KGHM management has cut the official net profit forecasts for 2006 to PLN 3.38bn on sales revenues of PLN 10.20bn, from earlier forecast of PLN 3.50bn on revenues of PLN 10.5bn, announced earlier this year in May. The cut has been driven by revision of the assumption for 2006 PLN/USD exchange rate from 3.25 to 3.15 (3.16 on average so far this year) on expectation of stronger zloty. Other assumptions underlying the official profit guidance has been left unchanged: 2006 average copper price at USD/t 5800 (6112 on average so far this year), and 2006 average silver price at USD/troz 11.00 (11.06 on average so far this year). The management has also decided to abandon the mining project in Kongo and altered slightly the capex plan reducing the outlays by PLN 74m with regard to copper concentrate transportation and pyrometallurgy installation in Glogow smelter.
Our view: The cut by 3% in 2006 official profit forecast, driven by correction of clearly unrealistic FX assumption, is not likely to impact today’s trading on the stock. We leave unchanged our 2006 earnings estimate at PLN 3.6bn on sales revenues of PLN 11.1bn, based on the assumption of 2006 averages for: copper at USD/t 5968, silver at USD/troz 11.62 and PLN/USD at 3.16. We reiterate our Buy rating for the stock.