MMTA's International Minor Metals Conference Amsterdam, 17 19 April - - PowerPoint PPT Presentation

Steffen Schmidt, P.Geo.: Tungsten – Conflict Free from Mine to Consumer

MMTA's International Minor Metals Conference Amsterdam, 17 – 19 April 2016

MMTA's International Minor Metals Conference Amsterdam, 17 – 19 April 2016 Disclaimer: This presentation deals with a broad overview of conflict mineral legislation and compliance programs with specific attention to the commodity of tungsten. Nothing in this presentation should be construed to be a legal advice or to provide a reliable guidance that would assure a conflict-free assessment. Forward Looking Statements: These materials include forward looking statements. Forward looking statements inherently involve subjective judgment and analysis and are subject to significant uncertainties, risks and contingencies, many of which are outside of the control

• f, and may be unknown to, the author. Actual results and developments may vary materially from those expressed in

these materials. The types of uncertainties may include, but are not limited to, commodity prices, political uncertainty, changes to the regulatory framework and general economic conditions. Given these uncertainties, readers are cautioned not to place undue reliance on such forward looking statements. Forward looking statements in these materials speak

• nly at the date of issue. Subject to any continuing obligations under applicable law or any relevant stock exchange listing

rules, the company does not in providing this information undertake any obligation to publicly update or revise any of the forward looking statements or any change in events, conditions or circumstances on which any such statement is based.

What are Conflict Minerals? Background Concept of conflict resources emerged in the 1990s, caught between the interest of the industry to have “cheap supplies”, concerns by consumers, NGOs and governments. The idea of a “resources curse” – it might really not be advantageous for a country (or the country's population) to have valuable natural resources. An issue that potentially can affect all natural resources including: forestry, agriculture, fishing… and of course, minerals.

MMTA's International Minor Metals Conference, Steffen Schmidt, P.Geo.: Amsterdam, 17 – 19 April 2016 Tungsten – Conflict Free from Mine to Consumer

What are Conflict Minerals? Common sense definition

• Minerals & ores where mining, upgrading or upstream trading chains contribute to

a conflict.

• Conflict – in general understanding = armed conflict, civil war, uprising to gain

independence…

• Contribution to conflict in general understanding = “provide money to rebels”

(or corrupt state armed forces).

• Thus: as long as “conflict” exists, the definition is independent from commodity

and location.

• Best-known example is probably “Blood Diamonds”, diamond extraction mainly

in Sierra Leone and Angola, funding a gruesome civil war.

MMTA's International Minor Metals Conference, Steffen Schmidt, P.Geo.: Amsterdam, 17 – 19 April 2016 Tungsten – Conflict Free from Mine to Consumer

What are Conflict Minerals? Definition in the Dodd-Frank Act / SEC

Columbite-tantalite, cassiterite, wolframite, gold

• r their derivatives [tantalum, tin, tungsten & gold].
• Short 3TG or any other minerals or their derivatives determined by the

Secretary of State to be financing conflict in the Covered Countries.

This means:

• Minerals and metals!
• Regardless of where they are mined!
• Regardless of whether or not they have

contributed to a conflict!

• Definition is related to a specific conflict in a

specific area  Eastern DRC. Like it or not: everything that contains tungsten contains a “Conflict Mineral”.

MMTA's International Minor Metals Conference, Steffen Schmidt, P.Geo.: Amsterdam, 17 – 19 April 2016 Tungsten – Conflict Free from Mine to Consumer

What are Conflict Minerals? The OECD Guidance

• Multistakeholder meetings (UN, governments,

industry, NGOs…) .

• Possible benefits of mineral industry for

development vs. risks to contribute to conflicts.  not in invitation to boycott!

• General approach, but so far very much focussed on

Conflict in the Great Lakes’ region.

• “5-step guidance”.
• Risk-based – no “absolute answers”.
• In-depth guidance, but rather a “what” than a

practical “how” it should been done.

