Annual Report and. Årsredovisning hållbarhetsredovisning 2008

Transcription

1 Annual Report and Årsredovisning och hållbarhetsredovisning Sustainability Report 28

2 For a sustainable future Sustainable development implies meeting the needs of the present without compromising the ability of future generations to meet their own needs. We have not inherited the earth from our parents but have borrowed it from our children. From the Brundtland Report.

3 JAN Events during 28 FEB LKAB participates in Homecoming Days in Kiruna and Gällivare MARCH Fatal accident in the Kiruna mine Astronaut Christer Fuglesang visits Kiruna Decision on new main level in the Malmberget mine LKAB awards Anita Fors, Nybergs Mek., Businesswoman of the Year in Kiruna Fire in Malmberget halts production, LKAB declares force majeure APRIL M AY Ola Johnsson assumes the position of President and CEO Discharge and loading stations in Kiruna operational Minelco takes over operation of the olivine mine in Greenland Test mining begins at Gruvberget, Svappavaara Experimental Blast Furnace in Luleå, 1th anniversary Donation of photo archives to Gällivare Bildarkiv First pellets produced in KK4 Flotation plant operational in Svappavaara Global trade in iron ore Largest export and import countries. E P O RT Sweden LKAB OT H E R S I M P O RT EU E P ORT Canada I M P O RT South Korea I M P O RT Japan I M P O RT China I M P O RT Taiwan E P O RT India E P ORT Brazil E P O RT Australia E P O RT South Africa NET SALES AND OPERATING INCOME 24 SALES PER MARKET REGION RETURN ON SHAREHOLDERS EQUITY Others 8% 21 Asia 22% % 5 Europe 7% Net sales ( ) Operating income The 41% increase in net sales is mainly explained by increased revenues in the Mining Division owing to new prices on fines and pellets for 28. Operating income increased by 68% to 1,327. Europe is the Group s biggest market Return on equity (after tax) Target return on equity (after tax) The targeted return on equity is 8.5% over a business cycle.

4 JUNE Pelletizing plant KK4 inaugurated First class graduates from LKAB High School in Malmberget Summer school for children in Kiruna and Malmberget J U LY AUG Vehicle fire in the Malmberget mine, miners to rescue chamber SEP Minelco signs biggestever sales contract Technical problems delay relocation of homes from Elevhemsområdet, Malmberget OCT Wassara establishes sales office in Chile Decision on new main level in Kiruna New storage facility for bentonite inaugurated in Luleå Recertification of quality management system, certificate is renewed Loading equipment breakdown in Narvik Employee suggestion No. 3 is submitted NOV LKAB allocates 5 in funding to LTU DEC Two pelletizing plants closed Vice Present Communications hired Malmberget home owners offered exchange for new homes in addition to relocation and purchase agreements The government gives the goahead on a rail bypass in Kiruna Successful start to certification of energy and environmental management system at KGS Events in brief The year began with very high demand for iron ore and industrial mineral products. This resulted in record price increases for the iron ore producers. LKAB reached agreements on price hikes of 86.67% for blast furnace pellets and 7.31% for Kiruna B Fines. The Group s net sales increased by 41% to 23,128 (16,385). Operating income increased by 68 percent to 1,327 (6,148). Investments in fixed assets amounted to 4,716 (5,968). The number of accidents resulting in absence was 65; two more than in 27. Frequency per million working hours declined marginally to 9.4 (9.5). Longterm absence continued to fall, dropping to.7 (1.2) percent. Shortterm absence was 2.3 percent. A truck driver working for LKAB in the Kiruna mine was killed in a cavein in February. The accident investigation revealed that the rock fall was caused by a seismic event. An intensive improvement effort was initiated immediately with the help of external and inhouse experts in close collaboration with LKAB s trade unions. A fire in the early hours of 21 February in Malmberget s concentrating plant and its transformer station resulted in a total production stop in the processing plants. Initially, production of crude ore is restricted. LKAB declared force majeure in a notice to customers and lost nearly a million tonnes in deliveries. On 21 Feb., LKAB s board took the decision to build a new main level (MUJ 125) in the Malmberget mine for the orebodies in the socalled Eastern Field. The investment, which is estimated at 4.5 billion kronor, also includes an extension of the 1, meter main level to the Fabian orebody. In March, Minelco assumed control of olivine production and operations in Greenland. GROUP SUMMARY Net sales Operating income operating margin, % Profit after financial items profit margin % Tax Net income for the year Fixed assets Current assets Shareholders equity Cash flow for the year Return on equity, %* Equity/assets ratio, % Capital expenditures (fixed assets) Average number of employees * After tax , , ,2 69, , , , ,8 42, ,7 45, ,1 36,6 73,8 72, In May, the flotation plant was inaugurated in Svappavaara. Thereby, all concentrating plants in Kiruna and Svappavaara are equipped for flotation. Test mining of 5, tonnes of magnetite at Gruvberget in Svappavaara was followed by laboratory testing and pilotscale trials, and then fullscale trials in the Svappavaara concentrating plant. An application for a permanent mining concession was submitted during the year. The new concentrating and pelletizing plants in Kiruna (KA3/ KK4) were inaugurated on 17 June by H. R. H. Princess Victoria in the presence of 4 guests. In November, parties were held for personnel in Kiruna, Svappavaara and Narvik to celebrate the opening of the new plants. KGS AB decided to build a new concrete plant on LKAB s industrial site in Kiruna, acquire several new rock bolting rigs, and hire more workers to meet the demand for rock reinforcement. Minelco signed its largestever sales contract: for deliveries of magnetite products to be used in the manufacture of heavy concrete for covering gas pipelines that will be laid on the bottom of the Baltic Sea, from Russia to Germany. The contract was for 1.8 Mt magnetite products, as compared to sales in all of 28 of about one Mt. On 28 October 28, the Board voted on the construction of a new main level (Project KUJ 1365) for the Kiruna mine. The investment, the single largest in the company s history, is estimated at about 12.4 billion kronor. Minelco started several development projects to broaden the application areas for its selected minerals. LKAB invested 5 million kronor in research grants to Luleå University of Technology (LTU) for the establishment of an LKAB Excellence Center in Mining and Metallurgy at LTU. The longterm ambition is to increase knowledge in these research fields, which are strategically important for LKAB s growth and future competitive advantage. Minelco closed the production facility in Greece, merged two UK companies, and completed an investment in increased production capacity in the mica plant in Finland. Wassara AB acquired Lindgrens Mekaniska in Huddinge, and established a sales office in Santiago, Chile, to develop business on the South American mining market. The acquisition is part of the company s growth strategy. During the final months of the year, turmoil in the world economy slowed activity on the iron ore market, resulting in production cutbacks. LKAB closed two pelletizing plants in December and one in January 29. Permanent employees were reassigned to new duties, the number of contractors/consultants was restricted, and agreements with temporary employees were not renewed.

