2014 ANNUAL AND SUSTAINABILITY REPORT REPORT AND SUSTAINABILITY ANNUAL

2014 ANNUAL AND SUSTAINABILITY REPORT A WORLD OF STEEL

Demand for iron ore is driven by the demand for steel, China led to a sharp fall in the spot price of iron ore fi nes which in turn is strongly linked to GDP growth, during the year. In contrast, the market is stable for increasing urbanisation and prosperity in the world’s highly processed iron ore products, like LKAB’s pellets, emerging economies. The supply of fi nes in the iron ore as steel manufacturers place increasingly tougher market increased signifi cantly during the fi rst half of requirements on e ciency and environmental perfor- 2014, while demand, especially from China, declined. mance. Oversupply in combination with low steel prices in

150 years 47% 1.7GJ is how long steel has been recycled, is how much the price of per tonne of steel (HRC) is the amount of and it can be recycled over and over iron ore fell in 2014, with an average energy that steelworks can save by using without loss of quality. for the year of USD 97/tonne. blast furnace pellets instead of sinter.

100 % 1.3 tonnes 823 Mt increase. Global steel consumption is how much the total weight of a of steel was produced in has doubled in 35 years. 40 tonne truck can be reduced if high- China in 2014. That is almost half strength steel is used in platforms of total world steel production. and chassis1. 1 www.advantageenvironment.com

50 % 320 kg 933 Mt of world steel production less carbon dioxide is emitted per of iron ore was imported by is used for buildings and tonne of steel produced (HRC) if blast China. That is a 13.8 percent infrastructure. furnace pellets are used instead increase from last year. of sinter. FROM SWEDISH OREFIELDS – TO THE WORLD

LKAB operates in northern Sweden amidst Europe’s richest iron For nearly 125 years, LKAB has been a key driver of Sweden’s ore deposits. Our production, processing and world-leading growth and exports that built up infrastructure, industries and research and development facilities are located here. We trans- knowledge. We help communities grow and develop and serve as port fi nished iron ore products by rail to the ports of Narvik and a safe, secure, attractive employer. At the same time, we a ect Luleå for further transport to customers, primarily in Europe, the the people, environment and other industries in our surround- Middle East, Asia and the US. The mining of iron ore in northern ings. Our values and Code of Conduct guide us to act responsibly, Sweden generates considerable socio-economic value. in cooperation with, and with the trust of, the world around us.

LKAB AND SOCIETY 26 Mt 83 % GROW SIDE BY SIDE new homes need to be built in the was the total amount of iron of LKAB’s sales consist of high- 5,000 mining communities as a result of ore products LKAB delivered to quality iron ore pellets – blast urban transformation. customers in 2014. furnace pellets and direct reduction pellets. of Gällivare’s residents and 96 percent 97% of Kiruna’s believe that LKAB is very valuable to the municipality.

people visited LKAB and were 25,000 received by our visitor services in 2014. LKAB’s mines are themselves major destinations. MSEK 700 5,491MSEK WITH RESPONSIBILITY is how much LKAB’s costs will was invested by LKAB during the year. FOR THE ENVIRONMENT decrease through process MSEK 1,700 in the growth programme optimisation, new purchasing is the total energy savings achieved for new open-pit mines, MSEK 413 73 TJ through energy e ciency measures. agreements, hiring freezes in environmental investments. and sta reductions. is the degree of purifi cation of fl ue 90 % gases from the MK3 pelletizing plant in Malmberget after additional environmental investments.

of land north of Mertainen is 2,600 ha protected from exploitation by LKAB’s 77% 71,232 environmental compensation plan. was the approximate number of of LKAB’s iron ore AS AN ATTRACTIVE products are exported to tonnes of fi nished products Europe’s steelworks. transported on the Malmbanan EMPLOYER railway every day during the year. of LKAB’s employees are women. The 19.4 % percentage is steadily increasing and the target is 25 percent women by 2020.

employees have been trained so far in 60 % 4 th 500 the new Code of Conduct adopted at the end of 2013. is how much LKAB increased its LKAB is the world’s fourth-largest sales of magnetite ore for uses other pellet producer. place in Universum’s “Sweden’s Best than steel production. 5 th Employers” survey. EVENTS IN 2014 1 CONTENTS 2014 EVENTS DURING THE YEAR

ABOUT LKAB’S ANNUAL AND SUSTAINABILITY REPORT 2014 Events in 2014 1 In accordance with the state’s ownership policy and guidelines for state-owned The year in numbers 2–3 companies, LKAB has prepared an annual report and a sustainability report as per the Global Reporting Initiative (GRI) guidelines. LKAB has chosen to report LKAB’s objectives 4–5 fi nancial and non-fi nancial (social and environmental) information in the same report for a better understanding of the company and its operations. The report President’s Report 6–8 structure largely adheres to the reports of the last two years, with LKAB’s strategy as the basis. The Sustainability Report for 2014 was prepared as per G4, JAN FEB and a GRI Index with the core scope is found on pages 74–75. The index refers 1 THIS IS LKAB 9 primarily to this report, but some selected informational points refer to a sepa- LKAB – A global group 10–11 rate appendix (GRI Appendix 2014) available on LKAB’s website. SSAB AND RUUKKI MERGE STRONG START TO THE YEAR INVESTMENTS IN NARVIK Signifi cant sustainable development issues 12–13 The audited Annual Report includes the Administration report as well as the 22 January. Two important custo- 31 January. LKAB delivered nearly 17 February. LKAB is investing an ad- Corporate Governance Report on pages 62–67. Customer o ering 14 mers for LKAB announce that they 2.29 million tonnes of fi nished pro- ditional SEK 1 billion in a new transport will form a joint company. ducts in January, which is an annual system from ore stockpiles to shiploa- Sustainability information that was reviewed by the auditors is found on pages 4–13, 21–60 and 74–77 as well as in the GRI appendix on LKAB’s website at 2 CUSTOMERS AND MARKETS 15 mean value of 26 million tonnes. ders in the port of Narvik. www.lkab.com. Iron ore market drivers 16–17 LKAB – An active player in growing niches 18 MAR APR Market development 19 LKAB Minerals complements the core business 20 100 MILLION TONNES OF ORE NEW CODE OF CONDUCT NEW CHAIRMAN OF THE BOARD 12 March. New exploration 26 March. LKAB’s Board of Directors 29 April. LKAB’s owner selects Sten 3 OBJECTIVES AND STRATEGY 21 discoveries increase the ore base adopted a Code of Conduct for the Jakobsson as the new Chairman of the by almost 100 million tonnes of Group. The Code of Conduct is part of Board. He succeeds outgoing chairman Strategic focus areas 22–23 magnetite in two of LKAB’s open- the sustainability strategy and repla- Marcus Wallenberg at LKAB’s AGM. Performance in Ironmaking 24–29 pit mines in Svappavaara. ces previous ethics policies. Flexibility 30–35 MAJ JUN Safe and resource-e cient production 36–43 Growth 44–48 AGREEMENT WITH AGREEMENT WITH LKAB MINERALS TURNS 25 Urban transformation 49–54 GÄLLIVARE MUNICIPALITY KIRUNA MUNICIPALITY 4 June. The anniversary was celebra- 8 May. The Supreme Administrative 14 May. LKAB and Kiruna Municipa- ted by having all sta participate in a Attractive LKAB 55–60 Court did not give leave to appeal the lity enter into a joint agreement on health challenge where together they cooperation agreement between LKAB urban transformation and relocation walked, ran, swam and bicycled to 4 OUR GOVERNANCE AND CONTROL 61 and Gällivare Municipality, thereby of City Hall and central parts of the raise EUR 25,000 for WaterAid. making it legally binding. city of Kiruna. Corporate Governance Report 62–67 Board of Directors 68–69 JUL AUG Group management 70–71 Auditor’s statement on the PERMIT FOR MERTAINEN READY FOR MINING LOWER IRON ORE PRICES Corporate Governance Report 72 3 July. In a partial ruling from 18 July. Mining in Mertainen can 15 August. The price of iron ore drops, the Land and Environment Court begin since the Swedish Agency which a ects LKAB’s margins. An enhanced Auditor’s Limited Assurance Report a permit was issued for planned for Marine and Water Management cost-cutting programme is implemented. on LKAB’s Sustainability Report 73 activities in Mertainen including withdrew its appeal to the Supreme GRI Index 74–75 preparatory work, which began Court. Materiality analysis 76–77 immediately. SEP OCT 5 OUR FINANCIAL ACCOUNTS 78 Administration Report 80–91 COMPENSATION GETS GREEN LIGHT SUSTAINABILITY 26 September. LKAB’s plan to compensate for nature conserva- REQUIREMENTS FOR SUPPLIERS Financial statements 92–100 tion values at the mine in Mertainen is approved by the Land and 13 October. A new framework for all Notes 101–133 Environment Court. The plan is the fi rst of its kind and its approval LKAB suppliers will lead to more sustai- is the result of a long-term biodiversity project. nable purchasing and strengthen LKAB’s A rmation by the Board 134 position as one of the world’s most Auditor’s Report 135 resource-e cient mining companies. Mineral reserves and mineral resources 136 NOV DEC Group overview 137 REQUEST FOR BOND ISSUE LEVEÄNIEMI PROCEEDING INCREASED PRODUCTION 6 APPENDICES 2 December. LKAB conducts a 23 December. LKAB submits additional 12 November. LKAB requests perm- successful SEK 2 billion bond issue information to the Land and Environment Glossary 138 ission to increase pellet production in under its recently established MTN Court regarding ore mining in Leveäniemi Kiruna from the currently permitted programme. following an opinion from the Swedish Addresses 139 14.8 million tonnes to 16.2 million Environmental Protection Agency. The Cover photo: At the Port of Narvik the Frontier Explorer loads 120,000 Annual General Meeting and fi nancial information 140 tonnes. goal is to receive a favourable decision in tonnes of MagnaDense – iron ore processed into aggregate. The delivery is the fi rst quarter of 2015. the single largest shipment made by LKAB Minerals so far. GRI appendix www.lkab.com EVENTS IN 2014 1 EVENTS DURING THE YEAR

JAN FEB

SSAB AND RUUKKI MERGE STRONG START TO THE YEAR INVESTMENTS IN NARVIK 22 January. Two important custo- 31 January. LKAB delivered nearly 17 February. LKAB is investing an ad- mers for LKAB announce that they 2.29 million tonnes of fi nished pro- ditional SEK 1 billion in a new transport will form a joint company. ducts in January, which is an annual system from ore stockpiles to shiploa- mean value of 26 million tonnes. ders in the port of Narvik.

MAR APR

100 MILLION TONNES OF ORE NEW CODE OF CONDUCT NEW CHAIRMAN OF THE BOARD 12 March. New exploration 26 March. LKAB’s Board of Directors 29 April. LKAB’s owner selects Sten discoveries increase the ore base adopted a Code of Conduct for the Jakobsson as the new Chairman of the by almost 100 million tonnes of Group. The Code of Conduct is part of Board. He succeeds outgoing chairman magnetite in two of LKAB’s open- the sustainability strategy and repla- Marcus Wallenberg at LKAB’s AGM. pit mines in Svappavaara. ces previous ethics policies. MAJ JUN

AGREEMENT WITH AGREEMENT WITH LKAB MINERALS TURNS 25 GÄLLIVARE MUNICIPALITY KIRUNA MUNICIPALITY 4 June. The anniversary was celebra- 8 May. The Supreme Administrative 14 May. LKAB and Kiruna Municipa- ted by having all sta participate in a Court did not give leave to appeal the lity enter into a joint agreement on health challenge where together they cooperation agreement between LKAB urban transformation and relocation walked, ran, swam and bicycled to and Gällivare Municipality, thereby of City Hall and central parts of the raise EUR 25,000 for WaterAid. making it legally binding. city of Kiruna. JUL AUG

PERMIT FOR MERTAINEN READY FOR MINING LOWER IRON ORE PRICES 3 July. In a partial ruling from 18 July. Mining in Mertainen can 15 August. The price of iron ore drops, the Land and Environment Court begin since the Swedish Agency which a ects LKAB’s margins. An enhanced a permit was issued for planned for Marine and Water Management cost-cutting programme is implemented. activities in Mertainen including withdrew its appeal to the Supreme preparatory work, which began Court. immediately. SEP OCT

COMPENSATION GETS GREEN LIGHT SUSTAINABILITY 26 September. LKAB’s plan to compensate for nature conserva- REQUIREMENTS FOR SUPPLIERS tion values at the mine in Mertainen is approved by the Land and 13 October. A new framework for all Environment Court. The plan is the fi rst of its kind and its approval LKAB suppliers will lead to more sustai- is the result of a long-term biodiversity project. nable purchasing and strengthen LKAB’s position as one of the world’s most resource-e cient mining companies. NOV DEC

REQUEST FOR BOND ISSUE LEVEÄNIEMI PROCEEDING INCREASED PRODUCTION 2 December. LKAB conducts a 23 December. LKAB submits additional 12 November. LKAB requests perm- successful SEK 2 billion bond issue information to the Land and Environment ission to increase pellet production in under its recently established MTN Court regarding ore mining in Leveäniemi Kiruna from the currently permitted programme. following an opinion from the Swedish 14.8 million tonnes to 16.2 million Environmental Protection Agency. The tonnes. goal is to receive a favourable decision in the fi rst quarter of 2015. 2 THE YEAR IN NUMBERS

PROFIT FOR THE YEAR

Operating profi t for the year was SEK 570 million (7,639) with an NET SALES AND OPERATING PROFIT operating margin of 3 percent (32). LKAB’s earnings thereby refl ect SEK million a signifi cant change in market conditions. An increasing structural 30,000 oversupply of iron ore fi nes put pressure on the world market price of MSEK 20,615 iron ore during the year. The spot price1 reached its lowest level in the 25,000 Net sales last fi ve years with a price of USD 66/tonne at the end of 2014. Low 20,000 MSEK 570 steel prices in China and weaker demand for iron ore fi nes on the spot Operating profi t 15,000 market also contributed to the price decline. Continued strong demand for LKAB’s processed, high-quality iron ore products, such as pellets, 10,000 2014 Net sales o ers price advantages. It shows that we are well positioned in our 5,000 Operating profi t customer o ering with climate-smart iron ore pellets. 0 1 PLATTS IODEX 62% Fe CFR North China 2009 2010 2011 2012 2013 2014 SALES

BY MARKET REGION BY DIVISION Percent of net sales, SEK million Percentage of net sales, SEK million

Mining Division The Division’s core business is to mine, process, deliver and sell high-quality iron ore products for steelmaking, with pellets representing about 83 percent (83) of the total sales volume. Net sales decreased by 15 percent as compared year-on-year, mainly due to the fall in iron ore prices.

Minerals Division % Europe ...... 70 The division operates in the industrial minerals market through the Middle East and North Africa (MENA) ...25 LKAB Minerals subsidiary group. The Division’s companies support the Other ...... 5 core business by developing other business opportunities for LKAB’s iron ore outside the steel industry. Net sales for the year amounted to SEK 1,870 million, which is 9 percent of consolidated sales.

Special Businesses Division The Division is a collection of LKAB’s wholly-owned subsidiaries that mainly supply products and services within the Group, but also sell LKAB-developed cutting edge technology to external customers. This includes essential construction services like sophisticated drilling tech- nology, rock reinforcement, drifting and explosives expertise, along with property management, insurance and power transmission. External sales were SEK 198 million, representing 1 percent of consolidated sales.

BUSINESS CONCEPT VISION

Manufacture and deliver upgraded iron ore products Be perceived by customers as the supplier that and services for iron manufacturing that create added adds the most value, thus leading the way in our value for customers on the world market from our base chosen market segments. in the Swedish orefi elds. Other closely-related products and services that are based on LKAB’s know-how and that support our main business activities may be included in operations. THE YEAR IN NUMBERS 3

PRODUCED AND DELIVERED

25.7Mt 26.0Mt IRON ORE PRODUCTS PRODUCED IRON ORE PRODUCTS DELIVERED BY LKAB IN 2014, COMPARED WITH BY LKAB IN 2014, COMPARED WITH 25.3 MILLION TONNES IN 2013 25.5 MILLION TONNES IN 2013

KEY RATIOS

PRODUCTION AND PRODUCTIVITY Production Production 2014 Productivity, tonnes/average number of employees FINANCIAL REVIEW Mt Tonnes/average number of employees 30 12,000 2014 2013 Financial key ratios 25 10,000 Net sales, SEK million 20,615 23,873 20 8,000 Operating profi t, SEK million 570 7,639

15 6,000 Operating margin, % 3 32 Profi t before tax, SEK million 594 7,768 10 4,000 Tax, SEK million 247 1,736 5 2,000 Profi t for the year 347 6,032 0 0 Operating cash fl ow, SEK million 2,072 2,434 2010 2011 2012 2013 2014 Return on equity, % 0.9 14.7 Net debt/equity ratio, % 0.0 -17.6 PRODUCTION OF IRON ORE PRODUCTS, Mt Investments in property, plant and equipment, SEK million 5,491 6,141 2014 2013 2012 2011 Net cost of urban transformation, SEK million 3,577 722 Total 25.7 25.3 26.2 26.1 Provisions for urban transformation at end of reporting period, SEK million 11,683 6,304 Of which pellets 23.2 23.1 23.8 22.9 Generated and distributed economic value, SEK million 21,445 24,703 Of which fi nes 2.5 2.2 2.4 3.2 Non-fi nancial key ratios Average number of employees 4,539 4,427 DELIVERIES OF IRON ORE PRODUCTS, Mt Of whom women, % 19.4 18.1 2014 2013 2012 2011 Of whom female managers, % 19.9 19.8 Total 26.0 25.5 26.3 25.7 Number of accidents with absence 58 59 Of which pellets 21.7 21.1 22.0 20.9 Energy consumption, kWh/tonne of products 165 167 Of which fi nes 4.3 4.4 4.3 4.8 Carbon dioxide emissions from pellet production, kton 675 669

OBJECTIVE STRATEGY

The LKAB Group’s overall objectives in the coming years LKAB has a very customer-centric focus, high product are to reduce costs and increase production to ensure quality and climate-smart iron ore products that the company’s profi tability and competitiveness. enhance our steelwork customers’ production results. 4 LKAB’S OBJECTIVES

SUSTAINABLE GROWTH OBJECTIVES

Sustainability is an integral part of LKAB’s business and a prerequisite for achieving our long-term fi nancial targets. LKAB’s objective is to create prosperity by being one of the most innovative, resource-e cient and responsible mining companies in the world. Based on our business strategy we work with four strategic sustainability target areas: attractive LKAB, attractive communities, responsible operations and resource-e cient production.

FINANCIAL OBJECTIVES

Net debt/equity ratio Reduced production costs 0 – 20% -20% until 2015, base year 2012. (SEK per tonne of products)

Growth from the new open-pit mines increase LKAB’s The capital structure target is a net debt/equity ratio of 0–20% competitiveness through higher volumes, resulting in a lower (fi nancial net indebtedness/equity). cost per tonne.

2014 RESULTS 2014 RESULTS 0.0 percent (-17.6) +0.6 percent (+3.7)

RETURN ON EQUITY Return on equity Return on equity Required return on equity

% 12% 40 30

20

LKAB needs to be fi nancially strong to meet future commitments. 10 The Group’s profi tability target is a return on equity of 12 percent, previously 10 percent. 0 2009 2010 2011 2012 2013 2014 2014 RESULTS 0.9 percent (14.7) LKAB’S OBJECTIVES 5

SUSTAINABILITY OBJECTIVES

Attractive LKAB

2013–2020 TARGETS 2014 RESULTS

The proportion of women at LKAB will be at least 25 percent The proportion of women in the Group was 19.4 percent (18.1). by 2020. The proportion of female managers was 19.9 percent (19.8).

There should be competition among qualifi ed candidates for There were at least two qualifi ed candidates in 96 percent of all advertised positions. recruitments in 2014.

Long-term sick leave should continue to be less than Long-term sick leave continues to be low and stood at 0.8 percent. 0.4 percent (0.5).

Accidents with absence should decrease from seven to fi ve The accident frequency was 7.6 (7.9) accidents per million accidents per million hours worked from 2011 to 2015 and by hours worked. 2020 the frequency of accidents should be no more than 2.5.

Attractive communities

2013–2020 TARGETS 2014 RESULTS

Ensure new ore reserve that produces for at least 20 years. Assurance of the ore reserve is going according to plan.

LKAB will build 200 new housing units each in Kiruna and The accumulated number of fl ats built by the end of the year Gällivare Municipalities by 2015 compared with 2011. was 178. Planning for additional housing units continues.

Responsible operations

2013–2020 TARGETS 2014 RESULTS

Emissions of sulphur dioxide from all existing pelletizing Emissions of 1,143 tonnes (2,066) of sulphur dioxide. plants are to be reduced from about 2,000 tonnes in 2011 A reduction in emissions will occur gradually after the fl ue gas to 1,000 tonnes by 2015 and 500 tonnes by 2017. installations are operational.

The annual mean value for falling particulates will Falling particulates were reduced by 17 percent in Kiruna. decrease by 10 percent by 2015 compared with 2011. The reduction was 47 percent in Narvik. Malmberget showed an increase of 13 percent due to additional dusting sources. In Svappavaara there was a 4 percent increase due to an expansion of operations in the open-pit mines since 2011.

Resource-e cient production

2013–2020 TARGETS 2014 RESULTS

The specifi c energy consumption will be reduced from 160 kWh Energy consumption was 165 kWh (167) per tonne of fi nished per tonne of fi nished products in 2011 to 130 kWh per tonne of products, a break in the trend and a decrease compared year- fi nished products by 2020. on-year. Measurements and actions continue to be taken.

Carbon dioxide emissions per tonne of fi nished products will Carbon dioxide emissions amounted to 27 kg (27) per tonne of be reduced from 27 kg in 2011 to 17 kg in 2020. fi nished products.

New generation of climate-smart pellets produced by 2017. Product development and growth continue and are priorities in LKAB’s research and development operations with a long-term goal of developing a new generation of climate-smart pellets.

Maintain our market position as a leading global supplier of LKAB’s market position as a leading global supplier of climate- climate-smart pellets. smart iron ore pellets remained unchanged during the year. 6 PRESIDENT’S REPORT

PRESIDENT’S REPORT Long-term competitiveness in a challenging market

LKAB took important steps in 2014 to secure its long-term competitiveness. It is critical to our ability to grow in pace with our customers and continue to contribute to positive social progress – in Norrbotten, in Sweden and in the global marketplace.

Demand for LKAB’s products is stable. At the same time A changed market situation our earnings were lower compared to 2013 due to a In recent years, many billions have been invested sharp decline in iron ore prices, production disruptions globally in increasing capacity in the iron ore industry, and signifi cant investments in urban transformation. which has led to intense price pressure as a result of increased volume from the largest producers. That is From Swedish orebodies to the world market a major contributor to the oversupply of iron ore fi nes LKAB is Europe’s largest iron ore producer and one and the sharp fall in prices in 2014. Low steel prices of Sweden’s largest export companies. For 125 years in China and weaker demand for iron ore fi nes also we have grown our business based in the rich mineral caused the spot price to reach its lowest level in fi ve deposits of northern Sweden. Thanks to high-quality raw years during the last quarter. The lower prices have materials, leading technological advances and long-term, led several small mining companies with high produc- close customer relationships, we have built up a strong tion costs to partially or completely halt production niche position in the market. Demand for our upgraded and close down their operations, while the structural iron ore pellets is stable, and we see new, climate-smart, oversupply is expected to continue. pellet-based steel capacity entering the market. Steps were taken during the year to improve our Magnetite ore from the Swedish orefi elds not only competitiveness. Variable costs in iron ore production has a high iron content and purity, but also emits energy decreased by SEK 400 million in 2014 and e orts to when it is processed into pellets. Having products that reduce costs further were intensifi ed in the autumn. are both high-quality and climate-smart gives us a com- We have made decisions on measures to increase petitive edge. Three of the four processing plants in the capacity in our processing plants in Malmberget and world that generate the least carbon dioxide emissions Kiruna and increased port capacity in Narvik, while we per produced tonne of pellets are in Sweden and belong continue to increase the e ciency and fl exibility of our to LKAB.1 production processes. A higher degree of upgrading and quality gives us the advantage in a changing market. Meanwhile, the E ciency and cost measures market situation changes LKAB’s prospects, since the The di cult market situation means that we did not price drop puts pressure on our margins and has a sub- reach the owner’s profi tability target, which led us to stantial e ect on our profi tability. step up cost-cutting measures in the autumn. We will Deliveries of iron ore products during the year cut costs by SEK 700 million in 2015. Measures being amounted to 26 million tonnes, which is 0.5 million taken throughout 2015 include reducing sta by 400 tonnes more than last year. Similarly, production was positions, introducing a hiring freeze and renegotiating up 0.4 million tonnes from last year, while at the same purchasing agreements. time we were hit by major thunderstorms during the Our goal is also to launch the new mines and reduce summer months and a shortage of raw materials from the risk of bottlenecks in mining production. With the the underground mines, which had a negative impact on new open-pit mines in operation, we increase our production. fl exibility. The mines get a production structure with a combination of our own sta and contractors, which makes us better able to adapt production to develop- ments in iron ore prices.

1“Benchmarking of carbon dioxide emissions from iron ore pelletizing”. The report is contract research conducted by Swerea MEFOS (metallurgical industry research institute) and commissioned by LKAB. 7

Our objective is to be one of the most innovative, resource-e cient and responsible mining companies in the world.

LKAB will grow with its customers Unlike virtually all our competitors, LKAB’s main There is an oversupply in the iron ore fi nes market, production of ore is in underground mines, which is which puts pressure on global iron ore prices. LKAB’s a cost disadvantage compared to our competitors. main market – pellets – is in balance and demand Great demands are placed on this type of large-scale, remains stable. Global demand for steel is expected to technically-advanced mining with high productivity rise by 2.5 percent per year until 2020, with emerging and safety. Each link in the chain must be utilised as countries driving growth. We see growth in our main close to maximum capacity as possible. If we manage markets in Europe and the Middle East in terms of to keep our costs down while increasing production, pellets, while we continue to cultivate business in North we are equipped to deliver on our commitments to America, for both pellets and special products from customers, the local communities and our owner. LKAB Minerals. Our e orts are currently focused on increasing To manage our competitiveness in the global iron mining capacity. The goal is three new open-pit mines ore market, we will develop the very best products that in Svappavaara. Gruvberget is already operational, provide the most added value to our customers. Our with full production of 2 million tonnes per year. We strategy is to gain deep knowledge of our customers’ received an environmental permit for the new mine processes. Working on innovations with customers is in Mertainen in June 2014, and preparations are now a key activity. Our goal is for customers to achieve a being made to start production in early 2016. We more e cient and thus more climate-smart production are still waiting on an environmental permit for the of iron for steelmaking. That is our customer promise, open-pit mine in Leveäniemi. LKAB has built up a which we call Performance in Ironmaking. business-strategic exploration function with the goal of having 20 years lead time to ensure access to ore Equipped for a changing world and development of the surrounding communities. We Over the last decade LKAB has invested many billions were able to extend the ore base in Leveäniemi and in the entire value chain, from new main levels in the Gruvberget by an additional 100 million tonnes of ore mines to processing plants, railways and ports. in 2014. 8 PRESIDENT’S REPORT

Together with employees and society deposits that have the least environmental impact and LKAB currently employs some 17,000 people through do it with the best technology available. Our dialogue direct and indirect job opportunities locally and region- with the communities surrounding us is crucial to ally. This is an important contribution to the region’s maintaining confi dence in our operations. Both rein- and Sweden’s economic development. deer herding and tourism play a major role in keeping Our goal is to be an attractive company, so it is grati- the region attractive. In 2014, LKAB signed cooperation fying that LKAB was ranked as one of Sweden’s best agreements with two Sami villages in the Municipality employers in Universum’s annual survey for 2014. of Kiruna. We o er employment in over 180 di erent trades and Long-term sustainability is at the heart of LKAB’s professions in stimulating workplaces, and our aim approach. We have a planning and investment horizon is to also be a role model in terms of ethics, equality, extending over several decades, as well as a great re- diversity, health and safety. The proportion of wom- sponsibility for the operational locations on which we en in the Group was 19.4 percent at year-end and is are so dependent. Large parts of the communities of increasing. Absences due to illness at LKAB remain Kiruna and Malmberget will need to be moved in order low. The accident rate trend has also been positive over for production in our underground mines to continue. time. The accident rate was 7.6 accidents per million LKAB has many stakeholders to take into account, and hours worked against our target of no more than 6. We we place great emphasis on our partnerships, especial- intend to make more of an e ort ly with the residents and property owners concerned. here. Our aim is always safety fi rst Urban transformation took centre stage in 2014. LKAB and zero accidents. and the Municipality of Kiruna signed an agreement in Investments for We relate to each other and June covering Phase 2, which means that LKAB can those in our surroundings who are now compensate the municipality for the infrastruc- a bigger, stronger LKAB a ected by our operations with re- ture, land and properties a ected. Construction of new have been made sponsibility and humility. Our Code housing is under way in several places and ground has of Conduct, based on the principles already been broken for what will become the new city of the UN Global Compact, forms centre. In Malmberget, large portions of the total costs the foundation. The Code of Conduct were incurred during the year. Urban transformation was implemented in the Swedish units and subsidiar- costs weigh heavy on LKAB’s 2014 earnings. ies, and signifi cant e orts were made with suppliers during the year. A more robust LKAB It is just as important to o er attractive communities Despite major challenges, LKAB stands well prepared as it is to o er attractive workplaces. The argument for 2015. Large portions of the investments necessary “no city without the mine” is often heard in our operat- for a bigger, stronger LKAB have been incurred and ing locations, but we would like to call attention to our our fi nancial position is strong. LKAB issued corporate interdependency: “no mine without the city”. Therefore, bonds in December 2014, further strengthening our we are also deeply committed to the development of fi nancial preparedness. As we look ahead, it is now the communities in which we operate. Examples of a matter of getting returns on our investments and this are the LKAB Academy, whose objective is to help ensuring trouble-free production in order to increase the schools in our region to be Sweden’s best, and the deliveries and reduce costs, all in a market with com- Hjalmar Lundbohm Research Centre (HLRC), a foun- pletely new challenges. dation at Luleå University of Technology, which funds Swedish iron ore exports mean a lot to very many research in areas that are strategically important to people and businesses, and it is with humility that I LKAB. Having an internationally acclaimed university extend warm thanks to all our customers, employees, nearby means a lot to LKAB’s competitiveness and partners and local residents for their cooperation in human resources management. 2014. Our objective is to be one of the most innovative, resource-e cient and responsible mining companies Sustainability challenges in the world. With the continued trust of the outside High environmental ambitions are essential to our world, LKAB can also continue to be competitive and business and are one of LKAB’s strongest competitive contribute to the public good, both locally and globally. advantages. We understand that the environmental permit process must take its course, but we cannot deny that we had hoped to get all three new open-pit Luleå, March 2015 mines into production earlier. Sweden has unique ore resources and the mining industry contributes signif- icant benefi ts to society each year. Sweden is also a world leader in both strong environmental legislation and climate-smart technical solutions. It is important to global development that we continue utilising the Lars-Eric Aaro, President and CEO THIS IS LKAB from the Swedish orefi elds to the world 1 10 THIS IS LKAB

LKAB – A GLOBAL GROUP

As the prosperity of more people worldwide LKAB has operations in 15 countries. Operations 30 increases, LKAB and its sector grow. The 26 are based in northern Sweden near Europe’s THIRTY COMPANIES million tonnes of iron ore that we delivered to our richest iron ore deposits. Our production and re- IN THE LKAB GROUP customers can become new bicycles, washing search and development facilities are all located machines, bridges or new homes. there. Our iron ore products are transported from mines and processing plants in Kiruna, Malm- 6 LKAB’s core business is to mine and process berget and Svappavaara along the Malmbanan SWEDEN’S SIXTH-LARGEST iron ore for the steel industry. The Group has a and Ofotenbanen railways to the ports of Narvik EXPORT COMPANY SOURCE: LARGEST COMPANIES broad product portfolio that includes industrial and Luleå for shipment onwards to steelworks minerals and products that have other fi elds of customers around the world. application for iron ore. 4,539 Highly e cient drilling systems, rockwork and AVERAGE NUMBER OF EMPLOYEES engineering services, explosives and property management companies are other parts of the Group.

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

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

Explosives Underground mines LKAB KIMIT AB KIRUNA MALMBERGET THIS IS LKAB 11

CHAIRMAN OF THE BOARD STEN JAKOBSSON: WE WANT TO SET AN INTERNATIONAL EXAMPLE

Sustainable development is central to LKAB’s Board of Directors. To attain long-term profi tability we need to make positive contributions 21,445 MSEK CREATED AND DISTRIBUTED to society as well as earn the trust of the world around us. VALUE FOR THE YEAR

As a former member and current chairman of 10,284 MSEK the board of LKAB, I have personally followed SUPPLIER PAYMENTS the international trend towards increasing the importance of long-term accountability. The Board is highly committed to these issues and MSEK our owner is sharply focused on sustainability. 3,682 EMPLOYEE SALARIES Environmental, social and economic respon- sibility are integral parts of LKAB’s business strategy and are our key competitive advantag- MSEK es. LKAB is known in the global steel market as 3,500 DIVIDEND TO OWNER a company that works innovatively for energy (SWEDISH STATE) and resource e ciency throughout the value chain. ethics, health and safety, equality and diver- From a global perspective, we contribute to 2,484 MSEK the common good by supplying climate-smart sity. Concretely, it is about people going home REINVESTED IN THE iron ore that becomes the steel that literally from work as healthy as when they arrived. Or BUSINESS builds the world’s societies. LKAB’s ambition limiting our environmental impact, and where is to comply with tougher environmental appropriate, setting aside funds for remediation standards than any other mining company of surrounding areas. 1,354 MSEK in terms of production of raw materials and Our task now is to continue to deliver prod- DISBURSEMENTS FOR management of the refi nement process, ucts that create added value for our customers URBAN TRANSFORMATION emissions and transportation. From a local in a responsible, cost-e cient manner, which perspective LKAB employs many people in also makes us a secure employer and partner. our region and we are actively engaged in With profi tability, respect for all our stakehold- 112 MSEK the growth and development of the local ers and continued responsibility for our sur- TAXES PAID BY THE communities. roundings, LKAB will continue to make positive GROUP We want to set an international contributions to social progress. example when it comes to the environment,

Rail transport Workshop Ports LKAB MALMTRAFIK AB Properties LKAB NORGE AS LKAB MEKANISKA AB LKAB MALMTRAFIKK AS LKAB FASTIGHETER AB PORT OF LULEÅ

Drilling systems LKAB WASSARA AB 12 THIS IS LKAB

SIGNIFICANT SUSTAINABLE DEVELOPMENT ISSUES

Identifying and acting on risks and opportunities that a ect LKAB’s competitiveness and stakeholder confi dence is critical to our success. LKAB and its stakeholder groups have together identifi ed a number of signifi cant issues related to activities along our value chain.

Sell and develop Process SIGNIFICANT ISSUES IN LKAB’s iron ore pellets have environmental After dressing, the iron ore is processed LKAB’S VALUE CHAIN advantages that provide our customers in LKAB’s concentration and pelletizing with greater e ciency in their processes. plants into products that give customers To continue to develop, LKAB must be an environmental and e ciency benefi ts. With • Occupational health and safety attractive employer that attracts the right 1.5 percent of the country’s total electric- • Impact on and interaction with skills. With a diversity of people, we create ity consumption, however, LKAB is one the local community a dynamic organisation that enables LKAB of Sweden’s largest single consumers of to remain at the forefront of research and energy, which means that energy conser- • Urban transformation development. vation and alternative energy sources are high priorities. It is also important to reduce • Biodiversity Explore environmental emissions to the air and wa- • Environmental emissions LKAB’s exploration initiatives are the basis ter, which includes the phasing out of coal for ensuring long-term mining operations. and oil, increased use of surplus heat and • Resource-e cient use of This presupposes respect for our sur- recycling of mining waste. raw materials roundings, local livelihoods and the envi- Transport • Responsible purchasing ronment. We evaluate the impact of new mines on biodiversity, taking into account LKAB is a leading logistics company. • Diversity and non-discrimination the abundance of variation. With respon- Transportation by rail from the mines and sible urban transformation we secure our processing plants along the Malmbanan • Product’s environmental benefi ts future operations. and Ofoten lines to shipping ports of • Reindeer herders’ interests in Luleå and Narvik is the backbone of Mine LKAB’s logistics system and business • Management of viewpoints LKAB mines iron ore, both above and below operations. on environment and society ground. Directly and indirectly LKAB em- ploys more than 17,000 people in the Use and utilise The essential issues are described in the region and has over 4,300 suppliers and The environmental benefi ts of our products adjoining text in general terms as relates to the subcontractors. Occupational health and are transferred to the customer by making value chain, and a more detailed description of safety is a high priority in our workplaces processes more e cient and production each issue is found with the materiality analysis as per GRI G4 on pages 76–77. and in working with our suppliers. more resource-e cient. That is why the climate wins when as much of the world’s iron-ore-based steel as possible comes from LKAB’s mines. Steel products are also 100 percent recyclable and can become OUR VALUE CHAIN new raw material again.

Sell and develop Explore Mine Process Transport Existing mines and Above and below ground Dressing – Concentration Train – Ship new projects Pelletizing THIS IS LKAB 13

INTERACTING WITH OUR STAKEHOLDERS

Only by actively managing issues that can a ect our business can we cultivate growth in line with our targets. Our business requires a long-term approach and collaboration. LKAB wants to be accessible and to interact with stakeholders with responsiveness, commitment and responsibility.

Customers LKAB has close customer relationships and CUSTOMERS knowledge exchange through various cus- AUTHORITIES tomer-related collaborative projects. EMPLOYEES AND LEGISLATORS In various forums for individual and joint meetings, we maintain a continuous dialogue on the issues that customers per- ceive as most signifi cant. SUPPLIERS AND OWNER CONTRACTORS Employees We engage in dialogue our employees in our daily work at workplace meetings, perfor- mance reviews, strategy days, safety o cer LOCAL TRADE RESIDENTS meetings and regular employee surveys. ASSOCIATIONS

Suppliers and contractors LKAB has about 4,300 suppliers and con- REINDEER HOSPITALITY Stakeholders are groups or persons who HERDING tractors. Through regular meetings and sup- INDUSTRY directly or indirectly can a ect or be plier days we assure a consensus on how a ected by the decisions LKAB makes. we react to the issues that our suppliers point out as important.

Local residents Our presence and infl uence are most Trade associations Owner evident in our business locations. The need Dialogues are held, usually through LKAB’s owner is the Swedish State, for contact channels and interaction is consultation meetings, with stakeholder which is represented on the Board greatest there and we must be accessible organisations on specifi c issues such as and at the Annual General Meeting. and nearby. the environment, nature conservation values and urban transformation. In order Authorities and legislators Reindeer herding to generate debate around various key LKAB carries on dialogues at all levels, LKAB wishes to cooperate and aims to sign issues we are a member of Euromines, the both nationally and internationally. Both cooperation agreements with the Sami com- Swedish Steel Producers’ Association’s public and private meetings are held munities that are a ected by our operations. Environmental Council and trade associ- regularly with relevant authorities, the ation SveMin, which includes the Mining County Administrative Board and munici- Hospitality industry Employers’ Association. palities. From a regulatory perspective, the LKAB also collaborates with other important dialogues are mainly on issues related to businesses in the region through individual urban transformation, as well as issues and public meetings where important issues related to climate change, the environment are addressed. and land and planning issues.

Learn more about our strategic dialogues with selected stakeholders and the prominent issues of our stakeholders in section 3, Goals and strategy, on pages 21–60. Also see Materiality analysis, Sustainable development on pages 76–77. 14 THIS IS LKAB

CUSTOMER OFFERING

LKAB has evolved from being a supplier of high-quality iron ore raw materials to becoming a high-tech minerals group and is one of the world’s leading manufacturers of quality processed iron ore products. A unique combination of product and technology development, high-tech research and customer interaction has broadened our portfolio of proprietary and innovative technologies, products and knowledge.

IRON ORE PRODUCTS

Blast furnace pellets is LKAB’s largest prod- DR pellets are reduced with natural gas Fines is fi nely crushed iron ore that is uct group, delivering signifi cant customer to direct reduced iron (DRI), which is used melted together into cakes (sintered) value to steelworks’ blast furnaces by means to make steel in an electrosteel furnace. before it is used to produce iron in a blast of an optimised addition of various minerals LKAB’s high-quality pellets produce less furnace. The high iron content in LKAB’s like olivine to improve high-temperature waste, lower power consumption, raise pro- fi nes makes it highly sought after in the properties. ductivity and lower maintenance and wear market. in steel production.

INDUSTRIAL MINERALS SPECIAL PRODUCTS

Mica has a very wide range of The Group also supplies con- applications, including as rein- crete and crushed aggregate to forcement and heat protection the construction industry and in plastics and as decorative provides advanced mechani- elements in ceramic materials. cal engineering services and Mineral sands are used for contracted assignments. production of welding rods Due to its shipments on the Minerals are a part of our and welding wire. Refractory Malmbanan railway, LKAB is modern lives and are found in minerals are used to produce Sweden’s largest shipping everything from cosmetics and refractory bricks and casting Some support functions and company. As a service function paint to fi re protection gear and sand. innovative technologies used in to the iron ore business, we electronics. LKAB is also a leading player our mines are sold externally. also have a property manage- Magnetite is used for water in the world when it comes to For example, the unique, world- ment company that owns and treatment, sound and vibration recycling refractory such as patented water-powered drilling manages 2,100 housing units in damping and as aggregate in refractory bricks and materials system Wassara and the explo- Kiruna and Malmberget. heavy concrete. Huntite is used, for lining blast furnaces, for sive Kimulux, which o ers a wide for example, as a halogen-free, example. range of applications in the min- fi re-retardant additive in ing and construction industries. plastics and cables. CUSTOMERS AND MARKETS continued stable demand 2 16 CUSTOMERS AND MARKETS

IRON ORE MARKET DRIVERS

Demand for iron ore is driven by the demand for steel, which in turn is strongly linked to GDP growth, increasing urbanisation and prosperity in the world’s emerging economies. The market for high-quality upgraded iron ore products, such as LKAB pellets, increases in line with increases in requirements for e ciency and environmental performance among steel producers.

A GROWING NEED FOR STEEL

The world population is growing and the movement from an agricultural to an industrial society in the world’s emerging economies requires huge amounts of steel.

STEEL CONSUMPTION IN CHINA AND THE WORLD GLOBAL STEEL USE BY SECTOR China Rest of world Mt Source: World Steel Association Source: World Steel Association

Mt 1,600

% 1,200 Building and construction ...... 51 Machinery ...... 14.5 800 Metal goods ...... 12.5 Motor vehicles ...... 12 Other transport ...... 5 400 Electronics & telecom ...... 3 Household appliances ...... 2 0 1980 1985 1990 1995 2000 2005 2010 2014 CUSTOMERS AND MARKETS 17

DRIVEN BY RISING LIVING STANDARDS AND URBANISATION

More and more people are moving to cities. Factories, cities and infrastructure are being built and the demand for capital and consumer goods is increasing.

GLOBAL GDP PERFORMANCE TOP 10 STEEL PRODUCING COUNTRIES, Mt Source: The World Bank Source: World Steel Association

USD billion 600,000 NO. COUNTRY 2014 2013 CHANGE, % 1 China 823 815 0.9 450,000 2 Japan 111 111 0.1 3 USA 88 87 1.7 300,000 4 India 83 81 2.3 5 South Korea 71 66 7.5 150,000 6 Russia 71 69 2.6 7 Germany 43 43 0.7 8 Turkey 34 35 -1.8 0 1970 1980 1990 2000 2010 2011 2012 2013 20141 9 Brazil 34 34 -0.7

1 GDP increased 2.6 percent in 2014 as forecast by the World Bank, Global Economic Prospects. 10 Ukraine 27 33 -17.1

LEADS TO INCREASED VOLUMES OF IRON ORE

Strong demand for steel is driving demand for iron ore. This has led to a sharp increase in the supply of iron ore from new mines in recent years, mainly in Australia. The world’s three largest export countries are Australia, Brazil and South Africa.

IRON ORE SUPPLY AND DEMAND GLOBAL TRADE IN IRON ORE PRODUCTS Supply Demand Source: Wood Mackenzie

Mt 2,500

2,000

1,500

1,000

500

0 2000 2005 2010 2012 2013 2014

SUPPLY AND SPOT PRICE DEVELOPMENTS IN THE IRON ORE MARKET

The supply of iron ore in the market increased signifi cantly during the fi rst half of 2014. An oversupply of iron ore in combination with low steel prices in China led to a sharp fall in the spot price during the year, despite the fact that China increased its imports of iron ore from the previous year by 13.8 percent to 933 million tonnes. There was an overall decline of 47 percent in the spot price in 2014 and the average for the year ended at USD 97/tonne.

USD/tonne IRON ORE PRICE PERFORMANCE 250 January 2009 – 4 February 2015 Source: PLATTS IODEX 62% Fe CFR North China 200

150

100

50

0 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 18 CUSTOMERS AND MARKETS

LKAB – AN ACTIVE PLAYER IN GROWING NICHES

LKAB is Europe’s largest iron ore producer, but is a minor supplier from a global perspective. LKAB’s main product is pellets, so our competitiveness and market position are dependent on our being a leading high-tech supplier of high-quality iron ore products to customers with high product requirements.

The steel market in Europe is a mature market, and unlike strong LKAB’S SALES BY MARKET REGION growth markets like China, focus is on streamlining and consolida- Percent of sales, SEK million tion. Steel producers demand high-quality iron ore products that allow them to produce as much or more steel from fewer produc- tion units. This makes LKAB’s pellets a sought-after commodity in customers’ production processes. Our proximity to Europe also gives % us a freight advantage over our competitors and makes Europe a Europe ...... 77 natural home market. We have developed good, long-term business MENA ...... 22 relationships in Europe for over 120 years. China ...... 0.5 USA ...... 0.5 Direct reduction with natural gas in MENA and USA In MENA, access to a good supply of natural gas and a lack of high-quality scrap means that steelmaking with direct reduced iron is the most common method of production. Strong demand for our premium DR pellets for direct reduction and shipping neutrality are LKAB’S SALES BY PRODUCT AREA what make MENA our second largest market. The DR process is Percent of sales, SEK million also established in the US. Low prices for shale gas in recent years combined with scrap shortages have created business opportunities for our DR pellets in North America.

Iron ore market in China dominates % China is always an important market due to its size and infl uence on Blast furnace pellets ...... 61 the world market price. Demand in China is currently dominated DR pellets...... 22 by fi nes products, but progressively more stringent environmen- Fines ...... 14 Special products ...... 3 tal requirements are expected to generate increased demand for high-quality products like dressed products and pellets. The iron ore producers that are geographically closer to China, mainly from Aus- tralia, have proximity and freight advantages compared with LKAB. Taken together, these factors make China a signifi cant but small market for LKAB from a sales point of view. The country’s dominant position makes our presence in the Chinese market GLOBAL PELLET PRODUCTION Source: CRU strategically important and we are following developments in the world’s second largest economy very closely. Mt 500

TOP FIVE PELLET PRODUCERS IN 2014 400 Source: Wood Mackenzie Long-Term Outlook Q4 2014.

300 NO. COMPANY ANNUAL CAPACITY, Mt

1 Vale 56 200 2 Cli s 33 3 Samarco 30 100 4 LKAB 27 0 5 Metalloinvest 26 2000 2005 2010 2012 2013 2014 CUSTOMERS AND MARKETS 19

MARKET DEVELOPMENT STEEL MARKET AND STEEL DEMAND

Europe USA Crude steel production in the EU281 increased during the year by Crude steel production in the US increased by 0.9 percent in 1.8 percent. Economic developments in Europe remained weak in 2014. The US market accounted for the most positive signals during 2014. Recovery in the Eurozone slowed further due to geopolitical the year. The US Federal Reserve completed its quantitative easing unrest in Ukraine and sanctions against Russia, which a ected the and announced rate increases as a result of positive economic de- Eurozone’s growth negatively, mainly through reduced exports. velopments. The domestic steel market remains strong, as demon- Market signals during the year were mixed from European indus- strated by stable steel prices. In the second half of the year, the US try, but demand for steel was stable throughout the year. imposed higher tari s on imported steel products in an e ort to 1EU28, the European Union’s 28 Member States protect domestic steel production. Negative developments in oil prices in the fourth quarter increased Middle East and North Africa (MENA) the uncertainty surrounding several shale gas projects, which US Production of crude steel in MENA increased during the year by steel producers with exposure to the oil industry are already feeling. 6.7 percent as compared year-on-year. Demand for DR pellets remained strong in the region, driven by major construction and China infrastructure projects. The region’s rapid growth is threatened by Crude steel production rose by 0.9 percent in 2014. There were continued low oil prices, which led the World Bank to issue rec- several negative signals from China during the second half of the ommendations for several countries in the region to review their year, mainly from declining housing prices, declining housing sales public spending and investments. and weaker industrial production than expected. This trend was also seen in Chinese steel consumption, which decreased during the year by 3.4 percent. Oversupply, weaker steel consumption and higher steel prices in export markets led to a signifi cant increase in China’s exports of steel products during the year.

DIFFERENT MARKETS AND PRODUCERS DEMAND DIFFERENT PRODUCTS

Market maturity and availability of reduction methods and types of energy govern which iron ore products are in demand by steel producers.

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

% % % %

Mt Mt Mt Mt Fines ...... 80 Fines ...... 9 Fines ...... 911 Fines ...... 4 Lump ore ...... 20 Lump ore ...... 9 Lump ore ...... 121 Lump ore ...... 0 Blast furnace pellets ...... 56 Blast furnace pellets ...... 0 Blast furnace pellets ...... 172 Blast furnace pellets ...... 40 DR pellets...... 1 DR pellets...... 52 DR pellets...... 0 DR pellets...... 2 20 CUSTOMERS AND MARKETS

LKAB MINERALS COMPLEMENTS THE CORE BUSINESS

LKAB Minerals complements LKAB’s sales to the steel industry by developing more and new business opportunities for LKAB’s iron ore in the industrial minerals marketplace, where the company is a recognised supplier of a portfolio of minerals for industrial use.

Sales of iron ore, mainly magnetite, to the industrial minerals SALES BY REGION market is an integral part of LKAB’s growth and fl exibility strategy Percent of sales, SEK million and a key element in LKAB Minerals’ planned growth. The selection of ore grades can be adapted to customer requirements and processing is separated from pellet production, leading to more fl exible production processes. This makes it possible to optimise product mix and production planning and to ensure increased risk % diversifi cation within the Group. Europe ...... 57 Asia ...... 28 A leader in innovative mineral solutions USA ...... 15 Through organic growth and acquisitions, LKAB Minerals evolved into a multi-mineral company with mines, quarries and production facilities in Sweden, Finland, the Netherlands, England, Turkey and China, and sales o ces in Europe, the US and Asia. Today, LKAB SALES BY BUSINESS AREA Minerals holds a leading position in a number of di erent product Percent of sales, SEK million applications and develops innovative mineral solutions in part- nership with customers, focusing on functionality and usability in customer processes.

In-demand niche supplier % The business focuses on four defi ned areas. The largest business Magnetite ...... 43 Mineral sands ...... 24 area comprises industrial use of magnetite in the construction Refractory material & foundry .... 19 industry and o shore structures, for example. LKAB Minerals also Polymers & coatings ...... 14 o ers mica, huntite and magnetite for various applications in poly- mer and coatings. They also supply refractory minerals for foundry sand and production of refractory bricks, which are also recov- ered, and they resell mineral sands in Asia. Customers include the world’s leading companies in various industries all over the world. SALES TREND, TOTAL

Increased sales of magnetite SEK million As the need for magnetite and other minerals is strongly linked to 3,000 investments in the construction sector and commodities market, 2,500

demand is driven largely by the prevailing price of electricity, gas 2,000 and oil and the general willingness to invest linked to current GDP growth in each market. Long-term demand is strong, and in 2014 1,500 LKAB Minerals increased sales of magnetite by about 60 percent 1,000

to 800,000 tonnes. A strategic target for LKAB is to sell two million 500 tonnes of magnetite per year for use outside the steel sector. 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 OBJECTIVES AND STRATEGY our strategy in action 3 22 STRATEGIC FOCUS AREAS

STRATEGIC FOCUS AREAS

LKAB has identifi ed six strategic areas that are critical to our growth targets. Sustain- ability is an integral part of our business strategy. The Group’s values are the basis of its strategy, and overall, they help us to meet our customer promise of Performance in Ironmaking.

PERFORMANCE IN IRONMAKING

FLEXIBILITY

SAFE AND RESOURCE-EFFICIENT PRODUCTION

URBAN ATTRACTIVE GROWTH TRANSFORMATION LKAB

COMMITMENT – INNOVATION – RESPONSIBILITY STRATEGIC FOCUS AREAS 23

PERFORMANCE IN IRONMAKING GROWTH

We are one of the world’s leading suppliers of For our continued success it is critical for LKAB to be iron ore pellets to the global steel industry. a major supplier to each of our customers. We are Performance in Ironmaking is our customer promise doing this by increasing our production and delivery and means that we consistently provide our capacity, where increased access to ore and e cient customers with the best added value in the market. We want to be production that is respectful of the surrounding communities and the innovator that drives development in a growing world market. the environment are crucial. READ MORE ON PAGE 25. READ MORE ON PAGE 45.

