AVDELNING HÖGER A 2015 ANNUAL AND SUSTAINABILITY REPORT

ANNUAL AND SUSTAINABILITY REPORT 2015 B AVDELNING VÄNSTER CONTENTS 2015

Cover image: Close-up of dewatering fi lter at Events during the year 1 KK4 pelletizing plant in Kiruna. The year in numbers 2–3 LKAB’s objectives 4–5 President’s report 6–8

1 THIS IS LKAB 9 Maximizing business 10 A mining company’s most important resource 11 The LKAB Group 12 Products 13 Signifi cant issues in LKAB’s value chain 14–15 Ongoing dialogue with stakeholders 16

2 CUSTOMERS AND MARKETS 17 A challenging market situation 18–19 Supplier of high-demand niche products 20–21 LKAB Minerals complements the core business 22

3 GOALS AND STRATEGY 23 Performance in Ironmaking 24–27 Flexibility 28–31 Safe and resource-e cient production 32–39 Growth 40–43 Urban transformation 44–47 Attractive LKAB 48–52

4 OUR GOVERNANCE AND CONTROL 53 Corporate Governance Report 54–61 Board of Directors 62–63 Group management 64–65 Auditor’s statement on the Corporate Governance Report 66 Auditor’s Limited Assurance Report on LKAB’s Sustainability Report 67 Materiality analysis 68–69 GRI Index 70–71

ABOUT LKAB’S ANNUAL REPORT AND SUSTAINABILITY REPORT 2015 5 OUR FINANCIAL RESULTS 72 In accordance with the state’s ownership policy and guidelines for state-owned Administration Report 74–87 companies, LKAB has prepared an annual report and a sustainability report as per the – including Risks and risk management 83–86 Global Reporting Initiative (GRI) guidelines. LKAB has chosen to report fi nancial and non-fi nancial (social and environmental) information in the same report for a better Financial statements 88–96 understanding of the company and its operations. The report structure largely adheres Notes 97–129 to the reports of the last two years with LKAB’s strategy as the basis. The Sustainability A rmation by the Board 130 Report for 2015 was prepared as per G4, and a GRI Index with the core scope can be found on pages 70–71. The index refers primarily to this report, but some selected Auditor’s Report 131 points of information refer to a separate appendix (GRI Appendix 2015) which is Mineral reserves and mineral resources 132–134 available at lkab.com. Group overview 135 The audited Annual Report includes the consolidated fi nancial statements on pages 80–91 as well as the Corporate Governance Report on pages 54–61. 6 APPENDICES 136 Sustainability information that has been reviewed by the auditors is identifi ed by the page references in the GRI Index on pages 70–71. These refer to this report and to the Glossary 136 GRI Appendix for 2015 at lkab.com. Annual General Meeting and fi nancial information 137 Addresses 137 GRI appendix lkab.com EVENTS DURING THE YEAR

JAN FEB

LKAB RENEGOTIATES REORGANIZATION OF LKAB ANNOUNCES CHANGES IN SUPPLIER CONTRACTS LKAB MINERALS RESPONSE TO MARKET SITUATION 9 February. To secure the Group’s 12 February. In the UK, the office in 13 February. The year-end report long-term competitiveness, LKAB Lancing and the production unit in for 2014 presented further savings, decides to renegotiate all major Foxfield are closed. The finance personnel reductions and capital supplier contracts. department is also reorganized. expenditure for growth in response In total, 26 people are affected. to the new market situation. MAR APR

LKAB BEGINS PERSONNEL BREAKDOWN OF ORE HOIST LKAB’S AGM 2015 REDUCTIONS IN KIRUNA 28 April. The meeting is dominated by 20 April. Personnel reductions equivalent 24 April. Nobody is injured in the the market situation and the substan- to 400 positions are started, primarily incident, but production is adversely tially decreased iron ore prices, along by no longer recruiting new personnel, affected. Repair is expected to take with how LKAB is responding in terms having fewer fixed-term contracts and at least one year. of savings and production increases. through internal recruitment. MAY JUNE

CONDITIONS FOR MINING NEW PRESIDENT IS APPOINTED LKAB FASTIGHETER BUILDS NEW OPERATIONS IN MALMBERGET 28 May. LKAB’s Board of Directors PROPERTIES AT JÄGARSKOLAN ARE DECIDED announces that Jan Moström is to be 18 June. The LKAB Group continues 19 May. The Land and Environment the Group’s new President and CEO. In to develop new properties itself. LKAB Court’s final ruling stipulates the con- autumn 2015 Moström joins the Group Fastigheter builds two multiple- ditions that apply to LKAB’s operations from his previous position as director occupancy buildings in Kiruna, in Malmberget. The ruling is appealed. of Boliden’s mining operations. providing 16 apartments in total. JUL AUG

SEISMIC EVENT IN MALMBERGET ORGANIZATIONAL CHANGES 40-DAY PRODUCTION STOPPAGE 31 July. Tremors are noticed by AT LKAB FOR THE KK4 PELLETIZING PLANT residents and reported by the media. 26 August. As part of the market- 22 August. Replacement of the The event, registering 2.7 on the local driven efficiency programme, the mantle ring at the KK4 pelletizing magnitude scale, occurs at 800 metres organization is consolidated and all plant in Kiruna results in a significant below zeroing point. the departments and subsidiaries loss of production at LKAB’s largest reduce personnel numbers. pelletizing plant. SEPT OCT

LAND DEFORMATION ACCELERATES LKAB BREAKS OFF BUSINESS LKAB APPLIES IMPAIRMENT URBAN TRANSFORMATION RELATIONS LOSSES TO PROPERTY, PLANT AND 15 September. A new deformation 25 September. LKAB breaks off EQUIPMENT forecast shows that areas in eastern business relations with a contractor 23 October. LKAB’s Board decides Malmberget are affected by the mining. that has failed to comply with LKAB’s to apply impairment losses of MSEK 100 to 160 properties are affected. values, Code of conduct and 7,136 before tax to property, plant and sustainability strategy. equipment in the iron ore operations, NOV DEC logistics and ports.

CONSTRUCTION OF KIRUNA’S VITÅFORS ACCIDENT LKAB CELEBRATES 125 YEARS NEW CITY CENTRE BEGINS – LKAB IS CLEARED 18 December. On this day, 125 years 6 November. The building of Kiruna’s 3 December.LKAB is cleared in the ago, the statutory board meeting that new City Hall marks the start of district court, along with all the other established Luossavaara-Kiirunavaara construction of the new city centre. companies prosecuted, in the legal Aktiebolag was held. The City Hall is expected to be proceedings relating to the fatal completed in summer 2018. accident at Vitåfors in 2010. The ruling is appealed. 2 THE YEAR IN NUMBERS

PROFIT/LOSS FOR THE YEAR

Although the underlying result is positive, LKAB NET SALES AND OPERATING PROFIT/LOSS

is reporting an operating loss – after impairment MSEK losses on property, plant and equipment and 30,000

provisions for urban transformation – of MSEK 25,000 -7,156 (570). The impairment losses result from 20,000 MSEK 16,200 continued oversupply of iron ore and dramatic Net sales price falls on the world market. In December 15,000 1 MSEK 1,548 2015 the spot price for iron ore fell to a historic 10,000 Underlying operating profit low of USD 38/tonne. The crushed ore industry is cyclical and 5,000 MSEK -7,156 Operating loss LKAB’s net sales have decreased in recent years 0 2015 to levels seen prior to 2008. -5,000 Net sales

Operating profit/loss 1Platts IODEX 62% Fe CFR North China -10,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 GROUP STRUCTURE AND EARNINGS

SHARE OF NET BY DIVISION1 NET SALES2 (MSEK) OPERATING PROFIT/LOSS2 (MSEK) SALES, MSEK

Mining Division The division’s core business is to mine, process, deliver and sell high-quality iron ore products for steelmaking, with pellets representing around 84% MSEK MSEK (83%) of the total sales volume. Europa and MENA (Middle East & North Africa) are the main markets, 14,782 -7,602 accounting for 76% and 24% of sales, respectively.

Minerals Division The division operates in the industrial minerals market through the LKAB Minerals subsidiary. The division’s companies support the core business by MSEK MSEK developing other business opportunities for LKAB’s iron ore outside the steel industry and by recovering, 1,534 134 processing and marketing industrial minerals.

Special Businesses Division This division is a collection of LKAB’s wholly-owned subsidiaries that mainly supply products and servic- MSEK MSEK es within the Group, but also sell LKAB-developed cutting edge technology to external customers. 2,005 188

1 As of 1 January 2016 LKAB has a new Group structure with three new divisions 2 The amounts include intra-group transactions – see Note 3 on page 105.

CREATED AND DISTRIBUTED ECONOMIC VALUE

MSEK 3,528 MSEK 8,627 MSEK 291 Employee salaries Supplier payments Expenditure on urban transformation

MSEK1,39 MSEK 3,840 MSEK 386 Dividend to owner (Swedish state) Reinvested in the business Taxes paid by the Group THE YEAR IN NUMBERS 3

PRODUCED AND DELIVERED

24.5Mt 24.2Mt Iron ore products produced by LKAB in 2015, compared with Iron ore products delivered by LKAB in 2015, compared with 25.7 million tonnes in 2014 26.0 million tonnes in 2014.

KEY RATIOS

PRODUCTION OF IRON ORE PRODUCTS, Mt FINANCIAL REVIEW

2015 2014 2013 2012 2011 2015 2014 Total 24.5 25.7 25.3 26.2 26.1 Net sales, MSEK 16,200 20,615

Of which 1 22.2 23.2 23.1 23.8 22.9 Underlying operating profit , MSEK 1,548 4,002 pellets Costs for urban transformation provisions, MSEK -1,568 -3,432 Of which fines 2.3 2.5 2.2 2.4 3.2 Impairment of property, plant and equipment, MSEK -7,136 Operating profit/loss, MSEK -7,156 570 DELIVERIES OF IRON ORE PRODUCTS, Mt Operating margin, % neg 3 2015 2014 2013 2012 2011 Profit/loss before tax, MSEK -7,271 594 Total 24.2 26.0 25.5 26.3 25.7 Tax, MSEK 1,585 247 Of which 20.3 21.7 21.1 22.0 20.9 Profit/loss for the year -5,686 347 pellets Operating cash flow, MSEK -2,348 2,072 Of which fines 3.9 4.3 4.4 4.3 4.8 Return on equity, % neg 0.9 Net debt/equity ratio, % 10 0 PRODUCTION AND PRODUCTIVITY Capital expenditure on property, plant and equipment, MSEK 6,354 5,491 Production Production 2015 Productivity, tonnes/average number of employees Net cost of urban transformation, MSEK 1,940 3,577

Mt Tonnes/average number of employees Provisions for urban transformation at end of reporting period, MSEK 12,234 11,683 30 12,000 1Underlying operating profit is defined as operating profit excluding costs for urban transformation provisions and impairment of property, plant and equipment. 25 10,000 SUSTAINABILITY REVIEW 20 8,000 2015 2014

15 6,000 Created and distributed economic value, MSEK 16,811 21,445 Average number of employees 4,463 4,539 10 4,000 Of whom women, % 20 19.4 5 2,000 Of whom female managers, % 17.7 19.9 0 0 Accidents with absence per million hours worked (accident rate) 6.9 7.6 2011 2012 2013 2014 2015 Energy consumption, kWh/tonne of products 163 165 Carbon dioxide emissions per tonne of products (kg/tonne) 26.4 27.0

Supplier payments...... 51% Reinvested in the business...... 23% Employee salaries...... 21% MSEK Taxes paid by the Group...... 2% 16,811 Expenditure on urban transformation.... 2% Created and distributed value for the year TOTAL Dividend to owner...... 1% 4 LKAB’S OBJECTIVES

OBJECTIVES FOR LONG-TERM VALUE CREATION

LKAB’s mission is to exploit Sweden’s iron ore resources in a responsible way and to secure lasting competitiveness and long-term value creation. Sustainability work is therefore central to our business strategy.

Since 2012 we have worked on four target areas for sustainability: attractive LKAB, attractive communities, responsible operations and resource-efficient production. In 2016 the sustainability objectives will be updated and revised based on achievement of objectives and relevance to the changed market situation.

FINANCIAL OBJECTIVES

Return on equity OBJECTIVE COMMENT 2015 RESULTS COMMENT

LKAB needs to be financially The return on equity for 2015 was -13.0%, which is strong to meet future commit- mainly due to lower income combined with ments. The Group’s profitability neg impairment of property, plant and equipment. 12% target is a return on equity of 12%. (0.9)%

Reduced production costs OBJECTIVE COMMENT 2015 RESULTS COMMENT

Growth from the new open- The production cost in SEK per tonne for 2015 was pit mines increases LKAB’s 4% higher than in 2012. The planned production -20% competitiveness through higher 4.1% increase in the open-pit mines in Svappavaara has volumes, resulting in a lower been postponed. As a result, the planned volume by 2015, base year 2012. cost per tonne. effect from the growth programme and the cost (SEK per tonne of products) (+0.6)% target for 2015 were therefore not achieved.

Net debt/equity ratio OBJECTIVE COMMENT 2015 RESULTS COMMENT

The capital structure target is a The debt/equity ratio for 2015 was 10%, which is net debt/equity ratio of 0–20% within the target range. The higher net debt/equity (financial net indebtedness/ 10.0% ratio compared with 2014 is mainly due to lower 0 – 20% equity). income combined with impairment of property, (0.0)% plant and equipment. LKAB’S OBJECTIVES 5

SUSTAINABILITY OBJECTIVES

Attractive LKAB OBJECTIVE 2015 RESULTS COMMENT

The proportion of women at LKAB will be at 20.0% (19.4%) of LKAB employees The objective for 2015 was achieved and the proportion of women at least 25% by 2020. are women. LKAB has continued to increase. 17.7% (19.9%) of managers are women.

There should be competition among qualified 92.2% (96.2%) of 141 (315) positions The objective for 2015 was achieved. Since LKAB stopped new recruit- candidates for all advertised positions. had at least two applicants. ment during the year, recruitments were mainly to temporarily cover various types of leave.

Long-term sick leave should remain at less Long-term sick leave was 0.6% The target level of long-term sick leave was reached, but as in the rest of than 0.8%. (0.4%). society sick leave increased in 2015.

Accidents with absence should decrease from 6.9 (7.6) accidents with absence per Despite a positive trend, the objective was not achieved. The accident 7 accidents per million hours worked in 2011 million hours worked. categories that most commonly occur are slipping and tripping, and to 5 accidents per million hours worked in crushing injuries involving hands/fingers when using tools. 2015. The accident rate target should be no more than 2.5 by 2020.

Attractive communities OBJECTIVE 2015 RESULTS COMMENT

Secure new mineral reserves to ensure produc- The ore reserve increased in 2015 There are good prospects for achieving the objective by 2020. tion for at least 20 years. and is following the plan laid down previously.

LKAB will build 200 new housing units each in In total, 242 housing units have In Kiruna the objective of 200 new housing units is expected to be achieved the Municipalities of Kiruna and Gällivare by been built, of which 184 are in in 2016, since a reduced rate of deformation has postponed the need for 2015, compared with 2011. Kiruna and 58 in Gällivare. new building. In Gällivare the objective has been postponed indefinitely due to delays in local planning and increased building costs.

Responsible operations OBJECTIVE 2015 RESULTS COMMENT

Emissions of sulphur dioxide from all existing Emissions of sulphur dioxide The target level of emissions for 2015 was not reached. Investment in flue pelletizing plants are to be reduced from about amounted to 1,119 (1,124) tonnes. gas scrubbing systems has resulted in stable, low emissions levels. 2,000 tonnes in 2011 to 1,000 tonnes by 2015 and 500 tonnes by 2017.

The annual mean value for falling particulates The volume of falling particulates Overall, the combined volume of falling particulates for all sites decreased is to decrease by 10% by 2015 from the 2011 decreased by 21% in total, but by 21% compared with 2011. In Svappavaara the operations have been level. the volume of falling particulates expanded compared to 2011, and in Malmberget an action plan has been in Svappavaara and Malmber- produced to reduce dust. get increased by 20% and 25%, respectively.

Resource-efficient production OBJECTIVE 2015 RESULTS COMMENT

The specific energy consumption will be Energy consumption amounted The specific energy consumption has not been reduced as forecast. Ener- reduced from 160 kWh per tonne of finished to 163 (165) kWh per tonne of gy-intensive changes in the production processes, product mix and other products in 2011 to 130 kWh per tonne of finished products. operational changes have limited opportunities to achieve the objective. finished products by 2020.

Carbon dioxide emissions per tonne of finished Carbon dioxide emissions amount- Carbon dioxide emissions have not reduced as forecast. The product mix products will be reduced from 27 kg in 2011 to ed to 26.4 (27.0) kg per tonne of and other operational changes have limited opportunities to achieve the 17 kg in 2020. finished products. objective.

Maintain our market position as a leading global LKAB’s market position as a sup- The objective was achieved. LKAB has maintained its position as one of the supplier of pellets. plier of pellets is unchanged. world’s foremost producers and suppliers of high-quality pellet products in the seaborne pellet market.

New generation of pellets produced by 2017. Product development is ongoing The objective is no longer relevant. The product objective of a new genera- within LKAB’s research and devel- tion of pellets by 2017 was set under different market conditions. opment operations. 6 PRESIDENT’S REPORT

PRESIDENT’S REPORT Our ability to adapt is crucial

As the new President of LKAB, I have joined a mining company that has been the basis of the development of communities in the Swedish orefields and a growth engine for Norrbotten and Sweden for over 125 years. LKAB has faced challenges successfully, thanks to our ability to innovate and adapt. We will continue to do so.

It has been a challenging year for the global iron ore as the flexibility to supplement our production with industry. The market has been characterized by a iron ore fines when the market permits. At present continued oversupply of iron ore as demand for steel has there is neither a market nor profitability for this fallen, particularly in the Chinese market. The decline in fines production, which means that LKAB’s previously ore prices in recent years, from levels of over USD 180 announced volume target of 37 million tonnes has per tonne in 2011 to a low of USD 38 per tonne in the been postponed. fourth quarter of 2015, have created a situation in which The Svappavaara mines will now primarily be profitability has been squeezed. There are no indications supplying raw materials to existing processing plants that balance will be restored to the market in the through production in Leveäniemi and Gruvberget. immediate future. The mining companies that will Furthermore, the plants in Mertainen are undergoing come out of this strongest are those that succeed best warm-up and the results will be evaluated during 2016. in adapting their operations and business to the new A mining company that does not continue to look market situation. for new deposits has made an indirect decision that LKAB’s deliveries of iron ore products fell by seven one day it will close down. We will continue to plan for percent in 2015 to 24.2 (26.0) million tonnes. Production fell a business that is sustainable in the long term, which by five percent to 24.5 (25.7) million tonnes. Production was requires continuously increased knowledge of mineral affected above all by problems with the new ore passes in reserves and mineral resources in our local area. the Kiruna mine and with seismic events in the Malmberget LKAB will continue to explore within our licensed mine, which resulted in a shortage of raw materials. areas during 2016 with the goal of having 20 years’ The negative financial result underlines the need to lead time to ensure access to ore and development of intensify our work to improve efficiency. LKAB cannot the surrounding communities. itself determine the prices of its iron ore products; that is decided by the market. What we can affect is our Focus on pellet production and customer partnerships own productivity, our own costs and the quality of our The bold, far-sighted decision taken by LKAB in the products. 1960s to invest in pellets was absolutely crucial for the company’s competitiveness and ability to deal Mining operations sustainable in the long term with economic fluctuations. On the basis of this Unlike virtually all our competitors, LKAB’s main direction, LKAB now has a strong market position as production of ore is in underground mines. This is a a pellet producer – with high-quality raw materials, cost disadvantage compared to our competitors and leading technical development and long-term, close demands large-scale, technically advanced mining customer relationships. operations with a high level of productivity and safety. This is also the starting point as we step up the Each link in the chain must be utilized as close to pace in the process of change in order to enhance our maximum capacity as possible. competitiveness. Demand for LKAB’s processed iron Over the last decade LKAB has invested many billions ore products continues to be strong, and the strategy in the entire value chain, from new main levels in the of maximizing pellet production continues – this is mines to processing plants, railways and ports. Thanks how we prioritize the area in which we create the to the new open-pit mines in Svappavaara, we have also most value. secured access to raw materials in the longer term. Magnetite ore from the Swedish orefields not only This gives us the conditions to increase our pellet has a very high iron content and purity, but also emits production in the prevailing market situation, as well energy when it is processed into pellets. This gives 7

When our customers’ margins come under pressure, this puts even tougher demands on us to be cost-efficient.

us an edge, with products that are both of high quality A savings and efficiency programme was implemented, and provide customers with a more environmentally and this reduced the cost base by MSEK 800. The sustainable input raw material. Three of the world's measures included renegotiations of supplier agree- four processing plants that generate the least carbon ments and more work now being carried out in-house. dioxide emissions per produced tonne of pellets are in The workforce was also reduced by a total of 400 Sweden and belong to LKAB1. positions through natural attrition, retirement solu- LKAB’s main market is Europe, and our customers tions and a lower number of temporary employees. are leading steel producers with strict demands for A new efficiency package will be drawn up during the quality and sustainability. In addition to a geographical first half of 2016, and this will as a minimum exceed proximity that offers transport benefits, LKAB has a the savings made in 2015. long history of close collaboration with our customers. Our goal moving forwards is to significantly im- Our goal is for customers to achieve more efficient and prove productivity by creating more stable, efficient thus more economically and environmentally sustaina- production in our mines and plants, and by work- ble production of iron for steelmaking. This is the core ing smarter. A new Group structure was therefore of the customer promise, which we call “Performance presented during the fourth quarter of 2015. As from in Ironmaking”. 2016, the business will be divided into three divisions. Global demand for steel has fallen during the year. One unit consists of the mine and processing plant When our customers’ margins come under pressure, in Kiruna, one of the mines and processing plants in this puts even tougher cost-efficiency demands on Malmberget and Svappavaara, while a third division us. Taken as a whole, both the steel industry and the consists of LKAB Minerals, which produces and sells mining industry are facing structural changes, which industrial minerals, and the drilling technology com- open up new opportunities and make collaboration with pany LKAB Wassara’s products. This new structure customers even more important. moves responsibility closer to the core business and places focus on production and profits. Adaptation to the market situation We will also be reviewing our sustainability objec- It is evident that LKAB needs to do more in order to tives in 2016. secure increased volumes and reduce costs, and during the year this adaptation work was intensified.

1 “Benchmarking of carbon dioxide emissions from iron ore pelletizing”. The report is contract research conducted by Swerea-Mefos (metallurgical industry research institute) and commissioned by LKAB. 8 PRESIDENT’S REPORT

Sustainability challenges Together with employees and society LKAB has a long history of assuming responsibility for LKAB currently generates more than 17,000 jobs – the impact of our operations. Which is just as it should be. through direct and indirect job opportunities both locally In order to continue to mine ore, LKAB must secure and regionally. This is an important contribution to the access to the land affected by mining, by means of region’s and Sweden’s economic development. environmental permits and agreements with the Despite the market situation, Swedish students municipalities and property owners. The development place LKAB high on the list of attractive employers. of LKAB – and the operating locations – requires close In the FöretagsBarometern student survey, LKAB was collaboration with many parties, with different, some- ranked one of Sweden’s 100 most attractive employ- times conflicting, interests. ers for engineering graduates. In Kiruna and Malmberget, continued production There are 180 different occupations within LKAB, and requires that large parts of the communities be moved we have a clear ambition to be a role model in terms of when mining in the underground mines gradually ethics, equal opportunity, diversity and work environ- becomes more widespread. This urban transformation ment, and this is reflected in our own Code of conduct takes place gradually, and many people have already as well as the demands we make place on suppliers. moved. The proportion of women has continued to increase But we are approaching a situation in which time is and totalled 20 percent at the end of the year. Long- starting to become critical and it is absolutely crucial term sick leave at LKAB remains low. The accident that we work together with the municipalities and oth- rate trend has also been positive over time. In 2015, er stakeholders to achieve certain milestones in time 6.9 accidents per million hours worked were reported, so that production is not com- against our target of no more than 5. Most accidents promised. To gain better control had undramatic causes such as slipping or tripping, We need to ensure that over both timetables and costs, but the ambition must nevertheless be that our em- the Board of Directors decided in ployees leave work in just as healthy a state as when LKAB and the communities March 2015 that LKAB should be they arrived. To achieve this aim, we work not only in the Swedish orefields able to assume a more proactive with automation, order and clarity, and lean processes, come out of the downturn role by, for example, procuring but also to build a sustainable workplace culture with construction projects when homes a focus on safety and well-being. stronger than before. and business premises have to be replaced. At the beginning of 2016 Outlook for 2016 we were also able to present in The raw materials industry is cyclical, with major detail how residents, property owners and businesses variations. The trick is not to get carried away, either should be compensated. in upturns or downturns. But it is also about taking LKAB has high environmental ambitions, and down decisive action so that we ensure that LKAB and the the years the aim of much of the company’s inno- Swedish orefields not only survive, but come out of vation has been to increase resource efficiency and the downturn stronger than before. By guaranteeing reduce environmental impact. LKAB already has one profitability we can also assume the responsibility that of the world’s most energy-efficient pellet production we want to assume, not least for urban transformation. facilities, but there is more to be done. In 2016 the adaptation to changes in the market will Ever since it all began at the end of the 19th century, continue. The focus is on improving our competitive­ LKAB’s existence and development have depended on ness by reducing the cost per tonne of iron ore products the ability to create value for, and grow together with, produced, streamlining the organization and increasing the operating locations. Our dialogue with the commu- production within the framework of the investments nity around us is crucial, and important collaborative we have made. partners include reindeer herders and the tourism We must create the best possible conditions for industry. In 2015 LKAB continued to collaborate with the future by developing our current operations with Sami villages that are affected by mining operations. increased production, improved products and stronger One result of a project with the Sami villages of customer partnerships. This is how we create value Laevas and Gabna is the development of a metho­ for customers, society, employees and our owner. dology manual to assess the overall effects of different operations on reindeer herding. The method Luleå, March 2016 can be used by both LKAB and other businesses when environmental impact assessments relating to the impact on reindeer herding need to be produced.

Jan Moström, President and CEO AVDELNING HÖGER 9

THIS IS LKAB committed – innovative – responsible 1 10 THIS IS LKAB

MAXIMIZING BUSINESS BENEFIT WITH GREAT RESPONSIBILITY FOR COMMUNITIES

As a global supplier of processed iron ore products, LKAB generates substantial value at many stages – for customers, society, employees and our owner. Our strategy is based on maximizing the value that we generate while at the same time taking responsibility for minimizing our negative impact on the environment and communities.

BUSINESS CONCEPT VISION SUSTAINABILITY

Manufacture and deliver upgraded iron ore Attractive communities products and services for ironmaking that create Make a positive contribution to the development added value for customers on the world market of our locations, in close partnership with resi- from our base in the Swedish orefields. Other Be perceived dents, authorities and other enterprises. closely-related products and services that are based on LKAB’s know-how and that support by customers as Attractive LKAB our main business activities may be included in the supplier Work to increase diversity and equality, offer operations. a safe work environment and provide career that adds the opportunities that develop people. STRATEGY most value, thus Resource-efficient production As an innovative, resource-efficient and leading the way Make efforts to reduce our energy consumption, responsible company LKAB will utilize and in our chosen minimize emissions and help improve resource process iron ore into high-quality products. In efficiency in customers’ processes. close partnership with our customers, and with market segments. the confidence of the world around us, we will Responsible operations create value that strengthens our long-term Work actively to minimize our impact on the competitiveness, enhances our profitability and environment. helps improve sustainability in the value chain.

OUR STRATEGIC PRIORITIES OUR VALUES

Performance in Ironmaking

Flexibility

Safe and resource-efficient production Committed Innovative Responsible

Urban trans- Attractive LKAB’s values form the basis of how the business is Growth formation LKAB operated. Committed means that our customers’ results are the focus of everything we do. Innovative means Committed - Innovative - Responsible everything can be improved if we dare to think outside the box. Responsible means that we think long-term, are Read more on pages 23–52. respectful and put safety first. Read more on pages 48–52. THIS IS LKAB 11

MINERAL RESERVES A MINING COMPANY’S MOST IMPORTANT RESOURCE

The iron ore that LKAB mines in the orefields of northern Sweden is among the richest in the world. Our primary task is to utilize and process these assets as an innovative, resource-efficient and responsible company. A detailed calculation and list of our mineral resources and mineral reserves can be found on pages 132–134.

Kiruna Malmberget Svappavaara The orebody in the Kiruna mine is an In Malmberget the underground mine con- The three open-pit mines in Svappavaara are inclined slab of magnetite that is around 80 sists of around 20 dispersed orebodies, of currently Europa’s largest iron ore project. metres wide, four kilometres long and which around 10 are currently mined. Mag- Today, mining takes place in Gruvberget and extends at least two kilometres under- netite is mainly mined in the western field, Leveäniemi. Construction work to complete ground. Surface-level processing includes but also hematite. Only magnetite is mined the mine in Mertainen is continuing until 2016. benefication and pelletizing. Kiruna produces in the eastern field. Surface-level process- Ore processing in the form of beneficiation both blast furnace pellets and pellets for DRI ing includes benefication and the production and blast-furnace pellet production was through direct reduction. of blast furnace pellets and fines. already carried out in Svappavaara.

Production in 2015 Production in 2015 Production in 2015 27.3 million tonnes of crude ore 17.4 million tonnes of crude ore 4.7 million tonnes of ore 12.6 million tonnes of upgraded products 8.5 million tonnes of upgraded products 3.5 million tonnes of upgraded products

NEW GROUP STRUCTURE FOCUSING ON THE IRON ORE BUSINESS

As of 1 January 2016 the iron ore operations have been split Narvik into three divisions and separate profit centres in order to Svappavaara increase efficiency, transparency and profitability. Kiruna Production North Malmberget Mine and processing plant in Kiruna. Production South Mines and processing plants in Malmberget and Svappavaara. Malmbanan ore railway Speciality Products LKAB’s main operations other than the iron ore business, Luleå LKAB Minerals and LKAB Wassara, form the Special Products Division. 3 new divisions in LKAB from 2016 12 THIS IS LKAB

THE LKAB GROUP

LKAB is one of Sweden’s oldest industrial companies. For 125 years we have been an important driving force for Sweden’s development and exports. Our operations and knowledge have helped build infrastructure and industries.

LKAB’s mines and processing plants are located LKAB’s core business is to mine and process in the orefields of northern Sweden. Our produc- iron ore for the steel industry. Research and Europe tion and our research and development take development combined with customer interac- place primarily in Kiruna, Malmberget and tion have broadened our portfolio of proprietary LKAB is the EU’s largest iron ore Svappavaara. Our upgraded iron ore products are and innovative technologies, products and producer and mines around 76 percent of all iron ore within the EU. transported along the Malmbanan and Ofotenba- knowledge. The Group also markets industrial nen ore railways to the ports of Narvik and Luleå minerals and products with other applications for shipment to customers around the world. The for iron ore, such as highly efficient drilling iron ore operations have a sales organization for systems. In addition, LKAB has a number of the markets in Europe, Asia and the Middle East. wholly owned subsidiaries that provide rail 4,463 The industrial minerals operations have sales transport, rock and engineering services and Average number of employees offices and production units in Europe, the US explosives, as well as a property company that and Asia. owns and manages 2,300 properties in Kiruna and Malmberget.

PORTS MINES AND PROCESSING PLANTS SALES AND/OR PURCHASING OFFICES LKAB MINERALS AND LKAB WASSARA

Processing plants Open-pit mines KIRUNA Research Rockwork SVAPPAVAARA SVAPPAVAARA and development Industrial minerals LKAB BERG & BETONG MALMBERGET PELLETIZING LKAB MINERALS IRONMAKING

Underground mines Explosives KIRUNA LKAB KIMIT MALMBERGET THIS IS LKAB 13

PRODUCTS

IRON ORE PRODUCTS

Blast furnace pellets make up LKAB’s DR pellets are reduced with natural gas to Fines is finely crushed iron ore that is melt- largest product group, delivering significant direct reduced iron (DRI), which is used to ed together into cakes (sintered) before it is customer value to steelworks’ blast furnaces make steel in an electrosteel furnace. used to produce iron in a blast furnace. The by means of an optimized addition of various LKAB’s high-quality pellets produce less high iron content in LKAB’s fines makes it minerals like olivine to improve high-temper- waste, lower power consumption, raise highly sought after in the market. ature properties. productivity, and result in lower maintenan- ce requirements and less wear in steel production.

SPECIALITY PRODUCTS

heavy concrete. Huntite is used, One of the most important for example, as a halogen-free, innovations for improving fire retardant additive mining efficiency in LKAB’s in plastics and cables. underground mines is drilling Mica has a very wide range of technology. The subsidiary applications and is used, for LKAB Wassara has developed a example, as reinforcement and water-powered drilling system insulation in plastics and as that has been patented world- LKAB also mines and sells min- decorative elements in ceramic wide. Today this is also offered erals, and processes and sells materials. to external customers within iron ore for applications outside Mineral sands are used for LKAB is also a player in the the mining and construction the steel industry. production of welding rods market for recovery of heat- industries for a number of other and welding wire. Refractory resistant materials such as applications. Magnetite is used for water minerals are used to produce refractory bricks and materials purification, noise and vibration refractory bricks and casting for lining blast furnaces. damping and as aggregate in sand.

Rail transport Engineering Ports LKAB MALMTRAFIK Properties LKAB NORWAY LKAB MEKANISKA LKAB MALMTRAFIKK LKAB FASTIGHETER PORT OF LULEÅ

Drilling systems LKAB WASSARA 14 THIS IS LKAB

KEY ISSUES IN LKAB’S VALUE CHAIN

Identifying and acting on risks and opportunities that affect LKAB’s competitiveness and our stakeholders’ confidence is critical to our success. By assuming responsibility for our impact throughout the value chain we strengthen LKAB’s long-term competitiveness and increase our contribution to the development of society, people and the environment.

Impact on communities Impacts and challenges within LKAB’s operations Suppliers Sell and develop Explore

LKAB has around 4,000 suppliers. Certain Thanks to innovative development and LKAB’s exploration initiatives are the basis geographical areas and segments have high-quality iron ore, LKAB’s products for ensuring long-term mining operations. greater sustainability risks, particularly as have quality advantages that strengthen The key to successful exploration is a regards environmental impact, working our position with our customers. In order combination of geological know-how and conditions and human rights. At the same, to remain at the forefront of mining and access to land areas with potential ore. This as a significant buyer, we exercise consid- processing, research and development, demands respect for the surrounding area, erable influence. All our suppliers must LKAB must ensure that it has a diverse responsibility for the environment and comply with our current Code of conduct. range of skills and be an attractive cooperation with local enterprises, not Compliance is monitored following employer. least reindeer herding. We evaluate the mapping and risk assessment. impact of new mines on biodiversity. Key issues Key issues Diversity and non-discrimination Key issues Responsible purchasing Work environment, health and safety Urban transformation Human rights Employees and employment types Biodiversity Work environment, health and safety Interests of Sami villages Diversity and non-discrimination Impact on employment and infrastructure

Impact on communities Thanks to regenerative braking and optimized train management, energy use for ore transport can be cut by up to 25 percent. Steel customers and use Local communities

LKAB must set an example interna- Access to land is crucial for mining that is tionally in terms of responsibility and sustainable in the long term. LKAB’s resource efficiency. This makes us the survival depends on the relocation of first sustainable link in the value chains around 5,000 homes and 700,000 square of our steel customers and their custom- metres of residential and commercial ers. Steel products are also 100 percent premises in central parts of Kiruna and recyclable and can become new raw Malmberget. This means that nearly material again. 10,000 people will need to be relocated in the longer term. Key issues Environmental benefits of the products Key issues  Management of viewpoints on environ- Urban transformation ment and society Interests of Sami villages Environmental emissions Impact on employment and infrastructure

The key issues are described in general terms in relation to the value chain above. A more detailed description of each issue can be found in connection with the GRI G4 materiality analysis on pages 68–69. THIS IS LKAB 15

SIGNIFICANT ISSUES FOR SUSTAINABLE DEVELOPMENT

LKAB has identified a number of key issues that guide us as we prioritize and report on our sustainability work. The starting point for this was to define the areas where LKAB has the greatest impact and where our stakeholders feel we should focus our resources. For further information on the key issues, see pages 68–69.

Impacts and challenges within LKAB’s operations Mine Process Transport

LKAB mines iron ore both above and All iron ore mined is processed in our Our iron ore products are transported by below ground, which impacts the sorting, beneficiation and pelletizing plants. rail from the mines and processing plants landscape and demands cooperation with LKAB is one of Sweden’s largest individual along the Malmbanan and Ofotenbanen environmental authorities and the local consumers of energy, and energy efficiency railways to the shipping ports in Luleå community. We prioritize the work and alternative energy sources are a high and Narvik. LKAB is one of Sweden’s environment, health and safety in all our priority. It is also important to reduce biggest logistics companies. We have to work. environmental emissions, which includes take responsibility for continual improve- the phasing out of coal and oil, increased use ment – from loading underground using Key issues of residual heat and recycling of mining waste. electric trucks to eco-driving that allows Management of viewpoints on environ- almost energy-neutral transport by the ment and society Key issues ore trains under optimal conditions. Resource-efficient use of raw materials Resource-efficient use of raw materials Work environment, health and safety Environmental emissions Key issues Diversity and non-discrimination Management of viewpoints on environ- Environmental emissions Urban transformation ment and society Work environment, health and safety Work environment, health and safety Diversity and non-discrimination Diversity and non-discrimination

Together with our suppliers, customers and other stakeholders we want to contribute to positive and sustainable development where we operate. Read more about our ongoing dialogue with stakeholders on the next page. 16 THIS IS LKAB

ONGOING DIALOGUE WITH STAKEHOLDERS

LKAB enjoys an active and ongoing dialogue with many different stakeholders in order to encourage the kind of cooperation required to pursue sustainable mining operations. Our business requires a long-term approach and collaboration on numerous different levels and we place considerable emphasis on being accessible, responsive and transparent.

Form of dialogue Key issues Results

CUSTOMERS Continual dialogue via various forums and Stimulating partnerships Collaborative projects to develop more energy-efficient processes collaborative projects. Research and development and improve pellet quality.

EMPLOYEES Informal and formal in the form of workplace Health and safety Objectives and activities to reduce absence due to workplace meetings, performance reviews, strategy days, Non-discrimination accidents and to promote equality, diversity in the company and safety officer meetings and employee surveys. Recruitment and compe- in managerial positions. tence management

SUPPLIERS AND Regular meetings and supplier days to achieve Supplier management As part of efforts to implement the Code of conduct for suppliers CONTRACTORS consensus on key issues.  Stimulating partnerships (suppliers’ programme), work has been initiated on monitoring Health and safety compliance. Eight audits were conducted in 2015. Human rights

LOCAL RESIDENTS A number of different contact and dialogue Urban transformation Proactive information about procedures and guidelines for channels ensure accessibility and a presence Local environment LKAB’s work within various areas. Stakeholder analysis with rep- – for example, information offices, consulta- Dusting resentatives from the communities in which we operated in 2015. tions and the publication of magazines. Land issues

INTERESTS OF SAMI Dialogue and a number of cooperation Land use Collaborative work is pursued based on the premise that it should VILLAGES agreements with Sami villages affected by Interaction be possible for LKAB’s mining operations and Sami traditions operations. Compensation principles such as reindeer herding to coexist. Examples of results include Urban transformation a tool for reindeer herding analysis based on the principle of Free Prior and Informed Consent (FPIC).

HOSPITALITY Individual and public meetings with other Interaction Offering alternatives and promoting the development of recrea- INDUSTRY significant industries in the region. Land use tional areas. Collaboration/agreements with local representatives from the hospitality industry.

TRADE Dialogue and consultation meetings with trade Biodiversity Consultation on environmental assessments and collaborative ASSOCIATIONS associations representing the environment, Human rights projects with various trade associations to minimize the negative nature conservation and urban transforma- Land use impact of our operations. tion. Sector cooperation via membership of Stakeholder analysis during the year in which several trade organisations such as Euromines and SveMin. associations took part.

OWNER LKAB’s owner, the Swedish State, is represent- Financial return Quarterly reports to the owner. Continual dialogue through Board ed on the Board and at the Annual General Sustainable products representation, owner analysis, visits and meetings. Meeting. Business ethics/anti- corruption Customer management Supplier management Interaction

AUTHORITIES AND Regular public and private meetings with Environmental respon- Internal controls and monitoring of compliance with conditions LEGISLATORS the relevant domestic authorities, the County sibility set by environmental courts and authorities. Consultation, Administrative Board and municipalities, as Interaction with local inspections, reporting and improvement work are part of well as international authorities. community day-to-day operations. Annual reports and sustainability reports Development in our growth in accordance with guidelines. regions Conflicts of interest with other industries Working environment responsibility

SCHOOLS, Ongoing dialogue and project-based col- Recruitment and Collaboration and financing of events/courses to UNIVERSITIES AND laboration with schools and courses in the competency management encourage interest in engineering and mining-related research. COLLEGES communities in which we operate, as well as Research and development with colleges and universities. AVDELNING HÖGER 17

CUSTOMERS AND MARKETS processing creates competitive strength 2 18 CUSTOMERS AND MARKETS

A CHALLENGING MARKET SITUATION

Despite the slow- down in China’s growth, global demand for steel remains high.

China’s dominant role in the iron ore and steel market determines the development and pricing of iron ore globally. Now that China’s growth is slowing down and Chinese demand for steel is falling, this has major consequences in all markets.

STEEL IS THE LOCOMOTIVE

The iron ore market is driven by demand the past decade, accounts for more than Despite the slowdown in China’s growth, for steel, which in turn is linked to develop­ 50 percent of seaborne iron ore imports global demand for steel remains high. It ments in the global economy and growth and almost half of the world’s total steel is, however, expected that the oversupply in the global market. China, which has production. of iron ore and steel will persist for some experienced exceptional growth over time, until industry operators have adapted to the new market situation.

STEEL CONSUMPTION IN CHINA AND THE WORLD China Rest of world GLOBAL GDP PERFORMANCE Source: World Steel Association Source: The World Bank

Mt USD billion 2,400 600,000

1,800 450,000

1,200 300,000

600 150,000

0 0 1980 1985 1990 1995 2000 2005 2010 2015 1970 1980 1990 2000 2010 2011 2012 2013 2014 2015 CUSTOMERS AND MARKETS 19

OVERSUPPLY RESULTS IN PRESSURE ON PRICES

The iron ore producers’ response to China’s China’s influence can also be felt in the steel Both iron ore and steel producers are strong increase in steel consumption was industry. In 2015, China continued to having to deal with a serious oversupply in to open new mines and increase their produce virtually the same volumes as the market. As it is difficult to see anyone volumes of crushed ore substantially. With before, despite a fall in domestic demand. else taking on China’s role as an engine, the current market situation, in which The surplus of around 120 million tonnes, high-cost producers are expected to be China is putting on the brakes, this has equivalent to almost the entire steel output forced out and depressed prices to persist created an oversupply of iron ore, which of North America, was exported to other until the market has adapted to the new has put severe pressure on the price of markets, resulting in global pressure on situation. iron ore and thus also on the price of steel prices. LKAB’s products.

IRON ORE SUPPLY AND DEMAND TOP 10 STEEL PRODUCING COUNTRIES, Mt Supply Demand Source: World Steel Association Source: Wood Mackenzie

Mt NO. COUNTRY 2015 2014 CHANGE, % 2,500 1 China 803.8 822.7 -2.3% 2 Japan 105.2 110.7 -5.0% 2,000 3 India 89.6 87.3 2.6% 4 USA 78.9 88.3 -10.5% 1,500 5 Russia 71.1 71.5 -0.5% 1,000 6 South Korea 69.7 71.5 -2.6% 7 Germany 42.7 42.9 -0.6% 500 8 Brazil 33.2 33.9 -1.9% 9 Turkey 31.5 34 -7.4% 0 2000 2005 2010 2011 2012 2013 2014 2015 10 Ukraine 22.9 27.2 -15.6%

QUALITY A COMPETITION FACTOR

Growth markets with major construction A focus on quality steel, tighter environ- competition perspective. Particularly in and infrastructure projects have higher de- mental requirements and the choice of Europe and in the Middle East and North mand for more basic quality steel in large reduction method are factors that make Africa (MENA), there is stable and even volumes than mature markets, which are high-quality input goods increasingly increased demand for high-quality iron ore primarily consumption-driven and tend important for steel producers from a products such as pellets, concentrate and rather to demand niche steel products of high-grade fines. higher quality.

EUROPE MENA CHINA USA Source: Wood Mackenzie Source: Wood Mackenzie Source: Wood Mackenzie Source: Wood Mackenzie

% % % %

Mt Mt Mt Mt Fines...... 70 Fines...... 3 Fines...... 905 Fines...... 2 Lump ore...... 18 Lump ore...... 3 Lump ore...... 151 Lump ore...... 0 Blast furnace pellets...... 49 Blast furnace pellets...... 0 Blast furnace pellets...... 161 Blast furnace pellets...... 36 DR pellets...... 1 DR pellets...... 43 DR pellets...... 1 DR pellets...... 3 20 CUSTOMERS AND MARKETS

SUPPLIER OF IN-DEMAND NICHE PRODUCTS

In an overall perspective, we are a small operator in the global iron ore market. We are, however, the world’s third-largest supplier in the seaborne import market for pellets. LKAB has a stated strategy to be a leading niche supplier of high-quality iron ore products to customers with high quality and product requirements.

The import markets for iron ore consist mainly of Asia, Europe and TOP FOUR PELLET PRODUCERS IN 2015 the Middle East & North Africa (MENA). Other markets are very small Source: Wood Mackenzie or essentially have their own domestic supply of ore. While growth NO. COMPANY ANNUAL CAPACITY, Mt in steel production and iron ore imports reports negative figures, 1 Vale 57 especially in China, it is expected that steel production in Europe 2 Cliffs 33 and MENA will continue to increase modestly. Virtually all of our 3 LKAB 27 sales are in these markets. 4 Metalloinvest 26

Europe is our home market The focus in Europe’s mature steel market is on rationalization and consolidation. Steel producers demand high-quality iron ore GLOBAL PELLET PRODUCTION products that allow them to produce as much or more steel from Source: CRU fewer production units. This makes LKAB’s pellets a sought-after Mt commodity in customers’ production processes. Our proximity to 500 Europe also gives us a freight advantage over our competitors and makes Europe a natural home market. We have been developing 400

good, long-term business relationships for 125 years. 300

High quality required for direct reduction 200

In MENA, access to a good supply of natural gas and a lack of high- 100 quality scrap means that steel production based on direct reduced 0 iron, known as DRI, is the most common method of production. To 2000 2005 2010 2011 2012 2013 2014 2015 produce DRI, high quality and a high iron content are required in the input goods. Strong demand for our DR pellets for direct reduction and shipping neutrality are what make MENA our second-largest market. LKAB’S SALES LKAB’S SALES BY MARKET REGION BY PRODUCT AREA Percent of sales1 Percent of sales

% %

% % Europe...... 76 Blast furnace pellets...... 66 MENA...... 24 DR pellets...... 23 China...... 0 Fines...... 8 USA...... 1 Speciality products...... 3

Unloading pellets at the Port of Narvik. 1The above figures have been rounded to the nearest percent, which is why the total is 101 percent. CUSTOMERS AND MARKETS 21

% 84Iron ore pellets account for 84 percent of LKAB’s delivery volumes

PROCESSING CREATES COMPETITIVE STRENGTH COST PER TONNE CRUCIAL

The global market price of iron ore is set on the basis of a bench- The assessment is that oversupply in the iron ore market will mark price of fines with 62 percent iron content, delivered to remain for several years. The big iron ore producers are consoli- China. Based on the prevailing benchmark price, the prices of dating their dominance by cutting costs and introducing fines from various iron ore products are set depending on quality, iron con- investments in new mines that have low production costs, contri­ tent and shipping cost. buting to the expectation that the price profile will persist. For a pellet producer like LKAB, an increased degree of processing All iron ore producers need to reduce their costs per tonne pro- and higher quality generate a bonus, known as a pellet premium, duced if they are to compete in the current market. As far as LKAB in addition to the current benchmark price of fines. For LKAB, which is concerned, this means we have to get down to the same cost has ore with a high iron content but higher mining costs, the pellet levels as the other major operators in the pellet market. To achieve premium and the proximity to customers are important competi- this, it is crucial that we can streamline our production systems tive factors. and increase our production volumes without compromising on quality and delivery performance.

TREND IN IRON ORE PRICE AND PELLET PREMIUM CASH COST PELLETS January 2013–February 2016 Source: CRU Cost Model Q4 2015 Source: PLATTS

USD/tonne USD/tonne 200 160

150 120 LKAB

100 80

50 40

2013 2014 2015 2016 0 50 100 150 200 250 300 Mt

Spot Price Fines Premium Blast Furnace Pellets Premium DR Pellets Average production cost for global pellet producers Global pellet production

The benchmark price for iron ore fines has reported a falling trend since the middle Mining ore in LKAB’s underground mines is more expensive than mining in of 2014. The listed market pellet premium for seaborne pellets (Atlantic Basin pellet competitors’ open-pit mines. This is partly compensated by the fact that LKAB’s premium 65% Fe) has, however, shown strength in the face of the falling price of ore has a high iron content and a relatively low pelletizing cost, as the magnetite fines. As a consequence of the dam disaster that hit pellet producer Samarco in ore releases energy during processing. LKAB’s relative position on the cash cost November 2015, a gap was created between supply and demand of approximately curve is in the central segment, close to the average cost for pellet producers. 25 million tonnes in the seaborne pellet market. This means that the pellet premium A crucial factor for long-term competitiveness is that we can position ourselves is expected to remain stable, even though the outlook for 2016 is uncertain. below the average cost for the industry. 22 CUSTOMERS AND MARKETS

LKAB MINERALS COMPLEMENTS THE CORE BUSINESS

LKAB Minerals is a global supplier of industrial minerals that complement LKAB’s main sales to the steel industry by developing more and new business opportunities for iron ore.

LKAB Minerals is a multi-mineral company meant that many large investments in the well equipped for continued growth from with operations in Sweden, Finland, the offshore industry were deferred. The need 2016 onwards, with a growth target of Netherlands, the UK, Turkey and China, and and demand for LKAB Minerals’ custom- 15 percent per year for the forthcoming sales offices in Europe, the US and Asia. ized products for this market do, however, years. Primarily through increased sales remain high and the company is expected of magnetite outside the steel sector in Increased flexibility and risk to be a in a good position when these pro- relatively unexploited markets such as the diversification jects start up again. US and Asia. Sales of iron ore, mainly magnetite, to the The market situation for other applica- industrial minerals market form an inte- tions of magnetite, for example for use in LKAB Minerals’ customers are some of the gral part of LKAB’s growth and flexibility connection with water treatment and in the world’s leading companies in various strategy. The selection of ore grades can construction and civil engineering industry, industries all over the world. The business be adapted to customer requirements and is stable and shows positive signs. focuses on four defined areas: processing is separated from pellet pro- The market for refractory minerals for Industrial use of magnetite, for example, duction, leading to more flexible production foundry sand and refractory bricks was in the construction and offshore processes. This makes it possible to opti- adversely affected by the tough market industries. mize product mix and production planning, situation in the steel industry, while the Mica, huntite and magnetite as and to ensure increased risk diversification market for various applications in plastics functional fillers in plastics and coatings within the Group. and coatings increased somewhat. Refractory minerals for foundry sand A mixed market situation Preparations for growth and production of refractory bricks, which are also recovered In 2015 LKAB Minerals’ deliveries of During 2015 LKAB Minerals focused on Reselling of mineral sands in Asia magnetite decreased compared with 2014, rationalization and cost cutting in all areas mainly due to falling crude oil prices which of the business. The business is now

SALES BY REGION SALES BY BUSINESS AREA SALES TREND, GROUP Percent of sales, SEK million Percent of sales, SEK million MSEK 3,000

2,500

2,000 % % 1,500

1,000

500 % % Europe...... 61 Magnetite...... 29 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Asia...... 30 Mineral sands...... 31 USA...... 9 Refractory material & foundry...... 22 Polymers & coatings...... 18 AVDELNING HÖGER 23

OBJECTIVES AND STRATEGY for mining operations sustainable in the long term 3 24 PERFORMANCE IN IRONMAKING

Double quays and unloaders in Narvik provide increased capacity, higher production flexibility and reduced risk of delivery disruptions.

We shall contribute to increased productivity and competitiveness among our steel mill customers.

