14th conflict-free sourcing initiative workshop, day 1

The Conflict-Free Sourcing Initiativewww.conflictfreesourcinginitiative.org | @EICCoalition | @GeSIConnect

Day 1: September 29, 2014

Conflict Free Minerals

Supply Chain Workshop 14

CFSI Commitment

Helping companies make informed choices about conflict minerals in their supply chains.

• The CFSI is committed to improving transparency in the supply chain for Tin, Tantalum, Tungsten and Gold .

• Mining activities that fuel conflict are unacceptable.

3

In-Region Schemes

Conflict-Free Smelter Program (CFS)

Company Assurance

Finished Product

MINE SMELTER/REFINERY OEMS

(pinch point)

Conflict Free Sourcing Initiative (CFSI)4

CFSI Approach to Conflict-Free Sourcing

2014 Goals1. Continually evolve the Conflict-Free Smelter Program (CFSP)

2. Continue development and implementation of the Conflict-Free Sourcing Initiative (CFSI)

3. Continually evolve common cross-industry approaches to support the disclosure and due diligence expectations of the U.S. SEC, OECD, ICGLR and UN;

4. Support the implementation of verifiable traceability programs for the Democratic Republic of Congo (DRC) and covered countries for conflict-free minerals

5. Build and maintain strong relationships and increase transparency, communications and efficiency to enhance credibility in the CFSI activities

The Conflict-Free Sourcing Initiative | www.conflictfreesourcinginitiative.org | @EICCoalition | @GeSIConnect 5

Governance Changes for the CFSI

The initiative is undergoing continuous improvement:

• Continued work on governance structure

• Steering Committee Established

• Cross-industry composition

• Operating Procedures Developed

• Increased Staffing

• Revenue generation options being considered (membership and royalties)

Overall development and implementation continues in 2014 and beyond

6

CFSP Growth

7

• 4th quarter of 2013: 70 active / 45 compliant

• Today: 136 active / 102 compliant

0

20

40

60

80

100

120

140

160

2013 2014

ActiveCompliant

CFSI Growth

0

50

100

150

200

250

2013 2014

Partner Members

EICC-GeSI Members

The Conflict-Free Sourcing Initiative | www.conflictfreesourcinginitiative.org | @EICCoalition | @GeSIConnect 8

• 22 Partner members at beginning of Q4 2013

• 82 Partner members at beginning of Q4 2014!

Summary

• The CFSI continues to drive improvements in its programs to enable companies in their ability to source conflict-free minerals

• Improving governance of the initiative, both in structure and revenue generation are key to sustainability and health

• Company assurance activities of the CFSI are focused on improving company capabilities to validate responsible sourcing of materials by creating common standards, tools and processes

9


International

Conference on

the Great Lakes

Region

The importance of supply chain collaboration

Progress and Developments in the Great Lakes Region

byGerard Nayuburundi

Coordinator, Technical Unit on Natural Resourcesat

The International Conference on the Great Lakes Region

14th CFSI WorkshopBurlingame, San Francisco, CA

Pact on Security, Stability and Development (Nairobi, 15 December 2006

Protocol against the Illegal Exploitation of Natural Resources

Regional Initiative on Natural Resources (Lusaka, 15 December 2010)

Six tools

The Six Tools

Regional Certification Mechanism

2. Regional Mineral Tracking via an ICGLR database

3. Third Party Audits

4. Independent Mineral Chain

Auditor

1. ICGLR Mineral Tracking and Certification Scheme:i. Mine Site Inspection and Validation

ii. Chain of Custody Tracking System

iii. Export Mineral Certification

2. Regional Mineral Tracking via an ICGLR database

3 categories of data: Mine site data Chain of custody (traceability) data Mineral exporters data

Solely dependent on national databases ICGLR’s role: constantly update the status of Mine sites and

exporters as mine site inspection results and third party audit and mineral chain auditor reports are received

Monthly (if not possible, quarterly) data transmission by member states

AFP: a combination of analytical techniques allowing the identification of source-characteristic geochemical, mineralogical, and geo-chronological features of mineral concentrates

3. Third Party Audits

Managed by the Tripartite Audit Committee of ICGLR 3 major roles of the ICGLR Audit Committee:

Accreditation of third party auditors Review of third party audit reports Setting up or review of third party audit standards and procedures

Third party audits focus on mineral exporters running from the exporter all the way back up the mineral chain to the mine site

Third party audits are valid for one year maximum; Recent developments

4. Independent Mineral Chain Auditor (IMCA)

The IMCA plays a role of an ombudsman and “special investigator” within the RCM scheme.