FLEXIBILITY URBAN TRANSFORMATION

The market for our iron ore products is strong in the Our continued mining operations and growth plans long-term. The new open-pit mines provide us with are dependent on large parts of central Kiruna and increased volume and production fl exibility. But major Malmberget gradually being moved. New open-pit shifts in the global economy mean that we must be mines in the Svappavaara Field impact the town of prepared to quickly handle temporary fl uctuations in demand. This Svappavaara. Urban transformation is being carried out in close assumes that the actions we take are fl exible – from fi nished prod- collaboration with all stakeholders in order to come up with long- ucts, usage areas and markets to customer deliveries. term, sustainable solutions. LKAB and the municipalities involved READ MORE ON PAGE 31. have a common interest in building and maintaining attractive communities where development proced deconstruction. READ MORE ON PAGE 49.

SAFE AND RESOURCE-EFFICIENT PRODUCTION ATTRACTIVE LKAB

LKAB’s competitiveness is directly linked to the fact Our future competitiveness depends on our ability to that we make continuous and sustainable improve- attract and retain talent, and that we have dedicat- ments that increase our e ciency. Safe, smooth, ed, proud supervisors, employees and suppliers. We uninterrupted production is the backbone of our achieve this through a strong brand and a culture business, which is large-scale and based on cost-e ectiveness. based on clear values, equality and diversity, and a safe, fair Our production processes are energy intensive, while at the same and stimulating work environment. It is just as important for the time we have the world’s most energy-e cient manufacturing communities we operate in to be attractive places to live and process for iron ore pellets. Our continuous e orts to improve work as it is for LKAB to be an attractive employer. while keeping accountability in focus will benefi t both customers READ MORE ON PAGE 55. and the environment. READ MORE ON PAGE 37.

OUR VALUES

Our values, Commitment – Innovation – Responsibility, provide us with a common approach in our daily work, how we behave both inside and outside the company. Our Code of Conduct is a framework for how to conduct oneself in our business relationships and provides guid- ance on how to act ethically and in accordance with our values. COMMITMENT INNOVATION RESPONSIBILITY 24 PERFORMANCE IN IRONMAKING

Sampling of crude iron at LKAB’s experimental blast furnace in Luleå

Our goal is to be the iron ore producer that provides customers with the most added value PERFORMANCE IN IRONMAKING 25

A CLEAR-CUT CUSTOMER PROMISE

LKAB’s customers are among the world’s top steel producers. Our customers drive developments in their respective markets and place high expectations on products, delivery and service.

LKAB’s ambition is to be an attractive resource-e cient production with less supplier and partner to the world’s steel environmental impact. Today, 90 percent of Performance in Ironmaking producers. Our products are meant to help the world’s crude steel is made in blast fur- give steelworks customers stable process- naces that emit about two tonnes of carbon Flexibility es and increased productivity that improves dioxide per tonne of steel produced. A major their competitiveness and profi tability. Our challenge for the world’s steel producers Safe and resource-e cient goal is to be the iron ore producer that is to reduce carbon emissions and improve production delivers the market’s best added value – energy e ciency. from products to delivery and service. That LKAB plays a leading role in the develop- Urban trans- Attractive Growth is at the core of our customer promise: ment of new pellet products and processing formation LKAB Performance in Ironmaking. concepts for tomorrow’s low-carbon iron and steel production. In broad research Commitment – Innovation – Responsibility Quality throughout the value chain collaboration with the steel and mining Stable operating conditions and predict- industry, as well as national and interna- able processes are required for e cient tional research centres, we are developing TARGET AREAS steelmaking. Therefore, it is crucial to new generations of climate-smart pellets our competitiveness and market position and reduction technologies to reduce carbon that we maintain high, consistent product dioxide emissions by up to 80 percent. CUSTOMERS AND MARKETS quality. This means that we must be able LKAB also has the most energy-e cient 2015 target: Maintain our market to guarantee optimal conditions in our pellet production in the world. More than position as a leading global supplier of climate-smart pellets.1 own processing and delivery processes, half of the energy needed in the pellet but we must also meet customer requests process is furnished when the magnetite 2014 results: LKAB’s market position as and requirements for technical support, ore chemically oxidises to hematite. This a supplier of pellets is unchanged. development cooperation and exchange of means that the theoretical emissions of PRODUCTS AND SERVICES knowledge on iron and steel production. carbon dioxide decrease by up to a third 2015 target: New generation of cli- compared to competitors’ hematite pellets. mate-smart pellets produced by 2017.1 Partnerships for innovation LKAB’s consistently high-quality pellets While the demand for steel has risen also generate business and climate benefi ts 2014 results: Product development and growth continue and are priorities in LK- sharply over the past decade, there for steelworks customers through e cient AB’s research and development operations are increasing requirements for more reduction processes. with a long-term goal of developing a new generation of climate-smart pellets.

1Constitutes target in “Resource-e cient pro- duction” in sustainability strategy. Monitored and reported quarterly.

Drilling rig in Malmberget mine. 26 PERFORMANCE IN IRONMAKING

Research collaboration The experimental blast furnace has also Hjalmar Lundbohm Research Centre, steel and knowledge clusters been the hub of a European collaborative producer SSAB and Swerea research LKAB’s competitiveness is based on project in the iron and steel industry called institute Swerea MEFOS, found a unique innovation and technological leadership ULCOS, with a view to eventually reduce platform for customer-driven research through an open fl ow of knowledge and carbon emissions in blast furnace process- collaboration. Together with national and long-term strategic research and develop- es by 50 percent. The Course 50 project international players, we develop e cient ment with customers and external centres aims to reduce carbon emissions from products and processes that reduce cli- of excellence. Our unique experimental Japanese steelworks by about 30 percent. mate impact, improve customer production blast furnace in Luleå plays a central role The experimental blast furnace com- results and ensure profi tability. in customer-driven product development bined with our agglomeration and steel and research on how our pellets perform in research laboratories and proximity to, for customer blast furnaces. example, Luleå University of Technology,

LKAB plays a leading role in the development of new pellet products and processing concepts for low-carbon iron and steel production

LKAB’s climate-smart iron ore pellets. PERFORMANCE IN IRONMAKING 27

PRODUCT DEVELOPMENT GIVES AGGLOMERATION LABORATORY PERFORMANCE IN IRONMAKING CRUCIAL TO GROWTH PROJECTS Customer-driven quality development is crucial to our customer promise, Performance in Ironmaking. This Understanding and con- means that we implement customer requirements in a trolling the link between structured manner in our innovation e orts and that our raw materials, production processes and product products follow customers’ progress into the future. characteristics forms the basis for successful pelletizing. Enhanced, customer-driven product devel- a “fl uxed” pellet with high iron content that opment work was carried out in 2014 with reduces the amount of slag in the blast two customers. They are benchmark furnace. This was not previously pos- Continuous product development is essen- tial if we are to maintain our technological customers in the feasibility sible because of the increased leadership and continue to evolve with our study work being done to content of silica (quartz) customers. It is also important to analyse develop the next gen- in the ores in the world how various product recipes a ect our eration of DR pellets. market. own production process. LKAB’s goal is Reduction disintegra- to produce pellets with world-class prop- tion has emerged Testing in the erties that have the market’s best added value. Therefore, a better understanding as a very important experimental blast furnace of how di erent product recipes a ect our issue, since the ability to achieve the absolute best quality stability Besides reducing pellets is of utmost importance. This of the pellets slag, a low quartz becomes even more important as new during the reduction content can also and di erent ore grades from the growth process is essential improve our own mines in Svappavaara are incorporated into production. to high productivity. production process in Customers predict that the pelletizing plants. Test campaign for open-pit mine ores future processes will lead Numerous attempts were A test campaign was conducted in 2014 in to increased pressure and tem- made during the year with which we produced a blast furnace pellet peratures, which places even greater di erent compositions that were with ore exclusively from the Svappavara demands on solid products. tested in laboratory scale at LKAB and with Field. With 70 percent of the ore from Mer- the customer. Some of these have since tainen and 30 percent from Gruvberget we obtained raw materials that worked well in High iron content and less quartz been tested in baskets in our experimental our refi ning process. The resulting product Development partnerships with our cus- blast furnace. If the product is thought to be was then validated in our experimental tomers are also being conducted in the promising, full-scale trials will be carried blast furnace and the results showed per- blast furnace pellets product area. The aim out in pelletizing plants and the experimen- formance similar to that of regular blast is to develop a pellet type that is specially tal blast furnace before full-scale trials take furnace pellets for which the raw materi- adapted to all of the customers’ works in place with the customer. als come from our underground mines. Europe. The goal of the project is to develop From concept to full scale The refi ning processes are examined in the agglomeration laboratory to see how di erent raw materials a ect the product and the pellets are exposed to heat, pres- sure and strength tests. In our research IMPROVED REDUCTION UNDER LOAD facilities, we can gradually take concepts and small-scale laboratory research to full-scale pilot tests. This provides an An important development and improve- of silica and a changed mix of additives, opportunity to test new ideas ment focus for R&D during the year con- which stabilised pellet disintegration at without a ecting existing production. centrated on reduced pellet disintegration an acceptable level. Long-term measures New innovations are developed that are in customers’ reduction processes. After are being evaluated, including improving aimed at streamlining existing processes. analysis, an action plan was introduced the magnetic separator’s e ciency during The goal is to seamlessly introduce chang- es into our own operations. into operations. A number of measures concentration. were taken to change the specifi cation 28 PERFORMANCE IN IRONMAKING

Upgrading in a LKAB’s newest pelletizing plant, KK4 in Kiruna changing market

Increased demand for LKAB’s processed, high-quality iron ore products shows that we are well positioned in our o ering. Increased refi nement also gives price advantages. During the year, we submitted a request to increase pellet produc- tion in Kiruna by 1.4 million tonnes to 16.2 million tonnes to meet market needs. The production increase will be achieved through process optimisation in the three existing processing plants.

Environmental requirements drive demand

Weaker demand and stricter environmental requirements led to a Although growth in China is slowing, long-term global demand for levelling out of steel production in China in 2014. Despite China’s steel is increasing. In LKAB’s main markets – Europe and MENA reduced steel output and an oversupply of sinter fi nes in the mar- – demand for our high-quality products remains strong. We sell ket, tougher environmental and profi tability requirements mean everything we can produce and our customers want to increase that demand for highly processed iron ore products is increasing. volume in 2015. To meet this demand, it is crucial for us to increase More steel producers are demanding products that improve the the capacity of the processing plants and have access to more iron e ciency, fl exibility and competitiveness of their steel production ore from our new open-pit mines. processes.

Hot-rolled strip steel (HRC) is the raw material in everything from ships and vehicles to buildings and bridges.

SHALE GAS OPENS UP AN INTERESTING MARKET IN THE US

The most common steelmaking technique in the US uses electric However, extraction of shale gas through hydraulic fracturing, arc furnaces with scrap as the main raw material. The shortage of known as fracking, is not entirely uncontroversial, since the method high-quality scrap and increased availability of shale gas has led impacts the environment with the risk of discharges. to increased interest in direct reduced iron, often called DRI, as the The EU is investigating the relevance of shale gas and risks as- input raw material in steelmaking. sociated with potential extraction. We are following these develop- LKAB, which produces a competitive pellet for direct reduction ments closely. Our business benefi ts from the availability of natural to DRI, intends to meet the demand and be a player in this growing gas and we are one of few suppliers that have a su ciently high market. DR technology is in itself a reduction method that emits quality pellet product for this steel production process. less carbon dioxide in the process. PERFORMANCE IN IRONMAKING 29

125 YEARS OF INNOVATION POSITIONS LKAB

LKAB was established in 1890 and celebrates its 125th an- steelworks, however. A full-scale trial with olivine pellets at SSAB in Luleå was initiat- niversary as a company in 2015. Its 125 years of customer ed in 1982, and the rest, as they say, is his- focus, innovation and product development has positioned tory. Fuel consumption in the blast furnace fell by more than seven percent and the LKAB and Swedish iron ore products in the world market. olivine pellets became LKAB’s biggest sales success in the modern era.

LKAB’s history is characterised by foresight Europe’s fi rst pelletizing plant A unique development tool and bold decisions. Much of the company’s In the optimistic era of the 1950s LKAB The success of the olivine pellets demon- success lies in its fl exibility in relation to decided to start rolling balls of iron ore, strated that pellet optimisation, as well as market trends and customer preferences. pellets, according to a Swedish patent from understanding and developing customers’ The Malmbanan railway, which connects 1912. The aim was to increase own processes and production systems, the mines of the orefi elds with the shipping production and refi nement of the fi ne- would give LKAB a cutting-edge advantage ports on the coast, was perhaps not an in- grained ore and to facilitate transportation. in sti global competition. LKAB construct- novation. But it was the result of great vision It was decided in 1952 that a full-scale ed its experimental blast furnace in 1997, and great courage. pelletizing plant would be built in Malm- enabling the testing and validation of new In the spring of 1888, two years before berget with a capacity of 100,000 tonnes products in an environment comparable to LKAB was formed, the fi rst 40 cars with per year. Three years later, in 1955, the fi rst full-scale industrial production. 1,000 tonnes of ore rolled from the mine in pelletizing plant in Europe was opened. The experimental blast furnace is a Malmberget to the Port of Luleå. It was the unique tool and a milestone in the research heaviest train that ever rolled on a railway Olivine pellets improved and development of blast furnace process- at the time. Even today the Malmbanan line blast furnace process es. Along with steelworks customers, we is the backbone of LKAB’s logistics system, In the aftermath of the 1970s oil and steel have conducted many successful pro- transporting about 70,000 tonnes of iron ore crises LKAB did research on the pellet jects in the experimental blast furnace to products per day to the ports of Narvik and recipe in order to improve and streamline increase the competitiveness of customers, Luleå. the blast furnace process. There was little thus consolidating LKAB’s position as the interest in innovative products from the global technology leader in pellet production.

LKAB opened Sweden’s and Europe’s fi rst pelletizing plant in Malmberget in 1955. 30 FLEXIBILITY

Narvik is LKAB’s largest and most important shipping port. The port is ice-free all year round and deep enough for ocean-going vessels.

The Malmbanan railway and the ports of Narvik and Luleå are the backbone of our logistics system and our business FLEXIBILITY 31

ADAPTING TO CHANGE

The market for iron ore products shows long-term, strong growth. But shifts in the global economy and the global iron ore markets mean that we must be prepared to quickly handle temporary fl uctuations in demand as well as other changes.

Performance in Ironmaking

Flexibility

Safe and resource-e cient production

Urban trans- Attractive Growth formation LKAB

Commitment – Innovation – Responsibility

TARGET AREAS

FLEXIBLE PRODUCTION AND LOGISTICS 2015 target: Allow for larger deliveries through increased capacity on the Malmba- nan and Ofotenbanen railways. In 1983, in the aftermath of the steelworks crisis of the 1970s, all work was halted in the Leveäniemi mine in Svappavaara. Now, more than 30 years 2014 results: More lay-bys will be built later, the open-pit mine is once again an important part of LKAB’s growth and fl exibility strategy. on the Malmbanan and Ofotenbanen lines after a decision by the Norwegian State with partial funding from LKAB. Increased Customers and market presence A strategic goal is to have a marketable axle loads for LKAB’s iron ore cars was For our main business, we currently have a product portfolio and production process realised, resulting in increased transport client portfolio that includes steel produc- that follows customer needs and require- capacity. ers in some 15 countries. Europe is our ments. Highly upgraded pellet products crucial home market where we have long, that add value and help our customers strong customer relationships with strate- become more profi table is our primary gically important partners. At the same means of competition and positions us well time, we are always pursuing new custom- with our customer o ering. Blast furnace ers and markets so that we can quickly pellets are our main product, but demand redirect portions of our sales volumes. for DR pellets is growing by about four For example, the Middle East and North percent per year. LKAB’s product port- Africa are important markets for our direct folio also includes fi nes with a high iron reduction pellets (DR pellets). LKAB also content, which is highly sought after by our holds sales channels open to markets in customers. the US and China, and examines ways of dealing with fl uctuations in the market by Other uses of iron ore increasing sales to customers outside the LKAB is the leader in the market for steel market. industrial use of iron ore outside the steel 32 FLEXIBILITY

industry through its LKAB Minerals subsid- objective of the purchasing function is to Optimised logistics iary. Sales of iron ore, mainly magnetite, to achieve lower total costs through shorter Our competitive opportunities in the global the industrial minerals market is an integral lead times, which reduces business risks marketplace are based on the fact that we part of LKAB’s growth and fl exibility strate- and provides higher quality and fewer are also a leading logistics company, both gy. LKAB Minerals also has a strong position middlemen. Together, these things facilitate above and below ground. With relatively in the market for the minerals mica and the production processes and investments few possibilities for interim storage in huntite, as well as in the recovery of refrac- that ultimately lead to more customers and depots and shipping ports, one of our main tory bricks. Our customer promise “Mineral more satisfi ed customers. goals is to get out as much volume at the Solutions for Our World” communicates our steadiest pace possible. LKAB’s ore trans- ambition to provide solutions that generate Adaptable production port is by rail from mines and processing high value for customers, combined with a LKAB has invested heavily in mines, plants along the Malmbanan line to the strong focus on sustainability. processing plants and transportation since shipping ports at the coast. 2005. We have the production and logistics The Malmbanan railway and the ports of Flexible purchasing capacity and our e orts are focused on Narvik and Luleå are the backbone of our Flexible, cost-e cient purchasing is stra- increasing access to iron ore raw material logistics system and our business. Through tegically important for LKAB’s long-term to fully utilise our processing capacity. those two ports, logistics fl ows can be opti- competitiveness. We collaborate annually The new open-pit mines in Svappavaara mised depending on where the customer is with nearly 4,300 suppliers and subcon- provide us with more production fl exibility. located. Two-thirds of seaborne transports tractors that are an important part of our The new mines are located near existing depart from Narvik, which can accommo- value chain. The purchasing function signs pelletizing plants and close to the Malm- date the largest ships, and one third leave contracts with suppliers that can prove that banan railway, which can already handle from Luleå with proximity to our European they live up to LKAB’s basic requirements increased tonnage. Overall, this gives us customers. Work began during the year to for sustainability, meet the requirements adaptable production processes with a high build a new quay and shiploader in Narvik, for quality, good conduct and accountabil- proportion of variable costs and fl exibility which will greatly improve fl exibility and ity, and have good working conditions. The in the supply of raw materials. capacity.

The ore trains carry tens of thousands of tonnes of fi nished products per day from the mines north of the Arctic Circle to the shipping ports of Narvik and Luleå. Deliveries are made around the clock, all year round, often in harsh Arctic conditions with snow, cold and ice. FLEXIBILITY 33

A fl exible market presence Identifying and acting on risks and oppor- ing the importance of being able to shift PRODUCT MIX IN IRON ORE TRADE tunities that a ect our competitiveness and delivery volumes to other markets that cur- Mt Mt stakeholder confi dence is critical to LKAB. rently have greater demand. For example, 2,000 30.0 Extreme variations in volume is one of LK- signals in the US were positive in 2014 and AB’s biggest business risks. As the demand in the Middle East demand was driven by a 1,500 22.5 for iron ore is controlled by global demand strong economy and major investments in 1,000 15.0 for steel, which in turn follows fl uctuations the construction and infrastructure sector. in the world economy, it is important to be Our product strategy, with a focus on 500 7.5 able to shift delivery volumes to markets maximising pellet production, is also im- 0 0 that currently have greater demand. portant for our ability to respond to market Global LKAB Economic developments in Europe trends and customer needs. Fines DR pellets continue to be relatively weak, demonstrat- Blast furnace pellets Lump ore

FLEXIBLE PURCHASING AND SUPPLIER PARTNERSHIPS LKAB’s purchasing covers a variety of needs along the entire value chain, from mine to port. We have about 4,300 suppliers available in diverse categories such as energy, input goods, industrial construction, transportation and services. Suppliers are categorised according to di erent factors, such as strategic, prioritised and approved. The length of relationships is a ected by delivered quality, delivery reliability, cost and compliance with sustainability requirements.

Increased focus on Asia Our suppliers are mainly in Sweden and Europe at this time. Flexibility in the supply chain is strategically important for competitiveness and reduced risk of dependencies. There- fore, parts of our supplier base are gradually being moved to Asia where the LKAB Trading purchasing o ce was established in Shanghai, China, in 2011. The aim is to broaden our purchasing market, cut out unnecessary middlemen and reduce the Group’s purchasing costs. The o ce operates according to a determined purchasing process and the UN Global Compact’s ten principles. The Swedish government also has a corporate social responsi- bility agreement with China, which concerns responsibility for the environment, climate, labour law, human rights and corruption.

Reduced risks and increased quality Besides lowering costs, the objectives of the purchasing function are shorter lead times, reduced business risks and higher quality. Together, these things facilitate the production processes and investments that ultimately lead to more customers and more satisfi ed cus- tomers. LKAB’s purchasing function reviews suppliers on an ongoing basis. Two incidents of corruption were reported in 2014; read more on page 59. INCREASED FLEXIBILITY WITH OPEX TWOFOLD FOR LKAB KIMIT As part of the move towards greater fl exi- With the new open-pit mines in the Svappavaara Field in full operation, LKAB Kimit will bility in the way we work, from production double its current explosives production from 20,000 to 40,000 tonnes per year. Coping of fi nished products to delivery to the world with the sharp increase in production requires a thorough renovation and expansion of market, LKAB has moved on to a second existing production facilities. This includes purchasing a new silo for fi nished products, phase in the Operational Excellence (OpEx) bringing the total to fi ve. A new station for ammonium nitrate solution and a new produc- e ciency programme. OpEx is an improve- tion line will also be built. LKAB Kimit will then have three separate production lines, each ment programme for long-term profi tability of which can produce 150 kilograms of explosives per minute. It will then be possible to with a common scheme for trouble-free simultaneously produce all of the types of explosives used by LKAB for drifting, sublevel production with lower costs and higher caving and bench mining. profi tability. 34 FLEXIBILITY

INCREASED SUSTAINABILITY REQUIREMENTS FOR SUPPLIERS

President and CEO Lars-Eric Aaro presents new code of conduct for suppliers at purchasing days in November 2014.

New code of conduct for suppliers to provide sustainability throughout the value chain

LKAB’s business integrity is well-established. During LKAB’s Global Compact’s ten principles, the principles of the document purchasing days in November 2014, a new code of conduct for Children’s Rights and Business Principles, the OECD Guidelines suppliers was presented with a number of new basic require- for Multinational Enterprises and the UN Guiding Principles for ments. They include zero tolerance for all forms of corruption Business and Human Rights. Being a step ahead when it comes and fraud and require transparency, integrity and honesty in all to international conventions and frameworks provides suppliers aspects of our business. We expressly renounce child labour, as well as LKAB with competitive advantages. In 2015, a selec- forced labour and working conditions that can be seen as tion of LKAB’s suppliers will be invited to prepare a self-decla- harmful, o ensive or downright dangerous. Operations must ration based on the code of conduct for suppliers. We will then be conducted in such a way that dangerous emissions to land, follow up on some of these self-evaluations. LKAB intends to water and air are prevented in a systematic manner. only sign contracts and do business with suppliers that can The new guidelines and requirements are based on interna- certify that they meet all the basic requirements. tionally recognised declarations and conventions such as the UN FLEXIBILITY 35

LOGISTICS GEARS UP LKAB SWITCHES TRACKS LKAB has invested several LKAB has set an e ciency target for 2017 4 million tonnes per year. Driving time billion SEK in logistics operations for which the delivery capacity on the between Kiruna and Narvik is normally 3.5 to increase train capacity for iron Malmbanan line will increase by 52 percent hours. The entire chain of loading, terminal ore shipments to 40 million tonnes from current deliveries of 26 million tonnes times, unloading, meeting times, obstacles per year. of fi nished products per year. This is meant on the track and availability of engines and to increase fl exibility and meet the need cars is, however, complex. For example, that LKAB is now taking the next step. The for a total fl ow of raw materials of over 40 the Swedish Transport Administration and current agreement with Green Cargo for million tonnes annually when production the Norwegian National Rail Administration the stretch between Kiruna and Narvik and sales of processed iron ore products assign the right train path i.e., where and was terminated, and as of mid-2015 all ore increases. when the ore trains may travel along the tra c to the shipping port of Narvik will be Malmbanan line, is an important factor when Increased axle load operated by LKAB. tra c increases. The railway will be heavily Training and employing our own engine As part of the upgrade in transport capacity, tra cked. Other freight and passenger traf- drivers is a way for LKAB to secure its need a series of major investments and projects fi c is also increasing. Therefore, a number of of key skills for future production increas- in LKAB’s logistics operations are being extended lay-bys for the long ore trains are es. Today’s 10 ore trains per day will be initiated to enable more e cient utilisation now being built. of today’s engines and rolling stock. For expanded to 13 and the engine drivers will example, LKAB and the Swedish Trans- Tough task be an important part of LKAB’s organisa- port Administration initiated an evaluation While transport capacity increases, energy tion. Depending on how large the increase project in 2014 in which ore car axle loads consumption should decrease. It is a tough in volume becomes along the Malmbanan were increased from the current 30 tonnes task and all current streamlining projects line, LKAB will have upwards of 100 of its to 32.5 tonnes. The trial will last for one also have one or several points in common. own engine drivers. year on the stretch between Malmberget If this double circulation is to be managed, Our collaboration with Green Cargo and Luleå. With an increased axle load that is, that a train has time to load, drive will continue. They will still transport ore the transport capacity per ore train will and unload twice a day, it will require that between Malmberget and the Port of Luleå, increase by 700 tonnes, equivalent to several of the other ongoing projects also and will also be contracted to transport work. input goods.

LARGEST SINGLE DELIVERY TO DATE FOR LKAB MINERALS LKAB BUILDS A ship left the deep harbour in Narvik on 12 November loaded with 120,000 tonnes of iron ore that had been processed into the product MagnaDense. After a stop in the Netherlands, IN PORT OF LULEÅ the goods were delivered to an o shore project o the coast of Canada to be used as loose In the spring, construction of a new aggregate in the construction of a new oil drilling platform. This MagnaDense delivery is facility for bentonite milling was the single largest shipment chartered by LKAB Minerals so far. begun at the Luleå ore harbour. The investment totals SEK 440 million.

BILLIONS TO BE INVESTED IN NARVIK The facility will become operational in 2015 and will replace the existing bentonite facil- LKAB is investing nearly SEK 1 billion in a new transport system from ore stockpiles to ity from 1967. The new facility will have a shiploaders in the Port of Narvik – a continuation of ongoing and prior investments. In higher capacity and fl exibility for produc- addition to increased fl exibility and reduced vulnerability the ore harbour terminal will have tion and storage that satisfi es the need for a higher total capacity, which ensures the production increase in LKAB’s growth plans. increased pellet volume as LKAB grows and opens new mines. From 20 to 30 million tonnes The investment project, which began in 2014, consists of several parts. A new quay and Bonding agents in pellet production shiploader raises capacity and fl exibility through the ability to load two ships at the same LKAB uses bentonite as a bonding agent time. The risk of production stoppages and disruptions is also sharply reduced. A new when the pellets are rolled into balls before screening station for pellets, sampling facilities, new o ce buildings and a new operations being fi red in the pelletizing plants. The centre will also be built. When everything is fi nished in 2016, shipment capacity from Nar- bentonite is imported via Luleå, milled and vik will increase from the current 20 million tonnes to nearly 30 million tonnes. dried to powder form before being shipped Shipments of ore from Narvik started in 1903 when the railway from Kiruna to Narvik by rail to the production facilities in Malm- was fi nished. The harbour is ice-free all year round and the investment consolidates berget, Svappavaara and Kiruna. Narvik’s position as LKAB’s main link to the global iron ore market. 36 SAFE AND RESOURCE-EFFICIENT PRODUCTION

LKAB’s primary goal is to develop stable, safe and predictable processes in our own value chain

A high transport capacity is a prerequisite for safe, cost-e ective deliveries. SAFE AND RESOURCE-EFFICIENT PRODUCTION 37

A SUSTAINABLE VALUE CHAIN

The goal of sustainable development is echoed in everything we do. From long-range planning, secure workplaces, safety consciousness, and e cient energy and resource use to highly upgraded products that reduce environmental impact and streamline customers’ processes.

Cost-e ectiveness Performance Our strategy for safe, resource-e cient in Ironmaking production makes us more competitive Our focus on e ciency improvements through increased volumes and lower and cost savings gave noticeable results. Flexibility costs while maintaining product quality and Among other things, more work is being delivery assurance. done in-house, such as drifting and cave Safe and resource-e cient drilling in our mines. Variable costs for iron production Increased access to raw materials ore operations were reduced by SEK 400 Over the past decade we have invested million in 2014. Despite that, total produc- Urban trans- Attractive Growth billions in mines, processing plants and tion costs increased by 0.6 percent for the formation LKAB logistics. The production structure and to Group as a whole. some extent sta ng have already been LKAB is in a transitional period between Commitment – Innovation – Responsibility adjusted to accommodate increased two main levels, which strongly a ects our volume in line with LKAB’s growth strategy. ability to streamline and cut costs at the At the same time, access to more iron ore moment. Progress was made in the reloca- TARGET AREAS raw materials from the open-pit mines in tion of production and infrastructure from Mertainen and Leveäniemi has been de- the old to the new main levels in Kiruna layed because of protracted environmental and Malmberget in 2014. REDUCED PRODUCTION COSTS permit matters. 2015 target: Reduce production cost per Limited access to iron ore currently Additional investments tonne of products by 20 percent, base year 1 prevents us from increasing production for increased production 2012. volume. The mine in Malmberget includes Additional production-enhancing invest- 2014 results: Total production costs several scattered orebodies, making it ments were made during the year to opti- increased by 0.6 percent. The full e ect di cult to increase capacity. Streamlining mise processes in existing concentration of LKAB’s growth programme has been delayed. has increased the ore yield in the Kiruna and pelletizing plants. An environmental mine somewhat and the northern circuit, permit application was submitted for an in- ENVIRONMENT AND CLIMATE with Svappavaara included, had its best pro- crease in pellet production in Kiruna of 1.4 2015 target: Sulphur dioxide emissions, duction results ever in 2014 with delivery of million tonnes to 16.2 million tonnes. The falling particulates, energy consumption 30 million tonnes of crude ore. concentration plant in Svappavaara was and carbon dioxide emissions per tonne of With the three open-pit mines – Gruv- upgraded to receive ore from Mertainen, fi nished products will all be reduced.2 berget, Mertainen and Leveäniemi – in full and there are plans for trials with biofuel 2014 results: Presented in its entirety on operation, the processing plants in Kiruna, as an energy source in the pelletizing plant. page 5, Sustainability targets. Svappavaara and Malmberget can be fully The MK3 pelletizing plant in Malmberget utilised. Increased access to raw materials was converted to use natural gas as fuel, 1Constitutes a group-wide fi nancial target. is therefore the single most important fac- an investment of SEK 50 million. Construc- 2Also constitutes target for “Attractive LKAB” and “Responsible operations” in the sustainability tor for increased volume and resource- tion of a new quay with a transport system strategy. Monitored and reported quarterly. e cient production. and shiploader was begun in Narvik. LKAB faces major challenges due to The nearly SEK 1 billion investment will delays in the supply of raw materials, reduce the risk of delivery disruptions and sharply declining iron ore prices and high increase loading capacity from almost 20 fi xed costs, of which urban transformation to more than 30 million tonnes per year. is a weighty item. 38 SAFE AND RESOURCE-EFFICIENT PRODUCTION

LKAB PRODUCTION STRUCTURE techniques and methods that extricate more ore while decreasing the incorporation of Mines Dressing Concentration Pelletizing Products Harbours unwanted minerals such as waste rock. LKAB conducts research on various drilling and blasting techniques to increase ore Narvik yield and reduce waste rock dilution. Every Kiruna percentage of additional ore that can be extracted while maintaining or increasing iron content generates hundreds of millions of SEK in income annually.

Mine safety Safety always comes fi rst. Underground mining requires that safety is guaranteed. In order to measure how mining a ects the Luleå rock, we have installed a monitoring system consisting of 133 geophones in Kiruna and 140 in Malmberget. Measurements, analyses and inspections form the basis for forecasts on rock stability and recommendations for rock reinforcement. Rock reinforcement LKAB has a production structure that is focused on a high degree of upgrading and high fl exibility. More ore from the Gruv- plays a critical role in mine safety and our berget, Mertainen and Leveäniemi open-pit mines makes it possible to reach maximum capacity utilisation in existing pro- ability to mine the ore. cessing plants. Increased transport capacity on the Malmbanan railway and a new quay and unloader in Narvik give increased capacity as well as higher production fl exibility and reduced risk of delivery disruptions. Also essential to e cient, safe mining is that everyone in the mine can be identifi ed and positioned in real time. Everyone in Focus on soft values and close we come to achieving exact product LKAB’s mining areas must wear a badge for stable processes specifi cations. Most of the deviations are a radio frequency identifi cation, a so-called Safe and resource-e cient production is few tenths per mille and have no practical RFID tag. If there is any doubt whatsoever, based on three strongly linked areas of signifi cance in the customers’ processes. blasting does not occur. The system also improvement. It involves optimisation of Deviation management is, however, crucial includes all contractors. machinery and facilities to establish clear to our internal control of accuracy and structures and processes that are systemat- stability in our own value chain. Logistics are crucial ically directed towards our business objec- LKAB is a leading logistics company both tives and increasing employee participation Initiatives against fi nes generation above and below ground. We account for and responsibility for e cient, safe working One deviation measured in the Q value that about 35 percent of the freight carried on practices. A large portion of our quality and a ects our own profi tability is pellet strength Swedish railways, so we are one of Swe- e ciency gains are the result of dedicated, and resistance to mechanical impact, so- den’s largest freight companies. Around motivated employees. called fi nes generation. two-thirds of deliveries are carried on the The improvement e orts are guided by Fines generation is when a small amount Malmbanan line to the Port of Narvik and a our values: Commitment – Innovation – of material from the pellet is abraded third to the Port of Luleå. In the 2000s, we Responsibility. LKAB’s production managers during transport. The loose material is invested more than SEK 4.5 billion in stock play a key part as role models who lead sifted away before loading in the shipping capacity at the Port of Narvik and on track the operational work. This involves clearly ports. What remains is called pellet fi nes. improvements, new terminals and new ore communicating tasks and goals, ensuring Although it is a high-quality, sought-after cars and engines. that the right skills are in the right place, product, its economic value has dropped In 2011 LKAB decided to invest an working in a structured and standardised and it is priced as fi nes instead of pellets. additional SEK 1 billion on new IORE engines manner and making sure that operations High fi nes generation is therefore bad busi- and cars in order to reach a transport are run according to plan. ness for LKAB and e orts are being made capacity on the Malmbanan line of 40 in research and development to improve million tonnes per year by 2015. The new ore Quality value measures our profi tability the mechanical strength of pellets. cars were made by local company Kiruna As part of LKAB’s quality e orts, we have Car. With a new design, load capacity has been measuring a quality value (Q value) Greater ore yield increased by 25 percent per car. for all product deliveries since 2000. The Q In order for underground mining to be prof- value is an internal target value based on a itable, the iron content of the ore must be number of parameters that measure as high as possible throughout the process. extremely small deviations and indicate how An important focus for LKAB is developing SAFE AND RESOURCE-EFFICIENT PRODUCTION 39

Magnetite pellets best choice LKAB’s MK3 pelletizing plant in Malmberget. for environment and customers

A report by industry research institute Swerea MEFOS confi rms that LKAB’s magnetite pellets emit less carbon dioxide and use less energy than other iron ore products throughout the entire supply chain from mine to fi nished steel. Energy consumption is reduced by a total of 1.7 GJ per tonne of hot-rolled steel (HRC) when using mag- netite pellets as the input raw material in blast furnaces compared with using sintered hematite fi nes. That is a reduction in energy consumption of between fi ve and eight percent. Carbon dioxide emissions in the blast furnace process are reduced by about 320 kg per tonne of steel, which is 15 percent compared with sinter. The di erence is also signifi cant between hematite and magnet- ite pellets. Magnetite pellets reduce energy consumption in the blast furnace process and reduce carbon emissions from mine to fi nished steel compared to hematite pellets.

NEW DRILLING AND BLASTING TECHNIQUES IMPROVE ORE YIELD

An increased ore yield while maintaining involving curved boreholes and new blast- iron content is crucial to LKAB’s profi tability. ing techniques for optimising ore yields in Each additional percentage point of ore that sublevel caving. can be extracted in production represents LKAB has the world’s largest under- many millions in income. Today, the average ground iron ore mines and has long been yield in sublevel caving underground is the leading developer of new mining tech- about 85 to 90 percent, so development nology. Externally, we work with Swebrec at potential is great. Luleå University of Technology and the EU LKAB performs extensive fi eld tests and project I2Mine, where we collaborate with analyses of ore fragmentation and collapse other European research institutes, mining in sublevel caving. Among other things, companies and international research is being conducted on advanced suppliers in the mining industry. drilling techniques from LKAB Wassara

DISRUPTIONS IN THE PRODUCTION CHAIN

The increase in production that, despite everything, was expected during the year through increased ore yields in the northern circuit, was thwarted by a series of unfortunate but natural circumstances. LKAB’s production losses totalled 500,000 tonnes of fi nished iron ore products in 2014. Unusually heavy thunderstorms during the summer periodically disrupted all mines and concentration plants and forced parts of our production chain to gear down or shut down completely to avoid breakdowns. The hoisting systems in Malmberget and Kiruna also su ered from disruptions, which for Kiruna may be regard- ed as a natural part of the commissioning of a new main level. Increased moisture in some of the crude ore resulted in problems with the concentration and refi nement processes. Ore yard in Kiruna 40 SAFE AND RESOURCE-EFFICIENT PRODUCTION

EMPLOYEES KEY TO PROCESS OPTIMISATION

LKAB’s profi tability and competitiveness lie in the hands of our employees

Solution-oriented collaboration and guidance towards a common goal. When operators, mechanics and hydraulic technicians together took responsibility for keeping the drilling rig going on level 1051, productivity increased by nearly 100 percent compared to 2013.

LKAB’s Lean programme for process optimisation is all about streamlining utilisation of all production and logistics chain resources. It is based on three important improvement and development areas, where employees are vitally important if we are to successfully reach our targets.

Cost reductions and e ciency improve- will achieve this through improved internal New requirements ments entail making better use of our e ciency, reduced energy costs and longer mean new leadership machinery and facilities and establishing time horizons for planned upgrade and Increased participation and respon- new procedures for management and development projects. Process optimisa- sibility from employees also requires control. In order for processes to be safe, tion is one of our most important tools for better and innovative leaders. LKAB’s stable and predictable, a third important achieving smooth, trouble-free production. management training is mandatory for resource must also be utilised in the best all new managers, and nearly 30 new way possible. Successful process opti- Small e orts are highly relevant managers are trained annually at the misation means that every employee at Employee participation is crucial; of over production, section and department head LKAB must feel concern and responsibil- 400 suggestions for improvement meas- levels. We work with making our values ity for the entire value chain and perform ures, almost one hundred were imple- even more clear in our leadership and at the peak of their ability. We have for- mented in the organisation. E ciency and with improving the culture for construc- mulated this in our core values: Commit- quality can increase and waste and losses tive feedback between employees and ment – Innovation – Responsibility. can decrease through collaboration and managers. We want managers who are LKAB’s profi tability and competitiveness changed working practices. Even small good role models, who can deal with lie largely in the heads and hands of our e orts have proven to be highly relevant. di cult situations and who are good employees. A single change in our supplier of grinding leaders. This is achieved because our wheels meant an annual savings of SEK leaders are present out in the fi eld, they Focus on cost reduction 700,000. Reduced water consumption in get employees involved and highlight As we face 2015, our objective is to sig- Malmberget’s pellet production saves SEK good examples, lay the foundation for nifi cantly reduce our variable costs. We 400,000 per year. a learning organisation, follow up work and are good communicators. SAFE AND RESOURCE-EFFICIENT PRODUCTION 41

SUSTAINABLE FOCUS ON ENERGY AND THE ENVIRONMENT

energy facilities. We are also a shareholder Emptying Leveäniemi in windpower company VindIn AB as a way to secure a long-term supply of renewable electricity. Via VindIn, LKAB has invested in fi ve wind turbines with a capacity of 10 MW. So far, LKAB has invested in wind energy that is expected to generate 40 GWh per year, equivalent to half of the ore transport energy needs.

Atmospheric emissions LKAB’s atmospheric emissions come mainly from the ore processing plants and consist mainly of carbon dioxide, nitrogen oxides, particulates and acid gases such as sulphur dioxide, hydrogen fl uoride and hydrogen chloride. The particulate sources in the dressing, concentration and pelletiz- ing plants are encapsulated and connected to an exhaust system where the incoming air is purifi ed before being released into the atmosphere. Starting in 2012, LKAB Our ambition is to be an industry role model from a has been investing a total of SEK 1.5 billion on fl ue gas treatment and particulate sustainability perspective. Reduced environmental fi ltering in the Malmberget and Svappa- impact and resource utilisation lower our costs and vaara pelletizing plants to meet tougher EU regulations. This requires considerable enhance our competitiveness. Our own environmental resources and it takes time to install and policy often extends beyond current legislation. tune this type of technology in large-scale iron ore pellet production processes. Flue gas treatment has been fully implemented LKAB's environmental impact is regulated tion by 100 GWh per year by increasing in Malmberget, while Svappaavaara is in and limited by current legislation and e ciency, and we participate in the Swedish phase two. In our opinion, LKAB’s newest environmental permits. LKAB’s regulatory Energy Agency’s programme for energy and largest production facility, KK4 in Kiru- authority is the County Administrative Board conservation. We also work actively with na, is the world’s cleanest pelletizing plant of Norrbotten and in some cases the local trying to fi nd alternative energy sources as well as the only one with treatment of municipalities. All operations that are sub- that are both environmentally and econom- nitrogen oxide emissions. ject to permit requirements submit annual ically sustainable. The goal is to phase out environmental reports, which can be read coal and oil as fuel in the long term and to Reduced dusting at lkab.com. increase fuel fl exibility in production. There are no accepted standards, guide- Energy e ciency improvements for the lines or corresponding provisions when it Energy e ciency year included the balling discs in the KK4 comes to dusting in the form of falling par- LKAB is one of Sweden’s largest single pelletizing plant, as well as fi ne-tuning of ticulates in Sweden. LKAB’s operations in consumers of energy and accounts for 1.5 the magnetic separator in the KA4 concen- Svappavaara and Mertainen are, however, percent of the country’s total electricity tration plant. These e ciency improvements now subject to such provisions. consumption. Since energy constitutes under the OpEx programme are expected to We regularly check for dusting in our about 10 percent of our total costs, energy result in energy savings of 73 TJ per year. operating locations by measuring falling issues are of great strategic importance. particulates at a number of measuring LKAB has therefore developed a long-term Renewable electricity points. There were fewer complaints strategy for managing both energy supply We participate, for example, together with about dusting this year than last year. and energy conservation. other players in the commodities industry Our target is to reduce energy consump- in the BasEl project, which invests in new 42 SAFE AND RESOURCE-EFFICIENT PRODUCTION

Carbon dioxide emissions choose to work actively with energy- and during the year regarding vibrations in Most of LKAB’s carbon emissions come carbon-reducing technologies. Narvik. Noise measurements are conduct- from the production of pellets and from ed annually in all business locations. Steps transportation. Reduced emissions from Discharges to water to reduce noise were taken in Kiruna and our own processes is a priority and the Ore processing requires large amounts of Svappavaara in 2013 and 2014. However, target is to reduce emissions by 20 percent water. LKAB recycles about 75 percent of the noise limits for Kiruna were exceeded. by 2020. the water used in its mining and refi ne- LKAB’s pellet production is already en- ment processes. Excess water is returned Waste and stockpiles ergy-e cient, with greatly reduced carbon to rivers and lakes. Several waterways Most waste from our operations consists of emissions in comparison with our compet- that we discharge to are branches of or waste rock, the economic term for all rock itors. Further reductions in emissions from are included in Natura 2000 areas. LKAB types that are not ore. Waste rock separat- the processing plants requires alternative conducts rigorous biological and water ed in the dressing process is deposited in fuels to coal and oil. chemistry evaluations of the water quality stockpiles. In addition to waste rock, LKAB In 2014, we invested SEK 50 million in as part of our self-inspection process. Oth- handles smaller volumes of waste lime/ a full-scale trial using natural gas in the er water from LKAB’s production processes purifi cation waste, scrap, industrial waste MK3 pelletizing plant in Malmberget. There is led to the municipal sewer systems for and hazardous waste. Waste lime is waste treatment. from fl ue gas treatment and handling it is highly regulated. The risks identifi ed with LKAB currently has the Vibrations and noise waste management, in addition to specifi c world’s most energy-e cient Iron ore operations cause vibrations and and controlled risks relating to hazardous noise. Blasting in the mines at night causes waste, are linked to the risk of collapse pellet production process. vibrations that can be felt by local resdents. when stockpiling. The target going forward is In underground mining, changes and move- ments in the rock mass near the mining Remediation to reduce carbon dioxide areas can be felt in neighbouring parts of LKAB closely monitors the deformation emissions by 20 percent by the communities. LKAB understands that zones and movements in the rock, mine 2020. these events, though natural in mining op- and landscape and is responsible for erations, can be experienced as unpleasant. dam safety, remediation, and having the Information about incurred and anticipated smallest impact on important nature are also plans to try using biofuel in the events is therefore published regularly at conservation values as possible. Remedi- Svappavaara pelletizing plant. In order lkab.com. We also encourage interaction ation actions are carried out gradually as to reduce greenhouse gas emissions, a with and comments from local residents. operations in LKAB’s industrial areas close trading system for carbon dioxide emis- According to a SIFO survey conducted dur- down. It is all about creating new habitats sions has been in place within the EU since ing the year, the percentage of respondents similar to the surrounding landscape by 2005. LKAB applied for a free allocation who experienced inconvenience in the form establishing vegetation, stabilising and of emission allowances for its needs, but of vibrations decreased from 18 to 10 per- decontaminating where necessary. All of did not receive a full allocation. In order to cent in Kiruna and from 32 to 22 percent in LKAB’s fi ve currently active mines have reduce global emissions of carbon dioxide Gällivare. Ground vibrations have been per- remediation plans and funds earmarked our position is that a trading system should ceived as disruptive to local residents when for remediation. be worldwide to be competitively neutral we empty our silo in the Port of Narvik. A and should reward those companies that total of 46 cases were presented to LKAB

ENERGY CONSUMPTION ENERGY CONSUMPTION, LKAB GROUP (GWH) GWh OTHER LOCA- KIRUNA SVAPPAVAARA MALMBERGET LULEÅ NARVIK ORE TRAINS TIONS1 TOTAL Coal 942 261 0 0 0 0 0 1,203 Diesel oil 22 4 32 0 0 0 8 66 Fuel oil 198 45 417 12 6 0 7 685 Electricity 1,199 222 787 16 41 58 16 2,339 Other types of 8 0 2 4 0 0 7 21 energy

TOTAL 2,369 532 1,238 32 47 58 38 4,314 % 1 Other locations where LKAB operates. Subsidiary LKAB Minerals accounts for most of this. Coal ...... 28 Diesel oil ...... 2 Fuel oil ...... 16 Electricity ...... 54 Other types of energy ...... 0 SAFE AND RESOURCE-EFFICIENT PRODUCTION 43

ENERGY CONSUMPTION AND CARBON DIOXIDE EMISSIONS PER TONNE RESOURCE CONSUMPTION, PRODUCTION AND EMISSIONS3

2014 2013 2012 2011 2014 2013 2012 2011 2010

Carbon dioxide, kg/tonne of products 27.01 27.01 26.91 27.21 Mined amounts 3 27.7 Crude ore (magnetite and hematite) 44.4 44.4 41.9 42.7 42.6 Energy consumption, kWh/tonne of 1632 1672 1652 1602 (Mt) products 1654 Huntite1 (kt) 25.7 1 1 1 1 1 Refers to Kiruna, Svappavaara and Malmberget, excluding emissions from electricity. Dolomite2 (kt) 101 2 2 2 2 2 Refers to facilities in Kiruna, Svappavaara, Malmberget, Luleå and Narvik, excluding sales of surplus heat to external users. Minerals sold (Mt) 1.09 0.75 0.76 1.49 1.88 3 Refers to facilities in Kiruna, Svappavaara, Malmberget, Luleå, Narvik and electricity to ore trains, excluding sales of surplus heat to external users. Input goods 4 Calculation including electricity to ore trains. Also refers to facilities in Luleå and Narvik. Explosives (kt) 20.1 20.0 19.1 19.4 19.2 Additives4 (kt) 859 878 876 852 866 Concrete produced5 (kt) 391 5 5 5 5 Atmospheric emissions Particulates (t) 743 1826 1965 1839 1545 Sulphur dioxide (t) 1,143 2,066 1,831 2,026 2,282 Hydrogen fl uoride (t) 56 138 202 177 221 Hydrogen chloride (t) 404 479 592 590 682 Nitrogen oxide (t) 4,074 3,797 3,911 4,138 4,187 By-products Barren rock (Mt) 22.9 25.9 20.6 21.0 14.9 Tailings6 (Mt) 4.8 6.2 5.6 6.46 4.86 Waste lime (Mt) 0.051 0.045 0.041 0.042 0.036 Discharges to water9 Nitrogen (t) 4448 466 443 478 290 Total phosphorus (kg) 6028 364 544 767 640 Discharge of trace metals to water9 Chromium (kg) 6.18 7 7 7 7 Cadmium (kg) 0.58 7 7 7 7 Copper (kg) 22.78 7 7 7 7 Nickel (kg) 119.28 7 7 7 7 Lead (kg) 0.28 7 7 7 7 Zinc (kg) 81.58 7 7 7 7 Arsenic (kg) 9.48 7 7 7 7 TOTAL Trace metals7 (kg) 2408 235 201 262 154

1 Reported as of 2014; preliminary data will be fi xed in April 2015. Huntite was mined in Turkey. 2 Dolomite was mined in Masugnsbyn; reported as of 2014. 3 No signifi cant spills were reported during the year. Signifi cant spills comprise spills reported to regulatory authorities and involve a risk of harm to people and the environment. 4 Additives, bonding agents, coatings etc. LKAB Minerals is included in the calculations as of 2012. 5 Concrete is reported as of 2014. 6 Data was calculated using another method; not comparable to prior years. Improved measurement All of LKAB’s active mines have methods in 2014 explain the decrease in tailings. remediation plans for phased down operations. It is all about 7 Trace metals are reported separately as of 2014. creating new habitats similar to the surrounding landscape by 8 The amount of overfl owing water used to calculate discharges to water in Svappavaara is estimated due to data loss. establishing vegetation, stabilising and decontaminating where necessary. 9 Data for Malmberget was corrected retroactively from 2010 when the measurement error in the amount of overfl owing water was detected.

CARBON DIOXIDE EMISSIONS CARBON DIOXIDE EMISSIONS, LKAB GROUP (KT) kt OTHER LOCA- KIRUNA SVAPPAVAARA MALMBERGET LULEÅ NARVIK ORE TRAINS TIONS1 TOTAL Coal 313 89 0 0 0 0 0 402 Diesel oil 6 1 8 0 0 0 2 17 Fuel oil 55 12 115 3 2 0 1 188 Electricity 7 1 5 0 0 0 0 13 Other types of 1 0 0 0 0 0 2 3 energy

Additives 79 9 17 0 0 0 0 105 % Carbon in pellets -8 -2 -3 0 0 0 0 -13 Coal ...... 55 TOTAL 453 110 142 3 2 0 5 715 Diesel oil ...... 2 Fuel oil ...... 26 1 Other locations where LKAB operates. Subsidiary LKAB Minerals accounts for most of this. Electricity ...... 2 Other types of energy ...... 0 Additives...... 15

Total emissions include negative emis- sions of carbon bonded to pellets (-2%) 44 GROWTH

Exploration drilling in the Gruvberget open-pit mine in Svappavaara. GROWTH 45

VOLUME SIGNIFICANCE

In order to be competitive and maintain our market position, we must grow with our customers and be a signifi cant supplier in terms of volume. This requires increased production and delivery capacity where access to ore is the key.

Performance In the long term, global demand for iron Most of the additional iron ore for LKAB’s in Ironmaking ore is strong but is a ected by and follows growth will come from the three open-pit prevailing short-term economic cycles. mines in the Svappavaara Field, where the Flexibility LKAB’s competitiveness and market Gruvberget, Leveäniemi and Mertainen position depend on us growing with our mines have the potential to produce about Safe and resource-e cient customers and delivering such volumes 2 million, 12 million and 15 million tonnes production that our products provide clear added value of ore, respectively. That is at least as much to our customers. Increased access to ore, ore as the mine in Malmberget produces Urban trans- Attractive Growth e ciency improvements and investments today. formation LKAB in production and logistics are vital to our growth. Prospecting for growth Commitment – Innovation – Responsibility By growing, we can meet increased de- A mining company needs long planning mand from our customers, while lowering horizons. Good knowledge of the mineral our costs per tonne produced through reserve is a basic requirement for making TARGET AREAS economies of scale. Multi-billion-krona major long-term investment decisions. The investments have been made to extend the mineral reserve’s size and quality are crit- lifespan and increase production volumes ical to product quality, production volumes ENSURE NEW ORE RESERVE of existing underground mines and works. and costs. Therefore, exploration plays a 2015 target: Ensure new ore reserve that 1 This will make more iron ore raw material crucial role in LKAB’s long-term growth, produces for at least 20 years. available for even greater increases in value creation and competitiveness. 2014 results: Assurance of the ore reserve volume. A larger LKAB becomes a stronger is going according to plan. Also see the LKAB. “Mineral reserves and mineral resources” section on page 136.

