Annual Report and Sustainability Report

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TE GOVERNANCE REPORT

ainability Report CONTENTS Events in brief The LKAB Manifesto Overview of the past year report President’s Group strategies LKAB 2009 Economic trends, market Steel demands iron ore International trade The iron ore mines Prospecting, ore reserves From iron ore to pellets Production 2009 Research and development Human resources Investments The industrial minerals business Subsidiaries Sust Stakeholders and sustainability issues creation Value Control of sustainability activities Urban transformation Environment Co-workers Involvement in local communities About LKAB’s Sustainability Report for 2009 GRI index Auditors’ statement of assurance CORPORA Board of Directors and Group Management Finance Group overview Contents, financial statements Report of the Directors Financial reports and notes Proposed disposition of unappropriated earnings Auditors’ Report Glossary Addresses Annual General Meeting and financial information 2009 ANNUAL REPORT AND REPORT ANNUAL 2009 SUSTAINABILITY REPORT

LKAB ANNUAL REPORT AND SUSTAINABILITY REPORT 2009 www.lkab.com LKAB, Box 952, SE-971 28 Luleå, SWEDEN 2 4 6 3 9 13 16 17 18 19 20 21 22 23 24 25 28 29 30 31 34 44 49 55 58 59 60 68 26 27 50 58 11 11 106 104 109 106 108 105 110 111

TE GOVERNANCE REPORT

LKAB ANNUAL REPORT AND SUSTAINABILITY REPORT 2009 www.lkab.com LKAB, Box 952, SE-971 28 Luleå, SWEDEN 2 EVENTS 2009 09

LKAB wins Finforum’s first prize for the best sustainability report for large companies. 40th anniversary of the miners’ strike. Bolagshotellet in Malmberget is closed. The Swedish government gives the go-ahead for a gas pipeline in the Baltic; Minelco begins delivery of magnetite LKAB decides to build 200 new apartments over for the project. five years in Malmberget. VindIn AB, in which LKAB has ownership interest, opens its first Lars-Eric Aaro is appointed President and CEO wind park, in Skutskär, outside Gävle. as of 1 January 2010. An extra shareholders’ meeting votes to restructure LKAB as a public limited company. The first issue of a new magazine, LKAB Framtid, is released. Website visitors are able to chat with LKAB’s Group manage- V ment for the first time. NO DEC The year begins with three of a total of six pelletizing plants closed. Minelco and the fashion company H&M win the Swedish T 2 export prize in Germany. C 0 Hematite production in the Malmberget mine O 0 is discontinued. 9 Personnel from the closed plants join resource teams that work with preventive maintenance and wherever help is needed. P LKAB posts profit for the third quarter. J E A The number of temporary personnel and S Project SILA in Narvik inaugurated. EVENTS N contractors/consultants is tightly restricted. The first sections of four new IORE-type locomotives arrive in Kiruna. Minelco AB gains environmental manage-

ment certification. G F

U OF THE YEAR E

A LKAB and Banverket sign an implementa- B tion agreement for18 km of new railway in Kiruna.

New VP Human Resources joins LKAB. Minelco celebrates IN BRIEF Veteran Party for coworkers who been with

20 years in business. L M the company for 40 and 25 years.

The Minister of Enterprise, Energy and Communications A initiates the construction of the new railway bypass in Kiruna. R

New sewer system in Kiruna officially opened.

A U

The first trainload leaves the new loading station at the J P

Kiruna terminal. R KGS pours the foundation for a new concrete

Y M LKAB signs fines price agreement (-32%) with European A station in Kiruna. customers. LKAB starts a pre-study for Project Ironman with Statoil and Höganäs AB. Complementary rock reinforcement work begins on main level 1045 in Kiruna.

All mines and processing plants in the orefields resume production. Deliveries increase.

Summer clean-up of Malmberget under FAB’s The pellet kiln mantle is replaced in the The sales and marketing organization is direction. Svappavaara pelletizing plant. strengthened. Summer stop for iron ore operations, except Installation of new survey plinths for The first load is sent to China. EU ambassadors from Brussels visit LKAB; the first of for the Svappavaara pelletizing and concen- monitoring ground deformations begins in many visits during Sweden’s EU presidency. Qmatec Drilling becomes a distributor for trating plants, which resume production after Malmberget. Wassara’s drilling systems on the Norwegian LKAB reaches first price agreement for blast furnace a five-month stop. The first price agreement for iron ore market. pellets with Salzgitter Flachstahl (-48.3%). The Environmental Court sets new permit products is reached between Rio Tinto LKAB and the Municipality of Kiruna collaborate on limits for ground deformations in Kiruna. and Japanese buyers; -33% for fines and a one-year photo project, Ögonblick i Kiruna. The Board votes to build an AggloLab in -44% for lump. The first family moves into a new home in Mellan- Malmberget. Publication of www.lkabframtid.com området in Gällivare. Brazilian Vale and Japanese and Korean buyers reach the first price agreement for blast furnace pellets (-48.3 %). THE LKAB MANIFESTO 3 09

Luossavaara- Kiirunavaara AB LKAB

Deep in the ancient rocks of northern Sweden lies the very source of Sweden’s industrial development; millions upon millions of tonnes of the world’s purest and finest iron ore – a foundation of Swedish primary industry, export and prosperity.

Since 1890, LKAB has been mining and processing the ore, one of Sweden’s most important natural resources.

And for just as long, the company has been a reliable supplier and partner to the European steel industry.

The iron ore has been complemented with other natural minerals, and LKAB is now an international, high-tech minerals group with large-scale operations on a globally competitive market. A reliable resource for its owner and customers, the company is constantly developing and aiming for the future.

LKAB is a creative crucible, where people, raw materials, technology, knowledge and expertise drive strongly customer- oriented production, product development and world-class research. These are the success factors that have made LKAB a technology-leading supplier of iron ore pellets.

Luossavaara Kiirunavaara AB (publ). President and CEO: Lars-Eric Aaro LKAB is wholly owned by the Swedish state, Chairman of the Board: Björn Sprängare represented by the Ministry of Enterprise, Corporate ID No.: 556001-5835 Energy and Communications. 4 AN OVERVIEW OF THE PAST YEAR 09

LKAB GROUP

Group summary

MSEK 2009 2008 2007 2006 Net sales 11 558 23 128 16 385 14 615 Operating income 659 10 327 6 148 6 256 - operating margin, % 5.7 44.7 37.5 42.8 Profit after financial items 1 192 10 389 6 344 6 382 - profit margin % 10.3 44.9 38.7 43.7 Tax -473 -2 748 -1 665 -1 785 Net income for the year 719 7 641 4 679 4 597 Fixed assets 23 688 21 414 19 447 14 341 Current assets 11 867 14 915 10 233 11 524 Shareholders’ equity 25 375 25 218 22 251 19 076 Cash flow for the year -3 140 3 948 -1 159 70 Return on equity, %* 2.8 32.2 22.6 27.1 Equity/assets ratio, % 71.4 69.4 75 73.8 Capital expenditures (fixed assets) 3 543 4 716 5 968 4 844 Average number of employees 3 788 4 086 3 885 3 737

* After tax.

Net sales and operating income (MSEK) Return on equity (%) Sales per market region (%)

24 000 50 Middle East/Asia 30% 21 000 40 Others 7% 18 000

15 000 30 12 000 20 9 000 6 000 10 3 000

0 0 2004 2005 2006 2007 2008 2009 2004 2005 2006 2007 2008 2009 Europe 63% Net sales ( 2009) Operating income Return on equity (after tax) Target return on equity (after tax) Europe is the Group’s biggest market. Revenue fell by 50 percent to MSEK 11,558 (23,128), which The targeted return on equity is 8.5% over a business is mainly attributable to lower product prices and volumes. cycle.

The industrial minerals business Minerals Division

SIGNIFICANT EVENTS 2009: Financial highlights – Minerals Sales per market region (%)

Delivery of magnetite products for the Nord MSEK 2009 2008 Middle East/Asia 33% Stream project began. Revenue 2 141 2 753 Others 15% A new organization was introduced, effective Operating income -95 216 from October. It covers three major geographic Operating margin % -4.4 7.8 business units and gives Minelco better capa- Operating assets 1 352 2 054 city for efficiency improvement and a greater Operating liabilities 1 029 1 469 market presence. Investments 13 55 Depreciation 47 49 During the final quarter, it was decided that the Write-downs 317 0 Europe 52% olivine mine in Greenland would be closed in Average number of employees 384 417 late 2010. Europe is Minelco’s home market. However, most of the growth is taking place on other markets. AN OVERVIEW OF THE PAST YEAR 5 09

The iron ore operation Mining Division including Sales & Marketing Division

SIGNIFICANT EVENTS 2009: Financial highlights – Mining

All six pelletizing plants were closed intermittently MSEK 2009 2008 during the first half of the year due to a declining Revenue 9 613 20 703 market. New business was done in China. Operating income 537 9 993 Operating margin, % 5.6 48.3 A five to eight week summer stop in operations Operating assets 27 862 26 262 due to the downturn. Complementary rock Operating liabilities 6 885 7 310 reinforcement in the mines. Investments 3 461 4 608 Depreciation 1 741 1 383 A dramatic increase in demand resulted in Average number of employees 3 158 3 461 record production, logistics and deliveries during - of which Parent Company 2 800 3 058 the second half of the year. Production, Mt 17.7 23.9 Deliveries, Mt 18.7 22.7 Stocks, Mt 1.6 2.7

Global iron ore exports and production of Sales per market region (%) Production and productivity crude steel (Mt) Middle East/Asia 31% Mt Tonne/employee 25 10 000 1 500 Others 5%

20 8 000 1 200

15 6 000 900

10 4 000 600

5 2 000 300 Europe 64% 0 0 0 2004 2005 2006 2007 2008 2009 1960 1970 1980 1990 2000 2009

Production, Mt ( 2009) Global iron ore exports (prel. 2009) Europe is the home market for LKAB’s blast furnace Productivity, tonne/employee World production of crude steel ( 2009) products, and direct reduction products are sold to the Middle East. (Source: CRU. December 2008. Worldsteel, January 2010)

Production of iron ore products Mt Production per operating Shipped 2009 Mt Deliveries 2009 Mt location 2009 Mt 2009 2008 2007 2006 2005 From Narvik, 157 vessels 14.1 Pellets 14.3 Pellets 14.7 19.9 18.8 16.9 16.5 Iron ore products From Luleå, 293 vessels 2.3 Fines* 4.4 Pellets Kiruna 8.1 Total 18.7 Fines* 3.0 3.9 5.9 6.4 6.8 Other deliveries Pellets Svappavaara 2.3 To customers and stocks 2.3 *incl. special products (*incl. special products) Pellets Malmberget 4.3 Total 18.7 Fines Kiruna* 0.5 Fines Malmberget* 2.5 Total 17.7

*incl. special products

Subsidiaries Special Businesses Division

SIGNIFICANT EVENTS 2009: Financial highlights – Special Businesses

Wassara increased sales to the civil engine- MSEK 2009 2008 ering sector by 30%, despite the recession. Revenue 1 098 893 KGS increased concrete production by 40% Operating income 168 140 and built a new concrete plant in Kiruna. Operating margin % 16.3 15.7 Operating assets 1 063 1 083 LKAB commissioned FAB to build about Operating liabilities 375 501 200 new apartment units over five years in Investments 55 69 Gällivare. Depreciation 39 29 Average number of employees 236 208 6 PRESIDENT’S REPORT 09

Back to the future

The global financial Economic perspectives the number of temporary personnel and contrac- The iron ore operation is the Group’s core busi- tors/consultants was tightly restricted. crisis that started in ness. Deliveries were halved during the first six Zero accidents is LKAB’s long-term goal. We 2008 and grew to months of the year, as was the price of the main realize that achieving this goal takes time and product, iron ore pellets. Our plan of action was have therefore set the sub-goal of a 50-percent become a deep, to strengthen the sales and marketing organiza- reduction in accidents by 2012. In 2009, there worldwide recession tion, work new markets and begin an offensive were 58 (65) accidents resulting in absence. program of cost reduction and capital efficien- Even though the number was reduced compared hit LKAB hard during cy. This resulted in new business. new customers to the previous year, we did not reach the target and a considerably better cash flow. of a 20-percent reduction. Work with Safety First 2009. Even so, the LKAB’s strong financial position enabled us to is now being intensified throughout the Group. year did not turn out build up stocks of iron ore products and to avoid Since many of the orebodies extend at depth personnel redundancies among permanent em- towards the communities, successively larger ar- to be the disaster we ployees. Thanks to our stocks, we were able to eas in Kiruna and Malmberget must be classed win market shares when demand picked up dur- as industrial land. had expected. ing the latter half of the year. A big challenge for LKAB in the next few years A surprisingly strong We are pursuing a long-range program of cost will be to increase public knowledge and aware- and capital rationalization with the aim of suc- ness of the effects of our mining. Together with turnaround came in cessively lowering the cost level in Swedish kro- the municipal authorities, residents and other the autumn, and the nor per tonne to the 2007 level to meet the stakeholders, we are seeking solutions that are correspondingly lower price level for iron ore perceived as reasonable and sustainable by all financial outcome for products. This will result in improved competi- parties concerned. tive advantage, with a lower cost level and con- the year was a profit trolled capital expenditures. Environmental perspectives of 1,192 million During the year, LKAB was restructured as a Addressing global climate impact is the great public limited company. The aim is to facilitate common challenge for the world community and, Swedish kronor after possible future borrowing on the capital market, thereby, also for the iron and steel industry. In if this should prove necessary. However, via cost that context, LKAB’s magnetite-based pellets are financial items. reduction, the goal is still to be able to manage a product of the future that significantly reduces operating expenditures and investments with our carbon dioxide emissions per tonne steel in com- own funds. The major future investments, in new parison with competing hematite-based products. main levels in the iron ore mines and upgrading Where reduction of steel-industry carbon di- of the logistics system, continued essentially as oxide emissions is concerned, the joint European planned during the year, despite lower incomes. research project ULCOS, centered around LK- AB’s experimental blast furnace, has shown that Social perspectives it is theoretically possible to lower emissions by Last year LKAB experienced perhaps the worst 60-70 percent by recirculating top gas to the pro- drop in demand in a very long time. The low de- cess, while at the same time demonstrating the liveries meant great losses, placing a heavy bur- possibility of separating the carbon dioxide. The den on liquidity. Despite this, we proceeded with continuation of the project looks very promising. our major future investments, and none of our LKAB is also working together with external part- permanent employees in the iron ore operation ners with a number of development projects to had to be laid off as a result of the huge cutbacks investigate the possibilities for sequestering car- in production made during the year. However, bon dioxide in waste rock and growing forest. “LKAB has made it through the recession.”

Lars-Eric Aaro President and CEO 8 PRESIDENT’S REPORT 09

LKAB is one of Sweden’s largest electricity us- ly world-leading pellet manufacturer, we will ers. This means that sustainable energy deals, build an agglomeration laboratory in Malmber- improvements in energy efficiency and trends get during 2010. Together with the experimen- on the energy market are decisive for our com- tal blast furnace in Luleå, the new laboratory and petitiveness. Therefore, it is vitally important a new level of knowledge will allow our custom- that regulatory instruments such as environmen- ers world-unique possibilities to continue, with tal taxes and trade in emissions rights in the EU LKAB, to develop products and processes. stimulate technological development, not export Thanks to the results achieved in the joint of carbon dioxide and thereby, the elimination of project ULCOS, the steel industry in Europe industries in Europe. is now seeing new opportunities for taking the Via BasEl, LKAB has an ownership interest in next step towards greater efficiency in ironmak- the windpower company VindIn AB, whose first ing, in among others areas, with direct reduction. wind park, in Skutskär, south of Gävle, was inau- Within the framework for the Ironman project, gurated during the year. Studies are also under for which we are conducting a pre-study togeth- way to investigate the possibility of future wind- er with Höganäs and Statoil, we see long-term power production in other areas. possibilities for production of DR products in In October, we opened the renovated and ex- Europe. Here, there is potential for combining panded ore harbor in Narvik. Trains enter a tun- LKAB Green Pellets with Norwegian natural gas,

nel and discharge their loads into the twelve and a possible 70-80 percent reduction in CO2 60-meter-deep product storage silos built into emissions via direct reduction technology, which the rock. The upgrade improves the efficiency of would go a long way towards meeting EU targets harbor operations as well as the local environ- in this area. ment, since the Narvik harbor is situated in the For industrial minerals, continued hard com- middle of the town. petition is expected and Minelco is working ac- One of the year’s pleasant surprises was that tively to implement a flexible organization to LKAB won First Prize for its first-ever sustain- meet customer-specific requirements. ability report. The FAR SRS award for Sweden’s LKAB has made it through the recession, best sustainability report was presented at Fin- maintaining a strong position on our home mar- forum in December. This is a testimonial to the kets in Europe and the Middle East while at the dedicated effort invested by LKAB in various sus- same time establishing new business relations in tainability-related contexts. Active cooperation Asia. with the surrounding communities is a prerequi- We are now building a new future for LKAB, site for the success of our business. for our co-workers and for our customers by making strategic investments in new main levels The future outlook for the iron ore mines in Kiruna and Malmberget At the close of the year, LKAB’s stocks of iron ore and in our new orefield in the Svappavaara area. were essentially depleted. We continue into 2010 At the same time, we are intensifying our R&D operating at full capacity, despite the fact that efforts to strengthen the company’s position as a market trends are difficult to foresee. global, technologically leading manufacturer of Production capacity in our pelletizing plants iron ore pellets. has been increased to about 28 Mt per year. Ac- cess to crude ore, i.e. the production capacity in our large underground mines, is the bottleneck in the chain of production. Our strategic investments to secure the ore base at deeper levels are continuing with work on the new main levels. In Malmberget, the first sections will be operational in the last quarter of 2010 and in Kiruna during 2013. An applica- Luleå, March 2010 tion for an environmental permit to mine magnetite at Gruvberget, outside Svappavaara, was submitted in June 2008, and we hope to begin production during the first half of 2010. Applica- tions for environmental permits for a further two open pits in the Svappavaara area will be submitted during 2010. Our goal within the next three to five years is to reach a production capacity of about 37 Mt of iron ore products. To maintain our position as a technological- lars-eric aaro. president and ceo GROUP STRATEGY 9 09 The LKAB Group’s strategies start with our customers

Mission tion and will be operational in early 2011. The LKAB’s mission is, based on the Swedish ore- long-term plan also includes an experimental di- Dramatic fluctua- fields, to manufacture and deliver to the world rect reduction plant and an experimental pellet- market upgraded iron ore products and servic- izing plant. tions demand es that create added value for customers. Oth- LKAB works continuously to implement new flexible solutions er closely related products and services that are innovations and technologies in the pellet manu- based on LKAB’s know-how and support the facturing process. main business can also be included in the com- The company has a long-term, systematic pro- Leif Boström pany’s operations. gram of competence development and supply Senior Vice President. Finance that is pursued in collaboration with several part- Vision ners worldwide, as well as through close, long- Three factors were important for LKAB LKAB will be perceived by the customers as the term cooperation with Luleå University of Tech- in tackling the economic downturn; namely, that the recession was tem- supplier that provides the most added value and nology. porary, that there would be greater is thereby the leader in its selected market seg- world demand for steel in the long ments. Growing with our customers run, and that LKAB’s financial strength As global steel consumption increases, many of and assets of about nine billion Swed- LKAB’s strategic journey into the future ish kronor would give the company LKAB’s customers are increasing their produc- the freedom to act accordingly. begins with our customers tion capacity. After the first half-year, liquidity had The LKAB Group’s overall strategies for realiz- LKAB will grow with the customers to main- been halved to just over four billion ing the mission and vision can be summarized as tain a significant position, with the customers Swedish kronor. Iron ore deliveries follows. and in the market, to improve LKAB’s long-term and the price of the main product, pellets, had also fallen by half. Earn- competitive advantage. ings had declined dramatically and Customer focus The company will deliver 30 Mt of iron ore the company reported a loss during - Performance in ironmaking products in 2012, which necessitates further in- the second quarter. Therefore, LKAB LKAB’s main product is iron ore pellets. vestment in mining capacity to meet the need for established an extensive program of cost and capital rationalization for The company also delivers fines to steelmill cus- more raw material. the group. tomers. LKAB is opening three new satellite mines in The program, which covers sev- A certain volume of iron ore products is ear- the Svappavaara area and is continuing prospect- eral years, includes, for example, marked for delivery to customers in growth mar- ing to evaluate more iron mineralizations in the increased competitive exposure and kets. area of current mining operations. a change in buying behavior, improved material and inventory han- Profitable industrial minerals complement LK- In the long range, LKAB will grow to an annu- dling, energy savings, adjustment of AB’s product portfolio. al capacity of about 37 Mt through complemen- capital expenditures, and a long-term LKAB places the customer in focus and always tary investment in mineral processing plants and adaptation of the workforce through meets the customer’s demands on products and logistics systems. natural attrition in combination with operational and organizational devel- services. opment programs. LKAB is the global technology leader among Safe, resource-efficient production is a The major investments in new main pellet companies and delivers added values that matter of course levels in Kiruna and Malmberget are result in optimal total value for the customers. LKAB has world-class mineral deposits. The fundamental for LKAB’s future. One of LKAB secures its position as a world-leading company makes sustained investments in compe- the goals we set was to manage these via our own cash flow. LKAB became pellet supplier with long-term competitive advan- tence, innovation and technology, with continu- a public limited company to facilitate tage through sustained investment in research ous improvements in cost-effectiveness, products future lending. A so-called loan facil- and development. and processes. ity of MSEK 5.000, which can be A long-range plan is LKAB’s Ironmaking Re- “Safety First” is implicit in everything we do. utilized as required, has also been signed. Another important objective search Centre, which now consists of the Experi- The number of accidents will be halved by 2012 was to lower the cost level in mental Blast Furnace in Luleå and an AggloLab and the long-term goal is zero accidents. Continued on next page in Malmberget. The AggloLab is under construc- 10 GROUP STRATEGY 09

An attractive company, URban TRANSFORMATION (cont.) today and tomorrow in dialogue with stakeholders Swedish kronor per tonne for iron LKAB is continuously developing and improving LKAB’s mining operations give rise to the need ore products to the 2007 level to its operations and organization. for urban transformations in Kiruna and Malm- meet the correspondingly lower Our co-workers are strongly motivated, indi- berget, thereby influencing the everyday living price level. The short-term strategy was to take vidually and collectively, to continue to develop situation of many people. one month at a time, to produce and LKAB as a competitive and attractive company. The company works proactively to ensure that sell to markets such as China and As a partner in the orefields, the company in- the urban transformations in the orefields com- the Middle East where, despite the spires confidence and engages in active dialogue munities are realized in a timely manner and in downturn, there was still a demand for the products. LKAB also decided and timely communication with its stakeholders. close collaboration with the municipalities, lo- to stockpile both finished products LKAB develops the skills and competencies of cal residents, public authorities and other stake- and crude ore in anticipation of a its co-workers on an ongoing basis and works ac- holders. Roles and the division of responsibility turnaround in the economy. Capital tively to meet future personnel requirements and are clear. tie-up in inventories was possible adapt and develop the organization, for example, thanks to the company’s strong liquidity. towards greater diversity and equality. The operation had to show great flexibility during the year. The challenge was met with great success. Production facilities were closed intermittently during the first half of the year. The number of temporary personnel and contractors/consultants was tightly restricted and personnel from dormant and low- Policy Policy in brief volume operations were reassigned to other duties in the company. A Quality policy LKAB will exceed customers’ present and future expectations by involving all em- five to eight-week-long summer pro- ployees in the process of continuous improvement. We will strive for zero defects duction stop in the iron ore opera- in everything we do, and each employee is responsible for the quality of his or tion was announced. Four weeks of her own work. the summer stop coincided with the summer vacation. For the following Environment and Through continuous improvement of the working environment, the natural environ- four weeks LKAB paid salaries and Energy Policy ment and energy use, LKAB’s operations will promote long-term sustainability and employees, in return, agreed to post- profitable development. pone salary review for 2009 and take out accumulated time. Ethics policy LKAB will strive to be perceived by customers, shareholders, suppliers, employees Deliveries increased dramatically and the community as a company that conducts a sound and successful business in the autumn. LKAB was able to operation with integrity and moral correctness. utilize the stocks of iron ore products and crude ore to quickly resume Personnel policy LKAB’s personnel policy will contribute to making LKAB a company that is an attrac- deliveries to customers. Despite the tive employer and is perceived as such. product stocks and full production, during the autumn and win- Information policy LKAB’s employees will always be well informed with respect to the company’s ter, LKAB had difficulty fill- operations, its business environment, goals, strategies and results, and of their own ing the ships waiting to be workplace and their role in the company’s operations. LKAB’s customers, share- loaded in the harbors. holders, suppliers and the community will be given, on an ongoing basis, timely Record deliveries in the and correct information that provides a representative view of the company and second half of the year its operations. resulted in a billion- Swedish-krona profit. Financial policies in Credit Policy, Currency Policy and Policy for Managing Financial Assets and Liabi- The dramatic fluctuations brief lities; see www.lkab.com. of 2009 have taught us Dividend Policy; see Corporate Governance. that change comes quickly. Flexibil- For the complete policies, see www.lkab.com. ity in all areas of our operations will help LKAB to navigate its way into the future.

LKAB’S ANNUAL REPORT 11 09

LKAB 2009

MA R KET 1 3 It is difficult, if not impossible, to imagine a world without steel. For The IRON ORE thousands of years, the production of iron and steel has gone hand MINES 18 in hand with social development, and steel continues to bring a Research and

Development 22 wealth of benefits to our modern high-tech society. Steel is the HUMAN RESOURCES 23 world’s most useful structural material. Even though new materials INVESTMENTS 24 continue to be developed, steel and, consequently, iron ore, are the The INDUSTRIAL backbone of global economic growth. MINERALS 25

SUBSIDIARIES 26 One of the unique advantages of steel is that its ide minerals such as magnetite and hematite. Al- material properties can be adjusted during the though iron mineralizations can be found practi- manufacturing process to perfectly match the re- cally everywhere, they are seldom rich enough to quirements of the particular application. Every- make mining viable. Only when the profit from where around us, steel can be found in varying sale exceeds the cost of production can the min- quantities: in walls and roofs and in the bearing eral be called iron ore. structures of buildings, in various types of vehi- Of all the iron ore mined, most consists of cles, machines, furniture, tools, computers and bloodstone, or hematite. The iron ore mined by staplers. No other material offers such a wide LKAB in Kiruna and Malmberget is mostly mag- range of uses or performs so well in relation to netite, sometimes called black iron oxide. As its its price. name suggests, magnetite is ferrimagnetic, which To make steel, we need iron. Iron, the fourth makes it easy to separate from waste rock during most common element in the Earth’s crust, is processing. found combined with oxygen to form iron ox- 12 LKAB’S ANNUAL REPORT 09

Magnetite has another property that gives it a Green Pellets. strong advantage over hematite. Magnetite re- The basic rule of thumb states that for every quires considerably less energy in the process of tonne of crude steel produced, two tonnes of car- upgrading to iron ore pellets. This gives LKAB an bon dioxide are released into the atmosphere. By enormous advantage as a supplier of pellet prod- reducing emissions, LKAB Green Pellets turn ucts to the global steel industry. this rule upside down. Just as the iron and steel On a globally competitive market, in tonnage business is global, its environmental impact must terms, LKAB is a very small iron ore producer. be seen in a similar perspective, since the climate Within the pellet manufacturing segment, how- issue is global. LKAB Green Pellets help the min- ever, the company is a market leader. In terms of ing and steel industries to reduce their environ- capacity, LKAB is the world’s second largest pel- mental impact and contribute to sustainable de- let producer. velopment. For 55 years, since the first pelletizing plant was built in Malmberget, in 1955, LKAB has focused on product development and acquired a wealth of knowledge and experience of pellet Price trends, manufacture in close collaboration with steelmill iron ore products (US Cents)

customers in Europe. 270 240 LKAB’s green upgrading process 210 The raw material for LKAB’s pellets consists 180 mainly of magnetite. Approximately 60 percent 150 of the thermal energy needed during pellet man- 120 ufacture comes from oxidation. This means that 90 LKAB’s input of fossil fuels such as coal and 60 oil is considerably less than that of competitors 30 whose products are based on hematite ore. With 0 2004 2005 2006 2007 2008 2009 LKAB’s pellets, emissions of carbon dioxide per tonne of steel are significantly reduced compared LKAB Pellets (fob Narvik) Vale Pellets (fob Tubarao) to the alternative process routes of sintering he- Kiruna B Fines (fob Narvik) matite fines at the steelmill or using hematite Carajas Fines (fob Ponta de Madeira) pellets. That is why we call our products LKAB (Source: LKAB, Vale)

Approximately 60 percent of the thermal energy needed during pellet manufacture comes from oxidation.

LKAB Green Pellets are based on 55 years of experience of pellet manufacture. LKAB’S ANNUAL REPORT 13 09 Economic uncertainty characterized the market in 2009

LKAB China rebounded quickly in 2009 and Other imported large volumes of iron ore, thereby compensating for weaker demand from other regions of the world.

The demand for iron ore is influenced by factors that are difficult to control. The industry is dollar-dependent and sensitive to major economic trends. Price setting is global. The price is generally decided on a yearly basis in negotiation between leading producers and buyers, and a benchmark price is set for the entire industry. Sea freight costs also have a great influence on the total price picture, since world market prices are compared with the freight cost within the EU included. The initial international price agreements for 2009, reached during the summer, were drastically delayed due to uncertainty as to world economic development. The diagram shows the flow of iron ore from producer countries to recipient countries. (Source: LKAB, CRU) For LKAB, the outcome was a 48.3 percent reduction in the price of blast furnace pellets compared with the previous year. For Kiruna B fines (KBF), the reduction was 31.65 percent and for The largest steel-producing countries Global trade in iron ore Malmberget A fines (MAF), 31.55 percent compared with the previous year. Country ranking 2009 2008 % 08–09 Largest export nations China 1 567.8 500.3 13.5 As late as December, no price agreements for Australia Japan 2 87.5 118.7 -26.3 Brazil 2010 between the world’s largest iron ore pro- Russia 3 59.9 68.5 -12.5 India ducers and steelmakers had been reached. USA 4 58.1 91.4 -36.4 South Africa India 5 56.6 55.1 2.7 Canada China remained strong when the world South Korea 6 48.6 53.6 -9.4 Sweden economy faltered Germany 7 32.7 45.8 -28.7 Ukraine 8 29.8 37.3 -20.2 Largest import countries/regions Major investments in infrastructure and strong China Brazil 9 26.5 33.7 -21.4 Japan growth in, for example, the vehicle and manufac- Turkey 10 25.3 26.8 -5.6 EU turing industries and the building sector, affect Sweden 36 2.8 5.2 -46 the iron ore market, and thereby LKAB, direct- South Korea (Source: Worldsteel, January 2010) Middle East ly and positively. This trend was evident in 2007, when global demand for steel was strong and, (Source: CRU, December 2009) consequently, the price of iron ore pellets and fines reached record-high levels during 2008. During the autumn of 2008, decline and un- rest on the US financial market resulted in a to- ket, was particularly weak, since the steelmills re- tal collapse, which quickly sparked an interna- duced their steel and iron ore inventories. Cus- tional financial crisis and subsequent economic tomers in North Africa and the Middle East also downturn. reduced their capacity, but thanks to stronger do- As a result, demand for steel-intensive capi- mestic markets, demand in these regions picked tal goods, such as cars, and building investment up in the summer of 2009. fell dramatically. When steel production slowed China, whose steel production reached record in response to falling demand, the bottom fell levels in the second half of 2009, imported large out of the iron ore market and LKAB’s sales vol- volumes of iron ore, thereby compensating to a umes dropped markedly during the first half of degree for weaker demand from other regions. 2009. The European market, LKAB biggest mar- China increased its domestic iron ore consump- 14 LKAB’S ANNUAL REPORT 09

tion and produced 52 Mt of steel in August, the supply of many iron ore products. Spot prices on About highest-ever monthly result in the world. iron ore in Asia increased. iron ore prices In response to the market decline in Europe As a consequence of increased sales volumes and the Nordic region, LKAB strengthened its and rising prices, most European steel produc- sales organization during the first half of 2009 ers began to utilize more of their production ca-

Global trade in iron ore is in US dol- and concentrated on new, developing markets, pacity. From August 2009 onwards, most of the lars. While trade in iron ore on the among others, China. Agreements were reached world’s largest steel-producing countries posted a European market is conducted ac- with new Chinese customers during the summer, rising monthly production rate. Total production cording to an annually agreed bench- while sales to the Middle East increased and LK- for the full year 2009 was, however, still much mark price, the Asia market trades on lower than it was for the previous year. the basis of a fixed reference prices AB’s home market in Europe began to recover. and variable prices (spot prices). In December 2009, no reference price Environment and energy stabilized the Asia and China lead the way for 2010 agreements between iron ore produc- industrial minerals market Development on the steel market, upon which ers and steelmakers in China had Even though the global recession had a heavy the iron ore market is based, is difficult to fore- been reached, which is historic. At the close of the year, China was trad- impact on LKAB’s deliveries of iron ore products see, but is expected to remain weak through ing in iron ore at spot prices that were to the steel industry, the effects were varied for 2010. There is still a great deal of uncertainty 20-30% above the benchmark prices the Group’s industrial minerals operation, which with respect to developments in the underlying that steelmills in Japan and other parts is organized and managed under the Minel- consumption. In addition, credit terms are strict- of Asia had negotiated. co brand. Some product areas showed declining er, which may slow the rate of recovery. As for It is likely that China will wish to return to a more stable reference price, demand, while other remained relatively stable iron ore prices for 2010, many analysts are of the while spot prices will act as an indi- through the crisis. opinion that the price will rise. cator of where the world economic High energy prices have driven up demand For the industrial minerals operation, contin- situation and the iron ore market are from, among others, the oil and gas industry, ued growth is expected in 2010 in the energy and heading. However, due to uncertainty as to the market situation, price nego- which has presented huge potential for magne- environment sector. Generally, Asia and China tiations may be long-drawn. The bulk tite as a raw material for heavy concrete encase- are a growth market for all industrial minerals, of iron ore trade takes place in Asia, ment for gas pipelines. Demand for minerals for and in North America, good business opportu- which subsequently sets the tone for water treatment chemicals was also high. In Eu- nities are foreseen, for example, in the environ- price negotiations for the European rope, for example, new EU member nations must ment sector. market. For the European market and LKAB, adapt to meet applicable EU wastewater dis- this means that a benchmark price for charge standards. Magnetite is used, for example, An annual building rate 2010 may not be forthcoming until in the production of iron salts, which are used corresponding to twice Sweden sometime during the second quarter. as coagulants to hasten the separation of humus Not even a worldwide recession could break Chi- Although analysts predict an increase in iron ore prices for 2010, the out- matter in the wastewater treatment process with na’s strong growth trend, which picked up fast- come is uncertain. In the final analy- the help of sedimentation. er than that of other economies during 2009. sis, world economic trends, including China’s GNP continues to rise at a steady annu- factors such as demand and purchas- Strongest growth in Asia and China al rate of 9–10 percent and the need for steel in ing power, will decide. Overall, demand on the industrial minerals mar- China’s transition from an agricultural to an in- ket was weak during the first half of the year. De- dustrial economy is enormous. 850 million of spite an improvement in the final six months, de- China’s total population of 1.3 billion will live mand had not returned to normal levels by the in cities by 2030. To meet the housing demand, close of the year. China will have to build at an annual rate cor- The European market accounts for more than responding to twice the number of buildings in half of Minelco’s sales. However, growth is oc- Sweden. In addition, demand will be driven by curring mostly on other markets, mainly Asia and mammoth infrastructural investments and the China, and is expected to continue towards a Chinese desire for conveniences that are self-ev- more geographically even distribution of sales. ident in the western world, such as refrigerators and televisions. In 2008 alone, nearly 5.7 million Increased demand drove up new cars and 600 million new mobile telephone iron ore spot prices subscriptions were registered in China, and the Statistics from the World Steel Association growth continues. During January 2010, 1.6 mil- (Worldsteel) indicate that demand for steel has lion cars were built. begun to pick up due to rising production in Chi- na, Japan, South Korea, Germany, the USA and China is the most important market Brazil, the world’s major steel-producing coun- for iron ore tries. On LKAB’s home market in Europe, prices China is the most important growth economy on most steel products rose during the autumn. and market for the global trade in iron ore prod- A resumption of more regular purchasing on the ucts. At a time when much of the iron and steel part of the steel industry’s customers, who be- market outside of China had dwindled, China gan to increase their inventories, restricted the increased its import of iron ore from 444 Mt in LKAB’S ANNUAL REPORT 15 09

From the Kiruna mine to customers – an example

DAY 1 MINING OF TRANSPORT PROCESSING CRUDE ORE BY TRAIN DAY 2

DAY 3–60 Blasting 01.30 hrs Fines 09.00–09.30 hrs Kiruna 15.00 hrs or longer

Pellets 10.00–10.30 hrs

CUSTOMER LOADING HARBOR TO SHIPS

Luleå: SSAB 2–3 days* 02.00 hrs Narvik 19.00 hrs

Europe: 1-3 weeks*

The illustration shows how long it takes from the time the ore is blasted loose Southeast Asia and the Middle East 7-9 weeks* in the Kiruna mine until it is upgraded to iron ore products such as fines and pellets, transported by rail to the harbors, loaded to ships and delivered to

* Delivery times are approximate customers around the world. and vary depending on distance from port to customer and which transport routes are used.

If nothing unforeseen happens, China is expected to totally dominate the development of the iron ore market in the years to come.

2008 to 628 Mt in 2009. China is expected to dominate the development of the iron ore market over the next 30 years. LKAB always seeks business relationships in which the market share of delivered iron ore raw material is high. The aim is to develop long-term, stable business relationships. LKAB has suc- ceeded with this strategy since the company was founded, which has resulted in functioning customer relationships that are more than a hundred years old. For LKAB, owing to the technological development that is taking place on the world’s single largest steel market, the Chinese market is highly interesting. For Minelco and the industrial minerals operation, Asia and above all, China, is also a strong and growing market for, among other products, minerals for the foundry and steel industries. The region is also an important source of minerals that Minelco can sell on other markets. 16 LKAB’S ANNUAL REPORT

09 From LKAB’s magnetite, SSAB produces high-quality strip steel that is cold-rolled and annealed to create high-strength Hiloc steel for the engineering industry by Duroc Special Steel.

From iron ore to high-strength collision rails for the auto industry

Customized special steel and efficient erties that are customized for specific applica- Iron returns upgrading processes begin with LKAB’s tions. Intensive, raw-materials research and experimentation is conducted at LKAB’s unique iron ore products. as quality steel experimental blast furnace in Luleå. At the steelmills, LKAB’s high-quality pellets and fines are upgraded to useful iron and steel prod- Highly upgraded steel products LKAB’s iron ore products are hauled to the shipping harbors at Narvik and ucts. LKAB’s niche is to deliver technology-lead- A broad range of high-quality iron and steel prod- Luleå in new rail cars of high-strength ing pellet products and fines to steelmill custom- ucts are made from LKAB’s pellets and fines. steel from SSAB, made from 100% ers around the world. Many of the customers are, Many steelmills/customers have also specialized blast furnace pellets from LKAB. in turn, niched towards superior-quality iron and in offering a greater degree of customization and At Narvik, trains discharge their steel products. The term steel denotes any one of upgrading, with products such as high-strength loads along a 500-meter-long steel bridge structure from Finnish Rruukki – a number of alloys of iron and other metals such steel and other types of special steel including also made from iron ore from LKAB. as manganese, boron, chromium and nickel. stainless steel, tool steel and ball-bearing steel. Minelco delivers, among other minerals, oliv- Other product groups include sheet and strip ine, fluorspar and bauxite to the steel industry, as steel, bar, profiles, wire and tubular steel for use well as finished products such as slag darts. in, for example, the construction, manufacturing The countless combinations of additives used and vehicle industries. in steelmaking give the steel very exacting prop- LKAB’S ANNUAL REPORT 17 09 International trade in iron ore is dominated by three major players

LKAB’s close proximity to the European BHP Billiton’s main ore reserves are in West- market is a competitive advantage. ern Australia. They also own a 50% interest in A large Samarco in Brazil, one of LKAB’s competitors. Total world iron ore production amounted in The other half of Samarco is owned by Vale. pellet supplier 2009 to 1,690 Mt. LKAB produced 17.7 Mt, BHP Billiton’s most important markets are in which corresponds to about 1.0% of world pro- China, Japan, South Korea and Taiwan. With a capacity of more than 40 Mt duction. China is the world’s largest iron ore pro- pellets per year, Vale, in Brazil, is the ducer, followed by Australia, Brazil an India. Chi- Higher prices make world’s single largest pellet supplier. na, which is also the world’s largest importer of smaller mines profitable The second-largest is LKAB, with a cur- iron ore, is consequently the largest steel produc- With its close proximity to the European mar- rent capacity of about 25 Mt. Ranking third is Samarco, in Brazil, er, followed by Japan and South Korea. ket, LKAB has a competitive advantage. Short with a capacity of some 22 Mt per Trade in iron ore is a consolidated industry. transports mean lower freight costs and great- year. Vale and BHP Billiton each own The largest producers and exporters of iron ore er continuity in demand from steelmill custom- 50% of Samarco. are Brazilian Vale and the Anglo-Australian miners. The competitors who are closest and can of- ing companies Rio Tinto Group and BHP Billi- fer iron ore products similar to those of LKAB ton. are based in Ukraine and Canada. There is a ten- All of Vale’s mining operations are in Brazil. dency for parts of the industry in Central Europe A small The sales volumes consist largely of fines (about to move eastward, closer to the mines, and there- iron ore supplier 88 percent) and other iron ore products and pel- by gain an even greater advantage of short dis- lets account for about 12 percent. Products are tance. Rising iron ore prices have also made it vi- exported to Asia, Europe, North America and the able to mine ore with lower iron content. This Vale, Rio Tinto and BHP Billiton are Middle East. China is the single largest recipient has result in the opening of Sydvaranger Gruve, the world’s three largest suppliers of of Vale’s products. in Kirkenes, Norway, the planned reopening of iron ore products. Together, they de- Rio Tinto has iron ore mines in Western Aus- Dannemora Gruvor, northeast of Uppsala, and livered 577 Mt in 2009. That is about tralia’s Pilbara region as well as in Canada and planning for three mines in Swedish Pajala and 70 percent of the world’s total iron ore deliveries. Brazil. The company is also developing projects Finnish Kolari. LKAB delivered 18.7 Mt, which in India and Africa. The iron ore from Australia is LKAB also plans to open three open-pit mines represents a world market share of exported mainly to Asia, with China as the larg- in the Svappavaara area to gain access to more around two percent. est importer. iron ore.

LKAB plans to open three new open pit mines in the Svappavaara area: Gruvberget, Leveäniemi and Mertainen. 18 LKAB’S ANNUAL REPORT 09

LKAB’s high-quality magnetite is mined in two of the world’s largest underground mines

High-grade iron ore, Much of the world’s iron ore resources consist about ten are currently mined. In the western a high degree of automation of hematite that is relatively close to the surface field, via main level 600 m, mostly hematite is and world-leading of the Earth’s crust and can therefore be mined mined, while in the eastern field, via main lev- in large open pits. LKAB’s ore deposits, on the els at 800 and 1000 meters below leveling point, technology make LKAB’s other hand, consist largely of standing/inclined only magnetite is mined. A new main level is be- mining profitable. orebodies of magnetite that is mined in under- ing built at 1,250 meters below leveling point ground mines at a depth of about one kilome- and it will be operational in 2010. ter. The mines in Kiruna and Malmberget are the world’s largest and most modern underground Automation and iron ore mines. innovative technology For iron ore mining to be profitable, now and in Kiruna the future, LKAB has developed an efficient and Since mining began in1900, more than a billion highly automated chain of production and logis- tonnes of ore has been extracted from the Kiruna tics with world-leading, innovative technology. mine, where the orebody is a single, gigantic wall An important factor for LKAB’s competitive- of magnetite. It is roughly four kilometers long ness is that large-scale underground mining can and extends to an estimated depth of two kilome- be conducted safely. ters. Ore is mined via the main level at 1,045 me- This requires, for example, the capacity to drill ters below leveling point. A new main level is be- extremely straight, long holes for charging explo- ing built 320 meters below the present level and sives. Thanks to proprietary technology from the it will be operational in 2013. subsidiary Wassara AB, LKAB can maximize the efficiency of mining by using drill rigs equipped Malmberget with the Wassara Hammer, a water-driven, envi- Mining in Malmberget began in 1888, and the ronmentally friendly drilling system. mine consists of about 20 orebodies, of which LKAB’S ANNUAL REPORT 19 09

LKAB is looking for more iron ore

Prospecting within and outside of the present mining areas will secure conditions for future growth and sustainable mining operations.

Following the expansion of capacity in facilities Ore from new mineralizations at surface level, with two pelletizing plants and An application for permanent mining of a maxi- Three new pits improvements in the logistics system, access to mum of two million tonnes of magnetite per year to open iron ore is a bottleneck in the chain of produc- has been submitted to the Environmental Court, tion. To secure the future supply of ore, LKAB and LKAB hopes to be granted a permit that will is studying the existing orebodies in both Kiruna allow the company to begin mining during the Per-Erik Lindvall and Malmberget, and conducting conventional first half of 2010. Senior Vice President, Technology prospecting to identify interesting iron mineral- Other prospecting outside the mining areas & Business Development izations even outside the present mining areas. during 2009 has been based mainly on the results from the TEM survey (a method employing LKAB wants to grow with its custom- Ore for new main levels electromagnetic pulses to study the bedrock) car- ers, which is why more iron ore is In Malmberget, 58,000 m of test drilling is ried out by helicopter in 2008. Data from all sur- needed. LKAB expects to be able to start min- planned during 2010. In Kiruna, a diamond drill- vey areas (Kiruna, Malmberget, Kuosanen and ing Gruvberget near Svappavaara ing program, of which the purpose is to ascertain Mertainen, Ylipääsnjaska) have been interpreted. during the first half of 2010. At most, the depth and northerly extent of the orebody, For 2010, diamond drilling is planned for three two million tonnes of iron ore per year has been under way since 2008. During 2009, sites: Lappmalmen, Mertainen and Gruvbergets will be mined. In addition, LKAB will 14,500 meters of test holes have been drilled. hematite, as well as geophysical surveys around submit an application to the Environ- mental Court in 2010 for a project During 2010, this program will continue, while Tuolluvaara and Tuollujärvi and two sites at to drain the old open pit at Svap- dense drilling in the area down to 1,200 m from Ylipääsnjaska. pavaara in preparation for a possible leveling point is planned. reopening of the pit. Also of particular interest is the Mertainen deposit, just outside of Kiruna. An application for test drilling will be submitted to the County Administrative Board during 2010. These three new open pits are an Ore reserves Mineral resources in addition to ore reserves important part of LKAB’s flexibility strategy. Following the expansion of per 31 December 2009 (to dressing plant) per 31 December 2009 (to dressing plant) in surface-level capacity, access to iron ore has been a bottleneck in the Quantity, Mt Percent Fe Quantity, Mt Percent Fe chain of production. 2009 2008 2009 2008 2009 2008 2009 2008 The deposits together contain about Kiruna Kiruna 300 Mt of iron ore. In rough figures, Proven 598 602 48.6 48.5 Measured 94 93 48.4 47.8 these additional reserves will imply a Probable 76 82 46.4 46.7 Indicated 153 121 44.9 46.5 capacity increase of about five million Malmberget Inferred 82 114 46.8 46.3 tonnes of finished products per year, Proven 298 304 43.8 44.1 Leveäniemi which corresponds to the annual production from LKAB’s largest pelletizing Probable 52 32 37.8 44.9 Measured 80 80 47.1 47.1 plant, KK4. Indicated 30 30 47.0 47.0 Gruvberget The three mines allow flexibility Inferred - - - - Proven 11 - 53.2 - according to prevailing Probable - - - - Malmberget market conditions, which Measured 51 51 42.8 42.8 determine the extent of Ore reserves include ore within the granted mining conces- Indicated 2 2 44.1 44.1 mining. They are close sions. The ore reserve in Kiruna includes ore above 1,365 Inferred 20 20 39.4 39.4 to LKAB’s main opera- meters (from leveling point). The ore reserve in Malmberget tions, which facilitates includes ore above 1,250 meters (from leveling point) in the Mineral resources in Kiruna down to 1,500 meters (from a mining start, since Eastern Field. For the Western Field, ore above 600 meters is leveling point) are reported. Mineral resources in Malmberget infrastructure in the form included. Ore reserves for Gruvberget include magnetite ore are reported for the Eastern Field down to 1,250 meters and of roads, processing above 220 meters. The ratio of mined waste rock to ore in between 600 and 800 meters for the Western Field. At deeper facilities, transportation open-pit mines is 1:7. Prices at the turn of the year 2004-2005 levels, there is insufficient data to enable an estimate of grades and harbors is have been applied in calculations. Iron losses in the upgrading and quantities. Mineral resources for Gruvberget are not already in process are about eight percent. reported in this report. LKAB also has a mining concession for place. Mertainen.

