INTEGRATED REPORT ANNUAL AND SUSTAINABILITY REPORT 2013 The cover image shows the locomotive workshop at the new main level KUJ 1365 in the Kiruna mine. The sustainabilityinformation, whichhasbeenreviewed by theauditors, can befound onpages10-73and152-153. The auditedAnnualReport includestheadministration report andfinancialstatementsonpages 92-146aswell as theCorporate Governance Report onpages76-87. dimensions. The information ispresented withafocus onthepast12months. This year wehave addedachapterdescribingthe Group andtheway wework. reflects how we run our business. As last year, our business strategy is the basis for the content and structure of the report, and each strategic focus area has sustainability pages 152-153. This integrated report is the second report in which we have integrated non-financial information (social and environmental) with financial information. This with theGlobalReporting Initiative (GRI)framework. Oursustainabilityreport for 2013fulfills the requirements inGRIG3level B+, which can beseenintheGRIindex on According to the state ownership policy and guidelines for state-owned companies, LKAB must prepare an Annual Report and a sustainability report annually, in accordance LKAB’s INTEGRATED REPORTING FOR2013 shareholders and annual general meeting meeting general annual and shareholders auditor’s limited assurance report on lkab’s lkab’s on report assurance limited auditor’s safe andsafe resource-efficient production 3 CONTROL AND GOVERNANCE OUR management of sustainability work 80 corporate 76 governance structure corporate governance report 88 corporate governance report 76 OUR STRATEGY IN ACTION 2 IN STRATEGY ACTION OUR performance in ironmaking 28 customer focus since 1890 14 1890 since focus customer strategy and value chain 24 chain value and strategy risks and opportunities 20 opportunities and risks customers and markets 16 markets and customers auditor’s statement on the the on statement auditor’s urban transformation 56 stakeholder dialogue 22 dialogue stakeholder sustainability report report sustainability board of directors 84 directors of board group management 86 management group our role in society 12 society in role our customer offering offering customer attractive lkab 64 lkab attractive ABOUT US ABOUT flexibility 34 flexibility growth 50 growth 1 the yearinnumbers4 president’s report6 18 89 TABLE OFCONTENTS the past year2

40 78 mineral reserves and mineral resources 148 resources mineral and reserves mineral 4 ACCOUNTS FINANCIAL OUR affirmation by the board 146 board the by affirmation annual general meeting and and meeting general annual financial information 156 administration report 92 report administration financial statements statements financial auditor’s report 147 report auditor’s group overview 151 overview group addresses 155 addresses glossary 154 glossary gri index 152 index gri APPENDIX notes 115 notes 106

BY COMMITTED, WE MEAN THAT WE FOCUS ON OUR CUSTOMERS’ RESULTS IN ALL WE DO

3 peregrine falcons hatched in 2013 in LKAB’s mining areas.

5 WIND TURBINES produce 40 GWh per year, equivalent to half the energy required for the transportation of iron ore.

DECREASED EMISSIONS TO AIR with flue gas scrubbing at the conveyor belt kiln in Malmberget. 90%

76 TONNES OF IRON ORE 37 mined and hoisted from the Kiruna mine every day. 000 TONNES OF IRON ORE PRODUCTS 000 expected annual production capacity when the open-pit mine in Svappavaara is fully operational. 000

7X STOCKHOLM GLOBE ARENA volume of waste rock extracted at KUJ 1365: 4.2 million m3 equivalent to seven Globe arenas.

13 KUJ 1365 NEW MAIN LEVEL SEK 12.4 billion for capital expenditures to increase 65 annual capacity.

OF LKAB’S SALES, 83% WERE IRON ORE PELLETS BY INNOVATIVE, WE MEAN THAT EVERYTHING CAN BE IMPROVED IF WE DARE TO THINK IN NEW WAYS

400 APARTMENTS IN MALMFÄLTEN IN 2015 4 In 2013 a further 43 apartments were built in Kiruna and in Gällivare 28 apartments will be ready for occupancy in summer 2014. 500 KRONOR INVESTED 000 over the last 10-15 years to increase iron NEW EMPLOYEES DURING THE YEAR ore transport capacity. From 2012 to 2015 we plan to 000 289 recruit around 700 people.

MORE WOMEN AT LKAB during the year, the percentage of women increased to 18.1% and the percentage of female managers to 19.8%. 25 500 TONNES DELIVERED to LKAB’s customers, primarily in 54 Europe, the Middle East and Asia. 000 PEOPLE EMPLOYED directly or indirectly in LKAB´s 000 operations in northern Scandinavia. RE TONNES DELIVERED CO 24 November was a historic month: we delivered 2.5 million 703 tonnes to the shipping harbours. RD 000 THE MONETARY VALUE IN SEK that LKAB created and distributed 000 for the benefit of society in 2013.

WE HAVE 4,427 PERMANENT EMPLOYEES BY RESPONSIBLE, WE MEAN THAT WE THINK LONG TERM, SHOW RESPECT AND PUT SAFETY FIRST

IRON ORE PRODUCTS OF LKAB’S PURCHASING VOLUME exported to Asia and the Middle estimated to come via the purchasing 27% East in 2013. 10% office in Shanghai.

40 SUPPLIERS AND SUBCONTRACTORS 00 who form an important part of our value chain.

21 000 TONNES OF PELLETS delivered by LKAB in 2013. 000

INCREASED CRUDE STEEL PRODUCTION is an advantage for LKAB, as it increases demand for LKAB´s iron ore products. 3.5%

LKAB PELLETS used for the past two years by Finnish steel company Rukki. 100%

LKAB’s POSITION ON THE LIST of the largest taxpayers in Sweden. 5

LKAB WAS SWEDEN’S 8th LARGEST EXPORTER IN 2013 JAN FEB MAR APR MAY JUN

RESUMPTION AT GRUVBERGET In Decem- ber 2012, the court finally ruled that produc- tion could continue. On 2 January 2013 the first ore blast detonated after the shutdown of almost 7 months. The open-pit mines in Svappavaara form the backbone of LKAB’s ef- forts to achieve annual production of 37 million tonnes of finished products.

NEW INFORMATION OFFICE OPENED IN SVAPPAVAARA LKAB opened an information INTERNATIONAL SUMMIT IN KIRUNA office in Svappavaara in February. The office In May, a total of seven foreign ministers, in- is open for one evening every two weeks. This cluding US Secretary of State John F Kerry complements the information offices that we and Swedish Foreign Minister Carl Bildt, vis- already have in Malmberget and Kiruna. ited LKAB and Kiruna. The visit was made in connection with the Ministerial Meeting of the LKAB’S STRATEGY INCREASES ITS FOCUS ON Arctic Council. SUSTAINABILITY LKAB’s Board of Directors approved in February a revised strategy that LKAB MINERALS SIGNS DEALER AGREE- focuses, among others, on continued growth MENT The agreement was signed in May with as well as on efficient energy use, production NEW CUSTOMER IN THE MIDDLE EAST one of the world’s largest mineral producers, and logistics. This resulted also in changes In March 2013, LKAB signs a long-term con- Tronox Limited, and relates to zircon for the within the organization. tract with Emirates Steel in the United Arab Chinese market. Emirates to deliver one million tonnes of pel- MINING, TOURISM AND REINDEER HERDING lets specially adapted for steelmaking via KUJ 1365 – ONE OF SWEDEN’S LARGEST AIM FOR COOPERATION “Although the tour- direct reduction , DR pellets, per year. INDUSTRIAL INVESTMENTS Minister for ism, reindeer herding and mining sectors have Enterprise, Annie Lööf, opened the new main different interests, a strategy of dialogue and PRODUCTION DISRUPTIONS IN FIRST level at the Kiruna mine, KUJ 1365, on 21 May. compromise is chosen. Showing considera- QUARTER Production disruptions at the pro- The new main level extends the lifetime of the tion and respect, understanding one anoth- cessing plants in Kiruna and Svappavaara dur- mine by at least 20 years and the investment er’s needs and rights, is the way to succeed." ing the spring impacted on deliveries, which amounted to over SEK 12 billion. In October, So writes LKAB CEO Lars-Eric Aaro together fell by around two percent in second quarter. the new main level in the Malmberget mine, with others including the heads of the Gabna A programme of measures was initiated to MUJ 1250, which was officially opened in June and Laevas Sami villages and CEO of reduce the risk of future disruptions. The year 2012, celebrated its first anniversary. ICEHOTEL, Monica Wollmén. ended strongly with records for production and pellet production. 2013 THE PAST YEAR

2 JUL AUG SEP OCT NOV DEC

HISTORIC DELIVERY RECORD Never have such large volumes of iron ore products been de- livered, transported on the Ore Railway to the harbours of Luleå and Narvik, as during No- vember. In total, deliveries reached almost 2.5 million tonnes.

GROWTH PLANS DELAYED The mining pro- ject in Mertainen is delayed by an appeal to the Land and Environmental Court of Appeal. Preparatory work had to be suspended pend- ing the court’s ruling. Following the appeal in December, there was a partial judgment that permitted LKAB to mine 15 million tonnes of iron ore per year.

NEW APARTMENTS IN KIRUNA Subsidiary LKAB Fastigheter starts the construction of 62 new apartments in the residential area Terras- sen in Kiruna, scheduled to be ready for oc- EMPLOYEE SURVEY AND CODE OF CONDUCT NEW SALES OFFICE IN DUBAI The growing cupancy in November 2014. A number of new During the spring, a new employee survey was Middle East market is home to some of the projects have been launched, and more are on carried out, highlighting the strengths and ar- company’s largest customers for pellets spe- the way, in order to reach the target of building eas for improvement for LKAB as a workplace. cially adapted for steelmaking via direct re- 500 new apartments by 2015. In August, the Board of Directors adopted a duction, DR pellets, prompting LKAB to estab- new code of conduct, to replace the previous lish a new sales office during the autumn to “PROJECT PEREGRINE FALCON” AND ENVI- ethics policy. An anonymous reporting channel provide a local presence and service. RONMENTAL COMPENSATION TO PROTECT was also developed during the year. NATURE A four-year partnership was initiated NEW FLUE-GAS SCRUBBING EQUIPMENT with the Norrbotten Ornithological Society. Birds BREAKTHROUGH IN NORTH AMERICA Amer- REDUCES EMISSIONS BY 90 PERCENT that thrive in the old mining areas are provided ican steel giant Nucor Steel signs a contract The pelletizing plants in Malmberget and with new breeding sites through the installation with LKAB for the annual delivery of 750,000 Svappavaara are provided with new flue-gas of nesting boxes. LKAB's intention is to compen- tonnes of pellets specially adapted for steel- scrubbing equipment, representing an invest- sate for areas occupied by mining operations by making via direct reduction, DR pellets, start- ment of SEK 1.5 billion. The facility at the con- protecting other valuable natural areas. ing in summer 2013. veyor belt furnace in Malmberget became op- erational and emissions were cleaned by more NEW DRILLING TECHNOLOGY CENTRE In or- BRANDING WORK PROGRESSES On 1 July, than 90 percent. der to continue to develop the drilling systems subsidiary Minelco was renamed LKAB Miner- and products of the future, LKAB Wassara has als, with the company aiming to double its sales. opened a drilling technology centre in Malm- The change of name means that all LKAB’s sub- berget. One of the focus areas is technology to sidiaries are now united under a single brand. enable drilling of curved holes. The distances between the outermost drill-holes are able to be shortened in order to reduce the amount of waste rock in production.

3 THE YEAR IN NUMBERS

IRON ORE AND THE STEEL MARKET GLOBAL IRON ORE EXPORTS AND CRUDE STEEL PRODUCTION (MT) In 2013, global crude steel production increased by 3.5 percent com- 1,600 pared with the previous year. The long-term global demand for steel, 1,400 and therefore also for iron ore and LKAB’s products, remains high. The 1,200 steel companies continue to work to improve their profitability through 1,000 measures such as streamlining and restructuring. There is increasing 800 global iron ore exports demand for high-quality iron ore products, which provide greater flexi- 600 global crude steel production bility in the raw materials mix of steelworks. Pellets for gas-based iron 400 2013 200 and steel production are also expected to see an increase in the next source: cru, december 2013 0 worldsteel, january 2014 few years. 1960 1970 1980 1990 2000 2013

THE GROUP

PRODUCTION AND PRODUCTIVITY DELIVERIES (MT) SALES BY PRODUCT

MT Tonnes/Employee 30 12,000 30

25 10,000 25

20 8,000 20

15 6,000 15

10 4,000 10

5 2,000 5

0 0 0 2008 2009 2010 2011 2012 2013 2010 2011 2012 2013

production, mt 2013 pellets fines* productivity, tonnes/employee * including special products

iron ore products 92% industrial minerals 7% financial key figures 2013 2012 other 1% net sales, sek million 23,656 26,971 operating profit, sek million 7,639 10,589 operating margin, % 32 39 earnings before tax, sek million 7,768 10,977 profit margin, % 33 41 tax, sek million 1,736 2,224 profit for the year 6,032 8,753 SALES BY MARKET AREA cash flows from operating activities, sek million 2,434 5,470 return on equity, % 15 22 equity/assets ratio, % 72 71 capital expenditures on property, plant and equipment, sek million 6,141 5,808 provisions for urban transformation at balance sheet date, sek million 6,304 5,877 expenses for urban transformation, sek million 722 1,181 distributed economic value, sek million 19,491 23,810 non-financial key figures 2013 2012 production, mt 25.3 26.2 of which pellets, mt 23.1 23.8 delivered, mt 25.5 26.3 of which pellets, mt 21.1 22 total number of employees (average) 4,427 4,357 of which women, % 18.1 17.5 of which female managers, % 19.8 17.8 number of training days per employee 6.3 6.1 number of accidents leading to absence from work 59 73 europe 69% energy performance, excl. surplus heat, kwh/tonne pellets 183 181 carbon dioxide emissions from pellet production, thousands of tonnes 669 688 middle east/asia 27% other countries 4%

4 THE YEAR IN NUMBERS

PROFIT FOR THE YEAR NET SALES AND OPERATING PROFIT (SEK MILLION) The operating profit for the year fell by 28 percent compared with 30,000 the previous year. LKAB nevertheless made a good profit – the fifth best in the Group’s history. Lower delivery volumes and prices and a 25,000 lower average dollar rate contributed to the decline. Production was 20,000 weak during the first six months of 2013, with lost volumes. The year 15,000 net sales ended strongly, however, with record production in November and 2013 10,000 December. LKAB continues to focus on process optimisation to achieve operating profit net sales were sek 23,656 safe and resource-efficient production and the goal in 2014 is to in- 5,000 million (26,971) operating profit was crease the availability of production to achieve higher delivery volumes. 0 sek 7,639 million (10,589) 2008 2009 2009 2011 2012 2013

DIVISIONS LKAB’s FINANCIAL TARGETS

MINING LKAB needs to be financially strong in order The Mining Division’s core business is to produce KEY FIGURES 2013 2012 to fulfil future commitments. There has been and sell high-quality iron ore products, of which net sales, sek millon 21,984 25,144 a shift in the Group's financial objectives since pellets accounted for around 83 (84) percent of operating profit, sek million 6,951 10,121 the 2013 Annual General Meeting. The target for the capital structure is a net debt/equity ratio of the total sales volume. Net sales decreased by operating margin, % 32 40 (financial net liability/shareholders' equity). Read 12.6 percent compared with the previous year, average number of employees 3,747 3,686 more about the Financial targets in the Admin- and operating profit fell by 32 percent, primarily capital expenditures, sek million 5,902 5,664 due to lower delivery volumes. In spring 2013, we stration report on page 94. secured the future of iron ore mining at the Kiruna Result Target mine for at least 20 years. CAPITAL STRUCTURE 2013 net debt/equity ratio 1 -0,08 Multiplied MINERALS by 0-0.2 PROFITABILITY The Minerals Division operates through the sub- KEY FIGURES 2013 2012 return on sidiary LKAB Minerals on the industrial minerals net sales, sek million 1,661 1,762 shareholders´equity, % 14,7 12,0 market. Sales during the fourth quarter were operating profit, sek million 63 132 reduced production costs sek/ tonne, 20 % from 2012 to 2015.1 3,7 -7,0 lower than planned, as they were in the preceding operating margin, % 4 7 quarter. Lower sales and operating profit for the average number of employees 351 360 1 see administration report on page 94. year are primarily due to declining demand in the capital expenditures, sek million 24 38 civil engineering and construction industry. RETURN ON SHAREHOLDERS´S EQUITY (%)

SPECIAL BUSINESSES 40 The Special Businesses Division is an umbrella KEY FIGURES 2013 2012 30 organization for LKAB’s wholly owned subsidi- net sales, sek million 1,942 2,350 20 aries, which supply products and services within operating profit, sek million 276 230 10 the group, but also sell cutting-edge technology operating margin, % 14 10 developed by LKAB externally. Fewer assign- average number of employees 329 311 0 2009 2010 2011 2012 2013 ments for the Mining Division during the year capital expenditures, sek million 53 106 resulted in lower sales, while increased external Return on shareholders´equity Rate of return on shareholders´equity sales, for example from LKAB Wassara, improved operating profit. 2013 THE YEAR IN NUMBERS

5 PRESIDENT’S REPORT MOVING FORWARD TOGETHER WITH CUSTOMERS AND THE COMMUNITY

The outcome for 2013, with record business opportunities are arising, particularly in the US and the Mid- production in line with an annual capacity dle East. The global demand for steel is expected to remain positive, especially in developing countries. The OECD estimates that three of 28 million tonnes, demonstrates the billion people will exit poverty by the year 2030. More and more peo- potential of LKAB. The total delivery volume, ple around the world are improving their living standards, thanks to products such as washing machines, water pumps, wind turbines, bi- however, decreased due to disruptions in cycles and trains. This forms the basis for increasing global demand pellet production at the beginning of the for steel and, consequently, iron ore.

year. Nevertheless, in terms of profit, 2013 is CAUTIOUS OPTIMISM ON THE MARKET ranked fifth-best in LKAB’s history. We are During the fourth quarter, global crude steel production was around 390 cautiously optimistic about the future, with million tonnes, an increase of about 6 percent compared with the same period in 2012. Production figures from the major iron ore producers growth in the steel market. We retain our continue to break production and delivery records. This strong demand focus on securing deliveries to customers meant that the price falls expected in the fourth quarter failed to ma- terialize, with the spot price of seaborne iron ore remaining stable at a and on our growth programme. relatively high level.

Demand for LKAB’s products remains high, which is a great advantage ADVANTAGES THROUGH INNOVATION AND QUALITY at a time when the price of iron ore is falling. The drop in profit for 2013 Stricter environmental requirements are driving up demand for compared with the preceding year is not due to declining demand for high-quality iron ore products, which in turn results in increased pre- LKAB’s products, but to a combination of lower delivery levels, falling miums for lump ore and pellets. LKAB is proud to deliver one of the prices and exchange differences. This spurs us on to continue the posi- world’s most climate-smart iron ore products, which has significantly tive trend we saw towards the end of the year, when we broke a number lower carbon emissions than our competitors’ products. LKAB’s pellets of production records. I would like to express my gratitude to our staff. are a product for our time. All of the hard-working professional men and women who focus every The very basis of our existence and our success is our amazing raw day on ensuring that our customers get iron ore products of the highest material, magnetite ore. With its high iron content, purity and ability to quality. give off energy during the process, it is the foundation of our high-quality, It is with these customers in mind that we are continuing our pro- climate-smart product. Our ability to innovate and stay at the forefront gramme of growth. As our customers grow and demand larger vol- of technology also gives us an advantage on the market. But it is only umes, we have to keep up with them in order to live up to our strat- through our unceasing efforts to understand our customers’ needs over egy of being a major supplier for every customer. Otherwise we risk the years that we have been able to develop our processes so we can being marginalized and losing market share. At the same time, new manufacture the world’s top iron and steel products. This demonstrates

6 PRESIDENT’S REPORT

LKAB’s PRESIDENT AND CEO LARS-ERIC AARO

7 PRESIDENT’S REPORT

the importance of our customer promise, “Performance in Ironmaking”. A mining company that does not look after and expand its ore base This is why, despite being a small player in terms of volume, we are should start planning for its own closure. We are therefore pleased that able to lead the way in technological innovation in a rapidly expanding in just a few years we have managed to build up a competent and ef- global industry. ficient exploration department. We have not had to wait long to see re- sults and we are currently examining interesting deposits in our vicinity, THE IMPORTANCE OF VOLUME while at the same time securing the continued mining of known orebod- Although we suffered several disruptions to production at our pel- ies. The results we had in 2013 include new ore deposits in Malmberget letizing plants in Kiruna and Svappavaara this year, we did manage to and a much larger ore base at the Svappavaara mines. Thanks to this recover some of the loss during the second half of the year. Our suc- exploration, we are able to plan for continued and expanded deliveries cess in overcoming these disruptions demonstrates both the value and to secure our future operations in the orefields communities. of process optimization and the fact that safe and resource-efficient production yields results. Preventive maintenance work in 2014 will ATTRACTIVE LKAB continue to focus primarily on stabilising availability in production at LKAB’s mines currently create around 54,000 jobs in the Artic region a high level. This is the key to fulfilling our commitments to custom- through direct employment, indirect impact on local and regional busi- ers, and also represents the basis of our extensive efforts to reduce ness and through transport to and operations at our customers. Our LKAB’s costs. Our goal is to lower the cost per tonne produced by 20 growth programme is creating even more jobs, and we plan to recruit percent compared with 2012. When we achieved record production in about 700 people over the next few years. To achieve this, we need to December 2013, we had already lowered costs by 10 percent. By in- be a role model for ethics, equality, diversity and work environment. Our creasing production to 37 million tonnes, we will be able to cut costs by focus on the “Safety first!” programme is starting to pay off, as we re- a further 10 percent through increased economies of scale. If we are duced the accident rate in 2013. It is also encouraging to see that the able to hold down fixed costs while increasing tonnage, we will achieve proportion of women in the Group has increased, although we still have our goal. This is important in terms of maintaining our margins and con- a long way to go. Being able to offer attractive communities is just as tinuing our capital expenditure, as well as for urban transformation in important as offering attractive jobs. We often hear the phrase “no town the orefields communities and for our owner’s requirement for a 12 per- without the mine” in the orefield communities, but we need to remem- cent return on equity. I have high hopes that the three-year cost stream- ber that the opposite is also true: “no mine without the town”. We want lining programme we are now halfway along will continue to achieve to have thriving communities with a range of businesses as well as cul- results. There are several good examples of innovative projects, such as tural and leisure activities. That is why we are also heavily involved in stronger "green" balls in pellet production, coordinating in-house work the urban transformation of the towns, together with the municipalities instead of using external resources, heat recovery from the evacuated and other stakeholders and interested parties. Prominent examples of air from the mines and many more improvements, large and small, that this work include our LKAB Academy foundation, which aims to make will ensure we achieve our goal. the schools in our region the best in Sweden, and the Hjalmar Lund- bohm Research Centre (HLRC) at Luleå University of Technology, which SECURED ACCESS TO ORE conducts long-term research in areas that are strategically important In May 2013, we launched the first phase of the Kiruna mine’s seventh to LKAB. main transport level, KUJ 1365. The new main level will be fully op- Our research is an investment in our future. The aim of our research erational in 2017, and completely replaces level 1,045 for the extrac- is to continue to develop climate-smart products, where, together with tion of ore from the Kiirunavaara orebody, which we have been mining our clients, we take responsibility and through joint efforts limit our en- for almost 115 years. KUJ 1365 secures ore mining in Kiruna for an- vironmental impact, carbon emissions and our energy dependency. We other 20-25 years, before a new main level may be required. We have have a clear ambition with regard to sustainability. LKAB will generate secured the continued mining of the rich orebodies in Malmberget prosperity by being one of the most innovative and resource-efficient through our new main level, M 1250. Most of the additional iron ore in mining companies in the world. We are working to launch new genera- our growth programme, however, will come primarily from the three tions of pellets and technologies specifically designed for direct reduc- open-pit mines in the Svappavaara Field: Gruvberget, Mertainen and tion, where carbon emissions can be reduced by 80-100 percent. Leveäniemi. The planned start of production at the Mertainen open- pit mine has now been delayed, which means that the full effect of LKAB’s growth programme has also been put back. The good news at the end of last year was the positive decision on a single environmen- tal permit to cover all operations at Svappavaara, including mining at Gruvberget. The new operations permit at Svappavaara shows that LKAB’s operations meet high environmental standards. In early 2014, we also applied to mine the old open-pit at Leveäniemi, which we are now emptying of water.

8 PRESIDENT’S REPORT

SUSTAINABILITY CHALLENGES Long-term sustainability is at the heart of LKAB’s approach. Our oper- ations require a great deal of forward planning and a responsibility for our operating locations on which we are so dependent. Our business concept itself is based largely on the climate benefits that our products provide in our own processes as well as those of our customers. The biggest challenge for us over the last decade has been the major urban transformations that are absolutely vital if mining is to continue. Our sustainability work contributes directly to commercial opera- tions by identifying and managing risks and increasing competitiveness. For the second year running, LKAB has published an integrated sustain- ability report. We are working to report on all significant aspects and it is LKAB’s ambition to be a model of sustainable development for the industry and for Swedish industry as a whole. Only we can describe our own benefit to society. There has been much debate in Sweden “Our message is clear. about mines in recent years. The main rea- If our region is to son for this seems to be the large number of become more attractive, exploration permits brought about by soar- ing metal prices, which have prompted many we need more jobs, companies to explore Sweden’s mineral-rich in all industries. bedrock. Greater exploration is not a problem, Through understanding as it leads to better knowledge of our bedrock. It is also good for our industry to be the subject and cooperation, of scrutiny and discussion, but it is my hope we will achieve that this will be based on facts. We still have success together.” only 16 active mines, covering less than half a thousandth of Sweden’s total area. Sweden LARS-ERIC AARO, PRESIDENT AND CEO is world leading, both in its strict environmen- tal legislation and in climate-smart technolo- gies, so it must therefore be better in terms of global sustainability for us to use as much as possible of the least environmentally damaging deposits we have here, rather than those in other parts of the world where environmental standards, technology and work environment are often worse. Iron is a wonderful material that can theoretically be recycled indefinitely. It cannot therefore be compared to finite natural resources such as fossil fuels. However, recycling alone cannot meet the needs of the billions of people who want to increase their standard of living. For that, the world needs more steel. At LKAB, we look to the future with confidence. We see a large future demand for our products. We are continuing on our long-term sustaina- ble journey with focus on our customers’ needs and our commitment to being a reliable and stable supplier of the world’s most climate-smart iron ore products.

Luleå, March 2014

Lars-Eric Aaro, President and CEO

9 BUSINESS CONCEPT BUSINESS STRATEGY AND GOALS To manufacture and deliver upgraded iron ore LKAB’s business strategy is to develop, manu- products and services for iron manufacturing facture and sell iron ore products with qualities from Malmfälten, the orefields communities, that that surpass those of our competitors. An impor- generate added value for customers on the world tant business-critical objective is to be a major market. Other closely related products and ser- supplier to each customer. For LKAB to maintain vices that are based on LKAB’s expertise and that and strengthen its industry position and not be- support the core business are also included in come marginalized, the company must be able to the operation. guarantee the availability of iron ore products in line with our customers’ growth. Consequently, VISION LKAB’s group-wide objective over the next few To be perceived by customers as the supplier that years is to achieve significant increases in pro- provides the best added value, thus becoming a duction. market leader in its chosen market segments. SUSTAINABILITY STRATEGY CUSTOMER PROMISE LKAB’s sustainability strategy has been devel- Our customer promise is “Performance in Iron- oped to support the business strategy. Our sus- making”. This means offering products that in- tainability work is designed to heighten LKAB’s crease the process efficiency of our steelworks sense of responsibility and lead to economic, customers and so enhance their production re- social and environmental sustainability. LKAB’s sults. LKAB is also keen to work together with objective is to generate prosperity by being one the customer on development to further improve of the most innovative and resource-efficient the ironmaking process. LKAB has a major focus mining companies in the world. on the customer, high product quality and cli- mate-smart iron ore products.

VALUES A brand has to be built on its foundations. LKAB’s values ​​are Committed, Innovative and Responsible and they guide our actions and per- meate the entire business.

10 1 ABOUT US

This section aims to improve understanding of how we at LKAB conduct our business, what the fundamental approaches and structures are that make up our company and how we work to achieve our goals. This is where we present our company and everyone who makes a contribution to LKAB’s value chain.

Ò Our role in society Ò Customer focus since 1890 Ò Customers and markets Ò Products and services Ò Risks and opportunities Ò Stakeholder dialogue Ò Strategy and value chain

11 ABOUT US OUR ROLE IN SOCIETY

As a global supplier of iron ore CREATING VALUE FOR products, we generate PEOPLE AND THE ENVIRONMENT By allocating funds to deal with our environ- significant value. However, mental and social impact, as well as future SOCIAL we must always take a remediation we are taking responsibility for the impact of our mining. By build- responsible approach ing homes and supporting education, e At iv co tr t m ac to our business and c m t healthcare, culture, research and ra B u iv t A n e t K i A L t ie organized leisure activities we are growth and gain LKAB s generates working to build attractive commu- prosperity by society’s trust. being one of the nities. We facilitate meetings and most innovative and resource-efficient t dialogue by inviting discussion and mining companies n Our objective is to R in the world. ie e c o s fi holding consultation with our stake- p p f n e o -e o r n e ti generate prosperity a si c c holders. We have high aspirations in ti ble ur u on eso od by being one of the s R pr terms of safety, work environment and environmental protection. We are most innovative and actively involved in social issues such EN T resource-efficient mining VIRONMEN as the Barents Cooperation with regard companies in the world. to guidelines for the resource-efficient and ECONOMY sustainable supply of raw materials in the Arctic, as well as working to reduce our total car- As prosperity in the world’s emerging economies increas- bon footprint and that of our suppliers.. es, so does demand for iron ore for steel production. Large quantities of steel are required for the construction of factories, cities and infrastruc- OUR FUTURE IS BUILT ON IRON ture, and as demand for capital and consumer goods increases. We take We are one of the largest employers and investors in the orefields commu- responsibility for our impact and we know that our stakeholders’ trust nities and in northern Sweden. Our development creates jobs for contrac- is critical to our success. tors and subcontractors. We are involved in the local business commu- nity and we also help to enlarge the labour market in other industries. As TAKING RESPONSIBILITY GENERATES CONFIDENCE Sweden’s eighth largest export industry*, we generate profit and tax Our role in society requires a long-term approach, cooperation and revenue for the Swedish state, our owner, and the Swedish welfare far-reaching social and environmental responsibility. At our operating lo- system. By streamlining our own plants and mines, and through our cations in the orefields of northern Sweden, ur relationship with the local climate-smart pellets, we are contributing to resource-efficient produc- population, as well as reindeer herding and tourism sectors, is key. Mining tion in our customers' operations, as well as in our own. in Kiruna, Svappavaara and Malmberget has an impact on the local com- We want to be a role model for sustainability in the mining indus- munities. This means that homes have to be replaced and companies and try and we are always working to make improvements. As the level of shops need to be relocated, while public services such as schools and prosperity in the world increases, so does the demand for our prod- hospitals are also affected. Making all these changes in a way that estab- ucts. Our sustainability strategy is therefore a natural part of our busi- lishes attractive communities characterized by sustainable development ness strategy. It is based on our values and improves our long-term and diversity is essential if we are to employ, recruit and retain commit- profitability, increases our competitiveness and reduces our costs. ted and skilled employees. This, together with our ability to operate safe and resource-efficient production, to develop methods and products, * According to “Nordisk affärsinformation” [Nordic Business Information] on 31 December 2012. to work together with customers, suppliers, authorities and decision- makers, forms the basis for our existence, our profitability and growth.

12 OUR ROLE IN SOCIETY

The rich iron ore of northern Sweden generates considerable socio-economic value. It has laid the foundation for the orefields communities, has prompted the expansion of Swedish hydropower and the building of a 500 km long railway from the Atlantic to the Gulf of Bothnia. It has spawned two ore harbours and a steelworks and has contributed to the establishment of one of the world’s northernmost universities. A cluster of primary industries, cutting-edge technology and research, together with a reliable supply of renewable energy.

ECONOMIC VALUE CREATION extensive sponsorship activities in the form In total, SEK 5,212 million was re-invested in By being a profitable company, we created of grants, primarily for education, culture and the business, in the form of activities to gen- and distributed economic value amounting to athletics in northern Sweden and Norway. erate value for our customers and their cus- to SEK 24,703 billion kronor in 2013. Salaries For the 2013 financial year, a dividend was tomers. paid to employees amounted to SEK 3,413 paid to our owner, the Swedish state, amount- For further information on the generation million and payments to suppliers were SEK ing to SEK 5,500 million. Taxes paid amounted and distribution of economic values ​by the 9,680 million. to SEK 575 million, of which SEK 519 million Group and the parent company, please see the The Group contributed SEK 295 million was paid in Sweden, SEK 33 million in Norway income statements, balance sheets and state- towards urban transformation. We carry out and SEK 23 million in other countries. ments of cash flows in the Annual Report.

13 ABOUT US CUSTOMER FOCUS SINCE 1890

Our business starts with the customer’s Today, LKAB is a high-tech minerals group with over 4,000 employees needs and aspirations and the desire to in 14 countries. Over 180 different trades and professions are repre- sented: from skilled machine operators and mining engineers to world- understand how the products function in leading researchers in metallurgy and process engineering. Innova- the customer’s steel processes. Crucial to tive technology and new knowledge requirements have fundamental- ly changed our business. Today the majority of our staff work above our success are our dedicated, innovative ground. Our workplaces are becoming more equal and multicultural. and responsible employees, our knowledge This is a never-ending task, and we know that there is still much to do.

and expertise, OUR VALUES our cutting-edge Our values, Committed – In- technology and novative – Responsible, give us a common approach to raw materials. our day-to-day work, how we treat one another and how we interact with the world THIS IS LKAB around us. Our code of con- For over 120 years, LKAB has duct, which replaced our eth- been developed by genera- ics policy in 2013, governs tions of dedicated, innovative how we should act in our and responsible employees. business relationships and The results we have achieved provides guidance on how to together with our customers act ethically and in accord- and stakeholders have built ance with our values. up the LKAB brand over the years. From the very begin- ning our goal has been to develop partnerships and stable business relationships based on technical cooperation and an understanding of customer needs. Even today, our success is built on the ability to develop long-term relationships that add value.

COMMITTED INNOVATIVE RESPONSIBLE Take initiative. Welcome new ideas. Prioritize safety. Go the extra mile. Open to diversity. Deliver on our prom- Increase our effi- Find new solutions. ises. Care about ciency. the environment and communities in which we work.

14 CUSTOMER FOCUS SINCE 1890

WHERE WE ARE LKAB operates in northern Sweden at the richest iron ore de- posits in Europe. This is the base for our production and our leading research and development. In order to be closer to our markets, the iron ore business has sales offices in Europe, Asia and the Middle East. The industrial minerals business has sales offices and production facilities in Europe, the USA and Asia. s Harbour The Minerals Division also works with a global network of lo- Mines and cal distributors. Our suppliers are primarily based in Sweden, processing plants Europe and China. Our production in mines and at processing Sales and/or plants takes place in Kiruna, Malmberget and Svappavaara. purchasing offices Finished iron ore products are transported on Malmbanan (the LKAB Minerals and LKAB Wassara Ore Railway) to the harbours of Luleå and Narvik for further shipment to customers all around the world. Our head office is located in Luleå and we have branch offices in Kiruna and Malmberget. We also have a small office in Stockholm.

narvik harbour kiruna underground mine and processing

svappavaara surface mines and processing

malmberget underground mine and processing

malmbanan narvik – luleå

luleå harbour and head office

OUR ORGANIZATION

MINING DIVISION MINERALS DIVISION SPECIAL BUSINESSES DIVISION The Mining Division mines, processes and The Minerals Division supports the core The Special Businesses Division is an um- delivers iron ore products to the harboursof business by developing new business brella organization for LKAB’s wholly owned Narvik and Luleå for onward transport to opportunities for LKAB’s magnetite ore subsidiaries, which mainly supply products our steelworks customers around the world. and by refining, recycling and selling in- and services within the group, but do also The largest and most important product is dustrial minerals on the world market. sell some cutting-edge technology devel- pellets, but other products include fines and The product portfolio is broad, but focus is oped by LKAB externally. Examples include crushed magnetite ore for purposes other on the application and product development drilling technology, explosives, mining con- than steel production. of a few strategically important minerals tracts, engineering services, concrete, logis- such as magnetite, mica and huntite. tics and real estate.

15 ABOUT US CUSTOMERS AND MARKETS

LKAB’s customers are mainly located in The world’s four largest iron ore suppliers are Vale, BHP Billiton, Rio Europe and in the Middle East, North Africa, Tinto and FMG. Together, they account for around 44 percent of annu- al iron ore production and around 70 percent of the global seaborne Asia and the USA. Of total sales, 90 percent export market. Our deliveries of 25.5 million tonnes correspond to a are sold to customers in the steel industry. global market share of around two percent. In volume terms, LKAB is a minor player. A large part of our competitiveness, therefore, comes Through our subsidiaries, the Group also has from leading the way in pellet manufacture technology and in delivering customers in the mining, civil engineering added value to customers with strict environmental, product and quality and construction, automotive, polymer, paint requirements. and chemical industries. WORLD TRADE IN IRON ORE (MT) Largest exporting countries 2012 2013 australia 521 615 Customer relations in the iron ore industry are long-term and slow- brazil 327 331 south africa 58 61 moving. In a growing market with over 250 iron ore projects underway ukraine 36 39 around the world, it is important to meet demand and develop close canada 35 37 customer relationships. The aim of LKAB's expansion is to establish in- russia 25 25 creased delivery capacity before the market once again becomes sat- india 37 14 urated. other countries 154 195 world 1,193 1,317

SWEDISH IRON ORE COMPANY ON THE GLOBAL MARKET Source: CRU LKAB accounts for about 90 percent of the iron ore production and holds around 60 percent of the raw material assets in the EU. Its proximity and long-standing customer relationships make Europe our largest market. CUSTOMER SEGMENTS AND OTHER MARKETS Roughly two-thirds of our total production is sold there, mainly as blast The majority of our industrial mineral customers are in Europe, but the furnace pellets. Just under a third is sold to customers in the Middle priority markets of the US and Asia are growing. Our unique Wassara East, North Africa and Turkey, where the dominant product is pellets precision drilling system has dealers and customers in the mining and for direct reduction, DR pellets. A smaller quantity of iron ore is also ex- construction industries around the world. Proprietary explosives are not ported to China, which owing to its size and global influence represents only used in our own production, but are also sold in smaller quantities an important market. The shipping distance means that China accounts to explosives manufacturers in Norway, Germany and the UK. We also for only a small proportion of LKAB’s current portfolio. The USA is a supply services to the construction industry in the Nordic countries and market that has become increasingly interesting in recent years. Im- we operate the largest mechanical engineering workshop in Sweden, proved economic conditions and access to cheap shale gas, combined with national and international customers. with a shortage of high-quality scrap has opened up new opportunities for LKAB’s DR pellets. With a shifting global economy and a rapidly changing market, it is important that we are be able to handle and overcome temporary fluctuations in the demand for our products. This requires flexibility in terms of market presence, products and manufacture, as well as de- livery. It also means that we must target customers for our iron ore outside the steel industry.

16 CUSTOMERS AND MARKETS

USA - SHALE GAS AND SCRAP EUROPE - CAUTIOUS OPTIMISM MIDDLE EAST AND ASIA - HIGH DEMAND SHORTAGES ARE A GREAT OPPORTUNITY The stabilization of the financial markets Strong demand for steel, particularly There are positive signs of recovery gives cause for cautious optimism. As a in the construction and infrastructure and the demand for steel is growing. result of low profitability due to overca- sectors, and a strong regional econo- The extraction of cheap shale gas pacity and high raw material costs, steel- my are driving demand for iron ore raw for direct reduction combined with a works are operating at about 80 percent materials. The dominant steelmaking shortage of input raw materials in the of their capacity. Despite this, our pellet process is boosting demand for our form of high-quality scrap opens up sales have not been affected signifi- DR pellets. Steelworks in MENA (Mid- interesting opportunities for our DR cantly. Prevailing market conditions are dle East North Africa) are operating at pellets. expected to persist in 2014. Stricter en- high capacity and are making a profit, vironmental requirements mean that in while the region’s shortage of local iron the future fewer blast furnaces will have ore raw materials leaves us very well- to produce more, which will be good for placed on the market. the market for pellets and for LKAB.

lkab world

CHINA - STILL A GROWTH ENGINE INCREASED GROWTH ON

WORLD TRADE IN Demand for steel in China remains very THE MINERALS MARKET IRON ORE PRODUCTS high, which has an impact on prices Following the normalization of demand The world market for iron ore for the entire global iron ore market. during 2013, we are predicting increased products did not change overall in 2013. The world’s three larg- Although steel production in China is growth in industrial minerals in most est exporting countries are Aus- expected to grow, in the long term poor areas and markets in the future. Of par- tralia, Brazil and South Africa. profitability, overcapacity and stricter ticular interest are the markets in the US, environmental requirements are some where, among other things, we are pro- of the issues that may affect Chinese viding refractory materials, recycling and demand and thus the world price of expertise to a growing steel industry, and iron ore. in Asia, where there is strong demand for non-toxic solutions for flame-retardant and insulation materials, for example.

17 ABOUT US CUSTOMER OFFERING

LKAB’s main products are upgraded iron ore Alongside pellets, we also produce fines. This is the most common raw products for the steel industry. The product material in the world’s steelworks and consists of finely crushed iron ore. Before fines can be used in the blast furnace, the so-called sin- portfolio has gradually been supplemented ter feed must first be mixed with additives and sintered, which involves to include other industrial minerals. The aim heating and agglomeration. The high iron content of the sintered fines from Malmberget, for example, provides significant production benefits has been to shift market position from a for our customers. supplier of raw materials to being the world’s leading manufacturer of highly specialized, INDUSTRIAL MINERALS AND CUTTING-EDGE TECHNOLOGY Additive minerals are essential components in our own pellet produc- customized products that meet the needs of tion, but are also refined and sold to customers outside the Group. The the market and customers. product portfolio is broad, but the focus is on a few, strategically im- portant minerals: magnetite from our own mines, mica and huntite. In order to make underground mining profitable, we have developed sev- eral innovative proprietary technologies, products and knowledge that HIGH-QUALITY IRON ORE PRODUCTS in some cases have since been commercialized. Through a unique combination of experience, cutting-edge technology In line with our sustainability strategy, we make an ongoing effort and customer collaboration, LKAB has positioned itself as one of the to streamline processes and secure resources. An example of this is world’s quality-leading manufacturers of climate-smart pellets for DR extracting phosphorus for fertiliser, as well as rare earth metals, for and blast furnace processes. concentration purposes from our iron ore production. LKAB is currently Most of the iron ore that is mined around the world is in the form studying the possibility of extracting phosphorus from over 15 years of hematite. The iron ore we mine in Kiruna and Malmberget is mainly of production from the mine tailings, which would hugely increase the magnetite, which is essential for our climate-smart pellets. Just over amount of fertilizer, available to a world with an ever-increasing num- half of the total energy used in pellet production derives from the mag- ber of mouths to feed. netite as it oxidizes into hematite. This reduces LKAB uses waste rock from the mines to pro- carbon dioxide emissions significantly. LKAB duce aggregates for the local construction indus- SALES BY PRODUCT AREA (MT) pellets also provide significant customer ben- try. Replacing natural gravel in the production of efits. For our customers, high iron content and concrete has been a national objective for a num- balanced additives mean better product perfor- ber of years. LKAB Berg & Betong is one of the few mance and more efficient production, resulting suppliers to use waste rock aggregate for all of its in improved profitability and greater competitive concrete production. advantage.

blast furnace pellets 62% dr pellets 21% fines 13% other products 4%

The dominant product on the iron ore market remains fines. Pellets have a smaller share of 10-20 percent, but this is expected to increase. Of LKAB’s total sales in 2013, pellets, blast furnace pellets and direct reduction pellets together accounted for 83 percent.

18 CUSTOMER OFFERING

IRON ORE PRODUCTS All the steel that is around us in buildings, furniture and household appliances, cars, bicycles and industrial vehicles, tools, computers and staples was originally mined from the ground as iron ore. LKAB manufactures three main products for the manufacture of steel:

Blast furnace pellets are LKAB’s biggest DR pellets are reduced using natural gas to Fines are finely crushed ore which is mixed product and deliver high customer value for produce direct-reduced iron, or sponge iron, with suitable additives and sintered (smelt- blast furnace processes at steelworks, in- which used to produce steel in an electric arc ed together in lumps) before being used to cluding the addition of the mineral olivine for furnace. produce crude iron in a blast furnace. improved temperature properties.

INDUSTRIAL MINERALS

Minerals are part of modern everyday life Huntite is used, for instance, as a halo- We are also a leading global player in the and are found in everything from cosmetics gen-free, fire-retardant additive in plastics recycling of refractory materials for lining and paint to fire retardants and electronics. and cables. Mica has an extremely wide blast furnaces, for example, and heat shields Magnetite is used for water treatment, in range of applications: as a heat-resistant for the foundry, steel and manufacturing in- polymers for noise and vibration damping, insulator in electrical components, for rein- dustries. and as ballast in heavy concrete for, among forcement and heat protection in chipboard, other things, radiation protection and under- decorative elements in ceramic materials, water structures. seed protection in agriculture, and chemical- resistant paint.

SPECIAL PRODUCTS

Some of the support functions and innova- We also supply concrete and crushed ma- In terms of the tonnage transported on tive technologies we use in our mines are terial to the construction industry, and per- the Ore Railway, LKAB is Sweden's largest also sold externally. Examples include the form qualified mechanical engineering ser- freight carrier. We also have a real estate unique, globally patented water-powered vices and contract commissions for prestige company that fulfils a service function for drilling system Wassara DTH hammer, and customers such as SSC Group and NASA. the iron ore business and owns and man- the explosive Kimulux, which is used in a ages 2,100 residences in Kiruna and Malm- range of applications in the mining and con- berget. struction industries.

19 ABOUT US RISKS AND OPPORTUNITIES

Identifying and responding to risks and RISKS AND UNCERTAINTIES opportunities that affect our competitiveness Significant fluctuations in volume is one of our biggest business risks. The demand for iron ore is determined by the global demand for steel, and stakeholder confidence is critical to which in turn follows the fluctuations in the global economy. Other sig- our ability to implement nificant risks include falling iron ore prices and a weaker US dollar, higher taxes and our business strategy and duties on energy, environmental permit de- achieve our objectives. “Our motto is to think the lays and increased expenses for emissions unthinkable. If we only allowances. The urban transformation that is taking place imposes major financial com- LKAB is exposed to risks that arize in our focus on the probable mitments; in the future, we must be able to business, but also to events that are beyond risks, there is a risk that utilize the provisions that have been made. our direct control. Managing these correctly potentially major problem Our largest competitors mine their ore in order to minimize negative impact is ab- at open-pit mines and therefore have signif- solutely vital to our long-term success and areas could be missed. icantly lower production costs. Maintaining survival. We are careful to make consistently high product quality and cost informed decisions, so that efficiency are critical factors in meeting the EFFECTIVE RISK MANAGEMENT competition. Our production is associated We actively work to identify, analyse and we are able to influence with certain work environment risks for em- monitor how various types of risks affect and manage the situation.” ployees, subcontractors and suppliers. Pro- our business and how we can best avoid or duction risks are assessed daily and require ANDERS LUNDGREN, overcome them. Effective risk management CEO, LKAB TRADING SHANGHAI ongoing action. LKAB’s need to recruit a large is business-critical and vital to success. We number of qualified employees by 2020, in have therefore decided to establish the posi- order to grow and ensure long-term survival, tion of Chief Risk Officer (CRO). A CRO will be is also a source of uncertainty for the Group. appointed during 2014. BUSINESS OPPORTUNITIES Risks also mean opportunities. By having control over and understand- ing our business risks, we can turn them to our advantage. Fluctuations in sales volume can drive product development and broaden the prod- uct portfolio. Price risk forces us to become more efficient and to deliver added value to customers throughout the value chain. Environmental risks encourage us to work together with customers to develop more climate-smart products and more efficient customer processes, which also strengthens our business relationships.

20 RISKS AND OPPORTUNITIES

A SELECTION OF OUR RISKS Learn more about our risks in the Administration Report on page 99.

market and business risks confidence risks volume dependency urban transformation risk price dependency lack of consultation customer dependency ethical risks and risk of irregularities

operational risks financial risks risk of disruption to production currency risks resource and skills-supply risk transaction exposure transport risk (ore railway) translation exposure licence and permit risk interest rate risks and share-price risks electricity risk credit risks allocation in emissions trading system liquidity risks insurance cover

LKAB measures all the ground movements that occur around the mine, among other things using measuring plinths positioned out in the communities around the deformation zones.

21 ABOUT US STAKEHOLDER DIALOGUE

Dialogue and cooperation with the outside Our presence and influence is most evident in the orefields communi- world is crucial for us. It is the foundation of ties. This is where the need for contact and dialogue is the greatest. We know that we have be available and close at hand. To allow for more our growth and success. In order to obtain meetings and opportunities for dialogue, we have opened information access to new land, to be able to mine more offices in our operating locations. The comments, complaints and ques- tions about our operations that we re- iron ore and to keep ceive are handled in accordance with upgrading our products, clear procedures. we need to have the trust In 2013, our land use and permit for mining operations in Mertainen of our stakeholders. was appealed against by the Swed- ish Environmental Protection Agency, We foster good mutual relationships the Swedish Agency for Marine and with our stakeholders. Our aim is to Water Management and the Kiruna/ do what is right for us at all times. In Norrbotten Society for Nature Conser- identifying significant issues, we take vation. Our research work in Ylispäsn- into consideration both our internal risk jaska has been appealed against by management process and the results Girjas Sami village, which had opinions of the stakeholder dialogues and meet- about the work in progress. ings held during the year. Within the framework of our sus- Mining is the lifeblood of Malm- tainability work, we are also holding fälten, but it also has an impact on the specific discussions with a smaller people and surrounding environment. strategic selection of stakeholders. In Maintaining an open and ongoing di- these, we are focusing in particular on alogue with the local community is “We expect LKAB to be a role our role as a responsible company and therefore as natural as it is necessary. on social and environmental issues. Through dialogue, respect and com- model for sustainability in the The results of the year’s meetings mitment, we seek the acceptance of mining industry. Sustainability is have formed the basis for updating our stakeholders in operating our business, an issue that must always be on sustainability strategy. as well as opportunities to continue to In order to generate and drive the create long-term value. the agenda.” debate on key issues, we are members PETER NORMAN, of Euromines, the environmental com- DIALOGUE AND MINISTER FOR FINANCIAL MARKETS, mittee of the Swedish Steel Producers’ SWEDISH MINISTRY OF FINANCE COMMUNICATION CHANNELS Association and SveMin, of which the We meet and communicate with our Swedish Mining Employers’ Association stakeholders to varying degrees and in a (GAF) is also a member. range of contexts and we are increasingly active in dealing with the issues that arize. We usually maintain a dialogue with customers and obtain their feedback at meetings between the sales representative and the customer. Our interaction with employees, suppliers and contractors takes place on a daily basis in internal and external forums. Since 2008 we have had ded- icated roles in various forums for in-depth dialogue with the authorities, decision-makers and political representatives at national and EU level.

22 STAKEHOLDER DIALOGUE

SIGNIFICANT ISSUES AND OUR RESPONSE Through the risk management process and the ongoing stakeholder dialogue that we conduct, we have deemed the following economic, social and environmental issues to be significant. By actively managing issues that could have an impact on our business, we can be profitable and generate growth in line with our goals in both the short and long term.

national authori- ties, county councils and Tourism and municipal reindeer stakeholder customers employees authorities owner suppliers neighbours herding media group customer workplace public meetings private meet- training and meetings and cooperation press releases opportunity meetings meetings private ings meetings information agreements press confer- for dialogue cooperation employee meetings and board meetings supplier offices private and ences conferences dialogue consultation annual gener- meetings internet and public meetings interviews employee legislator al meeting social media survey newsletter meetings with health and safety repre- sentatives financial profitability climate/ profitability profitability urban trans- cooperation urban trans- material stability health and environment growth collaboration formation and under- formation issues standing quality and safety land and plan- equality and issues new housing financial price remuneration ning issues, diversity safety and climate/envi- winter pas- results delivery relia- and continuing urban trans- work environ- ronment tures and rein- new mines formation ethics and deer migration bility professional corruption ment value of suppliers development managers climate-smart working condi- climate/envi- nature employees products values ronment hunting and tions freedom of fishing complaints collective human rights movement management agreements value of climate/ infrastructure nature ethics and attractive lo- environment corruption cal community urban trans- climate/envi- diversity and formation ronment equality value of nature

STAKEHOLDER MODEL

Our stakeholder model illustrates which groups of individuals may be or are affected, directly or indirectly, by the decisions we make.

23 ABOUT US STRATEGY AND VALUE CHAIN

LKAB has identified six strategic areas that SAFE AND RESOURCE-EFFICIENT PRODUCTION are critical for achieving annual production There is a direct link between our competitiveness and our continuous efforts to make sustainable improvements that make our operations of over 37 million tonnes of finished iron ore more efficient. Safe, smooth and uninterrupted production is the cor- products by 2015. Sustainability is an integral nerstone of LKAB’s business, which is based on economies of scale and continuous streamlining. We have the world’s most energy-efficient part of our business strategy. The Group’s manufacturing process for pellets. Our continuous efficiency improve- values f​​orm the basis of the ments, which focus on responsibility, will bene- strategy and, overall, they help fit both customers and the environment. Read more on pages 40–49. us live up to our customer promise of Performance in Performance in Ironmaking GROWTH If we are to continue to prosper, it is vital that we Flexibility Ironmaking. are a major supplier to each and every one of our clients. We can only achieve this if we have PERFORMANCE IN IRONMAKING Safe and resource-efcient production the resources to grow with them. Key to this is We are the world’s most technologically ad- ramping up our delivery capacity, which in turn vanced supplier of iron ore pellets to the global Urban is dependent on securing access to iron ore. Attractive Growth transforma- steel industry. Performance in Ironmaking is LKAB Read more on pages 50–55. tion our customer promise and it means that we must consistently provide our customers with Committed – Innovative – Responsible URBAN TRANSFORMATION the best added value on the market. On a glob- The continuation of our mining operations and al market that is growing in the long term, we our plans for growth are dependent on suc- want to be the innovator that drives develop- cessive relocation of large parts of Kiruna and ment. Read more on pages 28–33. Malmberget. This urban transformation is taking place in close collab- oration with all stakeholders in order to create long-term sustainable FLEXIBILITY solutions. LKAB and the municipal authorities in our operating locations The market for our iron ore products has strong growth in the long term. have a common interest in building attractive communities that are able However, major shifts in the global economy mean that along the way to attract new residents throughout the urban transformation process. we must be prepared to react quickly to temporary fluctuations in de- Read more on pages 56–63. mand. To do this, we need to be flexible in the way we act, from the production of finished products to deliveries on the world market. Read ATTRACTIVE LKAB more on pages 34–39. Our planned growth will require recruitment of upwards of 700 new qualified staff between 2013 and 2015. In order to successfully recruit the necessary skilled employees, we must have a strong brand and a culture that is based on a clear customer promise, with clear values, equality and diversity, as well as a safe, good and stimulating work envi- ronment. We need dedicated and proud managers and employees. That our operating locations are also attractive communities where people can live and thrive is just as important as our attractiveness as an em- ployer. Read more on pages 64–74.

