Swedish miner LKAB is seeing good contract demand for iron ore pellets globally, and future uncertainty on production volumes has been clarified by this month's local government accord, as the group strives to cut costs.
LKAB said it agreed to pay SEK 2.1 billion ($227 million) compensation to allow for the relocation of a local community disrupted by the Malmberget iron ore mine, and this accord will allow supplies to continue from the key area. Details are yet to be drawn up. Without the local accord, pellet volumes may have been hit starting mid-2017.
It transferred responsibility to the municipal authorities, rather than continue a plan to pay for rehousing residents and civil rebuilding itself.
The Gullivare municipal assembly on November 7 approved the plan, a spokesman said. This is understood to be an important basis of a framework for future resettlement works.
Malmberget supplies iron ore pellets with a specification branded as MPBO tailored to regional steel group SSAB.
SSAB's Swedish and Finnish integrated blast furnace operations are totally dependent on iron ore pellet-based feed.
The Malmberget operation is developing a MPBA pellet to be acceptable also to other European customers to aid sales flexibility, according to LKAB's latest annual report.
"Hopefully there will be no disruptions to the mining during the transformation," said a LKAB spokesman by email Thursday.
"The detailed plans for when the municipal buildings will be replaced and paid for are being investigated by LKAB and municipality," he added.
Malmberget was LKAB's second-largest output base, producing 8.5 million mt of upgraded products in 2015 from magnetite and hematite bodies, while Kiruna produced 12.6 million mt of products, including highly coveted DR pellets.
The smallest Svappavaara open pit operations accounted for 3.5 million mt of products. LKAB mainly sells pellets to steel mills, as well as fines to steel and industrial customers. Strong demand from the US and China for pellets is heard, along with longer-term contract-based customers in Europe and the Middle East.
LKAB's urban transformation program involves the relocation of around 5,000 homes and residential and commercial premises in central parts of Kiruna and Malmberget, requiring 10,000 people to be relocated longer term.
"This gives us the assurance that urban transformation can be realized and that we can continue to mine and upgrade the iron ore which is the foundation of the orefields communities," Stefan Hamalainen, LKAB's director of urban transformation, told a local press conference earlier this month.
LKAB delivered 20.1 million mt of iron ore in the first nine months of 2016, up from 17.4 million mt in the year-earlier period. The company has processing and logistics designed for a production capacity of 28 million mt/year of pellet, and this year completed a new quay at the Port of Narvik, which will increase its export capacity further.