LKAB reports ore reserves in compliance with recommendations adopted by SveMin. Sections of the recommendations correspond to the Ontario Securities Commission’s (OSC) National Instrument 43-101, which stipulates how ore reserves and mineral resources are to be reported. Carlos Quinteiro, who is the manager of mine planning, Kiruna, is recognized as a ‘Qualified Person’ by SveMin. He has more than 10 years of experience in the mining and minerals industry and has compiled LKAB’s figures. 20 LKAB’S ANNUAL REPORT 09 From iron ore to pellets – the key to LKAB’s success

The upgrading process For LKAB, the per tonne cost of mining ore 1000 1,250°C. In the grate kiln process, this takes transforms LKAB’s iron ore meters under ground is higher than for min- place in an enormous rotating kiln. This treat- into the world’s best and ing companies who mine hematite in open pits. ment gives the pellets a hard surface that with- But in the process of upgrading crude ore to pel- stands handling and transport by train and ship. most climate-smart pellets. lets, LKAB’s magnetite has many advantages over During the pellet manufacturing process, a the competitors’ hematite; for example, high iron large amount of energy is liberated when the content, low content of impurities, a simple ben- magnetite oxidizes to hematite. This energy is eficiation process and added energy in the pro- utilized, which means that, in the manufacturing cess of sintering to pellets. In addition, LKAB process, LKAB’s pellet require 60 percent less delivers world-class technology in the form of in- energy input in comparison to pellets made from novative, proprietary processes. hematite. Sublevel caving is the mining method used in The glowing-hot pellets are cooled to about LKAB’s mines in Kiruna and Malmberget. This 50°C for intermediate storage in underground si- is a cost-efficient method that enables maximum los or rock caverns beneath the pelletizing plant. extraction from the orebody with a high degree From there, pellets are loaded automatically onto of safety. The mined ore is hauled out from the railway cars for further transport to the ore har- drifts by large loaders, and then tipped down a bors at Narvik and Luleå. chute that opens at the main haulage level. From there, the ore is hauled by truck or train to a cen- High-level process control tral crusher station, and then skip-hoisted to the The generally high degree of automation under surface, where further processing takes place. ground is essential for safe and competitive mining. Since the 1960s, LKAB has striven towards Simpler processing with magnetite a greater degree of automation and process con- At the sorting and concentrating plants, the ore trol with the use of information technology in the is ground to a fine powder to enable separation of mines. Today, more than 30 percent of the ma- the magnetite from the waste rock. Since magne- chines in use in mining operations are automat- tite is magnetic, the magnetite is easily separated ed. Automated drill rigs are run from a control from the waste rock in a magnetic separator. The room in the mine; loading in the drifts is done concentrate is mixed with water to form a slurry with machines that are operated and monitored and is pumped to the pelletizing plant, where it from central control rooms; remote-controlled, is dewatered by large filters, and then mixed with driverless trains haul the ore to crusher stations; various binders and additives, depending on the the ore is hoisted to the processing plants by gi- type of pellet that is to be manufactured. Olivine, gantic, remote-controlled elevators (skips), ven- quartzite, limestone and dolomite are examples tilation systems are controlled by automated sys- of additives. tems, etc. Several machines and processes are At the pelletizing plant the pellet feed is rolled controlled from a production control center lo- into centimeter-sized spheres in large balling cated on the seventh floor of LKAB’s office build- drums, and then sintered to finished pellets at ing in Kiruna.

The process chain Sorting and concentrating plants

Drilling/blasting Loading Train/truck haulage Crushing Skip hoisting

Pelletizing plants LKAB’S ANNUAL REPORT 21 09

Production and logistics withstood the Maximum capacity for extreme market fluctuations of 2009 record production

A slow start, but a strong finish. That sums time, crude ore and finished products were pro- Anders Kitok duced and stockpiled in anticipation of a rise in Senior Vice President, up the production year 2009, when a Mining Division. financial crisis put the iron ore operation’s demand. flexibility to the test. Maximum production rate The year closed with an annual production rate of 28 Mt finished prod- The year began with large cutbacks in production in the autumn ucts, which is maximum capacity. and delivery, but ended with record-high figures. The recovery came just as quickly as the decline. Many production records were bro- When the iron ore market fell during the first With the exception of the Svappavaara plants, an ken in both mines and in processing six months of the year, major adjustments were eight-week summer production stop was planned plants during the final months of the year. made in production. For example, the concen- for the entire iron ore operation. But positive in- It is especially pleasing to note that trating and pelletizing plants in Svappavaara dications from the market, with increased de- both of the new pelletizing plants stood still from January to May and the other mand from existing customers and deliveries to managed to produce at maximum de- five pelletizing plants were closed intermittent- China, shortened the stop to five weeks. In some signed capacity. The high delivery tempo during the ly during the first half of the year. Personnel from operations, personnel who had prepared for an second half of the year also put the the closed plants were reassigned, via resource eight-week vacation stayed on the job. capacity and flexibility of LKAB’s lo- teams, to duties in other parts of the organiza- In August, there were even clearer signals of gistics system to the test. tion. Thanks to the use of resource teams, it was a turnaround in the market. The decision was In the fourth quarter, for example, possible to limit the number of temporary per- taken to resume production in all six pelletiz- LKAB delivered 1.8 Mt of iron ore products via the Luleå harbor, which sonnel and contractors. ing plants and in both mines, at least until the is the best result since 1996, when the close of the year. In September, sales picked up harbor was modernized. Inventories, investments and and production shifted into high gear. Prepara- In Narvik the new harbor, with un- maintenance tions made during the year, including measures derground silos, was opened in Octo- ber and will continue to be commis- A drastic decline in earnings placed the focus on to put plant and facilities in top condition and to sioned successively during 2010. cost reduction. Thanks to LKAB’s strong liquid- increase product stocks, made it possible to meet In total, 17.7 Mt of iron ore prod- ity, it was possible during the periods of produc- deliveries, despite the high demand. ucts were produced and deliveries tion stoppage to prepare for a turnaround in the Owing to the high rate of production, the sup- amounted to 18.7 Mt during economy. The opportunity was taken to perform ply of crude ore soon became a bottleneck. Two 2009. maintenance work and proceed with new con- new pelletizing plants and an upgraded logistics struction in the mines and processing plants. The system have had a marked impact on demand for major, strategic investments in the main levels crude ore. Therefore, during the year, crude ore and logistics systems continued. from old stocks in both Kiruna and Malmber- During the spring, in the Kiruna mine, the get has been screened. What was once classed as pace of rock reinforcement work increased at waste rock is now being reprocessed. the1,045 m level. As a result, production was re- LKAB plans to open three new mines to boost stricted; however, the work was completed sooner the supply of ore. The first, Gruvberget, at Svap- than planned. In Kiruna’s KK2 pelletizing plant, pavaara, is expected to open for production in the the cooler was modified, and in Svappavaara first half of 2010. The other two sites, Leveäniemi the pellet kiln mantle was replaced. At the same and Mertainen, are also in the Svappavaara area.

Fines, special products

Rail transport Loading Shipping

Pellets 22 LKAB’S ANNUAL REPORT 09 World-leading R&D creates environmental and competitive advantages for customers

Strongly customer-oriented LKAB has been developing the process for manu- the DR process (direct reduction), iron ore is re- product development and facturing iron ore pellets for more than 55 years. duced to iron (DRI). The raw materials are natu- research have made LKAB Research and development activities have been ral gas and iron ore pellets. characterized by close collaboration with the With Ironman, emissions of CO2 will be signif- the world’s leading pellet steelmill customers and by customized products icantly lower than with alternative iron ore pro- manufacturer. with added value. cesses. If the plan is realized, production can LKAB is the only iron ore producer that can begin in 2013. The plant is to be built in Tjeld- offer testing in its own experimental blast fur- bergodden, 140 kilometers west of Trondheim, nace (EBF), which is located in Luleå. This pro- Norway, close to a source of natural gas and not vides unique opportunities for LKAB’s custom- far from LKAB’s harbor in Narvik. Access to ore, ers to participate in joint projects with LKAB to natural gas and efficient logistics are important develop customized products, fine-tune blast fur- conditions for the project. nace processes, and develop new technology for better profitability and improved competitive ad- Cross-disciplinary research vantage. creates customized processes Currently, pellets account for nearly 80 per- To strengthen LKAB’s position as a world-lead- cent of LKAB’s total sales of iron ore products. ing pellet manufacturer, LKAB has a long-term LKAB’s pellets maintain high quality and iron vision to create an LKAB Ironmaking Research content, about 67 percent, compared to pellets Center. Construction of the experimental blast from other manufacturers. About one quarter of furnace in Luleå in 1997 was the first step. The the pellet manufacture takes place in Malmber- second is a new research laboratory (AggloLab), get’s MK3 plant and the KK4 plant in Kiruna, to be built in 2010 in Malmberget. This will al- which are the two newest pelletizing plants. With low unique opportunities for LKAB to conduct Close collabo- its flue gas treatment system, KK4 is the world cross-disciplinary research to develop process- ration with LTU cleanest pelletizing plant. In addition, process es and products. The next step may be an experi- energy is recovered and utilized in LKAB’s pro- mental plant for direct reduction processes, and cesses as well as in the municipal district heat- perhaps even an experimental pelletizing plant. LKAB has achieved a leading position ing system. in research and development largely as a result of close collaboration with Added value for environment Luleå University of Technology (LTU). Research at LTU is conducted mainly and competitive advantage via the Hjalmar Lundbohm Research LKAB manufactures two types of pellets: blast Center for Mining and Metallurgy and furnace pellets and DR pellets for direct reduc- the LKAB Excellence Center in Min- tion steelmaking. LKAB’s DR pellets contain ing and Metallurgy. Fifteen doctoral students and several senior research- carefully tested and measured mineral additives ers work together with LKAB’s own that improve productivity, reduce energy input, researchers with an aim to maintain- cause less wear and reduce slag volume. These ing and supporting LKAB’s leading are concrete product benefits that contribute to position in pellet manufacture and improving the steelmill customers’ competitive- to ensure the company’s future competitiveness on the world market. One ness. research area is the interaction be- The European joint environmental project UL- tween iron oxide, additives and other COS (Ultra Low CO2 Steelmaking), of which the minerals in climate-smart pellets for objective is to dramatically reduce carbon dioxide steel production with reduced climate impact. Other examples of research emissions in steel production, is a result of tests are to be found in mining engineering performed in LKAB’s unique experimental blast and rock mechanics, where the focus furnace. Theoretical trials show that carbon diox- is on safety, rock stability and rein- ide emissions can be lowered by 60-70 percent, forcement methods, as well as seismic which is a plus for the world’s climate. risks and risk areas. Five new profes- sorships in mining engineering and Another exciting project is Ironman, which is rock mechanics will be introduced a joint effort involving Höganäs, LKAB and Sta- during the period 2010–2011. toilHydro. The goal is to build a steelmill that Cross-section of iron ore pellet for microscopic analysis. sets a whole new standard for CO2 emissions. In LKAB’S ANNUAL REPORT 23

Marie-Helen Lehto is one of 57 women that work underground in LKAB’s mines. 09

Generational shift, challenge and opportunity

Grete Solvang Stoltz Senior Vice President, Human Resources

LKAB has an ongoing need for qualified co-workers at all levels with the group. Right now, the company is un- dergoing a major generational shift. The workplaces are facing considerable challenges. Production demands are high, and experience disappears as older colleagues leave their workplace. Knowledge must be transferred to new, younger co-workers. At the same time, the generational shift presents new opportunities for improving efficiency. Team development is increasingly important. Tasks might be performed differently, shared by several workers, or perhaps even Read more in eliminated entirely. In other areas of A crucible of competencies the Sustainability our operations, more people may be Report needed. For LKAB to be able to find the secures LKAB’s position on people we need to complement our available competence resources, the company must be perceived as an at- a highly competitive market tractive employer. LKAB works actively with issues of gender equality and diversity, and is intensifying efforts to In LKAB, people, raw materials, technology, knowledge and expertise are combined recruit the most qualified personnel to to form a super-strong alloy of competitive advantage. the group. Young people, especially girls, should be aware that LKAB has many exciting jobs to offer and that About 240 occupational categories are represent- the keywords for LKAB’s suggestion program, of they can choose study programs that ed in LKAB, and the different occupations span which the aim is to derive maximum benefit from lead to jobs in the industry. In this a broad spectrum from experienced machine op- our employees’ wealth of knowledge and ideas. context, the LKAB high schools and cooperation with organizations in- erators at the 1000 meter level to world-leading Our people are highly committed. On average, cluding other schools, universities and researchers in metallurgy. This crucible of com- LKAB receives 3,000 separate suggestions for colleges are important. petencies contributes to LKAB’s strong position improvements from employees each year. Many LKAB’s employees will have on a highly competitive, global market. of the ideas are developed and implemented in great opportunities to learn. project groups, at the workplace level or in cross- Competence development is being intensified in all areas. People are LKAB’s competitive functional projects with the involvement of sev- To ensure the group’s advantage eral departments. future development and Organizational and human-resources develop- to maintain its position ment are important strategic activities for in- Management system for as a leading supplier sustainable and profitable growth of pellets, LKAB creased business value and productivity. People must always keep are a vital resource that improves LKAB’s com- LKAB works according to an ISO-certified man- a step ahead of petitiveness. Healthy employees, safe workplaces, agement system for quality, environment and en- its competitors. training and competence development, greater ergy. The aim is to drive development towards This requires gender equality, and individual responsibility are continuous improvement and sustainable, profit- qualified employees and, decisive for quality improvement, efficiency im- able growth. Within LKAB, it is strategically im- not least, provement and increased production. portant that quality management is a natural and managers and One example of how our co-workers’ knowl- integrated part of the day-to-day operations. The supervisors edge drives the work of quality and development effort has paid off. Customer criticism of quality who, together, can guide LKAB is LKAB’s employee suggestion program. De- is now extremely infrequent, productivity has in- into the future. centralization, independence, responsibility, ef- creased and the proportion of unsorted waste, as ficiency improvement and personal initiative are well as energy use per tonne, has been reduced. 24 LKAB’S ANNUAL REPORT 09 Multi-billion investments at surface level continue underground

The rate of investment remains high as LKAB aims towards annual iron ore production of about 37 million tonnes.

During the 2000s, LKAB has implemented major upgraded for a 30-tonne axle load. By 2011, strategic investments at surface level to ensure 13 train sets hauled by the world’s most pow- the competitive strength of operations in Kiruna erful locomotives will operate on the Ore Rail- and Malmberget for decades to come. In the past way. 750 new ore cars, each holding a payload of five years more than 22 billion Swedish kronor 100 tonnes, have been built. Each train set will has been invested. In addition, approximately five be 750 meters long and will haul 6,500 tonnes, billion kronor per year is earmarked for invest- making two round trips between mine and har- ment up until 2013, mainly for the construction bor daily. All terminals at production sites and of new main levels in the underground mines harbors have been upgraded to handle the longer, and in new rail infrastructure in Kiruna. Fur- heavier trains. thermore, investment also includes the opening In Luleå, LKAB’s shipping harbor was mod- of Gruvberget in Svappavaara and the construc- ernized in 1996. In Narvik, the SILA project was tion of the AggloLab in Malmberget. The goal is inaugurated in the autumn of 2009. It is an ef- to produce about 37 Mt of iron ore products per ficient, environmentally friendly and highly au- year by about 2015. Investments have been made tomated logistics system which, at a cost of two and are being made to enable us to grow with billion Swedish kronor, has boosted LKABs ship- our customers. The customers are growing larg- ping capacity at Narvik from about 16 to19 mil- er and normally want to limit the number of iron lion tonnes. Most operations at the 650-meter- ore suppliers to two or three. In addition to high long station are automated, and the specially quality, knowledge and other added values, LKAB designed cars can be offloaded in just five sec- In Malmberget, construction of the new main must also be able to deliver sufficient volumes to onds into 12 storage silos, each 60 meters deep, level at 1,250 meters is nearing the final be a priority supplier. blasted out of the bedrock. Barely two hours af- stages. By investing in pelletizing plant KK4 and the ter arriving in Narvik, trains are rolling back to adjacent concentrating plant KA3 in Kiruna, Kiruna or Svappavaara. and in the MK3 pelletizing plant in Malmberget, SILA IN BRIEF: LKAB increased its capacity for pellet manufac- New main levels secure access Number of silos: 12 ture by 7.5 million tonnes per year. Investment to secure access to ore reserves con- Diameter outer silo: 38 meters Height outer silo: 60 meters In connection with the construction of KK4, tinues. In Malmberget, construction of the new Diameter inner silo: 10 meters investments were also made in new pellet trans- main level at 1,250 meters is nearing the final Height inner silo: 45 meters port facilities leading to the new loading station stages. Late in 2009, the focus shifted from rock Storage capacity (per silo): 105,000 tonnes at the Kiruna rail terminal, as well as measures work to construction and installation. Sections of pellets, 130,000 tonnes of fines to increase production in the mine and to up- of the new main level are expected to be oper- grade existing processing plants and infrastruc- ational by the end of 2010. In Kiruna, work on ture. the new main level at 1,365 meters is progress- The ore car discharge gate opens above To accommodate transports of the increased ing well. By December, about 25 percent of the the silo. product volume, the rail infrastructure has been rock work had been completed. The first sections of the new main level in Kiruna are expected to

The ore is discharged 38 meters into the inner silo. be in operation in 2013. Investment in the new

Ground level main levels totals an estimated 17 billion Swed- ish kronor. When the level reaches the openings Mining in Kiruna and Malmberget has a con- in the inner silo, the outer silo is lled. siderable impact on the two communities and NNARNAA VIKVIIKK their residents. Since the orebodies extend under s 10 meter the two communities, sections of the land upon which they stand are affected by mining.

A movable belt conveyor on the quay loads all of the bulk Continued mining in Kiruna and Malmber- freighter’s cargo bays. 100 m get will necessitate the relocation or replacement

The silo is emptied via an of buildings and infrastructure, gigantic projects opening at the bottom. that will entail considerable costs for LKAB in the coming years. To learn more about LKAB’s The ore is transported by SVENSKA GRAFIKBYRÅN belt conveyor to the quay. role and responsibility in the urban transformation, see the sustainability report of page 31. LKAB’S ANNUAL REPORT 25 09 Minelco’s core products

Many minerals for the vehicle industry

That there is a broad and multifaceted market for industrial minerals is exem- Magnetite Olivine Mica Huntite plified by the diversity of application areas within, for example, the vehicle industry. • Magnetite is used as a high-density filler in sound-dampening components, and as a raw material for The industrial minerals business sponge iron which is used in powder metallurgy to produce, among other items, sintered engine components. broadens LKAB’s product portfolio • The mineral garnet is an additive in the production of abrasives. • Quartz sand is used in window A wide range of minerals, customized minerals are in the chemical industry, the glass. • Graphite is used in lubricants. automotive industry and the steel and foundry for different application areas, supports • Wollastonite is used for brake linings LKAB’s core business. industries. The worldwide market for Minelco’s and seals. product areas is estimated at 20 billion Swedish • Mica is used in corrosion-resistant kronor. Overall, the prices of industrial minerals auto coatings. LKAB’s industrial minerals operations are devel- stabilized during the latter half of the year, and oped and managed by the subsidiary Minelco, freight rates have generally decreased, which has which celebrated its 20th anniversary in 2009. had a positive effect on cost levels for several of The company has about 370 employees, most the products. of them outside Sweden. With representation in Europe, Asia and the USA, the operation covers Worldwide operations much of the world. Minelco owns processing plants in several lo- The business concept for Minelco’s strategical- cations throughout the world, as well as several ly important minerals, which are currently mag- mineral deposits. In Sweden, magnetite products netite, olivine, mica and huntite, is based on con- based on ore from LKAB’s mines in northern trol over the entire process from raw-material Sweden are upgraded and customized. source to end user – “from mine to end user”. In Greenland, Minelco mines olivine, a mineral that is used mainly as a slag conditioner in the Minerals for widely differing steel industry. LKAB is a large consumer of oliv- industries ine in its own pellet manufacture. The operation Minelco supports LKAB’s core, iron ore busi- in Greenland will be wound down during 2010. ness by expanding the market for profitable in- Minelco will, instead, purchase the mineral from dustrial minerals. This includes the development an external supplier. Minelco’s magnetite ballast is used in concrete coating for gas pipelines. It of application areas for magnetite; for example, In Turkey, Minelco has significant deposits of gives a heavier concrete that protects construction and civil engineering, the oil and huntite and hydromagnesite for manufacturing pipelines and keeps them in place on gas industry, desulphurization of coal and wa- of Minelco UltraCarb products, which are mainly the seabed. ter treatment. Under the brand name Minelco used as an environmentally friendly flame retar- MagnaDense, magnetite from Minelco is used dant in the cable industry and other polymer in- as ballast in heavy concrete. Deliveries of Minel- dustries. In Siilinjärvi, Finland, there is a facility co MagnaDense for manufacturing of heavy con- for production of mica, a mineral that is used in crete to encase the Nord Stream pipeline in the the growing market for products used in plastics, Baltic Sea had a very positive effect on the finan- paint, surface coating, construction and sound cial outcome for 2009. On the market for indus- dampening. trial applications for magnetite, Minelco is the In the Netherlands, Minelco has a facility for world market leader. processing and storing magnetite, dolomite and Minelco also produces other customized min- mica. In England, where most of the company’s erals for many different industries and for widely employees work, Minelco commands a strong differing application areas. Magnesite and baux- market position. The plants in England upgrade ite are examples of minerals that are used in the and customize several different minerals for vari- refractory industry, to which Minelco also deliv- ous industries. In Tianjin, China, Minelco owns ers recycled refractory products. a plant that produces products for the steel and Other important applications for Minelco’s foundry industries. 26 LKAB’S ANNUAL REPORT 09

Subsidiaries support the LKAB Group

The LKAB Group includes a Wassara AB offers complete systems for effi- close of the year, 670 of a total of 750 cars had number of subsidiaries cient drilling in soil and rock, and its main busi- been delivered. whose principal function is ness is water-powered drilling systems. The com- Kimit AB is also a KGS subsidiary. The compa- pany is active on an international market, with ny’s main business is to supply LKAB with effec- to act as suppliers and to customers in the mining industry in, among oth- tive and efficient explosives and related services, support LKAB’s iron ore and er regions, Europe, Australia, South Africa, and as well as purchasing products from other man- industrial minerals opera- North and South America. Wassara’s leading- ufacturers, and stocking and developing explo- tions. However, owing to the edge knowledge of drilling technology is a key sives and explosives systems. Kimit also sells its expertise of these companies success factor for LKAB’s competitive iron ore products to other companies, mainly on the Nor- mining. Despite a recession, Wassara increased dic market. The external deliveries to Finnish within their respective its sales to the construction and civil engineering Lapua and Swedish Norab remained stable; how- knowledge areas, there is a sector by 30 percent during the year. ever, LKAB’s production stop during the summer demand for their products resulted in a somewhat reduced production vol- and services among external AB Kiruna Grus- och Stenförädling ume. customers, even far beyond (KGS) upgrades LKAB’s waste rock to road and Sweden’s borders. concrete ballast, blasts, crushes and hauls min- Fastighets AB Malmfälten (FAB) manages eral products, processes concrete and works with residential and other properties in Kiruna, Malm- rock reinforcement in the mining and construc- berget, Koskullskulle, Gällivare and Luleå. The tion civil engineering industry. In 2009, KGS in- company manages about 35,000 m2 of premis- creased its concrete production by 40 percent es and 2,200 apartments and homes. As of 2009, over the previous year. This was a result of LK- FAB is successively taking over the manage- AB’s long-term, strategic investment in new main ment of LKAB’s properties outside of the indus- levels in Kiruna and Malmberget, and in safe- trial sites in Kiruna and Malmberget and assum- ty programs in the form of increased rock rein- ing responsibility for new property development. forcement in the mines. LKAB’s drive towards in- FAB will then play an important role in the ur- creased rock reinforcement and improved safety ban transformation of Malmberget and Kiruna. meant that KGS was able to acquire several new During 2009, FAB was commissioned by LKAB rock bolting rigs and hire 25 more workers dur- to build about 220 apartments in Gällivare over a ing 2009. five-year period.

KGS Mekaniska AB is a subsidiary of KGS that LKAB Nät AB has a concession to distribute fabricates technically advanced steel structures electricity and is responsible for operating and and mechanical components for the engineering, maintaining LKAB’s power network in Kiruna mining and construction industries, as well as and Malmberget. performing assembly and maintenance for primary industries in northern Sweden. KGS Mekani- LKAB Försäkrings AB is the LKAB Group’s ska is one of the largest engineering firms in the intra-group insurance company. The company region and has a one-third interest in the Kiruna works globally to provide the LKAB Group with Wagon consortium, which has been contract- property and risk insurance. ed to manufacture LKAB’s new ore cars. By the

SUSTAINABILITY REPORT 27 09 LKAB An enduring and sustainable business

SUSTAINABILITY In 2009 we were reminded of an old truth. It pays to save for a ISSUES 27 rainy day. There must be a sustainable market for the products being URBAN produced. Thanks to LKAB’s high-quality, sustainable products and TRANSFORMATION 31

ENVIRONMENT 34 strong liquidity, the company can continue doing business in a ENERGY 36 long-term, responsible manner – even despite dramatic fluctuations AIR 38 in the economy and the consequent variations in demand. WASTE 39

WATER 41 The core of the group’s business, the iron ore new main levels in Kiruna and Malmberget. The IMPACT ON operation, has coexisted with communities in the company also plans to open new mines in north- middle of Europe’s last wilderness for 120 years. ern Sweden. LKAB is funding a greater share of LANDSCAPE 42 There is a strong interdependency between the the ongoing urban transformation, necessitated CO-WORKERS 44 orefields communities and LKAB. It goes without by the company’s mining operations, in the ore-

SOCIAL saying that such a long-term business operation fields communities. A SIFO survey conducted in is both enduring and sustainable. It is character- 2009 showed that the level of acceptance for the COMMITMENT 49 ized by continuous improvement and has won a urban transformation is high in the regions that position as a world-leading pellet supplier. Today, are affected. More than 95 percent of residents LKAB is a company that continues its journey in Kiruna and Gällivare/Malmberget accept the towards the future with great confidence. fact that the changes have to be made and have A company that stands the test of time must opinions as to how these changes should be have strong liquidity. Over the coming years, realized. LKAB is investing five billion Swedish kronor in 28 SUSTAINABILITY REPORT 09

From a social perspective, 2009 was an unusual ees, public authorities, suppliers and contractors, year, since variations in production entailed ex- and local communities. Especially characteristic tensive redeployment of personnel and, in some in the case of LKAB are the close relations with cases, redundancy. LKAB has made every effort the latter of these stakeholders, the local com- to restructure as responsibly and sustainably as munities. This includes several groups that in- possible, and has managed to retain all perma- fluence, and are influenced by, the company’s nent employees in its Swedish operations during operations, including local residents, public au- the year. thorities, landowners, and minorities such as the Absence due to illness and workplace acci- Sami in Sweden. dents continued to diminish. This is particularly A large number of dialogues were held dur- pleasing to report, considering the potential risks ing 2009 with priority stakeholders, such as local involved in moving personnel to new job sites. residents, local politicians, employees and trade Extensive efforts were made to improve safety unions. More information about these consulta- in the mines through augmented rock reinforce- tions and dialogues is given under the respective ment and via a long-term program to change atti- sections. Stakeholder dialogue tudes in the workplace, Safety First. Variations in demand for LKAB’s products Communities in transformation resulted in an uneven rate of production, LKAB’s continued operation implies unavoidable with many stops and starts in the process- effects on the surrounding communities. This LOCAL COMMUNITIES ing plants. In absolute terms, emissions has been the case throughout LKAB’s history. of carbon dioxide, particulate mat- LKAB is funding much of the cost associated ter and other substances have fall- with the transformations and is conducting vari- en due to the lower rate of pro- ous forms of ongoing dialogues with the relevant duction. For the same reason, stakeholders. Read more on page 31. OWNER emissions per tonne of ore produced have risen. Health and safety LKAB continues its For LKAB, safety in particular and working envi- efforts to minimize ronment in general, have top priority. A program CO- WORKERS environmental im- with a focus on increased rock reinforcement is pact and to oper- under way, and work to prevent workplace acci- ate according to the dents resulting from failure to observe safety pro- PUBLIC standards imposed by cedures has also been intensified. LKAB con- AUTHORITIES regulatory bodies. tinues to pursue a long-term program of health promotion, and the frequency of absence due to illness has fallen over the years. Read more on CUSTOMERS page 44. SUPPLIERS Environmental and climate impact LKAB is making an intensive effort to reduce the company’s environmental and climate impact, an STAKEHOLDERS AND effort that has been aided by trials in LKAB’s ex- SUSTAINABILITY ISSUES perimental blast furnace and the ULCOS proj- In the autumn of 2009, LKAB conducted an up- ect. The aim is to halve the iron and steel indus- date of its stakeholder and materiality analysis try’s carbon dioxide emissions by 2050. LKAB from 2008 with input from internal stakeholders. Green Pellets constitute a unique, climate- Adjustments were made in the priority areas. friendly offer to customers that strengthens glob- The update confirmed the key issues for LKAB al competitive advantage. Read more on page 34. and emphasized the importance of the urban transformation as a priority issue for sustainabil- Equality and diversity ity and credibility. The most important issues for LKAB’s ambition is to improve gender equal- sustainability management and reporting are, ity and increase diversity within the company. consequently: the urban transformations, health The distribution of women and men has become and safety, environmental and climate impact, more balanced over time, and efforts are be- and equality and diversity. ing made to increase the proportion of employ- LKAB has defined a stakeholder as a group ees from, for example, ethnic minorities. LKAB with which the company has a reciprocal relation strives to be an attractive employer for all indi- by way of LKAB’s operations. According to a sur- viduals, regardless of gender, age, cultural back- vey and subsequent analysis, the most important ground, disability or sexual orientation. Read stakeholders are the owner, customers, employ- more on page 46. SUSTAINABILITY REPORT 29 09

VALUE CREATION FOR Suppliers benefit Generated and STAKEHOLDERS To be able to produce iron ore pellets, the com- distributed LKAB creates considerable economic value for pany must purchase equipment and services economic value (MSEK) its stakeholders. The company’s strong growth from many suppliers globally, which supports em- benefits employees, suppliers and the commu- ployment in many countries. nities and regions in which LKAB operates. Our At the same time, local suppliers play an impor- business contributes to local residents’ purchas- tant role in LKAB’s operations, particularly with ing power and municipal tax revenues. respect to service, repairs and transportation. During 2009, LKAB paid salaries and social LKAB depends on local contractors who deliver security contributions for employees amounting specialist knowledge, equipment and extra man- to 1,924 million Swedish kronor (MSEK). Tax- power. A large number of engineering consul- es paid by the Group amounted during the year tants assist LKAB with development and project to MSEK 317, of which MSEK 270 was paid in planning. These local suppliers benefit financial- Suppliers 6 602 (9 239) Sweden, MSEK 25 in Norway, and MSEK 22 in ly from the growing Swedish mining industry that Employees 2 484 (2 678) other countries. LKAB represents. During 2009, LKAB paid out a Shareholders 2 800 (2 000) Taxes 473 (2 748) Dividends of MSEK 2,800 for the year 2008 total of MSEK 7,195 to its suppliers. were been been paid out to the owner (the Swed- Of direct economic value amounting to MSEK ish state) during 2009. But others besides the Sponsoring and community 12,569 generated by LKAB’s operations in 2009, MSEK 12,392 was distributed to different stakeholder owner have benefited financially from LKAB’s investments groups and MSEK 134 was reinvested in the Group. yield. Many other parties that are a part of the The Group’s disbursements for community in- LKAB Group’s operations have derived benefit vestments in 2009 amounted to MSEK 383, of through their relations with LKAB. which MSEK 173 refers to new rail infrastruc- Of direct economic value amounting to MSEK ture including preparatory work. MSEK151 re- 12,536 generated by LKAB’s operations in 2009, fers to impact on properties in Malmberget, and MSEK 12,392 was distributed to different stake- MSEK15 has been paid for a new wastewater holder groups and MSEK 134 was reinvested in pipeline in Kiruna. The municipalities of Kiruna the Group. and Gällivare have been reimbursed for addi- For 2009, profit after financial items amounted tional costs amounting to MSEK 22, of which 5 to MSEK 1,192 and the Board proposes that div- MSEK was mainly for Dundret. LKAB’s spon- idends of MSEK 500 be paid to the owner. sorship in the form of donations, mainly to education, culture, and athletics in northern Sweden and Norway, amounted to MSEK 15.

Liv Martinsson, a promising wrestling talent from Gällvare Sportklubb, pits her strength against club world champion Sofia Mattsson. 30 SUSTAINABILITY REPORT 09

LKAB expects its suppliers to work according CONTROL OF atization of future sustainability management, to a sustainability program that covers envi- SUSTAINABILITY ACTIVITIES including reporting. ronmental and social responsibility issues. Pictured here, construction of the new main The ultimate responsibility for LKAB’s sustain- Read more about environmental and energy level in Malmberget. ability activities lies with the Board of Directors. management on page 35, and social responsibili- The Board has assigned the Audit Committee the ty on page 44. For more information on other as- task of internally following up LKAB’s sustain- pects of the management of the LKAB Group, ability activities and of producing this sustain- see the Corporate Governance Report on page ability report. 50. The operative responsibility lies with the Pres- ident and CEO. To ensure the efficiency of day- Management of supplier relations to-day work with sustainability issues, the Presi- LKAB has established guidelines for employees’ dent has appointed a steering committee which conduct in business-related contacts with exter- consisted, during 2009 of four members from nal entities and persons. The employee, in his or the executive management: the Senior Vice Pres- her contact with suppliers, must always bear in idents of Communications, Total Quality Man- mind that he or she represents LKAB and always agement, Finance, and Human Resources. represents LKAB’s interests. Suspicion of bribery All responsibility for decision-making with re- or corrupt practices may result in prosecution. As spect to sustainability issues has been delegated a consequence, LKAB may suspend the employ- to this committee, with the exception of policy ee or give notice of termination of employment. decisions, which are taken jointly by Group man- LKAB expects its suppliers to work according agement. The steering committee’s task is to fol- to a sustainability program that covers environ- low up work with sustainability issues on an on- mental and social responsibility issues. This in- going basis. cludes respect for human rights, work environ- Within the linear organization, responsibility ment and health issues, and work to minimize for coordinating work with sustainability issues climate impact, atmospheric emissions and dis- has been delegated to the Senior Vice President charges to water. A program of supplier require- of Communications, who with the assistance of ments and compliance with respect to sustain- persons with relevant competencies in environ- ability issues is currently under development and ment and energy/quality, human resources and fi- will be intensified. nance, has produced this sustainability report. LKAB is a state-owned company, not a govern- During the year, LKAB’s internal quality audi- ment agency, and is therefore not subject to the tors have followed this work with an aim to pro- government agencies’ rules for public procure- pose suggestions for improvement and system- ment. SUSTAINABILITY REPORT 31 09 Mining has a physical impact on the communities

Since the start of operations more than120 years ago, LKAB’s mining in Norrbotten has brought about changes in the surrounding communities. Over the next 10 to 20 years, Several information much of both Kiruna and Malmberget will be subject to physical change as more and channels more land must be used for industrial purposes. The urban transformations in these communities are a challenge for all stakeholders and many people will be affected in In addition to public information and some way. Most local residents understand why the changes are taking place. They consultative meetings and other forms of dialogue, LKAB provides informa- accept the process and have views as to how it should be realized. tion via other channels. The website www.lkabframtid.com is one means by which LKAB’s provides clear infor- LKAB’s mining gives rise to changes that necessi- Payments for mation about changes in Malmberget tate urban transformation, but LKAB’s role is not urban transformations (MSEK) and Kiruna. Up-to-date information on to plan and carry out these transformations. The current events is posted, and visitors municipalities decide over local planning and 450 have on several occasions been able 400 to chat, via the site, with representa- how the new communities will look and func- 350 tives from LKAB’s Group management tion. Naturally, LKAB plays an active role in this 300 or mining engineering experts. The work. Other stakeholders are also involved; for newsletter LKAB Framtid (LKAB Future) 250 example, Banverket who is responsible for rail- has been distributed monthly since 200 ways and Vägverket who is responsible for roads. 2009 to all households in the mining 150 communities to ensure that information Private parties also wish to invest; i.e., to build 100 reaches as many of the concerned new apartment buildings, hotels and commercial 50 residents as possible. buildings. When major projects are proposed, 0 consultative meetings are held with parties af- Previous 2007 2008 2009 fected by the changes, for example, nearlying reindeer hearding communities.

Compensation is paid Swedish legislation dictates that a mining company that causes impact to its surroundings is liable for the damage and interference caused by its operations. Indicated movement In 2008, LKAB reserved 1.95 billion Swed- Nivå m ish kronor for a railway bypass that is now being 0 constructed in Kiruna. Payments made up until 2009 for the urban DEFORMATION FAULT CAVED ZONE 142 transformations and reparations for infrastruc- ZONE ZONE tural impact in Malmberget and Kiruna are pre- 230 sented in the graph on this page. Open pit 275 320 Kiruna to be moved Kiruna was established in 1900 to enable min- 420 ing of the rich ore. The orebody dips in towards the settlement area, and parts of the town have 540 had to be moved periodically as the ore has been

740 775 The ground surface is impacted successively by mining. Closest to the mine is a caving zone that lies directly above the mining area. In the Mining level fault zone, the first signs of deformation can be seen with the naked eye. In the deformation zone, the effects are not visible but can be Footwall measured with sensitive instruments. Therefore, LKAB installs survey Hanging wall plinths near the town and monitors their position several times a year 1045 to see if they have moved.

1175

1365 32 SUSTAINABILITY REPORT

09 MARKET

mined out. Lake Luossajärvi has been reduced ceeded, dwellings and infrastructure will be suc- Mine City in size in several stages, and as late as the 1970s, cessively decommissioned and the area will be Parks for a soft there were still houses in a part of the town, redeveloped as parkland. Parks will create a soft closest to the mine. That part, called Ön, is now transition from settlement areas to industrial transition from gone and the land is part of the industrial site. land. city to mine Current and future mining will necessitate relocation of other parts of the community to enable “Don’t build above the ore” mining to continue. Planning is now in progress Since the orebody in Kiruna dips in towards the Anders Furbeck to respond to the changes that will result from town, the ground deformations will proceed into Senior Vice President, mining up until 2035, i.e., present mining and the settlement area, sections of which will have Total Quality Management mining via the new main level that is being built to be successively relocated. LKAB believes that at 1,365 meters below the original leveling point. the new town should not be built above the ore- The ground deformations resulting When formulating a new urban structur- body, as this would eventually necessitate reloca- from mining are moving slowly. The al plan, the Municipality of Kiruna and LKAB tion in the future, which would entail high costs first movements in the ground cause no damage and are not visible to the must also consider whether mining will proceed for LKAB. naked eye. However, when they can at even deeper main levels and/or whether other, Banverket began construction of a new stretch be measured by sensitive instruments, known orebodies around Kiruna will be mined. of railway line and bypass around Kiruna dur- then it is time to start changing the ing 2009. Vattenfall has rerouted the main pow- area. Since it will take several years for the first faults to occur, the land Successive impact on the ground er supply to Kiruna, with installations includ- can still be accessible to the public LKAB does not mine ore under areas in which ing two new transformer stations with power line and can be used in a good way. people live or are active. There is no risk of structures, and the Municipality of Kiruna has The municipalities and LKAB have ‘houses falling into the mine’. The first ground replaced the old sewer system, which will eventu- therefore agreed to create so-called displacements, so-called indicated movements, ally fall within the deformation zone. LKAB has mine city parks in the areas closest to the mines. Nearby residents will can now be measured within the community. assumed the cost of these large projects, since therefore live next to an attractive They can only be registered by sensitive instru- they have been necessitated by mining. park instead of a fenced-in mine site. ments and cause no damage. In Kiruna, the first buildings to be affected are The vision is to create green zones Along the four-kilometer-long orebody, 230 sur- in LKAB’s own residential area, Ullspiran, with in harmony with a changing settlement area, designed according to vey plinths have been placed in the area towards about 150 apartments. LKAB is prepared to be- local residents’ own suggestions. the town to enable technicians to monitor the gin construction of replacement dwellings as Buildings, roads and streetlamps will ground deformations. During 2010, more survey soon as the new municipal plan is ready and ap- be removed, while existing vegeta- plinths will be placed out in central Kiruna. Nor- proval for building on land that is not above the tion such as lawns, shrubs and trees mally, it takes 10-20 years from the first measur- orebody has been granted. will be preserved. Just how the parks will look and able indication until visible cracks appear. In 2009, two public information meetings were which activities they will be used After the first indication of movement and up held in Kiruna to discuss the transformation for may, naturally, vary from place until the environmental permit conditions are ex- and other environmental and social issues. Dur- to place. The parks will change over time as long as mining continues and causes the deformations to spread towards the Since the orebody in Kiruna dips in towards the town, the ground deformations will proceed into the settlement area, sections of which settlement areas. will have to be successively relocated. SUSTAINABILITY REPORT 33 09 ing the year, the miners’ union also held a pub- One house was moved in 2009. LKAB also lic meeting on the transformation. In addition built 49 new homes during the year in the so- Here’s how to these meetings, several meetings concerning called Mellanområdet in Gällivare. New houses property purchases amendments to the municipal detailed plan and were offered to those who wished to relocate but permits for the railway have been held. whose homes could not be moved due to techni- can take place: cal difficulties. At the start of 2010, most families Malmberget has been moved had moved into the new homes. Others have de- General information. As early as many times cided to sell their homes. By 2012, all residents possible, LKAB seeks to inform local In Malmberget, the mine has also had a physi- of Elevhemsområdet will have moved to new residents and other stakeholders as cal impact on the community since mining began dwellings. Subsequently, the area will be remedi- to what will happen within an area. there in the1880s. Here, the company has con- ated and landscaped. At public meetings, in brochures and siderable experience of moving people and their LKAB has regular information meetings with letters, on the Internet and via local media, information about ore depos- homes. Places with names like Dennewitz, Rob- residents in Malmberget. Two such meetings its and mining plans is given. When sam, Tingvallskulle and Vitåfors have disappeared were held in 2009 to discuss issues such as the ore deposits are explored, residents during a period of more 120 years of mining. In impact mining has on Malmberget and solutions are contacted by the Mining Inspec- 1971, the new Folkets Hus replaced the old com- for residents who are affected directly by the ur- torate of Sweden. munity center and in 1974, the church was re- ban transformation. Notification to concerned par- located. ties. Residents are informed by let- Sometimes, buildings have been relocated and LKAB builds housing in Gällivare ter of plans for the residential area sometimes replacement dwellings have been of- To meet the need for housing in Gällivare, LKAB affected. Each household receives detailed information at meetings and fered. In most cases, LKAB has purchased the will build about 200 new apartments in the com- via personal contacts. properties from the homeowners to enable them ing years. In so doing, the company will con- to find new homes a soon as possible. Some resi- tribute to maintaining the attractiveness of the Property assessment. LKAB en lists the services of independent dents have chosen to stay in their homes as LK- community as a good place in which to live and property assessors who assess the AB’s tenants until the homes must be demol- work. Over a five-year period, LKAB will invest condition of the house, its age, loca- ished. about 250 million kronor in this project. The first tion, etc., and property prices in the The Malmberget mine consists of about 20 phase, to begin in 2010, will involve the con- area according the local price index orebodies, of which ten are currently mined. struction of 20-30 new apartments during 2011. method described in the Expropria- tion Act. LKAB thereby complies with The orebodies are situated around Malmberget This will help to meet the housing need that will the Expropriation Act, which states and some dip under the town. In 2007, LKAB eventually arise when LKAB’s residential prop- that compensation to the homeowner was granted a mining permit for the Fabian ore- erties in the Johannes and Hermelin districts of must be equivalent to the property’s body, which affects nearly 160 properties in the western Malmberget are decommissioned. market value. Elevhemsområdet district. Negotiation. As in all property transactions, the buyer and seller base their negotiation on a property assessment.

The church in Malmberget was built in 1944 and was moved to its present location in1974. Photo: Anna Johansson. Agreement is reached. LKAB and the homeowner sign an agreement on compensation, a date for vacation of the premises and assistance with moving. Sometimes, the homeowner chooses to remain in the home as LKAB’s tenant. Often, properties will remain as they are for several years after LKAB has acquired ownership, since it is in the best interests of all parties that property acquisition takes place well in advance.

The home is moved or demolished. When the ground begins to be affected by mining, the building must be removed. In some cases, LKAB has offered to relocate homes to new building lots in areas that are not affected by mining, or new homes have been offered in cases where houses cannot be moved due to technical reasons. If LKAB purchases a home, an assessment is made as to whether the building will be relocated or demolished when it is time to evacuate the housing area. 34 SUSTAINABILITY REPORT 09

ULCOS LKAB and the environment

– Ultra Low CO2 Steelmaking LKAB’s most important contribution to a better global environment is the unique magnetite ore which, owing to its unique properties, reduces the energy requirement in the manufacture of LKAB’s iron ore products. But mining and mineral processing also MATS HALLIN have a significant impact on the environment. LKAB therefore works systematically to General Manager, Blast Furnace Products review and improve the efficiency of its processes in order to minimize this impact.

Since 2004, LKAB has been one of “LKAB Green Pellets” Events in important the main members of the European research project ULCOS, of which the make LKAB’s offer unique environmental areas in 2009 aim is to meet EU targets by reducing The magnetite ore from Kiruna and Malmberget steel-industry carbon dioxide emis- has a unique property. With greater awareness Improvements in energy efficiency. The sions by 50 percent by 2050. of climate and energy issues, using iron ore pel- Swedish Energy Agency has formally approved uLCOS is a consortium whose members include European steel com- lets manufactured from magnetite in steelmaking the results achieved over the past five years by panies, universities and research insti- presents a very definite advantage. LKAB in its program for improvements in energy tutes. In all, 48 organizations from15 In the upgrading process, when pellets are man- efficiency in processing operations. Examples of different countries are participating in ufactured by LKAB, magnetite ore releases en- efficiency-improvement measures include over- the project, for which trials of seven to ergy in the form of heat when magnetite (Fe O ) haul of heating, ventilation and pump systems. eight weeks duration are conducted 3 4 each spring and autumn. All tests oxidizes to hematite (Fe2O3). The thermal energy The program has been conducted in Kiruna, are conducted at LKAB’s test facility released in the process is utilized by LKAB and re- Svappavaara and Malmberget. Approval of the rein Luleå, which has the world’s only duces the input of external fuel required for pellet sults will mean a reduction in electricity tax on experimental blast furnace (EBF) with manufacture by approximately 60%. the power that has been used over the five-year a CO2 separating system. The project has a total budget of 500 million This means that the use of fossil fuels, such as period. LKAB applied in 2009 for participation in Swedish kronor. Half of the funding is coal and oil, is significantly lower compared to the next five-year program period. provided by the European steel indus- the manufacture of hematite-based pellets or sin- try and half by the EU. tering at the steelmills. Carbon dioxide emissions Less dust generation and noise locally. uLCOS is the most ambitious and successful research program ever con- are thereby also considerably reduced. The opening of SILA in Narvik during the au- ducted in this field and it is a golden Use of LKAB’s pellets reduces the amount of tumn meant a considerable boost in delivery ca- opportunity for participating organi- carbon dioxide per tonne of steel, which is why pacity and the efficiency of ore handling in the zations to create a European network the products are marketed as “LKAB Green Pel- harbor. The environmental benefits of the new for advanced research. Together, we lets”. LKAB’s pellets generate one-seventh of the facilities, where ore cars are discharged into a can follow and assess new processes at very close range. Processes that CO2 emissions compared with the alternative number of underground silos in a closed system, are a part of the future of steelmaking process route of sintering hematite fines at the are significant. Above all, dust generation from and the world-leading research that steelmills. Carbon dioxide emissions from hema- loading has been reduced considerably, as has is expected, within the next couple of tite-based pellets are more than three times high- the noise level, which has improved both the lo- years, to revolutionize environmental work in the steel industry. er compared to LKAB pellets. cal environment and the work environment.

