The US Court of Appeals for the District of Columbia Circuit in April 2014 upheld the bulk of the Security and Exchange Commission’s then-new Conflict Minerals Rule, but ruled a key disclosure requirement violated the First Amendment because it forced a company to “confess blood on its hands.”

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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.

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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.

US companies shelled out roughly $709 million and 6 million staff hours last year to comply with regulations to disclose conflict minerals in their supply chains, according to recent research by Tulane University and Assent, a software and services firm that partners with companies to automate their compliance processes.

party city mylar balloons

Adorable possible violations of the Dodd-Frank conflict minerals compliance regulations.

A glance at the results of the study, which included 2015 Dodd-Frank 1502 form SD submissions, showed how each company performed according to Securities and Exchange Commission regulations and OECD due diligence guidelines. A team led by Tulane University’s Chris Bayer, PhD., ranked all 303 respondents according to both criteria. Assent has provided an excellent video explanation of the criteria for anyone interested.

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We have also written extensively about how US manufacturing firms can comply with the Dodd-Frank conflict minerals regulations and this study is the first major one to quantify the difficulty firms, large and small, face in confirming that their supply chains are conflict minerals free. Read more

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.

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CORRECTED: As of today, SEC has received approximately 1315 forms

We recently caught up with Lawrence Heim, our resident expert on All Things Conflict Minerals and asked him to share with us some of his initial impressions based on his analysis of 110+ filings.

The Not-So-Surprising Observations:

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What a difference a year makes.

From the depths of despond in March 2013, when Reuters was reporting that tungsten demand had collapsed in Europe and prices could slide further, we are now seeing a raft of new mine projects being mooted for production in Europe, stimulated in part due to worries about constrained supply from China.


Both tungsten trioxide and ferro-tungsten prices (above) have risen, making mining in higher-cost locations like Western Europe more viable, while at the same time, attention has become focused on the precarious supply market for the metal with so much coming from China.

Chinese producers have seen exports restricted by a 20% export duty imposed by Beijing since the financial crisis in an attempt to encourage the manufacture of finished tungsten-bearing components and products rather than intermediate materials. At the same time, the European Union has identified the metal as one of 14 critical materials that are subject to a high risk of supply disruption and are poised to introduce voluntary rules to prevent European tin, tantalum, tungsten and gold companies importing so-called conflict minerals, much like legislation passed in the US.

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Last week, the European Union proposed conflict minerals legislation wildly different than what US manufacturers must currently comply with, calling for voluntary participation from importers only.

And yet the proposed EU legislation sees the pinch-point where it exists – at the smelter level.

“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.

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ben bernanke

Source: The Economist

1. Ben There, Done That

We’ll lead with perhaps the biggest economic news of the month – that Ben Bernanke and the US Federal Reserve shook things up by….doing nothing.

Essentially, the Fed said it would continue its QE ways, buying $85 billion worth of treasury and mortgage bonds and keeping the federal funds rate between zero and a quarter-percent in the foreseeable future. Which basically means that the central bank doesn’t have crazy amounts of confidence right now to pull back on their levers, with unemployment figures unimpressive and inflation forecast to rise.

2. The Core of Glencore? Not Lonmin – Yet

Stuart Burns delved into Glencore’s investment strategies surrounding their stake in platinum producer Lonmin. Although Glencore, which acquired the stake after teaming up with Xstrata, doesn’t quite consider this part of their business as “core,” they may just realize that Lonmin could be good for them later – if platinum prices hold up, of course.

3. Hold Your Tung-sten, Sir

Kennemetal sure took hold of some strategic tungsten operations this past week, acquiring Allegheny Technology’s (ATI) tungsten materials business. Lisa Reisman speculated as to why Kennemetal’s move may bode well for other tungsten suppliers in the industry, as more and more activity has been coming down the pike to lock up conflict-free supply.

4. Costa Bravo!

Finally, the big ship that couldn’t is finally going to get a proper burial. Get a load of how much steel has been used to facilitate the uprooting of the Costa Concordia, the biggest scrap operation of the year by far.

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I won’t profess any expertise in the field of mergers and acquisitions (of course, that won’t stop me from commenting). But the metals industry offers great examples of some textbook cases as to why companies merge, including the recent merger of Kennametal and ATI’s Tungsten Materials business.

The merger of Namasco and Macsteel back in March of last year created the third-largest metals service center with a stronger national footprint and 57 different locations. In the distribution business, geography reigns supreme. The more locations you have, the better equipped the operation to take on national contracts and/or serve local clients.

Or take, for example, the recent Sapa AS merger combining Norsk Hydro ASA with Orkla ASA that we reported on earlier this week – that deal also created a broader footprint for the extrusion producer, including operations in South America.

