Conflict Minerals June 12, 2014
Agenda
What is Conflict Minerals? How does a company ensure Conflict Minerals Compliance? What is the impact CM Supply Chain & Suppliers? Q&A
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What is Conflict Minerals?
(Dodd-Frank Section 1502)
The four conflict minerals, also referred to as “3TG metals” or “3TGs” are: % world-supply from DRC
•
Tantalum
•
Tin
5%
•
Tungsten
3%
•
Gold
2%
15-20%
The SEC’s Conflict Minerals rule requires public companies to determine: 1.
whether “conflict minerals” are contained in their products, and
2.
if so, whether they are sourced from the DRC or surrounding countries (together, the “Covered Countries”).
DRC Adjoining Countries Angola
Republic of the Congo
Tanzania
Burundi
Rwanda
Uganda
Central African Republic
South Sudan
Zambia
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Electronics Industry is in the middle this:
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Conflict Minerals Rule Compliance Overview First of the annual SEC filings is due no later than May 31, for previous calendar year. Compliance requirements include: • Step 1: Determine whether each product is subject to conflict minerals rules • Yes, if conflict minerals are “necessary to production or functionality” of a product that we sell and that we manufacture or “contract to manufacture” • Step 2: Develop and conduct reasonable country of origin inquiry (“RCOI”) • If we know or have reason to believe that conflict minerals in our products originated in the covered countries, and did not come from scrap or recycled sources, must proceed to Step 3 (Supply Chain Due Diligence) • Step 3: Exercise due diligence on the source and chain of custody of our conflict minerals (follow recognized framework UN OECD) • Must ultimately determine whether our purchase of parts/components containing 3TGs is financing the rebel groups in the DRC
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Step 1 -- Determining Product-Level Applicability The process of determining if products are covered under the conflict minerals rules involves multiple validations. Note – products that cannot be ruled out must be left in-scope. Product E
Product C
Product A
Product Applicability Considerations
Product D
Product B
• Product sold to a customer, during the reporting year Enter “Stream of Commerce”?
Product A
Product D Product B
Manufacture or Contract to Manufacture Product?
• For service companies this is more difficult in that primarily services are being sold, • If manufacture, or contract with a 3rd party to manufacture, a component or product, then it remains in scope and needs to be examined for conflict minerals. • If some influence over the manufacturing or design of any components or parts, they should remain in consideration. • If unknown whether components/products contain CM, then must inquire of suppliers (reasonable country of origin inquiry (RCOI)).
Product B
Product D
Contain 3TG?
In-Scope Products
• necessary to functionality; necessary to production: if the 3TG is contained in a product that we manufacture or that is manufactured for us, and is intentionally added, it is in scope.
Product B
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Step 2 --Conducting Reasonable Country of Origin Inquiry Companies are required to conduct and inquiry to the suppliers of the 3TG parts as to the source and status of the minerals. Requesting a response at the part level is needed to know your source mineral for products sold.
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Step 3 –Due Diligence – Smelter Certifications As a result of the RCOI , companies who knew some or all of their mineral sources would list them.
http://www.conflictfreesourcing.org/ 8
Step 2 –Why Conflict Free is so hard to achieve Example : Part containing 3TG – Supplier response at Company Level DRC/CC
PRODUCT CLASSIFICATION
GOLD
SMELTER
SMELTER COUNTRY
SMELTER CERTIFICATION
DRC YES
CONFLICT FREE
YES
AngloGold Ashanti Mineração Ltda
BR
EICC EICC
COUNTRY OF ORIGIN DRC- Congo (Kinshasa), South Africa, Ghana, Guinea, Mali, Namibia, Tanzania, Argentina, Brazil, Australia, United States UNDETERMINED
CONFLICT STATUS CONFLICT FREE
DRC UNKNOWN
CONFLICT FREE
YES
Argor-Heraeus SA
CH
DRC NO
CONFLICT FREE
YES
Asahi Pretec Corp
JP
Japan
CONFLICT FREE
DRC UNKNOWN
UNDETERMINED
YES
Caridad
MX
UNDETERMINED
UNDETERMINED
DRC UNKNOWN
CONFLICT FREE
YES
Dowa
JP
EICC
UNDETERMINED
CONFLICT FREE
DRC NO
CONFLICT FREE
YES
Kojima Chemicals Co. Ltd
JP
EICC
Japan
CONFLICT FREE
DRC NO
CONFLICT FREE
YES
Matsuda Sangyo Co. Ltd
JP
EICC
Indonesia, Australia, Japan, Canada, Hong Kong, China
CONFLICT FREE
DRC NO
CONFLICT FREE
YES
Metalor USA Refining Corporation
US
EICC
United States
CONFLICT FREE
DRC NO
CONFLICT FREE
YES
Metalor Technologies SA
CH
EICC
Switzerland, United Kingdom
CONFLICT FREE
DRC NO
CONFLICT FREE
YES
Metalor Technologies (Hong Kong) Ltd
HK
EICC
China, Hong Kong, Switzerland, United States
CONFLICT FREE
DRC NO
CONFLICT FREE
YES
Nihon Material Co. LTD
JP
EICC
Japan, Australia, Canada
CONFLICT FREE
DRC NO
CONFLICT FREE
YES
Ohio Precious Metals
US
Indonesia
CONFLICT FREE
DRC UNKNOWN
CONFLICT FREE
YES
PAMP SA
CH
EICC
UNDETERMINED
CONFLICT FREE
DRC NO
CONFLICT FREE
YES
Western Australian Mint trading as The Perth MintAU
EICC
Australia, Chile, Papua New Guinea, South Korea
CONFLICT FREE
DRC NO
CONFLICT FREE
YES
Royal Canadian Mint
CA
EICC
Canada, Peru
CONFLICT FREE
DRC NO
CONFLICT FREE
YES
Tanaka Kikinzoku Kogyo K.K.