CHALLENGES PRIORITY MEASURES

DEVELOPMENT OF THE STEEL INDUSTRY Performance • Low margins in the steel industry can partly change • Close relationships spanning many years enable in Ironmaking the rules of play (for example through consolida- LKAB to have a close dialogue with customers, even tions) and thus affect LKAB’s customer portfolio. in times of change. Flexibility • LKAB nurtures its niche position by continuing to focus on those steel producers with the highest Safe and resource-efficient quality demands. production OVERSUPPLY OF IRON ORE PRODUCTS • A challenging market situation is squeezing prices • The position as a supplier of high-quality pellets Urban trans- Attractive Growth of iron ore and affecting LKAB’s profitability and provides a premium over the spot price of iron ore. formation LKAB competitiveness. • LKAB must continue to adapt its costs to a lower price level, even for processed products. Committed - Innovative - Responsible VOLUMES AND DELIVERIES • To maintain its market position, LKAB must increase • LKAB adopts a broad-based approach with an production volumes in the long term without action plan to increase stability in production by, for compromising on quality and delivery performance. example, minimizing the number of short, unplanned During the year, disruptions in production affected stops. Read more under Safe and resource-efficient volumes and opportunities to expand deliveries. production, page 34. PERFORMANCE IN IRONMAKING 25

FOCUS ON THE CUSTOMER

LKAB’s goal is to be the iron ore producer that delivers the market’s best added value – from products to delivery and service. Focusing on the customer and delivering maximum customer value is at the heart of Performance in Ironmaking.

It is our ambition to be an attractive as the input raw material in blast furnaces supplier and partner to the world’s steel compared with using sintered hematite producers. Our products are meant to help fines. This is a reduction in energy give steel mill customers stable processes consumption of between five and eight and increased productivity that improve percent. Carbon dioxide emissions in the their competitiveness and profitability. blast furnace process are reduced by about 320 kg per tonne of steel, which is Quality and stability throughout 15 percent compared with sinter. the entire value chain There is also a significant advantage to Performance in Ironmaking requires that using magnetite pellets instead of hema- we can guarantee quality, stability and tite pellets, since magnetite pellets reduce delivery reliability throughout our entire energy consumption in the blast furnace FOCUS AREAS value chain, from mine to port. This means process and reduce carbon emissions that we have to optimize our processing from mine to finished steel. CUSTOMERS AND MARKETS and delivery processes, but we also need Retain our position as one of the world’s to meet customer requests and require- Research for the future leading pellet producers. ments for technical support, development LKAB’s competitiveness is based on stable, partnerships and the sharing of knowledge cost-efficient processes, high delivery PRODUCTS AND SERVICES about iron and steel production. reliability and the fact that we are one of the Increase our sales of pellets, primarily to Europe and to the Middle East and North Despite the oversupply and lower price, world’s technologically leading pellet Africa. global demand for steel remains strong. At suppliers. It is our ambition in a structured the same time, increasingly strict demands way to translate customers’ requirements are made on resource-efficient production in our research and development work, so with less environmental impact. The major that our products match the customers’ challenge for the world’s steel producers development into the future. is to improve productivity, reduce carbon We have for many years carried out 76 % emissions and improve energy efficiency in strategic research and development work LKAB accounts for almost 76 percent of the their steel processes. with customers and external knowledge EU’s iron ore production and our customers centres. Our experimental facilities and are some of the most prominent steel Less energy consumption research laboratories, as well as our producers in the world. and climate impact proximity to, for example, Luleå University A report by industry research institute of Technology, Hjalmar Lundbohm Swerea MEFOS1 confirms that LKAB’s Research Centre and research institute magnetite pellets emit less carbon dioxide Swerea MEFOS, have created a unique and use less energy than other iron ore platform for customer-driven research. 15 % products throughout the entire value chain Together with national and internation- Cut CO2 emissions from mine to steel (per tonne HRC) with LKAB’s pellets compared from mine to finished steel. al operators, we work to develop more with sintered hematite fines. Energy consumption is reduced by a efficient products and processes that total of 1.7 GJ per tonne of hot-rolled strip reduce climate impact, improve customers' steel (HRC) when using magnetite pellets production results and ensure profitability.

1 “Benchmarking of carbon dioxide emissions from iron ore pelletizing”. The report is contract research commissioned by LKAB. 26 PERFORMANCE IN IRONMAKING

INNOVATION TOOK LKAB OUT OF THE CRISIS

LKAB operates in a cyclical indus- try. Demand for steel and thus for iron ore raw material is closely linked to the state of the global economy. Steel volumes and steel quality are also dependent on growth occurring in rapidly expand- ing developing markets or more stable, slow-growing markets. The difficult market situation at present is therefore neither surprising nor unexpected. We have been through such tough times before.

During the global recession and the steel crisis of the 1970s, LKAB was in a similar situation to the current one. In the 1950s and 1960s there was strong global growth and demand for steel. International freight costs Remote-controlled cave loader in Kiruna underground mine. Large-scale sublevel caving as fell significantly and a number of large well as increased automation and remote control in the mines was a success concept when LKAB restructured the business in response to a changing market-- in the 1970s and 1980s. mines were opened, including some in Australia and Brazil that became major competitors of LKAB. At the same time, percent. Freight costs on the Malmbanan opment costs and increased the ore yield demand fell for the phosphorus-rich ore that railway were accounting for more than 30 dramatically, was introduced. Under the LKAB was producing at the time. percent of revenues from ore production, motto of “Quality is our weapon”, LKAB also LKAB was thus facing problems on several which was considered unreasonable. LKAB developed a new pellet product, the olivine fronts: structural, technical and economic. also decided to invest in pellets in order to pellet, which was to become LKAB’s biggest Losses were growing and by the beginning of clean the ore of the phosphoric apatite, sales success in modern times. the 1980s the problems were serious. which was no longer wanted by customers. In 1983 LKAB was once more able to LKAB immediately launched a number report a profit. A profit that was built on From crisis to success of measures to deal with the problems. The tough reconstructions and restructuring The investigation launched by LKAB production infrastructure was slimmed measures, but also on major research initi- indicated that productivity had fallen since down and efficiency was improved. Large- atives, investments in processing as well as the 1960s and needed to be increased by 30 scale sublevel caving, which reduced devel- increased quality awareness.

IMPROVED STRENGTH IN THE HANDLING AND REDUCTION PROCESS In 2015 there were research and development initiatives to Progress has also been made in improving the strength of reduce the disintegration of pellets during handling on the way pellets during the reduction process in the blast furnace, RUL. to the customer, known as fines generation. For DR pellets, a An improved RUL means that the pellets can withstand higher reduction in pellet size brought a clear improvement. On the temperatures and pressure without collapsing, which is de- blast furnace side there is a long-term development project sirable for an efficient blast furnace process. LKAB’s research under way to analyze how the sintering process affects the trials show that it is of crucial importance for RUL if silicon strength of the pellets. There is also a project under way involving comes with the ore or whether silicon is added through the improvements and design changes in handling and logistics additive quartzite. Adjustments have been made in the pro- systems with a view to reducing fines generation. Reduced fines duction chain in order to reduce ore-bound silicon and instead generation has a direct impact on LKAB’s profitability, as pellet to increase the addition of quartzite within the framework of fines have a lower market price than pellets. product specifications. PERFORMANCE IN IRONMAKING 27

REDUCED MARKET SUPPLY RESULTS IN STABLE PELLET PREMIUM NICHE PRODUCTS Following the tragic accident at the dam in Bento Rodrigues, Brazil in November 2015, one of the world’s biggest pellet producers, Samarco,­ WITH HIGH PROCESSING has been forced to close down production until further notice. Samarco, which before the accident was the world’s second largest VALUE STRENGTHEN LKAB producer in the seaborne pellets market, had a production capacity of 30 million tonnes per year and leaves a gap in the market. We have a stated strategy to focus on pellet production and As a consequence of this, the pellet premium has been stable to increase volumes in existing plants. This is in order to and not followed the general fall in prices in the iron ore market. improve profitability and competitiveness and to meet It remains uncertain, however, how the pellet premium will develop continued demand for products with a high iron content in during 2016. our main markets of Europe, the Middle East and Africa. As a result of this, a new pellet product for the European market will be developed for production at Malmberget (read more on page 31).

Most of LKAB’s pellet products reach customers in Europe and MENA via Narvik. 24.2Mt iron ore products delivered by LKAB in 2015, compared with 26.0 million tonnes in 2014.

CUSTOMER SELF-DECLARATION REDUCES SUSTAINABILITY RISKS In November 2014 LKAB introduced a new Code of conduct for all its suppliers. In 2015 LKAB also asked its customers to report their sustainability policies. Those customers that do not have one are encouraged to fill in a self-declaration in which they commit to observing LKAB’s basic requirements with regard to sustainability. The basic requirements are based on internationally recognized declarations and conventions such as the UN Global Compact’s ten principles, the principles of the document Children’s Rights and Business Principles, the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles for Business and Human Rights. A risk classification with regard to customer and geographical market with reference to selected criteria is performed every year by LKAB's marketing and sales department.. Twice a year customers are ranked in terms of stability, proximity, growth and risk classifi- cation. Identified risks are reported to the customer with a request for an explanation. If the risk persists, the issue is raised to Group management for preparation and a decision. 28 FLEXIBILITY

The new open-pit mines will primarily supply crushed ore to existing pelletizing plants.

Product storage at pelletizing plant KK4 in Kiruna.

CHALLENGES PRIORITY MEASURES

MARKET-ADAPTED PRODUCT PORTFOLIO Performance • To have a marketable product portfolio that follows • Continued focus on iron ore products of high quality in Ironmaking customer needs and requirements. such as pellets and fines with a high iron content. • To increase sales of iron ore for applications other • Increased exposure of magnetite for industrial use Flexibility than those in the steel industry. in markets with investments in the construction and raw materials sector. Safe and resource-efficient production ADAPTABLE PRODUCTION • Possibility of market- and needs-adapted production • Development of the open-pit mines in the Svap- with high proportion of variable costs. pavaara field that provide high flexibility in raw Urban trans- Attractive Growth material supplies at low fixed costs. formation LKAB FLEXIBLE, COST-EFFICIENT PURCHASING Committed - Innovative - Responsible • Guarantee efficient, sustainable purchasing of • Use the purchasing function to keep down purchas- products and services for the long-term acceptance ing costs, and make sure that all suppliers meet the of responsibility and a profitable LKAB. basic requirements of LKAB’s Code of conduct. FLEXIBILITY 29

ADAPTING TO CHANGE

It is LKAB’s objective to satisfy customers needs and requirements for niche iron ore products of high quality. We must also be able to quickly adjust costs, resources and production in response to changes in the global iron ore market.

LKAB’s customer portfolio includes steel Read more about governance and guiding producers in more than 15 countries. A principles, as well as risk assessment and strategic goal is to have a marketable prod- risk monitoring in GRI annex. A review is uct portfolio and a production process that under way of our supplier base and the satisfies customer needs and requirements. extent to which they meet our basic require- Highly processed pellet products, which ments. The objective is a compliance rate of provide added value and create profitability 90 percent by 2016. for customers, position us and are our main competitive advantage. Blast furnace pellets Adaptable production are our main product, but demand for DR LKAB has invested heavily in mines, pro- pellets is growing constantly. LKAB’s product cessing plants and logistics since 2005. portfolio also includes fines, which with their With enhanced capacity in production and high iron content are highly sought after by logistics, our efforts are now targeted at our customers. improving productivity in our value chain and increasing product volumes. The open-pit Other uses of iron ore mines in Svappavaara mean that flexibility FOCUS AREAS Through its LKAB Minerals subsidiary, LKAB in production is being improved. The new is the leader in the market for industrial mines are located near existing pelletizing PRODUCTION AND SALES use of iron ore outside the steel industry. plants and close to the Malmbanan railway, Flexible access to iron ore raw materials Sales of iron ore, mainly magnetite, to the which can already handle increased tonnage. with low fixed costs. industrial minerals market is an integral Overall, this gives us adaptable production Increase our sales of iron ore for part of our flexibility strategy. LKAB Minerals processes with a high proportion of variable industrial applications outside the steel industry. also has a strong position in the market costs and flexibility in the supply of raw for the minerals mica and huntite, as well materials. FLEXIBLE PURCHASES as in the recovery of refractory bricks. Our Review and monitoring of how suppliers customer promise “Mineral Solutions for Optimized logistics satisfy LKAB’s basic requirements for Our World” communicates our ambition to With few possibilities for interim storage sustainability. provide solutions that generate high value in stockpiles and shipping ports, one of our A stable, sustainable supplier base that for customers, combined with a strong focus main objectives is to produce and deliver contributes to savings and reduced on sustainability. contracted volumes at the steadiest pace business risks. possible. LKAB’s ore transport is by rail Flexible purchasing from mines and processing plants along the Flexible, cost-efficient purchasing is strategi- Malmbanan line to our two shipping ports in cally important for an LKAB that is profitable Narvik and Luleå. in the long term. We collaborate annually Two thirds of our iron ore exports are with around 4,000 suppliers and subcon- shipped out from the ice-free deep-water 4,000 tractors, which make up an important part of port in Narvik on Norway’s Atlantic coast. LKAB has around 4,000 suppliers in various industries, primarily in Sweden and Europe, our value chain. All suppliers to LKAB must The port in Narvik can receive ships that can but also in Asia. We aim to work with suppliers meet our basic requirements of procedures carry up to 350,000 tonnes. One third of our that have a desire to develop in the area of and working methods. There is a procedure sales pass out through the Port of Luleå on sustainability. to ensure that all suppliers must approve the Bothnian Bay, which is strategically close our basic requirements before they can work to some of our European customers. for us. 30 FLEXIBILITY

SUSTAINABLE SUPPLIER PARTNERSHIPS

Responsible purchases are an important element of LKAB’s work on sustainability. This work accelerated in 2015 with sights set on identifying and assisting those suppliers most in need from a sustainability perspective. There are many benefits for both parties.

Basic requirements a must for suppliers of 20 high-risk suppliers identified, 8 were checked LKAB strives to achieve sustainability in terms of working conditions Martin Kettunen, throughout the whole value chain, which and human rights during 2015. Purchasing Projects/Urban Transformation. includes all our 4,000 or so suppliers. To be able to sign an agreement with LKAB, 8 all suppliers must approve our basic In 2015 LKAB introduced a totally new The supplier developer’s task is to requirements for sustainability, which approach to developing sustainable purch- coordinate supplier follow-up, the aim of came into force on 1 January 2015. The asing partnerships. The work is based on a which is to identify the greatest risks of eight fundamental basic requirements risk perspective, in which LKAB’s entire deviation from the supplier Code of conduct. for suppliers are defined on the basis of supplier base is categorized with the aid of In 2015 a total of eight follow-ups were international guidelines such as the UN a new tool, Supply Chain Management Tool, conducted in four countries. In these on-site Global Compact, the OECD’s Guidelines for which we developed our own risk index visits LKAB examines the business, reviews for Multinational Enterprises, the UN’s – LKAB Supplier Risk Index. systems and policies, tours the supplier’s “Children’s Rights and Business Princi- Since 1 January 2015 it has been site and interviews employees and manage­ ples” and the UN Guiding Principles for mandatory to approve LKAB’s Basic ment. Business and Human Rights. Requirements in order to be able to supply Suppliers run a responsible, develop- For the hundred or so of LKAB’s sup- products and services to us. Suppliers with mental business in many areas, but the pliers considered to be at a higher risk1 a higher risk level complete not only an follow-ups have nevertheless identified of breaching the basic requirements, approval of the Basic Requirements, but deviations from the requirements with a LKAB has introduced a more detailed also a self-declaration based on our Code need for improvement. set of requirements – a supplier Code of of conduct for suppliers. But it is not There are many benefits in this work conduct, which consists of 80 require- sufficient to rely entirely on the self-decla- method. The improvement projects can ments in seven areas of sustainability. ration. We therefore follow up on site at the result in savings, higher quality and fewer supplier’s premises, in order to see how commercial risks, while at the same time 1 High or extreme risk (based on results from our risk anal- the requirements are being met and to LKAB’s engagement in the relationship ysis tool), as well as suppliers flagged up. Suppliers that are discuss potential improvements. creates reassurance for the supplier. In flagged up are not in themselves at a high risk of deviations from the supplier requirements, but may be associated with To further focus on sustainable this way, LKAB contributes to the develop- an industry or region involving risk and also have a major purchasing, in 2015 a new position was ment of both the supplier’s and our own impact on production. created in the Purchasing Department. business.

The Pudong district, Shanghai’s financial centre. LKAB TRADING IN ASIA The wholly owned subsidiary LKAB Trading opened a purchasing office in Shanghai, China, in 2011. LKAB Trading makes purchas- es all over Asia and is part of LKAB’s long-term strategy to ex- pand the purchasing market, cut out unnecessary middlemen and reduce the Group’s purchasing expenses. A large part of this work is based on evaluating the suppliers in order to check that they can meet defined supplier and quality requirements and also satisfy the basic requirements in LKAB’s Code of conduct. Processes of change are also encouraged by supporting suppliers with good potential to develop and im- prove. For example, by making sure that suppliers have proper terms of employment and clear anti-corruption guidelines. FLEXIBILITY 31

OPEN-PIT MINES OFFER BOTH OPPORTUNITIES AND CHALLENGES

One of the most important measures to achieve a profitable, competitive LKAB is to reduce costs per tonne produced by maximizing production at existing pelletizing plants. Supplies of iron ore raw material will be decisive in this work.

An increase in production up to the process- ing chain’s capacity of 28 million tonnes of finished products requires that the ore from the underground mines be topped up with crushed ore from the open-pit mines in the Svappavaara field. To achieve profitability and meet the product specification, it is then a question of finding the perfect mix between different ores in terms of iron content and impurities such as vanadium, silicon, magnesium and calcium. In this context LKAB’s Research and Development Unit has the important task of reviewing and developing the processing operations in order to obtain finished products that are within defined prod- uct specifications. There is also the opportunity, in collaboration with customers and based on the nature of the ores, to develop a new pellet product with a product specification that is different to those currently available. Market conditions, mining cost, the different properties of deposits in terms of iron content and impurities, and logistics are decisive with regard to how the open-pit mines in Svappa- vaara will be able to be used . Our Research and Development unit adopts a broad-based approach with different scenarios in order to provide maximum freedom to act in work to achieve increased production and improved View of the Svappavaara field with the Leveäniemi open-pit mine in the foreground. productivity.

NEW PELLET PRODUCT PROVIDES MARKET FLEXIBILITY At present the processing plants in Malmberget primarily produce one pellet product, MPBO, which is specially designed for the Nordic market. Work is under way at LKAB’s Research and Development Unit to develop a new pellet product, MPBA, which is also attractive for the European market. Such a product would improve LKAB’s market flexibility and reduce risk exposure, as well as improving the logistics flow in the southern production area. 32 SAFE AND RESOURCE-EFFICIENT PRODUCTION

We must maximize production in our existing plants while maintaining quality and delivery performance.

The new mantle ring is lowered into place at the KK4 pelletizing plant in Kiruna.

CHALLENGES PRIORITY MEASURES

PRODUCTIVITY AND PROFITABILITY Performance • It is fundamental for profitability and value creation • Rationalize our processes, cut our costs and mini- in Ironmaking that we have stable, predictable processes in our mize our unplanned stops in processing plants and value chain. mines. Flexibility • We must get down to the same cost level per tonne • Increase our production so that we distribute our of finished product produced as our competitors. fixed costs over bigger volumes. Safe and resource-efficient • Divide the iron ore business into two divisions with production profit responsibility.

PRODUCT QUALITY Urban trans- Attractive • Secure the target value for product quality (Q value) • Investments in process stability at the processing Growth formation LKAB and reduce the number of complaints. plants as well as increased research and develop- • Improved profitability through reduced fines gen- ment initiatives. Committed - Innovative - Responsible eration. DELIVERY PERFORMANCE • Guarantee deliveries of contracted volumes. • Increase stability in our industrial value chain and utilize the improved capacity along the Malmbanan railway and in the shipping ports. SAFE AND RESOURCE-EFFICIENT PRODUCTION 33

A FOCUS ON VOLUME, STABILITY AND COST-EFFICIENCY

LKAB’s primary task is to make use of and process northern Sweden’s high-grade iron ore and to create maximum value for the company and our stakeholders. We do this by means of safe, resource-efficient production with a focus on increased volumes, delivery performance and quality.

To enable LKAB to be competitive whatever part as role models who lead work at the the market situation, we must get down operational level. This involves clearly com- to our competitors’ cost level per tonne municating tasks and goals, ensuring that produced. Our strategy for safe, resource- the right skills are in the right place, working efficient production involves efficiency in a structured and standardized manner improvements and cost cutting, while at the and making sure that operations are run same time maximizing production in our according to plan. existing plants without jeopardizing quality Mine safety and delivery performance. To be a profitable company that creates Safety always comes first. For increased value, we must quickly deal with limitations accessibility in the mines, more efficient and challenges in our value chain. These mining and thereby greater access to iron may be, for example, increased availability ore, safety must be guaranteed. Measurement, FOCUS AREAS and access to raw materials in the mines, analysis and inspection form the basis of improved productivity, safety and production forecasts of the rock’s stability together with EFFICIENT PRODUCTION control, optimized and standardized work recommendations for rock reinforcement, methods with increased involvement and which is crucial for safety in the mine and Safe, stable and cost-efficient processes in our value chain. employee responsibility, fewer stoppages in our ability to mine the ore. It is also essential Increased production volumes. our processes. for efficient, safe mining that everyone in the mine can be identified and positioned in real Quality value ≥ 96%. Our mines are the foundation time. Everyone in LKAB’s mining areas must ENVIRONMENT AND CLIMATE Ore quality, availability, logistics and the therefore wear a badge for radio frequency Reduced emissions to air and water. costs of processing and mining are crucial identification, a so-called RFID tag. for a mining company’s profitability. LKAB Reduced energy consumption. mines ore, in both open-pit mines and Quality value and profitability underground mines, of different quality and As part of LKAB’s quality efforts, we have under different conditions. To be able to been measuring a quality value (Q value) for identify more clearly where cost-cutting and all product deliveries since 2000. The Q value improvement measures have the best effect, denotes how close we are to achieving the Mt LKAB’s iron ore business is divided into two precise product specification. Most of the 28 deviations are a few tenths per mille and Our processing and logistics are designed divisions with profit responsibility. This pro- for a production capacity of 28 million tonnes vides us with relevant comparative figures have no practical significance in the custom- of pellets per annum. for our production areas and a valuable ers’ processes. Deviation management is, yardstick when comparing our business with however, crucial to our internal control of that of our competitors. accuracy and stability in our own value chain. One deviation that affects our own profit- Focus on soft values and​​ stable processes ability is the strength of the pellet, known as % If we are to achieve safe, stable and predict- fines generation. Before pellets are loaded at 1.5 LKAB accounts for 1.5 percent of total elec- able processes in our value chain, we must the ports, all loose material is screened out. tricity consumption in Sweden, and energy have committed, motivated employees. The What remains is called pellet fines. Although represents approximately 10 percent of our improvement efforts are guided by our values, it is a high-quality, sought-after product, its total costs. “Committed - Innovative - Responsible”. value has dropped and it is priced as fines Energy efficiency is therefore of major LKAB’s production managers play a key importance for mining operations that are instead of pellets. sustainable in the long term. 34 SAFE AND RESOURCE-EFFICIENT PRODUCTION

STABLE PROCESSES INCREASE PRODUCTIVITY AND PROFITABILITY

LKAB’s lean programme has identified short stops in the processing plants as a decisive factor that can have a major impact on production volumes, environment, quality and costs. Increased production with lower costs and less environmental impact is the way to achieve a sustainable LKAB that is profitable and competitive.

LKAB’s strategy for safe, resource-efficient production involves An unstable, shaky production and processing chain puts a lot of efficiency improvements in existing plants, processes and work pressure on the plants and causes breakdowns, while at the same methods. The objective is reduced costs and increased production time production volumes and quality fall. Every time the plants start while maintaining product quality and delivery performance. up there are increases in both energy consumption and emissions Stable, predictable production is crucial for a successful indus- of sulphur dioxide and carbon dioxide, for example. There are also trial process. We expect, for example, to be able to reduce energy well-founded suspicions that more stoppages increase the risk consumption by up to ten percent, without any technical of accidents. The number of stoppages therefore has a direct impact upgrades, simply by fine-tuning and stabilizing production. on many of LKAB’s strategic objectives for finance and sustainability. The trend in the number of short stoppages is, however, positive. Reduced productivity In recent years LKAB has been hit by repeated disruptions in its Core operations prioritized processing plants. Analysis within the lean programme indicates LKAB is now shifting the focus from the last decade’s major, heavy that the high number of stoppages at the plants has resulted in invest­ments to the core operations in our value chain. By reporting production losses. LKAB has therefore initiated work to improve the number of stoppages in relation to a number of production and preventive maintenance, through collaboration with suppliers and environmental parameters, we aim to increase transparency in our improved procedures and work methods. development and improvement work. This starts with our skilled employees out in production.

QUALITY PRODUCTION VOLUME ENERGY CONSUMPTION PER TONNE LKAB measures a quality value, Q value, for all product A profitable, competitive LKAB requires that we can make LKAB has a sustainability objective to reduce specific deliveries. The Q value denotes how close we are to maximum use of the available capacity in existing processing energy consumption from 160 kWh per tonne of finished achieving the precise product specification. The target is 96 plants. This means that we must stabilize and improve product in 2011 to 130 kWh in 2020. This objective is percent. Deviations are usually of no practical significance existing plants, processes and work methods. of major significance for LKAB’s production costs, for the customer, but are crucial for our internal control competitiveness and environmental impact. of accuracy and stability in our own value chain.

% No. of stops Mt No. of stops kWh/tonne No. of stops 98 1,000 28 1,000 168 1,000

96 800 26 800 166 800

94 600 24 600 164 600

92 400 22 400 162 400

90 200 20 200 160 200

88 0 18 0 158 0 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

CARBON DIOXIDE EMISSIONS PER TONNE SULPHUR DIOXIDE EMISSIONS NUMBER OF ACCIDENTS IN PRODUCTION LKAB has a sustainability objective that carbon dioxide In recent years LKAB has invested in flue gas scrubbing LKAB has a sustainability objective to reduce the number of emissions per tonne of finished products will be reduced equipment at Malmberget and Svappavaara, and this has accidents resulting in sick leave from 7 accidents per million from 27 kg in 2011 to 17 kg in 2020. This objective is of significantly reduced emission levels. Stable processes hours worked in 2011 to 5 accidents per million hours worked major significance for LKAB’s production costs, competitive- contribute to meeting the sustainability objective of reducing in 2015. The accident rate shall be no more than 2.5 by 2020. ness and environmental impact. sulphur dioxide emissions. Number of accidents kg/tonne No. of stops Tonnes No. of stops per million hours worked No. of stops 28 1,000 2,100 1,000 14 1,000

27 800 1,800 800 12 800

26 600 1,500 600 10 600

25 400 1,200 400 8 400

24 200 900 200 6 200

23 0 600 0 4 0 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

No. of stops SAFE AND RESOURCE-EFFICIENT PRODUCTION 35

Dam safety The pelletizing plant in Svappavaara. a prioritized sustainability issue

LKAB has identified dam safety as a prioritized issue. Dam failure could have a serious impact on continued mining opera- tions, society, people and the environment. We carry out continuous, proactive and systematic dam safety work with in-house controls in accordance with the new dam safety regulation, as well as complying with laws and guidelines as described MAJOR ENERGY AND in the Swedish Environmental Code and the mining industry’s safety directive, ENVIRONMENTAL BENEFITS IDENTIFIED GruvRIDAS. LKAB has 14 dams across three storage In 2015 LKAB’s Energy and Climate Unit initiated a project involving a system analysis systems, many of which are classified in of all processing plants. The first system analysis in the Svappavaara processing plant the second highest impact class, 1B. This indicates a number of potential improvements which, if they are realized in full, could means that a dam failure is expected to reduce energy consumption by 1,400 TJ per annum. As there is a direct relationship have major economic, social and environ­ between energy consumption and carbon dioxide emissions, these energy gains also mental consequences. Dam safety is mean that carbon dioxide emissions would be reduced by 100,000 tonnes. This is therefore one of our most important and through improvements in one single pelletizing plant. Stable production therefore has prioritized sustainability issues. a bearing on both increased productivity and the Group’s sustainability objectives, to reduce carbon dioxide emissions and energy consumption per tonne produced. Read more about our sustainability objectives on page 5.

Natural gas and surplus heat In parallel with the important system analyses, a full-scale trial has been conducted at the MK3 pelletizing plant in Malmberget to use natural gas as an energy source. Replac- ing coal and oil with natural gas would reduce carbon dioxide emissions by between 15 and 20 percent. A functional, environmental and financial evaluation is taking place during 2016. Work to use surplus heat from the exhaust boiler at the pelletizing plant in Svappavaara was initiated during the year. In the first instance residual heat will be used to heat our own industrial premises, but as the heat generated may amount to as much as 15–20 MWH, delivery to a local district heating network may be possible in the future.

Changed input values Major changes have been implemented in LKAB’s operations since 2011, for example, in terms of the production mix, additional flue gas scrubbing equipment and deeper under- ground mines. These changes have resulted in better environmental performance and are genuine foundations for continued production. Many of these measures are, however,­ energy-intensive, which has meant that systematic energy improvements implemented are not reflected in our follow-up on targets. As the current energy objectives do not take these changed input values into account, the energy objectives will be reviewed in 2016, so that better follow-up on energy efficiency improvements can be carried out.

MAJOR DISRUPTION IN PRODUCTION AT KIRUNA Kiruna’s mining and processing operations suffered two major disruptions in pro- duction during 2015. In April there was a total failure of an ore hoist, known as a skip. Repair work is expected to take more than one year. At the end of August a mantle ring was replaced in the damaged KK4 pelletizing plant. The mantle ring had been repaired previously on several occasions due to crack formation. Pellet production came to a complete standstill for 40 days, which meant a significant loss of production of more than 130,000 tonnes of finished products. 36 SAFE AND RESOURCE-EFFICIENT PRODUCTION

OUR ENVIRONMENTAL RESPONSIBILITY

LKAB’s mining operations have a significant environmental impact on the surrounding landscape and communities. Primarily from emissions to air and water, noise, vibrations and land impact from industrial and ore processing operations. Pellet production also requires large amounts of water and energy.

LKAB recycles about 75 percent of the water used in its mining and processing.

LKAB carries out continuous, proactive and systematic dam safety work.

Permit requirements of the environmental impact. How well we Impact on the surrounding area LKAB conducts activities that require are complying with permits, conditions and Mining operations generate vibrations permits under the Swedish Environmental other set requirements is reported in the or atmospheric shock waves, noise and Code in both the parent company and the annual environmental reports, which are ground deformation and movements in the subsidiaries. The most comprehensive available at lkab.com. rock mass that are felt in the local commu- permits relate to mining and processing Our systematic work is carried out in nities. LKAB measures and reports the of iron ore products and to management accordance with the quality, energy and following impact factors that are permit and landfilling of tailings sand and waste environmental management systems ISO requirements: rock. Pit and port operations also require 9001, ISO 50001:2011 and ISO 14001, and Land impact is measured primarily permits. the main operations within LKAB are certi- through GPS measurement rods (approxi­ We check regularly to see how well we fied in accordance with these. mately 372 rods in Kiruna and approxi- are complying with the permits issued and mately 218 rods in Malmberget) distributed the conditions, and we also conduct checks around the community. SAFE AND RESOURCE-EFFICIENT PRODUCTION 37

MAJOR PERMIT EVENTS IN 2015

In 2015 a low number of small dust extraction units, located at all of LKAB’s locations, exceeded the permitted levels. Most of these met the guide value limits following remedial work.

KIRUNA leave to appeal. LKAB has appealed to the Supreme Court. A ruling on leave to • In October 2015 the Land and Environ- appeal has not yet been made. ment Court rejected LKAB’s application for a permit for increased pellet produc- SVAPPAVAARA tion in Kiruna, from 14.8 to 16.2 million Artistically designed measurement tonnes per annum, on the grounds that • The Land And Environment Court gave rods for land movements are the basic permit from 1976 and 2005 permission for full-scale production at deployed around the communities. should be reviewed. LKAB has appealed the Leveäniemi open-pit mine in April the decision. 2015. During the year LKAB carried out Deformation limits are checked construction work and began small- by comparing the distance between •  After repeatedly exceeding the guide- scale production. adjacent GPS rods. The strain obtained line values, LKAB put a major focus between rods is then compared with the on the problem of noise in Kiruna in • On 7 December 2015 the Land and condition for ground deformation. 2015. Following a mapping process and Environment Court gave permission for Vibrations and atmospheric shock measures during the year, LKAB is now continued mining operations at Gruvber- waves are measured continuously by complying with the noise conditions. get, extending production by one year. online meters at the operating locations • LKAB challenged the conditions set by of Kiruna, Malmberget, Svappavaara MALMBERGET the Land and Environment Court as and Masugnsbyn. Six new meters were • LKAB received complaints and reports regards transport alternatives from installed during the year in Malmberget, of damage from nearby residents in the company’s mine in Mertainen from partly as a result of the seismic events. Malmberget following major seismic mid-December 2015. The ruling on 15 Noise is measured at a number of events during 2015. Property owners February 2016 stated that no conditions measurement points at all operating who reported damage to property as a should be prescribed. This means that locations in accordance with the Swedish consequence of the seismic events also material can be hauled from Mertainen Environmental Protection Agency’s had their property inspected in order by truck. guidelines for emission measurement of to determine whether the company’s • In autumn 2015 equipment was installed external industrial noise. Measurements operations had caused this damage. to treat dust and acid gases in the last of take place as a rule on an annual basis The greatest impact of the seismic four flue gas ducts at the Svappavaara and at night time, when other operations activity was in the orebodies Parta pelletizing plant. This means that all of that generate noise are minimal. and Printzsköld. Mining had to be shut LKAB’s pelletizing plants have effective down completely for several weeks at flue gas scrubbing equipment. Remediation Printzsköld, before resuming at a signifi- LKAB’s mining operations and waste- cantly reduced production level. This had NARVIK rock stockpiling have an impact on the a negative impact on supplies of ore to the processing plants. • In December 2015 the Norwegian landscape. That is why LKAB is Environment Agency ruled on the appeal responsible for and obliged to restore • In May 2015 the Land and Environment regarding the permit for extended areas through planned remediation, with Court issued a ruling regarding new con- operations in Narvik from 2013. Both restoration and the creation of new ditions for LKAB’s mining and process- LKAB and some local residents had environments that become a natural ing operations in Malmberget. The ruling appealed parts of the conditions, part of the surroundings. Remediation related to noise, dusting, blasting times, including the outdoor storage of work is carried out both gradually and vibrations, emissions to water, seismic additives, emissions of waste water, after operations have ceased, and must activity and ground deformation. LKAB emissions of particulates and vibrations. take into account safety, environmental, appealed the conditions relating to emis- The Norwegian Environment Agency’s economic and aesthetic aspects. In 2015 sions to water, ground deformation and found largely in LKAB’s favour and the our activities included sowing seeds and vibrations, but the Land and Environ- ruling cannot be appealed. planting trees within the industrial sites ment Court of Appeal refused to grant in Kiruna and Malmberget. 38 SAFE AND RESOURCE-EFFICIENT PRODUCTION

ENVIRONMENTAL IMPACT AND USE OF RESOURCES

LKAB’s environmental impact is regulated by current legislation and environmental permits. The regulatory authority is the County Administrative Board of Norrbotten and in some cases the local municipalities. All environ- mental reports from our licensed operations may be found at lkab.com.

EMISSIONS TO AIR

LKAB’s emissions to air come mainly from the ore processing plants There are currently no accepted standards for dusting and falling and consist primarily of carbon dioxide, nitrogen oxides, particu- particulates in Sweden. Operations in Svappavaara and Mertainen lates and acid gases such as sulphur dioxide, hydrogen fluoride are, however, now subject to conditions. Checks on falling particu- and hydrogen chloride. It is our objective to reduce carbon dioxide lates take place at the operating locations at a number of measure- emissions by 20 percent per tonne of finished products by 2020. ment points.

CARBON DIOXIDE EMISSIONS, LKAB GROUP (KT) CARBON DIOXIDE EMISSIONS per energy type SVAPPA- MALMBER- OTHER LOCA- KIRUNA VAARA GET LULEÅ NARVIK ORE TRAINS TIONS1 TOTAL Coal 297 87 0 0 0 0 0 384 Diesel oil 6 1 9 0 0 0 1 17 Fuel oil 41 11 94 3 1 0 2 152 % Other types of fuel 0 0 6 0 0 0 2 8 Electricity 7 1 5 0 0 0 8 21 District heating 0.6 0 0 0 0 0 0 1 Additives 78 10 18 0 0 0 0 106 % Carbon in pellets -7 -2 -3 0 0 0 0 -12 Coal...... 56 Fuel oil...... 22 TOTAL 423 108 129 3 1 0 13 677 Additives...... 15 1 Other locations where LKAB operates. Subsidiary LKAB Minerals accounts for most of this. Electricity...... 3 Diesel oil...... 3 CARBON DIOXIDE EMISSIONS PER TONNE OF PRODUCTS Other types of fuel...... 1 District heating...... 0 2015 2014 2013 2012 2011 Carbon dioxide, kg/tonne of products 26.41 27.01 27.01 26.91 27.2 Total emissions include negative 27.22 27.72 emissions of carbon bonded to pellets (-12%) 1 Refers to Kiruna, Svappavaara and Malmberget, excluding emissions from electricity. 2 Refers to the plants in Kiruna, Svappavaara, Malmberget, Luleå, Narvik and electricity to ore trains.

EMISSIONS FROM PRODUCT MANUFACTURING 2015 2014 2013 2012 2011 Emissions to air1 % Particulates (t) 532 743 1826 1965 1839 20 It is LKAB’s objective to 2 Sulphur dioxide (t) 1,136 1,142 2,065 1,831 2,027 reduce carbon dioxide Hydrogen fluoride (t) 46 56 138 202 177 emissions by 20 percent Hydrogen chloride (t) 381 404 479 592 590 per tonne of finished products by 2020. Nitrogen oxide (t) 4,053 4,074 3,797 3,911 4,138

1 Refers to Kiruna, Svappavaara, Malmberget and Luleå excluding Narvik 2 As from 2015 a new measurement method was used in Svappavaara. SAFE AND RESOURCE-EFFICIENT PRODUCTION 39

ENERGY USE

LKAB is one of Sweden’s largest consumers of energy and accounts a long-term strategy for managing both energy acquisition and for a large proportion of the country’s total electricity consumption. energy efficiency. It is LKAB’s objective to achieve a 20 percent energy As energy represents around ten percent of our total costs, we have efficiency improvement from 2011 levels by the year 2020.

ENERGY CONSUMPTION ENERGY CONSUMPTION, LKAB GROUP (GWH) per energy type SVAPPA- MALM- OTHER KIRUNA VAARA BERGET LULEÅ NARVIK ORE TRAINS LOCATIONS1 TOTAL Coal 894 262 0 0 0 0 0 1,156 Diesel oil 24 4 36 0 0 0 4 68 Fuel oil 149 41 341 11 3 0 8 553 % Other types of fuel 0 0 29 0 0 0 9 38 Electricity 1,155 233 791 15 40 56 17 2,307 District heating 5 0 0 8 0 0 0 13 Waste heat (sold) -36 0 0 0 0 0 0 -36 % Electricity...... 56 TOTAL 2,191 540 1,197 34 43 56 38 4,099 Coal...... 28 1 Other locations where LKAB operates. Subsidiary LKAB Minerals accounts for most of this. Fuel oil...... 13 Diesel oil...... 2 ENERGY CONSUMPTION PER TONNE OF PRODUCTS Other types of fuel...... 1 District heating...... 0 2015 2014 2013 2012 2011 Energy consumption, kWh/tonne of products 1631 1631 1671 1651 160 1662 1652 1 Refers to the facilities in Kiruna, Svappavaara, Malmberget, Luleå and Narvik. 2 Refers to the facilities in Kiruna, Svappavaara, Malmberget, Luleå, Narvik and electricity to ore trains.

RESOURCE USE, WASTE AND STOCKPILING EMISSIONS TO WATER

Most operational waste consists of types of rock that are not ore, known Ore processing requires large amounts of water, although 75 percent as waste rock, which is deposited in stockpiles. LKAB also handles is reused in the process. Surplus water is returned to rivers and smaller volumes of waste lime/purification waste, scrap, industrial lakes, many of which are tributaries to or included in Natura 2000 waste and hazardous waste. The risks identified in connection with areas. Biological and chemical measurements of water that is re- waste management, in addition to specific and controlled risks relating turned are conducted as part of internal controls. Other water from to hazardous waste such as waste lime, are linked to the risk of production is led to the municipal sewerage systems for treatment. collapse when stockpiling.

MINED VOLUMES, INPUT GOODS AND BY-PRODUCTS NITROGEN, PHOSPHORUS AND TRACE METALS7 2015 2014 2013 2012 2011 2015 20149 2013 2012 2011 Mined volumes Emissions to water Crude ore, magnetite and hematite (Mt) 47.0 44.4 44.4 41.9 42.7 Nitrogen (t) 515 444 466 443 478 Huntite (kt)2 21.0 27.6 1 1 1 Phosphorus (kg) 615 602 364 544 767 Dolomite (kt) 123 101 3 3 3 Emissions to water of trace metals Input goods Chromium (kg) 3.0 6.1 8 8 8 Explosives (kt) 21.8 20.1 20.0 19.1 19.4 Cadmium (kg) 0.5 0.5 8 8 8 Concrete produced (kt) 505 391 4 4 4 Copper (kg) 35.2 22.7 8 8 8 Additives (kt)5 842 859 878 876 852 Nickel (kg) 128.0 119.2 8 8 8 By-products Lead (kg) 0.1 0.2 8 8 8 Barren rock (Mt) 27.6 22.9 25.9 20.6 21.0 Zinc (kg) 128.7 81.5 8 8 8 Tailings (Mt) 4.6 4.86 6.2 5.6 6.4 Arsenic (kg) 8.1 9.4 8 8 8 Waste lime (Mt) 0.053 0.051 0.045 0.041 0.042 TOTAL Trace metals (kg) 303.5 239.6 235 201 262

1 Reported as of 2014 7 A large cooling water spillage into a nearby lake was reported to the authorities, although no damage was 2 Provisional data for 2015, to be confirmed in April 2016. Data for 2014, adjusted retroactively when confirmed. caused to people or the environment. 3 Dolomite is mined in Masugnsbyn; reported as of 2014. 8 Trace metals are reported separately as of 2014. 4 Concrete is reported as of 2014. 9 The amount of overflowing water used to calculate emissions to water in Svappavaara is estimated due 5 Additives, bonding agents and coatings. LKAB Minerals is included in the calculations as of 2012. to data loss. 6 Calculated using another method; not comparable to prior years. Improved measurement methods in 2014 explain the decrease in tailings. 40 GROWTH

The confidence of the world around us is crucial if LKAB is to be able to continue mining and processing iron ore in the Swedish orefields.

Mining in the Gruvberget open-pit mine in Svappavaara.

CHALLENGES PRIORITY MEASURES

GROWTH THAT IS PROFITABLE IN THE LONG TERM Performance • Improve productivity and increase production • Increase the accessibility and efficiency of existing in Ironmaking volumes, which requires increased supplies of underground mines. iron ore. • Increase the ore yield in existing mines. Flexibility • Add new volumes of ore through new mines. LICENCE TO OPERATE Safe and resource-efficient production • In order to be successful in running a continuing, • LKAB’s motto is 'growth through collaboration'. extended mining operation, we must interact with By means of continuous dialogue, consideration, the local community and other stakeholders in a collaboration and compromises with our stake­ Urban trans- Attractive trusting, constructive and respectful way. holders, LKAB and the mining operations can Growth formation LKAB continue to develop. SUSTAINABLE DEVELOPMENT Committed - Innovative - Responsible • Mining operations have an impact on people and • We assume a far-reaching responsibility for our en- the environment. At the same time, the mines are a vironmental and social impact. At the same time, we crucial economic driving force and a precondition for focus on long-term profitability. It is LKAB’s ambition societal development in the Swedish orefields. to be one of the most innovative, resource-efficient and responsible mining companies in the world. GROWTH 41

INCREASED PRODUCTION FOR SUSTAINED PROFITABILITY

For long-term profitability regardless of market situation, improved productivity and increased production volumes are necessary. This requires increased supplies of ore that can be incorporated into our existing production chain of processed iron ore products.

Global demand for iron ore is high in the long to product quality, production volumes and term. But the price of iron ore is affected costs. Exploration therefore plays a crucial by and follows developments in the market role in LKAB’s long-term growth, value crea- and economic cycles. LKAB’s long-term tion and competitiveness. The main mission profitability, regardless of market situation, of exploration is to guarantee iron ore raw depends on our being able to increase our material for continued mining operations, production and reduce our costs, while equivalent to 20 years of production. maintaining the service level and product quality to our customers. Earning the public’s trust Bigger volumes, increased productivity LKAB has conducted successful mining and reduced costs are crucial for our com- operations for more than 125 years. But we petitiveness. Investments have been made to cannot conduct mining operations success- extend the life span and increase production fully without regard to the world around us. volumes of existing underground mines and Over time, the need for interaction between plants. Bigger volumes enable us to reduce mining companies, local communities, our costs per tonne produced and position reindeer herders and the tourism industry us on the cost curve on a par with other has grown. Different interests impact on FOCUS AREAS global pellet suppliers. each other, but we believe that this impact Gruvberget produces as much ore per can be managed through mutual compro- LONG-TERM MINING annum as the permit allows, approximately mises. To succeed, we must interact with the Secure new mineral reserves that last at two million tonnes. In Leveäniemi there is surrounding community and all stakeholders least 20 years. a mining permit for 15 million tonnes and in a trustful, constructive and respectful production capacity for 12 million tonnes per manner. INCREASED DELIVERY VOLUMES OF annum. Mertainen also has a permit to mine PELLETS 15 million tonnes of ore on an annual basis, With responsibility for the environment Maximize production through increased and at present its existing infrastructure has Mining operations always have an impact supplies of iron ore raw materials. the capacity to deliver ten million tonnes of on people and the environment. They are ore. In total the Svappavaara field can, if the governed by strict legislation and require mines are operating at full capacity, deliver permits. Awareness of how mining affects at least as much ore as the underground things like ecosystems, biodiversity, the mine in Malmberget is currently producing. reindeer herding and tourism industries and years local residents are issues that are included 20 The purpose of exploration is to guarantee Prospecting for growth in our plans. Our ambition is to be an iron ore raw material for continued growth, A mining company needs long planning hori- industry role model from an environmental equivalent to 20 years of production. zons. Good knowledge of the mineral reserve and sustainability perspective. We support is a basic requirement for making major the environmental requirements placed on long-term investment decisions. The size our operations and work actively to manage and quality of the mineral reserve are critical challenges in the area of sustainability. 42 GROWTH

Central parts of Kiruna need to be moved.

LKAB’S NEW MARKET SITUATION: THE IMPACT ON SOCIETY AND BUSINESS IN THE REGION A tough market situation for the iron ore and steel industry in global terms means that LKAB is now re-focusing from major investments to cost-cutting measures and increased productivity in its existing infrastructure. A new market situation also has an impact on companies that are directly or indirectly dependent on LKAB.

Since the very beginning in 1890, LKAB has been an important is nothing new. Companies that have been in business for a long driving force for development in the Norrbotten region. With invest- time recognize similarities with the last major recession in the ments of an average of SEK 6 billion every year over the last ten mining industry in the late 1970s and early 1980s. years, we have laid the foundations for strong growth and profita-­­­ Adapting to the norm bility among many companies in the county. A report from 2014 indicates that the mining industry directly or indirectly employs Just like LKAB, companies that are significantly affected have now 60,000 people, almost one fifth of the population of Norrbotten, and started their necessary market adaptation to something perceived accounts for almost 25 percent of GRP (Gross Regional Product). by most to be the norm. This largely involves a number of minor adjustments and restructuring measures. For example, reductions High awareness in external consultants and labour are being made, generation Despite falling prices in the global iron ore market, and LKAB’s shifts in companies are being accelerated, and new markets and adaptation to the prevailing situation, there is an air of cautious customers are being targeted. At the same time, the Confederation optimism at the Confederation of Swedish Enterprise’s regional of Swedish Enterprise notes that LKAB, despite the tougher office in Luleå. No major changes or cutbacks among companies in market conditions, remains the biggest and most important Norrbotten had started or were expected at the beginning of 2016. growth engine in the region. One explanation is that a region characterized by many companies that are in one way or another linked to the raw materials sector is Source: Report entitled “Mineralriket – tillväxtmotor för Norrbotten” very well aware that the economy moves in cycles. What is happening Confederation of Swedish Enterprise regional office, Luleå. GROWTH 43

NEW GUIDELINES ON LAND USE Dialogue a tool for collaboration In 2015 a clarification of the guidelines on land use was confirmed by LKAB’s Group management. This builds on the strategy of responsible mining operations and minimizing the impact on people, environment, society and other industries. Reindeer herding is a central part of the Sami culture and an important industry in the region. The mining industry and its Mining operations use land for the purpose expansion does, however, affect reindeer herding and it is of exploration, mining, processing and important that LKAB maintains a good dialogue with the Sami transportation. To minimize the impact on villages affected by our operations. the surrounding area for people, environ- ment, society and other industries, work Collaboration between LKAB and reindeer herders is always a topical issue. A work takes place continuously with a focus on method that focuses on dialogue provides better prospects of reaching agreement and responsibility. identifying solutions for issues where the parties have conflicting interests. LKAB has signed cooperation agreements with two Sami villages in Kiruna to secure conditions General policy documents for reindeer herding and our operations in Kiruna and the Svappavaara field. In November 2015 a policy was adopted These agreements establish a framework for the forums and working methods that by LKAB’s Board on guidelines that clarify are needed for the sharing of information, decision-making and ongoing consultation. our approach to land-related issues in They are based where applicable on the principle expressed in international law governing terms of several aspects: collaboration the rights of indigenous peoples, known as FPIC (Free Prior and Informed Consent). with other industries, biodiversity and ur- In 2015 this collaboration resulted in a method describing how the Sami villages can ban transformation in those communities assess and describe the cumulative consequences for reindeer herding of existing and affected by our operations. The guidelines additional operations1. This method considers geographical and time-based demarca- are a commitment and guide, in a general tion, and when used in specific cases it is the Sami village’s tool that allows them to way, our projects and activities, and sup- describe the consequence of planned and existing operations on reindeer and reindeer port LKAB’s Code of conduct, environmen- herders. The method provides LKAB and the Sami villages with a shared platform to tal policy and sustainability strategy. manage issues in a systematic way. LKAB is also working to bring about additional cooperation agreements with a Sami Consensus and voluntary actions village in Gällivare with a view to securing uniform methods of cooperation for the LKAB’s guidelines are based on consen- areas where we conduct mining operations. In the case of exploration that takes place sus and voluntary agreements, minimiz- over a relatively short period at varying locations, this does not involve land utilization ing and managing consequences and in such a way that we have so far considered it justified to have agreements in the working proactively to combat losses of same way as when mining takes place. In its exploration work, LKAB naturally strives biodiversity and ecosystem services in all even in individual cases to conduct a dialogue and reach agreement with the Sami operations. This work is based on the four villages concerned, but in these contexts the considerations apply differently. For Sami stages of the hierarchy: avoid, minimize, villages covered by cooperation agreements, however, exploration activities are included restore and offset. This means: in the cooperation that takes place. • Designing plants to minimize the impact 1 The work method for assessing the cumulative consequences is available at lkab.com. on sensitive areas. • Taking all reasonable mitigating meas- ures to minimize the impact on land MERTAINEN READY FOR COMMISSIONING and water. LKAB’s latest mining project in the Svappavaara field, • Planning the ecological restoration of Mertainen, is essentially ready for commissioning. Heat discontinued mining environments. testing and performance testing will take place in early 2016 • Striving to compensate for biodiversity to check the function of the entire production line. When in after mitigating measures have been full-scale production, Mertainen will have a mining rate of ten taken. million tonnes of iron ore per annum, corresponding to six million tonnes of concentrate for benefication and processing. LKAB’s guidelines for land use can be The significance of Mertainen for LKAB’s production is, however, read in full at lkab.com. completely dependent on production cost, market situation and the quality of ore demanded in our pellet production. 44 URBAN TRANSFORMATION

New homes, service and infrastructure must be in place before LKAB phases out buildings in an area.

Kiruna’s City Hall under construction

CHALLENGES PRIORITY MEASURES

SALES AND PLANNING Performance • Secure continued mining operations with responsibility • How urban transformation is to take place and in Ironmaking for, and with the confidence of, the local community. property owners are compensated is regulated in • Urban transformation projects must happen at the agreements. Flexibility right time, at the right cost and in consensus. • LKAB assumes major operational responsibility in order to guarantee schedules and costs. Safe and resource-efficient DEVELOPMENT BEFORE PHASE-OUT production • Timetables for detailed development plans and new • LKAB Fastigheter continues to add new homes. builds must be kept. It is desirable to have more • Offer replacement homes to property owners and take Urban trans- Attractive operators in order to increase cost-efficiency and on the role of buyer, which serves as an incentive for Growth formation LKAB reduce the risk of delays. continued new builds. • Collaboration with municipalities in order to guarantee Committed - Innovative - Responsible access to land and detailed development plans. CONFIDENCE OF WORLD AT LARGE • Deal with the concerns and uncertainty that urban • Long history of collaboration at the operating locations, transformation generates. as well as openness, accessibility and dialogue. • Urban transformation that guarantees the future of • Actively meet and discuss individual property own- both LKAB and the communities. ers’ preferences and at the same time take control over costs. URBAN TRANSFORMATION 45

COMMUNITY AND MINE TOGETHER

Access to land is crucial for all mining operations. LKAB’s future in the Swedish orefields depends on central areas of Kiruna and Malmberget being gradually moved. Urban transformation aims to guarantee continued mining operations, while at the same time LKAB has a major responsibility to be involved in creating vibrant, attractive communities.

