Down 36% in Two Weeks, Is This Metals Stock Ready to Rebound?

After jumping more than 50% in the first two weeks of October, shares of prospective deep-sea minerals company The Metals Company (NASDAQ: TMC) have tumbled 36.1% over the last two weeks:

The stock is still up more than 500% this year. Is it likely to climb even higher, or will it continue to sink like a rock to the bottom of the ocean? Here's what investors need to know.

Poly what nodu-who?

The Metals Company is aptly named. It's focused on collecting, processing, and refining metals from the Pacific Ocean seafloor.

Specifically, The Metals Company is focused on "polymetallic nodules." Tons of these potato-sized rocks are just laying around on the Pacific Ocean seafloor. They may look unremarkable, but they're rich in the metals manganese, cobalt, nickel, and copper. While none of these metals are "rare earth" elements, they have plenty of industrial uses -- particularly in electric vehicle (EV) batteries.

The nodules are particularly prevalent in the Clarion-Clipperton Zone (CCZ), which stretches from just south of Hawaii to just southeast of the Baja California peninsula on the west coast of Mexico. The Metals Company is proposing to collect, refine, and sell the metals from nodules in this area.

Waiting for the green light

You'll notice I said, "proposing to collect, refine, and sell." That's because The Metals Company hasn't actually launched any commercial operations yet.

The CCZ is located in international waters, and is regulated by the International Seabed Authority (ISA), a United Nations affiliate. Currently, The Metals Company has exploration contracts from the ISA for two areas of the CCZ, but it doesn't have any contracts to actually collect the nodules. Nor does it have any permits to build processing facilities for the nodules on land. In other words, the company is highly speculative, and it hasn't released any recent news that suggests it's anywhere near turning this idea into a viable business.

So why has its stock soared?

Image source: Getty Images.

A Chinese counterweight

Remember, the four important metals in polymetallic nodules are copper, cobalt, nickel, and manganese. Copper, cobalt, and nickel are all considered critical metals by the U.S. and other major world economies. China is the world's leading producer of refined manganese, cobalt, and copper, and the second-largest producer of refined nickel after Indonesia.

So when China announced on Oct. 9 that it was tightening export controls on rare earth elements like neodymium -- a critical component in industrial magnets -- the world got spooked. Manufacturers that rely on Chinese metals, including big tech companies and defense contractors, became concerned about possible global supply chain disruptions. This caused stocks of mining companies to jump in anticipation of potential higher demand from non-Chinese sources.

The Metals Company saw a particularly big jump, likely due to speculation that competition with China would speed up the permitting process for a potential non-Chinese source of critical minerals. However, in the subsequent weeks, the White House has made conciliatory comments and expressed optimism about cutting a trade deal with China, and The Metals Company's stock has declined 36.1%.

Will the stock go higher?

There are reasons to believe that China's recent threats to withhold rare earth elements has made the world -- including U.S. and ISA regulators -- more sympathetic to approving new sources of critical metals.

The problem for The Metals Company is that even if it acquires all the necessary permits, it doesn't own a fleet of ships, seafloor excavation equipment, or processing facilities to smelt the various metal ores from those rocks. It currently has an agreement with contractor Allseas for use of a single ship through the end of 2026, and a similar agreement with Japanese smelter PAMCO to process nodules in exchange for 1.3 million tons of the first 3 million tons of nodules collected. But even The Metals Company estimates commercial production won't even begin until Q4 2027, and won't fully scale until 2043. That's a long time to wait to see if this investment will pay off.

So, no, unless the U.S.-China trade talks that are set to be held later this week go really badly, resulting in a sudden global shortage of a metal TMC does plan to mine (like copper or manganese), a rebound seems unlikely in the short term. And even if a short-term rebound happens, long-term success is far from guaranteed.

John Bromels 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.