is scheduled to post its unconsolidated 1Q07 results on May 7th. We forecast KGHM
to deliver lower quarterly results in 1Q07, compared with the last year, with net earnings of PLN 735m for 1Q07, down 16% y/y but up 30% q/q, below the consensus estimate of PLN 752m, driven by high level of production costs and still substantial hedging losses. We expect EB
IT to come at PLN 887m, down 7% y/y but up 9% q/q, with the EB
IT margin anticipated to have shrunk from 39% in 1Q06 to 35% in 1Q07. What accounts for the narrowing operating profit margin is higher cost of labour and lower copper ore content in mining output resulting in higher proportion of imported concentrate in the production of refined copper.
While expecting lower copper sales volumes, by 5% y/y, we have also factored in a decrease in silver production volumes, resulting from higher use of imported concentrate. In terms of actual realised prices of copper and silver, compared with the market prices, we have factored in a reduced scale of hedging activities by KGHM
on silver, but unchanged on copper in 1Q07 versus last year. It has resulted in a smaller difference on silver prices but a more visible one on copper prices (due to higher market prices).