May 22 (Bloomberg) -- Swedes living in the Arctic town of Kiruna are packing up their belongings before their homes are bulldozed to make way for iron ore mining driven by Chinese demand.
LKAB, Sweden’s state-owned mining company, opened a new level yesterday, more than 1 kilometer (3,281 feet) below the town, to be able to continue tapping the world’s largest contiguous body of iron ore. Many of the 18,000 who live above the deposit in the Scandinavian nation’s fourth-richest county will move a few kilometers east to accommodate the mine.
The extreme measure underscores the lengths to which governments and companies are willing to go to gain access to commodities prized by importers like China, the world’s fastest-growing major economy. And with LKAB producing 90 percent of all iron in the European Union, the willingness of Swedes to move is proving key to the whole region’s access to the metal.
“The move is of course crucial for the continuation of mining in Kiruna,” LKAB Chief Executive Officer Lars-Eric Aaro said in a May 20 phone interview. “Being Sweden’s seventh-largest exporter and third-biggest taxpayer, in addition to the dividend we pay the state each year, this is a national matter.”
The minerals produced by LKAB account for 64 percent of Sweden’s net exports. The iron ore below Kiruna was first tapped by LKAB in the late 1800s to help feed Europe’s industrial revolution and the founding of Sweden’s welfare state.
The deposit in Kiruna is shaped like a giant tilted disc of magnetite that slopes in under the city. As digging deeper shifts the ground, the town must move now. Since Kiruna owes its existence since 1900 to the mine, and because LKAB is the largest private employer, there’s little local opposition. Deputy Mayor Niklas Siren estimates that more than 95 percent of Kiruna’s residents back the relocation.
“We’re in symbiosis and dependent on each other -- the town was built because of the mine, otherwise no devil would have built a city here,” Siren said in an interview at the 1963 town hall that overlooks the mine.
LKAB and the municipality target to start moving downtown Kiruna -- based in Sweden’s most productive county per capita -- this summer by constructing a new town hall about 2 kilometers to the east. As much as 35 percent of the town must move, including 65 percent of its apartments. While that may take decades, Kiruna aims to have basic amenities in place for a new city by 2017.
Getting it right -- building a new sustainable town to feed labor and support the mine -- is crucial for Sweden’s economy. The country has used its iron wealth to help weather the euro area’s recession.
LKAB is also digging deeper as China stokes demand for iron ore. Steel-based production in the world’s second-largest economy climbed to a record in April. China is Sweden’s largest export market outside Europe, after the U.S. Exports to Asia and Oceania will rise 32 percent between 2012 and 2016, the government forecasts.
The municipality of Kiruna, which boasts about half the land mass of the Netherlands, has 23,000 inhabitants. Located above the Arctic Circle, Kirunans are used to 20 winter days during which the sun never rises. In the summer, it doesn’t set for about 50 days. The extreme conditions make it hard to attract foreign workers.
“The mine is dependent on a functioning society, mainly because of where we are located geographically, with incredible distances,” Siren said. “It needs a good society to get good employees.”
Norrbotten County, home to Kiruna, had 18.3 percent economic growth in 2010 as it rebounded from the 2009 slump, according to the latest available statistics. That was the highest growth rate in Sweden that year. In 2010, Norrbotten had the highest gross regional product per employee, the second-highest gross regional product per capita and the fourth-highest disposable income among Sweden’s 21 counties.
LKAB paid a dividend equivalent to 0.6 percent of the Swedish government’s estimated income in 2013. It also paid 3.77 billion kronor in taxes last year. Those contributions are likely to grow as LKAB opens three open-pit mines in nearby Svappavaara, raising output to at least 37 million tons by 2015 from 26.3 million tons last year, it estimates.
While Kiruna and LKAB have agreed on many details, including the location of the 400,000 square-meter town center and the relocation of buildings such as the red wooden church from 1912, the municipality still has concerns. In total, 3,000 apartments, 200 houses, 380 hotel rooms and 200,000 square meters of public space will be affected, according to LKAB.
Siren says a key challenge in moving Kiruna’s residents is avoiding potential costlier new homes because of high construction costs. LKAB is guaranteeing residents 25 percent more than the market value for their existing homes.
“If that amount is not enough for a new home, then you’re not avoiding a loss,” said Siren. “LKAB must finance the entire move, as they are the ones that will take home the profit.”
Kiruna, which hosted last week’s Arctic Council summit, is also becoming a regional magnet for labor, exacerbating a housing shortage. The region is home to the Jukkasjaervi Ice Hotel as well as a European Space Agency launching center.
LKAB has 2,200 workers in Kiruna, out of a total of 4,200, and plans to add 1,500 jobs by 2020. Demand has started to attract some foreign workers. Larisa Grudtsyna, who moved to Kiruna from Russia a month ago, said “there is a huge lack of apartments here,” in an interview. She plans to bring the rest of her family over once more homes have been built.
For Goeran Uusitalo, who runs a hunting store and sporting goods franchise overlooking the site of the new city center, the town isn’t moving fast enough.
“It’s an incredible source of income both for Kiruna and for the Swedish state,” Uusitalo said in an interview. “The iron ore is as important for Sweden as oil is for Norway,” Western Europe’s biggest crude producer, he said.
The municipality is due to move into a new town hall in late 2016 and hopes to have one hotel, some restaurants and at least 100 apartments established by 2017. Most of the town’s businesses will have been relocated by 2018, after which the construction companies can start investing, Siren said.
“The dream scenario would be to close the old city center on a Friday and open the new one on the Monday,” he said.
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