimental pelletizing plant (EPP). Together with the existing experi-mental blast furnace (EBF) in Luleå, these initiatives would provide unique conditions for developing processes and products, as well as enabling delivery of products that are even more customer-specific.
EXPERIMENTAL BLAST FURNACEThe year’s two campaigns in the experimental blast furnace (EBF) were successful. During the autumn EBF campaign, the twentieth since the start, trials of a whole new blast furnace process were conducted within the framework of the European collaborative re-search project ULCOS. The new oxygen blast furnace, with a CO2 separating system, is used in a sub-project entitled The New Blast Furnace. In another sub-project, the direct reduction process is being investigated with a similar aim. The goal of the project is to develop processes and technologies that will enable reduction of carbon dioxide emissions by at least 50 percent. So far, the results have been promising.
INDUSTRIAL MINERALS PRODUCT DEVELOPMENTResearch and product development in the area of industrial miner-als are application-oriented and are conducted in close cooperation with customers. In addition to the LKAB Group’s research organiza-tion, the resources of the Minerals Division’s UK subsidiary are avail-able. The Division also collaborates with universities and research institutes in Europe and the USA. Where the mineral olivine is concerned, the LKAB Group has a high level of expertise. LKAB introduced olivine as an additive in pel-lets for ironmaking, is a world leader in this area, and will continue, via the Minerals Division, to increase its knowledge in olivine appli-cations, even outside the steel industry.
MINING ENGINEERING DEVELOPMENT
ROCK MECHANICSIn the field of rock mechanics, an updated forecast of ground defor-mations relative to the hanging wall in Kiruna, up to the year 2013, was presented in 2007. Deformation measurements around the mines continue according to established plans, and in Kiruna, for example, measurements are taken four times annually. These meas-urement results are also presented to supervisory authorities and external partners. Since the deformations relative to Kiirunavaara’s hanging wall are expanding towards the town, additional measure-ment points have been installed, in 2007, between Hwy. E10 and Hjalmar Lundbohmsvägen. Seismic monitoring systems in the mines have become all the more extensive and are now an important instrument for check-ing the stability of a number of production areas of the orebodies. The systems have therefore been expanded during 2007, mainly in Malmberget, while the system in Kiruna has been upgraded with new geophones to replace those lost in the blocking of the so-called Lake orebody (Sjömalmen). Four doctoral students at Luleå University of Technology are now involved in different research projects dealing with rock reinforce-ment and the impact of mining on rock mechanics in the surround-ing area.
MINING ENGINEERINGAn important focus area is to improve different mining operations so as to increase the yield of ore in such a way that the ore base can be utilized to the fullest extent. Ore yield has developed very positively in recent years, thanks to improvements in e.g., drilling, charging, blasting and loading. Another important area in which research efforts are being fo-cused is the improvement of blasting procedures so as to reduce incomplete detonation, and thereby the amount of nitrogen residues discharged to recipients. Here, good progress is being made and since 2006, LKAB has met all targets for internal process measures that have been set in consultation with supervisory authorities. NEW TECHNOLOGIES AND SYSTEMSAs planning of the new main levels in Kiruna and Malmberget progresses, new technology and work on new mining systems is also proceeding. For example, in the future, there will be a greater need for remote-controlled loading as plans for increased produc-tion are realized. We have therefore begun to upgrade our remote loading system, and a new control system for remote loading is ex-pected to be operational during 2009.
JOINT PROJECTS
HLRC: The Hjalmar Lundbohm Research Center for Mining and Metallurgy (HLRC) at Luleå University of Technology (LTU) has been established on the basis of a 100-million-kronor donation from LKAB. The principal aim is to conduct research that supports LKAB’s strategies and helps to secure future competitive advantage on the world market. HLRC offers a science-based platform to en-
LKAB is a leader in pelletization of iron ore.
Research and development
34 | RESEARCH AND DEVELOPMENT | LKAB ANNUAL REPORT 2007
able deeper understanding of present and future product and proc-ess technologies. Activities are in three main areas: sustainable iron ore production, intelligent pellets and new products. Thirteen graduate students and several senior researchers work on research projects in close col-laboration with LKAB’s own researchers. In mining engineering, research projects are conducted in areas that will be of major concern to LKAB in the future, such as rock sta-bility and safety, and how this can be improved. Within the so-called intelligent-pellet area, researchers study the interactions between iron oxides and other minerals. Measurement technology, modeling and control are important research areas for meeting future cus-tomer requirements on high, consistent product quality. Several products are being conducted in these areas.
PRISMA: With the Centre for Process Integration in Steelmaking (PRISMA) at MEFOS, in Luleå, an internationally eminent environ-
LKAB ANNUAL REPORT 2007 | RESEARCH AND DEVELOPMENT | 35
Lab assistant Jonas Strömsten shows a so-called melt, an iron ore sample analyzed with X-ray equipment to determine chemical analysis for subsequent use in process control and research.
ment for research, development and innovation in process integra-tion will be created. Companies and organizations participating in the center will include LKAB, SSAB, Ruukki, Luleå University of Technology and Mefos. Funding will be provided by VINNOVA, SSF and the Swedish Energy Agency. Projects that have been started for LKAB include “Process Model for Pellet Plants based on CFD” and “Systems Optimization Model for pelletizing/processing - modeling and system studies of LKAB Malmberget”.
Mining research: In 2006, the mining research foundation MITU decided to devote SEK 50 million in support of “an innovative and future-oriented mining research program” in collaboration with, among others, LKAB, Boliden and Lundin Mining, under the man-agement of VINNOVA, which contributed an additional SEK 50 million.. Research projects have been started in environmental en-gineering, prospecting, base metals metallurgy, and particle tech-nology. Most of the research is conducted at Luleå University of
Technology, though Umeå University is also participating. At the SweBrec center of excellence at Luleå University of Tech-nology research in the field of blasting is pursued in order to gain a better understanding of current developments in blasting technol-ogy for sublevel caving in iron ore mines. Here, LKAB is funding a professorship. In cooperation with several larger mining companies, LKAB par-ticipates in two major international research projects of which one aim is to develop new and improved numerical models for blasting and rock flows in sublevel caving. Both of these projects will be completed during 2008.
36 | RESEARCH AND DEVELOPMENT | LKAB ANNUAL REPORT 2007
Process IT Innovations: A ten-year research program that began in 2004, under the direction of the government agency VINNOVA, brings together expertise from primary industry, IT companies and the universities in Luleå and Umeå with an aim to promoting eco-nomic growth in the region. One program is entitled Process IT In-novations. As a result, to date, three new companies have been established in the region and five new products have been com-mercialized, one of which is a new tool for measuring the pellet size distribution. This product will be integrated into the control system for balling circuits for pellet manufacture.
During 2007, two successful campaigns were carried out in LKAB’s experimental blast furnace.
Persistent high demand for iron ore productsLKAB ANNUAL REPORT 2007 | MINING DIVISION
The Mining Division delivers customized iron ore products to the steel industry. The main product is iron ore pellets. The Market Division is the marketing and sales organization. Mining also supplies the Minerals Division with magnetite products.
The division’s process chain extends from the mines of the orefields of northern Sweden to customers around the world. It starts with the production of crude ore in underground mines and continues with upgrading of iron ore in processing plants at surface level, rail transport of finished products to shipping harbors and loading to vessels for delivery to the customer. The Mining Division delivers these high-quality, customized iron ore products, mainly pellets, but also smaller quantities of fines to the steel industry in the Nordic region, Europe, North Africa, the Middle East and Southeast Asia. On these markets, LKAB has se-cured and strengthened its strong position in recent years. From LKAB’s products, steel, a necessary ingredient for the growth and development of societies, is manufactured. Iron ore is the prime raw material for global infrastructure; for railways, bridges, ships and automobiles, but also for smaller items including every-thing from bicycles and mopeds to roofing sheet, rebar and dental braces. The examples are countless. With sales of about 14,281 billion kronor, the Minerals Division accounts for 87% of the LKAB Group’s total sales.
STRONG BRANDLKAB’s pellet products offer competitive advantage in the form of significant added values. Magnetite-based iron ore pellets have high iron content and require lower energy input than competing pel-let products made from hematite and are therefore more environ-mentally friendly. The products also contain considerable know-how based on more than 50 years of pelletizing and product develop-ment in close cooperation with customers. Blast furnace pellets are delivered mainly to steelmills in Europe and are used in the coke-based blast furnace process, which is the most common method for producing hot metal. Hot metal is refined to become finished steel. DR pellets are used in the direct reduction processes to produce sponge iron, which in an alternative process route, is also an initial stage in the chain of production from iron to steel. The DR process is based on the use of natural gas and has become increasingly com-mon in oil-producing countries and other countries with access to inexpensive natural gas. The DR market is expected to grow.
LEAN GROWTHThanks to the very high demand for iron ore products, the division’s deliveries have increased in recent years. The overall objective has been to increase capacity through lean growth in mining, processing and logistics. Continuous improvement of plant and processes has shown re-sults. Via a systematic program of preventive maintenance and the elimination of bottlenecks, production rose over the four-year period up to 2006 from 20 to more than 23 Mt, which corresponds to the production of a smaller pelletizing plant. Improvements are made on an ongoing basis. Considerable effort
is therefore being devoted to making it possible to produce each product in more than one pelletizing plant in order to ensure maxi-mum flexibility. During 2007, the introduction of a new maintenance management system in Svappavaara was completed, and the sort-ing plants in both Kiruna and Malmberget are being upgraded for better process efficiency and greater capacity. Investments are also being made to improve the environment, for example, the working environment in Malmberget’s oldest pelletizing plant. A good, safe working environment is essential for the success of the operation. Therefore, the Safety First work has top priority. The effort is paying off. In 2007, the number of accidents involving ab-sence decreased by 35 percent compared to the previous year. However, much remains to be done before the division has achieved the zero-accidents objective. In 2008, the focus is on maintaining good order and giving new workers a more thorough introduction to their new workplaces.
BIG INVESTMENTSThe current global shortage of iron ore and, consequently, very high demand for LKAB’s iron ore products has made it possible for the Mining Division to boost capacity even more by investing billions of kronor in two new pelletizing plants. These plants will eventually supply the market with up to 10 Mt of pellet products per year. The newest pelletizing plant in Malmberget (MK3), commissioned in December 2006, produced about 2.9 Mt during 2007. The plant was built so that it can be modified, through additional investment, to produce about 4 Mt per year. In Kiruna, construction of new concentrating and pelletizing plants (KA3 and KK4, respectively) is under way. They will be online during the second quarter of 2008. KK4, which will be LKAB’s sixth pel-letizing plant in operation, is being built for a capacity of 5 Mt pellets per year and, if necessary, can later be upgraded to produce 6 Mt per year.
Lean growth and major investments.
Mining Division
38 | MINING DIVISION | LKAB ANNUAL REPORT 2007
02 03 04 05 06 07
25
20
15
10
5
0
10 000
8 000
6 000
4 000
2 000
0
PRODUCTION AND PRODUCTIVITY
Production, Mt
Productivity, tonnes/employee
Mt Tonnes/employee
LKAB ANNUAL REPORT 2007 | MINING DIVISION | 39
LKAB has increased the share of women employees from slightly more than 6 percent to 12.5 percent in recent years. Nina Johansson operates a mine truck in Malmberget.
40 | MINING DIVISION | LKAB ANNUAL REPORT 2007
A major program of investment to upgrade LKAB’s logistical structure is being implemented. This includes acquisition of new regular-traffic locomotives and larger ore cars equipped for a 30-tonne axle load and modernization of all terminals.
A flotation plant, under construction in Svappavaara, will be op-erational in the summer of 2008. This will finalize the transition to a so-called “single-product mine” in Kiruna, since all concentrat-ing plants in Kiruna and Svappavaara will thereby be equipped with flotation facilities. This will mean that the Kiruna mine can switch to a single flow of crude ore, instead of three. A single ore flow, exclu-sively for pellets, will result in simpler operation, greater efficiency and, consequently, increased volumes of crude ore. The final delivery of fines (KBF) from Kiruna will be made in 2008. Kiruna will then deliver only pellet products to the steelmill custom-ers. Production capability for fines products will exist only in Malm-berget.
TWO RICH IRON ORE MINESThe mines in Kiruna and Malmberget are the world’s largest and most modern underground iron ore mines. Large-scale and auto-mation are the keywords where mining operations are concerned. Concentration to fewer and larger production units has yielded con-siderable gains in efficiency and productivity. In total, 41 Mt of crude ore was produced at the two mines in 2007. The emphasis is on improving the yield; i.e., maximizing the amount of iron extracted in relation to the quantity of ore mined. Measures include improvements in blasting technology and loading. In addition to lower costs, improved yield also implies an extension of the operating life of the main levels. The Kiruna main level is at 1,045 meters (measured from the origi-nal peak of Kiirunavaara) and its working life will begin to expire around 2013; therefore, planning is in progress to sink the mine to a new main level, 320 meters deeper, at a depth of 1,365 meters. The decision to proceed is expected to be taken during 2008. The Malmberget mine consists of about 20 large and small widely distributed orebodies, of which about ten are currently mined; on main levels at 600, 815 and 1,000 meters below the original surface level. On 21 February 2008, the Board approved plans for the ex-tension of the 1,000 meter main level to the Fabian orebody, which continues at depth. At the same time, a new main level, about 250 deeper, at 1,250 meters below the original surface level, will be de-veloped for the so-called Östra Fältet in the mine. As mining progresses successively deeper, the challenges in-crease with respect to rock stresses and seismic events increase.
Efforts are being made together with internal and external experts to find, in both the short and long term, e.g., the best methods of rock reinforcement and future mine layouts to ensure safe operation. New main levels mean higher volumes of crude ore, requiring ef-ficient machinery, for example, for ore removal. A prototype for the New Generation of Production Rigs (NGPR) was tested during the year, and the decision to acquire nine new drill rigs was also taken. The aim is for the entire fleet of production drill rigs to be replaced by 2012. The new units, like their predecessors, are remote-controlled and incorporate water-driven drilling systems from the LKAB sub-sidiary Wassara. Work on upgrading the system for remote loading has also begun. The sinking and expansion of the mines in Kiruna and Malmberget will affect these communities, since some settled areas are within the areas that must be used for mining, and the buildings must be either relocated or demolished.
LOGISTICSThe finished products are transported from the orefields to custom-ers by rail and by ship via the shipping ports at Narvik and Luleå. Rail traffic on the Ore Railway is managed by LKAB’s Swedish subsidiary Malmtrafik i Kiruna AB (MTAB) and its Norwegian subsidi-ary Malmtrafikk AS (MTAS). The ore harbors, in Narvik and Luleå, are run by LKAB. Narvik is the largest port and is ice-free year-round. The Narvik harbor can accommodate vessels of up to 350,000 dwt for deliveries to cus-tomers in Europe and on the world market. From the harbor in Luleå, ore products are delivered mainly to customers in the Baltic Sea region. During 2007, 16.1 Mt of iron ore products was shipped via Narvik and 9 Mt was shipped from Luleå.
PRODUCTION AND DELIVERY VOLUMESThe production and delivery target for the calendar year 2007 was 25.5 Mt of iron products. Despite high demand, the target was lowered during the year due to, among other factors, internal and external labor market conflicts, and a cable fire, which caused a week-long stop at the Svappavaara pelletizing plant. Despite these setbacks, 2007 was a very good year. Deliveries of iron ore products were record-high at the present level of upgrading; pellet deliveries were the highest ever. Delivery volume of iron ore products amounted to 25.1 (23.3) Mt. The share of pellets was 17.9 (15.9) Mt, which corresponds to more than 71 percent of total delivery volume. More than 0.8 Mt of mag-netite was delivered to the Minerals Division. During the year, production of iron ore products amounted to 24.7 Mt (23.3), of which 18.8 Mt (16.9) was pellets. In addition, crude ore was produced for stocks to meet future demand at the MK3 pelletiz-ing plant in Malmberget.
FINANCIAL RESULTSRevenue increased to MSEK 14,282 (12,576), due mainly to higher prices and a volume mix with a greater share of pellets. Operating income remained almost unchanged at MSEK 6,031 (6,038). Higher prices for depreciation and write-downs, material, exter-nal services, and mine development for future production increases offset the increase in revenue. LKAB’s expansion in the operating locations in the orefields entails a successive expansion of defor-mation zones, which is a result of mining. Earnings have therefore been charged with costs amounting to MSEK 337 (-). This amount includes costs amounting to MSEK 279 for planning of a new rail-way line in Kiruna and MSEK 48 for a new wastewater pipeline in Kiruna.
MSEK 2007 2006
Revenue 14 282 12 576
Operating income 6 031 6 038
Operating margin % 42,2 48,0
Assets 21 189 14 846
Liabilities 6 663 4 542
Investments 5 858 4 650
Depreciation 1 115 948
Average number of employees 3 283 3 170
- of which Parent Company 2 865 2 925
Production, Mt 24,7 23,3
Deliveries, Mt 25,1 23,3
Stocks, Mt 1,5 1,8
FINANCIAL HIGHLIGHTS – MINING DIVISION
LKAB ANNUAL REPORT 2007 | MINING DIVISION | 41
Borrning/sprängning
Utlastning
Tåg-/trucktransportpå huvudnivå
Kross
Uppfordring(skip)
Masugn
Fines
Pelletsverk
Pellets
Tågtransport
Båttransport
Sovring-/anrikningsverk
FOCUS AREAS 2007 OUTCOME 2007 FOCUS AREAS 2008
FOLLOW-UP
A good, safe working environment.
High capacity uti l ization and stable production.
Production target 25.0 Mt.
The number of accidents resulting in absence decreased by: 35% compared to 2006.
Production 24.7 Mt. Production records in nearly all production facil it ies.
The production target was not met due to a labor conflict and a cable fire in Svappavaara.
High capacity utilization and stable production; i.e., work with production and working methods under ground, incl. risk analyses with an aim to finding “new bottlenecks” and deficiencies.
Working environment and safety; work with “fall ing rock” and reinforcement methods, better workplace introduction for new employees, and a focus on maintaining good order.
Costs; curtail upward trend in costs, focus on energy consumption and material costs, use new administrative tools to improve follow-up and financial control.
Production target 26.0 Mt.
Commissioning of KK4 and continued effort to improve maintenance efficiency.
42 | MINING DIVISION | LKAB ANNUAL REPORT 2007
TARGETS FOR 2008The production and delivery target for the calendar year 2008 is 26.0 Mt of iron products. The share of pellets is expected to reach 22 Mt. The increase will be possible when production of fines in Kiruna is discontinued and the new KK4 pelletizing plant comes on-line during the second quarter.
The process chain stretches from mining in the underground mines in Kiruna and Malmberget to upgrading of ore in the sorting, concentrating and pelletizing plants at the surface, rail transport to the harbors in Narvik and Luleå and shipping to customers.
Drilling/blasting
Loading
Train/truck haulage on the main level
Crushing
Rail transport
Blast furnace
Fines
Pellets
Pelletizing plants
Sorting/concentrating plant
Shipping
Skip hoisting
Increased demand for magnetite and other industrial mineralsLKAB ANNUAL REPORT 2007 | MINERALS DIVISIONS
Minerals DivisionFrom mine to end user.
The Minerals Division, which operates on the market under the company name Minelco, develops, produces and markets selected minerals, customized for many different application areas and industries.
Under the Minelco brand, the Minerals Division has broad and ex-tensive operations on an international market. The market potential for the division’s products is estimated at over 20 billion kronor. The most important industries are construc-tion and civil engineering, the oil and gas industry, the rubber, plas-tics and paint industries, the chemical industry, the automotive in-dustry, foundries and manufacturing of refractory materials. In many application areas for minerals, Minelco is a market leader. This position is based on a high degree of expertise in mineral tech-nology, production, applications, a good knowledge of local mar-kets, as well as the ability to develop materials and processes in close collaboration with customers. The Minelco Group is represented in Europe, Asia and the USA. There are subsidiaries with processing plants in Sweden, Finland, the UK, the Netherlands, Greece, Turkey, China and Greenland. The company has additional subsidiaries in Germany, the USA and Hong Kong, as well as representative offices in Slovakia and Thailand. With sales of about 2,162 million kronor, the Minerals Division ac-counts for 13% of the LKAB Group’s total sales.
FROM MINE TO END USER Minelco’s product portfolio includes many different industrial miner-als. The core business revolves around a limited number of strategi-cally selected minerals, which are currently magnetite, olivine, mica and minerals with flame retardant properties (UltraCarb). The business strategy for selected minerals is based on control over the process from raw-material source to end user – “from mine to end user”. The industrial minerals operation supports the iron ore business by identifying and commercializing other application areas for iron ore from Kiruna and Malmberget. Magnetite is produced and up-graded, to a high product value, for a range of customers in other industries in addition to the steel industry. The Group’s expertise in minerals, processes, applications and markets enables synergies with the Minerals Division’s other strategic business areas.
GROWTH WITH A POSITIVE PRICE TRENDEurope is the Minerals Division’s home market and accounts for more than half of its sales. Growth is mainly occurring on other market, foremost in Asia. Europe’s relative significance is therefore expected to diminish and sales will be more evenly distributed over Europe, Asia and the USA. In Asia, the division has mainly worked with sales of external sup-pliers’ mineral products. The strategy is to successively expand the product portfolio with the company’s own products.The production facilities in China mainly produce ceramic and re-fractory products for the Chinese steel and foundry industries. Growth areas for magnetite are, above all, applications for heavy concrete, water treatment and desulphurization of coal. Rising en-ergy prices have driven up demand from, among others, the oil and
gas industry, which has presented huge potential for magnetite as a raw material for manufacturing, for example, underwater gas pipe-lines. Olivine customers are mainly in the European steel, foundry and refractory industries. LKAB is a large consumer of olivine, which is a key additive in pellet manufacture. In Turkey, the Minerals Division has significant deposits of huntite and hydromagnesite for manufacturing UltraCarb products, which are mainly used as an environmentally friendly flame retardant in the cable industry and other polymer industries. In Finland, the facility for production of mica has increased the production capacity in order to grow on markets for products used in plastics, paint, surface coating, building construction and sound dampening. Generally, the prices of industrial minerals have developed posi-tively, even though the pricing mechanisms differ considerably from those determining pricing of iron ore products to the steel industry. Freight rates continued to increase during the year and have reached a historically high level. Sea freight rates for large vessels have more than doubled and for olivine from Greenland, the Minerals Division has not been able to compensate for this cost develop-ment. In 2008, demand for the Minerals Division’s products is expected to continue to increase.
APPLICATION AREASIndustrial minerals are important raw materials in a wide range of industries and applications. Examples of applications include glass, concrete, paper, paint, rubber, refractory products, foundries and civil engineering. That there is a broad and multifaceted market for industrial min-erals is exemplified by the diversity of application areas within, for example, the automotive industry. The mineral garnet is an addi-tive in the production of abrasives; quartz sand is used in window glass, graphite in lubricants, wollastonite for brake linings and seals, while talc and mica are used in corrosion-resistant auto coatings. Magnetite is used as a high-density filler in sound-dampening com-ponents, and as a raw material for sponge iron which is used in powder metallurgy to produce, among other items, sintered engine components. Further examples of application areas for Minelco’s strategically selected industrial minerals:
Magnetite: More and more industries are using magnetite. In many cases, it is used for its high density; for example, in civil engineer-ing projects and in sound-dampening applications. It is also a very pure raw material for other iron compounds such as catalysts and ferric chloride, which is used in water treatment. Thanks to its high heat storage capacity, it is used in radiators, and its ferri-magnetic properties are put to use in magnetic paint.
Olivine: Olivine is used as a slag conditioner in blast furnaces and in the manufacture of refractory brick and masses. Olivine sand can also be used as foundry mold and core sand.
44 | MINERALS DIVISION | LKAB ANNUAL REPORT 2007
Mica: Mica is used in plastic and paint, in the building industry and in sound-dampening products. It also gives cosmetics such as nail varnish, lipstick and powder a sparkly effect.
UltraCarb: UltraCarb is a mixture of equal parts of the minerals huntite and hydromagnesite. It is a flame retardant that is used as filler in rubber, plastics, surface coatings, mastics and sealants.
In recent years, Minelco has also invested in recycling of refractory materials, a market that is growing as a result of tougher environ-mental requirements. New products created by processing used re-fractory materials have been well received by customers.
FINANCIAL RESULTSIn 2007, revenue increased to MSEK 2,162 (2,100), mainly as a re-sult of greater earnings on selected minerals. For magnetite, an in-crease of about 25 percent in volume and earnings was achieved. Operating income amounted to MSEK 38 (134). In 2007, delivery of olivine products from Greenland to the European steel industry commenced. The overheated freight market and downward pres-sure on market prices for olivine had a dramatically negative effect on income. As a consequence, a write-down of MSEK 94 on fixed assets in Minelco A/S has impacted earnings.
LKAB ANNUAL REPORT 2007 | MINERALS DIVISION | 45
MSEK 2007 2006
Revenue 2 162 2 100
Operating income 38 134
Operating margin % 1,8 6,4
Assets 1 488 1 612
Liabilities 1 184 958
Investments 72 172
Depreciation 35 30
Write-downs 94
Average number of employees 410 389
FINANCIAL HIGHLIGHTS – MINERALS DIVISION
OBJECTIVES 2008The expectation for 2008 is that the Minerals Division’s rate of growth, with greater market shares for selected minerals in strategic business areas, will be higher than the underlying rate of growth for the market as whole. For selected minerals, the objective is to ex-ceed the 20-percent growth in sales that was realized in 2007. The goal is, through volumetric increases and better margins, to surpass
Packaging mica at Minelco’s plant in Siilinjärvi, Finland.
46 | MINERALS DIVISION | LKAB ANNUAL REPORT 2007
FOCUS AREAS 2007 OUTCOME FOCUS AREAS 2008
FOLLOW-UP
Secure supply of magnetite products.
Profitabil ity and sales growth on selected minerals.
Quality certif ication of the Greenland operation.
Application for test mining at Gruvberget in Svap-pavaara.
Sales of selected minerals increased by 20 percent.
Following a successful revision of the quality and environmental management systems for the Green-land operation, Minerals was certif ied according to ISO 9001:2000 and ISO 14001:2002.
Commence test mining at Gruvberget. Apply for a permanent mining concession for Gruvberget.
Exceed the 20-percent growth in sales of selected minerals that was realized in 2007.
Quality certif ication of operations in Turkey in which Minerals has ownership interest; thereby, all facil it ies operated by Minerals wil l have been quality certif ied.
the earnings targets that have been set for the division. Sales of magnetite are expected to increase at least at the same rate as in 2007. For mica and UltraCarb, growth is expected to reach a level that matches peak capacity. For olivine, the focus is on satisfying LKAB’s internal demand and supplying niches outside the steel industry. Further expansion of the olivine business in Greenland is dependent on better market prices and lower freight rates. The division’s global market presence is being further reinforced
with new sales offices and new sales staff to ensure broader inter-national coverage. Besides the ambition to grow in strategic areas, the division also has a number of other priorities. One of these is to continue to im-prove capital efficiency. With less capital tied up in inventories and accounts receivable, greater returns and profitability will be real-ized.
In Greenland, Minelco mines olivine, an important additive in the manufacture of iron ore pellets.
Strategic services with advanced technological developmentLKAB ANNUAL REPORT 2007 | SPECIAL BUSINESSES DIVISION
Special Businesses DivisionSubsidiaries serving the LKAB Group.
Subsidiaries in the Special Businesses Division are principally suppliers to the Group. The division supports the Group by pro-viding services and technical development, but also has exter-nal customers.
The division is essentially comprised of the following subsidiaries: AB KGS works with rockwork, concrete and engineering services; Kimit AB, a subsidiary of KGS, manufactures explosives; Fastighets AB Malmfälten manages properties in LKAB’s operating locations; Wassara AB develops and manufactures drilling systems. The division posted sales of 701 million kronor in 2007.
AB KGSKiruna 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.Concrete production has remained high, even though production of construction concrete declined during the year as LKAB’s major strategic construction projects at surface level reached completion. Shotcreting increased by 60 percent over the previous year. Within the Mining Division, a significant increase in tunnel driv-ing operations is planned for the coming years, which will mean greater demand for both concrete and shotcreting. Similarly, greater production volumes in the Mining and Minerals Divisions will entail increased demand for additives and crushing services. KGS Mekaniska fabricates technically advanced steel structures and mechanical components for the engineering, mining and con-struction industries, as well as performing assembly and mainte-nance for primary industries in the orefields. KGS Mekaniska AB is now one of the largest engineering firms in northern Sweden. KGS Mekaniska has a one-third interest in the Kiruna Wagon consortium, which in collaboration with K-Industrier, has been contracted to manufacture LKAB’s new ore cars. During the year, Kiruna Wagon has invested in Northern Europe’s largest welding robot in order to improve the efficiency of ore car fabrica-tion.
KIMIT ABKimit’s main business is to supply LKAB with effective and efficient explosives and related services, as well as purchasing products from other manufacturers, stocking and delivering explosives, and developing explosives systems. Kimit also sells its products to other companies, mainly on the Nordic market.The explosives manufacturing operation developed well during the year. Deliveries to the partner Lapua, in northern Finland, picked up during the final quarter. Kimit’s total production volume increased by 14 percent over 2006. Greater competition and rising raw-material prices present an ob-stacle to growth outside of LKAB and will necessitate intensified market activity in the coming years.