1Also an objective of “Responsible operations” in Elin Nilsson and Anders Pounu, LKAB Berg & Betong, the Sustainability strategy. Monitored and reported work in the Gruvberget open-pit mine. quarterly. 46 GROWTH

The main mission of exploration is to company, local community, reindeer herder an industry role model from an environ- replace the mined ore bed and ensure iron and tourism industry has grown. Di erent mental and sustainability perspective, ore raw material for continued growth, interests impact on each other, but we and we support all of the environmental equivalent to 20 years of production. believe that this impact can be managed requirements placed on the Group’s oper- Major challenges are the complexity, time through mutual compromises. Crucial to ations. scale and uncertainty of the exploration whether we are successful or not is that we One of the biggest challenges faced by process. It takes on average between seven interact with the surrounding community new mining operations is permit handling. and ten years to go from exploration to and all stakeholders in a trustful, construc- Receiving permits in a timely manner is commercial mining. Learn more about tive and respectful manner. critical to our business, and it is impor- our exploration activities on page 47 and tant to keep up the pace of the permitting about their organisation on page 57. With responsibility for the environment processes. Therefore, we try individually Mining operations always have an impact and in consultation with trade organisation Earning the public’s trust on people and the environment, are encom- SveMin and other players to pursue the LKAB has conducted successful mining passed by strong legislation and require question of how, for example, the mining operations for well over a hundred years. permits. Awareness of how mining a ects industry as a whole can help the relevant But we cannot conduct mining operations things like ecosystems, biodiversity, the authorities simplify management and successfully without regard to the world reindeer herding and tourism industries reduce permit processing times. around us. Over time, our understanding and local residents are issues that are of the need for interaction between mining included in our plans. Our ambition is to be

Over time, our understanding of the need for interaction between mining company, local community, reindeer herder and tourism industry has grown

The deposit in Mertainen has been known of since 1897 and iron ore was already being open-pit mined here in the 1950s. The planned mining operations will impact a 1,220-hectare area and protected species. GROWTH 47

MERTAINEN – FROM EXPLORATION TO FINISHED PRODUCT

Opening a new mine is a complicated, complex and time-consuming order to produce a raw material for pellets process. The path from ore deposit to fi nished, marketable product is where the silica content is balanced, 70 percent of the silica-containing magnetite ore lined with numerous permit and environmental matters, stakeholder from Mertainen was mixed with 30 percent of consultations, studies, analyses and various feasibility studies and the apatite-containing magnetite ore from development projects where many departments within LKAB interact Gruvberget. The pellet recipe was tested in and work in parallel. full scale in our own experimental blast fur- nace in the autumn of 2014. The tests present a pellet with the same high quality as our The mineral deposit in Mertainen has been tainty of exploration. It may take 10 to 20 existing SPBA blast furnace pellet. known of since 1897. For a few years in the years from plan to production, and of a large 1950s Swedish government steelworks number of interesting objects, it is likely Approved compensation plan company NJA mined Mertainen’s iron ore that only a handful of them become ready for nature conservation values in open-pit mines and LKAB explored in mines. One of the most important missions Mertainen is an area with a high nature the area. However, it would take until the of exploration is therefore to focus resources conservation value that is also adjacent to mid-2000s before interest in Mertainen was and quickly determine whether a plan is a protected Natura 2000 area. The planned re-awakened. fi nancially feasible enough to move forward mining operations and their infrastructure in the process. and buildings will irrevocably impact a 1,220- Regulated by Swedish mineral Early knowledge of the quality of a poten- hectare area and protected species such as and environmental legislation tial ore deposit helps LKAB put resources in Ranunculus lapponicus, Saxifraga hirculus A permit is required from the government place in a timely manner for deposit and and peregrine falcons. authority Bergsstaten before a mineral de- product development that suit the condition LKAB has submitted a proposal to the posit can be examined. A work plan must be of the ore. Knowledge of the geological condi- Land and Environment Court on compensa- prepared and shared with landowners and tions is therefore an important element in tion for the mining operation’s impact. The other a ected stakeholders for comments strengthening LKAB’s long-term growth and compensation plan is designed according to and consultation before the authority ap- competitiveness. the guidelines of the Business and Biodiver- proves the plan. If the deposit is considered sity O sets Programme. The content and to be economically attractive Bergsstaten Deposit development in early stage proposed measures were discussed with can issue an exploitation concession and In collaboration with and parallel to ex- stakeholders such as the Gabna and Laevas land allocation. This requires preparation ploration, the research and development Sami villages and were approved by the of an environmental impact statement that department works on developing high-qual- County Administrative Board of Norrbotten. is approved by the municipality and county ity iron ore products from the new ores. By The plan denotes that 2,600 hectares in Ku- administrative board along with a permit performing laboratory tests on ore from osajänkkä north of Mertainen will be restored as per the Environmental Code from the core samples early in the process and later and protected from all exploitation. Land and Environment Court. Throughout in pilot scale from test mining, di erent The need for a management plan and the entire exploration and test mining product recipes can be tested and the step to nature conservation compensation is deter- process, permit decisions by authorities can a productive mine is shortened. This provides mined by the scope, sensitivity, protection be appealed, which provides greater legal a quick and valuable indication of the quality status, local community diversity benefi t, cul- certainty but can also signifi cantly delay a and the products that can be expected from tural relevance, number of protected species mining project. the new deposit. and various aspects of risk. Currently, Mer- The ore in Mertainen has a relatively high tainen is the only area that meets the criteria Few projects profi table silica content. During the test phase the iron for a protection plan, and site remediation Other major challenges faced in opening ore concentrate was purifi ed with a new type and restoration work in Kuosajänkkä got up new mines are time scales and the uncer- of fl otation reagent with excellent results. In to full speed in late 2014.

2008 2010 2011 2012 2013 2014 2015 Timeline for Mertainen

EXPLORATION Deposit Deposit Feasibility study, Feasibility Production-scale Preliminary identifi cation evaluation laboratory-scale study, pilot- test study, test in ENVIRONMENTAL MATTERS test scale test experimental Drilling Test Drilling programme, blast RESEARCH AND Compilation programme, Main court proceed- mining new block model Consultation, Environmental ings, environmental furnace DEVELOPMENT of existing new block 240 kt, model extended applica- permit application, permit materials, fi eld appeals new block work and drilling tion, test mining model Environmental approved Drilling pro- Mining programmes impact statement gramme and compensa- and exploration Drilling programme and tion plan gets application test mining, 300 kt green light 48 GROWTH

It is important that LKAB’s growth occurs in cooperation and agreement with the a ected Sami villages.

Confl icting interests can cooperate

Reindeer herding is a central part of the Sami culture and an im- The goal is to achieve consensus portant industry in the region. It is therefore important that LKAB’s In 2014, LKAB signed cooperation agreements with two Sami villag- growth occurs in cooperation and agreement with the a ected es in Kiruna to ensure good conditions for both reindeer herding and Sami villages. For example, reindeer overpasses called ecoducts LKAB’s growth in the Svappavaara Field. In Ylipääsnjaska, southwest are being built over certain roads and railways. LKAB and the Sami of Svappavaara, there is disagreement between LKAB and another villages also run a project on GPS marking of reindeer that facili- Sami village regarding prospecting and exploration drilling in the tates the gathering and moving of reindeer herds. The importance area. Discussions and consultations have been going on for some of collaboration between LKAB and the reindeer industry is more time between LKAB, the County Administrative Board and the Sami relevant than ever, now that communities are being transformed village in order to reach an agreement. and new mines are being planned.

OPEN-PIT MINE IN LEVEÄNIEMI COMES BACK TO LIFE The Leveäniemi mine is an ore deposit just over 40 km south east of Kiruna where mining was done from 1961 to 1983. When the open-pit mine was closed it was fi lled with water. Now Leveäniemi is about to be reborn as one of LKAB’s new open-pit mines in the old mining community of Svappavaara. LKAB was granted permission by the County Administrative Board of Norrbotten back in 2012 to drain the open-pit mine of water, and draining was completed in 2014 after just over 30 million cubic metres of water was pumped out. The County Administrative Board gave LKAB permission in 2014 to test mine 600,000 tonnes of ore. We are now waiting for the fi nal permit from the Land and Environment Court to mine up to 15 million tonnes of iron ore per year.

LKAB IS PART OF A KNOWLEDGE LARGE DEPOSITS OF IRON ORE AND INNOVATION COMMUNITY IN SVAPPAVAARA The EU is investing in making Europe a global leader in innovation, New exploration discoveries have been secured in the and LKAB has been invited together with other selected partners Leveäniemi mine and Gruvberget. This entails a total of 100 to form a Knowledge and Innovation Community. The investment million tonnes of new ore, which is su cient to keep production is an initiative of the European Institute of Innovation and Technol- going for more than 20 years. Both deposits are within LKAB’s ogy, and its mission is to establish long-term sustainable mining growth area in Svappavaara, 40 kilometres south of Kiruna. production through collaboration in order to secure the region’s Total investment in the Svappavaara Field’s three new mines is access to minerals and metals. estimated at SEK 10 billion. URBAN TRANSFORMATION 49

DEVELOPMENT PRIOR TO DECONSTRUCTION

LKAB’s continued mining operations and growth are dependent on central parts of Kiruna and Malmberget gradually being moved. In consultation with the local municipalities and a large number of stakeholders, we are working to ensure a feeling of security and confi dence in the process. The ambition is to let development precede deconstruction. Together, we are building attractive communities where people want to live and work today and tomorrow.

Performance in Ironmaking

Flexibility

Safe and resource-e cient production

Urban trans- Attractive Growth formation LKAB

Commitment – Innovation – Responsibility

TARGET AREAS

URBAN TRANSFORMATION IN GENERAL 2015 target: LKAB will build 200 new housing units each in Kiruna and Gällivare Municipalities by 2015 compared with The so-called Captain’s Pit in Malmberget that 2011.1 resulted from LKAB’s underground mining. 2014 results: The accumulated number Urban transformation in Kiruna and tions unique are the magnitude and times- of fl ats built by the end of the year was Malmberget is a consequence of mining ex- cale. A total of about 5,000 housing units 178. Planning for additional housing con- tinues. Three areas have been a ected by pansion and the orebodies’ positions. When and 700,000 square feet of residential and housing moves during the year: Western mining is done at great depths it a ects commercial premises will be replaced be- Malmberget, Svappavaara and Ullspiran in people and communities. We are commit- cause of the impact of mining operations Kiruna. In total, 141 households moved to ted to propelling developments forward as on the communities. By the end of 2018, new housing during the year. cautiously as possible, in consultation with the area defi ned as Kiruna’s fi rst Mine the municipalities and all stakeholders. City Park area (GP1), Gruvstadsparken, 1Also an objective of “Attractive Communities” in the Sustainability strategy. Monitored and reported Although the urban transformation will have been completely converted into quarterly. process is extensive in several respects, it a park. If not, there is a risk that iron ore is not unique in itself. Similar projects have production in the Kiruna mine will come to occurred and are occurring in other places a halt, which is an unthinkable scenario. around the world as well. Read more about Gearing up the urban transformation urban transformation internationally on in both Kiruna and Gällivare is necessary page 53. for LKAB’s development and is completely However, what makes current urban according to plan. transformation in LKAB’s operating loca- 50 URBAN TRANSFORMATION

Only by working together can we build communities where we give as much thought to life between the buildings as we do to the buildings themselves

Linus Niva, property negotiator, talking with one of Kiruna’s largest tenant-owner associations. URBAN TRANSFORMATION 51

Mine and community side by side LKAB is dependent on viable, attractive communities to remain competitive and to attract talented employees. In turn, the communities are dependent on us as an employer and investor. As a mining company, we have great social and so- cio-economic responsibility for handling all issues and challenges that arise from urban transformation. We also depend on the trust, understanding and acceptance of local residents. Pia Lindholm, LKAB, and Christer Vinsa, the Municipality of Kiruna, symbolically break the fi rst ground for Kiruna’s new City Hall. Major investments required Without more iron ore raw material from the underground mines, for example, LKAB services and infrastructure completed and for SEK 1,200 million and Malmberget for loses its competitiveness, profi tability and under construction before we responsibly SEK 2,232 million. That is a sharp increase ability to meet customer demand. It is phase out the former dwellings. over previous years. crucial to LKAB’s competitiveness and the We want to help make the new commu- continued development of the communities nities that emerge to become attractive Communication is vital in which we operate that we succeed in our places with beautiful environments, a good LKAB’s engagement in our operating loca- urban transformation e orts in cooperation housing and labour market, and a rich va- tions has historically been characterised with the municipalities involved – at the riety of entertainment, culture, sports and by good relationships. The great challenge right time, at the right price and with mutual recreation. We also want to assist in fi nding of urban transformation is not moving understanding. multiple solutions to the housing issue in cities, it is rather meeting each individual’s We ask much of the people who have to agreement with residents. LKAB has an questions, uncertainty and in some cases relocate and we will always do the right ongoing dialogue with the municipalities, concern, with respect. The most common thing, but with a reasonable fi nancial impact property owners, administrators and con- issues are when the individual will be a ect- on the Group. Costs should not risk our struction companies on the development ed, where the person will be going and how ability to continue to invest and create jobs of land areas for the production of new the move will be handled. It is often di cult for continued growth. We planned for the housing. We are also looking for construc- to provide simple, straightforward answers costs of urban transformation a long time tive solutions for industrial and commercial to those directly a ected because of the ago. They include settlement of claims properties together with the companies. complexity of the process, and it is especial- for the impact that the mines have on the External dialogues will continue in 2015 ly complicated to provide facts during work communities and an investment in contin- while LKAB works internally with invento- in progress where not all circumstances are ued mining operations to increase volume rying needs for replacement dwellings and known. Transparency, accessibility and an and income. At the same time, it is a large premises. ongoing dialogue are therefore crucial if we expenditure that encumbers our earnings. are to have the opportunity to make agree- Changed forecasts for the deformations A strong growth region ments and retain the trust of those around that mining brings show a slower expansion Norrbotten has enjoyed strong economic us. That is why we hold many di erent in Kiruna. That gives us more time for devel- growth over the past ten years. The catalyst channels open for meetings and dialogues. opment before phase-out, which is positive of this growth is LKAB. We have made sig- We provide information on our website, for both the communities and LKAB. nifi cant investments in facilities, infrastruc- distribute the magazine “LKAB Future” to all ture and new mines in the last decade and households in the mining communities, have Interaction and confi dence will continue to invest heavily in the coming information o ces in all operating locations Urban transformation is a challenge for years to meet demand for our iron ore. and hold regular meetings and information everyone involved: LKAB, municipalities, Through these investments we are a strong sessions. landowners, businesses, authorities and driving force for the economy, generating But that is not enough. We also want to especially the residents. It is important to jobs and positive social development, have an active dialogue with those who do listen to the a ected people’s mixed feelings not only in our operating locations but not read LKAB Future, visit our website or about the fact that they have to pack up and throughout northernmost Sweden and Arc- attend information meetings. By seeking move from their homes. LKAB aims to make tic Scandinavia. That means big business out and meeting people individually and in every possible e ort to facilitate the transi- opportunities for contractors and suppliers small groups, we get the chance to discuss tion for the people who are directly a ected when the new Kiruna and Gällivare are personal issues. We also take the initiative by urban transformation. That will require being built up. to inform and engage in dialogues in other close cooperation and open dialogues along In 2014, costs for urban transformation forums such as trade fairs and conferences, with strong mutual trust. One important provisions in the a ected areas totalled as well as in contacts with journalists to aspect is that there should be new housing, SEK 3,432 million, of which Kiruna stood reach out to the general public. 52 URBAN TRANSFORMATION

CONTRACT CONCLUDED TOGETHER, WE ARE TAKING THE NEXT STEP IN KIRUNA’S DEVELOPMENT

In June 2014 LKAB and the Municipality of Kiruna concluded a contract that settles compensation for new construction when the city is moved. The agreement gives new impetus to the urban transformation pro- cess, and in September ground was broken in what will be Kiruna’s new city centre – completely in line with LKAB’s ambition to “We have a good agreement in place,” says Kristina Zakris- son, Kiruna’s municipal commissioner. “Now we can build a put development before phase-out. Kiruna that is smarter, more e cient and more sustainable.” The Municipality of Kiruna can now build a new city, which is a unique opportunity. Schools, the city hall and other locales operating costs, which is favourable for quality and volume in the new Kiruna. The for municipal operations are being built municipal operations. agreement not only drives urban trans- according to new standards and using The agreement is for SEK 3.74 billion formation forward, it enables LKAB to modern technology. This provides good in compensation from LKAB for municipal continue mining the iron ore that slopes in opportunities for more energy-e cient and infrastructure, land and property in the under Kiruna’s present location, something customised buildings that are built to fi t current city centre, which will cover the that will secure jobs in the mine and the current needs. The ambition is to reduce costs of building equivalent functionality, community’s growth for years to come.

At the right time, at the right price and with mutual understanding LKAB is responsible for ensuring that urban transformation occurs at the right time according to the existing main timetables as mutually agreed upon with the municipalities. This implies in turn that the company manages to make agreements with all property owners and other stakeholders in the areas a ected by continued mining. One of the main missions of LKAB’s urban transformation organisation is therefore to acquire properties located in areas that need to be utilised to ensure mining operations. Together with the municipalities and other players, we must also ensure new residential and commercial buildings. LKAB will therefore take on a new role in the urban transformation process. We plan to take the initiative and take control of more new builds, both to fi nd cost-e ective solutions and to secure access to new proper- ties. In this way we can increase the pace of transformation, meet the individual property owners’ requirements for functionality and also gain greater control over costs. This means, for example, that LKAB will procure new construction. It is also crucial that more players want to build in the mining communities in order to increase cost-e ectiveness. The goal is for urban transformation to be sustainable in the long term, that is, acceptable to all stakeholders during the period that LKAB currently can predict that urban transformation will last. A new role helps our prospects for ensuring that transformation takes place at the right time, with the right quality and at a reasonable cost. Our aim is to reduce the risk of delays and cost overruns by getting involved in the planning and commissioning of new buildings.

READY FOR MALMBERGET’S CONTINUED STRONG CONFIDENCE TRANSFORMATION Each year, LKAB examines how the residents of On 5 May, the Supreme Administrative Court an- Kiruna and Gällivare perceive and have confi dence nounced that the cooperation agreement between in our ability to take responsibility for urban trans- LKAB and the Municipality of Gällivare is valid, thus formation. In the year’s SIFO survey, 500 people OF97% GÄLLIVARE RESIDENTS BELIEVE confi rming the Administrative Court of Appeal’s were interviewed in our operating locations. The earlier ruling. As the agreement became legally results show that about 8 out of 10 have fi rst-hand THAT LKAB ADDS GREAT VALUE TO THEIR MUNICIPALITY binding, LKAB paid out SEK 430 million to the Mu- knowledge of urban transformation and confi dence nicipality of Gällivare as part of the urban transfor- in LKAB remains high. In Kiruna just over 8 out of 10, and in Gällivare almost 9 out mation process. In four stages until 2032, Western of 10, have great or very great confi dence in LKAB. More than 9 out of 10 people in Malmberget will be phased out, and in dialogues both operating locations also accept the urban transformation regardless of their with the municipality, work is underway to jointly own personal attitude on the issue. Almost everyone perceives that LKAB adds great fi nd a good solution for Eastern Malmberget. value to their own municipality. URBAN TRANSFORMATION 53

AN INTERNATIONAL PERSPECTIVE

A sustainable community is emerging in a beautiful, wintery Kiruna.

In 2014, LKAB began a collaboration with the international SUSTAINABLE experts at RePlan, who have years of experience with urban COMMUNITIES EMERGING As a result of urban transformation, transformation for the mining industry. We interviewed their 5,000 new housing units need to be built in the mining communities. In urban planner Graeme Burt, who visited LKAB’s operations Kiruna alone, a new commercial city several times in the last year. centre, 3,000 fl ats, 200 detached houses and 200,000 square metres of public buildings will be erected. And on 4 September 2014, ground was Graeme sees urban trans- case is that urban transformation in Kiruna is broken for the new City Hall. formation as a prerequisite about moving an entire city centre. Something for LKAB’s future success, that is unusual, especially in developed coun- just as it is for most mining tries. In this case, moreover, a century-old beau- companies around the tiful city. It is expensive, places great demands world. RePlan is currently on collaboration and an ability to meet the many working on urban trans- needs of stakeholders, according to Graeme. formation projects related In RePlan’s experience, successful urban to mining operations in 15 transformation is primarily about engagement GRAEME BURT countries, including Canada, at both societal and individual levels. The mining Among other things, LKAB Fastigheter the US, Greece, Albania, Turkey and a number of company must have a good relationship and built 30 new fl ats in the Glaciären resi- Latin American and African countries. Through communicate clearly with both. Trust is built by dential area in Kiruna last autumn. this partnership, LKAB has access to international being engaged, constantly keeping the commu- practices based on extensive experience. nity and its individuals informed and creating Often when reading about LKAB’s urban forums for dialogues. Something that RePlan transformation, it is described as unique and believes that LKAB has been very successful something that has never been done before. Our with so far. cooperation with RePlan has provided a new per- LKAB’s vision for community planning is spective and insight that this type of project is not developing before phasing out, that is, taking as unusual as one might fi rst think. Internationally, more time to prepare new areas before having there are many experiences and much knowledge to empty existing ones. The purpose is to build The fi ve newly built wooden houses that LKAB can and should learn from. Although no trust, generate enthusiasm and give people a have six fl ats in each of the buildings two cases are alike, many of the challenges and picture of the new community that will emerge. spread over two fl oors, for a total of lessons are the same. The uniqueness of LKAB’s 30 family fl ats, of which 10 have three bedrooms and 20 have two. 54 URBAN TRANSFORMATION

LKAB Fastigheter is building new prefabricated houses in the Glaciären residential area in Kiruna. NEW HOUSING GENERATES POSITIVE MOBILITY IN THE HOUSING MARKET Urban transformation in Kiruna and Malmberget is under way in earnest. In particular, increased housing construc- tion means a wider variety of homes of varying standards and cost levels. This in turn creates more choice and greater mobility in the housing market.

It is the goal of LKAB and the municipalities that development procede deconstruction in urban transformation. For many years, a key issue has been getting housing con- struction started to increase the range of options. As contracts are concluded with the municipalities, construction investments in our operating locations are beginning to gain momentum.

More options In Kiruna, 30 fl ats in the Glaciären area and 46 fl ats in the Jägarskolan area were ready for occupancy in 2014. Construction of at least 150 fl ats in the Luossavaara area is MILESTONES IN 2014 FOR THE MUNICI- expected to begin within the next few years. In Gällivare, 30 fl ats in the Granbacka area PALITIES OF KIRUNA AND GÄLLIVARE were also ready for occupancy during the year. In addition, there was a strategic deci- sion made for the construction of an additional 200 new fl ats in Gällivare. LKAB acquired Kiruna/Svappavaara land in the Repisvaara area for housing construction, while other options are also being evaluated. • LKAB fi nances the Swedish Transport Administra- tion’s initial construction of Road 870 (May) All in all, the housing situation is starting to lighten at LKAB’s operating locations, even though the need is still great for new construction. More housing means that the • Land acquired enabling start-up in Mertainen residents of the mining communities will have more choices as both new and older (May) houses and fl ats become available. Even when it comes to commercial properties, one • LKAB signs contract with the Municipality of of LKAB’s goals is for there to be alternatives and personalised solutions. Kiruna,, the so-called GP2 Agreement (June) • Occupancy of 46 new fl ats in New construction is attractive Jägarskolan area (September) The ability to upgrade to new, modern housing is attractive to many. There has largely • Ground-breaking for City Hall in Kiruna’s new city been no new housing construction in the mining communities for the last 20–30 years. centre (September) One person who chose to move was Rickard Hannu from Kiruna. He sold his one-bed- • Occupancy of 30 new fl ats in the Glaciären area room fl at and moved into a new rental in the Jägarskolan area. It is bright, with (December) an open fl oor plan, wood parquet throughout the fl at, a washer and dryer and a large balcony and patio. There is even a sauna in the 82-square-metre two-bedroom fl at. Gällivare/Malmberget “It feels like a small terraced house,” says Rickard. “I’ll be staying here a long time.” • Occupancy of 30 new fl ats in The family-friendly fl ats in the Granbacka area in Gällivare, with their proximity to a day Granbacka area (May) nursery and school as well as green spaces and shopping, were highly sought after. The • Cooperation agreement with the Municipality of open house in March was well attended and the fi rst tenants moved in 1 May. All fl ats Gällivare becomes legally binding (May) were rented out almost immediately. • LKAB acquires land in the Repisvaara area for housing construction (October) The future is troubling But the idea of moving is not entirely positive to everyone. Björn Hansson lives in the Johannesområdet area in Western Malmberget with his dog Cookie. Björn really enjoys having nature on his doorstep and his spectacular views of Malmberget, Gällivare and the Aitik mine far o in the distance. But the area will be a ected by LKAB’s mining and, sooner or later, Björn and Cookie will have to move. ATTRACTIVE LKAB 55

ATTRACT AND RETAIN EXPERTISE

LKAB’s success depends on the skills and dedication of our employees. To be an attractive employer, we have to o er stimulating career opportunities and safe work- places. We must also help the communities in which we are located to be attractive places to live.

Performance Innovative technology, e ciency improve- Focus on internal mobility in Ironmaking ments and new knowledge requirements In recent years, LKAB has recruited exten- have fundamentally changed the way we sively and we still have a great need for Flexibility produce our iron ore products. The breadth expertise in order to achieve our long-term of expertise needed to operate the world’s growth targets. Meanwhile, the market situ- Safe and resource-e cient production largest and most modern underground ation in 2014 has put pressure on profi ta- iron ore mines as well as our production bility. This means that going forward LKAB facilities and logistics is vast. LKAB has will focus even more on internal mobility Urban trans- Attractive Growth over 180 specialists in various professional and better resource utilisation. During the formation LKAB categories – from carpenters, economists second half of the year we reduced recruit- and machine operators to IT technicians, ment of new sta and introduced a hiring Commitment – Innovation – Responsibility rockwork technicians and research engi- freeze in February 2015. neers. Internal mobility and continuing profes- sional development within the Group is im- TARGET AREAS Competency management portant for retaining the right skills. In the and attractiveness long term, educational investments are key PROPORTION OF WOMEN Our future competitiveness and growth is to securing LKAB’s own human resources, 2015 target: The proportion of women at based largely on our ability to attract and and schools are also the foundation of an LKAB will be at least 25 percent by 2020.1 retain the right skills through exciting pro- attractive community. We work closely with 2014 results: The proportion of women fessional challenges, broad career paths schools such as Luleå University of Tech- in the company is 19.4 percent and the and personal development. That is why nology and continue to be actively involved proportion of female managers is 19.9 per we attach great importance to improving in the local compulsory and secondary cent. The annual target for proportion of women was achieved and the proportion and developing working conditions, health schools, which include the LKAB upper of women in management positions contin- and safety, and to prioritising equality and secondary school and the LKAB Academy ues to rise. diversity. foundation. At the same time, we can o er some- QUALIFIED RECRUITS thing that few other mining companies Commitment, innovation and 2015 target: There should be competition among qualifi ed candidates for all adver- are able to: a unique place to live in one responsibility – for a stronger LKAB tised positions.1 of the world’s most beautiful regions. Our focus on continuous improvement Besides the magnifi cent wilderness with makes LKAB a company that can ensure 2014 results: There were at least two qualifi ed candidates in 96 percent of job opportunities in the long term. E cien- its polar nights and midnight sun, there are recruitments in 2014. The target of vibrant communities with a wide range of cy, health and safety are improved through reaching 97 percent could therefore not entertainment, culture, sports and outdoor process optimisation when we focus on be fully met. activities. There are plenty of jobs and a doing things right instead of working faster. LONG-TERM SICK LEAVE strong economy alongside the mining oper- Our production targets and an enjoyable 2015 target: Long-term sick leave should ations, substantial investments in schools and accident-free work environment are continue to be less than 0.8 percent.1 and education, and a good quality of life for directly linked to each employee’s commit- our employees and their families. ment and accountability. When everyone 2014 results: Long-term sick leave continues to be low and stood takes responsibility, production is more at 0.4 percent (0.5). stable with fewer disruptions. 1Also an objectives of “Attractive LKAB” in the Sustainability strategy. Monitored and reported quarterly. 56 ATTRACTIVE LKAB

Our values lead the way values, Commitment – Innovation – Re- Continuing professional development For 125 years, LKAB’s corporate culture sponsibility, and internationally recognised Each of LKAB’s employees is responsible has been distinguished by committed em- declarations and conventions. These for their own performance, developing ployees who, responsibly and with great include the UN Global Compact’s ten their skills and the company on an ongo- openness and pride, work for the Group’s principles, the principles of the document ing basis. By clarifying employees’ own best, internally as well as with customers, Children’s Rights and Business Principles, roles linked to expectations and strategic suppliers, owners, the general public and the OECD Guidelines for Multinational goals, we cultivate knowledge, safety and authorities. LKAB’s ambition is to set an in- Enterprises and the UN Guiding Principles commitment. Our focus on more e cient ternational example for the mining industry for Business and Human Rights. The new and safer work processes in an educa- in terms of ethics, health and safety, equal- Code of Conduct is available in Swedish, tional and accountable organisation also ity and diversity, and today our core values Norwegian and English. In order for LKAB requires a new kind of modern leadership. and Code of Conduct are the cornerstones to take greater responsibility throughout The objective is to train all new managers of our business strategy. the value chain a new code of conduct for for a fl exible and personal leadership style A new Code of Conduct for LKAB was our suppliers was also introduced in 2014. based on our values. adopted by the Board in late 2013. The Read more on page 34. Code of Conduct is based on our company

Our Code of Conduct provides guidance on how to act ethically and in accordance with our values

LKAB’s ambition is to set an international example in the mining industry – for ethics, health and safety, equality and diversity. ATTRACTIVE LKAB 57

LKAB’s exploration department test drills near the so-called wolf pit in Kiruna. DIVERSITY The work is supervised by ore bed developer Hakan Selldén, geologist Kirsten Holme and exploration manager Per-Olov Fjällborg. ENRICHES

A prerequisite for reaching LKAB’s growth target is to ensure the supply of iron ore raw materials through the development of existing deposits and the discovery and de- velopment of new ones. Specialist expertise in geology and geophysics is strategically important to LKAB, and there is tough com- petition for skilled workers internationally.

Setting an example for equality and diversity The exploration department has grown These highly qualifi ed employees come as an attractive employer internationally rapidly over the last three years and from six di erent countries and nearly half and that LKAB can successfully compete consists of more than 30 geologists with of them are women. with other companies for highly skilled varying backgrounds and nationalities. labour. This makes exploration a good example Internationally competitive of LKAB’s objective to be a company that LKAB’s successful exploration department promotes equality and diversity. recruitments show that LKAB is perceived

IMAGE OF NEW Petra Åhl left the fl atlands of Skåne for the rolling landscape and open expanses of Gällivare. GÄLLIVARE ATTRACTED PETRA

After twenty years in Skåne, Petra Åhl returned home to Gällivare almost a year and a half ago. Her friends and acquaint- ances down south could not believe it at fi rst. When the shock subsided, the ironic and playful taunts began to fl ow in the form of YouTube clips that cultivated the myth of the empty, barren northern landscape. “Sure, they were right to some extent,” says Petra, laughing. “There’s a lot of land here and not so many people. But here I have all the space I need for my running and riding hobbies. Living here is a quality- of-life issue for me.” When Petra left Gällivare she was driven by the urge and desire to see something di erent. But over time it was but with automation and high technology. Today I live in a vibrant, expansive region, homesickness that became the driving With support and help from her have a great job and can also have the force. Very much due to the positive signals prospective employer Petra could move active leisure time I always dreamed of she received that something was going on back home to a job as the head of research in this stunning countryside that really where she once grew up. A new image of and development at LKAB, thereby coming inspires me.” Gällivare emerged and LKAB was no longer full circle. synonymous with a hammer and chisel job, “It was a long move, but it was easy. 58 ATTRACTIVE LKAB

NORWAY PERMANENT EMPLOYEES BY REGION SWEDEN TURKEY ENGLAND COUNTRY EMPLOYEES 237 ASIA 203 4 ,123 35 Sweden 4,123 57 Norway 237 England 203 Asia 57 Turkey 35 Netherlands 30 Germany 13 USA 6 Belgium 3 Finland 3 France 3 Greece 1 Slovakia 1 Spain 1 Total 4,716

The total number of employees (average), including part-time and fi xed-term employees, was 4,539. At year-end, LKAB had 4,361 permanent employees, of whom 1,527 were white-collar employees and 3,189 were blue-collar employees. There were 48 part-time employees and 355 fi xed-term employees. There are options available for full-time and part-time employment for employees with small children. All LKAB employees in Sweden and Norway are covered by collective agreements, with the exception of Group management.

The 2014 winners of LKAB’s health and safety award were Emelie Herrlin, LKAB MOST ATTRACTIVE safety o cer, and Micael Andersson, production manager. The dressing and concentration plant operations in Malmberget have not had a single work INDUSTRIAL COMPANY accident with absence since 2010. LKAB has recruited heavily in recent years. Safeguarding our employees’ health and safety, professional development opportunities and living situations is essential to LKAB’s future and to its ability to retain expertise and recruit new talent. In Universum’s survey “Sweden’s Best Employ- ers”, employees rate their employers and LKAB landed in fi fth place in the category “Major employers”, at the top among industrial companies. This is an acknowledgment that LKAB is an attrac- tive employer that cares about its employees.

SWEDEN’S BEST EMPLOYERS 2014 1. King reklambyrå 2. Netlight 3. H&M 4. Svensk Fastighetsförmedling MEASURING THE LINK BETWEEN 5. LKAB HEALTH AND WORK ENVIRONMENT

LKAB regularly charts workplace health and safety to prevent illness and injury. Through employee health check-ups, we investigate whether there is a link between health and work environment. As part of our prevention e orts, everyone with line management responsibility receives training on substance abuse and employees are o ered rehabilitation if necessary. LKAB also o ers training and educational opportunities in health and lifestyle to facilitate and encourage good lifestyle choices among employees.

ATTRACTIVE LKAB 59

MORE WOMEN AT LKAB NUMBER OF WOMEN AT LKAB The number of women and female managers at LKAB has Number risen steadily. One of our sustainability targets is that the 1,000 proportion of women should amount to 25 percent in the Group by 2020. The proportion of women at LKAB was 19.4 800 percent and the proportion of female managers was 19.9 per cent at year-end. This is an improvement of 1.3 and 0.1 600 percentage points, respectively, over last year. 400

200 SAFETY FIRST! 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 We are pursuing a systematic e ort to bolster our safety culture with the “Safety First!” programme. The programme aims to create safe workplaces where everyone contributes to a good safety culture. One of the biggest challenges in terms of PROPORTION OF WOMEN AT LKAB safety is people’s attitude. It is important that new employees understand how highly Proportion of female managers Proportion of women we prioritise safety as soon as they start working. Therefore, employees as well % as contractors and subcontractors undergo approved safety training before being 25 allowed access to LKAB’s industrial area. The trend for accidents at LKAB is positive and they are slowly declining. In 2014, 20 the decline was limited and the target for the year could not be reached. The accident rate was 7.6 accidents with absence per million hours worked where the target was 15 no more than 6. The most common causes of sick leave due to accidents remain un- 10 dramatic and are a matter of sprained ankles due to slipping, tripping and missteps along with accidents related to manipulation of tools or materials. 5

REPORTED INCIDENTS AND RISKS 0 Thord Edman, Kiruna mine Incidents Risks 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Number 10,000 ACCIDENTS WITH ABSENCE, LKAB GROUP 8,000 Number Number 2014 Frequency/million hours worked

6,000 Number Frequency/million hours worked

4,000 100 20

2,000 80 16

0 60 12 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

40 8

ZERO TOLERANCE FOR CORRUPTION 20 4

For LKAB, business ethics means showing respect for the people and places around 0 0 us. We strive for long-term business relationships founded on trust and the mutual 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 creation of value. That is why we have zero tolerance and work actively to fi ght all forms of corruption, including extortion and bribery. So far, three quarters of em- ployees in our purchasing organisation have attended a fi ve-day training course on corruption, supplier auditing and human rights. About 500 other employees have re- ceived raining on our Code of Conduct, which includes an anticorruption component.

Seven incidents registered Seven cases of corruption were discovered at LKAB in 2014. In two of the cases, both LKAB employees and contracted suppliers were involved. In one case the contract with the supplier was terminated and in the other case the supplier’s contract was suspended for one year. The consequences for the LKAB employees were a written DISCRIMINATION5 CASES warning and that one person terminated employment. Other incidents mainly had to WERE REPORTED DURING THE YEAR, OF do with improper accounting of working hours and generated fi ve written warnings WHICH ONE WAS RESOLVED AND on reassignment. FOUR CONTINUE TO BE FOLLOWED UP

SKISSBILD 60 ATTRACTIVE LKAB

LKAB INVESTS IN LATEST TECHNOLOGY IN MALMBERGET EDUCATION OF YOUNG PEOPLE A donation of SEK 1 million from LKAB Academy to the Industry Pro- gramme at Välkommaskolan School in Malmberget enabled them to invest in a CNC milling machine. “Our objective is for the school to be one of the best in Sweden,” says Bert-Olov Ström, head of the upper secondary school. “But we have no fi nancial resources to do that. That’s why we are incredibly grateful to LKAB Academy for giving us a head start. The students now have the very latest in computer-controlled machining.” Andreas Eriksson, a teacher at the school, is also very supportive of the investment. “It’s a dream come true to have a machine of this calibre. The invest- ment takes our instruction to a new level in a collaboration between the school and industry.”

SUMMER SCHOOL FOR ACTIVE, INQUISITIVE YOUNG PEOPLE One of LKAB’s most popular activi- ties during the year was its summer school. For four days, young people David Wettainen, Tommy Ekhorn and William Larsson aged 11–13 tried their hands at build robots at the space school in Kiruna. climbing, kayaking, fi shing and crawling in caves. Everything started o from LKAB’s cabin in Björkliden, LKAB Academy is a foundation that provides fi nancial just over 100 kilometres west of Kiruna. support to preschools, day-care facilities, compulsory LKAB’s summer school has been schools and upper secondary schools in the Swedish held every year since 2007. Partici- pation is free and went on for three mining communities and Narvik. weeks in 2014. “It was so exciting to show the LKAB Academy supports educational to strengthen children’s and youngsters’ children of Kiruna and Gällivare development projects in upper secondary interest in science and technology. Stu- our beautiful mountains, see them schools in order to help bolster interest in dents, teaching sta and head teachers can challenge themselves and practice science and technology while developing submit applications. working together on the activities we the communities in which LKAB is active. To date, over 100 school projects in the had on the programme,” says Margit The aim of the project is to develop the mining communities have received support. Andersson Wälimaa, who has led the skills of teachers and students and to LKAB Academy has supported things such summer school for several years. hopefully help the overall development of as the purchase of microscopes, a CNC ma- “You have to remember that it’s not the schools. chine, a lathe and technology boxes, study a given that everyone who lives up Preschools and compulsory schools may days and a weather balloon experiment. here knows the mountains.” also apply for funding with the intention OUR GOVERNANCE AND CONTROL 4 62 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 the auditor. The Board is responsible to the owner for the company’s organisation and the administration of its a airs. The diagram below summarises how governance and control are organised at LKAB. The company functions are described in more detail on pages 63–65 of the Corporate Governance Report.

BOARD ANNUAL GENERAL MEETING AUDITOR 2 NOMINATIONS 1 STATE-OWNED COMPANY 3

4 BOARD OF DIRECTORS

REMUNERATION AUDIT COMMITTEE 5 COMMITTEE 6 FINANCE COMMITTEE 7

Elects/Appoints 8 PRESIDENT AND CEO Informs/Reports to

1 ANNUAL GENERAL MEETING 4 BOARD OF DIRECTORS The AGM is LKAB’s highest decision-making body and the forum at The Board of Directors is responsible for the company’s organisa- which the shareholder formally exercises its infl uence. At the AGM, tion and manages the company’s a airs on behalf of the owner. The decisions are made that include adoption of the income statement work of the Board includes continuously monitoring the company’s and balance sheet, discharge from liability of the Board, election of fi nancial situation and ensuring that the company is organised so that new Board members and a new auditor, the remuneration of Board accounting, asset management and the company’s fi nancial circum- members and the auditor and guidelines for the remuneration of stances are otherwise controlled in a satisfactory manner. The Board senior executives. also appoints the President. Members of the Riksdag are entitled to attend LKAB’s AGM. The meeting is also open to the public. 5 REMUNERATION COMMITTEE The committee prepares decisions on the President’s terms of 2 BOARD NOMINATIONS employment and supports the President’s work on determining the LKAB does not have a nomination committee. The preparation of salaries of senior executives. The committee also works with succes- decisions on the nomination of Board members instead takes place sion planning. through a Board nomination process in accordance with the state’s ownership policy. The work is coordinated by the Ministry of Enter- 6 FINANCE COMMITTEE prise, Energy and Communications. The committee prepares and monitors compliance with the compa- See deviations from Code rules on page 63. ny’s fi nance policy, including the company’s liquidity management, borrowings and hedging programmes for currency (USD), electricity 3 AUDITOR prices and iron ore prices. The auditor is responsible to the shareholder at the AGM and provides an audit report on the Annual Report and the Board’s 7 AUDIT COMMITTEE administration of the company. The committee oversees fi nancial reporting by reviewing all critical The auditors regularly report verbally and in writing to the Audit accounting matters and other factors that could a ect the quality of Committee on how the audit was conducted and on the auditor’s fi nancial reporting content. assessment of order and control at the company. A summary of the annual audit is also submitted to the full Board. 8 PRESIDENT The President is appointed by the Board of Directors. Besides instructions from the Board, the President is subject to the Swedish Companies Act and various other laws and regulations relating to the company’s accounting, asset management and operational control. CORPORATE GOVERNANCE REPORT 63

GOVERNING POLICIES, GUIDELINES AND REGULATIONS The basis for corporate governance at LKAB is Swedish legislation, the Swedish Corporate Governance Code (the Code), 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 gov- ernment describes its mission and objectives, applicable frameworks and its position on important principles related to corporate governance at state-owned companies (see www.government.se). LKAB’s values are Commitment, Innovation, Responsibility. These values and the company’s Code of Conduct form the basis for how each person within the Group should act towards internal and external stakeholders. LKAB's business must be characterised by high levels of business ethics and integrity. The Group has a number of policies in place, which have been adopted by the Board:

• Code of Conduct • Quality policy • Environment and energy policy • Work environment policy • Sta policy • Finance policy • Information policy

LKAB’s values and policies are described in more detail at www.lkab.com. The Code forms part of the state’s ownership policy. LKAB’s governance for the 2014 fi nancial year di ers 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 Publication of information on for the AGM in a timely manner and to have a matter included in the AGM shareholder’s right of initiative. notice. At state-owned 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 The company’s nomination committee committee. The Chairman is instead elected at the AGM as per the provisions shall submit proposals to the Chairman of the Swedish Companies Act and in line with the state’s ownership policy. at the AGM.

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

ITEM 10.2 The provision is aimed primarily at protecting non-controlling shareholders in The Corporate Governance Report shall companies with dispersed ownership. In companies that are wholly owned by contain information that indicates Board the state, it is not necessary to apply this rule. members are independent of major shareholders. 64 CORPORATE GOVERNANCE REPORT

SHAREHOLDERS AND the company’s operations, situation and future challenges. Consid- ANNUAL GENERAL MEETING eration is also given to the need for qualifi cations with regard to sustainability issues. In order to be considered for a Board position, SHAREHOLDERS a person must have a high level of expertise relevant to current LKAB is wholly owned by the Swedish Government, represented in business operations, business development, industry expertise, the government by the Ministry of Enterprise and Innovation. fi nancial issues or other relevant areas. They must also have a high The government exercises its ownership via an annually estab- level of integrity and the ability to act in the best interests of the lished ownership policy, nominations to the Board and published company. reporting guidelines. The government’s requirement for trans- parency is fulfi lled by direct owner representation on the Board. AUDITOR Reports to the owner are key management tools for the continu- On behalf of the owner, the auditor independently reviews the ous monitoring and assessment of the companies. State-owned management of the Board and President, as well as the company’s companies should have at least the same level of transparency as Annual Report and accounts. They also carry out a review of an in- listed companies. terim report. The election of auditor is decided at the AGM. Auditors The Board, via the Chairman, coordinates its views on issues of of state-owned companies are appointed for a term of one year. decisive importance with the owner’s representatives. Such issues In the event that re-election of the auditor is being considered, the include strategic changes to the company’s operations, major auditor’s work is always evaluated by the owner. acquisitions, mergers or disposals, as well as decisions a ecting At the Annual General Meeting on 29 April 2014, Deloitte AB was signifi cant changes to the company’s risk profi le or balance sheet. re-elected auditor for a period of one year. Authorized Public Ac- countant Peter Ekberg is the chief auditor. The remuneration of the ANNUAL GENERAL MEETING 2014 auditor is specifi ed in Note 7 on page 112 of the Annual Report. LKAB’s Annual General Meeting took place on 29 April 2014 in Luleå. The meeting was open to the public, who were given the opportunity to ask questions of the Board and management. The BOARD OF DIRECTORS AGM was attended by about 100 people. The owner was repre- sented by Erik Tranaeus, expert advisor at the Ministry of Finance. COMPOSITION AND DIVISION OF Chairman of the meeting was Board Chairman Marcus Wallenberg. DUTIES OF THE BOARD OF DIRECTORS The following decisions were made at the meeting: LKAB’s Articles of Association state that the company’s Board of • A dividend of SEK 5,000 per share, representing a total of SEK Directors shall consist of no fewer than six and no more than elev- 3.5 billion. en AGM-elected members, excluding deputies. The Board consists • Re-election of Board members Hans Biörck, Maija-Liisa Friman, of seven AGM-elected members. Employees are represented by Lars-Åke Helgesson, Sten Jakobsson, Hanna Lagercrantz, three members and three deputies in accordance with the Board Maud Olofsson and Lars Pettersson. Representation (Private Sector Employees) Act. Board members • Election of Sten Jakobsson as Chairman of the Board. have broad and extensive business experience and most maintain • Remuneration of SEK 570,000 to the Chairman of the Board other duties as Board members of large companies. The Board’s and SEK 250,000 to the other Board members elected at the composition is shown in the table on page 68–69. AGM. Remuneration is not paid to Board members who are The Board annually establishes rules of procedure for the Board, employed at the Government O ces nor to employee repre- instructions to the President and instructions for fi nancial report- sentatives. ing. These documents defi ne the basic divisions of responsibility • Re-election of the registered public accounting fi rm Deloitte AB and powers between the Board, Board committees, the Chairman as auditor for a period of one year. and the President. • Guidelines for remuneration and other terms of employment for senior executives. CHAIRMAN OF THE BOARD • Amendment to section 6 of the Articles of Association indicating The duties of the Chairman are subject to the Swedish Companies that if the Chairman of the Board leaves his/her position during Act, the Code and the ownership policy. They are further specifi ed the mandate period, the Board shall elect a Chairman inter- in the Board’s rules of procedure. The Chairman’s duties include or- nally for the period until the end of the next AGM, when a new ganising and leading the work of the Board, ensuring that the Board Chairman will be elected. fulfi ls its duties and that its decisions are implemented e ectively, The minutes of the 2014 AGM and other recent years are available and that the Board evaluates its own work annually. on LKAB’s website, www.lkab.com. Coordination responsibility is a special task assigned to the chairpersons of state-owned companies. This responsibility means BOARD NOMINATIONS that the Board, through the Chairman, must coordinate its views Instead of having a nomination committee, the election of Board with representatives of the owner when the company faces impor- members is prepared in accordance with the state’s ownership tant decisions or strategic changes to the company’s operation. policy. The work is coordinated by the Ministry of Enterprise and Innovation. LKAB’s expertise requirements are analysed based on CORPORATE GOVERNANCE REPORT 65

THE WORK OF THE BOARD OF DIRECTORS IN 2014 Finance Committee During the year, the Board held 12 meetings, including fi ve The Finance Committee has four members: Hans Biörck, Chairman, telephone meetings and one constituent Board meeting. The meet- Lars-Åke Helgesson, Hanna Lagercrantz and Stefan Fagerkull. The ings were held at the operating sites in Luleå, Kiruna, Malmberget President, CFO and company treasurer also attend the meetings. and Narvik, as well as in Stockholm. The Board decided not to take The Finance Committee’s duties include preparing and moni- a Board trip in 2014. The meetings follow a set agenda to ensure toring LKAB’s liquidity management and borrowing. In 2014 the the Board’s information needs are met. The fi rst meeting is usually Finance Committee worked with matters such as an update of an annual accounts session attended by the auditor. At this meet- LKAB’s fi nance policy, Group fi nancing that entails a new credit ing, the Board deliberates with the company’s auditor without the facility, a corporate bond programme (MTN) and a commercial presence of the President or others from executive management. papers programme. The Finance Committee also follows LKAB’s The Annual Report is discussed at the second Board meeting. The hedging activities and exposure to currency (USD), iron ore prices third to seventh meetings are devoted to matters such as operation- and electricity prices. al, strategic and personnel issues, as well as market trends. At the The Committee held fi ve meetings during the year. last Board meeting of the year, decisions are made on budgets and operational plans for the coming year. Remuneration Committee LKAB’s sustainability strategy and Code of Conduct are the bases The Remuneration Committee has four members: Sten Jakobsson, for work on sustainable development. The sustainability strategy Chairman, Lars-Åke Helgesson, Hanna Lagercrantz and Tomas and sustainability goals were established by the Board in accord- Strömberg. The Senior Vice President of Human Resources also ance with the owner’s requirements. Monitoring of sustainability attends the meetings. The Remuneration Committee’s duties objectives are reported quarterly to the Board and owner. include preparing and evaluating remuneration terms for the Pres- Board activities in 2014 were characterised by the growth phase ident, establishing salary structure policies for members of Group that LKAB fi nds itself in, with the aim of opening three new open-pit management and annually evaluating the company’s employee mines in Svappavaara and the ongoing cost-e ectiveness pro- incentive programme. In 2014, the Committee also worked with gramme. During the year the Board adopted an updated strategic LKAB’s succession planning and talent management programmes plan, a revised fi nance policy, environmental and energy policies in order to ensure that key positions within the company can be and a new health and safety policy. Other important issues on the fi lled by competent employees in the future. Board’s agenda in 2014 were urban transformation and Group fi - During the course of the year, the Remuneration Committee held nancing, entailing decisions on a corporate bond programme (MTN) four meetings. and a commercial papers programme. Deputies to employee representatives participate in Board ASSESSMENT meetings. The President is not a Board member, but participates in Board meetings. Board member attendance at 2014 Board and Assessment of the Board of Directors committee meetings is shown in the table on page 68–69. The Board’s work is assessed once a year with questions on how the Board as a whole and the Board members individually fulfi l COMMITTEES their duties. The assessment is used in the Board’s internal work. According to the state’s ownership policy, it is the Board’s respon- The Chairman is responsible for following up the results so that sibility to assess the need for establishing special committees. they can form a basis for discussions and improvements. The 2014 LKAB’s Board has established an Audit Committee, a Finance Com- assessment was done with the help of an external consulting fi rm mittee, and a Remuneration Committee. Committee work is mainly that conducted a survey and individual interviews with each mem- of a preparatory and advisory nature. However, in special cases the ber of the Board. The results and analysis of the assessment were Board may delegate decision-making powers to committees. Com- presented to the entire Board as well as to the President, as appro- mittee members and chairpersons are appointed at the constituent priate. The Chairman of the Board notifi es the owner of the results Board meeting that follows the AGM each year. of the assessment before the election of new Board members.

