October 4, 2011 / 9:22 AM / 8 years ago

FEATURE-U.S. buyers shun "conflict minerals" in Congo's east

* Mineral exports from eastern Congo crash 90 pct

* US legislation on conflict minerals seen by year-end

* Enforcement of due diligence key to kickstarting sector

By Jonny Hogg

GOMA, Democratic Republic of Congo, Oct 4 (Reuters) - A battered pickup truck pulling up to Huaying Trading’s back street office in Goma is about all that remains of Congo’s once-bustling resources business as an impending U.S. crackdown on so-called “conflict minerals” scares most buyers away.

Eight years after the formal end of a war that killed millions and drew in six other African countries, rebel groups and the Congolese army continue to battle for control of mine sites deep in the hills of eastern Congo.

For years, the conflict has been sustained by revenues from mines that in many cases are controlled by armed groups.

Now, a local industry that has long operated in a near legal vacuum is facing an onslaught of legislative and regulatory initiatives that could amount to a “kill or cure” treatment.

Last year’s Dodd-Frank financial oversight law requires the U.S. Securities and Exchange Commission to write rules forcing companies to disclose whether they use minerals such as tantalum, tin, gold or tungsten from Congo.

While it is unclear when the rules will be finalized or go into effect, firms such as Apple Inc and Hewlett Packard are not waiting to see the fine print.

They are no longer sourcing from the region, having launched in April their own industry drive against conflict minerals which anticipates much of the spirit of Dodd-Frank.

For now, only the Chinese has chosen to stay.

“Of 25 exporters that exist (in Goma), not more than three are operational, (all) belonging to Chinese. For China there is no problem, they continue to export to their country,” local Congolese exporter Thierry Kituli Kaoma told Reuters.

The workers outside Huaying Trading say the sacks they are unloading contain cassiterite, an ore that yields the tin used as solder in devices such as portable phones and laptop computers. They say the shipment is from Walikale, an eastern mining area plagued by armed rebels.

Local representatives of Huaying Trading declined to be interviewed. But Goma mines authorities said Huaying, together with Chinese-owned TTT Mining and Donson International, were the only exporters who continued trading after the U.S. industry drive against conflict minerals.

TTT has recently suspended trading, they said, although the company declined to say why.

A BIG “IF”

Exports of cassiterite are now running at about 100 tonnes a month, a 90 percent fall on the volumes seen last year.

The Chinese firms are either buying at cost price of around $4 a kilo or ask to buy on credit, said David Kapiamba, vice president of a local minerals traders’ association, adding that there was little profit left over for the traders or mines.

Kituli, who used to sell to the U.S. market and has no Chinese clients, has laid off his 65 workers. He said there was growing local anger over the U.S. move, whose ultimate aim is to ensure that the trade in minerals can flourish without fueling conflict.

“There’s a risk that everyone will turn towards China, and then what are you going to say?” said Kituli, interviewed in his virtually empty offices in Goma.

Views differ on the current legality of operating in Goma.

Annie Dunnebacke of rights watchdog Global Witness said a 2010 U.N. Security Council resolution already requires states to urge their companies to make sure they were not involved in trade that could fuel fighting in the region.

But Emmanuel Ndimubanza Ngoroba, head of the mines division of the local government, argued it was not actually illegal for China to buy from Congo, noting existing local rules requiring traders to at least declare the source of their produce.

“We want to encourage the (Chinese) exporters who are here to continue to buy the small amounts of produce arriving in Goma. If not, it will be traded fraudulently,” he said, adding that smuggling had also gone up sharply.

Repeated calls to the Chinese embassy in Kinshasa on Tuesday went unanswered.

The conflicts minerals proposal in Dodd-Frank has proven so contentious that the SEC had to reopen the comment period and delay its implementation. But there are other initiatives to watch.

According to a document signed by Congo’s mines minister Martin Kabwelulu and seen by Reuters, the local minerals trade will have to comply with due diligence guidelines on supply chains drafted by the Paris-based OECD thinktank this month.

If that happens, the minerals trade in eastern Congo will not only be subject to strict U.S. rules but also local ones based on internationally recognised standards.

That could allow the Western firms to come back, but only if the new rules are backed up by functioning “traceability” schemes that will provide purchasers with a degree of certainty that they have not bought minerals tied to the conflict.

Such schemes can involve sealing and tagging bags of minerals with verifiable details about their source. But so far they have been delayed, largely because of a lack of funds needed to get them launched.

Even when such schemes do get off the ground, the real test, as ever, will be enforcement — no easy task for over-stretched law enforcement authorities in a densely forested area of Congo which is twice the size of Greece.

“If (the government) doesn’t check up on exporters’ due diligence the move won’t have much traction,” said Dunnebacke from Global Witness.

“But if they monitor and sanction companies, Chinese or otherwise, it’ll send a very strong signal.” (Editing by Mark John and Sonya Hepinstall)

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