Post on 14-Dec-2015
Conflict Minerals
June 12, 2014
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Agenda
What is Conflict Minerals? How does a company ensure Conflict Minerals Compliance? What is the impact CM Supply Chain & Suppliers? Q & A
What is Conflict Minerals?
The four conflict minerals, also referred to as “3TG metals” or “3TGs” are:
• Tantalum
• Tin
• Tungsten
• Gold
The SEC’s Conflict Minerals rule requires public companies to determine:
1. whether “conflict minerals” are contained in their products, and
2. if so, whether they are sourced from the DRC or surrounding countries (together, the “Covered Countries”).
DRC Adjoining Countries
AngolaRepublic of the
Congo Tanzania
Burundi Rwanda Uganda
Central African Republic South Sudan Zambia
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(Dodd-Frank Section 1502)
% world-supply from DRC
15-20%
5%
3%
2%
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Electronics Industry is in the middle this:
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Conflict Minerals Rule Compliance Overview
First of the annual SEC filings is due no later than May 31, for previous calendar year. Compliance requirements include:
• Step 1: Determine whether each product is subject to conflict minerals rules• Yes, if conflict minerals are “necessary to production or functionality” of a product
that we sell and that we manufacture or “contract to manufacture”• Step 2: Develop and conduct reasonable country of origin inquiry (“RCOI”)
• If we know or have reason to believe that conflict minerals in our products originated in the covered countries, and did not come from scrap or recycled sources, must proceed to Step 3 (Supply Chain Due Diligence)
• Step 3: Exercise due diligence on the source and chain of custody of our conflict minerals (follow recognized framework UN OECD)• Must ultimately determine whether our purchase of parts/components containing
3TGs is financing the rebel groups in the DRC
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The process of determining if products are covered under the conflict minerals rules involves multiple validations. Note – products that cannot be ruled out must be left in-scope.
Product AProduct C
Product B Product D
Enter “Stream of Commerce”?
Product AProduct B
Manufacture or Contract toManufacture Product?
Product D
Contain 3TG?
Product B Product D
Product E
Product B
• Product sold to a customer, during the reporting year
• For service companies this is more difficult in that primarily services are being sold,
Product Applicability Considerations
• If manufacture, or contract with a 3rd party to manufacture, a component or product, then it remains in scope and needs to be examined for conflict minerals.
• If some influence over the manufacturing or design of any components or parts, they should remain in consideration.
• If unknown whether components/products contain CM, then must inquire of suppliers (reasonable country of origin inquiry (RCOI)).
• necessary to functionality; necessary to production: if the 3TG is contained in a product that we manufacture or that is manufactured for us, and is intentionally added, it is in scope.
In-Scope Products
Step 1 -- Determining Product-Level Applicability
Companies are required to conduct and inquiry to the suppliers of the 3TG parts as to the source and status of the minerals. Requesting a response at the part level is needed to know your source mineral for products sold.
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Step 2 --Conducting Reasonable Country of Origin Inquiry
Step 3 –Due Diligence – Smelter Certifications
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As a result of the RCOI , companies who knew some or all of their mineral sources would list them.
http://www.conflictfreesourcing.org/
Step 2 –Why Conflict Free is so hard to achieve
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DRC/CCPRODUCT CLASSIFICATION
GOLD SMELTER SMELTER COUNTRYSMELTER CERTIFICATION
COUNTRY OF ORIGIN CONFLICT STATUS
DRC YES CONFLICT FREE YES AngloGold Ashanti Mineração Ltda BR EICCDRC- Congo (Kinshasa), South Africa, Ghana, Guinea, Mali, Namibia, Tanzania, Argentina, Brazil, Australia, United States
CONFLICT FREE
DRC UNKNOWN CONFLICT FREE YES Argor-Heraeus SA CH EICC UNDETERMINED CONFLICT FREE
DRC NO CONFLICT FREE YES Asahi Pretec Corp JP Japan CONFLICT FREE
DRC UNKNOWN UNDETERMINED YES Caridad MX UNDETERMINED UNDETERMINED
DRC UNKNOWN CONFLICT FREE YES Dowa JP EICC UNDETERMINED CONFLICT FREE
DRC NO CONFLICT FREE YES Kojima Chemicals Co. Ltd JP EICC Japan CONFLICT FREE
DRC NO CONFLICT FREE YES Matsuda Sangyo Co. Ltd JP EICC Indonesia, Australia, Japan, Canada, Hong Kong, China CONFLICT FREE
DRC NO CONFLICT FREE YES Metalor USA Refining Corporation US EICC United States CONFLICT FREE
