conflict free and socially sustainable/media/files/insights/... · 2014-12-19 · conflict minerals...

Conflict Free and SociallySustainable -A Practical Discussion of Conflict Minerals Compliance Rules andthe KEMET Case History

Today’s Speakers

Dr. Daniel F. Persico

KEMET, Vice President –Special Projects

Dynda A. Thomas

Squire Sanders, Partner

Making Africa Work

KEMET’s Socially Sustainable Solutionto Sourcing Conflict Free Tantalum

One world. One KEMET.

“Making Africa Work”Sourcing Conflict Free Tantalum

Agenda:

KEMET Electronics Overview

Sourcing Conflict Free Tantalum in the DRC

Conflict Free Vertically Integrated Supply Chain

Social Responsibility & Sustainability

SEC 1502 Ruling - Comments


KEMET Electronics Overview

• World’s largest user of Tantalum

• 4th largest global electronics capacitor manufacturer

• 23 manufacturing locations in 10 countries including UnitedStates, Mexico, China, Indonesia, and Europe

• Over 10,000 employees worldwide

• FY11 revenue of over $1B


• In the Fall of 2010, the DRC government imposed a mining embargoon the Kivus. This embargo essentially stopped all legal tantalum oreshipments from the DRC.

• When the mining embargo was lifted, a situation remained where fewwere willing to commence mining, or risk using tantalum from theDRC, for fear it may be conflict based.

• Dodd Frank provision 1502 unfortunately only added to this reticence.

• This unintended consequence has had broad negative socialimplications for the Congolese citizens in that many have had theirlivelihoods shut off, thus denying them the ability to provide forthemselves and their families.



• As the industry leader KEMET was interested in a solution to thisissue. Working with MMR, an established miner in the DRC, we havejointly demonstrated that socially responsible mining, in the DRC,can be the reality.

• Our solution named “Making Africa Work” focuses on building asustainable framework that embraces lasting prosperity for theKisengo mining community in the conflict free Katanga Province.

• “Making Africa Work” is the only comprehensive social and economicsolution in the industry.

• KEMET and MMR have developed a process which provides a safeworking environment with a clear and transparent chain of custody,for the tantalum ore (Coltan), from the mine to the smelter.



• The Kisengo mine was the first mine to have the ITRI/iTSCi bag andtag scheme implemented, by the NGO Pact, following the lifting ofthe embargo.

• The mine is managed under a local cooperative allowing all to benefitfrom the daily output.

• The output from the mine will be increased through mechanicalmeans to meet the long term needs of industry; however, theartisanal miners are guaranteed access moving forward.

• This plan will support local infrastructure development and economicgrowth over the long-term.



KEMET’s Conflict FreeVertically Integrated Tantalum Supply Chain

Kisengo Mine in KatangaProvince

DRC

K-SaltTantalite Resources

Jo'burg, SA

Capacitor Grade Ta PowderKEMET Blue Powder

Carson City, NV

KEMET’s Vertically Integrated Conflict Free Mineral Flow

The mine has been certified Conflict Free &the iTSCi bag and tag scheme is in place

CFS pre-audit assessment completed andEICC/GeSI CFS audit scheduled for 9/3-4

EICC/GeSI CFS audit after TR audit complete

KEMET

KEMET CustomersEICC & GeSi

KEMET tantalum capacitors manufactured fromCFS compliant/conflict free tantalum

KEMET customers guaranteed capacitorsmanufactured from conflict free tantalum.


“Making Africa Work”Social Sustainability Programs

• KEMET’s activities in the Kisengo mine site and village differ from othercapacitor producers as they include a comprehensive socialsustainability program

• KEMET has committed $1.5M over the first two years of involvement atthe DRC mine site, for sustainability programs such as:

Schools

Health Clinics

Clean water wells

Solar street lighting

• It is important to KEMET that we enhance the long term quality of lifefor the individuals in the village of Kisengo, DRC through education,training, etc.


