Dr. Christopher Bayer, Ph.D., of the Payson Center for International Development of Tulane University Law School, recently responded to an e-mail interview with MetalMiner Editor Jeff Yoders about the recent Conflict Mineral Benchmarking Study he led of Dodd-Frank Conflict Minerals compliance.
More than three years after U.S. companies began filing reports about their efforts to find conflict minerals linked to armed militias in Africa in their supply chains, 65% say they still can’t make a determination about what minerals are in those chains. Bayer explained more in this MetalMiner Q&A.
Chris Bayer. Image: Tulane University.
Jeff Yoders: Analysis of the reports shows that conflict-minerals reports are boosting supply-chain transparency for many of these companies. Is that an added benefit to reporting?
Chris Bayer, PhD: Yes, a company can use Dodd-Frank Section 1502 to gain insight into its own supply chain, to a degree that would probably not have been previously possible. Whether and how companies may leverage that to their advantage is up to them, but without question, information is power. Quite a number of companies are weeding out non-performing suppliers in their supply chain according to their defined parameters on conflict minerals.
JY: 10% Of all filers said, or implied, they had conflict-free products. What did you and your team’s research tell you about these claims?
CB: First off, it is in fact an extraordinary claim for a company to make. A whole lot of work would go into ruling out the possibility that the company is indeed not — through its procurement practices — fueling conflict in the Democratic Republic of the Congo. Your due diligence inquiry is, by definition, very involved, given the sheer amount of tiers and suppliers to traverse on average. But as per the Securities and Exchange Commission, a company should take care not to designate is products as DRC conflict-free unless it can also provide independent assurance that would lend credibility to such a claim.
JY: Incomplete reports were still an issue. How long do you think it will be until companies can, at least, fill out complete reports?
CB: Since many companies are already able to achieve full compliance — including reporting smelter Or Refiner (SOR) and Country of Origin (COO) data — the we-need-more time argument becomes less plausible.
JY: More companies underwent product audits this year. Are outside product audits necessary for full compliance?
10% publicly-traded companies in the U.S. who filed form SDs with the federal government have proven it is possible to not only comply with Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, but to also perform supply chain due diligence in line with industry best practices, according to an analysis of public filings by Dr. Chris Bayer, PhD, of Tulane University.
Yet, more than three years after U.S. companies began filing reports about their efforts to find conflict minerals linked to armed militias in Africa in their supply chains, 65% say they still can’t make a determination.
U.S.-listed companies are required to investigate their supply chain for the presence tin, tantalum, tungsten and gold (commonly known as 3TG in metals circles), under a rule stemming from the 2010 Dodd-Frank Act. The law is meant to choke off mining revenue to militia groups in the Democratic Republic of the Congo and adjacent countries.
This year, 10% of Form SD and CMR (conflict minerals) filers were found to be 100% SEC Rule compliant 67% were at or above the 75% compliance threshold. In all, SD & CMR filers averaged a compliance score of 79%, a generally high degree of compliance.
More than 100 companies said or implied they had conflict-free products, Bayer found. His study was advised by Assent Compliance, among others. But only 19 companies, including Intel, Qualcomm, Cree, Hasbro and Texas Instruments, actually underwent an audit for those claims on one or more of their products.
In the coming years, India will be scouting around for strategic partnerships with multinational mining exploration companies to secure the supply of critical minerals for its defense and manufacturing programs.
In the opinion of analysts, if the Indian government wants its much-vaunted “Make in India” campaign to be a real success, it has no choice but to do this. Over the coming years, India will need to strategically develop joint partnerships with existing global players to secure assured supply of critical minerals. Read more
Yorkshire UK-based 3D printing raw materials provider Metalysis recently reported a combined investment of $29 million (£20 million) from Woodford Patient Capital Trust — managed by Neil Woodford, one of Britain’s most prominent fund managers — and Iluka Resources, an existing investor in Metalysis.
Iluka has increased its interest in the Company to 28.8% as a result of this funding round. Other existing investors, such as BHP Billiton, are maintaining their stakes in the company.
Metalysis’ oxide production process vs. the longer traditional one. Source: Metalysis.
Metalysis’ technology produces metal powders — primarily titanium, tantalum and bespoke alloys — at lower cost than traditional manufacturing processes and with reduced environmental impact. The increased use of metal powders in 3D printing is driving innovation in several sectors, including aerospace, automotive and biomedical engineering. This investment will support Metalysis’ growth and its commercial rollout, through strategic partnerships and licensing of its disruptive 3D printing powder technology.
Direct metal laser sintering (DMLS) printing is a process optimized for 3D printing metals rather than plastics or other materials. Instead of melting plastics and binders, DMLS printers actually create tiny welds using powders such as Metalysis’. Last April, Metalysis’ Director of Business Development, Dr. Kartik Rao, discussed how the company wants to change manufacturing with my colleague, Stuart Burns.
Rather than break raw metals down into powders, The Metalysis process transforms metal oxides into then-sinterable powders. It’s a cleaner and less-costly process.