Urban transformation in Kiruna and Malmber- compensation as was previously the case, LKAB get is a consequence of mining expansion and offers property owners concerned the opportu- the position of orebodies. When mining takes nity to choose between money or a replacement place at a great depth, it has an impact on building. LKAB will in future adopt the role of people and communities, which have to move purchaser of new properties together with other in order for mining operations to continue. large, commercial construction companies. Without iron ore raw material from under- ground mines, there is no LKAB. It is crucial Development before phase-out for our business and the continued develop- Urban transformation is a challenge for every- ment of our operating locations that urban one involved. It is LKAB’s ambition to facilitate transformation can be carried out in partner- this transformation and compensate for the ship and consensus with our stakeholders. direct impact that urban transformation has Even if similar projects have taken place, on the people affected. and do take place, elsewhere in the world, It is crucial that there should be new hous- FOCUS AREAS the size and time perspective of the urban ing, services and infrastructure completed transformation in the Swedish orefields are and under construction before we responsibly SECURE CONTINUED unique. A total of about 5,000 housing units phase out the former dwellings. We want to MINING OPERATIONS and 700,000 square metres of residential and contribute to making the new communities Strive to develop new communities before we responsibly phase out old ones for commercial premises will be replaced. This that emerge into attractive places where continued mining. means that in due course almost 10,000 people can live and work. We also play an Play an active role as purchaser of new people, about one quarter of the population of active role, both as purchaser of new proper- properties alongside other commercial the Swedish orefields, will need to move. ties and as a collaborative partner, in identi­ construction companies. fying proposals for housing and providing LKAB plays an active role freedom of choice. We are also looking for con- CONFIDENCE OF THE LOCAL COMMUNITY Together with the municipalities, LKAB draws structive solutions for industrial and commer- Make sure that we have an open, tran­ up timetables that describe when and how cial properties together with the companies. sparent and timely dialogue with our stakeholders in all available channels. urban transformation is to take place. The municipalities produce detailed development Communication is vital plans and confirm how the new communities The biggest challenge of urban transforma- will be developed. LKAB has signed agree- tion is in the fact that while we are moving ments with the municipalities that, among communities, at the same time every single 10,000 other things, regulate financial compensation person’s questions must be answered and people are affected by urban transformations. for municipal premises, land and infrastructure. dealt with in a way that makes them feel se- The costs of urban transformation were cure. The complexity of urban transformation anticipated a long time ago. At the same time, means that it is often difficult to give a direct, it is a large expenditure that encumbers our simple answer. Transparency, accessibility and earnings. We ask a lot of the people who are an ongoing dialogue are vital if we are to be 700,000 affected and we must always do the right able to retain the trust of those around us. We square metres of residential and business thing. The costs must not, however, compro- communicate in the news media, on lkab.com, premises are to be phased out. mise our ability to continue mining operations issue the magazine “LKAB Framtid” (“LKAB that create jobs and social development. Future”), have open information offices at all To take control over the timetable for new operating locations and hold regular public and builds and costs, LKAB has made a strategic individual meetings and information sessions decision to change its operational role in urban in various forums. transformation. Instead of only paying financial 46 URBAN TRANSFORMATION

MILESTONES IN URBAN TRANSFORMATION DURING 2015 Kiruna: • LKAB decides to take on a new role as purchaser of new homes and premises in Malmberget and Kiruna in order to secure cost-efficiency in the urban transformation process and secure timetables (January). • The last contract is signed with the 159 property owners in Svappavaara who have sold their houses to LKAB. Mining could start at the Leveäniemi open-pit mine (April). • LKAB and Kiruna present proposals for timetables for the purchase and relocation of the centre of Kiruna (April). • 62 newly built properties with tenancy rights in the Terrassen area of Kiruna are ready for occupancy (May). The new deformation forecast indicates that parts of Östra Malmberget will be affected. • The new road Nikkaluoktavägen, highway 870, is officially opened (September). • Start of construction of Kiruna’s new City Hall (October). LKAB GETS TO GRIPS WITH Malmberget: • The Land and Environment Court ruling URBAN TRANSFORMATION on final terms for LKAB’s operations in Malmberget (May) is appealed (September). A new compensation model has been put into place for property • A new deformation forecast from LKAB indicates that parts of Östra Malmberget owners, residents and businesses that are affected by mining. will be affected (September). This creates choice, control over timetables, assured quality and • LKAB announces that ground movements from the mine are affecting Malmberget peace of mind for stakeholders affected. There are many benefits more quickly (December). of LKAB assuming a leading role in urban transformation and acting Joint: as purchaser of new homes and properties. • Review of the impact of urban transforma- tion on human rights (April–May). LKAB is taking control of more new builds in are compensated with replacement order to find cost-efficient solutions and premises, relocation costs, loss of secure access to new properties. earnings and escalation of rents. With LKAB as purchaser, there is less risk of delays as the construction of proper- Timetables ready ties can be ordered in good time before old The timetables for the purchase and % ones are phased out. This also provides movement of affected parts of Kiruna and 70 of Gällivare residents have a positive attitude better control over execution and quality. Malmberget were completed in 2015. The towards urban transformation. 62% of Kiruna Homeowners and property owners timetables being in place represents a residents have a positive attitude towards urban with rental properties will be offered two milestone that aims to create reassurance transformation. Of those who are negative, choices: a replacement building that is for residents, businesses and developers 94% in Gällivare can still accept it taking place, and in Kiruna 92%. the equivalent of the current one or a in the years ahead. sum of money corresponding to the The timetables indicate between which market value plus 25 percent. years property owners have the opportu- Tenants will be given priority to old and nity to sell their property to LKAB and new properties with tenancy rights and how long they can still live in the affected offered progressive rent for seven years. areas. The plans are governed by ground Those who own a tenant-owned property movements caused by mining. % are compensated with a sum of money A dialogue with stakeholders affected 85 of Gällivare residents and 79% of Kiruna residents based on living space and the condition of will start in spring 2016 and is expected have great confidence in LKAB’s ability to assume the property. Business that are relocated to continue for the rest of the year. its responsibility for urban transformation. URBAN TRANSFORMATION 47

96% of demolition material is recycled.

BUILDING WORK STARTS ON THE CITY HALL Building work started on the new City Hall, Kristallen, in October. This project marks the fact that the urban transformation process has now begun in earnest. There is a hive of activity down in the new city centre of Kiruna, where the new City Hall will be completed by 2018. The Under the midnight sun, two 15 metre long and six metre wide garage units were loaded site huts are in place, the project organiza- onto a trailer to be transported to their new home at Jägarskolan. tion is up and running and the first cranes have been erected. Shimmering features and an atmosphere of democracy are intended to characterize SUSTAINABLE PHASING OUT the new City Hall, which was designed by the Danish firm Henning Larsen Architects. In April 2015 an historic scoop movement marked the start of demolition work on The building will be of the same size, the façades in the residential district of Ullspiran in Kiruna. This saw urban transfor- function and quality as the current City Hall. mation move into a more operational phase. High priority was given to the phase-out taking place in a sustainable way. The 80 apartments were the first homes to be phased out in the centre of Kiruna. Most of the demolition material, about 96 percent, was recycled. White goods and NEW ROAD IN KIRUNA windows were put on sale and the five garage sections from the residential areas September saw the official opening of the were recovered and moved to a new address. new, seven kilometre long section of high- Street lighting, trees, bushes and playground equipment were left in place to form way 870 between Kiruna and Nikkaluokta. the basis of a new park environment. Concrete and bricks from the buildings will be The previous section was affected by min- reused in steel baskets to shape the foundations and the area. ing, and LKAB therefore financed this road project. In addition to the actual road, foot- bridges have been built over Luossajoki to ÖSTRA MALMBERGET IS AFFECTED BY THE MINE enable outdoor activities, and split-level intersections have been built where the A new deformation forecast was produced in autumn that indicated road meets jogging tracks. The road was that parts of eastern Malmberget will be affected by ground move- also located closer to the residential area in order to reduce the impact on reindeer ments. This means that in the years 2018–2019 the sale and reloca- herding. tion will have to take place of approximately 100 to 160 properties, which according to earlier forecasts would not be affected. The new road was opened by a cortège led by a convoy of veteran cars. “According to our calculations and industry experience, we could not see that the ground would be affected this way. But it’s turned out that the Fabian ore does after all affect this area,” says Stefan Hämäläinen, Director of Urban Transformation at LKAB. The ground movement are not of such a nature that they pose a risk to being in the area. The ground is sliding slowly sideways, but there are no mined cavities that can collapse. LKAB will buy and phase out the properties affected according to the forecast. Together with the municipality, LKAB will also work to make sure that there are homes to move into. 48 ATTRACTIVE LKAB

LKAB's objective is to achieve greater equality in the workplace.

We have a clear ambition to be a role model in terms of ethics, equality, diversity and work environment.

CHALLENGES PRIORITY MEASURES

COMPETENCY MANAGEMENT Performance • Despite efficiency improvements and staff reduc- • Continued investments in partnerships with schools in Ironmaking tions, continue to be an attractive employer now and and universities. in the future. • Create peace of mind among employees by as far Flexibility as possible avoiding redundancies of permanent employees, despite the need for reduced staffing. Safe and resource-efficient WORK ENVIRONMENT AND HEALTH production • Maintain and improve physical, organizational and • Defined focus areas in the work environment at social work environment so that all employees LKAB correspond with the new regulation entitled Urban trans- Attractive are content, feel secure and are healthy in the Organizational and Social Work Environment and Growth formation LKAB workplace. must be applied by all workplaces. • Structuring of work on the work environment in order to comply in full with work environment Committed - Innovative - Responsible guidelines OHSAS 18001. MANAGERS AND EMPLOYEES • Create workplaces where both managers and • Work on the safety culture focuses on creating a employees, by acting in accordance with LKAB’s work environment that provides employees with the values, contribute actively to an efficient, productive conditions to focus on their work and productivity. and sustainable LKAB characterized by diversity and • LKAB’s programme for new managers offers tools to non-discrimination. lead, govern and develop the business and to create conditions for employees to deliver sustainable results. ATTRACTIVE LKAB 49

EMPLOYEES THE ROUTE TO SUCCESS

LKAB’s strength as a mining company is closely associated with its employees’ commit- ment, innovation and responsibility. To attract competence and create engagement, we must be an attractive, secure employer with developmental career opportunities. We must also contribute to attractive communities at our operating locations.

Innovative technology, efficiency improve- efficiency and work environment become better ments and new knowledge requirements when each employee is involved in work to have fundamentally changed the way we pro- achieve added value. Our production objectives duce our iron ore products. A wide range of and a pleasant, accident-free work environment specialist expertise is required to operate the are linked directly to each employee’s commit- world’s biggest, most modern iron ore mines ment and responsibility, which is why there is underground, as well as our production plants an increased focus on the psychosocial work and logistics. LKAB has over 180 specialists environment. When everyone takes responsibil- in various professional categories – from car- ity, production is more stable with fewer penters, economists and machine operators disruptions. to IT technicians, rockwork technicians and research engineers. 125 years of commitment, innovation and responsibility Competency management and attractiveness LKAB’s corporate culture has been characte­ Our long-term competitiveness is based rized ever since the company was founded in largely on our ability to attract and retain the 1890 by committed employees who have acted right skills through professional challenges, in the Group’s best interests both internally broad career paths and personal development. and with customers, suppliers, shareholders, That is why we attach great importance to the public and authorities. It is LKAB’s ambition improving and developing working conditions, to set an international example in the mining health and safety, and to prioritizing equality industry – for ethics, the work environment, FOCUS AREAS and diversity. At the same time, we can offer equality and diversity. It is our aim to observe something that few other mining companies internationally recognized declarations and ETHICS, EQUALITY AND DIVERSITY are able to: a unique place to live in one of conventions such as the UN Global Compact’s Strive to increase the proportion of women the world’s most beautiful regions. There is a ten principles, the Children’s Rights and in LKAB. strong economy here alongside mining oper- Business Principles, the OECD Guidelines for Introduce LKAB’s Code of conduct through- ations, as well as a good quality of life for our Multinational Enterprises and the UN Guiding out the whole value chain. employees and their families. Principles for Business and Human Rights. WORK ENVIRONMENT Our values and our Code of conduct are the Competence management crucial cornerstones of our business strategy. To Reduce the number of accidents resulting in sick leave. LKAB’s focus on productivity, quality and assume even greater responsibility throughout Keep long-term sick leave at a continued profitability means that the spotlight has fallen the entire value chain we have also introduced low level. on the issue of better resource utilization. In a Code of conduct for our suppliers. the long term, investments in education are key to securing LKAB’s human resources, and Continuing professional development schools are also the foundation of an attractive Each of LKAB’s employees is responsible for community. We work closely with educational their own performance, developing their skills facilities such as Luleå University of Technology and the company on an ongoing basis. By clar- and continue to be actively involved in the local ifying employees’ own roles linked to expec- compulsory and secondary schools, which tations and strategic objectives, we cultivate include the LKAB upper secondary school and knowledge, safety and commitment. Our focus 20% the LKAB Academy foundation. on more efficient and safer work processes in The proportion of women an educational and accountable organization at LKAB has doubled in Involvement makes us stronger the last ten years; 20% of also requires a new kind of modern leadership. employees were female Our focus on continuous improvement makes The objective is to train all new managers in a in 2015. LKAB a company that can ensure job opportu- leadership style based on our values. nities in the long term. Our processes, 50 ATTRACTIVE LKAB

REPORTED INCIDENTS AND RISKS Incidents Risks

10,000

8,000

6,000

4,000

2,000

0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

ACCIDENTS WITH ABSENCE, LKAB GROUP Number Number 2014 Frequency/million hours worked

Number Frequency/million hours worked 100 20

80 16 All employees, contractors and suppliers must have an approved safety qualification. 60 12

40 8

20 4 SAFETY FIRST! 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 The safety of our employees is one of LKAB’s top priority areas. To reinforce the safety culture, we carry our systematic work under the name of “Safety First!”. This programme aims to help create safe workplaces and influence people’s attitudes so that everyone contributes to a good safety culture. 14 % fewer accidents in mining operations. 50 (58) accidents resulting in absence in Safety training is part of the induction process for new employees, and both contractors the Mining Division. and subcontractors must have completed an approved training course before they are granted access to LKAB’s industrial area. Up to and including 2015, a total of 3,810 of LKAB’s employees have been trained in the new safety culture. The number of accidents in mining operations continues to fall. The long-term trend is thus heading in the right direction, albeit at a slow rate. The accident rate was 6.9 accidents 3.0% with absence per million hours worked, where the target is a maximum of five. The most Sick leave is stable at the low level of common accidents are undramatic and involve sprains as a result of slipping and tripping 3.0 percent, of which long-term sick leave accounts for only 0.6 percent. or a loss of footing, as well as accidents when handling tools or materials.

Accidents A focus on the work environment The accident rate fell to 6.9 ac- cidents with absence per million When considering work environment risks element of structuring work on the work hours worked, where the target is in a mining company, thoughts immediately environment and work on risk assess- a maximum of five. Most accidents turn to the mine itself. Having mapped out ments in accordance with the OHSAS have undramatic causes such as the whole business operation, LKAB has 18001 management system. slipping and tripping. identified two priority areas that should In 2016 we will be working systemati- contribute to reducing the risk of accidents cally on these areas. To achieve our and ill health: psychosocial injuries and objectives, all workplaces at LKAB must injuries as a consequence of inadequate conduct a psychosocial health and safety Sick leave communication. inspection and review the standards and The proportion of people on sick These focus areas were identified on the rules of play that apply. This work will take leave for physical reasons is basis of interviews in the business and a the form of dialogue at each workplace falling, as it is in Swedish society review of incidents within the LKAB Group. and the results will form the basis of in general. The identification of focus areas is an future action. ATTRACTIVE LKAB 51

NUMBER OF WOMEN AT LKAB

Number 1,000

800

600

400

200

0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

PROPORTION OF WOMEN AT LKAB Proportion of female managers Proportion of women

% 25

20

Moa Falk, Quality Engineer at the MK3 pelletizing plant in Malmberget. 15

10 Work on safety produces results 5 0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 ACCIDENT RATE 1980–2015

120

100

80

60

40

20

0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 The proportion of women in the Group is 20% (19.4%) and the proportion of female manag- LKAB’s work on safety in recent decades has produced results. Calculated in accidents per million hours ers is 17.7% (19.9%). The objective is that by worked, the rate has fallen from more than 100 around 1980 to 7.6 in 2014. 2020 the proportion of women within LKAB will be 25 percent.

Responsible staff cuts Diversity • According to Statistics Sweden’s The market situation with low iron ore responsibly and without making employees analysis, the proportion of prices necessitates an additional focus redundant if it is not necessary? LKAB employees born abroad on cost-cutting measures and efficiency One hundred or so white-collar employees is 6.5% (6.5%). improvements in order to secure LKAB’s were given their notice during the year, competitiveness. 400 jobs will have to dis- but thanks to tremendous commitment • Among white-collar employees appear within the LKAB Group – a task that from LKAB’s managers and a desire to find the proportion born abroad is requires both innovation and responsibility. new solutions, no one needed to be made slightly higher, 8.7%. Consideration of employees’ job security redundant. It was nevertheless possible • Diversity is discussed at work- is deeply rooted within LKAB and redun- to reduce the number of jobs among place meetings and there are dancies due to a shortage of work have white collar employees by 192 by means professional development days rarely occurred. This requires a high of a freeze on external recruitment and for health and safety repre- degree of innovation from the company’s pension solutions, as well as matching be- sentatives. managers in all areas. How do you do this tween existing competency and vacancies. 52 ATTRACTIVE LKAB

SCHOOL PARTNERSHIPS CELEBRATE TEN YEARS LKAB continues to collaborate with and support compulsory and upper secondary schools in order to secure attractive courses in the region in the long term. In 2015 LKAB celebrated 10 years of involvement with the upper secondary programmes in Malmberget. SPEAKUP – NEW WHISTLE-BLOWING The partnership between LKAB and upper secondary schools involves programmes specially oriented towards LKAB and FUNCTION was created to provide young people with greater knowledge of LKAB’s Code of conduct sets out the company’s guidelines in areas primary industry. There are five upper secondary programmes; such as anti-corruption and discrimination. A training programme four practical programmes and one that is more academic. In was launched in 2015 for all employees in areas covered by the 2015 these specialist programmes were among the most attrac- code. A total of 190 people were trained during the year. tive programmes in the municipalities of Kiruna and Gällivare. To be able to deal with irregularities or deficiencies, they must Despite it being a tough year for the mining industry, LKAB was come to light. As a complement to the Code of conduct and tradi- able to secure paid summer placements for all students following tional reporting paths, LKAB has for some time been working on a these specialist programmes in 2015. Some parts of the practical whistle-blowing programme, which has now been launched. courses during the school year also take place at LKAB. Via SpeakUp, which came into use in January 2016, our employees The purpose of the LKAB specialist programmes is to make can anonymously report any maladministration relating to key sure that the students are employable and receive a good individuals such as Group management, CEOs in subsidiaries or education, even if they apply to companies other than LKAB in department managers. Maladministration relating to other individuals the future. should be dealt with by notifying the line manager or the HR department. Examples of issues that can be reported via SpeakUp Award-winning development project are breaches of the Code of conduct, financial crime such as The LKAB Academy foundation provides financial support bribery, corruption and fraud, as well as security breaches, breaches for pre-schools, compulsory schools and upper secondary of environmental rules or discrimination and harassment. Reports schools in the Swedish orefields and Narvik. The purpose is may be made in complete anonymity via computer or phone. An to encourage an interest in technology and science among external supplier transcribes voice messages into text, which is children and young people. So far support has been given entered into the system. to more than 100 projects in the mining municipalities. In 2015 the LKAB Academy distributed just over SEK 4 million to various educational development projects in compulsory and upper secondary schools. One of the projects, “Attitudes cases of discrimination were reported during the year. These resulted of children and young people towards higher education”, was in three written warnings, two of which also resulted in reassignment. 3 awarded the Norrbotten Academy’s research prize in 2015. The project is of major interest for the region’s long-term incidents of corruption were found in 2015, four of which resulted in competency management and ultimately for LKAB. 6 dismissal and two in written warnings.

LKAB is a top choice among engineering graduates

In the FöretagsBarometern1 student survey, LKAB was ranked as one of the 100 most attractive employers for engineering graduates. Work to nurture employees, their work environment, development and life situation is of central importance to LKAB, both now and in the future. The Group’s position in the FöretagsBarometern survey confirms that LKAB’s efforts as an attractive employer are also being recognized outside the company. The same survey shows that LKAB is also climbing up the ranks among young professionals with engineering and business degrees.

1  FöretagsBarometern is Sweden’s biggest student survey about careers, working life and the future. 23,297 students at Swedish institutes of higher education took part in the 2015 survey to vote for the most popular employers in various sectors. 53

OUR GOVERNANCE AND CONTROL 4 54 CORPORATE GOVERNANCE REPORT

CORPORATE GOVERNANCE REPORT

Expectations are high on LKAB in terms of corporate responsibility and community benefit.

CHAIRMAN OF THE BOARD STEN JAKOBSSON: For LKAB, 2015 was characterized by work on adapting the company to the new market situation. Falling prices mean that LKAB has to lower its costs and increase its production.

When profitability is squeezed by lower ship with a clear focus on production. At communities that have high expectations prices, it becomes more important than the beginning of 2016, a new operational of LKAB. Today, serious customers also ever to increase volumes in order to bring management team was put in place and impose requirements on their suppliers, and down the cost per tonne produced. the company was split into three divisions. skilled employees likewise place demands During the year the company worked in­ The aim is that decentralizing respon­ on their employers. Sustainability work tensively on getting to grips with produc­tion sibility will increase production in the therefore remains central for LKAB’s Board. stoppages, while at the same time success­ mines and processing plants. The goal is This work is continually in progress and fully implementing the cost cutting and to produce volumes corresponding to the targets are consistently raised. Where the efficiency programme that had been decided capacity of LKAB’s pelletizing plants, at the work environment and industrial accidents on. Work to reduce costs and increase lowest possible cost. are concerned, the aim has to be that every­- production is continuing, in order to secure ­­body goes home from work just as healthy long-term sustainable mining operations. Urban transformation enters a new phase as when they arrived. All industrial operations During the year the Board re-examined the The urban transformation in Malmberget impact the environment locally and globally, capital expenditure programme estab­ and Kiruna is crucial to LKAB’s business including the mining industry. To be environ­- lished previously and, where possible, in both the short and long term. Urban mentally and economically sustainable, we deferred future capital expenditure. transformation therefore has to be carried need to have an increased focus on energy out on time and cost-effectively, so that efficiency and on reducing emissions of New CEO and focus on pellet production production is not disrupted and compet­ carbon dioxide, among other things. Just a couple of years ago, LKAB’s margins itiveness is maintained. During the year The aim is to maximize the value that exceeded 50 percent. This justified a level the Board took the decision to expand the LKAB adds at all stages, while at the same of costs and capital expenditure that has to company’s role in urban transformation, time minimizing the negative impact of be questioned in the current situation. Like so as better to ensure that costs are not the business. With profitability, respect for the rest of the Board, I am of the opinion that exceeded and schedules are maintained. all our stakeholders and responsibility for this has to be looked at through new eyes. the world around us, the Board’s ambition Jan Moström took up the position of CEO A positive contribution to social progress is for LKAB to continue to make positive in August, providing LKAB with a leader­ It is not just our owners and the local contributions to social progress. CORPORATE GOVERNANCE REPORT 55

CORPORATE GOVERNANCE STRUCTURE LKAB’s owner, the Swedish state, is ultimately responsible for making decisions on corporate governance. At the Annual General Meeting the shareholder appoints Board members, the Chairman of the Board and an auditor. The Board is responsible to the shareholder for the company’s organization and the administration of its affairs. The diagram below summarizes how governance and control are organized at LKAB. The company functions are described in more detail on pages 56-61 of the corporate governance report.

BOARD AGM OWNER AUDITOR 2 NOMINATIONS 1 (THE STATE) 3

4 BOARD OF DIRECTORS

5 REMUNERATION COMMITTEE 6 FINANCE COMMITTEE 7 AUDIT COMMITTEE

Elects/Appoints 8 PRESIDENT Informs/Reports to

1 ANNUAL GENERAL MEETING 4 BOARD OF DIRECTORS The AGM is LKAB’s highest decision-making body and the forum at The Board of Directors is responsible for the company’s organiza­ which the shareholder formally exercises its influence. At the AGM, tion and manages the company’s affairs on behalf of the owner. The decisions are made that include adoption of the income statement work of the Board includes continuously monitoring the company’s and balance sheet, discharge from liability of the Board, election of financial situation and ensuring that the company is organized so Board members and auditor, the remuneration of Board members that accounting, asset management and the company’s financial and the auditor and guidelines for the remuneration of senior circumstances are otherwise controlled in a satisfactory manner. executives. The Board also appoints the President. Members of the Riksdag are entitled to attend LKAB’s AGM. The meeting is also open to the public. 5 REMUNERATION COMMITTEE The committee prepares decisions on the President’s terms of 2 BOARD NOMINATIONS employment and supports the President’s work on determining LKAB does not have a nomination committee. The preparation the salaries of senior executives. The committee also works on of decisions on the nomination of Board members instead takes succession planning. place through a Board nomination process in accordance with the state’s ownership policy. The work is coordinated by the Ministry 6 FINANCE COMMITTEE of Enterprise, Energy and Communications. The committee prepares and monitors compliance with the compa­ ny’s finance policy, including the company’s liquidity management, 3 AUDITOR borrowing and hedging programmes for currency (USD), electricity The auditor is responsible to the shareholder at the AGM and prices and iron ore prices. provides an audit report on the Annual Report and the Board’s administration of the company. 7 AUDIT COMMITTEE The auditors regularly report verbally and in writing to the Audit The committee oversees financial reporting by reviewing all critical Committee on how the audit was conducted and on the auditor’s accounting matters and other factors that could affect the quality of assessment of order and control at the company. A summary of financial reporting content. the annual audit is also submitted to the full Board. 8 PRESIDENT The President is appointed by the Board of Directors. Besides instruc­ tions from the Board, the President is subject to the Swedish Com­ panies Act and various other laws and regulations relating to the company’s accounting, asset management and operational control. 56 CORPORATE GOVERNANCE REPORT

GOVERNING POLICIES, GUIDELINES AND REGULATIONS

The basis for corporate governance at LKAB is Swedish leg­ to corporate governance at state-owned companies (see islation, the Swedish Corporate Governance Code (the Code), www.government.se). the state’s ownership policy and internal control documents. LKAB’s values are Committed, Innovative, Responsible. In the state’s ownership policy and guidelines for state- These values and the company’s Code of conduct form the owned companies, which are determined annually, the basis for how each person within the Group should act towards government describes its mission and objectives, applicable internal and external stakeholders. LKAB’s operations must frameworks and its position on important principles related be characterized by a high standard of business ethics and integrity.

THE GROUP HAS A NUMBER OF POLICIES IN PLACE, WHICH HAVE BEEN ADOPTED BY THE BOARD:

• Code of conduct • Work environment policy • Finance policy • Quality policy • Staff policy • Communications policy • Environment and energy policy

DEVIATIONS FROM THE CODE The Swedish Corporate Governance Code (the Code) forms part of the state’s ownership policy. LKAB’s governance for the 2015 financial year differs from the requirements contained in the Code on the following points.

Code rule Deviation and explanation/comment

ITEM 1.1 The purpose of this rule is to give shareholders the opportunity to prepare for the Publication of information on shareholder’s right of AGM in a timely manner and to have a matter included in the AGM notice. initiative. At state-owned companies it is not necessary for this rule to be applied, and there is therefore no publication of information on the shareholder’s right of initiative.

ITEM 1.3 Due to its ownership structure, LKAB does not have a nomination committee. The company’s nomination committee shall submit The Chairman is instead elected at the AGM as per the provisions of the Swedish proposals to the Chairman at the AGM. Companies Act and in line with the state’s ownership policy.

ITEM 2 Due to its ownership structure, LKAB does not have a nomination committee. The The company shall have a nomination committee that Board nomination process follows the policies outlined in the state’s ownership represents the company’s shareholders. policy and is coordinated by the Ministry of Enterprise, Energy and Communications. Accordingly, the references to the nomination committee in items 1.2, 1.3, 4.6, 8.1 and 10.2 of the Code are not applicable.

ITEM 10.2 The provision is aimed primarily at protecting non-controlling shareholders in com­ The corporate governance report shall contain infor- panies with dispersed ownership. In companies that are wholly owned by the state, mation that indicates Board members are independ- it is not necessary to apply this rule. ent of major shareholders.

LKAB’s values ​​and policies are described in more detail at lkab.com. CORPORATE GOVERNANCE REPORT 57

SHAREHOLDERS AND ANNUAL industry expertise, financial issues or other relevant areas. They GENERAL MEETING must also have a high level of integrity and the ability to act in the best interests of the company. SHAREHOLDERS LKAB is wholly owned by the Swedish state, represented in the government by the Ministry of Enterprise, Energy and Communi­ AUDITOR cations. The state exercises its ownership via an annually established On behalf of the owner, the auditor independently reviews the ownership policy, nominations to the Board and published report­ management of the Board and President, as well as the company’s ing guidelines. The government’s requirement for transparency is Annual Report and accounts. They also carry out a review of an fulfilled by direct owner representation on the Board. Reports to interim report. The election of auditors is decided at the AGM. the owner are key management tools for the continuous monitor­ Auditors of state-owned companies are appointed for a term of ing and assessment of the companies. State-owned companies one year. In the event that re-election of the auditor is being should have at least the same level of transparency as listed considered, the auditor’s work is always evaluated by the owner. companies. At the Annual General Meeting on 28 April 2015, Deloitte AB was The Board, via the Chairman, coordinates its views on issues of re-elected as auditor for a period of one year. Authorized Public decisive importance with the owner’s representatives. Such issues Accountant Peter Ekberg is the chief auditor. The remuneration of include strategic changes to the company’s operations, major the auditor is specified in Note 7 on page 108 of the Annual Report. acquisitions, mergers or disposals, as well as decisions affecting significant changes to the company’s risk profile or balance sheet. BOARD OF DIRECTORS ANNUAL GENERAL MEETING 2015 LKAB’s Annual General Meeting took place on 28 April 2015 at COMPOSITION AND DIVISION OF Vetenskapens Hus in Luleå. The meeting was open to the public, DUTIES OF THE BOARD OF DIRECTORS who were given the opportunity to ask questions of the Board and LKAB’s Articles of Association state that the company’s Board of management. The AGM was attended by about 80 people. The Directors shall consist of no fewer than six and no more than elev­ owner was represented by Erik Tranaeus, expert advisor at the en AGM-elected members, excluding deputies. The Board consists Ministry of Finance. Chairman of the meeting was Board Chairman of eight AGM-elected members. Employees are represented by Sten Jakobsson. The following decisions were made at the meeting: three members and three deputies in accordance with the Board • A dividend of SEK 199 per share, representing a total of MSEK 139. Representation (Private Sector Employees) Act. Board members • Re-election of Board members Hans Biörck, Maija-Liisa Friman, have broad and extensive business experience and most maintain Lars-Åke Helgesson, Sten Jakobsson, Hanna Lagercrantz and other duties as Board members of large companies. The Board’s Lars Pettersson. Election of new Board members Eva Hamilton composition is shown in the presentation of the Board on pages and Leif Darner. 62–63. • Maud Olofsson stood down from the Board. The Board annually establishes rules of procedure for the • Re-election of Sten Jakobsson as Chairman of the Board. Board, instructions to the President and instructions for financial • Remuneration of SEK 570,000 to the Chairman of the Board reporting. These documents define the basic divisions of respon­ and SEK 250,000 to the other Board members elected at the sibility and powers between the Board, Board committees, the AGM. Remuneration is not paid to Board members who are Chairman and the President. employed at the Government Offices, nor to employee repre­ sentatives. CHAIRMAN OF THE BOARD • Re-election of the registered public accounting firm Deloitte The duties of the Chairman are subject to the Swedish Companies AB as auditor for a period of one year. Act, the Code and the ownership policy. They are further specified • Guidelines for remuneration and other terms of employment in the Board’s rules of procedure. The Chairman’s duties include for senior executives. organising and leading the work of the Board, ensuring that the The minutes of the 2015 AGM and other recent years are available Board fulfils its duties and that its decisions are implemented at LKAB’s website, lkab.com. effectively, and that the Board evaluates its own work annually. Coordination responsibility is a special task assigned to the chair­ BOARD NOMINATIONS persons of state-owned companies. This responsibility means that Instead of having a nomination committee, the election of Board the Board, through the Chairman, must coordinate its views with members is prepared in accordance with the state’s ownership representatives of the owner when the company faces important policy. The work is coordinated by the Ministry of Enterprise, decisions or strategic changes to the company’s operations. Energy and Communications. LKAB’s expertise requirements are analyzed based on the company’s operations, situation and future THE WORK OF THE BOARD OF DIRECTORS IN 2015 challenges. Consideration is also given to the need for qualifica­ During the year the Board held 12 meetings, including four tele­ tions as regards sustainability issues. In order to be considered phone meetings and one constituent Board meeting. The meetings for a Board position, a person must have a high level of expertise were held at the operating sites in Luleå, Kiruna and Malmberget, relevant to current business operations, business development, as well as in Stockholm. The Board also took a Board trip in 58 CORPORATE GOVERNANCE REPORT

Norrbotten in November 2015, which included visits to SSAB in tives are monitored and are reported on to the Board and owner Luleå and to Boliden’s copper mine in Aitik. on a quarterly basis. The meetings follow a set agenda to ensure the Board’s infor- In 2015 the Board’s work was characterized by the new market mation needs are met. The first meeting is usually an annual situation that LKAB finds itself in, with significantly lower iron ore accounts session attended by the auditor. At this meeting the Board prices and oversupply of iron ore on the world market. In May has discussions with the company’s auditors without the President 2015 the Board resolved to appoint Jan Moström as the new or other members of executive management being present. The President of the company. Other important matters on the Board’s Annual Report is discussed at the second Board meeting. The third agenda in 2015 were ongoing cost-efficiency programmes, urban to seventh meetings are devoted to matters such as operational, transformation in the Swedish orefields, the Group’s financing and strategic and personnel issues, as well as market trends. At the LKAB’s work on sustainability matters. During the year the Board last Board meeting of the year, decisions are made on budgets and adopted a new communications policy. operational plans for the coming year. Deputies to employee representatives participate in Board LKAB’s sustainability strategy and Code of conduct are the meetings. The President is not a Board member, but participates bases for work on sustainable development. The sustainability in Board meetings. Board member attendance at 2015 Board and strategy and sustainability goals were established by the Board in committee meetings is shown on pages 62–63. accordance with the owner’s requirements. Sustainability objec­

December: Decision on February: 2016 budgets. Adoption of the year-end report. Review of Board November: Review of 2014 audit. Discussions assessment Board trip in Norrbotten, between Board and auditors without for 2015. including visits to SSAB in management being present. Decision on Luleå and Boliden’s copper new communications policy. Decision on mine in Aitik. More in-depth new compensation principles for seismic data. Discussion of new urban transformation in the company organization. EC JAN Swedish orefields. Matters D relating to the Annual General Meeting. FE October: V B O N Decision to apply impairment

losses of MSEK 7,136 to the March:

company’s property, plant M Approval of Annual and

and equipment. Adoption of A

T Sustainability Report R interim report for Q3. C for 2014.

O

S

September: E April: R

P

P Review of the owner’s Adoption of interim

A sustainability analysis of report for Q1.

LKAB. Appraisal of current Review of plan to reduce

policies and governing personnel by 400. A documents. Capital U Annual General Meeting. G Y expenditure decision for A Statutory Board meeting. M new City Hall in Kiruna. J UL JUN May: August: Decision to appoint Jan Adoption of interim Moström as new President. report for Q2. June: Strategy review. CORPORATE GOVERNANCE REPORT 59

COMMITTEES ASSESSMENT According to the state’s ownership policy, it is the Board’s respon­ sibility to assess the need for establishing special committees. ASSESSMENT OF THE BOARD OF DIRECTORS LKAB’s Board has an Audit Committee, a Finance Committee and The Board’s work is assessed once a year with questions on how a Remuneration Committee. Committee work is mainly of a pre­ the Board as a whole and the Board members individually fulfil paratory and advisory nature. However, in special cases the Board their duties. The assessment is used in the Board’s internal work. may delegate decision-making powers to committees. Committee The Chairman is responsible for following up the results so that members and chairpersons are appointed at the constituent Board they can form a basis for discussions and improvements. In 2015 meeting that follows the AGM each year. the assessment took the form of a questionnaire and individual discussions between the Chairman and each Board member. The Audit Committee results and analysis of the assessment were presented to the The Audit Committee has four members: chairman Lars-Åke entire Board as well as to the President, as appropriate. The Chair­ Helgesson, Hanna Lagercrantz, Hans Biörck and Stefan Fagerkull. man of the Board notifies the owner of the results of the assess­ The President and the CFO also attend the meetings. The commit­ ment before the election of new Board members. tee is tasked with quality assurance of LKAB’s financial reporting and with ensuring that the company has appropriate risk ASSESSMENT OF THE PRESIDENT management and complies with established principles for The assessment of the President is a fundamental task of the financial reporting and internal control, that LKAB undergoes a Board of Directors. The Board also continually assesses the qualified, effective and independent audit and with preparing the President’s work and has regular deliberations at Board meetings Board’s proposed appropriation of profits for the financial year. As without the presence of executive management. However, no spe­ the urban transformation of Kiruna and Malmberget has intensi­ cific assessment of the President’s performance was carried out fied, the Audit Committee has participated in the management and in 2015 since Jan Moström only took up the position of President review of urban transformation issues to a growing extent. In 2015 in mid-August 2015. the committee also worked on the company’s testing for impair­ ment, on LKAB’s capital expenditure programme and on the company’s long-term financial plan. REMUNERATION POLICIES In the course of the year the Audit Committee held seven meetings. GUIDELINES Finance Committee The 2015 AGM decided on remuneration levels for Board members The Finance Committee has four members: chairman Hans Biörck, and auditors and on guidelines for the remuneration of senior Lars-Åke Helgesson, Hanna Lagercrantz and Stefan Fagerkull. executives. For the remuneration of Group management, the AGM The President, CFO and company treasurer also attend the meetings. decided that the government’s currently applicable guidelines The Finance Committee’s duties include preparing and moni­ regarding employment terms for senior executives at state-owned toring that LKAB’s liquidity management, financing and hedging companies are to be applied. Total remuneration is based on fixed activities for currency (USD), iron ore prices and electricity prices remuneration, benefits and pension. No variable remuneration is comply with the finance policy passed by the Board, and otherwise paid to senior executives in Group management. preparing financial matters that require Board approval. In 2015 Note 6 on pages 106–108 of the Annual Report describes the the Finance Committee worked on matters such as an update of guidelines for remuneration of senior executives and the related LKAB’s finance policy, Group financing and credit exposure. outcomes. The committee held five meetings during the year. INCENTIVE PROGRAMME AND OBJECTIVES Remuneration Committee LKAB’s incentive programme for Group employees is designed to The Remuneration Committee has four members: chairman Sten support the Group’s strategic objectives for production volume, Jakobsson, Lars-Åke Helgesson, Hanna Lagercrantz and Tomas health and safety, product quality and production cost. Strömberg. The Senior Vice President of Human Resources also The incentive programme is described on page 82 of the Adminis­ attends the meetings. tration Report. The Remuneration Committee’s duties include preparing and evaluating remuneration terms for the President, establishing sal­ REMUNERATION TO THE BOARD OF DIRECTORS ary structure policies for members of Group management and an­ Total fees to the Board members elected by the general meeting nually evaluating the company’s employee incentive programme. amount to SEK 2,127,000 in 2015. See Note 6 on pages 106–108. In 2015 the Committee also worked on the recruitment of a new President and on LKAB’s succession planning and talent manage­ ment programmes, in order to ensure that key positions within the company can be filled by competent employees in the future. The Remuneration Committee held two meetings during the year. 60 CORPORATE GOVERNANCE REPORT

LKAB’S MANAGEMENT INTERNAL CONTROL OVER FINANCIAL REPORTING GROUP MANAGEMENT AND GROUP MANAGEMENT STRUCTURE The Board’s responsibility for internal governance and control is The President, who is also the Chief Executive Officer of the LKAB regulated by the Swedish Companies Act, Annual Accounts Act Group, is responsible for day-to-day management in accordance and Corporate Governance Code. The Board has overall respon­ with the Swedish Companies Act. General responsibilities are sibility for financial reporting, and its rules of procedure govern stated in the President’s instructions and the Board’s rules of the internal division of duties of the Board and Audit Committee. procedure. Until 14 August 2015 Lars-Eric Aaro was President and After preparation by the Audit Committee, quality assurance of CEO. On 17 August 2015 Jan Moström became the new President the company’s financial reporting is handled by the Board, which and CEO of LKAB. deals with significant accounting issues and the financial reports In November 2015 the Board approved a new organizational issued by the company. The Board also deals with issues relating structure that took effect on 1 January 2016. to internal control, compliance, material uncertainty in carrying The new Group structure splits the business into three divisions: amounts, uncorrected errors, events after the end of the reporting Production North, Production South and Special Products. period, changes to estimates and assessments, any identified Production North comprises the mine and processing plant in irregularities and other circumstances that affect the quality of the Kiruna, while Production South consists of mines and processing financial reports. plants in Malmberget and Svappavaara. The Special Products division consists of LKAB Minerals, which produces and sells CONTROL ENVIRONMENT industrial minerals, and the drilling technology company LKAB LKAB’s internal control structure is based on a defined division of Wassara. To support the divisions, there are Group functions for responsibilities between the Board, Board committees and the Finance, HR and Sustainability, Operational Support and Business President. The internal control structure is also based on the com­ Development, Sales and Logistics, Communications, and Urban pany’s organization and the way business is conducted, including Transformation. well-defined roles and responsibilities, delegation of powers, Governance of the major subsidiaries is through the companies steering documents such as policies, and clearly defined planning being part of a division or unit, with Group management members and support processes. chairing the subsidiaries’ boards. The subsidiaries run their busi­ The most important elements of the control environment for nesses independently in accordance with the company’s mission financial reporting, including the preparation of the consolidated in the Group, as formulated in the Articles of Association. accounts, are dealt with in Group-wide steering documents Responsibility and authority are assigned to individual execu­ relating to accounting, financial transactions and regulation of tives, rather than groups and committees. division of authority. The purpose of Group-wide guidelines and Information on the members of the executive management can systems for reporting and consolidation of the Group accounts is be found on page 64. to safeguard the financial reporting and ensure the accuracy of the consolidated accounts.

RISK ASSESSMENT LKAB is governed by procedures that have risk management built into every process. The Group has methods for ensuring that the risks the company is exposed to are handled according to guidelines and methods in order to both assess and mitigate these risks. As part of the internal governance and control, risks related to financial reporting are identified. Risk assessments are conducted for the most important processes in order to manage and mini­ mize these risks. A number of higher risk areas were identified with regard to financial reporting, such as in relation to accounting and tax issues linked to urban transformation and the large number of ongoing capital expenditure projects. Other more general risks are loss or misappropriation of assets and other significant errors in the company’s reporting, such as accounting and measurement of balance sheet items, completeness of income statement items or deviations from disclosure requirements. CORPORATE GOVERNANCE REPORT 61

CONTROL ACTIVITIES FOLLOW-UP Key elements of LKAB’s control structure are control of business Alone, or with the support of external resources, the Group- transaction approvals (authorization instructions), division of wide controller function conducts audit activities relating to the authority descriptions and annual accounts instructions. There business processes that are deemed to have a material impact on are also controls regarding the annual accounts process and the financial reporting. processes for interim results and the Annual Report that deal A plan for internal control activities is prepared annually by the with more unique risks of errors that may occur in the financial Group-wide controller function. In 2015 the focus was on follow-up reporting. of prioritized internal processes. The results of the completed The Group’s legal entities that conduct business have finan­ reviews are summarized in review reports and feedback is given cial managers, while reporting units have controllers. They are to the operations concerned. Compliance with measures specified involved in the forecasting and analysis of earnings at subsidiaries following the completion of reviews is followed up regularly by the and the reporting entities. These analyses cover assets, liabilities, Group-wide controller function. income, expenses and cash flows. There are also designated con­ troller resources that monitor, analyze, make forecasts and exam­ INTERNAL AUDIT ine specific issues relating to the financial information for urban The structure for monitoring internal control that currently exists transformation and strategic capital expenditure projects. LKAB at LKAB is deemed to meet the Board’s requirements, and conse­ uses a Group-wide consolidation system for the preparation of its quently no separate internal audit function has been established. consolidated accounts, where the companies’ CFOs/controllers are The decision on internal audits is reconsidered annually by the responsible for the accuracy of the financial information reported Board. (outcome, budget and forecasts). Together with the comprehensive analysis performed at Group level, the aim is to limit the risk of material misstatement in the financial reporting. Luleå, 21 March 2016

INFORMATION AND COMMUNICATION The Board of Directors, through the Chairman Information on governing documents such as policies, guidelines and procedures are available on the LKAB intranet. Changes to guidelines for financial reporting are updated regularly and com­ municated to the departments and operations concerned by email, via the intranet and at meetings. Sten Jakobsson There is a communications policy for communication with external parties that specifies guidelines for how information should be presented. The purpose of the policy is to ensure that all information obligations are met in an accurate and complete manner. External financial communications are issued through Annual Reports, interim reports, year-end reports, press releases and via lkab.com. 62 THE BOARD OF DIRECTORS

BOARD OF DIRECTORS

STEN JAKOBSSON / CHAIRMAN HANS BIÖRCK LEIF DARNER EVA HAMILTON position Director position Director position Director position Director education MSc Engineering education MSc Business and Economics education MSc Business and Economics, School education Dag Hammarskiöld College, year elected 2012, Chairman since 2014 year elected 2012 of Economics Gothenburg. Economics, University of Uppsala 1974, Bachelor’s Programme in Journalism born 1949 born 1951 year elected 2015 Stockholm University 1976. other directorships Chairman of the Board other directorships Board member of Crescit born 1952 year elected 2015 of Power Wind Partners AB. Board member of Asset Management AB, Trelleborg AB, Bonnier other directorships Board member of Flow- Saab AB, Stena Metall AB, FLSmidth A/S and Finans AB, Dunkerska Stiftelserna service Corporation, Dallas US and I-Tech AB born 1954 Xylem Inc. at Bure Equity AB. background Executive Board Member other directorships Board member at Fortum background President and CEO at ABB Sverige, background CFO at Skanska AB, CFO at Autoliv AkzoNobel Nederland BV. Responsible for Oyj, AB Lindex, Nobel Center Committee and IVA Deputy CEO at Asea Brown Boveri AB Sverige, Inc. CFO at Esselte AB. Performance Coatings 2008–2013 and for (Kungl Ingenjörsvetenskapsakademin). Chairman of IVA:s näringslivsråd. Chairman of the Board at Business Area Manager for Business Area remuneration SEK 310 000 Chemicals 2004–2008. Director at Marine & Cables, CEO at ABB Cables AB, CEO at Asea Protective Coatings, AkzoNobel London UK Mexiko Media AB. Member of Advisory Board board meeting attendance 12 of 12 meetings. Cylinda, Production manager at Asea Low 1999–2004. Director Worldwide Yacht & Protective Diplomat Communications AB. Voltage Division, Asea central staff – Production, audit committee attendance 7 of 7 meetings. Coatings, Courtaulds plc London UK 1997–1999. background Honorary doctorate Mittuniversite- Asea trainee. finance committee attendance 5 of 5 Various management positions, Courtaulds plc tet 2015. CEO at SVT 2006-2014. Head of SVT remuneration SEK 570 000 meetings. 1991–1997. Director of International Färg AB, Fiction 2004–2006. Director of News and Current 1987–1991. Affairs 2000–2004. Journalist at Sydsvenska board meeting attendance 12 of 12 meetings remuneration SEK 250 000 Dagbladet, Sundsvalls Tidning, Aftonbladet, SvD, remuneration committee attendance 2 of 2 Dagens Industri and Rapport/SVT. meetings board meeting attendance 8 of 12 meetings.1 remuneration SEK 250 000 1 Assumed after AGM 2015 board meeting attendance 7 of 12 meetings.1 1 Assumed after AGM 2015

MAIJA-LIISA FRIMAN LARS-ÅKE HELGESSON HANNA LAGERCRANTZ LARS PETTERSSON position Director befattning Director position Deputy Director, Ministry of Enterprise position Director education MSc Chemical Engineering, education Stanford Business School (SEP), and Innovation education MSc Engineering Physics Helsinki University of Technology USA. MBA, School of Economics, Gothemburg, education MSc Business and Economics, year elected 2013 Graduate engineer. Stockholm School of Economics, M. Phil. in year elected 2008 born 1954 year elected 2000 Economics, Cambridge University. born 1952 other directorships Chairman of the Board year elected 2010 other directorships Chairman of the Board at born 1941 at KP Komponent A/S. Board member at Helsinki Deaconess Institute. Deputy chairman other directorships Chairman of the Board born 1970 AB Industrivärden, Husqvarna AB, Lundberg­ at Neste Oil Oyj. Board member at Finnair Oyj at Translink Holding AB. Board member at other directorships Board member at företagen AB, Festo AG, Indutrade AB and and Värdepappersmarknadsföreningen, Finland. Ballingslöv International AB, Axel Christiernsson Svenska Rymdaktiebolaget and Swedfund Uppsala Universitet. background President at Aspocomp Group International AB and Crane Inc., Dalton MA USA. International AB. background President and CEO Sandvik AB Oyj 2004–2007. CEO Vattenfall Oy 2000-2004. background President and CEO at Stora 1992– background Swedish Government Offices since 2002–2011, CEO Sandvik Materials Technology CEO Gyproc Oy 1993–2000. Various management 1998, Division manager at Stora 1988–1992, 2008. Market analyst and Investor Relations at 2000–2002, CEO Sandvik Tooling 1998–2000, positions at Kemira Oyj i Finland, Mexico and the President and CEO at Haldex 1981–1988. SEB 1999–2008, Corporate Finance at S.G. War- vd Sandvik Coromant 1994–1998. US 1978–1993. remuneration SEK 330 000 burg, UBS, Brunswick-Warburg 1994–1998. remuneration SEK 250 000 remuneration SEK 250 000 board meeting attendance 12 of 12 meeting remuneration 0 kr board meeting attendance 11 of 12 meeting. board meeting attendance 12 of 12 meetings audit committe attendance 7 of 7 meeting board meeting attendance 12 of 12 meetings. finance committee attendance 5 of 5 meetings audit committee attendance 7 of 7 meetings. remuneration committee attendance 2 of 2 finance committee attendance 5 of 5 meetings. meetings. remuneration committee attendance 2 of 2 meetings. THE BOARD OF DIRECTORS 63

THE BOARD´S EMPLOYEE REPRESENTATIVES, FULL / DEPUTIES

AUDITOR AND SECRETARY

AUDITOR

Deloitte AB Peter Ekberg Authorized Public Accountant

SECRETARY

Malin Sundvall Legal Director, LKAB Secretary of the Board since 2008 STEFAN FAGERKULL / FULL MEMBER TOMAS STRÖMBERG / FULL MEMBER JAN THELIN / FULL MEMBER position Project manager position Ore developer position Welder education Engineer, Mining- and Civil Engine- education Secondary education education Trained international welding ering, Bergsskolan Filipstad yera elected 2011 specialist year elected 2011 born 1967 year elected 2010 born 1963 othre directorships Deputy Chairman of the born 1955 other directorships Member of the union club union club Gruv 4:an, IF Metall Malmfälten. other directorships Chairman of the union Ledarna in Kiruna. background Employee at LKAB since 1987. club Gruv 12:an in Kiruna, IF Metall Malmfälten. Board Member at LKAB Fastigheter AB. background Employee at LKAB 1987–1989 and remuneration SEK 0 since 1995. Studies and UN-service 1989–1995. background Employee at LKAB 1974–1977 and board meeting attendance 12 of 12 meetings. remuneration SEK 0 since 1995. Employed by various engineering remuneration committee attendance firms 1977–1995. board meeting attendance 11 of 12 meetings. 2 of 2 meetings. remuneration SEK 0 audit committee attendance 7 of 7 meetings. finance committee attendance 4 of 5 meetings. board meeting attendance 11 of 12 meetings.