Audit Committee Assessment of the President The Audit Committee has four members: Lars-Åke Helgesson, The assessment of the President is a fundamental task of the Chairman, Hanna Lagercrantz, Hans Biörck and Stefan Fagerkull. Board of Directors. The Chairman prepares a summary of the The President and the CFO also attend the meetings. The Audit Board’s views that conveys strengths and weaknesses to the Board Committee’s duties include monitoring the company’s accounting, as well as the President. fi nancial reporting and risk management, along with preparing the Board’s proposed appropriation of profi ts for the fi scal year. In 2014, the Committee also worked with a variety of issues related to urban transformation in Kiruna and Malmberget, LKAB’s invest- ment programme and the company’s long-term fi nancial plan. During the course of the year, the Audit Committee held seven meetings. 66 CORPORATE GOVERNANCE REPORT

REMUNERATION POLICIES

GUIDELINES GROUP MANAGEMENT AND GROUP The 2014 AGM decided on remuneration levels for Board mem- MANAGEMENT STRUCTURE bers and auditors and guidelines for the remuneration of senior LKAB’s business is conducted to a very large extent within the executives. For the remuneration of Group management, the AGM parent company. decided that the government’s currently applicable guidelines Group management consists of the President and nine unit regarding employment terms for senior executives at state-owned managers who work within the parent company. They are the unit companies are to be applied. Total remuneration is based on fi xed managers for Mining & Logistics, Marketing, Technology & Business remuneration, benefi ts and pension. No variable remuneration is Development, Research & Development, Energy & Climate, Sustain- paid to senior executives in Group management. able Development, Finance, Human Resources and Communica- Note 6 on pages 110–112 of the Annual Report describes the tions. remuneration of senior executives. In 2014, the following changes in the chain of command were made: INCENTIVE PROGRAMME AND OBJECTIVES The Research & Development Unit was formed, moving its oper- LKAB’s incentive programme for Group employees is designed ations from the Technology & Business Development Unit. to support the Group’s strategic objectives for production vol- The Finance and Group Control Units were merged into one unit. ume, health and safety, product quality and production cost. The The Purchasing, Data & IT and Legal A airs Units were separated incentive programme is described on page 86 of the Administration from the former Finance Unit and are now included as part of a Report. sta function reporting directly to the President. LKAB appointed a Chief Risk O cer (CRO) in 2014 within the REMUNERATION TO THE BOARD OF DIRECTORS Finance Unit in order to strengthen risk management. The duties of As resolved at the AGM, the remuneration of AGM-elected Board the CRO are to work with the organisation to identify, monitor and members totalled SEK 2,050 thousand; see Note 6 on pages report the critical risks that may a ect LKAB’s ability to achieve 110–112 for the cost for the year. overall fi nancial and sustainability objectives. In 2014, the sales o ce in Singapore was closed and a new o ce in Dubai was es- tablished to be in proximity to customers in the MENA region. LKAB’S MANAGEMENT Governance of the major subsidiaries is through Group manage- ment members who chair the subsidiaries’ boards. The subsidi- PRESIDENT aries run their businesses independently in accordance with the The President’s general responsibilities are stated in the Presi- company’s mission in the Group as formulated in the Articles of dent’s instructions and the Board’s rules of procedure. These state Association. that the President’s duties include: Responsibility and authority are assigned to individual execu- • Leading, planning, developing and controlling the company's tives, rather than groups and committees. operations in accordance with the Board’s established objec- Information about the President and Group management is tives and strategies. provided on pages 70–71. • Ensuring that the company’s accounts are maintained in compliance with the law and that assets are managed in a satisfactory manner. INTERNAL CONTROL • Ensuring that other applicable statutory regulations and OVER FINANCIAL REPORTING directives are also followed, that the Board’s decisions and other applicable resolved measures are enforced, and that the The Board’s responsibility for internal governance and control is company’s operations are appropriately organised and run in regulated by the Swedish Companies Act, Annual Accounts Act and accordance with the Articles of Association. Code of Corporate Governance. The Board has overall respon- • Being responsible for presentation and other reporting to the sibility for fi nancial reporting, and its rules of procedure govern Board. the internal division of duties of the Board and Audit Committee. • Establishing instructions and function descriptions that are After preparation by the Audit Committee, quality assurance of deemed necessary, but that were not established by the Board. the company’s fi nancial reporting is handled by the Board, which • Being responsible for all the company’s regular contact with deals with signifi cant accounting issues and the fi nancial reports the media. The Chairman is responsible for media contact issued by the company. The Board also deals with issues relating regarding ownership issues and major structural issues. to internal control, compliance, material uncertainty in carrying • Being responsible for the induction programme for newly amounts, uncorrected errors, events after the end of the report- appointed Board members. ing period, changes to estimates and assessments, any identifi ed The Chairman approves the President’s duties outside the company irregularities and other circumstances that a ect the quality of the as they arise. fi nancial reports. CORPORATE GOVERNANCE REPORT 67

CONTROL ENVIRONMENT rules and guidelines in place with regard to accessibility, accuracy, LKAB’s internal control structure is based on a defi ned division confi dentiality and traceability in the resource planning system. of responsibilities between the Board, Board committees and the President. The internal control structure is also based on the com- INFORMATION AND COMMUNICATION pany’s organisation and the way business is conducted, including LKAB has information and communication channels that promote well-defi ned roles and responsibilities, delegation of powers, completeness and accuracy in fi nancial reporting. Comprehensive steering documents such as policies, and clearly defi ned planning information about current control structures is available to all em- and support processes. ployees via LKAB’s intranet. The aim is to regularly review changes The most important elements of the control environment and the reasoning behind existing controls and to improve them in concerning fi nancial reporting, including the preparation of the order to maintain e ective internal control over fi nancial reporting. consolidated accounts, are dealt with in Group-wide steering docu- In connection with the review of the control structure, responsibility ments relating to accounting, fi nancial transactions and regulation is also identifi ed for ensuring that the control structure is in place, of division of authority. The purpose of Group-wide guidelines and is known and that controls are carried out as intended. systems for reporting and consolidation of the Group accounts is LKAB’s guidelines for fi nancial reporting and the consolidated to safeguard the fi nancial reporting and ensure the accuracy of the accounts are updated regularly. Changes are communicated to consolidated accounts. relevant functions and operations via e-mail, the intranet and at meetings. RISK ASSESSMENT There is an information policy for communication with external LKAB is governed by procedures that have risk management built parties that specifi es guidelines for how information should be into every process. The Group has methods for ensuring that the presented. The purpose of the policy is to ensure that all infor- risks the company is exposed to are handled according to guide- mation obligations are met in an accurate and complete manner. lines and methods in order to both assess and mitigate these risks. External fi nancial communications are issued through Annual As part of the internal governance and control, risks related Reports, interim reports, annual accounts, press releases and via to fi nancial reporting are identifi ed. Risk analyses are conducted www.lkab.com. for the most important processes, and where risks are identifi ed, procedures are established to manage and minimise them. FOLLOW-UP A number of higher risk areas were identifi ed with regard to the Alone, or with the support of external resources, the Group-wide fi nancial reporting, such as in relation to accounting and tax issues controller function conducts audit activities relating to the business linked to urban transformation and the large number of planned processes that are deemed to have a material impact on fi nancial and ongoing capital expenditure projects. Other more general risks reporting. are loss or misappropriation of assets and other signifi cant errors A plan for internal control activities is prepared annually by the in the company’s reporting, such as accounting and measurement Group-wide controller function. In 2014 focus was on monitoring of balance sheet items, completeness of income statement items prioritised internal processes, including the e ectiveness of invest- or deviations from disclosure requirements. ment projects as well as management and valuation of fi nished product inventory. CONTROL ACTIVITIES The internal reviews in 2014 were mostly carried out in collab- Key elements of LKAB’s control structure are control of business oration with external independent auditors, where the focus was transaction approvals (authorisation instructions), division of defi ned on the basis of a risk assessment for each separate review. authority descriptions and annual accounts instructions. There The results of the completed reviews were summarised in review are also specifi cally established controls regarding the annual reports and feedback was given to the operations concerned. accounts process and the processes for interim results and the Compliance with measures specifi ed following the completion Annual Report that deal with more unique risks of errors that may of reviews is followed up regularly by the Group-wide controller occur in the fi nancial reporting. function. The Group’s legal entities that conduct business have fi nancial managers, while reporting units have controllers. They are involved INTERNAL AUDIT in the forecasting and analysis of earnings at subsidiaries and the The structure for monitoring the internal controls that currently reporting entities. These analyses cover assets, liabilities, income, exist at LKAB are considered to fulfi l the requirements of the Board, expenses and cash fl ows. There are also designated controller so no separate internal audit function has been established. The resources that monitor, analyse, make forecasts, and examine decision on internal audits is reconsidered annually by the Board. specifi c issues relating to the fi nancial information for urban transformation and strategic capital expenditure projects. LKAB Luleå, 20 March 2015 uses a Group-wide consolidation system for the preparation of its consolidated accounts, where the companies’ CFOs/controllers are The Board of Directors, through the Chairman responsible for the accuracy of the fi nancial information reported (outcome, budget and forecasts). Together with the comprehensive analysis performed at the Group level, the aim is to limit the risk of material misstatements in the fi nancial reporting. In order to maintain a high level of information security, there are    68 THE BOARD OF DIRECTORS

STEN JAKOBSSON : Director BOARD OF : MSc Engineering  : 2012, Chairman since 2014 : 1949   : Chairman of the Board of Power DIRECTORS Wind Partners AB. Board Member of Saab AB, Stena Metall AB, FLSmidth A/S and Xylem Inc. : President and CEO at ABB Sweden, Deputy CEO at Asea Brown Boveri AB Sweden, Business Area Manager for Business Area Cables, CEO at ABB Cables AB, CEO at Asea Cylinda, Production Manager at Asea Low Voltage Division, Asea central sta – Production, Asea trainee.  : SEK 465,670 1   : Attended 12 of 12 meetings     : Attended 4 of 4 meetings

1 Appointed Chairman of the Board after the 2014 AGM

HANS BIÖRCK MAIJA-LIISA FRIMAN : Advisor to Skanska AB : Director : MSc Business and Economics : MSc Chemical Engineering, Helsinki  : 2012 University of Technology : 1951  : 2008   : Chairman of the Board of : 1952 Crescit Asset Management AB. Board Member   : Chairman of the Board of Trelleborg AB, Bonnier Finans AB, Dunkerska of Ekokem Oy and Helsinki Deaconess Institute. Stiftelserna and Bure Equity AB. Deputy Chairman at Neste Oil Oyj. Board Member at : CFO at Skanska AB, CFO at Autoliv Finnair Oyj and Talvivaara Mining Company Plc. Inc., CFO at Esselte AB. : President at Aspocomp Group Oyj  : SEK 310,000 2004–2007, CEO at Vattenfall Oy 2000–2004, CEO at Gyproc Oy 1993–2000, various management   : positions at Kemira Oyj in Finland, Mexico and the Attended 11 of 12 meetings US 1978–1993.    :  : SEK 250,000 Attended 7 of 7 meetings   :    : Attended 9 of 12 meetings Attended 5 of 5 meetings

LARS-ÅKE HELGESSON HANNA LAGERCRANTZ : Director : Deputy Director, Ministry of Enterprise and : Stanford Business School (SEP), USA. Innovation MBA, School of Economics, Gothenburg. Graduate : MSc Business and Economics, Stockholm engineer. School of Economics, MPhil Economics, Cambridge  : 2000 University, UK : 1941  : 2010   : Chairman of the Board of : 1970 Translink Holding AB. Board Member of Ballingslöv   : Board Member of Svenska International AB, Axel Christiernsson International Rymdaktiebolaget and Fouriertransform AB AB and Crane Inc., Dalton, MA, USA. Background: Swedish Government O ces since : President and CEO of Stora 1992–1998, 2008, Market Analyst and Investor Relations at SEB Division Manager at Stora 1988–1992, President and 1999–2008, Corporate Finance at S.G. Warburg, UBS CEO at Haldex 1981–1988. Brunswick Warburg 1994–1998.  : SEK 330,000  : SEK 0   :   : Attended 11 of 12 meetings Attended 11 of 12 meetings    :    : Attended 7 of 7 meetings Attended 7 of 7 meetings    :    : Attended 5 of 5 meetings Attended 4 of 5 meetings R  C  : R  C  : Attended 4 of 4 meetings Attended 4 of 4 meetings MAUD OLOFSSON LARS PETTERSSON : Former Deputy Prime Minister, Minister : Director of Enterprise and leader of the Centre Party E: MSc Engineering Physics : Secondary education  : 2013  : 2012 : 954 : 1955   : Board Member of Lund-   : Board Member of Arise AB, bergföretagen AB, PMC Group AB, Indutrade AB, Diös Fastigheter AB, ÅF AB and Envac AB. Chair- Uppsala University, Husqvarna AB. Chairman of the man of the Board of Visita. Board of KP Komponent A/S. : Deputy Prime Minister 2006–2010, : President and CEO at Sandvik AB Minister for Enterprise and Energy 2006–2011, 2002-2011, CEO at Sandvik Materials Technology, Head of the Centre Party 2001–2011, Member of 2000–2002, CEO at Sandvik Tooling, 1998–2000, Parliament 2002–2011, CEO of Hushållningssäll- CEO at Sandvik Coromant 1994–1998. skapet in Västerbotten 1997–2001, EU Coordinator  : SEK 250,000 for Västerbotten County Administrative Board, Poli-   : tical Adviser to Ministry of Employment 1992–1994, Attended 11 of 12 meetings Ombudsman for Centre Party and Centre Party Youth League in Norrbotten 1974–1981.  : SEK 250,000   : Attended 8 of 12 meetings THE BOARD OF DIRECTORS 69

STEFAN FAGERKULL / FULL MEMBER : Project manager THE BOARD’S : Engineer, Mining and Civil Engineering, Bergsskolan, Filipstad  : 2011 : 1963 EMPLOYEE   : Member of Leaders Club in Kiruna : Employee at LKAB 1987–1989 and since 1995. Studies and UN service 1989–1995. REPRESENTATIVES,  : SEK 0   : Attended 12 of 12 meetings    : FULL/DEPUTIES Attended 4 of 7 meetings 1    : Attended 2 of 5 meetings 2

1, 2 Assumed directorship after the 2014 AGM

TOMAS STRÖMBERG / FULL MEMBER JAN THELIN / FULL MEMBER : Ore developer : Welder : Secondary education : Trained international welding specialist  : 2011  : 2010 : 1967 : 1955   : Deputy Chairman of the   : Chairman of the Gruv 12:an Gruv 4:an Club, IF Metall Malmfälten. Club Kiruna, IF Metall Malmfälten. Board Member Background: Employee at LKAB since 1987. at LKAB Fastigheter AB.  : SEK 0 : Employee at LKAB 1974-1977 and since 1995. Employed by various engineering fi rms   : 1977–1995. Attended 10 of 12 meetings  : SEK 0   C  : Attended 4 of 4 meetings   : Attended 7 of 12 meetings

DAN HALLBERG / DEPUTY BERTIL LARSSON / DEPUTY : Unit manager, R&D, Reduction Metallurgy : Ore harbour worker : BSc Chemical Technology, Luleå Univer- : Secondary education sity of Technology  : 2010  : 2014 : 1955 : 1965   : Chairman of the Svartösta-   : Board Member of Unionen’s den Club, IF Metall Norrbotten Club for Luleå and Malmberget, PRISMA (Centre for : Employee at LKAB 1974-1996 and Process Integration in Steelmaking) and PROMOTE since 1999. Employed by Dynalite 1996–1999. (Centre for Management of Innovation and Techno-  : SEK 0 logy in the Process Industry)   : : Employee at LKAB since 1990 Attended 11 of 12 meetings  : SEK 0   : Attended 5 of 12 meetings 1

1 Assumed directorship after the 2014 AGM.

PENTTI RAHKONEN / DEPUTY : Process operator : Secondary education  : 2010 : 1965 AUDITOR   : Chairman of the Gruv 135:an Club, IF Metall Malmfälten. Board Member of the Deloitte AB Mine Workers Industry Forum. Peter Ekberg : Employee at LKAB since 1987 Authorised Public Accountant  : SEK 0   : Attended 12 of 12 meetings SECRETARY

Malin Sundvall Legal Director, LKAB Secretary of the Board since 2008 70 GROUP MANAGEMENT

LARS-ERIC AARO : President and CEO 1 GROUP : MSc Mining Engineering, Luleå Univer- sity of Technology, 1982   : 2001 : 1956 MANAGEMENT   : Chairman of the Board at SKGS, Deputy Chairman at SweMin. Member of the Royal Swedish Academy of Engineering Sciences. Honorary Doctorate, Luleå University of Technology, 2007. : LKAB 1976, 1981–1984, Viscaria AB 1984–1987, Boliden 1987–1989, Secoroc 1989–1992, Boliden 1992–1998, ASSI Domän 1998–2001.  : See Note 6 on pages 110–112

1 Neither the CEO nor any natural person or legal entity related to him has signifi cant shareholdings or partnerships in companies with which LKAB has substantial business relationships.

KATARINA HOLMGREN ANDERS KITOK : Senior Vice President, Finance 1 : Senior Vice President, Energy & Climate : MSc Business and Economics, Luleå : MSc Mechanical Engineering, Luleå University of Technology, 1986 University of Technology, 1982   : 2010   : 1985 : 1963 : 1957 : Kårhuset i Luleå AB 1985–1986,   : Board Member at Progress- Swedish Tax Agency 1987–1997, Luleå University um AB, Vindin AB of Technology 1997–2003, LKAB 2003–2007, : Ericsson 1983–1985 Polarbröd 2007–2010.  : See Note 6 on pages 110–112  : See Note 6 on pages 110–112

1 Senior Vice President, Group Control until 1 June 2014, appointed Acting Senior Vice President, Finance 1 June 2014, appointed Senior Vice Presi- dent, Finance 15 February 2015.

ANDERS FURBECK FRANK HOJEM : Senior Vice President, Sustainability : Senior Vice President, Communication : MSc Business and Economics, School : Journalist, Poppius School of Journa- of Economics, Gothenburg, 1985 lism, Stockholm, 2003. Executive education, IFL   : 1985 Stockholm School of Economics, 2013. : 1957   : 2012  : See Note 6 on pages 110–112 : 1984   : Board Member at Teknikens Hus : Stiftelsen Sverige i Europa 2003, Sweden’s Parliament 2005–2006, Swedish Govern- ment O ces 2006–2011.  : See Note 6 on pages 110–112

MARKUS PETÄJÄNIEMI GRETE SOLVANG STOLTZ : Senior Vice President, Production & : Senior Vice President, Human Resources Logistics : MSc Economics, Luleå University of : MSc Urban Planning and Environmental Technology, 1993 Engineering, Luleå University of Technology, 1985   : 2009   : 2005 : 1970 : 1959   : Chairman of the Board at : NAB 1985–1988, Kiruna Värmeverk Career Center, Luleå University of Technology. 1988–1995, De-Icing Systems 1995–1996, Sema/ Board Member at SweMin. Schlumberger/Atos Origin/WMData 1996–2005. : LKAB 1993–1995, SCA 1995–2008,  : See Note 6 on pages 110–112 Northland Resources 2008–2009.  : See Note 6 on ppages 110–112 GROUP MANAGEMENT 71

PER-ERIK LINDVALL MONICA BELLGRAN : Senior Vice President, Technology & : Senior Vice President, Research & Business Development Development : MSc Mining Engineering, Luleå Univer- : MSc Engineering, Luleå University of sity of Technology, 1980 Technology, 1990, Lic Tech 1994, PhD Tech 1998,   : 2001 Linköping University Institute of Technology : 1956   : 2014   : Chairman of the Board at : 1966 Norrskenet AB and the Bergforsk Foundation.   : Professor of Production Deputy Chairman at Luleå University of Technology. Development, Mälardalen University. Member of the Board Member at Botnia Exploration AB. Honorary Royal Swedish Academy of Engineering Sciences. Doctorate, Luleå University of Technology, 2014. Board Member at Mefor, Bergforsk, SSF (Swedish : LKAB 1980–1989, Bergbygg AB Foundation for Strategic Research). Chairman of 1989–1991, Boliden 1991–2000. the Board at SIP STRIM/VINNOVA.  : See Note 6 on pages 110–112 : Plannja 1987–1988, Linköping Institute of Technology 1990–1998, Mid Sweden University 1996–2005, Volvo CE 2005-2007, Haldex AB 2007–2011.  : See Note 6 on pages 110–112

PETER SCHMID : Senior Vice President, Marketing & Sales : MSc Industrial Economics, Linköping University Institute of Technology, 1988   : 2011 : 1958 : Grindex AB 1988-1991, Dust Control AB 1991–1992, Ecco Finishing AB 1992–1995, Swelab Instrument AB 1995–1999, ITT Flygt 1999–2011.  : See Note 6 on pages 110–112

CHANGES TO GROUP MANAGEMENT

Leif Boström Senior Vice President, Finance until 1 June 2014 72 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 2014 Corporate Gover- nance 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 su cient grounds for our opinion. Our statutory review of the Corporate Governance Report has a di erent focus and is sub- stantially smaller in scope than an audit conducted in accordance with the International Standards on Auditing and generally accepted auditing practices in Sweden. It is our opinion that a Corporate Governance Report has been pre- pared and that its statutory information is consistent with the Annual Report and consolidated accounts.

Stockholm, 20 March 2015

Deloitte AB

Peter Ekberg Authorised Public Accountant AUDITORS’ ASSURANCE REPORT 73

AUDITOR’S LIMITED ASSURANCE REPORT ON THE SUSTAINABILITY REPORT

To Luossavaara-Kiirunavaara AB (publ)

INTRODUCTION generally accepted auditing standards in Sweden. The procedures We have been engaged by the Board of Directors of Luossavaa- performed consequently do not enable us to obtain assurance that ra-Kiirunavaara AB (”LKAB”) to undertake a limited assurance we would become aware of all signifi cant matters that might be engagement of the LKAB Sustainability Report for the year 2014. identifi ed in a reasonable assurance engagement. Accordingly, we The company has defi ned the scope of the Sustainability Report on do not express a reasonable assurance conclusion. the page of table of contents. Our procedures are based on the criteria defi ned by the Board of Directors and the Executive Management as described above. We RESPONSIBILITIES OF THE BOARD OF DIRECTORS AND THE consider these criteria suitable for the preparation of the Sustaina- EXECUTIVE MANAGEMENT FOR THE SUSTAINABILITY REPORT bility Report. The Board of Directors and the Executive Management are respon- We believe that the evidence we have obtained is su cient and sible for the preparation of the Sustainability Report in accordance appropriate to provide a basis for our conclusion below. with the applicable criteria, as explained on page 74-75 in the Annual and Sustainability Report, and are the parts of the Sustai- nability Reporting Guidelines (published by The Global Reporting CONCLUSION Initiative (GRI)) which are applicable to the Sustainability Report, as Based on the limited assurance procedures we have performed, well as the accounting and calculation principles that the Company nothing has come to our attention that causes us to believe that the has developed. This responsibility also includes the internal control Sustainability Report, is not prepared, in all material respects, in relevant to the preparation of a Sustainability Report that is free accordance with the criteria defi ned by the Board of Directors and from material misstatements, whether due to fraud or error. Executive Management.

RESPONSIBILITIES OF THE AUDITOR Our responsibility is to express a conclusion on the Sustainabi- Stockholm 20 March 2015 lity Report based on the limited assurance procedures we have performed. Deloitte AB We conducted our limited assurance engagement in accordance with RevR 6 Assurance of Sustainability Reports issued by FAR. A limited assurance engagement consists of making inquiries, primarily of persons responsible for the preparation of the Sustai- nability Report, and applying analytical and other limited assurance procedures. The procedures performed in a limited assurance Peter Ekberg Andreas Drugge engagement vary in nature from, and are less in extent than for, Authorized Public Accountant Expert Member of FAR a reasonable assurance engagement conducted in accordance with IAASB’s Standards on Auditing and Quality Control and other 74 GRI INDEX

FINANCIAL REPORTING PRINCIPLES sustainability report has been reviewed by external auditors. Since AND GRI INDEX the report has been reviewed in its entirety, external review has not been reported per disclosure item in the GRI index below. The Since 2008, LKAB has prepared an annual sustainability report in auditor’s report can be found on page 73. accordance with the GRI (Global Reporting Initiative) guidelines. As of the fi nancial year 2014, LKAB applies version G4, in accordance Scope, limitations and appendix with the Core reporting option. Since 2012, the sustainability report As in the preceding fi ve years, the report largely concentrates on has been integrated with the annual fi nancial report, which refl ects the Nordic activities, with the iron ore operations in Sweden and the integration of sustainability issues in ongoing activities. The Norway in focus (Mining Division). This represents about 90 percent report has also taken the Mining and Metals Sector Supplement of the Group’s total sales. The report continuously indicates in as a guideline. In accordance with the owner’s guidelines, the connection with the reporting of data which units are involved.

INDEX DESCRIPTION PAGE OMISSIONS INDEX DESCRIPTION PAGE OMISSIONS

GENERAL STANDARD DISCLOSURES G4-29 Most recent report Appendix

Strategy and analysis G4-30 Reporting cycle 74, appendix

G4-1 Comments from the CEO 6–8 G4-31 Contact person for the report 75

Organisational profi le G4-32 GRI content index 74–75

G4-3 Name of organisation 80 G4-33 Policy and practice with regard to 74, appendix external assurance G4-4 Main brands, products and services 14 Governance G4-5 Location of head o ce 139 G4-34 Governance structure 62, 63, 65 G4-6 Countries in which the organisation is present 10, 132, 139 Ethics and integrity G4-7 Ownership structure and corporate form 80 G4-56 Code of conduct 56, 63 G4-8 Markets 18, 20 SPECIFIC STANDARD DISCLOSURES, MATERIAL ASPECTS G4-9 Size of company 2–3, 10 Economic 58–59, G4-10 Description of total workforce appendix Economic performance, DMA Appendix

Percentage of total workforce covered by Direct economic value generated G4-11 collective bargaining agreements 58, appendix G4-EC1 and distributed 11

G4-12 Supply chain 33 The organisation’s defi ned benefi t G4-EC3 plan obligations 106, 121–122 Signifi cant changes during the G4-13 reporting period 6–8 Indirect economic impacts, DMA Appendix

G4-14 Application of the precautionary principle Appendix Description of signifi cant indirect G4-EC8 economic impacts 8, 49–50 G4-15 External charters, principles and initiatives Appendix Environment G4-16 Memberships in organisations Appendix Materials, DMA Appendix Identifi ed material aspects and boundaries G4-EN1 Materials used by weight or volume 43 G4-17 Entities included in the report 74, 132 Energy, DMA Appendix 76–77, G4-18 Process for defi ning report content appendix G4-EN3 Energy consumption within the organisation 42–43

G4-19 Material aspects 76–77, G4-EN5 Energy intensity 43 appendix G4-EN6 Reduction of energy consumption 41 G4-20 Material impact within the organisation Appendix Biodiversity, DMA Appendix G4-21 Material impact outside the organisation Appendix Land use in or adjacent to protected areas G4-22 Corrections from previous reports Appendix G4-EN11 and areas of high biodiversity value 47 Appendix

Signifi cant changes compared with Signifi cant impacts of activities, products G4-23 previous reports Appendix G4-EN12 and services on biodiversity 46, 47, 77

Stakeholder engagement G4-EN13 Habitats protected or restored 42, 47, 86

G4-24 Stakeholder groups 13, appendix Emission, DMA Appendix

G4-25 Identifi cation and selection of stakeholders 13, appendix G4-EN15 Direct greenhouse gas emissions 43

G4-26 Methods for working with stakeholders 13, appendix G4-EN16 Indirect greenhouse gas emissions 43

Key issues raised through G4-EN21 NOx, SOx and other signifi cant air emissions 43 G4-27 stakeholder dialogue Appendix

Report profi le

G4-28 Reporting period Appendix GRI INDEX 75

Changes in limitations, scope or measurement methods compared the reporting, in accordance with G4 requirements. The GRI index with the previous year are explained in the report together with the below states whether the information has been included in the data. annual and sustainability report and/or in the appendix. In addition, for the year 2014 there is a separate GRI appendix available at LKAB’s website in connection to the annual and sus- Contact tainability report, which includes overall explanations of changes The contact person for LKAB’s sustainability reporting is Senior and also presents the entire transition process to G4. The appen- Vice President, Sustainable Development Anders Furbeck, anders. dix contains a detailed description of the process for developing [email protected]. the materiality analysis, which is presented on pages 76-77, and the more detailed descriptions of sustainability management for material aspects. The appendix also describes omissions made in

INDEX DESCRIPTION PAGE OMISSIONS INDEX DESCRIPTION PAGE OMISSIONS

E uents and waste, DMA Appendix Supplier human rights assessment, DMA Appendix

G4-EN24 Total number and volume of signifi cant spills 43 Percentage of new suppliers screened G4-HR10 using human rights criteria Appendix Products and services, DMA Appendix Human rights grievance mechanisms, DMA Appendix Mitigated environmental impact from G4-EN27 products and services 39, 40 Grievances about human rights fi led G4-HR12 and addressed Appendix Compliance, DMA Appendix Society Signifi cant fi nes and other sanctions for non-compliance with environmental laws and Local communities, DMA Appendix G4-EN29 regulations Appendix Signifi cant actual or potential negative Overall, DMA Appendix G4-SO2 impacts on local communities 49–52

G4-EN31 Total environmental protection expenditures 41, 84 Appendix Anti-corruption, DMA Appendix

Klagomålsmekanism för miljöärenden, DMA Appendix Employees that have received training on G4-SO4 anti-corruption 59 Appendix G4-EN34 Environmental grievance mechanisms, DMA 42, appendix G4-SO5 Incidents of corruption 59 SOCIAL Grievance mechanisms for impacts on Employment society, DMA Appendix

Employment, DMA Appendix Grievances about impacts on society fi led and Total number of new hires and G4-SO11 addressed 42, appendix G4-LA1 employee turnover 58, Appendix MINING AND METALS SECTOR SUPPLEMENT

G4-LA2 Benefi ts provided to employees Appendix Biodiversity, sector specifi c DMA Appendix

Occupational health and safety, DMA Appendix Sites requiring biodiversity Injuries, occupational diseases, lost days, MM2 management plans 42, 47 G4-LA6 absenteeism and work-related fatalities 59, appendix E uents and waste, sector specifi c DMA Appendix

Diversity and equal opportunity, DMA Appendix Volume of overburden, rock, tailings and Diversity within board of directors, MM3 sludges, and risks 42, 43 G4-LA12 management and workforce 59, 110 Appendix Indigenous rights, sector specifi c DMA Appendix

Supplier assessment for labour practices, Operations adjacent to indigenous peoples’ DMA Appendix territories, and agreements with indigenous Percentage of new suppliers screened using MM5 peoples 48, appendix G4-LA14 labour practices criteria 32, 34 Appendix Local communities, sector specifi c DMA Appendix Labour practices grievance mechanism, Land use disputes with local communities DMA Appendix MM6 and indigenous peoples 48 Grievances about labour practices fi led and Resettlement, sector specifi c DMA Appendix G4-LA16 addressed Appendix Households resettled, and e ect on their Human rights MM9 livelihoods 49, 51 Non-discrimination, DMA Appendix Closure planning, DMA Appendix G4-HR3 Incidents of discrimination 59 42, appendix Indigenous rights, DMA Appendix MM10 Operations with closure plans in place (DMA)

G4-HR8 Violations of rights of indigenous peoples 48, appendix 76 MATERIAL ANALYSIS

MATERIALITY ANALYSIS SUSTAINABLE DEVELOPMENT

An open stakeholder dialogue and broad business intelligence is the basis for the assessment of material issues that infl uence our business operations and sustainable development. Material issues are in focus in our sustainability work and the assessment includes the LKAB Group’s impact on sustainable development.

Assessment of material issues is also the basis of the content of the Sustainability Report. In the materiality analysis, LKAB and the Group’s stakeholders have identifi ed a number of signifi cant issues which are assessed on the basis of their impact on LKAB as a sustai- nable business operation. The issues which are most relevant for both LKAB and the Group’s stakeholders, and which control our sustai- nability work, are in the upper right corner of the matrix. There are many other issues of relevance for sustainability, but those listed here, but an inventory and prioritization have given this result. LKAB’s ambition is to report on all issues in addition to those given in the lower left corner of the matrix, although they may not be currently considered critical for sustainable development. The stakeholders also deem issues concerning suppliers’ work environment issues, emergency preparedness and plans for closure very signifi cant. LKAB intends to develop reporting on suppliers’ work environment issues more extensively during 2015.

Review of the analysis Business intelligence, stakeholders’ expectations and possible changes in the nature of our business operations infl uence assessment of signifi cant sustainability issues. Therefore, we review the materiality analysis as the need arises. The material issues are described and categorized under LKAB’s focus areas for sustainability on the following page. Read more about the process for materiality analysis and control of material issues in the Annual and Sustainability Report and/or in the appendix.

GOVERNANCE AND COMMUNICATION

Our material issues are divided into four COMMUNICATE & MONITOR COMMUNICATE & MANAGE categories, depending on business strategy:

COMMUNICATE & MANAGE Closure plan Emergency Responsible purchasing Work environment, Issues that LKAB, as well as stakeholders, preparedness health and safety

consider important for the Group’s impact MORE SIGNIFICANT Suppliers’ work The product’s environ- environment issues mental benefi ts Impact/cooperation on sustainable development. In cooperation with local communities with stakeholders, LKAB works actively Reindeer herding Urban transformation with improvements and development, and Management of communicates how the company is gover- viewpoints on Biodiversity environment and ned, managed and follows up issues. society Environmental emissions MANAGE & INFORM Diversity and non- discrimination Resource-e cient Issues that LKAB consider as important use of raw materials for sustainable development, with ongoing work in progress and where results are regularly communicated to stakeholders.

COMMUNICATE & MONITOR WATCH & CONSIDER MANAGE & INFORM Issues that stakeholders regard as impor- Importance to stakeholders tant and where LKAB needs to monitor pro- gress with regard to deviations or negative Transports Union relations Anticorruption Compliance with the terms of environ- impact. Issues that shall be communicated Management of views Upcoming Environmental mental permits and actively and on a regular basis. on environment and legislation investments legislation society Impact employment Economic/fi nancial WATCH & CONSIDER and infrastructure performance

Stakeholders and LKAB regard these issues Energy use as important, though not critical at present, Employees and for sustainable development. They may be employment types emerging issues and need further observa- tion or internal monitoring. SIGNIFICANT SIGNIFICANT

SIGNIFICANT Importance for LKAB MORE SIGNIFICANT MATERIAL ANALYSIS 77

LKAB’S FOCUS AREAS FOR SUSTAINABILITY

Responsible operations

Closure plan Reindeer herding Analysis of human rights impacts When a new mine is planned, a plan for Respect for other industries and ample scope Identifi cation, handling and follow-up of remediation of the land must be established. for dialogue forms the basis of LKAB’s princip- the operation’s direct and indirect impact The closure plan also includes plans for les for collaboration and understanding. The on human rights. managing the consequences of closure for principles include mutual respect and willing- the community. ness to negotiate, open dialogue and access to Upcoming legislation information at an early stage., Mining operations are regulated by law. Emergency preparedness Changes in legislation must be monitored Preparation and exercises for major accidents. Handling of comments in order to be prepared to adapt to new Emergency preparedness is a matter of prepa- – environment and society requirements e.g., concerning environ- ring for and managing the unexpected. Open, systematic and active handling of mental issues. received comments and viewpoints as to the Responsible purchasing operation’s impact on environment and the Anti-corruption Requirements and follow-up of sustainability community. Work to prevent corruption in business, issues for suppliers. By ensuring responsible via preventive measures, transparent purchasing, human and labour rights are Emissions to the environment systems and follow-up. respected and negative impact on the environ- Minimization of negative impact on our en- ment and society is reduced. vironment and surroundings due to emissions Compliance with the terms of to air and discharges to water. environmental permits and legislation Work environment, health and safety Mining operations are regulated and per- Ongoing and preventive work to ensure a safe Biodiversity mits are required. Impact on communities work environment and health co-workers. Minimization of negative impact on ecosys- and the environment must be kept within tems and safeguarding of biodiversity. the limits stipulated in the permits.

Resource-e cient production Attractive communities Attractive LKAB

Resource-e cient use of raw materials Impact/cooperation with Suppliers’ work environment issues Mining of the natural resources of iron ore local communities Risk assessment and preventive measures, and minerals. Additives are used in production Collaboration on mutual interests, such as in- so that suppliers assume responsibility for processes and in rock reinforcement. frastructure, to create attractive communities. a good, safe work environment for their Consultation concerning parts of the operation employees. Environmental benefi ts of products that impact the local community. and services Labour relations Due to low carbon dioxide emissions, the Urban transformation Active and constructive dialogues with products bring environmental benefi ts when Gradual and responsible relocation of commu- labour union representatives to ensure used in customers’ processes and are a there- nities in order to ensure conditions for continu- co-determination and that co-workers’ fore a climate-smart choice. Through energy ed mining and create attractive communities. interests are taken into consideration. e ciency in manufacturing processes, these Includes collaboration with municipalities, advantages are strengthened. public administrations, the business communi- Diversity and nondiscrimination ty and local residents. Promotion of diversity and equality of Transports opportunity, and zero tolerance of discrimi- Transports give rise to impact on the environ- Impact on employment and infrastructure nation on the basis of gender, age, religion, ment and surroundings, such as emissions, Jobs are created by the company’s operations, sexual orientation or for other reasons. dust and noise. as well as directly and indirectly via suppliers. Other economic benefi t accrues to the local Employees and forms of employment Economic/fi nancial performance community and other businesses. Assuming responsibility as an employer for Secure the short and long-term profi tability of working conditions that ensure good, safe the business, so as to be able to pay salaries employment. and suppliers, issue dividends, pay taxes and make investments.

Energy use E cient use of energy in production and other operations.

Environmental investments Investment in emissions-treatment facilities and research to reduce environmental impact. 78 OUR FINANCIAL ACCOUNTS

CONTENTS

ADMINISTRATION REPORT 80 NOTES 101 Note 1 Signifi cant accounting principles 101 FINANCIAL STATEMENTS – GROUP 92 Note 2 Distribution of revenues 108 Consolidated income statement 92 Note 3 Segment reporting 108 Consolidated statement of comprehensive income 92 Note 4 Other operating income 110 Consolidated statement of fi nancial position 93 Note 5 Other operating expenses 110 Consolidated pledged assets and contingent Liabilities 94 Note 6 Employees, employee benefi t expenses and remuneration of senior executives 110 Consolidated statement of changes in equity 94 Note 7 Auditors’ fees and reimbursements 112 Consolidated statement of cash fl ows 95 Note 8 Operating expenses by type 112 Note 9 Net fi nancial items 113 FINANCIAL STATEMENTS - PARENT COMPANY 96 Note 10 Appropriations 113 Income statement 96 Note 11 Taxes 114 Comprehensive income 96 Note 12 Earnings per share 116 Balance sheet 97 Note 13 Intangible assets 116 Pledged assets and contingent liabilities 98 Note 14 Property, plant and equipment 117 Statement of changes in equity 99 Note 15 Holdings in joint operations 119 Statement of cash fl ow 100 Note 16 Receivables from group companies 119 Note 17 Financial investments 119 Note 18 Other non-current securities holdings 119 Note 19 Non-current receivables and other receivables 119 Note 20 Inventories 120 Note 21 Accounts receivable 120 Note 22 Prepaid expenses and accrued income 120 Note 23 Equity 120 Note 24 Interest-bearing liabilities 121 Note 25 Liabilities to credit institutions 121 Note 26 Pensions 121 Note 27 Provisions 123 Note 28 Urban transformation 125 Note 29 Accrued expenses and deferred income 125 Note 30 Valuation of fi nancial assets and liabilities at fair value and categorization 126 Note 31 Financial risks and risk management 128 Note 32 Investment commitments 130 Note 33 Pledged assets and contingent liabilities 131 Note 34 Related parties 131 Note 35 Group companies 131 Note 36 Untaxed reserves 133 Note 37 Statement of cash fl ows 133 OUR FINANCIAL ACCOUNTS 5 80 ADMINISTRATION REPORT

ANNUAL REPORT 2014

ADMINISTRATION REPORT 2014 OPERATIONS AND GROUP STRUCTURE The Board of Directors and the President of Luossavaara- LKAB is wholly owned by the Swedish state and is domiciled in Kiirunavaara AB (publ), hereinafter LKAB, corporate identifi cation Luleå, Sweden. The company was founded in 1890. number 556001-5835, hereby submit their annual report and The LKAB Group consists of three operating segments: the consolidated fi nancial statements for the 2014 fi nancial year. Mining Division, the Minerals Division and the Special Businesses Division.

LKAB GROUP

LKAB PARENT COMPANY

MINING DIVISION MINERALS DIVISION SPECIAL BUSINESSES DIVISION

MARKET & SALES PRODUCTION & LOGISTICS MINERALS SPECIAL BUSINESSES

Subsidiaries Subsidiaries Parent Company Subsidiaries LKAB S.A. /Brussels LKAB Norge AS LKAB Minerals AB LKAB Wassara AB LKAB SCHWEDENERZ GmbH /Essen LKAB Malmtrafi k AB LKAB Fastigheter AB LKAB Malmtrafi kk AS LKAB Berg & Betong Group - LKAB Berg & Betong AB Subsidiaries - LKAB Mekaniska AB LKAB Minerals Ltd. - LKAB Kimit AB - LKAB Minerals Richmond Ltd. (75%) Other companies LKAB Minerals Oy - LKAB Nät AB LKAB Minerals, Inc. - LKAB Försäkring AB - LKAB Trading (Shanghai) Co. Ltd. REPORTABLE OPERATING SEGMENTS LKAB Minerals GmbH LKAB Minerals B.V. OPERATIONAL AND LEGAL ENTITIES LKAB Minerals Asia Pacifi c Ltd. LKAB Minerals (Tianjin) Minerals Co. Ltd. Likya Minerals (50%)

Mining Division in 2017, when the Kiruna mine will be fully commissioned. Until The Mining Division’s core business is mining, processing, deliv- then, mining will continue in parallel on both old and new main ering and selling high-quality iron ore products, principally for levels. ironmaking and steelmaking. Iron ore pellets are the Division’s On the Malmbanan and Ofotenbanen railways, iron ore products main product, accounting for 83 percent (83) of the total sales are transported with LKAB’s own locomotives and cars to the ports volume, while fi nes products accounted for 17 percent (17) in of Luleå and Narvik for loading and further transport by ship to 2014. The products are sold to major national and international customers around the world. An evaluation was begun in 2014 of customers. LKAB’s market position as a leading global supplier the increased axle load of the ore cars, which increases the annual of climate-smart iron ore pellets has remained unchanged for the transport capacity on the Malmbanan line by 4 Mt. Construction of a year, which is a long-term sustainability target. new ore quay and shiploader in Narvik also began during the year. The Mining Division also includes the logistics unit, with respon- These investments will increase loading capacity in Narvik from sibility for transporting iron ore products to the shipping ports, and just over 20 Mt per year to nearly 30 Mt of products per year from the marketing unit, with responsibility for sales and marketing. 2016. Iron ore is mined in the two underground mines in Kiruna and Malmberget, and in the Gruvberget open-pit mine in Svappavaara. Minerals Division The dressed iron ore is upgraded above ground in four concentra- The Minerals Division operates in the industrial minerals mar- tion plants and six pelletizing plants. Current production capacity is ket through the LKAB Minerals subsidiary group. The Division’s about 28 Mt processed iron ore products per year. companies support the core business by developing other business New main levels in both the Kiruna and Malmberget underground opportunities for LKAB’s iron ore outside the steel industry and mines are gradually being commissioned. Full capacity is expected by recovering, processing and marketing industrial minerals on a ADMINISTRATION REPORT 81

global market. Sales to the industrial minerals market, with several MARKET DEVELOPMENT world-leading companies in the customer base, increase LKAB’s income, margins and risk diversifi cation. The product portfolio is The steel and iron ore market broad, but with a focus on application and product development of a few strategically important minerals such as magnetite, mica and The steel market huntite. Global crude steel production increased by 1.1 percent in 2014 to Today, LKAB Minerals holds a leading position in a number of 1,637 Mt and capacity utilisation in steelworks1 reached to 76.7 di erent product applications and develops innovative minerals percent during the year. Global consumption of steel goods is solutions in partnership with customers, focusing on functionality estimated to have increased by 1.0 percent in 2014. and usability in customer processes. Through continuous pro- Demand for fi nished steel goods in China decreased slightly in duction streamlining and increased focus on the most profi table 2014, largely due to a slowdown in the property development sec- product lines, both income and margins have been increased. The tor. This development is part of the Chinese government’s attempt sale of iron ore, mainly magnetite, to the industrial minerals market to make its economy more consumer-driven. Meanwhile, exports of is an integral part of LKAB’s growth and fl exibility strategy and a steel goods from China hit a new record in 2014. Demand for steel key element in LKAB Minerals’ planned growth. in Europe and the US grew in 2014, with several positive signals from LKAB’s customers.

Special Businesses Division  World Steel Association The Special Businesses Division is organised in a number of subsid-  Department of Industry iaries whose main task is to act as subcontractors and support the CHINA Crude steel production1 rose by 0.9 percent in 2014 as compared year-on- Mining Division and Minerals Division. The companies have their or- year. There were several negative signals from China during the second half igin in the core business needs of mission-critical and strategically of the year, mainly the decline in housing markets and weaker industrial production than expected. This trend has also been seen in Chinese steel important, often highly specialised, products and services. Several consumption, which decreased during the year by 3.4 percent. Oversupply, of the companies also o er services and LKAB’s proprietary core weaker steel consumption and higher steel prices in export markets led to a signifi cant increase in China's exports of steel products during the year. technology on the open market. Examples are drilling equipment, EUROPE Crude steel production1 in the EU283 increased by 1.8 percent in 2014. explosives, concrete, tunnelling, rock reinforcement and iron ore Demand for steel was stable during the year, while economic growth in crushing. Europe was weak. Due to the weak economic recovery in the Eurozone, the European Central Bank announced a stimulus package in the form of quan- titative easing starting in March 2015. The geopolitical unrest in Ukraine and The following activities are conducted within the division: sanctions against Russia had a negative impact on growth in the Eurozone, primarily through reduced exports. • LKAB Wassara develops and manufactures water-powered pre- THE MIDDLE Production of crude steel1 in MENA increased during the year by 6.7 percent cision drilling systems for mining, construction and exploration EAST AND as compared year-on-year. Demand for DR pellets remained strong in the drilling along with dam construction and geothermal energy. NORTH region, driven by major construction and infrastructure projects. The region’s AFRICA rapid growth is threatened by continued low oil prices, which led the World Customers are located throughout the world. Bank to issue recommendations for several countries in the region to review (MENA) • LKAB Berg & Betong does unique rockwork contracting in rock their public spending and investments. reinforcement and drifting and is responsible for production in USA Crude steel production in the US1 increased by 0.9 percent in 2014. The US market accounted for the most positive signals during the year. The LKAB’s open-pit mines. US Federal Reserve completed its quantitative easing and announced rate • LKAB Mekaniska develops and manufactures everything from increases as a result of positive economic developments. The domestic steel market remains strong, as demonstrated by stable steel prices. In large custom steel structures to small precision-worked the second half of the year, the US imposed higher tari s on imported steel products in an e ort to protect domestic steel production. Negative machine components along with providing assembly work and developments in oil prices in the fourth quarter increased the uncertainty complete maintenance solutions. Customers are primarily in surrounding several shale gas projects, which US steel producers with exposure to the oil industry are already feeling. the mining and construction industries. 1World Steel Association • LKAB Kimit supplies the Mining Division with expertise in 2China Iron and Steel Association, CISA explosives handling, and develops, manufactures and stocks 3The European Union’s 28 Member States explosives and related systems and equipment for LKAB’s mining operations. The company is also responsible for external The iron ore market purchasing of explosives and selling a certain amount of its The expansion of production capacity has gone according to plan products and services externally. for the major iron ore producers, while demand growth in China • LKAB Fastigheter owns and manages residential and commer- has not been as high as expected. The consequence was an over- cial buildings in the orefi elds communities and Luleå. The com- supply of iron ore fi nes in the fi rst half of the year. The supply of pany also has an important role to fi ll in helping to construct iron ore in 2014 grew by about 130 Mt as compared year-on-year. replacement housing as the urban transformation process The oversupply is expected to continue until around 2018, when the progresses. market should be more in balance. • LKAB Försäkring is the Group’s internal insurance company. Market trends were also a ected by economic developments in The company works globally with managing the Group’s risks China, mainly the credit crunch experienced by steel companies. as well as property and business interruption insurance. This had a negative e ect on their ability to fi nance purchases • LKAB Nät is a local power distribution company with a con- of iron ore on the spot market so steel companies in China were cession to distribute electricity within a limited area in central forced to rely more on purchases of smaller quantities of iron ore Kiruna and Malmberget. directly from stocks. 82 ADMINISTRATION REPORT

Oversupply and reduced demand put considerable pressure on GROUP iron ore prices, which fell by about 47 percent in 2014 (Platts IODEX 62% Fe CFR North China). This negative trend has led several small Net sales and earnings mining companies with high production costs to partially or com- NET SALES AND OPERATING PROFIT pletely halt production. In the second half of the year, previously SEK million announced expansion projects were reduced or put on hold due to 35,000 current market conditions. 30,000 Iron ore prices 25,000 The price of iron ore pellets is based on the spot price for iron 20,000 ore fi nes plus a pellet premium. The pellet premium is negotiated 15,000 annually, and since the spot price for iron ore fi nes fell during the 10,000

year, the fi xed pellet premium represented a bu er for LKAB’s 5,000 prices. 0 2009 2010 2011 2012 2013 2014 IRON ORE PRICE PERFORMANCE Net sales Net sales 2014 Operating profi t January 2009 – 4 February 2015 Source: PLATTS IODEX 62% Fe CFR North China GROUP SUMMARY (SEK MILLION) 2014 2013

Net sales 20,615 23,873 USD/tonne 250 Operating profi t before urban transformation costs 4,002 8,259

Urban transformation costs -3,432 -620 200 Operating profi t 570 7,639

150 Profi t from fi nancial items 24 129

Profi t before tax 594 7,768 100 Profi t for the year 347 6,032

50 Operating cash fl ow 2,072 2,434 Investments in property, plant and equipment 5,491 6,141 0 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2015 NET SALES BY DIVISION (SEK MILLION) 2014 2013

Mining Division 19,013 22,240 Market outlook for 2015 Minerals Division 1,870 1,661 Demand for steel is expected to grow globally by about three Special Businesses Division 1,732 1,942 percent in 2015. The outlook for LKAB’s export markets shows clear signs of continued strong demand for steel. A strong demand Group eliminations -2,000 -1,970 for steel in the regions that use a lot of pellets indicates a contin- Group 20,615 23,873

ued need for high-quality pellets. The oversupply of iron ore fi nes OPERATING PROFIT BY DIVISION (SEK MILLION) 2014 2013 is expected to continue in the coming year, despite the growth in Mining Division 223 6,951 steel demand. In view of the oversupply, the spot price is expected Minerals Division 212 63 to remain around its current level. Developments in China’s steel consumption will be a key factor in the market, especially for spot Special Businesses Division 153 277 price trends. Group eliminations -18 348 Group 570 7,639 The industrial minerals market Developments in the global market for industrial minerals were Operating profi t before urban transformation costs decreased by mixed in 2014. Europe remained cautious while Asia and North 52 percent to SEK 4,002 million (8,259), equivalent to an operating America showed a higher potential for growth. margin of 19 percent (35). LKAB Minerals’ overall sales and profi tability increased during Net sales decreased by 14 percent, with lower iron ore prices hav- the year. The positive result was primarily driven by magnetite ing a negative e ect of 19 percent, while volume/product sales, with increased deliveries of aggregates to o shore struc- mix and currency had a positive e ect of four and one percent, tures. Growth in the building and construction market showed little respectively. change, although signifi cant inroads were made, for example, in Obligations for urban transformation at year-end amounted to SEK the Chinese market. The sales trend for water purifi cation minerals 11,683 million. During the year, costs for urban transformation provi- was positive in both Europe and the US, with increased interest in sions totalled SEK 3,432 million, of which Kiruna stood for SEK 1,200 deliveries in coming years. million and Malmberget for SEK 2,232 million. Earnings from fi nancial items were lower compared year-on-year, mainly due to lower income from investments and losses on holdings of Northland Resources. All holdings in Northland Resources have been fully written o . A weaker Swedish krona has, however, led to an exchange gain for the year. ADMINISTRATION REPORT 83

Liquidity and fi nancial position LKAB’s fi nancial targets LKAB needs to be fi nancially strong to meet future commitments. OPERATING CASH FLOW 2009–2014 The capital structure target is a net debt/equity ratio of 0–20% SEK million (interest-bearing net indebtedness/equity). 9,000 The Group’s profi tability target is a return on equity of 8,000 7,000 12 percent. 6,000 5,000 RETURN ON EQUITY 2009–2014 4,000 Return on equity Required return on equity 3,000 2,000 % 1,000 40 0 -1,000 30 2009 2010 2011 2012 2013 2014 20 Operating cash fl ow for 2014 was SEK 2,072 million (2,434). The SEK 362 million decrease is explained as follows: 10

0 2009 2010 2011 2012 2013 2014 OPERATING CASH FLOW (SEK MILLION) 2014 2013 CHANGE

Cash fl ow from operating activities 5,911 9,423 -3,512 LKAB’S FINANCIAL TARGETS 2014 2013 TARGETS Change in working capital 1,624 -866 2,490 Capital structure Capital expenditures (net) -5,463 -6,123 660 Net debt/equity ratio, % 0.0 -17.61 0–20 2,072 2,434 -362 Profi tability

Return on equity, % 0.9 14.7 12.0 Cash fl ow from operating activities was lower than last year, mainly Reduced production costs SEK/tonne, due to lower iron ore prices. Disbursements for urban transforma- 20% until 2015, base year 2012, % 0.6 3.7 -7.02 tion were also SEK 1,059 million higher than the same period last 1Calculation method changed compared to 2013. year, which resulted in lower cash fl ow from operating activities.  Cost target for 2012–2015 represents one target per year at 7 percent. Lower iron ore prices also resulted in less capital being tied up in accounts receivable. This, together with lower investment disburse- The planned production increase in the open-pit mines in the Svap- ments, o set the decline in cash fl ow. pavaara Field was postponed due to delays in environmental per- mits, which means that the full e ect of LKAB’s growth programme

FINANCIAL POSITION 2014 2013 has shifted. Hence, the cost target cannot be achieved.