24 STRATEGY AND VALUE CHAIN

OUR SUSTAINABILITY STRATEGY Sustainability is an integral part of our operations and business. In order to highlight our important work, and to increase the focus on this issue, our Board decided on the first Group-wide sustainability strategy in late 2012. Our objective is to generate prosperity by being one of the most innovative and resource-efficient mining companies in the world.

On the basis of our business strategy, we have identified four strategic areas: attractive LKAB, attractive communities, responsible operations and resource-efficient production. These reflect our economic, social and environmental responsibility. Each area has clear objectives and activities that clearly demonstrate how these three dimensions support implementation. We follow up on the objectives and activities on a quarterly basis, when we also report on them to the Board and our shareholders. Throughout our annual and sustainability report, we present the objectives of our sustainability work, alongside the objectives and outcomes for the business strategy.

ATTRACTIVE LKAB ATTRACTIVE COMMUNITIES objectives 2013–2020 results 2013 objectives 2013–2020 results 2013 the proportion of women in the 18.1 percent of employees secure new ore reserve for at securing of the ore reserve is company shall reach at least women, positive trend least 20 years progressing according to plan 25 percent lkab will build 200 new homes 43 new apartments have been there shall be competition 60 qualified applicants per each in kiruna and gällivare, in built in kiruna. at granbacka, between qualified candidates vacancy 2015 (compared with 2011) in gällivare, 30 apartments are for all advertized posts being built and will be ready for occupancy in summer 2014 long-term sick leave shall 0.5 percent long-term sick continue to be less than 0.8 leave percent accidents leading to absence accidents leading to absence from work shall decrease from work were 7.9 accidents from 7 to 5 accidents per per million work hours, million work hours. in 2020, actions taken the accident rate shall not exceed 2.5

SOCIAL

A e tt iv co ra t m c c m t ra B u iv t A n e t K i A L t ie s

t n R ie e c o s fi p p f n e o -e o r n e i a si c ct ti ble ur u on eso od s R pr

E T NVIRONMEN

ECONOMY RESPONSIBLE OPERATIONS RESOURCE-EFFICIENT PRODUCTION objectives 2013–2020 results 2013 mål 2013 - 2020 resultat 2013 sulphur dioxide emissions 2,066 tonnes of sulphur dioxide specific energy consumption energy consumption was from all existing pelletizing emissions. projects involving will be reduced from 160 kwh 167 kwh/tonne of products. plants will be reduced from new flue-gas scrubbing per tonne of finished product measurements and actions approximately 2,000 tonnes in equipment in progress, in 2011 to 130 kwh per tonne taken 2011 to 1,000 tonnes in 2015 and emissions will gradually of finished iron ore products 500 tonnes in 2017 decrease as they become by 2020 operational carbon emissions per tonne 27 kg of carbon emissions per the annual average for falling in kiruna falling dust has of finished products will be tonne of iron ore products dust to decrease by 10 percent decreased by 19 percent and in reduced from 27 kg in 2011 to by 2015 compared with 2011 narvik decreased by 57 percent. 17 kg in 2020 in malmberget it increased by 9 percent and in svappavaara new generation of climate- project involving the next it has risen by 22 percent since smart pellets produced by 2017 generation of climate-smart 2011 pellets is progressing according to plan

maintain our market position as lkab’s position on the market the leading global supplier of as a supplier of pellets is climate-smart pellets unchanged

25 STRATEGY AND VALUE CHAIN

OUR STRATEGY ENSURES A SUSTAINABLE LONG-TERM VALUE CHAIN Our corporate strategies govern how we distribute, process and manage our resources – the mineral resources on which we depend, our human capital, our innovations and non-current assets, our financial capital and our relationships with the world around us. At the heart of our business is a secure, resource-efficient production chain that starts with our customers’ need for upgraded iron ore products. We generate value by building long-term customer relationships, by employing the best talent and by working with responsible suppliers and contractors. Our subsidiaries play an important role in our production chain, as well as running their own operations. Our products add value to our customers’ processes; not least, by reducing energy use and carbon emissions.The steel made from our iron ore generates prosperity and development in infrastructure and consumer goods and can be recycled indefinitely. In 2013, we implemented a series of initiatives to optimize our value chain in the short, medium and long terms. Together, these will ensure that our business model is sustainable and creates value, both now and in the future.

Credibility & trust Risks & opportunities Strategy & resources Governance & control Future prospects

Efficient iron pro- Customer Sales and Exploration Mining Processing Transportation requirements development Existing mines Underground & surface Sorting - Concentration Train - Ship duction at customer's & new projects - Pelletization premises

Support processes

26 2 OUR STRATEGY IN ACTION

In this section, we illustrate how we translate our strategy into action and what we have done during the year to achieve our goals. We report on the most significant events in our six strategic areas and the activities we have carried out in line with our sustainability strategy:

Ò Performance in Ironmaking Ò Flexibility Ò Safe and resource-efficient production Ò Growth Ò Urban transformation Ò Attractive LKAB

27 OUR STRATEGY IN ACTION PERFORMANCE IN IRONMAKING

Performance in Ironmaking

target area objectives 2015 results 2013 customers and markets maintain our market position as the leading lkab’s position on the market as a supplier of global supplier of climate-smart pellets.1 pellets is unchanged. products and services new generation of climate-smart pellets continued research collaboration on steel produced by 2017.1 processes with even greater reductions in carbon emissions, such as course 50. customer-driven research and development establish a complete steel research centre streamlined our research activities during – ironmaking research centre (including an the year and outsourced the operation and experimental dr process plant). maintenance of our experimental blast furnace in order to free up resources.

1 Also an objective of “Resource-efficient production” in the Sustainability strategy. Followed up and reported on quarterly.

28 PERFORMANCE IN IRONMAKING

LKAB owes its existence to iron ore and to our customers. We focus on the customer and we do everything we can to meet the high expectations and demands for product quality and service. Our customer promise is Performance in Ironmaking – efficiency throughout the supply chain in order to deliver the best value on the market.

LKAB’s work begins with the customer’s needs and aspirations. INCREASED DEMAND Product development is driven by a desire to understand each cus- The global market for iron ore has grown by nearly 250 percent tomer’s processes and development. We aim to provide high-qual- over the last 10 years. Over the same period, we have invested ity iron ore products with unique added heavily in mines, processing plants value which meet all aspects of the and logistics with a view to achieving customer’s product and quality re- annual production of 37 million tonnes quirements. We have chosen to posi- of upgraded iron ore products. It is tion ourselves as the leader in quality business-critical that we grow in line and as the sustainable option in the with demand and that we are a major iron ore pellets segment. supplier for every customer. We need to represent a significant portion of the MEETING CUSTOMER NEEDS raw material used in our customers’ Our stated Group-wide strategy is to blast furnaces and DR plants in order grow with our customers in order to to make clear the added value of our strengthen our position on the mar- products. Without growth, there is a ket and avoid being marginalized. To significant risk that we will lose mar- achieve this, we need to increase pro- ket share to competitors who will take duction, but we also need products, our place. processes, deliveries and services that Our world is changing at an ever keep up with our customers’ develop- faster pace. The global iron ore market ment and needs. has become increasingly fast-paced In order to maintain our market po- and volatile. We also need to continue sition and to be able to keep pace with to develop and change as a company our customers’ development, we need in order to handle the changes in cus- volume and we also need to be respon- tomer requirements and demand and sive and able to meet changing needs. to achieve our ambitious goals. By Our customers demand increased concentrating our strength around the profitability and reduced environmen- LKAB brand, we demonstrate our high tal impact. Through close and exten- product quality, our values and​​ the con- sive collaboration with our customers, duct we want our customers and those we develop products that enhance the around us to appreciate and associate production results, streamline the pro- with us. cesses and improve the profitability of our customers. At the same time, we are guaranteeing our own long- term competitiveness. This is at the very heart of our customer promise, Performance in Ironmaking.

29 OUR STRATEGY IN ACTION

A key component of product development is the pellet laboratory in Malmberget, where research is carried out on new pellet products to provide greater customer benefit and reduce environmental impact.

QUALITY IS EVERYTHING tonnes of carbon dioxide for every tonne CLIMATE-SMART STEEL PRODUCTION The key to efficient steel processes is of crude steel produced at the steelworks. We have the world’s most energy-efficient stable operating conditions. One of our Minimizing these large carbon emissions manufacturing process for pellets. Around 60 main goals, from a customer perspective, is to while at the same time improving energy effi- percent of the energy required for manufac- ensure consistently high product quality. This ciency is a major challenge. turing is supplied by our magnetite ore chemi- means being able to ensure stable and opti- In our product development, we are testing cally oxidizing to form hematite, thus reducing mized conditions in our own processing, while new pellet formulations that are based on our carbon dioxide emissions to one-third of those also continuing to develop new and improved customers’ technological developments and of our competitors’ pellet processes, which pellet products. requirements, as well as our experience and use hematite ore. Quality is one of our most important com- knowledge of our customers’ processes, ore The high iron content of our pellets also petitive advantages. Quality is not just about our grades, environmental position and competitor reduces carbon emissions at the steelworks products and their properties, but also our work products. and makes steelmaking more efficient. This throughout the value chain. All employees at Our capacity for innovation has helped us gives us a unique position in a market where LKAB play a part in fulfilling our customer prom- earn a reputation as one of the world’s lead- customers are placing increasing emphasis on ise. Continuous improvements and streamlining ing companies in the development of blast reducing environmental impact. Carbon dioxide ensure that we have safe, resource-efficient furnace processes. The experience and knowl- emissions vary greatly depending on the iron and uninterrupted production with reduced ex- edge we gain from our experimental blast ore used as raw material and the steelmaking penses and increased profitability throughout furnace is also a crucial part of our customer- technology used. Steel produced from DR pel- the value chain. Read more about Flexibility on driven product development. We are working lets and scrap emits considerably less carbon page 34 and Growth on page 50. to launch new generations of blast furnace dioxide than steel produced in blast furnaces. pellets and technologies specifically designed With the greatly increased demand for DR pel- INNOVATION DELIVERS for DR pellets. LKAB is involved in research lets, we aim to maintain our market-leading po- UNIQUE PRODUCTS and development projects to reduce carbon sition and to remain at the forefront of technol- All iron ore processing to steel end products emissions by up to 80 percent. ogy for new products and processes. Plans are gives rise to carbon dioxide emissions. Over 90 in place to complement our experimental blast percent of the world’s steel is currently pro- furnace with an experimental DR process plant. duced in blast furnaces, which emit around two

30 PERFORMANCE IN IRONMAKING

COLLABORATION WITH THE STEEL INDUSTRY TO CUT EMISSIONS

There is great interest among the world’s steel producers in streamlining processes and reducing greenhouse gas emissions. LKAB’s globally unique experimental blast furnace has so far proved to be an important element in the development of new process concepts aimed at reducing carbon emissions. Here, LKAB, together with the European steel industry, has been carrying out successful research for several years on climate-smart steel production in the ULCOS project. The results so aroused the interest of stakeholders in the Japanese steel industry that they wanted to conduct their own study of a technique aimed at reducing carbon dioxide emissions by around 30 percent. As part of the Course 50 project, the first successful re- search campaign in the experimental blast furnace was implemented in spring 2012 and received considerable attention in Japan and other parts of Asia. In 2014 the Japanese are expected to announce the construction of their own pilot blast furnace and the modification of a full-size blast furnace using the new technology. The aim is for this technology to be fully installed in Japanese steelworks by 2050.

31 OUR STRATEGY IN ACTION

The combination of these two experimental facilities, our own steel research laboratory in Luleå, the proximity to Luleå University of Technology and the metallurgical process re- search institute Swerea MEFOS, provides a unique platform for research collaboration.

RESEARCH COLLABORATION AND KNOWLEDGE CLUSTERS LKAB has long chosen to maintain a strong and extensive collaboration with external cen- tres of excellence, both nationally and interna- tionally. This collaboration not only provides synergies and accelerates our own research and development, but is also vital for our abili- ty to recruit skilled researchers. Our leading research and development po- sition is closely linked to our cooperation with Luleå University of Technology, LTU. So far this century, we have donated over SEK 200 million to LTU, where research is mainly conducted at the Hjalmar Lundbohm Research Centre for Mining and Metallurgy and the Excellence Centre in Mining and Metallurgy foundations. Together with our own researchers, a large number of experienced researchers and doc- toral students from the academic world are working to maintain LKAB’s position and to se- cure our future competitiveness as a supplier of climate-smart pellets on the global market.

LKAB’s steel research laboratory in Luleå performs metallographic studies, steel analyses and consultations in ladle metallurgy, continuous casting and process development. We also offer consulting services for breakdown investigations and materials issues in the steel sector. Customers include both Swedish and international companies.

32 PERFORMANCE IN IRONMAKING

PELLETS ARE TURNED INTO RUUKKI’S HIGH-STRENGTH STEEL

Two years ago, Finnish steel producer Ruukki switched to the exclusive use of pellets, with LKAB as its main supplier. This provided both financial and environmental benefits. The amount of dust falling near the steelworks decreased, energy use was reduced by seven percent and carbon dioxide emissions were cut by half a million tonnes per year. Ruukki’s efficient steel process produces high-strength steel that provides the same durability and strength as traditional structural steel, but uses less material. The result is lighter structures and more uses. The steel can also be recycled.

Light, strong steel can be used for more efficient building designs with large roof spans, such as the new Friends Arena in Solna. Lighter vehicles, such as trucks, buses and trains, also use less energy and fuel. LKAB’s ore cars and locomotives for transporting ore by rail are also made from Ruukki’s high-strength steel. The weight of the ore cars has been reduced by one tonne each, which is equivalent to 42 entire ore trains per year. Cargo capacity has increased by 25 percent, enabling LKAB to transport and deliver new climate-smart pellets to Ruukki with minimal energy use. Added value for the customer, LKAB and the environment. In early 2014, the planned merger between Ruukki and SSAB was announced.

33 OUR STRATEGY IN ACTION FLEXIBILITY

target area objectives 2015 results 2013 flexible market presence and customer establish a presence on strategically important strengthened relationships with the us market, portfolio markets in order to follow trends and established a presence in the middle east. developments. flexible product portfolio continue to offer our customers a diversified research and product development, including product portfolio. products made from iron ore from new mines. flexible supplier base china will account for 10-15 percent of the total increased the number of sustainable suppliers purchase volume, which corresponds to almost in china. sek 150 million. flexible production and logistics enabled larger deliveries through increased increased the number of passing sidings on the capacity on the iron ore line and the ofoten line. ore railway and the norwegian government decided to have more passing sidings on the ofoten railway line, partly funded by lkab.

34 FLEXIBILITY

The strong and fast-moving iron ore market of the last decade has put the focus on flexibility. LKAB’s goal is to grow, but we must also be able to handle rapid and temporary fluctuations in demand. Flexibility with regard to customers and markets, products, purchasing, production and logistics is crucial to profitable growth.

As LKAB is a relatively small iron ore supplier in global terms, it MARKET PRESENCE AND CUSTOMERS is important that we are able both to survive economic downturns Today we have a customer portfolio of some 20 steelworks in 15 and to take advantage of upswings in the market. The market is countries. We are constantly working to gain new customers and growing in the long term, but in the short term large fluctuations markets, but Europe is our home market; here, we have strong and can occur. long-standing customer relationships. The GLOBAL DEMAND FOR STEEL (MT) Our goal is to increase our flexibility and Nordic and European steel companies are so be better placed to handle these varia- 1,800 our major, strategically important partners. 1,600 tions. In addition to the core business of pel- They have been in the past and they will con- 1,400 lets, we will continue to produce other iron tinue to be in the future. 1,200 ore products, such as sinter fines, in order to The debt crisis and financial turmoil with- 1,000 secure profitability and market share. in the EU demonstrates the need to be able to 800

600 redirect delivery volumes to markets where

GLOBAL PROSPECTS 400 there is currently more demand. While the

Today, China accounts for almost 50 percent 200 steel industry in the EU continued to be char- of the world’s steel production and the coun- 0 acterized by low demand, overcapacity and 1980 1990 2000 2008 2009 2010 2011 2012 2013 try is heavily dependent on imported ore. low profitability in 2013, the Middle East and World Of which China Most of the iron ore it imports is in the form US markets strengthened. By forging new of fines from the world’s leading producers in Demand for steel is the driving force for iron ore. The contacts and expanding partnerships, in 2013 global demand for steel is expected to remain positive Brazil and Australia. Global demand for iron until 2021. The forecast shows total growth of three we were able to partially redirect our sales ore remains stable. However, analyst institute percent by 2016. volumes to these markets and thus maintain CRU predicts that iron ore prices will fall in our production rate. 2015 as a result of lower demand in China IRON ORE PRICE TREND (2 JAN 2013 TO 24 FEB 2014) A strong economy and large investments and greatly increased availability of iron ore 180 in the construction and infrastructure sectors on the seaborne market. Only Australia is ex- 160 are driving the demand for steel in the Middle 140 panding its mining, by the equivalent of ten East. With a good supply of natural gas, the 120 LKABs. As China is the key player that affects 100 direct reduction of DR pellets to sponge iron us the most, this may be important for us, 80 or briquetted iron, combined with electric arc particularly in light of weak industrial produc- 60 furnaces, has become the region’s dominant 40 tion in both Sweden and Europe as a whole. 20 steel manufacturing process. The shortage of 0 scrap and proprietary iron ore raw materials provides a good market opportunity for our 02/01/1302/02/1302/03/1302/04/1302/05/1302/06/1302/07/1302/08/1302/09/1302/10/1302/11/1302/12/1302/01/1402/02/14 high-quality DR pellets. In order to strength- PLATTS IODEX 62% Fe CFR North China en our presence and technical support in the The strong demand for seaborne iron ore meant that the price falls expected in the fourth quarter failed to region, we decided to open a new sales office materialize, with the spot price of seaborne iron ore in Dubai during the year. remaining relatively stable at around USD 130-140 per tonne. Stricter environmental requirements have driv- en up demand for high-quality iron ore products, which in turn has resulted in increased premiums for lump ore and pellets.

35 OUR STRATEGY IN ACTION

In 2013, LKAB set aside volumes for cus- ment and which get their energy from the demand for steel is increasing, driven primar- tomers in growth markets such as China, currently cheaper source of natural gas, ily by the automotive industry. With a short- in order to nurture and maintain custom- is growing at about four percent per year. age of scrap for feedstock at steelworks and er relationships. Our products are in demand, LKAB’s magnetite ore, with its high iron con- access to cheap shale gas that makes direct particularly for their high tent, is well-suited to the reduction processes profitable, our DR pellets quality. Our products are production of DR pellets. are an attractive choice. often used to improve the Our main product portfo- The extraction of shale gas brings eco- quality and iron content of “Through high lio also includes fines with nomic growth but is not without controversy, raw materials in blast fur- quality and close high iron content, which as the environmental impact is difficult to as- naces, as locally produced cooperation, we benefit customer steel pro- sess. Investigations are currently underway in ore does not contain the duction. Our high-quality the EU regarding the importance and potential same high levels of iron. help to make our fines and pellet products risks of shale gas. As DR pellets deliveries to A permanent presence customers’ steel make us a market leader. North America are expected to increase over creates the opportunity to processes more Our main product strat- the next few years, we will be following envi- monitor at close quarters egy is to maximize pellet ronmental developments closely. the customer requirements efficient.” production and the produc- During the year, LKAB signed a contract and technology trends that PETER SCHMID, tion of high-quality sintered to supply DR pellets to Emirates Steel in Abu affect our long-term prod- SENIOR VICE PRESIDENT, fines. We also want to offer Dhabi, the largest steel producer in the United MARKETING & SALES uct development. Approx- our customers new prod- Arab Emirates. Emirates Steel is a new cus- imately 27 percent of our ucts and we will be con- tomer and is investing aggressively to become iron ore products were ex- sidering additional pellet one of the Middle East’s major steel produc- ported to Asia and the Middle East in 2013. capacity. High-quality products and a flexible ers. The deal confirms that our products meet production and delivery chain give us a com- the high quality standards of the international FLEXIBLE PRODUCT PORTFOLIO petitive edge, even when iron ore prices fall. market. It is our strategic goal to have a market-driv- en product portfolio that meets the changing CLOSE COLLABORATION BROAD SUPPLIER BASE needs and requirements of customers. Iron WITH CUSTOMERS Having an adaptable market presence is im- ore pellets accounted for almost 83 percent The market situation in Europe means that portant, not only in terms of our customer re- of our total delivery volume in 2013. Highly steelworks have to become more efficient and lationships, but also with our suppliers. On a processed pellet products that add value and more flexible. Our goal is, through quality prod- global iron ore market dominated by China, a generate profitability for customers are our ucts and long-term, close relationships, to help strategic presence is required in order to be main competitive advantage and are also the customers make the necessary adjustments able to follow developments on the ground, product that returns the highest profit margin. to the market. For example, more ambitious including from a purchasing perspective. Our Blast furnace pellets are our biggest product, environmental targets and the need for more aim is to “be where the action is”, to enhance but the demand for pellets for direct reduction efficient steel production have boosted interest our competitiveness and to reduce the risks of (DR pellets), which are better for the environ- in our pellets as a feedstock for blast furnac- supplier dependency if the economy takes a es. Old blast furnaces are being shut down and turn for the worse. need to be replaced. By investing in sustaina- As part of this strategy, we established a PRODUCT MIX IN IRON ORE TRADE (MT) ble solutions, both we and our steelworks cus- subsidiary – LKAB Trading – in Shanghai, China

2,000 30 tomers can equip ourselves to face a challeng- in 2011. The aim was to expand the purchas- ing globalized future. ing market, remove unnecessary middlemen 25 and reduce the Group’s purchasing costs.

20 GROWTH IN THE US In the long run, China will account for 10-15 AND THE MIDDLE EAST percent of the total purchase volume, which 1,000 15 In 2013, we signed a contract with Nucor, one corresponds to almost SEK 150 million. Read 10 of the largest steel producers in the USA. Up to more about our cooperation with suppliers in now we have only delivered small quantities of the section on Safe and resource-efficient pro- 5 pellets to the USA and this deal represents a duction on page 40. 0 0 World LKAB breakthrough on the North American market.

Fines DR pellets It also provides an important geographic dis- Blast furnace pellets Other tribution of our sales of DR pellets. The dominant product on the iron ore market There are several reasons for the im- remains fines. Pellets have a smaller share of 10-20 proved market for DR pellets in the USA. The percent, but this is expected to increase. Pellets are LKAB’s main product. economy there has stabilized and domestic

36 FLEXIBILITY

ACTIVE COOPERATION WITH SUPPLIERS

Mining drilling technology used to salvage the Costa Concordia Our proprietary, globally patented, water-powered drilling system, the Wassara hammer, has many applications. When the wreck of the Costa Concordia was salvaged during the year, our Italian distributor Ripamonti was contacted to drill the anchor points that would hold the ship in the right position during the salvage operation. The Costa Concordia sank in a marine national park with a very delicate sea floor. Water-powered drilling technology was chosen for the task because it does not emit any oil contamination or pressurize the delicate strata in the bedrock.

LKAB Trading is responsible for LKAB’s pro- curement in Asia, with a focus on finding and evaluating capable suppliers who can deliver good quality at the right price, with the greatest emphasis on quality. We have a clear vision when it comes to sustainable and responsible sourcing in China. We want to be respected as a proactive procurer among Western companies established in China, with world-class sustainability man- agement that promotes high standards for the industry. It is important for Western companies to car- ry out their own strong sustainability work. This is about leading by example and sup- porting those suppliers that have potential for improvement. One of the keys to success is to provide training in sustainability. Long- term cooperation facilitates the improve- ment process and increases the chance of SUPPLIERS MUST SELF-ASSESSMENT AND SITE VISITS genuine responsibility on both sides. We COMPLY WITH THE CODE We work according to an agreed purchas- make conscious decisions. A conscious deci- The Swedish government has a Memorandum ing process when selecting new suppliers in sion could be to support a supplier with good potential or to choose to reject an offer from of Understanding with China regarding the Cor- China. We perform quality control in three a supplier who is not open to change or is porate Social Responsibility (CSR) of companies. stages. First, the supplier performs a self-as- unable to demonstrate good and proper con- This covers responsibility for the environment, sessment of their work environment, working duct. We have rejected suppliers who do not climate, employment law, human rights and conditions, anti-corruption and environment. live up to our vision of a factory environment corruption. We comply with the UN Global Com- One of our quality engineers then makes a site according to our quality and sustainability standards. pact’s ten principles which cover these areas, visit. We apply the “four-eyes principle”, which and we expect our suppliers to do the same. For means that there must always be at least two In early 2014, LKAB Trading was nominated example, we have zero tolerance with regard to people involved in making decisions. In this for the prize recently established by Deloitte China and the United Nations Development personal gifts, even though the corporate cul- case, this means that the CEO of LKAB Trading, Programme, with the aim of encouraging ture in China on many occasions assumes the Anders Lundgren, also visits the supplier be- and rewarding the best sustainability work acceptance of gifts. Our suppliers are expected fore final approval is given. among multinational companies in China. to read and comply with our corporate code of We did not win the gold, but it feels like we conduct (formerly the ethics policy). We attach got a medal. great importance to them understanding why Anders Lundgren, and what sustainable development and corpo- CEO LKAB Trading in Shanghai rate social responsibility are all about.

37 OUR STRATEGY IN ACTION

Narvik increases capacity Work began to establish a new unloading line in Narvik in 2013, including the construction of a new dock and shiploader. This facility reduces the risk of missing deliveries in case of breakdown while also increasing capacity as a first step towards growth.

ADAPTABLE PRODUCTION MORE PASSING PLACES INCREASED PORT CAPACITY In addition to having a broad product portfo- We haul our ore from the mines and process- The shipping harbours in Luleå and Narvik lio, we are also able to adapt production and ing plants by rail on the Ore Railway and ore form the backbone of our logistics system expenses to demand. A mining operation in- shipments are steadily increasing. Based on and our business. We are able to optimize the volves large fixed and variable costs. It is vi- our growth plans, it is likely that the railway will logistics flows through these two harbours de- tal that we are able to handle fluctuations in only have sufficient capacity until 2020, even pending on the customer’s location. A third of demand and production in a sustainable man- with the new trains and the current plans to our products reach the market via Luleå and ner. Since 2005, therefore, we have invested expand capacity and passing sidings. Produc- two thirds via Narvik, which can accommodate heavily in mines, processing plants and trans- tion of over 40-45 million tonnes per year will the largest vessels for long-distance journeys. portation. We have the capacity in production require double tracks along the entire northern To achieve our goal of increased deliver- and logistics, but we also need to increase the section of the Ore Railway. LKAB is currently ies, we need to increase shipments from Luleå supply of iron ore raw material. working hard with the Swedish Transport Ad- from the current level of 5.2 million tonnes of The three open-pit mines in Svappavaara ministration and the Norwegian National Rail iron ore products to 8 million tonnes. Dredg- – Gruvberget, Leveäniemi and Mertainen – are Administration on the project to increase ca- ing the channel would allow larger vessels to more flexible than our existing underground pacity on the Ore Railway dock, which would in turn strengthen LKAB’s mines, which makes our production more In 2013, the Norwegian government de- logistics system and stated growth strategy. adaptable, with a high proportion of variable cided to invest NOK 1.6 billion to upgrade the Currently, one third of the iron ore products are costs and flexibility in the supply of raw mate- Ore Railway extension in Norway to the Narvik shipped to Luleå at the Gulf of Bothnia coast. As rials. The mines in Svappavaara are expected harbour. LKAB is helping to fund the construc- production increases, shipments from Luleå to give us an additional 14-20 million tonnes of tion of two long passing sidings at Bjørnfjell will also have to increase, as Narvik is not able iron ore per year and this is Europe’s largest and Rombakk in Norway as well as further to handle the extra volume. It is also beneficial ongoing iron ore project. Read more in the sec- improvements to secure the delivery capacity from a logistical, financial and environmental tion on Growth on page 50. needed for our growth plans. On the Swedish perspective to ship the iron ore products from side, all the passing sidings are being extend- Malmberget via the southern circuit. FLEXIBLE LOGISTICS ed, with the last two scheduled for this year Our competitive opportunities on the glob- and next. A new siding at the planned open-pit al market are based on us being one of the mine in Mertainen is also scheduled for 2015 in world’s leading logistics companies, both order to relieve the increased pressure on the above and below ground. With relatively few Ore Railway from the mining operations in the options for storage in stockpiles and at ports Svappavaara Field. Kiruna’s new freight yard of shipment, one of our most important goals was completed in 2013 and provides great op- is to get out as much volume at as even a rate portunities for the more efficient and environ- as possible. mentally friendly transportation of bulk goods that were previously transported by road.

38 FLEXIBILITY

INCREASED CAPACITY WITH GREATER DEPTH

The expansion of the channel to Luleå is a national EU project overseen by the Swedish Maritime Administration. The Swedish Transport Administration, the Port of Luleå and the City of Luleå are stakeholders, along with LKAB, which is representing the industry. A second ore dock would be good for LKAB if the depth of the channel can be increased from the current 12 metres to 15 metres. The project will also require dredging at Kvarken, where there is a threshold outside Holmsund. If the entire project is implemented, it could be ready by 2016 at the earliest and will be a billion-krona investment.

This project is of great interest to LKAB. At the moment, the last part of the load has to be lightered, i.e. run out by barge while at anchor, to be completed. Greater depth would open up completely new opportunities for us. Today around 400 ships are loaded each year in Luleå. Having fewer, but larger boats provides benefits in terms of efficiency, economy, energy and environment. At the same time, Luleå will complement Narvik in LKAB’s logistics system. If there is a queue for shipping into Narvik, some ships can be directed to Luleå.

Sofia Jonsson, LKAB’s Harbour manager in Luleå

39 OUR STRATEGY IN ACTION SAFE AND RESOURCE- EFFICIENT PRODUCTION

target area objectives 2015 results 2013 increased safety 1 • accidents leading to absence from work will • accidents leading to absence from work were be reduced from 7 to 5 accidents per million 7.9 accidents per million working hours. hours worked. in 2020, the accident rate will not exceed 2.5.1 product quality in customer deliveries • product quality in customer deliveries (> 96%). • delivery quality below target (91.2%). increased cost-effectiveness • improved cost-effectiveness per tonne of iron • programmes underway to improve ore produced. cost efficiency. better environment and climate 1 • sulphur dioxide emissions, falling dust, energy • sulphur dioxide emissions, falling dust, energy use and carbon emissions per tonne of finished use and carbon emissions. results for the year products will be reduced.1 reported on page 25 and in the diagram on pages 46-47.

1 Also objectives for “Attractive LKAB”, “Responsible operations” and “Resource-efficient production” in the Sustainability strategy. Followed up and reported on quarterly.

40 SAFE AND RESOURCE-EFFICIENT PRODUCTION

Safety first. A safe workplace without accidents forms the long-term basis for smooth and uninterrupted production. This is essential if we are to deliver energy-efficient and resource-efficient iron ore products of consistently high quality within the agreed time with an added value that streamlines our customers’ processes. We streamline our production and take far-reaching responsibility for our impact on people, the climate and the environment.

A key part of how we create value for our customers, the community further developing our technology. With dedicated, innovative and and the environment is how we manage and optimise responsible employees, we are able to integrate target our production. As we grow, so do the demands placed management and improvement work directly in opera- on us. Our aim is to achieve safe, resource-efficient and tions. A high level of availability and delivery assurance uninterrupted production with the best product quality. in the logistics chain is a must. Safety work is imperative to us – no one should have MINING to suffer injury at their workplace. Our ambitious long- MINING ON A LARGE SCALE term goal is to achieve accident-free operations and Most of LKAB’s ore is mined at depths of more than one annual production of 37 million tonnes. kilometre in the two underground mines in Kiruna and Malmberget. Mining ore at such a great depth, as effi-

QUALITY AND DELIVERY RELIABILITY SORTING ciently and on as large a scale as in our competitors’ Customers make great demands on us and on our open-pit mines, is a logistical challenge. In order for us to products. Only by meeting or exceeding customer ex- achieve profitable, safe and resource-efficient produc- pectations in terms of quality, added value and service tion, it is vital that we use highly developed production can we maintain our position as one of the world’s methods and processes with our own ground-breaking leading producers of upgraded iron ore products. One CONCENTRATING and proprietary technology, as well as the technology of our strategic goals is to measure and maintain our and support provided by our subsidiaries. product quality in customer deliveries. Over the year, The ore in LKAB’s mines in Kiruna and Malmber- the average quality of our customer deliveries was get is mined using sub-level caving. Sub-level caving is below our target. This is largely attributable to major an effective mining method for steep orebodies which operational disruptions at the processing plants in PELLETIZING allows a high level of extraction from the orebody with Kiruna and Svappavaara during the first and second a high degree of safety. The Kiruna mine alone yields quarters. The disruptions affected customer deliveries around 76,000 tonnes of iron ore per day. and the second half of the year was characterized by a LKAB also has open-pit mining. Following a focus on uninterrupted and stable production. Several lengthy permit process, permission has been granted improvement projects were launched during the year ORE TRANSPORT for the mining and processing of two million tonnes of in order to improve and stabilize quality. There will be ore per year at Gruvberget in Svappavaara. The opera- a continued focus on preventive maintenance work in tion currently employs over 100 people. Gruvberget is 2014 in order to increase the availability of production. the first mine to be opened as part of LKAB’s growth This is the key to achieving our goals and lies at the programme. Preparations and advanced planning are heart of our extensive efforts to increase our delivery SHIPPING underway for the resumption of mining at a further two reliability and productivity, while also keeping costs un- open-pit mines in the Svappavaara Field, Leveäniemi der control. and Mertainen. At all three mines the ore will be ex- To increase productivity we must continue to carry tracted using bench mining, which is currently the out safety and maintenance work at mines and plants. most common method used in open-pit mining. Read Capital expenditures and streamlining are required in CUSTOMER DELIVERY more about the new mines in the section on Growth on order to eliminate production bottlenecks. Our research page 50. and development plays a crucial role in fine-tuning and

41 OUR STRATEGY IN ACTION

FIVE ACCIDENT-FREE YEARS SAFETY UNDER GROUND ergy as it oxidizes to form hematite. This Safety always comes first. In underground means that our magnetite pellets require mining, safety must be guaranteed. In or- 60 percent less energy input for pellet der to measure how mining affects the rock, production compared with pellets made from we have installed a monitoring system con- hematite. LKAB also has more energy-efficient sisting of 133 geophones in Kiruna and 140 manufacturing compared to other magnet- in Malmberget. Measurement, analysis and ite-based pellet manufacturers, as is shown inspection form the basis for predictions about in a Swerea MEFOS report on a comparative the rock’s stability and recommendations for study between iron ore producers who use rock reinforcement. Rock reinforcement plays magnetite as a raw material in their process- a crucial role in the safety of the mine and our ing. That is what makes our pellets one of the ability to mine the ore. world’s most climate-smart iron ore products. It is vital for efficient and safe mining that The pelletizing plants in Malmberget have everyone in the mine can be identified and lo- improved their processes, thereby reducing cated. If there is even the slightest doubt, blast- their energy use by more than four million li- ing cannot take place. In the autumn Malmber- tres of oil per year. This makes the pelletizing get was given the same upgraded system that plants in Malmberget two of the most ener- was introduced in Kiruna in 2012. The tags gy-efficient in the world. The target is to get used are a kind of locatable chip that everyone down to five litres of oil per tonne by 2015 and must wear. Subcontractors are also covered so help to achieve LKAB's goal of reducing en- by the system. ergy use and carbon emissions.

GREATER ORE YIELD EFFICIENT TRANSPORT For underground mining to be profitable, the Our competitiveness is built on us being one of iron content of the ore must be as high as pos- the world’s leading logistics companies, both sible throughout the process. An important fo- above and below ground. LKAB accounts for cus for LKAB, therefore, is to develop technol- around 35 percent of the freight on Swedish ogies and methods that enable more ore to be railways, making it one of Sweden’s largest released while at the same time reducing the freight companies. Roughly two thirds of the admixture of unwanted minerals and waste deliveries are carried on the railway to the har- rock. The drilling technology centre, which bour of Narvik and one third on the railway to was opened in 2013, aims to develop drilling the harbour of Luleå. technology that increases the ore yield and re- duces waste rock admixture. Research is also TRANSPORTS FROM MINE TO PORT being carried out on various new and improved This century, we have invested over SEK 4.5 blasting techniques designed to increase the billion in track improvements, new terminals, LKAB’s quality developers are responsible ore yield from current levels. Each percentage new ore cars and locomotives. In 2011, LKAB for ensuring LKAB’s product quality at all point of extra ore that can be extracted while decided to make another billion-krona invest- facilities at the operating locations in the orefields. Many tasks can be risky for those maintaining or increasing the iron content ment in new IORE locomotives and cars, with who neglect to use the necessary safety could generate increased revenues of hun- the aim of achieving a transport capacity of 40 equipment. dreds of millions of kronor annually. million tonnes per year on the railway to the ports by 2015. The new ore cars, made from Focused and dedicated safety work has ORE PROCESSING high-strength steel, are manufactured by local achieved impressive results – not a single The ore we mine is processed into iron ore pel- Kiruna company, Kiruna Wagon, and increase accident for anyone in the group since 12 July 2007. At a workplace with 64 people, lets, and to some extent fines. The first step is payload capacity by 25 percent. Kiruna’s new this is a great result that means more than sorting – the sifting of waste rock that is sort- freight yard was completed in 2013 and pro- 70,000 accident-free days in total. ed from the iron ore. In addition to waste rock, vides great opportunities for the more efficient there are also tailings left over. After sifting, transportation of bulk goods that were previ- What they do to avoid accidents is not spec- the ore’s iron content increases from around ously hauled by road. tacular in any way. It is all about obvious and 45 percent to around 62 percent. The ore is simple rules of thumb – “think before you act”, “no short cuts, no taking chances”, “keep milled at the concentration plants, further in- things neat and tidy” – and about everyone creasing the iron content. in the organization taking great personal re- During sintering at 1,250 degrees Celsius, sponsibility, from managers to employees. the magnetite generates large amounts of en-

42 SAFE AND RESOURCE-EFFICIENT PRODUCTION

Since 2010 all ore transport takes place using new locomotives and cars. The payload capacity per car has increased from 80 to 100 tonnes, and the new, super-strong IORE locomotives are powerful enough to pull 68 cars compared with 52 before. Overall, this has increased LKAB’s transport capacity for each train by 60 percent and saves around 6 percent of energy per tonne of ore transported. Through optimized train management, energy use can be reduced further by up to 20 percent. Cars made from high-strength steel that are stronger, yet a tonne lighter, can be loaded with an extra tonne of pellets instead. That means 68 tonnes more load per train, or 296,000 tonnes per year, which in turn represents a saving of 42 trains.

43 OUR STRATEGY IN ACTION

TWO ORE HARBOURS FOR SHIPMENT EFFICIENT PURCHASING nicipal authority for the relevant site. Our en- Narvik is LKAB’s largest harbour and has a Flexible and cost-effective purchasing is stra- vironmental reports are available at lkab.com capacity of almost 20 million tonnes per year. tegically important for LKAB’s long-term com- Read more in the section on Growth on page 50. Narvik’s harbour is ice- petitiveness. Every year free all year round and is we cooperate with nearly ENERGY EFFICIENCY deep enough to accom- “No accidents 4,000 suppliers and sub- LKAB is one of Sweden’s largest single energy modate large vessels. contractors, who form an users, accounting for 1.5 percent of the coun- The new SILA facility is a necessitating absence important part of our val- try’s total electricity use. The market price on 650-metre long, efficient, and two monthly ue chain and help to real- the Nordic electricity exchange has increased eco-friendly automated production records ise our plans for growth. significantly since deregulation. Securing elec- unloading station with a The purchasing organ- tricity supplies at competitive prices is there- high unloading capacity. have set us up for a ization selects those fore of great strategic importance. LKAB has Each ore wagon is un- challenging 2014. Our suppliers who meet our devised a long-term strategy for managing loaded whilst moving in ambition is to deliver requirements in terms both the energy supply and energy efficien- just five seconds, which of quality, good conduct, cy. Energy costs represent approximately ten means that an ore train 27 million tonnes.” responsibility and good percent of our total expenses, making energy a with 68 cars can be un- MARKUS PETÄJÄNIEMI working conditions. The crucial factor both commercially and environ- loaded in just six min- SENIOR VICE PRESIDENT, purchasing organization mentally. utes. Construction began PRODUCTION & LOGISTICS reviews suppliers on In order to reduce our energy use, climate on a new 160-metre long an ongoing basis and in impact and energy costs, a new unit, estab- unloading dock in Narvik 2013 one case of corrup- lished during the year, has overall responsibility in summer 2013 with the aim of increasing un- tion was reported. for climate and energy issues, while intensive loading capacity. Read more in the section on The aim of the purchasing function is to energy improvement work is also ongoing. The Flexibility on page 34. achieve lower overall costs by reducing lead aim is to reduce energy use by 100 GWh per LKAB’s ore harbour in Luleå is used for times, which reduces business risks, increas- year. We also participate in the Swedish Energy ore customers on the Baltic market and main- es quality and cuts out middlemen. Overall this Agency’s energy efficiency programme (PFE). ly receives pellets from Malmberget. A large facilitates production and capital expenditures, The energy issue is being addressed on proportion of the iron ore deliveries to Luleå which in turn result in more customers and two fronts: firstly, by reducing consumption are used at SSAB’s steelworks, while others more satisfied customers. through efficiency improvements, and second- are transported by ship to Finnish, Dutch and ly by trying to find alternative energy sources German steelworks, for example. The ore har- CLIMATE AND ENVIRONMENT that are both environmentally and economical- bour was moved out of the city, closer to the Mining inevitably leads to changes in the sur- ly sustainable. We aim to phase out the use of sea, and modernized in 1996, which increased rounding landscape and generates atmos- coal and oil as fuels in the long term, and to the efficiency and unloading capacity as well pheric emissions and discharges to water. increase fuel flexibility in production. as reducing the impact on the environment. Our activities have an impact on, for example, Currently, over five million tonnes per year are ecosystems, biodiversity, the reindeer and ELECTRICITY FROM unloaded at Luleå ore harbour. tourism sectors and local residents. Our am- RENEWABLE SOURCES bition is to be a role model for environmental Together with other stakeholders in the raw RECORD DELIVERIES IN NOVEMBER awareness and sustainability in our industry. materials industry, we are participating in the November was a historic month. In total, al- We take far-reaching responsibility for the en- BasEl project, which invests in new energy fa- most 2.5 million tonnes of iron ore products vironment. cilities. We are also a partner in the wind pow- were delivered to the harbours of Luleå and Our ambitions and our own environmental er company VindIn AB as a way of securing Narvik. The record delivery was largely due policy go much further than current legislation. long-term access to electricity from renew- to the relatively uninterrupted production and Having the latest up-to-date environmental per- able sources. LKAB has invested in five wind the high capacity of the logistics system. The mits is fundamental to our operations. It is also turbines with a capacity of 10 MW. We commis- need for continued capital expenditures on the important that operations are carried out in ac- sioned a wind farm into operation in 2013. So railway to the harbours, remains crucial for cordance with the relevant conditions. The per- far, LKAB has invested in wind power that is LKAB’s competitiveness and growth. Having mits stipulate how we are able to handle emis- expected to generate 40 GWh per year, equiv- a high transport capacity is a prerequisite for sions, by-products and waste from our mining alent to half the energy required for LKAB’s safe and cost-effective deliveries. and processing operations. Annual environ- transportation of ore. mental reports are published for all operations Since 2002 we have been certified accord- that require permits. The supervisory authority ing to the international quality standard ISO for LKAB is the County Administrative Board of 9001. We have an energy and environmental Norrbotten County, and in some cases the mu- management system that is integrated with

44 SAFE AND RESOURCE-EFFICIENT PRODUCTION

PROGRAMMES TO REDUCE COSTS the company’s quality management system. This is certified according to the environmen- tal management standard ISO 14001 and the parent company has also fulfilled the require- ments for certification under the energy man- agement standard ISO 50001.

EMISSIONS INTO THE AIR LKAB’s atmospheric emissions come mainly from the ore processing plants and consist pri- marily of carbon dioxide, nitrogen oxides, dust and acid gases, such as sulphur dioxide, hydro- gen fluoride and hydrogen chloride. At the sort- ing, concentrating and pelletizing plants, dust sources are enclosed and attached to an extrac- tion system where the incoming air is cleaned before being released into the atmosphere.

CARBON EMISSIONS Around five percent of the world’s total carbon emissions come from the processing of iron ore and steelmaking. In order to reduce greenhouse gas emis- sions, a trading system has been in place since 2005 for carbon emissions allowances within the EU. For the third trading period, 2013 to 2020, LKAB has received an allocation that largely covers LKAB’s emissions allowances requirements. This is in line with the system’s intentions to reward carbon-efficient man- ufacturers who are exposed to global com- petition. LKAB is the only pellet supplier in the world which has expenses for emissions allowances and we therefore believe that any To ensure future competitiveness, whatever the market conditions and the price of iron ore, trading system must extend worldwide if it is LKAB launched a programme to improve cost control and efficiency in 2012. Bringing down to reduce global emissions, while at the same our expenses is something that we ourselves can control. A number of focus areas have been time increasing the competitiveness of compa- identified: operating efficiency, energy efficiency, stable processes, cost-effective mining safety, transportation and contracting as well as purchasing. nies that choose to work actively on energy-ef- ficient and carbon-reducing technologies. The programme is being implemented throughout the Group and much of the work is taking Reducing emissions from our own pro- place in the production chain, where potential cost savings equivalent to SEK 2.2 billion have been identified. Nevertheless, this work has only just begun and there is great potential for cesses is the top priority. The majority of our further streamlining. With a motivated organization that is characterized by a safety-conscious carbon emissions come from the production approach, continuous improvement, target management and business development, we can of pellets and from transportation. In order to achieve our cost target while at the same time increasing production volumes. make bigger reductions in emissions from our Examples of efficiencies achieved in 2013 include the development work that has taken place processing plants, we need alternative fuels at the processing plants in Malmberget. A new, smaller grinding ball, which was introduced instead of coal and oil. This represents a major in the concentrating plant in 2013, increased capacity from 285 to 320 tonnes per hour, while change and requires capital expenditures and wear also decreased. research in order to ensure the quality of our Optimized process control in pelletizing plants has more than halved their oil consumption pellet products. since 1971, saving more than four million litres of oil per year. This makes the pelletizing plants in Malmberget two of the most energy-efficient in the world. Thanks to this programme, we now have a structure in place for the efficient production, coor- dination, implementation and monitoring of improvement work with the aim of making LKAB more efficient. The operations are responsible for carrying out their own activities.

45 OUR STRATEGY IN ACTION

FLUE GAS SCRUBBING DISCHARGES TO WATER nuisance by local residents. An investigation LKAB’s largest pelletizing plant, KK4 in Kiruna, Ore processing requires large volumes of wa- is underway to identify the exact source of the is the world’s cleanest pelletizing plant, and is ter. LKAB reuses about 75 percent of the wa- problem and to set appropriate limits. the only one with nitrogen oxide scrubbing. The ter used in mining and processing operations. Noise measurements are performed an- energy in the pellet process is reused both by Excess water is returned to rivers and lakes nually at all operating locations. LKAB has in- LKAB and for hot water in Kiruna's municipal after making careful biological and chemical formed the County Administrative Board that district heating network. assessments of the water quality. the noise conditions in Kiruna and Svappa- During the year, capital expenditure began Processed water is purified and water vaara were exceeded in 2013, mostly at night. on flue gas scrubbing for the pelletizing plants that is not reused is drained away. Other water We have implemented measures in Svappa- in Malmberget and Svappavaara. All plants are from LKAB’s operations is fed into the munici- vaara and are developing solutions for Kiruna. being equipped with ultra-modern flue gas pal sewerage network for treatment. The County Administrative Board has stipulat- scrubbing systems in order to comply with ed that measures should be completed by 30 stricter new EU rules. During the autumn, the MEASURING WATER QUALITY June 2014 at the latest. new scrubbing system for the conveyor belt Several of the waterways that receive the wa- furnace at Malmberget came into operation. ter are tributaries to or are themselves part WASTE MANAGEMENT Emissions of sulphur, chlorine, fluorine and of Natura 2000 areas. In order to ensure the AND LANDFILLS dust fell by around 90 percent. In Svappavaara, quality of the water systems that receive the Most of the waste from our operations consists the first phase of a dust separation system excess water, LKAB performs biological and of waste rock, the technical term for all rock was completed, which will be complemented water chemistry evaluations. Sampling forms types that are not ore. Once the ore and waste at a later date with a system for dealing with part of self-monitoring rock have been separated acidifying gases. The MK3 pelletizing plant in activities. The water that in the sorting process, the Malmberget will be completed in mid-2014. is not reused by LKAB and waste rock is deposited REACH FOR The total investment cost is just over SEK 1.5 is returned to the water in dumps. In addition to CHEMICAL SUBSTANCES billion. systems contains rela- waste rock, LKAB handles REACH (Registration, Evaluation, The conditions for atmospheric emissions tively high levels of nutri- smaller volumes of waste Authorisation and Restriction of were met in 2013 for Kiruna and Malmberget. ents, mainly in the form of Chemicals) is a European Union lime/cleaning waste, Svappavaara exceeded the conditions for dust the nitrogen. The nitrogen Regulation governing chemical scrap, industrial waste emissions. LKAB regularly checks dusting in comes from the explo- substances. All iron ore pellets and hazardous waste. the operating locations by measuring falling sives used in the mines, and pig iron from the experimen- Waste lime is a by-prod- tal blast furnace are registered dust at a number of measurement points. which largely consist of uct from flue gas scrub- and approved in accordance with ammonium nitrate. REACH. Most of LKAB Minerals’ bing. Handling is strictly REDUCED DUSTING products are naturally occurring regulated. Dusting results from our transportation and VIBRATIONS minerals and are not chemically production and its sources are very wide- AND NOISE modified. The few products that are chemically modified were reg- spread. Dust comes from roads, from flue gas- There are two causes of istered before the end of 2010. es and from storage operations. vibrations that are linked In Sweden there are no accepted stand- to mining operations. ards, guidelines or equivalent provisions re- Blasting at night causes garding dusting in the form of falling dust. vibrations that may be felt by local residents. However, for several years LKAB has been Underground mining causes changes and working towards its own target values for fall- movements in the rock mass near the mining ing dust. We successfully reduced the annual areas, called seismic activity. This sometimes mean figure for falling dust by ten percent be- gives rise to vibrations and shaking that are tween 2006 and 2012. felt in nearby parts of the communities. LKAB Now we want to bring this value down is aware that these normal side effects of min- by a further ten percent. We have mapped ing activities may be considered unpleasant the sources and we will be implementing and we therefore always inform local resi- wide-ranging measures. In the short term, this dents via lkab.com about both upcoming and may mean watering roads or asphalting, while anticipated events, and encourage dialogue long-term measures could include moving op- and feedback. erations and enclosing dumps. At the end of In recent years, a new phenomenon, the year, for example, a new dust extraction known as “silo tremors” has been reported in system became operational in Svappavaara Narvik. When our silo is emptied, the resulting with positive results. ground vibrations have been perceived as a

46 SAFE AND RESOURCE-EFFICIENT PRODUCTION

Effect on the landscape When LKAB ends operations at its industrial sites, remediation measures are gradually implemented. This involves creating new natural environ- ments similar to the surrounding landscape through the establishment of vegetation, stabilization and cleaning up where necessary. Waste rock, for example, is used to fill the void left after mining.. We closely monitor defor- mation zones and movements in the rock, mine and landscape, and we take responsibility for dam safety, remediation, and minimizing the impact on important natural assets.

47 OUR STRATEGY IN ACTION

MATERIAL AND ENERGY BALANCE IN LKAB’s PRODUCTION 2013

EMISSIONS INTO THE AIR 

energy 4,289 (GWh) particulates 1,826 (tonnes) pellets 23.1 (MT)

so2 2,066 (tonnes) hf 138 (tonnes) hci 479 (tonnes) nox 3,705 (tonnes) fines 2.2 (MT) explosives 20.0 (thousand tonnes) co2 669 (thousand tonnes)

additives 878 (thousand tonnes) by-products 32 (MT)

crude ore 44.4 (MT) surplus heat 451 (GWh)

DISCHARGES TO WATER  nitrogen 330 (tonnes) total phosphorus 279 (kg) trace metals 166 (kg)

RESOURCE CONSUMPTION, PRODUCTION AND EMISSIONS MANAGED WASTE – LKAB GROUP

2009 2010 2011 2012 2013 2012 2013 Input materials Operational waste (tonnes) 1 8,745 10,332 Energy (GWh) 3,050 3,986 4,237 4,390 4,289 Scrap (tonnes) 8,002 11,729 Explosives (thousand tonnes) 15 19.2 19.4 19.1 20.0 Hazardous waste (tonnes) 2 1,961 1,840 Additives (thousand tonnes) 1 569 866 852 876 878 Total waste 18,708 23,900 Crude ore (MT) 27 42.6 42.7 41.9 44.4 Percentage of hazardous waste 10 8 Emissions into the air Particulates (tonnes) 1,640 1,545 1,839 1,965 1,826 (including scrap)

So2 (tonnes) 1,684 2,282 2,026 1,831 2,066 1 HF (tonnes) 166 221 177 202 138 Wood, rubber, landfill, combustible, unsorted 2 As defined in the Swedish Waste Ordinance SFS 2011:927 HCI (tonnes) 400 682 590 592 479 NOx (tonnes) 2,597 4,187 4,138 3,911 3,797

CO2 from pellet production 460 684 687 688 669 (thousand tonnes)

Products EMISSIONS INTO THE AIR (G/TONNE PELLETS) Pellets (MT) 14.7 22.1 22.9 23.8 23.1 Fines (MT) 3 3.2 3.2 2.4 2.2 250 By-products Waste rock (MT) 10.7 14.9 21.0 20.6 25.9 Tailings (MT) 3 3 6.42 2 5.60 6.20 200 Lime (MT) 0.024 0.036 0.042 0.041 0.045 150 Surplus heat (GWh) 276 372 371 404 451 Discharges to water 4 100 Nitrogen (tonnes) 206 201 324 303 330 Total phosphorus (kg) 702 440 497 393 279 50 Trace metals (kg) 5 250 88 151 120 166

1 0 LKAB Minerals is included in the figure from 2012 onwards. 2008 2009 2010 2011 2012 2013 2 This data was calculated using a different method and is not comparable with later years. 3 No information nitrogen oxide hydrogen chloride 4 Some waterways that receive water form part of Natura 2000 areas. LKAB conducts particulates hydrogen fluoride biological and water chemistry evaluations and tests as part of its self-monitoring to sulphur dioxide ensure the quality of the water system. 5 Trace metals includes chromium, cadmium, copper, nickel, lead, zinc and arsenic.

