Conflict Free and Socially Sustainable - A Practical Discussion of - - PowerPoint PPT Presentation

Conflict Free and Socially Sustainable -

A Practical Discussion of Conflict Minerals Compliance Rules and the KEMET Case History

Today’s Speakers

• Dr. Daniel F. Persico

KEMET, Vice President – Special Projects Dynda A. Thomas Squire Sanders, Partner

Making Africa Work

KEMET’s Socially Sustainable Solution to Sourcing Conflict Free Tantalum

One world. One KEMET.

“Making Africa Work” Sourcing Conflict Free Tantalum Agenda: KEMET Electronics Overview Sourcing Conflict Free Tantalum in the DRC Conflict Free Vertically Integrated Supply Chain Social Responsibility & Sustainability SEC 1502 Ruling - Comments

One world. One KEMET.

KEMET Electronics Overview

• World’s largest user of Tantalum
• 4th largest global electronics capacitor manufacturer
• 23 manufacturing locations in 10 countries including United

States, Mexico, China, Indonesia, and Europe

• Over 10,000 employees worldwide
• FY11 revenue of over $1B

One world. One KEMET.

• In the Fall of 2010, the DRC government imposed a mining embargo
• n the Kivus. This embargo essentially stopped all legal tantalum ore

shipments from the DRC.

• When the mining embargo was lifted, a situation remained where few

were willing to commence mining, or risk using tantalum from the DRC, for fear it may be conflict based.

• Dodd Frank provision 1502 unfortunately only added to this reticence.
• This unintended consequence has had broad negative social

implications for the Congolese citizens in that many have had their livelihoods shut off, thus denying them the ability to provide for themselves and their families.

“Making Africa Work” Sourcing Conflict Free Tantalum

One world. One KEMET.

• As the industry leader KEMET was interested in a solution to this
• issue. Working with MMR, an established miner in the DRC, we have

jointly demonstrated that socially responsible mining, in the DRC, can be the reality.

• Our solution named “Making Africa Work” focuses on building a

sustainable framework that embraces lasting prosperity for the Kisengo mining community in the conflict free Katanga Province.

• “Making Africa Work” is the only comprehensive social and economic

solution in the industry.

• KEMET and MMR have developed a process which provides a safe

working environment with a clear and transparent chain of custody, for the tantalum ore (Coltan), from the mine to the smelter.

“Making Africa Work” Sourcing Conflict Free Tantalum

One world. One KEMET.

• The Kisengo mine was the first mine to have the ITRI/iTSCi bag and

tag scheme implemented, by the NGO Pact, following the lifting of the embargo.

• The mine is managed under a local cooperative allowing all to benefit

from the daily output.

• The output from the mine will be increased through mechanical

means to meet the long term needs of industry; however, the artisanal miners are guaranteed access moving forward.

• This plan will support local infrastructure development and economic

growth over the long-term.

“Making Africa Work” Sourcing Conflict Free Tantalum

One world. One KEMET.

KEMET’s Conflict Free Vertically Integrated Tantalum Supply Chain

Kisengo Mine in Katanga Province DRC K-Salt Tantalite Resources Jo'burg, SA Capacitor Grade Ta Powder KEMET Blue Powder Carson City, NV

KEMET’s Vertically Integrated Conflict Free Mineral Flow

The mine has been certified Conflict Free & the iTSCi bag and tag scheme is in place CFS pre-audit assessment completed and EICC/GeSI CFS audit scheduled for 9/3-4 EICC/GeSI CFS audit after TR audit complete

KEMET KEMET Customers EICC & GeSi

KEMET tantalum capacitors manufactured from CFS compliant/conflict free tantalum KEMET customers guaranteed capacitors manufactured from conflict free tantalum.

One world. One KEMET.

