Integrated Report ANNUAL and SUSTAINABILITY REPORT Overview of the Past Year

2012// Integrated report ANNUAL AND SUSTAINABILITY REPORT overview of the past year

president’s report 4 continued good profitability 4

business concept, strategy and vision 8 strategic focus areas 9 sustainability strategy and governance 56 performance in ironmaking 10 ambitions for future development 57 a clear-cut customer promise 11 gri index 62 auditor’s report 64 flexibility 16 quick adaptation to change 17 corporate governance report 65 corporate governance structure 66 safe and resource-efficient corporate governance at lkab 67 production 22 board of directors 72 a sustainable value chain 23 group management 74 auditor’s opinion 76 growth 32 group overview 77 we grow with our customers 33 financial accounting 78 urban transformation 40 administration report 80 in close collaboration with all financial statements and notes 90 stakeholders 41 proposed appropriation of profits 128 auditor’s report 129 attractive lkab 48 a long-term strong brand 49 appendix glossary 130 addresses 131 annual general meeting and financial information 132

tal b e of

2012 contents

ABOUT LKAB’S 2012 INTEGRATED REPORTING According to owner directives, LKAB shall each year present an annual report and a sustainability report in accordance with the Glob- al Reporting Initiative (GRI) framework. For 2012, LKAB chose to integrate its annual and sustainability reports, since it reflects how LKAB’s operations are run. The basis of the integrated report is LKAB’s business strategy, in which each strategic focus area has sustainability dimensions. These strategic focus areas also constitute the very structure of and navigation through the report. This means that information previously reported in a separate sustainability section is now integrated into the description of LKAB’s products and services, market, growth and other strategic areas of focus. The integrated report is followed by information on sustainability management, the corporate governance report, administration report and financial statements. SEK millions in profit before 26,971 sales 2012 11,023 tax in SEK millions

Number of permanent employees LKAB’sti posi on among 4 ,19 9 31 December 2012 Swedish export companies in 2011: no 9 number of iron ore pellets 755 lkab produces per second +500 30% of Sweden’s total B y 2015 LKAB Fastigheter will explosives production have built 500 new homes in THE is done by LKAB Kimit MUNICIPALITIES OF KIRUNA AND GÄLLIVARE

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+2.3% -13 %

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250,000m3 cost in SEK million to expand flue gas treatment to all six pelletizing plants 1,500

production of over 250,000 m3 of concrete per year makes LKAB Berg & Betong the world's lkab wassara 2012 largest producer of shotcrete.

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c ETITI cost in SEK million to expand flue gas treatment to all six pelletizing plants 1,500

55 m LKAB invested SEK 5,808 million in its facilities in 2012. Optimism is strong. Drill rigs like the LKAB Wassara can drill fans up to 55 metres deep. This means that each fan gives more than eight times as much iron ore as it did 25 years ago. 5,808 2012 ore with added value

world leader in pellets LKAB is one of the world’s largest producers of iron ore pellets for the global steel industry. Iron ore pellets are a premium product that constitute 10-20 per- focus on growth cent of the global iron ore market. Long-term forecasts point to a LKAB’s main market is the EU, strong increase in demand for steel where we account for about 40 around the world. LKAB’s customers percent of all pellet deliveries. Today, we are a are growing and need more iron ore. quality leader, technical pioneer and innovative It is against this backdrop that the driving force in our industry. LKAB’s world- LKAB 37 programme is being imple- leading R&D projects are conducted in close col- mented. This initiative represents an laboration with customers. Our vision is to offer increase in LKAB’s annual produc- them tangible added value. tion capacity to at least 37 million tonnes of finished iron ore products. A parallel programme lkab processes will also be implemented whose purpose is to P ellets, LKAB’s main product, are ensure that LKAB’s costs remain competitive. a highly upgraded iron ore product This focus on growth requires that LKAB employ which constitute 84 percent of de- upwards of 700 new qualified employees from liveries. We also produce fines, a 2013 to 2015. fine-grained iron ore sand that is the dominant product in the global iron secure access to raw ore trade. In addition, LKAB develops materials and produces processed industrial LKAB’s ore mining is concentrated minerals that are sold to customers outside the to the orefields of northern Sweden. steel industry and give the Group a complemen- The area has a unique geology with tary leg to stand on. orebodies of magnetite that have an unusually high iron content. The a clear-cut customer promise world’s two largest underground P erformance in Ironmaking is our iron ore mines are located in Kiru- customer promise and is about de- na and Malmberget. The new main levels that livering products that are tailored to are being established in both locations ensure the ironmaking processes of the cus- LKAB’s access to raw materials to 2030–2035 tomer. With LKAB’s iron ore pellets, in Kiruna and to 2023 in Malmberget. Mining in our steelworks customers increase Gruvberget, Leveäniemi and Mertainen will in- their efficiency and productivity, and crease LKAB’s delivery capacity by about 12 mil- reduce their carbon dioxide footprint. lion tonnes per year over the next decade. LKAB The higher the proportion of LKAB’s iron ore is also prospecting in existing mines and start- pellets that customers use in their ironmaking, ing new projects to gradually secure additional the more efficient the process. LKAB pellets raw material for the future. have a unique advantage, since they are made of magnetite, an iron ore mineral that gives off new communities emerge heat during the pellet manufacture. This makes Over the next 20 years, large areas LKAB’s production process less energy intensive of Kiruna and Malmberget will be and reduces carbon dioxide emissions through- affected by continuing mining.P eo- out the chain, as compared to the manufacture ple and buildings must be moved. Do it yourself in December 2012. the Board by approved sustainable development, for about LKAB's strategy and learn more cootie catcher own your Fold and use of iron ore pellets made of hematite ore. Changes in infrastructure will be re- That is why LKAB Green Pellets are the world’s quired. At the same time, it enables most climate-smart iron ore product. new and attractive communities to take shape. LKAB takes responsi- a swedish heavyweight bility for both the practical and financial impli- Iron ore and other minerals make up cations of this. Everything is done in close con- 40 percent of Sweden's net exports. sultation with all stakeholders, particularly the In 2011 LKAB was Sweden's ninth municipalities that are responsible for planning largest export company. A third of all the new developments. It is all about building a goods transported on Swedish rail- future based on a fruitful symbiosis between a ways are linked to LKAB. In recent growing economy and a vibrant community. years, LKAB has also been one of the country's major industrial investors. During the 2000s, capital expenditures totalled about SEK 5 billion annually. the past year lkab group the steel and iron ore market

Iron ore is the main raw material in steel production. Besides iron ore, Global exports of iron ore and production of crude steel (Mt) scrap metal is also used as a raw material. Demand for LKAB's iron ore is therefore closely linked to global production and consumption of steel. 1,600 Since 2000, the balance in the steel market has shifted strongly from 1,400 Western economies to Asia, mainly China. Today, China accounts for almost 1,200 1,000 half of world crude steel production. With the exception of a brief downturn 800 during the financial crisis of 2008–2009, world production has shown Global exports 600 of iron ore (prelim. 2012) steady growth. From 2000 through 2012, production increased from 800 Global production 400 of crude steel ( 2012) to 1,500 million tonnes, an increase of nearly 90 percent. 200 (Source: CRU, December 2012, worldsteel, Janu- 0 ary 2013) 1960 1970 1980 1990 2000 2012

total income

by market region by product by division

MINING DIVISION The division's core business is to mine, process and sell high-quality iron ore products for steelmaking. External sales in 2012 totalled SEK 24,909 million, representing 92 percent of Group sales.

Middle East/ Minerals division Asia 28% LKAB develops, produces and markets various in- Other coun- dustrial mineral products through its company tries 5% Iron ore Minelco. Customers include companies in the con- products 92% struction and engineering, oil and gas production, chemical, and automotive industries. Sales for the year totalled SEK 1,760 million, representing 7 percent of Group sales.

Special businesses division The division brings together a number of companies with diverse activities that support the work of the Mining and Minerals divisions in different ways, but the companies also have external customers. These activities include essential con- Europe 67% struction services like sophisticated drilling, rock reinforcement, drifting and explosives expertise, along with property management, insurance and Industrial minerals 7% power transmission. External sales were SEK 302 million, representing 1 percent of Group sales. Other 1%

Significant events in 2012

fir st quarter The County Administrative Board decided second quarter Norway. District traffic controllers in not to rescind the detailed development Narvik were involved in the conflict. All E arly in the year we were pleased to plan for Gruvstadspark 1 in Kiruna. Ac- O n 23 April, extensive cracking was dis- ore deliveries to and from Narvik were break several production records while cordingly, the agreement on urban trans- covered on the bearing ring of the rotary stopped for nine days. also breaking the record for lowest num- formation and construction of the first furnace in the KK4 pelletizing plant in ber of accidents. In 2011, accidents at phase of Gruvstadspark that Kiruna. The replacement of the bearing On 14 June the new main level in mine LKAB had declined by a third over the Kiruna's municipal management ap- ring caused a one-month outage. M1250 in Malmberget was officially previous year. proved in February 2011 went into effect. opened by King Carl XVI Gustaf. The event LKAB and the Municipality of Gällivare LKAB welcomed the decision, since it took place in LKAB's new research and On 1 February, LKAB launched a new signed a partnership agreement that means that we will not risk exceeding the visitor centre in Malmberget. brand image with a refreshed logo regulates urban transformation in Malm- environmental conditions of our mining and clarification of our values.S everal berget over the next 20 years. LKAB's Mining at the Gruvberget open-pit was operations. Also, that LKAB and Kiruna of LKAB's subsidiaries changed their agreement with the Municipality of Gälli- forced to cease in June due to the ongo- have a common view on the management names to include the LKAB name so as vare was appealed by homeowners in ing environmental permit process. of important cultural sites in the city. to clarify that they belong to the Group. Malmberget, so the agreement was not The detailed development plan for Gru- LKAB launched a new external website legally binding at the end of the year. A decision was made to invest in new, vstadsparken in Kiruna became legally to more effectively reach out to more supplementary flue gas treatment instal- On 24 May a strike broke out among binding via notification from the Land and people and to stimulate dialogue on the lations for the pelletizing plants in Malm- Jernbaneverket's public employees in Environment Court of Appeal on 5 June. web. berget and Svappavaara. the past year lko ab gr up

Group (SEK million) LKAB's production and deliveries Special Group sustained record levels in 2012, Mining minerals Businesses consolidated Division Division Division adjustments Eliminations 2012 2011 while lower iron ore prices External income 24,909 1,760 302 26,971 31,122 Intra-Group income 235 2 2,049 -2,286 affected sales and earnings Total income 25,144 1,762 2,350 -2,286 26,971 31,122 Operating profit 10,127 132 230 106 10,595 14,705 negatively. Uncertainty about Net financial items 428 97 developments in China led to Profit before tax 11,023 14,801 Tax -2,234 -3,842 big swings in iron ore prices Net income for the year 8,789 10,960 during the year.

Net sales and operating profit (SEK million) Production and productivity Return on equity (%)

Mt Tonnes/employee 30,000 30 12,000 50

25,000 25 10,000 40

20,000 20 8,000 30 15,000 15 6,000 20 10,000 10 4,000

10 5,000 5 2,000

0 0 0 0 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012

Net sales ( 2012) Operating profit Production, Mt ( 2012) Productivity, tonnes/employee Return on equity (after tax) Targeted return on equity (after tax) Net sales were SEK 26,971 (31,122) million. Targeted return is 10 percent after tax over a business cycle. Operating profit was SEK 10,595 (14,705) million.

Production of iron ore products (Mt) Deliveries (Mt)

2012 2011 2010 2009 2012 2011 2010 2009 Pellets 23.8 22.9 22.1 14.7 Pellets 22.0 20.9 20.8 14.3 Fines* 2.4 3.2 3.2 3.0 Fines* 4.3 4.8 5.2 4.4 Total 26.2 26.1 25.3 17.7 Total 26.3 25.7 26.0 18.7

*including special products *including special products

third quarter The rail approach to central Kiruna was fourth quarter Land with building rights in the Terras- rerouted behind Mt. Kirunavaara. In a sen and Glaciären residential areas in LKAB was granted a permit to drain the joint project, the Transport Administra- In October it was clear that the demand Kiruna was acquired from municipally- water from the Leveäniemi open-pit tion and LKAB built 7.5 km of new track for steel products was considerably low- owned Kirunabostäder. mine. To start mining, 30 million cubic and a rail yard in Kiruna. The route was er than supply. Things were especially metres of water needs to be pumped to officially opened and operational in late bad for the steel industry in northern A total of 26.3 million tonnes of iron ore a separate physical system. Drainage is August. Europe. The market situation led LKAB products were shipped in 2012 and pellet expected to take up to two years and is to reallocate deliveries from customers production hit a record high of 23.8 mil- designed to limit environmental impact. The government's party leaders held a in northern Europe to the Middle East lion tonnes. press conference at LKAB in Kiruna and and China. To reduce the amount of dust over cen- proposed that SEK 800 million be allo- A new delivery record was set for Narvik tral Kiruna, LKAB Berg & Betong invest- cated in the autumn budget for work on The first link in the production chain harbour; more than 18.5 million tonnes of ed in improved technology and moved the Ore Railway. for the Kiruna mine's new main level iron ore products shipped in 2012. the crushing plant that was causing dust reached the stage at which a test run The year ended on a happy note when problems to a more sheltered location. could be conducted. Commissioning is LKAB received news of a temporary per- The investment will be monitored via planned for the first quarter of 2013. mit being issued for mining in Gruvber- continuous measurements of falling par- get in 2013. Production was thus able to ticulates. LKAB Fastigheter took the decision to build new homes in Kiruna and Gällivare. resume after a six month stop. 4 | INTEGRATED REPORT 2012

larsi -er c aaro, president and ceo Cneonti u d good profitability | President´s report | 5

The year 2012 was full of challenges for LKAB. The company maintained its ability to adapt to changing market conditions. When deliveries are summed up, we can conclude that it was yet another record year. Now we continue to build a bigger, stronger LKAB that will have three open-pit mines in operation in Svappavaara in 2015.

Net income before tax for the C ontinued year was SEK 11 billion on sales of SEK 27 billion. Thus, LKAB’s profitability remains good profitability strong despite both lower iron ore prices and an increased supply on the world market. down in the Chinese economy and lower demand from We are also pleased to report continued low sickness several European steelworks. As a result, iron ore pric- absence rates and a decrease in the number of workplace es fell during the summer and autumn, leading to cost accidents, even though the outcome was worse in terms inflation in the mining sector and increased cost con- of the total number of accidents in the business. sciousness. Several mining companies have reviewed LKAB 37, which is LKAB’s growth plan, ran into ob- their expansion plans. stacles when we were forced into a nearly seven-month Since the Lehman crash in 2008, we have seen in- mining hiatus at the Gruvberget open-pit mine in Svap- creased volatility in prices in the global iron ore mar- pavaara. But since 28 December 2012 production has ket. The pricing of iron ore products is mainly governed been in full scale again after the Land and Environment by Chinese demand, since China accounts for over half Court issued a temporary permit for 2013. There have the world's iron ore imports. The market has largely been many legal turns with regard to Gruvberget. The switched to a more short-term pricing system, com- actual content of the environmental conditions has pared to the annual pricing that was common until never been a contentious issue, though. LKAB is now about five years ago. Spot-price trading of iron ore has working on realizing plans for three new mines to start also emerged in recent years. producing no later than 2015. L ong-term growth Divided steel market In the long term, however, the demand for iron ore from The global steel market was characterized in 2012 China and other Asian countries is expected to remain by the slowdown in GDP growth around the world. high. China´s dependence on imports is actually expect- Crude steel production increased by 1.2 percent, but in ed to increase. This implies a growing iron ore market Europe, LKAB's largest market, it decreased by 4.9 per- in which LKAB is well placed to take advantage of the cent. Many steelworks are running at reduced capacity fact that billions of people in other parts of the world and some have chosen to shut down blast furnaces. are moving into the middle class and what that entails In the Middle East, LKAB’s second home market, in terms of demand for household appliances, auto- large construction and infrastructure projects are help- mobiles, infrastructure and more. In 2012 the Swedish ing boost steel production, as is also the case in China government decided on a new mining research pro- and the United States (US). The price of natural gas in gramme, major expenditures on the Ore Railway and the US has been halved in recent years due to increased more resources to the environmental courts for faster extraction of so-called shale gas. Over time, shale gas permit processing. There is a better understanding of will radically change the global playing field for steel- the mining industry’s growth challenges. making. A large number of iron ore projects were start- The trade association SveMin launched a growth ed in the latter half of the 2000s, and in 2012 the supply strategy for the Swedish mining industry in October. from Australia increased. This coincided with a slow- It highlights the potential for a tripling of the Swedish 6 | INTEGRATED REPORT 2012

Recruitment needs LKAB’s growth will mining industry by 2025 and LKAB's growth plans mean that we will need to hire necessitate recruitment the creation of nearly 700 people through 2015, of which half for the of up to 700 people 50,000 new jobs, new open-pit mines and an equal number to cover the while underlin- generation shift occurring in the production operations. through 2015 … ing challenges Interest in working at LKAB has increased in recent like access to years. The number of applicants is rising for most posi- expertise, infrastructure and resources as well as pro- tions. The proportion of female applicants is increasing, cesses for permit management. and currently 17.5 percent of the company’s employees LKAB’s planned growth is in line with the develop- are women. In various studies in which university and ments SveMin outlines and, in the autumn of 2012 the college students rank potential employers, LKAB is be- plan for production of 37 million tonnes of finished prod- coming more popular. ucts by 2015 was intensified and specified. The challenge in the coming years is, as usual, the LKAB needs to grow to avoid losing market shares. recruitment of specialists. Ventures like our new re- New business opportunities are arising for LKAB’s search centre in Malmberget, which opened in June direct reduction pellets in countries with natural-gas- 2012, pave the way for continued technical leadership based ironmaking, especially in the US and the Middle in pellet research. LKAB’s ambition to maintain its lead East. over rival pellet manufacturers, both in terms of product Besides the new mines, a new main level was characteristics, function and climate impact, requires a opened in Malmberget in 2012 and in 2013 the new continuous injection of new talent. main level in the Kiruna mine will also open. These ex- LKAB is therefore continuing its efforts to modern- penditures, totalling about SEK 17 billion, will prolong ize the image of the company and raise awareness of the life of the two underground mines by about 20 years. our operations. An important aspect of these efforts is Controlling costs is crucial to securing LKAB’s our increased focus on developing leadership within the long-term competitiveness. Larger delivery volumes company. In 2012 the company’s values were integrat- reduce the cost per shipped tonne. In 2012, a three-year ed into manuals and training courses for performance cost-efficiency programme was also launched, which in appraisals and new employees. An effective brand plat- the autumn identified an efficiency potential to date of form was launched with a focus on increased clarity SEK 2.2 billion. Our sights are set on a financially sus- and improved recognition. As a consequence, all subsid- tainable business. regardless of economic conditions. iaries except Minelco changed their name in 2012 and are now easily recognized as part of the LKAB Group. Minelco will change its name to LKAB Minerals on 1 July Record deliveries 2013. Production disruptions in the pelletizing plants as well as a district traffic controller strike on theO fotbanen A ttractive communities Line disrupted our deliveries in the spring and early summer. The year’s second half was marked by record LKAB's recruitment process does not stop at an attrac- production and became a test of LKAB's flexibility in re- tive company. Equally important to our ability to attract routing deliveries between customers and continents. and retain talented employees in the future is the attrac- At year-end, when production and deliveries were sum- tiveness of the communities in which we operate. This marized, we found that, despite the difficulties, 2012 is something LKAB must promote, especially in light of was LKAB's best year yet. the challenges we pose for Kiruna and Gällivare, as con- Although only 5–10 percent of LKAB’s deliveries go tinued operation of the underground mines necessitates to China, and although we have agreements with many relocation of large parts of these communities within the customers on long-term pricing of our products, our next 20 to 30 years. Urban transformation is necessary terms and conditions are influenced by developments in to secure jobs and the continuing operation of the un- China. This means that we must be prepared to fend off derground mines, and requires a sound relationship be- rapid fluctuations in both demand and price. In 2012 we tween LKAB, the municipalities and the people involved. managed to maintain and even increase volumes and Together, we have the opportunity to lay the groundwork to sell everything LKAB produced, while profitability fell for attracting newcomers to Malmfälten by working for slightly as a result of lower prices. a stimulating, rich living environment that attracts men, women and young people alike. Our success is crucial to LKAB’s human resources management. Cneonti u d good profitability | President´s report | 7

In 2012 LKAB signed a partnership agreement with the Municipality of Gällivare concerning Malmberget’s future, but because the agreement was challenged, it is not yet legally binding. A partnership agreement with the Municipality of Kiruna already exists. Confidence in the future Vision projects funded by LKAB are being conducted in both municipalities. LKAB also works actively to sup- LKAB’s new mines create opportunities for develop- port the schools in our business locations through the ing housing, schools, trade and vibrant communities LKAB Academy Foundation, among others, and by spon- in Norrbotten. The geological conditions immediately soring recreational activities for children and youth. surrounding our existing mines are also very promising. Various collaborative projects with local business devel- LKAB’s exploration operation was therefore expanded in opment companies relate to such diverse areas as im- 2012 through a number of strategic recruitments that proved flight connections andW orld Cup competitions will help secure ore reserves for many decades of con- in cross-country skiing. We also signed a partnership tinued mining. agreement with Narvik’s local business development While the mining industry foresees new opportuni- company during the year. ties, other public interests question the impact of new Attractive communities require a variety of housing mines on the nature and culture of northern Sweden. options. In 2012 LKAB decided on new construction and It is important for that debate to be conducted with a acquisition of residential areas that need refurbishment. holistic approach, while accountability must rule the ac- There are currently plans to build about 500 new homes tions of mining companies. LKAB has a long tradition of in Malmfälten by 2015. But that’s just the beginning. good relationships with local stakeholders in our region. LKAB hopes to lead the way for other housing develop- We want to preserve and spread that tradition. ers. Adequate housing construction is a prerequisite for Steel is a recyclable material. Today scrap consti- urban transformation to work according to plan. People tutes a third of the iron needed for steel production. who need to move must know in advance what options The greater proportion of the remaining two-thirds that are available, whether they rent or own their home to- comes from the world’s most climate-smart pellet pro- day. Therefore, an increased housing supply with good ducer, the better for the global environment and climate. advance planning is essential. Natural chain reactions Swedish iron ore mining inevitably leaves behind can also proceed that give individuals the choice of both wounds in the landscape. But other than that, the envi- new and older homes. ronmental risks are small. LKAB’s planned resumption of mining in the Leveäniemi open-pit mine in Svappa- vaara is a striking illustration of this. Where mining has Sustainability challenges been discontinued since 1983, there is now an 80-me- Urban transformation is LKAB’s single greatest sustain- tre-deep, water-filled basin.W hen the fish are taken ability challenge for the future, and yet it is essential to care of and the water is pumped out in about a year, the our continued operation. If mining is to proceed at great- mine will be ready to start up. And it will be done without er depths, people and buildings must move. polluting or the need for any costly decontamination. The same is true of LKAB’s sustainability efforts in The Swedish bedrock is a treasure that is worth tak- general. These issues are tightly woven into the coming advantage of. LKAB is well positioned to play a lead- pany's business, from the climate-smart aspects of our ing role in this process. With 122 years of experience in products, through the importance of diversity to our Malmfälten, we embody the continuity that will ensure human resources management, and the effect of ener- continued prudent mining in Sweden. gy use on costs, to our impact on the environments in which we conduct our business. A sustainable approach is a necessity in a business like LKAB’s, where mining takes place in capital-intensive facilities one kilometre under ground. In 2012 LKAB’s initiatives and objectives for sustainable development were formulated in a comprehensive Luleå, March 2013 sustainability strategy that has four focus areas closely linked to the Group's business strategy. Sustainability is an integral part of LKAB’s business. That is why we chose to submit an integrated annual and sustainability report this year. Lars-Eric Aaro, President And CEO 8 | INTEGRATED REPORT 2012

business concept, strategy and vision// 8-9

LKAB’s business concept is to manufacture and deliver products and services from Malmfälten that generate added value for customers on the world market. Other closely related products that are based on LKAB’s know-how and that support the main business are also included in the operation.

LKAB’s business strategy is to develop, manufacture and sell iron ore products with properties that sur- pass those of our competitors. An important, business-critical objective is to also be a major supplier to each customer. To maintain and strengthen its industry position and to not be marginalized, LKAB must be able to guarantee the availability of iron ore products in pace with its customers’ growth. Drastically increasing production over the next few years is consequently LKAB’s Group- wide objective.

LKAB’s vision is to be perceived by its customers as the supplier that provides the best added value, thus becoming the market leader in its chosen segments.

LKAB’s strategy for sustainable development – Our objective is for LKAB to generate prosperity by being one of the most innovative and resource-efficient mining companies in the world. n Busi ess concept, strategy and vision | 9

LKAB has identified six strategic focus areas that are decisive for the company’s business strategy and for reaching targeted annual production exceeding 37 million tonnes of finished iron ore products by 2015. P erformance in Ironmaking

Flexibility

Safe and resource-efficient production Committed – Innovative – Responsible Urban A brand must be built from the ground up. LKAB’s values – Committed, Attractive Growth transforma- Innovative and Responsible – govern our behaviour and permeate our LKAB entire operations. Together, our values clarify and encourage the behaviour tion that we want others to associate with LKAB and that will help us realize our ambitious growth plans, while we ensure delivery according to our Committed – Innovative – Responsible customer promise: Performance in Ironmaking.

P erformance in Ironmaking Growth LKAB is the world’s technologically leading supplier For continued prosperity it is business-critical for LKAB of iron ore pellets to the global steel industry. Perfor- to be a major supplier to every one of our customers. To mance in Ironmaking is our promise to customers and do that, we must have the resources to grow with them. means that we consistently provide our customers with This is done by stepping up our delivery capacity, where the market’s best added value. On a long-term, growing increased access to ore is key. world market, we want to be the innovator that drives Read more on page 32 development. Read more on page 10 Ur ban transformation LKAB’s continued mining and growth plans depend on Flxilie ib ty large parts of Kiruna and Malmberget being gradual- The market for our iron ore products has long-term, ly moved. This urban transformation is being realized strong growth. But the major shifts in the global eco- in close collaboration with all stakeholders in order to nomy mean that we must be prepared to quickly ma- create long-term, sustainable solutions. LKAB and mu- nage temporary fluctuations in demand along the way. nicipal authorities in our operating locations have a sha- This assumes that the actions we take are flexible, from red interest in building attractive communities that are production of finished products to deliveries to the able to draw people to the area during the entire urban world market. transformation process. Read more on page 16 Read more on page 40

Safe and resource-efficient A ttractive LKAB production A condition of LKAB’s planned expansion is that we hire LKAB's competitiveness is directly linked to the fact nearly 700 new skilled employees from 2013 to 2015. that we make continuous and sustainable improve- Successful human resources management is based on ments that increase operating efficiency.S afe, smooth, LKAB having a strong brand that builds on a well-de- uninterrupted production is the backbone of LKAB’s fined customer promise, clear-cut values, equality and business, which is large-scale and based on continuous diversity, and a safe, pleasant, stimulating work en- optimisation. We have the world's most energy-efficient vironment. It is just as important for our local commu- pellet manufacturing process. With accountability in nities to be attractive as it is for LKAB to be an attractive focus, our ongoing efforts will benefit customers and employer. the environment. Read more on page 22 Read more on page 48 10 | INTEGRATED RePORT 2012

performance in ironmaking flexibility safe and resource-efficient production growth urban transformation attractive lkab

perforn ma ce in ironmaking// 10-15

LKAB is the world’s technologically leading supplier of iron ore pellets to the global steel industry. Our goal is to consistently provide our customers with the market's best added value.

This is founded on LKAB’s basic understanding of the function of its products in its customers’ reduction processes combined with high-quality, consistent pellet manufacturing. With our experimental blast furnace and agglomeration lab as a base, we have unique tools and research resources for developing processes and products together with our customers.

Our Performance in Ironmaking customer promise means that our steelworks customers increase their process efficiency by using LKAB's products. Together, we also put less of a burden on the global climate by making and using LKAB Green Pellets.

In a steadily growing world market, we want to be the innovator that drives development. Ar clea -cut customer promise | Performance in Ironmaking | 11

A clear-cut customer promise

LKAB has access to a uniquely rich and pure raw material, which we cannot see the end of yet. We process our Norrbotten magnetite into iron ore pellets with the market’s best added value. Our products help customers to be more efficient and competitive, and they provide climate benefits. LKAB is the innovator that drives technological development in close collaboration with customers. Together, we create Performance in Ironmaking.

Look around you. You see iron and steel everywhere. In infra- the past ten years, the use of iron ore has more than doubled. structure. In buildings. In vehicles of all kinds. No other material Forecasts by independent market analyst CRU indicate a means as much to the development of modern society as iron growth market of more than 40 percent over the next ten years. and steel. The material is a crucial requirement for the continu- It is easy to see that iron ore is a strategically important product ed growth of world prosperity. This is based on a sustainable in a global perspective. perspective, since iron and steel produce structures are sustainable over time, while the material remains fully recyclable and Scrap shortage – more iron ore required is part of the industrial ecosystem. Currently, iron ore constitutes about 70 percent of the raw material in iron and steel production. The rest is recycled scrap. A GROWING MARKET However, scrap is becoming a scarce commodity, especially in China currently represents the largest, most important market the fastest-growing countries. This leads us to believe that the for iron ore products. It is a society undergoing rapid develop- expected need for virgin iron ore will increase in the long term. ment, which includes better living standards and more migra- Today, there are basically two methods for making iron tion to cities, requiring continued investments in infrastructure. and steel. More than 90 percent of production is via the tra- Although developments are currently marked by uncer- ditional blast furnace process. Of the other methods, the nat- tainty, nothing fundamental has changed in the iron ore market ural-gas-based direct reduction (DR) processes dominate. The in the long term. Growth in China is expected to require more DR process is expected to take a larger share of production in steel and the country will be dependent on iron ore imports. In the long term. Increased availability of natural gas combined with environmental benefits means that new construction of iron and steel plants will likely be focussed on this process.

“Currently, iron ore constitutes about 70 percent of the raw material in iron and steel manufacturing” 12 | INTEGRATED REPORT 2012

Bright future for DR process During the 1970s a new steelmaking process known as the direct reduction process was developed. This process uses natural gas as energy input instead of coke. The pro- Blast furnace process most common cess also operates at lower temperatures. The end prod- The blast furnace process is by far the most widely used uct from the DR process is sponge iron that is refined into method for producing iron. By adding coke, which is com- various grades of steel. busted with blasts air, oxygen is removed from the iron The DR process has environmental benefits compared ore. The method produces large amounts of carbon diox- to the blast furnace process, since it generates less carbon ide and uses large amounts of energy. dioxide per tonne of steel produced. In the Middle East, the LKAB works with several blast furnace customers to vast, inexpensive supply of gas has created a major mar- tune processes, develop new and better products, and de- ket for the DR process. The new steel and iron plants un- velop new technologies in order to help improve product der consideration in the US are also based on this process. quality and reduce environmental impact. These partner- Natural-gas prices, halved in the US over the past two ships are based on LKAB’s ability to offer customers the years, present good opportunities. New technology has opportunity to test possible improvements in the world’s enabled exploitation of large deposits of shale gas, which only experimental blast furnace. It is a unique tool and an is not completely straightforward from an environmental offer that creates opportunities for long-term, frequent perspective. collaborations.

PELLET QUALITY THAT ALWAYS HOLDS UP For iron ore pellets to survive transportation, loading and unloading, while maintaining quality, they must be very robust. Before commencing their journey to customers around the world, they are fired in LKAB's pelletizing plant at 1,250 degrees. Ar clea -cut customer promise | Performance in Ironmaking | 13

pellet rESEARch Investments made in the agglomeration laboratory, which was completed in 2012 will strengthen LKAB's technological lead as the best quality pellet manufacturer on the global market. The new laboratory is working with both the cold part of the process (rolling the pellets) and the hot part (sintering the pellets).

Leading pellet innovator The raw material for both the blast furnace and DR processes is iron ore. It can be delivered as lump ore, fines (concentrates) or pellets. Pellets are concentrates mixed with additives important to the iron and steel process and formed into small sphe- roids. The spherical shape of the pellets enables a smoother, more efficient reduction process in steelworks. Pellets are LKAB’s main product, representing 84 percent of the company’s deliveries. Most deliveries now go to the Our unique raw material blast furnace process. But every year we see a significant increase in demand for pellets used in the DR Iron is one of the most common elements in the earth's process. The increased availability of natural gas is ex- crust. But it is the quality of the geology in general and pected to accelerate this transition. LKAB intends to be the volume that determine whether it is worth mining at the forefront of this development and is planning – in and being called iron ore. Ore mining is usually done in parallel with the experimental blast furnace – to also open-pit mines around the world. Australia and Brazil build an experimental installation for the DR process. are the largest producers, with almost half of world pro- This will further strengthen LKAB's position as the tech- duction and two-thirds of the global seaborne trade in nologically leading supplier of iron ore pellets. In terms iron ore. From a global perspective, Sweden is a small of capacity, with about 15 percent of the global market, producer, but we have a unique geology that means un- we are now one of the three largest pellet suppliers on usually good conditions for iron ore mining. the market. LKAB will never be the biggest in terms of LKAB mines the world’s two largest underground shipped tonnage. But we’ll be number one for customers iron ore mines. We have managed to make it profita- who demand quality and productivity. That is what the ble by being innovative and adapting iron ore mining Performance in Ironmaking concept stands for. to large-scale underground mining in a cost-effective manner. Another explanation is that LKAB’s iron ore mainly consists of high-grade magnetite. It has an iron content of between 60 and 70 percent, which product development part is outstanding. The major presence of of the sustainability strategy magnetite is also unique to Malmfälten. Ninety percent of the world’s known Did you know that … In 2012 LKAB revised and updated its iron ore resources consist of hematite. sustainability strategy. An important fo- The difference between magnetite and … LKAB has a strong foothold cus area is ensuring product competi- hematite is in itself only a small oxygen in the Middle East, where there tiveness and process efficiency. That is atom. But this small difference means a is a shortage of steel? why LKAB has formulated an objective on lot in the production of pellets. developing a new generation of climate- smart pellets by 2017. Read about the strategy and the new objectives under the Sustain- ability Strategy and Governance section on pages 56-63. 14 | INTEGRATED REPORT 2012

Climate-smart pellets In pellet manufacturing, LKAB’s magnetite ore has major advantages over competitors’ hematite. More than half of the energy requirement is derived from the heat liberated by magnetite when it is converted to hematite. The positive consequence of this is that LKAB does not need to use as much fossil fuel as its competitors We help set the agenda that use hematite ore. A full 60 percent of the energy needed for pelletizing is Our external research collaboration causes synergy CO2 emissions during sintering and supplied in this way. That is why we effects and drives development.. For example, we are pelletizing (kg C02/tonne) call our pellets LKAB Green Pellets. currently working closely with technology suppliers 300 LKAB has the world’s most ener- within the DR process. As rapid growth is expected, we 250 gy-efficient manufacturing process, aim to participate in and contribute to the next stage of

200 even when compared with other mag- development. netite-based pellet manufacturers. As for the blast furnace process, the challenge is 150 Learn more about our manufacturing to minimize its weaknesses. Carbon dioxide emissions 100 process in the Safe and Resource- and energy use must be reduced. Consequently, LKAB

50 EfficientP roduction section on page 22. is participating, as the only iron ore supplier, in a Euro- pean collaborative project in the iron and steel industry. 0 Sinter Hematite-based LKAB pellets The aim of the project, called ULCOS, is to eventually pellets reduce carbon dioxide emissions by 50 percent. LKAB’s The total carbon dioxide emissions for production of experimental blast furnace plays an important role in crude steel, about 2,000 kg CO /tonne, is reduced when 2 this context. It is also the key to the Course 50 project, LKAB pellets are used as iron raw material. Production of LKAB pellets generates seven times lower carbon of which the aim is to reduce carbon emissions from dioxide emissions compared to sintering at steelworks and three times lower than in hematite-based pellet Japanese steelworks by about 30 percent. production. The reduction is about 215 kg and about 95

kg CO2/tonne of crude steel, respectively. Source: Benchmarking of Carbon Dioxide Emissions from Iron Ore Pelletizing, Lawrence Hooey, MEFOS, 2010-05-24.

research centre IN MALMBERGET New premises and instruments for material parameters are now in place for research and evaluation of how our deposits are affected in the pelletizing process and what product quality can be achieved. Ar clea -cut customer promise | Performance in Ironmaking | 15

Research and development that delivers results Our business strategy is based on LKAB being the technology leader. Our ambition is to be a significant partner to each of our customers. To live up to this, we do extensive research and development in many different dimensions. LKAB has long had extensive partnerships with external centres of excellence, both nationally and internationally. Our own research is closely linked to Luleå University of Technology and the Hjalmar Lund- bohm Research Centre, where 25 highly qualified researchers are now employed. Our process and product development aims to leave direct, measurable impressions on our productivity. LKAB’s unique agglomeration laboratory plays an important role in this context. Interdisciplinary research is done here in areas such as mineral processing, chemistry, metallurgy and process control and automation, and new pellet types are developed and tested. All with a view to more effective and energy-efficient production. A one percent higher iron content per tonne of ore from the mine gives a significant boost to production in the processing plants, which leads to increased profitability.

lkab’s experimental blast furnace is unique The experimental blast furnace in Luleå is a unique test facility and the steel industry is showing great interest in it. The furnace provides considerable benefits to process and product development. It is appreciated by our customers, especially since many of the risks of performing full- scale tests in a production blast furnace can be avoided. 16 | INTEGrated REPORT 2012

performance in ironmaking flexibility safe and resource-efficient production growth urban transformation attractive lkab

fleilitxib y// 16-21

LKAB shipped 26.3 million tonnes of iron ore products in 2012. That is the largest volume in modern times.

The market for our iron ore products shows long-term, strong growth. But major shifts in the global economy mean that we must be prepared to quickly respond to temporary fluctuations in demand along the way. This assumes that the actions we take are flexible – in production as well as logistics.

When certain markets decline, we must be able to quickly redirect our efforts towards markets with higher demand.W e must also be prepared to deal with fluctuations in the market by focussing sharply on customers outside the steel market. All of this requires a high level of flexibility. Quick adaptation to change | Flexibility | 17

Qi u ck adaptation to change

That the market for iron ore products shows strong, long-term growth is in itself no guarantee of success for LKAB. In the short term, we must have a capacity for flexibility, and preferably benefit from a constantly changing world. Living with change is a normal state for us.

Geographic flexibility The ongoing European debt crisis put its stamp on 2012. LKAB produces 90 percent of Europe’s iron ore. Our Uncertainty about economic developments led to a de- strengths are clear: we have a strong profile in the pel- cline in demand for steel and hence iron ore. Europe is let area, our products are climate-smart, our quality is LKAB’s main market and traditionally represents about admittedly high, we can offer a unique combination of two-thirds of the company’s sales. This market showed experience and expertise. In short, we provide our cus- a declining trend in 2012. tomers with functional products. Although LKAB’s markets in Germany, the Nether- lands and the UK grew, sales of blast furnace pellets decreased sharply in the Nordics. Therefore, we quickly reprioritized the geographic distribution of delivery vol- A volatile market umes so as to continue to maintain a high production With a world market share of less than two percent, level. LKAB is a small iron ore supplier. We operate in a The company already has a strong foothold in market that is indeed experiencing strong, long-term the Middle East, so it was a natural step to increase growth, but which may fluctuate widely in the short deliveries to customers in this region. There is a term. We must keep this in mind at all times. We must shortage of steel in this part of the world and it is an always act in such a way important market for LKAB’s DR pellets. In the latter

LKAB that we can respond to part of 2012 we were also able to increase deliveries Other economic downturns and to China. Overall, this geographic redistribution led equally important, benefit to LKAB reaching its highest delivery-volume ever in 2012. from upturns in the market. By doing this, we will strengthen our market position. What is important is to have different

dimensions of flexibility. Global trade in iron ore (Mt)

Countries with most exports Countries/regions with Australia (521 Mt) most imports Brazil (327 Mt) China (739 Mt) South Africa (58 Mt) EU 27 (126 Mt) G lOBAL trade in iron ore products India (37 Mt) Japan (124 Mt) The world market for iron ore products did not generally change Ukraine (36 Mt) South Korea (62 Mt) in 2012. LKAB’s sales in the Nordic countries and Europe de- Canada (35 Mt) Middle East (27 Mt) creased, while deliveries to the Middle East and China increased during the year. Source: CRU 18 | INTEGRATED REPORT 2012

Flexibility in production LKAB’s main products are iron ore products. In 2012 pellets accounted for 84 percent of deliveries. Our spe- cialization in pellets is essential to our profitability and this is where we have a leading technological position. LKAB’s pellets increase productivity and provide a more stable process in steelmaking with lower energy needs and less slag formation. It is a clear-cut, strong profile that we want to consolidate. With this palette of blast furnace pellets, DR pellets, In parallel with pellets, we also produce fines, fine- fines and industrial minerals, LKAB has several produc- ly ground iron ore sand that must be clumped togeth- tion engineering legs to stand on. As the market chang- er (sintered) into larger pieces before it can be used in es, we can quickly rearrange our production process to steelworks. Offering both magnetite-based fines and match shifting demand. pellet fines (sieve residue) to the market increases The fact that LKAB managed in 2012 to reach its LKAB’s ability to respond to shifting product demand highest delivery volume ever, is a sign of strength and and market fluctuations. An unusually high iron content that the flexibility strategy works in practice. in our ore means that fines from LKAB are considered unique. In 2012 fines products made up 16 percent of Flexibility in purchasing our product portfolio. Through our Minelco subsidiary, LKAB is also a lead- LKAB spends large sums annually on spare parts and ing supplier of industrial minerals, mainly magnetite but maintenance products. And we are continuously in- also other strategically important industrial minerals, vesting in industrial machinery. In order to make these such as mica and huntite. purchases more cost-effective, LKAB established a purchasing office in Shanghai, China in 2011. The goal of this effort is to eliminate the middleman, thereby re- iron ore price trends (April 2012-April 2013) ducing costs. We also wish to gradually establish direct USD/dry ton partnerships with suppliers in this part of the world that 200 strive for quality and have businesses that are permeat- 170 ed by sustainability and responsibility. In 2012 extensive efforts were devoted to identifying 140 130,5 USD/t and visiting potential partners. Evaluations were made 110 and the first transactions were executed with significant 80 cost savings as a result. The Swedish government has

120402120502120602120702120802120902121002121102121202130102130202130302 a Corporate Social Responsibility (CSR) agreement with China, which is a mutual agreement on issues of corpo- PLATTS IODEX 62% Fe CFR North China 2012 Average price rate responsibility for the environment, climate, labour The daily spot price for fines with 62 percent iron content sold to China gives an indication of pricetrends for iron ore products in legislation, human rights and corruption. Its principles general. Large price fluctuations were the norm in 2012. are reflected in LKAB's conduct in theC hinese market.

efficient purchasing LKAB's purchasing office inS hang- hai, led by branch manager Anders Lundgren, is meant to eliminate costly intermediaries and buy quality products directly from manufacturers. Quick adaptation to change | Flexibility | 19

Custo m industrial- minerals Minelco generates new business opportunities by offering customized industrial minerals, many with environmental benefits. Magnetite products origi- nating from LKAB's iron ore are used as water treatment chemicals, for desul- phurising coal, as a finely ground dried product in pol- ymers used for noise and vibration damping, and as ballast in heavy concrete used for things like radiation protection and underwater structures. Key industries are construction, offshore, foundries, and the rubber, plastics, paint, chemical, vehicle and steel industries.

Flexibility in the logistics chain LKAB’s competitive opportunities in the global marketplace are based on the fact that we are one of the worlds leading logistics companies, both underground and at surface level. With relatively few possibilities for The Ore Railway was upgraded to handle heavier interim storage at depots and harbours, one of LKAB’s loads than other European railways. In order to meet main goals is to deliver as much volume at the steadiest the steadily increasing production of iron ore products, pace possible. This is achieved through highly special- LKAB invested about SEK 5 billion in terminals, new ore ized production flows. cars and locomotives, and a new automated unloading Transport is by rail from mines and processing and storage facility in Narvik harbour in the 2000s. This plants along the Ore Railway. The unloading ports in means that the transport capacity of the Ore Railway Luleå and Narvik are the backbone of LKAB’s logistics has increased by 60 percent, and storage in Narvik has systems and business operations. Since LKAB has two become efficient, with reduced environmental impact. harbours, ports, logistics flows can be optimized de- Future plans are to increase the unloading capacity in pending on where the customer is located. A third of Narvik from about 20 million to more than 28 million the products reach the market through Luleå and two- tonnes annually. thirds via Narvik, which can accommodate the largest In 2011 LKAB took a decision to invest further bil- vessels for long-distance transport. lions in new locomotives and cars in order to reach a transport capacity on the Ore Railway of 40 million tonnes per year in 2015. 20 | INTEGRATED REPORT 2012

O pen-pIT mining in Gruvberget The year ended with good news and partial judgement with regard to the collective environmental permit processing for LKAB’s operations in Svappavaara. LKAB Berg & Betong was thus able to resume mining in Gruvberget on 20 December. With the three new mines of the Svappavaara field in production, the goal is to increase LKAB’s total annual production of iron ore products to 37 million tonnes. Quick adaptation to change | Flexibility | 21

Product mix in iron ore trade (Mt) Global steel production (Mt)

2,000 30 1,800 1,600 25 1,400

20 1,200 1,000 1,000 15 800

10 600 400 5 200

0 0 0 Global LKAB 1980 1990 2000 2008 2009 2010 2011 2012

Fines DR pellets Global of which China Blast furnace pellets others Fines is still the dominant product in the iron ore Iron ore is the main raw material in steel production. market. Pellets have a smaller share, 10–20 percent Demand for iron ore is linked to global steel production. but this is expected to increase. Pellets are LKAB’s Today, China accounts for almost half of world steel major product. output.

Flexibility in product mix FLEXIBILITY IN CAPACITY In 2012 direct reduction pellets represented about 25 As a niche provider, it is business-critical for LKAB to percent of our pellet deliveries. That is an increase from be a significant partner to each of our customers. This 2011 and confirms the trend we have been seeing for means that we work closely with our customers to de- some years. Success in this area is essential to the liver products tailored to their processes and with con- company, and it fits well with LKAB’s determined, long- sistently high product quality. LKAB must grow in pace term strategy. The DR process requires purer pellets, with its customers; otherwise, we face the risk that our which matches LKAB’s focus and strength factors. products constitute too small a share in the customer’s In addition, the future expansion of steel capacity process and we become marginalized as a supplier. in many markets will favour the DR process in particu- Growth requires access to more iron ore to process. lar. Old blast furnaces will be shut down and must be That is why LKAB is opening three new open-pit mines replaced. The DR process is environmentally advan- in the Svappavaara field.E xpenditures on these mines tageous. Energy input is from natural gas, which has total about SEK 7.5 billion for 2011-2015. become a cheaper type of energy as new reserves are The new mines are expected to give LKAB oppor- commercialized, especially in the US, where large sup- tunities for a total annual capacity of 37 million tonnes plies of shale gas have changed the playing field. The of finished iron ore products for ten years from 2015. price of natural gas has fallen by 60 percent over the Demand for iron ore products is expected to continue to past two years. increase during that period. LKAB plans to be a driving force in the development With the Svappavaara field, LKAB gets, at a com- of DR pellets in the future as well. LKAB is focused on petitive cost of investment, three flexible mines that, becoming a leading partner and supplier in the antici- with a high proportion of variable costs, can vary pated expansion of DR processes in the US and other production according to demand. This will give us places. In these efforts LKAB will follow environmental great flexibility in quickly adjusting to our custom- developments in the extraction of shale gas. ers’ needs in terms of changes in deliveries. It also reflects that we operate in a market that can fluctuate greatly in the short term. Read more about LKAB’s expansion plans in the Growth section on pages 32-39. 22 | INTEGRATED REPORT 2012

performance in ironmaking flexibility safe and resource-efficient production growth urban transformation attractive lkab

safe and resource-efficient production 22–31

Safety is fundamental to maintaining a safe workplace at LKAB. In a corporate culture where safety is prioritized, we can also minimize disruptions and ensure consistent, uninterupted production.

LKAB has the unique potential to be an international leader in sustainable development. Our climate-smart LKAB Green Pellets are manufactured in the world's most energy-efficient process. This is a result of being continuously innovative and highly cost-conscious.