The role of the IMCA: Evaluate member state chain of custody systems;

Conduct independent investigations;

Undertake ongoing risk assessments

Will make information (through the ICGLR secretariat) contained in reports fully accessible via website (except for information which is likely to put informants at risk);

Recent developments

Conclusion

ICGLR mineral certification scheme is the most comprehensive as it includes aspects such as environmental protection, social sustainability , child labor, etc., on top of conflict issues;

ICGLR mineral certification scheme is a government-led with political commitment and support of governments of all 12 member states;

ICGLR calls for CFSI/EICC/CFSP support to the ICGLR efforts through:

Official recognition of the ICGLR certificate as the only legitimate and reliable document to certify conflict free minerals from the African Great lakes Region;

Establishing a platform through which ICGLR and CFSI/EICC/CFSP can exchange on best practices on issues regarding third party audit management


Panel

Discussion:

Transparency,

Reporting, and

Supply Chain

Due Diligence

What did we learn from the first year of SEC reports?

The Unique Alternative to the Big Four®

© 2014 Crowe Horwath LLP 20Audit | Tax | Advisory | Risk | Performance

Conflict Minerals Compliance & Audit

Planning for 2014



Lessons Learned From 2013

Conflict minerals is here to stay – Legal challenges failed and other countries are adopting

similar legislation. The scope may even expand to include other precious minerals or

regions

Many industry leaders are going above and beyond the requirements of the law and

establishing strict conflict-free policies.

No standard approach to compliance. A reasonable approach to compliance depends on

the readers of your filings (i.e. customers, NGOs, and SRIs)

Move from a reactive project to a proactive process and then forward to influencing the

supply chain

Support industry initiatives such as the Conflict-Free Sourcing Initiative (CFSI) or industry-

specific organizations (such as the AIAG)

More specificity - Transitioning from company-wide declarations to parts-level



Sampling of Recent Press

Intel Says Its Chips Are Now Conflict Mineral-Free

CES Keynote Speech by Brian Krzanich 2/6/14

Apple to name-and-shame suppliers of ‘conflict minerals’

Financial Times 2/13/14

EU drafts conflict minerals law

Euractive 4/3/24

Time to make Canada free of Conflict Minerals

The Star 4/3/14



Overview of Filings – Top 10 Industries



Planning for 2014

Suggestions to enhance program and to move project to a process:

Refresh policy if needed

Adapt current grievance mechanisms for conflict minerals

Update systems to better collect data

Use commodity codes or sub-codes to determine whether CM is necessary to the

functionality

Move to full material disclosure to identify all materials/substances in the parts you

are purchasing

Expand document retention policies for conflict minerals (i.e. 5 year hold)



Planning for 2014

Suggestions to enhance program and to move project to a process:

Enhance supplier acceptance procedures

Incorporate conflict minerals compliance into onboarding procedures for suppliers

Supplier outreach programs

Hold trainings for suppliers

Update contract and purchase order language

Recertify suppliers who have previously responded

Engage with distributors on compliance alternatives:

Complete transparency vs. “Step into the role”

Identify audit provider now and engage early to ensure compliance

Dodd Frank’s impact: a view from the ground

Enough | The Project to End Genocide and Crimes Against Humanity

Congo’s armed conflict:

• Ongoing for almost two decades• Deadliest war since World War II• Dozens of active armed groups controlling mining

areas• Regional governments controlling minerals

through proxy fighters

• Violence concentrated in the minerals-rich east (Ituri province and North and South Kivu)

• Widespread war crimes and crimes against humanity, including unprecedented levels of sexual violence

Dodd Frank 1502: “promoting peace and security in the Democratic Republic of the Congo”

“the exploitation and trade of

conflict minerals originating in the

Democratic Republic of the

Congo is helping to finance

conflict characterized by extreme

levels of violence in the eastern

Democratic Republic of the

Congo, particularly sexual- and

gender-based violence, and

contributing to an emergency

humanitarian situation therein,”

The strategy…shall include the

following:

(i)A plan to promote peace and

security in the Democratic

Republic of the Congo by

supporting efforts of the

Government of the Democratic

Republic of the Congo, including

the Ministry of Mines and other

relevant agencies, adjoining

Downstream action and innovation

• An increasing number of retail companies have conflict minerals policies and consumer engagement plans

• Supply chain assurance programs, due diligence protocols, and supply chain collaboration are growing