DAN HALLBERG / DEPUTY BERTIL LARSSON / DEPUTY PENTTI RAHKONEN / DEPUTY position Manager Product Engineering position Ore harbour worker position Process operator education BSc Chemical Engineering, education Secondary education education Secondary education Luleå University of Technology elected year 2010 elected year 2010 elected year 2014 born 1955 born 1965 born 1965 other directorships Chairman of the union other directorships Chairman of the union other directorships Board member of the club Svartöstaden, IF Metall Norrbotten. club Gruv 135:an, IF Metall Malmfälten. Board union club Unionen for Luleå & Malmberget. background Employee at LKAB 1974–1996 and Member of the Mine Workers Industry Forum. Board member of PRISMA (Centre of Process­ since 1999. Employed by Dynalite 1996–1999. background Employee at LKAB since 1987. integration in Steelmaking) och PROMOTE remuneration SEK 0 remuneration SEK 0 (Centre for Management of Innovation and Technology in Process Industry). board meeting attendance 11 of 12 meetings. board meeting attendance 12 of 12 meetings. background Employee at LKAB since 1990. remuneration SEK 0 board meeting attendance 11 of 12 meetings. 64 GROUP MANAGEMENT

GROUP MANAGEMENT

JAN MOSTRÖM PETER HANSSON STEFAN ROMEDAHL MAGNUS ARNKVIST position President and CEO 1 position Senior Vice President, Finance position Senior Vice President, Production position Senior Vice President, Production education Engineer, Mining and Civil Engine- education MSc Business Economics, Luleå North South ering, Bergsskolan Filipstad, 1983 University of Technology, 2000 eduction MSc Engineering, Luleå University of education Engineer, Mining and Civil Engine- year employed 2015 year employed 2016 Technology, 1994 ering, Bergsskolan Filipstad, 1994 born 1959 born 1970 year employed 2016 year employed 2016 other engagements Board Member at SveMin background Boliden Mineral AB 2002–2015, born 1967 born 1967 and GAF. SGU insynsråd. Riksskatteverket 2000–2002, Skatteverket background Boliden Tara Mines 2013-2016, background Bergteamet AB 2013–2015, background Boliden 2000–2015, Skellefteå 1991–2000 SKB 2010-2013, RTC Nordic Rock Tech Centre Kiruna Iron 2012-2013, Boliden Tara Mines kommun 1998–2000, Boliden 1979–1998 remuneration See Note 6, pages 106-108. AB 2009-2010, Rio Tinto / Lundin Mining Group 2008-2012, Rapallo Pty Ltd 2006-2007, remuneration See Note 6, pages 106-108. (Zinkgruvan Mining AB) 2003-2009, Boliden Boliden Mineral AB 2001-2006, Bergteamet AB koncernen 2003-1994 2000-2001, Boliden Mineral AB 1989-2000 1 Neither the CEO nor any natural peroon or remuneration See Note 6, pages 106-108. remuneration See Note 6, pages 106-108. legal entity related to him has significant shareholdings or partnershiops in companies with which LKAB has substantial business relationships.

ÅSA SUNDQVIST LEIF BOSTRÖM MARKUS PETÄJÄNIEMI GRETE SOLVANG STOLTZ position Senior Vice President, Operational position Senior Vice President, Division Special positiion Senior Vice President, Sales and position Senior Vice President, HR and Support and Business Development Products Logistics Sustainabilty ’education Licentiate in Engineering (1993) and education MSc Business Economics, education MSc Engineering Urban Planning and education MSc Business Economics, PhD (1996) Water Engineering, Luleå University Luleå University of Technology, 1990. Environmental Engineering, Luleå University of Luleå University of Technology, 1993 of Technology; MSc Urban Planning and year employed 1992 Technology, 1985. year employed 2009 Environmental engineering, Luleå University of born 1959 year employed 2005 born 1970 Technology, 1987 other engagements Board member at Cramo born 1959 other engagements Chairman of the Board at year employed 2000 OY, Board member at Inlands Innovation background NAB 1985–1988, Kiruna Värmeverk Carreer Centre, Luleå University of Technology, born 1962 background NCC 1980–1992 1988–1995, De-Icing Systems 1995–1996, Board Member at SveMin background Expandum, Gällivare 2001-2003, remuneration See Note 6, pages 106-108. Sema/Schlumberger/Atos Origin/WMData, background LKAB 1993–1995, SCA 1995–2008, NAB Industrikonsult AB/SWECO Industriteknik 1996–2005 Northland Resources 2008–2009 AB 1996-2000, Luleå University of Technology, remuneration See Note 6, pages 106-108. remuneration See Note 6, pages 106-108. 1990-1996, NAB Arkitekter & Ingenjörer 1989- 1991, Scandiaconsult VA-Teknik 1987-1989 remuneration See Note 6, pages 106-108. GROUP MANAGEMENT 65

As of 1 January 2016, LKAB has a new Group Management.

CHANGES TO GROUP MANAGEMENT

Lars-Eric Aaro Anders Kitok Frank Hojem Peter Schmid President and CEO, Senior Vice President, Energy & Climate, Senior Vice President, Communications, Senior Vice President, Marketing & Sales, until 31 August 2015 until 31 August 2015 until 31 December 2015. until 31 December 2015. Anders Furbeck Katarina Holmgren Per-Erik Lindvall Monica Bellgran Senior Vice President, Sustainable develop­ Senior Vice President, Finance, Senior Vice President, Technology & Business Senior Vice President, Research & Develop­ ment, until 31 December 2015. until 31 December 2015. Development, until 31 December 2015. ment, until 31 December 2015. 66 AUDITOR’S STATEMENT

AUDITOR’S STATEMENT ON THE CORPORATE GOVERNANCE REPORT

To the Annual General Meeting of the shareholders of Luossavaara-Kiirunavaara AB (publ), corporate identity number 556001-5835

It is the Board of Directors who is responsible for the corporate governance statement for the year 2015 and that it has been prepared in accordance with the Annual Accounts Act. We have read the corporate governance statement and based on that reading and our knowledge of the company and the group we believe that we have a sufficient basis for our opinions. This means that our statutory examination of the corporate governance statement is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. In our opinion, the corporate governance statement has been prepared and its statutory content is consistent with the annual accounts and the consolidated accounts.

Stockholm, 21 March 2016

Deloitte AB

Peter Ekberg Authorized Public Accountant AUDITORS’ ASSURANCE REPORT 67

AUDITOR’S LIMITED ASSURANCE REPORT ON SUSTAINABILITY REPORT

To Luossavaara-Kiirunavaara AB (publ)

INTRODUCTION comprehensive system of quality control including documented We have been engaged by the Board of Directors of Luossavaara- policies and procedures regarding compliance with ethical Kiirunavaara AB (”LKAB”) to undertake a limited assurance requirements, professional standards and applicable legal and engagement of LKAB’s Sustainability Report for the year 2015. regulatory requirements.The procedures performed consequently The Company has defined the scope of the Sustainability Report do not enable us to obtain assurance that we would become aware on the page of table of contents. of all significant matters that might be identified in a reasonable assurance engagement. Accordingly, we do not express a reasona­ RESPONSIBILITIES OF THE BOARD OF DIRECTORS AND THE ble assurance conclusion. EXECUTIVE MANAGEMENT FOR THE SUSTAINABILITY REPORT Our procedures are based on the criteria defined by the Board The Board of Directors and the Executive Management are respon­ of Directors and the Executive Management as described above. sible for the preparation of the Sustainability Report in accord­ We consider these criteria suitable for the preparation of the ance with the applicable criteria, as explained on page 70-71 in Sustainability Report. the Sustainability Report, and are the parts of the Sustainability We believe that the evidence we have obtained is sufficient and Reporting Guidelines (published by The Global Reporting Initiative appropriate to provide a basis for our conclusion below. (GRI)) which are applicable to the Sustainability Report, as well as the accounting and calculation principles that the Company has CONCLUSION developed. This responsibility also includes the internal control Based on the limited assurance procedures we have performed, relevant to the preparation of a Sustainability Report that is free nothing has come to our attention that causes us to believe that from material misstatements, whether due to fraud or error. the Sustainability Report, is not prepared, in all material respects, in accordance with the criteria defined by the Board of Directors RESPONSIBILITIES OF THE AUDITOR and Executive Management. Our responsibility is to express a conclusion on the Sustainability Report based on the limited assurance procedures we have per­ formed. We conducted our limited assurance engagement in accordance Stockholm, 21 March 2016 with RevR 6 Assurance of Sustainability Reports issued by FAR. A limited assurance engagement consists of making inquiries, pri­ Deloitte AB marily of persons responsible for the preparation of the Sustaina­ bility Report, and applying analytical and other limited assurance procedures. The procedures performed in a limited assurance engagement vary in nature from, and are less in extent than for, a reasonable assurance engagement conducted in accordance with IAASB’s Standards on Auditing and other generally accepted auditing standards in Sweden. The firm applies ISQC 1 (Interna­ Peter Ekberg Andreas Drugge tional Standard on Quality Control) and accordingly maintains a Authorized Public Accountant Expert Member of FAR 68 MATERIALITY ANALYSIS

MATERIALITY ANALYSIS – SUSTAINABLE DEVELOPMENT

Open dialogue with stakeholders and broad business intelligence provide a basis for assessing which issues are material for LKAB to address in order to conduct sustainable mining operations. The materiality analysis maps the aspects which have an impact on LKAB’s business which we can influence. The material aspects form the basis of our sustainability reporting.

Sustainable development development, but the results indicate which aspects LKAB has Today a company must conduct its business in a responsible way the best prospects and greatest responsibility to monitor, govern, by taking economic, social and environmental responsibility. These inform itself about and communicate on in terms of risks and op­ are the three pillars of sustainability. LKAB has an owner that en­ portunities. Using the UN Sustainable Development Goals, Agenda courages us to be a role model within sustainability, and therefore 2030, we have mapped our operations in order to detect how we we will always strive to minimize negative impact and maximize contribute to the global efforts. positive impact, and to a certain extent also compensate for the The material aspects presented in the materiality analysis negative impact that cannot be avoided. It is critical for LKAB that below, are described in more detail under LKAB’s focus areas for this work is genuine and transparent. sustainability on the next page. Read more about the materiality process and governance of the material aspects in the GRI Materiality analysis appendix. LKAB conducts a materiality analysis every second year. In 2015 Following this year’s materiality analysis, aspects such as it included business intelligence, in-depth interviews, workshops ‘access to land’ and ‘human rights’ have gained more weight in the and surveys in which different stakeholders conveyed what analysis, and consequently in the report. In contrast, other aspects sustainability aspects mattered to them from their perspective. have gained less weight. The work with these aspects continues There are many other aspects that are relevant to sustainable even though they are not communicated as actively.

GOVERNANCE AND COMMUNICATION COMMUNICATE & MONITOR COMMUNICATE & MANAGE Our material aspects are grouped into four categories, depending on the strategic approach; Closure plan Responsible purchasing Impact on land COMMUNICATE & MANAGE Emergency preparedness Interests of Sami The product’s Aspects that LKAB, as well as stakeholders, consid­ villages environmental benefits er important for the Group’s impact on sustainable MORE SIGNIFICANT Management of viewpoints on environment and society Human rights Resource -efficient use development. In cooperation with stakeholders, of raw materials LKAB works actively on improve­­ments and devel­ Work environment, health and safety Urban transformation opment, and communicates how the company governs, manages and follows up issues. Biodiversity Environmental MANAGE & INFORM emissions Issues that LKAB considers to be very important for sustainable development, with ongoing work in progress and where results are regularly MONITOR & CONSIDER MANAGE & INFORM communicated to stakeholders. Importance to stakeholders COMMUNICATE & MONITOR Environmental investments Anti-corruption Energy use

Issues that stakeholders regard as important and Union relations Compliance with the Impact on employment where LKAB needs to monitor progress with regard terms of environmental and infrastructure to deviations or negative impact. Issues that are to permits and legislation Employees and be communicated actively and on a regular basis. Economic/financial employment types performance MONITOR & CONSIDER Diversity and non- discrimination Stakeholders and LKAB regard these issues as important, though not critical at present, for sustainable development. They may be emerging issues, with systematic practices and internal SIGNIFICANT monitoring in place, and LKAB communicates on SIGNIFICANT Importance to LKAB MORE SIGNIFICANT these as needed. MATERIALITY ANALYSIS 69

LKAB’S FOCUS AREAS FOR SUSTAINABILITY

LKAB has grouped material aspects within focus areas for sustainability, thereby linking them to different aspects of LKAB’s business and clarifying how the aspects are interdependent and affect different parts of our operations and value chain. Often, different aspects intersect and are difficult to differentiate between.

RESPONSIBLE OPERATIONS

Economic performance Work environment, health and safety Biodiversity Secure the short- and long-term profitability of Ongoing and preventive work to ensure a safe LKAB works proactively to prevent any loss of the business so as to be able to pay salaries and work environment and the health of co-workers. biodiversity and ecosystem services in the course suppliers, issue dividends, pay taxes and make This aspect has a long-term impact on ability to of operations. The mitigation hierarchy’s four investments. This includes future planning, to recruit and competence maintenance. steps govern the work: avoid, minimize, remediate secure access to iron ore through exploration and compensate harm with consideration for the and reporting of mineral reserves. Interests of Sami villages landscape and habitat type. Respect for other industries and ample scope for Closure plan dialogue forms the basis of LKAB’s principles for Analysis of human rights impacts When a new mine is planned, a plan for remedia­ collaboration and understanding. The principles Identification, management and follow-up of the tion of the land must be established. The closure include mutual respect and willingness to nego­ operations’ direct and indirect impact on human plan also includes plans for managing the conse­ tiate, open dialogue and access to information at rights, in order to take action to address such quences of closure for the community. an early stage. impact. Emergency preparedness Management of viewpoints – environment Anti-corruption Emergency preparedness is a matter of preparing and society Work to prevent corruption in business, via preven­ for and managing the unexpected. This includes Open, systematic and active management of tive measures, transparent systems and follow-up. preparation and exercises for major accidents comments and viewpoints received relating to the such as mine collapse, fire or dam failure. operations’ impact on the environment and the Compliance with the terms of environmental community. permits and legislation Responsible purchasing Mining operations are regulated and permits are Requirements and follow-up of sustainability Emissions to the environment required. Impact on communities and the envi­ issues for suppliers. By ensuring responsible pur­ Minimization of negative impact on our environ­ ronment must be kept within the limits stipulated chasing, human and labour rights are respected ment and surroundings due to emissions to air in the permits. Changes in legislation must be and negative impact on the environment and and discharges to water. This aspect includes e.g. monitored in order to be prepared to adapt to new society is reduced both in our global value chain greenhouse gases, NOx, SOx, surrounding rock, requirements. and for contractors in our local projects. tailings and environmental incidents such as oil spills and chemical management.

RESOURCE-EFFICIENT PRODUCTION ATTRACTIVE LKAB ATTRACTIVE COMMUNITIES

Resource-efficient use of raw materials Labour relations Urban transformation Mining of the natural resources of iron ore and Active and constructive dialogue with labour Gradual and responsible relocation of minerals. Additives are used in production processes union representatives to ensure co-determi­ communities due to deformation or other and in rock reinforcement. Resource-efficient use nation and that co-workers’ interests are factors enables continued mining and is a requires future planning in order to ensure adequate taken into consideration. prerequisite for LKAB’s operations. Trans- mineral reserves through exploration. parency, planning, dialogue and collaboration Diversity and non-discrimination with the communities, authorities, business Environmental benefits of products Promotion of diversity and equality of community and local residents are imperative. The products bring environmental benefits when opportunity, and zero tolerance of discrimina­ used in customers’ processes because of the low tion on the basis of gender, age, religion, Impact on employment and infrastructure level of impurities in the raw material and the sexual orientation or for other reasons. Social Jobs are created by the company’s operations, consequently low carbon dioxide emissions. aspects and workplace culture contribute to both directly and indirectly via suppliers. Other High iron content minimizes relative mining waste a healthy work environment and an attractive economic benefit accrues to the local for landfill. employer. community and other businesses. Energy use Employees and forms of employment Efficient use of energy in production and other Assuming responsibility as an employer for operations reduces costs from a financial and envi­ working conditions that ensure good, safe ronmental perspective, specifically considering the employment. This aspect has a long-term need for energy expansion and use of fossil fuels. impact on ability to recruit, competence maintenance, the work environment, and on Environmental investments health and safety. Investment in emissions-treatment facilities and research to reduce environmental impact. Additional environmental benefits for LKAB and customers are promoted through strategic partnerships and technical development. 70 GRI INDEX

REPORTING PRINCIPLES AND GRI INDEX identify which aspects stakeholders consider important, LKAB and an external party have carried out a stakeholder analysis including Since 2008 LKAB has prepared an annual sustainability report in telephone interviews and workshops. Together with an internal accordance with the GRI (Global Reporting Initiative) guidelines. As materiality analysis, has resulted in the aspects below. The aspects of the financial year 2014, LKAB applies version G4 in accordance have also been mapped against the UN Sustainable Development with the Core reporting option. A report in accordance with GRI Goals. Since 2012 the sustainability report has been integrated shall include the three sustainability areas economy, environment with the annual financial report, which reflects the integration of and social responsibility, and shall include both governance and sustainability issues into ongoing activities. The report has also results of the company’s sustainability work. The report shall taken the Mining and Metals Sector Supplement as a guideline. provide a balanced and adequate presentation of the sustainability In accordance with the Owner Directive, the sustainability report has work, including positive aspects and challenges. Critical in G4 is been reviewed by external auditors. Since the report has been the focus on materiality; that the report includes sustainability reviewed in its entirety, external review has not been reported per matters that have the greatest impact/risk/opportunity for the disclosure item in the GRI index below. The auditor’s report can organization and are the most important to its stakeholders. To be found on page 67.

INDEX DESCRIPTION PAGE INDEX DESCRIPTION PAGE GENERAL STANDARD DISCLOSURES Report Profile Strategy & Analysis G4-28 Reporting period 70 G4-1 Comments from the CEO 6-8 G4-29 Most recent report Appendix Organizational Profile G4-30 Reporting cycle 70 G4-3 Name of organization 74 G4-31 Contact point for the report 71 G4-4 Primary brands, products and services 77-79 G4-32 GRI content index 70-71 G4-5 Location of headquarters 74 G4-33 Policy and practice with regard to external assurance 67, 70, Appendix G4-6 Countries where the organization operates 128 Governance G4-7 Ownership and legal form 74 G4-34 Governance 54-61 G4-8 Markets 20, 22 Ethics and Integrity G4-9 Scale of organization 2-3, 11-12 G4-56 Code of conduct 49, 52, 56 G4-10 Description of total workforce 81, Appendix SPECIFIC STANDARD DISCLOSURES G4-11 Percentage of workforce covered by collective bargaining Economic agreements Appendix DMA Economic Performance 4, 74, G4-12 Supply chain 14, 29-30 Appendix G4-13 Significant changes during the reporting period 1, 74 G4-EC1 + MM Direct economic value generated and distributed 2-3, Appendix G4-14 Application of precautionary principle Appendix G4-EC3 Coverage of the organization's defined benefit plan obli­ 102, 118- G4-15 External charters, principles and initiatives Appendix gations 120 G4-16 Memberships of associations Appendix DMA Indirect Economic Impact Appendix Identified Material Aspects and Boundaries G4-EC8 Significant indirect economic impacts 14, 42 G4-17 Entities included in the organization’s consolidated Environmental financial statements 71, 128 DMA Materials Appendix G4-18 Process for defining report content 68-71, Appendix G4-EN1 Materials used by weight or volume 39 G4-19 Material aspects 14-15, DMA Energy Appendix 68-69 G4-EN3 Energy consumption within the organization 39 G4-20 Boundaries for material aspects within the organization Appendix G4-EN5 Energy intensity 39 G4-21 Boundaries for material aspects outside the organization Appendix G4-EN6 Reduction of energy consumption Appendix G4-22 Corrections of information in previous reports Appendix DMA + MM Biodiversity Appendix G4-23 Significant changes compared with previous years’ reports Appendix G4-EN12 Significant impacts of activities, products, and services on 36-37, 39, Stakeholder Engagement + MM biodiversity 41, 43, Appendix G4-24 Stakeholder groups 16, Appendix MM2 Sites requiring biodiversity management plans 43, 79-81 G4-25 Identification and selection of stakeholders Appendix G4-26 Approach to stakeholder engagement 16 G4-27 Key topics raised through stakeholder engagement 16

MM = Metals and Mining Sector Specific Disclosures = Incomplete information. See pages 6 – 19 for information. GRI INDEX 71

SCOPE, BOUNDARIES AND APPENDIX The appendix includes overall explanations of changes, a detailed As in the previous year, the report largely concentrates on the Nordic description of the process for developing the materiality analysis, activities, focusing on the iron ore operations in Sweden and Norway and more detailed descriptions of sustainability management for (Mining Division). This represents about 90 percent of the Group’s material aspects. total sales. In addition, some material from our subsidiaries abroad The appendix also describes omissions made in the reporting, is included, in particular LKAB Minerals, where this is considered in accordance with G4 requirements. The GRI index below states relevant. The report continuously indicates in connection with the whether the information has been included in the Annual and reporting of data which units are involved. Changes in the boundaries, Sustainability Report and/or in the appendix. scope or measurement methods compared with the previous year are explained in the report, either together with the data or in the CONTACT separate GRI appendix. The contact person for LKAB’s sustainability reporting is Grete Similarly to last year, there is a separate GRI appendix available Solvang Stoltz, Senior Vice President, HR and Sustainability, at LKAB’s website in conjunction with the Annual and Sustainability [email protected]. Report.

INDEX DESCRIPTION PAGE INDEX DESCRIPTION PAGE DMA Emissions Appendix Human Rights G4-EN15 Direct carbon dioxide emissions 38, DMA Non-discrimination Appendix Appendix G4-HR3 Total number of incidents of discrimination 52 G4-EN16 Indirect carbon dioxide emissions 38, DMA + MM Indigenous Rights Appendix Appendix G4-HR8 Incidents of violations of rights of indigenous peoples 79, 80, G4-EN21 NOx, SOx and other significant air emissions 38, Appendix + MM Appendix MM5 Total number of operations taking place in or adjacent to 41, 43, DMA+MM Effluents and Waste Appendix indigenous peoples’ territories Appendix G4-EN24 Total number and volume of significant spills 39, DMA Human Rights Assessment Appendix + MM Appendix G4-HR9 Operations that have been subject to human rights reviews 30, 80, MM3 Total amounts of overburden, rock, tailings, and sludges and or impact assessments Appendix their associated risks 39 DMA Supplier Human Rights Assessment Appendix DMA Products and Services Appendix G4-HR11 Human rights impacts in the supply chain 30, G4-EN27 Mitigated environmental impacts of products and services 25 Appendix DMA Compliance, Environmental DMA Human Rights Grievance Mechanisms Appendix G4-EN29 Significant fines and other sanctions due to non-compliance G4-HR12 Number of grievances about human rights filed and with environmental laws and regulations Appendix addressed Appendix DMA Supplier Environmental Assessment Appendix Society G4-EN33 Environmental impacts in the supply chain 30, DMA + MM Local Communities Appendix Appendix G4-SO2 Operations with significant actual or potential negative DMA Environmental Grievance Mechanisms Appendix impacts on local communities 45-47 G4-EN34 Number of grievances about environmental impacts filed MM6 Land use disputes with local communities and indigenous and addressed Appendix peoples 79 Social DMA Anti-corruption Appendix Labour Practices and Decent Work G4-SO5 Incidents of corruption 52 DMA + MM Employment Appendix DMA Grievance Mechanisms for Impacts on Society Appendix G4-LA1 Total number and rates of new employee hires and employ­ 81, Appen­ G4-SO11 Number of grievances about impacts on society filed and ee turnover dix addressed Appendix DMA + MM Occupational Health and Safety Appendix Resettlement G4-LA6 + MM Injuries, occupational diseases, lost days, absenteeism and 50-51, 81, MM9 Households resettled, and effect on their livelihoods 45-47 work-related fatalities Appendix DMA Closure plan Appendix DMA Diversity and Equal Opportunity Appendix MM10 Operations with closure plans 37, 69 G4-LA12 Diversity among the Board, Group management and 51, 57, 62, workforce 64, 81, DMA Emergency preparedness 36-37, 84, Appendix Appendix DMA Supplier Assessment for Labour Practices Appendix G4-LA15 Assessment of labour practices in the supply chain 30, Appen­ dix DMA Labour Practices Grievance Mechanisms Appendix G4-LA16 Number of grievances about labour practices filed and addressed Appendix 72 OUR FINANCIAL RESULTS

CONTENTS

ADMINISTRATION REPORT 74 NOTES 97 Note 1 Significant accounting principles 97 FINANCIAL STATEMENTS – THE GROUP 88 Note 2 Distribution of revenue 104 Consolidated Income Statement 88 Note 3 Segment reporting 104 Consolidated Statement of Comprehensive Income 88 Note 4 Other operating income 106 Consolidated Statement of Financial Position 89 Note 5 Other operating expenses 106 Consolidated Pledged assets and contingent liabilities 90 Note 6 Employees, employee benefit expenses and Consolidated Statement of Changes in Equity 90 remuneration of senior executives 106 Consolidated Statement of Cash Flows 91 Note 7 Auditors’ fees and reimbursements 108 Note 8 Operating expenses by type 108 FINANCIAL STATEMENTS – PARENT COMPANY 92 Note 9 Impairment of property, plant and equipment 108 Income Statement 92 Note 10 Net financial income/expense 109 Comprehensive Income 92 Note 11 Appropriations 109 Balance Sheet 93 Note 12 Taxes 110 Pledged assets and contingent liabilities 94 Note 13 Earnings per share 112 Statement of Changes in Equity 95 Note 14 Intangible assets 112 Cash Flow Statement 96 Note 15 Property, plant and equipment – operations 113 Note 16 Property, plant and equipment – urban transformation 115 Note 17 Participations in associated companies 115 Note 18 Holdings in joint operations 115 Note 19 Receivables from Group companies 115 Note 20 Financial investments 116 Note 21 Other non-current securities holdings 116 Note 22 Non-current receivables and other receivables 116 Note 23 Inventories 116 Note 24 Accounts receivable 116 Note 25 Prepaid expenses and accrued income 116 Note 26 Equity 117 Note 27 Interest-bearing liabilities 117 Note 28 Liabilities to credit institutions 117 Note 29 Pensions 118 Note 30 Provisions 120 Note 31 Urban transformation 121 Note 32 Accrued expenses and deferred income 122 Note 33 Valuation of financial assets and liabilities at fair value and categorization 122 Note 34 Financial risks and risk management 124 Note 35 Investment commitments 126 Note 36 Pledged assets and contingent liabilities 127 Note 37 Related parties 127 Note 38 Group companies 127 Note 39 Untaxed reserves 129 Note 40 Specifications for statement of cash flows 129 73

OUR FINANCIAL RESULTS 5 74 ADMINISTRATION REPORT

ANNUAL REPORT 2015

ADMINISTRATION REPORT 2015 NEW GROUP STRUCTURE The Board of Directors and the President of Luossavaara- As of January 2016 LKAB has a new Group structure that will be Kiirunavaara AB (publ), hereinafter LKAB, corporate identification implemented throughout the Group over the year. number 556001-5835, hereby submit their annual report and con­ In the new Group structure the operations are split into three solidated financial statements for the 2015 financial year. divisions with the aim of creating increased efficiency, transparen­ cy and profitability. The Production North division comprises the mine and processing plant in Kiruna, while the Production South OPERATIONS AND GROUP STRUCTURE division consists of mines and processing plants in Malmberget LKAB is a limited liability company that is wholly owned by the and Svappavaara. Meanwhile LKAB’s main operations other than Swedish state and is domiciled in Luleå, Sweden. The company the iron ore business, LKAB Minerals and LKAB Wassara, form was founded in 1890 and has thus been operating for 125 years. the Special Products division. To support the divisions, Group The LKAB Group consists of three operating segments: the Mining functions are being created for Finance, HR and Sustainability, Division, the Minerals Division and the Special Businesses Division. Operational Support and Business Development, and for Sales and The Mining Division handles LKAB’s core business: mining and Logistics. Changed segment reporting will be adapted to the new processing iron ore for the steel industry. The Minerals Division Group structure in 2016. processes and sells industrial minerals and iron ore products for applications other than steelworking. The Special Businesses Division is responsible for internal and external sales of tech­ THE YEAR IN BRIEF nology and services developed within the Group, such as drilling During the 2015 financial year falling iron ore prices had a signif­ systems, rock and engineering services, explosives and property icant impact on LKAB’s earnings and position. The significantly management. lower iron ore price is expected to be long-term and in view of this, Iron ore is mined in the two underground mines in Kiruna and in the third quarter LKAB’s Board decided to apply impairment Malmberget, and in the Gruvberget open-pit mine in Svappavaara. losses of MSEK 7,136 before tax in respect of property, plant and Small-scale mining took place in the Leveäniemi open-pit mine in equipment. The impairment losses covered LKAB’s iron ore opera­ 2015. The iron ore is processed after being dressed above ground tions, including logistics and ports. in four benefication plants and six pelletizing plants. Current pro­ If LKAB is to remain competitive, it is crucial to carry on working duction capacity is about 28 million tonnes (Mt) of processed iron continuously to improve efficiency in the business and to cut costs. ore products per year, of which around 26 Mt is pellets. As part of this work, savings targets were set for the financial year The new main haulage levels of the underground mines in Kiruna and the total saving for 2015 amounted to around MSEK 800. Per­ and Malmberget are gradually being commissioned. Full capacity sonnel reductions equivalent to 400 positions continued according is expected in 2017–2018, when all the phases of the Kiruna mine to plan and were completed during the first quarter of 2016. will be ready for commissioning. Until then, mining will continue In previous years LKAB announced a volume target of 37 million in parallel on both old and new main haulage levels. In 2015 pro­ tonnes. This has been deferred, as under current market condi­ duction from the underground mines was negatively affected by tions, there is neither provision nor profitability for the production disruption in connection with the commissioning of ore chutes and of fines. The Svappavaara mines will now primarily be supplying mine hoists for the new main haulage level in Kiruna. raw materials to existing processing plants through production in Iron ore pellets are LKAB’s main product, and are sold to major Leveäniemi and Gruvberget. national and international customers. LKAB’s market position as Production volume for the year was 24.5 Mt, which was 1.2 Mt one of the world’s technologically leading suppliers of iron ore less than in the previous year. As well as a shortage of crushed pellets remained unchanged during the year. ore in the mines, volumes were negatively affected by disruptions LKAB’s iron ore products are transported by rail using LKAB’s in the processing plants. The largest individual event was the own engines and cars to the ports of Luleå and Narvik for loading replacement of a mantle ring at one of the pelletizing plants in and onward transport by ship to customers around the world. Kiruna. Train capacity for iron ore shipments is 35–40 Mt per year, de­ LKAB’s competitiveness is very dependent on successful urban pending on the product mix, production site and shipping port. The transformation in agreement with Kiruna and Gällivare munici­ loading capacity in the Port of Narvik is being expanded and will palities. This work continued during the year and the building of increase from just over 20 Mt to nearly 30 Mt of product annually Kiruna’s new city hall began in November, marking the start of the as from the third quarter of 2016. The loading capacity in the Port construction of Kiruna’s new city centre. A new deformation fore­ of Luleå is also being expanded, from the current 6 Mt to around 8 cast was presented in September which showed that new areas in Mt of finished product per year. The main means of achieving this eastern Malmberget are also affected by the mining. is the use of larger vessels. A review of LKAB’s sustainability strategy is ongoing and re­ vised sustainability objectives will be developed during 2016. ADMINISTRATION REPORT 75

Jan Moström was appointed as the new President of LKAB in May, MARKET OUTLOOK FOR 2016 and at the end of the year a new Group structure was decided In the current market situation the oversupply of iron ore products which will be implemented throughout the Group in 2016. has put severe pressure on iron ore prices and thus also on the price of LKAB’s products. The assessment is that oversupply and pressure on prices in the iron ore market will remain for several MARKET DEVELOPMENT years. The big iron ore producers are consolidating their domi­ China’s dominant role in the iron ore and steel market determines nance by cutting costs and introducing fines from investments in the development and pricing of iron ore globally. When China’s new mines that have low production costs. growth slows down and Chinese demand for steel decreases, this More detailed reporting on LKAB’s market performance can be has major consequences in all markets. found in the Annual Report and Sustainability Report 2015, pub­ lished at lkab.com, particularly in the President’s Report on pages THE STEEL MARKET 6–8 and in the section on customers and markets on pages 17–22. Global demand for steel was relatively good over the year, despite a slowdown in growth in China. Reduced domestic demand for THE INDUSTRIAL MINERALS MARKET steel has resulted in China increasing its steel exports to other In 2015 LKAB Minerals’ deliveries of magnetite decreased com­ markets. This was reflected in the price trend for steel, which was pared with 2014, This was mainly due to falling crude oil prices, negative during the year. which meant that many large investments in the offshore industry were deferred. The market situation for other applications of mag­ THE IRON ORE MARKET netite is generally good, however. The iron ore producers’ response to China’s strong increase in The market for refractory minerals for foundry sand and refrac­ steel consumption was to open new mines and increase their tory bricks also declined as a result of the tough market situation volumes of crushed ore substantially. This resulted in a structural in the steel industry, while sales of minerals for various applica­ oversupply of iron ore. The overcapacity for iron ore and steel tions in plastics and coatings increased somewhat. will remain until the markets have managed to adapt production Demand in the market for processed and customized magnetite volumes to the current market situation. High-cost producers products declined during the year due to a decreased investment are expected to be forced out and squeezed prices remain until appetite in the oil and gas industry as well as a slowdown in the market has adapted to the new conditions. Reduced demand Chinese growth and consumption. This had knock-on effects in a contributed to pressure on iron ore prices, which fell by about number of industries that consume minerals globally. 40 percent in 2015 (Platts IODEX 62% Fe CFR North China). The import markets for iron ore consist mainly of Asia, Europe and the Middle East & North Africa (MENA). Other markets are very small or essentially have their own domestic supply of crushed ore. The majority of LKAB’s sales are to Europe and MENA.

IRON ORE PRICES The price of iron ore pellets is based on the spot price for iron ore fines plus a pellet premium. The pellet premium is negotiated annually, and although the spot price for iron ore fines fell during the year the fixed pellet premium was relatively constant during the year.

IRON ORE PRICE PERFORMANCE January 2010 – 3 February 2016 Source: PLATTS IODEX 62% Fe CFR North China USD/tonne 200

150

100

50

0 2010 jan 2011j an 2012 jan 2013 jan 2014 jan 2015 jan 2016 jan 76 ADMINISTRATION REPORT

GROUP LIQUIDITY AND OPERATING CASH FLOW The operating loss for the year was MSEK -7,156 (570), with an OPERATING CASH FLOW

operating margin of -44 percent, compared with 3 percent in the MSEK previous financial year. LKAB’s earnings thereby reflect a signifi­ 9,000 cant change in market conditions. Net sales decreased by MSEK 8,000 4,415 or 21 percent, with price having a negative effect of 28 per­ 7,000 6,000 cent, volume/product mix having a negative effect of 9 percent and 5,000 currency having a positive effect of 17 percent. Price and currency 4,000 hedging activities had a negative effect on net sales of 1 percent. 3,000 Obligations for urban transformation at year-end amounted to 2,000 MSEK 12,234 (11,683). During the year the costs of provisions for 1,000 urban transformation amounted to MSEK 1,568 (3,432). 0 In the third quarter an impairment loss on property, plant and ­1,000 equipment had a negative effect on profit of MSEK 7,136 before ­2,000 tax. After tax, profit was negatively affected by MSEK 5,566. The ­3,000 impairment loss covered LKAB’s iron ore operations in Kiruna, 2010 2011 2012 2013 2014 2015 Malmberget and Svappavaara including logistics and ports in Luleå

and Narvik. The breakdown by cash-generating unit is shown in OPERATING CASH FLOW (MSEK) 2015 2014 CHANGE Note 9. The impairment losses do not affect LKAB’s cash flow. Cash flow from operating activities 3,694 5,911 -2,217 The underlying operating profit1 decreased by 61 percent to MSEK 1,548 (4,002), equivalent to an operating margin of 10 (19) Change in working capital 162 1,624 -1,462 percent. The cost cutting programme for 2015 was achieved and Capital expenditure (net) -6,204 -5,463 -741 had a positive effect on the operating profit of MSEK 800. Operating cash flow -2,348 2,072 -4,420 Earnings from financial items were lower when compared year- on-year, mainly due to a lower return on fixed income investments. Operating cash flow was lower than in the same period last year, mainly due to lower iron ore prices and delivery volumes and FINANCIAL OVERVIEW increased capital expenditure disbursements. The year-on-year change in working capital is largely due to a reduction in capital tied Net sales and operating profit/loss up in accounts receivable in 2014 because of falling prices.

30 000 FINANCIAL POSITION 25 000 FINANCIAL POSITION (MSEK) 2015 2014 20 000 Net financial indebtedness 3,202 -16 15 000 Equity1 32,116 37,754 10 000 Financial investments incl. SSAB shares 581 912 5 000 Cash and cash equivalents and current investments2 14,560 16,863 0 Liabilities to credit institutions 1,000 798 ­5 000 Non-current interest-bearing liabilities 1,996 1,995 ­10 000 2010 2011 2012 2013 2014 2015 Provisions for urban transformation 12,234 11,683

Net sales Net sales 2015 Operating profit Provisions for remediation 1,254 1,127

Provisions for pensions 1,860 2,156 GROUP SUMMARY (MSEK) 2015 2014 1) Dividends paid totalled MSEK 139 (3,500) Net sales 16,200 20,615 2) Acquisitions/disposals of financial assets totalled MSEK -1,357 (703) Underlying operating profit1 1,548 4,002 LKAB’s certificate programme was expanded by MSEK 200 during Urban transformation expenses -1,568 -3,432 the fourth quarter. All credit facilities are subject to 100 percent Impairment of property, plant and equipment -7,136 retention of title and are shown in Note 34. Operating loss -7,156 570

Profit/loss from financial items -115 24

Profit/loss before tax -7,271 594

Profit/loss for the year -5,686 347

Operating cash flow -2,348 2,072

Investments in property, plant and equipment 6,354 5,491

1) Underlying operating profit is defined as operating profit excluding costs for urban transformation provisions and impairment of property, plant and equipment. ADMINISTRATION REPORT 77

LKAB’S FINANCIAL TARGETS Below is a presentation of follow-up on LKAB’s financial targets.

LKAB’S FINANCIAL TARGETS 2015 2014 TARGET COMMENTS

RETURN ON EQUITY

LKAB needs to be financially strong to meet future commitments. -13.0 0.9 12.0 The return on equity for 2015 was -13.0%, which is mainly due to lower income The Group’s profitability target is a return on equity of 12%. combined with impairment of property, plant and equipment.

REDUCED PRODUCTION COSTS

Reduced production costs, SEK per tonne, 20% by 2015, 4.1 0.6 -20 The production cost in SEK per tonne for 2015 was 4% higher than in 2012. The base year 2012, % planned production increase in the open-pit mines in Svappavaara has been moved to a later date. As a result, the planned volume effect from the growth programme was Growth from the new open-pit mines increases LKAB’s competitive­ deferred and the cost target for 2015 could not therefore be achieved. ness through higher volumes, resulting in a lower cost per tonne.

NET DEBT/EQUITY RATIO

The capital structure target is a net debt/equity ratio of 0–20% 10.0 0.0 0–20 The debt/equity ratio for 2015 was 10.0%, which is within the target range. The higher (interest-bearing net indebtedness/equity). net debt/equity ratio compared with 2014 is mainly due to lower income combined with impairment of property, plant and equipment.

CAPITAL EXPENDITURE DIVISIONS Capital expenditure for the year totalled MSEK 6,354. Of this, MSEK In 2015 LKAB reported its financial results divided into three oper­ 3,443 was capital expenditure within the growth programme and ating segments: the Mining Division, the Minerals Division and the MSEK 480 was for the new main haulage level in Kiruna’s under­ Special Businesses Division. ground mine. MINING DIVISION

CAPITAL EXPENDITURE, TOTAL AND BY DIVISION (MSEK) 2015 2014 The Mining Division’s core business is to mine, process, deliver

Group 6,354 5,491 and sell high-quality iron ore products for steelmaking, with pellets representing about 84 (83) percent of the total sales volume. Mining Division 6,279 5,419 In addition to the Parent Company LKAB, the Mining Division Minerals Division 30 25 includes the sales company LKAB Schwedenerz GmbH. It also Special Businesses Division 45 47 includes LKAB Malmtrafik, which along with its wholly owned Nor­ wegian subsidiary LKAB Malmtrafikk AS runs all the ore transport Production facilities operations between LKAB’s mines and the ports in Narvik and At the underground mine in Kiruna, the third of five phases in the Luleå. The company takes care of all terminal management (load­ project’s scope is now in operation. The remaining two phases will ing/unloading) at the mine sites and in the ports. LKAB Malmtrafik be operational gradually over the coming years. The rock hoist in owns all the rolling stock (engines and cars) and has its own the Kiruna mine is being renovated in order to ensure that the ore maintenance enterprise divided into engines, cars, track/signals can be raised from the mine to the processing plants. and fixed structures, with associated workshops. The port operations in Narvik are run in the wholly owned Logistics subsidiary LKAB Norge AS. In addition to cost savings, it is essential for LKAB to streamline and increase delivery capacity. Investments in the expansion of the MINING DIVISION IN SUMMARY 2015 2014 rail terminals in Malmberget, Svappavaara and Narvik are part of Net sales, MSEK 14,782 19,013 this. Investments are being made in a new shiploader and quay Underlying operating profit, MSEK 1,102 3,655 in Narvik, including new conveyor logistics and a screening Urban transformation expenses, MSEK -1,568 -3,432 station. These investments are mainly being made to reduce the risk of drop-offs in deliveries due to unplanned stoppages and Impairment of property, plant and equipment, MSEK -7,136 breakdowns, which provides increased flexibility and capacity for Operating profit/loss, MSEK -7,602 223 transport both on the railway and in port. Average number of employees 3,774 3,849

Investments, MSEK 6,279 5,419 Environmental investments In order to meet stricter environmental stipulations for at­ mospheric emissions, investments are being made in flue gas scrubbing at the pelletizing plant in Svappavaara. The aim is to treat emissions of gases and particulates further, thereby helping to reduce pollution by acidifying substances. The year’s capital expenditure on environmental protection and flue gas scrubbing facilities amounts to MSEK 313 (413). 78 ADMINISTRATION REPORT

Underlying operating profit was MSEK 1,102 (3,655), correspond­ Net sales amounted to 9 (9) percent of Group sales. The operating ing to an operating margin of 7 (19) percent. Net sales – which profit for the Minerals Division was MSEK 134 (212) with an oper­ amounted to 91 (92) percent of the Group’s net sales – decreased ating margin of 9 (11) percent. by 22 percent, with price having a negative effect of 31 percent, In 2015 LKAB Minerals focused on efficiency improvements and volume/product mix having a negative effect of 7 percent and cutting costs. Capital expenditure was at a low level and some currency having a positive effect of 17 percent. Price and currency operations were merged while others were discontinued, particu­ hedging activities had a negative effect on net sales of 1 percent. larly in the UK. As a result of the restructuring production capacity The cost cutting programme for 2015 was achieved and had a increased while fixed costs were reduced. positive effect on the operating profit of MSEK 800. LKAB Minerals is now well equipped for continued growth from During the period costs for urban transformation provisions 2016 onwards, with a growth target of 15 percent per year for the totalled MSEK 1,568 (3,432), which is MSEK 1,864 lower than in forthcoming years. Growth will take place primarily through the previous year. In 2014 earnings were negatively affected by the increased sales of magnetite outside the steel sector in relatively costs of the agreement with Kiruna municipality and further urban unexploited markets such as the US and Asia. transformation expenses in Malmberget. SPECIAL BUSINESSES DIVISION

PRODUCTION OF IRON ORE PRODUCTS 2015 2014 This division is a collection of LKAB’s wholly-owned subsidiaries

Production volume, Mt 24.5 25.7 that mainly supply products and services within the Group, but also sell LKAB-developed cutting edge technology to external cus­ of which pellets, Mt 22.2 23.2 tomers. This includes essential contract services such as sophisti­ of which pellets as % of total production 91 91 cated drilling technology, rock reinforcement, drifting and explosives manufacture, along with property management, insurance and DELIVERY OF IRON ORE PRODUCTS, MT 2015 2014 power transmission. Delivery volume, Mt 24.2 26.0 Summary of the various operations conducted within the division: of which pellets, Mt 20.3 21.7 • LKAB Wassara develops and manufactures water-powered of which pellets as % of total deliveries 84 83 precision drilling systems for mining, construction and explora­

Product quality, % tion drilling along with dam construction and geothermal energy. Customers are located throughout the world. Quality value deliveries 92.1 93.0 • LKAB Berg & Betong does unique rockwork contracting in rock reinforcement and drifting and is responsible for production in The production volume for the year was 24.5 Mt, which was 1.2 Mt LKAB’s open-pit mines. lower than in the previous year, and deliveries decreased by 1.8 • LKAB Mekaniska develops and manufactures everything from Mt compared with 2014. The decrease is mainly due to production large custom steel structures to small precision-worked shortfalls in mines and plants. As well as a shortage of crushed machine components, along with providing assembly work and ore in the mines, volumes were negatively affected by disruptions complete maintenance solutions. Customers are primarily in the in the processing plants. The largest individual event was the mining and construction industries. replacement of a mantle ring at one of the pelletizing plants in • LKAB Kimit supplies the Mining Division with expertise in Kiruna. explosives handling, and develops, manufactures and stocks In 2015 stocks of finished products increased from the low level explosives and related systems and equipment for LKAB’s of 0.8 Mt at the end of 2014 to 1.6 Mt. mining operations. The company is also responsible for external The accumulated quality value for product quality in deliveries purchasing of explosives. and sells a certain proportion of its was 92.1 percent compared with the 2015 target value of 96 per­ products and services externally. cent. The deviation from the 96 percent target was primarily due to • LKAB Fastigheter owns and manages residential and commer­ increased fines generation and increased reduction disintegration. cial buildings in the municipalities of Kiruna, Gällivare and Luleå. The company also has an important role to fill in helping to MINERALS DIVISION construct replacement housing as the urban transformation The division operates in the industrial minerals market through process progresses. the LKAB Minerals subsidiary group. The division’s companies • LKAB Försäkring is the Group’s internal insurance company. The support the core business by developing other business opportu­ company works globally on managing the Group’s risks as well nities for LKAB’s iron ore outside the steel industry. as on property and business interruption insurance. • LKAB Nät is a local electricity grid company with a concession to

MINERALS DIVISION IN SUMMARY 2015 2014 distribute electricity within a limited area in central Kiruna and

Net sales, MSEK 1,534 1,870 Malmberget.

Operating profit/loss, MSEK 134 212

Average number of employees 340 354

Investments, MSEK 30 25 ADMINISTRATION REPORT 79

SPECIAL BUSINESSES DIVISION IN SUMMARY 2015 2014 therefore not affected by the protection of property or the rights of Net sales, MSEK 2,005 1,732 indigenous peoples. Differences of opinion with the Sami village Operating profit/loss, MSEK 188 153 are expressed in various ways; among other things, LKAB employ­

Average number of employees 349 336 ees were reported to the police for using snowmobiles in the area,

Investments, MSEK 45 47 which the Sami village says disturbed reindeer in the area in con­ nection with preparations ahead of planned exploration drilling. External sales made up 12 (8) percent of consolidated sales. Reporting on LKAB’s mineral reserves and mineral resources Operating profit for 2015 was higher than last year, primarily can be found at lkab.com, in the Annual Report and Sustainability due to increased volumes for LKAB Berg & Betong for the Mining Report on pages 132–134. Division. In Q4 operating profit was negatively affected by lower volumes and profitability within rock reinforcement, among other things. RESEARCH AND DEVELOPMENT During the year the subsidiary LKAB Berg & Betong operated Research and development costs for the year amounted to MSEK both the Gruvberget open-pit mine and limited production at the 365 (451), corresponding to about 2.2 (2.2) percent of Group costs Leveäniemi mine. Concrete production was extensive because of (excluding impairment losses). large volumes of shaft concrete. In addition, a new mobile concrete The Group’s research focuses principally on the Mining Division. factory in Svappavaara was commissioned. During the year crush­ Research is conducted mainly to achieve safe and predictable ing capacity was also increased by commissioning new facilities mining conditions and for product development and growth. in Kiruna. SAFE AND PREDICTABLE MINING CONDITIONS LKAB prepares forecasts of ground deformation to enable effective PROSPECTING urban planning around the mines. The environmental conditions The mineral reserve is the most important resource of any mining in Malmberget have been examined by the Land and Environment company. Good knowledge of the mineral reserve is a basic Court, but its ruling has not yet become legally effective. Defor­ requirement for making major long-term investment decisions. mation in eastern Malmberget is being monitored in an extended Mineral reserves and mineral resources are the basis of a mining measurement programme. company’s operations and require successful exploration. In addi­ As mining is carried out at greater depths in the company’s un­ tion to exploration, mine costs and metal prices are also important derground mines, mining-induced seismic activity also increases. factors affecting mineral resources and mineral reserves. Explo­ This is a major challenge for the company, both as regards safety ration is carried out next to existing mines and in new areas. The underground and environmental impact above ground. Extensive mineral reserve’s size and quality are critical to product quality, development work is being conducted in Kiruna and Malmberget production volumes and costs. to improve safety underground. Each year LKAB calculates and lists mineral resources and mineral reserves. The calculation is based on an industry standard PRODUCT DEVELOPMENT AND GROWTH produced by the Fennoscandian Review Board (FRB) in accordance Projects for product development and growth are a priority area with international guidelines. within LKAB’s research and development operations. A significant LKAB explores for new deposits as well as exploring exis­ portion of these efforts are directed towards product development ting deposits. During the year a number of exploration projects of ore from the Svappavaara Field’s open-pit mines. Among other were carried out by the company, mainly in Malmberget and the things, in 2015 trials were conducted involving mixing in open-pit Svappavaara field. Among other things, work has been carried out ores into existing pellet recipes, with the aim of increasing the to quality-assure the Leveäniemi deposits for future production. In supply of crushed ore while maintaining the product specification. Gruvberget the focus was on extended deep magnetite reserves. Efforts to reduce the disintegration of pellets when handled on For a number of years LKAB has tried to bring about exploration route to the customer, known as fines generation, have had good drilling in an area called Ylipääsnjaska. This is in a nature con­ results. servation area and forms part of the winter grazing area of Girjas During the year work to improve pellet strength in the blast Sami village. The government authority Bergsstaten is responsible furnace process have been successful and adjustments have been for considering whether to allow the work to be carried out and made in the production chain with respect to silicon. LKAB has received a permit, but the Sami village has appealed to the Land and Environment Court. The court has ruled that work may be carried out while the case is being examined. The work is of short duration and does not involve any lasting damage to the land or the reindeer husbandry of the Sami village, and it is 80 ADMINISTRATION REPORT

GENERAL SUSTAINABILITY WORK ENVIRONMENTAL RESPONSIBILITY LKAB’s objective is to run sustainable mining operations and to LKAB’s operations give rise to significant environmental impacts. be one of the most innovative, resource-efficient and responsible The greatest environmental impact factors relate to the changes mining companies in the world. in the landscape that mining entails. The surrounding areas and Access to land is crucial for all mining operations – exploration, communities are also affected by emissions to air and discharg­ mining, processing and transport. To minimize the impact on its es to water, and by noise, vibrations and land impact from ore surroundings LKAB works according to guidelines for land use processing and other operations within the mining industry areas. that it has formulated itself. Pellet production also requires large amounts of water and energy. Production of processed iron ore products is also energy- LKAB has a well-developed and certified environmental man­ intensive. LKAB is one of Sweden’s largest individual consumers agement system that meets the requirements of the ISO 14001 of energy, which means that measures to improve energy environmental management standard. efficiency have a high priority in the business. LKAB clearly renounces child labour, forced labour and working PERMIT REQUIREMENTS conditions that can be seen as harmful, offensive or downright The LKAB Group conducts activities that require permits under the dangerous. Operations must be conducted in such a way that Environmental Code in both the Parent Company and the sub­ dangerous emissions and discharges to land, water and air are sidiaries. The majority of these activities are associated with the systematically prevented. Mining Division. The most comprehensive permits relate to mining Based on the Group’s business strategy, work is being conducted and processing of iron ore products and to the depositing of waste in four strategic sustainability target areas: Attractive Communities, sand and barren rock. Pit and port operations also require permits. Attractive LKAB, Resource-efficient Production and Responsible LKAB regularly checks how well the company is complying with Operations. In total, the Group has twelve prioritized sustainability permits issued and their conditions, but also carries out checks on objectives that are followed up and reported quarterly. environmental impact including as regards water quality, ground­ More detailed reporting on LKAB’s sustainability objectives can water lowering and diffuse dust. If any non-conformance is found be found at lkab.com and in the Annual Report and Sustainability the supervisory authority is notified immediately. How well LKAB Report 2015 on page 5. is complying with permits, conditions and other requirements set is reported in the annual environmental reports that are available SUSTAINABILITY PROJECTS at lkab.com. The environmental reports state what environmental A number of projects and measures are in progress to strengthen impact LKAB’s operations may involve. LKAB’s work on sustainable development. This work was prior­ In 2015 LKAB focused in particular on remedial measures for itized during the year in accordance with the analysis carried out remaining sources of noise that have contributed to sound levels in respect of the international guidelines in the owner directive above the applicable guide values in Kiruna. At the end of the year and the sustainability analysis carried out by the owner in 2015. the final mine ventilation measures were carried out and calcula­ A project involving due diligence for human rights was begun tions show that LKAB now satisfies the conditions regarding noise. during 2015. The project involves reviewing LKAB’s impact on In autumn 2015 the installation for scrubbing of particulates and human rights and will result in a policy on human rights through acid gases in the remaining flue gas duct at the pelletizing plant continued work in 2016. in Svappavaara was completed. As a result, all LKAB’s pelletizing Implementation of LKAB’s Code of conduct is continuing. The plants have effective scrubbing facilities. In Malmberget LKAB has aim is for 95 percent of employees in the Group to have completed received complaints regarding seismic events in the community. Code of conduct training by the end of 2016. Interactive training is Among other things, this has resulted in LKAB tightening up its also being produced to facilitate continued implementation. control programme so as to improve its capture of disruption. In 2015 LKAB also asked its customers to report their sustaina­ In 2015 a small number of dust extraction units, located at all of bility policies. Those customers that do not have one are requested LKAB’s locations, exceeded the permitted levels. Most of them com­ to complete a declaration. plied with the permitted levels following remedial work.

