On 22 August, the US Securities and Exchange Commission (SEC) voted to adopt conflict minerals regulations outlined by the Dodd–Frank Wall Street Reform and Consumer Protection Act, a financial regulation act signed into federal law by President Barack Obama on July 21, 2010.
The SEC’s vote means that, over the next four years, US companies using minerals in their products that file an annual report with the SEC will have to exercise due diligence on the source and chain of custody of the minerals. Generally, companies that file annual reports with the SEC are publicly traded. The overweening aim is to reduce the trade of conflict minerals, which has been a major funding source for armed groups in eastern Congo and continues to cause suffering among the people living there. Armed groups mine and sell the minerals on the international market in order to purchase arms and maintain their control over the region.
The US is the largest consumer in tantalum in the world, accounting for some 40% of global demand. Cobalt, copper, and tantalum all play a large part in US military technologies, and the US has been relying on the Congo for these resources for decades.
Due diligence should take place when a company knows or has reason to believe its minerals came from Congo or neighbouring countries.
Many companies will have to comply with the law, but how they comply will depend in part on how companies and the SEC interpret the final rule. For example, a company may have to report if it is a is manufacturer or contracts to manufacture and if it has conflict minerals necessary to the production or functionality of its products
If, after conducting the reasonable country of origin inquiry, the company determines its minerals did not originate in the covered countries (the DRC and adjoining countries) or it reasonably believes the minerals may not have originated in the covered countries, or finds that the minerals originated from recycled or scrap sources, it has no further reporting requirements.
However, if the companies believes that the minerals used in its products could originate in the covered countries, it must conduct due diligence. This due diligence must conform to a nationally or internationally recognised due diligence framework, such as the Organiation for Cooperation and Economic Developments (OECD) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas. These guidelines were developed by a group that included companies, governments (including the government of the Democratic Republic of Congo(DRC)), and civil society.
According to the SEC, the two biggest issues at this stage are whether companies actually file the required specialized disclosures and whether the companies’ country of origin inquiries produce a conclusive result. As a result, companies will have two years’ grace in which to find out origins or develop systems to purchase clean minerals from Congo. This is increased to four years for smaller companies.
“I am pleased that the commission has finalized this very challenging project in such a thoughtful manner,” said SEC Chairman Mary L. Schapiro. “We have received significant public input on this rulemaking, and in response we incorporated many changes from the proposal that are designed to address concerns about the costs. I believe the final rule faithfully implements the statutory requirement as mandated by Congress in a fair and balanced manner.”
It has been suggested that the rules could lead to US manufacturers refusing to buy any minerals from Central Africa – which could have negative repercussions for legitimate industry in the region. It could also enable non-US companies to access the minerals at a lower cost.
PM involvement
A number of PM companies have already stepped forward to welcome the ruling.
Kemet, a manufacturer of tantalum, ceramic, aluminium, film, paper and electrolytic capacitors, was one of the first. It says that its tantalum capacitors are conflict free.
“As the world’s largest user of tantalum, Kemet took an early leadership position in the industry on the issue of obtaining certified conflict free minerals,” said Dr Daniel F Persico, Kemet vice president of special projects. “Strong conflict minerals reporting requirements means an enhanced quality of life for the people of the Democratic Republic of Congo (DRC) and a more stable supply of conflict free capacitors for our customers,” he said.
Kemet “Making Africa Work” programme is reportedly the industry’s most comprehensive social sustainability and economic programme focused on meeting the short and long-term needs of all stakeholders in the Kemet tantalum supply chain. This programme includes a completed closed-pipe conflict free vertically integrated tantalum supply chain. As well as this, US$1.5 million has been committed for social sustainability projects including a school, medical clinic, solar street lighting, and fresh water wells for the village of Kisengo in the DRC. Many of these initiatives are well on their way to completion.
The programme was featured in a recent UN Global Compact and Maplecroft webinar on conflict minerals.
“All the parties involved in the webinar are stakeholders in helping resolve the issue of conflict minerals in the DRC, an issue that touches all of us on a daily basis,” said Persico. “The more we can do to raise awareness, the quicker this horrendous human rights problem will be resolved.”
Back in February 2012, Kemet bought tantalum powder manufacturer Niotan Incorporated for US$30 million.
At the time, Kemet CEO Per Loof said that the acquisition was part of a bid to improve its due diligence regarding tantalum resources. “This acquisition is in keeping with our announced strategic direction to vertically integrate operation and to better control supply resources as well as to contain our cost structure,” he said.“Acquiring Niotan is a significant step in securing and stabilising our tantalum powder resource. “
At the same time the company announced a comprehensive plan for sourcing conflict free tantalum ore from DRC, so that the company could continue to purchase a portion of our tantalum needs from an existing supply base. “Together, these actions have put in place a supply chain that provides customers with confidence in the long-term viability of our tantalum capacitance solutions,” he added.
