ANNUAL REPORT AND ACCOUNTS

Transcription

1 ANNUAL REPORT AND ACCOUNTS Store Norske Spitsbergen Kulkompani AS Store Norske Spitsbergen Grubekompani AS 2006

2 Store Norske Spitsbergen Kulkompani Aktieselskap 91 st year of operations Enterprise no.: Share capital l: 164,490,000 Store Norske Spitsbergen Grubekompani Aktieselskap 5 th year of operations Enterprise no.: Share capital l: 150,100,000 Board of Directors: Bård Mikkelsen Ole Fredrik Hienn Esther Kostøl Lise Chatwin Olsen Lisbeth Alnæs Henning Kløften Bjørn Helge Nygård Anita Johansen Chairman Vice-Chairman Staff representative Staff representative Staff representative Administration: Robert Hermansen Dag Ivar Brekke Harry Higraff Nils B. Tokheim Terje Carlsen Sissel Danielsen Ester Knudsen Harry Vinje Chief Executive Officer Deputy Chief Executive Production Director Marketing Director Human Resources Director Financial Director Chief Strategy Officer Safety Supervisor Esther Kostøl (left), Chairman Bård Mikkelsen, Vice-Chairman Ole Fredrik Hienn, Anita Johansen, Lisbeth Alnæs, Henning Kløften, Lise Chatwin Olsen and Bjørn Helge Nygård. Photo: Torbjørn Johnsen Contents Foreword...3 Annual report of Store Norske Spitsbergen Kulkompani AS...6 Proffit & loss account...11 Balance sheet...12 Cash flow statement...13 Annual report of Store Norske Spitsbergen Grubekompani AS...26 Proffit & loss account...36 Balance sheet...37 Cash flow statement...38

3 JOB DONE! At the end of April 2006 production restarted at Svea Nord after the fire there in summer All of Store Norske s employees and partners put in an incredible amount of work, and with the desired outcome. It is hard to describe the emotions we all shared when the coal started pouring out again from the stacker at Braganza Bay. Safety has always been paramount in Store Norske s operations and, since the fire, we have redoubled our efforts and set new, ambitious targets in this field. From the start, operations were marked by a number of significant interruptions to production, many linked to the stress conditions in the rocks close to the previously mined areas. These difficulties were overcome and, since December 2006, production has been extremely satisfactory. In order to fulfil existing contracts, the season s shipments continued during January and February 2007 with the help of icebreakers and ice-reinforced ships. This proceeded without any problems thanks to the professionalism of Kristian Jebsens Rederi AS, Leonhard Nilsen & Sønner Spitsbergen AS and our own harbour and loading teams. We anticipate January and February shipments to be a one-off. Shift in coal production worldwide and on Svalbard The demand for coal has continued to increase, first and foremost as a result of developments in China and India. The price of coal has reached levels we would never have thought possible a few years ago. One aspect of this is that delivery times for equipment and operating materials have increased significantly in line with the price increase which has affected all raw materials. The price increase has also coincided in part with a rise in the Norwegian krone. Coal is quoted and paid for in US dollars, and over the last year the dollar has fallen from over NOK 9 to below NOK 6. Currency hedging has minimised the negative effects of the strengthening of the Norwegian krone. Several new coal mines are now starting operations, particularly in the USA, South Africa, the Philippines and Australia. Many of these mines operate with seams of 90 to 120 cm. This is possible partly due to the situation with respect to the price of coal, but first and foremost because of the rapid technical development which has taken place in the field of mining equipment, which now allows the use of customised high-output equipment. Store Norske has extensive fields with coal seams of similar thickness which have yet to be properly surveyed. Our geologists are currently drawing up a programme to survey the large consecutive deposits between Gruve 7 and Reindalen. We should be able to mine these deposits at least as efficiently as competing coal producers. We can therefore confirm that Store Norske has many exciting business opportunities ahead. Prospecting for ore and minerals in the region of Finnmark Store Norske has secured significant concessions and rights via Store Norske Gull in the promising greenstone formation from the Finnish border to Karasjok. The preliminary explorations are complete and the geologists are optimistic. The same greenstone formation has formed the basis for significant mining operations in Finland, and several major Key figures for Store Norske Production (1,000 tonnes) Number of employees at group Sickness absence group 6,8 7,0 7,1 6,2 8,8 6,0 8,3 8,7 Injuries involving absence Turnover Tonnes/employee Profit/loss before subsidies/taxes Subsidies (NOK m) Depreciation Increase in turnover, % Increase in productivity, % 1 SNSK 2 SNSG ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS - 3

4 international mining companies seek to collaborate with us on the further exploratory work planned. Exploratory work in fields of this kind is a major R&D undertaking for the mining companies. A figure of just under 1% of Store Norske s annual turnover has been allocated in the budget for the exploration work in Finnmark, and this is an important and entirely natural part of our development work. Retaining a competent workforce and specialists in all fields is important for Store Norske. Our activities in Finnmark are guided by respect for the culture and rights of the Sami reindeer herders. Explorations are under way in areas which the Sami have used since time immemorial. We have absolutely no intention of introducing measures or engaging in activities which are in conflict with local interests. Our local cooperation with Sami reindeer herders and the Finnmark municipalities is open and characterised by trust. The local community normalisation The workforce engaged in coal-mining operations by Store Norske and our partner companies is now at a level which we expect to be maintained for the next 10 years. Demand for family housing remains high. As the composition of the population normalises and research and development activity increases, we expect the number of inhabitants of Longyearbyen to continue to increase. Fortunately, the Local Administration has built up significant expertise related to social development. There is some shortage of jobs for women, partly because it is practically impossible for couples with children both to work in Svea given the commuting system we operate. However, this challenge is evident in society at large. Environment and standard of living Global warming and the effects of greenhouse gases, particularly CO 2, have gradually made their way up the agenda in most industrial countries. Significant research is under way into efficient energy production, as well as CO 2 separation and depositing. Store Norske is involved in this research, participating in EU-financed programmes and supporting international projects. There is growing recognition of the urgency of procuring knowledge and finding solutions. The solutions require extensive scientific and commercial collaboration across national borders. Allowing the entire population of the world to live with dignity not only requires an end to war and oppression; such an aim will not be possible until energy can be supplied to every member of the worldwide population. At present 2 billion people have adequate electricity, 2 billion people have a little electricity now and then, and 2 billion people have no access to electricity at all. It is obvious that countries and population groups which have access to sufficient energy and which are responsible for the majority of greenhouse gas emissions must take an active part in efforts to provide poor areas of the world with new opportunities. This is impossible without coal mining, combustion and cleaning technology. Store Norske is part of the global world market, and the company recognises and acknowledges its responsibility. Thanks for your contribution 2006 was another record-breaking year for production and profits in Gruve 7. When mining resumed after the fire in Svea Nord, we allowed ourselves a bit of a celebration: 500 employees from Store Norske, LNSS, ISS and Lufttransport feasted on reindeer and danced to the popular band from Trondheim singing about how things are much better now. We had made it through the biggest tests and had very good reason to be pleased. We never lost faith in our mining operations and the job we were there to do. We did it! And we would like to thank you all for your hard work and the contribution you made. Robert Hermansen Chief Executive Officer 4 - ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS

5 ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS - 5 Photo: Tom Egil Jensen

6 Annual report of Store Norske Spitsbergen Kulkompani AS Store Norske Spitsbergen Kulkompani AS (SNSK) is the parent company in the Store Norske group. The company has two wholly owned subsidiaries, Store Norske Spitsbergen Grubekompani AS (SNSG), which carries out mining operations on Svalbard, and Store Norske Gull AS, which carries out prospecting activities. Store Norske Gull AS (SNG) 100% Store Norske Spitsbergen Kulkompani AS (SNSK) Store Norske Spitsbergen Grubekompani AS (SNSG) 100% Store Norske Boliger AS (SNB) 100% Svea Tankanlegg AS 15% Lompensenteret 50% Materiallageret 32% The Norwegian state, represented by the Ministry of Trade and Industry, owns 99.9% of the shares in SNSK. The remainder of the shares are owned by private shareholders, largely with shareholdings as a result of a special interest in the company and Svalbard. SNSK has not carried out active mining operations since 2001 but still has mining concessions over large areas of Svalbard. These concessions are held in reserve for future operations. The company owns several properties on Svalbard, including the two central properties covering Longyearbyen. The company leases land to companies establishing in Longyearbyen. SNSK has entered into a cooperation agreement with Longyearbyen Local Administration concerning management of the land. Key facts about the company in 2006 On 1 January 2006, a number of administrative and commercial functions were transferred from SNSG to SNSK. The purpose of the reorganisation is to utilise the expertise among the administrative staff of a commercial enterprise without losing focus on the core business in the subsidiary SNSG. Like 2005, 2006 was marked by the fire in the subsidiary company SNSG s mine Svea Nord. The fire broke out at the end of July 2005 and entailed a large-scale extinguishing and reconstruction exercise. The fire did not result in any reduction in SNSG s resource base. SNSG has business interruption insurance for operating losses for a period of 12 months and general insurance for equipment. The business interruption loss is calculated as the difference between the profit/loss the company would have generated without the interruption and the profit/loss the company actually achieved in the 12-month period as a result of the fire. Deductibles and ceilings in the insurance policy restricting the maximum payment for one claim to NOK 700 million meant that the fire has resulted in large losses for the company. The costs of the rescue and salvage operation in connection with the fire are covered in accordance with the Norwegian Insurance Act, and are not affected by the ceiling amount of NOK 700 million. The insurers and SNSG are so far apart in terms of their approach to the settlement that the major parts of the settlement will be dealt with in the court system. The main hearing has been set for autumn The District Governor has investigated the fire, and in March 2007 the company was advised that the matter had been dropped. Following the fatality in Svea Nord in June 2005, a fine of NOK 10 million was imposed on the company in 2006, which it accepted. Financial review The Board of Directors considers that the annual report published for the parent company and the group provides a true and fair description of the performance, results and financial position of the company and the group. The accounts have been prepared under the going concern principle. Operating income and profit Turnover in the parent company was NOK million. Turnover in the group was NOK 1,266.9 million. Operating profit was NOK 11.2 million for the parent company and NOK million for the group. The parent company posted a profit before tax of NOK 9.5 million, while the group recorded a loss before tax of NOK 84.7 million. Financial information The company had investments of NOK 0.3 million in 2006, while the group had investments of NOK 82.8 million. SNSK contributed share capital of NOK 150 million to the subsidiary SNSG at the time of the opening of Svea Nord in The subsidiary has invested in equipment and plant totalling NOK 1 billion. Until the fire in 2005, earnings in the subsidiary were high enough for this capital to be sufficient as risk capital in accordance with the banks requirements. In the light of the loss which the subsidiary has sustained in connection with the fire, and the fact that settlement of claims takes time, the company needs the owner to contribute new capital. The parent company does not have sufficient funds to be able to cover the subsidiary s capital requirement. A review of the mining company s financing requirements shows that it requires an additional equity injection of NOK 250 million. 6 - ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS

7 Photo: Tom Egil Jensen SNSG s cash flow is also affected by the fact that the company only generates sales income for five months of the year, as the ice conditions at Svea restrict outgoing shipments of coal. From January to July production is stockpiled, and credit requirements increase steadily throughout this period until shipments can restart. As SNSG is the main customer of SNSK, the parent company s cash flow will also be affected by circumstances in the subsidiary. The parent company is not subject to any currency exposure, but at group level most sales are transacted in foreign currency, primarily the US dollar. Active hedging in the mining company and long-term currency loans in the housing company are used to reduce the currency risk. At year-end, the parent company did not have any long-term debt. Short-term debt was NOK 26.1 million. The group had long-term debt of NOK million and short-term debt of NOK million. Appropriation of profit The Board of Directors proposes that NOK 7 million of the parent company s profit of NOK 7.3 million be paid in dividends and NOK 0.3 million transferred to other equity. Personnel At SNSK had 51 employees. Functions within the company include finance, accounting, salaries, personnel and training, purchasing and material administration (coal stocks), ICT and management. With the exception of the coal stocks, which are kept in Svea, all the company s operations are based at the head office in Longyearbyen. Sickness absence was 3.9% for SNSK and 8.7% for the group. Employee turnover in SNSK was 18.4% in The average period of employment in the company is 8 years. The average age of the company s employees is 44. Employee turnover in the group was 14.6% in The average period of employment in the group is 7 years. The average age of the group s employees is 38. Store Norske invests heavily in training and skills development. Between 1996 and the end of 2006, 151 mineworkers underwent vocational training and passed the qualifying examination in Mining Engineering. In all, a total of 256 employees have passed qualifying examinations in a total of 17 different subjects over the last 20 years. In autumn 2006, 33 candidates were presented with a certificate of completed apprenticeship ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS - 7

8 Photo: Tom Egil Jensen in collaboration with Troms county municipality. One of the company s employees was also the first person on Svalbard to pass the qualifying examination as a terminal worker. In autumn 2004 Store Norske started a three-year vocational training course in mining technology in collaboration with Stjørdal Technical College. 30 students are following this course in their own time, and will take their final examinations during spring At present this is the only course of its kind in Norway, but a number of training providers have approached Store Norske for further information. From autumn 2007, Store Norske plans to give employees the opportunity to study mining-related subjects at NTNU, the Norwegian University of Science and Technology in Trondheim. Several of the students at the technical college wish to continue their studies at university level. The company plans to offer a course of this kind in collaboration with NTNU from autumn A number of specialist courses are also being arranged. In autumn 2006 the company started teaching an occupational theory course in Mining Engineering. 40 candidates are registered for the examination in spring A management training programme for first-line managers is also in progress, and will be completed in autumn Social responsibility Longyearbyen celebrated its centenary in 2006, when Store Norske also marked 90 years as a major player on Svalbard. The social and commercial analysis for 2006 shows that around 50% of the 1,500 man-years worked in Longyearbyen and Svea are related to mining operations. The same analysis also confirms that coal mining plays a crucial role in stability and therefore in the family community. Store Norske supported a number of events in Longyearbyen in 2006, primarily activities aimed at children and young people but also sporting and cultural events for the population at large. Most of the company s employees are from North Norway, and Store Norske considers it natural to contribute to some degree towards culture and sport in this part of the country too. Research and development To date, Store Norske s research and development commitments have been based on the company s role in society. After 90 years on Svalbard, Store Norske has built up significant expertise within resource extraction, development and operation of infrastructure in the Arctic. This expertise is now being further developed in collaboration with the 8 - ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS

9 University Centre in Svalbard (UNIS), where Store Norske is supporting scholarships within arctic geology and technology respectively. The company produces coal. We see a growing interest in coal, and there is a growing interest both within Norway and from abroad. Coal is the world s most important energy source, and will remain so for the foreseeable future. Store Norske is supporting research into the treatment of greenhouse gases from the production of fossil fuels. The company is an industrial partner in the EU-financed DYNAMIS research project, the goal of which is to build a zero-emissions coal power station with hydrogen production. The company is also participating in the steering group for the CO 2 -free Svalbard research project, initiated by UNIS and the research foundation SINTEF Energiforskning. Store Norske is also developing its geological and social expertise within the wholly owned subsidiary Store Norske Gull AS. See the discussion below of the company s activities in Finnmark, where the company is now seeking to develop a search and extraction model which can work well in interaction with the Sami who herd reindeer on the plateau. In general, Store Norske s research and development activities are attracting growing interest from Norwegian politicians, public administration and the business community. The number of requests for information and visits continues to grow. areas of the Karasjok Greenstone Belt. Store Norske Gull AS has established good cooperation with Finnish geologists with experience of the greenstone belt in Finland, where rich deposits of gold have been found. The Karasjok Greenstone Belt is a continuation of the greenstone belt in Finland, and the expertise in place in the geological community in Finland is transferable. Store Norske Gull AS also works closely with NGU to facilitate systematisation and analyses of the explorations carried out. The company had operating income of NOK 0 in The loss before tax was NOK 3.2 million. The company did not have any employees at All services are purchased by SNSK. Affiliated companies/ other companies Materiallageret A/S 32% owned by Store Norske Spitsbergen Kulkompani A/S. The company lets out properties in Longyearbyen, where Store Norske has its offices. Lompensenteret A/S 50% owned by Store Norske Spitsbergen Kulkompani A/S. The purpose of the company is to operate business premises in Longyearbyen. Svea Tankanlegg A/S The purpose of the company is to procure, store and distribute fuel in Svea. 15% owned by Store Norske Spitsbergen Grubekompani A/S. Wholly owned companies Store Norske Spitsbergen Grubekompani A/S Most of Store Norske s operations are conducted within this company. The fire which occurred at the end of July 2005 continued to have a bearing on operations in the company in In 2006 the company posted a loss before tax of NOK million, and operating income of NOK 1,255.8 million. At there were 315 employees in the company. All administrative services are purchased by SNSK. Store Norske Boliger A/S 100% owned by Store Norske Spitsbergen Grubekompani A/S (SNSG). The company owns housing stock comprising 405 units in Longyearbyen which are let out to the group companies for their employees and the employees of Leonhard Nilsen & Sønner Spitsbergen AS (LNSS). Most income is internal to the group, and profit before tax was NOK 15.2 million from a turnover of NOK 30.7 million. The company did not have any employees at All services are purchased by SNSK. Store Norske Gull A/S The company was founded in 2003 and is primarily engaged in prospecting activities for mineral deposits. The company has mining claims in Finnmark, covering the most promising External environment The parent company has carried out mining operations in the area around Longyearbyen since 1916, and over this period locally restricted pollution has occurred in the form of acid run-off and scrap metal. This is now the subject of clean-up operations. The group s activities result in local pollution in the form of waste, dust and methane emissions. The group is focussed on the external environment and has extensive measures in place to reduce the impact its operations have on the natural environment. As a result of the environmental impact studies carried out, the group has gained a high level of expertise in miningrelated environmental issues. Monitoring programmes and collaboration with universities have provided good insight into the working methodology needed to devise good solutions. As a result of the work on Svea Nord, many employees have acquired important knowledge of environmental issues in the Arctic and gained considerable experience in obtaining, organising and applying this knowledge. ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS - 9

10 Equal opportunities SNSK is concerned with equal opportunities and aware of possible sex discrimination. There are four women on the company s Board of Directors, and two of the seven management positions in the group are occupied by women. The chair of the Longyearbyen Workers Association, branch 142 of the Norwegian Union of General Workers (NAF), is a woman. The Longyearbyen Workers Association represents most of the company s employees. The chair of the workers association is also an employee representative on the company s Board of Directors. Board of Directors The Board met eight times in 2006, twice on Svalbard. At the annual general meeting in June, Atle Fornes and Steinar Høgaas resigned from the board, and were replaced by Bård Mikkelsen and Lisbeth Alnæs. Employee representatives Jarle Haagensen and Sverre Henning Engh resigned and were replaced by Bjørn Helge Nygård and Henning Kløften. Bård Mikkelsen was elected as the new Chairman of the Board. Outlook The focus placed on the northern areas in 2005 and 2006 has led to increased interest in Svalbard and the activities of Store Norske. There is a high level of expertise in development and application of arctic technology within the group, and a demand for this from other industrial companies. In autumn 2006, the Board of Directors addressed the company s strategic platform for On the basis of this, the Board of Directors has sought to amend the company s articles of association such that the company s expertise can also be utilised outside Svalbard. Operations outside Svalbard could provide the company with additional sources of income in the future, and strengthen both expertise and the basis for existence. A broader base in the northern areas, combined with the main base and main operations on Svalbard, would reinforce the company s role as a commercial player with an important national function. The employees represent a broad and well-balanced mix of the expertise the group needs both for its current operations and to invest in future activities. The group continues to pursue extensive exploration activities for coal and mineral deposits on Svalbard. A review of the financial position of the wholly owned subsidiary Store Norske Spitsbergen Grubekompani AS shows that the company can run coal-extraction operations on Svalbard at a profit. Coal mining also continues to represent an important means of sustaining stability in Longyearbyen, and the company acts as a socially responsible player. In order to ensure a satisfactory financial position for the subsidiary SNSG, the Board of SNSK has sought an injection of NOK 250 million in new equity. This will be contributed to the subsidiary SNSG. Thank you to the group s employees The Board of Directors would like to thank all the employees and representatives in the group and its subsidiaries and affiliated companies for the motivation and loyalty demonstrated in Longyearbyen, 31 December March 2007 The Board of Directors of STORE NORSKE SPITSBERGEN KULKOMPANI AS Bård Mikkelsen Chairman Ole Fredrik Hienn Vice-Chairman Henning Kløften Lise Chatwin Olsen Lisbeth Alnæs Anita Johansen Bjørn Helge Nygård Esther Kostøl Robert Hermansen Chief Executive Officer 10 - ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS

11 Profit & loss account, Store Norske Kulkompani AS Group Parent company NOK 1000 NOK 1000 Note NOK 1000 NOK Coal sales CIF 1)2) Other sales income 6) Rental income Other operating income TOTAL OPERATING INCOME Change in stocks Wages and salaries, national insurance contributions and pension expenses 3)4)5) Freight relating to coal sales Other production and operating costs 7) Depreciation 8) TOTAL OPERATING COSTS OPERATING PROFIT/LOSS Financial income 9) Financial expenses 9) NET FINANCIAL ITEMS PROFIT/LOSS BEFORE TAX Tax payable 10) Changes in deferred tax 10) PROFIT/LOSS AFTER TAX Application of profit/loss for the year: Dividend Other equity Longyearbyen, 31 December March 2007 The Board of Directors of STORE NORSKE SPITSBERGEN KULKOMPANI AS Bård Mikkelsen Chairman Ole Fredrik Hienn Vice-Chairman Henning Kløften Lise Chatwin Olsen Lisbeth Alnæs Anita Johansen Bjørn Helge Nygård Esther Kostøl Robert Hermansen Chief Executive Officer ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS - 11

12 Balance sheet, Store Norske Kulkompani AS Group Parent company NOK 1000 NOK 1000 Note NOK 1000 NOK 1000 FIXED ASSETS Intangible assets 5)10) Tangible assets 8) Financial assets 11)12) TOTAL FIXED ASSETS CURRENT ASSETS Stocks 13) Receivables 12)14) Bank deposits, cash TOTAL CURRENT ASSETS TOTAL ASSETS SHAREHOLDERS EQUITY AND DEBT SHAREHOLDERS EQUITY Share capital 19)20) Other equity 19) TOTAL SHAREHOLDERS EQUITY DEBT Provisions 5)10)17) Long-term debt 16) Short-term debt 10)16) TOTAL DEBT TOTAL DEBT AND SHAREHOLDERS EQUITY ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS

13 Cash flow statement, SNSK AS, indirect model Group Parent company NOK 1000 NOK 1000 NOK 1000 NOK 1000 CASH FLOW FROM OPERATING ACTIVITIES: Profit/loss before tax Tax paid for the period Profit/loss on sale of fixed assets Ordinary depreciation Capitalisation in 2005 reversed Change in stocks Change in accounts receivable Change in accounts payable Differences in pension funds/ commitments Profit/loss using the equity and gross method Write-down of financial assets Effect of exchange rate movements Items classified as investing or financing activities Change in other accruals NET CASH FLOW FROM OPERATING ACTIVITIES CASH FLOW FROM INVESTMENT ACTIVITIES: Sale of tangible assets Purchase of tangible assets Reduced sales consideration in respect of assets sold previously Sale of shares and units in other companies Purchase of shares and units in other companies NET CASH FLOW FROM INVESTMENT ACTIVITIES CASH FLOW FROM FINANCING ACTIVITIES: New long-term debt New short-term debt Repayment of existing long-term debt Repayment of existing short-term debt Net change in overdraft facility Shareholders equity Repayments of shareholders equity Dividends paid Group contribution paid/received NET CASH FLOW FROM FINANCING ACTIVITIES EFFECT OF EXCHANGE RATE MOVEMENTS ON CASH AND CASH EQUIVALENTS Net change in cash and cash equivalents Cash and cash equivalents at beginning of period CASH AND CASH EQUIVALENTS AT END OF PERIOD ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS - 13

14 Notes to the accounts, SNSK AS and the group Note 1 Accounting principles The accounts have been prepared in accordance with Norwegian accounting rules and standards and generally accepted accounting principles. All figures are stated in NOK 1000 unless otherwise specified. Amounts in foreign currencies are stated separately. Consolidated accounts The consolidated accounts cover the parent company Store Norske Spitsbergen Kulkompani AS and subsidiaries and affiliated companies. An overview of the companies is provided in Note 11. Affiliated companies are included in the consolidated accounts using the equity method. The group s results and financial position are shown as one unit. Internal transactions among the companies such as revenues, expenses, receivables, debt and paid-up shares have been eliminated. The following abbreviations are used to refer to the companies: Parent/ Subsidiary SNSK AS Store Norske Spitsbergen Kulkompani AS SNSG AS Store Norske Spitsbergen Grubekompani AS SNB AS Store Norske Boliger AS SNG AS Store Norske Gull AS Affiliated companies: Materiallageret AS Lompensenteret AS Valuation and classification principles Income recognition Sale of goods and services is recognised in income at the time of delivery. Classification and valuation of balance sheet items Current assets and short-term debt cover items which fall due for payment within one year, as well as items associated with the operating cycle. Other items are classified as fixed assets/ long-term debt. Current assets are valued at the lower of cost and fair value. Short-term debt is recognised in the balance sheet at the original nominal amount. Fixed assets are valued at cost but written down to fair value if the decrease in value is not expected to be temporary. Long-term debt is recognised in the balance sheet at nominal value at year-end. Subsidiaries/ Affiliated companies Subsidiaries are valued using the cost method in the company accounts. The investment is valued at cost price of the shares unless a write-down has been necessary. The investment is written down to fair value if the decrease in value is due to reasons which cannot be assumed to be temporary and the write-down is considered necessary in accordance with generally accepted accounting principles. Write-downs are reversed if the basis for the write-down no longer exists. Dividends and other payments are recognised in income in the year in which the subsidiary made the allocation. If the dividend exceeds the share of retained profit after the acquisition, the excess represents repayment of the capital invested, and the value of the investment is deducted from the payments in the balance sheet. Affiliated companies are valued at cost in the company accounts, while the equity method is used in the consolidated accounts. The share of profit/loss is based on profit/ loss after tax in the company in which the investment has been made, less internal gains and any amortisation of goodwill as a result of the cost price of the shares being higher than the acquired share of equity in the balance sheet. In the profit & loss account, the share of profit/loss is shown under financial items. Stocks The stock of coal is valued at the total cost of coal production. The stock of operating materials and spare parts is valued at the lower of cost and fair value. Tangible assets and depreciation Tangible assets are recognised in the balance sheet and depreciated if they have a useful life of more than three years and have a significant cost price. Depreciation is based on the useful life of the assets. Receivables Accounts receivable and other receivables are recognised in the balance sheet at nominal value less provision for bad debts. Provision for bad debts is made on the basis of a specific assessment of the individual items. An unspecified provision to cover expected losses is also made for other accounts receivable. Insurance settlement after the fire The fire which broke out in Svea Nord on 30 July 2005 led to large costs for SNSG. Production restarted on 1 April 2006 but on the same day the mine suffered a rockfall, and coal production did not resume until 23 April The company has insurance for operating losses for a period of 12 months and for loss of equipment as a result of fire. The operating loss is calculated as the difference between the result the company would have achieved without the interruption and the result actually achieved following the fire. In accordance with generally accepted accounting principles, the company has made a conservative estimate of the insurance compensation ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS

15 Cash flow The cash flow statement has been compiled using the indirect method. Cash and cash equivalents cover cash, bank deposits and other short-term, liquid investments which can be converted into known cash amounts with immediate effect and negligible currency risk, and which have a due date within three months of the acquisition date. Receivables and payables in foreign currency Receivables and payables in foreign currency are recognised at the exchange rate prevailing at 31 December. Mine development costs The cost of mine development and preparation of new coalfields is recognised as an expense. The preparation of new fields includes moving stopes from one panel to the next. Exploration costs The cost of exploring new deposits is recognised as an expense. Pension commitments The group has a pension scheme for all its employees. Pension assets and costs are shown net in the balance sheet. Actuarial calculations of pension commitments and costs are carried out each year, taking account of expected wage increases based on linear accrual. The net pension cost for the period is included under Wages and salaries. Taxes Tax costs for the year are calculated on the basis of the bottom-line result. This covers both taxes payable for the year and changes in deferred tax. Deferred tax is calculated on the basis of differences between book and tax values. Note 2 Revenue - group Coal sales CIF Coal sales CIF can be broken down as follows: TONNES Energy Cement Metallurgical industry Other industry Svalbard Norway Denmark Finland Iceland Germany Great Britain Portugal France Greece USA Tonnes TonnEs Coal sales CIF totalled NOK 1,101.7 million. Total coal export levies of NOK 5.1 million have been deducted from sales income. Other operating income SNSG AS has insurance for operational losses as a result of interruptions caused by fire. The operating loss is calculated as the difference between the result of operations which would have been achieved in the indemnity period with and without the damage which occurred. The indemnity period is 12 months. Business interruption compensation is calculated on the basis of the output which would have been achieved had the damage not occurred. In accordance with the insurers submission and generally accepted accounting principles, the compensation figure used in the accounts is somewhat lower than the claim submitted. ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS - 15

16 Note 3 Management Remuneration Group Parent company NOK Remuneration of Chief Executive Officer: Salary Other reportable payments Directors fees Audit fee Accounting-related services With effect from , salaries and remuneration for administrative functions have been paid in SNSK. The subsidiaries are charged for their share by means of invoicing administrative services. The Chief Executive Officer is covered by the same pension scheme as the rest of the staff. Pension premiums paid relating to the Chief Executive Officer totalled NOK 232,000. The Chief Executive Officer does not have a final salary scheme or bonus scheme. Note 4 Specification of wages, salaries and national insurance contributions Group Parent company NOK Wages and salaries Pension costs Other payments Insurance compensation TOTAL The total number of man-years for SNSK and the group in 2006 was 48 and 384 respectively. NOK 27.0 million of total wages and salaries in 2006 relate to construction work in the mine after the fire. This amount has been included in full in the insurance claim. The insurance compensation is based on the same principle as was used in presentation of the accounts for No circumstances have emerged subsequently which suggest that the amount should be adjusted. The court case has been set for September Note 5 Pension costs and commitments group SNSK has a pension scheme covering 42 persons. The group has pension schemes covering a total of 413 persons, 39 of whom have taken early retirement. There are 130 persons in receipt of an ordinary pension, 56 of whom receive a retirement pension, 38 a spouse s pension, 8 a children s pension and 28 a disability pension. The schemes provide a right to defined future benefits, primarily dependent on the number of contribution years, salary at retirement age and the amount of state pension received. The pension commitments are covered by an insurance company. The company s pension schemes comprise both an ordinary retirement pension scheme (from the age of 67) and a voluntary early retirement pension scheme (from the age of 60) for all employees. In this year s pension calculation, the assumption of retirement age for accounting purposes for the ordinary retirement pension scheme (the 67 scheme) has been changed from 67 to 60 years. The background to this change is that the pension cost should be recognised as an expense in the periods during which the employees are actually working for the company, cf. the matching principle of the Norwegian Accounting Act. A high proportion of the employees working for Store Norske who have reached the age of 60 are expected to take up the offer of the early retirement pension. In reality, the right to an ordinary retirement pension is accrued when an employee takes early retirement. For this reason it has been decided that the retirement age for accounting purposes for the ordinary retirement pension should also be changed from 67 to 60. The above change means that, in accounting terms, the total pension rights are accrued over a shorter period than was the case in previous years pension calculations. This entails a significant change (increase) in the pension cost, accrued commitment and estimate differences not recognised in the profit & loss account for the year compared with previous years. The increase in the pension commitment at as a result of the change in the retirement age is treated as an estimate difference. The cost for the year increases both as a result of increased accrual of pension rights, increased interest cost on accrued rights and increased amortisation of estimate differences. The above change in assumptions is an important reason for the increase in pension cost, accrued 16 - ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS

17 pension commitments and unamortised estimate differences compared with previous years. A number of administrative personnel were transferred from SNSG to SNSK at the start of The pension commitment linked to the company s pension schemes has been divided such that accrued pension rights (commitment) and pension assets for the current employees at have been transferred from SNSG to SNSK. Unamortised estimate differences at are now fully within SNSG. The net commitment at which has been transferred is NOK 16.7 million. Over the year, net pension assets of NOK 9.8 million have also been transferred from SNSG s pension premium fund to SNSK s pension assets. The transfer of the net commitment/assets takes the form of a running account between the companies. The company s early retirement scheme is secured by means of premium payments to the pension scheme covering the accrued rights at any time. The calculation of the accrued commitment for accounting purposes assumes that employees who retire before reaching the age for early retirement (60) are entitled to a paid-up policy for the accrued rights linked to the early retirement pension scheme. In reality, from an insurance perspective the schemes are designed such that employees who voluntarily stop working before reaching the early retirement age have a legal right only to the paid-up policy linked to the ordinary retirement pension scheme and not the early retirement scheme. For this reason, the calculation of the pension commitment is conservative. At the company had an underfunded pension commitment totalling NOK 11.8 million, which is included in the balance sheet. All the company s pension commitments are secured. At , the group had an overfunded pension commitment totalling NOK 16.7 million, which is included in the balance sheet. At the start of the year the overfunded commitment was NOK 25.9 million. All the overfunding can be recognised in the balance sheet. Group, secured SNSK, secured Pension costs Pension rights accrued over the year Interest on pension rights accrued Return on pension assets Amortisation of transitional amount (implementation) Estimate difference/ change to plan recognised in profit & loss account Administrative expenses NET PENSION COSTS Recognised in the balance sheet Pension commitments accrued Pension assets (at market value) Deferred commitment (estimate differences not recognised in profit & loss account) Surplus on total commitment not recognised in balance sheet OVER/UNDERFUNDED PENSION COMMITMENT RECOGNISED IN BALANCE SHEET Economic premises: Discount rate 5.0% 5.0% 5.0% Expected return 6.0% 6.0% 6.0% Wage increase 4.0% 4.0% 4.0% Adjustment to basic state pension 3.5% 3.0% 3.5% Adjustment to current pension 3.0% 3.0% 3.0% Expected rate of voluntary exit before age of % 6.0% 6.0% Expected rate of voluntary exit after age of % 1.0% 1.0% Note 6 Related party transactions SNSG AS and SNSK AS lease properties from SNB AS for employees in Longyearbyen. SNSK AS sells administrative services to other companies in the group. Internal transactions have been eliminated in the consolidated accounts. ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS - 17

18 Note 7 Other operating costs Operating costs mainly comprise consultants fees, IT costs and administrative expenses. NOK 5.1 million of the total operating costs relate to Research and Development. Note 8 Tangible fixed assets, depreciation schedule Parent company Machinery, fixtures, transport resources Buildings Technical plant Mines, land Plant under construction TOTAL Acquisition cost at Additions in Disposals in ACQUISITION COST AT Accumulated depreciation at Depreciation for the year BOOK VALUE AT ESTIMATED USEFUL LIFE 7 YEARS 20 YEARS Group Machinery, fixtures, transport resources Buildings Technical plant Mines, land Plant under construction TOTAL Acquisition cost at Additions in 2006 * Reclassified Disposals/scrapping in conn. with fire ACQUISITION COST AT Accumulated depreciation at Depreciation for the year Disposals/scrapping in conn. with fire BOOK VALUE AT ESTIMATED REMAINING USEFUL LIFE (INCL. 2006) 3-6 YEARS 6/20 YEARS 6 YEARS 6.5 YEARS * Additions in 2006 also include replacement of equipment destroyed in the fire. SNSG AS carries out normal depreciation based on estimated remaining useful life calculated on the basis of quantity of coal in the coalfield of Svea Nord. Production was limited to 8 months in Fixed assets not directly related to production were utilised in the period during which the fire was being extinguished, as though normal production had taken place. Given this background, it was decided to depreciate mines on the basis of the production volume for the year, while other fixed assets have been depreciated on the basis of the useful life as though production had continued all year. The block of bedsits in Svea is depreciated for accounting purposes, while the dwellings in Longyearbyen are not Additions Disposals Additions Disposals Additions Disposals Additions Disposals Additions Disposals Machines, fixtures, transport Buildings Technical plant Real estate/mines Plant under construction TOTAL ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS

19 Note 9 Financial items Group Parent company Financial income Interest received, bank deposits Unrealised gains on foreign currency loans Other foreign exchange gains Dividends Interest received from group companies Income on investments in affiliated companies TOTAL Financial expenses The parent company paid a group contribution of NOK 3.2 million to Store Norske Gull AS in 2006 to cover its loss. Note 10 Tax costs Group Parent company Tax payable is made up as follows: Ordinary profit/loss before tax Extraordinary profit/loss before tax Permanent differences Change in temporary differences Group transactions, affiliated companies Use of loss carry-forward Group elimination gain on/write-down of shares Corrected for group contribution Basis for tax payable Tax at 10% Tax payable on profit for the year Tax cost for the year is made up as follows: Tax payable on profit for the year Adjustment to previous year s provisions/ Refunded tax Change in deferred tax, gross Unrecognised deferred tax asset on loss for the year Total tax cost for the year Tax payable in the balance sheet is made up as follows: Tax payable on profit for the year Tax payable, previous years Tax related to group contribution Total tax payable Basis for deferred tax/tax benefit: Differences assessed: Fixed assets Current assets Receivable relating to insurance payment Other differences Accounting change in pension commitments Debt Loss carry-forward Unused dividend capacity Total Deferred tax/tax benefit Unrecognised tax benefit Deferred tax/deferred tax benefit, net ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS - 19

20 Note 11 Shares Group Parent company % Subsidiary SNSG AS Sveagruva SNB AS Longyearbyen SNG AS Longyearbyen Affiliated company Materiallageret AS Longyearbyen Lompensenteret AS Longyearbyen Other shares Svea Tankanlegg AS Sveagruva FabLab Technology AS Lyngen Barentsinstituttet AS Sør-Varanger TOTAL In the company accounts the shares are recognised at cost, while in the consolidated account they are recognised using the equity method. SNSG has undertaken to buy back the shares in Svea Tankanlegg AS from the other shareholders at face value if there are no other buyers. Note 12 Receivables Intercompany balances Parent company Receivables SNSG, long-term Parent company Receivables SNSG, current Receivables SNG, current Receivables SNB, current 7 0 Debt SNB AS, short-term Debt SNG AS, short-term Total Other receivables group Of the total figure for other current receivables, NOK million represents the receivable in connection with the insurance settlement. Other current receivables mainly relate to prepayments to suppliers and prepaid insurance premiums. Note 13 Stocks group Coal stocks are valued at total production cost, which for 2006 was NOK per tonne Tonne Nok Tonne Nok Coal stocks, Longyearbyen Coal stocks, Svea Mine Total Stocks of operating materials and spare parts are valued at average cost from the supplier. Items which are more than one year old and which are not expected to be used in the next year are valued at 0 in the balance sheet ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS

21 NOK 1000 Cost Written down Balance sheet value Cost Written down Balance sheet value Stock of consumables, Longyearbyen Stock of consumables, Gruve Stock of spare parts, Svea Stock of consumables, Svea TOTAL Note 14 Accounts receivable Group Parent company Net accounts receivable at Bad debt recognised in accounts Change in loss reserves Reserve for bad debts at The reserve for bad debts is considered adequate to cover possible future losses. Note 15 Forward contracts Most coal sales are transacted in US dollars. In order to reduce the risk of exchange rate fluctuations, the company enters into futures contracts to hedge future sales of US dollars. Coal sales and freights are recognised at the average hedged/ achieved exchange rate. As the forward contracts are used as hedging instruments, unrealised exchange gains on the balance sheet date are not recognised. At the company had entered into the following forward contracts for the sale of USD: In addition, the following options on the sale of USD have also been entered into: Matures USD million Average rate Matures USD million Average rate Note 16 Debt to credit institutions The parent company did not have any debt to credit institutions at , and therefore had not pledged any assets as security. Group Type of loan Overdraft facility Mortgage loans TOTAL SECURED DEBT Debt which falls due for payment more than 5 years after the end of the financial year Unutilised bank overdraft facility at Restricted tax withholding fund BOOK VALUE OF PLEDGED ASSETS Tangible fixed assets Shares Stocks Other receivables Accounts receivable ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS - 21

22 The group has pledged the following assets as security: Land registry no. 12 Indre Lågfjord Mining concessions in the Svea area Operating materials and accessories Coal stocks and inventories Shares owned by the group Accounts receivable Dwellings in Longyearbyen and Svea Guarantees The group has issued a NOK 4 million guarantee to Norsk Romsenter Eiendom AS to cover the costs of a possible breakage/ failure of submarine fibre cables to the mainland. Note 17 Provisions Other short-term debt includes provision for environmental measures and miscellaneous accrued costs. The parent company has made a provision of NOK 5.2 million for clearing up around the mine area in Longyearbyen, while SNSG AS has made a provision of NOK 8 million for future winding-down/clear-up costs in Svea. Note 18 Coal reserves KNOWN COMMERCIAL COAL As a result of extensive core drilling and experience of coal mining in Gruve 7, Svea Vest and Svea Nord, we have merged the categories definite and probable coal into a single category: known coal. In the future we do not expect to use coal seams of less than 1.5 metres. Narrower seams of coal can normally not be mined at a profit. In calculating the tonnage of commercial coal, account is taken of the chosen mining method. In the case of Gruve 7, this will continue to be room & pillar operations, like today. In the case of Svea, including Ispallen, we expect to make exclusive use of longwall stoping, including in the sections where we will be cutting seams of metres. RESERVES OF COMMERCIAL COAL, MILLION TONNES Thickness Mining method Known Potential Svea Nord, core Longwall stoping 21.0 Svea area Longwall stoping 37.0 Gruve Room & Pillar TOTAL All methods Based on geological knowledge and theories of the formation of the coal deposits 60 million years ago, the company has an extensive programme of diamond drilling, both west of Sveagruva and south of Gruve 7 in Longyearbyen. PROTECTED AREAS Following the creation of Nordenskiold National Park, we no longer consider the areas around the Reindal and Kolfjell deposits to be potential exploration areas for coal mining. The rules governing road building and construction within the national park preclude profitable coal production ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS

23 Note 19 Shareholders Equity Share capital Group Other equity Total Parent company Share Other capital equity Shareholders equity at Profit/loss for the year Provision for dividend Equity at Total Note 20 Shareholders The share capital in the company comprises 328,980 shares of NOK 500 each with equal voting and dividend rights. Overview of major shareholders at : Name No. of shares Percentage The Norwegian state P. Juls Sandvik AS 33 Christiania Minekompani AS 20 Morten Samuelsen 20 Ivar Ytreland 17 At the following members of the Board of Directors etc. had shares in the company: Ole Fredrik Hienn Vice Chairman of the Board 1 Esther Kostøl Board member 1 Lise Chatwin Olsen Board member 1 Anita Johansen Employee representative on the Board 1 Robert Hermansen Chief Executive Officer 2 ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS - 23

24 24 - ANNUAL ÅRSBERETNING REPORT OG AND REGNSKAP ACCOUNTS DRIFTSÅR ST YEAR OF OPERATIONS

25 ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS - 25 Photo: Tom Egil Jensen

26 Annual report of Store Norske Spitsbergen Grubekompani AS Store Norske Spitsbergen Grubekompani AS (SNSG) is a wholly owned subsidiary of Store Norske Spitsbergen Kulkompani AS (SNSK), which is the parent company in the Store Norske group was SNSG s fifth year of operations. SNSG has its headquarters in Svea. As previously, Germany is by far the biggest market for coal from Store Norske, accounting for 66% of exports. 53% of total sales were delivered to coal-fired power stations and 34% to steelworks. Northern continental Europe is Store Norske s natural geographical market, although in 2006 coal was also sold to Portugal, Greece and the eastern seaboard of the USA. Key facts about the company in 2006 SNSG carries out operations in two coal mines. The one mine is Gruve 7 in Adventdalen, 15 kilometres outside Longyearbyen. The other mine is Svea Nord in Svea, approximately 60 kilometres south of Longyearbyen. In 2006 total coal production was 2,394,940 tonnes: 2,321,448 tonnes in Svea Nord and 73,492 tonnes in Gruve 7. Like 2005, 2006 was marked by the fire which broke out in Svea Nord at the end of July 2005, entailing a large-scale extinguishing and reconstruction operation. The fire did not result in any reduction in SNSG s resource base, although operations were interrupted for eight months. SNSG has business interruption insurance for operating losses for a period of 12 months and general insurance for equipment. The business interruption loss is calculated as the difference between the profit/loss the company would have generated without the interruption and the profit/loss the company actually achieved in the 12-month period as a result of the fire. Deductibles and ceilings in the insurance policy restricting the maximum payment for one claim to NOK 700 million mean that the fire has resulted in large losses for the company. The costs of the rescue and salvage operation in connection with the fire are covered in accordance with the Norwegian Insurance Act, and are not affected by the ceiling amount of NOK 700 million. The insurers and SNSG are so far apart in terms of their approach to the settlement that the major parts of the settlement will be dealt with in the court system. The main hearing has been set for autumn The District Governor has investigated the fire, and in March 2007 the company was advised that the case had been dropped. Following the fatality in Svea Nord in June 2005, a fine of NOK 10 million was imposed on the company in 2006, which it accepted. Sales/market Coal sales in 2006 totalled 2,358,690 tonnes: 77,842 tonnes from Gruve 7 in Longyearbyen and the remainder from Svea. The lower figures compared with the last normal year, which was 2004, are explained by the late production start after the fire. Coal prices remained high in 2006, rising from an average of USD CIF Amsterdam/Rotterdam/Antwerp (ARA) in January to an average of USD in December. These prices are quoted based on a heat output of 6,000 kcal but as coal from Spitsbergen has a 15-20% higher energy content, the prices are correspondingly higher. All sales outside Svalbard are transacted in USD, and the company benefits from the international price determination system for coal. Work to attain quality certification pursuant to NS-ISO 9001 was initiated at the end of the year. Financial review The Board of Directors considers that the annual report published for the company provides a true and fair description of the company s results and financial position at year-end. The accounts have been prepared under the going concern principle. Operating income and profit Total coal sales CIF were NOK 1,096.7 million against NOK million in The company posted an operating loss of NOK 63.9 million against a profit of NOK 84.3 million in 2005, while the pre-tax result fell from a profit of NOK 51.6 million in 2005 to a loss of NOK million. The fire and its aftereffects have impacted on the company s results in both 2005 and 2006; profit before tax in 2004 was NOK million. Investments The company made investments of NOK 54.1 million in Cash flow As a result of the Van Mijenfjord being iced over for parts of the year, shipping only takes place in the period July-December. This means that the company stockpiles production for large parts of the year, and operations in this period have to be financed by credit, as the company has low equity and is newly established ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS

27 Net production 1200 Employees Total production : tonnes Average production: tonnes Production in 2006: tonnes / / / / / / / The company s liquidity has also been affected by the fire which broke out in July This resulted in extensive material damage and an eight-month interruption to production. The company and the insurers have been unable to agree on the settlement following the fire, and the matter will now be settled in court. The main hearing will take place at Nord Troms Court in autumn As a result of the losses and liquidity problems which the fire has caused SNSG, the Board of Directors has reviewed the mining company s financing requirements. The Board of the parent company has approached the shareholder for a cash injection of NOK 250 million, which will be used as new equity in SNSG. Financial information Coal is primarily sold in US dollars on the world market, while most of SNSG s costs are in Norwegian kroner. The dollar rate has fallen from just over NOK 9 at the start of 2002 to NOK 6.26 at the end of The company had total income of USD million in In order to reduce its currency risk the company enters into forward contracts for future sale of dollars. In 2006 the company achieved an average rate of NOK 6.49 against NOK 7.29 in The average USD/NOK market rate in 2006 was NOK 6.42 against NOK 6.45 in In 2006 the company increased its debt to credit institutions (including bank overdrafts) by NOK million. This was due to costs in connection with the fire, and lower income as a result of lower coal sales and poorer coal quality. Long-term debt in the company is in Norwegian kroner. At the company had received an on-account payment of NOK million on the insurance settlement. As a result of the loss following the fire and because settlement of the claim has had to be submitted to the courts, the parent company has approached the shareholder for a cash injection of NOK 250 million, which will be used as new equity in the company. Covering of loss for the year The Board proposes that the loss after tax for the year of NOK 99.6 million be covered by means of a transfer from other equity. Resource base The fire in Svea Nord has not affected the resource base for mining operations. The company has carried out an extensive programme of explorations in the Svea area, which can be summarised as follows: Area/thickness m million tonnes m million tonnes Total million tonnes Svea Nord, core area Svea Nord marginal 6 6 zone Svea Øst 4 4 Lunckefjell Ispallen Total The resource base includes the coal deposits which can most probably be extracted at a profit. Depending on the mining method and production volume, the coal reserves form the basis for mining operations in the Svea area for a period of years. The explorations have also provided a basis for allocating the reserves between the areas with coal seams which correspond to the current equipment ( metres) and areas with coal seams of metres. The quality of the coal is comparable with the quality of the coal in Svea Nord. Adjoining Svea is the Reindal deposit with an extractable tonnage estimated at 27 million tonnes. This tonnage is located beneath the Reindal Plain, where the river follows two courses along the sides of the valley. This tonnage can be extracted without danger of water breakthrough and flooding of the mine. The Reindal deposit lies within ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS - 27

28 Svea Nord There is no road connection between Longyearbyen and Svea. All transport of personnel is by means of 16-seater planes. The route is operated by Lufttransport A/S, which has a contract with Store Norske Spitsbergen Grubekompani A/S (SNSG). This contract was extended in There are flights five days a week with several departures each day. Approximately 20,000 passengers are transported between Longyearbyen and Svea by plane each year. All employees living in Svea are engaged in work related to mining operations. Employees have different working patterns, and the most typical pattern in 2006 was for seven days work followed by seven days off. On the basis of strong views expressed by the employees, the company started looking into a new working pattern based on 14 days on and 14 days off. A questionnaire revealed that an overwhelming majority of those working shifts and rotation systems in Svea were in favour of such a system. SNSG also considered the scheme to be positive, partly as it might result in a more stable workforce. During the autumn the company therefore made plans for a working pattern which took account of those who wanted a 14/14 pattern and those who wanted to continue with the old pattern (7/7). The new system was introduced on 16 January 2007, and the majority of the Board approved its introduction on a trial basis for one year. Photo: Tom Egil Jensen Reindalen National Park and a dispensation is needed to drive an access tunnel from Reindalen to Svea Nord s transport system. It may become relevant to apply for a dispensation of this kind in years if no other deposits have been found in the meantime. The field has not been included in the company s reserves. The deposits in Lunckefjell, Svea Øst, the Svea Nord marginal zone and Ispallen have all been surveyed in principle and can gradually be phased in. The coalfields in Svea Øst and the Svea Nord marginal zone are now open. Access to Lunckefjell will be via the Svea Nord core area, where the access gallery can be continued right out into the Märta glacier, where the glacier is at the same level as the coal seam. The glacier will then be crossed by a road equivalent to Høganesveien in Svea Nord, and the Lunckefjell deposit can be opened up in the same way as the Svea Nord deposit by means of going into the coal seam where the seam and the glacier are at the same level. Ispallen will need to be opened by means of a road bridge across the sound at Braganza Bay and a tunnel up to the deposit. Like all deposits in the Svea and Longyearbyen area, Ispallen is relatively flat. With annual production of 70,000 tonnes, Gruve 7 has surveyed reserves for the next 20 years. All SNSG s employees live in Longyearbyen. The company s 315 employees and their families play an important role in maintaining a stable family community in Longyearbyen. In connection with the trial introduction of the 14/14 system, the company wants to monitor whether this pattern has negative consequences for the family community in Longyearbyen. In Svea, SNSG purchases transport services from Leonhard Nilsen & Sønner Spitsbergen A/S (LNSS) and facility services (canteen and cleaning) from ISS A/S. Svea Nord accounts for the majority of the company s total production, with longwall stoping the primary method of production was characterised by the fire and its consequences. Work to reopen the mine was completed at the start of April but, just 12 hours after start-up, there was a rockfall in the access heading to the stoping equipment. Production was unable to resume until the end of April ,152,070 tonnes were produced from the fourth longwall panel in 2006, and 3,338 metres of drift (main drift and crosscut) were developed, compared with 7,093 metres in A total of 2,321,448 tonnes were produced at Svea Nord in 2006, of which 169,378 tonnes came from mine development ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS

29 Gruve 7 Gruve 7 in Adventdalen is run as a separate business unit. The mine delivers approximately 25,000 tonnes a year to the coal-fired power station in Longyearbyen. Operationally and financially, the ideal annual production level is 70-80,000 tonnes, and with such volumes, Gruve 7 can also supply coal to the international market. Coal from this mine is of a very high quality and there is a great demand for it from the German metallurgical industry and elsewhere. In 2006, two shipments of Gruve 7 coal were dispatched from the old coal pier at Hotellneset outside Longyearbyen. Gruve 7 has a workforce of 19, 14 of whom work underground. The mine is operated five days a week on daytime shifts. The production method used is room-and-pillar mining. 73,492 tonnes of coal were produced in 2006 compared with 79,951 tonnes in Shipping The market for freight of bulk commodities such as coal remained extremely buoyant throughout 2006, driven particularly by developments in China and India. However, the company has long-term shipping contracts which significantly reduce the level of exposure. The ice in the Van Mijenfjord means that shipping from Svea is only possible from July to November inclusive. In addition, special ice-reinforced ships and tug boats are required. The District Governor of Svalbard does not normally permit the shipping season to be extended over the winter was a special year in terms of ice as the Van Mijenfjord was ice-free by mid-june and the ice had still not formed at the end of the year. As a result of the late start to production, shipping was necessary throughout December. The District Governor of Svalbard approved the company s application for a permit to carry out 10 transportations in January and February The permit was subject to strict regulations and requirements governing the suitability of the ships to be used. Oil protection preparedness and reporting to authorities such as the District Governor of Svalbard and the Norwegian National Coastal Administration proceeded to plan. External environment Since 2001, when the Norwegian parliament voted in favour of permanent operation of Store Norske s coal mines on Svalbard and the responsible authority (the District Governor of Svalbard and the Directorate of Mining) approved the company s operations, SNSG has complied with all the rules and regulations that were set out in accordance with the company s own environmental impact assessment. None of these provisions have been infringed, and there is no disagreement between the governing authorities and the company on any of these issues. In 2003, the Norwegian Pollution Control Authority (SFT) introduced the requirement for SNSG to have an emissions licence for Svea. The application, which was submitted in April 2004, followed the template for similar documents for mainland operations. Collaboration with SFT on the emissions licence and in the process concerning the environmental risk analysis for operations in Svea has been constructive and good. This analysis forms the basis for the acute pollution preparedness plans which SFT requires to be drawn up in the future. The company was granted an emissions licence by SFT in 2006; the licence is valid from 1 January Clear-up operations in and around Svea continued in Many of the buildings in Svea were painted during the summer. The waste management plans implemented in 2003 are carefully monitored. There have not been any problems associated with shipping. SNSG has an environmental monitoring programme which includes monitoring of flora and fauna within the impact area. Cultural remains within the impact area have been mapped and measures taken in collaboration with the District Governor s environmental department. Procedures linked to the external environment were incorporated in the company s internal control system in connection with the application for an emissions licence. Health, safety and the environment Safety comes high on the agenda at SNSG, and the company s objective is for all work to be carried out at a level of safety which means that no-one is injured in the course of their work. Nevertheless, the company has experienced a number of major accidents in recent years and there have been many personal injuries. There were a total of 17 personal injuries in The frequency of injuries is measured as the number of injuries involving absence per million working hours (lost-time incidence). The figure for 2006 was 34 compared with 43 in Total sickness absence in 2006 was 9.6% compared with 8.3% in Although the trend for the last few months of 2006 and the beginning of 2007 shows that the measures to prevent personal injuries initiated during 2006 have had a positive impact, sickness absence has been high. The Board finds this trend worrying and wishes to raise the level of ambition for work on HSE. Cause analyses will be initiated and measures considered. One important measure taken in 2006 was to deploy internal safety personnel in the Svea Nord mine in order to provide a daily presence and follow-up of injury-prevention work. ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS - 29

30 The trend has been good in terms of personal injuries. Over the last few months of 2006 there were no cases of absence as a result of occupational injuries, and this positive trend has continued into Distribution of group employees by county Business is monitored through 15 safety areas. There were a total of 30 safety delegates and one head safety delegate in 2006, the latter working continuously on matters relating to the fire and the extinguishing operation. Another important aspect of the head safety delegate s work last year was coordinating the various elements of the safety service, and the head safety delegate has been a driving force in the efforts to promote sound preventive measures Aspects of rock mechanics, methane gas, ventilation, coal dust and water can all affect safety in a coal mine, as can the use of equipment and how the individual work operations are performed. SNSG works closely with the leaders in the field, NTNU and SINTEF in Trondheim, and equipment suppliers to increase the level of safety and prevent injuries. Company health services are purchased from Longyearbyen hospital, and representatives of the service have regular meetings with the company s working environment committee. In connection with the fire in Svea Nord, one representative from the company health service was stationed permanently in Svea to monitor the smoke divers and others working on the fire. The company also received ongoing assistance from Professor dr. med. Rolf Hanoa and other medical experts. No-one was injured in the course of the fire or the subsequent work to reopen the mine (Akershus) (Oslo) (Østfold) (Vestfold) Abroad SNSG is the principal enterprise in Svea, which means that the company has a general responsibility for its subcontractors safety measures. This responsibility is discharged by coordinating the safety services of the various players. Quarterly coordination meetings are held with the principal contractors in Svea. In the case of major projects involving external companies, HSE plans are drawn up to highlight potential risks and describe preventive measures. HSE is a fixed item on the agenda at all operations and construction meetings. Organisation of safety and protection service The company established a dedicated safety and emergency preparedness department in The head of this department is also the head of safety. The department organises and leads the preparedness teams and has overall responsibility for ensuring that HSE work is carried out systematically. The department organises training and courses in safety and protection work, and is responsible for all preparedness materials. The distances on Svalbard are vast, and temperature and weather conditions can be extreme, meaning that links to the mainland or to the support structure in Longyearbyen can sometimes be cut. One consequence of this is that SNSG has a number of preparedness teams organised in dedicated units, such as the mine rescue team, the acute preparedness team, the fire and rescue service, and oil pollution protection. The groups hold regular drills and courses. In 2005 and 2006, the mine rescue team demonstrated its skills in connection with the fire in the mine. The team was continuously deployed for several months until February 2006, some of the time in extremely difficult conditions. The mine rescue team currently comprises 86 smoke divers, smoke-diving leaders and team leaders. Personnel At the company had 315 employees, of whom 234 worked underground. In total the Store Norske group s workforce grew from 314 to 366 in 2006, mainly as a result of an increase in the number of shifts being deployed in mine development work at Svea Nord. The geological conditions in the mine have become more challenging and require additional resources to make the mine safe. The mine has increased in size and additional resources are needed to maintain the mine s infrastructure ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS

31 Employee turnover in SNSG was 14.0% in The average period of employment in the group is 7 years. The breakdown of employees by age group shows that the workforce is relatively stable in terms of age. The average age in the company is 37. Store Norske invests heavily in training and skills development. Between 1996 and the end of 2006, 151 mineworkers underwent vocational training and passed the qualifying examination in Mining Engineering. In all, a total of 256 employees have passed qualifying examinations in a total of 17 different subjects over the last 20 years. In autumn 2004, Store Norske started a three-year vocational training course in mining technology in collaboration with Stjørdal technical college. 30 students are following this course in their own time, and will take their final examinations during spring Several of the students at the technical college wish to continue their studies at university level. The company plans to offer a course of this kind in collaboration with NTNU from autumn A number of specialist courses are also being arranged. When the company started operations in 2002, all employees in the group were transferred to SNSG. On 1 January 2006, a number of administrative and commercial functions were transferred from SNSG to SNSK. For SNSG this reorganisation has had the effect of enabling the company s employees to focus solely on the core activity. Equal opportunities SNSG is concerned with equal opportunities and aware of possible sex discrimination. Mining has traditionally been a male-dominated sector involving hard, physical labour, which is why there have never been many women. The company has a target of recruiting more women to traditionally male-dominated functions in the company. There are four women on the company s Board of Directors. The chair of the Longyearbyen Workers Association, branch 142 of the Norwegian Union of General Workers (NAF), is a woman. The Longyearbyen Workers Association represents most of the company s employees. The chair of the workers association is also an employee representative on the company s Board of Directors. Board of Directors The Board of Directors met nine times in 2006, twice on Svalbard. At the annual general meeting in June, Atle Fornes and Steinar Høgaas resigned from the Board, and were replaced by Bård Mikkelsen and Lisbeth Alnæs. Employee representatives Jarle Haagensen and Sverre Henning Engh resigned and were replaced by Bjørn Helge Nygård and Henning Kløften. Bård Mikkelsen was elected as the new Chairman of the Board. Photo: Tom Egil Jensen Outlook The fire in Svea Nord has been and still is dramatic for Store Norske. The fire was put out in a short time but resulted in an eight-month interruption to production. The fourth panel was cut in March 2007, and production of 3.3 million tonnes is expected this year. Market analyses indicate that coal now has a new and higher price range than before and that coal prices will remain high for several years to come. The company is therefore continuing its strategy of building up its equity and making the company more able to withstand economic slowdowns thanks to a higher level of production. An increased number of employees and increased investments in modern equipment have provided the basis for this. Modern mining demands ever-higher levels of expertise. SNSG will continue to invest heavily in training and skills development for its employees, including a collaboration with Stjørdal Technical College and educational institutions such as NTNU in Trondheim, the University of Tromsø and the University Centre in Svalbard (UNIS). Hedging of coal prices has become increasingly common on the international coal market in recent years, and SNSG also hedges the price of its coal. ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS - 31

32 Through its collaboration with the SINTEF research foundation in Trondheim, SNSG is involved in international research projects on CO 2 -free coal-fired power stations (Dynamis and BIG CO 2 ). The level of ambition for HSE work will be raised, with the objective of the company to be one of the best performers in HSE among its peers. As a result of SNSG s liquidity requirements resulting from the fire, the Board has reviewed the mining company s financing requirements. The Board of the parent company has approached the shareholder for a cash injection of NOK 250 million, which will be used for new equity in SNSG. Thanks for your contribution The Board of Directors would like to thank all the employees of Store Norske Spitsbergen Grubekompani A/S for their motivation, technical expertise and loyalty demonstrated in The combined strength of our workforce has carried the company through a difficult period, and laid solid foundations for our ongoing operations. Longyearbyen, 31 December March 2007 The Board of Directors of STORE NORSKE SPITSBERGEN GRUBEKOMPANI AS Bård Mikkelsen Chairman Ole Fredrik Hienn Vice-Chairman Henning Kløften Lise Chatwin Olsen Lisbeth Alnæs Anita Johansen Bjørn Helge Nygård Esther Kostøl Robert Hermansen Chief Executive Officer 32 - ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS

33 ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS - 33 Photo: Tom Egil Jensen

