Mining down deep – profits sky rocket

Mine workers at the LKAB mine in Kiruna work in one of Sweden's most profitable companies.

KIRUNA: European financial crisis is of no concern and unemployment does not exist. Iron ore company LKAB’s profit is skyrocketing as they dig their way deeper and deeper down under the town of Kiruna in northern Sweden. Now, the town has to move to prevent it from sinking into the cracks left by the mine.

Two ordinary tunnel openings at the foot of the mountain Kiirunavaara marks the entrance to the largest underground mine in the world. The Luossavaara-Kiirunavaara AB (LKAB) mine has a web of tunnels where an unknown driver would get lost after the first few turns. 400 kilometers of continuously maintained two lane roads spread themselves in all directions throughout the mountain like a termite mound.

LKAB employees spend most of their working career down in the underground mine. Here are the lunch rooms, mechanical workshops and equipment storage rooms. All to support the miners access to enormous amounts of world-class iron-ore. This is an underground community of 2000 “inhabitants” on a constant roll, 24 hours per day - year around. To secure good communication the tunnels even have full mobile coverage.

BarentsObserver drives down the tunnels together with the miners that are making LKAB one of the most profitable businesses in Sweden.

250 percent growth
The roads are steep. Within minutes we have descended several hundred meters and in the end we stop at 750 meters below ground level. That is almost half the depth of the deepest tunnel in Kiruna. But the iron ore continues far deeper. The mountain holds one of the largest known deposits of iron ore in the world. Nobody really knows how deep it goes. And the ore is rich. 63 percent pure iron. Almost as pure as it gets.

By comparison, most iron ore mined in China contains 20 percent iron. This means that the Chinese have to extract three times more ore as the Swedes to get the same amount of iron. That is what makes Kiruna’s ability to compete with low-cost emerging markets. Demand is greater than ever before, as Asia, led by China, shows explosive economic and infrastructural growth.

- We have a 250 percent growth over the last eight years, says CEO of LKAB Lars-Eric Aaro.

Lars Eric Aaro is President and CEO of LKAB in Kiruna. (Photo: Jonas Karlsbakk)

BarentsObserver meets with Aaro just after he arrived to Kiruna with the iron-ore train from Narvik together with Sweden and Norway’s Foreign Minsiters Carl Bildt and Jonas Gahr Støre. LKAB ships much of its iron-ore pellets from the ice-free harbor in Narvik on the Norwegian side of the border. Both Bildt and Støre see the joint potential of the High North - oil and gas development at sea and minerals on land. By combining industrial forces across the east-west borders, the sky seems to be the limit for the Barents Region.

Bright future
The mine workers might be dirty and dark as they walk around in the tunnel maze of Kiirunavaara, but with the current market demand for iron ore the future for the Kiruna community looks brighter than ever.

LKAB recently presented the financial report for the first nine months 2011 with a operating profit amounted to SEK 11,6 billion (€1,285 billion).

- We have an unshakable belief in the future and a rock-solid conviction that the global market will continue to demand LKAB’s high-quality products, says Lars-Eric Aaro.

LKAB is now investing €2 billion and will be opening three new mines in northern Sweden, in addition to deepening the existing mine in Kiruna.

- Our goal is to deliver 37 million tons a year. 

From his office building Lars-Eric Aaro has a great panorama of Kiruna. In fact, the town is too close to the mines as the underground tunnels are expanding towards the centre.

“Move this town “
In the entrance of the community centre of Kiruna a large model of the town is put up. The model displays all mountains, streets and houses of the rather young town. Hundreds of small wooden pieces shaped into some of Kiruna’s architect award winning buildings or the old wooden houses from a long gone past, the modern hotels, the numerous apartment buildings and the hamburger snack bar on the corner and so on. In general all the things you expect to find in a Scandinavian town of 20 000 inhabitants.

Few of Kiruna’s inhabitants have protested on the plans to move the town center. (Photo: Thomas Nilsen)

Over the next 10 to 20 years all of these houses will be demolished and gone as the town will be moved a few kilometers northbound from its current centre. The iron ore stretches slowly to the north and under the center of Kiruna. For the small mining town there are no other options. The buildings have to go. For Kiruna it is either mining or nothing – this is a company town.

A woman looks at the model of the town. She points at one of the apartment blocks and asks when this one will be demolished.

- In five to six years time, replies Ylva Sivertsson, information officer with LKAB. She explains that the houses closest to the mine will be taken first, followed by the area where Kiruna’s City Hall and wooden church is located.

- To tear down the City Hall is not very controversial; the building is not very pretty, Sivertsson smiles. The wooden church, on the other side, will likely be stripped down and moved to a new location.

No protests
The inhabitants in Kiruna are not protesting the plans to demolish their houses. In fact there has been little debate in the local community to whether or not they should move the city centre. The debate has been mostly concerned to the financing.

- LKAB will cover the costs of moving the town, Ylva Sivertsson explains. SEK 4 billion (€447 million) in the first round. The total costs over the next 40 years are not clear yet.

- This is a mining town. Without the mine there is no future for Kiruna. That is the general opinion for most people in Kiruna, says Sivertsson.

The inhabitants in Kiruna have nothing to fear. The mine is heavily investing for the future.

- We have had mining here in Kiruna for 120 years and we are now carrying out Swedish industry’s most comprehensive investments, says CEO Lars-Eric Aaro.

LKAB try to invest as much as possible in development of the company and in the mining community. Things are going very well now. Aaro show a chart of the current demand of iron ore. China is boosting the production demand worldwide, and it will probably continue for decades.

Ylva Sivertsson (to the left) works at LKAB’s visitors center in Kiruna and provides information about the plans to the town’s inhabitants. (Photo: Thomas Nilsen)

- LKAB has an investment program of SEK 19 billion (€2,12 billion) in Kiruna, Svappavarra and Malmberget. In addition we put much effort into research and development, says Lars-Eric Aaro.

World-class R&D
LKAB has a high focus on research and development and is world leading when it comes to innovation and use of new technologies in iron ore production. LKAB has built the world’s first experimental blast furnace as part of a new research project called Ulcos (Ultra-low CO₂ steelmaking), which aims at reducing carbon dioxide emissions in steelmaking with 70 percent.

The steel industry is responsible for eight percent of the world’s total carbon dioxide emissions, and Europe’s steel mills have promised to reduce these emissions by half by 2050.The hope is that the new technology developed at LKAB can be implemented in steel mills by 2020.

The iron ore goes north and under the town center where most inhabitants in Kiruna live. (Photo: Thomas Nilsen)

Another way of producing iron from ore is by so-called direct reduction, where you use gas instead of coke (as in a blast furnace) as a reducing agent to remove the oxygen from the iron ore. This process is much more efficient. LKAB is involved in a project called IRONMAN, a joint Swedish-Norwegian project aiming at using Norwegian gas and Swedish ore to produce more steel in a more eco-friendly way.

2000 are employed by the mining company. In addition there are number of other businesses which rely on the contracts in and around the mine.

Some 1,000 workers from sub-contractors are on fly-in-fly-out work in Kiruna as LKAB is expanding and opening new mines.

For LKAB an active and developing local community is just as important as good prices on iron ore. The town might depend on the development of the mining company, but LKAB is even more dependent on the Kiruna community.  LKAB put huge efforts in supporting the schools, the education system, the local sports and culture. At least €10 million is every year put into local area activities.

Beacuse Aaro knows that their biggest challenge in the years to come is not budgets or price level for iron ore. Its all about people.

- Kiruna has to be an attractive city to live in and come to. Or else we would have huge difficulties in recruiting new employees, says Aaro.