But we can never be complacent. LKAB works diligently to reduce the use of fossil fuels and to switch to renewable energy sources as much as possible. We have a sharp focus on reducing emissions to air, decreasing dust and noise, and increasing the recycling rate. It is also a matter of course that LKAB's suppliers and partners must live up to the requirements of responsible operations. They are a link in the value chain. A sustainable value chain | safe and resource-efficient production | 23

A sustainable value chain

Sustainable development is the strong chain that runs through everything LKAB does. It stretches from having a long-term perspecitive, secure workplaces, safety consciousness, and efficient energy and resource use at one end, to delivery of climate-smart finished products that streamline our customers’ processes at the other. Having no weak links in this long chain is critical to our competitiveness.

LKAB’s process chain ranges from the ore deposits all the way to the customer. The first step is the production of ore in the mines. Then the ore is processed in the processing plants at surface level. Finally, the finished products are transported to the harbours at Narvik and Luleå Processing of the raw material for delivery to customers around the world. It is a continuous process that runs around the clock, all year round. The mined ore contains other materials that must be sorted out. The main by-product is waste rock. Tail- ings are also left behind but are not considered haz- High-tech mining ardous waste. After dressing, the ore’s iron content Most of the iron ore mined in the world is in the crustal increases from about 45 percent to about 62 percent. layer and can relatively easily be mined in large open- Next, in the concentration plants, the ore is further pits. Most of LKAB’s ore deposits must be mined more pulverized. We “grind out” impurities, such as apatite. than one thousand metres underground. However, the The iron content is further raised after concentration to three mines in Svappavaara are open pits. One of them is about 71 percent. already open, and LKAB intends to open the other two in Part of the output is fines. Due to the ore’s unusual- 2015. Mining ore at such depths is a logistical challenge. ly high iron content, fines from LKAB inM almberget are Sophisticated technology and production systems place considered the best in the world. LKAB’s mines among the most modern, high-tech mining facilities in the world. Our processes for underground BY-PRODUCTS PROVIDE mining are as effective and large-scale as those used in NEW BUSINESS OPPORTUNITIES open-pit mines around the world. In the Kiruna mine alone, more than 75,000 tonnes of ore is mined every Together with Luleå University of Technology, LKAB is day. Total ore production for the Kiruna mine amounted currently investigating the possibility of recovering min- to 26.8 million tonnes in 2012. That is the second best erals from iron ore processing tailings. The tailings con- result in modern times, surpassed tain apatite and rare earth metals. Apatite is a raw mate- only by 2008’s ore production. rial used for manufacturing fertilizers and earth metals. Did you know that … It can be used in all types of electronics, motors, glass, automobiles and as alloying elements. Additionally, sub- ... the market for iron ore sidiary Minelco recovers refractory material, among oth- products has strong long-term er things. growth? 24 | INTEGRATED REPORT 2012

The world's most energy- efficient pellet process hydrogen chloride will thereby be reduced by about 90 The first step in the process is to produce a rough ball percent. This means that these pelletizing plants will be consisting of 69 percent iron along with unique addi- among the first facilities inE urope to comply with the tives (industrial minerals) that give the pellet the conical future requirements of the Industrial Emissions Direc- and mechanical properties requested by the customers. tive (IED). In the pelletizing plants, crude iron balls are produced LKAB currently has valid environmental permits that are about 10 mm in diameter. These are dried, pre- for the installations in Svappavaara, but compliance heated, sintered and cooled. During sintering at 1,250 with the IED's predecessor, the Integrated Pollution Pre- degrees Celsius, magnetite generates considerable vention and Control Directive (IPPCD), was delayed at amounts of energy while it oxidizes into hematite. This LKAB and the authorities for various practical reasons. means that LKAB’s pellet production requires 60 per- The compliance application was submitted by LKAB in cent less input energy than pellets made with hematite. 2010. In early 2013, the EU Commission took legal ac- The positive consequence of this is that LKAB does not tion against Sweden because LKAB’s pelletizing plant in need to use as much fossil fuel as its competitors that Svappavara, for instance, did not yet have environmen- use hematite ore. That is why we call our pellets LKAB tal permits that comply with the IPPCD. Green Pellets. Based on an EU directive, the EU court finedS weden LKAB has the world’s most energy-efficient pel- because the Svappavaara installation was not consid- lets process, even when compared with other magnet- ered to live up to environmental permit requirements. ite-based pellet manufacturers, as evidenced in a com- The measures LKAB is now taking will put the operation parative study by Swerea MEFOS. in compliance with the requirements. There is currently no global emissions trading LKAB’s discharges to water contain nitrogen and scheme for carbon dioxide. LKAB falls under the Eu- phosphor from explosives debris and the ore. These ropean system of emission allowances and has so far discharges into surrounding waterways are not consid- received an annual allocation that covers much of its ered to have any significant environmental impact. needs. From an international perspective, LKAB is one Mining operations produce noise, vibrations and of few suppliers of iron ore products that has costs for dust that are sometimes perceived as disruptive to the emission allowances. local environment. Vibrations can occur as a result of explosions or displacements in the rock mass near the mining areas and can be perceived as unpleasant. With Emissions, vibrations and dust the help of high-tech equipment, LKAB carefully mon- LKAB’s operation generates significant emissions to itors all rock mass displacements. Noise is measured air. As part of our improvement efforts, a decision was and deviations in the measurements were recorded in made in 2012 to invest SEK 1.5 billion in flue gas treat- 2012 for Svappavaara and Kiruna. Action plans were ment installations in the Svappavaara and Malmberget prepared for deviations from prescribed levels. pelletizing plants. Emissions of particulates and acidic When ore and waste rock is crushed, diffuse dust gases such as sulphur dioxide, hydrogen fluoride and forms that first and foremost makes things dirty. LKAB regularly checks the air quality and has set its own target value for falling particulates.

For m ore deposit to customer

mingin dressing and concentration pelletizing A sustainable value chain | safe and resource-efficient production | 25

E mployees optimize the process In the Kiruna mine, development teams focus on increasing internal productivity by identifying and eliminating various obstacles. The work involves all employees, so everyone takes responsibility for identifying elements that delay the process underground. Through scheduled observation rounds, smart solutions as well as work obstacles are identified. This forms the basis for suggestions for improvement and action plans. All changes are monitored and measured against key performance indicators. In the development of the Kiruna mine, this has meant an internal efficiency increase of 21 percent since process optimization was introduced in 2011. This means that time is spent more efficiently and more work can be handled by the internal team without the need for outsourced services. This represents significant savings for LKAB.

Fsocu on safety LKAB’s safety efforts are extensive and include theS afety First development program. For underground work in our mines, focus on safety is a given, but the company’s safety efforts cover all parts of our operation.S ee the Attractive LKAB section on page 48 for more information.

From ore deposit to customer

Or e transport Shipping Customer delivery 26 | INTEGRATED REPORT 2012 A sustainable value chain | safe and resource-efficient production | 27

Cost-efficiency programme To further strengthen LKAB’s competitiveness, we launched a new cost efficiency programme in 2012. The purpose of the programme is to implement improvements within various focus areas that will reduce the company’s costs. CLEAR-CUT ENERGY

Measures will take three different dimensions: AND ENVIRONMENTal TARGETs Rising energy costs and a sharper focus on the environ- 1. Continuous improvements with a focus on mini- ment have led LKAB to work purposefully and active- mizing downtime. Availability will be increased by ly to reduce energy demand. LKAB is Sweden’s single fine-tuning machinery and installations so that re- largest consumer of electricity. We account for about turn on investment is maximized. 1.5 percent of Sweden’s total electricity consumption. Different types of fossil fuels are also used in the com- 2. Capacity in the mines is currently a bottleneck. The pany’s processes. Undoubtedly, LKAB faces a number LKAB 37 programme is aimed at expanding mining of challenges relating to energy and climate issues. We capacity. This means that we can reduce LKAB’s are working towards phasing out coal and oil as fuel in fixed costs while using our processing capacity to the long term. This will be achieved by gradually transi- the maximum. tioning to renewable fuels throughout our operation. We will also increase our flexibility in selecting fuels used in 3. Increase LKAB’s operational efficiency.W e can production. Based on this, we have adopted a number of be more effective in our internal work.E ach unit strategic objectives: must attend to its own operation. Energy use can be streamlined. Iron yields can generally be higher. Pur- 1. The specific energy consumption will be reduced chasing costs can decrease. from 160 kWh per tonne of finished products in 2011 to 130 kWh per tonne in 2020. Overall, the programme is all about lowering the cost per produced tonne of finished iron ore products by 2. Carbon dioxide emissions per tonne of finished prod- 20 percent. The programme will be completed by the ucts will be reduced from 27 kg in 2011 to 17 kg in 2020. end of 2015 and is an important part of the company’s overall efficiency measures for achieving the The previously formulated goal of reducing energy con- government’s proposed new financial targets. sumption by 5 percent per tonne of pellets produced by 2012 compared to 2006 was not attained. We are now reviewing work processes in order to clarify allocation TEMPORARY DELIVERY challanges of responsibilities. In late April 2012 extensive cracking was discovered The 2006-2012 environmental objectives were on the bearing ring of the rotary furnace in one of the reached. The strategy for 2013 and beyond also includes pelletizing plants in Kiruna. The repairs caused an out- goals of reducing falling particulates by 10 percent by age of almost a month with a production loss of 320,000 2015 and reducing emissions of sulphur dioxide from tonnes of pellets. the pelletizing plants by a thousand tonnes in 2015. See In late May a strike broke out among civil servants page 61 for more information about these objectives. in Norway. District traffic controllers from Jernbanever- ket in Narvik were involved in the conflict. All ore ship- Comprehensive results reporting ments to and from Narvik were stopped for nine days, resulting in temporary stockpiling. Modern, up-to-date environmental permits are fundamental to LKAB’s operations. The company must also conduct business in accordance with prevailing conditions. The permits regulate how the business may deal with emissions, by-products and waste from mining and processing operations. LKAB submits environmental reports annually for all licensable operations, which can be found on our website at www.lkab.com. In 2012 LKAB reported 12 environmental incidents regarding chemical spills to the County Administrative Board, mainly regarding spillage of oil. 28 | INTEGRATED REPORT 2012

Efficient transport A decisive factor for LKAB’s competitiveness is efficient transport on the Ore Railway to the harbours at Narvik and Luleå. That is why LKAB operates its own rail services. The objective is logistics that provide an internationally competitive cost image for LKAB's products. Fifteen times a day, 1,700 railcars of pellets and fines are hauled on the Ore Railway and Ofotenba- nen Railway. The IORE locomotives and 100-tonne ore cars make it possible to run longer trains of up to 8,500 tonnes. Overall, the transition to new trains with modern technology over a five-year period reduced energy costs for ore shipments by 50 percent.

Remediation of the landscape Remediation actions are carried out gradually as operations in LKAB’s industrial zones close down. It is about creating new habitats similar to the surrounding landscape by establishing vegetation, stabilization and decontamination where necessary. See the Administration Report on page 87 for more information. A sustainable value chain | safe and resource-efficient production | 29

Modern technology uses less energy Thanks to a focus on eco-driving and regenerative braking on locomotives, energy use can be reduced by more than 25 percent compared with convention- al trains. The ore trains can generate almost as much energy as they use. The record so far is held by an ore transport to Narvik. Of the 8,400 kWh consumed, as much as 6,200 kWh was regenerated. 30 | INTEGRATED REPORT 2012

Ev n ironmental and energy performance

Material and energy balance in LKAB’s production in 2012

emissions to air  ENERGY 4,390 (GWh) PELLETS 23.8 (Mt) P articulates 1,965 (t)

SO2 1,831 (t) HF 202 (t) EXPLOSIVES 19.1 (kt) HCI 592 (t) FINES 2.4 (Mt) NOx 3,911 (t)

CO2 688 (kt) CONCRETE 500 (kt) By-products 26.2 (Mt)

ADDITIVES 943 (kt) Surplus heat 404 (GWh)

CRUDE ORE 41.9 (Mt)

discharges to water 

nitrogen 303 (t ) total phosphorus 393 (kg) Trace metals 120 (kg)

Resource consumption, production and emissions MANAGED WASTE – LKAB GROUP 2008 2009 2010 2011 2012 Input materials 2010 2011 2012 Energy (GWh) 3,668 3,050 3,986 4,237 4,390 Operational waste * (t) 8,133 9,670 8,745 Explosives (kt) 18 15 19.2 19.4 19.1 Scrap (t) 6,946 6,921 8,002 Additives (kt) **** 666 569 866 852 943 Hazardous waste ** (t) 1,243 1,909 1,961 Crude ore (Mt) 41 27 42.6 42.7 41.9 Hazardous waste ** (%) 8 10 12 Concrete (kt) *** *** 480 496 500 * Wood, rubber, landfill, combustible, unsorted Emissions to air ** Def. per Swedish Waste Ordinance SFS 2011:927 Particulates (t) 2,345 1,640 1,545 1,828 1,965

So 2(t) 2,267 1,684 2,282 2,026 1,831 HF (t) 309 166 221 177 202 HCI (t) 722 400 682 590 592 NOX (t) 4,001 2,597 4,187 4,138 3,911 Emissions per tonne of pellets (g/tonne of pellets)

CO2 from pellet production (kt) 573 460 684 687 688 250 Products Pellets (Mt) 19.9 14.7 22.1 22.9 23.9 200 Fines (Mt) 3.9 3 3.2 3.2 2.4

By-products 150 Waste rock (Mt) 13.9 10.7 14.9 21.0 20.6 Tailings (Mt) ** ** ** 6.42** 5.60 100 Lime (Mt) 0.036 0.024 0.036 0.042 0.041 Surplus heat (GWh) 280 276 372 371 404 50 Discharges to water 0 Nitrogen (t) 370 206 201 324 303 2007 2008 2009 2010 2011 2012

Total phosphorus (kg) 388 702 440 497 393 Nitrogen oxide hydrogen chloride Trace metals (kg) 410 250 88 151 120 Particulates hydrogen fluoride sulphur dioxid * Some waterways receiving water are included in the Natura 2000 areas. LKAB conducts biological and water chemistry evaluations and tests as part of its Emissions from ore processing in Kiruna, Svappavaara and Malmberget. self-monitoring to ensure the quality of the water system. ** Information was calculated using another method, not comparable to 2012. *** No information. **** Additives from Minelco are included 2012. fsa e and resource-efficient production | 31

Environmental and energy performance Ev n ironmentAl and energy performance

Fuel consumption 2012 (TJ) E nergy consumption (kWh/t pellets)

Coal Diesel oil Fuel oil Electricity* 2006 186 Kiruna 3,153 108 1,082 4,506 2007 180 Svappavaara 931 5 213 801 2008 184 Malmberget 0 133 1,564 2,843 2009 207 Luleå 0 0.4 28 58 2010 180 Narvik 0 15 23 156 2011 185 Minelco ** 0 43 37 73 2012 184

* Electricity purchased is an energy mix of 51 percent hydropower, windpower Refers to the facilities in Kiruna, Svappavaara, Malmberget, Luleå, Narvik and and biofuel power (renewable energy sources), 48.7 percent nuclear power, and subsidiaries, excluding sales to external end users. 0.3 percent coal, oil and peat (fossil fuels), based on Vattenfall’s electricity sales The specific energy consumption has declined only marginally since 2006. in 2009. Refers to electricity use in Kiruna, Svappavaara, Malmberget, Luleå, Narvik and Minelco, excluding sales to external end users. ** Minelco has a consumption of propane corresponding to energy value 0.0002 TJ and kerosene corresponding to energy value 17.5 TJ for 2012. Minelco also uses natural gas (0.012 TJ), as well as liquid petroleum gas (56 TJ).

Percentage of sorted waste in iron ore operations in 2012 (%) Surplus heat recovered internally (GWh)

100 400 90 350 80 300 70 60 250 50 200 40 150 30 100 20 10 50 0 0 Kiruna Malm- Svappa- Luleå Narvik 2006 2007 2008 2009 2010 2011 2012 berget vaara

Goal

W aste that is sorted is operational waste and includes wood, rubber, landfill waste, LKAB is constantly working to increase the amount of recovered surplus heat as combustibles and unsorted waste. Hazardous waste is not included in the opera- part of its energy efficiency efforts. tional waste but it is handled by a third party with approved permits to handle hazardous waste. In 2006 a goal was set to increase the proportion of sorted waste by 2012 from about 50 percent to at least 80 percent. The goal was attained at all business locations except Narvik. Activities outside the ore fields and ports are not included in the statistics.

Carbon dioxide emissions

pellet processing 688 kt CO2 Electricity 23%

electricity consumption 211 kt CO2

Internal transports 19 kt CO2 Internal transports Direct and indirect emissions 2% Combustion of fossil fuels and additives in the pellet process and oil furnaces accounts for 75 percent of LKAB's carbon emissions. Electricity (indirect emissions) accounts for 23 percent. The quantity of vehicle fuel consumed internally P ellet processing 75% at LKAB accounts for 2 percent of carbon dioxide emissions. Transport activities of contractors are not included in the documentation, nor are carbon dioxide emissions from ore transport by rail or emissions from Minelco. Reported carbon dioxide emissions do not include Minelco. 32 | INTEGRATED REPORT 2012

performance in ironmaking flexibility We grow with safe and resource-efficient production growth urban transformation our customers attractive lkab

GROWTH// 32-39

LKAB is Europe’s largest iron ore producer. In a global perspective, however, LKAB is a minor player. In just a few decades, we have shifted our market position from being a pure commodity producer to becoming one of the world’s leading developers of processed iron ore products.

For LKAB’s competitiveness and continued success it is business-critical for us to be a significant supplier to each of our customers. To achieve this, we must have the resources to at least grow with them. This can occur organically or through acquisitions to secure our supply of raw materials. It can also be done by upgrading and streamlining our work methods.

The common thread is that we must always make sure to offer our customers added value in their partnerships with us. We can only do that if we act responsibly and with respect for people and the environment. W e grow with our customers | GROWTH | 33

W e grow with our customers

There is strong demand for steel. And there is underlying growth in the market. LKAB meets the high demands of customers around the world. To maintain our position as a niche supplier and not be marginalized, we must have the capacity to grow with our customers. This is done through an upshift of our delivery capacity, for which increased access to ore is the key.

Developments in the global steel market have been very positive over the past ten years. Demand has primarily been driven by China and Middle Eastern states. The global iron ore market has grown by about 250 percent. According to analysis analyst CRU, the iron ore market should increase by about 40 percent over the next ten years.

L ong-term growth While developments in the world seem uncertain, the long-term outlook is that there is still growth and demand for steel. To maintain the strong position that LKAB has attained, it is important for us to grow in pace with our customers. If LKAB’s products constitute too small a share in a steel process, the respective customer can no longer perceive or appraise the added value that we deliver with our products. We could simply be marginalized as a supplier and partner, which constitutes a risk when times are bad. To ensure future competitiveness and jobs, it is therefore important that we are able to grow as a company.

increased capacity From 2015, growth project LKAB 37 entails shipping 9–10 million tonnes of finished products through the Port of Luleå and 27–28 million tonnes via Narvik, where tugboat Rombak is an important part of the operation. 34 | INTEGRATED REPORT 2012

LKAB invests in the future Efforts to develop LKAB’s production system are continuous. A new main level in Malmberget was operational in 2012 and in 2013 a new main level will open in Kiru- na. In addition to new ore reserves, securing existing capacity will be decisive for the company’s growth. The LKAB 37 programme entails LKAB gearing up its delivery capacity by about 35 percent. This will be achieved through the opening of three open-pit mines in the Svappavaara field: Gruvberget, Leveäniemi and Mertainen. All these mines are well located in relation to LKAB's existing infrastructure. These favourable geographic conditions mean that the time-to-market of these projects is very competitive compared with other countries. The new mines are expected to increase LKAB's annual production by 12 million tonnes of finished iron ore products from 2015. Overall, during this period, LKAB will have the capacity to ship about 37 million tonnes of finished iron ore products. The increased volumes will help reduce unit costs for the company as a whole. This means that a larger LKAB is also a stronger LKAB. We get the opportunity to grow with our customers. We also get opportunities to market our products in emerging markets outside Europe. The potential market for DR pellets due to the construction of new direct reduction plants in North America is of particular interest. We have the world’s best product for the DR process and can play an important role when this market picks up momentum.

Impact on nature and reindeer herding conduct and to continue to discuss and evaluate impacts. Since the spring of 2011, LKAB and the stakeholders affected by In conjunction with exploration of the area, LKAB initiated a the planned mining in Mertainen have been meeting to discuss joint action called Project Peregrine with the Norrbotten Ornitho- impacts and opportunities. logical Society. Exploration meant that the falcons' prior nesting The district has a high nature conservation value that is crit- site disappeared. When the open pit closes, it will be a good hab- ical to Sami villages Gabna and Laevas. Therefore, different op- itat for all ledge-nesting birds. To compensate for the loss during tions for designing the area have been thoroughly examined and the nesting season, LKAB will build several artificial nesting ledg- evaluated. LKAB has taken into account and, where possible, ad- es adjacent to Mertainen and other appropriate environments. justed the proposed design of the operational area. The objective LKAB also started a project on ecological compensation. is to minimize interference with reindeer herding. Certain impacts Currently, the project is conducting a risk assessment and an or indirect impacts are difficult to predict. LKAB has initiated a col- evaluation of the loss of biodiversity. LKAB also started a project laboration with the intention of entering into a partnership agree- on ecological compensation, in which a risk assessment and an ment with the two Sami villages in order to clarify principles for evaluation of the loss of biodiversity are currently being conducted. W e grow with our customers | growth | 35

commisSIONING in progress – new main level in Kiruna Preparations for commissioning of the new main level in Kiruna (KUJ 1365) continued at year end. This is the first part of the production chain, consisting of trains, chutes, discharging stations, crushers and hoists that will be operational in the first quarter of 2013. Commissioning of the remaining stages will take place gradually over the next few years. In 2012, the main activities of the project consisted of rock work in the so-called lake ore, drilling shafts, and construction work and installations in permanent facilities.

fial Of ci opening OF NEW MAIN LEVEL IN MALMBERGET MINE On 14 June, the new main level in the Malmberget mine was officially opened by King Carl XVI Gustaf. At the same time, LKAB’s new Research and Visitor Centre opened. Vice President Technology and Business Development, Per-Erik Lindvall gives a presentation. 36 | INTEGRATED REPORT 2012

Permits are business-critical Applications for environmental permits for the three Mines and mining impact their surrounding environ- new mines are submitted gradually over the life of the ments. New mines entail an encroachment in the earth's project. LKAB’s expectations and aspirations are to have crust and thus a negative impact on the environment. We all permits in place to facilitate production start-up in must have an understanding of how mining affects bio- 2015. Timely permits are critical if we are to continue to diversity. For example, is there a risk that the area’s eco- be a strong and driving force in the market. Projections system is disturbed when reindeer trails are affected? indicate that the iron ore market will be strong around This is the type of question LKAB deals with in the pro- 2015. Therefore, it is important for the pace of the process. cess to hold steady so that LKAB can offer increased Opening the three new mines is subject to extensive delivery capacity when required. permitting. The fact that environmental issues must be analysed accurately and fully is a given. LKAB's ambition is to be an industry role model from an environmental and sustainability perspective. We support all of the environmental requirements placed on the Group’s operations.

Draining 30 million cubic metres of water One of the new mines is Leveäniemi, an open pit in Svappavaara. It was previously mined, but the operation has been shut down for many years. Before ore can once again be mined, 30 million cubic metres of water must be pumped out. That is as much water as would fill 50 ofS tockholm´s Globe Arenas. In autumn 2012 LKAB got the green light from the County Administrative Board to drain the pit and pumping began in late September. The work is expected to be finished in autumn 2014, according to Peder Nensén, project manager for new mines. W e grow with our customers | GROWTH | 37

LKAB’s investments in growth vik. The Norwegian side also requires capacity-build- All Svappavaara mines will be mined as open pits. In- ing measures to be taken on the Ofotbanen Line. The vestments in these mines are ongoing and are expected growth plan requires greater storage capacity in the to continue until 2015. Ports of Narvik and Luleå as well. The biggest investments are being made in Mertain- en and Leveäniemi, where new crushing and dressing Five hundred new jobs installations will be built. Existing concentration plants must also be upgraded. In addition, logistics around the The three mines in Svappavaara should provide about mines needs to be improved. New tracks, terminals and 500 new jobs. Besides strengthening LKAB’s position in marshalling areas must be constructed. To cope with the international marketplace, the volumes of the new transportation of the additional 12 million tonnes of fin- open pits will help lower LKAB’s fixed costs per unit ished products per year, LKAB has decided to invest in produced. four new trains and locomotives. The Swedish Trans- port Administration has prepared a plan for extending an additional four lay-bys on the Ore Railway to Nar-

Did you know that … … when the three planned open pits in Svappavaara are in full production, the amount of iron that LKAB mines every day will increase from the equivalent of six Eiffel Towers to eight? 38 | INTEGRATED REPORT 2012 W e grow with our customers | GROWTH | 39

Reporting of mineral reserves and Prospecting for future resources resources LKAB prospects continuously for iron ore, both in exist- LKAB reports mineral reserves and resources in coming mines and new projects. The ore reserves in Kiruna, pliance with recommended rules adopted by SveMin Svappavaara and Malmberget will last for many years (FRB Standard). These are based in turn on an interna- of mining. Currently, mining is ensured until 2030-2035 tional standard. in Kiruna and until 2023 in Malmberget. Additionally, the Håkan Selldén is a specialist in ore-based develop- investments in Svappavaara will contribute ore until at ment and is accredited by SveMin. He has more than 30 least 2023. years of experience in the mining and minerals industry LKAB also has more than 70 ongoing prospecting and has compiled LKAB’s report. objects that are being evaluated. The time span from The summaries of mineral reserves and mineral prospecting to commercial mining is long, however, at resources show the current situation. Mineral reserves seven to ten years. comprise granted concessions, and mineral resources suggest possible future concessions.

Mineral reserves Mineral resources besides mineral reserves As of 31 December 2012 (to dressing plant) As of 31 December 2012 (to dressing plant) quantity, mt percent fe quantity, mt percent fe 2012 2011 2012 2011 2012 2011 2012 2011 Kiruna Kiruna Proven 536 590 48.6 48.7 Measured 12 93 48.8 48.9 Probable 146 76 46.4 47.1 Indicated 199 160 47.1 45.7 Malmberget Inferred 76 81 45.6 44.2 Proven 168 174 42.3 42.4 Gruvberget Probable 103 105 41.2 41.2 Measured 2 57.0 Gruvberget Leveäniemi Proven 7 8 53.1 53.2 Measured 80 80 47.1 47.1 Probable - - - - Indicated 30 30 47.0 47.0 Inferred - - - -

Mineral reserves include minerals within approved mining concessions. Mertainen The mineral reserve in Kiruna includes minerals above 1,365 m from Measured 106 - 36.4 - levelling point. The mineral reserve in Malmberget includes minerals Indicated - - - - above 1,250 m from levelling point for the East Field. The West Field Inferred 51 157 31.8 34.9 includes minerals above 600 m from levelling point. The mineral reserves for Gruvberget include magnetite minerals above 220 m from Malmberget levelling point. The proportion of broken tonnage of waste rock/ore Measured 17 21 41.6 39.8 in open pits is 1.7. When calculating the reserves, the prices in force Indicated 175 175 42.2 39.8 over the period 2004–2005 were used. Iron losses in the processing Inferred 36 30 41.9 42.7 operation are about eight percent.

The mineral resources in Kiruna down to 1,500 m from levelling point are reported, in Malmberget for the Eastern Field down to 1,725 m from levelling point and 1,050 m from levelling point for the Western Field. At deeper levels in the respective drifts there is insufficient data for estimating grades and quantities. Mineral resources for Gruvberget are not presented in this report.

upgrading of the Ore Railway increases delivery reliability The government’s party leaders held a press conference in September at LKAB in Kiruna and proposed that SEK 800 million be allocated in the autumn budget to renovating the Ore Railway. Marketing and Logistics Director Markus Petäjäniemi and LKAB’s CEO Lars-Eric Aaro are also pictured. 40 | INTEGRATED REPORT 2012

performance in ironmaking flexibility safe and resource-efficient production growth urban transformation attractive lkab

urban transformation// 40–47

Due to LKAB’s mining in Kiruna, Svappavaara and Malmberget, more and more land must be claimed for mining operations, which means that the communities concerned face great changes. There are hardly any comparable situations in the world from which we can learn. That is why there is a double meaning when we talk about breaking new ground.

This urban transformation is being carried out in close collaboration with the municipalities, residents and other stakeholders concerned in order to come up with long-term, sustainable solutions. The aim is to do the work with good advance planning and clear communication in all phases. Good relationships with those affected by LKAB’s operations are critical to our success.

Throughout the entire process, LKAB will take an active role when it comes to building new, attractive communities with regard to infrastructure, housing and selection. The company has a vested interest in managing the process in a positive way. Maintaining public trust in LKAB over time is fundamental to our ability to recruit and retain key expertise. It is also important that we work together with municipalities to create attractive communities where people want to live and work. I n close collaboration with all stakeholders | URBAN TRANSFORMATION | 41

In close collaboration with all stakeholders

LKAB’s continued mining operations and growth plans are dependent on large parts of Kiruna and Malmberget gradually being moved. The result is urban transformations that require consultation with a wide range of stakeholders. Good communication is essential for the residents of the towns to feel involved, secure and comfortable throughout the process. It is based on long-term engagement.

Iron ore and other minerals make up 40 percent of Sweden’s net exports. In 2011 LKAB was Sweden’s ninth largest export company. LKAB is now also one The company’s major future investments directly of the country’s major industrial investors. In 2012 and indirectly generate an economic base for lo- the company’s capital expen- cal contractors, consultants and ditures totalled SEK 5.8 billion. workers. They play an important The project that runs until 2015 role for LKAB, since they concern involves expenditures of about “The really hard service, repairs, extra work ca- SEK 20 billion. pacity and transportation. Thus, part is getting LKAB is also an impetus for an increase in local small businesses, Growth engine all of the many private purchasing power and LKAB is Norrbotten County’s people who live municipal tax revenues. Accord- largest industrial group of coming to a consultant’s report from panies. Many of the company’s in Kiruna and 2012, LKAB directly or indirectly capital expenditures will ben- Malmberget to employs nearly 54,000 people in efit the region.C ommitment to the region. local communities and actively feel involved” Despite the turbulent situa- contributing to community de- tion in the financial markets in velopment are important issues 2012 caused by the debt crisis in to LKAB. Europe, LKAB did well due to its flexible product and sales strategy. This means that LKAB generates considerable economic value for its stakeholders, including its owner. The company is also an important catalyst for growth in Norrbotten County, which is currently Sweden’s most successful region in terms of growth. 42 | INTEGRATED REPORT 2012

communities in TRANSFORMATION all ground movements are measured In Malmberget, LKAB has extensive experience with LKAB measures all ground move- urban transformation. Its residents have lived with ments that occur around the mine. the urban transformation concept for nearly 60 A large number of survey plinths are years. A large number of residences and service fa- placed around the communities. Besides their technical function, they cilities have gradually had to be torn down or moved. are now being given an artistic touch. The orebodies in Malmberget are scattered, which is an added complication. LKAB is constantly acquiring new information through test drilling. We know today E XTENSION OF THE that the ore continues in under the central parts of MALMBERGET MINING AREA the west end of town. LKAB and the Municipality of In 2012 LKAB signed a partnership agreement Gällivare signed a partnership with the Municipality of Gällivare concerning Malm- agreement in April that regulates urban transformation in Malmber berget’s future that extends to 2032. The agreement get over the next 20 years. has been appealed, so LKAB is not continuing with the process as yet. During the 1970s the Ön neighbourhood in Kiru- na was dismantled and now the deformations are approaching the city in earnest. LKAB has at various times informed the municipality of the ore’s distribution and its effects on the central part of town. The urban transformation now going on in Kiruna started However, there are troubling circumstances sur- in 2004. rounding future mining: the orebodies slope in un- We know today that the orebody extends be- der settled areas. The local communities grew up neath large parts of the city and is more than under the prevailing conditions of the time: beside 2,000 metres deep and four kilometres long. We are the open-pit mines. No one knew that more than 100 currently test drilling to get a better understanding years later we would mine ore one kilometre under- of the ore’s formation at greater depths and to pro- ground and that further mining at greater depths vide a platform for future main levels in Kiruna. The would take us in under the communities. This type deeper LKAB mines the ore, the flatter the angle of of mining causes deformations in the surface that the deformations and the larger the area affected. slowly sink. The deformations occur at an angle to The first neighbourhoods affected in Kiruna are the inclined orebody on the side facing the city. properties owned by LKAB. LKAB’s continued mining operations are dependent on large parts of Kiruna and Malmberget gradually being moved well in advance. The production rate, that is, how quickly LKAB mines the ore, affects Mining at ever greater depths deformations on the surface. The more ore we take For more than a century, LKAB has mined the out, the faster the deformations spread and impact world’s purest iron ore in Kiruna and Malmberget. the communities. It started in open-pits. Eventually, mining continued underground. As mining has moved to ever greater depths, the ore has proved to be purer, richer and more abundant. No one knows where the orebodies end. Test drilling in Kiruna has been done down to 2,000 metres and in Malmberget to 1,800 metres.

New homes in the Jägarsko- lan area in Kiruna As a consequence of mining going deeper and the mining of the next main level, 3,000 flats, 200 houses, 380 hotel rooms and 200,000 square metres of public space and buildings in Kiruna will be affected. I n close collaboration with all stakeholders | URBAN TRANSFORMATION | 43

Did you know that … …LKAB measures ground deformations using satellites? 44 | INTEGRATED REPORT 2012

for urban transformation to SEK 7.5 billion. By the end of 2012, payments for urban transformation in Malmberget and Kiruna (compensatory damages for infrastructure impacts) totalling just over SEK 3.5 billion were made. See the diagram.

urban Examples of projects completed and commenced in Kiruna transformation in and Malmberget: The transformation in Kiruna so far has mostly involved progress infrastructure: The urban transformation that is under way in • New railway including new power converter station and Malmfälten is in many ways unique. Even though ten bridges. populations and communities elsewhere in the • Design of new roads: E10 and V870 with associated ap- world are also being moved to make way for mines proach roads to the city. or dams, each event is unique because it involves • New dam in Luossajärvi. people. • New detailed development plans for LKAB’s industrial Many eyes are focussed on LKAB to see how we area and construction of housing. work together with the municipalities to handle the • Documentation and planning for relocation of historic various issues that are constantly arising. Swedish buildings. law states that a mining company that affects its • Phased construction of Mine City Park 1. environment must pay for the damage and intru- sion caused by the operation. Accordingly, provi- In Malmberget, urban transformation has been going on for sions for urban transformation are made annually. quite some time: During 2012, an additional SEK 1.2 billion al- • New construction of homes in the Mellanområdet area. located, bringing the total amount earmarked • Demolition of 120 houses in the Elevhems area and construction of Elevhems Park. • South-East link, replacement road for Bergmansgatan.

P ayments for urban transformation (MSEK) • Construction of North-East link – new Kullevägen Road. • Dismantling historic buildings Johannes 2011. • “A Nicer Malmberget” project. 900 800 700 As a consequence of deeper mining and the next main level 600 being completed in Kiruna, 3,000 flats, 200 houses, 380 ho- 500 tel rooms and 200,000 square metres of public spaces and 400 buildings in the city will be affected. This must be handled 300 within the framework of the urban transformation part- 200 nerships. About a third of Kiruna’s population will be af- 100 fected. Of the 2,100 flats LKAB owns inM almfälten, 1,300 0 2007 2008 2009 2010 2011 2012 are in Kiruna and 800 are in Malmberget. During the year,

Group payments for urban transformation in 2012 totalled SEK 701 million, of 47 households were affected by the move, and of them, 22 which SEK 356 million was for new railways, including preparatory work. were in Kiruna and 25 were in Malmberget. I n close collaboration with all stakeholders | URBAN TRANSFORMATION | 45

consultation on future solutions The most difficult issues related to urban transformation concern neither finances nor technology. The really hard part is getting all of the many people who live in Kiruna, Svappavaara and Malmberget to feel involved, secure and comfortable during and after the process. Good communication is key to providing insight NEW HOUSING into the different phases of the process. In LKAB’s opinion, you can never have too much information. Questions about building new housing, where it will LKAB works with all available channels, both ana- happen, who will pay for it and how much it may cost logue and digital. We have a popular website. We require considerable accountability and consensus. have staffed information centres in both Kiruna and These are questions that must be resolved through Malmberget, and another opened in Svappavaara discussions and negotiations. in February 2013. LKAB also conducts continuous A solution that is as integrated as possible and briefings. that has broad support is preferable. At the same An important channel is the magazine LKAB time, there is a major emotional dimension that Framtid, which is published eight times a year. It is must not be underestimated. “What will happen to distributed not only to LKAB’s employees but to all the house I have lived in my whole life?” is a common households in Malmfälten. According to a SIFO sur- question. Having to move due to external circum- vey conducted in 2012, the magazine is read by 88 stances is a big adjustment in a person’s life. The fact percent of Kiruna residents and 84 percent in Gälli- that, in the future, you will not even be able to visit the vare. The content is perceived as credible by 79 per- place where your home once was naturally arouses cent in Kiruna and 75 percent in Gällivare and is con- strong emotions. Therefore, it is important for LKAB sidered the most important way to get information to give residents time to discuss, reflect and prepare from LKAB about urban transformation. for the changes ahead. LKAB also works very hard on documenting the environments and buildings that must be dismantled in pace with the expansion of the industrial areas.

EN TIDNING FÖR MALMFÄLTEN FRÅN LKAB EN TIDNING FÖR MALMFÄLTEN FRÅN LKAB EN TIDNING FÖR MALMFÄLTEN FRÅN LKAB EN TIDNING FÖR MALMFÄLTEN FRÅN LKAB EN TIDNING FÖR MALMFÄLTEN FRÅN LKAB Chatta med Per-Erik Lindvall NY NY om LKAB:s prospek- DESIGN! DESIGN! tering

Den 19 juni kl 14.00-15.00 www.lkab.com/chat

PETER SÖDERMAN: SKATEPARKEN KAN BLI Nr 1 AIDA LINDQVIST: Ge 517 NYA BOSTÄDER ETABLE- Nr 2 FRANK HOJEM: Utsänd PETTSON & FINDUS PÅ Nr 3 LARS-ERIC AARO: Vi måste KLIMATSMART BIO- Nr 4 PRINS DANIEL VASSARE WASSARA MED Nr 5 Nu byter KGS namn ETT LYFT I MALMBERGET FEBRUARI oss fler mötesplatser RAS AV LKAB FASTIGHETER MARS i maktens korridorer TURNÉ I MALMFÄLTEN APRIL både gasa och bromsa BRÄNSLE ERSÄTTER OLJA JUNI besöker LKAB NYTT TEKNISKT CENTER SEPTEMBER Foto: MATTIAS EDWALL. NYHETER SID 2–3 JUST NU SID 14 2012 GÄSTKRÖNIKAN SID 13 NYHETER SID 2–3 2012 5 SNABBA SID 15 JUST NU SID 14 2012 VD-KOMMENTAR SID 2 NYHETER SID 5 2012 NYHETER SID 5 Copyright: Kungl. Hovstaterna. NYHETER SID 6 2012

NYTT PROJEKT I MALMBERGET Efterfrågan ökar i Mellanöstern Ny deformationsprognos för Kiruna MALMJAKTEN INTENSIFIERAS År 2023 kommer markpåverkan av ringen ligger inom felmarginalen för kommun vars detaljplaner avgör när LKAB:s direktreduktionspellets är redan – Det intensiva intresset från våra kunder i Vi skulle utan gruvbrytningen cirka 100 meter längre långsiktiga prognoser. områden ska omvandlas. Det beslutet Säkerhet i nu slutsålda för hela 2012 och efterfrågan Mellanöstern är överväldigande. Det råder vidare kunna in i Kirunas centrum enligt en uppdate- – Det är ingen dramatisk förändring fattar inte LKAB, säger Göran Olovsson, i Mellanöstern talar för att bolaget hade ingen kris på denna marknad, tvärtom, sälja 50 procent rad prognos. Deformationerna rör sig och det är viktigt att understryka att LKAB:s ansvarige för samhällsomvand- kunnat sälja 50 procent mer om det varit säger Markus Petäjäniemi, marknads- och mer DR-pellets. med cirka 40 meter per år och juste- våra prognoser är underlag för Kiruna lingar i Kiruna. NYHETER SID 2–3 världsklass Nya gruvor möjligt att leverera så mycket. logistikdirektör, LKAB. NYHETER SID 7 MARKUS PETÄJÄNIEMI Under 2011 lyckades LKAB slå rekord i lägst antal olyckor, samtidigt som flera produktionsrekord passerades med råge. – Bättre säkerhet ger större effektivitet, konstaterar huvudskyddsombud kartläggs SATSNING PÅ UTBILDNING Tomas Strömberg. REPORTAGE SID 8–9 Över 20 fyndigheter kartläggs i Malm- fälten med målet att starta brytning på ett flertal för att möta världens starka efterfrågan på järnmalm. Stor succé REPORTAGE SID 8–9 för LKAB- Så omvandlas Malmberget: gymnasiet KUNSKAPSLYFT FÖR SKOLAN Emma Persson är en av de "förädlade råvaror" som LKAB-gymnasiet levererat till industrin. Avtalet klart! Hon är nu fastanställd på LKAB som så många Gällivare kommun och LKAB av utbildningens elever. är överens. Ett samarbets- LKAB Akademi har – Det bästa med mitt jobb är att det är fritt avtal som reglerar samhälls- och att jag får ta mycket ansvar, säger hon idag. omvandlingen i Malmberget Lars Gavelin, skolkontaktansvarig på LKAB, är är undertecknat. mycket nöjd över resultatet: delat ut 6,9 miljoner –Vårt mål är ett attraktivt – Jag törs säga att ingen går arbetslös. David Wettainen, Tommy Ekhorn och William Larsson samhälle som fortsätter att NYHETER SID 6–7 kan nu experimentera med robotar på Rymdgymnasiet utvecklas, säger Lars-Eric tack vare pengar från LKAB Akademi. NYHETER SID 4 Aaro, LKAB:s vd. NYHETER SID 2–3

"Produktionsrekord och säkerhet går hand i hand", säger Tomas Strömberg, huvudskyddsombud under jord, IF Metall, i LKAB:s järnmalmsgruva i Malmberget. FOTO: FREDRIC ALM P-O Fjällborg och Kirsten Holme tittar på prospekteringsobjekt, i bakgrunden syns området för Lappmalmen. Foto: FREDRIC ALM Kommunalrådet Tommy Nyström och LKAB:s vd Lars-Eric Aaro utlovar ett konstruktivt samarbete i samhällsomvandlingen av Malmberget. Foto: DANIEL OLAUSSON "Det öppnade dörren för mig," säger Emma Persson om LKAB-gymnasiet. Foto: FREDRIC ALM David Wettainen, Tommy Ekhorn och William Larsson. Foto: G. RÚNAR GUDMUNDSSON Fler företag ska etablera sig Skidskola i Kiruna igång igen Glädjande för Leveäniemi Unik rökgasrening installeras Prisad kör och simmerska Kunglig invigning av M1250 Lappmalmen nästa gruva! Flytten till nytt blev ett lyft Så vill LKAB bygga i Kiruna Öppet hus succé i Malmberget Årliga investeringar på fem Tack vare ett samarbete mellan Länssytrelsen beviljar prövning av En investering på 700 miljoner min- Nordnorska simmerskan Katha- Invigningen av den nya huvud- Prospekteringen av Lappmalmen Christina och Bo Olofsson berät- LKAB Fastigheters Det nya forsknings- miljarder gör att LKAB nu larmar Kiruna BK, Friluftsfrämjandet tömningen av dagbrottet utifrån skar utsläppen från Malmbergets rina Stiberg och norrbottniska nivån i Malmberget 14 juni får visar att den fyndigheten i storlek tar om flytten från Ullspiran och byggplaner i Kiruna centret och nya för leverantörsbrist. 50 och LKAB har skidskolan i förutsättningen att den inte har 30 pelletsverk med cirka 90 procent. kvinnokören Arctic Light är årets 24 kunglig glans. Hans majestät motsvarar alla tre gruvprojekten 30 sitt nya hem. tar nu fart på allvar. entrén lockade – Vi måste visa upp de möjlig- Så många ton sprängämnen Luossabacken kunnat starta någon betydande miljöpåverkan. procent av Sveriges totala Ett led i LKAB:s strävan att leverera LKAB-stipendiater. toppmoderna lägenheter Konung Carl XVI Gustaf närvarar i Svappavaara. Och i Malmfälten nya lägenheter byggs till – Nu när vi väl flyttat hit så LKAB Framtid kan många när LKAB heter som finns här nationellt, igen efter tre års uppehåll. Linus Det gör det möjligt för LKAB att sprängämnesproduktion, världen mest miljövänliga pellets, En OS-satsande norska och en färdigställs just nu på Jägar- under ceremonin då både nivån visa skisser på hur 17miljoner meter har hade öppet hus. gör LKAB av med varje dygn när finns en lång rad andra fyndig- hösten på Granbacka i Gällivare. stortrivs vi. Det är liv och rörelse säger ekonomidirektör Leif man spränger loss råmalmen ur Stålnacke och Marie Karlsson vara igång med brytningen till 2015 eller mer än 20 000 ton menar Monica Quinteiro, LKAB:s vokal talangfabrik värda att skolan i Kiruna med beräknad M1250 och den nya byggnaden heter som nu kartläggs. Framtid Totalt blir det fem hus med sex här säger Christina Olofsson. nybyggnationen är LKAB borrat med Wassara- Besökarna fick även Boström. berggrunden i Kiruna, Malm- gläds åt nystarten. som planerat. sprängmedel per år, tillverkar avdelningschef för miljöfrågor. hylla med diplom och prispeng. inflyttning vid årsskiftet. Malmberget Entré invigs. har kartan som avslöjar de dolda lägenheter vardera. tänkt att bli. tekniken sedan starten en tur ner i gruvan. NYHETER SID 4–5 berget och Svappavaara. VIMMEL SID 15 NYHETER SID 7 LKAB Kimit. NYHETER SID 4 NYHETER SID 10 NYHETER SID 6 NYHETER SID 2 miljarderna. NYHETER SID 8–9 NYHETER SID 10 NYHETER SID 4 REPORTAGE SID 8–9 i början på 90-talet. VIMMEL SID 15

EN TIDNING FÖR MALMFÄLTEN FRÅN LKAB ET MAGASIN FOR NARVIK FRA LKAB EN TIDNING FÖR MALMFÄLTEN FRÅN LKAB EN TIDNING FÖR MALMFÄLTEN FRÅN LKAB

MARKUS PETÄJÄNIEMI 200 LÄRARE PÅ STOR Nr 6 EDEL STORELVMO: NY SAMARBEIDSAVTALE Nr.1 KARIN NILSDOTTER: Vår LKAB SATSAR PÅ Nr 7 SIVERT SVENSSON: TVÅ NYA FLYGLINJER Nr 8 OKTOBER NARVIK NOVEMBER DECEMBER om marknadsoron SKOLKONFERENS Grenseoverskridende STYRKER NÆRINGSUTVIKLING största utmaning är mental UTBYGGD VINDKRAFT Bra att ha eget skägg STARTAR FRÅN MALMFÄLTEN NYHETER SID 7 NYHETER SID 6 2012 GJESTEKRØNIKEN SIDE 13 NYHETER SIDE 4 2012 GÄSTKRÖNIKA SID 17 NYHETER SID 3 2012 FEM SNABBA SID 16 NYHETER SID 5 2012 PROSPEKTERING: Nå planlegges storsatsing på miljøet DR-pellets nästa exportsuccé I planene for en kai inngår en moderne skips- fått raske resultater. Nå planlegger vi ytterli- 2012 blir ett rekordår för för LKAB:s direktreduk- stark utveckling för produkten. Allt fler stålverk LKAB sysselsätter 54 000 utlaster med støvutsug og et nytt støvtett lager. gere steg, kommentarer Magne Leinan, sjef tionspellets och behovet på världsmarknaden med direktreduktion där naturgas används i pro- Malm undersöks NYHETER SID 6–7 framförallt i Mellanöstern talar för en fortsatt cessen talar för fortsatt tillväxt. LKAB sysselsätter 54 000 människor i sex samhällen i – LKAB är en helt avgörande faktor – Vi har satset hardt på miljøforbedringer og for havna i Narvik. NYHETER SIDE 2–3 tre länder på Nordkalotten. Det visar en konsultrapport för sysselsättningen, säger Göran som nu presenteras. Bolagets stora betydelse bekräftas Nilsson, chef för Arbetsförmedlingen i Arbetsförmedlingens utsikter för 2013. i Norrbotten. NYHETER SID 2–3 i Tuolluvaara KONFERENS I MALMFÄLTEN Den så kallade Vietnammalmen öster om den gamla Tuolluvaaragruvan i Kiruna har nu identifierats som en mycket intressant fyndighet. Därför vill LKAB borra i området för att öka kunskapen. NYHETER SID 2–3 ’’Teknologi är inte en väg, det ÄR good communication is vital

Grethe Normark og vägen!’’ Karstein Liland, LKABs nærmeste naboer, har Forskaren Ruben Puentedura begynt å male og lage en inspirerade till en ökad digi- grillplass: talisering av lärandet i Lapp- The magazine LKAB Framtid and the website at – Vi har hatt den beste lands gymnasium för att nå sommeren så langt. Men målsättningen "Sveriges bästa det kan bli enda bedre. skola". LKAB Akademi finan- BOSTADSBYGGANDE Fortsatt må vi tørke bort sierade skolkonferensen. støv hver gang vi vil sitte NYHETER SID 4–5 ute, sier Liland. www.lkab.com are important information chan- STØVEUTSLIPPENE: NYHETER SIDE 4–5 Vid foten av Dundret på Repisvaara planeras Visionen av nytt bostadsbyggande av LKAB, ett naturnära boende nära vintersportanläggningarna. 200 bostäder i olika hustyper. – Vår ambition är allt ska vara klart inom två år, säger Karl Wikström, ansvarig för sam- nels for LKAB. At the information offices, visitors ’’Den beste sommeren’’ nya Gällivare hällsomvandlingen i Malmberget. NYHETER SID 4–5 Prospekteringschef Per-Olov Fjällborg och geolog Céline Debras vill veta mer om vad som finns i marken. Foto: G. RÚNAR GUDMUNDSSON Grethe Normark og Karstein Liland, Narvik. Foto: FREDRIC ALM Ruben Puentedura , världsledande professor inom digitalt lärande, gästade Kiruna folkets hus för att inspirera Lapplands gymnasium. Foto: FREDRIC ALM På området ska byggas flervåningshus, kedjehus, parhus och fristående villor, alla som hyresrätter. Skiss: WHITE ARKITEKTBYRÅ can look over LKAB’s exhibition and information n ge vä ra aa av rr u Fartyg bärgas med gruvteknik Kungen besöker LKAB i Kiruna Klimasmart ecodrift med IORE Sila – fremtidens malmhavn Så påverkar LappmalmenK Kiruna Vibrationer fortsätter minska Ett flexiblare företag Stärkt hållbarhetsfokus

Fartygskatastrofen med färjan Kungen kommer på besök till Ja, det er mulig å Verdensunike SILA i Deformationsprognos 600 m Nu finns de första prognoserna Utvecklingen håller i sig, vibra- LKAB:s vd Lars-Eric Aaro talar LKAB har antagit en ny hållbar- Deformationsprognos 1 000 m Costa Concordia är i dag ett länet och LKAB. Anledningen kjøre et tog som Narvik er et effektivt Deformationsprognos 1 400 m för hur en framtida brytning av tionerna från produktions- ut om utmaningarna inför 2013 hetsstrategi som ska leda till en Osäker deformationsprognos på grund av ofullständig malmbild Malmkropp projekt som kommer att kosta är en satsning från Kungliga veler 8 500 tonn lukket system for LUOSSAVAARA på 600–1 400 Lappmalmen skulle påverka sprängningarna i Malmberget på en orolig världsmarknad i en fortsatt hållbar utveckling. 1,5 1,5 meters djup 30 över två miljarder innan skeppet ingenjörsvetenskapsakademien, fra LKAB Vitåfors til lossing og lasting markytan i Kiruna. En nordligare 49 har halverats på tio år. "Det är stor intervju med Framtid: – Vi jobbar praktiskt med håll- Miljarder investeras i ny och millioner norske öringar har fiskats upp ur nya lägenheter är bärgat. Och det är ett bärg- bättre rökgasrening i tre IVA, på en inspirationsresa för Luleå uten å bruke som eliminerer dragning av E10 skulle gå rakt Luossajärvi under torr- glädjande att trenden håller i – Vi står väl rustade. barhet hela tiden, säger Monica materials. LKAB also conducts regular informa- NORRMALM byggs på Granbacka kroner går LKAB inn Luossajärvi Tra k ningsarbete där LKAB Wassaras företagare och samhällstoppar. energi. miljøpåvirkningen. verk över den stora fyndigheten. sig", konstaterar Kjell Harnesk, Quinteiro, chef för kvalitetsav- ets före slag läggningen av södra delen av pelletsverk. Reningsgraden n a d rag ni ng borrteknik har en avgörande roll. a chef för bergmekanik, LKAB i delningen på LKAB. med i Futurum. v v i Gällivare. ä blir bättre än 95 procent. g sjön för dammbygget. E 1 DAGENS 0 Malmberget. REPORTAGE SID 8–9 NYHETER SID 5 NYHETER SID 3 AKKURAT NÅ SIDE 14 NYHETER SIDE 5 REPORTASJE SIDE 8–9 CENTRUM NYHETER SID 13 JUST NU SID 18 REPORTAGE SID 11 INTERVJU SID 8–9 NYHETER SID 4 NYHETER SID 2

Ala- LOMBOLO Lombolo tion meetings. 500 m

KIIRUNAVAARA KIIRUNAVAARA 46 | INTEGRATED REPORT 2012

LKAB TAKES RESPONSIBILITY LKAB’s ambition is for urban transformation to occur without too much disruption for the company or area residents. If mining is to continue, parts of the communities must be moved and LKAB wants to make Ongoing dialogues the best of the situation. There are many things to take into consideration In order to gather views and issues, LKAB regularly when the new communities are planned and built. conducts stakeholder dialogues. Daily meetings and Although it is a journey taken together, the munici- contacts occur continuously with residents at the in- palities ultimately determine where construction will formation offices and other locations. In 2012 about take place. The main message from LKAB is: Don’t 100,000 visits were registered at these offices. build on the ore! LKAB also conducted several individual and joint For the residents, the transformation represents meetings, seminars and consultations with various an opportunity to create new, improved communities social agencies, municipal leaders, representatives in terms of public services as well as communication of the government and Riksdag, government agen- and housing. It is about offering a high quality of life. cies, schools, land and property owners, repre- For us at LKAB, urban transformation is not merely sentatives of the Sami people, hunting and fishing a heavy responsibility. It is above all a challenge and organizations, businesses and others. The issues an opportunity to create something new and better. discussed included sustainable construction and Many different stakeholders will collaborate on how urban transformation possibilities, property assess- the new communities will emerge. But it is LKAB that ment and purchasing, different forms of obligations, will foot most of the bill. We want to see it as an in- and compensation issues. vestment in the future for us as a company and the Dialogues intended to bring about a comprehen- residents of our communities. sive partnership agreement with the Sami villages affected by mining activities did not lead to an agreement in 2012, but dialogues continue. Another focus is on different ways of actively in- volving area youth in the change process, such as through reference groups, chats and targeted information.

