4 Annual Report

ANNUAL REPORT 05

AN INTERNATIONAL HIGH-TECH MINERALS GROUP

FORSKNING OCH UTVECKLING 4 LKAB ÅRSREDOVISNING 2005 LKAB in brief LKAB is an international high-tech minerals group, a world-leading producer of upgraded iron ore products for the steel industry and a growing supplier of industrial minerals products to other sectors.

Most of the iron ore products are sold to European steelmills. Other important markets are North Africa, the Middle East and Southeast Asia. Sales of industrial minerals are mainly to customers in Europe, but Asia and the USA are growing markets. The LKAB Group has more than 3,500 employees and consists of about 30 companies in 15 countries. There are iron ore mines, processing plants and ore harbors in northern Sweden and northern Norway, and sales companies in Belgium, Germany and Singapore. Companies and production facilities for industrial minerals are located in Sweden, Finland, Greenland, the UK, Germany, the Netherlands, Greece, Turkey, Thailand, Hong Kong, China and the USA.

MISSION LKAB’s mission is, based on the Swedish Oreﬁ elds, to manufacture and deliver to the world market upgraded iron ore products and services that create added value for its customers. Other closely related products and services that are based on LKAB’s know-how and support the main business can also be included in the company’s operations.

VISION LKAB will be perceived by the customers as the supplier that provides the most added value and is thereby the leader in its selected market segments.

OWNERSHIP AND MANAGEMENT LKAB is wholly owned by the Swedish state, represented by the Ministry of Industry, Employment and Communications. Chair- man of the Board: Björn Sprängare. President and Group CEO: Martin Ivert

ORGANIZATION Operations are organized in divisions: The Market Division sells iron ore products to the steel industry. The Mining Division mines and upgrades iron ore and delivers iron ore products. The Minerals Division develops, produces and markets industrial mineral products. The Special Businesses Division supports Group companies with services and technical development.

Cover photo: Ice sculpture of the new ore car outside Icehotel, Jukkasjärvi.

FORSKNING OCH UTVECKLING 5 LKAB ÅRSREDOVISNING 2005

Contents

3 Summary 4 President’s report 6 Strategies 10 Divisional operations 18 Markets and competition 20 Investments and development projects 24 Prospecting, ore reserves and mineral resources 26 Sustainability 38 Risks and risk management 40 Group overview 41 Report of the Directors 100 Auditors’ report 101 Corporate governance 106 Board of Directors and Auditors 108 Group Management 110 Addresses 111 Reporting dates 2006

Two generations of pelletizing plants in Malmberget. The steel belt plant (left) was built in 1973, and right, the new MK3, under construction. Highlights of 2005

• World production of crude steel increased by 6% and NET SALES AND OPERATING INCOME MSEK trade in seaborne iron ore by 12%. Iron ore prices in- 15 000 creased by 70-80%. • LKAB’s production of iron ore products increased by 12 000 1 million tonnes to 23.3 Mt. The price of LKAB’s blast 9 000 furnace pellets increased by 85%. Sales of industrial

minerals increased by 35%. 6 000 • The Group’s net sales increased by 60% to MSEK 14 337 (8 988). The proﬁ t margin increased to 45%. Return on 3 000 equity amounted to 36.6%. 0 • Approved and ongoing capital expenditures totaling 01 02 03 04 05 10 billion kronor for increased pellet production capacity Net sales Operating income in Kiruna and Malmberget as well as a new ore harbor in Narvik. EARNING CAPACITY

• Start of olivine mining in Greenland, and of a production facility for mica in Finland. • Certiﬁ ed quality management system throughout the entire group. Ongoing certiﬁ cation of the environmental and energy management systems.

• Start of LKAB high school in the Oreﬁ elds communities.

GROUP SUMMARY MSEK 2005 2004 2ETURNONEQUITY Net sales 14 337 8 988 4ARGETEDRETURNONEQUITY Operating income 6 109 1 941 – operating margin, % 42.6 21.6 Income after ﬁ nancial items 6 451 2 023 3PECIAL"USINESSES EXTERNAL SALES PER – proﬁ t margin % 45.0 22.5 -INERALS DIVISION 2005 Tax -1 904 -456 The price increase on iron ore Net income for the year 4 547 1 567 products increased the Mining Division’s share of the Group’s Fixed assets 9 798 6 746 sales. Earnings for Special Busi- -INING Current assets 10 776 6 911 nesses derive mainly from Intra- Shareholders’ equity 14 802 10 044 Group sales.

Cash ﬂ ow for the year * 544 -176 /THERS SALES PER Return on equity, % 36.6 16.5 !SIA MARKET REGION 2005 Equity/assets ratio, % 72.0 73.6 Both iron ore products and industrial Capital expenditures 2 648 965 minerals are sold mainly to customers Average number of employees 3 563 3 482 in Europe, but Minerals’ sales are growing in Asia. %UROPE

* According to IFRS, certain short- term investments cannot be re- LINES OF BUSINESS ported as part of liquid assets. In- MSEK Mining** Minerals Special Eliminations, stead, they are reported as part of Division Division Businesses adjustments Group investing activities. During the year, MSEK 1 846 (1 748) has been External revenue 12 191 2 018 128 14 337 placed in short-term investments. Intra-Group revenue 158 141 963 -1 262

Total revenue 12 349 2 159 1 091 -1 262 14 337 Operating income 5 720 148 100 141 6 109 ** Market Division’s sales included – operating margin, % 46.3 6.9 9.2 42.6 in sales for Mining Division. President’s report

With record-high production and earnings, 2005 was a fantastic year for LKAB. A return on equity of 36.6% exceeds the return requirement of 12% measured over a business cycle, by a wide margin. Targets for volumes, earnings and proﬁ tability throughout the Group were also reached.

Driven by demand from China, the iron ore market saw planned production start-up during the fi rst half of 2008. continued strong growth. There was a shortage of ore, In the long term, this implies an increase in production which meant dramatic price increases of 70 to 80%. The capacity from a current 23 Mt to 30 Mt. price increases are, of course, the main reason for the Two thirds of our deliveries are shipped via the harbor strong earnings trend and the boost in sales for the Min- in Narvik. To improve effi ciency and environment, this fa- ing Division. cility will be rebuilt at a cost of nearly 1 billion kronor. To- The Minerals Division has also seen positive develop- taling 10 billion kronor, these three investment decisions ment, not least in China. During 2005, mining of olivine send a clear message to our customers that we are willing commenced in Greenland. Olivine sales complement the and able to meet their volume demands. iron ore business and have attracted great market interest. Three years ago, we set a goal for the Mining Division. FOCUS ON PRODUCTION AND MAINTENANCE By 2006, we would produce 23 million tonnes (Mt) of iron The strategy for the Mining Division is to develop pellet ore products per year – without appreciable increases in manufacture in terms of both volume and quality. Produc- capital expenditures and with the same number of em- tion increased in 2005 to 16.5 (16.0) Mt. Several produc- ployees. The division reached this target in 2005, production units set new volume records while maintaining or ing 23.3 Mt, which exceeded the previous year’s produc- improving the level of quality. tion by 1 Mt. A few years ago, we began a maintenance-improve- Despite the pressure to meet demand, costs have been ment program that has subsequently become a very stra- kept under control, a factor that has also contributed to tegically important activity. Developments in the past year the positive outcome. At the same time, we managed to have confi rmed that we chose the right path. The aim is maintain a high degree of service to our customers, which to stabilize manufacturing at a higher production level, is important, since quality and service are two of our key which will mean greater productivity, better quality, bet- competitive factors. ter delivery service and, not least, an improved working environment. CLEAR GROWTH STRATEGY, STRONG BELIEF IN THE FUTURE INDUSTRIAL MINERALS, COMPLEMENTARY BUSINESS For the Mining Division, we have a clearly defi ned stra- The Minerals Division has continued its investment in tegy based on the product that gives us the greatest com- industrial minerals. Olivine mining has commenced in petitive advantage: pellets. The strategy is scrutinized and Greenland, and the fi rst deliveries have been shipped to revised each year, a process which has led during the past customers and to our own pellet plants. year to several major investment decisions. Sales of magnetite to non-steel customers are also Fifty years ago, LKAB built the fi rst pelletizing plant in growing. Access to suffi cient quantities is the limiting fac- Malmberget. The route that was then chosen proved to tor, which is why it is strategically important to secure vol- be a prerequisite for the company’s long-term survival. umes for the Minerals Division. The focus on pellets has meant that LKAB has been able to stay in the competitive game, despite higher costs in COMMON VALUES AND SYSTEMS comparison to those of open-pit mining operations in Bra- In recent years, LKAB has grown from a Swedish iron ore zil and Australia. producer into an international minerals group with global In late-2004, the Board took the decision to invest 2.6 bil- operations. The Board has adopted several policies that lion kronor in a new pelletizing plant in Malmberget that have been communicated throughout the Group. The in- was to be operational at the turn of the year 2006/2007. tention is to make LKAB a group with shared values. The project has progressed well, and the production start- We have also decided to introduce a joint way of work- up will be about two months earlier than planned. This ing throughout the Group and to improve the effi ciency of is particularly positive, considering the prevailing market administrative processes. The fi rst step is to implement situation. a standardized business management system. Starting in At the same time, plans have been drawn up for a the fi rst half of 2006, this will be rolled out through the new pelletizing plant in Kiruna. In December 2005, the entire Group. Board approved an investment of 6.4 billion kronor and a

PRESIDENT`S REPORT 4 LKAB ANNUAL REPORT 2005 Certification of quality and forecasts that are revised after each quarter and control environmental management via key ratios. To be able to manage the company opti- As we see it, quality is not only a question of technical mally, the system of control via key ratios is refined on an quality; it also entails continuous improvement in all as- ongoing basis. pects and with the commitment of all employees. Despite By “taking the company’s temperature” in different the great pressure on production, the quality of our prod- ways after each shift, daily and weekly, we are able to de- ucts has improved and we have strengthened our posi- termine if we are on the right course or whether adjust- tion as a quality-leading company. ments have to be made. This approach is fundamentally The quality effort is largely a matter of maintaining important for developing a future, modern organization good order and following clearly-defined procedures. in which responsibilities and authority are delegated. By During 2005, all of our ISO 9001 certificates have been re- implementing key-ratio control, we can also break down assessed and approved. our strategies and thereby gain acceptance for them with- Certification of our ISO 14001 environmental manage- in the organization. ment system began during the year. Our operations in Our incentive program was modified in 2005 to support Svappavaara and our logistics operation, which includes this management process. This is based on how well we railways and harbors, have been certified. The goal is to meet our production and quality targets and how well we achieve full certification for the Group by 2007. At the succeed in our effort to improve occupational health and same time, implementation of an energy management safety. The important thing is that all of our employees system according to a new Swedish standard began. can influence these parameters. Here, Svappavaara was the first industrial operation in the The maximum reward is 30 000 kronor per year and country to be certified. full-time employee. For 2005, the reward amounted to Our organization is heavily burdened by the fact that 27 000 kronor, which is a good measure of our employees’ our production apparatus is operating under pressure of success. great demand at the same time as we are implementing major investments and introducing new management The outlook for 2006 systems. That we are succeeding is indicative of our de- We foresee continued positive trends for all of the Group’s termination, capability and commitment. I am very satis- lines of business, both in the coming year and in the long fied with the total effort. term. Growth is strong in Asia, in countries with large popula- A safer, healthier LKAB tions, where infrastructural expansion, housing construc- Several years ago, we raised our targets for improved oc- tion, etc., requires much steel. This means that we are now cupational health and safety and accident-free workplac- adapting to the new global market situation that has arisen. es. Zero accidents is the undisputed goal. Certainly, the iron ore and metal markets will fluctu- The driving force is, of course, consideration for the ate in the future, but our assessment is that this will take wellbeing of our employees; but we also want to be an place at a higher level than previously, and that total con- attractive company for future co-workers. Many people, sumption will remain high. not least of all young people, consider the mining industry to be hazardous. If we are to succeed in competing for the best people in the labor market, we must dispel this reputation. For 2005, we set the target of fewer than 10 accidents Martin Ivert per million working hours. We reduced the number to President 10.5, which is half as many accidents as there were a de- cade ago. The figures are moving in the right direction, but not quite quickly enough. Absenteeism due to illness has also been given a lot of attention, and here, too, we are witnessing a healthier trend. During the past three years, the rate of sickness absence has fallen from 6.2 to 4.3%. Short-term absence during the past year was 2.4%. In this regard, LKAB has become a healthier company.

Control via key ratios and incentives Two years ago, we abandoned the traditional budget method in favor of a system based on 12-month rolling

p r e s i d e n t ´ S r e p o r t L K A B A n n u A L r e p o r t 2 0 0 5 Strategies

During 2002 and 2003, LKAB’s mission, vision and strategies were subjected to a thorough review. This review resulted in an annual strategy process, which is revised in December when the Board establishes a new rolling plan for the coming three years.

It was found that the company’s most important assets is that the strategy be broken down into activities that can are the magnetite ore of the Orefi elds and the knowledge be realized at different points within the organization. This and expertise in production processes and products that is done in conjunction with the rolling prognoses that are has been amassed over the years. There are suffi cient ore revised after each interim report. Together with the rel- reserves to ensure mining far into the foreseeable future; evant business-ratio control, this makes for a more dy- just how long the operation will continue is more a ques- namic process than the classic budgetary control method tion of economics than of technology. The fundamental that was formerly applied. business concept, LKAB’s corporate mission, is essential- Each year, on about 20 occasions, the president gives ly unchanged, but it has been updated and approved by presentations for employees in Sweden and Norway, out- the Board. lining the strategy and the current status of the various activities. Achieving consensus in this way is a very con- MISSION siderable undertaking, but when introducing a new strat- LKAB’s mission is, based on the Swedish Orefi elds, to egy, one of the greatest obstacles is a lack of awareness manufacture and deliver to the world market upgraded or understanding among employees. iron ore products and services that create added value for The general assessment is that demand for iron ore its customers. Other closely related products and services products will remain high in the coming years. This has that are based on LKAB’s know-how and support the main created market conditions that will allow LKAB to grow by business can also be included in the company’s opera- investing in, among other things, new pelletizing plants tions. and main levels. Exploration drilling in both Kiruna and Malmberget VISION has indicated greater mineral resource potential at depth, LKAB will be perceived by the customers as the supplier which is, of course, a prerequisite for continued opera- that provides the most added value and is thereby the tion. In Kiruna, particularly, the mineralization at depth is leader in its selected market segments. high-grade, wide and with low impurity content. Another important factor is that LKAB can take advan- POLICIES tage of the strong fi nancial platform upon which it now An important aspect of the strategy review was to estab- stands. The earnings trend shows that the company is ca- lish policies for quality management, environmental and pable of fi nancing its extensive program of growth, pro- energy management and ethics. These have subsequent- vided the current dividend policy is maintained. ly been clearly communicated throughout the Group. Dur- LKAB will continue to have high fi xed costs in the form ing 2005, an information policy was established. of depreciation and amortization. Self-fi nancing of capital expenditures allows the company to avoid the fi xed costs THE STRATEGIC PROCESS that are associated with borrowing. The strategic plan is based on a thorough, annual busi- According to the above reasoning, LKAB’s fi nancial ness-intelligence analysis of markets and product, pro- strategy can best be expressed as: maintaining a high eq- cess and technological development. In addition, the uity-assets ratio that will enable self-fi nancing of capital company’s strengths, weaknesses, threats and opportuni- expenditures while retaining a buffer to alleviate the ef- ties are analyzed. The entire process results in the strat- fects of a possible cyclical downturn. egy document that is adopted by the Board at the Decem- ber meeting. OVERALL GROUP STRATEGY The strategy document contains various business-in- The LKAB Group’s overall strategy can be summarized as telligence analyses and the conclusions that have been follows: reached, all of which are expressed as a number of con- • Maintain a niche strategy based on pellets as the product, crete strategic activities. Finally, the strategy is comple- with added value for the customer. Pellets give us consid- mented with fi nancial forecasts and simulations. erable competitive and environmental advantages. An important aspect of the management of operations • Full utilization of production capacity. For reasons per-

STRATEGIES 6 LKAB ANNUAL REPORT 2005 Minerals has started mining olivine in Greenland. The Mining Division’s main product is iron ore pellets, a sample The ﬁ rst delivery was shipped in December 2005. of which is shown here by Seija Forsmo.

taining to cost and quality, the facilities now in opera- fore, the groundwork is being laid for an Agglomeration tion will be run at full capacity. A program is now under Center (pelletizing center) linked to an experimental pel- way to enable greater production fl exibility, i.e., shift letizing plant. The experimental blast furnace (EBF) is now production between different plants in the event of an a valuable asset, and an experimental pelletizing plant economic downturn. will help to optimize the total process: concentrate-pel- • Volume growth through better utilization of plant and lets-blast furnace. human resources (lean growth). This program, based The importance of maintenance for production stabili- on an intensive maintenance effort, has been very suc- ty, in terms of both quality and volume, has been underes- cessful in recent years. timated in Swedish industry, even in the Mining Division. • Selective and ongoing ‘lean’ expansion of pellet capac- An ambitious program, begun in 2002, continues to have ity. The most recent examples are the investments in high priority. The production level is decided by the speed new pelletizing plants in Malmberget and Kiruna, which at which production facilities are operated, and it appears imply a dramatic boost in production volume. These in- to be possible to gradually increase the rate of production vestments are largely in line with our customers’ strat- without jeopardizing quality. egies and ambitions. The lean-growth philosophy will LKAB’s is a characteristically energy-intensive process also be applied to increase capacity in the new plants. industry in which energy issues are a primary concern, • Organizational development for greater productivity both in terms of cost and environment. In day-to-day op- and better work environment. We enable ‘good work’ erations and when new technology and new equipment is when we delegate responsibility and authority in a sys- introduced, optimization of energy effi ciency must always tematic way. Only by creating and offering attractive be in focus. workplaces can we attract future co-workers and, not One limiting factor is often the very extensive and time- least, increase the number of women in the company. consuming concession bargaining. Initially, the idea is to • Development of industrial minerals. The intention is take full advantage of existing concessions, and in future both to support the iron ore business (with among oth- to make use of simpler environmental impact assess- er things, olivine) and to respond to growing demand in ments for marginal volumes. interesting application areas for iron ore products such The most important activities during the coming years: as water treatment, coal washing and heavy concrete. • Commissioning of the new pelletizing plant in Malm- Potential for profi table growth is also foreseen for other berget. important industrial minerals for which we have know- • Construction of the new pelletizing plant in Kiruna. how and resources. • Construction of the new ore harbor in Narvik. • Successive introduction of new, modern work organi- MINING DIVISION zation. Increasing profi tability in order to satisfy the owner’s re- • Continued focus on the maintenance process. quirements cannot be realized simply by cutting costs; instead, growth must be achieved through greater volume MINERALS DIVISION and/or a higher degree of upgrading. Of decisive impor- The division produces and markets selected minerals, tance is the volume LKAB can produce in existing facili- customized for industries throughout the world. Control ties. over fi rst-class mineral assets is the basis for long-term Since Mining has recently introduced new products for stability. both blast furnaces and direct reduction, in the short term, For Minerals, the objective is to gain full control, from customers seek product care (uniform quality) and adap- raw-material source to end user, of several selected min- tations. To be able to maintain LKAB’s competitive posi- erals. At present, the selected minerals are magnetite, tion, continued efforts in product and process develop- bentonite, olivine, mica and minerals with fl ame retardant ment are also necessary. properties (UltraCarb). Research and development in pelletizing will assure a Products are often developed in collaboration with cus- leading position where products are concerned. There- tomers, and product differentiation is one of the keys to

STRATEGIES LKAB ANNUAL REPORT 2005 7 success. Within its organization, the division now has con- Wassara will establish the drilling systems on the mar- siderable expertise concerning the various minerals, and kets Mining and Construction within market niches in development of more products and services is ongoing. which rapid growth in sales volumes can be achieved. Growth areas for magnetite are, above all, applications Wassara will apply the technical knowledge gained from for heavy concrete, water treatment and coal washing. external markets so as to help LKAB to reduce its drilling Historically, the main market for Minerals has been costs over the long term. Wassara’s organization will be- Europe, but the future growth is expected to take place in come successively more market oriented. Asia and North America. Kiruna Grus och Stenförädling AB (KGS) upgrades Thanks to the acquisition of the Seqi olivine deposit in LKAB’s waste rock to road and concrete ballast, blasts, Greenland, the division has entered the market with its crushes and hauls mineral products, processes concrete own source of raw material. The customer structure is and works with rock reinforcement in the mining and somewhat similar to that of the Mining Division; i.e., the construction industry. KGS is planning for a dramatic in- European steel industry. Being able to supply both pellets crease in tunnel construction in the Mining Division, as and olivine, the Group has thereby strengthened its posi- well as increased concrete production. Shotcreting will be tion. Other major application areas for olivine are in the marketed in conjunction with Kimit’s sales of explosives foundry and refractory industries. for construction, mining and tunnel driving. Minelco Asia Pacifi c has worked mainly with marketing KGS Mekaniska fabricates technically advanced steel and sales of external suppliers’ mineral products on the structures and mechanical components for the engineer- Asian market. The strategy is to successively expand the ing, mining and construction industries. For KGS Me- product portfolio with the company’s own products. kaniska, together with the bogie manufacturer, a major When Likya Minelco was formed in Turkey in 2004, Min- activity is to realize LKAB’s transition to ore cars with a erals secured access to a signifi cant deposit of a unique 30-tonne axle load. mineral, thereby assuring the long-term supply of raw Kimit’s mission is to support LKAB’s iron ore operation material for the manufacture of fl ame retardants (Ultra- by developing, manufacturing, purchasing, stocking and Carb products). delivering explosives, as well as developing explosives With the acquisition of a mica plant in Finland, the divi- systems and providing consultancy services. sion has gained exclusive access to a unique high-grade Kimit’s main business is to supply LKAB with effective mineral deposit, thereby expanding its product portfolio. and effi cient explosives and related services. To be able Investment to increase capacity for fi ne wet-ground prod- to quickly meet an increasing demand, Kimit is improv- ucts in being implemented and a new plant will be opera- ing its fl exibility and production and distribution capacity. tional in Siilinjärvi, Finland, in mid-2006. This will mean a The technical and product know-how gained by Kimit is boost for the traditional markets for mica, with products transferred to LKAB and thereby strengthens the group’s for surface coating, building construction, sound damp- competitiveness. ening and plastics. Over the long term and with good profi tability, Fas- tighets AB Malmfälten (FAB) will provide customers with For Minerals, the most important activities in the coming well-maintained, well-situated residential properties in years are: the locations where LKAB operates. This is important fac- • Realization of full-scale olivine operations in Green- tor for future recruiting and is part of our strategy for cre- land. ating attractive working and living environments. • Establishment of upgrading of magnetite products in FAB is LKAB’s resource for the transition that is tak- the USA. ing place in the communities of Kiruna and Malmberget. Business is conducted with normal requirements for fi - nancial returns. With respect to the deformation caused SPECIAL BUSINESSES DIVISION by underground mining activities, FAB will establish and The mission for Special Businesses is to support the update a plan for developing and decommissioning hous- Group through services and technical development of ing in Kiruna and Malmberget-Gällivare. drilling systems, mining engineering and concrete work, explosives and property management. Operations are organized in the subsidiaries Wassara AB (owned jointly by Sandvik), AB Kiruna Grus och Sten- förädling, with Kimit and KGS Mekaniska, and Fastighets AB Malmfälten. With its main product, the patented Wassara Hammer, Wassara AB will develop and market systems that offer better total solutions for customers’ production drilling.

STRATEGIES 8 LKAB ANNUAL REPORT 2005 The new pelletizing plant in Malmberget is one of the major investment projects in the Oreﬁ elds. The plant will be operational in autumn 2006.

STRATEGIES LKAB ANNUAL REPORT 2005 9 Divisional operations 2005

LKAB’s operations are organized in the divisions Market, Mining, Minerals and Special Businesses. The Market Division sells iron ore products to the steel industry and the Mining Division is responsible for mining, processing and logistics. The Minerals Division produces and markets customized industrial mineral products. Special Businesses supports Group companies with services and technical development.

MINING DIVISION The Mining Division mines and upgrades iron ore for facilities has increased in the past four years from 20 to products for steelmaking, principally pellets, which are 23 Mt/yr. the division’s main product, and magnetite products for the Minerals Division’s customers. Sales to steel producers are the responsibility of the Market Division, which has MINING sales offi ces in Luleå, Essen, Brussels and Singapore. Large-scale is a keyword where LKAB’s mining operations The Mining Division’s process chain stretches all the are concerned. Concentration to fewer and larger produc- way from the iron ore deposits to the customers. It starts tion units has yielded considerable gains in effi ciency and with the production of crude ore in underground mines productivity. and upgrading of iron ore in processing plants at surface Efforts are concentrated on improving the yield from level, and continues with rail transport of fi nished prod- mining operations, i.e., minimizing ore losses and extract- ucts to shipping harbors and loading to vessels for deliv- ing the maximum amount of iron in relation to the quan- ery to the customers. tity of ore mined. Measures include improvements in drilling, blasting technology, loading and haulage. PRODUCTION RESULTS 2005 As the orebodies are mined, new main levels must be The focus during the year has been on improving capac- built to continue mining at depth. In the past, main lev- ity, speed and availability in the production facilities in els in the Kiruna mine have be built at the 275, 320, 420, order to increase the volume of mining and processing 540 and 775- meter levels (below the original peak of Ki- while maintaining high quality. irunavaara). The current main level is at 1 045 m. During In the underground mines in Kiruna and Malmberget, 2005, the decision was taken to begin preliminary work 36.6 Mt of crude ore was mined. The volume of iron ore for yet another new main level in Kiruna, at the 1 365-m products produced reached 23.3 Mt, which exceeded the level. previous year’s production by 1 Mt. Malmberget consists of several orebodies, which from Production of pellets was 16.5 (15.9) Mt and of fi nes 6.7 the beginning were mined at 50-meter intervals down to (6.3) Mt. Deliveries totaled 23.2 (22.8) Mt. 450 meters below the original peak of Välkomma. Sub- Through continuous improvement, greater effi ciency sequently, deeper levels have been built at 600, 815 and and the elimination of bottlenecks, production in existing 1 000 meters.

SALES PER MARKET REGION FINANCIAL HIGHLIGHTS – MINING DIVISION (Parent company)

MSEK 2005 2004 Net sales 12 349 7 560 Operating income 5 720 1 669 Fixed assets 8 015 6 273 Current assets 10 597 6 900 Adjusted shareholders’ equity 13 153 9 581 Return on equity % 45.2 30.6 Return on operating assets 69.6 23.3 Average number of employees 2 797 2 694 Production, Mt 23.3 22.3 %UROPE !SIAINCL4URKEY /THERS Deliveries, Mt 23.2 22.8 More than 70% of Mining’s sales are to the Northern Stocks, Mt 1.9 2.3 European steel industry.

DIVISIONAL OPERATIONS 2005 10 LKAB ANNUAL REPORT 2005 In the concentrating plant, the ore is ground in rotating mills. From his control panel, Daniel Sedig controls loading of pellets to rail cars.

In 2005, the decision was taken to extend the 1000-me- from iron to steel. The DR process is based on the use of ter level. This presents special conditions, since sections natural gas and has become increasingly common in oil- of the community lie within the area affected by the exten- producing countries and other countries with access to sion. At the same time, planning of the next main level, at inexpensive natural gas. 1,250 m has commenced. Unlike pellets, fines must be sintered to form larger pieces before being used in the blast furnaces. In Kiru- Upgrading, products na, the fines product is produced by crushing and then In the ore processing plants at surface level, the crude ore grinding the crude ore to a sand-like consistency. Fines is upgraded to sinter fines and pellets. Pellets are the Min- from Malmberget is a screened product from the mine. It ing Division’s main product and account for more than is processed in sorting and concentrating plants by grind- 77% of ore sales. ing and separation. Pellets are produced by mixing finely ground iron ore The trend towards more customer-tailored products with various binders and additives, and then shaping the will continue. Considerable effort is therefore being de- mixture into centimeter-sized spheres, which are sintered voted to producing the same product in several pelletizing at a temperature of 1 250°C. LKAB’s magnetite-based pel- plants in order to ensure maximum flexibility. lets have high iron content and are less energy demand- Construction of a new pelletizing plant in Malmberget ing and therefore more environmentally friendly than (MK3) is now in progress, and the plant is expected to be competing pellet products. operational in the autumn of 2006. A new pelletizing plant Blast furnace pellets (BF pellets) are delivered mainly to in Kiruna (KK4) will be operational in 2008. steelmills in Europe and are used in the coke-based blast Following the expansion, the Kiruna processing plants furnace process, which is the most common method for will produce different types of iron ore pellets exclusively, producing hot metal, the first stage in the steelmaking which will simplify production flows at the Kiruna mine. process. Production capability for fines products will exist only in DR pellets are used in the direct reduction process to Malmberget. Pellets will continue to be the main product produce sponge iron, which in an alternative process from Malmberget. route, is also an initial stage in the chain of production Logistics The finished products are transported from the ore processing plants to customers by rail and by ship via the shipping ports at Narvik and Luleå. Rail transports are op- PRODUCTION AND PRODUCTIVITY erated under the company’s own management. -T 4ONNESEMPLOYEE During 2005, a total of about 23.4 Mt was hauled to Nar- vik and Luleå, the highest volume in 25 years. Disruptions in production and delivery have been minimal. The transport system is upgraded continually through the ongoing replacement of locomotives and ore cars. New so-called UADK-type cars have been taken into operation during the year. Development of a new car designed

for a 30-tonne axle load is under way, and the first cars, with a 100-tonne payload, have been delivered. From the harbor in Luleå, ore products are delivered mainly to customers in the near-lying market. The Nar- 0RODUCTION -T 0RODUCTIVITY TONNESEMPLOYEE vik ore harbor can accommodate vessels of up to 350 000 Production volume increased by 4% during 2005. dwt. The Board has finalized a decision on major improve- Productivity has increased successively in recent years.

D i v i s i o n al o p e r at i o n s 2 0 0 5 L K A B A n n u A L r e p o r t 2 0 0 5 11 ments in effi ciency and modernization of the harbor in relations. Work also focuses on establishing best practice Narvik. The new harbor will operational in autumn 2008. and making production more fl exible to enable maximum capacity utilization. OBJECTIVES LKAB is exposed to tough competition from considerably larger iron ore producers who, in addition to their size, MARKET TRENDS 2005 also enjoy the cost advantages associated with open- During 2005, the global demand for iron ore remained pit mining. LKAB’s goal is to cope with competition and strong, pressing iron ore exporters to increase produc- ensure the company’s long-term survival by constantly tion to the limits of capacity. According to preliminary es- improving cost-effectiveness, raising the quality and timates, global trade in seaborne iron ore increased to 650 knowledge content of the products, and maintaining re- (580) Mt, of which China’s share of imports rose by over source-effi cient growth. 32% to about 275 Mt. Improving maintenance, including preventive mainte- Preliminary statistics from the International Iron and nance, is strategically very important. The aim is to stabi- Steel Institute indicate that world production of crude steel lize production at a higher and more consistent level. This increased in 2005 by 6%. Production thereby reached a is aided by greater use of new technology and a focus on new benchmark of more than 1.1 billion tonnes. Asia, the maintaining good order. Middle East and Africa accounted for most of the growth. The work of assuring quality in the company’s process- The greatest production increase was seen in China, es has high priority, and here, too, the keyword is stabil- where crude steel production reached about 350 Mt, an ity. Consistent quality, the right quality and delivery assur- increase of 25%. Japan realized about the same produc- ance are the most important success factors for customer tion fi gure as in 2004, while production in the EU 15 fell by slightly more than 4 Mt or 2.5%. During the year, Chinese authorities took measures to gain better control over the infl ow of iron ore. The introduction of import licences and restrictions on the number of importers did not appear to have any great impact on PRICE TRENDS, IRON ORE PRODUCTS iron ore imports. China was only able to assure its supply of ore by increasing production in its own high-cost mines 53#ENTS and by buying expensive iron ore on the spot market. Globally, the production of hot metal, which is midway THE LARGEST STEEL-PRODUCING COUNTRIES Change ,+!"0ELLETSFOB.ARVIK +IRUNA"&INESFOB.ARVIK Mt 2005 2004 between years #62$0ELLETSFOB4UBARAO #ARAJAS&INESFOB0ONTA DE-ADEIRA 1. China 349.4 280.5 24.6% 2. Japan 112.5 112.7 -0.2% GLOBAL IRON ORE EXPORT 3. USA 93.3 99.7 -6.4% AND PRODUCTION OF CRUDE STEEL 4. Russia 66.1 65.6 0.9%

)RONORE -T #RUDESTEEL -T 5. South Korea 47.8 47.5 0.5% 6. Germany 44.5 46.4 -4.0% 7. Ukraine 38.6 38.7 -0.3% 8. India 38.1 32.6 16.7% 9. Brazil 31.6 32.9 -3.9% 10. Italy 29.2 28.5 2.6%

25. Sweden 5.7 6.0 -4.2% World total 1 128.7 1 065.0 6.0% 7ORLDEXPORTOFIRONORE Source: IISI, 21 January 2006 7ORLDPRODUCTIONOFCRUDESTEEL

DIVISIONAL OPERATIONS 2005 12 LKAB ANNUAL REPORT 2005 between iron ore and steel in the process chain, rose by MARKET OUTLOOK 2006 8% to a new record of around 785 Mt. However, in LKAB’s For iron ore producers, favorable market conditions are important market area of Northwestern Europe, hot metal expected to persist throughout 2006. Leading industry an- production declined; in Germany by 4%, in Belgium by alysts foresee an increase in world crude steel consump- 12% and in Sweden by 4%. In Southern Europe, production of 4 to 5%. tion increased; in Italy by 8%, in Spain by 3% and in Tur- Increases in consumption are expected throughout the key by 2%. world, though these are expected to be somewhat weaker Production of sponge iron (DRI/HBI), which in 2004 in Europe and stronger in Asia. In Europe, steel invento- grew to a record 55 Mt, increased in 2005 by 7%, reaching ries appear to have normalized during the third quarter of yet a new record of more than 58 Mt. 2005, and the major steel producers foresee increased de- As a result of the shortage of iron ore at the close of mand and rising prices during the fi rst quarter of 2006. 2004, the world market prices of Brazilian and Australian In the Middle East, an important market for LKAB’s DR iron ore were increased by as much as 71.5%. On the ba- pellets, infrastructural expansion and industrial growth sis of benchmark market prices, LKAB reached an initial have resulted in a shortage of steel. Dramatic increases in agreement in March for price hikes of more than 70% on the price of scrap and pig iron have stimulated investments fi nes and nearly 85% blast furnace pellets. in increased direct reduction capacity in the region. Despite the shift in production from north to South- The major iron ore producers have decided to invest western Europe, LKAB’s deliveries of blast furnace pellets several billion dollars to increase capacity. For example, to contract customers in Northwestern Europe remained during 2005, the decision was taken to build two new pel- unchanged, indicating increased market shares in the letizing plants in Brazil. These investments have, howev- near-lying market area. Other contributing factors were er, been largely covered by increased demand and will the strong demand for iron ore in Asia, high sea freight take several years to realize. rates and the shortage of iron ore on the world market. Many projects are burdened by rising costs and a short- LKAB’s deliveries of pellets to contract customers in the age of qualifi ed labor. Consequently, it is expected that Middle East and North Africa increased considerably, the world iron ore market will continue to face shortages while deliveries to the Far East ceased. in 2006. For LKAB, the potential for sales is expected to continue to exceed production capacity.

Kristina Nyström and Bernt Lundstedt monitor production from the control room of Malmberget’s concentrating plant.

DIVISIONAL OPERATIONS 2005 LKAB ANNUAL REPORT 2005 13 MINERALS DIVISION The Minerals Division, which operates under the name velop materials and processes in close collaboration with Minelco on the global market, develops, produces and customers. markets industrial mineral products. Most of the division’s production facilities are now qual- Minelco supplies industrial minerals to customers in ity-certifi ed according to ISO 9001:2000. Facilities under many different industries and for many different appli- development in Turkey, Finland and Greenland will be cations. Among the most important are applications for certifi ed during 2006. heavy concrete, building construction, the oil and gas industry, the rubber, plastics and paint industries, the SALES AND EARNINGS 2005 chemical industry, the automotive industry, foundries and The Minerals Division’s sales amounted to MSEK 2 159 manufacturers of refractory materials. (1 598), an increase of 35% over the previous year. Opera- Operations are managed from Sweden, with represen- ting income amounted to MSEK 148 (122). tation in Europe, Asia and the USA. Minerals Division has Sales volumes increased within several business seg- about 400 employees, most of them outside Sweden. ments and within all market areas. At the same time, high There are subsidiaries with processing plants in Fin- freight rates had a negative impact on earnings. land, Greenland, the UK, the Netherlands, Greece, Turkey Compared to the previous year, the volume of sales of and China. The company has additional subsidiaries in magnetite remained unchanged. In total, approximately Germany, the USA and Hong Kong, as well as representa- 1 Mt of magnetite was delivered, mainly for use in civil tive offi ces in the Czech Republic and Thailand. engineering projects, sponge iron for powder metallurgy, With sales of about 2.2 billion kronor, Minerals opera- water treatment chemicals and coal washing. tions are expansive, now accounting for 14% of the LKAB The global expansion is evident. Growth in China con- Group’s total sales. Thanks to greater market shares and tributed to a doubling in sales of industrial minerals in sales volumes, the earnings trend developed favorably Asia, which now accounts for 30% of Minelco’s sales. during 2005. The Minerals Division’s capital expenditures, which The Minerals Division focuses on selected minerals were mainly attributable to investments in production and ownership or control of the entire process chain from in Greenland, Turkey and Finland, amounted in 2005 to source to end user. Direct sale to end users and an ex- MSEK 117 (85). tensive knowledge of mining, production, processes, applications and markets enable the company to customize PRODUCTS AND PRODUCTION products to meet specifi c customer needs, thereby ensur- The product portfolio includes more than 30 different ing maximum value for customers. This, in combination industrial minerals. Priority minerals include magnetite, with Minelco’s expertise and service, will contribute to im- bentonite, olivine, mica and minerals with fl ame retardant proved profi tability for the customers. properties (UltraCarb). In many application areas, the Minerals Division has achieved a leading position. This position is based on a Magnetite high degree of expertise in mineral technology, produc- The world market for magnetite industrial applications is tion, applications and markets, as well as the ability to de- estimated at slightly more than 2 Mt per year. With sales

SALES PER MARKET REGION FINANCIAL HIGHLIGHTS – MINERALS DIVISION MSEK 2005 2004 Net sales 2 159 1 598 Operating income 148 122 Fixed assets 750 545 Current assets 777 591 Adjusted shareholders’ equity 397 284 Return on equity % 24.2 25.1 %UROPE !SIAINCL4URKEY /THERS

Average number of employees 372 371 Minerals’ sales are mainly to customers in Europe, but are growing in Asia.

DIVISIONAL OPERATIONS 2005 14 LKAB ANNUAL REPORT 2005 Loading of mineral products at the Minerals Division’s plant in Flixborough, England.

of 1 Mt, Minelco is a market leader. Currently, there is very agreement gives Minelco exclusive access to the mica high demand from customers who use magnetite prod- that is produced as a byproduct at Kemira GrowHow’s ucts in the manufacture of heavy concrete. mine in Siilinjärvi. Magnetite from the Orefi elds offers strong competitive Mica is used in a range of applications, though princi- advantages, thanks to its high quality, which is especially pally as a functional fi ller in the paint and plastics indus- evident in applications in which the chemistry of the prod- tries. The Minerals Division has long been an important uct is important. For products intended for the chemical supplier on the market for mica products and is the Euro- and polymer industries, the magnetite is processed in the pean market leader. company’s own production facilities. During 2005, deliveries of mica products from Finland began at the same time as a decision was taken to invest Olivine in increased capacity. A new plant is expected to be op- During 2005, the Seqi olivine deposit in Greenland was erational in mid-2006. acquired. The acquisition will enable the division to advance its position on the olivine market, a market that ab- Other products sorbs approximately 4 Mt per year. The Minerals Division Zircon is a strategically important mineral for Minerals, will handle about 1 Mt of olivine annually, and the deposit and thanks to a long-term agreement with the world’s will satisfy demand for olivine for many years to come. largest zircon producer, Australian Iluka, the division has The results of geophysical surveys and drilling campaigns secured a signifi cant market share in Asia. Zircon is used indicate reserves in excess of 100 Mt. in many different industries; among others, the ceramics, Construction of production facilities began during the glass, chemical and refractory industries. summer, and in December, the fi rst shipments were de- More and more sales are made to areas applications in- livered to European steel customers and to LKAB for use volving liquid metals. Among other products, the division in pellet production. The mine has been planned for year- manufactures and sells slag darts for the steel industry round operation and is equipped for a capacity of about and ceramic products for foundries. The trend is towards 1.7 Mt per year. Full production will be possible during the a greater number of proprietary products that bring great- latter half of 2006. er value to customers. Europe accounts for more than half of sales. With raw UltraCarb material sources in Europe, Minelco is at a considerable Via a joint venture with a Turkish company in Likya Minel- advantage compared to competitors in e.g., China, when co, the company has secured access to a signifi cant min- freight rates are high. Domestic consumption of industrial eral deposit, thereby assuring the long-term supply of minerals in China is also driving price increases. raw material for the manufacture of one of the company’s most important products, UltraCarb. OBJECTIVES UltraCarb has many unique properties that make it an The division’s objectives are based on the company’s ideal material for many different applications. Above all, position in strategic business areas, a broad geographic it is a natural, and thereby environmentally friendly, fl ame presence and an effective network of production facilities retardant for use in the cable industry and other polymer and logistics systems. The target for organic growth is on industries. average at least 10% per year. During the year, the division has invested in both the In addition to the growth target, improved capital ef- mine and processing plant in Turkey. The plant was com- fi ciency is also an objective. With less capital tied up in missioned in early-2006. inventories and accounts receivable, greater returns and profi tability will be realized. Furthermore, a continued ef- Mica fort is being made to coordinate and take advantage of In late-2004, Minelco acquired a production plant for synergies within the division, and thereby improve cost processing mica from Kemira GrowHow in Finland. The effectiveness.