“Making Africa Work” Social Sustainability Programs

• KEMET’s activities in the Kisengo mine site and village differ from other

capacitor producers as they include a comprehensive social sustainability program

• KEMET has committed $1.5M over the first two years of involvement at

the DRC mine site, for sustainability programs such as:

• Schools
• Health Clinics
• Clean water wells
• Solar street lighting
• It is important to KEMET that we enhance the long term quality of life

for the individuals in the village of Kisengo, DRC through education, training, etc.

One world. One KEMET.

• The “Making Africa Work” program is an opportunity to show that

social and economic investment can work hand-in-hand to the benefit

• f all parties involved
• It is anticipated that the programs will be self-sustaining once the

mine is running with significant output.

• A local foundation has been developed to manage the projects and

flow of cash focused on meeting the needs of the local community, as well as determine the best organizations with whom to partner, in

• rder to bring resources, training, supplies, etc. to the community.

“Making Africa Work” Sourcing Conflict Free Tantalum

One world. One KEMET.

• As understood today, KEMET is in compliance with the proposed

conflict minerals due diligence requirements under section 1502 of the U.S. Government’s Dodd-Frank Finance Reform Act.

• We fully support the EICC/GeSI Conflict Free Smelter program and

were involved in crafting the compliance and audit process and requirements.

• KEMET has developed the industry’s only closed-pipe, vertically

integrated conflict free tantalum supply chain from mine to customer.

• It is our hope that our “all-in” approach will be a positive example to

those companies remaining on the sideline.

“Making Africa Work” Sourcing Conflict Free Tantalum

One world. One KEMET.

SEC Ruling on Conflict Minerals Provision 1502 of Dodd-Frank

Disclosing the Use of Conflict Minerals

One world. One KEMET.

SEC Ruling on Conflict Minerals Provision 1502 of Dodd-Frank

• First reporting period could be as early as end of 2013 or as

late as end of 2016 depending on size and circumstances

• Reporting is required if the minerals are “necessary to the

functionality or production” of a product manufactured or contracted to be manufactured by the company

• A reasonable “country of origin” inquiry must be performed

to determine if the minerals originated in the covered countries or are from scrap or recycled sources

One world. One KEMET.

SEC Ruling on Conflict Minerals Provision 1502 of Dodd-Frank

• Companies that are required to file must exercise due

diligence on the source and chain of custody of their conflict minerals and this must conform to a nationally or internationally recognized due diligence framework

• The minerals in the report must fall into one of the following

designations which have differing audit and certification requirements:

• DRC Conflict Free
• Not DRC Conflict Free
• DRC Conflict Undeterminable

One world. One KEMET.

SEC Ruling on Conflict Minerals Provision 1502 of Dodd-Frank

• Recycled or Scrap – if a company’s conflict minerals are

derived from recycled or scrap sources, products containing such minerals are considered DRC Conflict Free

• Gold has special considerations if it is determined to be from

recycled or scrap sources then due diligence per the OECD Guidance and a report must be filed.

• Report issuers will be required to provide disclosure on the

new FORM SD. Calendar year reporting must be completed by May 31 of the following year.

One world. One KEMET.

“Making Africa Work” Sourcing Conflict Free Tantalum

One world. One KEMET.

“Making Africa Work” Sourcing Conflict Free Tantalum Thank you for your attention

• Dr. Daniel F. Persico

danielpersico@kemet.com David A. Reynolds davereynolds@kemet.com

37 Offices in 18 Countries

Conflict Minerals Disclosure

Section 1502 of Dodd-Frank

• Section 1502 of the Dodd-Frank Act of 2010 required the

Securities and Exchange Commission (SEC) to establish additional disclosure and reporting requirements to report the use of “conflict minerals” that are sourced from the Democratic Republic of Congo and several neighboring countries.