WASSARA ABWassara AB develops and markets water-powered drilling systems in the business areas Mining, Construction and Oil/Gas/Geothermal.
During the start of the year, efforts were directed towards securing relations with existing customers following the divestment of Sand-vik’s ownership interest in the company. The company intends to in-tensify market activities, mainly as regards the construction sector. Sales have developed well, with particularly strong growth in North America. Cooperation with rig manufacturers has also devel-oped well, resulting in delivery of equipment to a mining company in Canada, the company’s largest sale outside the LKAB Group.
FASTIGHETS AB MALMFÄLTENFastighets AB Malmfälten (FAB) owns and manages residential properties with about 2,200 apartments in Kiruna, Malmberget, Koskullskulle and Luleå. Strong demand for housing in 2007 gen-erated an occupancy rate of more than 99 percent. This will also persist in 2008. By measuring customer satisfaction on an ongoing basis, the company has been able to maintain an acknowledged high level of customer service. For the past three years, a customer satisfaction rating of 5 on a scale of 1-6 has been achieved. In 2006, FAB was assigned the task of acting as the LKAB Group’s housing resource, with the main responsibility for managing and overseeing the housing transition, including monitoring of the demand for housing in the orefields. For strategic reasons, several property acquisitions will be made. Within the next few years, the Ullspiran area in Kiruna will be de-commissioned. Ullspiran comprises 148 apartments and will be the first residential area to be affected by the expansion of mining op-erations. In Malmberget, eight homes have been relocated from Bolagsom-rådet to Bäckåsen. The project will be completed in 2008. Planning is in progress for the relocation of about 50 homes from Elevhem-sområdet to Mellanområdet in Gällivare. In Luleå, remediation of the former ore-handling site is proceed-ing. In Kiruna, FAB has acquired I22 Vasallen AB, which has a total property area of 33,000 square meters. The single largest tenant is Centrala Studiestödsnämnden. In addition to business premises, the acquisition also includes a large area of land.
48 | SPECIAL BUSINESSES DIVISION | LKAB ANNUAL REPORT 2007
MSEK 2007 2006
Revenue 701 600
Operating income 52 98
Operating margin % 7,4 16,3
Assets 1 488 747
Liabilities 1 184 201
Investments 38 29
Depreciation 19 19
Average number of employees 192 178
FINANCIAL HIGHLIGHTS
LKAB ANNUAL REPORT 2007 | SPECIAL BUSINESSES DIVISION | 49
One of FAB’s beautiful Bläckhorn houses on Thulegatan in Kiruna.
FOCUS AREAS 2007 OUTCOME 2007 FOCUS AREAS 2008
FOLLOW-UP FAB
Complete residential area Bäckåsen in Malmberget and relocate eight homes from Norrbottensvägen.
The residential area has been newly developed with successful results.Much has been learned that wil l facil itate reloca-tion of private homes in 2008.
Preparation of the new residential areas Tallbacka and Myråsen in Malmberget, relocation of 26 pri-vately-owned homes to Tallbacka, and completion of Bäckåsen.Development of the newly acquired Jägarskolan FAB by finding economically feasible solutions for a profitable increase in the rate of occupancy from 85 ti l l 100%.Continue efforts to keep the residential develop-ment plan up to date.
FOCUS AREAS 2007 OUTCOME 2007 FOCUS AREAS 2008
FOLLOW-UP KGS
Meet LKAB’s increased demand for services in ad-ditives handling, rock reinforcement and charging.
Investments have been made in new facil it ies for additives handling and two new shotcreting rigs.
KGS will continue in 2008 to invest in expansion of its fleet of machinery to meet LKAB’s needs, principally with respect to rockwork contracting.
50 | SPECIAL BUSINESSES DIVISION | LKAB ANNUAL REPORT 2007
FINANCIAL RESULTSThe division’s revenue increased to MSEK 701 (600). Revenue im-proved by 17%, thanks to increased sales volumes internally and externally. Operating income decreased dramatically, amounting to MSEK 52 (98). This is largely explained by the high cost incurred as a re-sult of the fire in the Svappavaara pelletizing plant, which has been charged to LKAB Försäkring AB, which is a part of the division.
Wassara AB develops and markets water-powered drilling systems in the business areas mining, construction and oil/gas/geothermal.
FOCUS AREAS 2007 OUTCOME 2007 FOCUS AREAS 2008
FOLLOW-UP WASSARA
Set new strategies and define objectives. Good outcome, thanks mainly to strong growth in the construction sector.
Growth through definition and completion of complete drilling system and realization of strategic marketing and production activities to reach 2007 growth strategy targets.
Prospecting secures future production and profitabilityLKAB ANNUAL REPORT 2007 | PROSPECTING
Prospecting
Prospecting and access to iron ore and minerals are decisive factors for future production and profitability. In the Mining and Minerals Divisions, prospecting for iron ore and industrial min-erals is conducted on an ongoing basis.
PROSPECTINGThe objective of prospecting within the Mining Division is to further define and verify the extent of the orebodies, mainly at depth. Dur-ing 2007, LKAB invested MSEK 45 (32) on exploration work in the mines in Kiruna and Malmberget. For Kiirunavaara, an exploration program has been established for the northern section of the mine, including extension of the explora-tion drift at 1,060 m below original surface level to determine the extent of the ore to the north and at depth. Drifting of the exploration drift will be concluded in the spring of 2008, at which time test drill-ing will begin. Exploration also has a bearing on the future municipal plan for Kiruna. LKAB is also prospecting to evaluate new iron mineralizations in the area of current mining operations in the orefields. In 2007, prospecting began in the so-called Lappmalmen orebody in Kiruna. Further geophysical surveys are being conducted to identify leading orebodies at greater depth. Application has also been made for exploration permits for Ku-osanen, Mertainen, Ylipääsnjaska and Malmberget’s immediate vi-cinity. For the spring of 2008, several complementary geophysical surveys are planned for these areas. Several previously known orebodies have been tested, among others, at Gruvberget in Svappavaara, for which application for test mining has been submitted to the Environmental Court. In 2005, the Minerals Division began mining olivine at the Seqi mine in Greenland via the wholly-owned subsidiary Minelco A/S. A further 1,500 meters of test drilling was carried out during 2006. The division has also completed further prospecting for other min-erals adjacent to the part-owned mineral deposit in Izmir, Turkey.
ORE RESERVESLKAB reports ore reserves in compliance with recommendations adopted by SveMin. Among other things, these recommendations state that measured and indicated mineral resources that can be mined and processed on the basis of LKAB’s profitability require-ments are referred to as the company’s ore reserves. Ore reserves and mineral resources are quoted in quantities and grades after min-ing; i.e., with allowance for losses during extraction.
The Kiruna orebody is about four kilometers long, has an average width of 80 meters and extends to an estimated depth of two kil-ometers. The ore reserves accessible from the present main level for the main part of the mine will suffice to ensure mining, at cur-rent production volumes, until about 2013. The planned new main level at 1,365 meters is expected to extend the life of the mine until 2030s. The Malmberget mine consists of about 20 orebodies, of which ten are currently mined. Most of the deposit consists of magnetite ore, but hematite also occurs (mining of the latter was resumed in 1998). Currently, mining is taking place on three main levels; at 600,
Focus on iron ore and industrial minerals.
Kirsten Holme, geologist at LKAB, studies future prospecting areas.
52 | PROSPECTING | LKAB ANNUAL REPORT 2007
815 and 1000 meters below the original surface level. An extension of the most recent level to the Fabian orebody, and a new main level at 1,250 meters, are being constructed. Production on the latter is expected to begin in the third quarter of 2010, which will extend the life of the mine until 2020s.
MINERAL RESOURCESProspecting and exploration provide a survey of mineralizations which, according to certain criteria, can be classified as mineral re-sources; i.e., an occurrence of minerals in the bedrock. Mineral resources are classified as ‘inferred resources’ when
quantities, grades and mineralizations can be established with a low degree of certainty. Detailed exploration can result in the classifica-tion of mineral resources as ‘indicated resources’. The information that has been amassed from drilling campaigns and other sampling is sufficient to enable technical and financial calculations. After additional drilling campaigns and sampling, the deposit may be classified as ‘measured’, whereby mine plans and financial as-sessments can be produced. The mine plans and processes form the basis of technical and financial analyses that are performed to determine the potential profitability of future mining of the deposit.
LKAB reports ore reserves in compliance with recommendations adopted by SveMin, applicable sections of which correspond to the Ontario Securities Com-mission’s (OSC) National Instrument 43-101, which stipulates how ore reserves and mineral resources are to be reported.
MINERAL RESOURCES, IN ADDITION TO ORE RESERVES
per 31 December 2007 (to dressing plant)
Quantity, Mt Fe, %Kiruna
Measured 125 47,5Indicated 118 46,4Inferred 115 46,5
Svappavaara
Measured 80 47,1 Indicated 30 47,0 Inferred - -
Malmberget
Measured 22 39,6Indicated 14 43,0 Inferred 13 40,6
ORE RESERVES
per 31 December 2007 (to dressing plant)
Quantity, Mt Fe, %Kiruna
Proven 598 48,7Probable 72 46,7
Malmberget
Proven 256 43,7Probable 84 44,9
Ore reserves include ore within the mining concessions. The ore reserve in Kiru-na includes ore above 1,365 meters (from leveling point). The ore reserve in Malm-berget includes ore above 1,250 meters (from leveling point) in the eastern field. For the western field, ore above 600 meters is included. Prices at the turn of the year 2004/-2005 have been applied in calculations. Iron losses in the upgrading proc-ess are about 8%.
Mineral resources in Kiruna down to 1,500 meters (from leveling point) are report-ed. Below this level, there is insufficient data to enable an estimate of grades and quantities. Mineral resources in Malmberget, within existing concessions, are report-ed for the eastern field down to 1,250 meters and between 600 and 800 meters for the western field. At deeper levels, there is insufficient data to enable an estimate of grades and quantities. LKAB also has mining concessions for Gruvberget and Mer-tainen. Ore reserves and mineral resources for Gruvberget will be reported in 2008.
Estimates of LKAB’s mineral resources and ore reserves have been compiled under the direction of Carlos Quinteiro, Mineral Resources and Mineral Economics Spe-cialist with the Technology and Business Development unit. Carlos Quinteiro is rec-ognized as a ‘Qualified Person’ by SveMin (The Swedish Association of Mines, Min-eral- and Metal Producers) and has more than 10 years of experience in the mining and minerals industry.
LKAB ANNUAL REPORT 2007 | PROSPECTING | 53
Group overview
(MSEK) 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998
CONSOLIDATED STATEMENTS OF INCOME
Net sales 16 385 14 615 14 337 8 988 7 466 5 186 4 870 4 882 3 985 5 129
Cost of goods sold -9 509 -7 706 -7 535 -6 180 -5 959 -4 515 -4 383 -4 150 -3 891 -4 023
Gross income 6 876 6 909 6 802 2 808 1 507 671 487 732 94 1 106
Selling expenses -178 -178 -174 -289 -285 -135 -86 -80 -63 -67
Administrative expenses -344 -333 -349 -353 -247 -192 -246 -218 -255 -276
R&D expenses -217 -165 -159 -235 -116 -101 -116 -93 -118 -148
Other operating income/expense 11 23 -11 10 64 50 28 132 -106 32
Operating income 6 148 6 256 6 109 1 941 923 293 67 473 -448 647
Income from financial items 572 546 550 227 181 191 125 198 246 369
Financial expenses -376 -420 -208 -145 -129 -88 -130 -80 -42 -56
Profit after financial items 6 344 6 382 6 451 2 023 975 396 62 591 -244 960
Tax -1 665 -1 785 -1 904 -456 -286 -96 -15 -179 11 -281
Net income for the year 4 679 4 597 4 547 1 567 689 300 47 412 -233 679
Attributable to:
Parent Company shareholders 4 679 4 597 4 546 1 568 690 305 54 421 239 686
Minority share 1 -1 -1 -5 -7 -9 -6 -7
Includes depreciation according to plan 1 166 997 952 1 079 1 049 994 954 920 838 776
CONSOLIDATED BALANCE SHEETS
Intangible assets 329 387 477 211 182 22 8 8 10 11
Tangible assets 16 702 11 746 7 928 6 316 6 476 6 583 7 056 6 970 6 962 6 821
Financial assets 2 416 2 208 1 393 219 245 322 261 328 198 176
Total fixed assets 19 447 14 341 9 798 6 746 6 903 6 927 7 325 7 306 7 170 7 008
Inventories, etc. 1 635 1 631 1 423 1 006 976 870 870 707 675 585
Accounts receivable 1 922 1 697 1 846 1 194 1 198 724 711 635 504 529
Liquid assets and short-term investments 5 991 6 982 7 091 4 516 2 944 3 045 2 780 3 060 3 101 3 602
Other receivables 685 1 214 416 195 316 117 245 317 200 481
Total current assets 10 233 11 524 10 776 6 911 5 434 4 756 4 606 4 719 4 480 5 197
Total assets 29 680 25 865 20 574 13 657 12 337 11 683 11 931 12 025 11 650 12 205
Shareholders’ equityl 22 251 19 076 14 802 10 044 9 004 8 673 8 609 8 789 8 412 8 882
Minority interest 4 3 4 3 46 41 34 154
Provisions* 2 209 2 154 2 160 2 096 2 278 2 210
Long-term liabilities 4 963 4 627 3 598 2 230 2 2 41 66 96 5
Current liabilities 2 466 2 162 2 170 1 380 1 118 851 1 075 1 033 830 954
Total shareholders’ equity and liabilities 29 680 25 865 20 574 13 657 12 337 11 683 11 931 12 025 11 650 12 205
CONSOLIDATED STATEMENTS OF CASH FLOW
Cash flow before change in working capital 7 200 5 688 6 073 2 776 1 782 1 356 978 1 340 554 1 412
Change in working capital -124 358 -553 79 -556 -172 -19 -51 307 215
Cash flow from operating activities 7 076 6 046 5 520 2 855 1 226 1 184 959 1 289 861 1 627
Investments in existing operations -5 968 -4 844 -2 648 -973 -592 -532 -1 050 -952 -1 004 -1 212
Operating cash flow 1 108 1 202 2 872 1 882 634 652 -91 337 -143 415
Acquisition of operation, minority and assets -35 0 -75 -29 -384 -41 -124
Short-term investments -381 217 -1 846 -1 748
Other 192 151 123
Cash flow after investments 884 1 570 1 074 105 250 611 -91 337 -267 415
Dividend -2 000 -1 500 -520 -281 -351 -254 -233 -233 -233 -299
Other from financing activities -43 -92 44 -145 -1 -12
Cash flow for the year -1 159 70 554 -176 -101 265 -280 -41 -501 104
GROUP KEY RATIOS
Net sales MSEK 16 385 14 615 14 337 8 988 7 466 5 186 4 870 4 882 3 985 5 129
Growth in net sales % 12,1 1,9 59,5 20,4 44,0 6,5 -0,2 22,5 -22,3 0,7
Operating margin % 37,5 42,8 42,6 21,6 12,4 5,6 1,4 9,7 -11,2 12,6
Profit margin % 38,7 43,7 45,0 22,5 13,1 7,6 1,3 12,1 -6,1 18,7
Return on total capital % 24,2 29,3 38,9 16,7 9,2 4,1 1,6 5,7 -1,7 8,5
Return on equity % 22,6 27,1 36,6 16,5 7,8 3,5 0,5 4,8 -2,7 7,7
Equity/assets rato % 75,0 73,8 72,0 73,6 73,0 74,3 72,5 73,4 72,5 74,0
Average number of employees 3 885 3 737 3 563 3 482 3 433 3 078 3 172 3 210 3 279 3 568
* According to IFRS, from 2004, provisions are reported as long-term and short-term liabilities.
Definitions
Operating margin: Operating income as a percentage of net sales
Profit margin: Income after financial items as a percentage of revenue for the year.
Return on total capital: Income after financial items + financial expenses as a percentage of average total assets.
Return on equity: Income for the year as a percentage of average shareholders’ equity.
LKAB ANNUAL REPORT 2007 | CONTENTS FINANCIAL STATEMENTS | 55
Contents financial statements
REPORT OF THE DIRECTORS 56 FINANCIAL REPORTS – GROUPStatement of income 64Balance sheet 65Compilations of changes in shareholders’ equity 66Statement of cash flow 67 FINANCIAL REPORTS – PARENT COMPANYStatement of income 68Balance sheet 69Compilations of changes in shareholders’ equity 71Statement of cash flow 72 NOTESNote 1 Accounting principles 73Note 2 Revenue distribution 81Note 3 Segment reporting 81Note 4 Other operating revenues 82Note 5 Other operating expenses 82Note 6 Employees and personnel costs 83Note 7 Auditors’ fees and compensation 86Note 8 Operating expenses by nature of expense 86Note 9 Net financial income/expense 86Note 10 Appropriations 87Note 11 Taxes 88Note 12 Intangible assets 91Note 13 Tangible assets 94Note 14 Investment properties 96Note 15 Participations in associated companies 97Note 16 Participations in joint ventures 98Note 17 Parent Company’s participations in associated companies 98Note 18 Receivables from Group companies and associated companies 99Note 19 Financial investments 99Note 20 Other long-term securities held as fixed assets 100Note 21 Long-term receivables and other receivables 100Note 22 Inventories, etc. 101Note 23 Accounts reveivable 101Note 24 Prepaid expenses and accrued revenues 101Note 25 Shareholders’ equity 102Note 26 Earnings per share 103Note 27 Pensions 104Note 28 Provisions 107Note 29 Accrued expenses and prepaid revenues 108Note 30 Financial risks and finance policies 108Note 31 Operating leasing 110Note 32 Contractual obligations 110Note 33 Assets pledged and contingent liabilities 111Note 34 Related parties 111Note 35 Participations in Group companies 112Note 36 Untaxed reserves 113Note 37 Cash flow statement 114 Proposed disposition of unappropriated earnings 116Audit report 117
56 | REPORT OF THE DIRECTORS | LKAB ANNUAL REPORT 2007
Annual report 2007
The Board of Directors and the President and CEO of Luossavaara-Kiiru-
navaara AB (LKAB), (Corp. ID No. 556001-5835) hereby submit their An-
nual Report and consolidated financial statements covering operations
in 2007.
REPORT OF THE DIRECTORS
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, Swe-
den.
GROUP
The consolidated financial statements cover the operations in 2007 of
the Parent Company and its subsidiaries, together referred to as the
Group. The Group also has ownership interests in joint venture compa-
nies. The LKAB Group includes the Mining Division, the Minerals Division
and Special Businesses Division.
MINING DIVISION
General
The Mining Division consists of the Parent Company LKAB and subsidiar-
ies Malmtrafik i Kiruna AB (MTAB), Malmtrafikk AS (MTAS), LKAB Norge
AS, and the sales companies LKAB Schwedenerz GmbH, LKAB S.A. and
LKAB Far East Pte Ltd. 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 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 finished products to shipping harbors and loading to vessels
for delivery to the customers. Operations are conducted in Luleå, Malm-
berget, Svappavaara, Kiruna and Narvik.
Pellets are the Mining Division’s main product and accounted in 2007
for more than 71% of ore sales volume. Pellets are produced by mixing
finely ground iron ore with various binders and additives, and then shap-
ing the mixture into centimeter-sized spheres, 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.
The final delivery of fines (KBF) from Kiruna was made early in 2008.
Henceforth, only pellets will be delivered from Kiruna to steelmill custom-
ers. Production capability for fines products exists only in Malmberget.
Planning of new main levels in both mines is in progress. The sinking
and expansion of the mines in Kiruna and Malmberget will affect these
communities, since some settled areas are within the areas that must be
used for mining.
Objectives
LKAB is exposed to tough competition from considerably larger iron ore
producers who enjoy the cost advantages associated with open-pit min-
ing. The company will survive over the long term by constantly improv-
ing cost-effectiveness, raising the quality and knowledge content of the
products, and maintaining resource-efficient growth. Therefore, efforts
are directed towards improving maintenance efficiency, including preven-
tive maintenance, so as to stabilize production at a higher and more con-
sistent level. The strategy of lean growth has been complemented with
two investments in volume increase; namely, two new pelletizing plants,
which in the long range will supply the market with as much as 10 million
tonnes (Mt) of pellets per year.
The work of assuring quality in the company’s processes has high pri-
ority, and here, too, the keyword is stability. Consistent 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.
Delivery volume reached 25.1 (23.3) Mt, of which 17.9 (15.9) Mt
was pellets, which is the highest pellet delivery volume in the history of
the company. Production volume amounted to 24.7 (23.3) Mt. A strike
among employees during May and a fire in the Svappavaara pelletizing
plant had a negative impact on production.
The steel and iron ore market
World production of crude steel, which has driven demand for iron ore,
increased in 2007 to a new record high for the ninth consecutive year.
According to the International Iron and Steel Institute (IISI), production in-
creased by more than 7.4% (93 vMt) to 1,343 billion tonnes. The strong-
est growth was seen in China, where crude steel production reached
nearly 490 Mt, an increase of almost 16%. Production also increased
in India, by more than 7% to about 53 Mt, and in the other major iron
ore import regions. The continued rise in global crude steel production
meant strong demand for iron ore throughout the entire year. According
to preliminary estimates, global trade in seaborne iron ore increased to
780 million tonnes (2007). China’s share of imports rose to 383 Mt, an
increase of nearly 18% over the previous year. European demand for
steel remains stable. Within the EU-15, the countries that were EU mem-
ber nations prior to the 2004 enlargement, LKAB’s principal market for
blast furnace products, hot metal production amounted during the year
to more than 95 Mt.
Consolidation of the world’s steel and iron ore industry into fewer
financially strong entities continues. During 2007, Tata Steel acquired,
among others, Europe’s second-largest steelmaker, Corus, to become
the world’s sixth-largest steel group. The multinational minerals group
BHP Billiton has expressed an interest in acquiring the mammoth Rio
Tinto group, a merger that would create the world’s biggest mining com-
pany and metal producer.
Global production of sponge iron, iron produced by direct reduction,
continued to rise in 2007, increasing by about 13% to 56 Mt. The in-
crease was seen mainly in Canada and India, which are largely self-suffi-
cient in iron ore. In the Middle East and North Africa, LKAB’s main market
for direct reduction pellets, production also increased.
Iron ore prices for 2007 reached a record-early benchmark when the
Chinese steelmakers reached an agreement in December 2006 with Vale
(formerly CVRD) for a 9.5% price hike on fines. Immediately afterwards,
Vale reached an agreement with Italian Ilva for a 5.28% price increase
on blast furnace pellets. These agreements set the standard for other
iron ore prices on both the Asian and European markets. In March 2007,
LKAB reached an agreement with the Anglo-Dutch steel group Corus for
a price increase of 7.2% on blast furnace pellets and price increases of
11.1% and 11.0%, respectively, on Kiruna B fines (KBF) and Malmberget
A fines (MAF).
The iron ore market is characterized by shortage, which for LKAB
means high demand for deliveries in excess of contracted volumes. Fur-
thermore, LKAB is favored by a strong market for sea freight, thanks to
close proximity to its principal markets. LKAB’s nearlying markets are
characterized by stability, while the Gulf region is extremely expansive.
A persistent shortage of iron ore strengthens the company’s competitive
advantage.
LKAB ANNUAL REPORT 2007 | REPORT OF THE DIRECTORS | 57
The high rate of economic growth in Asia has driven demand in the
minerals and metals-based industry. Much of China’s east coast is indus-
trialized, but there is a huge political drive under way to industrialize the
interior of the country. At the same time, industrial growth is accelerating
in other parts of Asia, not least in India.
LKAB’s increased pellet capacity in 2008 will be absorbed by con-
tracted sales to established customers. In terms of volume, blast fur-
nace pellets for the steel industry are LKAB’s biggest product. LKAB’s
assessment is that hot metal from the blast furnace is, and will in the
foreseeable future continue to be, the dominating raw material for steel
production. Aside from blast furnace pellets, LKAB delivers DR pellets to
customers with access to inexpensive natural gas. The direct reduction
processes now account for seven percent of ore-based steel production.
LKAB’s assessment, based on the facts at hand, is that demand for DR
pellets will increase considerably in the future.
Capital expenditures
The newest pelletizing plant in Malmberget (MK3), commissioned in De-
cember 2006, produced about 2.9 Mt during 2007.
Construction of new concentrating and pelletizing plants in Kiruna
(KA3/KK4) commenced at the turn of the year 2005/2006. The total in-
vestment is estimated at more than seven billion kronor. At most, about
1,300 people have been on site during 2007. Commissioning is planned
for the second quarter of 2008.
In January 2006, construction of a whole new storage and discharg-
ing structure with underground silos began in Narvik (SILA). The total
investment is estimated at about 1.5 billion kronor. Commissioning of the
new harbor facility is expected to begin during the third quarter of 2009.
Since 2006, work has been progressing on a modern logistical struc-
ture in which increased payloads and shorter turn-around times for trains
will enable greater rail haulage capacity. This will be accomplished mainly
through the introduction of a uniform fleet of locomotives and ore cars for
a minimum 30-tonne axle load, and better efficiency in infrastructure, i.e.,
at sidings and at terminals.
During 2007, investments continued and new ore cars have been
successively taken into operation. In all, the investment includes 750 ore
cars. Each ore car carries a payload of 100 tonnes. The decision has
been taken to invest in an additional four new regular traffic locomo-
tives of the same type as the engines that have already been delivered.
Three terminal locomotives are being rebuilt to handle the new 750-me-
ter-long trains, which have a payload weight of more than 6,500 tonnes.
In Kiruna, a new terminal structure, with loading of ore trains at surface
level, is being built. The railyard is being renovated and a new receiving
facility for additives is under construction. The new so-called K Terminal
is expected to be in operation during the second quarter of 2008.
The decision has been taken for the Kiruna mine to switch to a single
flow of crude ore, instead of three. A single ore flow will result in simpler
operation, greater efficiency and, consequently, increased volumes of
crude ore. Achieving this will necessitate investment in a flotation plant in
Svappavaara. A flotation plant enables reduction of the phosphorus con-
tent of the ore. The plant will be operational in the summer of 2008. All
concentrating plants in Kiruna and Svappavaara will thereby be equipped
with flotation facilities.
Investments in fixed assets amounted to MSEK 5,858 (4,644).
Time-critical development projects (driving of access roads, ventila-
tion shafts, etc.) for the planned new main levels in the Malmberget and
Kiruna mines have commenced. The Board will probably deliberate on a
go-ahead for the new main levels during 2008.
Research and Development (R&D)
Within the strategic research work, a project is being conducted to
strengthen LKAB’s leading position in pellet production. The aim is to
establish a laboratory for pellet research (AggloLab) and an experimen-
tal pelletizing plant (EPP), which together with the existing experimental
blast furnace in Luleå will provide unique conditions for developing proc-
esses and products, as well as enabling delivery of more customer-spe-
cific products.
Several larger joint projects have been carried out during the year,
among others:
Within the framework of the Hjalmar Lundbohm Research Centre for
Mining and Metallurgy (HLRC) at Luleå University of Technology (LTU),
research in three areas that are important for LKAB is conducted: sus-
tainable iron ore production, intelligent pellets, and new products. Thir-
teen graduate students and several senior researchers work on research
projects in close collaboration with LKAB’s own researchers.
The ULCOS project is a European research initiative of which the aim
is to cut steel-industry carbon dioxide emissions by 50%. Research is
largely conducted at LKAB’s experimental blast furnace (EBF) in Luleå,
where the new oxygen blast furnace with a CO2 separation system is
used in trials.
With the Centre for Process Integration in Steelmaking (PRISMA) at
MEFOS, in Luleå, an internationally eminent environment for research,
development and innovation in process integration will be created. Com-
panies and organizations participating in the center include LKAB, SSAB,
Ruukki, Luleå University of Technology and MEFOS. Funding will be pro-
vided by VINNOVA, SSF and the Swedish Energy Agency. Several ad-
vanced research projects have already been initiated.
In the area of rock mechanics, much of the work has to do with the
growth of the deformation zones near the mines. During 2007, instal-
lation of new measurement devices began under the railway in Kiruna.
Another monitoring technology is microseismic measurement, which is
installed in both Kiruna and Malmberget. Extensive work is also being out
for rock-mechanical dimensioning of infrastructure and plant for mining
at greater depth and the planned main levels in Malmberget and Kiruna.
In collaboration with Stiftelsen Mineralindustrins Teknikutveckling (the
mining and minerals research foundation MITU), Boliden and Lundin Min-
ing, research is pursued in environmental engineering, prospecting, base
metals metallurgy, and particle technology. At the SweBrec center of ex-
cellence at Luleå University of Technology, research in the field of blast-
ing is conducted. In cooperation with several larger mining companies,
LKAB participates in international research projects of which one aim is
to develop new and improved numerical models for blasting and rock
flows in sublevel caving.
Profit/loss
Revenue increased to MSEK 14,281 (12,576), which is explained by
higher delivery volumes and higher prices, but was counteracted some-
what by a lower dollar rate.
Operating income changed only marginally over 2006 and amounted
to MSEK 6,031 (6,038). Higher prices for external services, material and
mine development for future production increases, and depreciation and
write-downs offset the increase in revenue. LKAB’s expansion in the op-
erating locations in the Orefields entails a successive expansion of de-
formation zones as a result of mining, which meant that earnings were
charged with costs amounting to MSEK 337 (-). This amount includes
costs amounting to MSEK 279 for planning of a new railway line in Kiruna
and MSEK 48 for a new wastewater pipeline in Kiruna.