DIVISIONAL OPERATIONS 2005 LKAB ANNUAL REPORT 2005 15 MARKET OUTLOOK 2006 Thanks to investments made in 2005, Minerals Division Traditionally, Europe has been the Minerals Division’s has built a good foundation for continued growth. home market, and it is here that the company still has the The general upswing in the metal and minerals indus- greater share of its business. Although Europe accounts try is expected to have positive consequences for the di- for more than half of sales, the major growth is occurring vision. Demand for the division’s products is expected to in other markets. increase during 2006. In the future, Europe’s relative signiﬁ cance will dimin- Acquisition of the unique mineral deposit in Turkey will ish and sales will be more evenly distributed over Europe, allow the division to develop its product offerings and Asia and the USA. Minelco’s rate of growth in Asia is ex- take a greater share of the market for ﬂ ame retardants. pected to exceed the general growth rate in the region, Acquisition of the mica plant in Finland enables Miner- and there are good possibilities for increasing sales in the als to offer a complete product portfolio of minerals with USA during 2006. different characteristics for the paint and plastics industry. With considerable resources in production, application Thanks to the investment in Greenland, enabling an an- know-how and service, the division will strengthen its nual production capacity of more than a million tonnes offerings globally and win greater market shares. of olivine, the division can cover one quarter of the total olivine market.

SPECIAL BUSINESSES DIVISION LKAB has organized most of its subsidiaries under the terest. In addition to these subsidiaries, there are wholly Special Businesses Division. These companies are today owned foreign sales companies in the Market Division mainly subcontractors to the Mining Division and the and several small companies associated with the opera- Minerals Division, but also support the Group by contrib- tion in Narvik. uting towards effi ciency improvement and technical de- LKAB also has an electricity network company with velopment. a concession as an electricity distributor, as well as its The companies in Special Businesses have their origin own insurance company. LKAB Försäkring AB works in in LKAB’s know-how as a manufacturer and user of prod- the same way as most other insurance companies with ucts or services. Wassara AB develops drilling systems. property and risk insurance, though only within the LKAB AB Kiruna Grus- och Stenförädling (KGS) works with rock, Group. concrete, explosives manufacture and engineering services. Fastighets AB Malmfälten (FAB) manages properties WASSARA AB in locations where LKAB operates. Wassara develops and markets water-powered drilling Kimit AB, which is part of KGS, manufactures explo- systems. The method combines high productivity, sup- sives. Together with its subsidiary MTAS, Malmtrafi k AB, erior precision and long holes, which enables large-scale which is responsible for rail transports from the mines to mining methods and greater cost effectiveness in produc- the harbors, has been integrated into the Mining Division tion. Important markets are the Swedish mining industry, during 2005 as Logistics. Minelco AB is part of the Miner- where LKAB is the largest customer, and mining compa- als Division. nies in South Africa and South America. The subsidiaries are wholly owned by LKAB, with the Wassara markets products to construction companies exception of Wassara AB, in which LKAB has a 40% in- that do foundation work. In this area, Wassara has established itself as a principal supplier of hammers for work on Malmö’s City Tunnel project. FINANCIAL HIGHLIGHTS - SPECIAL BUSINESSES DIVISION Development work is focused on extending product lifecycles. Two years of research and development work MSEK 2005 2004 has resulted in the introduction of a new hammer model Net sales 1 091 951 in 2005. LKAB has taken a number of decisions that con- Operating income 100 94 fi rm the benefi ts of the Wassara method. The next gener- Assets 1 808 1 180 ation production drill rigs will be equipped with the Was- Liabilities 1 056 397 sara hammer. Capital expenditures 205 286 Depreciation 128 135 Operating margin,% 9.2 9.9 Average number of employees 394 416

DIVISIONAL OPERATIONS 2005 16 LKAB ANNUAL REPORT 2005 AB KIRUNA GRUS- OCH STENFÖRÄDLING (KGS) The KGS Group has operations in four main areas: • Concrete manufacturing and rock reinforcement, mainly for LKAB, but also for other mining and construction companies. • Mining and crushing of industrial minerals for the Min- ing Division’s pellet production and crushing of special product based on iron ore for the Minerals Division. • Mechanical engineering, and fabrication of steel structures and steel components, under the management of AB KGS Mekaniska. • Development and manufacturing of explosives, under the management of Kimit AB.

Important events during 2005 included the opening of a new concrete plant in Malmberget and the production of new ore cars for the Mining Division. In the past two years, 110 ore cars of the UADK type, with a 25-tonne axle load, have been manufactured for Mining. KGS Mekaniska, as part of a consortium with several other Orefi elds engineering fi rms, has participated in the manufacture of the new cars. The decision was taken in 2005 to build a new type of ore car with a 30-tonne axle load. The fi rst 70 cars in a trial series will be delivered in the spring of 2006. At the close of 2005, the decision was taken to terminate the OKE joint venture, between Kimit and Orica, thereby enabling Kimit to sell its products on the Nordic market.

FASTIGHETS AB MALMFÄLTEN (FAB) FAB manages about 2,000 apartments in Kiruna, Malm- berget and Koskullskulle. In 2005, the company achieved occupancy rates of 99% in Kiruna and 98% in Malmberget, which is indicative of the increased residential demand in the Oreﬁ elds. As a result of the expansion of mining operations, 60 apartments in Malmberget have been mothballed or cleared during the year. FAB is the LKAB Group’s resource for the transformation process in both mining locations and will help the company to meet the demand for housing in connection with future construction projects.

The new concrete station in Malmberget was commissioned in 2005.

DIVISIONAL OPERATIONS 2005 LKAB ANNUAL REPORT 2005 17 Markets and competition

The Mining Division supplies customized iron ore products for production of hot metal in blast furnaces and direct reduction processes. The main product is pellets. Blast furnace pellets are delivered to steelmills in Europe (north of the Alps). DR pellets are sold to North Africa and the Middle East. The Minerals Division produces and markets customized mineral products for industrial applications throughout the world.

IRON ORE PRODUCTS LKAB’s great competitive advantage is our high-quality Three large players, whose combined share of the market magnetite ore, which is very energy-effi cient during the is more than 70%, dominate world trade in iron ore. In process of upgrading to pellets and sinter fi nes. Techno- global terms, LKAB, with only 3%, is considered a small logically, LKAB is very competitive when it comes to the player, but commands a leading position as a pellet pro- actual pelletizing operation. ducer and a strong position on the home market, which is The positive market trend and growth via production northern Europe. increases and effi ciency improvement present the great- Global trends in the steel industry indicate that hot est opportunities for the company. Potential threats are metal is, and will in the near future continue to be, the seen in a possible collapse in China’s economic growth, dominating raw material for steel production. At the same a weak dollar, falling pellet prices, and the possibility that time as blast furnace productivity increases, with fewer new environmental and energy legislation may distort and larger production units, the use of coke is expected to competition. diminish in favor of coal-powder injection, oil or natural gas. Reduction of carbon dioxide emissions is an impor- INDUSTRIAL MINERALS tant challenge for the future, and the regulatory system The Minerals Division has broad and extensive operations for trading in emissions rights affects competition. LKAB on an international market. Products are supplied to cus- participates in an EU program for reducing carbon diox- tomers in the rubber and plastics industries, the chemi- ide emissions in steel production. cal industry, foundries and manufacturers of refractory Developments in the blast furnace process are pro- materials, civil engineering, the oil and gas industry and gressing quickly, and the reduced use of coke places others. higher demands on the iron-bearing component of the In terms of competition, the industrial minerals market blast furnace burden with respect to mechanical strength is highly fragmented, with many different players of vary- and other characteristics. Throughout the world, there ing sizes. Competition also varies depending on market are many plans for increased pelletizing capacity, and the region and application area. supply of iron ore pellets is expected to increase by 12% Price trends on the Minerals Division’s markets differ in 2006. from those on the iron ore market. Price developments Although the direct reduction processes are develop- on the industrial minerals markets have been considering quickly, they still account for no more than 7% of ore- ably less dramatic. Industrial sector, application area and based iron production. The growth is occurring in regions usage decide pricing. The global market for the product where there is an inexpensive supply of natural gas. Tech- areas in which the Minerals Division is active is estimated nical developments in the DR processes also place new at over 20 billion kronor. demands on LKAB’s products with respect to, among oth- The division’s most important strengths are its broad er features, pellet size and coating. product portfolio and widespread geographic distribu- During recent years, several of LKAB’s strong competition, as well as the fact that it is part of a fi nancially strong tive factors have been further strengthened. Ore reserves group with considerable intra-group use of minerals and have increased in terms of both quantity and quality; the process know-how. Opportunities are in, among other company’s fi nancial position has been reaffi rmed by suc- areas, olivine production, increased demand for mag- cessively better earnings trends, and our position as a pel- netite, positive environmental trends in water treatment let supplier has become an ever greater success factor. products and fl ame retardants, and growth in China and Underground mining constitutes a competitive disad- the USA. The most apparent potential threats are a major vantage, since LKAB is now the only underground opera- economic downturn, higher freight rates and poorer ex- tor among the larger ore producers. Other weaknesses change rates. include our US-dollar dependency, energy dependency, The Chinese market is undergoing tremendous growth, tight logistics from mine to harbor, the position of ore re- and the Minerals Division is actively involved in the devel- serves under urban areas, and the weak economic struc- opment of two production facilities in Tianjin, a seaport ture of the Orefi elds region. near Beijing. These factories produce ceramic and refrac-

MARKETS AND COMPETITION 18 LKAB ANNUAL REPORT 2005 A basket of iron ore pellets at the metal- Olivine in the hands of Ken Green of Minelco Minerals in Flixborough. lurgical laboratory in Malmberget.

tory products, mainly for the Chinese steel and foundry co has long been an important supplier on the market for industries. The company foresees good development mica products and is a market leader in Europe. for these ventures, which are being pursued in partner- Collaboration with Finnish Kemira GrowHow has given ship with two leading producers in the respective product the company exclusive access to mica that is produced as areas. a byproduct at Kemira’s mine in Siilinjärvi.

Selected minerals OTHER OPERATIONS In Europe, where Minelco is the market leader in magne- The Special Businesses Division supports the Group by tite, competition is mainly from other minerals and tech- providing drilling systems and explosives, and carrying nologies. During 2005, market successes were achieved out mining engineering and concrete work. Outside the on among other continents Asia and North America, both LKAB Group, the Division also has business with other of which are growth markets for the division. mining companies and construction and civil engineering Demand for magnetite products in the oil and gas in- fi rms. dustry for underwater gas pipelines has remained strong. Wassara markets its patented drilling system to the Greater environmental awareness throughout the world mining industries in Sweden, South Africa and South has become an important driver of growth in the mar- America, as well as to companies in tunnel construction ket for water treatment chemicals, a market in which the and oil and gas exploration. Wassara’s drilling system has Minerals Division’s importance as a supplier of magnetite promising business potential, and marketing efforts are products is increasing. being intensifi ed. The olivine market comprises three major application Compared to alternative drilling systems, the water- areas: the steel, refractory and foundry industries. The powered Wassara Hammer assures environmentally European and North American market for olivine amounts friendly drilling without any additives. Other systems are to 4 Mt per year. either driven with oil or use oil as an additive in the fl ush- In steelmaking, olivine improves steel quality and con- ing agent, which directly contaminates the environment tributes to lower energy consumption compared to alter- or increases the presence of oil products in the mine. native products. For the foundry industry, olivine is more Kiruna Grus och Stenförädling AB is planning for a dra- environmentally advantageous than competing products. matic increase in tunnel construction in the Mining Divi- The Mining Division is a large consumer of olivine, which sion, as well as increased concrete production. Shotcret- is a key ingredient in pellet manufacture. ing will be marketed to other mines and civil engineering The potential for UltraCarb products is very good. and tunnel driving enterprises. Above all, continued global market growth is expected for Kimit’s main business is to supply LKAB with effective environmentally friendly fl ame retardants in the cable in- and effi cient explosives and related services, but is also dustry and other polymer industries. The Turkish deposit, able to sell its products on the Nordic market, since the which is the world’s largest, offers unique quality and is joint venture between Kimit and Orica is being terminated. economically competitive, thanks to cost-effi cient produc- Fastighets AB Malmfälten owns rental properties and tion. has a strong position on the local housing market. Mica is used in a range of applications, principally as a functional fi ller in the paint and plastics industries. Minel-

MARKETS AND COMPETITION LKAB ANNUAL REPORT 2005 19 Investments and development projects

To increase the company’s capacity for producing iron ore pellets, an extensive program of investment, amounting to about 10 billion kronor, is being implemented. The program includes new pelletizing and concentrating plants in Malmberget and Kiruna, increased capacity in the Kiruna mine, and investment in a new ore harbor in Narvik. The Minerals Division has commenced mining of olivine in Greenland and completed construction of a production facility for UltraCarb in Turkey.

The development projects are being realized by the new In China, Minelco initiated a partnership in 2005 with a unit, Technology & Business Development. The unit’s task company that is a leading supplier of high-tech refractory is to assume responsibility for strategy issues, to develop products for steelmaking as well as innovative refracto- new technology and build new production facilities, and ries for the foundry market. The trend is towards an even to develop new products and business opportunities. Re- greater number of highly upgraded proprietary products. search and development is conducted within the strategic The Minerals Division is expected to take advantage of research areas metallurgy, mining engineering, process the economic growth in China as a growing supplier to technology and logistics and infrastructure. the domestic market.

INVESTMENTS IN IRON ORE PRODUCTION NEW PELLETIZING PLANT AHEAD OF SCHEDULE Global steel production has increased dramatically in The investment decision for a new plant in Malmberget recent years and demand is expected to remain strong. was taken in November 2004 and construction began im- Several of LKAB’s pellet customers have planned, or are mediately. The project includes, in addition to a pelletiz- deciding to invest in, increased production capacity. ing plant for 4 Mt, extension of an existing concentrating Investments in increased production and greater logis- plant and a terminal for rail transports. tical effi ciency will raise LKAB’s delivery capacity for iron Construction work will be carried out according to ore products from a current 23 million tonnes to 25 Mt by the Partnering principle, whereby the client, consultants 2007 and to 30 Mt by 2008. and contractors form an integrated project organization to work towards agreed goals with respect to function, Ongoing projects: scheduling and total economy. The project is about two • New concentrating and pelletizing plants in Malmber- months ahead of the original schedule. At most, 370 peo- get, ready in October 2006. ple have been employed at the construction sites. • New pellet capacity in Kiruna; via increased haulage The investment amounts to MSEK 2 600 and production capacity, new concentrating and pelletizing plants and is expected to begin in October 2006. This will be LKAB’s loading terminal, ready in April 2008. fi fth pelletizing plant. For the fi rst few years, crude ore will • New ore harbor in Narvik, ready in October 2008. • New ore cars with 100-tonne payload; fi rst deliveries 2005-2006. FACTS ON THE PELLETIZING PLANTS • Preliminary planning for new main levels in Malmber- get and Kiruna, projected for commissioning in 2010 As of January 2006, LKAB has four full-scale pelletizing and 2012, respectively. plants in operation. These are in Kiruna, Malmberget and Svappavaara. The fi fth, MK3 in Malmberget, will be commissioned in the autumn of 2006 at the same INDUSTRIAL MINERAL PROJECTS time as the smaller, so-called steel-belt plant will be During 2005, the Minerals Division began to launch oliv- closed. KK4, the new plant in Kiruna, will be the sixth ine products from the mining operation in Greenland. This pelletizing plant in operation. has been done in close cooperation with LKAB’s sales organization, which enables a faster commercialization of LKAB’s fi rst pelletizing plant, a so-called vertical shaft kiln, began operating in Malmberget in 1955. Kiruna’s olivine within priority segments. fi rst pelletizing plant (KK1) started up 10 years later. The investment in a mine and processing plant in Tur- Both plants have since been demolished. key, owned jointly with a Turkish partner, will be completed in early-2006. The new Turkish plant, together with Plant Starting year a facility in Lund, England, will manage the future produc- Svappavaara, Svp 1969 Malmberget, BUV 1973 tion of UltraCarb products, minerals with fl ame retardant Kiruna, KK2 1979 properties. Kiruna, KK3 1995 Malmberget, MK3 2006 Kiruna, KK4 2008

XXXXXXXXXXXXXINVESTMENTS AND DEVELOPMENT PROJECTS 20 LKAB ANNUALÅRSREDOVISNING REPORT 2005 2005 Construction of the new pelletizing plant in Kiruna started immediately after the decision was taken in December.

be supplied by the Kiruna mine. The plant will employee When the new harbor is fully operational, the person- about 35-40 people. nel requirement will be reduced from the current 237 to 108 workers. INCREASED PELLET CAPACITY IN KIRUNA The decision for the biggest investment in the company’s GREATER RAIL CAPACITY 115-year history was taken in December 2005. The total All nine of the new IORE locomotives have been ope- investment of 6.4 billion kronor will increase capacity in rating on the Ore Railway since 2004. The Malmberget- Kiruna by 5 Mt. The investment includes pelletizing and Luleå section of the line has been upgraded for a 30-tonne concentration plants, mine hoisting equipment, a rail- axle load and is now traffi cked by the fi rst train set of 100- way terminal, and environmental improvement measures tonne cars, which were delivered from South Africa. such as exhaust-gas cleaning. LKAB, together with K-Industrier, has developed a new, This will be Kiruna’s third pelletizing plant and LKAB’s larger ore car adapted for a 30-tonne axle load and with a sixth in operation. The new plants will be built adjacent to 100-tonne payload. The fi rst car was delivered in autumn the existing processing plants and will be operational in 2005, and during the winter, about four cars per week the spring of 2008. have been rolled out from the Kiruna Wagons assembly Following the expansion, the Kiruna processing plants shop at LKAB in Kiruna. Final delivery of the 70 cars that will produce different types of iron ore pellets exclusively. have been ordered was made in march 2006. Later in the The transition to 100 percent pellets will streamline the year, Group management will assess the demand for ad- fl ow of crude ore in the Kiruna mine, which will result in ditional cars. a greater tonnage of crude ore for pellet manufacture. It The amount of ore per car will be increased from 80 to will only be possible to produce fi nes products in Malm- 100 tonnes, while each train set will consist of 68 cars in- berget. stead of 52. The tonnage per train set is thereby increased The new plants will initially produce about 5 Mt pellets from 4 000 to nearly 7 000 tonnes, which means a reduc- per year. This means that LKAB’s total production capac- tion in both energy consumption and freight costs. ity will increase, in the long term, to 30 Mt. The possibility Work on the upgrade of the Ore Railway’s northern exists for a further increase to 6 Mt through complemen- section to Narvik to accommodate a 30-tonne axle load tary investments. continues. Among other things, work remains to be done At most, 800 people will be involved in the project. on sidings and terminals. Work will be completed by the time the new Narvik ore harbor is operational, in autumn RENOVATION OF THE NARVIK HARBOR 2008. The ore harbor in Narvik is a strategically important link Once the Kiruna-Narvik section of the line has been fully in LKAB’s process chain, since most of the products are upgraded for a 30-tonne axle load and all terminals, includ- shipped from here. The Board voted in November 2005 ing the new Narvik ore harbor, are ready to receive the new to refurbish the ore harbor at a cost of MSEK 970. The up- cars, the capacity increase will have been realized. grade will signifi cantly improve effi ciency as well as the environment. THE MINING DIVISION’S ONGOING Ore storage silos will be built underground, and the DEVELOPMENT PROJECTS entire harbor structure will be adapted to handle larger In Kiruna, about MSEK 300 has been spent during the ore trains and greater volumes of iron ore products. The year on ongoing projects to improve the effi ciency of heavier trains and greater volumes will necessitate a ma- existing production processes. Several of these projects jor structural overhaul of the harbor area. are: phosphorus sampling, indirect coal-powder com- Above a battery of storage silos blasted out of the rock, bustion, pellet samplers, mine de-watering, the southern trains will enter a tunnel and bottom-discharge their loads operating station, ground remediation and dam safety into silos intended for the product they are carrying via measures, and replacement of switchgear. so-called rolling discharge. The total storage volume will In Svappavaara, the concentrate transport equipment be about 1.5 Mt. has been rebuilt to achieve higher pellet capacity. New

INVESTMENTS AND DEVELOPMENT PROJECTS LKAB ANNUAL REPORT 2005 21 19001900 level m 19101910 Ore processing 0 19201920 plants 19301930 19401940 142 19501950 Upplandslaven 19601960 230 Railway to Narvik Hematite 19651965 275 19701970 320 Johannes Allians-shaft Josefina 420 Tingvallskulle 19801980

Malmberget 540 Vitåfors Gropen - The Pit 19901990 600 m level industrial site Vitåfors shaft Hoisting and air Allians shaft Kapten 20002000 Sea level 740 Printzschöld 775 Dennewitz Parta

20052005 Buffer 815 m level Hoisting Fabian

Exploration pass Vitåfors/Riddarstolpe 1 045 m main haulage level Belt conveyor, inclined shaft 1 060 m 1045 1 000 m level Crushing

1175 1 050 meters

Exploration drilling

A cross-section of the Kiruna mine shows how mining The Malmberget mine consists of about 20 orebodies, of which ten progresses successively deeper. The orebody is about are currently mined. 4 km long and has an estimated depth of 2 km.

RESEARCH AND DEVELOPMENT switchgear/substation is in the planning stage. LKAB is LKAB invests about MSEK 150 annually in research. Part replacing or rebuilding switchgear/substations according of the R&D strategy is to intensify collaboration with Luleå to a 10-year plan. This will improve working environment University of Technology (LTU) through, among other and reduce hazards and magnetic fi elds. initiatives, the Hjalmar Lundbohm Research Center for In Malmberget, several development projects have Mining and Metallurgy. Research activities will be con- been in progress: upgrading of hoisting equipment, re- ducted in four main areas with the overall aim of satis- placement of switchgear in the concentrating plant, new fying LKAB’s long-term technology needs. process water line to the high reservoir, renovation of tunnels for media supply, and improvement of indoor climate MINING ENGINEERING PROJECTS in the steel-belt plant (pelletizing). In the fi eld of rock mechanics, there are several activities During 2005, the Board allocated funding for measures having to do with the new main levels. These include geo- to improve working environment at the plant. Production modeling of the mines in Kiruna and Malmberget. has more than doubled since the start in 1973, but ventila- In both mines, so-called chemical gassing to sensitize tion and other conveniences have not been modernized to the explosive emulsion in development work has been in- a comparable degree. troduced. In sublevel caving, the explosive is sensitized with micro-spheres. Here, a new method has been tested PRE-STUDIES FOR NEW MAIN LEVELS and will be further tested in large-scale production trials. As production capacity is expanded, new main levels and Both methods will result in considerable savings. hoisting systems for future mining operations are being Trials on a new caving layout with parallel drifts will studied. In Malmberget, mining will pass the present main continue during 2006. A system for online measurement level in 2010, while in Kiruna, this will occur in 2012. of loader bucket weight has been tested and is being in- Pre-studies have been done for both mines. In both cas- stalled on all LHD machines in Malmberget. Requirement es, several alternatives have been considered, though no specifi cations for the next generation of production drill- defi nitive choices have yet been made. ing rigs have been produced and agreements have been Certain critical and time-consuming projects have be- reached for development and delivery of a prototype rig. gun, such as driving of inclined drifts towards the new In applied research, two doctoral thesis projects have main levels. At the same time, the extent of the ore re- been started during the year. One project will increase serves is being further verifi ed by extensive test drilling. knowledge concerning blasting against compacted rock, For both mines, permits for developing new areas must and another project seeks to improve the long-term prog- be granted. This will also have consequences for urban noses of hanging wall deformations with the help of nu- planning. merical calculations. During 2005, an employee in the mining engineering department defended a thesis entitled “Interaction between shotcrete and rock”.

DEVELOPMENT OF PROCESS TECHNOLOGY An overall goal is to increase production without jeopardizing product quality. The processes that are being develo-

INVESTMENTS AND DEVELOPMENT PROJECTS 22 LKAB ANNUAL REPORT 2005 Anna-Karin Rosberg works with R&D in Malmberget.

ped are the pellet lines in Malmberget, Svappavaara and resulted in a new recipe in which some of the dolomite Kiruna. In addition to conventional sampling, multivariate has been replaced with limestone, which results in bet- analysis has been applied. In Kiruna, we are investing in an ter metallization, carburization and compression strength online monitoring system to gain a better understanding during reduction. of the variables that infl uence the quality of DR pellets. LKAB is involved in the research projects The New Blast A simulation model has been created for determining Furnace and New Natural Gas Based Steelmaking. The production capacity in the Kiruna mine. The model cov- fi rst project involves two campaigns in the experimental ers the fl ow from loading to product bin and includes con- blast furnace (EBF), which is being rebuilt as an oxygen trol and automation technology, statistics on disruptions, blast furnace with CO2 extraction. In the second project, maintenance requirements and production speeds. two EBF campaigns have been carried out with pre-re- Possibilities for increasing sorting and concentrating duced burden material. The results show that there is po- capacity in Malmberget are being investigated. The in- tential for reducing coke consumption in the blast furnace crease will be gradual, and the ultimate goal is for Malm- by up to 50%. berget to produce 8 Mt of pellets by 2010. The ULCOS project is an initiative of the International To test control of the new pelletizing plant in Malmber- Iron & Steel Institute (IISI) to investigate the possibilities get (MK3), a simulator with models of the process has for cutting steel-industry carbon dioxide emissions by been built. Results of the simulations have been used for 50%. LKAB has contributed the use of the EBF for stud- dimensioning various sections of the plant. The system ies of how CO2 emissions from blast furnaces can be re- will be further used for training process operators and duced. Work has been completed and reports have been other production personnel, which will shorten the com- presented. missioning time. New electronic instruments for measuring green-pellet PRODUCT DEVELOPMENT – INDUSTRIAL MINERALS strength enable detailed study of the effects of different Minerals research and product development are applica- variables on the pelletizing process. Among other things, tion-oriented and are conducted in close cooperation with this has resulted in new knowledge about binding mecha- customers. In addition to the LKAB Group’s research orga- nisms that will have a direct impact on capacity and qual- nization, the resources of the Minerals Division’s UK sub- ity in the production plants. sidiary are available. Minerals also collaborates with uni- A pre-study for a pellet research center has been pre- versities and research institutes in Europe and the USA. sented. The study points out the potential for highlight- Where the mineral olivine is concerned, the LKAB ing this research area, and thereby strengthening LKAB’s Group has a high level of expertise, combining unique leading position in pelletizing. knowledge of the product’s characteristics and a vast Owing to the steadily increasing need for landfi lling and knowledge of the market and product applications. LKAB deposition of waste material, landfi ll sites in conjunction introduced olivine as an ingredient in pellets for ironmak- with mining operations entail high costs. In collaboration ing and has since become a world leader in this applica- with Zinkgruvan, Boliden and the waste-management tion area. The Minerals Division is now amassing knowl- company Multiserve, a method for better utilizing these edge of application areas even outside the steel industry. sites, and thereby lowering costs, is being developed. One example of technical development is an environmentally friendly technique for producing foundry cores, PRODUCT DEVELOPMENT OF IRON ORE PELLETS a project that will have a signifi cant impact on the Miner- In a DR-product development project conducted in colla- als Division’s business opportunities in the foundry indus- boration with ANSDK in Egypt, new blends are being tes- try, particularly with respect to the mineral olivine. ted in basket trials in the DR furnace shaft. The tests have

INVESTMENTS AND DEVELOPMENT PROJECTS LKAB ANNUAL REPORT 2005 23 Prospecting, ore reserves and mineral resources

A continuous supply of new ores and minerals is fundamental to all mining and minerals companies. To ensure future operations, prospecting and surveying are necessary to secure concessions for mining new deposits and to deﬁ ne and extend known deposits while they are being mined.

Within the Mining Division, prospecting and defi nition ex- fall and LKAB have reached consensus in preparing al- ploration are conducted in conjunction with ongoing mi- ternative solutions for a new key plan and alterations to ning operation in Kiruna and Malmberget. The intention the road and railway infrastructure. Discussions are being is to further defi ne and verify the extent of the orebodies, held with other concerned parties. mainly at depth, but also in terms of the area of ore within After a new key plan with a new residential area has the existing mining area. been established, tentatively by the end of 2006, prepara- In the Minerals Division, mining concessions for new tions for various public works projects can be made. Initi- deposits are obtained mainly through acquisitions, and ally, new switchgear and substations are planned, as well exploration is conducted to only a very limited extent by as rerouting of the railway by 2012. the company itself. Malmberget PROSPECTING – MINING DIVISION During the year, exploration work has been focused on The Mining Division’s strategy is to defi ne and verify mi- verifying the extent at depth of several orebodies. Explo- neable quantities of ore that will provide the basis for ration work under built-up areas of the town of Malmber- future mining beyond the current main levels, in Kiruna get has been conducted under existing permits, and three 1 045 and in Malmberget 1 000 meters below pre-defi ned new permits have been granted during 2005 for which ex- leveling points at the surface. ploration work has not yet begun. In the fi nal months of The orebodies must be defi ned so that the economic the year, the application process to obtain a mining con- value of the requisite equipment for mining under current cession for the Fabian orebody, under Elevhensområdet, levels can be assessed, decided upon, built and commis- was begun. sioned before the current levels are mined out. Exploration work focuses on defi ning the orebodies During 2005, LKAB invested MSEK 30 (40) on explora- for future mining beyond current levels and to provide a tion work in extension to the mines in Kiruna and Malm- basis for decisions on new equipment and infrastructure, berget. with a preliminary production start in 2010. The results of exploration work during 2005 are not included in the cur- Kiruna rent ore estimates due to the fact that new geological mo- During the year, in Kiruna, exploration drilling has been deling of the orebodies in Malmberget is in progress. done via drifts adjacent to the orebody. Work has focused Future mining operations will have an impact on parts mainly on determining the extent at depth of the northern of the community of Malmberget. LKAB is planning the and southern parts of the orebody. necessary measures in cooperation with the Municipality Results thus far confi rm the continuity and extent of the of Malmberget and other public authorities. Closure of ore and will provide a basis for development work and parts of LKAB’s residential areas Johannes and Hermelin mining below the present main level. Continued mining has commenced. under 1 045 meters will be assessed and a decision as to construction of new facilities for this will be taken. Preli- PROSPECTING – MINERALS DIVISION minarily, mining at a new main level will begin in 2012. During the year, the Minerals Division has primarily up- The extent of the orebody is such that future mining graded raw material from Mining and purchased mate- of the Kiruna ore will directly impact parts of the city of rial from other sources. To a limited degree, the division Kiruna. This mainly concerns LKAB’s residential area, as upgrades material from deposits in Greece and Turkey in well as road and railway infrastructure, switchgear and which the company has an ownership interest. LKAB has substations. Concerned parties, the Municipality of Kiru- therefore elected not to report deposits partly owned by na, the County Administrative Board, the National Road Mineral’s in the formal reporting of mineral resources and Administration, the National Rail Administration, Vatten- ore reserves.

PROSPECTING, ORE RESERVES AND MINERAL RESOURCES 24 LKAB ANNUAL REPORT 2005 During 2005, the Seqi olivine deposit in Greenland was tion can result in the classifi cation of mineral resources as acquired. The acquisition will enable the division to ad- ‘indicated resources’. vance its position on the olivine market, a market that ab- The information that has been amassed from drilling sorbs approximately 4 Mt per year. campaigns and other sampling is suffi cient to enable The Minerals Division will handle about 1 Mt of olivine technical and fi nancial calculations. After additional dril- annually, and the deposit will satisfy demand for olivine ling campaigns and sampling, the deposit may be clas- for many years to come. The results of geophysical sur- sifi ed as ‘measured’, whereby mine plans and fi nancial veys and drilling campaigns indicate reserves in excess assessments can be produced. The mine plans and pro- of 100 Mt. cesses form the basis of technical and fi nancial analyses Results of geophysical surveys of the olivine deposit in that are performed to determine the potential profi tability Greenland do not enable full reporting of the extent of the of future mining of the deposit. mineral resources as of 31 December 2005. More detailed testing will be done during 2006. ORE RESERVES – MINING DIVISION The sections of the measured and indicated mineral MINERAL RESOURCES – MINING DIVISION resources that can be mined and processed on the ba- Prospecting and exploration provide a survey of minera- sis of LKAB’s profi tability requirements are referred to as lizations which, according to certain criteria, can be clas- the company’s ore reserves. Ore reserves are classifi ed sifi ed as mineral resources; i.e., an occurrence of minerals as either ‘probable’ or ‘proven’, the latter being the more in the bedrock. precisely documented of the two. Mineral resources are classifi ed as ‘inferred resources’ Ore reserves and mineral resources are quoted in when quantities, grades and mineralizations can be esta- quantities and grades after mining; i.e., with allowance blished with a low degree of certainty. Detailed explora- for losses during extraction.

ORE RESERVES MINING

per 31 December 2005 LKAB reports ore reserves in compliance with re- (to dressing plant) Quantity, Mt Fe, % commendations adopted by SveMin, applicable sec- Kiruna tions of which correspond to the Ontario Securiti- Proven 695 48.6 es Commission’s (OSC) National Instrument 43-101, Probable 103 46.5 which stipulates how ore reserves and mineral resources are to be reported. Malmberget Proven 104 43.6 Probable 71 43.6

MINERAL RESOURCES IN ADDITION TO ORE RESERVES Mineral resources in Kiruna down to 1 500 meters (from per 31 December 2005 leveling point) are reported. Below this level, there is in- (to dressing plant) Quantity, Mt Fe, % suffi cient data to enable an estimate of grades and quantities. Mineral resources in Malmberget, within existing Kiruna concessions, are reported for the eastern fi eld down to Measured 189 47.9 1 250 meters and between 600 and 800 meters for the Indicated 89 48.0 western fi eld. At deeper levels, there is insuffi cient data Inferred 166 46.9 to enable an estimate of grades and quantities. LKAB also Svappavaara has mining concessions for Gruvberget and Mertainen. Measured 80 47.1 Indicated 30 47.0 Inferred - - Malmberget Estimates of LKAB’s mineral resources and ore reserves have been compiled Measured 84 42.4 under the direction of Carlos Quinteiro, Mineral Resources and Mineral Econo- Indicated 18 39.5 mics Specialist with the Technology and Business Development unit. Carlos Inferred 84 43.0 Quinteiro is recognized as a ‘Qualifi ed Person’ by SveMin and has more than 10 years of experience in the mining and minerals industry.

PROSPECTING, ORE RESERVES AND MINERAL RESOURCES LKAB ANNUAL REPORT 2005 25 Sustainability

LKAB’s information on sustainability covers the following areas: ethics and social responsibility, personnel, human-resources development, working environment, environmental impact and energy consumption. The fundamental control documents for the company’s sustainability are the ethics policy, quality policy, environmental and energy policy, and information policy, which were adopted by the Board in 2005.

ETHICS POLICY LKAB will strive to be perceived by customers, share- BUSINESS ETHICS holders, suppliers, employees and the community as a LKAB will not use methods such as bribery and other cor- company that conducts a sound and successful business rupt and unfair competitive practices that distort markets operation with integrity and moral correctness. and hinder economic, social and democratic development. • LKAB will always comply with the laws and regulations • LKAB will not contravene applicable laws governing that apply in the countries in which LKAB operates, and competition. in so doing LKAB will respect the United Nations Uni- • Bribery is strictly prohibited in LKAB’s business versal Declaration of Human Rights and similar agre- relations. ements. • LKAB will strive to uphold impeccable business ethics. EMPLOYEE RELATIONS • In realizing its objective of maintaining a fi nancially It is very important for LKAB to uphold a strong and en- sound and successful business operation, LKAB will during relationship with employees that is based on mu- strive to protect the environment and use energy re- tual respect and dignity. The terms of employment offe- sponsibly. red will comply with national legislation. • LKAB will strive to maintain strong and enduring rela- • LKAB will provide a working environment that is safe tions with its employees. and sound with respect to the nature of our operations, and we will strive continuously to implement improvements. *Special, written health and safety instructions GENERAL PRINCIPLES shall be issued and will apply in all workplaces. LKAB’s chief task is to develop and maintain a fi nan cially • LKAB acknowledges employees’ right to organize under sound and successful business operation. LKAB has a the applicable labor laws and principles of the respec- long-term responsibility. In the countries, communities tive countries in which we operate. and environments in which LKAB operates, we have a • LKAB strives to give all people equal opportunities, long-term responsibility towards our employees, busi- regardless of race, color, gender, nationality, religion, ness partners and society in general. ethnic origin or any other distinguishing characteristic. • We will always comply with the laws and regulations LKAB does not tolerate discrimination or harassment. that apply in the countries in which we operate. LKAB does not tolerate discrimination or harassment. • We will respect the United Nations Universal Declara- • LKAB prohibits forced labor and other forms of invo- tion of Human Rights, and we will accept our responsi- luntary labor in our workplaces. LKAB does not tolerate bility to observe the rights of employees and society to the use of methods that restrict employees’ freedom of the extent that they are affected by our operations. movement. LKAB does not tolerate the use of methods • We will strive to manage our business operation with that restrict employees’ freedom of movement. integrity and moral correctness. • LKAB does not employ persons younger than 15 years • We will strive to adopt an attitude of openness in of age or the higher age that may be stipulated by local dialogue with those who are affected by our operations. legislation. • Wherever possible and wherever we exercise infl uence, we will strive to ensure that our suppliers and subcon- ENVIRONMENT tractors adhere to the principles of our ethical guide- LKAB’s work shall be characterized by concern for the en- lines. vironment; for which reason LKAB has adopted an Envi- ronmental and Energy Policy that will guide our actions while acknowledging our objective to maintain a fi nancially sound and successful business operation.