What is LKAB’s value to the county (Percentage positive %) distributed economic value (MSEK)

100 12,000 90 10,000 80 70 8,000 60 50 6,000 40 4,000 30 20 2,000 10 0 0 2010 2011 2012 2010 2011 2012

Norrbotten Kiruna Gällivare Suppliers Employees Shareholders Taxes County Municipality municipality

In 2012 a SIFO survey was conducted in Norrbotten focusing on Gällivare and The Group’s payments to communities for urban transformation total SEK 407 Kiruna. The aim was to get a better feel for people’s attitudes towards LKAB. million. LKAB’s sponsorship in the form of grants, mainly to education, culture The study highlighted several issues, including whether LKAB was perceived and sports in northern Sweden and Norway, totalled SEK 29 million. In 2012, as valuable to the county. a dividend of SEK 5,000 million was paid to the owner (the Swedish state). Taxes paid in the Group during the year were SEK 3,847 million, of which SEK 3,774 million was paid in Sweden, SEK 32 million was paid in Norway, and SEK 41 million was paid in other countries. For additional information about the Group and Parent Company’s generation and distribution of economic value, please see the Annual Report’s income statements, balance sheets and cash flow statements. I n close collaboration with all stakeholders | URBAN TRANSFORMATION | 47

Vision sketch for Kiruna LKAB Fastigheter plans to build 150 permanent residence flats at the foot of the ski slope on Mt. Luossavaara. The proposed design and colour scheme relate back to Kiruna’s building tradition. Sketch: Lars Albinsson.

Vision sketch for Gällivare The Municipality of Gällivare wants the new residential area to be developed in Repisvaara at the foot of Mt. Dundret. LKAB Fastigheter sketches out exciting blocks of flats overlooking the landscape and settlements. Sketch: Maestro Management. 48 | INTEGRATED REPORT 2012

performance in ironmaking flexibility safe and resource-efficient production growth urban transformation attractive lkab

attractive lkab// 48-55

The journey towards a larger, stronger LKAB is in full swing. But the scope, conditions and pace are largely determined by various agencies, organizations and politicians, both in Sweden and the EU. It is crucial to their decision-making that they have a thorough knowledge of – and feel for – LKAB as a company and our operation.

A further challenge in the coming years is to attract new, qualified employees. LKAB's growth target cannot be achieved without employees with specialist skills who sometimes must be sought outside the company and the region. Parallel to this, a significant generation shift is occurring.

Crucial to LKAB’s success on this journey is a strong, well-known brand that conveys our culture and our values. As an employer, LKAB places great emphasis on good, safe working conditions, a stimulating work environment, equality and diversity. Ag lon -term strong brand | ATTRACTIVE LKAB | 49

A long-term strong brand

LKAB’s planned growth requires that up to 700 new employees be employed by 2015. Human resources management must be secured with the help of a strong brand based on a clear-cut customer promise and values, and a sustainable business in the form of a safe, sound, stimulating work environment for all employees. It is just as important for the communities we operate in to be attractive as it is for LKAB to be an attractive employer.

increasing interest Interest in LKAB has increased in recent years. This is evident in the number of visits to our business, which in 2012 totalled 26,000 persons. A large number of decision-makers, including 13 ministers, were among the visitors. LKAB works proactively to create knowledge At the European level, the and understanding of our business. mining industry’s challenges LKAB’s underground Visitor Centre is now one of were highlighted in the context Kiruna’s most popular attractions. A large number of of efforts to implement a journalists also visited and described different aspects strategy for securing raw of LKAB’s operations during the year. LKAB’s attractive- material supplies. Sweden ness is also reflected in the fact that the company on is represented by Lars-Eric average had about 73 applicants for every advertised Aaro and Minister for the vacancy last year. Environment Lena Ek in the high-level group formed by the European Commission to important decisions address commodity issues. lkab supports skills and A number of important decisions were taken in 2012 school development in malmfälten and narvik on implementation of LKAB's future plans. In the gov- P rince Daniel visited Malmfälten in September. He met with students NEW TOOLS and teachers at Lapland Upper Secondary School in Kiruna, where ernment’s autumn budget, investments in the Swedish the LKAB Upper Secondary School is a collaboration between LKAB part of the Ore Railway were announced that ensure By creating a more distinct and the municipal schools in Malmberget and Kiruna. Here, schools and industry are linked together through things like work placement sufficient capacity for implementing LKAB’s growth pro- profile for LKAB, opportuni- and opportunities for holiday work at LKAB. gramme, LKAB 37. The research and innovation propo- ties to raise awareness and sition presented in the autumn contained a long-term generate positive associations with the company are mining, mineral and steel research programme. Luleå improved. Hence, an important step towards a more ra- University of Technology, which LKAB works closely tional method of promoting the LKAB brand was taken with, is on track to evolve into a European Centre of in 2012. All subsidiaries have switched or are in the pro- Excellence. In the first quarter of 2013, both the gov- cess of switching to names that clearly show they are ernment and its opposition presented programmes and part of the LKAB Group. Meanwhile, an updated brand strategies for an expanding mining industry. The gov- image was launched for better clarity and consistency. ernment’s mineral strategy addresses important issues One important tool is a new external website, where like human resources management, research and fast- much of the recruitment process is run. er environmental permit processes. 50 | INTEGRATED REPORT 2012

a Visible corporate culture A brand must be built from within. Ultimately, this is about strengthening and developing our business to achieve our goal of a bigger, stronger LKAB. These values are meant to support all LKAB employees in their conduct towards their colleagues and all other stakeholders: employees, suppliers, the labour market, customers, owners, the public and authorities. LKAB’s values Committed – Innovative – Responsible should govern our behaviour, and it is important that Leadership and governance there are always lively discussions in which the values are linked to the practical realities of the workplace. An LKAB works continuously to enhance leadership skills important way to establish the values was via the new within the company. As one stage in this process, a new performance development model that the company in- development programme was established at a senior troduced for all administrators. In this way, each one gets level within LKAB in 2012. a concrete idea of how their role is linked to the strategy A mentoring programme was also started to sup- and objectives of the company and the workplace. port new managers. For new managers, this will provide Continuous information to all employees is provided access to a network of other managers, experience ex- by an in-house magazine in which the current situation changes and support. and key issues are touched upon. Eight times a year, the magazine LKAB Framtid is distributed to all households S afety is part of the culture in Malmfälten and to selected stakeholders across the country. In 2012, LKAB’s goals, strategy, customer prom- Safety is a priority for LKAB. Each accident is taken very ise and values wer e communicated to employees in dif- seriously. For many years, safety initiatives have been ferent ways. CEO Lars-Eric Aaro held strategy days in the given high priority, from the automation that began in autumn, for which all employees convened at each place the 1960s to efforts in the 2000s to systematically invig- of business. The current situation and developments orate the safety culture of the company. The accidents were presented. In dialogue with employees, the Group’s that are related to behaviour and attitudes will also be values and overall goals, linked to workplace goals, were reduced and completely eliminated in the long term. discussed. A new intranet should be ready for use in 2013. The goal is for employees to be actively engaged in the process and take responsibility for their own safety and that of their colleagues.. The long-term trend is that accident frequency is decreasing and, most importantly, that serious accidents with long absences are fewer. The number of accidents with absence increased in 2012, however. Most accidents occurred above ground, and the most common reasons were tripping, slipping and handling of objects and tools. Since 2006, LKAB has engaged in a systematic effort to strengthen its safety culture, thus reducing the number of accidents. The work is carried out according to an established development programme. The focus is on health and safety values, continuous training, communication, risk management and activity planning on the crew level. The programme is called Safety First. As a result of these safety efforts, investments are also being made in our plants and new machinery. The objective is for there to be a maximum of five accidents per million work hours by 2015. By 2020, the aim is to further halve accidents to a maximum of 2.5 per million work hours. This applies to accidents with absence. Safety initiatives cover all staff, including contrac- T rAINING for all employees tors working for LKAB. We expect them to have a sus- LKAB has a target of at least five training days per employee per year. The result in 2012 was tainability policy that includes safety as well as environ- 6.1 days (6.7). mental and social issues. Ag lon -term strong brand | attractive lkab | 51

A wards earned by LKAB To broaden its recruitment base, LKAB strives to be an employer of choice. We want to offer exciting, ful- filling work assignments and career opportunities, regardless of gender, age, disability, cultural background or sexual orientation. In 2012, LKAB was given an award from the Swedish Public Employment Service for its modern, open, cooperative approach to recruitment. The award was instituted to highlight good examples of employers that take social responsibility very seriously and that create job opportunities for people that have been out of the workforce for some time. During the year, LKAB also received a diploma as one of Sweden’s leading companies when it comes to equality. The diploma was presented by employee union Unionen. LKAB’s own employees nominated us, which makes the award extra special.

LKAB HAS SWEDEN’S BEST NEGOTIATOR Purchasing agent Martin Kettunen was named Sweden’s Best Negotiator 2012 by the Swedish Association of Purchasing and Logistics. 52 | INTEGRATED REPORT 2012

Incidents and risks (Number)

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0 2007 2008 2009 2010 2011 2012

Incidents Risks

Reporting and analysing risks and incidents is important for avoiding accidents. During the year, 4,426 hazards and 1,799 incidents were reported. LKAB sees risk reporting as an important acknowledgment of our safety awareness efforts.

Accidents leading to absence

Number of accidents Number of accidents per 100 million hours worked 20 90 18 80 16 70 14 60 12 50 10 40 8 30 6 20 4 10 2 0 0 2007 2008 2009 2010 2011 2012

Total number of accidents leading to absence in the Group. (2012) Number of accidents per million hours worked.

Personnel turnover in the Group permanent employees distribut- Year Percent ed by region 2006 6.2 Sweden 3,596 2007 8.0 Asia 61 2008 8.2 Belgium 3 2009 4.6 England 197 2010 11.6 Finland 3 2011 16.7 Greece 0 2012 12.9 Greenland 0 Netherlands 25 Calculated on number of external departures and recruitments in relation to Norway 171 permanent employees as of 31 December Poland 0 last year. Personnel turnover divided by Slovakia 1 region or age is not disclosed. Turkey 39 Germany 18 USA 5 Personnel turnover 2012 Total 4,119 Percentage of new hires 9.2% Percentage of departures 3.7% At the end of the year, LKAB had 4,119 permanent employees, of which 1,340 Employee turnover calculated on the were white collar and 2,779 were blue number of permanent employees in the collar workers. There were 47 part-time LKAB Group, excluding subsidiary Minelco employees. There were 331 fixed-term and employees outside Sweden. From employees. There are options available now on, follow-ups of personnel turnover for full-time and part-time employment will be done according to these indicators. for employees with small children. Ag lon -term strong brand | attractive lkab | 53

Recruitment in focus The many major, concurrent projects LKAB is facing re- attractive communities quire the pace of human resources management to be stepped up. Up to 2015, nearly 700 new qualified em- As the dominant employer and economic engine of our ployees with at least an upper-secondary education will business locations in Malmfälten, LKAB has long oper- be recruited. ated with the intention of supporting the attractiveness The recruitment base has gradually broadened of its local communities. Ultimately, it is about securing to include the entire country and also outside Swe- future talent. den. An example of this is LKAB’s participation in the Swedish Public Employment Service’s project for LKAB’s commitment is broad and can be found in these national matching. The idea is to bring together for- areas: eign academics and employers across the country. • Responsible urban transformation In March 2012, 16 job-seeking engineers and geolo- Housing, historic buildings gists of varying nationalities were invited to visit LKAB • Attractive schools to get information about the mining industry, visit LKAB upper secondary schools, LKAB Academy, LKAB the Kiruna mine and be interviewed. It went very Summer School well. Several have already signed contracts and a • Wide selection of leisure activities for children and few more are being considered for employment. young people Our recruitment efforts are starting to deliver. The Monetary contributions to associations and events, number of applications is increasing. In 2012, about culture and sport 300 positions were advertised and we received • Good infrastructure 21,880 applications. Health care, communication links, urban planning • Complementary businesses Local business development and venture capital SPECIALIzED TRAINING companies Recruiting locally has always been the base of LKAB's human resources management. It begins at the school In 2012, LKAB supported the establishment of twoznew level. In both Kiruna and Malmberget, specialized air routes: Kiruna-Copenhagen and Luleå-Gälli- courses are offered at the upper secondary level with vare-Kiruna. In addition, an agreement was reached an LKAB profile that are designed in collaboration with with business development company Futurum in Nar- LKAB. These courses provide greater insight into the vik, and decisions were taken on construction of about company, knowledge that is directly targeted to specific 500 homes in Malmfälten by 2015. job roles within LKAB, and many work placements and close links to our business. Support for schools This partnership between LKAB and the municipal upper-secondary schools in Kiruna and Gällivare has LKAB Academy is a collective name for the financial also helped the technical vocational programmes resources LKAB dedicated in the form of a foundation (Industrial, Electrical, Automotive, HVAC and Build- to support the development of schools in Malmfälten ing Programmes) to remain very attractive among and Narvik, the geographical areas in which LKAB has young people in the municipalities. In Kiruna, as many its main operations. Preschools, primary schools and as 66 percent of young people in 9th form applied to secondary schools can apply to the LKAB Academy for a technical vocational programme as a first choice financial support of development projects and activi- for the 2012 autumn term, and of the girls, 33 per- ties. The purpose of the projects should be professional cent chose a technical vocational programme as development or educational development for teachers their first choice. and/or students to ensure the school's reputation in the community. At the primary level, activities should reinforce interest in science and technology; at the secondary level, support can be given for activities in all SUC C ESSFUL MATCHING educational programmes and subjects. In 2012, more There is a shortage of skilled labour in the mining than SEK 10 million was distributed, with the biggest industry, especially for geologists and geophysicists. project receiving SEK 2.5 million to purchase technical Through the Swedish Public Employment Service’s National Matching Programme, LKAB made contact with equipment at the upper-secondary school level, and the several academics with foreign backgrounds that were smallest amounts, a few hundred kronor, went to indi- seeking employment. One result of the matching pro- vidual students who carried out major and minor programme is that Noor Zaki Mahmoud was employed as a geologist in LKAB’s growing prospecting department. jects in various subjects. 54 | INTEGRATED REPORT 2012

L ow absence due to illness increased diversity personnel turnover 2012 As for absence due to illness, LKAB’s figures Historically, LKAB has been a male-dom- In 2012, 19 (17) women left LKAB. A total of have been very low compared to the national inated workplace. Today LKAB is a com- 144 (194) permanent employees resigned average for many years. Long-term absence pany that works actively to increase the from the company, which means that 13 per- due to illness has been stable for several proportion of female employees. The cent of them were women (9 percent). Figures years at about 0.5 percent and total absence trend is positive; over the past ten years for 2011 are indicated in parentheses. due to illness lies under 3 percent. the proportion of women has doubled. The proportion of women among those The reason that LKAB has so few long- The goal is to have increased the proportion who left the company was lower than the term illnesses can be largely attributed to our of women by 2020 to 25 percent. Today, 29 proportion of women in the company over- systematic rehabilitation efforts. The model percent of all new recruits are women. all, which is an indicator that more and more was established in the early 2000s in consul- A prerequisite for serious equality and women are choosing LKAB as their work- tation with the unions. A rehab coordinator, diversity initiatives is a workplace free from place. Most of those who resigned, both men together with the responsible supervisor and discrimination. LKAB takes harassment and and women, did so because of retirement. the individual concerned, draws up an action discrimination allegations very seriously. plan for getting the employee back to mean- During the year, a number of reports of viola- ingful work as soon as is medically feasible. tions were received by company employees. They were investigated by LKAB’s HR department and handled according to standard procedures.

Absence due to illness (%) Number of women at LKAB (Number) Percentage of women at LKAB (%)

5 1,000 18 16 4 800 14 12 3 600 10 8 2 400 6 4 1 200 2

0 0 0

2006 2007 2008 2009 2010 2011 2012 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Short-term absence due to illness Number of women at LKAB over time percentage of women at LKAB Long-term absence due to illness percentage of female managers

Group – Absence due to illness as a percent- The number of women has steadily increased The percentage of women in the LKAB Group age divided into short- and long-term absence. in the Group and totalled 720 at year-end. The is 17.5 percent. In the Parent Company, where Absence due to illness in 2012 was the same as goal for 2020 is for the proportion of women in roughly 80 percent of the employees work, 2011: 2.9 (2.9) percent. Long-term absence due the Group to be at least 25 percent. LKAB follows up the proportion of female to illness was 0.5 percent and short-term was managers that have subordinate staff and the 2.4 percent. LKAB’s goal is for long-term absence proportion was 17.8 percent in 2012. due to illness to be a maximum of 1.5 percent, a goal that has been met for several years. Ag lon -term strong brand | attractive lkab | 55 56 | INTEGRATED REPORT 2012

sustainability strategy & governance// 56-64 Amiti b ons for future development | sustainability strategy & governance | 57

Anmbitio s for future development

LKAB takes another leap forward in terms of its sustainability ambitions. During the year an updated sustainability strategy that builds on earlier work and is clearly linked to the overall corporate strategy was launched. The new specific targets extend to 2020 and will support social our ambition to create prosperity by being one of the most innovative and resource-efficient mining LKAB generates companies in the world. prosperity by being one of the most innovative and resource-efficient mining companies in the world.

en al vironment

financial

Su stainability adds value a comprehensive objective

The basis for LKAB's sustainability work is a belief that it increases our Our ambition is for LKAB to be one of the leading mining companies positive contribution to society, people and the environment, thereby in terms of resource- and climate-efficient production.O ur customer strengthening LKAB's long-term profitability. At the same time, it helps promise is efficient ironmaking( Performance In Ironmaking) and cli- LKAB work in a structured manner and minimizes negative impacts mate-smart LKAB Green Pellets. on the outside world. LKAB will be an industry leader in research, innovation and new This work contributes directly to business operations by identifying technology. And LKAB will be an attractive and competent partner to and managing risks, increasing competitiveness and strengthening the its customers and suppliers when it comes to product and technology LKAB brand. Sustainability issues are directly linked to LKAB’s values: development. Committed, Innovative and Responsible. In addition, LKAB wants to be an international role model in the mining industry in terms of ethics, health and safety, equality and diversity. LKAB’s operation will enable sustainable community development and generate prosperity. 58 | INTEGRATED REPORT 2012

Strategic focus areas and key issues

Based on previous work, the issues that emerged from dialogues with formulated a number of specific, measurable, challenging objectives internal and external stakeholders, and with a weighting towards over- that pick up where previous goals governed. all Group goals, LKAB identified four strategic focus areas and a num- For each focus area there are identified ambitions, goals and stra- ber of significant issues within those areas. It is in these areas LKAB tegic activities that together constitute LKAB's sustainable develop- has significant risks and opportunities from a sustainability perspec- ment strategy for 2013-2020. Below is a presentation of the goals that tive and as part of its operating activities. For each of the areas, LKAB will be included in future reports.

STRATEGIC FOCUS AREAS 2013–2020 MEASURABLE GOALS 2013–2020

A ttractive LKAB The proportion of women in the company shall reach at least 25 percent by 2020. By 2020 there shall be competition among qualified candidates for all advertised positions. Long-term sickness absences shall also continue to be below 0.8 percent. Accidents resulting in absence shall decrease from seven to five accidents per million work hours from 2011 to 2015. By 2020, the accident rate shall not exceed 2.5.

Resource-efficient production The specific energy consumption shall be reduced from 160 Wk h per tonne of finished products in 2011 to 130 Wk h per tonne of finished iron ore products by 2020. Carbon dioxide emissions per tonne of finished products shall be reduced from 27 kg year in 2011 to 17 kg year by 2020. Maintain our market position as a leading global provider of climate-smart pellets. New generation of climate-smart pellets developed by 2017.

Responsible operation Emissions of sulfur dioxide from all existing pelletizing plants shall decrease from about 2,000 tonnes in 2011 to 1,000 tonnes by 2015 and to 500 tonnes by 2017. Annual average for falling particulates shall be reduced by 10 percent by 2015 compared with 2011. Secure new ore reserves that last at least 20 years to 2020.

Attractive communities LKAB will build 200 new homes in the Municipalities of Kiruna and Gällivare by 2015 (compared to 2011).

MEET LKAB AT THE INFORMATION OFFICES

Residents of or visitors to Malmfälten can visit us at our staffed information centres. They are located at Folkets Hus in Kiruna and at Gunillaskolan in Malmberget. Another information office was opened in Svappavaara School in February 2013.. Amiti b ons for future development | sustainability strategy & governance | 59

Stakeholder dialogues

A stakeholder is defined by LKAB as a group that is interested in and affected by LKAB’s operation. The most important stakeholders are owners, customers, employees, government authorities, suppliers, local residents and the media. The important relationships LKAB has with local communities, local authorities, landown- ers and reindeer herders are significant to the company. Dialogues with these groups provide LKAB with an important outside perspective and clearly indicate which sustainability issues stakeholders perceive as important. This formed the basis for our extensive efforts to update our sustainability strategy in 2012. Through clear routines, LKAB handles incoming comments, complaints and questions regarding the business, and where monitoring is an objective. In 2012, six cases came up concerning the mining operations’ land use in conflict with the native and local populations, largely related to exploration and production at Mer- tainen and drainage of the Leveäniemi pit. LKAB has a variety of meeting forums and interfaces with the Groups different stakeholders, and works increasingly more actively to attend to the issues that arise. At the end of 2012, LKAB commissioned an in-depth stakeholder dialogue in the form of telephone interviews with about fifteen representatives of various interest groups such as owners, customers, suppliers, government agencies, municipalities, industry associations, trade associations and representatives from the local community. The purpose of the dialogue was to get feedback on and additions to LKAB's materiality analysis, sustainability report and sustainability efforts. The results showed that for the stakeholders the consistently most important sustainability issue is interaction with the local community for continued mining and pros- Annie Lööf, Minister of Enterprise, and Liv Signe Navarsete, Norwe- gian Minister of Regional and Municipal Government, visited LKAB in perity and the balance between productivity and sustainability. June and received information mainly about the company's approach Significant collaborative forums for various sustainability issues where LKAB is to environmental issues and management of the Ore Railway. a member include: • Euromines • Svemin, which also includes Gruvornas Arbetsgivarförening, GAF (the Employers' Below are some additional examples of our engage- Association of the Swedish Mining Industry) ment with stakeholders during the year. • Jernkontoret's environmental committee

S tAKEhoLDER group Dialogue occasions Issues

C ustomers Collaborative projects, meetings LKAB Green pellets, delivery reliability and Performance in Ironmaking - pellet quality

Employees Employee conversations, workshops, training Safety, professional development, wages, influ- programs, salary survey, ence strategy meetings with the CEO

Authorities, County Board and Public and private meetings and consultations, Environmental, land and planning issues, urban municipalities workshops transformation

Owner Individual meetings, board meetings, Goals and strategies for sustainability, equality, Annual General Meeting, ministerial visits to diversity, corruption, energy efficiency, urban Malmfälten transformation

Suppliers Training courses, meetings, contract discussions Collaboration issues, contracts, health and safety, environment

Local residents and reindeer herders Meetings, visits to information centres, partner- Urban transformation, construction and compen- ship agreements, direct distribution of magazine sation, dust, noise, vibrations, reindeer migration to all households in Kiruna, Svappavaara, Gälli- trails, winter grazing, plant impact, freedom of vare/ Malmberget, chats movement, hunting, fishing

The media Press releases, press conferences, meetings Urban transformation, financial results, permit issues 60 | INTEGRATED REPORT 2012

O rganization and management LKAB’s environmental and energy policy is the basis for environ- Just like its other operations, LKAB controls its sustainability efforts us- mental governance, and the environmental management system is ing the overall guidance of LKAB's business concept, vision and strate- certified in accordiance with SOI 14001. The system ensures that im- gies, along with Group-wide goals. But these have also been translated provement-efforts are conducted in a systematic and structured man- into relevant and specific sustainability goals linked to the issues that ner throughout the Group. are most important to LKAB from a sustainability perspective. The Parent Company and subsidiary LKAB Berg & Betong are certi- Sustainability management aims to guarantee the Group’s com- fied for EN 16001, the European standard for energy. All operations are mitments and business operations and to establish confidence that certified in accordance with quality standard SOI 9000. LKAB acts with vision and consistency in all its relationships. A component of the environmental certification is the risk analy- The Group's Board of Directors is ultimately responsible for LKAB's ses that take into account the precautionary principle. Its purpose is to sustainability management. The Board has made the audit commit- prevent negative environmental impacts. Read more about permits and tee responsible for internal follow-up work. Operational responsibility self-inspection in the Administration Report on page 87. for sustainability efforts lies with theCEO , who appointed a steering Within LKAB in Sweden there is an incident reporting system in committee to manage and be responsible for the overall sustainabil- which all environmental incidents are to be reported. Incoming com- ity issues in daily operations. The steering committee consists of the plaints are also to be registered in the system for handling. directors of these Group entities: Finance, Communications, Human Resources, Urban Transformation, and Technology and Business De- velopment. 2012 results The Technology and Business Development Department has had the role of developing, monitoring, and supporting the Group's sustain- Through 2012, LKAB worked with previously set sustainability goals. ability efforts since 2010. A working group that started in 2011 has The table presents these goals along with the main results of the year. responsibility for preparing and verifying the Group's sustainability Starting in 2013, LKAB will report on the goals that the new strategy information. The working group consists of representatives from the is based on. subsidiaries along with Finance, Communications, Environment, Ener- gy, Human Resources, Urban Transformation, Production and Purchas- ing. The working group’s efforts are followed by LKAB’s internal qual- Business ethics, policies and guidelines ity control auditors. The appointed sustainability manager within the Quality Control Department is responsible for reporting to the steering LKAB's values and ethics policy are the collective guidelines for committee. how everyone within LKAB shall act towards both internal and external stakeholders. The Group's business and everyone's behav- Governance of Finances iour shall be characterised by great integrity, and there are a num- Financial management is based on the owner’s requirements and LK- ber of Group policies and directives, all of which were desided by AB’s mission to develop a successful business by mining, processing LKAB's Board. and marketing minerals. LKAB expects suppliers to have a sustainability prepardness that includes the environment, safety and other social issues like respect Governance of social issues for human rights. The human resources director is responsible for strategic personnel Everyone involved in purchasing at LKAB undergoes a training activities. LKAB has decentralised responsibility for operational work program that describes the risks concerning corruption and bribery with personnel issues. Personnel matters are also handled in various and how they should be handled. In 2012, 20 employees attended the forums in the Swedish operation, such as wage committees and reha- course, and so far 215 persons have attended. LKAB did not need to bilitation and diversity groups. take action on any corruption cases during the year and did not termi- Work with urban transformation is based on the strategic focus nate any contracts with partners due to corruption offenses. areas and goals. The director of urban transformation is responsible LKAB’s values and policies are described on the website at for the work. www.lkab.com.

Governance of environmental work • LKAB’s core values: Commitment, Innovation, Responsibility At LKAB, the CEO has overall responsibility for environmental issues. • Quality control policy The operational environmental initiatives and responsibility are del- • ethics policy egated to the divisional and unit heads and on to the general manag- • environment and energy policy ers. The Quality Control Department handles ongoing issues regarding • personnel policy external environments in the Group. • Information policy Since mining activity is considered to have a major impact on the environment, it is also highly regulated by laws and ordinances. LKAB always considers the environmental aspects in decisions and actions and promotes long-term sustainable and profitable growth. Amiti b ons for future development | sustainability strategy & governance | 61

OBJEI CT VE OUTCOME 2012

ENVIRONMENT

E nergy consumption per tonne of pellets produced shall be Energy consumption totalled 0.184 kWh per tonne of pellets compared with 0.186 kWh per reduced by 5% in 2012 compared to 2006. tonne of pellets in 2006. The objective was not attained; there was only a marginal decrease.

The spread of particulates shall be reduced by 10% by 2012 The spread of particulates was down 24% compared with reference year 2006, so the objec- as compared to 2006. tive was attained.

The proportion of separated waste shall increase to at least The proportion of separated waste increased to 98% from about 50% in reference year 80% by 2012. 2006. The objective was exceeded by a wide margin, while in Narvik the objective was not attained with a figure of 42% separated waste in 2012.

COMMUNITIES

E nsure a skilled workforce by building attractive communi- LKAB and Gällivare Municipality signed a partnership agreement in April that regulates ties in which people want to live and work. urban transformation in Malmberget over the next 20 years. LKAB will engage in separate negotiations with individual property owners who will be affected by the urban transforma- Manage urban transformation so that confidence in LKAB is tion in four stages between 2012 and 2032. maintained and production disruptions are avoided. LKAB and Gällivare Municipality have continued working on a new residential area in Repis- vaara where LKAB is planning to build 200 new flats in the first stage. LKAB also acquired the Granbacka area, which includes 93 flats and five development rights. Thirty new flats are being built there with occupancy planned for the first quarter of 2014. In Kiruna, LKAB has worked with new zoning and planning for housing in the Jägarskolan and Luossavaara areas, which is expected to start in 2013. LKAB has purchased land and buildings from Kiruna Bostäder AB, including development rights at Terassen and Glaciären, as part of LKAB's goal to build 200 new flats by 2015. LKAB signed an agreement with Kiruna and Gällivare Municipalities for compensation of manpower resources for working with urban transformation in the municipalities. The new railway in Kiruna was completed according to plan and was inaugurated in August. LKAB worked on the construction of a new information office inS vappavaara, which opened in February 2013. LKAB completed the decommissioning of 120 houses in the Elevhemsområdet area in Malmberget. Construction of the park is planned for 2013. LKAB constructed a new road connection between eastern Malmberget and Koskullskulle. Within the “A Nicer Malmberget” project, LKAB and the municipality continued implementation of civic improvements to maintain and increase well-being during the phase-out. LKAB and Kiruna Municipality, within the framework of the Mine City Park project, continued working with construction, documentation and the park's design. LKAB and Kiruna Municipality announced an architectural competition for the new city hall.

EMPLOYEES

The proportion of women at LKAB shall reach 40% in the long The proportion of women at LKAB increased to 17.5% (15.9% in 2011). term.

Of new recruits, at least 30% shall be women. Among the new recruits, 29% were women. The objective was nearly attained.

The proportion of long-term sickness absences shall not Long-term sickness absences totalled 0.5%. Objective attained. exceed 1.5%.

Each employee shall do some form of professional develop- Training days 6.1 days per year on average/employee (6.7 days in 2011) as well as profes- ment ten days per year, of which half shall be training days. sional development in the form of internal experience exchanges, lectures, and participation in internal and external cooperative forums, such as trade networks and organizations. LKAB’s assessment is that the objective was attained.

The number of accidents causing absences per million hours The accident rate per million work hours was 9.89, most of which were above ground and worked shall fall 20% compared with the previous year. The caused by tripping, slipping and handling equipment. Objective not attained. long-term objective is zero accidents.

FINANCE

LKAB shall increase production from 26 million tonnes to LKAB delivered 26.3 million tonnes of finished iron ore products. The growth strategy to more than 37 million tonnes by 2015. increase deliveries to 37 million tonnes by 2015 remains unchanged.

LKAB shall provide its owner with long-term profitability that The Board proposes to the AGM an ordinary dividend of SEK 5,000 (7,143) per share totalling meets or exceeds the owner’s requirements. The long-term SEK 3,500 million (5,000) and an extra dividend of SEK 2,857 per share totalling SEK 2,000 rate of return is set at 10% over a business cycle. * million.

*New proposals for economic targets will be presented at the 2013 AGM. 62 | INTEGRATED REPORT 2012

Accounting principles and application of GRI

LKAB reports annually in accordance with the Global Reporting Initia- Metals Sector Supplement. tive's (GRI) G3 guidelines and the Sustainability Report is integrated The letter “P” indicates partial reporting and “F” indicates full re- with 2012 Annual Report, which reflects the integration of sustainabil- porting according to GRI guidelines. ity issues in everyday operations. Last year’s report was published in In accordance with the guidelines from the owner, the Sustainabi- March 2012. lity Report was reviewed by external auditors; the auditors’ statement LKAB applied GRI guidelines to determine the content of the report. of assurance is given on page 64. LKAB is self-declares GRI’s B+ appli- The index below includes the core performance indicators from the GRI cation level, which is also confirmed by the external auditors. guidelines and additional indicators from G3 deemed relevant on the basis of an analysis of the company’s stakeholders and its most im- Scope and boundaries portant issues. It also includes selected indicators from the Mining and In keeping with reports from the previous four years, the report fo-

GRI index g3

3.10 Explanation of the effect of any restatements of infor- 62-63 F

ly mation provided in earlier reports, and the reasons Page in Annual for such restatement G3 Report and artial ul P infor- Sustain- F 3.11 Significant changes in 62-63 F = mation Description ability Report =

F l P the scope, boundary or measurement methods applied in the report

S traTEGy and profile 3.12 GRI Index 62-63 F

1. Strategy and analysis 3.13 Policy and practice with regard to external assurance 62, 64 F 4. Governance, commitments and engagement 1.1 President's statement on sustainable development 5-7 F CEO 4.1 Governance structure of the organization 66-71 F 1.2 Impacts, risks and possibilities 5-7, 9, 10, 18, 22, F 4.2 Indicate whether the Chair of the highest governance 68 F 34, 40, 48, 58-59 body is also an executive officer 2. Organizational profile 4.3 The number of members of the highest governance body 67, 73 F that are independent and/or non-executive members 2.1 Organization’s name 80 F 4.4 Mechanisms for shareholders and employees to 67-68 F 2.2 Brands, trademarks, products and/or services 2-3, 13-14, 18 F provide recommendations or direction to the highest governance body or executive management

2.3 Operational structure, including divisions, operating 2-3, 80, 82-84, 125 F 4.5 Linkage between compensation for members of the 69 F companies, highest governance body and executive management subsidiaries and joint ventures and the organization’s performance (including social and environmental performance) 2.4 Location of the organization’s head office 131 F 4.6 Procedures and processes for the highest govern- 67-69 F 2.5 Countries in which the organization operates 125, 131 F ance body with respect to conflicts of interest

2.6 Nature of ownership and legal form 80 F 4.7 Process for determining the qualifications and 67 P expertise of the members of the highest governance body for guiding the organization’s strategy on 2.7 Markets 11. 17, 21, 34 F environmental topics

2.8 Scale of the reporting organization 2-3, 77 F 4.8 Statements of mission or values, codes of conduct 8-9, 60 F and principles relevant to economic, environmental and social performance 2.9 Significant changes during the reporting period No significant F regarding size, structure or ownership changes. 4.9 Procedures and processes of the highest governance 60 F body for overseeing the organization’s identification 2.10 Awards received in the reporting period 51 F and management of economic, environmental, and social performance, including relevant risks and 3. Report parameters opportunities

3.1 Reporting period 62 F 4.10 Processes for evaluating the highest governance 60, 69 F body’s own performance, particularly with respect to economic, environmental and social performance 3.2 Date of publication of the most recent report 62 F 4.11 Explanation of whether and how the precautionary ap- 60 F 3.3 Reporting cycle 62 F proach or principle is addressed by the organization

3.4 Contact point for questions regarding the report or 63 F 4.12 Externally developed economic, environmental and 14, 15, 18, 34, 49 F its contents social charters, principles or other initiatives to which the organization subscribes or endorses 3.5 Process for defining report content 58-59, 62 F 4.13 Membership in associations 59 F

3.6 Boundary of the report 62-63 F 4.14 List of stakeholder groups engaged by the organization 46, 59 F

3.7 Specific limitations on the scope or boundary of the 62-63 F 4.15 Basis for identification and selection of stakeholders 59 F report with whom to engage

3.8 Basis for reporting on joint ventures, subsidiaries and 62-63, 99-100 F 4.16 Approaches to stakeholder engagement, including fre- 46, 59 F other entities that can significantly affect comparability quency of engagement by type and by stakeholder group

3.9 Data measurement techniques and the bases of 63 F 4.17 Key topics and concerns that have been raised 46, 59 F calculation through stakeholder engagement Accouting n Principles and application of GRI | sustainability strategy & governance | 63

cusses specifically on the Nordic operation and the iron ore operation for the 2013 reporting year. in Sweden and Norway. It makes up about 90 percent of the Group’s The reporting of consolidated financial information is done in the con- total sales. The report clarifies which units are included when data solidated accounting system. Personnel data is gathered from personnel are reported. Changes concerning boundaries, scope or measurement systems, personnel reports, databases and manual procedures, and co- methods as compared with previous years are explained in the report vers all permanent employees in the Group unless otherwise stated. adjacent to the data. A review of the report resulted in the removal of a External reporting of carbon dioxide emissions according to the number of graphs from this year's report that have little relevance and LKAB monitoring system is to an accredited verifier, to the Swedish no relation to GRI indicators. Environmental Protection Agency and to the Administrative Board of Norrbotten County. D ata collection In 2012, LKAB developed and implemented a collective reporting sys- Contact tem for all sustainability data. The system is expected to be put into use The contact for LKAB's Sustainability Report is Monica Quinteiro, General Manager, Quality Control ([email protected]).

GRI index g3

Economic performance indicators Social performance indicators

Information on sustainability management 58, 60-61, 70-71 F Information on sustainability management 58, 60-61 F

EC1 Economic value generated and distributed 46 F LA1 Total workforce by employment type, employment 52 F contract and region EC2 Financial implications and other risks and opportuni- 8-9, 10, 24, 27 P LA2 Total number and rate of employee turnover by age 52 F ties for the organization’s activities due to climate group, gender and region change LA7 Rates of injury, occupational diseases, lost days, 52, 54 F Environmental performance indicators absenteeism and number of work-related fatalities by region Information on sustainability management 58, 60-61 F LA10 Average number of hours of training per year per 50, 61 F employee by employee category EN1 Materials used 30 F LA13 Composition of governance bodies according to 54, 61, 72-75 F indicators of diversity EN3 Direct energy consumption by primary energy source 31 F HR4 Total number of incidents of discrimination and ac- 54 P EN4 Indirect energy consumption by primary energy 31 F tions taken source MM5 Operations taking place adjacent to indigenous 34, 46, 59 F EN5 Energy saved due to efficiency improvements 27, 30-31 P peoples’ territories and formal agreements with indigenous peoples’ communities EN6 Initiatives to provide energy-efficient or renewable 14, 23-24, 27, P MM6 Number and description of disputes related to land 59 F energy based products and services, and reductions 30-31 use and the local population’s or indigenous peoples’ in energy requirements as a result of these initiatives traditions and rights EN12 Description of significant impacts of activities, 30, 34 P MM7 Use of appeal functions to resolve disputes related 59 P products and services on biodiversity in protected to land use and the local population’s or indigenous areas and areas of high biodiversity value outside peoples’ traditions and rights protected areas SO1 Nature, scope and effectiveness of any programs 40-46, 59-61 F EN16 Total direct and indirect greenhouse gas emissions 30-31 F and practices that assess and manage the impacts of operations on communities, including entering,

EN20 NOx, SO2 and other significant air emissions 24, 30, 61 F operating and exiting

EN21 Total water discharge by quality and recipient 24, 30 P SO3 Percentage of employees trained in the organization’s 60 F policies and procedures concerning counteraction of corrupti EN22 Total weight of waste by type and disposal method 30-31 F SO4 Measures taken on grounds of corruption 60 F EN23 Total number and volume of significant spills 27 P incidents MM9 Number of sites where resettlements took place, the 44 F EN25 Identity, size, protected status and biodiversity value 24, 30 F number of households resettled and the impacts of of water bodies and related habitats significantly resettlement affected by the reporting organization’s discharges of water and runoff

EN28 Monetary value of significant fines and total number 59, 87 F of non-monetary sanctions for non-compliance with environmental laws and regulations

MM 3 Total amounts of overburden, rock, tailings and 23, 30-31 F sludges and their associated risks

MM 11 Systems and development related to the use of mate- 23, 27, 30-31 F rial in processes and products 64 | INTEGRATED REPORT 2012

Auditor’s Review Report on LKAB’s Sustainability Report

To the readers of LKAB’s Sustainability Report Our review has, based on an assessment of materiality and risk, e.g. included the following procedures:

Introduction a. an update of our knowledge and understanding for LKAB’s orga- We have been engaged by the Board of Directors of LKAB to review nization and activities the LKAB Sustainability Report for the year 2012. Our review is li- b. assessment of suitability and application of criteria in respect to mited to sustainability information related to the financial year en- stakeholders need of information ded December 31, 2012, and included in LKAB’s Annual Report and c. assessment of the result of the company’s stakeholder dialogue Sustainability Report 2012 on pages 8–38 and 40-63. The Board d. interviews with responsible management, at group level, subsi- of Directors and the Executive Management are responsible for diary level and at selected business units with the aim to assess ongoing activities regarding the environment, health & safety, qua- if the qualitative and quantitative information stated in the sus- lity, social responsibility and sustainable development, and for the tainability report is complete, correct and sufficient preparation and presentation of the Sustainability Report in accor- e. read internal and external documents to assess if the informa- dance with the applicable criteria. Our responsibility is to express a tion stated in the sustainability report is complete, correct and conclusion on the Sustainability Report based on our review. sufficient f. analytical review of reported information g. assessment of the company’s stated application level according The Scope of the Review to GRI’s guidelines We have performed our review in accordance with RevR 6 Assu- h. overall impression of the sustainability report, and its format, rance of Sustainability Reports issued by FAR. A review consists of considering the information’s mutual correctness with applica- making inquiries, primarily of persons responsible for the prepara- ble criteria tion of the Sustainability Report, and applying analytical and other i. reconciliation of the reviewed information against the sustaina- review procedures. A review is substantially less in scope than an bility information in the company’s annual report for 2012. audit conducted in accordance with IAASB’s Standards on Auditing and Quality Control and other generally accepted auditing stan- Conclusion dards in Sweden. The procedures performed consequently do not Based on our review, nothing has come to our attention that causes enable us to obtain assurance that we would become aware of all us to believe that the information in the LKAB Sustainability Report significant matters that might be identified in an audit. Accordingly, 2012 has not, in all material respects, been prepared in accordance we do not express an audit opinion. with the above stated criteria. Our assurance does not comprise ”Reporting of mineral reserves and resources” and ”Prospecting for future resources” presented on page 39, or the assumptions used by the Company or whether or not it is possible for the Company to reach certain future targets described in Stockholm 20 March 2013 the report (e.g. goals, expectations and ambitions). The criteria on which our review are based are the parts of the Sus- Deloitte AB tainability Reporting Guidelines G3, published by The Global Reporting Initiative (GRI), which are applicable to the Sustainability Report, as well as the accounting and calculation principles that the Company has developed and disclosed. We consider these criteria suitable for the pre- Peter Ekberg Lennart Nordqvist paration of the Sustainability Report. Authorized Public Accountant expert Member of FAR o | corp rate governance report | 65

C ORPORATE GOVERNANCE REPORT// 65–77 66 | INTEGRATED ANNUAL AND SUSTAINABILITY REPORT 2012 66 | INTEGRATED REPORT 2012

C orporate governance report

Corporate governance structure

LKAB’s shareholder, the Swedish State, is ultimately responsible for ganisation and administration of the company’s affairs. The diagram making corporate governance decisions. At the Annual General Meet- below summarizes how governance and control is organized at LKAB. ing (AGM), the shareholder appoints board members, the chairman and Executive and shareholder functions are described in detail on pages auditors. The Board is responsible to the owner for the company’s or- 67-69 of the Corporate Governance Report.