Increasing list of certified conflict-free smelters

• The Conflict Free Smelter Program has encouraged smelters worldwide to come into alignment with OECD standards

• Roughly half the world’s 3T smelters have passed third party conflict free audits, including 19 Chinese smelters, shrinking the market for conflict minerals and encouraging responsible sourcing practices

Demilitarized mines

• Untraceable tin, tantalum and tungsten has dropped in value between 30-60% in recent years, making it unprofitable for armed groups to keep trading illegally

• Four years ago, nearly all mines in eastern Congo were militarized; according to an independent international study last fall, two-thirds of mines surveyed in eastern Congo were free of armed groups

In-region reforms and investment in large-scale mining

• For the first time in Congo’s history, it has a conflict-free validation process

• New mining police forces monitor security and civil society watchdogs help ensure responsible, legal trading

• At least 21 electronics and other companies now source from 16 conflict-free mines

• Solutions for Hope pilot closed-pipe mines give companies a conflict-free sourcing option and serve as a model for responsible investment

More progress is needed.

• Gold remains lucrative for active armed groups

• Increased livelihood programs are needed for artisanal miners and impacted communities

• The ICGLR certification scheme needs to be finalized to ensure conflict-free trading

• Large-scale mining companies operating in Congo must meet international human rights and environmental standards and consult with local communities


Assessment of

Responsible

Sourcing

Options –

Impacts,

Challenges, and

Opportunities

Review of GAO’s 2014 report on conflict minerals and plans for 2015 report, including opportunities to engage with GAO

Dodd Frank Section 1502: Overview of

GAO’s Mandate and Reporting

Presented at the

Conflict-Free Sourcing Initiative Workshop

Burlingame, CA

September 29-30, 2014

Outline of Discussion

• Overview of GAO’s Mission and Sources of Work

• Approach to Work

• GAO’s Mandate under Dodd-Frank

• GAO’s 2013 Findings (Brief Review)

• GAO’s 2014 Report - USG and Stakeholder Actions

• GAO’s Planned Work for 2015 Report

Overview of GAO’s Mission and Sources of

Work

• Support the Congress in meeting its constitutional

responsibilities and to help improve the performance and ensure

the accountability of the federal government for the benefit of the

American people

• Provide Congress with timely information that is objective, fact-

based, nonpartisan, nonideological, fair, and balanced

• Three sources of work:

1) Congressional mandate – one-time or recurring

2) Request letter from congressional committees or members

3) Comptroller General Authority (CGA)

Approach to Work

Steps in the GAO engagement:

1) Congressional request received/mandate/CGA

2) Gather background information

3) Develop engagement objectives/questions

4) Determine methodology and data collection strategy

5) Develop findings and agree on message

6) Develop final product: conclusions and recommendations

GAO’s Mandate under Dodd-Frank

• In July 2010, Congress included in the Dodd-Frank Wall Street Reform and Consumer Protection Act provisions pertaining to the trade of DRC conflict minerals.

• GAO’s mandates under Section 1502 includes these provisions:

(1) Assess the rate of sexual violence in the DRC and adjoining countries (annually—1st report due July 2011)

(2) Evaluate the effectiveness of SEC’s conflict minerals disclosure rule (annually—1st report due July 2012)

• Describe any issues that SEC encountered in promulgating a conflict minerals disclosure rule

• Describe information about entities that use conflict minerals and are not required to report to SEC under the conflict minerals disclosure rule

• Report to 8 congressional committees of jurisdiction

GAO’s 2013 Findings (Brief Review)

Simplified Conflict Minerals Supply Chain• Industry

representatives stated

that original equipment

manufacturers have

less visibility beyond

first-tier suppliers.

• Industry

representatives and

companies reported

challenges with

obtaining information

from suppliers up the

supply chain.

GAO’s 2014 Report – USG Actions

• Responding to the Act, State and USAID developed a strategy in

2011 to address the linkages among human rights abuses,

armed groups, the mining of conflict minerals, and commercial

products.

• The strategy has five objectives: (1) promote an appropriate role

of security forces, (2) enhance civilian regulation of minerals

trade in the DRC, (3) protect artisanal miners and local

communities, (4) strengthen regional and international efforts,

and (5) promote due diligence and responsible trade through

public outreach.


• In 2011, State developed a map of mineral-rich zones and areas

under control of armed groups in the DRC and has subsequently

published several updated maps, as required by the Act.

• State’s most current map was published in February 2014.

