Global financial markets don’t pay much attention to the conflict in the Democratic Republic of Congo. They should. The central African country produces major quantities of tin and tungsten, about half of the world’s cobalt output and about three percent of the world’s copper and gold, according to the U.S. Geological Survey.
Consumer electronics makers would also be well-advised to watch developments in the war-torn nation, which is a key supplier of columbite-tantalite, or coltan for short—a mineral ore used to manufacture capacitors found in cellphones, tablet computers, laptops and practically every mobile device on the market today.
Like Sierra Leone with its notorious ‘blood diamonds’, DRC Congo has been blighted by the stigma of ‘conflict minerals’ ’ where the proceeds from resources extracted from mines controlled by government or rebel forces are used to fund war. ‘Conflict-free’ certification programs and legislation have sought to reduce market share of resources mined in war zones but convoluted supply-chain networks have allowed buyers to exploit loopholes in the system.
Legislators in the U.S. have sought to close those loopholes.
On August 22, the U.S. Securities and Exchange Commission adopted a rule mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act to require companies to publicly disclose their use of conflict minerals that originated in the DRC or an adjoining country.
Under the rules, companies are required to disclose their use of conflict minerals that include tantalum, tin, gold, or tungsten if those minerals are ‘necessary to the functionality or production of a product’ manufactured by those companies, the SEC said.The “vast majority” of U.S. companies are not yet ready for the new rules that go into effect in less than two years, IHS isuppli pointed out in an exhaustive study released on October 25. “The industry appears to be unprepared, given that about 90 percent of firms so far have not produced the data, declarations, or documentation that will help fulfill regulatory requirements detailing the presence of such minerals in their supply chains,” the firm said.
As of August, the percentage of electronics component manufacturers with available conflict minerals information amounted to only 11.3 percent of the peer group, according to the IHS Parts Management Service, accounting for just 17.1 percent of active electronic components on the market.
IHS estimates that 15 cents’ worth of tantalum was contained in every smartphone shipped when Dodd-Frank was originally signed in 2010. In 2012, this would amount to $93 million worth of tantalum in smartphones alone. The firm has been gathering information on conflict minerals for more than two years from a database on more than 300 million electronic, electromechanical and fastener components used in commercial and military applications.
$24 Trillion Mineral Wealth
A striking endnote from IHS estimates the value of DRC Congo’s mineral wealth at as much as $24 trillion, which stands in stark contrast to almost three-quarters of the population who live below the poverty line — a clear case, some might argue, where a developing country’s resources wealth has morphed into a resources curse.
A question for the immediate term is to what degree the unrest will affect production from major assets run by listed global miners.
Though the most recent bout of unrest in Congo threatens the eastern minerals-rich Kivus region near the Rwandan border, any impact will likely be limited as M23 rebels, reportedly backed by Rwanda, may have achieved their “primary strategic and commercial aims” by capturing Goma, the capital of North Kivu province, said Philippe de Pontet, Africa Director at political risk advisor Eurasia Group, in a report on Nov. 22.
“This limits the immediate commercial impact to the Kivus region, the world’s largest source of coltan – also known as tantalite, a crucial input in many electronic devices,” de Pontet said. The region is also home to Toronto-listed gold miner Banro Corporation’s Twangiza gold mine which entered commercial production on September 1.
“Absent a major escalation, or a plausible but unlikely army mutiny (or assassination) that topples President Kabila, we do not envision direct impacts on copper/cobalt producers concentrated in (southern province of) Katanga,” de Pontet added.
However, AngloGold Ashanti’s Mongbwalu gold asset is a “bit more exposed should conditions worsen,” the risk consultancy said. “The threat of escalation beyond North Kivu, while not our base case, cannot be discounted.”
AngloGold has held the Mongbwalu concession — with proven reserves of 2.5 million ounces — since 1998 and has had a presence there since 2004, but insecurity has hampered work, meaning that construction is only now getting under way, Reuters reported in April.
The world’s third-biggest mining firm partnered with Congo’s government to build the industrial gold mine in a vast zone deep in the hills of Ituri, a district in the central African state still recovering from a bloody ethnic conflict that ended in 2003, Reuters said.
—By CNBC’s Sri Jegarajah