1 . Annual General Meeting 2. Board nominations 3 . External auditors OWNER The Swedish State

4. Board of Directors

6 . Currency and Finance 5 . Audit Committee 7 . Compensation Committee Committee

elects/appoints 8e . Pr sident and CEO informs/reports

1. Annual General Meeting 4. Board of Directors The AGM is LKAB’s supreme governing body and the forum at which the The board is responsible for the company’s organisation and adminis- shareholder formally exercises its influence. At the AGM, decisions are tration of the company’s affairs on behalf of the owner. The work of the made that include adoption of the income statement and balance sheet, Board includes continuously monitoring the company’s financial situ- discharge from liability of the Board, election of new board members and ation and ensuring that the company is organized so that accounting, auditors, compensation of board members and auditors, and guidelines for asset management and the company’s financial condition are otherwize compensation of senior executives. Members of the Riksdag are entitled to controlled in a satisfactory manner. The board also appoints the CEO. attend LKAB’S AGM. The meeting is also open to the public. 5. Audit Committee 2. Board nominations The committee oversees the financial reporting by reviewing all critical ac- LKAB has no nomination committee. Preparation of decisions on nomina- counting matters and other factors that could affect the quality of financial tion of board members occurs instead through a board nomination process reporting content. The Audit Committee comprizes three board members. in accordance with the state’s ownership policy. The work is coordinated by the Ministry of Finance. See deviation from the Code on page 67. 6. Currency and Finance Committee The committee prepares and monitors things such as the company’s treas- 3. External auditors ury management and hedging programmes. The Currency and Finance The auditor is responsible to the shareholder at the AGM and provides an Committee consists of five board members. audit report on things such as the annual report and the Board’s administration of the company. The auditor regularly reports verbally and in writing 7. Compensation Committee to the Audit Committee on how the audit was conducted and the auditor's The committee prepares decisions on the CEO’s employment terms and assessment of order and control in the company. A summary of the audit is supports the CEO’s work with determining the salaries of senior executives. also submitted to the full Board. The Compensation Committee comprizes four board members.

8. CEO The CEO is appointed by the Board. Besides instructions from the Board, the Companies Act and various other laws and regulations relating to the company’s accounting, the CEO is responsible for asset management and operational control. o | corp rate governance report | 67

CORPORATE GOVERNANCE AT LKAB

The basis for corporate governance of LKAB is Swedish legislation, the to corporate governance of state-owned companies. state’s ownership policy and internal guidelines. In the state’s owner- The Swedish Code of Corporate Governance (the Code) is part of its ship policy and guidelines for state-owned companies, which are deter- ownership policy. mined annually, the government describes its mission and objectives, LKAB's governance for the 2012 financial year differs from the re- applicable frameworks and its position on important principles related quirements contained in the Code on the following points.

D eviATIONS from the Code

Code rule Deviation and explanation/comment

Item 1.1 The purpose of the rule is to give shareholders the opportunity to prepare for the AGM in a timely manner and to have Publication of information on shareholders' a matter included in the AGM notice. In state-owned companies, is not necessary to apply this rule, and publication of right of initiative. information on the shareholder's right of initiative does not occur.

Item 1.4 Due to its ownership structure, LKAB does not have a nomination committee. The company's nomination committee shall Election of the Chairman is instead done at the AGM as per the provisions of the Companies Act and in line with the submit proposals to the Chairman at the state's ownership policy. AGM.

Item 2 Due to its ownership structure, LKAB does not have a nomination committee. The company shall have a nomination The board nomination process is run according to the policies outlined in the state's ownership policy and is coordi- committee that represents the company's nated by the Ministry of Finance. Accordingly, the references to the nomination committee in items 1.3, 1.4, 4.6, 8.1 and shareholders. 10.2 of the Code are not applicable.

Item 10.2 The provision is aimed primarily at protecting minority shareholders in companies with dispersed ownership. In com- The Corporate Governance Report shall panies wholly-owned by the state, it is not necessary to apply this rule. contain information that indicates board members are independent in relation to major shareholders.

SHAREHOLDERS AND GENERAL MEETINGS

Sh aREholders • A dividend of SEK 7,143 per share, representing a total of SEK 5 LKAB is wholly-owned by the Swedish state, represented in the gov- billion. ernment by the Ministry of Finance. • Re-election of board members Marcus Wallenberg, Maija-Liisa The state exercizes its ownership via an annually established own- Friman, Lars-Åke Helgesson and Hanna Lagercrantz. ership policy, nominations to the Board and published reporting guide- • Election of board members Hans Biörck, Sten Jakobsson and lines. The state’s requirement of transparency is met by direct owner Maud Olofsson. representation on the Board. Reports to the owner and board are key • Re-election of Marcus Wallenberg as Chairman of the Board. management tools for continuous monitoring and assessment of the • Re-election of public accounting firm Deloitte AB as auditor for a companies. State-owned companies should have at least the same period of one year. level of transparency as listed companies. • Unchanged remuneration of board members: SEK 250,000 per The Board, via the chairman, coordinates its views on issues of year to members and SEK 570,000 per year to the chairman. Re- decisive importance with the owner’s representatives. Such issues muneration is not paid to board members who are employed in include strategic changes in the company’s operations, major acquisi- the Government Offices or to employee representatives. tions, mergers or divestments, as well as decisions affecting significant The minutes of the 2012 AGM and other recent years are available changes in the company’s risk profile or balance sheet. at LKAB’s website (www.lkab.com).

2012 Annual General Meeting Board nominations LKAB’s Annual General Meeting (AGM) took place on 20 April 2012. The Instead of having a nomination committee, the election of board mem- meeting was open to the public. About 150 persons attended the AGM. bers is prepared in accordance with the state's ownership policy. The The owner was represented by Special Adviser Elin Lewold (formerly work is coordinated by the Ministry of Finance. LKAB’s expertise needs Granstrand), Ministry of Finance. Chairman of the meeting was Board are analysed based on the company’s operation, situation and future Chairman Marcus Wallenberg. The following decisions were made at challenges along with the Board’s composition. the meeting: 68 | INTEGRATED ANNUAL AND SUSTAINABILITY REPORT 2012 68 | INTEGRATED REPORT 2012

Ex tERNAL auditors the company's auditor until 1 September 2012, when authorized public On behalf of the owner, auditors do independent reviews of the Board’s accountant Peter Ekberg took over the assignment. and CEO’s administrative duties as well as the company’s annual report The Swedish National Audit Office can, as per the Auditing ofS tate Ac- and accounts. The external auditors also carry out a review of an interim tivities Act, appoint one or more auditors to participate in the annual au- report. Responsibility for election of auditors lies with the owner and dit of state-owned companies. Authorized public accountant Filip Cassel election of auditors is decided at the AGM. Starting in 2011, the auditors has participated in LKAB’s audits. At the 20 April 2012 AGM, the National of state-owned companies are appointed for a term of one year. In the Audit Office did not reappoint Filip Cassel as its company auditor, along event re-election of auditors is being considered, the auditors’ work is with alternate Carin Rytoft Drangel. No new auditor was appointed by always evaluated. the National Audit Office. At the AGM on 20 April 2012, Deloitte AB was re-elected auditor for a Remuneration of auditors is stated in Note 7 on page 110 of the period of one year. Authorized public accountant Peter Gustafsson was Annual Report.

BOARD OF DIRECTORS gic plan for 2013–2020. Other issues on the Board's agenda during the Composition of the Board of directors year were occupational health and safety, and urban transformation As per the articles of association, LKAB’s Board will consist of no less in Malmfälten. Among the larger environmental investments that the than 6 and no more than 11 AGM-elected members, excluding depu- Board decided on in 2012 was a complementary addition to the existing ties. The Board consists of seven AGM-elected members. Employees flue gas treatment installation for pelletizing plantM K3 in Malmberget are represented by three members and three deputies as per the Board and the new flue gas treatment installation for the pelletizing plant in Representation (Private Sector Employees) Act. Board members have Svappavaara. broad, extensive business experience and most maintain other duties Deputies to employee representatives participate in board meet- as board members of large companies. The Board’s composition is ings. The CEO is not a board member, but participates in board meet- shown in the table on page 73. ings. The Board annually establishes rules of procedure and instructions Chairman of the Board to the CEO. These documents define the basic divisions of responsibility Duties of the Chairman are subject to the Companies Act, the Code and and powers between the Board, board committees, the Chairman and the ownership policy. They are further specified in the Board's rules of the CEO. procedure. The Chairman’s duties include organising and leading the Board member attendance at 2012 board and committee meetings work of the Board, ensuring that the Board fulfils its duties, that its deci- is shown in the table on page 73. sions are implemented effectively, that the work of the Board is carried out effectively and that the Board annually evaluates its own work. Committees Coordination responsibility is a special task assigned to the chair- According to the state’s ownership policy, it is the Board’s responsibility men of state-owned companies. This responsibility means that the to assess the need for establishing special committees. LKAB’s Board Board, through the chairman, is to coordinate its views with represent- has established an Audit Committee, a Currency and Finance Commit- atives of the owner when the company faces important decisions or tee, and a Compensation Committee. Committee work is mainly of a strategic changes in the company's operation. preparatory and advisory character. But the Board may in special cases delegate decision-making powers to committees. Committee members The work of the Board of Directors in 2012 and chairpersons are appointed at the board meeting that follows the During the year the Board held ten meetings, including two telecon- AGM each year. ferences. The meetings were held at the places of business in Luleå, Kiruna and Narvik, and in Stockholm. The Board meeting in November Audit Committee consisted of a visit to LKAB's customer Tata Steel in Holland. The Audit Committee consists of Lars-Åke Helgesson, Committee The meetings follow a set agenda to ensure the Board’s informa- Chairman, Hanna Lagercrantz and Hans Biörck. The CEO and CFO also tion needs. The first meeting is usually an annual accounts session that attend the meetings. the auditors also attend. The annual report is discussed at the second The Audit Committee’s duties include monitoring the company’s ac- board meeting. The third to seventh meetings are devoted to things counting, financial reporting and risk management, along with prepar- such as operational, strategic and personnel issues along with market ing the Board’s proposed appropriation of profits for the fiscal year. trends. At the last board meeting, decisions are made on budgets and During the year, the Audit Committee held six meetings. operational plans for the coming year. Board activities in 2012 were characterized by the growth phase Currency and Finance Committee that LKAB finds itself in, with the goal of achieving an annual produc- Currency and Finance Committee members are Lars-Åke Helgesson, tion of about 37 million tonnes of finished iron ore products by 2015. A Committee Chairman, Marcus Wallenberg, Hanna Lagercrantz, Hans costefficiency program was started in the summer of 2012 and during Biörck and Seija Forsmo. The CEO, CFO and company treasurer also the autumn, the Board worked intensively with the company's strate- attend the meetings. o | corp rate governance report | 69

The Currency and Finance Committee’s duties include preparing and Compensation to the Board of Directors monitoring LKAB’s currency hedging programmes and treasury man- As resolved at the AGM, remuneration of AGM-elected board members agement. In 2012, the Board adopted a new financial policy, which was totals SEK 1,980 thousand; see Note 6 for the year’s cost on page 109. prepared by the Currency and Finance Committee. The Committee held six meetings during the year. LKAB’S MANAGEMENT Compensation Committee The Compensation Committee consists of Lars-Åke Helgesson, Com- CEO mittee Chairman, Marcus Wallenberg, Hanna Lagercrantz and Sten Ja- The CEO’s general responsibility is stated in the instructions for the kobsson. The CEO and senior vice president of human resources also CEO and the Board’s rules of procedure. These state that the CEO shall: attend the meetings. • Lead, plan, develop and control the company's operations in accord- The Compensation Committee’s duties include preparing and eval- ance with the Board's established goals and strategies. uating compensation terms for the CEO, establishing salary-setting • Ensure that the company’s accounts are maintained in compliance policies for persons in Group management and annually evaluating the with laws and that assets are managed in a satisfactory manner. company’s employee incentive programme. • Ensure that other applicable statutory regulations and directives are During the year, the Compensation Committee held four meetings. also followed, that the Board’s decisions and other applicable resolved measures are enforced, and that the company’s operation is Assessment appropriately organized and run in accordance with the Articles of Assessment of the Board of Directors Association. The Board’s work is assessed once a year with questions on how the • Be responsible for presentation and other reporting to the Board. Board as a collective and individual board members fulfil their duties. • Establish instructions and functional descriptions that are deemed The assessment is used in the Board’s internal work. The Chairman is necessary, but that were not established by the Board. responsible for following up the results so they can form a basis for • Be responsible for all the company’s regular contact with the media; discussions and improvements. The 2012 assessment was done via a for ownership issues and larger structural issues, the Chairman is questionnaire. The entire board may review the assessment as may the responsible for media contact. CEO, as appropriate. The Chairman notifies the owner of the results of • Be responsible for the introduction programme for newly appointed board the assessment before the election of new members. members.

Assessment of the CEO The Chairman approves CEO duties outside the company as they The assessment of the CEO is a fundamental task of the Board. The arise. Information on the CEO appears on page 75. Chairman prepares a summary of the Board’s views that conveys strengths and weaknesses to the Board as well as the CEO. Group Management and Group Management structure LKAB’s business is conducted to a very large extent in the Parent Com- pany. Some activities are conducted in subsidiaries in Sweden and in COMPEN SAtion POLICIES several other countries. Group Management consists of the CEO and eight divisional and G uiDELINES unit managers who work in the Parent Company. They are the division- The 2012 AGM decided on compensation levels for board members al managers from Mining and Marketing & Logistics, and the managers and auditors and guidelines for compensation to senior executives. for Group units Technology & Business Development, Urban Transfor- For compensation of Group management, the AGM decided that the mation, Finance, Group Control, Human Resources, and Communica- government’s currently applicable guidelines regarding employment tions. terms for senior executives in state-owned companies will be applied. In 2012, the following change in the chain of command was made: Total compensation is based on fixed compensation, benefits and pen- Group Staff Corporate Services has ceased to exist and the operation sion. No variable compensation is paid to senior executives in Group was taken over by the Human Resources and Communications units. management. In Note 6 on pages 107-109 of the Annual Report, com- Sourcing has moved from the Mining unit to the Finance unit. pensation of senior executives is described. Governance of the major subsidiaries, such as Minelco, LKAB Was- sara and others, is through Group management members who chair Incentive programme and objectives the subsidiaries' boards. The subsidiaries run their businesses inde- LKAB’s incentive programme is designed to support the Group’s stra- pendently in accordance with the company’s mission in the Group as tegic goals, which are based on production volume, health and safety, formulated in the articles of association. and product quality, and is described on page 88 of the Administration Responsibility and authority are assigned to individual officers, Report. rather than groups and committees. Information on Group management appears on page 75. 70 | INTEGRATED ANNUAL AND SUSTAINABILITY REPORT 2012 70 | INTEGRATED REPORT 2012

INTERNAL CONTROL OVER FINANCIAL REPORTING descriptions and annual account instructions. There are also specifically established controls regarding the annual accounts process and The Board’s responsibilities for internal governance and control is reg- the processes for quarterly results and the annual report that deal with ulated by the Companies Act, the Annual Accounts Act and the Swedish more unique risks of errors that may occur in financial statements. Code of Corporate Governance. The Board has overall responsibility for During the year, work began on defining a control structure in ac- financial reporting, and its rules of procedure regulate the Board’s and cordance with the new finance policy. audit committee’s internal division of labour. After preparation by the The Group’s legal entities that conduct business have financial audit committee, quality assurance of the company’s financial state- managers and reporting units have controllers. They participate in ments is handled by the Board, which deals with significant account- forecasting and analysis of the subsidiaries and the reporting entities’ ing issues and the financial reports issued by the company. The Board earnings. The analyses comprise assets, liabilities, income, costs and also deals with issues relating to internal control, compliance, material cash flows. There are also designated controller resources that moni- uncertainty in reported values, uncorrected errors, events after the bal- tor, analyse, make forecasts, and examine specific issues relating to ance sheet date, changes in accounting estimates and assessments, the financial information for urban transformation and strategic capi- possible improprieties and other circumstances affecting the quality of tal expenditures. For preparation of the consolidated accounts, LKAB financial reports. has a Group-wide consolidation system where the company’s financial managers/controllers are responsible for the accuracy of the reported Control environment financial information (outcome, budget and forecasts). Together with LKAB’s internal control structure is based on a defined division of re- the comprehensive analysis performed at Group level, the purpose is sponsibilities between the Board, board committees and the CEO. The to limit the risk of material misstatements in the financial statements. internal control structure is based on the company’s organisation and In order to maintain a high level of information security, there are the way business is conducted, including well-defined roles and re- rules and guidelines established related to accessibility, accuracy, con- sponsibilities, delegation of powers, governing documents such as poli- fidentiality and traceability in the resource planning system. cies, and clearly defined planning and support processes. The most important elements of the control environment concern- Information and communication ing financial reporting, including preparation of the consolidated ac- LKAB has information- and communication channels that promote counts, is dealt with in Group-wide governing documents relating to completeness and accuracy of financial reporting.C omprehensive in- accounting, financial transactions and regulation of division of author- formation on the current control structures is available to all employees ity. The purpose of Group-wide guidelines and systems for reporting via LKAB’s intranet. The objective is to regularly review changes and and consolidation of Group accounts is to safeguard the financial state- the reasoning behind existing controls and to improve them in order ments and accuracy of the consolidated accounts. to maintain effective internal control over the financial statements. In connection with the review of the control structure, responsibility for Risk assessment ensuring that the control structure is in place, is known, and that the LKAB is governed by procedures that have risk management built into control is carried out as intended are also identified. every process. Within the Group there are techniques for ensuring that LKAB’s guidelines for the financial statements and consolidated ac- the risks the company is exposed to are handled according to guide- counts are updated regularly. Changes are communicated to relevant lines and methods in order to both assess and mitigate these risks. functions and operations via email, the intranet and at meetings. As part of the internal governance and control, risks related to fi- For communication with external parties, there is an information nancial reporting are identified. For the most important processes, risk policy that provides guidelines for how information should be com- analyses were conducted and for identified risks, procedures were es- municated. The purpose of the policy is to ensure that all information tablished for managing and minimising these risks. obligations are met in an accurate and complete manner. External fi- For the financial statements, a number of areas of higher risk were nancial communications are issued through annual reports, interim identified, most notably relating to accounting and tax issues linked to reports, annual accounts, press releases and via LKAB’s website at urban transformation in Malmfälten and the large amount of planned www.lkab.com. and ongoing capital expenditures. Other more general risks are loss or misappropriation of assets and other significant errors in the company’s accounts, such as accounting and measurement of balance sheet items, completeness of income statement items, or deviations from dis- closure requirements. During the year, an evaluation of internal control and governance was conducted. Based on the evaluation, improvement efforts were initiated to develop a framework for internal governance and control.

Control activities Key elements of LKAB’s control structure are controls of business transaction approvals (authorisation instructions), division of authority o | corp rate governance report | 71

F - oLLOw up There is currently no internal audit function established at LKAB. In 2012, the Board considered the matter and decided not to introduce an internal audit function. The decision on internal audits is reconsidered annually. Alone or with the support of external resources, the Group-wide controller function implements audit activities relating to the business processes that are deemed to have a material impact on the financial statements. A plan for internal control activities is prepared annually in the Group-wide controller function. After a number of years of focussing on monitoring capital expenditures and activities related to ongoing urban transformation, the focus in 2012 was on monitoring prioritized internal processes. The internal reviews in 2012 were mostly done in collaboration with external independent auditors, where the focus was defined based on a risk assessment for each separate examination. Results from completed reviews were summarized in review reports and feedback was given to the operations concerned. Compliance with resolved measures after completion of reviews is followed up regularly by the Group-wide controller organisation. During the year, the IT controller was also audited by an external party.

S Tatement 2012

According to statements from the Swedish Corporate Governance Board, no statement is made about how well the internal control worked during the year.

Luleå 20 March 2013

The Board, through the Chairman

Marcus Wallenberg The Board

1 2

3 4 5

The Board's employee representatives

6 7

9 10

11 12 13 2012 board of directors o | corp rate governance report | 73

The Board tions SEB 1999–2008.Corporate Finance at The Board’s employee Born 1963 S.G. Warburg Co. Ltd. London, 1994–1998. Other directorships Member, Leaders Club Compensation SEK 0 representatives, Full in Kiruna. 1 Mars cu Wallenberg, Board meeting attendance members Background Employee at LKAB 1987–1989 Chairman Attended 10 of 10 meetings. and since 1995. Studies and UN service Audit Committee attendance between 1989–1995. Position Director Attended 6 of 6 meetings. S rseIJA Fo mo 8 Compensation SEK 0 Education Bachelor of Science of Foreign Currency and Finance Committee attend- Board meeting attendance Service, Georgetown University, Washington ance Position Pelletizing expert Attended 9 of 10 meetings. DC USA. Attended 4 of 6 meetings. Education MSc Chemical Engineering, Helsinki University of Technology 1980; Year elected 2011 Compensation Committee attendance B ertil LaRSSON 13 Born 1956 Attended 4 of 4 meetings. PhD Process Metallurgy, Luleå University of Technology 2007. Other directorships Chairman, Skandi- Position Ore harbour worker Year elected Deputy member since 2010 naviska Enskilda Banken AB, SAAB AB and AB 5 Education Secondary education. Electrolux. Member, AstraZeneca PLC, Knut & h aNS biörck Full member since 2011 Alice Wallenberg Foundation, Stora Enso Oyj, Born 1955 Year elected 2010 Investor AB and Temasek Holdings Ltd. Position Advisor for Skanska AB Other directorships Member, SACO Club Born 1955 Background 1999–2005 President and Education MSc Business and Economics Malmberget-Luleå. Other directorships Chairman, CEO Investor AB, 1993–1999 Executive Vice Year elected 2012 Background Employee at LKAB since 1988. Svartöstaden Club, IF Metall Norrbotten. President Investor AB, 1990–1993 Director Born 1951 Previously employed by Outokumpu Oy and Background Employee at LKAB 1974–1996 Stora Feldmühle AG, Düsseldorf. Before 1990, Other directorships Member, Trelleborg Kemira Oyj. and since 1999. Employed by Dynalite various positions within SEB Stockholm and AB, Dunkerska Stiftelserna, SF Bio AB, Bure Compensation SEK 0 1996–1999. London, Citicorp Hong Kong, S.G. Warburg Co. Equity AB and Crescit Asset Management AB. Compensation SEK 0 Ltd. London, Deutsche Bank AG Frankfurt and Board meeting attendance CFO, Skanska AB. CFO, Autoliv Attended 9 of 10 meetings. Board meeting attendance Hamburg, Citibank N.A. New York. Background Inc. CFO, Esselte AB. Currency and Finance Committee attend- Attended 9 of 10 meetings. Compensation SEK 590,000 Compensation SEK 310,000 ance Board meeting attendance Attended 5 of 6 meetings. Attended 10 of 10 meetings. Board meeting attendance Attended 7 of 10 meetings.* Currency and Finance Committee attend- Audit Committee attendance ance 9 Attended 3 of 6 meetings.** Tsroma St ömberg Attended 2 of 6 meetings.** Currency and Finance Committee attend- Compensation Committee attendance Position Ore developer Attended 2 of 4 meetings. ance Attended 2 of 6 meetings. ** Education Secondary education Year elected 2011 2 Born 1967 MaijaL - iISA Friman 6 sten jakobsson Other directorships Deputy Position Director Chairman, Gruv4:an Club. Mem- Position Director Education MSc Chemical Engineering, Hel- ber, IF Metall Avd 1. sinki University of Technology, 1978. Education MSc Background Employee at LKAB Year elected 2008 Year elected 2012 since 1987. Born 1949 Compensation SEK 0 Board of Born 1952 Other directorships Chairman, Ekokem Other directorships Chairman, Power Wind Board meeting attendance Oy and Helsinki Deaconess Institute. Deputy Partners AB. Member, Saab AB, Stena Metall Attended 10 of 10 meetings. Chairman Neste Oil Oyj. Member, TeliaSonera AB, FLSmidth A/S and Xylem Inc. Not on any committees. Directors AB and Finnair Oyj. Background President and CEO ABB Sweden, Deputy CEO Asea Brown Boveri AB Background President Aspocomp Group Oyj 10 2004–2007. CEO Vattenfall Oy 2000–2004. Sweden, Business Area Manager Business Jnlina The CEO Gyproc Oy 1993–2000. Various manage- Area Cables, CEO ABB Cables AB, CEO Asea 2012 ment positions at Kemira Oyj in Finland, Cylinda, Production Manager Asea Low Volt- Position Welder Mexico and the US 1978–1993. age Division, Asea central staff - production, Education Trained international Asea trainee. Compensation SEK 250,000 welding specialist. Compensation SEK 250,000 Board meeting attendance Year elected 2010 Attended 8 of 10 meetings. Board meeting attendance Born 1955 Attended 6 of 10 meetings.* Not on any committees. Other directorships Chairman, Gruv12:an Auditors and Compensation Committee attendance Club Kiruna, IF Metall Malmfälten. Member, Attended 2 of 4 meetings.** Secretary 3 LKAB Berg & Betong AB. L ÅeaRS- k Helgesson Background Employee at LKAB 1974–1977 7 and since 1995. Employed by various engi- A udITORS Position Director m aUD olofsson neering firms 1977–1995. Education MBA School of Economics Gothen- Compensation SEK 0 burg 1971. Graduate Engineer. Position Former Deputy Prime Minister, Deloitte AB Minister of Enterprise and leader of Board meeting attendance Peter Ekberg Year elected 2000 the Centre Party. Attended 9 of 10 meetings. Authorized public accountant. Born 1941 Education Secondary education. Not on any committees. Other directorships Chairman, TransLink 2012 Holding AB. Member, Ballingslöv Interna- Year elected tional AB, Axel Christiernsson AB, Crane Inc., Born 1955 Setarecr y Dalton MAUSA and Crane AB. Other directorships Member, Background President and CEO Stora 1992– Creades AB, Arise Windpower AB and The Board’s employee Malin Sundvall 1998. Division Manager Stora 1988–1992. Diös Fastigheter AB. Chief Legal Advisor for LKAB, President and CEO Haldex 1981–1988. Background Deputy Prime Minister 2006- representatives, Secretary of the Board Compensation SEK 330,000 2010, Minister for Enterprise and Energy deputies since 2008. 2006-2011, Head of the Centre Party 2001- Board meeting attendance 2011, Member of Parliament 2002-2011, CEO Attended 10 of 10 meetings. of Hushållningssällskapet in Västerbotten 11 Audit Committee attendance 1997-2001, EU Coordinator for Västerbotten Pentti Rahkonen Attended 6 of 6 meetings. County Administrative Board, Political Adviser Currency and Finance Committee attend- to Ministry of Employment 1992-1994, Om- Position Process operator ance budsman for Centre Party and Centre Party Education Secondary education. Attended 6 of 6 meetings. Youth League in Norrbotten. Year elected 2010 Compensation Committee attendance Compensation SEK 250,000 Born 1965 Attended 4 of 4 meetings. Board meeting attendance Other directorships Treasurer, Attended 7 of 10 meetings.* Gruv135:an Club, IF Metall Malmfälten. 4 Hanna LaGERcrantz Not on any committees. Background Employee at LKAB since 1987. Compensation SEK 0 Position Deputy director, Ministry of Finance Board meeting attendance Education MSc Economics, Stockholm Attended 9 of 10 meetings. School of Economics 1993, MPhil Economics, Cambridge University 1994. 12 Year elected 2010 Sefan t FAGERKULL Born 1970 *Appointed to the Board at the AGM on Other directorships Member, SBAB Bank Position Project manager 20 April 2012. Seven meetings were held AB and the Swedish Space Corporation. Education Engineer, Rock and Civil Engineer- after the AGM. Background Swedish Government Offices ing, Bergsskolan Filipstad. **Appointed to the committee after the AGM since 2008. Market Analyst and Investor Rela- Year elected 2011 on 20 April 2012. 74 | INTEGRATED ANNUAL AND SUSTAINABILITY REPORT 2012

2 3 4

1 6

7 8 9 group managemen 2 ot012 | co rp rate governance report | 75

LrsEi a - r c Aaro 1 K aTARINA Holmgren 2 A ndERS Kitok 3 L streIF Bo öm 4 A ndERS Furbeck 5

President and CEO* Senior Vice President, Group Senior Vice President, Mining Senior Vice President, Finance Senior Vice President, Urban Control Division Transformation Education: Education: MSc Mining Engineering, Luleå Education: Education: MSc Economics, Luleå University Education: University of Technology, 1982. MSc, Luleå MSc Mechanical Engineering, of Technology, 1990. MSc Economics, School of Eco- University of Technology, 1986. Luleå University of Technology, nomics, Gothenburg 1985. Year employed: 2001 1982. Year employed: 1992 Year employed: 2010 Year employed: 1985 Born: 1956 Year employed: 1985 Born: 1959 Born: 1963 Born: 1957 Other engagements: Born: 1957 Other engagements: Chairman, SKGS, Deputy Chair- Background: Chairman, Hjalmar Lundbohm Compensation: man, SweMin. Member, Royal Kårhuset i Luleå AB 1985–1986, Other engagements: Research Centre and LKAB Excel- See Note 6, page 109 Swedish Academy of Engineering Swedish Tax Agency 1987–1997, Member, Progressum AB, lence Centre at LTU, member, Sciences. Honorary Doctorate, Luleå University MCC AB. Deputy, VindIn AB. Luleå University of Technology, of Technology 1997–2003, Underhållsföretagen. 2007. LKAB 2003–2007, Background: Polarbröd 2007–2010. Background: NCC 1980–1992. Background: Ericsson 1983–1985. LKAB 1976, 1981–1984, Compensation: Compensation: Viscaria AB 1984–1987, Boliden See Note 6, page 109 Compensation: See Note 6, page 109 1987–1989, Secoroc 1989–1992, See Note 6, page 109 Boliden 1992–1998, ASSI Domän 1998–2001.

Compensation: See Note 6, page 109

* Neither the CEO nor any natural person or legal entity related to him have significant shareholdings or partnerships in companies with which LKAB has substantial business relationships. gro up management 2012

Lotta Fogde 6 Markus Petäjäniemi 7 PEer- rik Lindvall 8 Getelr So vang Stoltz 9

Senior Vice President, Com- Senior Vice President, Marketing Senior Vice President, Technology Senior Vice President, Human munications & Logistics Division & Business Development Resources

BA, Denison University, Ohio, Education: Education: Education: USA, 1989. MSc Urban Planning and Envi- MSc Mining Engineering, Luleå MSc Economics, Luleå University ronmental Engineering, Luleå University of Technology, 1980. of Technology, 1993. Year employed: 2008 University of Technology, 1985. Year employed: 2001 Year employed: 2009 Born: 1966 Year employed: 2005 Born: 1956 Born: 1970 Other engagements: Born: 1959 Member, Teknikens Hus Luleå. Other engagements: Other engagements: Background: Chairman, Norrskenet AB and Chairman, Career Centre at LTU. Background: NAB 1985–1988, Kiruna the Bergforsk Foundation. Deputy Member, SweMin. Swedish Radio 1991–1995, Värmeverk 1988–1995, Chairman, Lulea University of Expressen 1996, Government De-Icing Systems 1995–1996, Technology. Member, Botnia Background: Offices 1996–2004, self-employed Sema/Schlumberger/Atos Origin/ Exploration AB. LKAB 1993–1995, SCA 2005–2008. WMData 1996–2005. 1995–2008, Northland Resources Background: 2008-2009. Compensation: Compensation: LKAB 1980–1989, Bergbygg AB See Note 6, page 109 See Note 6, page 109 1989–1991, Boliden 1991–2000. Compensation: See Note 6, page 109 Compensation: See Note 6, page 109 76 | INTEGRATED ANNUAL AND SUSTAINABILITY REPORT 2012 76 | INTEGRATED REPORT 2012

A uditor’s statement on the Corporate Governance Report

To the Annual General Meeting of Luossavaara-Kiirunavaara AB (plc), Company registration number 556001-5835

The Board of Directors is responsible for the 2012 Corporate Governance Report and that it is prepared in accordance with the Annual Accounts Act.

We have read the Corporate Governance Report, and based on this reading and our knowledge of the company and Group, we believe we have sufficient grounds for our opinion. This means that our statutory review of theC orporate Governance Report has a different focus and is substantially smaller in scope than an audit conducted in accordance with the International Standards on Auditing and generally accepted auditing practices in Sweden has.

In our opinion, a corporate governance report was prepared and its statutory information is consistent with the Annual Report and consolidated accounts.

Stockholm 20 March 2013

Deloitte AB

Peter Ekberg Authorised public accountant

Group overview | 77

Group overview

Consolidated Statements of Income (SEK million) 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 Net sales 26,971 31,122 28,533 11,558 23,128 16,385 14,615 14,337 8,988 7,466 Cost of goods sold -15,177 -15,190 -15,276 -10,029 -12,166 -9,509 -7,706 -7,535 -6,180 -5,959 Gross profit 11,794 15,932 13,257 1,529 10,962 6,876 6,909 6,802 2,808 1,507 Selling expenses -249 -223 -213 -202 -200 -178 -178 -174 -289 -285 Administrative expenses -608 -640 -451 -377 -448 -344 -333 -349 -353 -247 R&D expenses -283 -328 -213 -237 -258 -217 -165 -159 -235 -116 Other operating income/expenses -59 -35 -68 -54 271 11 23 -11 10 64 Operating profit 10,595 14,705 12,312 659 10,327 6,148 6,256 6,109 1,941 923 Financial income 744 503 418 705 575 572 546 550 227 181 Financial expenses -316 -407 -349 -172 -513 -376 -420 -208 -145 -129 Profit before tax 11,023 14,801 12,381 1,192 10,389 6,344 6,382 6,451 2,023 975 Tax -2,234 -3,842 -3,275 -473 -2,748 -1,665 -1,785 -1,904 -456 -286 Profit for the year 8,789 10,960 9,106 719 7,641 4,679 4,597 4,547 1,567 689

Attributable to: Parent Company shareholders 8,789 10,960 9,106 719 7,641 4,679 4,597 4,546 1,568 690 Minority share 1 -1 -1

Includes depreciation according to plan 1,950 1,898 1,836 1,827 1,462 1,166 997 952 1,079 1,049

Consolidated statement of financial position (SEK million) Intangible assets 277 269 321 310 428 329 387 477 211 182 Property, plant and equipment 30,173 26,285 23,087 21,551 19,893 16,702 11,746 7,928 6,316 6,476 Financial assets 1,099 1,124 1,675 1,827 1,094 2,416 2,208 1,393 219 245 Total non-current assets 31,549 27,679 25,083 23,688 21,415 19,447 14,341 9,798 6,746 6,903 Inventories 2,515 2,449 2,074 2,301 2,715 1,635 1,631 1,423 1,006 976 Accounts receivable 3,060 4,593 3,395 2,276 1,946 1,922 1,697 1,846 1,194 1,198 Cash and cash equivalents plus current investments 18,672 18,201 14,562 6,195 9,643 5,991 6,982 7,091 4,516 2,944 Other receivables 1,824 808 1,515 1,095 612 685 1,214 416 195 316 Total current assets 26,072 26,051 21,546 11,867 14,916 10,233 11,524 10,776 6,911 5,434 Total assets 57,621 53,730 46,629 35,555 36,331 29,680 25,865 20,574 13,657 12,337 Total operating assets 37,849 34,405 30,392 27,533 25,594 21,273 16,675 12,090 8,922 9,148

Shareholders' equity 41,671 37,893 32,951 25,375 25,218 22,251 19,076 14,802 10,044 9,004 Minority interest 4 3 4 Provisions* 2,209 Non-current liabilities 11,580 11,375 9,555 7,512 6,836 4,963 4,627 3,598 2,230 2 Current liabilities 4,370 4,462 4,123 2,668 4,275 2,466 2,162 2,170 1,380 1,118 Total shareholders’ equity and liabilities 57,621 53,730 46,629 35,555 36,329 29,680 25,865 20,574 13,657 12,337

Consolidated Statement of Cash Flow Cash flow before change in working capital 10,699 14,038 13,951 2,931 11,545 7,200 5,688 6,073 2,776 1,782 Payments for urban transformation** -407 -382 Change in working capital 980 92 -1,184 -43 -1,201 -124 358 -553 79 -556 Cash flow from operating activities 11,272 13,748 12,767 2,888 10,344 7,076 6,046 5,520 2,855 1,226 Investments in existing operations -5,808 -5,126 -3,973 -3,543 -4,682 -5,968 -4,844 -2,648 -973 -592 Other operating investments 6 17 Operating cash flow 5,471 8,639 8,867 -655 5,662 1,108 1,202 2,872 1,882 634 Acquisition of operation, minority and asset -7 0 -9 -35 0 -75 -29 -384 Current investments -3,729 -2,990 -2,952 308 303 -381 217 -1,846 -1,748 Other 80 7 -8 192 151 123 Cash flow after investments 1,742 5,649 5,915 -340 5,948 884 1,570 1,074 105 250 Dividend -5,000 -5,000 -500 -2,800 -2,000 -2,000 -1,500 -520 -281 -351 Other from financing activities -43 Cash flow for the year -3,259 649 5,415 -3,140 3,948 -1,159 70 554 -176 -101

Group key ratios Net sales SEK million 26,971 31,122 28,533 11,558 23,128 16,385 14,615 14,337 8,988 7,466 Growth in net sales % -13.3 9.1 146.9 -50.0 41.2 12.1 1.9 59.5 20.4 44.0 Operating margin % 39.3 47.2 43.2 5.7 44.7 37.5 42.8 42.6 21.6 12.4 Profit margin % 40.9 47.6 43.3 10.3 44.9 38.7 43.7 45.0 22.5 13.1 Return on total capital % 20.4 30.3 31.0 3.8 33.0 24.2 29.3 38.9 16.7 9.2 Return on equity % 22.1 30.9 31.5 2.8 32.2 22.6 27.1 36.6 16.5 7.8 Return on operating assets % 29.3 45.4 42.4 2.5 49 32 43 58 21 11 Equity/assets ratio % 72.3 70.5 70.7 71.4 69.4 75.0 73.8 72.0 73.6 73.0 Average number of employees 4,357 4,191 4,030 3,778 4,086 3,885 3,737 3,563 3,482 3,433

* Reported since 2004 as current and non-current liabilities, respectively, as per IFRS. ** Recognized on a separate line in the cash flow statement since 2011. Definitions: Operating margin: Operating profit as a percentage of net sales Profit margin: Profit after financial items as a percentage of net sales Return on total capital: Profit after financial items + financial expenses as a percentage of average total assets Return on equity: Net income for the year as per income statement as a percentage of average shareholders’ equity Return on operating assets: Operating profit as a percentage of average operating assets Equity/assets ratio: Shareholders’ equity as a percentage of total assets 78 | INTEGRATED REPORT 2012 nanal Fi ci report | 79

annual report// 79–126

Contents

ADMINISTRATION REPORT 80 Note 13 Intangible assets 113 Note 14 Property, plant and equipment 114 CONSOLIDATED FINANCIAL STATEMENTS Note 15 Participations in joint ventures 116 Income statement 90 Note 16 Parent Company participations in associated Statement of comprehensive income 90 companies 116 Statement of financial position 91 Note 17 Receivables from subsidiaries and associated Statement of changes in shareholders’ equity 92 companies 116 Statement of cash flows 93 Note 18 Financial investments 117 Note 19 Other non-current securities holdings 117 FINANCIAL STATEMENTS – PARENT COMPANY Note 20 Non-current receivables and other receivables 117 Income statement 94 Note 21 Inventories 118 Statement of comprehensive income 94 Note 22 Accounts receivable 118 Balance sheet 95 Not 23 prepaid expenses and accrued income 118 Statement of changes in shareholders’ equity 97 Note 24 Equity 118 Statement of cash flows 98 Note 25 Pensions 119 Note 26 Provisions 120 NOTES Note 27 Urban transformation 121 Note 1 significant accounting principles 99 Note 28 Accrued expenses and deferred income 121 Note 2 Distribution of revenues 106 Note 29 Significant risks and uncertainties 121 Note 3 segment reporting 106 Note 30 Contractual obligations 123 Note 4 other operating income 107 Note 31 Pledged assets and contingent liabilities 123 Note 5 other operating expenses 107 Note 32 Related parties 124 Note 6 employees, personnel costs and remuneration Note 33 Subsidiaries 125 to senior executives 107 Note 34 Untaxed reserves 126 Note 7 Auditors’ fees and compensation 110 Note 35 Statement of cash flows 126 Note 8 Nature of operating expenses 110 Note 9 Net financial income/expense 110 Proposed disposition of unappropriated earnings 128 Note 10 Appropriations 111 Audit report 129 Note 11 Taxes 111 Glossary 130 Note 12 Earnings per share 113 Addresses 131 Annual General Meeting and Financial Information 132 80 | INTEGRATED REPORT 2012

ANNUAL REPORT 2012

ADMINISTRATION REPORT ropean economies, largely due to the sovereign debt crisis within the eurozone. The Board of Directors and the President of Luossavaara-Kiirunavaara AB (publ.), However, critically important Germany enjoyed a more positive trend than the EU hereinafter LKAB, (company registration number 556001-5835) hereby submit as a whole. their annual report and consolidated financial statements covering operations for The weak north European steel market reflects the fact that end users have the 2012 financial year. not increased consumption appreciably. Orders received were at a low level with short advance notice. As a result of this European steelworks operated at reduced production capacity and implemented various programmes to reduce costs. OWNER STRUCTURE World Steel Association statistics show that global crude steel production LKAB is wholly owned by the Swedish state; the company’s registered office is reached a record 1,548 million tonnes (Mt) during 2012, an increase of 1.2 percent in Luleå, Sweden. The number of shares totals 700,000 and consist of one type from 2011. only, and all shares enjoy equal rights in the company. The company was founded Crude steel production in EU15 states fell during 2012 by just over 5 percent, in 1890. while in the USA it rose by just over 2.5 percent during the corresponding period. The general recovery in the American economy and the increase in the extraction of natural gas resources (shale gas) contributed to the positive trends in the USA. CORPORATE STRUCTURE China’s crude steel production reached 716.5 million tonnes in 2012, an increase The consolidated financial statements cover the operations of theP arent Com- of 3.1 percentsince 2011. pany and its subsidiaries, referred to collectively as the Group. It also includes Capacity utilisation within the steel industry during 2012 was on average 78.8 ownership interests in joint venture companies. The designation LKAB refers to percent. the Parent Company. The Group is called the LKAB Group or simply the Group. It is Global steel demand is expected to grow by 3.2 percent and reach a record level grouped into three operating segments based on the information Group manage- of 1,455 Mt. ment uses to take strategic decisions. The price of iron ore Mining Division The iron ore spot price in Asia recovered during the first quarter of 2012. Following The Mining Division mines and processes iron ore for products for steel mak- a period of stability, spot prices fell drastically during the third quarter. During the ing. The principle products are pellets and fines. The products are sold to major last quarter levels rose to reach USD 120 per tonne for 62 percent Fe CFR China. international customers. The Market & Logistics Division also belongs to the Min- The price recovery that began during the late autumn in 2012 was primarily ing operating segment and has responsibility for sales and haulage of iron ore the result of inventory build-up. Market confidence received a boost when China products to the ports of shipment. announced initiatives to support economic growth and uncertainties surrounding the USA’s budget faded. Minerals Division Nothing fundamental appears to have changed in the iron ore market for the The development, production and marketing of industrial mineral products takes long term. Growth in China is expected to require more steel and the country will place in the Minerals Division, a wholly owned subsidiary group. The company continue to be dependent on iron ore imports. As long as the supply of seaborne goes by the name of Minelco in its markets in Asia, Europe and the USA. The most iron ore is limited China’s low-grade, high-cost mines should continue to keep important areas of application for industrial minerals are within construction and Asian spot prices high. civil engineering and the plastics, coatings, steel, foundry and chemical industries. Development and changes to the iron ore pricing system continue. In order to meet the wishes of certain customers, LKAB has been using a complementary Special Businesses Division price model since the first quarter of 2012. The model provides flexibility for those The LKAB subsidiaries within Special Businesses are mainly sub suppliers to the customers who wish to move wholly or partially away from fixed prices for a pe- Mining Division and Minerals Division. Examples of goods and services sold in- riod during the year. clude drilling equipment, explosives, concrete, tunnel driving, rock reinforcement, Market outlooks for LKAB remain good, despite a slow recovery and the con- and the crushing of iron ore. tinuing debt crisis in Europe. Demand for LKAB’s pellets products is high, especially for DR pellets to markets with good natural gas resources. Customers have confirmed first-half 2013 order volumes to the normal extent. THE STEEL AND IRON ORE MARKET At the beginning of 2012 global economic development showed a positive trend. The industrial minerals market It abated after the first quarter and worsened further during the second half of Global market potential for Minelco products is estimated at over SEK 20 billion. the year. Global market leading indicators began losing steam. Uncertainty grew, Minelco is the European market leader for industrial applications for magnetite contributing to a continued volatile, wait-and-see market. outside the iron and steel industry. Minelco has a leading position for the products The growth in GNP moderated, and growth for the world as a whole fell. Even the mica and huntite in the plastics and coatings industries and a significant position rate of growth in China slowed, and BNP growth dropped back to 7.8 percent, the in refractory products, above all in the United Kingdom. lowest since 2004. Demand for industrial minerals was clearly affected by negative macroeco- During the opening months of the year demand for steel improved in the EU nomic trends during 2012, with weak demand in both Asia and Europe. The broad providing leeway for minor price increases. When demand fell substantially steel exposure toward a great many industries and regions is positive as it involves a prices began falling again. During the fourth quarter the fall was halted and steel wider spread of risks and a dampening of the influence from fluctuations in indi- prices turned around, but continued at low levels. European economic statistics vidual industries and regions. and the Purchasing Managers Index also confirmed weakening of the major Eu- AD MINISTRATION REPORT | 81

In 2012 Minelco delivered ballast to an offshore wind farm inS weden. The market iron ore prices entailed a reduction in the gross profit margin of 7 percentage for ballasting and heavy concrete for offshore construction has great growth potential. points to around 44 percent. Lower iron ore prices are counteracted by increased Several political initiatives currently support the expansion of renewable energy. volumes and improved foreign exchange rates. Expenses compared to the same Resource efficiency and sustainability are two focus areas. More and more period for the previous year remain in principle unchanged. The operating profit customers are proactive in their demand for information on the environmental was charged with a provision of SEK 1,094 million (1,234) or costs arising from the impact of minerals. In some cases there are demands for reclaimed materials to effect of mining on communities. be included in the end product. The latter is especially noticeable in the refrac- Income from financial items reachedSE K 428 million (96). Foreign exchange tory materials industry and is anticipated to grow in significance in all industries gains/losses amounted to SEK –52 million (-29). Net interest income/expense where conditions exist for rational materials recovery. amounted to SEK –23 million (50). Net interest income/expense for the year includes a liability for urban transformation in the amount of SEK –87 million (0). Return on market portfolios and interest-bearing instruments totalled SEK 533 IMPORTANT EVENTS DURING THE YEAR million (105). Net pension expense came to SEK –77 million (–75). Dividends re- • The year 2012 was a record for LKAB in terms of both production and deliver- ceived from listed shares amounted to SEK 56 million (54). ies of iron ore products. Reduced corporation tax in Sweden affected earnings positively by SEK 719 million. • Record deliveries of 26.3 Mt (25.7) iron ore products, of which 22.0 Mt (21.0) were During the year, the inflow ofUS dollars from the sale of iron ore amounted to pellets. LKAB’s ability to switch capacity between continents from the weaker USD 3,806 million (4,061), of which USD 1,840 million (2,260) was hedged under north European market to the Middle East and China was crucial. forward exchange contracts at an average rate of SEK 6.83 (6.82) The average • Improved production volume to 26.2 Mt (26.1). The highest volume of finished- exchange rate on the spot market was SEK 6.78 (6.50) per USD during the same products for more than 35 years. Pellets comprised 23.8 Mt (22.9) of this. period. • A cooperation agreement was signed at the beginning of the year with Gällivare At year end, USD 1,040 million was hedged under forward exchange contracts at municipality in respect of urban transformation in Malmberget. an average rate of SEK 6.90 per USD. At the same time the previous year, hedging • production loss in May due to a stoppage at LKAB’s biggest pelletizing plant, contracts amounted to USD 970 million at an average rate of SEK 6.76 per USD. KK4 in Kiruna. Deliveries were also disrupted by a ten-day train dispatcher strike on the Ofotbanen line at the of end May and beginning of June. • The new main level in Malmberget (MUJ 1250) was opened; estimated lifetime INVESTMENTS up until 2023. Investments for the year amounted to SEK 5,808 million (5,126) of which SEK • suspension of mining in the Gruvberget open-pit mine in June due to environ- 2,176 million is in respect of the new main level in the Kiruna underground mine. mental appeal process. At the end of the year LKAB was informed that mining During the year investments in flue gas scrubbing equipment for just over SEK could resume according to a ruling in the Swedish Land and Environment Court. 1,500 million at three pelletizing plants were approved and begun. Gruvberget provides the extra mine capacity necessary for using the existing pelletizing plant optimally. Production facilities • LKAB was given permission to drain Leveäniemi mine in Svappavaara, one of three Commissioning investments for the new main level in Kiruna. KUJ 1365, was in open-pit mines included in LKAB’s growth strategy, LKAB 37. progress during the end of the year. They are in respect of the first links in the pro- • The government’s autumn budget set aside SEK 800 million for upgrades to the duction chain comprising trains, chutes, discharging stations, crushes and mine Ore Railway. hoists. Commissioning will take place during the first quarter of 2013. Operations • The Swedish Transport Administration and LKAB opened a new 7.5 km rail line will gradually come on stream in the remaining stages during the years ahead. behind Mount Kirunavaara at the end of August. During 2012 the main project activities consisted of rock works in the so-called Sjömalmen, the sinking of shafts and construction work and installations in fixed facilities. GROUP The investment in the ‘New Main Level’ in Malmberget, was inaugurated in June, 2012. The work continues with the completion of the remaining links in the pro- The Group in summary Full year 2012 Full year 2011 duction chain and the construction of workshops and service areas. The main Net sales 26,971 31,122 level is expected to be fully completed by end of year 2013/beginning 2014. Operating profit 10,595 14,705 In Svappavaara, investments aimed at improving the work environment and Income from financial items 428 96 safeguarding production capacity were carried out in additives handling in the Profit before tax 11,023 14,801 concentration plant and in haulage to the pelletizing plant. Profit for the year1) 8,789 10,960 Construction work is under way in Kiruna on a new dam in Lake Luossajärvi to Operating cash flow 2) 5,471 8,639 enable drainage of areas affected by mining; this is necessary in order to safe- Investments in property, plant and equipment 2) 5,808 5,126 guard continued mining operations. The planned raising of existing dam walls in 1) The SEK 719 million effect of reduced corporation tax inS weden is included for the Malmberget and Svappavaara was completed during the year. full year 2012. Investments in increased capacity in the KK4 pelletizing plant in Kiruna and 2) Refer to the statement of cash flow on page 93 for further information. preparatory works for the installation of new production systems in the new Mer- tainen and Leveäniemi open-pit mines are under way in accordance with growth SALES AND EARNINGS strategy. Group net sales decreased by 13.3 percent. amounting to SEK 26,971 million (31,122). The reduction was spread across three factors in iron ore operations: Environmental investments • Volume/mix +2.8 percent, Investments in flue gas scrubbing improvements have begun at three pelletizing • Price –17.5 percent, plants in Malmberget and Svappavaara. The purpose is to clean the emissions of • Foreign exchange + 3.4 percent, flue gases and particulates while contributing to a reduced impact from acidifying Without any US dollar hedges the foreign exchange effect would have amounted substances. to +2.8 percent. Group operating profit fell by 28 percent to SEK 10,595 million (14,705). Lower 82 | INTEGRATED REPORT 2012

Logistics Many major deposits have been found close to the surface in Sweden’s northern A new rail route around Kiruna came into operation in August. The investment ore fields. At the same time there is great potential to find new, deep deposits with entailed infrastructure work within the LKAB area. Investments in new roads, the aid of modern prospecting methods. drainage channels, ponds, pumping stations and dams were put into operation The LKAB prospecting portfolio includes around 30 identified projects. All of the during the year. items are in the vicinity of the existing mines. The potential for small to medium Deliveries continued of new wagon sets needed to meet volumes arising from the deposits close to the surface in the vicinity of existing infrastructure and processing growth strategy. Just over half of the ore wagons for the four wagon sets ordered plants is great. One prospecting objective is to enable the development within ten during 2011 have been delivered. The remaining deliveries will take place succes- years of a number of medium-sized satellite mines that contribute significantly to sively until 2015. increased production in accordance with LKAB’s strategy. Investments in a new shiploader and quay are under way in Narvik. The prospecting is aimed at around ten projects. The best projects are in the vicinity of old workings such as Tuollouvaara, PerGeijer, Malmberget West and Malm- Other investments berget North (Kaptenshöjden), all in the middle of active mining districts. Four or During the year the Minerals Division invested SEK 38 million (21) in property, five of the different projects have extremely good potential, while the remainder are plant and equipment, and the Special Businesses Division SEK 106 million (39). greenfield sites.