MINERALS DIVISION
General
The Minerals Division, which operates under the name Minelco on the
global market, develops, produces and markets industrial mineral prod-
ucts for many different application areas and industries. The most im-
portant industries are construction and civil engineering, the oil and gas
industry, the rubber, plastics and paint industries, the chemical industry,
the automotive industry, foundries and manufacturing of refractory mate-
rials. Minelco’s position on the industrial minerals market is characterized
by leading-edge expertise in minerals, a broad product portfolio and cus-
tomized products, as well as a good knowledge of customers’ products
and processes.
With external sales of about 2,063 (1,920) billion kronor, the Miner-
als Division accounts for 13 (13)% of the LKAB Group’s total sales. The
division has about 400 employees, most of them outside Sweden. With
representation in Europe, Asia and the USA, the operation covers much
of the world. There are subsidiaries with processing plants in Sweden,
Finland, the UK, the Netherlands, Greece, Turkey, China and Greenland.
The company has additional subsidiaries in Germany, the USA and Hong
Kong, as well as representative offices in Slovakia and Thailand.
Objectives
Investments have been steered towards selected minerals, fulfilling the
strategy “From mine to end user”, which means control over the entire
process chain from source to end user for the selected minerals: magnet-
ite, olivine, mica and UltraCarb products (minerals with flame retardant
properties). During 2007, the first commercial deliveries of olivine from
the Seqi mine in Greenland were made.
Market and production
During 2007, the global demand for industrial minerals remained strong.
Limited supply of magnetite products continues to prevail. With sales
of barely 0.9 (0.7) Mt, the Minerals Division is still a market leader. De-
spite strong growth in Asia, Europe remained the principal market region,
accounting for 54 (60)% of sales. This market is decreasing in relative
importance, however, while the USA and Asia are becoming increasing
important markets. A greater demand for magnetite, in combination with
limited supply, has resulted in price increases. Generally, the prices of
industrial minerals have developed positively, even though the pricing
mechanisms differ considerably from those determining pricing of iron
ore products to the steel industry.
In Turkey, the Minerals Division has significant deposits of huntite and
hydromagnesite for manufacturing UltraCarb products, which are mainly
used as an environmentally friendly flame retardant in the cable industry
and other polymer industries. In Finland, the facility for production of
mica has increased the production capacity in order to grow on markets
for products used in plastics, paint, surface coating, building construc-
tion and sound dampening.
The olivine market comprises three major application areas: steel, re-
fractory and foundry. LKAB is a large consumer of olivine, which is a key
additive in pellet manufacture. The Minerals Division’s olivine products
for foundries and steelmaking offer environmental advantages not seen
in competing products.
Capital expenditures
To increase the supply of magnetite, initial studies have commenced
on alternative deposits, among others, the old Leveäniemi open pit and
Gruvberget, both in Svappavaara.
Net capital expenditures totaled MSEK 72 (172).
Profit/loss
In 2007, revenue increased to MSEK 2,162 (2,100), mainly as a result
of greater earnings on the selected minerals magnetite, mica and Ultra-
Carb. Revenue was impacted negatively as a result of reorganization
within LKAB, which entailed that responsibility for supply of additives
within the Group, with the exception of olivine, was transferred to the
Mining Division. The change meant that revenue declined by MSEK 150
during 2007.
Operating income amounted to MSEK 38 (134). In 2007, production
and delivery of olivine products from Greenland to the European steel
industry commenced. The overheated freight market and downward
pressure on market prices for olivine had a dramatically negative effect
on results. As a consequence, a write-down on a consolidated basis of
MSEK 94 in fixed assets in Minelco A/S has impacted earnings during
the fourth quarter.
SPECIAL BUSINESSES DIVISION
General
LKAB has organized many of its subsidiaries under the Special Business-
es Division. These companies are today mainly subcontractors to the
Mining Division and the Minerals Division, but also support the Group by
contributing towards efficiency 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. The companies
also have external customers.
Wassara AB develops drilling systems. AB Kiruna Grus- och Sten-
förädling (KGS) works with rock, concrete, engineering services, and
manufacture and delivery of explosives. LKAB Nät AB is an electricity
network company with a concession as an electricity distributor. The
Group’s intra-group insurance company is LKAB Försäkring AB. The
company works globally to provide the LKAB Group with property and
risk insurance.
Fastighets AB Malmfälten (FAB) manages properties in locations
where LKAB operates. In December 2007, the subsidiary Fastighets
AB Malmfälten (FAB) acquired the property management company I22
Vasallen AB. The company was subsequently renamed Jägarskolan Fas-
tigheter AB. The purchase price was MSEK 35. In addition to business
premises, the acquisition also includes a large area of land that may in
future be exploited for housing.
The subsidiaries are wholly owned by LKAB.
Profit/loss
Revenue increased by 17% to MSEK 701 (600). Increased sales vol-
umes, both internal and external, contributed to the increase in revenue.
Operating profit fell significantly over the previous year and amounted to
MSEK 52 (98), which is mainly explained by large costs incurred by LKAB
Försäkring AB due to downtime as a result of a fire in the Svappavaara
pelletizing plant.
GROUP
Sales and earnings
Revenue increased by 12% to MSEK 16,385 (14,615). The increase is
attributable, proportionately, to the following factors: price 7%, currency
-2 %, and volume/mix 7%. Excluding forward exchange contracts in US
dollars, the currency effect was -6%.
Operating income decreased by 2% to MSEK 6,148 (6,256). The
change is largely explained by increased costs in the Mining Division as
a result of the expansion of operations in the Orefields. This expansion
entails a successive expansion of deformation zones as a result of min-
ing, which means that earnings have been charged with costs amounting
to MSEK 337 (-). This amount includes costs amounting to MSEK 279 for
58 | REPORT OF THE DIRECTORS | LKAB ANNUAL REPORT 2007
planning of a new railway line in Kiruna and MSEK 48 for a new waste-
water pipeline in Kiruna. The Mining Division has also faced increased
production costs in the form of higher prices for external services, ma-
terial and mine development for future production increases, and de-
preciation and write-downs. Within the Minerals Division, a consolidated
write-down of MSEK 94 on fixed assets has impacted earnings during
the fourth quarter.
Income after financial items reached MSEK 196 (126). Exchange rate
gains have affected net financial income/expense by MSEK 79 (-99). Net
interest income/expense improved, amounting to MSEK -186 (-217). Re-
turn on market portfolios and interest-bearing instruments fell, amounting
to MSEK 88 (277). During the year, dividends totaling MSEK 69 (52) have
been received. Capital gains on the sale of subscription rights in SSAB
amounting to MSEK 153 have been reported.
The tax cost for the year has been affected positively. Subject to a rul-
ing in 2007, LKAB’s shareholding in SSAB has been classified as a busi-
ness-contingent holding, which has meant that a tax refund for previous
years has affected the tax cost positively to the amount of MSEK 91.
Capital expenditures
The Group’s net capital expenditures amounted to MSEK 6,192 (4,476).
Of the Group’s investments in fixed assets totaling MSEK 5,968 (4,844),
the new pelletizing plant in Kiruna and new storage and handling facili-
ties in Narvik have accounted for the greatest share of disbursements.
The new pelletizing plant is expected to be operational, according to
schedule, during the second quarter of 2008. The new facilities in Narvik
are expected to be operational, according to schedule, during the third
quarter of 2009. In December, the subsidiary FAB acquired the prop-
erty management company I22 Vasallen AB. The purchase price was
MSEK 35.
Liquidity
Cash flow for the full year amounted to MSEK -1,159 (70). Dividends of
MSEK 2,000 (1,500) have been paid out to the owner.
For the full year 2007, the net inflow of US dollars was MUSD 1,826
(1,620), of which MUSD 1,525 (1,155) was hedged under forward ex-
change contracts at an average rate of 7.58 7.32 (7.58) SEK/USD. The
average spot-market rate was 6.76 (7.38) SEK/USD.
RISKS
Risks can be divided into three main categories: operating risks, financial
risks and other risks.
LKAB’s major competitors mine their ore in open pits. They therefore
face considerably lower production costs. For LKAB, consistently high
quality and cost efficiency are critical factors for remaining competitive.
The great advantage compared to competitors is our high-quality mag-
netite ore. Potential threats are seen, for example, in a possible collapse
in China’s economic growth, a weak dollar, falling pellet prices, higher en-
ergy prices and energy taxes, and increased costs for emissions rights.
Operating risks
Volume dependence
Since pellets are largely used for the purpose of raising productivity dur-
ing expansionary periods and can be replaced by cheaper lump ore dur-
ing recessionary periods, LKAB, with a pellet share of about 70%, is par-
ticularly sensitive to business cycle fluctuations. In recent years, LKAB
has been able to sell all of its products, but the company must improve
its preparedness for future cyclical fluctuations. This is realized through
greater flexibility in production and financial strength.
Price dependence
Iron ore trading is conducted in US dollars and the price is set once a
year in direct negotiations. Normally, an agreement between one of the
major mining companies and the Asian or European steel industry sets
a global benchmark. A premium is paid for pellets compared with fines,
and the price of DR pellets is generally higher than that of blast furnace
pellets.
Ocean freight costs have a great influence on the total price picture,
since world market prices are compared with the freight cost included.
LKAB is favored on the European market by high freight rates, while
the competitiveness 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 diminished. The Mining Division
therefore has relatively few customers, which means that the importance
of each individual customer increases. 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 allowed by the banking systems. The Group
is judged to have an effective credit monitoring function. With its diversi-
fied customer base, the Minerals Division is able to spread its risks more
effectively. To a degree, this helps to counteract the effects of fluctua-
tions in business cycles, since different customer segments are subject
to different trends.
Financial risks
LKAB is exposed to various types of financial risks. Financial risks are
associated with fluctuations in the company’s earnings and cash flow as
a result of currency exchange-rate fluctuations, interest rates, refinancing
and credit risks. Financial risks are managed according to Group policies
established by the Board. LKAB has a centralized finance function, LKAB
Treasury Center, which manages most of the Group’s financial risks. A
selective strategy is applied, whereby potential costs and benefits are
balanced, the aim being to minimize and neutralize risks in commercial
flows. LKAB Treasury Center also acts as the Group’s internal bank and
supports subsidiaries with financing, investment and currency trading,
and functions as an advisor with respect to financial issues.
Currency risks
Both LKAB’s future payment flows (transaction exposure) and revalua-
tion of receivables and liabilities in foreign currencies (revaluation expo-
sure) are exposed to risks associated with fluctuations in exchange rates.
Other companies in the Group mainly conduct business in their local
currencies, and both investment and financing 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 difficult to ascertain far in advance, since it is largely depend-
ent on the market price of iron ore, which is normally set annually. During
2007, the transaction exposure amounted to MUSD 1,826, and the ef-
fect of a difference of SEK 0.1 in the USD/SEK exchange rate on LKAB’s
operating profit, without hedging, is therefore about MSEK 182.
LKAB ANNUAL REPORT 2007 | REPORT OF THE DIRECTORS | 59
60 | REPORT OF THE DIRECTORS | LKAB ANNUAL REPORT 2007
The goal of LKAB’s current currency policy is to minimize the impact
of exchange rate fluctuations on the income statement by means of se-
lective risk-taking, so the value of future transaction exposure is periodi-
cally hedged. The Board has set up a currency and finance committee
that convenes four to six times per year to decide on, and to advise
the Board on decisions pertaining to, among other things, management
of the Mining Division’s currency risks, within a framework established
by the Board. 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.
Translation exposure
LKAB does not normally hedge its translation exposure, since it is not
substantial. Over time, this is not considered to add any value for the
Group.
Interest risks and share-price risks
LKAB’s financing sources are shareholders’ equity, provisions and short-
term operating credits, which means that LKAB is mainly exposed to in-
terest rate risks with regard to investments of liquid assets. According to
LKAB’s investment policy, the average duration of money-market invest-
ments may not exceed three years. As of 31 December 2007, LKAB’s
investments in money-market instruments amounted to MSEK 3,801
(4,907). The duration was 502 (507) days. A one-percent increase in
the market rate as of closing day would have affected income negatively
by MSEK 50 (63). LKAB invests a share of liquid assets with a horizon
of longer than five years, mainly to cover that share of LKAB’s pension
liabilities not covered by other assets, in share-related securities. As of
31 December 2007, the market value of LKAB’s investments in shares
amounted to MSEK 929 (621). A ten-percent average decrease in the
market value of shares, as of closing day, would affect income negatively
by MSEK 93 (62).
Credit risks
LKAB’s credit risks are mainly associated with trade accounts receivable,
derivatives 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-estab-
lished contacts. Export letters of credit are used when deemed neces-
sary. LKAB has not had any substantial bad debt losses in the past five
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, coun-
ty councils, municipalities or companies with the highest credit rating. As
of closing day, 84% (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 five years.
LKAB uses several different banks with high credit ratings for derivative
transactions. LKAB does not have any substantial concentration of credit
risks in any single customer or counterparty.
Liquidity risks
LKAB maintains good financial 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. The equity/assets
ratio per closing day was 75 (73.9) %. A good balance between short
and long investment horizons will meet the long-range financing need.
Liquid assets are invested primarily on the Swedish money market in
securities with high liquidity. LKAB works with short-term and long-term
liquidity forecasts.
Other risks
Among other significant risks, apart from operational and administrative
risks, may be mentioned risks associated with insufficient insurance cov-
erage, environmental requirements, and risks for non-competition-neu-
tral costs such as costs for carbon-dioxide emissions rights.
Insurance coverage
To protect against unforeseen circumstances, LKAB insures interests
including the Group’s facilities throughout the world. The largest sin-
gle insurable risks are risks with respect to property and disruptions,
where production facilities and harbors are insured, against fire and
stoppages due to fire, partly by the Group’s own insurance company,
LKAB Försäkrings AB and partly through policies with external insurers.
An active and systematic effort is made on an ongoing basis to prevent
damage and disruptions in production. Historically, stoppages due to fire
have resulted in the greatest financial losses, which is why preventive
work in this area has high priority.
In Sweden, liability for damage to third parties as a result of dam ac-
cidents is strict and unlimited. LKAB has therefore taken out so-called
dam liability insurance.
Other insurance coverage includes liability insurance, product liability
insurance, medical and business travel insurance, transport insurance
and liability insurance for the President and Board.
ENVIRONMENTAL INFORMATION
LKAB’s work will be characterized by concern for the environment. 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 financially sound and successful business operation.
Operations subject to regulation
In the Parent Company and the subsidiary Kimit, the Group conducts
operations that are subject to regulations embodied in the Environmental
Code. Two environmental permits refer to handling of iron ore products
and binders at the harbor facilities in Luleå and Narvik. The impact of
these operations on the external environment is mainly a result of emis-
sions of particulate matter and dust. Several environmental permits refer
to large-scale mining and facilities for processing iron ore products. Two
permits refer to mining in Kiruna and Svappavaara (not currently appli-
cable), and two permits refer to processing of ore in Kiruna and Svap-
pavaara. For mining and ore processing in Malmberget, there is a single
permit. One permit refers to mining of additives used in ore processing.
Several permits refer to water management in connection with LKAB’s
dam facilities. 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 vibration, and energy consump-
SENSITIVITY ANALYSIS 2007 (PARENT COMPANY)
Effect on Exposure Change earningsDeliveries 25.1 Mt 1 Mt MSEK 316 1)
Price 1% MSEK 142) 1)
Personnel costs MSEK 1,829 10% MSEK 183Energy costs MSEK 864 10% MSEK 86Transportation costs MSEK 1,320 10% MSEK 132Depreciation MSEK 981 10% MSEK 98Dollar rate – without forward contracts MUSD 1,826 2) SEK 0.1 MSEK 182Interest level MSEK 3,801 1% MSEK 50 1) Average value, figured on unchanged product mix 2) During 2007, the total exposure was 1,826, of which MUSD 1,525, was hedged.
LKAB ANNUAL REPORT 2007 | REPORT OF THE DIRECTORS | 61
tion. In addition to these, there are a number of permits that are utilized
either in part or only periodically, for example, permits for gravel pits.
LKAB has several permits for exploration and mining concessions in
Kiruna, Svappavaara and Malmberget. In Kiruna, deep drilling investiga-
tions are being conducted to ascertain the extent of the orebody towards
the north. Work has progressed during 2007 on an application for an
extended mining concession for Kiruna, which is planned to be submit-
ted in 2008. In 2007, the Mining Inspectorate of Sweden granted LKAB
an extended mining concession for the Fabian orebody in Malmberget.
At the same time, LKAB has worked to relocate houses affected by the
extension. In Malmberget, the consequences of mining, in the form of
deformation, have been evident for some time and are now becoming
apparent in Kiruna. During the year, an application for amendment to the
conditions regarding ground deformations in Kiruna was completed and
submitted to the Environmental Court.
Two environmental permits refer to Kimit AB’s manufacture of ex-
plosives. The environmental impact of this activity is mainly the result of
discharges of nitrogen compounds to the municipal sewage system.
Internal control and inspection
LKAB Svappavaara exceeded noise-limit values during the period 2005-
2007. In 2006, LKAB conducted investigations to identify the critical
sources of noise in operations in Svappavaara. The critical sources of
noise are mainly the discharge station and processing plants. Noise-con-
trol measures have been implemented in the Svappavaara processing
plants. Near-field measurements, performed in 2007 as part of LKAB’s
revised noise-control program, indicate that the corrective measures
have been successful.
During the year, the Municipality of Kiruna lodged a complaint against
LKAB concerning high particulate emissions in Svappavaara. During the
spring of 2007, LKAB noted increased emissions of particulates in the
Svappavaara pelletizing plant and that the guideline value had been ex-
ceeded. Corrective measures have been taken and particulate readings
later during the year indicated that emissions had resumed acceptable
levels.
Remediation/decontamination
Site remediation, which can be done successively and/or after opera-
tions are concluded, is a statutory obligation where consideration must
be given to safety, environmental, economic and esthetic aspects. LKAB
cooperates with the supervisory authority, the County Administrative
Board, in devising long-range remediation plans for the mining sites.
During 2007, a remediation plant in accordance with the Environmental
Court ruling was submitted to the County Administrative Board within the
prescribed time.
Revision of plans for waste-rock landfills for the operations in Malm-
berget and Svappavaara has proceeded during the year. Some examples
of initiated measures are backfilling of open pits, planned disposition of
waste rock, grass sowing and tree planting. In 2007, LKAB completed
remediation measures at a total cost of MSEK 2.5. This also includes
backfilling of Kaptensgropen in Malmberget.
Following the Environmental Court’s ruling of 2005, with respect to
ore processing in Kiruna (increasing pellet production from 8.8 Mt to 14.8
Mt/year), a guarantee amounting to MSEK 63 has been pledged in 2006
to the County Administrative Board of Norrbotten. According to the 2007
ruling by the Environmental Court with respect to fulfillment of obliga-
tions with respect to depositioning operations in Malmberget, a bank
guarantee of MSEK 45 has been pledged to the County Administrative
Board of Norrbotten. In addition, several lesser financial guarantees have
been pledged; for example, for the dolomite pit in Masugnsbyn, to the
amount of MSEK 1.
Future environmental legislation
In 2003, the European Commission submitted a proposal for a mining
waste directive, which has subsequently been reviewed by the Europe-
an Parliament and Council of Ministers. The European Parliament and
Council of Ministers reached an agreement on a directive proposal during
a conciliation meeting in December 2005. The official text, including a
Swedish translation, was published in mid-April 2006 and will be incor-
porated in Swedish law in May 2008. Until then, the Commission will
work according to guidelines for implementing the requirements of the
directive, while at the national level the necessary changes in environ-
mental legislation will be implemented. For LKAB, this may mean that
further economic guarantees for remediation costs must be pledged.
REACH, an acronym for Registration, Evaluation, Authorization and
restriction of Chemicals, is a new body of environmental legislation that
will be introduced within the EU. REACH is a comprehensive proposal
for legislation that will replace 40 current pieces of legislation regulat-
ing the use and handling of chemicals. REACH concerns all substances
whether manufactured, imported, used as intermediates or placed on
the market, on their own, in preparations or in articles. All registration,
assessment and approval will subsequently take place over a transition
period of 11 years.
LKAB is subject to REACH in that we use a number of chemical sub-
stances such as flotation chemicals, flocculants, oils, etc. Depending on
how the legislation is construed with respect to the products LKAB pro-
duces/imports, LKAB may also be subject to REACH as a producer/im-
porter of chemical products.
System of trade in emissions rights
The EU’s solution for reducing greenhouse gas emissions (GHG) is based
upon, among other measures, a system of trade in carbon-dioxide emis-
sions rights. In the current system, which includes only EU member
states, LKAB is the only pellet supplier that is active on the global mar-
ket. The system also implies increased 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 competitiveness among compa-
nies like LKAB that use energy and C02-efficient technology, and conse-
quently, emissions could be globally reduced.
An assessment of carbon-dioxide emissions during the EU’s three-
year trial period shows that actual emissions from the pellet plants and
oil-fired boiler plants exceed the allocated rights. This is despite the fact
that, since the allocation period, LKAB has significantly reduced its heat-
ing oil consumption by using recovered surplus heat from processes. The
increase is due mainly to increased production in the pelletizing plants
and increased use of carbonates in the products. Therefore, LKAB pur-
chased 30,000 emissions rights during 2005-2007.
LKAB appealed the allocation decision from 2004, but the appeal
was rejected by the County Administrative Court of Stockholm in Decem-
ber 2005. LKAB claimed that the use of coal in the pellet process should
be classed as raw-material related. Review dispensation was granted by
the Administrative Court of Appeals in 2006, and in 2007 the appeal was
rejected by the Court.
The total allocation of emissions rights for the trading period 2008-
2012 has been preceded by an application process in several stages.
During 2006, LKAB was able to apply for allocations for “existing facili-
ties” in Kiruna, Svappavaara and Malmberget, and for the new pelletizing
plants, which are named “new participants”. The starting date for appli-
cation was 22 November 2007. LKAB has applied for emissions rights for
the period 2008-2012, though allocation has not yet been granted.
LKAB’s principal competitors in Brazil and Australia will not be af-
fected by the system during the coming trading period, which distorts
competition to LKAB’s disadvantage.
Secured electricity deliveries
In the iron ore operation, vast amounts of electricity are used, mainly in
mine operation and mineral processing. In the next year, annual con-
sumption of electricity will have increased from about 1.8 to more than 2
terawatt hours (TWh). Market prices on the Nordic exchange have risen
dramatically since deregulation. Assured delivery of competitively priced
electricity is strategically very important. Via a long-term energy agree-
ment reached with Vattenfall in 1998, LKAB secured power deliveries at
a predetermined price. The third phase of the agreement, renegotiated
during 2005 to a 10-year agreement, also takes into consideration future
power demands for the pelletizing plants in Malmberget and Kiruna.
PERSONNEL AND WORK ENVIRONMENT
Safety, recruiting, and employee participation and commitment are areas
that are decisive for LKAB’s success. Safe and healthy workplaces are
a pre-requisite for developing the operation and recruiting new employ-
ees.
Safety First
A safe work environment in which employees are attentive to the safety of
those around them, as well as their own safety, is both a right and an obli-
gation of all who work within LKAB. The aim of “Safety First”, a long-term
campaign that began in 2005, is to eliminate accidents in the company.
Zero accidents is the long-term goal. The company management’s com-
mitment is a factor for success. The majority of LKAB supervisors, key
resource people and larger contractors have undergone a 3-day training
program in safety. In 2007, a single-day training course for all employees
was introduced and will also be offered during 2008. In addition, supervi-
sors and co-workers will conduct safety inspection rounds to discuss
safe behavior with crews and colleagues. Safety inspection rounds are
a complement to statutory workplace safety audits. LKAB’s work-envi-
ronment focus is above all on preventive safety practice. All people in
LKAB’s workplaces, employees as well as contractors, are subject to
random drug tests.
The number of accidents per million working hours declined during
the year from 13.5 to 9.5, which is a decrease of 28%. Short-term ab-
sence due to illness declined from 2.3 to 2.1 and long-term absence from
1.5 to 1.2 percent.
Recruiting, diversity and equality
A generation shift is taking place within LKAB. During the year, 382 (264)
new employees were hired. Of the new recruits, 65 (50) or 17 (19) per-
cent are women. About 100 people were recruited to the new concen-
trating and pelletizing plants in Kiruna.
LKAB strive to be an attractive employer for both present and future
co-workers. We now have a plan of action to ensure the suitability of
LKAB’s workplaces for all employees, regardless of their ethnic origin
or faith. Aspects of the plan include review of our recruiting work and
organization. A big challenge is to improve our attractiveness as an em-
ployer of women, an endeavor that has been conducted successfully
and in a determined manner for several years within the framework of our
effort to ensure an equal-opportunity workplace. The number of female
permanent employees at the turn of the year 2007/2008 was 432, or
11.5 percent. We still face the challenge of placing more women in male-
dominated occupations, since a better balance between the sexes leads
to greater efficiency and increased safety. The LKAB high schools in
Malmberget and Kiruna constitute an important recruitment base. Nearly
half of the students admitted to the industrial program during the current
year of study are girls.
New trainees were hired during the year; the trainees work abroad
during their final practice period.
62 | REPORT OF THE DIRECTORS | LKAB ANNUAL REPORT 2007
Competence development and commitment
Competence development is another strategic area, both with respect to
the development of existing personnel and for attracting new employees.
The aim is that each employee should participate in 10 days of compe-
tence development per year, of which 5 should be training days. The
number of training days per employee in 2007 was 6 (5.8). The principal
areas included work environment and safety, quality, management and
personal development, and vehicle training.
LKAB also encourages job mobility among employees, both nation-
ally and internationally. During the year, an international management
development program was started. The aim is to strengthen the indi-
vidual managerial role and to foster a common leadership identity in the
Group.
Personnel submitted a record number of suggestions for changes
and improvements during the year. 3,613 suggestions were submitted,
which is 21 percent more than in 2006.
REWARD SYSTEM
The Parent Company’s reward system was introduced at mid-year 2000.
The President and senior executives are not included. The subsidiaries
MTAB, MTAS, Minelco AB and LKAB Norge AS are subject to the reward
system.
The system, which follows the owner’s guidelines for incentive
schemes, is based on three factors: quality, work environment and pro-
duction targets. The reward was maximized, as of 1 July 2007, at SEK
40,000 per year and full-time employee.
All three factors led to rewards in 2007. The outcome was 21,438
(15,600) kronor (excluding social security contributions) per full-time em-
ployee with full job attendance, which adds up to about MSEK 75 (49).
In addition, payments in respect of local incentive schemes in different
subsidiaries amounted to MSEK 1 (5).
PARENT COMPANY
The Parent Company’s revenue increased to MSEK 14,193 (12,572), of
which 202 (113) refers to invoiced sales to subsidiaries. Income after
financial items reached MSEK 6,547 (6,188). During the year, LKAB sold
subscription rights in SSAB, which gave a positive effect of MSEK 153.
Investments in fixed assets amounted to MSEK 5,448 (4,642). Liquid
assets and short-term investments amounted to MSEK 5,752 (6,416).
Dividends of MSEK 2,000 (1,500) have been paid out to the owner
during the year.
THE BOARD OF DIRECTORS DURING 2007
During 2007, the Board of Directors consisted of seven members elected
by the Annual General Meeting, plus three members with three deputies
appointed by the employees. At the Annual General Meeting, one board
member, Ursula Tengelin, stepped down from the Board. 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. The
Board held nine ordinary meetings during financial year 2007.
The meetings follow a set annual calendar aimed at satisfying the
Board’s need for information and are otherwise governed by the special
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 interim
financial reports for the most recent quarter as well as the forecast for
the coming four quarters. This allows the Board to make an ongoing as-
sessment of strategies and delegations to the President and to decide on
specific investment projects.
LKAB ANNUAL REPORT 2007 | REPORT OF THE DIRECTORS | 63
Normally the first 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 ad-
dress issues pertaining to operations and strategy. The emphasis of the
fifth meeting is on the market situation. At the sixth and final 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 survey
of the Board’s work, prepared annually, includes questions concerning
how the Board collectively, and each member individually, has fulfilled 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.
NEW PRESIDENT
The Board has appointed Ola Johnsson President and CEO as of 1
March 2008. Ola Johnsson succeeds Martin Ivert, who is retiring.
GUIDELINES FOR REMUNERATION TO SENIOR EXECUTIVES
The Board of Directors proposes that the Government’s guidelines for
remuneration to senior executives, including revisions of the guidelines,
should be adopted as of the AGM for 2008, see Note 6.
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 distri-
bution of unappropriated earnings for the year is given on page 80.
STRUCTURAL CHANGES IN THE OREFIELDS
LKAB’s expansion in the operating locations in the Orefields entails a
successive expansion of deformation zones, which is a result of mining.
Amendments to municipal plans are therefore inevitable in the long term.
Together with other concerned parties, such as government and local
authorities, other companies, property owners and other stakeholders,
LKAB is working actively to find joint solutions for the structural trans-
formation. Therefore, as agreements are reached or where an informal
obligation exists as a result of operations, LKAB is successively allocat-
ing funds for this purpose (see Notes 28 and 33).