CODE OF CONDUCT FOR SUPPLIERS MAJOR PERMIT EVENTS IN 2015 To enable LKAB to take greater responsibility throughout the value chain – from sales and development, exploration and production Kiruna to end transport and delivery to customers – there is also a Code In 2014 LKAB submitted an application for a permit to increase of conduct for suppliers. This contains basic requirements and pellet production in Kiruna from 14.8 to 16.2 million tonnes per includes zero tolerance for all forms of corruption and fraud and year. In October 2015 the Land and Environment Court refused the requires transparency, integrity and honesty in all aspects of the application, on the grounds that the basic permit from 1976 and business. 2005 should be reviewed. LKAB appealed the ruling to the Land and Environment Superior Court and requested leave to appeal. EMISSIONS TRADING SYSTEM The issue of the scope and boundary of the review is an important Within the EU there is a trading system (EU ETS) for emission matter of principle both for LKAB and for the mining industry as a allowances that is intended to reduce carbon dioxide and other whole. emissions. LKAB’s carbon dioxide emissions, mainly from the pelletizing plant and heating of mines, are included in the system. ADMINISTRATION REPORT 81

Svappavaara EMPLOYEES AND CULTURE LKAB received a permit from the Land and Environment Court for During the year LKAB had a total of 4,463 employees (average), full-scale open-pit production in Leveäniemi in April 2015. During which includes part-time and fixed-term workers. the year LKAB carried out construction work and began small- At year-end LKAB had 4,278 permanent employees and 323 fixed- scale production. In a ruling on 7 December 2015 the Land and term employees. 1,456 are white-collar workers and 3,145 are blue- Environment Court granted a permit for continued mine operation collar workers; the majority of the fixed-term employees are blue- in Gruvberget. This extends production in Gruvberget by one year. collar workers. LKAB challenged the conditions set by the Land and Environment In total there were 47 part-time employees and 323 fixed- Court as regards transport alternatives from the company’s mine term employees. All LKAB employees in Sweden and Norway are in Mertainen in mid-December 2015. On 15 February 2016 the covered by collective agreements, with the exception of Group Land and Environment Court ruled that no conditions are to be management. imposed, which means that transport by road can take place. Permanent employees are mainly located in Sweden (4,074 employees), Norway (210 employees) and the UK (166 employees). Malmberget More details concerning the average number of employees can be LKAB’s basic permit for operations in Malmberget was granted in found in Note 6 on page 106. 2007. A probationary period was set for nine issues in total. In May 2015 the Land and Environment Court notified its final conditions AVERAGE NUMBER OF EMPLOYEES, TOTAL AND BY DIVISION 2015 2014 for seven of the nine issues. LKAB found cause to appeal three of Group 4,463 4,539 the conditions; those relating to emissions of nitrogen to water, Mining Division 3,774 3,849 vibrations and ground deformation. The Land and Environment Su­ Minerals Division 340 354 perior Court refused to grant leave to appeal. LKAB then decided to appeal to the Supreme Court. A ruling on leave to appeal has not Special Businesses Division 349 336 yet been made. LKAB’s success depends on the skills and dedication of its em­ Narvik ployees. To be an attractive employer, stimulating career opportu­ In November 2013 LKAB received a permit from the County Gover­ nities and safe workplaces must be offered. nor for Nordland to expand operations in Narvik. LKAB and some One of the ways in which LKAB secures a long-term skilled of its neighbours appealed certain conditions of the ruling relating workforce is through the continued partnership with the LKAB to, among other things, outdoor storage of additives, discharging upper secondary school in collaboration with the Lappland upper of wastewater, dust emissions and vibrations. In December 2015 secondary school and the LKAB Academy. Training in key skills the Norwegian Environment Agency ruled largely in LKAB’s favour. vital to the industry is provided mainly through partnership with The ruling cannot be appealed. Luleå University of Technology. Through its housing and schools initiatives, LKAB helps make its operating locations attractive REMEDIATION communities to live in. LKAB’s operations, including mining and rock piles, have an impact Personnel reductions equivalent to 400 positions are continuing on the landscape. That is why LKAB is responsible for and obliged according to plan and will be completed during the first quarter of to restore the areas through planned remediation, with restoration 2016. It was possible to implement these reductions through nat­ and the creation of new environments that become a natural part ural attrition, pension solutions and a lower number of temporary of the surroundings. Remediation work is carried out both gradu­ employees. ally and after operations have ceased and must take into account safety, environmental, economic and aesthetic aspects. In 2015 GROUP SUMMARY, EMPLOYEES AND CULTURE 2015 2014

LKAB sowed seeds and planted trees within the industrial areas of Accidents with absence per million hours worked Kiruna and Malmberget, among other things. (accident rate) 6.9 7.6 More detailed reporting on LKAB’s environmental responsibility Long-term absence due to illness, % 0.6 0.4 can be found at lkab.com and in the Annual Report and Sustaina­ Short-term absence due to illness, % 2.4 2.5 bility Report 2015, in the section on Safe and resource-efficient Number of permanent employees 173 313 production on pages 36–37. More details concerning provisions for Of whom women 62 94 remediation can be found in Note 1, 28.1.2 on page 103. Number who left LKAB 256 184

Of whom women 62 32

Women in the Group, % 20.0 19.4

Female managers in the Group, % 17.7 19.9

Foreign background, Swedish business only, % 6.5 6.5

Outcome of Parent Company’s incentive programme, SEK 0 19,910 82 ADMINISTRATION REPORT

Measurements for 2015 show that the accident rate continues PARENT COMPANY to decrease. The most common causes of accidents continue to PARENT COMPANY SUMMARY 2015 2014

be employees slipping and tripping. As in the rest of society, the Net sales, MSEK 14,770 18,970 percentage on sick leave for psychological reasons is increasing, Underlying operating profit, MSEK 1,010 3,520 which means an increased focus on efforts in respect of the psy­ Urban transformation expenses, MSEK -1,568 -3,432 chosocial work environment at LKAB. Under the principles established for LKAB’s incentive pro­ Impairment of property, plant and equipment, MSEK -6,096 gramme in the Parent Company, no incentive is paid if the compa­ Operating profit/loss, MSEK -6,654 88 ny does not make a profit. No incentive could therefore be paid for Profit/loss for the year, MSEK -3,979 722 2015. Average number of employees 3,366 3,449

More detailed reporting on LKAB’s employees can be found at Investments, MSEK 5,817 4,857 lkab.com and in the Annual Report and Sustainability Report 2015 in the section entitled Attractive LKAB on pages 48–52. Underlying operating profit was MSEK 1,010 (3,520), corresponding to an operating margin of 7 (19) percent. Net sales decreased by 22 URBAN TRANSFORMATION percent, with price having a negative effect of 31 percent, volume/ The purpose of urban transformation is to ensure continued min­ product mix having a negative effect of 7 percent and currency ing operations and to take a substantial responsibility for building having a positive effect of 17 percent. Price and currency hedging viable, attractive communities. LKAB is working with relevant activities had a negative effect on net sales of 1 percent. The MSEK stakeholders such as its owner, municipalities, businesses and 700 cost cutting programme implemented was achieved and had property owners to find the necessary urban transformation solu­ a positive effect on operating profit. The total saving amounts to tions in Kiruna and Malmberget. MSEK 800. LKAB’s provisions for urban transformation in the Swedish ore­ fields amounted to MSEK 12,234 (11,683) at year-end. The costs of provisions for urban transformation during the year totalled MSEK 1,568 (3,432) and related primarily to costs resulting from impact boundary movement as well as revaluations of earlier provisions, see also Note 31. In 2014 earnings were negatively affected by the costs of the agreement with Kiruna municipality and further urban transformation expenses in Malmberget. Disbursements for the year totalled MSEK 291 (1,354). More detailed reporting on LKAB’s urban transformation can be found at lkab.com and in the Annual Report and Sustainability Report 2015 in the section entitled Urban transformation on pages 44–47. More details concerning provisions as a result of mining operations can be found in Note 1, 28.1.1 on page 103 and in Note 31 on page 121. ADMINISTRATION REPORT 83

RISKS AND RISK MANAGEMENT

LKAB is exposed to various risks and risk management is there­ Centre, the company’s central finance department, is responsible fore an important part of its operations. LKAB has established for the majority of the Group’s financial risk. Financial risk manage­ guidelines and methods for identifying, evaluating and managing ment is regulated by a Group-wide policy established by the Board. risk in accordance with LKAB’s financial objectives and sustaina­ The Board’s Finance Committee is responsible for ensuring that bility objectives. financial risks are managed in accordance with the finance policy. The chief risk officer (CRO) maps, analyses and submits propos­ The Board’s Audit Committee is responsible for monitoring strategic als on how risks can be reduced, avoided or accepted together with and operational risk, as well as risks in the area of sustainable divisions, central units and Group management. The LKAB Treasury business.

STRATEGIC RISK LKAB is exposed to a number of different risks that are difficult to influence. The ways that LKAB manages strategic risk include monitor­ ing the outside world, analyzing scenarios, building long-term customer relationships and having a flexible customer and product portfolio.

Risk Risk management Risk of not gaining access to land for mining operations

Delays in the process of obtaining permission to use the LKAB’s impact on the communities in the municipalities of Kiruna and Gällivare means that LKAB needs to have access land needed for continued mining operations entails a risk to the land impacted by mining operations. Delays in the process could be caused by proceedings becoming drawn out, by of LKAB having to reduce its rate of production or even stop incorrect prioritization or by property owners who oppose negotiated solutions. In order for the urban transformation process parts of production. This would have a major impact on to continue in the way required, LKAB has clear guidelines and a good working relationship with the parties concerned. Urban LKAB’s earnings and cash flow. transformation is long-term work that is based on a broad sustainability perspective. Control and follow-up of LKAB’s impact on the land in the areas affected is necessary and takes place continually. There is also a preparedness to manage situations in which voluntary agreements cannot be reached.

Risks relating to environmental permits

LKAB conducts activities that require permits under the Compliance with environmental requirements is of great importance in LKAB’s operations. The present business cannot be Minerals Act and the Environmental Code in the Parent conducted without environmental permits. The most extensive environmental permits relate to large-scale mining and facilities Company as well as in the Swedish subsidiaries. Violations for processing iron ore products. This include in particular permits for tailings ponds and barren rock deposition, and for crush­ of applicable environmental legislation could result in ing, dressing and pellet production. LKAB is forward-looking and uses long-term planning to ensure that the permits meet the criminal proceedings and enforcement actions. Permits in needs of the operations as regards both extent and flexibility. LKAB’s organization has been adapted so as to manage essential force could also be affected. permit matters in good time, based on what is needed for efficient production and the expected environmental requirements.

Customer dependency

The global iron ore and steel market is made up of a small To ensure long-term profitability and competitiveness LKAB strives to ensure that regardless of economic fluctuations it can number of players. This concentration gives each individual always sell everything it produces. This is achieved through close, long-term customer relationships, technical partnerships and player increased importance and results in considerable long-term delivery scheduling. By ensuring flexibility in product portfolios, in customer portfolios and in production and logistics interdependence between supplier and customer. Signifi­ systems, LKAB is better prepared to cope with sudden fluctuations in the economy. LKAB always strives to consistently offer cant economic fluctuations that could cause problems for high quality products and reliable delivery in order to create a competitive advantage during downturns in the market. LKAB’s iron ore customers increase the risk of reduced The Minerals Division has a more diversified customer base and product portfolio that helps dampen economic fluctuations, sales volumes for LKAB. since different geographic regions, segments and minerals have different economic cycles.

Political risk

The countries in which LKAB’s customers operate have Should LKAB’s customers be affected by one or more of these factors, this could have a negative impact on future demand for varying degrees of political and commercial stability. LKAB’s products. LKAB actively monitors the outside world in order to manage political risk and cooperates with both national Business risk may arise as a result of political decisions or and international industry organizations in respect of these risks. changes in the legislation and regulations that exist within the industry.

Capital expenditure risk

Due to the relatively long project periods for capital ex­ LKAB is a highly capital-intensive company. Capital expenditure on new main haulage levels or new pelletizing plants, for penditure such as expenditure on new main haulage levels example, require planning around 5 to 10 years ahead. To manage the risks inherent in capital expenditure, risk assessment is or new processing plants, there are risks including market included as part of the capital expenditure process. Strategic capital expenditure plans are produced annually and presented to risk, purchasing risk and the risk of technical change and Group management and the Board for decisions. changed environmental requirements.

Risk of insufficient mineral reserves

In order to secure LKAB’s operations in the long term it Mining relies on ore resources being utilized. Since the mid-1960s the underground mines in Kiruna and Malmberget have is necessary to have a long-term plan for mining under been lowered in stages. Work is continuously carried out to document the extent of the deposits. In order to obtain information existing main haulage levels and/or new deposits through concerning mining under existing main haulage levels and in new mines, a forward planning horizon of around 10 years is exploration. required before commissioning can take place. Exploration work is conducted continuously in the surrounding area in order to find new deposits. LKAB has applied for and been granted several concessions for exploration in the Swedish orefields. More details can be found in the section on mineral reserves and mineral resources on pages 128-130 of the Annual Report. 84 ADMINISTRATION REPORT

OPERATIONAL RISKS Through its operations LKAB is exposed to a number of operational risks, including in respect of production facilities, environmental impact and personnel. The main operational risks are described below.

Risk Risk management Risk of accidents and illness

LKAB’s employees and contractors are periodically LKAB carries out preventive work and has well-established procedures for health and safety. Active work is conducted within exposed to risky situations which may involve a risk of all operations via the “Safety First” programme to protect people from injuries. accident and/or illness.

Risk of dam accidents

One risk scenario for LKAB and the mining industry in LKAB works proactively and systematically on dam safety according to the industry’s safety directive GruvRIDAS. For damages general is the risk of a dam accident with major financial, to third parties caused by dam accidents, absolute and unlimited liability applies in Sweden. LKAB is insured through what is social and environmental consequences. known as dam liability insurance.

Risk of environmental impact through emissions

Emissions to air, discharges to water and the generation Emission levels are measured systematically to ensure that environmental impacts are within manageable and authorized of noise and waste, through accidents or temporarily levels. exceeded permit levels or other applicable regulations, may adversely affect LKAB’s credibility and thus its ability to continue to run the business.

Risk of unplanned production stoppages

LKAB’s production largely consists of continuous processes Safe, uninterrupted production is LKAB’s backbone and is based on being large-scale with continuous optimization. The safety in which unplanned stoppages can affect production vol­ levels of all facilities are audited every year relative to LKAB’s requirements and stoppage studies are conducted to determine umes, product quality, emissions to air, discharges to water the current level of risk. Active decisions on how the risk should be managed are taken based on the results. Historically, and financial results. Production disruption may be due to stoppages due to fire have resulted in the greatest economic losses, so fire prevention efforts are a top priority. To safeguard factors such as technical problems, seismicity in the mines, against unforeseen events the Group’s facilities are insured. The largest single insurable risks relate to property and stoppages. accidents or strikes. To reduce the risk of major mining-induced seismic events there are rules on, among other things, firing salvos for pro­ duction and development purposes. The mining sequences are controlled such that critical structures or weak zones are not overloaded. To reduce the risk of rockfalls due to mining-induced seismicity, rock reinforcement systems are used that are highly energy-absorbent and can therefore prevent rockfall. LKAB tries to avoid disruption due to strikes by being an attractive employer and having an ongoing dialogue with the unions.

Risk of uncompetitive production costs

LKAB’s major competitors mine their ore in open-pit mines LKAB’s competitiveness is strongly linked to the continuous improvements implemented to increase efficiency in all the operations and therefore have considerably lower production costs. and to increase delivery volumes. In recent years LKAB has invested in increasing its production capacity with a view both to allowing it to grow with its customers and to improving cost efficiency by distributing fixed costs across increased volumes, thereby reducing the cost per unit produced and delivered. To achieve a competitive cost level, LKAB also carries out structured long-term work involving cost efficiency measures in which identified potential is continually evaluated and implemented.

Risk of insufficient skilled workers

Being able to retain existing employees and attract new Young people in the labour market are willing to move, but mainly to areas that are considered attractive. LKAB is therefore ones is a very important prerequisite for LKAB’s long-term strongly committed to the development of the communities in the Swedish orefields so they remain attractive, viable places to competitiveness. live. For example, LKAB provides a variety of support to the education of young people in the communities. This increases the possibility of recruiting persons with the necessary skills in the future.

Supplier risk

Deficits in the supply chain could have a negative impact on Vulnerability analyses within the supply chain are carried out continually in order to ensure that critical deliveries to LKAB can LKAB’s operations, reputation and financial results. continue in the event of an interruption, by means of alternative supply channels.

Risk of insufficient allocation of emission allowances

LKAB’s business is covered by the EU’s emissions LKAB is in dialogue with decision-makers in both Sweden and the EU concerning the future model for emission allowances. To trading system (EU ETS) and LKAB has a free allocation meet the EU’s and Sweden’s long-term climate targets through the necessary investments in continued reductions in carbon of emission allowances in the current trading period, i.e. emissions, the free allocation of emission allowances needs to continue. In a global perspective, LKAB’s magnetite ore involves up until 2020. However, it is predicted that LKAB may a lower level of carbon emissions than, say, hematite ore, which is used by many of its competitors. LKAB aims to reduce need to supplement its supply of emission allowances in carbon emissions from the current level of 27 kg per tonne of finished products to 17 kg by 2020. Through ongoing efficiency 2017–2020. The free allocation applies until the next trad­ improvements LKAB is attempting to find environmentally more attractive alternative fuels to coal and oil. As a first step ing period, which begins in 2021. Should LKAB then lose its towards achieving entirely fossil-free production, trials are being conducted using natural gas which would later be replaced free allocation, this would be a competitive disadvantage with biogas. as compared with competitors outside the EU’s emissions trading system. ADMINISTRATION REPORT 85

FINANCIAL RISKS Following is a brief description of the Group’s financial risks. For a more detailed description including the management of risks see Note 34, Financial risks and risk management.

Risk Risk management Cash flow risk

LKAB’s main cash flow risk in SEK is related to iron ore The finance policy describes procedures and rules for identifying and reporting total consolidated cash flow risk and the product sales in the Parent Company. Cash flow risk means frameworks within which hedging of cash flow risks should or may occur. Cash flow risk is quantified on the basis of a rolling that fluctuations in the global iron ore price and exchange cash flow forecast. The calculation includes all identified cash flows exposed to market prices and takes into account historical rates between USD and SEK can together have a negative covariance. The Group’s objective is to use hedging activities to obtain a desired level of risk relating to the Group’s cash flow, impact on the company’s income statement, balance sheet earnings, balance sheet and liquidity. and/or cash flow. Another significant cash flow risk is raw material and energy price risk.

Price risk of iron ore products

Price volatility in the global iron ore market makes LKAB’s Price risk for iron ore products is hedged using generally available hedging instruments. prices change substantially in both the long and short terms. The price of iron ore products in USD is dependent on future expected prices for LKAB’s products, which in turn are dependent on the global commodity price and the global pricing mechanism for iron ore.

IRON ORE PRICE PERFORMANCE 1995-2015

USD/ton 200

150

100

50

0 1995 2000 2005 2010 2015 Source: The Steel Index, TSI (Platts)

Currency risk USD/SEK

LKAB is exposed to various types of currency risk. The Transaction exposure in USD is hedged using hedging instruments that are generally available on the currency market, pri­ main exposure stems from Group sales of iron ore where marily forward exchange contracts. For other companies within the Group transaction exposure arises principally through the market pricing is in USD. This currency risk in forecast and purchase of raw materials in foreign currencies. Each subsidiary is responsible for its currency exposure and all forward cover contracted payment flows is called transaction exposure. occurs through the LKAB Treasury Centre. LKAB does not normally hedge its translation exposure. The foreign subsidiaries Currency risks are also found in the translation of foreign within the Group operate mainly in their local currencies, and both investments and financing are mainly carried out in local subsidiaries’ assets and liabilities to the Parent Company’s currency in order to reduce translation exposure. functional currency, known as translation exposure.

CURRENCY EXCHANGE RATE 1995-2015

USD/SEK 12

10

8

6

4 1995 2000 2005 2010 2015

Source: Bloomberg 86 ADMINISTRATION REPORT

Risk Risk management Price risk for commodities and energy

Commodity price risk refers to the change in the price of Hedging of electricity prices occurs through fixed contracts at indexed prices and through relevant financial contracts in the input goods and its impact on earnings. It is mainly changes electricity market for purchase at variable prices. in energy prices that constitute a large commodity price Reducing energy consumption is an objective for both reduced environmental impact and cost efficiency. risk for LKAB. LKAB is a co-owner of VindIn along with other industries and is investing in renewable electricity production. VindIn AB currently operates two wind farms in Sweden and one farm in Finland.

Interest rate risk and share price risk

Interest rate risk refers to how the return on an interest- LKAB’s total assets are allocated to three portfolios: the liquidity portfolio, the urban transformation portfolio and the pension bearing asset is affected by a change in interest rates. portfolio. The finance policy governs the maximum average duration in each asset portfolio. The frameworks are set in relation The level of interest rate risk is affected by changes in to each portfolio’s commitment or purpose and in relation to a range of risk measures and restrictions. interest rates and by the asset’s sensitivity to interest rates (duration). LKAB is mainly exposed to interest rate risk with regard to current investments and cash and cash equivalents.

Credit risk

LKAB’s credit risk is primarily associated with accounts The Group’s finance policy contains rules on rating new and existing customers from a credit risk perspective as well as rules receivable, derivatives and current investments. on other credit risks.

Liquidity risk

Liquidity risk is the risk that the LKAB Group cannot meet Mining legislation and consequent requirements for urban transformation in the municipalities of Kiruna and Gällivare place its commitments due to lack of liquidity or the inability to special demands on liquidity. The Group’s finance policy defines liquidity targets for the purpose of managing the Group’s raise external loans for operating activities. short- and long-term commitments.

SENSITIVITY ANALYSIS Dollar

The following sensitivity analysis summarizes LKAB’s earnings Iron ore price

sensitivity to a hypothetical change in volumes, prices and cur­ Delivery volumes rencies. Changes in the SEK/USD exchange rate, market prices and delivery volumes have the greatest impact on earnings. In the analysis, the delivery and price analyses refer to the Parent Energy costs Company and the remaining factors to the entire Group. Transport costs 0 500 1 000 1 500

SENSITIVITY ANALYSIS 2015

Group Change Exposure Effect on Exposure Effect on 2015 operating profit, 2014 operating profit, 2015 (MSEK) 2014 (MSEK)

Deliveries of iron ore products, Mt1 10% 24.2 1114 26.0 1511

Price for iron ore products, MSEK 10% 14,494 1.449 18,665 1,867

Employee benefit expenses, MSEK 10% 3,530 353 3,684 368

Energy costs, MSEK 10% 1,328 132 1,553 155

Transport costs, MSEK 10% 473 47 516 52

Dollar rate – with no forward cover, MUSD 10% 1,802 1,454 2,997 2,004

1 Average value calculated on unchanged product mix ADMINISTRATION REPORT 87

GUIDELINES FOR REMUNERATION OF OUTLOOK FOR 2016 SENIOR EXECUTIVES LKAB expects the market situation to remain largely unchanged At the 2015 AGM it was resolved to approve the Board’s proposed in 2016; in other words, that the oversupply situation in iron ore guidelines for remuneration and other terms of employment for fines will remain, putting pressure on iron prices and thus also on senior executives. LKAB’s guidelines follow the government’s LKAB’s profitability. currently applicable guidelines regarding employment terms for With iron ore prices expected to remain low, LKAB is intensifying senior executives at state-owned companies as passed on 20 April its adaptation work, focusing on productivity improvements and 2009. The guidelines indicate that senior executives should not cost cutting in order to improve competitiveness. Both ongoing and receive variable pay, that retirement benefits should be through planned capital expenditures are being revised continuously. In the defined-contribution plans, unless they comply with an applicable second quarter of 2016 LKAB plans to present a detailed action collective pension scheme, and that the fee should not exceed 30 plan aimed at reducing costs for 2017 by an amount that exceeds percent of the fixed salary. The retirement age must not be less the cost saving realized in 2015. than 62 and should not be less than 65. The strategy to maximize pellet production remains in place. The Board proposes that approval of the guidelines and condi­ Demand for LKAB’s pellet products is expected to be stable, while tions above be resolved at the AGM on 28 April 2016. The Board’s the supply on the market is limited by the fact that Samarco, one proposal is designed to ensure that LKAB can offer market com­ of the world’s biggest producers of iron ore pellets, currently has petitive remuneration to attract and retain qualified employees to no production following the dam accident in Brazil in November LKAB’s Group management. Group management’s remuneration 2015. comprises fixed salary, company car, meal and life insurance Urban transformation work will continue in 2016 and will benefits, and pension. The various parts are intended to create a include negotiations with Gällivare municipality, among other well-balanced remuneration and benefit programme that reflects things. Further urban transformation provisions will be charged to the individual’s performance and responsibility and the Group’s earnings during the year. development. The fixed salary, which is individual and differentiat­ ed considering the individual’s responsibility and performance, is determined based on market principles and is reviewed annually. SIGNIFICANT EVENTS AFTER THE END Agreements concluded prior to the AGM on 28 April 2016 have OF THE REPORTING PERIOD followed the government’s guidelines that were in place at the As of January 2016 LKAB has a new Group structure that will be time. For further information regarding the remuneration of senior implemented throughout the Group over the year. executives see Note 6 on pages 106-108. The new Group structure splits the business into three divisions. The Production North division comprises the mine and processing plant in Kiruna, while the Production South division consists of CORPORATE GOVERNANCE mines and processing plants in Malmberget and Svappavaara. A description of corporate governance is presented in a sepa­ Meanwhile LKAB’s main operations other than the iron ore busi­ rate Corporate Governance Report in accordance with Chapter ness, LKAB Minerals and LKAB Wassara, form the Special Prod­ 6, Section 8 of the Annual Accounts Act. The report is included in ucts division. To support the divisions, Group functions are being the Annual Report and Sustainability Report on pages 54–61. For created for Finance, HR and Sustainability, Operational Support a description of the major elements of the Group’s systems for and Business Development, and Sales and Logistics. Changed seg­ internal control and risk management in conjunction with prepara­ ment reporting will be adapted to the new Group structure in 2016. tion of the consolidated financial statements refer to the Corporate There are no other significant events to report since the end of Governance Report on pages 60–61. the reporting period.

PROPOSED APPROPRIATION OF EARNINGS The Board and the President propose that the MSEK 16,024 in unappropriated earnings, following the loss for the year of MSEK -3,979, be allocated as follows:

Carried forward 16,024 MSEK

Total 16,024 MSEK 88 FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT

1 January – 31 December MSEK Note 2015 2014 1 Net sales 2,3 16,200 20,615 Cost of goods sold 15,16,31 -22,280 -18,781 Gross profit/loss -6,080 1,834

Selling expenses -165 -151 Administrative expenses -512 -596 Research and development expenses -365 -451 Other operating income 4 318 311 Other operating expenses 5 -354 -377 Operating profit/loss 3,6,7,8,9 -7,156 570

Financial income 293 519 Financial expense -408 -495 Net financial income/expense 10 -115 24

Profit/loss before tax -7,271 594

Tax 12 1,585 -247 Profit/loss for the year -5,686 347

Attributable to Parent Company shareholders -5,686 347 Earnings per share before and after dilution (SEK) 13 -8,122 496

Number of shares 700,000 700,000

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Profit/loss for the year -5,686 347

Other comprehensive income Items that will not be reclassified to profit/loss for the year Actuarial gains and losses on defined-benefit pension plans 173 -284 Tax attributable to actuarial gains and losses -38 62 135 -222 Items that will be reclassified to profit/loss for the year Translation differences on translation of foreign operations for the year -85 74 Changes in fair value of available-for-sale financial assets for the year -284 -45 Changes in fair value of cash flow hedges for the year 126 -410 Changes in fair value of cash flow hedges transferred to profit for the year 414 -67 Tax attributable to components of cash flow hedges -119 105 52 -343 Other comprehensive income 187 -565 Comprehensive income attributable to Parent Company shareholders for the year: -5,499 -218 FINANCIAL STATEMENTS 89

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December MSEK Note 2015 2014 1,33,34,37

Assets 18,35 Non-current assets Intangible assets 14 215 228 Property, plant and equipment for operations 15 32,462 36,201 Property, plant and equipment for urban transformation 16 2,235 3,328 Participations in associated companies 17 45

Financial investments 20 581 912

Non-current receivables 22 0 62 Deferred tax assets 12 19 44 Total non-current assets 35,558 40,775

Current assets Inventories 23 2,915 2,553

Accounts receivable 24 1,320 1,908 Prepaid expenses and accrued income 25 282 158 Other current receivables 22 1,392 876 Current investments 20,40 10,225 11,505 Cash and cash equivalents 40 4,335 5,358 Total current assets 20,470 22,358 Total assets 56,028 63,133

Equity and liabilities Equity 26 Share capital 700 700 Reserves 152 100 Profit brought forward including profit for the year 31,264 36,954 Equity attributable to Parent Company shareholders 32,116 37,754 Total equity 32,116 37,754

Non-current liabilities Non-current interest-bearing liabilities 27 1,996 1,995 Provisions for pensions and similar commitments 29 1,860 2,156 Provisions for urban transformation 30,31 10,951 9,644 Other provisions 30 1,178 1,167 Deferred tax liabilities 12 1,915 3,423 Total non-current liabilities 17,900 18,385

Current liabilities Current interest-bearing liabilities 27 1,000 798 Trade payables 1,573 1,691 Other current liabilities 443 1,121 Accrued expenses and deferred income 32 1,560 1,207 Provisions for urban transformation 30,31 1,283 2,039 Other provisions 30 152 138 Total current liabilities 6,011 6,994 Total liabilities 23,911 25,379 Total equity and liabilities 56,028 63,133 90 FINANCIAL STATEMENTS

CONSOLIDATED PLEDGED ASSETS AND CONTINGENT LIABILITIES

As at 31 December MSEK Note 2015 2014 Pledged assets 36 727 808 Contingent liabilities 36 192 135

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

SEE NOTE 26 EQUITY ATTRIBUTABLE TO PARENT COMPANY SHAREHOLDERS

Reserves

Profit brought forward inclu- Translation Fair value Hedging ding profit/loss MSEK Share capital reserve reserve reserve for the year Total equity

Opening equity 1 Jan 2014 700 -139 526 56 40,329 41,472

Profit for the year 347 347

Other comprehensive income for the 74 -45 -372 -222 -565 year

Comprehensive income for the year 74 -45 -372 125 -218

Dividend -3,500 -3,500

Closing equity 31 Dec 2014 700 -65 481 -316 36,954 37,754

SEE NOTE 26 EQUITY ATTRIBUTABLE TO PARENT COMPANY SHAREHOLDERS

Reserves

Profit brought forward inclu- Translation Fair value Hedging ding profit/loss MSEK Share capital reserve reserve reserve for the year Total equity

Opening equity 1 Jan 2015 700 -65 481 -316 36,954 37,754

Profit/loss for the year -5,686 -5,686

Other comprehensive income for the year -85 -284 421 135 187

Comprehensive income for the year -85 -284 421 -5,551 -5,499

Dividend -139 -139

Closing equity 31 Dec 2015 700 -150 197 105 31,264 32,116 FINANCIAL STATEMENTS 91

CONSOLIDATED STATEMENT OF CASH FLOWS

1 January – 31 December MSEK Note 2015 2014 1,40 Operating activities Profit/loss before tax -7,271 594 Adjustment for items not included in cash flow 11,581 6,918 Income tax paid -315 -48 Expenditures, urban transformation 30,31 -291 -1,354 Payment to retirement benefit plan 29 -10 Cash flow from operating activities before changes in working capital 3,694 6,110

Cash flow from changes in working capital Increase (-)/Decrease (+) in inventories -362 59 Increase (-)/Decrease (+) in operating receivables 300 1,269 Increase (+)/Decrease (-) in operating liabilities 224 97 Change in working capital 162 1,425 Cash flow from operating activities 3,856 7,535

Investing activities Acquisition of property, plant and equipment -6,354 -5,491 Disposal of property, plant and equipment 150 28 Change in financial assets 78 Disposals/acquisitions (net) in current investments 1,279 -703 Cash flow from investing activities -4,847 -6,166

Financing activities Borrowing 204 2,793 Adjustment of other provisions -96 Dividends paid to Parent Company shareholders -139 -3,500 Cash flow from financing activities -31 -707

Cash flow for the year -1,022 662

Cash and cash equivalents at start of year 5,358 4,696 Cash and cash equivalents at end of year 4,335 5,358 Of which exchange rate effect 22 13

MSEK 2015 2014 Consolidated operating cash flow Cash flow from operating activities 3,856 7,535 Acquisition of property, plant and equipment -6,354 -5,491 Disposal of property, plant and equipment 150 28 Operating cash flow (excluding current investments) -2,348 2,072 Acquisition/disposal of financial assets (net) 1,357 -703 Cash flow after investing activities -991 1,369 Cash flow from financing activities -31 -707 Cash flow for the year -1,022 662 92 FINANCIAL STATEMENTS

INCOME STATEMENT – PARENT COMPANY

1 January – 31 December MSEK Note 2015 2014 1 Net sales 2,3 14,770 18,970 Cost of goods sold 15,16,31 -20,675 -17,911 Gross profit/loss -5,905 1,059

Selling expenses -51 -69 Administrative expenses -343 -447 Research and development expenses -373 -453 Other operating income 4 36 72 Other operating expenses 5 -17 -74 Operating profit/loss 6,7,8,9 -6,654 88

Earnings from financial items: Earnings from participations in Group companies 2 228 Income from other securities and receivables held as non-current assets 51 -111 Other interest income and similar profit/loss items 207 449 Interest expense and similar profit/loss items -313 -195 Profit/loss after financial items 10 -6,706 459

Appropriations 11 1,645 535

Profit/loss before tax -5,061 994

Tax 12 1,082 -272 Profit/loss for the year -3,979 722

COMPREHENSIVE INCOME – PARENT COMPANY

Profit/loss for the year -3,979 722

Other comprehensive income Comprehensive income for the year -3,979 722 FINANCIAL STATEMENTS 93

BALANCE SHEET – PARENT COMPANY

As at 31 December MSEK Note 2015 2014 1,33,34,37 Assets 35 Non-current assets Intangible assets 14 38 36 Property, plant and equipment for operations 15 27,076 29,485 Property, plant and equipment for urban transformation 16 2,235 3,328 Financial assets Participations in subsidiaries 38 1,884 1,768 Participations in associated companies 17 40 0 Receivables from subsidiaries 19 1,242 1,545 Other non-current securities 21 131 129 Other non-current receivables 22 107 134 Deferred tax asset 12 1,960 872 Total financial assets 5,365 4,448

Total non-current assets 34,714 37,297

Current assets Inventories 23 2,277 1,940 Current receivables Accounts receivable 24 1,063 1,385 Receivables from subsidiaries 19 1,324 1,450 Other current receivables 22 961 729 Prepaid expenses and accrued income 25 296 115 Total current receivables 3,645 3,679

Current investments 40 11,800 14,035 Cash and bank balances 40 2,338 2,373 Total current assets 20,060 22,027 Total assets 54,774 59,324 94 FINANCIAL STATEMENTS

BALANCE SHEET – PARENT COMPANY

As at 31 December MSEK Note 2015 2014

Equity and liabilities 1,33,34,37

Equity 26 Restricted equity Share capital (700,000 shares) 700 700 Statutory reserve 697 697

Non-restricted equity Retained earnings 20,003 19,420 Profit/loss for the year -3,979 722 Total equity 17,422 21,539

Untaxed reserves 39 16,624 18,144

Provisions Provisions for urban transformation 30,31 10,951 9,644 Other provisions 29,30 1,526 1,490 Total provisions 12,478 11,134

Non-current liabilities Bond loans 28 1,996 1,995 Total non-current liabilities 1,996 1,995

Current liabilities Liabilities to credit institutions 28 1,000 798 Trade payables 1,099 1,236 Liabilities to subsidiaries 1,170 883 Other current liabilities 204 420 Accrued expenses and deferred income 32 1,346 998 Provisions for urban transformation 30,31 1,283 2,039 Other provisions 30 152 138 Total current liabilities 6,254 6,512 Total equity and liabilities 54,774 59,324

PLEDGED ASSETS AND CONTINGENT LIABILITIES OF THE PARENT COMPANY

As at 31 December MSEK Note 2015 2014 Pledged assets 36 727 808 Contingent liabilities 36 240 212 FINANCIAL STATEMENTS 95

STATEMENT OF CHANGES IN EQUITY – PARENT COMPANY

SEE NOTE 26 RESTRICTED EQUITY NON-RESTRICTED EQUITY

MSEK Share capital Statutory reserve Retained earnings Profit/loss for the year Total equity

Opening equity 1 Jan 2014 700 697 22,920 24,317

Comprehensive income for the year 722 722

Dividend -3,500 -3,500

Closing equity 31 Dec 2014 700 697 19,420 722 21,539

SEE NOTE 26 RESTRICTED EQUITY NON-RESTRICTED EQUITY

MSEK Share capital Statutory reserve Retained earnings Profit/loss for the year Total equity

Opening equity 1 Jan 2015 700 697 20,142 21,539

Comprehensive income for the year -3,979 -3,979

Dividend -139 -139

Closing equity 31 Dec 2015 700 697 20,003 -3,979 17,422 96 FINANCIAL STATEMENTS

CASH FLOW STATEMENT – PARENT COMPANY

1 January – 31 December MSEK Note 2015 2014 1,40 Operating activities Profit/loss after financial items -6,706 459 Adjustment for items not included in cash flow 10,191 5,862 Income tax paid -288 -62 Expenditures, urban transformation 30,31 -291 -1,354 Payment to retirement benefit plan 29 -10 Cash flow from operating activities before changes in working capital 2,896 4,905

Cash flow from changes in working capital Increase (-)/Decrease (+) in inventories -337 171 Increase (-)/Decrease (+) in operating receivables 607 2,141 Increase (+)/Decrease (-) in operating liabilities -36 -74 Change in working capital 234 2,238 Cash flow from operating activities 3,130 7,143

Investing activities Acquisition of property, plant and equipment -5,817 -4,857 Disposal of property, plant and equipment 151 284 Shareholder contribution paid -157 -254 Change in financial assets 330 -636 Disposals/acquisitions (net) in current investments 1,287 -610 Cash flow from investing activities -4,206 -6,073

Financing activities Borrowing 204 2,793 Group contribution received 125 192 Adjustment of other provisions -96 Dividend paid -139 -3,500 Cash flow from financing activities 94 -515

Cash flow for the year -982 555

Cash and cash equivalents at start of year 5,108 4,553 Cash and cash equivalents at end of year 4,126 5,108 Of which exchange rate effect 22 13 NOTES 97

7 New IFRS that have not yet been applied NOTES TO THE FINANCIAL STATEMENTS Following is a summary of the new or amended IFRS that take effect in coming financial years and that are expected to apply to LKAB. None of these standards were adopted early. Applied in financial year NOTE 1 Standards beginning: SIGNIFICANT ACCOUNTING PRINCIPLES IFRS 9 Financial Instruments* 1 January 2018 or later IFRS 15 Revenue from Contracts with Customers 1 January 2018 or later 1 Compliance with standards and laws including amendments to IFRS 15: Date of application The consolidated financial statements were prepared in accordance with the Inter­ of IFRS 15* national Financial Reporting Standards (IFRS) issued by the International Accounting IFRS 16 Leases* 1 January 2019 or later Standards Board (IASB) as adopted by the EU. The Swedish Financial Reporting Board’s Recommendation RFR 1 Supplementary Rules for Consolidated Financial Statements IAS 7 Statement of Cash Flows 1 January 2017 or later was also applied. Amendments to IAS 1 (“Disclosure Initiative”) 1 January 2016 or later The Parent Company applies the same accounting principles as the Group, except Amendments to IAS 16 Property, Plant and Equipment 1 January 2016 or later where stated below in the Parent Company’s accounting principles section. and IAS 38 Intangible Assets (Clarification of Acceptable The Annual Report and consolidated financial statements were approved for issue Methods of Depreciation and Amortization) by the Board of Directors and President on 21 March 2016. The consolidated income Annual improvements to IFRS (2010–2012) 1 February 2015 or later statement, consolidated statement of comprehensive income and statement of Annual improvements to IFRS (2012–2014) 1 January 2016 or later financial position and the Parent Company’s income statement and balance sheet are subject to approval at the Annual General Meeting on 28 April 2016. *Not yet approved for application within the EU.

2 Measurement bases applied in preparing the financial statements New or amended standards that will affect consolidated financial reporting from 2016: Assets and liabilities are recognized at historical cost, apart from certain financial Described below are the new and amended standards and interpretations that are assets and liabilities that are measured at fair value. Financial assets and liabilities expected to affect the consolidated financial statements in the period to which they are that are measured at fair value consist of derivatives, financial assets classified as applied for the first time. financial assets measured at fair value via profit or loss, investments held to maturity IFRS 9 Financial Instruments will replace IAS 39 Financial Instruments: Recogni­ or available-for-sale financial assets. tion and Measurement. Through IFRS 9, the IASB has completed a whole “package” of A defined-benefit pension liability/asset is recognized as the net of the fair value of amendments concerning recognition of financial instruments. The package includes a plan assets and the present value of the defined-benefit liability, adjusted for any asset new model for classifying and measuring financial instruments, a new loss impairment restrictions. model and a simplified approach to hedge accounting. The main requirements of IFRS 9 are described below. 3 Functional currency and presentation currency New principles for the classification and measurement of financial assets are being The functional currency of the Parent Company is the Swedish krona (SEK), which introduced. The measurement category in which a financial asset is to be placed depends is also the presentation currency for both the Parent Company and the Group. This on the purpose for which the company holds the asset (i.e. the company’s business means that the financial statements are presented in SEK. Unless otherwise stated, all model) and on the financial asset’s contractual cash flows. amounts are rounded off to the nearest million SEK. The new impairment model uses a new expected loss method that replaces the previous incurred loss method. 4 Assessments and estimates in the financial statements The purpose of the new rules on hedge accounting is for the company’s risk manage­ Preparing the financial statements in accordance with IFRS requires company man­ ment to be reflected in the accounts. The standard provides greater opportunity to hedge agement to make assessments, estimates and assumptions that affect the application of accounting principles and the recognized amounts of assets, liabilities, income and risk components in non-financial items and allows more types of instruments to be used expenses. Actual outcomes may diverge from these estimates and assessments. in a hedging relationship. The quantitative requirement of effectiveness is also no longer These estimates and assumptions are reviewed regularly. Changes in estimates a requirement. are recognized in the period in which the change is made if the change only affects Management’s assessment is that the application of IFRS 9 may affect the recognized that period, or the period in which the change is made and future periods if the change amounts in the financial statements for consolidated financial assets and liabilities. The affects both current and future periods. effects of implementing IFRS 9 have not yet been analyzed in detail, so the effects cannot Assessments made by company management when applying IFRS that have a yet be quantified. significant effect on the financial statements and estimates that may lead to significant IFRS 15 Revenue from Contracts with Customers provides a model for revenue adjustments to the following year’s financial statements are described in more detail in recognition for almost any income arising from contracts with customers, except leases, section 28, Significant estimates and assessments. financial instruments and insurance policies. The purpose of a new revenue standard is to have a single principle-based standard for all industries that replaces existing 5 Significant accounting principles applied standards and interpretations on revenue. The basic principle for revenue recognition The following consolidated accounting principles were applied consistently to all according to IFRS 15 is that an entity should recognize revenue in a way that reflects periods that are presented in the consolidated financial statements, unless otherwise the transfer of the promised goods or services to the customer for the amount that the stated. The consolidated accounting principles were applied consistently in the pres­ company expects to be entitled to receive in exchange for the goods or services. Revenue entation and consolidation of the Parent Company, subsidiaries and joint operations. is recognized when the customer assumes control of the goods or services. There is significantly more guidance in IFRS 15 for specific areas, and the disclosure 6 Changes for 2015 requirements are extensive. 6.1 Accounting principles changed due to new or amended IFRS Management’s assessment is that the application of IFRS 15 may affect the amounts New or amended standards and new interpretations have had no significant effect on recognized in the financial statements for consolidated financial assets and liabilities. the consolidated accounts for 2015. The effects of implementing IFRS 15 have not yet been analyzed in detail, so the effects cannot yet be quantified. IFRS 16 Leases will replace IAS 17 Leases. For lessees, IFRS 16 removes the classification into operating and finance leases, replacing this with a model in which assets and liabilities for all leases are to be recognized in the balance sheet. Leases with a term of 12 months or less and leases where the underlying asset has a low value are exempted. Depreciation of the asset and interest expenses for the liability are recognized in the income statement. The standard contains more extensive disclosure requirements than the present standard. Management’s assessment is that the application of IFRS 16 may affect the amounts recognized in the financial statements for consolidated financial assets and liabilities. The effects of implementing IFRS 16 have not yet been analyzed in detail, so the effects cannot yet be quantified. Other new and amended standards and interpretations that have not taken effect are not expected by management to have any significant effect on the consolidated financial statements when they are applied for the first time. 98 NOTES

8 Classification etc. When control of a foreign operation ceases, the accumulated translation differences Non-current assets and liabilities consist essentially of amounts that are expected to attributable to the operation are realized, at which point they are reclassified from the be recovered or paid more than twelve months from the end of the reporting period. translation reserve in equity to profit for the year. Current assets and liabilities consist essentially of amounts that are expected to be recovered or paid within twelve months of the end of the reporting period. 12 Revenue 12.1 Sales of goods and rendering of services 9 Operating segment reporting Income from the sale of goods is recognized in profit for the year when the significant An operating segment is a part of the Group that engages in business operations from risks and benefits associated with ownership of the goods have been transferred to the which it may generate income and incur expenses and for which independent financial buyer. Income from services is recognized in profit for the year based on the stage of information is available. An operating segment’s earnings are monitored regularly by completion at the end of the reporting period. Income is not recognized if it is probable the company’s chief operating decision-maker, which is Group management, to assess that the future economic benefit will not accrue to the Group. Income is recognized at its performance and to allocate resources to the operating segment. There are three the fair value of the consideration that is received or is expected to be received, less operating segments identified within the LKAB Group: Mining Division, Minerals Division any discounts. and Special Businesses Division. See Note 3 for a further description of the classifica­ 12.1.1 Sales of iron ore, Mining Division tion and presentation of operating segments. Iron ore trading is conducted in US dollars. LKAB prices iron ore according to a varia­ ble-price model with an index-linked price based on the spot price. 10 Consolidation principles and business combinations The sale of iron ore is recognized upon delivery to the customer in accordance with 10.1 Subsidiaries the terms of sale. Sales are recognized less value added tax and translation is at the Subsidiaries are companies that operate under the control of the Parent Company. current exchange rate. If sales are hedged by forward exchange contracts translation Control exists if the Parent Company has influence over the object of investment, is at the hedged rate. is exposed to or has rights to variable returns from its involvement and can use its In the variable price model, quarterly prices are applied and the price is determined influence over the investment to affect returns. In assessing whether control exists, po­ after the end of the quarter. The price is mainly affected by the current quarter’s aver­ tential voting shares and whether de facto control exists should be taken into account. age for 62%/65% sinter fines CFR in China. This means that income for the quarter is Subsidiaries are recognized according to the acquisition method. This method based on a preliminary price. After the end of the quarter, a price adjustment is made means that acquisition of a subsidiary is regarded as a transaction whereby the Group that is allocated to the quarter. indirectly acquires the subsidiary’s assets and assumes its liabilities. The acquisition Preliminary invoicing is often carried out at delivery, taking into account the iron and analysis determines the fair value on the date of acquisition of acquired identifiable moisture content of the delivery. When final values are confirmed, income is adjusted assets and assumed liabilities and any non-controlling interest. as necessary and then fixed. The income is recognized in net sales. In the case of business combinations where the transferred consideration, any non-controlling interest and fair value of the previously owned participating interest 12.1.2 Sales of industrial minerals, Minerals Division (in the case of incremental acquisitions) exceed the fair value of the assets acquired The Minerals Division of the LKAB Group trades in a number of different minerals, both minerals in its own possession such as magnetite, huntite and mica, and external and liabilities assumed, the difference is recognized as goodwill. When the difference is minerals that are either further processed within the Group or sold on in unchanged negative, a so-called low-cost acquisition is recognized directly in profit for the year. form to the end customer. Trade in industrial minerals occurs either in the country’s Non-controlling interest arises in cases where less than 100% of the subsidiary is local currency or in a major currency like USD or EUR. acquired. There are two ways of recognizing non-controlling interests. They are rec­ The mineral magnetite is bought from the Mining Division. The prices are agreed ognizing non-controlling interests as a share of proportional net assets or recognizing upon quarterly and are based on the Parent Company’s global price agreements for non-controlling interests at fair value, which means that the non-controlling interest iron ore products. Other in-house minerals are priced internally, while external miner­ has a participating interest in goodwill. Choosing between the two options for recogniz­ als are priced according to individual price agreements with each supplier that may be ing non-controlling interests can be done separately for each acquisition. agreed annually or at shorter intervals. 10.2 Associated companies Sales of minerals are reported to customers in accordance with agreed upon sales Associated companies are companies in which the Group has a significant but not terms. Sales are recognized less value added tax and translation is at the current controlling influence over operating and financial governance, normally by means of a exchange rate. If sales are hedged by forward exchange contracts, translation is at the shareholding of between 20 and 50 percent of votes. From the date when the company hedged rate. obtains a significant influence, participations in associated companies are included Invoicing is carried out on delivery to the customer according to agreed upon prices in the consolidated financial statements according to the equity method. The equity and payment terms. The income is recognized in net sales. method means that the carrying amount of the Group’s shares in associated compa­ 12.2 Rental income nies is equivalent to the Group’s proportion of their share capital. The Group’s share Rental income from property is recognized on a straight-line basis in the income of associated companies’ net profit is recognized under net financial income/expense. statement, based on the terms of the rental agreement. Rental income is recognized in These profit shares represent the change in the carrying amount of participations in other operating income. associated companies. 12.3 Government grants 10.3 Transactions that are eliminated on consolidation Government grants are recognized in the statement of financial position as deferred Intra-group receivables and liabilities, income or expenses, and unrealized gains or income when there is reasonable assurance that the grant will be received and the Group losses arising from intra-group transactions between Group companies are eliminated will comply with the terms associated with the grant. Grants are accrued systematically entirely when preparing the consolidated financial statements. in profit for the year in the same way and over the same periods as the costs for which the grants are intended to compensate. Government grants related to assets are recog­ 11 Foreign currency nized as a reduction in the asset’s carrying amount. 11.1 Foreign currency transactions Foreign currency transactions are translated into the functional currency at the 13 Leasing exchange rate in effect on the transaction date. The functional currency is the currency Leases are classified in the consolidated financial statements as either finance leases of the primary economic environment where the companies conduct their operations. or operating leases. A lease is considered a finance lease when the economic risks and Monetary assets and liabilities in foreign currencies are translated into the functional benefits associated with ownership are, in essence, transferred to the lessee. If this is currency at the exchange rate in effect at the end of the reporting period. Exchange rate not the case, it is classified as an operating lease. The Group’s leases are essentially differences that arise on translation are recognized in profit for the year. Non-mone­ operating leases. tary assets and liabilities that are recognized at historical cost are translated at the In operating leases, lease payments are recognized on a straight-line basis over the exchange rate in effect on the transaction date. Non-monetary assets and liabilities term of the lease. However, certain variable payments are usually expensed regularly. recognized at fair value are translated to the functional currency at the rate in effect on the date of measurement at fair value. 14 Financial income and expense Financial income consists of interest income on invested funds, dividend income, gains 11.2 Financial statements of foreign entities from the disposal of available-for-sale financial assets, gains from changes in value Assets and liabilities in foreign operations, including goodwill and other group-related of financial assets measured at fair value via profit or loss and gains on hedging instru­ surpluses and deficits, are translated from the foreign operations’ functional curren­ ments that are recognized in profit for the year. cies to SEK, the Group’s presentation currency, at the exchange rate in effect at the Interest income on financial instruments is recognized using the effective interest end of the reporting period. Income and expenses in a foreign operation are translated method (see below). Dividend income is recognized when the right to receive payment to SEK at an average exchange rate that constitutes an approximation of the rates is established. Earnings from the disposal of financial instruments are recognized applying when the transactions occurred. Translation differences that arise from cur­ when the risks and benefits associated with ownership of the instrument are trans­ rency translation of foreign operations are recognized in other comprehensive income ferred to the buyer and the Group no longer has control over the instrument. and accumulated in a separate component in equity called the translation reserve. NOTES 99