SUSTAINABILITY 26 LKAB ANNUAL REPORT 2005 be information pertaining to fi nance, safety, competition, ENVIRONMENTAL AND ongoing negotiations or other information that might be ENERGY POLICY detrimental to the company if disclosed. Great care must be taken to safeguard personal integrity. Through continuous improvement of the working envi- LKAB will strive to follow the rules of corporate infor- ronment, the natural environment and energy use, LKAB’s mation disclosure that are recommended for companies operations will promote long-term sustainability and pro- listed on the Stockholm Stock Exchange. No fi nancial in- fi table development. formation other than offi cial year-end or interim reports • This policy applies to companies within the LKAB Group may be disclosed to external parties. as well as suppliers operating on LKAB’s premises. • Established laws, bylaws, regulations and other commitments to which LKAB is subject are minimum requirements. • LKAB shall strive to create a working environment that QUALITY POLICY is safe and stimulating for employees. LKAB will exceed customers’ present and future expec- • Our employees will receive ongoing training in environ- tations by involving all employees in the process of con- mental issues. tinuous improvement. We will strive for zero defects in • New technologies and technical advances will be assessed everything we do, and each employee is responsible for with consideration to the working environment, environ- the quality of his or her own work. mental protection and the effi cient use of resources. • Suppliers working outside LKAB’s facilities and premises CERTIFICATION OF MANAGEMENT SYSTEMS will be encouraged to work in compliance with our policy. The Total Quality Management unit is responsible for the • In dialogue and cooperation with public administrations Group’s quality and environmental management systems. and society, our attitude shall be characterized by open- For LKAB, a systematic quality effort is essential for deve- ness and factuality. loping processes and product quality. The Total Quality concept stands for a holistic approach to quality management, covers all operations and is based on customer orientation and above all, continuous improvement. INFORMATION POLICY LKAB’s quality management system has been certifi ed LKAB’s employees will always be well informed with re- according to ISO 9001:2000 since 2002. In 2005, certifi ca- spect to the company’s operations, its business environ- tion of the Minerals Division was conducted. Most of the ment, goals, strategies and results, and of their own work- plants operated by the division are quality-certifi ed accor- place and their role in the company’s operations. LKAB’s ding to ISO 9001:2000. All plants will achieve certifi cation others stakeholders will be given, on an ongoing basis, during 2006. timely and correct information that provides a represen- After an audit of the entire quality management system tative view of the company and its operations. in 2005, which resulted in approval of the system, LKAB will retain its certifi cate for a further year. GUIDELINES LKAB decided in 2003 to adopt an energy and en- The Group’s corporate communications will contribute to vironmental management system, partly because the greater knowledge and trust among the company’s stake- company’s operations are very energy-intensive and part- holders. LKAB’s ethics policy, with guidelines, will also ly to meet the requirements of the new system of trade in guide the work of corporate communications. emissions rights. Each line manager is responsible for communication, In June 2005, an audit of the energy management sys- the ongoing dialogue, in his or her workplace. Similarly, tem in Svappavaara was carried out, and LKAB became each line manager is responsible for ensuring that the fi rst company in Sweden to be awarded a certifi cate co-workers have continuous access to current and nec - stating that the system complies with the SS 627750 stan- es sary information about their workplace and its role in dard. Svappavaara already has an approved environmen- the company’s operations. tal management system. The President has the overall responsibility for exter- During the autumn, the environmental and energy ma- nal communications. Members of Group Management are nagement systems for Mining Logistics, which includes responsible for external communications with respect to the Ore Railway and harbors in Narvik and Luleå, were their individual areas of responsibility. The Chairman of the certifi ed. Work on certifi cation of the processing plants in Board issues statements pertaining to ownership issues. Kiruna and Malmberget continues and will be completed The mass media are an important channel of infor- during the spring of 2006. The environmental and energy mation in society – and thereby for all of the company’s management system will be fully implemented and certi- stakeholders. LKAB will work actively and openly with the fi ed throughout the LKAB Group during 2007. mass media to present a positive image and foster confi - LKAB has introduced a system for trade in emissions dence in the company. There must be particular reasons rights during the year. The system has been verifi ed by for declining to comment or give information. This may SP Certifi ering.

SUSTAINABILITY LKAB ANNUAL REPORT 2005 27 Students at the LKAB high school in Malmberget. Kristoffer Öberg and Joseﬁ n Nilsson.

HUMAN RESOURCES During 2005, the Group’s management structure was re- ted to improve the working environment, productivity and organized to achieve a greater focus on e.g., human re- effi ciency, as well as contributing to the company’s over- sources and fi nance issues. At the same time, the number all development. of levels of management below president was reduced The fundamental control document for work with equa- from six to four in Finance and Human Resources. lity and diversity in LKAB, adopted by the Board, is the The positive outlook for the future implies a conti- ethics policy and guidelines for Employee Relations, which nued strong demand for labor. The company is applying states: LKAB strives to give all people equal opportunities, a long-range strategy, preparing for planned production regardless of race, color, gender, nationality, religion, eth- increases, higher demands on qualifi cation, and future re- nic origin or any other distinguishing characteristic. LKAB tirements. does not tolerate discrimination or harassment. Based on this policy and the Equal Opportunities Act, LONG-TERM COMPETENCE SUPPLY yearly action plans for equality are established by Group To ensure the future supply of qualifi ed personnel, LKAB Management. More uniform gender distribution is the ul- cooperates closely and extensively with universities and timate goal. To reach this target, the plan of action focuses colleges, above all, Luleå University of Technology, the on sub-goals and activities that will ensure that workpla- secondary schools in the region, training companies and ces function for both women and men, that employment others. can be combined with parenthood, that sexual harass- In all instances of cooperation in education, efforts are ment and wage discrimination do not occur, and that wo- being made to increase the numbers of women in traditio- men are actively recruited and developed in their work nally male-dominated study programs. This is important roles. for ensuring the future supply of qualifi ed personnel, but also because we know that effi ciency and health improve MORE UNIFORM GENDER DISTRIBUTION in organizations with a more even gender distribution. The proportion of women and the number of women One of these education initiatives is the LKAB high in managerial positions in the Group have increased in school. The fi rst ten students began their studies in au- recent years. This trend has continued in 2005. The pro- tumn 2005, at Välkommaskolan i Malmberget. The study portion of female employees is 10.2% and of women in programs include industrial technology, vehicles, electrical managerial positions 11%. The number of women in tra- engineering and energy, and one third of study time is rela- ditionally male-dominated occupations is growing at a ted specifi cally to LKAB. The program is very popular, and slower rate than in other areas of the Group, but a change there were six applicants for every place. 40% of admis- is under way, thanks to among other efforts, the ongoing sions were girls, which can be considered trend-setting. educational initiatives with secondary school in the Ore- In autumn 2006, a similar LKAB industrial technology fi elds region. program, for 16 students, will be offered at Hjalmar Lund- The entire Group is characterized by low personnel tur- bohmsskolan in Kiruna. A study program in electrical au- nover. During 2005, 197 employees have been recruited tomation will also be included. to LKAB. The proportion of employees over the age of In the spring of 2005, seven trainees, of which fi ve were 55 is 22%, or 770 people, which means that there will be women, began a one-year program that combines regu- large numbers of retirements in coming years, above all lar work duties with education and other activities. The in mining production and ore processing in the Mining objective is to facilitate networking and give participants Division. insight into, and knowledge of, the entire LKAB organiza- In 2005, the Minerals Division increased its workforce tion. In 2006, a new group of trainees will be recruited. by 2.4%, with China accounting for the greatest increase. Two new companies have joined the division during the EQUALITY AND DIVERSITY year: Minelco Oy in Finland and Minelco Likya in Turkey. Gender equality is a strategic issue for LKAB. Competence The production plant in Knottingley, in the UK, was closed supply characterized by greater gender equality is expec- in 2005, affecting 5 persons, and the plant in Yate, where

SUSTAINABILITY 28 LKAB ANNUAL REPORT 2005 A crew in the Kiruna mine: Susanna Jokinen, Anders Salomonsson, Ann-Britt Häggroth, Örjan Lingebrand, Svante Kuru and Thomas Mikko.

16 employees will be affected, will be closed at the end MANAGEMENT of 2006. Good management is decisive for LKAB’s success. LKAB Intra-Group recruitment has increased and will be a has formulated very specifi c managerial requirements natural aspect of competence supply in future. The pro- and is determined to recruit and develop managers who cess began relatively recently, but continues to develop. can lead and who like to lead others. The ability of our ma- Personnel mobility within the Group is important. We are nagers to implement changes that promote the develop- convinced that this promotes development and positive ment of operations and personnel will remain in focus. operating results. Today, the LKAB Group is growing internationally and consists of about 30 companies in 15 countries. To COMPETENCE DEVELOPMENT strengthen the Group’s team spirit, an international ma- LKAB’s strategic plan emphasizes the importance of de- nagement seminar involving top-level managers was legating greater responsibility and authority to the indi- conducted in the autumn. The focus was on the Group’s vidual employee. The goal is to improve the company’s strategy and cultural aspects. effi ciency by making workplaces even more attractive. Conditions differ among the Group’s various divisions Employeeship must be characterized by the will and the and companies. Common to all is that each brings benefi t means to infl uence conditions in one’s own workplace to the Group; but at the same time, distinct local differen- and to deliver good results. Ultimately, this will result in ces can be a point of departure for developing the opera- fewer levels of management. tions of the individual unit. The seminar opened channels Work on the new pelletizing plant in Malmberget has infor many contacts throughout the Group and laid a good tensifi ed, leading up to commissioning in 2006. In addition foundation upon which to build. to new construction and technology, the project also involves the development of new working methods for pro- TERMS OF EMPLOYMENT AND INCENTIVE SYSTEMS duction and maintenance personnel. In the workplace and During the year, a new wage system within the framework in the work of continuous improvement, more responsibi- of Metall’s bargaining agreement has been established, a lity and authority will be delegated to employees. program that began in 2004. Objectives are being met and The competence of each employee in and around LKAB the system has contributed to increased competence de- is a key factor of success. Continuous learning is therefore velopment and delegation of responsibility and authority. a self-evident necessity, and training methods are adapted The incentive system that was introduced in 2004 has to employees’ different prerequisites and learning styles. been retained in 2005. The reward is maximized at SEK Traditional classroom teaching still predominates, but is 30 000 per year and full-time employee. The President and complemented with other forms of training. One form that other senior executives are not entitled to rewards under has been tested and has gained greater acceptance during the incentive system. 2005 is interactive training, so-called e-learning. For ex- The system, which follows the owner’s guidelines for ample, the safety training program for contractors is now incentive schemes, is based on three factors: quality, interactive. This has led to more effective training with work environment and production targets. The system greater fl exibility, which is good for everyone involved. has contributed to drawing greater attention to these im- Experience has shown that e-learning is very success- portant factors. Quality has been high, production volume ful, and more interactive courses will be introduced in has increased signifi cantly in existing facilities, and com- 2006. This will mean greater opportunity for fl exible mitment to improving the working environment has been learning, both for LKAB employees and our partners. strengthened. In the Minerals Division, an extensive sales seminar has Compared to the previous year, the outcome of the been held. The aim has been to reach targets in the re- incentive program improved signifi cantly, increasing to spective business areas more effectively by strengthening SEK 27 400 per full-time employee. All three parameters the sales force. warranted a high reward during the year, with the para-

SUSTAINABILITY LKAB ANNUAL REPORT 2005 29 Two typical LKAB workplaces: the mill hall in the Svappavaara concentrating plant. Robert Wikström, control room operator at the pelletizing plant in Kiruna.

meters for production and working environment meriting This trend is the result of preventive measures and me- maximum reward. The incentive system has been revie- asures to assist employees to return to work or to conti- wed and adjusted for 2006. nuing working in the event of ill health. An example is In LKAB, nearly half (49%) of employees work accor- the training program, for all managers and safety offi cers, ding to various shifts, which is necessitated by the fact on recognizing the early warning signs of alcoholism and that production facilities operate around the clock, all drug abuse as well as corrective measures for these con- year round. However, shift work has certain negative ef- ditions. Training programs on working environment con- fects. To implement and assess various measures to alle- tinue to constitute LKAB’s single largest training effort. viate the negative effects of shift work, a project involving To further encourage employees to assume responsibility LKAB’s employer organization Metallgruppen, the trade for adopting a healthier lifestyle, the company has extended union organization IFMetall and Arbetsmarknadsförsäk- opportunities for employer-paid use of fi tness training facili- ringar (AFA) is under way. ties in the operating locations in the Orefi elds and Luleå. Increased awareness of health and lifestyle through Where accident frequency is concerned, we are also training programs for shift workers and managers, chan- seeing a long-term decline. The number or accidents per ges in working environment and trials of new shift sys- million working hours was 10.5, which is a decrease of tems are activities that are planned or in progress. Health 13% compared to 2004. However, this is still somewhat off aspects and conditions for competence development are the target, which is ten accidents per million hours. thereby being addressed more directly than previously Nearly all accidents and incidents in LKAB are the result and the demand for temporary labor will be reduced. The of failure to follow correct procedure. Only a few are the results will be discernable in the long term, but some de- result of unsafe environments. Efforts have been made gree of assessment in 2006 is deemed possible. to increase involvement in accident-prevention work. Among other things, this has led to a dramatic increase SAFER AND HEALTHIER WORKPLACES in incident reports, from about 30 incidents per accident LKAB’s workplaces must be safe and stimulating for em- resulting in absence in 2004 to 92 in 2005. ployees, and we actively encourage our suppliers to work Our effort to continuously improve working environme- according to our environmental policy. The total rate of nts will persist; but, above all, attitudes to health and safe- sickness absence continues to decline. During 2005, the ty must be changed for the better. Therefore, we are now rate of absenteeism due to illness declined by 25%, i.e., introducing a working method under the concept “Safety from 5.6% to 4.3%, with 2.4% short-term and 1.9% long- First”, which will encourage and support the realization of term absence. the goal to create an accident-free working environment.

SICKNESS ABSENCE WORK-RELATED ACCIDENTS

4OTALNUMBER -ILLIONWORKINGHOURS

4OTALSICKNESSABSENCEINTHE'ROUP ASPERCENTAGEOF 4OTALNUMBEROFACCIDENTSINTHE'ROUP TOTALWORKINGHOURS 4OTALACCIDENTSPERMILLIONWORKINGHOURS

SUSTAINABILITY 30 LKAB ANNUAL REPORT 2005 ENVIRONMENTAL AND ENERGY REPORTING

Mining and processing of minerals impact the environme- ENVIRONMENTAL AND ENERGY MANAGEMENT SYSTEM nt through alteration of the landscape, energy consump- To promote energy conservation and environmental im- tion, emissions to the air and discharges to the water. provement, LKAB is working towards the implementa- LKAB seeks to limit this impact through good planning. tion of an environmental and energy management sys- Among other things, this means that the environmental tem that will be integrated with the company’s quality consequences of decisions and measures are always ta- management system. The management system will also ken into consideration. The environmental work must be ensure that LKAB complies with current energy and en- forward-looking and aimed at enabling the company to vironmental legislation. The environmental and energy meet tougher environmental requirements in the future. management system will be fully implemented and certi- OVERALL ENVIRONMENTAL AND ENERGY OBJECTIVES fi ed throughout the LKAB Group during 2007. • LKAB will reduce the proportion of industrial waste that is deposited. PROGRAM FOR ENERGY EFFICIENCY • LKAB will reduce the spread of particulate matter. LKAB has applied and been accepted for participation in • LKAB will reduce the specifi c fuel consumption in the the Swedish Energy Agency’s Program for Energy Effi - pelletizing process. ciency (PFE) during 2005. LKAB applied for participation • In planning and procurement, LKAB will seek to reduce for fi ve operating units: Svappavaara ore processing, the proportion of road transports in favor of rail trans- Kiruna ore processing, Kiruna mining, Malmberget ore port or other energy-effi cient modes. processing and Malmberget mining. The Energy Agency approved LKAB’s applications in June 2005. ORGANIZATION AND RESPONSIBILITY Through participation in PFE, LKAB will introduce an The President bears the overall responsibility for environ- energy management system according to Swedish Stan- mental issues. Operational responsibility is delegated to dard (SS). In addition to introducing a standardized sys- the heads of divisions and unit managers. tem, LKAB will carry out an energy audit and analysis. The specialist function External Environment is re- This means that energy consumption will be described sponsible for the entire Group’s environmental work, and measures for conserving electricity will be defi ned. ensuring that the company complies with terms, condi- Special procedures for planning and purchasing will be tions and laws by applying for mandatory permits and introduced, which means that the most energy effi cient providing advice and support. External Environment also solutions will be chosen whenever technically feasible. handles sampling, surveys and reporting to authorities. Measures and results will be submitted for approval by LKAB’s environmental monitoring is carried out by the the Swedish Energy Agency, which will also approve con- company, in consultation with supervisory authorities, in tinued participation in the program. accordance with established programs that measure both In June 2005, an audit of the energy management sys- emissions/discharges and environmental impact. An en- tem for Svappavaara’s ore processing was carried out. vironmental report for each operating location is submit- LKAB became the fi rst company in Sweden to be award- ted annually to the authorities concerned. ed a certifi cate according to the Swedish standard and The Chemicals Committee in LKAB handles all matters elected to apply the PFE requirements. pertaining to chemical products, for example, approval of new products. INDUSTRY COLLABORATION IN BAS-EL LKAB’s Occupational Health unit works above all with Electricity is an important resource for LKAB, and the preventive measures. The unit’s work is based on a broad company is concerned about the current energy supply knowledge of medicine, technical and behavioral science, and rising electricity prices. work organization and rehabilitation methodology. Together with 19 other energy-intensive companies in Environmental and energy issues are also addressed Sweden, LKAB has therefore decided to form BasEl AB, in various trade organizations. LKAB is an active member a company that will safeguard the interests of member of SveMin (the Association of Mines, Mineral and Metal companies and Swedish primary industry with respect Producers in Sweden, formerly the Swedish Mining As- to the long-term stability and competitiveness of electri- sociation) and the Swedish Steel Producers Association. cal power supply. BasEl was formed by its member com- LKAB also supports and actively participates in a number panies’ in response to concerns that the current energy of environmental research programs. The company is an supply in Sweden cannot meet the demand for electricity active member of the Torne and Kalix Rivers’ Water Con- at competitive prices. servation Association.

SUSTAINABILITY LKAB ANNUAL REPORT 2005 31 Renovation of the ore harbor in Narvik has begun. Ore will be stored in underground silos for better environment.

BasEl was formed together with several other electrici- nel and bottom-discharge their loads via so-called rolling ty-intensive companies, mainly in the forestry, steel, che- discharge. This reduces noise and dust. The silos will be mical and mining industries with operations in Sweden equipped for dust evacuation. A de-icing station will be and abroad. These companies have a combined power installed near the tunnel entrance. consumption of about 25 TWh (terawatt hours) per year, In December 2005, the Board voted to build additional which corresponds to about half of Sweden’s total indu- concentrating and pelletizing plants in Kiruna. The Envi- strial electricity consumption. ronmental Court of Appeal had already granted LKAB a The company will work with concrete projects of which permit for Kiruna to produce 14.8 Mt of pellets per year. the aim is to increase the availability of competitively pri- The new plants are expected to be operational in 2008. ced electricity in Sweden. These projects may concern An application has been submitted to the Environ- power production, in Sweden or abroad, as well as trans- mental Court regarding expansion of the dolomite quarry mission capacity. BasEl’s objective is to bring about an in Masugnsbyn to meet demand from increased pellet increase in the supply of electricity on the Swedish market production in Kiruna. of about 10 terawatt hours per year. The Minerals Division’s olivine mine in Greenland is now operational and complies with local environmental ENVIRONMENTAL PERMITS AND INVESTMENTS legislation. The new pelletizing plant now under construction in Kiruna Grus- och Stenförädling (KGS) has invested in Malmberget will be commissioned during 2006. The en- equipment that will signiﬁ cantly reduce the company’s vironmental permit for Malmberget entitles LKAB to pro- consumption of natural gas. This consists of a screen- duce 6.7 Mt of pellets per year. A new permit application ing plant for processing shotcrete gravel from waste rock for “Increased capacity in Malmberget”, which refers to from the Kiruna mine. KGS has also built a concrete sta- the entire operation, is being made. tion in Malmberget, which is advantageous from the point The Board of LKAB has voted to spend 1 billion Swedish of view of both operations and environment. kronor to build a new ore harbor in Narvik. This will improve the efﬁ ciency of operations as well as the harbor envi- THE ENVIRONMENTAL ADVANTAGES OF ronment. Ore storage silos will be built underground, and LKAB’S PRODUCTS the entire harbor structure will be adapted to handle larger Ore from LKAB’s mine consists mainly of magnetite. It re- ore trains and greater volumes of iron ore products. quires lower energy input during processing, which re- The storage silos will be blasted out of the bedrock. sults in lower carbon dioxide emissions. It is therefore Above the storage area, the ore trains will enter a tun- more environmentally friendly than other ores.

ENERGY SUPPLY IN LKAB’S PELLETIZING PROCESS ENERGY CONSUMPTION

-*TONNEPELLETS #OAL/IL -AGNETITE OXIDATION In LKAB’s pelletizing process, an oxidation from magnetite to hematite Thanks to systematic efforts, fuel economy in the pelletizing plants takes place, which liberates energy. Most of the thermal energy needed has successively improved. in pellet manufacture comes from this oxidation.

SUSTAINABILITY 32 LKAB ANNUAL REPORT 2005 Pellet manufacture at LKAB’s mines results in one-se- during oxidation from magnetite to hematite during the venth the quantity of emissions compared with sintering oxidation process. Approximately 65% of the thermal en- at the steelmills. This is because thermal energy from the ergy needed during pellet manufacture comes from the process is utilized in production. The environmental im- iron ore, which reduces the need for external fuel. pact must be regarded in a global perspective. Pelletizing Most other pellet producers in the world use hematite and sintering now take place to a greater extent at the ore, which requires a greater input of energy in the up- mines. This means that some of the emissions have been grading process, approximately 15 liters of oil per tonne moved from the steel mills to the mine locations. of fi nished product. By comparison, LKAB’s pellet plant in The Minerals Division, which produces and markets Malmberget uses only 5 liters of oil per tonne of pellets, selected industrial minerals, has operations in several with 10% hematite in the raw material. countries on different continents. The division offers pro- Some of the most important energy effi ciency improve- ducts that are made from naturally occurring minerals, ments have been the installation of waste gas boilers in which is advantageous from a life-cycle perspective and the pellet plants, which has reduced energy consumption, means that materials with a negative environmental im- and the changeover from oil to low-sulfur coal. pact can in some cases be replaced. In Kiruna, LKAB recovers excess heat from the pelleti- In summer 2005, LKAB’s operation in Svappavaara was zing process for space heating in its own plants. Some of awarded the Municipality of Kiruna’s environment prize, the heat is also redirected to the municipal district heating thanks to the fact that Svappavaara achieved certifi cation system. of its environmental and energy management system, ATMOSPHERIC EMISSIONS and was the fi rst in Sweden to do so. Most of LKAB’s atmospheric emissions come from pel- In 2004, this prize was awarded to the subsidiary Kimit, let manufacture, which gives rise to emissions of sulfur which managed to reduce nitrogen emissions from its ex- dioxide, fl uorides, chlorides, nitrogen oxides and particu- plosives plant in Kiruna. Thanks to new procedures and late matter. The environmental impact must be regarded better care of equipment, emissions had been reduced by in a global perspective. Pelletizing and sintering now take more than 95% since 1995. place to a greater extent at the mines. This means that ENERGY CONSUMPTION some of the emissions have been moved from the steel LKAB’s operations are energy-intensive. With more than mills to the mine locations. 1% of Sweden’s total electricity consumption, the com- Pellet manufacture at LKAB’s mines results in one-se- pany is one of the country’s largest electricity consumers. venth the quantity of emissions compared with sintering Energy consumption per tonne of iron ore produced and at the steelmills. This is because thermal energy from the processed has declined steadily. Primarily, oil consump- sintering process is utilized in production. An increased tion has decreased. At the same time, there has been a use of pellets in the European steel industry has made it changeover from oil to other energy sources. possible to reduce the total impact on the environment, The predominant iron mineral in LKAB’s mines is mag- since atmospheric emissions that exceed specifi ed limits netite, which has the advantage that energy is liberated have diminished substantially.

ENERGY CONSUMPTION PER TONNE PELLETS EMISSIONS OF CO2

'7H -T +G#/TONNE#RUDESTEEL

3INTERFINES (EMATITEPELLETS 0ELLETPRODUCTION #OAL -AGNETITEPELLETS /IL %LECTRICITY

For several years, energy consumption has been directly proportional Carbon dioxide emissions are reduced when LKAB pellets are used to pellet production. Efﬁ ciency improvements will contribute to a as the iron raw material. A sinter-based steelmill releases seven reduction in energy consumption in relation to the number of tonnes times as much carbon dioxide and emissions from hematite-based of pellets produced. pellets are more than three times higher compared to LKAB pellets.

SUSTAINABILITY LKAB ANNUAL REPORT 2005 33 LKAB has conducted pilot-scale trials of treatment of ni- an industrial plant) to release one tonne of carbon dioxide trous oxides using so-called selective catalytic reduction during the course of a given trading period. Rights are al- (SCR). So far, the object of the trials has been to determi- located by the state or they can be purchased. A surplus ne how the SCR unit reacts to LKAB’s exhaust gases. The of rights can be sold. trials have been successful. However, a thorough evalua- A reduction in emissions within the trade area is achie- tion of the trial period is necessary before any conclusions ved by placing a limit on the total number of rights allo- can be drawn. cated, and thereby on the emissions within the area. For In addition to investigating possible techniques for trea- the period 2005-2007, all Swedish companies that applied ting NO, a project for reducing emissions through process for emissions rights have been allocated rights, free of improvement is now under way. During 2005, equipment charge, by the state. for continuous monitoring of nitrous oxide has been in- In Sweden, more than 600 industrial plants are affected. stalled in Kiruna’s KK2 pelletizing plant. This is to verify Per deﬁ nition, LKAB has three plants that are subject to previous measurements and the effects of process impro- the trading system. These are in Kiruna, Malmberget and vement measures. Svappavaara. They include pelletizing plants and central The climatic impact resulting from emissions of fossil boiler plants. Carbon dioxide emissions from these plants

carbon dioxide (CO2) is clariﬁ ed by the following example: come from the combustion of coal and oil, the release of

The total CO2 emissions from a modern sinter-based CO2 from organic binders and carbonate-based additives

steelmill are on the order of 2,000 kg of CO2 per tonne such as dolomite and limestone. Combustion of oil in cen- of crude steel, where sintering accounts for about 254 kg tral boiler plants generates carbon dioxide.

per tonne of crude steel. If LKAB pellets are used as the In autumn 2004, LKAB was granted permits for CO2-emitt- iron raw material instead of sinter, emissions from pellet ing plants in accordance with the Emissions Trading Act. manufacture are only 35 kg per tonne of crude steel – a The granting authority is the County Administrative Board

reduction of CO2 emissions by 85%. of Norrbotten. The permit regulates how LKAB, in a reliable If hematite-based pellets are used as the iron raw ma- way, controls, monitors and reports emissions. There are

terial, the CO2 emissions in pelletizing are on the order of special rules for quality assurance of emissions trading.

115 kg CO2 per tonne of crude steel, just under half com- LKAB has been allocated 1.35 million emissions rights pared with sintering, but still more than three times hig- for the period 2005-2007. This corresponds to about 90% her than for LKAB pellets. of LKAB’s total requirement for planned production. LKAB must therefore purchase additional emissions rights TRADE IN EMISSIONS RIGHTS during the current trading period. LKAB appealed the LKAB is involved in the EU’s system of trade in greenhou- Swedish Environmental Protection Agency’s allocation se gas (GHG) emissions rights. The period 2005-2007 is a decision, but the appeal was rejected by the County Ad-

trial period for the greenhouse gas carbon dioxide (CO2). ministrative Court of Stockholm. A request for review dis- Thereafter, all countries that are parties to the Kyoto Pro- pensation has been submitted to the Administrative Court tocol will be subject to a new trading period, 2008-2012. of Appeals. One emissions right entitles the holder (the owner of

EMISSIONS PER TONNE PELLETS ATMOSPHERIC EMISSIONS

GTONNEPELLETS %MISSIONSTONNES 0ELLETS-T

.ITROUSOXIDES ./ (YDROGENCHLORIDE (#) 0ELLETPRODUCTION 0ARTICULATES 0ARTICULATES (YDROGENFLUORIDE (& 3ULFURDIOXIDE &LUORINE 3ULFURDIOXIDE 3/ #ARBONDIOXIDE #/KGTONNE

Mean values of emissions from the pelletizing plants in Kiruna, LKAB’s capacity expansion is taking place in keeping with strict en- Svappavaara and Malmberget. The ﬂ ue gas cleaning equipment vironmental standards. Since 1980, emissions of particulates, sulfur in the pelletizing plants has reduced emissions of, above all, sul- dioxide and ﬂ uorine have been more than halved, at the same time fur and particulates. as pellet production has more than doubled.

SUSTAINABILITY 34 LKAB ANNUAL REPORT 2005 Water quality in the lakes around the mines is monitored continuously. Rune Skarpvärd with a sample.

The 438,780 tonnes of carbon dioxide (emissions rights) through recirculation systems. The rest is discharged into allocated by the state to LKAB for 2005 are insuffi cient. To lakes and rivers, which are recipients of surplus water. be able to produce more iron ore, LKAB must successively The main pollutant that affects water quality is nitro- purchase more rights. During 2005, 10 000 emissions rights gen, which comes from the explosives used in the mines. have been acquired, and in April 2006, LKAB must have A study is being conducted in Kiruna aimed at minimizing suffi cient rights to cover actual CO2 emissions for 2005. nitrogen discharges to water by more effi cient use of ex- By purchasing emissions rights, LKAB can increase plosives. The results of the investigation have been sub- production and carbon dioxide emissions without contri- mitted to the Environmental Court. The report presents buting to any increase in total emissions in Sweden or the measures adopted in the project, proposals for addi- Europe. Overall reduction of GHG emissions is the prime tional measures, and current discharges of nitrogen. concern – not where these emissions occur. Waste rock dumping can also give rise to discharges to water. Weathering processes start after the waste is dump- NOISE, VIBRATION AND DUST ed. If the rock contains sulfi des, an acidic, metalliferous Noise and vibration are emitted from many sources in leachate is formed. Waste rock from LKAB’s mines has a LKAB’s different activities; for example, from fans, vehic- relatively low sulfi de content and contains a surplus of les and blasting. Blasting in the mines causes vibration, neutralizing substances that counteract acidifi cation. which can be considered annoying in some residential areas even though the measured values lie below the re- DAM SAFETY commended limits. LKAB has an extensive dam-safety program. LKAB devo- Dust (particulate matter) is created during ore handling tes great efforts to dam safety. All of the company’s dams in harbors and outdoor stockpiles. Handling of waste rock in Kiruna, Malmberget and Svappavaara are designed for backfi lling of Kaptensgropen, the “Captain’s Pit”, in with the aid of independent experts in accordance with Malmberget, has at times also caused disturbances. Dust RIDAS (the Power Industry’s Guidelines for Power Dam control measures have included paving of haulage roads Safety). and watering, as well as minimizing of the active dum- The dams are inspected every year, and regular checks ping area. are made by LKAB personnel. At all locations, control cen- Contractors inspect the area daily to determine if the- ters are manned round-the-clock, and there are automatic re is a dust risk. Watering is done whenever necessary. alarms and daily inspections. During spring 2005, dust-barrier nets were installed, and In the summer, after approval by the Environmental in 2006 installation of a new remote-controlled sprinkler Court, preventive safety measures were implemented in system in Kaptensgropen in Malmberget is planned. Svappavaara. A review of the dam system in Malmberget Renovation of the Narvik ore harbor will improve the has been carried out during and an application was sub- environment in and around the harbor area. Storage mitted to the Environmental Court regarding measures to silos will be blasted out of the bedrock and equipped with enhance safety in increase deposition capacity. dust evacuation systems. The ore trains will enter a tunnel In Svappavaara, pilot tests for depositioning higher above the storage and bottom-discharge their loads. This proportions of solid matter have been carried out. Rais- reduces noise and dust. There has been an environmen- ing the height of the tailings impoundment dams may be tally effi cient ore harbor in Luleå since 1996. delayed or avoided if this technique is successful. Dam safety has improved as a result of greater geotechnical DISCHARGES TO WATER stability due to the low water content of the tailings sand Most of LKAB’s process water is taken from mine drai- impoundment. nage. After the water has been used in processing, it is led An extensive review of future deposition has been con- via an internal treatment system to LKAB’s dam system cluded during the year. The main principle for deposition for separation of particulate matter. More than 75% of the should be to raise the height of dams, instead of using process water is pumped back to the processing plants more land.

SUSTAINABILITY LKAB ANNUAL REPORT 2005 35 Mining operations have an impact on the landscape. Excavation for the new pelletizing plant in Kiruna.

DEFORMATION AND ALTERATION OF THE LAND- As a consequence of the ground deformation resulting SCAPE IN THE OREFIELDS from mining operations, obligations (both formal and in- The major visible effects of mining are open-pit mines, formal) with respect to structural transitions in Kiruna may deformation zones, waste rock heaps, and pond systems arise, which may entail considerable costs for the compa- for mine and process water. ny. For LKAB, the economic consequences are estimated Another visible impact of the Mining Division’s ope- to be in the order of 2.5 billion kronor. Some of these costs rations in Malmberget is Kaptensgropen, the “Captain’s are attributable to LKAB’s own residential properties. Pit”, a 20-hectare area in the middle of the community. In keeping with the remediation plan, the pit is now being SITE REMEDIATION backfi lled, which will stabilize the area. Site remediation is a statutory obligation where conside- LKAB has surveyed new ore deposits in the southern ration must be given to safety, environmental and esthe- part of Malmberget. The ore is a continuation of the so- tic aspects. LKAB cooperates with the environmental aut- called Fabian orebody and extends under residential horities in devising long-range remediation plans for the buildings in Elevhemsområdet. mining sites. At the close of 2005, an application for a mining conces- LKAB may have to provide fi nancial guarantees to co- sion was submitted, with the provision that the ground ver possible remediation costs and other measures to surface will not be affected. If and when a risk for impact remedy the effects of operations for which permits are to the ground surface is foreseen, LKAB will apply for a granted. Following the most recent ruling of the Environ- change in the terms of the concession. mental Court with respect to increased concentrating and In Kiruna, the southern portion of Luossajärvi Lake has pelletizing capacity in Kiruna, a bank guarantee has been been drained to permit mining of the Lake Ore – the por- pledged to the supervisory authority (the County Admi- tion of the orebody that extends in under the lake. Mining nistrative Board of Norrbotten). began in 2003. The dry lake bottom has been sown with Some examples of initiated measures are backfi lling seed to counteract dust formation, and trees and plants of open pits, planned disposition of waste rock, grass so- have been planted. Remediation costs for the area have wing and tree planting. The total cost for remediation of totaled MSEK 15. the mining sites cannot be accurately determined until In Kiruna, investigations are being conducted to ascer- complete and approved plans exist. tain the extent of the orebody towards the north. Since In Luleå, demolition work preparatory to site remedia- 2004, two new investigation permits have enabled further tion of the former ore harbor site has been completed. test drilling. These deep-drilling campaigns are expected Here, two contaminated areas will be remediated in 2006. to provide a better picture of the extent of the orebody. Survey of contaminated areas in all operating locations In Kiruna, the consequences of mining for the surroun- has commenced. This so-called MIFO inventory will be re- ding community, in the form of deformation, are now be- ported to the supervisory authority during 2006. coming apparent. During autumn 2005, a new temporary During 2004, LKAB began remediation of a former de- bicycle and pedestrian path to LKAB’s industrial site was position site for oil-contaminated soil. The soil is mixed built, since the old pathway was within the deformation with specially cultured bacteria. Decontamination conti- zone. nued through 2005 and treatment of sections of the depo- In early-2006, the road to LKAB’s industrial site will also sition area has been completed. The remaining sections be rerouted around the drained section of Luossajärvi will be treated during 2006. Lake. The old road will be closed and a bicycle and pede- Surveying, decontamination and remediation of areas strian path will be built along the new road. in all operating locations is done on an ongoing basis. Underground infrastructure will also be altered. Today, water from Luossajärvi Lake is led via a culvert to Ala Lombolo Lake. Since it will no longer be possible to use this culvert, new alternatives for discharging Luossajärvi Lake are being studied.

SUSTAINABILITY 36 LKAB ANNUAL REPORT 2005 In Malmberget, Kaptensgropen (the Captains Pit), has a visible impact on the community. To stabilize the area, the pit is being backﬁ lled.

RESOURCE CONSUMPTION, PRODUCTION AND EMISSIONS

2005 2004 2003 2002 2001 2000 1999 1998 1997 1996

Input materials Crude ore (Mt) 37.3 35.9 34.7 31.5 33.0 33.4 30.6 33.4 32.9 32.9 Explosives (kt) 15.2 13.7 13.1 12.3 12.8 13.2 13.1 12.3 14.0 13.7 Additives1) (kt) 613 632 568 536 549 572 508 590 590 568 Energy2) (GWh) 3 069 2 930 2 919 2 741 2 676 2 854 2 669 3 053 2 659 2 727

Products and residual products, etc. Pellets (Mt) 16.5 16.0 15.3 14.1 13.8 14.9 13.0 15.1 15.4 15.1 Fines (Mt) 6.8 6.2 6.2 6.2 5.7 5.7 5.9 5.9 6.5 6.3 Residual products: Waste rock (Mt) 10.7 10.8 10.0 9.6 10.2 10.1 11.6 12.8 11.5 10.9 Tailings (Mt) 3.4 3.8 3.7 3.6 3.3 3.5 3.5 3.9 3.4 3.1 Recovered excess heat (GWh) 163 139 191 159 143 122 66 93 115 109

Atmospheric emissions Particulates (tonnes) 2 450 1 360 1 565 1 760 1 575 2 000 1 355 1 850 1 490 1 500 SO (tonnes) 1 695 1 540 1 540 1 385 1 495 1 760 1685 1 695 1 900 1 775 HF (tonnes) 190 179 148 127 171 191 183 215 220 200 HCl (tonnes) 385 389 347 330 307 315 330 350 385 385

NOx (tonnes) 2 920 3 050 2 765 2 620 2 585 2 460 2 640 3 550 3 200 3 380 4) CO2 (kilotonnes) 450 433 479 434 401 438 337 381 383 388

Discharges to water Nitrogen (tonnes) 468 379 237 211 283 315 273 250 200 190 Total phosphorus (kg) 644 478 366 364 641 691 398 500 300 295 Trace metals3) (kg) 378 303 171 187 265 315 177 174 205 194

1) Olivine, dolomite, bentonite, lime and quartzite. 2) Electricity, oil and coal. 3) Cr, Cd, Cu, Ni, Pb, Zn and As. 4) Preliminary ﬁ gure

SUSTAINABILITY LKAB ANNUAL REPORT 2005 37 Risks and risk management

Demand for LKAB’s iron ore products is determined largely by business cycles on the global market for steel and iron. Most of LKAB’s iron ore and industrial mineral products are sold on the European market.

LKAB’s major competitors mine their ore in open pits. crease in capacity utilization by one percentage point leads They therefore face considerably lower production costs. to an earnings improvement in the order of MSEK 120. For LKAB, consistently high quality and cost effi ciency are critical factors for remaining competitive. Price dependence The great advantage compared to competitors is our Iron ore trading is conducted in US dollars and the pri- high-quality magnetite ore. Potential threats are seen in a ce is set once a year in direct negotiations. Normally, an possible collapse in China’s economic growth, a weak dol- agreement between one of the major mining companies lar, falling pellet prices, new environmental and energy and the Japanese or European steel industry sets a global legislation, and the availability of emissions rights. benchmark. A premium is paid for pellets compared with The Minerals Division’s most important strengths are fi nes, and the price of DR pellets is generally higher than its broad product portfolio and widespread geographic that of blast furnace pellets. distribution. The most apparent potential threats are a Ocean freight costs have a great infl uence on the to- major economic downturn, higher freight rates and poo- tal price picture, since world market prices are compared rer exchange rates. with the freight cost included. LKAB is favored on the Eu- ropean market by high freight rates, while the competi- OPERATING RISKS tiveness of more distant mines increases when ocean Volume dependence freight rates are low. Many sales include delivery to the Since pellets are largely used for the purpose of raising customer’s premises, which entails a cost risk, since no productivity during expansionary periods and can be re- extra charge can subsequently be added to compensate placed by cheaper lump ore during recessionary periods, for higher freight costs. LKAB with a pellet share of 65-70% is particularly sensi- tive to business cycle fl uctuations. Customer dependence In recent years, LKAB has been able to sell all of its pro- The global iron ore and steel market is subject to ongoing ducts, but the company must improve its preparedness structural changes, and the number of players has dimi- for future cyclical fl uctuations. This is realized through nished. The Mining Division therefore has relatively few greater fl exibility in production and fi nancial strength. customers, which means that the importance of each in- LKAB has a high proportion of fi xed costs; therefore, dividual customer has increased. high capacity utilization is decisive for profi tability. An in- Long-term customer relationships and a customer structure spread out among various markets have a certain stabilizing effect. High and consistent product quality SENSITIVITY ANALYSIS (PARENT COMPANY) in combination with value-adding services is an important risk-mitigating factor. Factor Exposure Change Effect on In order to minimize the risk of bad debt losses, the 2005 earnings Group is working actively with the payment systems allo- wed by the banking systems. The Group is judged to have Deliveries 23.2 Mt 1 Mt 340 MSEK 1) an effective credit monitoring function. Price 1% 130 MSEK 1) Personnel costs 1 949 MSEK 10% 195 MSEK With its diversifi ed customer base, the Minerals Divi- Energy costs 746 MSEK 10% 75 MSEK sion is able to spread its risks more effectively. To a de- Transport costs 894 MSEK 10% 90 MSEK gree, this helps to counteract the effects of fl uctuations Depreciation 791 MSEK 10% 79 MSEK in business cycles, since different customer segments are Dollar rate – without hedging 1 506 MUSD 2) 10 öre 151 MSEK subject to different trends. However, the company is still Interest level 5 750 MSEK 1% 58 MSEK affected by changes in general economic cycles.