Discussions with the respective stakeholders concerning the nec-
essary measures and funding are in progress. As more knowledge is
gained, greater insight into the implications of the structural transforma-
tion is acquired, which will entail considerable expenditures during the
coming years. LKAB will comply with the Minerals Act and will assume
responsibly for replacing existing functions.
EVENTS AFTER CLOSING DAY
The Board of LKAB voted on 21 February 2008 to proceed with con-
struction of a new main level for the iron ore mine in Malmberget (M1250).
The total investment is estimated at more than four billion kronor, which
includes projects, for example, roads, for which decisions have already
been taken.
The newest main level, at 1,000 meters, will be extended to the Fa-
bian orebody in the so-called Östra Fältet, where most of the orebodies
are situated. A new main level will be built at 1,250 m to access the other
orebodies in Östra Fältet.
M1250 is being planned to enable production of 18 Mt of crude ore,
plus 1-2 Mt development waste rock, per year. The mineable ore reserve
is estimated at 140 Mt of crude ore, which yields about 84 Mt of finished
product. With an annual production of between 8 and10 Mt of finished
product, the operating life of Malmberget is extended by about 10 years
to approximately 2020. Commissioning of the new main level is expected
to take place during the third quarter of 2010.
A fire in Malmberget’s concentrating plant and transformer station,
which occurred in the early hours of 21 February, resulted in a total pro-
duction stop in the Malmberget processing plants. The fire caused con-
siderable damage to electrical equipment. An extensive and time-con-
suming clean-up operation ensued and has been completed. Sections
of the pelletizing operation and the entire fines operation is expected to
resume production by mid-March. LKAB’s entire production has already
been sold on contract, and the downtime in Malmberget will therefore
result in suspension of deliveries. The extent to which deliveries will be
suspended cannot yet be determined.
EXPECTATIONS WITH RESPECT TO FUTURE DEVELOPMENT
LKAB’s increased pellet capacity in 2008, above all from the new pelletiz-
ing plant in Kiruna (KK4), will be absorbed by agreed sales to established
customers. In terms of volume, blast furnace pellets for the steel industry
constitute LKAB’s biggest product. LKAB’s assessment is that hot metal
from the blast furnace is, and will in the foreseeable future continue to be,
the dominating raw material for steel production.
Aside from blast furnace pellets, LKAB delivers DR pellets to custom-
ers with access to inexpensive natural gas. The direct reduction process-
es now account for seven percent of ore-based steel production. LKAB’s
assessment, based on the facts at hand, is that demand for DR pellets
will increase considerably in the future.
The iron ore market is expected to remain strong and is character-
ized by a shortage of supply. LKAB commands a strong position as a
supplier of pellets. During 2007, China imported 383 million tonnes (Mt)
of iron ore, nearly 18% more than in 2006. The prevailing unrest in glo-
bal financial markets may, however, have an impact on future growth in
the iron and steel industry; although there are at present no indications
that this will be the case. A change in the growth trend in China would,
for example, affect demand and thereby prices. Other threats include
a falling dollar rate, increased energy costs, and certain environmental
requirements that distort competition.
An early benchmark was reached for iron ore prices for 2008. Vale,
the world’s biggest iron ore producer, has completed negotiations for
2008 with ThyssenKrupp Steel. The outcome of these talks was that the
price for Southern System fines, fob Tubarão, increased by 65% over
the 2007 price, while the price of Carajás iron ore fines, fob Ponta da
Madeira, rose by 66% in comparison with 2007.
LKAB’s assessment, however, is that the market will continue to be
characterized by strong demand in the foreseeable future. In light of
these developments, the outlook for LKAB in 2008 is good.
For further information concerning the company’s financial results
and status, please see the following statements of income and balance
sheets with accompanying comments.
02 03 04 05 06 07
15 000
12 000
9 000
6 000
3 000
0
64 | STATEMENT OF INCOME – LKAB GROUP | LKAB ANNUAL REPORT 2007
Statement of Income – LKAB Group
1 January – 31 December
MSEK Note 2007 2006
1, 34
Net sales 16 385 14 615
Cost of goods sold -9 509 -7 706
Gross income 6 876 6 909
Selling expenses -178 -178
Administrative expenses -344 -333
Research and development expenses -217 -165
Other operating revenues 199 351
Other operating expenses -188 -328
Operating income 6,7,8, 31 6 148 6 256
Income from financial items 572 546
Financial expenses -376 -420
Net financial income/expense 9 196 126
Income before tax 6 344 6 382
Tax 11 -1 665 -1 785
Net income for the year 4 679 4 597
Attributable to:
Parent Company shareholders 4 679 4 597
Earnings per share (kronor) 6 684 6 567
NET SALES AND OPERATING INCOME MSEK
Nets sales Operating income
COST STRUCTURE 2007
Personnel costs 23%
Materials 27%
Energy 10%
Transportation 8%
Depreciaton 11%
Other operating expenses 20%
LKAB ANNUAL REPORT 2007 | BALANSRÄKNING FÖR KONCERNEN | 65
Balance Sheet – LKAB Group
As of 31 December
MSEK Note 2007 2006
1, 34
Assets 16, 32
Intangible assets 12 329 387
Tangible assets 13,14 16 702 11 746
Participations in associated companies 15 1 1
Financial investments 19, 30 2 347 2 135
Long-term receivables 21 68 72
Total fixed assets 19 447 14 341
Inventories, etc. 22 1 635 1 631
Taxes recoverable 4 398
Accounts receivable 23 1 922 1 697
Receivables in associated companies 1 -
Prepaid expenses and accrued revenues 24 390 644
Other receivables 21 290 172
Short-term investments 19, 30 4 038 3 870
Liquid assets 37 1 953 3 112
Total current assets 10 233 11 524
Total assets 29 680 25 865
Shareholders’ equity
Share capital 700 700
Other reserves 2 339 1 843
Retained earnings incl. profit for the year 19 212 16 533
Shareholders’ equity attributable to Parent Company shareholders 22 251 19 076
Total shareholders’ equity 22 251 19 076
Liabilities
Long-term liabilities - 1
Provisions for pensions and similar commitments 27, 28 1 807 1 751
Other provisions 28 521 240
Deferred tax liability 11, 28 2 635 2 635
Total long-term liabilities 4 963 4 627
Accounts payable – trade 1 394 1 250
Income tax payable 28 21
Other liabilities 175 164
Accrued expenses and prepaid revenues 29 724 557
Provisions for pensions and similar commitments 27, 28 145 141
Other provisions 28 29
Total current liabilities 2 466 2 162
Total liabilities 7 429 6 789
Total shareholders’ equity and liabilities 29 680 25 865
For information concerning the Group’s assets pledged and contingent liabilities, see Note 33.
66 | COMPILATIONS OF CHANGES IN SHAREHOLDERS’ EQUITY – LKAB GROUP | LKAB ANNUAL REPORT 2007
Compilations of changes in shareholders’ equity – LKAB Group
Shareholders’ equity attributable to Parent Company
shareholders
Retained
earnings Total share-
Share incl. profit Minority holders’
MSEK Note 1 capital Reserves for the year Total interest equity
Opening balance 1 January 2006 700 666 13 436 14 802 4 14 806
Change in translation reserve for the year 25 -25 -25 -25
Change in fair value reserve for the year 25 538 538 538
Change in hedge reserve for the year 25 664 664 664
Net income recognized directly in equity,
excluding transactions with the
Company’s owners 1 177 1 177 1 177
Net income for the year 4 597 4 597 4 597
Net income excluding transactions with
the Company’s owners 1 177 4 597 5 774 5 774
Acquisition of minority interest -4
Dividends -1 500 -1 500 -1 500
Shareholders’ equity 31 December 2006 700 1 843 16 533 19 076 - 19 076
Shareholders’ equity attributable to Parent Company shareholders
Retained
earnings Total share-
Share incl. profit holders’
MSEK Note 1 capital Reserves for the year equity
Opening balance 1 January 2007 1 700 1 843 16 533 19 076
Change in translation reserve for the year 25 9 9
Change in fair value reserve for the year 25 723 723
Change in hedge reserve for the year 25 -236 -236
Net income recognized directly in equity,
excluding transactions with the
Company’s owners 496 496
Net income for the year 4 679 4 679
Net income excluding transactions with
the Company’s owners 496 4 679 5 175
Dividends -2 000 -2 000
Shareholders’ equity 31 December 2007 700 2 339 19 212 22 251
LKAB ANNUAL REPORT 2007 | STATEMENT OF CASH FLOW – LKAB GROUP | 67
Statement of Cash Flow – LKAB Group (indirect method)
1 January – 31 December
MSEK Note 2007 2006
1, 37
Operating activities
Income before tax 6 344 6 382
Adjustments for items not included in cash flow, etc. 1 507 874
Income tax paid -651 -1 568
Cash flow from operating activities before change in working capital 7 200 5 688
Cash flow from changes in working capital
Increase (-)/Decrease (+) of inventories -4 -208
Increase (-)/Decrease (+) in operating receivables -442 282
Increase (-)/Decrease (+) in operating liabilities 322 284
Cash flow from operating activities 7 076 6 046
Investing activities
Acquisition of tangible assets -5 968 -4 844
Disposal of tangible assets 14 35
Acquisition of intangible assets - -12
Acquisition of subsidiaries -35 -
Acquisition of minority interest - -5
Disposal of financial assets 174 143
Lending 4 -10
Divestments/acquisitions (net) in short-term investments -381 217
Cash flow from investing activities -6 192 -4 476
Financing activities
Dividends paid to Parent Company shareholders -2 000 -1 500
Lending -43 -
Cash flow from financing activities -2 043 -1 500
Cash flow for the year -1 159 70
Liquid assets at the beginning of the year 3 112 3 042
Liquid assets at year-end 1 953 3 112
02 03 04 05 06 07
25
20
15
10
5
002 03 04 05 06 07
15 000
13 000
11 000
9 000
7 000
5 000
3 000
1 000
-1 0000
68 | STATEMENT OF INCOME – PARENT COMPANY | LKAB ANNUAL REPORT 2007
Statement of Income – Parent Company
1 January – 31 December
MSEK Note 2007 2006
1, 34
Net sales 14 193 12 572
Cost of goods sold -7 795 -6 120
Gross income 6 398 6 452
Selling expenses -98 -96
Administrative expenses -227 -227
Research and development expenses -207 -154
Other operating revenues 4 214 292
Other operating expenses 5 -106 -211
Operating income 3, 6, 7, 8, 31 5 974 6 056
Income from financial items:
Income from participations in Group companies 87 21
Income from participations in associated companies 1 -
Income from other securities and receivables held as fixed assets 230 160
Other interest income and similar credits 451 309
Interest expense and similar profit/loss items -196 -358
Profit after financial items 9 6 547 6 188
Appropriations 10 -2 288 -1 893
Income before tax 4 259 4 295
Tax 11 -1 045 -1 242
Net income for the year 3 214 3 053
IRON ORE DELIVERIES MTONNESNET SALES AND OPERATING INCOME MSEK
Net sales Operating income
02 03 04 05 06 07
10 000
8 000
6 000
4 000
2 000
002 03 04 05 06 07
5 000
4 000
3 000
2 000
1 000
0
LKAB ANNUAL REPORT 2007 | BALANCE SHEET – PARENT COMPANY | 69
Balance Sheet – Parent Company
As of 31 December
MSEK Note 2007-12-31 2006-12-31
1, 34
Assets 32
Fixed assets
Intangible assets 12 5 34
Tangible assets 13, 14 13 944 9 606
Financial assets
Participations in Group companies 35 775 775
Participations in associated companies 17 1 1
Receivables from Group companies 18 254 328
Receivables in associated companies 18 35 35
Other long-term securities held as fixed assets 20, 30 85 105
Other long-term receivables 21, 30 149 135
Deferred tax asset 11 211 213
Total financial assets 1 510 1 592
Total fixed assets 15 459 11 232
Current assets
Inventories, etc. 22 1 129 1 176
Current receivables
Accounts receivable 23 1 568 1 314
Receivables from Group companies 1 584 1 282
Receivables in associated companies 1 -
Taxes recoverable - 394
Other receivables 21 200 111
Prepaid expenses and accrued revenues 24 27 21
Total current receivables 3 380 3 122
Short-term investments 19 3 986 3 654
Liquid assets 37 1 766 2 762
Total current assets 10 261 10 714
Total assets 25 720 21 946
LIQUID ASSETS AND SHORT-TERM INVESTMENTS MSEKINVESTMENTS AND DEPRECIATION MSEK
Investments
Depreciation
70 | BALANCE SHEET – PARENT COMPANY | LKAB ANNUAL REPORT 2007
Balance Sheet – Parent Company
1 January – 31 December
MSEK Note 2007-12-31 2006-12-31
Shareholders’ equity and liabilities 1, 34
Shareholders’ equity
Restricted equity
Share capital (700,000 shares) 700 700
Statutory reserve 697 697
Non-restricted equity
Accumulated profit or loss 7 873 6 923
Net income for the year 3 214 3 053
Total shareholders’ equity 12 484 11 373
Untaxed reserves 36 8 743 6 455
Provisions
Provisions for pensions and similar commitments 27, 28 1 298 1 241
Other provisions 28 519 265
Total provisions 1 817 1 506
Long-term liabilities
Liabilities to Group companies 13 13
Total long-term liabilities 13 13
Current liabilities
Accounts payable – trade 1 032 916
Liabilities to Group companies 976 1 049
Current income tax liabilities 33 -
Other liabilities 74 112
Accrued expenses and prepaid revenues 29 548 522
Total current liabilities 2 663 2 599
Total shareholders’ equity and liabilities 25 720 21 946
Pledged assets and contingent liabilities – Parent Company
As of 31 December
MSEK Note 2007-12-31 2006-12-31
Assets pledged 33 227 166
Contingent liabilities 33 169 160
LKAB ANNUAL REPORT 2007 | COMPILATIONS OF CHANGES IN SHAREHOLDERS’ EQUITY – PARENT COMPANY | 71
Compilations of changes in shareholders’ equity – Parent Company
see Note 25 Restricted equity Non-restricted equity
Share Statutory Accumulated Net income Total share-
MSEK capital reserve profit or loss for the year holders’ equity
Opening balance 1 January 2006 700 697 8 471 9 868
Group contribution -80 -80
Group contribution received 13 13
Tax (net) 19 19
Net income recognized directly
in equity, excluding transactions
with the Company’s owners -48 -48
Net income for the year 3 053 3 053
Net income excluding transactions with
the Company’s owners -48 3 053 3 005
Dividends -1 500 -1 500
Shareholders’ equity 31 December 2006 700 697 6 923 3 053 11 373
Restricted equity Non-restricted equity
Share Statutory Accumulated Net income Total share-
MSEK capital reserve profit or loss for the year holders’ equity
Opening balance 1 January 2007 700 697 9 976 11 373
Group contribution -143 -143
Tax (net) 40 40
Net income recognized directly
in equity, excluding transactions
with the Company’s owners -103 -103
Net income for the year 3 214 3 214
Net income excluding transactions with
the Company’s owners -103 3 214 3 111
Dividends -2 000 -2 000
Shareholders’ equity 31 December 2007 700 697 7 873 3 214 12 484
02 03 04 05 06 07
100
80
60
40
20
0
SOLIDITY %
72 | STATEMENT OF CASH FLOW – PARENT COMPANY | LKAB ANNUAL REPORT 2007
Statement of Cash Flow – Parent Company (indirect method)
1 January – 31 December
MSEK Note 2007 2006
1, 37
Operating activities
Profit after financial items 6 547 6 188
Adjustments for items not included in cash flow, etc. 1 058 385
Income tax paid -577 -1 450
Cash flow from operating activities before change in working capital 7 028 5 123
Cash flow from changes in working capital
Increase (-)/Decrease (+) of inventories 47 -183
Increase (-)/Decrease (+) in operating receivables -652 -88
Increase (-)/Decrease (+) in operating liabilities 31 332
Cash flow from operating activities 6 454 5 184
Investing activities
Acquisition of tangible assets -5 448 -4 642
Disposal of tangible assets 239 677
Acquisition of minority interest - -5
New share issue, subsidiary - -163
Disposal of financial assets 174 105
Change in long-term receivables 60 17
Divestments/acquisitions (net) in short-term investments -332 220
Cash flow from investing activities -5 307 -3 791
Financing activities
Dividends paid -2 000 -1 500
Group contribution received - 13
Group contribution -143 -80
Cash flow from financing activities -2 143 -1 567
Cash flow for the year -996 -174
Liquid assets at the beginning of the year 2 762 2 936
Liquid assets at year-end 1 766 2 762
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 73
Notes to the financial statements
(a) Conformity with norms and legislation
The consolidated financial 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 Interpreta-
tions Committee (IFRIC) as approved by the European Commission for
application within the EU. In addition, Swedish Financial Accounting
Standards Council (SFASC) recommendation RR 30:06 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 Com-
pany and Group accounting principles arise from the limitations in apply-
ing IFRS in the Parent Company as a result of the Swedish Annual Report
Act and the Swedish Act on Safeguarding of Pension Commitments, and
in certain cases for tax reasons.
The Annual Report and consolidated financial statements have, as
stated above, been approved for publication by the Board of Directors on
12 March 2008. 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 22 April 2008.
(b) Conditions applying to the preparation of Parent Company and
Group financial reports
Assets and liabilities are stated at historical acquisition values, accept
for certain financial assets and liabilities that are reported at fair value.
Financial assets and liabilities stated at fair value consist of derivatives,
financial assets classified as financial assets reported at fair value in the
income statement, or as financial assets that can be sold.
(c) Functional currency and presentation currency
The Parent Company’s functional currency and the presentation currency
for the Group and Parent Company is the Swedish krona. Therefore, the
financial reports are presented in Swedish kronor. Unless otherwise indi-
cated, all amounts are rounded off to the nearest million kronor.
(d) Assessments and estimates in the financial reports
To present the financial 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. 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.
(e) Significant accounting principles
The Group accounting principles listed below have been consistently
applied to all periods presented in the Group’s financial reports, unless
otherwise stated below. Group accounting principles have been consis-
tently applied to the accounts and consolidation of subsidiaries, associa-
ted companies and joint venture companies.
(f) New IFRS applied
The following standards have been applied in the preparation of the 2007
financial reports:
Note 1 ACCOUNTING PRINCIPLES
IFRS 7 Financial Instruments: Financial Instruments: Disclosures, and
the Amendment to IAS 1 — Presentation of Financial Statements: Capi-
tal Disclosures, require increased disclosures about the significance of
financial instruments for an entity’s financial position and performance,
and qualitative and quantitative disclosures on the nature and extent
of risks. IFRS 7 and the related amendments to IAS 1, which become
mandatory for the Group’s 2007 financial statements, have required in-
creased additional disclosures with respect to the Group’s financial in-
struments and share capital.
The standard has not necessitated in change in accounting princip-
les, only changes in the disclosure requirement with respect to financial
instruments.
(g) New IFRS and interpretations not yet adopted
Several new standards, amendments to standards and pronouncements
on interpretations, which take effect as of fiscal year 2008, have not been
applied in the preparation of these financial statements. The respecti-
ve changes that are deemed to be applicable to LKAB are described
below.
IFRS 8 Operating Segments defines operating segments and speci-
fies which information regarding these should be disclosed in financial
reports. The standard is effective for annual periods beginning on or after
1 January 2009. Earlier adoption is permitted.
IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum
Funding. Requirements and their Interaction. This interpretation clarifies
when refunds or reductions in future contributions in relation to defined
benefit assets should be regarded as available. The interpretation is ef-
fective for annual periods beginning on or after 1 January 2008. Earlier
adoption is permitted.
IAS 1 (Revised) Presentation of Financial Statements outlines a num-
ber changes in the way financial statements are presented, as well as
non-manditory changes in some of the titles of the financial statements.
The change does not affect the determination of the amounts reported.
The revised IAS 1, which has not yet been adopted for application in the
EU, is effective for annual periods beginning on or after 1 January 2009.
Earlier adoption is permitted.
Revised IFRS 3 Business Combinations and amended IAS 27 Conso-
lidated and Separate Financial Statements entail changes with respect to
how acquisitions are reported, and changes in group financial reporting.
The revised standards, which have not yet been adopted for application
in the EU, are effective for annual periods beginning on or after 1 January
2009. Earlier adoption is permitted.
(h) Classification, 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 re-
covered or paid more than twelve months after the balance sheet date.
Fixed assets and short-term liabilities in the Parent Company and Group
consist for the most part solely of amounts that are expected to be reco-
vered or paid within twelve months after the balance sheet date.
(i) Segment reporting
In the accounts, a segment is an identifiable 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 ex-
posed to risks and opportunities that differ from those that apply to other
segments. The Group’s primary segments are lines of business. Segment
disclosures are reported in accordance with IAS 14 for the Group only.
74 | NOTES TO THE FINANCIAL STATEMENTS | LKAB ANNUAL REPORT 2007
(j) Consolidation principles
(i) Subsidiaries
Subsidiaries are companies in which the Parent Company exercises a
controlling influence over the operational and financial management.
Controlling influence implies a direct or indirect right to decide the
company’s financial and operative strategies with an aim to realizing
economic advantages. When assessing whether a decisive, controlling
influence 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
liabilities and contingent liabilities. For the Group, the acquisition value
is determined by an acquisition analysis at the time of the acquisition.
The analysis establishes the acquisition value of the shares or business,
and the fair value of acquired identifiable 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 di-
rectly attributable to the acquisition. Where the acquisition cost exceeds
the net value of acquired assets, assumed liabilities and contingent liabi-
lities, 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 financial reports are included in the consolidated ac-
counts as of the date of acquisition and are excluded from the consolida-
ted accounts as of the date the decisive influence no longer exists.
(ii) Associated companies
Shareholdings in associated companies in which the Group holds at least
20% but at most 50% of the voting rights or has a significant influence in
the operational and financial management, are reported according to the
acquisition cost method, where they are of little significance with respect
to the requirement of fair presentation.
The acquisition cost method implies that associated companies are
reported at acquisition value. In the owner company’s income statement,
revenue from the associated company includes only dividends received,
provided that they stem from profits earned after acquisition.
(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 financial
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, liabili-
ties, revenue and expenses, is reported in the Group’s balance sheet and
income statement. To do so, the joint owner’s share of assets, liabilities,
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 influence is obtained
until it ceases to exist.
(iv) Transactions to be eliminated on consolidation
Intra-group receivables and payables, revenue or expenses, and unreali-
zed profits or losses arising from intra-group transactions between sub-
sidiaries are eliminated in their entirety when the consolidated accounts
are prepared.
Unrealized profits arising from transactions with 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 profits, but only if there is no indication
that a write-down is required.
(i) 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 compa-
nies operate. Monetary assets and liabilities in foreign currency are trans-
lated to the functional currency at the rate prevailing on the balance sheet
date. Exchange rate differences resulting from translations are reported
in the income statement. Non-monetary assets and liabilities reported at
their historical acquisition value are translated at the exchange rate app-
lying 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.
(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 kro-
nor at the average rate that constitutes an approximation of the rates
applying when the transaction occurred. Differences that arise when
translating currency in foreign entities are reported immediately in share-
holders’ equity as a translation reserve.
(j) Revenue
(i) Sale of goods and rendering of services
Revenue from the sale of goods is reported in the income statement
when significant risks or benefits 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
benefit will not accrue to the Group. If there is considerable uncertainty
as to payment, associated costs or risk of returns, and if the seller retains
the controlling interest that is normally associated with ownership, no
revenue is recognized.
(ii) Revenue from the sale of property
Unless the risks and benefits associated with ownership have been trans-
ferred 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 benefits, and controlling interest in the
management of the asset. In addition, consideration is given to circums-
tances 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.
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 75
(iv) Government grants
Government grants are recognized on the balance sheet as deferred in-
come 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.
(m) Leasing
(i) Operating leases
Costs associated with operating leases are recognized in the income
statement on a straight-line method over the term of the lease. Benefits
received upon entering a leasing agreement are recognized in the income
statement on a straight-line method over the term of the lease. Variable
fees are expensed in the period in which they arise.
(n) Financial revenue and expenses
Financial revenue and expenses include interest revenue from bank as-
sets, receivables and interest-bearing securities, interest expenses rela-
ted to loans, interest expense on defined-benefit plans, dividend revenue,
unrealized and realized gains on financial investments, and derivative in-
struments used in financial 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 receipts
or payments through the expected life of a financial instrument is the
same as the reported value of the receivable or payable.
Interest revenue and interest expense, respectively, includes perio-
dized amounts of transaction expenses and discounts, premiums and
other variations between the original value of the receivable, or the liabi-
lity, and the amount received or regulated on maturity.
Dividend income is recognized as revenue when the right to obtain
payment is certain.
Revenue from the sale of financial instruments is reported in the inco-
me statement when significant risks or benefits associated with owner-
ship of the instrument has been transferred to the buyer and the Group
no longer exercises control over the instrument.
The Group and Parent Company do not include capitalized interest in
the acquisition value of assets.
Exchange rate gains and losses are reported on a net basis.
(m) 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
based 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
goodwill is first 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 associa-
ted 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.
(n) Financial instruments
Financial instruments reported as assets on the balance sheet include,
on the assets side, liquid assets, accounts receivable, financial invest-
ments, credit claims and derivatives. Liabilities include accounts payable,
borrowing and derivatives.
Recognition and derecognition
A financial asset or financial liability is entered on the balance sheet when
the company becomes a party to the contractual provisions of the in-
strument. Accounts receivable are entered on the balance sheet when
an invoice has been issued. Liabilities 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 financial 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 financial asset. A financial
liability is removed from the balance sheet when the undertakings in the
agreement have been fulfilled or extinguished. The same applies for a
portion of a financial liability.
A financial asset and a financial liability are offset and reported in the
balance sheet as a net amount only when there is a legal right to set off
the amount and an intention to adjust the items with a net amount or, at
the same time, realize the asset and settle the liability.
Acquisition and divestment of financial assets is recognized on the
trade day, i.e., the day upon which the company undertakes to acquire
or dispose of the asset, except in cases when the company acquires or
divests listed securities when settlement date reporting is applied.
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 fluctuations in value.
Classification and measurement
Financial instruments that are not derivatives are initially recognized at
an acquisition value corresponding to the fair value of the instrument
plus transaction expenses for all financial instruments, except those in-
struments categorised as financial assets reported at their fair value in
the income statement, which are reported at their fair value excluding
transaction expenses. A financial instrument is classified on initial re-
cognition based on the purpose for which the instrument was acquired.
Classification determines how the financial instrument is measured after
the initial recognition, as described below.
Derivatives are initially recognized at fair value, implying that the
transaction costs are recognized in the income statement for the pe-
riod. After the initial recognition, the derivative is recognized in the man-
ner described below. 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 ac-
counting is not applied, increases or decreases in the value of the deriva-
tive are reported as income or expense, respectively, within the operating
76 | NOTES TO THE FINANCIAL STATEMENTS | LKAB ANNUAL REPORT 2007
profit/loss or net financial income/expense, based on the intended use
of the derivative instrument and whether that use relates to an operating
item or to a financial item. In hedge accounting, the ineffective part is
reported in the same way as fluctuations in the value of derivatives that
are not used in hedge accounting.
Financial assets recognized at fair value in the income statement
This category consists of two sub-groups: financial assets held for tra-
ding and other financial assets that the company initially decided to in-
vest in this category (according to the so-called Fair Value Option). Finan-
cial instruments in this category are measured at fair value and changes
in fair value are recognized in the income statement. Derivatives with a
positive fair value, with the exception of derivatives that are an identified
and effective hedging instrument, are included in the first sub-group.
Loans and receivables
Loans and receivable are non-derivative financial assets with fixed pay-
ments or determinable payments, which are not quoted on an active
market. Assets in this category are valued at the accrued acquisition va-
lue. Accrued acquisition value is determined based on the effective rate
of interest calculated on acquisition. Accounts receivable are reported in
the amount at which they are expected to be received, less a deduction
for bad debts.
Financial assets held for sale
The available-for-sale category includes financial assets that are not clas-
sified in any other category or financial assets that the company initially
classified in this category. Shares in subsidiaries, and holdings in as-
sociated companies and joint ventures are recognized here. Assets in
this category are valued continuously at fair value, with changes in value
reported against shareholders’ equity, with the exception of assets that
depend on impairment losses, interest on debt instruments and dividend
income or exchange rate differences on monetary items which are recog-
nized in the income statement. 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.
Financial assets recognized at fair value in the income statement
Derivatives with a negative fair value, with the exception of derivatives
that are an identified and effective hedging instrument, are included in
this category. Change in fair value is reported in the income statement.
Other financial liabilities
Loans and other financial liabilities, e.g., accounts payable, are included
in this category. Liabilities are valued at accrued acquisition value.
(o) Derivatives and hedge accounting
The Group’s derivative instruments have been acquired to safeguard
against the interest rate and exchange rate risks to which the Group is
exposed. An embedded derivative is recognized separately unless it is
closely related to the host contract. Derivatives are initially recognized
at fair value, implying that the transaction costs are recognized in the
income statement for the period. After the initial recognition, derivative
instruments are recognized at fair value and changes in value are recog-
nized as described below.
To comply with IAS 39 requirements concerning hedge accounting,
there must be a clear link between the hedging instrument and the cor-
responding hedged item. Furthermore, the hedging instrument must ef-
fectively 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.