Metalysis’ technology produces high-grade metal powders directly from oxides in fewer steps. The lower-cost powders suit a wide variety of 3D printing needs across a variety of high-tech, industrial and manufacturing sectors. Metalysis recently completed a program with TWI, a UK leader in materials technology innovation, which demonstrated the feasibility of its bespoke powders for 3D-printing orthopedic hip implants.
Jeff Yoders: Your chapter on the ways that mining companies receive funding was very eye-opening. Is it happening that mining executives are making more money off of investment than they are off of mining?
David Abraham: I think you can go around at conferences and ask people have they ever produced a salable material and you would find that, much of the time, the answer is no. That’s certainly understandable because a lot of these mines take a long time to develop. You have to do your own due diligence, as an investor, and dig into a company’s financial reports, and make your own judgements, to find out how much someone deserves to be paid.
That’s something that the board of directors should be doing. Some of the time, though, it does seem a little out of line to see what these executives are being paid and judging what they are paid in comparison to other industries. I tried to allude to that.
Lighting technology marches on from candles to tungsten to fluorescent to LEDs. Source: Adobe Stock/vladimirfloyd.
JY: It can be a very risky investment to be involved in without, so to speak, your head up.
DA: It is a big risk and, financially, a challenging investment to get involved in. As much as you want people investing in the space, because these materials are critical, the challenge is you don’t know what demand is going to be, exactly, in the future. The prices are so volatile that you it’s hard to make projections. You can see a trend line, sure, but you could be investing in the wrong trend. If you made a decision to invest in, say, rare earths specifically because you thought demand for compact fluorescent lighting would take off, well, LEDs came about, and you would have gotten stung.
JY: What’s interesting is a lot of these technologies are not new at all and take off due to availability of materials or recent research. Light-Emitting Diodes (LEDs) are a semiconductor technology that, as consumer lighting, has been around since the ’60s. The road to mass adoption for much of these rare metal products can be a long road.
DA: There is a challenge of knowing what material is going to be needed because of changing of technology. My hope is that if we start clarifying some of the supply chains as best we can and start investing in some of these materials that they will be commodities, in terms of price and availability, and they will be more adaptable for use in consumer technology. We won’t try to NOT be using these materials, and many companies have shied away from rare earths, we’d try to use them more.
Indeed many technologies like LEDs have been around for many years, but the commercialization can happen very quickly. The adoption of LEDs surprised many who thought that rare earths in phosphors would be a growing market because rare earths are used heavily in compact fluorescent lighting —only a fraction of them are used in LEDs. But LEDs quickly won out.
Trying to predict new technologies and, therefore, the elements necessary to make them is fraught with risk. Just before the iPhone came out, Microsoft’s Steve Ballmer said there was no chance it would take market share. Those who are most in the know often have no clue. So predicting the resources that future tech will use is impossible.
But, with the rapid adoption of technology globally — the smartphone and tablet spread around the world faster than any other technology ever — and a middle class set to grow by 2 billion over the next 15 years, we are sure to use a lot more of these specialty resources, even if some technologies become more efficient in their use of rare metals.
JY: Were you surprised when Molycorp, Inc. declared bankruptcy earlier this year? I don’t think many of us were.
DA: It goes back to the first thing we talked about. They faced real challenges: the amount debt they had to cover, the competition they were up against, and the processing facility they developed, which wasn’t efficient and took longer to set up than expected, indicated that profitability would be an obstacle. Now, Molycorp was not the only one with those challenges. Lynas Corp.has faced those same challenges, and although Lynas has been able to, apparently, last a little bit longer, Lynas also has the good fortune of having forgiving backers in the Japanese government.
I wrote the book, really, to give perspective to a lay audience about where this stuff comes from and the implications when they make decisions to buy computersand iPhones. I wanted to let consumers know that there’s this whole other world of rare metals under their fingertips.
As you do retail combat on the front lines on this Black Friday, remember that much of what you’re buying is made possible by rare metals, and the supply chains of the companies selling you everything from cars to cell phones are likely 10 or more links deep.
A simple electronic toothbrush, for instance, requires circuit boards dotted with materials of tantalum in a capacitor that helps it store energy.
Thanks for the circuit board, tantalum! Source: Adobe Stock/Lionel pcn
It also requires a neodymium, dysprosium, boron and iron magnet to provide the power to spin its bristles and it needs batteries made from nickel and cadmium or lithium.
Smart Rare Metals
Buying that special someone a smartphone this year?
60% of smartphones are made from metals or ceramics. A mobile phone’s antenna requires titanium and boron. Its transmitter requires titanium and barium. Its condensers? Tantalum and strontium. The speaker and microphone require samarium and cobalt. This team of rare metals is held together by a beryliium connector and boosted by a gallium power amplifier.
Notice the screen of your smartphone getting bigger? If you purchase anything with a screen this holiday season, you’re very likely buying indium powder as, when it’s combined with tin, it becomes a unique transparent conductor that sticks well to glass.
Abraham writes that smartphones require four to six times more gallium than a regular cell phone just a few years ago.