MMTA's International Minor Metals Conference, Steffen Schmidt, P.Geo.: Amsterdam, 17 – 19 April 2016 Tungsten – Conflict Free from Mine to Consumer

Dodd-Frank Act (2010) Section 1502 & SEC Conflict Mineral Rule (22 Aug 2012)

• Goal: end violence in Eastern Democratic Republic of the Congo, in part fuelled by

production of and trade in certain minerals.

• How: Discourage companies to engage in mineral trade that supports the conflict by

increasing visibility and transparency of companies‘ sourcing practices.  “consumers know what they buy”  “shareholders know what they own/support”

• Requires companies
• listed on a US stock exchange
• that manufacture or contract to manufacture
• to report annually on their supply chain due diligence with

respect to defined Conflict Minerals (3TG).

• Given complex supply chains: All tungsten companies are concerned by the SEC rule!

MMTA's International Minor Metals Conference, Steffen Schmidt, P.Geo.: Amsterdam, 17 – 19 April 2016 Tungsten – Conflict Free from Mine to Consumer

Dodd-Frank Act (2010) Section 1502 & SEC Conflict Mineral Rule (22 Aug 2012)

• Complex flow chart, some hair-splitting definitions, but in summary, the company

has to verify whether 1.) 3TGs are required for functionality of the product. 2.) the origin of the 3TG lies in the DRC and adjoining countries = “covered countries”  (Reasonable Country of Origin Inquiry = RCOI). 3.) the 3TG have contributed to conflict. Outcome: “DRC Conflict Free” “Not DRC Conflict Free” (also, if “unknown” after transition period) Tools are excluded… and there are ways to bypass certain requirements… but: Shouldn’t we simply do the “right thing” anyway, with a reasonable approach?

MMTA's International Minor Metals Conference, Steffen Schmidt, P.Geo.: Amsterdam, 17 – 19 April 2016 Tungsten – Conflict Free from Mine to Consumer

• Natural pinch point / bottle neck in a

complex supply chain.

• Downstream to track back to “smelter”.
• Smelter to track back to mine / supplier
• f secondary material.
• If the “smelter” is “conflict-free”,

the entire downstream supply chain is also conflict-free…  e.g., Conflict Free Smelter Program CFSP

• f the Conflict Free Sourcing Initiative (CFSI)

and of course, TI-CMC.

Many mines & suppliers of secondary raw “countless” downstream manufactures Reasonable number of “smelter-level” facilities

Focus of TI-CMC

smelter Due Diligence smelter identification by downstream supply chain

The Role of Smelters & Refiners Why the specific focus on smelters & refiners?

MMTA's International Minor Metals Conference, Steffen Schmidt, P.Geo.: Amsterdam, 17 – 19 April 2016 Tungsten – Conflict Free from Mine to Consumer

• Realities of tungsten:
• Little supply from concerned conflict area.
• Continuous process, high volumes, few producers, issues of confidentiality.
• Different customer profile – very little end-user exposure.
• Hen & egg situation due to importance of trade of intermediates between

“smelters” – APT of Chinese origin.

• Downstream used to specifics of electronics industry & tantalum supply.

 Inflated demands not only beyond legal requirements, but also beyond what is reasonably required to demonstrate conflict free tungsten supplies, or  Request to deliver “guaranteed Africa-free” tungsten to avoid Due Diligence. Requirements of Conflict Free Smelter Program not aligned with realities in the tungsten market / not reasonable / beyond requirements of law. Consequence: In 2012/13, tungsten lagged behind the level of “compliance” reached already in tantalum, tin & gold. (which does not mean negligent support of conflict!)

