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Most Electronic Companies Lag in Response to Conflict Minerals

Last October, Jonathan Cassell, Senior Manager for IHS, warned that there are only about 21 months remaining until publicly-traded U.S. component manufacturers must disclose their usage of conflict minerals to the federal government.


Last October, Jonathan Cassell, Senior Manager for IHS, warned that there are only about 21 months remaining until publicly-traded U.S. component manufacturers must disclose their usage of conflict minerals to the federal government. Cassell says the industry appears to be unprepared because about 90 percent of firms have not produced the data, declarations, or documentation that fulfills regulatory requirements detailing the presence of such minerals in their supply chains. And, Rory King, director, supply chain product marketing at IHS, said that responding to the conflict minerals mandate requires a lot of time to communicate, collect, analyze, and prepare information on mineral sources across a globally diverse, multi-tier value chain.

SEC Rule

The requirement to disclose conflict minerals was contained in the Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that was passed in 2010. Then, on August 22, 2012 the Securities and Exchange Commission (SEC) adopted a rule mandated by the Dodd-Frank Act to require companies to publicly disclose their use of conflict minerals that originated in the Democratic Republic of the Congo (DRC) or an adjoining country. The regulatory reform law directed the Commission to issue rules requiring certain companies to disclose their use of conflict minerals that include tantalum, tin, gold, or tungsten if those minerals are “necessary to the functionality or production of a product” manufactured by those companies. Companies are required to provide this disclosure on a new form to be filed with the SEC called Form SD.

Time is critical for electronic component suppliers to respond to the SEC ruling, considering the size and complexity of the task. As an estimate, the SEC rule applies directly to 5,994 companies that file reports to the SEC and to hundreds of thousands of their suppliers. The large number of companies arises from the rule’s widespread impact throughout the supply chain, affecting electronic product makers, their suppliers, their suppliers’ suppliers and so on.

As of August 2012, the percentage of electronics component manufacturers with available conflict minerals information amounted to only 11.3 percent of the peer group, according to the IHS Parts Management Service at information and analytics provider IHS. These companies account for 17.1 percent of active electronic components on the market, as presented in Fig. 1.

Utilization of conflict minerals is widespread in the electronics market, employed in all kinds of products, from cellphones to hearing aids, to pacemakers and jet engines. For example, IHS estimates that $0.15 worth of tantalum—a conflict material–— was contained in every smartphone shipped when Dodd-Frank was originally signed in 2010 (see sidebar, “Getting Suppliers To Reveal Tantalum Content”). In 2012, this would amount to $93 million worth of tantalum in smartphones alone.

Conflict Minerals Defined

Conflict minerals are those extracted from the earth in a country or region involved in armed conflict. They come from mines controlled by armed groups, who then sell the resources to purchase weapons and other supplies, or luxuries. It’s a cycle that essentially keeps the war going because the money from the sale of these minerals provides funds for weapons that result in more violence. Plus, it is often affiliated with spikes in sexual violence.

The final SEC ruling defines conflict minerals as those including gold; coltan, utilized to produce tantalum; cassiterite, used to make tin; and wolframite, used to produce tungsten. A major supplier of such minerals is the Democratic Republic of the Congo (DRC) in Africa. The DRC is rich in natural resources, with estimates of the value of its mineral wealth as high as $24 trillion.

Coltan, known industrially as tantalite, is a dull black metallic ore from which the elements niobium and tantalum are extracted. The niobium-dominant mineral in coltan is columbite, and the tantalum-dominant mineral is tantalite. Tantalum from coltan is used to manufacture tantalum capacitors. Coltan mining has been cited as helping to finance conflict in the Democratic Republic of the Congo. Fig. 2shows workers processing tantalum.

Tungsten retains its strength at high temperatures and has a high melting point, so it is used in high-temperature applications, such as light bulbs, cathode-ray tubes, and vacuum tube filaments, and heating elements. Its high melting point also makes tungsten suitable for aerospace and high-temperature uses such as electrical, heating, and welding applications.

Tin has long been used as a solder as an alloy with lead. However, since the European Union Waste Electrical and Electronic Equipment Directive (WEEE Directive) and Restriction of Hazardous Substances Directive came into effect on 1 July 2006, the use of lead in such alloys has decreased. Replacing lead has many problems, including a higher melting point, and the formation of tin whiskers causing electrical problems.

Today, the key component of the conflict minerals is tantalum, which is employed in capacitors for virtually all electronic systems. Tungsten and tin are not widely used in today’s electronic systems.

Functionally, the tantalum capacitor is similar to the electrolytic capacitor, except that tantalum offers higher capacitance for any given volume. Therefore, tantalum capacitors are widely used in electronics equipment where there is a need for small size and a high capacitance. Many surface-mount chip capacitors use a tantalum construction. Fig. 3Fig. 4, and Fig. 5 show typical tantalum capacitors from AVX and Vishay, two major suppliers of these parts.

Continuous Monitoring

Even after the SEC deadline arrives, the task of reducing or eliminating conflict mineral usage will continue. “Compliance with the conflict mineral rule is about the journey, rather than the destination,” IHS’ Rory King noted. “Companies will have to arm themselves with information, tools and procedures to continually monitor their supply chains for conflict minerals.”

