More than a third of electronic companies not ready for SEC 'blood minerals' rules

Tantalum, tin, tungsten, and gold are key in the manufacture of cellphones and almost every other piece of electronics. But their source — the war-torn Congo — has attracted attention, and regulation, from the SEC.

Back in August 2012, the U.S. Securities and Exchange Commission (SEC) voted to  pass rules that required companies to disclose the purchase of four minerals  from the war-torn Democratic Republic of Congo. But with less than a year to go until the rules kick in, research firm IHS claims that a third of the industry is still unprepared for the new rules.

Conflict minerals — specifically tin, tantalum, tungsten and gold — are defined as those mined in areas of armed conflict and human rights abuses. As the demand for consumer electronics grows, so does the demand for these minerals, which in turn increases the likelihood that they will originate from areas of the world where wars rage on.

On April 9, IHS polled 134 electronics industry managers during a webinar entitled "The Clock’s Ticking: How to Comply with the New Conflict Minerals Regulations," and discovered that more than 35 percent of respondents said they have "made no plans on how to conform with the rules set out by the SEC Dodd-Frank Wall Street Reform and Consumer Protection Act on conflict materials." These rules are set to go into effect in May 2014.

Only 7.5 percent said that they were well-prepared for compliance.

(Source: IHS)

Conflict minerals are big business. For example, IHS estimates that about $0.15 worth of tantalum was contained in every smartphone shipped in 2010, and by 2012 this would amount to $93 million worth of tantalum being used yearly in the production of smartphones alone.

The new rules by the SEC will now require all publicly trading companies in the U.S. — some 6,000 in total — to tell customers where the minerals originated. The rules do not prohibit companies from using blood minerals.

The rules coming into effect May 2014 require companies to make their first minerals disclosure. However, for the first two years companies will have the option of saying that they cannot determine if the minerals they use are conflict minerals or not.

While there no doubt that the process is going to be costly (the SEC has estimated that the compliance costs could total as much as $5 billion initially, falling to between $200 to $600 million annually as compliance procedures are put in place), one of the key industries involved in processing conflict minerals — smelters — are getting involved in and supporting compliance efforts, said Scott Wilson, content solution strategist at IHS.

"Smelters are a good control point, and this simplifies how far back in the supply chain companies have to go," Wilson told the webinar audience.

The SEC rules are estimated to directly impact 5,994 companies that file reports to the SEC, and hundreds of thousands of their suppliers.

Some companies have already taken it upon themselves to eliminate conflict minerals from the market or their own supply chains. Intel is committed to "conflict-free" processors by 2013, while Apple was the first company to draw up a list of all 175 of its supply chain suppliers, and require that they are audited where possible.

Other companies such as General Electric, HP, and Motorola have joined forces to create the Public-Private Alliance for Responsible Minerals Trade with the aim of helping those in the Congo and other governments in the region to break ties with the conflict mineral trade.