LIQUIDITY AND FINANCIAL POSITION RESEARCH AND DEVELOPMENT Operating cash flow for the Group amounted toSE K 5,471 million (8,639) in 2012. The Group’s research is aimed mainly at the Mining Division. The year’s expendi- Cash flow for the year was affected negatively by the lower earnings level and tures for research and development amounted to SEK 283 million (328), equiva- higher investment expenditures, and positively by reduced working capital tied up lent to around 1.7 (1.9) percent of Group expenses. in accounts receivable in comparison with 2011. Cash flow for the year amounted The strategy is for LKAB to retain its position as a world-leading supplier of iron to SEK -3,259 million (649). A dividend of SEK 5,000 million (5,000) was paid to the ore pellets. Because this position must be strengthened by growing together with owner. Liquidity (cash, cash equivalents and current investments) amounted to customers, research efforts are concentrated on increasing our capabilities within SEK 18,672 million (18,201) at year end. the production chain from mine to customer, with a focus on our promise to the Equity amounted to SEK 41,671 million (37,893) at year end. The LKAB Group’s customer of “Performance in Ironmaking”. equity/assets ratio rose to 72.4 percent(70.5). A much-appreciated experimental blast furnace programme in Luleå was car- Provisions for urban transformation in Kiruna and Malmberget amounted to ried out on behalf of Course50, which is a major Japanese research programme SEK 5,877 (5,103) at the end of 2012. with the participation of that country’s entire steel industry. The programme’s

Long-term financial investments in the form of SSAB shares reduced in value overall objective is to reduce CO2- emissions from steel production. during the year by SEK 50 million and amounted to SEK 616 million at year end. The development of applications with European customers strengthened our Pension provisions amounted to SEK 2,721 million (2,529) at year end. More infor- competitive ability during the years and consolidated LKAB pellets as a significant mation is presented in Note 25, Pensions. proportion of customer raw material matrices. In June a new agglomeration laboratory was opened in Malmberget, where LKAB has gathered all researchers in the pelletisation field.W orld-class material PROSPECTING characterisation instruments provide new abilities to evaluate how the group’s Mineral reserves are a mining company’s most important resource. Good knowl- new deposits are affected in the pelletizing process and the product quality level edge of the mineral reserve’s size and quality is a fundamental precondition for that can be achieved. Ore from the new Mertainen deposit has been analysed in major long-term investments. LKAB needs long-term planning horizons. The re- full scale tests in Svappavaara ore processing plant with promising results. serve has crucial significance for product quality, production volumes and costs. Focus in the mining technology field has been on taking measures to increase Good access to iron ore raw materials is a precondition for LKAB’s strategic growth the iron yield without increasing the waste rock content. One of these projects target. Hence, prospecting plays a central role in LKAB’s long-term development. concerns marker tests that provide LKAB with valuable knowledge about sub- The task is to ensure iron ore raw materials equivalent to 20 years’ ore base level caving which lies at the heart of mining operations. (ore base = mineral reserve + mineral resource). Prospecting is therefore enjoying strong growth with its budget almost doubling annually in recent years. In 2013 it amounted to SEK 93 million. Prospecting currently employs 12 (3) people. URBAN TRANSFORMATIONS LKAB’s provisions for urban transformation in the northern orefields amounted to Current situation and conditions SEK 5,877 million (5,103) at the end of 2012. Earnings for the year were charged The development of existing deposits takes place through ongoing prospecting with expenses totalling SEK 1,181 million (1,234) for the effects of mining on com- toward deeper levels in the two underground mines in operation in Kiruna and munities. Malmberget. The expansion of mining is enlarging the gradual propagation of the deforma- Prospecting in regard to the three new mines at Gruvberget, Mertainen and Lev- tion zones. The result is that the shape of communities must be adapted and eäniemi concerns operational geology in the stage 1 development of their mineral change over the long term. The deformation zones are and will become so ex- reserves and mineral resources. Focus is shifting to the development of deposits tensive that it will be necessary to successively phase out and relocate sections in stage 2. The potentials for stage 2 are: of Kiruna and Malmberget. LKAB is working together with such affected parties • Gruvberget – hematite close to the surface and also underground magnetite as the state (owner), municipalities, companies, property owners and others con- mining. cerned to find the necessary solutions for structural transformation. Meanwhile, • mertainen – tracing the extension of the central orebody to the south west, and LKAB is working proactively to obtain licences for continued mining operations. investigating the entire anomaly complex in the area which in addition to Urban transformation in the ore fields has impacted, and will continue to im- iron also has the potential for gold and copper. pact, LKAB’s earnings and liquidity by considerable amounts in the years to come. • Leveäniemi – to establish the scope and mineralogy of the ore-bearing breccia. Therefore LKAB must continue to be a financially strong company with good earnings abilities in order to continue meeting the obligations urban transformation entails. AD MINISTRATION REPORT | 83

MINING DIVISION During the year stocks of finished products fell from an opening level of 1.6 Mt to a 2012 year-end stock of 1.2 Mt. Mining Division (SEK million) 2012 2011 Net sales 25,144 28,335 Iron ore products (Mt) 2012 2011 Operating profit 10,127 13,624 Delivery volume 26.3 25.7 Operating margin 40.3% 48.1% - of which pellets 22.0 21.0 Average number of employees 3,686 3,535 Product quality (Deliveries) 2012 2011 Quality value 96.3 96.7 Operations The division’s core operation is the production and sale of high-quality iron ore LKAB Malmtrafik AB products to the steel industry. During 2012, iron ore was mined in two under- Together with its wholly owned Norwegian subsidiary LKAB Malmtrafikk AS, LKAB ground mines and for part of the year in one open-pit mine. Processing took place Malmtrafik AB handles all ore haulage between LKAB’s mines and the ports of in six pelletizing plants and other facilities above ground. Narvik and Luleå. The company also takes care of terminal handling (loading and Current production capacity is about 28 Mt of processed iron ore products per unloading) in the mining areas and harbours. year. Iron ore pellets are the division’s main product and accounted for about 83 The company owns all rolling stock (locomotives and wagons) and has its own (81) percent of sales volume in 2012. maintenance operation and associated workshops divided between locomotives, The Marketing & Logistics Division also belongs to the Mining operating segment wagons, tracks & signalling and fixed installations. and has responsibility for sales and haulage. Iron ore products are hauled on the During the year LKAB Malmtrafik AB received its own B Licence, which means Ore Railway by LKAB’s own locomotives and trains to the to the ports in Luleå and the company is treated as a train operator in accordance with EU regulations. The Narvik where they are loaded onto ships for export to customers around the world. licence is crucial for LKAB Malmtrafik operations and a prerequisite for continued haulage licences. Net sales and operating profit Net sales decreased by 11 percent for the year. LKAB’s production and deliveries LKAB Malmtrafikk AS reached record levels, but the global fall in iron ore prices impacted sales and The company is a wholly owned subsidiary of LKAB Malmtrafik with whom it han- earnings negatively. With external sales of SEK 24,909 million (28,024), the Mining dles all ore haulage between LKAB’s mines and the port of Narvik. The company Division accounted for 92 (90) percent of Group sales. also takes care of terminal handling (loading and unloading) in Narvik. Operating profit amounted to SEK 10,127 million (13,624). Expenses for the year All rolling stock (locomotives and wagons) is owned by LKAB Malmtrafik AB. remained at the same level as the previous year. Lower iron ore prices entailed a However, the Narvik terminal and its associated rail facilities and fixed installa- gross profit margin around 8.5 percentage points lower at 43.5 percent. A dollar tions (loading and unloading) are owned by LKAB Malmtafikk AS. The company exchange rate that was higher than average affected the margin positively. also has its own drivers for trains running between Kiruna and Narvik.

Production The year’s production volume increased to 26.2 Mt (26.1), which is the highest MINERALS DIVISION volume of finished products for more than 35 years. A total of 23.8M t (22.9) pellets were produced. A production stoppage at LKAB’s biggest pelletizing plant, KK4 in Minerals Division (SEK million) 2012 2011 Kiruna, resulted in a drop in production in May. Net sales 1,762 2,628 Operating profit 132 603 Iron ore products (Mt) 2012 2011 Operating margin 7.5% 22.9% Production volume 26.2 26.1 Average number of employees 360 358 - of which pellets 23.8 22.9

Deliveries Operations During the year 26.3 Mt (25.7) were produced, of which 22.0 Mt (21.0) were pel- Minelco is a value provider that not only supplies raw materials but also technical lets. During the fourth quarter deliveries reached a record level of 7.6 Mt (6.8), know-how and expertise in mineral processing, which enables the development of equivalent to an annual capacity of 30 Mt. LKAB’s ability to switch capacity from applications and the adaptation of a product’s (a mineral’s) function to customer the weaker north European market to the Middle East and China was crucial for requirements – value in use. reaching the record high delivery volumes. Minelco offers a broad portfolio of supplementary products to the industrial The product quality value in the deliveries amounted to 96.3 compared to a minerals market. However, the focus is on a few strategically important miner- target of >96 for 2012. This success was due to focused efforts throughout the als – magnetite (iron ore), mica and huntite. The business is based on control of production chain all the way to the customer. Work is under way to reduce the the entire process from the raw material source to end user. Minelco’s business quantity of fines in DR pellets to customers, who have clearly indicated that a operation supports the iron ore business by identifying and commercialising other potential for improvement exists. application areas for LKAB magnetite. Magnetite is produced, processed and re- Deliveries were limited during the second quarter by two factors – the mantle fined to a high product value for a range of customers aside from those in the ring breakdown at the KK4 pelletizing plant and a ten-day train dispatcher strike steel industry. Customers are in construction and civil engineering (in applications on the Ofotbanen line at the of end May and beginning of June. This resulted in an where the minerals provide properties that are suitable for such things as bal- unplanned increase in product stocks. The ability to ship these volumes to the ports last, heavy concrete, radiation shielding), the plastics and coatings industry (flame was limited by Ore Railway capacity. Stocks were back to normal by years end. retardants, density, torsional stiffness), steel and foundry industries (refractory A major planned maintenance shut-down was completed on the Narvik ship- properties) and the chemicals industry (water purification). loader during the second quarter; the maintenance work proceeded well and down time was shorter than planned, which meant deliveries could resume soon- er than scheduled. 84 | INTEGRATED REPORT 2012

Net sales and operating profit LKAB Kimit AB Net sales decreased by around 33 percent, mainly due to lower deliveries of mag- The company is a subsidiary of LKAB Berg & Betong AB. Its aim and purpose is netite products. Deliveries of magnetite to our pipe coating customer EUPEC, on to supply LKAB with explosives handling expertise and to produce and sell explo- an assignment from Nordstream, were completed in October, 2011. With external sives and associated charging vehicles. LKAB Kimit is also responsible for the pur- sales of SEK 1,760 million (2,623), the Minerals Division accounted for 7 (8) per- chase of external explosives products, stock management and the development cent of Group sales. of explosives and associated systems. LKAB Kimit also sells its products to other Operating income for 2012 was SEK 132 million (604). The difference is attribut- companies, mainly on the Nordic market. The volume has remained stable at the able to two causes – lower magnetite sales volumes and a one-time item in 2011 21,000 tonne level. The production volume is anticipated to double when LKAB’s of SEK 197 million for the closure of the Minelco mine on Greenland. new open-pit mines begin production.

LKAB Fastigheter AB SPECIAL BUSINESSES DIVISION The company administers homes and business premises in the northern orefields and Luleå. Its holding comprises around 2,200 apartments and single family Special Businesses Division (SEK million) 2012 2011 homes and around 35,000 sq m of commercial premises, mainly in the Jägarskola Net sales 2,350 2,523 area of Kiruna. Operating profit 230 405 A decision was taken during the year for the production of 30 apartments in Gälli- Operating margin 9.8% 16.1% vare, plus 70 and 30 respectively in the Terrassen and Glaciären districts of Kiruna. Average number of employees 311 298 L KAB Nät AB The company operates an electricity grid and has a concession as a local electric- Operations ity distributor. The Special Businesses Division is home to several LKAB subsidiaries. The companies have their origin in LKAB’s know how as a manufacturer and user of prod- LKAB Försäkring AB ucts and services. These companies are mainly suppliers to the Mining and Miner- The company is LKAB’s internal insurance company: it works globally to provide als Divisions, but also have external customers. the LKAB Group with liability, property and business interruption insurance.

Net sales and profit Net sales fell during 2012 by around 7 percent to SEK 2,350 million. Special Busi- RISKS AND UNCERTAINTY FACTORS nesses Division accounts for around 1 (2) percent of Group sales. Operating profit LKAB is exposed to different financial risks. Risk management is an important amounted to SEK 230 million. part of operations in order to minimise the effect of factors that are outside the Group’s control. The Group has methods for assessing and limiting these risks LKAB Wassara AB by ensuring that they are managed according to fixed guidelines and procedures. The company develops and markets drill systems based on its unique expertise in Drastic fluctuations in volume are LKAB’s biggest risk. The demand for iron ore water-driven drilling for global customers in the civil engineering, mining, explo- stems from global steel production. The volume of steel produced depends in turn ration drilling, dam construction and geoenergy segments. Marketing and sales on fluctuations in the global economy. Other significant risks are falling iron ore to customers outside the LKAB Group is mainly through independent distributors. prices and a weak US dollar. Raised energy fees and taxes and increased costs for Collaboration with seven new distributors began during the year. emission allowances can also have distinct impacts. A Drill Technology Center has been set up in Malmberget. The objective is to LKAB’s biggest competitors extract ore in open-pit mines and therefore have increase the R&D tempo to streamline extraction efforts. significantly lower production costs. High, uniform production quality and cost effectiveness are critical factors for the company’s ability to compete. LKAB’s great- LKAB Berg & Betong AB est advantage compared to its competitors is the high quality of its magnetite ore. LKAB Berg & Betong AB crushes and produces mineral products and concrete and Below is a description of the operational and financial risks that have the great- carries out rock contracting in the form of rock reinforcement and tunnelling. The est significance for LKAB. company is also responsible for production in LKAB’s open-pit mines. The production of concrete continued to be high, even if deliveries fell some- Operating risks what as rock contracting work in the new main levels was completed. Secure, Safe, Lean Production During 2012 a total of 11 Mt of landfill ore was reclaimed, crushed and pro- LKAB’s competitive ability is directly linked to its making continual improvements cessed. This resulted in the production of 2.5 Mt of processable crushed ore. The to increase operational efficiency. A cost-cutting programme was launched during plant will be moved to a more sheltered area with the aim of reducing environ- the year. mental impact, mainly the diffusion of dust. A reinvestment in equipment to im- Secure, lean, uninterrupted production is the backbone upon which LKAB cre- prove the environment will also be made. ates economies of scale and constant streamlining. Throughout all of its operations LKAB operates under the Safety First banner. LKAB Mekaniska AB A subsidiary of LKAB Berg & Betong AB, the company develops and manufac- Human resources and skills supply tures steel structures for major projects and technically advanced mechanical LKAB’s planned development continues with the recruitment of almost 1,000 new, components for the engineering, mining and civil engineering industries, as well as qualified employees between 2013 and 2015. The ability to retain the existing assembly and full maintenance packages that create added value for customers, workforce and attract and recruit new employees is an extremely important con- principally LKAB. dition for LKAB’s ability to achieve its established growth targets. Major projects during the year included a new roller press for the LKAB pelletizing plant and crusher and skip feeds in the new Kiruna main level. High investment levels Investment projects in progress and LKAB’s future plans will entail major investments and thus large expenditures over the next few years. LKAB must therefore AD MINISTRATION REPORT | 85

remain financially strong and maintain a good earning ability to meet its future Ore Railway obligations. Disruptions to traffic on theO re Railway and Ofotbanen line constitute a risk for LKAB deliveries. Volume dependence The demand for iron ore pellets is more volatile compared to fines in times of Other operating risks changing prices and economic circumstances. LKAB’s sales, with an approximate Availability of electricity 82 percent proportion of pellets, are more sensitive to prevailing economic circum- Increased production at LKAB facilities leads to an increase in the consumption of stances that its competitors as the consumption of fines by steelmakers with their electricity. Electricity is used principally in mining operations and ore processing. own sintering plants is more stable and often forms the foundation for their produc- Within a few years annual consumption is calculated to rise from around 2.2 TWh tion. LKAB has usually been able to sell all of its products, but the company must in 2011 to just over 3 TWh from 2020. improve its preparedness for future cyclical fluctuations, among other means by Market prices on the Nordic electricity exchange have risen dramatically since greater flexibility in iron ore production, its products, sales and financial strength. deregulation. Securing deliveries of competitively priced electricity is therefore of great strategic importance for the Group. LKAB has developed a long-term strat- Price dependence egy for managing energy procurement and energy efficiency. Trade in iron ore is priced in US dollars. Market prices depend on supply and demand. Final prices are mostly set in bilateral negotiations between suppliers Allocation of emissions allowances in the trading system and purchasers. However, there is a certain element of variable pricing with a The EU has a trading system for emissions allowances aimed at reducing carbon degree of fixed agreed components. The shift in the global centre of gravity of iron dioxide emissions. ore trade toward China and other parts of Asia means that today there are more LKAB’s principle competitors on the pellets market are located outside Europe, ways to determine iron ore prices than previously, e.g. fixed prices for extended mainly in Brazil. They are not affected by theEU trading system. This distorts periods of up to one year (annual prices), spot prices for individual loads, and in- competition to LKAB’s disadvantage. dexed monthly and quarterly prices. LKAB prefers that the majority of customers A new trading period for emissions allowances begins in 2013. New allocation have fixed pricing for periods of up to one year to achieve long-term operational principles for emission allowances will be applied. LKAB has therefore applied for planning benefits and to avoid spasmodic monthly variations in deliveries. The a free allocation that will only partially cover emissions for the whole period. The price of pellets is based on global sinter fine prices plus a pellet premium. Ocean outstanding emission allowance requirement must be purchased. Iron ore pellets, freight costs are a major factor for steelmakers. Freight is part of the total cost along with other industrial sectors, have been defined as being “exposed to the a customer must pay for the delivery of materials. Customers evaluate suppliers risk of carbon leakage.” This means the licensing authority perceives there to be based on the total price picture in relation to the added values the iron ore cre- a risk of an increase in carbon dioxide emissions outside the EU if the sector is ates in connection with steelmaking, or the use of the completed steel products. disadvantaged in relation to installations outside the EU trading system that have Distances to Europe mean that LKAB is favoured in the European market when higher emissions levels. These circumstances may aid LKAB in the upcoming al- ocean freight prices are high, while distant mines become more competitive when location. An EU commission decision is expected in the beginning of 2013. freight prices are low. This proximity advantage is assessed when prices are set. Concessions and licences Customer dependence Various licence applications are associated with different types of risks depending The global iron ore and steel market is undergoing structural changes, and the of the type of project and licence applied for. The risks may vary between the in- number of players has diminished. LKAB has relatively few customers and it significant and extremely serious, but in general terms there may be risks for pro- prioritises growing together with existing customers. This means that each in- ject delays that can entail cost increases or production disruptions or stoppages dividual customer increases in importance. Long-term customer relationships in mines and processes. The licensing issue is crucial for the implementation of and a customer structure spread across different markets have a certain stabi- LKAB 37 – a pivotal condition for future cost-effective production. lising effect on deliveries and risk exposure. Consistently high product quality, a geographical logistics advantage in combination with value-adding products and Financial risks services are important risk-mitigating factors. The Minerals Division has a diversi- LKAB is exposed to various types of financial risks. These risks are associated with fied customer base and product portfolio aside from magnetite that to a certain fluctuations in the company’s earnings and cash flow as a result of fluctuations degree cushions market fluctuations since different geographical areas, customer in currency exchange rates, interest rates, refinancing and credit risks. Financial segments and minerals have different economic cycles. risks are managed according to Group policies established by the LKAB’s Board of Directors. LKAB has a centralised finance department, the LKAB Treasury Center. Urban transformations in the orefields The centre manages the majority of the Group’s financial risk management. A se- LKAB’s expansion in the orefields entails a successive expansion of deformation lective strategy is applied, whereby potential costs and benefits are balanced, the zones caused by mining activities. The Group is therefore dependent on a gradual aim being to minimise and neutralise risks in commercial flows. The LKAB Treasury migration of the Kiruna and Malmberget communities taking place. LKAB sets Centre also acts as the Group’s internal bank and supports subsidiaries with financ- aside significant sums to meet its obligations in this regard where legal or in- ing, investment and currency trading, and it functions as an advisor with respect to formal commitments to external parties exist, or may arise. There is a degree of financial issues. uncertainty around the cost evaluations made and the size of the necessary provisions – they may prove to be insufficient. The timetable for urban transformation Currency risks depends on a large number of operators in addition to LKAB. It is therefore not Both LKAB’s future payment flows (transaction exposure) and revaluation of re- possible to say that the transition can take place at the pace and scope necessary ceivables and liabilities in foreign currencies (translation exposure) are exposed to for uninterrupted mining in both areas. risks associated with fluctuations in exchange rates. Foreign subsidiaries within Urban transformation in the ore fields has impacted LKAB’s earnings and liquid- the Group operate primarily in their local currencies and investments and financ- ity by considerable amounts, and will continue to do so in the years to come. LKAB ing alike are made mainly in the local currency with the aim of reducing transla- must therefore remain financially strong and maintain a good earning capacity to be tion exposure. able to meet the existing obligations that urban transformation entail. In addition to this there will also be subsequent demands resulting from future mining. 86 | INTEGRATED REPORT 2012

Transaction exposure owned by the Swedish state, county councils, municipalities, municipal companies The greatest transaction exposure within the LKAB Group is within the Mining Divi- or companies with high credit ratings. No departures from the investment policy sion. All iron ore prices are set in US dollars and the transaction risk is therefore took place during 2012. As of closing day, 33 (32) percent of investments in money- high without hedging. The exact magnitude of this risk is difficult to determine far market instruments were issued by the Swedish state and Swedish banks. LKAB in advance, since it is largely dependent on the market price of iron ore, which has had no bad debt losses in current investments in the past five years. LKAB is usually set annually. During 2012, transaction exposure amounted to approxi- uses several different banks with high credit ratings for derivative transactions. mately USD 3,806 million (4,061), and the effect of a difference of SEK 0.1 in the USD/SEK exchange rate on LKAB’s operating profit, without hedging, is therefore Liquidity risks about SEK 381 million (406). LKAB applies cash-flow hedge accounting for fore- LKAB maintains good financial preparedness by following guidelines that regulate cast transactions in USD. risk-taking and the investment horizon. LKAB has a high proportion of cash and The objective of LKAB’s currency policy is to minimise as far as possible the cash equivalents and no debt. LKAB has an unutilised loan facility of around SEK impact of exchange rate fluctuations on the income statement by means of se- 5,000 million. Cash and cash equivalents amounted to SEK 5,437 million (8,695) on lective hedging. The value of future transaction exposure is periodically hedged December 31. The equity/assets ratio on closing day was 72 (70) percent. A good under forward exchange contracts. The Board of Directors has set up a currency balance between short and long investment horizons will meet the long-term and finance committee that convenes four to six times per year. Among other financing need.C ash and cash equivalents are invested mainly in the Swedish things the committee advises the Board on decisions regarding the management money market in securities with high liquidity. LKAB works with short-term and of Mining Division currency risks, within a framework established by the Board. long-term liquidity forecasts. Hedging takes place mainly for estimated US dollar flows for the forecast period concerned, which usually has a rolling twelve-month horizon. As a framework for Insurance coverage future estimated exposures in US dollars hedged levels may at a maximum reach LKAB insures its interests including the Group’s facilities throughout the world 80, 60 and 50 percent of estimated net flows for 12, 24 and 36 months ahead to protect against unforeseen circumstances. The largest single insurable risks respectively. No hedging may take place more than 36 months ahead without ap- concern property and disruptions. In this regard, production facilities and har- proval from the Board of Directors. During 2012 hedges were at the 48 percent bours are covered by a comprehensive insurance policy. Insurance is provided by level of transaction exposure. the Group’s own insurance company, LKAB Försäkring AB. Liabilities in excess of Transaction exposure for other companies in the Group arises mainly when raw SEK 300 million are reinsured on the international insurance market. LKAB works materials are purchased in foreign currencies. Each subsidiary is responsible for actively and systematically to prevent damage and interruptions in production. its own currency exposure and all forward exchange contracts must be through Historically, production interruptions due to fire have resulted in the greatest fi- the LKAB Treasury Centre. nancial losses. Preventive work in this area has high priority. In Sweden, liability for damage to third parties as a result of dam accidents is Translation exposure strict and unlimited. LKAB has therefore taken out so-called dam liability insur- LKAB does not normally hedge its translation exposure, since the latter is not ance. substantial and a hedge over time adds no value for the Group. Other insurance coverage includes liability insurance, product liability insurance, medical and business travel insurance, transport insurance and liability in- Interest risks and share-price risks surance for the President and Board of Directors. LKAB’s financing sources are shareholders’ equity, provisions and current operating credits, which means that LKAB is mainly exposed to interest rate risks Sensitivity analysis with regard to investments of cash and cash equivalents. LKAB’s finance policy The sensitivity analysis shown below summarises the sensitivity of outcomes in governs the maximum permitted average duration in each respective asset port- the Parent Company to hypothetical fluctuations in interest rates and market pric- folio. For example, in our urban transformation liabilities portfolio the duration es Parent Company delivery volumes and price influence are determining factors of money-market instruments may not exceed the duration of the commitment for the Group’s income. Delivery volumes are not comparable in different sectors. +/– 24 months. As of December 31, 2012, LKAB’s investments in money-market The sensitivity analysis is divided into two parts; the delivery and price analysis instruments amounted to SEK 15,871 million (15,591), and the duration 110 (105) concerns the Parent Company and the remaining part relates to the entire Group. days. A one percent increase in the market rate as of closing day would have affected income by SEK 49 million (46). LKAB invests a proportion of cash and SENSITIVITY ANALYSIS, 2012 cash equivalents that have an investment horizon longer than five years, mainly Group effect on to cover that share of LKAB’s pension liabilities not covered by other assets, in Exposure change earnings share-related securities. As of December 31, 2012, the market value of LKAB’s Deliveries of iron ore products 26,3 Mt 1 Mt seK 487 million1) investments in shares excluding SSAB shares amounted to SEK 1,316 million Price of iron ore products 10 percent seK 2,518 (1,065). A ten percent average decrease in the market value of shares as of clos- million2) ing day, would affect income negatively by SEK 132 million (107). P ersonnel costs SEK 3,474 million 10 percent seK 347 million Energy costs SEK 1,687 million 10 percent seK 169 million Credit risks Transport costs SEK 2,384 million 10 percent seK 238 million LKAB’s credit risks are mainly associated with trade receivables, derivatives and SSAB shares SEK 698 million 10 percent seK 70 million3) current investments. In the case of credit risks in trade receivables, LKAB priori- US Dollar rate – w/o forward tises long-term customer relations, which means that the majority of the custom- contracts USD 3,806 million seK 0.10 seK 381 million2) ers are well-established. During 2012, the five largest customers accounted for Money market investments seK 15,871 million 1 percent seK 49 million4) 60 percent (61) of net sales in the Parent Company. Export letters of credit are 1) Average value, calculated on unchanged product mix used if necessary. During the year LKAB suffered bad debt losses ofSE K 66 mil- 2) During 2012 total exposure was USD 3,806 million of which USD 1,840 million lion following the bankruptcy of a customer. During 2012, the average collection was hedged. period for accounts receivable remained around 47 (38) days. According to LKAB’s 3) Change in value is reported in other comprehensive income. investment policy, current investments may only be made to borrowers with high 4) Change in value is reported in the income statement on existing portfolio. creditworthiness and high liquidity such as the Swedish state, companies wholly AD MINISTRATION REPORT | 87

SUSTAINABILITY, external ENVIRONMENT November, 2012. They were adjourned when the Environmental Protection General Agency submitted new material in the case, in direct connection with the pro- LKAB’s work must be characterised by concern for the environment. To this end ceedings. Possible new proceedings and a ruling are expected in 2013. LKAB has adopted an environmental and energy policy that governs LKAB’s actions while affirming the company’s objective of maintaining financially sound and Operations in Luleå successful business operations. The policy is published on www.lkab.com. • New bentonite facility in Luleå – licence issued during 2012.

Licensable operations – existing licences Internal inspections and deviations during 2012 The Group conducts licensable operations as described by the Environmental Internal inspections are mandatory and an aid to meeting the requirements of the Code via the Parent Company LKAB and its Swedish subsidiaries. The factor that environmental licences and the various decisions from the supervisory authorities affects the environment most is the impact from mining operations on the land- in licensing matters. scape and urban environments in the orefields. Other factors are emissions to air LKAB regularly performs internal inspections and a large number of measure- and discharges to water arising from ore processing, dust, vibration and energy ments and surveys to ensure compliance with licences in the various operations. consumption from operations. The outcomes of internal inspections are summarised in environmental reports The most important environmental licences refer to large scale mining and pro- from the different operations which are then sent to theC ounty Administrative cessing plants for iron ore products in the orefields. There are also a number of Board, the supervisory authority. The reports are also available on the website at minor licences for e.g. quarries and gravel pits. www.lkab.com. Measurements carried out in 2012 showed that conditions for vibrations from Examples include: blasting in Malmberget and Kiruna were met. • A licence for mining in the Kiruna underground mine. Prescribed noise standards were exceeded in Kiruna. The County Administra- • Two licences for ore processing in Kiruna and Svappavaara. tive Board has been informed and LKAB has taken action to ensure a survey of • A single licence covering both mining and ore processing in Malmberget. noise from operations is carried out. • A licence for the mining of additives used in ore processing. Conditions for emissions to atmosphere in Kiruna, Malmberget and Svap- • LKAB’s dams are affected by a number of licences that govern water levels and pavaara were met in 2012. run-off. The standard for particulates was exceeded a number of times in operational • Two licences are for handling iron ore products and binding agents that impact areas. With the exception of an installation in Luleå, all of the cases have been re- the environment mainly through the release of particulates and dust at the har- ported, remedied and approved following remeasurement. Particulate conditions bour facilities in Luleå and Narvik. One licence covers LKAB KIMIT AB’s explo- at the Gruvberget crusher were met following two remeasurements. However, the sives production in Kiruna which impacts the environment mainly through the County Administrative Board decided to file proceedings regarding the breach of release of compounds of nitrogen to the municipal sewers. content limits in the conditions. current state of licenses Remediation/decontamination Gruvberget in Svappavara LKAB cooperates with the environmental authorities regarding how plans for stat- • mining began in the open-pit mine in May, 2010. Mining was stopped during utory long-term remediation for the mining areas will be prepared. During 2012 the summer of 2012. Behind the stoppage was an appeal from the Swedish LKAB’s waste rock piles were sown with grass and planted with trees. Environmental Protection Agency that was upheld by the Swedish Land and Environment Court, and which came into force when the Supreme Court denied LKAB’s leave to appeal. PERSONNEL • The Environmental Protection Agency asserted that LKAB’s application for the original licence was too narrowly defined. The application for Gruvberget has Statistics 2012 2011 run along parallel lines. In the summer of 2012 LKAB added to its previously Number of accidents with absence 73 48 submitted application for Svappavaara processing operations so that it also Accident rate per million working hours 9.89 6.79 covered operations at Gruvberget. Proceedings were held in November regard- Long-term absence due to illness, % 0.5 0.5 ing a separate ruling for Gruvberget, which resulted in a temporary licence Short-term absence due to illness, % 2.4 2.4 for mining during 2013. A final environmental ruling for Gruvberget and other Number of individuals, open-ended employment 359 397 operations in Svappavaara are expected by the end of June, 2013. Of whom women 104 111 Number who left LKAB 144 194 Leveäniemi open-pit mine Of whom women 19 17 • In June LKAB was granted permission to begin draining the open-pit mine. In Proportion of women in the Group, % 17.5 16.7 September pumping began into the stream system that drains into the Torne Proportion of female managers in the Group, % 17.8 15.9 River. Drainage is expected to take just over 2 years. Number of in-service training days per person/year 6 7 Outcome of Parent Company reward system, SEK 33,763 60,000 Mining in Mertainen • Proceedings regarding the application for full-scale mining in Mertainen will Work environment/health take place in May, 2013. During 2012 LKAB continued the efforts to reduce the number of accidents in the Group. To a certain degree these efforts have had the desired effect – the number Operations in Kiruna of accidents resulting in long absences has fallen, as has the number of accidents • conditions for the release of nitrogen in the form of ammonia from the compa- without absences. On the other hand, accidents with short absences (1–3 days) ny’s settling basin in Kiruna to the repository was approved by the Environ- have increased, which means the year’s target of a 20 percent reduction was not mental Court in 2009. LKAB appealed the ruling. The Land and Environment achieved. Overall the accident rate (the number of accidents with absence per Court did not grant leave; however, the Supreme Court did. The case referred million working hours) increased to 9.89 compared to the target of 5.4. Thanks to back to the Land and Environment Court. Initial proceedings were held in long-term, systematic work with preventive health initiatives and rehabilitation, long-term and short-term absences remain at low levels. 88 | INTEGRATED REPORT 2012

Recruitment, retirements refer to the control environment section of the corporate governance report on LKAB’s goal is for 30 percent of new recruits to be women; the outcome was 29 page 70 of the print version of the annual report, available at www.lkab.com. percent, i.e. just under target. This means the proportion of women continued to increase but at a lower rate than intended. The majority of individuals leaving the Board of Directors during 2012 Group did so in conjunction with retirement and the proportion of women leaving During 2012, the Board of Directors consisted of seven members elected by the the Group was 13 percent, which is lower than the proportion of women working Annual General Meeting, plus three members and three deputies appointed by the in the company. employees. Four board members were re-elected and three new members elected at the AGM. The three new board members are Maud Olofsson, Hans Biörck Equality, non-discrimination and diversity and Sten Jakobsson. There is an aspiration for a more even gender distribution and increased diversity in all recruitment activities and during 2012 the proportion of women continued The Board of Directors’ Rules of Procedure to increase. A diversity survey was carried out in 2011, and during 2012 an action The Board of Directors establishes its rules of procedure annually. The Board held plan with activities was prepared. One activity was a diversity seminar open to ten meetings during the 2012 financial year. The meetings follow a set annual all employees, another was an equal opportunities plan that formed the basis for calendar aimed at satisfying the Board’s need for information and are otherwise discussions at the workplaces. LKAB also participated in the MER (DCR – Diversity, governed by the special rules of procedure followed by the Board. Normally, seven Commitment, Respect) project, a County Administrative Board initiative aimed at meetings are held each year. increasing understanding of the importance of diversity in the region. LKAB also A board meeting held immediately after each quarter considers the latest fi- took part in the National Matching project in collaboration with the national em- nancial statements and the outlook for the calendar year. This allows the Board to ployment agency in which newly arrived university graduates with foreign back- make an ongoing assessment of strategies and delegations to the President and grounds are matched to a job in Sweden. This resulted in two people who had not to take up-to-date positions on specific investment projects. previously had work within their professional areas finding such work at LKAB. The first meeting of the year usually concerns the closing of accounts, and LKAB’s auditors also participate. At the second meeting, the annual report is re- competence development and the future skills supply viewed. Among other things, meetings three through six take up operational and Skills enhancement remained in focus, with just over 6 training days per employee strategy matters, personnel issues and market development while at the year’s per year, which is higher than the targeted 5 days. Training initiatives carried out final meeting, decisions are taken regarding the budget and operational plans for within the work environment area continued, among other things an obligatory the coming year. LKAB safety drivers licence was introduced in 2012 for all employees. Work on The work of the Board is evaluated once per year. A written survey is prepared operational development according to a shared model continued in the Group, and annually and covering issues such as how the Board collectively, and each mem- managers and employees covered by PTK (Council for Negotiation and Co-opera- ber individually, has fulfilled its assignment. The evaluation report is used inter- tion) underwent supplementary training in performance development according to nally by the Board as a support tool. The Chairman is responsible for following up a model jointly created by PTK unions describing how performance reviews and the results, which form the basis for discussions and improvements. The work of employee development should be pursued. the Chairman is normally assessed by the owner, but this may also be part of the LKAB’s in-house rock worker training remains attractive and continued during work of the Board. 2012. The LKAB Academy has provided support for more than 100 different projects in Kiruna and Gällivare municipalities, from preschools to upper secondary schools. In all just over SEK 8 million was spent during 2012 in support of various GUIDELINES FOR REMUNERATIONS TO SENIOR EXECUTIVES projects. Sums varied from a few hundred kronor for a pupil project to SEK 2.5 The 2012 AGM adopted the Board’s proposal for guidelines concerning remunera- million for modern equipment for an upper secondary school. During the year tion and other employment terms for senior executives. The LKAB guidelines fol- the Academy also arrange a lecture by the 2011 Nobel chemistry laureate Dan low government guidelines for employment terms for senior executives in state- Schechtman, who addressed upper secondary students from the region. owned companies adopted on April 20, 2009. Among other things the guidelines state that variable salary may not be paid to senior executives, that pensions must Incentive scheme be defined contribution plans unless they are part of a pension plan under a col- The Parent Company’s incentive scheme was introduced in mid-2000. The sub- lective agreement, and that the premium should not exceed 30 percent of the sidiaries LKAB Malmtrafik AB, LKAB Malmtrafikk AS, Minelco AB and LKAB Norge fixed salary. The pensionable age shall not be less than 62 years and should be AS are also included in the scheme. The President and other senior executives at least 65. are not included. The Board proposes that the Annual General Meeting of April 29, 2013 resolve The system, which follows the owner’s guidelines for incentive schemes, is to apply the above-mentioned guidelines and terms when new senior executives based on three factors; quality, work environment and production targets. The in- are employed and when the salaries of senior executives currently employed are centive was maximised, as of January 1, 2010, at SEK 60,000 per full-time em- renegotiated. The Board’s proposal is designed to ensure that the LKAB Group is ployee per year for the years 2010-2012. Incentives are conditional upon positive able to offer remunerations at competitive market rates sufficient to attract and results in the operations that are included the scheme. In 2011 all parameters led retain qualified senior executives to LKAB’s Group Management. Group Manage- to incentive payments, The outcome for 2012 was SEK 33,291 per full-time em- ment remunerations include fixed salaries, allowances for cars, board, life insur- ployee with full attendance. ance and pension benefits. The components are intended to create a well-balanced remuneration and benefits package that reflects the individual’s performance, responsibility and the LKAB Group’s growth. The fixed salary, which is determined CORPORATE GOVERNANCE individually and differentiated on the basis of the individual’s responsibility and A description of corporate governance is presented in a special corporate govern- performance, is set according to market principles and is reviewed annually. ance report in accordance with Chapter 6 Section 8 of the Annual Accounts Act. Agreements entered into before the Annual General Meeting of April 29, 2013 The report is included on pages 65-71 of this document For a description of the have complied with current government guidelines. For further information con- more important features in the Group’s system for internal inspections and risk cerning remuneration to senior executives, see Note 6. Employees, personnel management in connection with the preparation of the consolidated accounts we costs and remuneration to senior executives. AD MINISTRATION REPORT | 89

EVENTS AFTER CLOSING DAY Prospecting for additional iron ore deposits is under way in the mines and the No significant events have taken place since the closing date. immediate surroundings of the existing operational areas. The prospecting organization is being strengthened and total prospecting costs are calculated to reach SEK 93 million during 2013. E XPECTATIONS REGARDING FUTURE DEVELOPMENT The growth strategy necessitates an Ore Railway haulage capacity of 40 million The iron ore market is growing and demand for DR pellets for gas-based iron tons of iron ore products in 2015. This will require longer passing sidings on the and steel production in particular is expected to grow in the next few years. To track between Luleå and Narvik. The Swedish Transport Administration is extend- continue to be a so-called preferred supplier, LKAB must be able to grow with its ing four passing sidings along the Ore Railway. This is necessary, especially since customers. there are also other operators that traffic and plan to traffic the route. The strategy for the next few years includes a volume increase of just over 35 LKAB’s exposure on the electricity market is increasing. The overall growth percent to reach an annual capacity of 37 Mt iron ore products by 2015. Growth strategy will lead to the increased consumption of electricity despite major en- enhances LKAB’s competitiveness through higher volumes, which mean lower ergy efficiency initiatives. A long-term strategy for both energy procurement and costs per tonne. Growth requires an increasing availability of iron ore to process energy efficiency has been prepared to manage future price developments and into high-quality, climate-smart iron ore products, mainly pellets. The major part increased energy consumption. of the additional iron ore must come from new mines, mainly three open-pit mines LKAB’s research centre in Malmberget opened in 2012. A one-of-a-kind experi- in the so-called Svappavaara orefield. mental blast furnace has been in operation in Luleå since 1997 – an important aid In December 2012 production was able to resume in the Gruvberget open-pit to LKAB’s customer relations. Continued investments to safeguard world-class re- mine following a six-month wait for an environmental licence. Production in Gru- search and development is a necessity if LKAB is to retain its technological world vberget is planned to contribute 2 Mt iron ore during 2013. leadership in iron ore pellets. In June 2012, the Norrbotten County Administrative Board granted LKAB per- Investment projects in progress and LKAB’s future plans will entail major in- mission to drain the Leveäniemi open-pit mine. Draining began in September 2012 vestments and thus large expenditures over the next few years. Furthermore, con- and is expected to be complete in 2014, during which time additional orebody tinued underground mining in Kiruna and Malmberget and the start of new mines surveys will take place. An application for a mining licence for Mertainen was in the Svappavaara orefield will entail major costs for their impact on communi- submitted to the Land and Environment Court in the beginning of March. The time- ties in all three areas. LKAB must therefore remain financially strong and maintain table for the planned expansion of LKAB’s mine capacity is entirely dependent on a good earning ability to meet the future obligations that structural change will obtaining an environmental licence. The risk that the necessary licences for the entail. three open-pit mines in Svappavaara will not be issued in time has decreased. 90 | INTEGRATED REPORT 2012

Consolidated income statement

January 1 – December 31 SEK million Note 2012 2011 1 Net sales 2, 3 26,971 31,122 Cost of goods sold 27 -15,177 -15,190 Gross profit 11,794 15,932

Selling expenses -249 -223 Administrative expenses -608 -640 Research and development expenses -283 -328 Other operating income 4 539 366 Other operating expenses 5 -598 -403 Operating profit 3, 6, 7, 8 10,595 14,705

Financial income 744 503 Financial expenses -316 -407 Net financial income/expense 9 428 96

Profit before tax 11,023 14,801

Tax 11 -2,234 - 3,841 Profit for the year 8,789 10,960

Attributable to: Parent company’s shareholders 8,789 10,960

Earnings per share after dilution (SEK) 12 12,555 15,657

Consolidated statement of comprehensive income

Profit for the year 8,789 10,960

Other comprehensive income Exchange rate differences on translation for foreign entities for the year -18 -10 Change in fair value of available-for-sale financial assets -50 -646 Change in fair value of cash flow hedges 226 -65 Changes in fair value of cash-flow hedges transferred to profit for the year 65 -218 Actuarial gains and losses -214 -172 Tax attributable to components of cash flow hedges and actuarial gains and losses -20 94

Other comprehensive income -11 -1,017 Total comprehensive income attributable to: Parent company’s owner 8,778 9,943