34 34 - ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS

35 ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS - 35

36 Profit & loss account, Store Norske Spitsbergen Grubekompani AS NOK 1000 Note Coal sales CIF 1)2) Other sales income Rental income Other operating income 3) TOTAL OPERATING INCOME Changes in stock 4) Wages and salaries, national insurance contributions and pension expenses 5)6)7) Freight/ commission relating to coal sales 8) Production costs 9) Housing and social costs 10) Costs of exploration 11) Other operating costs 12) Depreciation and write-downs 13) TOTAL OPERATING COSTS OPERATING PROFIT/LOSS Financial income 14) Financial expenses 15) NET FINANCIAL ITEMS PROFIT/LOSS BEFORE TAX Tax payable 16) 0 23 Changes in deferred tax 16) PROFIT/LOSS AFTER TAX APPLICATION OF PROFIT/LOSS FOR THE YEAR: Other equity Longyearbyen, 31 December March 2007 The Board of Directors of STORE NORSKE SPITSBERGEN GRUBEKOMPANI AS Bård Mikkelsen Chairman Ole Fredrik Hienn Vice-Chairman Henning Kløften Lise Chatwin Olsen Lisbeth Alnæs Anita Johansen Bjørn Helge Nygård Esther Kostøl Robert Hermansen Chief Executive Officer 36 - ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS

37 Balance sheet, Store Norske Spitsbergen Grubekompani AS NOK 1000 Note FIXED ASSETS Intangible assets 7) Tangible assets 13) Financial assets 17)18) TOTAL FIXED ASSETS CURRENT ASSETS Stocks 4) Receivables 18)19) Bank deposits, cash TOTAL CURRENT ASSETS TOTAL ASSETS SHAREHOLDERS EQUITY AND DEBT Share capital 24)25) Other equity 24) TOTAL SHAREHOLDERS EQUITY DEBT Provisions 16)23) Long-term debt 15)18)20) Short-term debt 15)16)18)20) TOTAL DEBT TOTAL DEBT AND SHAREHOLDERS EQUITY ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS - 37

38 Cash flow statement, SNSG AS, indirect model NOK CASH FLOW FROM OPERATING ACTIVITIES: Profit/loss before tax Tax paid for the period Gain/loss on sale of fixed assets Ordinary depreciation Capitalisation in 2005 reversed Write-down of fixed assets with subsidies 0 0 Change in stocks Change in accounts receivable Change in accounts payable Differences in pension funds/ commitments Profit/loss using the equity and gross method 0 0 Effect of exchange rate movements 0 0 Items classified as investing or financing activities 0 0 Change in other accruals NET CASH FLOW FROM OPERATING ACTIVITIES CASH FLOW FROM INVESTING ACTIVITIES: Sale of tangible assets Purchase of tangible assets Sale of shares and units in other companies 0 0 Purchase of shares and units in other companies NET CASH FLOW FROM INVESTING ACTIVITIES CASH FLOW FROM FINANCING ACTIVITIES: New long-term debt New short-term debt Repayment of existing long-term debt Repayment of existing short-term debt 0 0 Net change in overdraft facility Shareholders equity Repayments of shareholders equity 0 0 Dividends paid 0 0 Group contribution paid NET CASH FLOW FROM FINANCING ACTIVITIES EFFECT OF EXCHANGE RATE MOVEMENTS ON CASH AND CASH EQUIVALENTS Net change in cash and cash equivalents Cash and cash equivalents at beginning of period CASH AND CASH EQUIVALENTS AT END OF PERIOD ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS

39 Notes to the accounts, SNSG AS Note 1 Accounting principles The accounts have been prepared in accordance with Norwegian accounting rules and standards and generally accepted accounting principles. All figures are stated in NOK 1000 unless otherwise specified. Amounts in foreign currencies are stated separately. Valuation and classification principles Income recognition Sale of goods and services is recognised in income at the time of delivery. Classification and valuation of balance sheet items Current assets and short-term debt cover items which fall due for payment within one year, as well as items associated with the operating cycle. Other items are classified as fixed assets/ long-term debt. Current assets are valued at the lower of cost and fair value. Short-term debt is recognised in the balance sheet at the original nominal amount. Fixed assets are valued at cost but written down to fair value if the decrease in value is not expected to be temporary. Long-term debt is recognised in the balance sheet at nominal value at year-end. Subsidiaries/ Affiliated companies Subsidiaries are valued using the cost method in the company accounts. The investment is valued at cost price of the shares unless a write-down has been necessary. The investment is written down to fair value if the decrease in value is due to reasons which cannot be assumed to be temporary and the write-down is considered necessary in accordance with generally accepted accounting principles. Write-downs are reversed if the basis for the write-down no longer exists. Dividends and other payments are recognised in income in the year in which the subsidiary made the allocation. If the dividend exceeds the share of retained profit after the acquisition, the excess represents repayment of the capital invested, and the value of the investment is deducted from the payments in the balance sheet. Affiliated companies are valued at cost in the company accounts, while the equity method is used in the consolidated accounts. The share of profit/loss is based on profit/loss after tax in the company in which the investment has been made, less internal gains and any amortisation of goodwill as a result of the cost price of the shares being higher than the acquired share of equity in the balance sheet. In the profit & loss account, the share of profit/loss is shown under financial items. Stocks The stock of coal is valued at the total cost of coal production. The stock of operating materials and spare parts is valued at the lower of cost and fair value. Tangible assets and depreciation Tangible assets are recognised in the balance sheet and depreciated if they have a useful life of more than three years and have a significant cost price. Depreciation is based on the useful life of the assets. In the case of operating assets linked to production and mines in Svea Nord, depreciation is based on the useful life of the assets linked to the total resources in Svea Nord. Receivables Accounts receivable and other receivables are recognised in the balance sheet at nominal value less provision for bad debts. Provision for bad debts is made on the basis of a specific assessment of the individual items. An unspecified provision to cover expected losses is also made for other accounts receivable. Receivables and payables in foreign currency Receivables and payables in foreign currency are recognised at the exchange rate prevailing at 31 December. Insurance settlement after the fire The fire which broke out in Svea Nord on 30 July 2005 led to large costs for SNSG. Production restarted on 1 April 2006 but on the same day the mine suffered a rockfall, and coal production did not resume until 23 April The company has insurance for operating losses for a period of 12 months and for loss of equipment as a result of fire. The operating loss is calculated as the difference between the result the company would have achieved without the interruption and the result actually achieved following the fire. In accordance with generally accepted accounting principles, the company has made a conservative estimate of the insurance compensation. See also Notes 3, 6 and 12. Cash flow The cash flow statement has been compiled using the indirect method. Cash and cash equivalents cover cash, bank deposits and other short-term, liquid investments which can be converted into known cash amounts with immediate effect and negligible currency risk, and which have a due date within three months of the acquisition date. Mine development costs The cost of mine development and preparation of new coalfields is recognised as an expense. The preparation of new fields includes moving stopes from one panel to the next. Exploration costs The cost of exploring new deposits is recognised as an expense. ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS - 39

40 Pension commitments The group has a pension scheme for all its employees. Pension assets and costs are shown net in the balance sheet. Actuarial calculations of pension commitments and costs are carried out each year, taking account of expected wage increases based on linear accrual. The net pension cost for the period is included under Wages and salaries. Taxes Tax costs for the year are calculated on the basis of the bottom-line result. This covers both taxes payable for the period and changes in deferred tax. Deferred tax is calculated on the basis of differences between book and tax values. Note 2 Revenue Coal sales CIF can be broken down as follows: TONNES Energy Cement Metallurgical industry Other industry Svalbard Norway Denmark Finland Iceland Germany Great Britain Portugal France Greece USA TonnES TonnES Coal sales CIF totalled NOK 1,101.7 million. Total coal export levies of NOK 5.1 million have been deducted from sales income. Note 3 Other operating income Other operating income comprises: Sale of services Business interruption compensation Other compensation Other income Total SNSG AS has insurance for operational losses as a result of interruptions. The operating loss is calculated as the difference between the result of operations which would have been achieved in the indemnity period with and without the damage which occurred. The indemnity period is 12 months. Business interruption compensation is calculated on the basis of the output which would have been achieved had the damage not occurred. In accordance with the insurers submissions and generally accepted accounting principles, the compensation figure used in the accounts is somewhat lower than the claim submitted. Note 4 Stocks Coal stocks are valued at total production cost, which for 2006 was NOK per tonne Tonne Nok Tonne Nok Coal stocks, Longyearbyen Coal stocks, Svea Mine Total Stocks of operating materials and spare parts are valued at average cost from the supplier. Items which are more than one year old and which are not expected to be used in the next year are valued at 0 in the balance sheet ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS

41 NOK 1000 Cost Written Balance Written down sheet value Cost down Balance sheet value Stock of consumables, Longyearbyen Stock of consumables, Gruve Stock of spare parts, Svea Stock of consumables, Svea TOTAL Note 5 Management Remuneration Remuneration of Chief Executive Officer: Salary Other reportable payments 0 14 Directors fees Audit fee Accounting-related services On 1 January 2006 a number of administrative and commercial functions were transferred from SNSG to SNSK. With effect from 2006 the full amount of directors fees is recognised as an expense in the parent company. Note 6 Specification of wages, salaries and national insurance contributions Wages and salaries Pension costs Other payments Insurance compensation TOTAL The total number of man-years for SNSG in 2006 was 336. On 1 January 2006, a number of administrative and commercial functions were transferred from SNSG to SNSK. NOK 27.1 million of total wages and salaries in 2006 relate to construction work in the mine after the fire. This amount has been included in full in the insurance claim. The insurance compensation is based on the same principle as was used in presentation of the accounts for No circumstances have emerged subsequently which suggest that the amount should be adjusted. Note 7 Pension costs and commitments SNSG has pension schemes covering a total of 371 persons, 39 of whom have taken early retirement. There are 130 persons in receipt of an ordinary pension, 56 of whom receive a retirement pension, 38 a spouse s pension, 8 a children s pension and 28 a disability pension. The schemes provide a right to defined future benefits, primarily dependent on the number of contribution years, salary at retirement age and the amount of state pension received. The pension commitments are covered by an insurance company. The company s pension schemes comprise both an ordinary retirement pension scheme (from the age of 67) and a voluntary early retirement pension scheme (from the age of 60) for all employees. In this year s pension calculation, the assumption of retirement age for accounting purposes for the ordinary retirement pension scheme (the 67 scheme) has been changed from 67 to 60 years. The background to this change is that the pension cost should be recognised as an expense in the periods during which the employees are actually working for the company, cf. the matching principle of the Norwegian Accounting Act. A high proportion of the employees working for Store Norske who have reached the age of 60 are expected to take up the offer of the early retirement pension. In reality, the right to an ordinary retirement pension is accrued when an employee takes early retirement. For this reason it has been decided that the retirement age for accounting purposes for the ordinary retirement pension should also be changed from 67 to 60. The above change means that, in accounting terms, the total pension rights are accrued over a shorter period than was the case in previous years pension calculations. This entails a significant change (increase) in the pension cost, accrued commitment and estimate differences not recognised in the profit & loss account for 2006 compared with previous years. The increase in the pension commitment at as a result of the change in the retirement age is treated as an estimate difference. ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS - 41

