DRC: Re-Emerging as a Tantalum Hotspot

By Michelle Smith — Exclusive to Tantalum Investing News

AVX (NYSE:AVX) has manufactured the world’s first capacitors containing validated conflict-free tantalum from the Democratic Republic of the Congo (DRC), and has shipped these supplies to Motorola Solutions (NYSE:MSI). This arrangement was made possible by the commitment of both companies to the Solutions for Hope (SfH) initiative, which aims to see the DRC become a reliable and sustainable source of conflict-free tantalum.

Concerns about cash from DRC tantalum flowing to armed conflict groups resulted in a number of unintended consequences. Companies responded by implementing self-imposed bans on tantalum from the region, which caused massive job losses for the Congolese whose lives were supported by the industry. Further, a massive amount of resources sat by as consumers attempted to manage rapidly-escalating tantalum prices.

Solutions for Hope

Last July, Motorola announced the launch of SfH, a pilot program designed to use a closed supply chain to obtain conflict-free tantalum from the DRC. AVX announced that it would be a partner.

To ensure that supplies remain conflict-free from mine to finished product, a pipeline was established whereby tantalum is obtained from specific mining concessions in North Katanga. The rights to that land are owned by Mining Mineral Resources (MMR). A mining co-op called Cooperative Des Artisanaux Miniers du Congo (CDMC), has been contracted to manage the artisanal miners at the site.

In a semi-mechanized operation, MMR removes the overburden and artisanal miners remove the underlying tantalum, which is collected, weighed, and logged. This process is widely referred to throughout the industry as a “bag and tag scheme.”

The tantalum is then transported to a depot in Kalemie, DRC where AVX pays market price for it and exports the ore to Johannesburg, South Africa.

From there, the tantalum goes to China’s F&X Electro-Materials, a certified smelter. It is converted into wire or powder and then shipped to AVX’s Czech Republic facility, where capacitors are made.

After manufacturing the capacitors, AVX sends out the conflict-free tantalum products to partners. For the first pilot run, the partner was Motorola Solutions.

A document said to be from an independent audit conducted by Gregory Mthembu-Salter, a consultant to the United Nations Group of Experts, confirmed that mineral output from the two mines in the pilot was conflict-free according to Organisation for Economic Co-operation and Development (OECD) guidelines, though certain risks and areas for improvement were highlighted.

Samples of tantalum are reportedly taken along the pipeline, including at the mine, depot, warehouse, and smelter. And, Bill Millman, Technical and Quality Director of AVX’s tantalum division, told Metal-Pages that until SfH is fully integrated into its supply chain, every capacitor with DRC ore will be marked with its own traceable ID.

KEMET in DRC

KEMET (NYSE:KEM), another manufacturer of tantalum capacitors, also has a conflict-free tantalum production project underway in the DRC.

The company has secured a long-term supply agreement with a mine in Katanga, which has never been a conflict area, said Dan Perisco, Vice President of Strategic Management & Business Development at KEMET. However, as a precautionary measure, there is a police presence at the site, which is also semi-mechanized and relies upon artisanal miners.

In February, KEMET announced the completion of its deal to acquire Niotan, a tantalum powder manufacturer.

“We now have a smelter. We have the ability to produce capacitors. So we have a closed pipeline and we put a whole community back to work,” Perisco said.

Market attitudes

Projects to bring conflict-free tantalum back to the market have been highly anticipated by some while widely criticized by others.

Millman says traders in the DRC have a grudge against the scheme.

“The traders’ business is their contacts, their knowledge of the mines, and their ability to connect the dots between the processor and the miner, so they don’t want transparency and they do not contribute to the closed pipeline,” he said.

A source who does not wish to be identified told Tantalum Investing News that non-DRC and non-African mines seem to believe that all the new safeguards against conflict minerals do not work.

This individual also said that supply out of the DRC will affect pricing, and certain companies have worked very hard over the last few years to paint a negative picture of all material out of Africa, except that in Mozambique.

As DRC tantalum fell from the market’s graces, the void was filled by suppliers in other regions. Three major mines closed during the global economic crisis and supply was believed to be tight. An economic recovery also appeared to be emerging, so users who had been destocking were eager to get their hands on conflict-free supply. In these conditions, prices escalated, running from about $45 to $150/lb.

But it appears that end users will welcome supply from the DRC. In addition to Motorola Solutions, other internationally recognized companies such as HP (NYSE:HPQ), Intel (NASDAQ:INTC), and Nokia (NYSE:NOK) have become partners in SfH.

According to Millman, the historic price volatility and controversy over conflict minerals has led some users to substitute other materials for tantalum.

He described the cyclical nature of the industry, saying that the price of tantalum goes up and then the price comes down. This cycle typically takes 18 to 24 months, he said.

According to Perisco, the high prices seen during this uptrend simply are not sustainable for many end users, including capacitor manufacturers.

“We believe long term the sustainable price is somewhere between $60 to 80/lb,” he says. “We believe [the project in the DRC] will eliminate a lot of the volatility and speculation out of the market.”

Some may raise concerns that efforts to bring prices down may hurt artisanal miners in the DRC, but Perisco does not foresee this happening.

“When prices went from $45 to $150, the artisanal miners made no more money. It all went further down the supply chain,” he said.

Opportunities

That some users have become frustrated by market conditions and have abandoned the market, and capacitor manufacturers have taken it upon themselves to forge direct relationships in the DRC, should serve as a call for tantalum producers to carefully consider their pricing policies.

The fact that capacitor manufacturers are leading the efforts to revive the DRC tantalum industry may also highlight opportunities for miners willing to assess that region.

The DRC is considered one of the world’s largest sources of tantalum.

Perisco says that as far as he is aware, no one even knows for sure how much is there. But, he adds, the tantalum found thus far is high grade and easy to mine.

Securities Disclosure: I, Michelle Smith, hold no equity interests in any company mentioned in this article.