TheChek News Flow

The Treasury Department’s move comes as U.S. ratchets up economic pressure on Moscow

Gunvor withdrew its offer to acquire Lukoil’s international assets after the Treasury Department opposed the deal.

The Treasury Department labeled Gunvor the ‘Kremlin’s puppet’, escalating Washington’s economic pressure on Moscow.

Lukoil’s global network, potentially valued at around $20 billion, faces uncertainty following the aborted deal.

Gunvor pulled its offer to buy the international assets of sanctioned Russian oil producer Lukoil after the U.S. Treasury Department said it opposed the deal and called the Swiss commodities trader the “Kremlin’s puppet.”

The move signals the Trump administration is taking a hard-line approach in its recently launched effort to use economic pressure on Moscow to end the war in Ukraine.

Last month, Washington ratcheted up sanctions on Russia with a direct focus on its oil companies, including Lukoil. Soon after the blacklisting, Lukoil struck a deal with Gunvor, a firm with a rich history in post-Soviet Russia, for its international assets.

“As long as Putin continues the senseless killings, the Kremlin’s puppet, Gunvor, will never get a license to operate and profit,” the Treasury Department said in a post on X late Thursday.

Shortly after, Gunvor said it withdrew its offer for Lukoil’s assets. It disputed the Treasury Department’s statement, calling it “fundamentally misinformed and false.”

The public rebuke of Gunvor marked an escalation in Washington’s effort to strangle Russia’s oil income, which has fueled Moscow’s war on Ukraine. The aborted deal also leaves Lukoil’s global network—a portfolio spanning major refineries in Europe, oil fields in the Middle East and gas stations around the world—hanging in the balance.

A Lukoil spokesperson didn’t immediately respond to a request for comment.

With the U.S. threatening secondary sanctions on banks and counterparties that transact with them, Lukoil’s overseas assets are at a heightened risk of governmental seizures or shutdown. In Bulgaria, the governing coalition is preparing legal amendments that would enable it to take control of Lukoil’s refinery there—the country’s only such facility—to prevent a shutdown that could endanger the nation’s fuel supply.

For Gunvor, the collapsed deal reignited scrutiny about its history with Russia. The trader’s co-founder, Gennady Timchenko, a close associate of President Vladimir Putin, was sanctioned by the U.S. in 2014. At the time, Washington said Putin himself had investments in Gunvor and may have had access to its funds, accusations the firm has denied as “misinformed and outrageous.”

To save his company, Gunvor’s other co-founder, Torbjörn Törnqvist, bought Timchenko’s shares. He sold Russian assets and built new lines of business, especially in liquefied natural gas, and in the U.S. Gunvor further dialed back its trading activity with Russia after the 2022 invasion of Ukraine.

Gunvor on Thursday said “the company has for more than a decade actively distanced itself from Russia, stopped trading in line with sanctions, sold off Russian assets, and publicly condemned the war in Ukraine.”

Even before the Treasury Department’s statement, the deal was already facing challenges. Funding it would have been tricky, since Western banks are wary of transactions involving Russia.

Lukoil and Gunvor hadn’t disclosed a price or said how the deal would be structured. People following the sales process had suggested it could value Lukoil’s international arm at around $20 billion.

$465mn loan will help Serra Verde expand output as global processing capacity increases

The US government is backing a Brazilian rare earths mine to the tune of almost half a billion dollars as part of the drive to develop a supply chain outside China for the crucial materials. 

The US Development Finance Corporation in August approved a $465mn loan to Serra Verde to help fund the company’s Pela Ema rare earths mine in Goias, Brazil, DFC filings show.

The funds will help Serra Verde increase its production of heavy rare earth metals, the global supply chain for which is dominated by China. The country both mines and refines the metals, and only China is capable of processing the heavy rare earths produced at Serra Verde’s ionic clay mine at scale.

“Given that we’re the only producer in the short to medium term, a number of governments are talking to us,” chief executive Thras Moraitis told the Financial Times. Commercial production began last year.

Serra Verde has amended some sales agreements so that more of its production this decade will be available to buyers globally as new processors and magnet producers come online.

“When at-scale separation of heavy rare earths becomes a reality outside Asia in the next two or three years, we will be in position to supply product to these plants,” Moraitis said.

Rare earths go into the permanent magnets used in a wide range of industries, from automotive to energy and defence.

China’s control of the rare earths supply chain was highlighted this year when Beijing imposed sweeping export restrictions.

Western nations are racing to develop rare earth mining, separation and processing capacity despite a temporary reprieve agreed by US President Donald Trump and his Chinese counterpart Xi Jinping.

The US imported about 8,000 tonnes of rare earth compounds last year, as well as large quantities of finished permanent magnets, according to the US Geological Survey and import data.

Serra Verde is increasing its output and aims to produce between 4,800 and 6,500 tonnes of rare earth oxides a year by early 2027. Upgrades to the mine will be partly financed by the DFC loan.

The DFC, which invests in development projects overseas, said in August that the mine would be “the first significant producer of heavy rare earths outside of China”.

The corporation confirmed that its board “approved the proposed financing” for the mine but declined to comment on talks about buying its output. 

