Interim report July–September 2018: Strong earnings onfavourable market

October 26, 2018

The market continues to place a premium on high-quality iron ore products, and demand remains high. Sales increased in the third quarter and operating profit improved by 37 percent compared with the same period last year. However, operations were affected by both a stoppage at the processing plant in Svappavaara and disruption on the Ore Railway.

Production in the third quarter amounted to 6.8 (6.5) Mt and deliveries to 6.9 (7.1) Mt. Net sales increased to MSEK 6,594 (5,958), while operating profit totalled MSEK 2,477 (1,808). This is an increase of 37 percent – mainly due to higher market prices for highly upgraded iron ore products combined with a strong dollar. Operating cash flow for the third quarter was MSEK 1,552 (1,916).

Competitiveness in a global raw materials market
The average level of the global spot price for iron ore was USD 67 (71)/tonne for the quarter. The price premium for iron ore pellets remains strong and stable, while lower quality products were forced into greater discounts. LKAB’s strategy to maximize pellet production remains in place and 82 (81) percent of the quarter’s total deliveries consisted of pellets.

“LKAB benefits from the prevailing market conditions and from an increased focus on resource efficiency and sustainability among steel customers. Since we cannot influence world market prices, it remains key that we focus on the parameters that are within our own control. That means sustainability and quality, but also cost control and efforts to secure production in both the short and the long term,” says Jan Moström, President and CEO of LKAB.

Production stoppage at pelletizing plant and disruption on the Ore Railway
On 28 July a person employed by a contractor suffered a fatal fall in an accident at the pelletizing plant in Svappavaara. For a person to die as a result of an accident at work is the very worst thing that can happen. LKAB’s Safety First program, which aims to ensure that everyone returns home healthy and safe at the end of the working day, is our highest priority.

Operations in Svappavaara were resumed after production was stopped for just over two weeks to ensure safety. Shortly thereafter, LKAB’s planned deliveries were affected by a fire in a snow protection tunnel along the Ore Railway to Narvik. Rail traffic was stopped for five days, resulting in delivery losses of 10 trains per day with each train holding 6,500 tonnes of pellets.

The pelletizing plant in Svappaara has been taken out of operation until January 2019 for maintenance work. In the short-term this will result in a loss of production, part of which can be caught up since this stoppage will replace stoppages planned for later in 2019.

LKAB continues to focus on the future
LKAB’s ambition is to be one of the most innovative, resource efficient and responsible companies in the industry and the company is conducting long-term collaboration projects with customers and suppliers to develop more sustainable processing and mining processes.

Together with environmental company Ragn-Sells, LKAB is now also investing in pilot facilities to industrialize an innovative new technology that processes waste from iron ore production. This could result in LKAB producing phosphorous and rare earth metals, classed by the EU as strategic minerals of particular importance to the industry.

The urban transformations in the Swedish orefields are another important issue for the future. This quarter a milestone was reached when LKAB officially handed over Kiruna’s new city hall, Kristallen (The Crystal), to Kiruna Municipality. In return the Municipality handed over the old city hall for its planned phase-out, giving LKAB access to the land for continued mining.

After 2030, when the current main haulage levels are expected to be mined out, LKAB needs to be ready to mine iron ore deeper in the mines. This requires decisions to be made in the mid-2020s concerning main haulage levels and plant investments. The results of ongoing exploration in Kiruna with a view to expanding the mineral resources were compiled during the quarter, and indicate a more complex geology and geometry than had previously been assumed. As a result, further exploration work will be carried out.

“Securing ore in the long term is the basis for the next generation LKAB,” says Jan Moström.

Contact: Anders Lindberg, Manager Corporate Communications at LKAB, Tel: 46 (0)0980 783 55.

LKAB is an international high-tech mining and minerals group that mines and upgrades the unique iron ore of northern Sweden for the global steel market. Sustainability is core to our business and our ambition is to be one of the industry’s most innovative, resource-efficientand responsible companies. The group had sales of more than SEK 23 billion in 2017 and employs about 4,100 people in 13 countries. Other group business include industrial minerals, drilling systems, rail transport, rockwork services and property management.