Environmental advantages, Impact on health. Preliminary results from even in other operations Umeå University’s epidemiological study among The subsidiary Minelco upgrades products from residents in Malmberget were presented at the naturally occurring minerals that can also pro- close of the year. The response frequency was vide environmental advantages. Use of olivine, 47 percent. The results reveal how residents perfor example, lowers energy consumption in steel- ceive their living situation and indicate anxiety making and reduces carbon dioxide emissions. and frustration among residents. LKAB is study- Huntite can replace environmentally hazardous ing the results to identify measures that can be alternatives in flame retardants and, similarly, implemented to alleviate anxiety and foster a mica can be used in building applications to re- greater sense of security. Initially, LKAB has in- place asbestos. Magnetite is used in water treat- tensified communications concerning it opera- ment processes and desulphurization of coal. tions locally. Other LKAB subsidiaries also offer sustainable business solutions. Wassara AB’s technology for Changes in the landscape. During 2009, water-powered drilling makes it possible to tap the new environmental permit for deformations renewable, geothermal and ground-source ener- in Kiruna came into effect. For LKAB, this will gy. The technology enables deep, straight holes to enable better conditions for predicting the im- be drilled with less noise and less dust. pact of mining, in the form of deformations, as well as management and reporting of the effects on humans and the environment. SUSTAINABILITY REPORT 35 09

Current permit applications. The year has During 2009, reporting has included 13 (32) cas- been characterized by an intensive effort to sees of significant oil and fuel spills amounting to The key environ- cure necessary permits and terms for managing a total of 10 (10) cubic meters. During the year, mental issues for the consequences of expanded operations with a number of cases concerning external environ- new main levels in Malmberget and Kiruna. ment have been reviewed by various superviso- LKAB are One such issue, for which a decision by the ry authorities (see the table at the bottom of this Border River Commission is pending, concerns page and in the Report of the Directors). Energy the drainage of a third of Lake Luossajärvi to – improve energy efficiency and prevent seepage into the mine. Other permit ap- Important stakeholders secure the energy supply plications submitted to the Environmental Court The stakeholder groups that are affected most by concern extraction of crude ore in Gruvberget LKAB’s environmental management are the res- Atmospheric emissions in Svappavaara, modification of the existing tail- idents of the communities in which LKAB op- – reduce impact on the surrounding environment and for local residents ings pond in Kiruna and an increase in the level erates and the supervisory authorities. LKAB of the tailings pond in Malmberget. Consultative maintains a running dialogue with these groups, Discharges to water meetings have been held during 2009 and nego- mainly via the consultative meetings at which – assure the quality of recipients tiations will begin in 2010. participants have an opportunity to ask ques- Waste tions, voice their views and receive information. – increase the degree of recycling Management of key In 2009, 15 such meetings were held in Malm- and ensure the safety of landfills environmental issues berget, Kiruna, Narvik and Svappavaara. The mining operation is strictly regulated by law, LKAB participates in several water conserva- Impact on landscape since it is deemed to have a significant impact on tion organizations in northern Sweden, two of – manage the consequences of mining the environment and the surroundings. LKAB’s which are the Torne and Kalix Rivers Water Con- ability to manage these issues influences public servation Association and Tornedalens vattenpar- confidence in the group, and the company always lament. The aim is to promote water conserva- takes the environmental consequences of deci- tion and coordinated control of water resources. sions and measures into consideration. Together with the European steel industry, In LKAB, the President and CEO bears the LKAB is participating in the ULCOS project (Ul- overall responsibility for environmental issues. tra-Low CO2 Steelmaking), of which the aim is Operational responsibility is delegated to the to find new technologies for reducing steel-in- heads of divisions, unit managers and operations dustry carbon dioxide emissions by 50%. LKAB is managers. This work is supported on an ongoing also taking part in a range of research projects, in basis by a central unit for External Environment, Sweden and abroad, in an effort to find new and which is headed by a group manager. more efficient processes that may eventually be As stated in the group’s environmental and en- applied in LKAB’s operations. ergy policy, which provides a basis for environmental management, LKAB will contribute to Raw materials Mined quantities of minerals long-term sustainability and profitable development. To ensure that environmental manage- 2009 2008 2007 2009 2008 ment is structured and efficient, LKAB works ac- Mining Iron ore, Sweden (Mt) 27,4 41,3* cording to a certified energy and environmental Crude ore (Mt) 27,4 41,3 41,0 Dolomite, Sweden (ktonnes) 13,9 187 management system in compliance with the in- Explosives (ktonne) 15,4 18,1 17,3 Olivine, Greenland (ktonnes) 284,0 444,9 Additives (ktonne) 1 569 666 615 Huntite, Turkey (ktonnes) 16,0 16,7 ternational standard ISO 14001. During 2009, Minelco AB and Minelco A/S were also certified. Minerals * The figure of 42.9 Mt, given in the 2008 Sustainability Report, included some waste rock. The parent company is also certified according Raw materials (Mt) 1,2 2,5 - to the Swedish standard SS 627750 for energy Additives (tonnes) 68 242 - Packaging material (tonnes) 2 1 410 - - management systems. By performing risk analyses as part of environmental certification, LKAB 1) Olivine, dolomite, bentonite, lime and quartzite. 2) Previous figures for 2008 are omitted due to a change in applies the precautionary principle in striving to calculation principles. counteract negative environmental impact that may arise from the operation. LKAB’s environmental monitoring is carried in Pending environmental issues concerning LKAB’s operations accordance with programs established in consultation with supervisory authorities. For each op- Year Location Issue Claimant eration that is subject to environmental permits, 2008 Kiruna Ground deformations County Administrative Board environmental reports are submitted annually to 2008 Malmberget Writ concerning dust, vibrations, tremors, etc. Several homeowners 2009 Kiruna Vibrations County Administrative Board the authorities concerned. 2009 Kiruna unauthorized water use County Administrative Board In Sweden, LKAB implements a so-called inci- 20101 Malmberget Discontinued landfilling to Kaptensgropen County Administrative Board dent reporting system, whereby all environmen- 1) According to permit conditions, waste rock is to be used to backfill Kaptensgropen as a remediation measure. LKAB discontinued tal incidents must be reported and documented. landfilling in March 2009 for safety reasons, due to increased seismic activity in the area. 36 SUSTAINABILITY REPORT 09 Energy is a priority matter

LKAB’s operations are energy-intensive and energy accounts for about 10 percent of Energy the company’s production costs. Securing a long-term, sustainable energy supply and efficient processes that contribute to lowering the energy demand are both critical for business and important for credibility in today’s climate debate. Therefore, energy is Target Reduce energy consumption per tonne a priority matter for LKAB. pellets produced by five percent, as compared to base year 2006, up to and including 2012. Efficiency improvement measures received a tax rebate of SEK 0.05 per kWh. Spe-

Performance In an international perspective and in terms of cific measures in 2009 resulted in savings of 500 Energy consumption in 2009 was 18 energy use per tonne of produced pellets, LKAB MWh and, during the five-year period, LKAB percent lower compared to the previ- is a leader in energy-efficient pellet manufacture. managed to achieve savings totaling 58,025 ous year. This was due to lower pro- Mining and the manufacture of iron ore prod- MWh. LKAB has applied for participation in the duction volumes with, for example, a ucts are classed as energy-intensive operations, program during the coming five-year period. 26-percent decrease in pellet production. This means that no improvement and LKAB is one of Sweden’s largest electricity By recovering surplus heat from production, in energy efficiency was realized; in- consumers. The company accounts for about 1.5 LKAB can meet some of its energy requirement. stead, energy consumption per tonne percent of Sweden’s total electricity consump- During 2009, LKAB utilized 267 GWh and sold of pellets produced actually rose by tion. The total energy requirement in the produc- 9 GWh to Kiruna’s district heating system. 10 percent compared to 2006. The tion plants, in the form of electricity, fossil fuels Together, LKAB and Minelco have investigat- improvement effort continues. and recovered surplus heat, amounted to about ed the possibilities for reducing energy use in the 3.0 (3.7) TWh in 2009. Nearly half, 1.6 (1.9) Special Products plant in Malmberget. The aim TWh, was electricity. has been to identify potential reductions in ener- Improving energy efficiency is therefore always gy use, mainly by recycling heat from processes. a top priority and a central part of LKAB’s sys- The results show potential for cutting energy use tematic environmental and energy management. by about 30 percent. Minelco will now consid- Energy efficiency is taken into consideration, for er the results in detail to see what can be done to example, when machinery and equipment are pur- realize further energy savings. chased and during project planning, to ensure that By replacing the old locomotives with the the chosen solution is also the most efficient in Renewal energy world’s most powerful locomotive, IORE, en- terms of energy. LKAB tackles the energy issue on two fronts. ergy savings of as much as 30 percent per Between 2004 and 2009, LKAB participated This is accomplished by reducing the energy de- transported tonne are realized. The new locomotives are equipped for regenerative braking in the Swedish Energy Agency’s program of im- mand through efficiency improvement measures and haul much longer, heavier trains. provement in energy efficiency, whereby LKAB and by finding energy sources that are economi- cally and environmentally sustainable. LKAB and a number of other primary industries companies have formed BasEl, a company that will pursue projects that may boost the supply of competitively-priced electricity, including power from renewable sources. Via BasEl, LKAB is active in the windpower company VindIn AB, whose first wind park, in Skutskär, south of Gäv- le, was inaugurated during the year. The five wind turbine can generate an estimated 30 GWh per year. The Skutskär project is the first step towards the goal of producing one TWh per year with windpower. An application has also been submitted for a larger wind park in Solberg, 100 km west of Örnsköldsvik. Another initiative, launched in the autumn of 2009, is Arctic Boreal Climate Development (the ABCD project), a joint development project whose partners include the Municipality of Övertorneå, LKAB, Sveaskog and private forest owners. The aim is to promote forest growth, so as to increase the availability of forest biomass, increase the share of biofuel in energy production, and develop SUSTAINABILITY REPORT 37 09 methods for producing biogas and organic nutri- of trade in emissions reductions. The intention is ents from effluent. to give forest owners an incentive to increase car- LKAB’s participation in the project will involve bon dioxide sequestration in forests through sus- the development and assessment of a trial system tainable forestry practices.

Energy consumption Surplus heat recovered Energy consumption per tonne pellets (MWh/tonne pellets) internally (GWh) Gwh MT 4 000 24 0,25 300

3 500 21 250 0,20 3 000 18 200 2 500 15 0,15 2 000 12 150

1 500 9 0,10 100 1 000 6 0,05 50 500 3

0 0 0 0 2004 2005 2006 2007 2008 2009 2004 2005 2006 2007 2008 2009 2004 2005 2006 2007 2008 2009

Pellet production Efficiency improvements will contribute to a reduction in Refers to Kiruna, Svappavaara and Malmberget. energy consumption in relation to the number of tonnes of Oil Coal Electricity pellets produced. Refers to Kiruna, Svappavaara, Malmberget, Luleå and Refers to Kiruna, Svappavaara, Malmberget, Luleå and Narvik, excluding sales to external end users. Narvik, excluding sales to external end users.

Fuel consumption 2009 (TJ)

Coal Crude oil Gasoline diesel Fuel oil Natural Electricity 1 gas Kiruna Pelletizing plants 1 831 0 0 0 703 0 - Boiler plants/Transport 0 0 0 244 266 0 - Total 1 831 0 0 244 969 0 3 073 * Svappavaara Pelletizing plants 673 0 0 55 0 0 - Boiler plants/Transport 0 0 0 3 51 0 - Total 673 0 0 58 51 0 561 * Malmberget Pelletizing plants 0 0 0 0 901 0 - Boiler plants/Transport 0 0 0 226 86 0 - Total 0 0 0 226 987 2 145 * Luleå 0 0 0 0,3 16 0 45 * Narvik 0 0 0 2 14 0 116 Minelco 0 0 0 61 28 4,6 5,9

1) Electricity purchased from Vattenfall is based on an energy mix of 51 percent hydropower, windpower and biofuel power (renewable energy sources), 48.7 percent nuclear power, and 0.3 percent coal, oil and peat (fossil fuels), based on Vattenfall’s power sales in 2008. * Refers to electricity use in Kiruna, Svappavaara, Malmberget, Luleå and Narvik, including subsidiaries but excluding sales to external end users.

Fuel purchases during 2009 can be summarized as follows:

Non-renewable energy Hard coal 74 915 tonnes Ship, Australia - LKAB importer. Fuel EO5 LS 5 760 m 3 Ship, via Naftoil, loading Västerås, Kazakhstan, LKAB importer Fuel EO5 LS 6 047 m 3 Ship, via Naftoil, loading Gothenburg, Germany, LKAB importer Fuel EO5 LS 10 654 m 3 Ship, via Naftoil, loading Riga, Kazakhstan/Turkmenistan - LKAB importer Fuel EO5 HS 10 822 m 3 Ship, via Naftoil, loading Riga, Kazakhstan/Turkmenistan - LKAB importer Fuel EO5 HS 4 885 m 3 Ship, via Naftoil, loading Sillmäe, Kazakhstan/Turkmenistan - LKAB importer Fuel EO1 17 926 m 3 Preem, from oil depot Uddebo, Luleå Diesel 17 985 m 3 Preem, from oil depot Uddebo, Luleå Electricity 1 629 GWh Vattenfall, of which 49 GWh invoiced sales to end users.

Refers to fuel purchases for Kiruna, Svappavaara, Malmberget and Luleå. 38 SUSTAINABILITY REPORT 09 Reduced atmospheric emissions

The manufacture of iron ore products generates emissions of carbon dioxide, sulfur Particulates dioxide, fluorides, chlorides, nitrogen oxides and particulate matter. LKAB has focused specifically on reducing nitrogen oxide emissions and particulate discharges, and the operation is subject to the EU’s system of trade in carbon dioxide emissions rights. Target Reduce the spread of particulate Emissions have decreased during the year, owing to lower production volumes. matter by ten percent as compared to 2006 levels, up to and including 2012. Nitrogen oxides and particulates from sources such as crushing operations and

Performance Thanks to greater awareness and efficiency im- roads, and future dust generation from the defor- Due to abnormally high levels of par- provements, discharges of particulates and emis- mation zone in Kiruna. A pre-study initiated at ticulate matter in Svappavaara during sions of sulfur dioxide and fluorides have been the end of the year is expected to be completed the base year 2006, caused by prob- nearly halved since 1980, while pellet production during the first half of 2010. lems with dust extraction equipment, has more than tripled. With the technology that In Malmberget, a study of dust generation has the ten-percent reduction target has already been met. During the period is available today, emissions increase with rising been conducted. It summarizes all the measures 2006 to 2009, emissions of particu- production rates, but ongoing efforts are being that have been taken in recent years, as well as late matter from all facilities in Swe- made to reduce the specific emissions even fur- further measures that may be taken to minimize den and Norway have been reduced ther. Emissions decreased during 2009, since the diffuse dust generation from the Vitåfors indus- by 24 (22) percent, particulate fallout by 20 (20) percent, and particulate economic downturn impacted demand, which re- trial site. Dust control measures have included matter in snow samples by 34 (32) sulted in lower production volumes. However, watering, treatment of haulage roads with dust- percent. LKAB’s assessment is that the many production stops and starts have en- binding agents and asphalting. there is further potential for improve- tailed problems with air-treatment equipment. ment. LKAB is now conducting pilot trials to study Carbon dioxide and trade how emissions of nitrogen oxide (NOx) produced in emissions rights by combustion of fossil fuels can be minimized, LKAB released 460 (573) ktonnes of carbon di- and how different fuels contribute to the forma- oxide during the year. This is 20 percent less tion of nitrogen oxide and how this influences than in 2008, which is due to lower production the production process. volumes during the year. The relative emission During 2009, a project group from LKAB has per tonne of pellets produced amounted to 31.3 taken steps to address the problem of diffuse kg/tonne pellets, an increase of nine percent. dust generation. LKAB’s facilities in Kiruna, Malmberget and During 2009, an LKAB project group has worked Svappavaara are subject to the EU’s system for to solve the problem of diffuse dust generation trade in carbon dioxide emissions rights. The

Atmospheric emissions Atmospheric emissions Emissions per tonne Emissions in tonnes Pellets (Mt) pellets produced (g/tonne pellets) 2009 2008 5 000 20 Particulates (tonnes) 1 652 2 355 250 4 000 16 Sulfur dioxide, SO2 (tonnes) 1 684 2 267 Hydrogen fluorides, HF (tonnes) 166 309 200 Hydrogen chlorides, HCI (tonnes) 400 722 3 000 12 Nitrogen oxides, NOx (tonnes) 2 597 4 001 150 2 000 8 Carbon dioxide, CO2 (ktonnes) 460 573 100 Refers to operations in Kiruna, Malmberget and Svappavaara. 1 000 4 For particulates, Luleå and Narvik are also included. Carbon dioxide emissions do not include emissions from own vehicles or 50 emissions from indirect energy use. 0 0 80 85 90 95 00 05 09 0 Particulates 2004 2005 2006 2007 2008 2009

Sulfur dioxide Nitrogen oxide Carbon dioxide, kg/t Hydrogen fluoride Particulates Hydrogen chloride Pellet production ( 2009) Sulfur dioxide Hydrogen fluoride LKAB’s capacity expansion is taking place in keeping with Emissions from the ore processing in Kiruna, Svappavaara strict environmental standards. Since 1980, emissions of and Malmberget. particulates, sulfur dioxide and fluorine have been more than halved at the same time as pellet production has more than tripled. Refers to operations in Kiruna, Malmberget and Svap- pavaara. For particulates, Luleå and Narvik are also included. SUSTAINABILITY REPORT 39 09 purpose of the system is to create an incentive ical emissions volumes. For 2009, LKAB has a for industry to reduce carbon dioxide emissions. surplus of emissions rights, since the production LKAB, which is active on a global market where volume was lower than expected. For the trading most of the competitors do not participate in the period 2008-2012 as a whole, the allocated emis- system for trade in emissions rights, is allocat- sions rights do not suffice to cover LKAB’s esti- ed emissions rights by the state, based on histor- mated requirements.

Thanks to greater awareness and efficiency improvements, discharges of particulates and emissions of sulfur dioxide and fluorides have been nearly halved since 1980. CO2 emissions from mines

to sinter and pellets (kg C02/tonne crude steel)

300

250

200

150

100

0 Sinter Hematite- LKAB pellets based pellets

The total carbon dioxide emissions from production of

crude steel, about 2,000 kg CO2/tonne, are reduced when LKAB pellets are used as the iron raw material. LKAB’s pellet production results in one-seventh the quantity of emissions compared with sintering at the steelmills and

one-third of the CO2 emissions compared to hematite- based pellet production. Reductions are about 215 kg and

95 kg CO2/tonne crude steel, respectively.

Active waste management

The single largest by-product from LKAB’s mining operation is waste rock. LKAB manages all categories of waste in a responsible manner, taking particular care with residues that are considered to have a negative environmental impact.

Waste rock Share of sorted waste When ore from Kiruna and Malmberget is pro- in iron ore operations (%) Waste cessed in the sorting plants, the resulting by- 100 product is waste rock. Thanks to the high con- 90 tent of basal minerals, the dry waste rock can be 80 Target deposited in piles. The leachate produced when 70 Increase the proportion of sorted 60 the waste rock piles are exposed to weather has a waste to at least 80 percent by 2012 50 from about 50 percent in 2006. near-neutral pH value, which means that metals 40 Waste rock and lime waste (FTG are not released into the surroundings. Howev- 30 sludge) are not included in the target er, the leachate has a high nitrogen content due 20 for waste. to the occurrence of residues from undetonated 10 Performance explosives that react with precipitation. LKAB is 0 Kiruna Malm- Svappa- Luleå Narvik LKAB has increased the total share of berget vaara therefore working with more efficient use of ex- sorted waste by 20 (6) percent since plosives. 2007 2008 2009 2008 and by 28 (8) percent since To keep pace with the quick recovery in de- The amount of site waste that is sorted has increased during the base year 2006. 77 (57) percent mand for pellets during the second half of 2009, 2009. of the total amount of waste is now There has been a marked increase in the share of sorted waste sorted. tests of the iron content in old waste rock piles in in all operating locations in the orefields. This is because both Kiruna and Malmberget were conducted. systems and procedures for sorting and recycling have become more widely adopted throughout the operation during the year. Thanks to the inherently high iron content in In Narvik, the SILA project is believed to have resulted in a reduced degree of sorting, since large amounts of waste were material from the mines, older waste rock can handled by many different contractors. 40 SUSTAINABILITY REPORT 09

now be reprocessed. It has been mixed with ore waste rock. from the mines and upgraded to various iron ore LKAB works actively to promote and facilitate products. the sorting of waste products. Site waste is sort- In Kiruna, Malmberget and Svappavaara, con- ed as combustible, non-combustible, unsorted centrating sand in the form of wet waste rock is waste, and reclaimable paper. also generated. It contains low levels of, for ex- Operations generate various types of scrap iron ample, zinc and cobalt. Risk assessments show and other scrap metal. that these metals constitute a low risk for the At Minelco’s huntite production facility in Tur- surroundings. key and in olivine production in Greenland (the latter of which will be discontinued in 2010), mi- Other waste products nor amounts of overburden material and waste The other categories of waste products, lime, rock are generated and are landfilled according scrap, site waste and hazardous waste, consti- to approved plans. This is checked by superviso- tute considerably lower volumes in relation to ry authorities in the respective countries. In Eng- the amount of waste rock, and handling of these land, Minelco has invested in recycling of refrac- waste products is highly regulated. tory materials. New products have been created FGD sludge (flue gas desulfurization sludge) is by processing used refractory materials. generated mainly by the sulfur reduction systems To manage hazardous waste, LKAB enlists in the pelletizing plants in Kiruna and Malmber- the services of Stena Recycling AB, a compa- get and the fluoride treatment system in Svap- ny that is authorized to handle and treat hazard- pavaara. The waste contains, among other sub- ous waste. Hazardous waste from LKAB consists stances, unreacted lime, chloride and particulate mostly of waste oil and lubricant residues. The iron. FDG sludge poses little hazard to human rest consists of other forms of oil or oil-contam- health and the environment, according to the EU inated material, and aerosols, paint, lubricants, landfill directive. The waste is deposited in a spe- lead batteries, electronics scrap, and mercury- cific location in accordance with a decision by containing lamps. the County Administrative Board. The site is sur- Within Minelco, during 2009, 0.7 tonnes of rounded by seepage collection ditches, and any hazardous waste and 3,467 tonnes of non-haz- seepage discharges to a tailings pond. The sludge ardous waste was generated. is handled in closed systems and is covered with

Treated waste (rounded off to nearest whole number)

Kiruna Svappavaara Malmberget Luleå Narvik TOTAL 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008

Dry waste rock ktonnes 6 127 8 665 0 0 4 562 5 251 10 689 13 916 Wet waste rock ktonnes 1 383 2 153 337 534 1 047 1 321 2 767 4 008 FTG sludge ktonnes 18 29 3 5 3 3 24 36 Site waste tonnes 1 164 3 055 122 200 548 885 15 19 353 272 2 202 4 431 Scrap tonnes 3 817 4 788 1 636 2 046 1 676 2 972 10 18 246 141 7 385 9 965 Hazardous waste tonnes 373 348 130 269 165 204 7 8 36 64 711 893 Hazardous waste (incl scrap) % 7 4 7 11 7 5 22 18 6 13 7 6 SUSTAINABILITY REPORT 41 09 Precipitation

MOUNTAIN

SORTING, CONCENTRATING TOWN AND PELLETIZING PLANTS

INNER CIRCULATION MINE 2

1 TAILINGS POND

3 Mine water pumped up

from mine SETTLING POND Recirculation

4 of water in outer system (approx. 75%) Surplus water discharged to Water’s cycle in the process lakes/rivers

To ensure that surplus process water can be returned to the eco-cycle, the quality of the water must be monitored regularly. Most of the process water used in the mining and processing of ore is recirculated.

The water LKAB uses in its iron ore operations some nutrient substances, such as nitrogen and comes from nearlying water bodies in Svap- phosphorus, and buffering substances, such as pavaara and Malmberget, and water use is regu- calcium, magnesium and carbonates. Metals also lated according to permits. From the Kalix River, occur in the water. See table, below. LKAB is authorized to take out one million cu- LKAB is required to perform tests including bic meters of water per year, and from the Lina chemical and biological analysis of the recipi- River, a maximum of 28 cubic meters per min- ent water systems. Extensive analyses of this type ute. These sources are not significantly affected are normally conducted every fifth year. The ore by the withdrawal, since withdrawal is relatively mined by LKAB shows higher content of buffer- small compared to the total water volume. ing minerals than of acidifying minerals, which In addition, the mines are dewatered by pump- markedly alleviates the impact of the surplus wa- ing. LKAB pumps water from the mines in ter on the recipient water systems. Kiruna and Malmberget and from the dolomite Other water from LKAB’s operations, such as quarry in Masugnsbyn. This affects the deep water from explosives manufacture and sewage groundwater in the mine locations; therefore, en- water, is discharged from the industrial sites to vironmental impacts are subject to review in ac- the municipal sewer systems. In Malmberget, the cordance with applicable legislation. sewage water is treated in sludge separators and filtration beds of sand. This water is also tested Measurement of water quality and analyzed extensively to monitor bacteria con- The water that is pumped up from the mines is tent discharged to the Lina River. classed as water in the outer system, while process water circulated in the plants is included in the inner water system. Precipitation flows into the water systems. All process water is treated in sedimentation ponds to remove particulates before being recycled to the process and surplus Discharges to water water discharged to lakes and rivers (recipients). 2009 2008 2007 About 75 percent of the total water volume cir- Nitrogen, N (tonnes) 206 370 415 culates in the systems. The surplus that is not re- Total phosphorus, P (kg) 702 388 660 cycled and reused in processes is discharged to Trace metals (kg) 1, 2 250 410 321 lakes and rivers that are in some cases protected 1) Chromium, cadmium, copper, nickel, lead, zinc and arsenic. under Natura 2000. The surplus water contains 2) incl. Narvik, 2008 42 SUSTAINABILITY REPORT 09

More about rock Impact on landscape mass displacements The mining and processing of minerals results in changes to the surrounding landscape. To manage and minimize these changes, LKAB conducts thorough studies to predict Monica Quinteiro General Manager, consequences and monitors process continuously, and remediation is considered an Mining Technology important responsibility.

LKAB has been working intensively to expand the seismic systems in Kiruna Mining affects the surrounding landscape in sev- alyzed, nearlying areas are inspected by rock en- and Malmberget in order to improve eral different ways. Open pits, deformation zones gineers, and the findings are documented in monitoring of rock displacements in and waste rock piles are evidence of this, as are special reports. The information is distributed in- the mine areas. We want the local residents to feel as secure as possible ponds for tailings and process water. Current ternally and to external stakeholders via LKAB’s and we want to create the safest pos- mining operations and the decision to build new website and other channels. Steps were taken in sible work environments in the mines. main levels in Malmberget and Kiruna will have 2009 to expand the system for seismic monitor- The highest priority now is to ensure an impact on the immediate area. More land ing in the mines. In Kiruna, 112 geophones were that we have the best possible data must be used and buildings must be relocated. installed and the system now has 133 geophones. for our analyses. The modern measurement instruments that have been Together with concerned parties, LKAB is seek- In Malmberget, installation of an additional 120 installed around the settlement areas ing solutions that will meet the needs of the dif- geophones is expected to be completed in ear- and mines will provide us with more ferent stakeholders and contribute to a positive ly-2010. The system now includes a total of 144 precise information upon which we outcome for the urban transformations. geophones. An extensive geostructural project is can base our analyses and subsequently give a more accurate descrip- also under way to improve knowledge of seismic tion of possible scenarios. Currently, Monitoring of displacement in risks and to identify critical structures in Malm- we are able to describe scenarios bedrock, mines and landscape berget and Kiruna. showing possible activities around LKAB’s mining engineering unit monitors chang- each orebody about six months in ad- es including ground displacement and impact Dam safety vance. Our ambition is to be able to provide forecasts that are both long- at surface level. The unit also forecasts defor- All of the dams surrounding LKAB’s tailings range and more detailed. mations that are caused by mining. Technicians ponds in Kiruna, Malmberget and Svappavaara As we gain more in-depth knowl- also monitor how mining activities influence are designed in accordance with GruvRIDAS (the edge of seismic activity, it is crucial rock mass displacements in the mines when rock Mining Industry’s Guidelines for Mining Com- that we share it with local residents. An important task is to quickly inform stresses change. Based on measurements and panies’ Dam Safety). Settling ponds, which con- the public of seismic events when they analyses, forecasts of rock stability are produced tain mostly process water, are designed according occur. On LKAB’s website we post in- and recommendations for rock reinforcement to RIDAS (the Power Industry’s Guidelines for formation on an ongoing basis that measures are issued. Power Dam Safety). As of autumn 2008, LKAB’s describes the extent and conse- tailings ponds are also subject to the new regula- quences of major events such as tremors and vibrations. Dur- Deformations tions on mine waste. Work is under way to adapt ing the year, we also held a A revised deformation permit for Kiruna and existing facilities to meet the new requirements seminar for media representa- Malmberget was approved by the Environmental and must be completed by 30 April 2012. As part tives in Malmberget to explain Court during 2009, and new procedures for re- of the application process towards the expansion seismic events and the reasons for their occurrence. porting are being developed. During the year, an of mining operations at new levels, LKAB has ap- A challenge for LKAB additional 46 plinths for registering ground dis- plied to increase dam capacity. This will place is to make the placement with GPS technology were installed in new requirements on dam safety in terms of in- technical and Kiruna, bringing the number of plinths to a to- spection intervals and discharge volumes. geological ter- tal of 281. In Malmberget, work in preparation minology more comprehen- for a new deformation permit continues. There- Regulated site remediation sible for a fore, surveys to determine specific conditions in When a mineral deposit is mined out, the site wider public. Malmberget are being conducted. During 2009, must be remediated to remove any contaminants We have a 220 plinths for registering ground displacement and promote revegetation. Measures include responsibility to continue to with modern GPS technology were installed. backfilling of open pits and tree planting. make knowl- Readings were taken from these plinths during Site remediation is required by law, and LKAB edge about the autumn, and the first results from deforma- formulates plans for successive remediation in these con- tion measurements will be ready in mid-2010. consultation with supervisory authorities. LKAB cerns more is required to reserve funds to cover the future available. Seismic events/rock mass displacements costs of remediation. LKAB has completed reme- Via geophones placed around the mine sites and diation measures during 2009 at a cost of about in the surrounding settlement areas, all rock dis- MSEK 28. This has included the first phase of placements including seismic events, vibrations remediation of the old tailings pond in Malmber- a tremors are registered. All major events are an- get, backfilling of waste rock and decontamina- SUSTAINABILITY REPORT 43 09

tion of oil-contaminated soil. Bank guarantees pality of Kiruna and the County Administrative The Municipality of Kiruna’s study on decon- have been pledged for future remediation fol- Board, LKAB is participating in a project group tamination of Lake Ala Lombolo is complete. lowing beneficiation and pelletizing operations whose task is to study the environmental status Several alternatives have been presented. in Kiruna (MSEK 63); for operations in Malm- of Lake Ala Lombolo and its surroundings. The berget (MSEK 45); for quarrying and water op- municipality’s study has been completed and sev- erations in Masugnsbyn (MSEK 1), and for test eral alternatives for decontamination have been Study on health drilling in Gruvberget, Svappavaara (MSEK 0.1). presented. and environment For Minelco’s operations in Greenland and Turkey, reclamation plans have also been ap- Protected nature and biodiversity proved by supervisory authorities in the respec- LKAB tries to ensure that the impact on sensitive Following a ruling by the Environ- mental Court in 2007, a survey of tive countries. Minelco has made a special pro- ecosystems and environments is minimized and the living situation for residents in vision for reclamation of the site in Greenland that it poses no threat to biodiversity. Some oper- Malmberget, Koskullskulle and Gälli- when the operation is decommissioned. ations are close to protected areas with particu- vare has been conducted. Preliminary larly high biodiversity values. LKAB’s facilities in results from Umeå University were Municipal study on decontamination Sweden are in Norrbotten County, where some presented in late 2009. The response frequency was 47 percent. The results of Ala Lombolo 24,200 square kilometers, or about 23 percent of reveal how residents perceive their Before LKAB was to begin draining Lake South Norrbotten’s area, is protected as national parks living situation and indicate anxiety Luossajärvi in the early-1990s, environmental or nature reserves, such as Laponia. Some opera- and frustration associated with, for studies revealed that the sediment downstream tions are in the vicinity of Natura 2000 designat- example, vibrations and tremors. LKAB is studying the results to identify in Lake Ala Lombolo contained contaminants. ed areas, which are classed as having particular- measures that can be implemented to These include more than 200 kg of mercury. ly high biodiversity values. LKAB takes this into alleviate anxiety and foster a greater Consequently, the lake was classified as a risk consideration when applying for permits and in a sense of security. Initially, LKAB class 1 lake, and owing to the fact that it is con- the day-to-day management of these operations. has intensified communications con- nected to the Torne River, the County Admin- At present, LKAB’s operations are not considered cerning its operations locally. The purpose has been to reassure people istrative Board has made the project a priori- to affect these areas to any significant extent. that LKAB does not conduct mining ty. Some of the mercury originates from LKAB’s The County Administrative Board of Norrbot- operations directly under residential operations in the early-1900s. All of the mercu- ten has conducted an inventory of wetlands as a areas or areas where people travel, ry has been discharged via the municipal sew- basis for assessment of impact from LKAB’s op- such as roads. The number of inspections has increased during the year, age system. The situation is complicated by the erations in Sweden. No negative environmental and information about significant rock fact that the sediment also contains ammunition impact from LKAB’s operations has been identi- mass displacements is communicated that was dumped by the Swedish Armed Forces. fied. Read more in the Sustainability Report for directly via LKAB’s website. Together with representatives from the Munici- 2008. 44 SUSTAINABILITY REPORT 09

Accident frequency LKAB’s co-workers in focus

Target 2009 has been a demanding year for our co-workers. Thanks to good cooperation, The number of accidents per million LKAB was able to bridge the effects of declining demand in the first half of the year work hours (accident frequency) in LKAB will be reduced by 20 percent without any redundancies in the core business. The drive to improve safety has been per year in comparison to the previ- intensified during the year, and absence due to illness has continued to decrease. ous year’s outcome. The long-term vision is zero accidents.

Performance Management of social issues also reduced. There were fewer accidents in 2009 The personnel policy is an important basis for No permanently employed personnel have had than in 2008, but the total number of the internal management of social issues. The to leave the iron ore operation. Thanks largely to work hours also decreased as a result policy emphasizes the importance of striving to good cooperation with the trade unions, LKAB of lower production. Therefore, accident frequency fell only marginally create safe, secure and developmental workplac- has been able to manage the difficulties associ- to 9.1, compared to 9.4 the previous es, and good conditions for ensuring the long- ated with lower production in a responsible man- year. term health of employees. ner. Among other things, when production was LKAB’s management of social issues is decen- stopped due to the decline in deliveries, an agree- tralized. This means, for example, that work en- ment was reached that allowed for the employ- vironment issues are addressed as close as pos- ees who were affected by the production stop- A good agreement sible to the source of the problem, since that is page to be free from work, with pay, for five to where the best insight into how to deal with the eight weeks during the summer. In return, salary problem exists. Within LKAB in Sweden there negotiations for the year were postponed and ac- HARRY RANTAKYRÖ are several forums for working with specific ar- cumulated vacation time was scheduled to corre- Chairman, Swedish eas. These include the Rehabilitation Commit- spond with the production stoppage. During the Metalworkers’ tee, the Salary Committee, the Risk Assessment period of cutbacks in production, about 500 peo- Union chap. 12, Kiruna and Consequence Analysis groups, and the Gen- ple have been reassigned to other duties within

We reached a very good agreement der Equality group. There are also Work Environ- LKAB, where they have helped to fill vacancies, with LKAB as to how production cut- ment Groups, which also invite representatives of for example, in jobs that were done by temporary backs could be implemented during contractors to participate in addressing issues of employees who have worked the full term of their 2009 when the market declined. The mutual concern, and the Safety Committee and contract. Much work had to be done in preparing agreement meant that our members Work Environment Committee, which set out and planning for the introduction of reassigned were spared the unfortunate consequences that affected many of our col- guidelines for work with occupational health and personnel to ensure that they would be able to leagues during the same period. safety in LKAB’s workplaces. perform their new duties safely and well. At the Many people in our country and in Dialogue is also conducted via ongoing work- same time, they were given the opportunity for other parts of the world faced lay-offs, place surveys, work descriptions, leadership pro- competence development via their new work du- shorter work weeks and wage reductions. files and psycho-social safety inspections. Minel- ties and new workplaces. There was no increase LKAB and the trade unions made co regularly conducts employee surveys, most in the number of accidents during this period, a joint effort to find the best solution recently in 2007. The next is planned for autumn which shows that both planning and introduction for all parties concerned. LKAB paid 2010. were successful. Demand picked up during the salaries during four extra vacation All LKAB employees in Sweden and Norway, latter half of the year, and most employees are weeks, and we postponed salary review for 2009 and were prepared to with the exception of group management, are take out free days from accumulated subject to collective bargaining agreements. All time banks. employees in the LKAB have employment con- I believe that most of our members tracts. Within Minelco, these contracts comply were satisfied with the agreement, and Accidents resulting in absence it was not difficult to get people with local legislation in the respective countries. Total accidents Million working hours to postpone vacations when 100 25 it became apparent that de- Responsible cutbacks mand was starting to increase, Demand for iron ore declined in 2009, which 80 20 before the planned summer naturally had an impact on the company and its stop began. Those who 60 15 worked did not lose employees. LKAB has attempted to limit the neg- any vacation days, ative effects that changes in demand have had on 40 10 but were able to employees. In the iron ore operation, production take holidays later, was cut back. During part of the year, the rate of 20 5 for example, during the autumn production was halved. About 300 temporary employees were affected when their contracts were 0 0 hunting season 2004 2005 2006 2007 2008 2009 or during spring not renewed. Employees in this group are enti- 2010. Total number of accidents resulting in absence, tled to work the full term of the contract period, Group. ( 2009) which they did. The number of contractors was Total accidents per million working hours. SUSTAINABILITY REPORT 45 09 Ice-fishing on Torneträsk.

Confidence improves outcomes

Mikael Bergdahl Handling officer, Swedish Social Insurance Agency, Gällivare

Behind all the sick-leave statistics are people who have suffered the effects of changes that have affected their capacity to work the same way as they once did. Since 2003, the Swedish Social In- surance Agency has collaborated suc- cessfully with LKAB. A clear result of this cooperation is the low rate of absence due to illness in the company. Our work is based on confidence and continuity among all parties who are involved in rehabilitation. LKAB’s systematic and well-organized rehabilitation programs make it easier to pick up the signals and notice when an individual is having a tough time. This improves the chances of a successful outcome. Of course, systematic prevention in the work environment also plays an important role. This includes efforts like Safety now working in the positions they had earlier. Health and safety First, and opportunities for employees The number of employees in the subsidiary Extensive rock reinforcement work has been to engage in various health and fit- Minelco decreased by 12.5 percent during the done in the mines during the year. Several hun- ness activities. LKAB has chosen to conduct so- year. Personnel numbers have been reduced in dred million Swedish kronor has been invested in called rehabilitation investigations, England as a consequence of the consolidation rock reinforcement in the Kiruna mine. The work even though the statutory requirement of operations (companies), and the number of began after a fatal accident in 2008, when sur- was lifted in 2007. These investiga- staff in China has also been adapted. The sales veys showed that rock reinforcement had to be tions are based on dialogue between the individual, his or her immediate office in Thailand has been closed and in Green- increased in certain areas. The aim of these mea- supervisor and a rehab coordinator, land, the operation has been adapted for a low- sures has been to improve the level of safety even whereby the situation and possible er production level and will be wound down in further. solutions are discussed jointly. Even the individual’s trade union, physician 2010. Work according to the Safety First approach and the social insurance agency are Redundancies in the respective countries have has been intensified throughout the group during contacted, if necessary. been made in accordance with local legislation the year. Work focuses on changing employees’ We choose to see and focus on the regarding termination of employment. attitudes and on preventive risk management, possibilities. It is essential that individual does so, too, and we can help by supporting and motivating them. In 99 percent of cases, something can be done to improve the situation for the individual. Absence due to illness (%) Incidents and risks (Total) A person’s capacity to work 5 8 000 can be improved in many ways; through adaptation 7 000 and with the use of assis- 4 6 000 tive devices in the regular workplace, with tempo- 5 000 3 rary solutions, or via reas- 4 000 signment to other job 2 3 000 duties. Some people can work full-time; 2 000 1 others, part-time. 1 000 Most importantly, the focus is on the 0 0 2003 2004 2005 2006 2007 2008 2009 2004 2005 2006 2007 2008 2009 individual and the goal is to be able Short-term absence due to illness Incidents Risks Long-term absence due to illness to work as much Prior to 2006, risk reports were included in “incidents”. as one can. LKAB Group; short-term and long-term absence due to illness in percent. 46 SUSTAINABILITY REPORT

09 LKAB’s successes are largely a result of our people’s knowledge, determination and commitment. Bengt Nielsen is an explosives technician in the Kiruna mine.

Absence due to illness

Target The rate of long-term absence due to illness in LKAB will not exceed 1.5 percent.

Performance Long-term absence due to illness has decreased markedly in recent years and the targets have been reached. The figure for 2009 was 0.4 percent.

Health and fitness

Target with investigations of risks, incidents and previ- 0.7 percent in 2008, and short-term absence due The objective is to increase the num- ous accidents. to illness was 2.1 percent, as compared to 2.3 ber of fitness training occasions by Within Minelco, a group has been appoint- percent the previous year. five percent per year. ed whose task is to see that Safety First is imple- LKAB set a goal in 2004 to reduce the rate of Performance mented as a group-wide working method and set long-term absence due to illness by half, from During 2008, fitness activities in- of procedures common for all operations, regard- 4.1 percent, within five years. The goal was creased by 19 percent but fell, unless of country. reached after only three years, and during 2008, fortunately, by seven percent during 2009, a year of recession. a new target was set: long-term absence due to Accidents in the workplace illness should not exceed 1.5 percent. This tar- The number of accidents resulting in absence, get was met in both 2008 and 2009. One reason group-wide, amounted to 58; which was some- for the reduction in sick leave has been systemat- what fewer than the 65 reported last year. ic work with rehabilitation. Rehabilitation coor- Gender equality Reassignment of personnel to different du- dinators investigate cases where individuals have ties as a result of the downturn during the first been absent due to illness for more than 28 days. half of the year presented great challenges. Even Together with the individual and the responsi- Target though new tasks in new workplaces entail an ble supervisor, they establish a plan of action to Over the long term, the proportion of female permanent employees will be increased risk of accidents, the number of acci- get the person back to work as soon as it is medi- increased to at least 40 percent. Of dents did not increase in 2009. The frequency of cally appropriate. This work is done in Sweden in the new recruits, 30 percent will be accidents has remained at about the same level close cooperation with the Swedish Social Insur- women. for the past three years, but has fallen in compar- ance Agency and with corresponding agencies in ison with 2003, when there were about 15 acci- other countries. Performance The proportion of women in the dents per million working hours. Group increased somewhat and was In the event of a serious accident or incident, 13.4 percent at the close of the year. our own personnel in the major operating loca- Owning to the economic situation, tions in Sweden and Norway are ready to secure Health and safety in the workplace only 109 people were recruited during the year. Nine (approximately the workplace, contact the authorities and assess “Our conviction about safety” eight percent) were women. The cor- the need for crisis support. Crisis support can be responding figure in 2008 was about provided for the injured party and his or her fam- • All injuries and work-related illnesses can be prevented. 34 percent. ily, co-workers and supervisors. • Safety at work is a condition for employment and contract Owing to the location, for Minelco’s operation work. in Greenland, there is a special plan for ensuring • Each of us is responsible for preventing work-related injuries and illnesses. that emergency services resources can be made • All are visibly and clearly involved in improving the work available within a reasonable time. Duty physi- environment. cians can be contacted by telephone at all hours. • All deficiencies in safety must be quickly remedied. • Ongoing safety training for all employees is essential for Absence due to illness creating a safe workplace. Absence due to illness decreased compared to • Safety is just as important outside of work as it is at work. the previous year. The rate of long-term absence • Preventing work-related injuries and illnesses is good for due to illness was 0.4 percent, as compared to business. SUSTAINABILITY REPORT 47 09

Health and a drug-free workplace tions were performed by company health service LKAB pursues a program of preventive health personnel. Competence measures whereby employees are given the op- development portunity for health and fitness activities close to Equality and diversity the workplace. Employees are able to exercise, LKAB actively seeks to improve gender equality. free of charge and during their leisure time at The company is male-dominated, largely as a re- Target both company-owned and external fitness centers sult of an old and persistent tradition in prima- Each employee should participate in in LKAB’s larger operating locations. The objec- ry industry. The ambition is to change this state 10 days of competence development tive is to increase the number of fitness training of affairs. per year, of which 5 should be training days. occasions by five percent per year. The actual number of women in the company During 2008, fitness activities increased by 19 decreased in 2009. However, the proportion of Performance percent but fell, unfortunately, by seven percent women continued to increase and was 13.4 per- LKAB only keeps statistics over the during 2009, a year of recession. cent at the start of 2010, as compared to 13.1 number of training days. In 2009, The results of work environment surveys and percent a year previously. The increase was due the result fell short of the target. The average was four training days per employee health check-ups show that the health to the fact that more men than women retired. employee. situation within LKAB is generally good. Employ- The proportion of women in managerial positions ees receive training in knowledge of the work en- increased during the 2000s from 4.6 in 2000 to vironment, including ergonomics and the psycho- 13.3 percent in 2008 and 15.3 percent at the social work environment. Via the Occupational start of 2010. During the year, the second wom- Health unit, all employees in Sweden and Nor- an to be recruited to LKAB Group management, way can undergo regular medical examinations. the new vice president of human resources, was In all other Group companies, mandatory medi- employed. cal examinations are a minimum requirement. The Swedish anti-discrimination legislation Since 2006, LKAB has conducted compulso- was amended in 2009. An Equal Treatment Plan ry training programs on alcohol and drug-related will replace the former Gender Equality Plan. problems for all supervisors and safety officers. LKAB will begin work with the new plan. Until LKAB was one of the first companies to intro- such time as an Equal Treatment Plan is intro- duce random drug testing. Prevention of alco- duced, the Gender Equality Plan developed by hol and drug abuse is conducted in collaboration LKAB’s joint committee on gender equality will with the trade unions. For a company such as apply. LKAB, for safety reasons, a drug and alcohol-free The company strives to counteract discrimina- workplace is essential. If an employee tests position in the workplace. LKAB’s ambition is to fa- tively for the presence of prohibited substances, cilitate recruiting by being an attractive employer rehabilitation is offered. The goal is to eliminate for all individuals, regardless of gender, age, cul- the drug abuse and keep the employee. tural background, disability or sexual orientation. Via the Occupational Health unit, in late- According to established practice and in com- 2009, all employees in Sweden and Norway were pliance with Swedish legislation, LKAB does not offered vaccination against the new strain of in- register ethnic origin, religion or sexual orienta- fluenza. Inoculation was done in Sweden in col- tion, and cannot therefore present those diver- laboration with the Norrbotten County Council sity parameters. No cases of discrimination re- and local health services in Norway. LKAB resulting in legal action have been reported during ceived the vaccine free of charge and inocula- the year.

