KGHM Polska Miedz "Material 1Q EBITDA beat...still waiting for FCF" (Buy) Major

Research evidence excerpt

KGHM Polska Miedz "Material 1Q EBITDA beat...still waiting for FCF" (Buy) Major

y increase in the silver price (UBSe adjusted for

hedges) has a material impact on KGHM net cash cost. We estimate the higher silver price will drive

reduction in C1 costs to <$2.0/lb and cash breakeven to ~$2.50/lb.

Q: Will new management drive change in capital allocation & cash returns?

Unclear. Despite healthy copper/silver prices, KGHM cumulative FCF (inc dividends from Sierra Gorda)

over last 4yrs has been zero, net debt has been stable and KGHM did not pay a dividend in 2025. If

commodity prices hold, and despite some inflationary pressures from energy prices, we think KGHM

should generate healthy FCF driving net debt reduction in 2026. We expect KGHM to resume

dividend payments in 2026 resulting in a modest 1% yield (30% of Polish net income). KGHM has

the potential to lift cash returns but in our view they will balance cash returns with reinvestment in

Poland & medium-term investments in renewables & nuclear (SMRs could cost >$2.0bn/PLN6-8bn).

UBS VIEW We remain constructive on the outlook for copper/silver and KGHM offers leverage to this theme.

KGHM continues to trade on low EV/EBITDA multiples (absolute & vs copper peers) reflecting poor

historical FCF and uncertainty over mid-term capital allocation (renewable energy/SMRs) & cash

returns. We acknowledge that capital allocation uncertainty is likely to persist, but in our view higher

copper/silver prices are likely to result in improving FCF, deleveraging and the prospect of improving

cash returns. We expect this to drive a multiple re-rating & rate the shares Buy.

EVIDENCE Detailed analysis of KGHM's assets/projects underpins our forecasts & valuation.