Having been one of the best performing shares in 2022, South African coal miner Thungela Resources (TGA) has now lost momentum.

The stock has fallen by nearly 40% in value over the past four months as coal prices have weakened as weather conditions in parts of Europe have been milder than expected, thus hurting demand.

Analysts at Liberum say the stock is ‘cheap’ under all likely scenarios, despite weaker coal prices and problems with South Africa’s rail network which is impacting deliveries to a major port. Its base case is 15 million tonnes of coal sales in 2023 at the $170 per tonne price at which you can buy coal in the market today.

If achieved, it expects Thungela to pay out dividends equal to a 28% yield. Should the miner only sell 10 million tonnes of coal – Liberum’s bear case – at $120 per tonne, the analysts still believe shareholders would get an 8% yield.

Clearly the risk of a further decline in the coal price could pull down the shares even more, so investors must consider capital gains and losses in addition to the potential income.

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