48 SAFE AND RESOURCE-EFFICIENT PRODUCTION

ENERGY USE FOR LKAB GROUP 2013 (TJ) ENERGY PERFORMANCE other locations 1 svappavaara malmberget kwh/tonne of pellets kwh/tonne of finished products

kiruna narvik luleå total

1 2011 183 160 2012 181 165 coal 3,337 980 0 0 0 0 4,317 2013 183 167 fuel oil 740 138 1,491 46 46 51 2,511 electricity 4,422 837 2,851 57 151 74 8,392 Refers to the operating locations Kiruna, Svappavaara, Malmberget, Luleå and diesel oil 90 10 116 0 2 42 260 Narvik, including subsidiaries but excluding the sale of surplus heat to external other forms customers. 3 2 0 17 0 8 29 of energy 1 Products ready for delivery to customers, consists of fines and pellets. This key total 8,592 1,965 4,457 121 199 169 15,502 indicator was introduced in 2013.

1 Other locations where LKAB operates. The subsidiary LKAB Minerals, formerly Minelco, accounts for most of this.

CARBON DIOXIDE EMISSIONS LKAB GROUP 2013 (THOUSAND TONNES) OWN ELECTRICITY GENERATION (VINDIN) (GWH)

other locations svappavaara malmberget 50 kiruna narvik luleå total 45

1 40 35 coal 311 91 0 0 0 0 401 30 fuel oil 57 10 114 3 3 4 192 25 additives 74 10 17 0 0 0 101 20 stored carbon -9 -2 -4 0 0 0 -15 15 10 electricity2 9 2 6 0 0 0 16 5 diesel oil 7 1 8 0 0 3 19 0 2010 2011 2012 2013 2014 other forms 0 0 0 0 0 0 1 of energy forecast

total 447 111 142 4 4 7 715 LKAB is a partner in the wind power company VindIn AB. So far, LKAB has invested in wind power that is expected to generate 40 GWh per year.

1 Other locations where LKAB operates. The subsidiary LKAB Minerals, formerly Minelco, accounts for most of this. 2 Calculated with data from the electricity supplier. The emission factor was changed in 2013 to 7.02 tonnes of carbon dioxide per GWh.

49 OUR STRATEGY IN ACTION GROWTH

target area objectives 2015 results 2013 capacity-increasing capital expenditures invest to enable volume growth of 37 million new main level in kiruna opened, gradual tonnes. commissioning of the main levels in malmberget and kiruna during the year, mining resumed at gruvberget, environmental permit for mertainen appealed against. secure new ore reserve secure new ore reserve for at least 20 years.1 new exploration organization in place, 26 ongoing projects. interaction with decision-makers establish long-term, well-functioning participation in national and international stakeholder relationships with community cooperation, such as the arctic council, the eu, representatives and stakeholders at regional, swedish national mineral strategy. national and eu level.

1 Also an objective of “Responsible operations” in the Sustainability strategy. This is followed up and reported on quarterly.

50 GROWTH

The long-term global demand for iron ore is strong. In order for us to be competitive and maintain our market position, we have to grow with our customers and be a major supplier in volume terms. This requires increased production and delivery capacity, where access to more ore is paramount.

In just a few decades, we have shifted our market position from be- phase of the new main level came into operation in autumn 2010. ing primarily a supplier of raw materials to become a world-lead- It is thought that the new main level will secure iron ore mining in ing developer and producer of upgraded iron ore products. If we Malmberget until at least 2020. are to maintain our competitiveness and market position, we must be In 2013, we decided to invest in a new bentonite plant in Luleå. This able to secure the resources necessary to grow at least as fast as our investment amounts to just over SEK 400 million. The plant is next to customers. the ore harbour and is expected to be ready in the summer of 2015. The existing plant came into operation in 1968 and the new bentonite plant INCREASED PRODUCTION FOR LONG-TERM GROWTH will have more modern technology, provide a better work environment, Our goal is to increase our annual production volume to 37 million increase production and storage capacity and have a capacity that cor- tonnes of iron ore products. This means expanding delivery capacity responds to LKAB’s plans for growth. by as much as 35 percent. Considerable capital expenditures are nec- essary, partly in order to secure production THREE MINES AT SVAPPAVAARA volumes in existing operations and partly Most of the additional iron ore required for the continued commissioning of the re- DELIVERED TONNAGE (MT) for LKAB’s targeted growth will come maining stages of the new main levels in from the three open-pit mines at Gruv- 35 the underground mines at Malmberget and berget, Leveäniemi and Mertainen in the Kiruna. We also have our capital expendi- 30 Svappavaara Field. The total investment tures on new mining capacity through the 25 is around SEK 7.5 billion and together the new open-pit mines in Svappavaara. Higher 20 mines are expected to provide LKAB with a volumes bring economies of scale in pro- 15 total annual capacity of 37 million tonnes of duction and lower unit cost for the entire iron ore products. 10 Group. A larger LKAB is a stronger LKAB. The open-pit mines at Svappavaara 5 are close to the existing infrastructure for INVESTMENT IN EXISTING MINES 0 2009 2010 2011 2012 2013 ore processing and transport. Mining is al- AND PLANTS delivered of which pellets ready underway at Gruvberget and in the Work is continuously ongoing to develop our spring of 2013 LKAB made its largest ever production system. So far this century, we Demand for steel is the driving force for iron ore. The investment in mobile machinery. These ma- global demand for steel is expected to remain positive have made extensive capital expenditures of until 2021. The forecast shows total growth of three chinery purchases are an important step over SEK 30 billion to extend the life of our percent by 2016. in the “new mines” growth project and for facilities and increase our delivery capacity. the scheduled start of open-pit mining in On 21 May this year, the seventh main lev- Leveäniemi and Mertainen. Once all three el at the Kiruna mine was opened at a depth of 1,365 metres. In total, mines are up and running, LKAB expects to produce around 2 million the investment is estimated at SEK 12.4 billion, making it the largest in tonnes of ore in Gruvberget, 12 million tonnes in Leveäniemi and 15 LKAB’s history. The new level is expected to generate 35 million tonnes million tonnes in Mertainen. In other words, the mines in Svappavaara of crude ore annually and to secure mining for at least another 20 years. have the right conditions to produce at least as much between them as The new main level is one of Sweden’s largest industrial investments. the mine in Malmberget does today. October 2013 saw the first anniversary of the opening of the new main level at the Malmberg mine at a depth of 1,250 metres. The first

51 OUR STRATEGY IN ACTION

In 2008, LKAB’s Board decided to build a new main level at 1,365 metres at the Kiruna mine. Today, just over four and a half years later, the first phase of five is ready for production. Over 1,000 people across 100 companies have been involved in the work on the new main level.

GRUVBERGET were drawn up for full-scale ore mining. In EXPLORATION TO GROWTH FIRST OUT OF THE BLOCKS July 2013, the Swedish Land and Environmen- Exploration plays a central role in our long- The first open-pit mine taken into operation in tal Court issued a partial ruling on a mining term growth strategy. After a interruption of Svappavaara was Gruvberget, which opened permit, which allowed pre- 20 years, exploration activi- in May 2010. In June 2012, operations at Gru- paratory work to take place ties resumed two years ago. EXAMPLES OF COMPLETED vberget were halted after the Supreme Court for the new open-pit mine. Today we employ 15 staff AND ONGOING PROJECTS: of Sweden denied us leave to appeal against The decision was appealed for this activity. Expendi- Upgrading of the Lundberg the environmental court ruling. In December against by the Swedish Envi- shaft in Narvik: SEK 300 million tures have increased from came the news that mining operations could ronmental Protection Agen- SEK 20 million in 2011 to New additives handling in be resumed and this ruling gained legal force cy, among others, and work Narvik: SEK 300 million SEK 82 million in 2013. The in early January 2014. This ruling demon- was halted in early August, New railway in Kiruna: immediate aim is to replace strates that our operations comply with strict pending a new ruling. The SEK 1,850 million the mined ore base and se- environmental standards. postponement of this work New dams in Kiruna: cure the availability of iron The deposit at Leveäniemi first opened in directly affected around SEK 600 million ore raw material in order to 1961 and was mined until 1983, when it was 250 jobs in our mining op- Four new locomotives and five achieve continued growth, shut down during the recession and flooded. In erations. In early December new trains: SEK 1,100 million equivalent to 20 years of pro- July 2012, we received an environmental per- 2013, the Land and Envi- New mining machinery in duction. There is a lag of be- mit to dewater Leveäniemi in order to resume ronmental Court granted us Kiruna: SEK 400 million tween seven and ten years, production. More than 30 million cubic metres a permit to mine 15 million New mining machinery in however, between explora- of water will be pumped out to allow mining by tonnes of iron ore per year in Malmberget: SEK 200 million tion and commercial mining 2015 at the latest. Dewatering is expected to Mertainen. The partial ruling 150 new homes at Luossavaara commencing. in Kiruna: SEK 250 million take until autumn 2014 and is designed in such regarding the preparatory In 2013, approximate- a way as to limit the environmental impact on work is still pending, how- Emptying Leveäniemi, ly 50,000 (18,500) metres Svappavaara: SEK 150 million nearby waterways. ever. It is hoped that mining of exploratory drilling took In 2011, a permit was granted by the Coun- operations can begin in 2014 place above ground. We ty Administrative Board to trial mine 300,000 and achieve full production by 2015. currently have 26 different exploration pro- tonnes of iron ore in Mertainen. Following suc- jects underway. Interesting prioritized pro- cessful trial mining and test processing, plans jects include the continued development of

52 GROWTH

Gruvberget, Mertainen and Leveäniemi, the ENVIRONMENTAL COMPENSATION The water that needs to be pumped out of the mapping of the mining cluster of Frans, WHEN MINING IS ESTABLISHED open-pit mine before the mine can become Nils/Hedvig and Sparre/Bergmästaren in A mine always leaves behind traces in the en- operational is being discharged into existing Malmberget and the Vietnam and Tuolluvaara vironment. Iron ore mining, however, is a rela- watercourses without being purified. ores. The Per Geijer ores north of Kiruna also tively clean mining operation. Leveäniemi is a have interesting conditions and the 8,000 me- good example of this, where we are resuming tres of drilling samples taken there in 2013 will mining operations after thirty years without be analysed during the first half of 2014. having to perform an environmental clean-up.

After a hiatus of 26 years, LKAB resumed its exploration activities in 2011. The key overriding aim is to secure iron ore raw materi- als for LKAB’s future expansion. The exploration organization has grown rapidly and is a model for LKAB’s aim of being a company that promotes equality and diversity. Its highly qualified staff come from six different countries and almost half of them are women.

53 OUR STRATEGY IN ACTION

MINIMIZING IMPACT panies, local communities and the reindeer another and increase the attractiveness and We always aim to minimize the impact of our and tourism sectors has grown. The different accessibility of the region. mining operations and, as far as possible, to interests have an impact on one another, but Over a three-year period, LKAB, the Norrland compensate for the impact that is neverthe- we believe that this impact can be managed Fund, venture capital company Norrskenet less unavoidable. One example of this is how through mutual compromize. Crucial to our and a score of other regional companies are we intend to compensate for our mining op- success is our interaction with the surround- investing funds to get an air service between erations in Mertainen. A mining area covering ing community and all stakeholders in a trust- Copenhagen and Kiruna off the ground. These approximately 650 ing, constructive and funds also represent a guarantee should the hectares will be de- respectful manner. route prove unable to support itself. veloped there and Fishing and rein- For region's tourism sector, cooperation is almost 400 hectares “Our message is clear. deer herding are a an important factor that drives development of forest will be felled. If our region is to central element of and enables unique and sustainable experienc- In cooperation become more attractive Sami culture and are es to be offered in the face of increasingly fierce with Sveaskog, we important industries competition. Read more in the section on Urban are cataloguing the and if we are to achieve in the region. Over transformation on pages 56-63. natural assets of the our targeted growth, the last year, with re- area, how they are the cooperation of all spect for the rights of COOPERATION WITH THE affected and what the reindeer herders, AUTHORITIES AND DECISION-MAKERS ecological compen- industries is needed. we have engaged Most of the growth challenges we face are sation measures may It is through mutual in dialogue and en- wholly or partly dependent on decisions be- be appropriate. This understanding and tered into coopera- yond our direct control. That is why at the turn may mean that other tion agreements with of year 2010/2011 we established a public af- areas are protect- cooperation that we will the Sami villages of fairs function, based in Brussels. In 2012, we ed from exploitation achieve success.” Gabna and Laevas in also established an office in Stockholm. The and that affected Kiruna, which provide aim is to build good long-term relationships LARS-ERIC AARO, Sami villages are PRESIDENT AND CEO OF LKAB for reindeer herding, with the relevant decision-makers to allow for compensated with at least at current lev- constructive dialogue before any major deci- new grazing land. els. Several measures sions are made. We are also running along with develop- In 2013 we participated in a series of “Project Peregrine Falcon” together with ment work are underway or about to be start- important events and pushed key issues for Norrbotten Ornithological Society. ed. For example, reindeer crossings, called LKAB and the mining industry, together with Environmental compensation is a new con- ecoducts, are being built over new roads and decision-makers at various levels. Among cept in Sweden. However, LKAB and Sveaskog railways. Together with the Sami villages, we other things, we followed the development of are working to apply an international standard are also running a GPS tagging project that will emissions allowances carefully, since the out- in Sweden. In this way, we want to create a make it easier for Sami villages to herd and come here is of great importance for our con- standardized approach to voluntary, ecolog- move reindeer and to study how the reindeer tinued success. ical compensation that works and is consid- react to the mining operation. We are also ex- ered credible by the authorities and the public. amining together how we can compensate for ACTIVE ROLE IN THE LKAB supports the EU’s “no net loss” strategy the loss of grazing. BARENTS EURO-ARCTIC COUNCIL in order to prevent the loss of biodiversity. The Barents Euro-Arctic Council was estab- COOPERATION WITH TOURISM lished in 1993 in Kirkenes, Norway. It aims COOPERATION WITH The Swedish Agency for Economic and Re- to promote peace, stability and progress by THE REINDEER INDUSTRY gional Growth has designated Norrbotten as improving opportunities for cross-border co- In 2013 there was much debate about the one of five potentially sustainable tourist des- operation in the region. During the Swedish mining boom in Sweden and whether this was tinations in Sweden that are internationally presidency, 2009-2011, the focus was on en- taking place at the expense of other valuable competitive. After Stockholm, the Norrbotten vironmentally sustainable economic develop- assets. LKAB has been conducting successful region is currently Sweden’s strongest tourist ment in the Barents region. The region is the mining operations for over a hundred years. magnet, with attractions such as the Northern world-leader in utilizing forestry, energy and We cannot carry out mining operations suc- Lights, ICEHOTEL in Jukkasjärvi, the Sami cul- mineral resources in an efficient and environ- cessfully without taking into account our local ture, the mining visitor centre and a growing mentally friendly way. environment. Our business strategy includes space tourism industry. A strong mining in- In 2013, we were represented on the Bar- ensuring that the region in which we operate dustry does not necessarily mean losing out ents Euro-Arctic Council and we actively pur- is attractive. Over time, our understanding of on tourism. On the contrary, both we at LKAB sued the issue of international guidelines for the need for cooperation among mining com- and the tourism industry can benefit from one the sustainable supply of raw materials in the

54 GROWTH

Although tourism, reindeer herding and mining sectors have different interests, the conditions are right for cooperation. An open dialogue, willingness to compromise and showing consideration and respect, as well as understanding one another’s needs and rights is the way to succeed. The Swedish Agency for Economic and Regional Growth has selected Kiruna as an area of Sweden with good conditions for development as a sustainable tourist destination. Kiruna is currently one of Sweden’s strongest tourist magnets, both nationally and internationally, with the Ice Hotel attracting over 50,000 visitors from all over the world every winter, for example. Monica Wollmén, CEO of ICEHOTEL

Arctic and on sustainable mining, processing we have had the opportunity to inform and in- agreement on preparedness and response to and marketing in the commodities sector. En- fluence the decision-makers to take well-bal- oil pollution incidents. This is the second le- vironmental issues and sustainability are also anced and informed decisions about invest- gally binding agreement between the Arctic playing a central role during the current Finn- ments in research and innovation, proposed states and will improve remedial measures ish presidency. The biggest challenge is the regulations and deregulation, and how sus- and cooperation in the Arctic. threat to the environment and climate in the tainable mining operations contribute to em- Arctic and how we can utilize natural resourc- ployment, prosperity and community building. NEW NATIONAL MINERAL STRATEGY es in a sustainable manner, as well as how to In February 2013, the Swedish government adopt an ecological approach in the northern MINISTERIAL MEETING presented its new national mineral strategy. regions. These issues are important for the fu- AT LKAB A SUCCESS The goal is for Sweden to strengthen its posi- ture of all those in the region. The visit of the Arctic Council international fo- tion as Europe’s leading mining and minerals rum during the year was much appreciated nation with a focus on the sustainable use of STRATEGIC PLAN FOR EUROPE’S by the ministers and delegates, among them mineral resources – both in terms of extraction SUPPLY OF RAW MATERIALS US Secretary of State John F Kerry. Almost and recycling. LKAB particularly welcomes the On 25 September, the European Innovation 300 ministers and delegates from the eight initiatives to get more young people working in Partnership (EIP) adopted a strategic plan Arctic nations, representatives of indigenous the mining and minerals industries. which aims to reduce Europe’s dependency peoples, researchers and observers met in LKAB appreciates the efforts which have on imports of raw materials for industry. The Kiruna to mark the end of the two-year been made in recent years to boost mining and steering committee included, among others, Swedish presidency and the beginning of the minerals research, expand infrastructure and LKAB’s CEO Lars-Eric Aaro, EU Industry Com- Canadian presidency of the Arctic Council. speed up the environmental permitting pro- missioner Antonio Tajani, EU Innovation Com- After a meeting at Kiruna town hall, Swed- cess. At the same time, a continued focus on missioner Máire Geoghegan-Quinn, Swedish ish foreign minister Carl Bildt and LKAB CEO removing obstacles to growth is still required. Environment Minister Lena Ek and CEO of Lars-Eric Aaro welcomed the attendees to the With the world’s most energy-efficient iron ore Atlas Copco, Ronnie Leten. LKAB Visitor centre on the 540-metre level in production, LKAB is part of the solution to the The strategic implementation plan in- the Kiruna mine. A number of presentations European and global shortage of minerals. cludes several proposals on the development were given in the afternoon, including one by Processing times for environmental permits of new technology for exploration, mining and LKAB’s public affairs manager in Brussels, need to be shorter and more predictable and processing, as well as improvements to the Göran Bäckblom, who spoke about LKAB’s fo- comparisons must be made with other coun- EU regulatory framework and greater interna- cus on growth and sustainability. During the tries to see if there are lessons to be learned. tional cooperation. Through our participation, meeting in Kiruna, the ministers signed an

55 OUR STRATEGY IN ACTION URBAN TRANSFORMATION

target area objectives 2015 results 2013 urban transformation in general • lkab will build 200 new homes in each of kiruna • 30 apartments built at granbacka with the first and gällivare municipalities in 2015 (compared occupants arriving in the summer of 2014. three 1 with 2011). new production projects underway in kiruna. • consensus on urban transformation in kiruna, • agreements with kiruna and gällivare svappavaara and malmberget in order to municipalities, and with the affected sami maintain trust in lkab and avoid disruption to villages. confidence in lkab’s ability to take production. responsibility for urban transformation remains high. kiruna/svappavaara • start of construction of the “new centre of • lkab has started construction projects and is kiruna” and associated infrastructure. preparing the construction of a new town hall. • negotiations completed with the affected • agreements with the affected property owners property owners before mining commences in in mertainen have largely been completed svappavaara and mertainen. and in svappavaara 30 percent of the affected properties have been acquired. malmberget/gällivare • lkab, together with gällivare municipality, plans • lkab is planning and investigating the to establish a new residential area in eastern relocation of heritage buildings. malmberget. • work is in progress, master plan complete • started building the new community. in 2014.

1 Also an objective of “Attractive communities” in the Sustainability strategy. These are followed up and reported on quarterly.

56 URBAN TRANSFORMATION

One of our most important tasks is to build relationships with the communities around us in a responsible and understanding way. Our objective is long-term mining in attractive communities with good living conditions and a strong economy. People must be able to live and thrive in the orefields communities both now and in the future and with this in mind, we will build 200 new homes in both Kiruna and Gällivare by 2015.

There are many examples of communities that are dependent on naturally evokes strong emotions. The longing for the street where one large employer. But the company being heavily involved in the you played as a child, or the uneasiness about leaving a house you development plans, architecture and infrastructure of the commu- have lived in your whole life is a big change. Clear communication nities is not so common. For more than a century, with long-term forward planning and dialogue is LKAB has mined iron ore in Kiruna and Malmberget. crucial to ensuring residents in our operating lo- But there is one serious complication. The orebod- cations feel involved and reassured throughout the ies extend under the central parts of the present “We know we have process. It is vital that we provide the right informa- communities, which will need to be moved if mining to be humble and tion at the right time. We are also actively using his- operations are to continue. When the mines initial- continuously work torical documentation to preserve the memory of ly opened, it naturally made sense to build housing people and places. One example of this is Ullspiran near the workplaces. However, no one could have to improve.” in Kiruna. imagined that over 120 years later we would be FRANK HOJEM, There are few comparable projects anywhere mining ore a kilometre below ground and that this SENIOR VICE PRESIDENT, in the world. We are therefore breaking new ground would have a significant impact on the commu- COMMUNICATIONS in two senses and we know that we have a huge nities in which we operate. At the same time, we responsibility. Although many people are affected apply wide safety margins and no mining activities by expansion of mining operations, there is a great take place under existing settlements. deal of understanding among the local residents of the importance of this development to the

UNIQUE SITUATION CONFIDENCE IN LKAB FOR URBAN TRANSFORMATION (%) community.

The continuation of LKAB’s mining opera- 100 tions and our plans for growth are depend- 90 GREATER CONFIDENCE ent on gradually relocating large parts of 80 Every year LKAB surveys what residents of Kiruna and Malmberget. Over the next 20 70 the orefields communities and Norrbotten 60 years, 3,000 apartments will be affected by County feel and how much confidence they 50 mining in Kiruna alone, and the new areas 40 have in our ability to take responsibility for we must build also need commercial and 30 urban transformation. public buildings, streets and meeting plac- 20 In this year’s SIFO survey, 1,000 people es. The changes are taking place gradually 10 were interviewed on the telephone. The re- 0 and construction is carried out in close col- 2010 2011 2012 2013 sults show that confidence remains high, laboration with local authorities and other norbotten county kiruna gällivare both among the residents of Kiruna and relevant stakeholders in order to achieve Gällivare as well as in the wider county. long-term, sustainable solutions. The 2013 survey shows that 84 percent of Kiruna residents The challenge is not just moving homes, have great or fairly great confidence in LKAB’s ability to take responsibility for urban transformation. In 2010 this monuments and commercial premises, but figure was 69 percent. In Gällivare, confidence increased also dealing with people’s feelings about from 76 to 82 percent over the same period. In addition, 70 percent of county residents said that LKAB acted re- what is happening in a responsible and re- sponsibly. In 2010 this figure was 56 percent. Moreover, 97 spectful manner. Not being able to visit the percent of Kiruna and Gällivare residents believe that LKAB is of great value to the municipalities. Source: LKAB’s SIFO place where you grew up in the future quite survey 2013

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GROWTH REGION LKAB has set aside SEK 8.2 billion for the CLOSE COOPERATION Norrbotten has experienced strong eco- ongoing urban transformation process. WITH MUNICIPALITIES nomic growth in recent years. Unemploy- Of these total provisions, so far SEK 1.9 Creating new communities is a challenge for ment in the orefields communities among the billion has been utilized, which means that the all those involved, including the residents, lowest in Sweden, wages are high and the rap- provisions at the balance sheet date amounted municipalities, landowners, government au- id rate of investment is a strong driving force to SEK 6.3 billion. thorities and LKAB. It calls for close coopera- for business and the community. Over the past Overall, this creates significant business tion and dialogue, and not least a great deal of eight years, LKAB has reinvested SEK 40 billion opportunities for contractors and suppliers mutual trust. in the orefields communities and over the next – not only from the orefields communities LKAB’s ambition is to help build an attrac- five years, a further SEK 31 billion will be in- and Norrbotten – as the new Kiruna and new tive future community where people want to vested. Capital expenditures are being made on Gällivare emerge. Everything needs to be live and work. An attractive community with a existing and new facilities in order to meet a built: homes, municipal buildings, infrastruc- good housing market, broad range of cultural growing demand for iron ore products and for ture, offices, commercial premises, hotels and outdoor recreation opportunities, and at- urban transformation. See table in the section and schools. This requires cooperation, as ev- tractive public spaces. There are two aspects on Growth on page 52. idenced by LKAB's collaboration with the mu- to this work: firstly, from a social perspective, LKAB is growing apace with its custom- nicipalities of Kiruna and Gällivare to market we want to help build even better communities ers and the communities are growing with us. the orefields communities at Business Arena than those about to be used for mining, and When we invest to secure the supply of raw in Stockholm, the major trade fair of the con- secondly we want to secure the labour and material, we are contributing to positive lo- struction and property industry. The aim was skills supply. As an employer, LKAB takes a cal urban development. This applies not least to demonstrate the opportunities for major great deal of responsibility for many of today’s to Svappavaara. We are currently mining the contracts in one of Sweden’s strongest growth young people. We have broad-ranging initia- Gruvberget open-pit mine. Our expansion means regions. During the year, LKAB was present tives and we aim to provide young people with that all three open-pit mines will be in produc- when nearly 200 representatives of industry good educational opportunities and a solid tion by 2015, which means new jobs in mining, in northern Norway in the west and northen foundation for the future. We know how much new vitality and confidence in the future of the Sweden in the east came together at the East that first job means and that school is the key community. Read more about our new mines West Arena, which discussed future multi-bil- to success. Read more about our initiatives un- in the section on Safe and resource-efficient lion-krona investments and challenges in the der Attractive LKAB on page 64. production on page 40. growth region.

LKAB Kiruna and Gällivare municipality marketed investment opportunities in Malmfälten at Business Arena in Stockholm, the major trade fair of the construction and property industry. In addition to LKAB’s major capital expenditures, it is estimated that around 10,000 people will be affected by urban transformation in Malmfälten. There is a need for approximately 5,000 new homes, new schools, heritage buildings, town hall, sports facilities and new infrastructures.

58 URBAN TRANSFORMATION

DEVELOPMENT BEFORE CLOSURE During 2013, LKAB worked closely with the municipalities, among other things to produce development plans for large areas. LKAB is funding much of the urban transformation in Kiruna and Malmberget, and is a strategic partner of the municipalities with responsibili- ty for implementing the transformation. In this collaboration, the municipalities are respon- sible for planning and deciding on amended development plans for urban transformation. The most important message from LKAB is to make sustainable changes and not build above known ore deposits. In April 2012, the Municipality of Gällivare and LKAB signed a joint cooperation agree- ment governing the financial basis for urban transformation for 20 years. This agreement has been challenged by a private individual and a decision is expected on the matter in 2014. During 2013, we have also worked to establish a similar agreement with the Munic- ipality of Kiruna. Our discussions are positive and we hope to have an agreement in place during 2014.

INFORMATION IS EVERYTHING Experience shows that uncertainty is one of the main difficulties ahead of any change. Transparency and continuous communication are therefore essential. We aim to be available in as many channels and contexts as possible. We have a website, we deliver “LKAB Framtid” magazine to every household in the orefields communities, we have an extensive visitor op- Urban transformation in Kiruna and Malmberget is crucial for LKAB’s continued development eration, we have information offices in all of and growth. Being able to prepare the ground on the surface and enable continued mining is our operating locations and we hold regular vital for our business. For LKAB, it is important that we maintain an open and active dialogue on urban transformation with all stakeholders, from individual local residents and interest groups meetings and information sessions. to municipalities, authorities and owners. This is a complex issue to communicate, as it impacts LKAB wants to be available and have an on the local community and individuals at a fundamental level. outward-looking approach. Meeting people in person is important to us. There are some LKAB’s involvement in urban transformation is based on ensuring a good working relationship things that you cannot do via the Internet, LKAB with all parties and clearly demonstrating that we are a company that always does what is right Framtid, the media or at large meetings. Meet- for everyone. We also need a great deal of courage. No one has ever done what we are doing now, so there is no model to follow. Nevertheless, we have to be proactive and bold enough to ing people individually and in small groups make decisions. Making progress while managing the difficult balance between achieving de- gives us the opportunity to discuss the issues velopment and at the same time making responsible closures is a big challenge. that specifically affect that individual or group. We also have advance, proactive dialogue at Our work is now entering a new phase, as we are intensifying our efforts and drawing up prac- various trade fairs and conferences and with tical solutions and models for compensation issues and the acquisition of properties, among journalists as part of our efforts to commu- other things. For Kiruna, this means a new town hall and the construction of a new square, while at the same time we are focusing on the acquisition of property. For Malmberget, the nicate and take active initiatives for dialogue, most important thing is to establish a shift from western Malmberget to Gällivare, where new both locally and with the wider community. residential areas are being developed; but also to eastern Malmberget, where we and the mu- Read more about our communications in nicipality have a common responsibility for development. the section on Attractive LKAB on page 64 and about our stakeholder dialogues in the section Stefan Hämäläinen, Director of Urban Transformation at LKAB on Stakeholder dialogue on page 22.

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NEW HOMES IN GRANBACKA SUSTAINABLE COMMUNITIES ARE EMERGING In total, it is estimated that approximately 5,000 new homes, as well as public buildings and new infrastructure, will need to be built as part of urban transformation. Over the next few years, 3,000 apartments, 200 houses and 400 hotel rooms, as well as 200,000 square metres of public facilities and buildings will be affected in Kiruna alone. A new commercial centre will be built, including a new town hall and several municipal facilities. Groundwork and construction of the new town hall will be- gin in 2014.

PARKS AND GREEN SPACES LKAB and the Municipality of Kiruna have agreed to create a green area, called the Mine City Park, that will act as a buffer zone between the mine and the community. As the deforma- tion zone moves towards the community, the Mine City Park area will be pushed back. The Mine City Park should be seen as a positive addition to the existing urban environment and will make for a more pleasant boundary between the industrial site and the town. The entire area closest to LKAB’s industrial area is estimated to be converted to parkland in 2018. We have also agreed to build similar parks in Gällivare.

AN ATTRACTIVE COMMUNITY A community must be attractive even dur- ing transformation. Since residents in Malm- berget, LKAB, the municipal authorities and others noticed lack of maintenance and care of the surroundings due to effects of the ex- pansion of the mines, the “A more attractive Malmberget” project was launched in 2009. Overgrown gardens have been cleared, grass has been removed from the road and pave- ment kerbs, and decorative lighting adorns the trees in central Malmberget and the Swan Park. By working together with the schools and enlisting the help of committed students for our work, we have been able to implement the initiatives that young people want. As part of the project, a new winter playground was At Granbacka, between Malmberget and Gällivare, LKAB Fastigheter is constructing five apart- opened in December 2013 in the Swan Park. ment buildings containing a total of 30 apartments. The area is close to the Malmheden com- A similar collaborative project began in the mercial area and Tallbacka sports centre and is child-friendly and close to large green spac- Municipality of Kiruna during the year. “A more es and playgrounds as well as schools and nurseries. The buildings are designed to a high standard and all the apartments have their own balcony and carport. The first occupants are attractive Kiruna” aims to create an attractive expected to arrive in summer 2014. town for residents and visitors alike while the new Kiruna is being constructed. LKAB,

60 URBAN TRANSFORMATION

Following a long selection process, the winner of the architectural competition for the new town hall in Kiruna was announced on 13 September 2013. In attendance at the town hall were the winning team, the jury and Kiruna municipal commissioner Kristina Zakrisson, alongside many expectant Kiruna residents.

Kiruna municipality, Tekniska verken, Kiruna- BUILDING HOMES ments are planned once the county council bostäder and LKAB Fastigheter are involved in Issues concerning construction, where it will approves Gällivare's proposed new devel- the project. When the project started in 2012, take place, who will pay and how much it might opment plan. a survey conducted to ascertain the priorities cost require mutual understanding and dia- In Kiruna, 30 apartments are being built of Kiruna’s residents. This, together with var- logue. LKAB Fastigheter is doing everything at Glaciären, 62 apartments at Terrassen and ious suggestions from local residents laid the possible to take the lead in building new homes. 46 at Jägarskolan. These should be ready by foundation for a range of activities and instal- In Gällivare, 30 apartments are being late 2014/early 2015. At Jägarskolan, we have lations, including the Mine City Park. built at Granbacka and a further 200 apart- already built 24 apartments, with the first oc-

61 OUR STRATEGY IN ACTION

cupants arriving in early 2014. The 150 apart- ments to be built at Luossavaara are awaiting adoption in a new develop- ment plan and the granting of land. HOUSING PROJECTS In Svappavaara, housing Gällivare construction forms part of the gällivare. LKAB Fastigheter will build approximately 200 project relating to the opening apartments and is currently in- of the open-pit mines. LKAB vestigating a range of options. Fastigheter is currently car- The aim is for construction to begin in 2014. rying out a broad examina- tion of all the possibilities for granbacka. LKAB Fastigheter is building 30 apartments, providing housing in Svap- with the first occupants set to pavaara, apartments and arrive in summer 2014. houses both for rental and dansaren district. TOP for contractors to live in. The Bostäder wants to build in the region of 20 apartments. The Gruvberget mine is up and construction start date has not running and preparations are been determined. underway to resume mining bryggeribacken. EuroMining in the Leveäniemi and Mer- wants to build 104 apartments. tainen mines by 2015. The construction start date has not been determined owing to an appeal. BUYING PROPERTIES laestadiusparken. HSB wants The spread of mining initially to build in the region of 40 affects the residential areas apartments. The construc- closest to our mines. We are tion start date has not been determined. currently buying properties solbacken. The municipality is located in those areas affect- freeing up 26 plots for houses. ed by our mining operations. It has not yet been decided All the purchases made so when these will be available. far have taken place on a Kiruna voluntary basis, where LKAB luossavaara. LKAB and the seller have agreed Fastigheter wants to build on the terms. We are working 150 new apartments. To begin hard to develop a basis for once a development plan has been approved. compensation principles for terrassen. LKAB Fastigheter the tenant associations that is building 62 apartments. will need to be acquired in Construction has started. the future. Our goal is to have jägarskoleområdet. LKAB these ready in the first quar- Fastigheter is building 46 new ter of 2014. apartments. Construction has started. Property owners in the glaciären. LKAB Fastigheter is village of Svappavaara are building 30 new apartments. also affected. The privately Construction is in progress. owned land that is affected in the first phase includes fifty forestry properties, twelve permanent dwell- ings and fifteen other buildings. In Mertainen, twelve forestry properties are affected.

62 URBAN TRANSFORMATION

When a seismic event occurs, it is recorded using a number of instruments positioned around the mining area and in the community. Highly sensitive sensors in the ground, called geophones, provide the measurements and the processed data indicates where the event occurred and how strong it was.

63 OUR STRATEGY IN ACTION ATTRACTIVE LKAB

target area objectives 2015 results 2013 skills supply recruit nearly 700 people by 2015 (calculated 289 new staff recruited for permanent from the end of 2012). employment. there will be competition between qualified 60 qualified applicants per specialist vacancy. candidates for all advertised posts.1 corporate culture values are​​ lived up to and employees have good 83 percent of employees feel that we live up to knowledge of lkab's strategies. our values ​​and 89 percent of employees believe the proportion of women at the company in 2020 that lkab communicates its strategies and 1 objectives in a good way. will be at least 25 percent. long-term sick leave will continue to be less the proportion of female employees in lkab in than 0.8 percent.1 2013 is 18.1 percent. long-term sick leave is 0.5 percent. leadership and employeeship new employee survey conducted, areas for implement zero measurement on the basis of the improvement identified. employee survey, establish specific targets for 2015 and 2020.

1 Also an objective of “Attractive LKAB” in the Sustainability strategy. Followed up and reported on quarterly.

64 ATTRACTIVE LKAB

Our success is dependent on, and grounded in, the skill and commitment of our managers and employees, and on how closely we follow our values ​​to create a safe and stimulating work environment. We will be recruiting nearly 700 new employees by 2015. To succeed, we need to be an attractive employer, but also to make our operating locations attractive communities in which to live.

A high-tech mining company like LKAB is not just built on iron ore, SKILLS SUPPLY machinery and cutting-edge technology. The most important asset Innovative technology, efficiency improvements and new skills re- of all and the cornerstone of our business is our employees. It is the quirements have fundamentally changed the way we conduct our skills and forward-thinking spirit of our employees that continuously business. Our employees do not necessarily work underground. The develop our business, as they are committed to breadth of specialist skills required to run our going the extra mile and, with innovation, deliv- business is amazing. Over 180 different occu- er continuous improvement and excellence in pations are represented at LKAB – from car- everything we do. 91 percent of our penters, business administrators and machine employees are proud operators to IT technicians, miners, mechanics HAVING OUR BUSINESS AT to work for us and and research and development engineers. THE HEART OF THE COMMUNITY The majority of our approximately 4,400 IS A COMPETITIVE ADVANTAGE 93 percent would employees work at our operating locations Our future competitiveness and growth are recommend others to in the northern parts of Sweden and Norway. based largely on how we are able to attract apply for a job at LKAB We have around 550 employees working in and recruit new people with the right skills. The Europe, the USA, the Middle East and Asia. region is suffering from a labour shortage and LKAB’s EMPLOYEE SURVEY 2013 To replace retiring staff and to for our expan- we are competing for skilled labour with oth- sion in the orefields communities, we aim to er mining companies on a global market. Our recruit nearly 700 new employees by 2015. ability to offer exciting professional challenges, Competition for qualified labour is fierce and broad career paths and personal development forms the basis of our will increase further with the opening of two new open-pit mines in recruitment. But we can also offer something few other mining com- Svappavaara. panies are able to – a unique living environment in one of the world’s We are pleased to say that many people are still interested in work- most beautiful regions. Alongside breath-taking wilderness with polar ing for us. Job applications in recent years have been at a high level: in nights and midnight sun, culture, sport and outdoor activities, we are 2013 we received over 19,000 applications and in 2012 nearly 22,000 able to offer good living conditions for families in vibrant communities applications, in each case for about 300 vacant positions. Most vacan- with strong growth. cies have many qualified applicants and, on average, we have had 60 It is absolutely critical for LKAB that our operating locations are at- applicants for each position. tractive for both adults and children. In our recruitment, it is important that any accompanying partner and children also have what they need in terms of work, school and leisure activities. Unless our employees and their families are able to create a safe and stimulating future for themselves, we risk people we want to recruit choosing other employ- ers and locations ahead of us.

65 OUR STRATEGY IN ACTION

SKILLS FOR THE FUTURE LKAB’s summer school is aimed at inter- Tekniksprånget [Technology Leap] initiative, in IN THE NEXT GENERATION mediate level school children and pro- 2013 LKAB accepted the first work placement Ensuring the long-term supply of skills is vides opportunities to try rock climbing, students with theoretical upper secondary ed- the reason why LKAB is involved in schools. We hiking and much more in order to provide a ucation. The project aims to stimulate interest offer free educational materials about LKAB to meaningful summer holiday and at the same in higher level technical education by giving primary and secondary schools throughout time generate curiosity and broaden knowl- young people a direct insight into the engineer- Sweden and we visit the schools at our operat- edge about LKAB. We are also a founding ing profession. ing locations to generate interest in technology member and sponsor of Teknikens Hus, the Every year we welcome postgraduates among the students. science centre in Luleå. In 2013, the “Mining from various disciplines, ranging from ergo- The schools forming part of the municipal- and Geology” exhibition was redesigned and nomics and health to mining engineering and ly owned Lapland Gymnasium in Kiruna and expanded with funding from LKAB. metallurgy. In 2013 we accepted 300 work Malmberget offer an LKAB-profiled vocational Our trainee programme provides a good placement students and around 30 degree training programme, LKAB school. By provid- start for newly qualified engineers and oth- projects were completed during the year. ing work placements and the opportunity for er graduates and the sixth round took place holiday work, we aim to give the students a in 2013 with six new recruits. We also ac- good insight and knowledge within our recruit- cept a large number of work placement ing areas. students every year. As part of the national

Lots of children and almost 200 seventh- graders from Gällivare were the first to see the new “Mining and Geology” exhibition at Teknikens Hus in Luleå.

66 ATTRACTIVE LKAB

During the past year, we have welcomed, among others, Dan Shechtman, 2011 Nobel Laureate in Chemistry, to lecture to students at Hjalmar Lundbohm School in Kiruna. Dan Shechtman is not just a successful scientist. Parallel to his research career, he has taught 10,000 students how to start and run a business. To mark his visit, LKAB Academy, in collaboration with the Royal Swedish Academy of Engineering Sciences North (IVA North), also offered public seminars in Luleå and Kiruna.

THE LKAB ACADEMY FOUNDATION A STRONG CORPORATE CULTURE what rights and responsibilities we have are Through the LKAB Academy Foundation we We build our brand from the inside and from enshrined in our new Code of Conduct, which support development projects in mathematics the bottom up. Dedicated, innovative and re- was adopted by LKAB’s Board in 2013 to re- and technology, from sponsible employees place our previous ethics policy. The Code of pre-school to upper are the foundation of Conduct is based on the principles of the UN secondary school, and “The most important our brand and our abil- Global Compact and makes clear our approach we also support upper resource we have is ity to attract new skills. to fair working conditions, human rights, an- secondary school de- Our ambition is to be ti-corruption and the environment. The code velopment projects in not natural resources. an international role was launched in December at a training ses- other educational areas. It is people, because model for ethics, work sion for the eighty most senior managers. The In doing so, we are help- they are the ones environment, equality introduction of the code will continue at the ing to create attractive and diversity in the min- Swedish offices, subsidiaries and preferred communities with ac- with the ideas.” ing industry. By 2020, suppliers in 2014. cess to a broad range of DAN SHECHTMAN, there must be compe- In 2013, we also purchased a reporting high-quality educational 2011 NOBEL LAUREATE IN CHEMISTRY tition between qualified system to enable our employees to report vi- opportunities for chil- candidates for all ad- olations of the code anonymously. A newly dren and young people. vertised posts and the formed ethics committee, chaired by our Sen- LKAB Academy also funds an interdisci- proportion of women in the company must be ior Vice President of Sustainable Development, plinary project in which researchers at Luleå at least 25 percent. Our long-term ambition is is responsible for leading the continued work University of Technology are trying to develop to provide a safe and secure workplace where and reports to Group management. Read more a model for how more young people can be en- employees develop and thrive. in the Corporate Governance Report on page 76. couraged to further their education. The aim is In 2013 it was discovered that a number to inspire more young people in the orefields NEW CODE OF CONDUCT of employees had seriously breached their communities to apply for higher education. Re- Our values – Committed, Innovative and Re- employment contracts by systematically re- search and broader studies are required in or- sponsible – are the compass by which we oper- porting grossly inaccurate working hours for der to identify what will attract the workforce ate our business on an ethical basis. They guide several years. Discussions took place with the of the future. LKAB is providing funding of SEK our actions and influence our relationships relevant trade union and the individuals con- 4.3 million over three years. with one another and with customers, suppli- cerned then left their employment with us. ers, owners, the public and the authorities. How we view our work and one another and

67 OUR STRATEGY IN ACTION

DIVERSITY ENRICHES US create safe, secure and stimulating workplac- FEWER ACCIDENTS We strive to be a workplace with a mix of wom- es where everyone contributes to a culture of The number of accidents in the Group fell by en and men, different skills and backgrounds, safety and takes responsibility for their own 20 percent in 2013 compared with the previ- nationalities, religions, cultures and ages. We safety and that of others. The work environ- ous year, although the target for the year was will not tolerate any form of discrimination or ment is always a management responsibility not completely achieved. The most common victimization. Diversity contributes to efficien- but an accident-free work environment can causes of sick leave due to an accident at work cy and innovation and makes us more attrac- only be achieved by the active participation are a sprained ankle, slips, trips or accidents tive. In order to meet our recruitment needs of us all. We have managed to achieve a sus- associated with various work operations. in the coming years, we need to broaden the tained downward trend in the number of acci- During the first half of 2013 some acci- skills base, increase diversity and attract more dents, but every accident is one too many. dents occurred in connection with disruptions people from our target groups. Since 2006, the number of accidents has and maintenance work in production. Action An increasing number of women are ap- fallen. By identifying and reporting risks and plans have been drawn up and focus meetings plying to LKAB. There are two reasons why incidents and by working systematically to im- including maintenance activities and a number women are making inroads in LKAB. One is prove our work environment, we can stay “one of other measures have been implemented. that more and more women are coming to us step ahead” of accidents. We will be taking a If we succeed in avoiding disruption, we will out of their own interest, for example because further step forward by working to achieve avoid the stress that causes accidents. they want to change jobs. The second is that work environment certification at the company Read more about our measures during we are making a conscious effort to increase in accordance with the international standard 2013 under Safe and resource-efficient produc- the proportion of female employees in the OHSAS 18001. In 2013, LKAB Minerals BV in tion on page 40. group as a whole. the Netherlands became the first company For us, having equal workplaces and work within the LKAB Group to achieve certification. LOW ABSENCE DUE TO ILLNESS groups is key to us obtaining the skills we need One of the biggest challenges in terms of For many years, LKAB has had very low ab- in the future. It is our belief that equal groups safety is people’s attitudes. It is important that sence due to illness compared to the national are more efficient and contribute to a better new employees are told as early as their induc- average. Long-term absence due to illness has work environment. By 2020, we want 25 per- tion that we put safety first and that we must remained stable for several years at around cent of our employees look after ourselves and 0.5 percent and total absence due to illness is to be women. For a few our colleagues. Employ- under 3 percent. Such a low level of long-term years now we have fo- “We are working ees, contractors and absence due to illness can be largely attribut- cused on supporting towards a vision sub-contractors must ed to systematic rehabilitation work. workplaces on diversity all complete an ap- Short-term absence due to illness among issues by having a ded- of zero accidents proved safety training younger people has recently increased slightly icated diversity team. and we see every course before being al- at LKAB. In 2013, work began with represent- This is long-term, for- incident as a failure.” lowed access to LKAB’s atives of the IF Metall union and the occupa- ward-looking work and industrial areas and tional health service to investigate the causes in 2012 we received a GRETE SOLVANG STOLTZ, starting work. of absence. certificate as nominees SENIOR VICE PRESIDENT One of our objec- An information campaign on the rules and HUMAN RESOURCES for the Guldnappen, tives in 2013 was to im- aims with regard to absence due to illness was Unionen’s prize for the prove the external and implemented during autumn 2013 in order to year’s most equal com- internal perimeter se- increase awareness among the younger em- pany in Sweden. In 2013, we focused on the curity of our industrial areas. This means that ployees. The intention was to create an under- interaction between individuals, on develop- only authorized personnel can be inside our standing of the purpose of the legislation and ing attitudes and behaviour. A new, long-term gates. As part of this work, there is now a clear the employer’s responsibility for rehabilitation. action plan for the period 2014-2016 is being requirement for everyone, including visitors, developed. to have personal permission to be allowed in- PREVENTIVE HEALTH side the industrial area. We want to know at LKAB regularly inspects the work environ- SAFETY, WORK ENVIRONMENT all times who is inside our facility and whether ment at its workplaces, while health checks AND HEALTH they have sufficient knowledge of our opera- on employees can identify any link between In our business, safety always comes first. We tions, so as not to be exposed to risk. In doing health and the work environment at a specif- are engaged in systematic work to reinforce so, we ensure both a good work environment ic workplace. We also offer good opportunities a culture of safety and to reduce the number and a high level of safety. for exercise outside working hours, as well as of accidents. Since 2006, this work has been access to wide-ranging expertise on health and carried out under the name “Safety First!” and lifestyle issues to encourage and make it easier takes place according to a specified develop- for employees to make good lifestyle choices. ment programme. The aim of Safety First is to

68 ATTRACTIVE LKAB

The Safety First programme provides safe, secure and stimulating workplaces where everyone contributes to a culture of safety and to safe and resource-efficient production.

For safety reasons it is absolutely imperative for DEVELOPMENT AND annually, based on performance in work envi- LKAB to have a drug-free and alcohol-free work TARGET MANAGEMENT ronment, quality and production. environment. Since 2006, all managers and safe- Through continuing professional development, Read more about our remuneration model ty representatives have been given training on al- we develop the employee’s role at the compa- in the Corporate Governance Report on page 79. cohol and drug abuse. As part of our preventive ny. Everyone has a responsibility for their own work, we carry out random drug testing for all performance, and for continuously developing PROUD EMPLOYEES employees and contractors in our Swedish op- their skills and the company. All employees To help us improve as an employer, LKAB erations. If an employee tests positive for a pro- must undergo basic safety training, as well as carries out employee surveys. In spring 2013 hibited substance, they are offered rehabilitation training in the relevant work operations. we carried out a more wide-ranging survey in with the aim of eliminating the misuse and help- As part of our annual business planning view of our growth programme and extensive ing the person to stay with the company. work, we carry out over 300 operations plan- process of change. This survey, which will be ning processes, where our overall goals are repeated every two or three years, was con- LEADERSHIP AND EMPLOYEESHIP broken down into sub-goals and activities are ducted anonymously, and 68 percent of our The commitment and good work ethic of identified in order to ensure that we achieve employees chose to participate. We consider employees are necessary for our long-term our set goals. Through the performance de- this an acceptable figure for the survey’s de- competitiveness, profitability and productivi- velopment programme for all staff, we clarify but. ty, which in turn helps to create good working the employee’s own role in the company in In all, 91 percent of our employees said conditions. Our managers have an important relation to expectations and our strategic ob- they are proud to work at LKAB. A good 93 responsibility to create the right conditions for jectives. In this way, we increase knowledge, percent would recommend others to apply for their employees. They should encourage them safety and commitment among employees a job with us. The workplace atmosphere is to take the initiative and develop current and and managers. The goals are also linked to our considered to be good. The survey shows that future tasks, set clear requirements and pro- incentive system that covers all employees ex- our target work has been successful, but that vide clear and constructive feedback. cept Group management. Bonuses are payable there are still areas that can be improved. Most

69 OUR STRATEGY IN ACTION

employees felt a lack of involvement in chang- A STRATEGIC TOOL Theatre. In 2013, we announced a new part- es in the workplace as well as a lack of pro- An important and decisive tool in building the nership agreement that gives all children and gressive and meaningful workplace meetings. LKAB brand and in generating involvement and young people in the orefields communities Perceived discrimination, a lack of feedback commitment among the opportunity to get and action to tackle difficult issues and resolve our employees is our involved in culture and conflicts were also mentioned. internal and exter- VECKOBLADET NOMINATED the theatre. During the autumn, managers and em- nal communications. FOR AN AWARD Our sports spon- ployees sat down and discussed the results of Through consistent One of Sweden’s top five employee sorship aims to attract the employee survey with the aim of establish- and integrated com- magazines according to the Swed- young athletes and ish Publishing Award. LKAB’s staff ing common goals and activities. Our ambition munications via both magazine “Veckobladet” has been help them reach the is to create a useful tool for improving the psy- traditional and digital nominated for the Swedish Publish- top. Some examples chosocial work environment. channels, we create ing Award as one of Sweden’s top five are the elite wrestlers a clear and coherent employee magazines. It is the second Sofia and Johanna NEW DEMANDS ON LEADERSHIP picture of LKAB, dis- year in a row that LKAB has had a Mattsson and Henna magazine nominated for the award, One of our priorities is to have leadership that cuss our objectives and with customer magazine LKAB Maga- Johansson, as well as is clear and strong. Our leaders are ultimately plans, and show how zine receiving a nomination last year. Olympic cross-coun- responsible for ensuring that our strategy is we put them into prac- try skiing champions put into practice and they have a great respon- tice. Our communica- FÖR OSS SOM JOBBAR I LKAB – NR 5 # SEPTEMBER 2013 Charlotte Kalla and sibility for making our employees feel involved. tion channels include FÖR OSS SOM JOBBAR I LKAB – NR 6 # OKTOBER 2013 Marcus Hellner. Here

Leading into 2013, LKAB took a new ap- face-to-face meetings FÖR OSS SOM JOBBAR I LKAB – NR 7 # NOVEMBER 2013 too, we are sponsoring

proach to management training. As the busi- at our information FÖR OSS SOM JOBBAR I LKAB – NR 8 # DECEMBER 2013 the next generation.

4 Starkare råkulor spar miljoner ness and the demands on managers change, centres, large public 5 We support 16-year- Ordning och reda bland sprängämnen 8 Nya energi- och miljömål so their training also needs to change. LKAB's meetings, our intranet, 15 Fokus på säkerheten old Isak Klein, who 09 Skrotarna säkrar gruvan 10 Julen i LKAB 06 P-trubbel 12 Ny sprängteknik 08 Minskad sjukskrivning 20 Printzen i produktion management training is mandatory for all new our external website Bandugnsverket 12 Kristallen i Victorias famn 05 Mångfald i LKAB competes for Kiruna

04 Bergbultar spar pengar 05 Malm renas med potatis managers and every year around 30 new man- and the staff maga- firar 40 år 06 BK and is aiming to Trafiksäkerhet i gruvan 18 Fler steg för hälsan - 125 miljoner tonFrisk pellets Sid 09–11 luft

Konstruktiv och öppen dialog FOTO: FREdRIc ALM agers are trained at production, divisional and zine “Veckobladet”, as Markus Petäjäniemi, reach the world elite in i gruvorna sid 2

Ny styrning av ventilationen Sid 16-17

LKAB rockarVår budget loss styrs FOTO: G. RÚNAR GUDMUNDSSON departmental manager level. We have worked well as the wider pub- Sid 9–11 Alpine skiing. Så firades nya nivån Katarina Holmgren, sid 2 av omvärlden

on values at management and employee lev- lication “LKAB Framtid” Gör din arbetsplats Every year, LKAB’s FOTO: FREDRIC ALM Grete Solvang Stoltz, sid 2 God Helg! ännu bättre el so far and we are now striving to make our which is distributed to Initiativ i vardagen employees nominate

FOTO: G. RÚNAR GUDMUNDSSON Vd Lars-Eric Aaro, sid 2 values ​​even more evident in our leadership. all households in the gör skillnad candidates for sports Another of our objectives is to improve the orefields communities. and cultural grants, culture of constructive feedback between em- each worth SEK 50,000. ployees and management. ENGAGEMENT The grants are award- Since 2013, new managers have been of- THROUGH SPONSORSHIP ed at the AGM. This year’s recipients were fig- fered an individual meeting with a behavioural Our sponsorship aims to strengthen LKAB’s ure skater Alexander Majorov, who received scientist, where they discuss leadership and brand, engage our employees and create ben- this year’s sports grant, and Norrbotten The- its impact on the psychosocial work environ- efits for both the recipient and the local com- atre and the Norrbotten NEO music ensemble, ment. munity. In addition to our efforts to help de- which received this year’s cultural grant. We want managers who are good role velop knowledge and stimulate an interest in We also sponsor interesting student pro- models, who are brave enough to handle dif- technology among children and young people, jects, such as the construction of the Baldos ficult situations and who are good leaders. we also provide sponsorship for culture and III eco-car, which is the work of mechanical Our new management training involves taking sport. We want to help establish a rich varie- engineering students at Luleå University of people outside their comfort zone and helping ty of recreational and cultural experiences in Technology, and diversity through Luleå Pride, them discover new things about themselves. our operating locations. This helps to improve which is organized annually by RFSL Luleå During the year, a training course for senior public health and also makes our operating lo- and Norrbotten. managers was also provided, called “Master- cations more attractive communities in which ing New Challenges”, which focuses on LKAB’s to live and thrive, something that we consider new strategies and the tools to implement strategically important if we are to retain our them. Twelve people, all reporting to Group skilled employees and attract new ones. Management, carried out the training, which The free time that children and young peo- began in 2013. ple have is enriched by drama lessons and games, as well as a much increased range of theatrical and musical performances through our sponsorship agreement with Norrbotten

70 ATTRACTIVE LKAB Photo: Maja Suslin/TT

LKAB’s sponsorship is a way of supporting young talents in their sports careers. In December it was announced that the company would be intensifying its collaboration with Charlotte Kalla, so that she and her coach Magnus Ingesson could devote themselves to the Sochi Olympics in 2014 and the World Championships in Falun in 2015. “LKAB is my oldest and one of my most important partners in my efforts to achieve continued success. The partnership demonstrates my Norrbotten roots and to me means security and sustainability. LKAB has been brave enough to show faith in me and to invest in me as a young athlete and I am proud to be associated with them,” says Charlotte Kalla.