You could just skip the middleman and get your friends and relatives bulk tantalum or dysprosium, I suppose. This gift probably wouldn’t go over too well, unless they’re metal traders, but it could be a good investment. As rare metals become more, well, rare, the supply chains of smartphones and other electronics will be increasingly strained as we consume more and more technology and even our children’s toys become more interconnected.
The same federal appeals court ruled against the disclosure requirement a second time Tuesday, saying an investigation requirement is fine, but disclosing that material remains untracked does not require an admission tantamount to guilt, when it comes to receiving raw materials from war-torn areas.
Disclosure of Unknown Origin
The Dodd-Frank Wall Street Reform and Consumer Protection Act required companies to disclose whether any tin, tantalum, tungsten or gold (commonly known as 3TG), in their supply chains is connected to violent militia groups in Africa.
An SEC spokesman said the commission is reviewing Tuesday’s decision.
The three-judge appeals panel split 2-1, effectively siding with business groups in ruling that forcing companies to designate which products “could not be found to be ‘DRC conflict free’” is tantamount to requiring firms to criticize their own products.
Two judges appointed by Republican presidents voted in the majority and a recent appointee of President Barack Obama dissented.
Conflict Minerals Rule Still Intact
The court’s rulings did not overturn the entire Conflict Minerals Rule, it actually upheld requirements such as having companies investigate whether their products include the minerals and a requirement to file public reports on their investigations, a process that began last year.
One situation where a respondent could not confirm that all of its raw materials were DRC conflict free, was party supply retailer Party City, a company that filled out a conflict minerals compliance form and asked their suppliers where, exactly, all of the materials for their mylar balloons and other party supplies came from. Party City reported it received little response from its supply chain.
That was one of many cases that highlighted the difficulty of actually vetting and confirming supply chain compliance for the wide range of businesses that the Conflict Minerals Rule covers.
What Does This Mean For Conflict Minerals Compliance?
In a statement after the initial ruling against the SEC last April, the regulator indicated that companies are not required to identify products as “DRC conflict free,” having “not been found to be ‘DRC conflict free’” or “DRC conflict undeterminable.” The SEC also indicated that, pending further action, an independent private sector audit (“IPSA”) will not be required unless a company voluntarily elects to describe its own product as “DRC conflict free” in its Conflict Minerals Report. That statement is likely to remain in effect pending the outcome of further litigation. It also looks unlikely that the private sector audits will be required this year and, barring a legal settlement, likely most of next year.
The SEC can petition the entire DC Circuit Appeals Court to hear the case en banc, a request that the court can decide whether or not to grant. The SEC can also appeal to the US Supreme Court no matter what the outcome is at the circuit court level. The business groups that challenged the Conflict Minerals Rule can ask the court to stay the entire law, as they did after the April decision, but it’s not likely that the court would grant such a request as a stay was not allowed after the initial decision.
Most larger companies — in a variety of industries — intend to continue implementing their 3TG traceability and responsible sourcing initiatives no matter what the outcome of the case concerning the DRC measure.
Like some of you, we have popped onto the SEC website to have a look-see at the recent Form SD filings from manufacturing companies such as Caterpillar Inc., as part of the first deadline for conflict minerals compliance. Any publicly traded manufacturing organization that uses (or may use) one or any of the 3TG (Tin, Tungsten, Tantalum and Gold) must file a Form SD.
“Focusing efforts at the root of the issue – material going into smelters and refiners – is a more efficient approach than the SEC’s ‘push from the top’ mandate,” said Lawrence Heim, Director of the Elm Consulting Group International, LLC and frequent contributor to MetalMiner.
The proposed European legislation incorporates the widely publicized and often discussed OECD conflict minerals framework. In some respects, the proposed legislation goes further than the SEC rules as the European legislation “applies to minerals sourced from conflict-affected and high-risk areas worldwide.”
In other words, the European legislation would go beyond the geographic boundaries of the SEC requirements or just the DRC region, according to Michael Littenberg of Schulte Roth and Zabel, who was also a recent speaker at MetalMiner’s Conflict Minerals EDGE conference held back in May 2013.
In Apple Inc.’s latest Supplier Responsibility Report, they state that all of the company’s tantalum suppliers are conflict-free, using a third-party verification process.
Apple is also pushing their gold, tin and tungsten suppliers to use conflict-free material, according to this Times article, but those suppliers are harder for the company to muscle because Apple has less financial leverage with them.
Of course, Apple (along with HP, Nokia, Intel and others) has been at the forefront of conflict-free smelter sourcing due to their size and spots in the marketplace; but as we’ve reported over the last couple years, it’s much harder for smaller manufacturers to become compliant with the SEC’s conflict minerals law.
We thought it may behoove our readers to see the list of Apple’s suppliers and smelters – the company “identified that its suppliers use 20 global smelters or refiners whose tantalum has been verified by third-party auditors” as conflict-free, according to the Wall Street Journal – and see if you share any supplier or smelters in common.
If you do use any of these suppliers, and if you also source tantalum, can you be reasonably sure that these suppliers are providing conflict-free material? We encourage manufacturers to perform their own due diligence (we can help with that).
The compliance deadline for the Conflict Minerals Law is only a few months away – be ready!