• State reported that lack of complete or fully verifiable data

makes it difficult to confirm the location of many mine sites, to

establish which mine sites are active at any given time, and to

comprehensively verify reports of armed groups.


• Section 1502 directed Commerce to report, among other things, a list of all known conflict minerals processing facilities worldwide to appropriate congressional committees annually starting no later than 30 months after the Act’s enactment—that is, by January 2013.

• GAO recommended that Commerce provide to Congress a plan that outlines the steps, with associated timeframes, to develop and report the required information about smelters and refiners of conflict minerals worldwide.

• In response, Commerce indicated that it would submit a listing of all known conflict minerals processing facilities worldwide to Congress by September 1, 2014 and published this list in early September.


• U.S. government agencies have engaged in a variety of

activities that involve partnerships and coordination with other

stakeholders or outreach to stakeholders, and some agencies

have provided technical assistance to stakeholders regarding

responsible sourcing of conflict minerals.

• Example: State and USAID coordinate with other stakeholders

through the Public-Private Alliance for Responsible Minerals

Trade (PPA) to fund and support organizations working on

responsible sourcing efforts. Both State and USAID are on the

PPA’s Governance Committee, which consists of participants

from foreign governments, industry, and civil society.

GAO’s 2014 Report – Stakeholder Actions

• Stakeholders have expanded existing initiatives and added new

initiatives focused on responsible sourcing of conflict minerals in

the DRC and adjoining countries, to include new mine sites,

countries, and smelters.


• The Conflict-Free Sourcing Initiative (CFSI) has expanded in several

aspects related to responsible sourcing.

• First, CFSI’s Conflict-Free Smelter Program has expanded the number

of smelters it has certified as conflict free.

• Second, according to CFSI representatives, through outreach to

industry, CFSI has expanded its collaboration with companies involved

with the conflict minerals supply chain.

• Third, in 2014, CFSI began offering its members information about the

SEC-required “reasonable country of origin” data for conflict minerals,

providing the most detailed information currently available about the

source of conflict minerals for smelting and refining facilities that are

validated through the Conflict-Free Smelter Program.


• The Responsible Jewellery Council—a diamond and precious

metals industry association—launched a chain-of-custody

certification program in March 2012 to help its member

companies identify and track conflict-free gold throughout their

supply chains.

• The ITRI Tin Supply Chain Initiative (iTSCi) recently announced

that it is expanding its in-region operations.

• Launched by Motorola Solutions and AVX in 2011, the Solutions

for Hope tantalum program is a “closed-pipeline” initiative that

traces the flow of tantalum from the mine to the end-use

company.


• The German government’s Federal Institute for Geosciences

and Natural Resources (BGR) has initiated the Analytical

Fingerprint Project to allow for independent verification of the

origin of the conflict mineral by comparing the composition of

tantalum, tin, and tungsten concentrate samples of a known

origin with unknown samples, similar to a DNA test.

• The Better Sourcing Program (BSP), a private company that

offers an independently audited due diligence assurance

program to enable companies to source tantalum, tin, tungsten,

and gold from the region.


• Some stakeholders and governments in the region provide

publicly available information related to in-region mining of

conflict minerals and responsible sourcing initiatives.

• We found that iTSCi publishes various reports on its public

website as part of its due diligence system for its members.

• Some quantitative government data on the production and

exports of conflict minerals from the DRC and adjoining

countries are available.

GAO’s Planned Work for 2015 Report

Effectiveness of the SEC rule:

• State and USAID in-region efforts

• Company SEC filings

• Processing facilities’ role - challenges and opportunities

• Gender based violence

GAO Contacts

• GAO on the Web• Web site: http://www.gao.gov/

• Public Affairs• Chuck Young, Managing Director, [email protected]

(202) 512-4800, U.S. Government Accountability Office441 G Street, NW, Room 7149, Washington, DC 20548

• Copyright• This is a work of the U.S. government and is not subject to copyright

protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

http://www.gao.gov/

mailto:[email protected]


Panel

Discussion:

Managing Your

Supplier Data

Lessons from the first reporting year of supply chain data collection, including CFSI member survey


September 2014

CFSI Member Due Diligence

Poll

The Conflict-Free Sourcing Initiativewww.conflictfreesourcinginitiative.org | @EICCoalition | @GeSIConnect 57

CFSI polled members about their experience with SEC filing

in 2014.

41 Companies completed our brief survey.

The size of the participants, in terms of revenue:


For those employing a risk-based approach to prioritize

supplier inquiry, upon what was it based?