Age structure (excl. Minerals Div. abroad) Proportion of women in LKAB (%) Number of women in LKAB (Total)

600 18 600 16 500 500 14 400 12 400 10 300 300 8 200 6 200 4 100 100 2 0 0 0 -19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60- 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Men Women The average age of employees in Sweden and Norway is Proportion of women in LKAB Number of women in LKAB over time 45.0 years. Proportion of women in managerial positions 48 SUSTAINABILITY REPORT 09

Salaries are reviewed regularly to ensure that rock with which they work. With LKAB there are no unjustifiable differences in remuner- The majority of supervisors in mining opera- towards the future ation to women and men in the company. The re- tions underwent a five-day management training sults of salary reviews are sent every third year to program during 2009. the Equality Ombudsman. Within Minelco, training efforts have been

For several years, LKAB has cooperat- made to improve the level of participation and to ed with the secondary schools in Gäl- Competence development and recruiting develop a common corporate culture. Examples livare and Kiruna to ensure the future In a competitive business like LKAB’s, there is a of global activities include a performance ap- supply of qualified personnel. very great need for competence development in a praisal process and an introduction course for all Admission to the LKAB high schools, range of different areas. There are about 240 dif- new employees. as they are commonly known, is based on grades, but efforts are also being ferent occupations in LKAB, all of which require made to achieve a more uniform specialist knowledge, and several hundred man- Educational programs and relations gender distribution. Students gain agers and supervisors require management train- with schools practical experience at LKAB during ing. LKAB has a very great need for qualified co- the course of their studies, and they are normally offered summer jobs and However, training activities were also affected workers. A large generation shift is under way employment after graduation. by production cutbacks during 2009. Reductions in LKAB, which means that many people will be So far, there has been a very great in the numbers of temporary employees and con- retiring in the coming years. A number of mea- interest in the programs. The propor- tractors meant that less time was available for sures have been introduced to attract people to tion of girls enrolled has been about LKAB employees to participate in training pro- LKAB. For example, the company is actively in- 30 percent in Gällivare and about 40 percent in Kiruna. grams. Consequently, employees underwent an volved in secondary-school vocational programs The first class of ten students began average of four training days per employee, as op- with an LKAB focus in Malmberget and Kiruna, their studies in Gällivare in 2005. posed to 5.2 days in 2008. and LKAB holds information meetings for high Here, the study programs include in- At the same time, redeployment of personnel school students in the operating locations and dustrial technology, vehicle and auto mechanics, electrical engineering and in conjunction with periodic closure of sections participates in recruitment fairs at Luleå Univer- energy. Two classes with a total of 20 of the operation meant that employees took part sity of Technology and in other locations. students have graduated. Three class- in competence development of a more practical es are midway through their studies. nature when they learned new tasks in new work- Remuneration and incentives In Kiruna, 16 students who began places. This has meant that the level of expertise LKAB has an incentive system that involves most their studies in 2006 were able to choose either the industrial technol- in the company has risen and that the employ- employees in Sweden and Norway. The program ogy program or electrical engineer- ees and the company are now better equipped to results in positive outcomes for LKAB and ad- ing with specialization in automation. meet future challenges. heres to guidelines for incentive schemes for em- The first class graduated in 2009. The rockwork training program that was intro- ployees of state-owned companies. To a certain Three classes are currently engaged in studies. duced in 2008 continues. Mine rockwork techni- extent, the system also includes work environ- cians constitute an important occupational group ment parameters. The maximum reward per full- for LKAB and the need for training is consider- time employee and year is now 40,000 Swedish able, since many qualified people are approach- kronor. The outcome in 2009 was 24,919 kronor ing retirement. The training program focuses on per employee. The subsidiaries also have incen- rockwork-related tasks in the mine, such as rock tive schemes, which are adapted to their respec- reinforcement and scaling. The objective is for tive operations. The maximum reward for them is fully-trained rockwork technicians to have the also 40,000 kronor. requisite knowledge and understanding of the Group senior executives do not participate in the incentive scheme or receive any other form of variable remuneration or incentives related to Personnel turnover Average number of employees* sustainability results. in the Group distributed per region 2009 LKAB has a major program for motivating employees to submit suggestions for changes and Year Percent Men women improvements that can strengthen the business. 2006 6.2 Sweden 2802 398 The long-term goal is for each employee to sub- 2007 8.0 Norway 188 17 2008 8.2 Turkey 14 1 mit two suggestions per year. 2009 4.6 Asia 61 20 During 2009, 2,976 suggestions, or about 0.7 Holland 17 10 suggestions per employee, were submitted. This Calculated on the basis of terminated employment Germany 11 10 and recruitments in relation to number of perma- was fewer than in 2008, when a total of 3,922, or USA 2 2 nent employees per 31 December of the previous an average of 1.2 suggestions per employee, were Finland 2 1 year. Personnel turnover by region and age catego- submitted. England 162 43 ry is not reported. Greenland 16 0 The lower result is an effect of the recession, Slovakia 1 0 and the fact that the major investments in sur- Total 3276 502 face-level facilities, which generated many sug-

There are no longer any employees in Greece or Poland. gestions during the construction period, have *Permanent and temporary employees included. been completed. SUSTAINABILITY REPORT 49 09 Involvement in local communities and initiatives

As a major employer in northern Sweden and Norway, LKAB contributes to the regional development. It is important for our co-workers and for other residents InfoMine in and around our operating locations that LKAB stimulates and supports local attracts visitors initiatives. This applies both in Sweden and abroad.

About 25,000 people visit LKAB each year, and most of them visit InfoMine Local involvement in the vicinity of the school near Minelco’s min- in the Kiruna mine. In Kiruna, LKAB participates in an association of eral deposit. The visitors’ mine contributes to improving knowledge and awareness of local businesses known as KIRSAM, a joint ini- the Group’s activities. The company’s tiative of which is an annual fitness festival to en- Sponsoring with a focus on culture and history and present-day operations courage Kiruna residents to exercise more. athletics are described. To counteract youth unemployment in the re- An aim of the Group’s sponsoring is to strength- Visitors include some 3,000 school gion, LKAB supports the TAGE project in Gäl- en the LKAB brand. All sponsoring projects will children of varying ages from different parts of the country. livare. The aim of the project is to help jobless benefit both LKAB and the recipients and will be With about 17,000 visitors annually, young people, through individual coaching and characterized by high quality and local presence. this is one of Kiruna’s biggest tourist various practical activities, to enter the labor In the operating locations, LKAB mainly spon- attractions. People from all over the market. LKAB contributes funding and partici- sors culture and athletics by encouraging and world visit InfoMine, especially during the summer months. pates in steering and project committees. supporting non-profit youth activities in clubs and associations. In every sponsorship agree- International activities ment, a clear drug and alcohol policy with a fo- Wherever LKAB operates, the company’s ac- cus on prevention is a must. tive involvement in local communities is impor- To encourage positive role models in the re- tant. In the countries in which Minelco operates, gion, LKAB assists talented young athletes who there are several initiatives to assist groups that compete at the elite level. Marcus Hellner, Gell- are especially vulnerable and to promote positive ivare Skidallians IK and Charlotte Kalla, IFK development. In England, Minelco supports or- Tärendö, who are members of Sweden’s national ganizations that work with the care of seriously cross-country ski team, are important role mod- ill children and youths, as well as organizations els in a sport that is very popular in the region. that promote sporting activities for the physical- Both athletes are employed by and sponsored by ly disabled. In Hong Kong, used computers are LKAB. donated to local charities and are reused. In Tur- key, Minelco has assumed social responsibility by contributing to local infrastructural investment

LKAB has won First Prize for Sweden’s best Sustainability Report in 2008. Awards ceremony at Finforum 2009, in Stockholm. From left: Christina Niemi Autio, LKAB, Lotta Fogde, LKAB and Lars-Olle Larsson, FAR SRS. 50 CORPORATE GOVERNANCE REPORT 09 Corporate Governance Report 2009

LKAB is wholly owned by the Swedish state. The basis for corporate governance of LKAB is Swedish legislation, guidelines from the state and internal guidelines. The Government’s framework for ownership administration and the state ownership policy are described in detail in the annual reports of state-owned companies. These dictate that the Swedish Code of Corporate Governance (the Code) must serve as part of the government’s framework for ownership administration.

In November 2007, the Government adopted market index over the long term. new guidelines for external reporting by state- LKAB is currently in a consolidation phase of owned companies. The new guidelines, which re- which the aim is to achieve the effects of major place the earlier guidelines from 2002, have been investments made in recent years in increased augmented with expanded and clearer require- capacity. Our assessment is that demand for LK- ments for information about sustainability, but AB’s products will grow in the coming years. This also cite the Code as one of the basic principles will create conditions for further growth through for reporting of non-financial information. investments in, for example, new main levels. As of 2008, LKAB reports in compliance with LKAB can then use the strong financial platform the new guidelines, except in areas where state the company now has to ensure continued profit- ownership does not permit. able development within its business areas. The Board believes that the company is capa- LKAB’s operations ble of managing this growth on its own strength. LKAB’s operations are capital intensive. Com- In early-2010, the Board gave management the pared to other iron ore companies, nearly all of task of reviewing appropriate objectives with re- which mine their ore in open pits, LKAB has a spect to capital structure, profitability and divi- heavier capital burden, since underground min- dend policy. ing demands more extensive investments. The operation is also strongly dependent on Owner business cycles. Therefore, LKAB must have sub- LKAB is wholly owned by the Swedish state, rep- stantial financial strength to be able to cope with resented by the government and the Ministry of cyclical fluctuations over several years and to be Enterprise, Energy and Communications. able to finance the heavy investments that will The owner’s overall goal is the creation of val- secure the company’s future. ue and, in appropriate cases, to ensure that ex- Due to this background, the long-term require- pressed societal interests are fulfilled. LKAB, ment on rate of return on operating assets has which in its role is not subject to the latter provi- been set by LKAB at 10% (after tax), measured sion on ‘expressed societal interests’, will develop over a business cycle. During the years 2005- a successful business operation by mining, pro- 2009, return on operating assets has been 58, cessing and marketing minerals. 45, 32, 41 and 3% percent, respectively. The owner’s income and yield requirements for LKAB has a high proportion of liquid assets LKAB are on normal market terms. LKAB’s divi- and there is currently no requirement for exter- dend policy entails that the dividend to the own- nal financing. Liquid assets are invested primar- er will, over the long term, amount to 30-50% of ily on the Swedish money market in securities income after tax and be adapted to the average with high liquidity and low credit and interest- earnings level over a business cycle. The state rate risk. The goal is that the rate of return on exercises its ownership via an established own- managed cash assets should exceed the money ership policy, nominations to the Board and re- CORPORATE GOVERNANCE REPORT 51 09

THE SWEDISH STATE OWNERSHIP EXTERNAL POLICY ANNUAL GENERAL AUDITORS MEETING

NOMINATION PROCESS BOARD AUDIT COMMITTEE

COMPENSATION COMMITTEE

CURRENCY AND OBJECTIVES AND REPORT AND FINANCE STRATEGIES CONTROL COMMITTEE

quirements for financial and other reporting. The questions to the AGM. Questions to the AGM may state’s requirement of insight is assured by direct also be presented via the website. As of 2005, the owner representation on the Board. Reports to minutes of Annual General Meetings are posted on the owner are important steering instruments for LKAB’s website. the ongoing monitoring and assessment of the The meeting decides, in addition to what is spec- companies. State-owned companies should have ified in the articles of the Swedish Companies Act, at least the same level of transparency as listed on remuneration to the Chairman and other board companies. members, any remuneration for committee work, The Board, via the Chairman, coordinates its and guidelines for salaries and other remuneration views on issues of decisive importance with the to senior executives. owner’s representatives. Such issues include stra- The Annual General Meeting for 2009 was held tegic changes in the company’s operations, ma- on 20 April. About 100 people attended the meet- jor acquisitions, mergers or divestments, as well ing. as decisions affecting significant changes in the company’s risk profile or balance sheet. Nominations/ Appointment of the Board and auditors Restructuring as a public limited Since LKAB is wholly state-owned, it does not have company a nomination committee per se, as defined by the At an extraordinary shareholders’ meeting on Code. The nomination process is in accordance 16 November, the owner decided to restructure with the State ownership policy. LKAB as a public limited company. As a pub- The chair of the meetings is appointed by the own- lic limited company, LKAB will be able to turn to er’s representative at the meeting. the capital market for borrowing or other forms of financing, which is important, considering the Board of Directors company’s commitments with respect to major According to LKAB’s Articles of Incorporation, the future expenditures. A restructuring will mean Board of Directors, will consist of not less than six that LKAB will operate on the same terms as and not more than 11 members without deputies. most other large state-owned enterprises, which The President is responsible for ensuring that new- are public limited companies. ly elected board members undergo an introductory The date of announcement of registration of re- course. The Articles of Incorporation were updated structuring was 28 December. twice during 2009; at the Annual General Meeting in April and at an extraordinary meeting in Novem- Annual General Meeting ber, when the owner decided that LKAB would be LKAB’s Annual General Meeting is open to the restructured as a public limited company. public. Notice of the Annual General Meeting is Normally, six ordinary meetings are held each made via LKAB’s website and via newspaper ad- year: in February, April, June, August, October and vertisements. The public is entitled to present December. The meetings follow a fixed calendar to 52 CORPORATE GOVERNANCE REPORT 09

ensure that the Board’s need for information is The work of the Board of Directors satisfied. during 2009 A board meeting held at the end of each quar- During the year, the Board has held eleven meet- ter considers the interim financial report for the ings, three of which via telephone. Meetings are most recent quarter as well as the forecast for normally held in locations where LKAB has oper- the coming four quarters. This allows the Board ations, in Stockholm, or in conjunction with vis- to make an ongoing assessment of strategies and its to LKAB’s market areas. Attendance of the delegations to the President and to decide on members of the Board at board meetings in 2009 specific investment projects. is presented in the table below. Normally the first meeting of the year is at the year-end closing, when LKAB’s auditors also par- Board committees ticipate. The second is a strategy meeting with an emphasis on personnel development matters Currency and finance committee. The combined with a presentation of the interim ac- Board has appointed a currency and finance counts. The third and fourth meetings also ad- committee that prepares and oversees the hedg- dress issues pertaining to operations and strategy. ing program and financial guidelines. The emphasis of the fifth meeting is on the The committee, led by the Chairman of the market situation. At the sixth and final meeting, Board, Björn Sprängare, included in 2009 board the strategic plan for the coming three to four members Anna-Greta Sjöberg, Christer Berg- years is revised. gren and Karl Wikström (employee representative Each year, the Board of Directors establishes on LKAB’s Board). Also participating in commit- its rules of procedure, essentially following the tee meetings during the year were Ola Johnsson, recommendation issued by the Ministry of Enter- President and CEO (up to and including April), prise, Energy and Communications. Lars-Eric Aaro, acting President and CEO (effective May), Leif Boström, Senior Vice President Composition of the Board Finance and CFO, Lars Lund, Manager Trea- The Board of Directors of LKAB has consist- sury. The committee held seven meetings during ed during the year of eight members who have 2009. Minutes and reports from the meetings are no relation to the company or its senior manage- submitted to LKAB’s Board. ment and have been elected by the Annual Gen- eral Meeting, plus three members with three Compensation committee. Compensation deputies appointed by the employees. Deputies for the President as well as salary setting prin- of the employee representatives also participate ciples for members of Group Management are in board meetings. The President is not a mem- drafted and determined by a compensation com- ber of the Board, but attends meetings of the mittee that is appointed by the Board. The com- Board. The Chairman is elected, as are the other mittee includes Chairman of the Board, Björn board members, by the general meeting of share- Sprängare, and board members Christer Berg- holders, for one year. gren and Lars-Åke Helgesson. Stina Blombäck is a co-opted member of the compensation committee as of September. The Board votes on the proposals of the committee. The Chairman of the Board meeting attendance during 2009 Board approves the annual salary review of other

Board meetings Currency and Compensation Audit members of Group Management. The committee finance committee committee committee held eleven meetings during 2009.

Björn Sprängare 11 of 11 7 of 7 11 of 11 – Christer Berggren 11 of 11 7 of 7 11 of 11 6 of 6 Audit committee. The Board is responsible for Stina Blombäck 10 of 11 – 5 of 11* – the company having a formalized and transparent Per-Ola Eriksson 10 of 11 – – – system which ensures that the established prin- Maija-Liisa Friman 7 of 11 – – – ciples for financial reporting and internal control Lars-Åke Helgesson 11 of 11 – 11 of 11 6 of 6 are complied with and that functional relations Anna-Greta Sjöberg 11 of 11 6 of 7 – 6 of 6 with the company’s auditors are maintained. Egil Ullebö 11 of 11 – – – The committee, led by board member Lars-Åke Employee representatives Helgesson, also includes board members An- Hans Fängvall 10 of 11 – – – Tomas Kohkoinen 9 of 11 – – – na-Greta Sjöberg and Christer Berggren. Leif Tomas Nilsson 11 of 11 – – – Boström, Senior Vice President Finance and Harry Rantakyrö 9 of 11 – – – CFO, also participates in the committee’s meet- Torsten Thorneus 10 of 11 – – – ings. Karl Wikström 11 of 11 4 of 7 – – The committee held six meetings during 2009.

* Co-opted as of September Minutes and reports from the meetings are sub- – Member does not belong to committee mitted to LKAB’s Board. CORPORATE GOVERNANCE REPORT 53 09

Assessment of the work of the Board The President’s duties and obligations are stat- A written survey of the Board’s work, prepared ed in the instructions for the President and the annually, includes questions concerning how the formal work plan for the Board. Board collectively, and each member individually, has fulfilled the tasks at hand. The evalua- According to these, the President shall: tion report supports the work of the Board. The Chairman is responsible for following up the re- · manage, plan, develop and control the compa- sults, which form a basis for discussion and im- ny’s operations in accordance with goals and provement. strategies established by the Board; The work of the Chairman is normally assessed · make provisions to ensure that the company’s by the owner, but this may also be part of the accounting complies with the law and that fi- work of the Board. nancial assets are managed in a satisfactory Since 2004, this assessment has been either manner; by questionnaire survey or by an in-depth in- · oversee the company’s operations with respect terview, whereby the Chairman interviews each to compliance with legislation and regulations, AGM-elected board member and the employee ensure that the decisions of the Board and oth- representatives. The entire Board has access to er decided measures pertaining to the oper- the results of this evaluation, as does the Presi- ation of the company are implemented, and dent, where applicable. Via the Chairman of the that the company’s operations are organized in Board, the owner sees the results of the assess- a functional manner and conducted in accor- ment prior to the nomination process. dance with the Articles of Incorporation; · assume responsibility for presentations and Assessment of the work of the President other reporting to the Board; and CEO · establish instructions and functional descrip- Evaluation of the work of the President and tions that are deemed necessary but have not CEO is a fundamental task of the Board. A sum- been established by the Board; mary of the Board’s views is made by the Chair- · assume responsibility for the company’s ongo- man, who presents a detailed outline of the Pres- ing media contacts; Media contacts with re- ident’s strengths and weaknesses as identified by spect to issues pertaining to ownership and the Board. major structural considerations are the responsibility of the Chairman. External auditors · ensure that introductory courses are provided The Annual General Meeting of 26 April 2007 for newly elected members of the Board. appointed as the company’s auditors KPMG AB until the close of the Annual General Meeting of The Chairman of the Board approves any director- 2011. The Chief Auditor is Caj Nackstad. ships held by the President outside of the company. During 2006, a decision was taken on the appointment of an auditor and deputy auditor from Description of the internal control the Swedish National Audit Office. The Nation- regarding financial reporting al Audit Office appointed authorized public ac- According to the Swedish Companies Act and countant Filip Cassel to act as auditor of LKAB the Swedish Code of Corporate Governance, from 1 Sept. 2006 until the AGM of 2010. To act the Board of Directors is responsible for internal as deputy for Cassel during the same period, au- control, the quality of which shall be indepen- thorized public accountant Per Redemo has been dently assured by the Board. Review of internal appointed. control is also in consultation with the compa- Remuneration to the auditors is stated in Note ny’s auditors, who normally attend the first board 7 of the Annual Report. meeting of the year. The auditors have been engaged to review the To ensure the quality of the financial state- interim reports as of 2005. ments, the Board considers all critical accounting questions and the financial reports presented Executive management by the company. Owing to the death in August of President and The Board also considers issues of internal con- CEO, Ola Johnsson, and reorganization in the trol, compliance with regulations, significant un- sales and product and technology development certainties in reported values, non-remedied units, the executive management has been re- errors, events after closing day, changes in esti- duced from nine to seven members. In Decem- mates, any possible improprieties, and other con- ber, Acting President and CEO, Lars-Eric Aaro, ditions affecting the quality of financial report- was appointed President and CEO effective 1 ing. January 2010. 54 CORPORATE GOVERNANCE REPORT 09

Control environment Information and communication The basis of internal control is the control envi- Information on the applicable control structure ronment within LKAB. The company’s structure is available in databases to which all employees for internal control is based on a defined distri- have access. The aim is to be able to regular- bution of responsibilities among the Board, the ly review the changes in, and underlying reasons board committees and the President and CEO. for, the existing controls, and to develop these so Management of the company is governed by the that good internal control of financial reporting composition of the organization and the manner can be maintained. In conjunction with review in which business activities are conducted. This of the control structure, responsibility for ensur- includes clearly defined roles and areas of re- ing that the control structure is in place and is sponsibility, delegation of authority, control doc- known, and that controls are carried out in the uments such as environmental and quality poli- manner prescribed, is identified. cies, and clearly defined planning and support LKAB’s central finance and control function processes. comprehensively follows up financial outcomes, The most significant aspects of the control envi- position and cash flow. In addition, particular fo- ronment with respect to the financial reporting cus is placed on follow-up of major investment are taken up in joint group control documents projects within LKAB. Expenditures exceeding concerning accounting, financial transactions MSEK 5 are subject to the approval of the Presi- and regulation of authority. dent. Expenditures exceeding MSEK 20 are subject to the approval of the Board. Risk assessment The investment process has also been a pri- Risks identified in connection with financial re- ority in 2009. During the year, control activi- porting and which have a bearing on internal ties have been conducted for current investment control are managed via LKAB’s control struc- projects in LKAB. These investigations have been ture. The general risks which exist are loss or conducted in consultation with external auditors, misappropriation of assets, and other significant whereby each separate investigation has been de- errors in the company’s reporting, for example, fined based on a risk assessment. Each investiga- with respect to accounting and evaluation of bal- tion activity has been summarized in an investi- ance sheet items, completeness with respect to gative report. income statement items, or deviation from dis- During the second half of 2009, the LKAB closure requirements. Group abandoned the former forecast control LKAB is controlled via processes in which risk model in favor of traditional budget control. The management is an implicit part of each separate purpose of the new financial control model is to process. Within the group there are methods for dampen cost development and thereby maintain ensuring that the risks to which the company is profitability over the long term. exposed are managed according to established guidelines and methods, as well as for assessing Statement 2009 and limiting these risks. In accordance with pronouncements by the Swedish Corporate Governance Board, the Board Control activities of Directors will not express an opinion on how Important aspects of LKAB’s control structure well the internal control has functioned during are authorization manuals, descriptions of au- the year. thorities, and instructions for year-end financial LKAB has at present no internal auditing func- reporting. In addition, there are specific control tion. The Board finds that the existing structures procedures, for the year-end financial reporting for follow-up and evaluation of the internal con- and interim reporting processes that enable man- trol provide a satisfactory basis for the Board’s as- agement of unique risks of errors in financial re- sessment of the internal control. For certain spe- porting. cial audits, external auditing work may also be All of the LKAB Group’s legal entities that done. The decision is reviewed annually. conduct business operations have their own chief financial officers or controllers. These participate in forecasting and analysis of the business units’ financial outcomes. Analyses include assets, li- Luleå, 24 March 2010 abilities, income, costs and cash flow. Togeth- For the Board of Directors of LKAB, Chairman er with the overall analysis at group level, these analyses help to minimize the risk of significant errors in financial reporting.

Björn Sprängare BOARD OF DIRECTORS AND GROUP MANAGEMENT 55 09

Board of Directors

Chairman Christer Berggren (1944) Stina Blombäck (1951) Per-Ola Eriksson (1946) Björn Sprängare (1940)) Deputy Director, Ministry of President of Billerud Karlsborg AB. Governor, County of Norrbotten. Director. Board Member since 1997. Enterprise. Energy and Communica- Elected to the Board in 2002. Member of the Board of LKAB Graduate Forester 1967; Dr. of Forestry tions. Deputy Director of the Board in MSc Chem. Eng., Royal Institute of 1991–1999 and since 2004; Member Skogshögskolan 1973; President and 2001, elected to the Board in 2002. Technology 1974. of Parliament 1982-1998; Chairman CEO Mo och Domsjö AB 1981-1986; MA Pol. Sci., Stockholm University 1972; Various positions in the Swedish forestry and Vice Chairman of the Standing President and CEO Trygg Hansa employed with Statens Pris- och industry 1974-1999: ASSI Karlsborg, Committee on Finance 1991-1998; 1986-1994; Governor of the Royal Kartellnämnd (SPK) 1971-1978; Billerud Gruvön, ASSI Kraftliner, ÅF-IPK Chairman, Landshypotek AB Palaces 1996-2004. employed with the Ministry of Enterprise, and AssiDomän. Director of Research 1994-1998; Director General, NUTEK Other directorships: Chairman, Energy and Communications since 1978. AssiDomän 1999-2001 and President 19991991; Chairman, Teracom AB Konserthusstiftelsen i Stockholm, Stiftelsen Other directorships: Member of the Billerud Karlsborg since 2001. 2001-2003, and Governor of Skogssällskapet, SJR in Scandinavia; boards of RISE Holding AB, SP Swedish Other directorships: Board Member of Norrbotten County since 2003. Board Member of the Royal Swedish National Testing and Research Institute, Luleå Energi and Kalix Vindkraft AB. Other directorships: Chairman of Academy of Engineering Sciences; Board AB Svensk Bilprovning and Zenit Längmanska företagarfonden and Member of the Royal Swedish Academy Shipping AB. Norrbottens läns Hushållningssällskap. of Agriculture and Forestry; Board Member of Postkodstiftelsen.

Maija-Liisa Friman (1952) Lars-Åke Helgesson (1941) Anna-Greta Sjöberg (1967) Egil M. Ullebø (1941) Director. Board member since 2008; Director. Board Member since 2000; Managing Director, Royal Bank of Director. Board Member since 2001. MSc Chemical Engineering, Helsinki Graduate Engineer; MBA, Handelshög- Scotland, Nordic Region. MSc Norges tekniske høgskole; MSc University of Technology 1978; CEO skolan Göteborg 1971; President and Elected to the Board in 2005. Bus. Adm. Norges Handelshøgskole, and Aspocomp Group Oyj 2007-2004; CEO, Haldex 1981-1988; Division MBA, Handelshögskolan Stockholm, studies at Tempelton College, Oxford. President Vattenfall Oy 2000-2004; Manager, Stora 1988-1992; President 1989. Orklakoncernen 1970–2006. President Gyproc Oy 1993-2000; and CEO, Stora 1992-1998. Sandvik de Mexico 1989–1991; BPA Other directorships: Chairman, Østfold various management positions in Kemira Other directorships: Chairman, Translink 1991–1993; Bergaliden AB Energi AS and Deltagruppen AS; Board Oyj in Finland, Mexico and the USA Holding AB; Vice-Chairman, 1993–1998 (President 1997-1998), and Member, Store Norske Spitsbergen AS, 1978-1993. British-Swedish Chamber of Commerce; RBS since 1998. Store Norske Spitsbergen Grubekompani Other directorships: Chair, Ekokem Oy; Board Member of Ballingslöv Other directorships: Board Member, AS, Borregaard Skoger AS, Nordic Vice-Chair, The Finnish Medical Internationel AB, Axel Christiernsson AB, Hufvudstaden AB. Mining ASA and Borg Havn IKS. Foundation; board member, TeliaSonera Crane AB, Dalton MA USA, and the AB, Metso Oyj and Helsinki Deaconess Royal Swedish Academy of Engineering Institute. Sciences. 56 BOARD OF DIRECTORS AND GROUP MANAGEMENT 09

Employee representatives

Tomas Nilsson (1965) Harry Rantakyrö (1957) Tomas Kohkoinen (1965) Torsten Thorneus (1946)

Ore developer. Board Member since Mechanic. Elected to the Board in Chief design engineer. Deputy Board Ore harbor worker. Deputy Board 2004. Secondary school and 2008. Trade school and trade union Member since 1999. Employee Member since 1999. Runöskolan. courses. representative for PTK. Trade school. Employed with LKAB since Employed with LKAB since 1985. Employed with LKAB since 1975. Secondary engineer, el/tel and training 1968; Other directorships: Chairman, klubb Other directorships: Chairman, klubb in electrical engineering/design, Other directorships: Chairman klubb Gruv 4, Malmberget, IF Metall Gruv 12, Kiruna, IF Metall Malmfälten. maintenance. Svartöstaden Luleå, IF Metall Norrbotten. Malmfälten. Employed with LKAB since 1986.

Auditors and Changes in Group Secretary Management

Auditors Ola Johnsson, President and CEO KPMG Bohlins AB until 27 April 2009. Caj Nackstad Lars-Eric Aaro, Authorized public accountant Chief Senior Vice President, Sales and accountant Marketing Division, from 1 April 2009 and Acting President and CEO, 28 Appointed by the Swedish April–31 December 2009; President and National Audit Office Filip Cassel CEO from 1 January 2010. Authorized public accountant Johan Heyden, Senior Vice President, Market Division until 31 March 2009. Karl Wikström (1951) Hans Fängvall (1963) Secretary Per-Erik Lindvall, General Manager, Urban Process serviceman. Deputy Board Malin Sundvall Senior Vice President, Minerals Division, Transformation, Malmberget. Deputy Member since 2003. Secondary school, Chief Legal Advisor, LKAB. Secretary of until 30 April 2009 and Senior Vice Board Member 1993-1999; Board natural sciences, and training in forestry the Board since 2008. President, Technology & Business Member since 1999. Employee management. Formerly employed with Development, from 1 May 2009. representative for PTK. Mining Modo and Domänverket. Employed by Mats Pettersson, engineering qualification. Employed with LKAB since 1989. LKAB since 1969. Other directorships: Chairman IF Metall Vice President, Human Resources, until Other directorships: Vice Chairman and Malmfälten and klubb Gruv 135:an 31 January 2009. Treasurer, Ledarklubben Malmberget- Svappavaara. Per-Olov Fjällborg, Acting Vice Luleå. President, Human Resources, 1 February–31 August 2009. Grete Solvang Stoltz, Senior Vice President, Human Resources, from 1 September 2009. BOARD OF DIRECTORS AND GROUP MANAGEMENT 57 09

Group Management

7 4

2 1 3

1 Lars-Eric Aaro (1956) 2 Lotta Fogde (1966) 4 Anders Kitok (1957) 6 Grete Solvang Stoltz President and CEO. Senior Vice President, Senior Vice President, (1970) Acting Senior Vice President, Communications. Mining Division. Senior Vice President, Sales & Marketing Division. Education: Bachelor of Arts, Denison Education: MSc Mechanical Engineering, Human Resources. Education: MSc, Luleå University of University, Ohio, USA 1989. Luleå University of Technology, 1982. Education: MBA, Luleå University of Technology, 1982. Employment: Swedish Radio Employment: Ericsson 1983-1985, and Technology, 1993. Employment: LKAB 1976-1986; Boliden 1991–1995; Expressen 1996; LKAB since 1985. Employment: LKAB 1993–1995; SCA 1988-1989 and 1992-1998; Secoroc Government Offices of Sweden Directorships: Board Member, 1995–2008; Northland Resources 1989-1992; ASSI Domän 1998-2001, 1996–2004, and LKAB since 2008. Progressum AB, MCC AB. 2008–2009, and LKAB since 2009. and LKAB since 2001. Directorships: Board Member, Teknikens Directorships: Chair, Karriärcentrum LTU. Directorships: Board Member, Luleå Hus, Luleå. 5 Per-Erik Lindvall (1956) University of Technology and Royal Senior Vice President, Technology 7 Leif Boström (1959) Swedish Academy of Engineering 3 Anders Furbeck (1957) & Business Development. Senior Vice President Finance and Sciences. Honorary doctorate, Luleå Senior Vice President, Total Education: MSc, Luleå University of CFO. University of Technology 2007. Quality Management. Technology, 1980. Education: MBA, Luleå University of Education: MBA, Göteborg University, Employment: LKAB 1980-1989; Technology, 1990. School of Business, Economics and Law, Bergbygg AB 1989-1991; Boliden Employment: NCC 1980-1992; LKAB 1985. 1991-2000; LKAB since 2001. since 1992. Employment: LKAB since 1985. Directorships: Chairman, Norrskenet AB Directorships: Board Member, VindIn AB. and Stiftelsen Mineralindustrins teknikutveckling (MITU). 58 GROUP OVERVIEW 09

Group overview

Consolidated Statements of Income (MSEK) 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 Net sales 11 558 23 128 16 385 14 615 14 337 8 988 7 466 5 186 4 870 4 882 3 985 Cost of goods sold -10 029 -12 166 -9 509 -7 706 -7 535 -6 180 -5 959 -4 515 -4 383 -4 150 -3 891 Gross income 1 529 10 962 6 876 6 909 6 802 2 808 1 507 671 487 732 94 Selling expenses -202 -200 -178 -178 -174 -289 -285 -135 -86 -80 -63 Administrative expenses -377 -448 -344 -333 -349 -353 -247 -192 -246 -218 -255 R&D expenses -237 -258 -217 -165 -159 -235 -116 -101 -116 -93 -118 Other operating income/expense -54 11 23 -11 10 64 50 28 132 -106 Operating income 659 10 056 6 148 6 256 6 109 1 941 923 293 67 473 -448 Income from financial items 705 575 572 546 550 227 181 191 125 198 246 Financial expenses -172 -513 -376 -420 -208 -145 -129 -88 -130 -80 -42 Profit after financial items 1 192 10 118 6 344 6 382 6 451 2 023 975 396 62 591 -244 Tax -473 -2 748 -1 665 -1 785 -1 904 -456 -286 -96 -15 -179 11 Net income for the year 719 7 370 4 679 4 597 4 547 1 567 689 300 47 412 -233

Attributable to: Parent Company shareholders 719 7 370 4 679 4 597 4 546 1 568 690 305 54 421 239 Minority share 1 -1 -1 -5 -7 -9 -6

Includes depreciation according to plan 1 827 1 462 1 166 997 952 1 079 1 049 994 954 920 838

Consolidated Balance Sheets (MSEK) Intangible assets 310 428 329 387 477 211 182 22 8 8 10 Tangible assets 21 551 19 893 16 702 11 746 7 928 6 316 6 476 6 583 7 056 6 970 6 962 Financial assets 1 827 1 094 2 416 2 208 1 393 219 245 322 261 328 198 Total fixed assets 23 688 21 415 19 447 14 341 9 798 6 746 6 903 6 927 7 325 7 306 7 170 Inventories, etc. 2 301 2 715 1 635 1 631 1 423 1 006 976 870 870 707 675 Accounts receivable 2 276 1 946 1 922 1 697 1 846 1 194 1 198 724 711 635 504 Liquid assets and short-term investments 6 195 9 643 5 991 6 982 7 091 4 516 2 944 3 045 2 780 3 060 3 101 Other receivables 1 095 612 685 1 214 416 195 316 117 245 317 200 Total current assets 11 867 14 916 10 233 11 524 10 776 6 911 5 434 4 756 4 606 4 719 4 480 Total assets 35 555 36 331 29 680 25 865 20 574 13 657 12 337 11 683 11 931 12 025 11 650

Shareholders’ equity 25 375 25 218 22 251 19 076 14 802 10 044 9 004 8 673 8 609 8 789 8 412 Minority interest 4 3 4 3 46 41 34 Provisions* 2 209 2 154 2 160 2 096 2 278 Long-term liabilities 7 319 6 836 4 963 4 627 3 598 2 230 2 2 41 66 96 Current liabilities 2 861 4 275 2 466 2 162 2 170 1 380 1 118 851 1 075 1 033 830 Total shareholders’ equity and liabilities 35 555 36 329 29 680 25 865 20 574 13 657 12 337 11 683 11 931 12 025 11 650

Consolidated Statements of Cash Flow Cash flow before change in working capital 2 931 11 545 7 200 5 688 6 073 2 776 1 782 1 356 978 1 340 554 Change in working capital -43 -1 201 -124 358 -553 79 -556 -172 -19 -51 307 Cash flow from operating activities 2 888 10 344 7 076 6 046 5 520 2 855 1 226 1 184 959 1 289 861 Investments in existing operations -3 543 -4 682 -5 968 -4 844 -2 648 -973 -592 -532 -1 050 -952 -1 004 Operating cash flow -655 5 662 1 108 1 202 2 872 1 882 634 652 -91 337 -143 Acquisition of operation, minority and assets 0 -9 -35 0 -75 -29 -384 -41 -124 Short-term investments 308 303 -381 217 -1 846 -1 748 Other 7 -8 192 151 123 Cash flow after investments -340 5 948 884 1 570 1 074 105 250 611 -91 337 -267 Dividend -2 800 -2 000 -2 000 -1 500 -520 -281 -351 -254 -233 -233 -233 Other from financing activities -43 -92 44 -145 -1 Cash flow for the year -3 140 3 948 -1 159 70 554 -176 -101 265 -280 -41 -501

Group key ratios Net sales MSEK 11 558 23 128 16 385 14 615 14 337 8 988 7 466 5 186 4 870 4 882 3 985 Growth in net sales % -29.5 58.2 12.1 1.9 59.5 20.4 44.0 6.5 -0.2 22.5 -22.3 Operating margin % 5.7 43.5 37.5 42.8 42.6 21.6 12.4 5.6 1.4 9.7 -11.2 Profit margin % 10.3 43.7 38.7 43.7 45.0 22.5 13.1 7.6 1.3 12.1 -6.1 Return on total capital % 3.8 34.2 24.2 29.3 38.9 16.7 9.2 4.1 1.6 5.7 -1.7 Return on equity % 2.8 33.3 22.6 27.1 36.6 16.5 7.8 3.5 0.5 4.8 -2.7 Return on operating assets % 2.5 48 32 43 58 21 11 3 1 6 -5 Solidity % 71.4 69.4 75.0 73.8 72.0 73.6 73.0 74.3 72.5 73.4 72.5 Average number of employees 3 778 4 086 3 885 3 737 3 563 3 482 3 433 3 078 3 172 3 210 3 279

* According to IFRS, from 2004, provisions are reported as long-term and short-term liabilities.

Definitions Operating margin: Operating income as a percentage of net sales Profit margin: Income after financial items as a percentage of revenue for the year. Return on total capital: Income after financial items + financial expenses as a percentage of average total assets. Return on equity: Income for the year as a percentage of average shareholders’ equity. Return on operating assets: Operating income as a percentage of average operating assets. CONTENTS 59 09

CONTENTS

REPORT OF THE DIRECTORS 60

FINANCIAL REPORTS – GROUP Financial Statement of income 68 Group statement of financial position 69 Changes in shareholders’ equity 70 Cash flow statement 71 reports FINANCIAL REPORTS – PARENT COMPANY Statement of income 72 Balance sheet 73 Changes in shareholders’ equity 75 Cash flow statement 76

NOTES Note 1 Accounting principles 77 Note 2 Revenue distribution 84 Note 3 Segment reporting 84 Note 4 Other operating revenues 85 Note 5 Other operating expenses 85 Note 6 Employees, personnel costs and remuneration to senior executives 85 Note 7 Auditors’ fees and compensation 88 Note 8 Operating expenses by nature of expense 88 Note 9 Net financial income/expense 88 Note 10 Appropriations 89 Note 11 Taxes 89 Note 12 Earnings per share 91 Note 13 Intangible assets 91 Note 14 Tangible assets 92 Note 15 Participations in joint ventures 94 Note 16 Parent Company’s participations in associated companies 94 Note 17 Receivables from Group companies and associated companies 94 Note 18 Financial investments 95 Note 19 Other long-term securities held as fixed assets 95 Note 20 Long-term receivables and other receivables 95 Note 21 Inventories, etc. 96 Note 22 Accounts receivable 96 Note 23 Prepaid expenses and accrued revenues 96 Note 24 Shareholders’ equity 96 Note 25 Pensions 97 Note 26 Provisions 98 Note 27 Accrued expenses and prepaid revenues 99 Note 28 Significant risks and uncertainties 99 Note 29 Contractual obligations 100 Note 30 Assets pledged and contingent liabilities 101 Note 31 Related parties 101 Note 32 Group companies 102 Note 33 Untaxed reserves 103 Note 34 Cash flow statement 103

Proposed disposition of unappropriated earnings 104 Auditors’ Report 105 GRI Index 106 Auditors’ statement of assurance 108 Glossary 109 Addresses 110 Annual General Meeting and financial information 111 60 REPORT OF THE DIRECTORS 09 Annual Report 2009

REPORT OF THE DIRECTORS The steel and iron ore market The Board of Directors and the President and CEO of Luossavaara-Kiirunavaara According to the World Steel Association (worldsteel), global production of AB (publ.), (Corp. ID No. 556001-5835) hereby submit their Annual Report crude steel, which drives demand for iron ore, reached 1,220 Mt during and consolidated financial statements covering operations in 2009. 2009, about 8 percent lower than in 2008. The global financial crisis and subsequent recession resulted in a dramatic OWNER STRUCTURE decline for the steel and iron ore markets during the first half of the year. The LKAB, founded in 1890, is wholly owned by the Swedish state. The company’s market trend was particularly weak in Europe, where most of LKAB’s customers registered office is in Luleå, Sweden. The total number of shares is 700,000 are located. LKAB witnessed a very dramatic eventful half-year, strengthened and share capital amounts to MSEK 700. its sales and marketing organization, and intensified its efforts to break into new markets. Agreements were reached with new Asian customers during the LKAB GROUP summer. At the same time, demand began to rise and LKAB increased its de- The consolidated financial statements cover the operations in 2009 of the liveries to customers in Europe and the Middle East. During the final quarter, Parent Company and its subsidiaries, together referred to as the Group. The demand exceeded production capacity. Group also has ownership interests in joint venture companies. The LKAB China’s steel production reached record levels during the second half of the Group is operatively organized in divisions: the Mining Division, the Minerals year. The country imported large volumes of iron ore, thereby compensating Division and Special Businesses. somewhat for weaker demand from other regions of the world. This trend was LKAB is in most cases with the Parent Company, unless otherwise stated. driven mainly by domestic consumption. China produced 52 Mt of steel in Au- gust, the highest-ever monthly result in Asia. In 2009, China produced a record SIGNIFICANT EVENTS 568 Mt, which represents an increase of 13.5 percent over 2008. In 2009, developments in iron ore operations in the Mining Division were In LKAB’s home market in northern Europe, the market started to improve heavily influenced by the global financial crisis and subsequent recession. Dur- somewhat during the second half of the year. As a consequence of increased ing the first half of the year, deliveries and production were drastically limited. sales volumes and rising prices, most European steel producers began to utilize The market recovered very quickly in the latter half of the year, and from Sep- more of their production capacity. Since August 2009, most of the world’s tember onwards, production proceeded at full capacity and demand exceeded largest steel-producing countries have posted a rising monthly production rate, production capacity. although from low levels. Despite the recession and with some adjustments in scheduling, work on Statistics from worldsteel indicate that demand for steel, based on rising the long-term strategic investments in new main levels in the iron ore mines production, has begun to pick up in China, Japan, South Korea, Germany, continued throughout the year. the USA and Brazil, the world’s major steel producers. However, at the turn A five to eight-week-long summer production stop in the iron ore operation of the year, the increase appeared to be slow and with fluctuations. Since the was implemented. recovery is from a low level, comparison over time is complicated. Further- The new ore harbor in Narvik, inaugurated in October, has been succes- more, growth was encouraged with the help of economic stimulus measures sively taken into operation as new rolling stock equipped for a 30-tonne axle from central banks and governments. Most analysts agree, however, that the load has been introduced on the Ore Railway. global economy has bottomed out and that an upswing is under way. The LKAB has won First Prize as the Swedish large company with the best Sus- recovery is also supported by an improved financial sector. Several regions re- tainability Report for 2008. port economic growth, and confidence in the future on the part of households, In November, the Board of LKAB voted to restructure LKAB as a public limited companies and the financial market has been strengthened. company to simplify conditions for external financing. According to analysts, seaborne trade in iron ore increased by more than 7 In December, Lars-Eric Aaro was appointed President and CEO of LKAB ef- percent to about 900 Mt during 2009. fective 1 January 2010. Basic indicators in China’s iron ore market have continued to point towards Costs amounting to MSEK 317 associated with the decommissioning of positive development. the olivine operation in Greenland, which will take place during 2010, were China’s imports of iron ore reached a record high of 628 Mt, an increase charged to the Mineral Division. of more than 41 percent from 2008. The spot price for Indian fines of 63.5 percent Fe has continued to rise to 2008 pre-crisis levels. At the same time, MINING DIVISION scrap prices have also shown a clear upward trend. LKAB’s core business is iron ore products for the steel industry. Iron ore is mined The market outlook for Q1 2010 is positive, though beyond that and for in two underground mines and processed in six pelletizing plants and other 2010 as whole, market trends still remain uncertain, owing in part to uncer- facilities at surface level. The products are hauled by rail to shipping ports and tainty with respect to developments in the underlying consumption. As for iron loaded to ships for delivery to customers around the world. Iron ore pellets are ore prices for 2010, many analysts are of the opinion that the price of iron ore the division’s main product and accounted in 2009 for about 76 (79) percent will rise, since it is expected that demand for products will exceed supply. of sales volume. Operations The price of iron ore The delivery volume amounted to 18.7 (22.7) Mt of iron ore products. The Globally, the price of iron ore is set in US dollars. LKAB reached price agree- share of pellets was 14.3 (17.9) Mt, which corresponds to more than 79 (77) ments for blast furnace pellets in July, with a resulting 48.3-percent reduction percent of the total volume. in price compared to 2008. In September, an agreement for fines prices was During the year, production of iron ore products amounted to 17.7 Mt reached, resulting in about a 32-percent reduction compared to 2008. (23.8), of which 14.7 Mt (19.9) was pellets. Delivery and production volumes for 2010 are difficult to foresee. REPORT OF THE DIRECTORS 61 09

High demand for iron ore in the 2000s has allowed the Mining Division to In July, the Board voted to establish a laboratory for pellet research (AggloLab) keep pace with customers’ growth and to expand capacity through investment in Malmberget. The facility is expected to be ready in December 2010. in two new pelletizing plants, an upgraded logistics structure for a 30-tonne Investments in fixed assets amounted to MSEK 3,461 (4,603). axle load, and a highly-efficient and environmentally friendly ore handling and shipping facility in Narvik. Research and development During the 2000s, production capacity has risen from about 20 to about 28 In keeping with the company’s mission and vision statements, LKAB has become Mt iron ore products per year. a world-leading pellet manufacturer. The strategy for maintaining and strength- The effects of the global financial crisis and subsequent recession reached ening this position in relation to our customers is to concentrate research efforts LKAB at the end of 2008 and demand for iron ore products declined dra- on increasing our knowledge of processes in the chain of production from mine matically. Several pelletizing plants were temporarily closed intermittently and to customer. Therefore, in 1997, LKAB built the experimental blast furnace in crude ore and products were produced for stockpiling for future sale. In the Luleå as the first part of the LKAB Ironmaking Research Center. A second part summer, all processing plants except for the Svappavaara pelletizing plant will be built during 2010, AggloLab in Malmberget. The next stage, according were closed for five to eight weeks. The Malmberget mine was closed for five to plan, is an experimental shaft furnace for research and product development weeks and the Kiruna mine produced at limited capacity during the summer. in the area of direct reduction of pellets with natural gas. An experimental Thanks to the inventory accumulated during the first half of the year, LKAB pelletizing plant is also included in plans for the future. Together, these tools was able to deliver when the recovery began in the autumn. Since September, will allow LKAB to create the conditions that will enable the company to main- LKAB has been producing at full capacity to meet demand. A supplementary tain its position as a leader in technology. Important complementary research supply of crude magnetite has been obtained by crushing old ore from stock- concerns reduction of global climate impact, and rock mechanics and mining piles at Tingvallskulle in Malmberget and southwest of Kiruna. Since comple- technology that will ensure more efficient, safer and sustainable mining operation of the growth investments in surface-level facilities, access to crude ore tions in LKAB’s successively deeper underground mines. has been a bottleneck in the chain of production. The supply of crude ore The R&D strategy includes close collaboration with Luleå University of Tech- will increase when Gruvberget in Svappavaara starts production, which LKAB nology, where the two foundations, the Hjalmar Lundbohm Research Center expects will take place during the first half of 2010. Prospecting of several for Mining and Metallurgy (HLRC) and the LKAB Excellence Center in Mining deposits in the vicinity is also under way. and Metallurgy at LTU, have received a contribution from LKAB of MSEK 150. The work environment program, Safety First, and rock reinforcement work Doctoral students and several senior researchers work together with LKAB’s have been intensified. During the year, the main track on main level 1045 in own researchers on research projects that support LKAB’s strategies and future Kiruna has been strengthened and complementary reinforcement work, includ- competitiveness on the world market. ing certain production areas, will continue in 2010. Improvements in the area In mining technology, research projects concern issues such as rock stabil- of rock mechanics continued and have resulted in a more extensive seismic ity and safety, and methods of rock reinforcement. In another research area, monitoring of the mines. A major program is also under way to acquire knowl- climate-smart pellets, the interaction between iron oxide, additives and other edge and to develop reinforcement methods better suited to the dynamic loads minerals is studied. Measurement technology, modeling and process control resulting from seismic events, which are expected to increase in frequency as are research areas that are vital for meeting demands for consistently high mining proceeds successively deeper and rock stresses increase. This work is product quality. LKAB also conducts important research in the field of rock being conducted in cooperation with international experts in the field. mechanics to gain knowledge of, for example, seismic events. A long-range program of cost and capital rationalization began in the au- Within the European steel industry cooperative initiative ULCOS (Ultra-Low tumn. The program focuses on prolonging the life span of the iron ore mines CO2 Steelmaking), ongoing work towards finding new methods and technolo- and taking measures to ensure that LKAB will remain a world-leading pellet gies for reducing steel-industry carbon dioxide emissions is an important contri- manufacturer that gives customers the most attractive offer in terms of quality, bution to reducing global warming. Among other resources, LKAB is contribut- price, technical support and total value. The goal is to maintain maximum ing the use of the experimental blast furnace (EBF) in Luleå, where research, levels, improve efficiency and reduce costs, so as to be able to manage invest- experimentation and joint trials are conducted. Theoretical trials show that car- ments and the urban transformations with our own funds. bon dioxide emissions from blast-furnace-based steelmaking can be lowered by 60 to 70 percent. In the ULCOS project, LKAB is participating in a study of Investments a new direct reduction process, with potential for reducing CO2 emissions by At the same time as short-term measures to adapt to the prevailing economic up to 80 percent while reducing energy input. situation were being taken, work continued on the long-term, strategic invest- Together with external partners, LKAB is conducting research and developments in the iron ore operation. ment projects to investigate the possibilities for sequestering carbon dioxide In Narvik, Project SILA was inaugurated on 27 October and the new harbor in waste rock and growing forest. LKAB is also participating in a pre-study for facility with 12 underground storage silos will be commissioned successively. a direct-reduction ironmill, in Norway, with the world’s lowest carbon dioxide The program for the future logistics structure has entered the final phase, and emissions. capacity increases in rail operations, with new locomotives and cars and up- Expenditures for research and development amounted to MSEK 221 (296), graded terminal facilities including the harbor in Narvik, are expected to reach which is about 2.0 (2.2) percent of the Group’s costs. completion in 2010. In Malmberget, construction work for the new M1250 main level is under Profit/loss way. The inclined drift (road) has reached the deepest point (shaft bottom) at Net sales declined by 54% and amounted to MSEK 9,613 (20,703). The level 1385 and work on the final stage of the first skip shaft has begun. At decline is explained by lower volumes and prices. Analysis of price, currency the same time, tunneling for the extension of the main level and infrastructure and volume/mix agrees with Group analysis. continues. At more and more sites within the system, work is progressing from With external sales of MSEK 9,376 (20,307), the Mining Division accounts rockwork to construction, mechanical assembly and installation of media. Sec- for about 81 (88) percent of the LKAB Group’s total sales. tions of the new level are expected to be operational by the close of 2010. Higher costs for depreciations and rock reinforcement have impacted the re- In Kiruna, work is proceeding on the new KUJ 1365 main level. The main ac- sult, but the effect has been offset by cost-saving measures. Last year’s expendi- tivities during the year have been rockwork, project planning and procurement. tures include reservation for costs amounting to MSEK 1,950 for compensation By the end of 2009, more than 25 percent of all rockwork had been completed to Banverket for the new railway line in Kiruna. Operating income amounted and 12 percent of the total project budget had been expended. The first set of to MSEK 537 (9,993). cars, the first chute and the first discharge station have been made and tested with good results. The level is expected to be operational during 2013. 62 REPORT OF THE DIRECTORS 09

MINERALS DIVISION Operating income before the above-mentioned close-down costs amounted Industrial minerals operations are organized in the Minerals Division, which to MSEK 222 (216). Lower sales have been offset by higher margins. operates on the market under the company name Minelco. The company de- With external sales of about MSEK 1,948 (2,561) kronor, the Minerals Divi- velops, produces and markets industrial mineral products for many different sion accounts for 17 (11) percent of the Group’s total sales. application areas and industries. The most important industries are construction and civil engineering, oil and gas extraction, the rubber, plastics and SPECIAL BUSINESSES DIVISION paint industries, the chemical industry, the automotive industry, foundries and LKAB has organized many of its subsidiaries under the Special Businesses Divi- manufacturing of refractory materials. sion. The companies in Special Businesses have their origin in LKAB’s know- Minelco has about 370 employees, most of them outside Sweden. With how as a manufacturer and user of products or services. These companies are representation in Europe, Asia and the USA, the operation covers much of now mainly suppliers to the Mining Division and the Minerals Division. The the world. companies also have external customers.