• August 22, 2012, SEC adopted final rules.

http://sec.gov/rules/final/2012/34-67716.pdf

DRC and Covered Countries

Conflict Minerals

• Conflict minerals supply high-value commodities to industries

and manufacturers globally:

Ore Element Uses Include Approximate % of World Supply from DRC (2010) Cassiterite Tin Solders, solderable coatings, corrosion resistant coatings, bronze alloys, glass additive, flame retardants, biocides, chemicals, electric circuits 2% - 5% Wolframite Tungsten High temperature applications (lamp and electron microscope filaments, engines, lubricants), hard allows (e.g., turbine blades), tungsten carbide drill bits, etc., munitions, radiation shielding metal coatings on ceramics, semi-conductors 0.5% - 1% Columbite- Tantalite (Coltan) Tantalum Tantalum capacitors, high refractive index glass, power resistors, high temperature alloys, corrosion resistance, cell phones, computers, cutting tools, jet aircraft parts 20.5% Niobium Niobium alloys including steels, superconducting alloy with titanium or tin is used in MRI and other instruments with superconducting magnets. Pacemakers, sodium lamps and arc welding. 1%

Conflict Minerals

• Conflict minerals supply high-value commodities to industries

and manufacturers globally:

Ore Element Uses Include Approx % World Supply from DRC (2010) Various Gold Wire bonding, plating, electric contacts and connectors, coinage, ornamentation 0.2% (could be as much as 2% if smuggled supplies included) Colbaltite Cobalt (not yet a “conflict mineral” but could be added) Lithium NiCd and NiNH batteries, hard and corrosion resistant plating, moisture indicators, special alloys (e.g. turbine blades), Alnico magnets. ~35%** Source: Conflict Minerals in Central Africa: U.S. and International Responses, Congressional Research Service, July 20, 2012. ** Source: United States Geological Survey

Pre-Rule Disclosure – 2012 10-K Reporting (through August 20, 2012)

SIC Code # 10-Ks Filed # Mentioning Conflict Free 5065 (Wholesale-Electronic Parts & Equipment) 22 1 3675 (Semiconductor and Related Devices) 149 11 3572 (Computer Storage Devices) 13 2 3571 (Electronic Computer) 10

Pre-Rule Disclosure – 2012 10-K Reporting (through August 20, 2012)

• Total 10-Ks = 9,618
• 10-Ks that refer to:
• Tantalum = 31
• Wolframite = 0
• Columbite/Coltan = 3
• Section 1502 and “conflict” = 22
• Only a couple of dozen 2012 filings include disclosure about

conflict minerals

• Expected to impact 6,000 filers

Pre-Rule Disclosure – 10-K

• Before the final rules were adopted, a few reporting companies

elected to make conflict minerals disclosure.

• Risk Factors
• Business Section
• Following adoption of the final rules, similar disclosure is likely to

continue.

Pre-Rule Risk Factor Disclosure

• The risk factors typically discuss:
• Supply of goods
• Supply chain due diligence
• Compliance
• Third-party relationships

Pre-Rule Business Section Disclosure

• When included in the business section, reporting companies

usually address conflict minerals in sections dealing with:

• Raw materials supply
• Commodity price risk
• Regulatory compliance

International Due Diligence Framework

• OECD (Organization for Economic Cooperation and

Development)

• OECD Due Diligence Guidelines for Responsible Supply Chains
• f Minerals from Conflict-Affected and High-Risk Areas,”

http://dx.doi.org/10.1787/9789264111110-en

• Framework for Risk-Based Due Diligence in Mineral Supply Chain
• Model Supply Chain Policy

Industry Group Initiatives

• Industry Initiatives on responsible supply chain management:
• ITRI Supply Chain Initiative (iTSCi)
• Smelter Validation Scheme, Electronic Industry Citizenship Coalition

(EICC)

• Global e-Sustainability Initiative (GeSI)
• Conflict Standard and Chain of Custody Standard, World Gold Council
• Chain of Custody in the Diamond and Gold Jewellery Supply Chain,

Responsible Jewellery Council

Compliance Models

• KEMET – Making Africa Work
• Motorola – Solutions for Hope

Final Rules

• “Reasonable country of origin inquiry”
• Recycled or scrap materials
• Disclosure on Form SD
• Audit objective
• Permits “conflict undeterminable” for 2 years / 4 years

Conflict Minerals

• Questions?

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