Cash-flow hedges
The derivative instruments used to hedge future cash flows are recogni-
zed in the balance sheet at fair value. Changes in value are reported in
a hedging reserve directly against shareholders’ equity until the hedged
flow 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 profit/loss effects of the hedged trans-
action. The hedged flows can be both contracted and forecast trans-
actions.
(p) Tangible assets and investment properties
(i) Owned assets
Tangible assets are reported as assets on the balance sheet if it is likely
that future financial benefits 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
fulfil 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 expsenses, 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 trea-
ted 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, construction
pertaining to transport and maintenance functions such as railways, ro-
ads, tunnels, shafts, inclined drifts (a system of access for vehicle traffic
from surface level to the work site underground), and facilities for service
and electrical and air supply. These expenses, refering to plant that inten-
ded to be used for more than a year, are activated on the balance sheet.
The depreciation period is based on an assessment of the useful life of
the respective asset. 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, haulage and hoisting of the ore. Expenses for
these activities have a useful life of at most one year, which is why they
are expensed on a current basis.
(iii) Prospecting and evaluation work
Greater knowledge of the extent of the iron deposits is necessary to
secure access to more ore and ensure the future development of opera-
tions in the Mining Division. Through exploration drilling, mainly via drifts
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 77
adjacent to the orebody, the orebody is surveyed and defined. Explora-
tion of the ore deposists, in both exisiting and future areas of the mines,
is expensed. This principle is also applied with respect to areas outside
the existing mines.
Mining rights acquired within the Minerals Division are reported as
intangible assets and written down over the estimated economic life of
the assets. To a lesser extent, evaluation of mineral assets is carried out,
mainly to provide a basis for a so-called mine plan.
(iv) 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 ac-
cording to the principles described under the section on revenue recog-
nition.
(v) Leased assets
The LKAB Group applies IAS 17. Leases are classified in the consolida-
ted accounts as either finance leases or operating leases. A lease that
transfers substantially all the risks and rewards of ownership to the les-
see is classified as a finance lease. Otherwise, the lease is classified as
an operating lease.
All of the Group’s leasing agreements are classified as operational.
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.
(vi) Additional expenditures
Additional expenditures are added to the acquisition value if it is probable
that future economic benefit associated with the asset will accrue to the
company, and if the 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
identified components of the asset, or parts thereof, whereupon such ex-
penditures are capitalized. In cases where a new component is created,
the expenditure is also added to the acquisition value. Any undepreciated
reported values on replaced components, or parts thereof, are retired
and expensed in connection with the replacement. Repairs are expensed
on a current basis.
(vii) 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 de-
preciation.
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 classified mainly as buildings, land improve-
ments and land. Buildings and land improvements consist of several
components that are classified on the basis of function; e.g., roads, sur-
facing, service facilities, processing plants, etc.
Investment properties consist of several components that differ with
respect to useful life. The main classifications 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 identified 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 finishing 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.
(q) Intangible assets
(i) Goodwill
Goodwill represents the difference between the acquisition value of a
business acquisition and the fair value of the identifiable 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 ac-
quisition value corresponding to the value reported according to accoun-
ting principles applied earlier. Classification and reporting of business
acquisitions made prior to 1 January 2004 have not been reassessed
according to IFRS 3 when preparing the Group’s opening balance per 1
January 2004 according to IFRS.
Goodwill is valued at the acquisition value less any accumulated
write-downs. Goodwill is broken down into cash-generating units and is
tested annually for impairment.
Where the acquisition cost is less than the net value of acquired as-
sets, assumed liabilities and contingent liabilities, the difference is repor-
ted directly in the income statement.
(ii) Research and development
Expenditures for research aimed at acquiring new scientific 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 pro-
duct or process is technically and commercially viable and the company
has sufficient resources to complete the development and subsequently
use or sell the intangible asset. Other expenditures for development are
reported in the income statement as expenses in the period in which they
are incurred. LKAB therefore expenses all expenditures for development
as they arise.
(iii) Other intangible assets
Other intangible assets, for example, software, 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 benefits for the specific asset to which they pertain. All other
expenditures are expensed as they arise.
78 | NOTES TO THE FINANCIAL STATEMENTS | LKAB ANNUAL REPORT 2007
(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 Provisions
and Other liabilities. Settlement is made annually and any deficit is repor-
ted as accrued expense.
(vi) Depreciation principles
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 indeterminant
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
- Customer-related intangible assets 3 - 5 years
- Software 5 years
(r) Inventories, etc.
Inventories are valuated at the lower of acquisition value or net realizable
value/net selling price. Acquisition value of other inventories is calculated
on the basis of the first-in, first-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.
Net selling price is the estimated selling price (realizable value) in cur-
rent operations, after deductions for estimated costs of completion and
for realizing a sale.
(s) Write-downs
Reported values for the Group’s assets are checked on each balance
sheet date to ascertain whether any write-down need is indicated. IAS
36 is applied in impairment testing for assets other than financial assets,
which are tested in accordance with IAS 39, inventories, managed as-
sets used to finance employee benefits and deferred tax assets. For the
exceptional assets mentioned above, assessment is done according to
the respective standard.
Write-downs of tangible and intangible assets and holdings in subsidia-
ries,
associated companies and joint ventures, etc.
If a need for write-down is indicated, the recoverable amount of the as-
set is calculated in accordance with IAS 36 (see below). For goodwill and
other intangible assets with indeterminate useful life, and intangible as-
sets that are not yet ready for use, the recoverable amount is calculated
annually. If largely independent cash flows 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 flows can be identified (a so-called cash-generating unit).
A write-down is reported when an asset or cash-generating unit’s
(group of units) reported value exceeds its recoverable value. A write-
down is charged to the income statement. Write-down of assets att-
ributable to a cash-generating unit (group of units) is first allocated to
goodwill. Subsequently, a proportionate write-down of other assets in the
unit (group of units) is done.
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 flows are discounted to their present value
using a pre-tax discount rate that reflects risk-free interest and the risks
specific to the asset.
Write-down of financial assets
On each reporting occasion, the company assesses whether there are
objective indications that a financial asset or group of financial assets
needs to be written down. Objective evidence constitutes observable
events that have an adverse impact on the potential to recover the
purchase cost, and a significant or long-term decrease in the fair value of
a component of a financial investment classified as an available-for-sale
financial asset.
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 flows, discounted at the original effective inte-
rest rate (i.e., the effective interest rate computed at initial recognition
of these financial assets). Receivables with a short duration are not dis-
counted. A write-down is charged to the income statement.
Reversal of write-downs
A write-down is reversed if there is an indication that impairment is no
longer necessary, and there has been a change in the assumptions which
formed the basis of the recoverable amount calculation. However, im-
pairment of goodwill is never reversed. A reversal is only made to the
extent that the asset’s carrying amount after reversal does not exceed
the carrying amount that the asset would have had, with a deduction for
amortization, if no write-down had been carried out.
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 re-
cognized.
Write-downs of equity instruments classified as available-for-sale fi-
nancial assets, which have previously been charged in the income state-
ment, may not subsequently be reversed through the income statement.
The written-down value is the value on which subsequent revaluations
are based, which are charged directly to equity. Write-downs of interest-
bearing instruments classified as available-for-sale financial assets are
reversed through the income statement if the fair value increases and the
increase can objectively be attributed to an event which occurred after
the write-down was carried out.
(t) Shareholders’ equity
(i) Dividends
Dividends are recognized as a liability after they have been approved by
the Annual General Meeting.
(u) Earnings per share
Profit per share is calculated from Group profit for the year attributable to
Parent Company shareholders and from the weighted average number of
shares outstanding during the year.
(v) Employee benefits
(i) Defined-contribution pension plans
The company’s obligations concerning contributions to defined-contri-
bution plans are recognized as a cost in the income statement as they
are earned by the employees performing work for the company during
the period.
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 79
(ii) Defined-benefit plans
The Group’s net obligation for defined benefit 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 first-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 qualified
actuary using the projected unit credit method. In addition, the fair value
of plan assets as per closing day is calculated.
Actuarial gains and losses may arise when the present value and the
fair value of plan assets are determined. These arise either as a result of
outcomes deviating from actuarial assumptions or revisions to actuarial
assumptions. The corridor approach is applied. This means that the por-
tion 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.
Pension provisions and similar commitments appearing on the ba-
lance sheet equal the commitment’s present value at fiscal year-end, less
the fair value of plan assets, unreported actuarial gains or losses as well
as unreported costs related to employment from earlier periods.
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 the compensation in a plan
improves, the portion of the increased compensation attributable to the
employees’ services in previous periods is expensed through the income
statement on a straight-line basis over the average period until the com-
pensation is fully vested. If the compensation is fully vested, an expense
is recognized directly through the income statement.
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.
Net financial income/expense also includes the net interest of pen-
sion provisions and expected yield from associated plan assets. Other
components are reported in the income statement.
(iii) Short-term benefits
When an employee has rendered service to an entity during an accounting
period, the entity shall recognize the undiscounted amount of short-term
employee benefits expected to be paid in exchange for that service.
A provision is recognized for the expected cost of profit-sharing or
bonus payments when the Group has a legal or informal obligation to
make such payments as a result of the service being rendered by the
employees and a reliable estimate of the amount can be made.
(x) 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 outflow 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 estimated
by discounting the forecast future cash flow at a pre-tax interest rate that
reflects 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 ope-
rating losses.
(ii) Remediation expenses
Provision for remediation expenses is made when the Group has a legal
or infoprmal obligation; for example, when the Environmental Court re-
quires a financial guarantee for expanded operations.
(y) Contingent liabilities
A contingent liability is reported if there is a possible commitment stem-
ming from events whose occurrence is dependent on one or more un-
certain 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 outflow
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 32:06 Reporting for Legal
Entities. Statements issued by the Swedish Financial Accounting Stan-
dards Council’s Emerging Issues Task Force for publicly listed companies
are also applied. RR 32:06 entails that the Parent Company in preparing
the annual accounts for the legal entity shall apply all IFRS and state-
ments approved by the European Union as far as possible within the
framework of the Swedish Annual Report Act and taking into account
the relationship between reporting and taxation. The recommendation
states the exceptions and supplements that shall be made with respect
to the IFRS.
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 financial 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 acqui-
sition cost method. Revenue includes only dividends received, provided
that they stem from profits earned after acquisition. Dividends exceeding
those earnings are considered a repayment of the investment and reduce
the carrying value of the shares.
Financial instruments
Owing to a change in rules in RR 32 and taking into account the rela-
tionship between reporting and taxation, the rules referring to financial
instruments and hedge accounting in IAS 39 are not applied in the Pa-
rent Company as a legal entity. However, what has been written above
in respect of financial instruments also applies to the Parent Company.
Financial fixed assets are valued in the Parent Company at acquisition
value less write-down, and financial current assets are valued at the lo-
wer of cost or net realizable value. 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 unrea-
lized losses. Surplus losses are reported as reduction in interest income.
Surplus gains are not reported.
Liabilities are valued at accrued acquisition value.
80 | NOTES TO THE FINANCIAL STATEMENTS | LKAB ANNUAL REPORT 2007
Derivatives and hedge accounting
Currency exposure with respect to future forecasted flows is hedged
either via forward exchange contracts or currency options. Forward ex-
change contracts or currency options that protect the forecasted flow are
not reported on the balance sheet. Changes in value in forward contracts
are reported in the same period as the forecasted flow occurs.
The hedged volume in US dollars is matched against the estimated
net inflow of US dollars. If the hedged volume exceeds the value of the
expected net inflow and there is an unrealized exchange loss, it is recog-
nized as a financial expense. If there is an unrealized exchange gain, it
is not reported.
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.
Financial guarantees
The Parent Company’s financial guarantee agreements mainly con-
sist of guarantees to the benefit of subsidiaries. The financial guarantee
agreements imply that the company has a commitment to remunerate
the bearer of a debt instrument for losses incurred as a result of the
failure of a given debtor to make full payment on due date in accordance
with the terms of the agreement. The Parent Company applies one of
the relief rules permitted by SFASC, compared with the rules in IAS 39,
to its reporting of financial guarantee agreements to the benefit of sub-
sidiaries. Financial guarantee agreements are reported as a provision in
the balance sheet when the Parent Company has an obligation for which
settlement will probably require payment.
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 financial reports.
Intangible assets
Research and development
In the Parent Company, all development expenditures are reported as
expenses in the income statement.
Employee benefits
Defined-benefit plans
In the Parent Company, principles other than those described in IAS 39
are applied when calculating defined-benefit plans. The Parent Compa-
ny 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 defined-benefit 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 con¬tributions
in accordance with pronouncement issued by the SFASC Emerging Is-
sues Task Force. Shareholder contribu¬tions are taken directly to share-
holders’ equity by the receiver and capitalized in the shares and partici-
pations by the giver, to the extent that no write-down is required. Group
contributions are reported based on their economic significance. This
means that group contributions rendered for the purpose of minimizing
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 di-
vidend. This means that Group contributions received and the effect on
current tax are recognized through profit or loss. Group contributions
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.
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 81
Lines of business
Group Special
Mining Division Minerals Division Businesses Eliminations Group
MSEK 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006
External revenue 14 075 12 462 2 063 1 920 247 233 16 385 14 615
Intra-Group revenue 207 114 99 180 454 367 -760 -661
Total revenue 14 282 12 576 2 162 2 100 701 600 -760 -661 16 385 14 615
Operating income per line of business 6 031 6 038 38 134 52 98 6 121 6 270
Consolidation adjustments 27 -14
Operating income 6 148 6 256
Net financial income/expense 196 126
Income before tax 6 344 6 382
Tax -1 665 -1 785
Net income for the year 4 679 4 597
Assets 21 189 14 846 1 488 1 612 929 747 -2 337 -928 21 269 16 277
Unallocated assets 8 411 9 588
Total assets 29 680 25 865
Liabilities 5 023 4 542 1 184 958 307 201 -1 720 -1 547 4 794 4 154
Unallocated liabilities 2 635 2 635
Total liabilities 7 429 6 789
Capital expenditures *) 5 858 4 650 72 172 38 29 5 968 4 851
Depreciation 1 115 948 35 30 19 19 1 169 997
Write-downs 95 95
*) efers to tangible and intangible assets
Note 3 SEGMENT REPORTING
Segments are set up for the Group’s lines of business and geographic
regions. The Group’s reporting system is designed to track the rate of
return on the Group’s goods and services, due to which business seg-
ments (lines of business) 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 financial income/expense and
tax expenses. Unallocated assets and liabilities include income tax re-
ceivables and payables, financial investments and financial liabilities. The
segments’ investments in intangible and tangible fixed assets include
all investments with the exception of those in short-term inventory and
inventory of minor value.
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 develops, produces and markets industrial mineral
products for several application areas and customers in many dif-
ferent 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
fixed assets during the period are based on the geographic areas and are
grouped on the basis of where the assets are located.
Note 2 REVENUE DISTRIBUTION
Group Parent Company
MSEK 2007 2006 2007 2006
Net sales:
Sale of goods – iron ore 14 075 12 462 14 193 12 572
Sale of goods – industrial minerals 2 063 1 920
Other 247 233
Total 16 385 14 615 14 193 12 572
82 | NOTES TO THE FINANCIAL STATEMENTS | LKAB ANNUAL REPORT 2007
Note 3 SEGMENT REPORTING (cont.)
Lines of business (cont.)
Parent Company Special
Mining Division Minerals Division Businesses Parent Company
MSEK 2007 2006 2007 2006 2007 2006 2007 2006
Net sales 14 193 12 572 14 193 12 572
Parent Company
Europe Asia Rest of world Parent Company
MSEK 2007 2006 2007 2006 2007 2006 2007 2006
Net sales 10 302 9 408 2 664 2 119 1 227 1 045 14 193 12 572
Geographic areas
Group
Europe Asia Rest of world Group
MSEK 2007 2006 2007 2006 2007 2006 2007 2006
External revenue 11 729 10 731 3 381 2 681 1 275 1 203 16 385 14 615
Assets 25 094 19 585 186 172 31 51 25 311 19 808
Eliminations -4 042 -3 531
Unallocated assets 8 411 9 588
Total assets 29 680 25 865
Capital expenditures *) 5 967 4 846 1 4 0 1 5 968 4 851
*) refers to tangible and intangible assets
Note 4 OTHER OPERATING REVENUES
Group
MSEK 2007 2006
Rental revenue, investment properties 121 116
Gain on sale of tangible assets 2 43
Exchange rate gains on receivables/liabilities of an operating nature 18 29
Other 58 163
199 351
Parent Company
MSEK 2007 2006
Gain on sale of tangible assets 2 53
Exchange rate gains on receivables/liabilities of an operating nature 10 28
Insurance compensation 47 -
Rental and leasing incomes 21 18
Other 134 193
214 292
Note 5 OTHER OPERATING EXPENSES
Group Parent Company
MSEK 2007 2006 2007 2006
Exchange rate gains on receivables/liabilities of an operating nature 21 62 11 58
Property expenses, investment properties 88 84
Loss on sale of fixed assets 6
Other 73 182 95 100
188 328 106 211
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 83
Note 6 EMPLOYEES AND PERSONNEL COSTS
Average number of employees
2007 of which of which 2006 of which of which
women men women men
Parent Company
Sweden 2 865 12 % 88 % 2 752 11 % 89 %
Norway 173 12 % 88 %
Total, Parent Company 2 865 12 % 88 % 2 925 11 % 89 %
Subsidiaries
Sweden 375 11 % 89 % 364 10 % 90 %
China 88 12 % 88 % 57 18 % 82 %
The Netherlands 22 27 % 73 % 21 24 % 76 %
Norway 251 8 % 92 % 77 3 % 97 %
UK 214 19 % 81 % 238 17 % 83 %
Germany 15 53 % 47 % 18 61 % 39 %
Other countries 55 31 % 69 % 37 30 % 70 %
Total in subsidiaries 1 020 14 % 86 % 812 14 % 86 %
Group total 3 885 12 % 88 % 3 737 12 % 88 %
Gender distribution in corporate management
2007 2007 2006 2006
Share of Share of Share of Share of
women Men women Men
Parent Company
Board of Directors 20 % 80 % 27 % 73 %
Other senior executives 0 % 100 % 0 % 100 %
Group total
Board of Directors 9 % 91 % 3 % 97 %
Other senior executives 0 % 100 % 0 % 100 %
Salaries and other remuneration by country, senior executives and other employees
Parent Company 2007 2006
Senior Senior
executives Other executives Other
(24 people) employees Total (23 people) employees Total
Salaries and other remuneration
Sweden 20 1 160 1 180 19 1 053 1 073
(of which variable remuneration/incentive schemes) (1) (60) (61) (1) (39) (40)
Norway 99 99
(of which variable remuneration/incentive schemes) (4) (4)
Parent Company, total 20 1 160 1 180 19 1 152 1 172
(of which variable remuneration/incentive schemes) (1) (60) (61) (1) (43) (44)
Social security expenses 1) 602 5371) of which pension expenses 208 157
Salaries and other remuneration, pension expenses and pension commitments for senior executives in the Group
Group Senior Senior
executives executives
(42 people) (41 people)
Salaries and other remuneration 45 45
(of which bonuses and similar) (2) (2)
Pension expenses 33 38
Pension commitments 124 100
84 | NOTES TO THE FINANCIAL STATEMENTS | LKAB ANNUAL REPORT 2007
Note 6 EMPLOYEES AND PERSONNEL COSTS (cont.)
Remuneration to senior executives
Senior executives
Senior executives include Board members, the President and other se-
nior executives. The group ‘other senior executives’ includes employees
who are members of Group Management together with the President.
Principles for remuneration to senior executives
Remuneration to the Chairman and Board members is decided by the
Annual General Meeting. In addition, remuneration for committee work
is paid out.
For remuneration to Group Management, the AGM has decided that
the Government’s October 2003 guidelines for employment terms for
employees in senior management positions and for incentive schemes
for employees of state-owned companies shall apply.
The preparation and decision process for establishing remunera-
tion to senior executives
Compensation for the President as well as salary setting principles are
drafted and determined by a compensation committee that is appointed
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 information below in reference to the President refers to the former
President, Martin Ivert.
The President and eight other members of Group Management were
paid a fixed salary during 2007. Remuneration to the Vice President,
Market Division, is a combination of a fixed salary and variable remune-
ration. The variable remuneration amounts to a maximum of 50% of the
fixed 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 (defined according to ITP plan, and
free car benefit) 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 benefit-defined 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 (defined according to ITP plan) at the time of
retirement. The supplementary pension commitment is secured via en-
dowment 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 accrues
in its entirety to the President as increased pension.
The President is entitled to a period of notice of two years on termi-
nation by the company and six months on termination by the President.
No severance payments are made.
For five people in the group ’other senior executives’, the retirement
age is 60 (2007) and one person in this group will retire at 58. Pension
is payable at 65 % of the pension-carrying salary (defined according to
ITP plan, and free car benefit) at the time of retirement for the period up
to the age of 65. The pension commitment is secured via endowment
insurance taken out by LKAB with an insurance company. The pension
commitment is benefit-defined 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 (defined
according to the ITP plan). The obligation above and beyond 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 accrues
in its entirety to the senior executives as increased pension.
For the senior executives (three persons) who were appointed to
Group Management after 2005, the retirement age is 62 years. In ad-
dition to pension benefits regulated by collective agreements (defined
according to ITP plan), 14-17% of basic annual salary is allocated as a
pension premium.
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.
Remuneration and benefits to Board members
2007 2006
Board Board
SEK ’000 fees *) fees
Chairman of the Board, Björn Sprängare 239 230
Board member, Christer Berggren 149 105
Board member, Stina Blombäck 109 105
Board member, Per-Ola Eriksson 109 105
Board member, Lars-Åke Helgesson 169 105
Board member, Anna-Greta Sjöberg 149 88
Board member, Ursula Tengelin 109 105
Board member, Egil M. Ullebö 109 105
Employee representatives (3 persons) 300 300
Employee representative deputies (3 persons) 201 201
Total 1 643 1 449
*) Remuneration includes fees for work on the Board’s audit committee.
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 85
Note 6 EMPLOYEES AND PERSONNEL COSTS (cont.)
Remuneration and other benefits to other senior executives
Variable Other Pension Pension
SEK ’000 Fixed salary remuneration benefits expense1) Total commitments
2007
President, Martin Ivert 3 903 83 5 288 9 274 37 903
Former President, Carl Ameln2) 472 472 30 429
Former Vice President, Håkan Sundin2) 320 320 11 476
Other senior executives (9 people) 14 895 692 540 20 982 37 109 32 924
Total 18 798 692 623 27 062 47 175 112 732
2006
President, Martin Ivert 3 915 86 11 083 15 084 34 087
Former President, Carl Ameln 2) 322 322 28 304
Former Vice President, Håkan Sundin 2) 66 194 260 12 297
Other senior executives (8 people) 14 028 723 609 19 522 34 882 21 443
Total 17 943 789 695 31 121 50 548 96 131
1) Pension expense includes special employer’s contribution (tax). 2) Pension expense refers mainly to change in pension commitments including future employer’s contribution (tax).
A summary of taxable remuneration and benefits, as well as pension expenses for the President and other senior executives is given below
(amounts in SEK ’000).
Remuneration and other benefits to senior executives in Group Management, 2007
Variable Other Pension
SEK ’000 Fixed salary remuneration benefits1) expense2) Total
President, Martin Ivert 3 903 83 4 288 8 274
VP Lars-Eric Aaro 2 108 73 1 402 3 583
VP Leif Boström 1 715 81 750 2 546
VP Anders Furbeck 1 745 58 989 2 792
VP Johan Heyden3) 292 - 34 326
VP Bengt Hjärpe3) 1 465 692 20 4 766 6 943
VP Jan-Erik Jatko 1 913 86 5 145 7 144
VP Ola Johnsson 2 150 69 1 830 4 049
VP Mats Pettersson 1 536 76 623 2 235
VP Per-Erik Lindvall 1 971 77 1 482 3 530
Total 18 798 692 623 21 309 41 422
1) Other benefits include allowances for car, food and life insurance benefits. 2) Pension expense excluding special employer’s contribution (tax).3) Only part of 2007.
SICK ABSENCE (in Parent Company, employees in Sweden only) 2007 2006
Total sick absence as percentage of regular working hours 3,4 % 4,1 %
Percentage of total sick leave related to extended absences of 60 days or more 49,1 % 54,0 %
Sick leave absences by gender:
Men 3,4 % 4,2 %
Women 3,6 % 3,0 %
Sick leave absences by age category:
29 years or younger 2,3 % 2,2 %
30-49 years 3,1 % 3,4 %
50 years or older 4,4 % 5,7 %
For information on post-employment benefits, etc., see Note 27 Employee benefits.
86 | NOTES TO THE FINANCIAL STATEMENTS | LKAB ANNUAL REPORT 2007
Note 7 AUDITORS’ FEES AND COMPENSATION
Group Parent Company
MSEK 2007 2006 2007 2006
KPMG
Audit assignments 5 5 3 2
Other assignments 6 5 4 4
Other auditors
Audit assignments 0 0 0 0
Audit assignments involve examination of the annual report and financial 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 examina-
tions or implementation of such other tasks. All other tasks are defined as other assignments.
Note 8 OPERATING EXPENSES BY NATURE OF EXPENSE
Group Parent Company
MSEK 2007 2006 2007 2006
Personnel costs 2 448 2 221 1 829 1 756
Materials, etc. 2 784 2 299 1 461 1 236
Energy 1 013 920 864 815
Transport costs 877 647 1 320 920
Depreciation 1 169 1 001 981 849
Write-downs 95
Other operating expenses 2 050 1 622 1 978 1 232
10 436 8 710 8 433 6 808
Note 9 NET FINANCIAL INCOME/EXPENSE
Group
MSEK 2007 2006
Interest income 216 107
Dividends 69 52
Other investments including derivatives
Capital gain on sales of financial assets held for sale 153 135
Change in value, market portfolios -91 204
Change in value, plan assets 55 49
net chChange from revaluation of financial assets 0 -1
Net exchange rate differences 79
Income from financial items 481 546
Interest rate component in forward exchange agreements -169 -200
Interest expense on defined-benefit plans -112 -106
Other interest expenses -5
Write-down of receivables in associated companies 0 0
Net exchange rate differences 0 -99
Other financial expenses -4 -10
Financial expenses -285 -420
Net financial income/expense 196 126
Interest income and similar income statement items include returns on money-market instruments and bonds amounting to MSEK 179 (73).
Capital gain on divestment of available-for-sale financial assets includes capital gains on the sale of subscription rights/shares in SSAB amounting to
MSEK 153 (99).
Change in value on market portfolios amounting to MSEK -91 (204) includes unrealized appreciation MSEK -212 (38).
Currency fluctuations, mainly with respect to the US dollar, have resulted in heavy exchange-rate losses during the year.
Other financial expenses consist mainly of bank and administration costs.
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 87
Note 9 NET FINANCIAL INCOME/EXPENSE (cont.)
Parent Company Income from participations Income from participations
in Group companies in associated companies
MSEK 2007 2006 2007 2006
Dividend 87 21
Write-downs 0 0
87 21 0 0
Parent Company Income from other Interest expense
securities and receivables and similar
held as fixed assets profit/loss items
MSEK 2007 2006 2007 2006
Interest income, Group companies 22 23 51 27
Interest income, other 205 103
Return on market portfolio 153 99 121 166
Dividends, shares 56 39 13 13
Write-down -1 -1 0
Exchange rate differences, foreign currency 61
230 160 451 309
In income from securities held as fixed assets, return on market portfolios refers to capital gains on redemption of shares in SSAB amounting to MSEK
153 (99). Dividends refer to dividends on holdings in SSAB.
Interest income and similar income statement items include returns on money-market instruments and bonds amounting to MSEK 179 (73). Return on
shares amounted to MSEK 121 (166).
Parent Company Interest expense and
similar profit/loss items
MSEK 2007 2006
Interest expenses, Group companies -22 -12
Interest expenses, pension liability -30 -34
Forward exchange discounts/premiums -139 -202
Interest expenses, other -1 -2
Exchange rate differences, foreign currency -98
Other -4 -10
-196 -358
Interest expenses on pension liabilities have been calculated at an interest rate of 4.4 (4.2)%. Other financial expenses consist mainly of bank and
administration costs.
Note 10 APPROPRIATIONS
Parent Company
MSEK 2007 2006
Difference between book depreciation and appreciation according to plan:
Underground installations 0 6
Buildings and land -6 8
Machinery and inventories -1 007 -580
Tax allocation reserve, provisions for the year -1 275 -1 400
Tax allocation reserve, reversal for the year 0 73
Total -2 288 -1 893
Deferred tax on appropriations amounted to MSEK -641 (-530). Deferred tax is only reported in the consolidated income statement.
