Outokumpu Oyj Business Information, Profile, and History

Company Perspectives:

Outokumpu is a versatile metals group operating worldwide. In its business, Outokumpu focuses on base metals production, stainless steel, copper products and technology. In its traditional areas of core competence, Outokumpu is recognized as one of the industry leaders. This position is also the one from which the Group derives its mission: Our task and mission is to put our expertise as both a producer and technology supplier to use in responsible metals production and thus to contribute to meeting the world's need for metals. In all business operations, Outokumpu underscores the crucial importance of its customers, good profitability and responsibility for the environment. The Group's core values also emphasize continuous improvement of competence as an essential prerequisite to securing competitiveness.

History of Outokumpu Oyj

Outokumpu Oyj is a diversified metals company involved in the exploration and mining, smelting and refining, and fabrication of copper, zinc, nickel, and stainless steel. The company's mining activities are conducted in Finland, Norway, Australia, Chile, and Ireland. Ranking as the largest manufacturer of copper products in the world, Outokumpu Oyj is the only company in its industry that operates major copper products facilities in North America, Europe, and Asia. Aside from copper, the company's other core business is stainless steel. Outokumpu Oyj controls ten percent of the European market for rolled stainless steel and four percent of the global market. The company also accounts for three percent of the world's zinc production and four percent of its nickel production.

Origins

The Finnish word 'outokumpu' can be translated as 'mysterious' or 'strange hill,' a reference to a specific hill in eastern Finland where both Outokumpu Oyj and Outokumpu, the community that developed around the company, were located. Local lore held that the 'strange hill' in the wooded hills of eastern Finland contained valuable mineral deposits. Local prospectors needed no further encouragement to begin scrutinizing the outokumpu, their interest piqued by the promise of hidden wealth. From as early as 1725, samples from the hill were sent to the national College of Mines for analysis, but all hopes were dashed when scientific examination revealed that the prospectors had discovered iron pyrite, more commonly known as 'fool's gold.' In fact, the fabled hill did contain hidden wealth, but it took until the early 19th century for the value of the subterranean treasure to be identified.

In 1908, a discovery was made 40 miles outside of Outokumpu that triggered the formation of Outokumpu Oyj. A massive metallic boulder was found, prompting further analysis. Tests revealed that the giant orb contained valuable copper ore, carried, scientists theorized, by the movement of ice sheets during the most recent Ice Age. The glacial pattern of movement directed scientists northwest of the metallic boulder, toward the mysterious hill in Outokumpu. In 1910, test drilling at the hill confirmed the existence of a substantial copper ore deposit, leading to the establishment of a mining operation that formed the foundation for Outokumpu Oyj.

To add value to the ore at the hill, a small smelter was constructed alongside the mining operation, as preparations immediately commenced to turn the site into a commercial concern. Outokumpu Oyj experienced a somewhat fitful start to its business life, its birth giving rise to a divisive struggle over control. Finnish businessmen battled with government officials, with each side claiming ownership of the copper resources. The contentious debate was exacerbated by the hovering presence of foreign mining companies, who sniffed opportunity and tried to insinuate themselves into the picture. Operationally, the mining and smelting operations suffered at first from an insufficient number of employees with the technical acumen to solve problems that arose. When a certain aspect of the operations failed to work properly, the only recourse in many instances was to keep making adjustments until the problem was solved. It was a slow, sometimes painstaking, process, but eventually lessons were learned. By 1914, the company's first shipment was made: 60 metric tons of copper ingots sold in St. Petersburg, Russia.

Over time, the operational aspects of the smelting and mining operations improved, but the thorny question of ownership persisted. The individual responsible for solving this fundamental dilemma was Dr. Eero Makinen, the most influential figure during Outokumpu Oyj's development. Dr. Makinen joined the company as a 32-year-old mining engineer in 1918. Among his numerous contributions to the company, perhaps none was more important than his persistent effort to lend stability to the organization. During its first decade of existence, the company struggled in vain to secure private capital from Finnish sources, which left the company vulnerable to the covetous interests of foreign parties. In order to stave off a hostile takeover, Dr. Makinen argued strongly for government intervention, believing ownership by the Finnish state would end the threat of foreign mining concerns. Dr. Makinen prevailed, convincing the Finnish State to assume ownership of Outokumpu Oyj in 1924. It was not until 1932, however, that the company was formally incorporated.

