If you've seen the movie “Blood Diamond”, you'll be acquainted with some of the issues surrounding raw materials from conflict areas. There is ample evidence that in a conflict zone, access of both sides to valuable commodities can prolong conflicts and lead to further suffering among the civilian population, the Democratic Republic of the Congo being the best-known current example.
This problem affects our industry too. Some of the most commonly mined conflict minerals are cassiterite (for tin), wolframite (for tungsten), coltan (for tantalum), and gold ore (collectively known as 3TG), which are extracted from the Eastern Congo, and passed through a variety of intermediaries before being purchased for use in electronic manufacturing.
Various international efforts have been made to reduce trade in conflict minerals to lessen the incentive to extract and fight over them. The 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act requires manufacturers to audit their supply chains and report conflict minerals usage. The SEC estimates compliance will cost affected companies a total of $3 billion to $4 billion in the first year and at least $200 million each year afterward.
To demonstrate their commitment to cleaning up their supply chain, publicly-listed suppliers must publish both a formal statement on conflict minerals and regular “SD” disclosure reports to the SEC detailing their efforts to determine the origin of their 3TG supply.
Given the large number of players at both ends of the supply chain, concentrating on the smelters is perhaps the best way to attack the problem, but establishing a definitive source can be tricky since many smelters purchase their ore from a variety of sources.
One organization involved in the effort is the Electronic Industry Citizenship Coalition (EICC), which bills itself as the “world’s largest industry coalition dedicated to electronics supply chain responsibility” and has over 100 members including Apple, Samsung, Intel, IBM, Qualcomm, TSMC, Foxconn and Flextronics.
Some companies are prepared to go further. Kemet, for example certifies their surface-mount tantalum capacitors as conflict-free based on the company's end-to-end inspection program.
Conflict Minerals In A Smartphone
One objection sometimes heard is that consumers won't pay more for devices that use only conflict-free minerals.
Hmm…. as a sanity check, I did some quick calculations based on the price of the raw mineral ores. Thanks to a 2013 analysis of the chemical composition of 2 mobile phones and one smartphone, we can get some idea of the amounts we're talking about and their contribution to the cost.
Of course the usual caveats apply – this is a ballpark estimate, an oversimplication, etc., etc. Given those numbers, though, it seems as though any price hike in 3TG caused by using only certified non-conflict sources shouldn't bother many companies. For example, according to a cost analysis from Teardown, Apple's cost for the iPhone 6 Plus is about $242.50. On the Apple web site the price of an unlocked phone is $749, giving a margin of 67.6%. Interesting fact: Apple's profits from the first 2 quarters of the current financial year ($31.6 billion) were greater than the 2014 GDP of the Democratic Republic of the Congo ($30.63 billion).
That said, the world's most valuable company is actually at the forefront of efforts to scrub its supply chain, not only with regard to conflict minerals but in many other areas, too.
Next Step: “Controversial” Minerals?
The conflict minerals program seems to be working – some estimate mineral trade in the Congo is down by 65%. But even assuming the trade can be stamped out, the net target will be so-called “controversial minerals”, mined under conditions that are only slightly less exploitative.
For example, tin mining on Indonesia’s Bangka Island is alleged to be causing significant damage to the local environment, including the marine ecosystem such as coral islands, as well as the area’s industries, including agriculture and fishing. Environmental groups have called on global companies to join forces to address the situation.
Similar accusations might well be leveled against numerous companies using many different minerals in multiple countries across the globe, leading to the question – how far should manufacturers be expected to go in policing the actions of their suppliers? What areas should qualify for scrutiny?
What do you think?