5 CONTENTS T he company 6 President s report 9 Mission, vision, strategies 11 Policies LKAB is an international hightech minerals group that produces iron ore products for the steel industry and other mineral products for many other industries and applications. With representation in Europe, Asia, the USA, and South America, the operation covers much of the world. The LKAB Group has about 3,8 employees and consists of about 3 companies in 15 countries. There are iron ore mines, processing plants and ore harbors in northern Sweden and northern Norway, and sales companies in Sweden, Belgium, Germany and Singapore. The industrial minerals operation is represented in Sweden, Finland, Germany, the Netherlands, Spain, the UK, Slovakia, Greece, Turkey, Greenland, the USA, Thailand, Hong Kong, and China. Wassara AB opened a sales office in Chile in 28. LKAB s main product is iron ore pellets for production of crude iron in blast furnaces and direct reduction processes. The product portfolio also includes many different industrial mineral products; mainly magnetite, olivine, mica and huntite, a mineral with flameretardant 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. 13 Human Resources 17 Strategic investments 23 Structural transition 27 Research and development 31 Mineral exploration 35 Mining Division 43 Minerals Division 49 Special Businesses Division S ustainability R eport 56 Reading instructions 57 Sustainability year Our approach to sustainability reporting 59 About LKAB 61 LKAB s strategy and governance 65 Work with economic issues 67 Work with environmental issues 81 Work with social issues 89 Glossary 9 GRI index 94 Attestation statement of assurance 95 Contact information F inance 96 Group overview The Special Businesses Division supports the group with technical services. 97 Contents financial statements 98 Report of the Directors 18 Financial reports and notes LKAB is a limited company, wholly owned by the Swedish state and represented by the Ministry of Industry, Employment and Communications. President and CEO: Ola Johnsson Chairman of the Board: Björn Sprängare Corporate ID No.: Proposed distribution of unappropriated earnings 163 Auditors report 164 Corporate governance report 168 Board and auditors 17 Group management 171 Addresses 172 Financial information

6 6 PRESIDENT S REPORT LKAB ANNUAL REPORT 28 A dramatic year with the best financial result ever After my first year as president, it is a great pleasure to report LKAB s best financial result ever (1.3 billion kronor) and to present an annual report that includes, for the first time, a sustainability report. LKAB is an international, hightech minerals group that operates on a globally competitive market. The LKAB Group s overall longterm strategy is to produce greater volumes of iron ore products and to produce 1 percent pellets. The steel producers are increasingly larger and normally have only two or three pellet suppliers. For a niche supplier like LKAB, it is important to be able to offer high quality, the right delivery terms, and competitive volumes. Part of the Group s strategy is also to develop Minelco s products as a complement to the iron ore business. Minelco will identify and commercialize other applications for iron ore products outside the steel industry. These applications will command as high or higher values than conventional sales to the steel industry. Minelco will also work to commercialize minerals that are required in LKAB s pellet production on other markets. The year in summary 28 was characterized by successes and drastic fluctuations on the iron ore market, but it will also be remembered for a sad event that occurred early in the year, when a young man working for LKAB was killed by falling rock in the Kiruna mine. This touched us all very deeply. LKAB has long worked with a focus on Safety First, and the ongoing development of the safety culture within the Group continues to be a top priority. LKAB strives to prevent, minimize and eliminate all risks in order to prevent similar incidents in the future. Zero accidents is the longterm goal of our work environment effort. In terms of sales, the year began at top speed, with very high demand for both iron ore and industrial mineral products. There were also very high price increases, of as much as 87 percent, on LKAB s main product, iron ore pellets. During the fourth quarter, the global financial crisis and ensuing recession also hit LKAB. Deliveries of iron ore products reached 22.7 million tonnes (Mt) for the full year, which was about 13 percent lower than the original target of 26 Mt. Sales of iron ore products for special applications remained high, however, and Minelco signed its largestever sales contract: for magnetite products to be used in the manufacture of heavy concrete for covering gas pipelines that will be laid on the bottom of the Baltic Sea, from Russia to Germany. In June, LKAB, together with H. R. H. Princess Victoria and about 4 guests, was pleased to open the new KK4 pelletizing plant in Kiruna. With the two new pelletizing plants that have been built in the orefields in recent years, LKAB has increased its production capacity by about 1 Mt pellets per year. KK4 is the final piece of the puzzle in our drive to increase processing capacity. In addition to enabling increased production, it also makes the production system considerably more flexible than it was at the start of the decade. During 28, the Board took a strategically very important decision: to invest nearly 17 billion kronor in the construction of new main levels in both iron ore mines. These longterm investments will secure mining operations and, thereby, the supply of crude ore until beyond 22 in Malmberget and beyond 23 in Kiruna. To be able to handle transport of the increasing volumes, we are now upgrading our logistics infrastructure. The strategic projects include new ore cars, more locomotives and renovation of rail terminals, as well as a major redevelopment of the harbor facility in Narvik, where underground product silos are being built. This will enable significant improvements in the efficiency of operations, and a better environment with considerable less dust emissions. A fire in Malmberget s concentrating plant and its transformer station brought production to a standstill at the height of the economic boom. There were no personal injuries, but LKAB missed delivery of nearly a million tonnes of iron ore products and was forced to declare force majeure in a notice to steel industry customers. Full production did not resume until more than a month after the fire. The LKAB Group grew geographically when the subsidiary Wassara AB established a sales office in Chile to develop business on the South American mining market. Sustainability Active cooperation with the communities and surrounding society in locations in which LKAB operates is important for the company, both on the home front in Norrbotten and in our international operations. Dialogue with our coworkers and others who are affected by the company s operations contributes to a better, stronger and more sustainable LKAB over the long term. LKAB s owner (the Swedish state) has decided that, as of 28, stateowned companies will present sustainability reports each year in accordance with the international GRI guidelines (Global Reporting Initiative). GRI enables quantifiability and our own yearly comparisons of our operations with those of other companies in the same industry. The owner s overall objective for LKAB is value creation, and we are now introducing a structured way of reporting LKAB s impact on the company s surroundings. Greater transparency in reporting from a sustainability perspective will help LKAB to foster and improve its business opportunities. Since sustainability reports are presented according to an international standard, we also gain a new management instrument that allows us to see if set targets are being met and how LKAB compares to other companies. During the year, LKAB initiated a groupwide program of