JP
EICC
Japan, China, South Africa, Canada, Uzbekistan, Chile, Australia
CONFLICT FREE
DRC UNKNOWN
CONFLICT FREE
YES
Umicore SA Business Unit Precious Metals Refining BE
EICC
DRC UNKNOWN
CONFLICT FREE
YES
United Precious Metal Refining Inc.
US
DRC NO
CONFLICT FREE
YES
Johnson Matthey Inc
US
DRC UNKNOWN
CONFLICT FREE
YES
Kennecott Utah Copper
US
EICC
CONFLICT FREE
UNDETERMINED
CONFLICT FREE
UNDETERMINED
CONFLICT FREE
United States, Australia
CONFLICT FREE
UNDETERMINED
CONFLICT FREE
This supply chain remains undetermined, this response is not for a part, rather for all the parts from a supplier. Even with the Smelters listed and Conflict Free, it still does not tell what sources and origins for a particular part. 9
Step 3 Due Diligence We are required to perform due diligence on any suppliers responses that source from the DRC or adjoining countries according to a specific recognized framework. OECD DD Guidance is 5 step process.
http://www.oecd.org/daf/inv/mne/GuidanceEdition2.pdf 10
5 Steps Step
Consists of:
1. Conflict Minerals Framework
• • • • •
Conflict Mineral Policy Management Teams (both to execute and to resource) Communications to Executives Supplier Engagement Company Grievance System
Step 2: Identify & Assess Risks in Supply Chain
• • • • •
Products Sold to 3rd Parties Parts contain 3TG Tier 1 Suppliers ($ and Risk) RCOI DRC /CC Smelter Certifications
Step 3: Strategy to Respond to Risks
• • • •
CM Policy Alignment with Suppliers Assert Leverage Tier 1 Supplier to source Conflict-Free Tier 1 Supplier to confirm source of mineral – CF smelter certifications Non-compliant Tier 1 Suppliers – reevaluate relationship
Step 4: Commitment to 3rd Party Audit of Smelters/ Refiners DD Practices
• •
Require Upstream Suppliers to obtain CF Certifications Priority in the DRC/ CC Conflict Region
Step 5: Reporting
• • •
File & Publish on or Before May 31 Form Special Disclosure (SD) and Conflict Minerals Report (CMR) Independent Private Sector Audit as Needed 11
Independent Private Sector Audit (ISPA)* Each company that is required to furnish a conflict minerals report must also obtain and furnish an independent audit of the report. (to start 2 yrs. for big, 4 yrs. for small cos. - no audit needed)
Option for an Attestation or Performance Audit (done by CPA or by certified non-CPA auditor) Auditor to examine the design of the due diligence framework described is accordance with a nationally or internationally accepted framework and that the due diligence described is actually what the company undertook.
* Intel is the only company I am aware of that had an ISPA. 12
*
Wall Street Journal June 2, 2014 “Conflicted Disclosure”
File Date
No. of Filers*
5/28/2014
21
5/29/2014
77
5/30/2014
386
6/2/2014
800
6/3/2014
9
6/4/2014
5
6/5/2014
7
Total
1305 *expected no. to be 5,000 to 6,000
http://online.wsj.com/news/article_email/companies-detail-use-of-conflict-metals-1401751678-lMyQjAxMTA0MDAwNDEwNDQyWj 13
Conflict Minerals Impact on Supply Chain and Suppliers
Suppliers of Conflict Minerals must : – Comply with Company CM Policies – RFX will include CM Conflict Free parts as a requirement – Source Minerals from Certified Smelters – Participate in providing transparency even if not subject to rule – Project target date when conflict free souring is realized
Supply Chains will: – Begin to organize around conflict-free sources – Smelters not certified may lose business to certified 14
Q&A
Final Rule: http://www.sec.gov/rules/final/2012/34-67716.pdf UN OECD Guidance: http://www.oecd.org/daf/inv/mne/GuidanceEdition2.pdf Conflict Free Initiative: (EICC/ GeSI Template and Smelter Program) http://www.conflictfreesourcing.org/conflict-minerals-reporting-template/ http://www.conflictfreesourcing.org/conflict-free-smelter-program/
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