MINING ON TOP – STOCKHOLM

NOV 26-27, 2013 The Industry Landscape –

How does it affect LKAB in the future

Peter Schmid, Marketing & Sales Director

Iron Ore Producer Steel Producers End-Users

THE INDUSTRY VALUE CHAIN – FROM MINE TO END-USER

• Introduction about LKAB - Update

• The Industry Landscape

• …and How does it affect LKAB in the future

LKAB - MORE THAN 120 YEARS OF SERVING THE STEEL INDUSTRY

2

LKAB WORLDWIDE 2012 Harbours

Mines and processing plants

Sales and/or purchasing offices

LKAB Minerals and LKAB Wassara

• 4,300 employees, whereof 650 expatriates, 19% women

• 30 operations in 15 countries

• Sales 2012: SEK 26,9 billion

• EBIT 2012: SEK 10,9 billion

• 90% of EU Iron Ore production; (2012: 26.3 Mt whereof pellets 22,9 Mt)

• Owner: Swedish state

3

Kiruna Under ground

mining and

processing

Malmberget Under ground

mining and

processing

Luleå Harbour and

Head Office

Svappavaara Open pit mining

and processing

Narvik Harbour

Malmbanan Railway Narvik -

Luleå

IRON ORE OPERATIONS

Source: LKAB 4

PRODUCTION STRUCTURE

Mines Sorting Processing Pelletizing Products Harbours

Kiruna

Malmberget

Svappavaara Svappavaara

40 km

Malmberget

Kiruna

Pellets

Fines

Pellets

NARVIK

LULEÅ

Gruvberget

Mertainen

Leveäniemi

Source: LKAB 5

LKAB PRODUCTION AND SALES 2012

Blast furnace pellets (BF) for coal-based steel production

Direct reduction pellets (DR) for natural gas-based steel production

Pellets BF 62%

Pellets DR 21%

Fines 12%

Special 4%

Products

Europe 67%

Middle East &

Asia 32%

Others 1%

Market (Revenues)

Source: LKAB 6

GLOBAL IRON ORE PRODUCTION 2012: 1800MT GLOBAL SEABORNE TRADE: 1170MT (140MT PELLETS)

Source: CRU, LKAB 2012 7

LKAB:

Deliveries 26,3 Mt, Export 22,5 Mt (2%)* where of 18,3 Mt pellets (13%)* *Share of global seaborne trade

520Mt 57Mt

280Mt

367Mt

30Mt

40Mt

55Mt

107Mt

80Mt

12Mt

140Mt

21Mt

15Mt 12Mt

16Mt

7Mt

38Mt

IRON ORE EXPORT & IMPORT BY REGION 2012

Import Export

Asia: China 739 Mt, Japan 130 Mt,

S Korea 64 Mt & ME 34 Mt

South Am: Brazil 350 Mt, Chile 13 Mt

Source: CRU, LKAB 8

IRON ORE MARKET CONTINENTAL DRIFT

2000-2012 (IMPORTS)

126 Mt 13%

124 Mt 12%

739 Mt 75%

Year 2000 Year 2012

Total 344 Mt Total 989 Mt

China Japan EU27

124 Mt

36%

68 Mt

20% 152 Mt

44%

Source: CRU, LKAB 9

GLOBAL IRON ORE CONSUMPTION BY

PRODUCTS 2012 – 2017F

+ 51%

+ 23%

+ 23%

+ 20%

2012 2017F

Source: CRU, LKAB 10

2012: appr. 1800 Mt

2017F: appr. 2200 Mt

NEW IRON ORE PROSPECTS

Source: Raw Material Group 11

FINISHED STEEL PRODUCTS 2000 VS 2020 (MT)

141 98

132

41 65 131

167 154 186

132

585

814

28 63

131

28 45 73

North America

South America

Europe

CIS

India

China

2000 2010 2020

Demand Steel

12 Source: World Steel Association (WSA); McKinsey Steel Demand Model

• CAGR 2005-2020: ≈3%

• Low price level

• Overcapacity

Canada 416,4

Mexico 158,1

United States 284,5

NAFTA 263,0

France 208,5

Germany 479,6

Belgium-Luxembourg 422,5

Italy 459,5

European Union (27) 310,0

Russia 292,2

Middle East 233,9

China 459,8

India 57,0

Japan 506,7

South Korea 1156,6

Taiwan 784,4

Asia 238,8

Africa 34,8

Central & South America 98,6

Australia and New Zealand 261,6

Source: World Steel

CONSUMPTION OF STEEL (KG/CAPITA)

World: 215 kg/capita

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CHINA IS THE LOCOMOTIVE

World Crude Steel Production

Price - Spot Price - Platts index

World Iron Ore Consumption

Micro & Macro Economics in

China Impacts the Iron Ore Market

Global market imbalances are driven by China

-15% to +23 m-o-m

Source: CRU, LKAB 14

• GDP

• Interest rate

• PMI

• Inventory levels

• Currency

Iron Ore Producers Steel Producers End-Users

Global Macro economics – Supply and Demand

THE INDUSTRY LANDSCAPE IN SUMMARY

• China (≈48%)

• CAGR

o 2000-2005 ≈12%

o 2005-2020 ≈3%

• Capacity utilization 75%

• Low profitability

Demand and Supply:

Segments:

• Construction

• Machinery & Equipment

• Transportation

Regions:

• Europe

• Americas

• MENA

• China

• CIS

• China demand (≈57%)

• The “Big 4” (+60%)

• Capacity additions

• Price pressure

15 Source: LKAB

LKAB CHALLENGES – TODAY AND FUTURE

LKAB

Challenges

Market Landscape

Competiveness

Environmental

permits

Urban

development

Attract people

+1000 people

16 Source: LKAB

INVESTMENTS: 1 BILLION USD PER YEAR

Final products

(Mt/year)

Kiruna new main level KUJ 1365

Malmberget new main level M 1250

Further organic

growth potential

Present capacity

Further capacity

planned

INVESTMENTS EXTENDING MINING OPERATIONS BY 25 YEARS

17 Source: LKAB

GROWTH AND INVESTMENTS

Kiruna 2,5BUSD

Malmberget 1BUSD

Svappavara 0,5BUSD

Narvik 0,2BUSD

Source: LKAB 18

OUR MARKETING & SALES RESPONSE

Risk Management

Customer portfolie strategy

Performance In Ironmaking

Product portfolio strategy

Product quality & stability in the supply chain

REACTIVITY TO RAPID MARKET CHANGES 19 Source: LKAB

20