7 LKAB ANNUAL REPORT 28 PRESIDENT S REPORT 7 LKAB s CEO, Ola Johnsson. values linked to the company s mission and vision. In three years, we hope to be able to present global, clearlydefined and efficient processes for the work of sustainability and global reporting within LKAB. Our ambition is also to be able to present, within five years, the business utility of our sustainability efforts, which by then will be fully integrated into the business strategies, and a selfevident component of our corporate governance. Economic perspectives During the final quarter of the year, mounting unrest on financial and world markets slowed activity on the iron ore market, which resulted in production cutbacks. Two pelletizing plants were idled in December; one in Malmberget and one in Kiruna, and the Svappavaara plant was closed early in January 29. Thanks to the strong earnings trend of recent years, LKAB has been financially wellequipped as we have entered the downturn. Despite shortterm production cuts and necessary cost reductions, LKAB continues to make longterm investments to ensure the company s future profitability. To be able to realize the set strategy and invest about five billion kronor per year, despite the economic downturn, and to be able to manage the costly structural changes in the orefields communities that are necessary for securing future mining operations, LKAB has entered a consolidation phase. Planned expenditures of about 1.7 billion kronor have been postponed. As an economic driver and a major employer, LKAB has a big impact on the orefields communities. The structural transition will entail considerable expenditures during the coming years. Discussions with the respective stakeholders concerning the necessary measures and funding are ongoing. LKAB s dialogue with stakeholders is based on the Minerals Act and LKAB s responsibility for replacing existing functions. As agreements with the respective parties are reached, LKAB is successively allocating funds for agreed measures. All investment made by LKAB in infrastructure (the structural transition) competes with the normal investments in the company s production apparatus. For example, Banverket will begin construction of a new railway bypass in Kiruna in 29. To this end, LKAB has reserved 1,95 in the yearend accounts.