71 OUR STRATEGY IN ACTION

SWEDEN 3,676 UK ASIA 200 62

NORWAY TURKEY 195 39

PERMANENT EMPLOYEES BY REGION sweden 3,676 uk 200 norway 195 asia 62 turkey 39 netherlands 24 germany 19 usa 7 belgium 3 finland 3 slovakia 1 total 4,229

At year-end, LKAB had 4,229 permanent employees, of which 1,400 were white collar and 2,829 blue collar workers. In total, there were 44 part-time employees and 361 fixed- term employees. There are options available for full-time and part-time employment for employees with young children. The total number of employees (average), including part-time and fixed-term employees, was 4,427.

72 ATTRACTIVE LKAB

NUMBER OF WOMEN IN LKAB (NUMBER) PROPORTION OF WOMEN IN LKAB (%)

1,000 30

25 800

20 600 15 400 10

200 5

0 0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

number of women in lkab over time 2013 proportion of women in lkab proportion of female managers

The number of women in the Group has steadily increased and The proportion of women at the Group is 18.1 percent. at year-end was 764. Our target is for the proportion of women In the parent company, which employs over 80 percent of our in the Group to be at least 25 percent by 2020. staff, LKAB also monitors the proportion of female managers with subordinate staff. In 2013 this percentage was 19.8 percent.

ACCIDENTS AT WORK LEADING TO ABSENCE ABSENCE DUE TO ILLNESS (%)

Number of accidents Number of accidents per 100 million hours worked 20 7 90 18 6 80 16 70 14 5 60 12 4 50 10 3 40 8

30 6 2 20 4 1 10 2 0 0 0 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013

total number of accidents leading to absence in the group long-term absence short-term absence (2013) number of accidents per million hours worked

NUMBER OF REPORTED INCIDENTS AND RISKS

9000 8000 7000 6000 5000 4000 3000 2000 1000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

incidents risks

73 74 3 OUR GOVERNANCE AND CONTROL

In this section, we describe our governance and how we exercise control within LKAB. We present our corporate governance structure, our system for internal control and risk management, and how we manage our sustainability work.

Ò Corporate Governance Report Ò Corporate governance structure Ò Shareholders and Annual General Meeting Ò Management of Sustainability work Ò Board of Directors Ò Group Management Ò Auditor's statement on the Corporate Governance Report Ò Auditors’ Limited Assurance Report on LKAB’s Sustainability Report

75 CORPORATE GOVERNANCE REPORT

CORPORATE GOVERNANCE REPORT

CORPORATE GOVERNANCE STRUCTURE LKAB’s shareholder, the Swedish government, is ultimately responsible for making decisions on corporate governance. At the Annual General Meeting, the shareholder appoints Board members, the Chairman of the Board and auditors. The Board is responsible to the owner for the com- pany’s organization and the administration of its affairs. The diagram below summarizes how governance and control are organized at LKAB. The company functions are described in more detail on pages 77-79 of the Corporate Governance Report.

1. ANNUAL GENERAL MEETING 2. BOARD NOMINATIONS 3. EXTERNAL AUDITORS OWNER THE STATE

4. BOARD OF DIRECTORS

5. AUDIT COMMITTEE 6. CURRENCY AND FINANCE COMMITTEE 7. REMUNERATION COMMITTEE

elects/appoints 8. CEO AND GROUP PRESIDENT informs/reports to

1. ANNUAL GENERAL MEETING 4. BOARD OF DIRECTORS The AGM is LKAB’s supreme governing body and the forum at which the The Board of Directors is responsible for the company’s organization and shareholder formally exercises its influence. At the AGM, decisions are manages 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 situation discharge from liability of the Board, election of new Board members and and ensuring that the company is organized so that accounting, asset new auditors, remuneration of Board members and auditors, and guide- management and the company’s financial circumstances are otherwise lines for the remuneration of senior executives. controlled in a satisfactory manner. The Board also appoints the Presi- Members of the Riksdag are entitled to attend LKAB’S AGM. The dent. meeting is also open to the public. 5. AUDIT COMMITTEE 2. BOARD NOMINATIONS The committee oversees financial reporting by reviewing all critical LKAB does not have a nomination committee. The preparation of deci- accounting matters and other factors that could affect the quality of fi- sions on the nomination of Board members instead takes place through a nancial reporting content. The Audit Committee comprizes three Board Board nomination process in accordance with the state’s ownership poli- members. cy. This work is coordinated by the Ministry of Finance. 6. CURRENCY AND FINANCE COMMITTEE 3. EXTERNAL AUDITORS The committee prepares and monitors matters such as the company’s The auditor is responsible to the shareholder at the AGM and provides liquidity management and hedging schemes. The Currency and Finance an audit report on matters such as the Annual Report and the Board’s Committee consists of five Board members. administration of the company. The auditor regularly reports verbally and in writing to the Audit 7. REMUNERATION COMMITTEE Committee on how the audit was conducted and on the auditor’s assess- The committee prepares decisions on the President’s terms of employ- ment of order and control at the company. A summary of the audit is also ment and supports the President’s work on determining the salaries of submitted to the full Board. senior executives. The Compensation Committee comprises four Board members.

8. PRESIDENT The President is appointed by the Board of Directors. Besides instruc- tions from the Board, the President is subject to the Swedish Companies Act and various other laws and regulations relating to the company’s ac- counting, asset management and operational control.

76 CORPORATE GOVERNANCE REPORT

GOVERNING POLICIES, GUIDELINES AND REGULATIONS

The basis for corporate governance at LKAB is Swedish legislation, the state’s ownership policy and internal control documents. In the state’s ownership policy and guidelines for state-owned companies, which are determined annually, the government describes its mission and objectives, applicable frameworks, and its position on important principles related to corporate gov- ernance at state-owned companies. LKAB’s values are Committed, Innovative, Responsible. The values and the company’s Code of Conduct form the basis for the conduct of everyone within the Group with regard to internal and external stakeholders. LKAB’s business must be characterized by high levels of business ethics and integrity. The Group has a number of Group policies in place, which have been adopted by the Board:

• Code of conduct • Quality policy • Environment and energy policy • Staff policy • Finance policy • Information policy

LKAB’s values and policies are described in more detail on the website, www.lkab.com. The Swedish Code of Corporate Governance (the Code) forms part of the ownership policy. LKAB’s governance for the 2013 financial year differs from the requirements contained in the Code on the following points.

DEVIATIONS FROM THE CODE

CODE RULE DEVIATION AND EXPLANATION/COMMENT

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

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

ITEM 2 Due to its ownership structure, LKAB does not have a nomination committee. The Board The company shall have a nomination nomination process follows the policies outlined in the state’s ownership policy and is committee that represents the coordinated by the Ministry of Finance. Accordingly, the references to the nomination company’s shareholders. committee in items 1.3, 1.4, 4.6, 8.1 and 10.2 of the Code are not applicable.

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

77 CORPORATE GOVERNANCE REPORT

SHAREHOLDERS AND ANNUAL GENERAL MEETING BOARD NOMINATIONS LKAB does not have a nomination committee, but the election of Board SHAREHOLDERS members is prepared instead in accordance with the state’s ownership LKAB is wholly owned by the Swedish Government, represented in the policy. This work is coordinated by the Ministry of Finance. LKAB’s ex- government by the Ministry of Finance. pertise requirements are analysed based on the company’s operations, The government exercises its ownership via an annually estab- situation and future challenges. Consideration is also given to the need lished ownership policy, nominations to the Board and published report- for qualifications with regard to sustainability issues. In order to be con- ing guidelines. The government’s requirement for transparency is ful- sidered for a Board position, a person must have a high level of ex- filled by direct owner representation on the Board. Reports to the owner pertise relevant to current business operations, business development, and Board are key management tools for the continuous monitoring and industry expertise, financial issues or other relevant areas. They must assessment of the companies. State-owned companies should have at also have a high level of integrity and the ability to act in the best inter- least the same level of transparency as listed companies. ests of the company. The Board, via the Chairman, coordinates its views on issues of de- cisive importance with the owner’s representatives. Such issues include EXTERNAL AUDITORS strategic changes to the company’s operations, major acquisitions, On behalf of the owner, the auditors independently review the manage- mergers or disposals, as well as decisions affecting significant changes ment of the Board and the President, as well as the company’s Annual to the company’s risk profile or balance sheet. Report and accounts. The external auditors also carry out a review of an interim report. Responsibility for the election of auditors lies with the ANNUAL GENERAL MEETING 2013 owner and the election of auditors is decided at the AGM. The auditors LKAB’s Annual General Meeting took place on 29 April 2013. It was of state-owned companies are appointed for a term of one year. In the open to the public, who were given the opportunity to ask questions event that the re-election of auditors is being considered, the auditors’ of the Board and management. The AGM was attended by about 120 work is always evaluated. people. The owner was represented by the commercial lawyer Anna At the Annual General Meeting on 29 April 2013, Deloitte AB was Magnusson of the Ministry of Finance. Chairman of the meeting was re-elected auditor for a period of one year. Authorized Public Accountant Board Chairman Marcus Wallenberg. The following decisions were Peter Ekberg is the chief auditor. The remuneration of auditors is speci- made at the meeting: fied in Note 7 on page 128 of the Annual Report. • A dividend of SEK 7,857 per share, representing a total of SEK 5.5 billion. • Re-election of Board members Marcus Wallenberg, Hans Biörck, BOARD OF DIRECTORS Maija-Liisa Friman, Lars-Åke Helgesson, Sten Jakobsson, Hanna Lagercrantz and Maud Olofsson. COMPOSITION OF THE BOARD OF DIRECTORS • Election of Board member Lars Pettersson. LKAB’s Articles of Association state that the company’s Board of • Re-election of Marcus Wallenberg as Chairman of the Board. Directors shall consist of no fewer than six and no more than eleven • Re-election of the registered public accounting firm Deloitte AB as AGM-elected members, excluding deputies. The Board consists of eight auditor for a period of one year. AGM-elected members. Employees are represented by three members • Specification of the financial objectives of the company with and three deputies in accordance with the Board Representation (Pri- regard to capital structure and profitability, as well as dividend vate Sector Employees) Act. Board members have broad and extensive policy. business experience and most maintain other duties as Board mem- bers of large companies. The Board’s composition is shown in the table The minutes of the 2013 AGM and of other recent years are available at on pages 84-85. LKAB’s website, lkab.com. CHAIRMAN OF THE BOARD OF DIRECTORS The duties of the Chairman are subject to the Swedish Companies Act, the Code and the ownership policy. They are further specified in the Board’s rules of procedure. The Chairman’s duties include organising and leading the work of the Board, ensuring that the Board fulfils its duties and that its decisions are implemented effectively, and that the Board annually evaluates its own work. Coordination responsibility is a special task assigned to the chair- persons of state-owned companies. This responsibility means that the Board, through the chairman, must coordinate its views with represent- atives of the owner when the company faces important decisions or strategic changes to the company’s operation.

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THE WORK OF THE BOARD OF DIRECTORS IN 2013 Currency and Finance Committee During the year, the Board held eleven meetings, including three tele- The Currency and Finance Committee members are Lars-Åke Helges- phone meetings, one meeting by circulation and one constituent Board son, Committee Chairman, Marcus Wallenberg, Hanna Lagercrantz, meeting. The meetings were held at the operating sites in Lulea, Hans Biörck and Seija Forsmo. The President, CFO and company treas- Kiruna, Malmberget and Narvik, as well as in Stockholm. In November, urer also attend the meetings. the Board visited LKAB’s customer Nucor Steel in the USA. The Currency and Finance Committee’s duties include preparing The meetings follow a set agenda to ensure the Board’s information and monitoring LKAB’s currency hedging programmes and liquidity needs are met. The first meeting is usually an annual accounts session management. attended by the auditors. The Annual Report is discussed at the second The Committee held six meetings during the year. Board meeting. The third to seventh meetings are devoted to matters such as operational, strategic and personnel issues, as well as market Remuneration Committee trends. At the last Board meeting of the year, decisions are made on The Remuneration Committee consists of Lars-Åke Helgesson, Com- budgets and operational plans for the coming year. mittee Chairman, Marcus Wallenberg, Hanna Lagercrantz and Sten In 2013, the Board of Directors adopted LKAB’s strategic plan for the Jakobsson. The President and Senior Vice President Human Resourc- period 2013-2020. Board activities continued to be characterized by the es also attend the meetings. The Remuneration Committee’s duties in- growth phase that LKAB finds itself in. The Board also focused on sus- clude preparing and evaluating remuneration terms for the President, tainable business and has been in dialogue with the owner on this sub- establishing salary determination policies for members of the Group ject, including at a joint sustainability seminar. In February, the Board management and annually evaluating the company’s employee incen- adopted a new sustainability strategy for the Group and in August, a new tive programme. Code of Conduct was adopted. Other important issues on the Board’s During the course of the year, the Remuneration Committee held agenda in 2013 were the company’s cost streamlining programme, oc- two meetings. cupational health and safety and urban transformation in Malmfälten. Deputies to employee representatives participate in Board meet- ASSESSMENT ings. The President is not a Board member, but participates in Board Assessment of the Board of Directors meetings. The Board’s work is assessed once a year with questions on how the The Board annually establishes rules of procedure and instructions Board as a whole and the Board members individually fulfil their duties. to the President. These documents define the basic divisions of respon- The assessment is used in the Board’s internal work. The Chairman is sibility and powers between the Board, Board committees, the Chair- responsible for following up the results so that they can form a basis for man and the President. discussions and improvements. The 2013 assessment took place in the Board member attendance at 2013 Board and committee meetings form of a questionnaire. The entire Board may study the assessment, as is shown on pages 84-85. may the President, as appropriate. The Chairman of the Board notifies the owner of the results of the assessment before the election of new COMMITTEES Board members. According to the state’s ownership policy, it is the Board’s responsibility to assess the need for establishing special committees. LKAB’s Board Assessment of the President has established an Audit Committee, a Currency and Finance Commit- The assessment of the President is a fundamental task of the Board of tee, and a Remuneration Committee. Committee work is mainly of a pre- Directors. The Chairman prepares a summary of the Board’s views that paratory and advisory nature. However, in special cases the Board may conveys strengths and weaknesses to the Board as well as the Presi- delegate decision-making powers to committees. Committee members dent. and chairpersons are appointed at the constituent Board meeting that follows the AGM each year. REMUNERATION POLICIES Audit Committee The Audit Committee consists of Lars-Åke Helgesson, Committee Chair- GUIDELINES man, Hanna Lagercrantz and Hans Biörck. The President and the CFO The 2013 AGM decided on remuneration levels for Board members and also attend the meetings. The Audit Committee’s duties include moni- auditors and guidelines for the remuneration of senior executives. For toring the company’s accounting, financial reporting and risk manage- the remuneration of Group management, the AGM decided that the gov- ment, along with preparing the Board’s proposed appropriation of prof- ernment’s guidelines applicable at any given time regarding employ- its for the fiscal year. ment terms for senior executives at state-owned companies are to be During the course of the year, the Audit Committee held eight applied. Total remuneration is based on fixed remuneration, benefits meetings. and pension. No variable remuneration is paid to senior executives in the Group management. Note 6 on pages 125-127 of the Annual Report describes the remu- neration of senior executives.

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INCENTIVE PROGRAMME AND OBJECTIVES In 2013, the following change was made in the chain of command: LKAB’s incentive programme is designed to support the Group’s strate- the Logistics division was moved from the Marketing & Sales unit to gic goals, which are based on production volume, work environment and Mining. The Energy and Climate and Sustainable Development units product quality. The incentive programme is described on page 103 of have been formed, with operations moved there from the Mining and the Administration Report. Technology and Business Development units. In February 2014, a sepa- rate Research and Development unit was established, having previously REMUNERATION TO THE BOARD OF DIRECTORS formed part of the Technology and Business Development unit. As resolved at the AGM, the remuneration of AGM-elected Board mem- The subsidiary Minelco has changed its name to LKAB Minerals. bers totals SEK 2,147,000; see Note 6 on pages 125-127 for the cost for Governance of the major subsidiaries, such as LKAB Minerals, LKAB the year. Wassara and others, is through Group management members who chair the subsidiaries’ boards. The subsidiaries run their businesses in- LKAB’S MANAGEMENT dependently in accordance with the company’s mission in the Group as formulated in the Articles of Association. PRESIDENT Responsibility and authority are assigned to individual executives, The President’s general responsibility is stated in the instructions for rather than groups and committees. Information about the Group man- the President and the Board’s rules of procedure. These state that the agement is provided on pages 86-87. President shall: • Lead, plan, develop and control the company’s operations in ac- INTERNAL CONTROL AND RISK MANAGEMENT cordance with the Board’s established objectives and strategies. The Board of Directors has overall responsibility for ensuring that the • Ensure that the company’s accounts are maintained in compli- Group has an effective system of management and internal control. ance with the law and that assets are managed in a satisfactory LKAB’s governance, control and risk management is based on: manner. • The Group’s business concept, strategies, goals and values • Ensure that other statutory regulations and directives appli- • The organizational structure and job descriptions cable to the company’s operations are also followed, that the • Policies and guidelines Board’s decisions and other resolved measures applicable to the • Guidelines and procedures for administrative processes company’s operations are implemented, and that the company’s operations are appropriately organized and run in accordance During the year, improvement work has continued in order to develop a with the Articles of Association. framework for internal control and governance. • Be responsible for presentation and other reporting to the Board. To increase the focus on risk management, in 2013 it was decided • Establish instructions and function descriptions that are deemed that the organization should be strengthened through the appointment necessary, but that have not been established by the Board. of a Chief Risk Officer (CRO). • Be responsible for all the company’s regular contact with the media. For ownership issues and major structural issues, the MANAGEMENT OF SUSTAINABILITY WORK Chairman shall be responsible for media contact. LKAB’s sustainability work is managed on the basis of the sustainability • Be responsible for the induction programme for newly appointed strategy and code of conduct. Sustainability targets are set by the Board Board members. in order to ensure that LKAB fulfils the owner’s requirements with re- gard to the company’s development into a model of sustainability. The approval of the Chairman of the Board shall be required for any du- Operational responsibility for sustainability work lies with the Presi- ties of the President outside the company. Information on the President dent. In order to increase the focus on sustainability work, a new unit, Sus- is provided on page 86. tainable Development, was formed in 2013 and a Senior Vice President has been appointed for the unit. This new unit is responsible for developing GROUP MANAGEMENT AND GROUP MANAGEMENT STRUCTURE LKAB’s position as a sustainable company. The unit will also support the LKAB’s business is conducted to a very large extent at the parent com- Group’s sustainability work. pany. Some activities take place at subsidiaries in Sweden and in sev- In 2013 an ethics committee was established with a mandate to eral other countries. monitor and handle violations of the Code of Conduct. The chair of the The Group management consists of the President and nine unit ethics committee is the Senior Vice President of Sustainable Devel- managers who work at the parent company. They are the unit managers opment, and committee members include the Senior Vice President for Production & Logistics, Marketing & Sales, Technology & Business Human Resources, the Senior Vice President of Group Control and the Development, Energy and Climate, Sustainable Development, Finance, Legal Director. A reporting system for the anonymous reporting of code Group Control, Human Resources, and Communications. violations is being set up and will be implemented in 2014. The Senior Vice President Human Resources is responsible for strategic HR activities and for the decentralisation of operational work. Personnel matters are handled by the salary determination committee and the rehabilitation and diversity group. The Director of Urban Trans-

80 CORPORATE GOVERNANCE REPORT

formation is responsible for the implementation of our action plan for linked to urban transformation in the municipalities of Kiruna and urban transformation. Our purchasing organization is responsible for Gällivare and the large number of planned and ongoing capital expend- cooperation with suppliers and subcontractors. iture projects. Other more general risks are loss or misappropriation Our environment and energy policy forms the basis for the govern- of assets and other significant errors in the company’s reporting, such ance of our environmental work and we have an energy and environ- as accounting and valuation of balance sheet items, completeness of mental management system in place. This is certified according to the income statement items, or deviations from disclosure requirements. environmental management standard ISO 14001. One element of the environmental certification is the risk analyses that take into account CONTROL ACTIVITIES the precautionary principle, with the aim of preventing negative environ- Key elements of LKAB’s control structure are controls for business mental impact. LKAB in Sweden has an event reporting system where transaction approvals (authorisation instructions), division of authority all environmental events are to be reported. In 2013 a Senior Vice descriptions and annual accounts instructions. There are also specifi- President was also appointed for energy and climate issues. cally established controls regarding the annual accounts process and the processes for interim results and the Annual Report that deal with INTERNAL CONTROL OVER FINANCIAL REPORTING more unique risks of errors that may occur in financial statements. The Board’s responsibility for internal governance and control is regu- During the course of the year, a control structure was defined for the lated by the Swedish Companies Act, the Swedish Annual Accounts Act Treasury Centre’s operations in accordance with the new finance policy and the Swedish Code of Corporate Governance. The Board has overall and a control procedure has been established and implemented. responsibility for financial reporting, and its rules of procedure govern The Group’s legal entities that conduct business have financial the internal division of labour of the Board and the audit committee. After managers, while reporting units have controllers. They are involved in preparation by the audit committee, quality assurance of the company’s the forecasting and analysis of earnings at subsidiaries and the report- financial reporting is handled by the Board, which deals with significant ing entities. These analyses cover assets, liabilities, income, expenses accounting issues and the financial reports issued by the company. The and cash flows. There are also designated controller resources that Board also deals with issues relating to internal control, compliance, monitor, analyse, make forecasts, and examine specific issues relating material uncertainty in reported values, uncorrected errors, events after to the financial information for urban transformation and strategic cap- the balance sheet date, changes to accounting estimates and assess- ital expenditure projects. LKAB uses a Group-wide consolidation system ments, any irregularities identified and other circumstances affecting for the preparation of its consolidated accounts, where the companies’ the quality of financial reports. CFOs/controllers are responsible for the accuracy of the financial in- formation reported (outcome, budget and forecasts). Together with the CONTROL ENVIRONMENT comprehensive analysis performed at Group level, the aim is to limit the LKAB’s internal control structure is based on a defined division of re- risk of material misstatements in the financial statements. sponsibilities between the Board, Board committees and the President. In order to maintain a high level of information security, there are The internal control structure is also based on the company’s organi- rules and guidelines in place with regard to accessibility, accuracy, con- zation and the way business is conducted, including well-defined roles fidentiality and traceability in the resource planning system. and responsibilities, delegation of powers, steering documents such as policies, and clearly defined planning and support processes. INFORMATION AND COMMUNICATION The most important elements of the control environment concern- LKAB has information and communication channels that promote com- ing financial reporting, including the preparation of the consolidated pleteness and accuracy in financial reporting. Comprehensive informa- accounts, are dealt with in Group-wide steering documents relating to tion about current control structures is available to all employees via accounting, financial transactions and regulation of division of authority. LKAB’s intranet. The aim is regularly to review changes and the reason- The purpose of Group-wide guidelines and systems for reporting and ing behind existing controls and to improve them in order to maintain consolidation of the Group accounts is to safeguard financial reporting effective internal control over financial reporting. In connection with the and ensure the accuracy of the consolidated accounts. review of the control structure, responsibility is also identified for en- suring that the control structure is in place, is known, and that controls RISK ASSESSMENT are carried out as intended. LKAB is governed by procedures that have risk management built into LKAB’s guidelines for financial reporting and the consolidated ac- every process. The Group has methods for ensuring that the risks the counts are updated regularly. Changes are communicated to relevant company is exposed to are handled according to guidelines and meth- functions and operations via e-mail, the intranet and at meetings. ods in order to both assess and mitigate these risks. There is an information policy for communication with external parties, As part of internal governance and control, risks related to finan- which specifies guidelines for how information should be presented. cial reporting are identified. Risk analyses have been conducted for the The purpose of the policy is to ensure that all information obligations most important processes, and where risks have been identified, pro- are met in an accurate and complete manner. External financial com- cedures have been established to manage and minimize these risks. munications are issued through Annual Reports, interim reports, annual A number of higher risk areas have been identified with regard to the accounts, press releases and via LKAB’s website at www.lkab.com. financial statements, including in relation to reporting and tax issues

81 CORPORATE GOVERNANCE REPORT

FOLLOW-UP There is currently no internal audit function established at LKAB. In 2013, 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 financial reporting. A plan for internal control activities is prepared annually by the Group-wide controller function. The focus in 2013 was on monitoring prioritized internal processes. The internal reviews in 2013 were mostly carried out in collabora- tion with external independent auditors, where the focus was defined on the basis of a risk assessment for each separate review. The results of the completed reviews were summarized in review reports and feed- back was given to the operations concerned. Compliance with measures specified following the comple- tion of reviews is followed up regularly by the Group-wide controller organization.

Luleå, 20 March 2014

The Board of Directors, through the Chairman

Marcus Wallenberg

82 CORPORATE GOVERNANCE REPORT

The governance and control of LKAB’s sustainability work are this year presented for the first time as an integrated part of the Corporate Governance Report. Our sustainability work is managed on the basis of the sustainability strategy and code of conduct. Our environment and energy policy forms the basis for the governance of our environmental work and we have an ISO-certified energy and environmental management system in place. Pictured here are Malin Fors, Business developer for Work Environment and Johan Granberg, Business developer for Energy.

83 CORPORATE GOVERNANCE REPORT

MARCUS WALLENBERG, chairman HANS BIÖRCK MAIJA-LIISA FRIMAN LARS PETTERSSON position Director position Advisor for Skanska AB position Director position Director education Bachelor of Science of Foreign Ser- education MSc Business and Economics education MSc Chemical Engineering, Helsinki education MSc Engineering Physics vice, Georgetown University, Washington D.C. USA year elected 2012 University of Technology year elected 2013 year elected 2011 born 1951 year elected 2008 born 1954 born 1956 other directorships Chairman of the Board at born 1952 other directorships Board Member at Skanska other directorships Chairman of Skandinaviska Crescit Asset Management AB. Board Member at other directorships Chairman of the Board at AB, Lundbergföretagen AB, PMC Group AB, Enskilda Banken, Saab AB, AB Electrolux and Trelleborg AB, Dunkerska Stiftelserna and Bure Ekokem Oy and Helsinki Deaconess Institute. Indutrade AB and Uppsala University. Foundation Asset Management AB. Board Mem- Equity AB. Deputy Chairman at Neste Oil Oyj. Board Member background President and CEO of Sandvik AB ber of AstraZeneca PLC, Knut & Alice Wallenbergs background CFO at Skanska AB, CFO at Autoliv at TeliaSonera AB, Finnair Oy and Talvivaara 2002-2011, CEO of Sandvik Materials Technology Foundation, Investor AB, Stora Enso Oyj, EQT Inc., CFO at Esselte AB. Mining Company Plc. 2000-2002, CEO of Sandvik Tooling 1998-2000, Holdings AB and Temasek Holdings Ltd. remuneration SEK 310,000 background President of Aspocomp Group Oyj CEO of Sandvik Coromant 1994-1998. background President and CEO of Investor AB, 2004-2007. CEO of Vattenfall Oy 2000-2004. CEO board meeting attendance remuneration SEK 250,000 1999-2005. Executive Vice President at Investor of Gyproc Oy 1993-2000. Various management Attended 11 of 11 meetings. board meeting attendance AB, 1993-1999. Director, Stora Feldmühle AG, positions at Kemira Oyj in Finland, Mexico and Attended 5 of 6 meetings.* Düsseldorf 1990-1993. Before 1990 various audit committee attendance the USA 1978-1993. Attended 7 of 8 meetings. Not on any committees. positions within Skandinaviska Enskilda Banken remuneration SEK 250,000 in Stockholm and London, Citicorp Hong Kong, currency and finance committee attendance board meeting attendance S.G. Warburg Co. Ltd. London, Deutsche Bank AG Attended 6 of 6 meetings. Attended 10 of 11 meetings. *Appointed to the Board of Directors at the Annu- Frankfurt and Hamburg, Citibank, N.A. New York. al General Meeting on 29 April 2013. Not on any committees. remuneration SEK 590,000 board meeting attendance Attended 11 of 11 meetings. currency and finance committee attendance Attended 6 of 6 meetings. remuneration committee attendance Attended 2 of 2 meetings.

THE BOARD’S EMPLOYEE REPRESENTATIVES, FULL MEMBERS

SEIJA FORSMO TOMAS STRÖMBERG JAN THELIN

position Pelletizing expert position Ore developer position Welder education MSc Chemical Engineering, Helsinki education Secondary education education Trained international welding University of Technology, PhD Process Metallurgy, year elected 2011 specialist Luleå University of Technology born 1967 year elected 2010 year elected Deputy member since 2010 other directorships Deputy Chairman of the born 1955 Full member since 2011 Gruv4:an Club. other directorships Chairman of the Gruv 12:an born 1955 background Employee at LKAB since 1987 Club Kiruna, IF Metall Malmfälten. Board Member other directorships Member of SACO Club at LKAB Berg & Betong AB. remuneration SEK 0 Malmberget-Luleå. background Employee at LKAB 1974-1977 and board meeting attendance Employee at LKAB since 1988. since 1995. Employed by various engineering background Attended 11 of 11 meetings. Previously employed by Outokumpu Oy and firms 1977-1995. Not on any committees. Kemira Oyj. remuneration SEK 0 remuneration SEK 0 board meeting attendance board meeting attendance Attended 10 of 11 meetings. Attended 11 of 11 meetings. Not on any committees. currency and finance committee attendance Attended 6 of 6 meetings. BOARD OF BOARD DIRECTORS

84 THE BOARD

LARS-ÅKE HELGESSON STEN JAKOBSSON HANNA LAGERCRANTZ MAUD OLOFSSON position Director position Director position Deputy Director, Ministry of Finance position Former Deputy Prime Minister, Minister education Stanford Business School (SEP), USA. education MSc education MSc Economics, Stockholm School of Enterprise and leader of the Centre Party. MBA, School of Economics Gothenburg. Graduate year elected 2012 of Economics, MPhil Economics, Cambridge education Secondary education engineer. University, UK. born 1949 year elected 2012 year elected 2000 year elected 2010 other directorships Chairman of the Board born 1955 born 1941 at Power Wind Partners AB. Board Member at born 1970 other directorships Board Member at Creades other directorships Chairman of the Board Saab AB, Stena Metall AB, FLSmidth A/S and other directorships Board Member at Svenska AB, Arise AB, Diös Fastigheter AB, ÅF AB and at Translink Holding AB. Board Member at Xylem Inc. Rymdaktiebolaget and Fouriertransform AB. Envac AB. Ballingslöv International AB, Axel Christiernsson background President and CEO at ABB Sweden, background Swedish Government Offices since background Deputy Prime Minister 2006-2010, International AB and Crane Inc., Dalton MA USA. Deputy CEO at Asea Brown Boveri AB Sweden, 2008, Market Analyst and Investor Relations at Minister for Enterprise and Energy 2006-2011, background President and CEO of Stora 1992- Business Area Manager for Business Area SEB 1999-2008, Corporate Finance at S.G. War- Head of the Centre Party 2001-2011, Member of 1998, Division Manager at Stora 1988-1992, Cables, CEO at ABB Cables AB, CEO at Asea burg, UBS, Brunswick-Warburg 1994-1998. Parliament 2002-2011, CEO of Hushållningssäll- President and CEO at Haldex 1981-1988. Cylinda, Production Manager at Asea Low Voltage remuneration SEK 0 skapet in Västerbotten 1997-2001, EU Coordinator Division, Asea central staff – production, Asea for Västerbotten County Administrative Board, remuneration SEK 330,000 board meeting attendance trainee. Political Adviser to Ministry of Employment 1992- board meeting attendance Attended 11 of 11 meetings. 1994, Ombudsman for Centre Party Norrbotten Attended 11 of 11 meetings. remuneration SEK 250,000 audit committee attendance 1974-1981 and Centre Party Youth League in board meeting attendance audit committee attendance Attended 8 of 8 meetings. Norrbotten. Attended 8 of 8 meetings. Attended 9 of 11 meetings. currency and finance committee attendance remuneration SEK 250,000 currency and finance committee attendance remuneration committee attendance Attended 4 of 6 meetings. Attended 6 of 6 meetings. Attended 1 of 2 meetings board meeting attendance remuneration committee attendance Attended 11 of 11 meetings. remuneration committee attendance Attended 2 of 2 meetings. Not on any committees. Attended 2 of 2 meetings.

THE BOARD’S EMPLOYEE REPRESENTATIVES, DEPUTIES

AUDITORS AND SECRETARY

AUDITORS

Deloitte AB Peter Ekberg Authorized Public Accountant PENTTI RAHKONEN STEFAN FAGERKULL BERTIL LARSSON

position Process operator position Project manager position Ore harbour worker education Secondary education education Engineer, Mining and Civil Engineering, education Secondary education year elected 2010 Bergsskolan Filipstad. year elected 2010 SECRETARY born 1965 year elected 2011 born 1955

born 1963 Malin Sundvall other directorships Chairman of the Gruv other directorships Chairman of the Svartösta- 135:an Club, IF Metall Malmfälten. other directorships Member of the Leaders den Club, IF Metall Norrbotten Legal Director, LKAB Club in Kiruna Secretary of the Board since 2008 background Employee at LKAB since 1987 background Employee at LKAB 1974-1996 and remuneration SEK 0 background Employee at LKAB 1987-1989 and since 1999. Employed by Dynalite 1996-1999. since 1995. Studies and UN service 1989-1995. board meeting attendance remuneration SEK 0 Attended 10 of 11 meetings. remuneration SEK 0 board meeting attendance board meeting attendance Attended 10 of 11 meetings. Attended 10 of 11 meetings.

85 CORPORATE GOVERNANCE REPORT

LARS-ERIC AARO KATARINA HOLMGREN ANDERS KITOK

position President and CEO* position Senior Vice President, Group Control position Senior Vice President, Energy & Climate education MSc Mining Engineering, Luleå education MSc, Luleå University of Technology, education MSc Mechanical Engineering, Luleå University of Technology 1982. 1986. University of Technology, 1982. year employed 2001 year employed 2010 year employed 1985 born 1956 born 1963 born 1957 other engagements Deputy Chairman SveMin. background Kårhuset i Luleå AB 1985-1986, other engagements Board Member at Member of the Royal Swedish Academy of Swedish Tax Agency 1987-1997, Luleå University Progressum AB, Vindin AB. Engineering Sciences. Honorary Doctorate, Luleå of Technology 1997-2003, LKAB 2003-2007, background Ericsson 1983-1985. University of Technology, 2007. Polarbröd 2007-2010. remuneration See Note 6 on page 125 background LKAB 1976, 1981-1984, Viscaria remuneration See Note 6 on page 125 AB 1984-1987, Boliden 1987-1989, Secoroc 1989-1992, Boliden 1992-1998, ASSI Domän 1998-2001. remuneration See Note 6 on page 125

* Neither the President nor any natural person or legal entity related to him have significant share- holdings or partnerships in companies with which LKAB has substantial business relationships.

PER-ERIK LINDVALL GRETE SOLVANG STOLTZ PETER SCHMID

position Senior Vice President, Technology & position Senior Vice President, Human Resources position Senior Vice President, Marketing & Sales Business Development education MSc Economics, Luleå University of education MSc Industrial Economics, Linköping education MSc Mining Engineering, Luleå Technology 1993. University Institute of Technology, 1988. University of Technology, 1980. year employed 2009 year employed 2011 year employed 2001 born 1970 born 1958 born 1956 other engagements Chairman, Career Centre at background 1988-1991 Grindex AB,1991-1992 other engagements Chairman of Norrskenet AB LTU. Board Member at SveMin. Dustcontrol AB, 1992-1995 Ecco Finishing AB, and the Bergforsk Foundation. Deputy Chairman, background LKAB 1993-1995, SCA 1995-2008, 1995-1999 Swelab Instrument AB, 1999-2011 Lulea University of Technology. Board Member at Northland Resources 2008-2009. ITT Flygt. Botnia Exploration AB remuneration See Note 6 on page 125 remuneration See Note 6 on page 125 background LKAB 1980-1989, Bergbygg AB 1989-1991, Boliden 1991-2000. remuneration See Note 6 on page 125 GROUP MANAGEMENT

86 GROUP MANAGEMENT

LEIF BOSTRÖM ANDERS FURBECK FRANK HOJEM MARKUS PETÄJÄNIEMI position Senior Vice President, Finance position Senior Vice President, Sustainable position Senior Vice President, Communications position Senior Vice President, Production & education MSc Economics, Luleå University of Development education Journalist, Poppius School of Journal- Logistics Technology, 1990. education MSc Economics, School of Economics, ism, Stockholm, 2003. Executive education, IFL education MSc Urban Planning and Environmen- year employed 1992 Gothenburg, 1985. Handelshögskolan, Stockholm, 2013. tal Engineering, Luleå University of Technology, 1985. born 1959 year employed 1985 year employed 2012 year employed 2005 other engagements Chairman of Hjalmar born 1957 born 1984 Lundbohm Research Centre and LKAB Excellence remuneration See Note 6 on page 125 other engagements Board Member at Teknikens born 1959 Centre at LTU. Hus. background NAB 1985-1988, Kiruna Värmeverk background NCC 1980-1992. background Stiftelsen Sverige i Europa 2003 1988-1995, De-Icing Systems 1995-1996, Sema/ Schlumberger/Atos Origin/WMData 1996-2005. remuneration See Note 6 on page 125 Sweden’s Parliament 2005-2006 Swedish Government Offices 2006-2011. remuneration See Note 6 on page 125 remuneration See Note 6 on page 125

CHANGES TO THE GROUP MANAGEMENT 2014

MONICA BELLGRAN

Senior Vice President, Research & Development, appointed 1 February 2014.

87 AUDITOR'S STATEMENT

AUDITOR'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 2013 Corporate Govern- ance Report and for its preparation in accordance with the Swedish 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. Our statutory review of the Corporate Governance Report has a different focus and is substantially smaller in scope than an audit conducted in accordance with the Inter- national Standards on Auditing and generally accepted auditing prac- tices in Sweden. It is our opinion that a Corporate Governance Report has been prepared and that its statutory information is consistent with the Annual Report and consolidated accounts.

Stockholm, 20 March 2014

Deloitte AB

Peter Ekberg Authorized Public Accountant

88 AUDITORS’ ASSURANCE REPORT

AUDITORS´ LIMITED ASSURANCE REPORT ON LKAB’S SUSTAINABILITY REPORT

To the readers of LKAB’s Sustainability Report

INTRODUCTION The criteria on which our procedures are based are the parts of the Sus- We have been engaged by the Board of Directors of LKAB to undertake tainability Reporting Guidelines G3, published by The Global Reporting a limited assurance engagement of the LKAB Sustainability Report for Initiative (GRI), which are applicable to the Sustainability Report, as well the year 2013. The company has defined the scope of the Sustainability as the accounting and calculation principles that the company has de- Report on the page of table of contents. veloped and disclosed. These criteria are presented on pages 152-153. We consider these criteria suitable for the preparation of the Sustain- RESPONSIBILITY OF THE BOARD OF DIRECTORS AND THE ability Report. MANAGEMENT FOR THE SUSTAINABILITY REPORT We believe that the evidence we have obtained is sufficient and The Board of Directors and the Executive Management are responsible appropriate to provide a basis for our conclusions below. for ongoing activities regarding the environment, health & safety, quality, social responsibility and sustainable development, and for the prepara- CONCLUSION tion and presentation of the Sustainability Report in accordance with the Based on the limited assurance procedures we have performed, nothing applicable criteria, as explained on pages 152-153 in the Sustainability has come to our attention that causes us to believe that the Sustain- Report, and are the parts of the Sustainability Reporting Guidelines G3, ability Report is not prepared in all material respects, in accordance published by The Global Reporting Initiative (GRI), which are applicable with the above stated criteria. to the Sustainability Report, as well as the accounting and calculation principles that the company has developed and disclosed.

THE AUDITOR’S RESPONSIBILITY Our responsibility is to express a limited assurance conclusion on the Sustainability Report based on the procedures we have performed. We conducted our limited assurance engagement in accordance with RevR 6 Assurance of Sustainability Reports issued by FAR. A lim- ited assurance engagement consists of making inquiries, primarily of persons responsible for the preparation of the Sustainability Report, and applying analytical and other limited assurance procedures. The procedures performed in a limited assurance engagement vary in Stockholm, 20 March 2014 nature from, and are less in extent than for, a reasonable assurance en- gagement conducted in accordance with IAASB’s Standards on Auditing Deloitte AB and Quality Control and other generally accepted auditing standards in Sweden. The procedures performed consequently do not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express a reasonable assurance opinion. Peter Ekberg Lennart Nordqvist Authorized Public Accountant Expert Member of FAR

89 ADMINISTRATION REPORT 92

FINANCIAL STATEMENTS – GROUP Consolidated income statement 106 Consolidated comprehensive income 106 Consolidated statement of financial position 107 Consolidated statement of chanes in shareholders´equity 108 Consolidated statement of cash flow 109

FINANCIAL STATEMENTS - PARENT COMPANY Income statement 110 Comprehensive income 110 Balance sheet 111 Statement of changes in shareholders´equity 113 Statement of cash flows 114

NOTES Note 1 Significant accounting principles 115 Note 2 Distribution of revenues 124 Note 3 Segment reporting 124 Note 4 Other operating income 125 Note 5 Other operating expenses 125 Note 6 Employees, personnel costs and remuneration to senior executives 125 Note 7 Auditors´ fees and compensation 128 Note 8 Operating expenses by type 128 Note 9 Net financial items 128 Note 10 Appropriations 129 Note 11 Taxes 129 Note 12 Earnings per share 131 Note 13 Intangible assets 131 Note 14 Property, plant and equipment 132 Note 15 Participations in joint ventures 134 Note 16 Parent Company participations in associates 134 Note 17 Receivables from subsidiaries and associated companies 134 Note 18 Financial investments 134 Note 19 Other non-current securities holdings 135 Note 20 Non-current receivables and other receivables 135 Note 21 Inventories 135 Note 22 Accounts receivable 135 Note 23 Prepaid expenses and accrued income 135 Note 24 Equity 135 Note 25 Pensions 136 Note 26 Provisions 138 Note 27 Urban transformation 139 Note 28 Accrued expenses and deferred income 139 Note 29 Valuation of financial assets and liabilities at fair value and categorization 140 Note 30 Financial risks and Risk management 142 Note 31 Investment undertakings 142 Note 32 Pledged assets and contingent liabilities 143 Note 33 Related parties 143 Note 34 Group companies 144 Note 35 Untaxed reserves 145 Note 36 Cash flows analysis 145 Affirmation by the Board 146 Auditor's report 147 Mineral reserves and mineral resources 148 Group overview 150 GRI index 152 Glossary 154 Addresses 155 Annual General Meeting and Financial information 156

90 4 OUR FINANCIAL RESULTS

This section contains our formal Annual Report and consolidated financial statement for the 2013 financial year. Our Administration Report appears in this section, with the inclusion of financial reports and explanatory notes. This section also includes an account of the Group's mineral reserves and mineral assets.

91 ADMINISTRATION REPORT ANNUAL REPORT 2013

ADMINISTRATION REPORT IMPORTANT EVENTS DURING THE YEAR The Board of Directors and the President of Luossavaara-Kiirunavaara • LKAB signs contract for annual deliveries of 750,000 tonnes of DR AB (plc), hereinafter LKAB, corporate identification number 556001- pellets with American steel giant Nucor Steel during the summer of 5835, hereby submit their Annual Report and consolidated financial 2013. A long-term contract is signed with Emirates Steel in the United statements covering operations for the 2013 financial year. Arab Emirates for the delivery of a million tonnes of DR pellets per year. OPERATIONS AND GROUP STRUCTURE • A new main level in the Kiruna underground mine is officially opened LKAB is wholly owned by the Swedish state; the company's registered by Sweden's Minister for Enterprise, Annie Lööf, on 21 May. All five office is in Luleå, Sweden. The company was founded in 1890. The LKAB phases will gradually be brought into operation over the coming year. Group consists of three operating segments - the The first anniversary of the new main level in the Mining Division, the Minerals Division and the Malmberget mine, which was officially launched Special Businesses Division. “Sustainability work in June 2012, was celebrated in October. • LKAB is waiting for permits to start work on new MINING DIVISION contributes to the iron ore mines in Mertainen and Leveäniemi. It is The Mining Division mines and processes iron ore business operations assumed that the permit will be processed by the into products used in steel production. The main by managing risks, Land and Environmental Court during the first products are pellets and fines, respectively. The half of 2014. products are sold to major international custom- strengthening the • The Norwegian government presented its new ers. The Mining Division also incorporates logis- brand, increasing national transport plan (NTP) for 2013–2023 on tics, which is responsible for the transport of iron competitiveness and 15 April. Of a total of NOK 8.3 billion to be in- ore to the shipping harbours. vested in rail freight transport during the period, reducing costs.” NOK 1.6 billion will go to the Norwegian stretch of MINERALS DIVISION the Ore Railway. Thanks to these measures, rail- Development, production and marketing of in- way capacity is judged to be sufficient in the short dustrial mineral products takes place in the Minerals Division, a wholly term. LKAB is co-funding the extension of the railway meeting points owned subsidiary group. The company operates under the name LKAB at Rombak and Björnfjäll in order to speed up the increase in capacity. Minerals on the European, Asian and US markets. The most important LKAB's share of the co-funding amounts to SEK 185 million, which areas of uses for industrial minerals are within civil engineering and the affected the annual profit for 2013. construction, polymer, paint industry, refractory and foundry industries. • On 1 July the Minelco subsidiary changed its name to LKAB Miner- als. A distributorship agreement for zircon is signed for the Chinese SPECIAL BUSINESSES DIVISION market with Tronox Limited, one of the world's largest mineral sands The Special Businesses Division is primarily a subcontractor for the producers. Mining Division and the Minerals Division. Operations cover services • LKAB Fastigheter builds new residences in the municipalities of Kiru- and goods which are produced and sold, for example drilling equipment, na and Gällivare – 62 new apartments at Terrassen in Kiruna with blasting explosives, concrete, tunnel driving, rock reinforcement, scaling occupation planned for November and 30 new apartments at Gran- and the crushing of crude ore. backa in Gällivare with occupation planned for April 2014. A range of new projects have been started and several more are ready to get un- der way in order to achieve the target of 200 new residences for 2015. • LKAB Wassara has opened a drilling technology centre at Malmber- get. This step is an important element in ensuring the continued de- velopment of future drilling systems. • During 2013 a Chinese supplier was contracted to supply a primary crushing plant for use at the open-pit mine at Mertainen. The agree- ment is the first direct purchase from China and part of the strategy to broaden purchasing operations on the global market.

92 ADMINISTRATION REPORT

MARKET TRENDS nies to reduce costs, for example, by divesting assets which are not part of core business activities. THE STEEL AND IRON ORE MARKET Mining costs have risen for mining companies over the last ten The steel market years. The company is working on cost-saving programmes and re- Statistics from the World Steel Association show that the global produc- structuring with the aim of making production more cost effective. tion of crude steel reached 1,607 megatonnes (Mt) in 2013, an increase of 3.5 percent on 2012. The iron ore price In 2014 global crude steel production is expected to rise by 4.2 per- The spot price of iron ore rose gradually at the start of 2013 and reached cent and 1,675 Mt. a peak of around USD 160/tonne at the end of February. It then fell back and reached a low of around USD 110/tonne at the end of May. The sec- China China's production of crude steel rose to 779 Mt in 2013, TREND OF THE PRICE OF IRON ORE (1 JAN. 2012 – 28 FEB. 2014) an increase of just over 7.5 percent on 2012. As a result of stricter environmental requirements in China demand for 180 160 high-quality iron ore products is rising while old ineffective 140 capacity is being closed down. 120 100 Europe Crude steel production in the EU-15 fell by 1.8 percent in 80 60 2013. In the fourth quarter of 2013 crude steel production in 40 Europe grew, breaking the trend after three negative quar- 20 ters. The construction sector is still shrinking despite posi- 0 1 tive signals from the UK and Germany. HRC prices are ex- 120,103 120303 120503 120703 120903 121103 130103 130303 130503 130703 130903 131103 140103

pected to show stronger growth in 2014 compared to Rebar PLATTS IODEX 62% Fe CFR North China prices.2 ond half of the year was characterized by low volatility and stability at USA In the USA crude steel production fell by approximately around 130–140 USD/tonne. The average price for 2013 was 135 USD/ 2 percent in 2013. The general recovery of the American tonne for 62% Fe, CFR China. The spot price has fallen by around 12 economy and a strong recovery are reflected in HRC prices, percent in January–February 2014. which showed positive growth in the USA in the second half of 2013. However, HRC prices for the year as a whole fell by Prospects for 2014 3.4 percent following the weak start to the year. Steel companies continue to work to improve profitability through streamlining and restructuring. One result of this is the planned merger MENA (Middle East North Africa) Demand for steel is still strong of two of LKAB's customers, SSAB and Rautaruukki. thanks to our targeting of new infrastructure and new build- Demand for high-quality iron ore products is increasing, as these ings. The political unrest persists but the situation has stabi- allow increased flexibility in the raw materials mix. Consequently, the lized recently. price difference between 62% Fe and 65% Fe increased in the autumn and the premiums for pellets and lump ore have increased. The iron ore market Demand for LKAB's products remains high. Nothing has fundamentally changed for the iron ore market in the long term. Growth in China is expected to continue to demand more steel and the production of crude iron in China is expected to rise by approximate- ly 30 Mt in 2014 while also rising in the rest of the world. The global demand for iron ore will be able to absorb the new volumes which will emerge on the seaborne iron ore market in 2014. Despite increased capacity in 2013, mainly from Rio Tinto, BHP, Vale and FMG, demand exceeded supply. Seaborne trade in iron ore in- creased by 6 percent to around 1,235 Mt. Lower raw-materials prices and increased costs have posed a chal- lenge for global raw-materials producers. Consequently, the number of investment projects being completed has fallen. Australia is now mov- ing from a phase of heavy investment as a result of strong growth in the raw-materials sector to a production phase. There is an increased risk that a majority of iron ore projects will be stopped or postponed as early as during the planning stage. Shareholders also demand increased re- turns on their investments and are therefore pushing hard for compa-

1 HRC prices = flat products for the car industry and others 2 Rebar-prices = long products, construction industry 93 ADMINISTRATION REPORT

THE INDUSTRIAL MINERALS MARKET dollar. The costs of urban transformation were also lower compared to LKAB Minerals is a value provider that not only supplies raw materials the previous year, amounting to SEK 620 million (1,094) for the year as but also technical know-how and expertise in mineral processing. a whole. The total market for industrial minerals is very large and includes Profit from financial items was SEK 259 million lower than the numerous product and application areas. LKAB Minerals is a niche play- previous year, primarily due to a stronger Swedish krona and lower er which is active in selected industrial application areas and offers a interest rates. broad product portfolio focussing on a number of important natural minerals: magnetite, mica and huntite. LKAB Minerals also has a strong LKAB's FINANCIAL TARGETS position in recycling refractory bricks. LKAB needs to be financially strong in order to fulfil future commit- The division leads the market for industrial applications for magnet- ments. There has been a shift in the Group's financial objectives since ite outside the steel industry. LKAB Minerals also has a leading position the 2013 Annual General Meeting. The target for the capital structure for its mica and huntite products within the plastics and paint industries. is a net debt/equity ratio of (financial net liability/shareholders' equity) Within the recycling of refractory mineral products, a controlling inter- multiplied by 0–0.2. On closing day the net debt/equity ratio was nega- est in Richmond Refractories was acquired in 2013, which strengthens tive, i.e. financial net liability was less than shareholders' equity. Up to the company's position in the highly important UK market. and including 2012 the target for the capital structure was an equity/ Sales have been lower than planned over the year. This can primar- assets ratio of over 50 percent. ily be attributed to continuing low activity in the European civil engi- The Group's profitability target is a return on shareholders' equity of neering and construction industry. However, there appear to be signs of 12 percent, previously 10 percent. For 2013 the return was 14.7 (22.1) recovery, above all in Germany, France and the UK. percent. There is also the target of reducing production costs by 20 per- LKAB Minerals saw increased interest in the magnetite market area cent by 2015, with 2012 as the base year. at the end of the year. Increased sales have also been noticed in the water treatment market in both the USA and Europe. The first delivery RETURN ON SHAREHOLDERS’ EQUITY (%) of magnetite to China for use as a high-density aggregate has also been 40 completed. 30

THE GROUP 20

10 SALES AND OPERATING PROFIT (sek million) 0 35,000 2009 2010 2011 2012 2013 30,000 Return on shareholders’ equity. Rate of return on shareholders' equity. 25,000 Result Target 20,000 CAPITAL STRUCTURE 2013 15,000 net debt/equity ratio -0,082 multiplied 10,000 by 0–0,2

5,000 PROFITABILITY

0 return on shareholders’ equity, % 14.7 12.0 2009 2010 2011 2012 2013 reduced production costs sek/tonne, 20% until 2015, operating profit sales base year 2012, % 3.71 -7.0

SUMMARY (SEK MILLION) 2013 2012 net sales 23,656 26,971 1 The target of a 20 percent reduction in production costs by 2015 will be operating profit 7,639 10,589 achieved when the LKAB 37 growth programme has been implemented. income from financial items 129 388 The planned increase in production at the Mertainen open-pit mine has profit before tax 7,768 10,977 now been postponed due to environmental permit delays, which means profit for the year1 6,032 8,753 operative cash flow 2,434 5,470 that the full effect of LKAB’s growth programme has been put back. Investments in property, plant and equipment 6,141 5,808 Growth from the new open-pit mine increases LKAB's competitiveness through higher volumes, which yield a lower cost per tonne. 1 The SEK 719 million effect of reduced corporation tax in Sweden is included for the full year 2012. 2 The target of a debt to equity ratio (net financial liabilities/equity) of SALES AND RESULTS 0-0.2 will be achieved as LKAB's liabilities increase and a dividend is Net sales fell by 12 percent compared to the previous year. The reduc- paid to LKAB's owners. Provisions for the urban transformation in the tion was spread across the factors volume/mix -3.2 percent, price -6.3 orefields are regarded as a liability in calculating the net debt/equity percent and currency -2.5 percent. Without any US dollar hedges the ratio. As the provisions will be significant over the next few years, we foreign exchange effect would have amounted to 4.3 percent. assess that the goal can be achieved within a few years. The Group's operating profit fell by 27 percent, primarily as a result of lower delivery volumes (-0.8 Mt), lower prices and a generally weaker

94 ADMINISTRATION REPORT

LIQUIDITY AND FINANCIAL POSITION MINING DIVISION

OPERATING CASH FLOW SUMMARY (SEK MILLION) 2013 2012 (sek million) net sales, sek million 21,984 25,144 9,000 8,000 operating profit, sek million 6,951 10,121 7,000 operating margin, % 32 40 6,000 average number of employees 3,747 3,686 5,000 investments, sek million 5,902 5,664 4,000 3,000 2,000 OPERATIONS 1,000 0 The division's core operations are producing and selling high-quality -1,000 iron ore products for the steel industry. Iron ore pellets are the division's 2009 2010 2011 2012 2013 main product and accounted for approximately 83 (84) percent of the Operating cash flow for 2013 was SEK 2,434 million (5,470). The reduc- total sales volume. tion of SEK 3,036 million can be explained as follows: In 2013 iron ore was mined in the two underground mines at Kiruna and Malmberget and at Gruvberget's open-pit mine at Svappavaara for OPERATING CASH FLOW (SEK MILLIONS) 2013 2012 part of the year. The iron ore is processed at six pelletizing plants and cash flow from operating activities 9,423 10,292 other processing facilities above ground. change in capital -866 980 capital expenditures (net) -6,123 -5,802 Current production capacity is approximately 28 Mt of processed 2,434 5,470 iron ore products per year. The iron ore products are transported on the Ore Railway to the Cash flow from ongoing operations was positively affected during 2013 shipping ports of Luleå and Narvik by LKAB's own rolling stock. The by a tax rebate of SEK 1,292 million for previous years. A payment of products are loaded onto ships for transport to customers around the SEK 881 million to the newly established pension fund has affected world. cash flow. During the spring a new main level was brought into operation at The change in operating capital refers to higher capital tied up in the Kiruna mine. The main level lies 1,365 metres below zeroing level. accounts receivable as well as inventories. A total of five phases must be gradually brought into operation over Increased payments for investments in material property, plant and the next few years before the main level is fully operational. Production equipment primarily refer to investments to increase capacity accord- currently runs parallel to the old main level at 1,045 metres below ze- ing to the LKAB 37 growth programme and flue gas scrubbing equip- roing level. ment at Malmberget and Svappavaara. NET SALES AND OPERATING PROFIT FINANCIAL POSITION 2013 2012 Net sales for the year fell by 12.6 percent compared to the previous year. liquidity (cash and cash equivalents and current investments), sek millions 15,497 18,672 The fall is spread across the factors volume/mix -3.4 percent, price -6.3 financial investments (ssab shares), sek millions 609 698 percent and currency -2.9 percent. Without any US dollar hedges the shareholders’ equity, sek millions1 41,472 41,085 foreign exchange effect would have amounted to 4.3 percent. equity/assets ratio, % 72 71 The division's operating profit for 2013 fell by 32 percent compared provisions for urban transformation, sek millions 6,304 5,877 to the previous year. Operating profit fell by 8 percentage points, pri- 2 pension provisions, million 1,610 2,721 marily as a result of lower delivery volumes (-0.8 Mt), lower prices plus 1 Dividend paid amounts to SEK -5,500 millions (-5,000). a generally weaker dollar. Lower costs for urban transformation, which 2 SEK 881 million of the reduction refers to payment to pension fund. amounted to SEK 620 million (1,094) for the whole year, had a positive effect on the operating profit compared to the previous year. For further information on provisions for urban transformation, please see note 27. Further information regarding pensions can be found in note 25. IRON ORE PRODUCTS (M TONNES) 2013 2012 production volume 25.3 26.2 of which pellets 23.1 23.8

PRODUCTION AND LOGISTICS Production Production began weakly in 2013 and was primarily limited in the first half of the year by disruption at the Kiruna and Svappavaara pelletizing plants. Lower delivery volumes over the year were partially balanced by a strong recovery in the fourth quarter. Production beat a monthly record from 2010 in both November and December.

