Conflict Minerals Act Delay Hurts Mining Operations

By Michael Montgomery—Exclusive to Tantalum Investing News

The implementation of the Conflict Minerals Act has been a bumpy process since the passing of the Dodd-Frank Financial Reform Act. There has been praise from human rights groups, but resistance from some mining and electronics companies, which have charged that the law requires too much in too short a time frame.

Under the law, full tracking systems for compliance were to be in place by March 31, 2011 to ensure that minerals are free of the human rights abuses associated by rebel groups in the Democratic Republic of Congo (DRC). However, the Securities and Exchange Commission has postponed the disclosure rules until August-December 2011. While this gives more time to create a responsible and transparent tracing system, the postponement may only further complicate the situation for some mining companies, workers of legitimate operations and electronics companies.

The first issue at hand is the audit system, and more importantly companies that performed due diligence ahead of the postponement. There is a risk that companies may have to pay for a second audit to be in compliance with the law. “Early adopters may be faced with paying for audits a second time to achieve compliance.  Reputational damage is possible where companies publicize or market the results of audits that are non-conforming to the final rule,” stated Elm Consulting Group. This may be a serious issue for companies when the full implementation of the law occurs later this year.

Others in the region, such as buyers of material have largely stopped buying ‘pre-rule’ materials for fears of accumulating stockpiles that they will not be able to sell once the tracing system is fully implemented. “This cessation of investment in the region will only result in increasing conflict, unemployment, and poverty — the exact outcomes the Dodd-Frank Act seeks to prevent,” stated Amaya Gorostiaga, an Associate for BSR Consulting. The lack of responsible investment and cash-flow in the region could only exacerbate the problems, and further the illegal trade of minerals by smuggling goods through neighboring countries.

This same sentiment is being echoed by industry insiders in the DRC. “We’ve been pushed into a corner by American companies. To call for full traceability when everyone knows we haven’t had a chance to implement it is just a way to put thousands and thousands of Africans out of their jobs,” stated John Kanyoni, head of the Mineral Exporters Association in North Kivu province.

The further delay of the enactment of the tracing system may seem positive to some, as it will allow miners to continue to work despite the lack of an audit, but the lack of buying in the region is a de facto embargo on minerals from the region. Also, the lack of mining in the region due to the ban on mining activities since September of 2010, recently lifted, has reduced payments to the iTSCi, the industry group charged with setting up the tracing system. The lack of funding only further hinders the process from moving forward efficiently.

The problems surrounding the implementation of the Conflict Minerals Act are a catch-22 for the industry. The further delay only increases smuggling, exacerbates problems for the Congolese people, and reduces responsible and ethical investments in the region.

Tantalum Market News

German firm H.C. Stark, makers of ceramic materials and refractory metals, has agreed to a purchase the bulk of tantalum and niobium from Brazilian miner, AMG Advanced Metallurgical Group. The mine according to the Tantalum-Niobium International Study Center puts the mines production at 300,000 pounds of tantalum, about 20 percent of global production. Dr. Andreas Meier stated, “Thanks to this agreement, we have secured a continuous supple of conflict-free tantalum raw materials for our company.”

Noventa (LON:NVTA) has announced it is increasing production at the mine in Mozambique, which currently produces 600,000 lbs/y. The company is looking to double production by 2013.

Global Advance Metals has stated that the company will “start delivering product to customers mid-year, at a rate of 700,000 lbs/y,” according to Matthew Hill, for Mining Weekly. Global Advance Metals has said the mine is capable of producing 1.4 million lbs of tantalum at full production.