8 8 PRESIDENT S REPORT LKAB ANNUAL REPORT 28 Social perspectives Decisions on the construction of new main levels in both Malmberget and Kiruna are motivated by the fact that the orebodies extend not only at depth but also, in some cases, under settlement areas. This means that buildings and infrastructure must be relocated. In its relations with the many people who are affected by the transition, LKAB strives to provide assurance. They must be confident that the company will find sustainable and reasonable solutions based on the prevailing situation in each individual case. Personally, I believe that it is important for LKAB to maintain a running dialogue with those who are affected by our mining operations. Vital communities in which people can find attractive living and working conditions are essential for LKAB s future success. In Malmberget, attention has been drawn in recent years to the need for new dwellings for more than 15 property owners in Elevhemsområdet. During 28, we succeeded in finding viable solutions in the form of purchase agreements, relocation of buildings, or exchanges for new homes. For LKAB s employees, production cuts during the last quarter have meant that personnel from dormant and lowvolume operations have been reassigned to other duties in the company. At the same time, competence development efforts have been intensified. Adaptation of the workforce in line with the decline in demand has thus far been limited to nonrenewal of agreements with temporary employees and a reduction in the need for services from contractors and consultants. Accident frequency per million working hours was marginally lower than the previous years; i.e., 9.4 (9.5). The target for the year, to reduce the rate of accidents resulting in absence by 2 percent, was therefore not reached. The rate of longterm absence due to illness has, however, declined and is now.7 percent for the Group; a considerable reduction from more than four percent in 24. The active effort to increase the number of women employed in the Group has resulted in an increase from less than eight percent in 23 to 13.1 percent today. The proportion of women in managerial positions has increased to 13.3 percent. Minelco assumed control during the year over olivine production and operations in Greenland and closed the production facility in Greece. Environmental perspectives One of the greatest challenges facing LKAB and the minerals industry is that we impact the climate by releasing greenhouse gases such as carbon dioxide. LKAB s iron ore pellets are a highquality product of the future and offer obvious environmental advantages. They are produced in a process in which magnetite oxidizes, generating a considerable amount of surplus heat. This means that our input of fossil fuels is considerably less than that required by competing products and processes. With LKAB s iron ore pellets as the burden material in blast furnaces, total carbon dioxide emissions are significantly reduced, since the alternative process route, sintering at the steelmills, releases seven times as much carbon dioxide. LKAB s experimental blast furnace in Luleå contributes to European energy collaboration via the ULCOS project (Ultra Low CO2 Steelmaking), of which the aim is to reduce European steelindustry carbon dioxide emissions by 5 percent from 24 levels. New, more environmentally friendly technology is expected to be introduced in the European steel industry by 22. In addition, LKAB is working together with external researchers and other experts to find innovative new treatment methods, for example, a worldunique method of treating nitrogen oxides (NOx) in the pelletizing plants, and methods for sequestering carbon dioxide in waste rock and forests. LKAB is one of Sweden s largest energy consumers. The capacity to make good, sustainable energy deals and improve energy efficiency is decisive for production costs and competitiveness, as are trends on the energy market. Important, too, is that regulatory instruments such as environmental taxes and trade in emissions rights in the EU are effective, so that the result is technological development not elimination from the industry. To meet the power demand, LKAB and about 2 other companies in the energyintensive primary industries formed BasEl, a company that will generate powerproducing projects that may boost the supply of competitivelypriced electricity and renewable energy. During 29, the first windpower park will be built via BasEl s jointlyowned company VindIn AB. The possibility of future windpower production on LKAB s industrial site in Kiruna is under investigation. The future outlook 29 will be a tough year. The global financial crisis has led to a reduction in investment and consumption in the world s major economies. The USA, the EU and Japan are in recession and economic growth has slowed in China. A weak steel market has dampened demand for iron ore dramatically.the major iron ore producers are making production cutbacks to balance market supply and demand. Much points to the fact that these shortterm measures will continue during 29, even for LKAB. Demand for industrial minerals is expected to remain stable, particularly in the energy and environment sector, while lower demand can be expected in many other sectors during 29. LKAB will navigate through the recession by focusing on cost awareness and continued improvement of efficiency in operations. The flexible production apparatus that has been built up over recent years will serve us well in this endeavor. At the same time, the longterm, strategic work of strengthening the company will continue; for example, via investments in new main levels, upgrading of the logistical operations, and growth of the industrial minerals business. It is also vital that we continue to work with product development, both qualitatively and quantitatively, and to invest in longterm research in collaboration with customers, as well as in sustainability within the LKAB Group. LKAB will remain strong and be ready to deliver at top capacity when the upswing comes which it will, sooner or later. Luleå, March 29 Ola Johnsson, President

9 LKAB ANNUAL REPORT 28 MISSION, VISION, STRATEGIES, POLICIES 9 The Group s mission, vision, strategies, policies and guidelines Mission Vision Strategies LKAB 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 related products and services that are based on LKAB s knowhow and support the main business can also be included in the company s operations. LKAB will be perceived by the customers as the supplier that provides the most added value and is thereby the leader in its selected market segments. The LKAB Group s overall strategies for realizing the mission and vision 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 in the old plants Work to bring the new pelletizing plants MK3 and KK4 up to designed capacity Development of industrial minerals Organizational/human resources development for greater productivity and better work environment. The strategy is set, and the established strategic activities are pursued resolutely to lead the company forward. Iron ore operations in the Mining Division have in recent years focussed on full utilization, increased pellet production, safety and lean growth through better utilization of plant. Via a systematic program of preventive maintenance and the elimination of bottlenecks, production rose over the fouryear period up to 26 from 2 to more than 23 Mt, which corresponds to the production of a smaller pelletizing plant. The niche strategy, based on iron ore pellets as the product, has also resulted in two new pelletizing plants, one in Malmberget and one in Kiruna, which together will increase annual pellet production by about 1 Mt over the long term. Pelletizing plant KK4 in Kiruna, which came online in May 28, is the most recent component in the expansion of processing capacity in the iron ore operation. LKAB can thereby now deliver nearly 1 percent pellets to the steel industry. From LKAB s products, steel, a necessary ingredient for the growth and development of societies, is produced. Steel is crucial for global development, which favors the longterm demand for iron ore products and, consequently, full utilization of LKAB s production capacity. Another factor that bodes well for LKAB s products is the projected shortage of good, lowcontaminant scrap, a raw material for sponge iron production. The demand for iron ore pellets for sponge iron production will therefore increase. The use of pellets, especially LKAB s pellet products, offers clear environmental advantages. This is a competitive advantage in a world in which global warming presents a common environmental challenge. In this context, LKAB s pellets are without a doubt a product of the future. LKAB pellets are produced in a process in which magnetite oxidizes to hematite, which generates a considerable amount of surplus heat. This means that our input of fossil fuels is considerably less than that of competitors whose products are based on hematite ore. Consequently, global carbon dioxide emissions are significantly reduced when LKAB pellets are used in steel production. Access to mineable ores is a fundamental prerequisite for longterm operations. LKAB has sufficient iron ore reserves to ensure mining far into the foreseeable future. The Board of LKAB took strategically important decisions in 28 that will ensure the continuation of mining operations in the orefields. In both mines, new main levels are being built. The 17billionkronor investment will enable production far into the future; in Malmberget beyond 22, and in Kiruna, beyond 23.