1) Average value, ﬁ gured on unchanged product mix. 2) The total exposure in 2005 was MUSD 1 506, of which MUSD 1 266 was hedged.

RISKS AND RISK MANAGEMENT 38 LKAB ANNUAL REPORT 2005 FINANCIAL RISKS LKAB is exposed to various types of fi nancial risks. Finan- Group, even though the level of exposure has increased cial risks are associated with fl uctuations in the company’s in recent years due to the expansion of the Minerals Divi- earnings and cash fl ow as a result of currency exchange- sion. (Note 30) rate fl uctuations, interest rates, refi nancing and credit risks. Interest rate risk Financial risks are managed according to Group poli- LKAB’s fi nancing sources are shareholders’ equity, provi- cies established by the Board. LKAB has a centralized fi - sions and short-term operating credits, which means that nance function, LKAB Treasury Center, which manages LKAB is mainly exposed to interest rate risks with regard most of the Group’s fi nancial risks. A selective strategy to investments of liquid assets. According to LKAB’s in- is applied, whereby potential costs and benefi ts are ba- vestment policy, the average duration of money-market lanced, the aim being to minimize and neutralize risks in investments may not exceed three years. commercial fl ows. At maximum duration, a change of one percentage LKAB Treasury Center also acts as the Group’s internal point in the market rate of interest affects LKAB’s earnings bank and supports subsidiaries with fi nancing, invest- by about MSEK 80-120, depending on composition of the ment and currency trading, and functions as an advisor instruments in the portfolio. with respect to fi nancial issues. As of 31 December 2005, LKAB’s investments in money-market instruments amounted to MSEK 5 947 (3 917). Currency risks The duration was 356 (386) days. A one-percent increase Both LKAB’s future payment fl ows (transaction exposure) in the market rate as of closing day would have affected and revaluation of receivables and liabilities in foreign income negatively by MSEK 54 (42). currencies (revaluation exposure) are exposed to risks associated with fl uctuations in exchange rates. Other com- Credit risk panies in the Group mainly conduct business in their local LKAB’s credit risks are mainly associated with trade ac- currencies, and both investment and fi nancing are done counts receivable and short-term investments. As far as mainly in local currencies so as to minimize translation credit risks in trade accounts receivable are concerned, exposure. LKAB prioritizes long-term customer relations, which means that the majority of the customers are well-establis- Transaction exposure hed contacts. Export letters of credit are used when de- The greatest transaction exposure within the LKAB Group emed necessary. LKAB has not had any bad debt losses in is within the Mining Division. the past fi ve years. All prices of iron ore are set in US dollars, which means According to LKAB’s investment policy, investments that the transaction risk is high without hedging. The ex- may only be made in borrowers with high creditworthi- act magnitude of this risk is diffi cult to ascertain far in ad- ness and high liquidity such as the Swedish state, com- vance, since it is largely dependent on the market price of panies wholly owned by the Swedish state, county coun- iron ore, which is normally set annually. During 2005, the cils, municipalities or companies with the highest credit transaction exposure amounted to MUSD 1 500, and the rating. effect of a difference of SEK 0.1 in the USD/SEK exchange As of closing day, 96% (96%) of investments in money- rate on LKAB’s operating profi t, without hedging, is there- market instruments were issued by the Swedish state and fore MSEK 150 (Note 30). Swedish banks. LKAB has not had any bad debt losses in The goal of LKAB’s current currency policy is to minimi- short-term investments in the past fi ve years. LKAB does ze the impact of exchange rate fl uctuations on the income not have any substantial concentration of credit risks in statement by means of selective risk-taking, so the value any single customer or counterparty. of future transaction exposure is periodically hedged. The Board has set up a currency committee that conve- Liquidity risks nes whenever necessary to advise the Board on hedging of LKAB maintains good fi nancial preparedness by following the Mining Division’s commercial fl ows. For other compa- guidelines which regulate risk-taking and the investment nies in the Group, transaction exposure arises mainly when horizon. LKAB has a high proportion of liquid assets and raw materials are purchased in foreign currencies. All hed- a low debt/equity ratio. A good balance between short ging of commercial transactions by subsidiaries must be and long investment horizons will meet the long-range fi - done through the LKAB Treasury Center (Note 30). nancing need. Liquid assets are invested primarily on the Swedish money market in securities with high liquidity. Translation exposure LKAB does not normally hedge its translation exposure. Over time, this is not considered to add any value for the

RISKS AND RISK MANAGEMENT LKAB ANNUAL REPORT 2005 39 Group overview

CONSOLIDATED STATEMENTS OF INCOME (MSEK) 2005 2004 2003 2002 2001 2000 1999 1998 Net sales 14 337 8 988 7 466 5 186 4 870 4 882 3 985 5 129 Cost of goods sold -7 535 -6 180 -5 959 -4 515 -4 383 -4 150 -3 891 -4 023 Gross income 6 802 2 808 1 507 671 487 732 94 1 106 Selling expenses -174 -289 -285 -135 -86 -80 -63 -67 Administrative expenses -349 -353 -247 -192 -246 -218 -255 -276 R&D expenses -159 -235 -116 -101 -116 -93 -118 -148 Other operating revenues/expenses -11 10 64 50 28 132 -106 32 Operating income/loss 6 109 1 941 923 293 67 473 -448 647 Financial items 550 227 181 191 125 198 246 369 Financial expense -208 -145 -129 -88 -130 -80 -42 -56 Income/loss after net ﬁ nancial items 6 451 2 023 975 396 62 591 -244 960 Tax -1 904 -456 -286 -96 -15 -179 11 -281 Net income for the year 4 547 1 567 689 300 47 412 -233 679 Attributable to: Parent Company shareholders 4 546 1 568 690 305 54 421 239 686 Minority share 1 -1 -1 -5 -7 -9 -6 -7 Includes depreciation according to plan 952 1 079 1 049 994 954 920 838 776

CONSOLIDATED BALANCE SHEETS (MSEK) Intangible assets 477 211 182 22 8 8 10 11 Tangible assets 7 928 6 316 6 476 6 583 7 056 6 970 6 962 6 821 Financial assets 1 393 219 245 322 261 328 198 176 Total ﬁ xed assets 9 798 6 746 6 903 6 927 7 325 7 306 7 170 7 008 Inventories 1 423 1 006 976 870 870 707 675 585 Accounts receivable 1 846 1 194 1 198 724 711 635 504 529 Liquid assets 7 091 4 516 2 944 3 045 2 780 3 060 3 101 3 602 Other receivables 416 195 316 117 245 317 200 481 Total current assets 10 776 6 911 5 434 4 756 4 606 4 719 4 480 5 197 Total assets 20 574 13 657 12 337 11 683 11 931 12 025 11 650 12 205

Shareholders’ equity 14 802 10 044 9 004 8 673 8 609 8 789 8 412 8 882 Minority interest 4 3 4 3 46 41 34 154 Provisions* 2 209 2 154 2 160 2 096 2 278 2 210 Long-term liabilities 3 598 2 230 2 2 41 66 96 5 Current liabilities 2 170 1 380 1 118 851 1 075 1 033 830 954 Total shareholders’ equity and liabilities 20 574 13 657 12 337 11 683 11 931 12 025 11 650 12 205

CONSOLIDATED STATEMENTS OF CASH FLOW (MSEK) Cash fl ow before change in working capital 6 073 2 776 1 782 1 356 978 1 340 554 1 412 Change in working capital -553 79 -556 -172 -19 -51 307 215 Cash fl ow from operating activities 5 520 2 855 1 226 1 184 959 1 289 861 1 627 Investments in existing operations -2 525 -973 -592 -532 -1 050 -952 -1 004 -1 212 Operating cash fl ow 2 920 1 882 634 652 -91 337 -143 415 Acquisition of operation/minority -75 -29 -384 -41 -124 Short-term investments -1 846 -1 748 Cash fl ow after investments 1 074 105 250 611 -91 337 -267 415 Dividends -520 -281 -351 -254 -233 -233 -233 -299 Other from fi nancing activities -92 44 -145 -1 -12 Cash fl ow for the year 554 -176 -101 265 -280 -41 -501 104

GROUP KEY RATIOS Net sales MSEK 14 337 8 988 7 466 5 186 4 870 4 882 3 985 5 129 Growth in net sales % 59.5 20.4 44.0 6.5 -0.2 22.5 -22.3 0.7 Operating margin % 42.6 21.6 12.4 5.6 1.4 9.7 -11.2 12.6 Proﬁ t margin % 45.0 22.5 13.1 7.6 1.3 12.1 -6.1 18.7 Return on total capital % 38.9 16.7 9.2 4.1 1.6 5.7 -1.7 8.5 Return on equity % 36.6 16.5 7.8 3.5 0.5 4.8 -2.7 7.7 Equity/assets ratio, % % 72.0 73.6 73.0 74.3 72.5 73.4 72.5 74.0 Average number of employees 3 563 3 482 3 433 3 078 3 172 3 210 3 279 3 568

* according to IFRS, provisions are divided into Defi nitions long-term and short-term liabilitie Operating margin: Operating income as a percentage of net sales Profi t margin: Income after fi nancial items as a percentage of net sales for the year Return on total capital: Income after fi nancial items + fi nancial expenses as a percentage of average total assets Return on equity: Income after fi nancial items less tax as a percentage of average shareholders’ equity

GROUP OVERVIEW 40 LKAB ANNUAL REPORT 2005 Report of the Directors

The Board of Directors and the President and CEO of Luossavaara- most of the growth. The strongest growth was seen in China, where Kiirunavaara AB (LKAB), (Corp. ID No. 556001-5835) hereby submit crude steel production reached 350 (280) Mt, an increase of 25%. their Annual Report and consolidated financial statements covering As a result of the shortage of iron ore at the close of 2004, the operations in 2005. world market prices of Brazilian and Australian iron ore were increased by 71.5%. On the basis of benchmark market prices, LKAB Owner structure reached an initial agreement in March for price hikes of more than LKAB is wholly owned by the Swedish state. The company conducts 70% on fines and nearly 85% blast furnace pellets. Despite the shift business as a limited company and its registered office is in Luleå, in production from Northern to Southwestern Europe, LKAB’s deli- Sweden. veries of blast furnace pellets to contract customers in Northwes- tern Europe remained unchanged, indicating increased market sha- Group res in the near-lying market area. Other contributing factors were The consolidated financial statements cover the operations in 2005 the strong demand for iron ore in Asia, high sea freight rates and the of the Parent Company and its subsidiaries, together referred to as shortage of iron ore on the world market. LKAB’s deliveries of pellets the Group. The Group also has ownership interests in joint ventu- to contract customers in the Middle East and North Africa increased re companies. considerably, while deliveries to the Far East ceased. The LKAB Group includes the Mining Division (iron ore operations and the Parent Company), the Minerals Division and Special Busi- Production results 2005 nesses. In 2005, the focus has been on improving capacity, speed and availability in the production facilities in order to increase the volume of Mining Division mining and processing while maintaining high quality. Mining of iron General ore during 2005 amounted to 36.6 (35.2) Mt of crude ore. The volume of upgraded products amounted to 23.3 (22.3) Mt, of which pel- The Mining Division mines and processes iron ore for products for lets accounted for 16.5 (15.9) Mt. Deliveries to customers totaled steelmaking. The Mining Division’s process chain stretches all the 23.2 (22.8) Mt. Through continuous improvement, greater efficien- way from the iron ore reserve to the customers. It starts with the cy and the elimination of bottlenecks, production in existing facilities production of crude ore in underground mines and upgrading of has increased in the past four years from 20 to 23 Mt/yr, or 15%. iron ore in processing plants at surface level, and continues with rail transport of finished products to shipping harbors and loading to Capital expenditures vessels for delivery to the customers. Operations are conducted in Global steel consumption and steel production have increased dra- Luleå, Malmberget, Svappavaara, Kiruna and Narvik. matically in recent years and demand is expected to remain strong. Pellets are the Mining Division’s main product and account for Several of LKAB’s pellet customers have planned, or are deciding to more than 77% of ore sales. Pellets are produced by mixing fine- invest in, increased production capacity. ly ground iron ore with various binders and additives, and then sha- Investments in increased production and greater logistical effi- ping the mixture into centimeter-sized balls, which are sintered at a ciency will raise LKAB’s production capacity for iron ore products temperature of 1 250°C. LKAB’s magnetite-based pellets have high from a current 23 million tonnes to 25 Mt by 2007 and to 30 Mt by iron content and are less energy demanding than competing pellet 2008. In order to achieve these capacity increases, the Board deci- products. ded in December 2005 to invest MSEK 6 400 in a new pelletizing Objectives plant, a concentrating plant and a new rail terminal in Kiruna. The LKAB is exposed to tough competition from considerably larger iron new plants will initially produce 5 Mt pellets per year. The new pel- ore producers who enjoy the cost advantages associated with open- letizing plant in Kiruna (KK4) will be operational in 2008. At he same pit mining. LKAB’s goal is to cope with competition and ensure the time, a decision has been taken to begin preliminary work for new company’s long-term survival by constantly improving cost-effective- main level in Kiruna, at the 1 365-m level. ness, raising the quality and knowledge content of the products, and The ore harbor in Narvik is a strategically important link in LKAB’s maintaining resource-efficient growth. Therefore, efforts are direc- process chain, since most of the products (about 2/3) are shipped ted towards improving maintenance efficiency, including preventive from here. The Board voted in November 2005 to spend MSEK 970 maintenance. The aim is to stabilize production at a higher and more to refurbish the ore harbor. The upgrade will significantly improve ef- consistent level. The work of assuring quality in the company’s pro- ficiency as well as the environment. Ore products will be stored in cesses has high priority, and here, too, the keyword is stability. Con- silos, and the entire harbor structure will be adapted to handle larger sistent quality, the right quality and delivery assurance are the most ore trains and greater volumes of iron ore products. The new harbor important success factors for the division’s customer relations. Work is expected to be fully operational in 2009. also focuses on establishing best practice and making production Construction of a new pelletizing plant in Malmberget (MK3) is more flexible to enable maximum capacity utilization. now in progress, and the plant is expected to be operational in the autumn of 2006. The steel and iron ore market Of the year’s investments in fixed assets amounting to MSEK 2 314 During 2005, the global demand for iron ore remained strong, pres- (614), MSEK 1 300 refers to the new pelletizing plant in Malmberget. sing iron ore exporters to increase production to the limits of capa- MSEK 188 has been invested in new locomotives and ore cars. Other city. According to preliminary statistics from the International Iron investments in capacity increases amount to more than MSEK 300. and Steel Institute (IISI), world production of crude steel increased in 2005 by 6% to reach a new record level, for the sixth consecutive Research and development (R&D) year, of more than 1.1 billion tonnes. Asia and Africa accounted for Annually, LKAB invests about MSEK 150 in research, and the com-

R e p o r t of the di r e c t o r s L K A B a n n u al r e p o r t 2 0 0 5 41 pany has intensifi ed collaboration with Luleå University of Technolo- with customers. Most of the division’s production facilities are now gy (LTU), through among other initiatives, the Hjalmar Lundbohm Re- quality-certifi ed. In Sweden, work on verifi cation of the quality ma- search Centre. nagement system was concluded in 2005, when quality certifi cation Research and development in pelletizing will help LKAB to main- according to ISO 9001:2000 was achieved. tain its leading position concerning product quality. Therefore, the groundwork is being laid for an agglomeration center (pelletizing Objectives center) linked to an experimental pelletizing plant. Today, LKAB’s The Minerals Division’s objectives are based on the company’s posi- experimental blast furnace (EBF) is now a valuable asset, and an ex- tion in strategic business areas, a broad geographic presence and an perimental pelletizing plant will help to optimize the total process: effective network of production facilities and logistics systems. The concentrate-pellets-blast furnace. target for organic growth is an average at least 10% per year. Be- The overall objective of research activities is to secure the compe- sides the ambition to grow in strategic areas, the division has also titiveness of LKAB’s product portfolio. During the year, work on im- identifi ed a number of special priority areas. One of these is to conti- proving the process effi ciency of production facilities has continued nue to improve capital effi ciency. to be a priority area. Ultimately, this will contribute to maximizing LKAB’s total production capacity and improving product quality. Market and production

LKAB is involved in the ULCOS research project (Ultra Low CO2 Sales volumes increased within several business segments and Steelmaking), an initiative of the International Iron & Steel Institute within all market areas. At the same time, high freight rates had a ne- (IISI) to investigate the possibilities for reducing steel-industry car- gative impact on earnings. The world market for industrial magnetite bon dioxide emissions. LKAB has contributed the use of the EBF for is estimated at slightly more than 2 Mt per year. With sales of 1 Mt,

studies of how CO2 emissions from blast furnaces can be reduced. Minelco is a market leader. LKAB is involved in two of the sub-projects projects: The New Currently, the company is experiencing very high demand from Blast Furnace and New Natural Gas Based Steelmaking. The ﬁ rst customers who use magnetite products in the manufacture of hea- project involves two campaigns in the experimental blast furnace vy concrete. Compared to the previous year, the volume of sales of

(EBF), which is being rebuilt as an oxygen blast furnace with CO2 ex- magnetite remained unchanged. In total, approximately 1 Mt of mag- traction. In the second project, two EBF campaigns have been car- netite was delivered, mainly for use in construction projects, sponge ried out with pre-reduced burden material. The results show that iron for powder metallurgy, water treatment chemicals and coal there is potential for reducing coke consumption in the blast furn- washing. The global expansion is evident. Growth in China contribu- ace by about 50%. ted to a doubling in sales of industrial minerals in Asia, which now accounts for 30% of Minelco’s sales. Operating income Minelco’s product portfolio includes more than 30 different indu- Net sales for Mining (Parent Company) amounted to MSEK 12 349 strial minerals. Priority minerals include magnetite, bentonite, oliv- (7 560). Operating income amounted to MSEK 5 720 (1 669). ine, mica and minerals with ﬂ ame retardant properties (UltraCarb). The improvement is mainly attributable to price increases and For the selected minerals, the strategy is to control the process from greater delivery volumes. Income after ﬁ nancial items reached deposit to customer. For bentonite, exclusive access to a raw-mat- MSEK 6 049 (1 869). erial source has not yet been secured.

MINERALS DIVISION Capital expenditures During 2005, the Seqi olivine reserve in Greenland was acquired. The General acquisition will enable Minelco to advance its position on the olivine The Minerals Division, which operates under the name Minelco on market, a market that absorbs approximately 4 Mt per year. Minelco the global market, develops, produces and markets industrial min- will handle about 1 Mt of olivine annually, and the results of geophysi- eral products. Minelco supplies industrial minerals to customers in cal surveys and diamond drilling campaigns indicate that the reserve many different industries and for many different applications. Among will satisfy demand for olivine for many years to come. the most important are building construction, the oil and gas indu- Construction of production facilities began during the summer, stry, the rubber, plastics and paint industries, the chemical industry, and in December, the fi rst shipments were delivered to European the automotive industry, foundries and manufacturers of refractory steel customers and to LKAB for use in pellet production. The mine, materials. Operations are managed from Sweden, with representa- which will operate year-round, has been equipped for a capacity of tion in Europe, the USA and Asia. Operations are therefore global. about 1.7 Mt per year. Full-scale production will be possible during The division has about 400 employees, most of them outside the latter half of 2006. Sweden. There are subsidiaries with processing plants in Finland, Minerals research and product development are application-orien- the UK, the Netherlands, Greece, Turkey and China. The company ted and are conducted in close cooperation with customers. In ad- has sales companies in Germany, the USA and Hong Kong, as well dition to the LKAB Group’s research organization, the resources of as representative offi ces in the Czech Republic and Thailand. the Minerals Division’s UK subsidiary are available. Minerals also The division focuses on selected minerals, with control of the en- collaborates with universities and research institutes in Europe and tire process chain from source to end user. Direct sale to end users the USA. and an extensive knowledge of mining, production, processes, applications and markets enable the company to adapt products to meet Operating income specifi c customer needs, thereby ensuring maximum value for custo- Net sales increased to MSEK 2 159 (1 598). Operating income mers. This, in combination with the organization’s expertise and ser- amounted to MSEK 148 (122). The improvement is largely attribut- vice, will contribute to improved profi tability for the customers. able to increased market shares and greater sales volumes. In many application areas for minerals, Minelco has achieved a leading position. This position is based on a high degree of expertise SPECIAL BUSINESSES DIVISION in mineral technology, production, applications and markets, as well as LKAB has organized most of its subsidiaries under the Special the ability to develop materials and processes in close collaboration Businesses Division. These companies are today mainly subcontrac-

REPORT OF THE DIRECTORS 42 LKAB ANNUAL REPORT 2005 tors to the Mining Division and the Minerals Division, but also sup- Energy Policy that will guide LKAB’s actions while acknowledging port the Group by contributing towards effi ciency improvement and the company’s objective to maintain a fi nancially sound and success- technical development. ful business operation. The companies in Special Businesses have their origin in LKAB’s In the Parent Company and the subsidiary Kimit, the Group con- know-how as a manufacturer and user of products or services. Was- ducts operations that are subject to regulations embodied in the sara AB develops drilling systems. AB Kiruna Grus- och Stenförädling Environmental Code. The biggest environmental impact factors (KGS) works with rock, concrete, explosives manufacture and engi- are alteration of the landscape due to mining; emissions to air and neering services. Fastighets AB Malmfälten (FAB) manages proper- discharges to water arising from production; noise, dust and vibra- ties in locations where LKAB operates. tion, and energy consumption. Two environmental permits refer to Explosives manufacturer Kimit AB has been part of KGS since handling of iron ore products and binders at the harbor facilities. The the close of 2004. Malmtrafi k AB manages rail transports from the impact of these operations on the external environment is mainly a mines to the harbors. result of emissions of particulate matter and dust. Three environ- LKAB Nät AB is an electricity network company with a concession mental permits refer to large-scale mining and facilities for proces- as an electricity distributor. The Group’s intra-group insurance com- sing iron ore products. Two environmental permits refer to mining pany is LKAB Försäkring AB. The company works globally to provide of additives for ore processing. These operations impact the envi- the LKAB Group with property and risk insurance. ronment through alteration of the landscape, emissions to the air, The subsidiaries are wholly owned by LKAB, with the exception of discharges to the water, and noise. Wassara AB, in which LKAB has a 60% interest. Most of the Parent Company’s blue-collar employees are employed in production, in the above-mentioned operations, that is sub- Operating income ject to environmental regulation. Two environmental permits refer to Net sales increased to MSEK 1 091 (951). Operating income amoun- Kimit AB’s manufacture of explosives. The environmental impact of ted to MSEK 100 (94). The improvement is mainly attributable to the this activity is mainly the result of discharges of nitrogen compounds increased volume of services delivered to the Mining Division. to the municipal sewage system. Site remediation, which can be done successively and/or after operations are concluded, is a statutory obli- GROUP gation where consideration must be given to safety, environmental, economic and esthetic aspects. LKAB cooperates with the environ- Sales and income mental authorities in devising long-range remediation plans for the The Group’s net sales increased to MSEK 14 337 (8 988), which mining sites. The total cost for remediation of the mining sites cannot is mainly attributable to an increase in the price of iron ore for the be accurately determined until complete and approved plans exist. year of more than 80 (25)%. As a direct result of price increases, In 2003, the European Commission submitted a proposal for a operating income increased to MSEK 6 109 (1 941). In addition to mining waste directive, which has subsequently been reviewed by the price increase, a higher delivery volume contributed to the im- the European Parliament and Council of Ministers. The European provement in income. The Group’s net fi nancial income amounted Parliament and Council of Ministers reached an agreement on the to MSEK 342 (82). Capital gains of MSEK 89 realized on the sale of directive proposal during a conciliation meeting in December 2005. shares in SSAB are included. Return on market portfolios amounted The directive will be formally adopted in Feb.-March 2006, and mem- during the year to MSEK 212 (24), of which unrealized appreciation ber states will then have two years to transpose the directive into na- amounts to MSEK 101 (-). tional law. As a consequence of the new directive, LKAB may have to provide fi nancial guarantees for future remediation costs. Similar- Capital expenditures ly, with respect to permit approval for dam systems, application of Of the year’s investments in fi xed assets amounting to MSEK 2 648 the current Environmental Code may also require posting of fi nancial (965), MSEK 2 314 (614) refers to Parent Company expenditures. guarantees for future site remediation. Following the Environ- mental Court’s ruling of November 2005, in accordance with the Risks Environmental Code, with respect to ore processing in Kiruna, a Risks can be divided into three main categories: operating risks, guarantee amounting to MSEK 63 has been pledged in 2006 to the fi nancial risks and other risks. Operating risks consist mainly of vol- County Administrative Board of Norrbotten. ume dependency, price dependency and customer dependency. The The EU’s solution for reducing greenhouse gas emissions (GHG) fi nancial risks can be divided into currency risk, transaction expos- is based upon, among other measures, a system of trade in carbon- ure, translation exposure, interest risk, credit risk and liquidity risk dioxide emissions rights. In the current system, which includes only (see Note 30). Among other signifi cant risks may be mentioned risks EU member states, LKAB is the only pellet supplier that is active on the associated with environmental requirements, e.g., increased charges global market. The system also implies direct and indirect costs for and taxes for energy and access to carbon-dioxide emissions rights. the company. Ideally, the system of trade in emissions rights should LKAB’s major competitors mine their ore in open pits. They there- become a global-market based system for reducing atmospheric fore face considerably lower production costs and realize higher pro- emissions. At this level, such a system would increase competitive- ductivity in the mining process. For LKAB, cost effi ciency is crucial ness among companies like LKAB that use energy and C02-effi cient for remaining competitive. Operating costs are dependent on vol- technology, and consequently, emissions could be globally reduced. ume, degree of upgrading and infl ation. Other operating costs follow An assessment of carbon-dioxide emissions during 2005, which is price trends on the markets in which the Group operates. the fi rst year of the EU’s three-year trial period, shows that actual Some of the operating risk is implicit in the nature of the business emissions from the pellet plants and oil-fi red boiler plants exceed the conducted; see the section below on Structural changes in the Ore- allocated rights. Therefore, emissions rights have been acquired on fi elds, and Note 33. the open market. The forecast for the entire trial period indicates a defi cit of 10%, which must be covered through the purchase of ad- Environmental information ditional emissions rights. LKAB’s work will be characterized by concern for the environ- LKAB appealed the allocation decision from 2004, but the appeal ment. For this reason, LKAB has adopted an Environmental and was rejected by the County Administrative Court of Stockholm in

REPORT OF THE DIRECTORS LKAB ANNUAL REPORT 2005 43 December 2005. A request for review dispensation has been sub- cial rules of procedure followed by the Board. Normally, six meetings mitted to the Administrative Court of Appeals. are held each year. A board meeting held at the end of each quarter considers the in- Secured electricity deliveries terim fi nancial reports for the most recent quarter as well as the fore- LKAB is one of Sweden’s largest electricity consumers and accounts cast for the coming four quarters. This allows the Board to make an for about 1% of the country’s electricity consumption. Assured deli- ongoing assessment of strategies and delegations to the President veries of competitively priced electricity are strategically very impor- and to decide on specifi c investment projects. tant. Via a long-term energy agreement reached with Vattenfall in Normally the fi rst meeting of the year is at the year-end closing, 1998, LKAB secured power deliveries at a predetermined price. The when LKAB’s auditors also participate. The second is a strategy third phase of the agreement, which expired in 2004, was renegoti- meeting with an emphasis on personnel issues. The third and fourth ated during 2005, whereby a 10-year agreement was reached. This meetings also address issues pertaining to operations and strategy. also takes into consideration future power demands for the new pel- The emphasis of the fi fth meeting is on the market situation. At the letizing plants to be built in Malmberget and Kiruna. sixth and fi nal meeting, the strategic plan for the coming three to Reward system four years is revised. LKAB’s reward system was introduced at mid-year 2000. The Pre- Since 2004, the traditional annual budget has been replaced with sident and senior executives are not included. The system, which a rolling business plan and 12-month forecast, updated after each follows the owner’s guidelines for incentive schemes, is based on quarter. The rolling business plan is then monitored with key ratios three factors: quality, work environment and production targets. The and is driven by activities of various kinds. reward is maximized at SEK 30 000 per year and full-time employee. The work of the Board is evaluated once per year. A written sur- All three factors led to rewards in 2005. The outcome was 27 400 vey of the Board’s work, prepared annually, includes questions con- (2 500) kronor per full-time employee, which adds up to about MSEK cerning how the Board collectively, and each member individually, 92 (10). An extra bonus of 10 000 kronor per full-time employee, has fulfi lled the tasks at hand. The evaluation report supports the totaling about MSEK 35, was paid out as a reward for the improve- work of the Board. The Chairman is responsible for following up the ment in fi nancial results in 2004. results, which form a basis for discussion and improvement. The work of the Chairman is normally assessed by the owner, but this Foreign branch may also be part of the work of the Board. LKAB currently has one foreign branch, in Narvik, Norge. The decision has been taken to form a company for operations in Narvik. This Dividend policy and proposed distribution of unappropriated is expected to be fi nalized by 2007. earnings Change in accounting principle LKAB’s dividend policy entails that the dividend to the owner will, over the long term, amount to 30-50% of income after tax and be As of 1 January 2005, LKAB applies the EU-approved International adapted to the average earnings level over a business cycle. The Financial Reporting Standards (IFRS). Introduction of the new stan- proposal for distribution of unappropriated earnings for the year is dards has meant a change in accounting principles and has a con- given on page 75. siderable impact on the balance sheet for 2005. To achieve compara- bility regarding the Group’s performance and position, the compari- Structural changes in the Orefields son year has been recalculated. LKAB’s expansion in the operating locations in the Orefi elds entails a IAS 39 Financial Instruments: Recognition and Measurement will successive expansion of deformation zones. Amendments to munici- be applied from 1 January 2005. There is no requirement for conver- pal plans are therefore inevitable in the long term. Together with oth- sion of fi nancial instruments for the comparative year. Valuation of er concerned parties, government and local authorities, other com- fi nancial instruments at market (fair) value has entailed an effect of panies and residents, LKAB is seeking to fi nd solutions. Discussions MSEK 1 212 as per 1 January 2005 and is reported directly against concerning the necessary measures and funding are in progress. shareholders’ equity (see Note 39). LKAB intends to assume its share of the costs. Therefore, as agre- As from 1 January 2005, the Parent Company has adopted RR 32 ements are reached or where an informal obligation exists as a result Accounting for Legal Entities. of operations, LKAB is successively allocating funds for this purpo- The Board of Directors during 2005 se (see Note 28). As a consequence of the deformation zone resul- Up until the Annual General Meeting for 2005, the Board of Directors ting from mining operations thus far in Kiruna, considerable costs for consisted of nine members elected by the Annual General Meeting, LKAB will arise during the coming years. As soon as the necessary plus three members with three deputies appointed by the employ- measures have been approved and the extent of commitments can ees. After the extraordinary meeting in September, the Board be ascertained with reasonable certainty, an allocation for costing has consisted of eight AGM-elected members. At the Annual can be made, which will be duly noted in the annual strategy pro- General Meeting, two board members, Hans Christer Olson and Carl cess (see Note 33). Wilhelm Ros, stepped down from the Board. At an extraordinary During the year, LKAB has paid MSEK 60 to the Municipality of meeting on 18 September, Anna-Greta Sjöberg was elected a mem- Gällivare for the acquisition of property for future mining in Malm- ber of the Board of Directors of LKAB. berget (see Note 13). The President is not a member of the Board. Anticipated future developmentLKAB foresees continued positive trends for all of the Group’s lines of business, both in the co- The Board of Directors’ rules of procedure ming year and in the long term. Growth is strong, mainly in Asia, Each year, the Board of Directors establishes its rules of procedure, and in countries with large populations, where infrastructural expan- essentially following the recommendation issued by the Ministry of sion, housing construction, etc., requires much steel. This means Industry, Employment and Communications. The Board held seven that LKAB is adapting to a new market situation. ordinary meetings during fi nancial year 2005. For further information concerning the company’s fi nancial results The meetings follow a set annual calendar aimed at satisfying the and status, please see the following statements of income and Board’s need for information and are otherwise governed by the spe- balance sheets with accompanying comments.

REPORT OF THE DIRECTORS 44 LKAB ANNUAL REPORT 2005 Statement of Income - LKAB Group

1 January - 31 December MSEK Note 2005 2004

1, 34 Revenue 2, 3 14 337 8 988 Cost of goods sold -7 535 -6 180

Gross proﬁ t 6 802 2 808

Selling expenses -174 -289 Administrative expenses -349 -353 Research and development expenses -159 -235 Other operating income 4 248 207 Other operating expenses 5 -259 -197

Operating income 3, 6, 7, 8, 31 6 109 1 941

Financial income 550 227 Financial expenses -208 -145 Net ﬁ nancial income/expense 9 342 82

Income before tax 6 451 2 023

Tax 11 -1 904 -456

Net income for the year 4 547 1 567

Attributable to: Parent Company shareholders 4 546 1 568 Minority interest 1 -1

4 547 1 567

Earnings per share (kronor) 26 6 494 2 240

NET SALES AND OPERATING INCOME COST STRUCTURE 2005

Group MSEK /THER 15 000 13 000 11 000 $EPRECIATION 9 000 0ERSONELL 7 000 4RANSPORT 5 000 %NERGY 3 000 1 000 -ATERIALS -1 000 98 99 00 01 02 03 04 05 Net sales Operating income

STATEMENT OF INCOME – LKAB GROUP LKAB ANNUAL REPORT 2005 45 Balance Sheet - LKAB Group

As of 31 December 2005 MSEK Note 2005 2004

1, 34 Assets 16, 32 Intangible assets 12 477 211 Tangible assets 13,14 7 928 6 316 Participations in associated companies and joint ventures 15 4 33 Financial investments 19, 30 1 327 124 Long-term receivables 21 62 62

Total ﬁ xed assets 9 798 6 746

Inventories, etc. 22 1 423 1 006 Income taxes recoverable 153 8 Receivables 23 1 846 1 194 Prepaid expenses and accrued revenues 24 69 83 Other receivables 21 194 104 Short-term investments 19, 30 4 049 2 028 Cash and bank balances 37 3 042 2 488

Total current assets 10 776 6 911

Total assets 20 574 13 657

Shareholders’ equity 25, 38, 39 Share capital 700 700 Other reserves 666 -11 Accumulated proﬁ t or loss 13 436 9 355

Shareholders’ equity attributable to Parent Company shareholders 14 802 10 044

Minority interest 4 3

Total shareholders’ equity 14 806 10 047

Liabilities Other long-term liabilities 2 2 Provisions for pensions 27, 28 1 690 1 504 Other provisions 28 303 Deferred tax liability 11 1 603 724

Total long-term liabilities 3 598 2 230

Accounts payable - trade 833 497 Income tax payable 77 168 Other liabilities 171 130 Accrued expenses and prepaid revenues 29 921 469 Provisions for pensions 27, 28 109 116 Other provisions 28 59

Total current liabilities 2 170 1 380

Total liabilities 5 768 3 610

Total shareholders’ equity and liabilities 20 574 13 657

For information concerning the Group’s assets pledged and contingent liabilities, see Note 33.