But not all M&A deals are marriages of love
Outokumpu’s purchase of ThyssenKrupp’s Inoxum stainless business on the other hand, looked  chew-your-arm-off ugly (though admittedly, necessary)! Deals that invoke the words “rationalization, efficiency and synergies” typically don’t scream market growth and in our metals world that can only mean one thing – taking capacity off-line.

So what to make of the Kennametal-ATI Tungsten Materials acquisition? Read more

Tungsten is one of those solid industrial metals that largely passed the media and investment communities right on by.

As we wrote back in June, it can be likened in some ways to the rare earth metals market, in that production and reserves are dominated by the Chinese; and like REEs, Chinese exports are strictly limited by way of export quotas, tariffs and support for downstream domestic consumers to “add value” to what the Chinese view as a key (and limited) strategic resource.

Unlike REs, tungsten’s uses are largely industrial applications that don’t tend to catch the public’s attention – prices or demand for the metal that goes into drill bits, cutting tools and abrasive powders are not usually the topic of the evening news or morning papers. (UNLESS, of course, if it’s about tungsten’s role in conflict minerals legislation – everything you need to know about that here.)

Nor is there a terminal or futures market on which daily price fluctuations can be tracked and positions taken; medium-term contracts are generally concluded between mine and refiner or refiner and consumer, rather than an active spot market.

It is, however, every bit as critical to modern economies – mature or emerging market – as rare earth elements are, with tungsten being required, for example, in wind turbines. Imagine how the North American shale gas revolution would have got on without ready access to sophisticated drill bits for fracking.

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Wow, we bet US companies such as Apple Inc. sure are glad the SEC’s Conflict Minerals Law doesn’t cover Colombia.

That’s because a recent Bloomberg article uncovered illegal tungsten mining in Colombia that supports that country’s terrorist group FARC and its efforts – much like tin, tungsten, tantalum and gold support the Democratic Republic of Congo (DRC) rebels.

According to the article, FARC operates one mine deep in uninhabitable terrain called Cerro Tigre, or Tiger Hill, which “can produce 15 metric tons of wolframite,” the rock containing tungsten. The big deal here is that “Apple Inc., Hewlett-Packard Co. and Samsung Electronics Co. purchase parts from a firm that buys from the company that imports tungsten ore from Colombia, company records show. Since 2008, there have been 40 shipments of tungsten ore from Colombia by 14 companies, according to government export documents.”

However, although US-based public companies have to comply with the Dodd-Frank-initiated Conflict Minerals Law and disclose whether they’re buying gold, tin, tungsten or tantalum from mines that finance war in Central Africa, “there are no such rules for minerals that fund the conflict in Colombia.”

Quick Interlude: Why Terrorists Export Tungsten 101

graph of historical tungsten price metalminer indx

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apple laptop frame

iPhone4 by Apple, Inc.

Back to It: Global Tungsten Supply Chain

Although no one should abide financing a terrorist organization, US and EU companies will have to determine a) how much physical tungsten is in their supply chain from Colombian sources and b) how to find new, viable sources. With China controlling over 59% of total world tungsten reserves, announcements such as H.C. Starck joining the Nui Phao project in Vietnam not only helps loosen the stranglehold the Chinese have over this market, but also paves the way for a conflict-free source of supply.

Even though Colombia supplied less than 1 percent of the world’s tungsten in 2012, according to the U.S. Geological Survey, no company wants to be linked to conflict minerals (Apple, Samsung, BMW, Volkswagen and others have promised to extract conflict sources from their supply chains).

The question then becomes how to go about auditing suppliers or extracting tainted supply. Tangible approaches to do so here.

Shortfall of SEC Conflict Minerals Law?

Yes, it seems like a huge oversight to leave out other conflict zones – but until a new law springs up, wrapping Colombian-sourced tungsten into the fold, keep your eyes on the prize: complying with the current, DRC-specific Conflict Minerals Law.

Get a complete compliance toolkit here.

You’ll also get the latest updates on conflict minerals compliance at our upcoming live event:

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Companies in the tungsten supply chain are abuzz over a recently announced joint venture that could drastically change the tungsten supply landscape.

This amidst the past week or so, which generated several big metals news stories including skyrocketing rare earth metal prices, the ongoing LME aluminum warehouse story and our own unique coverage examining how producers profit from current practices.

But on June 24, MetalMiner reported that only one tungsten junior mining project would likely receive funding: the Nui Phao project in Vietnam, owned by the Masan Group.

Indeed, that has happened, and much sooner than we originally anticipated, as H.C Starck has formed a joint venture with Nui Phao to process “all of Nui Phao’s tungsten concentrate into higher value-add tungsten chemicals, including ammonium paratungstate (APT) and blue tungsten oxide (BTO).”

The joint venture will process 6,500 tons of tungsten trioxide annually, according to the press release. But perhaps the most important element of the deal involves the purchase commitment made by H.C. Starck for its own internal production.

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