10 1 MISSION, VISION, STRATEGIES, POLICIES LKAB ANNUAL REPORT 28 Demand for industrial minerals is expected to remain stable, particularly in the energy and environment sector, while lower demand can be expected in many other sectors during 29. The Group is investigating the possibilities for greater access to magnetite, for example, from Gruvberget in Svappavaara. Another important factor is that LKAB can take advantage of the strong financial platform which it has created. LKAB s financial strategy is to maintain a high equityassets ratio that will enable selffinancing of ongoing 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 cyclical downturns. The knowledge and commitment of employees is what develops LKAB. 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 organizational/human resources development is also of great strategic importance for the future. A vital aspect of this work is an unwavering commitment to a zeroaccidents policy. Access to mineable ores is a fundamental prerequisite for longterm operations. LKAB has sufficient iron ore reserves to ensure mining far into the foreseeable future. The board of LKAB took strategically important decisions in 28 that will ensure the continuation of mining operations in the orefields. In both mines, new main levels are being built. The 17billionkronor investment will enable production far into the future; in Malmberget beyond 22, and in Kiruna, beyond 23.

11 LKAB ANNUAL REPORT 28 MISSION, VISION, STRATEGIES, POLICIES 11 LKAB s policies P olicy IN BRIEF Quality policy LKAB will exceed customers present and future expectations by involving 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 policy Ethics policy Through continuous improvement of the working environment, the natural environment and energy use, LKAB s operations will promote longterm sustainability and profitable development. LKAB will strive to be perceived by customers, shareholders, suppliers, employees and the community as a company that conducts a sound and successful business operation with integrity and moral correctness. Personnel policy LKAB s personnel policy will contribute to making LKAB a company that is an attractive employer and is perceived as such. LKAB 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 company 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. Information policy Financial policies Credit Policy, Currency Policy and Policy for Managing Financial Assets and Liabilities; see Dividend Policy; see Corporate Governance. QUALITY POLICY LKAB will exceed customers present and future expectations by involving 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. E N V I R O N M E N TA L A N D E N E R G Y P O L I C Y Through continuous improvement of the working environment, the natural environment and energy use, LKAB s operations will promote longterm 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. New technologies and technical advances will be assessed with consideration to the working environment, environmental protection, 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 society, our attitude shall be characterized by openness and factuality. ETHICS POLICY LKAB will strive to be perceived by customers, shareholders, suppliers, employees and the community as a company that conducts a sound and successful business operation with integrity and moral correctness. LKAB will always comply with the laws and regulations that apply in the countries in which LKAB operates, and in so doing, LKAB will respect the United Nations Universal Declaration of Human Rights. LKAB will strive to uphold impeccable business ethics. In realizing its objective of maintaining a financially sound and successful business operation, LKAB will strive to protect the environment and use energy responsibly. LKAB will strive to maintain strong and enduring relations with its employees. G en er a l pr i n c i pl es LKAB s chief task is to develop and maintain a financially sound and successful business operation. In the countries, communities and environments in which LKAB operates, we have a longterm 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.

12 12 MISSION, VISION, STRATEGIES, POLICIES LKAB ANNUAL REPORT 28 Busine ss e thic s I N F O R M AT I O N P O L I C Y LKAB will not use methods such as bribery and other corrupt and unfair competitive practices that distort markets and hinder economic, social and democratic development. LKAB will not contravene applicable laws governing competition. Bribery is strictly prohibited in LKAB s business relations. LKAB 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 company 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. Envir o nm e nt 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. Em plo ye e r e l at i on s It is very important for LKAB to uphold a strong and enduring relationship with employees that is based on mutual respect and dignity. The terms of employment offered will comply with national legislation LKAB will provide a working environment that is safe and sound with respect to the nature of our operations, and we will strive continuously to implement improvements. Special, written health and safety instructions shall be issued and will apply in all workplaces. LKAB acknowledges employees right to organize under the applicable labor laws and principles of the 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 discrimination or harassment. 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 employ persons younger than 15 years of age or the higher age that may be stipulated by local legislation. E M P L OY E E R E L AT I O N S P O L I C Y 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 longterm health of our employees. Our view is that all LKAB employees can, and will, contribute positively to the development of the company. The commitment and diligence of our employees is a prerequisite for longterm competitive advantage, profitability and productivity. This will in turn create the conditions for good terms and conditions of employment. 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. G u i d el i n es The Group s corporate communications will contribute to greater knowledge and trust among the company s stakeholders. I n t r a g r o u p i n f o r m at i o n Each line manager is responsible for communication, the ongoing dialogue, in his or her workplace. Similarly, each line manager is responsible for ensuring that coworkers have continuous access to current and necessary information about their workplace and its role in the company s operations. E xt er n a l i n f o r m at i o n The President has the overall responsibility for external communications. Members of Group Management are responsible for external communications with respect to their individual areas of responsibility. The Chairman of the Board issues statements pertaining to ownership issues. The mass media are an important channel of 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 taken to safeguard personal integrity. LKAB will strive to follow the rules of corporate information disclosure that are recommended for companies listed on the Stockholm Stock Exchange. No financial information other than official yearend or interim reports may be disclosed to external parties. FINANCIAL POLICIES The 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 governance/control documents. In consultation with the owner, the Board has established a Dividend Policy, which is presented in the Corporate Governance Report.