88 | NOTES TO THE FINANCIAL STATEMENTS | LKAB ANNUAL REPORT 2007
Note 11 TAXES
Reported in income statement
Group
MSEK 2007 2006
Current tax expense (-)
Tax expense for the period -1 146 -1 238
Adjustment for taxes related to previous years 95 -29
-1 051 -1 267
Deferred tax expense (-)
Loss carryforwards - -13
Deferred tax related to temporary differences -614 -505
Total reported tax expense in Group -1 665 - 1 785
Parent Company
MSEK 2007 2006
Current tax expense (-)
Tax expense for the period -1 139 -1 203
Adjustment for taxes related to previous years 96 -26
-1 043 -1 229
Deferred tax expense (-)
Deferred tax related to temporary differences -2 -13
Total reported tax expense in Parent Company -1 045 - 1 242
Reconciliation of effective tax
Group
MSEK 2007 (%) 2007 2006 (%) 2006
Income before tax 6 344 6 382
Tax according to current tax rate for Parent Company 28,0 % -1 776 28,0 % -1 787
Non-deductible expenses 0,8 % -50 0,1 % -7
Tax-exempt income -1,5 % 98 -0,3 % 20
Tax related to previous years -1,5 % 95 0,5 % -29
Standard interest on tax allocation reserve 0,4 % -27 0,3 % -16
Other 0,0 % -5 -0,6 % 34
Reported effective tax rate 26,2 % -1 665 28,0 % -1 785
Parent Company
MSEK 2007(%) 2007 2006 (%) 2006
Income before tax 4 259 4 295
Tax according to current tax rate for Parent Company 28,0 % -1 193 28,0 % -1 203
Non-deductible expenses 0,3 % -11 0,1 % -4
Tax-exempt income -2,1 % 90 -0,4 % 18
Tax related to previous years -2,3 % 96 0,6 % -26
Standard interest on tax allocation reserve 0,6 % -27 0,4 % -16
Other % -0 0,2 % -11
Reported effective tax rate 24,5 % -1 045 28,9 % -1 242
Tax items reported directly in shareholders’ equity
Group
MSEK 2007 2006
Deferred tax attributable to financial assets held for sale 529 -209
Deferred tax attributable to forward exchange contracts 92 -256
Deferred tax, other - -54
621 -519
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 89
Not 11 TAXES (cont.)
Parent Company
MSEK 2007 2006
Tax on Group contributions paid 40 19
40 19
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 2007 2006 2007 2006 2007 2006
Buildings and land -15 -3 -15 -3
Machinery and inventories 17 27 -1 353 -1 029 -1 336 -1 002
Pension provisions 326 325 326 325
Tax allocation reserves -1 444 -1 094 -1 444 -1 094
Provisions for insurance claims -99 -99 -99 -99
Financial assets - -529 - -529
Forward exchange contracts -105 -190 -105 -190
Short-term investments 0 - - -59 0 -59
Loss carryforwards 17 16 17 16
Other, write-downs 26 26
Acquisitions, subsidiaries -7 -7
Other 2 2
Tax recoverable/liabilities -388 368 -3 023 -3 003 - 2 635 -2 635
Offset -388 -368 388 368
Tax recoverable/liabilities, net - - - 2 635 -2 635 - 2 635 -2 635
Reported deferred tax recoverable and liabilities
Deferred tax recoverable and liabilities refer to the following:
Parent Compan Deferred Deferred
tax recoverable tax liability Net
MSEK 2007 2006 2007 2006 2007 2006
Buildings and land 16 25 - - 16 25
Machinery and inventories 17 22 17 22
Pension provisions 172 163 - - 172 163
Other 6 3 - - 6 3
Taxes recoverable 211 213 - - 211 213
Change in deferred tax in temporary differences and loss carryforwards
Group
Reported in
Closing balance Reported in Shareholders’ Other Closing balance
MSEK 1 Jan. 2006 income statement equity changes 31 Dec. 2006
Buildings and land -12 9 -3
Machinery and inventories -747 -255 -1 002
Pension provisions 265 60 325
Tax allocation reserves -717 -377 -1 094
Provisions for insurance claims -99 -99
Financial assets -320 -209 -529
Forward exchange contracts 66 -256 -190
Short-term investments -49 -10 -59
Loss carryforwards 3 13 16
Other liabilities -1 1 -
Other 8 41 -54 5 -
-1 603 -518 -519 5 -2 635
90 | NOTES TO THE FINANCIAL STATEMENTS | LKAB ANNUAL REPORT 2007
Not 11 TAXES (cont.)
Reported in
Closing balance Reported in Shareholders’ Other Closing balance
MSEK 1 Jan. 2007 Income statement equity changes 31 Dec. 2007
Buildings and land -3 -12 -15
Machinery and inventories -1 002 -334 -1 336
Pension provisions 325 1 326
Tax allocation reserves -1 094 -350 -1 444
Provisions for insurance claims -99 -99
Financial assets -529 529 -
Forward exchange contracts -190 -7 92 -105
Short-term investments -59 59 0
Loss carryforwards 16 1 17
Other, acquisition subsidiaries - -7 -7
Other, write-downs - 26 26
Other - 2 2
-2 635 -614 621 -7 - 2 635
Parent Company
Closing balance Reported in Closing balance
MSEK 1 Jan. 2006 income statement 31 Dec. 2006
Buildings and land 23 2 25
Machinery and inventories 2 20 22
Pension provisions 200 -37 163
Other 1 2 3
226 -13 213
Closing balance Reported in Closing balance
MSEK 1 Jan. 2007 income statement 31 Dec. 2007
Buildings and land 25 -9 16
Machinery and inventories 22 -5 17
Pension provisions 163 9 172
Other 3 3 6
213 -2 211
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 91
Note 12 INTANGIBLE ASSETS
All of the Group’s intangible and fixed assets have been acquired.
Group
Mining Program-
MSEK Goodwill rights software Other Total
Accumulated acquisition values
Opening balance 1 Jan. 2006 235 281 136 652
Capital expenditures 5 7 12
Purchase of emissions rights 3 3
Disposal, emissions rights -58 -58
Reclassifications -35 -35
Exchange rate differences for the year -6 -5 -11
Closing balance 31 Dec. 2006 229 276 5 53 563
Opening balance 1 Jan. 2007 229 276 5 53 563
Capital expenditures 1 1
Disposal, emissions rights -29 -29
Exchange rate differences for the year 1 -3 -2
Closing balance 31 Dec. 2007 230 273 5 25 533
Accumulated amortization and write-downs
Opening balance 1 Jan. 2006 -1 -161 -13 -175
Write-downs for the year -1 -1
Reconciliation of emissions rights for the year -58 -58
Disposal, emissions rights 58 58
Closing balance 31 Dec. 2006 -1 -161 -14 -176
Opening balance 1 Jan. 2007 -1 -161 -14 -176
Depreciation/write-downs for the year -1 -1
Write-downs for the year -27 -27
Reconciliation of emissions rights for the year -29 -29
Disposal, emissions rights 29 29
Closing balance 31 Dec. 2007 -1 -188 -1 -14 -204
Reported values
1 Jan. 2006 234 120 123 477
31 Dec. 2006 228 115 5 39 387
1 Jan. 2007 228 115 5 39 387
31 Dec. 2007 229 85 4 11 329
Amortization and write-downs are reported in the following lines in the income statement
Group
MSEK 2007 2006
Cost of goods sold -28 -
-28 -
Reconciliation of emissions rights is reported in the following lines in the income statement
Group
MSEK 2007 2006
Cost of goods sold -29 -59
-29 -59
Income corresponding to the amount of the cost has reduced the cost of goods sold, see Note 28.
92 | NOTES TO THE FINANCIAL STATEMENTS | LKAB ANNUAL REPORT 2007
Note 12 INTANGIBLE ASSETS (cont.)
Parent Company
Mining Program-
MSEK rights software Other Total
Accumulated acquisition values
Opening balance 1 Jan. 2006 161 119 280
Investment 5 5
Purchase of emissions rights 3 3
Disposal, emissions rights -58 -58
Revaluation, emissions rights -35 -35
Closing balance 31 Dec. 2006 161 5 29 195
Opening balance 1 Jan. 2007 161 5 29 195
Investment 1 1
Disposal, emissions rights -29 -29
Closing balance 31 Dec. 2007 161 5 1 167
Accumulated amortization
Opening balance 1 Jan. 2006 -161 -161
Reconciliation of emissions rights for the year -58 -58
Disposal, emissions rights 58 58
Closing balance 31 Dec. 2006 -161 0 -161
Opening balance 1 Jan. 2007 -161 -161
Depreciation/write-downs for the year -1 -1
Reconciliation of emissions rights for the year -29 -29
Disposal, emissions rights 29 29
Closing balance 31 Dec. 2007 -161 -1 -162
Reported values
1 Jan. 2006 0 119 119
31 Dec. 2006 0 5 29 34
31 Dec. 2007 0 5 29 34
31 Dec. 2007 0 4 1 5
Reconciliation of emissions rights is reported in the following lines in the income statement
Group
MSEK 2007 2006
Cost of goods sold -29 -58
-29 -58
Income corresponding to the amount of the cost has reduced the cost of goods sold, see Note 28.
Write-down requirements for cash-generating units containing goodwill
The following cash-generating units, which are part of the primary segment Minerals Division, have significant goodwill values in relation to the Group’s
total reported goodwill value.
MSEK 2007 2006
Minelco Specialities Ltd 102 106
Minelco Minerals Ltd 44 45
Minelco OY 37 36
183 187
Units without significant goodwill value, compiled 46 41
229 228
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 93
Assessment of the recoverable amounts of cash-generating units is based on the same important principles.
Assessment of write-down requirement is based on value in use. This value is based on cash-flow forecasts where the first three years are based on the
three-year business plan established by the Minerals Division’s corporate management. The total forecast period corresponds to the useful life of the
unit’s most important assets. The cash flow forecast after the first 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 flows have been valuated at present value with a discount rate of 9% before tax. Important
assumptions with respect to the three-year business plan are described below.
Important variables Method of estimating value
Market share and growth Historically, demand for these products has kept pace with economic 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 inflation, certain real wage/salary increases
(historical average) and planned improvements in production efficiency (according to a fixed plan). The fore-
cast 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 of assets attributable to the cash-generating unit Minelco AS
Owing to revised cash-flow forecasts, an impairment test has been applied to the cash-generating unit Minelco AS.
The impairment test is based on value in use. This value is based on cash-flow forecasts over 20 years, of which the first five are based on the five-year
business plan established by the corporate management. The total forecast period (20 years) corresponds to the useful life of the unit’s most important
assets, mining rights. The cash-flow forecast after the first five years has been based on an annual growth rate of 2%, which corresponds to the long-
term growth rate of the unit’s markets. The forecast cash flows have been valuated at present value with a discount rate of 11% before tax. Important
assumptions with respect to the five-year plan, and the methods applied for estimating value, are as follows:
Key values Method of estimating value
Market share and growth Assumptions with respect to market shares for the five-year period are based on projected long-term growth.
The forecast is in agreement with previous experience and information from external sources. Market growth
is expected to follow the business cycle of the steel industry.
Olivine prices The five-year forecast is based on the assumption that olivine prices will keep pace with price trends for other
additives used in the steel industry.
Production costs The plan is based on experience of actual outcomes, projected inflation and planned efficiency improve-
ments.
Freight costs The forecast is based on a transition from the prevailing price and demand situation to expected long-term
development. The forecast agrees with information from external sources.
Impairment testing has resulted in a write-down of MSEK 94, distributed per asset class, in the table below. The write-down is reported in the income
statement among cost of goods sold, and is attributed in its entirety to the Minerals Division.
Write-down per asset class
Group Parent Company
SEK ’000 2007 2006 2007 2006
Asset class
Mining rights 27 - - -
Buildings 2 - - -
Machinery and inventories 65 - - -
94 - - -
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.
Note 12 INTANGIBLE ASSETS (cont.)
94 | NOTES TO THE FINANCIAL STATEMENTS | LKAB ANNUAL REPORT 2007
Note 13 TANGIBLE ASSETS
Group
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 2006 2 648 3 868 9 835 2 310 2 237 20 898
Acquisitions 534 39 925 58 3 288 4 844
Reclassifications 475 76 1219 22 -1 792
Disposals and retirements -14 -67 -20 -101
Exchange rate differences -7 -8 -5 -4 -24
Closing balance 31 December 2006 3 636 3 983 11 904 2 365 3 729 25 617
Opening balance 1 January 2007 3 636 3 983 11 904 2 365 3 729 25 617
Acquisitions 212 6 246 78 5 618 6 160
Reclassifications 49 85 149 18 -301
Disposals and retirements -9 0 -53 -14 -2 -78
Exchange rate differences 26 0 3 4 15 48
Closing balance 31 December 2007 3 914 4 074 12 249 2 451 9 059 31 747
Depreciation and write-downs
Opening balance 1 January 2006 -1 723 -2 548 -7 506 -1 193 -12 970
Depreciation for the year -71 -230 -539 -156 -996
Disposals and retirements 6 63 18 87
Exchange rate differences -1 6 3 8
Closing balance 31 December 2006 -1 789 -2 778 -7 976 -1 328 -13 871
Opening balance 1 January 2007 -1 789 -2 778 -7 976 -1 328 -13 871
Depreciation for the year -97 -255 -656 -160 -1 168
Write-downs for the year -2 -66 -68
Disposals and retirements 1 0 52 8 61
Exchange rate differences 1 0 2 -2 1
Closing balance 31 December 2007 -1 886 -3 033 -8 644 -1 482 -15 045
Reported values
1 January 2006 925 1 320 2 329 1 117 2 237 7 928
31 December 2006 1 847 1 205 3 929 1 037 3 729 11 746
1 January 2007 1 847 1 205 3 929 1 037 3 729 11 746
31 December 2007 2 028 1 041 3 605 969 9 059 16 702
Write-downs for the year attributable to Minelco AS. For further information, see Note 12.
Tax assessment value
Group 2007-12-31 2006-12-31
Tax assessment value, buildings (in Sweden) 1 056 683
Tax assessment value, land (in Sweden) 77 79
Depreciation and write-downs are included in the following lines in the income statement
Group, MSEK 2007 2006
Cost of goods sold 1 216 978
Selling expenses 3 3
Administrative expenses 8 6
Research and development 9 9
1 236 996
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 95
Note 13 TANGIBLE ASSETS (cont.)
Parent Company
Machines
and other Inventories,
Buildings Underground technical tools and Construction
MSEK and land installations plant progress installations in progress Total
Acquisition value
Opening balance 1 January 2006 2 211 3 868 9 442 527 2 141 18 189
Acquisitions 521 39 909 26 3 147 4 642
Reclassifications 474 76 1 203 19 -1 772
Disposals and retirements -301 -713 -37 -486 -1 537
Closing balance 31 December 2006 2 905 3 983 10 841 535 3 030 21 294
Opening balance 1 January 2007 2 905 3 983 10 841 535 3 030 21 294
Acquisitions 120 6 183 38 5 209 5 556
Reclassifications 45 85 132 17 -279 0
Disposals and retirements -5 -42 -5 -230 -282
Closing balance 31 December 2007 3 065 4 074 11 114 585 7 730 26 568
Depreciation
Opening balance 1 January 2006 -1 188 -2 149 -6 742 -384 -10 463
Depreciation for the year -62 -230 -517 -40 -849
Disposals and retirements 250 636 28 914
Closing balance 31 December 2006 -1 000 -2 379 -6 623 -396 -10 398
Opening balance 1 January 2007 -1 000 -2 379 -6 623 -396 -10 398
Depreciation for the year -87 -255 -600 -38 -980
Disposals and retirements 1 41 2 44
Closing balance 31 December 2007 -1 086 -2 634 -7 182 -432 -11 334
Write-downs
Opening balance 1 January 2006 -386 -399 -495 -9 -1 289
Disposals and retirements -1 -1
Closing balance 31 December 2006 -387 -399 -495 -9 -1 290
Opening balance 1 January 2007 -387 -399 -495 -9 -1 290
Disposals and retirements
Closing balance 31 December 2007 -387 -399 -495 -9 -1 290
Reported values
1 January 2006 637 1 320 2 205 134 2 141 6 437
31 December 2006 1 518 1 205 3 723 130 3 030 9 606
1 January 2007 1 518 1 205 3 723 130 3 030 9 606
31 December 2007 1 592 1 041 3 437 144 7 730 13 944
Tax assessment value
Parent Company (MSEK) 2007-12-31 2006-12-31
Tax assessment value, buildings (in Sweden) 983 591
Tax assessment value, land (in Sweden) 59 56
Depreciation is included in the following lines in the income statement:
Parent Company (MSEK) 2007 2006
Cost of goods sold 967 837
Administrative expenses 4 3
Research and development 9 8
980 849
96 | NOTES TO THE FINANCIAL STATEMENTS | LKAB ANNUAL REPORT 2007
Note 14 INVESTMENT PROPERTIES
Group
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 2007-12-31 2006-12-31
Accumulated fair values*)
At start of year 78 76
At year-end 163 78
Group
MSEK 2007-12-31 2006-12-31
Accumulated acquisition values
At start of year 299 294
Acquisition, subsidiaries 85
New acquisitions 8 5
392 299
Accumulated depreciation according to plan
At start of year -180 -175
Acquisition, subsidiaries -10
Accumulated depreciation for the year -5 -5
-195 -180
Reported value at end of period 197 119
*) Fair values are based on valuations by qualified, independent assessors who have current knowledge of property assessment principles relevant to
the type of property and locations in question.
Investment properties – effect on profit/loss for the period
Group
MSEK 2007-12-31 2006-12-31
Rental income 121 116
Direct costs associated with investment properties -88 -84
Tax assessment values – investment properties
Group
MSEK 2007-12-31 2006-12-31
Tax assessment values, buildings (in Sweden) 175 229
Tax assessment value, land (in Sweden) 30 56
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 97
Note 14 INVESTMENT PROPERTIES (cont.)
MParent 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 2007-12-31 2006-12-31
Accumulated fair values*)
At start of year 25 19
At year-end 61 25
*) Fair values are based on valuations by qualified, independent assessors who have current knowledge of property assessment principles relevant to
the type of property and locations in question.
Parent Company
MSEK 2007-12-31 2006-12-31
Accumulated acquisition values
At start of year 170 166
New acquisitions 30 4
200 170
Accumulated depreciation according to plan
At start of year -84 -81
Accumulated depreciation for the year -3 -3
-87 -84
Reported value at end of period 113 86
Investment properties – effect on profit/loss for the period
Parent Company
MSEK 2007-12-31 2006-12-31
Rental income 107 88
Direct costs associated with investment properties -77 -53
Tax assessment values – investment properties
Parent Company
MSEK 2007-12-31 2006-12-31
Tax assessment values, buildings (in Sweden) 160 153
Tax assessment value, land (in Sweden) 25 39
Note 15 PARTICIPATIONS IN ASSOCIATED COMPANIES
Group
MSEK 2007-12-31 2006-12-31
Reported value at start of year 1 4
Divestment of associated company -3
Reported value at year-end 1 1
The Parent Company’s holdings in associated companies are reported in Note 17.
98 | NOTES TO THE FINANCIAL STATEMENTS | LKAB ANNUAL REPORT 2007
Note 16 PARTICIPATIONS IN JOINT VENTURES
Group
The Group has a 50-percent interest in the joint venture company Likya Minelco, whose main products are minerals with flame retardant properties
(UltraCarb).
In the Group’s financial reports, the following items comprise the Group’s share of the joint venture company’s assets, liabilities, income and expenses.
MSEK 2007 2006
Net sales 8 1
Expenses -7 -3
Profit/loss 1 -2
Fixed assets 34 33
Current assets 5 2
Total assets 39 35
Current liabilities -4 -3
Long-term liabilities -2 -3
Total liabilities -6 -6
Net assets 33 29
Note 17 PARENT COMPANY’S PARTICIPATIONS IN ASSOCIATED COMPANIES
Parent Company
MSEK 2007-12-31 2006-12-31
Accumulated acquisition values
At start of year 2 2
Closing balance 31 December 2 2
Accumulated write-downs
At start of year -1 -1
Closing balance 31 December -1 -1
Reported value at year-end 1 1
Specification of the Parent Company’s direct ownership of participations in associated companies
2007 2006
Associate company Corp. ID Voting and equity Reported value Voting and equity Reported value
No. and registered office share in percent (MSEK) share in percent (MSEK)
Swedish associated companies
Progressum AB/556540-0768/Kiruna 42,8 0 42,8 0
Norrskenet AB/556537-7065/Kiruna 33,3 0,35 33,3 0,35
Expandum AB/556252-3281/Gällivare 33,3 0,17 33,3 0,17
MCC AB/556644-8295/Kiruna 33,3 0,20 33,3 0,20
Foreign associated companies
Futurum AS/-/Narvik, Norway 23,8 0 23,8 0
1 1
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 99
Note 18 RECEIVABLES FROM GROUP COMPANIES AND ASSOCIATED COMPANIES
Parent Company Receivables from Receivables from
Group companies associated companies
MSEK 2007-12-31 2006-12-31 2007-12-31 2006-12-31
Accumulated acquisition values
Opening balance 1 January 328 373 40 40
Net change -74 -45
Closing balance 31 December 254 328 40 40
Accumulated write-downs
Opening balance 1 January -5 -5
Closing balance 31 December 254 328 35 35
Reported value at year-end 254 328 35 35
Note 19 FINANCIAL INVESTMENTS
Group
MSEK 2007-12-31 2006-12-31
Financial investments that are tangible assets
Financial assets held for sale
Shares and participations 2 169 1 996
Financial assets attributable to reserves for pension commitments 178 139
2 347 2 135
Short-term investments that are current assets
Financial assets recognized at fair value in the income statement
Shares and participations 929 818
Interest-bearing securities 3 109 3 052
4 038 3 870
Financial investments that are tangible assets refer to shares in SSAB and are valuated at fair value as of 31 Dec. 2007 in accordance with IAS 39.
Parent Company 2007-12-31 2006-12-31
MSEK Market value Reported Market value Reported
Specification of securities or similar value or similar value
Money-market instruments 4 532 4 532 5 367 5 352
Listed shares/mutual funds 929 929 818 621
Transfer to liquid assets1) -1 475 -1 475 -2 319 -2 319
3 986 3 986 3 866 3 654
Short-term investments include both money market and stock market investments.1) Liquid assets include short-term investments (money-market instruments) that have been classified as liquid assets according to IAS 7.
100 | NOTES TO THE FINANCIAL STATEMENTS | LKAB ANNUAL REPORT 2007
Note 20 OTHER LONG-TERM SECURITIES HELD AS FIXED ASSETS
Parent Company
MSEK 2007-12-31 2006-12-31
Accumulated acquisition values
At start of year 105 110
Sales -20 -5
Closing balance 31 December 85 105
The change for the year of MSEK 20 refers mainly to redemption of subscription rights in SSAB.
Parent Company 2007-12-31 2006-12-31
MSEK Market value Reported Market value Reported
Specification of other long-term securities or similar value or similar value
SSAB 2 166 82 1 994 103
Other 3 3 2 2
2 169 85 1 996 105
Note 21 LONG-TERM RECEIVABLES AND OTHER RECEIVABLES
Group
MSEK 2007-12-31 2006-12-31
Long-term receivables that are tangible assets
Receivables from associated companies 35 35
Other 33 37
68 72
Other receivables that are current assets
Receivables from associated companies 1 1
PRI balance 16 15
VAT recoverable 69 88
Clearing account for taxes 96 -
Other 108 68
290 172
Parent Company
MSEK 2007-12-31 2006-12-31
Long-term receivables
Company-owned endowment insurance 116 102
Other 33 33
149 135
Other receivables (current)
PRI balance 16 15
VAT recoverable 69 88
Clearing account for taxes 96
Other 19 8
200 111
Parent Company
MSEK 2007-12-31 2006-12-31
Long-term receivables
Accumulated acquisition values
At start of year 135 107
Net change 14 28
Closing balance 31 December 149 135
Interest-free loan of MSEK 33 (33) to Banverket Is included.
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 101
Note 22 INVENTORIES, ETC.
Group
MSEK 2007-12-31 2006-12-31
Raw materials and consumables 961 791
Work in progress 82 215
Finished products and goods for resale 592 625
1 635 1 631
Cost of goods sold includes write-downs of MSEK 7 (6) on inventories.
The value of work in progress decreased dramatically during the year, since stocks of crude ore were used to supply the new pelletizing plant in
Malmberget.
Parent Company
MSEK 2007-12-31 2006-12-31
Raw materials and consumables 710 596
Work in progress 67 203
Finished products 352 377
1 129 1 176
Cost of goods sold includes write-downs of MSEK 0 (6) on inventories.
The value of work in progress decreased dramatically during the year, since stocks of crude ore were used to supply the new pelletizing plant in
Malmberget.
Note 23 ACCOUNTS RECEIVABLE
Accounts receivable are reported taking into account bad debts that have arisen in the Group. These amounted during the year to MSEK 1 (3).
Note 24 PREPAID EXPENSES AND ACCRUED REVENUES
Group Parent Company
MSEK 2007-12-31 2006-12-31 2007-12-31 2006-12-31
Forward exchange contracts 312 564
Insurance premiums 6 12
Other 72 68 27 21
390 644 27 21
102 | NOTES TO THE FINANCIAL STATEMENTS | LKAB ANNUAL REPORT 2007
Note 25 SHAREHOLDERS’ EQUITY
The Group’s specification of the shareholders’ equity item reserves
Translation reserve 2007 2006
Opening translation reserve -11 14
Translation differences for the year 9 -25
Closing translation reserve -2 -11
Fair value reserve 2007 2006
Opening fair value reserve 1 361 823
Financial assets held for sale:
Dissolved deferred tax reported directly in shareholders’ equity 529
Revaluations reported directly in shareholders’ equity 194 804
Dissolved through income statement -41
Tax attributable to revaluations for the year -225
Closing fair value reserve 2 084 1 361
Hedge reserve 2007 2006
Opening hedge reserve 493 -171
Cash-flow hedges
Reported directly in shareholders’ equity 357 668
Dissolved through income statement -685 183
Tax attributable to revaluations for the year 92 -187
Closing hedge reserve 257 493
Total reserves 2007 2006
Opening reserves 1 843 666
Change in reserves for the year
Translation reserve 9 -25
Fair value reserve 723 538
Hedge reserve -236 664
Closing reserves 2 339 1 843
Share capital
As of 31 December 2007, the registered share capital comprised 700,000 (700,000) common shares.
The holder of common shares is entitled to a dividend that is decided by the Annual General Meeting, and each share entitles the holder to one voting
right.
Translation reserve
The translation reserve covers all exchange rate differences that arise in the translation of financial reports of foreign subsidiaries and associated com-
panies whose counts are reported in a currency other than the Group’s reporting currency. The Parent Company and Group accounts are reported in
Swedish kronor.
Fair value reserve
Financial assets
The fair value reserve includes the net change in fair value of available-for-sale financial assets up until the assets are removed from the balance sheet.
Hedge reserve
The hedge reserve includes the effective share of the accumulated net change in fair value of a cash-flow hedging instrument attributable to hedging
transactions that have not yet occurred.
Dividend
After the balance sheet date, the Board has proposed the following dividend. The dividend is subject to approval by the Annual General Meeting on 22
April 2008.
MSEK 2007 2006
2,857 (2,857) kr per common share 2 000 2 000
2 000 2 000
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 103
Note 25 SHAREHOLDERS’ EQUITY (cont.)
Parent Company
Restricted reserves
Restricted reserves may not be reduced through dividends.
Statutory reserve
The purpose of the statutory reserve is to save a part of the net profit that is not used to cover loss brought forward.
Non-restricted equity
Profit brought forward
Comprises the previous year’s non-restricted equity after any dividend has been paid. Together with net profit for the year, it makes up non-restricted
equity i.e., the sum that is available to be paid as a dividend to shareholders.
Capital management
According to the Board’s policy, the Groups’ financial goal is to maintain a good capital structure and financial stability, and thereby secure a founda-
tion for continued growth of business operations and future transitions in the operating locations.
The Board’s ambition is to maintain a balance between high yield and the benefits and security afforded by a sound capital structure. The Group’s
objective is to achieve a return on equity of 8.5%. In 2007, return on equity was 22.6 (27.1)%. In comparison, the average return (interest income) on
interest-bearing investments was 5.7 (5.4) %.
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. During 2007, the dividend amounted to 43 (32) % of profit after tax.
During the year, no changes were made in the Group’s principles for capital management.
Neither the Parent Company nor any of the subsidiaries are subject to any external capital requirements.
Note 26 EARNINGS PER SHARE
The number of shares for the years 2007 and 2006, respectively, is 700,000. Net income attributable to Parent Company shareholders amounts to
MSEK 4,679 (4,597). Earnings per share thereby amount to 6,684 (6,567) kronor per share.
104 | NOTES TO THE FINANCIAL STATEMENTS | LKAB ANNUAL REPORT 2007
Note 27 PENSIONS
Defined-benefit plans
Group
MSEK 2007 2006
Present value of unfunded obligations 2 001 1 877
Present value of wholly or partially funded obligations 1 053 985
Total present value of obligations 3 054 2 862
Fair value of plan assets -1 031 -917
Present value of net obligation 2 023 1 945
Unreported actuarial gains (+) and losses (–) -206 -184
Unreported costs for previous years’ employment -43 -8
Net reported obligation, defined-benefit plans 1 774 1 753
The net amount is reported in the following balance sheet items:
Financial investments -178 -139
Provisions for pensions and similar commitments 1 952 1 892
Net balance sheet amount 1 774 1 753
Defined-benefit plans
Most of LKAB’s pension plans for employees in Sweden are defined-benefit plans, which means that LKAB guarantees pensions based on a certain
percentage of salary. Pension commitments in Sweden are secured by the company mainly via provisions reported on the balance sheet, whereof most
are secured through credit insurance In FPG (Försäkringsbolaget Pensionsgaranti). 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, without credit insurance.