The industrial minerals market Wassara AB The market potential for Minelco’s products is estimated at over 20 billion Based on its core expertise in water-powered drilling system, the company of- kronor. On the market for industrial applications for magnetite, Minelco is the fers the mining and civil engineering industries complete systems for efficient market leader. drilling in soil and rock. The global recession has impacted the product areas in varying ways. De- Despite the global recession, Wassara was able to maintain sales volumes mand in the environment and energy sector remained relatively stable, while during the first half of 2009. However, sales declined dramatically during the other sectors suffered a decline in demand. Demand improved considerably second half of the year in both the Mining and Construction business sectors, during the second half of the year. Overall, the prices of industrial minerals which resulted in a decline in earnings. Manufacturing in the subsidiary Lind- stabilized during the latter half of the year, and freight rates have generally gren Mekaniska developed well and profitability has been maintained despite decreased, which has had a positive effect on cost levels for several of the lower volumes. products. Europe is Minelco’s home market and accounts for more than half of the AB Kiruna Grus- & Stenförädling (KGS) division’s sales. However, most of the growth is taking place on other mar- KGS delivers products and services mainly for use within the LKAB Group. kets. Europe’s relative significance is therefore expected to diminish and sales The company processes road and concrete ballast, blasts, crushes and hauls will be more evenly distributed geographically. Asia is a growth market for mineral products, processes concrete and works with rock reinforcement. Con- Minelco’s products and in North America, good opportunities for growth are crete production increased by 40 percent over 2008, due to the construction foreseen, for example, in the environment sector. New business opportunities of LKAB’s new main levels in the mines in Malmberget and Kiruna. A new con- for Minelco’s minerals are created via efforts directed towards the develop- crete factory was opened in Kiruna to meet the demand for, mainly, shotcret- ment of applications. Minerals continue to have good potential for replacing ing. To meet the Mining Division’s increased demand for rock reinforcement, synthetic materials. KGS acquired several new rock bolting rigs during the year. KGS has also recruited and trained about 25 new rockwork technicians to meet its commit- Operations ments. LKAB’s restricted production during the first half of the year resulted in The division’s operation supports the iron ore business by identifying and temporarily lower volumes of additives and crushing and screening services, commercializing other application areas for iron ore from LKAB. Magnetite is but LKAB’s increase in production volumes, as well as planned infrastructural produced and upgraded, to a high product value, for a range of customers in projects, will eventually mean greater volumes for KGS. other industries in addition to the steel industry. Minelco’s product portfolio includes many different industrial minerals. The KGS Mekaniska AB core business revolves around a limited number of strategically selected miner- KGS AB’s subsidiary KGS Mekaniska fabricates technically advanced steel als: magnetite, olivine, mica and huntite. The business strategy for selected min- structures and mechanical components for the engineering, mining and con- erals is based on control over the process from raw-material source to end user struction industries, as well as performing assembly and maintenance for pri- – “from mine to end user”. The division’s expertise in minerals, processes, ap- mary industries in the orefields. KGS Mekaniska, now one of the largest engi- plications and markets enables synergies with other strategic business areas. neering firms in northern Sweden, has a one-third interest in the Kiruna Wagon During the year, a new organization has been implemented with an aim to consortium, which in collaboration with K-Industrier, has been contracted to increasing and improving the efficiency of sales efforts on the market. Minelco manufacture LKAB’s new ore cars. By the close of the year, 670 of a total of AB was the first company in the division to achieve environmental certification 760 cars had been delivered and delivery has continued at a rate of three to according to ISO 14001. After the merger of the two UK companies, consoli- five cars per week. The company has invested during the year in a new CNC dation of operations continued throughout the year. lathe which, thanks to its speed in combination with efficient retooling and a The decision was taken during the fourth quarter to close the division’s oli- high degree of automation, enables fabrication of components to exacting vine mine in Greenland. The cost level of, above all, sea-freight rates has im- specifications. paired competitive advantage. The closure is expected to be completed during 2010. Close-down costs amounting to MSEK 317 have impacted earnings for Kimit AB 2009. The sum includes reclamation costs. KGS AB’s subsidiary Kimit’s main business is to supply LKAB with effective and efficient explosives and related services, as well as purchasing products from Investments other manufacturers, and stocking and developing explosives and explosives During the year, investments in fixed assets totaled MSEK 13 (55). systems. Kimit also sells its products to other companies, mainly on the Nor- dic market. The explosives manufacturing operation developed well during Profit/loss the year. The external deliveries to Lapua in northern Finland and Norab in Revenue fell by 23 percent to MSEK 2,141 (2,753), which is mainly attribut- Sweden remained stable during the year. Kimit’s total production volume fell able to lower demand, mainly during the first half of the year. somewhat in comparison with the previous year, owing to LKAB’s production Operating income amounted to MSEK -95 (216). As a result of the decision stop. This, in combination with rising raw-material prices, impacted the finan- to wind down the Greenland operation, the value of assets was written down cial outcome for the year. and a provision has been made for reclamation of the mine site. This had a negative impact of MSEK 317 on the division’s fourth-quarter outcome. REPORT OF THE DIRECTORS 63 09

Fastighets AB Malmfälten (FAB) Liquidity The company manages residential and other properties in Kiruna, Malmber- Cash flow for the full year amounted to MSEK -3,140 (3,948). Dividends of get, Koskullskulle, Gällivare and Luleå. FAB manages about 35,000 m2 of MSEK 2,800 (2,000) have been paid out to the owner. premises and 2,200 apartments and single-family homes. For the full year 2009, the net inflow of US dollars was MUSD 1,422 As of 2009, FAB is successively taking over the management of LKAB’s (3,157), of which MUSD 1,485 (2,050) was hedged under forward exchange properties outside of the industrial sites in Kiruna and Malmberget and assum- contracts at an average rate of 6.65 (6.54) SEK/USD. The average spot- ing responsibility for new property development. In December, it was decided market rate was 7.87 (6.59) SEK/USD. that 200 apartments would be built in Gällivare, most of them over a five-year For 2010, at the start of the year, MUSD 800 (1,258) was hedged at an period. The new development is necessitated mainly by the decommissioning average rate of 8.17 (6.58). of LKAB-owned residential properties in the so-called Bolagsområdet, due to expansion of the deformation zone. Initially, some 20 to30 apartment units RISKS AND UNCERTAINTY FACTORS will be built during 2010 and will be ready for occupancy in the first half of Risks can be divided into three main categories: operating risks, financial risks 2011. and other risks. These risks refer both to the Parent Company and the Group. In Kiruna, it is estimated that the first buildings will be affected in 2012 at LKAB’s major competitors mine their ore in open pits. They therefore face the earliest. FAB’s residential area, Ullspiran, with about 140 apartments, will considerably lower production costs. For LKAB, consistently high quality and be affected first. Since the autumn of 2008, a planned, successive relocation cost efficiency are critical factors for remaining competitive. The great ad- of about 40 residents from the area has continued. A major concern is that vantage compared to competitors is our high-quality magnetite ore. Potential dramatically increased energy prices will affect residential costs. threats are seen, for example, in a possible collapse in China’s economic growth, a weak dollar, falling pellet prices, higher energy prices and energy LKAB Nät AB taxes, and increased costs for emissions rights. is an electricity network company with a concession as an electricity distributor. Operating risks LKAB Försäkring AB Volume dependence The company works globally to provide the LKAB Group with property insur- Since pellets are largely used for the purpose of raising productivity during ance and risk insurance. expansionary periods and can be replaced by cheaper lump ore during re- cessionary periods, LKAB, with a pellet share of about 70%, is particularly Profit/loss sensitive to business cycle fluctuations. Normally, LKAB has been able to sell Nets sales in the Special Businesses Division increased by 23% to MSEK 1,098 all of its products, but the company must improve its preparedness for future (893), thanks to increased sales of concrete from KGS AB to LKAB. cyclical fluctuations. This is realized through greater flexibility in production and financial strength. LKAB GROUP Sales and earnings Price dependence Net sales declined by 50 percent and amounted to MSEK 11,558 (23,128). Iron ore trading is conducted in US dollars and the price is set once a year in The decline during the quarter is explained by lower incomes in the Mining Di- direct negotiations. Normally, an agreement between one of the major mining vision as a result of lower deliveries and prices. The 50 (41) percent decrease companies and the Asian or European steel industry sets a global benchmark. in net sales is attributable to the following factors: price -35 (64) percent, A premium is paid for pellets compared with fines, and the price of DR pellets currency 3 (-19) percent and volume/mix -18 (-4) percent. Excluding forward is generally higher than that of blast furnace pellets. exchange contracts in US dollars, the currency effect was 8 (-18) percent. Ocean freight costs have a great influence on the total price picture, since Higher costs for depreciations and rock reinforcement, as well as high utili- world market prices are compared with the freight cost included. LKAB is fa- zation of inventories, have impacted the result, but the effect has been offset vored on the European market by high freight rates, while the competitiveness by cost-saving measures. Last year’s expenditures include reservation for costs of more distant mines increases when ocean freight rates are low. amounting to MSEK 1,950 for compensation to Banverket for the new railway line in Kiruna. Operating income amounted to MSEK 659 (10,327). Customer dependence Net financial income/expense amounted to MSEK 533 (62). Exchange rate The global iron ore and steel market is subject to ongoing structural changes, gains have affected net financial income/expense by MSEK 144 (52). Net and the number of players has diminished. The Mining Division therefore has interest income/expense fell, amounting to MSEK -19 (169). Return on mar- relatively few customers, which means that the importance of each individual ket portfolios and interest-bearing instruments amounted to MSEK 423 (-175). customer increases. Long-term customer relationships and a customer structure Dividends totaled MSEK 65 (87). Net pension expense amounted to MSEK spread out among various markets have a certain stabilizing effect. High and -72 (-65). consistent product quality in combination with value-adding services is an important risk-mitigating factor. In order to minimize the risk of bad debt losses, Investments the Group is working actively with the payment systems allowed by the bank- The Group’s net capital expenditures amounted to MSEK 3,241 (4,435). Of ing systems. The Group is judged to have an effective credit monitoring func- the Group’s investments in fixed assets totaling MSEK 3,543 (4,721), the new tion. With its diversified customer base, the Minerals Division is able to spread main levels in Malmberget and Kiruna and new storage and handling facilities its risks more effectively. To a degree, this helps to counteract the effects of in Narvik have accounted for the greatest share of disbursements. fluctuations in business cycles, since different customer segments are subject In addition to compensation to Banverket for the new railway line in Kiruna, to different trends. LKAB will invest an estimated one billion kronor in facilities adjacent to the new railway. Urban transformation in the orefields communities LKAB’s expansion in the operating locations in the orefields entails a successive Financial position expansion of deformation zones, which is a result of mining. Amendments to During the first half of the year, deliveries declined and production was lim- municipal plans are therefore inevitable in the long term. Together with other ited. The market improved in the latter half of the year, and production has concerned parties, such as government and local authorities, other companies, proceeded at full capacity to meet delivery commitments. property owners and other stakeholders, LKAB is working actively to find joint Cash flow has mainly been affected by the decline in earnings, despite lower solutions for the urban transformation. As agreements are reached, LKAB al- capital expenditures during the year. locates funds for these commitments (see Notes 26 and 30). 64 REPORT OF THE DIRECTORS 09

Discussions with the respective stakeholders concerning the necessary meas- risks with regard to investments of liquid assets. According to LKAB’s invest- ures and funding are in progress. As more knowledge is gained, greater insight ment policy, the average duration of money-market investments may not exceed into the implications of the urban transformation is acquired, which will entail three years. As of 31 December 2009, LKAB’s investments in money-market considerable expenditures during the coming years. LKAB will comply with the instruments amounted to MSEK 4,245 (7,896). The duration was 259 (120) Minerals Act and will assume responsibility for replacing existing functions. days. A one-percent increase in the market rate as of closing day would have The urban transformation of the orefields communities will have a significant affected income by MSEK 29 (24). LKAB invests a share of liquid assets with impact on LKAB’s future financial outcomes and liquidity. LKAB must therefore a horizon of longer than five years, mainly to cover that share of LKAB’s pen- remain financially strong and maintain a good earnings capacity to be able to sion liabilities not covered by other assets, in share-related securities. As of 31 meet future requirements for the transition. December 2009, the market value of LKAB’s investments in shares amounted to MSEK 977 (573). A ten-percent average decrease in the market value of Other operating risks shares, as of closing day, would affect income by MSEK 98 (57). LKAB’s operations are energy-intensive, which is why ongoing efforts to find energy-efficient solutions and to secure deliveries of competitively priced elec- Credit risks tricity are prioritized. LKAB participates in the EU’s system for trade in emis- LKAB’s credit risks are mainly associated with trade accounts receivable, de- sions rights, which entails increased direct and indirect costs for LKAB. LKAB’s rivatives and short-term investments. As far as credit risks in trade accounts principal competitors in Brazil and Australia are not affected by this. receivable are concerned, LKAB prioritizes long-term customer relations, which means that the majority of the customers are well-established contacts. During Financial risks 2009, the five largest customers accounted for 61 (67) percent of net sales in LKAB is exposed to various types of financial risks. Financial risks are associ- the Parent Company. Export letters of credit are used when deemed necessary. ated with fluctuations in the company’s earnings and cash flow as a result of LKAB has not had any substantial bad debt losses in the past five years. During currency exchange-rate fluctuations, interest rates, refinancing and credit risks. 2009, the average collection period for accounts receivable has remained sta- Financial risks are managed according to Group policies established by the ble at around 42 (42) days. According to LKAB’s investment policy, investments Board. LKAB has a centralized finance function, LKAB Treasury Center, which may only be made in borrowers with high creditworthiness and high liquidity manages most of the Group’s financial risks. A selective strategy is applied, such as the Swedish state, companies wholly owned by the Swedish state, whereby potential costs and benefits are balanced, the aim being to minimize county councils, municipalities or companies with high credit ratings. As of and neutralize risks in commercial flows. LKAB Treasury Center also acts as the closing day, 99 (97) percent of investments in money-market instruments were Group’s internal bank and supports subsidiaries with financing, investment and issued by the Swedish state and Swedish banks. LKAB has not had any bad currency trading, and functions as an advisor with respect to financial issues. debt losses in short-term investments in the past five years. LKAB uses several different banks with high credit ratings for derivative transactions. Currency risks Both LKAB’s future payment flows (transaction exposure) and revaluation of Liquidity risks receivables and liabilities in foreign currencies (revaluation exposure) are ex- LKAB maintains good financial preparedness by following guidelines which posed to risks associated with fluctuations in exchange rates. Other companies regulate risk-taking and the investment horizon. LKAB has a high proportion of in the Group mainly conduct business in their local currencies, and both in- liquid assets and no debt. To ensure good preparedness for meeting payment vestment and financing are done mainly in local currencies so as to minimize obligations with respect to ongoing investment in new main levels, a loan facil- revaluation exposure. ity of MSEK 5,000, which can be utilized as required, has also been signed. Preparations are also being made to enable the issue of a commercial paper. Transaction exposure The equity/assets ratio per closing day was 71 (69) percent. A good balance The greatest transaction exposure within the LKAB Group is within the Mining between short and long investment horizons will meet the long-range financing Division. All prices of iron ore are set in US dollars, which means that the need. Liquid assets are invested primarily on the Swedish money market in transaction risk is high without hedging. The exact magnitude of this risk is securities with high liquidity. LKAB works with short-term and long-term liquid- difficult to ascertain far in advance, since it is largely dependent on the market ity forecasts. price of iron ore, which is normally set annually. During 2009, the transaction exposure amounted to MUSD 1,422 (3,157), and the effect of a difference of Other risks SEK 0.1 in the USD/SEK exchange rate on LKAB’s operating profit, without Among other significant risks, apart from operational and administrative risks, hedging, is therefore about MSEK 142 (315). LKAB applies cash-flow hedge may be mentioned risks associated with insufficient insurance coverage, en- accounting for forecasted transactions in USD. vironmental requirements, and risks for non-completion-neutral costs such as The goal of LKAB’s current currency policy is to minimize the impact of costs for carbon-dioxide emissions rights. exchange rate fluctuations on the income statement by means of selective risk- taking, so the value of future transaction exposure is periodically hedged. The Insurance coverage Board has set up a currency and finance committee that convenes four to six To protect against unforeseen circumstances, LKAB insures interests including times per year to decide on, and to advise the Board on decisions pertain- the Group’s facilities throughout the world. The largest single insurable risks ing to, among other things, management of the Mining Division’s currency are risks with respect to property and disruptions, where production facili- risks, within a framework established by the Board. For other companies in the ties and harbors are insured by the Group’s own insurance company, LKAB Group, transaction exposure arises mainly when raw materials are purchased Försäkring AB. An active and systematic effort is made on an ongoing basis to in foreign currencies. All hedging of commercial transactions by subsidiaries prevent damage and disruptions in production. Historically, stoppages due to must be done through the LKAB Treasury Center. fire have resulted in the greatest financial losses, which is why preventive work in this area has high priority. Translation exposure In Sweden, liability for damage to third parties as a result of dam accidents LKAB does not normally hedge its translation exposure, since it is not substan- is strict and unlimited. LKAB has therefore taken out so-called dam liability tial. Over time, this is not considered to add any value for the Group. insurance. Other insurance coverage includes liability insurance, product liability insur- Interest risks and share-price risks ance, medical and business travel insurance, transport insurance and liability LKAB’s financing sources are shareholders’ equity, provisions and short-term insurance for the President and Board. operating credits, which means that LKAB is mainly exposed to interest rate REPORT OF THE DIRECTORS 65 09

Sensitivity analysis secure necessary permits and terms for managing the consequences of mining The sensitivity analysis, presented below, summarizes the sensitivity of out- on new main levels in Malmberget and Kiruna. Permits are being sought for, comes in the Parent Company to hypothetical fluctuations in interest rates and among other measures, the draining of part of Lake South Luossajärvi. market prices. The Group’s sensitivity analysis is dominated mainly by the LKAB has several permits for exploration and mining concessions in Kiruna, Parent Company’s exposure. Svappavaara and Malmberget. In Malmberget, the consequences of mining, in the form of deformation, have been evident for some time and are now SENSITIVITY ANALYSIS 2009 becoming apparent in Kiruna. (Parent Company) Effect on Exposure Change earnings Internal control and inspection Deliveries 18.7 Mt 1 Mt MSEK 2191) Internal control is not only required by law, but is also an aid to meeting the Price 10% MSEK 9712) requirements of the Environmental Code and the various permits granted by Personnel costs MSEK 1,902 10% MSEK 190 supervisory authorities for the company’s operations. Energy costs MSEK 752 10% MSEK 75 The internal control requirement applies to all operations involving risk for Transportation costs MSEK 1,098 10% MSEK 110 inconvenience or damage to human health or the environment. Operations Depreciation MSEK 1,542 10% MSEK 154 which require permits or which are subject to an obligation to notify supervi- SSAB shares MSEK 1,507 10% MSEK 1503) sory authorities are also to the legal requirement for internal control. The direc- Dollar rate – without forward contracts MUSD 1,4222) SEK 0.1 MSEK 142 tion and extent of LKAB’s internal control systems are regulated by established Money market investments MSEK 4,245 1% MSEK 29 control programs for the various entities within the Group. Internal control 1) Average value, figured on unchanged product mix programs describe the operations and the laws and requirements to which they 2) During 2009, the total exposure was 1,422, of which MUSD 1,485 was hedged. are subject, as well as how measurement and follow-up are performed. LKAB 3) Change in value is reported in other comprehensive income. regularly performs a large number of measurements and surveys to ensure adequate control of each separate operation. The results of internal controls SUSTAINABILITY are summarized annually in the operations’ environmental reports, which are Information on LKAB’s work with environmental, personnel and work-environ- submitted to the supervisory authorities. The reports are also available at www. ment issues and issues concerning the urban transformation of the orefields lkab.com. During 2009, problems with treatment systems have been noted, communities is also presented in the Sustainability Report. and the company is working actively to address these problems.

ENVIRONMENTAL INFORMATION Remediation/decontamination General Site remediation, which can be done successively and/or after operations LKAB’s work will be characterized by concern for the environment. For this are concluded, is a statutory obligation where consideration must be given to reason, LKAB has adopted an Environmental and Energy Policy that will guide safety, environmental, economic and esthetic aspects. LKAB cooperates with LKAB’s actions while acknowledging the company’s objective to maintain a the environmental authorities in devising long-range remediation plans for the financially sound and successful business operation. The policy is published on mining sites. LKAB’s website, www.lkab.com. Some examples of initiated measures are backfilling of open pits, planned disposition of waste rock, grass sowing and tree planting. Operations subject to regulation LKAB has completed remediation measures during 2009 at a cost of about In the Swedish Parent Company and in the subsidiaries, the Group conducts MSEK 28. This has included the first phase of remediation of the old tailings operations that are subject to regulations embodied in the Environmental Code. pond in Malmberget, backfilling of waste rock and decontamination of oil- Two environmental permits refer to handling of iron ore products and binders contaminated soil. Bank guarantees amounting to about 109 million kronor at the harbor facilities in Luleå and Narvik. The impact of these operations on have been pledged for future remediation necessitated by beneficiation and the external environment is mainly a result of emissions of particulate matter pelletizing operations. and dust. Several environmental permits refer to large-scale mining and facili- Surveying, decontamination and remediation of areas in all operating loca- ties for processing iron ore products. Two permits refer to mining in Kiruna and tions take place on an ongoing basis. A MIFO survey (MIFO = method for Svappavaara (not currently applicable), and two permits refer to processing of inventory of contaminated areas) provides the basis for planning of decon- ore in Kiruna and Svappavaara. For mining and ore processing in Malmber- tamination measures and the ongoing work of environmental impact assess- get, there is a single permit. One permit refers to mining of additives used in ment and prioritization of areas, as well as for communicating LKAB’s coming ore processing. Several permits refer to water management in connection with program of decontamination. LKAB’s dam facilities. The biggest environmental impact factors are alteration of the landscape due to mining; emissions to air and discharges to water aris- System of trade in emissions rights ing from production; noise, dust and vibration, and energy consumption. In The EU’s solution for reducing greenhouse gas emissions (GHG) is based upon, addition to these, there are a number of permits that are utilized either in part among other measures, a system of trade in carbon-dioxide emissions rights. or only periodically, for example, permits for gravel pits. Two environmental In the current system, which includes only EU member states, LKAB is the only permits refer to Kimit AB’s manufacture of explosives. The environmental im- pellet supplier that is active on the global market. The system implies increased pact of this activity is mainly the result of discharges of nitrogen compounds to direct and indirect costs for the company. At this level, such a system would in- the municipal sewage system. crease competitiveness among companies like LKAB that use energy and C02- The County Administrative Board brought legal action against LKAB in 2008 efficient technology, and consequently, emissions could be globally reduced. for contravention of provisions concerning impact on land in Kiruna. LKAB ap- LKAB’s principal competitors in Brazil and Australia will not be affected by the plied in 2007 for new permit terms, and the matter has subsequently been re- system during the 2008-2012 trading period, which distorts competition to viewed by different supervisory bodies and courts. A private individual lodged LKAB’s disadvantage. an appeal to the Supreme Court, which dismissed the appeal. A ruling was The total allocation of emissions rights for the trading period 2008-2012 thereby made and LKAB has been granted new permit terms during 2009 for has been preceded by an application process in several stages. For 2009, ground deformations, in accordance with the application. a total of 603,584 emissions rights (tonnes) were allocated, which, owing to An application for a permanent concession for mining 2 Mt of magnetite ore production cutbacks as a result of the downturn, is about160,000 tonnes more per year at Gruvberget, outside of Svappavaara, was submitted to the Environ- than the actual emissions from the pelletizing plants and oil-fired boiler plants. mental Court during the year. The expectation is that mining can begin during However, the reduced allocation for the period 2008-2012 will entail a re- the first half of 2010. An intensive effort has been made during the year to quirement to purchase about 100,000 emissions rights during a normal year. 66 REPORT OF THE DIRECTORS 09

Secured electricity deliveries decreased to 13.4 (14.0) percent, even though the total number of women LKAB uses vast amounts of electricity, mainly in mine operation and mineral fell to 495 (500). This is explained by the fact that there are more men in the processing. In the next year, annual consumption of electricity is expected to retirement age group. The proportion of women in managerial positions is increase from about 1.7 to more than 2.4 terawatt hours (TWh). Market prices 15.3 (13.3) percent. on the Nordic exchange have risen dramatically since deregulation. Assured The goal of achieving a more uniform gender distribution is implicit in all delivery of competitively priced electricity is strategically very important. Via recruiting activities, and there will be a greater focus on diversity in the future. a long-term energy agreement reached with Vattenfall in 1998, LKAB secured During 2010, a three-year plan of action will be set for gender equality, diver- power deliveries at a predetermined indexed price. The third phase of the sity, and discrimination. agreement, renegotiated during 2005 to a 10-year agreement, also takes into consideration future power demands for the pelletizing plants in Malmberget Competence development and Kiruna. Owing to the large number of retirements in the orefields in the coming years, LKAB started its own mining engineering programs in both Malmberget and Current status of the operations Kiruna, and these have met with good results during the year. In Malmberget, LKAB’s facilities in Svappavaara and Kiruna have for several years experi- ten students have alternated between studies and work and in Kiruna, new enced problems in meeting set requirements with respect to noise levels. Dur- employees from the subsidiary KGS and others have been trained to carry out ing 2007 and 2008, respectively, the Municipality of Kiruna and the County rock reinforcement. Administrative Board brought legal action against LKAB concerning excessive noise levels. During the period 2006 to 2008, several noise-reduction meas- INCENTIVE SYSTEM ures were implemented. Surveys have thus far indicated that the corrective The Parent Company’s incentive scheme was introduced in mid-2000. The sub- measures have been successful. The case was dismissed in 2009. sidiaries MTAB, MTAS, Minelco AB and LKAB Norge AS also participate in this During 2008, several property owners in Malmberget and Koskullskulle lodged system. The President and senior executives are not included. complaints against LKAB with the Environmental Court of Appeals, demanding The system, which follows the owner’s guidelines for incentive schemes, is that LKAB be held liable for environmental disturbances including dust genera- based on three factors: quality, work environment and production targets. The tion, vibrations and seismic events in these locations. The case is still pending, as reward was maximized, as of 1 July 2007, at SEK 40,000 per year and is the complaint lodged in 2008 by the County Administrative Board concerning full-time employee. For rewards to be forthcoming, the operations that are contravention of the terms for ground deformations in Kiruna. subject to the incentive scheme must show positive results. All three factors During 2009, the County Administrative Board lodged a complaint against led to rewards in 2009. The outcome was 24,919 (19,235) kronor per full- LKAB concerning contravention of the terms for vibration levels and use of time employee with full job attendance. The Group’s outhers subsidiaries also water resources in Kiruna. have incentive schemes, which are adapted to their respective operations. LKAB applied in 2009 for participation in a program for improvement of For these schemes, the maximum reward is also 40,000 kronor per employee energy efficiency during the coming five-year period. Participation in the pro- and year. gram will entitle the company to reduced energy taxes. LKAB took part in a corresponding program during the period 2004-2009. PARENT COMPANY Compensation has been paid as a result of infrastructural impact in Kiruna The Parent Company’s revenue decreased to MSEK 9,570 (20,626), of which and Malmberget. For further information concerning the economic conse- 237 (391) refers to invoiced sales to subsidiaries. Profit after financial items quences of urban transformation, see Note 26 Provisions. amounted to MSEK 1,306 (10,064). Investments in fixed assets amounted to MSEK 2,973 (3,335). Liquid assets PERSONNEL and short-term investments amounted to MSEK 5,886 (9,429). Work environment/health Dividends of MSEK 2,800 (2,000) have been paid out to the owner during Work towards the achievement of the long-term goal of zero accidents contin- the year. ues. The number of accidents resulting in absence in the Group was 58, as compared with 65 in 2008. The frequency of accidents per million work hours THE BOARD OF DIRECTORS DURING 2009 has been reduced from 9.4 to 9.1. The target of a 20-percent reduction over Up until the Annual General Meeting for 2009, the Board of Directors con- the previous year was therefore not met. sisted of eight members elected by the Annual General Meeting, plus three Thanks to a long-term and systematic program of preventive healthcare and members with three deputies appointed by the employees. All board members rehabilitation, long-term absence due to illness fell to an all-time low of 0.4 were re-elected by the Annual General Meeting. The President is not a member (0.7) percent, while short-term absence due to illness remains stable at about of the Board. 2 percent. THE BOARD OF DIRECTORS’ RULES OF PROCEDURE Recruiting Each year, the Board of Directors establishes its rules of procedure. The Board During the year, 109 new employees were hired, nine of whom are women. held ten meetings during financial year 2009. Of the 241 people who left the company, most retired. The meetings follow a set annual calendar aimed at satisfying the Board’s During the production cutbacks in iron ore operations, personnel were reas- need for information and are otherwise governed by the special rules of proce- signed to other duties and the number of temporary employees and contrac- dure followed by the Board. Normally, six meetings are held each year. tors/consultants was restricted. Personnel from the closed plants were assigned A board meeting held at the end of each quarter considers the interim finan- to resource teams, based on competence profiles, and worked to fill vacancies cial reports for the most recent quarter as well as the forecast for the coming and meet increased demands in other parts of the operation. four quarters. This allows the Board to make an ongoing assessment of strate- The LKAB-related secondary-school programs in Malmberget and Kiruna gies and delegations to the President and to decide on specific investment continue to constitute an important, long-term recruitment base. The students projects. were hired for summer work, and due to LKAB’s summer production stop, those Normally the first meeting of the year is at the year-end closing, when LKAB’s students for whom employment could not be found within the company were auditors also participate. At the second meeting, the annual report is reviewed. able, with LKAB’s assistance, to find employment in other local companies. The third and fourth meetings also address issues pertaining to operations, strategy and personnel issues. The emphasis of the fifth meeting is on the mar- Equality/diversity ket situation. At the sixth and final meeting, the strategic plan for the coming LKAB’s long-term objective is to increase the share of female employees to three to four years is revised. at least 40 percent. During 2009, the proportion of women in the Group The work of the Board is evaluated once per year. A written survey of the REPORT OF THE DIRECTORS 67 09

Board’s work, prepared annually, includes questions concerning how the istrations other companies, property owners and other stakeholders, LKAB is Board collectively, and each member individually, has fulfilled the tasks at working actively to find joint solutions for the structural transformation. hand. The evaluation report supports the work of the Board. The Chairman is LKAB’s organization for the urban transformation in the orefields communi- responsible for following up the results, which form a basis for discussion and ties is led by a steering committee, which is chaired by the President and CEO. improvement. The work of the Chairman is normally assessed by the owner, but The steering committee meets once monthly. Current issues are addressed and this may also be part of the work of the Board. decisions taken as to further measures. Expenditures for the structural transition are management by LKAB according to the same principles as other expen- NEW PRESIDENT AND CEO ditures. LKAB’s former President, Ola Johnsson, died during the year. From 28 April 2009, Lars-Eric Aaro served as Acting President and CEO, and on16 Decem- EXPECTATIONS WITH RESPECT TO FUTURE DEVELOPMENT ber, the Board appointed him President and CEO effective 1 January 2010. LKAB strengthened its sales and marketing organization during 2009. New business agreements have been reached with customers on new markets in- EXTRAORDINARY SHAREHOLDERS’ MEETING cluding China, and sales to customers in the Middle East have increased dur- An extraordinary shareholders’ meeting on 16 November voted to restructure ing the year, as has demand for iron ore products on LKAB’s home market in LKAB as a public limited company. The intention is to enable the company, if Europe, especially among German customers. During autumn 2009, LKAB won necessary, to turn to the capital market for borrowing or other forms of financing. market shares in Europe when the market revived. LKAB has been compelled to temporarily mothball some operations during GUIDELINES FOR REMUNERATION TO SENIOR EXECUTIVES 2009, owing to the market situation, but has also worked intensively to im- The Annual General Meeting of 2009 approved the company’s application of prove safety in the iron ore mines with an offensive program of rock rein- the Government’s current guidelines for remuneration to senior executives in forcement and improvement of plant and facilities via preventive maintenance state-owned companies. measures. Plant and facilities were therefore in top condition when an upturn On 20 April 2009 the Swedish Government adopted new guidelines for in the economy came. In addition, LKAB was able to strategically build up terms of employment for senior executives in state-owned companies. The stocks of iron ore products and crude ore during the first half of the year. The guidelines dictate that variable salary shall not be paid to senior executives; products could then be sold and the crude ore upgraded for sale in the latter the board is responsible for renegotiating agreements concerning variable sal- half of 2009. Capital tie-up in inventories has been possible thanks to the ary; pension benefits are to be based on a defined contribution unless they company’s strong liquidity. comply with a group benefit scheme, and the defined contribution must not The investments in new pelletizing plants in Malmberget and Kiruna have exceed 30 percent of the fixed salary. The pension age shall not be less than been realized in accordance with the company’s growth strategy. Work on the 62 years and should be at least 65. upgrading of the logistics structure, such as the new harbor in Narvik and new The Board proposes that the Annual General Meeting of 29 April 2010 re- locomotives and ore cars, is expected to be completed during 2010 and these solve to adopt the above-mentioned guidelines and terms, and that these guide- facilities will be fully operational in 2011. The ongoing strategic investments in lines should be applied when new senior executives are employed and when new main levels in the mines in Kiruna and Malmberget to secure future access currently employed senior executives’ salaries are renegotiated. The Board’s to crude ore continue as planned. proposal is construed so as to ensure that the LKAB Group can offer competi- For 2009 as a whole, overall production remained far below the company’s tive remuneration that suffices to attract and retain qualified senior executives. full capacity. Even though production has reached full capacity during the final The senior executives’ remuneration includes a fixed salary, allowances for car, quarter, a price reduction of about 50 percent for the main product, pellets, food, and life insurance and pension benefits. The components are intended means that LKAB must adapt its operations to a lower cost level. to create a well balanced remuneration and benefits package that reflects the This will be accomplished with a focus on various capital-rationalization individual’s performance, responsibility and the LKAB Group’s development. and efficiency-improvement programs during the coming years. The cost level The fixed salary, which is decided individually and differentiated on the basis in kronor per tonne will be lowered to the 2007 yearslevel. Cost-reduction of the individual’s responsibility and performance, is set according to market- programs include efficiency improvements in the form of increased competi- conforming principles and reviewed annually. tive exposure, energy savings, reduced capital expenditures, and a long-term Agreements entered into before the Annual General Meeting of 29 April reduction of the workforce via retirement in combination with operational and 2009 have complied with the Government’s current guidelines. For further organizational development programs. information concerning remuneration to senior executives, see Note 6. Access to crude ore is a bottleneck in the chain of production of iron ore products. It is essential that open-pit mining of Gruvberget at Svappavaara can DIVIDEND POLICY AND PROPOSED DISTRIBUTION begin during the first half of 2010. The operation can begin once an environ- OF UNAPPROPRIATED EARNINGS mental permit has been granted. Prospecting for other deposits in the nearby LKAB’s dividend policy entails that the dividend to the owner will, over the area is under way. long term, amount to 30-50 percent of income after tax and be adapted to the The extensive investments in future production capacity, as well as costs as- average earnings level over a business cycle. The Board of Directors proposes sociated with the structural transitions in Kiruna and Malmberget, place high to the Annual General Meeting that a dividend of 714 (4,000), totaling MSEK demands on the Group’s financing and capacity to generate strong financial 500 (2,800), be paid. outcomes and cash flows over the coming years. The Board of Directors and President propose that unappropriated earnings The economy has seen rapid fluctuations during 2009, which implies a de- of MSEK 11,910 be distributed as follows: gree of uncertainty for the coming years. However, the long-term outlook for LKAB remains positive. Dividend, 700,000 shares x 714 kronor per share MSEK 500 LKAB is planning for full production in all iron ore facilities during 2010. Funds to be carried forward MSEK 11,410 Stocks of finished products are now very low. Considering the rapid fluctua- Total MSEK 11,910 tions that occurred in 2009, the market situation for the year as a whole is still very difficult to foresee. URBAN TRANSFORMATION IN THE OREFIELDS COMMUNITIES For further information concerning the company’s financial results and status, LKAB’s expansion in the operating locations in the orefields entails a successive please see the following statements of income and balance sheets with accom- expansion of deformation zones, which is a result of mining. Amendments to panying comments. municipal plans are therefore inevitable in the long term. Together with other concerned parties, such as the owner/state, local authorities, public admin- 68 FINANCIAL REPORTS – GROUP 09

Statement of Income – LKAB Group

1 January – 31 December MSEK Note 2009 2008 1, 31 Net sales 2, 3 11 558 23 128 Cost of goods sold -10 029 -12 166 Gross profit 1 529 10 962

Selling expenses -202 -200 Administrative expenses -377 -398 Research and development expenses -237 -308 Other operating revenues 4 263 557 Other operating expenses 5 -317 -286 Operating profit 3, 6, 7, 8 659 10 327

Financial income 705 556 Financial expenses -172 -494 Net financial income/expense 9 533 62

Income before tax 1 192 10 389

Tax 11 -473 -2 748 Net income for the year 719 7 641

Attributable to: Parent Company shareholders 719 7 641

Earnings per share before and after dilution (SEK) 12 1 027 10 916

Statement of comprehensive income

Net income for the year 719 7 641

Other comprehensive income Exchange differences on translation for foreign entities for the year 46 -30 Change in fair value of available-for-sale financial assets 668 -1 327 Changes in fair value of cash-flow hedges 630 -1 438 Changes in fair value of cash-flow hedges transferred to income for the year 1 438 -357 Tax attributable to components in cash-flow hedges -544 478

Total comprehensive income 2 238 -2 674 Total comprehensive income attributable to: Parent Company shareholders 2 957 4 967 FINANCIAL REPORTS – GROUP 69 09

Group statement of financial position

As of 31 December MSEK Note 2009 2008 1, 31 Assets 15, 29 Intangible assets 13 310 428 Tangible assets 14 21 551 19 893 Participations in associated companies 1 1 Financial investments 18, 28 1 761 1 036 Long-term receivables 20 65 56 Total fixed assets 23 688 21 414

Inventories 21 2 301 2 715 Income tax receivable Accounts receivable 22 2 276 1 946 Prepaid expenses and accrued revenues 23 230 156 Other receivables 20 865 455 Short-term investments 18, 28,34 3 564 3 872 Liquid assets 34 2 631 5 771 Total current assets 11 867 14 915 Total assets 35 555 36 329

Shareholders’ equity 2, 24 Share capital 700 700 Reserves 1 903 -335 Retained earnings incl. profit for the year 22 772 24 853 Shareholders’ equity attributable to Parent Company shareholders 25 375 25 218 Total shareholders’ equity 25 375 25 218

Liabilities Provisions for pensions and similar commitments 25 1 786 1 701 Other provisions 26 2 113 2 366 Deferred tax liability 11 3 420 2 676 Total long-term liabilities 7 319 6 743

Accounts payable – trade 1 185 1 440 Income tax payable 242 183 Other liabilities 149 1 524 Accrued expenses and prepaid revenues 27 1 050 956 Provisions 25, 26 235 265 Total current liabilities 2 861 4 368 Total liabilities 10 180 11 111 Total shareholders’ equity and liabilities 35 555 36 329

For information concerning the Group’s assets pledged and contingent liabilities, see Note 30. 70 FINANCIAL REPORTS – GROUP 09

Compilations of changes in shareholders’ equity – LKAB Group

Shareholders’ equity attributable to Parent Company shareholders Reserves Profit brought forward incl. Total Share Translation Fair value Hedge profit for the shareholders’ MSEK Note capital reserve reserve reserve year equity 1 Shareholders’ equity per 1 January 2008 700 -2 2 084 257 19 212 22 251 Other comprehensive income 24 -30 -1 327 -1 317 - 2 674 Net income for the year 7 641 7 641 Dividends -2 000 -2 000 Shareholders’ equity 31 December 2008 700 -32 757 -1 060 24 853 25 218

Shareholders’ equity attributable to Parent Company shareholders Reserves Profit brought forward incl. Total Share Translation Fair value Hedge profit for the shareholders’ MSEK Note capital reserve reserve reserve year equity 1 Shareholders’ equity per 1 January 2009 700 -32 757 -1 060 24 853 25 218 Other comprehensive income 24 46 668 1 524 2 238 Net income for the year 719 719 Dividends -2 800 -2 800 Shareholders’ equity 31 December 2009 700 14 1 425 464 22 772 25 375 FINANCIAL REPORTS – GROUP 71 09

Statement of Cash Flow – LKAB Group (indirect method)

1 January – 31 December MSEK Note 2009 2008 1, 34 Operating activities Income before tax 1 192 10 389 Adjustments for items not included in cash flow 1 952 3 069 Income tax paid -213 -2 068 Cash flow from operating activities before change in working capital 2 931 11 390

Cash flow from changes in working capital Increase (-)/Decrease (+) of inventories 414 -1 080 Increase (-)/Decrease (+) in operating receivables -212 49 Increase (+)/Decrease (-) in operating liabilities - 245 24 Cash flow from operating activities 2 888 10 383

Investing activities Acquisition of tangible assets -3 543 -4 716 Disposal of tangible assets 73 6 Acquisition of intangible assets -7 Acquisition of subsidiaries -9 Acquisition of financial assets -66 -5 Divestments/acquisitions (net) in short-term investments 308 296 Cash flow from investing activities -3 228 -4 435

Financing activities Dividends paid to Parent Company shareholders - 2 800 -2 000 Cash flow from financing activities -2 800 -2 000

Cash flow for the year -3 140 3 948

Liquid assets at the beginning of the year 5 771 1 823 Liquid assets at year-end 2 631 5 771 Of which exchange rate effect -8 31 72 FINANCIAL REPORTS – PARENT COMPANY 09

Statement of Income – Parent Company

1 January – 31 December MSEK Note 2009 2008 1, 31 Net sales 2,3 9 570 20 626 Cost of goods sold -8 497 -10 477 Gross profit 1 073 10 149

Selling expenses -105 -96 Administrative expenses -240 -265 Research and development expenses -221 -296 Other operating revenues 4 159 567 Other operating expenses 5 -145 -125 Operating profit 6, 7, 8 521 9 934

Income from financial items: Income from participations in Group companies 107 33 Income from participations in associated companies 0 2 Income from other securities and receivables held as fixed assets 59 86 Other interest income and similar credits 679 101 Interest expense and similar profit/loss items -60 -92 Profit after financial items 9 1 306 10 064

Appropriations 10 -311 -3 022

Income before tax 995 7 042

Tax 11 -229 -2 048 Net income for the year 766 4 994 FINANCIAL REPORTS – PARENT COMPANY 73 09

Balance Sheet – Parent Company

As of 31 December MSEK Note 2009-12-31 2008-12-31 1, 31 Assets 29 Fixed assets Intangible assets 13 65 101 Tangible assets 14 17 056 16 010 Financial assets Participations in Group companies 32 1 400 775 Participations in associated companies 16 1 1 Receivables from Group companies 17 248 262 Receivables in associated companies 17 39 39 Other long-term securities held as fixed assets 19, 28 91 89 Other long-term receivables 20, 28 142 130 Deferred tax asset 11 337 373 Total financial assets 2 258 1 669

Total fixed assets 19 379 17 780

Current assets Inventories, etc. 21 1 652 1 896 Current receivables Accounts receivable 22 1 948 1 332 Receivables from Group companies 17 2 553 3 185 Other receivables 20 118 105 Prepaid expenses and accrued revenues 23 123 147 Total current receivables 4 742 4 769

Short-term investments 18, 34 5 561 8 949 Cash and bank balances 34 325 480 Total current assets 12 280 16 094 Total assets 31 659 33 874 74 FINANCIAL REPORTS – PARENT COMPANY 09

Balance Sheet – Parent Company

MSEK Note 2009-12-31 2008-12-31 Shareholders’ equity and liabilities 1, 31 Shareholders’ equity 24 Restricted equity Share capital (700,000 shares) 700 700 Statutory reserve 697 697

Non-restricted equity Accumulated profit or loss 11 144 8 983 Net income for the year 766 4 994 Total shareholders’ equity 13 307 15 374

Untaxed reserves 33 12 076 11 765

Provisions Provisions for pensions and similar commitments 25 1 371 1 335 Other provisions 26 2 141 2 429 Total provisions 3 512 3 764

Long-term liabilities Liabilities to Group companies - 15 Total long-term liabilities - 15

Current liabilities Accounts payable – trade 571 1 024 Liabilities to Group companies 1 171 1 104 Income tax liabilities 207 177 Other liabilities 65 66 Accrued expenses and prepaid revenues 27 750 585 Total current liabilities 2 764 2 956 Total shareholders’ equity and liabilities 31 659 33 874

Pledged assets and contingent liabilities – Parent Company

As of 31 December MSEK Note 2009-12-31 2008-12-31 Assets pledged 30 223 257 Contingent liabilities 30 174 1 504 FINANCIAL REPORTS – PARENT COMPANY 75 09

Compilations of changes in shareholders’ equity – Parent Company

see Note 24 Restricted equity Non-restricted equity Total Statutory Profit brought Profit for shareholders’ MSEK Share capital reserve forward the year equity Shareholders’ equity per 1 January 2008 700 697 11 087 12 484 Group contribution -145 -145 Tax on Group contribution 41 41 Net income for the year 4 994 4 994 Dividend -2 000 -2 000 Shareholders’ equity 31 December 2008 700 697 8 983 4 994 15 374

Restricted equityl Non-restricted equity Total Statutory Profit brought Profit for shareholders’ MSEK Share capital reserve forward the year equity Opening balance 1 January 2009 700 697 8 983 4 994 15 374 Group contribution -82 -82 Group contribution received 37 37 Tax on Group contribution 12 12 Net income for the year 766 766 Dividend -2 800 -2 800 Shareholders’ equity 31 December 2009 700 697 6 150 5 760 13 307 76 FINANCIAL REPORTS – PARENT COMPANY 09

Statement of Cash Flow – Parent Company (indirect method)

1 January – 31 December MSEK Note 2009 2008 1, 34 Operating activities Profit after financial items 1 306 10 064 Adjustments for items not included in cash flow 1 365 3 122 Income tax paid -151 -2 025 Cash flow from operating activities before change in working capital 2 520 11 161

Cash flow from changes in working capital Increase (-)/Decrease (+) of inventories 244 -767 Increase (-)/Decrease (+) in operating receivables 27 -1 389 Increase (+)/Decrease (-) in operating liabilities -237 149 Cash flow from operating activities 2 554 9 154

Investing activities Acquisition of tangible assets -2 973 -3 335 Disposal of tangible assets 362 7 Capital contribution, subsidiaries -625 Divestments/acquisitions (net) in short-term investments 305 342 Other investing activities (net) 0 -5 Cash flow from investing activities -2 931 -2 991

Financing activities Dividends paid -2 800 -2 000 Group contribution -46 -145 Amortization long-term loans -15 Cash flow from financing activities -2 861 -2 145

Cash flow for the year -3 238 4 018

Liquid assets at the beginning of the year 5 654 1 636 Liquid assets at year-end 2 416 5 654 Of which exchange rate effect -8 31 NOTES TO THE FINANCIAL STATEMENTS 77 09

Notes to the financial statements

Note 1 Significant accounting principles hensive income, which LKAB presents in the statement of comprehensive income, a separate report that follows the income statement. LKAB has chosen to use the new report titles introduced in IAS 1: statement of comprehensive income, statement of 1 Conformity with norms and legislation financial position, and consolidated statement of shareholders’ equity. The consolidated financial statements have been prepared in accordance with In- The comparative periods have been changed throughout in the annual report to ternational Financial Reporting Standards (IFRS), published by the International comply with the new presentation. Since the changes only affect the presentation of Accounting Standards Board (IASB), and in accordance with interpretations by the information, no amounts have been changed, neither with respect to basic earnings International Financial Reporting Interpretations Committee (IFRIC) as approved per share nor other items in the financial statements. by the European Commission for application within the EU. In addition, Swedish Financial Accounting Standards Council recommendation RFR 1.2 Complementary 6.1.2 Disclosure requirements relating to segments Reporting Rules for Groups is used. Since 1 January, the Group has applied the new IFRS 8 Operating Segments, which The Parent Company applies the same accounting principles as the Group, ex- replaces IAS 14 Segment Reporting. IFRS 8 introduces a management perspective cept in the cases indicated under the section “Parent Company’s accounting prin- for how operating segments can be categorized and presented. The new principles ciples”. The variations between Parent Company and Group accounting principles are described further on in the accounting principles described in this note. The arise from the limitations in applying IFRS in the Parent Company as a result of the standard has been applied in accordance with its transition rules by adapting the Swedish Annual Report Act and the Swedish Act on Safeguarding of Pension Com- comparative year to requirements in IFRS 8. mitments, and in certain cases for tax reasons. For LKAB, the application of IFRS 8 has not necessitated any change to the divi- The Annual Report and consolidated financial statements have been approved sion of segments, since the segments identified in IAS 14 corresponded to those for publication by the Board of Directors and President on 24 March 2010. The monitored by Management. LKAB continues to apply the same accounting policies consolidated income statement and balance sheet, and the Parent Company in- to its operating segments as in the consolidated financial statements, that is, IFRS. come statement and balance sheet will be subject to approval by the Annual Gen- Accordingly, none of the amounts recognized were changed relative to the amounts eral Meeting on 29 April 2010. recognized earlier.