95 ADMINISTRATION REPORT

Logistics Environmental investments Transport by rail and boat has functioned well over the year. During No- Major investments are being made in order to comply with more strin- vember 2.5 million tonnes, a record delivery month, were delivered to gent environmental conditions for emissions to the air. Flue gas scrub- the ports of Narvik and Luleå. bing at both the pelletizing plants at Malmberget and stage one of two Together with its wholly owned Norwegian subsidiary LKAB at Svappavaara have been implemented during the year. Phase two of Malmtrafikk AS, LKAB Malmtrafik AB handles all ore haulage between the construction work at the pelletizing plants in Svappavaara will begin LKAB’s mines and the harbour of Narvik and Luleå. The company also in 2014. The aim of the investments is to further purify emissions of manages all terminal handling (loading/unloading) in the mining areas flue gases and particulates, which contributes to a reduced impact from and harbours. acidifying substances. LKAB Malmtrafik owns all rolling stock (locomotives and cars) and has its own maintenance operation divided between locomotives, cars, Investments in logistics track and signalling and fixed installations with associated workshops. In order to meet the capacity and flexibility requirements in the Harbour operations in Narvik are run by the wholly owned subsidi- growth strategy, investment in the expansion of the rail terminals at ary LKAB Norge AS. Malmberget and Svappavaara began during the year. At Narvik investments are being made in shiploaders, quays, trans- DELIVERIES port logistics and an inspection station. According to plan, the next stage, which involves new transporter logistics and IRON ORE PRODUCTS (M TONNES) 2013 2012 an inspection station, will begin during 2014. delivery volumes 25.5 26.3 of which pellets 21.1 22.0 “Grow with customers The investments are primarily being made to product quality (%) cut the risk of deliveries being reduced due quality value deliveries 91.2 96.3 and concentrate to unplanned stoppages and breakdowns, but research activities will also result in increased flexibility and ca- The total delivery volume for the whole year on skills within the pacity at the harbour. fell as a result of lower production, primarily during the first half of the year, caused by dis- production chain from PROSPECTING ruption at the pelletizing plant. mine to customer.” Prospecting operations will secure LKAB's ac- During 2013 stock levels were stable at cess to iron ore raw materials equivalent to a around 1.2 Mt of finished iron ore products. further 20 years' ore base through the develop- The product quality value amounted to ment of new and existing sites. 91.2 compared to the target for the year, which was >96. Successful and Prospecting downwards takes place continuously in the existing focused work by everyone in the entire production chain all the way to underground mines at Kiruna and Malmberget. Several large depos- the customer improved values to normal levels during the second half its close to the surface have also been identified. There is also great of the year. In terms of quality, the year ended on a positive note, with potential for finding new deposits at depth using modern prospecting the quality value for December reaching 99.4, the best monthly value methods and by investigating small and medium-sized prospects close of the year. to the surface. The small and medium-sized deposits in the vicinity of existing infra- INVESTMENTS structure and processing plants are assessed as having great potential. Investments for the year amounted to a total of SEK 6,141 million gross, One prospecting objective is to enable the development within ten years of which SEK 2,297 million related to investments for the new main lev- of a number of small and medium-sized satellite mines that contribute el at Kiruna underground mine. Environmental investments in flue gas significantly to the supply of ore and LKAB’s increased production. scrubbing equipment amounted to SEK 770 million. LKAB has been given permission to mine two million tonnes of ore per year in the so-called Svappavaara Field. Preparatory work is also be- Production facilities ing done for mining at the open-pit mines at Mertainen and Leveäniemi. The first of a total of five phases at the new underground mine in Kiruna, All three mines give LKAB a greatly increased ore base. KUJ1365, was launched in May 2013. The next phases will be brought LKAB's prospecting portfolio also includes about 30 projects, of into operation gradually over the coming year. which four or five have very good potential. About ten of these are so- The main part of the investment in the main level for the mine at called greenfield sites. Apart from the three mines at Svappavaara, Malmberget has been completed. In Kiruna the investment in the exten- prospecting efforts have targeted about ten projects, including Lappmal- sion of the tailings pond for Kiruna's processing plant began. men and Tuolluvaara Östra and Västra in the Kiruna area, where drill- At Luleå investment is being made in the bentonite facility, which ing is being planned, and a very promising deposit has been located in reduces risk but also provides increased capacity and greater flexibility Kaptenshöjden at Malmberget. Plans for drilling at the Sikträsk project at the facility. at Malmberget are also well advanced. Prospecting operations are expanding rapidly at LKAB. The organi­ zation grew over the year from three to twelve people at year-end, and

96 ADMINISTRATION REPORT

will continue to grow during 2014. The capacity for working on the pro- ENVIRONMENTAL RESPONSIBILITY ject portfolio has increased significantly. LKAB's operations have a significant impact on the environment. The greatest factors which affect the environment are related to the chang- RESEARCH AND DEVELOPMENT es to the landscape caused by mining and urban transformation. The The Group's research is primarily aimed at the Mining Division. The cost landscape and communities are affected by atmospheric emissions and of research and development for the year amounted to SEK 356 million discharges to water, noise and vibrations from ore processing, particle (283), corresponding to approximately 2.2 (1.9) percent of the Group's dust from crushing and depositing waste rock. The operations also use costs. large amounts of energy and water. As one of the world's leading suppliers of iron ore pellets LKAB's LKAB has a well developed and certified environmental management strategy is to grow with its customers and concentrate its research ac- system which meets the requirements of the ISO 14001 environmental tivities on skills within the production chain from mine to customer. management standard. When audited according to the ISO 50001 energy Over the year the aim of the majority of projects has been to in- management system the parent company has also fulfilled the require- crease the total iron yield throughout the refinement process. During ments for certification according to this standard in the autumn of 2013. 2013 research into the fundamental reasons for the generation of fines in pellets has also been intensified. Licensable operations Development work to produce the design prerequisites and layouts The Group conducts licensable operations as described by the Environ- for a new main level at Malmberget below the current main level 1,250 mental Code via the parent company LKAB and its Swedish subsidi- metres below ground has begun. Within the field of cost-effective bed- aries. Operations cannot run without environmental permits. The most rock safety a programme is being developed for automatically locating important environmental licences refer to large-scale mining and pro- and classifying seismic events in underground mines. cessing plants for iron ore products in the orefields. These include, for The new Pilot Pot Furnace (PPF), which is located at the research example, permits for a tailings pond and depositing waste rock, licences centre for pelletisation, has been brought into operation and is now for removing gravel and moraine plus permits for operations in the har- available for use in live research projects. PPF is one of the most impor- bours at Luleå and Narvik. tant tools in pelletisation research, offering the possibility of getting an indication of the pellet's performance during sintering. MAJOR ENVIRONMENTAL LICENCE EVENTS IN 2013

URBAN TRANSFORMATION Svappavaara - Gruvberget LKAB's provisions for urban transformation in Kiruna and Malmberget • In August 2013 negotiations were held in Kiruna, resulting in a final amounted to SEK 6,304 million (5,877) at the end of 2013. Profit for the environmental ruling on a permit for LKAB to mine ore at Gruvber- year was affected by a provision of SEK 722 million (1,181) for costs get and a permit for processing operations at Svappavaara. The rul- arising from the effect of mining on communities. ing became legally binding at the 2013/2014 turn of the year. During The expansion of mining in the operating locations in the orefields 2013 operations ran on the basis of a temporary mining licence. causes gradual enlargement of the deformation zones. Neighbouring communities are gradually affected. As the deformations become more Svappavaara - Mertainen extensive, communities in both Kiruna and Malmberget will have to be • The main negotiations regarding the application for full-scale min- relocated. LKAB works with affected stakeholders such as the state/own- ing at Mertainen were held in May 2013. On 3 July 2013 the Land ers, municipalities, companies and property owners to find the required and Environmental Court issued a partial ruling with an enforce- solutions for structural transformation. LKAB actively works to maintain ment order concerning permission for the operations and a licence the conditions for continued mining operations in parallel with this. for certain preparatory work. The partial ruling was appealed and The organization for urban transformation has been augmented operations were inhibited, resulting in the preparatory work being during the year in order to have increased capacity when the work par- stopped immediately. tially moves into a new phase. Specific solutions and models must be • On 10 December the Land and Environmental Court issued a second produced for compensation issues and the acquisition of properties. partial ruling with final conditions for the operations, although with- The urban transformation work at Kiruna is moving into an important out an enforcement order. The second partial ruling was appealed. new phase. LKAB must work closely with the municipality and affected • Both the appealed rulings are currently with the Land and Environ- stakeholders to produce solutions for handling the first areas affect- mental Court for further consideration. It may be assumed that the ed in the current centre of Kiruna while the work in the new centre of licence for Mertainen will be processed during the first half of 2014. Kiruna begins in earnest. Similarly, LKAB is working with the Municipal- ity of Gällivare to resolve how the first stage at Malmberget should be Svappavaara - Leveäniemi handled and will cooperate on the areas to be developed in Gällivare. • In June 2012 LKAB was granted permission to begin draining the The development of eastern Malmberget is also an important part of open-pit mine and draining began in September. Pumping is expect- the work. ed to be completed in the autumn of 2014. • On 3 January 2014 LKAB submitted an application to mine iron ore at the Leveäniemi open-pit mine. Production is planned to start in 2015.

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• An application for exploration at the Leveäniemi open-pit mine was REMEDIATION submitted in January 2014 and exploration is expected to take place Remediation, which may be performed gradually and/or after opera- in the autumn of 2014. tions have closed down, is a statutory obligation in which consideration must be given to safety, environmental, financial and aesthetic aspects. Kiruna The measures are intended to restore the landscape to its desired func- • In November 2012 and May 2013 negotiations were held in Svea tion and appearance. LKAB cooperates with the environmental author- Court of Appeal, where a condition for the release of nitrogen in the ities regarding how plans for long-term remediation of the mining are- form of ammonia was approved by the Superior Land and Environ- as will be prepared. Some examples of the measures adopted are the ment Court. LKAB appealed but the Supreme Court did not grant forming of piles of waste rock, the dumping of surrounding rock, the leave. LKAB has 18 months from when the ruling became legally sowing of grass and the planting of trees. binding until 29 May 2015 to build a pH-adjusting facility to ensure compliance. Examples of remedial measures in 2013: • After consideration by the court in March the Land and Environment • Remediation was performed at Norra Luossajärvi in the form of fill- Court issued a ruling on 2 May 2013 which grants LKAB the right ing in moraine and industrial sowing. Mountain birch will also be to introduce measures to increase capacity at the Kiruna mine's planted during 2014. taiings pond. • At Kiruna and Malmberget surrounding rock has been dumped in the old open-pit mines. Malmberget • No major licence changes have been processed in 2013. As of 2013, provisions for all legal and informal obligations regarding remediation will be reported, see the description in note 1 and note 26 COMPLYING WITH LICENCES Provisions. In previous years provisions have been reported for those The environmental authorities are notified immediately of any devia- obligations for which financial security has been lodged. tions from applicable conditions. These are also reported in the annu- al environmental reports to the inspection authorities which describe EMISSIONS TRADING SCHEME LKAB's effect on the environment and report how the operations fulfil Within the EU there is a trading scheme (EU-ETS) for emissions which is the requirements of the environmental permit. For further information, intended to reduce emissions of carbon dioxide and other gases. LKAB's please refer to LKAB's environmental reports on lkab.com. emissions of carbon dioxide, primarily from pellets operations and mine heating, are included in the system. Example of measurements and deviations in 2013: • Prescribed noise standards have been exceeded in Kiruna during MINERALS DIVISION the year. The County Administrative Board has ordered LKAB to take steps to comply with the noise standards by 30 June 2014 at the SUMMARY 2013 2012 net sales, sek million 1,661 1,762 latest. operating profit, sek million 63 132 • Measurements of vibrations from blasting at Kiruna, Malmberget operating margin, % 4 7 and Svappavaara show that the condition has been fulfilled during average number of employees 351 360 2013. investments, sek million 24 38 • The condition for particulates emissions was exceeded at Svappavaara. Steps have been taken by LKAB. The event has been OPERATIONS reported to the environmental authorities, which passed the matter The Minerals Division is active in the market in the subsidiary group to the prosecutor in the form of filing for legal action. LKAB Minerals. The company changed its name from Minelco to LKAB • The standard for particulates was exceeded a number of times. Minerals in 2013. All of the cases have been reported, remedied and approved fol- The markets for the various minerals have experienced mixed lowing remeasurement. LKAB has therefore complied with licence­ growth. In general, there is a 'wait-and-see' attitude, primarily in conditions with respect to atmospheric emissions at Kiruna and Europe. However, the Minerals Division is seeing increased interest in, Malmberget during 2013. and de­mand for, its products. • The standard for emissions of suspended matter from the sedi- Within the recycling of refractory mineral products a controlling in- mentation basin at Malmberget have been exceeded on a number terest in Richmond Refractories was acquired in 2013, which strength- of occasions in 2013. The environmental authorities have been in- ens the company's position in the highly important UK market. formed and remedial measures have been planned by LKAB. The County Administrative Board has filed for legal action regarding these events.

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NET SALES AND OPERATING PROFIT • LKAB Fastigheter manage residential properties and business The lower sales and operating profit for the year as a whole are mainly premises in the municipalities of Kiruna, Gällivare and Luleå. The due to lower activity in the civil engineering and construction industry. company is also an important element in building replacement Apart from the lower level of activity, the operating profit has been neg- properties for the urban transformation in Kiruna and Malmberget. atively affected by one-off costs in the fourth quarter. • LKAB Försäkring is the Group´s internal insurance company. The company works globally to provide the LKAB Group with liability, ENVIRONMENT AND QUALITY property and business interruption insurance. The quality of products and services is measured by the proportion of • LKAB Nät operates an electricity grid and has a concession as a fault-free deliveries, which increased to 99.25 percent for the whole local electricity distributor. year. Similarly, an improvement in workplace safety was achieved as the number of accidents with absence fell by 48 percent. NET SALES AND PROFIT Sustainability is a strategic focus area for LKAB Minerals. As well as the Lower sales in 2013 were mainly due to lower activity in orders for the individual companies in the Group already having ISO 14001 certifica- Mining Division during the year. Increased profit for LKAB Wassara and tion, certification for health and the working environment according to others contributed to the increased operating profit. OHSAS 18001 will continue to be implemented. During the year work began on a comprehensive sustainability plan which will permeate the THE PARENT COMPANY whole operation. SUMMARY 2013 2012 SPECIAL BUSINESSES DIVISION net sales, sek million 21,918 25,054 operating profit, sek million 6,732 10,083 operating margin, % 31 40 SUMMARY 2013 2012 average number of employees 3,375 3,317 net sales, sek million 1,942 2,350 investments, sek million 5,681 5,419 operating profit, sek million 276 230 liquidity, sek millions 15,243 18,340 operating margin, % 14 10 average number of employees 329 311 investments, sek million 53 106 Net sales fell by 12.6 percent compared to the previous year. The fall is spread across the factors volume/mix -3.4 percent, price -6.3 percent OPERATIONS and currency -2.9 percent. The Special Businesses Division is home to several LKAB subsidiaries. Operating profit for 2013 fell compared to 2012. The gross profit The companies have their origin in LKAB's know-how as a manufactur- margin fell, primarily as a result of lower volumes (-0.8 Mt), lower prices er and user of products and services. The division's strategic objective and a generally weaker dollar. Lower costs for urban transformation, is to supply and secure expertise and development within specific ar- which amounted to SEK 620 million (1,094) for the whole year, affected eas which are important for the Group's continued business develop- the operating profit positively compared to the previous year. ment. These companies are mainly suppliers to the Mining and Minerals Divisions, but also have external customers. The operations performed SUSTAINABLE DEVELOPMENT within the division are summarized below: LKAB adopts a long-term approach to its operations in mining and pro- • LKAB Wassara develops and manufactures drill systems based on cessing iron ore, with a focus on sustainability. The sustainability strate- water-driven drilling for global customers in the civil engineering, gy is based on and reflects LKAB's work to achieve social, financial and mining and exploration drilling, dam construction and geoenergy environmental sustainability. Sustainability work contributes to busi- segments. nesss operations by managing risks, strengthening the brand, increasing • LKAB Berg & Betong crushes and produces mineral products and competitiveness and reducing costs. It is based on LKAB's values: concrete. It also carries out rock contracting in the form of rock rein- Commitment, Innovation and Responsibility. forcement and tunnel driving and is also responsible for production The Group's work for sustainable development is based on this in LKAB’s open-pit mines. strategy and the targets which were formally set in February 2013. • LKAB Mekaniska develops and manufactures steel structures for LKAB's sustainability work is driven by targets within four strategic major projects and technically advanced mechanical components focus areas: attractive communities, attractive LKAB, responsible op- for the engineering, mining and civil engineering industries, as well erations and resource-efficient production. The selected areas bring to- as assembly and full maintenance packages that create added val- gether targets and strategic activities and clarify how the three dimen- ue for customers. sions support the implementation of the sustainability strategy. • LKAB Kimit supplies LKAB with explosives handling expertise and The sustainability targets are followed up on and reported on quar- also produces and sells explosives and associated charging vehi- terly to Group management and to the owner (the Swedish state). The cles. LKAB Kimit is responsible for the purchase of external explo- results for 2013 were more or less in line with our targets. The results sives products, stock management and the development of explo- for energy, carbon dioxide emissions and falling dust showed smaller sives and associated systems. deviations. The number of accidents has fallen since 2012, but not suf- ficiently to reach the target.

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Improvement measures and further steps are being taken to achieve not traditionally look for work in most northern Sweden, including par- the target. Examples of this are the 'Safety First' programme and meas- ticipation in various events throughout Sweden. In the summer of 2013 uring and monitoring energy consumption. A number of measures to LKAB was the main sponsor of the O-ringen orienteering event which reduce the diffusion of dust have been taken and will continue to be was held in Boden, with representatives of LKAB in place to create inter- taken in those areas where we have not achieved desirable levels of est in LKAB as a company and possible employer. falling dust. The proportion of women in the company continues to rise. LKAB's Important activities during the year have been the drawing up of a target is for 30 percent of all new recruits to LKAB to be women. The new code of conduct and the implementation of a new reporting system result for the year was 27 percent, just below the target. The majority of for controlling and following up on sustainability work. A project to en- those who left the Group retired. The proportion of women who left the sure sustainable development in the supply chain has started up during company during the year was 8 percent, which is a lower proportion of the year. In 2014 about 25 key suppliers will have to sign our code of women than currently work for the company. conduct. SKILLS DEVELOPMENT AND THE FUTURE SKILLS SUPPLY EMPLOYEES AND VALUATIONS Skills development remained in focus, with just over six training days per employee per year, which is higher than the targeted five days. The SUMMARY 2013 2012 largest number of these are still training initiatives carried out within number of accidents with absence 58 73 the working environment area. Extensive production-orientated train- long-term absence due to illness, % 0.5 0.5 short-term absence due to illness, % 2.4 2.4 ing has been implemented as the new main levels in the mines in number of individuals, open-ended employment 289 359 Malmberget and at Kiruna have been brought into operation. LKAB’s in- of whom women 78 104 house rock technician programme remains attractive and is held on a number who left lkab 181 144 regular basis. of whom women 15 19 In 2013 the LKAB Academy foundation began work to support pro- proportion of women in the group, % 18.1 17.5 jects in Narvik, Norway, and continued to support the schools in Kiruna proportion of female managers in the group, % 19.8 17.8 and Gällivare, from preschools to upper secondary. In 2013 the foun- number of in-service training days per person and year 6.3 6 dation has donated SEK 2.2 million to a number of different projects, outcome of parent company reward system, sek 27,982 33,763 including everything from small student projects at the intermediate stage of school to development projects lasting THE WORK ENVIRONMENT AND HEALTH several years at the Lappland Upper Secondary Work has been targeted at coordinating various “LKAB's values School. In 2013 the foundation also arranged lec- ways of work within the work environment, so tures by the 2011 Nobel Prize winner in chemis- that neighbouring activities are organized as part – Commitment, try, Dan Schechtman, who addressed upper sec- of the same whole. Continuing development work Innovation and ondary students from the region. is taking place within method support, both inter- Responsibility – are During 2013 LKAB has taken part in the nally and for suppliers, with the aim of gaining a 'Tekniksprånget' (Technology Leap) project, which better overall perspective of the working environ- the compass which was initiated by the Royal Swedish Academy ment within LKAB. The target for 2013 has been to helps employees to of Engineering Sciences with support from the reduce the total number of accidents, but this has act in a business- Swedish government. As part of the project, paid not been fully achieved. However, developments work experience has been offered to students are moving in the right direction in the long term. ethical manner.” who have taken the theory programme at upper Absence due to illness at LKAB is still at the secondary school and are interested in a future same low level as previously, despite the fact that profession in the mining industry. absence due to illness has been rising in society as a whole. Persis- tent, systematic efforts towards preventative health and rehabilitation VALUES, LEADERSHIP AND TEAMWORK contribute to this. During the year a wellness plan with clear principles LKAB's values – Committed, Innovative, Responsible – are the guiding for preventative wellness work has been approved. Research shows in- principles which help employees to act in a business-ethical manner. creasingly clearly that a sedentary lifestyle is one of the greatest health They guide behaviour and set the tone for relations between co-workers risks, and the focus therefore remains on encouraging physical activity and with customers, suppliers, owners, the public and authorities. for all employees and working on lifestyle changes for individuals in the LKAB prioritizes strong and clear leadership. The leaders are ulti- risk zone for health problems. mately responsible for ensuring that LKAB's strategy is implemented in practice and have great responsibility for ensuring that employees feel EQUALITY, NON-DISCRIMINATION AND DIVERSITY a sense of involvement. All recruitment activities focus on more even gender distribution and In 2013 LKAB took a new approach to management training. increased diversity. Work is continuously being done to broaden the re- LKAB's management training is obligatory for all newly appointed man- cruitment base in various ways and actively seek out groups which do agers and about 30 new managers are trained every year at production,

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section and departmental manager level. One of the aims is for LKAB's Officer role and an appointment will be made in 2014. values to become clearer in the company management style. Another Major variation in volumes is one of LKAB's most significant risks. target is improving the culture for constructive feedback between em- Demand for iron ore derives from global steel production. The volume ployees and managers. of steel which is produced is in turn dependent on fluctuations in the In the course of the year a training course for senior managers, global economy. Other significant risks are falling iron ore prices and a 'Mastering New Challenges', was implemented, concentrating on and weakened US dollar. Increased duties and taxes on energy and increased providing tools for driving streamlining and reducing production costs costs for emission allowances can also produce a tangible effect. per tonne produced. Twelve people who report to Group management The market for iron ore is growing and it is expected that demand, took the training course in November. particularly for DR pellets for gas-based iron and steel production, will The year 2013 was the second year of LKAB's performance devel- increase in the next few years. In order to continue to be a 'priority sup- opment programme for administrators, which clarifies employees' own plier' for customers LKAB needs to be able to deliver increased volumes. role in the company linked to expectations and LKAB's strategic goals. Growth from the new open-pit mine increases LKAB's competitiveness This fosters the acquisition of knowledge, safety awareness and com- through higher volumes, which yield a lower cost per tonne. mitment among employees and man­agers. LKAB's biggest competitors mine their iron ore in open-pit mines. An extensive employee survey was conducted in the spring of 2013. It The competitors therefore have significantly lower production costs. was based on LKAB's growth programme and radical change process. High and uniform product quality and cost effectiveness are critical fac- The survey was anonymous and 68 percent of employees chose to par- tors for meeting competition. LKAB's great advantage compared to its ticipate. The survey shows that operations planning with everyone's competitors is high-quality magnetite ore. participation reached out well, but there are areas for improvement. Ongoing investment projects and LKAB's future plans involve major strategic investments and, therefore, high expenditure over the next few DEVIATIONS years. The urban transformation in Kiruna and Gällivare has imposed In the course of the year 20 miners were served with redundancy notic- and will continue to impose significant sums on LKAB's profit and li- es after it emerged that they had systematically and extensively abused quidity over the next few years. LKAB therefore needs to be financially the company's trust regarding working hours. Following negotiations strong and have good earning ability in order to fulfil future commit- with the trade union the employees chose to resign. ments.

RISKS AND UNCERTAINTIES SENSITIVITY ANALYSIS LKAB is exposed to various risks. Risk management is an important part The sensitivity analysis, which is reported on below, summarizes the of the activities to minimize the effect of factors beyond the Group's sensitivity of the Group's profits to a hypothetical change in interest control. The Group has methods for assessing and limiting these risks rates and market prices. The parent company's delivery volumes and by ensuring that the risks are managed according to set guidelines and price influence are determining factors for the Group’s income. Delivery methods. volumes are not comparable in different sectors. The sensitivity anal- LKAB actively works to identify, analyse and monitor how various ysis is divided into two parts; the delivery and price analysis concerns types of risks affect our business and how we can best avoid or over- the parent company and the remaining part relates to the entire Group. come them. Effective risk management is a business-critical factor for progress. A decision has therefore been taken to introduce a Chief Risk

SENSITIVITY ANALYSIS 2013

THE GROUP Change Exposure Exposure Effect on profit Effect on profit SEK million 2013 2012 2013 2013 deliveries of iron ore products 1 Mt 25.5 Mt 26.3 Mt 3901 4871 price of iron ore products 10 percent 2,1912 2,5182 personnel costs 10 percent 3,415 3,474 342 347 energy costs 10 percent 1,690 1,687 169 169 transport costs 10 percent 2,000 2,384 200 238 dollar rate – without forward contracts SEK 0.10 USD 3,155 million USD 3,806 million 3162 3812 dollar rate – with forward contracts SEK 0.10 1,088 1,966 109 197 money market investments 1 percent 14,099 15,871 304 494

1 Average value, calculated on unchanged product mix. 2 In 2013 total net exposure USD 3,155 million, of which USD 2,067 million was hedged. 3 Changes in value are reported in other comprehensive income. 4 Changes in value are reported in the income statement in the existing portfolio.

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Risks which are significant for LKAB are described below. ALLOCATION OF EMISSIONS ALLOWANCES IN THE TRADING SYSTEM The EU has a trading system for emissions allowances aimed at re- ducing carbon dioxide emissions. LKAB's emissions of carbon dioxide, BUSINESS RISKS (OPERATIONAL RISKS) primarily from pelletizing operations and mine heating, are included in the system. RISK OF DISRUPTION TO PRODUCTION - SAFE AND RESOURCE- LKAB’s principle competitors on the pellets market are located out- EFFICIENT PRODUCTION. side Europe, mainly in Brazil, and they are not affected by the EU trading Safe, uninterrupted production is a cornerstone of LKAB. This is based system. This distorts competition to LKAB’s disadvantage. on economies of scale and continuous streamlining. LKAB works under A new trading period for emissions allowances begins in 2013 and the 'Safety First' programme in all operations. lasts until 2020. The new allocation principles for emissions allow- LKAB's competitiveness is strongly linked to the implementation of ances will be applied with an annual reduction in the free allocation, continuous improvements which yield increased efficiency in LKAB's which means that LKAB must purchase emissions allowances during various operations. the trading period. Iron ore pellets, along with other industrial sectors, have been defined as being 'exposed to the risk of carbon leakage. This RESOURCE AND SKILLS SUPPLY means the licensing authority perceives a risk of an increase in car- LKAB's planned development assumes that up to 700 new employees bon dioxide emissions outside the EU if the sector is disadvantaged in will join the company between 2013 and 2015. Being able to retain cur- relation to installations outside the EU trading system that have high- rent employees and recruit and attract new em- er emissions levels. LKAB has applied for a free ployees is a very important condition for LKAB's allocation but was not granted a full allocation ability to achieve the growth targets which have “LKAB must continue of emissions allowances. The need to purchase been set. emissions allowances will come to depend on a to develop long- number of various factors including future mar- THE ORE RAILWAY term customer ket conditions, the possibility of a further free Disruptions to traffic and transport capacity on relationships by allocation when LKAB expands operations and the Ore Railway represent a risk to LKAB's de- how successful the company's efforts to reduce liveries. As LKAB's growth strategy assumes in- continuing to offer specific emissions of carbon dioxide are. An- creased transport capacity, and other players are high and uniform other important factor which will affect LKAB's using and planning to use the Ore Railway, en­ product quality.” need to purchase emissions allowances and the larged railway sidings are required. Over the next price of emissions allowances is how the licens- few years railway sidings will be built on both the ing authority manages the system for trading Swedish and Norwegian sides of the line. emissions allowances. It has previously been announced that a certain amount of emissions allowances will be with- LICENCE AND PERMIT RISK drawn and that the target for reducing carbon dioxide emissions within Various applications for permits are linked to various types of risks, de- the EU will be increased. pending on what type of project and permit is being applied for. Risks can vary from insignificant to very serious, but in general terms they MARKET AND BUSINESS RISKS can be risks of delays to projects which may result in increased costs or VOLUME DEPENDENCE disruptions or stoppages in production in mines/works. LKAB has usually been able to sell all of its products thanks to our Permit issues are crucial to the implementation of the LKAB 37 long-term delivery planning and technical cooperation with customers. growth programme, upon which future cost-efficient production is LKAB offers high, uniform product quality and high delivery assurance. dependent.­ Customers therefore often prefer LKAB to other sup­pliers. Despite this, major cyclical fluctuations can result in temporary sales problems. AVAILABILITY OF ELECTRICITY LKAB must therefore be prepared to deal with sudden cyclical fluctu- Increased production at LKAB facilities leads to increased use of elec- ations by creating greater flexibility in the product portfolio, customer tricity. Electricity is used principally in mining operations and ore pro- portfolio and production and logistics system, combined with sufficient cessing. Within a few years annual consumption is calculated to rise financial strength. from around 2.2 TWh in 2013 to just over 3 TWh from 2020. Market prices on the Nordic electricity exchange have risen dramat- PRICE DEPENDENCE ically since deregulation. Securing the delivery of competitively priced Iron ore is priced in US dollars and the price is often based on an index electricity is therefore of great strategic importance for the Group. LKAB which represents a day price for 62% sinter fines CRF in China. A price has developed a long-term strategy for managing energy procurement agreement may be based on the average index for a short period of time and energy efficiency. around delivery, up to a month, a quarter or a year. The price models for sinter fines also include set agreed components. The price of pellets is based on global sinter fine prices plus a pellet premium. Sea freight

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rates are another parameter used to conclusively standardize the price Transaction exposure with regard to differences in distances between suppliers. LKAB has major transaction exposure both in terms of currency and LKAB's price follows the global market price trend and LKAB pri- iron ore and where currency exposure is a direct function of iron ore marily works with a variable price-setting strategy. prices. Transaction exposure is forecast for a rolling period of 18 Customers evaluate suppliers based on the total price picture in months every day using published futures prices of iron together with relation to the added values the iron ore creates in connection with the contract portfolio. In 2013 transaction exposure amounted to about steelmaking, or the use of the completed steel products. Distances to USD 3,155 million (3,806) and without hedging an SEK 0.10 change in Europe mean that LKAB is favoured in the European market when sea the USD/SEK exchange rate therefore affects LKAB's operating profit by freight rates are high, while distant mines become more competitive around SEK 316 million (381). LKAB applies cash-flow hedge accounting when freight rates are low. This proximity advantage is assessed when for forecast transactions in USD. prices are set. The objective of LKAB’s currency policy is to minimize as far as pos- Major price fluctuations on the global iron ore market cause major sible the impact of exchange rate fluctuations on the income statement changes in LKAB's prices in both the long and short term. In order to by means of selective hedging. The value of future transaction exposure prevent a knock-on effect as a result of price changes in the short term, is periodically hedged under forward exchange contracts. LKAB actively works with financial hedging of the dollar and iron ore. The Board of Directors has set up a currency and finance committee that convenes four to six times per year and which follows up on how CUSTOMER DEPENDENCE transaction exposure has been handled. The global iron ore and steel market is characterized by there being only Hedging takes place mainly for estimated US dollar flows for the a small number of suppliers and customers. This causes great mutual forecast period concerned, which usually has a rolling 12–18 month dependence between suppliers and customers. This means that each horizon. As a framework for future estimated exposures in US dollars individual player becomes more significant. LKAB must therefore con- hedged levels may at a maximum reach 100, 90, 80, 60 and 50 percent of tinue to develop long-term customer relationships by continuing to offer estimated net flows for 0–3, 3–6, 6–12, 12–18 and 18–36 months ahead high and uniform product quality and predictability of deliveries in com- respectively. No hedging may take place more than 36 months ahead bination with products and services which create added value in order without approval from the Board of Directors. During 2013 hedges were to reduce risk exposure. at the 65 percent level of transaction exposure. Transaction exposure The Minerals Division has a diversified customer base and product for other companies in the Group arizes mainly when raw materials portfolio aside from magnetite that, to a certain degree, cushions mar- are purchased in foreign currencies. Each subsidiary is responsible for ket fluctuations, since different geographical areas, customer segments its own currency exposure and all forward exchange contracts must be and minerals have different economic cycles. through the LKAB Treasury Centre.

FINANCIAL RISKS Transaction exposure LKAB is exposed to various types of financial risk. Financial risks refer LKAB does not normally hedge its translation exposure, since the latter to fluctuations in the company’s earnings and cash flow as a result of is not substantial and a hedge over time adds no value for the Group. fluctuations in currency exchange rates, interest rates, refinancing and credit risks. Financial risks are managed according to Group policies INTEREST RISKS AND SHARE-PRICE RISKS established by LKAB’s Board of Directors. LKAB has a centralized fi- LKAB’s financing sources are shareholders’ equity, provisions and cur- nance department, the LKAB Treasury Centre. The centre manages the rent operating credits, which means that LKAB is mainly exposed to majority of the Group’s financial risk management. A selective strategy interest rate risks with regard to the investment of cash and cash equiv- is applied, whereby potential costs and benefits are balanced, the aim alents. LKAB’s finance policy governs the maximum permitted average being to minimize and neutralize risks in commercial flows. The LKAB duration in each respective asset portfolio. For example, in our urban Treasury Centre also acts as the Group’s internal bank and supports transformation liabilities portfolio the duration of money-market instru- subsidiaries with financing, investment and currency trading, and func- ments may not exceed the duration of the commitment +/– 24 months. tions as an advisor with respect to financial issues. As of 31 December 2013, LKAB’s investments in money-market instru- ments amounted to SEK 14,099 million (15,871). The duration amounted CURRENCY RISKS to 78 (110) days. Both LKAB’s future payment flows (transaction exposure) and revalu- A one percent increase in the market rate as of closing day would ation of receivables and liabilities in foreign currencies (translation ex- have affected income by SEK 30 million (49). LKAB invests a proportion posure) are exposed to risks associated with fluctuations in exchange of cash and cash equivalents that have an investment horizon longer rates. Foreign subsidiaries within the Group operate primarily in their than five years, mainly to cover that share of LKAB’s pension liabilities local currencies, and investments and financing alike are made mainly not covered by other assets, in share-related or other securities. in the local currency with the aim of reducing transaction exposure. As of 31 December 2013, the market value of LKAB’s investments in shares excluding SSAB shares amounted to SEK 705 million (1,316). A ten percent average decrease in the market value of shares as of clos- ing day would affect income negatively by SEK 70 million (132).

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CREDIT RISKS The strategy for the next few years includes a planned volume increase LKAB’s credit risks are mainly associated with trade receivables, deriv- of just over 35 percent to reach an annual capacity of 37 Mt iron ore atives and current investments. In the case of credit risks in trade re- products by 2015. The planned increase in production at the Mertainen ceivables, LKAB prioritizes long-term customer relations, which means open-pit mine has now been delayed, which means that the full effect that the majority of the customers are well-established. During 2013 the of LKAB’s growth programme has also been put back. Most of the addi- five largest customers accounted for 66 (61) percent of net sales in the tional iron ore will come from new mines, primarily the three open-pit parent company. Export letters of credit are used if necessary. mines in the so-called Svappavaara Field: Gruvberget, Mertainen and During 2013 the average collection period for accounts receivable Leveäniemi. Growth from the new open-pit mine increases LKAB's com- remained around 43 (47) days. According to LKAB’s investment policy, petitiveness through higher volumes, which yield a lower cost per tonne. current investments may only be made in borrowers with high cred- Continued efforts to ensure research and development are essen- itworthiness and high liquidity such as the Swedish state, companies tial for LKAB to retain its technological leadership in the production of wholly owned by the Swedish state, county councils, municipalities, mu- iron ore pellets. LKAB is investigating the possibility of creating a new nicipal companies or companies with high credit ratings. There were research facility for direct reduction, which is the fastest growing and no departures from the investment polic during 2013. LKAB has had no most climate-efficient method of producing iron. bad debt losses in current investments in the past five years. LKAB uses Ongoing investment projects and LKAB's future plans involve major several different banks with high credit ratings for derivative transac- strategic investments and, therefore, high expenditure over the next few tions. years. The continuation of underground mining at Kiruna and Malmber- get and the establishment of new mines in the Svappavaara Field also LIQUIDITY RISKS involve major costs at all sites. LKAB therefore needs to be financially LKAB maintains good financial preparedness by following guidelines strong and have good earning ability in order to fulfil the future commit- that regulate risk-taking and the investment horizon. LKAB has a high ments which will be caused by structural transformation. proportion of cash and cash equivalents and no debt. LKAB has an un- utilized credit facility of around SEK 5,000 million. Cash and cash equiv- CORPORATE GOVERNANCE alents amounted to SEK 4,696 million (5,437) on 31 December 2013. The A description of corporate governance is presented in a special Cor- equity/assets ratio on closing day was 72 (71) percent. A good balance porate Governance Report in accordance with Chapter 6 Section 8 of between short and long investment horizons will meet the long-term the Annual Accounts Act. The report is included on pages 76–83 of the financing need. Cash and cash equivalents are invested mainly in the print version of the Annual Report. For a description of the more im- Swedish money market in securities with high liquidity. LKAB works portant features in the Group’s system for internal inspections and risk with short-term and long-term liquidity forecasts. management in connection with the preparation of the consolidated accounts, please refer to the control environment section of the Corpo- INSURANCE COVERAGE rate Governance Report on page 76 of the print version of the Annual LKAB insures its interests including the Group’s facilities throughout the Report, available at www.lkab.com. world to protect against unforeseen circumstances. The largest single insurable risks concern property and disruptions. In this regard, produc- GUIDELINES FOR REMUNERATIONS TO SENIOR tion facilities and harbours are covered by a comprehensive insurance EXECUTIVES policy. Insurance is provided by the Group’s own insurance company, The 2013 Annual General Meeting adopted the Board’s proposal for LKAB Försäkring AB. Liabilities in excess of SEK 150 million are re-in- guidelines concerning remunerations and other employment terms for sured on the international insurance market. LKAB works actively and senior executives. The LKAB guidelines follow government guidelines systematically to prevent damage and disruptions in production. Histor- for employment terms for senior executives in state-owned companies ically, disruptions in production due to fire have resulted in the greatest adopted on 20 April 2009. The guidelines state that a variable salary financial losses. Preventative work in this area has high priority. may not be paid to senior executives, that pensions must be defined In Sweden, liability for damage to third parties as a result of dam contribution plans unless they are part of a pension plan under a col- accidents is strict and unlimited. LKAB has therefore taken out so-called lective agreement, and that the premium should not exceed 30 percent dam liability insurance. Other insurance coverage includes liability in- of the fixed salary. The pensionable age shall not be less than 62 years surance, product liability insurance, medical and business travel insur- and should be at least 65. ance, transport insurance and liability insurance for the President and The Board proposes that the Annual General Meeting of 29 April Board of Directors. 2014 resolves to apply the above-mentioned guidelines and terms. The Board’s proposal is designed to ensure that the LKAB Group is able to EXPECTATIONS REGARDING FUTURE DEVELOPMENTS offer remunerations at competitive market rates sufficient to attract The market for iron ore is growing and it is expected that demand, par- and retain qualified senior executives to LKAB’s Group Management. ticularly for DR pellets for gas-based iron and steel production, will in- Group Management remunerations include fixed salaries, allowances crease in the next few years. In order to continue to be a so-called pri- for cars, board, life insurance and pension benefits. The components are ority supplier for customers LKAB needs to be able to deliver increased intended to create a well-balanced remuneration and benefits package volumes. that reflects the individual’s performance, responsibility and the LKAB

104 ADMINISTRATION REPORT

Group’s growth. The fixed salary, which is determined individually and differentiated on the basis of the individual’s responsibility and perfor- mance, is set according to market principles and is reviewed annually. Agreements entered into before the Annual General Meeting of 29 April 2014 have complied with current government guidelines. For further information concerning remuneration to senior executives, see Note 6.

EVENTS AFTER CLOSING DAY In August 2013 negotiations were held in Kiruna, resulting in a final environmental ruling on a permit for LKAB to mine ore at Gruvberget and a permit for processing operations at Svappavaara. The ruling be- came legally binding on 2 January 2014. The ruling shows that LKAB's operations are in line with stringent environmental requirements. The licences obtained are the first step towards the realization of LKAB's expansion plans for a new production capacity of 37 million tonnes.

PROPOSED DISPOSITION OF UNAPPROPRIATED EARNINGS The Board of Directors and President propose that unappropriated earnings of SEK 22,920 million be distributed as follows:

Dividend, 700,000 shares @ SEK 5.000 per share SEK 3,500 million Funds to be carried forward SEK 19,420 million Total SEK 22,920 million

105 INTEGRATED REPORT 2013

CONSOLIDATED INCOME STATEMENT

1 January - 31 December SEK million Note 2013 2012 1 Net sales 2,3 23,656 26,971 Cost of goods sold 27 -14,746 -15,183 Gross profit 8,910 11,788

Sales expenses -148 -249 Administration expenses -643 -608 Research and development expenses -356 -283 Other operating income 4 436 539 Other operating expenses 5 -560 -598 Operating profit 3,6,7,8 7,639 10,589

Financial income 611 733 Financial expenses -482 -345 Net financial income/expense 9 129 388

Profit before tax 7,768 10,977

Tax 11 -1,736 -2,224 Profit for the year 6,032 8,753

Attributable to Parent company shareholders 6,032 8,753

Earnings per share before and after dilution (SEK) 12 8,617 12,504

CONSOLIDATED COMPREHENSIVE INCOME

Profit for the year 6,032 8,753

Other comprehensive income Items that cannot be transferred to profit for the year Actuarial gains and losses on defined benefit pension plans 106 -203 Tax attributable to actuarial gains and losses -23 44 83 -159 Items that have been or can be transferred to profit for the year Exchange rate differences on translation of foreign entities for the year -18 -18 Change in fair value of available-for-sale financial assets -90 -50 Change in fair value of cash flow hedges 72 226 Change in fair value of cash flow hedges transferred to profit for the year -226 65 Tax attributable to components in cash flow hedges 34 -67 -228 156

Other comprehensive income -145 -3 Comprehensive income for the year attributable to: Parent company shareholders 5,887 8,750

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.

106 FINANCIAL STATEMENTS – GROUP

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As of 31 December SEK million Note 2013 2012 1,29,30,33 Assets 15, 31 Non-current assets Intangible assets 13 257 277 Property, plant and equipment 14 33,759 30,315 Participations in associated companies 0 0 Financial investments 18 1,075 993 Non-current receivables 20 103 106 Deferred tax assets 11 19 21 Total non-current assets 35,213 31,712

Current assets Inventories 21 2,611 2,493 Accounts receivable 22 3,291 3,060 Prepaid expenses and accrued income 23 131 93 Other current receivables 20 1,079 1,914 Current investments 18,36 10,801 13,235 Cash and cash equivalents 36 4,696 5,437 Total current assets 22,609 26,232 Total assets 57,822 57,944

Shareholder's equity and liabilities Equity 24 Share capital 700 700 Reserves 443 671 Retained earnings including profit for the year 40,329 39 714 Equity attributable to the parent company shareholders 41,472 41, 085 Total shareholders’ equity 41,472 41, 085

Non-current liabilities Provisions for pensions and similar obligations 25 1,886 2,970 Provisions for urban transformation 26,27 4,804 4,934 Other provisions 26 1,167 1, 054 Deferred tax liability 11 3,813 3,527 Total non-current liabilities 11,670 12,485

Current liabilities Trade payables 1,744 1,760 Other current liabilities 227 196 Accrued expenses and deferred income 28 1,103 1,418 Provisions for urban transformation 26,27 1,500 943 Other provisions 26 106 57 Total current liabilities 4,680 4,374 Total liabilities 16,350 16,859 Total shareholder's equity and liabilities 57,822 57,944

Consolidated pledged assets and contingent liabilities

As of 31 December SEK million Note 31-12-2013 31-12-2012 Pledged assets 32 246 239 Contingent liabilities 32 103 96

107 INTEGRATED REPORT 2013

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS´EQUITY

See Note 24 Equity attributable to the Parent Company shareholders Reserves

Profit brought forward incl. Translation Fair value Hedge profit for the Total equity SEK million Share capital reserve reserve reserve year Opening equity 1 January, 2012 700 -103 666 -48 36,679 37,894

Adjustment for changed reporting (net) -559 -559 of remediation expenses

Adjusted equity 1January, 2012 700 -103 666 -48 36,120 37,335

Profit for the year 8,753 8,753

Other comprehensive income for the year -18 -50 224 -159 -3

Comprehensive income for the year -18 -50 224 8,594 8,750

Dividend -5,000 -5,000

Closing equity 31 December, 2012 700 -121 616 176 39,714 41,085

See Note 24 Equity attributable to the Parent Company shareholders Reserves

Profit brought forward incl. Translation Fair value Hedge profit for the Total equity SEK million Share capital reserve reserve reserve year Opening equity 1January, 2013 700 -121 616 176 39,714 41,085

Profit for the year 6,032 6,032

Other comprehensive income for the year -18 -90 -120 83 -145

Comprehensive income for the year -18 -90 -120 6,115 5,887

Dividend -5,500 -5,500

Closing equity 31 December, 2013 700 -139 526 56 40,329 41,472

108 FINANCIAL STATEMENTS – GROUP

CONSOLIDATED STATEMENT OF CASH FLOW

1 January – 31 December SEK million Note 2013 2012 1.36 Operating activities Profit before tax 7,768 10,977 Adjustment for items not included in cash flow 3,404 2,892 Income tax paid -573 -3,169 Urban transformation payments 26,27 -295 -407 Payment to pension fund 25 -881 Cash flow from operating activities before changes in working capital 9,423 10,293

Cash flow from changes in working capital Increase (-)/Decrease (+) in inventories -118 -66 Increase (-)/Decrease (+) in operating receivables -444 1,412 Increase (-)/Decrease (+) in operating liabilities -304 -366 Change in working capital -866 980 Cash flow from operating activities 8,557 11,273

Investing activities Acquisition of property, plant and equipment -6,141 - 5,808 Disposal of property, plant and equipment 18 6 Change in financial assets -109 Divestments/acquisitions (net) current investments 2,434 - 3,729 Cash flow from investment activities -3,798 - 9,531

Financing activities Dividend paid to Parent Company shareholders -5,500 -5,000 Cash flow from financing activities -5,500 -5,000

Cash flow for the year -741 -3,258

Cash and cash equivalents at beginning of year 5,437 8,695 Cash and cash equivalents at year end 4,696 5,437

Consolidated operating cash flow (SEK million) 2013 2012 Cash flow from operating activities 8,557 11,273 Acquisition of property, plant and equipment -6 141 - 5,808 Disposal of property, plant and equipment 18 6 Operating cash flow (excluding current investments) 2,434 5,471 Divestments/acquisitions of financial assets(net) 2,325 -3,729 Cash flow after investing activities 4 ,59 1,742 Cash flow from financing activities - dividend paid -5,500 -5,000 Cash flow for the year -741 -3,258

109 INTEGRATED REPORT 2013

INCOME STATEMENT - PARENT COMPANY

1 January - 31 December SEK million Note 2013 2012 1 Net sales 2,3 21,918 25,054 Cost of goods sold 27 -14,351 -14,150 Gross profit 7,567 10,904

Sales expenses -67 -153 Administration expenses -497 -468 Research and development expenses -345 -271 Other operating income 4 377 466 Other operating expenses 5 -303 -395 Operating profit 6,7,8 6,732 10,083

Income from financial items Income from participations in group companies 209 5321 Income from participations in associated companies 1 Income from other securities and receivables held as non-current assets 45 60 Other interest income and similar profit/loss items 626 600 Interest expence and similar profit/loss items -367 -253 Profit after financial items 9 7,245 11,023

Appropriations 10 -1,762 -2,5661

Profit before tax 5,483 8,457

Tax 11 -1,171 -2,210 Profit for the year 4,312 6,247

COMPREHENSIVE INCOME - PARENT COMPANY

Profit for the year 4,312 6,247 Other comprehensive income Comprehensive income for the year 4,312 6,247

1 Changed compared to the interim report Q4 2013. With effect from 2013, group contributions are reported as appropriations.