13 LKAB is people LKAB ANNUAL REPORT 28 PERSONNEL

14 14 PERSONNEL LKAB ANNUAL REPORT 28 Personnel LKAB is people The company s growth, profitability and future are dependent on how resources and prerequisites are utilized and, for example, how employees knowledge, willpower, motivation and commitment are brought to bear. Among other things, our Employee Relations Policy states that we will strive to ensure that our workplaces are safe, secure and developmental, that each individual assumes responsibility for his or her own safety and the safety of others, and that conditions will be conducive to the longterm health of our employees. One of the Group s overall strategies is to develop the organization and personnel in order to achieve a safer work environment. This year, LKAB is presenting a sustainability report in which we describe our work with social issues in the company; for example, health, the drugfree workplace, absence due to illness, sponsoring, work with equality and diversity in LKAB, and employee incentive systems, see page 81. Coworkers with knowledge and commitment A competitive business is always focused on greater efficiency with the help of knowledgeable and committed workers. There are about 24 different occupations in LKAB, of which about 16 are subject to collective agreements with IF Metall (the Swedish Metalworkers Union), and about 8 in PTK (Council for Negotiation and Cooperation (PTK), formerly known as the Federation of Salaried Employees in Industry and Services). Developing the organization entails, for example, delegating greater responsibility and authority to individuals. LKAB therefore works actively to encourage coworkers to assume personal responsibility and to develop their own competencies, as well as to deal with the tasks of work together with colleagues in teams, projects and other forms of work organization. To improve the efficiency of operations, LKAB has worked with a longterm approach to gender equality. Experience shows that work groups with both men and women develop a better work environment and work more safely and efficiently than singlegender groups. By the close of 28 the proportion of women had increased to 13.1 percent and the number of women in managerial positions to 13.3 percent. An important explanation for the increase in the number of female employees was LKAB s collaboration with Arbetsförmedlingen and Lernia i Malmfälten in the Process Technology training program. Many of the participants were women and were employed by LKAB. Work towards gender equality will henceforth The goal is zero accidents Development of LKAB s safety effort is ongoing. The results have been good over the long term, while at the same time, acceptance of the accidents and incidents that have occurred has never been lower. Zero accidents is the longterm goal. During 28, the frequency of accidents per million working hours fell marginally to 9.4 (9.5). However, this is still off the target, which is a 2percent reduction in accident frequency. The safety culture is developing continuously, and LKAB is persistent in its striving to identify, prevent and eliminate the risks that exist in our operations. Risks that cannot be eliminated will be minimized, and the level of caution among those who are exposed to them must be high. No industrial operation is free of risks, and LKAB is no exception. In February, the worst that can happen occurred in one of our workplaces. A person who was working for LKAB died in a cavein accident. This was the second fatal accident in less than two years and a serious failure that resulted in grief and distress for many people. There is a risk of work feeling meaningless when such an event occurs, but LKAB never gives up the longterm effort to systematically eliminate accidents. Health and safety in the workplace Age structure Our conviction about safety 6 All injuries and workrelated illnesses can be prevented. 5 Safety at work is a condition for employment and contract work. Each of us is responsible for preventing workrelated injuries and illnesses. All 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 workrelated injuries and illnesses is good for business. (as of 31 Dec.) Men Women The average age of employees in Sweden and Norway is 44 years

15 LKAB ANNUAL REPORT 28 be part of a broader effort to achieve greater diversity within the company. Economic downturn has necessitated adaptation of the workforce During the final months of the year, LKAB suffered the effects of the global financial crisis and an everdeeper downturn due to a dramatic decline in deliveries of iron ore products. Cutbacks were therefore made in iron ore operations in order to adapt to the prevailing economic situation. In the orefields, pelletizing plants were closed, personnel from dormant and lowvolume operations were reassigned to other duties in the company or placed in training programs, contracts with temporary personnel were not renewed, and the number of contractors/consultants was restricted. This also meant that there was virtually no need for external recruiting at the close of the year, with the exception of a few key managerial positions and rockwork personnel, which LKAB continues to employ in order to complete the planned rock reinforcement work and other projects in the mines. The generation shift implies a need for labor LKAB s longterm assessment is that the need for new, qualified personnel will persist when the economy picks up and the growth trend in the iron and steel industry resumes. A large FUTURE COMPETENCE PERSONNEL 15 Training Training days/employee (women / men) 5,2 (7,8/5,2) 6, (9, / 5,5) Training days, managers 4 7,9 Total training days There were fewer training days in 28 compared to 27, since training for the new processing plants in Kiruna was most intensive during 27. Several longer leadership training programs will be completed in 29. generation shift has been under way in LKAB for several years. This means that many people are retiring, while new employees are being introduced into the company. During 28, 338 permanent employees were hired within the Group and 278 people left the company. The number of employees in the Group amounted at yearend to 4,17, of which 191 were temporary employees. A trainee program concluded in March 28 and a new program, with five participants, began in April. LKAB has had trainee groups each year since 25. A total of 19 trainees (nine men, ten women), have assumed permanent positions within the Group. A ctivities conducted during the year to meet the long term need for qualified labor The LKAB high schools An evaluation of LKABrelated secondaryschool programs ( the LKAB high schools ) in Malmberget and Kiruna shows that the programs are highly merited by the students as well as by the departments within the company that employ graduates of these programs. Secondary schools in the orefields wish to continue these programs in cooperation with LKAB, and new agreements are planned when the current ones expire. The first class of nine students from the LKAB high schools graduated from Välkommaskolan in Malmberget in June 28. All were offered, and accepted, employment at LKAB Malmberget. Two of the company s electricians have taught courses in these secondaryschool programs very successfully. Thanks largely to LKAB s commitment and collaboration, interest in vocational programs has increased among girls as well as boys, in the schools in both Malmberget and Kiruna. LKAB s summer school LKAB s summer school for children aged 11 to13 was held for the second year running. There were six groups of 12 children in both Gällivare and Kiruna. The school is organized much like a summer camp, where children learn more about LKAB and have a chance to test their limits. In 28, a group for 14yearolds was also started in Kiruna. Cooperating partners are Korpen in Kiruna, and Ungdomens Nykterhetsförbund in Malmberget. Luleå University of Technology (LTU) Among activities that support future recruitment may be mentioned: reception of new students in conjunction with the careers center at Luleå University of Technology (LTU); presentations at homecoming days during Christmas in Kiruna and Malmberget; an LKAB evening at LTU, and labor market days in several locations throughout Norrbotten and in collaboration with Arbetsförmedlingen (Swedish Public Employment Service) in Stockholm during November. Secondary schools within Lapplands Kommunalförbund High schools within the jurisdiction of Lapplands Kommunalförbund (an association of the municipalities of Kiruna, Gällivare, Jokkmokk and Pajala) seek collaboration with LKAB with an aim to retaining as many secondaryschool programs as possible, despite declining enrollment in the region. Lapplands Kommunalförbund arranges educational programs that directly benefit LKAB. They sponsor a program for maintenance technicians with 24 students, of which half are women, and during autumn 28, programs in electrical power engineering and natural resources were started. A program in process engineering is expected to start in autumn 29.

