July 15, 2010 / 8:00 PM / 9 years ago

Financial regulation bill hits Congo mineral trade

* U.S. reform bill aims to stop conflict mineral trade

* Electronics industry unable to ensure clean supply chain

* Western supplier may soon fill void

By Chris Kelly

NEW YORK, July 15 (Reuters) - Buried inside the U.S. financial reform bill passed on Thursday by the U.S. Senate is a little noticed amendment aimed at regulating a market far from Wall Street — international trade in rare earth minerals like tantalum from the Democratic Republic of Congo.

The provision could affect stock market favorites like Hewlett-Packard (HPQ.N), Apple Inc (AAPL.O) and Research in Motion Ltd RIMM.O, which rely on these metals to make their highly popular electronic gadgets and laptops.

So-called conflict minerals from DRC, still torn by a 1998-2003 war and battling rebels across its territory, are used in nearly every device in the modern household.

The amendment requires companies that engage in the trade and use these minerals to file an annual report with the Securities and Exchange Commission to declare if they are sourcing their supply chain from the DRC, or an adjoining country.

This leaves the high-tech companies that manufacture these products in a bind. While they support efforts to regulate the trade in these conflict minerals, they have few alternative sources at the moment, other than Congo.

“From an investment perspective, we have been highlighting this issue as a critical risk-management issue for companies. Traceability in the supply chain has gone from a nice to have, to a must have,” said Lauren Compere, managing director of Boston Common Asset Management.

LIMITED COLTAN, ENDLESS WAR

Tantalum, or coltan, as it is commonly referred to in Africa, is precious to the global electronics industry due to its unique ability to store and release an electrical charge — essential for the power-storing processes of iPods and iPads, BlackBerry smart phones and laptop computers.

Stopping the use of these metals mainly sourced from the DRC is becoming the focus of a worldwide effort to end one of the deadliest conflicts of the past half century.

As consumer demand around the world for these products increases, so, too, does the violence and human suffering.

“As of today, it is very difficult to certify our supply chain is 100 percent free of conflict minerals, but the efforts that we and our industry are taking are driving us toward that certainty,” said Zoe McMahon, manager of supply chain social and environmental responsibility at Hewlett-Packard.

Hewlett-Packard, Apple and Research in Motion all told Reuters that they supported regulation in an effort to stimulate demand for supply chains free of conflict minerals.

Since 1998, Congo’s war has killed nearly 6 million people — the highest war-related death toll since World War Two. The trade in these conflict minerals has only amplified the human suffering and bloodshed.

With its vast deposits of gold, tin, tantalum and tungsten, the country’s mining industry has become a weapon of war for a number of armed groups, which use sexual brutality and killing to exploit the mineral wealth.

The war minerals issue is reminiscent of the “blood diamond” conflict of the 1990s, when illicit trade in diamonds helped finance devastating civil wars in Angola, Liberia and Sierra Leone.

The outcry against blood diamonds led to the creation in 2003 of the Kimberley Process Certification Scheme — a method designed to certify and track diamonds to ensure they come from conflict-free zones.

The Congo clause is one of the more unique provisions included in the 2,300-page financial regulation bill.

The amendment, introduced by U.S. Senator Sam Brownback of Kansas, is the first official step taken by the U.S. government to stop the flow of minerals contributing to the violence and human suffering in the Congo.

“The legislation is not a panacea, but it is the first step in a process that will eventually cut off the flow of gasoline on Congo’s smoldering fire,” said John Prendergast, co-founder of the Enough Project, a nongovernmental organization aimed at ending genocide and crimes against humanity.

IMPOSSIBLE TO TRACK

In the aftermath of the global economic downturn in 2008, many companies were forced to suspend production, as consumer demand dried up and supplies mounted and prices fell nearly 25 percent.

But European spot prices of tantalite TANT-LON, which is used to make tantalum metal, recovered by mid 2010 and jumped more than 25 percent in June alone to a 9-year high at $60/$70 a lb.

Australia’s Talison Tantalum, which once provided about a third of the world’s tantalum supply, shut its Wodgina mine in late 2008, but is now considering a restart as early as next year amid expectations of a strong demand recovery. [ID:nLDE6530TW]

Another alternative source was Commerce Resource Corp’s (CCE.V) Blue River Project in British Colombia, which is looking to produce up to a million pounds of tantalum per year by late 2012.

But, for now, conflict minerals appear likely to continue to flow freely, and largely unnoticed.

“Unless there is a fundamental change in the supply base, conflict tantalum will probably still get into the global market for the foreseeable future,” said Patrick Stratton, North American manager at Roskill Information Services Ltd.

“I doubt that any retailer would sell electronic goods in the full knowledge that they contain conflict minerals. But they don’t know and, at present, cannot know,” he said. (Editing by Alden Bentley)

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