The items transferred during the year to Net income for the year are reported in the income statement partly under Net sales and partly under Tax. Co ons lIDATed financial statements | 91

Consolidated statement of financial position

As of December 31, SEK million Note 2012 2011 1, 32 Assets 15, 30 Non-current assets Intangible assets 13 277 270 Property, plant and equipment 14 30,173 26,285 Participations in associated companies 0 1 Financial investments 18, 29 993 1 038 Non-current receivables 20 106 85 Total non-current assets 31,549 27,679

Current assets Inventories 21 2,515 2,449 Accounts receivable 22 3,060 4,592 Prepaid expenses and accrued income 23 93 144 Other current receivables 20 1,732 665 Current investments 18, 29, 35 13,235 9,506 Cash and cash equivalents 35 5,437 8,695 Total current assets 26,072 26,051 Total assets 57,621 53,730

Shareholders’ equity and liabilities Equity 22, 24 Share capital 700 700 Reserves 671 515 Retained earnings including profit for the year 40,300 36,678 Equity attributable to Parent Company shareholders 41,671 37,893 Total shareholders’ equity 41,671 37,893

Non-current liabilities provisions for pensions and similar commitments 25 2,970 2,775 Provision for urban transformation 26, 27 4,934 4,664 Other provisions 26 160 161 Deferred tax liability 11 3,516 3,775 Total non-current liabilities 11,580 11,375

Current liabilities Trade payables 1,760 1,982 Other liabilities 192 570 Accrued expenses and prepaid income 28 1,418 1,241 Provision for urban transformation 26, 27 943 439 Other provisions 26 57 230 Total current liabilities 4,370 4,462 Total liabilities 15,950 15,837 Total shareholders’ equity and liabilities 57,621 53,730

Pledged assets and contingent liabilities for the Group

As of December 31, SEK million Note 31/12/2012 31/12/2011 Pledged assets 31 239 243 Contingent liabilities 31 96 51 92 | INTEGRATED REPORT 2012

Consolidated statement of changes in shareholders’ equity

Equity attributable to Parent Company shareholders Reserves

Profit brought forward Note Share capital Translation Fair value Hedge reserve incl.profit for Total equity SEK million 1 reserve reserve the year Opening equity January 1, 2011 700 -93 1,313 160 30,871 32,951

Profit for the year 10,960 10,960

Other comprehensive income 24 -10 -647 -208 -153 -1,018

Comprehensive income for the year -10 -647 -208 10,807 9,942

Dividend -5,000 -5,000

Closing equity December 31, 2011 700 -103 666 -48 36,678 37,893

Equity attributable to Parent Company shareholders Reserves

Profit brought forward Note Share capital Translation Fair value Hedge reserve incl. profit for Total equity SEK million 1 reserve reserve the year Opening equity January 1, 2012 700 -103 666 -48 36,678 37,893

Profit for the year 8,789 8,789

Other comprehensive income 24 -18 -50 224 -167 -11

Comprehensive income for the year -18 -50 224 -8,622 8,778

Dividend -5,000 -5,000

Closing equity December 31, 2012 700 -121 616 176 40,300 41,671 Co ons lIDATed financial statements | 93

Consolidated statement of cash flow (indirect method)

January 1 – December 31 SEK million Note 2012 2011 1, 35 Operating activities Profit before tax 11,023 14,802 Adjustment for items not included in cash flow 2,845 3,268 Income tax paid -3,169 -4,032 Cash flow from operating activities before changes in working capital 10,699 14,038

Disbursements for urban transformation 26, 27 -407 -382

Cash flow from changes in working capital Increase (-) / Decrease (+) in inventories -66 -375 Increase (-) / Decrease (+) in operating receivables 1,412 -463 Increase (+) / Decrease (-) in operating liabilities -366 930 Cash flow from operating activities 11,272 13,748

Investing activities Acquisition of property, plant and equipment -5,808 -5,126 Disposal of property, plant and equipment 6 17 Divestments/acquisitions (net) in current investments -3,729 -2,990 Cash flow from investment activities -9,531 -8,099

Financing activities Dividends paid to Parent Company shareholders -5,000 -5,000 Cash flow from financing activities -5,000 -5,000

Cash flow for the year -3,259 649

Cash and cash equivalents at beginning of year 8,695 8,046 Cash and cash equivalents at year end 5,437 8,695

Consolidated operating cash flow (SEK million) 2012 2011 Cash flow from operating activities 11,273 13,748 Investments in property, plant and equipment -5,808 -5,126 Disposal of property, plant and equipment 6 17 Operating cash flow (excluding current investments) 5,471 8,639 Current investments (net) -3,729 -2,990 Cash flow after investment activities 1 741 5 649 Cash flow from financing activities – dividend paid -5,000 -5,000 Cash flow for the year -3,259 649 94 | INTEGRATED REPORT 2012

Income statement – Parent Company

January 1 – December 31 SEK million Note 2012 2011 1 Net sales 2, 3 25,054 28,282 Cost of goods sold 27 -14,145 -13,579 Gross profit 10,909 14,703

Selling expenses -153 -138 Administrative expenses -468 -508 Research and development expenses -271 -318 Other operating income 4 466 219 Other operating expenses 5 -395 -379 Operating profit 6, 7, 8 10,088 13,579

Income from financial items: Income from participations in Group companies 324 43 Income from participations in associated companies 1 0 Income from other securities and receivables held as non-current assets 140 147 Other interest income and similar profit/loss items 520 380 Interest expense and similar profit/loss items -231 -123 Profit after financial items 9 10,842 14,026

Appropriations 10 -2,358 -2,373

Profit before tax 8,485 11,653

Tax 11 -2,216 -3,046 Profit for the year 6,269 8,607

Statement of comprehensive income – Parent Company Profit for the year 6,269 8,607 Other comprehensive income - - Comprehensive income for the year 6,269 8,607 F aliNANci statements – Parent Company | 95

Balance Sheet – Parent Company

As of December 31 SEK million Note 31/12/2012 31/12/2011 1, 32 Assets 30 Non-current assets Intangible assets 13 73 58 Property, plant and equipment 14 24,675 21,165 Financial assets Participations in associated companies 33 1,410 1,410 Participations in associated companies 16 0 1 Receivables from subsidiaries 17 1,142 1,296 Receivables from associated companies 17 0 Other non-current securities holdings 19, 29 129 127 Other non-current receivables 20, 29 185 170 Deferred tax asset 11 486 288 Total financial assets 3,352 3,292

Total non-current assets 28,100 24,516

Current assets Inventories 21 1,946 1,879 Current receivables Accounts receivable 22 2,918 4,146 Receivables from subsidiaries 17 1,398 1,570 Other current receivables 20 1,352 688 Prepaid expenses and accrued income 23 70 80 Total current receivable 5,738 6,484

Current investments 18, 35 17,883 17,073 Cash and cash equivalents 35 457 830 Total current assets 26,024 26,266 Total assets 54,124 50,782 96 | INTEGRATED REPORT 2012

Balance Sheet – Parent Company

SEK million Note 31/12/2012 31/12/2011

Shareholders’ equity and liabilities 1, 32 Equity 24 Restricted equity share capital (700 000 shares) 700 700 Statutory reserve 697 697

Non-restricted equity Retained earnings including profit for the year 18,390 14,782 Profit for the year 6,269 8,607 Total shareholders’ equity 26,056 24,786

Untaxed reserves 34 16,866 14,509

Provisions provision for urban transformation 26, 27 4,934 4,664 Other provisions 25, 26 1,616 1,777 Total provisions 6,550 6,441

Current liabilities Trade payables 1,394 1,398 Liabilities to Group companies 991 1 906 Other current liabilities 99 255 Accrued expenses and prepaid income 28 1,225 1,048 Provision for urban transformation 26, 27 943 439 Total current liabilities 4,652 5,046 Total shareholders’ equity and liabilities 54,124 50,782

Pledged assets and contingent liabilities – Parent Company

As of December 31 SEK million Note 31/12/2012 31/12/2011 Pledged assets 31 236 240 Contingent liabilities 31 126 153 F aliNANci statements – Parent Company | 97

S tATEment of changes in shareholders’ equity – Parent Company

Restricted equity Non-restricted equity see Note 24 Share Statutory Retained Profit for SEK million capital reserve earnings the year Total equity Opening equity January 1, 2011 700 697 19,783 21,180

Comprehensive income for the year 8,607 8,607

Dividend -5,000 -5,000

Closing equity December 31, 2011 700 697 14,782 8,607 24,786

Restricted equity Non-restricted equity

Share Statutory Retained Profit for SEK million capital reserve earnings the year Total equity Opening equity January 1, 2012 700 697 23,390 24,786

Comprehensive income for the year 6,269 6,269

Dividend -5,000 -5,000

Closing equity December 31, 2012 700 697 18,390 6,269 26,056 98 | INTEGRATED REPORT 2012

S tATEment of cash flow – Parent Company (indirect method)

January 1 – December 31 SEK million Note 2012 2011 1, 35 Operating activities Profit after financial items 10,842 14,026 Adjustment for items not included in cash flow 2,475 2,982 Income tax paid -3,020 -3,841 Cash flow from operating activities before changes in working capital 10,297 13,167

Disbursements for urban transformation 27 -407 -382

Cash flow from changes in working capital Increase (-) / Decrease (+) in inventories -67 -407 Increase (-) / Decrease (+) in operating receivables 1,353 -630 Increase (+) / Decrease (-) in operating liabilities -897 1,285 Cash flow from operating activities 10,279 13,033

Investing activities Acquisition of property, plant and equipment -5,419 -4,652 Disposal of property, plant and equipment 439 778 Acquisition of subsidiary - -10 Disposal of financial assets 138 -368 Divestments/acquisitions (net) in current investments -3,655 -3,150 Cash flow from investment activities -8,497 -7,402

Financing activities Dividend paid -5 000 -5 000 Cash flow from financing activities -5,000 -5,000

Cash flow for the year -3,218 631

Cash and cash equivalents at beginning of year 8,469 7,838 Cash and cash equivalents at year end 5,251 8,469 No tes to the financial statements | 99

Notes to the financial statements

Note 1 Significant accounting principles Standards To be applied to the financial eary beginning: Changes to IAS 1 Presentation of Financial Statements 1 Conformity with norms and legislation (Presentation of items in other comprehensive income) July 1, 2012 or later The consolidated accounts were prepared in accordance with International Financial Changes to IAS 19 Employee benefits January 1, 2013 or later Reporting Standards (IFRS) as published by the International Accounting Standards IFRS 13 Fair Value Measurement January 1, 2013 or later Board (IASB), and the interpretations by the International Financial Reporting Inter- Annual Improvements to IFRSs 2009-2011 cycle* January 1, 2013 or later pretations Committee (IFRIC) as approved by the EU. In addition the Swedish Financial Changes to IFRS 7 Financial Instruments Reporting Board’s recommendation RFR 1 Supplementary Rules for Consolidated Disclosures (Offsetting financial assets and Financial Statements was applied. financial liabilities) January 1, 2013 or later The annual accounts and consolidated accounts were approved for issue by the Changes to IAS 32 Financial Instruments: Board of Directors and President on March 20, 2013. The consolidate income state- Classification (Offsetting financial assets and ment, statement of financial position and the Parent Company’s income statement and financial liabilities) January 1, 2014 or later balance sheet will be the subject of approval at the Annual General Meeting on April IFRS 10 Consolidated Financial Statements January 1, 2014 or later 29, 2013. IFRS 11 Joint Arrangements January 1, 2014 or later IFRS 12 Disclosures of Interests in Other Entities January 1, 2014 or later 2 Measurement bases applied when preparing Parent Company Changes to IFRS 10, IFRS 11 and IFRS 12 and consolidated financial statements (Provisional regulations)** January 1, 2014 or later The main principle is that assets and liabilities are reported at historical cost. A certain Changes to IAS 27 Separate Financial Statements January 1, 2014 or later few financial assets and liabilities are reported at fair value. Financial assets and Changes to IAS 28 Investments in Associates and liabilities that are reported at fair value consist of derivative instruments, financial as- Joint Ventures January 1, 2014 or later sets classified as financial assets reported at fair value via the income statement or as Investment Entities financial assets available for sale. (changes to IFRS 10, IFRS 12 and IAS 27)* January 1, 2014 or later IFRS 9 Financial Instruments and subsequent 3 Functional currency and presentation currency changes to IFRS 9 and IFRS 7* January 1, 2015 or later The Parent Company’s functional currency is Swedish crowns (SEK), which is also * As yet not approved for application within EU. the Parent Company’s and Group’s presentation currency. This means that financial ** As yet not approved for application within EU. According to IASB, IFRS 10, IFRS 11, statements are presented in SEK. All amounts are rounded to the nearest SEK million, IFRS 12, IAS 27 and IAS 28 come into force from the financial year beginning January unless otherwise specified. 1, 2013, but they will not come into force within the EU until the financial year beginning January 1, 2014 or later. 4 Assessments and estimates in the financial reports IFRS Interpretations Committee (IFRIC) has published the following new interpreta- Preparing the financial statements in accordance with IFRS requires Company tion, which has not yet come into force: Management to make assessments, estimates, and assumptions that influence the application of accounting principles and the reported amounts of assets, liabilities, Standards To be applied to the income and expenses. financial eary beginning: The estimates and assumptions are reviewed regularly. Amendments to estimates IFRIC 20 Stripping Costs in the Production Phase are reported in the period in which the change is made if the change only affects this of a Surface Mine January 1, 2013 or later period, or in the period in which the change is made and future periods if the change The above new and changed standards and interpretations have not yet come into affects both the period concerned and future periods force. Assessments of accounting principles made by Company Management that have a substantial impact on the financial statements and estimates made and which may New and changed standards which will affect consolidated lead to significant adjustments in the financial statements of subsequent years are financial statements from the beginning of 2013: described in more detail in section 28, Significant estimates and assessments. Changes to IAS 1 Presentation of Financial Statements requires additional disclosures in other comprehensive income so that items in are grouped in two categories: a) items 5 Important applied accounting principles that will not be transferred to earnings and b) items that will be transferred to earnings The below-mentioned accounting principles for the Group were applied consistently if certain criteria are met. In the opinion of company management the changes to IAS for all periods presented in the consolidated financial statements, unless otherwise 1 will affect and change the presentation of items reported in other comprehensive specified. The accounting principles for the Group were applied consistently in the income but not affect the financial position and results reported. preparation and consolidation of the Parent Company, subsidiary and joint venture Current mining operations in the LKAB Mining Division are carried out in under- company reports. ground mines. During 2013 mining was begun in the Gruvberget open-pit mine in Svap- pavaara, and this is currently LKAB’s only open-pit mine. Operations in the open-pit 6 New and changed standards and interpretations for 2012 mine were limited during 2012. The company’s financial position and results in 2012 The following standards came into force in 2012 and have been applied by LKAB for the would not have been reported differently had IFRIC 20 been applied in 2012. 2012 financial year. Changes to IFRS 7 Financial Instruments Disclosures (disclo- The changes in IAS 19 changes the reporting of defined-benefits pension plans sures when transferring financial assets) and an amendment to IAS 12 Income Taxes and compensation on termination. Because LKAB already reports actuarial gains and (Deferred tax: Recovery of Underlying Assets). These changed standards have had no losses in other comprehensive income, the change to IAS 19R, which removes the so- effect on consolidated financial statements for 2012. No new interpretations from IFRS called corridor method, will have no significant effect on LKAB. IC have come into force for the 2012 financial year. Furthermore, interest expenses and anticipated return on plan assets are replaced with “net interest income”, which must be calculated using the same discount rate used 7 New and changed standards and interpretations when calculating the defined-benefits pension obligation. The change means that net which have not yet come into force financial income/expense would have been negatively affected by around SEK 11 mil- The International Accounting Standards Board (IASB) has published the following new lion and other comprehensive income would have increased by the same amount. and changed standards which have not yet come into force: IFRS 13 Fair Value Measurement establishes rules for valuation at fair value when so required by other standards. The standard is applicable to valuation to fair value 100 | INTEGRATED REPORT 2012

of both financial and non-financial items. Fair value is defined as the price that would of the primary economic environment where companies conduct their operations. have been received for the sale of an asset or the compensation that would be paid for Monetary assets and liabilities in foreign currency are translated to the functional transferring a liability in a normal transaction between market players at the time of currency at the exchange rate prevailing on the closing day. Exchange rate differences valuation (exit price). IFRS 13 requires several quantitative and qualitative disclosures that arise from translations are reported in the income statement. Non-monetary as- about valuation to fair value. The changes will not entail any significant changes to sets and liabilities reported at historic cost are translated at the exchange rate on the LKAB’s results and financial position. transaction date. Non-monetary assets and liabilities reported fair value are translated to the functional currency at the exchange rate prevailing at the time the fair value was 8 Classifications etc. measured and reported in the income statement. Non-current assets and non-current liabilities consist chiefly of amounts that are expected to be recovered or paid more than twelve months from the closing day. Cur- 11.2 Financial statements of foreign operations rent assets and current liabilities consist chiefly of amounts that are expected to be Assets and liabilities in foreign operations, including goodwill and other Group-related recovered or paid more within twelve months from the closing day. surpluses and deficits, are translated from the foreign operations’ functional currencies to SEK, the Group’s presentation currency, at the exchange rate prevailing on the 9 Operating segment reporting closing day. Revenues and expenses in a foreign operation are translated to SEK at the An operating segment is a part of the Group that engages in business operations from average exchange rate that constitutes an approximation of the rates applying when which it may generate income and incur expenses and for which discrete financial the transactions occurred. Translation differences that arise from currency translation information is available. An operating segment’s result is reviewed regularly by the of foreign operations are reported under other comprehensive income and accumulat- company’s most senior executive decision maker, which is Group Management, to ed in a separate designated translation reserve. When divesting a foreign operation, the assess its performance in order to allocate resources to the operating segment. There accumulated translation differences attributable to the divested foreign operation are are three identified operating segments within the LKAB Group: the Mining Division, reclassified from equity to net profit/loss for the year as a reclassification adjustment Minerals Division and Special Businesses Division. Refer to Note 3 for a presentation of at the time profit or loss from the sale is reported. operating segments and a more detailed description of their division. 12 Revenues – sale of goods 10 Consolidation principles 12.1 Sale of goods 10.1 Subsidiaries Revenue from the sale of goods is recognised in the income statement when significant Subsidiaries are companies which operate under the controlling influence of the Parent risks or benefits associated with ownership of the goods have been transferred to the Company. Controlling influence means a direct or indirect right to decide a company’s buyer. Revenue is not recognised if it is probable that future economic benefit will not financial and operational strategies with the objective of gaining economic benefits. accrue to the Group. When assessing whether a controlling influence exists, the existence of shares with potential voting rights that are currently exercisable or convertible should be considered. 12.1.1 Sale of iron ore, Mining Division Subsidiaries are reported according to the purchase method, which means that the Iron ore trading is conducted in US dollars and there are three different ways of setting acquisition of a subsidiary is regarded as a transaction in which the Group indirectly iron ore prices, i.e. annual price, spot price and indexed price. Normally, an agreement acquires the subsidiary’s assets and assumes its liabilities and contingent liabilities. between one of the major mining companies and the Asian or European steel industry The Group acquisition value is determined in an acquisition analysis in connection sets a global benchmark, after which LKAB concludes agreements with its customers. with the acquisition. The analysis establishes the acquisition value of the participation The timing of agreements regarding the global price varies; some years agreement or business operation, the fair value on the day of acquisition of acquired identifi- is reached early and other years later, for which reason prices for the new year must able assets and assumed liabilities and contingent liabilities. The acqusition value of almost always be an estimate until they are agreed. subsidiaries’ shares or business consists of the sum of the fair values on the date of Latterly the proportion of iron ore sales at spot or indexed prices has increased on the acquisition of the assets, accrued or assumed liabilities and emitted equity instruments global market. LKAB has hitherto mostly sold iron ore at annual prices. In order to meet given in payment for the acquired net assets. The difference between the acqusition the wishes of certain customers, LKAB has been using a complementary price model value, the value of the minority and the fair value of earlier holdings and the fair value since the first quarter of 2012. The model provides flexibility for those customers who of the acquired identifiable assets, liabilities and contingent liabilities are reported as wish to move wholly or partially away from fixed prices for a period during the year. goodwill. The sale of iron ore is reported upon delivery to the customer in accordance with A subsidiary’s financial statements are included in the consolidated accounts from the sales terms. Sales are reported with deductions for value added tax and currency the acquisition date until the date when controlling influence no longer exists. translations take place at the current exchange rate. If sales are hedged by forward exchange rate contracts currency translations take place at the hedged rate. 10.2 Joint ventures Preliminary invoicing often takes place at the time of delivery in respect of the For accounting purposes, joint ventures are companies in which the Group shares a iron and moisture content of the delivery. When final confirmed amounts have been controlling influence over operational and financial management through collabora- obtained, revenues are adjusted as necessary and confirmed. Revenues are reported tion agreements with one or more parties. Holdings in joint ventures are reported in in net sales. the consolidated accounts according to the proportional consolidation principle. This principle requires the Group’s share of a joint venture’s income, expenses, assets and 12.1.2 Sale of industrial minerals, Minerals Division liabilities to be reported in the consolidated statement of financial position and income The LKAB Group’s Minerals Division carries out trade in a number of different minerals statement. This is done by combining the joint owner’s share of assets, liabilities, comprising both minerals in owned by the division such as magnetite, huntite and mica, income and expenses in a joint venture item-by-item with corresponding items in and also minerals that are either processed within the Group or sold on untreated to the joint owner’s consolidated accounts. Only equity accrued after the acquisition is final customers. Trade in industrial minerals either takes place in local currency or one reported in the Group’s equity. The proportional consolidation principle is applied from of the major currencies such as USD and EUR. the point in time at which the joint controlling influence is obtained until said influence The mineral magnetite is purchased from the Mining Division; prices are agreed ceases to exist. quarterly are based on the Parent Company’s global price agreements for iron ore products. Other in-house minerals are priced internally, while external minerals are 10.3 Transactions eliminated on consolidation priced according to agreements with the suppliers concerned and may take place an- Intra-Group receivables and liabilities, income and expenses, as well as unrealised nually or at shorter intervals. gains or losses arising from transactions between subsidiaries, are eliminated in their Sales of minerals are reported to customers in accordance with agreed sales terms. entirety when preparing the consolidated accounts. Sales are reported with deductions for value added tax and currency translations take Unrealised profits arising from transactions with jointly controlled companies are place at the current exchange rate. If the sale is hedged currency translations take eliminated to an extent that corresponds to the Group’s shareholding in the company. place at the forward exchange rate contract rate. Unrealised losses are eliminated in the same way as unrealised profits, but only where Invoicing takes place on delivery to the customer according to agreed prices and there is no indication that an impairment loss is necessary. payment terms. Revenues are reported in net sales.

11 Foreign currency 12.2 Rental income 11.1 Transactions in foreign currency Rental incomes from investment properties are reported on a straight-line basis in the Foreign currency transactions are translated into the functional currency at the income statement, based on the terms of the rental (lease) agreement. The income is exchange rate prevailing on the transaction date. Functional currency is the currency reported in other operating income. No tes to the financial statements | 101

13 Leasing applies for a portion of a financial asset. A financial liability is removed from the state- Leases are classified in the consolidated accounts as either finance leases or operating ment of financial position when the undertakings in the agreement have been fulfilled leases. A finance lease exists when the economic risks and benefits associated with own- or otherwise extinguished. The same applies for a proportion of a financial liability. ership are, in essence, transferred to the lessee; where this is not the case, it is classified A financial asset and a financial liability ear offset and reported in the statement of as an operating lease. The Group’s leasing agreements are essentially operational. financial position as a net amount only when there is a legal right to offset the amount In operational leasing, leasing fees are reported on a straight-line basis over the and an intention to adjust the items with a net amount or, at the same time, realise the period of the lease. However, some fees are usually expensed on a continuous basis. asset and settle the liability. Acquisition and divestment of a financial asset are reported on the trade day, i.e. the 14 Financial income and expenses day upon which the company undertakes to acquire or dispose of an asset, except in Financial income and expenses include interest income from bank assets, receivables cases when the company acquires or divests listed securities when settlement date and interest-bearing securities, interest expenses related to loans, interest expenses reporting is applied. on defined-benefit pension plans, dividend income, unrealised and realised gains on A spot purchase or sale in the fair value option category is reported on the day of financial investments, and derivative instruments used in financial operations. settlement. LKAB has no liabilities valued according to fair value option. Interest income from receivables and interest expenses related to liabilities are Liquid assets are cash and balances immediately available in banks and similar estimated using the effective interest method. Effective interest is the rate of interest institutions and current investments with a maturity of less than three months from which renders the current value of all estimated future payments and disbursements acquisition date that are exposed only to very marginal risks of fluctuations in value. during the expected fixed-interest term to be equal to the carrying amount of the asset or liability. Interest income and interest expense include periodised amounts of trans- 16.2 Classification and measurement action expenses and any discounts, premiums and other differences between the origi- Financial instruments are initially reported at a cost corresponding to the fair value of nal carrying amount of the receivable or liability, and the amount received or settled on the instrument with an addition for transaction expenses for all financial instruments, maturity. Dividend income is reported once the right to receive payment is approved. except those categorised as financial assets and liabilities reported at their fair value Income from the sale of financial investments is reported when the significant risks in the income statement, which are reported at their fair value excluding transaction and rewards associated with ownership of the instruments have been transferred to expenses. A financial instrument is classified on initial reporting based on the purpose the buyer and the Group no longer controls the instruments. for which the instrument was acquired. Classification determines how the financial Exchange rate gains and losses are reported on a net basis. instrument is measured after the initial report, as described below. Derivative instruments are initially reported at fair value, meaning that the transac- 15 Taxes tion costs impact income for the period. After the initial entry, the derivative is reported Income taxes consist of current tax and deferred tax. Taxes are reported in the income in the manner described below. If derivative instruments are used for hedge account- statement except when the underlying transaction is reported directly under other ing, changes in value of the derivative instruments are reported in the income state- comprehensive income or in equity, in which case the related tax effect is also reported ment, to the extent the derivative is effective, at the same time and on the same line in other comprehensive income or in equity. as the hedged item. Even if hedge accounting is not applied, increases or decreases in Current tax is tax to be paid or received in respect of the year concerned by applying the value of the derivative are reported as income or expenses in the income statement the tax rates that have been decided or which have been decided in practice as of the or as net financial income/expense, based on the intended use of the derivative instru- closing day; this also includes adjustment of current tax attributable to earlier periods. ment and whether that use relates to an operating item or to a financial item. In hedge Deferred tax is calculated according to the balance sheet method, on the basis of tem- accounting, the ineffective part is reported in the same way as changes in the value of porary differences between carrying amounts of assets and liabilities and their values for derivatives not used in hedge accounting. tax purposes. The following temporary differences are not taken into account; for tempo- In accordance with IAS 39, LKAB has chosen not to include the interest component rary differences that arise with the initial reporting of goodwill, initial reporting of assets in forward exchange contracts in hedging conditions when applying hedge accounting and liabilities which are not business combinations and at the time of the transaction do within the Group. Changes in value in forward exchange rate contracts attributable not affect either reported or taxable profit. Nor are temporary differences attributable to the interest component are reported instead as financial income or expenses on to participations in Group companies and associated companies that are not expected the line “Interest rate component in forward exchange contract” as the interest rate to reverse in the foreseeable future taken into account. The calculation of deferred tax component is considered financial in nature. is based on how the carrying amount of assets or liabilities is expected to be realised or settled. Deferred tax is calculated in accordance with the tax rates and tax rules that have 16.3 Financial assets appraised at fair value in the income statement been established or have been established in practice by the closing date. This category consists of two sub-groups; financial assets held for trading and other Deferred tax assets in respect of deductible temporary differences and loss car- financial assets in which the company initially decided to invest in this category (ac- ryforwards are only reported to the extent that it will be possible for these to be used. cording to the so-called fair value option). Financial instruments in this category are The value of deferred tax assets is reduced when it is no longer considered likely that appraised at fair value on a continuous basis and changes in fair value are reported they can be used. in the income statement. The first sub-group includes derivatives with positive fair Any additional income tax arising from dividends is reported at the same time as values, with the exception of derivatives that are identified, effective hedging instru- when dividend is reported as a liability. ments. The fair value option category includes financial instruments that are appraised The effect of the eductionr in corporation tax in Sweden from 26.3 percent to 22 and reported at fair value. For further information on which financial instruments are during 2013 is included in tax for the year with a positive effect of SEK 719 million for included, see Note 29. the full year. Deferred tax assets and liabilities have been recalculated according to the new tax rate. 16.4 Loans and receivables Loans and receivable are non-derivative financial assets with fixed payments or de- 16 Financial instruments terminable payments, and which are not quoted on an active market. These assets are Financial instruments reported as assets in the statement of financial position, on the measured at amortised cost. Amortised cost is determined based on the effective rate assets side, liquid assets, loans, accounts receivable, financial investments, and deriva- of interest calculated on acquisition. Accounts receivable are reported in the amount at tives. Liabilities include accounts payable, borrowing and derivatives. which they are expected to be received, less doubtful receivables.

16.1 Recognition and derecognition in the Statement of financial position 16.5 Financial assets available for sale A financial asset or financial liability is recognised in the statement of financial position The available-for-sale category includes financial assets that are not classified in any when the Group becomes a party to the contractual terms of the instrument. A receiv- other category or financial assets that the company initially classified in this category. able is recognised when the Group has performed and a contractual obligation for the Shares and participations not reported as subsidiaries, associated companies or joint counterparty to pay exists, even if an invoice has not yet been sent. A trade receivable ventures are reported here. Assets in this category are appraised at fair value on a is recognised in the statement of financial position when an invoice has been sent. A continuous basis, with changes in value reported in other comprehensive income, but liability is recognised when the counterparty has performed and there is a contractual not changes resulting from impairment losses, interest on debt instruments, dividend obligation to pay, even if the invoice has not yet been received. Trade accounts payable income or exchange rate differences on monetary items; these are reported in the are recognised when an invoice is received. income statement. On disposal of the asset the accumulated gain or loss previously A financial asset is emovedr from the statement of financial position when the rights reported in other comprehensive income, is reported in the income statement. in an agreement are realised, expire or the company loses control over them. The same 102 | INTEGRATED REPORT 2012

16.6 Financial liabilities appraised at fair value in the income statement the cost of the mine and depreciation takes place systematically during the lifetime of This category consist of two sub-groups: financial liabilities held for trade and other the mine. The expenditures are expensed during the actual production phase. financial liabilities that the company has chosen to place in this category (the so-called fair value option); see description under Financial assets measured at fair value in the 18.4 Prospecting and evaluation work income statement, above. The first category includes the Group’s derivatives with nega- Greater knowledge of the extent of the iron deposits is necessary to secure access to tive fair values, with the exception of derivatives that are identified, effective hedging more ore and ensure the future development of operations in the Mining Division. The instruments. Changes in fair value are reported in the income statement. orebody is surveyed and defined by means of exploration drilling, mainly via drifts adjacent to it. Ore deposit explorations in both existing and future areas of the mines, 16.7 Other financial liabilities is expensed. This principle is also applied with respect to areas outside the existing Loans and other financial liabilities, e.g. accounts payable, are included in this category. mines. Liabilities are measured at amortised cost. Evaluation of existing mineral assets is carried out to a lesser extent, mainly to provide a basis for a so-called mine plan for mineral assets, and this work is expensed. 17 Derivatives and hedge accounting The Group’s derivative instruments were acquired as a hedge against interest rate and 18.5 Additional expenditures exchange rate risks to which the Group is exposed. An embedded derivative is reported Additional expenditures are added to cost if it is probable that future economic benefit separately unless it is closely related to the host contract. Derivatives are initially associated with the asset will accrue to the company, and if cost can be calculated in reported at fair value, meaning that the transaction costs impact income for the period. a reliable manner. All other additional expenditures are reported as expenses in the After the initial entry, derivative instruments are reported at fair value and changes in period in which they arise. value are reported as described below. Additional expenditures are added to cost if the expenditures are related to the To comply with IAS 39 requirements concerning hedge accounting, there must be replacement of identifiable components or parts thereof. In cases where a new com- a clear link to the hedged item. Furthermore, the hedging instrument must effectively ponent is created, the expenditure is also added to cost. Any undepreciated carrying protect the hedged item; hedging must be documented and its effectiveness measur- amounts on replaced components, or parts thereof, are retired and expensed in con- able. Hedging gains and losses are reported in the income statement at the same point nection with the replacement. Repairs are expensed on a continuous basis. in time as gains and losses for the hedged items. 18.6 Depreciation principles 17.1 Cash flow hedges Assets are depreciated on a straight-line basis over their useful life; land is not depre- Derivative instruments used to hedge future cash flows are reported in the statement ciated. The Group applies component depreciation, whereby the estimated useful life of financial position at fair value. Changes in value are reported directly against other of the component constitutes the basis for depreciation. Installations and equipment comprehensive income and accumulated changes in value are reported as a separate utilised in open-pit mines are usually depreciated either over their estimated lifetime component in shareholders’ equity until the hedged flow is reported on the balance or the lifetime of the mine they pertain to, whichever is the shorter. sheet, whereupon the hedging instrument’s accumulated changes in value are transferred to the income statement to meet and match the profit/loss effects of the hedged Estimated useful life: transaction. The hedged flows can be both contracted and forecast transactions. – Operating properties, investment properties 15–100 years – Machinery and other technical plant 5–20 years 18 Property, plant and equipment - Inventories, tools and installations 5–20 years 18.1 Owned assets - Underground installations (average) 12 years Property, plant and equipment are reported in the consolidated accounts at cost after deductions for accumulated depreciations and any impairments. Cost includes the Operating properties are classified mainly as buildings, land improvements and land. purchase price and expenses directly attributable to the asset, such as those associ- Buildings and land improvements consist of several components that are classified on ated with delivery and installation of the asset for use as intended by the acquisition. the basis of function; e.g. roads, surfacing, service facilities, processing plants, etc. Examples of directly attributable expenses that may be included in cost are those for Investment properties consist of several components with different useful lives. delivery and handling, installation, title deeds, consulting services and legal services. The main classifications are buildings and land. The buildings are divided into several The cost of self-constructed property, plant and equipment includes expenditures for components whose useful lives vary. The estimated useful lives of these components materials, payroll expenditures, other fabrication costs directly attributable to the asset range from 15 to 100 years. where applicable, and estimated costs of disassembly and estimated expenses for the The following main groups of components have been identified and form the basis removal of the assets and the remediation of the site or area in which it was used. for depreciation of investment properties. Component parts of property, plant or equipment that have different useful lives are treated as separate components of said property, plant or equipment. - Frames, foundations and interior walls 100 years The carrying amount of property, plant and equipment is removed from the state- - Water, sewage, electrical and heating systems 50 years ment of financial position when the asset is retired or disposed of. Gain or loss arising - Facades 40 years from the disposal or retirement of an asset is the difference between the selling price - Windows 50 years and the asset’s carrying amount with deductions for direct selling expenses. Gain or – Interior finishing and white goods 15 years loss is reported as other operating income/expense. If a property is acquired outside the impact boundary but within the future mining area 18.2 Underground installations the depreciation time is adapted to the time the impact boundary encroaches on the Installations underground, whence iron ore is extracted, can be divided into waste property concerned. rock mining and iron ore mining. Waste rock mining consists of work done to expose An asset’s residual value and useful life are evaluated at the close of each reporting the orebody in connection with the construction of a main haulage level, construction period and adjusted as necessary. pertaining to transport and maintenance functions such as railways, roads, tunnels, shafts, inclined drifts (a system of access for vehicle traffic from surface level to the 19 Intangible assets work site underground), and facilities for service and electrical and air supply. These 19.1 Goodwill expenses referring to installations intended for use for a period longer than one year, Goodwill is measured at cost less any accumulated impairment losses. Goodwill is al- are activated on the statement of financial position. Depreciation takes place system- located among cash-generating units and is tested annually for impairment; see account- atically during the lifetime of the main level concerned. ing principles in section 21.1. The difference between the cost of a business acquisition Iron ore mining consists mainly of activities including development, cave drilling, and and the fair value of the identifiable acquired assets, assumed liabilities and contingent loading, haulage and hoisting of the ore. Expenses for these activities have a useful life liabilities is reported as goodwill. of at most one year, which is why they are expensed as they are incurred. 19.2 Mineral rights 18.3 Open-pit mines Mineral rights are reported at cost less accumulated amortizationand any impairments. Iron ore mining above ground takes place in so-called open-pit mines. In order to expose the orebody stripping often takes place where such things as moraine and waste 19.3 Research and development rock are removed. During the development phase expenditures are activated as part of Expenditures for research aimed at acquiring new scientific or technical knowledge are expensed in the period in which they arise. No tes to the financial statements | 103

Development expenditures, i.e. expenses for research of which the results or other An impairment is reported when the carrying amount of an asset or cash-generating knowledge is applied to realise new or improved products or processes, are reported unit (group of units) exceeds its recoverable amount. Impairment losses are charged as an asset in the statement of financial position if the product or process is technically to the income statement. Impairments of assets attributable to cash generating units and commercially viable and the company has sufficient resources to complete the (group of units) is allocated to goodwill in the first instance, after which a proportional development and subsequently use or sell the intangible asset. The value includes impairment of other assets in the unit (group of units) is carried out. directly attributable expenses such as goods and services and remuneration to The recoverable amount is fair value less selling expenses or value in use, whichever employees. If the above criteria are not fulfilled, the costs must be expensed. Because is the greater. When calculating value in use, future cash flows are discounted using a no such development expenditures have met these criteria thus far, LKAB expenses all pre-tax discount rate that reflects risk-free interest and the risks associated with the expenditures for development as they arise. specific asset.

19.4 Other intangible assets 21.2 Impairment of financial assets Other intangible assets such as software acquired by the Group are reported at cost On each reporting occasion, the company assesses whether there is objective evidence less accumulated amortization(see below) and impairments. that a financial asset or group of financial assets requires impairment. Objective evidence constitutes observable circumstances that have had an adverse impact on 19.4.1 Emissions allowances the potential to recover the amortised cost such as breach of contract, late or defaulted LKAB participates in the EU’s system for trade in emissions allowances. LKAB received payment from a counterparty or bankruptcy, or a significant or long-term decrease in carbon-dioxide emissions allowances for 2012 in February. An emission allowance the fair value of a component of a financial investment classified as a financial asset grants the right to emit carbon dioxide and is therefore an intangible asset. Allocations available for sale. are entered against deferred income as the company has not yet qualified for any The recoverable amount of assets belonging to the categories held-to-maturity secu- allowances at the time of issue; qualification takes place at the same pace as actual rities and accounts receivable reported at amortised cost, is calculated as the current emissions. When emissions are made a liability arises for the delivery of emission value of future cash flows, discounted at the original effective interest rate calculated allowances to cover said emissions. This liability is classified as an emission. The when the asset was first reported. Short-duration receivables are not discounted. liabilities are measured at the cost of the allocated emission allowances. The income Impairment losses are charged to operating profit/loss in the income statement. is distributed against the cost it is intended to cover. When emission allowances are If an impairment in fair value of a financial asset classified as available for sale has reported an equivalent number of emission allowances must be delivered. Thus the previously been reported directly against comprehensive income and there is objective intangible asset is used and the provision for emissions made is settled. Where a evidence that there is need for an impairment, the accumulated loss reported in com- liability to deliver emission allowances exceeds the remaining allocation of emission prehensive income must be removed from comprehensive income and entered in the in- allowances the excess amount is carried as a liability measured at the current market come statement, even if the financial asset has not been eliminated from the statement value of the number of emission allowances necessary to settle the obligation. For of financial position. The eliminated loss relates to the difference between cost and information regarding amounts, see Note 26. current fair value, after deduction for any previous impairment of the financial asset.

19.5 Additional expenditures 21.3 Reversal of impairments Additional expenditures for capitalised intangible assets are reported as assets in the Impairments of assets included in the IAS 36 application area are reversed when there statement of financial position only when they increase the future economic benefits for is an indication that impairment is no longer necessary and there has also been a the specific asset to which they pertain. All other expenditures are expensed as they arise. change in the assumptions which formed the basis of the calculation of the recoverable amount when the asset was impaired. However, impairment of goodwill is never 19.6 Amortization principles reversed. A reversal is only made to the extent that the asset’s carrying amount after Amortizations are reported in the income statement in a straight-line across the estimat- reversal does not exceed the carrying amount that the asset would have had, with a ed useful life of the intangible assets. Amortizable intangible assets are written off from deduction for amortization, if no impairment had been carried out. the date upon which they are available for use. The estimated periods of useful life are: Impairments of securities, loans receivables and accounts receivable, which are reported at accrued cost, are reversed if a subsequent increase in recoverable amount - Mineral rights 30–50 years can be related objectively to an event occurring after the impairment was made. - Tenancy rights 10 years Impairments of equity instruments classified as vailable-for-salea financial assets - Customer-related intangible assets 3–5 years that were previously reported in the income statement, may not subsequently be - Software 5 years reversed through the income statement but rather in other comprehensive income. The impaired value is the amount on which subsequent revaluations are based and which An asset’s residual value and useful life are tested at the close of each reporting period are reported in other comprehensive income Impairments of interest-bearing instru- and adjusted as necessary. ments classified as available-for-sale financial assets are reversed through the income statement if the fair value increases and the increase can objectively be attributed to 20 Inventories an event that occurred after the impairment was carried out. Inventories are reported at the lower of cost or net realisable value. The cost of inventories is calculated on the basis of the first-in, first-out (FIFO) method and includes 22 Equity expenditures arising from the acquisition of the inventory assets and their transport 22.1 Dividends to their current location. In the case of manufactured goods and work in progress, cost Dividends are reported as a liability once they have been approved by the Annual includes a reasonable proportion of indirect costs based on normal capacity. General Meeting. Net selling price is the estimated selling price in current operations, after deductions for estimated costs of completion and for realising a sale. 23 Earnings per share Calculation of earnings per share is based on the Group’s profit for the year attribut- 21 Impairments able to Parent Company shareholders and the weighted average number of shares The Group’s reported assets are tested on every closing date to ascertain whether any outstanding during the year. impairment requirement is indicated. Every closing day a test is carried out on previously impaired assets other than financial assets and goodwill as to whether a reversal 24 Employee benefits should take place. 24.1 Defined-contribution pension plans Defined contribution pension plans are classified as those plans under which the com- 21.1 Impairment of property, plant, equipment, intangible assets and participations pany’s obligation is limited to the contributions the company has undertaken to pay. in subsidiaries, associated companies and joint ventures Under such plans the size of an employee pension is based on the contributions the If an impairment requirement is indicated, the recoverable value of the asset is calcu- company pays to the plan or to an insurance company and the capital yield generated lated. The recoverable amount for goodwill is calculated annually. If it is not possible by the contributions. Consequently, it is the employee who bears the actuarial risk (that to ascertain essentially independent cash flows attributable to a single asset when an the payment will be lower than expected) and the investment risk (that the investment impairment requirement is assessed, assets are grouped at the lowest level at which it assets will be inadequate to provide the expected benefits). The company’s obliga- is possible to identify essentially independent cash flows (a so-called cash-generating tions in respect of contributions to defined-contribution plans are reported as a cost in unit). the income statement as they are earned by the employees performing work for the company during the period. 104 | INTEGRATED REPORT 2012

24.2 Defined-benefit pension plans 27 PARENT COMPANY ACCOUNTING PRINCIPLES The Group’s net obligation for defined-benefit plans is calculated separately for each The Parent Company has prepared its annual report in compliance with the Swedish plan by estimating the future compensation that employees have earned through em- Annual Accounts Act (1995:1554) and Swedish Financial Reporting Board recommen- ployment in present and previous periods; this compensation is discounted to present dation RFR 2 Reporting for Legal Entities. Statements issued by the Swedish Financial value and the fair value of any plan assets is deducted. The discount rate is the interest Reporting Board for publicly listed companies are also applied. RFR 2 means that in rate on the closing day for a first-class corporate bond with a maturity corresponding preparing the annual accounts for the legal entity the Parent Company must apply all to the Group’s pension obligations. When there is no active market for such corporate IFRS and statements approved by the EU as far as is possible within the framework of bonds, the market interest rate on government bonds with an equivalent maturity is the Swedish Annual Accounts Act and Swedish Pension Obligations Vesting Act taking used instead. The calculation is made by a qualified actuary using the Projected Unit into account the relationship between reporting and taxation. The recommendation Credit Method. In addition, the fair value of plan assets as per closing day is calculated. specifies the exceptions from, and additions to, IFRS that must be made. Actuarial gains and losses may arise when the present value and the fair value of The amendments to RFR2 Reporting for Legal Entities that have come into force and plan assets are determined. These arise either as a result of outcomes deviating from which are applicable in the 2012 financial year have had no significant impact on the assumptions previously made or revisions to the said assumptions. Parent Company’s accounts. In previous years the corridor rule was applied when reporting actuarial gains and The Swedish Financial Reporting Board has published a change in RFR 2 regarding losses. From 2011, all actuarial gains and losses are reported directly in other compre- reporting Group contributions, which comes into force for the financial year beginning hensive income. January 1, 2013 or later. The change means that companies may choose between The carrying amount for pensions and similar obligations shown in the consolidated reporting Group contributions according to the recommendation’s main rule or an statement of financial position represents the present value of the obligation at the end alternative rule. According to the main rule the parent company reports Group contri- of the financial year, less the fair value of plan assets and unreported costs relating to butions received from subsidiaries as financial income and Group contributions paid to employment in earlier periods. subsidiaries as an increase in shares in Group companies. According to the alternative When the calculation leads to an asset for the Group, the carrying amount of the rule Group contributions the parent company receives from, or pays to, subsidiaries asset is limited to net unreported costs for employment in previous periods as well as are reported as appropriations. LKAB has chosen to report all Group contributions as the current value of future repayments from the plan or reduced future payments to it. financial income in 2012. When the compensation in a plan improves, the portion of the increased compensation attributable to the employees’ services in previous periods is reported as an expense 27.1 Differences between Group and Parent Company accounting principles in the income statement on a straight-line basis over the average period until the com- Differences between Group and Parent Company accounting principles are detailed be- pensation is fully vested. If the compensation is fully vested, an expense is reported low. The Parent Company accounting principles specified below have been consistently directly through the income statement. When there is a difference in how the pension applied to all the periods presented in the Parent Company’s financial reports. cost is determined for a legal entity and the Group, a provision or receivable for the special employer’s contribution is reported based on this difference. No calculation is 27.2 Subsidiaries, associated companies and joint ventures made for the present-value of the provision or receivable. Participations in subsidiaries, associated companies and joint ventures are reported Net interest of pension provisions and expected yield from associated plan assets are by the Parent Company according to the cost method. This means that transaction reported in net financial income/expense.O ther components are reported in the income expenses are included in the carrying amount for holdings in subsidiaries, associated statement. companies and joint ventures.