Which of the following best describes how your company

reported its product categories to the SEC?


Did you describe the conflict status of your products as

"DRC Conflict-Free" or "DRC Conflict Undeterminable" in

your Form SD or Conflict Minerals Report (CMR)?


How did you survey your supply chain?


At what frequency do you expect your suppliers to provide

2014 responses?


How do you evaluate and aggregate CMRTs from you

suppliers today?


Did you make conflict minerals information publicly

available via channels other than your SEC filings?

Thank you to our participating members.


Reducing Cost and Mitigating

Risk with a Scalable Conflict

Minerals Program

John Kuta

Director Solution Management

Materials Compliance

September 29, 2014

67

750+partners

10 millionstudents participating in PTC Global

Academic Program

150+sponsored FIRST® Teams(For Inspiration and Recognition of Science & Technology)

27,000+active customers

1,456,000+active PTC Windchill Seats

1,931,000+total active Seats

PTC: Product and Service Advantage

6,000+employees

2,000+employees in R&D

1,360+service professionals

ORGANIZATIONAL STRENGTH STRONG MARKET PRESENCE STRONG COMMUNITY SUPPORT

FINANCIAL STRENGTH FOCUSED ON MANUFACTURING GLOBAL FOOTPRINT

$100

$150

$200

$250

$300

$350

$400

$800

$900

$1,000

$1,100

$1,200

$1,300

$1,400

2010 2011 2012 2013

8%

16%

3%8%

3%

Total Revenue ($ millions)

Total non-GAAP operating profits* ($ millions)

% = YOY growth

2014

Guidance

FY 2013 revenue by vertical

Life Sciences:

4%

Industrial

Products:

30%

Federal, Aerospace

& Defense:

18%

Electronics &

High Tech:

18%

Automotive:

12%

Retail &

Consumer:

8%

Other:

10%

FY 2013 revenue by region

Americas

41%

Europe

37%AP

22%

YoY Stock Performance: Up 85%

68

Global Product Regulations on the Rise!

Source: Compliance and Risks 2014

20062005 2007 2008 2009 2010 2011 2012 2013

1,000

6,000

5,000

4,000

3,000

2,000

TODAY

REACH

RoHS

RoHS 2

EU Battery

# Global

Regs

ELV/GADSL

Companies facing increasing ...

RegulatoryComplexity

CustomerDemands

Effort to Fulfill Obligations

Conf l i c tM inera l s

2000

© PTC 2014

69

Why the Trend Will Continue … “It’s Working”

Regardless of opinions of its effectiveness, the law exists.

Public still supports social responsibility / environmental legislation.

© PTC 2014

72%Certified

28%

Pending

T H E G U A R D I A N

“Mine certification process

worked”

H U M A N O S P H E R E

W H AT ’ S Y O U R O P I N I O N ?

70

Year 1 is History ...

© PTC2014

GOOD ENOUGH?

Clear Conflict Minerals policy

Evidence of progress towards

Conflict-Free sourcing

Conflict-Free products / audits

Smelters – included sources of

minerals including COO

RCOI metrics / high supplier

response rates

Corrective action plans

Industry “involvement”

/ CFSI membership

? RCOI and DD efforts documented,

but vague on details / description of process

? No action plans to achieve CF sourcing

Misinterpreted requirements

Insufficient or no evidence of RCOI

“Boilerplate” CMR

INADEQUATE

OR WRONGBEST-IN-CLASS“ ” “

”

“Only” 1,315 companies filed.

“Lite” 3rd-party evaluations so far, but “stay-tuned”: more on the way!

“ ”

!

R AT E Y O U R C O M PA N Y ’ S F I L I N G

71

What Do WE Expect for Year 2?

© PTC2014

• Continued Use of CFSI CMRT

– 70% used CMRT, higher for high-tech, industrial companies.

• More Audits / Conflict-Free Products

– 4 audits, 2 listed DRC CF products

– Expect more audits / companies will take steps to find and list Conflict-Free products including product-level CMRT requests.

• More Smelter Lists

– 10% included smelters and countries of origin in their filings as proof of due-diligence.

– Expect more companies to include smelter and COO info.

• More Supplier RCOI Metrics

– 1 in 3 provided supplier RCOI response rates as proof of due-diligence with about half reporting 75% or better response rate.

– Expect more companies to add supplier RCOI metrics.– Expect increasing response rates.