Expectations of downstream versus the reality of tungsten

MMTA's International Minor Metals Conference, Steffen Schmidt, P.Geo.: Amsterdam, 17 – 19 April 2016 Tungsten – Conflict Free from Mine to Consumer

Russia 3% China 81% Vietnam 5% Rest of Asia 2% West/Central Europe 4-5% Americas 2-3%

Africa 1.5 - 2%

(mainly Burundi, DRC, Rwanda & Uganda = part of the Covered Countries) DRC Covered Countries

main tungsten producing countries minor / intermittent production no / very low production DRC – producing Covered Countries (except DRC) – producing Covered Countries (except DRC) – none or very little production

MMTA's International Minor Metals Conference, Steffen Schmidt, P.Geo.: Amsterdam, 17 – 19 April 2016 Tungsten – Conflict Free from Mine to Consumer

Geographical contribution of primary mine production of tungsten, status 2016

(based on ITIA, USGS, iTSCi & company information)

Australia <1%

MMTA's International Minor Metals Conference, Steffen Schmidt, P.Geo.: Amsterdam, 17 – 19 April 2016 Tungsten – Conflict Free from Mine to Consumer

Working on a Solution for the Tungsten Industry  TI-CMC

• Need a solution that fulfils the expectations of the customers for conflict-free supply

and takes tungsten-specifics into account.

• ITIA 2012: several large tungsten “smelter-level” companies discussed alternative

approach for the tungsten industry to prove “conflict-freeness” in line with the law.

• Policies and operating guidelines of the Tungsten Industry – Conflict Mineral Council

(TI-CMC) agreed in April 2013.

• Council administered by Refractory Metals Association (RMA); endorsed by ITIA.

Criticism

• No independent oversight.
• Confusion due to two competing programmes (TI-CMC & CFSP).

 Working on a “unified approach” with CFSI – recognizing the strong industry

experience of TI-CMC and confidence of downstream into CFSI, and thus, taking strengths and concerns of both sides into account.

Unified Approach between TI-CMC and CFSI

Conflict Free Sourcing Initiative – originally set up by EICC and GeSI, and thus, strong links to electronics industry – nowadays very broad industry membership. Main “products” are the Conflict Free Smelter Program (including the Unified Approach with the TI-CMC) and the CMRT – Conflict Mineral Reporting Template, helping downstream to identify the smelters in their supply chain.

• Tungsten-specific audit guidelines and protocol, assuring confidentiality of

commercially sensitive information.

• Longer audit intervals based on assessment of risk profile, less onerous sampling

protocol (generally spot checks).

• Two-year transition period to overcome the “hen & egg” issue when trading

APT / oxide between different “smelter-level” companies.

• Category A members of TI-CMC are listed on both, the TI-CMC and the CFSI webpages.
• In effect since November 2013.

 A reasonable and robust assurance for the benefit of both, customers and producers.

MMTA's International Minor Metals Conference, Steffen Schmidt, P.Geo.: Amsterdam, 17 – 19 April 2016 Tungsten – Conflict Free from Mine to Consumer

Unified Approach between TI-CMC and CFSI How the programme works: … following the 2-year transition period: CFSP audit based on

tungsten-specific audit protocol:

• Review of management systems
• Material balance
• Spot checks of supply documents

For “in-region” sourcing (from “Covered Countries”, “Level 3”)

• Management systems following OECD guidance
• OECD compliance audit
• Traceability to mine of origin
• Checking 100% of supply documents

Issues: de-facto ban; reliance on in-region programs.

MMTA's International Minor Metals Conference, Steffen Schmidt, P.Geo.: Amsterdam, 17 – 19 April 2016 Tungsten – Conflict Free from Mine to Consumer

Overview: Conflict Free from Mine to Consumer

MMTA's International Minor Metals Conference, Steffen Schmidt, P.Geo.: Amsterdam, 17 – 19 April 2016 Tungsten – Conflict Free from Mine to Consumer

pressure on smelters to be validated as conflict-free identifying smelters via CMRT

downstream / towards end-consumer

First tier after “smelter” downstream chain to end-consumer supply chain CFSP-validated smelter Y secondary raw materials (“scrap”) mines outside of the “Covered Countries” artisanal mine in the “Covered Countries” traceability & “in- country” programs Conflict-Free Smelter validation through 3rd party audit

