How the demise of the Dodd-Frank Act impacts conflict minerals
The surprise ascendancy of Donald Trump has brought with it a slew of pronouncements made in the preceding months of campaigning that (maybe) give a sign of the shape of things to come. One of the pieces of legislation singled out for change or repeal was the Dodd-Frank Act of 2010. Besides some stultifying rules that made proprietary trading difficult in some commodities, the Act was of less import to the mining community than Sarbanes-Oxley for example, except in one respect, and that was on the question of conflict minerals.
The four most commonly mined conflict minerals (known as 3TGs, from their initials) are cassiterite (for tin), wolframite (for tungsten), coltan (for tantalum), and gold ore, which are extracted from the eastern Congo, and passed through a variety of intermediaries before being purchased by, amongst others, multinational electronics companies.
Everything but the Kitchen Sink
The Dodd Frank Wall Street Reform and Consumer Protection Act was born out of the 2008 financial crisis and the excesses that preceded it and conflict minerals had nothing to do with the financial debacle but in the time-honoured tradition of the US cobbling together omnibus bills that include everything but the kitchen sink and serve as a mass transport for the pet projects of any legislator who has enough pull (or blocking) power to get their hobby horse grafted on.
In the final wash, Dodd-Frank, was passed by the US Congress in July 2010, and included a provision – section 1502 – aimed at stopping the national army and rebel groups in the DRC from illegally using profits from the minerals trade to fund their fight. Section 1502 is a disclosure requirement that calls on companies to determine whether their products contain conflict minerals – by carrying out supply chain due diligence – and to report this to the SEC.
The mutterings from the incoming Administration indicate that all or parts of the Dodd-Frank structure may be repealed and send to the Great Paper Shredder of history. The intriguing thing is whether the conflict minerals aspects will “end up on the cutting room floor”.
Get our daily investorintel update
Zeroing in on just the DRC is to take a mere snapshot in time of one global hotspot. Indeed (though unlikely) in five years from now the DRC may be a haven of peace, and crisis may have moved off somewhere else. Conflicts come and conflicts go and the minerals involved in them change. We have read that Niobium was considered for inclusion in the original minerals list. Bizarrely this is a metal that largely comes from Brazil and Canada and which we have never heard of a DRC connection. More paradoxical is that the DRC is renowned for its copper/cobalt deposits and thus the metals are mined together and yet the US congress members somehow felt it was important to track the cobalt but not the copper. This smacks of ignorance at best (how can you have conflict cobalt and non-conflict copper from the same open-pit) and hypocrisy at worst (going for cobalt because its sexy.. and because China is the principal buyer of Congolese cobalt). And to what extent is this mere expedience, as adding copper to the list would create an administrative nightmare. Were they then really interested in conflict minerals or making a token gesture?
Beyond the DRC there are numerous conflicts around the world and minerals appearing out of those conflict areas. We could target two areas that are obvious and egregious but which Dodd-Frank does nothing to remediate.
Firstly we have the not so clandestine oil sourced out of the ISIS controlled parts of Iraq and Syria. It was very well known which country this was exiting the war zone through. Moreover it was very strongly suspected that the son of the president of this country was the chief intermediator with streams of tankers lined up at the border of his father’s domain. The US essentially turned a blind eye to this and let the brutal regime fund itself through this trade. We might also mention North Korean tankers loading up with oil from ISIS-dominated areas of Libya.
Secondly, we have the metal closest to our hearts, Antimony. I have written in the past that potentially 14,000 tonnes per annum (or a bit under 10% of annual global production) comes out of rebel areas in the far north of Burma, where a bloody war of attrition between tribes, warlords and the army of the central government has been waged. In recent years China has played a shell game with Antimony and production statistics while taking an increasing flow of this “Conflict Antimony” and passing it off as its own to create the illusion that it still dominates production. Originally this was just artisanal mining and some clandestine smuggling. Last month however we heard that a number of the shuttered highly polluting Chinese roasters had been dismantled and moved across the border into Burma adding environmental air pollution to the degradation caused by the Antimony garimpeiros. Truly a nightmare overlaid with a civil war and Chinese meddling. If this isn’t a case for a conflict minerals designation then we do not know what is!
There is quite clearly a galloping double standard at work here. Moreover the Dodd-Frank designation of the DRC and its narrow group of metals is overly focused and totally non-dynamic.
A mechanism is obviously lacking for adding (or subtracting metals). In theory though all metals should be on the list and it is the conflict zones that should change. Thus if Yemen produces zinc from a conflict zone then “Yemenese Zinc” should be regarded as a conflict mineral until this is deemed to no longer be a conflict zone. The mistake of the current structure is targeting the metal rather than the conflict!
With the degree of cluelessness in Washington as to what minerals come from where (e.g. not knowing the copper/cobalt mineralogical combination in the DRC) the task of decreeing what and where would probably better reside with an international commission rather than some State Department factotum. Essentially, the task of verifying the audit trail on a specific input to an electronic device is passed to a corporation/manufacturer and this is far from ideal and places a big time and skills burden upon smaller component makers.
It is said that a camel is a horse designed by a committee. Dodd-Frank is somewhat similar having been born out of the addled collective mind of the US Congress. Therefore it is no surprise that conflict minerals should have been thrown into the witches brew at the last minute. It’s all well and good that this grievous problem should have been brought to attention but it was very much a case of too little too late and too narrowly focused, both geographically and in terms of the minerals that are deemed to be of a conflict nature.
Dodd-Frank was the type of legislation you get when you really need the reinstatement of Glass-Steagall but don’t want to offend your friends on Wall Street. Hillary Clinton has paid the price of pandering to this crowd (and it was her husband who dismantled Glass-Steagall through some subtle legerdemain) and now we have Trump attacking Dodd-Frank and yet he is not necessarily a friend of Wall Street either. He has railed against big banks (and three at least are in breach of the 10% limit on share of national deposits) so getting rid of Dodd-Frank and reconstituting Glass-Steagall might bring the collateral “benefit” of the demise of the half-cooked semi-ossified Conflict Minerals provisions. This should either be properly constituted, or not constituted at all.
Christopher Ecclestone is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten & Company in New York in 2003 ... <Read more about Christopher Ecclestone>