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Motorola Solutions Inc
Muddy trails extending for hundreds of miles into the subtropical wilderness of the Democratic Republic of the Congo end at shallow, exposed mines full of one of the most valuable mineral deposits on earth: tantalum ore. Crack open your cell phone and you’d find a refined version of it in the thumbnail-size part that helps power the device. In the DRC’s Katanga province, the bush trails also lead to an interesting experiment in coping with government regulation.
Getting minerals out of the country and into your phone has long involved an informal supply chain in which self-employed miners scraped the pits for minerals, then sold them to a network of traders who would take them to the border and sell them to foreign refiners—with warlords and militias extorting the players along the way. Congress wanted the U.S. to quit lining armed groups’ pockets; as part of the 2010 Dodd-Frank law, it mandated that companies certify to the Securities and Exchange Commission that their supply chains for products using tantalum, tin, tungsten, and gold are “DRC conflict free,” a standard the SEC has yet to define.
After Dodd-Frank passed, manufacturers including Apple (AAPL) and Intel (INTC) began demanding that suppliers demonstrate that products weren’t fueling the bloody conflict. Many suppliers decided it was easier to pull out and stick with buying minerals from other countries such as Australia and Canada. The U.S. Chamber of Commerce says the forthcoming regulation will be extremely costly and complicated to implement.
Other hardware makers have taken a more creative tack. The world’s supply of tantalum is small—most of it would fill a 200-square-foot room—and 12 percent to 14 percent comes from the DRC. The companies saw no way to compete without tapping the country’s deposits, yet to do so they had to upend the traditional supply chain. “There were too many layers,” says Bill Millman, technical and quality director for electronic component maker AVX (AVX), in Fountain Inn, S.C. Typically manufacturers buy ore from refiners in China—long after it’s left the mine. “So we decided to take ownership of the materials from the mine to the customer,” says Millman.
AVX needed a partner in the DRC that would allow independent auditors to supervise both extraction and transport. After much scouting, the company found MMR, an Indian company with a government license to mine in Katanga, a relatively peaceful province. AVX helps to finance MMR’s operation and purchases its ore at global market prices—about $100 a ton. Auditors take notes on every sack of tantulum ore, recording its weight and myriad other details every time it changes hands on its way to port, where AVX handles shipping it to China for refining. The company says the paper trail provides a clear provenance for customers. “We’ve put our name on the line with this,” says Millman. Within the last year, Intel, Motorola Solutions (MSI), and Hewlett-Packard (HPQ) signed on to buy AVX’s tantalum. Jay Celorie, who manages HP’s conflict minerals program, visited the DRC to observe the process. “We wanted to be assured that they were putting the right kinds of … checks in place, and that it wouldn’t fail.”
Kemet (KEM), an electronic component maker based in Simpsonville, S.C., struck a similar deal with MMR late last year. The auditing costs are “negligible,” says Daniel Persico, the company’s vice president for strategic marketing and business development.
The strategy has “good potential” to cut down on corruption and abuse, says Darren Fenwick, director of Enough Project, a human-rights group that monitors conflict minerals. “Ultimately,” says Fenwick, “the question becomes, can you scale it all up and keep it transparent?” The DRC hopes so; its economy has been devastated since Dodd-Frank passed, and government officials have asked the SEC not to delay further in clarifying what it means to be “conflict free” so business will return. Millman hopes the model catches on in other mineral industries: “They say, ‘You can’t buy from Africa—Africa is tainted!’ If you say, ‘Until it’s a perfect paradise, we’re not going to do business [there],’ then you’re going to turn it into the hellhole that it can be.”
The bottom line: Two U.S. companies are reinventing their supply chains to obtain minerals for cell phones from war-torn Congo.