2 Conditions applying to the preparation of Parent Company 6.1.3 Disclosure requirements relating to financial instruments and Group financial reports Amendments to IFRS 7 Financial Instruments: Disclosures that apply to financial Assets and liabilities are stated at historical acquisition values. Financial assets periods beginning on or after 1 January 2009 impact LKAB’s financial reporting and liabilities are stated at historical acquisition values, accept for certain financial from the 2009 annual period. The amendments mainly entail new disclosure re- assets and liabilities that are reported at fair value. Financial assets and liabilities quirements relating to financial instruments measured at fair value in the statement stated at fair value consist of derivatives, financial assets classified as financial of financial position. The instruments are subdivided into a three-tier hierarchy assets reported at fair value in the income statement, or as financial assets that depending on the quality of the input data in the measurement. The subdivision into can be sold. tiers determines how and which disclosures are to be presented regarding the instruments, whereby level 3, with the lowest quality of input data, is subject to more 3 Functional currency and presentation currency disclosure requirements than the other levels. These disclosure requirements have The Parent Company’s functional currency and the presentation currency for the mainly impacted Note 28, below. Furthermore, changes to IFRS 7 entail a number Group and Parent Company is the Swedish krona. Therefore, the financial re- of changes relating to liquidity risk disclosure. ports are presented in Swedish kronor. Unless otherwise indicated, all amounts are Pursuant to the transition regulations in IFRS 7, comparative data for the disclo- rounded off to the nearest million kronor. sures required by amendments need not be presented during the first year of application. LKAB has elected not to submit comparative disclosures for 2008. 4 Assessments and estimates in the financial reports To present the financial reports in accordance with IFRS, the management must 7 New IFRS and interpretations not yet adopted make certain estimates and assumptions that affect the application of the account- A number of new or revised standards and interpretations will not become effective ing principles and the reported amounts pertaining to assets, liabilities, revenue until future financial years and were not applied in advance in the preparation of and expenses. Actual outcomes may differ from these estimates and assumptions. these financial statements. The estimates and assumptions are regularly reviewed. Changes in estimates The respective changes that are deemed to be applicable to LKAB are described are reported in the period in which the change is made if the change affects only below. It is LKAB’s assessment that these amendments have not entailed any signifi- that period, or in the period in which the change is made and future periods if the cant effects on LKAB’s financial statements. change affects both the current and future periods. IFRS 3 Business Combinations and IAS 27 Consolidated and Separate Financial As described in section 28 Significant assessments and estimates, in presenting Statements (revised), where, among other things, transaction costs for business the financial reports in accordance with IFRS, the management must make certain combinations are to be expensed. estimates and assessments that may entail significant adjustments in the following IFRS 5 Non-current Assets held for sale and discontinued operations (revised). year’s financial reports. Clarification concerning disclosure requirements with respect to fixed assets held for sale or discontinued operations. 5 Significant accounting principles IAS 38 Intangible assets (revised). The revised standard provides clarification The Group accounting principles listed below have been consistently applied to all in the fair value evaluation of an intangible asset that is acquired in a business periods presented in the Group’s financial reports, unless otherwise stated below. combination. Group accounting principles have been consistently applied to the accounts and The following amendments to accounting principles with prospective application consolidation of subsidiaries, associated companies and joint venture companies. have not been deemed to have any significant effects on the Group’s financial statements: 6 New and amended IFRS and interpretations for 2009 Revised IFRS 2 Share-Based Payment with respect to cash-settled intra-Group 6.1 Changes in accounting principles as a result of new or amended IFRS remuneration. Below, the accounting principles applied by the Group as of 1 January 2009 are Revised IFRS 39 Financial Instruments: Recognition and Measurement with regard described. Other changes in IFRS, applicable from 1 January 2009, have not had to items authorized for hedge accounting. a significant effect on the Group’s reporting. IFRIC 12 Service Concession Arrangements IFRIC 15 Agreements for the Construction of Real Estate 6.1.1 Presentation of the financial statements IFRIC 17 Distribution of Non-cash Assets to Owners Since 1 January 2009, the Group has applied the amended IAS 1 Presentation of IFRIC 18 Transfers of Assets from Customers financial statements. The effect is that income and expense that were previously IFRIC 19 Extinguishing financial liabilities with equity instruments recognized directly in shareholders’ equity are now recognized in other compre- IAS 27 Consolidated and Separate Financial Statements 78 NOTES TO THE FINANCIAL STATEMENTS 09

8 Classification, etc. abilities reported at their historical acquisition value are translated at the exchange Fixed assets and long-term liabilities in the Parent Company and Group consist for rate applying on the transaction day. Non-monetary assets and liabilities reported the most part solely of amounts that are expected to be recovered or paid more at fair value are translated to the functional currency at the rate applying at the time than twelve months after the balance sheet date. Fixed assets and short-term liabili- the fair value was established and are reported in the income statement. ties in the Parent Company and Group consist for the most part solely of amounts that are expected to be recovered or paid within twelve months after the balance 11.2 Financial statements in foreign entities sheet date. Assets and liabilities in foreign entities, including goodwill and other fair value consolidation adjustments, are translated from the functional currency to Swedish 9 Segment reporting kronor at the rate applying on the balance sheet date. Revenue and expenses An operating segment is a part of the Group that operates an entity in which it can in foreign entities are translated to Swedish kronor at the average rate that con- generate revenue and incur costs and for which independent financial information stitutes an approximation of the rates applying when the transaction occurred. is available. The profit of an operating segment is monitored by the chief operating Differences that arise when translating currency in foreign entities are reported in decision-maker in order to assess performance and allocate resources to the oper- other comprehensive income and accumulated in a separate component referred to ating segment. The Group’s primary operation is divided into the following three as a translation reserve. When the foreign operation is divested, the accumulated operating segments: Mining Division, Minerals Division and Special Businesses translation differences attributable to the divested foreign operation are reclassified Division. See Note 3 for grouping and presentation of operating segments. from equity to profit or loss for the year as a reclassification adjustment at the date on which the profit or loss on the divestment is recognized. 10 Consolidation principles 10.1 Subsidiaries 12 Revenue from sale of goods Subsidiaries are companies in which the Parent Company exercises a controlling 12.1 Sale of goods influence over the operational and financial management. Controlling influence Revenue from the sale of goods is reported in the income statement when significant implies a direct or indirect right to decide the company’s financial and operative risks or benefits associated with ownership of the goods have been transferred to strategies with an aim to realizing economic advantages. When assessing whether the buyer. Revenue is not recognized if it is probable that future economic benefit a decisive, controlling influence exists, potential shares with voting rights that can will not accrue to the Group. be utilized without delay shall be taken into account. Subsidiaries are reported according to the purchase method. The acquisition of a 12.1.1 Sale of iron ore, Mining Division subsidiary is considered a transaction through which the Group indirectly acquires Iron ore trading is conducted in US dollars and the price is set once a year in direct the subsidiary’s assets and assumes its liabilities and contingent liabilities. For the negotiations. Normally, an agreement between one of the major mining companies Group, the acquisition value is determined by an acquisition analysis at the time and the Asian or European steel industry sets a global benchmark. LKAB then of the acquisition. The analysis establishes the acquisition value of the shares or reaches agreement with its customers. The date for price agreement surrounding business, and the fair value of acquired identifiable assets and assumed liabilities the global price varies from year to year. Price agreements are reached earlier and contingent liabilities. The acquisition value of subsidiaries’ shares or business some years than other years, which is why an estimate of the price must almost comprises the fair values as per date of transfer of the assets, accrued or assumed always be made for the new year, before the price agreement is reached. liabilities and emitted equity instruments given in payment for the acquired net as- Sales of iron ore are recognized upon delivery to the customer, in accordance sets and transaction costs that are directly attributable to the acquisition. Where the with the terms of sale. The sale is recognized with deduction for sales tax and cur- acquisition cost exceeds the net value of acquired assets, assumed liabilities and rency translation is according to the current exchange rate. If the sale is hedged contingent liabilities, the difference is reported as goodwill. under forward contract, the currency translation is made at the forward rate. The subsidiary’s financial reports are included in the consolidated accounts as of Upon delivery, a preliminary invoice, with respect to the iron and moisture con- the date of acquisition and are excluded from the consolidated accounts as of the tent in the delivered product, is often issued. When the final actual values have date the decisive influence no longer exists. been ascertained, the incomes are adjusted, if necessary, and the incomes are established. Incomes are reported in net sales. 10.2 Joint ventures For accounting purposes, joint ventures are companies in which the Group has 12.2 Rental revenue, properties entered into collaboration agreements with one or several parties to share a con- Rental incomes from properties are reported in a linear manner in the income trolling interest in their operational and financial management. In the consolidated statement, based on the terms of the lease. Rental revenues are reported in other accounts, holdings in joint ventures are reported according to the principle of operating incomes. proportional consolidation. This method implies that the Group’s share of the joint venture’s assets, liabilities, revenue and expenses, is reported in the Group’s bal- 13 Leasing ance sheet and income statement. To do so, the joint owner’s share of assets, Leases are classified in the consolidated accounts as either finance leases or oper- liabilities, revenue and expenses in a joint venture is combined item-by-item with ating leases. A lease that transfers substantially all the risks and rewards of owner- corresponding items in the joint owner’s consolidated accounts. Only shareholders’ ship to the lessee is classified as a finance lease. Otherwise, the lease is classified equity accruing after acquisition is reported in the Group’s shareholders’ equity. as an operating lease. The Group’s leases are mainly operating leases. The proportional consolidation principle is applied from the point in time at which Operating leasing entails that rental payments are reported on a straight-line the joint controlling influence is obtained until it ceases to exist. method over the term of the lease. Some variable fees are, however, expensed as they are incurred. 10.3 Transactions to be eliminated on consolidation Intra-group receivables and payables, revenue or expenses, and unrealized profits 14 Financial revenue and expenses or losses arising from intra-group transactions between subsidiaries are eliminated Financial revenue and expenses include interest revenue from bank assets, receiva- in their entirety when the consolidated accounts are prepared. bles and interest-bearing securities, interest expenses related to loans, interest ex- Unrealized profits arising from transactions with jointly controlled companies pense on defined-benefit plans, dividend revenue, unrealized and realized gains are eliminated to an extent corresponding to the Group’s share of the ownership on financial investments, and derivative instruments used in financial operations. of the company. Unrealized losses are eliminated in a similar fashion to unrealized Interest revenue from receivables and interest expenses related to liabilities are profits, but only if there is no indication that a write-down is required. estimated using the effective interest method. The effective interest is the rate that ensures that the present value of all future receipts or payments through the expect- 11 Foreign currencies ed life of a financial instrument is the same as the reported value of the receivable 11.1 Transactions in foreign currencies or payable. Interest revenue and interest expense, respectively, includes periodized Foreign currency transactions are translated to the functional currency at the ex- amounts of transaction expenses and discounts, premiums and other variations be- change rate applying on the transaction day. Functional currency is the currency tween the original value of the receivable, or the liability, and the amount received in the primary economic environments in which the companies operate. Monetary or regulated on maturity. assets and liabilities in foreign currency are translated to the functional currency at Dividend income is recognized as revenue when the right to obtain payment is the rate prevailing on the balance sheet date. Exchange rate differences resulting certain. from translations are reported in the income statement. Non-monetary assets and li- Revenue from the sale of financial instruments is reported in the income statement when significant risks or benefits associated with ownership of the instrument has NOTES TO THE FINANCIAL STATEMENTS 79 09

been transferred to the buyer and the Group no longer exercises control over the Derivatives are initially recognized at fair value, implying that the transaction instrument. costs are recognized in the income statement for the period. After the initial recog- Exchange rate gains and losses are reported on a net basis. nition, the derivative is recognized in the manner described below. In hedge accounting, the derivative’s accumulated change in value is transferred to the income 15 Taxes statement, where it meets and matches the effects of the hedged transaction. Even if Income taxes consist of current tax and deferred tax, and tax directly in sharehold- hedge accounting is not applied, increases or decreases in the value of the deriva- ers’ equity. Income taxes are recognized in the income statement unless the underly- tive are reported as income or expense, respectively, within the operating profit/ ing transaction is recognized in other comprehensive income or in shareholders’ loss or net financial income/expense, based on the intended use of the derivative equity, in which case the related tax effect is also recognized in shareholders’ instrument and whether that use relates to an operating item or to a financial item. equity. In hedge accounting, the ineffective part is reported in the same way as fluctuations Current tax is the tax paid or received for the current year, applying the tax rates in the value of derivatives that are not used in hedge accounting. that have been set or essentially set as of the closing day to taxable income and adjusting for current tax attributable to previous periods. 16.3 Financial assets recognized at fair value in the income statement Deferred tax is calculated according to the balance sheet method based on This category consists of two sub-groups: financial assets held for trading and other temporary differences between the carrying value of assets and liabilities and financial assets that the company initially decided to invest in this category (accord- their value for tax purposes. The following temporary differences are not taken into ing to the so-called Fair Value Option). Financial instruments in this category are account: temporary differences arising when goodwill is first reported; the initial recognized at fair value and changes in fair value are recognized in the income reporting of assets and liabilities in a transaction other than a business combination statement. Derivatives with a positive fair value, with the exception of derivatives and which, at the time of the transaction, do not affect either the recognized or tax- that are an identified and effective hedging instrument, are included in the first able result; temporary differences pertaining to shares in subsidiaries and associ- sub-group. The category Fair value option includes financial instruments that are ated companies that are not expected to be reversed in the foreseeable future. The recognized and reported at fair value. For further information on which financial valuation of deferred tax is based on how reported values of assets and liabilities instruments are included, see Note 28. are expected to be realized or paid. Deferred tax is calculated by applying the tax rates and tax legislation that has been determined, or in practice determined, on 16.4 Loans and receivables the balance sheet date. Loans and receivable are non-derivative financial assets with fixed payments or Deferred tax assets from deductible temporary differences and tax loss carryfor- determinable payments, which are not quoted on an active market. Assets in this wards are only recognized to the extent it is likely that they will be utilized. The category are valued at the accrued acquisition value. Accrued acquisition value value of deferred tax assets is reduced when it is no longer considered likely that is determined based on the effective rate of interest calculated on acquisition. they can be utilized. Accounts receivable are reported in the amount at which they are expected to be Any additional income tax arising on dividends is reported at the same time as received, less a deduction for bad debts. the dividend is reported as a liability. 16.5 Financial assets held for sale 16 Financial instruments The available-for-sale category includes financial assets that are not classified in Financial instruments reported as assets on the balance sheet include, on the assets any other category or financial assets that the company initially classified in this side, liquid assets, accounts receivable, financial investments, credit claims and category. Shares in subsidiaries, and holdings in associated companies and joint derivatives. Liabilities include accounts payable, borrowing and derivatives. ventures are recognized here. Assets in this category are valued continuously at fair value, with changes in value reported other comprehensive income, with the 16.1 Recognition and derecognition exception of assets that depend on impairment losses, interest on debt instruments A financial asset or financial liability is entered on the balance sheet when the and dividend income or exchange rate differences on monetary items which are company becomes a party to the contractual provisions of the instrument. Accounts recognized in the income statement. On disposal of the asset, the accumulated receivable are entered on the balance sheet when an invoice has been issued. Li- gain or loss, previously reported in other comprehensive income, is reported in the abilities are entered when the counterparty has performed and the agreed liability income statement. is due for payment, even if an invoice has not yet been received. Accounts payable are entered when an invoice is received. 16.6 Financial assets recognized at fair value in the income statement A financial asset is removed from the balance sheet when the rights in the agree- Assets in this category consist of two sub-groups: financial liabilities held for trade ment are realized, expire or the company loses control over them. The same applies and other financial liabilities which the company has chosen to place in this cat- for a portion of a financial asset. A financial liability is removed from the balance egory (the so-called Fair Value Option); see description under the above heading sheet when the undertakings in the agreement have been fulfilled or extinguished. “Financial assets recognized at fair value in the income statement”. Derivatives The same applies for a portion of a financial liability. with a negative fair value, with the exception of derivatives that are an identified A financial asset and a financial liability are offset and reported in the balance and effective hedging instrument, are included in this category. Change in fair sheet as a net amount only when there is a legal right to set off the amount and value is reported in the income statement. an intention to adjust the items with a net amount or, at the same time, realize the asset and settle the liability. 16.7 Other financial liabilities Acquisition and divestment of financial assets is recognized on the trade day, Loans and other financial liabilities, e.g., accounts payable, are included in this i.e., the day upon which the company undertakes to acquire or dispose of the as- category. Liabilities are valued at accrued acquisition value. set, except in cases when the company acquires or divests listed securities when settlement date reporting is applied. 17 Derivatives and hedge accounting A spot purchase or sale in the category Fair value option is reported per day The Group’s derivative instruments have been acquired to safeguard against the of settlement. interest rate and exchange rate risks to which the Group is exposed. An embedded Liquid assets are cash and immediately available credit in banks and similar derivative is recognized separately unless it is closely related to the host contract. institutions, and current investments with a maturity of less than three months from Derivatives are initially recognized at fair value, implying that the transaction costs acquisition that are exposed to only very marginal risk for fluctuations in value. are recognized in the income statement for the period. After the initial recognition, derivative instruments are recognized at fair value and changes in value are rec- 16.2 Classification and measurement ognized as described below. Financial instruments are initially recognized at an acquisition value correspond- To comply with IAS 39 requirements concerning hedge accounting, there must be ing to the fair value of the instrument plus transaction expenses for all financial a clear link between the hedging instrument and the corresponding hedged item. instruments, except those instruments categorized as financial assets reported at Furthermore, the hedging instrument must effectively protect the hedged item, hedg- their fair value in the income statement, which are reported at their fair value ing must be documented and the effectiveness must be measurable. Hedging gains excluding transaction expenses. A financial instrument is classified on initial recog- and losses are reported in the income statement at the same point in time as gains nition based on the purpose for which the instrument was acquired. Classification and losses for the corresponding hedged items are reported. determines how the financial instrument is measured after the initial recognition, as described below. 80 NOTES TO THE FINANCIAL STATEMENTS 09

17.1 Cash-flow hedges 18.5 Depreciation principles The derivative instruments used to hedge future cash flows are recognized in the The assets are depreciated on a straight-line basis over useful life. Land is not balance sheet at fair value. Changes in value are reported directly against other depreciated. The Group applies component depreciation, whereby the estimated comprehensive income and accumulated chages in value are reported in a sepa- useful life of the component constitutes the basis for depreciation. rate component in against shareholders’ equity until the hedged flow is reported on Estimated useful life: the balance sheet, whereby the hedging instrument’s accumulated change in value is transferred to the income statement, where it meets and matches the profit/loss - Operating properties, investment properties 15 - 100 years effects of the hedged transaction. The hedged flows can be both contracted and - Machinery and other technical plant 5 - 20 years forecast transactions. - Inventories, tools and installations 5 - 20 years - Underground installations (average) 12 years 18 Fixed assets 18.1 Owned assets Operating properties are classified mainly as buildings, land improvements and Fixed assets are reported in the Group accounts at acquisition value after deduc- land. Buildings and land improvements consist of several components that are clas- tions for accumulated depreciation according to plan and any write-downs. The sified on the basis of function; e.g., roads, surfacing, service facilities, processing acquisition value includes the purchase price and expenses directly pertaining plants, etc. to the asset, such as the costs associated with delivery and installation of the as- Investment properties consist of several components that differ with respect to set such that it can be utilized to fulfill the purpose of the acquisition. Such costs useful life. The main classifications are buildings and land. Buildings, however, include cost of delivery and handling, installation, title deeds, consulting services consist of several components of varying useful life. The useful life of these compo- and legal services. nents ranges from 15 to 100 years. The acquisition value of tangible assets produced by the company includes costs The following main groups of components have been identified and are the basis of material, payroll expenses, other fabrication costs directly attributable to the for depreciation of investment properties. tangible asset, if applicable, and estimated costs of disassembly and removal of the assets and remediation of the site or area in which it has been used. - Framework, foundation and interior walls 100 years Tangible assets whose parts differ with respect to useful life are treated as sepa- - Water, sewage, electrical and heating systems 50 years rate components of tangible assets. - Facade 40 years The reported value of a tangible asset is struck from the balance sheet when the - Windows 50 years asset is retired or disposed of. Gain or loss arising from the disposal or retirement - Interior finishing and appliances 15 years of an asset is the difference between the selling price and the asset’s reported Residual value and useful life are assessed annually. value with deductions for direct selling expenses. Gain or loss is reported as other operating income/expense. 19 Intangible assets 19.1 Goodwill 18.2 Underground installations Goodwill is valued at the acquisition value less any accumulated write-downs. Installations underground, from which iron ore is extracted, can be classed as Goodwill is broken down into cash-generating units and is tested annually for installations for waste rock mining and installations for iron ore mining. Waste rock impairment; see accounting principles in section 21.1. Goodwill represents the dif- mining consists of work done to expose the orebody in connection with the construc- ference between the acquisition value of a business acquisition and the fair value of tion of a main haulage level, construction pertaining to transport and maintenance the identifiable acquired assets, assumed liabilities and contingent liabilities. functions such as railways, roads, tunnels, shafts, inclined drifts (a system of access for vehicle traffic from surface level to the work site underground), and facilities 19.2 Mineral rights for service and electrical and air supply. These expenses, referring to plant that Mineral rights are recognized at their acquisition value less accumulated amortiza- intended to be used for more than a year, are activated on the balance sheet. tion and write-downs. Iron ore mining consists mainly of activities including development, cave drilling, and loading, haulage and hoisting of the ore. Expenses for these activities 19.3 Other intangible assets have a useful life of at most one year, which is why they are expensed as they Other intangible assets, for example, software, that have been acquired by the are incurred. Group are recognized at their acquisition value less accumulated amortization (see below) and write-downs. 18.3 Prospecting and evaluation work Greater knowledge of the extent of the iron deposits is necessary to secure access 19.3.1 Emissions rights to more ore and ensure the future development of operations in the Mining Division. LKAB participates in the EU’s system for trade in emissions rights. In February and Through exploration drilling, mainly via drifts adjacent to the orebody, the orebody April, LKAB received carbon-dioxide emissions rights for the 2009. LKAB reports is surveyed and defined. Exploration of the ore deposits, in both existing and future allocated emissions rights as other intangible assets and these are valuated at the areas of the mines, is expensed. This principle is also applied with respect to areas lowest of either the acquisition value or market (fair) value. The corresponding outside the existing mines. value is included in Provisions and Other liabilities. The fair value is equal to the Mining rights acquired within the Minerals Division are reported as intangible acquisition value at the time of allocation. Settlement is made annually and any assets and written down over the estimated economic life of the assets. For depre- deficit is reported as accrued expense. ciation periods, see 19.6 Intangible assets/Depreciation principles. To a lesser extent, evaluation of mineral assets is carried out, mainly to provide a basis for a 19.4 Research and development so-called mine plan for mineral assets, and this work is expensed. Expenditures for research aimed at acquiring new scientific or technical knowledge are expensed in the period in which they are incurred. 18.4 Additional expenditures Development expenditures, i.e., expenses for research of which the results or Additional expenditures are added to the acquisition value if it is probable that other knowledge is applied to realize new or improved products or processes, are future economic benefit associated with the asset will accrue to the company, and recognized as an asset on the balance sheet if the product or process is technically if the acquisition value can be calculated in a reliable way. All other additional and commercially viable and the company has sufficient resources to complete the expenditures are expensed in the period in which they arise. development and subsequently use or sell the intangible asset. The value includes Whether additional expenditures are added to the acquisition value is decided directly attributable expenses such as goods and services and remuneration to on the basis of whether the expenditure refers to replacement of identified com- employees. If the above criteria are not fulfilled, these costs are expensed. Thus ponents of the asset or parts thereof. In cases where a new component is created, far, no such expenditures have met these criteria. LKAB therefore expenses all the expenditure is also added to the acquisition value. Any undepreciated reported expenditures for development as they arise. values on replaced components, or parts thereof, are retired and expensed in connection with the replacement. Repairs are expensed on a current basis. NOTES TO THE FINANCIAL STATEMENTS 81 09

19.5 Additional expenditures 21.3 Reversal of write-downs Additional expenditures for capitalized intangible assets are recognized as an A write-down of assets included in the IAS 36 application area is reversed if there asset on the balance sheet only when they increase the future economic benefits is both an indication that impairment is no longer necessary and there has been for the specific asset to which they pertain. All other expenditures are expensed a change in the assumptions which formed the basis of the recoverable amount as they arise. calculation. However, impairment of goodwill is never reversed. A reversal is only made to the extent that the asset’s carrying amount after reversal does not exceed 19.6 Depreciation principles the carrying amount that the asset would have had, with a deduction for amortiza- Amortizations are reported in the income statement straight-line across the estimat- tion, if no write-down had been carried out. ed useful life of the intangible assets, provided such useful life can be determined. Write-downs in respect of securities, loans receivables and accounts receivable, Depreciable intangible assets are written off from the date upon which they are which are reported at accrued acquisition value, are reversed if the subsequent available for use. The estimated periods of useful life are: increase in recoverable amount can be related objectively to an event occurring after the write-down was recognized. - Mineral rights 30 - 50 years Write-downs of equity instruments classified as available-for-sale financial assets, - Tenancy right 10 years which have previously been charged in the income statement, may not subsequent- - Customer-related intangible assets 3 - 5 years ly be reversed through the income statement but rather in other comprehensive - Software 5 years income. The written-down value is the value on which subsequent revaluations Residual value and useful life are assessed annually. are based, which are recognized in other comprehensive income. Write-downs of interest-bearing instruments classified as available-for-sale financial assets are 20 Inventories reversed through the income statement if the fair value increases and the increase Inventories are valuated at the lower of acquisition value or net realizable value/ can objectively be attributed to an event which occurred after the write-down was net selling price. Acquisition value of other inventories is calculated on the basis of carried out. the first-in, first-out (FIFO) method and includes costs arising from the acquisition of the inventory assets and transport of them to their current location. In the case of 22 Shareholders’ equity manufactured goods and work in progress, acquisition value includes a reasonable 22.1 Dividends portion of indirect costs based on normal capacity. Dividends are recognized as a liability after they have been approved by the An- Net selling price is the estimated selling price (realizable value) in current opera- nual General Meeting. tions, after deductions for estimated costs of completion and for realizing a sale. 23 Earnings per share 21 Write-downs Profit per share is calculated from Group profit for the year attributable to Parent Reported values for the Group’s assets are checked on each balance sheet date to Company shareholders and from the weighted average number of shares outstand- ascertain whether any write-down need is indicated. ing during the year.

21.1 Write-downs of tangible and intangible assets and shares in subsidiaries 24 Employee benefits and holdings in associated companies and joint ventures 24.1 Defined-contribution pension plans If a need for write-down is indicated, the recoverable value of the asset is cal- Defined contribution pension plans are classified as pension plans under which the culated. For goodwill, the recoverable amount is calculated annually. If largely company’s obligation is limited to the contributions the company has committed to independent cash flows attributable to a single asset cannot be ascertained, when pay. Under such plans the size of an employee pension is based on the contribu- the write-down requirement is assessed, assets will be grouped at the lowest level tions the company pays to the plan or to its insurance company and the capital at which largely independent cash flows can be identified (a so-called cash-gen- yield generated by the contributions. Subsequently, it is the employee who bears erating unit). the actuarial risk (that the payment will be lower than expected) and the investment A write-down is reported when an asset or cash-generating unit’s (group of units) risk (that the investment assets will be inadequate to provide the expected benefits). reported value exceeds its recoverable value. A write-down is charged to the in- The company’s obligations concerning contributions to defined-contribution plans come statement. Write-down of assets attributable to a cash-generating unit (group are recognized as a cost in the income statement as they are earned by the employ- of units) is first allocated to goodwill. Subsequently, a proportionate write-down of ees performing work for the company during the period. other assets in the unit (group of units) is done. The recoverable amount of other assets is the greater of their fair value minus 24.2 Defined-benefit pension plans selling expenses and value in use. In assessing value in use, the estimated future The Group’s net obligation for defined-benefit plans is calculated separately for cash flows are discounted to their present value using a pre-tax discount rate that each plan by estimating the future compensation that employees have earned reflects risk-free interest and the risks specific to the asset. through employment in present and previous periods. This compensation is discounted to present value and the fair value of plan assets is deducted. The discount 21.2 Write-down of financial assets rate is the interest rate on the closing day for a first-class corporate bond with a On each reporting occasion, the company assesses whether there are objective maturity corresponding to the Group’s pension obligations. When there is no active indications that a financial asset or group of financial assets needs to be written market for such corporate bonds, the market interest rate on government bonds with down. Objective evidence constitutes observable events that have an adverse im- a similar maturity is used instead. The calculation is made by a qualified actuary pact on the potential to recover the purchase cost, for example, breach of contract, using the projected unit credit method. In addition, the fair value of plan assets as late or defaulted payment or bankruptcy, and a significant or long-term decrease in per closing day is calculated. the fair value of a component of a financial investment classified as an available- Actuarial gains and losses may arise when the present value and the fair value for-sale financial asset. of plan assets are determined. These arise either as a result of outcomes deviating The recoverable amount of assets belonging to the categories held-to-maturity from actuarial assumptions or revisions to actuarial assumptions. securities and loan receivables and accounts receivable, which are reported at The corridor approach is applied. This means that the portion of the cumulative amortized cost, is calculated as the present value of expected future cash flows, actuarial gains and losses exceeding 10 percent of the higher of the commitments’ discounted at the original effective interest rate (i.e., the effective interest rate present value and the fair value of plan assets is recognized over the expected computed at initial recognition of these financial assets). Receivables with a short average remaining period of employment of the employees covered by the plan. duration are not discounted. A write-down is charged to the income statement. Actuarial gains and losses otherwise are not taken into account. If an impairment in fair value of a financial asset that can be sold has previously In the consolidated statement of financial position, the carrying amount for pen- been reported directly against total income and there is objective evidence that sions and similar obligations represents the present value of the obligation at the there is need for a write-down, the accumulated loss that is booked in total income end of the financial year, less the fair value of plan assets and unrecognized costs is to be removed from total income and recognized in the income statement, even if pertaining to past service. the financial asset has not been eliminated from the balance sheet. The loss that has When the calculation leads to an asset, the carrying amount is limited to the been eliminated refers to the difference between acquisition cost and current fair lesser of the estimated asset and sum of unrecognized actuarial losses and un- value, after deduction from any previous write-down on the financial asset. recognized costs associated with employment in previous periods as well as the 82 NOTES TO THE FINANCIAL STATEMENTS 09

present value of future repayments from the plan or reduced future payments to the 27.1 Differences between Group and Parent Company accounting principles plan. When the compensation in a plan improves, the portion of the increased com- Differences between Group and Parent Company accounting principles are de- pensation attributable to the employees’ services in previous periods is expensed tailed below. The Parent Company accounting principles stated have been consist- through the income statement on a straight-line basis over the average period until ently applied during all the periods presented in the Parent Company’s financial the compensation is fully vested. If the compensation is fully vested, an expense is reports. recognized directly through the income statement. When there is a difference in how the pension cost is determined for a legal 27.2 Subsidiaries, associated companies and joint ventures entity and the Group, a provision or receivable for the special employer’s contribu- Shares in subsidiaries, and holdings in associated companies and joint ventures tion arises based on this difference. No present-value computation for the provision are recognized by the Parent Company according to the acquisition cost method. or receivable is made. Net financial income/expense also includes the net interest of pension provisions 27.3 Financial instruments and hedge accounting and expected yield from associated plan assets. Other components are reported Owing to the relationship between reporting and taxation, the rules referring to in the income statement. financial instruments and hedge accounting in IAS 39 are not applied in the Parent Company as a legal entity. Financial fixed assets are valued in the Parent Com- 24.3 Short-term employee benefits pany at acquisition value less write-down, where applicable, and financial current When an employee has rendered service to an entity during an accounting period, assets are valued at the lower of cost or net realizable value. Valuation of shares the entity shall recognize the undiscounted amount of short-term employee benefits and money market investments is done at the portfolio level. This means that for expected to be paid in exchange for that service. instruments included in the same portfolio, unrealized gains are offset against un- A provision is recognized for the expected cost of profit-sharing or bonus pay- realized losses. Surplus losses are reported as reduction in interest income. Surplus ments when the Group has a legal or informal obligation to make such payments gains are not reported. as a result of the service being rendered by the employees and a reliable estimate Liabilities are valued at accrued acquisition value. of the amount can be made. 27.3.1 Derivatives and hedge accounting 25 Provisions Currency exposure with respect to future forecasted flows is hedged either via A provision differs from other liabilities because of prevailing uncertainty about forward exchange contracts or currency options. Forward exchange contracts or payment date or the amount required to settle the provision. A provision is reported currency options that protect the forecasted flow are not reported on the balance on the balance sheet when there is an existing legal or informal obligation due to a sheet. Changes in value in forward contracts are reported in the same period as past event, it is probable that economic-resources outflow will be required to settle the forecasted flow occurs. the obligation, and the amount can be reliably estimated. The hedged volume in US dollars is matched against the estimated net inflow of The amount allocated to a provision is the best estimate of what is required to set- US dollars. If the hedged volume exceeds the value of the expected net inflow and tle the existing obligation on the reporting date. Where it is important when in time there is an unrealized exchange loss, it is recognized as a financial expense. If payment will be made, provisions are estimated by discounting the forecast future there is an unrealized exchange gain, it is not reported. cash flow at a pre-tax interest rate that reflects current market estimates of the time Accrual of forward exchange discounts and premiums is done in accordance value of money and, where appropriate, the risks associated with the liability. with recommendation No. 7 of the Swedish Accounting Standards Board. The difference between the average exchange rate and the year-end rate on forward 25.1 Restructuring exchange contracts entered into is reported as a contingent liability if the year-end A provision for restructuring is recognized when a detailed, formal restructuring rate is higher than the average rate. plan has been established and the restructuring has either begun or been publicly announced. No provision is made for future operating losses. 27.4 Financial guarantees The Parent Company’s financial guarantee agreements mainly consist of guaran- 25.2 Remediation expenses tees to the benefit of subsidiaries. The financial guarantee agreements imply that Provision for remediation expenses is made when the Group has a legal or informal the company has a commitment to remunerate the bearer of a debt instrument for obligation; for example, when the Environmental Court requires a financial guaran- losses incurred as a result of the failure of a given debtor to make full payment tee for expanded operations. on due date in accordance with the terms of the agreement. The Parent Company applies one of the relief rules permitted by SFASC, compared with the rules in IAS 26 Contingent liabilities 39, to its reporting of financial guarantee agreements to the benefit of subsidiaries. A contingent liability is reported if there is a possible commitment stemming from Financial guarantee agreements are reported as a provision in the balance sheet events whose occurrence is dependent on one or more uncertain future events as when the Parent Company has an obligation for which settlement will probably well as when there is a commitment that is not recognized as a liability or provision require payment. because it is unlikely that an outflow of resources will be required. 27.5 Anticipated dividends 27 THE PARENT COMPANY’S ACCOUNTING PRINCIPLES Anticipated dividends from subsidiaries are reported only in cases where the Par- The Parent Company complies with the Swedish Annual Accounts Act (1995:1554) ent Company has the sole right to decide the size of the dividend and the Parent and SFASC recommendation RFR 2.2 Reporting for Legal Entities. Statements is- Company has decided the size of the dividend before the Parent Company has sued by the Swedish Financial Accounting Standards Council’s Emerging Issues published its financial reports. Task Force for publicly listed companies are also applied. RFR 2.2 entails that the Parent Company in preparing the annual accounts for the legal entity shall 27.6 Intangible assets apply all IFRS and statements approved by the European Union as far as possible 27.6.1 Research and development within the framework of the Swedish Annual Report Act and taking into account the In the Parent Company, all development expenditures are reported as expenses in relationship between reporting and taxation. The recommendation states the excep- the income statement. tions and supplements that shall be made with respect to the IFRS. For the coming financial year (2010), RFR 2.3 Accounting for legal entities, 27.7 Employee benefits and amended IAS 1 Presentation of financial statements will entail that the Parent 27.7.1 Defined-benefit plans Company will present a new report, “Statement of Comprehensive Income” as a In the Parent Company, principles other than those described in IAS 19 are applied separate statement, after the income statement. The effect is that the report over when calculating defined-benefit plans. The Parent Company complies with the changes in shareholders’ equity will have a content similar to that of the Group’s, provisions of the Law on Safeguarding of Pension Commitments and the regulations i.e., excluding income and expense that were previously recognized directly in of the Financial Supervisory Authority, since this is a condition for tax deductibility. shareholders’ equity but are now recognized in other comprehensive income, in The essential differences, compared to IAS 19, are the way in which the discount the statement of comprehensive income. rate is determined, that calculation of defined-benefit commitments is based on current salary levels without assuming any future salary increases, and that all actuarial gains and losses are reported in the income statement when they arise. NOTES TO THE FINANCIAL STATEMENTS 83 09

27.8 Taxes 28.2 Pension benefits In the Parent Company, deferred tax liabilities are recognized as part of untaxed Several assumptions are important components in the actuarial methods applied reserves. In the consolidated accounts, untaxed reserves are divided between de- in the estimation of pension obligations, and these may have a significant impact ferred tax liabilities and shareholders’ equity. on the reported net liability and the annual pension expense. The discount rate and the estimated return on plan assets are two critical assumptions that are used 27.9 Group contributions and shareholders’ contributions for legal entities in calculating the year’s pension expense and the current value of the pension Shareholder contributions are recognized in the Parent Company in accordance obligations. with the statement from the Swedish Financial Accounting Standards Council (UFR These assumptions are revised each year, for each pension plan, in each country. 2). Shareholder contributions are taken directly to shareholders’ equity by the re- Several factors do not change very often; for example, personnel turnover and ceiver and capitalized in the shares and participations by the giver, to the extent retirement age. Due to financial and other reasons, the actual outcomes often differ that no write-down is required. Group contributions are reported based on their from the actuarial assumptions. economic significance. This means that group contributions rendered for the pur- The discount rate is used to measure the present value of future cash flows at pose of minimizing the Group’s total tax are reported directly against retained the measurement date. This rate shall be determined by reference to market yields earnings after deducting their current tax effect. at the balance sheet date on high-quality corporate bonds or, if there is no deep Group contributions equated with dividends are recognized as a dividend. This market for such bonds, the market yields on government bonds. A lower discount means that Group contributions received and the effect on current tax are recog- rate increases the present value of the pension obligation and the annual pension nized through profit or loss. Group contributions paid and the effects on current tax cost. are recognized directly in retained earnings. In order to determine the expected rate of return on plan assets, LKAB consid- Group contributions equated with shareholders’ contributions are recognized by ers the current and anticipated categories of plan assets as well as historic and the recipient directly in retained earnings taking into account the effect on current expected returns on the various categories. tax. The contributor recognizes Group contributions and the effect on current tax Compared to the previous year, the average discount rate has changed from as an investment in shares in Group companies to the extent that no write-down 4.25 percent to 4.0 percent. The expected weighted average return on plan assets is required. was 5.0 percent in 2009 compared to 5.25 percent in 2008. In LKAB, group contributions are reported with the purpose of minimizing the Group’s total tax. 28.3 Taxes Significant estimates are made to determine both current and deferred tax liabili- 28 Significant estimates and assessments ties/assets. LKAB must determine the possibility that deferred tax assets will be In presenting the financial reports, the management and board must make certain utilized and offset against future taxable profits. The actual results may differ from estimates and assumptions that affect the reported amounts pertaining to assets, these estimates, for instance due to changes in the business climate, changed tax liabilities, revenue and expenses, and other disclosures, for example, contingent legislation, or the outcome of the final review by tax authorities and tax courts of liabilities. tax returns. Below, the estimates and assessments that are considered to be of most importance for understanding the financial statements, with respect to the degree of 28.4 Disputes significance and uncertainty, are presented. The conditions for LKAB’s operations LKAB is party to a number of disputes and legal proceedings in the ordinary course change successively, which means that these assessments change. of business. Management consults with legal experts on issues related to legal disputes and with other experts internal or external to the Company on issues related 28.1 Provisions as a result of mining operations to the ordinary course of business. It is management’s best estimate that neither the LKAB’s orebodies in Kiruna and Malmberget extend under the two communities. Parent Company, nor any subsidiary, is currently involved in legal proceedings or Surveys and calculations show that, with reasonable assumptions, it is profitable arbitration that may be deemed to have a material negative effect on the business, to mine to a certain depth. Continued mining will entail that local infrastructure the financial position or results of operations. in different areas overlying and adjacent to the orebodies must be demolished, relocated or otherwise decommissioned. Stakeholders include tenants and home owners, companies, municipalities, public authorities and the Swedish state. Provisions for future expenses that result from mining operations constitute a significant assessment for LKAB in every reporting period. In assessing whether a provision should be reported, LKAB applies criteria in accordance with IAS 37. A provision is reported when there is an existing legal or informal obligation due to a past event. At the same time, a further criterion is that it must probable that economic-resources outflow will be required to settle the obligation and the amount can be reliably estimated. Further, the interpretation of what constitutes an existing obligation is problematic. The consequences of impacts on the local communities are long-term and affect many stakeholders. LKAB complies with the regulations regarding compensation that are set out in the Minerals Act, the Environmental Protection Act and other relevant legislation. Depending on the nature of the obligation that may arise, the amounts to be reported as provisions vary. In recent years, the amounts of provisions have varied from several million to nearly two billion kronor. Ongoing assessments of the extent of the respective obligations must therefore be made, which is why estimates and assumptions must be reviewed regularly. 84 NOTES TO THE FINANCIAL STATEMENTS 09

Note 2 Revenue distribution Group Parent Company MSEK 2009 2008 2009 2008 Net sales: Sale of goods – iron ore 9 376 20 307 9 570 20 626 Sale of goods – industrial minerals 1 948 2 561 Other 234 260 Total 11 558 23 128 9 570 20 626

Note 3 Segment reporting

Segment information The Group consists of the following business segments: Group Management has set up business segments based on the information that Mining Division The Mining Division mines and processes iron ore for products is used to make strategic decisions in LKAB’s business operations. The Group’s for steelmaking. The main products are pellets and fines, and the number of internal reporting system is this, and a product and division perspective has been customers is limited to about twenty. adopted. Group Management assesses and follows up operations in the respec- Minerals Division develops, produces and markets industrial mineral products for tive divisions, and follow-up is focused on operating income and operating assets several application areas and customers in many different industries throughout in the operations. the world. The most important industries are construction and civil engineering, Intra-group prices between segments are set based on the arm’s length princi- the oil and gas industry, the rubber, plastics and paint industries, the chemical ple, i.e., between parties that are independent of each other, well-informed and industry, the automotive industry, and foundries. There are several thousand have a stake in the transactions. Income, assets and liabilities for the segments customers. include directly attributable items. Special Businesses LKAB has organized most of its subsidiaries under the Special Non-distributed items consist of net financial income/expense and tax Businesses Division. These companies are mainly suppliers to the Mining Division expenses. Unallocated assets and liabilities include income tax receivables and and the Minerals Division. Examples of goods and services sold include drilling payables, financial investments and financial liabilities. The segments’ investments equipment, explosives, concrete, tunnel driving, rock reinforcement, and crushing in intangible and tangible fixed assets include all investments with the exception of iron ore. of those in short-term inventory and inventory of minor value. The following segment information is reported:

Operating segments Group Special Mining Division Minerals Division Businesses Total Eliminations Group MSEK 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 External revenue 9 376 20 307 1 948 2 561 234 260 11 558 23 128 11 558 23 128 Intra-Group revenue 237 396 193 192 864 633 1 294 1 221 -1 294 -1 221 Total revenue 9 613 20 703 2 141 2 753 1 098 893 12 852 24 349 -1 294 -1 221 11 558 23 128

Operating income per segment 537 9 993 -95 216 168 140 610 10 349 610 10 349 Consolidation adjustments 49 -22 Operating income 659 10 327 Net financial income/expense 533 62 Income before tax 1 192 10 389 Tax -473 -2 748 Net income for the year 719 7 641

Assets 27 862 26 262 1 352 2 054 1 063 1 083 30 277 29 399 -2 769 -3 806 27 508 25 593 Unallocated assets 8 047 10 736 Total assets 35 555 36 329

Liabilities 6 885 7 310 1 029 1 469 375 501 8 289 9 280 -1 554 -845 6 735 8 435 Unallocated liabilities 3 419 2 676 Total liabilities 10 154 11 111

Capital expenditures *) 3 461 4 608 13 55 69 69 3 543 4 732 3 543 4 732 Depreciation 1 741 1 387 47 49 39 29 1 827 1 465 1 827 1 465 Write-downs 249 249 317

*) refers to tangible and intangible assets NOTES TO THE FINANCIAL STATEMENTS 85 09

Note 3 Segment reporting (cont.) Operating segments (cont.) Geographic areas The Group’s sales are mainly made from Sweden and by the Swedish companies. Manufacturing of the Group’s products has taken place almost exclusively in Sweden. Investments have been made principally in Sweden. Incomes are reported in the countries/regions in which the respective customers operate. Values of assets per country/ region are reported according to where the assets are located, and incomes are reported on the basis of where sales, production, delivery and invoicing take place, regardless of where the customers are located.

