Elm welcomes Michele Bruelhart as a guest blogger. Michele is the Global Traceability Manager with UL-STR in Burundi and attended the EICC-GeSI Workshop held in Brussels recently. She provided Elm with her perspective on the meeting, and regional progress on conflict minerals programs/infrastructure.
The challenges surrounding supply chain traceability of so called “conflict minerals” continue to be discussed in numerous fora in Europe and the US. Starting with roundtable consultations organized by the World Gold Council, the EICC-GeSI Group and the London Bullion Market Association (LBMA) held their conferences last week in Brussels which will be followed by the launch of a Public-Private Alliance for Responsible Minerals Trade in October and lastly a meeting of the OECD hosted working group on the implementation of the Due Diligence Guidance in November.
Broadly speaking, participants of these meetings appear divided into two groups: those contributing to discussions on the 3Ts (tin, tantalum and tungsten) and those trying to address the issues around gold. For the former, the EICC-GeSI Workshop provided an overview on the latest progress (or lack thereof) since their previous workshop in June of this year. Some of the main points from Brussels are summarized below:
- The EICC-GeSI reporting template for the downstream supply chain is publicly available and has been piloted by a number of companies. While the tool itself was found to be helpful, it does not address the main challenge faced by end-user companies, which are (1) how to reduce the complexity and number of suppliers standing between the end product and the smelter in their supply chains and (2) how to get responses from supplier, investing a reasonable amount of time and resources.
- The hours required to obtain a completed reporting template from all suppliers seem disproportionate to the information sought. Furthermore, the data provided by suppliers is not validated or verified externally. Lastly, the tool merely allows companies to gather information “backwards” for a finished product, rather than “forwards” (i.e., trying to prevent conflict minerals from entering the supply chain). By the time all the information is collected and compiled, the product will most likely have been sold already, whether smelters used for its production were “conflict-free” or not. Given these limitations, it is not clear if the template truly responds to the needs of companies that are required to report under Section 1502 of the Dodd Frank Act. [Ed. note – this process/timing gap may also create liabilities in the context of representations and warranties made about the nature or status of the material, which could be proven incorrect once all relevant information is available].
- Investing time and resources to gather information from suppliers regarding the smelters used in a company’s supply chain makes sense only if there is a sizeable list of conflict-free smelters that have been approved in the framework of the Conflict Free Smelter Program. So far, this list comprises six tantalum smelters. Assessment protocols for the other metals have been published this summer, though to date no smelters for tin and tungsten or refineries for gold have been approved as “conflict-free”. Despite the progress made in this program and the EICC-GeSI’s repeated assurances that it remains possible for smelters to source from the African Great Lakes region, the requirements defined for smelters to continue purchasing minerals from the Democratic Republic of Congo (DRC) or its neighbors provide a significant disincentive to do so. The assessment protocols list a number of conditions that must be fulfilled for minerals from the Great Lakes region. Among those figure full traceability for the shipment – something that has not been achieved yet for three of the DRC’s four affected provinces – and the implementation of the OECD Due Diligence Guidance. On the latter, it remains to be seen how this criteria should be implemented as the OECD is stressing that its Guidance should be understood as a process over time, whereas a mineral purchase is a punctual transaction. [Ed. note: As Elm previously reported, OECD has softened its stance on its Guidance. In addition, EICC CFS audits may not be completed in time for many companies to use them for purposes of fiscal year 2012 SEC compliance].
- In the region itself, progress has been quite significant. The DRC Government is about to make the implementation of the OECD Guidance a requirement for companies bearing administrative sanction, mine site inspections have taken place at over 30 mine sites in North Kivu and the Government expects to be ready to issue regional certificates for its minerals within the ICGLR framework by the end of 2011. ITRI’s tag-and-bag scheme is targeting 75% of the 3Ts from Katanga province to be tagged by the end of this year and the German federal institute BGR has validated 35 mines against its Certified Trading Chains Standard.
Nevertheless, some important issues were not addressed during the Brussels workshop:
- First and foremost, it remains unclear if the Congolese Government has the financial and human capacity to enforce the various rules and regulations that were passed over the last couple of months. In particular as the country is preparing for Presidential elections in November, no concrete plans for the enforcement of recently taken measures were presented, nor does the Government appear to take a clear leadership role in coordinating the various efforts on the ground.
- For the in-region tracing or certification schemes, the monitoring and evaluation process of participating companies is not fully transparent. In the case of the mine visits of the DRC Government, no information is provided on the standards applied to flag a specific mine green, orange or black or the qualifications of the mine inspectors. For BGR’s and ITRI’s certification and traceability schemes, the boundaries between baseline assessments, preparation of participating companies, third party verification and remediation are not clearly defined. The absence of clearly defined tasks may lead to potential conflicts of interest where verifiers could be consulting and auditing the same companies.
- The presentation of Gregory Mthembu-Salter of the United Nations Group of Experts (UN GoE) on the Democratic Republic of Congo painted a rather grim picture of the likelihood to see any of the above schemes being implemented in the Kivu provinces. The security situation in the Kivus renders the implementation of any traceability scheme difficult and the level of due diligence required from buyers in ensuring their purchases do not benefit armed groups appears to be prohibitively high.
- The highly unique aspects of the gold supply chain and its traceability remain unresolved. There are growing doubts that a viable framework applicable to gold will be available in the near future.
Despite these activities along the entire mineral supply chain there remains much to be done to establish credible systems of assurance in the African Great Lakes region that satisfy the needs of end user companies obliged to report on the origin of their raw materials.