From its outset, Outokumpu Oyj was an export-driven company, relying heavily on supplying unprocessed ore and smelted ore to neighboring nations. During the 1920s, for instance, the company sold raw ore to Germany and refined copper to Sweden. The company's first appreciable surge of growth occurred during the late 1920s and early 1930s, when Finland's rapid industrialization propelled the company much closer to the forefront of technology. The paucity of technical expertise, which had hobbled Outokumpu Oyj's progress during its first years in business, no longer was a problem. Evidence of the greatly improved technological sophistication of the company's engineers was on display in 1935, when Outokumpu Oyj constructed what was then the largest electric copper smelter in the world. Located near Finland's eastern border in Imatra, the smelter was moved in 1944 to distance the valuable facility from the looming threat of Soviet troops. Dismantled and then rebuilt near Finland's west coast, the massive smelter found a permanent home in Harjavalta, the site of Outokumpu Oyj's greatest achievement.

Flash Smelting and Postwar Diversification

At Harjavalta in the late 1940s, Outokumpu Oyj's scientists and engineers developed a new process of extracting metal from its ore. Called flash smelting, the closed extraction process captured nearly all of the sulfur-rich gases from the smelting furnace. Developed by Petri Bryk and John Ryselin, flash smelting was regarded as the most significant metallurgical breakthrough of the 20th century, an appraisal that had not changed by the century's end. The success of flash smelting, which later was licensed to other metallurgical companies, eventually led to the formation of an Outokumpu Oyj technology division. To aid in the development of further metallurgical innovations, the company relied on its metallurgical lab, first established in Pori in 1942. The formation of a full-scale metallurgical lab and the widespread acceptance of flash smelting testified to the evolutionary leap the company had achieved in the technical aspects of its business. The early days of solving problems by trial-and-error had given way to world-recognized sophistication in metallurgical science, securing a lasting market position for Outokumpu Oyj during the latter half of the 20th century.

As the company's expertise blossomed, so too did the scope of its business. Initially, the company vertically integrated its copper operations by taking control over the various processing stages of the copper ore mined at Outokumpu. Such vertical integration brought the company closer to the end-user, or 'downstream,' enabling it to reap profits and to better control costs along the downstream stages of copper processing. In 1940, for example, the company began producing copper semi-products in Pori. The facilities in Pori had already begun producing a number of non-ferrous alloys by the late 1940s, but, unlike with copper, the company did not possess the raw materials to produce the other alloys. Consequently, the company was forced to purchase the basic materials from other companies, an arrangement that did not suit Outokumpu Oyj officials. The company resolved to develop its own sources for the raw materials it needed, leading to the formation of an exploration department in 1951. Not long after the hunt for new ore deposits began, the mining and production of other metals commenced. Outokumpu Oyj would no longer exist as a copper-only company.

The company's quest for self-sufficiency recorded its first success several years after the creation of an exploration department. In 1954, a deposit of nickel-bearing pyrrhotite ore was found in Kotalahti, ushering the company into the nickel production business. A nickel plant, completed by 1960, was constructed in Harjavalta, where Outokumpu Oyj's engineers were able to incorporate flash smelting technology into nickel production. Also in 1954, the company opened its Vihanti mine, which added zinc to its growing portfolio of metals. Next, cobalt and sulfur production fell under Outokumpu Oyj's purview, with the company's decade of diversification ending in 1959, when a chromite deposit discovered in northern Finland led Outokumpu Oyj into steel production.

As the company diversified its involvement in metal production, it also strengthened and expanded its network of sales offices. Outokumpu Oyj's initial focus on export markets endured throughout the 1930s, but the company redirected its efforts inward during subsequent years, as it focused on meeting domestic metal demands. In the 1950s, however, the company began focusing on export sales with renewed vigor. Sales representatives were established in Norway, Sweden, and Denmark during the decade, as the company's steadily increasing capacity necessitated a larger customer base. By 1964, as was true during the company's formative years, export sales exceeded domestic sales.

Outokumpu Oyj's physical expansion beyond Finland's borders was not limited to its marketing functions only. Although the company was beginning to greatly expand and diversify its exploration efforts, by the 1960s it could no longer supply its refining operations with enough ore by relying exclusively on Finnish sources. Outokumpu Oyj's production capacity had increased to the point where foreign sources of ore were required to keep the company's facilities operating at optimal efficiency. To answer the call for a greater supply of ore, the company brokered several extended purchase agreements with overseas mines. Not long after securing these agreements, the company demonstrated its penchant for self-reliance by forming an international department in 1974 to foster its own exploration and development efforts overseas. Because of these efforts, the company secured stakes in mining operations in Canada and Norway.

