ANALYSIS: Caterpillar Inc’s Extra Mile in Conflict Minerals Compliance Detail

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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:

Based on Heim’s review, generally speaking, companies did not disclose supplier names. In addition, if one looks at a group of companies within a sector, some made a strategic decision to trust their first tier suppliers without having conducted any additional due diligence; in other words, the company performed a RCOI (reasonable country of origin inquiry) and submitted a Form SD. Still, others did not trust their suppliers and therefore conducted due diligence all the same.

Heim also noted, not surprisingly, that the electronics industry manufacturers appear to have completed more thorough filings and none appear to have any non-compliances. This comes as no surprise because many of these companies have taken a leadership role with the EICC in the development of tools and templates to adhere to the SEC rules.

What Caterpillar’s Conflict Minerals Form SD Looked Like

In terms of an industrial benchmark, Caterpillar screened 96% of its supply base suspected of supplying products containing 3TG. The actual number of suppliers surveyed exceeded 38,700! In addition, Caterpillar’s report modeled the OECD framework and serves as a useful reference to other industrial manufacturers.

And the US Steel Producers?

Into the bucket of not-so-surprising observations fall the SD filings of US domestic steel producers. We would have hoped for a more diligent process, similar to Caterpillar’s, for several producers, particularly for those producers of tinplate (not an insignificant volume or dollar value for each company) – ArcelorMittal and US Steel – as well as a US Steel/Posco joint venture and any producer of tungsten carbide products – Allegheny Technologies – as well as producers of nickel and cobalt-based alloys. We have not reviewed this last category of producers. Both ArcelorMittal and US Steel conducted RCOI and reported none of its tin supply originated from a covered country.

Nucor produced an equivalent SD submission, but does not supply any product line containing 3TG. Moreover, of the three major steel producers – ArcelorMittal, US Steel and Nucor – only Nucor provided additional detail about its surveyed supply base (1,016 scoped-in vendors) and its vendors that supply materials containing 3TG: 2.9% of the scoped-in vendors. All stated materials came from scrap or recycled products (exempted from the rule). Essar Steel Holdings did not file an SD and Steel Dynamics, which most closely resembles Nucor from a product mix perspective, filed something similar to the other steel producers and did not disclose how many of its suppliers were contacted.

The Surprising Observations

The biggest surprise, however, according to Heim, involved the number of companies that only supplied a Form SD and did the RCOI. Out of 113 filings reviewed by Heim, 37 felt they didn’t need to perform due diligence, ArcelorMittal and US Steel included.

Best Practice/ Worst Practice

According to Heim, the automotive industry in general had really poor filings due to poor data or lack of information. Heim felt some of these companies may not have even met the compliance requirements.

If your company is interested in learning more about benchmarking conflict minerals compliance approaches, contact Lawrence Heim for additional information.

And don’t miss the Monthly MMI® Report – covering Base Metal and Precious markets.

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