As a former metals trader (not ring, mind you, but import/export), I learned many tricks of the trade, so to speak. Unscrupulous traders once (perhaps still) easily circumvented US law in a variety of ways by creating false companies, transshipping products (knowing full well the products would end up in the hands of US adversaries) and outright falsifying the actual “end use of said product.” Nonetheless, sometimes laws get circumvented legally because the language of the law lacks specificity. But as an ex-Arthur Andersen consultant, I can appreciate the difference between the letter of the law and the spirit and intent of the law (Enron anyone?). Our contacts in the rare earth metals world tell us that tantalum scrap traders have found profitable ways to skirt the new Dodd-Frank Conflict Minerals Law.
These scrap dealers have followed market developments closely, attending any/all meetings and conferences having to do with conflict minerals. According to our source, traders have said to him, “nothing is going to change, African origin material will find a way to get into the market.”
To understand how the scrap supply chain works, we refer to an earlier MetalMiner post covering tantalum forms: “Tantalum comes in basically three forms: tantalum ore and concentrate (where our sources tell us long-term pricing could easily exceed $120/lb with African spot prices at $60/lb, though one can’t actually buy African tantalum at that price), tantalum oxide/salts (which essentially double the ore prices) and finally, capacitor-grade tantalum powder, now at approximately $300/lb, according to our sources. It’s this last grade that finds its way into the electronics we own. With tantalum prices mounting, the lure of finding loopholes in the law may prove too tempting. So we inquired how the tantalum scrap supply chain may operate in comparison to the non-scrap supply chain.
Basic premise: Tantalum oxide concentrate currently in the $120-$150/lb range with Congo ore currently in the $40-60/lb range, an approximate $100/lb difference.
We have identified the following approximate costs and process steps to use scrap and avoid traceability requirements:
- Extract metal from concentrate $15/lb
- Refine metal to powder $15/lb
- Refine metal powder to ingot $15/lb
- Chop to ingot $10/lb (this is the only additional cost and is not traceable)
The scrap chain would still allow for an increase in the basic price of Congolese material. From a price perspective, the above-referenced process still undercuts or matches the “clean material.” In other words, the “alternative non-regulated supply chain” can operate profitably at today’s tantalum market prices.
The Enough Project, original advocates of the legislation, along with the NGO Global Witness, are said to have begun work anew with the SEC to explain the loophole within the law. Clause 1502 of the legislation defines what needs to be reported to the SEC, but the portion of the law relating to scrap and recycled materials contains some ambiguity, as our guest blogger Lawrence Heim of The Elm Consulting Group International will elaborate on in a follow-up post tomorrow.
In the meantime, buying organizations will want to pay careful attention to both the new legal requirements as well as this new loophole. For the latest in complying with the SEC conflict minerals law, check out our free resources (including more articles and exclusive white-papers).