Investing.com -- RBC Capital Markets has upgraded Boliden AB (ST: BOL ) to “sector perform” from “underperform", increasing the price target to SEK 310 per share from SEK 290, in a note dated Tuesday.

The upgrade reflects the inclusion of recently acquired assets Zinkgruvan and Somincor into RBC’s estimates, combined with a 20% share price decline over the past month, which analysts believe now better reflects associated operational risks.

The acquisition, completed last week, involves a total potential consideration of up to $1.55 billion, comprising $1.4 billion in upfront cash and $0.15 billion in contingent payments.

RBC estimates the effective acquisition price at $1.43 billion, funded through a mix of equity (25%), cash (25%), and debt (50%).

RBC analysts value the acquired assets at $1.2 billion, estimating two-year EBITDA at $340 million.

On these metrics, the acquisition translates to 1.16x P/NAV and 4.22x forward EV/EBITDA. The deal increases Boliden’s scale, making it the world’s fourth-largest zinc producer.

It also improves the company’s ability to supply its own smelters, raising self-sufficiency in copper and zinc concentrate feed to 40% and 70%, respectively.

RBC estimates these improvements could reduce treatment charges by $115 million based on 2024 forecasts.

While the transaction is accretive across net asset value, EBITDA, and free cash flow under RBC’s base-case assumptions, the brokerage has revised its valuation multiples downward, P/NAV reduced from 1.15x to 1.05x, and EV/EBITDA from 5.5x to 5x, to account for integration and project execution risks.

RBC’s updated model projects a 26% increase in 2025–2027 EBIT (excluding process inventory revaluation), a 15% rise in EPS, and a 17% gain in free cash flow. Net asset value per share is revised up 18% to SEK 281.

Financial guidance now forecasts EBITDA to reach SEK 28.5 billion in 2027, up 40% from current levels.

Free cash flow yield is expected to return to 16% by 2027 from 0% currently. Capital expenditures are forecast to decline from SEK 15.1 billion in 2025 to SEK 10 billion in 2027. Dividend per share is projected to increase from SEK 9.19 in 2025 to SEK 16.92 in 2027.

Despite the improved outlook, analysts highlight operational risks, particularly at Somincor, which has seen four fatalities since 2020 and delays in ramping up its zinc expansion project.

Additionally, Boliden’s group-level zinc cash cost is expected to rise from $0.64/lb to $0.67/lb due to Somincor’s higher cost profile, although improvement to $0.55/lb is anticipated by 2028.

The acquired assets also have shorter mine lives—eight years for Zinkgruvan and nine for Somincor, compared to the company average of 16 years.

Production forecasts reflect a 78% increase in zinc and a 36% increase in copper concentrate output over the next three years.

Zinkgruvan’s production in 2024 was 145kt of zinc equivalent, with cash costs of $0.41/lb and average capex of $50 million. RBC values the mine at $335 million.

Somincor produced 207kt in 2024, with cash costs of $0.65/lb and capex of around $90 million. The mine is valued at $902 million by RBC.

RBC maintains that operating challenges and expected declines in copper and zinc prices could continue to weigh on the shares, but believes current valuation now appropriately reflects these risks. The analysts expect a more neutral risk-reward outlook moving forward.