24.3 Short-term employee benefits 27.3 Financial instruments and hedge accounting Short-term employee benefits are calculated on an undiscounted basis and reported as Owing to the relationship between reporting and taxation, the rules referring to finan- an expense when the related services are received. cial instruments and hedge accounting in IAS 39 are not applied in the Parent Company A provision is made for the expected cost of profit-sharing or bonus payments when as a legal entity. Non-current financial assets are measured in the Parent Company the Group has a legal or informal obligation to make such payments as a result of ser- at cost less any impairments, or as current financial assets, whichever is the lower. vices being rendered by employees and a reliable estimate of the amount can be made. Valuation of shares and money market investments is done at the portfolio level. This means that for instruments included in the same portfolio, unrealised gains are offset 25 Provisions against unrealised losses. Surplus losses are reported as reduction in interest income A provision differs from other liabilities because of prevailing uncertainty about pay- on the line Other interest income and similar items. Surplus gains are not reported. ment date or the amount required to settle the provision. A provision is reported on the Liabilities are measured at amortised cost. statement of financial position when there is an existing legal or informal obligation due to a past event, it is probable that an outflow of economic resources will be re- 27.3.1 Derivatives and hedge accounting quired to settle the obligation, and that the amount can be reliably estimated. Currency exposure in respect of forecast future flows are hedged through forward A provision is made in an amount that is the best estimate of what is required to exchange rate contracts. Forward exchange contracts that protect the forecast flow are settle the existing obligation on the closing date. When the effect of payment timing is not reported on the balance sheet. Changes in value in forward contracts are reported important, provisions are calculated by discounting the forecast future cash flow at a in the same period as the forecast flow occurs. pre-tax interest rate that reflects current market estimates of the time value of money The hedged volume in US dollars is matched against the estimated net inflow ofUS and, where appropriate, the risks associated with the liability. dollars. If the hedged volume exceeds the value of the expected net inflow and there is an unrealised exchange loss, it is reported as a financial expense. If there is an unreal- 25.1 Restructuring ised exchange gain, it is not reported. A provision for restructuring is reported when a detailed, formal restructuring plan has Accrual of forward exchange discounts and premiums on US dollar hedges take been established and the restructuring has either begun or been publicly announced. place in accordance with Swedish Accounting Standards Board recommendation No. 7 No provision is made for future operating losses. The interest component is considered financial in nature and it is reported in the Parent Company’s Net financial items. The difference between the average exchange rate and 25.2 Remediation expenses the year-end rate on binding forward exchange contracts is reported as a contingent Provision for remediation expenses is made when the Group has a legal or informal liability if the year-end rate is higher than the average rate of the forward exchange obligation where, for example, the environmental court requires a financial guarantee contract. for expanded operations. 27.4 Financial guarantees 25.3 Provisions resulting from mining operations The Parent Company’s financial guarantee agreements mainly consist of guarantees See item 28 in Note 1. that benefit subsidiaries. Financial guarantee agreements mean that a company has a commitment to remunerate the bearer of a debt instrument for losses incurred as a 26 Contingent liabilities result of the failure of a given debtor to make full payment on due date in accordance A contingent liability is reported if there is a possible commitment stemming from with the terms of the agreement. The Parent Company applies one of the relief rules events evidence of whose occurrence is dependent on one or more uncertain future permitted by the Swedish Financial Reporting Board, compared with the rules in IAS events as well as when there is a commitment that is not reported as a liability or 39, in its reporting of financial guarantee agreements made out for the benefit of sub- provision because it is unlikely that an outflow of resources will be required. sidiaries. The Parent Company reports financial guarantee agreements as a provision No tes to the financial statements | 105

in the balance sheet when the company has an obligation for which settlement will about even if mining were to cease (100 m) and for an area designated as a Mine City probably require payment. Park (350 m), equivalent to around seven-years conversion time from built-up area to mine city park to industrial area. The basic rule is that an undertaking is not reported 27.5 Anticipated dividends until the impact boundary encroaches upon the real estate boundary or infrastructure Anticipated dividends from subsidiaries are reported in cases where the Parent Com- concerned. pany has sole right to decide the size of the dividend and has decided on the size of the Even though there may be major similarities between conditions in Kiruna and dividend before the publication of its financial statements. Malmberget the geological conditions differ, and in the case of Malmberget there are no environmental conditions established in the courts. In Kiruna the gradual spread 27.6 Intangible assets of deformations takes place through continuous fracturing, while in Malmberget a 27.6.1 Research and development widespread undermining is taking place of the surface where the community’s central All research and development expenditures are reported as expenses in the Parent parts are located. The deformations are the direct result of mining operations. In the Company income statement. case of Malmberget it can be shown that the impact area from mining operations from several orebodies has largely encircled Malmberget’s town centre. Under prevailing 27.7 Employee benefits circumstances Malmberget’s central areas can be described as communities that are 27.7.1 Defined-benefit plans no longer functional. The Parent Company applies principles other than those described in IAS 19 when cal- The impact will continue for many years ahead and there will be uncertainty regard- culating defined-benefit plans. The Parent Company complies with the provisions of the ing e.g. geological consequences, assumptions about market values, demolition and Swedish Pension Obligations Vesting Act and Swedish Financial Supervisory Authority waste disposal costs, etc. The uncertainty present in calculations made hitherto will fall regulations since this is a condition for tax deductibility. The essential differences, com- as new experience gained is taken into consideration in future calculations. pared to IAS 19, are the way in which the discount rate is determined, that calculation The size of provisions was calculated based on objective valuation methods for each of defined-benefit commitments is based on current salary levels without assuming sort of asset (railway, land, municipal infrastructure, etc.) and priced at present value. any future salary increases, and that all actuarial gains and losses are reported in the A deciding factor in how damages caused by LKAB mining activities must be handled income statement as they arise. for accounting purposes is where the impact boundary is located at any given time. All damages/compensation claims that lie within the impact boundary will be calculated 27.8 Taxes and reported as provisions and expensed in the income statement. This must be seen In the Parent Company, deferred tax liabilities are reported as part of untaxed reserves. in the light of LKAB’s already having consumed the economic benefits generated by In the consolidated accounts, untaxed reserves are divided between deferred tax li- mining. abilities and equity. If an acquired property inside the impact boundary is expected to be let temporar- ily over a period from the acquisition until evacuation, its value in use is calculated. If 27.9 Group contributions and shareholders’ contributions for legal entities the calculation indicates a positive net cash flow the amount is activated as a building Group contributions paid and received by the Parent Company are reported as financial component instead of being expensed. The building component is depreciated over the items. Shareholder contributions are transferred directly against equity and activated period during which it is expected to be let. in shares and participations with the donor, to the extent that impairments are not required. 28.2 Pension benefits Several assumptions are important components in the actuarial methods used to cal- 28 Significant estimates and assessments culate pension obligations, and these may have a significant impact on reported net li- In presenting the financial reports, the Company Management and the Board of Direc- ability and annual pension expense. The discount rate and the estimated return on plan tors must make certain estimates and assumptions that affect the reported amounts assets are two critical assumptions used in calculating the year’s pension expense and pertaining to assets, liabilities, income and expenses, and other disclosures such as the current value of pension obligations. contingent liabilities. These assumptions are revised each year, for each pension plan, in each country. Estimates and assessments that are considered to be of greatest importance for an Many factors do not change as often, such as personnel turnover and retirement age. For understanding of the financial statements in regard to degrees of significance and un- financial and other reasons, actual outcomes often differ from actuarial assumptions. certainty, are presented below. Conditions for LKAB’s operations change continuously, The discount rate enables the measurement of future cash flows to current value which means that these assessments also change. on the measurement date. This rate must correspond to yields on either high-quality corporate bonds or, if there is no active market for such bonds, government bonds. 28.1 Provisions resulting from mining operations A lower discount rate increases the current value of the pension obligation and the LKAB has extracted iron ore in Norrbotten for more than 120 years. The technology annual pension cost. used for ore extraction in underground mines leads to deformations in the form of In order to determine the expected rate of return on plan assets, LKAB considers fractures in the land where mining is pursued. The deformation zones are, or will be, the current and anticipated categories of plan assets as well as historic and expected so extensive that it will be necessary to successively relocate sections of Kiruna and returns on the various categories. Malmberget. Compared to the previous year, the average discount rate is 3.2 (3.7) percent. LKAB has already made, and will continue to make, significant expenditures in respect of these urban transformations. For instance, LKAB will incur expenses for the acquisi- 28.3 Taxes tion of real estate and municipal infrastructure such as electricity, water and sewage in Significant estimates are made to determine current tax liabilities and current tax as- the affected areas. The expenditures arise from LKAB’s mandatory obligation to compen- sets, and for deferred tax liabilities and deferred tax assets. LKAB has to determine the sate damage resulting from mining activities. probability of deferred tax assets being utilised to offset future taxable profits. Actual Provisions for the damages that the deformations cause cover damage already outcomes may differ from these estimates, for instance due to changed tax legislation, confirmed and damage not yet confirmed but which will occur after a year or more’s or the outcome of final reviews of tax returns as yet unconcluded by tax authorities delay as a result of existing mining. and tax courts. Deferred tax assets and liabilities have been recalculated with regard to the new corporate tax rate in Sweden, which falls from 26.3 percent to 22 in 2013. The These state that LKAB must report a provision when: effect of the changed tax rate amounts to SEK 719 million. 1. A legal or informal obligation toward an external party exists, 2. as a result of events 28.4 Disputes 3. that the company anticipates an outflow of economic resources to settle the LKAB is party to a number of disputes and legal proceedings in the course of day- obligation, to-day business. Management consults with legal experts on issues related to legal 4. and that the amount can be reliably estimated. disputes and with other experts internal or external on issues related to the ordinary course of business. Management’s considered opinion is that neither the Parent Com- A limit to impact-related compensation has been defined by LKAB and designated as pany, nor any subsidiary, is currently involved in legal proceedings or arbitration that the impact boundary. may be deemed to have a material negative effect on the business, its financial position The impact boundary in Kiruna, which moves gradually forward, is based on the or profit/loss in operations. existing environmental terms boundary according to rulings from the environmental court. Additions are made for a safety zone for operations that are expected to come 106 | INTEGRATED REPORT 2012

Note 2 Distribution of revenues

Group Parent Company SEK million 2012 2011 2012 2011 Net sales: Sale of goods – iron ore 24,909 28,024 25,054 28,282 Sale of goods – industrial minerals 1,760 2,623 Other 302 475 Total 26,971 31,122 25,054 28,282

Note 3 Segment reporting Segment information The Group consists of the following business segments: Group Management has set up business segments based on the information used to Mining Division. The Mining Division mines and processes iron ore products for steel make strategic decisions in LKAB’s business operations. The Group’s internal reporting making. The main products are pellets and fines, and the number of customers is system is based on this, as are its product and division perspectives. Group Manage- limited to about twenty. ment assesses and follows up business activities in the respective divisions, and follow-up is focused on operating income and operating assets in business activities. Minerals Division. The Minerals division develops, produces and markets industrial Intra-Group prices between segments are set based on the arm’s length principle, mineral products for several application areas and customers in many different indus- i.e. between parties that are independent of each other, well-informed and have a stake tries throughout the world. The most important industries are construction and civil in the implementation of the transaction. engineering, oil and gas extraction, rubber, plastics and paint, chemicals, automotive Income, assets and liabilities for the segments include directly attributable items. and foundries. There are several thousand customers. Non-distributed items consist of net financial income and xpensee and tax expenses. Assets and liabilities not allocated to segments include income tax receivables and Special Businesses Division. The majority of LKAB’s subsidiaries are in the Special payables, investments and financial liabilities. The segments’ investments in property, Businesses Division. These companies are mainly suppliers to the Mining Division and plant, equipment and intangible assets include all investments with the exception of the Minerals Division. Examples of goods and services sold include drilling equipment, those in current inventory and inventory of minor value. explosives, concrete, tunnel driving, rock reinforcement, and crushing of iron ore.

The following segment information is reported:

Operating segments Group special Mining Division minerals Division Businesses Division Total Eliminations*** Group SEK million 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 External revenues 24,909 28,024 1,760 2,623 302 475 26,971 31,122 26,971 31,122 Intra-Group revenues 235 310 2 5 2,049 2,048 2,286 2,363 -2,286 -2,363 Total revenues 25,144 28,334 1,762 2,628 2,350 2,523 29,257 33,485 -2,286 -2,363 26,971 31,122

Operating profit/loss per operating segment10,127 13,624 132 603 230 405 10,489 14,632 10,489 14,632 Group-related adjustments*) 106 73 Operating profit 10,595 14,705 Net financial income/expense 428 97 Profit before tax 11,023 14,802 Tax -2,235 -3,842 Profit for the year 8,789 10,960

Assets 37,685 33,682 1,076 1,324 1,051 1,120 39,812 36,128 -1,963 -2,021 37,849 34,105 Unallocated assets 19,772 19,625 Total assets 57,621, 53,730

Liabilities 11,982 11,881 551 676 417 610 12 950 13,167 -516 -1,106 12,434 12,061 Unallocated liabilities 3,516 3,776 Total liabilities 15,950 15,837

Capital expenditures **) 5,663 5,066 38 21 106 39 5,808 5,126 5,808 5,126 Depreciations 1,850 1,805 28 28 68 58 1,946 1,891 1,946 1,891 Impairments 1 1 - - - - 1 1 1 1

*) refers to e.g. an adjustment in Group pension liabilities as per IAS 19, internal profits and other group-related adjustments **) refers to property, plant & equipment ***) refers to Intra-Group transactions No tes to the financial statements | 107

Operating segments (cont.) Geographic areas Group sales are mainly made from Sweden and thus by the Swedish companies. Manufacturing of the Group’s product took place almost exclusively in Sweden. Investments were made principally in Sweden. The carrying amount of assets per country/region are according to where the assets are located, and revenues are reported on the basis of where sales, production, delivery and invoicing take place, regardless of where the customers are located.

Group Sweden Rest of Europe Asia Rest of World**) SEK million 2012 2011 2012 2011 2012 2011 2012 2011 External revenues 25,219 28,865 1,011 1,257 656 1,000 85 - Assets*) 27,574 23,799 2,867 2,747 9 9 1 2 Capital expenditures *) 5,531 4,637 276 433 1 1 0 -

*) refers to property, plant, equipment **) countries not part of Europe or Asia

Information about major customers According to IFRS 8, companies must provide information about major customers. The LKAB Group has three major customers, each of which accounts for more than ten percent of the Group’s sales. Sales to these customers amounted to 15 (18 ) percent, 14 (11) percent,11 (10) percent and are reported in the operating segment Mining Division.

Parent Company Mining Division Minerals Division special Businesses Division parent Company SEK million 2012 2011 2012 2011 2012 2011 2012 2011 Net sales 25,054 28,282 25,054 28,282

Parent Company Europe Asia Rest of World**) Parent Company SEK million 2012 2011 2012 2011 2012 2011 2012 2011 Net sales 16,803 19,220 7,084 7,900 1,167 1,162 25,054 28,282

**) countries not part of Europe or Asia

Note 4 Other operating income Note 5 Other operating expenses Group parent Company Group parent Company SEK million 2012 2011 2012 2011 SEK million 2012 2011 2012 2011 Rental incomes, buildings 162 154 14 0 Exchange rate losses on receivables/liabilities Gain on sale of fixed assets 2 4 0 0 related to operations 7 38 - - Exchange rate gains on receivables/liabilities Property expenses 115 103 - - related to operations 28 90 13 15 Loss on sale of fixed assets 3 4 3 Insurance compensation - 0 - - Other 473 258 392 379 Rental and leasing income 6 12 7 11 598 403 395 379 Other 341 106 432 193 539 366 466 219

Note 6 Employees, personnel costs and remuneration to senior executives Average no. employees of whom of whom of whom of whom Parent Company 2012 women men 2011 women men Sweden 3,317 19% 81% 3,166 17% 83% Total Parent Company 3,317 19% 81% 3,166 17% 83%

Subsidiaries Sweden 480 13% 87% 472 12% 88% China 48 29% 71% 43 21% 79% The Netherlands 25 32% 68% 22 32% 68% Norway 198 10% 90% 201 11% 89% UK 208 21% 79% 208 21% 79% Germany 18 50% 50% 17 47% 53% Other countries 63 27% 73% 62 26% 74% Total in subsidiaries 1,040 17% 83% 1,025 16% 84%

Total, Group 4,357 18% 82% 4,191 17% 83% 108 | INTEGRATED REPORT 2012

Gender distribution in Company Management as of December 31 2012 2012 2011 2011 Percentage Percentage Percentage Percentage Parent Company women men women men Board of Directors 40% 60% 50% 50% Other senior executives 33% 67% 33% 67%

Salaries and other remunerations distributed among senior executives and other employees together with social costs in the Parent Company.

Parent Company 2012 2011 Senior Other Total Senior Other Total executives employees executives employees SEK million (19 people) (21 people) Salaries and other remunerations Sweden 24 1,677 1,701 21 1,582 1,603 Parent Company total 24 1,677 1,701 21 1,582 1,603

Social costs1 907 907 1of which pension costs 361 348

Remuneration to senior executives (2 people) is 60 years. Pension is payable at 65 percent of the pension-carrying salary (defined according to ITP plan, and free car benefit) at the time of retirement for the Senior executives period up to the age of 65. The pension commitment is secured via an endowment Senior executives refers to Board members, the President and other senior executives. policy taken out by LKAB with an insurance company. The pension commitment is Other senior executives refers to salaried employees who are members of Group benefit-defined and vested. From the age of 65, pension is payable in accordance with Management together with the President. the ITP plan with a supplement for salary segments between 30 and 50 base amounts. The supplement is 32.5 percent of the pensionable salary (defined according to the ITP Guidelines for remunerations to senior executives plan). Obligations additional to the general pension plan are secured via an endowment Remuneration to the Chairman and Board members is decided by the Annual General policy taken out by LKAB with an insurance company. In addition to the ITP plan’s fam- Meeting. In addition, remunerations are paid for committee work. ily pension (survivor annuity), a special family pension is payable (extended survivor The AGM has decided that government guidelines current at any given time for annuity). Any bonus paid on endowment or pension insurance policies accrues in its employment terms for employees in senior management positions and for incentive entirety to the senior executives as increased pension. The above pensions terms were schemes for employees of state-owned companies shall apply to remunerations to settled by commutation for these two individuals as of 31/12/2012 The right to the Group Management. Government guidelines were updated in April 2009. commutation is earned successively in three equal parts. The first part is considered fully earned upon signing the agreement. The second part is considered earned one Preparation and decision processes for setting remunerations year after the signing of the agreement, and the third is considered earned two years to senior executives after the signing of the agreement. From January 1, 2013, the policy is a defined con- Compensation for the President and salary-setting principles for Group Management tribution plan to which LKAB allocates 30 percent of the fixed annual salary per year. executives are prepared by a compensation committee appointed by the Board of Retirement age is 65 years. Directors. The committee consists of three board members. The Board of Directors takes decisions based on committee proposals. The Chairman of the Board approves The retirement age of other senior executives who joined Group Management between the annual salary reviews of other Group Management executives. 2005–2008 (3 people) is 62 years. In addition to pension benefits regulated by collective agreements (defined according to ITP plan), 14–18 percent of basic annual salary is Principles for remuneration to senior executives allocated as a pension premium. As of December 31, 2012, the above pension terms The President and the other Group Management executives are paid fixed salaries. The were settled for two senior executives by commutation. The right to the commutation is salaries are pensionable. earned successively in three equal parts. The first part is considered fully earned upon Company President Lars-Eric Aaro’s monthly salary was SEK 360.000 per month. signing the agreement. The second part is considered earned one year after the signing Retirement age for the President is 65 years. The President’s pension plan is a of the agreement, and the third is considered earned two years after the signing of the defined-contribution plan whereby LKAB makes a yearly provision of 30 percent of the agreement. From January 1, 2013 the policy is a defined contribution plan to which President’s current fixed annual salary for a pension plan chosen by the President, LKAB allocates 30 percent of the fixed annual salary per year. Retirement age is 65 which may include the ITP plan. That part of the alternative ITP premium that is not years. used to cover premiums for the ITP plan can be used by the President for a complementary pension plan. Accrued pension benefits from earlier employment agreements The retirement age of other managers who became senior executives from January are vested benefits. The President is entitled to decline salary in favour of additional 1, 2009 onwards (3 people) is 65 years. The policy is a defined contribution plan to pension provisions up to a maximum level decided by LKAB. which LKAB allocates 30 percent of the fixed annual salary per year. Mutual notice The retirement age of other senior executives who joined Group Management prior of termination is six months for senior executives. Severance pay equivalent to 18 to 2005 monthly salaries shall be paid when notice of termination of employment is given by the company. For further information, refer to the table Remuneration and other benefits to Group Management executives, 2012. No tes to the financial statements | 109

Remuneration and benefits to Board members 2012 2011 SEK thousands Director’s fee 1) 3) Director’s fee 1) 3) Chairman of the Board Marcus Wallenberg 583 302 Board member Hans Biörck 4) 207 Board member Maija Liisa Friman 250 250 Board member Lars-Åke Helgesson 323 480 Board member Sten Jakobsson 4) 167 Board member Hanna Lagercrantz2) Board member Maud Olofsson 4) 167 Board member Stina Blombäck 83 250 Board member Per-Ola Eriksson 173 Board member Anna-Greta Sjöberg 103 310 Board member Egil M. Ullebö 83 250 Total 1,966 2,015

1) The remuneration includes fees for work on the Board’s Audit committee and the Currency and Finance Committee. 2) No remuniration or benefits are paid to the (government) Finance Department representative. 3) The Board fee for 2012 refers to expenses according to a new accounting principle. The Board fee for 2011 refers to an amount paid out in compliance with the AGM. 4) Refers to expense 2012. To be paid out in 2013..

Remuneration and other benefits to Group Management executives during 2012

variable Other Pension Pension SEK thousands Salary remuneration benefits 1) expense 2) Total obligations President Lars-Eric Aaro 4,471 103 1,361 5,935 4,544 Vice President Leif Boström 2,356 89 1,922 4,367 212 Vice President Anders Furbeck 2,273 17 4,445 6,735 4,862 Vice President Grete Solvang Stoltz 1,952 79 589 2,620 27 Vice President Per-Erik Lindvall 2,588 75 4,920 7,583 7,320 Vice President Anders Kitok 1,942 86 1,854 3,882 643 Vice President Charlotta Fogde 1,505 74 597 2,176 38 Vice President Katarina Holmgren 1,790 86 541 2,417 134 Vice President Markus Petäjäniemi 2,410 72 815 3,297 53 Total 21,287 681 17,044 39,012 17,833

1) Other benefits include car, board and life insurance benefits. 2) Pension costs excluding special contribution tax.

Remuneration and other benefits to Group Management executives during 2011

Variable other Pension pension SEK thousands Salary remuneration benefits 1) expense 2) Total obligations President Lars-Eric Aaro 4,219 101 1,333 5,653 4,499 Vice President Leif Boström 2,060 91 857 3,008 196 Vice President Anders Furbeck 2,010 70 1,429 3,509 4,297 Vice President Grete Solvang Stoltz 1,731 87 554 2,372 18 Vice President Per-Erik Lindvall 2,207 94 1,996 4,297 6,441 Vice President Anders Kitok 1,706 93 879 2,678 618 Vice President Charlotta Fogde 1,491 75 553 2,119 39 Vice President Katarina Holmgren 1,539 91 496 2,126 129 Vice President Markus Petäjäniemi 2,049 79 774 2,902 41 Accrued salaries, Group Management, undistributed 970 970 Total 19,982 781 8,871 29,634 16,278

1) Other benefits include car, board and life insurance benefits. 2) Pension costs excluding special contribution tax.

For information on post-employment benefits, etc; see Note 25 Employee benefits. 110 | INTEGRATED REPORT 2012

Note 7 Auditors’ fees and compensation Financial expenses Interest rate component in forward exchange contracts Group parent Company Interest expense provision for urban transformation -88 SEK million 2012 2011 2012 2011 Interest expense on defined-benefit pension obligations -120 -122 Deloitte Interest expense on loan facility -39 -48 Audit assignment 7 5 4 3 Net profit/loss Audit additional to audit assignment 1 0 0 0 Financial assets appraised at fair Tax advice 1 0 1 0 value in the income statement (fair value option) Other services 1 0 1 0 - return on share portfolios (excl. dividends) -194

revaluation of financial assets -1 0 Other auditors Closure of subsidiary -2 Audit assignment 0 3 - 3 Other financial expenses -15 -12 Tax advice 7 2 6 1 Exchange rate differences (net) -53 -29 Other services 5 3 5 2 Total financial expenses -316 -407

Net financial income/expense 428 96 Audit assignments involve examination of the annual report and financial accounting as well as the administration by the Board of Directors and the President, other tasks Net profit/loss reported in net financial income/expense under exchange rate differ- related to the duties of the company’s auditors together with consultation or other ences refers mainly to revaluation of cash and cash equivalents. Return on assets services that may result from observations noted during such examinations or the managed refers to net return on plan assets. The return on assets managed is not an implementation of such other tasks. actual return, but an anticipated rate of return on funded obligations. Closing-day price data is used for share portfolio valuations. No interest incomes or interest expenses refer to items that are not reported at fair value. Interest income includes returns on money-market instruments and bonds amount- Note 8 Nature of operating expenses ing to SEK 362 million (300). Group parent Company Since the contracts were signed, lower interest rates in SEK compared to USD have SEK million 2012 2011 2012 2011 had a positive effect of SEK 83 million (84), which is coupled to the item interest rate Personnel costs 3,474 3,261 2,713 2,603 component in forward exchange contracts. Materials, etc. 3,723 4,167 2,547 2,340 Limit fees amounting to SEK 39 million (48) in respect of loan facilities impact net Energy 1,687 1,589 1,529 1,449 financial income/expense. Transport 2,384 2,462 3,175 3,197 Revaluation of financial assets is done with discounted cash flows based on available Depreciations 1,953 1,898 1,469 1,483 market rates. During 2012 revaluation affected net financial income/expense by SEK Other operating expenses 3,694 3,406 4,000 3,851 0.9 million (0.5). 16,915 16,783 15,433 14,923 The strengthening of the Swedish crown has entailed exchange-rate losses during the year on assets and bank balances. The operating profit was charged with a provision of SEK 1,181 million (1,234), of which Other financial expenses relate mainly to bank and administration costs. SEK 1,094 million (1,234) to the operating profit, for costs arising from the effects of mining. The amount is a provision for future expenditures. Parent Company Income from Income from participations in participations in subsidiaries associated companies Note 9 Net financial income/expense SEK million 2012 2011 2012 2011 Group Dividend/Group contributions 322 43 1 - SEK million 2012 2011 Financial income Parent Company Income from other other Interest income 391 319 securities and re- interest income Interest rate component in forward exchange contracts 83 84 ceivables held as and similar Closure of associated company 1 non-current profit/loss items Dividend assets Financial assets available for sale 25 25 SEK million 2012 2011 2012 2011 Financial assets appraised at Interest income, subsidiaries 35 36 33 34 fair value (fair value option) 30 28 Interest income, forward exchange premiums 80 86 Return on assets managed 43 47 Interest income, other 385 315 Net profit/loss Return on share portfolio 72 2 Financial assets appraised at fair Dividends, shares 25 25 30 28 value in the income statement (fair value option) Sale of other securities 1 - return on share portfolios (excl. dividends) 171 140 147 520 380 Total net profit/loss 171 Total income from financial items 744 503 Dividends on shares that are financial assets refer to holdings in SSAB.

Interest income and similar income statement items include returns on money-market instruments and bonds amounting to SEK 362 million (300). No tes to the financial statements | 111

P arent Company Interest expenses and Note 11 Taxes similar profit/loss Reported in income statement items Group SEK million 2012 2011 SEK million 2012 2011 Interest expense, limit fee on loan facility -40 -48 Current tax expense (-) Interest expenses, subsidiaries -13 -18 Tax expense for the year -2,443 -3,197 Interest expenses, pension liabilities -34 -35 Adjustment for taxes attributable to previous years -73 -6 Interest expenses, urban transformation -87 -2,516 -3,203 Impairment loss, financial assets -1 -1 Deferred tax expense (-) Exchange rate differences, foreign currency -45 -13 Deferred tax in regard to temporary differences 282 -638 Interest expenses, other -3 -3 282 -638 Other -7 -5 Total reported tax expense in Group -2,234 -3,841 -230 -123

Parent Company Interest expenses on pension liabilities were calculated at an interest rate of 4.2 (4.5) SEK million 2012 2011 percent. The impairment of financial assets is in respect of a claim against Jernban- Current tax expense (-) everket. Tax expense for the year -2,341 -3,008 Adjustment for taxes attributable to previous years -73 -7 Other financial expenses relate mainly to bank and administration costs. -2,414 -3,015 Deferred tax expense (-) Income from financial instruments reported in operating income is shown Deferred tax in regard to temporary differences 198 -31 in the following table: 198 -31 Group parent Company Total reported tax expense in the Parent Company -2,216 -3,046 SEK million 2012 2011 2012 2011 Exchange rate gains/losses from accounts receivable Reconciliation of effective tax and trade accounts payable 7 113 13 15 Group 2012 2011 Net gains/flosses on derivatives SEK million (%) 2012 (%) 2011 reported in operating income 57 615 57 615 Profit before tax 11,023 14,801 Tax according to current tax rate The derivatives reported in operating income refer mainly to hedging of accounts for Parent Company 26.3% -2,899 26.3% -3,893 receivable. Non-deductible expenses 0.3% -31 0.3% -43 Tax-exempt income -0.2% 26 -0.1% 16 Note 10 Appropriations Tax attributable to previous years 0.7% -73 0.0% -6 Standard interest on tax allocation reserves 0.2% -26 0.4% -46 P arent Company Effect of changed tax rates -6.5% 719 SEK million 2012 2011 Other -0.5% 50 -0.9% 131 Difference between book depreciation and Reported effective tax rate 20.3% -2,234 26.0% -3,841 appreciation according to plan: Installations underground, in progress -1,305 0 Parent Company 2012 2011 Buildings and land 1 1 SEK million (%) 2012 (%) 2011 Machinery and inventories 506 -184 Profit before tax 8,485 11,653 Tax allocation reserve, provisions for the year -2,960 -3,600 Tax according to current tax rate Tax allocation reserve, reversal for the year 1,400 1,410 for Parent Company 26.3% -2,232 26.3% -3,065 Total -2,358 -2,373 Non-deductible expenses 0.2% -14 0.3% -38 Tax-exempt income -1.9% 165 -0.5% 54 Deferred tax on appropriations amounted to SEK -519 million (-624). Deferred tax on Tax attributable to previous years 0.9% -73 0.1% -7 appropriations is only reported in the consolidated income statement. Standard interest on tax allocation reserves 0.3% -26 0.4% -46 Effect of changed tax rates 1.1% -95 Other -0.7% 59 -0.5% 56 Reported effective tax rate 26.2% -2,216 26.1% -3,046

Tax attributable to other comprehensive income Group SEK million 2012 2011 Cash flow hedges -67 75 Actuarial gains/losses 47 19 -20 94 112 | INTEGRATED REPORT 2012

Reported in statement of financial position and the balance sheet

Reported deferred tax assets and liabilities Deferred tax assets and liabilities refer to the following: Deferred Deferred Group tax asset tax liability Net SEK million 2012 2011 2012 2011 2012 2011 Buildings and land 36 34 -45 -29 -9 5 Machinery and inventories 5 92 -1,992 -2,083 -1,987 -1,991 Pension provisions 442 469 442 469 Tax allocation reserves 6 7 -2,224 -2,261 -2,218 -2,254 Contingency reserves -99 -118 -99 -118 Cash flow hedges 17 -51 -51 17 Loss carryforwards 93 78 93 78 Provisions, urban transformation 316 316 Current receivables 17 17 Current investments -24 -3 -24 -3 Other 21 7 -2 21 5 Tax assets/liabilities 919 721 -4,435 -4,496 -3,516 -3,775 Offset -919 -721 919 721 Tax assets/liabilities, net -3,516 -3,775 -3,516 -3,775

Reported deferred tax assets and liabilities Deferred tax assets and liabilities refer to the following: Deferred Deferred Parent Company tax asset tax liability Net SEK million 2012 2011 2012 2011 2012 2011 Buildings and land 29 33 29 33 Machinery and inventories 4 92 4 92 Pension provisions 131 156 131 156 Provisions, urban transformation 316 316 Other 6 7 6 7 Tax assets 486 288 486 288

Change in deferred tax in temporary differences and loss carryforwards

Reported in Reported against Group Balance as of Income other Other Balance as of SEK million Jan 1, 2011 statement comp. income changes Dec 31, 2011 Buildings and land -3 8 5 Machinery and inventories -1,893 -98 -1,991 Pension provisions 456 -50 19 44 469 Tax allocation reserves -1,690 -564 -2,254 Contingency reserve -118 -118 Cash flow hedges -58 75 17 Loss carryforwards 67 11 78 Current receivables 17 17 Current investments -55 52 -3 Other 6 3 -4 5 -3,271 -638 94 40 -3,775

Reported in Reported against Balance as of Income other Other Balance as of SEK million Jan 1, 2012 statement comp. income changes Dec 31, 2011 Buildings and land 5 -14 -9 Machinery and inventories -1,991 4 -1,987 Pension provisions 469 -74 47 442 Tax allocation reserves -2,254 36 -2,218 Contingency reserve -118 19 -99 Cash flow hedges 17 -1 -67 -51 Provisions, urban transformation 316 316 Loss carryforwards 78 15 93 Current receivables 17 -17 Current investments -3 -21 -24 Other 5 19 -3 21 -3,775 282 -20 -3 -3,516 No tes to the financial statements | 113

Reported Carrying amounts Parent Company Balance as of in income Balance as of As of December 31, 2012 188 14 119 321 SEK million Jan 1, 2011 statement Dec 31, 2011 As of December 31, 2011 190 19 61 270 Buildings and land 33 0 33 Machinery and inventories 94 -2 92 As of January 1, 2012 190 19 61 270 Pension provisions 185 -29 156 As of December 31, 2012 185 18 74 277 Other 7 7 319 -31 288 Amortization and impairments are reported in the following lines in the income statement Reported Parent Company Balance as of in income Balance as of SEK million Group SEK million Jan 1, 2012 statement Dec 31, 2012 2012 2011 Buildings and land 33 -4 29 Cost of goods sold -4 -7 Machinery and inventories 92 -88 4 -4 -7 Pension provisions 156 -25 131 Provisions, urban transformation 316 316 Parent Company mineral Other Total Other 7 -1 6 SEK million rights 288 198 486 Accumulated acqusition value Opening balance January 1, 2011 161 124 285 Change, renewable energy certificates -5 -5 Change in emissions allowances -50 -50 Note 12 Earnings per share Closing balance December 31, 2011 161 69 230 The number of shares totals 700,000 for 2012 and 2011. Net income attributable to Parent Company shareholders amounts to SEK 8,789 million (10,960). Earnings were Opening balance January 1, 2012 161 69 230 thus SEK 12,555 (15,657) per share. No options or potential common shares exist, for Change, renewable energy certificates 1 1 which reason there is no dilution. Change in emissions allowances 16 16 Closing balance December 31, 2012 161 86 247

Accumulated amortizations Note 13 Intangible assets Opening balance January 1, 2011 -161 -8 -169 All of the Group’s intangible assets were acquired. Amortizaion for the year -3 -3 Closing balance December 31, 2011 -161 -11 -172

Group Mineral Opening balance January 1, 2012 -161 -11 -172 SEK million Goodwill rights other Total Amortization for the year -2 -2 Accumulated acqusition value Closing balance December 31, 2012 -161 -13 -174 Opening balance January 1, 2011 196 289 148 633 Change, renewable energy certificates -5 -5 Carrying amounts Change in emissions allowances -50 -50 As of January 1, 2011 116 116 Reclassifications 4 4 As of December 31, 2011 58 58 Exchange rate differences for the year 3 -4 -1 Closing balance December 31,2011 203 285 93 581 As of January 1, 2012 58 58 As of December 31, 2012 73 73 Opening balance January 1, 2012 203 285 93 581 Change, renewable energy certificates 1 1 Impairment requirements for cash-generating units containing goodwill Change in emissions allowances 16 16 The following cash-generating units, which form parts of the primary segment Minerals Exchange rate differences for the year -5 0 -5 Division, have significant amounts of goodwill in relation to the Group’s total carrying Closing balance December 31, 2012 198 285 110 593 amount of goodwill:

Accumulated amortizations SEK million 2012 2011 Opening balance January 1, 2011 -182 -29 -211 Minelco Ltd 111 123 Amortization for the year -0 -3 -3 Minelco OY 34 35 Reclassifications -4 -4 145 158 Adjustment to earlier years 9 9 Units without significant amounts Closing balance December 31, 2011 -4 -173 -32 -209 of goodwill, compiled 40 32 185 190 Opening balance January 1, 2012 -4 -173 -32 -209 Amortization for the year 0 -4 -4 Assessment of the recoverable amounts of cash-generating units is based on the same Exchange rate differences for the year -1 -1 important assumptions. Closing balance December 31, 2012 -4 -174 -36 -214 The impairment test is based on value in use. This value is based on cash-flow forecasts where the first three years are based on the three-year business plan Accumulated impairment losses established by the Minerals Division’s company management. The total forecast period Opening balance January 1, 2011 -8 -93 -101 corresponds to the useful life of the unit’s most important assets. The cash flow Exchange rate differences for the year -1 -1 forecast after the first three years was based on an annual growth rate of 2–3 percent Closing balance December 31, 2011 -9 -93 -102 (2–3), which corresponds to the long-term growth rate of the unit’s markets. The forecast cash flows have been appraised at present value with an individual discount Opening balance January 1, 2012 -9 -93 -102 rate (WACC). Important assumptions with respect to the three-year business plan are Exchange rate differences for the year described below. Closing balance December 31, 2012 -9 -93 -102

114 | INTEGRATED REPORT 2012

Important variables Method of estimating value Market growth Historically, demand for these products has followed economic cycles. Expected market growth is based on a transition from the prevailing economic situation to the expected long-term growth. Personnel costs Personnel cost forecasts are based on the expected rate of inflation and certain real wage/salary increases. The forecast is in agreement with previous experience.

Note 14 Property, plant and equipment Group machinery and other Inventories construction Buildings Installations technical tools and in progress SEK million and land underground installations installations installations Total Acquisition value Opening balance January 1, 2011 7,365 4,249 19,200 3,177 8,792 42,783 Acquisitions 90 16 95 67 4,859 5,126 Reclassifications 37 489 666 48 -1,239 Disposals and retirements -8 -46 -40 -1 -95 Exchange rate differences 1 2 Closing balance December 31, 2011 7,484 4,754 19,916 3,252 12,411 47,816

Opening balance January 1, 2012 7,484 4,754 19,916 3,252 12,411 47,816 Acquisitions 91 59 145 5,513 5,808 Reclassifications 725 373 474 89 -1,661 0 Disposals and retirements -1 -1 -27 -41 -4 -74 Exchange rate differences 23 0 6 1 7 37 Closing balance December 31, 2012 8,322 5,126 20,429 3,446 16,266 53,589

Depreciations Opening balance January 1, 2011 -2,129 -3,247 -10,703 -2,027 -18,106 Depreciations for the year -273 -181 -1,144 -293 -1,891 Disposals and retirements 2 37 19 59 Exchange rate differences -1 -1 Closing balance December 31, 2011 -2,400 -3,428 -11,811 -2,301 -19,939

Opening balance January 1, 2012 -2,400 -3,428 -11,811 -2,301 -19,939 Depreciations for the year -290 -161 -1,143 -352 -1,946 Disposals and retirements 2 23 39 64 Exchange rate differences -5 -5 Closing balance December 31, 2012 -2,692 -3,589 -12,931 -2,614 -21,826

Impairments Opening balance January 1, 2011 -424 -399 -496 -10 -261 -1,590 Impairments for the year -1 1 Closing balance December 31, 2011 -425 -399 -496 -10 -261 -1,591

Opening balance January 1, 2012 -425 -399 -496 -10 -261 -1 591 Impairments for the year -1 -1 Exchange rate differences 1 1 Closing balance December 31, 2012 -425 -399 -496 -10 -261 -1,591

Carrying amounts January 1, 2011 4,812 603 8,001 1,140 8,531 23,087 December 31, 2011 4,659 926 7,609 941 12,150 26,286

January 1, 2012 4,659 926 7,609 941 12,150 26,286 December 31, 2012 5,205 1,138 7,002 822 16,005 30,173

Depreciation and impairments are included under the following items in the income statement Group SEK million 2012 2011 Cost of goods sold 1,924 1,853 Of which impairments 1 1 Selling expenses 3 22 Administrative expenses 11 12 Research and development 9 5 1,946 1,892 No tes to the financial statements | 115

P arent Company machinery and other Inventories, Construction Buildings Installations technical tools and in progress SEK million and land under ground installations installations installations Total Acquisition value Opening balance January 1, 2011 5,028 4,249 17,682 765 7,668 35,392 Acquisitions 71 16 44 32 4,489 4,652 Reclassifications 36 489 666 47 -1,238 Disposals and retirements -23 -7 -778 -808 Closing balance December 31, 2011 5,135 4,754 18,369 837 10,141 39,236

Opening balance January 1, 2012 5,135 4,754 18,369 837 10,141 39,236 Acquisitions 68 21 58 5,272 5,419 Reclassifications 464 373 195 65 -1,098 0 Disposals and retirements -1 -4 -21 -439 -465 Closing balance December 31, 2012 5,667 5,126 18,581 940 13,876 44,190

Depreciations Opening balance January 1, 2011 -1,585 -3,247 -9,656 -541 -15,029 Depreciations for the year -182 -181 -1,057 -59 -1,479 Disposals and retirements 22 7 29 Closing balance December 31, 2011 -1,767 -3,428 -10,691 -593 -16,479

Opening balance January 1, 2012 -1,767 -3,428 -10,691 -593 -16,479 Depreciations for the year -194 -161 -1,053 -59 -1 467 Disposals and retirements 1 4 18 23 Closing balance December 31, 2012 -1,961 -3,588 -11,740 -634 -17,923

Impairments Opening balance January 1, 2011 -426 -399 -495 -9 -261 -1,590 Impairments for the year -1 -1 Closing balance December 31, 2011 -427 -399 -495 -9 -261 -1,591

Opening balance January 1, 2012 -427 -399 -495 -9 -261 -1 591 Impairments for the year -1 -1 Closing balance December 31, 2012 -427 -399 -496 -9 -261 -1.592

Carrying amounts January 1, 2011 3,017 603 7,531 215 7,407 18,773 December 31, 2011 2,941 926 7,183 236 9,880 21,166

January 1, 2012 2,941 926 7,183 236 9,880 21,166 December 31, 2012 3,279 1,139 6,345 297 13,615 24,675

Depreciation and impairments are included under the following items in the income statement Parent Company SEK million 2012 2011 Cost of goods sold 1,457 1,453 Of which impairments 1 1 Selling expenses 0 20 Administrative expenses 2 3 Research and development 9 4 1,468 1,480 116 | INTEGRATED REPORT 2012

Note 15 Participations in joint ventures Note 16 Parent Company participations in associated companies Group P arent Company The Group has a 50-percent interest in the joint venture company Likya Minelco, whose SEK million 31/12/2012 31/12/2011 main products are minerals with flame retardant properties (UltraCarb). Accumulated costs Specification of the Parent Company’s and Group’s ownership of participations in joint At beginning of year 2 2 ventures. Closing balance December 31 1 2

Indirect holding via the subsidiary Accumulated impairment losses Minelco AB Shares, % Shares, % At beginning of year -1 -1 2012 2011 Closing balance December 31 -1 -1 Likya Minelco / Izmir, Turkey 50 50 Carrying amount at year end 0 1 In the consolidated financial statements, the following items comprise the Group’s share of the joint venture company’s assets, liabilities, income and expenses.

SEK million 2012 2011 Net sales 20 18 Expenses -13 -12 Financial items 0 0 Profit 7 6

Non-current assets 8 5 Current assets 13 10 Total assets 21 15

Current liabilities 0 -1 Non-current liabilities 0 0 Total liabilities 0 -1 Net assets 21 14

Note 16 Parent Company participations in associated companies (cont.) Specification of theP arent Company’s direct ownership of participations in associated companies

Associate company Corp. ID No. and registered office 2012 2011 Votes and carrying votes and carrying Total equity amount equity amount shares share, % (SEK million) share, % (SEK million) Swedish associated companies Progressum AB/556540-0768/Kiruna 120 42.8 0 42.8 0 Norrskenet AB/556537-7065/Kiruna 2,500 33.3 0.35 33.3 0.35 Expandum AB/556252-3281/Gällivare 1,665 33.3 0.02 33.3 0.02 MCC AB/556644-8295/Kiruna - - - 20.0 0.20

Foreign associated companies Futurum AS/-/Narvik, Norway 500 23.8 0 23.8 0

Note 17 Receivables from subsidiaries and associated companies P arent Company Receivables from Receivables from subsidiaries associated companies SEK million 31/12/2012 31/12/2011 31/12/2012 31/12/2011 Accumulated costs Opening balance January 1 1,297 992 0 0 Lending - 400 - - Amortization -155 -95 - - Closing balance December 31 1,142 1,297 0 0

Carrying amount at year end 1,142 1,297 0 0

Current receivables from subsidiaries and associated companies increased during the year and amounted at year end to SEK 1,826 million (1,570). No tes to the financial statements | 117

Note 18 Financial investments Group SEK million 31/12/2012 31/12/2011 Financial investments that are assets Financial assets available for sale shares and participations 745 793 Financial assets relating to reserves for pension commitments 248 245 993 1,038 Short-term investments that are current assets Financial assets appraised at fair value in the income statement (fair value) shares and participations 1,316 1,065 Interest-bearing securities 11,919 8,441 13,235 9,506

Financial investments that are fixed assets refer largely to shares in SSAB appraised at fair value as of Dec 31, 2012 in accordance with IAS 39. The carrying amount of SSAB shares significantly exceeds their cost. Changes in value for the year are reported in other comprehensive income.

Parent Company 31/12/2012 31/12/2011 Specification of securities Market value carrying market value carrying SEK million or equiv. amount or equiv. amount Money-market instruments 16,678 16,658 16,019 16,008 Listed shares, mutual funds 1,316 1,225 1,065 1,065 17,994 17,883 17,084 17,073

The table below describes the maturity profile of discount instruments and government bonds.

Group Total 31/12/2011 carrying Nominal SEK million < 3 months 3–6 months 7–12 months 13–24 months > 25 months amount amount Interest-bearing securities 13,376 1,284 323 323 285 15,591 15,578 Total 13,376 1,284 323 323 285 15,591 15,578

Group Total 31/12/2012 Carrying Nominal SEK million < 3 months 3–6 months 7–12 months 13–24 months > 25 months amount amount Interest-bearing securities 11,540 1,109 516 794 1,912 15,871 15,795 Total 11,540 1,109 516 794 1,912 15,871 15,795

Surplus liquidity is managed according to the financial policy established by the Board. The Group’s maturity profile is considered to be broadly similar to theP arent Company’s. The information in the maturity profile is from the Parent Company.

Note 19 Other non-current securities holdings Note 20 Non-current receivables and other receivables P arent Company Group SEK million 31/12/2012 31/12/2011 SEK million 31/12/2012 31/12/2011 Accumulated costs Non-current receivables that are assets At beginning of year 127 123 Interest-free loan, Jernbaneverket 105 85 Acquisition 2 4 Other 1 - Closing balance December 31 129 127 106 85

The change for the year of SEK 2 million refers to shareholder contributions to Vindin AB. Other receivables that are current assets PRI balance 21 20 Specification of other non-current securities holdings. VAT asset 229 285 Tax asset 951 299 Parent Company 31/12/2012 31/12/2011 Forward exchange contracts (USD) 360 - Market value carrying market value carrying Other 171 61 SEK million or equiv. amount or equiv. amount 1,732 665 SSAB 698 83 749 83 Other 46 46 44 44 Parent Company 744 129 793 127 SEK million 31/12/2012 31/12/2011 Non-current receivables Company-owned endowment insurance 80 85 Interest-free loan, Jernbaneverket 105 85 185 170

Other receivables (current) PRI balance 20 19 VAT asset 213 249 Tax asset 985 380 Other 134 40 1,352 688 118 | INTEGRATED REPORT 2012

P arent Company Total reserves 2012 2011 SEK million 31/12/2012 31/12/2011 Opening reserves 515 1,380 Non-current receivables Change in reserves for the year: Accumulated costs Translation reserve -18 -10 At beginning of year 170 111 Fair value reserve -50 -647 Lending 22 69 Hedge reserve 224 -208 Amortizations 0 0 Closing reserves 671 515 Impairments -2 -1 Change in value of endowment insurance -5 -9 Share capital Closing balance December 31 185 170 As of December 31, 2012, the registered share capital comprised 700,000 (700,000) common shares. The holder of common shares is entitled to a dividend that is decided by the AGM, and each share entitles the holder to one vote. The quota value is SEK 1,000 per share. Note 21 Inventories Translation reserve Group The translation reserve covers all exchange rate differences that arise in the transla- SEK million 31/12/2012 31/12/2011 tion of financial reports of foreign operations whose accounts are reported in curren- Raw materials and consumables 1,552 1,565 cies other than the Group’s reporting currency. The Parent Company and consolidated Work in progress 26 24 accounts are reported in SEK. Finished products and goods for sale 937 858 2,515 2,447 Fair value reserve

Financial assets available for sale Parent Company The fair value reserve includes the accumulated net change in fair value of available- SEK million 31/12/2012 31/12/2011 for-sale financial assets up until the assets are removed from the statement of finan- Raw materials and consumables 1,356 1,308 cial position. Any impairment is reported in the income statement. Work in progress 0 0 Finished products 590 571 Hedge reserve 1,946 1,879 The hedge reserve includes the effective share of the accumulated net change in fair value of cash-flow hedging instruments attributable to hedging transactions that have not yet occurred. Note 22 Accounts receivable Dividend Accounts receivable are reported taking into account bad debts that have arisen in the After the closing date, the Board has proposed the following dividend, which is subject Group amounting to SEK 66 million (1). to approval by the AGM on 29 April 2013.

SEK million 2012 2011 Ordinary dividend SEK 5,000 (7,143) per share 3,500 5,000 Not 23 Prepaid expenses and accrued income Extra dividend SEK 2,857 (-) per share 2 000 - Group parent Company 5,500 5,000 2012 2011 2012 2011 SEK million 31/12 31/12 31/12 31/12 The dividend proposed by the Board has been approved by the Annual General Meeting Insurance premiums 5 6 for the past two years. Other 88 138 70 80 93 144 70 80 Parent Company Restricted reserves Restricted reserves may not be reduced through dividends.