16 16 PERSONNEL LKAB ANNUAL REPORT 28 COMPETENCE DEVELOPMENT IN BRIEF FOLLOWUP International management program IN BRIEF During the year, an international management development program was completed. The aim is to strengthen the individual managerial role and to foster a common leadership identity in the Group, as well as to bring managers of the different operations together to exchange knowledge and experience. A new program is planned for 29. Mining engineering program Owing to the large number of positions vacated due to retirement in combination with a shortage of qualified labor, LKAB started its own mining engineering programs during lateautumn 28 in both Malmberget and Kiruna. Subject areas are those typical for mining engineering. Drilling, charging, rock reinforcement and scaling are combined with theoretical studies in areas including rock mechanics. Companyinternal training During the year, priority training within the company has been targeted at improved safety. Other major training initiatives have also been realized; for example, 2 training days related to the new concentrating and pelletizing plants that came online in Kiruna during the year. LKABs future grants LKAB encourages employees and their children to participate in study programs in priority subject areas in which the company has a need for qualified people. LKAB awards study grants for postsecondary education in engineering to the children of employees. Management training There is a great demand for qualified managers. During 27, more than 3 new managers were trained, and during 28, a further three management training programs, mainly for developing existing managers, were initiated. LKAB works actively to improve the attractiveness of the managerial role by offering opportunities for formal, onthejob management training. Individual management development A new method of needsbased management training, adapted for individual managers, was introduced in the Mining Division. Evaluation showed that the method was well received, and it will therefore be used in groupwide management training. Networking for managers There has been an expressed need for a network of managers at all levels, and LKAB has begun to investigate how such a network can best be established. Inauguration of a new pelletizing plant A record number of suggestions On 17 June, LKAB s newest and largest pelletizing plant KK4 and adjacent KA3 concentrating plant were inaugurated. The successful event was attended by customers from all of LKAB market regions, as well as guests from industry, government and the local business community. H.R.H. Princess Victoria presided over the inauguration ceremony. During the autumn, company parties were held on four evenings at Kiruna s Arena Arctica, where employees from Kiruna, Svappavaara and Narvik celebrated the new plants. Employee commitment was also evidenced by the fact that personnel submitted a record number of suggestions for changes and improvements during the year. Compared to 27, the number of suggestions submitted increased by 9 percent to 3,924, which is about 1.2 suggestions per employee. The longterm goal is for each employee to submit two suggestions per year. 28 also saw an increase in the number of suggestions that were reviewed; from 3,598 to 4,385, or about 22 percent. Focus areas 28 Outcome Focus areas 29 The accident frequency will be reduced to at most 7.5; the number of risk reports will continue to increase. The accident frequency was reduced to 9.4 to (9.5); the target was not reached. 1 Improve safety; the accident frequency will be reduced to at most 7.5. All accidents will be investigated. Improve wellness. Maintain and preferably reduce the rate of absence due to illness via intensified measures to improve health and fitness. Longterm absence due to illness fell to.7 (1.2) percent. The number of training occasions increased by 19 percent. 2 Maintain wellness, both shortterm and longterm. Focus efforts towards better insight with respect to, among other things, the importance of physical activity and diet for health and wellbeing. Increase the number of training occasions by at least five percent/year. Secure longterm competence supply. Better systematization in cooperation with schools and other training providers. Positive trend for both admissions grades and enrolment in the LKAB high schools. LKAB follows the progress of students in certain programs and arranges internships and other activities together with LKF and LTU via the careers center. The proportion of female permanent employees will be increased to at least 13.5%. The proportion of permanent women employees increased to 13.1 percent; the target was not reached. 3 Actively drive and support the restructuring necessitated by the global financial crisis, in among other ways, by clearly supporting the linear organization with the introduction of personnel planners who work on broad front within human resources. 4 Ensure the supply of qualified labor/competence via initiatives including our own training programs in mining engineering, and by increasing the number of women employed by the company.

