Interim report Q4 2015: LKAB steps up adaption measures
Continued oversupply of iron ore and low prices for iron ore fines in the global market are putting pressure on LKAB’s profitability. With a new cost efficiency programme, LKAB is to cut costs for 2017 by an amount that exceeds last years realized cost savings of MSEK 800. The operating result for the fourth quarter was a loss of MSEK -351 (205).
“Although the underlying operating result[1] is positive, LKAB is reporting a loss for 2015 – which underlines the importance of adapting our operations. The current market situation and the future prospects mean, however, that we must reduce annual costs further, and we are now planning new actions,” says Jan Moström, President and CEO.
In 2015, a cost-cutting and efficiency program was carried out that reduced costs by MSEK 800. For 2016, costs have been further trimmed. In addition, further efficiency improvements are needed to secure our competitiveness. A new efficiency program is being formed focused on providing a cost reduction that exceeds that implemented previously. It is planned to be presented during the second quarter of 2016 and to be fully effective in 2017.
Combined with the fact that the supply of iron ore increased during the year, the price of iron ore has fallen dramatically. In December 2015 the spot price[2] for iron ore fell to a historic low of USD 38/tonne. The average spot price for the quarter was USD 47/tonne.
Demand for LKAB’s processed iron ore products remains good and the premium for pellets provides price advantages in a challenging market. However, LKAB needs to do more to secure increased volumes and more stable production.
During the year, production was disrupted by difficulties with the supply of raw materials from the underground mines and the replacement of a mantle ring in one of the pelletizing plants in Kiruna. Production and delivery volumes returned to normal during the fourth quarter and amounted to 6.8 (6.7) Mt, with the proportion of pellets at 82 (83) percent.
LKAB’s strategy to maximize pellet production remains in place. However, the target volume of 37 million tonnes will be moved forward in time. The new open pit mines at Svappavaara will primarily supply raw materials to existing processing plants.
Access to land is crucial for all mining operations, while at the same time mining has an impact on the communities where LKAB operates. Close cooperation is key, and at the beginning of the year, compensation principles were presented in connection with property acquisitions for urban transformation in Kiruna and Malmberget.
“There is only one way to go if we are to secure long-term sustainable mining operations in Malmfälten. We have to enhance productivity – in other words, produce more with fewer employees – and we have to cut costs by working smarter. Focusing on the core business, we are now increasing the momentum as we adapt LKAB to the realities of the market,” concludes Jan Moström.
OCTOBER – DECEMBER 2015
- Net sales totalled MSEK 4,252 (4,662)
- Underlying operating profit[1] was MSEK 128 (46)
- Operating loss was MSEK -351 (205)
- Loss for the period was MSEK -235 (-17)
- Deliveries of iron ore totalled 6.8 (6.7) Mt
JANUARY – DECEMBER 2015
- Net sales totalled MSEK 16,200 (20,615)
- Underlying operating profit[1] was MSEK 1,548 (4,002)
- Operating loss was MSEK -7,156 (570)
- Impairment loss on property, plant and equipment had a negative effect on operating profit of MSEK 7,136
- Loss for the period was MSEK -5,686 (347)
- Deliveries of iron ore totalled 24.2 (26.0) Mt
- The Board proposes to the AGM that no dividend is paid to the owner
[1]. Underlying operating profit is defined as operating profit excluding costs for urban transformation provisions and impairment of property, plant and equipment.
[2]. Platts IODEX 62% Fe CFR North China
LKAB is an international high-tech 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 16 billion in 2015 and employs about 4,000 people in 15 countries. Other group business include industrial minerals, drilling systems, rail transport, rockwork services and property management.
There is only one way to go if we are to secure long-term sustainable mining operations in Malmfälten.We have to enhance productivity – in other words, produce more with fewer employees – and we have to cut costs by working smarter.
