Conflict Minerals: A Discussion on Product Minerals in the Industry; Jean Tseng, Source Intelligence

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Conflict Minerals: A Discussion on Requirements

Jean Tseng


What are Conflict Minerals (3TG)? •  Tin •  Tungsten •  Tantalum •  Gold

•  Cassiterite •  Wolframite •  Columbite-‐ Tantalite (Coltan)

Overview


•  Congo rich in natural resources—specifically, In, tungsten, tantalum ("3Ts") and gold

•  Remains one of the poorest, most dangerous countries in the world

•  Civil war •  Armed groups and naIonal army benefit

financially by exploiIng minerals trade •  Mass murder, sexual violence and use of child

soldiers

Civil War & Human Rights Abuses


•  South Sudan •  Uganda •  Rwanda •  Burundi •  Tanzania •  Central Africa Republic •  Congo Republic •  Angola •  Zambia •  DemocraIc Republic of the Congo

Covered Countries?


ColonizaIon: 1876 – 1885 Congo Free State: 1885 – 1908 Belgian Congo: 1908 – 1960 Congo Crisis: 1960 – 1965 Zaire: 1965 – 1996 DRC: 1996 – present First Congo War: 1996 – 1997 Second Congo War: 1998 – 2003 Mineral related conflict: 15 years Untapped deposits: $24Trillion

DRC Conflict at a glance:

Source: enough project –invesIgaIon report


•  7 Imes more likely to have HIV/AIDS

•  12.9 Imes higher chance of dying in infancy

•  3.1 Imes higher birth rate •  Die 23.51 years sooner •  Make 99.35% less money

If you lived in the DRC:

Source: www.ifitweremyhome.com


Supply Chain Overview Mines

•  Eastern Congo •  13 Major Mines, approx. 200 Total Mines

Traders

•  Bukavu, Goma, Butembo, Uvira • Well known, approx. 100 trading houses each in Bukavu and Goma

Export

•  17 registered exporters in Bukavu, 24 in Goma •  Verbal Assurance only system to avoid buying conflict minerals

Transit

• Moved to Rwanda, Uganda, and Burundi via ground, air, and water transport •  Buying Houses mix minerals with those from other mines -‐ masks origin

Refine

•  Refineries based in East Asia, China, Kazakhstan, Dubai, Germany, USA •  CriIcal link – once ore is refined, impossible to discern origins

Mfr

•  Electronics Industry largest consumer – PCB and Chip Mfrs touch material first •  No tracing, therefore all electronic products may contain conflict minerals


•  To reduce the sourcing of materials from mines that are controlled by non-‐governmental miliIas or armed groups

•  Help reduce or eliminate the armed conflict within the region

•  IdenIfy smelters or refiners used within a supply chain for the covered metals •  Understand the possibility of these smelters sourcing from the DRC from mines

controlled by miliIa groups •  All reporIng must be complete by 5/31 of the following year.

What is the Goal of Dodd-Frank?

What acIons must be taken to comply with Dodd-Frank?


•  Step 1: Determine Rule Applicability •  Step 2: Reasonable Country of Origin Inquiry (RCOI) •  Step 3: Due Diligence •  Step 4: ReporIng

Process First two years, can call your products “DRC – Conflict Undeterminable”. Aoer that, they must be either “DRC

Conflict Free” or “Not Found to be Conflict Free”

External audit required when reporIng DRC Conflict Free or Not Found to be Conflict Free

In April 2014, DC Court struck part of rule requiring

companies to state “Not Found to be DRC Conflict Free”


CMRT


•  Does the rule apply •  Do I as company have influence over manufacturing … •  Are 3TG necessary to the function of …

•  How can I Interpret “Reasonable” and “Good Faith”? •  What exactly triggers the audit requirement? •  Where does data validation fit into this whole process? •  What is due diligence?

Challenges for Reporting Companies


Warning Signs

Supplier has listed smelter for unused metals.

Supplier does not have known SOR listed for used metal

Supplier indicated DRC sourcing

No known DRC sourcing SOR provided

Supplier has not collected all informaIon

Supplier has not idenIfied all SORs

Supplier has not provided all informaIon

Not all SORs are known recycler


Resources More technology, more financial and more human than you think, 3 pillars of a functional and scalable program

Quality of supplier contact data Biggest challenge. Garbage in, garbage out, as we’ve refined our database we’ve disambiguated the contact information

Supply chain characteristics (breadth and depth)

The more complex, the more you’ll need to rely on technology and a system that scales

Engagement strategies A combination of e-mail and phone calls needed. Follow-ups are often required.

Issuer commitment

Issuers set the expectation “Failure [to respond] is not an option”, combined with relationship building & persistence

Supplier knowledge of requirements

CRITICAL: education and 24/7, multi-lingual support

Time

Is not your friend, start early

Factors influencing Response Rates


•  PotenIal loss of business •  Harm of reputaIon •  Limited growth potenIal

•  Requests for more upstream vendor informaIon •  More work up front

•  Sweat in pracIce so you don’t bleed on the field •  Familiarity with terms

Impact of incorrect information


•  Share informaIon •  CooperaIve & Responsive •  ParIcipaIon in Industry meeIngs •  PaIent but firm

How can trading partners work together?


•  Armed groups no longer present at two-‐thirds (67%) of mines surveyed •  Minerals that do not go through conflict-‐free programs now sell for 30% -‐ 60% less

•  The DRC has pushed government reforms

•  There are improving condiBons for miners and communiBes in the DRC.

•  112 out of 155 mines surveyed have passed as Conflict Free

Impact of Dodd-Frank


Other initiatives

•  Management System for Supply Chain •  More Transparency


Contact Information

Jean Tseng Office: 760 – 232 – 4105 E-‐mail address: [email protected]

Conflict Minerals: A Discussion on Product Minerals in the Industry; Jean Tseng, Source Intelligence

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Transcript of Conflict Minerals: A Discussion on Product Minerals in the Industry; Jean Tseng, Source Intelligence