More standardization & conformance to practices of “best-in-class”

72

2014 Challenge:Streamlining the Supplier RCOI and Due-Diligence Process

© PTC 2014

“ How do we build an efficient

process that is both flexible

and efficient ? ”

“ Can we use a common

compliance system to

manage all supplier request

data to avoid waste and

redundancy ? ”

“ Is there a proven approach for

maximizing supplier response

rate with minimum effort ? ”

“ How do we create the product

level reports our customers

require ? ”

“ Where will we store and

manage the data? We need a

central repository for this

information. ”

“ What is the best communication method for

our global, diverse supply base – from tiny

“mom & pop” fab shops to global

conglomerates ? ”

Process automation increases efficiency, response rate, and accuracy

73

Company-Level Product-Level

2015 and Beyond:Transitioning to Product-Level Reporting

© PTC 2014

Product-level reporting will differentiate

Y O U R

S U P P L I E R S

Y O UR

S U P P L I E R S ’

P R O D U C T S

Y O U

Product-level RCOI to find

products made from 100%

DRC Conflict-Free

supplier parts.

Very few suppliers will ever

report DRC Conflict-Free at

the company level.

… …

74

2015 and Beyond:Transitioning to Product-Level Reporting

20162013 2014 2015

© PTC 2014

Companies reporting

only no status or

Undeterminable

“We don’t know

& we don’t care”

Companies reporting

“DRC Conflict-Free”

products

demonstrate

priority and efforts

to achieve policy

4 out of 1,315 filings

were audited in 2013

Expecting increased product-level reporting

75

PTC and Conflict Minerals

Leadership

• High awareness, brand recognition, recognized leader.

• Reference-able world leading manufacturing clients.

• Strong partner community (well-known in Consulting, Legal, etc.)

Proven Track

Record

• 10 year history as leading Materials Compliance solution provider.

• 1st to market with RoHS software application.

• First Conflict Minerals solution released in April 2012.

Best Conflict

Minerals Solution

• Proven low touch / high efficiency solution.

• Comprehensive functionality for 5 Step SEC compliance process.

• Hosted subscription or rapidly deployed on-premise options.

Built on a Scalable

Product Analytics

Platform

• Modular, enterprise compliance platform for RoHS, REACH, ELV, etc.

• Manage product compliance beginning early in design.

• Fully integrated with PLM for supplier, part, and product-level reporting.

1

2

3

4

© PTC 2014

76

Driving Proven Results

Whirlpool Corporation is a leader of the $120 billion global home

appliance industry. Their appliances are marketed in nearly every country

around the world.

“ Whirlpool was able to implement PTC’s

Conflict Minerals solution within a matter of

weeks. By leveraging the systematic

solution…able to improve our supplier

response rate and meet our customer

reporting obligations.”

“ IT JUST WORKS”

Bill Hester, Global Information

Systems, Critical Materials

Management

© PTC 2014

Presented by:

Tim Holt

Regulatory Affairs

September 29, 2014

Smelter RCOI & Due Diligence

Claigan - Conflict Minerals

• Conflict Minerals

- Leader in Conflict Minerals compliance

- Services:

• Program development

• Reasonable Country of Origin Inquiry

• Due diligence, disclosure, and reporting

• Overall Experience

- Claigan was the only service provider requested as a witness to the US House of

Representatives on Conflict Minerals.

- Claigan is quoted 18 times in the SEC final rules.

- Claigan has met with the SEC on conflict minerals eight times

• Restricted materials compliance experience

- Danaher, Covidien, Legrand, Hamilton Beach, Abbott Laboratories, Smiths

Medical, Smith & Nephew, Beckman Coulter, Moog, Instrumentation Laboratory,

GE, Fluke, Hach, Schneider Electric, KavoKerr, Microsemi, Agilent, Barrx, Tyco,

Johnson & Johnson, Smart Technologies, Pelton & Crane, Atricure, CAE, EMC,

Philips, Plexus, Jabil, FLIR, Trojan, Deltrol Controls, LoJack, Thermo Scientific,

Li-Cor, Avid, and US Commercial Service.

3 Steps in Section 15021. Issuer to determine whether it is subject to the requirements

- Necessary to the functionality or production of a product

manufactured or contracted by that issuer to be manufactured

2. Issuer to conduct a reasonable country of origin inquiry

regarding the origin of its conflict minerals

- RCOI process to determine whether or not their conflict minerals

originate in the DRC or adjoining countries

3. Issuer to conduct due diligence on the source and chain of

custody of its conflict minerals and provide a Conflict

Minerals Report

- if, based on its RCOI, the issuer knows or has reason to believe,

that it has necessary conflict minerals that originated in the

Covered Countries and did not come from recycled or scrap

sources.

