KGHM will release its unconsolidated 4Q2005 financial statement today after market closing.
We expect KGHM to present a strong revenue line, which we estimate at PLN 2,242m, or 43% higher than a year ago, and 10% higher over previous quarter, driven by outstanding performance of copper, 41% higher than in 4Q a year ago and 17% above 3Q05 average. Silver prices appreciated as well in 4Q05. Gains on rising metal prices should offset the negative effect of stronger zloty, which gained 3% compared with 4Q04 and 2% versus previous quarter. We expect gains / losses on hedging to remain negative, although constant element of the picture with hedging ratios close to 30% on copper, 40% on silver and 20% on the currency.
However, apart from strong revenues, KGHM's financial result is expected to include higher production costs, driven by higher materials and energy costs on rising scrap metals prices, as well as growing employment costs, following the payment of additional bonuses to the workforce. Therefore, we forecast 4Q05 net attributable profit at PLN 554m, below the consensus estimate of PLN 695m and below PLN 691m reported in the previous quarter. Nonetheless, we expect KGHM to exceed its official full-year 2005 profit forecast of PLN 2,078m. We reiterate our Sell rating for the stock with PLN 69.2 per share fair value estimate.
Following quarterly results publication, KGHM will hold analyst videoconference with senior management at its Warsaw office, at 13.00 CET on Thursday, February 16th, 2006.