Why TMC The Metals Company Stock Is Plummeting Today

Key Points

• TMC The Metals Company is facing significant regulatory hurdles from international bodies regarding its deep-sea mining plans.

• The company is attempting to bypass international law by seeking approval through a U.S. agency, a move that has been condemned by global regulators.

• With a high valuation based on uncertain prospects and a need for substantial funding, the stock carries considerable risk for investors.

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

Shares of TMC The Metals Company (NASDAQ: TMC) are falling on Tuesday, down 8.3% as of 2:24 p.m. ET. The drop comes as the S&P 500 and Nasdaq Composite lost 0.3% and 0.2%, respectively.

The company, which seeks to mine minerals from the deep sea floor, is facing significant pushback from international regulators who question the environmental impacts of the company's plans.

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The ISA is suspicious

TMC wants to mine minerals from the deep sea floor in international waters, outside of the jurisdiction of Canada -- the company is based in Vancouver -- or the United States. The company has been lobbying the International Seabed Authority, the body tasked with governing access to the ocean floor in international waters, for access to the Clarion-Clipperton Zone, an area roughly the size of India.

Despite the ISA's established authority, TMC is attempting to circumvent the regulatory body by applying for access through the U.S. National Oceanic and Atmospheric Administration (NOAA). The Trump administration has made critical mineral mining a matter of national security and signed an executive order that has tasked NOAA with fast-tracking seabed exploration and mining licenses.

Image source: Getty Images.

Members of the ISA have condemned the move and what they say is the flouting of international law by both the Trump administration and TMC. The ISA has also been in negotiations to set a regulatory framework that could help speed up its decision on whether to grant TMC the access it is seeking. However, the regulators ended their deliberations without doing so. That means TMC's access will be indefinitely delayed unless it chooses to circumvent international law.

This is a pre-revenue company with negative equity and a $2.7 billion valuation based on the belief it will be granted access. However, even if it does, it will need to raise significant cash to commence operations. I would avoid the stock.

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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.