17 Strategic investments for longterm profitability LKAB ANNUAL REPORT 28 INVESTMENTS

18 18 INVESTMENTS LKAB ANNUAL REPORT 28 Strategic investments Strategic investments for longterm profitability LKAB has worked very actively in recent years to strategically strengthen the company s competitive advantage. Current volume growth in the iron ore business, in close collaboration with customers, will mean an increase from 23 Mt to 3 Mt of iron ore products per year. At the same time, the industrial minerals operation and supporting subsidiaries continue to grow. This growth has been possible thanks to a strong market, large ore reserves and LKAB s financial strength. The Group s strategy for the future is based largely on the iron ore operation, and especially on iron ore pellets. Despite its relatively small size (three percent market share), LKAB is the world leader and the second single largest supplier of pellets. While LKAB is a small niche company on the market, we must nevertheless be large enough to keep pace with customers, who continue to grow. The steel producers normally have only two or three pellet suppliers. If LKAB is going to be one of them, we must have sufficient volumes to meet their demand. We must also be able to offer something extra in the form of added value, built into the products. LKAB works actively in this regard and is aided by longterm relationships with customers. The MK3 pelletizing plantin Malmberget. T H E I R O N O R E O P E R AT I O N Growth in the iron ore business has entailed several strategic billionkrona investments in operations in recent years, and 28 was characterized by major projects to develop the business. The new concentrating and pelletizing plants in Kiruna (KA3/ KK4) were completed and commissioned, as planned, in May. At the same time, investments in the logistical operations continued, with upgrading of the ore harbor in Narvik and the terminals in Kiruna, Svappavaara and Narvik, as well as in new locomotives and ore cars. During 28, the Board took two decisions that are strategically very important for the long term: to invest nearly 17 billion kronor in the construction of new main levels in both iron ore mines. Main level in Malmberget On 21 February 28, the Board approved plans for the construction of a new main level, Project M125, in the Malmberget mine, an investment of 4.5 billion kronor. The Malmberget mine consists of about 2 orebodies of varying size and depth, of which about ten are currently mined. The orebodies are at different depths, and the lowering of the main level therefore takes place successively in different parts of the mine. Currently, mining is taking place on three main levels; at 6, 815 and 1, meters below the leveling point, which were opened for operation in 1969, 1989 and 2, respectively.

19 LKAB ANNUAL REPORT 28 The newest main level, at 1, meters, will be extended to the Fabian orebody in Östra Fältet (the Eastern Field), where most of the orebodies are situated. Fabian is now being mined via level 815, contains magnetite and is open at depth; i.e., the depth to which the orebody extends is not fully known. A new main level will be built at 1,25 m to access the other orebodies in Östra Fältet. All of these contain magnetite. In Västra Fältet (the Western Field), mostly hematite and small quantities of magnetite are mined. This operation is now conducted via the 6 m main level. M125 is being planned to enable production of 18 Mt of crude ore, plus 12 Mt development waste rock, per year. The mineable ore reserve is estimated at 14 Mt of crude ore, which yields about 84 Mt of finished product. Based on annual production of about 81 Mt finished products, the operating life of the Malmberget mine will be extended by more than 1 years to beyond 22. Commissioning of the new main level is expected to take place during the third quarter of 21. The manning requirement during the construction period is estimated at most at around 25 people per year. The new main level will replace previous levels, which means that the need for production personnel in the mine will remain unchanged. The inclined drift (road) has been driven past level 135 and is approaching the deepest point (shaft bottom), which is at a depth of 1,39 meters from leveling point. Drifting for the main level and infrastructure has begun. Ongoing work has advanced to the point where the focus has now shifted from rock work to construction, mechanical assembly and installation of supply lines. Main level in Kiruna On 28 October 28, the Board voted on the construction of a new main level (Project KUJ 1365) for the Kiruna mine. View over LKAB and Kiruna, to the north. INVESTMENTS 19 The investment, the single largest in the company s history, is estimated at about 12.4 billion kronor. This sum includes work on the mine infrastructure such as roads, ventilation and hoisting systems, etc., which has been under way since 26. The iron ore mine in Kiruna consists mainly of a single, continuous magnetite orebody that is more than 4 kilometers long and has an average width of about 8 meters wide. Since 1962, all mining has been under ground. Main haulage levels have been built at levels 32, 275, 42, 54, 775 and 1,45 meters below leveling point. The current main level is at 1,45 meters. The new main level, taking the mine 32 meters deeper, will be the seventh since underground mining began in Kiruna. A haulage level will be built at 1,365 m for remotecontrolled shuttletrain traffic, similar to what is currently in use at the present haulage level. New underground locomotives and cars, to run on standard track width, will haul the ore from rock chutes to the crushing station, after which the ore is skiphoisted about 1.4 kilometers vertically in two stages up to processing plants at surface level. Ore will be mined in ten production areas in stages between today s 1,45 m main level and the new 1,365 m level. The mineable ore reserves is estimated at 615 Mt crude ore, yielding approximately 375 Mt finished products in the form of pellets and a lesser amount of special products. Based on annual production of about 19 Mt finished products, the operating life of the Kiruna mine will be extended by more than 2 years to beyond 23. Commissioning of the new main level is expected to take place during 212. The manning requirement during the construction period is estimated at most at around 45 people per year. The new main level will replace previous levels, which means that the need for production personnel in the mine will remain unchanged.

20 2 INVESTMENTS LKAB ANNUAL REPORT 28 Discharge and loading terminal in Kiruna. Part of the SILA project in Narvik, with underground silos (middle). Installing power lines for the new transformer station in Kiruna.