Note 24 Equity Statutory reserve The purpose of the statutory reserve is to save a part of the net profit that is not used The Group’s specification of the shareholders’ equity item reserves to cover loss brought forward.

Translation reserve Non-restricted equity SEK million 2012 2011 Profit brought forward Opening translation reserve -103 -93 Comprises the previous year’s non-restricted equity after any dividend has been paid. Translation differences for the year -18 -10 Together with net profit for the year, it makes up non-restricted equity i.e. the sum that Closing translation reserve -121 -103 is available for payment as a dividend to shareholders.

Fair value reserve 2012 2011 Capital management Opening fair value reserve 666 1,313 LKAB’s management of financial risks is regulated by a financial policy approved by the Financial assets available for sale: Board. The Currency and Finance Committee prepare and follow the company’s hedg- Revaluations reported directly in other comprehensive income- 50 -647 ing programme and financial guidelines. LKAB defines capital under management as Closing fair value reserve 616 666 shareholders’ equity in the Group, less unrealised exchange loss/profit on outstanding USD futures/options. In 2012 LKAB’s capital under management amounted to SEK 40.7 Hedge reserve 2012 2011 billion (37.7). Opening hedge reserve -48 160 According to Board policy, the Group’s financial goal is to maintain a good capital Cash flow hedges structure and financial stability, and thereby secure a foundation for continued growth Reported directly in other comprehensive income 226 -65 of business operations and future changes in the community. The Board’s ambition Dissolved through income statement 65 -218 is to maintain a balance between high yield and the benefits and security afforded by Tax attributable to revaluations for the year -67 75 a sound capital structure. The Group’s objective is to achieve a return on equity of 10 Closing hedge reserve 176 -48 percent. In 2012, return on equity was 22.1 (30.9) percent. In comparison, the average

No tes to the financial statements | 119

interest income on interest-bearing investments was 2.35 (2.59) percent. Changes in fair values of plan assets LKAB’s dividend policy means that the dividend to the owner will, over the long term, Group amount to 30 to 50 percent of profit after tax and be adapted to the average earnings SEK thousand 2012 2011 level over one business cycle. The proposed ordinary dividend of SEK 3,500 million Fair value of plan assets as of January 1 1,027 1,008 amounts to 39.8 percent of the company’s after-tax earnings, in addition to which an Charges from the employer 43 65 extra dividend of SEK 2,000 million is proposed. No changes to Group capital manage- Compensation paid -62 -56 ment were made during the year. Anticipated return 45 46 LKAB Försäkring is the only subsidiary with a statutory capital requirement which on Assumed obligation - 25 closing day amounted to EUR 3,200,000, equivalent to SEK 28 million (29). Actuarial gain (+) loss (-) 51 -73 Exchange rate differences on obligations and reported actuarial loss -3 12 Note 25 Pensions Fair value of plan assets as of Defined-benefit pension plans December 31 1,101 1,027 Group SEK million 2012 2011 Of plan assets funded through funds in England and Norway in 2012, 30 percent was Present value of unfunded obligations 2,560 2,395 invested in shares and 70 percent in interest-bearing securities. The actual return in Present value of wholly or partially funded obligations 1,269 1,154 2012 amounted to SEK 95 million (-26). Total present value of obligations 3,829 3,549 Fair value of plan assets -1,101 -1,026 Cost reported in income statement Present value of net obligation 2,728 2,523 Group SEK million 2012 2011 Effect of limitation rule for net assets -7 7 Costs in respect of employment during current period 91 76 Net amount in statement of financial position 2,721 2,530 Interest expense for obligation 120 122 Anticipated return on plan assets -43 -47 The net amount is reported in the following Limitation rule assets - 8 statement of financial position items: Effect of premium-based mine policy and adjustments in Financial investments -249 -245 Norway 2 Provisions for pensions, non-current liability 2,970 2,775 Total net cost in income statement 170 159 Net amount in statement of financial position 2,721 2,530 The costs are reported on the following lines in the income statement: Defined-benefit pension plans Group Most of LKAB’s pension plans for employees in Sweden are defined-benefit plans, SEK million 2012 2011 which means that LKAB guarantees pensions based on a certain percentage of salary. Cost of goods sold 93 84 Pension commitments in Sweden are secured by the company mainly via provisions re- Income from financial items ported in the statement of financial position, whereof most are secured through credit (reported in net financial income/expense) -43 -47 insurance in FPG (Försäkringsbolaget Pensionsgaranti). Promises of future retirement Financialexpenses before the age of 65 are to a certain degree contingent upon underground work and are (reported in net financial income/expense) 120 122 secured by the company via provisions, in the statement of financial position, without 170 159 credit insurance. Commitments for retirement pensions and survivor benefits for salaried employees Assumptions for defined-benefit obligations in Sweden are insured by Alecta. According to a pronouncement from the Swedish Significant actuarial assumptions as of closing day Financial Reporting Board, UFR 3, this is a defined-benefit plan that involves several (expressed as weighted averages) employers. The company has not had access to such information as is necessary for Group reporting this obligation as a defined-benefit plan. The ITP pension plan insured via Percent 2012 2011 Alecta is therefore reported as a defined-contribution plan. Alecta’s surplus can be Discount rate as of December 31 3.2 3.7 distributed to the policyholders and/or the insured parties. At the end of 2012, Alecta Assumed return on plan assets, reported a plan surplus of 129 percent (113), which was below the normal spread of as of December 31 4.3 5.0 125–155 percent stated in Alecta’s consolidation policy for these plans. Future salary increases 3.0 3.0 For employees in Belgium, Norway, the UK and Germany, LKAB has defined-benefit Employee turnover 3.5 3.5 plans as a complement to social insurance. In Belgium, pensions are secured via Future pension increases 1.75 2.0 pension insurance; in the UK, via a company-managed pension funds and in Germany via provisions reported in the balance sheet and through credit insurance. In Norway, Assumptions refer to the Swedish liability pensions are secured via a company-managed superannuation fund, via provisions Assumptions concerning future mortality rate is based on published statistics and reported in the balance sheet and through credit insurance. mortality figures. The average life expectancy (years of life remaining) for an individual who retires at 65 years of age is 23 years for men and 25 years for women. Changes in present value of obligations for defined-benefit plans The true return on plan assets for 2012 was 8.6 percent (-2.5). Group SEK million 2012 2011 Sensitivity analysis discount rate Net obligation for defined-benefit Group plans as of January 1 3,549 3,311 SEK million 1% 1% Compensation paid -213 -191 Change in pension obligations 2012 210 190 Costs for employment during current period 124 76 Interest expenses 89 122 Only Swedish pension obligations are included in calculations of changes in pension Actuarial losses 265 178 obligations. Other changes 29 25 Exchange rate differences on obligations Historical information and reported actuarial loss -14 28 Group Net obligation for defined-benefit SEK million 2012 2011 2010 2009 2008 plans as of December 31 3,829 3,549 Present value of defined-benefit obligations 3,822 3,563 3,309 3,437 3,156 Fair value of plan assets -1,101 -1,033 -1,008 -1,022 -975 Net obligations 2,721 2,530 2,301 2,415 2,181

120 | INTEGRATED REPORT 2012

Historical information, Group (cont.) Note 26 Provisions SEK million 2012 2011 2010 2009 2008 Group Empirical adjustments in SEK million 31/12/2012 31/12/2011 respect of plan assets 51 -73 20 -41 -141 Provisions Empirical adjustments in Urban transformation 5,877 5,103 respect of defined-benefits obligations 265 186 16 17 88 Emission allowances for carbon dioxide 57 230 The historical information for 2008 has not been adjusted for the removal of the Remediation expenses 144 144 corridor method. The Group estimates that SEK 42 million will be paid to funded and Other 16 16 unfunded defined-benefit plans in 2013, and an estimated SEK 43 million will be paid to Total 6,094 5,493 the defined-benefit plans that are reported as defined-contribution plans. Parent Company Parent Company pension obligation SEK million 31/12/2012 31/12/2011 SEK million 2012 2011 Provisions PRI 608 586 Urban transformation 5,877 5,103 Other provisions subject to Pension Obligations Vesting Act 212 227 Emission allowances for carbon dioxide 57 230 Provisions not subject to Pension Obligations Vesting Act 595 590 Remediation expenses 144 144 1,415 1,403 Total 6,078 5,477 Of which credit guarantees via FPG/PRI 820 813 Provisions for urban transformations relate to compensation expenses in Kiruna and Capital value of pension obligations under the company’s own management Malmberget caused by ground deformations attributable to mining thus far. Compensa- Parent Company tion expenses are reported in the income statement under cost of goods sold. SEK million 2012 2011 Group others Capital value of pension obligations at beginning of year 1,403 1,351 Urban Emission pro- Cost excluding interest expense charged to income statement 83 103 SEK million transformation allowances visions Total Interest expenses 34 35 Opening balance January 1 2011 4,251 75 160 4,486 Pension disbursements -105 -86 Provisions for the year 1,649 1,649 Capital value of pension obligations at year end 1,415 1,403 Emissions for the year 155 155 Costs associated with pensions Settlement of previous year’s emissions Parent Company Reversal of provisions -415 -415 SEK million 2012 2011 Utilized provisions -382 -382 Company-managed pension schemes Closing balance December 31 2011 5,103 230 160 5,493 Expenses excluding interest expenses 83 103 Of which paid out during 2012 439 230 669 Interest expenses 34 35 Of which for payment during 2013-2019 4,664 4,664 Costs for company-managed pension schemes 117 138 Of which for payment after 2019 160 160 Insured pension schemes Opening balance January 1 2012 5,103 230 160 5,493 Insurance premiums 190 162 Provisions for the year 1,230 1,319 Subtotal 311 300 Interest-bearing liabilities for the year 87 87 Capital gains tax on pension funds 3 3 Emissions for the year 57 57 Special contribution tax on pension expenses 77 70 Settlement of previous year’s emissions -230 -230 Expenses for credit insurance, administrative expenses, other 7 9 Reversal of provisions -135 -136 Reported net expense attributable to pensions 395 382 Utilised provisions -407 -409 The net pension expenses are reported on the following lines in the income statement: Closing balance December 31 2012 5,878 57 160 6,094 Parent Company Of which for payment during 2013 943 57 1,000 SEK million 2012 2011 Of which for payment during 2014-2020 2,275 160 2,435 Financial expenses (reported in net financial income/expense) 34 35 Of which for payment after 2020 2,659 2,659 Operating expense 361 347 Refer to Note 1 item 28 for information regarding urban transformation expenses. 395 382 Parent Company other The financial costs are calculated at an interest rate of 4.2 percent. Urban Emission pro- Assumptions for defined-benefit obligations. SEK million transformation allowances visions Total Significant actuarial assumptions as of closing day (expressed as weighted averages) Opening balance January 1 2011 4,251 75 144 4,470 Parent Company Provisions for the year 1,649 1,649 Percent 2012 2011 Emissions for the year 155 155 Discount rate as of December 31 3.8 3.8 Settlement of previous year’s emissions Reversal of provisions -415 -415 The Parent Company estimates that SEK 7 million will be paid to defined benefit plans Utilised provisions -382 -382 during 2013. The assumptions are calculated based on the wage levels applicable on the Closing balance December 31 2011 5,103 230 144 5,477 closing dates concerned. Of which paid out during 2012 439 230 669 Of which for payment during 2013-2019 4,664 4,664 Defined-contribution pension plans Of which for payment after 2019 144 144 In Sweden, the Group has defined-contribution pension plans for which the company assumes full cost. In foreign subsidiaries, defined-contribution plans are financed Opening balance January 1 2012 5,103 230 144 5,477 partly by the companies and partly by contributions paid by the employees. Provisions for the year 1,230 1,319 Interest-bearing liabilities for the year 87 87 Premiums for these plans are paid on a current basis in accordance with regulations Emissions for the year 57 57 for each plan. Settlement of previous year’s emissions -230 -230 Group parent Company Reversal of provisions -135 -136 SEK million 2012 2011 2012 2011 Utilised provisions -407 -409 Expenses for defined contribution pension plans 185 170 182 167 Closing balance December 31 2012 5,877 57 144 6,078 No retirement solutions were paid out through insurance plans during 2012. In 2011 Of which for payment during 2013 943 57 1,000 SEK 1 million was disbursed. Of which for payment during 2014-2020 2,275 144 2,419 Of which for payment after 2020 2,659 2,659 No tes to the financial statements | 121

Note 27 Urban transformation The reported provisions for urban transformation do not include LKAB’s need to replace its own buildings affected by urban transformation. A decision was taken LKAB has, and will continue to have, significant expenses in respect of urban transfor- concerning new investments in the amount of SEK 383 million to replace the company’s mations. As and when impact due to mining activities (economic/physical damage to own buildings. property) is incurred, LKAB reports a provision in accordance with the criteria in IAS 37. In addition to this there will also be subsequent demands resulting from future min- In addition, LKAB allocates funds to finance future expenditures for urban transfor- ing. LKAB makes ongoing assessments of such future requirements. The assessments mation in accordance with the approved finance policy of the Board at that time. The are subject to significant uncertainty. On the closing date LKAB’s assessment is that purpose of such asset management is to ensure LKAB’s ability to pay and that the the Group’s actual short and long-term capital obligations toward urban transforma- rates of return on allocated funds will cover inflation over the period. tion amount to significant sums. Since 2007, LKAB has disbursed SEK 1,612 million corresponding to expenses set The company’s net expenses for urban transformation consist of the following components. aside as liabilities in previous years. The corresponding expenditure for 2012 was SEK 407 million. Parent Company The urban transformation in Malmfälten has impacted LKAB’s earnings and liquidity SEK million 2012 2011 by considerable amounts, and will continue to do so in the years to come. LKAB must Expenses for employment during current period -1,094 -1,649 therefore remain financially strong to meet both existing and future obligations that Effect of changed estimates and assumptions - 415 urban transformation will entail. Effect of present value appraisal of provision, ref 2011 -87 Net expense for urban transformation -1,181 -1,234

Net expenses for urban transformation are reported on the following lines in the Note 28 Accrued expenses and deferred income income statement: Parent Company Group parent Company SEK million 2012 2011 SEK million 2012- 2011- 2012- 2011- Cost of goods sold -1,094 -1,234 31/12 31/12 31/12 31/12 Financial expenses -87 - Electricity 77 65 66 57 -1,181 -1,234 Payroll and personnel costs 677 665 631 590 Accrued accounts payable 564 414 486 391 The following balance sheet items are attributable to urban transformation: Other 100 97 42 10 Parent Company 1,418 1,241 1,225 1,048 SEK million 2012 2011 Provisions, urban transformation – short term 943 439 Provisions, urban transformation – long term 4,934 4,664 Provisions, urban transformation 5,877 5,103

Financial investments 4,934 4,664 Current investments/Cash and cash equivalents- 943 439 Allocated funds, urban transformation 5,877 5,103 Net amount in statement of financial position 0 0

Note 29 Significant risks and uncertainties In addition to the information below, see the Financial Risks section in the Report of the Board of Directors for further information. The Group’s transaction exposure is distributed over the following contract currencies:

2012 2011 Currency effect on effect on effect on effect on Amount change profit/loss equity Amount change profit/loss equity USD 3,806 seK 0.10 381 56 4,061 seK 0.10 406 49 NOK 880 seK 0.10 88 594 seK 0.10 59 EUR 61 seK 0.10 6 26 seK 0.10 3 GBP 5 SEK 0.10 0.5 SEK 0.10

Transaction exposure in US dollars during 2012 was hedged to 1,840 (2,260) or 48 (56) percent via currency derivatives. No ineffectiveness in hedging during 2012 affected the financial result negatively. The effect on equity due to changes in the underlying currency exchange rates is calculated based on a model using prices from Reuters.

Outstanding on closing day, including forward exchange contracts recent years due to the expansion of the Minerals Division. Translation exposure in the (selling contract) reported in revenue. Group refers to foreign net assets within the Group.

Maturity USD million hedging rate Revaluation exposure (millions, local currency) 2013 -1,040 6.85 Group 2012 2011 The Group applies hedge accounting for USD and classifies its forward contracts used EUR 12 10 to hedge forecast transactions as cash flow hedges. The fair value of forward exchange GBP 31 33 contracts used to hedge forecast flows amounted to SEK 176 million (-48) as of Decem- USD 1 1 ber 31, 2012. SGD 1 1 DKK 215 215 Translation exposure NOK 687 698 LKAB does not normally hedge its translation exposure as this is not considered to add CNY 32 35 any value for the Group over time, even though the level of exposure has increased in HKD 123 115 122 | INTEGRATED REPORT 2012

Fair value Carrying amounts and fair value of financial instruments in the Group are stated below:

Group 2012 Items reported at fair value via earnings Financial Derivatives Financial assets Held used in Trade assets Total Total fair value for hedge loan available for Other li- carrying fair SEK million option sale accounting receivables sale abilities amount value Shares, financial assets 745 745 745 Shares, current holdings 1,316 1,316 1,316 Interest-bearing instruments, current holdings 11,919 11,919 11,919 Non-current receivables 106 106 106 Trade and other receivables 4,792 4,792 4,792 Cash and cash equivalents* 5,437 5,437 5,437 Forward exchange contracts (USD) 176 176 176 Other accrued income 93 93 93 Total 18,778 176 4,885 745 24,584 24,584

Trade payables 1,760 1,760 1,760 Other liabilities 192 192 192 Accrued expenses 1,418 1,418 1,418 Total 1,760 1,610 3,370 3,370

* Cash and cash equivalents including cash-equivalent current investments. The maximum credit risk exposure on closing day December 31, 2012 amounted to SEK 22,513 million. LKAB has no financial assets that have reached maturity or impairments that have resulted in credit losses. LKAB’s SEK 5 billion credit facility remained unutilised as of December 31, 2012.

Group 2011 Items reported at fair value via earnings Financial Derivatives Financial assets Held used in Trade assets Total Total fair value for hedge loan available for Other li- carrying fair SEK million option sale accounting receivables sale abilities amount value Shares, financial assets 793 793 793 Shares, current holdings 1,065 1,065 1,065 Interest-bearing instruments, current holdings 8,441 8,441 8,441 Non-current receivables 86 86 86 Trade and other receivables 4,958 4,958 4,958 Cash and cash equivalents* 8,695 8,695 8,695 Other accrued income 144 144 144 Total 23,245 144 793 24,182 24,182

Forward exchange contracts (USD) 48 48 48 Trade payables 1,982 1,982 1,982 Other liabilities 377 377 377 Accrued expenses 1,241 1,241 1,241 Total 1,982 48 1,618 3,648 3,648

* Cash and cash equivalents including cash-equivalent current investments. The maximum credit risk exposure on closing day December 31, 2011 amounted to SEK 22,324 million. LKAB has no financial assets that have reached maturity or impairments that have resulted in credit losses. LKAB’s SEK 5 billion credit facility remained unutilised as of December 31, 2011. No tes to the financial statements | 123

Maturity analysis, liabilities Securities For listed financial assets, fair values correspond to the asset’s buying rate on the Group 2012 < 1 1–3 3–12 closing date. SEK million month months months Total Trade payables 1,078 10 1 1,089 Derivative instruments Other liabilities 113 185 298 Forward exchange contracts are calculated at current market prices by using quoted Accrued expenses 565 236 326 1,127 market prices. The discount rate used is the market interest rate on similar instru- Total 1,756 246 512 2,514 ments quoted on closing day.

Group 2011 < 1 1–3 3–12 Other receivables and liabilities SEK million month months months Total The carrying amount of other receivables and liabilities is equivalent to fair value. Trade payables 1,571 28 1 1,600 Forward exchange contracts 53 3 56 Other liabilities 95 863 958 Accrued expenses 626 167 303 1,096 Note 30 Contractual obligations Total 2,292 248 1,170 3,710 At year-end, the Group’s remaining contractual obligations to acquire property, plant and equipment amounted to SEK 2,939 million (4,471). Of these obligations, The Group’s maturity profile is considered to be broadly similar to the Parent Com- SEK 2,221 million (2,538) is expected to be settled during the following financial year. pany’s. The information above is from the Parent Company. Forward transactions in USD had a deficit value of 176 compared to the previous year’s surplus value of SEK 48 The Parent Company’s obligations amounted to SEK 2,459 million (3,568), of which SEK million. Maturity is 12 months. 1,830 million (2,131) is expected to be paid during 2013.

Other information on financial instruments

The following tables show how the fair value was determined in financial instruments Note 31 Pledged assets and contingent liabilities reported at fair value in the statement of financial position. A breakdown of how fair Group parent Company value is determined is carried out on three levels. 2012- 2011- 2012 2011- SEK million 31/12 31/12 31/12 31/12 Level 1: according to prices quoted on an active market for such instruments. Assets pledged Level 2: according to direct or indirect observable market data not included – in the form of pledged assets for own in level 1. liabilities and provisions. Level 3: according to input data that is not observable on the market. property mortgages 1 1 company mortgages 2 2 Group 2012 company-owned endowment insurance 79 85 79 85 SEK million Level 1 Level 2 Level 3 Total Deposit of cash and cash equivalents 157 155 157 155 Shares, financial assets 745 745 Total pledged assets 239 243 236 240 Shares, current holdings 1,316 1,316

Interest-bearing instruments 11,667 252 11,919 Contingent liabilities Non-current receivables 93 93 Guarantees, FPG/PRI 14 12 14 12 Cash and cash equivalents 5,437 5,437 Guarantees, GP-plan 3 4 3 3 Forward exchange contracts (USD) 176 176 Sureties for the benefit of subsidiaries 65 76 Total 19,341 521 19,686 Other 65 35 30 32 Redemption of defined benefits pension policy 14 14 Group 2011 Forward exchange contracts 30 SEK million Level 1 Level 2 Level 3 Total Total contingent liabilities 96 51 126 153 Shares, financial assets 793 793 Shares, current holdings 1,065 1,065 Company-owned endowment insurance covers pension obligations for the President, Interest-bearing instruments 8,071 370 8,441 former President and Group management according to the earlier defined-benefit pen- Non-current receivables 86 86 sion agreement. The value of endowment insurance decreases as pension payments Cash and cash equivalents 8,695 8,695 are disbursed. Forward exchange contracts (USD) -48 -48 The deposit of cash and cash equivalents is intended to cover remediation costs and Total 18,624 408 19,032 other costs associated with the eventual closure of mine operations. Guarantee undertakings for PRI Pensionstjänst and the Mine Pension correspond to The category ‘interest-bearing instruments’ (Level 2) refers to bond obligations that are 2 percent of the obligations on the closing date. The obligation in PRI relates to ITP2 reported at prices quoted on the bond and derivatives market. Non-current receivables premiums for salaried employees and the vested obligation to employees participating (Level 2) are valuated at present value of capital cash flows. Forward exchange con- in the mine pension being carried as liabilities. tracts (Level 2) are calculated based on a model using prices from Reuters.

Fair value calculation The following is a summary of the principal methods and assumptions used in determining the fair value of financial instruments reported in the table above. 124 | INTEGRATED REPORT 2012

Note 32 Related parties Close relationships The Group is subject to the controlling influence of the Swedish state. Aside from the close relationships that the Parent Company has with its subsidiaries (see Note 33), the Group has related-party transactions with Vattenfall AB and the Swedish Transport Administration.

Summary of related-party transactions

Group Sale of Interest and purchase of Liability to Receivable from Related party goods to dividend goods from related party related party SEK million Year related party (net) related party December 31 December 31 Associated companies 2012 6 - 40 Associated companies 2011 13 - 40

Parent Company Sale of Interest and purchase of Liability to Receivable from Related party goods to dividend goods from related party related party SEK million Year related party (net) related party December 31 December 31 Subsidiary 2012 234 378 3,605 1,419 2,970 Subsidiary 2011 310 95 3,598 1,906 2,867

Associated companies 2012 6 40 Associated companies 2011 13 - 40

LKAB has secured a major part of its electricity deliveries at indexed prices through signing long-term energy agreements with Vattenfall in 1998 and 2005. One third of the Vatten- fall agreement portfolio matured at the beginning of 2010 and this volume of electricity is exposed to the Nordic spot market. Electricity purchases totalled 2,305 (2,189) Gw.

LKAB’s mining activities have affected the existing railway installations and has made it impossible for the installations to remain in their current location. LKAB compensates the Swedish Transport Administration for expenditures arising from the construction of new railway installations. Purchases from the Swedish Transport Administration amounted to SEK 174 million (350).

In 1997 LKAB made a participating loan with a nominal amount of SEK 40 million to the associated company Norrskenet AB.Interest is paid annually and amounted to SEK 372 thousand (444) in 2011. Transactions with key individuals in leading positions are reported in Notes 6 and 25. Transactions with related parties are priced and conducted in accordance with commercial principles. No tes to the financial statements | 125

Note 33 Subsidiaries P arent Company SEK million 31/12/2012 31/12/2011 Accumulated costs At beginning of year 1,410 1,400 Capital contribution 10 Closing balance December 31 1,410 1,410

Specification of the Parent Company’s and Group’s ownership of participations in subsidiaries 31/12/2012 31/12/2011 Number of shares, % shares, % carrying carrying Subsidiary / Comp. reg. No. / Registered office shares 2012 2011 amount amount Swedish subsidiaries LKAB Fastigheter AB / 556009-8849 / Kiruna 5,000 100 100 0 0 LKAB Wassara AB / 556331-8566 / Stockholm 20,000 100 100 10 10 LKAB Berg & Betong / 556074-8237 / Kiruna 24,000 100 100 47 47 LKAB Nät AB / 556059-9796 / Kiruna 10 100 100 0 0 Minelco AB / 556223-1786 / Luleå 2,000,000 100 100 225 225 LKAB Försäkring AB / 516406-0187 / Luleå 10,000 100 100 100 100 LKAB Malmtrafik AB / 556031-4808 / Kiruna 208,000 100 100 252 252 Kiruna Stationsfastigheter AB / 556736-3840 / Kiruna 1,000 100 100 0 0

Foreign subsidiaries LKAB Norge AS / 918 400 184 / Narvik, Norway 300,000 100 100 763 763 LKAB Far East Pte Ltd / 198401144W / Singapore, Singapore 200,000 100 100 1 1 LKAB S.A. / 403 455 761 / Brussels, Belgium 100 100 100 0 0 LKAB Schwedenerz GmbH / HRB 718 / Essen / Germany 100 100 100 2 2 LKAB Trading (Shanghai) Co., Ltd. / Shanghai / China 100 100 10 10 Total Parent Company 100 100 1,410 1,410

Indirect ownership via the subsidiary Minelco AB Minelco B.V. / 24236591 / Breda, The Netherlands 100 100 Minelco Inc / 02-0551509 / Cincinnati, USA 100 100 Minelco GmbH / HRB 16692 / Essen, Germany 100 100 Minelco Asia Pacific Ltd / 876455 / Hong Kong, Hong Kong 100 100 Microfine Minerals Ltd / 0245817 / Welton, England 100 100 Minelco OY / 1934671-4 / Helsinki, Finland 100 100 Minelco AS/A / S277716 / Nuuk, Greenland 100 100 Minelco Tianjin Minerals Co / 70051551-5 / Dongli District Tianjin, China 100 100 Likya Minelco / Izmir, Turkey 50 50 Minelco Limited / 04621769 / Derby, England 100 100 Microfine Minerals Ltd / 00103751 / Derby, England 100 100 Quay Minerals Ltd / 02732626 / Flixborough, England 100 100 Tianjin Jindalai Mineral / 60089030-X / Dongli District Tianjin, China 0 100 Fergusson Wild & Co Ltd / 2529921 / West Sussex, England 100 100 Fordamin Company Ltd / 00925517, England 100 100 Minelco Specialities Ltd / 1151578 / Derby, England 100 100 microfine Hellas A.E. /-/ Thessaloniki, Greece 0 100

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

Indirect participation via the subsidiary LKAB Malmtrafik AB LKAB Malmtrafikk AS / 974 644 991 / Narvik, Norway 100 100

Indirect participation via subsidiary LKAB Fastigheter AB Jägarskolan Fastigheter AB / 556594-9095 / Kiruna 100 100

Indirect participation via the subsidiary Wassara AB Wassara Limitada / Santiago / Chile 100 100 126 | INTEGRATED REPORT 2012

Note 34 Untaxed reserves Interest paid and dividends received Group parent Company P arent Company SEK million 2012 2011 2012 2011 SEK million 31/12/2012 31/12/2011 Dividends received 55 53 588 229 Accumulated depreciations in excess of plan: Interest received 112 103 171 171 Buildings and land Interest paid -43 -52 -56 -70 Opening balance January 1 6 7 124 104 703 330 Depreciations in excess of plan for the year Accelerated depreciations dissolved -1 -1 Adjustments for items not included in cash flow Closing balance December 31 5 6 Group parent Company

SEK million 2012 2011 2012 2011 Machinery and inventories Depreciations 1,950 1,898 1,469 1,483 Opening balance January 1 6,027 5,843 Impairments 1 1 Depreciations for the year/ dissolution in excess of plan -507 184 Exchange rate differences -32 -21 Closing balance December 31 5,521 6,027 Change in financial assets -20 -69

Income from sale and retirement of Underground installations property, plant and equipment 3 20 Opening balance January 1 0 0 Provisions for pensions -43 25 12 52 Disposals, retirements and dissolution 0 0 Provision for urban transformation 1,182 1,234 1,182 1,234 Depreciations in excess of plan, assets under construction 1,305 - Other provisions -174 155 -174 155 Closing balance December 31 1,305 0 Other items that do not affect liquidity -22 26 -14 57

2,845 3,268 2,475 2,982 Tax allocation reserves Allocated at 2006 assessment 0 1,400 Change in operating capital Allocated at 2007 assessment 1,275 1,275 Allocated at 2008 assessment 2,200 2,200 Group operating capital was affected by SEK – 299 million relating to a change in a Allocated at 2011 assessment 3,600 3,600 hedge reserve reported in Group equity. The amount did not affect the Group’s cash Allocated at 2012 assessment 2,960 flow and is therefore not included in change in operating capital in the cash flow state- Closing balance December 31 10,035 8,475 ment. The corresponding amount for 2011 was SEK 271 million.

Total untaxed reserves 16,866 14,508 Tax paid Group parent Company SEK million 2012 2011 2012 2011 Tax expense according to income statement -2,517 -3,203 -2,216 -3,046 Note 35 Statement of cash flows Change in tax assets/liabilities -652 -829 -606 -826 Cash and cash equivalents – Group Adjustment to provisions for taxes 0 SEK million 31/12/2012 31/12/2011 Adjustment for deferred tax 0 -198 31 The following sub-components are included in cash and cash equivalents 3,169 -4,032 -3,020 -3,841

Cash and cash equivalents 643 1,056 Acquisition of subsidiaries Current investments equivalent to No new acquisitions were made during the year. cash and cash equivalents l1) 4,794 7,639 Total according to the statement of financial position and statements of cash flows 5,437 8,695

Cash and cash equivalents – Parent Company SEK million 31/12/2012 31/12/2011 The following sub-components are included in cash and cash equivalents

Cash and cash equivalents 457 830 Current investments equivalent to cash and cash equivalents l1) 4,794 7,639 Total according to the balance sheet and statements of cash flows 5,251 8,469

1) Cash and cash equivalents include current investments (money-market instruments) that have been classified as cash equivalents according to the following • They entail insignificant risk of value fluctuations • They can be easily converted to cash • They have a maturity of at most three months from date of acquisition.

Shares and participations SEK million 31/12/2012 31/12/2011

Opening balance 1,065 1,259 Purchase of shares and participations 2,002 2,246 Sale of shares and participations -1,842 -2,440 Shares and participations according to balance sheet 1,225 1,065 No tes to the financial statements | 127 128 | DistRIBution of earnings

Proposed disposition of unappropriated earnings

The Board of Directors and President propose that unappropriated earnings of SEK Affirmation by the Board of Directors 24,659 million be distributed as follows: The Board of Directors and President hereby affirm that the Annual Report has been prepared in accordance with the Annual Accounts Act and RFR 2.1. Accounting for legal Dividend, 700,000 shares @ SEK 7,143 per share SEK 5,500 million entities, and provides a true and fair view of the company’s financial performance and Funds to be carried forward SEK 19,159 million position and that the Report of the Board of Directors provides a true overview of the Total SEK 24,659 million activities, results and financial position of the company and describes the significant risks and uncertainties to which the company is exposed. The Board of Directors and President hereby affirm that the Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU, provide a true and fair view of the activities, results and financial position and that the Report of the Board of Directors provides a true overview of the activities, results and financial position of the Group and describes the significant risks and uncertainties to which the company is exposed

Luleå March 20, 2013

Marcus Wallenberg Chairman

Hans Biörck Maija-Liisa Friman Lars-Åke Helgesson Board member Board member Board member

Sten Jakobsson Hanna Lagercrantz Maud Olofsson Board member Board member Board member

Seija Forsmo Tomas Strömberg Jan Thelin Employee representative Employee representative Employee representative

Lars-Eric Aaro President

The annual report, the consolidated financial statements and the sustainability report were, as stated above, approved for publication by the Board of Directors onM arch 20, 2013. The consolidate income statement, statement of financial position and the Parent Company’s income statement and balance sheet will be the subject of approval at the Annual General Meeting on April 29, 2013.

Our Audit Report was submitted on March 20, 2013

Peter Ekberg Authorised public accountant Deloitte AB 128 | Distribution of earnings Auit d ors’ Report | 129

auditor’s report

To the Annual General Meeting of Luossavaara-Kiirunavaara AB Company registration number 556001-5835

Report on the annual accounts and consolidated financial statements Report concerning other legal requirements and enactments We have audited the annual accounts and consolidated financial statements for In addition to our audit of the annual accounts and the consolidated financial state- Luossavaara-Kiirunavaara AB (publ) for the 2012 financial year. The company’s annual ments we carried out an audit of the proposals regarding the allocation of the accounts and consolidated financial statements are included in the print version of this company’s profit or loss and the Board of Directors’ and President’s administration of document on pages 78-128. Luossavaara-Kiirunavaara AB (publ) for the 2012 financial year.

The Board of Directors’ and President’s are responsible for the annual accounts and the The Board of Directors’ and President’s responsibility consolidated financial statements. The Board of Directors is responsible for the proposal for allocation of the company’s The Board of Directors and the President are responsible for preparing an annual profit or loss and the Board of Directors and the President are responsible for adminis- report that provides a true and fair view in accordance with the Swedish Annual Ac- tration under the Companies Act. counts Act and consolidated financial statements that provide a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU The auditor’s responsibility and the Swedish Annual Accounts Act, and for internal controls deemed by the Board Our responsibility is to express an opinion with reasonable assurance on the proposed of Directors and President as necessary for the preparation of an annual report and allocation of the company’s profit or loss and on the administration based on our audit. consolidated financial statements that are free of material misstatement, whether due We conducted the audit in accordance with auditing standards generally accepted in to fraud or error. Sweden As a basis for our opinion on the Board of Directors’ proposed allocation of the The auditor’s responsibility company’s profit or loss, we examined the Board of Directors’ reasoned statement Our responsibility is to express an opinion on the annual accounts, the consolidated and a selection of supporting evidence in order to assess whether the proposal is in ac- financial statements based on our audit.W e conducted our audit in accordance with cordance with the Companies Act. International Standards on Auditing and auditing standards generally accepted in As a basis for our opinion concerning discharge from liability, we examined, in Sweden. These standards require us to comply with ethical requirements and plan and addition to our audit of the annual accounts and consolidated financial statements perform the audit to obtain reasonable assurance that the annual report and consoli- significant decisions, actions taken and circumstances of the company in order to dated financial statements are free of material misstatement. determine the liability, if any, to the company of any board member or the President. An audit involves performing procedures to obtain audit evidence about the amounts We also examined whether any board member or the President has, in any other way, and disclosures in the annual report and consolidated financial statements. The acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of procedures selected depend on the auditor’s judgment, including the assessment of Association. the risks of material misstatement of the annual report and the consolidated financial We believe that the audit evidence we have obtained is sufficient and appropriate to statements, whether due to fraud or error. In making those risk assessments, the provide a basis for our qualified opinion. auditor considers internal control relevant to the company’s preparation and fair presentation of the annual report and consolidated financial statements in order to design Qualified Opinion audit procedures that are appropriate in the circumstances, but not for the purpose of We recommend to the Annual General Meeting that the profit be allocated as proposed expressing an opinion on the effectiveness of the company’s internal control. An audit in the administration report and that the members of the Board of Directors and the also includes evaluating the appropriateness of accounting principles applied and the President be discharged from liability for the financial year reasonableness of accounting estimates made by the Board of Directors and President, as well as evaluating the overall presentation of the annual report and the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.

Qualified Opinion In our opinion the annual accounts have been prepared in accordance with the Swedish Annual Accounts Act and provide in all material respects a true and fair view of the parent company’s financial position as of December 31, 2012 and its financial performance and cash flows for the year in accordance with the Swedish Annual Accounts Act. The consolidated financial statements have been prepared in accordance with the Stockholm 20 March, 2013 Swedish Annual Accounts Act and provide in all material respects a true and fair view Deloitte AB of the parent company’s financial position as of December 31, 2012 and its financial performance and cash flows for the year in accordance with International Financial Reporting Standards as adopted by the EU and the Swedish Annual Accounts Act. The administration report is consistent with the other parts of the annual accounts and the consolidated accounts. We therefore recommend that the Annual General Meeting adopt the income state- Peter Ekberg ment and balance sheet for the Parent Company and Group. Authorised public accountant 130 | Glossary

GLOSSARY

A lKALINE pH: pH value above seven. Mt : Abbreviation for million tonnes

Barren rock: Rock that is not ore. Olivine: Mineral.

Burden: Materials (ore, slag formers, etc.) that are added (charged) to Particulate emissions: Release of particulate matter into the air. a furnace, possibly together with fuel, in ironmaking. Pelletizing: Process where slurry is mixed with binder and rolled Calcites and silicates: Different minerals. together into “green” balls. The balls are sintered in a pelletizing plant. The finished product is pellets. Concentration: Beneficiation of finely ground ore by separation into a concentrate of iron ore powder with very high purity, so-called Performance in Ironmaking: LKAB’s promise to the customer. slurry. Q value: A calculated average quality value of delivered products, Crude iron: Molten ore from a blast furnace that is subsequently based on monthly measurements of a number of fixed parameters. refined in a steelworks. Seismic event: Rock tremors, earthquakes. Crude ore: The untreated ore broken loose from the deposit. Sintering: Heating of fine-grained ore (fines) until it starts to melt. Crushed ore: Designation for input to ore processing plants. The ore is then fused (sintered) into lumps (sinter) that can be used in a blast furnace. Deformation zone: Ground area affected by subsidence due, for example, to mining. Deformation zone boundaries are defined at the Spill: Release of water from a pond. point where seismic instruments first indicate disturbance. Spillway: Device for controlled discharge of water from e.g., a tail- Dressing: Rough sorting of crushed ore. Consists at LKAB of screen- ings pond. ing of the crushed ore into various fractions, after which the waste Sponge iron: (= DRI, Direct Reduced Iron). End product of the DR rock is separated from the iron ore by magnetic separators. process. Solid, porous iron with some remaining mineral residues and Flotation: Chemical process/method for particle separation, used in oxygen. HBI (Hot Briquetted Iron) is a compressed form of DRI that beneficiation of iron ore. reduces the risk of autoignition.

GRI: Global Reporting Initiative. International reporting body consisting Stripping: Preparation of ground by removal of vegetation and or of interest groups that have produced global guidelines for sustain- soil, etc., to enable access to underlying materials. ability reporting. Sulphides: Chemical compounds containing sulphide ions. GWh: Gigawatt hour. TJ: Terajoule. Hematite: Mineral, iron ore (Fe2O3), aka bloodstone. TWh: Terawatt hour. Huntite: Mineral. Value-in-use: Lowest possible cost for iron and steel produc- Indicators: Quantifiable key values as defined by the GRI sustainabil- tion with the least possible disruptions. LKAB pellets increase blast ity areas Economy, Environment, and Society. furnace efficiency, reduce e.g. emissions, the formation of slag and energy consumption. Inert waste: Material waste that is not reactive and does not decom- pose after final placement. Values: Describe how we behave toward each other and the world in general. They are guiding principles for every day life; they help Intact ore: When ore is in its original state before being mined it is us make decisions and clarify what is expected of everyone in the com- said to be intact. pany. LKAB’s values: Commitment, Innovation and Responsibility. Integrated steelmill: Steelmill that covers the entire production Yield: Ore yield = The ratio between the recovered crude ore and the chain from ore to steel and has both sintering plant and blast furnace. theoretical quantity of intact ore in the ground. The difference is made Landfill: Area in which materials such as tailings or waste rock are up of ore losses and is dependent on the workability of the ore, i.e. stored indefinitely. how economical it is to mine. Weight yield = The ratio between the iron content of the finished product and the iron content of the crushed ore Landfill plan: Long-term plan for final placement of waste material. entering a plant. Leachate: Water containing elements that are present in the material through which it has passed. For example, when precipitation falls on a heap of rock or stone. Leachate is caused principally by precipitation percolating through waste deposited in a landfill.

Magnetite: Mineral, magnetic iron ore (Fe3O4), aka black ore.

Main level: Transport level in a mine to which the ore is tipped through a chute or shaft from overlying mining levels.

Mica: Mineral. 130 | Glossary Adrd esses | 131

LKAB ADDRESSES

LKAB INDUSTRIAL MINERALS M inelco France Group head office Representative Office, 85 Rue Jean Rache Box 952 Minelco Ltd. 59310 Saméon, Frankrike SE–971 28 Luleå, SWEDEN Flixborough Industrial Estate, Flixborough, Tel: +33,320,055,167 Tel +46 771 760 000. Fax +46 0771 760 001. North Lincolnshire, DN15 8SF, England. [email protected] [email protected] Tel +44 1724 277411. Fax +44 1724 866405. Lars-Eric Aaro, President and CEO [email protected] Minelco Greece Robert Boulton, President and Group CEO Representative Office, 13, N.Kountouriotou str., Minelco Group 546 25 Thessaloniki, Greece. IRON ORE Tel: +30 2310 539073. Fax +30 2310 552882. Minelco AB [email protected] MARKETING AND LOGISTICS Box 952, SE–971 28, Luleå, Sweden. Tel +46 920 381 60. Fax +46 920 190 88. Minelco Singapore LKAB [email protected] c/o LKAB Far East Pte Ltd Sales office, Scandinavia Roger Johansson, President 300 Beach Road #29-02, The Concourse, Box 952, SE–971 28, Luleå, Sweden. Singapore 199555. Tel +46 771 760 000. Fax +46 0771 760 001. Minelco Oy Tel +65 6392 49 22. Fax +65 6392 49 33. [email protected] Kaivoksentie 300, FI–71800 Siilinjärvi, Finland [email protected] Johan Heyden, Sales Manager Tel +358 17 266 0160. Fax +358 17 266 0161. [email protected] LKAB S.A. Kari Laukkanen, President SUBSIDIARIES Chaussée de la Hulpe 150, BE–1170 Brussels, Belgium. Tel +32 2 663 36 70. Fax +32 2 675 05 91. Minelco, Inc. LKAB Wassara AB [email protected] 2020 Scripps Center, 312 Walnut Street, Rosenlundsgatan 52 Göran Ottosson, President Cincinnati, OH 45202, USA. SE 118 63 Stockholm. Tel +1 513 322 5530. Fax +1 513 322 5531. Tel +46 771 760 000. LKAB SCHWEDENERZ GmbH [email protected] [email protected] Bredeneyer Strasse 182, D–45133 Essen, Germany Mats Drugge, President Peter Johansson, President Tel +49 201 879 440. Fax +49 201 879 4444. [email protected] Minelco GmbH LKAB Berg & Betong AB Göran Ottosson, President P.O. Box 10 25 54, DE–450 25 Essen, Germany. Box 817, SE–981 28 Kiruna, Sweden. Tel +49 201 45060. Fax +49 201 4506 490. Tel +46 771 760 200. Fax +46 771 760 201. LKAB FAR EAST Pte. Ltd [email protected] [email protected] 300 Beach Road #29-02, The Concourse, Thomas Tepper, President Peter Söderman, President Singapore 199555. Tel +65 6392 49 22. Fax +65 6392 49 33. Minelco B.V. LKAB Mekaniska AB [email protected] Vlasweg 19, Harbour M164, P.O. Box 16 Tel +46 771 760 210. Fax +46 771 760 211. Stig Nordlund, President NL–4780 AA Moerdijk, The Netherlands. Tel +31 168 388 500. Fax +31 168 388 599. LKAB Kimit AB LKAB Malmtrafik AB [email protected] Tel +46 771 760 220. Fax +46 771 760 221. SE–981 86 Kiruna, Sweden. Yvonne Dirken, President Tel +46 771 760 500. Fax +46 771 760 002. LKAB Fastigheter AB Markus Petäjäniemi, President, pro tem Minelco Asia Pacific Ltd. SE –981 86 Kiruna, Sweden. 3407 China Resources Building, 26 Harbour Road, Tel +46 771 760 300. Fax +46 771 760 301. LKAB Norge AS Wanchai, Hong Kong. [email protected] Postboks 314, NO–8504 Narvik, Norway. Tel +852 2827 3000. Fax +852 2827 5574. Siv Aidanpää Edlert, President Tel +47 769 238 00. Fax +47 769 449 25. [email protected] Magne Leinan, President John Engel, President LKAB Nät AB SE– 981 86 Kiruna, Sweden. LKAB Minelco (Tianjin) Minerals Co., Ltd. Tel +46 771 760 700. Fax +46 771 760 002. Luleå malmhamn Junyi Industrial Park, Jungliangcheng, Dongli District, [email protected] Box 821, SE–971 25, Luleå, Sweden. Tianjin, P.R. China 300301. Tel +46 771 760 000. Fax +46 0771 760 001. Tel +86 22 2435 1706. Fax +86 22 2435 1708. LKAB Försäkring AB Lars Andersson, General Manager [email protected] Box 952, SE–971 28, Luleå, Sweden. James Qi, President Tel +46 771 760 600. Fax +46 0771 760 001. [email protected] PRODUCTION Likya Minelco ITOB Organize Sanay Bölgesi Tekeli Beldesi LKAB Trading (Shanghai) Co., Ltd. LKAB Menderes, Izmir, Turkey. Unit 2007, 889 Yueda Plaza, SE–981 86 Kiruna, Sweden. Tel: +90 232 799 01 60. Fax: +90 232 799 01 74. 1111 Changshou Road, Tel +46 771 760 000. Fax +46 771 760 002. Shanghai 200042 Minelco Slovak Republic China LKAB Representative Office, Panenska 13, Tel: +86 21 521 25103. Fax: +86 21 521 26029. Svappavaara SK–81103 Bratislava, Slovak Republic. Email, office: [email protected] SE–981 86 Kiruna, Sweden. Tel +421 2 5930 5753. Fax +421 2 5930 5754. [email protected] Tel +46 771 760 000. Fax +46 771 760 002. [email protected] Anders Lundgren, President Marian Zilinsky, Sales manager LKAB SE–983 81 Malmberget, Sweden. Minelco Spain Tel +46 771 760 000. Fax +46 771 760 003. Representative Office, C./Nord no. 2 Ent.5, 08500 Vic,Spain. Tel/Fax +34 93 886 1330 [email protected] 132 | Annual General Meeting and Financial Information

ANNUAL GENERAL MEETING

LKAB’s Annual General Meeting will be held on Monday, April 29, 2013 at 15:00 in Luleå.

PARTICIPANTS The AGM is open to the public

NOTICE TO ATTEND Notice to attend the AGM; financial information and other information is available at www.lkab.com. Printed financial information may be ordered by email at [email protected] The printed version of the Annual Report will be available from April 29.

FINANCIAL INFORMATION

INTERIM REPORTS

April 29 Interim Report, 1st Quarter, 2013

August Interim Report, 2nd Quarter, 2013

October Interim Report, 3rd Quarter, 2013

February 2014 Interim Report, 4th Quarter together with Year End Report, 2013

Contact Please direct any questions regarding LKAB’s financial information to Leif Boström, CFO and/or Lars-Eric Aaro, President and Group CEO.

Please direct any questions regarding the Sustainability Report to Monica Quinteiro, Head of Department, Quality and Environment. 132 | Annual General Meeting and Financial Information

LKAB Integrated report. Annual and Sustainability Report, 2012 Produced by LKAB in collaboration with Vinter and Hallvarsson & Halvarsson. Photos: Fredric Alm, Andreas Lundberg and LKAB. Print: Lule Grafiska. LKAB, Box 952, SE-971 28 Luleå | phone +46 771-760 000 | www.lkab.com