AN OVERVIEW OF CONFLICT MINERALS

LEGISLATIONPresented to

the Central Texas Electronics Association

Brad HeathCEO, VirTex Assembly Services

Why Should I Care?

Conflict Background Origins of the Conflict are rooted in the 30 years of

Mobutu rule and instability since DRC’s independence from Belgium.

1970s and 1980s, the Congo (then Zaire) splintered into various city states, collapsing communication systems and crippling the formal justice system

1996 – Rwanda’s post-genocide Tutsi government invaded the DRC in pursuit of Hutu militia who had fled there. Rwandan backed Congolese rebels expel Mobutu from office and install Laurent Kabila

1997 – Rebellion between Kabila and Rwanda begins. The country becomes a battleground. The rebellion ends in 2003

Rebel groups continue to remain active in the four eastern provinces: South Kivu, North Kivu, Ituri, and Maniema.

2006 – First free elections in the country. Joseph Kabila becomes president but fails to deliver international expectations of peace.

Conflict Profile Major driver of the continued violence is Minerals –

Tin, Tantalum, Tungsten, and Gold. This cycle of violence has enveloped the DRC since

1997 It has presented opportunities for various armed

groups, both state and non-state, to plunder natural resources by creating and maintaining an environment of exploitation, instability, horror, and appalling inequality.

Militia groups and the state fight for control and access to mines. Armed groups in the area made an estimated total of $185 million in 2008 from the mines.

Congolese Civilians, many of them children, are forced to work the mines at gunpoint and forfeit any of their findings to the armed forces in control

Rape and torture of woman are a common weapon used to enforce labor and cooperation in the mines and surrounding towns.

VirTex Confidential

What Are Conflict Minerals? Tin(Cassiterite Ore)- Leading mineral in terms of dollar value contributing to

armed groups in the DRC. DRC is the 6th largest producer of tin. Half of tin mined is used in soldering electronics. Contributes about $115 million to armed groups in 2008.

Tantalum(Coltan)- DRC is one of the leading producers of this mineral (Coltan). It became the first Conflict medal from the DRC to become the subject of Global Concern when the price for the mineral spiked in conjunction with growing demand from the electronics industry. Used in automotive electronics, cell phones, computers, super alloys. $12 Million to armed groups in 2008.

Tungsten(Wolframite)- DRC is the world’s 5th largest producer of this mineral. Least noticeable in consumer materials because it’s used in steel cutting tools and other components used in a large number of different electronic supply chains. Contributed about $7.4 million to armed groups in 2008.

Gold- smallest conflict mineral by volume but second only to tin in its contribution to armed groups. Estimated at about $50 million to armed groups in 2008. Gold’s high value low volume nature makes it easy to conceal and transport. 95% of the Eastern DRC’s Gold is traded informally. It’s very difficult to track because it van be smuggled so easily. Nearly 80% of gold produced globally is used to make jewelry but it is also used in electronics

VirTex Confidential

IPC Industry Survey Results63% 76%

51%73%

Over ½ to ¾ of supply base either supplies these minerals or status is unknown

VirTex Confidential

IPC Industry Survey Results

VirTex Confidential

IPC Industry Survey Results

SO WHY DOES THIS AFFECT MY COMPANY?

Dodd-Frank Act :Section 1502 The U.S. Congress passed the Dodd-Frank Wall Street Reform and

Consumer Protection Act (the Act), which was signed into law on July 21, 2010. Section 1502 of the Act is a provision related to sourcing ―conflict minerals‖.

The intent of the provision is to deter – through increased transparency of companies‘ sourcing practices – the extreme violence and human rights violations in the Democratic Republic of Congo (DRC) and neighboring countries funded by the exploitation and trade of certain minerals.

The term ‗conflict mineral‘ is defined as: columbite-tantalite, also known as coltan (the metal ore from which tantalum

is extracted); cassarite (the metal ore from which tin is extracted); gold; wolframite (the metal ore from which tungsten is extracted); or their

derivatives. Conflict minerals are also referred to as “3TG”. Additionally, any other

mineral or its derivatives could be added if determined by the Secretary of State to be financing conflict in the DRC countries.