Commitments for retirement pensions and survivor benefits for salaried employees in Sweden are insured by Alecta. According to a pronouncement
from the Swedish Financial Accounting Standards Council’s Emerging Issues Task Force, URA 42, this is a defined-benefit plan that involves several
employers. The company has not had access to the information that is necessary for reporting this plan as a defined-benefit plan. The ITP pension
plan insured via Alecta is therefore reported as a defined-contribution plan. Alecta’s surplus can be distributed to the policyholders and/or the insured
parties. At year-end 2007, Alecta’s surplus in the form of the collective funding ratio amounted to 152 (143.1)%. 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 IAS 19.
For employees in Belgium, Norway, the UK and Germany, LKAB has defined-benefit 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 provisions reported in the balance sheet and through credit
insurance.
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 105
Note 27 PENSIONS (cont.)
Changes in present value of obligations for defined-benefit plans
Group
MSEK 2007 2006
Net obligation for defined-benefit plans as of 1 January 2 865 2 908
Compensation paid -151 -127
Cost for employment during current period and interest cost (see below) 227 250
Actuarial gains and losses 50 -97
Costs for employment during previous periods - -2
Exchange rate differences 66 -67
Net obligation for defined-benefit plans as of 31 December 3 093 2 865
Change in fair value of plan assets
Group
SEK ’000 2007 2006
Present value of plan assets as of 1 January 917 891
Charges from the employer 62 45
Compensation paid -36 -26
Assumed return 56 49
Difference between assumed and actual return (actuarial gain or loss) -7 2
Exchange rate differences 39 -44
Present value of plan assets as of 31 December 1 031 917
Cost reported in income statement
Group
MSEK 2007 2006
Costs for employment during current period 115 144
Interest expense for obligation 112 106
Assumed return on plan assets -56 -49
Reported actuarial gains (-) and losses (+) 3 32
Effects of reductions and settlements 0 1
Total net cost in income statement 145 234
The cost is reported on the following lines in the income statement:
Group
MSEK 2007 2006
Cost of goods sold 118 177
Income from financial items -56 -49
Financial expenses 112 106
174 234
Assumptions for defined-benefit obligations
Significant actuarial assumptions as of closing day (expressed as weighted averages)
Group
Percent 2007 2006
Discount rate, 31 December 4,7 4,25
Assumed return on plan assets, 31 December 5,7 5,25
Future salary increase 3,0 3,0
Employee turnover 3,5 3,5
Future increase in pensions 2,0 2,0
Assumed future mortality rate is based on published statistics and mortality figures. The average life expectancy (years of life remaining) for an indivi-
dual who retires at 65 years of age is 18 years for men and 20 years for women.
The total assumed long-term return on plan assets is 5.7 % (with certain deviations in Belgium and the UK). The assumed long-term return is based on
the plan assets portfolio as a whole and not on the sum of the returns on the individual assets.
106 | NOTES TO THE FINANCIAL STATEMENTS | LKAB ANNUAL REPORT 2007
Note 27 PENSIONS (cont.)
Historical information
Group
SEK ’000 2007 2006 2005
Present value of defined-benefit obligations 3 054 2 862 2 865
Fair value of plan assets -1 031 -917 -917
Net obligations 2 023 1 945 1 948
Experience-based adjustment of plan assets 26 1 1
Experience-based adjustment of defined-benefit obligations -57 7 7
The Group estimates that MSEK 84 will be paid to defined-benefit plans in 2008.
Parent Company’s pension obligation
MSEK 2007 2006
PRI 487 477
Provisions subject to the Act on Income Security 198 180
Provisions not subject to the Act on Income Security 613 584
1 298 1 241
Of which credit guarantees via FPG/PRI 685 657
Capital value of pension obligations under the company’s own management
Parent Company
MSEK 2007 2006
Capital value of pension obligations at start of year 1 241 1 542
Cost excluding interest expense charged to income statement 109 148
Interest expense 30 34
Pension disbursements -82 -99
Effects of acquired/sold operations - -389
Other increase in capital value 5
Capital value of pension obligations at year-end 1 298 1 241
Costs associated with pensions
Parent Company
MSEK 2007 2006
Company-managed pension provisions
Cost excluding interest expense 109 148
Interest expense 30 34
Effect of divestment of operations - -80
Cost of 139 102
Insured pension schemes
Insurance premiums 61 54
Sub-total 200 156
Capital gains tax on pension funds 4 4
Special employer’s contribution (tax) on pension expenses 38 24
Cost of credit insurance, cost of administration, other -3 6
Reported net expense attributable to pensions 239 190
Assumptions for defined-benefit obligations
Significant actuarial assumptions as of closing day (expressed as weighted averages)
Parent Company
Percent 2007 2006
Discount rate, 31 December 4,5 4,25
Future salary increase 3 3
Future increase in pensions 2 2
The Parent Company estimates that MSEK 22 will be paid to defined-benefit plans in 2008.
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 107
Note 27 PENSIONS (cont.)
Defined-contribution pension plans
In Sweden, the Group has defined-contribution pension plans for which the company assumes full cost.
In foreign subsidiaries, defined-contribution plans are financed partly by the companies and partly by contributions paid by the employees.
Premiums for these plans are paid on a current basis in accordance with regulations for each plan.
Group Parent Company
SEK ’000 2007 2006 2007 2006
Costs for defined-contribution pension plans 90 62 77 47
Note 28 PROVISIONS
Group
MSEK 2007-12-31 2006-12-31
Provisions that are long-term liabilities
Pensions 1 807 1 751
Deferred tax liability 2 635 2 635
Other provisions 521 240
Total 4 963 4 626
Provisions that are current liabilities
Pensions 145 141
Emissions rights - 29
Total 145 170
Parent Company
MSEK 2007-12-31 2006-12-31
Provisions
Pensions and similar commitments 1 298 1 241
Other provisions 519 265
Total 1 817 1 506
Other provisions include MSEK 411 (236) attributable to ground deformations in Kiruna that have been caused by mining. In addition, MSEK 108 (-)
attributable to remediation costs, according to Environmental Court rulings on applications for capacity increases, is included. Corresponding amounts
are reported in ‘Construction in progress’ and will be written down over 20 years. See Note 33.
Group
Emissions rights
SEK ’000 2007 2006
Reported value at end of period 29 119
Reconciliation of emissions rights for the year -29 -58
Purchases during the year 3
Revaluation -35
Reported value at end of period 0 29
Payments
MSEK 2007-12-31 2006-12-31
Group
Amount of provision expected to be paid after more than 12 months 4 963 4 626
Parent Company
Amount of provision expected to be paid after more than 12 months 1 542 1 410
108 | NOTES TO THE FINANCIAL STATEMENTS | LKAB ANNUAL REPORT 2007
Note 29 ACCRUED EXPENSES AND PREPAID REVENUES
Group Parent Company
MSEK 2007-12-31 2006-12-31 2007-12-31 2006-12-31
Electricity 23 32 9 9
Payroll and employee costs 363 305 288 259
Interest deduction, forward exchange contracts 41 123
Forward exchange contracts 6
Accrued accounts payable 288 162 201 118
Other 50 52 9 13
724 557 548 522
Note 30 FINANCIAL RISKS AND FINANCE POLICIES
In addition to the information below, see the section on RISKS, on page 6, for further information.
The Group’s transaction exposure, distributed over the following contract currencies:
2007 2006
Group Effect on Effect on
Currency Amount Change Profit/loss Amount Change Profit/loss
USD 1 826 SEK 0.1 183 1 600 SEK 0.1 MSEK 160
NOK -392 SEK 0.1 39 -386 SEK 0.1 MSEK 40
EUR -43 SEK 0.1 4,3 -24 SEK 0.1 MSEK 2.4
GBP 3 SEK 0.1 0,3 8 SEK 0.1 MSEK 1
Transaction exposure in US dollars during 2007 was hedged to 1525 (82)% via currency derivatives.
Outstanding forward exchange contracts at closing day
Maturity MUSD Hedging rate
2008 -1 350 6,80
The Group applies hedge accounting for USD and classifies its forward contracts used to hedge forecasted transactions as cash flow hedges.
The net fair value of forward exchange contracts used to hedge forecasted flows amounted to MSEK 292 (564) as of 31 December 2007.
Outstanding forward exchange contracts at closing day
Maturity 2008 Outstanding
Currency amount (millions) Spot rate
NOK 210 1,09
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 Division. Translation exposure in the Group refers to foreign net assets
within the Group.
Revaluation exposure (millions, local currency)
Group
MSEK 2007 2006
EUR 6 6
GBP 34 30
USD 0 -1
DKK 2 8
NOK 226 212
CNY 10 7
HKD 52 61
Fair value
Fair value and reported value are stated on the balance sheet below.
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 109
Note 30 FINANCIAL RISKS AND FINANCE POLICIES (cont.)
Group 2007 Financial assets Derivatives Trade Financial Other Total Fair
recognized at used in accounts assets liabilities reported value
fair value hedge receivable held for value
in the income accounting and loan sale
statement receivables
Financial assets
recognized according
MSEK to fair value option Derivatives
Shares, financial assets 2 169 2 169 2 169
Shares, short-term holdings 929 929 929
Interest-bearing instruments, short-term holdings 3 109 3 109 3 109
Long-term receivables 68 68 68
Trade accounts receivable and other receivables 2 212 2 212 2 212
Liquid assets* 1 953 1 953 1 953
Forward exchange contracts (NOK, GBP) 19 19 19
Forward exchange contracts (USD) 292 292 292
Other accrued revenues 79 79 79
Total 6 059 19 292 2 291 2 169 0 10 830 10 830
Accounts payable (trade) 1 394 1 394 1 394
Other liabilities 175 175 175
Accrued expenses 724 724 724
Total 0 0 0 0 0 2 293 2 293 2 293
* Liquid assets incl. short-term investments, equated with liquid assets
The maximum credit risk exposure amounted per closing day 31 Dec. 2007-12-31 to MSEK 10,830.
Group 2006 Financial assets Derivatives Trade Financial Other Total Fair
recognized at used in accounts assets liabilities reported value
fair value hedge receivable held for value
in the income accounting and loan sale
statement receivables
Financial assets
recognized according
MSEK to fair value option Derivatives
Shares, financial assets 1 996 1 996 1 996
Shares, short-term holdings 818 818 818
Interest-bearing instruments, short-term holdings 3 052 3 052 3 052
Long-term receivables 72 72 72
Trade accounts receivable and other receivables 1 869 1 869 1 869
Liquid assets* 3 112 3 112 3 112
Forward exchange contracts (USD) 564 564 564
Other accrued revenues 80 80 80
Total 7 054 0 564 1 949 1 996 0 11 563 11 563
Accounts payable (trade) 1 250 1 250 1 250
Other liabilities 164 164 164
Accrued expenses 557 557 557
Total 0 0 0 0 0 1 971 1 971 1 971
* Liquid assets incl. short-term investments, equated with liquid assets
The maximum credit risk exposure amounted per closing day 31 Dec. 31.12.06 to MSEK 11,563.
110 | NOTES TO THE FINANCIAL STATEMENTS | LKAB ANNUAL REPORT 2007
Undisclosed profits
Parent Company Reported
Reported Fair Reported Fair
value value value value
MSEK 2007 2007 2006 2006
Shares, financial assets 85 2 169 105 1 996
Interest-bearing instruments, short-term holdings 3 057 3 057 3 033 3 048
Shares, short-term holdings 929 929 621 818
Trade accounts receivable and other receivables 3 818 3 818 3 226 3 226
Liquid assets (incl. short-term investments, equated with liquid assets) 1 766 1 766 2 762 2 762
Forward exchange contracts (USD) -41 292 -123 564
Accounts payable and other liabilities -2 643 -2 643 -2 612 -2 612
6 971 9 388 7 012 9 802
Undisclosed profits 2 417 2 790
Fair value calculation
The following is a summary of the principal methods and assumptions used in determining the fair value of financial instruments reported in the table
above.
Securities
For listed financial 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.
Other receivables and liabilities
Reported values of other receivables and liabilities are fair values.
Note 31 OPERATING LEASING
Leasing agreements in which the company is the lessee
Non-cancellable lease payments amount to:
Group
MSEK 2007 2006
Within one year 5 5
Between one and five years 75 77
Longer than five years 7 8
87 90
The Group’s future lease payments refer mainly to leased land, machines and computers. In the financial statement for 2007, an expense that refers to
operating leasing in the Group is reported at MSEK 2 (2), of which MSEK 2 (2) is attributable to minimum leasing fees and MSEK - (-) variable fees.
The Parent Company’s leasing agreements amount to MSEK 62 (63), of which MSEK 34 (35) refers to leasing of machines and other technical equipment.
Note 32 CONTRACTUAL OBLIGATIONS
At year-end, the Group’s remaining contractual obligations to acquire tangible assets amounted to MSEK 4,351 (5,086). Of these obligations,
MSEK 2,821 (4,382) is expected to be paid during the following fiscal year.
The Parent Company’s obligations amounted to MSEK 2,583 (4,446), of which MSEK 2,031 (4,062) is expected to be paid during 2008.
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 111
Note 33 ASSETS PLEDGED AND CONTINGENT LIABILITIES
Group Parent Company
MSEK 2007-12-31 2006-12-31 2007-12-31 2006-12-31
Assets pledged
In the form of assets pledged for liabilities and provisions
Property mortgages 1 1
Chattel mortgages 2 2
Company-owned endowment insurance 118 104 116 102
Deposit of liquid assets 111 64 111 64
Total assets pledged 232 171 227 166
Contingent liabilities
Guarantees, FPG/PRI 10 10 10 9
Guarantees, GP plan 3 3 2 2
Sureties for the benefit of subsidiaries 156 148
Sureties, other
Other 61 65 1 1
Forward exchange contracts
Total contingent liabilities 74 78 169 160
There are obligations (both formal and informal) with respect to structural transitions in the Orefields as a consequence of the deformation zones resul-
ting from mining operations. Considerable expenditures for LKAB may arise as a result of this during the coming years. Therefore, as agreements are
reached or where an informal obligation exists as a result of operations, LKAB is successively allocating funds for this purpose. Concerning provisions,
see Note 28.
Note 34 RELATED PARTIES
Related-party relations
The Group is subject to the controlling influence of the Swedish state. Aside from the close relationships that the Parent Company has with its subsi-
diaries (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
Interest and Purchase of Liabilities to Receivables from
Sales of dividend goods from Related parties Related parties
Related-party relation Year goods to (net) Related parties 31 December 31 December
Associated companies 2007 1 14 1 36
Associated companies 2006 0 13 2 35
Parent Company
Interest and Purchase of Liabilities to Receivables from
Sales of dividend goods from Related parties Related parties
Related-party relation Year goods to (net) Related parties 31 December 31 December
Subsidiaries 2007 318 137 1 553 989 1 838
Subsidiaries 2006 184 58 1 132 1 062 1 610
Associated companies 2007 1 14 1 36
Associated companies 2006 0 13 2 35
Deliveries of iron ore to SSAB have amounted during the year to 5.3 (4.9) 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 5 years. Interest is paid annually and amounted in 2007 to SEK 650,000 (488,000).
The principal will be repaid in full in 2011, at which time profit shares will also be distributed.
Transactions with key individuals in leading positions are reported in Note 6 and Note 27.
Transactions with related parties are priced and conducted in accordance with commercial principles.
112 | NOTES TO THE FINANCIAL STATEMENTS | LKAB ANNUAL REPORT 2007
Note 35 PARTICIPATIONS IN GROUP COMPANIES
Parent Company
MSEK 2007-12-31 2006-12-31
Accumulated acquisition values
At start of year 775 607
New share issue, subsidiary 163
Acquisition of minority interest 5
Closing balance 31 December 775 775
Specification of the Parent Company’s ownership of participations in associated companies
Ownership Ownership 2007-12-31 2006-12-31
Total in % in % Reported Reported
Subsidiary / Corp. ID No. / Registered office shares 2007 2006 value value
Swedish subsidiaries
Fastighets AB Malmfälten /556009-8849/ Kiruna 5 000 100,0 100,0 0 0
Wassara AB /556331-8566/ Stockholm 200 000 100,0 100,0 10 10
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
Malmtrafik i Kiruna /556031-4808 / Kiruna 208 000 100,0 100,0 252 252
Foreign subsidiaries
LKAB Norge AS /918,400,184/ Narvik, Norway 300 000 100,0 100,0 163 163
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
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 Pacific Ltd /876455/ Hong Kong, Hong Kong 100,0 100,0
Minelco Ltd /0245817/ Welton, UK 100,0 100,0
Minelco OY /1934671-4/ Helsinki, Finland 100,0 100,0
Likya Minelco/-/Izmir, Turkey 50,0 50,0
Minelco AS/A/S277716/Nuuk, Greenland (formerly Seqi Olivine AS) 100,0 100,0
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
Microfine 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 Malmtrafik i Kiruna AB
Malmtrafikk AS /974 644 991/ Narvik, Norway 100,0 100,0
Indirect ownership via the subsidiary Fastighets AB Malmfälten
Jägarskolan Fastigheter AB /556594-9095/ Kiruna 100,0 100,0
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 113
Note 36 UNTAXED RESERVES
Parent Company
MSEK 2007-12-31 2006-12-31
Accumulated depreciation in excess of plan:
Buildings and land
Opening balance 1 January 5 13
Accumulated depreciation in excess of plan for the year 6
Accelerated depreciation dissolved - -8
Closing balance 31 December 11 5
Machinery and inventories
Opening balance 1 January 2 694 2 045
Accumulated depreciation in excess of plan for the year 1 007 649
Closing balance 31 December 3 701 2 694
Construction in progress
Opening balance 1 January 0 69
Accelerated depreciation dissolved 0 -69
Closing balance 31 December 0 0
Underground installations
Opening balance 1 January 5 11
Disposals, retirements and dissolution 0 -6
Closing balance 31 December 5 5
Tax allocation reserves
Allocated at 2001 assessment 147 147
Allocated at 2003 assessment 294 294
Allocated at 2004 assessment 500 500
Allocated at 2005 assessment 1 410 1 410
Allocated at 2006 assessment 1 400 1 400
Allocated at 2007 assessment 1 275
Closing balance 31 December 5 026 3 751
Total untaxed reserves 8 743 6 455
114 | NOTES TO THE FINANCIAL STATEMENTS | LKAB ANNUAL REPORT 2007
Note 37 CASH FLOW STATEMENT
Liquid assets - Group
MSEK 2007-12-31 2006-12-31
The following sub-components are included in liquid assets
Cash and bank balances 426 789
Short-term investments, equated with liquid assets1) 1 527 2 323
Total according to balance sheet 1 953 3 112
Total according to cash flow statement 1 953 3 112
Liquid assets – Parent Company
MSEK 2007-12-31 2006-12-31
The following sub-components are included in liquid assets
Cash and bank balances 291 443
Short-term investments, equated with liquid assets1) 1 475 2 319
Total according to balance sheet 1 766 2 762
Total according to cash flow statement 1 766 2 762
1) Liquid assets include short-term investments (money-market instruments) that have been classified as liquid assets according to the following:
• They entail insignificant risk for value fluctuations
• They can be easily converted to cash
• They have a maturity of at most three months from the balance sheet date.
Interest paid and dividends received Group Parent Company
MSEK 2007 2006 2007 2006
Dividends received 70 52 156 73
Interest received and return on securities 124 273 400 320
Interest paid -1 -1 -23 -14
193 324 533 379
Adjustments for items not included in cash flow Group Parent Company
MSEK 2007 2006 2007 2006
Depreciation 1 169 997 981 849
Write-downs 95 6 2
Exchange rate differences -47 27
Changes in value of financial instruments 213 -38
Income from sale and retirement of tangible assets 3 -20 -2 -54
Income from sale of financial assets -153 -134 -153 -100
Provisions for pensions and similar commitments 21 28 57 -301
Other provisions 172 -4 174 -4
Other items that do not affect liquidity 34 12 1 -7
1 507 874 1 058 385
LKAB ANNUAL REPORT 2007 | NOTES TO THE FINANCIAL STATEMENTS | 115
Note 37 CASH FLOW STATEMENT (cont.)
Tax paid Group Parent Company
MSEK 2007 2006 2007 2006
Tax expense according to income statement -1 665 -1 785 -1 045 -1 242
Change in tax recoverable/liabilities 401 -301 427 -240
Adjustment for deferred tax 613 518 2 13
Adjustment for tax effect of Group contributions 39 19
-651 -1 568 577 -1 450
SEK ’000 2007 2006
Acquisition of subsidiaries
Investment properties 75
Machinery and inventories 9
Current receivables 2
Total assets 86
Deferred tax 7
Current liabilities 44
Total provisions and liabilities 51
Purchase sum: -35
Deducted: Liquid assets in the acquired business
Effect on liquid assets -35
116 | PROPOSED DISPOSITION OF UNAPPROPRIATED EARNINGS | LKAB ANNUAL REPORT 2007
The Board of Directors and President propose that unappropriated earnings of MSEK 11,087 be distributed as follows:
Dividend, 700,000 shares x 2,857 kronor per share MSEK 2,000
Funds to be carried forward MSEK 9,087
Total MSEK 11,087
The consolidated accounts and annual report have been prepared in accordance with International Accounting Standards, sated in the regulation of
the European Parliament and the Council of Ministers (EG) No. 1606/2002 of den 19 July 2002, concerning the application of international accounting
standards and generally accepted accounting principles, and give a true and fair view of the Group and the Parent Company’s position and results. The
Report of the Directors for the Group and the Parent Company gives a true overview of the activities, results and financial position of the company and
Group and also describes the significant risks and uncertainties to which the Parent Company and the other companies in the Group are exposed.
Luleå, 12 March 2008
Björn Sprängare
Chairman
Christer Berggren Stina Blombäck Per-Ola Eriksson
Lars-Åke Helgesson Anna-Greta Sjöberg Egil M. Ullebö
Tomas Nilsson Bertil Thornberg Karl Wikström
Ola Johnsson
President and CEO
The Annual Report and consolidated financial statements have, as stated above, been approved for publication by the Board of Directors on 21 Fe-
bruary 2008. 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 22 April 2008.
Our Audit Report has been submitted on 12 March 2008.
Caj Nackstad Filip Cassel
Authorized public accountant Authorized public accountant
Chief accountant Appointed by the Swedish National Audit Office
KPMG Bohlins AB
Proposed disposition of unappropriated earnings
LKAB ANNUAL REPORT 2007 | AUDITORS’ REPORT | 117
Auditors’ Report
Auditors’ Report to the Annual General Meeting of Luossavaara-Kiirunavaara AB
Corp. ID. No. 556001-5835
We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the Board of directors and the Presi-
dent of Luossavaara-Kiirunavaara AB for the year 2007. The Board of directors and the President are responsible for these accounts and the administra-
tion of the company as well as for the application of the Annual Accounts Act when preparing the annual accounts and the application of International
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 require 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 supporting the amounts and disclosures in the accounts. An audit also includes assessing the account-
ing principles used and their application by the Board of directors and the President and significant estimates made by the Board of directors and the
President 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 significant decisions, actions taken
and circumstances of the company in order to be able to determine the liability, if any, to the company of any board member or the President. We also
examined whether any board member or the President 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 financial posi-
tion and results of operations in accordance with generally accepted accounting principles in Sweden. The consolidated accounts have been prepared
in accordance with International Financial Reporting Standards IFRS as adopted by the EU and the Annual Accounts Act and give a true and fair view
of the Group’s financial position and results of operations. The statutory administration report is consistent with the other parts of the annual accounts
and the consolidated accounts.
We recommend to the Annual General Meeting of shareholders that the income statements and balance sheets of the Parent Company and the Group
be adopted, that the profit 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 President be discharged from liability for the financial year.
Luleå, 12 March 2008
KPMG Bohlins AB
Caj Nackstad Filip Cassel
Authorized public accountant Authorized public accountant
Appointed by the Swedish National Audit Office
118 | ORGANIZATION, LEGAL STRUCTURE | LKAB ANNUAL REPORT 2007
Organization, legal structureLKAB is wholly owned by the Swedish state and is operated as a limited company. The Group consists of the Parent Company and subsidiaries, each of which is subject to the controlling influence of the Parent Company.
FASTIGHETS ABMALMFÄLTEN
WASSARA AB
AB KIRUNA GRUS & STENFÖRÄDLING
LKAB NÄT AB
MINELCO AB
LKAB FÖRSÄKRING AB
MALMTRAFIK I KIRUNA AB
LKAB NORGE AS(NORWAY)
LKAB SA(BELGIUM)
LKAB SCHWEDENERZ GMBH
(GERMANY)
KIMIT AB
MALMTRAFIKK AS(NORWAY)
AB KGS MEKANISKA
AB KGS CONTRACTING
MINELCO HOLDING LTD
(UK)
MINELCO A/S(GREENLAND)
MINELCO OY(FINLAND)
MINELCO LTD(UK)
MINELCO ASIA PACIFIC LTD
(HONG KONG)
MINELCO GMBH(GERMANY)
MINELCO INC(USA)
MINELCO B.V.(NETHERLANDS)
LKAB(556001-5835)
FORDAMIN COMPANY LTD
(UK)
MINELCO TIANJIN MINERALS CO
(CHINA)
MINELCO MINERALS LTD
(UK)
MINELCO SPECIALITIES LTD
(UK)
MICROFINE HELLAS A.E.(GREECE)
TIANJIN JINDALAI MINERALS
(CHINA)
QUAY MINERALS LTD
(UK)
FERGUSSON WILD & CO LTD
(UK)
LIKYA MINELCO(TURKEY)
LKAB FAR EAST PTE LTD
(SINGAPORE)
LKAB ANNUAL REPORT 2007 | CORPORATE GOVERNANCE OF LKAB | 119
Corporate Governance of LKAB
GENERAL
LKAB is wholly owned by the Swedish state. The basis for corporate
governance of LKAB is Swedish legislation, guideline from the state and
internal guidelines. The state guidelines, the State ownership policy 2006
and Annual report State-owned Companies 2006, dictate that the Swe-
dish Code of Corporate Governance (the Code) must serve as part of the
government’s framework for ownership administration.
LKAB has decided to adhere as much as possible to the Code, ex-
cept in areas where state ownership does not permit.
During 2007, the Government adopted new guidelines for external
reporting by state-owned companies with expanded requirements for in-
formation about sustainability. The companies must present their reports
in accordance with these guidelines at the latest from and including the
financial year starting on 1 January 2008.
The boards of the state-owned companies are responsible for the
companies presenting sustainability reports in accordance with the Glo-
bal Reporting Initiative (GRI) guidelines which, together with other finan-
cial reports, make up an integrated basis for assessment and follow-up.
The GRI guidelines are international standard guidelines for sustainability
reports.
LKAB has therefore worked during 2008 towards the goal of presen-
ting a sustainability report in accordance with GRI.
LKAB’s OPERATIONS
LKAB’s operations are capital intensive. Compared to other iron ore com-
panies, nearly all of which mine their ore in open pits, LKAB has a hea-
vier capital burden, since underground mining demands more extensive
investments.
The operation is also strongly dependent on business cycles. There-
fore, LKAB must have substantial financial strength to be able to cope
with cyclical fluctuations over several years and to be able to finance the
heavy investments that will secure the company’s future.
Against this background, the long-term requirement on rate of return
on operating assets has been set by LKAB at 10%, measured over a
business cycle. During the years 2003-2007, return on operating assets
has been 11, 22, 58, 45 and 32 percent, respectively.
LKAB has a high proportion of liquid assets and a low debt/equity
ratio. Liquid assets are invested 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 assets should exceed the
money market index over the long term.
LKAB is in a phase of strong development, due in part to the broa-
dening into new minerals and market segments that is now under way,
and partly owing to strong growth in the Mining Division. Our assessment
is that demand for LKAB’s products will grow in the coming years. This
will create conditions for further growth through investments in, for ex-
ample, new pelletizing plants and new main levels. LKAB can then use
the strong financial platform the company now has to ensure continued
profitable development within its business areas.
The Board believes that the company is capable of managing this
growth on its own strength. During 2006, the Board gave management
the task, in dialogue with the owner, of reviewing appropriate objectives
with respect to capital structure, profitability and dividend policy. This
review is ongoing.
OWNERSHIP
LKAB is wholly owned by the Swedish state, represented by the govern-
ment and the Ministry of Industry, Employment and Communications. The
owner’s overall goal is the creation of value and, in appropriate cases, to
ensure that expressed societal interests are fulfilled. LKAB, which in its
role is not subject to the latter provision on ‘expressed societal interests’,
will develop a successful business operation by mining, processing and
marketing minerals.
The owner’s income and yield requirements for LKAB are on normal
market terms. 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 state
exercises its ownership via an established ownership policy, nominations
to the Board and requirements for financial 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.
The Board, via the Chairman, coordinates its views on issues of de-
cisive importance with the owner’s representatives. Such issues include
strategic changes in the company’s operations, major acquisitions, mer-
gers or divestments, as well as decisions affecting significant changes in
the company’s risk profile or balance sheet.
ANNUAL GENERAL MEETING
LKAB’s Annual General Meeting is open to the public. Notice of the An-
nual General Meeting is made via LKAB’s website and via newspaper
advertisements. The public is entitled to present questions to the AGM.