DRC NO CONFLICT FREE YES Metalor Technologies SA CH EICC Switzerland, United Kingdom CONFLICT FREE
DRC NO CONFLICT FREE YES Metalor Technologies (Hong Kong) Ltd HK EICC China, Hong Kong, Switzerland, United States CONFLICT FREE
DRC NO CONFLICT FREE YES Nihon Material Co. LTD JP EICC Japan, Australia, Canada CONFLICT FREE
DRC NO CONFLICT FREE YES Ohio Precious Metals US Indonesia CONFLICT FREE
DRC UNKNOWN CONFLICT FREE YES PAMP SA CH EICC UNDETERMINED CONFLICT FREE
DRC NO CONFLICT FREE YES Western Australian Mint trading as The Perth MintAU EICC Australia, Chile, Papua New Guinea, South Korea CONFLICT FREE
DRC NO CONFLICT FREE YES Royal Canadian Mint CA EICC Canada, Peru CONFLICT FREE
DRC NO CONFLICT FREE YES Tanaka Kikinzoku Kogyo K.K. JP EICC Japan, China, South Africa, Canada, Uzbekistan, Chile, Australia CONFLICT FREE
DRC UNKNOWN CONFLICT FREE YES Umicore SA Business Unit Precious Metals RefiningBE EICC UNDETERMINED CONFLICT FREE
DRC UNKNOWN CONFLICT FREE YES United Precious Metal Refining Inc. US UNDETERMINED CONFLICT FREE
DRC NO CONFLICT FREE YES Johnson Matthey Inc US EICC United States, Australia CONFLICT FREE
DRC UNKNOWN CONFLICT FREE YES Kennecott Utah Copper US UNDETERMINED CONFLICT FREE
Example : Part containing 3TG – Supplier response at Company Level
This supply chain remains undetermined, this response is not for a part, ratherfor all the parts from a supplier. Even with the Smelters listed and Conflict Free, it still does not tell what sources and origins for a particular part.
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Step 3 Due Diligence
We are required to perform due diligence on any suppliers responses that source from the DRC or adjoining countries according to a specific recognized framework. OECD DD Guidance is 5 step process.
http://www.oecd.org/daf/inv/mne/GuidanceEdition2.pdf
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5 StepsStep Consists of:
1. Conflict Minerals Framework • Conflict Mineral Policy • Management Teams (both to execute and to resource)• Communications to Executives• Supplier Engagement• Company Grievance System
Step 2: Identify & Assess Risks in Supply Chain
• Products Sold to 3rd Parties• Parts contain 3TG• Tier 1 Suppliers ($ and Risk)• RCOI• DRC /CC Smelter Certifications
Step 3: Strategy to Respond to Risks • CM Policy Alignment with Suppliers• Assert Leverage Tier 1 Supplier to source Conflict-Free• Tier 1 Supplier to confirm source of mineral – CF smelter certifications• Non-compliant Tier 1 Suppliers – reevaluate relationship
Step 4: Commitment to 3rd Party Audit of Smelters/ Refiners DD Practices
• Require Upstream Suppliers to obtain CF Certifications• Priority in the DRC/ CC Conflict Region
Step 5: Reporting • File & Publish on or Before May 31• Form Special Disclosure (SD) and Conflict Minerals Report (CMR)• Independent Private Sector Audit as Needed
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Independent Private Sector Audit (ISPA)*
Each company that is required to furnish a conflict minerals report must also obtain and furnish an independent audit of the report. (to start 2 yrs. for big, 4 yrs. for small cos. - no audit needed)
Option for an Attestation or Performance Audit (done by CPA or by certified non-CPA auditor)
Auditor to examine the design of the due diligence framework described is ��accordance with a nationally or internationally accepted framework and that the due diligence described is actually what the company undertook.
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* Intel is the only company I am aware of that had an ISPA.
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Wall Street Journal June 2, 2014 “Conflicted Disclosure”
http://online.wsj.com/news/article_email/companies-detail-use-of-conflict-metals-1401751678-lMyQjAxMTA0MDAwNDEwNDQyWj
File Date No. of Filers*
5/28/2014 21
5/29/2014 77
5/30/2014 386
6/2/2014 800
6/3/2014 9
6/4/2014 5
6/5/2014 7
Total 1305
*expected no. to be 5,000 to 6,000
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Conflict Minerals Impact on Supply Chain and Suppliers
Suppliers of Conflict Minerals must :– Comply with Company CM Policies
– RFX will include CM Conflict Free parts as a requirement
– Source Minerals from Certified Smelters
– Participate in providing transparency even if not subject to rule
– Project target date when conflict free souring is realized Supply Chains will:
– Begin to organize around conflict-free sources
– Smelters not certified may lose business to certified
Final Rule:
UN OECD Guidance:
Conflict Free Initiative: (EICC/ GeSI Template and Smelter Program)
http://www.sec.gov/rules/final/2012/34-67716.pdf
Q&A
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http://www.oecd.org/daf/inv/mne/GuidanceEdition2.pdf
http://www.conflictfreesourcing.org/conflict-minerals-reporting-template/ http://www.conflictfreesourcing.org/conflict-free-smelter-program/