Section 1502 instructs the U.S. Securities and Exchange Commission (SEC), in consultation with the U.S. Department of State, to promulgate regulations requiring certain companies to submit annually a description of measures taken to exercise due diligence on the source and chain of custody of ―conflict minerals.

Dodd-Frank Act: Section 1502 Timeline

Dodd-Frank Act: Section 1502 Impact

Dodd-Frank Act: Section 1502 Impact

Dodd-Frank Act: Section 1502 Impact

Dodd-Frank Act: Section 1502 Impact

Compliance StrategyHow and When to Get Ready

Supply Chain Challenges

S.1502 is Groundbreaking for our Industry as it Creates End to End Responsibility

Both a Compliance and a Moral IssueCompliance Difficult, but not Impossible

Requires Tight Integration of Supply Chain Transparency in SourcingUnknown Cost and Audit Procedures

No Way to Judge Effectiveness of Efforts

Supply Chain Players Mines- 13 major mines, 200 total mines in the region (eastern Congo). 12

of the 13 major mines are controlled by the armed groups. Estimated that armed groups and military control over 50% of the 200 of the total mines.

Trading Houses- Minerals are transported to trading towns and then onto the two major cities in the region- Bukavu and Goma. The three T’s are brought by individuals on their backs, by large trucks, and/or planes. The minerals are then sorted at trading houses.

Exporters- export companies buy minerals from the trading houses and transporters, process the minerals using machinery and then sell them to foreign buyers. There are 17 exporters based in Bukavu and 24 based in Goma.

Transit Countries- (Rwanda, Uganda, Burundi…) – from the exporters the minerals are sent to the neighboring countries of Rwanda, Uganda, and Burundi.

Refiners- Metal processing companies based mainly in east Asia take the Congolese minerals and smelt or chemically process them together with metals from other countries in large furnaces.

Electronic Companies- The refiners sell Congo’s minerals into the electronic companies.

Industry and NGO Initiatives

Industry and NGO Initiatives

OECD Due Diligence Guidelines

http://www.oecd.org/dataoecd/62/30/46740847.pdf

OECD Due Diligence Guidelines

Compliance Readiness 1.Engage representatives from the following business areas: •Procurement/Supply Chain •Sustainability/CSR •Finance •Legal •Legislative Affairs and Public Policy •Investor Relations/Office of the Corporate Secretary 2.Develop company policy: •Adopt, and clearly communicate to suppliers and the public, a company

policy for the use and tracking of materials that potentially originate from conflict-affected and high-risk areas.

3.Assess product exposure: •Perform product portfolio and component analysis •Create an inventory of products for which 3TG metals are ―necessary to

[the product] functionality or production‖ •Develop list of suppliers of products for which 3TG metals are used

Compliance Readiness 4.Assess supply chain risk: •Initiate steps to implement OECD Due Diligence Guidance for Responsible

Supply Chains of Minerals from Conflict-Affected and High-Risk Areas: −Examine procurement processes and perform supplier analysis to

understand the extent of sourcing and the chain of custody data for minerals

−Determine source of 3TG metals, down to smelter and mining region by surveying suppliers

−Engage suppliers with whom a commercial relationship exists in modifications to contractual language to drive supply chain policy requirements.

−Engage and leverage industry-driven efforts, such as the Electronics Industry Citizenship Coalition (EICC) and Global eSustainability Initiative (GeSI) *

−Consider joining the Public-Private Alliance for Responsible Minerals Trade

S.1502 ResourcesIPC – Association Connecting Electronic Industrieshttp://www.ipc.org/ContentPage.aspx?pageid=Conflict-Minerals-Resources-for-the-Electronics-Industryhttp://www.ipc.org/ContentPage.aspx?pageid=Conflict-Minerals

EICC – Electronic Industry Citizenship Cooalitionhttp://eicc.info

GeSI – Global eSustainability Initiativehttp://www.gesi.org