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”
12th CFSI Workshop: Presentation of Steffen Schmidt
Conflict Free Sourcing Initiative Workshop, Washington DC, 10-11 Sep 2013
“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
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
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