110 FINANCIAL STATEMENTS – PARENT COMPANY

BALANCE SHEET - PARENT COMPANY

As of 31 December SEK million Note 2013-12-31 2012-12-31 1,29,30,33 Assets 31 Non-current assets Intangible assets 13 42 73 Property, plant and equipment 14 27,294 24,557 Financial assets Participations in subsidiaries 34 1,490 1,410 Participations in associated companies 16 0 0 Receivables from subsidiaries 17 1,042 1,142 Other non-current securities holdings 19 129 129 Other non-current receivables 20 170 185 Deferred tax assets 11 678 486 Total financial assets 3,509 3,352

Total non-current assets 30,845 27,982

Current assets Inventories 21 2,111 1,946 Current receivables Accounts receivable 22 3,008 2,918 Receivables from subsidiaries 17 2,053 1,398 Other current receivables 20 814 1,507 Prepaid expenses and accrued income 23 95 70 Total current receivables 5,970 5,893

Current investments 18,36 14,878 17,883 Cash and bank deposits 36 365 457 Total current assets 23,324 26,179 Total assets 54,169 54,161

111 INTEGRATED REPORT 2013

BALANCE SHEET - PARENT COMPANY

SEK million Note 31-12-2013 31-12-2012

Shareholder's equity and liabilities 1,29,30,33 Equity 24 Restricted equity Share capital (700 000 shares) 700 700 Statutory reserve 697 697

Non-restricted equity Retained earnings 18,608 17,861 Profit for the year 4,312 6,247 Total shareholder’s equity 24,317 25,505

Untaxed reserves 35 18,487 16,866

Provisions Provisions for urban transformation 26,27 4,804 4,934 Other provisions 25,26 1,597 2,148 Total provisions 6,401 7,082 ,Current liabilities Trade payables 1,406 1,394 Liabilities to subsidiaries 945 991 Other current liabilities 143 98 Accrued expenses and prepaid income 28 864 1,225 Provisions for urban transformation 26,27 1,500 943 Other provisions 26 106 57 Total current liabilities 4,964 4,708 Total shareholder's equity and liabilities 54,169 54,161

Pledged assets and contingent liabilities, Parent Company

As of 31 December SEK million Note 31-12-2013 31-12-2012 Pledged assets 32 245 236 Contingent liabilities 32 102 126

112 FINANCIAL STATEMENTS – PARENT COMPANY

STATEMENT OF CHANGES IN SHAREHOLDERS´ EQUITY - PARENT COMPANY

Restricted equity Non-restricted equity

Retained Profit for Share Statutory earnings the year See Note 24 capital reserve including profit for SEK million the year Total equity Opening equity 1 January, 2012 700 697 23,391 24,788

Adjustment for changed reporting (net) of remediation expenses -530 -530

Adjusted equity 1 January, 2012 700 697 22,861 24,258

Comprehensive income for the year 6,247 6,247

Dividend -5,000 -5,000

Closing equity 31 December, 2012 700 697 17,861 6,247 25,505

Restricted equity Non-restricted equity

Retained Profit for Share Statutory earnings the year See Note 24 capital reserve including profit for SEK million the year Total equity Opening equity 1 January, 2013 700 697 24,108 25,505

Comprehensive income for the year 4,312 4,312

Dividend -5,500 -5,500

Closing equity 31 December, 2013 700 697 18,608 4,312 24,317

113 INTEGRATED REPORT 2013

STATEMENT OF CASH FLOW – PARENT COMPANY

1 January – 31 December SEK million Note 2013 2012 1,36 Operating activities Profit after financial items 7,245 11,023 Adjustment for items not included in cash flow 2,900 2,502 Income tax paid -416 -3,020 Urban transformation payments 26,27 -295 -407 Payment to pension fund 25 -856 Cash flow from operating activities before changes in working capital 8,578 10,098

Cash flow from changes in working capital Increase (-)/Decrease (+) in inventories -165 -67 Increase (-)/Decrease (+) in operating receivables -999 1,353 Increase (-)/Decrease (+) in operating liabilities -556 -1,105 Change in working capital -1,720 181 Cash flow from operating activities 6,858 10,279

Investing activities Acquisition of property, plant and equipment -5,682 -5,419 Disposal of property, plant and equipment 1,112 439 Change in financial assets 115 138 Divestments/acquisitions (net) in current investments 2,399 -3,655 Cash flow from investment activities -2,056 -8,497

Financing activities Dividend paid -5,500 -5,000 Cash flow from financing activities -5,500 -5,000

Cash flow for the year -698 -3,218

Cash and cash equivalents at beginning of year 5,251 8,469 Cash and cash equivalents at year end 4,553 5,251

114 NOTES TO THE FINANCIAL STATEMENTS

NOTE 1 SIGNIFICANT ACCOUNTING PRINCIPLES In accordance with the transition rules in IAS 19R, the comparative figures for 2012 have been recalculated. The change means a reduction in net financial items for 2012 of SEK 11 million, with a corresponding increase in other comprehensive income for the same 1 COMPLIANCE WITH STANDARDS AND LAWS year. The consolidated financial statements have been prepared in accordance with the IFRS 13 Fair Value Measurement International Financial Reporting Standards (IFRS) issued by the International Accounting The new IFRS 13 standard replaces the previous guidelines found in the corresponding Standards Board (IASB) and the interpretations of the International Financial Reporting standards for fair value measurement. The standard is applied when measuring fair val- Interpretations Committee (IFRIC) as adopted by the EU. In addition the Swedish Financial ue of both financial and non-financial items. Fair value is defined as the price that would Reporting Board’s Recommendation RFR 1 Supplementary Rules for Consolidated Finan- be obtained on the sale of an asset or the compensation that would be paid to transfer a cial Statements was applied. liability in a normal transaction between market members at the time of measurement The Parent Company applies the same accounting principles as the Group, except (the “exit price”). IFRS 13 requires several quantitative and qualitative disclosures to be where stated below in the section “Parent Company’s accounting principles”. presented in the annual financial statements in respect of fair value measurement. The The Annual Report and consolidated accounts were approved for issue by the Board of new disclosure requirements are presented in Note 29. Directors and President on 20 March 2014. The consolidated income statement, state- IFRIC 20 Stripping Costs in the Production Phase of an Surface mine ment of financial position and the Parent Company’s income statement and balance The current mining operations of the LKAB Mining Division are conducted in underground sheet are subject to approval at the Annual General Meeting on 29 April 2014. mines. In 2013 mining operations began at the Gruvberget surface mine (hereafter called open-pit mine) in Svappavaara, which is currently LKAB’s only open-pit mine. In 2 MEASUREMENT BASES APPLIED IN PREPARING THE FINANCIAL STATEMENTS 2012 activities in this open-pit mine were limited, which meant that the 2012 income Assets and liabilities are reported at historical cost, apart from certain financial assets statement and financial position would have been reported no differently if IFRIC 20 had and liabilities that are assessed at fair value. Financial assets and liabilities that are been applied in 2012. Effective 2013, LKAB reports stripping costs during the production assessed at fair value consist of derivative instruments, financial assets that are classi- phase of the open-pit mine as assets and depreciation is calculated according to a fied as financial assets assessed at fair value via the income statement, investments that production-based method. are held to maturity or available-for-sale financial assets. IAS 1 Presentation of financial statements – presentation of other comprehensive income Changes to IAS 1 Presentation of Financial Statements require additional disclosures in 3 FUNCTIONAL CURRENCY AND PRESENTATION CURRENCY other comprehensive income, so that items are grouped into two categories: a) items that The functional currency of the Parent Company is the Swedish krona (SEK), which is also cannot be reclassified to the income statement and b) items that will be reclassified to the reporting currency for both the Parent Company and the Group. This means that the the income statement if certain criteria are met. financial reports are presented in SEK. Unless otherwize stated, all amounts are rounded LKAB’s application of the changes introduced to IAS 1 is shown in the consolidated off to the nearest million kronor. statement of other comprehensive income. These changes only affected the presentation of items reported in other comprehensive income and had no effect on reported financial 4 ASSESSMENTS AND ESTIMATES IN THE FINANCIAL STATEMENTS position or profit for 2012. Comparative figures were presented according to the new Preparing the financial statements in accordance with IFRS requires company manage- disposition. ment to make assessments, estimates and assumptions that affect the application of ac- Revised IFRS 7 Financial Instruments: Disclosures counting principles and the reported amounts of assets, liabilities, income and expenses. The changes to IFRS 7 entail additional disclosure requirements regarding financial These estimates and assumptions are reviewed regularly. Changes in estimates are assets and liabilities whose value is offset in the balance sheet or which are subject to reported in the period in which the change is made if the change only affects that period, various legally binding framework agreements or other risk-reducing agreements. The or the period in which the change is made and future periods if the change affects both new disclosure requirements are presented in Note 30. current and future periods. Amendments to IAS 36 Impairment of Assets Assessments made by company management that have a significant effect on the The change was applied as of 2013 and refers to a disclosure requirement regarding financial statements and estimates that may lead to significant adjustments in the fol- recovery value that arose when IFRS 13 was introduced. This disclosure requirement has lowing year’s financial statements are described in more detail in section 28, Significant now been removed and the information only needs to be disclosed in connection with estimates and assessments. impairments.

5 SIGNIFICANT ACCOUNTING PRINCIPLES APPLIED 6.2 Adjustment of previously applied accounting principle - remediation costs The consolidated accounting principles stated below were applied consistently to all In prior years, the Group reported provisions for remediation costs for commitments for periods that are presented in the consolidated financial statements, unless otherwize which assets had been pledged. As of 2013, provisions for all legal and informal commit- stated. The consolidated accounting principles were applied consistently in the reporting ments are reported. and consolidation of the Parent Company, subsidiaries and joint ventures. The change was applied retroactively in accordance with IAS 8 and affected the finan- cial statements for the present year, preceding year and accumulated at the beginning of 6 CHANGES TO ACCOUNTING PRINCIPLES FOR 2013 2012 as follows: 6.1 Accounting principles changed due to new or amended IFRS Described below are changed accounting principles applied by the Group effective 1 Group January 2013. Other IFRS changes that are effective as of 2013 have had no significant SEK million 2013 2012 effect on the consolidated accounts. Increase in expenses of goods sold -6 -6 Revised IAS 19: Employee Benefits – defined benefit pension plans Increase in interest expenses -29 -29 Amendments to IAS 19 mean, among other things, that it is no longer permitted to Reduction in tax expense 8 8 report actuarial gains and losses using the so-called corridor method. Since LKAB has Reduction in profit for the year -27 -27 previously reported actuarial gains and losses directly in other comprehensive income, the change in removing the corridor method has no significant effect on LKAB’s financial Change in earnings per share before and after dilution (SEK) -39 -39 position and reported pension costs.

According to IAS 19, actuarial gains and losses are reported as a remeasurement 31 Dec 31 Dec 1 Jan of defined benefit pension plans in other comprehensive income. Remeasurements 2013 2012 2012 reported in other comprehensive income are not reclassified to the income statement in Increase in provisions -923 -894 -865 subsequent periods. Increase in property, plant and equipment 137 143 149 Furthermore, interest expenses and expected return on plan assets are replaced with Increase in current tax assets 161 155 149 “net interest”, which is calculated with the same discount rate used in calculating the Increase in deferred tax assets 12 10 8 defined benefit pension obligations. The amendment means that presentation of pension Reduction in profit brought forward -613 -586 -559 costs is changed and also affects the reporting of items in other comprehensive income.

115 INTEGRATED REPORT 2013

Parent Company IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and SEK million 2013 2012 Measurement. IASB has published parts of what will become the final IFRS 9. The main Increase in cost of goods sold -5 -5 requirements of IFRS 9 are described below. Increase in interest expense -22 -22 New requirements are introduced for classification and measurement of financial Reduction of tax expenses 6 6 assets. The categories for financial assets found in IAS 39 are replaced by two categories, Reduction in profit for the year -21 -21 with measurement at fair value or amortized cost. Amortized cost is used for instru- ments held in a business model where the purpose is to receive the contracted cash Change in earnings per share before and after dilution (SEK) -30 -30 flows; these must represent payments of principal and interest on principal on specified dates. Other financial assets are reported at fair value and the possibility of applying the 31 Dec 31 Dec 1 Jan fair value option included in IAS 39 is maintained. Changes in fair value must be reported 2013 2012 2012 in the income statement, with the exception of changes in value of equity instruments Increase in provisions -621 -589 -557 not held for trading and for which the initial choice is to report changes in value in other Reduction in property, plant and equipment -112 -117 -122 comprehensive income. Increase in current tax assets 161 155 149 IFRS 9 will also include parts that affect the classification and measurement of Reduction in profit brought forward -572 -551 -530 financial liabilities. This mostly corresponds to the previous rules in IAS 39 apart from financial liabilities that are voluntarily measured at fair value according to the so-called 7 NEW IFRS THAT HAVE NOT YET BEEN APPLIED ”fair value option”. For these liabilities, the changes in value are divided into changes that A number of new or amended IFRS come into force and must be applied in financial are attributable to a company’s credit rating and changes in the reference rate. years that begin in 2014 or later; see table below. The section on hedge accounting in IFRS 9 includes a voluntary choice between continuing to apply the rules on hedge accounting in the present IAS 39 or the new rules Standards Applied in financial earsy that begin: introduced in IFRS 9. IASB intends to review this freedom of choice in connection with Changes to IAS 32 Financial instruments: its work on macro hedging. Three types of hedge accounting remain in IFRS 9: cash Classification (Setting off financial assets and liabilities) 1 January, 2014 or later flow hedging, fair value hedging and hedging of net investments. However, considerable IFRS 10 Consolidated Financial Statements2 1 January, 2014 or later changes are introduced in the application of hedge accounting, in particular an increase IFRS 11 Joint Arrangements2 1 January, 2014 or later in the scope of the types of risks for which hedging is possible relating to non-financial IFRS 12 Disclosure of Interests in Other Entities2 1 January, 2014 or later items. IFRS 9 also introduces a more principle-based view for measuring the effective- Changes to IFRS 10, IFRS 11 and IFRS 12 ness of a hedging transaction compared with the present rules in IAS 39. (transitional provisions) 1 January, 2014 or later Extended disclosure requirements for the period in which IFRS 9 is applied for the first Changes to IAS 27 Separate Financial Statements2 1 January, 2014 or later time are introduced in IFRS 7. Changes to IAS 28 Investments in Associates and Joint Ventures 1 January, 2014 or later The assessment of company management is that applying IFRS 9 could affect the Changes to IAS 39 Financial Instruments: reported amounts in the financial reports with regard to the Group's financial assets and Recognition and Measurement (Change of counterparty liabilities. No detailed analysis of the effects of applying IFRS 9 has yet been made, so the for derivatives and extension of hedge accounting) 1 January, 2014 or later effects cannot yet be quantified. Investment Entities Company management assesses that applying IFRS 9 could affect the reported (changes to IFRS 10, IFRS 12 and IAS 27) 1 January, 2014 or later amounts in the financial statements with regard to the Group’s financial assets and Improvements to IFRSs 2010-2012 cycle1 1 July, 2014 or later liabilities. No detailed analysis of the effects of applying IFRS 9 has yet been made, so the Improvements to IFRSs 2011-2013 cycle1 1 July, 2014 or later effects cannot be quantified at this time. Changes to IAS 19 Employee benefits Company management assesses that other new and amended standards and inter- (Defined benefit plans: Employee contributions)1 1 July, 2014 or later pretations that have not yet come into force will not have any significant effect on the IFRS 9 Financial Instruments and group’s financial statements when they are applied for the first time. consequent changes to IFRS 91 1 January, 2018 or later IFRS 7 Financial Instruments: 8 CLASSIFICATION ETC. Disclosures and IAS 39 Financial Instruments: Non-current assets and liabilities consist mainly of amounts that are expected to be Recognition and Measurement1 Not determined recovered or paid more than twelve months from the closing day. Current assets and lia- IFRS 14 Regulatory Deferral Accounts1 1 January, 2016 or later bilities consist mainly of amounts that are expected to be recovered or paid more within 1 Not yet approved for application within the EU. twelve months from the closing day. 2 According to IASB, IFRS 10, IFRS 11, IFRS 12, IAS 27 and IAS 28 come into force from the financial year commencing 1 January, 2013, but within the EU they come into force from the 9 OPERATING SEGMENT REPORTING financial year commencing 1 January, 2014 or later. An operating segment is a part of the Group that engages in business operations from which it may generate income and incur expenses and for which independent financial information is available. An operating segment’s result is monitored regularly by the Interpretations To be applied in financial year beginning: company’s most senior executive decision maker, group management, to assess its IFRIC 21 Levies3 1 January, 2014 or later performance in order to allocate resources to the operating segment. There are three 3 Not yet approved for application within the EU. identified operating segments within the LKAB Group: Mining Division, Minerals Division The new and changed standards and interpretations listed above have not yet been applied and Special Businesses Division. See Note 3 for a further description of the classification by the Group. and presentation of the operating segments.

New and changed standards that will affect the consolidated financial statements from 10 CONSOLIDATION PRINCIPLES 2014: 10.1 Subsidiaries Described below are the new and amended standards and interpretations that were Subsidiaries are companies which operate under the controlling influence of the Parent assessed to affect the consolidated financial statements in the period to which they are Company. Controlling influence means a direct or indirect right to formulate a company’s applied for the first time. financial and operational strategies with the objective of gaining economic benefits. When IFRS 10 Consolidated Financial Statements: New standard for consolidated accounts assessing whether a controlling influence exists, the existence of shares with potential that replaces IAS 27. The standard does not contain any changes from the current IAS voting rights that are currently exercisable or convertible should be considered. 27 concerning rules for consolidation of acquisitions and disposals. IFRS 10 includes a Subsidiaries are reported according to the purchase method. This method means that model to be used in assessing whether controlling influence does or does not exist for all the acquisition of a subsidiary is regarded as a transaction in which the Group indirectly of a company’s investments. acquires the subsidiary’s assets and assumes its liabilities and contingent liabilities. The IFRS 12 Disclosure of Interests in Other Entities: New standard for disclosing invest- acquisition analysis determines the fair value on the day of acquisition of acquired iden- ments in subsidiaries, joint arrangements, associates and non-consolidated structured tifiable assets and assumed liabilities and contingent liabilities, as well as any holding companies. IFRS 12 sets objectives for disclosures and specifies the minimum disclo- without controlling influence. sures a company must provide in order to fulfil these objectives. In the case of operating acquisitions where the transferred remuneration, any holding without controlling influence and the fair value of previously owned participations (in the

116 NOTES TO THE FINANCIAL STATEMENTS

case of acquisition in stages) exceed the fair value of the assets acquired and liabilities 12.1.1 Sale of iron ore, Mining Division assumed, the difference is reported as goodwill. Where the difference is negative, a so- Trading in iron ore occurs in US dollars. LKAB prices iron ore according to two different called low cost acquisition, it is reported directly in profit for the year. price models: a fixed-price model and a variable-price model with an index-linked price Holdings with non-controlling interest arise in cases where the acquisition does not based on the spot price. refer to 100% of the subsidiary. There are two alternative ways of recognizing non-con- The sale of iron ore is reported upon delivery to the customer in accordance with the trolling interest. These two alternatives are to recognize non-controlling interests as a sales terms. Sales are reported with deductions for value added tax and translation is at percentage of proportional net assets or to report non-controlling interests at fair value, the current exchange rate. If sales are hedged by forward exchange rate contracts transla- which means that non-controlling interests have participating interests in goodwill. The tion is at the hedged rate. choice between the two alternatives can be made separately for each acquisition. In the variable-price model, quarterly prices are applied and the price is determined Acquisitions in 2013 of non-controlling interests were reported as a percentage of later, after the end of the quarter. The price is mainly affected by the current quarter’s proportional net assets. average of 62% sinter fines CFR in China. This means that a preliminary price is calculated for the first two months of each quarter, and then adjusted after the end of the quarter. 10.2 Joint ventures Preliminary invoicing often takes place at the time of delivery in respect of the iron and For accounting purposes, joint ventures are companies in which the Group shares a moisture content of the delivery. When final confirmed amounts have been obtained, reve- controlling influence over operational and financial management through collaboration nues are adjusted as necessary and confirmed. Revenues are reported in net sales. agreements with one or more parties. Holdings in joint ventures are reported in the con- solidated accounts according to the proportional consolidation principle. This principle 12.1.2 Sale of industrial minerals, Minerals Division requires the Group’s share of a joint venture’s income, expenses, assets and liabilities to The Minerals Division of the LKAB Group trades in a number of different minerals, both be reported in the consolidated statement of financial position and income statement. minerals in its own possession, such as magnetite, huntite and mica, and also external This is done by combining the joint owner’s share of assets, liabilities, income and minerals that are either further processed within the Group or sold on in unchanged form expenses in a joint venture item-by-item with corresponding items in the joint owner’s to the end customer. Trade in industrial minerals occurs either in the local currency of the consolidated accounts. Only equity accrued after the acquisition is reported in group country or in one of the major currencies, such as USD or EUR. equity. The proportional consolidation principle is applied from the point in time at which The mineral magnetite is bought from the Mining Division. The prices are agreed the joint controlling influence is obtained until said influence ceases to exist. quarterly and are based on the Parent Company’s global price settlements for iron ore products. Other in-house minerals are priced internally, while external minerals are priced 10.3 Transactions that are eliminated on consolidation according to price settlements with respective suppliers, which occur either annually or at Intra-group receivables and liabilities, income or expenses and unrealized gains or losses shorter intervals. arising from intra-group transactions between group companies are eliminated entirely Sales of minerals are reported to customers in accordance with agreed sales terms. when preparing the consolidated accounts. Sales are reported with deductions for value added tax and translation is done at the Unrealized gains that arise from transactions with jointly controlled companies are current exchange rate. If sales are hedged by forward exchange rate contracts translation eliminated to the extent that corresponds to the Group's holding in the company. Unre- is done at the hedged rate. alized losses are eliminated in the same way as unrealized gains, but only to the extent Invoicing is done on delivery to the customer according to agreed prices and payment that no need for impairment exists. terms. Revenues are reported in net sales

11 FOREIGN CURRENCY 12.2 Rental income 11.1 Transactions in foreign currencies Rental income from property is reported on a straight-line basis in the income statement, Foreign currency transactions are translated into the functional currency at the exchange based on the conditions in the rental agreement. Income is reported in other operating rate on the transaction date. Functional currency is the currency of the primary economic income. environment where companies conduct their operations. Monetary assets and liabilities in foreign currency are translated to the functional currency at the exchange rate on the 13 LEASING closing day. Exchange rate differences that arise from translations are reported in profit Leases are classified in the consolidated accounts as either finance leases or operating for the year. Non-monetary assets and liabilities reported at historic cost are translated leases. A finance lease exists when the economic risks and benefits associated with own- at the exchange rate on the transaction date. Non-monetary assets and liabilities report- ership are, in essence, transferred to the lessee. If this is not the case, it is classified as an ed at fair value are translated to the functional currency on the date of assessment at operating lease. The Group’s leasing agreements are essentially operational. fair value. In operational leasing, leasing fees are reported on a straight-line basis over the period of the lease. However, some fees are usually expensed on a continuous basis. 11.2 Financial statements of foreign operations Assets and liabilities in foreign operations, including goodwill and other group-related 14 FINANCIAL INCOME AND EXPENSES surpluses and deficits, are translated from the foreign operations’ functional currencies Financial income and expenses consist of interest income on bank balances, receivables to SEK, the Group’s presentation currency, at the exchange rate on the closing day. Reve- and interest-bearing securities, interest expenses on loans, interest expenses on de- nues and expenses in a foreign operation are translated to SEK at the average exchange fined-benefit pension plans, interest expenses on provisions, dividend income, unrealized rate that constitutes an approximation of the rates applying when the transactions oc- and realized gains and losses on financial investments and hedging instruments used in curred. Translation differences that arise from currency translation of foreign operations financial operations. are reported in other comprehensive income and accumulated in a separate component Interest income on receivables and interest expenses on liabilities are calculated by ap- in equity called translation reserve. plying the effective interest rate method. The effective interest rate is the rate that causes When controlling influence, significant influence or joint controlling influence in a- for the present value of all estimated future payments and receipts during the anticipated eign operation ceases, the accumulated translation differences attributable to the foreign fixed-interest term to be equal to the reported value of the receivable or liability. Interest operation are realized, at which point they are reclassified from translation reserve in income and expenses include accrued transaction expenses and any discounts, premiums equity to profit for the year. and other differences between the original reported value of the receivable or liability and the amount settled on maturity. 12 REVENUE Dividend income is reported when the right to receive payment has been determined. 12.1 Sale of goods The results of sales of financial instruments are reported when the risks and benefits Revenue from the sale of goods is reported in profit for the year when the significant associated with ownership of the instrument have been transferred to the buyer and the risks and benefits associated with ownership of the goods have been transferred to Group no longer has control over the instrument. the buyer. Revenue is not reported if it is probable that future economic benefit will not Exchange rate gains and losses are reported on a net basis. accrue to the Group.

117 INTEGRATED REPORT 2013

15 TAX to the extent the derivative is effective, changes in value of the derivative instrument are Income tax consists of current tax and deferred tax. Income tax is reported in profit for reported in the income statement at the same time and on the same line of the income the year except when the underlying transaction is reported in other comprehensive statement as the hedged item. Even if hedge accounting is not applied, increases or income or in equity, in which case the associated tax effect is reported in other compre- decreases in the value of the derivative are reported as income or expenses in operating hensive income or equity. profit or in the net financial items, based on the use of the derivative instrument and Current tax is tax to be paid or received for the current year, applying the tax rates that whether that use relates to an operating item or to a financial item. In hedge accounting, have been decided or for all practical purposes decided on the closing day, as well as the the ineffective portion is reported in the same way as changes in the value of derivatives adjustment of current tax attributable to earlier periods. not used in hedge accounting. Deferred tax is calculated using the balance sheet method, based on temporary differ- In accordance with IAS 39, LKAB has chosen not to include the interest component ences between reported values of assets and liabilities and their values for tax purposes. in forward exchange contracts in hedging conditions when applying hedge accounting Temporary differences are not taken into consideration in group goodwill nor for differ- within the Group. Changes in value in forward exchange rate contracts attributable to ences that arise on initial recognition of assets and liabilities that are not business com- the interest component are reported instead as financial income or expenses on the line binations that on the date of transaction do not affect either reported or taxable profit. “Interest rate component in forward exchange contract” as the interest rate component is The measurement of deferred tax is based on how the reported value of assets or considered financial in nature. liabilities is expected to be realized or settled. Deferred tax is calculated by applying the Liquid assets are cash and balances immediately available in banks and similar institu- tax rates and tax rules that have been decided or for all practical purposes decided on tions and current investments with a maturity of less than three months from acquisition the closing day. date that are exposed only to very marginal risks of fluctuations in value. Deferred tax assets in respect of deductible temporary differences and loss carry forwards are only reported to the extent that it is probable that they will be utilized. The 16.3 Financial assets measured at fair value in the income statement value of deferred tax assets is reduced when it is no longer deemed probable that they This category consists of two sub-groups: financial assets held for trading and other can be utilized. financial assets that the company initially chose to place in this category (according to Any additional income tax arising from dividends is reported at the same time as the the so-called fair value option). Financial instruments in this category are measured at dividend is reported as a liability. fair value on a continuous basis and changes in fair value are reported in the income statement. The first sub-group includes derivatives with positive fair values with the ex- 16 FINANCIAL INSTRUMENTS ception of derivatives that are identified and effective hedging instruments. The fair value Financial instruments reported in the statement of financial position include assets option category includes financial instruments measured and followed up at fair value. such as liquid assets, loans, accounts receivable, financial investments and derivatives. For further information about which financial instruments are included, see Note 29. Liabilities include trade payables, loan liabilities and derivatives. 16.4 Loans receivable and accounts receivable 16.1 Recognition and derecognition in the statement of financial position Loans receivable and accounts receivable are non-derivative financial assets, with fixed A financial asset or financial liability is reported in the statement of financial position or fixable payments that are not listed on an active market. These assets are valued at when the company becomes party to the contractual terms of the instrument. A receiv- amortized cost. Amortized cost is determined on the basis of the effective interest rate able is reported when the company has delivered and a contractual obligation for the calculated on the date of acquisition. Accounts receivable are reported at the amount at counterparty to pay exists, even if an invoice has not yet been sent. Accounts receivable which they are expected to be received, less doubtful receivables. are included in the statement of financial position when the invoice has been sent. Liabilities are reported when the counterparty has delivered and there is a contractual 16.5 Investments held to maturity obligation to pay, even if the invoice has not yet been received. Trade payables are report- Investments held to maturity are financial assets that include interest-bearing securities ed when an invoice is received. with fixed or fixable payments and fixed terms that the company has an expressed inten- A financial asset is removed from the statement of financial position when the rights tion and ability to hold to maturity. Assets in this category are valued at amortized cost. of the agreement have been realized or fall due or the company loses control over them. The same applies to a portion of a financial asset. A financial liability is removed from 16.6 Financial assets available for sale the statement of financial position when the obligations of the agreement are fulfilled or The available-for-sale category includes financial assets that are not classified in any otherwise extinguished. The same applies to a portion of a financial liability. other category or financial assets that the company initially classified in this category. A financial asset and a financial liability are offset and reported in the statement of Shares and participations not reported as subsidiaries, associates or joint ventures are financial position as a net amount only when there is a legal right to offset the amount reported here. Assets in this category are measured at fair value on a continuous basis, and an intention to adjust the items with a net amount or, at the same time, realize the with changes in value reported in other comprehensive income, except for changes asset and settle the liability. resulting from impairment losses, interest on debt instruments, dividend income and ex- Acquisition and disposal of financial assets are reported on the trade date, which is change rate differences on monetary items; these are reported in the income statement. the date on which the company undertakes to acquire or dispose of the asset, except in On disposal of the asset the accumulated gain or loss previously reported in other cases where the company acquires or disposes of listed securities, when the settlement comprehensive income, is reported in profit for the year. date is used. The settlement date is the date on which an asset is delivered to or by the company. 16.7 Financial liabilities measured at fair value in the income statement Acquisition and divestment of a financial asset are reported on the trade date, i.e. the This category consists of two sub-groups: financial liabilities held for trading and other date on which the company undertakes to acquire or dispose of an asset, except in cases financial liabilities that the company chose to place in this category (the so-called fair when the company acquires or divests listed securities, when settlement date is used. value option). See the description above under “Financial assets measured at fair value in A spot purchase or sale in the fair value option category is reported on the date of the income statement”. The first category includes the Group’s derivatives with negative settlement. fair values with the exception of derivatives that are identified and effective hedging instruments. Changes in fair value are reported in profit for the year. 16.2 Classification and measurement Financial instruments that are not derivatives are initially reported at acquisition value, 16.8 Other financial liabilities corresponding to the fair value of the instrument with the addition of transaction expens- Loans and other financial liabilities, such as trade payables, are included in this category. es. This applies to all financial instruments except those that belong to the category of Liabilities are valued at amortized cost. financial assets and liabilities that are reported at fair value in the income statement, which are reported at fair value excluding transaction expenses. A financial instrument is 17 DERIVATIVES AND HEDGE ACCOUNTING classified on initial recognition based on the purpose for which was acquired. The classi- The Group’s derivative instruments have been acquired to financially hedge the interest fication determines how the financial instrument is measured after initial recognition as and exchange rate risks to which the Group is exposed. An embedded derivative is described below. reported separately unless it is closely related to the host contract. Derivative instruments are initially reported at fair value, which means that transaction Derivatives are initially reported at fair value, which means that transaction expenses expenses are charged to profit for the period. After the initial entry, the derivative is are charged to profit for the period. After the initial entry, derivative instruments are reported as described below. If a derivative instrument is used for hedge accounting and reported at fair value and changes in value are reported as described below.

118 NOTES TO THE FINANCIAL STATEMENTS

In order to comply with the requirements for hedge accounting according to IAS 39, there 18.4 Open-pit mines must be a clear connection to the hedged item. Furthermore, the hedging instrument Iron ore mining above ground takes place in so-called open-pit mines. In order to expose must effectively protect the hedged item; hedging must be documented and its effective- the ore body stripping is done and such things as moraine and waste rock are removed. ness measurable. Hedging gains and losses are reported in the income statement at the During the development phase expenditures are capitalized as part of the cost of the same time as gains and losses for the hedged items. mine and depreciation occurs systematically over the life of the mine. The expenditures are expensed during the actual production phase. 17.1 Cash flow hedges Derivative instruments used to hedge future cash flows in foreign currency are reported 18.5 Prospecting and evaluation expenses in the statement of financial position at fair value. Changes in value are reported in other Greater knowledge of the extent of the iron deposits is necessary to secure access to comprehensive income and accumulated changes in value are reported as a separate more ore and ensure the future development of operations in the Mining Division. The ore component in equity (hedge reserve) until the hedged cash flow affects profit for the year, body is surveyed and defined by means of exploration drilling, mainly via drifts adjacent at which time the hedging instrument’s accumulated changes in value are reclassified to to it. Ore deposit explorations in both existing and future areas of the mines, is expensed. profit for the year when the hedged item (sales income) affects profit for the year. This principle is also applied with respect to areas outside the existing mines. The hedged flows can be both contracted and forecast transactions. 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. 18 PROPERTY, PLANT AND EQUIPMENT 18.1 Owned assets 18.6 Additional expenditures Property, plant and equipment, including future remediation expenses, is reported at cost Additional expenditures are added to cost if it is probable that future economic benefit less accumulated depreciation and any impairment. associated with the asset will accrue to the company, and if cost can be calculated in a Cost includes the purchase price and expenses directly attributable to the asset, such reliable manner. All other additional expenditures are reported as expenses in the period as those associated with delivery and installation of the asset for use as intended by the in which they arise. acquisition. The cost of self-constructed property, plant and equipment includes expendi- Additional expenditures are added to cost if the expenditures are related to the replace- tures for materials, payroll expenditures, and other fabrication costs directly attributable ment of identifiable components or parts thereof. In cases where a new component is to the asset where applicable. created, the expenditure is also added to cost. Any undepreciated reported values on Future expenditures for dismantling and removing fixed assets and restoring the loca- replaced components, or parts thereof, are retired and expensed in connection with the tion or area (remediation costs) with regard to ongoing activities are capitalized. Amounts replacement. Repairs are expensed on an ongoing basis. capitalized represent the present value of accrued expenses that are simultaneously reported as provisions. 18.7 Depreciation principles Component parts of property, plant or equipment that have different useful lives are Assets are depreciated on a straight-line basis over their useful life; land is not depreci- treated as separate components of said property, plant or equipment. ated. The Group applies component depreciation, whereby the estimated useful life of the The reported value of property, plant and equipment is removed from the statement of component constitutes the basis for depreciation. Installations and equipment utilized in financial position when the asset is retired or disposed of. Gain or loss arising from the open-pit mines are usually depreciated either over their estimated life or the life of the disposal or retirement of an asset is the difference between the selling price and the as- mine they pertain to, whichever is shorter. set’s reported value with deductions for direct selling expenses. Gain or loss is reported The following depreciation periods are applied to property, plant and equipment, as other operating income/expense. including future remediation costs:

18.2 Acquisition of property - urban transformation - Owner-occupied properties, rental properties 15 - 100 years When property is acquired as part of urban transformation, the cost is divided into a - Plant and machinery 5 - 20 years building component and a mine component. This division is based on the assumption that - Equipment, tools, fixtures and fittings 5 - 20 years the building can be used for temporary leasing for a limited period from acquisition to - Underground installations 12 - 20 years evacuation. - Capitalized restoration costs - In line with area The building component is calculated as the present value of the net cash flows from overburden stockpile overburden stockpile the leasing. If the calculation shows a positive cash flow, the amount is reported as an - Capitalized restoration expenses - other Estimated life of present asset and is depreciated over the period that the building is deemed to be usable. The production structure. Reviewed mine component is defined as the property’s total cost less the building component. when new main levels come into use A limit to the compensation basis for the impact of mining to date has been defined For depreciation of property acquired in conjunction with urban transformation and by LKAB and is called the impact boundary. When property is acquired within the impact open-pit mines, see sections 18.2 and 18.4 above. boundary, LKAB has already consumed the financial benefits of the property, and the Owner-occupied properties are classified mainly as buildings, land improvements and mine component is immediately expensed. When property is acquired outside the impact land. Buildings and land improvements consist of several components that are classified boundary that is in an area for future mining, the mine component is instead depreciated on the basis of function; e.g. roads, surfacing, service facilities, processing plants, etc. until the impact boundary touches the property in question so as to match the underlying Rental properties consist of several components with different useful lives. The main production/consumption of the financial benefits. classifications are buildings and land. The buildings are divided into several components whose useful lives vary. The estimated useful lives of these components range from 15 18.3 Underground installations to 100 years. Installations underground, whence iron ore is extracted, can be divided into waste rock The following main groups of components have been identified and form the basis of mining and iron ore mining. Waste rock mining consists of work done to expose the ore depreciation of leasing properties. body in connection with the construction of a main haulage level, construction pertaining to transport and maintenance functions such as railways, roads, tunnels, shafts, inclined - Frames, foundations and interior walls 100 years drifts (a system of access for vehicle traffic from surface level to the work site under- - Water, sewage, electrical and heating systems 50 years ground), and facilities for service and electrical and air supply. These expenses referring - Facades 40 years to installations intended for use for a period longer than one year, are capitalized in the - Windows 50 years statement of financial position. Depreciation occurs systematically over the life of the - Interior finishing and white goods 15 years main level concerned. Iron ore mining mainly consists of development, cave drilling and loading, haulage and An asset’s residual value and useful life are evaluated at the close of each reporting hoisting of the ore. Expenditures on these activities have a useful life of at most one year, period and adjusted as necessary. which is why they are expensed as they are incurred.

119 INTEGRATED REPORT 2013

19 INTANGIBLE ASSETS 21 IMPAIRMENTS 19.1 Goodwill The Group’s reported assets are tested on every closing date to ascertain whether any Goodwill is measured at cost less any accumulated impairment losses. Goodwill is impairment requirement is indicated. Every closing day a test is carried out on previously allocated among cash generating units and is tested annually for impairment; see impaired assets other than financial assets and goodwill as to whether reversal is accounting principles in section 21.1. necessary.

19.2 Minerals rights 21.1 Impairment of property, plant and equipment, intangible assets and participations in Mineral rights are reported at cost less accumulated amortization and any impairments. subsidiaries, associates and joint ventures If impairment is indicated, the recoverable value of the asset is calculated. The recovera- 19.3 Research and development ble amount for goodwill is calculated annually. If it is not possible to ascertain essentially Expenditures for research aimed at acquiring new scientific or technical knowledge are independent cash flows attributable to a single asset when impairment is assessed, expensed as they arise. assets are grouped at the lowest level at which it is possible to identify essentially inde- Development expenditures, i.e. expenses for research of which the results or other pendent cash flows (a so-called cash-generating unit). knowledge is applied to realize new or improved products or processes, are reported An impairment is reported when the reported value of an asset or cash-generating unit as an asset in the statement of financial position if the product or process is technically (group of units) exceeds its recoverable amount. Impairment losses are charged to the and commercially viable and the company has sufficient resources to complete the -de income statement. Impairments of assets attributable to cash generating units (group of velopment and subsequently use or sell the intangible asset. The value includes directly units) is allocated to goodwill in the first instance, after which a proportional impairment attributable expenses such as goods and services and remuneration to employees. If the of other assets in the unit (group of units) is carried out. above criteria are not fulfilled, the costs must be expensed. Because no such develop- The recoverable amount is fair value less selling expenses or value in use, whichever ment expenditures have met these criteria thus far, LKAB expenses all expenditures for is the greater. When calculating value in use, future cash flows are discounted using a development as they arise. pre-tax discount rate that reflects risk-free interest and the risks associated with the specific asset. 19.4 Other intangible assets Other intangible assets such as software acquired by the Group are reported at cost less 21.2 Impairment of financial instruments accumulated amortization (see below) and impairments. On each reporting occasion, the company assesses whether there is objective evidence that a financial asset or group of financial assets requires impairment. Objective evidence 19.4.1 Emission allowances constitutes observable circumstances that have had an adverse impact on the potential LKAB participates in the EU’s system for trade in emission allowances, which grants the to recover the amortized cost such as breach of contract, late or defaulted payment from right to emit carbon dioxide. Allowances are allocated across the European market. On a counterparty or bankruptcy, or a significant or long-term decrease in the fair value of a allocation the allowances are reported as intangible assets and deferred income, since component of a financial investment classified as available for sale. the company has not qualified for any allowances at the time of issue. Impairment of accounts receivable is determined based on historical experience of Qualification is at the same rate as actual emissions, when a liability to supply emis- customer losses with similar receivables. Accounts receivable that have an impairment sion allowances then arises. Reclassification is done from deferred income to provision requirement are reported at the present value of anticipated future cash flows. Assets for emission allowances. The liabilities are measured at the cost of the allocated emis- near maturity are not discounted. Impairments are charged to operating profit on the sion allowances. The income is accrued against the cost it is intended to cover. income statement. When emission allowances are reported an equivalent number of emission allowances For impairment of an equity instrument that is classified as an available-for-sale must be supplied. Thus the intangible asset is used and the provision for emissions financial asset, the previously reported accumulated gain or loss in equity is reclassified made is settled. Where a liability to deliver emission allowances exceeds the remaining via other comprehensive income to profit for the year. The amount of the accumulated allocation of emission allowances the excess amount is carried as a liability measured at loss that is reclassified from equity via other comprehensive income to profit for the year the current market value of the number of emission allowances necessary to settle the represents the difference between cost and current fair value less any impairment of the obligation. For information on amounts, see Note 26 financial asset that has already been reported in profit for the year. Impairment of available-for-sale financial assets is reported in profit for the year under 19.5 Additional expenditures net financial items. Additional expenditures for capitalized intangible assets are reported as assets in the statement of financial position only when they increase the future financial benefits for 21.3 Reversal of impairment the specific asset to which they pertain. All other expenditures are expensed as they Impairments of assets included in the IAS 36 application area are reversed when there is arise. an indication that impairment is no longer necessary and there has also been a change in the assumptions which formed the basis of the calculation of the recoverable amount 19.6 Amortization principles when the asset was impaired. However, impairment of goodwill is never reversed. A Amortizations are reported in the income statement on a straight line basis over the reversal is only made to the extent that the asset’s reported value after reversal does not estimated useful life of the intangible assets. Amortizable intangible assets are written exceed the reported value that the asset would have had, with a deduction for amortiza- off from the date on which they are available for use. The estimated useful lives are: tion, if no impairment had been carried out. Impairments of loans receivable and accounts receivable that are reported at accrued - Minerals rights 30 - 50 years cost, are reversed if a subsequent increase in recoverable amount can be related objec- - Customer-related intangible assets 3 – 5 years tively to an event occurring after the impairment was made. - Software 5 years Impairments of equity instruments classified as available-for-sale financial assets that were previously reported in the income statement may not subsequently be reversed An asset’s residual value and useful life are tested at the close of each reporting period through the income statement but rather in other comprehensive income. The impaired and adjusted as necessary. value is the amount on which subsequent revaluations are based and which are reported in other comprehensive income. Impairments of interest-bearing instruments classified 20 INVENTORIES as available-for-sale financial assets are reversed through the income statement if Inventories are reported at the lower of cost or net realizable value. The cost of inven- the fair value increases and the increase can objectively be attributed to an event that tories is calculated on the basis of the first-in, first-out (FIFO) method and includes -ex occurred after the asset was impaired. penditures arising from the acquisition of the inventory assets and their transport to their current location. In the case of manufactured goods and work in progress, cost includes a reasonable proportion of indirect costs based on normal capacity. Net selling price is the estimated selling price in current operations, after deductions for estimated costs of completion and for realizing a sale.

120 NOTES TO THE FINANCIAL STATEMENTS

22 EQUITY 25 PROVISIONS 22.1 Dividends A provision differs from other liabilities in that there is uncertainty about the date of Dividends are reported as liabilities once they have been approved at the Annual General payment or the amount required to settle the provision. A provision is reported in the Meeting. 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 financial resources will be required to settle 23 EARNINGS PER SHARE the obligation and that the amount can be reliably estimated. Calculation of earnings per share is based on the Group’s profit for the year attributable A provision is made in an amount that is the best estimate of what is required to settle to Parent Company shareholders and the weighted average number of shares outstand- the obligation on the closing date. When the effect of payment timing is important, provi- ing during the year. sions are calculated by discounting the forecast future cash flow at a pre-tax interest rate that reflects current market estimates of the time value of money and, where appropriate, 24 EMPLOYEE BENEFITS the risks associated with the liability. 24.1 1 Defined-contribution pension plans Defined contribution pension plans are classified as those plans under which the 25.1 Provisions for urban transformation company’s obligation is limited to the contributions the company has undertaken to pay. See section 28.1.1 below. Under such plans the size of an employee pension is based on the contributions the company pays to the plan or to an insurance company and the capital yield generated 25.2 Provisions for remediation by the contributions. Consequently, it is the employee who bears the actuarial risk (that See section 28.1.2 below. the payment will be lower than expected) and the investment risk (that the investment assets will be inadequate to provide the expected benefits). The company’s obligations in 26 CONTINGENT LIABILITIES respect of contributions to defined-contribution plans are reported as an expense in the A contingent liability is reported if there is a possible commitment stemming from events income statement as they are earned by the employees working for the company during evidence of whose occurrence is dependent on one or more uncertain future events as the period. well as when there is a commitment that is not reported as a liability or provision because it is unlikely that an outflow of resources will be required. 24.2 Defined-benefit pension plans The Group’s net obligation for defined-benefit plans is calculated separately for each plan 27 PARENT COMPANY ACCOUNTING PRINCIPLES by estimating the future compensation that employees have earned through employment The Parent Company has prepared its Annual Report in compliance with the Swedish An- in present and previous periods; this compensation is discounted to present value and nual Accounts Act (1995:1554) and Swedish Financial Reporting Board recommendation the fair value of any plan assets is deducted. The discount rate is the interest rate on the RFR 2 Reporting for Legal Entities. Statements issued by the Swedish Financial Reporting closing day for a first-class corporate bond with a maturity corresponding to the Group’s Board for publicly listed companies are also applied. RFR 2 means that in preparing pension obligations. When there is no active market for such corporate bonds, the the annual accounts for the legal entity, the Parent Company must apply all IFRS and market interest rate on government bonds with an equivalent maturity is used instead. statements approved by the EU as far as is possible within the framework of the Swedish The calculation is made by a qualified actuary using the Projected Unit Credit Method. In Annual Accounts Act and Swedish Pension Obligations Vesting Act taking into account the addition, the fair value of plan assets as per closing day is calculated. relationship between reporting and taxation. The recommendation specifies the exceptions The Group’s net obligation consists of the present value of the obligation less fair value from, and additions to, IFRS that must be made. of the plan assets adjusted for any asset limitations. Revaluation effects consist of actuarial gains and losses, differences between actual 27.1 Difference between Group and Parent Company accounting principles returns on plan assets and the total included in net interest and any changes in effects of Differences between Group and Parent Company accounting principles are detailed below. asset limitations (excluding interest included in net interest). Actuarial gains and losses The Parent Company accounting principles specified below have been consistently applied arise either as a result of outcomes deviating from assumptions previously made or to all the periods presented in the Parent Company’s financial statements. revisions to said assumptions. Revaluation effects are reported in other comprehensive income. 27.2 Changed reporting principles Where the calculation leads to an asset for the Group, the reported value of the asset Unless otherwize stated below, the Parent Company’s accounting principles in 2013 have is limited to the lower of plan surplus and asset limitation calculated using the discount changed in the same way as for the Group. rate. The asset limitation represents the present value of the future financial benefits The Swedish Financial Reporting Board has published a change in RFR 2 regarding in the form of reduced future contributions or cash repayment. When calculating the reporting Group contributions, which comes into force for the financial year beginning 1 present value of future payments or repayments, any requirement for minimum funding January 2013 or later. The change means that companies may choose between reporting is taken into account. Group contributions according to the recommendation’s main rule or an alternative rule. Changes or reductions in a benefit plan are reported at the earlier of the following According to the main rule the parent company reports Group contributions received points: a) when the change or reduction in the plan occurs or b) when the company from subsidiaries as financial income and Group contributions paid to subsidiaries recognizes related restructuring expenses and redundancy payments. Changes and as an increase in shares in Group companies. According to the alternative rule Group reductions are reported directly in profit for the year. contributions the Parent Company receives from, or pays to, subsidiaries are reported as The special employer’s contribution represents part of the actuarial assumptions and appropriations. is therefore reported as part of the net obligation. Special employer’s contributions relat- LKAB has chosen to apply the alternative rule with effect from 2013. Previous year, all ing to the difference between how the pension obligation is determined for a legal entity Group contributions were reported as financial income. The change means that the com- and for the Group is reported as part of the net obligation. Provisions and receivables parative figures for 2012 have been recalculated, resulting in an increase in net financial are not calculated to present value. That part of the special employer’s contribution that items of SEK 208 million with appropriations increasing by the same amount. is calculated on the basis of the Pensions Obligations Act for legal entities is reported for the purposes of simplification as accrued expense instead of as part of the net 27.3 Subsidiaries, associates and joint ventures obligation/asset. Participations in subsidiaries, associates and joint ventures are reported by the Parent The net interest expense/income for the defined benefit obligation/asset is reported Company according to the cost method. This means that transaction expenses are includ- under net financial items in profit for the year. The net interest is based on the interest ed in the reported value for holdings in subsidiaries, associates and joint ventures. arising from discounting the net obligation, i.e. interest on the obligation, plan assets and the interest on the effect of any asset limitations. Other components are reported in 27.4 Financial instruments and hedge accounting operating profit. Owing to the relationship between recognition and taxation, the rules referring to financial instruments and hedge accounting in IAS 39 are not applied in the Parent Company as a 24.3 Short-term employee benefits legal entity. Short-term employee benefits are calculated on an undiscounted basis and reported as Non-current financial assets are measured in the Parent Company at cost less any impair- an expense when the related services are received. ment and current financial assets are reported at the lower of cost or net realizable value. A provision is made for the expected cost of profit-sharing or bonus payments when Valuation of shares and money market investments is done at the portfolio level. This the Group has a legal or informal obligation to make such payments as a result of servic- means that for instruments included in the same portfolio, unrealized gains are offset es being rendered by employees and a reliable estimate of the amount can be made. against unrealized losses. Surplus losses are reported as reduction in interest income on the line Other interest income and similar items. Surplus gains are not reported.

121 INTEGRATED REPORT 2013

Liabilities are measured at amortized cost. 28 SIGNIFICANT ESTIMATES AND ASSESSMENTS For currency hedging of receivables in foreign currencies using forward exchanges, the In presenting the financial statements, company management and the Board of Directors spot rate on the date the hedging is done is used to value the hedged receivable. must make certain estimates and assumptions that affect the reported amounts that pertain to assets, liabilities, income and expenses, and other disclosures such as contin- 27.4 Derivatives and hedge accounting gent liabilities. Currency exposure in respect of forecast future flows are hedged through forward Estimates and assessments that are considered to be of greatest importance to an exchange rate contracts. Forward exchange contracts that protect the forecast flow are understanding of the financial statements as regards degrees of significance and uncer- not reported on the balance sheet. Changes in value in forward contracts are reported in tainty are presented below. Conditions for LKAB’s operations change continuously, which the same period as the forecast flow occurs. means that these assessments also change. The hedged volume in USD is reconciled against the estimated net inflow of USD. If the hedged volume exceeds the value of the expected net inflow and there is an unrealized 28.1 Provisions resulting from mining operations exchange loss, it is reported as a financial expense. If there is an unrealized exchange 28.1.1 Provisions for urban transformation gain, it is not reported. LKAB has extracted iron ore in Norrbotten for more than 120 years. The technology used The difference between the forward exchange rate and the spot rate on entering into for ore extraction in underground mines leads to deformations in the form of fractures the contract (arbitrage premium) is accrued over the term of the forward contract. Ac- in the land where mining is pursued. The deformation zones are, or will be, so extensive crued arbitrage premiums are reported as interest income or interest expense. that it will be necessary to successively relocate sections of Kiruna and Malmberget. The difference between average forward exchange rate and closing date rate for Although there are many similarities between conditions in Kiruna and Malmberget, forward contracts incurred is reported as a contingent liability if the closing date rate is the geological conditions differ. In Kiruna there is a gradual spread of deformations with higher than the average rate of the forward exchange contract. continuous fissuring, while in Malmberget there is widespread undermining of the soil in the city center. The deformations are a direct result of mining operations. For Malmberget 27.5 Financial guarantees it can be said that the impact area from the mining of several different ore bodies has The Parent Company’s financial guarantee agreements mainly consist of guarantees that essentially encircled central Malmberget, which means that it is not able to function as a benefit subsidiaries. Financial guarantee agreements mean that a company has a com- normal city center. mitment to remunerate the bearer of a debt instrument for losses incurred as a result LKAB has already made, and will continue to make, significant expenditures in respect of the failure of a given debtor to make full payment on due date in accordance with the of these urban transformations. For instance, LKAB will incur expenses for the acquisi- terms of the agreement. The Parent Company applies one of the relief rules permitted tion of real estate and municipal infrastructure such as electricity, water and sewage in by the Swedish Financial Reporting Board, compared with the rules in IAS 39, in its the affected areas. The expenditures arise from LKAB’s mandatory obligation to compen- reporting of financial guarantee agreements made out for the benefit of subsidiaries. The sate damage resulting from mining activities. Parent Company reports financial guarantee agreements as a provision in the balance Provisions for the damages that the deformations cause cover damage already con- sheet when the company has an obligation for which settlement will probably require firmed and damage not yet confirmed but which will occur after a delay of a year or more payment. as a result of existing mining. LKAB recognizes a provision when:

27.6 Anticipated dividends 1. A legal or informal obligation toward an external party exists Anticipated dividends from subsidiaries are reported in cases where the Parent Company 2. As a result of events occurring has sole right to decide the size of the dividend and has decided on the size of the divi- 3. The company anticipates an outflow of economic resources at settlement dend before the publication of its financial statements. 4. The amount can be reliably estimated

27.7 Property, plant and equipment A limit to impact-related compensation has been defined by LKAB and designated as the Anticipated dividends from subsidiaries are reported in cases where the Parent Company impact boundary. The basic rule is that an undertaking is not reported until the impact has sole right to decide the size of the dividend and has decided on the size of the divi- boundary encroaches upon the real estate boundary or infrastructure concerned. All dend before the publication of its financial statements. damage/compensation claims that are within the impact boundary are calculated and reported as provisions and as costs in the income statement, due to the fact that LKAB 27.8 Intangible assets has consumed the financial benefits that the mining operation has generated. 27.8.1 Research and development The impact boundary in Kiruna is based on the existing environmental terms boundary All research and development expenditures are reported as expenses in the Parent according to rulings from the environmental court. Additions are made for a safety zone Company income statement. for movement that is expected to occur even if mining were to cease (100 m) and for an area designated as a Mine City Park (350 m), equivalent to a conversion time of about 27.9 Employee benefits seven years from built-up area to park to industrial area. 27.9.1 Defined benefit plans The impact area is adjusted each year for moving the environmental terms boundary The Parent Company applies principles other than those described in IAS 19 when cal- an additional 450 meters. Effective 2013, a new measurement method is applied to culating defined-benefit plans. The Parent Company complies with the provisions of the handle the effect of ground deformities not occurring continuously. The new method Swedish Pension Obligations Vesting Act and Swedish Financial Supervisory Authority means that the assessed movement of the environmental terms boundary is linked to regulations since this is a condition for tax deductibility. The essential differences, com- the deformity forecast. Based on the current forecast for ground deformities, the position pared to IAS 19, are the way in which the discount rate is determined, that calculation of of the environmental terms boundary is calculated by distributing the forecast movement defined-benefit commitments is based on current salary levels without assuming any equally over the period covered by the forecast. Provisions are made during the year to future salary increases, and that all actuarial gains and losses are reported in the income allow for the movement of the environmental terms boundary for the year in question. statement as they arise. Reconciliation is made with updated forecasts for ground deformity. For Malmberget there are no environmental conditions determined by a court of law. 27.10 Taxes As indicated above however, it can be established that the center of Malmberget is large- Unlike the Group accounts, the Parent Company reports without division untaxed ly encircled by the impact area from mining operations. Provisions have therefore been reserves into equity and deferred tax liabilities in the balance sheet, nor does the Parent made for this entire impact area. Company allocate any part of appropriations to deferred tax expenses in the income For Malmberget there are no environmental conditions determined by a court of law. statement. As indicated above however, it can be established that the center of Malmberget is large- 27.11 Group contributions and shareholder contributions for legal entities ly encircled by the impact area from mining operations. Provisions have therefore been Group contributions received or paid are reported as appropriations. made for this entire impact area. Shareholder contributions are reported as an increase in participations in subsidi- The amount of the provision is calculated on the basis of objective valuation methods aries by the donor. The recipient recognizes shareholder contributions directly against for each type of asset (railway, land areas, municipal infrastructure, housing, etc.) and a unrestricted equity. present value is assigned. The impact will continue for many years ahead and there will be uncertainty regarding e.g. geological consequences, assumptions about market values, demolition and waste disposal costs, etc.

