The management of KGHM has signed an agreement with trade union representatives on wage growth in 2006. The basic salary would be increased by 7%, which seems to be a reasonable compromise between the union demand for a 10% increase and management’s original offer of 3%. In addition, 25% of the workforce would get promotions, slightly less than unions demand of 30%. Incomprehensibly, according to KGHM management, the wage pool for 2006 would not exceed that of 2005 but this shouldn't be taken seriously, in our opinion. There are also additional elements that come into the picture. Firstly, the agreement signed yesterday does not take into account bonuses, that might be paid out later in the year. Secondly, the company’s contribution to the employee pension fund would be increased by approximately 20%. Therefore, we maintain our assumption for a 16% increase in total staff costs for 2006, resulting in an overall cost increase of 11%. We reiterate our Sell rating for KGHM, with a PLN 69.2 fair value estimate, based on an outlook for escalating production costs within the company and a cautious copper price forecast.