Group Sweden Other European countries Asia Rest of world**) MSEK 2009 2008 2009 2008 2009 2008 2009 2008 External revenue 9 847 21 045 845 1 104 747 887 119 92 Assets*) 19 048 17 819 2 849 2 437 41 44 1 2 Capital expenditures *) 3 042 3 862 500 868 1 1 0 1

Information about major customers According to IFRS 8, the company must provide information about its major customers. The LKAB Group has three major customers, each of which accounts for more than ten percent of the Group’s sales. Sales to these customers amounted to 10 percent, 10 percent and 13 percent of total sales and are reported in the operating segment Mining Division.

Parent Company Mining Division Minerals Division Special Businesses Parent Company MSEK 2009 2008 2009 2008 2009 2008 2009 2008 Net sales 9 570 20 626 9 570 20 626

Parent Company Europe Asia Rest of world**) Parent Company MSEK 2009 2008 2009 2008 2009 2008 2009 2008 Net sales 6 195 14 847 2 874 4 359 501 1 420 9 570 20 626

*) refers to tangible and intangible assets **) countries not in Europe or Asia

Note 4 Other operating revenues Note 5 Other operating expenses

Group Parent Company Group Parent Company MSEK 2009 2008 2009 2008 MSEK 2009 2008 2009 2008 Rental revenue, properties 145 139 2 Exchange rate gains on receivables/ Gain on sale of fixed assets 2 2 liabilities of an operating nature 25 Exchange rate gains on receivables/ Property expenses 102 103 liabilities of an operating nature 10 27 10 7 Insurance compensation 9 19 Insurance compensation 338 412 Loss on sale of fixed assets 2 Rental and leasing incomes 14 14 22 Other 204 183 126 100 Other 94 51 133 124 317 286 145 125 263 557 159 567

Note 6 Employees, personnel costs and remuneration to senior executives Average number of employees of which of which of which of which Parent Company 2009 women men 2008 women men Sweden 2 800 13% 87% 3 058 14% 86% Total, Parent Company 2 800 13% 87% 3 058 14% 86%

Subsidiaries Sweden 405 12% 88% 386 13% 87% China 62 15% 85% 72 12% 88% The Netherlands 23 35% 65% 22 32% 68% Norway 205 8% 92% 237 8% 92% UK 205 21% 79% 218 19% 81% Germany 22 45% 55% 18 50% 50% Other countries 56 27% 73% 75 24% 76% Total in subsidiaries 978 15% 85% 1 028 15% 85%

Group total 3 778 13% 87% 4 086 14% 86% 86 NOTES TO THE FINANCIAL STATEMENTS 09

Gender distribution in corporate management 2009 2009 2008 2008 Share of Share of Share of Share of Parent Company women men women men Board of Directors 27% 73% 27% 73% Other senior executives 20% 80% 10% 90% Group total Board of Directors 14% 86% 7% 93% Other senior executives 13% 87% 10% 90%

Salaries and other remuneration by country, senior executives and other employees, and social security contributions in the Parent Company 2009 2008 Senior Senior Parent Company executives Other executives Other MSEK (21 people) employees Total (22 people) employees Total Salaries and other remuneration Sweden 17 1 216 1 233 17 1 305 1 322 Parent Company, total 17 1 216 1 233 17 1 305 1 322

Social costs1 627 627 1of which pension expenses 238 195

Salaries and other remuneration, pension expenses and pension commitments for Ola Johnsson serves as President until April 2009. Ola Johnsson’s employment senior executives in the Group as President terminated upon his death on 5 August 2009. Ola Johnsson’s fixed remuneration was 250,000 kronor per month, with the customary salary benefits. Group 2009 2008 No variable remuneration was paid. Senior Senior Ola Johnsson’s pension agreement was renegotiated to a premium-based plan executives executives in March 2009 according to the following: retirement age for the President is MSEK (41 people) (43 people) 62 years. LKAB makes a yearly provision of 35 percent of the President’s current Salaries and other remuneration 44 43 fixed annual salary for a pension plan, chosen by the President, which may (of which bonuses and similar) (1) include the ITP plan. That part of the alternative ITP premium that is not used to Pension expenses 15 18 cover premiums for the ITP plan can be used by the President for a complemen- Pension commitments 25 74 tary pension plan. Accrued pension benefits from earlier employment agreements are vested benefits. The President is entitled to decline salary in favor of Remuneration to senior executives additional pension provisions up to a maximum level that is decided by LKAB. Senior executives When Ola Johnsson took leave of absence due to illness and later died, premium Senior executives include Board members, the President and other senior execu- payments for 2009 were made according to his earlier agreement, which is in tives. The Group’s ‘other senior executives’ include employees who are members agreement with the below-mentioned with reference to Lars-Eric Aaro and two of Group Management together with the President. other senior executives. During the period 22 April - 31 December, Lars-Eric Aaro was Acting President Principles for remuneration to senior executives and CEO. A monthly salary of 250,000 kronor was paid for this period. During Remuneration to the Chairman and Board members is decided by the Annual this period, Lars-Eric Aaro retained the pension terms to which he was entitled General Meeting. In addition, remuneration for committee work is paid out. in his ordinary employment. The retirement age is 60 years. Pension is payable For remuneration to Group Management, the AGM has decided that the Gov- at 65 percent of the pension-carrying salary (defined according to ITP plan, and ernment’s guidelines for employment terms for employees in senior management free car benefit) at the time of retirement for the period up to the age of 65. The positions and for incentive schemes for employees of state-owned companies shall pension commitment is secured via endowment insurance taken out by LKAB with apply. The Government’s guidelines were updated in April 2009. an insurance company. The pension commitment is benefit-defined and vested. From the age of 65, pension is payable in accordance with the ITP plan with The preparation and decision process for establishing remuneration to senior a supplement for salary segments between 30 and 50 base amounts. The sup- executives plement is 32.5 percent of the pensionable salary (defined according to the ITP Compensation for the President as well as salary setting principles for members plan). The obligation above and beyond the general pension plan is secured via of Group Management are drafted and determined by a compensation committee endowment insurance taken out by LKAB with an insurance company. In addition that is appointed by the Board. The committee consists of the Chairman and three to the ITP plan’s family pension (survivor annuity), a special family pension is pay- other board members. The Board votes on the proposals of the committee. The able (extended survivor annuity). Any bonus paid on endowment or pension insur- Chairman of the Board approves the annual salary review of other members of ance policies accrues in its entirety to the senior executives as increased pension. Group Management. Two other senior executives are subject to the same pension terms. For other senior executives who were appointed to Group Management Principles for remuneration to senior executives between 2005 and 2008 (three persons), the retirement age is 62 years. In The President and the other members of Group Management are paid a fixed addition to pension benefits regulated by collective agreements (defined accord- salary. The salaries are pensionable. ing to ITP plan), 14-18 percent of basic annual salary is allocated as a pension On 1 January 2010, Lars-Eric Aaro assumed the position of President and premium. CEO of LKAB. As of 1 January 2010, a monthly salary of 300,000 kronor is For other senior executives who were appointed to Group Management in paid. Retirement age for the President is 65 years. The President’s pension plan 2009 (1 person), the retirement age is 65 years. The pension is contribution- is a defined-contribution plan whereby LKAB makes a yearly provision of 30 defined and follows the ITP 1 plan, meaning 4.5 percent of salary portions up to percent of the President’s current fixed annual salary for a pension plan, chosen 7.5 income base amounts and 30 percent of salary portions thereafter. by the President, which may include the ITP plan. That part of the alternative For senior executives, notice of termination is six months for both parties. When ITP premium that is not used to cover premiums for the ITP plan can be used by notice of termination of employment is given by the company, the severance pay the President for a complementary pension plan. Accrued pension benefits from is the equivalent of 18 monthly salaries. earlier employment agreements are vested benefits. The President is entitled to For further information, see the table “Remuneration and other benefits to decline salary in favor of additional pension provisions up to a maximum level senior executives in Group Management, 2009”. that is decided by LKAB. NOTES TO THE FINANCIAL STATEMENTS 87 09

Remuneration and benefits to Board members 2009 2008 SEK ’000 Director’s fee *) Director’s fee *) Chairman of the Board, Björn Sprängare 350 282 Board member, Christer Berggren 220 179 Board member, Stina Blombäck 160 119 Board member, Per-Ola Eriksson 160 119 Board member, Lars-Åke Helgesson 220 179 Board member, Anna-Greta Sjöberg 220 179 Board member, Maija-Liisa Friman 160 Board member, Egil M. Ullebö 160 119 Employee representatives (3 persons) 150 300 Employee representative deputies (3 persons) 99 201 Total 1 899 1 677

*) Remuneration includes fees for work on the Board’s audit committee, currency committee and finance committee.

Remuneration and other benefits to other senior executives 2009 Variable Other Pension Pension SEK ’000 Fixed salary remuneration benefits Expense1) Total obligations President, Ola Johnsson 2) 1 984 306 756 3 046 4 553 Acting President, Lars-Erik Aaro 3) 2 771 106 2 631 5 508 4 778 Other senior executives (8 people) 9 887 446 6 231 16 564 8 082 Total 14 642 858 9 618 25 118 17 413

2008 President, Ola Johnsson 2 874 81 1 826 4 781 4 254 Former President, Martin Ivert 856 15 2 068 2 939 37 768 Other senior executives (9 people) 13 846 567 8 220 22 633 21 944 Total 17 576 663 12 114 30 353 63 966

1) Pension cost includes special employer’s contribution (tax). 3) Remuneration refers to 8 months as Acting President and 4 months as President. 2) Only part of 2009.

A summary of taxable remuneration and benefits, as well as pension expenses for the President and other senior executives is given below (amounts in SEK ’000).

Remuneration and other benefits to senior executives in Group Management, 2009 Variable Other Pension SEK ’000 Fixed salary remuneration benefits1) expense2) Total President, Ola Johnsson 3) 1 984 306 608 2 898 Acting President, Lars-Erik Aaro 4) 2 771 106 2 116 4 993 Vice President Leif Boström 1 898 78 767 2 743 Vice President Anders Furbeck 1 908 69 949 2 926 Vice President Johan Heyden 3) 366 19 225 610 Vice President Mats Pettersson 3) 349 11 207 567 Vice President Grete Solvang Stoltz 3) 408 25 92 525 Vice President Per-Erik Lindvall 5) 2 039 84 1 550 3 673 Vice President Anders Kitok 1 550 88 717 2 355 Vice President Charlotta Fogde 1 369 72 532 1 973 Total 14 642 858 7 763 23 263

1) Other benefits include allowances for car, food and life insurance benefits. 4) Remuneration refers to 8 months as Acting President and 4 months as President. 2) Pension cost excluding special employer’s contribution (tax). 5) Remuneration from subsidiaries for part of 2009. 3) Only part of 2009.

Remuneration and other benefits to senior executives in Group Management, 2008 Variable Other Pension SEK ’000 Fixed salary remuneration benefits1) expense2) Total President, Ola Johnsson 4) 2 874 81 1 472 4 427 President Martin Ivert 3) 856 15 1 563 2 434 Vice President Lars-Eric Aaro 2 254 92 1 300 3 646 Vice President Leif Boström 1 875 75 775 2 725 Vice President Anders Furbeck 1 825 70 940 2 835 Vice President Johan Heyden 1 473 78 554 2 105 Vice President Jan-Erik Jatko 3) 1 154 34 202 1 390 Vice President Mats Pettersson 1 641 81 496 2 218 Vice President Per-Erik Lindvall 5) 2 050 92 1 459 3 601 Vice President Anders Kitok 3) 1 376 45 859 2 280 Vice President Charlotta Fogde 3) 197 1 30 228 Total 17 576 663 9 650 27 889

1) Other benefits include allowances for car, food and life insurance benefits. 4) Remuneration refers to 10 months as President and 2 months as Senior Vice President. 2) Pension cost excluding special employer’s contribution (tax). 5) Refers to remuneration from subsidiaries 3) Only part of 2008. 88 NOTES TO THE FINANCIAL STATEMENTS 09

Absence due to illness Note 9 Net financial income/expense (in Parent Company, employees in Sweden only) 2009 2008 Total absence due to illness as percentage of Group regular working hours 2.8% 3.1% MSEK 2009 2008 Percentage of total absence due to illness related Income from financial items to extended absences of 60 days or more 35.7% 40.2% Interest income 108 219 Absence due to illness by gender: Interest rate component in forward Men 2.8% 3.1% exchange agreements 125 Women 2.8% 2.8% Dividend Absence due to illness by age category: Financial assets held for sale 49 64 29 years or younger 2.4% 2.0% Financial assets recognized at fair value 30-49 years 2.6% 2.9% (fair value option) 16 23 50 years or older 3.2% 3.9% Return on assets under management 62 67 Net profit/loss For information on post-employment benefits, etc., see Note 25 Employee benefits. Financial assets recognized at fair value (fair value option) - return on market portfolios (excl. dividends) 326 Note 7 Auditors’ fees and compensation - revaluation of financial assets 0 6 Total net profit/loss 326 6 Group Parent Company Net exchange rate differences (net) 144 52 MSEK 2009 2008 2009 2008 Total income from financial items 705 556 KPMG Audit assignments 7 7 5 4 Financial expenses Other assignments 3 4 2 3 Interest rate component in forward Other auditors exchange agreements -27 Audit assignments 1 0 0 0 Interest expense on defined-benefit plans -134 -132 Net profit/loss Audit assignments involve examination of the annual report and financial account- Financial assets recognized at fair value ing as well as the administration by the Board and the President, other tasks related (fair value option) to the duties of the company’s auditors and consultation or other services that may - return on market portfolios (excl. dividends) -350 result from observations noted during such examinations or implementation of such Other financial expenses -11 -12 other tasks. All other tasks are defined as other assignments. Total financial expenses -172 -494 Net financial income/expense 533 62

Note 8 Operating expenses by nature of expense Net profit/loss reported in net financial income/expense under exchange rate differ- Group Parent Company ences refers mainly to revaluation of liquid assets and receivables from intra-group MSEK 2009 2008 2009 2008 lending. Return on assets under management refers to net return on plan assets. The Personnel costs 2 486 2 678 1 902 2 001 return on plan assets is not an actual return, but an anticipated rate of return on Materials, etc. 2 336 3 057 1 625 1 925 funded obligations. Closing-day price data is used for portfolio valuation. No interest Energy 881 1 359 752 1 199 incomes or interest expenses refer to items that are note recognized at fair value. Transport costs 993 953 1 099 1 446 Interest income and similar income statement items include returns on money-mar- Depreciation 1 827 1 465 1 542 1 237 ket instruments and bonds amounting to MSEK 97 (175). A higher interest in Swedish Write-downs of fixed assets 249 kronor compared to USD has since the contracts were signed had a negative effect Other operating expenses 2 390 3 846 2 288 3 451 of MSEK -27 (125), which is coupled to the item interest rate component in forward 11 162 13 358 9 208 11 259 exchange agreements. Revaluation of financial assets is done with discounted cash flows based on available market rates. During 2009, revaluation affected netfi- The decision was taken during the fourth quarter to close the Minerals Division’s oli- nancial income/expense by MSEK 0.1 (6). The weakening of the Swedish krona vine mine in Greenland. The cost level of, above all, sea-freight rates has impaired has meant significant exchange-rate gains during the year. Other financial expenses competitive advantage. The closure is expected to be complete during 2010. consist mainly of bank and administration costs. Close-down costs amounting to MSEK 317 have impacted earnings. Parent Company Income from Income from Close-down costs are distributed as follows: participations participations Write-downs of fixed assets in Group in associated Mineral rights 66 companies companies Buildings and land 6 MSEK 2009 2008 2009 2008 Machinery and other technical plant 177 Dividend 107 33 0 2 249 Parent Company Income from Inventories 12 other securities Interest Close-down costs 52 and receivables income and Currency effect 4 held as fixed similar income 317 assets statement items MSEK 2009 2008 2009 2008 See Notes 13 and 14 Intangible and fixed assets Interest income, Group companies 10 19 58 104 Tax expenses referring to closure are given in Note 11 Income taxes. Interest income, forward exchange premiums 44 56 Interest income, other 121 201 Return on market portfolio 261 -350 Dividends, shares 49 61 15 23 Revaluation of financial receivables 0 6 Exchange rate differences, foreign currency 180 67 59 86 679 101

Dividends refer to dividends on holdings in SSAB. Interest income and similar income statement items include returns on money-market instruments and bonds amounting to MSEK 97 (175). NOTES TO THE FINANCIAL STATEMENTS 89 09

Interest expense and similar profit/loss items Parent Company Parent Company MSEK 2009 2008 MSEK 2009 2008 Current tax expense (-) Interest expenses, Group companies -9 -32 Tax expense for the period -220 -1 977 Interest expenses, pension liability -28 -40 Adjustment for taxes related to previous years 27 -233 Interest expenses, other -15 -14 -193 -2 210 Other -8 -6 Deferred tax expense (-) -60 -92 Deferred tax related to temporary differences -36 175 Deferred tax as a result of changes in tax rates Interest expenses on pension liabilities have been calculated at an interest -13 -36 162 rate of 3.9 (5.7) percent. Other financial expenses consist mainly of bank Total reported tax expense in Parent Company -229 -2 048 and administration costs. Reconciliation of effective tax Income from financial instruments reported in Group 2009 2008 operating income is stated in the following table. MSEK (%) 2009 (%) 2008 Group Parent Company Income before tax 1192 10 389 MSEK 2009 2008 2009 2008 Tax according to current tax rate Exchange rate gains/losses on receivables for Parent Company 26.3% -313 28% -2 909 and accounts payable 10 27 10 -18 Non-deductible expenses 8.6% -102 0.1% -10 Net profit/loss on derivatives reported Tax-exempt income -8.8% 17 -0.3% 33 in operating income -1 645 32 -1 662 51 Tax related to previous years -2.3% 27 0.0% -5 Effect of change in tax rates -1.7% 173 The derivatives reported in operating income refer mainly to hedging of ac- Standard interest on tax allocation reserve 4.6% -40 0.4% -42 counts receivable. Other 11.3% -62 -0.1% 12 Reported effective tax rate 39.7% -473 26.4% -2 748

Parent Company 2009 2008 Note 10 Appropriations MSEK (%) 2009 (%) 2008 Parent Company Income before tax 995 7 042 MSEK 2009 2008 Tax according to current tax rate Difference between book depreciation for Parent Company 26.3% -262 28% -1 972 and appreciation according to plan: Non-deductible expenses 1.4% -14 0.1% -10 Underground installations 1 3 Tax-exempt income -4.5% 45 -0.4% 30 Buildings and land 2 1 Tax related to previous years -2.7% 27 0.1% -4 Machinery and inventories -608 -973 Effect of change in tax rates 0.3% -24 Tax allocation reserve, provisions for the year -2 200 Standard interest on tax allocation reserve 3.9% -39 0.6% -42 Tax allocation reserve, reversal for the year 294 147 Other -1,4% 14 0,4% -26 Total -311 -3 022 Reported effective tax rate 23,0% -229 29,1% -2 048

Deferred tax on appropriations amounted to MSEK -82 (-795). Tax items reported directly in other comprehensive income Deferred tax is only reported in the consolidated income statement. Group MSEK 2009 2008 Deferred tax attributable to forward Note 11 Taxes exchange contracts -544 478 -544 478 Reported in income statement Group Parent Company MSEK 2009 2008 MSEK 2009 2008 Current tax expense (-) Tax on Group contributions paid 12 41 Tax expense for the period -299 -1 993 12 41 Adjustment for taxes related to previous years 26 -234 -273 -2 227 Deferred tax expense (-) Deferred tax related to temporary differences -200 -681 Deferred tax as a result of changes in tax rates 160 -200 -521 Total reported tax expense in Group -473 -2 748 90 NOTES TO THE FINANCIAL STATEMENTS 09

Reported on balance sheet Reported deferred tax recoverable and liabilities

Deferred tax recoverable and liabilities refer to the following: Deferred Deferred Group tax recoverable tax liability Net MSEK 2009 2008 2009 2008 2009 2008 Buildings and land 48 22 -2 -22 46 0 Machinery and inventories 160 184 -1 653 -1 469 -1 493 -1 285 Pension provisions 212 193 -84 128 193 Tax allocation reserves -1 829 -1 913 -1 829 -1 913 Provisions for insurance claims -118 -114 -118 -114 Cash-flow hedges 369 -166 -166 369 Loss carryforwards 21 21 Write-downs 18 45 18 45 Short-term investments -17 -17 Other 12 8 -1 11 8 Tax recoverable/liabilities 450 842 -3 870 -3 518 -3 420 -2 676 Offset -450 -842 450 842 Tax recoverable/liabilities, net -3 420 -2 676 -3 420 -2 676

Reported deferred tax recoverable and liabilities Deferred tax recoverable and liabilities refer to the following: Deferred Deferred Parent Company tax recoverable tax liability Net MSEK 2009 2008 2009 2008 2009 2008 Buildings and land 28 21 28 21 Machinery and inventories 134 181 134 181 Pension provisions 166 161 166 161 Other 9 10 9 10 Taxes recoverable 337 373 337 373

Change in deferred tax in temporary differences and loss carryforwards

Group Reported in Reported in Balance income comprehensive Other Balance MSEK 1 Jan. 2008 statement income changes 31 Dec. 2008 Buildings and land -15 15 0 Machinery and inventories -1 336 51 -1 285 Pension provisions 326 -133 193 Tax allocation reserves -1 444 -469 -1 913 Provisions for insurance claims -99 -15 -114 Cash-flow hedges -105 -4 478 369 Loss carryforwards 17 4 21 Other, write-downs 26 19 45 Other, acquisition subsidiaries -7 7 Other 2 4 2 8 - 2 635 -521 478 2 -2 676

Group Reported in Reported in Balance income comprehensive Other Balance MSEK 1 Jan. 2009 statement income changes 31 Dec. 2009 Buildings and land 0 46 46 Machinery and inventories -1 285 -208 -1 493 Pension provisions 193 -65 128 Tax allocation reserves -1 913 84 -1 829 Provisions for insurance claims -114 -4 -118 Cash-flow hedges 369 9 -544 -166 Loss carryforwards 21 -21 Write-downs 45 -27 18 Short-term investments 0 -17 -17 Other 8 3 11 -2 676 -200 -544 -3 420 NOTES TO THE FINANCIAL STATEMENTS 91 09

Deferred tax expense referring to loss carryforwards and write-down amounting to (cont.) MSEK 48 refer to closure of the operation in Greenland. Reported values Per 31 Dec. 2008 222 90 17 329 Parent Company Reported Per 31 Dec. 2008 217 103 108 428 Balance in income Balance MSEK 1 Jan. 2008 statement 31 Dec. 2008 Per 31 Dec. 2009 217 103 108 428 Buildings and land 16 5 21 Per 31 Dec. 2009 215 25 70 310 Machinery and inventories 17 164 181 Pension provisions 172 -11 161 Amortization and write-downs are reported in the following lines in the income Other 6 4 10 statement 211 162 373 Group MSEK 2009 2008 Reported Cost of goods sold -81 -13 Balance in income Balance 81 -13 MSEK 1 Jan. 2009 statement 31 Dec. 2009 Of which write-downs -66 Buildings and land 21 7 28 Machinery and inventories 181 -47 134 Write-down per asset class Pension provisions 161 5 166 Write-downs for the year of MSEK 66 for mineral rights refer to the closure of the Other 10 -1 9 Mineral Division’s olivine mine in Greenland, See Note 8 for details. 373 -36 337 Parent Company Mineral MSEK rights Other Total Accumulated acquisition values Note 12 Earnings per share Opening balance 1 Jan. 2008 161 6 167 The number of shares for the years 2009 and 2008, respectively, is 700,000. Investment 8 8 Net income attributable to Parent Company shareholders amounts to MSEK 719 Change in emissions rights 90 90 (7,641). Earnings per share thereby amount to 1,027 (10,916) kronor per share. Closing balance 31 Dec. 2008 161 104 265 No options or potential common shares exist, which is why there is no dilution. Opening balance 1 Jan. 2009 161 104 265 Investment Note 13 Intangible assets Change in emissions rights -34 -34 Closing balance 31 Dec. 2009 161 70 231 All of the Group’s intangible and fixed assets have been acquired. Accumulated amortization Group Opening balance 1 Jan. 2008 -161 -1 -162 Mineral Depreciation/write-downs for the year -2 -2 MSEK Goodwill rights Other Total Closing balance 31 Dec. 2008 -161 -3 -164 Accumulated acquisition values Opening balance 1 Jan. 2008 223 278 25 526 Opening balance 1 Jan. 2009 -161 -3 -164 Investments 11 11 Depreciation/write-downs for the year -2 -2 Change in emissions rights 90 90 Closing balance 31 Dec. 2009 -161 -5 -166 Exchange rate differences for the year -5 13 3 11 Closing balance 31 Dec. 2008 218 291 129 638 Reported values 31 Dec. 2008 0 5 5 Opening balance 1 Jan. 2009 218 291 129 638 Per 31 Dec. 2008 0 101 101 Investments Change in emissions rights -34 -34 Per 31 Dec. 2009 0 101 101 Disposals and retirements -2 -2 Per 31 Dec. 2009 0 65 65 Exchange rate differences for the year -4 -2 -6 Closing balance 31 Dec. 2009 214 289 93 596 Write-down requirements for cash-generating units containing goodwill The following cash-generating units, which are part of the primary segment Min- Accumulated amortization erals Division, have significant goodwill values in relation to the Group’s total Opening balance 1 Jan. 2008 -1 -161 -8 -170 reported goodwill value. Depreciation/write-downs for the year -13 -13

Closing balance 31 Dec. 2008 -1 -161 -21 -183 MSEK 2009 2008

Minelco Ltd 115 129 Opening balance 1 Jan. 2009 -1 -161 -21 -183 Minelco OY 41 43 Depreciation/write-downs for the year -11 -4 -15 175 172 Disposals and retirements 3 2 5 Units without significant goodwill value, compiled 39 45 Exchange rate differences for the year 2 -2 0 214 217 Closing balance 31 Dec. 2009 1 -171 -23 -193

Changes over the year are due to exchange-rate effects. Accumulated write-downs Assessment of the recoverable amounts of cash-generating units is based on the Opening balance 1 Jan. 2008 -27 -27 same important principles. Closing balance 31 Dec. 2008 -27 -27 The impairment test is based on value in use. This value is based on cash-flow

forecasts where the first three years are based on the three-year business plan Opening balance 1 Jan. 2009 -27 -27 established by the Minerals Division’s corporate management. The total forecast Write-downs for the year -66 -66 period corresponds to the useful life of the unit’s most important assets. The cash Closing balance 31 Dec. 2009 -93 -93 flow forecast after the first three years has been based on an annual growth rate of

2 (2) percent, which corresponds to the long-term growth rate of the unit’s markets. The forecast cash flows have been valuated at present value with a discount rate of 8 (10) percent before tax. Important assumptions with respect to the three-year business plan are described below. 92 NOTES TO THE FINANCIAL STATEMENTS 09

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

It is the corporate management’s assessment that no reasonable changes in these assumptions will result in recoverable amounts that are lower than the reported values of the units.

Note 14 Tangible assets Group Machines and other Inventories, Buildings Underground technical tools and Construction MSEK and land installations installations installations in progress Total Acquisition value Opening balance 1 January 2008 3 914 4 074 12 249 2 451 9 059 31 747 Acquisitions 103 2 199 544 1 875 4 721 Reclassifications 1 872 55 3 264 20 -5 211 Disposals and retirements -32 -18 -164 -52 1 -265 Exchange rate differences 4 18 -5 -55 -38 Closing balance 31 December 2008 5 861 4 111 17 566 2 958 5 669 36 165

Opening balance 1 January 2009 5 861 4 111 17 566 2 958 5 669 36 165 Acquisitions 55 7 410 91 2 980 3 543 Reclassifications 1 498 63 1 163 120 -2 844 Disposals and retirements -16 -1 -221 -52 -68 -358 Exchange rate differences 14 -3 6 184 201 Closing balance 31 December 2009 7 412 4 180 18 915 3 123 5 921 39 551

Depreciation Opening balance 1 January 2008 -1 498 -2 634 -8 083 -1 471 -13 686 Depreciation for the year -154 -248 -864 -186 -1 452 Disposals and retirements 1 18 159 55 233 Exchange rate differences -18 18 3 3 Closing balance 31 December 2008 -1 669 -2 864 -8 770 -1 599 -14 902

Opening balance 1 January 2009 -1 669 -2 864 -8 770 -1 599 -14 902 Depreciation for the year -213 -214 -1 141 -244 -1 812 Disposals and retirements 9 1 206 49 265 Exchange rate differences 3 -9 -4 -10 Closing balance 31 December 2009 -1 870 -3 077 -9 714 -1 798 -16 459

Write-downs Opening balance 1 January 2008 -389 -399 -561 -10 -1 359 Exchange rate differences -11 -11 Closing balance 31 December 2008 -389 -399 -572 -10 -1 370

Opening balance 1 January 2009 -389 -399 -572 -10 -1 370 Write-downs for the year -6 -177 -183 Exchange rate differences 1 10 11 Closing balance 31 December 2009 -394 -399 -739 -10 -1 542

Reported values 1 January 2008 2 028 1 041 3 605 969 9 059 16 702 31 December 2008 3 803 848 8 224 1 349 5 669 19 893

1 January 2009 3 803 848 8 224 1 349 5 669 19 893 31 December 2009 5 148 704 8 462 1 315 5 921 21 551

Tax assessment value Group, (MSEK) 2009-12-31 2008-12-31 Tax assessment value, buildings (in Sweden) 1 225 1 060 Tax assessment value, land (in Sweden) 67 65 NOTES TO THE FINANCIAL STATEMENTS 93 09

Depreciation and write-downs are included in the following lines in the income statement Group, (MSEK) 2009 2008 Cost of goods sold 1 976 1 433 Of which write-downs 183 Selling expenses 3 3 Administrative expenses 10 10 Research and development 6 6 1 995 1 452

Write-downs for the year of MSEK 66 for buildings and land and MSEK 177 for machines and other technical installations refer to the closure of the Mineral Division’s olivine mine in Greenland, See Note 8 for details.

Parent Company Machines and other Inventories, Buildings Underground technical tools and Construction MSEK and land installations installations installations in progress Total Acquisition value Opening balance 1 January 2008 3 065 4 074 11 114 585 7 730 26 568 Acquisitions 93 2 159 29 1 054 3 335 Reclassifications 1 813 55 3 264 20 -5 152 0 Disposals and retirements -25 -18 -163 -43 -6 -255 Closing balance 31 December 2008 4 946 4 111 16 374 591 3 626 29 648

Opening balance 1 January 2009 4 946 4 111 16 374 591 3 626 29 648 Acquisitions 38 7 363 63 2 502 2 973 Reclassifications 12 63 643 57 -775 Disposals and retirements -20 -1 -220 -12 -362 -615 Closing balance 31 December 2009 4 976 4 180 17 160 699 4 991 32 006

Depreciation Opening balance 1 January 2008 -1 086 -2 634 -7 182 -432 -11 334 Depreciation for the year -142 -248 -800 -45 -1 235 Disposals and retirements -2 18 162 43 221 Closing balance 31 December 2008 -1 230 -2 864 -7 820 -434 -12 348

Opening balance 1 January 2009 -1 230 -2 864 -7 820 -434 -12 348 Depreciation for the year -184 -214 -1 073 -68 -1 539 Disposals and retirements 9 1 206 11 227 Closing balance 31 December 2009 -1 405 -3 077 -8 687 -491 -13 660

Write-downs Opening balance 1 January 2008 -387 -399 -495 -9 -1 290 Closing balance 31 December 2008 -387 -399 -495 -9 -1 290

Opening balance 1 January 2009 -387 -399 -495 -9 -1 290 Closing balance 31 December 2009 -387 -399 -495 -9 -1 290

Reported values 1 January 2008 1 592 1 041 3 437 144 7 730 13 944 31 December 2008 3 329 848 8 059 148 3 626 16 010

1 January 2009 3 329 848 8 059 148 3 626 16 010 31 December 2009 3 184 704 7 978 199 4 991 17 056

Tax assessment value Parent Company (MSEK) 2009-12-31 2008-12-31 Tax assessment value, buildings (in Sweden) 1 181 992 Tax assessment value, land (in Sweden) 47 46

Depreciation is included in the following lines in the income statement: Parent Company (MSEK) 2009 2008 Cost of goods sold 1 529 1 225 Administrative expenses 5 5 Research and development 5 5 1 539 1 235 94 NOTES TO THE FINANCIAL STATEMENTS 09

Note 15 Participations in joint ventures Note 16 Parent Company’s participations in associated companies Group The Group has a 50-percent interest in the joint venture company Likya Minelco, Parent Company whose main products are minerals with flame retardant properties (UltraCarb). MSEK 2009-12-31 2008-12-31 In the Group’s financial reports, the following items comprise the Group’s share Accumulated acquisition values of the joint venture company’s assets, liabilities, income and expenses. At start of year 2 2 Closing balance 31 December 2 2 MSEK 2009 2008 Net sales 11 10 Accumulated write-downs Expenses -8 -9 At start of year -1 -1 Profit/loss 3 1 Closing balance 31 December -1 -1

Fixed assets 6 34 Reported value at year-end 1 1 Current assets 7 5 Total assets 13 39

Current liabilities -2 -2 Long-term liabilities -3 -4 Total liabilities -5 -6 Net assets 8 33

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

Associate company Corp. ID No. and registered office 2009 2008 Voting Reported Voting Reported Total and equity value and equity value shares share in % (MSEK) share in % (MSEK) Swedish associated companies Progressum AB/556540-0768/Kiruna 120 42.8 0 42.8 0 Norrskenet AB/556537-7065/Kiruna 2 500 33.3 0.35 33.3 0.35 Expandum AB/556252-3281/Gällivare 1 665 33.3 0.17 33.3 0.17 MCC AB/556644-8295/Kiruna 33.3 0.20 33.3 0.20

Foreign associated companies Futurum AS/-/Narvik, Norway 500 23.8 0 23.8 0 1 1

Note 17 Receivables from Group companies and associated companies Parent Company Receivables from Receivables from Group companies associated companies MSEK 2009-12-31 2008-12-31 2009-12-31 2008-12-31 Accumulated acquisition values Opening balance 1 January 262 254 40 40 Lending 28 55 Amortization -42 -47 Closing balance 31 December 248 262 40 40

Accumulated write-downs Opening balance 1 January -1 -5 Discounting 0 4 Closing balance 31 December -1 -1

Reported value at year-end 248 262 39 39

Receivables from associated companies have a return under estimated market rate, which is why they are discounted to present value with the difference between actual and estimated market rate. Short-term receivables in Group companies have increased during the year, mainly through lending for investments, and amounted at year-end to MSEK 2,553 (3,185). NOTES TO THE FINANCIAL STATEMENTS 95 09

Note 18 Financial investments

Group MSEK 2009-12-31 2008-12-31 Financial investments that are tangible assets Financial assets held for sale Shares and participations 1 516 847 Financial assets attributable to reserves for pension commitments 245 189 1 761 1 036 Short-term investments that are current assets Financial assets recognized at fair value in the income statement (fair value) Shares and participations 977 573 Interest-bearing securities 2 586 3 299 3 563 3 872

Financial investments that are tangible assets refer to shares in SSAB and are valuated at fair value as of 31 Dec. 2009 in accordance with IAS 39. The reported value of SSAB shares significantly exceeds the acquisition value. Change in value is reported in other comprehensive income.

Parent Company 2009-12-31 2008-12-31 Specification of securities Market value Reported Market value Reported MSEK or similar value or similar value Money-market instruments 4 649 4 644 8 401 8 376 Listed shares/mutual funds 977 917 573 573 5 626 5 561 8 974 8 949

The table below describes the maturity structure of money-market instruments and government bonds.

Parent Company Total 31/12 2008 < 3 3-6 7-12 13-24 25 > Reported Nominal MSEK months months months months months value value Interest-bearing securities 4 168 1 458 112 527 687 6 952 6 870 Total 4 168 1 458 112 527 687 6 952 6 870

Parent Company Total 31/12 2009 < 3 3-6 7-12 13-24 25 > Reported Nominal MSEK months months months months months value value Interest-bearing securities 2 285 528 147 595 560 4 115 4 007 Total 2 285 528 147 595 560 4 115 4 007

Surplus liquidity is treated according to the financial policy established by the Board.

Note 19 Other long-term securities held as fixed assets Note 20 Long-term receivables and other receivables Parent Company Group MSEK 2009-12-31 2008-12-31 MSEK 2009-12-31 2008-12-31 Accumulated acquisition values Long-term receivables that are tangible assets At start of year 89 85 Receivables from associated companies 39 39 Acquisitions 2 4 Other 26 17 Sales 65 56 Closing balance 31 December 91 89 Other receivables that are current assets The change for the year of MSEK 2 refers to shareholder contributions to Vindin AB. PRI balance 15 16 VAT recoverable 97 147 Specification of other long-term securities Clearing account for taxes 41 78 Forward exchange contracts (USD) 602 96 Parent Company 2009-12-31 2008-12-31 Other 110 118 Market value Reported Market value Reported 865 455 MSEK or similar value or similar value SSAB 1 507 82 839 82 Parent Company Other 9 9 8 7 MSEK 2009-12-31 2008-12-31 1 516 91 847 89 Long-term receivables Company-owned endowment insurance 107 113 Interest-free loan, Jernbaneverket 18 Interest-free loan, Banverket 17 17 142 130 Other receivables (current) PRI balance 15 15 VAT recoverable 93 87 Clearing account for taxes 0 2 Other 9 118 105 96 NOTES TO THE FINANCIAL STATEMENTS 09

Parent Company Total reserves 2009 2008 MSEK 2009-12-31 2008-12-31 Opening reserves -335 2 339 Long-term receivables Change in reserves for the year Accumulated acquisition values Translation reserve 46 -30 At start of year 130 149 Fair value reserve 668 -1 327 Lending 18 Hedge reserve 1 524 -1 317 Amortization -18 Closing reserves 1 903 -335 Discounting 0 1 Change in value, endowment insurance -6 -3 Share capital Closing balance 31 December 142 130 As of 31 December 2009, the registered share capital comprised 700,000 (700,000) common shares. The holder of common shares is entitled to a dividend that is decided by the Annual Note 21 Inventories, etc. General Meeting, and each share entitles the holder to one voting right. Quota value is SEK 1,000 per share. Group MSEK 2009-12-31 2008-12-31 Translation reserve Raw materials and consumables 1 433 1 598 The translation reserve covers all exchange rate differences that arise in the transla- Work in progress 21 127 tion of financial reports of foreign subsidiaries and associated companies whose Finished products and goods for resale 847 990 counts are reported in a currency other than the Group’s reporting currency. The 2 301 2 715 Parent Company and Group accounts are reported in Swedish kronor.

Parent Company Fair value reserve MSEK 2009-12-31 2008-12-31 Financial assets held for sale Raw materials and consumables 1 180 1 006 The fair value reserve includes the accumulated net change in fair value of availa- Work in progress 16 108 ble-for-sale financial assets up until the assets are removed from the balance sheet. Finished products 456 782 Any write-down is reported in the income statement. 1 652 1 896

Hedge reserve Note 22 Accounts receivable The hedge reserve includes the effective share of the accumulated net change in fair value of a cash-flow hedging instrument attributable to hedging transactions Accounts receivable are reported taking into account bad debts that have arisen that have not yet occurred. in the Group. These amounted during the year to MSEK 1 (2). Dividend After the balance sheet date, the Board has proposed the following dividend. The Note 23 Prepaid expenses and accrued revenues dividend is subject to approval by the Annual General Meeting on 29 April 2010.