122 NOTES TO THE FINANCIAL STATEMENTS

The uncertainty present in calculations made hitherto will decrease as new experience is corporate bonds or, if there is no active market for such bonds, government bonds. A gained and considered in future calculations. lower discount rate increases the current value of the pension obligation and the annual pension cost. 28.1.2 Provisions for remediation In order to determine the expected rate of return on plan assets, LKAB considers the In addition to urban transformation, the mining operation also creates obligations in current and anticipated categories of plan assets as well as historic and expected returns respect of remediation, dismantling and decontamination. These obligations mainly on the various categories. arise as a result of legal environmental requirements. As noted above, with effect from The average discount rate for Swedish obligations is 3.5 (3.2) percent. 2013, the Group recognizes provisions for remediation costs for all legal and informal obligations. 28.3 Taxes Future expenditures for remediation refer to expenditures resulting from concluded Significant estimates are made to determine current tax liabilities and current tax activities and also ongoing activities. The company collaborates with the supervisory assets, and for deferred tax liabilities and deferred tax assets. LKAB has to determine authorities to devise long-term plans for remediation of the mining areas. For ongoing the probability of deferred tax assets being utilized to offset future taxable profits. Actual activities, the provisions are based on these remediation plans. outcomes may differ from these estimates, for instance due to changed tax legislation, The amount of the provision is calculated on the basis of areas and an assessment of or the outcome of final reviews of tax returns as yet unconcluded by tax authorities and future costs based on present day technology and general assumptions. The provisions tax courts. are assigned a present value. Future expenses for concluded activities are expensed so as to match underlying production/consumption of the financial benefits. Future costs for 28.4. Disputes ongoing activities are capitalized. LKAB is party to a number of disputes and legal proceedings in the course of day-to-day Retesting and updating of provisions is done as needed when the estimated useful lives business. Management consults with legal experts on issues related to legal disputes of the mine assets, costs, technical assumptions, regulations or other conditions change. and with other experts internally or externally on issues related to the ordinary course of The uncertainty present in calculations made hitherto will decrease as new experience business. Management’s considered opinion is that neither the Parent Company nor any is gained and considered in future calculations. subsidiary is currently involved in legal proceedings or arbitration that may be deemed to have a material negative effect on the business, its financial position or profit/loss in 28.2 Pension benefits operations. Several assumptions are important components in the actuarial methods used to calcu- late pension obligations, and these may have a significant impact on reported net liability and annual pension cost. The discount rate and the estimated return on plan assets are two critical assumptions used in calculating the year’s pension cost and the current value of pension obligations. These assumptions are revised each year, for each pension plan, in each country. Many factors do not change as often, such as personnel turnover and retirement age. For financial and other reasons, actual outcomes often differ from actuarial assumptions. The discount rate enables the measurement of future cash flows to current value on the measurement date. This rate must correspond to yields on either high-quality

123 INTEGRATED REPORT 2013

NOTE 2 DISTRIBUTION OF REVENUE

Group Parent Company SEK million 2013 2012 2013 2012 Net sales: Sale of goods – iron ore 21,745 24,909 21,918 25,054 Sale of goods – industrial minerals 1,660 1,760 Other 251 302 Total 23,656 26,971 21,918 25,054

NOTE 3 SEGMENT REPORTING Segment information The Group consists of the following operating segments: Group management has set up operating segments based on the information used for Mining Division. Mining Division mines and processes iron ore into products that are used strategic decisions in LKAB’s business operations. The Group's internal reporting system in steelmaking. The main products are pellets and fines and the number of customers is is based on this, as are product and division perspectives. Group management assesses limited to about twenty. and follows up on business activities in each division, and follow-up is focused on operat- ing income and operating assets in business activities. Minerals Division. Minerals Division develops, produces and markets industrial mineral Intra-group prices between segments are set on the arm's length principle, i.e. products for a number of applications, and customers are found in numerous industries between parties that are independent of each other, well-informed and with an interest in all over the world. The most important areas of use for industrial minerals are within completing transactions. civil engineering and the construction, oil and gas, polymer, paint, refractory and foundry Directly attributable items have been included in each segment's profits, assets and industries. The number of customers amounts to several thousand. liabilities. Non-distributed items consist of net financial items and tax xpenses.e Assets and Special Businesses Division. LKAB has several subsidiaries in the Special Businesses liabilities that have not been distributed by segment are tax receivables and liabilities, Division. These companies are at present mainly sub-contractors to the Mining Division financial investments and financial liabilities. Each segment's investments in property, and Minerals Division. Goods and services produced and sold include drilling equipment, plant, equipment and intangible assets include all investments with the exception of explosives, concrete, tunnel driving, rock reinforcement, scaling and iron ore crushing. those in current inventories and inventory of minor value. The segment information provided is as follows:

Operating segment Group Mining Minerals Special Businesses Division Division Division Total Eliminations2 Group SEK million 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 External sales 21,745 24,909 1,660 1,760 251 302 23,656 26,971 23,656 26,971 Internal sales 239 235 1 2 1,691 2,049 1,931 2,286 -1,931 -2,286 Total sales 21,984 25,144 1,661 1,762 1,942 2,350 25,587 29,257 -1,931 -2,286 23,656 26,971

Operating profit by operating segment 6,951 10,121 63 132 277 230 7,291 10,483 7,291 10,483 Group adjustments1 348 106 Operating profit 7,639 10,589 Net financial items 129 388 Profit before tax 7,768 10,977 Tax -1,736 -2,224 Profit for the year 6,032 8,753

Assets 41,163 37,988 1,102 1,076 1,045 1,051 43,310 40,115 -2,182 -1,963 41,128 38,152 Undistributed assets 16,694 19,792 Total assets 57,822 57,944

Liabilities 12,100 12,880 553 551 355 417 13,008 13,848 -471 -516 12,537 13,332 Undistributed liabilities 3,813 3,527 Total liabilities 16,350 16,859

Investments in property, plant and equipment 5,902 5,663 24 38 53 106 5,979 5,808 5,979 5,808 Group adjustments 162 Total investments 6,141 5,808 Depreciation -2,291 -1,856 -26 -28 -70 -68 -2,387 -1,952 -2,387 -1,952 Group adjustments -45 Total depreciation -2,432 -1,952 Impairment -16 -1 -16 -1 -16 -1

1 Refers to adjustment of the Group's pension liabilities according to IAS 19, intra-group profits and other group-related adjustments 2 Refers to intra-group transactions

124 NOTES TO THE FINANCIAL STATEMENTS

Operating segments (cont.) Geographical area The vast majority of the Group's sales are made from Sweden and, therefore, from Swedish companies. Manufacture of the Group's products occurs almost exclusively in Sweden. Investments have mainly been made in Sweden. The reported value of assets by country/region is based on where the assets are located and revenue is reported based on where sales, production, delivery and invoicing occur, regardless of where the customers are located.

Group Sweden Other Europe Middle East & Asia Rest of world SEK million 2013 2012 2013 2012 2013 2012 2013 2012 External sales 22,047 25,219 956 1,011 552 656 101 85 Property, plant and equipment 31,252 27,642 2,493 2,669 14 3 0 1 Investment in property, plant and equipment 5,907 5,531 227 276 6 1 1 0

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 16 (15) %, 15 (14) % and 14 (11) % and are reported in the operating segment Mining Division.

Parent Company Mining Division Minerals Division Special Businesses Division Parent Company SEK million 2013 2012 2013 2012 2013 2012 2013 2012 Net sales 21,918 25,054 21,918 25,054

Parent Company Europe Asia Rest of world Parent Company SEK million 2013 2012 2013 2012 2013 2012 2013 2012 Net sales 15,074 16,803 5,855 7,084 989 1,167 21,918 25,054

NOTE 4 OTHER OPERATING INCOME NOTE 5 OTHER OPERATING EXPENSES SEK million Group Parent company SEK million Group Parent Company 2013 2012 2013 2012 2013 2012 2013 2012 Rent income, buildings 165 162 12 14 Property expenses 131 115 Gain on sale of fixed assets 4 2 0 Losses from sale of fixed assets 4 3 6 3 Exchange rate gains from Exchange rate losses from receivables/liabilities related to operations 27 28 20 13 receivables/liabilities related to operations 11 7 Rental and leasing income 4 6 5 7 Other 414 473 297 392 Other 236 341 340 432 560 598 303 395 436 539 377 466

NOTE 6 EMPLOYEES, PERSONNEL COSTS AND REMUNERATION TO SENIOR EXECUTIVES Average no. of employees of whom of whom of whom of whom Parent Company 2013 women men 2012 women men Sweden 3,375 19 % 81 % 3,317 19 % 81 % Total Parent Company 3,375 19 % 81 % 3,317 19 % 81 %

Subsidiaries Sweden 500 15 % 85 % 480 13 % 87 % China 49 31 % 69 % 48 29 % 71 % The Netherlands 25 32 % 68 % 25 32 % 68 % Norway 202 10 % 90 % 198 10 % 90 % United Kingdom 193 21 % 79 % 208 21 % 79 % Germany 18 50 % 50 % 18 50 % 50 % Other countries 65 25 % 75 % 63 27 % 73 % Total in subsidiaries 1,052 17 % 83 % 1,040 17 % 83 %

Group total 4,427 19 % 81 % 4,357 18 % 82 %

125 INTEGRATED REPORT 2013

Gender distribution in Company Management as of 31 December 2013 2013 2012 2012 Percentage Percentage Percentage Percentage Parent Company women men women men Board of Directors 36 % 64 % 40 % 60 % Other senior executives 20 % 80 % 33 % 67 %

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

Parent Company 2013 2012 Senior Senior executives Other executives Other SEK million (21 persons) employees Total (21 persons) employees Total Salaries and other remuneration Sweden 26 1,730 1,756 24 1,677 1,701 Parent Company total 26 1,730 1,756 24 1,677 1,701

Social costs1 1,027 907

1 Of which pension costs 495 361

Remuneration to senior executives Principles for remuneration to senior executives The CEO and the other Group management executives are paid fixed salaries. Senior executives The salaries are pensionable. Senior executives refers to Board members, the CEO and other senior executives. CEO Lars-Eric Aaro’s monthly salary was SEK 380,000. Retirement age for the CEO is Other senior executives refers to salaried employees who are members of Group 65. The CEO’s pension plan is a defined-contribution plan whereby LKAB makes a yearly management together with the CEO. provision of 30 percent of the CEO’s current fixed annual salary for a pension plan chosen by the CEO, which may include the ITP plan. That part of the alternative ITP premium that Guidelines for remuneration to senior executives is not used to cover premiums for the ITP plan can be used by the CEO for a complemen- Remuneration to the Chairman and Board members is decided at the Annual General tary pension plan. Accured pension provisions from earlier employment agreements Meeting, AGM. In addition, remunerations are paid for committee work. are vested benefits. The CEO is entitled to decline salary in favor of additional pension For remunerations to Group management, it was resolved at the AGM to apply the provisions up to a maximum level decided by LKAB. most current government employment guidelines to persons in managerial positions The retirement age for other senior executives is 65. They have a defined contribution and to incentive programmes for employees in state-owned enterprises. Government pension plan to which LKAB allocates 30 percent of annual fixed salary. guidelines were updated in April 2009. As of 31 December 2012, the former defined benefit plans for other senior executives who joined Group management before 2009 (4 persons) were settled by commutation. Preparation and decision processes for setting remunerations to senior executives The right to the commutation is earned successively in three equal parts. The first part Remuneration terms for the CEO and salary-setting principles for Group management ex- is considered fully earned upon signing the agreement (31 December 2012). The second ecutives are prepared by a compensation committee appointed by the Board of Directors. part is considered earned one year after the signing of the agreement (31 December The committee consists of four board members. The Board of Directors takes decisions 2013) and the third part is is considered earned two years after the signing of the agree- based on committee proposals. The Chairman of the Board approves the annual salary ment (31 December 2014). reviews of other Group management executives. Mutual notice of termination is six months for senior executives. Severance pay equiv- alent to 18 monthly salaries shall be paid when notice of termination of employment is given by the company. For further information, see the table "Remuneration and other benefits to members of Group management in 2013".

126 NOTES TO THE FINANCIAL STATEMENTS

Remuneration and other benefits to Board members 2013 2012 SEK thousand Board fee1 Board fee1 Chair of the Board Marcus Wallenberg 590 583 Board member Hans Biörck 310 207 Board member Maija Liisa Friman 250 250 Board member Lars-Åke Helgesson 330 323 Board member Sten Jakobsson 250 167 Board member Hanna Lagercrantz2 Board member Maud Olofsson 250 167 Board member Lars Pettersson 167 Board member Stina Blombäck 83 Board member Anna-Greta Sjöberg 103 Board member Egil M. Ullebö 83 Total 2,147 1,966

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

Remuneration and other benefits to members of Group management in 2013 Other Pension Pension SEK thousand Basic salary benefits1 expenses2 Total obligations CEO Lars-Eric Aaro 4,647 94 1,437 6,178 4,598 Vice President Leif Boström 2,321 81 1,698 4,100 2,231 Vice President Charlotta Fogde3 1,590 61 662 2,313 40 Vice President Anders Furbeck 2,251 13 3,284 5,548 11,323 Vice President Frank Hojem4 520 7 214 741 Vice President Katarina Holmgren 1,781 95 585 2,461 139 Vice President Anders Kitok 1,938 74 1,577 3,589 2,544 Vice President Per-Erik Lindvall 2,651 84 3,192 5,927 13,987 Vice President Markus Petäjäniemi 2,560 88 882 3,530 68 Vice President Grete Solvang Stoltz 1,937 82 637 2,656 36 Vice President Peter Schmid5 951 71 362 1,384 Total 23,147 750 14,530 38,427 34,966

1 Other benefits include car, subsistence and life insurance benefits. 2 Pension costs excluding specific payroll tax. 3 Period 01/01/2013-10/12/2013. 4 Period 01/09/2013-31/12/2013. 5 Period 01/08/2013-31/12/2013.

Remuneration and other benefits to members of Group management in 2012

Other Pension Pension SEK thousand Basic salary benefits1 expenses2 Total obligations CEO Lars-Eric Aaro 4,471 103 1,361 5,935 4,544 Vice President Leif Boström 2,356 89 1,922 4,367 1,212 Vice President Anders Furbeck 2,273 17 4,445 6,735 7,395 Vice President Grete Solvang Stoltz 1,952 79 589 2,620 27 Vice President Per-Erik Lindvall 2,588 75 4,920 7,583 9,660 Vice President Anders Kitok 1,942 86 1,854 3,882 1,581 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 24,644

1 Other benefits include car, subsistence and life insurance benefits. 2 Pension costs excluding special employer’s contribution.

For information abon post-employment benefits, see Note 25 Pensions.

127 INTEGRATED REPORT 2013

NOTE 7 AUDITOR'S FEES AND COMPENSATION Since the contract was signed, a lower interest rate in SEK compared with the USD rate has led to a positive effect of SEK 65 million (83) linked to the interest component of the Group Parent Company forward exchange contract item. SEK million 2013 2012 2013 2012 The net gains and losses reported in net financial items under the exchange rate fluc- Deloitte tuations item refer primarily to currency revaluation of cash and cash equivalents. The Audit assignments 7 7 4 4 strengthening of the Swedish krona has led to exchange rate losses on bank balances Additional auditing 0 1 0 during the year. Tax consultancy 1 1 1 1 Other financial xpensese refer primarily to bank and administration expenses. Other services 3 1 2 1

Parent Company Other auditors Profit from Profit from Audit assignments 0 0 participations in participations in Additional auditing 0 Group companies associates Tax consultancy 4 7 3 6 SEK million 2013 2012 2013 2012 Other services 1 5 5 Dividend 214 532 1 Impairment -5 Audit assignments refer to statutory auditing of annual and consolidated accounting 209 532 1 and bookkeeping, as well as the Board and CEO's administration and auditing and other reviews performed as agreed upon. Parent Company Profit from other Other interest This includes other tasks that it falls to the company's auditor to perform, as well as securities and income consultancy or other assistance as a result of such reviews or the performance of such receivables as and similar other tasks. fixed assets profit/loss items SEK million 2013 2012 2013 2012 Interest income, Group companies 33 35 41 33 NOTE 8 OPERATING EXPENSES BY TYPE Interest income, forward exchange premiums 58 80 Interest income, other 255 385 Group Parent Company Return, share portfolio 241 72 SEK million 2013 2012 2013 2012 Dividend, shares 12 25 31 30 Personnel expenses 3,415 3,474 2,892 2,713 45 60 626 600 Material etc. 3,332 3,723 2,498 2,547 Energy 1,690 1,687 1,451 1,529 Dividend on shares that are financial assets refers to holdings in SSAB. Transports 2,000 2,384 3,227 3,175 Interest income and similar profit/loss items includes return on money market instru- Depreciation and impairment 2,448 1,957 1,812 1,465 ments and bonds of SEK 225 million (353). Other operating expenses 3,568 3,696 3,683 4,008 16,453 16,921 15,563 15,437 Parent Company Interest expenses and similar profit/loss items Other operating expenses includes SEK 620 million (1,094) relating to expenses that have SEK million 2013 2012 arisen due to the effect of mining on communities. The amount refers to provisions for Interest expenses, limit fees, loan facility -13 -40 future payments. Interest expenses, Group companies -8 -13 Interest expenses, pension liabilities -34 -34 Interest expenses, urban transformation -102 -87 Interest expenses, remediation expenses -22 -22 NOTE 9 NET FINANCIAL ITEMS Impairment, financial assets 0 -1 Group Exchange rate differences, foreign currencies -178 -45 SEK million 2013 2012 Interest expenses, other -1 -3 Financial income Other -9 -8 Assets valued at fair value (fair value option) -367 -253 - Interest-bearing securities - net gain 219 362 - Share portfolio - net gain 194 171 Interest expenses on pension liabilities have been calculated using an interest rate of - Share portfolio - dividend 31 30 4.1 (4.2) percent. Other financial expenses consist primarily of bank and administration - Derivatives 17 expenses. Financial assets available for sale - dividend 12 25 Investments held to maturity - interest 9 Profit from financial instruments that are reported in operating profit appear below: Forward exchange contracts - interest component 65 83 Other interest income 36 29 Group Parent Company Liquidation of associates 1 SEK million 2013 2012 2013 2012 Return on plan assets 28 32 Exchange rate gains/losses on accounts Total financial income 611 733 receivable and accounts payable 16 21 20 13 Net gains/losses on derivatives that Financial expenses are reported in operating profit 357 57 357 57 Investments held to maturity - impairment -22 Loan receivables - impairment -1 The derivatives reported in operating profit refer mainly to hedging of sales. Interest expense on provision for urban transformation -102 -88 Interest expense on provision for remediation expenses -29 -29 Interest expense on defined-benefit pension obligations -105 -120 Interest expense on loan facility -13 -39 Other financial expenses -16 -15 Exchange rate fluctuations (net) -195 -53 Total financial expenses -482 -345 Net financial items 129 388

128 NOTES TO THE FINANCIAL STATEMENTS

NOTE 10 APPROPRIATIONS Reconciliation of effective tax Group 2013 2012 Parent Company SEK million (%) 2013 (%) 2012 SEK million 2013 2012 Profit before tax 7,768 10,977 Difference between reported depreciation/amortization Tax according to prevailing tax rate and depreciation/amortization according to plan for Parent Company 22.0% -1,709 26.3% -2,887 Construction in progress -1,305 Non-deductible expenses 0.3% -21 0.3% -31 Buildings and land 1 1 Non-taxable income -0.1% 9 -0.2% 26 Machinery and inventories -1,039 506 Tax attributable to previous years -0.2% 16 0.7% -73 Tax allocation reserve, annual provisions -1,858 -2,960 Standard interest on tax allocation reserve 0.3% -24 0.2% -26 Tax allocation reserve, annual reversals 1,275 1400 Effect of changed tax rate 0.0% -6.5% 719 Group contributions, received 64 1 Other 0.1% -7 -0.5% 48 Group contributions, paid -205 -209 Reported effective tax 22.4% -1,736 20.3% -2,224 Total -1,762 -2,566 Parent Company 2013 2012 Deferred tax on appropriations (excluding Group contributions) amounts to SEK -357 SEK million (%) 2013 (%) 2012 million (-519). The deferred tax on appropriations is only reported on the consolidated Profit before tax 5,483 8,457 income statement. Tax according to prevailing tax rate for Parent Company 22.0% -1,206 26.3% -2,224 Non-deductible expenses 0.3% -15 0.2% -14 Non-taxable income -1.0% 54 -1.9% 165 Tax attributable to previous years -0.3% 19 0.9% -73 NOTE 11 TAXES Standard interest on tax allocation reserve 0.4% -24 0.3% -26 Reported in the income statement Effect of changed tax rate 0.0% 1.1% -95 Group Other 0.0% 1 -0.8% 57 SEK million 2013 2012 Reported effective tax 21.4% -1 171 26.1% -2,210 Current tax expenses (-) Tax expenses for the year -1,454 -2,434 Tax attributable to other comprehensive income Adjustment of tax attributable to previous years 16 -73 Group -1,438 -2,507 SEK million 2013 2012 Deferred tax expenses (-) Cash flow hedges 34 -67 Deferred tax referring to temporary differences -298 283 Actuarial gains/losses -23 44 -298 283 11 -23 Total reported Group tax expenses -1,736 -2,224 Tax items reported directly in equity Parent Company Group SEK million 2013 2012 SEK million 2013 2012 Current tax expenses (-) Provisions for remediation expenses Tax expenses for the year -1,382 -2,335 – adjustment for retroactive application 165 157 Adjustment of tax attributable to previous years 19 -73 165 157 -1,363 -2,408 Deferred tax expenses (-) Parent Company Deferred tax referring to temporary differences 192 198 SEK million 2013 2012 192 198 Provisions for remediation expenses Total reported tax expenses for Parent Company -1,171 -2,210 – adjustment for retroactive application 155 149 155 149

Reported in the statement of financial position and the balance sheet.

Reported deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following:

Group Deferred tax assets Deferred tax liabilities Net SEK million 2013 2012 2013 2012 2013 2012 Property, plant and equipment 41 41 -2,234 -1,931 -2,193 -1,890 Pension provisions 312 354 312 354 Tax allocation reserves 3 6 -2,340 -2,224 -2,337 -2,218 Contingency reserve -99 -99 -99 -99 Cash flowhedges -18 -51 -18 -51 Loss carryforwards 48 75 48 75 Provisions for urban transformation 441 316 441 316 Other provisions 50 10 50 10 Current investments -13 -24 -13 -24 Other 17 21 -2 15 21 Tax assets/liabilities 912 823 -4,706 -4,329 -3,794 -3,506 Offsetting -893 -802 893 802 Tax assets/liabilities net 19 21 -3,813 -3,527 -3,794 -3,506

129 INTEGRATED REPORT 2013

Reported deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following:

Parent Company Deferred tax assets Deferred tax liabilities Net SEK million 2013 2012 2013 2012 2013 2012 Property, plant and equipment 32 33 32 33 Pension provisions 163 131 163 131 Provisions for urban transformation 441 316 441 316 Other 42 6 42 6 Tax assets 678 486 678 486

Changes in deferred tax in temporary differences and loss carryforwards

Group Reported Reported in other Balance as at in income comprehensive Other Balance as at SEK million 1 Jan 2012 statement income changes 31 Dec 2012 Property, plant and equipment -1,895 5 -1,890 Pension provisions 378 -68 44 354 Tax allocation reserves -2,254 36 -2,218 Contingency reserve -118 19 -99 Cash flow hedges 17 -1 -67 -51 Provisions for urban transformation 316 316 Other provisions 8 2 10 Loss carryforwards 78 -3 75 Current receivables 17 -17 Current investments -3 -21 -24 Other 5 15 1 21 -3,767 283 -23 1 -3,506

Reported Reported in other Balance as at in income comprehensive Other Balance as at SEK million 1 Jan 2013 statement income changes 31 Dec 2013 Property, plant and equipment -1,890 -303 -2,193 Pension provisions 354 -19 -23 312 Tax allocation reserves -2,218 -119 -2,337 Contingency reserve -99 -99 Cash flow hedges -51 -1 34 -18 Provisions for urban transformation 316 125 441 Other provisions 10 40 50 Loss carryforwards 75 -27 48 Current investments -24 11 -13 Other 21 -5 -1 15 -3,506 -298 11 -1 -3,794

Parent Company Reported Balance as of in income Balance as at SEK million 1 Jan 2012 statement 31 Dec 2012 Property, plant and equipment 125 -92 33 Pension provisions 156 -25 131 Provisions for urban transformation 316 316 Other 7 -1 6 288 198 486

Reported Balance as at in income Balance as at SEK million 1 Jan 2013 statement 31 Dec 2013 Property, plant and equipment 33 -1 32 Pension provisions 131 32 163 Provisions for urban transformation 316 125 441 Other 6 36 42 486 192 678

130 NOTES TO THE FINANCIAL STATEMENTS

NOTE 12 EARNINGS PER SHARE Parent Company Mineral The number of shares 2013 and 2012 was 700,000. Earnings attributable to the Parent SEK million rights Other Total Company shareholders amounts to SEK 6,032 million (8,753). The earnings per share is Acquisition value thereby SEK 8,617 (12,504). There are no options or potential ordinary shares, so there Opening balance 01-01-2012 161 69 230 is no dilution. Change electricity certificate 1 1 Change in emission allowances 16 16 Closing balance 31-12-2012 161 86 247

NOTE 13 INTANGIBLE ASSETS Opening balance 01-01-2013 161 86 247 All the Group's intangible assets are acquired. Change in emission allowances -31 -31 Closing balance 31-12-2013 161 55 216 Group Mineral SEK million Goodwill rights Other Total Amortization Acquisition value Opening balance 01-01-2012 -161 -11 -172 Opening balance 1 January, 2012 203 285 93 581 Amortization for the year -2 -2 Revaluation renewable energy certificate 1 1 Closing balance 31-12-2012 -161 -13 -174 Change in emission allowances 16 16 Exchange rate differences for the year -5 0 -5 Opening balance 01-01-2013 -161 -13 -174 Closing balance 31 December, 2012 198 285 110 593 Amortization for the year 0 0 Closing balance 31-12-2013 -161 -13 -174 Opening balance 1 January, 2013 198 285 110 593 Business acquisitions 11 4 15 Reported value Change in emission allowances -31 -31 As of 1 January, 2012 58 58 Disposals and retirements -1 -1 As of 31 December, 2012 73 73 Other changes -7 -1 -8 Exchange rate differences for the year 5 -3 2 As of 1 January, 2013 73 73 Closing balance 31 December, 2013 213 275 82 570 As of 31 December, 2013 42 42

Amortization Impairment testing for cash generating units with goodwill. Opening balance 1 January, 2012 -4 -173 -32 -209 The following cash generating units, which form part of the primary segment Minerals Amortization for the year 0 -4 -4 Division, have significant reported goodwill value in relation to the group's total reported Exchange rate differences for the year -1 -1 goodwill value: Closing balance 31 December, 2012 -4 -174 -36 -214 SEK million 2013 2012 Opening balance 1 January, 2013 -4 -174 -36 -214 Minelco Ltd 122 111 Amortization for the year Minelco OY 35 34 Business acquisitions -4 -4 157 145 Other changes 7 7 Units without significant goodwill value, Closing balance 31 December, 2013 -4 -167 -40 -211 combined 43 40 200 185 Impairments Opening balance 1 January, 2012 -9 -93 -102 The cash generating units' recoverable amounts are based on the same important assumptions. Closing balance 31 December, 2012 -9 -93 -102 The impairment test is based on calculation of value in use. This value is based on cash flow forecasts in which the first three years are based on the three-year business plan that Opening balance 1 January, 2013 -9 -93 -102 has been determined by company management for the Minerals Division. The total length Closing balance 31 December, 2013 -9 -93 -102 of the forecast period corresponds to the useful life of the units' most important assets. The cash flow forecast after the first three years has been based on annual growth of 2-3 (2-3) Reported value %, which corresponds to the long term growth of the units' markets. The forecast cash flow As of 1 January, 2012 190 19 61 270 has been calculated to present value with an individual discount rate (WACC). Assumptions As of 31 December, 2012 185 18 74 277 that are important for the three-year plan are described below.

As of 1 January, 2013 185 18 74 277 Important variable Method for estimating value As of 31 December, 2013 200 15 42 257 Market growth Demand for these products has historically followed economic cycles. Anticipated market growth is based on a transition from Amortization and impairment are included on the following lines in the income state- the present economic situation to the anticipated long-term ment. growth. Personnel The forecast for personnel expenses is based on antici- Group expenses pated inflation and certain ealr wage growth. The forecast agrees SEK million 2013 2012 with previous experience. Cost of goods sold 0 -4 0 -4

131 INTEGRATED REPORT 2013

NOTE 14 PROPERTY, PLANT AND EQUIPMENT Property Machines and Inventory, Group Buildings and plant other technical tools and Construction Machinery and Inventories and land underground systems installations in progress Total Buildings Installations other technical tools and Construction Acquisition value and land underground installations installations in progress Total Opening balance 1 January 2012 8,111 4,754 20,031 3,252 12,272 48,420 Acquisitions 91 59 145 5,513 5,808 Reclassifications 725 373 474 89 -1 661 Disposals and retirements -1 -27 -41 -3 -72 Exchange rate differences 23 0 6 1 7 37 Closing balance 31 December 2012 8,950 5,126 20,543 3,446 16,128 54,193

Opening balance 1 January 2013 8,950 5,126 20,543 3,446 16,128 54,193 Acquisitions 209 281 40 5,611 6,141 Reclassifications -181 177 8,085 196 -8,277 Disposals and retirements -28 -94 -260 -20 -402 Exchange rate differences -170 -81 -13 -4 -268 Closing balance 31 December 2013 8,780 5,303 28,734 3,409 13,438 59,664

Depreciation Opening balance 1 January 2012 -2,784 -3,428 -11,881 -2,301 -20,394 Depreciation for the year -294 -161 -1,145 -352 -1,952 Disposals and retirements 2 23 39 64 Exchange rate differences -5 -5 Closing balance 31 December 2012 -3,081 -3,589 -13,003 -2,614 -22,287

Opening balance 1 January 2013 -3,081 -3,589 -13,003 -2,614 -22,287 Depreciation for the year -366 -163 -1,404 -499 -2,432 Reclassifications 66 -66 Disposals and retirements 17 86 260 363 Exchange rate differences 25 25 5 55 Closing balance 31 December 2013 -3,339 -3,752 -14,362 -2,848 -24,301

Impairments Opening balance 1 January 2012 -528 -399 -496 -10 -158 -1,591 Impairments for the year -1 -1 Exchange rate differences 1 1 Closing balance 31 December 2012 -528 -399 -496 -10 -158 -1,591

Opening balance 1 January 2013 -528 -399 -496 -10 -158 -1,591 Impairments for the year -16 -16 Disposals and retirements 3 3 Closing balance 31 December 2013 -541 -399 -496 -10 -158 -1,604

Reported value 1 January 2012 4,800 926 7,654 941 12,114 26,435 31 December 2012 5,341 1,138 7,044 822 15,970 30,315

1 January 2013 5,341 1,138 7,044 822 15,970 30,315 31 December 2013 4,900 1,152 13,876 551 13,280 33,759

Capitalized remediation expenses amount to SEK 748 million (748), cumulative depreciation amounts to SEK 499 million ( 488). Of the net amount SEK 249 million (260), SEK 208 million (217) is reported as buildings and land and SEK 41 million (43) as plant and machinery.

Depreciation and impairment are included on the following lines of the income statement Group SEK million 2013 2012 Cost of goods sold 2,408 1,930 Of which impairment 16 1 Selling expenses 3 3 Administrative expenses 16 11 Research and development 21 9 2,448 1,953

132 NOTES TO THE FINANCIAL STATEMENTS

Parent Company Machinery and Inventories Buildings Installations other technical tools and Construction Acquisition value and land underground installations installations in progress Total Opening balance 1 January 2012 5,130 4,754 18,369 837 10,001 39,091 Acquisitions 68 21 58 5,272 5,419 Reclassifications 464 373 195 66 -1,098 0 Disposals and retirements -1 -4 -21 -439 -465 Closing balance 31 December 2012 5,662 5,126 18,581 940 13,736 44,045

Opening balance 1 January 2013 5,662 5,126 18,581 940 13,736 44,045 Acquisitions 19 1 259 18 5,385 5,682 Reclassifications -253 177 8,053 190 -8,167 Disposals and retirements -47 -7 -780 -4 -663 -1,501 Closing balance 31 December 2013 5,381 5,297 26,113 1,144 10,291 48,226

Depreciation Opening balance 1 January 2012 -1,745 -3,428 -10,691 -593 -16,457 Depreciation for the year -189 -161 -1,053 -59 -1,462 Disposals and retirements 1 4 18 23 Closing balance 31 December 2012 -1,934 -3,588 -11,740 -634 -17,896

Opening balance 1 January 2013 -1,934 -3,588 -11,740 -634 -17,896 Depreciation for the year -216 -163 -1,298 -119 -1,796 Reclassification 66 -66 Disposals and retirements 23 3 335 4 365 Closing balance 31 December 2013 -2,061 -3,748 -12,769 -749 -19,327

Impairments Opening balance 1 January 2012 -530 -399 -495 -9 -158 -1,591 Impairments for the year -1 -1 Closing balance 31 December 2012 -530 -399 -496 -9 -158 -1,592

Opening balance 1 January 2013 -530 -399 -496 -9 -158 -1,592 Impairments for the year -16 -16 Disposals and retirements 3 3 Closing balance 31 December 2013 -543 -399 -496 -9 -158 -1,605

Reported value 1 January 2012 2,855 926 7,183 236 9,843 21,043 31 December 2012 3,198 1,139 6,345 297 13,578 24,557

1 January 2013 3,198 1,139 6,345 297 13,578 24,557 31 December 2013 2,777 1,150 12,848 386 10,133 27,294

Depreciation and impairment are included on the following lines of the income statement Parent Company (SEK million) 2013 2012 Costs of goods sold 1,785 1,452 Of which impairment 16 1 Selling expenses 0 0 Administrative expenses 6 2 Research and development 21 9 1,812 1,463

133 INTEGRATED REPORT 2013

NOTE 15 PARTICIPATIONS IN JOINT VENTURES NOTE 17 RECEIVABLES FROM SUBSIDIARIES Group Parent Company The Group has a 50 percent holding in the joint venture company Likya Minelco, the main SEK million 31-12-2013 31-12-2012 products of which are minerals with flame retardant properties (UltraCarb). Accumulated acquisition value Specification of the Parent Company's and the Group's participations in joint ventures Opening balance 1 January 1,142 1,297 Lending 163 Indirect holding via subsidiary Amortization -263 -155 LKAB Minerals AB Participation in % Participation in % Closing balance 31 December 1,042 1,142 2013 2012 Likya Minelco / Izmir, Turkey 50 50 Reported value at year end 1,042 1,142

The consolidated financial statements include the following items which represent the Group's stake in joint venture company’s assets, liabilities, income and expenses. NOTE 18 FINANCIAL INVESTMENTS SEK million 2013 2012 Group Net sales 19 20 SEK million 31-12-2013 31-12-2012 Expenses -14 -13 Financial investments that are fixed assets Financial items 0 0 Financial assets available for sale Tax -4 0 Shares and participations 658 745 Profit 1 7 Financial assets that were initially valued as fair value

Derivatives 28 Property, plant and equipment 11 8 Financial assets held to maturity Current assets 11 13 Interest-bearing securities 113 Total assets 22 21 Financial assets relating to pension

fund obligations 276 248 Current liabilities 2 0 1,075 993 Non-current liabilities 4 0

Total liabilities 6 0 Financial investments that are current assets Net assets 16 21 Financial assets assessed at fair value via profit Shares and participations 705 1,316 Interest-bearing securities 10,096 11,919 NOTE 16 PARENT COMPANY PARTICIPATIONS IN ASSOCIATES 10,801 13,235

Parent Company Shares and participations mainly refers to shares in SSAB. The reported value of the SEK million 31-12-2013 31-12-2012 SSAB shares considerably exceeds the acquisition value. Value changes during the year Accumulated acquisition value are reported directly in other comprehensive income. At beginning of year 1 1 Interest-bearing securities held to maturity have a fixed interest rate of between 7 and Reclassification -1 15 percent and a time to maturity of between 2 and 6 years. Closing balance 31 December 0 1 During the year impairment of a loan asset held to maturity of SEK million 22 has been reported. Cumulative impairment At beginning of year -1 -1 Reclassification 1 Closing balance 31 December 0 -1

Reported value at year end 0 0

NOTE 16 PARENT COMPANY PARTICIPATIONS IN ASSOCIATES (CONT.) Specification of the Parent Company's direct ownership of participations in associates

Associate, corp. ID no. and domicile 31-12-2013 31-12-2012 Votes and Votes and Number share of Reported value share of Reported value Swedish associates of shares equity, % (SEK million) equity, % (SEK million) Progressum AB/556540-0768/Kiruna 120 42.8 42.8 0 Expandum AB/556252-3281/Gällivare 1,665 33.3 0.02 33.3 0.02

Foreign associates Futurum AS/-/Narvik, Norway 500 23.8 0 23.8 0

134 NOTES TO THE FINANCIAL STATEMENTS

NOTE 19 OTHER NON-CURRENT SECURITIES HOLDINGS NOTE 21 INVENTORIES Parent Company Group SEK million 31-12-2013 31-12-2012 SEK million 31-12-2013 31-12-2012 Accumulated acquisition value Raw materials and consumables 1,019 1,552 At beginning of year 129 127 Work in progress 9 4 Acquisitions 2 Finished goods and goods for sale 1,583 937 Closing balance 31 December 129 129 2,611 2,493

Specification of other non-current securities holdings Parent Company SEK million 31-12-2013 31-12-2012 Parent Company 31-12-2013 31-12-2012 Raw materials and consumables 832 1,356 Work in progress 0 0 Market value Reported Market value Reported Finished goods and goods for sale 1,279 590 SEK million or equivalent value or equivalent value 2,111 1,946 SSAB 609 83 699 83 Other 46 46 46 46 655 129 745 129 NOTE 22 ACCOUNTS RECEIVABLE Accounts receivable are reported after taking into account bad debts amounting to SEK 11 million (66). NOTE 20 NON-CURRENT RECEIVABLES AND OTHER RECEIVABLES Group SEK million 31-12-2013 31-12-2012 Non-current receivables that are fixed assets NOTE 23 PREPAID EXPENSES AND ACCRUED INCOME Interest free loan Jernbaneverket 83 105 Group Parent Company Other non-current receivables 20 1 2013 2012 2013 2012 103 106 SEK million -12-31 -12-31 -12-31 -12-31 Currency forwards 21 25 Other receivables that are current assets Insurance premiums 6 5 PRI balance 22 21 Other 125 88 74 45 VAT assets 190 229 131 93 95 70 Tax assets 249 1,114 Receivables credit institute 481 Forward exchange contract (USD) 94 243 Revaluation of accounts receivable to forward rate 9 117 NOTE 24 EQUITY Tax account 6 128 Specification of equity item reserves Receivables from clients 19 22 Translation reserve 2013 2012 Other 9 40 Opening translation reserve -121 -103 1,079 1,914 Translation differences for the year -18 -18 Closing translation reserve -139 -121 Parent Company

SEK million 31-12-2013 31-12-2012 Fair value reserve 2013 2012 Non-current receivables Opening fair value reserve 616 666 Company-owned endowment insurance 87 80 Financial assets available for sale: Interest-free loan, Jernbaneverket 83 105 Revaluations reported directly in 170 185 other comprehensive income -90 -50

Closing fair value reserve 526 616 Other receivables (current)

PRI balance 21 20 Hedge reserve 2013 2012 VAT assets 121 213 Opening hedge reserve 176 -48 Tax assets 193 1,140 Cash flow hedges Tax account 0 113 Reported directly in other comprehensive income 72 226 Receivables credit institute 481 Dissolved through income statement -226 65 Other -2 21 Tax attributable to revaluations for the year 34 -67 814 1,507 Closing hedge reserve 56 176

Parent Company Total reserves 2013 2012 SEK million 31-12-2013 31-12-2012 Opening reserves 671 515 Non-current receivables Change in reserves during the year: Accumulated acquisition value Translation reserve -18 -18 At beginning of year 185 170 Fair value reserve -90 -50 Lending 22 Hedge reserve -120 224 Reclassification -22 Closing reserves 443 671 Impairment 0 -2 Change in value endowment insurance 7 -5 Share capital Closing balance 31 December 170 185 As of 31 December 2013, the registered share capital comprised 700,000 (700,000) ordinary shares. The share capital consists of only one type of share and all shares have equal rights. Holders of ordinary shares are entitled to a dividend that is determined in due course, and each share entitles the holder to one vote at the AGM. The quota value is SEK 1,000 per share.

135 INTEGRATED REPORT 2013

Translation reserve NOTE 25 PENSIONS The translation reserve covers all exchange rate differences that arise in translating the Defined benefit pension plans financial statements of foreign operations whose accounts are reported in currencies Group other than the Group’s reporting currency. The Parent Company and consolidated SEK million 2013 2012 accounts are reported in SEK. Present value of unfunded obligations 1,593 2,560 Present value of wholly or partially funded obligations 2,198 1,269 Fair value reserve Total present value of obligations 3,791 3,829 Financial assets available for sale Fair value of plan assets -2,181 -1,101 The fair value reserve includes the accumulated net change in fair value of financial Present value of net obligations 1,610 2,728 assets available for sale up until the assets are removed from the statement of financial position. Any impairment is reported in the income statement. Effect of limitation rule for net assets -7 Net amount in statement of financial position 1,610 2,721 Hedge reserve The hedge reserve includes the effective share of the accumulated net change in fair The net amount is reported in the following value of cash flow hedging instruments attributable to hedging transactions that have not statement of financial position items: yet occurred. Financial investments -276 -249 Provisions for pensions, non-current liabilities 1,886 2,970 Dividend Net amount in the statement of financial position 1,610 2,721 After the closing date, the Board proposed the following dividend. The dividend is subject to approval at the AGM on 29 April 2014. Defined benefit pension plans Most of LKAB’s pension plans for employees in Sweden are defined-benefit plans, SEK million 2013 2012 which means that LKAB guarantees pensions based on a certain percentage of salary. Ordinary dividend SEK 3,429 (5,000) per share 2,400 3,500 Pension commitments in Sweden are secured by the company mainly via accrued Extra dividend SEK 1,571 (2,857) per share 1,100 2,000 provisions, whereof most are secured through credit insurance in FPG (Försäkringsbola- 3,500 5,500 get Pensionsgaranti). In 2013, an internal company pension fund was started for vested defined-benefit pension plans. Promises of future retirement before the age of 65 are to The dividend proposed by the Board is in line with the decisions made at the AGM for the a certain degree contingent upon working underground and are secured by the company past two years. via accrued provisions without credit insurance. Commitments for retirement pensions and survivor benefits for salaried employees Parent Company in Sweden are insured by Alecta. According to a pronouncement from the Swedish Restricted funds Financial Reporting Board, UFR 3, this is a defined-benefit plan that involves several Restricted funds cannot be reduced by payment of dividend. employers. The company has not had access to such information as is necessary for re- porting this obligation as a defined-benefit plan. The ITP pension plan insured via Alecta Statutory reserve is therefore reported as a defined-contribution plan. Alecta’s surplus can be distributed The purpose of the statutory reserve is to save a portion of net profit that is not used to to the policyholders and/or the insured parties. At the end of 2013, Alecta reported a plan cover losses brought forward. surplus of 148 percent (129), which was below the normal spread of 125–155 percent stated in Alecta’s consolidation policy for these plans. Non-restricted equity For employees in Belgium, Norway, the UK and Germany, LKAB has defined-benefit Profit brought forward plans as a complement to local social insurance. In Belgium pensions are secured via Comprises the previous year’s non-restricted equity after any dividend has been paid. pension insurance, in the UK via company-managed pension funds, and in Germany via Together with net profit for the year, it makes up non-restricted equity, i.e., the sum that is internal accrued provisions combined with credit insurance. In Norway, pensions are available for payment as a dividend to shareholders. secured via a combination of a company-managed pension fund, accrued provisions and credit insurance. Capital management LKAB's management of financial risks is regulated by a financial policy approved by Changes in the present value of obligations for defined benefit plans the Board. The currency and finance committee prepares and follows the company's Group currency hedging programmes and financial guidelines. LKAB defines its managed SEK million 2013 2012 capital as equity in the Group with a deduction for unrealized exchange rate losses/gains Obligations for defined benefit plans as of 1 January 3,829 3,549 on outstanding USD futures/options. On the closing date, the managed capital amounted Compensation paid -212 -213 to SEK 41.4 million (40.9). Expenses for employment current period 101 91 According to the Board's policy, the Group's financial objective is to have a good capital Interest expenses 105 120 structure and financial stability and thereby represent a basis for continous development Obligations taken over 125 of business activities and future changes in the community. The ambition of the Board Revaluations: is to retain a balance between high returns and benefits and the security that a sound - Actuarial gains and losses on changed capital structure offers. demographic assumptions -134 The Group’s financial targets changed as of the 2013 AGM. The target for the capital - Actuarial gains and losses on changed structure is a net debt/equity ratio of 0-0.2. On the closing date, the net debt/equity ratio financial assumptions 319 -208 was negative, i.e. net financial liabilities were less than equity. Up to and including 2012, - Adjustments based on experience -130 -57 the target for the capital structure was an equity/assets ratio of over 50 percent. Other changes 31 The Groups profitability target is a return on equity of 12 percent, previously 10 Exchange rate differences on obligations percent. In 2013 the return was 14.7 (22.1) percent. For comparison, the average interest and reported actuarial loss -102 -14 income for interest-bearing investments is 1.65 (2.35) percent. Obligations for defined benefit plans as of 31 December 3,791 3,829 LKAB has a dividend policy that shareholder dividends in the long term should repre- sent 30 to 50 percent of the profit after tax and should be adapted to an average level of The present value of the Swedish portion of obligations is divided between the plans’ profits over an economic cycle. The proposed ordinary dividend of 2,400 represents 39.8 members as follows: percent of the Group's profit after tax; in addition to this an extra dividend of SEK 1,100 - Active members 40 (41) % million is proposed. - Paid-up policy holders 24 (21) % LKAB Försäkring AB is the only company in the Group that has a statutory capital - Retirees 36 (38) % re ­quirement of EUR 3,200,000, which corresponded to SEK 29 million (28) on the closing date.

136 NOTES TO THE FINANCIAL STATEMENTS

Changes in fair value of plan assets Sensitivity analysis Group The table below presents possible changes of actuarial assumptions at the end of the SEK thousand 2013 2012 period, other assumptions being unchanged, and how these might affect the defined Fair value of plan assets as of 1 January 1,101 1,027 benefit obligations. The calculation of changes to pension obligations only includes the Contributions 925 Swedish obligations. Employer's contribution 43 Compensation paid -49 -62 Group Return 28 32 SEK thousand Increase Decrease Plan assets assumed 188 Discount rate (1% change) 192 -234 Actuarial gains (+)/losses (-) 51 62 Anticipated mortality (1 year change) -34 34 Exchange rate differences on obligations Future salary increase (1% change) -148 112 and reported actuarial loss -63 -1 Future increase in pensions (1% change) -174 144 Fair value of plan assets as of 31 December 2,181 1,101 As of 31 December 2013, the weighted average duration of obligations was 19.6 (20.1) Of plan assets funded through funds in England at 31 December 2013, 36 percent were years. invested in shares and 70 percent in interest-bearing securities. The corresponding figures for plan assets in Norway are 34 percent in shares and 66 percent in inter- Historical information est-bearing assets. Group In the new pension fund, founded at year end, all assets are invested in interest- SEK million 2013 2012 2011 2010 2009 bearing securities at 31 December 2013. Actual returns in 2013 amounted to SEK 79 Present value of defined-benefit million (95). obligations 3,791 3,822 3,563 3,309 3,437 Fair value of plan assets -2,181 -1,101 -1,033 -1,008 -1,022 Costs reported in income statement Net obligations 1,610 2,721 2,530 2,301 2,415 Group SEK million 2013 2012 The Group estimates that SEK 55 million will be paid in 2014 to funded and unfunded Costs for employment, current period 101 91 defined benefit plans and it is estimated that SEK 40 million will be paid in 2014 to the Interest expenses on obligations 105 120 defined benefit plans that are reported as defined contribution. Return on plan assets -28 -32 Effect of new premium based Net liabilities on the balance sheet mine policy and adjustments in Norway 2 Parent Company Total net cost in income statement 178 181 SEK thousand 31-12-2013 31-12-2012 + Present value of obligations (calculated according Costs reported on the following lines of the income statement to Swedish principles) referring to wholly or Group partially funded pension plans 970 98 SEK million 2013 2012 - Fair value at end of period referring to Cost of goods sold 101 93 specifically separated assets Financial income (reported in net financial items) -28 -32 (in pension f and the like) -943 -79 Financial expenses (reported in net financial items) 105 120 = Surplus in pension funds or the like 178 181 (-)/Net obligations (+) 27 19 + Present value of obligations (calculated Costs reported in other comprehensive income according to Swedish principles) Group referring to unfunded pension plans 636 1,317 SEK thousand 2013 2012 = Net amount reported for pension obligations 663 1,336 Revaluations: Actuarial gains (-) and losses (+) 55 -265 Changes in net liabilities Difference between actual return and return Parent Company according to discount rate on plan assets 51 62 SEK thousands 31-12-2013 31-12-2012 Net reported in other comprehensive income 106 -203 Net liabilities for pension undertakings at start of year 1,336 1,324 + Cost for company-managed pension scheme Assumptions for defined benefit obligations as reported in income statement, excluding taxes 280 117 The most significant actuarial assumptions on the closing date (expressed as weighted - Provision for pension fund -855 averages) - Pension payments -98 -105 + Reimbursement from fund Group +/- Other 6 Percent 2013 2012 663 1,336 Discount rate as of 31 December 3.5 3.2 Return on plan assets as of 31 December 3.5 4.3 Fair value of assets in fund by main category Future salary increase 3,0 3,0 Parent Company Employee turnover 3.5 3.5 SEK thousands 31-12-2013 31-12-2012 Future increase in pensions 1.75 1.75 Shares Interest-bearing assets 856 The assumptions apply to Swedish liabilities Other assets 87 79 Assumptions about future mortality are based on published statistics and mortality 943 79 figures. The average life expectancy for an individual who retires at 65 is 23 years for men and 25 years for women. The actual return on plan assets in 2013 was 5.2 (8.6) percent.

137 INTEGRATED REPORT 2013

Costs associated with pensions Defined contribution pension plans Parent Company In Sweden the Group has defined contribution pension plans for employees for which the SEK million 2013 2012 company assumes full cost. Company-managed pension schemes In foreign subsidiaries, defined-contribution plans are financed partly by the compa- Expenses excluding interest expenses 240 83 nies and partly by contributions paid by the employees. Premiums for these plans are Interest expenses 34 34 paid regularly in accordance with the terms of each plan. Costs for company-managed pension schemes 274 117 Insured pension schemes Group Parent Company Insurance premiums 178 190 SEK million 2013 2012 2013 2012 Subtotal 452 307 Expenses for defined contribution pension plans 178 185 175 182 Capital gains tax on pension funds 2 3 Special contribution tax on pension costs 69 77 In 2013 no retirement solutions were paid out through insurance plans; the same applied Expenses for credit insurance, administrative expenses, other 5 8 to 2012. Reported net expenses attributable to pensions 528 395

Net pension costs reported on the following lines of the income statement: Parent Company NOTE 26 PROVISIONS SEK million 2013 2012 Group Financial expenses (reported in net financial items) 34 34 SEK million 31-12-2013 31-12-2012 Operating expenses 494 361 Provisions 528 395 Urban transformation 6,304 5,877 Emission allowances for carbon dioxide 40 57 The financial expenses have been calculated using an interest rate of 4.1 (4.2) percent. Remediation expenses 1,067 1,038 Other 166 16 Assumptions for defined benefit obligations Total 7,577 6,988 The most significant actuarial assumptions on the closing date (expressed as weighted averages) Parent Company SEK million 31-12-2013 31-12-2012 Parent Company Provisions Percent 2013 2012 Urban transformation 6,304 5,877 Discount rate as of 31 December 3.8 3.8 Emission allowances for carbon dioxide 40 57 Remediation expenses 765 733 The Parent Company estimates that SEK 7 million will be paid to defined benefit plans Other 148 during 2014. The assumptions have been calculated based on the wage levels applicable Total 7,257 6,667 on the closing dates concerned. Provisions for urban transformations relate to compensation expenses in Kiruna and Malmberget caused by ground deformations attributable to mining thus far. See Note 27 for recognition of compensation expenses.