- Only applies to those conflict minerals sourced from the DRC or

adjoining countries

RCOI – Sourcing from the DRC

• RCOI Standard – SEC Final Rules – p. 148

- “We do view an issuer as satisfying the reasonable country of origin

inquiry standard if it seeks and obtains reasonable representations

indicating the facility at which its conflict minerals were processed and

demonstrating that those conflict minerals did not originate in the

Covered Countries…These representations could come either directly

from the facility or indirectly through the issuer’s immediate suppliers,

but the issuer must have a reason to believe these representations are

true given the facts and circumstances surrounding those

representations.”

• Additional Key Passage – p. 153

- “This revised approach does not require an issuer to prove a negative

to avoid moving to step three, but it also does not allow an issuer to

ignore or be wilfully blind to warning signs or other circumstances

indicating that its conflict minerals may have originated in the Covered

Countries.

Smelter RCOI & Due Diligence

AIDA Chemical Industries

Malaysia Smelting Company

Zijin Mining

Summary• Process

• Determine necessary 3TGs

• Perform RCOI on suppliers and smelters

• Conduct due diligence on those smelters sourcing from the region

• Smelter centric due diligence

• Required by the SEC final rules

• Only required for smelters sourcing from the region


CFSI Impacts:

Concept to

Reality

A retrospective analysis of accomplishments of CFSI programs, including measures of compliant facilities and estimates of minerals production in the system

CFSI IMPACTS: CONCEPT TO

REALITY

Pro f . S teven B. Young

Univers i t y o f Water loo

Water loo , Ontar io , Canada

Presentation to 14th Conflict Free Sourcing Initiative (CFSI) WorkshopBurlingame, California, USA

RESEARCH PROJECT

• 3TG smelters and refineries have been

identified by the CFSI and others

• Many facilities have attained conflict-

free status

• What can we say about the fraction of

world production of 3TG metals that is

“conflict-free”?

Numbers of compliant facilities

Quantity of production from compliant

facilities

89

APPROX. VALUE OF 3TG METALS

(BILLIONS USD)

Tantalum ($0.13)

Tin ($9.8)

Tungsten ($3.9)

Gold ($150)

Source: USGS (2012), Published commodity prices

Primary production –excludes recycled production

DRC CONTRIBUTION TO TOTAL

ANNUAL PRODUCTION

91

0%

5%

10%

15%

20%

Tin Tantalum Tungsten Gold

Fraction of world production of 3TG metals from the DRC (including mining and other sources) (EICC-GeSI, 2011; WGC, 2012)

Metal production

“Bad”

WHAT IS THE AIM OF

SMELTER/REFINERY CERTIFICATION?

Provide assured

supply to

downstream

users

Grow “good”

suppl ies wi th

conf l ic t - free

sourcing

Does i t reduce

the “bad”?

92

“Good”

APPROACH & DATA

Database of 3TG faci l i t iesSmel ters and re f inery l oca t ions - mapped

Conf l ic t - f ree s ta tus t racked

Other parameters

Faci l i ty product ion est imates ( tonnes/year)

Annua l p roduct ion • S n p u b l i s he d b y i n d u s t r y

Product ion capac i ty• Ta f a c i l i t y we b s i t e s , t r a d e

d a t a , i n d u s t r y a n a l ys i s

• W – n o a n a l ys i s t o d a t e

• A u c a p a c i t i es a r e p u b l i s he d o r i m p l i e d

93

TIN SMELTERS & REFINERIES

– JAN 2014

Source: www.sbyoung.com/3TG

TIN – SOUTHEAST ASIAN

PRODUCTION

Bangka & Belitung Islands

Image: Reuters (2013)


TANTALUM SMELTERS

– JAN 2014


TUNGSTEN PROCESSORS

(SMELTERS) – JAN. 2014


GOLD REFINERIES

98

DRAFT RESEARCH

PAPER

Yo u n g , S . B . ( 2 0 1 4 ) ,

R e s p o ns i b l e s o u r c i n g o f

m e t a l s : C e r t i f i c a t i o n

a p p r oac h es f o r c o n f l i c t

m i n e r a l s a n d c o n f l i c t - f r ee

m e t a l s , I n t e rna t i o na l J o u r na l

o f L i f e C y c l e A s s e s s m en t

99

DRAFT RESULTS

CFSP NUMBER OF FACILITIES

(EARLY 2014)

TANTALUM – JAN. 2014

101

0

50

100

150

200

250

300

CFS compliant non-CFS

Tantalum smelters ranked by estimated annual production (tonne Ta)

TANTALUM – SEPT. 2014

102

0

50

100

150

200

250

300

CFS compliant non-CFS

Tantalum smelters ranked by estimated annual production (tonne Ta)

No production data

TANTALUM – CIRCA 2009

Ta

~20% “ i l l ic i t ” in 2009

(B le ischwi tz 2012)

103

“Our estimation is that the value of such illicit trade comes close to $27 million annually (2009), roughly one-fifth of the world market volume for tantalum production.”

