Interview – Per-Olof Loof
The Dodd-Frank Act presented many of our companies that source tin and other conflict minerals with a dilemma on how best to monitor and implement best practice mining techniques it the war-torn Democratic Republic of Congo (DRC). Kemet Electronics has taken a unique and bold strategy by creating a closed loop supply chain that has benefited the local miners and their families and created a reliable and sustainable source of tantalum for their customers.
You recently testified before the House Financial Services Committee on the conflict minerals provision in the Dodd Frank Act. This was setup to prevent abuses in the DRC and neighboring countries, but you think it actually discriminates against the DRC – why?
I do not believe that Section 1502 discriminates against the DRC and neighboring countries. At KEMET, we have shown there is opportunity in the DRC with the passing of Section 1502. This legislation was the impetus and roadmap for us to develop an innovative and socially sustainable source for conflict-free tantalum ore in the Democratic Republic of Congo (DRC). In 2011, we formed “The Partnership for Social and Economic Sustainability” with the objective to create a vertically integrated, closed-pipe, sustainable sourcing model. Our closed-pipe process ensures that there is no tantalum from non-conflict-free sources. In addition, we believe our investment has reduced the extreme fluctuation in ore and powder pricing compared to our former supply model; our initiative has stabilized the pricing of this material benefitting not just KEMET but the industry at large. Based on a recent report the volume of tantalum exports from the region has increased fourfold since 2010 (Source: iTSCi Programme Report 2014).
Do you believe companies are moving away from DRC with an “anywhere but DRC” policy?
I can only speak of tantalum ore, and that is one area where the Democratic Republic of Congo (DRC) can be a world leader. This is due to the fundamental chemical nature of the tantalum molecule and the form in which it typically exists in the DRC. The DRC enjoys the most cost competitive source. Simply put, it is easier to get to and the tantalum density is significantly higher. I think it is very difficult for companies to ignore the DRC.
The reaction of most companies is to join certification groups that audit the mines and smelters. Do you think this is an effective approach to the problem?
There has to be something to hold companies accountable and hold them in compliance. Companies joining certification groups is a step in the right direction but the real challenge is certifying that companies are in compliance. At KEMET, there are compliance costs but we have seen a continuous reduction of these costs over time. Much of the initial compliance costs were related to supply chain training and identification of legitimate smelters, the pinch point in the supply chain. Industry efforts such as the EICC CFSI developed a smelter database as well and the globally accepted conflict minerals reporting template. Virtually all the world’s tantalum smelters are now EICC Conflict Free Smelter Program compliant. The synergy developed through the maturity of such programs and our internal controls have helped manage and reduce the cost of compliance.
What has been the KEMET strategy and where did this idea come from?
Tantalum capacitors have been a key product for us since 1958, after Bell Labs invented the solid state capacitor in the mid-fifties. Today, about 46% of KEMET’s revenue originates from tantalum capacitors. Tantalum powder is our single largest material cost item. Acquiring tantalum at stable and competitive prices is paramount for everyone. This has always been a bit of a struggle but during the global recession in 2008 and 2009 it became a real issue. Powder suppliers kept raising prices seemingly unaware of the world around them. We had to figure something out. The DRC was not, at the time, an option. As things became difficult in the DRC and the region due to conflicts, customers did not want products with raw materials originating from the DRC – some even said that they did not want “blood tantalum” capacitors. The industry can procure ore from other locations and we did, of course, mainly from China. But we all knew that the DRC enjoys the most cost competitive source.
What technical advantages has this brought KEMET?
KEMET’s objective was a vertically integrated, closed-pipe, sustainable sourcing model. KEMET’s assistance in the creation of a conflict-free mine, which is operated according to a special agreement among KEMET, our mining partner Mining Mineral Resources and the people of the mining town of Kisengo, ensures our supply is closed-pipe. Then we built an ore processing facility in Matamoros, Mexico. Lastly, we bought a tantalum powder production company in Carson City, Nevada. All of our facilities have been audited and validated as compliant with the Conflict-Free Smelter Program of the Electronic Industry Citizenship Coalition and the Global e-Sustainability Initiative. The total KEMET investment to date is in excess of $110 million. Our closed-pipe process ensures that there is no tantalum from non-conflict-free sources. We are able to guarantee 100% conflict-free tantalum for our customers.
Are there any economic advantages to this form of vertical integration?
The business value is clear. And the economic benefit to KEMET is multiples of what we have invested in the village in the DRC to improve the life of the miners and their families. The annual run rate benefit to KEMET is now at $56 million. We have shown that it is possible to succeed in business while being economically and socially responsible.
Do you think this is an initiative you can expand upon to other regions in the DRC and other non-KEMET customers?
The Dodd-Frank Act has certainly helped companies like KEMET to again embrace the DRC after decades of absence. It has allowed us to develop a competitive and secure supply chain, improving both our competitiveness and the life of the people in the village. Whether our efforts can be replicated by other companies in other countries and industries is to be determined. KEMET has shown that it is possible to succeed while being economically and socially responsible. It is my hope that other companies look to KEMET as a model for how to source economically and socially responsible in the future.