BALANCE SHEET – LKAB GROUP 46 LKAB ANNUAL REPORT 2005 Compilations of changes in shareholders’ equity - LKAB Group

Shareholders’ equity attributable to Parent Company shareholders

MSEK Retained earnings Total share- Note Share incl. proﬁ t Minority holders’ 1 capital Reserves for the year Total interest equity

Opening balance 1 January 2004 700 8 304 9 004 4 9 008 Adjustment for change in accounting principle -240 -240 -240

Adjusted shareholders’ equity 1 Jan. 2004 700 8 064 8 764 4 8 768

Change in translation reserve for the year 25 -11 4 -7 -7

Net income recognized directly in equity, excluding transactions with the Company’s owners -11 4 -7 -7 Net income for the year 1 568 1 568 -1 1 567

Net income excluding transactions with the Company’s owners -11 1 572 1 561 -1 1 560 Dividends -281 -281 -281

Shareholders’ equity 31 December 2004 700 -11 9 355 10 044 3 10 047

Shareholders’ equity attributable to Parent Company shareholders

MSEK Retained earnings Total share- Note Share incl. proﬁ t Minority holders’ 1 capital Reserves for the year Total interest equity

Opening balance 1 January 2005 700 -11 9 355 10 044 3 10 047 Adjustment for change in accounting principle 1 157 55 1 212 1 212

Adjusted shareholders’ equity 1 Jan. 2005 700 1 146 9 410 11 256 3 11 259

Change in translation reserve for the year 25 25 25 25 Change in fair value reserve for the year 25 355 355 355 Change in hedge reserve for the year 25 -860 -860 -860

Net income recognized directly in equity, excluding transactions with the Company’s owners -480 -480 -480 Net income for the year 4 546 4 546 1 4 547

Net income excluding transactions with the Company’s owners -480 4 546 4 066 1 4 067 Dividends -520 -520 -520

Shareholders’ equity 31 December 2005 700 666 13 436 14 802 4 14 806

COMPILATIONS OF CHANGES IN SHAREHOLDERS’ EQUITY – LKAB GROUP LKAB ANNUAL REPORT 2005 47 Statement of Cash Flow - LKAB Group (indirect method)

1, 37 Operating activities Income after ﬁ nancial items 6 451 2 010 Adjustments for items not included in cash ﬂ ow, etc. 1 156 1 084 Income taxes paid -1 534 -318

Cash ﬂ ow from operating activities before change in working capital 6 073 2 776

Cash ﬂ ow from changes in working capital Increase (-)/Decrease (+) in inventories -417 -32 Increase (-)/Decrease (+) in operating receivables -728 126 Increase (+)/Decrease (-) in operating liabilities 592 -15

Cash ﬂ ow from operating activities 5 520 2 855

Investing activities Acquisition of tangible assets -2 648 -965 Disposal of tangible assets 23 11 Acquisition of intangible assets -75 -22 Acquisition of shares in joint ventures -29 Disposal of ﬁ nancial assets 100 3 Short-term investments -1 846 -1 748

Cash ﬂ ow from investing activities -4 446 -2 750

Financing activities Dividends paid to Parent Company shareholders -520 -281

Cash ﬂ ow from ﬁ nancing activities -520 -281

Cash ﬂ ow for the year 554 -176

Liquid assets at start of period 2 488 2 664

Liquid assets at year-end 3 042 2 488

STATEMENT OF CASH FLOW – LKAB GROUP (INDIRECT METHOD) 48 LKAB ANNUAL REPORT 2005 Statement of Income - Parent Company

1, 34 Revenue 2, 3 12 349 7 560 Cost of goods sold -6 158 -5 234

Gross proﬁ t 6 191 2 326

Selling expenses -104 -214 Administrative expenses -249 -257 Research and development expenses -147 -220 Other operating income 4 210 162 Other operating expenses 5 -181 -128

Operating income 3, 6, 7, 8, 31 5 720 1 669

Financial items: Income from participations in Group companies 17 55 Income from participations in associated companies -5 -1 Income from other securities and receivables held as ﬁ xed assets 149 47 Other interest income and similar credits 305 182 Interest expense and similar charges -137 -83

Proﬁ t after ﬁ nacial items 9 6 049 1 869

Appropriations 10 -1 568 -173

Tax 11 -1 251 -460

NET SALES AND OPERATING INCOME DELIVERIES

Parent company -T MSEK 15 000

13 000 11 000 9 000 7 000

5 000 3 000 1 000 -1 000 98 99 00 01 02 03 04 05 Net sales Operating income

STATEMENT OF INCOME – PARENT COMPANY LKAB ANNUAL REPORT 2005 49 Balance Sheet - Parent Company

As of 31 December 2005 MSEK Note 2005-12-31 2004-12-31

1, 34 ASSETS 32 Fixed assets Intangible assets 12 119 1 Tangible assets 13 6 437 4 968 Financial assets Participations in Group companies 35 607 607 Participations in associated companies 17 1 1 Receivables from Group companies 18 373 267 Receivables from associated companies 18 35 40 Other long-term securities held as ﬁ xed assets 20, 30 110 121 Other long-term receivables 21, 30 107 77 Deferred tax asset 11 226 191

Total ﬁ nancial assets 1 459 1 304

Total ﬁ xed assets 8 015 6 273

Current assets Inventories, etc. 22 993 697 Current receivables Accounts receivable 23 1 555 936 Receivables from Group companies 904 705 Income taxes recoverable 154 - Other receivables 21 155 88 Prepaid expenses and accrued revenues 24 26 54

Total current receivables 2 794 1 783

Short-term investments 19 3 874 2 028 Cash and bank balances 37 2 936 2 392

Total current assets 10 597 6 900

Total assets 18 612 13 173

INVESTMENTS AND DEPRECIATION LIQUID ASSETS AND SHORT-TERM INVESTMENTS

MSEK -3%+ 2 500

0 98 99 00 01 02 03 04 05 Investments Depreciation

BALANCE SHEET – PARENT COMPANY 50 LKAB ANNUAL REPORT 2005 Balance Sheet - Parent Company

MSEK Note 2005-12-31 2004-12-31

SHAREHOLDERS’ EQUITY AND LIABILITIES 1, 34

Shareholders’ equity 25 Restricted equity Share capital (700,000 shares) 700 700 Statutory reserve 697 697

Non-restricted equity Accumulated proﬁ t or loss 5 241 4 792 Net income for the year 3 230 1 236

Total shareholders’ equity 9 868 7 425

Untaxed reserves 36 4 562 2 994

Provisions Provisions for pensions and similar commitments 27, 28 1 542 1 349 Other provisions 28 360

Total provisions 1 902 1 349

Long-term liabilities Liabilities to Group companies 13 13

Total long-term liabilities 13 13

Current liabilities Accounts payable - trade 647 316 Liabilities to Group companies 929 461 Current income tax liabilities 147 Other liabilities 125 97 Accrued expenses and prepaid revenues 29 566 371

Total current liabilities 2 267 1 392

Total shareholders’ equity and liabilities 18 612 13 173

Pledged assets and contingent liabilities - Parent Company

As of 31 December 2005 MSEK Note 2005-12-31 2004-12-31

Assets pledged 33 148 55

Contingent liabilities 33 452 26

BALANCE SHEET – PARENT COMPANY LKAB ANNUAL REPORT 2005 51 Compilations of changes in shareholders’ equity - Parent Company

see note 25 Restricted equity Non-restricted equity Total Statutory Accumulated Net income shareholders’ MSEK Share capital reserve proﬁ t or loss for the year equity

Opening balance 1 January 2004 700 697 5 178 6 575 Group contribution -146 -146 Tax 41 41

Net income recognized directly in equity, excluding transactions with the Company’s owners -105 -105 Net income for the year 1 236 1 236

Net income excluding transactions with the Company’s owners -105 1 236 1 131 Dividends -281 -281

Shareholders’ equity 31 December 2004 700 697 4 792 1 236 7 425

Restricted equity Non-restricted equity Total Statutory Accumulated Net income shareholders’ MSEK Share capital reserve proﬁ t or loss for the year equity

Opening balance 1 January 2005 700 697 6 028 7 425 Group contribution -371 -371 Tax 104 104

Net income recognized directly in equity, excluding transactions with the Company’s owners -267 -267 Net income for the year 3 230 3 230

Net income excluding transactions with the Company’s owners -267 3 230 2 963 Dividends -520 -520

Shareholders’ equity 31 December 2005 700 697 5 241 3 230 9 868

SOLIDITY %

COMPILATIONS OF CHANGES IN SHAREHOLDERS’ EQUITY – PARENT COMPANY 52 LKAB ANNUAL REPORT 2005 Statement of Cash Flow - Parent Company (indirect method)

1, 37 Operating activities Income after ﬁ nancial items 6 048 1 869 Adjustments for items not included in cash ﬂ ow, etc. 1 176 949 Income tax paid -1 483 -295

Cash ﬂ ow from operating activities before change in working capital 5 741 2 523

Cash ﬂ ow from changes in working capital Increase (-)/Decrease (+) of inventories -296 -5 Increase (-)/Decrease (+) in operating receivables -857 169 Increase (+)/Decrease (-) in operating liabilities 1 022 -17

Cash ﬂ ow from operating activities 5 610 2 670

Investing activities Acquisition of tangible assets -2 314 -614 Disposal of tangible assets 21 11 Change in long-term receivables -136 2 Acquisition of ﬁ nancial assets -100 Disposal of ﬁ nancial assets 100 11 Short-term investments -1 846 -1 748

Cash ﬂ ow from investing activities -4 175 -2 438

Financing activities Dividends paid -520 -281 Group contribution -371 -145

Cash ﬂ ow from ﬁ nancing activities -891 -426

Cash ﬂ ow for the year 544 -194

Liquid assets at start of period 2 392 2 586

Liquid assets at year-end 2 936 2 392

STATEMENT OF CASH FLOW – PARENT COMPANY (INDIRECT METHOD) LKAB ANNUAL REPORT 2005 53 Notes to the ﬁ nancial statements

NOTE 1 Accounting principles

(a) Conformity with norms and legislation New IFRS and interpretations that will be applied during coming The consolidated fi nancial statements have been prepared in accordance periods with International Financial Reporting Standards (IFRS), published by the As of 1 January 2006, IFRS 6 ”Exploration for and Evaluation of Mineral International Accounting Standards Board (IASB), and in accordance with Assets” applies to LKAB. For LKAB, the effect of the transition is not ex- interpretations by the International Financial Reporting Interpretations pected to entail any signifcant changes in existing accounting principles Committee (IFRIC) as approved by the European Commission for applica- with respect to exploration and evaluation expenses. tion within the EU. This annual report, together with the consolidated The change implies that, e.g., in fi nancial reports, disclosures must fi nancial statements, is the fi rst complete fi nancial report to be prepared be made concerning the amounts that arise as a result of exploration in accordance with IRFS. In the transition to reporting in accordance with and evaluation of mineral assets, the purpose of which is to facilitate un- IFRS, IFRS 1 is used, which describes how the transition to IFRS is to be derstanding of the magnitude of, point in time and probability of, future reported. In addition, Swedish Financial Accounting Standards Council revenue infl ows from each reported exploration and evaluation asset. (SFASC) recommendation RR 30 Complementary Reporting Rules for As Of 2006, a reviced IAS 19 ”Benefi ts to Employees” allows a Groups is used. further alternative for reporting actuarial gains and losses; namely, to re- The Parent Company applies the same accounting principles as cognize these directly in shareholders’ equity. The alternatives according the Group, except in the cases indicated under the section ”Parent to the earlier version IAS 19 are retained, which means that LKAB will Company’s accounting principles”. The variations between Parent continue to report pension commitments according to the same accoun- Company and Group accounting principles arise from the limitations in ting principles for 2004 and 2005. applying IFRS in the Parent Company as a result of the Swedish Annual Report Act and the Swedish Act on Safeguarding of Pension Commit- (c) Segment reporting ments, and in certain cases for tax reasons. In the accounts, a segment is an identifi able part of the Group that either Notes 38 and 39 provide a summary and explanation of how the offers products and services (lines of business), or goods or services transition to IFRS has affected the Group’s fi nancial outcome and repor- within a certain economic environment (a geographic region) that is ted cash fl ows. exposed to risks and opportunities that differ from those that apply to other segments. (b) Conditions applying to the preparation of Parent Company and Segment disclosures are reported in accordance with IAS 14 for the Group fi nancial reports Group only. The presentation currency for the Group and Parent Company is the Swedish krona, which means that fi gures in the fi nancial reports are (d) Classifi cation, etc. Swedish kronor. Unless otherwise indicated, all amounts are rounded off Fixed assets and long-term liabilities in the Parent Company and Group to the nearest million kronor. Assets and liabilities are stated at historical consist for the most part solely of amounts that are expected to be acquisition values, accept for certain fi nancial assets and liabilities that recovered or paid more than twelve months after the balance sheet are reported at fair value. Financial assets and liabilities stated at fair date. Current assets and long-term liabilities in the Parent Company and value consist of derivatives, fi nancial assets classifi ed as fi nancial assets Group consist for the most part solely of amounts that are expected to reported at fair value in the income statement, or as fi nancial assets that be recovered or paid within twelve months of the balance sheet date. can be sold. Fixed assets and disposal groups that are held for sale are reported at (e) Consolidation principles the lower of the earlier reported value and fair value after deduction for (I) Subsidiaries selling expenses. Subsidiaries are companies in which the Parent Company exercises a To present the fi nancial reports in accordance with IFRS, the manage- controlling infl uence over the operational and fi nancial management. ment must make certain estimates and assumptions that affect the app- Controlling infl uence implies a direct or indirect right to decide the lication of the accounting principles and the reported amounts pertaining company’s fi nancial and operative strategies with an aim to realizing to assets, liabilities, revenue and expenses. The estimates are based on economic advantages. When assessing whether a decisive, controlling historical experience and several other factors that are deemed reaso- infl uence exists, potential shares with voting rights that can be utilized nable under the prevailing circumstances. The result of such estimates without delay shall be taken into account. and assumptions is then used to assess the reported value of assets and Subsidiaries are reported according to the purchase method. The liabilities that cannot clearly be determined from other sources. Actual acquisition of a subsidiary is considered a transaction through which the outcomes may differ from these estimates and assumptions. Group indirectly acquires the subsidiary’s assets and assumes its liabi- The estimates and assumptions are regularly reviewed. Changes in lities and contingent liabilities. The analysis establishes the acquisition estimates are reported in the period in which the change is made if the value of the shares or business, and the fair value of acquired identifi able change affects only that period, or in the period in which the change assets and assumed liabilities and contingent liabilities. The acquisition is made and future periods if the change affects both the current and value of subsidiaries’ shares or business comprises the fair values as future periods. per date of transfer of the assets, accrued or assumed liabilities and The Group accounting principles listed below have been consistently emitted equity instruments given in payment for the acquired net assets applied to all periods presented in the Group’s fi nancial reports, unless and transaction costs that are directly attributable to the acquisition. otherwise stated below, and in preparing the Group’s balance sheet as Where the acquisition cost exceeds the net value of acquired assets, of 1 January 2004, which explains the transition from previously applied assumed liabilities and contingent liabilities, the difference is reported as accounting principles to IFRS. Group accounting principles have been goodwill. If the acquisition value is less than the fair value of the acquired consistently applied to the accounts and consolidation of subsidiaries, company’s net assets, the difference is reported directly in the income associated companies and joint venture companies. statement. The subsidiary’s fi nancial reports are included in the consolidated Changed accounting principles accounts as of the date of acquisition and are excluded from the consoli- For the Group, the transition to reporting in accordance with IFRS is pre- dated accounts as of the date the decisive infl uence no longer exists. sented according to IFRS 1 and is described in Note 38. In accordance with voluntary exceptions in IFRS 1, IAS 39 is not applied to the compa- (II) Associated companies rative fi gures for 2004, but is applied prospectively from 1 January 2005. Associated companies are companies in which the Group has a signifi - Application of IAS 39 has had a net effect on shareholders’ equity of cant, but not controlling, infl uence in the operational and fi nancial mana- MSEK 1 212 Mkr per 1 January 2005. The effect of IAS 39 in the income gement, generally through a holding of 20-50% of the voting rights. From statement during 2005 amounts to MSEK 101. For the comparative the point in time at which the signifi cant infl uence is acquired, the inte- year 2004, the same accounting principles are applied with respect to rest in the associated company is reported in the consolidated accounts fi nancial instruments as for the Parent Company. according to the equity method. According to this method, the value of

NOTES TO THE FINANCIAL STATEMENTS 54 LKAB ANNUAL REPORT 2005 the shares in the associated companies reported in the consolidated ac- Differences that arise when translating currency in foreign entities are counts corresponds to the Group’s interest in the associated companies’ reported immediately in shareholders’ equity as a translation reserve. stockholders’ equity, the consolidated goodwill, and other residual values Before currency translation of fi nancial reports in foreign entities in that might exist in the consolidated fair value adjustments. In the Group countries with hyperinfl ation, the fi nancial reports are adjusted with the income statement, the Group’s share in the associated companies’ help of a reliable infl ation index. This is done to take into account chan- net earnings after tax and minority interest adjusted for depreciation, ges in purchasing power in the company’s functional currency, which is write-downs and resolution of acquired fair value adjustments is reported normally the local currency. Only the fi nancial reports for the reported under ’Participations in associated companies’. Dividends obtained from fi scal year in question are adjusted with the help of an infl ation index. the associated company reduce the reported value of the investment. On acquisition, any differences between the acquisition value of the (III) Net investment in a foreign entity holding and the owner’s share of the net fair value of the associated The differences that occur in connection with translating a foreign net company’s identifi able assets, liabilities and contingent liabilities are investment and the related effects of hedging net investments are repor- reported in accordance with IFRS 3, Business Combinations. ted directly in the translation reserve in shareholders’ equity. On disposal When the Group’s share of reported losses in the associated com- of a foreign entity, the cumulative translation difference relating to the pany exceeds the reported value of the shares in the Group, the value entity, after deductions for currency hedges, where applicable, is realized of the shares is reduced to zero. Deductions for losses are also made in the Group’s income statement. against unsecured long-term fi nancial transactions, which in their econo- The cumulative translation differences for foreign entities are presen- mic substance constitute part of the owning company’s net investment ted as a separate capital category and include the translation differences in the associated company. Further losses are not reported unless the accumulated as of 1 January 2004. Accumluated translation differences Group has undertaken to cover losses arising in the associated company. prior to 1 January 2004 are distributed over other separate capital catego- The equity method is applied until the signifi cant infl uence ceases to ries and are not disclosed. exist. (g) Revenue recognition (III) Joint ventures (I) Sale of goods and rendering of services For accounting purposes, joint ventures are companies in which the Revenue from the sale of goods is reported in the income statement Group has entered into collaboration agreements with one or several when signifi cant risks or benefi ts associated with ownership of the parties to share a controlling interest in their operational and fi nancial goods has been transferred to the buyer. Revenue from the rendering management. In the consolidated accounts, holdings in joint ventures of services is reported in the income statement based on the degree of are reported according to the principle of proportional consolidation. This completion as per the balance sheet date. The degree of completion is method implies that the Group’s share of the joint venture’s assets, lia- measured via evaluation of work performed on the basis of completed bilities, revenue and expenses, is reported in the Group’s balance sheet surveys. Revenue is not recognized if it is probable that future economic and income statement. To do so, the joint owner’s share of assets, liabi- benefi t will not accrue to the Group. If there is considerable uncertainty lities, revenue and expenses in a joint venture is combined item-by-item as to payment, associated costs or risk of returns, and if the seller re- with corresponding items in the joint owner’s consolidated accounts. tains the controlling interest that is normally associated with ownership, Only shareholders’ equity accruing after acquisition is reported in the no revenue is recognized. Group’s shareholders’ equity. The proportional consolidation principle is applied from the point in time at which the joint controlling infl uence is (II) Revenue from the sale of property obtained until it ceases to exist. Unless the risks and benefi ts associated with ownership have been transferred to the buyer on an earlier date, revenue from the sale of (iv) Transactions to be eliminated on consolidation property is normally recognized on the date on which posession is taken. Intra-group receivables and payables, revenue or expenses, and un- Control over the asset may have been transferred at a point in time prior realized profi ts or losses arising from intra-group transactions between to the date when possession was taken; in which case, revenue from subsidiaries are eliminated in their entirety when the consolidated sale of the property is recognized on this earlier date. When establishing accounts are prepared. the date of revenue recognition, consideration is given to what has been Unrealized profi ts arising from transactions with associated com- agreed by the parties concerning risks and benefi ts, and controlling inte- panies and jointly controlled companies are eliminated to an extent rest in the management of the asset. In addition, consideration is given corresponding to the Group’s share of the ownership of the company. to circumstances beyond the control of the seller and/or buyer that may Unrealized losses are eliminated in a similar fashion to unrealized profi ts, affect the outcome of the sale of the property. but only if there is no indication that a write-down is required. (III) Rental income (f) Foreign currencies Rental incomes from investment properties are reported in a linear man- (I) Transactions in foreign currencies ner in the income statement, based on the terms of the lease. Foreign currency transactions are translated to the functional currency at the exchange rate applying on the transaction day. Functional currency (IV) Government grants is the currency in the primary economic environments in which the Government grants are recognized on the balance sheet as deferred companies operate. In the assessment of the Group Management, in income when there is a reasonable assurance of compliance with condi- compliance with IAS 21, the Swedish krona is the functional currency for tions attached to the grants and that the grants will be received. Grants the Swedish operations. Monetary assets and liabilities in foreign cur- are periodized systematically; i.e., recognized in the same way and rency are translated to the functional currency at the rate prevailing on during the period in which the costs that the grants are intended to cover the balance sheet date. Exchange rate differences resulting from trans- are reported. Government grants related to assets are recognized on the lations are reported in the income statement. Non-monetary assets and balance sheet as a reduction in the reported value of the assets. liabilities reported at their historical acquisition value are translated at the exchange rate applying on the transaction day. Non-monetary assets and (h) Operating expenses and fi nancial income/expenses liabilities reported at fair value are translated to the functional currency (I) Costs associated with operating leases at the rate applying at the time the fair value was established. Exchange Costs associated with operating leases are recognized in the income rate fl uctuations are reported in the same way as other changes in value statement on a straight-line method over the term of the lease. Benefi ts in respect of assets or liabilities. received upon entering a leasing agreement are recognized in the income statement on a straight-line method over the term of the lease. (II) Financial reports in foreign entities Assets and liabilities in foreign entities, including goodwill and other fair (II) Finance leases value consolidation adjustments, are translated from the functional cur- Minimum lease payments are allocated to interest expenses and rency to Swedish kronor at the rate applying on the balance sheet date. amortization of the outstanding liability. Interest expenses are distributed Revenue and expenses in foreign entities are translated to Swedish over the period of the lease, so that each accounting period is charged kronor at the average rate that constitutes an approximation of the with an amount corresponding to a fi xed rate of interest for the liability rates applying when the transaction occurred. Revenue and expenses reported in the respective period. Variable fees are expensed in the in foreign entities in countries with hyperinfl ation are translated to the period in which they arise. functional currency at the rate applying on the balance sheet date.

NOTES TO THE FINANCIAL STATEMENTS LKAB ANNUAL REPORT 2005 55 (III) Financial revenue and expenses Loans and receivables Financial revenue and expenses include interest revenue from bank Loans and receivable are non-derivative fi nancial assets with fi xed assets, receivables and interest-bearing securities, interest expenses payments or determinable payments, which are not quoted on an active related to loans, exchange rate differences, unrealized and realized gains market. Receivables arise when companies provide money, goods or on fi nancial investments, and derivative instruments used in fi nancial services directly to the borrower without intent to trade in receivables. operations. The category also includes acquired receivables. Assets in this category Interest revenue from receivables and interest expenses related to are valued at the accrued acquisition value. Accrued acquisition value is liabilities are estimated using the effective interest method. The effective determined based on the effective rate of interest calculated on acquisi- interest is the rate that ensures that the present value of all future re- tion. ceipts or payments through the expected life of a fi nancial instrument is the same as the reported value of the receivable or payable. The interest Held-to-maturity investments element of fi nancial leasing payments is reported in the income state- Held-to-maturity investments are fi nancial assets with fi xed or determi- ment by using the effective interest method. Interest revenue includes nable payment fl ows, with a fi xed term, and which a company intends periodized amounts of transaction expenses and discounts, premiums and is able to hold to maturity. Assets in this category are valued at the and other variations between the original value of the receivable and the accrued acquisition value. Accrued acquisition value is determined based amount received on maturity. on the effective rate of interest calculated on acquisition. This means Dividend income is recognized as revenue when the right to obtain that fair value adjustments and direct transaction expenses are periodi- payment is certain. zed over the term of the instrument. The Group and Parent Company do not include capitalized interest in the acquisition value of assets. Available-for-sales assets/assets held for sale The available-for-sale category includes fi nancial assets that are not clas- (i) Financial instruments sifi ed in any other category or fi nancial assets that the company initially Financial instruments are valuated and reported in the Group’s accounts classifi ed in this category. Assets in this category are valued continuously as of 1 January 2005 in accordance with the rules specifi ed in IAS 39 at fair value, with changes in value reported against shareholders’ equity. without retroactive application to the comparative year. When the investments are derecognized from the balance sheet, the Financial instruments reported as assets on the balance sheet previously reported accumulated gain or loss in shareholders’ equity is include, on the assets side, liquid assets, accounts receivable, shares restored to the income statement. and other equity instruments, credit claims and bond premiums, and derivatives. Liabilities and shareholders’ equity include accounts payable, Other fi nancial liabilities borrowing and derivatives. Financial liabilities not held for trading are valued at their accrued Financial instruments are initially recognized at cost which cor- acquisition value. Accrued acquisition value is determined based on the responds to the instrument’s fair value plus transaction costs for all effective rate of interest calculated when the liability was recognized. instruments except those classifi ed as fi nancial assets, which are Consequently, fair value adjustments and direct issue expenses are recognized at fair value in the income statement. The way in which they periodized over the term of the liability. are recognized depends on how the fi nancial instruments are classifi ed, as described below. Derivatives used in hedge accounting A fi nancial asset or fi nancial liability is entered on the balance sheet All derivatives are recognized at fair value on the balance sheet. Changes when the company becomes engaged by contract. Accounts receivable in fair value are recognized in the income statement when the fair value are entered on the balance sheet when an invoice has been issued. Lia- is hedged. When net investments in foreign currencies are hedged, bilities are entered when the counterparty has performed and the agreed changes in the fair value are recognized in equity until the hedged item liability is due for payment, even if an invoice has not yet been received. is recognized in the income statement. Hedge accounting is described Accounts payable are entered when an invoice is received. in detail below. A fi nancial asset is removed from the balance sheet when the rights in the agreement are realized, expire or the company loses control over Liquid assets them. The same applies for a portion of a fi nancial asset. A fi nancial Liquid assets are cash and immediately available credit in banks and liability is removed from the balance sheet when the undertakings in the similar institutions, and current investments with a maturity of less than agreement have been fulfi lled or extinguished. The same applies for a three months from acquisition that are exposed to only very marginal risk portion of a fi nancial liability. for fl uctuations in value. Acquisition and disposal of fi nancial assets is recognized on the trade day, i.e., the day upon which the company undertakes to acquire or Financial investments dispose of the asset. Financial investments are either fi nancial fi xed assets or current invest- For listed fi nancial assets, fair values correspond to the asset’s buying ments depending on why they are held. If the term or the expected rate on the balance sheet date. Fair value of non-listed fi nacial assets is period for which they are held is longer than one year, they are fi nancial determined by means of valuation and measurement concepts such as fi xed assets; if they are to be held for less than one year, they are current comparison with recent transactions, prices of similar instruments, and investments. discounted cash fl ow. Financial investments consisting of shares belong either to the On each reporting occasion, the company assesses whether there category of fi nancial assets valued at fair value through the income are objective indications that a fi nancial asset or group of fi nancial assets statement or available-for-sale fi nancial assets. needs to be written down. If a write-down is required for an asset in the Interest-bearing securities acquired with the intention of being held category available-for-sale assets, the previously reported accumulated until maturity are classifi ed as held-to-maturity investments and are depreciation recognized against shareholders’ equity is restored to the valuated at accrued acquisition value. Interest-bearing securities not income statement. acquired with the intention of being held until maturity are classifi ed IAS 39 classifi es fi nancial instruments in categories. Classifi cation as fi nancial assets recognized at fair value in the income statement or depends on the intention underlying the acquisition of the fi nancial available-for-sale fi nancial assets. instrument. Corporate management determines the classifi cation on On fair value valuation through the income statement, the change in acquisition. The categories are as follows: value is reported in net fi nancial items.

Financial assets recognized at fair value in the income statement Long-term receivables and other receivables This category consists of two sub-groups: fi nancial assets held for Long-term receivables and other current receivables arise when the com- trading and other fi nancial assets that the company initially decided to pany provides money directly to the borrower without intent to trade in invest in this category. A fi nancial asset is classifi ed as held for trading receivables. If they are expected to be held for longer than one year, they if the intention is to sell it in the short term. Derivatives are classifi ed as are deemed long-term receivables, and if they are expected to be held held for trading, except when they are used in hedge accounting. Assets for less than one year, they are categorized as other receivables. Such in this category are measured at fair value and changes in fair value are receivables are categorized under ’Loans and receivables’. recognized in the income statement. Accounts receivable Accounts receivable are classed as ’Loans and receivables’. Accounts

NOTES TO THE FINANCIAL STATEMENTS 56 LKAB ANNUAL REPORT 2005 receivable are reported in the amount at which they are expected to be criteria for hedge accounting before the hedged transaction occurs and received, less a deduction for bad debts, which are assessed individually. the forecasted transaction is still expected to occur, cumulative gains or The anticipated duration of accounts receivable is short, which is why loss on the hedging reserve recognized in equity is retained there until the value is reported at nominal amount without discounting. Write- the forecasted transaction occurs. downs of accounts receivable are reported in operating expenses. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized is transferred to the income statement, Liabilities according to the principles for derivative instruments described above. Liabilities are classifi ed as other fi nancial liabilities, which means that they are initially reported as the amount received after deductions for (k) Tangible assets and investment properties transaction expenses. After acquisition, the loans are valued at the (I) Owned assets accrued acquisition value according to the effective rate method. Long- Tangible assets are reported as assets on the balance sheet if it is likely term liabilities have an expected term of longer than one year, whereas that future fi nancial benefi ts will accrue to the company and the acquisi- current liabilities are expected to mature in less than one year. tion value of the asset can be calculated in a reliable manner. Tangible assets are reported in the Group accounts at acquisition va- Accounts payable lue after deductions for accumulated depreciation according to plan and Accounts payable are classifi ed as other fi nancial liabilities. Accounts any write-downs. The acquisition value includes the purchase price and payable have a short expected term and are valued without discount at expenses directly pertaining to the asset, such as the costs associated nominal value. with delivery and installation of the asset such that it can be utilized to fulfi ll the purpose of the acquisition. Such costs include cost of delivery (j) Derivatives and hedge accounting and handling, installation, title deeds, consulting services and legal servi- Derivative instruments consist of forward exchange contracts, options ces. Borrowing costs are not included in the acquisition value of tangible and swaps that are used to cover risks for fl uctuations in exchange assets produced by the company. rates. Fluctuations in fair value of derivative instruments are reported The acquisition value of tangible assets produced by the company on the balance sheet based on the intention of the holding. In hedge includes costs of material, payroll expenses, other fabrication costs di- accounting, the derivative’s accumulated change in value is transferred rectly attributable to the tangible asset, if applicable, and estimated costs to the income statement, where it meets and matches the effects of the of disassembly and removal of the assets and remediation of the site or hedged transaction. Even if hedge accounting is not applied, increases area in which it has been used. or decreases in the value of the derivative are reported as income or Tangible assets whose parts differ with respect to useful life are expense, respectively, within the operating profi t/loss or net fi nancial treated as separate components of tangible assets. income/expense, based on the intended use of the derivative instrument The reported value of a tangible asset is struck from the balance and whether that use relates to an operating item or to a fi nancial item. sheet when the asset is retired or disposed of or when no future econo- In hedge accounting, the ineffective part is reported in the same way mic value is expected to accrue from the use or retirement/disposal of as fl uctuations in the value of derivatives that are not used in hedge it. Gain or loss arising from the disposal or retirement of an asset is the accounting. difference between the selling price and the asset’s reported value with To comply with IAS 39 requirements concerning hedge accounting, deductions for direct selling expenses. Gain or loss is reported as other there must be a clear link between the hedging instrument and the operating income/expense. corresponding hedged item. Furthermore, the hedging instrument must effectively protect the hedged item, hedging must be documented and (II) Underground installations the effectiveness must be measurable. Hedging gains and losses are Installations underground, from which iron ore is extracted, can be clas- reported in the income statement at the same point in time as gains and sed as installations for waste rock mining and installations for iron ore losses for the corresponding hedged items are reported. mining. Waste rock mining consists of work done to expose the orebody In cases where the requirements for hedge accounting can no longer in connection with the construction of a main haulage level, construc- be fulfi lled, the derivative instrument is recognized at fair value with tion pertaining to transport and maintenance functions such as railways, fl uctuations in value via the income statement, according to the principle roads, tunnels, shafts, inclined drifts (a system of access for vehicle above. traffi c from surface level to the work site underground), and facilities for service and electrical and air supply. These expenses, referring to Receivables and liabilities in foreign currencies plant that intended to be used for more than a year, are activated on the To hedge assets or liabilities against currency risk, forward exchange balance sheet. The average useful life of this category of tangible assets contracts are used. For these hedges, no hedge accounting is required, is 12 years. since both the hedged item and the hedging instrument are valuated at Iron ore mining consists mainly of activities including development, fair value with fl uctuations in value recognized over the income state- cave drilling and loading. Expenses for these activities have a useful life ment with respect to exchange rate differences. Changes in value with of at most one year, which is why they are expensed on a current basis. respect to operating-related receivables and liabilities are recognized in operating profi t/loss, while changes in value with respect to fi nancial (III) Investment properties receivables and liabilities are recognized in net fi nancial income/expense. Investment properties are properties held for the purpose of receiving rental revenues or realizing appreciation in value, or a combination of the Transaction exposure - cash fl ow hedges two. Investment properties are reported according to the same principles Currency exposure with respect to future forecast fl ows is hedged as tangible assets. Concerning fair value of investment properties, see either via forward exchange contracts or currency options. Forward Note 14. exchange contracts or currency options that protect the forecast fl ow Rental income and income from the sale of property is reported are to be recognized at fair value on the balance sheet. Changes in value according to the principles described under the section on revenue are reported in a hedging reserve directly against shareholders’ equity recognition. until the hedged fl ow is reported on the balance sheet, whereby the hedging instrument’s accumulated change in value is transferred to the (IV) Leased assets income statement, where it meets and matches the profi t/loss effects The LKAB Group applies IAS 17. Leases are classifi ed in the consolidated of the hedged transaction. The hedged fl ows can be either contracted or accounts as either fi nance leases or operating leases. A lease that trans- forecast transactions. fers substantially all the risks and rewards of ownership to the lessee is When the hedged future cash fl ow refers to a transaction that is classifi ed as a fi nance lease. All other leases are normally classifi ed as capitalized on the balance sheet, the hedging reserve is dissolved when operating leases. the hedged item is reported on the balance sheet. If the hedged item Assets leased under fi nance lease contracts have been reported as is a non-fi nancial asset or a non-fi nancial liability, the dissolved hedging assets on the Group’s balance sheet. Commitments for future rental reserve is included in the original acquisition value of the asset or liability. payments have been reported as long-term and current liabilities. The If the hedged item is a non-fi nancial asset or a non-fi nancial liability, the leased assets are depreciated according to plan, while rental payments hedging reserve is dissolved successively against the income statement are reported as interest and amortization on liabilities. at the same rate at which the hedged item effects the profi t/loss. Operating leasing entails that rental payments are expensed over the When a hedging instrument expires, is sold or no longer qualifi es as a entire period starting with the initial use of the asset, which may differ hedge, or when the company deems that a hedge no longer meets the from what is in fact paid in rent over the course of a year.

NOTES TO THE FINANCIAL STATEMENTS LKAB ANNUAL REPORT 2005 57 Assets leased out under fi nance leases are not recognized as tangible (II) Research and development assets, since the risks associated with ownership are transferred to Expenditures for research aimed at acquiring new scientifi c or technical the lessee. Instead, future minimum rental payments are booked as a knowledge are expensed in the period in which they are incurred. fi nancial receivable. Development expenditures, i.e., expenses for research of which the results or other knowledge is applied to realize new or improved (V) Additional expenditures products or processes, are recognized as an asset on the balance sheet Additional expenditures are added to the acquisition value if it is probable if the product or process is technically and commercially viable and the that future economic benefi t associated with the asset will accrue to the company has suffi cient resources to complete the development and sub- company, and if he acquisition value can be calculated in a reliable way. sequently use or sell the intangible asset. The reported value includes All other additional expenditures are expensed in the period in which expenditures for material, direct payroll expenses or other indirect expen- they arise. ses that are reasonably and consistently attributable to the asset. Other Whether additional expenditures are added to the acquisition value is expenditures for development are reported in the income statement as decided on the basis of whether the expenditure refers to replacement expenses in the period in which they are incurred. On the balance sheet, of identifi ed components of the asset, or parts thereof, whereupon reported development costs are recognized at their acquisition value less such expenditures are capitalized. In cases where a new component is accumulated amortization and write-downs. created, the expenditure is also added to the acquisition value. Any unde- Expenditures for survey/exploration work conducted underground are preciated reported values on replaced components, or parts thereof, are expensed when they are incurred. retired and expensed in connection with the replacement. Repairs are expensed on a current basis. (III) Other intangible assets Other intangible assets that have been acquired by the Group are (VI) Depreciation principles recognized at their acquisition value less accumulated amortization (see The assets are depreciated on a straight-line basis over useful life. Land below) and write-downs. is not depreciated. The Group applies component depreciation, whereby the estimated useful life of the component constitutes the basis for (IV) Additional expenditures depreciation. Additional expenditures for capitalized intangible assets are recognized Estimated useful life: as an asset on the balance sheet only when they increase the future economic benefi ts for the specifi c asset to which they pertain. All other - operating properties, investment properties, 15 - 100 years expenditures are expensed as they arise. - machinery and other technical plant 5 - 20 years - inventories, tools and installations 5 - 20 years (V) Emissions rights - underground installations (average) 12 years In January 2005, LKAB received carbon-dioxide emissions rights for the years 2005 - 2007. LKAB reports allocated emissions rights as intangible Operating properties are classifi ed mainly as buildings, land improve- assets and these are valuated at the lowest of either the acquisition ments and land. Buildings and land improvements consist of several value or market (fair) value. The corresponding value is included in Provi- components that are classifi ed on the basis of function; e.g., roads, sions and Other liabilities. Settlement is made annually and any defi cit is surfacing, service facilities, processing plants, etc. reported as accrued expense. Investment properties consist of several components that differ with respect to useful life. The main classifi cations are buildings and land. The (VI) Amortization land component is not depreciated, since its useful life is considered Amortizations are reported in the income statement straight-line across to be unlimited. Buildings, however, consist of several components of the estimated useful life of the intangible assets, provided such useful varying useful life. The useful life of these components ranges from 15 life can be determined. Goodwill and intangible assets with indetermi- to 100 years. nate useful life are assessed for write-down requirement, either annually The following main groups of components have been identifi ed and or as soon as there are indications that the value of the asset in question are the basis for depreciation of investment properties. has diminished. Depreciable intangible assets are written off from the date upon which they are available for use. The estimated periods of - Framework, foundation and interior walls 100 years useful life are: - Water, sewage, electrical and heating systems 50 years - Facade 40 years - Mining rights 30 - 50 years - Windows 50 years - Tenancy right 10 years - Interior fi nishing and appliances 15 years (m) Inventories, etc. Machines and other technical plant consist of several components with Inventories are valuated at the lower of acquisition value or net realizable varying useful life. The useful life of these components ranges from 5 to value/net selling price. Net selling price is the estimated selling price 20 years. (realizable value) in current operations, after deductions for estimated Residual value and useful life are assessed annually. costs of completion and for realizing a sale. In the case of manufactured and semi-manufactured inventories, cost (l) Intangible assets consists of direct manufacturing costs and a reasonable portion of indi- (I) Goodwill rect costs. Normal capacity utilization is taken into account in valuation. Goodwill represents the difference between the acquisition value of a Acquisition value of other inventories is calculated on the basis of business acquisition and the fair value of the acquired assets, assumed the fi rst-in, fi rst-out (FIFO) method and includes costs arising from the liabilities and contingent liabilities. acquisition of the inventory assets and transport of them to their current In respect of acquisitions occurring before 1 January 2004, after location. In the case of manufactured goods and work in progress, amortization requirements are assessed, goodwill is recognized at acquisition value includes a reasonable portion of indirect costs based on an acquisition value corresponding to the value reported according to normal capacity. accounting principles applied earlier. Classifi cation and reporting of business acquisitions made prior to 1 January 2004 have not been reas- (n) Write-downs sessed according to IFRS 3 when preparing the Group’s opening balance Reported values for the Group’s assets - with the exception of invest- per 1 January 2004 according to IFRS (see Note 38). ment properties, inventories, plan assets used for fi nancing or remunera- Goodwill is valued at the acquisition value less any accumulated write- tion to employees and deferred tax assets - are checked on each balance downs. Goodwill is broken down into cash-generating units and is not sheet date to ascertain whether any write-down need is indicated. If a amortized, but is instead tested annually for impairment. Goodwill arising need for write-down is indicated, the recoverable value of the asset is from the acquisition of associated companies is included in the reported calculated. For the exceptional assets mentioned above, assessment is value of participations in associated companies. done according to the respective standard. Where the acquisition cost is less than the net value of acquired For goodwill and other intangible assets with indeterminate useful assets, assumed liabilities and contingent liabilities, the difference is life, and intangible assets that are not yet ready for use, the recoverable reported directly in the income statement. amount is calculated annually.