Questions to the AGM may also be presented via the website. As of
2005, the minutes of Annual General Meetings are posted on LKAB’s
website.
The meeting decides, in addition to what is specified in the articles of
the Swedish Companies Act, on remuneration to the Chairman and other
board members, any remuneration for committee work, and guidelines
for salaries and other remuneration to senior executives.
The Annual General Meeting for 2007, which was LKAB’s third sha-
reholders’ meeting open to the public, was held on 26 April. About 100
people attended the meeting.
NOMINATIONS/ APPOINTMENT OF THE BOARD AND AUDITORS
Since LKAB is wholly state-owned, it does not have a nomination com-
mittee per se, as defined by the Code. The nomination process is in
accordance with the State ownership policy. The chair of the meetings is
appointed by the owner’s representative at the meeting.
120 | CORPORATE GOVERNANCE OF LKAB | LKAB ANNUAL REPORT 2007
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 were updated during 2006.
Normally, six ordinary meetings are held each year: in February, April,
June, August, November and December. The meetings follow a fixed
calendar to ensure that the Board’s need for information is satisfied.
A board meeting held at the end of each quarter considers the interim
financial reports for the most recent quarter as well as the forecast for
the coming four quarters. This allows the Board to make an ongoing as-
sessment of strategies and delegations to the President and to decide on
specific investment projects.
Normally the first 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 development matters combined with a pre-
sentation of the interim accounts. The third and fourth meetings also
address issues pertaining to operations and strategy.
The emphasis of the fifth meeting is on the market situation. At the
sixth and final 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 Indu-
stry, Employment and Communications.
COMPOSITION OF THE BOARD
The Board of Directors of LKAB has consisted during the year of eight,
and subsequently seven, 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 with three deputies appointed by
the employees. Deputies of the employee representatives also partici-
pate in board meetings. The Board has had an independent legal advisor
as 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.
Board members 21/2 16/3 26/4 19-20/6 21/8 25/10 29-31/10 22/11 18/12
(telephone) (telephone)
Björn Sprängare x x x x x x x x x
Christer Berggren x x x x x x x x x
Stina Blombäck x x x x x x
Per-Ola Eriksson x x x x x x x x x
Lars-Åke Helgesson x x x x x x x x x
Anna-Greta Sjöberg x x x x x x x
Ursula Tengelin x x
Egil M Ullebö x x x x x x x x
Hans Fängvall x x x x x x x x
Tomas Nilsson x x x x x x x
Tomas Kohkoinen x x x x x x x x x
Torsten Thorneus x x x x x x x x
Bertil Tornberg x x x x x x x x x
Karl Wikström x x x x x x x x x
THE WORK OF THE BOARD OF DIRECTORS DURING 2007
During the year, the Board has held nine meetings, two of which via te-
lephone. Meetings are normally held in locations where LKAB has opera-
tions, in Stockholm, or in conjunction with trips to LKAB’s market areas.
In 2007, the Board visited Germany. Attendance of the members of the
Board at meetings in 2007 is presented in the table below. At the Annual
General Meeting, one board member, Ursula Tengelin, stepped down
from the Board. A successor has not been appointed.
CURRENCY AND FINANCE COMMITTEE
The Board has appointed a currency and finance committee that prepa-
res and oversees the hedging program. The committee, led by the Chair-
man of the Board, Björn Sprängare, included in 2007 board members
Anna-Greta Sjöberg and Christer Berggren; Martin Ivert, President and
CEO; Leif Boström, Vice President Treasury; Lars Lund, CFO, and Karl
Wikström (employee representative on LKAB’s Board). The committee
held six meetings during 2007. Minutes and reports from the meetings
are submitted to LKAB’s Board.
Remuneration committee
Compensation for the President as well as salary setting principles are
drafted and determined by a compensation committee that is appointed
by the Board. The committee, which is led by the Chairman of the Board,
Björn Sprängare, includes board members Christer Berggren and Lars-
Åke Helgesson. 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. Decisions are documented and kept on
record by the secretary of the Board.
LKAB ANNUAL REPORT 2007 | CORPORATE GOVERNANCE OF LKAB | 121
Audit committee
The Board is responsible for the company having a formalized and trans-
parent system which ensures that the established principles for financial
reporting and internal control are complied with and that functional re-
lations with the company’s auditors are maintained. An audit committee
was appointed in February 2006. The committee, led by board member
Lars-Åke Helgesson, also includes board members Anna-Greta Sjöberg
and Christer Berggren. Leif Boström, Vice President Treasury, also parti-
cipates in the committee’s meetings.
ASSESSMENT OF THE WORK OF THE BOARD
A written survey of the Board’s work, prepared annually, includes ques-
tions concerning how the Board collectively, and each member individu-
ally, has fulfilled 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 owner, but this may also be
part of the work of the Board.
Since 2004, this assessment has been either by questionnaire sur-
vey or by an in-depth interview, whereby the Chairman interviews each
AGM-elected board member and the employee representatives. The en-
tire Board has access to the results of this evaluation, as does President,
where applicable. Via the owner’s board representative, the owner sees
the results of the assessment prior to the nomination process.
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
nuanced view detailed outline of the President’s strengths and weaknes-
ses as identified by the Board.
EXTERNAL AUDITORS
The Annual General Meeting of 26 April 2007 appointed as the company’s
auditors KPMG Bohlins until the close of the Annual General Meeting of
2011. The Chief Auditor is Caj Nackstad.
During 2006, a decision was taken on the appointment an auditor
and deputy auditor from the Swedish National Audit Office. The National
Audit Office appointed authorized public accountant Filip Cassel to act
as auditor of LKAB from 1 Sept. 2006 until the AGM of 2010. To act as
deputy for Cassel during the same period, authorized public accountant
Per Redemo has been appointed.
Remuneration to the auditors is stated in Note 7 of the Report of the
Directors for 2007.
The auditors have been 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 instructions for the President and
the formal work plan for the Board. According to these, the President
shall
- manage, plan, develop and control the company’s operations in ac-
cordance with goals and strategies established by the Board;
- make provisions to ensure that the company’s accounting complies
with the law and that financial assets are managed in a satisfactory
manner;
- oversee the company’s operations with respect to compliance with
legislation and regulations, ensure that the decisions of the Board
and other decided measures pertaining to the operation of the com-
pany are implemented, and that the company’s operations are or-
ganized in a functional manner and conducted in accordance with the
Articles of Incorporation;
- assume responsibility for presentations and other reporting 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 pertaining to ownership and
major structural considerations are the responsibility of the Chairman.
- ensure that introductory courses are provided for newly elected mem-
bers of the Board.
The Chairman of the Board approves any directorships held by the Pre-
sident outside of the company.
DESCRIPTION OF THE INTERNAL CONTROL
OVER FINANCIAL REPORTING
According to the Swedish Companies Act and the Swedish Code of
Corporate Governance, the Board of Directors is responsible for internal
control, the quality of which shall be independently assured by the Board.
Review of internal control is also in consultation with the company’s audi-
tors, who normally attend the first board meeting of the year.
To ensure the quality of the financial statements, the Board consi-
ders all critical accounting questions and the financial reports presented
by the company. The Board also considers issues of internal control,
compliance with regulations, significant uncertainties in reported values,
non-remedied errors, events after closing day, changes in estimates, any
possible improprieties, and other conditions affecting the quality of fi-
nancial reporting.
CONTROL ENVIRONMENT
The basis of internal control is the control environment within LKAB. This
includes the organization, decision-making processes, authorities and
responsibilities, as well as the management culture adopted by the Board
and Management. The keyword within the Group is quality. As expres-
sed 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. Control-
ling documents such as the policies for ethics, finance, currency, infor-
mation and quality are published on the company’s intranet. LKAB has
an incentive system, but this is not directly dependent on the company’s
financial outcome.
122 | CORPORATE GOVERNANCE OF LKAB | LKAB ANNUAL REPORT 2007
Responsibilities and roles concerning financial reporting have been
defined and communicated to employees in the finance and financial
control functions. To maintain a good level of expertise within the finance
function, regular training programs are given. Finance personnel meet
regularly throughout the year, and prior to preparation of the year-end
statements, instructions for year-end financial reporting are distributed.
The most important procedures and principles for financial reporting
have been summarized in a financial manual that is updated on an ongo-
ing basis.
LKAB’s financial reporting follows guidelines from the Swedish state,
entailing that reporting should maintain the same level as that of listed
companies.
The company identifies, analyzes and decides on management of
risks, both in operations and with respect to financial reporting. Where
the balance sheet and income statement are concerned, the most im-
portant processes have been identified, and these are successively do-
cumented as risks are analyzed.
The company has successfully introduced quality and environmental
and energy management systems. According to the same model and
philosophy, a management system for quality assurance of financial re-
porting will also be introduced. The foundation for this work has been
laid in 2006 with the introduction of a group-wide business management
system. The business management system has been implemented in
the Parent Company and several of the subsidiaries in Sweden during
2007.
CONTROL ACTIVITIES
Important aspects of LKAB’s control structure are authorization manu-
als, descriptions of authorities, and instructions for year-end financial
reporting. In addition, there are specific control procedures for managing
unique risks of errors in financial reporting. Together with the identified
risks, the control activities are being documented in the process reviews.
Introduction of the new group-wide business management system has
meant that a more in-depth analysis of the processes that influence the
financial reporting. Documentation of the Group’s procedures for ac-
counting and financial reporting is via a common database.
INFORMATION AND COMMUNICATION
Information on the applicable control structure is available in databases
to which all employees have access. The forms of work for how identified
deficiencies are to be dealt with werestablished during 2007. Owing to
the organizational changes that have taken place during the past year,
further review of the forms of work will be undertaken in 2008.
The aim is to be able to regularly review the changes in, and underly-
ing reasons for, the existing controls, and to develop these so that good
internal control of financial reporting can be maintained.
In conjunction with review of the control structure, responsibility for
ensuring that the control structure is in place and is known, and that con-
trols are carried out in the manner prescribed, is identified. This follow-up
procedure will also be documented.
LKAB ANNUAL REPORT 2007 | CORPORATE GOVERNANCE OF LKAB | 123
Controllers in each line of business receive the financial information
and comment upon it based on their reviews with mangers of the lines
of business.
LKAB’s central finance and control function follows up the financial
outcome and key ratios on an ongoing basis and closely monitors current
investments and capital expenditures within LKAB. Expenditures excee-
ding MSEK 5 are subject to the approval of the President. Expenditures
exceeding MSEK 20 are subject to the approval of the Board.
The investment process has also been a priority in 2007. During the
year, control activities have been conducted for three current investment
projects in LKAB: the new pelletizing plant in Kiruna, the new harbor faci-
lity in Narvik, and the olivine mine in Greenland. These three projects re-
present a total flow of disbursements amounting to about 9 billion kronor.
These investigations have been conducted in consultation with external
auditors, whereby each separate investigation has been defined based
on a risk assessment. Each investigation activity has been summarized
in an investigative report.
Experiences from the above internal control activities, as well as
changes in procedures owing to the introduction of the new business
management system, should mean that work with respect to internal
control will be further formalized and developed during the coming fiscal
year.
STATEMENT 2007
In accordance with pronouncements by the Swedish Corporate Gover-
nance 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 Board finds
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.
Luleå, 12 March 2008
For the Board of Directors of LKAB, Chairman
Björn Sprängare
Egil M. Ullebø
Lars-Åke Helgesson Anna-Greta Sjöberg
Stina Blombäck Per-Ola Eriksson
Björn Sprängare Christer Berggren
124 | BOARD OF DIRECTORS AND AUDITORS | LKAB ANNUAL REPORT 2007
Board of Directors and Auditors
THE BOARD
Chairman, Björn Sprängare (1940)
Director Board Member since 1997.Graduate Forester 1967, Dr. of Forestry
Skogshögskolan 1973, President and CEO Mo och Domsjö AB 1981-1986, Presi-
dent and CEO Trygg Hansa 1986-1994, Governor of the Royal Palaces 1996-2004.
Other directorships: Chairman, Konserthusstiftelsen i Stockholm, Stiftelsen
Skogssällskapet, SJR in Scandinavia. 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 Communications Deputy
Board Member 2001, Board Member since 2002. MA Pol. Sci., Stockholm University
1972, employed with Statens Pris- och Kartellnämnd (SPK) 1971-1978, employed
with the Ministry of Industry, Employment and Communications since 1978.
Other directorships: Member of the boards of IRECO Holding AB, SP Swedish Na-
tional Testing and Research Institute, AB Svensk Bilprovning and Zenit Shipping AB.
Stina Blombäck (1951)
President of Billerud Karlsborg AB Board Member since 2000. 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: Board Member, Energy Development Board.
Per-Ola Eriksson (1946)
Governor, County of Norrbotten Board Member 1991-1999 and since 2004.
Member of Parliament 1982-1998, Group Leader, Centerpartiet parliamentary com-
mittee 1991-1998, Chairman, Standing Committee on Finance 1991-1994 and Vice
Chairman 1995-1998, Chairman, Landshypotek AB 1994-2005, Director General,
NUTEK 1999-2003, Chairman, Teracom AB 2001-2003, and Governor of
Norrbotten County since 2003.
Other directorships: Chairman, Längmanska företagarfonden, Norrbottens läns
Hushållningssällskap and member of the Swedish Fiscal Policy Council.
Lars-Åke Helgesson (1941)
Director Board Member since 2000. Graduate Engineer, MBA, Handelshögskolan
Göteborg 1971, President and CEO, Haldex 1981-1988, Division Manager, Stora
1988-1992, President and CEO, Stora 1992-1998.
Other directorships: Chairman of the Boards of Generic Sweden AB and Translink
Holding AB. Vice Chairman, British-Swedish Chamber of Commerce. Board Mem-
ber of Ballingslöv Internationel AB, Axel Christiernsson AB, Crane AB, and the Royal
Swedish Academy of Engineering Sciences.
Anna-Greta Sjöberg (1967)
Managing Director, The Royal Bank of Scotland, Nordic Region. Board Member
since 2005. MBA, Handelshögskolan Stockholm 1989, Sandvik de Mexico 1989-
1991, BPA 1991-1993, Bergaliden AB 1993-1998 (CEO 1997-1998), and RBS
since 1998.
Other directorships: Board Member, Hufvudstaden AB.
Egil M. Ullebø (1941)
Director Board Member since 2001. MSc Norges tekniske høgskole, MSc Bus.
Adm. Norges Handelshøgskole, and studies at Tempelton College, Oxford. Em-
ployed with the Orkla Group 1970-2006.
Other directorships: Chairman, Østfold Energi AS, Board Member, Borregaard In-
dustries Ltd, Borregaard Skoger AS, Hustadmarmor AS and Innovasjon Norge Oslo,
Akershus and Østfold.
Torsten Thorneus Tomas Kohkoinen
Karl Wikström Hans Fängvall
Tomas Nilsson Bertil Thornberg
LKAB ANNUAL REPORT 2007 | BOARD OF DIRECTORS AND AUDITORS | 125
EMPLOYEE REPRESENTATIVES
Tomas Nilsson (1965)
Ore developer Elected to the Board in 2004.
Secondary school and Runöskolan. Employed with LKAB since 1985.
Other directorships: Chairman, IF Metall, klubb Gruv 4, Malmberget.
Bertil Thornberg (1950)
Process operator Elected to the Board in 2003.
Commercial secondary school. Employed with LKAB since 1970.
Other directorships: Secretary and Treasurer, Swedish Metalworkers’
Union chap. 12, Kiruna, and Chairman SAK group.
Karl Wikström (1951)
Head of operations for mining law matters Deputy Board Member 1993-1999.
Board Member since 1999. Employee representative for PTK.
Mining engineering qualification. Employed with LKAB since 1969.
Other directorships: Vice Chairman and Treasurer, Ledarklubben Malmberget-Luleå.
Hans Fängvall (1963)
Process serviceman Deputy Board Member since 2003.
Secondary school, natural sciences, and training in forestry management.
Formerly employed with Modo and Domänverket. LKAB since 1989.
Other directorships: Chairman Swedish Metalworkers’ Union Gruv 135,
Svappavaara
Torsten Thorneus (1946)
Ore harbor worker Deputy Board Member since 1999.
Trade school. Employed with LKAB since 1968.
Other directorships: Chairman, Swedish Metalworkers’ Union chap. 2 Svartö-
staden, Luleå.
Tomas Kohkoinen (1965)
Chief design engineer. Deputy Board Member since 1999. Employee representative
for PTK. Secondary engineer, el/tel and training in electrical engineering/design,
maintenance. Employed with LKAB since 1986.
AUDITORS
KPMG Bohlins AB
Caj Nackstad
Authorized public accountant Chief accountant
Appointed by the Swedish National Audit Office
Filip Cassel
Authorized public accountant
SECRETARY
Göran Ekdahl
Attorney in the law firm of Bird & Bird Advokatbyrå. Secretary of the Board since 1984.
Jan-Erik Jatko Ola Johnsson
Martin Ivert Lars-Eric Aaro
Per-Erik Lindvall Mats Pettersson
Leif Boström Anders Furbeck Johan Heyden
126 | GROUP MANAGEMENT | LKAB ANNUAL REPORT 2007
Group Management 2007
Martin Ivert (1948)
President and Group CEO
Education: MSc, Royal Institute of Technology, 1972.
Employment: SKF 1974-2001; LKAB since 2002.
Directorships: Chairman, SveMin and Underhållsföretagen, member
Handelsbanken, Luleå.
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 and LKAB since 2001.
Directorships: Board Member, Luleå University of Technology; Chairman
of MITU (the mining and minerals research foundation), and member of
the Royal Swedish Academy of Engineering Sciences.
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 (TQM).
Education: MBA, Göteborg University, School of Business, Economics
and Law, 1985.
Employment: LKAB since 1985.
Directorships: Board Member of Logica Norr AB, Euromines and VindIn AB.
Johan Heyden (1965)
Vice President, Market Division
Education: MSc Mechanical Engineering, Luleå University of
Technology, 1988.
Employment: OVAKO Profiler 1990 - 1991, INEXA Profiler 1991-1996
and LKAB since 1996.
Jan-Erik Jatko (1949)
Vice President, Special Businesses Division.
Education: MBA, Stockholm University, 1976.
Employment: LKAB since 1976.
Directorships: Board member, SveMin, Expandum AB and Norrskenet AB.
Ola Johnsson (1955)
Vice President, Mining Division.
Education: MSc Mechanical Engineering, Luleå University of
Technology, 1980.
Employment: HTM 1980-1982; Luleå University of Technology
1982-1984; LKAB since 1984.
Directorships: Board Member, Progressum AB, MCC AB.
Per-Erik Lindvall (1956)
Vice President, Mining 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 of Business, 1991.
Employment: LKAB since 1991.
Directorships: Board Member, Teknikens hus.
Ola Johnsson, President and CEO as of 1 March 2008.
Communication: Ola Johnsson as of 1 March 2008.
Market Division: Johan Heyden as of 1 December 2007.
Mining Division: Anders Kitok as of 1 January 2008.
Bengt Hjärpe was Vice President, Marketing, until 30 November 2007.
LKAB ANNUAL REPORT 2007 | ADDRESSES | 127
Addresses
LKAB GROUP HEAD OFFICE
Box 952, SE 971 28 Luleå, Sweden
Tel +46 (0)920-380 00, fax (0)920-195 05
Ola Johnsson, President and CEO
MARKET DIVISION
LKAB NORDIC REGION
Sweden, Finland, Norway, Denmark and Iceland
Box 952, SE 971 28 Luleå, Sweden
Tel +46 (0)920-380 00, fax (0)920-148 63.
Stig Nordlund, Sales Manager
LKAB S.A.
Benelux, France, UK, Italy, Spain, Portugal, Turkey,
Africa, Americas
Chaussée de la Hulpe 150, BE-1170,
Brussels, Belgium
Tel +32-2 663 36 70. Fax +32-2 675 05 91.
Staffan Stenström, President
LKAB SCHWEDENERZ GmbH
Germany, Austria and Central and Eastern Europe.
Rüttenscheider Strasse 14, DE-45128 Essen,
Germany.
Tel +49 201 879 440. Fax +49 201 879 4444.
Göran Ottosson, President
LKAB FAR EAST Pte. Ltd
Asia, Southeast Asia, Middle East and Australia
300 Beach Road #29-02, The Concourse,
Singapore 199555.
Tel +65 6392 49 22. Fax +65 6392 49 33.
Roger Hahne, President
MINING DIVISION
LKAB
SE-981 86 Kiruna, Sweden. Tel +46 (0)980-710 00.
Fax (0)980-109 02.
LKAB
SE-983 81 Malmberget, Sweden. Tel +46 (0)970-760
00. Fax (0)970-236 00.
LKAB, Narvik ore harbor
Postboks 314, NO-8504 Narvik, Norway.
Tel +47 769 238 00. Fax +47 769 449 25.
Svein Ivar Sivertsen, general manager
LKAB, Luleå ore harbor
Box 821, SE 971 25 Luleå, Sweden
Tel +46(0)920-380 50. Fax (0)920-380 60.
Lars Andersson, general manager
MINERALS DIVISION
MINELCO AB
Box 952, SE 971 28 Luleå, Sweden
Tel +46(0)920-381 60. Fax (0)920-190 88.
Per-Erik Lindvall, President
Minelco Oy
P.O. Box 57. FI-718 01 Siilinjärvi, Finland.
Tel +358 17 266 0160. Fax +358 17 266 0161.
Kari Laukkanen, President
Minelco Inc.
2020 Scripps Center, 312 Walnut Street
Cincinnati, OH 45202, USA.
Tel +1 513 322 5530. Fax +1 513 322 5531.
Mats Drugge, President
Minelco Specialities Ltd
Raynesway, Derby, DE21 7BE, England.
Tel +44 1332 673131. Fax +44 1332 677590.
Stuart Larbey, President
Minelco Minerals Ltd
Flixborough Industrial Estate, Flixborough,
North Lincolnshire, DN15 8SF, England.
Tel +44 1724 277411. Fax +44 1724 866405.
Robert Boulton, President
Minelco GmbH
P.O. Box 10 25 54, DE-450 25 Essen, Germany.
Tel +49 201 45060. Fax +49 201 4506 490.
Ian Yates, President
Minelco B.V.
Vlasweg 19, Harbour M164, P.O. Box 16,
NL-4780 AA Moerdijk, The Netherlands.
Tel +31 168 388 500. Fax +31 168 388 599.
Peter Duifhuis, President
Minelco Asia Pacific Ltd.
4502 China Resources Building, 26 Harbour Road,
Wanchai, Hong Kong
Tel +852 2827 4138. Fax +852 2827 5574.
John Engel, President
Minelco (Tianjin) Minerals Co., Ltd
Junyi Industrial Park,
Jungliangcheng, Dongli District,
Tianjin, P.R. China 300301.
Tel +86 22 2435 1706. Fax +86 22 2435 1708.
Bin Zhou, President
Minelco Thailand
Representative Office Bangkok,
10th Floor, Boonmitr Building,
138 Silom Road, Suriwong,
Bangrak, Bangkok 10500, Thailand.
Tel +66 2,634 4171. Fax +66 2,634 4172.
Nick Mellor, President
Minelco A/S
Boks 1329, DK-3900 Nuuk, Greenland.
Tel. +299 1991 13.
Minelco Slovak Republic
Representative Office Bratislava,
Panenska 13, SK-81103 Bratislava, Slovak Republic.
Tel +421 2 5930 5753. Fax +421 2 5930 5754.
Marian Zilinsky, Sales Manager
SPECIAL BUSINESSES DIVISION
Wassara AB Hornsgatan 103, SE-117 28 Stockholm.
Tel +46(0)8-84 95 50. Fax (0)8-84 02 71.
Peter Johansson, President
AB Kiruna Grus & Stenförädling
Box 817, SE-981 28 Kiruna, Sweden.
Tel +46(0)980-685 00. Fax (0)980-832 79.
Peter Söderman, President
Fastighets AB Malmfälten
SE-981 86 Kiruna, Sweden.
Tel +46(0)980-710 00. Fax (0)980-728 95.
Lennart Thelin, President
128 | SIX YEARS IN BRIEF | LKAB ANNUAL REPORT 2007
SIX YEARS IN BRIEF
100 million to research center LKAB presented a research grant of MSEK 100 to Luleå University of Technology for the establishment of a founda-tion, the Hjalmar Lundbohm Research Center for Mining and Metallurgy. The foundation conducts research in mining engineering and metallurgy that supports LKAB’s strategies.
2003 10 15
2002 01 26
New President of LKABDuring 2002, the new president focused on LKAB’s core strat-egy, to be realized via so-called lean growth in the iron ore operation. This entailed management and fi ne tuning of day-to-day operations via a total-quality concept with continuous im-provement in all areas. The inspiration came from Japan. Spe-cial focus was placed on improved preventive maintenance and profi tability through cost-effectiveness and effi ciency.
New pelletizing plant in Malmberget, MK3 On this date, LKAB’s board voted to invest in a new pelletiz-ing plant in Malmberget (MK3), an important decision for capacity increases that would enable LKAB to retain market
shares with key growth customers in Europe and to remain a stable supplier to Nordic steelmills.
Minelco grows through acquisition
In 2003, via its subsidiary Minelco AB, LKAB acquired the industrial minerals business of Frank & Schulte Fillers and Minerals Division, from the German logistics group Stinnes AG. Thanks to the acquisition, LKAB improved the possibilities for marketing magnetite products as an important industrial mineral.
2003 04 11
Charlotte Kalla and Åsa LarssonLKAB award winners In 2005, the athletic achievement award went to skier Char-lotte Kalla, and author Åsa Larsson won the cultural achieve-ment award. Charlotte Kalla’s goal in 2005 was to join the national team, compete in the World Championships and the Olympics, and eventually become world’s best. Åsa Larsson was born in Uppsala, but grew up in Kiruna. Her two books about tax attorney Rebecka Martinsson are set in Kiruna and the surrounding area.
2005 04 27
2004 11 17
LKAB secondary-school programs in KirunaMalmberget was first to introduce an LKAB secondary-school program, but in late-August the first group of stu-dents was also admitted to the newly started LKAB program at Hjalmar Lun-dbohmsskolan in Kiruna. Nearly half of the students admitted, 7 of 16, are girls, which is particularly pleasing for the school and LKAB and a record for the engineering program.
New pelletizing plant in Kiruna, KK4 LKAB’s board finalized the decision on the investment, the largest to date in LKAB’s history. This is part of a major structural transition, fully in line with LKAB’s pellet strategy. Thanks to the additional volume from the new plant, LKAB will be able to meet increasing market demand from both blast-fur-nace and direct-reduction customers. China is the major driver and strong demand is expected to persist.
2005 12 16
LKAB Day in Luleå a classic eventOn 1 December, LKAB arranged a so-called LKAB Day in Luleå for employees and their families. Seventeen buses traveled with LKAB employees and their families from the Orefields to Luleå for a full day of ac-tivities. Information and study visits, with a gathering for food and refreshments at the head office, were followed by an exciting hockey game. This is a much appreciated feature of LKAB’s personnel work.
2007 12 01
2006 08 21
Maud Olofsson inaugu-rates the new pelletizing plant in Malmberget According to plan, the new MK3 pel-letizing plant in Malmberget started production in late-2006. Maud Olof-sson, Minister of Industry, Employ-ment and Communications, cut the ceremonial ribbon to officially open the plant.
2006 10 20
Twice as many womenThanks to LKAB’s focus on the gen-der issue, more and more women are now being employed by LKAB. In 2002, six percent of employees were women. Since then, in just over five years, that figure has doubled. It is essential that qualified women seek employment with LKAB and are re-cruited to positions that have tradi-tionally been male-dominated.
2007 10 10
LKAB ANNUAL REPORT 2007 | SIX YEARS IN BRIEF | 129
2005 08 11
New olivine mine in GreenlandOn 11 August, a ceremony was held to mark the start of Minel-co’s olivine project in Green-land. Among those present was Greenland’s Prime Minister, Hans Enoksen, who detonat-ed the first of three dynamite charges. Olivine is an impor-tant additive in LKAB’s iron ore pellets.
2005 11 21
New ore harbor in NarvikThe Board decided that the Narvik ore harbor would be refurbished at a cost of about MSEK 970. The upgrade will improve the efficiency of harbor operations 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.
Reporting dates
Annual General Meeting 2008
The Annual General Meeting will be held on 22 April 2008, in the LKAB Auditorium,
at Luleå University of Technology.
LKAB will publish the following financial reports for fiscal year 2008:
Interim Report for the period January – March 2008: 22 April 2008
Interim Report for the period April – June 2008: 15 August 2008
Interim Report for the period July – September 2008: 27 October 2008
Year-end statements for fiscal year 2008: 17 February 2009
Financial information in Swedish and English is available on the
Group’s website: www.lkab.com.
Print versions of annual reports are available on request from
LKAB Communication, Box 952, SE-971 28 Luleå, Sweden.
telephone +46 (0)920-380 00, fax (0)920-195 05, e-mail: [email protected]
130 | REPORTING DATES | LKAB ANNUAL REPORT 2007
LKABs Annual Report 2007
Produced by LKAB in cooperation with Vinter.
Photo: Fredric Alm, m fl.
Box 952. SE-971 28 Luleå, Sweden. Phone +46 (0)920-380 00. Fax +46 (0)920-195 05. www.lkab.com