Group Parent Company MSEK 2009 2008 2009- 2008- 2009- 2008- 714 (4,000) kr per common share 500 2 800 MSEK 12-31 12-31 12-31 12-31 500 2 800 Premiums for forward exchange and currency options contracts 106 The dividend proposed by the Board has been approved by the Annual General Insurance premiums 7 4 Meeting in the past two years. Prepaid expenses 127 21 Other 223 25 123 20 Parent Company 230 156 123 147 Restricted reserves Restricted reserves may not be reduced through dividends. Note 24 Shareholders’ equity Statutory reserve The Group’s specification of the shareholders’ equity item reserves The purpose of the statutory reserve is to save a part of the net profit that is not used to cover loss brought forward. Translation reserve 2009 2008 Opening translation reserve -32 -2 Non-restricted equity Translation differences for the year 46 -30 Profit brought forward Closing translation reserve 14 -32 Comprises the previous year’s non-restricted equity after any dividend has been paid. Together with net profit for the year, it makes up non-restricted equity i.e., the Fair value reserve 2009 2008 sum that is available to be paid as a dividend to shareholders. Opening fair value reserve 757 2 084 Financial assets held for sale: Capital management Revaluations reported directly LKAB’s management of financial risks is regulated by a financial policy approved in other comprehensive income 668 -1 327 by the Board. The Currency and Finance Committee prepares and oversees the Closing fair value reserve 1 425 757 hedging program and financial guidelines. LKAB defines its capital under management as shareholders’ equity in the Group, minus unrealized exchange loss/profit Hedge reserve 2009 2008 on outstanding USD futures/options. LKAB’s capital under management amounted Opening hedge reserve -1 060 257 in 2009 to 24.9 (26.3) billion kronor. Cash-flow hedges According to the Board’s policy, the Groups’ financial goal is to maintain a Reported directly in other comprehensive income 630 -1 438 good capital structure and financial stability, and thereby secure a foundation for Dissolved through income statement 1 438 -357 continued growth of business operations and future transitions in the operating Tax attributable to revaluations for the year -544 478 locations. The Board’s ambition is to maintain a balance between high yield and Closing hedge reserve 464 -1 060 the benefits and security afforded by a sound capital structure. The Group’s objective is to achieve a return on equity of 8.5 percent. In 2009, return on equity was 2.8 (32.2) percent. NOTES TO THE FINANCIAL STATEMENTS 97 09

In comparison, the average return (interest income) on interest-bearing investments Change in fair value of plan assets was 1.9 (5.5) percent. Group LKAB’s dividend policy entails that the dividend to the owner will, over the long SEK ’000 2009 2008 term, amount to 30 to 50 percent of income after tax and be adapted to the aver- Present value of plan assets as of 1 January 975 1 031 age earnings level over a business cycle. During 2009, the dividend amounted Charges from the employer 59 102 to 70 (37) percent of profit after tax. Proposed dividend amounts to MSEK 500 Compensation paid -54 -54 (2,800). Assumed return 62 67 During the year, no changes were made in the Group’s principles for capital Difference between assumed and actual return management. (actuarial gain or loss) -41 -141 LKAB Försäkring is the only Group company with a statutory capital requirement Exchange rate differences 21 -30 of 3,200,000 euros, which corresponds to MSEK 33 (35) on closing day. Present value of plan assets as of 31 December 1 022 975

Of plan assets in the respective pension plans, 35-45% is invested in share-related Note 25 Pensions investments and 65-55% is invested in interest-bearing investments. The actual return in 2009 amounted to MSEK 21 (-74). Defined-benefit plans Group Cost reported in income statement MSEK 2009 2008 Group Present value of unfunded obligations 2 282 2 129 MSEK 2009 2008 Present value of wholly or partially funded obligations 1 089 1 027 Costs for employment during current period 95 99 Total present value of obligations 3 371 3 156 Interest expense for obligation 134 132 Fair value of plan assets -1 022 -975 Assumed return on plan assets -62 -67 Present value of net obligation 2 382 2 181 Reported actuarial gains (-) and losses (+) 66 13

Total net cost in income statement 233 177 Unreported actuarial gains (+) and losses (–) -615 -497 Net reported obligation, defined-benefit plans 1 734 1 684 The cost is reported on the following lines in the income statement: Group The net amount is reported in the following balance sheet items: MSEK 2009 2008 Financial investments -245 -189 Cost of goods sold 161 112 Provisions for pensions, long-term liability 1 786 1 701 Income from financial items Provisions for pensions, current liability 193 172 (reported in net financial income/expense) -62 -67 Net balance sheet amount 1 734 1 684 Financial expenses (reported in net financial income/expense) 134 132 Defined-benefit plans 233 177 Most of LKAB’s pension plans for employees in Sweden are defined-benefit plans, which means that LKAB guarantees pensions based on a certain percentage of Assumptions for defined-benefit obligations salary. Pension commitments in Sweden are secured by the company mainly via Significant actuarial assumptions as of closing day provisions reported on the balance sheet, whereof most are secured through credit (expressed as weighted averages) insurance In FPG (Försäkringsbolaget Pensionsgaranti). Promises of future retire- Group ment before the age of 65 are to a degree contingent upon underground work and Percent 2009 2008 are secured by the company via provisions, reported on the balance sheet, without Discount rate, 31 December 4.0 4.25 credit insurance. Assumed return on plan assets, 31 December 5.0 5.25 Commitments for retirement pensions and survivor benefits for salaried employ- Future salary increase 3.0 3.0 ees in Sweden are insured by Alecta. According to a pronouncement from the Employee turnover 3.5 3.5 Swedish Financial Accounting Standards Council’s Emerging Issues Task Force, Future increase in pensions 2.0 2.0 URA 3, this is a defined-benefit plan that involves several employers. The company has not had access to the information that is necessary for reporting this plan as a Assumptions refer to the Swedish liability defined-benefit plan. The ITP pension plan insured via Alecta is therefore reported Assumed future mortality rate is based on published statistics and mortality figures. as a defined-contribution plan. Alecta’s surplus can be distributed to the policyhold- The average life expectancy (years of life remaining) for an individual who retires ers and/or the insured parties. At the end of 2009, Alecta reported a plan surplus at 65 years of age is 18 years for men and 20 years for women. of 141 (112) percent, which was under the normal interval of 125-155 percent The total assumed long-term return on plan assets is 5.0 percent (with certain stated in Alecta’s consolidation policy for these plans. deviations in Belgium and the UK). The assumed long-term return is based on the For employees in Belgium, Norway, the UK and Germany, LKAB has defined-ben- plan assets portfolio as a whole and not on the sum of the returns on the individual efit plans as a complement to social insurance. In Belgium, pensions are secured assets. via pension insurance; in the UK, via a company-managed pension funds; in Ger- many, via provisions reported in the balance sheet and through credit insurance. In Historical information Norway, pensions are secured via a company-managed superannuation fund, via Group provisions reported in the balance sheet and through credit insurance. MSEK 2009 2008 2007 2006 Present value of defined-benefit obligations 3 371 3 156 3 054 2 862 Changes in present value of obligations for defined-benefit plans Fair value of plan assets -1 022 -975 -1 031 -917 Group Net obligations 2 349 2 181 2 023 1 945 MSEK 2009 2008

Net obligation for defined-benefit Experience-based adjustment of plan assets -41 -141 26 1 plans as of 1 January 3 156 3 054 Experience-based adjustment of defined- Compensation paid -184 -176 benefit obligations 17 88 -57 7 Costs for employment during current period 95 99 Interest expense 134 132 The Group estimates that MSEK 59 will be paid to funded and unfunded defined- Actuarial gains and losses 126 89 benefit plans in 2010, and an estimated MSEK 21 will be paid to the defined- Costs for employment during previous periods 1 benefit plans in 2010 that are reported as defined contribution plans. Exchange rate differences 44 -43 Net obligation for defined-benefit plans as of 31 December 3 371 3 156 98 NOTES TO THE FINANCIAL STATEMENTS 09

Parent Company’s pension obligation Note 26 Provisions MSEK 2009 2008 PRI 509 506 Group Provisions subject to the Act on Income Security 229 215 MSEK 2009-12-31 2008-12-31 Provisions not subject to the Act on Income Security 633 614 Provisions 1 371 1 335 Structural transition 1 991 2 224 Of which credit guarantees via FPG/PRI 738 721 Other provisions 122 142 Emissions rights for carbon dioxide 42 93 Capital value of pension obligations under the company’s own management Total 2 155 2 459 Parent Company MSEK 2009 2008 Parent Company Capital value of pension obligations MSEK 2009-12-31 2008-12-31 at start of year 1 335 1 298 Provisions Cost excluding interest expense charged Urban transformation 1 991 2 224 to income statement 111 84 Other provisions 108 112 Interest expense 28 40 Emissions rights for carbon dioxide 42 93 Pension obligation transferred 5 Total 2 141 2 429 Pension disbursements -108 -87 Capital value of pension obligations at year-end 1 371 1 335 Group Urban Other Emissions MSEK transformation Provisions rights Total Costs associated with pensions IB 2008 411 110 0 521 Parent Company Provisions for the year 2 020 32 2 052 MSEK 2009 2008 Emissions for the year 119 119 Company-managed pension provisions Revaluation, emissions rights -26 -26 Cost excluding interest expense 111 84 Utilized provisions -207 -207 Interest expense 28 40 UB 2008 2 224 142 93 2 459 Cost of 139 124 Of which current liabilities 93 93 Insured pension schemes Of which long-term liabilities 2 224 142 2 366 Insurance premiums 79 64 Sub-total 218 188 IB 2009 2 224 142 93 2 459 Capital gains tax on pension funds 4 4 Provisions for the year Special employer’s contribution (tax) Emissions for the year 42 42 on pension expenses 43 41 Reconciliation of emissions rights for the year -93 -93 Cost of credit insurance, cost of administration, other 2 2 Reversal of provisions -89 -89 Reported net expense attributable to pensions 267 235 Utilized provisions -144 -20 -164 UB 2009 1 991 122 42 2 155 The cost is reported on the following lines in the income statement: Of which current liabilities 42 42 Parent Company Of which long-term liabilities 1 991 122 2 113 MSEK 2009 2008 Financial expenses Parent Company Urban Other Emissions (reported in net financial income/expense) 28 40 MSEK transformation Provisions rights Total Operating expense 239 195 IB 2008 411 108 0 519 267 235 Provisions for the year 2 020 4 2 024 Emissions for the year 119 119 Assumptions for defined-benefit obligations Revaluation, emissions rights -26 -26 Significant actuarial assumptions as of closing day (expressed as weighted aver- Utilized provisions -207 -207 ages) UB 2008 2 224 112 93 2 429 Parent Company Of which current liabilities 93 93 Percent 2009 2008 Of which long-term liabilities 2 224 112 2 336 Discount rate, 31 December 3.8 3.8 IB 2009 2 224 112 93 2 429 The Parent Company estimates that MSEK 2 will be paid to defined-benefit plans Provisions for the year in 2010. Emissions for the year 42 42 Assumptions are based on current salary level per closing day. Reconciliation of emissions rights for the year -93 -93 Reversal of provisions -89 -89 Defined-contribution pension plans Utilized provisions -144 -4 -148 In Sweden, the Group has defined-contribution pension plans for which the com- UB 2009 1 991 108 42 2 141 pany assumes full cost. Of which current liabilities 42 42 In foreign subsidiaries, defined-contribution plans are financed partly by the Of which long-term liabilities 1 991 108 2 099 companies and partly by contributions paid by the employees. Premiums for these plans are paid on a current basis in accordance with regula- Other provisions include MSEK 1,991 (2,224) attributable to ground deformations tions for each plan. in Kiruna caused by mining, of which compensation to Banverket for the new railway line in Kiruna amounting to MSEK 1,895 (1,950), see Note 30. Group Parent Company MSEK 2009 2008 2009 2008 Costs for defined-contribution pension plans 74 71 68 58 NOTES TO THE FINANCIAL STATEMENTS 99 09

Note 27 Accrued expenses and prepaid revenues Group Parent Company MSEK 2009-12-31 2008-12-31 2009-12-31 2008-12-31 Electricity 63 15 54 4 Payroll and employee costs 360 382 302 332 Accrued accounts payable 384 347 312 196 Other 243 212 82 53 1 050 956 750 585

Note 28 Significant risks and uncertainties In addition to the information below, see the Report of the Directors and the section on Financial Risks for further information. The Group’s transaction exposure, distributed over the following contract currencies:

Effect on Effect on Effect on Currency Amount Change Profit/loss Shareholders’ equity Amount Change Profit/loss Shareholders’ equity USD 1 422 SEK 0.1 142 45 3 157 SEK 0.1 316 91 NOK 327 SEK 0.1 33 345 SEK 0.1 35 EUR 25 SEK 0.1 3 34 SEK 0.1 3 GBP 0 SEK 0.1 0 0 SEK 0.1 0

Transaction exposure in US dollars during 2009 was hedged to 1,485 (2,050) or 104 (65) percent via currency derivatives. The ineffectiveness has affected the financial result negatively by MSEK 67. The effect on shareholders’ equity due to changes in the underlying currency exchange rates is calculated based on a model with price indices from Reuters.

Outstanding forward exchange contracts at closing day (selling contract) Translation exposure LKAB does not normally hedge its translation exposure. Over time, this is not con- Maturity MUSD Hedging rate sidered to add any value for the Group, even though the level of exposure has 2010 -800 8.17 increased in recent years due to the expansion of the Minerals Division. Translation exposure in the Group refers to foreign net assets within the Group. The Group applies hedge accounting for USD and classifies its forward contracts used to hedge forecasted transactions as cash flow hedges. The net fair value of Revaluation exposure (millions, local currency) forward exchange contracts used to hedge forecasted flows amounted to MSEK Group 602 (-1,307) as of 31 December 2009. MSEK 2009 2008 EUR 6 5 GBP 37 37 USD 0 0 SGD 1 1 DKK 1 5 NOK 699 216 CNY 18 18 HKD 81 59

Fair value Fair value and reported value of financial instruments in the Group are stated below.

Group 2009 Items recognized at fair value in the income statement Trade Financial Derivatives accounts Financial assets used in receivable assets Total Total fair value Held hedge and loan held Other reported fair MSEK option for sale accounting receivables for sale liabilities value value Shares, financial assets 1 516 1 516 1 516 Shares, short-term holdings 977 977 977 Interest-bearing instruments, short-term holdings 2 586 2 586 2 586 Long-term receivables 65 65 65 Trade accounts receivable and other receivables 2 513 2 513 2 513 Liquid assets* 2 631 2 631 2 631 Forward exchange contracts (USD) 602 602 602 Other accrued revenues 230 230 230 Total 6 259 602 2 743 1 516 11 120 11 120

Accounts payable – trade 1 185 1 185 1 185 Other liabilities 149 149 149 Accrued expenses 1 050 1 050 1 050 Total 2 384 2 384 2 384

* Liquid assets incl. short-term investments, equated with liquid assets. The maximum credit risk exposure amounted per closing day 31 Dec. 2009 to MSEK 8,627. LKAB has no financial assets that have reached maturity or write-down that have resulted in credit losses. During the year, LKAB acquired a credit facility of SEK 5 billion, which was not utilized as of 31 Dec. 2009. 100 NOTES TO THE FINANCIAL STATEMENTS 09

Group 2008 Items recognized at fair value in the income statement Trade Financial Derivatives accounts Financial assets used in receivable assets Total Total fair value Held hedge and loan held Other reported fair MSEK option for sale accounting receivables for sale liabilities value value Shares, financial assets 847 847 847 Shares, short-term holdings 573 573 573 Interest-bearing instruments, short-term holdings 3 299 3 299 3 299 Long-term receivables 56 56 56 Trade accounts receivable and other receivables 2 305 2 305 2 305 Liquid assets* 5 771 5 771 5 771 Forward exchange contracts (NOK) 19 19 19 Currency option contracts (USD) 76 76 76 Other accrued revenues 157 157 157 Total 9 699 19 76 2 462 847 13 103 13 103

Accounts payable – trade 1 440 1 440 1 440 Other liabilities 200 200 200 Forward exchange contracts (USD) 1 325 1 325 1 325 Accrued expenses 974 974 974 Total 1 325 2 614 3 939 3 939

* Liquid assets incl. short-term investments, equated with liquid assets. The maximum credit risk exposure amounted per closing day 31 Dec. 2008 to MSEK 11,683. LKAB has no financial assets that have reached maturity or write-down that have resulted in credit losses.

Maturity analysis, liabilities The category ‘interest-bearing instruments’ (Level 2) refers to bond obligations that are recognized at quoted prices on the bond and derivatives market. Long-term Parent Company 2009 < 1 1-3 3-12 receivables (Level 2) are valuated at present value of capital cash flows. Forward MSEK month month month Total exchange contracts (Level 2) are calculated based on a model with price indices Accounts payable (trade) 589 19 10 618 from Reuters. Other liabilities 58 1 009 1 067 Accrued expenses 398 93 295 786 Fair value calculation Total 1 045 112 1 314 2 471 The following is a summary of the principal methods and assumptions used in determining the fair value of financial instruments reported in the table above. The Group’s debt maturity structure is in all material aspects similar to that of the Parent Company. The US dollar hedges have a surplus value of MSEK 602 Securities (-1,307). Maturity is 12 months. For listed financial assets, fair values correspond to the asset’s buying rate on the balance sheet date. Other information on financial instruments The following tables present the determination of fair value of financial instruments Derivative instruments at fair value in the statement of financial position. Allocation of fair value determi- Forward exchange contracts are valuated at current market price by using quoted nation is based on the following three levels. market prices. The discount rate used is the market interest rate on similar instruments quoted on closing day. Level 1: Based on prices quoted on an active market for such instruments. Level 2: Based on direct or indirect observable market data not included Other receivables and liabilities in level 1. Reported values of other receivables and liabilities are fair values. Level 3: Based on input data that is not observable on the market.

Group 2009 Note 29 Contractual obligations MSEK Level 1 Level 2 Level 3 Total At year-end, the Group’s remaining contractual obligations to acquire tangible as- Shares, financial assets 1 516 1 516 sets amounted to MSEK 2,722 (4,385). Of these obligations, MSEK 2,043 (2,362) Shares, short-term holdings 977 977 is expected to be paid during the following fiscal year. Interest-bearing instruments 2 277 309 2 586 Long-term receivables 65 65 The Parent Company’s obligations amounted to MSEK 2,245 (3,435), of which Forward exchange contracts (USD) 602 602 MSEK 1,572 (1,748) is expected to be paid during 2010. Liquid assets 2 631 2 631 Total 7 401 976 8 377 NOTES TO THE FINANCIAL STATEMENTS 101 09

Note 30 Assets pledged and contingent liabilities

Group Parent Company 2009- 2008- 2009- 2008- MSEK 12-31 12-31 12-31 12-31 Assets pledged Company-owned endowment insurance covers pension obligations for the Presi- In the form of assets pledged dent, former President and senior executives (Group Management) according to for liabilities and provisions the earlier defined-benefit pension agreement. The value of endowment insurance Property mortgages 1 1 decreases as pension payments are disbursed. Chattel mortgages 2 2 The deposit of liquid assets is intended to cover remediation costs and other costs Listed shares for which options associated with the eventual closure of mine operations. have been exercised 28 There are obligations (both formal and informal) with respect to urban transfor- Company-owned endowment insurance 107 116 107 113 mations in the orefields communities as a consequence of the deformation zones Deposit of liquid assets 116 116 116 116 resulting from mining operations. Considerable expenditures for LKAB may arise as Total assets pledged 226 235 223 257 a result of this during the coming years. As agreements are reached or where an informal obligation exists as a result of operations, LKAB is successively allocating Contingent liabilities funds for these measures. Concerning provisions, see Note 26. Guarantees, FPG/PRI 15 14 10 10 Guarantees, GP plan 6 6 3 3 Sureties for the benefit of subsidiaries 133 136 Deficit in pension fund, England 26 26 Other 60 68 2 2 Forward exchange contracts 1 353 Total contingent liabilities 107 88 174 1 504

Note 31 Related parties Related-party relations The Group is subject to the controlling influence of the Swedish state. Aside from the close relationships that the Parent Company has with its subsidiaries (see Note 32), the Group has related-party transactions with Vattenfall AB via a long-term energy agreement.

Summary of related-party transactions

Group Liabilities Receivables Sales of Purchase of to related from related goods to Interest and goods from parties parties Related-party relation Year related parties dividend (net) related parties 31 Dec. 31 Dec. Associated companies 2009 15 2 39 Associated companies 2008 2 22 2 39

Parent Company Liabilities Receivables Sales of Purchase of to related from related goods to Interest and goods from parties parties Related-party relation Year related parties dividend (net) related parties 31 Dec. 31 Dec. Subsidiaries 2009 299 165 2 248 1 171 2 801 Subsidiaries 2008 473 124 2 089 1 119 3 447

Associated companies 2009 15 2 39 Associated companies 2008 2 22 2 39

For information concerning related-party transactions with Vattenfall AB, please refer to the section on Secured electricity deliveries in the Report of the Directors. In 1997, LKAB made a participating loan with a nominal amount of MSEK 40 to the associated company Norrskenet AB. The loan has a remaining maturity of 3 years. Interest is paid annually and amounted to KSEK 212 (400) in 2009. The principal will be repaid in full in 2011, at which time profit shares will also be distributed. Transactions with key individuals in leading positions are reported in Note 6 and Note 25. Transactions with related parties are priced and conducted in accordance with commercial principles. 102 NOTES TO THE FINANCIAL STATEMENTS 09

Note 32 Group companies Parent Company MSEK 2009-12-31 2008-12-31 Accumulated acquisition values At start of year 775 775 Capital contribution 625 Closing balance 31 December 1 400 775

Specification of the Parent Company’s ownership of participations in associated companies 31 Dec. 2009 31 Dec. 2008 Shares in % Shares in % Reported Reported Subsidiary / Corp. ID No. / Registered office Total shares 2009 2009 value value Swedish subsidiaries Fastighets AB Malmfälten /556009-8849/ Kiruna 5 000 100.0 100.0 0 0 Wassara AB /556331-8566/ Stockholm 200 000 100.0 100.0 10 10 AB Kiruna Grus & Stenförädling /556074-8237 /Kiruna 24 000 100.0 100.0 47 47 LKAB Nät AB /556059-9796/ Kiruna 10 100.0 100.0 0 0 Minelco AB /556223-1786 /Luleå 2 000 000 100.0 100.0 225 200 LKAB Försäkrings AB /516406-0187 / Luleå 10 000 100.0 100.0 100 100 Malmtrafik i Kiruna AB/556031-4808 / Kiruna 208 000 100.0 100.0 252 252

Foreign subsidiaries LKAB Norge AS /918,400,184/ Narvik, Norway 300 000 100.0 100.0 763 163 LKAB Far East Pte Ltd /198401144W/ Singapore, Singapore 200 000 100.0 100.0 1 1 LKAB S.A. /403 455 761/ Brussels 100 100.0 100.0 0 0 LKAB Schwedenerz GmbH /HRB 718/ Essen 100 100.0 100.0 2 2 Total, Parent Company 100.0 100.0 1 400 775

Indirect ownership via the subsidiary Minelco AB Minelco B.V /24236591/ Breda, Netherlands 100.0 100.0 Minelco Inc /02-0551509/ Cincinnati, USA 100.0 100.0 Minelco GmbH /HRB 16692/ Essen, Germany 100.0 100.0 Minelco Asia Pacific Ltd /876455/ Hong Kong, Hong Kong 100.0 100.0 Minelco Ltd /0245817/ Welton, UK 100.0 100.0 Minelco OY / 1934671-4/ Helsinki, Finland 100.0 100.0 Minelco AS / A /S277716 / Nuuk, Greenland 100.0 100.0 Minelco Holding Ltd / 04621769 / Derby, UK 100.0 100.0 Minelco Tianjin Minerals Co / 70051551-5/ Dongli District Tianjin, China 100.0 100.0 Minelco Minerals Ltd /00103751/ Derby, UK 100.0 100.0 Quay Minerals Ltd /02732626/ Flixborough, UK 100.0 100.0 Tianjin Jindalai Mineral / 60089030-X / Dongli District Tianjin, China 100.0 100.0 Fergusson Wild & Co Ltd / 2529921 / West Sussex, UK 100.0 100.0 Fordamin Company Ltd /00925517, UK 100.0 100.0 Minelco Specialities Ltd / 1151578 / Derby, UK 100.0 100.0 Microfine Hellas A.E. /-/Thessaloniki, Greece 100.0 100.0

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

Indirect ownership via the subsidiary Malmtrafik i Kiruna AB Malmtrafikk AS /974 644 991/ Narvik, Norway 100.0 100.0

Indirect ownership via the subsidiary Fastighets AB Malmfälten Jägarskolan Fastigheter AB /556594-9095/ Kiruna 100.0 100.0

Indirect ownership via the subsidiary Wassara AB Wassara Limitada / Santiago / Chile 100.0 100.0 Sthen Lindgrens Mekaniska AB / 556360-1540 / Huddinge 100.0 100.0 NOTES TO THE FINANCIAL STATEMENTS 103 09

Note 33 Untaxed reserves Interest paid and dividends received Group Parent Company Parent Company MSEK 2009 2008 2009 2008 MSEK 2009-12-31 2008-12-31 Dividends received 65 87 172 120 Accumulated depreciation in excess of plan: Interest received 11 44 136 205 Buildings and land Interest paid -16 -36 Opening balance 1 January 10 11 76 131 292 289 Accumulated depreciation in excess of plan for the year Accelerated depreciation dissolved -2 -1 Adjustments for items not included in cash flow Closing balance 31 December 8 10 Group Parent Company MSEK 2009 2008 2009 2008 Machinery and inventories Depreciation 1 827 1 465 1 542 1 237 Opening balance 1 January 4 674 3 701 Write-downs 249 Accumulated depreciation in excess Exchange rate differences -156 8 of plan for the year 608 973 Unrealized interest differences Closing balance 31 December 5 282 4 674 on forward exchange contracts 159 -197 Income from sale and retirement Underground installations of tangible assets 20 26 26 31 Opening balance 1 January 2 5 Provisions for pensions and similar Disposals, retirements and dissolution -1 -3 commitments 106 -79 36 37 Closing balance 31 December 1 2 Other provisions -253 1 846 -237 1 817 Other items that do not affect liquidity -2 Tax allocation reserves 1 952 3 069 1 365 3 122 Allocated at 2003 assessment 294 Allocated at 2004 assessment 500 500 Change in operating capital Allocated at 2005 assessment 1 410 1 410 Change in hedge reserve of MSEK 1,909, recognized in the Group’s shareholders’ Allocated at 2006 assessment 1 400 1 400 equity, has affected operating capital in the Group. This amount has not affected Allocated at 2007 assessment 1 275 1 275 the Group’s cash flow and is therefore not included in change in operating liabili- Allocated at 2008 assessment 2 200 2 200 ties in the cash flow statement. The corresponding amount for 2008 was MSEK Closing balance 31 December 6 785 7 079 1,603.

Total untaxed reserves 12 076 11 765 Tax paid Group Parent Company MSEK 2009 2008 2009 2008 Note 34 Cash flow statement Tax expense according to income statement -473 -2 748 -229 -2 048 Liquid assets - Group Change in tax recoverables/liabilities 59 159 30 144 MSEK 2009-12-31 2008-12-31 Adjustment for deferred tax 201 521 36 -162 The following sub-components are Adjustment for tax effect included in liquid assets of Group contributions 12 41 Cash and bank balances 548 566 -213 -2 068 -151 -2 025 Short-term investments, equated with liquid assets1) 2 091 5 174 Exchange-rate differences in liquid assets -8 31 Acquisition of subsidiaries Total according to balance sheet Group and cash flow statement 2 631 5 771 MSEK 2009 2008 Investment properties Liquid assets – Parent Company Intangible assets 4 MSEK 2009-12-31 2008-12-31 Buildings and land 3 The following sub-components are Machinery and inventories 2 included in liquid assets Current receivables 3 Cash and bank balances 333 449 Total assets 12 Short-term investments, equated with liquid assets1) 2 091 5 174 Exchange-rate differences in liquid assets -8 31 Deferred tax Total according to balance sheet Current liabilities 3 and cash flow statement 2 416 5 654 Total provisions and liabilities 3

1) Liquid assets include short-term investments (money-market instruments) that have Purchase sum: -9 been classified as liquid assets according to the following: Deducted: Liquid assets in the acquired business • They entail insignificant risk for value fluctuations Effect on liquid assets -9 • They can be easily converted to cash • They have a maturity of at most three months from date of acquisition 104 PROPOSED DISTRIBUTION OF UNAPPROPRIATED EARNINGS 09

Proposed disposition of unappropriated earnings

The Board of Directors and President propose that unappropriated earnings of Authorization by the Board MSEK 11,910 be distributed as follows: The consolidated accounts and annual report have been prepared in accordance with International Accounting Standards, sated in the regulation of the European Dividend, 700,000 shares x 714 kronor per share MSEK 500 Parliament and the Council of Ministers (EG) No. 1606/2002 of den 19 July Funds to be carried forward MSEK 11,410 2002, concerning the application of international accounting standards and gene- Total MSEK 11,910 rally accepted accounting principles, and give a true and fair view of the Group and the Parent Company’s position and results. The Report of the Directors for the Group and the Parent Company gives a true overview of the activities, results and financial position of the company and Group and also describes the significant risks and uncertainties to which the Parent Company and the other companies in the Group are exposed The Report of the Directors for the Group and the Parent Company gives a true overview of the activities, results and financial position of the company and Group and also describes the significant risks and uncertainties to which the Parent Company and the other companies in the Group are exposed.

Luleå, 24 March 2010

Björn Sprängare Chairman

Christer Berggren Stina Blombäck Per-Ola Eriksson Lars-Åke Helgesson Board Member Board Member Board Member Board Member

Anna-Greta Sjöberg Egil M. Ullebö Maija-Liisa Friman Board Member Board Member Board Member

Tomas Nilsson Harry Rantakyrö Karl Wikström Employee representative Employee representative Employee representative

Lars-Eric Aaro President and CEO

The Annual Report, the consolidated financial statements and the Sustainability Report have, as stated above, been approved for publication by the Board of Directors on 24 March 2010. The consolidated income statement and balance sheet, and the Parent Company income statement and balance sheet will be subject to approval by the Annual General Meeting on 29 April 2010.

Our Audit Report has been submitted on 24 March 2010.

Caj Nackstad Filip Cassel Authorized public accountant Authorized public accountant Chief accountant Appointed by the Swedish KPMG AB National Audit Office Auditors’ Report 105 09

Auditors’ Report

To the Annual General Meeting of Luossavaara-Kiirunavaara AB Corp. ID. No. 556001-5835

We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the Board of Directors and the President of Luossavaara- Kiirunavaara AB for the year 2009. The company’s annual report and consolidated accounts are given on pages 60-104 of the print version of this document. The Board of Directors and the President are responsible for these accounts and the administration of the company as well as for the application of the Annual Accounts Act when preparing the annual accounts and the application of International Financial Reporting Standards (IFRS) as adopted by the EU when preparing the consolidated accounts. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit.

We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain high but not absolute assurance that the annual accounts and the consolidated accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the Board of directors and the President and significant estimates made by the Board of directors and the President when preparing the annual accounts and the consolidated accounts as well as evaluating the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined significant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any board member or the President. We also examined whether any board member or the President has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below.

The annual accounts have been prepared in accordance with the Annual Accounts Act and give a true and fair view of the company’s financial position and results of operations in accordance with generally accepted accounting principles in Sweden. The consolidated accounts have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and the Annual Accounts Act and give a true and fair view of the Group’s financial position and results of operations. The statutory administration report is consistent with the other parts of the annual accounts and the consolidated accounts.

We recommend to the Annual General Meeting of shareholders that the income statements and balance sheets of the Parent Company and the Group be adopted, that the profit of the Parent Company be dealt with in accordance with the proposal in the administration report and that the members of the Board of Directors and the President be discharged from liability for the financial year.

Luleå, 24 March 2010

KPMG AB

Caj Nackstad Filip Cassel Authorized public accountant Authorized public accountant Appointed by the Swedish National Audit Office 106 GRI INDEX 09 On LKAB’s Sustainability Report for 2009

LKAB reports, for the second consecutive year, according to the Global Reporting Ini- with iron ore operations in Sweden and Norway. This account for 83% of the Group’s tiative (GRI) G3 Guidelines. The Sustainability Report is included in the Annual Report. total sales. Information pertains to the calendar year 2009. The previous year’s report was published in March 2009. All reporting of consolidated financial information is via the consolidated accounting LKAB has applied the GRI guidelines for defining the content of the report. The system. Personnel data is gathered from personnel systems, personnel reports, data- index below includes the core performance indicators stated in the GRI guidelines and bases and via manual procedures and covers all permanent employees in the Group additional indicators that are considered relevant on the basis of an analysis of the unless otherwise stated. company’s stakeholders and most significant issues. It also includes selected indicators The environmental information pertains to LKAB’s Mining Division and Minerals Di- from the GRI Mining and Metals Sector Supplement, version 6.0. An earlier version of vision unless otherwise stated. The information is taken from the management systems the supplement was used in the report for 2008. “P” indicates partial reporting and for quality, environment and energy, environmental reports, registered environmental “F” indicates full reporting. impact assessments and self-monitoring programs. External reports of annual emissions In accordance with guidelines from the Ministry of Enterprise, Energy and Com- are submitted to an independent accredited verifier, to the Swedish Environmental Pro- munications, the Sustainability Report has been reviewed by external auditors. The tection Agency and to the County Administrative Board of Norrbotten County. Signifi- auditors’ statement of assurance is given on page 108. LKAB is of the understanding cant changes from previous reporting in the scope, boundary, or measurement methods that this report complies with GRI’s C+ Application Level. The boundary of the report applied in the report are explained in conjunction with the performance indicators. has been set according to significant impact. Therefore, the scope of the report is not The contact person for LKAB’s Sustainability Report is Lotta Fogde, Senior Vice Presi- fully group-wide. This report pertains mainly to the LKAB Group’s Nordic operations, dent, Communications: [email protected]

GRI index g3

3.12 GRI Index 106-107 F G3 perfor- Page in Annual 3.13 Policy and practice with regard to external assurance 106, 108 F mance indica- Report and Sus- Partial reporting Full reporting

4. Governance, commitments and engagement = =

tors Description tainability Report F P 4.1 Governance structure of the organization 50-54 F Strategy and profile 4.2 Indicate whether the Chair of the highest governance 52 F 1. Strategi och analys body is also an executive officer 1.1 President’s statement on sustainable development 6-8 F 4.3 The number of members of the highest governance 52 F body that are independent and/or non-executive 2. Organizational profile members. 4.4 Mechanisms for shareholders and employees to 23, 48, 51 F 2.1 Organization’s name 3 F provide recommendations or direction to the highest governance body or executive management 2.2 Brands, trademarks, products and/or services 4-5, 25 F 4.5 Linkage between compensation for members of the 48 F 2.3 Operational structure, including divisions, operating 4-5 F highest governance body and executive management, companies, subsidiaries, and joint ventures and the organization’s performance (including social and environmental performance) 2.4 Location of the organization’s head office 110 F 4.6 Procedures and processes for the highest governance 53-54 F 2.5 Countries in which the organization operates 110 F body with respect to conflicts of interest 4.7 Process for determining the qualifications and 51 P 2.6 Nature of ownership and legal form 3, 50-51 F expertise of the members of the highest governance body for guiding the organization’s strategy on 2.7 Markets 4-5 F environmental topics 2.8 Scale of the reporting organization 4-5 F 4.8 Statements of mission or values, codes of conduct, 10 F and principles relevant to economic, environmental, 2.9 Significant changes during the reporting period 4-5, 51 F and social performance regarding size, structure, or ownership 4.9 Procedures and processes of the highest governance 30 F 2.10 Awards received in the reporting period 49 F body for overseeing the organization’s identification and management of economic, environmental, and 3. Report parameters social performance, including relevant risks and opportunities 3.1 Reporting period 106 F 4.10 Processes for evaluating the highest governance 30, 53 F body’s own performance, particularly with respect to 3.2 Date of publication of the most recent report 106 F economic, environmental, and social performance 3.3 Reporting cycle 106 F 4.11 Explanation of whether and how the precautionary 35 F approach or principle is addressed by the organi- 3.4 Contact point for questions regarding the report or 106 F zation its contents 4.12 Externally developed economic, environmental, and 35, 43, 106 F 3.5 Process for defining report content 28-29 F social charters, principles, or other initiatives to which the organization subscribes or endorses 3.6 Boundary of the report 106 F 4.13 Membership in associations 34-36 F 3.7 Specific limitations on the scope or boundary of the 28-29, 106 F report 4.14 List of stakeholder groups engaged by the organi- 28, 32-33, 35, 44, F 3.8 Basis for reporting on joint ventures, subsidiaries, and 106 F zation 47, 49 other entities that can significantly affect compara- 4.15 Basis for identification and selection of stakeholders 28 F bility with whom to engage 3.9 Data measurement techniques and the bases of 106 F 4.16 Approaches to stakeholder engagement, including 32-33, 35, 44, F calculations frequency of engagement by type and by stakeholder 47-49 3.10 Explanation of the effect of any re-statements of infor- 106 F group mation provided in earlier reports, and the reasons 4.17 Key topics and concerns that have been raised 28, 32-33, 35 F for such re-statement through stakeholder engagement 3.11 Significant changes in the scope, boundary, or 106 F measurement methods applied in the report GRI INDEX 107 09

LKAB is of the understanding that this report complies with GRI’s C+ Application Level.

Economic performance indicators Social performance indicators Information on sustainability management 29-30 F Information on sustainability management 30, 44 P EC1 Economic value generated and distributed 29 F LA1 Total workforce by employment type, employment 47-48 F contract, and region EC2 Financial implications and other risks and opportu- 34, 36 P nities for the organization’s activities due to climate LA2 Total number and rate of employee turnover by age 48 F change group, gender, and region EC3 Coverage of the organization’s defined benefit plan 97-98 F LA4 Percentage of employees covered by collective 44 F obligations bargaining agreements EC4 Significant financial assistance received from 36, 39 F LA7 Rates of injury, occupational diseases, lost days, and 44-45 F government absenteeism, and number of work-related fatalities by region Environmental performance indicators LA8 Education, training, counseling, prevention, and risk- 44-46 F Information on sustainability management 30, 35 F control programs regarding serious illnesses EN1 Materials used by weight or volume 35 F LA10 Average number of hours of training per year per 47 F employee by employee category EN3 Direct energy consumption by primary energy source 37 F LA13 Composition of governance bodies according to 46-47, 55-57 F EN4 Indirect energy consumption by primary energy 37 F indicators of diversity source HR4 Total number of incidents of discrimination and 47 F EN5 Energy saved due to conservation and efficiency 36 F actions taken improvements MM5 Operations taking place adjacent to indigenous 28, 35, 43 P EN6 Initiatives to provide energy-efficient or renewable- 34, 36 F peoples’ territories, and formal agreements with energy based products and services, and reductions indigenous peoples’ communities in energy requirements as a result of these initiatives SO1 Nature, scope, and effectiveness of any programs 31-33, 43 F EN8 Total water withdrawal by source 41 P and practices that assess and manage the impacts EN9 Water sources significantly affected by withdrawal 41 P of operations on communities, including entering, of water operating, and exiting EN10 Percentage and total volume of water recycled and 41 P MM8 Number of sites where resettlements took place, the 31-33 F reused number of households resettled, and the impacts of resettlement EN11 Location and size of land owned, leased, managed 43 F in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas MM11 Number and description of incidents in which 42-45 P emergency preparedness plans were implemented to EN12 Description of significant impacts of activities, 43 F protect employees, communities or habitats products, and services on biodiversity in protected areas and areas of high biodiversity value outside MM12 Systems and development related to the use of mate- 34 F protected areas rial in processes and products EN13 Habitats protected or restored 43 F EN16 Total direct and indirect greenhouse gas emissions 38 P by weight EN18 Initiatives to reduce greenhouse gas emissions and 34, 36-37 P reductions achieved EN20 NOx, SOx, and other significant air emissions by 38 F type and weight EN21 Total water discharge by quality and recipient 41 P EN22 Total weight of waste by type and disposal method 39-40 F EN23 Total number and volume of significant spills 35 F EN25 Identity, size, protected status, and biodiversity value 41 P of water bodies and related habitats significantly affected by the reporting organization’s discharges of water and runoff EN28 Monetary value of significant fines and total number 35 F of non-monetary sanctions for non-compliance with environmental laws and regulations MM 2 Description of sites requiring special systems for 41, 43 F managing biodiversity MM 3 Total amounts of overburden, rock, tailings, and 39-40 F sludges and their associated risks www.globalreporting.org 108 Auditors’ statement of assurance 09

Auditors’ report on limited review of the Sustainability Report

To the readers of LKAB’s Sustainability Report 2009: Our limited review has been based on an assessment of materiality and risk, and has been conducted according to the following review procedures: Introduction • Assessment of suitability and application of criteria with respect to internal and We have performed a limited review of LKAB’s Sustainability Report 2009. The external stakeholders’ need of information. Sustainability Report is presented on pages 27-49 and pages 106-108 in LKAB’s • Interviews with external stakeholders to ascertain whether LKAB responds to Annual Report. The Board and Group Management of LKAB are responsible for important stakeholders’ concerns in the Sustainability Report. the continuous activities with sustainable development regarding financial issues, • Interviews with responsible management, at group level and at subsidiary level, environment and social responsibility, and for the preparation and presentation of with the aim of assessing whether the qualitative and quantitative information the Sustainability Report in accordance with applicable criteria. Our responsibility stated in the Sustainability Report is complete, correct and sufficient. is to express an opinion on this Sustainability Report, based on our review. • Review of internal and external documents with the aim of assessing whether the qualitative and quantitative information stated in the Sustainability Report is The scope of the review complete, correct and sufficient. Our review has been performed in accordance with FAR SRS (the institute for the • Review of underlying documentation, on a random-sample basis, to assess sus- accountancy profession in Sweden) draft recommendation “RevR 6 Assurance of tainability information and data in the Sustainability Report. Sustainability Reports”. A review consists of making enquiries, primarily to persons • Evaluation of procedures and processes for reporting sustainability information responsible for preparing a Sustainability Report, performing an analytical review and data. and undertaking other review measures. A review has another direction and is • Visits to LKAB in Luleå and Kiruna, where compilation of sustainability informa- substantially less in scope than an audit conducted in accordance with the Auditing tion and data has been conducted. Standard in Sweden (RS) and generally accepted auditing practice otherwise. The • Review of qualitative information and statements, as well as the report on comp- procedures performed in a limited review do not enable us to obtain an assurance liance with legislation, permits and conditions related to sustainability. that would make us aware of all significant matters that might be identified in an • Assessment of the LKAB’s stated application level according to GRI’s guidelines. audit. The expressed conclusion based on a review does not therefore have the • Reconciliation of financial information against the company’s Annual Report for 2009. degree of certainty that a conclusion expressed as a result of an audit has. • Overall impression of the Sustainability Report, and its format, considering the correctness of the information in relation to the criteria applied. The criteria upon which our review is based are the applicable sections of “Sustai- nability Reporting Guidelines, G3”, issued by the Global Reporting Initiative (GRI). Conclusion We believe these criteria to be appropriate for our assurance activities. Based on our review procedures, nothing has come to our attention that causes us to believe that the Sustainability Report has not, in all material aspects, been prepared in accordance with the above stated criteria.

Luleå, 26 March 2010

KPMG AB

Caj Nackstad Åse Bäckström Authorized public accountant Specialist member FAR SRS GLOSSARY 109 09

GLOSSARY

Barren rock: Rock that is not ore. Leaching test: Test to determine the probability of liberation of elements. Basic, pH: pH value above seven. Lignosulfate: A dust-binding agent. Burden: Materials (ore, slag formers, etc.) that are added (charged) to a furnace, possibly together with fuel, for iron- Magnetite: Magnetic iron ore (Fe3O4). making. Main level: Transport level in the mine to which the ore is Calcites and silicates: Two of the most abundant and widely passed by gravity in a chute or shaft from overlying mining distributed mineral groups. levels.

Coating: Surface coating. Mica: Mineral group of sheet silicate (phyllosilicate) minerals.

Concentration: Beneficiation of finely ground ore by separation Olivine: Mineral, (Mg,Fe)2SiO4. into a concentrate of iron ore powder with very high purity. Particulate emissions: Release of particulate matter into the Crude iron: Also called hot metal, pig iron or blast-furnace air. iron, this intermediate product results from processing of iron ore and coke in the blast furnace and is subsequently refined Pelletizing: Process where concentrate (pellet feed) is mixed to crude steel. with binder and rolled together into “green” balls. The green balls are sintered in a pelletizing plant. The finished product Crude ore: The untreated ore broken loose from the deposit. is pellets.

Crushed ore: Input to ore processing plants. Seismic events: Movements of the ground, including earth- quakes. Deformation zone: Ground area affected by subsidence due, for example, to mining. The deformation zone boundaries are Sintering: Heating of fine-grained ore (fines) until it starts to defined at the point where seismic instruments first indicate dis- melt. The ore is then fused (sintered) into lumps (sinter) that can turbance. be used in a blast furnace.

Discharge: Release of water from a pond. Spillway: Device for controlled discharge of water from e.g., a tailings pond. Dressing: Rough sorting of crushed ore. Consists at LKAB of screening of the crushed ore into various fractions, after which Sponge iron: (= DRI, Direct Reduced Iron). End product of the the waste rock is separated from the iron ore by magnetic DR process. Solid, porous iron with some remaining mineral separators. residues and oxygen. HBI (Hot Briquetted Iron) is a compressed form of DRI that reduces the risk of autoignition. Flotation: Chemical process/method for particle separation, used in beneficiation of iron ore. Stripping: Preparation of ground by removal of vegetation and or soil, etc., to enable access to underlying materials. Hematite: (= bloodstone). Non-magnetic iron ore(Fe2O3). Sulfides: Several types of chemical compounds containing Huntite: Mineral, CaMg3(CO3)4. sulfur.

Indicators: Quantifiable key terms as defined by the GRI sus- Survey plinth: Fixed reference point at which GPS readings tainability areas Economy, Environment, and Society. are taken for registering ground deformations. A hole is drilled Inert waste: Material waste which is not reactive and will not down to a depth of about 5 m (or in bedrock), and then a steel decompose after final placement. pipe is installed and subsequently filled with concrete. The pipe projects about 1.5 m above ground surface. On top is a mount Intact ore: Ore is said to be intact when in its original state for the GPS instrument used for taking readings. before being mined. TJ: Terajoule. Integrated steelmill: Steelmill that covers the entire production chain from ore to steel and has both sintering plant and blast TWh: Terawatt hour. furnace. Yield: Ore yield = The ratio between the recovered crude Landfill: Area in which materials such as tailings or waste rock ore and the theoretical quantity of intact ore in the ground. are sequestered. The difference is made up of ore losses and is dependent on the workability of the ore, i.e. how economical it is to mine. Landfill plan: Long-term plan for final placement of waste mate- Weight yield = The ratio between the iron content of the fin- rial. ished product (output) and the iron content of the raw material (input) 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, The generation of leachate is caused principally by precipitation percolating through waste deposited in a landfill. 110 ADDRESSES 09

ADDRESSEs

LKAB GROUP HEAD OFFICE MINERALS Minelco Slovak Republic Box 952, SE 971 28 Luleå, Sweden Minelco AB Representative Office Tel +46 (0)920-380 00, fax (0)920-195 05 Box 952, SE 971 28 Luleå, Sweden Panenska 13, SK-81103 Bratislava, Slovak Republic. Lars-Eric Aaro, President and CEO Tel +46(0)920-381 60. Fax (0)920-190 88. Tel +421 2 5930 5753. Fax +421 2 5930 5754. [email protected] [email protected] MARKETING AND SALES Markus Petäjäniemi, President Marian Zilinsky, Sales Manager LKAB NORDIC REGION Sweden, Finland, Norway, Denmark and Iceland Minelco Oy Minelco Spain Box 952, SE 971 28 Luleå, Sweden P.O. Box 57. FI-718 01 Siilinjärvi, Finland. Representative Office Tel +46 (0)920-380 00, fax (0)920-148 63. Tel +358 17 266 0160. Fax +358 17 266 0161. Olesa, 7B, 08503 Gurb, Spain [email protected] [email protected] Tel/fax +34 93 886 0194 Johan Heyden, Sales Manager Kari Laukkanen, President [email protected]

LKAB S.A. Minelco Inc. Minelco Greece Benelux, France, UK, Italy, Spain, Portugal, Turkey, Africa, 2020 Scripps Center, 312 Walnut Street Representative Office Americas Cincinnati, OH 45202, USA. 13, N.Kountouriotou str., 546 25 Thessaloniki, Greece Chaussée de la Hulpe 150, BE-1170, Brussels, Belgium Tel +1 513 322 5530. Fax +1 513 322 5531. Tel: +30 2310 539073. Fax +30 2310 552882 Tel +32-2 663 36 70. Fax +32-2 675 05 91. [email protected] [email protected] [email protected] Mats Drugge, President Staffan Stenström, President Minelco Singapore Minelco Ltd Representative Office LKAB SCHWEDENERZ GmbH Flixborough Industrial Estate, Flixborough, 300 Beach Road #29-02, The Concourse, Germany, Austria and Central and Eastern Europe. North Lincolnshire, DN15 8SF, England. Singapore 199555. Rüttenscheider Strasse 14, DE-45128 Essen, Tel +44 1724 277411. Fax +44 1724 866405. Tel +65 6392 49 22. Fax +65 6392 49 33. Germany. [email protected] [email protected] Tel +49 201 879 440. Fax +49 201 879 4444. Robert Boulton, President [email protected] SUBSIDARIES Göran Ottosson, President Minelco GmbH Wassara AB P.O. Box 10 25 54, DE-450 25 Essen, Germany. Hornsgatan 103, SE-117 28 Stockholm. LKAB FAR EAST Pte. Ltd Tel +49 201 45060. Fax +49 201 4506 490. Tel +46(0)8-84 95 50. Fax (0)8-84 02 71. Asia, Southeast Asia, Middle East and Australia [email protected] [email protected] 300 Beach Road #29-02, The Concourse, Barbara Eicher, President Peter Johansson, President Singapore 199555. Tel +65 6392 49 22. Fax +65 6392 49 33. Minelco B.V. AB Kiruna Grus & Stenförädling [email protected] Vlasweg 19, Harbour M164, P.O. Box 16, Box 817, SE-981 28 Kiruna, Sweden. Stig Nordlund, President NL-4780 AA Moerdijk, The Netherlands. Tel +46(0)980-685 00. Fax (0)980-832 79. Tel +31 168 388 500. Fax +31 168 388 599. [email protected] IRON ORE [email protected] Peter Söderman, President LKAB Yvonne Dirken, President SE-981 86 Kiruna, Sweden. Fastighets AB Malmfälten Tel +46 (0)980-710 00. Fax (0)980-109 02. Minelco Asia Pacific Ltd. SE-981 86 Kiruna, Sweden. 4502 China Resources Building, 26 Harbour Road, Wan- Tel +46(0)980-710 00. Fax (0)980-728 95. LKAB chai, Hong Kong [email protected] SE-983 81 Malmberget, Sweden. Tel +852 2827 4138. Fax +852 2827 5574. Mats Pettersson, President Tel +46 (0)970-760 00. Fax (0)970-236 00. [email protected] John Engel, President LKAB Nät AB Malmtrafik i Kiruna AB (MTAB) SE-981 86 Kiruna, Sweden SE-981 86 Kiruna, Sweden. Minelco (Tianjin) Minerals Co., Ltd Tel +46(0)980-710 00. Fax (0)980-109 05. Tel +46 980-710 00. Fax (0)980-109 02. Junyi Industrial Park, [email protected] Göran Heikkilä, President Jungliangcheng, Dongli District, Tianjin, P.R. China 300301. LKAB Försäkrings AB LKAB Norge AS Tel +86 22 2435 1706. Fax +86 22 2435 1708. Box 952, SE 971 28 Luleå, Sweden Postboks 314, NO-8504 Narvik, Norway. [email protected] Tel +46 (0)920-380 00, fax (0)920-195 05 Tel +47 769 238 00. Fax +47 769 449 25. Bin Zhou, President [email protected] Svein Ivar Sivertsen, President Minelco A/S LKAB, Luleå harbor Boks 1329, DK-3900 Nuuk, Greenland. Box 821, SE 971 25 Luleå, Sweden Tel. +299 1991 13. Tel +46(0)920-380 50. Fax (0)920-380 60. [email protected] Lars Andersson, general manager Peter Mörtlund, President Annual General Meeting

LKAB’s Annual General Meeting will be held at 3 p.m. on Friday 29 April 2010, in Luleå.

Participation The meeting is open to the public.

Notice Notice of the Annual General Meeting, financial information and other information is available at www.lkab.com. Printed financial information can be ordered by email: [email protected], or from LKAB, Box 952, SE 971 28 Luleå, Sweden.

Reporting dates

Interim reports

29 April Interim Report Q1, January-March 2010

13 August Interim Report Q2, January-June 2010

27 October Interim Report Q3, January-September 2010

February 2011 Interim Report Q4, January-December 2010

Enquiries Questions concerning the content of LKAB’s financial information may be directed to Leif Boström, Senior Vice President, Treasury, or Lars-Eric Aaro, President and CEO.

LKAB Annual Report 2009 Produced by LKAB in collaboration with Vinter The Sustainability Report has been produced in collaboration with Hallvarsson & Halvarsson. Photo: Fredric Alm, Andreas Lundberg and LKAB Printed by: Luleå Grafiska 2 4 6 3 9 13 16 17 18 19 20 21 22 23 24 25 28 29 30 31 34 44 49 55 58 59 60 68 26 27 50 58 11 11 106 104 109 106 108 105 110 111

TE GOVERNANCE REPORT

LKAB ANNUAL REPORT AND SUSTAINABILITY REPORT 2009 www.lkab.com LKAB, Box 952, SE-971 28 Luleå, SWEDEN