Backers of Serra Verde, which was founded in 2007, include the well-known mining investors Boston’s Denham Capital, the Energy and Minerals Group of Houston and Vision Blue, the fund led by former Xstrata chief Sir Mick Davis.

Washington has moved swiftly this year to stimulate the domestic mining sector. A sweetheart deal with rare earths group MP Materials includes the US government guaranteeing a minimum price of $110 a kilogramme for MP’s neodymium-praseodymium, a type of rare earth oxide.

Moraitis said that deal was now being referenced in conversations with buyers. “I’m not sure whether people are prepared to pay exactly that [$110] price, but it’s a very valid conversation now to reference prices off European or emerging US benchmarks,” he said. 

The DFC has approved a handful of funding packages for mining projects this year, including $5mn for Aclara Resources, which is also developing a rare earths project in Brazil, and $3mn to Millennial Potash to support the development of a potash mine in Gabon. 

In the long run bubbles always deflate, often when least expected

A decade ago, Andrew Ross Sorkin, a journalist, TV anchor and co-creator of the show Billions, started obsessively studying the 1929 stock market crash. Now he has finally published a book about that event — with clever timing. For with tech stocks having gyrated wildly this week, there is intensifying debate about whether we have just witnessed a bubble linked to hype about artificial intelligence, which is now set to burst.

Invoking history is currently all the rage, whether your year of choice is 1929, 2000 or 2008. “I got lucky”, Sorkin told me during a debate this week, with a chuckle.

So what lessons can investors learn? The most significant one here is that manias are never “just” about stock market swings, however eye-catching — they are also about excess leverage, ample liquidity and investor lunacy.

One way to frame current events is to think about those three Ls. To put it bluntly: AI mania is a symptom, not just a cause, of other imbalances in a world of easy money.

Consider liquidity. In some sense, it might seem investors have no reason to worry about excess liquidity given that last week the Federal Reserve decided to stop shrinking its balance sheet because of concerns of poor liquidity in parts of the money markets where banks interact with the Fed.

More specifically, the so-called repurchase rate has recently surged, relative to other Fed benchmarks, which signals potential stress in this obscure corner of finance.

This is unnerving. However, it seems to reflect two things: technicalities around the Fed’s use of quantitative tightening; and huge funding flow distortions arising from how the US government shutdown has affected Treasury operations.

And if you take a longer-term look at the financial system, liquidity seems abundant, if not excessive, in many other areas, due to the past decade of quantitative easing, the low level of US real interest rates, fiscal stimulus and private credit creation. Indeed, the Goldman Sachs financial conditions index has loosened markedly this year — and will probably loosen further given the Fed’s stance.

Matt King, founder of Satori Insights, says: “By ending QT and easing rates — even as financial conditions on some metrics are at their easiest since the extraordinary stimulus of late 2020 — the Fed seems likely to add to what many already consider ‘froth’ across multiple financial markets.” This is noteworthy given that such froth usually sparks follies, by lulling investors into complacency, until such liquidity suddenly evaporates in a crisis.

Or ponder the second L, leverage. In some corners of finance this is not currently too alarming. US household borrowing, for instance, is lower now than in 2007, and overall non-financial corporate borrowing is flat. But leverage in AI-linked ventures is rising and western government debt is exploding. Financial sector leverage has risen, primarily around private equity and credit and the level of stock market margin trading has surged. “Financial sector leveraging is feeding repo and hedge funds,” argues King, who thinks all the liquidity has pushed asset prices higher, particularly since passive funds are now dramatically amplifying market momentum.

Then there is the third L: scattered lunacies, amid the froth. Consider, for example, how Palantir’s stock price has recently traded at nearly 230 times forward earnings; or the fact that 10 lossmaking AI start-ups now command a value of almost $1tn; or the revelation that before First Brands collapsed, more than $2bn of its $12bn debt vanished without creditors noticing. Or note the return of “ratings shopping” — financiers seeking deceptively flattering credit ratings for deals — which creates “a looming systemic risk”, according to Colm Kelleher, chair of UBS.

So does this mean we should expect a replay of 1929? Not necessarily, in Sorkin’s view. Although he expects a financial market correction, he does not think this need be followed by a 1930s-style depression, since central banks have learnt lessons from history and will once again inject liquidity to prevent a slump, as they did after 2008 and in 2020.

I agree. But this also creates political and financial risks. Take the influential rightwing blogger Curtis Yarvin. For him and his ilk, central bank bailouts are just accelerating “monetary dilution”, that is turning dollar-based finance into an even bigger bubble, that will eventually burst. This is why Yarvin et al created crypto and love gold.

This argument will continue to rage. But in the meantime, investors should pay attention to two things. First, the tech mania could still have further to run, given investor assumptions about that Fed “put”, strong non-AI corporate earnings and the fact that, notwithstanding the crazy valuations, AI is a real technology.

Second, in the long run bubbles do always deflate, often when least expected. In public markets this can be a sudden “pop”; in private finance (which matters now), it is more often a long, slow “hiss”. Either way, keep watching leverage and liquidity, and remember that some lunacies often only become clear in hindsight — just as in 1929.