• The “Making Africa Work” program is an opportunity to show thatsocial and economic investment can work hand-in-hand to the benefitof all parties involved

• It is anticipated that the programs will be self-sustaining once themine is running with significant output.

• A local foundation has been developed to manage the projects andflow of cash focused on meeting the needs of the local community,as well as determine the best organizations with whom to partner, inorder to bring resources, training, supplies, etc. to the community.



• As understood today, KEMET is in compliance with the proposedconflict minerals due diligence requirements under section 1502 ofthe U.S. Government’s Dodd-Frank Finance Reform Act.

• We fully support the EICC/GeSI Conflict Free Smelter program andwere involved in crafting the compliance and audit process andrequirements.

• KEMET has developed the industry’s only closed-pipe, verticallyintegrated conflict free tantalum supply chain from mine to customer.

• It is our hope that our “all-in” approach will be a positive example tothose companies remaining on the sideline.



SEC Ruling on Conflict MineralsProvision 1502 of Dodd-Frank

Disclosing the Use of Conflict Minerals



• First reporting period could be as early as end of 2013 or aslate as end of 2016 depending on size and circumstances

• Reporting is required if the minerals are “necessary to thefunctionality or production” of a product manufactured orcontracted to be manufactured by the company

• A reasonable “country of origin” inquiry must be performedto determine if the minerals originated in the coveredcountries or are from scrap or recycled sources



• Companies that are required to file must exercise duediligence on the source and chain of custody of their conflictminerals and this must conform to a nationally orinternationally recognized due diligence framework

• The minerals in the report must fall into one of the followingdesignations which have differing audit and certificationrequirements:

• DRC Conflict Free

• Not DRC Conflict Free

• DRC Conflict Undeterminable



• Recycled or Scrap – if a company’s conflict minerals arederived from recycled or scrap sources, products containingsuch minerals are considered DRC Conflict Free

• Gold has special considerations if it is determined to be fromrecycled or scrap sources then due diligence per the OECDGuidance and a report must be filed.

• Report issuers will be required to provide disclosure on thenew FORM SD. Calendar year reporting must be completedby May 31 of the following year.



Thank you for your attention

Dr. Daniel F. Persico

[email protected]

David A. Reynolds

[email protected]

37 Offices in 18 Countries

Conflict MineralsDisclosure

Section 1502 of Dodd-Frank

• Section 1502 of the Dodd-Frank Act of 2010 required theSecurities and Exchange Commission (SEC) to establishadditional disclosure and reporting requirements to report theuse of “conflict minerals” that are sourced from the DemocraticRepublic of Congo and several neighboring countries.

• August 22, 2012, SEC adopted final rules.http://sec.gov/rules/final/2012/34-67716.pdf

DRC and Covered Countries

Conflict Minerals

• Conflict minerals supply high-value commodities to industriesand manufacturers globally:

Ore Element Uses Include

Approximate% of World

Supply fromDRC (2010)

Cassiterite Tin Solders, solderable coatings, corrosion resistantcoatings, bronze alloys, glass additive, flameretardants, biocides, chemicals, electric circuits

2% - 5%

Wolframite Tungsten High temperature applications (lamp and electronmicroscope filaments, engines, lubricants), hard allows(e.g., turbine blades), tungsten carbide drill bits, etc.,munitions, radiation shielding metal coatings onceramics, semi-conductors

0.5% - 1%

Columbite-Tantalite(Coltan)

Tantalum Tantalum capacitors, high refractive index glass, powerresistors, high temperature alloys, corrosion resistance,cell phones, computers, cutting tools, jet aircraft parts

20.5%

Niobium Niobium alloys including steels, superconducting alloywith titanium or tin is used in MRI and other instrumentswith superconducting magnets. Pacemakers, sodiumlamps and arc welding.