Tantalum producer Global Advanced Metals (GAM) has also welcomed the SEC ruling.
“We are pleased that two years after its passage we can now move forward to implement this important piece of legislation and set of regulations," said Andrew O'Donovan, president, Global Advanced Metals (GAM). "These rules are an important step in the right direction toward a "conflict-free" supply chain, and we encourage any supply chain members who have delayed action until SEC rule clarification to now fully participate in this effort."
GAM has been a strong proponent of this legislation and regulations. CEO Bryan Ellis recently submitted a letter to SEC Chair Mary Shapiro requesting strict adherence to Dodd-Frank, along with a short phase-in period that is both socially responsible and financially feasible.
GAM owns the largest known ethical source of tantalum ore at its Western Australia based mines, and also has a smelting and processing operation which processes tantalum ore for the electronics, aerospace, automotive and other industries at its US and Japan-based facilities. In addition to its mines, it continuously source ethically produced “conflict-free” tantalum raw material throughout the world for smelting and processing operations.
In September 2011, Cabot Corp sold its Supermetals business, which uses tantalum ore as a raw material, to Australia-based Global Advanced Metals (GAM) for US$400 million.
GTSO Resources ise mining subsidiary of Green Technology Solutions, Inc. Its CEO Paul Watson said that the new Dodd-Frank regulations would help level the playing field for smaller companies seeking transparency in their business dealings in Africa and other regions where vast mineral wealth hasn't translated to local prosperity.
“GTSO isn't threatened at all by these new rules because we're highly focused on building quality operations with the utmost of transparency,” Watson claimed. “It's our competitors who are seeking unfair advantages that will be hurt.”
The company says that it has spent time finding appropriate partners, including Diamond V Associates (DVA) and their contacts in the Africa Support Network (ASN), to facilitate valid operations in Ghana and other troubled regions that focus on helping local communities through resource development.
Through its joint venture with DVA, GTSO is exploring new tungsten mining opportunities in West Africa as well as North America. As China, the world's primary minerals producer, tightens supplies of tungsten, the metal's value has doubled in recent years. This has sparked a global rush to develop new tungsten resources on which GTSO is working to capitalise.
AVX Corporation, a manufacturer of advanced passive components, also said that that it is fully committed to the global effort to exclude tantalum sourced from any area in which insurgents or similar groups may benefit from the sale of minerals.
AVX is a participant in the Electronic Industry Code of Conduct (EICC) and the Global E-Sustanability Initiative (GeSI) conflict-free smelter programme and the Tantalum-Niobium International Study Centre (TIC) and supports the position of the Electronic Components, Assemblies and Materials Association (ECA) toward the same result.
“Employing only EICC/GeSI independently validated, conflict-free smelter s- in addition to our own supply chain assessment activities - has allowed us to assure our customers of our compliance with the Organization for Economic Cooperation and Development, due diligence guidelines as well as with the provisions detailed in the Dodd-Frank law,” said Bill Millman, director of quality and technology for AVX’s tantalum division. “We also expect that the conflict-free tantalum policies that we already have in place will make us compliant with related and currently pending SEC regulations. Several other manufacturers are making efforts to attain validated compliance with these provisions; but, at present, AVX is the only company that meets these exacting standards.”
AVX also exclusively sources the tantalum powder and wire used to manufacture its tantalum capacitors from smelters whose compliance with the EICC and the GeSI programme has been verified.
According to RAISE Hope for Congo, a campaign of the Enough Project, companies such as Intel , HP, Philips, SanDisk, AMD, RIM, Acer, Dell, Apple, Microsoft, Nokia and Panasonic have taken proactive steps to trace and audit their supply chains. However, companies such as IBM, LG, Samsung, Sony, Toshiba and Lenova, have taken some steps to investigate their supply chains, and are members of industry-wide efforts. But more commitment and action on tracing, auditing, certification, and legislative efforts is required of them. Meanwhile, Canon Nikon, Sharp, HTC and Nintento have reportedly ‘done next to nothing to shift their practices toward conflict-free from Congo”.
The future
The ruling is already seeing results, according to the UN Group of Experts on the DRC. “Requiring companies to exercise due diligence is effective,” it said. “The Group’s investigations in the DRC have shown that private sector purchasing power and due diligence implementation is reducing conflict financing, promoting good governance in the DRC mining sector, and preserving access to international markets for impoverished artisanal miners.” According to the group, the law had already helped reduce the sums earned from tungsten, tin and tantalum mining used to support warlords and buy guns.