The SEC deadline could also have unintended consequences for the electronics supply chain. “The Reduction of Hazardous Substances (ROHS) legislation in Europe produced a series of unintended consequences, including shortages, price increases, and large-scale obsolescence of components,” King said. “Similar unexpected events could arise from the SEC conflict minerals rule, especially as a pooling of two supply chains materialize where some companies and their supply chains move away from minerals sourced from illegal operations in the DRC and other global supply chains do not.”

IHS has been able to gather detailed and accurate information on the extent of conflict mineral reporting by leveraging data from its electronic component database. The database offers information and tools for more than 300 million electronic, electromechanical and fastener components used in commercial and military applications.

“IHS has been gathering information on conflict minerals for more than two years,” said Greg Wood, director, product management for IHS. “Our conflict mineral data is not based on a survey or estimate, but rather was developed using data provided directly from companies, including environmental declarations, part descriptions and compliance documents. IHS has led the way on conflict minerals and has begun to incorporate conflict minerals documents, declarations and descriptions into our innovative solutions.”

AVX Commits to Legitimate Tantalum Sources

In 2013 AVX will begin to incorporate in its products Validated Conflict-Free Tantalum from verified Sources in the DRC and surrounding countries. The company said that it is fully committed to the global effort to exclude tantalum sourced from any area in which insurgents or similar groups may benefit from the sale of minerals (“conflict minerals”).

As part of its ongoing commitment to a conflict-free supply chain, AVX has been involved in developing standards for the supply of tantalum from the mine to the ultimate customer. The company is in organized groups whose goal is to avoid use of tantalum ore which directly or indirectly finance or benefit armed groups in the Democratic Republic of the Congo or adjoining countries. It supports the position of the Electronic Components, Assemblies and Materials Association (ECA) toward the same result.

“Employing only independently validated, conflict-free smelters, in addition to our own supply chain assessment activities has allowed us to assure our customers of our compliance with the Organization for Economic Cooperation and Development, due diligence guidelines as well as with the provisions detailed in the Dodd-Frank Act,” said Bill Millman, director of quality and technology for AVX’s tantalum division. “We also expect that the conflict-free tantalum policies that we already have in place will make us compliant with related and currently pending SEC regulations. Several other manufacturers are making efforts to attain validated compliance with these provisions; but, at present, AVX is the only company that meets these exacting standards.”

In July 2011, AVX partnered with Motorola Solutions to establish the flagship Solutions for Hope program. This program has been strengthened by the support of other leading electronics firms, including HP and Intel. It was developed to enable the DRC and its neighboring countries to return to the supply chain as validated conflict-free suppliers, to the benefit of the all the local peoples that depend on the mining industry.

AVX will have full traceability of its usage of DRC and other Central African material and the supporting chain of custody information to confirm the material is verified as conflict free to enable customers to meet the requirements of the Dodd-Frank legislation and the anticipated SEC disclosure requirements.

Kemet Also Uses Conflict-Free Tantalum

Kemet is one of the world’s largest manufacturers of tantalum capacitors. “KEMET’s tantalum capacitors are conflict free,” said Dr. Daniel F. Persico, KEMET’s Vice President of Special Projects. “KEMET took an early leadership position in the industry on the issue of obtaining certified conflict free minerals. Strong conflict minerals reporting requirements means an enhanced quality of life for the people of the DRC and a more stable supply of conflict free capacitors for our customers,” continued Persico.

The KEMET “Making Africa Work” program is the industry’s most comprehensive social sustainability and economic program focused on meeting the short and long-term needs of all stakeholders in the KEMET tantalum supply chain. This program includes a completed closed-pipe conflict free vertically integrated tantalum supply chain. In addition, $1.5 million has been committed for social sustainability projects including a school, medical clinic, solar street lighting, and fresh water wells for the village of Kisengo in the DRC. Many of these initiatives are well on their way to completion.

Challenges Abound

AVX and Kemet are two of the largest capacitor suppliers and have made great strides in ensuring their supply chains meet socially and politically acceptable guidelines. for procuring raw materials. But with almost 90% of electronics suppliers still not in compliance with the SEC, huge challenges remain in getting the rest of the industry to follow their lead. The path to complying with the Dodd-Frank legislation and the anticipated SEC disclosure requirements is not likely to be easy, given the complexity and expense of electronics suppliers documenting their materials supply chain.

Sidebar: Getting Suppliers to Reveal Tantalum Content

On July 15, 2010, the US Senate passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Bill”) and was signed into law. Among other things, the bill imposes new due diligence and disclosure requirements for publicly traded companies and, possibly, private companies, that manufacture or trade in products using certain “conflict minerals” originating in the Democratic Republic of Congo (“DRC”). When refined or extracted the conflict minerals become gold, tin, tantalum, or tungsten and are components used various consumer and industrial electronics and other goods, including cell phones, computers, and televisions.

The legislation also called for a study of the use of conflict minerals in the supply chain of private companies. A covered company will be required to make disclosures if “conflict minerals” are “necessary to the functionality or production of a product manufactured” by the company. The legislation defines “conflict minerals” to include “(A) columbite-tantalite (coltan), cassiterite, gold, wolframite, or their derivatives; or (B) any other mineral or its derivatives determined by the Secretary of State to be financial conflict in the Democratic Republic of the Congo or an adjoining country” (Angola, Burundi, Central African Republic, Republic of the Congo, Rwanda, Sudan, Tanzania, Uganda, Zambia). The minerals listed in subparagraph (A), when refined or extracted, become gold, tin, tantalum, or tungsten, which are commonly used in a variety of consumer and industrial electronics goods.




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