Financial investments (SSAB shares), SEK million 563 609 Investments Liquidity (cash and cash equivalents and investments in securi- ties), SEK million 16,863 15,497 Investments for the year totalled SEK 5,491 million, of which SEK

Equity, SEK million 37,754 41,472 1,700 million concerned investments in the growth programme and

Liabilities to credit institutions 798 - SEK 1,100 million in the new main level in Kiruna’s underground mine. Non-current interest-bearing liabilities 1,995 -

Provisions for urban transformation, SEK million 11,683 6,304 INVESTMENTS INCLUDING ACQUISITIONS (SEK MILLION) 2014 2013 Provisions for pensions, SEK million 1,866 1,610 Mining Division 5,419 5,902 Acquisition/disposal of fi nancial assets totalled SEK -703 million (2,325) Dividends paid totalled SEK -3,500 million (-5,500) Minerals Division 25 24

Special Businesses Division 47 53

Besides the issuance of SEK 2 billion in corporate bonds in the Other 162 fourth quarter, a number of other activities in LKAB’s long-term Group 5,491 6,141 fi nancing strategy were implemented during the year. LKAB’s commercial papers programme with a limit of SEK 5 billion was Production facilities capitalised in the second quarter. Utilisation at the end of 2014 Growth investments in the open-pit mines in the Svappavaara Field was SEK 798 million. In addition to this, LKAB procured a revolving continued during the year, despite protracted permit processes. credit facility of SEK 5 billion, in the third quarter, which replaced The formerly water-fi lled Leveäniemi mine has been drained and a previous credit facility for the same amount. The credit facility is preparatory work has been carried out before the expected pro- subject to retention of title. duction start-up in Mertainen. Meanwhile, in the processing plants in Kiruna, Malmberget and Svappavaara, production-enhancing investments have been made in order to increase capacity for producing upgraded products. At the underground mine in Kiruna, the second of fi ve phases in 84 ADMINISTRATION REPORT

the project’s scope is now in operation. The remaining phases will Safe and predictable mining conditions be successively taken into operation over the coming years. The LKAB prepares forecasts of ground deformations to enable e ective rock hoist in the Kiruna mine is being renovated in order to ensure urban planning around the mines. A revised forecast, based on defi ned that the ore can be raised from the mine to the processing plants. environmental stipulations for Kiruna, was presented in December. In Malmberget investments are being made in a gas depot as well The new forecast shows that ground deformations caused by mining as conversion of the MK3 pelletizing plant so as to conduct a full- operations are advancing at a slightly slower pace than was previously scale test of utilising natural gas as fuel in the pelletizing plants. forecast. This is mainly due to changed mining plans in the Kiruna In Luleå investments are being made in the bentonite facility that mine. Malmberget does not yet have any environmental stipulations are of a risk-reducing character but that also provide higher capaci- placed on deformations and an environmental stipulation correspond- ty and increased fl exibility in the facility. ing to that in Kiruna will be considered by the Land and Environment Court in 2015. Deformations in eastern Malmberget will also be Environmental investments followed up with additional measurements. In order to meet stricter environmental stipulations for atmospher- The seismic monitoring systems in the Malmberget and Kiruna ic emissions, extensive investments are being made in fl ue gas underground mines are among of the world’s largest systems for treatment in the pelletizing plants in Malmberget and Svappavaara. monitoring mine seismology. LKAB, together with Luleå University of Flue gas treatment was fully implemented in Malmberget during Technology, Queens University in Canada and international research the year. In Svappavaara construction of the second phase is in pro- institutes, is running several projects aimed at reducing the risk of gress, and decontamination and recovery costs total SEK 61 million. serious seismic events due to mining. The purpose of the investments is to further treat the emissions of gas and particulates, which helps reduce acidifying substances. Product development and growth Investments in environmental protection and fl ue gas treatment Projects for product development and growth are priorities in facilities totalled SEK 413 million (770) for the year. LKAB’s research and development operations with a long-term goal of developing a new generation of climate-smart pellets. A signifi - Investments in logistics cant portion of these e orts are directed towards product development In addition to cost savings, it is essential for LKAB to streamline of ore from the Svappavaara Field’s open-pit mines. and raise delivery capacity. Investments in the expansion of the rail LKAB mines mainly magnetite, but also some hematite. In Svappa- terminals in Malmberget, Svappavaara and Narvik are part of this. vaara a simplifi ed hematite process was developed and tested in the Investments are being made in a new shiploader and quay in Narvik, production of a test batch of new sinter fi nes. The test batch was eval- including new conveyor logistics and a screening station. These uated by a customer with good performance. The quality of the test investments are mainly being made to reduce the risk of drop-o s batch meets the product requirements of high iron content (above in deliveries due to unplanned stoppages and breakdowns, which 67 percent) and low levels of impurities such as phosphorus and alkali. provides increased fl exibility and capacity for transport both on the In addition, a programme and test campaign were carried out to railway and in port. produce a product based on 70 percent ore from Mertainen and 30 percent ore from Gruvberget. The resulting product was validated by Exploration tests conducted in LKAB’s experimental blast furnace. The results The mineral reserve is the most important resource of every show a similar performance as for SPBA, the regular product. mining company. Good knowledge of the mineral reserve is a basic requirement for making major long-term investment decisions. The Sustainable development mineral reserve’s size and quality are critical to product quality, Implementation and establishment of the Group’s Code of Conduct is in production volumes and costs. progress and 415 employees practiced dilemmas in workshops about LKAB explores both existing and new deposits. The objective is to the Code of Conduct during the year. ensure access to iron ore raw material corresponding to a 20 year A special code of conduct for suppliers was developed and, as of ore bed. Also refer to the “Mineral reserves and mineral resources” 1 January 2015, LKAB only engages suppliers who approve the basic section on page 136. requirements of the Code. Exploration e orts increased in 2014 and were the most exten- LKAB’s position on issues of land use has been formulated and sive since starting in 2011. About 20 di erent in-house exploration documented in guidelines for land use. projects are currently under way. A high-priority project during the A deviation analysis for sustainable development, in compliance year was surveying the Leveäniemi and Mertainen deposits for ex- with the international guidelines set out in the government’s owner- panded mineral reserves. In Gruvberget the focus was on extended ship policy and guidelines for state-owned companies, also known deep magnetite reserves. as the owner directive, was implemented during the year. The main The Sparre/Bergmästaren Nils/Hedvig and Frans projects actions identifi ed for which work has been initiated or planned are: near the existing mining operations in Malmberget were also prior- • Clarifi cation of the global perspective itised. • Perform systematic review of human rights (due diligence) Research and development • Include supply chain in sustainability work The Group’s research focuses mainly on the Mining Division. • Include LKAB’s wholly owned subsidiaries in the Group’s Expenditures for research and development amounted to overall sustainability work SEK 451 million (360), corresponding to about 2.2 percent (2.1) • Active anti-corruption initiatives of Group costs. ADMINISTRATION REPORT 85

Environmental responsibility work was resumed immediately and mining is expected to gear up LKAB’s operations give rise to signifi cant environmental impacts. for production in 2015. The greatest environmental impact factors relate to the changes in the landscape that mining and urban transformation entail. Svappavaara/Leveäniemi Landscapes and communities are also a ected by emissions to LKAB was granted permission to drain the water from the water and air, noise and vibrations from ore processing and other Leveäniemi open-pit mine in June 2012. In early 2014 LKAB operations. Production also requires large amounts of water and submitted an application for full-scale mining in the open-pit mine. energy. LKAB has a well-developed and certifi ed environmental The main hearing in the Land and Environment Court was held in management system that meets the requirements of the ISO 14001 February 2015. Drainage was essentially completed in the autumn environmental management standard. LKAB also met the require- of 2014, when about 30 million m of water was pumped from the ments for the ISO 50001 energy management system certifi cation open-pit mine. after an audit in autumn 2013. However, certifi cation has been In January 2014 LKAB submitted an application for exploratory achieved. mining in the Leveäniemi open-pit mine to the County Administra- tive Board of Norrbotten. The exploratory mining began in Septem- Sustainability targets ber and is expected to continue until the spring of 2015.

RESPONSIBLE OPERATIONS 2014 RESULTS Kiruna

Emissions of sulphur dioxide from all existing Emissions of 1,143 tonnes (2,066) of sulphur An application for a temporary permit for increased pellet produc- pelletizing plants are to be reduced from dioxide. A reduction in emissions will occur tion was submitted to the Land and Environment Court in 2014. about 2,000 tonnes in 2011 to 1,000 tonnes by gradually after the fl ue gas installations are 2015 and 500 tonnes by 2017. operational. LKAB is currently permitted to produce 14.8 Mt of pellets per year in Kiruna and is now seeking permission to produce 16.2 Mt. In The annual mean value for falling particulates Falling particulates were reduced by 17 per- will decrease by 10 percent by 2015 compared cent in Kiruna. The reduction was 47 percent parallel with this application, work is underway to apply for a new with 2011. in Narvik. Malmberget showed an increase of 13 percent due to additional dusting permit for the entire Kiruna operation, including increased mining, sources. In Svappavaara there was a 4 percent processing and deposition. increase due to an expansion of operations in the open-pit mines since 2011. Malmberget RESOURCE-EFFICIENT PRODUCTION 2014 RESULTS A hearing was held in the Land and Environment Court in January The specifi c energy consumption will be Energy consumption was 165 kWh (167) per reduced from 160 kWh per tonne of fi nished tonne of products, a break in the trend and a 2014 for the purpose of obtaining a permit to implement meas- products in 2011 to 130 kWh per tonne of decrease compared year-on-year. Measure- ures to increase the capacity of the tailings pond in Vitåfors. LKAB fi nished iron ore products by 2020. ments and actions continue to be taken. received the permit in February, which meant that the measures Carbon dioxide emissions per tonne of Carbon dioxide emissions by 27 kg (27) per fi nished products will be reduced from 27 kg tonne of products. could be initiated. in 2011 to 17 kg in 2020. Luleå Permit requirements There were no major permit changes or new permits issued in In LKAB’s Parent Company as well as in the Swedish subsidiaries 2014. the Group conducts activities that require permits under the Envi- ronmental Code. Most of these activities are conducted within the Compliance with permits Mining Division. Business cannot be conducted without environ- If there are any deviations from existing permits, stipulations or mental permits. The most extensive environmental permits relate other regulations, the proper authorities are informed immediately. to large-scale mining and processing facilities for iron ore products Compliance with permits, stipulations and other regulations are in the orefi elds, tailings ponds and barren rock deposition. Permits reported in the annual environmental reports for LKAB’s oper- are also required for gravel and moraine pits and quarries and port ating locations in and around the orefi elds. The environmental operations. reports also indicate the impact that LKAB’s activities have on the environment and how this potential impact is monitored. The 2014 Major environmental permit events in 2014 environmental reports are available at lkab.com.

Svappavaara/Mertainen Examples of monitoring and deviations in 2014 The main hearing on the application for full-scale mining in Mer- • In Kiruna, a number of damping measures were implemented tainen was held in May 2013 in the Land and Environment Court on dominant noise sources. Measurements in 2014 showed and a partial ruling with an enforcement order regarding the per- that the actions taken yielded results, as the noise level was re- missibility of operations and a permit for certain preparatory work duced by 2–4 decibels at the control points. Remaining damp- was granted. The partial ruling was appealed and operations were ing of the mine ventilation shafts will be addressed in 2015. suspended. At the end of 2013 the Land and Environment Court • Measurements of vibrations, atmospheric shock waves and announced a second partial ruling with fi nal operating stipulations, ground deformations have shown that the values are within but without an enforcement order. Even this partial ruling was specifi ed stipulations in Kiruna, Malmberget and Svappavaara. appealed. • The stipulations for atmospheric emissions of particulates The two contested rulings were forwarded to the Land and from the process gas channels in ore processing facilities were Environment Court of Appeal. A main hearing was held again in late met for all locations. April and a permit for operations was granted in June. Preparatory 86 ADMINISTRATION REPORT

• However, a few small dust extraction works were at elevated an additional allocation of support resources to work systematically levels compared to the standard value limit in Kiruna and on the causes of accidents and incidents. Sick leave continues to be Malmberget. The standard value limit was met again after low, despite an increase in society at large. The sustainability target corrective measures were taken. of continuing to have a long-term sickness absence of less than 0.8 • The stipulation for suspended materials (organic and percent was exceeded by a good margin. inorganic particles) was exceeded on one monitoring occasion during the year. Gender equality, equal opportunities and diversity • Because of the mild winter in 2014, four measurements The annual target for the proportion of women in the company was could not be made in Svappavaara’s central boiler plant achieved for 2014 and the proportion of women in management posi- as stipulated. tions continues to increase. Developments are thereby heading in the • Biological studies of the water supplies in Svappavaara, Mer- right direction to attain the sustainability target of at least 25 percent tainen, Masugnsbyn and Malmberget were conducted in 2014. women in the company by 2020. The hiring freeze begun in February 2015, however, a ects the Remediation prospects of attaining the sustainability targets on the proportion of LKAB’s activities a ect the landscape in several ways, such as with women and that there should be competition among qualifi ed can- rock piles and open-pit mines. That is why LKAB is responsible for didates for all advertised positions. There were at least two qualifi ed and obliged to restore the area through planned remediation meas- candidates in 96 percent of recruitments in 2014. The target of reach- ures and to create new environments that become a natural part of ing 97 percent could therefore not be fully met. the surroundings. Remediation work can be done gradually and/or Diversity e orts that involve actively seeking new ways to broaden after operations have ceased and must take into account safety, en- the recruitment base also continue, despite the changed conditions. vironmental, economic and aesthetic aspects. LKAB works with the corresponding regulatory authority on designing long-term plans Professional development and future competency management for remediation of the mining areas. Some examples of measures E orts to ensure LKAB’s access to a skilled workforce in the long- taken are levelling, deposition of barren rock, sowing grass and term continue, partly through the LKAB Academy foundation, which planting trees. Examples of remediation measures in 2014: provides fi nancial support to interdisciplinary programmes in the • Parts of the old pond area in Malmberget were covered with schools where we operate, and partly through the LKAB upper turf and sown with industrial seeding. secondary school. The LKAB upper secondary school is run by the • The lime depot in Svappavaara was reclaimed and covered municipal upper secondary school in collaboration with Luleå Uni- with moraine. The surface will also be sown with industrial versity of Technology with a focus on providing upper secondary level seeding in 2015. key programmes for the mining industry. There were also students in • Barren rock was deposited in the old open-pit mines in Kiruna the natural science programme in 2014. Interest in the LKAB upper and Malmberget. secondary school and LKAB-relevant university programmes remains high. Employees and culture The total number of job applications to LKAB has dropped, since fewer vacancies were advertised during the year, but the number of

SUMMARY 2014 2013 applications per position remains high. The percentage of positions

Number of accidents with absence 58 59 with fewer than two qualifi ed applicants is stable at around fi ve percent. Long-term absence due to illness, % 0.4 0.5 Short-term absence due to illness, % 2.9 2.4 Values, leadership and employeeship Number of permanent new hires 313 289 Implementation of the Code of Conduct is under way. These e orts Of whom women 94 78 are based on LKAB’s values: Commitment – Innovation – Responsibili- Number who left LKAB 184 181 ty. A corruption prevention aspect is also included. Of whom women 32 15 The training package for new managers is used regularly along

Women in the Group, % 19.4 18.1 with individual psychosocial discussions with new managers. The production unit introduced a model called the Leader’s Framework Female managers in the Group, % 19.9 19.8 that provides frameworks for good leadership and a good psychoso- Outcome of Parent Company’s incentive programme, SEK 19,910 27,982 cial environment in the workplace. Work continued in 2014 with the results of the 2013 employee Occupational health and safety survey. Focus on internal communication increased during the year, The total number of accidents decreased during the year. Never- including the introduction of a new intranet with better opportunities theless, the sustainability target of no more than six accidents per for interactive communication. million hours worked could not be achieved. The fi gure for the year was 7.6 (7.9) accidents per million hours worked. The accident Deviations rate target is no more than 2.5 by 2020. The most common causes After the fi re in the Kiruna mine in June focus was on areas needing of accidents continues to be slipping and tripping. Safety culture improvement, including emergency organisation and communication. e orts continue and operations with many accidents have received ADMINISTRATION REPORT 87

Urban transformation Net sales and operating profi t LKAB’s provisions for urban transformation in the mining commu- The Division’s operating profi t before urban transformation costs nities amounted to SEK 11,683 (6,304) million at year-end. Costs for decreased by 52 percent to SEK 3,655 million (7,571), equivalent to urban transformation provisions totalled SEK 3,432 million (620), an operating margin of 19 percent (34). of which Kiruna stood for SEK 1,200 million and Malmberget for Net sales decreased by 15 percent, with price having a negative SEK 2,232 million. Disbursements for the year totalled SEK 1,354 e ect of 18 percent, while volume/product mix and currency had a million (295). positive e ect of two and one percent, respectively. LKAB’s continued mining operations and growth plans depend on phasing out and moving parts of Malmberget, Kiruna and Production and logistics

Svappavaara. As more land is required for mining operations, LKAB IRON ORE PRODUCTS (MT) 2014 2013 aims to help ensure that the new communities that are built up will Production volume 25.7 25.3 be better than the old existing infrastructure, housing and social of which pellets 23.2 23.1 functions. A concrete sustainability target is that LKAB will build 200 new homes in both the Municipalities of Kiruna and Gällivare by 2015, based on construction in 2011. The accumulated number Deliveries of fl ats built by the end of 2014 was 178. Planning for additional IRON ORE PRODUCTS (MT) 2014 2013 housing units continues. Delivery volume 26.0 25.5 LKAB is working with relevant stakeholders such as its owner, of which pellets 21.7 21.1 municipalities, businesses and property owners to fi nd the nec- Product quality, % essary urban transformation solutions. In parallel with this work, LKAB is working actively to obtain permits for continued mining Quality value deliveries 93.0 91.2 operations and growth plans. Through the new agreement signed during the year with the The accumulated quality value for product quality in deliveries was Municipality of Kiruna, urban transformation e orts entered a more 93 percent compared with the 2014 target value of 96 percent. operational phase, where development goes before deconstruc- The deviation from the target was due primarily to increased fi nes tion. LKAB is continually working in close cooperation with the generation and increased reduction disintegration. municipality and the stakeholders involved to fi nd solutions for the Deliveries were limited during the year by production shortfalls a ected areas of the community. in mines and plants. The year was also characterised by a di cult The cooperation agreement that was signed in 2012 with summer period with disruptions caused by thunderstorms and raw the Municipality of Gällivare became legally binding during the materials shortages. year. LKAB’s work and dialogues with the municipalities is ongoing Stock levels of fi nished products totalled 1.2 Mt at the start of in order to manage development in Gällivare and phase-out in the year and 0.8 Mt at the end of the year. Malmberget. Through the end of 2014, LKAB had allocated nearly SEK 12 Minerals Division billion to guarantee its future long-term commitments while the SUMMARY (SEK MILLION) 2014 2013 organisation reviews possible e ciency measures both internally Net sales 1,870 1,661 and with the municipalities. Based on prevailing economic circum- Operating profi t 212 63 stances, the business will be adapted with the aim of continuing Operating margin, % 11 4 to achieve urban transformation targets and to safeguard LKAB’s mining operations. Average number of employees 354 351 Investments 25 24 Emissions trading system Within the EU there is a trading system (EU ETS) for emission al- Net sales and operating profi t lowances that is intended to reduce carbon dioxide and other emis- Increased sales and improved margins, particularly for magnetite sions. LKAB’s carbon dioxide emissions, mainly from the pelletizing (iron ore products), contributed to the improved earnings. During plant and heating of mines, are included in the system. the fourth quarter fi nal delivery of iron ore to a project for ballast- ing an o shore structure was made. Overall, sales for this type of DIVISIONS application had a very positive e ect during the year and LKAB Minerals has established itself in the market. Mining Division

SUMMARY (SEK MILLION) 2014 2013 Special Businesses Division

Net sales 19,013 22,240 SUMMARY (SEK MILLION) 2014 2013

Operating profi t before urban transformation costs 3,655 7,571 Net sales 1,732 1,942

Urban transformation costs -3,432 -620 Operating profi t 153 277

Operating profi t 223 6,951 Operating margin, % 9 14

Operating margin, % 1 31 Average number of employees 336 329

Average number of employees 3,849 3,747 Investments 47 53

Investments 5,419 5,902 88 ADMINISTRATION REPORT

Net sales and earnings Management The Division recognised lower overall sales and operating profi t The chief risk o cer (CRO) maps, analyses and submits proposals than last year. This is mainly due to lower activity and lower mar- on how risks can be avoided or reduced. The LKAB Treasury Centre, gins for the subsidiary group LKAB Berg & Betong in its assign- the company’s central fi nance department, is largely responsible for ments for the Mining Division. the Group’s fi nancial risk management. Financial risk management is regulated by a Group-wide policy established by the Board. The Board’s Finance Committee is responsible for ensuring that fi nancial PARENT COMPANY risks are managed in accordance with the fi nance policy.

SUMMARY (SEK MILLION) 2014 2013 Market and business risks

Net sales 18,970 22,265 Volume dependency Operating profi t before urban transformation costs 3,520 7,352 To ensure long-term profi tability and competitiveness LKAB strives Urban transformation costs -3,432 -620 to ensure that regardless of economic fl uctuations it can always sell Operating profi t 88 6,732 everything it produces. This is achieved through close, long-term Operating margin, % 0 30 customer relationships, technical partnerships and long-term deliv- Average number of employees 3,449 3,375 ery scheduling. Despite this, strong economic fl uctuations can cause Investments 4,857 5,682 temporary problems.

Net sales and earnings Management Operating profi t before expenses for urban transformation By ensuring fl exibility in product portfolios, customer portfolios, and decreased by 52 percent to MSEK 3,520 (7,352), equivalent to an production and logistics systems LKAB is better prepared to cope operating margin of 19 (33) percent. Net sales decreased by 15 with sudden fl uctuations in the economy. LKAB always strives to percent, with price having a negative e ect of 18 percent, while consistently o er high-quality products and reliable delivery in order volume/product mix and currency had a positive e ect of two and to create a competitive advantage that gets customers to prioritise one percent, respectively. LKAB over competing suppliers in downturns.

Price dependent RISKS AND UNCERTAINTY FACTORS Iron ore is priced in USD. The contracted price is based on the cur- rent price index for 62% sinter fi nes CFR with delivery in northern LKAB is exposed to various risks. Risk management plays a China. The price can be based on an average index for di erent peri- vital part in minimising the impact of factors that lie beyond the ods – everything from a short period around delivery up to an entire Group’s control. The Group employs methods for evaluating and year. Pellets, LKAB’s main product, are priced based on the price of limiting these risks by ensuring that they are managed according sinter fi nes, but with an additional pellet premium. to approved guidelines and methods. Di erent distances between the shipping ports of mining compa- Extreme variations in volume are one of LKAB’s most substan- nies and the import ports of steelworks make the price of sea freight tial risks. Volume variations may arise from disruptions in LKAB’s an additional parameter that is used to defi nitively determine the production and delivery capacity. Demand for ore derives from price. The company’s proximity to its main market in Europe means global steel production, which in turn follows the cycles of the that LKAB always has a proximity advantage and benefi ts when sea global economy. freight rates are high. Conversely, distant mines have a competitive Falling iron ore prices are another signifi cant risk. Since iron ore advantage in Europe when freight rates are low. is priced in USD, a weak dollar is also a risk. Cost e ectiveness and high, consistent product quality are Management critical factors for safeguarding our competitiveness. LKAB’s major LKAB works primarily with a variable pricing strategy, which means competitors mine their ore in open-pit mines, which entails con- that price volatility in the global iron ore market makes LKAB’s siderably lower production costs. LKAB’s major advantage relative prices change substantially in both the long and short terms. LKAB to its competitors is its high quality magnetite ore. Higher fees and works actively with fi nancial hedging of both USD and iron ore prices taxes on energy and increased costs for emission allowances can in order to prevent price changes from impacting earnings in the also have a clear impact. short term. Read more about fi nancial risks on page 90. LKAB is expanding its production capacity in the ore fi elds. Investments in increased production and the corresponding Customer dependency urban transformation will require substantial sums of money in The global iron ore and steel market is made up of a small number the coming years. LKAB needs to have good liquidity and fi nancial of suppliers and customers. This concentration has given each indi- strength to systematically fulfi l these major future commitments. vidual player increased importance and a considerable interdepend- ence between supplier and customer. The much smaller Minerals Division has a more diversifi ed customer base and product portfolio that helps dampen economic fl uctuations, since di erent geographic regions, segments and minerals have di erent economic cycles. ADMINISTRATION REPORT 89

Management Risk of not achieving expected cost reductions LKAB continues to develop its long-term customer relationships by LKAB’s major competitors mine their ore in open-pit mines, which o ering high, consistent product quality and delivery predictability entails considerably lower production costs. Competitiveness combined with value-added products and services to reduce risk is therefore strongly linked to the continuous improvements exposure. implemented to increase e ciency in all LKAB operations and to increased delivery volumes. Operational risks Management Risk of production and delivery stoppages E orts are being made to reduce costs within the framework of Safe, uninterrupted production is LKAB’s backbone and is based on LKAB’s internal programme, known as OpEx. Another equally being large-scale with continuous optimisation. important component for achieving the expected lower cost levels Disruptions to tra c and transport capacity on the Malmbanan is the volume expansion that is in progress. The expansion will and Ofotenbanen Railways to the ports pose a risk to LKAB’s deliv- make it possible to allocate fi xed costs from the major investments eries. LKAB’s growth strategy requires higher transport capacity. in pelletizing plants, logistics and ports across higher volumes. This At the same time, other players operate on both the Malmbanan reduces the cost per produced and delivered unit. and Ofotenbanen lines. Increased capacity requires longer lay-bys, LKAB is now also entering the second phase of its programme to which will be built on both the Swedish and Norwegian sides over develop and implement OpEx, an established lean concept for the the coming years. Today, the risk of disruptions in the supply fl ows industry, along with continued focus on production- and productivi- relate not only to physical stoppages, but also to disruptions in the ty-enhancing measures. increasingly important and more extensive IT systems. Risk of insu cient resources and skilled workers Management Mining relies on ore resources being utilised. Ensuring operations LKAB works actively within all operations with the “Safety First” in the long term therefore requires discovering new deposits programme to protect people from injuries. through exploration. Being able to retain existing employees and at- The safety levels of all facilities are audited every year relative to tract new ones is a very important prerequisite for LKAB to achieve LKAB’s requirements and stoppage studies are conducted to deter- its growth targets. mine the current level of risk in production. Active decisions on how the risk should be managed are taken based on the results. Histor- Management ically, stoppages due to fi re have resulted in the greatest economic LKAB has applied for and been granted several concessions for ex- losses, so fi re prevention e orts are a top priority. LKAB insures the ploration in the Swedish orefi elds. Increased activity in recent years Group’s facilities to protect against any unforeseen events, and the has identifi ed promising new ore bodies. Read more in the section single largest insurable risks relate to property and stoppages. For on mineral reserves and mineral resources on page 136. production facilities and ports these risks are covered by compre- Young people in the labour market are willing to move, but hensive insurance. Insurance is through the Group’s own insurance mainly to areas that are considered attractive. LKAB is strongly company, LKAB Försäkring AB, and damages in excess of SEK 150 committed to the development of the mining communities so they million are in turn reinsured in the international insurance market. remain attractive, viable places to live. For example, LKAB provides LKAB tries to avoid disruptions due to strikes by being an attractive a variety of support to the education of young people in the com- employer and having an ongoing dialogue with the unions. munities. This increases the possibility of recruiting persons with To manage the risk that the IT systems cause production stop- the necessary skills pages, the production and IT departments work closely together in the future. with clearly documented divisions of duties and responsibilities. Risk of losing concessions and permits Risk of environmental impact through emissions The various permit applications are associated with di erent types Emissions to the air and water and the generation of noise and of risks. In general terms, the greatest risk is project delays. The waste, through accidents or temporarily exceeded permit levels or e ect is increased costs and/or delays and production disrup- other applicable regulations, may adversely a ect LKAB’s credibili- tions or stoppages. The impact can vary between very serious and ty and thus its ability to continue to run the business. insignifi cant, mainly depending on the project’s size and the length of the delay. Management Emission levels are measured systematically to ensure that envi- Management ronmental impacts are within manageable and authorised levels. Permit issues are crucial to implementation of the growth pro- For damages to third parties caused by dam accidents, absolute gramme. Large volumes are scheduled to come from new mining. and unlimited liability applies in Sweden. LKAB has therefore cho- LKAB is now investing considerable resources in the issues of sen to cover itself with so-called dam liability insurance. applying for and complying with a variety of permits. 90 ADMINISTRATION REPORT

Risk of electricity shortages Cash fl ow risk in SEK Increased production at LKAB’s facilities leads to increased use of LKAB’s main cash fl ow risk in SEK is related to iron ore product electrical energy. The energy is mainly used in mining operations sales in the Parent Company. Cash fl ow risk means that fl uctua- and ore processing. Ensuring a supply of electricity at competitive tions in the global iron ore price and exchange rates between USD prices is of great strategic importance to the Group. and SEK can together have a negative impact on the company’s At a production rate of 27.5 Mt of fi nished products the need income statement, balance sheet and/or cash fl ow. Another signifi - for electrical energy is estimated to increase from the current 2.3 cant cash fl ow risk is energy price risk. TWh/year to 2.4 TWh/year. Price risk of iron ore products Management Price volatility in the global iron ore market makes LKAB’s prices Reducing energy consumption is an objective for both reduced change substantially in both the long and short terms. The price of environmental impact and cost e ciency. Energy consumption will iron ore products in USD is dependent on future expected prices for be reduced to 130 kWh per tonne of fi nished products by 2020 from LKAB’s products, which in turn are dependent on the global com- the current level of 165 kWh per tonne. According to the forecast modity price and the global pricing mechanism for iron ore. for energy performance, the target for energy consumption per tonne of fi nished product will be nearly met by 2020. Currency risk USD/SEK LKAB invests directly and indirectly in renewable electricity. The Currency risk exposure stems mainly from Group sales of iron ore company owns fi ve of its own wind turbines and is a co-owner of where market pricing is in USD. BasEl and wind power company Vindln AB. Energy price risk Inadequate allocation of emission allowances Commodity price risk refers to the change in the price of input Within the EU there is a trading system (EU ETS) for emission goods and its impact on earnings. It is mainly changes in energy allowances. The aim is to reduce emissions of carbon dioxide prices that constitute a large commodity price risk for the LKAB and other greenhouse gases by requiring businesses that have Group. emissions to buy emission allowances. LKAB has carbon dioxide emissions, mainly from pelletizing plants and mine heating, so it is Interest rate risk and share price risk included in the system. These risks concern the negative impact on LKAB caused by inter- There is a risk that the system will become a distorting compet- est rate and price changes in the fi nancial markets. LKAB is mainly itive disadvantage for LKAB. The reason is that the main competi- exposed to interest rate risk as regards cash and cash equivalents. tors on the pellet market are outside the EU, particularly in Brazil, and they are therefore not a ected by the trading system and its Credit risks costs. For this reason, iron ore pellets have been defi ned by the EU LKAB’s credit risks are primarily associated with accounts receiva- as “at risk for carbon leakage”. ble, derivatives and short-term investments. LKAB applied for a free allocation for its needs, but did not receive a full emission allowance. The cost and the need to buy ad- Liquidity risks ditional emission allowances will depend upon a variety of factors, Liquidity risk is the risk that the LKAB Group cannot meet its com- including future market conditions, opportunities for additional mitments due to lack of liquidity or the inability to raise external free allocations as LKAB expands its operations and how well the loans for operating activities. Mining legislation and consequent company’s e orts to cut the specifi c emissions of carbon dioxide requirements for urban transformation in the mining communities succeed. place special demands on liquidity.

Management Sensitivity analysis A programme is being conducted within the framework of the The following sensitivity analysis summarises LKAB’s earnings sustainability strategy to reduce carbon emissions from the current sensitivity from a hypothetical change in volumes, prices and level of 27 kg per tonne of fi nished products to 17 kg by 2020. The currencies. The greatest impact on earnings results in changed estimated carbon emissions are based on the production forecast delivery volumes and market prices. In the analysis, the delivery and the forecast for energy performance. The emission level is and price analyses refer to the Parent Company and the remaining dealt with through ongoing e ciency improvements as well as factors to the entire Group. fi nding more environmentally attractive fuel alternatives for coal and oil. USD Financial risks Iron ore price The following is a brief description of the Group’s fi nancial risks. Delivery volume For a more detailed description including the management of risks, Employee benefi t expenses see Note 31, Financial risks and risk management. Transport costs Energy cost

0 500 1,000 1,500 2,000 2,500 ADMINISTRATION REPORT 91

SENSITIVITY ANALYSIS 2014

Group Change Exposure E ect on earnings, Exposure E ect on earnings, 2014 2014 (SEK million) 2013 2013 (SEK million)

Deliveries of iron ore products, Mt 10 percent 26.0 1,836 25.5 2,175

Price for iron ore products, SEK million 10 percent 18,665 1,867 21,918 2,192

Employee benefi t expenses, SEK million 10 percent 3,684 368 3,415 342

Energy costs, SEK million 10 percent 1,553 155 1,690 169

Transport costs, SEK million 10 percent 516 52 530 53

Dollar rate – with no forward cover, USD million 10 percent 2,997 2,004 3,155 2,080

Average value calculated on unchanged product mix

GUIDELINES FOR REMUNERATION OUTLOOK FOR 2015 OF SENIOR EXECUTIVES Demand for LKAB’s pellet products is expected to remain stable. At the 2014 AGM it was resolved to approve the Board’s proposed However, the market is also expected to be characterised by an guidelines for remuneration and other terms of employment for oversupply of iron ore fi nes in 2015, putting pressure on spot pric- senior executives. LKAB’s guidelines follow the government’s es1 and thus on LKAB’s profi tability. currently applicable guidelines regarding employment terms for LKAB’s growth strategy remains unchanged, with a planned senior executives at state-owned companies as passed on 20 April long-term volume increase of 35 percent, as previously announced. 2009. The guidelines indicate that senior executives should not LKAB aims to increase the volume of processed products. Work on receive variable pay, that retirement benefi ts should be through growth investments in the Svappavaara Field continues. The new defi ned contribution plans, unless they comply with an applicable mines will provide increased fl exibility and will compensate for collective pension scheme, and that the fee should not exceed 30 any disruptions in the underground mines. Preparatory work for percent of the fi xed salary. The retirement age must not be less starting up production in Mertainen continues. Proceedings in the than 62 and should not be less than 65. Land and Environment Court on mining in the Leveäniemi mine The Board proposes that approval of the above-stated guide- are ongoing and there is hope for a positive verdict in the second lines and conditions be resolved at the AGM on 28 April 2015. The quarter of 2015. Board’s proposal is designed to ensure that LKAB can o er market The decline in iron ore prices has caused LKAB to take a number competitive remuneration to attract and retain qualifi ed employees of actions. Ongoing and planned investments for 2015 and 2016 to LKAB’s Group management. Group management’s remunera- were revised and activities meant to reduce tied-up working capital tion comprises fi xed salary, company car, meal and life insurance continue. Costs will be reduced by SEK 700 million. Measures taken benefi ts, and pension. The various parts are intended to create a include renegotiation of purchasing agreements, a hiring freeze well-balanced remuneration and benefi t programme that refl ects and elimination of 400 positions from the work force by the end of the individual’s performance and responsibility and the Group’s 2016. The e ects of these measures will primarily be felt in 2016. development. The fi xed salary, which is individual and di erentiat- 1Platts IODEX 62% Fe CFR North China ed considering the individual’s responsibility and performance, is determined based on market principles and is reviewed annually. Agreements concluded prior to the AGM on 28 April 2015 have SIGNIFICANT EVENTS AFTER followed the government’s guidelines that were in place at the END OF REPORTING PERIOD time. For further information regarding the remuneration of senior No events after the end of the reporting period have occurred that executives, see Note 6 on pages 110–112. materially a ect the assessment of earnings, fi nancial position or cash fl ow for 2014.

CORPORATE GOVERNANCE A description of corporate governance is presented in a sepa- PROPOSED DISPOSITION OF rate Corporate Governance Report in accordance with Chapter 6, UNAPPROPRIATED EARNINGS Section 8 of the Annual Accounts Act. The report is found on pages The Board and the President propose that the SEK 20,142 million 62–67 of the printable version of the Annual Report. For a descrip- in unappropriated earnings, of which SEK 722 million represents tion of the key elements of the Group’s system of internal control profi t for the year, be allocated as follows: and risk management in connection with the preparation of con- solidated fi nancial statements, refer to the Corporate Governance Dividend, 700,000 shares at SEK 199 per share SEK 139 million

Report on page 66 of the printable Annual Report that is available Carried forward SEK 20,003 million at lkab.com. Total SEK 20,142 million 92 FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT

1 January – 31 December SEK million Note 2014 2013 1 Net sales 2, 3 20,615 23,873 Cost of goods sold 28 -18,781 -14,994 Gross profi t 1,834 8,879

Selling expenses -151 -148 Administrative expenses -596 -648 Research and development expenses -451 -360 Other operating income 4 311 219 Other operating expenses 5 -377 -303 Operating profi t 3, 6, 7, 8 570 7,639

Financial income 519 611 Financial expenses -495 -482 Net fi nancial items 9 24 129

Profi t before tax 594 7,768

Tax 11 -247 -1,736 Profi t for the year 347 6,032

Attributable to Parent Company shareholders 347 6,032 Earnings per share before and after dilution (SEK) 12 496 8,617

Number of shares 700,000 700,000

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Profi t for the year 347 6,032

Other comprehensive income Items that cannot be reversed to profi t for the year Actuarial gains and losses on defi ned-benefi t pension plans -284 106 Tax attributable to actuarial gains and losses 62 -23 -222 83 Items that have been reversed or can be reversed to profi t for the year Translation di erences on translation of foreign operations for the year 74 -18 Changes in fair value of available-for-sale fi nancial assets for the year -45 -90 Changes in fair value of cash fl ow hedges for the year -410 72 Changes in fair value of cash fl ow hedges transferred to profi t for the year -67 -226 Tax attributable to components of cash fl ow hedges 105 34 -343 -228

Other comprehensive income -565 -145 Comprehensive income attributable to Parent Company shareholders for the year: -218 5,887

The items that were reversed to profi t for the year in 2014 are recognised in the income statement on the net sales and tax lines. FINANCIAL STATEMENTS 93

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December SEK million Note 2014 2013 1, 30, 31, 34 Assets 15, 32 Non-current assets Intangible assets 13 228 257 Property, plant and equipment 14 39,529 33,759 Financial investments 17 912 1,075 Non-current receivables 19 62 103 Deferred tax assets 11 44 19 Total non-current assets 40,775 35,213

Current assets Inventories 20 2,553 2,611 Accounts receivable 21 1,908 3,291 Prepaid expenses and accrued income 22 158 131 Other current receivables 19 876 1,079 Current investments 17, 37 11,505 10,801 Cash and cash equivalents 37 5,358 4,696 Total current assets 22,358 22,609 Total assets 63,133 57,822

Equity and liabilities Equity 23 Share capital 700 700 Reserves 100 443 Profi t brought forward including profi t for the year 36,954 40,329 Equity attributable to Parent Company shareholders 37,754 41,472 Total equity 37,754 41,472

Non-current liabilities Non-current interest-bearing liabilities 24 1,995 Provisions for pensions and similar commitments 26 2,156 1,886 Provisions for urban transformation 27, 28 9,644 4,804 Other provisions 27 1,167 1,167 Deferred tax liabilities 11 3,423 3,813 Total non-current liabilities 18,385 11,670

Current liabilities Current interest-bearing liabilities 24 798 Trade payables 1,691 1,744 Other current liabilities 1,121 227 Accrued expenses and deferred income 29 1,207 1,103 Provisions for urban transformation 27, 28 2,039 1,500 Other provisions 27 138 106 Total current liabilities 6,994 4,680 Total liabilities 25,379 16,350 Total equity and liabilities 63,133 57,822 94 FINANCIAL STATEMENTS

CONSOLIDATED PLEDGED ASSETS AND CONTINGENT LIABILITIES

As at 31 December SEK million Note 2014 2013 Pledged assets 33 808 245 Contingent liabilities 33 149 103

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

SEE NOTE 23 EQUITY ATTRIBUTABLE TO PARENT COMPANY SHAREHOLDERS

Reserves

Profi t brought forward Translation Fair value Hedging including profi t SEK million Share capital reserve reserve reserve for the year Total equity

Opening equity 1 Jan 2013 700 -121 616 176 39,714 41,085

Profi t for the year 6,032 6,032

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

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

Dividend -5,500 -5,500

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

SEE NOTE 23 EQUITY ATTRIBUTABLE TO PARENT COMPANY SHAREHOLDERS

Reserves

Profi t brought forward Translation Fair value Hedging including profi t SEK million Share capital reserve reserve reserve for the year Total equity

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

Profi t for the year 347 347

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

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

Dividend -3,500 -3,500

Closing equity 31 Dec 2014 700 -65 481 -316 36,954 37,754 FINANCIAL STATEMENTS 95

CONSOLIDATED STATEMENT OF CASH FLOWS

1 January – 31 December SEK million Note 2014 2013 1, 37 Operating activities Profi t before tax 594 7,768 Adjustment for items not included in cash fl ow 6,719 3,404 Income tax paid -48 -573 Disbursements, urban transformation 27, 28 -1,354 -295 Payment to retirement benefi t plan 26 -881 Cash fl ow from operating activities before changes in working capital 5,911 9,423

Cash fl ow from changes in working capital Increase (-)/Decrease (+) in inventories 59 -118 Increase (-)/Decrease (+) in operating receivables 1,222 -444 Increase (+)/Decrease (-) in operating liabilities 343 -304 Change in working capital 1,624 -866 Cash fl ow from operating activities 7,535 8,557

Investing activities Acquisition of property, plant and equipment -5,491 -6,141 Disposal of property, plant and equipment 28 18 Change in fi nancial assets -109 Disposals/acquisitions (net) in current investments -703 2,434 Cash fl ow from investing activities -6,166 -3,798

Financing activities Borrowing 2,793 Dividends paid to Parent Company shareholders -3,500 -5,500 Cash fl ow from fi nancing activities -707 -5,500

Cash fl ow for the year 662 -741

Cash and cash equivalents at start of year 4,696 5,437 Cash and cash equivalents at end of year 5,358 4,696

SEK million 2014 2013 Consolidated operating cash fl ow Cash fl ow from operating activities 7,535 8,557 Acquisition of property, plant and equipment -5,491 -6,141 Disposal of property, plant and equipment 28 18 Operating cash fl ow (excluding current investments) 2,072 2,434 Acquisition/disposal of fi nancial assets (net) -703 2,325 Cash fl ow after investing activities 1,369 4,759 Cash fl ow from fi nancing activities -707 -5,500 Cash fl ow for the year 662 -741 96 FINANCIAL STATEMENTS

INCOME STATEMENT – PARENT COMPANY

1 January – 31 December SEK million Note 2014 2013 1 Net sales 2, 3 18,970 22,265 Cost of goods sold 28 -17,911 -14,624 Gross profi t 1,059 7,641

Selling expenses -69 -67 Administrative expenses -447 -502 Research and development expenses -453 -349 Other operating income 4 72 30 Other operating expenses 5 -74 -21 Operating profi t 6, 7, 8 88 6,732

Earnings from fi nancial items: Earnings from participations in Group companies 228 209 Income from other securities and receivables held as non-current assets -111 45 Other interest income and similar profi t/loss items 449 626 Interest expense and similar profi t/loss items -195 -367 Profi t after fi nancial items 9 459 7,245

Appropriations 10 535 -1,762

Profi t before tax 994 5,483

Tax 11 -272 -1,171 Profi t for the year 722 4,312

COMPREHENSIVE INCOME – PARENT COMPANY

Profi t for the year 722 4,312

Other comprehensive income Comprehensive income for the year 722 4,312 FINANCIAL STATEMENTS 97

BALANCE SHEET – PARENT COMPANY

As at 31 December SEK million Note 2014 2013 1, 30, 31, 34 Assets 32 Non-current assets Intangible assets 13 36 42 Property, plant and equipment 14 32,813 27,294 Financial assets Participations in subsidiaries 35 1,768 1,490 Receivables from subsidiaries 16 1,545 1,042 Other non-current securities 18 129 129 Other non-current receivables 19 134 170 Deferred tax asset 11 872 678 Total fi nancial assets 4,448 3,509

Total non-current assets 37,297 30,845

Current assets Inventories 20 1,940 2,111 Current receivables Accounts receivable 21 1,385 3,008 Receivables from subsidiaries 16 1,450 2,053 Other current receivables 19 729 814 Prepaid expenses and accrued income 22 115 95 Total current receivables 3,679 5,970

Current investments 37 14,035 14,878 Cash and bank balances 37 2,373 365 Total current assets 22,027 23,324 Total assets 59,324 54,169 98 FINANCIAL STATEMENTS

BALANCE SHEET – PARENT COMPANY

As at 31 December SEK million Note 2014 2013

Equity and liabilities 1, 30, 31, 34

Equity 23 Restricted equity Share capital (700,000 shares) 700 700 Statutory reserve 697 697

Non-restricted equity Accumulated profi t 19,420 18,608 Profi t for the year 722 4,312 Total equity 21,539 24,317

Untaxed reserves 36 18,144 18,487

Provisions Provisions for urban transformation 27, 28 9,644 4,804 Other provisions 26, 27 1,490 1,597 Total provisions 11,134 6,401

Non-current liabilities Bond loans 25 1,995 Total non-current liabilities 1,995

Current liabilities Liabilities to credit institutions 25 798 Trade payables 1,236 1,406 Liabilities to subsidiaries 883 945 Other current liabilities 420 143 Accrued expenses and deferred income 29 998 864 Provisions for urban transformation 27, 28 2,039 1,500 Other provisions 27 138 106 Total current liabilities 6,512 4,964 Total equity and liabilities 59,324 54,169

PLEDGED ASSETS AND CONTINGENT LIABILITIES OF THE PARENT COMPANY

As at 31 December SEK million Note 2014 2013 Pledged assets 33 808 245 Contingent liabilities 33 669 127

Changed in comparison with the year-end report. FINANCIAL STATEMENTS 99

STATEMENT OF CHANGES IN EQUITY – PARENT COMPANY

SEE NOTE 23 RESTRICTED EQUITY NON-RESTRICTED EQUITY

SEK million Share capital Statutory reserve Accumulated profi t Profi t for the year Total equity

Opening equity 1 Jan 2013 700 697 24,108 25,505

Comprehensive income for 4,312 4,312 the year

Dividend -5,500 -5,500

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

SEE NOTE 23 RESTRICTED EQUITY NON-RESTRICTED EQUITY

SEK million Share capital Statutory reserve Accumulated profi t Profi t for the year Total equity

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

Comprehensive income for the year 722 722

Dividend -3,500 -3,500

Closing equity 31 Dec 2014 700 697 19,420 722 21,539 100 FINANCIAL STATEMENTS

STATEMENT OF CASH FLOW – PARENT COMPANY

1 January – 31 December SEK million Note 2014 2013 1, 37 Operating activities Profi t after fi nancial items 459 7,245 Adjustment for items not included in cash fl ow 5,862 2,900 Income tax paid -62 -416 Expenditures, urban transformation 27, 28 -1,354 -295 Payment to retirement benefi t plan 26 -856 Cash fl ow from operating activities before changes in working capital 4,905 8,578

Cash fl ow from changes in working capital Increase (-)/Decrease (+) in inventories 171 -165 Increase (-)/Decrease (+) in operating receivables 2,141 -999 Increase (+)/Decrease (-) in operating liabilities -74 -556 Change in working capital 2,238 -1,720 Cash fl ow from operating activities 7,143 6,858

Investing activities Acquisition of property, plant and equipment -4,857 -5,682 Disposal of property, plant and equipment 284 1,112 Shareholder contribution paid -254 Change in fi nancial assets -636 115 Disposals/acquisitions (net) in current investments -610 2,399 Cash fl ow from investing activities -6,073 -2,056

Financing activities Borrowing 2,793 Group contribution received 192 Dividend paid -3,500 -5,500 Cash fl ow from fi nancing activities -515 -5,500

Cash fl ow for the year 555 -698

Cash and cash equivalents at start of year 4,553 5,251 Cash and cash equivalents at end of year 5,108 4,553 NOTES 101

Amendments to IAS 32 Financial Instruments: Classifi cation is intended to clarify the NOTES TO THE FINANCIAL STATEMENTS rules for when fi nancial assets and fi nancial liabilities can be o set. NOTE 1 6.2 Open-pit mines SIGNIFICANT ACCOUNTING PRINCIPLES Expenditures on removal of barren rock during the production phase that provide improved access to ore for future mining are recognised as assets. The calculation model used to distinguish between costs for the period’s production and costs to improve future 1 Compliance with standards and laws The consolidated fi nancial statements were prepared in accordance with the Inter- access to the ore was revised in 2014. The changed assessment a ected consolidated national Financial Reporting Standards (IFRS) issued by the International Accounting earnings for 2014 by SEK -157 million. Standards Board (IASB) as adopted by the EU. The Swedish Financial Reporting Board's 6.3 Other operating income and other operating expenses Recommendation RFR 1 Supplementary Rules for Consolidated Financial Statements Assessment of what income in the Parent Company is to be recognised as other oper- was also applied. ating income changed as of 2014. Previously, all income not related to ore sales was The Parent Company applies the same accounting principles as the Group, except recognised as other operating income. As of 2014 exchange gains and losses, capital where stated below in the Parent Company's accounting principles section. gains on sales of non-current assets, and government subsidies are recognised as other The Annual Report and consolidated fi nancial statements were approved for issue operating income and expenses. All other income items are recognised in net sales with by the Board of Directors and President on 20 March 2015. The consolidated income associated costs in each function in the consolidated income statement. statement, consolidated comprehensive income statement and statement of fi nancial The new assessment resulted in an increase in gross profi t compared to the past. The position and the Parent Company's income statement and balance sheet are subject to comparative fi gures for 2013 were restated in accordance with the new assessment, approval at the Annual General Meeting on 28 April 2015. which also a ected the comparative fi gures for 2013 in Notes 1–4. 6.4 Provisions for urban transformation 2 Measurement bases applied in preparing the fi nancial statements Assets and liabilities are recognised at historical cost, apart from certain fi nancial A boundary for impact-related compensation for mining done to date has been defi ned assets and liabilities that are measured at fair value. Financial assets and liabilities by LKAB and designated as the impact boundary. Previously, all damages/compensation that are measured at fair value consist of derivatives, fi nancial assets classifi ed as claims within the impact boundary were estimated and recognised as provisions and fi nancial assets measured at fair value via profi t or loss, investments held to maturity expensed in the income statement. or available-for-sale fi nancial assets. A contract boundary was introduced for provisions in Kiruna as of 2014. In cases where there is an agreement or obvious constructive obligation that defi nes a commit- 3 Functional currency and presentation currency ment related to a future impact area, the provision is recognised according to the con- The functional currency of the Parent Company is the Swedish krona (SEK), which tract boundary. The impact boundary will continue to act as the boundary for the impact is also the presentation currency for both the Parent Company and the Group. This of mining done to date and for when the commitment is expensed. means that the fi nancial statements are presented in SEK. Unless otherwise stated, all The area between the contract boundary and the impact boundary constitutes a mine amounts are rounded o to the nearest million SEK. asset as regards future mining operations. The mine asset is expensed with respect to impact boundary movement, that is, when properties, infrastructure etc. are encroached 4 Assessments and estimates in the fi nancial statements upon by the impact boundary. Preparing the fi nancial statements in accordance with IFRS requires company man- The e ect of the accounting change entails that a mine asset of SEK 3,159 million agement to make assessments, estimates and assumptions that a ect the application was recognised at year-end with a corresponding increase in provisions for urban of accounting principles and the recognised amounts of assets, liabilities, income and transformation. expenses. These estimates and assumptions are reviewed regularly. Changes in estimates are 7 New IFRS that have not yet been applied recognised in the period in which the change is made if the change only a ects that pe- Following is a summary of the new or amended IFRS that take e ect in coming riod, or the period in which the change is made and future periods if the change a ects fi nancial years and that are expected to apply to LKAB. None of these standards were both current and future periods. adopted early. Assessments made by company management when applying IFRS that have a Applied in signifi cant e ect on the fi nancial statements and estimates that may lead to signifi cant Standards fi nancial year beginning: adjustments to the following year's fi nancial statements are described in more detail in Improvements to IFRSs 2010–2012 cycle1 1 July 2014 or later section 28, Signifi cant estimates and assessments. Improvements to IFRSs 2011–2013 cycle1 1 July 2014 or later 5 Signifi cant accounting principles applied The following consolidated accounting principles were applied consistently to all periods Amendments to IAS 19 Employee Benefi ts 1 July 2014 or later (Defi ned-Benefi t Plans: Employee Contributions)1 that are presented in the consolidated fi nancial statements, unless otherwise stated. The consolidated accounting principles were applied consistently in the presentation Amendments to IFRS 11 Joint Arrangements (Account- 1 January 2016 or later and consolidation of the Parent Company, subsidiaries and joint operations. ing for Acquisitions of Interests in Joint Operations)1 Amendments to IAS 16 Property, Plant and Equipment 1 January 2016 or later 6 Changes for 2014 and IAS 38 Intangible Assets (Clarifi cation of Accept- 6.1 Accounting principles changed due to new or amended IFRS able Methods of Depreciation and Amortisation)1 Described below are changed accounting principles applied by the Group e ective 1 January 2014. Other IFRS changes that are e ective as of 2014 have had no signifi cant Amendments to IAS 27 Separate Financial Statements 1 January 2016 or later (Equity Method in Separate Financial Statements)1 e ect on the consolidated accounts. IFRS 10 Consolidated Financial Statements replaces those parts of IAS 27 Consol- Amendments to IFRS 10 Consolidated Financial State- 1 January 2016 or later idated and Separate Financial Statements that focus on when and how an investor ments and IAS 28 Investments in Associates and Joint should prepare consolidated accounts. IFRS 10 provides a model to be used when Ventures (Sale or Contribution of Assets between an Investor and its Associate or Joint Venture)1 assessing whether control does or does not exist for all investments that a company has. The defi nition of control includes these three sub-components: a) infl uence over the Improvements to IFRSs 2012–2014 cycle1 1 January 2016 or later investee, b) exposure or rights to variable returns from involvement with the investee, IFRS 15 Revenue from Contracts with Customers1 1 January 2017 or later and c) the ability to use infl uence over the investee to a ect the amount of the investor’s 1 returns. IFRS 9 Financial Instruments 1 January 2018 or later IFRS 11 Joint Arrangements has been applied since 1 January 2014. Joint arrange- 1 ments are classifi ed as either a joint operation or a joint venture. Classifi cation as a Not approved by the EU. joint operation or a joint venture is determined by the parties’ contractual rights and obligations. Interpretations Applied in fi nancial year beginning: The Group has a joint arrangement in the form of a joint operation, which was previously IFRIC 21 Levies2 17 July 2014 or later recognised as participations in a joint venture. The transition to IFRS 11 has not led to any change in the accounting of this holding. 2 Approved by the EU on 17 June 2014, applicable to fi nancial years beginning as at 17 IFRS 12 Disclosure of Interests in Other Entities applies to entities that have interests June 2014 or later within the EU. in subsidiaries, joint arrangements, associates and unconsolidated structured entities. IFRS 12 establishes objectives for disclosure and specifi es the minimum disclosure that an entity must provide to meet those objectives. 102 NOTES