NOTES TO THE FINANCIAL STATEMENTS 58 LKAB ANNUAL REPORT 2005 If largely independent cash fl ows attributable to a single asset cannot All actuarial gains and losses as of 1 January 2004, the date of transi- be ascertained, when the write-down requirement is assessed, assets tion to IFRS, have been reported. For actuarial gains and losses that will be grouped at the lowest level at which largely independent cash arise from the calculation of the Group’s obligations for different plans fl ows can be identifi ed (a so-called cash-generating unit). A write-down is after 1 January 2004, the so-called corridor rule is applied. This means reported when an asset or cash-generating unit’s reported value exceeds that the portion of the cumulative actuarial gains and losses exceeding its recoverable value. A write-down is charged to the income statement. 10 percent of the higher of the commitments’ present value and the fair Write-down of assets attributable to a cash-generating unit (group of value of plan assets is recognized over the expected average remaining units) is fi rst allocated to goodwill. Subsequently, a proportionate write- period of employment of the employees covered by the plan. Actuarial down of other assets in the unit (group of units) is done. gains and losses otherwise are not taken into account. Goodwill and was assessed for write-down requirement as of 1 When the calculation leads to an asset, the carrying amount is limited January 2004 (date of transition to IFRS), even though there was at that to the lesser of the estimated asset and sum of unrecognized actuarial time no apparent indication of a need for write-down. losses and unrecognized costs associated with employment in previous When impairment in fair value of fi nancial assets that can be sold has periods as well as the present value of future repayments from the plan previously been reported directly against shareholders’ equity and there or reduced future payments to the plan. is objective evidence that there is need for a write-down, the accumula- When there is a difference in how the pension cost is determined for ted loss that is booked in shareholders’ equity is to be transferred to the a legal entity and the Group, a provision or receivable for the special income statement. The impairment that is reported in the income state- employer’s contribution arises based on this difference. No present-value ment is the difference between the acquisition value and the current fair computation for the provision or receivable is made. value, with deductions for any previous expensed write-downs. (III) Other long-term employee benefi ts (I) Calculation of recoverable amount The Group’s net obligation for other long-term compensation, besides The recoverable amount of assets belonging to the categories held-to- pensions, corresponds to the value of future compensation earned by maturity securities and loan receivables and accounts receivable, which employees as remuneration for the services they have performed during are reported at amortized cost, is calculated as the present value of the present period and previous periods. The obligation is calculated ac- expected future cash fl ows, discounted at the original effective interest cording to the so-called projected unit credit method and is discounted to rate (i.e., the effective interest rate computed at initial recognition present value and the fair value of plan assets is deducted. The discount of these fi nancial assets). Receivables with a short duration are not rate is the interest rate on the closing day for a fi rst-class corporate bond discounted. with a maturity corresponding to the term of the obligations. When there The recoverable amount of other assets is the greater of their fair is no active market for such corporate bonds, the market interest rate on value minus selling expenses and value in use. In assessing value in government bonds with a similar maturity is used instead. use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects risk-free interest and the (IV) Severance risks specifi c to the asset. For an asset that does not generate largely A provision is recognized in connection with termination of personnel independent cash infl ows, the recoverable amount is determined for the only if the company is obligated to terminate an employment before the cash-generating unit to which the asset belongs. customary time, e.g., when compensation is paid in connection with a voluntary termination offer. In cases where the company terminates (II) Reversal of write-downs personnel, a detailed plan is drafted containing at the minimum the work- Write-downs in respect of a held-to-maturity securities or loan recei- places, positions and approximate number of individuals affected as well vables and accounts receivable, which are reported at amortized cost, as compensation for each personnel category or position and a schedule are reversed if the subsequent increase in recoverable amount can for the plan’s implementation. be related objectively to an event occurring after the write-down was recognized. (q) Provisions Write-downs in respect of goodwill are not reversed. A provision is recognized on the balance sheet when the Group has a In respect of other assets, write-downs are reversed if there has been legal or informal obligation owing to an event that has occurred and it is a change in the estimates used to determine the recoverable amount. likely that an outfl ow of economic resources will be required to settle the A write-down is reversed only to the extent that the asset’s carrying obligation and a reliable estimate of the amount can be made. Where it amount does not exceed the carrying amount that would have been is important when in time payment will be made, provisions are estima- determined, net of depreciation or amortization, if no write-down had ted by discounting the forecast future cash fl ow at a pre-tax interest rate been recognized. that refl ects current market estimates of the time value of money and, where appropriate, the risks associated with the liability. (o) Shareholders’ equity (I) Dividends (I) Restructuring Dividends are recognized as a liability after they have been approved by A provision for restructuring is recognized when a detailed, formal the Annual General Meeting. restructuring plan has been established and the restructuring has either begun or been publicly announced. No provision is made for future (p) Employee benefi ts operating losses. (I) Defi ned-contribution plans For defi ned-contribution plans, costs are expensed in the income state- (II) Remediation of contaminated land ment as the contributions are paid in. In accordance with the Group’s publicly announced environmental principles and applicable legal requirements, provisions for soil and land (II) Defi ned-benefi t plans remediation are recognized when the land/soil has been contaminated. The Group’s net obligation for defi ned benefi t plans is calculated separa- Financial guarantees may have to be provided to cover possible remedia- tely for each plan by estimating the future compensation that employees tion costs. have earned through employment in present and previous periods. This compensation is discounted to present value and the fair value of plan (r) Taxes assets is deducted.. The discount rate is the interest rate on the closing Income taxes consist of current tax and deferred tax. Income taxes are day for a fi rst-class corporate bond with a maturity corresponding to the recognized in the income statement unless the underlying transaction is Group’s pension obligations. When there is no active market for such recognized directly in shareholders’ equity, in which case the related tax corporate bonds, the market interest rate on government bonds with a effect is also recognized in shareholders’ equity. similar maturity is used instead. The calculation is made by a qualifi ed Current tax is the tax paid or received for the current year, applying actuary using the projected unit credit method. the tax rates that have been set or essentially set as of the closing day When the compensation in a plan improves, the portion of the to taxable income and adjusting for current tax attributable to previous increased compensation attributable to the employees’ services in previ- periods. ous periods is expensed through the income statement on a straight-line Deferred tax is calculated according to the balance sheet method ba- basis over the average period until the compensation is fully vested. sed on temporary differences between the carrying value of assets and If the compensation is fully vested, an expense is recognized directly liabilities and their value for tax purposes. The following temporary dif- through the income statement. ferences are not taken into account: temporary differences arising when

NOTES TO THE FINANCIAL STATEMENTS LKAB ANNUAL REPORT 2005 59 goodwill is fi rst reported; the initial reporting of assets and liabilities in However, what has been written above in respect of fi nancial instru- a transaction other than a business combination and which, at the time ments also applies to the Parent Company. Financial fi xed assets are of the transaction, do not affect either the recognized or taxable result; valued in the Parent Company at acquisition value less write-down, temporary differences pertaining to shares in subsidiaries and associated where applicable, and fi nancial current assets are valued at the lower of companies that are not expected to be reversed in the foreseeable cost or net realizable value. future. The valuation of deferred tax is based on how reported values of assets and liabilities are expected to be realized or paid. Deferred tax Derivatives and hedge accounting is calculated by applying the tax rates and tax legislation that has been Currency exposure with respect to future forecasted fl ows is hedged determined, or in practice determined, on the balance sheet date. either via forward exchange contracts or currency options. Forward ex- Deferred tax assets from deductible temporary differences and tax change contracts or currency options that protect the forecasted fl ow are loss carryforwards are only recognized to the extent it is likely that they not reported on the balance sheet. Changes in value in forward contracts will be utilized. The value of deferred tax assets is reduced when it is no are reported in the same period as the forecasted fl ow occurs. Since at longer considered likely that they can be utilized. most 80% of the forecasted fl ow is hedged, no ineffi ciencies that should Any additional income tax arising on dividends is reported at the same be taken to income arise. Forecasted fl ows can be either invoiced or time as the dividend is reported as a liability. forecasted transactions. The hedged volume in US dollars is matched against the estimated (s) Contingent liabilities net infl ow of US dollars. If the hedged volume exceeds the value of A contingent liability is reported if there is a possible commitment the expected net infl ow and there is an unrealized exchange loss, it is stemming from events whose occurrence is dependent on one or more recognized as a fi nancial expense. If there is an unrealized exchange uncertain future events as well as when there is a commitment that gain, it is not reported. is not recognized as a liability or provision because it is unlikely that an Other hedging is normally in GBP and EUR. These currencies can outfl ow of resources will be required. be tied to special orders concerning the purchase and sale of industrial minerals. Accrual of forward exchange discounts and premiums is done in ac- THE PARENT COMPANY’S ACCOUNTING PRINCIPLES cordance with recommendation No. 7 of the Swedish Accounting Stan- The Parent Company complies with the Swedish Annual Accounts Act dards Board. The difference between the average exchange rate and the (1995:1554) and SFASC recommendation RR 32 Reporting for Legal year-end rate on forward exchange contracts entered into is reported as Entities. RR 32 entails that the Parent Company in preparing the annual a contingent liability if the year-end rate is higher than the average rate. accounts for the legal entity shall apply all IFRS and statements approved by the European Union as far as possible within the framework of the Tangible assets Swedish Annual Report Act and taking into account the relationship bet- Owned assets ween reporting and taxation. The recommendation states the exceptions Tangible assets are reported in the Parent Company accounts, in the and supplements that shall be made with respect to the IFRS. same way as in the Group accounts, at acquisition value after deductions for accumulated depreciation according to plan and any write-downs, but Changed accounting principles also taking into account any possible write-ups. The change in Parent Company accounting principles has been reported in accordance with the stipulations in IAS 8, but also taking into account Leased assets the transition regulations in RR 32. In the Parent Company, all leasing contracts are reported according to Pursuant to the transition regulations in RR 32, the Company has the principles for operating leases. chosen not to apply Chapter 4, §14a-e of the Swedish Annual Report Act, which permits the valuation of certain fi nancial instruments at fair Intangible assets value. As of 1 January 2006, the principles in Chapter 4, §14 a-e of the Research and development Swedish Annual Accounts Act will be applied. This will entail a change in In the Parent Company, all development expenditures are reported as accounting principles. The effect on shareholders’ equity as of 1 January expenses in the income statement. 2006 amounts to MSEK 775. Employee benefi ts Differences between Group and Parent Company accounting Defi ned-benefi t plans principles In the Parent Company, principles other than those described in IAS 39 Differences between Group and Parent Company accounting principles are applied when calculating defi ned-benefi t plans. The Parent Company are detailed below. The Parent Company accounting principles stated complies with the provisions of the Law on Safeguarding of Pension have been consistently applied during all the periods presented in the Commitments and the regulations of the Financial Supervisory Authority, Parent Company’s fi nancial reports. since this is a condition for tax deductibility. The essential differences, compared to IAS 39, are the way in which the discount rate is determi- Subsidiaries, associated companies and joint ventures ned, that calculation of defi ned-benefi t commitments is based on current Shares in subsidiaries, and holdings in associated companies and joint salary levels without assuming any future salary increases, and that all ventures are recognized by the Parent Company according to the acquisi- actuarial gains and losses are reported in the income statement when tion cost method. Revenue includes only dividends received, provided they arise. that they stem from profi ts earned after acquisition. Dividends exceeding those earnings are considered a repayment of the investment and Taxes reduce the carrying value of the shares. In the Parent Company, deferred tax liabilities are recognized as part of untaxed reserves. In the consolidated accounts, untaxed reserves are Revenues divided between deferred tax liabilities and shareholders’ equity. Sale of goods and rendering of services In accordance with the Swedish Annual Accounts Act, Chap. 2, 4 §, Group contributions and shareholders’ contributions for legal revenue from service assignments is recognized in the Parent Company entities income statement when the service is completed. Until then, as- The company reports group contributions and shareholder contributions signment work in progress is reported at the lowest of either acquisition in accordance with pronouncement issued by the SFASC Emerging value or net selling price on the balance sheet date. Issues Task Force. Shareholder contributions are taken directly to shareholders’ equity by the receiver and capitalized in the shares and Anticipated dividends participations by the giver, to the extent that no write-down is required. Anticipated dividends from subsidiaries are reported only in cases where Group contributions are reported based on their economic signifi cance. the Parent Company has the sole right to decide the size of the dividend This means that group contributions rendered for the purpose of minimi- and the Parent Company has decided the size of the dividend before the zing the Group’s total tax are reported directly against retained earnings Parent Company has published its fi nancial reports. after deducting their current tax effect. Group contributions equated with dividends are recognized as a Financial instruments dividend. This means that Group contributions received and the effect The Parent Company does not apply the valuation principles in IAS 39. on current tax are recognized through profi t or loss. Group contributions

NOTES TO THE FINANCIAL STATEMENTS 60 LKAB ANNUAL REPORT 2005 paid and the effect on current tax are recognized directly in retained the effect on current tax. The contributor recognizes Group contributions earnings. and the effect on current tax as an investment in shares in Group compa- Group contributions equated with shareholders’ contributions are re- nies to the extent that no write-down is required. cognized by the recipient directly in retained earnings taking into account

NOTE 2 Revenue distribution

Group Parent Company MSEK 2005 2004 2005 2004

Revenue: Iron ore 12 191 7 419 12 349 7 560 Industrial minerals 2 018 1 489 Other 128 80

Total 14 337 8 988 12 349 7 560

NOTE 3 Segment reporting

The Group’s reporting system is designed to track the rate of return on Lines of business the Group’s goods and services, due to which business segments are its Lines of business are the Group’s primary segments. The Group consists primary segment reporting format. of the following lines of business: Intra-group prices between segments are set based on the arm’s • Mining Division The Mining Division mines and processes iron ore for length principle, i.e., between parties that are independent of each other, products for steelmaking. well-informed and have a stake in the transactions. • Minerals Division The Minerals Division develops, produces and Income, assets and liabilities for the segments include directly attribu- markets industrial mineral products for several application areas and table items and items that can be distributed by segment in a reasonable customers in many different industries throughout the world. and reliable manner. Non-distributed items consist of net fi nancial • Special Businesses LKAB has organized most of its subsidiaries under income/expense and tax expenses. The segments’ investments in intan- the Special Businesses Division. These companies are mainly suppliers gible and tangible fi xed assets include all investments with the exception to the Mining Division and the Minerals Division. of those in short-term inventory and inventory of minor value. Geographic areas are the Group’s secondary segments. Information on the segment’s revenue refers to geographic areas grouped by customer locations. Segment assets and investments in tangible and intangible fi xed assets during the period are based on the geographic areas and are grouped on the basis of where the assets are located.

Lines of business Special Group Mining Division Minerals Division Businesses Eliminations Group MSEK 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004

External revenue 12 191 7 420 2 018 1 489 128 79 14 337 8 988 Internal revenue 158 140 141 109 963 872 -1 262 -1 121

Total revenue 12 349 7 560 2 159 1 598 1 091 951 -1 262 -1 121 14 337 8 988

Operating income per line of business 5 720 1 669 148 122 100 94 -6 5 974 1 879 Consolidation adjustments 141 62 141 62

Operating income 5 720 1 669 148 122 100 94 141 56 6 109 1 941 Net ﬁ nancial income/expense 342 82 Income before tax 6 451 2 023 Tax expense for the year -1 904 -456

Assets 18 612 11 594 1 527 1 093 1 808 1 180 -1 373 -210 20 574 13 657

Liabilities 5 459 3 118 1 130 241 1 056 397 -1 877 -149 5 768 3 607

Capital expenditures*) 2 314 614 192 85 205 286 12 31 2 723 1 016

Depreciation 791 919 33 31 128 135 8 952 1 093

Write-downs 3 3 *) refers to tangible assets

NOTES TO THE FINANCIAL STATEMENTS LKAB ANNUAL REPORT 2005 61 NOTE 3 Segment reporting (cont.)

Lines of business Special Parent Company Mining Division Minerals Division Businesses Eliminations Group MSEK 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004

Revenue 12 349 7 560 ------12 349 7 560

Geographic areas Parent Parent Company Europe Asia Rest of world Company MSEK 2005 2004 2005 2004 2005 2004 2005 2004

Revenue 8 982 5 465 2 310 1 582 1 057 513 12 349 7 560

Geographic areas Group Europe Asia Rest of world Group MSEK 2005 2004 2005 2004 2005 2004 2005 2004

External revenue: 9 964 6 295 3 053 1 924 1 320 769 14 337 8 988

Assets 20 418 13 545 88 77 68 35 20 574 13 657

Capital expenditures*) 2 720 1 016 3 - - - 2 723 1 016

*) refers to tangible assets

NOTE 4 Other operating revenues

Group MSEK 2005 2004

Rental revenue, investment properties 115 111 Gain on sale of ﬁ xed assets 18 6 Exchange rate gains on receivables/liabilities of an operating nature 12 12 Other 103 78

248 207 Parent Company MSEK 2005 2004

Gain on sale of ﬁ xed assets 18 11 Exchange rate gains on receivables/liabilities of an operating nature 8 6 Other 184 145

210 162

NOTE 5 Other operating expenses

Property expenses, investment properties 82 83 Other 177 114 181 128

259 197 181 128

NOTES TO THE FINANCIAL STATEMENTS 62 LKAB ANNUAL REPORT 2005 NOTE 6 Employees and staff costs

Average number of employees 2005 of which of which 2004 of which of which women men women men

Parent Company Sweden 2 615 9% 91% 2 515 9% 91% Norway 182 12% 88% 179 11% 89%

Total, Parent Company 2 797 9% 91% 2 694 9% 91%

Subsidiaries Sweden 323 9% 91% 340 9% 91% China 49 18% 82% 40 22% 78% Netherlands 22 18% 82% 22 18% 82% Norway 73 1% 99% 79 3% 97% UK 247 18% 82% 256 16% 84% Germany 17 65% 35% 17 65% 35% Other countries 35 34% 66% 33 33% 67%

Total in subsidiaries 766 14% 86% 789 14% 86%

Group total 3 563 10% 90% 3 482 10% 90%

Gender distribution in corporate management 2005 2005 2004 2004 Share of Share of Share of Share of women men women men

Parent Company Board of Directors 27% 73% 17% 83% Other senior executives 0% 100% 0% 100%

Group total Board of Directors 5% 95% 3% 97% Other senior executives 0% 100% 0% 100%

Salaries, other remuneration and social security expenses 2005 2004 Salaries and Social security Salaries and Social security MSEK Remuneration expenses Remuneration expenses

Parent Company 1 129 790 976 542 (of which pension expenses) 1) (418) (206)

Subsidiaries 287 136 278 101 (of which pension expenses) (66) (37)

Group total 1 416 926 1 254 643 (of which pension expenses) 2) (484) (243)

1) Of the Parent Company’s pension expenses, MSEK 13 (28) (inclu- 2) Of the Parent Company’s pension expenses, MSEK 19 (35) (including special employer’s contribution MSEK 3 (5)) refers to the group ding special employer’s contribution MSEK 3 (6)) refers to the group Board, President and former President. Of this, MSEK -3 (16) refers Board, President and former President. The Group’s outstanding to former President and MSEK 6 (1) to former Vice President. The pension commitments to these amount to MSEK 72 (64) (excluding company’s outstanding pension commitments to the group Board, special employer’s contribution). President and former President amount to MSEK 66 (57) (excluding special employer’s contribution). Of this, MSEK 27 (28) refers to former President and MSEK 13 (10) to former Vice President.

NOTES TO THE FINANCIAL STATEMENTS LKAB ANNUAL REPORT 2005 63 NOTE 6 Employees and staff costs (cont.)

Salaries and other remuneration by country and between Board members, other executives and other employees 2005 2004 Board Other Board Other MSEK and President employees and President employees

Parent Company Sweden 7 1 020 101) 888 Norway 102 78

Parent Company, total 7 1 122 10 966 (of which variable remuneration/incentive systems) (1)2) (100) (3)2) (34)

Subsidiaries in Sweden 6 125 5 118 (of which variable remuneration/incentive systems) (1) (0) (1) Foreign subsidiaries China 0 1 1 Netherlands 1 8 1 7 Norway 42 36 UK 10 68 9 75 Germany 3 7 1 9 Other countries 6 10 5 11

Subsidiaries, total 26 261 21 257 (of which variable remuneration/incentive systems) (0) (4) (0) (1)

Group total 33 1 383 31 1 223 (of which variable remuneration/incentive systems) (1) (104) (3) (35)

1) The amount includes total remuneration to Board members, MSEK 1.0 (0.9), approved by the AGM. It also includes MSEK 0.5 (0.4) in remuneration to employee representatives on the Board. 2) Refers to former President, MSEK 0.1 (2.8) and former Vice President, MSEK 0.6 (0.5).

SICKNESS ABSENCE (in Parent Company, employees in Sweden only) 2005 2004

Total sickness absence as percentage of regular working hours 4.7% 5.4% Percentage of total sick leave related to extended absences of 60 days or more 61.7% 66.6% Sickness absences by gender: Men 4.8% 5.5% Women 3.9% 4.7% Sickness absences by age category: 29 years or younger 1.9% 1.8% 30-49 years 4.0% 4.2% 50 years or older 6.4% 8.1%

For information on post-employment beneﬁ ts, etc., see Note 27 Employee beneﬁ ts.

NOTES TO THE FINANCIAL STATEMENTS 64 LKAB ANNUAL REPORT 2005 NOTE 7 Auditors’ fees and compensation

KPMG Audit assignments 5 4 2 1 Other assignments 4 3 3 2

Other auditors Audit assignments 0 0

Audit assignments involve examination of the annual report and auditors and consultation or other services that may result from ﬁ nancial accounting as well as the administration by the Board and observations noted during such examinations or implementation of the President, other tasks related to the duties of the company’s such other tasks.. All other tasks are deﬁ ned as other assignments.

NOTE 8 Operating expenses by nature of expense

Personnel costs 2 394 1 973 1 949 1 564 Materials, etc. 2 272 1 806 1 181 1 035 Energy 832 631 746 551 Transport costs 512 372 894 964 Depreciation 959 1 080 791 919 Other operating expenses 1 507 1 392 1 278 1 020 8 476 7 254 6 839 6 053

Of other operating expenses, MSEK 241 refers to costs arising from of operations in Narvik is included in the Group’s personnel costs. The mining operations in Kiruna, see Note 28. MSEK 104 for restructuring corresponding amount for the Parent Company is MSEK 74.

NOTE 9 Net ﬁ nancial income/expense

Interest income 137 133 Dividends 47 36 Other investments including derivatives Capital gain on sales of ﬁ nancial assets held for sale 89 Return on market portfolio 212 24 Result from plan assets 41 34 Net change from revaluation of ﬁ nancial assets -5 Net exchange rate differences 29

Income from ﬁ nancial items 550 227

Interest expenses -191 -104 Write-down of receivables in associated companies -1 Net exchange rate differences -34 Other ﬁ nancial expenses -17 -6

Financial expenses -208 -145

Net ﬁ nancial income/expense 342 82

NOTES TO THE FINANCIAL STATEMENTS LKAB ANNUAL REPORT 2005 65 NOTE 9 Net ﬁ nancial income/expense (cont.)

Interest income and similar income statement items include returns Net change from revaluation of fi nancial assets refers to a write- on money market instruments and bonds amounting to MSEK 121 down on a long-term receivable in an associated company. The (93). receivable has been discounted to present value and a write-down Capital gains of MSEK 89 on the sale of available-for-sale fi nancial requirement of MSEK 5 has arisen. assets refer to the sale of shares in SSAB. Return on market portfolio Of interest expenses, MSEK 105 (101) refers to interest on refers to an increase in the market value of the market portfolio pension liabilities and MSEK 84 (0) refers to forward exchange of MSEK 212. The considerable change in comparison to 2004 is discounts/premiums. explained by the fact that unrealized surplus value did not affect net Other fi nancial expenses consist mainly of bank and administra- fi nancial income/expense for 2004. The change is due to application tion costs. of IAS 39, Financial Instruments: Reporting and Valuation.

Parent Company Income from participations Income from participations in Group companies in associated companies MSEK 2005 2004 2005 2004

Dividend 17 37 Write-downs -5 -1 Group contributions 18

17 55 -5 -1 The write-down of MSEK 5 refers to a long-term receivable in an associated company. The receivable has been discounted to present value and a write-down requirement of MSEK 5 has arisen.

Parent Company Income from other securities and receivables held Interest expense and as ﬁ xed assets similar proﬁ t/loss items MSEK 2005 2004 2005 2004

Interest income, Group companies 24 18 20 20 Interest income, others 131 131 Return on market portfolio 89 111 24 Dividends, shares 36 29 11 7 Exchange rate differences, foreign currency 32

149 47 305 182

In income from securities held as ﬁ xed assets, return on market shares and money market investments is done at the portfolio level. portfolios refers to redemption of shares in SSAB. Dividends refer to This means that for instruments included in the same portfolio, dividends on holdings in SSAB. unrealized gains are offset against unrealized losses. Surplus losses Interest income and similar income statement items include re- are reported as reduction in interest income. Surplus gains are not turns on money market instruments and bonds amounting to MSEK reported. 121 (93). Return on shares amounted to MSEK 111 (24). Valuation of

Parent Company Interest expense and similar proﬁ t/loss items MSEK 2005 2004

Interest expenses, Group companies -7 -5 Interest expenses, pension liability -34 -40 Forward exchange discounts/premiums -84 Interest expenses, other -1 -4 Exchange rate differences, foreign currency -30 Other -11 -4

-137 -83 Interest expenses on pension liabilities have been calculated at an interest rate of 4.2 (5.1) %. Other ﬁ nancial expenses consist mainly of bank and administration costs.

NOTES TO THE FINANCIAL STATEMENTS 66 LKAB ANNUAL REPORT 2005 NOTE 10 Appropriations

Parent Company MSEK 2005 2004

Difference between book depreciation and appreciation according to plan: Underground installations 3 2 Buildings and land 2 2 Machinery and inventories -163 183 Tax allocation reserve, provisions for the year -1 410 -500 Tax allocation reserve, reversal for the year 140

Total -1 568 -173 Deferred tax on appropriations amounted to MSEK -439 (-48). Deferred tax is only reported in the consolidated income statement.

NOTE 11 Taxes

Reported in income statement Group MSEK 2005 2004

Current tax expense (-) Tax expense for the period -1 297 -460 Adjustment for taxes related to previous years -1 3

-1 298 -457

Deferred tax expense (-) /tax recoverable (+) Deferred tax related to temporary differences -606 1

Total reported tax expense in Group -1 904 -456

Parent Company MSEK 2005 2004

Current tax expense (-) Tax expense for the period -1 284 -467 Adjustment for taxes related to previous years -2 6

-1 286 -461

Deferred tax expense (-) /tax recoverable (+) Deferred tax related to temporary differences 35 1

Total reported tax expense in Parent Company -1 251 -460

NOTES TO THE FINANCIAL STATEMENTS LKAB ANNUAL REPORT 2005 67 NOTE 11 Taxes (cont.)

Reconciliation of effective tax Group MSEK 2005 (%) 2005 2004 (%) 2004

Tax according to current tax rate for Parent Company 28.0% -1 806 28.0% -566 Effect of other tax rates for foreign Group companies 0.0% Non-deductible expenses 0.7% -45 0.4 -8 Tax-exempt income -0.2% 11 -0.9 19 Tax related to previous years 0.0% -3 -0.1 3 Standard interest on tax allocation reserve 0.1% -9 Other 0.9% -52 -4.9 96

Reported effective tax rate 29.5% - 1 904 22.5 -456

Parent Company MSEK 2005 (%) 2005 2004 (%) 2004

Tax according to current tax rate for Parent Company 28,0% -1 255 28.0 -475 Non-deductible expenses 0.1% -7 0.3 -5 Tax-exempt income -0.2% 8 -0.8 14 Tax related to previous years 0.0% -2 -0.4 6 Standard interest on tax allocation reserve 0.2% -8 Other -0.2% 13

Reported effective tax rate 27.9% -1 251 27.1 -460

Tax items reported directly in shareholders’ equity Group MSEK 2005 2004

Deferred tax attributable to change in accounting principles -471 Deferred tax attributable to ﬁ nancial assets: forward exchange contracts -138 Deferred tax attributable to ﬁ nancial assets: SSAB shares 334

-275 Parent Company MSEK 2005 2004

Tax on Group contributions paid 104 41

104 41

NOTES TO THE FINANCIAL STATEMENTS 68 LKAB ANNUAL REPORT 2005 NOTE 11 Taxes (cont.)

Reported on balance sheet Reported deferred tax recoverable and liabilities Deferred tax recoverable and liabilities refer to the following: Group Deferred Deferred tax recoverable tax liability Net MSEK 2005 2004 2005 2004 2005 2004

Buildings and land 16 -12 -12 16 Machinery and inventories -747 -650 -747 -650 Pension provisions 265 217 265 217 Tax allocation reserves -717 -312 -717 -312 Provisions for insurance claims -99 -42 -99 -42 Financial assets -320 -320 Forward exchange contracts 66 66 Short-term investments -49 -49 Loss carryforwards 3 3 Other liabilities -1 -2 -1 -2 Other 8 49 8 49

Tax recoverable/liabilities 342 282 -1 945 -1 006 -1 603 -724 Offset -342 -282 342 282

Tax recoverable/liabilities, net - - -1 603 -724 -1 603 -724

Parent Company Deferred Deferred tax recoverable tax liability Net MSEK 2005 2004 2005 2004 2005 2004

Buildings and land 23 25 - - 23 25 Pension provisions 200 155 - - 200 155 Other 3 11 - - 3 11

Taxes recoverable 226 191 - - 226 191

NOTES TO THE FINANCIAL STATEMENTS LKAB ANNUAL REPORT 2005 69 NOTE 11 Taxes (cont)

Change in deferred tax in temporary differences and loss carryforwards Group MSEK Opening balance Reported in Reported in Other Closing balance 1 Jan. 2004 income statement Shareholders’ equity changes 31 Dec. 2004

Buildings and land 14 2 16 Machinery and inventories -689 39 -650 Pension provisions 162 51 4 217 Tax allocation reserves -209 -103 -312 Provisions for insurance claims -42 -42 Other liabilities -5 5 -2 -2 Other - 49 49

-727 1 2 -724

MSEK Opening balance Reported in Reported in Other Closing balance 1 Jan. 2005 income statement Shareholders’ equity changes 31 Dec. 2005

Buildings and land 16 -28 -12 Machinery and inventories -650 -97 -747 Pension provisions 217 48 265 Tax allocation reserves -312 -405 -717 Provisions for insurance claims -42 -57 -99 Financial assetsr -320 -320 Forward exchange contracts 66 66 Short-term investments -28 -21 -49 Loss carryforwards 3 3 Other liabilities -2 1 -1 Other 49 -43 2 8

-724 -606 -275 2 -1 603

Parent Company MSEK Opening balance Reported in Reported in Closing balance 1 Jan. 2004 income statement Shareholders’ equity 31 Dec. 2004

Buildings and land 26 -1 - 25 Pension provisions 155 - - 155 Other 9 2 - 11

190 1 - 191

MSEK Opening balance Reported in Reported in Closing balance 1 Jan. 2005 income statement Shareholders’ equity 31 Dec. 2005

Buildings and land 25 -2 23 Pension provisions 155 45 200 Other 11 -8 3

191 35 226

NOTES TO THE FINANCIAL STATEMENTS 70 LKAB ANNUAL REPORT 2005 NOTE 12 Intangible assets

Group MSEK Mining Goodwill rights Other Total

Accumulated acquisition values Opening balance 1 Jan. 2004 176 161 18 355 Capital expenditures 20 20 Reclassiﬁ cations 11 11 Exchange rate differences for the year -2 -2

Closing balance 31 Dec. 2004 205 161 18 384

Opening balance 1 Jan. 2005 205 161 18 384 Capital expenditures 75 75 Allocation of emissions rights 175 175 Disposal, emissions rights -57 -57 Reclassiﬁ cations 17 45 62 Exchange rate differences for the year 13 13

Closing balance 31 Dec. 2005 235 281 136 652

Accumluated amortization and write-downsr Opening balance 1 Jan. 2004 -161 -12 -173 Amortization for the year -1 -1 Exchange rate differences for the year

Closing balance 31 Dec. 2004 -161 -13 -174

Opening balance 1 Jan. 2005 -161 -13 -174 Write-downs for the year -1 -1 Reconciliation of emissions rights for the year -57 -57 Disposal, emissions rights 57 57

Closing balance 31 Dec. 2005 -1 -161 -13 -175

Reported values 1 Jan. 2004 176 0 7 183

31 Dec. 2004 205 0 6 211

1 Jan. 2005 205 0 6 211

31 Dec. 2005 234 120 123 477

Amortization and write-downs Amortization and write-downs, and reconciliation of emissions rights, are reported in the following lines in the income statement MSEK Koncernen 2005 2004

Cost of goods sold -58 -1

-58 -1

NOTES TO THE FINANCIAL STATEMENTS LKAB ANNUAL REPORT 2005 71 NOTE 12 Intangible assets (cont.)

Parent Company MSEK Mining rights Other Total

Accumulated acquisition values Opening balance 1 Jan. 2004 161 161 Other capital expenditures 1 1

Closing balance 31 Dec. 2004 161 1 162

Opening balance 1 Jan. 2005 161 1 162 Allocation of emissions rights 175 175 Disposal, emissions rights -57 -57

Closing balance 31 Dec. 2005 161 119 280

Accumulated amortization Opening balance 1 Jan. 2004 -161 -161

Closing balance 31 Dec. 2004 -161 -161

Opening balance 1 Jan. 2005 -161 -161 Reconciliation of emissions rights for the year -57 -57 Disposal, emissions rights 57 57

Closing balance 31 Dec. 2005 -161 - -161

Reported values 1 Jan. 2004 0 -

31 Dec. 2004 0 1 1

1 Jan. 2005 0 1 1

31 Dec. 2005 0 119 119

Reconciliation of emissions rights is reported in the following lines in the income statement MSEK Group 2005 2004

Cost of goods sold -57

NOTES TO THE FINANCIAL STATEMENTS 72 LKAB ANNUAL REPORT 2005 NOTE 12 Intangible assets (cont.)

Write-down requirements for cash-generating units containing goodwill The following cash-generating units, which are part of the primary segment Minerals Division, have signiﬁ cant goodwill values in relation to the Group’s total reported goodwill value. MSEK 2005 2004

Minelco Specialities Ltd 108 100 Minelco Minerals Ltd 46 43 Minelco OY 37 20

191 163 Units without signiﬁ cant goodwill value, compiled 43 42

234 205 Assessment of the recoverable amounts of cash-generating units is based on the same important principles..

Assessment of write-down requirement is based on value in use. Important variables Method of estimating value This value is based on cash-fl ow forecasts over 17 years, of which Market share and growth Historically, demand for these the fi rst three are based on the three-year business plan establis- products has kept pace with econo- hed by the corporate management of the Minerals Division. The mic cycles. Expected market growth total forecast period (17 years) corresponds to the useful life of the is based on a transition from the unit’s most important assets. The cash fl ow forecast after the fi rst prevailing economic situation to the three years has been based on an annual growth rate of 1%, which expected long-term growth. The corresponds to the long-term growth rate of the unit’s markets. forecast is in line with previous The forecast cash fl ows have been valuated at present value with a experience. discount rate of 11% before tax. Important assumptions with respect Personnel costs The forecast for personnel costs to the three-year business plan are described below. is based on the expected rate of It is the corporate management’s assessment that no reasonable infl ation, certain real wage/sa- changes in these assumptions will result in recoverable amounts lary increases (historical average) and that are lower than the reported values of the units. planned improvements in production effi ciency (according to a fi xed plan). Write-downs for the year The forecast is in agreement with A minor goodwill item attributable to holdings in Microfi ne Hellas previous experience. has been written down during the year by MSEK 1. Book value after Exchange rates Exchange-rate forecasts are based the write-down is 0 kronor. The write-down is due to the fact that on currently quoted exchange rates. continued mineral extraction in the mine is no longer possible, since Existing forward exchange contracts the permit from the Greek authorities has expired and it has not have been taken into account. been possible to renew it.

NOTE 13 Tangible assets

Group Machinery inventories, Buildings Underground and other tools and Construction MSEK and land installations technical plant installations in progress Total

Acquisition value Opening balance 1 January 2004 2 644 3 874 9 491 1 916 379 18 304 Acquisitions 44 74 146 293 408 965 Reclassiﬁ cations 22 29 153 39 -226 17 Disposals and retirements -91 -148 -446 -163 -9 -857 Exchange rate differences -3 -4 0 -7

Closing balance 31 December 2004 2 616 3 829 9 340 2 085 552 18 422

Opening balance 1 January 2005 2 616 3 829 9 340 2 085 552 18 422 Acquisitions 37 49 409 72 2 0811) 2 648 Reclassiﬁ cations -20 2 116 164 -355 -93 Disposals and retirements -4 -12 -52 -16 -41 -125 Exchange rate differences 19 22 5 46

Closing balance 31 December 2005 2 648 3 868 9 835 2 310 2 237 20 898

NOTES TO THE FINANCIAL STATEMENTS LKAB ANNUAL REPORT 2005 73 NOTE 13 Tangible assets (cont.)

Machinery inventories, Buildings Underground and other tools and Construction MSEK and land installations technical plant installations in progress Total

Depreciation and write-downs Opening balance 1 January 2004 -1 749 -2 230 -6 819 -1 030 -11 828 Depreciation for the year -52 -231 -625 -170 -1 078 Reclassiﬁ cations -31 16 -15 Disposals and retirements 85 134 444 148 811 Exchange rate differences 1 3 4

Closing balance 31 December 2004 -1 715 -2 327 -7 028 -1 036 -12 106

Opening balance 1 January 2005 -1 715 -2 327 -7 028 -1 036 -12 106 Depreciation for the year -50 -233 -502 -166 -951 Write-downs for the year -1 -1 -2 Reclassiﬁ cations 46 2 -1 47 Disposals and retirements 3 12 38 14 67 Exchange rate differences -6 -15 -4 -25

Closing balance 31 December 2005 -1 723 -2 548 -7 506 -1 193 -12 970

Reported values 1 January 2004 895 1 644 2 672 886 379 6 476

31 December 2004 901 1 502 2 312 1 049 552 6 316

1 January 2005 901 1 502 2 312 1 049 552 6 316

31 December 2005 925 1 320 2 329 1 117 2 237 7 928

1) This includes MSEK 60 for the acquisition of land for future mining operations in Malmberget.

Tax assessment value Group 2005-12-31 2004-12-31

Tax assessment value, buildings (in Sweden) 708 701 Tax assessment value, land (in Sweden) 78 67

Depreciation and write-downs are included in the following lines in the income statement

Group MSEK Depreciation 2005 2004

Cost of goods sold 931 1 052 Selling expenses 3 3 Administrative expenses 8 12 Research and development 11 11

953 1 078

NOTES TO THE FINANCIAL STATEMENTS 74 LKAB ANNUAL REPORT 2005 NOTE 13 Tangible assets (cont.)

Parent Company Machinery Inventories, Buildings Underground and other tools and Construction MSEK and land installations technical plant installations in progress Total

Acquisition value Opening balance 1 January 2004 2 185 3 874 9 220 511 363 16 153 Acquisitions 40 74 86 20 393 613 Reclassiﬁ cations 26 29 129 43 -227 Disposals and retirements -90 -148 -455 -89 -782

Closing balance 31 December 2004 2 161 3 829 8 980 485 529 15 984

Opening balance 1 January 2005 2 161 3 829 8 980 485 529 15 984 Acquisitions 29 49 372 27 1 8371) 2 314 Reclassiﬁ cations 24 2 132 26 -184 Disposals and retirements -3 -12 -42 -11 -41 -109

Closing balance 31 December 2005 2 211 3 868 9 442 527 2 141 18 189

Depreciation Opening balance 1 January 2004 -1 182 -1 782 -6 050 -392 -9 406 Depreciation for the year -43 -231 -604 -41 -919 Disposals and retirements 76 88 359 79 602

Closing balance 31 December 2004 -1 149 -1 925 -6 295 -354 -9 723

Opening balance 1 January 2005 -1 149 -1 925 -6 295 -354 -9 723 Depreciation for the year -41 -233 -477 -39 -791 Disposals and retirements 2 9 30 9 51

Closing balance 31 December 2005 -1 188 -2 149 -6 742 -384 -10 463

Write-downs Opening balance 1 January 2004 -395 -448 -580 -11 -1 434 Disposals and retirements 8 46 85 2 141

Closing balance 31 December 2004 -387 -402 -495 -9 -1 293

Opening balance 1 January 2005 -387 -402 -495 -9 -1 293 Disposals and retirements 1 3 4

Closing balance 31 December 2005 -386 -399 -495 -9 -1 289

Reported values 1 January 2004 608 1 644 2 590 108 363 5 313

31 December 2004 625 1 502 2 190 122 529 4 968

1 January 2005 625 1 502 2 190 122 529 4 968

31 December 2005 637 1 320 2 205 134 2 141 6 437

1) This includes MSEK 60 for the acquisition of land for future mining operations in Malmberget.

NOTES TO THE FINANCIAL STATEMENTS LKAB ANNUAL REPORT 2005 75 NOTE 13 Tangible assets (cont.)

Tax assessment value Parent Company 2005-12-31 2004-12-31

Depreciation is included in the following lines in the

Parent Company MSEK income statement 2005 2004

Cost of goods sold 776 900 Selling expenses - - Administrative expenses 5 10 Research and development 10 9

791 919

NOTE 14 Investment properties

Group Investment properties are reported, in the Group, according to the acquisition value method and are included under Buildings and land according to Note 13. Group MSEK 2005-12-31 2004-12-31

Accumulated fair values*) At start of year 70 342 At year-end 76 70

Group MSEK 2005-12-31 2004-12-31

Accumulated acquisition values At start of year 291 291 New acquisitions 3

294 291 Accumulated depreciation according to plan At start of year -170 -165 Accumulated depreciation for the year -5 -5

-175 -170

Reported value at end of period 119 121

*) Fair values are based on valuations by qualiﬁ ed, independent assessors who have current knowledge of property assessment principles relevant to the type of property and locations in question.

Investment properties - effect on proﬁ t/loss for the period Group MSEK 2005-12-31 2004-12-31

Rental income 115 111 Direct costs associated with investment properties -82 -83

Tax assessment value - investment properties Group MSEK 2005-12-31 2004-12-31

NOTES TO THE FINANCIAL STATEMENTS 76 LKAB ANNUAL REPORT 2005 NOTE 14 Investment properties (cont.)

Parent Company Information concerning fair value of investment properties (if acquisition value method is applied) Investment properties are reported according to the acquisition value method.

Parent Company MSEK 2005-12-31 2004-12-31

Accumulated fair values At start of year 20 221 At year-end 19 20

Accumulated acquisition values At start of year 166 166

166 166 Accumulated depreciation according to plan At start of year -78 -75 Accumulated depreciation for the year -3 -3

-81 -78

Reported value at end of period 85 88

Investment properties - effect on proﬁ t/loss for the period Parent Company MSEK 2005-12-31 2004-12-31

Rental income 6 7 Direct costs associated with investment properties -1 -1

Tax assessment values - investment properties Parent Company MSEK 2005-12-31 2004-12-31

Tax assessment values, buildings (in Sweden) 153 153 Tax assessment value, land (in Sweden) 39 39

NOTE 15 Participations in associated companies and joint ventures

Group MSEK 2005-12-31 2004-12-31

Reported value at start of year 33 5 Acquisitions 29 Reclassiﬁ cation -29 Write-down -1

Reported value at year-end 4 33

During the year, the holding in the joint venture company Likya The Parent Company’s holdings in associated companies are repor- Minelco, Turkey, has been reclassiﬁ ed. As of 2005, this holding is ted in Note 17. reported according to the proportional method, see Note 16. Of the above stated MSEK 4, MSEK 3 refers to the subsidiary Kimit’s holdings in the associated company Orica Kimit Explosives AB.

