Bloomberg News

Sweden’s LKAB Doubles Spending to Find ‘Elephant’ Iron Mine

May 22, 2013

LKAB is doubling spending on exploration in Sweden’s Arctic as the state-owned company targets finding a deposit to match its Kiirunavaara mine, the world’s largest contiguous body of iron ore.

LKAB will boost its exploration spending to 200 million kronor ($30 million) annually from 100 million kronor and is hiring more geologists to guide it to potential deposits, Chief Executive Officer Lars-Eric Aaro said in a May 20 interview.

“There’s a saying in mining, especially when you’re looking for big volume bodies, that if you’re looking for elephants you have to go to elephant land -- and our part of the world is elephant land,” he said. “We now have the equipment to look at rocks deeper down but what’s under there is so far totally unknown. But, the geology is there and there could be a new Kiirunavaara mine -- it will just be deeper underground.”

Sweden sits on 60 percent of Europe’s known iron ore and 2 percent of the global total. Prime Minister Fredrik Reinfeldt has said that the resource ore is equivalent to what oil has meant for Norway since it was discovered in the 1960s.

LKAB, which is moving parts of the towns of Kiruna and Malmberget to ensure it can continue production in those two locations, had sales of 27 billion kronor and a profit of 8.8 billion kronor last year. LKAB paid a dividend of 5 billion kronor to the Swedish state for 2012, equivalent to 0.6 percent of the government’s forecast income in 2013, as well as taxes of 3.77 billion kronor. Those contributions to Sweden’s budget are likely to increase as LKAB opens new mines and expands.

Increased Production

LKAB forecasts an increase in production to at least 37 million tons by 2015, from 26.3 million tons last year, as it opens three new open-pit mines in Svappavaara, near its existing mines in Kiruna and Malmberget. The company is likely to then continue to increase production volumes as it has “very good portfolios of exploration,” LKAB’s CEO said.

“The 37 million tons we forecast in 2015 is absolutely not a cap for the future,” Aaro said. “If we’re successful, can control costs and develop markets for our products, it would be possible to take the next action by 2020 and a logical next step by 2025 or so would be production of 50 million tons.”

The next discoveries are likely to be found at depths of 200 meters or more, unlike the close-to-surface bodies in Kiruna or Svappavaara, Aaro said.

Geology There

Northern Scandinavia is still “underexplored,” mainly because prospecting was more or less forbidden for foreign companies in Sweden until 1992, Aaro said.

“I’m optimistic that there’s a lot more to do both in Sweden, Norway and Finland,” he said. “The geology really is there. This will be important for the growth of Europe and our ability to feed metal-producers in Europe, because Europe is still import-dependent in terms of iron ore.”

Still, LKAB is too dependent on Europe for its exports of iron ore products and aims to diversify its geographical distribution, said Aaro. Last year, LKAB shipped 67 percent of its products to Europe and 28 percent to Asia and the Middle East. It started its first deliveries to China in 2009 and is now expanding its presence in the Middle East and North America, said Aaro. LKAB, which has two offices in mainland China and one in Hong Kong, is opening an office in Dubai in October, with a total of 10 employees, Aaro said.

“More or less the whole production increase we foresee until 2015, or about 10 million tons, will go directly to Asia and the Middle East,” Aaro said.

To contact the reporter on this story: Niklas Magnusson in Hamburg at nmagnusson1@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman in Oslo on at jbergman@bloomberg.ne


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