New and amended standards that will a ect consolidated fi nancial reporting from 2015: trol exists if the Parent Company has infl uence over the object of investment, is exposed to or has rights to variable returns from its involvement and can use its infl uence over Described below are the new and amended standards and interpretations that are the investment to a ect returns. In assessing whether control exists, potential voting expected to a ect the consolidated fi nancial statements in the period to which they are shares and whether de facto control exists should be taken into account. applied for the fi rst time. Subsidiaries are recognised according to the acquisition method. This method means IFRS 15 Revenue from Contracts with Customers provides a model for revenue that acquisition of a subsidiary is regarded as a transaction whereby the Group indirect- recognition for almost any income arising from contracts with customers, except leases, ly acquires the subsidiary’s assets and assumes its liabilities. The acquisition analysis fi nancial instruments and insurance policies. The purpose of a new revenue standard determines the fair value on the date of acquisition of acquired identifi able assets and is to have a single principle-based standard for all industries that replaces existing assumed liabilities and any non-controlling interest. standards and interpretations on revenue. The basic principle for revenue recognition is In the case of business combinations where the transferred consideration, any that an entity should recognise revenue when all risks and rewards associated with the non-controlling interest and fair value of previously owned participating interest (in the goods or services are transferred to the customer in exchange for compensation for the case of step acquisitions) exceed the fair value of the assets acquired and liabilities goods or services. assumed, the di erence is recognised as goodwill. When the di erence is negative, a The new standard may have an impact on service agreements, sales of various ele- so-called low-cost acquisition is recognised directly in profi t for the year. ments of goods and/or services, long-term contracts, consulting fees and license-based Non-controlling interest arises in cases where less than 100% of the subsidiary sales. All businesses will be a ected by the new, signifi cantly expanded disclosure is acquired. There are two ways of recognising non-controlling interest. They are requirements. recognising non-controlling interest as a share of proportional net assets or recognising Management’s assessment is that the application of IFRS 15 may a ect the non-controlling interest at fair value, which means that non-controlling interest has recognised amounts in the fi nancial statements for consolidated fi nancial assets and a participating interest in goodwill. Choosing between the two options for recognising liabilities. A detailed analysis of the e ects of implementing IFRS 15 has not yet been non-controlling interest can be done separately for each acquisition. done so the e ects can not yet be quantifi ed. 10.2 Transactions that are eliminated on consolidation IFRS 9 Financial Instruments will replace IAS 39 Financial Instruments: Recogni- Intra-group receivables and liabilities, income or expenses, and unrealised gains or tion and Measurement: The IASB has completed a whole “package” of amendments losses arising from intra-group transactions between Group companies are eliminated concerning recognition of fi nancial instruments. The package includes a model for entirely when preparing the consolidated fi nancial statements. classifying and measuring fi nancial instruments, an expected loss impairment model and a signifi cantly revised approach to hedge accounting. IFRS 9 is e ective from 1 11 Foreign currency January 2018, provided the EU adopts the standard. The main requirements of IFRS 9 11.1 Foreign currency transactions are described below. Foreign currency transactions are translated into the functional currency at the ex- New requirements are introduced for classifi cation and measurement of fi nancial as- change rate in e ect on the transaction date. Functional currency is the currency of the sets. The categories for fi nancial assets found in IAS 39 are replaced by two categories: primary economic environment where companies conduct their operations. Monetary measurement at fair value or measurement at amortised cost. Amortised cost is used assets and liabilities in foreign currencies are translated into the functional currency at for instruments held in a business model whose purpose is to receive the contracted the exchange rate in e ect at the end of the reporting period. Exchange rate di erences cash fl ows, which should consist of payments of principal and interest on principal on that arise from translations are recognised in profi t for the year. Non-monetary assets specifi ed dates. Other fi nancial assets are recognised at fair value and the possibility and liabilities that are recognised at historical cost are translated at the exchange rate of applying the fair value option as per IAS 39 is retained. Changes in fair value are to in e ect on the transaction date. Non-monetary assets and liabilities recognised at be recognised in the income statement, with the exception of changes in value of equity fair value are translated to the functional currency at the rate in e ect on the date of instruments that are not held for trading and which were initially recognised as changes measurement at fair value. in value in other comprehensive income. 11.2 Financial statements of foreign entities IFRS 9 will also include parts that a ect the classifi cation and measurement of Assets and liabilities in foreign operations, including goodwill and other group-related fi nancial liabilities. Most of these correspond with the previous rules of IAS 39 apart surpluses and defi cits, are translated from the foreign operations’ functional currencies from fi nancial liabilities that are voluntarily measured at fair value according to the fair to SEK, the Group’s presentation currency, at the exchange rate in e ect at the end value option. For those liabilities, the change in value is divided into changes that are of the reporting period. Income and expenses in a foreign operation are translated to attributable to a company’s credit rating and changes in the reference rate. SEK at the average exchange rate that constitutes an approximation of the rates that The new impairment model will require more regular impairment of expected credit applied when the transaction occurred. Translation di erences that arise from currency losses and that they should be recognised from initial recognition of the asset. translation of foreign operations are recognised in other comprehensive income and The new rules on hedge accounting include simplifi cation of e ectiveness tests and accumulated in a separate component in equity called the translation reserve. an expansion of which hedging instruments and hedged items are allowed. When control of a foreign operation ceases, the accumulated translation di erences Extended disclosure requirements for the period in which IFRS 9 is applied for the attributable to the operation are realised, at which point they are reclassifi ed from the fi rst time are introduced in IFRS 7. translation reserve in equity to profi t for the year. Management’s assessment is that the application of IFRS 9 may a ect the recog- nised amounts in the fi nancial statements for consolidated fi nancial assets and liabili- 12 Revenue ties. A detailed analysis of the e ects of implementing IFRS 9 has not yet been done so 12.1 Sale of goods and rendering of services the e ects can not yet be quantifi ed. Income from the sale of goods is recognised in profi t for the year when the signifi cant Other new and amended standards and interpretations that have not taken e ect are risks and benefi ts associated with ownership of the goods have been transferred to the not expected by management to have any signifi cant e ect on the consolidated fi nancial buyer. Income from services is recognised in profi t for the year based on the stage of statements when they are applied for the fi rst time. completion at the end of the reporting period. Income is not recognised if it is probable that future economic benefi t will not accrue to the Group. Income is recognised at the 8 Classifi cation etc. fair value of the consideration that is received or is expected to be received, less any Non-current assets and liabilities consist essentially of amounts that are expected to discounts. be recovered or paid more than twelve months from the end of the reporting period. Current assets and liabilities consist essentially of amounts that are expected to be 12.1.1 Sale of iron ore, Mining Division recovered or paid within twelve months of the end of the reporting period. Iron ore trading is conducted in US dollars. LKAB prices iron ore according to two price models: a fi xed-price model and a variable-price model with an index-linked price based 9 Operating segment reporting on the spot price. An operating segment is a part of the Group that engages in business operations The sale of iron ore is recognised upon delivery to the customer in accordance with from which it may generate income and incur expenses and for which independent the sales terms. Sales are recognised less value added tax and translation is at the fi nancial information is available. An operating segment’s earnings are monitored by current exchange rate. If sales are hedged by forward exchange contracts translation is the company’s chief operating decision-maker, which is Group management, to assess at the hedged rate. its performance and to allocate resources to the operating segment. There are three In the variable-price model, quarterly prices are applied and the price is determined operating segments identifi ed within the LKAB Group: Mining Division, Minerals Division after the end of the quarter. The price is mainly a ected by the current quarter’s aver- and Special Businesses Division. See Note 3 for a further description of the classifi ca- age of 62% sinter fi nes CFR in China. This means that income for the quarter is based tion and presentation of operating segments. on a preliminary price. After the end of the quarter, a price adjustment is made that is allocated to the quarter. 10 Consolidation principles and business combinations Preliminary invoicing is often done at delivery taking into account the iron and 10.1 Subsidiaries moisture content of the delivery. When fi nal values are confi rmed, income is adjusted as Subsidiaries are companies that operate under the control of the Parent Company. Con- necessary and then fi xed. Income is recognised in net sales. NOTES 103

12.1.2 Sale of industrial minerals, Minerals Division The measurement of deferred tax is based on how the carrying amount of assets or The Minerals Division of the LKAB Group trades in a number of di erent minerals, both liabilities is expected to be realised or settled. Deferred tax is calculated by applying the minerals in its own possession, such as magnetite, huntite and mica, and external min- tax rates and tax regulations that are set or for all practical purposes set at the end of erals that are either further processed within the Group or sold on in unchanged form the reporting period. to the end customer. Trade in industrial minerals occurs either in the country’s local Deferred tax assets related to deductible temporary di erences and loss carry-for- currency or in a major currency like USD or EUR. wards are only recognised to the extent that it is probable they will be utilised. The value The mineral magnetite is bought from the Mining Division. The prices are agreed of deferred tax assets is reduced when it is no longer deemed probable that they can upon quarterly and are based on the Parent Company’s global price agreements for iron be utilised. ore products. Other in-house minerals are priced internally, while external minerals are Any additional income tax arising from dividends is recognised when the dividend is priced according to individual price agreements with each supplier that can be made recognised as a liability. annually or at shorter intervals. Sales of minerals are reported to customers in accordance with agreed upon sales 16 Financial instruments terms. Sales are recognised less value added tax and translation is at the current Financial instruments recognised in the statement of fi nancial position include assets exchange rate. If sales are hedged by forward exchange contracts translation is at the such as cash and cash equivalents, loans receivable, accounts receivable, fi nancial hedged rate. investments and derivatives. Liabilities include trade payables, loans payable and Invoicing is done on delivery to the customer according to agreed upon prices and derivatives. payment terms. Income is recognised in net sales. Classifi cation of consolidated fi nancial assets and liabilities is indicated in Note 31 Financial risks and risk management. Recognition of fi nancial income and expense is 12.2 Rental income also discussed in the preceding Principle 14. Rental income from property is recognised on a straight-line basis in the income state- ment, based on the terms of the rental agreement. Rental income is recognised in other 16.1 Recognition and derecognition in the statement of fi nancial position operating income. A fi nancial asset or fi nancial liability is recognised in the statement of fi nancial position when the company becomes party to the contractual terms of the instrument. A 12.3 Government grants receivable is recognised when the company has delivered and a contractual obligation Government grants are recognised in the statement of fi nancial position as deferred in- for the counterparty to pay exists, even if an invoice has not yet been sent. Accounts come when there is reasonable assurance that the grant will be received and the Group receivable are recognised in the statement of fi nancial position when the invoice has will comply with the terms associated with the grant. Grants are accrued systematically been sent. Liabilities are recognised when the counterparty has delivered and there in profi t for the year in the same way and over the same periods as the costs for which is a contractual obligation to pay, even if the invoice has not yet been received. Trade the grants are intended to compensate. Government grants related to assets are recog- payables are recognised when an invoice is received. nised as a reduction in the asset’s carrying amount. A fi nancial asset is derecognised from the statement of fi nancial position when the 13 Leasing contractual rights are realised, expire or the company loses control over them. The Leases are classifi ed in the consolidated fi nancial statements as either fi nance leases same applies to a portion of a fi nancial asset. A fi nancial liability is derecognised from or operating leases. A lease is considered a fi nance lease when the economic risks and the statement of fi nancial position when the contractual obligation is fulfi lled or other- benefi ts associated with ownership are, in essence, transferred to the lessee. If this is wise extinguished. The same applies to a portion of a fi nancial liability. not the case, it is classifi ed as an operating lease. The Group’s leases are essentially A fi nancial asset and a fi nancial liability are o set and the net amount is recognised operational. in the statement of fi nancial position only when there is a legally enforceable right to In operating leases lease payments are recognised on a straight-line basis over the o set the amounts and there is an intention to settle on a net basis or to realise the term of the lease. However, certain variable payments are usually expensed regularly. asset and settle the liability. Acquisition and disposal of fi nancial assets are recognised on the trade date, which 14 Financial income and expense is the date on which the company undertakes to acquire or dispose of the asset, except Financial income consists of interest income on invested funds, dividend income, gains in cases where the company acquires or disposes of listed securities when the settle- from the disposal of available-for-sale fi nancial assets, gains from changes in value of ment date is used. The settlement date is the date on which an asset is delivered to or fi nancial assets assessed at fair value via profi t or loss and gains on hedging instru- by the company. ments that are recognised in profi t for the year. A spot purchase or sale in the fair value option category is recognised on the date of Interest income on fi nancial instruments is recognised using the e ective interest settlement. method (see below). Dividend income is recognised when the right to receive payment 16.2 Classifi cation and measurement is established. Earnings from the disposal of fi nancial instruments are recognised when Financial instruments that are not derivatives are initially recognised at cost, cor- the risks and benefi ts associated with ownership of the instrument are transferred to responding to the instrument’s fair value plus transaction costs. This applies to all the buyer and the Group no longer has control over the instrument. fi nancial instruments except those classifi ed as fi nancial assets and liabilities carried at Financial expenses consist of interest expenses on borrowings, interest expenses on fair value via profi t or loss, which are recognised at fair value less transaction costs. A provisions, interest expenses on defi ned benefi t pension obligations, revaluation losses fi nancial instrument is classifi ed on initial recognition based on the purpose for which it on fi nancial assets assessed at fair value via profi t or loss, impairment of fi nancial was acquired. The classifi cation determines how the fi nancial instrument is measured assets and losses on hedging instruments that are recognised in profi t for the year. after initial recognition as described below. Borrowing costs are recognised in profi t or loss using the e ective interest method. Derivatives are initially recognised at fair value, meaning that transaction costs are Foreign exchange gains and losses are recognised net. charged to profi t for the period. Following initial recognition, derivatives are recognised The e ective interest rate is the rate that makes the present value of all estimated as described below. If derivatives are used for hedge accounting and to the extent this is future payments or receipts during the expected fi xed interest term equal to the carry- e ective, changes in value of the derivative are recognised in the income statement at ing amount of the receivable or liability. The calculation includes all fees paid or received the same time and on the same line of the income statement as the hedged item. Even by the contracting parties that are part of the e ective interest rate, transaction costs if hedge accounting is not applied, the value gain or loss on the derivative is recognised and all other premiums or discounts. as income or expense in operating profi t or net fi nancial items, based on the purpose of 15 Taxes the derivative and whether its use is related to an operating item or a fi nancial item. In Income tax consists of current tax and deferred tax. Income tax is recognised in profi t hedge accounting, the ine ective portion is recognised in the same manner as changes for the year except when the underlying transaction is recognised in other compre- in value of derivatives not designated for hedge accounting. hensive income or equity, in which case the associated tax e ect is recognised in other In accordance with IAS 39, LKAB has chosen not to include the interest component of comprehensive income or equity. forward exchange contracts in hedging relationships when applying hedge accounting Current tax is tax to be paid or received for the current year, applying the tax rates in the Group. Changes in value of forward exchange contracts attributable to the interest that were set or for all practical purposes were set at the end of the reporting period, as component are instead recognised as fi nancial income or expense on the Forward well as the adjustment of current tax attributable to prior periods. exchange contract – interest component line since the interest component is considered Deferred tax is calculated using the balance sheet method, based on temporary to be fi nancial in nature. di erences between the recognised and written-down values of assets and liabilities. For option agreements, only the intrinsic value of the option as a hedging instrument Temporary di erences are not taken into consideration in consolidated goodwill is identifi ed. Changes in an option’s time value are recognised in the income statement nor for di erences that arise on initial recognition of assets and liabilities that are not as described above. business combinations, which on the date of transaction do not a ect either recognised Cash and cash equivalents consist of cash on hand and demand deposits with banks or taxable profi t. Temporary di erences attributable to participations in subsidiaries and and similar institutions, and short-term liquid investments with maturities of three associates that are not expected to be reversed in the foreseeable future are not taken months or less from the date of acquisition that are subject to an insignifi cant risk of into consideration, either. changes in value. 104 NOTES

16.3 Financial assets measured at fair value via profi t or loss 18 Property, plant and equipment This category consists of two sub-groups: fi nancial assets held for trading and other 18.1 Owned assets fi nancial assets that the company initially chose to place in this category (according to Property, plant and equipment is carried at cost less accumulated depreciation and any the fair value option). Financial instruments in this category are measured regularly at impairment. fair value and changes in value are recognised in profi t for the year. The fi rst sub-group Cost includes the purchase price and costs directly attributable to the asset to put it includes derivatives with positive fair value except for derivatives that are designated in place in working order for use in accordance with the intended purpose. The cost of and e ective hedging instruments. The fair value option category includes fi nancial self-constructed non-current assets includes expenditures for materials, expenditures instruments that, in accordance with management’s strategy, are held and appraised for employee benefi ts, and other fabrication costs directly attributable to the asset based on fair value. where applicable. Property, plant and equipment that consists of parts with di erent 16.4 Loans and receivables useful lives are treated as separate components. Loans and receivables are non-derivative fi nancial assets with fi xed or determinable The carrying amount of a property, plant and equipment item is derecognised from payments that are not listed on an active market. These assets are measured at amor- the statement of fi nancial position when the asset is disposed of or retired. The gain or tised cost. Amortised cost is determined on the basis of the e ective interest calculated loss arising from the disposal or retirement of an asset is the di erence between the on the date of acquisition. Receivables are recognised at the amount expected to be selling price and the asset’s carrying amount less direct selling expenses. Gains and received, that is, less bad debts. losses are recognised as other operating income/expense. 16.5 Investments held to maturity 18.2 Exploration and evaluation expenditures Investments held to maturity are fi nancial assets that include interest-bearing secu- Greater knowledge of the extent of the iron ore deposits is necessary to secure access rities with fi xed or determinable payments and fi xed terms that the company has an to more ore and ensure the future development of operations in the Mining Division. The expressed intention and ability to hold to maturity. Assets in this category are measured ore body is surveyed and defi ned by means of exploration drilling, mainly via drifts ad- at amortised cost. jacent to it. Ore deposit exploration in both existing and future mining areas is expensed. This principle is also applied in the exploration of areas outside existing mines. 16.6 Available-for-sale fi nancial assets Evaluation of existing mineral assets is carried out to a lesser extent, mainly to pro- The available-for-sale category includes fi nancial assets that are not classifi ed in any vide a basis for a so-called mine plan for mineral assets, and this work is expensed. other category or fi nancial assets that the company initially classifi ed in this category. Holdings of shares and participations not recognised as subsidiaries or associates are 18.3 Underground facilities recognised here. Underground facilities from which iron ore is extracted can be divided into waste rock Assets in this category, with the exception of unlisted shares, are measured regularly mining (development phase) and iron ore mining (production phase). at fair value with changes in value recognised in other comprehensive income and the Waste rock mining consists of work done to expose the ore body in conjunction accumulated changes in value in a separate component of equity. Changes in value due with the construction of a new main haulage level, facilities pertaining to transport and to impairment, interest on debt instruments, dividend income and exchange di erences maintenance functions such as railways, roads, drifts, shafts, inclined drifts (a system of on monetary items are recognised in profi t for the year. On disposal of the asset the access for vehicle tra c from surface level to the work site underground), and facilities accumulated gain or loss previously recognised in other comprehensive income is for service and electrical and air supply. Expenditures for facilities intended for use over recognised in profi t for the year. a period of more than one year are capitalised in the statement of fi nancial position. Unlisted shares whose fair value can not be reliably measured are measured at cost Depreciation occurs systematically over the life of the main haulage level concerned. with regular impairment testing. Iron ore mining mainly consists of development, cave drilling and loading, haulage and hoisting of the ore. Expenditures for these activities have a useful life of at most one 16.7 Financial liabilities measured at fair value via profi t or loss year, which is why they are expensed as they are incurred. This category consists of two sub-groups: fi nancial liabilities held for trading and other fi nancial liabilities that the company chose to place in this category (fair value option). 18.4 Open-pit mines See the description above under Financial assets measured at fair value via profi t or Iron ore mining above ground takes place in so-called open-pit mines. Stripping is done loss. The fi rst category includes the Group’s derivatives with negative fair values, with to expose the ore body and such things as moraine and barren rock are removed. This is the exception of derivatives that are designated and e ective hedging instruments. called barren rock mining. Changes in fair value are recognised in profi t for the year. The company has no fi nancial During the development phase expenditures are capitalised as part of the cost of the liabilities in the fair value option category. mine and depreciation occurs systematically over the life of the mine. Expenditures on barren rock mining during the production phase that provide 16.8 Other fi nancial liabilities improved access to ore for future mining are recognised as assets and are depreciated Loans and other fi nancial liabilities, such as trade payables, are included in this catego- according to the production-based method. ry. Liabilities are measured at amortised cost. 18.5 Remediation 17 Derivatives and hedge accounting Future expenditures on dismantling and removing assets and restoring sites or areas The Group’s derivatives are classifi ed as cash fl ow hedges of forecasted transactions. where they are located (remediation costs) as relates to ongoing operations are capital- Risks that the Group is subject to such as exchange rate exposure, changes in iron ore ised. Capitalised amounts consist of the present value of estimated expenditures that prices and changes in energy prices are hedged. Hedge accounting is applied when the are simultaneously recognised as provisions. requirements for hedge accounting are met (see below). 18.6 Subsequent expenditures Derivatives are initially recognised at fair value, meaning that transaction costs are Subsequent expenditures are added to the cost only when it is probable that future charged to profi t for the period. Following initial recognition, derivatives are measured economic benefi ts associated with the asset will fl ow to the company and the cost can at fair value and changes in values are recognised as described below. An embedded be measured reliably. All other subsequent expenditures are recognised as expenses in derivative is recognised separately unless it is closely related to the host contract. the period in which they arise. To qualify for hedge accounting under IAS 39, there must be a clear link to the A subsequent expenditure is added to the cost if the expenditure relates to the hedged item. The hedge must also e ectively protect the hedged item; hedging must replacement of identifi ed components or parts thereof. In cases where a new compo- be documented and its e ectiveness measurable. Gains and losses on hedges are nent is created, the expenditure is also added to the cost. Any undepreciated carrying recognised in profi t for the year at the same time as gains and losses are recognised for amounts on replaced components, or parts thereof, are retired and expensed in con- the items that are hedged. junction with the replacement. Repairs are expensed as incurred. The derivatives used to hedge highly probable future cash fl ows are recognised in the statement of fi nancial position at fair value. Changes in value for the period are 18.7 Depreciation principles recognised in other comprehensive income and accumulated changes in value are Depreciation is on a straight-line basis over the asset’s estimated useful life; land is not recognised in a separate component in equity (hedging reserve) until the hedged fl ow depreciated. The Group applies component depreciation, which means that a compo- a ects profi t for the year, at which point the hedging instrument’s cumulative changes nent’s estimated useful life forms the basis for depreciation. Facilities and equipment in value are reclassifi ed to profi t for the year in conjunction with the hedged item’s used in open-pit mines are normally depreciated over the lesser of expected life and the e ect on profi t for the year. life span of the mine to which they relate. The hedged fl ows can be both contracted and forecasted transactions. NOTES 105

The following depreciation periods are applied to property, plant and equipment includ- Expenditures on development, whereby research fi ndings or other knowledge is applied ing future remediation costs: to produce new or improved products or processes, are recognised as assets in the Owner-occupied properties, rental properties 15–100 years statement of fi nancial position if the product or process is technically and commercially feasible and the company has su cient resources to complete development and then Machinery and other technical equipment 5–20 years use or sell the intangible asset. The value includes directly attributable expenditures Equipment, tools, fi xtures and fi ttings 5–20 years such as goods and services and employee benefi ts. If the above criteria are not met, the Underground facilities 12–20 years expenditures must be expensed. Because no such development expenditures have met Surface mining facilities As ore is extracted these criteria thus far, LKAB expenses all expenditures for development as incurred. Capitalised remediation costs As space for 19.4 Other intangible assets waste rock stockpile stockpile is utilised Other intangible assets such as software acquired by the Group are carried at cost less Capitalised remediation costs – other Estimated life of present produc- accumulated amortisation (see below) and impairment losses. tion structure. Reviewed once 19.4.1 Emission allowances new main haulage levels are put LKAB participates in the EU’s system for trade in emission allowances, which grants into use. the right to emit carbon dioxide. Allowances are allocated across the European market.

The emission allowances are recognised as intangible assets and deferred income on Owner-occupied properties are mainly classifi ed as buildings, land improvements allocation, since the company has not qualifi ed for any allowances at the time of issue. and land. Buildings and land improvements consist of several components that are Qualifi cation is at the same rate as actual emissions, when a liability to supply classifi ed on the basis of function, such as roads, surfacing, service facilities, processing emission allowances arises. The charge is reversed from deferred income to provision plants etc. for emissions allowances. The liabilities are measured at the cost of allocated emission Rental properties consist of several components with di erent useful lives. The main allowances. The income is accrued against the cost it is intended to cover. classifi cations are buildings and land. Buildings are divided into several components When emission allowances are reported, an equivalent number of emission whose useful lives vary. allowances must be supplied. Thus the intangible non-current asset is exhausted and The following main groups of components have been identifi ed and form the basis the provision for discharged emissions is settled. Where a liability to supply emission for depreciation of rental properties. allowances exceeds the remaining allocation of emission allowances, the surplus amounts are carried as a liability measured at the current market value of the number Frames, foundations and interior walls 100 years of emission allowances necessary to settle the commitment. For information on Water, sewage, electrical and heating systems 50 years amounts, see Note 27. Exterior facades 40 years 19.5 Subsequent expenditures Windows 50 years Subsequent expenditures on capitalised intangible assets are recognised as assets in the statement of fi nancial position only when they increase the future economic Interior fi nishing and appliances 15 years benefi ts of the specifi c asset to which they relate. All other expenditures are expensed as incurred. Depreciation methods, residual values and useful lives are assessed at the end of each year and adjusted as necessary. 19.6 Amortisation principles Amortisation is recognised in the income statement on a straight line basis over the 18.8 Urban transformation estimated useful life of intangible assets. Intangible assets that can be amortised are 18.8.1 Acquisition of properties written o from the date they are available for use. The estimated useful lives are: When property is acquired as part of urban transformation, the cost is divided into a building component and a mine component. The distinction is based on the assumption that the building can be used for temporary rental for a limited period from acquisition Mining rights 30–50 years to evacuation. The building component is calculated as the present value of the net cash Customer-related intangible assets 3–5 years fl ows from the rental. The mine component is defi ned as the property’s total cost less Software 5 years the building component. The building component is expensed in the period in which the building is expected An asset’s residual value and useful life are tested at the end of each reporting period to be utilised. and adjusted as necessary. The mine component is expensed immediately on acquisition of property inside the impact boundary as LKAB has already consumed the economic benefi ts of the property. 20 Inventories When property is acquired outside the impact boundary in an area designated for future Inventories are measured at the lower of cost or net realisable value. The cost of inven- mining, the mine component is instead expensed when the impact boundary encroaches tories is calculated using the fi rst-in, fi rst-out (FIFO) principle and includes expenditures upon the property in question so as to match the underlying production/consumption of incurred in acquiring the inventory items and bringing them to their existing location the economic benefi ts. and condition. For fi nished goods and work in progress, cost includes an appropriate For a further description of urban transformation accounting principles, see Principle share of overheads based on normal operating capacity. 28.1.1. Net realisable value is the estimated selling price in the ordinary course of business, 18.8.2 Mine assets less estimated costs of completion and selling expenses. Mine assets related to future mining in Kiruna are recognised as of 2014. In cases 21 Impairments where there is an agreement or a clear, constructive obligation that defi nes a commit- The Group’s recognised assets are assessed at the end of each reporting period to ment related to a future impact area, the provision is recognised according to a contract determine whether there is any indication of impairment. At the end of each reporting boundary. The impact boundary will continue to act as the boundary for the impact of period, previously impaired assets other than fi nancial assets and goodwill are tested mining done to date and for when the commitment is expensed. for reversal. The area between the contract boundary and the impact boundary constitutes an asset for future mining operations. The mine asset is expensed with respect to impact 21.1 Impairment of property, plant and equipment, intangible assets and participations in boundary movement, that is, when properties, infrastructure etc. are encroached upon subsidiaries by the impact boundary. If impairment is indicated, the recoverable amount of the asset is calculated. The recov- erable amount for goodwill is also calculated annually. When testing for impairment, if 19 Intangible assets it is not possible to ascertain essentially independent cash fl ows for an individual asset, 19.1 Goodwill the assets are grouped at the lowest level at which it is possible to identify essentially Goodwill is measured at cost less any accumulated impairment losses. Goodwill is independent cash fl ows (a so-called cash-generating unit). allocated to cash generating units and is tested annually for impairment; see accounting An impairment loss is recognised when the carrying amount of an asset or principles in section 21.1. cash-generating unit (group of units) exceeds its recoverable amount. Impairment 19.2 Mining rights losses are charged to the income statement. Impairment of assets attributable to a Mining rights are measured at cost less accumulated amortisation and any impair- cash-generating unit (group of units) is initially allocated to goodwill, after which other ments. assets in the unit (group of units) are proportionally impaired. The recoverable amount is the higher of fair value less selling expenses or value in 19.3 Research and development use. When calculating value in use, future cash fl ows are discounted using a discounting Expenditures on research aimed at gaining new scientifi c or technical knowledge is factor that refl ects risk-free interest and the risks associated with the specifi c asset. expensed as incurred. 106 NOTES

21.2 Impairment of fi nancial assets from previous assumptions or the assumptions change. Revaluation e ects are recog- At each reporting date, the company assesses whether there is objective evidence that a nised in other comprehensive income. fi nancial asset or group of assets is impaired. Objective evidence consists of observable When the calculation leads to an asset for the Group, the carrying amount of the asset events that have occurred and have a negative impact on the ability to recover the cost, is restricted to the lower of the surplus in the plan or the asset restriction calculated such as breach of contract, late or non-payment by the counterparty, or bankruptcy, and using the discount rate. The asset restriction is the present value of the future economic a signifi cant or prolonged decline in the fair value of a fi nancial investment classifi ed as benefi ts in the form of reduced future contributions or a cash refund. In calculating the an available-for-sale fi nancial asset. present value of future reimbursements or payments, any minimum funding requirement Impairment of accounts receivable is determined based on historical experience of is taken into account. customer losses on similar receivables. Impaired accounts receivable are recognised at Changes to or reductions in a defi ned-benefi t plan are recognised on the earliest of the present value of expected future cash fl ows. Assets near maturity are not discount- the following dates: a) when the change in the plan or reduction occurs or b) when the ed. Impairment losses are charged to operating profi t/loss in the income statement. company recognises related restructuring costs and termination benefi ts. The changes/ Upon impairment of an equity instrument classifi ed as an available-for-sale fi nancial reductions are recognised immediately in profi t for the year. asset, previously recognised accumulated gains or losses are reclassifi ed to equity via The special employer’s contribution is part of the actuarial assumptions. Special other comprehensive income to profi t for the year. The amount of the accumulated employer's contributions related to the di erence between how the pension obligation is loss that is reclassifi ed from equity via other comprehensive income to profi t for determined in a legal entity and in the Group are recognised as part of the net obligation. the year is the di erence between the acquisition cost and the current fair value, less Provisions and receivables are not calculated to present value. The part of the special any impairment loss on the fi nancial asset previously recognised in profi t for the year. employer's contribution that is calculated based on the Pension Obligations Vesting Act Impairment of available-for-sale fi nancial assets is recognised in profi t for the year in a legal entity is recognised for simplicity’s sake as an accrued expense rather than as under net fi nancial items. part of the net obligation/asset. 21.3 Reversal of impairment The interest expense/income, net of the defi ned-benefi t obligation/asset, is recognised An impairment of assets included in the scope of IAS 36 is reversed if there is an indica- in profi t for the year under net fi nancial items. Net interest income/expense is based tion that the impairment no longer exists and there has been a change in the assump- on the interest that arises when discounting the net obligation, that is, interest on the tions underlying the calculation of the recoverable value when the asset was impaired. obligation, plan assets and the e ect of any asset restrictions. Other components are However, impairment of goodwill is never reversed. An impairment loss is reversed recognised in operating profi t. only to the extent that the asset’s carrying amount after reversal does not exceed the 24.3 Short-term benefi ts carrying amount that would have been recognised, less amortisation if appropriate, if no Short-term employee benefi ts are calculated without discounting and recognised as an impairment loss had been recognised. expense when the related services are received. Impairment losses on loans and accounts receivable that are recognised at amor- A current liability is recognised for the expected cost of profi t-sharing and bonus tised payments when the Group has a present legal or constructive obligation to make such cost are reversed if the previous reasons for impairment no longer exist and full payments as a result of services rendered by employees and the obligation can be payment from the customer is expected. estimated reliably. Impairment losses on equity instruments classifi ed as available-for-sale fi nancial assets and previously recognised in profi t for the year are reversed via other com- 25 Provisions prehensive income instead of profi t for the year. The impaired value is the value from A provision di ers from other liabilities because there is uncertainty about the date of which subsequent revaluations are made, which are recognised in other comprehensive payment or the amount required to settle the provision. A provision is recognised in the income. statement of fi nancial position when there is a present legal or constructive obligation as a result of a past event and it is probable that an outfl ow of economic resources will be 22 Equity required to settle the obligation and a reliable estimate of the amount can be made. 22.1 Dividends Provisions are made for the amount, which is the best estimate of the expenditure re- Dividends are recognised as liabilities once they have been approved at the Annual quired to settle the present obligation at the end of the reporting period. Where the e ect General Meeting. of payment timing is important, provisions are determined by discounting the expected future cash fl ow at a pre-tax rate that refl ects current market assessments of the time 23 Earnings per share value of money and, if appropriate, the risks specifi c to the liability. The calculation of earnings per share is based on consolidated profi t for the year attributable to the Parent Company shareholders and on the weighted average number 25.1 Provisions for urban transformation of shares outstanding during the year. See section 28.1.1 below. 25.2 Provisions for remediation 24 Employee benefi ts See section 28.1.2 below. 24.1 Defi ned-contribution pension plans Defi ned-contribution pension plans are those for which the company’s obligation is 26 Contingent liabilities limited to the amount that it agrees to pay. In such cases the size of the employee’s A contingent liability is recognised when there is a possible commitment arising from pension depends on the contributions the company pays to the plan or to an insurance past events and whose existence is confi rmed only by one or more uncertain future company and the return on capital generated by the contributions. Consequently it is the events, or when there is a commitment that is not recognised as a liability or provision employee who bears the actuarial risk (that benefi ts will be lower than expected) and because it is not probable that an outfl ow of resources will be required or can not be investment risk (that the invested assets will be insu cient to meet expected benefi ts). measured with su cient reliability. The company’s obligations for defi ned-contribution plans are recognised as an expense in profi t for the year as they are earned by the employees performing services for the 27 Parent Company accounting principles company over a given period. The Parent Company has prepared its annual report according to the Swedish Annual Accounts Act (1995:1554) and the Swedish Financial Reporting Board’s recommendation 24.2 Defi ned-benefi t pension plans RFR 2 Accounting for Legal Entities. Also applied are the Swedish Financial Reporting Defi ned-benefi t plans are other plans for post-employment benefi ts other than Board’s recommendations for listed companies. RFR 2 states that in the annual report defi ned-contribution plans. The Group’s net obligation in respect of defi ned-benefi t for the legal entity, the Parent Company shall apply all IFRS and interpretations adopted pension plans is calculated separately for each plan by estimating the amount of future by the EU as far as possible within the framework of the Annual Accounts Act, Pension benefi t that employees have earned through their service in current and prior periods. Obligations Vesting Act and considering the relationship between accounting and taxation. This benefi t is discounted to a present value. The discount rate is the rate at the end of The recommendation specifi es the exceptions from and additions to IFRS that must be the reporting period on a high-quality corporate bond with a maturity corresponding made. to the Group’s pension obligations. When there is no viable market for such corporate bonds, the market rate for mortgage bonds with a similar maturity is used instead. The 27.1 Di erences between Group and Parent Company accounting principles calculation is performed by a qualifi ed actuary using the Projected Unit Credit Method. The di erences between Group and Parent Company accounting principles are detailed The fair value of any plan assets are also calculated at the reporting date. below. The specifi ed accounting principles for the Parent Company were applied consist- The Group’s net obligation is the present value of the obligation, less the fair value of ently to all periods presented in the Parent Company’s fi nancial statements. plan assets adjusted for any asset restrictions. 27.2 Changed accounting principles Revaluation e ects consist of actuarial gains and losses, the di erence between the Unless otherwise stated below, the Parent Company’s accounting principles in 2014 actual return on plan assets and the amount included in net interest income and any changed in accordance with what is stated above for the Group. changes in the e ects of asset restrictions (excluding interest included in net interest 27.3 Classifi cation and presentation income). Actuarial gains and losses arise either because the actual outcome deviates The Parent Company uses income statement, balance sheet and cash fl ow statement for NOTES 107

the reports that in the Group are called consolidated income statement, statement of 27.12 Group and shareholder contributions fi nancial position and statement of cash fl ows, respectively. The income statement and Group contributions are recognised as appropriations. balance sheet for the Parent Company are presented in accordance with the Annual Shareholder contributions are recognised as an increase in the participations in sub- Accounts Act, while the corresponding Group reports are based on IAS 1 Presentation sidiaries item by the donor. The recipient recognises shareholder contributions directly of Financial Statements and IAS 7 Statement of Cash Flows. The most signifi cant against unrestricted equity. di erences from the consolidated statements relate primarily to recognition of fi nancial income and expenses, fi nancial assets, equity, and that provisions are recognised under 28 Signifi cant estimates and assessments a separate heading in the balance sheet. The preparation of fi nancial statements requires management and the Board of Direc- tors to make assessments and assumptions that a ect recognised assets, liabilities, 27.4 Subsidiaries and associates income and expenses and other information provided, such as contingent liabilities. Participations in subsidiaries and associates are recognised in the Parent Company Listed below are the estimates and assessments that are considered most important using the cost method. This means that transaction costs are included in the carrying for an understanding of the fi nancial statements, considering the level of signifi cant amount of holdings in subsidiaries and associates. assessments and uncertainties. Conditions for LKAB’s operations change over time, 27.5 Financial instruments and hedge accounting which means that these assessments also change. Owing to the relationship between recognition and taxation, the rules on fi nancial 28.1 Provisions resulting from mining operations instruments and hedge accounting in IAS 39 are not applied in the Parent Company as 28.1.1 Provisions for urban transformation a legal entity. LKAB has extracted iron ore in Norrbotten for more than 120 years. The techniques In the Parent Company, fi nancial assets are measured at cost less any impairment used in ore mining in underground mines leads to deformations in the form of fi ssures and fi nancial current assets at the lower of cost or market. in the ground where mining is conducted. The deformations are already or will become Financial current assets are measured at the lower of cost or market. The meas- so extensive that it is necessary to gradually move parts of Kiruna and Malmberget. urement of interest-bearing securities or shares and alternative investments is done Although there are many similarities between conditions in Kiruna and Malmberget, at the portfolio level. This means that for instruments in the same portfolio, unrealised the geological conditions di er. In Kiruna there is a gradual spread of deformations gains are o set against unrealised losses. Excess losses are recognised as a reduction with continuous fi ssuring, while in Malmberget there is widespread undermining of the of interest income on the other interest income and similar items line. Excess gains are ground in the city centre. The deformations are a direct result of mining operations. For not recognised. Malmberget it can be said that the impact area from the mining of several di erent ore Liabilities are measured at amortised cost. bodies has essentially encircled central Malmberget, which means that it is not able to Derivatives used for hedging forecasted cash fl ows are not carried in the balance function as a normal city centre. sheet. Changes in value of derivatives are recognised in the same period as the hedged LKAB has already had, and will continue to have, signifi cant expenses related to cash fl ows. these urban transformations. For instance, LKAB will incur expenses for the acquisition When hedging receivables in foreign currencies using forward exchange contracts, of properties and municipal infrastructure such as electricity, water and sewage in the the spot rate for the hedging date is used to measure the hedged receivable. The di er- a ected areas. The expenditures arise from LKAB’s mandatory obligation to compen- ence between the forward and spot rates at the contract’s inception (forward premium) sate damage resulting from its mining activities. is accrued over the term of the forward exchange contract. Accrued forward premiums Provisions for the damages caused by the deformations cover damage already are recognised as interest income or interest expense. confi rmed and damage not yet confi rmed but that will occur in a few years as a result Derivatives with negative values are recognised as contingent liabilities in the Parent of mining. Company. 27.6 Financial guarantees LKAB recognises a provision: The Parent Company’s fi nancial guarantee agreements consist primarily of guarantees 1. When there is a present legal or constructive obligation towards a third party that benefi t subsidiaries. Financial guarantees mean that the company is committed 2. As a result of past events to reimbursing the holder of a debt instrument for losses it incurs because a specifi ed 3. When it is expected to result in an outfl ow of economic resources from the company debtor fails to make payment when due according to the contractual terms. The Parent at settlement Company applies one of the easing rules permitted by the Financial Reporting Board, as 4.When a reliable estimate of the amount can be made. compared with the rules of IAS 39, in its recognition of fi nancial guarantee agreements issued on behalf of subsidiaries. The Parent Company recognises fi nancial guarantee In cases where there is an agreement or a obvious constructive obligation that defi nes a agreements as provisions in the balance sheet when the company has a commitment commitment related to a future impact area, the provision is recognised according to a for which payment will probably be required to settle the commitment. contract boundary. In other cases, a commitment is only recognised when the so-called 27.7 Anticipated dividends impact boundary encroaches on the property boundary or infrastructure. The impact Anticipated dividends from subsidiaries are recognised in cases where the Parent boundary is the boundary for impact-related compensation for mining done to date that Company is solely entitled to decide on the size of the dividend and has decided on the has been defi ned by LKAB. size of the dividend before publishing its fi nancial statements. The impact boundary in Kiruna is based on the existing environmental conditions boundary according to rulings from the environmental court. A two-year conversion 27.8 Property, plant and equipment period is added for a safety zone to cover movement that is expected to occur even if With reference to RFR 2, IAS 16, par. 4, estimated future expenditures for dismantling mining were to cease as well as for a specifi c area for the Mine City Park, whose and removing assets and restoring sites or areas where they are located (remediation conversion period of about seven years will take it from urbanised area to park to costs) in legal entities are not capitalised. Instead, the provision for these expenditures industrial area. is made gradually over the useful life. The impact boundary is moved each year to meet the spreading of ground defor- 27.9 Intangible assets mations. The movement of the impact boundary is linked to deformation forecasts in 27.9.1 Research and development order to manage the e ect of ground deformations not being continuous. Forecasted All research and development expenditures are recognised as expenses in the Parent movement according to the current deformation forecast is distributed equally over Company income statement. the period covered by the forecast. Reconciliation is done against updated forecasts of 27.10 Employee benefi ts ground deformations. 27.10.1 Defi ned-benefi t plans The amount of the provision is calculated on the basis of objective valuation methods The Parent Company applies principles other than those described in IAS 19 when esti- for each type of asset (railway, land, municipal infrastructure, houses etc.) and a present mating defi ned-benefi t plans. The Parent Company complies with the provisions of the value is assigned. Pension Obligations Vesting Act and the regulations of the Financial Supervisory Author- For the provisions recognised according to the contract boundary, the area between ity since this is a prerequisite for tax deductibility. The most signifi cant di erences from the contract boundary and the impact boundary is defi ned as a mine asset related to IAS 19 are how the discount rate is determined, that estimation of the defi ned-benefi t future mining operations. obligation is based on current salary levels without consideration of future salary in- All damages/compensation claims that are within the area delimited by the impact creases and that all actuarial gains and losses are recognised in the income statement. boundary are calculated and recognised as an expense in the income statement, in light of the fact that LKAB consumed the economic benefi ts that the mining generated. 27.11 Taxes The impact boundary’s movement is expensed each year. The expensing occurs either In the Parent Company balance sheet, untaxed reserves are recognised without dividing through expensing of the mine asset or through an increase in provisions. them into equity and deferred tax liabilities, in contrast to the Group. Similarly, the Par- The forecast for ground deformations in Kiruna was updated in December 2014. ent Company does not allocate any part of appropriations to deferred tax in the income The new measurements show that the deformations are progressing more slowly than statement. previously estimated. The addition of the safety zone and Mine City Park has been esti- 108 NOTES

mated at 450 metres to date, which corresponds to nine years with a displacement of in production and the ore base are refl ected in the applied depreciation method and useful 50 metres per year. The updated forecast estimates the movement at 40 metres per life, which is of particular importance when deciding on new main haulage levels. To year for a total of 360 metres. The e ect of the changed deformation forecast is carried achieve this, reassessment of the useful lives and depreciation methods must be continu- forward based on the estimated impact boundary as of 31 December 2014. ously reassessed. Changes in assessments could have a material impact on consolidated For Malmberget there are no environmental conditions as determined by a court earnings and fi nancial position. of law. As indicated above however, it can be stated that central Malmberget is largely The carrying amount of property, plant and equipment at year-end amounted to encircled by the impact area from mining operations. Provisions have therefore been SEK 39,529 (33,759) million. Depreciation for the year amounted to SEK 2,865 (2,432) made for this entire impact area. million. The impact will continue for many years ahead and there will be uncertainty regard- ing geological consequences, assumptions about market values, demolition and waste disposal costs etc. The uncertainty in the estimates made so far will decrease as the experience gained is taken into account in future estimates. Provisions for urban transformation at year-end amounted to SEK 11,683 (6,304) NOTE 2 million. DISTRIBUTION OF REVENUE 28.1.2 Provisions for remediation Group Parent Company In addition to urban transformation, mining operations also give rise to remediation, SEK million 2014 2013 2014 2013 dismantling and decontamination obligations. These obligations mainly arise as a result Net sales: of legal environmental requirements. The Group recognises provisions for remediation Sale of goods – iron ore 18,356 21,745 18,665 21,918 costs for all legal and constructive obligations. Future expenditures for remediation are those resulting from closed operations and Sale of goods – industrial minerals 1,870 1,660 ongoing operations. The company collaborates with regulatory authorities to devise Other 389 468 305 347 long-term plans for remediation of the mining areas. Provisions for ongoing operations Total 20,615 23,873 18,970 22,265 are based on these remediation plans. The amount of the provision is calculated based on acreage and an assessment of future expenditures based on present day technology and general assumptions. The provision is assigned a present value. Future expenditures for closed operations are expensed so as to match underlying production/consumption of the economic benefi ts. Future expenditures for ongoing operations are capitalised. Reviewing and updating of provisions is done as needed when the mine assets’ esti- NOTE 3 mated useful lives, costs, technical conditions, regulations or other conditions change. SEGMENT REPORTING The uncertainty in the estimates made so far will decrease as the experience gained is taken into account in future estimates. Segment information Provisions for remediation at year-end amounted to SEK 1,127 (1,067) million. Group management has determined the operating segments based on the information 28.2 Retirement benefi ts used to make strategic decisions in the business in which LKAB operates. The Group's Several assumptions are important components in the actuarial methods used to internal reporting system is based on this, and a product and division perspective was calculate pension provisions, and these may have a signifi cant impact on the recognised chosen. Group management assesses and follows up on business activities in each divi- net obligation and annual pension cost. The discount rate and expected return on plan sion, and follow-up focuses on the operating profi t and operating assets of the business. assets are two critical assumptions used in the calculation of net pension cost and the Intra-group prices between segments are based on the arm’s length principle, that is, present value of pension obligations. between parties that are independent of each other, well-informed and with an interest in These assumptions are assessed annually for each pension plan in each country. completing transactions. Several factors do not change as often, such as personnel turnover and retirement age. Assets and liabilities are included as directly attributable items in the segments’ profi t For fi nancial and other reasons, actual outcomes often di er from actuarial assump- or loss. tions. Unallocated items in the income statement relate to net fi nancial items and tax The discount rate enables the measurement of future cash fl ows to present value expenses. Assets and liabilities that are not allocated by segment are tax assets and tax on the measurement date. This rate must correspond to the yield on either high-quality liabilities, fi nancial investments and fi nancial liabilities. Each segment’s capital expendi- corporate bonds or, if there is no viable market for such bonds, government bonds. A tures on property, plant and equipment include all tangible investments. lower discount rate increases the present value of the pension provision and the annual cost. The Group comprises the following operating segments: To determine the expected return on plan assets, LKAB considers the current and anticipated categories of the assets as well as historical and expected returns on the Mining Division. The Mining Division mines and processes iron ore into products that are various categories of assets. used in steelmaking. Its main products are pellets and fi nes and the number of customers Provisions for pensions at year-end amounted to SEK 1,866 (1,610) million. is limited to about 20. 28.3 Taxes Minerals Division. The Minerals Division develops, produces and markets industrial miner- Signifi cant assessments are made to determine current tax assets and liabilities as well al products for a variety of uses, and customers are found in numerous industries all over as deferred tax assets and liabilities. LKAB must assess the likelihood that deferred the world. The main industries include construction, oil and gas extraction, rubber, plastics tax assets will be utilised to o set future taxable profi ts. Actual outcomes may di er and paint industry, chemical industry, automobile industry and foundries. The number of from the estimates, for instance due to changed tax legislation or the outcome of fi nal customers amount to several thousand. reviews of tax returns by tax authorities and tax courts. Special Businesses Division. LKAB has several subsidiaries in the Special Businesses A deferred tax liability (net) of SEK -3,379 (-3,794) million was recognised at year- Division. These companies are at present mainly sub-contractors to the Mining Division end. The corresponding amount for current tax is a net tax liability of SEK -198 million and Minerals Division. Services provided and goods produced and sold include drilling (asset SEK 241 million). equipment, explosives, concrete, tunnelling, rock reinforcement, and iron ore crushing. 28.4 Disputes LKAB is involved in a number of disputes and legal proceedings in the ordinary course of business. Management consults with legal counsel on matters related to litigation and other experts both within and outside the company on matters concerning the or- dinary course of business. Management’s considered opinion is that neither the Parent Company nor any subsidiary is currently involved in any legal or arbitration proceedings that are expected to have a material e ect on the business, its fi nancial position or operational earnings. 28.5 The useful life and depreciation method for property, plant and equipment Depreciation periods for main haulage levels, facilities and equipment in mines is dependent on future ore extraction and the mine’s life span. It is essential that changes NOTES 109

NOTE 3 SEGMENT REPORTING (CONT.)