Financial expense consist of interest expenses on borrowings, interest expenses on 16.2 Classification and measurement provisions, interest expenses on defined benefit pension obligations, remeasurement Financial instruments that are not derivatives are initially recognized at cost, cor­ losses on financial assets measured at fair value via profit or loss, impairment of finan­ responding to the instrument’s fair value plus transaction costs. This applies to all cial assets and losses on hedging instruments that are recognized in profit for the year. financial instruments except those classified as financial assets and liabilities carried at fair value via profit or loss, which are recognized at fair value less transaction costs. A Borrowing costs are recognized in profit or loss using the effective interest method. financial instrument is classified on initial recognition based on the purpose for which it Foreign exchange gains and losses are recognized net. was acquired. The classification determines how the financial instrument is measured The effective interest rate is the rate that makes the present value of all estimated after initial recognition as described below. future payments or receipts during the expected fixed interest term equal to the Derivatives are initially recognized at fair value, meaning that transaction costs are carrying amount of the receivable or liability. The calculation includes all fees paid or charged to profit for the period. Following initial recognition, derivatives are recognized received by the contracting parties that are part of the effective interest rate, transac­ as described below. If derivatives are used for hedge accounting and to the extent tion costs and all other premiums or discounts. that this is effective, changes in value of the derivative are recognized in the income statement at the same time and on the same line of the income statement as the hedged 15 Taxes Income tax consists of current tax and deferred tax. Income tax is recognized in profit item. The value gain or loss on the derivative is recognized as income or expense in for the year except when the underlying transaction is recognized in other compre­ operating profit or net financial income/expense, based on the purpose of the derivative hensive income or equity, in which case the associated tax effect is recognized in other and whether its use is related to an operating item or a financial item. In hedge account­ comprehensive income or equity. ing, the ineffective portion is recognized in the same manner as changes in the value of Current tax is tax to be paid or received for the current year, applying the tax rates derivatives not designated for hedge accounting. that were set or for all practical purposes were set at the end of the reporting period, In accordance with IAS 39, LKAB has chosen not to include the interest component of as well as the adjustment of current tax attributable to prior periods. forward exchange contracts in hedging relationships when applying hedge accounting Deferred tax is calculated according to the balance sheet method, based on tempo­ in the Group. Changes in the value of forward exchange contracts attributable to the in­ rary differences arising between the carrying amount of assets and liabilities and their terest component are instead recognized as financial income or expense on the Forward value for tax purposes. exchange contract – interest component line, since the interest component is considered Temporary differences are not taken into consideration in consolidated goodwill, nor to be financial in nature. for differences that arise on initial recognition of assets and liabilities that are not busi­ For option agreements, only the intrinsic value of the option as a hedging instrument ness combinations and which on the date of transaction do not affect either recognized is identified. Changes in an option’s time value are recognized in the income statement or taxable profit. Temporary differences attributable to participations in subsidiaries as described above. and associated companies that are not expected to be reversed in the foreseeable Cash and cash equivalents consist of cash on hand and demand deposits with banks future are not taken into consideration either. and similar institutions, and short-term liquid investments with maturities of three The measurement of deferred tax is based on how the carrying amount of assets months or less that are subject to an insignificant risk of changes in value. or liabilities is expected to be realized or settled. Deferred tax is calculated by applying 16.3 Financial assets measured at fair value via profit or loss the tax rates and tax regulations that are set or for all practical purposes set at the end This category consists of two sub-groups: financial assets held for trading and other of the reporting period. financial assets that the company initially chose to place in this category (according to Deferred tax assets related to deductible temporary differences and loss carry­ the fair value option). Financial instruments in this category are measured regularly at forwards are only recognized to the extent that it is probable they will be utilized. The fair value and changes in value are recognized in profit for the year. The first sub-group value of deferred tax assets is reduced when it is no longer deemed probable that they includes derivatives with a positive fair value, except for derivatives that are a designat­ can be utilized. ed and effective hedging instrument. The fair value option category includes financial Any additional income tax arising from dividends is recognized when the dividend is instruments that, in accordance with management’s strategy, are held and appraised recognized as a liability. based on fair value. 16 Financial instruments 16.4 Loans and receivables Financial instruments recognized in the statement of financial position include assets Loans and receivables are non-derivative financial assets with fixed or determinable such as cash and cash equivalents, loans receivable, accounts receivable, financial payments that are not listed on an active market. These assets are measured at amor­ investments and derivatives. Liabilities include trade payables, loans payable and tized cost. Amortized cost is determined on the basis of the effective interest calculated derivatives. on the date of acquisition. Receivables are recognized at the amount expected to be Classification of consolidated financial assets and liabilities is indicated in Note 34 received; that is, less bad debts. Financial risks and risk management. Recognition of financial income and expense is also discussed in the preceding Principle 14. 16.5 Investments held to maturity Investments held to maturity are financial assets that include interest-bearing secu­ 16.1 Recognition and derecognition in the statement of financial position rities with fixed or determinable payments and fixed terms that the company has an A financial asset or financial liability is recognized in the statement of financial position when the company becomes party to the contractual terms of the instrument. A receiv­ expressed intention and ability to hold to maturity. Assets in this category are measured able is recognized when the company has delivered and a contractual obligation for the at amortized cost. counterparty to pay exists, even if an invoice has not yet been sent. Accounts receivable 16.6 Available-for-sale financial assets are recognized in the statement of financial position when the invoice has been sent. The available-for-sale category includes financial assets that are not classified in any Liabilities are recognized when the counterparty has delivered and there is a contrac­ other category or financial assets that the company initially classified in this category. tual obligation to pay, even if the invoice has not yet been received. Trade payables are Holdings of shares and participations not recognized as subsidiaries or associated recognized when an invoice is received. companies are recognized here. A financial asset is derecognized from the statement of financial position when the Assets in this category, with the exception of unlisted shares, are measured regularly contractual rights are realized, expire or the company loses control over it. The same at fair value with changes in value recognized in other comprehensive income and the applies to a portion of a financial asset. A financial liability is derecognized from the accumulated changes in value in a separate component of equity. Changes in value due statement of financial position when the contractual obligation is fulfilled or otherwise to impairment, interest on debt instruments, dividend income and exchange rate diffeen- extinguished. The same applies to a portion of a financial liability. ces on monetary items are recognized in profit for the year. On disposal of the asset A financial asset and a financial liability are offset and the net amount is recognized the accumulated gain or loss previously recognized in other comprehensive income is in the statement of financial position only when there is a legally enforceable right to recognized in profit for the year. offset the amounts and there is an intention to settle on a net basis or to realize the Unlisted shares whose fair value cannot be reliably measured are measured at cost asset and settle the liability. with regular impairment testing. The acquisition and disposal of financial assets are recognized on the trade date, 16.7 Financial liabilities measured at fair value via profit or loss which is the date on which the company undertakes to acquire or dispose of the asset This category consists of two sub-groups: financial liabilities held for trading and other – except where the company acquires or disposes of listed securities, in which case the financial liabilities that the company chose to place in this category (fair value option). settlement date is used. The settlement date is the date on which an asset is delivered See the description above under Financial assets measured at fair value via profit or to or by the company. loss. The first category includes the Group’s derivatives with a negative fair value, with A spot purchase or sale in the fair value option category is recognized on the date the exception of derivatives that are a designated and effective hedging instrument. of settlement. Changes in fair value are recognized in profit for the year. The company has no financial liabilities in the fair value option category. 16.8 Other financial liabilities Loans and other financial liabilities, such as trade payables, are included in this category. Liabilities are measured at amortized cost. 100 NOTES

17 Derivatives and hedge accounting 18.6 Subsequent expenditures The Group’s derivatives are classified as cash flow hedges of forecast transactions. Subsequent expenditures are added to the cost only when it is probable that the future Risks that the Group is subject to, such as exchange rate exposure, changes in iron ore economic benefits associated with the asset will flow to the company and the cost can prices and changes in energy prices are hedged. Hedge accounting is applied when the be measured reliably. All other additional expenses are reported as costs in the period in requirements for hedge accounting are met (see below). which they arise. Derivatives are initially recognized at fair value, which means that transaction costs A subsequent expenditure is added to the cost if the expenditure relates to the are charged to profit for the period. Following initial recognition, derivatives are meas­ replacement of identified components or parts thereof. In cases where a new component ured at fair value and changes in value are recognized as described below. An embedded is created, the expenditure is also added to the cost. Any undepreciated carrying amounts derivative is recognized separately unless it is closely related to the host contract. on replaced components, or parts thereof, are retired and expensed in conjunction with To qualify for hedge accounting under IAS 39 there must be a clear link to the hedged the replacement. Repairs are expensed as incurred. item. The hedge must also effectively protect the hedged item; hedging must be docu­ 18.7 Depreciation principles mented and its effectiveness measurable. Gains and losses on hedges are recognized in Assets are depreciated over their estimated useful life; land is not depreciated. The Group profit for the year at the same time as gains and losses for the items that are hedged. applies component depreciation, which means that a component’s estimated useful life The derivatives used to hedge highly probable future cash flows are recognized in the forms the basis for depreciation. Facilities and equipment used in open-pit mines are statement of financial position at fair value. Changes in value for the period are recog­ normally depreciated over the lesser of expected life and the life span of the mine to nized in other comprehensive income and accumulated changes in value are recognized which they relate. in a separate component in equity (hedging reserve) until the hedged flow affects profit The following useful lives are applied to property, plant and equipment including future for the year, at which point the hedging instrument’s cumulative changes in value are remediation costs: reclassified to profit for the year in conjunction with the hedged item’s effect on profit for the year. Properties used in operations, rental properties 15–100 years The hedged flows can be both contracted and forecast transactions. Plant and machinery 5–20 years Equipment, tools, fixtures and fittings 5–20 years 18 Property, plant and equipment 18.1 Owned assets Underground facilities 12–20 years Property, plant and equipment is carried at cost less accumulated depreciation and any Open-pit facilities As ore is extracted impairment. Capitalized remediation costs – waste rock stockpile As space for stockpile is utilized Cost includes the purchase price and costs directly attributable to the asset to put it in place in working order for use in accordance with the intended purpose. The cost of Capitalized remediation costs – other Estimated life of present produc­ tion structure. Reviewed once self-constructed non-current assets includes expenditures for materials, expenditures new main haulage levels are put for employee benefits and other fabrication costs directly attributable to the asset into use. where applicable. Property, plant and equipment that consists of parts with different useful lives are treated as separate components. Properties used in operations are mainly classified as buildings, land improvements and The carrying amount of a property, plant and equipment item is derecognized from land. Buildings and land improvements consist of several components that are classified the statement of financial position when the asset is disposed of or retired. The gain or on the basis of function, such as roads, surfacing, service facilities, processing plants, etc. loss arising from the disposal or retirement of an asset is the difference between the Rental properties consist of several components with varying useful lives. The main selling price and the asset’s carrying amount less direct selling expenses. Gains and classifications are buildings and land. Buildings are divided into several components losses are recognized as other operating income/expense. whose useful lives vary. 18.2 Exploration and evaluation expenditures The following main groups of components have been identified and form the basis for Greater knowledge of the extent of the iron ore deposits is necessary to secure access depreciation of rental properties. to more ore and ensure the future development of operations in the Mining Division. The ore body is surveyed and defined by means of exploration drilling, mainly via drifts adjacent to it. Ore deposit exploration in both existing and future mining areas is ex­ Frames, foundations and interior walls 100 years pensed. This principle is also applied in the exploration of areas outside existing mines. Water, sewage, electrical and heating systems 50 years Evaluation of existing mineral assets is carried out to a lesser extent, mainly to Exterior facades 40 years provide a basis for a so-called mine plan for mineral assets, and this work is expensed. Windows 50 years 18.3 Underground facilities Interior finishing and appliances 15 years Underground facilities from which iron ore is extracted can be divided into waste rock mining (development phase) and iron ore mining (production phase). Depreciation methods, residual values and useful lives are assessed at the end of each Waste rock mining consists of work done to expose the ore body in conjunction year and adjusted as necessary. with the construction of a new main haulage level, facilities pertaining to transport and maintenance functions such as railways, roads, drifts, shafts, inclined drifts (a system 18.8 Urban transformation of access for vehicle traffic from surface level to the work site underground), service 18.8.1 Acquisition of properties facilities and electrical and air supply. Expenditures for facilities intended for use over When property is acquired as part of urban transformation, the cost is divided into a a period of more than one year are capitalized in the statement of financial position. building component and a mine component. The distinction is based on the assumption that the building can be used for temporary rental for a limited period from acquisition Depreciation occurs systematically over the life of the main haulage level concerned. until evacuation. The building component is calculated as the present value of the net Iron ore mining mainly consists of development, cave drilling and loading, haulage cash flows from the rental. The mine component is defined as the property’s total cost and hoisting of the ore. Expenditures for these activities have a useful life of at most less the building component. one year, which is why they are expensed as they are incurred. The building component is expensed in the period in which the building is expected to 18.4 Open-pit mines be utilized. Iron ore mining above ground takes place in what are known as open-pit mines. Strip­ The mine component is expensed immediately on acquisition of property inside the ping is carried out to expose the ore body, and such things as moraine and barren rock impact boundary as LKAB has already consumed the economic benefits of the property. are removed. This is called barren rock mining. When property is acquired outside the impact boundary in an area designated for future During the development phase expenditures are capitalized as part of the cost of the mining, the mine component is instead expensed when the impact boundary encroaches mine and depreciation is applied systematically over the life of the mine. upon the property in question so as to match the underlying production/consumption of Expenditure on barren rock mining during the production phase that provide improved the economic benefits. access to ore for future mining are recognized as assets and are depreciated according to For a further description of urban transformation accounting principles, see Principle the production-based method. 28.1.1. 18.5 Remediation Future expenditure on dismantling and removing assets and restoring sites or areas where they are located (remediation costs) as relates to ongoing operations are capital­ ized. Capitalized amounts consist of the present value of estimated expenditures that are simultaneously recognized as provisions. NOTES 101

18.8.2 Mine assets 20 Inventories Mine assets related to future mining are recognized for Kiruna. In cases where there is Inventories are measured at the lower of cost or net realizable value. The cost of an agreement or a clear implicit undertaking that defines an obligation in respect of a inventories is calculated using the first-in, first-out (FIFO) principle and includes future impact area, the provision will be reported according to a contract boundary. expenditures incurred in acquiring the inventory items and bringing them to their The area between the contract boundary and the impact boundary constitutes an existing location and condition. For finished goods and work in progress, cost includes asset for future mining operations. The mine asset is expensed with respect to impact an appropriate share of overheads based on normal operating capacity. boundary movement; that is, when properties, infrastructure etc. are encroached upon Net realizable value is the estimated selling price in the ordinary course of business, by the impact boundary. less estimated costs of completion and selling expenses. 18.8.3 Replacement properties 21 Impairments Two compensation options are offered to owners of rental properties and small hous­ The Group’s recognized assets are assessed at the end of each reporting period to es: a replacement property equivalent to the existing property or financial compensa­ determine whether there is any indication of impairment. IAS 36 is applied to the tion. For those choosing the replacement property option, all the costs of building the impairment of assets that are not dealt with by any other IAS standard. replacement property are recognized under property, plant and equipment. When the 21.1 Impairment of property, plant and equipment, intangible assets and participations in property is handed over this is offset against provisions for the commitment – see also subsidiaries Note 31. When the financial compensation option is chosen the compensation is offset If impairment is indicated, the recoverable amount of the asset is calculated. The recov­ against provisions for the commitment. erable amount for goodwill is also calculated annually. If it is not possible to ascertain essentially independent cash flows for an individual asset, the assets are grouped at 19 Intangible assets the lowest level at which it is possible to identify essentially independent cash flows (a 19.1 Goodwill so-called cash-generating unit). Goodwill is measured at cost less any accumulated impairment losses. Goodwill is al­ The recoverable amount is the higher of fair value less selling expenses or value located to cash-generating units and is tested annually for impairment; see accounting in use. When calculating value in use, future cash flows are discounted using a dis­ principles in section 21.1. counting factor that reflects risk-free interest and the risks associated with the specific 19.2 Mining rights asset. Mining rights are measured at cost less accumulated amortization and any impair­ An impairment loss is recognized when the carrying amount of an asset or ment. cash-generating unit (group of units) exceeds its recoverable amount. Impairment losses are charged to the income statement. Once impairment has been identified for a 19.3 Research and development Expenditures on research aimed at gaining new scientific or technical knowledge are cash-generating unit (group of units), the impairment loss is initially allocated to good­ expensed as incurred. will, after which other assets in the unit (group of units) are proportionally impaired. Expenditures on development, whereby research findings or other knowledge are 21.2 Impairment of financial assets applied to produce new or improved products or processes, are recognized as assets At each reporting date, the company assesses whether there is objective evidence that in the statement of financial position if the product or process is technically and com­ a financial asset or group of assets is impaired. Objective evidence means not only mercially feasible and the company has sufficient resources to complete development observable circumstances that have occurred and that have a negative effect on the ability to recover the acquisition value, but also any significant or prolonged reduction and then use or sell the intangible asset. The value includes directly attributable ex­ in the fair value of a financial investment that is classified as an available-for-sale penditures such as goods and services and employee benefits. If the above criteria are financial asset. not met, the expenditures must be expensed. Since no such development expenditures Impairment of receivables is determined based on historical experience of custom­ have met these criteria thus far, LKAB expenses all expenditures for development as er losses on similar receivables. Impaired accounts receivable are recognized at the incurred. present value of expected future cash flows. Receivables close to their due date are not 19.4 Other intangible assets discounted. Other intangible assets such as software acquired by the Group are carried at cost less Upon impairment of an equity instrument classified as an available-for-sale finan­ accumulated amortization (see below) and any impairment. cial asset, accumulated gains or losses previously recognized in equity are reclassified 19.4.1 Emission allowances to profit for the year via other comprehensive income. The amount of the accumulated LKAB participates in the EU’s system for trade in emission allowances, which grants loss that is reclassified from equity to profit for the year via other comprehensive in­ the right to emit carbon dioxide. Allowances are allocated across the European market. come is the difference between the acquisition cost and the current fair value, less any Upon allocation the emission allowances are recognized as intangible assets and impairment loss on the financial asset previously recognized in profit for the year. deferred income, since the company has not qualified for any allowances at the time Impairment of available-for-sale financial assets is recognized in profit for the year of issue. under net financial income/expense. Qualification is at the same rate as actual emissions, when a liability to deliver emission allowances also arises. The charge is reversed from deferred income to 21.3 Reversal of impairment An impairment of assets included in the scope of IAS 36 is reversed if there is an provision for emission allowances. The liabilities are measured at the cost of allocated indication that the impairment no longer exists and there has been a change in the emission allowances. The income is accrued against the cost it is intended to cover. assumptions underlying the calculation of the recoverable value when the asset was When emission allowances are reported, an equivalent number of emission impaired. However, impairment of goodwill is never reversed. Impairment is reversed allowances must be supplied. Thus the intangible non-current asset is exhausted and only to the extent that the asset’s carrying amount after reversal does not exceed the the provision for discharged emissions is settled. Where a liability to supply emission carrying amount that would have been recognized, less amortization if appropriate, if allowances exceeds the remaining allocation of emission allowances, the surplus no impairment had been recognized. amounts are carried as a liability measured at the current market value of the number Impairment losses on loans and accounts receivable that are recognized at amor­ of emission allowances necessary to settle the commitment. For information on tized cost are reversed if the previous reasons for impairment no longer exist and full amounts, see Note 30. payment from the customer is expected. Impairment of equity instruments classified as available-for-sale financial assets 19.5 Subsequent expenditures and previously recognized in profit for the year is reversed via other comprehensive Subsequent expenditures on capitalized intangible assets are recognized as assets income instead of profit for the year. The impaired value is the value from which subse­ in the statement of financial position only when they increase the future economic quent revaluations are made, which are recognized in other comprehensive income. benefits of the specific asset to which they relate. All other expenditures are expensed as incurred. 22 Equity 19.6 Amortization principles 22.1 Dividends Amortization is recognized in the income statement on a straight-line basis over the Dividends are recognized as liabilities once they have been approved at the Annual estimated useful life of intangible assets. Intangible assets that can be amortized are General Meeting. written off from the date they are available for use. The estimated useful lives are: 23 Earnings per share The calculation of earnings per share is based on consolidated profit for the year Mining rights 30–50 years attributable to the Parent Company shareholders and on the weighted average number Customer-related intangible assets 3–5 years of shares outstanding during the year. Software 5 years

An asset’s residual value and useful life are tested at the end of each reporting period and adjusted as necessary. 102 NOTES

24 Employee benefits 25.1 Provisions for urban transformation 24.1 Defined-contribution pension plans See section 28.1.1 below. Defined-contribution pension plans are those for which the company’s obligation is 25.2 Provisions for remediation limited to the amount that it agrees to pay. In such cases the size of the employee’s See section 28.1.2 below. pension depends on the contributions the company pays to the plan or to an insurance company and the return on capital generated by the contributions. Consequently it is 26 Contingent liabilities the employee who bears the actuarial risk (that benefits will be lower than expected) A disclosure concerning a contingent liability is made when there is a possible com­ and investment risk (that the invested assets will be insufficient to meet expected ben­ mitment arising from past events whose existence is confirmed only by one or more efits). The company’s obligations for defined-contribution plans are recognized as an uncertain future events beyond the company’s control, or when there is a commitment expense in profit for the year as they are earned by the employees performing services that is not recognized as a liability or provision because it is not probable that an outflow for the company over a given period. of resources will be required or this cannot be measured with sufficient reliability.

24.2 Defined-benefit pension plans 27 Parent company accounting principles Defined-benefit plans are plans for post-employment benefits other than defined-con­ The Parent Company has prepared its annual report according to the Swedish Annual tribution plans. The Group’s net obligation in respect of defined-benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that Accounts Act (1995:1554) and the Swedish Financial Reporting Board’s recommendation employees have earned through their service in current and prior periods. This benefit RFR 2 Accounting for Legal Entities. Also applied are the Swedish Financial Reporting is discounted to a present value. The discount rate is the rate at the end of the reporting Board’s recommendations for listed companies. RFR 2 states that in the annual report period on a high-quality corporate bond, including mortgage bonds, with a maturity for the legal entity, the Parent Company shall apply all IFRS and interpretations adopted corresponding to the Group’s pension obligations. When there is no viable market for by the EU as far as possible within the framework of the Annual Accounts Act, Pension such corporate bonds, the market rate for government bonds with a similar maturity Obligations Vesting Act and considering the relationship between accounting and is used instead. The calculation is performed by a qualified actuary using the Projected taxation. The recommendation specifies the exceptions from and additions to IFRS that Unit Credit Method. The fair value of any plan assets is also calculated at the reporting date. must be made. The Group’s net obligation is the present value of the obligation less the fair value of 27.1 Differences between Group and Parent Company accounting principles plan assets, adjusted for any asset restrictions. The differences between Group and Parent Company accounting principles are detailed Remeasurement effects consist of actuarial gains and losses, the difference be­ below. The stated accounting principles for the Parent Company were applied consist­ tween the actual return on plan assets and the amount included in net interest income ently to all periods presented in the Parent Company’s financial statements. and any changes in the effects of asset restrictions (excluding interest included in net 27.2 Changed accounting principles in 2015 interest income). Actuarial gains and losses arise either because the actual outcome Changes to RFR 2 have had no material effect on the Parent Company’s financial reports deviates from previous assumptions or the assumptions change. Remeasurement for 2015. effects are recognized in other comprehensive income. Unless otherwise stated below, the Parent Company’s accounting principles in 2015 When the calculation leads to an asset for the Group, the carrying amount of the changed in accordance with what is stated above for the Group. asset is restricted to the lower of the surplus in the plan or the asset restriction 27.2.1 Derivatives with a negative value calculated using the discount rate. The asset restriction is the present value of the With effect from 2015, derivatives with a negative value and to which hedge accounting future economic benefits in the form of reduced future contributions or a cash refund. is not applied are recognized as financial liabilities – see Principle 27.5 below. The liabil­ In calculating the present value of future reimbursements or payments, any minimum ity is reported among other current liabilities. This changed principle affected the Parent funding requirement is taken into account. Company’s earnings for 2015 by MSEK -36. Changes to or reductions in a defined-benefit plan are recognized on the earliest of the following dates: a) when the change in the plan or reduction occurs, or b) when the 27.3 Changes to RFR 2 that have not yet been applied company recognizes related restructuring costs and termination benefits. The chang­ The company management expects that changes to RFR 2 which have not yet come es/reductions are recognized immediately in profit for the year. into effect will have no material effect on the Parent Company’s financial reports when The special employer’s contribution is part of the actuarial assumptions. Special applied for the first time. employer’s contributions related to the difference between how the pension obligation 27.4 Classification and presentation is determined in a legal entity and in the Group are recognized as part of the net obliga­ The Parent Company uses the terms income statement, balance sheet and cash flow tion. Provisions and receivables are not calculated to present value. In a legal entity, the statement for the reports that in the Group are called consolidated income statement, part of the special employer’s contribution that is calculated based on the Pension Obli­ statement of financial position and statement of cash flows respectively. The income gations Vesting Act is recognized for simplicity’s sake as an accrued expense rather statement and balance sheet for the Parent Company are presented in accordance with than as part of the net obligation/asset. the Annual Accounts Act, while the corresponding Group reports are based on IAS 1 The interest expense/income, net of the defined-benefit obligation/asset, is recog­ Presentation of Financial Statements and IAS 7 Statement of Cash Flows. The most sig­ nized in profit for the year under net financial income/expense. Net interest income/ nificant differences from the consolidated statements relate primarily to recognition of expense is based on the interest that arises when discounting the net obligation; that financial income and expenses, financial assets and equity, and the fact that provisions is, interest on the obligation, plan assets and the effect of any asset restrictions. Other are recognized under a separate heading in the balance sheet. components are recognized in operating profit. 27.5 Subsidiaries and associated companies 24.3 Short-term benefits Participations in subsidiaries and associated companies are recognized in the Parent Short-term employee benefits are calculated without discounting and recognized as an Company using the cost method. This means that transaction costs are included in the expense when the related services are received. carrying amount of holdings in subsidiaries and associated companies. A current liability is recognized for the expected cost of profit-sharing and bonus payments when the Group has a present legal or constructive obligation to make such 27.6 Financial instruments and hedge accounting Owing to the relationship between accounting and taxation, the rules on financial payments as a result of services rendered by employees and the obligation can be instruments and hedge accounting in IAS 39 are not applied in the Parent Company as a estimated reliably. legal entity. 24.4 Termination benefits In the Parent Company, financial assets are measured at cost less any impairment Benefits associated with the termination of employment are expensed at the earlier and financial current assets at the lower of cost or market. of the date that the company can no longer withdraw the offer to the employee or the Financial current assets are measured at the lower of cost or market. Interest-bear­ date that the company recognizes restructuring costs. ing securities, shares and alternative investments are measured at portfolio level. This means that for instruments in the same portfolio, unrealized gains are offset against 25 Provisions unrealized losses. Excess losses are recognized as a reduction in interest income under A provision differs from other liabilities because there is uncertainty about the date of other interest income and similar items. Excess gains are not recognized. payment or the amount required to settle the provision. A provision is recognized in the statement of financial position when there is a present legal or constructive obligation Liabilities are measured at amortized cost. as a result of a past event and it is probable that an outflow of economic resources will Derivatives used for hedging forecast cash flows to which hedge accounting is not ap­ be required to settle the obligation and a reliable estimate of the amount can be made. plied are not carried in the balance sheet. Changes in value of derivatives are recognized Provisions are made at the amount which is the best estimate of the expenditure in the same period as the hedged cash flow. required to settle the present obligation at the end of the reporting period. Where the Derivatives with a negative value and to which hedge accounting is not applied are effect of payment timing is important, provisions are determined by discounting the recognized as financial liabilities (other current liabilities) and measured at the amount expected future cash flow at a pre-tax rate that reflects current market assessments of most favourable to the company upon settlement or transfer of the obligation at the end the time value of money and, if appropriate, the risks specific to the liability. of the reporting period. NOTES 103

When hedging receivables in foreign currencies using forward exchange contracts, Malmberget it can be said that the impact area from the mining of several different ore the spot rate for the hedging date is used to measure the hedged receivable. The differ­ bodies has essentially encircled central Malmberget, which means that it is not able to ence between the forward and spot rates at the contract’s inception (forward premium) function as a normal city centre. is accrued over the term of the forward exchange contract. Accrued forward premiums LKAB has already had, and will continue to have, significant expenses related to these are recognized as interest income or interest expense. urban transformations. For instance, LKAB will incur expenses for the acquisition of 27.7 Financial guarantees properties and municipal infrastructure such as electricity, water and sewage systems The Parent Company’s financial guarantee agreements consist primarily of guarantees in the affected areas. The expenditures arise from LKAB’s mandatory obligation to com­ that benefit subsidiaries. Financial guarantees mean that the company is committed pensate damage resulting from its mining activities. to reimbursing the holder of a debt instrument for losses it incurs because a specified Provisions for the damage caused by the deformations cover damage already con­ debtor fails to make payment when due according to the contractual terms. The Parent firmed and damage not yet confirmed but that will occur after several years as a result Company applies one of the easing rules permitted by the Financial Reporting Board of mining. compared with the rules of IAS 39 in its recognition of financial guarantees issued on behalf of subsidiaries. The Parent Company recognizes financial guarantees as provi­ LKAB recognizes a provision: sions in the balance sheet when the company has a commitment for which payment 1. when there is a present legal or constructive obligation towards a third party will probably be required to settle the commitment. 2. as a result of past events 3. which is expected to result in an outflow of economic resources from the company 27.8 Anticipated dividends at settlement Anticipated dividends from subsidiaries are recognized in cases where the Parent 4. and a reliable estimate of the amount can be made. Company is solely entitled to decide on the size of the dividend and has decided on the size of the dividend before publishing its financial statements. In cases where there is an agreement or a clear implicit undertaking that defines an 27.9 Property, plant and equipment obligation in respect of a future impact area, the provision will be reported according to a With reference to RFR 2, IAS 16 (4), estimated future expenditures for dismantling contract boundary. In other cases, a commitment is only recognized when the so-called impact boundary encroaches on the property boundary or infrastructure. The impact and removing assets and restoring sites or areas where they are located (remediation boundary is the boundary for impact-related compensation for mining carried out to costs) in legal entities are not capitalized. Instead, the provision for these expenditures date that has been defined by LKAB. is made gradually over the useful life. The impact boundary in Kiruna is based on the existing environmental conditions 27.10 Intangible assets boundary according to rulings from the environmental court. A two-year safety zone pe­ 27.10.1 Research and development riod is added to cover movement that is expected to occur even if mining were to cease All research and development expenditures are recognized as expenses in the Parent and for a designated area for the Mine City Park, whose conversion period of about seven Company income statement. years will take it from urbanized area to park to industrial area. 27.11 Employee benefits The impact boundary is moved each year to meet the spreading of ground defor­ 27.11.1 Defined-benefit plans mations. The movement of the impact boundary is linked to deformation forecasts in Where a pension premium is paid to an insurance company, the Parent Company order to manage the effect of ground deformations not being continuous. Forecast recognizes a defined-benefit plan as a defined-contribution plan. movement according to the current deformation forecast is distributed equally over the The Parent Company applies principles other than those described in IAS 19 when period covered by the forecast. This is reconciled against updated forecasts of ground estimating defined-benefit plans. The Parent Company complies with the provisions deformations. of the Pension Obligations Vesting Act and the regulations of the Financial Supervi­ The amount of the provision is calculated on the basis of objective valuation methods sory Authority since this is a prerequisite for tax deductibility. The most significant for each type of asset (residential properties, land, infrastructure, etc.) and a present differences from IAS 19 are how the discount rate is determined, that estimation of value is assigned. the defined-benefit obligation is based on current salary levels without consideration For the provisions recognized according to the contract boundary, the area between of future salary increases and that all actuarial gains and losses are recognized in the the contract boundary and the impact boundary is defined as a mine asset related to income statement. future mining operations. Pension obligations secured by transfer of funds to a pension fund are recognized All damages/compensation claims that are within the area delimited by the impact as a provision in the Parent Company only if the fair value of the fund assets is less boundary are calculated and recognized as an expense in the income statement, in than the amount of the obligations. No asset is recognized if the fund assets are light of the fact that LKAB consumed the economic benefits that the mining generated. greater than the obligations. The value of the company’s obligations in respect of future The impact boundary’s movement is expensed each year. The expensing occurs either pension payments is to be calculated in accordance with paragraph 2 above. through expensing of the mine asset or through an increase in provisions. In the case of Malmberget, the environmental conditions have been examined by the 27.12 Taxes Land and Environment Court but its ruling has not yet become legally effective. A new In the Parent Company balance sheet, untaxed reserves are recognized without deformation forecast has been produced, resulting in additional provisions for eastern dividing these into equity and deferred tax liabilities, in contrast to the Group. Similarly, Malmberget in addition to earlier provisions for central Malmberget. the Parent Company does not allocate any part of appropriations to deferred tax in the The impact will continue for many years ahead and there will be uncertainty regard­ income statement. ing geological consequences, assumptions about market values, demolition and waste 27.13 Group and shareholder contributions disposal costs, etc. Group contributions are recognized as appropriations. The uncertainty in the estimates made so far will decrease as the experience gained Shareholder contributions are recognized as an increase in the participations in is taken into account in future estimates. Group companies item by the donor. The recipient recognizes shareholder contribu­ Provisions for urban transformation at year-end amounted to MSEK 12,234 (11,683). tions directly in unrestricted equity. 28.1.2 Provisions for remediation 28 Significant estimates and assessments In addition to urban transformation commitments, mining operations also give rise to The preparation of financial statements requires management and the Board of Direc­ remediation, dismantling and decontamination obligations. These obligations mainly tors to make assessments and assumptions that affect recognized assets, liabilities, arise as a result of legal environmental requirements. The Group recognizes provisions income and expenses and other information provided, such as contingent liabilities. for remediation costs for all legal and constructive obligations. Listed below are the estimates and assessments that are considered most Future expenditures for remediation are those resulting from closed operations and important for an understanding of the financial statements, considering the level of ongoing operations. The company collaborates with regulatory authorities to devise significant assessments and uncertainties. Conditions for LKAB’s operations change long-term plans for remediation of the mining areas. Provisions for ongoing operations gradually, which means that these assessments also change. are based on these remediation plans. The amount of the provision is calculated based on acreage and an assessment of 28.1 Provisions resulting from mining operations future expenditures based on present day technology and general assumptions. The 28.1.1 Provisions for urban transformation provision is assigned a present value. Future expenditures for closed operations are LKAB has extracted iron ore in Norrbotten for more than 120 years. The techniques expensed so as to match underlying production/consumption of the economic benefits. used to mine ore in underground mines lead to deformations in the form of fissures in Future expenditures for ongoing operations are capitalized. the ground where mining is conducted. The deformations are already or will become so The provisions are reviewed and updated as needed when the mine assets’ estimated extensive that it is necessary to gradually move parts of Kiruna and Malmberget. useful lives, costs, technical conditions, regulations or other conditions change. Although there are many similarities between conditions in Kiruna and Malmberget, The uncertainty in the estimates made so far will decrease as the experience gained the geological conditions differ. In Kiruna there is a gradual spread of deformations is taken into account in future estimates. with continuous fissuring, while in Malmberget there is widespread undermining of the Provisions for remediation at year-end amounted to MSEK 1,254 (1,127). ground in the city centre. The deformations are a direct result of mining operations. For 104 NOTES

28.2 Impairment testing of property, plant and equipment NOTE 2 The Group reports significant values in the balance sheet in respect of property, plant DISTRIBUTION OF REVENUE and equipment. Property, plant and equipment is tested for impairment in accordance with the accounting principles described in Note 1 Significant accounting principles. Group Parent Company The recoverable amounts of cash-generating units have been established by calcu­ MSEK 2015 2014 2015 2014 lating value in use. The cash flow forecasts on which the values in use were calculated are based on estimates of future cash flow and assumptions concerning factors such Net sales: as long-term iron ore prices, the USD/SEK exchange rate and levels of capital expend­ Sale of goods – iron ore 14,313 18,356 14,494 18,665 iture. The calculation of value in use indicates a high level of sensitivity to changes in Sale of goods – industrial minerals 1,533 1,870 the assumptions. Other 354 389 276 305 For 2015 the Group has recognized impairment losses of MSEK 7,136, as described further in Note 9 Impairment of property, plant and equipment. Total 16,200 20,615 14,770 18,970 28.3 Useful life and depreciation method for property, plant and equipment Depreciation periods for main haulage levels, facilities and equipment in mines is dependent on future ore extraction and the mine’s life span. It is essential that changes NOTE 3 in production and the ore base are reflected in the applied depreciation method and SEGMENT REPORTING useful life, which is of particular importance when deciding on new main haulage levels. To achieve this, the useful lives and depreciation methods must be continuously Segment information reassessed. Changes in assessments could have a material impact on consolidated Group management has determined the operating segments based on the information earnings and financial position. used to make strategic decisions in the business in which LKAB operates. The Group’s The carrying amount of property, plant and equipment for operations at year-end internal reporting system is based on this, and a product and division perspective was amounted to MSEK 32,462 (36,201). Depreciation for the year amounted to MSEK 2,800 chosen. Group management assesses and follows up on business activities in each (2,865). division, and follow-up focuses on the operating profit and operating assets of the business. 28.4 Retirement benefits Intra-group prices between segments are based on the arm’s length principle; that Several assumptions are important components in the actuarial methods used to cal­ is, between parties that are independent of each other, well-informed and with an inter­ culate pension provisions, and these may have a significant impact on the recognized est in completing transactions. net obligation and annual pension cost. The discount rate and expected return on plan Assets and liabilities are included as directly attributable items in the segments’ assets are two critical assumptions used in the calculation of net pension cost and the profit or loss. present value of pension obligations. Unallocated items in the income statement relate to net financial income/expense These assumptions are assessed annually for each pension plan in each country. and tax expenses. Assets and liabilities that are not appropriated by segment are tax Several factors do not change as often, such as personnel turnover and retirement assets and tax liabilities, financial investments and financial liabilities. Each segment’s age. For financial and other reasons, actual outcomes often differ from actuarial capital expenditures on property, plant and equipment include all tangible investments. assumptions. The discount rate enables the measurement of future cash flows to present value The Group comprises the following operating segments: on the measurement date. This rate must correspond to the yield on either high-quality corporate bonds including mortgage bonds or, if there is no viable market for such Mining Division. The Mining Division mines and processes iron ore into products that bonds, government bonds. A lower discount rate increases the present value of the are used in steelmaking. Its main products are pellets and fines and the number of pension provision and the annual cost. customers is limited to about 20. To determine the expected return on plan assets, LKAB considers the current and Minerals Division. The Minerals Division develops, produces and markets industrial anticipated categories of the assets as well as historical and expected returns on the mineral products for a variety of uses, and customers are found in numerous indus­ various categories of assets. tries all over the world. The main industries include construction, oil and gas extraction, Provisions for pensions at year-end amounted to MSEK 1,607 (1,866). rubber, the plastics and paint industries, chemical industry, automobile industry and 28.5 Taxes foundries. The number of customers amounts to several thousand. Significant assessments are made to determine current tax assets and liabilities Special Businesses Division. LKAB has several subsidiaries in the Special Businesses as well as deferred tax assets and liabilities. LKAB must assess the likelihood that Division. These companies are at present mainly sub-contractors to the Mining Division deferred tax assets will be utilized to offset future taxable profits. Actual outcomes may and Minerals Division. Services provided and goods produced and sold include drilling differ from the estimates, for instance due to changed tax legislation or the outcome of equipment, explosives, concrete, tunnelling, rock reinforcement and iron ore crushing. final reviews of tax returns by tax authorities and tax courts. A deferred tax liability (net) of MSEK -1,896 (-3,379) was recognized at year-end. The corresponding amount for current tax is a net tax liability of MSEK 62 (liability MSEK -198). 28.6 Disputes LKAB is involved in a number of disputes and legal proceedings in the ordinary course of business. Management consults with legal counsel on matters related to litigation and other experts both within and outside the company on matters concerning the ordinary course of business. Management’s considered opinion is that neither the Parent Company nor any subsidiary is currently involved in any legal or arbitration proceedings that are expected to have a material effect on the business, its financial position or earnings. NOTES 105

NOT 3 SEGMENT REPORTING (CONT.)

The segment information provided is as follows: Special Businesses Group-related adjustments Operating segment Mining Division Minerals Division Division Total and eliminations11 Group Group MSEK 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 External income 14,469 18,515 1,534 1,870 197 198 16,200 20,583 32 16,200 20,615 Internal income 313 498 1,808 1,534 2,121 2,032 -2,121 -2,032 Total income 14,782 19,013 1,534 1,870 2,005 1,732 18,321 22,615 -2,121 -2,000 16,200 20,615

Operating profit/loss -7,602 223 134 212 188 153 -7,280 588 124 -18 -7,156 570 Net financial income/expense -115 24 Profit/loss before tax -7,271 594 Tax 1,585 -247 Profit/loss for the year -5,686 347

Assets 40,578 44,680 1,032 1,175 1,191 1,066 42,801 46,921 -1,980 -1,668 40,821 45,253 Unallocated assets 15,207 17,880 Total assets 56,028 63,133

Liabilities 23,224 18,469 472 699 586 429 24,282 19,597 -1,003 347 23,279 19,944 Unallocated liabilities 632 5,435 Total liabilities 23,911 25,379

Capital expenditure on property, 6,279 5,419 30 25 45 47 6,354 5,491 6,354 5,491 plant and equipment

Significant non-cash items Depreciation of property, plant and equipment -2,702 -2,743 -28 -27 -70 -63 -2,800 -2,833 -32 -2,800 -2,865 Impairment of property, plant and equipment -7,136 -1 -7,136 -1 -7,136 -1 Urban transformation expenses -1,568 -3,432 -1,568 -3,432 -1,568 -3,432 Unallocated provision (interest) -145 Total urban transformation expenses -1,568 -3,577

1 Refers to intra-group transactions and group-related adjustments, including those based on adjustment of the consolidated pension liability under IAS 19 and internal gains.

Operating segments (cont.)

Geographic areas The vast majority of Group sales are made essentially from Sweden and, therefore, from Swedish companies. Nearly all of the Group’s products are made exclusively in Sweden. Capital expenditures have mainly been made in Sweden. The carrying amount of assets by country/region is based on where the assets are located and the income for the group is recognized which in turn is based on where sales, production, delivery and invoicing occur, regardless of where the customers are located.

Sweden Rest of Europe Middle East & Asia Rest of world Group 2015 2014 2015 2014 2015 2014 2015 2014 MSEK External income 14,766 18,997 829 836 469 496 136 286 Property, plant and equipment 31,758 36,590 2,923 2,920 15 18 1 1 Capital expenditure on property, plant and equipment 5,824 4,827 529 660 1 4

Information about major customers Under IFRS 8, the company must disclose information about major customers. The LKAB Group has five major customers, each of which represents more than ten percent of Group sales. Sales to these customers accounted for 28 (17) percent, 16 (18) percent, 12 (13) percent, 11 (11) percent and 10 (11) percent of sales and are recognized in the Mining Division operating segment.

Mining Division Minerals Division Special Businesses Division Parent Company total Parent Company 2015 2014 2015 2013 2015 2013 2015 2014 MSEK Net sales 14,770 18,970 14,770 18,970

Europe Middle East & Asia Rest of world Parent Company Parent Company 2015 2014 2015 2014 2015 2014 2015 2014 MSEK Net sales 10,301 13,200 3,862 4,781 607 989 14,770 18,970

106 NOTES

NOTE 4 OTHER OPERATING INCOME Group Parent Company MSEK 2015 2014 2015 2014 Rental income, properties 184 182 Gain on sale of non-current assets 68 Exchange gain on receivables/liabilities related to operations 34 38 18 9 Insurance compensation 5 Rental and leasing income 1 1 Other 26 90 18 63 318 311 36 72

NOTE 5 OTHER OPERATING EXPENSES Group Parent Company MSEK 2015 2014 2015 2014 Property costs 143 134 Loss on sale of non-current assets 9 17 Exchange loss on receivables/liabilities related to operations 23 23 11 13 Insurance costs 145 109 Other 34 94 6 61 354 377 17 74

NOTE 6 EMPLOYEES, EMPLOYEE BENEFIT EXPENSES AND REMUNERATION OF SENIOR EXECUTIVES

Average number of employees Of whom Of whom Of whom Of whom Parent Company 2015 women men 2014 women men Sweden 3,366 20% 80% 3,449 20% 80% Parent Company total 3,366 20% 80% 3,449 20% 80%

Subsidiaries Sweden 553 18% 82% 520 17% 83% China 38 32% 68% 47 30% 70% Netherlands 29 28% 72% 28 32% 68% Norway 207 10% 90% 217 12% 88% United Kingdom 184 24% 76% 202 23% 77% Germany 20 50% 50% 18 50% 50% Other countries 66 20% 80% 58 22% 78% Subsidiaries total 1,097 19% 81% 1,090 19% 81%

Group total 4,463 20% 80% 4,539 20% 80%

Gender distribution in company management as at 31 December 2015 2015 2014 2014 Parent Company Percentage women Percentage men Percentage women Percentage men Board of Directors 27% 73% 30% 70% Other senior executives 33% 67% 30% 70%

Salaries and other remuneration of senior executives and other 2015 2014 employees along with social costs in the Parent Company Senior Senior Parent Company executives Other executives MSEK (20 persons) employees Total (22 persons) Other employees Total Salaries and other remuneration Sweden 65 1,737 1,802 29 1,831 1,860 Parent Company total 65 1,737 1,802 29 1,831 1,860 Social costs1 923 908 1 Of which pension costs 392 327 NOTES 107

Remuneration of senior executives

Senior executives portion of the alternative ITP premium that is not used to cover premiums for the ITP Senior executives refers to Board members, the President and other senior executives. plan can be used by the President for a complementary pension plan. Other senior executives refers to salaried employees who are members of Group The former President, Lars-Eric Aaro, who stepped down in 2015, was paid a management together with the President. monthly salary of SEK 400,000. Retirement age for the President is 65. The President’s Guidelines for the remuneration of senior executives pension plan is a defined-contribution plan whereby LKAB makes a yearly provision The remuneration of the Chairman of the Board and Board members is decided at the of 30 percent of the President’s current fixed annual salary for a pension plan chosen AGM. There are additional special fees for committee work. by the President, which may include the ITP plan. The portion of the alternative ITP For the remuneration of Group management, the AGM resolved to apply the most premium that is not used to cover premiums for the ITP plan can be used by the Pres­ current government employment guidelines for persons in managerial positions and ident for a complementary pension plan. Accrued retirement benefits under previous for incentive programmes for employees in state-owned enterprises. Government employment agreements as a Senior Vice President are placed in a paid-up policy. guidelines were last updated in April 2009. The President is entitled to waive salary in favour of further pension provisions up to a maximum level determined by LKAB. Preparation and decision-making processes for The retirement age for other senior executives is 65. They have a defined-contribu­ determining the remuneration of senior executives tion pension plan to which LKAB allocates 30 percent of annual fixed salary. Remuneration terms for the President and salary-setting principles for Group manage­ As at 31 December 2012, the former defined benefit plans for other senior exec­ ment are prepared by a remuneration committee appointed by the Board of Directors. utives who joined Group management before 2009 (four persons) were settled by Four board members make up the committee. The Board takes decisions based on commutation. This is reported as a liability in the tables below. committee proposals. The Chairman of the Board approves the annual salary reviews Mutual notice of termination is six months for senior executives. Severance pay of other Group management executives. equivalent to 18 monthly salaries is paid when notice of termination is given by the Principles for the remuneration of senior executives company. The President and other Group management executives are paid fixed salaries. The During the year the company terminated the employment of former President salaries are pensionable. Lars-Eric Aaro and Senior Vice Presidents Monica Bellgran, Anders Furbeck, Frank President Jan Moström’s monthly salary was SEK 425,000. Retirement age for the Hojem, Katarina Holmgren, Anders Kitok, Per-Erik Lindvall and Peter Schmid. Compen­ President is 65. The President’s pension plan is a defined-contribution plan whereby sation is being paid as per contract. LKAB makes a yearly provision of 30 percent of the President’s current fixed annual For further information, see the table Remuneration and other benefits to members salary for a pension plan chosen by the President, which may include the ITP plan. The of Group management in 2015.

Remuneration and other benefits to the Board 2015 2014 SEK thousand Board fees Board fees Chairman of the Board Sten Jakobsson1 570 463 Board member Hans Biörck1 310 310 Board member Leif Darner 167 Board member Maija Liisa Friman 250 250 Board member Eva Hamilton 167 Board member Lars-Åke Helgesson1 330 330 Board member Hanna Lagercrantz2 Board member Lars Pettersson 250 250 Board member Maud Olofsson 83 250 Former Chairman Marcus Wallenberg 197 Total 2,127 2,050

1 The fee also includes remuneration for work on the Board’s audit committee and finance committee. 2 No board fees are paid to representatives of the Ministry of Enterprise and Innovation.

Remuneration and other benefits to members of Group management in 2015 Severance pay and termination Other Pension SEK thousand Basic salary benefits1 benefits2 cost3 Total President Jan Moström4 1,940 35 697 2,672 Senior Vice President Monica Bellgran 2,238 4,657 97 667 7,659 Senior Vice President Anders Furbeck 2,314 4,668 35 735 7,752 Senior Vice President Frank Hojem 1,653 3,469 84 518 5,724 Senior Vice President Katarina Holmgren 2,387 5,096 97 728 8,308 Senior Vice President Per-Erik Lindvall 2,697 5,593 98 827 9,215 Senior Vice President Markus Petäjäniemi 2,715 115 837 3,667 Senior Vice President Grete Solvang Stoltz 1,988 84 623 2,695 Senior Vice President Peter Schmid 2,391 5,081 175 732 8,379 Former President Lars-Eric Aaro5 3,080 7,323 44 916 11,363 Former Senior Vice President Anders Kitok6 1,377 4,113 27 469 5,986 Summa 24,780 40,000 891 7,749 73,420

1 Severance pay, termination benefits, other premiums and pension expenses associated with termination of employment. 2 Other benefits include car, subsistence and life insurance benefits. 3 Pension cost excluding special employers contribution. 4 From 15 August 2015. 5 Until 15 August 2015. 6 Until 31 August 2015. 108 NOTES

Remuneration and other benefits to members of Group management in 2014 Other Pension Tkr Basic salary benefits1 cost2 Total President Lars-Eric Aaro 4,858 112 1,456 6,426 Senior Vice President Monica Bellgran3 2,015 76 632 2,723 Senior Vice President Leif Boström4 1,000 46 1,372 2,418 Senior Vice President Anders Furbeck 2,299 25 3,390 5,714 Senior Vice President Frank Hojem 1,711 93 485 2,289 Senior Vice President Katarina Holmgren 1,982 101 596 2,679 Senior Vice President Anders Kitok 2,101 30 1,652 3,783 Senior Vice President Per-Erik Lindvall 2,654 97 3,165 5,916 Senior Vice President Markus Petäjäniemi 2,675 116 831 3,622 Senior Vice President Grete Solvang Stoltz 1,983 87 600 2,670 Senior Vice President Peter Schmid 2,421 158 714 3,293 Total 25,699 941 14,893 41,533

1 Other benefits include car, subsistence and life insurance benefits. 2 Pension cost excluding payroll tax. 3 From 1 Feb 2014. 4 Until 31 May 2014.

For additional information including post-employment benefits, see Note 29 Pensions.

