Why TMC The Metals Company Stock Sank 10% Last Month and Has Kept Falling in August

Key Points

• TMC stock lost ground in July as the U.S. made some significant concessions in order to advance trade negotiations with China.

• Striking a deal for access to Chinese rare earth minerals is at the heart of the U.S.'s aims in trade negotiations, and this raises questions for TMC.

• A trade deal between the U.S. and China could soften TMC's growth trajectory, but the company still has big opportunities in domestic mineral sourcing.

• 10 stocks we like better than TMC The Metals Company ›

TMC The Metals Company (NASDAQ: TMC) stock got hit with a significant pullback in July's trading. The company's share price slumped 10% in a month of trading that saw the S&P 500 index rise 2.2% and the Nasdaq Composite index jump 3.7%.

While the broader market rose in relation to developments that suggested that the U.S. and China could be moving closer to a trade deal that would lower tariffs and resolve other key issues, TMC stock saw a pullback as a result of the news. On the other hand, recent pullbacks for its share price come on the heels of a massive valuation run-up for the company this year.

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TMC stock lost ground amid U.S.-China trade developments

Last month, the Trump administration announced that it was lifting licensing requirements and export restrictions that effectively prohibited high-end artificial intelligence (AI) chips from Nvidia and AMD from being sold to the Chinese market. Export restrictions and licensing requirements on semiconductor manufacturing equipment are also being lifted. The big shift on key tech exports to China represented a concession from President Donald Trump in order to increase the likelihood of getting serious negotiations for a trade deal initiated in the not-too-distant future.

While the Trump administration has seemingly been willing to cede some key ground when it comes to some of the U.S.'s competitive advantages in AI, it's hoping that the move will help secure longer-term access to China's rare earth mineral supply. Adversarial relations between the U.S. and China have increased the strategic importance of domestic mineral sourcing operations and paved the way for TMC stock to see huge gains this year. With some recent steps toward trade negotiations between the U.S. and China, TMC's big rally has taken a bit of a breather.

TMC's share price has continued to slide in August

As of this writing, TMC stock is down roughly 10% in August's trading. While there haven't been any major, negative business-specific catalysts for the company, investors have continued to take profits and reduce exposure to the stock in light of uncertain trade dynamics. Despite some recent sell-offs, the company's share price is still up roughly 378% year to date as of this writing.

TMC now has a market capitalization of roughly $1.9 billion and is still in a pre-revenue state. While the company will still need to secure key permitting and other regulatory approvals in order to kick off its commercial seabed mining operations, there seems to be a good chance that increased government support for domestic rare earth mining projects will help facilitate TMC's operational launch and scaling.

Betting on that outcome is still a risky proposition, but an executive order signed by President Trump to expedite the review of permitting applications for seabed-mining bodes well for the company. While a trade deal with China could help alleviate near-term concerns about rare earth mineral sourcing, increasing domestic production capabilities will likely continue to be a priority along economic and national security lines.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.