The 1950s and 1960s were years of aggressive expansion, time spent building the infrastructure and assembling the resources to support a multinational mining, refining, and production organization. The years of steady growth set the stage for what promised to be a profitable decade ahead, when the sprawling yet integrated mining operations would find full expression. The 1970s proved to be a difficult decade, however, witnessing the company's first annual losses in 40 years. The oil embargo during the early 1970s caused production costs to escalate, a pattern aped by labor costs. Instead of being a decade of progress, the 1970s forced Outokumpu Oyj into its shell, restricting capital improvements substantially. With the exception of a new stainless steel plant in Tornio that became operational in 1976, Outokumpu Oyj made no capacity expansions during the decade, choosing to wait until a more stable economic climate returned.

A Mining Giant Takes Shape in the 1980s

The 1980s brought Outokumpu Oyj a return to prosperity and expansion. Much of the growth occurred on the international front, as the company significantly strengthened its presence overseas. The roster of company-controlled sales offices overseas grew to include facilities in the United States, the Netherlands, Singapore, Japan, Italy, Mexico, Switzerland, Chile, and elsewhere, accounting for one-third of Outokumpu Oyj's total sales by the early 1990s. The company grew via acquisition during the 1980s as well, purchasing an Ohio-based fabricator of zirconium copper in 1983 and a Wisconsin-based producer of specialty alloy wire in 1985. Other important additions included the purchase of a controlling interest in Tara Mines in Ireland and the acquisition of the Viscaria copper mine in Sweden.

Domestically, one of the most significant developments during the 1980s concerned Outokumpu Oyj's ownership. Since the 1960s, the company had offered employees the option of retiring with full pension benefits at the age of 52. In the 1980s, company officials feared the payment of pension benefits in the coming years could trigger a financial crisis. As a precaution, Outokumpu Oyj offered shares in the company to those Finnish employees who were eligible for pension benefits, hoping such employees would accept an ownership stake in exchange for their benefits. Nearly all of the employees agreed to the proposal. The crisis was averted and, in October 1988, Outokumpu Oyj shares debuted on the Helsinki Stock Exchange.

As Outokumpu Oyj prepared for the 1990s, an exhaustive reorganization occurred that altered the relationship among the company's scores of businesses. During the late 1980s, centralized management was shelved, replaced by a more autonomous organization that ceded authority to individual business units. Many of the company's subsidiaries and divisions were restructured as independent corporations, enabling the organization as a whole to react more nimbly to changing market conditions.

During the 1990s, Outokumpu Oyj sharpened its focus on its core metal businesses. Between 1993 and 1996, the company invested in a major expansion and modernization program that increased the copper smelting capacity at Harjavalta by three-fifths and doubled the company nickel smelting capacity. Although copper and nickel were important metals, particularly copper, Outokumpu Oyj was recording its greatest profit gains with its stainless steel businesses. By the late 1990s, the consistently strong performance of stainless steel convinced management to direct much of the company's capital resources toward strengthening its involvement in stainless steel. In December 1999, Outokumpu Oyj executives decided to launch a major expansion program at Tornio. The project, expected to double capacity, was scheduled to be completed by 2002. The most significant event concerning Outokumpu Oyj's involvement in stainless steel occurred in 2000, when the company's steel businesses merged with the Avesta Sheffield Group, owned by Sweden-based Avesta Sheffield AB. The merger created AvestaPolarit, the second largest stainless steel producer in the world. AvestaPolarit, 55-percent-owned by Outokumpu Oyj, generated more than EUR 3 billion in annual sales, supported by facilities in Finland, Sweden, the United Kingdom, and the United States.

Principal Operating Units: Stainless Steel; Copper Products; Metals Production; Mining; Technology.

Principal Competitors: Mitsui Mining & Smelting Company, Limited; Kennecott Utah Copper; Inco Limited.

Chronology

• Key Dates:

• 1914: First shipment of metal is made.
• 1924: Finnish government assumes ownership of Outokumpu Oyj.
• Late 1940s:Flash Smelting is developed.
• 1951: An exploration department is established.
• 1976: Stainless steel plant in Tornio goes online.
• 1988: Outokumpu Oyj debuts on the Helsinki Stock Exchange.
• 2000: AvestaPolarit is created through the merger of Outokumpu Steel and Avesta Sheffield.