NOTE 7 NOTE 9 AUDITORS’ FEES AND REIMBURSEMENTS IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT

Group Parent Company Impairment losses on property, plant and equipment are split between cash-generating units within the Mining Division as shown below. The impairment does not affect other MSEK 2015 2014 2015 2014 segments. Deloitte Group Parent Company Audit engagements 7 7 4 4 MSEK 2015 2014 2015 2014 Other auditing 0 0 Kiruna -3,642 -3,086 Tax consulting 1 3 1 2 Malmberget -1,725 -1,517 Other services 2 1 2 1 Svappavaara -1,769 -1,493 Effect on operating profit -7,136 -6,096 Other auditors Tax effect 1,570 1,341 Audit engagements 0 0 Effect on profit/loss for the year -5,566 -4,755

Audit engagements refer to statutory auditing of annual and consolidated financial The breakdown by asset type within property, plant and equipment is shown in Notes statements and bookkeeping as well as the Board’s and President’s administration 15 and 16. of the company, along with audits and other reviews performed as agreed upon or LKAB’s assets are tested regularly for impairment and when there is an indication contracted. that the assets have decreased in value. In view of the substantial downturn in the iron This includes other tasks that are incumbent on the company’s auditor to perform, ore price, which LKAB expects to be long-term, impairment testing was performed as well as consultancy or other assistance occasioned by observations during such during Q3 2015. reviews or the performance of such other tasks. Impairment testing process Impairment testing was carried out by calculating the value in use for each cash-gen­ NOTE 8 erating unit. The cash-generating units are the three operating sites of Kiruna, OPERATING EXPENSES BY TYPE Malmberget and Svappavaara, which include both mining and associated processing operations. Assets in the logistics operations, the ports in Luleå and Narvik and shared Group Parent Company assets were allocated based on production at each site. MSEK 2015 2014 2015 2014 The cash flow forecasts on which the values in use were calculated were based Employee benefit expenses 3,530 3,684 2,781 2,856 on management assumptions concerning long-term iron ore prices, the USD/SEK exchange rate and levels of capital expenditure, among other things. Forecasts for iron Material etc. 3,147 3,333 2,394 2,446 ore prices were based on external information, available via forward curves, and in the Energy 1,328 1,553 1,121 1,338 longer term on average forecasts from banks and analysts. For USD/SEK exchange Transport 473 516 1,551 1,712 rate forecasts a price based on forward contracts was used for 2015 and 2016, and Depreciation, amortization and 9,953 2,929 8,247 2,213 thereafter an average forecast from four Swedish banks. The cash flow forecasts were impairment based on relevant ore deposits and mine plans for each mine. The future cash flows were discounted to value in use using a discount rate of 10.3 Other operating expenses 5,245 8,341 5,365 8,389 percent before tax. The calculation of value in use indicates a high level of sensitivity 23,676 20,356 21,459 18,954 to changes in the assumptions – see the sensitivity analysis below. The application of further impairment losses in the future cannot be ruled out. Other operating expenses includes MSEK 1,568 (3,432) related to urban transformation expenses incurred due to the effect of the mining on communities. The amount is a Sensitivity analysis Förändring Känslighet (Mrd) provision for future expenditures. Iron ore price +/- USD 2/tonne -/+ 3.1 USD/SEK exchange rate +/- SEK 0.25 -/+ 4.3 Discount rate +/- 1% -/+ 2.9 NOTES 109

NOTE 10 Income from Other interest NET FINANCIAL INCOME/EXPENSE other securities and income and receivables held as similar profit/ non-current assets loss items Parent Company Group MSEK 2015 2014 MSEK 2015 2014 2015 2014 Financial income Interest income, Group companies 51 40 21 41 Assets at fair value (fair value option) Interest income, forward exchange premium 40 - Interest-bearing securities – net gain 68 190 Interest income, other 71 210 - Shares and alternative investments – net gain 143 114 Return, shares and alternative investments 115 73 - Shares – dividend 7 Dividend, shares 7 Assets at fair value (held for trading) Income from options (net) 6 - Derivatives 8 6 Impairment of receivables from subsidiaries -153 Forward exchange contracts – interest component 41 Reversed impairment 0 2 Investments held to maturity – interest 15 Exchange rate differences, foreign currency (net) 72 Loan receivables – reversed impairment 2 51 -111 207 449

Return on plan assets 67 83 Dividends on shares that are financial assets refers to holdings in SSAB. Other interest income 6 11 Interest income and similar profit/loss items includes return on interest-bearing Share of associated companies’ net profit 1 securities of MSEK 68 (205). Exchange rate fluctuations (net) 50 Interest expense and similar Total financial income 293 519 Parent Company profit/loss items Financial expense MSEK 2015 2014 Investments held to maturity – impairment -125 Interest expense, Group companies -1 -5 Liabilities at fair value (held for trading) Interest expense, urban transformation -145 - Derivatives -105 -33 Interest expense, remediation costs -23 -22 Forward exchange contracts – interest component -4 Interest expense, forward exchange contracts -8 Interest expense on provision for urban transformation -145 Interest expense, liabilities to credit institutions -22 -6 Interest expense on provision for remediation costs -33 -31 Interest expense, other -2 Interest expense on defined-benefit pension obligation -111 -135 Expense, options (net) -86 Interest expense on interest-bearing liabilities -22 -6 Exchange rate differences, foreign currency (net) -125 Interest expense on loan facility -17 -16 Interest expense, over-limit fee on loan facility -17 -16 Interest expense, other -2 Other financial expense -29 -1 Other financial expense -29 -4 -313 -195 Exchange rate fluctuations (net) -85 Exchange rate changes refers mainly to remeasurement of receivables in foreign Total financial expense -408 -495 currency. Net financial income/expense -115 24 Due to the current level of interest rates, provisions for urban transformation are not discounted and hence no interest expense is recognized for 2015. Exchange rate changes refers mainly to remeasurement of receivables in foreign Other financial expense refers primarily to transaction costs for derivatives and to currency. banking and administration expenses. Due to the current level of interest rates, provisions for urban transformation are not discounted and hence no interest expense is recognized for 2015. Other financial expense refers primarily to transaction costs for derivatives and to NOTE 11 banking and administration expenses. APPROPRIATIONS Earnings from participations in Parent Company Group companies Parent Company MSEK 2015 2014 MSEK 2015 2014 Difference between recognized depreciation/ Dividend 0 236 amortization and depreciation/amortization Capital gain on divestment of participations 2 according to plan: Impairment -8 Land and buildings 1 2 228 Machinery and equipment 1,519 -1,207

Tax allocation reserve, provision for the year -650 Tax allocation reserve, reversal for the year 2,200 Group contribution received 230 342 Group contribution paid -105 -150 Total 1,645 535

Deferred tax on appropriations (excluding Group contributions) amounts to MSEK 334 (75). Deferred tax on appropriations is recognized only in the consolidated income statement. 110 NOTES

NOTE 12 Reconciliation of effective tax TAXES Group MSEK 2015 (%) 2015 2014 (%) 2014 Recognized in the income statement Profit/loss before tax -7 271 594 Group MSEK 2015 2014 Tax as per effective tax rate for Parent Company 22,0% 1 600 22,0% -131 Current tax expense (-) Non-deductible expenses -0,1% -8 6,9% -41 Tax expense for the year -47 -483 Non-taxable income 0,0% 3 -0,5% 3 Adjustment of tax attributable to prior years -8 -4 Tax attributable to prior years -0,1% -8 0,8% -5 -55 -487 Standard interest on tax Deferred tax income (+) allocation reserve -0,3% -24 4,2% -25 Deferred tax on temporary differences 1,640 240 Other 0,3% 22 8,2% -48 1,640 240 Recognized effective tax 21,8% 1 585 41,6% -247 Total recognized Group tax 1,585 -247

Parent Company Parent Company MSEK 2015 (%) 2015 2014 (%) 2014 MSEK 2015 2014 Profit/loss before tax -5 061 994 Current tax expense (-) Tax as per effective tax rate for Tax expense for the year -461 Parent Company 22,0% 1 113 22,0% -219 Adjustment of tax attributable to prior years -6 -5 Non-deductible expenses 0,0% 0 3,8% -37 -6 -466 Non-taxable income 0,0% 0 -5,2% 52 Deferred tax income (+) Tax attributable to prior years -0,1% -6 0,4% -4 Deferred tax on temporary differences 1,088 194 Standard interest on tax allocation reserve -0,5% -24 2,5% -25 1,088 194 Other 0,0% -1 3,9% -39 Total recognized Parent Company tax 1,082 -272 Recognized effective tax 21,4% 1 082 27,4% -272

Tax attributable to other comprehensive income Group MSEK 2015 2014 Cash flow hedges -119 105 Actuarial gains and losses -38 62 -157 167

Recognized in the statement of financial position and the balance sheet

Recognized deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Deferred Deferred Group tax asset tax liability Net MSEK 2015 2014 2015 2014 2015 2014 Property, plant and equipment 825 6 -2,152 -2,511 -1,327 -2,505 Current investments -14 -7 -14 -7 Tax allocation reserve 3 3 -1,994 -1,994 -1,991 -1,991 Contingency reserve -85 -93 -85 -93 Pension provisions 327 352 327 352 Provisions for urban transformation 991 689 991 689 Other provisions 70 50 70 50 Cash flow hedges 32 99 -64 -14 -32 85 Loss carryforwards 162 26 162 26 Other 7 17 -4 -2 3 15 Tax assets/liabilities 2,417 1,242 -4,313 -4,621 1,896 -3,379 Offset -2,398 -1,198 2,398 1,198 Tax assets/liabilities, net 19 44 -1,915 -3,423 1,896 -3,379 NOTES 111

Deferred Deferred Parent Company tax asset tax liability Net MSEK 2015 2014 2015 2014 2015 2014 Property, plant and equipment 607 -6 607 -6 Pension provisions 153 149 153 149 Provisions for urban transformation 991 689 991 689 Loss carryforwards 163 163 Other 46 40 46 40 Tax assets/liabilities 1,960 878 -6 1,960 872

Change in deferred tax in temporary differences and loss carryforwards

Group Balance at Recognized in Recognized in other Other Balance at MSEK 1 Jan 2014 income statement comprehensive income changes 31 Dec 2014 Property, plant and equipment -2,193 -312 -2,505 Current investments -13 6 -7 Tax allocation reserve -2,337 346 -1,991 Contingency reserve -99 6 -93 Pension provisions 312 -22 62 352 Provisions for urban transformation 441 248 689 Other provisions 50 50 Cash flow hedges -18 -2 105 85 Loss carryforwards 48 -22 26 Other 15 -8 8 15 -3,794 240 167 8 -3,379

Group Balance at Recognized in Recognized in other Other Balance at MSEK 1 Jan 2015 income statement comprehensive income changes 31 Dec 2015 Property, plant and equipment -2,505 1,178 -1,327 Current investments -7 -7 -14 Tax allocation reserve -1,991 -1,991 Contingency reserve -93 8 -85 Pension provisions 352 13 -38 327 Provisions for urban transformation 689 302 991 Other provisions 50 20 70 Cash flow hedges 85 2 -119 -32 Loss carryforwards 26 136 162 Other 15 -12 3 -3,379 1,640 -157 -1,896

Parent Company Balance at Recognized in Balance at MSEK 1 Jan 2014 income statement 31 Dec 2014 Property, plant and equipment 32 -38 -6 Pension provisions 163 -14 149 Provisions for urban transformation 441 248 689 Other 42 -2 40 678 194 872

Parent Company Balance at Recognized in Balance at MSEK 1 Jan 2015 income statement 31 Dec 2015 Property, plant and equipment -6 613 607 Pension provisions 149 4 153 Provisions for urban transformation 689 302 991 Loss carryforwards 163 163 Other 40 6 46 872 1,088 1,960 112 NOTES

NOTE 13 Parent Company Mining EARNINGS PER SHARE MSEK rights Other Total The number of shares amounted to 700,000 in both 2015 and 2014. Earnings attribut­ Acquisition value able to Parent Company shareholders are MSEK -5,686 (347) and earnings per share Opening balance, 1 Jan 2014 161 55 216 are thus SEK -8,123 (496). There are no options or potential ordinary shares, so there Change in emission allowances -6 -6 is no dilution. Closing balance, 31 Dec 2014 161 49 210

NOTE 14 Opening balance, 1 Jan 2015 161 49 210 INTANGIBLE ASSETS Change in emission allowances 2 2 All of the Group’s intangible assets are acquired. Closing balance, 31 Dec 2015 161 51 212 Group Goodwill Mining Other Total MSEK rights Depreciation Acquisition value Opening balance, 1 Jan 2014 -161 -13 -174 Opening balance, 1 Jan 2014 213 275 82 570 Closing balance, 31 Dec 2014 -161 -13 -174 Change in emission allowances -6 -6 Disposals and retirements -10 -10 Opening balance, 1 Jan 2015 -161 -13 -174 Exchange rate differences for 25 2 27 Closing balance, 31 Dec 2015 -161 -13 -174 the year Closing balance, 31 Dec 2014 228 277 76 581 Carrying amount At 1 Jan 2014 42 42 Opening balance, 1 Jan 2015 228 277 76 581 At 31 Dec 2014 36 36 Change in emission allowances 2 2 Disposals and retirements -16 -3 -19 At 1 Jan 2015 36 36 Exchange rate differences for -3 1 -2 At 31 Dec 2015 38 38 the year Closing balance, 31 Dec 2015 212 274 76 562 Impairment testing of cash-generating units containing goodwill The LKAB Minerals Ltd cash-generating unit, which forms parts of the Minerals Division Amortization primary segment, has substantial recognized goodwill value relative to the Group’s Opening balance, 1 Jan 2014 -4 -167 -40 -211 total recognized goodwill value. During the year, surplus goodwill totalling MSEK 22, Amortization for the year -1 -1 relating to LKAB Minerals Ltd, has been disposed of in the Group. This relates to the Exchange rate differences -1 -1 disposal of two plants located in England. Closing balance, 31 Dec 2014 -5 -168 -40 -213 MSEK 2015 2014 LKAB Minerals Ltd. 116 138 Opening balance, 1 Jan 2015 -5 -168 -40 -213 Units without significant goodwill value, Amortization for the year -1 -1 combined 46 38 Disposals and retirements 2 2 162 176 Exchange rate differences 1 1 2 4 Closing balance, 31 Dec 2015 -4 -168 -36 -208 The cash-generating units’ recoverable amounts are based on the same important assumptions. Impairment testing is based on measurement of value in use. This value is based on Impairment cash flow forecasts for which the first three years are based on the three-year business Opening balance, 1 Jan 2014 -9 -93 -102 plan determined by the management of the Minerals Division. The total length of the fore- Impairment for the year -36 -36 cast period corresponds to the useful life of the units’ most important assets. The cash Exchange rate differences -2 -2 flows forecast after the first three years were based on annual growth of 2–3 (2–3) per­ cent, which corresponds to the long term growth rate of the units’ markets. The forecast Closing balance, 31 Dec 2014 -47 -93 -140 cash flows were calculated to present value using an individual discount rate (WACC). The important assumptions in the three-year business plan are described below. Opening balance, 1 Jan 2015 -47 -93 -140 Exchange rate differences 1 1 Important variables Method for estimating value Closing balance, 31 Dec 2015 -46 -93 -139 Market growth Demand for these products has historically followed economic cycles. Expected market growth is based on a transition from the prevailing economic situation to the anticipated long-term Carrying amount growth. At 1 Jan 2014 200 15 42 257 Employee benefit The forecast for employee benefit expenses is based on expect­ At 31 Dec 2014 176 16 36 228 expenses ed inflation and certain real wage growth. The forecast agrees with previous experience.

At 1 Jan 2015 176 16 36 228 At 31 Dec 2015 162 13 40 215 The recoverable amount of the LKAB Minerals Ltd cash-generating unit exceeds the carrying amount by MSEK 53. The discount rate before tax is 12.15 percent.

Depreciation, amortization and impairment are included on the following lines of the income statement Group MSEK 2015 2014 Cost of goods sold -1 -37 Of which impairment -36 -1 -37 NOTES 113

NOTE 15 PROPERTY, PLANT AND EQUIPMENT – OPERATIONS

Equipment, Group Land and Underground Plant and tools, fixtures Construction MSEK buildings installations machinery and fittings in progress Total Acquisition value Opening balance, 1 Jan 2014 8,528 5,297 27,593 6,561 10,778 58,757 Acquisitions 8 181 214 32 5,056 5,491 Capitalization of remediation 18 12 30 Acquisition of subsidiaries 34 34 Reclassifications 438 1,000 3,648 521 -5,776 -169 Disposals and retirements -69 -6 -76 -6 -157 Exchange rate differences 6 24 17 -24 23 Closing balance, 31 Dec 2014 8,963 6,478 31,485 7,055 10,028 64,009

Opening balance, 1 Jan 2015 8,963 6,478 31,485 7,055 10,028 64,009 Acquisitions 103 11 40 24 6,176 6,354 Capitalization of remediation 8 8 Reclassifications 232 1,132 -292 117 -1,184 5 Disposals and retirements -61 -12 -18 -266 -357 Exchange rate differences -183 -78 -14 -109 -384 Closing balance, 31 Dec 2015 9,062 7,621 31,143 7,164 14,645 69,635

Depreciation Opening balance, 1 Jan 2014 -3,045 -3,748 -13,513 -3,085 -23,391 Depreciation for the year -347 -216 -1,793 -509 -2,865 Reclassifications -1 1 Disposals and retirements 14 9 65 88 Exchange rate differences 9 -21 -20 -32 Closing balance, 31 Dec 2014 -3,370 -3,964 -15,317 -3,549 -26,200

Opening balance, 1 Jan 2015 -3,370 -3,964 -15,317 -3,549 -26,200 Depreciation for the year -364 -313 -1,622 -501 -2,800 Reclassifications -18 26 -13 -5 Disposals and retirements 13 23 24 60 Exchange rate differences 77, 41 9 127 Closing balance, 31 Dec 2015 -3,662 -4,251 -16,888 -4,017 -28,818

Impairment Opening balance, 1 Jan 2014 -544 -399 -496 -10 -158 -1,607 Impairment for the year -1 -1 Closing balance, 31 Dec 2014 -544 -399 -497 -10 -158 -1,608

Opening balance, 1 Jan 2015 -544 -399 -497 -10 -158 -1,608 Impairment for the year -824 -490 -2,511 -551 -2,388 -6,7641 Disposals and retirements 17 17 Closing balance, 31 Dec 2015 -1,368 -889 -3,008 -561 -2,529 -8,355

Carrying amount 1 January 2014 4,939 1,150 13,584 3,466 10,620 33,759 31 December 2014 5,049 2,115 15,671 3,496 9,870 36,201

1 January 2015 5,049 2,115 15,671 3,496 9,870 36,201 31 December 2015 4,032 2,481 11,247 2,586 12,116 32,462

1 Total impairment losses in the Group amount to MSEK -7,136 including MSEK -372 for impairment of mine asset; see also Note 16.

Capitalized remediation costs amount to MSEK 785 (778) and cumulative depreciation amounts to MSEK -529 (–514). Of the net amount of MSEK 256 (264), MSEK 208 (214) is recognized as land and buildings and MSEK 48 (50) as plant and machinery. 114 NOTES

Depreciation and impairment are included on the following lines of the income statement Group MSEK 2015 2014 Cost of goods sold -9,489 -2,828 Of which impairment -6,731 -1 Selling expenses -5 -4 Administrative expenses -16 -13 Of which impairment -3 Research and development -47 -17 Of which impairment -30 Other operating expenses -7 -4 -9,564 -2,866

Equipment, Parent Company Land and Underground Plant and tools, fixtures Construction MSEK buildings installations machinery and fittings in progress Total Acquisition value Opening balance, 1 Jan 2014 5,381 5,297 26,113 1,144 10,291 48,226 Acquisitions 23 181 268 17 4,368 4,857 Reclassifications 419 1,000 3,561 54 -5,203 -169 Disposals and retirements -6 -284 -290 Closing balance, 31 Dec 2014 5,823 6,478 29,936 1,215 9,172 52,624

Opening balance, 1 Jan 2015 5,823 6,478 29,936 1,215 9,172 52,624 Acquisitions 131 11 15 9 5,651 5,817 Reclassifications 118 1,132 -321, 68 -1,001 -4 Disposals and retirements -3 -3 -364 -370 Closing balance, 31 Dec 2015 6,072 7,621 29,627 1,289 13,458 58,067

Depreciation Opening balance, 1 Jan 2014 -2,061 -3,748 -12,769 -749 -19,327 Depreciation for the year -213 -216 -1,680 -104 -2,213 Disposals and retirements 6 6 Closing balance, 31 Dec 2014 -2,274 -3,964 -14,443 -853 -21,534

Opening balance, 1 Jan 2015 -2,274 -3,964 -14,443 -853 -21,534 Depreciation for the year -222 -313 -1,512 -104 -2,151 Reclassifications -18 26 -8 Disposals and retirements 2 4 6 Closing balance, 31 Dec 2015 -2,514 -4,251 -15,961 -953 -23,679

Impairment Opening balance, 1 Jan 2014 -543 -399 -496 -9 -158 -1,605 Closing balance, 31 Dec 2014 -543 -399 -496 -9 -158 -1,605

Opening balance, 1 Jan 2015 -543 -399 -496 -9 -158 -1,605 Impairment for the year -552 -490 -2,431 -58 -2,193 -5,7241 Disposals and retirements 17 17 Closing balance, 31 Dec 2015 -1,095 -889 -2,927 -67 -2,334 -7,312

Carrying amount 1 January 2014 2,777 1,150 12,848 386 10,133 27,294 31 December 2014 3,006 2,115 14,997 353 9,014 29,485

1 January 2015 3,006 2,115 14,997 353 9,014 29,485 31 December 2015 2,463 2,481 10,739 269 11,124 27,076

1 Total impairment losses in the Parent Company amount to MSEK -6,096 including MSEK -372 for impairment of mine asset; see also Note 16. NOTES 115

Depreciation and impairment are included on the following lines of the income statement Expensing and impairment are included on the following lines of the income statement

Parent Company Group and Parent Company MSEK 2015 2014 MSEK 2015 2014 Cost of goods sold -7,823 -2,193 Cost of goods sold -1,059 -144 Of which impairment -5,691 Of which impairment -372 Administrative expenses -5 -3 -1,059 -144 Of which impairment -3 As from 2015 property, plant and equipment for urban transformation are reported in a Research and development -47 -17 separate note. The balance sheet item includes the following assets: Of which impairment -30

-7,875 -2,213 Group and Parent Company MSEK 31/12 2015 31/12 2015 NOTE 16 Mine asset 1,896 3,159 PROPERTY, PLANT AND EQUIPMENT – URBAN TRANSFORMATION Replacement properties 179 Other property acquisitions 160 169 Group and Parent Company Land and Construction Total MSEK buildings in progress 2,235 3,328 Acquisition value Regarding reporting of replacement properties refer to Note 1, Principle 18.8.3. See Opening balance, 1 Jan 2014 also Note 31 for an overall picture of items associated with urban transformation. Reclassifications 169 169 Capitalization of mine asset 3,303 3,303 NOTE 17 Closing balance, 31 Dec 2014 3,303 169 3,472 PARTICIPATIONS IN ASSOCIATED COMPANIES Summary financial information for non-material holdings in associated companies, Opening balance, 1 Jan 2015 3,303 169 3,472 based on amounts included in the consolidated financial statements, is detailed below. Capitalization of mine asset 175 175 The holding refers mainly to participations in Norrskenet AB, which have been Reassessment of mine asset -392 -392 reclassified from Participations in Group companies; see Note 38. Reclassifications 173 10 183 Closing balance, 31 Dec 2015 3,259 179 3,438 Carrying amount MSEK 31/12 2015 31/12 2015 Carrying amount 45 0 Expensing Group’s share of associated companies’ net profit 1 Opening balance, 1 Jan 2014 Total comprehensive income 1 Expensing of mine asset -144 -144 Closing balance, 31 Dec 2014 -144 -144 NOTE 18 HOLDINGS IN JOINT OPERATIONS Opening balance, 1 Jan 2015 -144 -144

Expensing of mine asset -687 -687 Group and mine component The Group has a 50 percent co-ownership in Likya Minerals, whose main products are Closing balance, 31 Dec 2015 -831 -831 minerals with flame retardant properties (UltraCarb). Likya operates out of Turkey. Likya is a separate company but co-ownership is still considered to be a joint oper­ Impairment ation. The assessment is based on the fact that the co-owners have a commitment to buy all services that Likya provides and consequently finances Likya’s entire operation Opening balance, 1 Jan 2015 in order to settle its liabilities. Impairment for the year -372 -372 80 percent of Likya’s sales relate to companies within the LKAB Group. Closing balance, 31 Dec 2015 -372 -372 NOTE 19 RECEIVABLES FROM GROUP COMPANIES AND ASSOCIATED COMPANIES Carrying amount 31 December 2014 3,159 169 3,328 Parent Company MSEK 31/12 2015 31/12 2015

1 January 2015 3,159 169 3,328 Accumulated acquisition value 31 December 2015 2,056 179 2,235 Opening balance, 1 January 1,698 1,042 Lending 793 Reclassifications include expenses of MSEK 179 for replacement properties, which Amortization -192 -137 with effect from 2015 are reported as construction in progress. See corresponding Exchange rate fluctuation -111 reclassification of provisions in Note 30. Closing balance, 31 December 1,395 1,698

Accumulated impairment At beginning of year -153 Impairment for the year -153 Closing balance, 31 December -153 -153

Carrying amount at year-end 1,242 1,545 116 NOTES

NOTE 20 Parent Company FINANCIAL INVESTMENTS MSEK 31/12/2015 31/12/2014 Group Non-current receivables MSEK 31/12/2015 31/12/2014 Company-owned endowment insurance 107 92 Financial investments held as non-current Interest-free loan, Jernbaneverket 42 assets 107 134 Shares and participations – available-for-sale 328 614 assets Other current receivables Interest-bearing securities – held to maturity 10 PRI balance 21 21 Financial assets for funded pension obligations 253 288 Recoverable VAT 246 266 581 912 Tax assets 71 Financial investments held as current assets Tax account 82 Interest-bearing securities – initially measured 7,111 9,222 Receivables, credit institutions 536 441 at fair value Other 5 1 Shares and alternative investments – initially 3,014 2,179 961 729 measured at fair value

Interest-bearing securities – held to maturity 100 104 Parent Company 10,225 11,505 MSEK 31/12/2015 31/12/2014 Non-current receivables Shares and participations mainly refers to shares in SSAB. The carrying amount of the Accumulated acquisition value SSAB shares significantly exceeds the acquisition value. Change in value during the At beginning of year 134 170 year is recognized directly in other comprehensive income. Amortization -42 -44 Exchange rate fluctuation 1 NOTE 21 Reversal of impairment 2 OTHER NON-CURRENT SECURITIES Change in value of endowment insurance 15 5 Parent Company Closing balance, 31 December 107 134 MSEK 31/12/2015 31/12/2014 Accumulated acquisition value NOTE 23 At beginning of year 129 129 INVENTORIES Acquisitions 2 Closing balance, 31 December 131 129 Group MSEK 31/12/2015 31/12/2014 Raw materials and consumables 1,907 1,800 Work in progress 5 6 Parent Company MSEK 31/12/2015 31/12/2014 Finished goods and goods for resale 1,003 747 Specification of other Market Carrying Market Carrying 2,915 2,553 non-current securities value or amount value or amount equivalent equivalent Parent Company SSAB 279 83 563 83 MSEK 31/12/2015 31/12/2014 Other holdings 48 48 46 46 Raw materials and consumables 1,681 1,610 327 131 609 129 Finished goods 596 330 2,277 1,940 Other holdings relate primarily to Vindln AB.

NOTE 24 NOTE 22 ACCOUNTS RECEIVABLE NON-CURRENT RECEIVABLES AND OTHER RECEIVABLES Accounts receivable are recognized after taking into account consolidated bad debt losses for the year amounting to MSEK 4 (1). Regarding credit risks in accounts Group MSEK 31/12/2015 31/12/2014 receivable see Note 34. Non-current receivables that are non-current assets Interest-free loan, Jernbaneverket 42 NOTE 25 Other non-current receivables 0 20 PREPAID EXPENSES AND ACCRUED INCOME 0 62 Group Parent Company Other receivables that are current assets MSEK 31/12/2015 31/12/2014 31/12/2015 31/12/2014 PRI balance 21 22 Forward exchange Recoverable VAT 283 286 contracts – interest Tax assets 77 8 surcharges 11 Receivables, credit institutions 536 441 Prepaid insurance premiums 39 35 34 30 Derivatives 348 64 Prepaid option premiums 48 Tax account 85 18 Accrued income, iron ore 167 167 Receivables from clients 28 22 derivatives Other 14 15 Other prepaid expenses 59 112 39 74 1,392 876 Other accrued income 17 11 8 282 158 296 115 NOTES 117

NOTE 26 Parent Company EQUITY Restricted reserves Specification of equity reserves Restricted reserves cannot be reduced through distribution of profits. MSEK 2015 2014 Statutory reserve The purpose of the statutory reserve is to save a portion of net profit that is not used to Translation reserve cover losses brought forward. Opening translation reserve -65 -139 Non-restricted equity Translations differences for the year -85 74 Profit brought forward Closing translation reserve -150 -65 Comprises the previous year’s non-restricted equity after any distribution of profits. Together with profit for the year, it comprises non-restricted equity; that is, the amount Fair value reserve that is available as a dividend to shareholders. Opening fair value reserve 481 526 Available-for-sale financial assets: NOTE 27 Revaluation recognized directly in other -284 -45 INTEREST-BEARING LIABILITIES comprehensive income Closing fair value reserve 197 481 Group MSEK 2015 2014 Non-current liabilities Hedge reserve Issued corporate bonds 1,996 1,995 Opening hedge reserve -316 56 1,996 1,995 Cash flow hedges Current liabilities Recognized directly in other comprehensive 126 -410 income Issued commercial papers 1,000 798 Transferred to the income statement 414 -67 1,000 798 Tax attributable to revaluations for the year -119 105 Terms and payback periods Closing hedge reserve 105 -316 MSEK 2015 2014 Maturity Interest Nom. Carrying Nom. Carrying Total reserves value amount value amount Opening reserves 100 443 Bonds – fixed interest 2019 1.125% 1,600 1,596 1,600 1,595 Change in reserves for the year: Bonds – variable 3-månader Translation reserve -85 74 interest 2019 STIBOR 400 400 400 400 Fair value reserve -284 -45 Commercial STIBOR + Hedge reserve 421 -372 papers 2016 0.0-0.02% 1,000 1,000 800 798 Closing reserves 152 100 Total interest- bearing liabilities 3,000 2,996 2,800 2,793

Share capital Financial liabilities are classified as other financial liabilities and are measured at As at 31 December 2015, the registered share capital comprised 700,000 (700,000) amortized cost using the effective interest method. ordinary shares. The share capital consists of only one type of share and all shares have equal rights. For more information about the company’s exposure to interest rate risk, see Note 34. Holders of ordinary shares are entitled to a dividend that is determined in due course, and each share entitles the holder to one vote at the AGM. The quota value is SEK 1,000 per share. NOTE 28 Translation reserve LIABILITIES TO CREDIT INSTITUTIONS The translation reserve covers all exchange rate differences that arise in translating Parent Company the financial statements of foreign entities whose financial statements were prepared MSEK 2015 2014 in currencies other than the Group’s presentation currency. The Parent Company and Non-current liabilities Group present their financial statements in SEK. Issued corporate bonds 1,996 1,995 Fair value reserve 1,996 1,995 Available-for-sale financial assets Current liabilities The fair value reserve includes the accumulated net change in the fair value of availa­ ble-for-sale financial assets up until the assets are derecognized from the statement of Issued commercial papers 1,000 798 financial position. Any impairment is recognized in the income statement. 1,000 798

Hedge reserve No liabilities mature later than five years after the end of the reporting period. The hedge reserve includes the effective portion of the accumulated net change in the fair value of cash flow hedging instruments attributable to hedging transactions that have not yet occurred.

Dividend The Board proposes to the AGM that no dividend is paid to the owner. The AGM will be held on 28 April 2016.

MSEK 2015 2014 Ordinary dividend, SEK 0 (199) per share 139 139

The dividend proposed by the Board is in line with the decisions made at the AGM for the past two years. 118 NOTES

NOTE 29 Changes in the present value of obligations for defined-benefit plans PENSIONS Group MSEK 2015 2014 Defined-benefit pension plans Obligation for defined-benefit plans as at 1 January 4,183 3,791 Group Benefits paid -212 -214 MSEK 2015 2014 Cost of service, current period 119 93 Present value of unfunded obligations 716 770 Interest expense 111 135 Present value of wholly or partially funded obligations 3,267 3,413 Remeasurements: Total present value of obligations 3,983 4,183 - Actuarial gains and losses on changed demographic Fair value of plan assets -2,376 -2,317 assumptions Present value of net obligations 1,607 1,866 - Actuarial gains and losses on changed financial -130 361 assumptions - Actuarial gains and losses on experience-based -31 -5 Effect of limitation rule for net assets adjustments Net amount in statement of financial position 1,607 1,866 Other changes -23 -5 Exchange rate differences on obligation and recognized The net amount is recognized in the following items actuarial loss -34 27 in the statement of financial position: Obligation for defined-benefit plans Financial investments -253 -290 as at 31 December 3,983 4,183 Provisions for pensions, non-current liabilities 1,860 2,156 Net amount in statement of financial position 1,607 1,866 The present value of the Swedish portion of the obligation is divided between the plans’Acquired members obligation as follows: Defined-benefit pension plans - Active members 55 (53) percent Most of LKAB’s pension plans for employees in Sweden are defined-benefit plans, which means that LKAB guarantees pensions based on a percentage of salary. - Paid-up policy holders 7 (6) percent Pension provisions in Sweden are secured by the company via accrued provisions, of - Retirees 38 (40) percent which most are secured through credit insurance from FPG (Försäkringsbolaget PRI Pensionsgaranti). In 2013 an internal company pension fund was started for vested de­ fined-benefit pension plans. Promises of future retirement before the age of 65 are to a Changes in fair value of plan assets certain degree contingent upon working underground and are secured by the company Group via accrued provisions without credit insurance. MSEK 2015 2014 Commitments for retirement pensions and survivor benefits for salaried employees Fair value of plan assets at 1 January 2,317 2,181 in Sweden are secured through insurance policies from Alecta. According to a state­ ment from the Swedish Financial Reporting Board, UFR 3, this is a defined-benefit plan Contributions 61 53 that involves several employers. The company has not had access to such information Benefits paid -54 -78 as is necessary for recognizing this commitment as a defined-benefit plan. The ITP Return 67 83 2 pension plan insured via Alecta is therefore recognized as a defined-contribution Actuarial gain (+)/loss (-) 14 72 plan. The premium for the defined-benefit retirement and family pension is individ­ ually calculated and depends on factors such as salary, previously earned pension Other -2 -10 and expected remaining years of service. Alecta’s surplus can be distributed to the Exchange rate differences on plan assets and policyholders and/or the insured parties. At the end of 2015, Alecta’s collective reserve recognized actuarial loss -27 16 surplus amounted to 153 (144) percent, which is within the normal spread of 125–155 Fair value of plan assets at 31 December 2,376 2,317 percent stated in Alecta’s consolidation policy for these insurance policies. The premium to Alecta is determined by assumptions about interest rates, longevity, operating expenses and yield tax, and is calculated so that constant payment of premi­ Plan assets consist of the following ums until the retirement date is sufficient for the entire target benefit, which is based Group on the insured’s current pensionable salary and which must be earned. MSEK 2015 2014 There is no set of fixed rules for how deficits that may arise should be handled, but Shares 678 698 losses should primarily be covered by Alecta’s collective solvency capital and thus will not lead to increased expenses through higher contractual premiums. There are also Interest-bearing assets including bonds 1,095 1,339 no rules for how any surplus or deficit should be distributed when plans are terminat­ Alternative investments 603 280 ed or a company withdraws from the plan. 2,376 2,317 In Norway, the UK and Germany, LKAB has defined-benefit pension plans as a com­ plement to local social insurance. In the UK pensions are secured via a company-man­ aged pension fund and in Germany via internal accrued provisions combined with cred­ Cost recognized in profit for the year it insurance. In Norway pensions are secured via a combination of a company-managed Group pension fund, internal accrued provisions and credit insurance. The operations in the MSEK 2015 2014 Belgian subsidiary are being discontinued and at the end of the financial year there Current service cost 118 93 were no employees and no remaining pension obligations. Interest expense on obligation 111 135 Return on plan assets -67 -83 Total net cost in income statement 162 145 NOTES 119

Cost is recognized on the following lines of the income statement: Net liability recognized in balance sheet Group Parent Company MSEK 2015 2014 MSEK 31/12/2015 31/12/2014 Cost of goods sold 118 93 + Present value of obligation (calculated according to Swedish principles) as relates to wholly or partially Financial income (recognized in net financial income/ -67 -83 funded pension plans 1,055 1,023 expense) - Fair value at end of period for specifically separated Financial expense (recognized in net financial income/ 111 135 assets (in pension funds and the like) -1,046 -999 expense) = Surplus in pension fund or the like (-)/ 162 145 net obligation (+) 9 24 Of which, recognized in the Parent Company balance sheet 26 24 Cost recognized in other comprehensive income + Present value of obligations (calculated according to Group Swedish principles) for unfunded pension plans 561 563 MSEK 2015 2014 = Net recognized for pension obligations 587 587 Remeasurements: Actuarial gains (-) and losses (+) -160 356 Changes in net liability Difference between actual return and return according to discount rate on plan assets -14 -72 Parent Company MSEK 31/12/2015 31/12/2014 Net recognized in other comprehensive income -174 284 Net liabilities at start of year for pension provisions 587 663 Assumptions for defined-benefit obligations + Cost of company-managed pension scheme 110 30 The most significant actuarial assumptions at the end of the reporting period excluding taxes as recognized in the income (expressed as weighted averages) statement Group - Pension payments -109 -104 Percent 2015 2014 +/- Other -1 -2 Discount rate as at 31 December 2.7 2.6 587 587 Return on plan assets as at 31 December 2.7 2.6 Future salary increase 2.7 3.3 Fair value of assets in trust by main category Employee turnover 3.5 3.5 Parent Company Future pension increase 2.1 2.2 MSEK 31/12/2015 31/12/2014

Assumptions about future mortality are based on published statistics and mortality Shares 283 284 rates. The average life expectancy of an individual retiring at age 65 is 23 years for men Bonds 410 429 and 25 years for women. Other interest-bearing assets 329 46 The actual return on plan assets for 2015 was 3.4 (6.7) percent. Other assets 24 240 Sensitivity analysis 1,046 999 The following table presents possible changes in actuarial assumptions at year-end, other assumptions being unchanged, and how these would affect the defined-benefit obligation. The calculation of the change in pension commitments only includes the Costs relating to pensions Swedish commitments, which represent around 55 percent of Group commitments. Parent Company MSEK 2015 2014 Group Increase Decrease Company-managed pension schemes MSEK in assumption in assumption Cost excluding interest expense 110 30 + (decrease)/- (increase) in liability Interest expense Discount rate (0.5% change) 112 -126 Cost of company-managed pension schemes 110 30 Expected mortality (1-year change) -45 45 Pension through insurance policy Future salary increase (0.5% change) -79 72 Insurance premiums 225 207 Future pension increase (0.5% change) -70 64 Subtotal 335 237

At 31 December 2015 the weighted average duration of the obligation was 16.4 (16.8) Special employer’s contribution on pension costs 89 79 years. Cost of credit insurance, administrative expenses, other 6 9 Recognized net cost attributable to pensions 430 325 Historical information Group Net pension cost is recognized on the following lines of the income statement: MSEK 2015 2014 2013 2012 2011 Present value of defined- Parent Company benefit obligations 3,983 4,183 3,791 3,822 3,563 MSEK 2015 2014 Fair value of plan assets -2,376 -2,317 -2,181 -1,101 -1,033 Operating expense 430 325 Net obligations 1,607 1,866 1,610 2,721 2,530 430 325

The Group estimates that MSEK 78 will be paid in 2016 to funded and unfunded de­ Assumptions for defined-benefit obligations fined-benefit plans and MSEK 28 is expected to be paid in 2016 to the defined-benefit plans that are recognized as defined-contribution plans. 120 NOTES

The most significant actuarial assumptions at the end of the reporting period NOTE 30 (expressed as weighted averages) PROVISIONS Parent Company Group Percent 2015 2014 MSEK 31/12/2015 31/12/2014 Discount rate Provisions as at 31 December 3.8 3.8 Urban transformation 12,234 11,683 Defined-contribution pension plans Emission allowances for carbon dioxide 44 37 In Sweden, the Group has defined-contribution pension plans for employees that are fully paid by the companies. Remediation costs 1,254 1,127 Outside of Sweden, there are defined-contribution plans that are financed partly Other 32 141 by the subsidiaries and partly by employee contributions. Total 13,564 12,988 Payments into these plans are made regularly in accordance with the terms of each plan. Parent Company MSEK 31/12/2015 31/12/2014 Group Parent Company Provisions MSEK 2015 2014 2015 2014 Urban transformation 12,234 11,683 Costs for defined-contribution pension plans 264 241 224 207 Emission allowances for carbon dioxide 44 37 Remediation costs 924 800 In 2015 retirement solutions were paid out through insurance plans in the amount of Other 17 112 MSEK 24 (–). Total 13,219 12,632

Group Urban Emission Remediation Other MSEK transformation allowances costs provisions Total Opening balance 2014 6,304 40 1,067 166 7,577 Provisions for the year 3,375 29 41 3,445 Reassessment of previous years’ provisions 3,188 3,188 Utilized provisions -1,329 -66 -1,395 Interest adjustment on liabilities for the year 145 31 176 Emissions for the year 37 37 Settlement of previous years’ emissions -40 -40 Closing balance 2014 11,683 37 1,127 141 12,988 Of which to be paid out in 2015 2,039 37 4 97 2,177 Of which to be paid out 2016–2022 9,201 314 44 9,559 Of which to be paid out after 2022 443 809 1,252

Opening balance 2015 11,683 37 1,127 141 12,988 Provisions for the year 656 94 750 Reassessment of previous years’ provisions -51 -14 -65 Utilized provisions -291 -95 -386 Interest adjustment on liabilities for the year 33 33 Inflation increase for the year 58 58 Reclassification 179 179 Emissions for the year 46 46 Settlement of previous years’ emissions -39 -39 Closing balance 2015 12,234 44 1,254 32 13,564 Less: expenditures for replacement properties -179 -179 Closing balance 2015 (net) 12,055 44 1,254 32 13,385 Of which to be paid out in 2016 1,283 44 89 19 1,435 Of which to be paid out 2017–2023 7,956 327 13 8,296 Of which to be paid out after 2023 2,816 838 3,654

Expenditures for replacement properties refers to expenses incurred which are reported as property, plant and equipment – see Note 16. The provisions and the property, plant and equipment item are offset when the replacement property is handed over. For an overall picture of items related to urban transformation refer to Note 31. NOTES 121

Parent Company Urban Emission Remediation Other MSEK transformation allowances costs provisions Total Opening balance 2014 6,304 40 765 148 7,257 Provisions for the year 3,375 13 30 3,418 Reassessment of previous years’ provisions 3,188 3,188 Utilized provisions -1,329 -66 -1,395 Interest adjustment on liabilities for the year 145 22 167 Emissions for the year 37 37 Settlement of previous years’ emissions -40 -40 Closing balance 2014 11,683 37 800 112 12,632 Of which to be paid out in 2015 2,039 37 4 97 2,177 Of which to be paid out 2016–2022 9,201, 241 15 9,457 Of which to be paid out after 2022 443 555 998

Opening balance 2015 11,683 37 800 112 12,632 Provisions for the year 656 101 757 Reassessment of previous years’ provisions -51 -51 Utilized provisions -291 -95 -386 Interest adjustment on liabilities for the year 23 23 Inflation increase for the year 58 58 Reclassification 179 179 Emissions for the year 46 46 Settlement of previous years’ emissions -39 -39 Closing balance 2015 12,234 44 924 17 13,219 Less: expenditures for replacement properties -179 -179 Closing balance 2015 (net) 12,055 44 924 17 13,040 Of which to be paid out in 2016 1,283 44 89 17 1,433 Of which to be paid out 2017–2023 7,956 260 8,216 Of which to be paid out after 2023 2,816 575 3,391

NOTE 31 Provisions for urban transformation URBAN TRANSFORMATION Provisions are recognized on the following lines of the balance sheet: LKAB has already had, and will continue to have, significant costs related to urban Group and Parent Company transformation. Provisions for urban transformation are recognized in accordance with MSEK 31/12/2015 31/12/2014 the criteria of IAS 37. Current liabilities 1,283 2,039 In order to finance future urban transformation payments, funds are allocated in Non-current liabilities 10,951 9,644 accordance with the current board-approved financing policy. The purpose of such 12,234 11,683 asset management is to ensure LKAB’s ability to pay and that the return on allocated funds will cover inflation over time. The recognized provision for urban transformation does not include LKAB’s own need to Net cost of urban transformation replace properties affected by urban transformation. New capital expenditure of MSEK The company’s net cost consists of the following components: 383 has been approved for replacement of the company’s own properties. There will also be subsequent requirements arising from future mining. LKAB regu­ Group and Parent Company larly assesses these future requirements. The assessments are subject to considerable MSEK 2015 2014 uncertainty. At the end of the reporting period, LKAB determined that the Group’s actual Costs for urban transformation, current period -1,218 -290 short- and long-term capital commitments for urban transformation are significant. Effect of changed assumptions and assessments -350 -3,142 Since 2006 LKAB has paid out MSEK 3,586 on expenses that were set aside as Impairment of mine asset -372 liabilities in previous years. The corresponding pay-out for 2015 amounts to MSEK 291. Urban transformation in the Swedish orefields has encumbered LKAB’s earnings Effect of present value measurement of provision -145 and liquidity considerably, and will continue to do so in the years to come. LKAB must -1,940 -3,577 therefore remain financially strong to meet both existing and future urban transforma­ tion commitments. Due to the current level of interest rates, provisions for urban transformation are not discounted and hence no interest expense is recognized for 2015. . Property, plant and equipment for urban transformation The balance sheet item includes the following assets: The net cost of urban transformation is recognized on the following lines of the income Group and Parent Company statement: MSEK 31/12/2015 31/12/2014 Group and Parent Company Mine asset 1,896 3,159 MSEK 2015 2014 Replacement properties 179 Cost of goods sold -1,940 -3,432 Other property acquisitions 160 169 Financial expense -145 2,235 3,328 -1,940 -3,577 Replacement properties refers to expenditures for the construction of replacement properties for those property owners who have chosen this option. Commitments for replacement properties are recognized as a provision until handover of the replacement property. At this point, the provision is offset against expenditures for the replacement property. 122 NOTES

NOTE 32 ACCRUED EXPENSES AND DEFERRED INCOME

Group Parent Company MSEK 31/12/2015 31/12/2014 31/12/2015 31/12/2014 Electric power 58 68 49 59 Payroll and employee benefit expenses 684 712 601 615 Forward exchange contracts – interest discount 7 Accrued trade payables 282 289 226 242 Other 536 138 463 82 1,560 1,207 1,346 998

NOTE 33 MEASUREMENT OF FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE AND CATEGORIZATION

Classification and fair value and level of measurement hierarchy The following is a summary of the fair values of consolidated financial assets and liabilities with a breakdown by measurement category. Information is also provided about to which fair value level the respective financial assets and liabilities belong.

Carrying amount Fair value Available- Initially Investments Loans for-sale Group 2015 Held for identified at Hedging held to and financial Other MSEK Note trading fair value instruments maturity receivables assets liabilities Total Level 1 Level 2 Level 3 Total Financial assets measured at fair value Shares, financial assets 20 279 279 279 279 Shares and alternative invest­ ments, short-term holding 20 3,014 3,014 3,014 3,014 Interest-bearing, short-term 20 7,111 7,111 7,111 7,111 holding Interest-bearing (cash and cash 40 1,787 1,787 1,787 1,787 equivalents) Derivatives for hedging 22 54 294 348 244 104 348 54 11,912 294 279 12,539 Financial assets not recognized at fair value Shares, financial assets 20 49 49 Interest-bearing, short-term 20 100 100 100 100 holding Loans 22 0 0 Accounts receivable 1,320 1,320 Other receivables 22 1,044 1,044 Accrued income 25 282 282 Cash and bank balances (cash and cash equivalents) 40 2,548 2,548 100 5,194 49 5,343 Financial liabilities measured at fair value Derivatives for hedging 27 147 174 174 174 27 147 174 Financial liabilities not recognized at fair value Issued commercial papers 27 1,000 1,000 Issued bond loans 27 1,996 1,996 1,960 1960 Trade payables 1,573 1,573 Other liabilities 269 269 Accrued expenses 32 1,560 1,560 6,398 6,398 NOTES 123

Carrying amount Fair value Available- Initially Investments Loans for-sale Group 2014 Held for identified at Hedging held to and financial Other MSEK Note trading fair value instruments maturity receivables assets liabilities Total Level 1 Level 2 Level 3 Total Financial assets measured at fair value Shares, financial assets 20 563 563 563 563 Shares and alternative invest­ ments, short-term holding 20 2,179 2,179 2,179 2,179 Interest-bearing, short-term holding 20 9,222 9,222 9,222 9,222 Interest-bearing (cash and cash equivalents) 40 2,735 2,735 2,735 2,735 Derivatives for hedging 22 64 64 64 64 64 14,136 563 14,763 Financial assets not recognized at fair value Shares, financial assets 20 51 51 - - - - Interest-bearing, financial asset 20 10 10 10 10 Interest-bearing, short-term holding 20 104 104 104 104 Loans 22 62 62 62 62 Accounts receivable 1,908 1,908 - - - - Other receivables 22 812 812 - - - - Accrued income 25 158 158 - - - - Cash and bank balances (cash and cash equivalents) 40 2,623 2,623 - - - - 114 5,563 51 5,728 Financial liabilities at fair value Other derivatives for hedging 29 621 650 46 604 650 29 621 650 Financial liabilities not recognized at fair value Issued commercial papers 27 798 798 - - - - Issued bond loans 27 1,995 1,995 - - - - Trade payables 1,691 1,691 - - - - Other liabilities 471 471 - - - - Accrued expenses 32 1,207 1,207 - - - - 6,162 6,162

Shares, financial assets not recognized at fair value refers to unlisted holdings, mainly in VindIn AB. Fair value cannot be reliably estimated when there is no quoted market price in an active market. The shares are measured at cost and are tested regularly for impairment. For issued commercial papers, the carrying amount represents a reasonable approximation of fair value because of the short time to maturity. Issued bond loans were issued in December 2014. The carrying amount as at 31 December 2014 was therefore estimated to be a reasonable approximation of fair value. Fair value is disclosed as at 31 December 2015. The carrying amount of accounts receivable, other receivables, accrued income, cash and cash equivalents, trade payables, other liabilities and accrued expenses represent a reasonable approximation of fair value.

Fair value measurement Interest-bearing instruments Disclosures concerning financial assets and liabilities measured at fair value are based The value of interest-bearing instruments is calculated using data from the inter­ on a fair value hierarchy with three levels. est-bearing securities market, obtained from Bloomberg.

Level 1: Shares and alternative investments Quoted prices (unadjusted) on active markets for identical assets or liabilities. The value of these investments is calculated using data from the stock market or received directly from brokers. Level 2: Inputs other than quoted market prices included within Level 1 that are observable for Derivatives the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). The fair values of derivative contracts are calculated using official quotations obtained from Bloomberg. Level 3: No transfers have been made between Levels 1 and 2. Inputs for the asset or liability that are not based on observable market data (unobservable inputs). Parent Company The following table provides information about the financial assets and liabilities of the Parent Company where there are differences between fair value and cost. For other assets and liabilities of the Parent Company the carrying amount is estimated to be a reasonable approximation of fair value; see information about the Group above. As regards the calculation of fair value, please refer to the description above for the Group. 124 NOTES

Carrying amount Fair value Availa­ Initially iden­ Investments ble-for-sale Parent Company 2015 Held for tified at fair Hedging held to ma­ Loans and financial Other MSEK trading value instruments turity receivables assets liabilities Total Level 1 Level 2 Level 3 Total Shares, financial assets 82 82 279 279 Current investments 11,800 11,800 11,912 11,912 Non-current receivables 0 0 0 0 Forward exchange contracts for -7 16 9 41 41 hedging1 Other derivatives for hedging2 17 3 20 244 -111 133 17 11,800 -4 16 82 11,911

Carrying amount Fair value Availa­ Initially iden­ Investments ble-for-sale Parent Company 2014 Held for tified at fair Hedging held to ma­ Loans and financial Other MSEK trading value instruments turity receivables assets liabilities Total Level 1 Level 2 Level 3 Total Shares, financial assets 82 82 563 563 Current investments 14,035 14,035 14,119 14,119 Non-current receivables 42 42 42 42 Forward exchange contracts for 11 -217 -206 -595 -595 hedging1 Other derivatives for hedging2 9 9 -46 55 9 9 14,035 11 -175 82 13,962

1 Carrying amount refers to accrued forward premium and measurement of accounts receivable at the forward rate. 2 Carrying amount refers to accrued option premium and for 2015 also negative values for derivatives to which hedge accounting is not applied.

