Conflict Resources: Why You Should Care
Conflict resource mining occurs in areas of war. Often, the profit from selling the resources prolongs the conflict. Also, many of the people who mine the gemstones and minerals are slaves who are forced to work under brutal conditions. Since the mines are in remote locations, it is not easy to stop the abuse.
Research shows that easy access to funds from the sale of conflict resources increases the length the conflict goes on. This is called the “resource curse.”
The poor working conditions add to human misery. Human rights laws ban some of the more common practices. Cutting off the funds from the sale of the trees, ores and stones could reduce needless suffering.
Many people object to buying conflict resources for these reasons. The United States has passed laws to restrict the use of conflict resources. The UN Security Council has also passed rules and created guidelines for managing conflict resources.
Conflict resources include mineral ores, timber, fossil fuels and gemstones. To a lesser extent, poppy seeds, cocoa, rubber and cotton create conflict in some regions.
Much of the conflict resource problem stems from countries in Africa. The main countries are Republic of Congo, Angola, Sierra Leone and Liberia. Cambodia has had conflict timber issues in the past.
Common uses for conflict minerals include electronic components and devices. Conflict gemstones and gold are used in jewelry and other products. Timber harvests also fund wars in parts of the world where wood is scarce.
There are four conflict minerals that make up the bulk of the problems. They are sometimes referred to as “the 3Ts and gold”, or 3TG.
Tantalite is one of the conflict minerals. Electronic devices use tantalum capacitors. It is also used in jet engines, drill bits and other tools because it is very hard.
Coltan is used to make tin, PVC and fungicides. It is used in electronic devices and cans.
Wolframite is the source for tungsten. Tungsten is very hard and dense. It is used in fishing gear, golf clubs, green ammo and tools.
Gold is used in jewelry and industrial products.
The diamond industry put processes in place to identify so-called “blood diamonds.” As a result, they are no longer as much of a problem as the 3TG resources.
The supply chain for 3TG is complex. This makes it hard to identify the source of these ores.
Often the ores pass through several nearby countries and may be combined with humanely mined ores. As a result, the U.S. Conflict Minerals Law applies to minerals from any of the following countries:
- Central African Republic
- Congo Republic
The U.S. Conflict Minerals Law requires third party audits proving the source of ores at every step in the supply chain. It also mandates filing the audit reports with the SEC.
The SEC adopted the requirements as part of the Dodd-Frank Act in 2012. The regulation requires companies to report their use of 3TG on Form SD each year. The first Form SD reports were due on May 31, 2014. The reports covered mineral usage for calendar year 2013.
Companies must certify that their use of conflict minerals in their product is necessary to make the product work. They must also disclose if they use conflict ores in the manufacturing process for their products. This is true even if they do not make the product themselves.
Many people think the law is flawed because it does not resolve the root cause of the problem. The law puts the burden of proof on the government of the country where the mine is located.
Some of the citizens of the affected countries claim that the law has made the problem worse. Yet the change has had a clear financial impact. In 2010, before the law,miners sold coltan (tin) at $7 a kilo. Today, uncertified mines receive only $4 per kilo of coltan. India and China bought most of that ore.
Investors don’t usually buy conflict ores directly. They put their funds into ETFs or commodity funds. Many funds make a point of publishing their policy around conflict minerals for the convenience of their investors.
The demand for trees, ores and gems will not go away. These minerals are a necessary part of many of the most sought after products around. Even so, people should follow their own hearts when choosing to invest in conflict minerals. Before you invest your money in an ETF or commodity fund, make sure you know and agree with its policy on conflict resources.