12th CFSI Workshop: Presentation of Steffen Schmidt
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12th CFSI Workshop: Presentation of Steffen Schmidt

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From the 12th Conflict-Free Sourcing Initiative Workshop: summary of the presentation of Steffen Schmidt on “To be or not to be DRC- or Great Lakes-free? Perspectives on strategies to comply with ...

From the 12th Conflict-Free Sourcing Initiative Workshop: summary of the presentation of Steffen Schmidt on “To be or not to be DRC- or Great Lakes-free? Perspectives on strategies to comply with Dodd-Frank”

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    12th CFSI Workshop: Presentation of Steffen Schmidt 12th CFSI Workshop: Presentation of Steffen Schmidt Document Transcript

    • 12th Conflict Free Sourcing Initiative Workshop, Washington DC, 10-11 Sep 2013 Panel Discussion “To be or not to be DRC- or Great Lakes-free? Perspectives on strategies to comply with Dodd-Frank” Steffen Schmidt, P.Geo; Wolfram Bergbau & Hütten AG (WBH), Austria: Dodd-Frank, SEC Rules & Tungsten: Unintended Consequences, Collateral Victims At time, there is ZERO offtake of tungsten concentrates from any of the Covered Countries listed in the SEC rules relating to section 1502 of the Dodd Frank Act by any western “smelter-level” tungsten company. This is due to many customers requesting not “conflict free” material, but material free from any supplies originating in the Covered Countries. As tungsten refining is a larger-scale continuous process, it is not possible to deliver “guaranteed Africa-free” material to one client, and material including ethically sourced Central African material to another customer. The requests to “ban” material from the Covered Countries coincided with the issuing of the SEC rules, while prior to that, the customers relied on the CSR and DD undertaken by the refiners. Given the discriminatory prescriptions of the SEC rules (material from Covered Countries triggers the necessity to provide a CMR and undergo 3rd party auditing, even if the material is certified as conflict free), the refiners understand the request if their clients. This has also to be seen in relation to the tungsten intake and end-use distribution: Only about 1% of the intake of the world tungsten industry comes from the Covered Countries – the feed from the area is thus dispensable and can easily be replaced by other sources. In addition, most of the tungsten downstream use is far removed from the broad public – there is little incentive for marketing in line with “Solutions for Hope” or similar. The request to boycott supply from the area is simply a valid, economically reasonable response on the question of this panel discussion: Perspectives on strategies to comply with Dodd-Frank. The de-facto ban has multiple unintended consequences and thwarts the entire idea behind the law, i.e., to help the local people, and to improve transparency. Who are the victims? - Miners completely unrelated to conflict – reduced offtake and/or unfair prices paid by offtakers (concentrate from the region is traded at a 20-25% discount, even if tagged) - Local communities (higher unemployment, less community programmes) - Western industry (competitive disadvantage and more dependency on China), and last but not least: - The consumer / everybody. Transparency is obliterated; conflict-free material from neighbouring countries is mixed with possibly conflict related material when routed through traders to less concerned companies. The same tungsten that was once handled in a transparent manner through western companies with extensive CSR is now routed through Asia, in an intransparent manner, and might be mingled up with possibly conflict-supporting material from the DRC to replace Chinese ore now used for export or end directly up in imported products on the US market that do not fall under scrutiny by Dodd-Frank.
    • Other than tantalum and tin, tungsten supply from the area is limited (around 1%), and at the same time, the vast majority of tungsten from the area does not come from mainland South or North Kivu (areas hosting violent conflict), but from the historic tungsten belt (Uganda – Central Rwanda – NE Burundi) or the island of Idwji (not a conflict region). Thus, the risk to support violent conflict is limited and the ratio between truly collateral victims and “possibly justified” victims exceptionally large. It is important to stress that the “Conflict Mineral Issue” as such has led to greatly improved transparency, led to more focus on support of miners, improved governance in the sector, supported programmes to formalisation of the artisanal sector and so on. All this was based on company CSR, the work of the OECD, public awareness and NGO reports. The problem is the immediate reversing impact the SEC rules had on something that was moving in the right direction: they triggered the de-facto ban by “western” companies. A hands-on example of the unintended consequences: Over many years, WBH has cooperated with a specific tungsten mine in Rwanda. This is a largely artisanal operation with about 1000 miners. WBH provided technical expertise, prefinancing of equipment to improve productivity and guaranteed offtake of the production at fair world-market prices. Technical reports were compiled to support application of the mining license and the beneficiation plant was rebuild and extended. The operation is often referred to as model mine, has OHS, gender and environmental programmes in place and is certified under several traceability schemes. Yet, when WBH’s customers requested “Africa-free” supplies, WBH had to discontinue offtake. While the mine managed to sell its products through traders into the Asian market, it obtains about 20-25% lower revenue, lacks of offtake security and technical support (although WBH is still providing limited technical guidance to demonstrate support). We might ask ourselves whether it is fair that thousands of hard-working miners are deprived of development possibilities, have difficult to find a market, and if so are paid unfair prices about 20-25% below world market, and might have to pay a few per cent of their revenue for bag & tag and other programmes (essentially paying western experts to tell them that the ore they extract comes indeed from their mine), just because they have the bad luck of living in a country that shares a border with the DRC? Looking forward, we do not see much of a chance that this situation can be overturned as long as the discrimination of an entire region is “written in stone” in the SEC rules. Actually, the situation might become aggravated once the consequences of the SEC rules and relevant industry programmes are truly felt throughout the supply chain, and smelter-level entities in Asia join the “blanket ban” to alleviate concerns of customers and risk-aware management: Because there is simply no economic incentive, no logical reason to use tungsten from the region (as long as one considers paying fair prices) – it can be easily replaced. At the same time, organisations promoting conflict-free smelter programmes are forced by the “concerned public” to put further disincentives in place, making it less and less likely to reverse the trend.