1%

Conflict Minerals

• Conflict minerals supply high-value commodities to industriesand manufacturers globally:

Ore Element Uses Include

Approx %World Supply

from DRC(2010)

Various Gold Wire bonding, plating, electric contacts andconnectors, coinage, ornamentation

0.2% (could beas much as 2%

if smuggledsuppliesincluded)

Colbaltite Cobalt (notyet a“conflictmineral” butcould beadded)

Lithium NiCd and NiNH batteries, hard and corrosionresistant plating, moisture indicators, special alloys(e.g. turbine blades), Alnico magnets.

~35%**

Source: Conflict Minerals in Central Africa: U.S. and International Responses, CongressionalResearch Service, July 20, 2012.

** Source: United States Geological Survey

Pre-Rule Disclosure – 2012 10-KReporting (through August 20, 2012)

SIC Code # 10-Ks Filed# MentioningConflict Free

5065 (Wholesale-ElectronicParts & Equipment)

22 1

3675 (Semiconductor andRelated Devices)

149 11

3572 (Computer StorageDevices)

13 2

3571 (Electronic Computer) 10 0

Pre-Rule Disclosure – 2012 10-KReporting (through August 20, 2012)

• Total 10-Ks = 9,618

• 10-Ks that refer to:

Tantalum = 31

Wolframite = 0

Columbite/Coltan = 3

Section 1502 and “conflict” = 22

• Only a couple of dozen 2012 filings include disclosure aboutconflict minerals

• Expected to impact 6,000 filers

Pre-Rule Disclosure – 10-K

• Before the final rules were adopted, a few reporting companieselected to make conflict minerals disclosure.

Risk Factors

Business Section

• Following adoption of the final rules, similar disclosure is likely tocontinue.

Pre-Rule Risk Factor Disclosure

• The risk factors typically discuss:

Supply of goods

Supply chain due diligence

Compliance

Third-party relationships

Pre-Rule Business Section Disclosure

• When included in the business section, reporting companiesusually address conflict minerals in sections dealing with:

Raw materials supply

Commodity price risk

Regulatory compliance

International Due Diligence Framework

• OECD (Organization for Economic Cooperation andDevelopment)

• OECD Due Diligence Guidelines for Responsible Supply Chainsof Minerals from Conflict-Affected and High-Risk Areas,”http://dx.doi.org/10.1787/9789264111110-en

Framework for Risk-Based Due Diligence in Mineral Supply Chain

Model Supply Chain Policy

Industry Group Initiatives

• Industry Initiatives on responsible supply chain management:

ITRI Supply Chain Initiative (iTSCi)

Smelter Validation Scheme, Electronic Industry Citizenship Coalition

(EICC)

Global e-Sustainability Initiative (GeSI)

Conflict Standard and Chain of Custody Standard, World Gold Council

Chain of Custody in the Diamond and Gold Jewellery Supply Chain,

Responsible Jewellery Council

Compliance Models

• KEMET – Making Africa Work

• Motorola – Solutions for Hope

Final Rules

• “Reasonable country of origin inquiry”

• Recycled or scrap materials

• Disclosure on Form SD

• Audit objective

• Permits “conflict undeterminable” for 2 years / 4 years

Conflict Minerals

• Questions?

Worldwide Locations

• Cincinnati

• Cleveland

• Columbus

• Houston

• Los Angeles

• Miami

• New York

• Northern Virginia

• Palo Alto

• Phoenix

• San Francisco

• Tampa

• Washington DC

• West Palm Beach

• Bogotá+

• Buenos Aires+

• Caracas+

• La Paz+

• Lima+

• Panamá+

• Rio de Janeiro

• Santiago+

• Santo Domingo

• Beirut+

• Berlin

• Birmingham

• Bratislava

• Brussels

• Bucharest+

• Budapest

• Frankfurt

• Kyiv

• Leeds

• London

• Madrid

• Manchester

• Moscow

• Paris

• Prague

• Riyadh+

• Warsaw

• Beijing

• Hong Kong

• Perth

• Shanghai

• Singapore

• Tokyo

North America Latin America Europe & Middle East Asia Pacific

+ Independent Network Firm

conflict free and socially sustainable/media/files/insights/... · 2014-12-19 · conflict minerals...

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