Why TMC The Metals Company Stock Dropped 17.7% Today
Key Points
The U.S. government reached a major deal with USA Rare Earth, deflating TMC's hopes for direct federal investment -- at least for now.
The deal gives the federal government up to a 15% stake in the company and marks the fourth time the Trump administration has taken a direct stake in a mining company.
Shares of TMC The Metals Company (NASDAQ: TMC) plummeted on Monday, finishing down 17.7%. The slide came as the S&P 500 gained 0.5% while the Nasdaq Composite rose 0.4%.
The sea-based mining company is seeing its shares fall after it was revealed that the U.S. government is making a direct investment in the rare-earth miner USA Rare Earth that could result in as much as a 15% equity stake. Mining stocks -- TMC included -- have been inflated on hopes that they might secure such a deal.
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One more miner gets a direct investment
The nearly $1.6 billion deal is made up of $277 million in direct funding as well as $1.3 billion in federal loans through the CHIPS Act. The move is part of the Trump administration's push to secure domestic access to strategic resources. As U.S. Commerce Secretary Howard Lutnick put it, "This investment ensures our supply chains are resilient and no longer reliant on foreign nations."
Image source: Getty Images.
Investors did react as if this were a zero-sum game, but this is the fourth deal the federal government has made with a mining company. It is possible that more will follow.
TMC stock is a high-risk, but intriguing pick for investors with a particularly high risk tolerance; I would caution most investors to stay away, however. There are too many unknowns within its actual business, and the stock is too volatile and easily impacted by news stories like these for my taste.
Johnny Rice 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.