Supply chain / smelter X

Smelter X

trader trader spot checks 100% smelter due diligence 3rd party audits & assessment

MMTA's International Minor Metals Conference, Steffen Schmidt, P.Geo.: Amsterdam, 17 – 19 April 2016 Tungsten – Conflict Free from Mine to Consumer

TI-CMC today

• As of 18 Apr 2016, 28 corporate members, often with multiple “smelter-level” facilities.
• Strong participation from China.
• 26 of the 29 CFSP-compliant “smelters” belong to TI-CMC members.
• 15 supporter members; traders and downstream users of tungsten.

 A strong voice of the tungsten industry to ensure that its interests are reasonably considered during future developments in Conflict Mineral politics.

MMTA's International Minor Metals Conference, Steffen Schmidt, P.Geo.: Amsterdam, 17 – 19 April 2016 Tungsten – Conflict Free from Mine to Consumer

TI-CMC – looking ahead

• Maintaining a strong membership, focussed rather on longer-term development of the

Conflict Mineral agenda than short-term auditing… a strong voice of the industry…

• In cooperation with the CFSI,
• Assure the program meets rather the expectations of OECD than “just” Dodd-Frank / SEC.
• Move from document audit to system audit and incorporate OECD compliance directly in the

CFSP audit agenda.

• Assure that the internationally accepted and successful CFSP program is recognised as Due

Diligence system by the EU in the framework of their proposed Conflict Mineral rule.

Forthcoming challenge: proposed Conflict Mineral Rule of the European Union

• Draft Rule presented by DG Trade on 5 March 2014. EP voted in favour for a stricter rule

in May 2015. Currently trilogue commission – council – parliament to find compromise.

• Focuses on all conflicts world-wide – but again is restricted to tin, tantalum, tungsten &

gold (as if these metals are something particularly “evil”).

• Not compatible with the existing, widely accepted and tested conflict mineral reporting
• schemes. Additional reporting / audit requirements, poorly defined conditions…
• DG Trade draft concerns only upstream companies and importers of upstream products

into the EU, not downstream and semi-finished products.  distorts competitiveness of EU tungsten industry and contravenes supply

• diversification. [ against EU initiative re “Critical Raw Materials”!]

 indirectly concerns suppliers of upstream material (concentrates, oxides, carbides…) worldwide.

• Information efforts over past few months (and years) moved certain aspects in right

direction – but this is still a major risk for the EU industry in the sector.

MMTA's International Minor Metals Conference, Steffen Schmidt, P.Geo.: Amsterdam, 17 – 19 April 2016 Tungsten – Conflict Free from Mine to Consumer

Summary

• According to the definition in the SEC Conflict Mineral Rule, wolframite and all refined

tungsten is considered a “Conflict Mineral”, regardless of origin.

• The TI-CMC was founded as reaction on initially inflated demands of the downstream

industry, ignoring the specific realities of tungsten supply and market.

• TI-CMC and CFSI agreed on a Unified Approach with tungsten-specific audit protocol.

This assures the downstream customers that supplies are conflict free.

• Future challenges include full alignment with OECD rules and mitigating possible impacts
• f the proposed EU Conflict Mineral rule.
• Currently, TI-CMC has 28 corporate members (companies with tungsten “smelter-level”

facilities) and 9 supporter members. 26 individual CFSP-compliant “smelter level” facilities

• f TI-CMC members have already been 3rd-party audited as Conflict Free (CFSP program).

Web page: www.ti-cmc.org Contact: James Dale, TI-CMC Administrator, jdale@mpif.org

MMTA's International Minor Metals Conference, Steffen Schmidt, P.Geo.: Amsterdam, 17 – 19 April 2016 Tungsten – Conflict Free from Mine to Consumer

Web page: www.ti-cmc.org James Dale, TI-CMC Administrator, jdale@mpif.org