LKAB is looking to shore up its iron ore rail operations in northern Sweden by acquiring a stake and investing in new facilities for Duroc Rail AB.
The iron ore company has acquired a 49% interest in Duroc Rail from the Nasdaq-listed Duroc AB group, which retains majority ownership of 51%. The preliminary purchase price is approximately SEK75 million ($6.9 million), with LKAB also agreeing to invest up to SEK200 million to build a new industrial property for Duroc Rail at Hertsöfältet in Luleå.
Duroc Rail is a certified operator with unique expertise in wheel maintenance for locomotives and wagons with experience of the climate in northern Sweden, LKAB says.
The Ore Railway runs between the port of Luleå and the port of Narvik, passing by the iron ore fields in northern Sweden. Almost half of all goods transported by rail in Sweden and Norway is currently being transported on the Ore Railway, with LKAB’s volumes accounting for the largest share.
For LKAB, the Ore Railway is an integrated part of the production system that starts in the mine and ends at the steel and mineral customers via the railway and ports. High capacity and availability of the Ore Railway and rolling stock in the form of locomotives and wagons is therefore business critical.
LKAB said: “The investment is a further step for LKAB to strengthen its capacity and flexibility to meet the growing challenges of the Ore Railway. In the past year alone, LKAB has invested in a new locomotive workshop in Kiruna, ordered 100 new wagons and started major work to modernise and upgrade the IORE locomotives used to transport iron ore, totalling an estimated value of SEK600 million.”
Linda Bjurholt, Logistics Manager at LKAB and CEO, LKAB Malmtrafik, said: “Duroc Rail has unique expertise in wheel maintenance for locomotives and wagons. LKAB is entering into this partnership to ensure that Duroc Rail remains and develops its operations in Luleå. They are part of a larger system and a prerequisite for efficient and predictable rail transport. Rail transport is completely dependent on effective maintenance of the railway wheels. This is important for LKAB and other railway operators today, and in the future.”
The wheel maintenance business was established in Luleå more than 100 years ago. Duroc Rail currently rents premises from SSAB on Svartön, in Luleå, but due to SSAB’s planned transformation from blast furnace to electric arc furnace operations, which requires access to more land, the lease will not be renewed. New buildings, equipment, certifications and other measures mean that the move will be a major investment.
John Häger, CEO Duroc AB, said: “Duroc Rail needs new industrial properties, and with LKAB as shareholder we can ensure development and capacity for the future, where we see that the green transformation that is taking place will require more efficient maintenance of wagon and locomotive wheels. We will therefore continue to invest and develop our offering for all customers in the region. We are pleased that our more than 100-year-old company with 50 employees in Luleå will continue to develop.”
Within Business Area Special Products, LKAB is developing new businesses in addition to the iron ore production, such as industrial minerals for external customers, as well as key services such as concrete, drilling, explosives, rock work, mechanical-engineering services and maintenance for LKAB’s own operations.
Leif Boström, Senior Vice President Business Area Special Products, LKAB, said: “LKAB’s long-term strategy is to secure key services and products for efficient, safe, and sustainable operations. We work with partnerships and subcontractors, but also by developing or acquiring companies that have specific expertise, for example in managing supply risks. Duroc Rail is an important investment for us, it is a well-managed company with good development potential in several areas and will be an important part of LKAB.”
The transaction is formally subject to the completion of the property transfer for the new industrial property, which is expected to take place before the end of the year.