There will be blood: The corporate race for minerals

July 12, 2012: 10:07 AM ET

Updated: July 13, 2:37 p.m.

To avert a crisis, more companies need to determine where their minerals are coming from before they are caught with blood on their hands.

By Mickey North Rizza

FORTUNE -- Blood diamonds are the face of human rights challenges in Africa, but the sourcing of lesser-known natural resources, known as "blood" or "conflict" minerals, continues to fuel civil wars in Democratic Republic of Congo (DRC) and Uganda. Armed gangs are continuously fighting for control of the mines that harbor these minerals, leading to murder, rape, and forced labor.

Blood minerals -- including tin, tantalum, tungsten and gold among others -- are used in automobiles, medical devices, and a multitude of high-tech items. Consumers use these minerals every day in their smartphones, MP3 players, and laptops.

Some of the least stable nations in Africa lay claim to significant stores of these minerals. Take tin, for example, which is used for solder on circuit boards. The DRC produces 6-8% of the world's production, according to a 2010 report from Supply and Demand Chain Executive, a trade publication. And tantalum capacitors are in most electronic equipment, with the DRC considered the world's leading producer. Tungsten is used for milling and is also responsible for the "vibrate" feature in cell phones; the DRC provides 2-4% of the world's output. Gold is utilized in jewelry and most electronic equipment, with the DRC providing less than 1%.

MORE: J.P. Morgan's hunt for Afghan gold

While these amounts from the DRC appear small in terms of percentages, the issue is the amount of money the minerals have given to the armed groups per year; estimates vary but range from $135 million to almost $200 million in total annually.

And it's not like it's a simple matter of switching to domestic sources for these minerals. The U.S.has not had any significant production of tantalum since 1959; tin has not been mined or smelted in the U.S.since 1993 and 1989, respectively. As of 2011, there was just one tungsten mine in California.  Gold, a U.S.backed resource since the gold rush, has a bit more representation, but only many small mines exist in Alaska and the western states.

On top of these fundamental risks with finding sources for these conflict minerals, the SEC has proposed new rule that would require public companies to disclose their use of conflict minerals in their annual reports.  If enacted, companies will need to take immediate action so they can comply with the rule. The starting point would come in the form of making a company-wide commitment to avoid purchasing raw materials and supplies that are known to fund conflict in the DRC, and contractually obligating suppliers to do the same. According to the proposed rule, companies would need to "report the products manufactured or contracted to be manufactured that are not 'DRC conflict free,' the facilities used to process the conflict minerals, the country of origin of the conflict minerals, and the efforts to determine the mine or location of origin with the greatest possible specificity."

MORE: Is Tungsten the next hot rock?

This is not easy, considering retailers in many cases do not control the manufacturing of goods that carry their brand names. For companies with vast product lines and multiple supply chains, identifying these minerals in their products and determining their supply sources is complex. Supply chains also often have many different layers, so companies would not only need to get a sense of their suppliers' sourcing practices, but also their suppliers' suppliers' practices.

Few companies are taking steps to make sure they can comply with the rule; on the contrary, Apple (AAPL), Ford (F), GE (GE), Intel (INTC), and Motorola (MMI) are attacking the issue even before the SEC's proposed rule is passed.

Electronics companies working together as part of the Electronic Industry Citizenship Coalition (EICC) appear to be the most prepared for the SEC's proposal. The EICC provides conflict mineral resources to assist companies. And the EICC/Global e-sustainability Initiative Extractives Work Group has developed a Conflict-Free Smelter (CFS) program that identifies and certifies conflict-free minerals sourced from the DRC. The CFS-certified smelters, which are validated via third parties, source only conflict-free materials. A CFS-certified tantalum smelter list is now available, while tin, tungsten, and gold lists are expected soon. Annual reporting of the use and control of these minerals will grow commonplace, which is already the case at Samsung, Phillips, and LG Electronics. To avert a crisis, more companies will need to determine where their minerals are coming from before they are caught with blood on their hands.

Mickey North Rizza is vice president of strategic services at supply management company BravoSolution.

Editor's note: A previous version of this story incorrectly suggested that Apple, Ford, GE, Intel, and Motorola have attacked a proposed SEC rule to increase disclosure of the sources of minerals they use in their products. On the contrary, these companies have begun to address the issue before this rule has even been adopted. 

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