42 The cost for the year increases both as a result of increased accrual of pension rights, increased interest cost on accrued rights and increased amortisation of estimate differences. The above change in assumptions is an important reason for the increase in pension cost, accrued pension commitments and unamortised estimate differences compared with previous years. A number of administrative personnel were transferred from SNSG to SNSK at the start of The pension commitment linked to the company s pension schemes has been divided such that accrued pension rights (commitment) and pension funds have been transferred from SNSG to SNSK. Unamortised estimate differences at are now fully within SNSG. The net commitment at which has been transferred is NOK 16.7 million. Over the year net pension assets of NOK 9.8 million have also been transferred from SNSG s pension premium fund to SNSK s pension assets. The transfer of the net commitment/assets takes the form of a running account between the companies. The company s early retirement scheme is secured by means of premium payments to the pension scheme covering the accrued rights at any time. The calculation of the accrued commitment for accounting purposes assumes that employees who retire before reaching the age for early retirement (60) are entitled to a paid-up policy for the accrued rights linked to the early retirement pension scheme. In reality, from an insurance perspective the schemes are designed such that employees who voluntarily stop working before reaching the early retirement age have a legal right only to the paid-up policy linked to the ordinary retirement pension scheme and not the early retirement scheme. For this reason, the calculation of the pension commitment is conservative. At the company had an overfunded pension commitment totalling NOK 28.4 million, which is included in the balance sheet. All the overfunding can be recognised in the balance sheet. All the company s pension commitments are secured Pension costs Secured Secured Pension rights accrued over the year Interest on pension rights accrued Return on pension assets Amortisation of transitional amount (implementation) Estimate difference/ change to plan recognised in profit & loss account Administrative expenses NET PENSION COSTS Recognised in the balance sheet Pension commitments accrued Pension assets (at market value) Deferred commitment (estimate differences not recognised in profit & loss account) Surplus on total commitment not recognised in balance sheet 0 0 OVERFUNDED PENSION COMMITMENT RECOGNISED IN BALANCE SHEET Economic premises: Discount rate 5.0% 5.0% Expected return 6.0% 6.0% Wage increase 4.0% 4.0% Adjustment to basic state pension 3.5% 3.0% Adjustment to current pension 3.0% 3.0% Expected rate of voluntary exit before age of % 6.0% Expected rate of voluntary exit after age of % 1.0% Note 8 Freight/Commission on coal sales Shipping costs Analysis costs Commission Transport/Loading Svea TOTAL ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS

43 Note 9 Production costs Production costs mainly comprise materials and bought-in services for production and maintenance. Preparation of new panels is expensed on an ongoing basis. Note 10 Housing and social costs in Svea As there is no road link to Svea, employees live in Svea when they are working. This entails costs for accommodation, catering and operation of infrastructure as well as flights between Longyearbyen and Svea. Housing and social costs also include costs of transporting goods and people and running costs for the power station. Note 11 Exploration costs Exploration and search activities in new fields are expensed in the accounts. In 2006 the company carried out search activities in Gustavdalen, Breinosa and Lunckefjellet. These areas lie in close proximity to Svea. Note 12 Other operating costs The major items under operating costs are hire of administrative services from SNSK at NOK million, net cost of mine reconstruction after deduction for insurance recognised in income at NOK 56 million, and insurance premiums at NOK 22 million. One of the company s employees died in an occupational accident on 3 July The District Governor of Svalbard investigated the accident and a fine of NOK 10.0 million was imposed on the company in Note 13 Tangible fixed assets, depreciation schedule Machinery, fixtures, transport resources Buildings Technical plant Mines Plant under construction Acquisition cost at Additions in 2006 * Disposals/scrapping in conn. with fire Reclassified Acquisition cost at Accumulated depreciation at Disposals/scrapping in conn. with fire Depreciation for the year Book value at Estimated remaining useful life (incl. 2006) 3-6 years 6 years 6 years 6.5 years 0 TOTAL *Additions in 2006 also include replacement of equipment destroyed in the fire. SNSG AS carries out normal depreciation based on estimated remaining useful life calculated on the basis of quantity of coal in the core field of Svea Nord. Production was limited to 8 months in Fixed assets not directly related to production were used in the period during which the fire was being extinguished as though normal production had taken place. Given this background, it was decided to depreciate mines on the basis of the production volume for the year, while other fixed assets have been depreciated on the basis of the useful life as though production had continued all year. ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS - 43

44 Note 14 Financial income Interest received, bank deposits Interest received, group Interest received, other 0 33 Other foreign exchange gains Dividends TOTAL Note 15 Debt to credit institutions Interest-bearing debt: Type of loan Bank Balance Interest cost Balance Interest cost Overdraft facility DnB NOR Mortgage loans Restricted tax withholding fund Unutilised bank overdraft facility (limit 597,000) Debt which falls due for payment more than 5 years after the end of the financial year 0 0 Note 16 Tax costs TAX PAYABLE IS MADE UP AS FOLLOWS: Ordinary profit/loss before tax Permanent differences Change in temporary differences BASIS FOR TAX PAYABLE TAX AT 10% 0 0 TAX PAYABLE ON PROFIT FOR THE YEAR 0 0 Tax cost for the year is made up as follows: Tax payable on profit for the year 0 0 Excess provision for tax in previous year 0-22 Change in deferred tax TOTAL TAX COST FOR THE YEAR Tax payable in the balance sheet is made up as follows: Tax payable on profit for the year 0 0 Tax related to group contribution paid 0 0 TOTAL TAX PAYABLE 0 0 BASIS FOR DEFERRED TAX/TAX BENEFITS: Differences assessed: Fixed assets Current assets Provision relating to insurance payment Debt 0 0 Other accounting provisions Pension funds ACCUMULATED TAXABLE LOSS TOTAL DEFERRED TAX ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS

45 Note 17 Shares in subsidiaries and other companies Company Location Ownership % Balance sheet 2006 Balance sheet 2005 Store Norske Boliger AS Longyearbyen Svea Tankanlegg AS Sveagruva FabLab Technology AS Lyngen Barentsinstituttet AS Sør-Varanger Total The shares are recognised at cost in the balance sheet. SNSG has undertaken to buy back the shares in Svea Tankanlegg AS from the other shareholders at face value if there are no other buyers. Note 18 Balances with group companies 2006 Financial fixed assets Receivables Short-term debt Long-term debt Total Store Norske Spitsbergen Kulkompani AS Store Norske Boliger AS Store Norske Gull AS Total Financial fixed assets Receivables Short-term debt Long-term debt Total Store Norske Spitsbergen Kulkompani AS Store Norske Boliger AS Store Norske Gull AS Total Net accounts receivable at Bad debt recognised in accounts 0 0 Change in loss reserves 0 0 Reserve for bad debts at The reserve for bad debts is considered adequate to cover possible future losses. Other current receivables Of the total figure for other current receivables, NOK million represents the receivable in connection with the insurance settlement. Other current receivables mainly relate to prepayments to suppliers and prepaid insurance premiums. Note 20 Pledges and guarantees Mortgage loans Bank overdraft facility TOTAL Book value of assets pledged as security for debt: Tangible assets Shares owned by the company Stocks Other receivables Accounts receivable TOTAL The company has pledged the following assets as security: Land registry no. 12 Indre Lågfjord Mining concessions in the Svea area and around Gruve 7 Operating materials and accessories Coal stocks and inventories Shares owned by the company Accounts receivable Buildings and plant in Svea Guarantees The company has issued a NOK 4 million guarantee to Norsk Romsenter Eiendom AS to cover the costs of a possible breakage/failure of submarine fibre cables to the mainland. ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS - 45

46 Note 21 Forward contracts Most coal sales are transacted in US dollars. In order to reduce the risk of exchange rate fluctuations, the company enters into futures contracts to hedge future sales of US dollars. Coal sales and freights are recognised at the average hedged/achieved exchange rate. As the forward contracts are used as hedging instruments, unrealised exchange gains on the balance sheet date are not recognised. At the company had entered into the following forward contracts for the sale of USD: In addition, the following options on the sale of USD have also been entered into: Matures USD million Average rate Matures USD million Average rate Note 22 Coal reserves KNOWN COMMERCIAL COAL As a result of extensive core drilling and experience of coal mining in Gruve 7, Svea Vest and Svea Nord, we have merged the categories definite and probable coal into a single category: known coal. In the future we do not expect to use coal seams of less than 1.5 metres. Narrower seams of coal can normally not be mined at a profit. In calculating the tonnage of commercial coal, account is taken of the chosen mining method. In the case of Gruve 7, this will continue to be room & pillar operations, like today. In the case of Svea, including Ispallen, we expect to make exclusive use of longwall stoping, including in the sections where we will be cutting seams of metres. RESERVES OF COMMERCIAL COAL, MILLION TONNES Thickness Mining method Known Potential Svea Nord, core Longwall stoping 21.0 Svea area Longwall stoping 37.0 Gruve Room & Pillar TOTAL All methods Based on geological knowledge and theories of the formation of coal deposits 60 million years ago, the company has an extensive programme of diamond drilling, both west of Sveagruva and south of Gruve 7 in Longyearbyen. PROTECTED AREAS Following the creation of Nordenskiold National Park, we no longer consider the areas around the Reindal and Kolfjell deposits to be potential exploration areas for coal mining. The rules governing road building and construction within the national park preclude profitable coal production. Note 23 Clear-up costs Provision of NOK 2.0 million has been made in the accounts for 2006 for future clear-up costs in Svea. The total provision for clear-up operations is NOK 8 million ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS

47 Note 24 Shareholders equity Share capital Other equity Total Shareholders equity at Loss for the year Group contribution received (net) EQUITY AT The share capital comprises 150,100 shares each with a nominal value of NOK 1,000. Note 25 Ownership structure At Store Norske Spitsbergen Kulkompani AS owned 100% of the shares in the company. ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS - 47

48 48 - ANNUAL REPORT AND ACCOUNTS TH YEAR OF OPERATIONS ÅRSBERETNING OG REGNSKAP DRIFTSÅR - 48

49 ANNUAL REPORT AND ACCOUNTS th YEAR OF OPERATIONS - 49 Photo: Tom Egil Jensen

50 50 - ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS

51 ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS - 51

52 52 - ANNUAL REPORT AND ACCOUNTS st YEAR OF OPERATIONS Lundblad Media AS, Tromsø Cover photo: Tom Egil Jensen