R. Bleischwitz, M. Dittrich, and C. Pierdicca, “Coltan from Central Africa, international trade and implications for any certification,” Resour. Policy, vol. 37, no. 1, pp. 19–29, Mar. 2012.

TANTALUM – ESTIMATE 2014

Ta

~10% non-compl iant

to CFSI

(2014)

104

sbYOUNG analysis

GOLD – JAN. 2014

0

200

400

600

800

1000

1200

1C

HE0

63

1C

HE0

35

1ZA

F04

91

JPN

05

81

CH

E04

51

CH

E00

41

DEU

01

81

RU

S01

61

RU

S04

41

AU

S04

61

RU

S04

71

USA

02

51

CA

N0

24

XX

X1

HK

G0

19

1H

KG

03

61

CH

N0

65

1U

SA0

37

1U

SA0

43

1C

AN

05

01

TUR

07

01

BEL

06

2X

XX

1B

RA

00

31

TUR

06

91

JPN

06

0X

XX

1TW

N0

56

1R

US0

67

1C

AN

06

41

JPN

03

91

CH

E06

81

JPN

05

71

JPN

02

81

DEU

00

11

NLD

05

11

BR

A0

61

1ID

N0

48

1D

EU0

07

XX

X1

CH

N0

23

1JP

N0

40

1JP

N0

71

1JP

N0

80

1C

HN

05

91

CH

N0

66

1U

ZB0

02

1SW

E00

91

JPN

02

2

CFSP

RJC

LBMA Responsible Gold

LBMA Good Delivery

Non-compliant

105

Tantalum smelters ranked by production capacity (tonne Au)

Long tail

ANNUAL PRODUCTION: AU

• $500 mi l l ion

smuggled f rom DRC

in 2012 (<0.2% of

g lobal product ion)

• Market assoc iat ions

cover >80% of

indust r ia l go ld

• But what is actua l

to ta l annual

product ion?

106

“Gold is now the most important conflict mineral in eastern Congo, with at least 12 tons worth roughly $500 million smuggled out of the east every year.”

Koning, R. de, & Enough Project. (2013). Striking Gold: How M23 and its Allies are Infiltrating Congo’s Gold Trade. Washington, DC.

OBSERVATION AND SPECULATION

Tanta lum

Cer t i f i ca t ion appears to

have “sh runk ” the “bad”

CFSI comp l iance i s a

marke t requ i rement

Gold

Are we mere l y ce r t i f y i ng

t he “good”?

I s the marke t s imp ly

b i fu rca t i ng?

• T h e s i z e o f t h e

“ u n r egu la t ed ” g o l d m a r k e t

i s g r e a te r t h a n a l l DRC

p r o d uc t i on

Conf l ic t - f ree sourc ing has

advanced rap id ly

number o f comp l ian t

fac i l i t i es

impac ts on commod i t y

marke ts

4 years , overa l l >1/3 of

ident i f ied operat ions are

compl iant (and growing)

Compare

Fores t S tewardsh ip

Counc i l 12% o f work ing

f o res ts i n 15 years

Round tab le on Sus ta inab le

Pa lm Oi l 14% in 4 years

107

FUTURE RESEARCH

Expanding smel ter maps

Onl ine access

Improved determinat ion of

product ion va lues

Different ia t ing sources used

at smel ters

Mined vs . recyc l i ng

Evaluat ing technology and

management barr iers and

oppor tun i t ies

Model l ing f low re la t ionships

a long the l i fe cyc le

Min ing , sme l t i ng , re f i n ing ,

manu fac tu r ing

New methodologies for l i fe

cyc le assessment and

susta inable supply -chains

Connect ing to impacts on - the-

ground

Where i t coun ts


A View from the

GroundReflections and footage from recent travels in the Great Lakes Region from Peabody and Emmy Award-winning filmmaker, Paul Freedman