NOTE 34 Price risk of iron ore products FINANCIAL RISKS AND RISK MANAGEMENT Price volatility in the global iron ore market makes LKAB’s prices change substantially in both the long and short terms. The price of iron ore products in USD is dependent on Framework for financial risk management future expected prices for LKAB’s products, which in turn are dependent on the global The Group’s activities expose it to a variety of financial risks. LKAB’s financial risk commodity price and the global pricing mechanism for iron ore. management is regulated by a finance policy established by the Board. The finance Price risk for iron ore products is hedged using generally available commodity derivatives. policy provides a framework of guidelines and rules in the form of risk mandates and The fair value of derivatives related to price risk of iron ore products amounted to MSEK limits for financial activities. The LKAB Treasury Centre is the company’s central treas­ 282 (17) at 31 December 2015, of which MSEK 306 (56) was recognized as assets and MSEK ury function, which manages the Group’s overall financial risk and is also the Group 24 (39) as liabilities. Hedge accounting is applied to derivatives with a value of MSEK 253 treasury. The Board’s finance committee is responsible for continuously monitoring the (-26). In 2015 MSEK 26 (-) was transferred from the hedging reserve via other comprehensive management of financial risks, objectives of risk exposure, administration, credit limits, income to profit for the year as part of net sales. limits and reporting procedures, as well as checking that all this is done in accordance The fair value of derivatives is expected to be recognized in profit for the year in 2016. with the finance policy. Currency risks The Group is exposed to various types of currency risks. The main exposure stems from Cash flow risk in SEK Group sales of iron ore where market pricing is in USD. This currency risk in forecast The LKAB Group is exposed to a variety of cash flow risks, which can be positively or and contracted payment flows is called transaction exposure. negatively correlated. LKAB’s main cash flow risk in SEK is related to iron ore product Currency risks are also found in the translation of foreign subsidiaries’ assets and sales in the Parent Company. Cash flow risk means that fluctuations in the global iron liabilities to the Parent Company’s functional currency, known as translation exposure. ore price and exchange rates between USD and SEK can together have a negative impact on the company’s income statement, balance sheet and/or cash flow. Another Transaction exposure significant cash flow risk is energy price risk. The finance policy governs the framework for hedging; see the Price risk for iron ore The finance policy describes procedures and regulations for identifying and reporting products section above. Hedging of transaction exposure in USD is done with derivative total consolidated cash flow risk and the frameworks within which hedging of cash flow contracts that are generally available on the currency market, primarily forward risks should or may occur. Cash flow risk is quantified on the basis of a rolling cash flow exchange contracts. forecast. The calculation includes all identified cash flows exposed to market prices and The Group’s transaction exposure in USD in 2015 amounted to USD 1,759 million (2,997). takes into account historical covariance. The fair value of forward exchange contracts amounted to MSEK 41 (-595) as at 31 The Group’s objective is to use hedging activities to obtain a desired level of risk December 2015. In 2015 MSEK 387 (-67) was transferred from the hedging reserve via relating to the Group’s cash flow, earnings, balance sheet and liquidity. other comprehensive income to profit for the year as part of net sales. The finance policy establishes frameworks for hedging cash flow risk, which includes The fair value of currency derivatives is expected to be recognized in profit for the year a hedging period and a maximum degree of hedging during that period. The flows are in 2016. normally hedged against a rolling forecast 12–18 months into the future with a maxi­ For other companies within the Group transaction exposure arises principally through mum hedging degree of from 100 percent down to 60 percent. It is possible to hedge for the purchase of raw materials in foreign currencies. Each subsidiary is responsible for longer periods following specific decisions. Hedging is done through a combination of its currency exposure and all forward cover occurs through the LKAB Treasury Centre. hedging strategies, agreements and financial contracts. The Group’s transaction exposure in other currencies amounts to MNOK 478 (465), The Group classifies its derivatives that are used for cash flow hedging of forecast MEUR 85 (71) and CNY 30 (-). transactions in accordance with the regulations of IAS 39. Hedge accounting is applied Translation exposure when the requirements for hedge accounting are met; see Note 1 Significant accounting LKAB does not normally hedge its translation exposure. The foreign subsidiaries within principles, Principle 17 Derivatives and hedge accounting. the Group operate mainly in their local currencies and investments as well as financing At 31 December 2015, 31 (34) percent of the total cash flow forecast in SEK for 2016 are mainly carried out in the local currency in order to reduce translation exposure. (2015) was hedged. Consolidated net foreign assets are divided into the following currencies (millions of For sensitivity analyses concerning cash flow risks, please refer to the Administra­ local currency). tion Report. NOTES 125

Currency 2015 2014 Credit risks in financial activities The financial activities of the Group entail exposure to credit risks. This is primarily EUR 11 11 counterparty risks in conjunction with receivables from banks and other counterparties GBP 36 29 involved in the purchase of financial investments. USD 3 3 The finance policy contains special counterparty rules stating the maximum credit DKK 223 221 exposure for various counterparties and for each designated asset portfolio. The Inter­ national Swaps and Derivatives Association’s (ISDA) master agreement is used with all NOK 884 834 counterparties in derivative transactions. CNY 17 25 The Group has no assets that have fallen due or have been impaired that resulted HKD 95 109 in credit losses. LKAB has not experienced any credit losses in short-term investments TRL 15 12 over the past five years. Credit risks in accounts receivable Consolidated profit for the year includes foreign exchange rate differences of MSEK Commercial credit risks are a natural part of the LKAB Group’s business and normally -613 (-260) in operating profit and MSEK -85 (50) in net financial income/expense. arise from the sale of goods and services. Commercial credit risks are related to the customer’s or counterparty’s solvency; that is, their credit standing, the amount of Energy price risk credit granted and the credit period. Commodity price risk refers to the change in the price of input goods and its impact on The Group’s finance policy contains a regulatory framework for credit rating that earnings. It is mainly changes in energy prices that constitute a large commodity price defines the criteria for evaluating new and existing customers from a credit risk risk for the LKAB Group. The Group’s energy costs make up 8 (8) percent of operating perspective. The framework includes approval processes, credit limits and monitoring costs before impairment. procedures. Hedging of electricity prices occurs through fixed contracts at indexed prices and The average collection period on accounts receivable was 33 (33) days in 2015. through relevant financial contracts in the electricity market for purchase at variable Based on historical data, LKAB estimates that no impairment of accounts receivable prices. that are not yet due is necessary as of the end of the reporting period. The majority of The fair value of derivatives related to electricity price risk amounted to outstanding accounts receivable comprise customers with a good credit standing that MSEK -147 (8) at 31 December 2015. In 2015 MSEK 1 (-) was transferred from are known to the Group. the hedging reserve via other comprehensive income to profit for the year as part of Offsetting and similar contracts operating expenses. Counterparty risk in derivative contracts is reduced through netting agreements The fair value of derivatives is expected to be recognized in profit for the year over (ISDA agreements); that is, netting of positive and negative values in all derivative the 2016–2020 period. contracts with one and the same counterparty. Netting agreements are supplemented by agreements on surety for net exposures (Credit Support Annex or CSA agreement). Interest rate risk LKAB currently has ISDA and CSA agreements with all counterparties in derivative Interest rate risk refers to how the return on an interest-bearing asset is affected by transactions. a change in interest rates. The size of the interest rate risk is affected by the interest ISDA agreements do not meet the criteria for offsetting in the statement of financial rate’s development and by the asset’s sensitivity to interest rates – duration. LKAB is position. Under the master agreements, the parties may only settle their exposures net mainly exposed to interest rate risk with regard to short-term investments and cash (that is, assets are offset against liabilities) in cases of severe credit events. and cash equivalents. The information in the following table shows financial assets and liabilities that are The LKAB Group’s total assets are allocated to three portfolios: liquidity portfolio, subject to a legally binding master netting agreement or similar agreement that is not urban transformation portfolio and pension portfolio. The finance policy governs the offset in the balance sheet. maximum average duration in each asset portfolio. The frameworks are set in relation to each portfolio’s commitment or purpose and in relation to a range of risk measures and restrictions. Carrying amounts Related amounts that are not offset The Parent Company’s interest-bearing investments amounted to MSEK 8,898 Financial Net amount (11,945) at the end of December 2015. The average duration was 587 (563) days. Group assets/ in statement Collateral Collateral The Group’s policy also contains guidelines/directives for debt management where 2015 liabilities, Offset of financial provided, provided, Net the duration targets relate to directives for the net debt/equity ratio. Consolidated MSEK gross amounts position securities cash amount borrowing amounted to MSEK 2,996 (2,793) at 31 December 2015. The fixed interest Financial assets term for financial liabilities is 797 days. Derivatives 419 -71 348 348 Credit risks Financial liabilities LKAB’s credit risks are primarily associated with accounts receivable, derivatives and Derivatives -245 71 -174 93 368 287 short-term investments. Total 174 174 93 368 635

Maximum credit risk exposure MSEK 2015 2014 Carrying amounts Related amounts that are not offset Financial Net amount Group assets/ in statement Collateral Collateral Derivatives 348 64 2014 liabilities, Offset of financial provided, provided, Net Interest-bearing, financial assets 10 MSEK gross amounts position securities cash amount Interest-bearing instruments, short-term holding 7,211 9,326 Financial assets Interest-bearing instruments, short-term holding Derivatives 93 -29 64 64 (portion of cash and cash equivalents) 1,787 2,735 Financial liabilities Accounts receivable and other current receivables 2,364 2,720, Derivatives -679 29 -650 408 148 -94 Non-current receivables 0 62 Total -586 -586 408 148 -30 Accrued income 282 158 Total 11,992 15,075 126 NOTES

Liquidity risks Credit facilities Utilized Liquidity risk is the risk that the LKAB Group cannot meet its commitments due to lack Nominal (nominal) Available of liquidity or the inability to raise external loans for operating activities. Mining legis­ Certificate programme, maturing 2015 5,000 1,000 4,000 lation and consequent requirements for urban transformation in the Swedish orefields Bond programme, maturing 2019 7,000 2,000 5,000 place special demands on liquidity. The Group’s finance policy defines liquidity targets for the purpose of managing the Group’s short- and long-term commitments. Credit facility 5,000 5,000 Available funds as at 31 December 2015 are shown below. All credit facilities are Total 17,000 3,000 14,000 subject to 100 percent retention of title. Cash and cash equivalents (excluding pledged assets) 3,808 Total available funds 17,808

The maturity structure of financial liabilities and assets is shown in the table below. 2015 2014 Group 3 months 3 months MSEK Total < 1 mån 1–3 months –1 year 1–5 years > 5 years Totalt < 1 mån 1–3 months –1 year 1–5 years > 5 years Certificates 1,000 600 400 798 798 Bond loans 1,996 1,996 1,995 1,995 Derivatives 174 5 21 51 97 650 105 186 359 Trade payables 1,131 941 6 184 1,305 1,158 11 136 Other liabilities and accrued expenses 2,230 404 100 1,726 2,403 502 82 1,819 Summa 6,531 1,950 527 1,961 2,093 7,151 1,765 1,077 2,314 1,995

The consolidated maturity structure of trade payables, other liabilities and accrued expenses are considered to resemble the Parent Company’s in all material respects. The above information is taken from the Parent Company.

Maturity structure of financial assets – undiscounted cash flows. 2015 2014 Group 3 months 3 months MSEK Total < 1 mån 1–3 months –1 year 1–5 years > 5 years Totalt < 1 mån 1–3 months –1 year 1–5 years > 5 years Interest-bearing securities 8,898 1,564 600 2,131 4,366 237 11,945 2,899 704 3,135 4,307 900 Derivatives 348 24 118 206 64 26 10 18 8 2 Total 9,246 1,588 718 2,337 4,366 237 12,009 2,925 714 3,153 4,315 902

The Group’s maturity structure is considered to resemble the Parent Company’s in all material respects. The information in the maturity structure for interest-bearing securities refers to the Parent Company.

Asset management NOTE 35 LKAB’s financial risk management is regulated by a finance policy approved by the INVESTMENT COMMITMENTS Board. The Board’s finance committee is responsible for continuously monitoring the At year-end, the Group had contractual commitments to acquire property, plant and management of financial risks, objectives of risk exposure, administration, credit limits, equipment. The commitments are forecast at MSEK 2,461 (5,064), of which MSEK 2,380 limits and reporting procedures, as well as checking that all this is done in accordance (4,382) is expected to be settled in the following financial year. Major projects include with the finance policy. a new main level in Kiruna (KUJ 1365) and preparatory work for mining in Leveäniemi LKAB defines its managed assets as equity in the Group excluding unrealized and Mertainen. changes in the value of derivatives that are recognized directly in equity. Assets under The Parent Company’s commitments are forecast at MSEK 2,219 (4,000), of which management amounted to SEK 32.0 (38.1) billion at the end of the reporting period. MSEK 2,138 (3,337) is expected to be settled in 2016. According to the Board’s finance policy, the Group’s financial objective is to have a good capital structure and financial stability, thereby providing a basis for continued development of business activities and future societal changes. The Board’s ambition is to maintain a balance between high returns and the advantages and security offered by a sound capital structure. The capital structure target is a net debt/equity ratio of 0–20 percent. The net debt/ equity ratio is defined as the net of interest-bearing liabilities and provisions as well as interest-bearing assets, divided by equity. The net debt/equity ratio was 10 percent (negative) at the end of the reporting period. The Group’s profitability target is a return on equity of 12%. The return for 2015 was negative (0.9 percent). LKAB has a dividend policy in which the dividend to the owner in the long term shall constitute 30 to 50 percent of earnings after tax and be adjusted to an average earn­ ings level over a business cycle. No dividend is proposed for the 2015 financial year. No changes were made to the Group’s asset management during the year. LKAB Försäkring AB is the only company in the Group that has a statutory capital requirement of EUR 3,200,000, which corresponded to MSEK 29 (30) at the end of the reporting period. NOTES 127

NOTE 36 NOTE 37 PLEDGED ASSETS AND CONTINGENT LIABILITIES RELATED PARTIES

Group Parent Company Relationships with related parties MSEK 31/12/2015 31/12/2014 31/12/2015 31/12/2014 The Group is under the controlling influence of the Swedish state. In addition to the close relationships that the Parent Company has with its subsidiaries (see Note 38), Pledged assets the Group also has close relationships with Vattenfall AB and the Swedish Transport As pledged assets for Administration. own liabilities and provisions Company-owned Parent Company endowment insurance 107 92 107 92 Summary of related party transactions Deposit of cash and Purchas­ Receivables cash equivalents 159 159 159 159 Sales of Interest es of Liabilities to from goods and goods from related related Collateral provided, to related dividends related parties, parties, derivatives 461 557 461 557 MSEK Year parties (net) parties 31 December 31 December Total pledged assets 727 808 727 808 Subsidiaries 2015 227 71 3,517 1,170 2,566 Contingent liabilities Subsidiaries 2014 419 312 3,342 883 2,995 Guarantees, FPG/PRI 15 14 14 14 Guarantees, GP plan 7 7 4 5 Transactions with related parties are priced on market terms. Of related party receiva­ bles, 1,242 (1,545) are loans receivable. Guarantees, Swedish Tax Through long-term energy agreements with Vattenfall, LKAB has secured a large Agency Surety given for subsid­ portion of its electricity supply at an indexed price. Other electricity purchases are iaries 76 76 76 76 exposed to the Nordic spot market. The company purchased 2,199 (2,233) GW of electricity. Guarantees on behalf of subsidiaries 57 70 LKAB’s mining has impacted the existing railway infrastructure and made it impossible for facilities to remain in their present location. LKAB is compensating the Derivatives – negative Transport Administration for expenditures incurred in conjunction with construction of values 29 the new railway infrastructure. Purchases from the Transport Administration amounted Collateral, remediation 54 22 88 18 to MSEK 53 (137). Other 40 16 Total contingent liabilities 192 135 240 212 NOTE 38 Company-owned endowment insurance is intended to cover pension commitments for GROUP COMPANIES the President, former President and members of Group management under the old Parent Company defined-benefit pension scheme. The value of endowment insurance changes concur­ MSEK 31/12/2015 31/12/2014 rently with payment of premiums/pension disbursements. Deposits of cash and cash equivalents are intended to cover future expenses for Accumulated acquisition value remediation measures and other restoration measures at mines after mining activities At beginning of year 1,781 1,495 cease. Acquisitions 33 Guarantees for PRI Pensionstjänst and the mine plan corresponded to 2 percent Reclassification -45 of commitments at the end of the reporting period. The PRI commitment relates to ITP2 premiums for salaried employees and irrevocable commitments to collectively Disposal -1 affiliated employees in the mine plan. Capital contributions 157 253 Closing balance, 31 December 1,892 1,781

Accumulated impairment At beginning of year -13 -5 Reclassification 5 Impairment for the year -8 Closing balance, 31 December -8 -13

Carrying amount at year-end 1,884 1,768

Norrskenet AB was fully consolidated in the financial statements for 2013 and 2014. The reason for consolidation is that under IFRS 10.B76, LKAB had a “silo resource” in Norrskenet AB through its investment in bonds issued by Northland AB. Since the Northland bonds made up the majority of Norrskenet’s assets, the materiality principle was applied such that the whole of Norrskenet was consolidated rather than just “the silo”. In view of the bankruptcy of Northland AB in December 2014, the materiality principle can no longer be applied and consequently the participations in Norrskenet AB have been reclassified under Participations in associated companies. 128 NOTES

Specification of the Parent Company’s and Group’s holdings of shares in Group companies The following table does not include dormant Group companies.

31/12/2015 Number Share in % Share in % Carrying amount Subsidiary / Corporate ID number / Domicile of shares 2015 2014 Carrying amount 31/12/2014 Swedish subsidiaries Gällivare Mark AB / 556917-5333 / Gällivare 500 100 100 25 25 LKAB Fastigheter AB / 556009-8849 / Kiruna 5,000 100 100 44 32 LKAB Wassara AB / 556331-8566 / Stockholm 20,000 100 100 19 19 LKAB Berg & Betong / 556074-8237 / Kiruna 24,000 100 100 281 156 LKAB Nät AB / 556059-9796 / Kiruna 10 100 100 5 3 LKAB Minerals AB / 556223-1786 / Luleå 2,000,000 100 100 383 365 LKAB Försäkring AB / 516406-0187 / Luleå 10,000 100 100 100 100 LKAB Malmtrafik AB / 556031-4808 / Kiruna 208,000 100 100 252 252 Kiruna Stationsfastigheter AB / 556736-3840 / Kiruna 1,000 100 0 Norrskenet AB / 556537-7065 / Kiruna 2,500 33,3 40

Foreign subsidiaries LKAB Norge AS / 918 400 184 / Narvik, Norway 300,000 100 100 763 763 LKAB Far East Pte Ltd / 198401144W / Singapore 200,000 100 1 LKAB S.A. / 403 455 761 / Brussels, Belgium 100 100 100 0 0 LKAB Schwedenerz GmbH / HRB 718 / Essen, Germany 100 100 100 2 2 LKAB Trading (Shanghai) Co., Ltd. / Shanghai, China 100 100 10 10

Indirect holdings via subsidiary LKAB Minerals AB LKAB Minerals B.V. / 24236591 / Breda, The Netherlands 100 100 LKAB Minerals Inc / 02-0551509 / Cincinnati, Ohio, USA 100 100 LKAB Minerals GmbH / HRB 16692 / Essen, Germany 100 100 LKAB Minerals Asia Pacific Ltd / 876455 / Hong Kong, China 100 100 LKAB Minerals OY / 1934671-4 / Helsinki, Finland 100 100 LKAB Minerals AS / A/S277716 / Nuuk, Greenland 100 100 LKAB Minerals Tianjin Minerals Co / 70051551-5 / Dongli District Tianjin, China 100 100 LKAB Minerals Limited / 04621769 / Derby, UK 100 100 LKAB Minerals Richmond Ltd / 03057111 / Derby, UK 100 100

Indirect holdings via subsidiary LKAB Berg & Betong AB LKAB Mekaniska AB / 556013-3059 / Kiruna 100 100 LKAB Kimit AB / 556190-6115 / Kiruna 100 100

Indirect holdings via subsidiary LKAB Malmtrafik AB LKAB Malmtrafikk AS / 974 644 991 / Narvik, Norway 100 100 Parent Company total 1,884 1,768 NOTES 129

NOTE 39 Interest paid and dividend received UNTAXED RESERVES Group Parent Company MSEK 2015 2014 2015 2014 Parent Company MSEK 31/12/2015 31/12/2014 Dividend received 7 0 243 Accumulated depreciation in excess of plan: Interest received 6 11 77 70 Interest paid -41 -22 -41 -28 Land and buildings -35 -4 36 285 Opening balance, 1 January 4 4 Excess depreciation dissolved -1 Adjustments for items not included in cash flow Closing balance, 31 December 3 4 Group Parent Company MSEK 2015 2014 2015 2014 Machinery and equipment Depreciation 2,800 2,866 2,151 2,213 Opening balance, 1 January 9,072 7,865 Impairment 7,136 181 6,096 144 Depreciation/dissolution in excess of plan for the year -1,519 1,207 Exchange differences 153 59 Closing balance, 31 December 7,553 9,072 Earnings from sale and 129 52 196 retirement of property, plant and equipment Tax allocation reserve Change in other -231 199 28 Provision for taxation 2009 receivables/liabilities, Provision for taxation 2012 3,600 3,600 derivatives Provision for taxation 2013 2,960 2,960 Provisions for pensions -101 -34 25 -71 Provision for taxation 2014 1,858 1,858 Provision for urban 1,568 3,577 1,568 3,577 transformation Provision for taxation 2015 650 650 Other provisions 113 32 132 -5 Closing balance, 31 December 9,068 9,068 Other non-cash items 14 -14 -5 4 11,581 6,918 10,191 5,862 Total untaxed reserves 16,624 18,144 Change in working capital Consolidated working capital was encumbered by MSEK -527 (471) related to the NOTE 40 change in the hedging reserve recognized in consolidated equity and by MSEK -231 SPECIFICATIONS FOR STATEMENT OF CASH FLOWS (190) in respect of derivatives. The amounts did not affect the consolidated cash flow and therefore are not included in the change in working capital in the statement of Cash and cash equivalents – Group cash flows. MSEK 31/12/2015 31/12/2014 The following subcomponents are included in cash and cash equivalents: Group Parent Company Cash and bank balances 2,548 2,623 Tax paid Current investments, on a par with cash MSEK 2015 2014 2015 2014 and cash equivalents1 1,787 2,735 Tax expense in income 1,585 -247 1,082 -272 Total in statement of financial position statement and statement of cash flows 4,335 5,358 Change in tax assets/ -260 439 -282 404 Of which exchange rate effect 22 13 liabilities Adjustment for deferred -1,640 -240 -1,088 -194 tax Cash and cash equivalents – Parent Company -315 -48 -288 -62 Mkr 31/12/2015 31/12/2014 The following subcomponents are included in cash Acquisition of subsidiaries – Group and cash equivalents: The following shows the impact on cash and cash equivalents related to the acquisition Cash and bank balances 2,338 2,373 of subsidiaries. The amount forms part of the change in financial assets in the state­ Current investments, on a par with cash 1,787 2,735 ment of cash flows. and cash equivalents1 Total in balance sheet and statement MSEK 2015 2014 of cash flows 4,126 5,108 - Of which exchange rate effect 22 13 Acquired assets and liabilities Property, plant and equipment 9 1 Cash and cash equivalents include current investments (interest-bearing securities) Total assets 9 that were classified as cash and cash equivalents based on the following: Current operating liabilities 9 • They have an insignificant risk of fluctuations in value Total liabilities 9 • They can be easily converted to cash Purchase price: -42 • They have a maximum maturity of three months from date of acquisition Purchase price paid -42 . Effect on cash and cash equivalents -42

Shares and alternative investments MSEK 31/12/2015 31/12/2014 Opening balance 2,090 640 Acquisitions 1,823 1,841 Disposal -1,011 -391 2,902 2,090 130 THE BOARD’S ATTESTATION

THE BOARD’S ATTESTATION The Board of Directors and the President attest that the Annual Report and the consolidated financial statements give a fair Report was prepared in accordance with generally accepted presentation of the Parent Company’s and the Group’s financial accounting principles in Sweden and that the consolidated financial position and earnings. The Administration Report for the Parent statements were prepared in accordance with international finan­ Company and the Group provides a fair review of developments in cial reporting standards as referred to in Regulation 1606/2002/EC the Parent Company’s and the Group’s operations, financial position of the European Parliament and of the Council of 19 July 2002 on and earnings and describes significant risks and uncertainties faced the application of international accounting standards. The Annual by the Parent Company and the companies included in the Group.

Luleå, 21 March 2016

Sten Jakobsson Chairman of the Board

Leif Darner Board member

Hans Biörck Maija-Liisa Friman Board member Board member

Lars-Åke Helgesson Board member

Eva Hamilton Hanna Lagercrantz Board member Board member

Stefan Fagerkull Employee representative

Lars Pettersson Tomas Strömberg Board member Employee representative Jan Thelin Employee representative

Jan Moström President and CEO

As stated above, the Annual Report, consolidated financial statements and sustainability report were approved for publication by the Board of Directors on 21 March 2016. The consolidated income statement, consolidated statement of comprehensive income and statement of financial position and the Parent Company’s income statement and balance sheet are subject to approval at the Annual General Meeting on 28 April 2016.

Our audit report was issued on 21 March 2016.

Deloitte AB

Peter Ekberg Authorized Public Accountant AUDITOR'S REPORT 131

AUDITOR’S REPORT December 2015 and of its financial performance and cash flows for the year then ended in accordance with International Financial To the annual meeting of the shareholders of Luossavaara- Reporting Standards, as adopted by the EU, and the Annual Accounts Kiirunavaara AB (publ) Corporate identity number 556001-5835 Act. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts. REPORT ON THE ANNUAL ACCOUNTS AND CONSOLIDATED We therefore recommend that the annual meeting of sharehold­ ACCOUNTS ers adopt the income statement and balance sheet for the parent We have audited the annual accounts and consolidated accounts company and the group. of Luossavaara-Kiirunavaara AB (publ) for the financial year 2015. The annual accounts and consolidated accounts of the company are Report on other legal and regulatory requirements included in the printed version of this document on pages 72-130. In addition to our audit of the annual accounts and consolidated accounts, we have also audited the proposed appropriations of the Responsibilities of the Board of Directors and the Managing company’s profit or loss and the administration of the Board of Director for the annual accounts and consolidated accounts Directors and the Managing Director of Luossavaara-Kiirunavaara The Board of Directors and the Managing Director are responsible AB (publ) for the financial year 2015. for the preparation and fair presentation of these annual accounts in accordance with the Annual Accounts Act and of the consolidat­ Responsibilities of the Board of Directors and the Managing ed accounts in accordance with International Financial Reporting Director Standards, as adopted by the EU, and the Annual Accounts Act, The Board of Directors is responsible for the proposal for appro­ and for such internal control as the Board of Directors and the priations of the company’s profit or loss, and the Board of Directors Managing Director determine is necessary to enable the prepara­ and the Managing Director are responsible for administration tion of annual accounts and consolidated accounts that are free under the Companies Act. from material misstatement, whether due to fraud or error. Auditor’s responsibility Auditor’s responsibility Our responsibility is to express an opinion with reasonable assurance Our responsibility is to express an opinion on these annual on the proposed appropriations of the company’s profit or loss and accounts and consolidated accounts based on our audit. We on the administration based on our audit. We conducted the audit in conducted our audit in accordance with International Standards accordance with generally accepted auditing standards in Sweden. on Auditing and generally accepted auditing standards in Sweden. As a basis for our opinion on the Board of Directors’ proposed Those standards require that we comply with ethical requirements appropriations of the company’s profit or loss, we examined the and plan and perform the audit to obtain reasonable assurance Board of Directors’ reasoned statement and a selection of support­ about whether the annual accounts and consolidated accounts are ing evidence in order to be able to assess whether the proposal is free from material misstatement. in accordance with the Companies Act. An audit involves performing procedures to obtain audit evi­ As a basis for our opinion concerning discharge from liability, dence about the amounts and disclosures in the annual accounts in addition to our audit of the annual accounts and consolidated and consolidated accounts. The procedures selected depend on the accounts, we examined significant decisions, actions taken and auditor’s judgement, including the assessment of the risks of material circumstances of the company in order to determine whether any misstatement of the annual accounts and consolidated accounts, member of the Board of Directors or the Managing Director is lia­ whether due to fraud or error. In making those risk assessments, the ble to the company. We also examined whether any member of the auditor considers internal control relevant to the company’s prepa­ Board of Directors or the Managing Director has, in any other way, ration and fair presentation of the annual accounts and consolidated acted in contravention of the Companies Act, the Annual Accounts accounts in order to design audit procedures that are appropriate in Act or the Articles of Association. the circumstances, but not for the purpose of expressing an opinion We believe that the audit evidence we have obtained is sufficient on the effectiveness of the company’s internal control. An audit also and appropriate to provide a basis for our opinions. includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board Opinions of Directors and the Managing Director, as well as evaluating the over­ We recommend to the annual meeting of shareholders all presentation of the annual accounts and consolidated accounts. that the profit be appropriated in accordance with the proposal in We believe that the audit evidence we have obtained is sufficient the statutory administration report and that the members of the and appropriate to provide a basis for our audit opinions. Board of Directors and the Managing Director be discharged from liability for the financial year. Opinions In our opinion, the annual accounts have been prepared in ac­ Stockholm 21 March 2016 cordance with the Annual Accounts Act and present fairly, in all Deloitte AB material respects, the financial position of the parent company as of 31 December 2015 and of its financial performance and its cash flows for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in Peter Ekberg all material respects, the financial position of the group as of 31 Authorized Public Accountant 132 MINERAL RESERVES AND MINERAL RESOURCES

MINERAL RESERVES AND MINERAL RESOURCES

Mineral reserves and mineral resources are the basis of a mining company’s operations and their determination requires DEFINITIONS successful exploration. In addition to exploration, mining costs and ore prices are important factors which influence the size of Classification mineral reserves and mineral resources. Exploration takes Mineral resources and mineral reserves are estimated separately place in areas adjacent to existing mines and in new areas. and divided into different categories. LKAB’s mineral reserves are not included in the mineral resources. When mineral resources are LKAB’s exploration efforts during the past 10 years have upgraded to mineral reserves, the quantity is subtracted from resulted in considerable increases in both mineral resources mineral resources. and mineral reserves, above all, in Leveäniemi, Mertainen and A mineral resource is a concentration or occurrence of material Gruvberget. This has led to major investments in increased of intrinsic economic interest in or on the earth’s crust in such form, production and extended plans for mining. quality and quantity that there are reasonable prospects for eventual economic extraction. Mineral reserves are subtracted from that part of measured or indicated mineral resources that can be MINERAL RESERVES AS OF 31 DECEMBER 2015 (TO SORTING PLANT) mined once the company’s profitability requirements have been met, while considering factors such as the quantity of waste rock mixed Quantity, Mt Percent Fe with mined ore, ore losses and yields. 2015 2014 2015 2014 Kiruna Inferred mineral resources Proven 491 521 47.1 46.9 Inferred mineral resource is that part of a mineral resource for Probable 153 161 44.5 44.4 which tonnage, grade and mineral content can be estimated with a Malmberget low level of confidence. It is inferred from geological evidence and Proven 346 303 42.5 43.7 assumed but not verified geological/or grade continuity. It is based Probable 32 35 41.4 42.2 on information gathered through appropriate techniques from Gruvberget locations such as outcrops, trenches, pits, workings and drill holes. Proven 3 1 50.3 54.4 This information may be of limited or uncertain quality and Probable – 1 – 53.5 reliability. Leveäniemi Proven 89 78 48.5 45.4 Indicated mineral resources Probable 24 37 43.0 49.9 Indicated mineral resources are mineral resources for which estimates of contained metal, grade and tonnage have been made at MINERAL RESOURCES BESIDES MINERAL RESERVES a reasonable level of confidence. It is indicated from geological AS OF 31 DECEMBER 2015 (TO SORTING PLANT)) evidence and assumed but not verified geological/or grade continuity. It is based on information gathered through appropriate Quantity, Mt Percent Fe techniques for prospecting, sampling and testing. However, the data 2015 2014 2015 2014 Kiruna points are too sparsely or inappropriately distributed to ascertain Measured 12 13 48.3 48.3 the continuity of the geology and/or grade. Indicated 217 208 45.8 46.3 Inferred 83 83 44.2 44.5 Measured mineral resources Malmberget Measured resources are mineral resources for which tonnage, Measured 0 10 0.0 42.2 shape, grade and mineral content can be estimated with a high level Indicated 109 96 43.2 43.6 of confidence. It is based on information gathered through Inferred 149 136 42.7 43.8 appropriate techniques for prospecting, sampling and testing. The Gruvberget magnetite data points are sufficiently dense to verify the continuity of the Measured 12 15 55.0 53.7 geology and/or grade. Indicated 10 10 53.3 53.3 Inferred 12 12 50.9 50.9 Probable mineral reserves Leveäniemi A probable mineral reserve is the part of indicated, and in some Measured 91 50 46.3 41.1 circumstances, measured mineral resources, that can be mined and Indicated 87 82 40.8 45.6 processed in an economically viable fashion, based on the Inferred 34 85 38.7 38.8 company’s mining engineering and feasibility studies. Mertainen Measured 38 44 36.8 36.9 Proven mineral reserves Indicated 101 159 37.4 35.9 A proven mineral reserve is the part of measured mineral resources Inferred 75 190 32.0 33 that can be mined and processed in an economically viable fashion, Gruvberget hematite based on the company’s mining engineering and feasibility studies. Measured 9 9 55.0 55 Indicated 5 5 52.6 52.6 Inferred 28 28 53.9 53.9 MINERAL RESERVES AND MINERAL RESOURCES 133

MINERAL RESERVES AND MINERAL RESOURCES 2015 Kiruna Each year LKAB presents a summary of its mineral resources and Quantity, Mt 800 40 mineral reserves. Estimates and summaries are made in 700 accordance with recommendations from the Swedish minerals 600 30 and metals trade association SveMin. 500 400 20 300 Kiruna 200 10 The reduction in Kiruna’s mineral reserves corresponds largely 100 0 0 with production volumes for the year. A minor quantity from the 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Konsul orebody has been converted from reserve to resource. Malmberget Quantity, Mt Malmberget 400 20 350 In Malmberget both mineral reserves and resources have 300 15 increased, since assumed ore losses have been reduced. 250 200 10 150 Gruvberget magnetit 100 5 The environmental permit granted during the year, allowing 50 0 0 mining down to160 metres above sea level, has resulted in a 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 small increase in mineral reserves, despite the production volume for the year. Mineral resources have been reduced by a Gruvberget Quantity, Mt corresponding quantity. 40 4 The latter consists of ore accessible via an extension of the 35 current open pit to the south. Most of the mineral resource is, 30 3 25 however, below 160 metres above sea level, and a prestudy of 20 2 sublevel caving underground is being conducted. 15 10 1 5 Leveäniemi 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Block model, production block model and pit layout have been revised during the year. This has resulted in marginal changes in Leveäniemi both reserves and resources. Quantity, Mt 200 4

Mertainen 150 3 Extensive complementary test drilling has provided data to 100 2 support optimization of the open­pit operation. This points to a cut­off of 28 percent iron. The previous estimate, on which earlier 50 1 presentations were based, was based on a cut­off of 20 percent 0 0 iron. The change in cut­off is the main reason for the reduction in 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 mineral resources. Mertainen Quantity, Mt Gruvberget hematite 400 The hematite mineralization in Gruvberget is directly adjacent to 350 300 the magnetite ore to the south. A larger proportion of the resource 250 is accessible via an open pit. However, an acceptable process 200 concept is lacking. 150 100 50 0 Summary 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Despite the year’s production, there has been no change in LKAB’s mineral reserves, which amount to more than one billion tonnes. Gruvberget hematit Quantity, Mt Total mineral resources have, however, decreased by 13 percent, 30 but still exceed one billion tonnes. 25 20 15 10 5 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Proven/Probable Mineral Reserve Measured/Indicated Mineral Resource Inferred Mineral Resource Production 134 MINERAL RESERVES AND MINERAL RESOURCES

BASIS FOR ESTIMATES In the mineral reserves estimates these factors, based on the LKAB has the requisite environmental permits and exploitation assumed mining methods and current knowledge at the time of concessions for all mines currently operated by the company. estimation, have been taken into consideration Mineral resources are protected by exploitation concessions or exploration permits. Estimates are made on the basis of the Standards, codes and recommendations following factors: LKAB’s mineral reserves and mineral resources have been estimated and compiled in accordance with recommendations Metal prices from the Swedish trade association for mining and metals Mineral resources and mineral reserves provide a basis for the companies, SveMin, the so-called FRB standard. This is an company’s long-term planning and will be mined for many years independent set of recommendations but it is based on the to come. Therefore, a planning price is used, which is an expected International Template for the Public Reporting of Exploration average price for iron ore and currencies over the coming busi­ Results, Mineral Resources and Mineral Reserves, July 2006, ness cycle. produced by the Committee for Mineral Reserves International Reporting Standards (CRIRSCO) in an effort to aid harmonization Density of international reporting practice. The FRB standard therefore For iron ores, which are LKAB’s mineral resources and mineral re­ complies with international recommendations such as the Austral­ serves, an equation based on the content or the ores is used. The asian Institute of Mining and Metallurgy’s JORC Code and CIM calculation is verified with density measurements. In other cases, Standards on Mineral Resources and Mineral Reserves, Definitions tests/measurements are done for the different ores or minerals and Guidelines, which corresponds to sections of the Ontario which affect the density. Securities Commission’s (OSC) National Instrument 43-101, which stipulates how mineral reserves and mineral resources are to be Dilution reported. In mining, a certain quantity of waste rock is mixed with the mined Mineral reserves and mineral resources compiled and present­ ore. This varies in degree depending on mining method, orebody ed in this report have been reviewed and approved by Håkan geometry and other geological factors. LKAB systematically moni­ Selldén, Section Manager Permits, drilling and environment, LKAB. tors the quantity of waste rock mixed with mined ore and this data Håkan Selldén is a Qualified Person accredited by SveMin. is included in all estimates of mineral reserves.

Ore losses March 2015 Depending on the mining method employed, orebody geometry and other technical factors, some sections of the ore must be left Håkan Selldén in the mine. Qualified Person accredited by SveMin GROUP OVERVIEW 135

GROUP OVERVIEW

INCOME STATEMENTS (SEK MILLION) 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 Net sales 16,200 20,615 23,873 26,971 31,122 28,533 11,558 23,128 16,385 14,615 Cost of goods sold -22,280 -18,781 -14,994 -15,183 -15,190 -15,276 -10,029 -12,166 -9,509 -7,706 Gross profit -6,080 1,834 8,879 11,788 15,932 13,257 1,529 10,962 6,876 6,909 Selling expenses -165 -152 -148 -249 -223 -213 -202 -200 -178 -178 Administrative expenses -512 -596 -648 -608 -640 -451 -377 -448 -344 -333 Research and development expenses -365 -451 -360 -283 -328 -213 -237 -258 -217 -165 Other operating income/expenses -35 -66 -84 -59 -35 -68 -54 271 11 23 Operating profit -7,156 570 7,639 10,589 14,705 12,312 659 10,327 6,148 6,256 Financial income 293 519 611 733 503 418 705 575 572 546 Financial expenses -408 -495 -482 -345 -407 -349 -172 -513 -376 -420 Profit before tax -7,271 594 7,768 10,977 14,801 12,381 1,192 10,389 6,344 6,382 Tax 1,585 -247 -1,736 -2,224 -3,842 -3,275 -473 -2,748 -1,665 -1,785 Profit for the year -5,686 347 6,032 8,753 10,960 9,106 719 7,641 4,679 4,597 Attributable to: Parent company shareholders -5,686 347 6,032 8,753 10,960 9,106 719 7,641 4,679 4,597 Planned depreciation on property, plant and equipment 2,800 2,865 2,432 1,952 1,891 1,821 1,812 1,452 1,168 996 BALANCE SHEETS (SEK MILLION) Intangible fixed assets 215 229 257 277 269 321 310 428 329 387 Property, plant and equipment 34,697 39,529 33,759 30,315 26,285 23,087 21,551 19,893 16,702 11,746 Financial fixed assets 646 1,018 1,197 1,120 1,124 1,675 1,827 1,094 2,416 2,208 Total fixed assets 35,558 40,775 35,213 31,712 27,679 25,083 23,688 21,415 19,447 14,341 Inventories 2,915 2,253 2,611 2,493 2,449 2,074 2,301 2,715 1,635 1,631 Accounts receivable 1,320 1,908 3,291 3,060 4,593 3,395 2,276 1,946 1,922 1,697 Other receivables 1,674 1,037 1,210 2,007 808 1,515 1,095 612 685 1,214 Cash & cash equivalents and current investments 14,561 16,861 15,497 18,672 18,201 14,562 6,195 9,643 5,991 6,982 Total current assets 20,470 22,359 22,609 26,232 26,051 21,546 11,867 14,916 10,233 11,524 Total assets 56,028 63,133 57,822 57,944 53,730 46,629 35,555 36,331 29,680 25,865 Total operating assets 40,820 45,254 41,128 38,151 34,405 30,392 27,533 25,594 21,273 16,675 Equity1 32,116 37,756 41,472 41,085 37,335 32,951 25,375 25,218 22,251 19,076 Non-current liabilities 17,900 18,402 11,670 12,485 11,933 9,555 7,512 6,836 4,963 4,627 Current liabilities 6,011 6,976 4,680 4,374 4,462 4,123 2,668 4,275 2,466 2,162 Total equity and liabilities 56,028 63,135 57,822 57,944 53,730 46,629 35,555 36,329 29,680 25,865 CASH FLOW ANALYSES Cash flow before payment of urban transformation and pension funds and changes in working capital 3,995 7,265 10,599 10,700 14,038 13,951 2,931 11,545 7,200 5,688 Urban transformation payments2 -291 -1,354 -295 -407 -382 NA NA NA NA NA Payment to pension funds -10 -881 Changes in working capital 162 1,624 -866 980 92 -1,184 -43 -1,201 -124 358 Cash flow from operating activities 3,856 7,535 8,557 11,273 13,748 12,767 2,888 10,344 7,076 6,046 Investment in existing activities -6,354 -5,491 -6,141 -5,808 -5,126 -3,973 -3,543 -4,682 -5,968 -4,844 Disposal 150 28 18 6 17 97 73 6 14 35 Operating cash flow -2,348 2,072 2,434 5,471 8,639 8,891 -582 5,668 1,122 1,237 Acquisition of companies and intangible assets -17 -13 0 -16 -35 -17 Acquisition / disposals in current investments 1,279 -703 2,434 -3,729 -2,990 -2,952 308 296 -381 217 Change financial assets 78 -92 -11 -66 178 133 Cash flow after investments -991 1,369 4,759 1,742 5,649 5,915 -340 5,948 884 1,570 Borrowing 108 2,793 -43 Dividend -139 -3,500 -5,500 -5,000 -5,000 -500 -2,800 -2,000 -2,000 -1,500 Cash flow for the year -1,022 662 -741 -3,258 649 5,415 -3,140 3,948 -1,159 70 Deliveries, Mt 24.2 26.0 25.5 26.3 25.7 26.0 18.7 22.7 25.1 23.3 Deliveries pellets, % 83.9 83.2 82.8 83.6 81.7 80.1 76.5 79.0 71.3 68.2 KEY FIGURES FOR THE GROUP Net sales, SEK million 16,200 20,615 23,873 26,971 31,122 28,533 11,558 23,128 16,385 14,615 Growth in net sales, % -21.4 -13.6 -11.5 -13.3 9.1 146.9 -50.0 41.2 12.1 1.9 Operating margin, % -44.2 2.8 32.0 39.3 47.2 43.2 5.7 44.7 37.5 42.8 Profit margin, % -44.9 2.9 32.5 40.7 47.6 43.3 10.3 44.9 38.7 43.7 Return on total capital, % -11.5 1.8 14.3 20.3 30.3 31.0 3.8 33.0 24.2 29.3 Return on equity, % -16.3 0.9 14.7 22.2 30.9 31.5 2.8 32.2 22.6 27.1 Return on operating assets, % -16.6 1.4 19.3 29.2 45.4 42.4 2.5 49 32 43 Equity/assets ratio, % 57.3 59.8 71.7 70.9 69.5 70.7 71.4 69.4 75.0 73.8 Average number of employees 4,463 4,539 4,427 4,357 4,191 4,030 3,778 4,086 3,885 3,737

1 Adjustment 2011 for changed reporting (net) of remediation Definitions expenses Operating assets: Tangible and intangible fixed assets, Inventories, Accounts receivable, Other receivables. Non­financial assets, 2 Reported on own row of cash flow analysis from 2011 cash & cash equivalents and current investments. Operating liabilites: Total liabilities reduced by deferred tax in untaxed reserves, deferred tax liabilities and non-current liabilities. Growth in net sales: Change in net sales as a percentage of the previous year’s net sales. Operating margin: Operating profit as a percentage of net sales. Profit margin: Profit after financial items as a percentage of the year’s net sales. Return on total capital: Profit after financial items + financial expenses as a percentage of average balance total. Return on equity: Profit for the year according to the income statement as a percentage of average equity. Return on operating assets: Operating profit as a percentage of average operating assets. Equity/assets ratio: Equity as a percentage of total assets. 136 GLOSSARY

GLOSSARY

BARREN ROCK: Rock that is not ore. MAGNETITE: Mineral, magnetic iron ore (Fe3O4), aka black ore.

BURDEN: Materials (ore, slag formers, etc.) that are added (charged) to a furnace, MAIN LEVEL: Transport level in a mine to which the ore is tipped through a chute or possibly together with fuel, in ironmaking. shaft from overlying mining levels.

CALCITES AND SILICATES: Different minerals. MICA: Mineral.

CONCENTRATION: Beneficiation of finely ground ore by separation into a OLIVINE: Mineral. concentrate of iron ore powder with very high purity, so-called slurry. PARTICULATE EMISSIONS: Release of particulate matter into the air. CRUDE IRON: Molten ore from a blast furnace that is subsequently refined in a steelworks. PELLETIZING: Process whereby slurry is mixed with binder and rolled together into “green” balls. The balls are sintered in a pelletizing plant. The finished product is CRUDE ORE: The untreated ore broken loose from the deposit. pellets.

CRUSHED ORE: Designation for input to ore processing plants. PERFORMANCE IN IRONMAKING: LKAB’s promise to the customer.

DEFORMATION ZONE: Ground area affected by subsidence due, for exemple, to OpEx: LKAB:s programme for ”Operational Excellence”, production- and mining. Deformation zone boundaries are defined at the point where seismic productivity-enhancing measures. instruments first indicate disturbance. Q VALUE: A calculated average quality value of delivered products, based on DRESSING: Rough sorting of crushed ore. Consists at LKAB of screening of the monthly measurements of a number of fixed parameters. crushed ore into various fractions, after which the waste rock is separated from the iron ore by magnetic separators. SEISMIC EVENT: Rock tremor, earthquakes.

FINES: Fines is a finely milled iron ore sand that has to be lumped together SEK MILLION AND MT: Abbreviations for million Swedish kronor and million tonnes, (sintered) into larger pieces before it is used in steelmills. LKAB produces sinter respectively. fines in Malmberget (MAF). SINTERING: Heating of fine-grained ore (fines) until it starts to melt. The ore is then FLOTATION: Chemical process/method for particle separation, used in beneficiation fused (sintered) into lumps (sinter) that can be used in a blast furnace. of iron ore. SPONGE IRON: (= DRI, Direct Reduced Iron). End product of the DR process. Solid, GRI: Global Reporting Initiative. International reporting body consisting of interest porous iron with some remaining mineral residues and oxygen. HBI (Hot Briquetted groups that have produced global guidelines for sustainability reporting. Iron) is a compressed form of DRI that reduces the risk of autoignition.

GWH: Gigawatt hour. STRIPPING: Preparation of ground by removal of vegetation and or soil, etc., to enable access to underlying materials. HEMATITE: Mineral, iron ore (Fe2O3), aka bloodstone. SULPHIDES: Chemical compounds containing sulphide ions. HOT ROLLED COIL (HRC): Steel, often used as raw material in everything from ships and vehicles to buildings and bridges. TJ: Terajoule.

HUNTITE: Mineral. TWH: Terawatt hour.

INDICATORS: Quantifiable key values as defined by the GRI sustainability areas VALUES: Describe how we behave toward each other and the world in general. They Economy, Environment, and Society. are guiding principles for everyday life; they help us make decisions and clarify what is expected of everyone in the company. LKAB’s values: Committed, Innovative, INERT WASTE: Material waste that is not reactive and does not decompose after Responsible. final placement. BARREN ROCK: Barren rock is a collective term for waste rock surrounding an ore. INTACT ORE: When ore is in its original state before being mined it is said to be intact. WASTE ROCK: Waste rock is an economical term for the rock that is not ore but has a value. In underground mining, large amounts of other mineral-bearing material INTEGRATED STEELMILL: Steelmill that covers the entire production chain from ore that is not ore are hauled. to steel and has both sintering plant and blast furnace. YIELD: Ore yield = The ratio between the recovered crude ore and the theoretical LANDFILL: Area in which materials such as tailings or waste rock are stored quantity of intact ore in the ground. The difference is made up of ore losses and is indefinitely. dependent on the workability of the ore; i.e. how economical it is to mine. Weight yield = The ratio between the iron content of the finished product and the iron LANDFILL PLAN: Long-term plan for final placement of waste material. content of the crushed ore entering a plant.

LEACHATE: Water containing elements that are present in the material through which it has passed for example, when precipitation falls on a heap of rock or stone. Leachate is caused principally by precipitation percolating through waste deposited in a landfill. AGM, FINANCIAL INFORMATION AND LKAB ADDRESSES

AGM LKAB ADDRESSES

LKAB’s Annual General Meeting will be LKAB held on 28 April 2016 at 15.00 in Luleå. Group Head O ce Box 952 SE–971 28 Luleå, Sweden PARTICIPANTS Tel +46 771 760 000 The AGM is open to the public. Fax +46 771 760 001 [email protected] NOTICE TO ATTEND Jan Moström, President and CEO Notice to attend the AGM, financial information and other information IRON ORE SUBSIDIARIES is available at lkab.com. SALES AND LOGISTICS LKAB Wassara AB Printed financial information may be Elektronvägen 4 LKAB, Nordic Sales O ce SE–141 49 Huddinge, Sweden ordered by e-mail at [email protected]. Box 952, SE–971 28 Luleå, Sweden Tel +46 771 760 100 Tel +46 771 760 000. Fax +46 771 760 001 [email protected] The printed version of the Annual [email protected] Stefan Swartling, President Johan Heyden, Sales Manager Report will be available from 28 April LKAB Berg & Betong AB 2016. LKAB SCHWEDENERZ GmbH Box 817, SE–981 28 Kiruna, Sweden Bredeneyer Strasse 182, D-45133 Essen, Germany Tel +46 771 760 200. Fax +46 771 760 201 Tel +49 201 879 440. Fax +49 201 879 4444 [email protected] [email protected] Peter Söderman, President FINANCIAL Göran Ottosson, President LKAB Mekaniska AB INFORMATION LKAB Malmtrafi k AB Tel +46 771 760 210. Fax +46 771 760 211 SE–981 86 Kiruna, Sweden [email protected] INTERIM REPORTS Tel +46 771 760 500. Fax +46 771 760 002 Peter Söderman, President Anders Björnström, President LKAB Kimit AB 28 April LKAB Norge AS Tel +46 771 760 220. Fax +46 771 760 221 Interim Report, 1st Quarter 2016 Postboks 314, NO–8504 Narvik, Norway [email protected] Tel +47 769 238 00. Fax +47 769 449 25 Peter Söderman, President 12 August Jacob Steinmo, President LKAB Fastigheter AB LKAB, Luleå malmhamn Interim Report, 2nd Quarter 2016 SE–981 86 Kiruna, Sweden Box 821, SE–971 25 Luleå, Sweden Tel +46 771 760 300. Fax +46 771 760 301 Tel +46 771 760 000. Fax +46 771 760 001 27 October [email protected] Sofia Jonsson, Site Manager Interim Report, 3rd Quarter 2016 Siv Aidanpää Edlert, President February 2017 PRODUCTION LKAB Nät AB SE–981 86 Kiruna, Sweden Interim Report, 4th Quarter 2016, LKAB, Kiruna Tel +46 771 760 700. Fax +46 771 760 002 together with Year End Report 2016 SE–981 86 Kiruna, Sweden [email protected] Tel +46 771 760 000. Fax +46 771 760 002 Agneta Engberg, President CONTACT LKAB, Svappavaara LKAB Försäkring AB SE–981 86 Kiruna, Sweden Please direct any questions regarding Box 952, SE–971 28 Luleå, Sweden Tel +46 771 760 000. Fax +46 771 760 002 Tel +46 771 760 600. Fax +46 771 760 001 LKAB’s financial information to LKAB, Malmberget [email protected] Peter Hansson, Director of Finance SE–983 81 Malmberget, Sweden Magnus Forsberg, President and/or Jan Moström, President and Tel +46 771 760 000. Fax +46 771 760 003 LKAB Trading (Shanghai) Co., Ltd. CEO. Unit 2007, 889 Yueda Plaza, 1111 Changshou Road, Please direct any questions regarding INDUSTRIAL MINERALS Shanghai 200042, China Tel +86 21 521 25103. Fax +86 21 521 26029 LKAB’s sustainablity report to LKAB Minerals AB E-mail o ce: [email protected] Grete Solvang Stoltz, Director Human Box 952, SE–971 28 Luleå, Sweden Resources and Sustainability. Tel +46 771 760 400 Fax +46 771 760 401 [email protected] Leif Boström, President and Group CEO Further adresses are available at lkab.com

LKAB’S ANNUAL AND SUSTAINABILITY REPORT 2015 Produced by LKAB in cooperation with Rippler Communications and Berger & Pihl. Translation: Språkbolaget. Photos: Fredric Alm and Runar Guðmundsson, Alm & ME, Rukki and LKAB. Printing: Lule Grafiska. D 2015 ANNUAL AND SUSTAINABILITY REPORT

LKAB, BOX 952, SE 971 28 LULEÅ, SWEDEN | +46 771 760 000 | WWW.LKAB.COM