NOTE 26 PROVISIONS (CONT.) Group Urban Emission Remediation Other SEK million transformation allowances expenses provisions Total Opening balance 2012 5,103 230 1,009 16 6,358 Provisions for the year 1,086 1,086 Increase in previous years' provisions 144 144 Reversal of provisions -120 -120 Utilized provisions -423 -423 Interest adjustment on liabilities for the year 87 29 116 Emissions for the year 57 57 Adjustment of previous year's emissions -230 -230 Closing balance 2012 5,877 57 1,038 16 6,988 Of which paid out during 2013 943 57 1,000 Of which paid out during 2014-2020 2,275 288 16 2,579 Of which paid out after 2020 2,659 750 3,409

Opening balance 2013 5,877 57 1,038 16 6,988 Provisions for the year 528 150 678 Increase in previous years' provisions 224 224 Reversal of provisions -130 -130 Utilized provisions -297 -297 Interest adjustment on liabilities for the year 102 29 131 Emissions for the year 40 40 Adjustment of previous year's emissions -57 -57 Closing balance 2013 6,304 40 1,067 166 7,577 Of which paid out during 2014 1,500 40 1 65 1,606 Of which paid out during 2015-2021 3,348 307 101 3,756 Of which paid out after 2021 1,456 759 2,215

138 NOTES TO THE FINANCIAL STATEMENTS

Parent Company Urban Emission Remediation Other SEK million transformation allowances expenses provisions Total Opening balance 2012 5,103 230 701 6,034 Provisions for the year 1,086 10 1,096 Increase in previous years' provisions 144 144 Reversal of provisions -120 -120 Utilized provisions -423 -423 Interest adjustment on liabilities for the year 87 22 109 Emissions for the year 57 57 Adjustment of previous year's emissions -230 -230 Closing balance 2012 5,877 57 733 6,667 Of which paid out during 2013 943 57 1,000 Of which paid out during 2014-2020 2,275 221 2,496 Of which paid out after 2020 2,659 512 3,171

Opening balance 2013 5,877 57 733 6,667 Provisions for the year 528 10 148 686 Increase in previous years' provisions 224 224 Reversal of provisions -130 -130 Utilized provisions -297 -297 Interest adjustment on liabilities for the year 102 22 124 Emissions for the year 40 40 Adjustment of previous year's emissions -57 -57 Closing balance 2013 6,304 40 765 148 7,257 Of which paid out during 2014 1,500 40 1 65 1,606 Of which paid out during 2015-2021 3,348 239 83 3,670 Of which paid out after 2021 1,456 525 1,981

NOTE 27 URBAN TRANSFORMATION LKAB has, and will continue to have, significant expenses in respect of urban transfor- The reported provisions for urban transformation do not include LKAB's need to replace mations. As and when impact due to mining activities (economic/physical damage to its own buildings affected by urban transformation. A decision was made concerning new property) is incurred, LKAB recognizes a provision in accordance with criteria specified investments in the amount of SEK 383 million to replace the company’s own buildings. in IAS 37. In addition to this there will also be subsequent demands resulting from future mining. In addition, LKAB allocates funds to finance future expenditures for urban transfor- LKAB makes ongoing assessments of such future requirements. The assessments are mation in accordance with the approved finance policy of the Board at that time. The subject to significant uncertainty. On the closing date LKAB’s assessment is that the purpose of such asset management is to ensure LKAB’s ability to pay and that the rates Group’s actual short- and long-term capital obligations toward urban transformation of return on allocated funds will cover inflation over the period. amount to significant sums. The company's net expenses for urban transformation consist of the following com- Since 2006, LKAB has disbursed SEK 1,941 million corresponding to expenses set aside ponents: as liabilities in previous years. The corresponding expenditure for 2013 amounts to SEK 295 million. Group and Parent Company Urban transformation in Malmfälten has impacted LKAB’s earnings and liquidity SEK million 2013 2012 considerably, and will continue to do so in the years to come. LKAB must therefore remain Expenses for urban transformation current period -528 -1,086 financially strong to meet both existing and future obligations that urban transformation Effect of changed estimates and assumptions -92 -8 will entail. Effect of present value appraisal of provision -102 -87 Net expenses for urban transformation -722 -1,181

Net expenses for urban transformation reported on the following lines of the income NOTE 28 ACCRUED EXPENSES AND DEFERRED INCOME statement: Group Parent Company 2013 2012 2013 2012 Parent Company SEK million -12-31 -12-31 -12-31 -12-31 SEK million 2013 2012 Electricity 72 77 60 66 Cost of goods sold -620 -1,094 Payroll and personnel expenses 641 677 550 631 Financial expenses -102 -87 Accrued accounts payable 256 564 207 486 -722 -1,181 Other 134 100 47 42 1,103 1,418 864 1,225 The following items in the balance sheet are attributable to urban transformation:

Group and Parent Company SEK million 31-12-2013 31-12-2012 Provisions for urban transformation – current 1,500 943 Provisions for urban transformation – non-current 4,804 4,934 Provisions for urban transformation 6,304 5,877

Current investments/Cash and cash equivalents 6,304 5,877 Allocated funds for urban transformation 6,304 5,877 Net amount in statement of financial position 0 0

139 INTEGRATED REPORT 2013

NOTE 29 VALUATION OF FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE AND CATEGORIZATION Classification and fair value

Group 2013 Initially Investments Financial identified Hedging held Receivables assets avail- Other Total SEK million Note at fair value instruments to maturity and loans able for sale liabilities fair value Shares, financial assets 18 658 658 Derivatives, financial assets 18 28 28 Interest-bearing, financial assets 18 113 113 Shares, current holdings 18 705 705 Interest-bearing instruments, current holdings 18 10,096 10,096 Non-current receivables 20 103 103 Accounts receivable and other current receivables 20 4,276 4,276 Cash and cash equivalents1 36 4,696 4,696 Derivatives (forward contracts USD) 20 94 94 Accrued income 23 131 131 Total 15,525 94 113 4,510 658 20,900

Accounts payable 1,744 1,744 Other current liabilities 227 227 Accrued expenses 28 1,103 1,103 Total 3,074 3,074

1 Cash and cash equivalents including current investments, on a par with cash and cash equivalents.

Group 2012 Initially Investments Financial identified Hedging held Receivables assets avail- Other Total SEK million Note at fair value instruments to maturity and loans able for sale liabilities fair value Shares, financial assets 18 745 745 Shares, current holdings 18 1,316 1,316 Interest-bearing instruments, current holdings 18 11,919 11,919 Non-current receivables 20 106 106 Accounts receivable and other receivables 20 4,731 4,731 Cash and cash equivalents1 36 5,437 5,437 Derivatives (forward contracts USD) 20 243 243 Accrued income 23 93 93 Total 18,672 243 4,930 745 24,590

Accounts payable 1,760 1,760 Other liabilities 196 196 Accrued expenses 28 1,418 1,418 Total 3,374 3,374

1 Cash and cash equivalents including current investments, on a par with cash and cash equivalents.

140 NOTES TO THE FINANCIAL STATEMENTS

Fair value measurement Level 1: The fair value of listed financial assets corresponds to the asset's listed price on the Fair value - financial instruments closing date. Information is given in the following tables about how fair value is determined for the fi- nancial instruments that are measured at fair value in the statement of financial position. Level 2: The division of how fair value is determined is done on three levels. Interest-bearing instruments Share index bonds have been valued with listed market data from the interest and Level 1: According to prices listed on an active market for the same instrument derivatives market. This category also includes certificates that are valued on the basis of Level 2: Based on direct or indirect observable market data that is defined market priced return curves.* not included in level 1 Level 3: Based on input that is not observable on the market. Non-current receivables Non-current receivables are calculated using a present value calculation of the capital Group 2013 flows. SEK million Level 1 Level 2 Level 3 Total Shares, financial assets 658 658 Derivatives Derivatives, financial assets1 28 28 Fair value of forward exchange contracts is calculated on the basis of a valuation model Interest-bearing, financial assets 113 113 that is based on discounted cash flow, derived from listed market prices obtained from Shares, current holdings 705 705 Reuters. Interest-bearing instruments 10,096 10,096 Derivatives, financial assets are valued on the basis of market data from brokers. Non-current receivables 103 103 Cash and cash equivalents 4,696 4,696 Fair value – other receivables and liabilities Forward exchange contracts (USD) 94 94 For the items below, reported value is assessed to represent a reasonable approximation Total 6,172 10,321 16,493 of fair value.

Group 2012 Other receivables and liabilities Group SEK million Level 1 Level 2 Level 3 Total SEK million 31-12-2013 31-12-2012 Shares, financial assets 745 745 Accounts receivable and other current receivables 4,276 4,731 Shares, current holdings 1,316 1,316 Accrued income 131 93 Interest-bearing instruments 11,919 11,919 Trade payables 1,744 1,760 Non-current receivables 106 106 Other current liabilities 227 196 Cash and cash equivalents 5,437 5,437 Accrued expenses 1,103 1,418 Forward exchange contracts (USD) 243 243 Total 7,498 12,268 19,766 Parent Company The following table provides information about fair value for the financial instruments in 1 Changed compared with the interim report the Parent Company that are reported at acquisition value. For other assets and liabilities in the Parent Company, the reported value is judged to represent a reasonable approxi- Calculation of fair value mation of fair value. The following summarizes the methods and assumptions that are primarily used to establish fair value of the financial instruments that are reported in the table above.

Classification and fair value Initially Financial 2013 identified Hedging assets avail- Fair Reported SEK million Note at fair value instruments able for sale value value Shares, financialassets 19 655 655 129 Shares, current holdings 701 701 640 Interest-bearing instruments, current holdings1 14,252 14,252 14,238 Derivatives (forward contracts USD)2 23 94 94 21 Total 14,953 94 655 15,702 15,028

2012 SEK million Shares, financialassets 19 745 745 129 Shares, current holdings 1,316 1,316 1,225 Interest-bearing instruments, current holdings1 16,678 16,678 16,658 Derivatives (forward contracts USD) 2 23 243 243 25 Total 17,994 243 745 18,982 18,037

1 Including current investments, on a par with cash and cash equivalents. 2 Reported value refers to periodized arbitrage premiums.

141 INTEGRATED REPORT 2013

NOTE 30 FINANCIAL RISKS AND RISK MANAGEMENT In addition to what appears below, see the Report of the Board, "Financial risks" section, for more information.

Currency risks Transaction exposure The Group's transaction exposure is in the following currencies:

2013 2012 Currency (SEK million) Amount Change Effect on profit Effect on equity Amount Change Effect on profit Effect on equity USD 3,155 SEK 0,10 316 94 3,806 SEK 0,10 381 56 NOK 610 SEK 0,10 61 880 SEK 0,10 88 EUR 127 SEK 0,10 13 61 SEK 0,10 6 GBP SEK 0,10 5 SEK 0,10 0,5

During 2013 transaction exposure in USD was hedged through currency derivatives up to 2,067 (1,840) or 65 (48) percent. In 2013 there was no ineffectiveness in currency hedging that affected profit. The effect on equity of a change in underlying exchange rates is calculated with a valuation model with prices obtained from Reuters.

Outstanding forward exchange contracts on the closing date (sales contracts) Duration analysis liabilities

Year of maturity MUSD Income rate Group 2013 < 1 1 - 3 3-12 2014 -1,220 6.57 SEK million mths mths mths Total 2015 -50 6.62 Accounts payable 1,270 11 170 1,451 Other liabilities 141 964 1,105 The Group uses hedge accounting for US dollars and classifies its forward exchange Accrued expenses 225 59 441 725 contracts used for hedging forecast transactions as cash flow hedging. The fair value of Total 1,636 70 1,575 3,281 forward exchange contracts to hedge forecast cash flows amounted to SEK 94 million (243) net as of 31 December 2013. Group 2012 < 1 1 - 3 3-12 During 2013, SEK 65 million (-226) was transferred to/from the hedging reserve via SEK million mths mths mths Total other comprehensive income to profit for the year as part of sales. Accounts payable 1,078 10 1 1,089 Other liabilities 113 185 298 Translation exposure Accrued expenses 565 236 326 1,127 LKAB does not normally hedge its translation exposure, because this is not considered to Total 1,756 246 512 2,514 be a long term benefit for the Group, in spite of the fact that it has increased in recent years because of the expansion in Minerals. Translation exposure in the Group refers to foreign The Group's maturity structure is judged to be equal to that of the Parent Company in net assets within the Group. all significant respects. The information above is obtained from the Parent Company. US dollar forward contracts had a surplus value of SEK 94 million compared with SEK 243 Translation exposure million the previous year. The duration of hedges is 1 to 13 months. (local currencies: million) Group LKAB's credit facility of USD 5 million was unused as of 31-12-2013. SEK million 2013 2012 EUR 13 12 Credit risks GBP 32 31 The maximum credit risk exposure on the closing date was SEK 19,509 million (22,529). USD 1 1 In financial activities, there are no assets that have fallen due for payment or impair- SGD 0 1 ments that resulted in credit losses. DKK 218 215 NOK 789 687 Offsetting agreements or similar agreements CNY 33 32 There has been no offsetting of financial assets and liabilities in the report of financial HKD 106 123 position. There are no offsetting agreements.

Liquidity risks Maturity structure discounting instruments and government bonds

Group Total 31-12-2013 < 3 3-6 7-12 13-24 >25 Reported Nominal SEK million mths mths mths mths mths value value NOTE 31 INVESTMENT UNDERTAKINGS Interest-bearing securities 6,654 3,111 1,820 1,610 982 14,177 14,100 At year end the Group's remaining agreement undertakings to acquire Property, plant Total 6,654 3,111 1,820 1,610 982 14,177 14,100 and equipment amounted to SEK 4,273 million (2,939). Of these undertakings, SEK 2,725 million (2,221) are expected to be settled during the following financial year. Group Total The Parent Company's undertakings amounted to SEK 3,747 million (2,459), of which 31-12-2012 < 3 3-6 7-12 13-24 >25 Reported Nominal SEK 2,397 million (1,830) is expected to be settled during 2014. SEK million mths mths mths mths mths value value 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 within the framework of the financial policy decided by the Board. The Group's maturity structure is judged to be equal to that of the Parent Company in all significant respects. The information in the maturity structure is the information from the Parent Company.

142 NOTES TO THE FINANCIAL STATEMENTS

NOTE 32 PLEDGED ASSETS AND CONTINGENT LIABILITIES Group Parent Company 2013 2012 2013 2012 SEK million -12-31 -12-31 -12-31 -12-31 Assets pledges In the form of security pledges for own liabilities and provisions Property mortgages 1 Company mortgages 2 Company owned capital hedges 87 79 87 79 Deposit of cash and cash equivalents 158 157 158 157 Total security pledges 246 239 245 236

Guarantee commitments Guarantee undertaking, FPG/PRI 13 14 13 14 Guarantee undertaking, GP plan 7 3 4 3 Guarantee commitments for subsidiaries 48 65 Other 76 65 30 30 Redemption of defined benefit pension agreements 7 14 7 14 Total guarantee commitments 103 96 102 126

Company owned capital hedges refers to coverage of pension commitments for the CEO, former CEO and members of Group management according to the old defined benefit pension agreement. The value of capital hedges changes in line with payment of premiums/pension payments. Deposits of cash and cash equivalents refers to coverage of future expenses for remediation measures and other restoration measures at mines when mining activities cease. The guarantee undertakings for PRI Pensionstjänst and Gruvplanen corresponded to 2 percent of commitments on the closing date. The commitment in PRI refers to ITP2 premiums for salaried staff and vested commitments in the mine plan for collectively connected employees.

NOTE 33 RELATED PARTIES Relationships with closely related parties The Group is under the determining influence of the Swedish government. Other than the close relationships that the Parent Company has with its subsidiaries (see Note 34), the Group is also closely related with Vattenfall AB and Trafikverket.

Summary of closely-related transactions

Purchase Liabilities to Receivables Group Sale of goods Interest and of services closely-related from closely Close relationships to closely- dividend from closely- parties related parties SEK million Year related parties (net) related parties 31 December 31 December Associates 2013 5 1 Associates 2012 6 40

Purchase Liabilities Receivables Parent Company Sale of goods Interest and of services to closely- from closely Close relationships to closely- dividend from closely- related parties related parties SEK million Year related parties (net) related parties 31 December 31 December Subsidiaries 2013 234 280 3,532 945 3,095 Subsidiaries 2012 234 378 3,605 991 2,540

Associates 2013 5 1 Associates 2012 6 40

Through the long term energy agreements signed in 1998 and 2005 with Vattenfall, LKAB has secured a great deal of its electricity deliveries at an indexed price. At year end 2009, a third of the agreement portfolio with Vattenfall matured and this volume is exposed on the Nordic spot market. Purchase of electricity amounted to 2,276 (2,305) GW. LKAB's mining has impacted on the existing railway infrastructure and made it impossible for this to remain in its present position. LKAB compensates Trafikverket for expenses that arise in connection with the creation of new railway infrastructure. Purchases from Trafikverket amounted to SEK 258 million (174). The profit sharing loan of SEK 40 million to the former associate Norrskenet AB has been wound up in 2013 and converted into a conditional shareholder contribution; see Note 34. Transactions with closely-related parties are priced on market terms.

143 INTEGRATED REPORT 2013

NOTE 34 GROUP COMPANIES Parent Company SEK million 31-12-2013 31-12-2012 Accumulated acquisition value At beginning of year 1,410 1,410 Reclassification 40 Capital contributions 45 Closing balance 31 December 1,495 1,410

Cumulative impairment At the beginning of the year Impairment -5 Closing balance 31 December -5 Reported value at year end 1,490 0

Reclassification refers to the profit sharing loan of to the former associate Norrskenet AB has been wound up in 2013 and converted into a conditional shareholder contribution. LKAB owns fewer than half the votes in Norrskenet AB. Even though there is no direct voting right or board majority, LKAB can exercise determining influence over the company. This is primarily based on LKAB's decision to change the purpose of the holding in Norrskenet, but also LKAB's lending to Norrskenet for investment in a bond loan in Northland Resources. The Group therefore consolidates its stake in Norrskenet and its two wholly-owned subsidiaries in the same way as other subsidiaries.

Specification of the Parent Company's and the Group's participations in Group companies The table below does not include dormant Group companies. 31-12-2013 31-12-2012 Participation in % Participation in % Reported Reported Subsidiary/ Organization number / HQ Number of shares 2013 2012 value value Swedish subsidiaries LKAB Fastigheter AB/556009-8849/ Kiruna 5,000 100 100 11 0 LKAB Wassara AB /556331-8566/ Stockholm 20,000 100 100 13 10 LKAB Berg & Betong /556074-8237 /Kiruna 24,000 100 100 47 47 LKAB Nät AB /556059-9796/ Kiruna 10 100 100 2 0 LKAB Minerals AB/556223-1786 /Luleå 2,000,000 100 100 242 225 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 Norrskenet AB /556537-7065/ Kiruna 2,500 33,3 40

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

Indirect holdings via subsidiary LKAB Minerals AB LKAB Minerals B.V. /24236591/ Breda, Netherlands 100 100 LKAB Minerals Inc /02-0551509/ Cincinnati, USA 100 100 LKAB Minerals GmbH /HRB 16692/ Essen, Germany 100 100 LKAB Minerals Asia Pacific Ltd /876455/ Hong Kong, Hong Kong 100 100 LKAB Minerals OY /1934671-4/ Helsinki, Finland 100 100 LKAB Minerals AS/A/S277716/Nuuk, Greenland 100 100 LKAB Minerals Tianjin Minerals Co / 70051551-5 / Dongli District Tianjin, China 100 100 Likya Minelco / Izmir, Turkey 50 50 LKAB Minerals Limited / 04621769/ Derby, United Kingdom 100 100 LKAB Minerals Richmond Ltd /03057111/ Derby, United Kingdom 100

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

Indirect holding via subsidiary LKAB MalmtrafikAB LKAB Malmtrafikk AS /974 644 991/ Narvik, Norway 100 100

Indirect holding via subsidiary LKAB Fastigheter AB Jägarskolan Fastigheter AB /556594-9095/ Kiruna 100 100 7

Indirect holding via subsidiary Wassara AB Wassara Limitada/ Santiago/ Chile 100

Indirect holdings via subsidiary Norrskenet AB Kiruna Softcenter AB /556438-3726/ Kiruna 33.3 Lapland Nonstop AB /556898-4800/ Kiruna 33.3 Total Parent Company 1,490 1,410

144 NOTES TO THE FINANCIAL STATEMENTS

NOTE 35 UNTAXED RESERVES Interest paid and dividend received Group Parent Company Parent Company SEK million 2013 2012 2013 2012 SEK million 31-12-2013 31-12-2012 Dividend received 43 55 257 588 Accumulated depreciations in addition to schedule: Interest received 101 112 162 181 Buildings and land Interest paid -14 -43 -22 -56 Opening balance 1 January 5 6 130 124 397 713 Dissolution of overdepreciation -1 -1 Closing balance 31 December 4 5 Adjustment for items not included in cash flow

Group Parent Company Machines and inventory SEK million 2013 2012 2013 2012 Opening balance 1 January 5,521 6,027 Depreciation 2,432 1,956 1,796 1,464 Reclassification 1,305 Impairment 32 1 32 Depreciation/dissolution in addition Currency differences 194 -32 to schedule for the year 1,039 -507 Changes to financial assets -20 Closing balance 31 December 7,865 5,521 Profit from sale and decommissioning

of property, plant and equipment 0 3 6 Construction in progress Provisions for pensions -114 -31 191 12 Opening balance 1 January 1,305 Provisions for urban transformation 722 1,182 722 1,182 Reclassification -1,305 Other provisions 162 -145 163 -142 Depreciation in addition to schedule for the year 1,305 Other non-liquidity-affecting items -24 -22 -10 -14 Closing balance 31 December 1,305 3,404 2,892 2,900 2,502

Tax allocation reserve Changes in working capital From tax assessment 2007 1,275 Working capital in the Group has changed by SEK 149 million, which refers to a change From tax assessment 2009 2,200 2,200 in the hedge reserve which was transferred to Group equity. The amount has not affected From tax assessment 2012 3,600 3,600 the Group's cash flow and has not therefore not been included in changes in working From tax assessment 2013 2,960 2,960 capital in the cash flow analysis. The corresponding amount for 2012 was SEK -299 From tax assessment 2014 1,858 million. Closing balance 31 December 10,618 10,035

Tax paid Total untaxed reserves 18,487 16,866 Group Parent Company SEK million 2013 2012 2013 2012 Tax expenses according to income statement -1,736 -2,224 -1,171 -2,210 NOTE 36 CASH FLOW ANALYSIS Changes in tax assets/liabilities 865 -662 947 -612 Cash and cash equivalents - Group Adjustment for deferred tax 298 -283 -192 -198 SEK million 31-12-2013 31-12-2012 -573 3,169 -416 -3,020 The following sub-components are included in cash and cash equivalents Acquisition of subsidiaries – Group Cash and bank deposits 508 643 The effect on cash and cash equivalents of acquisition of subsidiaries in 2013 is shown Current investments, on a par below. This amount is included as part of Changes in financial assets SEK with cash and cash equivalents1 4,188 4,794 -109 million in the cash flow analysis. Total according to report on financial position and cash flow analysis 4,696 5,437 SEK million 2013 Acquired assets and liabilities Cash and cash equivalents - Parent Company Intangible assets 12 SEK million 31-12-2013 31-12-2012 Financial assets 155 The following sub-components Operating receivables 8 are included in cash and cash equivalents Current investments 12 Cash and bank deposits 365 457 Cash and cash equivalents 2 Current investments, on a par Total assets 189 with cash and cash equivalents1 4,188 4,794 Total according to balance sheet and cash flow analysis 4,553 5,251 Non-current liabilities 118 Current operating liabilities 14 1 Cash and cash equivalents includes current investments (money market instruments) Total liabilities 132 that are classified as cash and cash equivalents on the following basis:: • They have an insignificant risk of value fluctuations Purchase price: -57 • They can easily be converted into cash Outgoing: Other property given up as liquid • They mature in a maximum of three months from acquisition. (conversion of loan to conditional shareholder contribution) 40 Purchase price paid -17 Shares and participations Outgoing: Cash and cash equivalents in the acquired company 2 SEK million 31-12-2013 31-12-2012 Effect on cash and cash equivalents -15 Opening balance 1,225 1,065 Purchase of shares and participations 1,615 2,002 Sale of shares and participations -2,200 -1,842 Shares and participations according to balance sheet 640 1,225

145 AFFIRMATION BY THE BOARD

The Board of Directors and President hereby affirm that the Annual Report has been The Board of Directors and President hereby affirm that the Consolidated Financial prepared in accordance with the Annual Accounts Act and RFR 2. Accounting for legal Statements have been prepared in accordance with International Financial Reporting entities, and provides a true and fair view of the company's financial performance and Standards (IFRS), as adopted by the EU, provide a fair and true view of the activities, position and that the Report of the Board of Directors provides a true overview of the results and financial position and that the Report for the Board of Directors provides activites, results and financial position of the Group and describes the significant risks a true summary of the development overview of the he activities, results and financial and uncertainties to which the company is exposed. position of the Group and describes the significant risks and uncertainties to which the company is exposed.

Luleå 20 March 2014

Marcus Wallenberg Chair

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

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

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

Lars-Eric Aaro President and CEO

The annual financial report, consolidated financial report and sustainability report were, as stated above, approved for publication by the Board of Directors on 20 March 2014. The consolidate income statement of financial position and the Parent Company's income statement and balance sheet will be subject of approval at the Annual General Meeting on 29 April 2014.

Our Audit Report was submitted on 20 March 2014

Peter Ekberg Authorized Public Accountant Deloitte AB

146 AUDITOR'S REPORT

To the Annual General Meeting of Luossavaara-Kiirunavaara AB (plc) Corporate identity number 556001-5835

REPORT ON THE ANNUAL ACCOUNTS AND CONSOLIDATED We therefore recommend that the Annual General adopt the income statement ACCOUNTS and balance sheet for the Parent Company and the Group. We have audited the annual accounts and consolidated accounts of Luossa- vaara-Kiirunavaara AB (plc) for the financial year 2013. The annual accounts and REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS consolidated accounts of the company are included in the printed version of this In addition to our audit of the annual accounts and consolidated accounts, document on pages 92-146. we have also audited the proposed allocation of the company’s profit or loss and the administration of the Board of Directors´and the President`s of RESPONSIBILITIES OF THE BOARD OF DIRECTORS AND THE PRESIDENT FOR Luossavaara-Kiirunavaara AB (plc) for the financial year 2013. THE ANNUAL ACCOUNTS AND CONSOLIDATED ACCOUNTS The Board of Directors and the President are responsible for preparing an Annual RESPONSIBILITIES OF THE BOARD OF DIRECTORS AND THE PRESIDENT Report that provides a true and fair view in accordance with the Swedish Annual The Board of Directors is responsible for the proposal for allocation of the com- Accounts Act and consolidated accounts that provide a true and fair view in ac- pany’s profit or loss, and the Board of Directors ans the President are responsible cordance with International Financial Reporting Standards, as adopted by the EU, for administration under the Companies Act. and the Swedish Annual Accounts Act, and for such internal control as the Board of Directors and the President determine is necessary to enable the preparation AUDITOR’S RESPONSIBILITY of annual accounts and consolidated accounts that are free from material mis- Our responsibility is to express an opinion with reasonable assurance on the pro- statement, whether due to fraud or error. posed allocation of the company’s profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted au- AUDITOR’S RESPONSIBILITY diting standards in Sweden. Our responsibility is to express an opinion on these annual accounts and consol- idated accounts based on our audit. We conducted our audit in accordance with As a basis for our opinion on the Board of Directors’ proposed allocation of the International Standards on Auditing and generally accepted auditing standards company’s profit or loss, we examined the Board of Directors’ reasoned state- in Sweden. These standards require us to comply with ethical requirements and ment and a selection of supporting evidence in order to be able to assess whether plan and perform the audit to obtain reasonable assurance about whether the the proposal is in accordance with the Companies Act. annual accounts and consolidated accounts are free from material misstatement. As a basis for our opinion concerning discharge from liability, in addition to our An audit involves performing procedures to obtain audit evidence about the audit of the annual accounts and consolidated accounts, we examined significant amounts and disclosures in the annual accounts and consolidated accounts. The decisions, actions taken and circumstances of the company in order to determine procedures selected depend on the auditor’s judgement, including the assess- whether any member of the Board of Directors or the President is liable to the ment of the risks of material misstatement of the annual accounts and consoli- company. We also examined whether any member of the Board of Directors or the dated accounts, whether due to fraud or error. In making those risk assessments, President has, in any other way, acted in contravention of the Companies Act, the the auditor considers internal control relevant to the company’s preparation and Annual Accounts Act or the Articles of Association. fair presentation of the annual accounts and consolidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the We believe that the audit evidence we have obtained is sufficient and appropriate purpose of expressing an opinion on the effectiveness of the company’s internal to provide a basis for our opinion. control. An audit also includes evaluating the appropriateness of accounting poli- cies used and the reasonableness of accounting estimates made by the Board of Directors and the President as well as evaluating the overall presentation of the OPINIONS annual accounts and consolidated accounts. We recommend to the Annual General Meeting that the profit be allocated in ac- cordance with the proposal in the statutory administration report and that the We believe that the audit evidence we have obtained is sufficient and appropriate members of the Board of Directors and the President be discharged from liability to provide a basis for our audit opinion. for the financial year. OPINIONS In our opinion, the annual accounts have been prepared in accordance with the Swedish Annual Accounts Act and provides in all material respects a true and fair view of the parent company´s financial position of the as of 31 December 2013 Stockholm 20 March 2014 and its financial performance and cash flows for the year in accordance with the Swedish Annual Accounts Act. The consolidated accounts have been prepared Deloitte AB in accordance with the Swedish Annual Accounts Act and provide in all material respects a true and fair view of the Group´s financial position as of 31 December 2013 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 statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts. Peter Ekberg Authorized Public Accountant

147 MINERAL RESERVES AND MINERAL RESOURCES

MINERAL RESERVES AND MINERAL RESOURCES

MINERAL RESERVES as of 31 december 2013 (to sorting plant)

quantity, mt percent fe 2013 2012 2013 2012 Kiruna Proven 511 536 47.2 48.6 Probable 145 146 44.9 46.4 Malmberget Proven 288 168 42.1 42.3 Probable 9 105 41.0 41.2 Gruvberget Proven 5 7 53.0 53.1 Probable - - - -

Mineral reserves include minerals within approved mining permits. The mineral reserve in Kiruna includes minerals above 1,365 m level. The mineral reserve in Malmberget includes minerals above 1,250 m level for the East Field. The West Field includes minerals above 850 m level. The mineral reserves for Gruvberget include magnetite minerals above 220 m level. The proportion of broken tonnage of waste rock/ore in open pits is 3,4. When calculating the reserves, the prices in force over the period 2004–2005 were used

MINERAL RESOURCES BESIDES MINERAL RESERVES as of 31 december 2013 (to sorting plant)

quantity, mt percent fe 2013 2012 2013 2012 Kiruna Measured 13 12 47.8 48.8 Indicated 208 199 46.2 47.1 Inferred 80 76 44.7 45.6 Gruvberget Measured 15 2 49.7 57.0 Indicated 8 - 42.9 - Inferred - - - - Leveäniemi Measured - 80 - 47.1 Indicated 186 30 43.6 47.0 Inferred 11 - 36.8 - Mertainen Measured 106 106 36.4 36.4 Indicated - - - - Inferred 51 51 31.8 31.8 Malmberget Measured 23 17 42.2 41.6 Indicated 148 175 42.6 42.2 Inferred 148 36 41.9 41.9

The mineral resources in Kiruna down to 1,500 m level are reported, in Malmber- get for the Eastern Field down to 1,725 m level and 1,050 m level for the Western Field. At deeper levels in the respective drifts there is insufficient data for esti- mating grades and quantities. Mineral resources for Gruvberget are reported for magnetite mineral between 220 and 0 m levels.

LKAB reports mineral reserves and resources in compliance with recommended rules adopted by SveMin (FRB Standard). These are in turn based on an interna- tional standard.

Håkan Selldén is senior mining engineer and Qualified Person accredited by SveMin. He has compiled LKAB’s report.

The summaries of mineral reserves and mineral resources show the current situ- ation. Mineral reserves comprise granted mining permits, and mineral resources suggest possible future permits.

148 MINERAL RESERVES AND MINERAL RESOURCES

149 GROUP OVERVIEW

150 GROUP OVERVIEW

Income statements (SEK million) 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Net sales 23,656 26,971 31,122 28,533 11,558 23,128 16,385 14,615 14,337 8,988 Expenses, goods sold -14,746 -15,183 -15,190 -15,276 -10,029 -12,166 -9,509 -7,706 -7,535 -6,180 Gross profit 8,910 11,788 15,932 13,257 1,529 10,962 6,876 6,909 6,802 2,808 Sales expenses -148 -249 -223 -213 -202 -200 -178 -178 -174 -289 Administration expenses -643 -608 -640 -451 -377 -448 -344 -333 -349 -353 R&D expenses -356 -283 -328 -213 -237 -258 -217 -165 -159 -235 Other operating income/expenses -124 -59 -35 -68 -54 271 11 23 -11 10 Operating profit 7,639 10,589 14,705 12,312 659 10,327 6,148 6,256 6,109 1,941 Financial income 611 733 503 418 705 575 572 546 550 227 Financial expenses -482 -345 -407 -349 -172 -513 -376 -420 -208 -145 Profit before tax 7,768 10,977 14,801 12,381 1,192 10,389 6,344 6,382 6,451 2,023 Tax -1,736 -2,224 -3,842 -3,275 -473 -2,748 -1,665 -1,785 -1,904 -456 Profit for the year 6,032 8,753 10,960 9,106 719 7,641 4,679 4,597 4,547 1,567

Attributable to Parent Company shareholders 6,032 8,753 10,960 9,106 719 7,641 4,679 4,597 4,546 1,568 Minority interest 1 -1

Planned depreciation on property, plant and equipment 2,432 1,952 1,891 1,821 1,812 1,452 1,168 996 951 1,079

Balance sheets (SEK million) Intangible fixed assets 257 277 269 321 310 428 329 387 477 211 Property, plant and equipment 33,759 30,315 26,285 23,087 21,551 19,893 16,702 11,746 7,928 6,316 Financial fixed assets 1,197 1,120 1,124 1,675 1,827 1,094 2,416 2,208 1,393 219 Total fixed assets 35,213 31,712 27,679 25,083 23,688 21,415 19,447 14,341 9,798 6,746 Inventories 2,611 2,493 2,449 2,074 2,301 2,715 1,635 1,631 1,423 1,006 Accounts receivable 3,291 3,060 4,593 3,395 2,276 1,946 1,922 1,697 1,846 1,194 Other receivables 1,210 2,007 808 1,515 1,095 612 685 1,214 416 195 Cash & cash equivalents and current investments 15,497 18,672 18,201 14,562 6,195 9,643 5,991 6,982 7,091 4,516 Total current assets 22,609 26,232 26,051 21,546 11,867 14,916 10,233 11,524 10,776 6,911 Total assets 57,822 57,944 53,730 46,629 35,555 36,331 29,680 25,865 20,574 13,657 Total operating assets 41,128 38,151 34,405 30,392 27,533 25,594 21,273 16,675 12,090 8,922

Equity3 41,472 41,085 37,335 32,951 25,375 25,218 22,251 19,076 14,802 10,044 Minority interests 4 3 Provisions1 Non-current liabilities 11,670 12,485 11,933 9,555 7,512 6,836 4,963 4,627 3,598 2,230 Current liabilities 4,680 4,374 4,462 4,123 2,668 4,275 2,466 2,162 2,170 1,380 Total equity and liabilities 57,822 57,944 53,730 46,629 35,555 36,329 29,680 25,865 20,574 13,657

Cash flow analyses Cash flow before payment of urban transformation and pension funds and changes in working capital 10,599 10,700 14,038 13,951 2,931 11,545 7,200 5,688 6,073 2,776 Urban transformation payments2 -295 -407 -382 NA NA NA NA NA NA NA Payment to pension funds -881 Changes in working capital -866 980 92 -1,184 -43 -1,201 -124 358 -553 79 Cash flow from operating activities 8,557 11,273 13,748 12,767 2,888 10,344 7,076 6,046 5,520 2,855 Investment in existing activities -6,141 -5,808 -5,126 -3,973 -3,543 -4,682 -5,968 -4,844 -2,648 -973 Other operating investments 18 6 17 Operating cash flow 2,434 5,471 8,639 8,867 -655 5,662 1,108 1,202 2,872 1,882 Acquisition of companies, minorities and assets -17 -7 0 -9 -35 0 -75 -29 Investment in current investments 2,434 -3,729 -2,990 -2,952 308 303 -381 217 -1,846 -1,748 Other -92 80 7 -8 192 151 123 Cash flow after investments 4,759 1,742 5,649 5,915 -340 5,948 884 1,570 1,074 105 Dividend -5,500 -5,000 -5,000 -500 -2,800 -2,000 -2,000 -1,500 -520 -281 Other from financing activities -43 Cash flow for the year -741 -3,258 649 5,415 -3,140 3,948 -1,159 70 554 -176

Deliveries, Mt 25,5 26,3 25,7 26,0 18,7 22,7 25,1 23,3 23,2 22,8

Key figures for the Group Net sales SEK million 23,656 26,971 31,122 28,533 11,558 23,128 16,385 14,615 14,337 8,988 Growth in net sales % -12.3 -13.3 9.1 146.9 -50.0 41.2 12.1 1.9 59.5 20.4 Operating margin % 32,3 39,3 47,2 43,2 5,7 44,7 37,5 42,8 42,6 21,6 Profit margin % 32.8 40.7 47.6 43.3 10.3 44.9 38.7 43.7 45.0 22.5 Return on total capital % 14.3 20.3 30.3 31.0 3.8 33.0 24.2 29.3 38.9 16.7 Return on equity % 14.7 22.2 30.9 31.5 2.8 32.2 22.6 27.1 36.6 16.5 Return on operating assets % 19.3 29.2 45.4 42.4 2.5 49 32 43 58 21 Equity/assets ratio % 71.7 70.9 70.5 70.7 71.4 69.4 75.0 73.8 72.0 73.6 Average number of employees 4,427 4,357 4,191 4,030 3,778 4,086 3,885 3,737 3,563 3,482

1 reported as non-current and current liabilities from 2004 in accordance with IFRS. 2 Reported on own row of cash flow analysis from 2011 3 Adjustment 2011 for changed reporting (net) of remediation expenses Definitions: Operating assets: Tangible and intangible fixed assets, Inventories, Accounts receivable, Other receivables. Non-financial assets, cash & cash equivalents and current investments. Operating liabilities: Total liabilities, Deferred tax in untaxed reserves, Deferred tax liabilities, Non-current liabilities. Growth in net sales: Change in net sales as a percentage of the previous year's net sales. Operating margin: Operating profit as a percentage of net sales. Profit margin: Profit after financial items as a percentage of the year's net sales. Return on total capital: Profit after financial items + financial expenses as a percentage of average balance total. Return on equity: Profit for the year according to the income statement as a percentage of average equity. Return on operating assets: Operating profit as a percentage of average operating assets. Equity/assets ratio: Equity as a percentage of total assets.

151 GRI INDEX

FINANCIAL REPORTING PRINCIPLES AND GRI INDEX Supplement). In accordance with the owner's guidelines, the sustaina- Since 2008, LKAB has prepared a sustainability report in accordance bility report is investigated by external auditors, whose report can be with the GRI (Global Reporting Initiative) guidelines, version G3. Since found on page 89. LKAB judges that the report fulfils GRI level B+, which 2012, the sustainability report has been integrated with the annual fi- is also confirmed by the external auditor. nancial report, which reflects the integration of sustainability in ongoing activities. In preparing the year's integrated reporting, the International SCOPE AND LIMITATIONS Integrated Reporting Council's (IIRC) framework has been taken as a As in the preceding five years, the report largely concentrates on the guideline. The previous year's report was published in March 2013. Nordic activities, with the iron ore operations in Sweden and Norway in The report covers the core and additional indicators that are focus (Mining Division). This represents about 90 percent of the Group's deemed relevant against the background of the analysis of essentials total sales. The report continuously indicates in connection with the re- that is made with the company's stakeholders. The report also includes porting of data which units are involved. Changes in limitations, scope of industry-specific additional indicators (MM - Mining and Metals Sector measurement methods compared with the previous year are explained

GRI INDEX

Filled circle (symbol) = Completely reported Description Page reference Half filled circle (symbol) = Partially reported

1. STRATEGY AND ANALYSIS GRI index and attestation Table that shows where information for all parts of 1.1 Comments from the CEO 6-9 3.12 152-153 GRI (Standard Disclosures) can be found 12-13, 16-17, 20-21, About LKAB's integrat- 24-26, 28-33, 37, 3.13 Policy and practice for external investigation 1.2 Description of effects, risks and opportunities 42-47, 52-55, 58, 65, ed reporting, 152-153 67-68, 101-104 4. GOVERNANCE, UNDERTAKINGS AND STAKEHOLDERS 2. ORGANISATION Governance 2.1 Name of organisation 92 4.1 Governance structure 76-77, 80 2.2 Main brands, products and services 5, 18-19 4.2 The role of the Chair of the Board 78-79 2.3 Organisational structure 13, 80, 92 4.3 Independent or non-executive board members 78-79, 84-85 2.4 Location of head office 15 The opportunities for shareholders and employees to 4.4 78, 84-85 2.5 Countries in which the organisation is active 15, 72 present proposals etc. to the board 4.5 Remuneration to senior executives 79-80, 105 2.6 Ownership structure and form of company 92 4.6 Avoiding conflicts of interest in the Board 77-79 2.7 Markets 4, 15-17, 72 Process for requirements for board members' 4.7 78 2.8 Size of company 4-5, 151 qualifications No significant acquisi- 4.8 Mission, values, code of conduct etc. 10, 14, 67 tions or disposals have 2.9 Major changes during the reporting period occurred during the 4.9 The Board's monitoring of sustainability activities 25, 80 year., 80 2.10 Distinctions received during the financial year 37, 70 4.10 Evaluation of the work of the board 79 3. REPORTING PARAMETERS Engagement in external projects Reporting profile 4.11 Application of the precautionary principle 81 About LKAB's inte- 3.1 Reporting period 152 4.12 External statutes, principles and initiatives grated reporting, 37, 46, 54-55 3.2 Latest reports 152 4.13 Membership of organisations 22, 37, 54-55 3.3 Reporting cycle 152 Stakeholder engagement 3.4 Contact person for the report 153 4.14 Stakeholder groups 23 The report's scope and demarcations 4.15 Identification and selection of stakeholders 22-23 3.5 Process for defining the content of the report 22-23, 24-25 4.16 Methods for working with stakeholders 22-23, 54-55, 62 3.6 The report's demarcations 152-153 Important issues which have arisen in dialogue with 4.17 23 3.7 Limitations of scope or demarcation 152-153 stakeholders Reporting principles for joint ventures, subsidiaries 3.8 152-153 5. ECONOMIC INDICATORS etc. Information about sustainability governance 80-81 152-153, stated in 3.9 Measurement methods and basis for calculation respective tables and EC1 Created and delivered direct economic value 13 graphs Financial effects, as well as risks and opportunities, 20-22, 25, 26, 29-33, 48-49, 72-73, 152-153, EC2 3.10 Explanation of corrections from previous reports stated in respective attributable to climate change. 40, 44-45, 102, 104 tables and graphs 6. ENVIRONMENTAL INDICATORS Significant changes in scope, demarcation or meas- About LKAB's integrat- Information about sustainability governance 44-47, 80-81 3.11 urement methods compared with previous years' ed reporting, 152-153 reports

152 GRI INDEX

in the report together with the data. The 2013 report includes a number tional tenure employees throughout the Group unless otherwise stated. of new diagrams. External reporting of carbon dioxide emissions according to LKAB's monitoring system is performed by accredited controllers to the Swed- DATA COLLECTION ish Environmental Protection Agency and to the County Administrative During 2013, LKAB has developed and implemented a common group Board of Norrbotten County. reporting system for sustainability data (mainly indicators for the envi- ronment and employment conditions, as well as working conditions). It CONTACT has been possible to use the system in this year's reporting process and The contact person for LKAB's sustainability reporting is adjustments and improvements will be made in 2014. Senior Vice President, Sustainable Development, Anders Furbeck, Reporting of consolidated financial information occurs in the group's [email protected] financial systems. Personnel data comes originally from the personnel system, staff reports, databases and manual routines and covers condi-

GRI INDEX

Material Relations between employees and management Proportion of workforce included in collective agree- EN1 Material usage in weight or volume 48-49 LA4 72 ments Energy Health and safety at work EN3 Direct energy usage by primary energy source 48-49 Extent of injuries, work-related illness, lost working EN4 Indirect energy usage by primary energy source 48-49 LA7 days, absence and total number of work related fatal 68, 72-73 accidents by region. Energy savings through saving and efficiency im- EN5 44, 48-49 provements. Training, advice, preventive measures and risk management programmes to support the employees, LA8 68 Initiative for energy-efficient products and services, their families or community members in the event of 24-25, 30-33, 41-45, EN6 including based on renewable energy, and result of 48-49 serious illness. energy requirement. Training and education Biological diversity Average number of hours of training and education LA10 100 Significant effects on biological diversity in protected per employee per year, by personnel category. EN12 47, 54 areas or areas with high biodiversity. Diversity and equal opportunity Emissions to air and water and waste Composition of the Board and management broken Total direct and indirect emission of greenhouse LA13 down by gender, age group, minority groups and other 72-73, 84-87 EN16 48-49 gases, by weight. diversity indicators. NO, SO and other significant atmospheric pollutants, EN20 48-49 HUMAN RIGHTS by weight and type. Non-discrimination EN21 Total emissions to water, by quality and recipient. 46, 48 HR4 Number of cases of discrimination and action taken. 68 EN22 Total weight of waste, by type and handling method. 48-49 Description of value of biological diversity for bodies The rights of indigenous peoples of water and related natural environments that are Activities in the vicinity of indigenous people's areas EN25 46, 48-49 MM5 12, 54, 56, 57 affected by the organisation's emissions of water and and formal agreements with indigenous peoples. stated drainage water. Number and description of disputes related to land Compliance MM6 use and the rights and traditions of local populations 22-23, 97-99 or indigenous peoples. Total of significant fines and number of non-monetary EN28 sanctions due to breach of environmental legislation 97-98 The use of appeal functions to resolve disputes relat- and provisions. MM7 ed to land use and the rights and traditions of local 22-23, 97-98 populations or indigenous peoples. Total quantity of waste rock, processing waste and MM3 48-49 slag that contains potential environmental hazards. SOCIAL ISSUES Systems and developments related to how material is MM11 25, 41-42, 48-49 Local communities used in processes and products. Formulation and scope of the routines to evaluate the 7. SOCIAL INDICATIONS SO1 effect of activities on society, including entry, activities 22-23, 47, 54, 56-62 and departure. Information about sustainability governance 37, 67, 80-81 Proportion of employees educated in the organisa- SO3 67 EMPLOYMENT CONDITIONS AND WORKING CONDITIONS tion's policies and routines to combat corruption. Employment SO4 Action taken following corruption incidents. 37, 44 Political standpoints and participation in political LA1 Total workforce, by form of employment and region. 72-73, 100 SO5 54-55 decision-making processes and lobbying. Total number of employees and staff turnover, by age Total of significant fines and number of non-monetary LA2 72-73, 100 group, gender and region. SO8 sanctions against the organisation due to breach of 97-98 prevailing legislation and provisions. Number of areas where households are relocated, MM9 60, 62 their scope and effects.

153 GLOSSARY

ALKALINE 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 a PARTICULATE EMISSIONS: Release of particulate matter into the air. 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 slurry. PERFORMANCE IN IRONMAKING: LKAB’s promise to the customer.

CRUDE IRON: Molten ore from a blast furnace that is subsequently Q VALUE: A calculated average quality value of delivered products, based refined in a steelworks. on monthly measurements of a number of fixed parameters.

CRUDE ORE: The untreated ore broken loose from the deposit. SEISMIC EVENT: Rock tremors, earthquakes.

CRUSHED ORE: Designation for input to ore processing plants. SINTERING: Heating of fine-grained ore (fines) until it starts to melt. The ore is then fused (sintered) into lumps (sinter) that can be used in a blast DEFORMATION ZONE: Ground area affected by subsidence due, for ex- furnace. ample, to mining. Deformation zone boundaries are defined at the point where seismic instruments first indicate disturbance. SPILL: Release of water from a pond.

DRESSING: Rough sorting of crushed ore. Consists at LKAB of screening SPILLWAY: Device for controlled discharge of water from e.g., a tailings of the crushed ore into various fractions, after which the waste rock is pond. separated from the iron ore by magnetic separators. SPONGE IRON: (= DRI, Direct Reduced Iron). End product of the DR FLOTATION: Chemical process/method for particle separation, used in process. Solid, porous iron with some remaining mineral residues and beneficiation of iron ore. oxygen. HBI (Hot Briquetted Iron) is a compressed form of DRI that reduc- es the risk of autoignition. GRI: Global Reporting Initiative. International reporting body consisting of interest groups that have produced global guidelines for sustainability STRIPPING: Preparation of ground by removal of vegetation and or soil, reporting. etc., to enable access to underlying materials.

GWH: Gigawatt hour. SULPHIDES: Chemical compounds containing sulphide ions.

HEMATITE: Mineral, iron ore (Fe2O3), aka bloodstone. TJ: Terajoule.

HUNTITE: Mineral. TWH: Terawatt hour.

INDICATORS: Quantifiable key values as defined by the GRI sustainability VALUE-IN-USE: Lowest possible cost for iron and steel production with areas Economy, Environment, and Society. the least possible disruptions. LKAB pellets increase blast furnace efficiency, reduce e.g. emissions, the formation of slag and energy INERT WASTE: Material waste that is not reactive and does not decom- consumption. pose after final placement. VALUES: Describe how we behave toward each other and the world INTACT ORE: When ore is in its original state before being mined it is said in general. They are guiding principles for every day life; they help us to be intact. make decisions and clarify what is expected of everyone in the company. INTEGRATED STEELMILL: Steelmill that covers the entire production LKAB’s values: Commitment, Innovation and Responsibility. chain from ore to steel and has both sintering plant and blast furnace. YIELD: Ore yield = The ratio between the recovered crude ore and the LANDFILL: Area in which materials such as tailings or waste rock are theoretical quantity of intact ore in the ground. The difference is made stored indefinitely. up of ore losses and is dependent on the workability of the ore, i.e. how economical it is to mine. Weight yield = The ratio between the iron LANDFILL PLAN: Long-term plan for final placement of waste material. content of the finished product and the iron content of the crushed ore LEACHATE: Water containing elements that are present in the material entering a plant. 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.

154 LKAB ADDRESSES

LKAB INDUSTRIAL MINERALS LKAB Minerals France Group head office Representative Office, 85 Rue Jean Rache Box 952 LKAB Minerals Ltd. 59310 Saméon, France SE–971 28 Luleå. 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] LKAB Minerals Greece Darren Wilson, President Representative Office, 13, N.Kountouriotou str., LKAB Minerals Group 546 25 Thessaloniki, Greece. IRON ORE Tel: +30 2310 539073. Fax +30 2310 552882. LKAB Minerals AB [email protected] MARKET AND LOGISTICS Box 952, 971 28 Luleå. Tel +46 920 381 60. Fax +46 920 190 88 LKAB Minerals Singapore LKAB [email protected] c/o LKAB Far East Pte Ltd Nordic Sales Office Roger Johansson, President and acting Group CEO 300 Beach Road #29-02, The Concourse, Box 952, 971 28 Luleå. Singapore 199555. Tel +46 771 760 000. Fax +46 771 760 001 LKAB Minerals 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 LKAB Minerals, Inc. LKAB Wassara AB [email protected] 2020 Scripps Center, 312 Walnut Street, Elektronvägen 4 Göran Ottosson, President Cincinnati, OH 45202, USA. SE–118 63 Stockholm. Tel +1 513 322 5530. Fax +1 513 322 5531 Tel +46 771 760 100 LKAB SCHWEDENERZ GmbH [email protected] [email protected] Bredeneyer Strasse 182, D–45133 Essen, Germany. Mats Drugge, President Stefan Swartling, President Tel +49 201 879 440. Fax +49 201 879 4444 [email protected] LKAB Minerals GmbH LKAB Berg & Betong AB Göran Ottosson, President P.O. Box 10 25 54, DE–450 25 Essen, Germany. Box 817, 981 28 Kiruna. 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 LKAB Minerals 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. [email protected] Tel +31 168 388 500. Fax +31 168 388 599 Peter Söderman, President LKAB Malmtrafik AB [email protected] 981 86 Kiruna. Yvonne Dirken, President LKAB Kimit AB Tel +46 771 760 500. Fax +46 771 760 002 Tel +46 771 760 220. Fax +46 771 760 221 Anders Björnström, President LKAB Minerals Asia Pacific Ltd. [email protected] 3407 China Resources Building, 26 Harbour Road, Peter Söderman, President LKAB Norge AS Wanchai, Hong Kong. Postboks 314, NO–8504 Narvik, Norway Tel +852 2827 3000. Fax +852 2827 5574 LKAB Fastigheter AB Tel +47 769 238 00. Fax +47 769 449 25 [email protected] SE–981 86 Kiruna Magne Leinan, President John Engel, President Tel +46 771 760 300. Fax +46 771 760 301. [email protected] LKAB LKAB Minerals (Tianjin) Minerals Co., Ltd. Siv Aidanpää Edlert, President Luleå malmhamn Junyi Industrial Park, Jungliangcheng, Dongli District, Box 821, 971 25 Luleå. Tianjin, P.R. China 300301. LKAB Nät AB Tel +46 771 760 000. Fax +46 771 760 001 Tel +86 22 2435 1706. Fax +86 22 2435 1708 SE – 981 86 Kiruna Sofia Jonsson, General Manger [email protected] Tel +46 771 760 700. Fax +46 771 760 002 James Qi, President [email protected]

PRODUCTION Likya Minelco LKAB Försäkring AB ITOB Organize Sanay Bölgesi Tekeli Beldesi, Box 952, SE–971 28 Luleå LKAB Menderes, Izmir, Turkey Tel +46 771 760 600. Fax +46 771 760 001 SE–981 86 Kiruna, Sweden Tel: +90 232 799 01 60. Fax: +90 232 799 01 74 [email protected] Tel +46 771 760 000. Fax +46 771 760 002 LKAB Minerals Slovak Republic LKAB Trading (Shanghai) Co., Ltd. LKAB Representative Office, Panenska 13, Unit 2007, 889 Yueda Plaza, Svappavaara SK–81103 Bratislava, Slovak Republic. 1111 Changshou Road, SE–981 86 Kiruna, Sweden. Tel +421 2 5930 5753. Fax +421 2 5930 5754 Shanghai 200042 Tel +46 771 760 000. Fax +46 771 760 002 [email protected] China Marian Zilinsky, Sales Manager Tel: +86 21,521 25103. Fax: +86 21,521 26029 LKAB E-mail office: [email protected] SE–983 81 Malmberget, Sweden. LKAB Minerals Spain [email protected] Tel +46 771 760 000. Fax +46 771 760 003 Representative Office, C./Nord no. 2 Ent.5, Anders Lundgren, President 08500 Vic,Spain. Tel/Fax +34 93 886 1330 [email protected]

155 ANNUAL GENERAL MEETING AND FINANCIAL INFORMATION

ANNUAL GENERAL MEETING LKAB’s Annual General Meeting will be held on 29 April 2014 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 e-mail at [email protected] The printed version of the Annual Report will be available from 29 April.

FINANCIAL INFORMATION

INTERIM REPORTS

29 April Interim Report, 1st Quarter 2014

August Interim Report, 2nd Quarter 2014

October Interim Report, 3rd Quarter 2014

February 2015 Interim Report, 4th Quarter 2014, together with Year End Report 2014

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

Please direct any questions regarding LKAB’s sustainablity report to Anders Furbeck, Director, Sustainable Development.

156 LKAB, BOX 952, SE-971 28 LULEÅ, SWEDEN | tel. +46 (0)771 760 000 | www.lkab.com