The segment information provided is as follows: Operating segment Special Businesses Consolidated adjust- Group Mining Division Minerals Division Division Total ments and eliminations Group SEK million 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 External income 18,515 21,962 1,870 1,660 198 251 20,583 23,873 32 20,615 23,873 Internal income 498 278 1 1,534 1,691 2,032 1,970 -2,032 -1,970 Total income 19,013 22,240 1,870 1,661 1,732 1,942 22,615 25,843 -2,000 -1,970 20,615 23,873

Operating profi t 223 6,951 212 63 153 277 588 7,291 -18 348 570 7,639 Net fi nancial items 24 129 Profi t before tax 594 7,768 Tax -247 -1,736 Profi t for the year 347 6,032

Assets 44,680 41,163 1,175 1,102 1,066 1,045 46,921 43,310 -1,668 -2,182 45,253 41,128 Unallocated assets 17,880 16,694 Total assets 63,133 57,822

Liabilities 18,469 12,100 699 553 429 355 19,597 13,008 347 -471 19,944 12,537 Unallocated liabilities 5,435 3,813 Total liabilities 25,379 16,350

Investments in property, plant and equipment 5,419 5,902 25 24 47 53 5,491 5,979 162 5,491 6,141

Signifi cant non-cash items Depreciation of property, plant and equipment -2,743 -2,291 -27 -26 -63 -70 -2,833 -2,387 -32 -45 -2,865 -2,432 Impairment of property, plant and equipment -16 -1 -1 -16 -1 -16 Provision for urban transformation -3,432 -620 -3,432 -620 -3,432 -620 Unallocated provision (interest) -145 -120 Total provision for urban transformation -3,577 -722

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

Operating segments (cont.)

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

Sweden Rest of Europe Middle East & Asia Rest of world Group 2014 2013 2014 2013 2014 2013 2014 2013 SEK million External income 18,997 22,264 836 956 496 552 286 101 Property, plant and equipment 36,590 31,252 2,920 2,493 18 14 1 Investments in property, plant and equipment 4,827 5,907 660 227 6 4 1

Information about major customers Under IFRS 8, the company must disclose information about major customers. The LKAB Group has fi ve major customers, each of which represents more than ten percent of Group sales. Sales to these customers accounted for 18% (15), 17% (16), 13% (11), 11% (14) and 11% (9) and are recognised in the Mining Division operating segment.

Mining Division Minerals Division Special Businesses Division Parent Company total Parent Company 2014 2013 2014 2013 2014 2013 2014 2013 SEK million Net sales 18,970 22,265 18,970 22,265

Europe Middle East & Asia Rest of world Parent Company Parent Company 2014 2013 2014 2013 2014 2013 2014 2013 SEK million Net sales 13,200 15,421 4,781 5,855 989 989 18,970 22,265

110 NOTES

NOTE 4 NOTE 5 OTHER OPERATING INCOME OTHER OPERATING EXPENSES

Group Parent Group Parent SEK million 2014 2013 2014 2013 SEK million 2014 2013 2014 2013 Rental income, properties 182 165 Property costs 134 131 Gain on sale of non-current assets 4 Loss on sale of non-current assets 17 4 6 Exchange gain on receivables/liabilities 38 27 9 20 Exchange loss on receivables/liabilities 23 11 13 related to operations related to operations Rental and leasing income 1 1 Insurance costs 109 97 Other 90 22 63 10 Other 94 60 61 15 311 219 72 30 377 303 74 21

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

Average number of Of whom Of whom Of whom Of whom employees women men women men Parent Company 2014 2013 Sweden 3,449 20% 80% 3,375 19% 81% Parent Company total 3,449 20% 80% 3,375 19% 81%

Subsidiaries Sweden 520 17% 83% 500 15% 85% China 47 30% 70% 49 31% 69% Netherlands 28 32% 68% 25 32% 68% Norway 217 12% 88% 202 10% 90% United Kingdom 202 23% 77% 193 21% 79% Germany 18 50% 50% 18 50% 50% Other countries 58 22% 78% 65 25% 75% Subsidiaries total 1,090 19% 81% 1,052 17% 83%

Group total 4,539 20% 80% 4,427 19% 81%

Gender distribution in company management as at 31 December

2014 2014 2013 2013 Parent Company Percentage women Percentage men Percentage women Percentage men Board of Directors 30% 70% 36% 64% Other senior executives 30% 70% 20% 80%

Salaries and other remuneration of senior executives and other employees along with social costs in the Parent Company 2014 2013 Senior Senior executives executives Parent Company (22 persons) Other (21 persons) Other SEK million employees Total employees Total Salaries and other remuneration Sweden 29 1,831 1,860 26 1,730 1,756 Parent Company total 29 1,831 1,860 26 1,730 1,756 Social costs 908 1,027 Of which pension costs 327 495 NOTES 111

Remuneration of senior executives

Senior executives Senior executives refers to Board members, the President and other senior executives. Other senior executives refers to salaried employees who are members of Group management together with the President. Guidelines for the remuneration of senior executives The remuneration of the Chairman of the Board and Board members is decided at the Annual General Meeting (AGM). There are additional special fees for committee work. For the remuneration of Group management, the AGM resolved to apply the most current government employment guidelines for persons in managerial positions and for incen- tive programmes for employees in state-owned enterprises. Government guidelines were last updated in April 2009. Preparation and decision-making processes for determining the remuneration of senior executives Remuneration terms for the President and salary-setting principles for Group management are prepared by a remuneration committee appointed by the Board of Directors. Four board members make up the committee. The Board takes decisions based on committee proposals. The Chairman of the Board approves the annual salary reviews of other Group management executives. Principles for the remuneration of senior executives The President and other Group management executives are paid fi xed salaries. The salaries are pensionable. President Lars-Eric Aaro’s monthly salary was SEK 400,000. Retirement age for the President is 65. The President’s pension plan is a defi ned-contribution plan whereby LKAB makes a yearly provision of 30% of the President’s current fi xed annual salary for a pension plan chosen by the President, which may include the ITP plan. The portion of the alter- native ITP premium that is not used to cover premiums for the ITP plan can be used by the President for a complementary pension plan. Accrued retirement benefi ts under previous employment agreements as a vice president are placed in a paid-up policy. The President is entitled to waive salary in favour of further pension provisions up to a maximum level determined by LKAB. The retirement age for other senior executives is 65. They have a defi ned-contribution pension plan to which LKAB allocates 30% of annual fi xed salary. As at 31 December 2012, the former defi ned benefi t plans for other senior executives who joined Group management before 2009 (four persons) were settled by commutation. The right to the commutation is vested gradually in three equal parts. The fi rst part is considered fully vested upon signing the agreement (31 December 2012). The second part is considered vested one year after signing the agreement (31 December 2013) and the third part is considered vested two years after signing the agreement (31 December 2014). Mutual notice of termination is six months for senior executives. Severance pay equivalent to 18 monthly salaries is paid when notice of termination is given by the company. For further information, see the table Remuneration and other benefi ts to members of Group management in 2014.

Remuneration and other benefi ts to the Board 2014 2013 SEK thousand Board fee Board fee Chairman of the Board Sten Jakobsson 463 250 Board member Hans Biörck 310 310 Board member Maija Liisa Friman 250 250 Board member Lars-Åke Helgesson 330 330 Board member Hanna Lagercrantz Board member Maud Olofsson 250 250 Board member Lars Pettersson 250 167 Former Chairman Marcus Wallenberg 197 590 Total 2,050 2,147

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

Remuneration and other benefi ts to members of Group management in 2014 Other Pension Pension SEK thousand Basic salary benefi ts cost Total obligations President Lars-Eric Aaro 4 858 99 1 469 6 426 4 652 Vice President Monica Bellgran 2 015 71 637 2 723 Vice President Leif Boström 1 000 34 1 384 2 418 3 320 Vice President Anders Furbeck 2 299 13 3 402 5 714 13 587 Vice President Frank Hojem 1 711 87 491 2 289 Vice President Katarina Holmgren 1 982 91 606 2 679 143 Vice President Anders Kitok 2 101 18 1 664 3 783 3 564 Vice President Per-Erik Lindvall 2 654 84 3 178 5 916 16 512 Vice President Markus Petäjäniemi 2 675 91 856 3 622 82 Vice President Grete Solvang Stoltz 1 983 79 608 2 670 36 Vice President Peter Schmid 2 421 154 718 3 293 Total 25 699 821 15 013 41 533 41 896

Other benefi ts include car, subsistence and life insurance benefi ts. Pension cost excluding special employer’s contribution. From 1 Feb 2014. Until 31 May 2014.

112 NOTES

Remuneration and other benefi ts to members of Group management in 2013 Other Pension Pension SEK thousand Basic salary benefi ts cost Total obligations President 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 Fogde 1,590 61 662 2,313 40 Vice President Anders Furbeck 2,251 13 3,284 5,548 11,323 Vice President Frank Hojem 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 Schmid 951 71 362 1,384 Total 23,147 750 14,530 38,427 34,966

Other benefi ts include car, subsistence and life insurance benefi ts. Pension cost excluding special employer’s contribution. Period 1 Jan 2013–10 Dec 2013. Period 1 Sep 2013–31 Dec 2013. Period 1 Aug 2013–31 Dec 2013.

For additional information including post-employment benefi ts, see Note 26 Pensions.

NOTE 7 AUDITORS’ FEES AND REIMBURSEMENTS

Group Parent Company SEK million 2014 2013 2014 2013 Deloitte Audit engagements 7 7 4 4 Other auditing 0 0 Tax consulting 3 1 2 1 Other services 1 3 1 2

Other auditors Audit engagements 0 0

Audit engagements refer to statutory auditing of annual and consolidated fi nancial statements and bookkeeping as well as the Board’s and President’s administration of the company, along with audits and other reviews performed as agreed upon or contracted. This includes other tasks that the company’s auditor is responsible for performing, as well as consultancy or other assistance resulting from observations made during such reviews or the performance of such other tasks.

NOTE 8 OPERATING EXPENSES BY TYPE

Group Parent Company SEK million 2014 2013 2014 2013 Employee benefi t expenses 3,684 3,415 2,856 2,892 Material etc. 3,333 3,332 2,446 2,498 Energy 1,553 1,690 1,338 1,451 Transport 516 530 1,712 1,757 Depreciation, amortisation and 2,929 2,448 2,213 1,812 impairment Other operating expenses 8,341 5,038 8,389 5,153 20,356 16,453 18,954 15,563

Other operating expenses includes SEK 3,432 million (620) related to expenses incurred due to the e ect of mining on communities. The amount is a provision for future disbursement. NOTES 113

NOTE 9 Profi t from other Other interest NET FINANCIAL ITEMS securities and income and similar receivables held as profi t items non-current assets Parent Company Group SEK million 2014 2013 SEK million 2014 2013 2014 2013 Financial income Interest income, Group companies 40 33 41 41 Assets at fair value (fair value option) Interest income, forward exchange premium 40 58 - Interest-bearing securities – net gain 190 219 Interest income, other 216 255 - Shares and alternative investments – net gain 114 194 Return, shares and alternative investments 73 241 - Shares – dividend 7 31 Dividend, shares 12 7 31 Assets at fair value (held for trading) Impairment of receivables from subsidiaries -153 - Derivatives 6 17 Reversed impairment 2 Forward exchange contracts – interest component 41 65 Exchange rate di erences, foreign currency 72 Available-for-sale fi nancial assets – dividend 12 -111 45 449 626 Investments held to maturity – interest 15 9 Dividends on shares that are fi nancial assets refer to holdings in SSAB. Loan receivables – reversed impairment 2 Interest income and similar profi t/loss items includes return on interest-bearing securi- Return on plan assets 83 28 ties of SEK 205 million (225). Other interest income 11 36 Interest expense and Exchange rate fl uctuations (net) 50 Parent Company similar profi t/loss items Total fi nancial income 519 611 SEK million 2014 2013 Financial expenses Interest expense on loan facility -16 -13 Investments held to maturity – impairment -125 -22 Interest expense, Group companies -5 -8 Liabilities at fair value (held for trading) Interest expense, pension provision -34 - Derivatives -33 Interest expense, urban transformation -145 -102 Interest expense on provision for urban transformation -145 -102 Interest expense, remediation costs -22 -22 Interest expense on provision for remediation costs -31 -29 Exchange rate di erences, foreign currency -178 Interest expense on defi ned-benefi t pension obligation -135 -105 Interest expense, liabilities to credit insti- -6 tutions Interest expense on interest-bearing liabilities -6 Other fi nancial expenses -1 -10 Interest expense on loan facility -16 -13 -195 -367 Other fi nancial expenses -4 -16 Exchange rate fl uctuations (net) -195 As of 2014, the Parent Company does not recognise interest expenses on pension provi- Total fi nancial expenses -495 -482 sions as vested pension obligations are funded through payment into the pension fund. Net fi nancial items 24 129 Other fi nancial expenses consist primarily of banking and administration expenses.

Since the forward exchange contracts were signed, a lower interest rate in SEK com- pared with the USD rate has resulted in a positive e ect of SEK 41 million (65) linked to the interest component of the forward exchange contract item. NOTE 10 The net gains and losses recognised in net fi nancial items under the exchange rate APPROPRIATIONS fl uctuations item refer primarily to cash and cash equivalents. The weakening of the SEK has led to exchange gains on bank balances during the year. Parent Company Other fi nancial expenses refer primarily to banking and administration expenses. SEK million 2014 2013 Profi t from participations Di erence between recognised deprecia- Parent Company in Group companies tion/amortisation and depreciation/amorti- SEK million 2014 2013 sation according to plan: Land and buildings 1 Dividend 236 214 Machinery and equipment -1,207 -1,039 Impairment -8 -5 Tax allocation reserve, provision for the year -650 -1,858 228 209 Tax allocation reserve, reversal for the year 2,200 1,275 Group contribution received 342 64 Group contribution paid -150 -205 Total 535 -1,762

Deferred tax on appropriations (excluding Group contributions) amounts to SEK 75 million (-357). Deferred tax on appropriations is only recognised in consolidated earnings. 114 NOTES

NOTE 11 Parent Company TAXES SEK million 2014 (%) 2014 2013 (%) 2013 Profi t before tax 994 5,483 Tax as per e ective tax rate for 22.0% -219 22.0% -1,206 Recognised in the income statement Parent Company Group Non-deductible expenses 3.8% -37 0.3% -15 SEK million 2014 2013 Non-taxable income -5.2% 52 -1.0% 54 Current tax expense (-) Tax attributable to prior years 0.4% -4 -0.3% 19 Tax expense for the year -483 -1,454 Standard interest on tax alloca- 2.5% -25 0.4% -24 Adjustment of tax attributable to prior years -4 16 tion reserve -487 -1,438 Other 3.9% -39 0.0% 1 Deferred tax expense (-) Recognised e ective tax 27.4% -272 21.4% -1,171 Deferred tax on temporary di erences 240 -298 240 -298 Total recognised Group tax expense -247 -1,736 Tax attributable to other comprehensive income Group SEK million 2014 2013 Parent Company Cash fl ow hedges 105 34 SEK million 2014 2013 Actuarial gains and losses 62 -23 Current tax expense (-) 167 11 Tax expense for the year -461 -1,382 Adjustment of tax attributable to prior years -5 19 Tax items recognised directly in equity -466 -1,363 Deferred tax expense (-) Group SEK million 2014 2013 Deferred tax on temporary di erences 194 192 Provision for remediation costs – adjusted for retroactive 165 194 192 application Total recognised Parent Company tax expense -272 -1,171 165

Parent Company Reconciliation of e ective tax SEK million 2014 2013 Group Provision for remediation costs – adjusted for retroactive 155 SEK million 2014 (%) 2014 2013 (%) 2013 application Profi t before tax 594 7,768 155 Tax as per e ective tax rate for 22.0% -131 22.0% -1,709 Parent Company Non-deductible expenses 6.9% -41 0.3% -21 Non-taxable income -0.5% 3 -0.1% 9 Tax attributable to prior years 0.8% -5 -0.2% 16 Standard interest on tax alloca- 4.2% -25 0.3% -24 tion reserve Other 8.2% -48 0.1% -7 Recognised e ective tax 41.6% -247 22.4% -1,736

Recognised in the statement of fi nancial position and the balance sheet

Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Deferred Deferred Group tax asset tax liability Net SEK million 2014 2013 2014 2013 2014 2013 Property, plant and equipment 6 41 -2,511 -2,234 -2,505 -2,193 Current investments -7 -13 -7 -13 Tax allocation reserve 3 3 -1,994 -2,340 -1,991 -2,337 Contingency reserve -93 -99 -93 -99 Pension provisions 352 312 352 312 Provisions for urban transformation 689 441 689 441 Other provisions 50 50 50 50 Cash fl ow hedges 99 -14 -18 85 -18 Loss carryforwards 26 48 26 48 Other 17 17 -2 -2 15 15 Tax assets/liabilities 1,242 912 -4,621 -4,706 -3,379 -3,794 O set -1,198 -893 1,198 893 Tax assets/liabilities, net 44 19 -3,423 -3,813 -3,379 -3,794 NOTES 115

Deferred Deferred Parent Company tax asset tax liability Net SEK million 2014 2013 2014 2013 2014 2013 Property, plant and equipment 32 -6 -6 32 Pension provisions 149 163 149 163 Provisions for urban transformation 689 441 689 441 Other 40 42 40 42 Tax assets/liabilities 878 678 -6 872 678

Change in deferred tax in temporary di erences and loss carryforwards

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

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

Parent Company Balance at Recognised in Balance at SEK million 1 Jan 2013 income 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

Parent Company Balance at Recognised in Balance at SEK million 1 Jan 2014 income statement 31 Dec 2014 Property, plant and equipment 32 -38 -6 Pension provisions 163 -14 149 Provisions for urban transformation 441 248 689 Other 42 -2 40 678 194 872 116 NOTES

NOTE 12 Parent Company Mining EARNINGS PER SHARE SEK million rights Other Total The number of shares for 2014 and 2013 amounted to 700,000. Earnings attributable to Acquisition value Parent Company shareholders are SEK 347 million (6,032), thereby, earnings per share Opening balance, 1 Jan 2013 161 86 247 are SEK 496 (8,617). There are no options or potential ordinary shares, so there is no Change in emission allowances -31 -31 dilution. Closing balance, 31 Dec 2013 161 55 216

NOTE 13 Opening balance, 1 Jan 2014 161 55 216 INTANGIBLE ASSETS Change in emission allowances -6 -6 All of the Group’s intangible assets are acquired. Closing balance, 31 Dec 2014 161 49 210 Group Mining SEK million Goodwill rights Other Total Amortisation Acquisition value Opening balance, 1 Jan 2013 -161 -13 -174 Opening balance, 1 Jan 2013 198 285 110 593 Amortisation for the year 0 0 Business aquisitions 11 4 15 Closing balance, 31 Dec 2013 -161 -13 -174 Change in emission allowances -31 -31 Disposals and retirements -1 -1 Opening balance, 1 Jan 2014 -161 -13 -174 Other changes -7 -1 -8 Closing balance, 31 Dec 2014 -161 -13 -174 Exchange rate di erences for 5 -3 2 the year Closing balance, 31 Dec 2013 213 275 82 570 Carrying amount At 1 Jan 2013 73 73 Opening balance, 1 Jan 2014 213 275 82 570 At 31 Dec 2013 42 42 Change in emission allowances -6 -6 Disposals and retirements -10 -10 At 1 Jan 2014 42 42 Exchange rate di erences for 25 2 27 At 31 Dec 2014 36 36 the year Closing balance, 31 Dec 2014 228 277 76 581 Impairment testing of cash-generating units containing goodwill The LKAB Minerals Ltd cash generating unit, which forms parts of the Minerals Division Amortisation primary segment, has substantial recognised goodwill value relative to the Group’s total recognised goodwill value. During the year the goodwill value of LKAB Opening balance, 1 Jan 2013 -4 -174 -36 -214 Minerals Oy was impaired by SEK 36 million due to defi cient profi tability. Amortisation for the year Business aquisitions -4 -4 SEK million 2014 2013 Other changes 7 7 LKAB Minerals Ltd 138 122 Closing balance, 31 Dec 2013 -4 -167 -40 -211 LKAB Minerals OY 35 138 157 Opening balance, 1 Jan 2014 -4 -167 -40 -211 Units without signifi cant goodwill value, Amortisation for the year -1 -1 combined 38 43 Exchange rate di erences -1 -1 176 200 Closing balance, 31 Dec 2014 -5 -168 -40 -213 The cash generating units’ recoverable amounts are based on the same important assumptions. Impairment testing is based on measurement of value in use. This value is Impairment based on cash fl ow forecasts for which the fi rst three years are based on the three-year Opening balance, 1 Jan 2013 -9 -93 -102 business plan determined by the management of the Minerals Division. The total length Closing balance, 31 Dec 2013 -9 -93 -102 of the forecast period corresponds to the useful life of the units’ most important assets. The cash fl ows forecast after the fi rst three years were based on annual growth of 2-3% (2-3), which corresponds to the long term growth rate of the units’ markets. The forecast Opening balance, 1 Jan 2014 -9 -93 -102 cash fl ows were calculated to present value with an individual discount rate (WACC). The Impairment for the year -36 -36 important assumptions in the three-year business plan are described below. Exchange rate di erences -2 -2 Closing balance, 31 Dec 2014 -47 -93 -140 Important variables Method for estimating value Market growth Demand for these products has historically followed economic cycles. Expected market growth is based on a transition from Carrying amount the prevailing economic situation to the anticipated long-term At 1 Jan 2013 185 18 74 277 growth. At 31 Dec 2013 200 15 42 257 Personnel benefi t The forecast for personnel benefi t expenses is based on expected expenses infl ation and certain real wage growth. The forecast agrees with previous experience. At 1 Jan 2014 200 15 42 257 At 31 Dec 2014 176 16 36 228 The recoverable amount of the LKAB Minerals Ltd cash-generating unit exceeds the Amortisation and impairment are included on the following lines of the income statement carrying amount by SEK 14 million. The discount rate before tax amounts to 12.82%. Group SEK million 2014 2013 Cost of goods sold -37 0 Of which impairment -36 -37 0 NOTES 117

NOTE 14 PROPERTY, PLANT AND EQUIPMENT

Plant Equipment Group Land Underground and tools, fi xtures Construction SEK million and buildings installations machinery and fi ttings in progress Total Acquisition value Opening balance, 1 Jan 2013 8,698 5,120 19,402 6,598 13,468 53,286 Acquisitions 209 281 40 5,611 6,141 Reclassifi cations -181 177 8,085 196 -8,277 Disposals and retirements -28 -94 -260 -20 -402 Exchange rate di erences -170 -81 -13 -4 -268 Closing balance, 31 Dec 2013 8,528 5,297 27,593 6,561 10,778 58,757

Opening balance, 1 Jan 2014 8,528 5,297 27,593 6,561 10,778 58,757 Acquisitions 8 181 214 32 5,056 5,491 Capitalisation of mine asset and remediation 3,321 12 3,333 Acquisition of subsidiaries 34 34 Reclassifi cations 438 1,000 3,648 521 -5,607 Disposals and retirements -69 -6 -76 -6 -157 Exchange rate di erences 6 24 17 -24 23 Closing balance, 31 Dec 2014 12,266 6,478 31,485 7,055 10,197 67,481

Depreciation Opening balance, 1 Jan 2013 -2,787 -3,585 -12,154 -2,851 -21,377 Depreciation for the year -366 -163 -1,404 -499 -2,432 Reclassifi cations 66 -66 Disposals and retirements 17 86 260 363 Exchange rate di erences 25 25 5 55 Closing balance, 31 Dec 2013 -3,045 -3,748 -13,513 -3,085 -23,391

Opening balance, 1 Jan 2014 -3,045 -3,748 -13,513 -3,085 -23,391 Depreciation for the year -347 -216 -1,793 -509 -2,865 Expensing of mine asset -144 -144 Reclassifi cations -1 1 Disposals and retirements 14 9 65 88 Exchange rate di erences 9 -21 -20 -32 Closing balance, 31 Dec 2014 -3,514 -3,964 -15,317 -3,549 -26,344

Impairment Opening balance, 1 Jan 2013 -531 -399 -496 -10 -158 -1,594 Impairment for the year -16 -16 Exchange rate di erences 3 3 Closing balance, 31 Dec 2013 -544 -399 -496 -10 -158 -1,607

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

Carrying amount 1 January 2013 5,380 1,136 6,752 3,737 13,310 30,315 31 December 2013 4,939 1,150 13,584 3,466 10,620 33,759

1 January 2014 4,939 1,150 13,584 3,466 10,620 33,759 31 December 2014 8,208 2,115 15,671 3,496 10,039 39,529

Capitalised remediation costs amount to SEK 778 million (748) and cumulative depreciation amounts to SEK -514 million (-499). Of the net amount of SEK 264 million (249), SEK 214 million (208) is recognised as land and buildings and SEK 50 million (41) as plant and machinery. Land and buildings includes a net mine asset of SEK 3,159 million. 118 NOTES

Depreciation and impairment are included on the following lines of the income statement Group SEK million 2014 2013 Cost of goods sold -2,828 -2,408 Of which impairment -1 -16 Selling expenses -4 -3 Administrative expenses -13 -16 Research and development -17 -21 Other operating expenses -4 -2,866 -2,448

Plant Equipment Parent Company Land Underground and tools, fi xtures Construction SEK million and buildings installations machinery and fi ttings in progress Total Acquisition value Opening balance, 1 Jan 2013 5,662 5,126 18,581 940 13,736 44,045 Acquisitions 19 1 259 18 5,385 5,682 Reclassifi cations -253 177 8,053 190 -8,167 Disposals and retirements -47 -7 -780 -4 -663 -1,501 Closing balance, 31 Dec 2013 5,381 5,297 26,113 1,144 10,291 48,226

Opening balance, 1 Jan 2014 5,381 5,297 26,113 1,144 10,291 48,226 Acquisitions 23 181 268 17 4,368 4,857 Capitalisation of mine asset 3,303 3,303 Reclassifi cations 419 1,000 3,561 54 -5,034 0 Disposals and retirements -6 -284 -290 Closing balance, 31 Dec 2014 9,126 6,478 29,936 1,215 9,341 56,096

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

Opening balance, 1 Jan 2014 -2,061 -3,748 -12,769 -749 -19,327 Depreciation for the year -213 -216 -1,680 -104 -2,213 Expensing of mine asset -144 -144 Disposals and retirements 6 6 Closing balance, 31 Dec 2014 -2,418 -3,964 -14,443 -853 -21,678

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

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

Carrying amount 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

1 January 2014 2,777 1,150 12,848 386 10,133 27,294 31 December 2014 6,165 2,115 14,997 353 9,183 32,813

Land and buildings includes a net mine asset of SEK 3,159 million. NOTES 119

Depreciation and impairment are included on the following lines of the income statement NOTE 18 OTHER NON-CURRENT SECURITIES HOLDINGS Parent Company Parent Company (MSEK) 2014 2013 SEK million 31/12/2014 31/12/2013 Cost of goods sold -2,193 -1,785 Accumulated acquisition value Of which impairment -16 At beginning of year 129 129 Selling expenses -0 Closing balance, 31 December 129 129 Administrative expenses -3 -6 Research and development -17 -21 -2,213 -1,812 Parent Company SEK million 31/12/2014 31/12/2013 Specifi cation of other non-cur- Market Carrying Market value Carrying rent securities holdings value or amount or equivalent amount NOTE 15 equivalent HOLDINGS IN JOINT OPERATIONS SSAB 563 83 609 83 Group Other holdings 46 46 46 46 The Group has a 50 percent co-ownership in Likya Minerals, whose main products are 609 129 655 129 minerals with fl ame retardant properties (UltraCarb). Likya operates out of Turkey. Likya is a separate company but co-ownership is still considered to be a joint opera- Other holdings relate primarily to Vindln AB. tion. The assessment is based on the fact that the co-owners have a commitment to buy all services that Likya provides and consequently fi nances Likya’s entire operation in order to settle its liabilities. NOTE 19 NON-CURRENT RECEIVABLES AND OTHER RECEIVABLES

Group NOTE 16 SEK million 31/12/2014 31/12/2013 RECEIVABLES FROM GROUP COMPANIES Non-current receivables that are non-current assets Parent Company Interest-free loan, Jernbaneverket 42 83 SEK million 31/12/2014 31/12/2013 Other non-current receivables 20 20 Accumulated acquisition value 62 103 Opening balance, 1 January 1,042 1,142 Other receivables that are current assets Lending 793 163 PRI balance 22 22 Amortisation -137 -263 Recoverable VAT 286 190 Closing balance, 31 December 1,698 1,042 Tax assets 8 249 Receivables, credit institutions 441 481 Accumulated impairment Forward exchange contracts (USD) 103 Impairment for the year -153 Derivatives 64 Closing balance, 31 December -153 Tax account 18 6 Receivables from clients 22 19 Carrying amount at year-end 1,545 1,042 Other 15 9 876 1,079

NOTE 17 FINANCIAL INVESTMENTS

Group SEK million 31/12/2014 31/12/2013 Financial investments held as non-current assets Shares and participating interests – available-for-sale assets 614 658 Derivatives – held for trading purposes 28 Interest-bearing securities – held to maturity 10 113 Financial assets for funded pension obligations 288 276 912 1,075 Financial investments held as current assets Interest-bearing securities – initially measured at fair value 9,222 10,058 Shares and alternative investments – initially measured at fair value 2,179 705 Interest-bearing securities – held to maturity 104 38 11,505 10,801

Shares and participating interests mainly refer to shares in SSAB. The carrying amount of the SSAB shares signifi cantly exceeds the cost of acquisition. Change in value during the year is recognised directly against other comprehensive income. Interest-bearing securities held to maturity have a fi xed interest rate of between 7% and 15% with a maturity of between two and six years. An impairment loss of SEK 125 million (22) was taken on a loan receivable that was being held to maturity and a loss of SEK 28 million was taken on derivatives for trading purposes since the issuer is in bankruptcy. 120 NOTES

Parent Company NOTE 23 SEK million 31/12/2014 31/12/2013 EQUITY

Non-current receivables 2014 2013 Company-owned endowment insurance 92 87 Specifi cation of equity reserves Interest-free loan, Jernbaneverket 42 83 Translation reserve 134 170 Opening translation reserve -139 -121 Other current receivables Translations di erences for the year 74 -18 PRI balance 21 21 Closing translation reserve -65 -139 Recoverable VAT 266 121

Tax assets 193 Fair value reserve 2014 2013 Tax account 0 Opening fair value reserve 526 616 Receivables, credit institutions 441 481 Available-for-sale fi nancial assets: Other 1 -2 Revaluation recognised directly against -45 -90 729 814 other comprehensive income Closing fair value reserve 481 526

Parent Company SEK million 31/12/2014 31/12/2013 Hedge reserve 2014 2013 Non-current receivables Opening hedge reserve 56 176 Accumulated acquisition value Cash fl ow hedges At beginning of year 170 185 Recognised directly against other comprehensive -410 72 income Amortisation -44 Dissolved against income statement -67 -226 Reclassifi cation -22 Tax attributable to revaluations for the year 105 34 Exchange rate fl uctuation 1 Closing hedge reserve -316 56 Reversal of impairment 2 0 Change in value of endowment insurance 5 7 Total reserves 2014 2013 Closing balance, 31 December 134 170 Opening reserves 443 671 Change in reserves for the year: Translation reserve 74 -18 NOTE 20 INVENTORIES Fair value reserve -45 -90 Hedge reserve -372 -120 Group Closing reserves 100 443 SEK million 31/12/2014 31/12/2013 Raw materials and consumables 1,800 1,019 Work in progress 6 9 Share capital As at 31 December 2014, the registered share capital comprised 700,000 (700,000) Finished goods and goods for resale 747 1,583 ordinary shares. The share capital consists of only one type of share and all shares have 2,553 2,611 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 Parent Company SEK 1,000 per share. SEK million 31/12/2014 31/12/2013 Raw materials and consumables 1,610 832 Translation reserve The translation reserve covers all exchange rate di erences that arise in translating the Work in progress 0 fi nancial statements of foreign entities whose fi nancial statements were prepared in Finished goods 330 1,279 currencies other than the Group’s reporting currency. The Parent Company and Group 1,940 2,111 present their fi nancial statements in SEK.

Fair value reserve NOTE 21 Available-for-sale fi nancial assets ACCOUNTS RECEIVABLE The fair value reserve includes the accumulated net change in fair value of availa- ble-for-sale fi nancial assets up until the assets are derecognised from the statement of Accounts receivable are recognised after taking into account consolidated bad debt fi nancial position. Any impairment is recognised in the income statement. losses for the year amounting to SEK 1 million (11). Hedge reserve The hedge reserve includes the e ective portion of the accumulated net change in fair value of cash fl ow hedging instruments attributable to hedging transactions that have NOTE 22 PREPAID EXPENSES AND ACCRUED INCOME not yet occurred. Dividend Group Parent Company After the end of the reporting period, the Board proposed the following dividend. The SEK million 31/12/2014 31/12/2013 31/12/2014 31/12/2013 dividend is subject to approval at the AGM on 28 April 2015. Forward exchange contracts – interest surcharges 11 21 SEK million 2014 2013 Ordinary dividend, SEK 199 (3,429) per share 139 2,400 Prepaid premiums 35 35 30 28 Extra dividend, SEK 1,571 per share 1,100 Other prepaid expenses 112 65 74 46 Other accrued income 11 31 139 3,500 158 131 115 95 NOTES 121

The dividend proposed by the Board is in line with the decisions made at the AGM for the NOTE 26 past two years. PENSIONS

Parent Company Restricted reserves Restricted reserves cannot be reduced through distribution of profi ts. Defi ned-benefi t pension plans Statutory reserve Group The purpose of the statutory reserve is to save a portion of net profi t that is not used to SEK million 2014 2013 cover losses brought forward. Present value of unfunded obligations 770 1,593 Non-restricted equity Present value of wholly or partially funded obligations 3,413 2,198 Profi t brought forward Total present value of obligations 4,183 3,791 Comprises the previous year’s non-restricted equity after any distribution of profi ts. Fair value of plan assets -2,317 -2,181 Together with profi t for the year, it comprises non-restricted equity, that is, the amount Present value of net obligations 1,866 1,610 that is available as a dividend to shareholders.

E ect of limitation rule for net assets Net amount in statement of fi nancial position 1,866 1,610 NOTE 24 INTEREST-BEARING LIABILITIES The net amount is recognised in the following items in the statement of fi nancial position: Financial investments -290 -276 Group SEK million 2014 2013 Provisions for pensions, non-current liabilities 2,156 1,886 Non-current liabilities Net amount in statement of fi nancial position 1,866 1,610 Issued corporate bonds 1,995 1,995 Current liabilities Defi ned-benefi t pension plans Issued commercial papers 798 Most of LKAB’s pension plans for employees in Sweden are defi ned-benefi t plans, which 798 means that LKAB guarantees pensions based on a percentage of salary. Pension provi- sions in Sweden are secured by the company via accrued provisions, of which most are Terms and payback periods secured through credit insurance from FPG (Försäkringsbolaget PRI Pensionsgaranti). In 2013, an internal company pension fund was started for vested defi ned-benefi t pension SEK million 2014 2013 plans. Promises of future retirement before the age of 65 are to a certain degree contin- Maturity Interest Nom. Recog. Nom. Recog. gent upon working underground and are secured by the company via accrued provisions value value value value without credit insurance. Bonds – Commitments for retirement pensions and survivor benefi ts for salaried employees fi xed interest 2019 1.125% 1,600 1,595 in Sweden are secured through insurance policies from Alecta. According to a statement Bonds 3-month from the Swedish Financial Reporting Board, UFR 3, this is a defi ned-benefi t plan that – variable interest 2019 STIBOR 400 400 involves several employers. The company has not had access to such information as is Commercial STIBOR + necessary for recognising this commitment as a defi ned-benefi t plan. The ITP 2 pension papers 2015 0.01-0.07% 800 798 plan insured via Alecta is therefore recognised as a defi ned-contribution plan. The premium for the defi ned-benefi t retirement and family pension is individually calculated Total interest- bearing liabilities 2,800 2,793 and depends on factors such as salary, previously earned pension and expected remaining years of service. Alecta’s surplus can be distributed to the policyholders and/ Financial liabilities are classifi ed as other fi nancial liabilities and are measured at or the insured parties. At the end of 2014, Alecta’s collective reserve surplus amounted amortised cost using the e ective interest method. to 144% (149), which was below the normal spread of 125%-155% stated in Alecta’s consolidation policy for these insurance policies. For more information about the company’s exposure to interest rate risk, see Note 31. The premium to Alecta is determined by assumptions about interest rates, longevity, operating expenses and yield tax, and is calculated so that constant payment of premi- ums until the retirement date is su cient for the entire target benefi t, which is based on the insured’s current pensionable salary and which must be earned. NOTE 25 There is no set of fi xed rules for how defi cits that may arise should be handled, but LIABILITIES TO CREDIT INSTITUTIONS losses should primarily be covered by Alecta’s collective solvency capital, and will thus not lead to increased expenses through higher contractual premiums. There are also no rules for how any surplus or defi cit should be distributed when plans are terminated or Parent Company a company withdraws from the plan. SEK million 2014 2013 For employees in Belgium, Norway, the UK and Germany, LKAB has defi ned-benefi t Non-current liabilities pension plans as a complement to local social insurance. In Belgium pensions are secured via pension insurance, in the UK via a company-managed pension fund, and Issued corporate bonds 1,995 in Germany via internal accrued provisions combined with credit insurance. In Norway, 1,995 pensions are secured via a combination of a company-managed pension fund, internal Current liabilities accrued provisions and credit insurance. Issued commercial papers 798 798

No liabilities mature later than fi ve years after the end of the reporting period. 122 NOTES

Changes in the present value of obligations for defi ned benefi t plans Group Cost is recognised on the following lines of the income statement: SEK million 2014 2013 Group Obligation for defi ned-benefi t SEK million 2014 2013 plans as at 1 January 3,791 3,829 Cost of goods sold 93 101 Benefi ts paid -214 -212 Financial income (recognised against net fi nancial items) -83 -28 Cost of service, current period 93 101 Financial expense (recognised against net fi nancial 135 105 Interest expense 135 105 items) Assumed obligation 125 145 178 Revaluations: - Actuarial gains and losses on -134 changed demographic assumptions Cost recognised in other comprehensive income - Actuarial gains and losses on 361 209 Group changed fi nancial assumptions SEK million 2014 2013 - Actuarial gains and losses on -5 -130 Revaluations: experience-based adjustments Actuarial gains (-) and losses (+) 356 -55 Other changes -5 Di erence between actual return and return Exchange rate di erences on according to discount rate on plan assets -72 -51 obligation and recognized actuarial loss 27 -102 Net recognised in other comprehensive income 284 -106 Obligation for defi ned-benefi t plans 4,183 3,791 as at 31 December Assumptions for defi ned-benefi t obligations The most signifi cant actuarial assumptions at the end of The present value of the Swedish portion of the obliga- the reporting period (expressed as weighted averages) tion is divided between the plans’ members as follows: Group - Active members 42% (40) Percent 2014 2013 - Paid-up policy holders 17% (24) Discount rate as at 31 December 2.6 3.8 - Retirees 40% (36) Return on plan assets as at 31 December 2.6 3.8 Future salary increase 3.3 3.5 Employee turnover 3.5 3.5 Future pension increase 2.2 2.5 Changes in fair value of plan assets Assumptions about future mortality are based on published statistics and mortality Group rates. The average life expectancy of an individual retiring at age 65 is 23 years for men SEK million 2014 2013 and 25 years for women. Changes in fair value of plan assets at 1 January 2,181 1,101 The actual return on plan assets for 2014 was 6.7% (5.2). Contributions 53 925 Benefi ts paid -78 -49 Return 83 28 Plan assets assumed 188 Sensitivity analysis The following table presents possible changes in actuarial assumptions at year-end, Actuarial gain (+)/loss (-) 72 51 other assumptions being unchanged, and how these would a ect the defi ned benefi t Other -10 obligation. The calculation of the change in pension commitments only includes the Exchange rate di erences on Swedish commitments, which represent 60% of Group commitments. obligation and recognized actuarial loss 16 -63 Fair value of plan Group Increase in Decrease in assets at 31 December 2,317 2,181 SEK million assumption assumption + (decrease)/- (increase) in debt Plan assets consist of the following Discount rate (0.5% change) 119 -133 Group Expected mortality (1-year change) -45 45 SEK million 2014 2013 Future salary increase (0.5% change) -86 77 Shares 698 456 Future pension increase (0.5% change) -68 66 Bonds 1,050 569 At 31 December 2014, the weighted average duration of the obligation was Other interest-bearing assets 289 1,129 20.4 years (19.6). Alternative investments 280 27 2,317 2,181 Historical information Group Cost recognised in profi t for the year SEK million 2014 2013 2012 2011 2010 Group Present value of defi ned- SEK million 2014 2013 benefi t obligations 4,183 3,791 3,822 3,563 3,309 Current service cost 93 101 Fair value of Interest expense on obligation 135 105 plan assets -2,317 -2,181 -1,101 -1,033 -1,008 Return on plan assets -83 -28 Net obligations 1,866 1,610 2,721 2,530 2,301 Total net cost in income statement 145 178 The Group estimates that SEK 44 million will be paid in 2015 to funded and unfunded defi ned-benefi t plans and SEK 5 million is expected to be paid in 2015 to the de- fi ned-benefi t plans that are recognised as defi ned-contribution plans. NOTES 123

Net liability recognised in balance sheet Assumptions for defi ned-benefi t obligations Parent Company The most signifi cant actuarial assumptions at the end of SEK million 31/12/2014 31/12/2013 the reporting period (expressed as weighted averages) + Present value of obligation (calculated according to Swedish principles) as relates to wholly or Parent Company partially funded pension plans 1,023 970 Percent 2014 2013 - Fair value at end of period for specifi cally separated Discount rate as at assets (in pension funds and the like) -999 -943 31 December 3.8 3.8

= Surplus in pension fund or the like Defi ned-contribution pension plans (-)/net obligation (+) 24 27 In Sweden, the Group has defi ned-contribution pension plans for employees that are + Present value of obligations (calculated according to fully paid by the companies. Swedish principles) for unfunded pension plans 563 636 Outside of Sweden, there are defi ned-contribution plans that are fi nanced partly by = Net recognised for pension obligations 587 663 the subsidiaries and partly by employee contributions. Payments into these plans are made regularly in accordance with the terms of each plan.

Changes in net liability Group Parent Company Parent Company SEK million 31/12/2014 31/12/2013 SEK million 2014 2013 2014 2013 Net liabilities at start of year for 663 1,336 Costs for defi ned-contribution pension plans 241 210 207 175 pension provisions + Cost of company-managed pension scheme 30 280 In 2014, no retirement solutions were paid out through insurance plans; the same excluding taxes as recognised in the income applied to 2013. statement - Provision for pension fund -855 - Pension payments -104 -98 +/- Other -2 6 NOTE 27 587 663 PROVISIONS

Fair value of assets in trust by main category Group Parent Company SEK million 31/12/2014 31/12/2013 SEK million 31/12/2014 31/12/2013 Provisions Shares 284 Urban transformation 11,683 6,304 Bonds 429 Emission allowances for carbon dioxide 37 40 Other interest-bearing assets 46 856 Remediation costs 1,127 1,067 Other assets 240 87 Other 141 166 999 943 Total 12,988 7,577

Costs relating to pensions Parent Company Parent Company SEK million 31/12/2014 31/12/2013 SEK million 2014 2013 Provisions Company-managed pension schemes Urban transformation 11,683 6,304 Cost excluding interest expense 30 240 Emission allowances for carbon dioxide 37 40 Interest expense 34 Remediation costs 800 765 Cost of company-managed pension schemes 30 274 Other 112 148 Pension through insurance policy Total 12,632 7,257 Insurance premiums 207 178 Provision for urban transformation related to commitments for damages in Kiruna and Subtotal 237 452 Malmberget caused by ground deformations due to mining. Tax on returns from pension funds 2 For a more detailed accounting, see Note 28. Special employer's contribution on pension costs 79 69 Cost of credit insurance, administrative expenses, other 9 5 Recognised net cost attributable to pensions 325 528

Net pension cost is recognised on the following lines of the income statement: Parent Company SEK million 2014 2013 Financial expenses 34 Operating expense 325 494 325 528 124 NOTES

Group Urban Emission Remediation Other SEK million transformation allowances costs provisions Total Opening balance 2013 5,877 57 1,038 16 6,988 Provisions for the year 528 150 678 Revaluation of prior years’ provisions 224 224 Reversal of provisions -130 -130 Utilised provisions -297 -297 Interest adjustment on liabilities for the year 102 29 131 Emissions for the year 40 40 Settlement of previous years’ emissions -57 -57 Closing balance 2013 6,304 40 1,067 166 7,577 Of which paid out in 2014 1,500 40 1 65 1,606 Of which to be paid out 2015-2021 3,348 307 101 3,756 Of which to be paid out after 2021 1,456 759 2,215

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

Parent Company Urban Emission Remediation Other SEK million transformation allowances costs provisions Total Opening balance 2013 5,877 57 733 6,667 Provisions for the year 528 10 148 686 Revaluation of prior years’ provisions 224 224 Reversal of provisions -130 -130 Utilised provisions -297 -297 Interest adjustment on liabilities for the year 102 22 124 Emissions for the year 40 40 Settlement of previous years’ emissions -57 -57 Closing balance 2013 6,304 40 765 148 7,257 Of which paid out in 2014 1,500 40 1 65 1,606 Of which to be paid out 2015-2021 3,348 239 83 3,670 Of which to be paid out after 2021 1,456 525 1,981

Opening balance 2014 6,304 40 765 148 7,257 Provisions for the year 3,375 13 30 3,418 Revaluation of prior years’ provisions 3,188 3,188 Utilised provisions -1,329 -66 -1,395 Interest adjustment on liabilities for the year 145 22 167 Emissions for the year 37 37 Settlement of previous years’ emissions -40 -40 Closing balance 2014 11,683 37 800 112 12,632 Of which to be paid out in 2015 2,039 37 4 97 2,177 Of which to be paid out 2016-2022 9,201 241 15 9,457 Of which to be paid out after 2022 443 555 998 NOTES 125

NOTE 28 URBAN TRANSFORMATION Provisions for urban transformation Provisions are recognised on the following lines of the balance sheet: LKAB has already had, and will continue to have, signifi cant costs related to urban transformation. Provisions for urban transformation are recognised in accordance with Group and Parent Company SEK million 31/12/2014 31/12/2013 the criteria of IAS 37. In order to fi nance future urban transformation payments, funds are allocated in Current liabilities 2,039 1,500 accordance with the current board-approved fi nancing policy. The purpose of such asset Non-current liabilities 9,644 4,804 management is to ensure LKAB’s ability to pay and that the return on allocated funds 11,683 6,304 will cover infl ation over time. The recognised provision for urban transformation does not include LKAB’s own need Net cost of urban transformation to replace properties a ected by urban transformation. A decision was made about new The company’s net cost consists of the following components: investments in the amount of SEK 383 million to replace the company’s own properties. Group and Parent Company There will also be subsequent requirements arising from future mining. LKAB regu- SEK million 2014 2013 larly assesses these future requirements. The assessments are subject to considerable Costs for urban transformation, current period -290 -528 uncertainty. At the end of the reporting period, LKAB determined that the Group’s actual E ect of changed assumptions and assessments -3,142 -92 short- and long-term capital commitments for urban transformation are signifi cant. Since 2006, LKAB has disbursed SEK 3,295 million on expenditures that were set E ect of present value measurement of provision -145 -102 aside as liabilities in prior years. The corresponding pay-out for 2014 amounts to SEK -3,577 -722 1,354 million. Urban transformation in the municipalities of Kiruna and Gällivare has encumbered, and will encumber, LKAB’s earnings and liquidity considerably in the years to come. LKAB must therefore remain fi nancially strong to meet both existing and future Net cost of urban transformation is recognised on the following lines of the income urban transformation commitments. statement: Group and Parent Company Mine asset SEK million 2014 2013 Mine assets related to future mining in Kiruna are recognised as of 2014. In cases where there is an agreement or a clear, constructive obligation that defi nes a commitment Cost of goods sold -3,432 -620 related to a future impact area, the provision is recognised according to a contract Financial expenses -145 -102 boundary. The impact boundary will continue to act as the boundary for the impact of -3,577 -722 mining done to date and for when the commitment is expensed. The area between the contract boundary and the impact boundary constitutes an asset for future mining operations. The mine asset is expensed with respect to impact boundary movement, that is, when properties, infrastructure etc. are encroached upon by the impact boundary. The e ect of the accounting change entails that a mine asset of SEK 3,159 million was recognised at year-end with a corresponding increase in provisions for urban transformation.

NOTE 29 ACCRUED EXPENSES AND DEFERRED INCOME

Group Parent Company SEK million 31/12/2014 31/12/2013 31/12/2014 31/12/2013 Electric power 68 72 59 60 Payroll and personnel benefi t expenses 712 641 615 550 Accrued trade payables 289 256 242 207 Other 138 134 82 47 1,207 1,103 998 864 126 NOTES

NOTE 30 VALUATION OF FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE AND CATEGORIZATION

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

Fair value is determined based on three levels.

Level 1: According to prices quoted on an active market for such instruments. Level 2: According to direct or indirect observable market data not included in Level 1. Level 3: According to input data that is not observable on the market.

Carrying amount Fair value Availa- Held Initially iden- Investments Loans ble-for-sale Group 2014 for tifi ed at fair Hedging held to and fi nancial Other SEK million Note trading value instruments maturity receivables assets liabilities Total Level 1 Level 2 Level 3 Total Financial assets measured at fair value Shares, fi nancial assets 17 563 563 563 563 Shares and alternative invest- ments, current holdings 17 2,179 2,179 2,179 2,179 Interest-bearing, current holdings 17 9,222 104 9,326 9,326 9,326 Cash and cash equivalents (cur- 37 2,735 2,735 2,735 2,735 rent investment) Derivatives 19 64 64 64 64 64 14,136 104 563 14,867 Financial assets not recognised at fair value Shares, fi nancial assets 17 51 51 - - - - Interest-bearing, fi nancial asset 17 10 10 10 10 Loans 19 62 62 62 62 Accounts receivable 1,908 1,908 - - - - Other receivables 19 812 812 - - - - Accrued income 22 158 158 - - - - Cash and cash equivalents (cash 37 2,623 2,623 - - - - and bank balances) 10 5,563 51 5,624 Financial liabilities measured at fair value Forward exchange contracts for 595 595 595 595 hedging Other derivatives for hedging 29 26 55 46 9 55 29 621 650 Financial liabilities not recognised at fair value Issued commercial papers 24 798 798 - - - - Issued bond loans 24 1,995 1,995 - - - - Trade payables 1,691 1,691 - - - - Other liabilities 471 471 - - - - Accrued expenses 29 1,207 1,207 - - - - 6,162 6,162 NOTES 127

Carrying amount Fair value Availa- Initially iden- Investments Loans ble-for-sale Group 2013 Held for tifi ed at fair Hedging held to and fi nancial Other SEK million Note trading value instruments maturity receivables assets liabilities Total Level 1 Level 2 Level 3 Total Financial assets measured at fair value Shares, fi nancial assets 17 609 609 609 609 Derivatives, fi nancial assets 17 28 28 28 28 Shares, current holdings 17 705 705 705 705 Interest-bearing, current holdings 17 10,058 38 10,096 10,096 10,096 Cash and cash equivalents (cur- 37 4,188 4,188 4,188 4,188 rent investment) Forward exchange contracts for 19 103 103 103 103 hedging 28 14,951 103 38 609 15,729 Financial assets not recognised at fair value Shares, fi nancial assets 17 49 49 - - - - Interest-bearing, fi nancial asset 17 113 113 113 113 Loans 19 103 103 103 103 Accounts receivable 3,291 3,291 - - - - Other receivables 19 985 985 - - - - Accrued income 22 131 131 - - - - Cash and cash equivalents (cash 37 508 508 - - - - and bank balances) 113 5,018 49 5,180 Financial liabilities not recognised at fair value Trade payables 1,744 1,744 - - - - Other liabilities 227 227 - - - - Accrued expenses 29 1,103 1,103 - - - - 3,074 3,074

The carrying amount of accounts receivable, other receivables, accrued income, cash and cash equivalents, trade payables, other liabilities and accrued expenses represent a reason- able approximation of fair value. Shares, fi nancial assets not recognised at fair value refers to unlisted holdings, mainly in VindIn AB. Fair value cannot be reliably estimated when there is no quoted market price in an active market. The shares are measured at cost and are tested regularly for impairment. For issued commercial papers, the carrying amount represents a reasonable approximation of fair value because of the short time to maturity. Bond loans were issued in December 2014, so the interest rate terms of the loan contract are considered to be in line with market rates in the credit market. The carrying amount is therefore estimated to be a reasonable approximation of fair value. No transfers have been made between Levels 1 and 2.

Fair value calculation Parent Company The following summarises the methods and assumptions mainly used in determining The following table provides information about the fi nancial assets and liabilities of the the fair value of fi nancial instruments reported in the table above. Parent Company where there are di erences between fair value and acquisition value. For other assets and liabilities of the Parent Company the carrying amount is estimated Level 1 to be a reasonable approximation of fair value; see information about the Group above. The fair values of listed fi nancial assets correspond to the assets’ listed price at the end of the reporting period. As regards the calculation of fair value, please refer to the description above for the Group. Level 2 Interest-bearing instruments Share index bonds were valued using listed market data from the interest and deriv- atives market. This category also includes certifi cates valued on the basis of defi ned market-priced yield curves.

Non-current receivables Non-current receivables are calculated by measuring the present value of capital cash fl o w s .