NOTES TO THE FINANCIAL STATEMENTS LKAB ANNUAL REPORT 2005 77 NOTE 16 Participations in joint ventures

Group The Group has a 50-percent interest in the joint venture company Likya Minelco. In the Group’s ﬁ nancial reports, the following items comprise the Group’s share of the joint venture company’s assets, liabilities, income and expenses. MSEK 2005 2004

Net sales 2 Expenses -2

Proﬁ t/loss 0

Intangible assets 32 Current assets 3

Total assets 35

Current liabilities -1 Long-term liabilities -2

Total liabilities -3

Net assets / net liabilities 32

NOTE 17 Parent Company’s participations in associated companies

Accumulated acquisition values At start of year 2 2

Closing balance 31 December 2 2

Accumulated write-downs At start of year -1 Write-downs for the year -1

Closing balance 31 December -1 -1

Reported value at year-end 1 1

Speciﬁ cation of the Parent Company’s direct ownership of participations in associated companies Associate company Corp. ID No. and registered ofﬁ ce Voting and equity 2005 share in percent Reported value

Associated companies Swedish associated companies Progressum AB/556540-0768/Kiruna 42.8 0 Norrskenet AB/556537-7065/Kiruna 33.3 0 Expandum AB/556252-3281/Gällivare 33.3 0 Gruv Grus AB/556103-9933/Gällivare 50.0 0 MCC AB/556644-8295/Kiruna 33.3 0

Foreign associated companies Nord Norsk Spedisjon AS/-/Narvik, Norway 40.0 1 Futurum AS/-/Narvik, Norway 23.8 0

NOTES TO THE FINANCIAL STATEMENTS 78 LKAB ANNUAL REPORT 2005 NOTE 18 Receivables from Group companies and associated companies

Parent Company Receivables from Receivables from Group companies associated companies MSEK 2005-12-31 2004-12-31 2005-12-31 2004-12-31

Accumulated acquisition values 267 277 40 40 Net change 106 -10

Closing balance 31 December 373 267 40 40

Accumulated write-downs Write-downs for the year -5

Closing balance 31 December -5

Reported value at year-end 373 267 35 40

The write-down of MSEK 5 refers to a long-term receivable in Norrskenet AB.

NOTE 19 Financial investments

Group MSEK 2005-12-31 2004-12-31

Financial investments that are tangible assets Financial assets held for sale Shares and participations 1 253 121 Financial assets attributable to reserves for pension commitments 74 3

1 327 124

Short-term investments that are current assets Financial assets held for sale Shares and participations 784 341 Interest-bearing securities 3 265 1 687

4 049 2 028

Financial investments that are tangible assets refer to shares in SSAB and are valuated at fair value as of 31 Dec. 2005 in accordance with IAS 39.

Parent Company MSEK 2005-12-31 2004-12-31 Market value Reported Market value Reported or similar value or similar value

Speciﬁ cation of securities Money market instruments 5 961 5 951 3 928 3 917 Listed shares/mutual funds 784 619 404 341 Transfer to liquid assets1) -2 696 -2 696 -2 230 -2 230

4 049 3 874 2 102 2 028

Short-term investments include both money market and stock market investments.

1) Liquid assets include short-term investments that have been classiﬁ ed as liquid assets according to IAS 7.

NOTES TO THE FINANCIAL STATEMENTS LKAB ANNUAL REPORT 2005 79 NOTE 20 Other long-term securities held as ﬁ xed assets

Accumulated acquisition values At start of year 121 121 Sales -11

The change for the year of MSEK 11 refers to redemption of shares in SSAB.

Parent Company Speciﬁ cation of other long-term securities 2005-12-31 2004-12-31 Market value Reported Market value Reported MSEK or similar value or similar value

SSAB 1 253 109 770 120 Other - 1 - 1

1 253 110 770 121

NOTE 21 Long-term receivables and other receivables

Group MSEK 2005-12-31 2004-12-31

Long-term receivables that are tangible assets Receivables from associated companies 35 40 Other 27 22

Other receivables that are current assets Receivables from associated companies 2 2 Receivables from related parties 2 Custody accounts 107 19 Other 83 83

194 104

Long-term receivables Company-owned endowment insurance 85 57 Other 22 20

107 77 Other receivables (current) Custody accounts 107 Other 48 88

155 88

Long-term receivables Accumulated acquisition values At start of year 77 69 Net change 30 -8

NOTES TO THE FINANCIAL STATEMENTS 80 LKAB ANNUAL REPORT 2005 NOTE 22 Inventories, etc.

Group MSEK 2005-12-31 2004-12-31

Raw materials and consumables 750 563 Work in progress 2 9 Finished products and goods for resale 671 434

1 423 1 006

Stocks of ﬁ nished products were reduced during the year. A change in product mix increased the inventory value. Write-downs on inventories, according to the lowest-value principle, amounted to MSEK 3 (-).

Raw materials and consumables 539 373 Finished products and goods for resale 454 324

993 697

Of the Parent Company’s stocks of ﬁ nished iron ore products, MSEK 1 (136) or 0 (42)% has been valuated at net selling price.

NOTE 23 Accounts receivable

Accounts receivable are reported taking into account bad debts that have arisen in the Group. These amounted during the year to MSEK 2 (-).

NOTE 24 Prepaid expenses and accrued revenues

Group Parent Company MSEK 2005-12-31 2004-12-31 2005-12-31 2004-12-31

Interest, forward exchange contracts 30 30 Insurance premiums 5 3 Other 64 53 23 24

69 83 26 54

NOTES TO THE FINANCIAL STATEMENTS LKAB ANNUAL REPORT 2005 81 NOTE 25 Shareholders’ equity

The Group’s speciﬁ cation of the shareholders’ equity item reserves Translation reserve MSEK 2005 2004

Opening translation reserve -11 Transfer, opening translation reserve -4 Translation differences for the year 25 -7

Closing translation reserve 14 -11

Fair value reserve MSEK 2005 2004

Opening fair value reserve 468 Revaluation to fair value 1 January 2005 650 Tax attributable to revaluation item -182 Financial assets held for sale: Revaluations reported directly in shareholders’ equity 558 Dissolved through income statement -47 Tax attributable to revaluations for the year -156

Closing fair value reserve 823 468

Hedge reserve MSEK 2005 2004

Opening hedge reserve 689 Revaluation to fair value 1 January 2005 957 Tax attributable to revaluation item -268 Cash-ﬂ ow hedges Reported directly in shareholders’ equity -237 Dissolved through income statement -689 Tax attributable to hedges for the year 66

Closing hedge reserve -171 689

Total reserves MSEK 2005 2004

Opening reserves 1 146 Change in reserves for the year Translation reserve 25 Fair value reserve 355 Hedge reserve -860

Closing reserves 666 1 146

NOTES TO THE FINANCIAL STATEMENTS 82 LKAB ANNUAL REPORT 2005 Note 25 Shareholders’ equity (cont.)

Share capital Parent Company As of 31 December 2005, the registered share capital comprised Restricted reserves 700 000 (700 000) common shares. Restricted reserves may not be reduced through dividends. The holder of common shares is entitled to a dividend that is decided by the Annual General Meeting, and each share entitles the Statutory reserve holder to one voting right. The purpose of the statutory reserve is to save a part of the net profit that is not used to cover loss brought forward. Translation reserve The translation reserve covers all exchange rate differences that Non-restricted equity arise in the translation of financial reports of foreign subsidiaries Profit brought forward and associated companies whose counts are reported in a currency Comprises the previous year’s non-restricted equity after any pro- other than the Group’s reporting currency. The Parent Company and visions for reserves and after any dividend has been paid. Together Group accounts are reported in Swedish kronor. with net profit for the year and any fair value reserve, it makes up non-restricted equity, i.e., the sum that is available to be paid as a Fair value reserve dividend to shareholders. Financial assets The fair value reserve includes the net change in fair value of available-for-sale financial assets up until the assets are removed from the balance sheet.

Hedge reserve The hedge reserve includes the effective share of the accumulated net change in fair value of a cash-flow hedging instrument attributable to hedging transactions that have not yet occurred.

Dividend After the balance sheet date, the Board has proposed the following dividend. The dividend is subject to approval by the Annual General Meeting on 25 April 2006.

MSEK 2005 2004

2 143 (743) SEK per common share 1 500 520

1 500 520

Note 26 Earnings per share

The number of shares for the years 2005 and 2004, respectively, is 700,000. Net income attributable to Parent Company shareholders amounts to MSEK 4,546 (1,568). Earnings per share thereby amount to 6,494 (2,240) kronor per share.

notes to the fin a n c i al s t at e m e n t s L K A B a n n u al r e p o r t 2 0 0 5 83 NOTE 27 Employee beneﬁ ts

Present value of wholly or partially funded obligations 947 707 Fair value of assets under management -891 -655

Net, wholly or partially funded obligations 56 52 Present value of unfunded obligations 1 961 1 527

Present value of net obligation 2 017 1 579

Unreported actuarial gains (+) and losses (-) -282 36 Unreported costs for previous years’ employment -10 2

Net reported obligation, deﬁ ned-beneﬁ t plans (see below) 1 725 1 617

The net amount is reported in the following balance sheet items: Other ﬁ nancial assets -74 -3 Provisions for pensions 1 799 1 620

Net balance sheet amount 1 725 1 617

Defi ned-benefi t plans plan. The ITP pension plan insured via Alecta is therefore reported Most of LKAB’s pension plans for employees in Sweden are defi ned- as a defi ned-contribution plan. Alecta’s surplus can be distributed benefi t plans, which means that LKAB guarantees pensions based to the policyholders and/or the insured parties. At year-end 2005, on a certain percentage of salary. Pension commitments are secured Alecta’s surplus in the form of the collective funding ratio amounted by the company mainly through credit insurance, but also via provi- to 128.5 percent (128.0). The collective funding ratio is the market sions reported on the balance sheet. Promises of future retirement value of Alecta’s assets as a percentage of the insurance obligations before the age of 65 are to a degree contingent upon underground calculated according to Alecta’s actuarial assumptions, which does work and are secured by the company via provisions reported on not conform to IFRS. the balance sheet. For employees in Belgium, Norway, the UK and Germany, LKAB Commitments for retirement pensions and survivor benefi ts has defi ned-benefi t plans as a complement to social insurance. In for salaried employees in Sweden are insured by Alecta. Accor- Belgium, pensions are secured via pension insurance; in the UK, via ding to a pronouncement from the Swedish Financial Accounting two company-managed pension funds; in Germany, via provisions Standards Council’s Emerging Issues Task Force, URA 42, this is reported in the balance sheet and through credit insurance, and in a defi ned-benefi t plan that involves several employers. For the Norway via a company-managed superannuation fund, via provi- fi nancial year 2005, the company has not had access to the informa- sions reported in the balance sheet and through credit insurance. tion that is necessary for reporting this plan as a defi ned-benefi t

Changes in the net obligation for deﬁ ned-beneﬁ t plans reported on the balance sheet Group MSEK 2005 2004

Net obligation for deﬁ ne-beneﬁ t plans as of 1 January 1 617 1 654 Compensation paid -109 -104 Deposits to pension fund -137 -95 Cost reported in income statement 328 165 Effects of acquired/sold operations - -3 Exchange rate differences 26

Net obligation for deﬁ ned-beneﬁ t plans as of 31 December 1 725 1 617

NOTES TO THE FINANCIAL STATEMENTS 84 LKAB ANNUAL REPORT 2005 NOTE 27 Employee beneﬁ ts (cont.)

Cost reported in income statement Group MSEK 2005 2004

Costs for employment during current period 222 98 Interest expense for obligation 105 101 Assumed return on assets under management -41 -34 Reported actuarial gains (-) and losses (+) 4 Effects of reductions and settlements 38

Total net cost in income statement 328 165

The cost is reported on the following lines in the income statement: Group MSEK 2005 2004

Cost of goods sold 264 98 Income from ﬁ nancial items -41 -34 Financial expenses 105 101

328 165

Assumptions for defi ned-benefi t obligations Signifi cant actuarial assumptions as of closing day (expressed as weighted averages) Group Percent 2005 2004

Dicount rate, 31 December 4.0 5.0 Assumed return on assets under management, 31 December 5.0 6.0 Future salary increase 3.0 3.0 Employee turnover 3.5 3.5 Future increase in pensions 2.0 2.0

Parent Company’s pension obligation MSEK 2005 2004

Provisions subject to the Act on Income Security 818 794 Provisions not subject to the Act on Income Security 724 555

1 542 1 349

Of which credit guarantees via FPG/PRI 472 466

MSEK Group Parent Company 2005 2004 2005 2004

Amount of provision expected to be paid after 12 months 1 690 1 504 1447 1255

NOTES TO THE FINANCIAL STATEMENTS LKAB ANNUAL REPORT 2005 85 NOTE 27 Employee beneﬁ ts (cont.)

Defi ned-contribution plans insurance company. In addition to the ITP plan’s family pension In Sweden, the Group has defi ned-contribution pension plans for (survivor annuity), a special family pension is payable (extended which the company assumes full cost. For the Group, the ITP plan survivor annuity). premiums fi nanced in Alecta amounted to MSEK 11 (11), and for Any bonus paid on endowment or pension insurance policies ac- the SAF-LO Collective Pension fi nanced via premiums to FORAM crues in its entirety to the President as increased pension. amounted to SEK 41 (42). The corresponding amounts for the Pa- The President is entitled to a period of notice of two years on rent Company were MSEK 10 (10) and MSEK 37 (36), respectively. termination by the company and six months on termination by the In foreign subsidiaries, defi ned-contribution plans are fi nanced President. No severance payments are made. partly by the companies and partly by contributions paid by the For other senior executives (eight persons, of which two retired employees. during 2005) who were members of Group Management at the start Premiums for these plans are paid on a current basis in accor- of 2005, the retirement age is 60 years. Pension is payable at 65% dance with regulations for each plan. (75% for the two persons who retired in 2005) of the pension-carrying salary (defi ned according to ITP plan, and free car benefi t) at the Personnel costs time of retirement for the period up to the age of 65. The pension Senior executives’ remuneration commitment is secured via endowment or pension insurance taken Senior executives out by LKAB with an insurance company. The pension commitment Senior executives include members of the highest level of Group is benefi t-defi ned and vested. Management and other senior executives. Members of the highest From the age of 65, pension is payable in accordance with the level of Group Management are the Chairman of the Board, and ITP plan with a supplement for salary segments between 30 and 50 the Group President and CEO. The group ’other senior executives’ base amounts. The supplement is 32.5% of the pensionable salary includes eight employees who are members of Group Management, (defi ned according to the ITP plan). The obligation above and bey- which also includes the President. ond the general pension plan is secured via endowment insurance taken out by LKAB with an insurance company. In addition to the ITP The preparation and decision process for establishing remuneration plan’s family pension (survivor annuity), a special family pension is to senior executives payable (extended survivor annuity). Compensation for the President as well as salary setting principles Any bonus paid on endowment or pension insurance policies ac- are drafted and determined by a compensation committee that is ap- crues in its entirety to the senior executives as increased pension. pointed by the Board. The committee consists of the Chairman and For the senior executives (two persons) who were appointed to two other board members. The Board votes on the proposals of the Group Management during 2005, the retirement age is 62 years. The committee. The Chairman of the Board approves the annual salary pension is contribution-defi ned and is secured via endowment in- review of other members of Group Management. surance taken out by LKAB with an insurance company. Premiums amount to 14-17% of basic annual salary. Principles for remuneration to senior executives For other senior executives, notice of termination is six months The President and seven other members of Group Management for both parties. When notice of termination of employment is given are paid a fi xed salary. Remuneration to the Vice President, Market by the company, the severance pay is the equivalent of 18 monthly Division, is a combination of a fi xed salary and variable remunera- salaries. tion. The variable remuneration amounts to a maximum of 50% of The term of notice for the former President expired on 31 Decem- the fi xed salary, at 15% return on the Parent Company’s Operating ber 2005. assets over a period. Both portions of the salary are pensionable. Retirement age for the President is 60 years. Pension is payable Remuneration and benefi ts to Board members and senior manage- at 65% of the pension-carrying salary (defi ned according to ITP plan, ment and free car benefi t) at the time of retirement for the period up to the The Chairman of the Board, Björn Sprängare, received a director’s age of 65. The pension commitment is secured via endowment or fee of MSEK 0.2 for 2005. Other members of the Board, elected by pension insurance taken out by LKAB with an insurance company. the Annual General Meeting, received MSEK 0.1 (0.1) each. Remune- The pension commitment is benefi t-defi ned and vested. ration in addition to a director’s fee was not paid to Board members From the age of 65, pension is payable in accordance with the ITP who are not employed by the company. Employee representatives plan with a supplement for old-age pension of at least 50% of the who are Board members have each received MSEK 0.1 (0.1). A sum- pension-carrying salary (defi ned according to ITP plan) at the time mary of taxable remuneration and benefi ts, as well as pension costs of retirement. The supplementary pension commitment is secured for the President and other senior executives in 2005 is given below via endowment or pension insurance taken out by LKAB with an (amounts in SEK ’000).

NOTES TO THE FINANCIAL STATEMENTS 86 LKAB ANNUAL REPORT 2005 NOTE 27 Employee beneﬁ ts (cont.)

Remuneration and other beneﬁ ts during the year Variable Other Total Pension Salary remuneration beneﬁ ts 3) remuneration costs 4)

President and CEO Martin Ivert 3 898 69 3 967 10 412* VP Håkan Sundin 1) 1 145 608 38 1 791 6 046 VP Lars-Eric Aaro 1 876 101 1 977 1 340 VP Leif Boström 2) 796 31 827 356 VP Anders Furbeck 1 630 76 1 706 1 034 VP Bengt Hjärpe 1 441 723 14 2 178 7 155 VP Jan-Erik Jatko 1 766 75 1 841 2 724 VP Ola Johnsson 2 012 66 2 078 1 099 VP Mats Pettersson 2) 835 31 866 317 VP Leif Rönnbäck 1) 1 534 794 66 2 394 7 589 VP Per-Erik Lindvall 1 851 121 1 972 1 677

Total 18 784 2 125 688 21 597 39 749

1) VP Håkan Sundin retired from LKAB with pension 15 September 2005. VP Leif Rönnbäck retired from LKAB with pension 31 December 2005. 2) Only part of 2005. 3) Other beneﬁ ts include allowances for car, food, life insurance beneﬁ ts and housing allowances for two people. 4) Pension cost includes special employer’s contribution (tax). * the corresponding pension cost for 2004 amounted to 11 130 000 kronor, of which 843 000 kronor was prepaid for 2005.

In accordance with the Board’s decision, the system of variable remuneration to members of Corporate Management, with the exception of those who have only a short time remaining until retirement or who have retired during the year, has been terminated during 2005.

NOTES TO THE FINANCIAL STATEMENTS LKAB ANNUAL REPORT 2005 87 NOTE 28 Provisions

Group MSEK 2005-12-31 2004-12-31

Provisions that are long-term liabilities

Pensions 1 690 1 504 Deferred tax liability 1 891 724 Other provisions 303

Totalt 3 884 2 228

Provisions that are current liabilities Pensions 109 116 Emissions rights 59

Total 168 116

Provisions Pensions and similar commitments 1 542 1 349 Other provisions 360

Total 1 902 1 349

MSEK 104 for restructuring of operations in Narvik is included in has reached agreements with Vattenfall and Banverket concer- the Group’s pension provisions. The corresponding amount for the ning compensation for facilities that must be relocated as a result Parent Company is MSEK 74. of deformations. In addition, MSEK 119 is included for allocated Other provisions include MSEK 241 attributable to ground emissions rights for 2006 and 2007, of which MSEK 59 is reported as deformations in Kiruna that have been caused by mining. LKAB short-term liability in the Group.

Payments MSEK 2005-12-31 2004-12-31

Group Amount of provision expected to be paid after more than 12 months 3 716 2 112

Parent Company Amount of provision expected to be paid after more than 12 months 1 807 1 255

NOTE 29 Accrued expenses and prepaid revenues

Electricity 52 37 46 31 Payroll and employee costs 335 281 294 245 Forward exchange contracts, deduction 61 61 Forward exchange contracts 237 Accrued accounts payable 160 91 136 64 Other 76 60 29 31

921 469 566 371

NOTES TO THE FINANCIAL STATEMENTS 88 LKAB ANNUAL REPORT 2005 NOTE 30 Financial risks and ﬁ nance policies

LKAB is exposed to various types of fi nancial risks. Financial risks The Group’s transaction exposure, distributed over the following are associated with fl uctuations in the company’s earnings and cash contract currencies: fl ow as a result of currency exchange-rate fl uctuations, interest Group rates, refi nancing and credit risks. Financial risks are managed ac- 2005 Effect on Currency Amount Change profi t cording to policies established by the Board. LKAB has a centralized USD +1.500 SEK 0.01 MSEK 15 fi nance function, LKAB Treasury Center, which manages most of NOK -200 SEK 0.01 MSEK 2 the Group’s fi nancial risks. A selective strategy is applied, whereby GBP +10 SEK 0.01 MSEK 0.1 potential costs and benefi ts are balanced, the aim being to minimize and neutralize risks in commercial fl ows. LKAB Treasury Center also Transaction exposure in US dollars during 2005 was hedged to 84% acts as the Group’s internal bank and supports subsidiaries with via currency derivatives. fi nancing, investment and currency trading, and functions as an advisor with respect to fi nancial issues. Outstanding forward exchange contracts at closing day Maturity MUSD Hedging rate Currency risk 2006 -1.035 7.60 Both LKAB’s future payment fl ows (transaction exposure) and 2007 -180 8.03 revaluation of receivables and liabilities in foreign currencies (revaluation exposure) are exposed to risks associated with fl uctuations The Group applies hedge accounting and classifi es its forward cont- in exchange rates. Other companies in the Group mainly conduct racts used to hedge forecasted transactions as cash fl ow hedges. business in their local currencies, and both investment and fi nancing The net fair value of forward exchange contracts used to hedge fore- are done mainly in local currencies so as to minimize revaluation casted fl ows amounted to MSEK -298 (987) as of 31 December 2005. exposure.

Translation exposure Transaction exposure LKAB does not normally hedge its translation exposure. Over time, The greatest transaction exposure within the LKAB Group is within this is not considered to add any value for the Group, even though the Mining Division. All prices of iron ore are set in US dollars, the level of exposure has increased in recent years due to the expan- which means that the transaction risk is high without hedging. The sion of the Minerals Division exact magnitude of this risk is diffi cult to ascertain far in advance, since it is largely dependent on the market price of iron ore, which Group is normally set annually. During 2005, the transaction exposure 2005 Currency Amount in millions amounted to MUSD 1 500, and the effect of a difference of SEK 0.1 in the USD/SEK exchange rate on LKAB’s operating profi t, without EUR 22 hedging, is therefore MSEK150. GBP 22 The goal of LKAB’s current currency policy is to minimize the USD 10 impact of exchange rate fl uctuations on the income statement by DKK 66 means of selective risk-taking, so the value of future transaction exposure is periodically hedged. The Board has set up a currency Interest rate risk committee that convenes whenever necessary to advise the Board LKAB’s fi nancing sources are shareholders’ equity, provisions and on hedging of the Mining Division’s commercial fl ows. For other short-term operating credits, which means that LKAB is mainly companies in the Group, transaction exposure arises mainly when exposed to interest rate risks with regard to investments of liquid raw materials are purchased in foreign currencies. All hedging of assets. According to LKAB’s investment policy, the average dura- commercial transactions by subsidiaries must be done through the tion of money-market investments may not exceed three years. At LKAB Treasury Center. maximum duration, a change of one percentage point in the market rate of interest affects LKAB’s earnings by about MSEK 80-120, depending on composition of the instruments in the portfolio. As of 31 December 2005, LKAB’s investments in money-market instruments amounted to MSEK 5 947 (3 917). The duration was 356 (386) days. A one-percent increase in the market rate as of closing day would have affected income negatively by MSEK 54 (42).

NOTES TO THE FINANCIAL STATEMENTS LKAB ANNUAL REPORT 2005 89 NOTE 30 Financial risks and ﬁ nance policies (cont.)

Credit risk market instruments were issued by the Swedish state and Swedish LKAB’s credit risks are mainly associated with trade accounts banks. LKAB has not had any bad debt losses in short-term invest- receivable and short-term investments. As far as credit risks in ments in the past fi ve years. LKAB does not have any substantial trade accounts receivable are concerned, LKAB prioritizes long-term concentration of credit risks in any single customer or counterparty. customer relations, which means that the majority of the customers are well-established contacts. Export letters of credit are used when Liquidity risks deemed necessary. LKAB has not had any bad debt losses in the LKAB maintains good fi nancial preparedness by following guideli- past fi ve years. nes which regulate risk-taking and the investment horizon. LKAB According to LKAB’s investment policy, investments may only has a high proportion of liquid assets and a low debt/equity ratio. A be made in borrowers with high creditworthiness and high liquidity good balance between short and long investment horizons will meet such as the Swedish state, companies wholly owned by the Swedish the long-range fi nancing need. Liquid assets are invested primarily state, county councils, municipalities or companies with the highest on the Swedish money market in securities with high liquidity. credit rating. As of closing day, 96% (96%) of investments in money-

Fair value Fair value and reported value are stated on the balance sheet below. Group Reported Fair Reported Fair value value value value MSEK 2005 2005 2004 2004

Financial ﬁ xed assets 1 253 1 253 121 771 Interest-bearing instruments, short-term holdings 3 265 3 265 1 687 1 699 Shares, short-term holdings 784 784 341 404 Trade accounts receivable and other receivables 2 102 2 102 1 360 1 360 Liquid assets (incl. short-term investments, equated with liquid assets) 3 042 3 042 2 488 2 488 Forward exchange contracts (USD) -298 -298 30 987 Embedded derivatives -4 -4 - 1 Accounts payable and other liabilities -1 006 -1 006 -629 -629

9 138 9 138 5 398 7 081

Undisclosed proﬁ ts 1 683

Parent Company Reported Fair Reported Fair value value value value MSEK 2005 2005 2004 2004

Financial ﬁ xed assets 110 1 253 121 771 Interest-bearing instruments, short-term holdings 3 255 3 265 1 687 1 699 Shares, short-term holdings 619 784 341 404 Trade accounts receivable and other receivables 3 129 3 129 2 113 2 113 Liquid assets (incl. short-term investments, equated with liquid assets) 2 936 2 936 2 392 2 392 Forward exchange contracts (USD) -61 -298 30 987 Embedded derivatives 0 -4 0 1 Accounts payable and other liabilities -1 714 1 714 -887 -887

8 274 9 351 5 797 7 480

Undisclosed proﬁ ts 1 077 1 683

Fair value calculation Derivative instruments The following is a summary of the principal methods and assump- Forward exchange contracts are valuated at current market price by tions used in determining the fair value of ﬁ nancial instruments using quoted market prices. The discount rate used is the market reported in the table above. interest rate on similar instruments quoted on closing day.

Securities For listed ﬁ nancial assets, fair values correspond to the asset’s buying rate on the balance sheet date.

NOTES TO THE FINANCIAL STATEMENTS 90 LKAB ANNUAL REPORT 2005 NOTE 31 Operating leasing

Leasing agreements in which the company is the lessee Non-cancelable lease payments amount to: Group MSEK 2005 2004

Within one year 5 Between one and ﬁ ve years 12 Longer than ﬁ ve years 10

The Group’s future leasing fees are dominated by a land lease. The the Group is reported at MSEK 3 (-), of which MSEK 3 (-) is attributa- remaining term of the leasing agreement is 13 years. In the ﬁ nancial ble to minimum leasing fees and MSEK - (-) variable fees. statement for 2005, an expense that refers to operating leasing in There are no signiﬁ cant leasing agreements in the Parent Company. NOTE 32 Contractual obligations

At year-end, the Group’s remaining contractual obligations to year 2006. The Parent Company’s obligations amounted to 3 926, of acquire tangible ﬁ xed assets amounted to MSEK 4 125. Of these which MSEK 1 882 is expected to be paid during 2006. obligations, MSEK 1 997 is expected to be paid during the ﬁ scal

NOTE 33 Assets pledged and contingent liabilities

Assets pledged In the form of assets pledged for liabilities and provisions Chattel mortgaes 3 3 Company-owned endowment insurance 86 55 85 55 Deposit of liquid assets 63 - 63 -

Total assets pledged 152 58 148 55

Contingent liabilities Guarantees, FPG/PRI 9 9 9 9 Guarantees, GP plan 1 1 2 1 Sureties 8 - 16 Other 48 - - Forward exchange contracts 441 -

Total contingent liabilities 66 10 452 26

There are obligations (both formal and informal) with respect to Future closure of operations may entail statutory requirements structural transitions in Kiruna. As a consequence of the deforma- for site remediation, etc. The future costs cannot be estimated in a tion zone resulting from mining operations, considerable costs for reliable way, which is why no provision for costs is made. LKAB can arise during the coming years. The future costs, or the share of costs to be assumed by LKAB, cannot be estimated in a reliable way, which is why no provisions have yet been made.

NOTES TO THE FINANCIAL STATEMENTS LKAB ANNUAL REPORT 2005 91 NOTE 34 Related parties

Related-party relations The Group is subject to the controlling inﬂ uence of the Swedish transactions with Svenskt Stål AB (SSAB) via shareholding, and with state. Aside from the close relationships that the Parent Company Vattenfall AB via a long-term energy agreement. has with its subsidiaries (see Note 35), the Group has related-party

Summary of related-party transactions Group Sales of Purchase of Liabilities to Receivables from goods to goods from Related parties Related parties Related-party relation Year Related parties Related parties 31 December 31 December

Associated companies 2005 13 1 37 Associated companies 2004 11 - 42

Parent Company Sales of Purchase of Liabilities to Receivables from goods to goods from Related parties Related parties Related-party relation Year Related parties Related parties 31 December 31 December

Subsidiaries 2005 237 1 102 942 1 277 Subsidiaries 2004 203 978 474 972

Associated companies 2005 13 1 35 Associated companies 2004 11 - 40

Deliveries of iron ore to SSAB have amounted during the year to The principal will be repaid in full in 2011, at which time proﬁ t 5.3 (5.4) Mt. For information concerning related-party transactions shares will also be distributed. with Vattenfall AB, please refer to the section on Secured electricity Transactions with key individuals in leading positions are repor- deliveries in the Report of the Directors. ted in Note 6 and Note 27. In 1997, LKAB made a participating loan with a nominal amount Transactions with related parties are priced and conducted in ac- of MSEK 40 to the associated company Norrskenet AB. cordance with commercial principles. The loan has a remaining maturity of 6 years. Interest is paid annually and amounted to SEK 172 000 (80 000) in 2005.

NOTE 35 Group companies

Accumulated acquisition values At start of year 607 518 Purchases 100 Sales -11

NOTES TO THE FINANCIAL STATEMENTS 92 LKAB ANNUAL REPORT 2005 NOTE 35 Group companies (cont.)

Speciﬁ cation of the Parent Company’s ownership of participations in associated companies

Ownership Ownership 2005-12-31 2004-12-31 in % in % Reported Reported Subsidiary / Corp. ID No. / Registered ofﬁ ce Total shares 2005 2004 value value

Swedish subsidiaries Fastighets AB Malmfälten /556009-8849/ Kiruna 5 000 100.0 100.0 0 0 Wassara AB /556331-8566/ Stockholm 12 000 60.0 60.0 5 5 AB Kiruna Grus & Stenförädling /556074-8237 /Kiruna 24 000 100.0 100.0 47 47 LKAB Nät AB /556059-9796/ Kiruna 10 100.0 100.0 0 0 Minelco AB /556223-1786 /Luleå 2 000 000 100.0 100.0 200 200 LKAB Försäkrings AB /516406-0187 / Luleå 10 000 100.0 100.0 100 100 Malmtraﬁ k i Kiruna /556031-4808 / Kiruna 208 000 100.0 100.0 252 252

Foreign subsidiaries AS Bukserbåter /918 271 252/ Narvik, Norway 99 99.0 99.0 0 0 AS Taraldsvik /918 400 184/ Narvik , Norway 200 100.0 100.0 0 0 LKAB Far East Pte Ltd /198401144W/ Singapore, Singapore 200 000 100.0 100.0 1 1 LKAB S.A. /403 455 761/ Brussels 100 100.0 100.0 0 0 LKAB Schwedenerz GmbH /HRB 718/ Essen 100 100.0 100.0 2 2

Total, Parent Company 100.0 100.0 607 607

Indirect ownership via the subsidiary Minelco AB Minelco B.V /24236591/ Breda, Netherlands 100.0 100.0 Minelco Inc /02-0551509/ Cincinnati, USA 100.0 100.0 Minelco GmbH /HRB 16692/ Essen, Germany 100.0 100.0 Minelco Asia Paciﬁ c Ltd /876455/ Hong Kong, Hong Kong 100.0 100.0 Minelco Ltd /0245817/ Welton, UK 100.0 100.0 Minelco OY /1934671-4/ Helsingfors, FInland 100.0 100.0 Likya Minelco/-/Izmir, Turkey 50.0 Seqi Olivine AS/A/S277716/Nuuk, Greenland 100.0 50.0

Minelco Holding Ltd / 04621769/ Derby, UK 100.0 100.0 Minelco Tianjin Minerals Co /70051551-5/ Dongli District Tianjin, China 100.0 100.0 Minelco Minerals Ltd /00103751/ Derby, UK 100.0 100.0 Quay Minerals Ltd /02732626/ Flixborough, UK 100.0 100.0 Tianjin Jindalai Mineral /60089030-X/ Dongli District Tianjin, China 100.0 100.0 Fergusson Wild & Co Ltd /2529921/ West Sussex, UK 100.0 100.0 Fordamin Company Ltd /00925517, UK 100.0 100.0 Minelco Specialities Ltd /1151578/ Derby, UK 100.0 100.0 Microﬁ ne Hellas A.E./-/Thessaloniki, Greece 100.0 100.0

Indirect ownership via the subsidiary AB Kiruna Grus & Stenförädling AB KGS Mekaniska /556013-3059/ Kiruna 100.0 100.0 AB KGS Contracting /556412-5010/ Kiruna 100.0 100.0 Kimit AB /556190-6115/ Kiruna 100.0 100.0

Indirect ownership via the subsidiary Malmtraﬁ k i Kiruna AB Malmtraﬁ kk AS /974 644 991/ Narvik, Norway 100.0 100.0

Indirect ownership via the subsidiary AS Taraldsvik LKAB Norge AS /930 033 510/ Narvik, Norway 100.0 100.0

NOTES TO THE FINANCIAL STATEMENTS LKAB ANNUAL REPORT 2005 93 NOTE 36 Untaxed reserves

Accumulated depreciation in excess of plan: Buildings and land Opening balance 1 January 15 17 Accelerated depreciation -2 -2

Machinery and inventories Opening balance 1 January 1 882 2 065 Accumulated depreciation in excess of plan 163 Accelerated depreciation -183

Construction in progress Opening balance 1 January 69 69

Underground installations Opening balance 1 January 14 16 Accumulated depreciation in excess of plan Disposals, retirements and dissolution -3 -2

Tax allocation reserves Allocated at 2001 assessment 73 73 Allocated at 2003 assessment 147 147 Allocated at 2004 assessment 294 294 Allocated at 2005 assessment 500 500 Allocated at 2006 assessment 1 410

Total untaxed reserves 4 562 2 994

NOTES TO THE FINANCIAL STATEMENTS 94 LKAB ANNUAL REPORT 2005 NOTE 37 Cash ﬂ ow statement

Liquid assets - Group MSEK 2005-12-31 2004-12-31

The following sub-components are included in liquid assets Cash and bank balances 336 238 Short-term investments, equated with liquid assets 2 706 2 250

Total according to balance sheet 3 042 2 488

Total according to cash ﬂ ow statement 3 042 2 488

Liquid assets - Parent Company MSEK 2005-12-31 2004-12-31

The following sub-components are included in liquid assets Cash and bank balances 240 162 Short-term investments, equated with liquid assets1) 2 696 2 230

Total according to balance sheet 2 936 2 392

Total according to cash ﬂ ow statement 2 936 2 392

1) Liquid assets include short-term investments that have been classifi ed as liquid assets according to the following: • They entail insignifi cant risk for value fl uctuations • They can be easily converted to cash • They have a maturity of at most three months from date of acquisition

Interest paid and dividends received Group Parent Company MSEK 2005 2004 2005 2004

Dividends received 47 35 65 91 Interest received 362 125 400 161 Interest paid -2 -2 -8 -8

407 158 457 244

Adjustments for items not included in cash ﬂ ow Group Parent Company MSEK 2005 2004 2005 2004

Depreciation 951 1 079 791 919 Write-downs 8 - 5 Unrealized exchange rate differences -34 5 Changes in value of ﬁ nancial instruments -101 Income from sale and retirement of tangible assets 55 37 34 27 Income from sale of ﬁ nancial assets -89 - -89 Provisions for pensions 108 -37 193 2 Other items that do not affect liquidity 14 - 1 Other provisions 244 - 242

1 156 1 084 1 176 949

Tax paid Group Parent Company MSEK 2005 2004 2005 2004

Tax expense according to income statement -1 904 -456 -1 251 -460 Change in tax recoverable/liability -236 161 -302 145 Adjustment for deferred tax 606 -3 -35 -1 Regulation of provisions for taxes - -20 - -20 Adjustment for tax effect of Group contributions 105 41

- 1 534 -318 -1 483 -295

NOTES TO THE FINANCIAL STATEMENTS LKAB ANNUAL REPORT 2005 95 NOTE 38 Explanations with regard to the transition to IFRS

This fi nancial report for the Group is the fi rst prepared according to In the preparation of the Group’s opening balance sheet, amounts IFRS, as indicated in Note 1. reported according to previously applied accounting principles have The accounting principles in Note 1 have been applied in the pre- been adjusted to IFRS. Explanations on how the transition from paration of the Group’s fi nancial reports for fi scal year 2005 and for previous accounting principles to IFRS has affected the Group’s the comparative year, 2004, as well as for the Group’s opening ba- fi nancial position, fi nancial results and cash fl ows are provided in lance on January 1, 2004, with the exception of IAS 32 and 39, which the following tables and explanations. in accordance with exceptions in IFRS 1,are applied only to 2005. With regard to the application of IAS 32 and 39 as of January 1, 2005, see Note 39. Reconciliation of shareholders’ equity Effect of Effect of Previous transition Previous transition principles to IFRS IFRS principles to IFRS IFRS MSEK Note 1 Jan. 2004 31 Dec. 2004

Assets Intangible assets A 182 182 198 13 211 Tangible assets 6 476 6 476 6 316 6 316 Participations in associated companies and joint ventures 4 4 33 33 Financial investments 121 121 124 124 Long-term receivables 71 71 62 22

Total ﬁ xed assets 6 855 6 855 6 733 13 6 746

Inventories, etc. 976 976 1 008 -2 1 006 Taxes recoverable 9 9 8 8 Accounts receivable 1 198 1 198 1 194 1 194 Prepaid expenses and accrued revenues 106 106 83 83 Other receivables 201 201 102 2 104 Short-term investments 712 -432 280 2 690 -662 2 028 Cash and bank balances 2 232 432 2 644 1 826 662 2 488

Total current assets 5 434 5 434 6 911 6 911

Total assets 12 289 12 289 13 644 13 13 657

Shareholders’ equity Share capital 700 700 700 700 Other reserves -11 -11 Accumulated proﬁ t or loss B 8 064 8 064 9 342 13 9 355

Shareholders’ equity attributable to Parent Company shareholders 8 764 8 764 10 031 13 10 044

Minority interest 4 4 3 3

Total shareholders’ equity 8 768 8 768 10 034 13 10 047

Liabilities Other long-term liabilities 2 2 2 2 Provisions for pensions 1 654 1 654 1 620 -116 1 504 Other provisions 20 20 1 1 Deferred tax liability 727 727 724 724

Total long-term liabilities 2 403 2 403 2 347 -116 2 231

Accounts payable - trade 523 523 497 497 Income tax payable 8 8 168 168 Other liabilities 161 161 129 129 Accrued expenses and prepaid revenues 426 426 469 469 Provisions for pensions 116 116

Total current liabilities 1 118 1 118 1 263 116 1 379

Total liabilities 3 521 3 521 3 610 3 610

Total shareholders’ equity and liabilities 12 289 12 289 13 641 13 13 657

NOTES TO THE FINANCIAL STATEMENTS 96 LKAB ANNUAL REPORT 2005 NOTE 38 Explanations with regard to the transition to IFRS (cont.)

Notes to reconciliation of shareholders’ equity (A) In the Group’s ﬁ nancial reports, IFRS 3 has been applied with respect to all acquisitions made from 1 January 2004, the date of transition to IFRS. As of 1 January 2004, goodwill is no longer amortized. Instead it is tested for impairment annually or when there is an indication of diminished value. As a result of the above-stated adjustments, the reported value of goodwill has increased by MSEK 13. Reversals of goodwill amortization from 2004 amount to SEK 13 (reported among cost of goods sold).

(B) The effect of the above-stated adjustments on accumulated proﬁ t or loss is reported in the table below.