Anglo-Teck gatecrashers should bide their time

Rivals keen to bulk up their copper holdings might get a better chance once the deal closes

Miners are an acquisitive crowd, and copper is a glittering prize. So with a month to go until shareholders in Canada’s Teck Resources and the UK’s Anglo American vote on their proposed all-share tie up, there is still time for an interloper to appear. Some investors hope that will indeed happen. But this deal isn’t an easy one to disrupt.

Rio Tinto, for example, is being encouraged to gatecrash Anglo and Teck’s merger by activist Palliser Capital. Rio might very well be interested. Add Teck’s copper to its own portfolio and the result is a 1.3 metric-tonne producer of the red metal. Rio would diversify itself further beyond iron ore, and fast-forward its copper ambitions by something like a decade.

But to make any bid attractive to Teck shareholders, Rio would have to destroy value for its own. Say it could shave $800mn of annual combined costs: taxed and capitalised, that would create roughly $5bn of value. Even if it gave all that to Teck’s shareholders, layering it on top of Teck’s undisturbed market capitalisation, Rio would struggle to pay more than $22bn. Teck’s market value has already risen to $21bn.

Even if Rio could produce a credible offer — to the presumable detriment of its own shareholders — Anglo could easily deflect it, thanks to the $1.4bn in “ebitda uplift” it has identified on top of $800mn of cost cuts. As things stand, Anglo’s merger proposal gives some of the transaction’s notional value creation to Teck but keeps a large chunk for itself. It has room to tweak the merger ratio to give Teck a bigger slice.

Miners have a long and colourful history of value-destructive mergers. Just because potential interlopers shouldn’t strike now, doesn’t mean they won’t. And there are other ways in which this betrothal could be broken up. Anglo itself could become a bid target; BHP has eyed it up before. There’s red tape to negotiate too. Under the Investment Canada Act, too, the country has to wave the transaction through for it to complete.

A would-be usurper with time on their hands might be best advised to sit tight. Should Anglo and Teck complete their merger, a bigger rival might be able to take a run at the entire, combined company. After all, the Keevil family, which currently wields super-voting shares in Teck, will no longer hold veto power. And, while a significant chunk of the assets would still be in Canada, Ottawa’s influence might be lessened.

The question, then, isn’t whether another miner would like to snap Teck up. It’s just that if they attempt to do so before next month’s vote, they will find Anglo hard to dislodge. But if they wait until the newly merged company lists in London, they may find the political terrain easier. The merger with Anglo may not be Teck’s last big deal.

EU weighs pausing parts of landmark AI act in face of US and Big Tech pressure

Brussels is set to water down part of its strict digital rule book as it aims to make bloc more competitive

The European Commission is proposing a pause to parts of its landmark artificial intelligence laws amid intense pressure from Big Tech companies and the US government.

Brussels is set to water down part of its digital rule book, including its AI act that entered into force last year, in a decision on a so-called simplification package on November 19. The move reflects EU efforts to make the bloc more competitive against the US and China.

The draft proposal comes amid a broader debate over how aggressively the bloc should enforce its digital rules in the face of a fierce backlash from Big Tech companies supported by US President Donald Trump.

The bloc has faced fierce pressure from the US government and Big Tech as well as European groups over its AI act, considered the world’s strictest regime regulating the development of the fast-developing technology.

Fears of provoking Trump into cutting off intelligence or weapon supplies to Ukraine or starting a transatlantic trade war with the bloc saw Brussels agree a provisional trade deal in August, but EU officials are wary of any moves that could provoke the White House into retaliatory measures.

The EU had been “engaging” with the Trump administration on adjustments to the AI act and other digital regulations as part of its wider simplification process, a senior EU official told the Financial Times.

While the legislation entered into force in August 2024, many of its provisions only come into effect in upcoming years. The bulk of the provisions for high-risk AI systems, which can pose “serious risks” to health, safety or citizens’ fundamental rights, are set to come into effect in August 2026.

In the draft proposal, seen by the FT, the commission is considering giving companies breaching the rules on the highest-risk AI use a “grace period” of one year. The draft proposal was still subject to informal discussions within the commission and with European capitals and could still change ahead of its adoption on November 19, officials said.

Once the commission puts forward its proposal, it will still have to be approved by a majority of EU countries and the European parliament.

Providers of generative AI systems that already placed their systems on the market before the implementation date could thus earn a one-year pause from the laws “to provide sufficient time . . . to adapt their practices within a reasonable time without disrupting the market”.

Brussels is also suggesting that it delay imposing fines for violations of its new AI transparency rules until August 2027 to “provide sufficient time for adaptation of providers and deployers of AI systems” to implement the obligations.

The draft also looks to make the compliance burden for companies easier and centralise enforcement through its own AI office.

A number of companies, including Facebook and Instagram owner Meta, have warned that the EU’s approach to regulating AI risks cutting the continent off from accessing cutting-edge services.

A spokesperson said talks were still ongoing within the commission regarding potential delays to “the implementation of targeted parts of the AI act” and that “various options are being considered”. The spokesperson added the bloc remained “fully behind the AI Act and its objectives”.

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