Derivatives The fair values of the derivative contracts is calculated using generally accepted meas- urement models based on o cial quotations obtained from Bloomberg. Derivatives and fi nancial assets are valued on the basis of market data from brokers. 128 NOTES

Carrying amount Fair value Availa- Initially iden- Investments Loans ble-for-sale Parent Company 2014 Held for tifi ed at fair Hedging held to and fi nancial Other SEK million trading value instruments maturity receivables assets liabilities Total Level 1 Level 2 Level 3 Total Shares, fi nancial assets 82 82 563 563 Current investments 14,035 14,035 14,119 14,119 Non-current receivables 42 42 42 42 Derivatives (forward exchange contracts, USD) 11 -217 -206 -595 -595 Other derivatives 9 9 -46 55 9 9 14,035 11 -175 82 13,962

Carrying amount Fair value Availa- Initially iden- Investments Loans ble-for-sale Parent Company 2013 Held for tifi ed at fair Hedging held to and fi nancial Other SEK million trading value instruments maturity receivables assets liabilities Total Level 1 Level 2 Level 3 Total Shares, fi nancial assets 82 82 609 609 Current investments 14,878 14,878 701 14,252 14,953 Non-current receivables 83 83 83 83 Derivatives (forward exchange contracts, USD) 21 9 30 103 103 14,878 21 92 82 15,073

Carrying amount refers to accrued forward premium and measurement of accounts receivable at the forward rate. Carrying amount refers to accrued option premium.

NOTE 31 Price risk of iron ore products FINANCIAL RISKS AND RISK MANAGEMENT Price volatility in the global iron ore market makes LKAB’s prices change substantially in both the long and short terms. The price of iron ore products in USD is dependent on Framework for fi nancial risk management future expected prices for LKAB’s products, which in turn are dependent on the global The Group’s activities expose it to a variety of fi nancial risks. LKAB’s fi nancial risk commodity price and the global pricing mechanism for iron ore. management is regulated by a fi nance policy established by the Board. The fi nance policy Hedging of price risk for iron ore products is done with generally available commod- provides a framework of guidelines and rules in the form of risk mandates and limits for ity derivatives. fi nancial activities. The LKAB Treasury Center is the company’s central treasury function, The fair value of derivatives related to price risk of iron ore products amounted to which manages the Group’s overall fi nancial risk and is also the Group treasury. The SEK 17 million at 31 December 2014, of which SEK 56 million was recognised as assets Board’s fi nance committee is responsible for continuously monitoring the management and SEK 39 million as liabilities. Hedge accounting is applied to derivatives with a value of fi nancial risks, objectives of risk exposure, administration, credit limits, limits and of SEK -26 million, which is recognised in other comprehensive income for 2014. The reporting procedures, as well as checking that all this is done in accordance with the amount is expected to be recognised in profi t for the year for 2015. fi nance policy. Currency risks The Group is exposed to various types of currency risks. The main exposure stems from Cash fl ow risk in SEK Group sales of iron ore where market pricing is in USD. This currency risk in forecasted The LKAB Group is exposed to a variety of cash fl ow risks, which can be positively or and contracted payment fl ows is called transaction exposure. negatively correlated. LKAB’s main cash fl ow risk in SEK is related to iron ore product Currency risks are also found in the translation of foreign subsidiaries’ assets and sales in the Parent Company. Cash fl ow risk means that fl uctuations in the global iron ore liabilities to the Parent Company’s functional currency, known as translation exposure. price and exchange rates between USD and SEK can together have a negative impact on the company’s income statement, balance sheet and/or cash fl ow. Another signifi cant Transaction exposure cash fl ow risk is energy price risk. The fi nance policy governs the framework for hedging; see the Price risk for iron ore The fi nance policy describes procedures and regulations for identifying and reporting products section above. Hedging of transaction exposure in USD is done with derivative total consolidated cash fl ow risk and the frameworks within which hedging of cash fl ow contracts that are generally available on the currency market, primarily forward risks should or may occur. Cash fl ow risk is quantifi ed on the basis of a rolling cash fl ow exchange contracts. forecast. The calculation includes all identifi ed cash fl ows exposed to market prices and The Group’s transaction exposure in USD at the end of the reporting period amounted takes into account historical covariance. to USD 2,997 million (3,155). The Group’s objective is to use hedging activities to obtain a desired level of risk The fair value of forward exchange contracts amounted to SEK 595 million (103) as relating to the Group’s cash fl ow, earnings, balance sheet and liquidity. at 31 December 2014. SEK-459 million (-154) was recognised in other comprehensive The fi nance policy establishes frameworks for hedging cash fl ow risk, which includes income for 2014, of which SEK -67 million (-226) relates to transfer from the hedge a hedging period and a maximum degree of hedging during that period. The fl ows are reserve via other comprehensive income to profi t for the year as part of the sale. normally hedged against a rolling forecast 12-18 months into the future with a maximum The fair value of currency derivatives is expected to be recognised in profi t for the hedging degree of from 100% down to 60%. It is possible to hedge for longer periods fol- year in 2015. lowing specifi c decisions. Hedging is done through a combination of hedging strategies, For other companies within the Group transaction exposure arises principally agreements and fi nancial contracts. through the purchase of raw materials in foreign currencies. Each subsidiary is respon- The Group classifi es its derivatives that are used for cash fl ow hedging of forecasted sible for its currency exposure and all forward cover occurs through the LKAB Treasury transactions in accordance with the regulations of IAS 39. Hedge accounting is applied Center. when the requirements for hedge accounting are met; see Note 1 Signifi cant accounting The Group’s transaction exposure in other currencies amounts to NOK 465 million principles, Principle 17 Derivatives and hedge accounting. (610) and EUR 71 million (127). At 31 December 2014, 34% of the total cash fl ow forecast in SEK for 2015 was Translation exposure hedged. LKAB does not normally hedge its translation exposure. The foreign subsidiaries within For sensitivity analyses concerning cash fl ow risks, please refer to the Administration Report. the Group operate mainly in their local currencies and investments as well as fi nancing are mainly done in the local currency in order to reduce translation exposure. Consolidated net foreign assets are divided into the following currencies (millions of local currency). NOTES 129

Currency 2014 2013 Credit risks in fi nancial activities The fi nancial activities of the Group entail exposure to credit risks. It is primarily EUR 11 13 counterparty risks in conjunction with receivables from banks and other counterparties GBP 29 32 involved in the purchase of fi nancial investments. USD 3 1 The fi nance policy contains special counterparty rules stating the maximum credit SGD 0 0 exposure for various counterparties and for each designated asset portfolio. The Inter- national Swaps and Derivatives Association’s (ISDA) master agreement is used with all DKK 221 218 counterparties in derivative transactions. NOK 834 789 Impairment losses have been taken with respect to bonds classifi ed as held-to-ma- CNY 25 33 turity investments as the issuer is in bankruptcy. Otherwise there are no assets that HKD 109 106 have fallen due or have been impaired that resulted in credit losses. LKAB has not experienced any credit losses in short-term investments over the past fi ve years. TRL 12 Credit risks in accounts receivable Consolidated profi t for the year includes foreign exchange rate di erences of SEK -260 Commercial credit risks are a natural part of the LKAB Group’s business and normally million (251) in operating profi t and SEK 50 million (195) in net fi nancial items. arise from the sale of goods and services. Commercial credit risks are related to the customer’s or counterparty’s solvency, that is, their credit standing, amount of credit Energy price risk granted and credit period. Commodity price risk refers to the change in the price of input goods and its impact on The Group’s fi nance policy contains a regulatory framework for credit rating that earnings. It is mainly changes in energy prices that constitute a large commodity price defi nes the criteria for evaluating new and existing customers from a credit perspective. risk for the LKAB Group. The Group’s energy costs correspond to 8% (10) of operating The framework includes approval processes, credit limits and monitoring procedures. expenses. The average collection period on accounts receivable was 33 days (43) in Hedging of electricity prices occurs through fi xed contracts at indexed prices and 2014. through relevant fi nancial contracts in the electricity market for purchase at variable Based on historical data, LKAB estimates that no impairment of accounts receivable prices. that are not yet due is necessary as of the end of the reporting period. The majority of The fair value of derivatives related to electricity price risk amounted to outstanding accounts receivable comprise customers with a good credit standing that SEK 8 million at 31 December 2014. Hedge accounting is applied, which means that the are known to the Group. amount is recognised in other comprehensive income for 2014. O setting and similar contracts The fair value of derivatives is expected to be recognised in profi t for the Counterparty risk in derivative contracts is reduced through netting agreements (ISDA year over the 2015-2020 period. agreements), that is, netting of positive and negative values in all derivative contracts with one and the same counterparty. Netting agreements are supplemented by agree- Interest rate risk ments on surety for net exposures (Credit Support Annex or CSA agreement). LKAB cur- Interest rate risk refers to how the return on an interest-bearing asset is a ected by rently has ISDA and CSA agreements with all counterparties in derivative transactions. a change in interest rates. The size of the interest rate risk is a ected by the interest ISDA agreements do not meet the criteria for o setting in the statement of fi nancial rate’s development and by the asset's sensitivity to interest rates – duration. LKAB is position. Under the master agreements, the parties may only settle their exposures net mainly exposed to interest rate risk with regard to short-term investments and cash and (that is, assets are o set against liabilities) in cases of severe credit events. cash equivalents. The information in the following table shows fi nancial assets and liabilities that are The LKAB Group’s total assets are allocated to three portfolios: liquidity portfolio, subject to a legally binding master netting agreement or similar agreement that is not urban transformation portfolio and pension portfolio. The fi nance policy governs the o set in the balance sheet. maximum average duration in each asset portfolio. The frameworks are set in relation to each portfolio’s commitment or purpose and in relation to a range of risk measures and restrictions. Recognised amounts Related amounts that are not o set LKAB’s interest-bearing investments amounted to SEK 11,935 million (14,177) at the Financial Net amount end of December 2014. The average duration was 563 days (78). The increase in dura- Group assets/ in statement Collateral Collateral tion is due to increased allocations to the urban transformation portfolio with longer 2014 liabilities, O set of fi nancial provided, provided, Net SEK million gross amounts position securities cash amount commitments in accordance with the fi nance policy. The Group’s policy also contains guidelines/directives for debt management where Financial assets the duration targets relate to directives for the net debt/equity ratio. Consolidated bor- Derivatives 93 -29 64 64 rowings amounted to SEK 2,793 million at 31 December 2014. The fi xed interest term Financial liabilities for fi nancial liabilities is presented in Note 24. Derivatives -679 29 -650 408 148 -94 Credit risks Total -586 -586 408 148 -30 LKAB’s credit risks are primarily associated with accounts receivable, derivatives and short-term investments. Liquidity risks Liquidity risk is the risk that the LKAB Group cannot meet its commitments due to lack Maximum credit risk exposure of liquidity or the inability to raise external loans for operating activities. Mining legisla- SEK million 2014 2013 tion and consequent requirements for urban transformation in the mining communities place special demands on liquidity. The Group’s fi nance policy defi nes liquidity targets Derivatives 64 103 for the purpose of managing the Group’s short- and long-term commitments. Cash and cash equivalents at year-end amounted to SEK 5,358 million (4,696). Interest-bearing, fi nancial 10 113 LKAB’s commercial paper programme with a framework of SEK 5,000 million was assets capitalised during the year. The programme was utilised with a nominal value of SEK Interest-bearing instruments, 9,326 10,096 800 million as of 31 December 2014. LKAB also issued fi ve-year corporate bonds during current holdings the year under its Medium Term Notes programme. Under this programme, LKAB can Interest-bearing instruments, 2,735 4,188 issue corporate bonds in SEK or EUR to a maximum of SEK 7,000 million. Outstanding current holdings (portion of bond loans had a nominal value of SEK 2,000 million at year-end. cash and cash equivalents) There is also an unutilised credit facility of SEK 5,000 million. Accounts receivable and 2,720 4,276 Total available funds amounted to SEK 19,558 million at 31 December 2014. other current receivables Non-current receivables 62 103 Accrued income 158 131 Total 15,075 19,010 130 NOTES

Maturity structure of fi nancial liabilities – undiscounted cash fl ows 2014 2013 Group 3 months– 3 months– SEK million Total <1 month 1-3 months 1 year 1-5 years >5 years Total <1 month 1-3 months 1 year 1-5 years >5 years Certifi cate 798 798 Bond loans 1,995 1,995 Derivatives 650 105 186 359 Trade payables 1,305 1,158 11 136 1,451 1,270 11 170 Other liabilities and accrued expenses 2,403 502 82 1,819 1,830 366 59 1,405 Total 7,151 1,765 1,077 2,314 1,995 3,281 1,636 70 1,575

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

Maturity structure, interest-bearing securities Group Total 31/12/2014 carrying Nominal SEK million <3 months 3-6 months 7-12 months 13-24 months >25 months amount value Interest-bearing securities 3,708 1,254 1,775 1,670 3,528 11,935 11,480 Total 3,708 1,254 1,775 1,670 3,528 11,935 11,480

Group Total 31/12/2013 carrying Nominal SEK million <3 months 3-6 months 7-12 months 13-24 months >25 months amount value Interest-bearing securities 6,654 3,111 1,820 1,610 982 14,177 14,100 Total 6,654 3,111 1,820 1,610 982 14,177 14,100

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

Capital management LKAB’s fi nancial risk management is regulated by a fi nance policy approved by the Board. The Board’s fi nance committee is responsible for continuously monitoring the management of fi nancial risks, objectives of risk exposure, administration, credit limits, limits and reporting procedures, as well as checking that all this is done in accordance with the fi nance policy. LKAB defi nes its managed assets as equity in the Group, excluding unrealised changes in value of derivatives that are recognised directly in equity. Assets under management amounted to SEK 37.4 billion (41.4) at the end of the reporting period. According to the Board’s fi nance policy, the Group’s fi nancial objective is to have a good capital structure and fi nancial stability, thereby providing a basis for continued develop- ment of business activities and future changes in society. The Board’s ambition is to maintain a balance between high returns and the advantages and security o ered by a sound capital structure. The capital structure target is a net debt/equity ratio of 0-20%. The net debt/equity ratio is defi ned as the net of interest-bearing liabilities and interest-bearing assets divided by equity. The net debt/equity ratio was 0 (negative) at the end of the reporting period. The Group’s profi tability target is a return on equity of 12%. The return for 2014 was 0.9% (14.7). In comparison, the average interest income for interest-bearing investments was 1.365% (1.65). LKAB has a dividend policy in which the dividend to the owner in the long term shall constitute 30% to 50% of earnings after tax and be adjusted to an average earnings level over a business cycle. The proposed ordinary dividend of SEK 139 million is 40% of consolidated earnings after tax. No changes were made to the Group’s capital management during the year. LKAB Försäkring AB is the only company in the Group that has a statutory capital requirement of EUR 3,200,000, which corresponded to SEK 30 million (29) at the end of the reporting period.

NOTE 32 INVESTMENT COMMITMENTS At year-end, the Group had contractual commitments to acquire property, plant and equipment. These are forecast at SEK 5,046 million (4,273), of which SEK 4,382 million (2,725) is expected to be settled in the following fi nancial year. Major projects include a new main level in Kiruna (KUJ 1365) and preparatory work for mining in Leveäniemi and Mertainen. The Parent Company’s commitments are forecast at SEK 4,000 million (3,747), of which SEK 3,337 million (2,397) is expected to be settled in 2015. NOTES 131

NOTE 33 NOTE 34 PLEDGED ASSETS AND CONTINGENT LIABILITIES RELATED PARTIES

Group Parent Company Relationships with related parties SEK million 31/12/2014 31/12/2013 31/12/2014 31/12/2013 The Group is under the controlling infl uence of the Swedish state. Other than the close relationships that the Parent Company has with its subsidiaries (see Note 35), the Group Pledged assets also has close relationships with Vattenfall AB and the Swedish Transport Administra- As pledged assets for tion. own liabilities and provisions Summary of related party transactions Company-owned endowment insurance 92 87 92 87 Parent Company Relationships with Deposit of cash and cash related parties equivalents 159 158 159 158 Purchase Sale of Interest of goods Collateral provided, goods to and from Liabilities to Related party derivatives 557 557 related dividends relatedrelated parties, receivables, Total pledged SEK million Year parties (net) parties 31 December 31 December assets 808 245 808 245 Subsidiaries 2014 419 312 3,342 883 2,995 Contingent liabilities Subsidiaries 2013 234 280 3,532 945 3,095 Guarantee commitments, FPG/PRI 14 13 14 13 Transactions with related parties are priced on market terms. Of related party receiva- bles, 1,545 (1,042) are loans receivable. Guarantee commitments, Through long-term energy agreements with Vattenfall, LKAB has secured a large GP plan 7 7 5 4 portion of its electricity supply at an indexed price. Other electricity purchases are ex- Guarantee commitments, posed to the Nordic spot market. The company purchased 2,233 (2,276) GW of electricity. Swedish Tax Agency 76 24 76 24 LKAB’s mining has impacted the existing railway infrastructure and made it impossi- Surety given for sub- ble for facilities to remain in their present location. LKAB is compensating the Transport sidiaries 70 73 Administration for expenditures incurred in conjunction with construction of the new Derivatives – negative railway infrastructure. Purchases from the Transport Administration amounted to SEK values 436 137 million (258). Collateral, remediation 36 41 58 6 Other 16 11 10 0 Redemption of defi ned- benefi t pension schemes 7 7 NOTE 35 Total GROUP COMPANIES contingent liabilities 149 103 669 127

Company-owned endowment insurance covers pension commitments for the President, Parent Company former President and members of Group management according to the old de- SEK million 31/12/2014 31/12/2013 fi ned-benefi t pension scheme. The value of endowment insurance changes concurrently Accumulated acquisition value with payment of premiums/pension disbursements. At beginning of year 1,495 1,410 Deposits of cash and cash equivalents are meant to cover future expenses for reme- Acquisitions 33 diation measures and other restoration measures at mines after mining activities cease. Guarantee commitments for PRI Pensionstjänst and Gruvplanen corresponded to 2% Reclassifi cation 40 of commitments at the end of the reporting period. The PRI commitment relates to ITP2 Capital contributions 253 45 premiums for salaried employees and irrevocable commitments to collectively a liated Closing balance, 31 December 1,781 1,495 employees in the mine plan.

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

Carrying amount at year-end 1,768 1,490

Reclassifi cation refers to the participating loan to former associated company Norr- skenet AB, which was redeemed in 2013 and converted into a conditional shareholder contribution. LKAB owns fewer than half of the votes in Norrskenet AB. Even though there is no direct voting right or board majority, LKAB can exercise controlling infl uence over the company. This is primarily based on LKAB’s decision to change the purpose of the hold- ing in Norrskenet, but also on LKAB’s lending to Norrskenet for investment in a bond loan in Northland Resources. The Group therefore consolidates its participating interest in Norrskenet and its two wholly-owned subsidiaries in the same way as other subsidi- aries. Non-controlling interest in Norrskenet AB does not amount to a signifi cant sum. The LKAB Fastigheter AB subsidiary merged with its subsidiary Jägarskolan Fastigheter AB during the year. 132 NOTES

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

Number Share in % Share in % 31/12/2014 31/12/2013 Subsidiary / Corporate ID number / Domicile of shares 2014 2013 Carrying amount Carrying amount Swedish subsidiaries Gällivare Mark AB / 556917-5333 / Gällivare 500 100 25 LKAB Fastigheter AB / 556009-8849 / Kiruna 5,000 100 100 32 11 LKAB Wassara AB / 556331-8566 / Stockholm 20,000 100 100 19 13 LKAB Berg & Betong / 556074-8237 / Kiruna 24,000 100 100 156 47 LKAB Nät AB / 556059-9796 / Kiruna 10 100 100 3 2 LKAB Minerals AB / 556223-1786 / Luleå 2,000,000 100 100 365 242 LKAB Försäkring AB / 516406-0187 / Luleå 10,000 100 100 100 100 LKAB Malmtrafi k 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 33.3 40 40

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

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

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

Indirect holdings via subsidiary LKAB Malmtrafi k AB LKAB Malmtrafi kk AS / 974 644 991 / Narvik, Norway 100 100

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

Indirect holdings via subsidiary Norrskenet AB Kiruna Softcenter AB / 556438-3726 / Kiruna 33.3 33.3 Lapland Nonstop AB / 556898-4800 / Kiruna 33.3 33.3 Parent Company total 1,768 1,490 NOTES 133

NOTE 36 Interest paid and dividend received UNTAXED RESERVES Group Parent Company SEK million 2014 2013 2014 2013 Parent Company SEK million 31/12/2014 31/12/2013 Dividend received 7 43 243 257 Accumulated depreciation in excess of plan: Interest received 52 101 110 162 Land and buildings Interest paid -22 -14 -28 -22 Opening balance, 1 January 4 5 37 130 325 397 Excess depreciation dissolved -1 Closing balance, 31 December 4 4 Adjustments for items not included in cash fl ow Machinery and equipment Group Parent Company Opening balance, 1 January 7,865 5,521 SEK million 2014 2013 2014 2013 Reclassifi cation 1,305 Depreciation 2,866 2,432 2,213 1,796 Depreciation/dissolution in excess of plan 1,207 1,039 Impairment 181 32 144 32 for the year Exchange di erences 59 194 Closing balance, 31 December 9,072 7,865 Earnings from sale and 52 0 6 retirement of property, Construction in progress plant and equipment Opening balance, 1 January 1,305 Provisions for -34 -114 -71 191 pensions Reclassifi cation -1,305 Closing balance, 31 December Provision for urban 3,577 722 3,577 722 transformation Other provisions 32 162 -5 163 Tax allocation reserve Other non-cash -14 -24 4 -10 Provision for taxation 2009 2,200 items Provision for taxation 2012 3,600 3,600 6,719 3,404 5,862 2,900 Provision for taxation 2013 2,960 2,960 Provision for taxation 2014 1,858 1,858 Change in working capital Provision for taxation 2015 650 Consolidated working capital was encumbered by SEK 471 million related to the change Closing balance, 31 December 9,068 10,618 in hedging reserve that is recognised against consolidated equity. The amount did not a ect the consolidated cash fl ow and therefore is not included in the change in working capital in the statement of cash fl ows. The corresponding amount for 2013 was SEK 149 Total untaxed reserves 18,144 18,487 million. Group Parent Company NOTE 37 Tax paid STATEMENT OF CASH FLOWS SEK million 2014 2013 2014 2013 Tax expense in income -247 -1,736 -272 -1,171 Cash and cash equivalents – Group statement SEK million 31/12/2014 31/12/2013 Change in tax 439 865 404 947 The following subcomponents are included in assets/liabilities cash and cash equivalents: Adjustment for -240 298 -194 -192 Cash and bank balances 2,623 508 deferred tax Current investments, on a par with -48 -573 -62 -416 cash and cash equivalents 2,735 4,188 Acquisition of subsidiaries – Group Total in statement of fi nancial position The following shows the impact of cash and cash equivalents on the acquisition of and statement of cash fl ows 5,358 4,696 subsidiaries. The amount is included as a portion of change in fi nancial assets in the Cash and cash equivalents – statement of cash fl ows. Parent Company SEK million 31/12/2014 31/12/2013 The following subcomponents are included in SEK million 2014 2013 cash and cash equivalents: Acquired assets and liabilities Cash and bank balances 2,373 365 Property, plant and equipment 9 Current investments, on a par with cash and 2,735 4,188 Intangible assets 12 cash equivalents1 Financial assets 155 Total in balance sheet and statement of cash fl ows 5,108 4,553 Operating receivables 8 Current investments 12 Cash and cash equivalents include current investments (interest-bearing securities) Cash and cash equivalents 2 that were classifi ed as cash and cash equivalents based on the following: Total assets 9 189 • They have an insignifi cant risk of fl uctuations in value. • They can be easily converted to cash. Non-current liabilities 118 • They have a maximum maturity of three months from date of acquisition. Current operating liabilities 9 14 Total liabilities 9 132 Shares and alternative investments Purchase price: -42 -57 SEK million 31/12/2014 31/12/2013 Less: Other property received as payment Opening balance 640 1,225 (conversion of loan into conditional shareholder contribution) 40 Acquisitions 1,856 1,615 Purchase price paid: -42 -17 Disposal -406 -2,200 Less: Cash and cash equivalents in acquired business 2 2,090 640 E ect on cash and cash equivalents -42 -15 134 AFFIRMATION BY THE BOARD

THE BOARD’S ATTESTATION The Board of Directors and the President attest that the Annual Report was prepared in The Board of Directors and the President attest that the consolidated fi nancial state- accordance with the Annual Accounts Act and RFR 2 Accounting for Legal Entities, and ments were prepared in accordance with International Financial Reporting Standards gives a fair presentation of the company’s fi nancial position and earnings and that the (IFRS) as adopted by the EU, and give a fair presentation of the Group’s fi nancial position administration report provides a fair review of developments in the company’s opera- and earnings and that the administration report for the Group provides a fair review of tions, fi nancial position and earnings and describes signifi cant risks and uncertainties developments in the Group’s operations, fi nancial position and earnings and describes that the company faces. signifi cant risks and uncertainties that the companies included in the Group face.

Luleå, 20 March 2015

Sten Jakobsson Chairman of the Board

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

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

Jan Thelin Tomas Strömberg Stefan Fagerkull Employee representative Employee representative Employee representative

Lars-Eric Aaro President

As stated above, the Annual Report, consolidated fi nancial statements and sustainability report were approved for publication by the Board of Directors on 20 March 2015. The consolidated income statement and statement of fi nancial position and the Parent Company’s income statement and balance sheet are subject to approval at the Annual General Meeting on 28 April 2015.

Our audit report was issued on 20 March 2015.

Deloitte AB

Peter Ekberg Authorised public accountant AUDITOR’S REPORT 135

AUDITOR’S REPORT Responsibilities of the Board of Directors and the President To the Annual General Meeting of Luossavaara-Kiirunavaara AB (publ) Corporate identity The Board of Directors is responsible for the proposal for allocation of the company’s number 556001-5835 profi t or loss, and the Board of Directors ans the President are responsible for adminis- tration under the Companies Act.

Report on the annual accounts and consolidated accounts Auditor’s responsibility We have audited the annual accounts and consolidated accounts of Luossavaara- Our responsibility is to express an opinion with reasonable assurance on the proposed Kiirunavaara AB (publ) for the fi nancial year 2014. allocation of the company’s profi t or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Responsibilities of the Board of Directors and the President Sweden. for the annual accounts and consolidated accounts As a basis for our opinion on the Board of Directors’ proposed allocation of the The Board of Directors and the President are responsible for preparing an annual re- company’s profi t or loss, we examined the Board of Directors’ reasoned statement and port that provides a true and fair view in accordance with the Swedish Annual Accounts a selection of supporting evidence in order to be able to assess whether the proposal is Act and consolidated accounts that provide a true and fair view in accordance with in accordance with the Companies Act. International Financial Reporting Standards, as adopted by the EU, and the Swedish As a basis for our opinion concerning discharge from liability, in addition to our audit Annual Accounts Act, and for such internal control as the Board of Directors and the of the annual accounts and consolidated accounts, we examined signifi cant decisions, President determine is necessary to enable the preparation of annual accounts and actions taken and circumstances of the company in order to determine whether any consolidated accounts that are free from material misstatement, whether due to fraud member of the Board of Directors or the President is liable to the company. We also or error. examined whether any member of the Board of Directors or the President has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Auditor’s responsibility Articles of Association. Our responsibility is to express an opinion on these annual accounts and consolidated We believe that the audit evidence we have obtained is su cient and appropriate to accounts based on our audit. We conducted our audit in accordance with International provide a basis for our opinion. Standards on Auditing and generally accepted auditing standards in Sweden. These standards require us to comply with ethical requirements and plan and perform the au- Opinions dit to obtain reasonable assurance about whether the annual accounts and consolidated We recommend to the Annual General Meeting that the profi t be allocated in accordance accounts are free from material misstatement. with the proposal in the statutory administration report and that the members of the An audit involves performing procedures to obtain audit evidence about the amounts Board of Directors and the President be discharged from liability for the fi nancial year. and disclosures in the annual accounts and consolidated accounts. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the annual accounts and consolidated accounts, whether due Stockholm, 20 March 2015 to fraud or error. In making those risk assessments, the auditor considers internal con- trol relevant to the company’s preparation and fair presentation of the annual accounts Deloitte AB and consolidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the e ectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies 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 annual accounts and consolidated accounts. Peter Ekberg We believe that the audit evidence we have obtained is su cient and appropriate to Authorised Public Accountant provide a basis for our audit opinion.

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 fi nancial position of the as of 31 December 2014 and its fi nancial performance and cash fl ows for the year in accordance with the Swedish Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Swedish Annual Accounts Act and provide in all material respects a true and fair view of the Group´s fi nancial position as of 31 December 2014 and its fi nancial performance and cash fl ows 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. We therefore recommend that the Annual General adopt the income statement and balance sheet for the Parent Company and the Group.

Report on other legal and regulatory requirements In addition to our audit of the annual accounts and consolidated accounts, we have also audited the proposed allocation of the company’s profi t or loss and the administration of the Board of Directors´and the President`s of Luossavaara-Kiirunavaara AB (publ) for the fi nancial year 2014. 136 MINERAL RESERVES AND MINERAL RESOURCES GROUP OVERVIEW 137

MINERAL RESERVES AND MINERAL RESOURCES GROUP OVERVIEW

MINERAL RESERVES INCOME STATEMENTS (SEK MILLION) 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 AS OF 31 DECEMBER 2014 (TO SORTING PLANT) Net sales 20 615 23 873 26 971 31 122 28 533 11 558 23 128 16 385 14 615 14 337 Quantity, Mt Percent Fe 2014 2013 2014 2013 Cost of goods sold -18 781 -14 994 -15 183 -15 190 -15 276 -10 029 -12 166 -9 509 -7 706 -7 535 Kiruna Gross profi t 1 834 8 879 11 788 15 932 13 257 1 529 10 962 6 876 6 909 6 802 Proven 521 511 46,9 47,2 Selling expenses -152 -148 -249 -223 -213 -202 -200 -178 -178 -174 Probable 161 145 44,4 44,9 Administrative expenses -596 -648 -608 -640 -451 -377 -448 -344 -333 -349 Research and development expenses -451 -360 -283 -328 -213 -237 -258 -217 -165 -159 Malmberget Other operating income/expenses -66 -84 -59 -35 -68 -54 271 11 23 -11 Proven 303 288 43,7 42,1 Operating profi t 570 7 639 10 589 14 705 12 312 659 10 327 6 148 6 256 6 109 Probable 35 9 42,2 41,0 Financial income 519 611 733 503 418 705 575 572 546 550 Financial expenses -495 -482 -345 -407 -349 -172 -513 -376 -420 -208 Gruvberget Profi t before tax 594 7 768 10 977 14 801 12 381 1 192 10 389 6 344 6 382 6 451 Proven 1 5 54,4 53,0 Tax -247 -1 736 -2 224 -3 842 -3 275 -473 -2 748 -1 665 -1 785 -1 904 Probable 1 - 53,5 - Profi t for the year 347 6 032 8 753 10 960 9 106 719 7 641 4 679 4 597 4 547 Leveäniemi Attributable to: Proven 78 - 45,4 - Parent Company shareholders 347 6 032 8 753 10 960 9106 719 7 641 4 679 4 597 4 547 Probable 37 - 49,9 - Planned depreciation on property, plant and equipment 2 865 2 432 1 952 1 891 1 821 1 812 1452 1 168 996 951 BALANCE SHEETS (SEK MILLION) Mineral reserves include minerals within approved mining permits. The mineral Intangible fi xed assets 229 257 277 269 321 310 428 329 387 477 reserve in Kiruna includes minerals above the 1,365 m level. The mineral reserve in Property, plant and equipment 39 529 33 759 30 315 26 285 23 087 21 551 19 893 16 702 11 746 7 928 Malmberget includes minerals above 1,250 m level for the Eastern Field. The Western Financial fi xed assets 1 018 1 197 1 120 1 124 1 675 1 827 1 094 2 416 2 208 1 393 Total fi xed assets 40 775 35 213 31 712 27 679 25 083 23 688 21 415 19 447 14 341 9 798 Field includes minerals above 850 m level. The mineral reserves for Gruvberget in- Inventories 2 253 2 611 2 493 2 449 2 074 2 301 2 715 1 635 1 631 1 423 clude magnetite minerals above the 220 m level. For Leveäniemi, reserves are inside Accounts receivable 1 908 3 291 3 060 4 593 3 395 2 276 1 946 1 922 1 697 1 846 the planned pit. When calculating the reserves, the prices in force over the period Other receivables 1 037 1 210 2 007 808 1 515 1 095 612 685 1 214 416 2004–2005 were used. Cash & cash equivalents and current investments 16 861 15 497 18 672 18 201 14 562 6 195 9 643 5 991 6 982 7 091 Total current assets 22 359 22 609 26 232 26 051 21 546 11 867 14 916 10 233 11 524 10 776 MINERAL RESOURCES BESIDES MINERAL RESERVES Total assets 63 133 57 822 57 944 53 730 46 629 35 555 36 331 29 680 25 865 20 574 AS OF 31 DECEMBER 2014 (TO SORTING PLANT) Total operating assets 45 254 41 128 38 151 34 405 30 392 27 533 25 594 21 273 16 675 12 090 Quantity, Mt Percent Fe 1 2014 2013 2014 2013 Equity 37 756 41 472 41 085 37 335 32 951 25 375 25 218 22 251 19 076 14 806 Kiruna Non-current liabilities 18 402 11 670 12 485 11 933 9 555 7 512 6 836 4 963 4 627 3 598 Measured 13 13 48,3 47,8 Current liabilities 6 976 4 680 4 374 4 462 4 123 2 668 4 275 2 466 2 162 2 170 Indicated 208 208 46,3 46,2 Total equity and liabilities 63 135 57 822 57 944 53 730 46 629 35 555 36 329 29 680 25 865 20 574 Inferred 83 80 44,5 44,7 CASH FLOW ANALYSES Cash fl ow before payment of urban transformation Gruvberget magnetite and pension funds and changes in working capital 7 265 10 599 10 700 14 038 13 951 2 931 11 545 7 200 5 688 6 073 Measured 15 15 53,7 49,7 Urban transformation payments2 -1 354 -295 -407 -382 NA NA NA NA NA NA Indicated 10 8 53,3 42,9 Payment to pension funds -881 Inferred 12 - 50,9 - Changes in working capital 1 624 -866 980 92 -1 184 -43 -1 201 -124 358 -553 Gruvberget hematite Cash fl ow from operating activities 7 535 8 557 11 273 13 748 12 767 2 888 10 344 7 076 6 046 5 520 Measured 9 - 55,0 - Investment in existing activities -5 491 -6 141 -5 808 -5 126 -3 973 -3 543 -4 682 -5 968 -4 844 -2 648 Indicated 5 - 52,6 - Disposal 28 18 6 17 97 73 6 14 35 23 Inferred 28 - 53,9 - Operating cash fl ow 2 072 2 434 5 471 8 639 8 891 -582 5 668 1 122 1 237 2 895 Acquisition of companies and intangible assets -17 -13 0 -16 -35 -17 -75 Leveäniemi Acquisition / disposals in current investments -703 2 434 -3 729 -2 990 -2 952 308 296 -381 217 -1 846 Measured 50 - 41,1 - Change fi nancial assets -92 -11 -66 178 133 100 Indicated 82 186 45,6 43,6 Cash fl ow after investments 1 369 4 759 1 742 5 649 5 915 -340 5 948 884 1 570 1 074 Inferred 85 11 38,8 36, Borrowing 2 793 -43 Mertainen Dividend -3 500 -5 500 -5 000 -5 000 -500 -2 800 -2 000 -2 000 -1 500 -520 Measured 44 106 36,9 36,4 Cash fl ow for the year 662 -741 -3 258 649 5 415 -3 140 3 948 -1 159 70 554 Indicated 159 - 35,9 - Deliveries, Mt 26,0 25,5 26,3 25,7 26,0 18,7 22,7 25,1 23,3 23,2 Inferred 190 51 33,0 31,8 Deliveries pellets, % 83,2 82,8 83,6 81,7 80,1 76,5 79,0 71,3 68,2 65,9 Malmberget KEY FIGURES FOR THE GROUP Measured 10 23 42,2 42,2 Net sales, SEK million 20 615 23 873 26 971 31 122 28 533 11 558 23 128 16 385 14 615 14 337 Indicated 96 148 43,6 42,6 Growth in net sales, % -13,6 -11,5 -13,3 9,1 146,9 -50,0 41,2 12,1 1,9 59,5 Inferred 136 148 43,8 41,9 Operating margin, % 2,8 32,3 39,3 47,2 43,2 5,7 44,7 37,5 42,8 42,6 Profi t margin, % 2,9 32,8 40,7 47,6 43,3 10,3 44,9 38,7 43,7 45,0 Return on total capital, % 1,8 14,3 20,3 30,3 31,0 3,8 33,0 24,2 29,3 38,9 The mineral resources in Kiruna down to the 1,500 m level are reported, in Return on equity, % 0,9 14,7 22,2 30,9 31,5 2,8 32,2 22,6 27,1 36,6 Malmberget for the Eastern Field down to the 1,725 m level and the 1,050 m level Return on operating assets, % 1,4 19,3 29,2 45,4 42,4 2,5 49 32 43 58 for the Western Field. Mineral resources for Gruvberget are reported for magnetite Equity/assets ratio, % 59,8 71,7 70,9 69,5 70,7 71,4 69,4 75,0 73,8 72,0 mineral between the 220 and -80 m levels and for hematite mineral between the Average number of employees 4 539 4 427 4 357 4 191 4 030 3 778 4 086 3 885 3 737 3 563 400 and 0 m levels. For Leveäniemi mine, mineral resources is the mineralization outside the planned pit. The pit design for the Mertainen mine is not fi nalized, so the 1 reported as non-current and current liabilities from 2004 in accordance with IFRS. full mineralization is reported as mineral resource. 2 Reported on own row of cash fl ow analysis from 2011 Defi nitions Operating assets: Tangible and intangible fi xed assets, Inventories, Accounts receivable, Other receivables. Non-fi nancial assets, cash & cash equivalents and current investments. LKAB reports mineral reserves and resources in compliance with recommended rules adopted Operating liabilites: Total liabilities reduced by deferred tax in untaxed reserves, deferred tax liabilities and non-current liabilities. by SveMin (FRB Standard). These are in turn based on an international standard. Håkan Selldén is Growth in net sales: Change in net sales as a percentage of the previous year’s net sales. Qualifi ed Person accredited by SveMin. He has compiled LKAB’s report. Operating margin: Operating profi t as a percentage of net sales. The summaries of mineral reserves and mineral resources show the current situation. Mineral Profi t margin: Profi t after fi nancial items as a percentage of the year’s net sales. reserves comprise granted mining permits, and mineral resources suggest possible future Return on total capital: Profi t after fi nancial items + fi nancial expenses as a percentage of average balance total. permits. Return on equity: Profi t for the year according to the income statement as a percentage of average equity. Return on operating assets: Operating profi t as a percentage of average operating assets. Equity/assets ratio: Equity as a percentage of total assets. GROUP OVERVIEW 137

GROUP OVERVIEW

INCOME STATEMENTS (SEK MILLION) 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Net sales 20 615 23 873 26 971 31 122 28 533 11 558 23 128 16 385 14 615 14 337 Cost of goods sold -18 781 -14 994 -15 183 -15 190 -15 276 -10 029 -12 166 -9 509 -7 706 -7 535 Gross profi t 1 834 8 879 11 788 15 932 13 257 1 529 10 962 6 876 6 909 6 802 Selling expenses -152 -148 -249 -223 -213 -202 -200 -178 -178 -174 Administrative expenses -596 -648 -608 -640 -451 -377 -448 -344 -333 -349 Research and development expenses -451 -360 -283 -328 -213 -237 -258 -217 -165 -159 Other operating income/expenses -66 -84 -59 -35 -68 -54 271 11 23 -11 Operating profi t 570 7 639 10 589 14 705 12 312 659 10 327 6 148 6 256 6 109 Financial income 519 611 733 503 418 705 575 572 546 550 Financial expenses -495 -482 -345 -407 -349 -172 -513 -376 -420 -208 Profi t before tax 594 7 768 10 977 14 801 12 381 1 192 10 389 6 344 6 382 6 451 Tax -247 -1 736 -2 224 -3 842 -3 275 -473 -2 748 -1 665 -1 785 -1 904 Profi t for the year 347 6 032 8 753 10 960 9 106 719 7 641 4 679 4 597 4 547 Attributable to: Parent Company shareholders 347 6 032 8 753 10 960 9106 719 7 641 4 679 4 597 4 547 Planned depreciation on property, plant and equipment 2 865 2 432 1 952 1 891 1 821 1 812 1452 1 168 996 951 BALANCE SHEETS (SEK MILLION) Intangible fi xed assets 229 257 277 269 321 310 428 329 387 477 Property, plant and equipment 39 529 33 759 30 315 26 285 23 087 21 551 19 893 16 702 11 746 7 928 Financial fi xed assets 1 018 1 197 1 120 1 124 1 675 1 827 1 094 2 416 2 208 1 393 Total fi xed assets 40 775 35 213 31 712 27 679 25 083 23 688 21 415 19 447 14 341 9 798 Inventories 2 253 2 611 2 493 2 449 2 074 2 301 2 715 1 635 1 631 1 423 Accounts receivable 1 908 3 291 3 060 4 593 3 395 2 276 1 946 1 922 1 697 1 846 Other receivables 1 037 1 210 2 007 808 1 515 1 095 612 685 1 214 416 Cash & cash equivalents and current investments 16 861 15 497 18 672 18 201 14 562 6 195 9 643 5 991 6 982 7 091 Total current assets 22 359 22 609 26 232 26 051 21 546 11 867 14 916 10 233 11 524 10 776 Total assets 63 133 57 822 57 944 53 730 46 629 35 555 36 331 29 680 25 865 20 574 Total operating assets 45 254 41 128 38 151 34 405 30 392 27 533 25 594 21 273 16 675 12 090

Equity1 37 756 41 472 41 085 37 335 32 951 25 375 25 218 22 251 19 076 14 806 Non-current liabilities 18 402 11 670 12 485 11 933 9 555 7 512 6 836 4 963 4 627 3 598 Current liabilities 6 976 4 680 4 374 4 462 4 123 2 668 4 275 2 466 2 162 2 170 Total equity and liabilities 63 135 57 822 57 944 53 730 46 629 35 555 36 329 29 680 25 865 20 574 CASH FLOW ANALYSES Cash fl ow before payment of urban transformation and pension funds and changes in working capital 7 265 10 599 10 700 14 038 13 951 2 931 11 545 7 200 5 688 6 073 Urban transformation payments2 -1 354 -295 -407 -382 NA NA NA NA NA NA Payment to pension funds -881 Changes in working capital 1 624 -866 980 92 -1 184 -43 -1 201 -124 358 -553 Cash fl ow from operating activities 7 535 8 557 11 273 13 748 12 767 2 888 10 344 7 076 6 046 5 520 Investment in existing activities -5 491 -6 141 -5 808 -5 126 -3 973 -3 543 -4 682 -5 968 -4 844 -2 648 Disposal 28 18 6 17 97 73 6 14 35 23 Operating cash fl ow 2 072 2 434 5 471 8 639 8 891 -582 5 668 1 122 1 237 2 895 Acquisition of companies and intangible assets -17 -13 0 -16 -35 -17 -75 Acquisition / disposals in current investments -703 2 434 -3 729 -2 990 -2 952 308 296 -381 217 -1 846 Change fi nancial assets -92 -11 -66 178 133 100 Cash fl ow after investments 1 369 4 759 1 742 5 649 5 915 -340 5 948 884 1 570 1 074 Borrowing 2 793 -43 Dividend -3 500 -5 500 -5 000 -5 000 -500 -2 800 -2 000 -2 000 -1 500 -520 Cash fl ow for the year 662 -741 -3 258 649 5 415 -3 140 3 948 -1 159 70 554 Deliveries, Mt 26,0 25,5 26,3 25,7 26,0 18,7 22,7 25,1 23,3 23,2 Deliveries pellets, % 83,2 82,8 83,6 81,7 80,1 76,5 79,0 71,3 68,2 65,9 KEY FIGURES FOR THE GROUP Net sales, SEK million 20 615 23 873 26 971 31 122 28 533 11 558 23 128 16 385 14 615 14 337 Growth in net sales, % -13,6 -11,5 -13,3 9,1 146,9 -50,0 41,2 12,1 1,9 59,5 Operating margin, % 2,8 32,3 39,3 47,2 43,2 5,7 44,7 37,5 42,8 42,6 Profi t margin, % 2,9 32,8 40,7 47,6 43,3 10,3 44,9 38,7 43,7 45,0 Return on total capital, % 1,8 14,3 20,3 30,3 31,0 3,8 33,0 24,2 29,3 38,9 Return on equity, % 0,9 14,7 22,2 30,9 31,5 2,8 32,2 22,6 27,1 36,6 Return on operating assets, % 1,4 19,3 29,2 45,4 42,4 2,5 49 32 43 58 Equity/assets ratio, % 59,8 71,7 70,9 69,5 70,7 71,4 69,4 75,0 73,8 72,0 Average number of employees 4 539 4 427 4 357 4 191 4 030 3 778 4 086 3 885 3 737 3 563

1 reported as non-current and current liabilities from 2004 in accordance with IFRS. 2 Reported on own row of cash fl ow analysis from 2011 Defi nitions Operating assets: Tangible and intangible fi xed assets, Inventories, Accounts receivable, Other receivables. Non-fi nancial assets, cash & cash equivalents and current investments. Operating liabilites: Total liabilities reduced by deferred tax in untaxed reserves, deferred tax liabilities and non-current liabilities. Growth in net sales: Change in net sales as a percentage of the previous year’s net sales. Operating margin: Operating profi t as a percentage of net sales. Profi t margin: Profi t after fi nancial items as a percentage of the year’s net sales. Return on total capital: Profi t after fi nancial items + fi nancial expenses as a percentage of average balance total. Return on equity: Profi t for the year according to the income statement as a percentage of average equity. Return on operating assets: Operating profi t as a percentage of average operating assets. Equity/assets ratio: Equity as a percentage of total assets. 138 GLOSSARY

GLOSSARY

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

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

CALCITES AND SILICATES: Di erent minerals. MICA: Mineral.

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

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

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

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

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

HUNTITE: Mineral. TWH: Terawatt hour.

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

LEACHATE: Water containing elements that are present in the material through which it has passed for example, when precipitation falls on a heap of rock or stone. Leachate is caused principally by precipitation percolating through waste deposited in a landfi ll. ADDRESSES 139

ADDRESSES

LKAB INDUSTRIAL MINERALS LKAB Minerals France Group head o ce Representative O ce, 85 Rue Jean Rache Box 952 59310 Saméon, France LKAB Minerals AB SE–971 28 Luleå, Sweden. Tel +33 320 055 167 Box 952, SE–971 28 Luleå, Sweden. Tel +46 771 760 000. Fax +46 771 760 001. [email protected] Tel +46 771 760 400. Fax +46 771 760 401 [email protected] [email protected] Lars-Eric Aaro, President and CEO LKAB Minerals Greece Leif Boström, President and Group CEO Representative O ce, 13, N.Kountouriotou str., 546 25 Thessaloniki, Greece. LKAB Minerals Ltd. Tel +30 2310 539073. Fax +30 2310 552882. IRON ORE Flixborough Industrial Estate, Flixborough, [email protected] North Lincolnshire, DN15 8SF, England. MARKET AND LOGISTICS Tel +44 1724 277 411. Fax +44 1724 866 405 LKAB Minerals Singapore [email protected] c/o LKAB Far East Pte Ltd LKAB Darren Wilson, President 300 Beach Road #29–02, The Concourse, Nordic Sales O ce LKAB Minerals Group Singapore 199555. Box 952, SE–971 28 Luleå, Sweden. Tel +65 6392 49 22. Fax +65 6392 49 33. Tel +46 771 760 000. Fax +46 771 760 001 LKAB Minerals Oy [email protected] [email protected] Kaivoksentie 300, FI–71800 Siilinjärvi, Finland. Johan Heyden, Sales Manager Tel +358 17 266 0160. Fax +358 17 266 0161 fi [email protected] LKAB S.A. Kari Laukkanen, President SUBSIDIARIES Chaussée de la Hulpe 150, BE–1170 Bryssel, Belgien. 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–141 49 Huddinge, Sweden. 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, SE–981 28 Kiruna, Sweden. Tel +49 201 45060. Fax +49 201 4506 490 Tel +46 771-760 200. Tel +46 771-760 201. LKAB UAE JLT Branch [email protected] [email protected] Unit 1007 Platinum Tower Thomas Tepper, President Peter Söderman, President Cluster I Jumeirah Lake Towers LKAB Minerals B.V. LKAB Mekaniska AB Dubai Vlasweg 19, Harbour M164, P.O. Box 16, Tel +46 771-760 210. Tel +46 771-760 211. United Arab Emirates NL–4780 AA Moerdijk, The Netherlands. [email protected] P.O Box 2610 Tel +31 168 388 500. Fax +31 168 388 599 Peter Söderman, President Tel +97 145516377 [email protected] [email protected] Yvonne Dirken, President LKAB Kimit AB Stig Nordlund, President Tel +46 771-760 220. Tel +46 771-760 221. LKAB Minerals Asia Pacifi c Ltd. [email protected] LKAB Malmtrafi k AB 3407 China Resources Building, 26 Harbour Road, Peter Söderman, President SE–981 86 Kiruna, Sweden. Wanchai, Hong Kong. Tel +46 771 760 500. Fax +46 771 760 002 Tel +852 2827 3000. Fax +852 2827 5574 LKAB Fastigheter AB Anders Björnström, President [email protected] SE–981 86 Kiruna, Sweden. John Engel, President Tel +46 771-760 300. Tel +46 771-760 301. LKAB Norge AS [email protected] Postboks 314, NO–8504 Narvik, Norway. LKAB Minerals (Tianjin) Minerals Co., Ltd. Siv Aidanpää Edlert, President Tel +47 769 238 00. Fax +47 769 449 25 Junyi Industrial Park, Jungliangcheng, Dongli District, Magne Leinan, President Tianjin, P.R. China 300301. LKAB Nät AB Tel +86 22 2435 1706. Fax +86 22 2435 1708 SE–981 86 Kiruna, Sweden. LKAB [email protected] Tel +46 771-760 700. Tel +46 771-760 002. Luleå malmhamn James Qi, President [email protected] Box 821, SE–971 25 Luleå, Sweden. Tel +46 771 760 000. Fax +46 771 760 001 Likya Minelco LKAB Försäkring AB Sofi a Jonsson, Site Manager ITOB Organize Sanay Bölgesi Tekeli Beldesi, Box 952, SE–971 28 Luleå, Sweden. Menderes, Izmir, Turkey. Tel +46 771-760 600. Tel +46 771-760 001. Tel +90 232 799 01 60. Fax +90 232 799 01 74 [email protected] PRODUCTION LKAB Minerals Slovak Republic LKAB Trading (Shanghai) Co., Ltd. LKAB Representative O ce, Panenska 13, Unit 2007, 889 Yueda Plaza, SE–981 86 Kiruna, Sweden. SK–81103 Bratislava, Slovak Republic. 1111 Changshou Road, Tel +46 771 760 000. Fax +46 771 760 002 Tel +421 2 5930 5753. Fax +421 2 5930 5754 Shanghai 200042 [email protected] China LKAB Marian Zilinsky, Sales Manager Tel +86 21 521 25103. Fax +86 21 521 26029. Svappavaara E-mail o ce: [email protected] SE–981 86 Kiruna, Sweden LKAB Minerals Spain [email protected] Tel +46 771 760 000. Fax +46 771 760 002 Representative O ce, C./Nord no. 2 Ent.5, Anders Lundgren, President 08500 Vic, Spain. LKAB Tel/Fax +34 93 886 1330 SE–983 81 Malmberget, Sweden. [email protected] Tel +46 771 760 000. Fax +46 771 760 003 140 ANNUAL GENERAL MEETING AND FINANCIAL INFORMATION

ANNUAL GENERAL MEETING

LKAB’s Annual General Meeting will be held on 28 April 2015 at 15.00 in Luleå.

PARTICIPANTS The AGM is open to the public.

NOTICE TO ATTEND Notice to attend the AGM, fi nancial information and other information is available at www.lkab.com Printed fi nancial information may be ordered by e-mail at [email protected] The printed version of the Annual Report will be available from 28 April 2015.

FINANCIAL INFORMATION

INTERIM REPORTS

28 April Interim Report, 1st Quarter 2015

14 August Interim Report, 2nd Quarter 2015

October Interim Report, 3rd Quarter 2015

February 2016 Interim Report, 4th Quarter 2015, together with Year End Report 2015

CONTACT Please direct any questions regarding LKAB’s fi nancial information to Katarina Holmgren, 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. LKAB’S ANNUAL AND SUSTAINABILITY REPORT 2014 Produced by LKAB in cooperation with Yours kommunikationsbyrå, Rippler and Hallvarsson & Halvarsson. Translation: Språkbolaget. Photos: Fredric Alm and Runar Guðmundsson, Alm & ME and LKAB. Printing: Lule Grafi ska. 2014 ANNUAL AND SUSTAINABILITY REPORT

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