Group MSEK 1 January 31 December 2004 2004

Goodwill 13

Total adjustments in shareholders’ equity 13

Attributable to: the Parent Company’s shareholders 13 Minority interest 13

Reconciliation of income statement for 2004 Group Effect of According to transition According MSEK Note Sw GAAP to IFRS to IFRS

Net sales 8 988 8 988 Cost of goods sold A -6 193 13 -6 180

Gross margin 2 795 13 2 808

Selling expenses -289 -289 Administrative expenses -353 -353 Research and development expenses -235 -235 Other operating expenses -197 -197 Other operating revenues 207 207

Operating income 1 928 13 1 941

Income from ﬁ nancial items 227 227 Financial expenses -145 -145

Net ﬁ nancial income/expense 82 13 82

Income before tax 2 010 13 2 023 Tax -456 -456

Net income for the year 1 554 13 1 567

Attributable to: Parent Company shareholders 1 555 13 1 568 Minority interest -1 -1

Earnings per share 2 221 2 240

NOTES TO THE FINANCIAL STATEMENTS LKAB ANNUAL REPORT 2005 97 NOTE 39 Change in accounting principles 1 January 2005

According to IFRS, fi nancial assets are classifi ed as ”Financial assets Valuation of forward exchange contracts at fair value has held for sale” and all derivative instruments have been recognized increased the reported value of derivative instruments and the at fair value. hedging reserve by MSEK 959 and MSEK 691, respectively, as of 1 The effect of recognizing shares and share-related securities, clas- January 2005. Deferred tax amounts to MSEK 268. sifi ed as fi nancial assets held for sale, at fair value is that fi nancial The income for 2005 has not been affected, since all changes in assets and fair value reserve increase by MSEK 650 and MSEK 468, value have been booked against shareholders’ equity. respectively, as of 1 January 2005. Deferred tax amounts to MSEK For further information, see the note on ”Compilations of chan- 182. ges in shareholders’ equity - LKAB Group”.

Reconciliation of shareholders’ equity Effect of transition to MSEK 2004-12-31 IAS 39 2005-01-01

Assets Intangible assets 211 211 Tangible assets 6 316 6 316 Participations in associated companies and joint ventures 33 33 Financial investments 124 650 774 Long-term receivables 62 62

Total ﬁ xed assets 6 746 650 7 396

Inventories, etc. 1 006 1 006 Taxes recoverable 8 8 Accounts receivable 1 194 1 194 Prepaid expenses and accrued revenues 83 959 1 042 Other receivables 104 104 Short-term investments 2 028 74 2 102 Cash and bank balances 2 488 2 488 Total current assets 6 911 1 033 7 944 Total assets 13 657 1 683 15 340

Shareholders’ equity Share capital 700 700 Other reserves -11 1 157 1 146 Accumulated proﬁ t or loss 9 355 55 9 410

Shareholders’ equity attributable to Parent Company shareholders 10 044 1 212 11 256 Minority interest 3 3

Total shareholders’ equity 10 047 1 212 11 259 Liabilities Other long-term liabilities 2 2 Provisions for pensions 1 504 1 504 Other provisions 1 1 Deferred tax liability 724 471 1 195 Total long-term liabilities 2 231 471 2 702 Accounts payable - trade 497 497 Income tax payable 168 168 Other liabilities 129 129 Accrued expenses and prepaid revenues 469 469 Provisions for pensions 116 116 Total current liabilities 1 379 1 379 Total liabilities 3 610 471 4 081 Total shareholders’ equity and liabilities 13 657 1 683 15 340

NOTES TO THE FINANCIAL STATEMENTS 98 LKAB ANNUAL REPORT 2005 Proposed disposition of unappropriated earnings

The Board of Directors and President propose that unappropriated earnings of MSEK 8 471 be distributed as follows: Dividend, 700 000 shares x 2 143 kronor per share MSEK 1 500 Funds to be carried forward MSEK 6 971 Total MSEK 8 471

The Board of Directors and the President certify that, to the best of our knowledge, the ﬁ nancial statements have been prepared in accordance with generally accepted accounting principles. The information presented is consistent with the actual conditions and that nothing of material importance has been omitted that would affect the picture of the Group and Parent Company presented in the ﬁ nancial statements.

Luleå, 22 February 2006

Björn Sprängare Chairman

Christer Berggren Stina Blombäck Per-Ola Eriksson

Lars-Åke Helgesson Anna-Greta Sjöberg Ursula Tengelin Egil M. Ullebø

Tomas Nilsson Bertil Thornberg Karl Wikström Employee representative Employee representative Employee representative

Martin Ivert President and CEO

The Annual Report and consolidated ﬁ nancial statements have, as stated above, been approved for publication by the Board of Directors on 22 February 2006. The consolidated income statement and balance sheet, and the Parent Company income statement and balance sheet will be subject to approval by the Annual General Meeting on 25 April 2006.

Our Audit Report was submitted on 7 March 2006.

KPMG Bohlins AB

Roland Nilsson Annicka Brännström Authorized public accountant Authorized public accountant Chief accountant

PROPOSED DISPOSITION OF UNAPPROPRIATED EARNINGS LKAB ANNUAL REPORT 2005 99 Audit Report

To the annual meeting of the shareholders of Luossavaara-Kiirunavaara AB Corporate identity number 556001-5835

We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the board of directors and the managing director of Luossavaara-Kiirunavaara AB for the year 2005. The board of directors and the managing director are responsible for these accounts and the administration of the company as well as for the application of the Annual Accounts Act when preparing the annual accounts and the application of Interna- tional Financial Reporting Standards IFRSs as adopted by the EU and the Annual Accounts Act when preparing the consolidated accounts. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit. We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain high but not absolute assurance that the annual accounts and the consolidated accounts are free of material misstatement. An audit includes examining, on a test basis, evidence sup- porting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the board of directors and the managing director and signifi cant estimates made by the board of directors and the managing director when preparing the annual accounts and the consolidated accounts as well as evaluating the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined signifi cant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any board member or the managing director. We also examined whether any board member or the managing director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below. The annual accounts have been prepared in accordance with the Annual Accounts Act and give a true and fair view of the company’s fi nancial position and results of operations in accordance with generally accepted accounting principles in Sweden. The consolidated accounts have been prepared in accordance with International Financial Reporting Standards IFRSs as adopted by the EU and the Annual Accounts Act and give a true and fair view of the group’s fi nancial position and results of operations. The statutory administration report is consistent with the other parts of the annual accounts and the consolidated accounts. We recommend to the annual meeting of shareholders that the income statements and balance sheets of the parent company and the group be adopted, that the profi t of the parent company be dealt with in accordance with the proposal in the administration report and that the members of the board of directors and the managing director be discharged from liability for the fi nancial year.

Luleå, 7 March 2006 KPMG Bohlins AB

Roland Nilsson Annicka Brännström Authorized public accountant Authorized public accountant Chief accountant

REVISIONSBERÄTTELSE 100 LKAB ANNUAL REPORT 2005 Corporate Governance of LKAB

LKAB is wholly owned by the Swedish state. The basis for corporate governance of LKAB is Swedish legislation, guidelines from the state and internal guidelines.

CORPORATE GOVERNANCE REPORT The State Ownership Policy dictates that the Swedish Employment and Communications. The owner’s princi- Code of Corporate Governance (the Code) must serve as pal objective is to create value. State-owned companies part of the government’s framework for ownership admi- can in principle be divided into two groups: companies nistration. that primarily have special societal interests to fulfi ll and LKAB has decided to adhere as much as possible to the companies operating under market conditions and requi- Code, accept in areas where state ownership does not rements. LKAB, which belongs to the latter category, will permit. Introduction of appropriate sections of the Code develop a successful business operation by mining, pro- is expected to be completed during 2006. cessing and marketing minerals. The owner’s income and yield requirements for LKAB LKAB’S OPERATIONS are on normal market terms. LKAB’s dividend policy en- LKAB’s operations are capital intensive. Compared to oth- tails that the dividend to the owner will, over the long term, er iron ore companies, nearly all of which mine their ore in amount to 30-50% of income after tax and be adapted to open pits, LKAB has a heavier capital burden, since under- the average earnings level over a business cycle. The ground mining demands more extensive investments. state exercises its ownership via an established owner- The operation is also strongly dependent on business ship policy, nominations to the Board and requirements cycles. Therefore, LKAB must have substantial fi nancial for fi nancial and other reporting. The state’s requirement strength to be able to cope with cyclical fl uctuations over of insight is assured by direct owner representation on several years and to be able to fi nance the heavy invest- the Board. Reports to the owner are important steering ments that will secure the company’s future. instruments for the ongoing monitoring and assessment Against this background, the long-term requirement on of the companies. State-owned companies should have at rate of return on operating assets has been set at 10%, least the same level of transparency as listed companies. measured over a business cycle. During the years 2002- In the Board’s instructions, distribution of responsibility 2005, return on operating assets has been 2, 11, 23 and between the Board and the owner is regulated. According 58%, respectively. to the Board’s statutory instructions, the Board, via the LKAB has built up a high proportion of liquid assets Chairman, coordinates its views on issues of decisive im- and has a low debt/equity ratio. Liquid assets are inves- portance with the owner’s representatives. Such issues ted primarily on the Swedish money market in securities include strategic changes in the company’s operations, with high liquidity and low credit and interest-rate risk. major acquisitions, mergers or divestments, as well as The goal is that the rate of return on managed cash as- decisions affecting signifi cant changes in the company’s sets should exceed the money-market index over the long risk profi le or balance sheet. term. LKAB is in a phase of strong development, due in part ANNUAL GENERAL MEETING to the broadening into new minerals and market seg- LKAB’s Annual General Meeting is open to the public. No- ments that is now under way, and partly owing to strong tice of the Annual General Meeting is made via LKAB’s growth in the Mining Division. Our assessment is that de- website and via newspaper advertisements. The public is mand for LKAB’s products will grow in the coming years. entitled to submit questions to the AGM. Questions to the This will create conditions for further growth through in- AGM may also be submitted via the website. As of 2005, vestments in, for example, new pelletizing plants and new the minutes of Annual General Meetings are posted on main levels. LKAB’s website. The Board believes that the company is capable of ma- The meeting decides on remuneration to the Chairman naging this growth if the current dividend policy is main- and other board members, as well as any remuneration tained. LKAB can then use the strong fi nancial platform for committee work. the company now has to ensure continued profi table de- The Annual General Meeting for 2005, which was velopment within its business areas. LKAB’s fi rst shareholders’ meeting open to the public, was held on 28 April. About 100 people attended the OWNERSHIP meeting. An extraordinary general meeting was held on LKAB is wholly owned by the Swedish state, represen- 18 September. ted by the government and the Ministry of Industry,

CORPORATE GOVERNANCE OF LKAB LKAB ANNUAL REPORT 2005 101 NOMINATIONS/ APPOINTMENT OF MEMBERS OF Each year, the Board of Directors establishes its rules THE BOARD AND AUDITORS of procedure, essentially following the recommendation Since LKAB is wholly state-owned, it does not have a no- issued by the Ministry of Industry, Employment and Com- mination committee per se, as defi ned by the Code. The munications. nomination committee prepares the meeting’s decisions on matters relating to appointments. The chair of the COMPOSITION OF THE BOARD meetings is appointed by the owner’s representative at The Board of Directors of LKAB has consisted during the the meeting. year of eight members who have no relation to the company or its senior management and have been elected by BOARD OF DIRECTORS the Annual General Meeting, plus three members with According to LKAB’s Articles of Incorporation, the Board three deputies appointed by the employees. Deputies of of Directors will consist of not less than six and not more the employee representatives also participate in board than 11 members with not more than seven deputies. The meetings. The Board has an independent legal advisor President is responsible for ensuring that newly elected who is also the permanent secretary. The President is not board members undergo an introductory course. Owing to a member of the Board, but attends meetings of the Board. the introduction of the Code and the new Companies Act, The Chairman is elected, as are the other board members, the Articles of Incorporation will be updated during 2006. by the general meeting of shareholders, for one year. Normally six ordinary meetings are held each year: in February, April, June, August, November and December. THE WORK OF THE BOARD OF DIRECTORS DURING 2005 The meetings follow a fi xed calendar to ensure that the At the Annual General Meeting on 28 April, two board Board’s need for information is satisfi ed. members, Hans Christer Olson and Carl Wilhelm Ros, A board meeting held at the end of each quarter consi- stepped down from the Board. At an extraordinary meeting ders the interim fi nancial reports for the most recent quar- on 18 September, Anna-Greta Sjöberg was elected a mem- ter as well as the forecast for the coming four quarters. ber of the Board. This allows the Board to make an ongoing assessment of During the year, the Board has held seven meetings, strategies and delegations to the President and to decide one via telephone. Meetings are normally held in loca- on specifi c investment projects. tions where LKAB has operations, in Stockholm, or in Normally the fi rst meeting of the year is at the year- conjunction with trips to LKAB’s market areas. In 2005, end closing, when LKAB’s auditors also participate. The the Board visited Brazil. Attendance of the members of second is a strategy meeting with an emphasis on person- the Board is presented in the table below. nel development matters combined with a presentation of the interim accounts. The third and fourth meetings also BOARD COMMITTEES address issues pertaining to operations and strategy. Currency committee The emphasis of the fi fth meeting is on the market si- The Board has appointed a currency committee that will tuation. At the sixth and fi nal meeting, the strategic plan prepare and oversee the hedging program. The com- for the coming three to four years is revised. mittee, which is led by the Chairman of the Board, Björn

ATTENDANCE OF THE MEMBERS OF THE BOARD DURING 2005

24/2 28/4 20-21/6 25/8 4/11 19-23/11 15/12 (telephone) Björn Sprängare x x x x x x x Christer Berggren x x x x x x x Stina Blombäck x x x x x x Per-Ola Eriksson x x x x x x Lars-Åke Helgesson x x x x x x x Hans Christer Olson x Carl Wilhelm Ros x Anna-Greta Sjöberg x x x Ursula Tengelin x x x x x x x Egil M Ullebö x x x x x x x Bertil Tornberg x x x x x x x Tomas Nilsson x x x x x x x Karl Wikström x x x x x x x Hans Fängvall x x x x x x x Tomas Kohkoinen x x x x x x x Torsten Thorneus x x x x x x

CORPORATE GOVERNANCE OF LKAB 102 LKAB ANNUAL REPORT 2005 Sprängare, includes board members Anna-Greta Sjöberg tors, who normally attend the fi rst board meeting of the and Christer Berggren, Martin Ivert, President, Leif year, which normally concerns the year-end fi nancial sta- Boström, Vice President Finance, Clas-Göran Bergbom tements. and Karl Wikström (employee representative on LKAB’s To ensure the quality of the fi nancial statements, the Board). The committee held three meetings during 2005. Board considers all critical accounting questions and the Minutes and reports from the meetings are submitted to fi nancial reports presented by the company. The Board LKAB’s Board. also considers issues of internal control, compliance with regulations, signifi cant uncertainties in reported values, Remuneration committee non-remedied errors, events after closing day, changes The Board appoints a remuneration committee to prep- in estimates, any possible improprieties, and other condi- are decisions on terms of employment for the President. tions affecting the quality of fi nancial reporting. The remuneration committee can also support the work of the President in establishing the salaries of senior ex- EXTERNAL AUDITORS ecutives and other key personnel. Proposals for incentive The Annual General Meeting of 2003 appointed as the programs or other remuneration are prepared by the re- company’s auditors KPMG Bohlins until the close of the muneration committee for the decision of the Board or Annual General Meeting of 2007. The Chief Accountant is presentation to the annual general meeting of sharehol- Roland Nilsson. ders. Decisions are documented and kept on record by the Remuneration to the auditors is stated in Note 7 of the secretary of the Board. Report of the Directors. The auditors are engaged to review the interim reports Audit committee as of 2005. The Board is responsible for the company having a for- malized and transparent system which ensures that the EXECUTIVE MANAGEMENT established principles for fi nancial reporting and internal The executive management consists of nine persons. The control are complied with and that functional relations President’s duties and obligations are stated in the ins- with the company’s auditors are maintained. The normal tructions and formal work plan for the Board and Presi- tasks of the audit committee have been performed by the dent. According to these, the President shall: Board during 2005. • manage, plan, develop and control the company’s op- An audit committee has been appointed in February 2006. erations in accordance with goals and strategies established by the Board; ASSESSMENT OF THE WORK OF THE BOARD • make provisions to ensure that the company’s accoun- A written survey of the Board’s work, prepared annually, ting complies with the law and that fi nancial assets are includes questions concerning how the Board collective- managed in a satisfactory manner; ly, and each member individually, has fulfi lled the tasks • oversee the company’s operations with respect to com- at hand. The evaluation report supports the work of the pliance with legislation and regulations, ensure that the Board. The Chairman is responsible for following up the re- decisions of the Board and other decided measures per- sults, which form a basis for discussion and improvement. taining to the operation of the company are implemen- The work of the Chairman is normally assessed by the ow- ted, and that the company’s operations are organized in ner, but this may also be part of the work of the Board. a functional manner and conducted in accordance with In recent years, the Board has assessed its work by the Articles of Incorporation; means of a questionnaire completed by each board mem- • assume responsibility for presentations and other re- ber. For 2004, this procedure was replaced by an in-depth porting to the Board; interview, whereby the Chairman interviewed each AGM- • establish instructions and functional descriptions that elected board member and the employee representatives. are deemed necessary but have not been established by The entire Board has access to the results of this evalua- the Board; tion, as does the President, where applicable. • assume responsibility for the company’s ongoing media contacts; media contacts with respect to issues pertain- ASSESSMENT OF THE WORK OF THE PRESIDENT ing to ownership and major structural considerations Evaluation of the President’s work is a fundamental task of are the responsibility of the Chairman; the Board. A summary of the Board’s views is made by the • ensure that introductory courses are provided for newly Chairman, who presents a detailed outline of the President’s elected members of the Board. strengths and weaknesses as identifi ed by the Board. The Chairman of the Board approves any directorships held by the President outside of the company. FINANCIAL REPORTING AND INTERNAL CONTROL The Board ensures the quality of fi nancial reporting and Luleå, 22 February 2005 internal control in consultation with the company’s audi- Board of Directors

CORPORATE GOVERNANCE OF LKAB LKAB ANNUAL REPORT 2005 103 THE BOARD OF DIRECTORS’ REPORT ON INTERNAL CONTROL

According to the Swedish Companies Act and the Swe- begun. Where the balance sheet and income statement dish Code of Corporate Governance, the Board of Direc- are concerned, the most important processes have been tors is responsible for internal control. This report has identifi ed, and these will be successively documented as been prepared according to the Swedish Code of Corpo- risks are identifi ed. Work on identifying and structuring rate Governance, sections 3.7.2 and 3.7.3, and accordingly the Group’s most central processes began during 2005 is limited to internal control over fi nancial reporting. This and is expected to be completed during 2006. report is not a part of the formal annual report. The company has successfully introduced quality and environmental and energy management systems. Accor- Description of the internal control over ding to the same model and philosophy, a management fi nancial reporting system for quality assurance of fi nancial reporting will also be introduced. CONTROL ENVIRONMENT The basis of internal control is the control environment CONTROL ACTIVITIES within LKAB. This includes the organization, decision-ma- Important aspects of LKAB’s control structure are autho- king processes, authorities and responsibilities, as well as rization manuals, descriptions of authorities, and instruc- the management culture adopted by the Board and Ma- tions for year-end fi nancial reporting. In addition, there nagement. The keyword within the Group is quality. As are specifi c control procedures for managing unique risks expressed in the quality policy, the basis for quality is that of errors in fi nancial reporting. Together with the identi- each individual must assume responsibility for the quality fi ed risks, the control activities are being documented in of his or her work and strive for zero-defects in everything the ongoing process review. he or she does. Upholding these values entails a process of continuous improvement. Personnel turnover is low, and policies and procedures are well established within INFORMATION AND COMMUNICATION the Group. This is indicative of a long-term approach and Information on the applicable control structure is avail- stability in the company. Controlling documents such as able on LKAB’s intranet, to which all employees have the policies for ethics, fi nance, currency, information and access. Procedures for managing identifi ed shortcomings quality are published on the company’s intranet. LKAB are being updated. The aim is to be able, as of 2006, to re- has an incentive system, but this is not directly dependent gularly review the changes in, and underlying reasons for, on the company’s fi nancial outcome. the existing controls, and to develop these so that good Responsibilities and roles concerning fi nancial re- internal control of fi nancial reporting can be maintained. porting have been defi ned and communicated to employees in the fi nance and fi nancial control functions. FOLLOW-UP In conjunction with review of the control structure, re- FINANCIAL MANUAL/INSTRUCTIONS sponsibility for ensuring that the control structure is in To maintain a good level of expertise within the fi nance place and is known, and that controls are carried out in function, regular training programs are given. During the the manner prescribed, is identifi ed. This follow-up pro- past year, controllers have received instruction in among cedure is also documented. other areas, IFRS requirements. Finance personnel meet Controllers in each line of business receive the fi nancial regularly throughout the year, and prior to preparation of information and comment upon it. During 2006, the con- the year-end statements, instructions for year-end fi nan- trollers will review the fi nancial information with mana- cial reporting are distributed. gers at the operational level. The most important procedures and principles for fi - LKAB’s central fi nance and control function follows up nancial reporting have been summarized in a fi nancial the fi nancial outcome and key ratios on an ongoing ba- manual. sis and closely monitors current investments and capital expenditures within LKAB. Expenditures exceeding MSEK RISK ASSESSMENT 10 are subject to the approval of the President. Where fi nancial information is concerned, LKAB’s objective, as established by the Swedish state, is that fi nancial STATEMENT 2005 reporting should maintain the same level as that of listed In accordance with pronouncements by the Swedish Cor- companies. porate Governance Board, the Board of Directors will not The company identifi es, analyzes and decides on ma- express an opinion on how well the internal control has nagement of risks, both in operations and with respect to functioned during the year. fi nancial reporting. Work on structuring this process has LKAB has at present no internal auditing function. The

CORPORATE GOVERNANCE OF LKAB 104 LKAB ANNUAL REPORT 2005 Board ﬁ nds that the existing structures for follow-up and In February 2006, the Board has established an audit evaluation of the internal control provide a satisfactory committee whose tasks will include preparation of the basis for the Board’s assessment of the internal control. Board’s work towards quality assurance of the company’s For certain special audits, external auditing work may also ﬁ nancial reporting. be done. The decision is reviewed annually. Luleå, 22 February 2006 Board of Directors

GOVERNMENT GUIDELINES

Sweden’s “State ownership policy 2005” outlines the Government’s principles for ownership control and guidelines for employment and external reporting. Below, LKAB’s compliance with these guidelines is summarized.

Requirement Compliance Remarks

Ethical policy ✓ Page 26 Environmental policy ✓ Page 27 Global Responsibility - Ambition, see Ethical policy Gender equality ✓ Page 28 Diversity ✓ See Ethical policy page 26 Healthier workplaces ✓ Page 30, Note 6 Public AGM ✓ As of 2005 Swedish Code for Corporate Governance ✓ Full implementation 2006

Guidelines concerning terms of employment The Annual Report must provide information on terms of employment for persons in managerial positions: Note 27 – Salary, pension costs, all remuneration and beneﬁ ts ✓ – Terms of pension and severance agreements ✓

Fees for the Board of Directors: Note 27 – Chairman ✓ – Board members ✓

Incentive schemes for employees: Page 30 – should include all personnel except the president ✓ – should be directly linked to the company’s overall performance ✓ – clear relationship between goals and the performance of the individual employee ✓ – reasonable in relation to the company’s performance; no reward if a loss is posted ✓ – time-limited, scope for revision, can be terminated ✓ – rules for different forms of employment and upon termination of employment ✓ – no incentive programs introduced for persons in senior management ✓

Guidelines for external reporting Interim reports, year-end statements and annual reports will comply with the Annual Accounts Act, generally accepted accounting principles and Stockholmsbörsens Listing Agreement. ✓ Environment-related information must be integrated with other reporting. ✓ Page 31

The company shall submit quarterly reports within two months of the close of the reporting period ✓

Quarterly reports, year-end statements and annual reports will be published on the company’s website. ✓

The annual report will contain: – General description of market conditions ✓ Page 6 – Financial goals, operating objectives and performance reports ✓ Page 3, 4, 10, 11, 12, 14, 15, 30, 101 – Risk and sensitivity analysis, operating risks and ﬁ nancial risks ✓ Page 38, Note 30 – Gender equality policy, diversity, and incentive schemes ✓ Page 28, 30 – Composition of the Board and the work of the Board ✓ Page 102, 106 – An account of dividend policy ✓ Page 44 – Environmental policy, environmental targets and impact, energy and resource consumption and environmental management systems ✓ Page 31

CORPORATE GOVERNANCE OF LKAB LKAB ANNUAL REPORT 2005 105 Board of Directors and Auditors

Björn Sprängare Christer Berggren Stina Blombäck Per-Ola Eriksson Lars-Åke Helgesson

Anna-Greta Sjöberg Ursula Tengelin Egil M Ullebø Tomas Nilsson Bertil Thornberg

Karl Wikström Hans Fängvall Torsten Thorneus Tomas Kohkoinen

Chairman, Björn Sprängare (1940) Stina Blombäck (1951) Director President of Billerud Karlsborg AB Elected to the Board in 1997. Elected to the Board in 2002. Graduate Forester 1967; Dr. of Forestry Skogshögskolan MSc Chem. Eng., Royal Institute of Technology 1974. 1973; President and CEO Mo och Domsjö AB 1981-1986; Various positions in the Swedish forestry industry 1974- President and CEO Trygg Hansa 1986-1994; Governor of the 1999: ASSI Karlsborg, Billerud Gruvön, ASSI Kraftliner, Royal Palaces 1996-2004. ÅF-IPK and AssiDomän. Director of Research AssiDomän Other directorships: Chairman of Concert House Foundation 1999-2001 and President Billerud Karlsborg since 2001. in Stockholm; Chairman of Skogssällskapet; member of the Other directorships: Member of the Business Executives’ Royal Swedish Academy of Engineering Sciences; member Council of the Royal Swedish Academy of Engineering of the Royal Swedish Academy of Agriculture and Forestry. Sciences; STFI-Packforsk AB and Swedish Paper and Cel- lulose Engineers Association – SPCI.

Christer Berggren (1944) Deputy Director, Ministry of Industry, Employment and Per-Ola Eriksson (1946) Communications Governor, County of Norrbotten Deputy director of the Board in 2001, elected to the Board Board Member 1991-1999 and since 2004. in 2002. Member of Parliament 1982-1998; Chairman and Vice MA Pol. Sci., Stockholm University 1972; employed with Chairman of the Standing Committee on Finance 1991- Statens Pris- och Kartellnämnd (SPK) 1971-1978; employed 1998; Chairman, Landshypotek AB 1994-2005; Director with the Ministry of Industry, Employment and Communi- General, NUTEK 1999-2003, Chairman, Teracom AB 2001- cations since 1978. 2003, and Governor of Norrbotten County since 2004. Other directorships: Board member of AB Göta kanalbo- Other directorships: Chairman, Längmanska företagar- lag, IRECO Holding AB, the Swedish Ships’ Mortgage Bank, fonden, Norrbottens läns Hushållningssällskap, Läns- SP Swedish National Testing and Research Institute, and arbetsnämnden i Norrbotten and Skogsvårdsstyrelsen Zenit Shipping AB. Norrbotten.

BOARD OF DIRECTORS AND AUDITORS 106 LKAB ANNUAL REPORT 2005 EMPLOYEE REPRESENTATIVES

Lars-Åke Helgesson (1941) Tomas Nilsson (1965) Director Ore developer Elected to the Board in 2000. Elected to the Board in 2004. Secondary Engineer; MBA, Handelshögskolan Göteborg Secondary school and Runöskolan. Employed with LKAB 1971; President and CEO,Haldex 1981-1988; Division Mana- since 1985. ger, Stora 1988-1992; President and CEO, Stora 1992-1998. Other directorships: Chairman of the Swedish Metal- Other directorships: Chairman of the Boards of Ballingslöv workers’ Union chap. 604, Malmberget. International AB, Generic Sweden AB, TransLink Holding AB, and Swedish Academy of Directors. Vice Chairman, Bertil Thornberg (1950) British-Swedish Chamber of Commerce. Board member Process operator Axel Christiernsson AB, Crane AB, and the Royal Swedish Elected to the Board in 2003. Academy of Engineering Sciences. Commercial secondary school. Employed with LKAB since 1970. Anna-Greta Sjöberg (1967) Other directorships: Chairman, SAK-klubben; Secretary and COO Royal Bank of Scotland, Nordic Region and CFO and Treasurer, Swedish Metalworkers’ Union chap. 612, Kiruna. VP RSB Nordisk Renting AB. Elected to the Board in 2005. Karl Wikström (1951) MBA, Handelshögskolan Stockholm 1989; Sandvik Head of operations for mining law matters de Mexico 1989-1991; BPA 1991-1993; Bergaliden AB Elected to the Board in 2003, Deputy director 1993-1999; 1993-1998 (VP 1997-1998), and RSB Nordisk Renting AB Employee representative for PTK. since 1998. Mining engineering qualiﬁ cation. Employed with LKAB since 1969. Ursula Tengelin (1956) Other directorships: Vice Chairman and Treasurer, Secretary-General of the Swedish Cancer Society Ledarklubben LKAB. Elected to the Board in 1999. BA, Lund University 1983; Executive MBA Handelshögsko- Hans Fängvall (1963) lan Stockholm 2000; employed with Roussel Nordiska AB Process serviceman 1979-1995 (VP 1989-1995); VP Hoechst Marion Roussel AB, Deputy director since 2003. Nordic and Baltic region 1995-1999; VP Profﬁ ce Sverige AB Secondary school, natural sciences, and training in forestry 2000-2002 and Swedish Cancer Society since 2003. management. Formerly employed with Modo and Domän- Other directorships: Samhall AB and Norrland Center AB. verket. LKAB since 1989; Other directorships: Chairman of the Swedish Metalworkers’ Union chap. 635, Svappavaara. Egil M. Ullebø (1941) Director Torsten Thorneus (1946) Elected to the Board in 2001. Ore harbor worker MSc Norges tekniske høgskole; MSc Bus. Adm. Norges Deputy director since 1999. Handelshøgskole, and studies at Tempelton College, Trade school. Employed with LKAB since 1968. Oxford. Other directorships: Chairman,Klubb Svartöstaden, Employed in executive positions with the Orkla Group Swedish Metalworkers’ Union chap. 179, Luleå. since 1970, current assignments with Orkla Foods AS, Bor- regaard Industries Ltd.,Borregaard Skoger AS and Salve- Tomas Kohkoinen (1965) sen & Thams Communicastions AS. Chief design engineer Other directorships: Chairman, Østfold Energi AS and Deputy director since 1999. Employee representative Rygge Sivile Lufthavn AS. Board member of Hustadmar- for PTK. mor AS, Northern East West Freight Corridor AS and Inno- Secondary engineer, el/tel and training in electrical vasjon Norge Oslo/Akershus/Østfold. engineering/design, maintenance. Employed with LKAB since 1986.

AUDITORS SECRETARY KPMG Bohlins AB Göran Ekdahl (1940) Roland Nilsson (1943) Attorney in the law ﬁ rm of Bird & Bird Advokatbyrå. Authorized public accountant Chief accountant Secretary of the Board since 1984. Annicka Brännström (1958) Authorized public accountant

BOARD OF DIRECTORS AND AUDITORS LKAB ANNUAL REPORT 2005 107 Group Management

Martin Ivert Lars-Eric Aaro Leif Boström Anders Furbeck Bengt Hjärpe

Jan-Erik Jatko Ola Johnsson Per-Erik Lindvall Mats Pettersson

Martin Ivert (1948) Jan-Erik Jatko (1949) President and Group CEO. Vice President, Special Businesses Division. Education: MSc, Royal Institute of Technology, 1972. Education: MBA, Stockholm University, 1976 Employment: SKF 1974-2001, divisional manager Employment: LKAB since 1976. 1995-2001; LKAB since 2002. Directorships: Board member, SveMin, Expandum AB Directorships: Chairman, SveMin and Underhållsföretagen. and Norrskenet AB.

Lars-Eric Aaro (1956) Ola Johnsson (1955) Vice President, Technology & Business Development. Vice President, Mining Division. Education: MSc, Luleå University of Technology, 1981. Education: MSc Mechanical Engineering, Luleå University Employment: LKAB 1976-1986. Boliden 1988-1989 and of Technology, 1980. 1992-1998; Secoroc 1989-1992; ASSI Domän 1998-2001; Employment: HTM 1980-1982; Luleå University of LKAB since 2001. Technology 1982-1984; LKAB since 1984. Directorships: Board member, Luleå University of Directorships: Board member, Progressum AB. Technology and Mefos.

Per-Erik Lindvall (1956) Leif Boström (1959) Vice President, Minerals Division. Vice President, Finance. MSc, Luleå University of Technology, 1980. Education: MBA, Luleå University of Technology, 1990. Employment: LKAB 1980-1989; Bergbygg AB 1989-1991; Employment: NCC 1980-1992; LKAB since 1992. Boliden 1991-2000; LKAB since 2001. Directorships: Board member, SGU.

Anders Furbeck (1957) Vice President, Total Quality Management. Mats Pettersson (1965) Education: MBA, Göteborg University, School of Business, Vice President, Human Resources. Economics and Law, 1985. Education: MBA Umeå University, Umeå School of Employment: LKAB since 1985. Business, 1991. Directorships: Board member, WM-Data i Norr AB Employment: LKAB since 1991. and Euromines.

Bengt Hjärpe (1947) Vice President, Market Division. Education: MSc, Royal Institute of Technology, 1972. Employment: SKF 1974-1994; LKAB since 1994.

GROUP MANAGEMENT 108 LKAB ANNUAL REPORT 2005 ORGANIZATION

LKAB is organized according to a clear division of operations and business development. Operations are organized in four divisions. Development work and issues pertaining to quality, environment, human resources, ﬁ nance and information within the entire group are managed by several units.

In order to achieve a greater focus on recruiting and human-resources development to meet future needs, during 2005, the organization was changed to the extent that Administration was divided into the units Finance, Human Resources and Communication.

As of 2006, all development work has been organized in the Techno- logy & Business Development unit, enabling a clearer management structure for investment programs, ongoing process and product development, and long-term research and development efforts.

PRESIDENT AND GROUP CEO Martin Ivert

TECHNOLOGY & BUSINESS DEVELOPMENT Lars-Eric Aaro FINANCE Leif Boström

TOTAL QUALITY MANAGEMENT Anders Furbeck

HUMAN RESOURCES Mats Pettersson

COMMUNICATION Martin Ivert

SPECIAL BUSINESSES MARKET DIVISION MINING DIVISION MINERALS DIVISION DIVISION Bengt Hjärpe Ola Johnsson Per-Erik Lindvall Jan-Erik Jatko

GROUP MANAGEMENT LKAB ANNUAL REPORT 2005 10 9 Addresses

LKAB Minelco Inc. Group Ofﬁ ce, Box 952, SE-971 28 Luleå, Sweden. 2020 Scripps Center, 312 Walnut Street Phone +46 920 380 00. Fax +46 920 195 05 Cincinnati, OH 45202, USA Martin Ivert, President and Group CEO Phone +1 513 322 5530. Fax +1 513 322 5531 [email protected] Mats Drugge, President MARKET DIVISION Minelco Specialities Ltd. LKAB Norden Raynesway, Derby, DE21 7BE, England Sweden, Norway, Finland, Denmark, Iceland Phone +44 1332 673131. Fax +44 1332 677590 Box 952, SE-971 28 Luleå, Sweden. [email protected] Phone +46 920 380 00. Fax +46 920-148 63 Stuart Larbey, President [email protected] Minelco Minerals Ltd Stig Nordlund, Sales Manager Flixborough Industrial Estate, Flixborough, North Lincolnshire, DN15 8SG, England LKAB S.A. Phone +44 1724 277411. Fax +44 1724 866405 Benelux, France, UK, Italy, Spain, [email protected] Portugal, Turkey, Africa, America Robert Boulton, President Chaussée de la Hulpe 150, BE-1170 Bryssel, Belgium. Phone +32 2 663 36 70. Fax +32 2 675 05 91 Minelco GmbH [email protected] P.O. Box 10 25 54, DE-450 25 Essen, Germany Staffan Stenström, President Phone +49 201 45060. Fax +49 201 4506 490 [email protected] LKAB SCHWEDENERZ GmbH Ian Yates, President Germany, Austria, Central Europe Rüttenscheider Strasse 14, DE-45128 Essen, Germany Minelco B.V. Phone +49 201 879 440. Fax +49 201 879 4444 Vlasweg 19, Harbour M164, P.O. Box 16, [email protected] NL-4780 AA Moerdijk, The Netherlands Göran Ottoson, President Phone +31 168 388 500. Fax +31 168 388 599 [email protected] LKAB FAR EAST Pte. Ltd Peter Duifhuis, President Far East, Southeast Asia, Middle East, Australia 300 Beach Road #29-02, The Concourse, Singapore 199555 Minelco Asia Paciﬁ c Ltd. Phone +65 6392 49 22. Fax +65 6392 49 33 4502 China Resources Building, 26 Harbour Road, Wanchai, Hong Kong [email protected] Phone +852 2827 4138. Fax +852 2827 5574 Johan Heyden, President [email protected] John Engel, President

MINING DIVISION Minelco (Tianjin) Minerals Co., Ltd. Yicun Industrial Park, Jungliangcheng, Dongli District, Tianjin, LKAB P.R. China 300301 SE-981 86 Kiruna, Sweden. Phone +86 22 8845 1706. Fax +86 22 8845 1708 Phone +46 980 710 00. Fax +46 980 109 02. [email protected] LKAB Bin Zhou, President 983 81 Malmberget, Sweden. Minelco Thailand Phone +46 970 760 00. Fax +46 970 236 00. Representative Ofﬁ ce Bangkok, 36th Floor, CRC Tower, All Seasons Place, LKAB, Narvik malmhamn 87/2 Wireless Road, Phatumwan, Bangkok 10330, Thailand Postboks 314, NO-8504 Narvik, Norway. Phone +66 625 3121. Fax +66 625 3171 Phone +47 769 238 00. Fax +47 769 449 25. Nick Mellor, President Svein Sivertsen, General Manager Seqi Olivine A/S LKAB, Luleå malmhamn Boks 1329. Box 821, SE-971 25 Luleå, Sweden. Phone +299 1991 10 Phone +46 920 380 50. Fax +46 920 380 60. DK-3900 Nuuk, Greenland Lars Andersson, General Manager Robert Näslund, President MINERALS DIVISION SPECIAL BUSINESSES DIVISION MINELCO AB Box 952, SE-971 28 Luleå, Sweden. Wassara AB Phone +46 920 381 60. Fax +46 920 190 88 Group Ofﬁ ce, Götgatan 62, SE-118 26 Stockholm, Sweden. [email protected] Phone +46 8 84 95 50. Fax +46 8 84 02 71 Per-Erik Lindvall, President [email protected] Dan Gustafsson, President Minelco Oy P.O. Box 57 AB Kiruna Grus & Stenförädling Phone +358 17 266 0160. Fax +358 17 266 0161 KGS Mekaniska, Box 817, SE-981 28 Kiruna, Sweden. FI-718 01 Siilinjärvi, Finland Phone +46 980 681 90. Fax +46 980 832 79 Kari Laukkanen, President Kjell Klippmark, President Fastighets AB Malmfälten SE-981 86 Kiruna, Sweden. Phone +46 980 710 00, Fax +46 980 728 95 Lennart Thelin, President

ADDRESSES 110 LKAB ANNUAL REPORT 2005 Reporting dates 2006

Annual General Meeting: 25 April 2006

LKAB will publish the following ﬁ nancial reports for 2006: > 25 April 2006, Interim report for the period 1 January – 31 March. > 21 August 2006, Interim report for the period 1 January – 30 June. > 25 October 2006, Interim report for the period 1 January – 30 September.

Financial information is available on the Group’s website: www.lkab.com

Printed versions are available on request from: LKAB Information, Box 952, SE-971 28 Luleå, Sweden. Phone: +46 (0)920-380 00, fax: +46 (0)920-195 05, e-mail: [email protected]

LKAB ANNUAL REPORT 2005 Produced by LKAB in cooperation with JOB media & reklambyrå AB, Luleå. Photo: Jennie Segerberg and LKAB. Translated by: Mark Wilcox. Printed by: Luleå Alltryck AB, Luleå 2006.

FORSKNING OCH UTVECKLING 7 LKAB ÅRSREDOVISNING 2005 www.lkab.com

FORSKNING OCH UTVECKLING LKAB ÅRSREDOVISNING 2005 3 LKAB ÅRSREDOVISNING 2005