Upstate capacitor manufacturers thwart smugglers

By Dick Hughes  

MAY 18, 2012 9:03 a.m. (0)

Global capacitor manufacturers KEMET and AVX are leading an international initiative to keep your smartphone free of a mineral exploited by smugglers and armed militias intent on wreaking murderous havoc in Central Africa.

The two Upstate companies are the world’s largest producers of capacitors made from tantalum, a mineral favored by electronics makers for its capacity to store high levels of energy in a small space and efficiently release it as you tap away.

If your cellphone has lots of bells and whistles and enormous capacity, it probably has a capacitor made with about 40 to 50 milligrams of the mineral. Video game consoles, laptops, receivers, TVs – indeed, all electric devices – have capacitors, though not all are made of tantalum.

However, those that are number in the billions, making tantalum a crucial ingredient for the electronics industry – and a danger. The United Nations reports that millions of people, mainly civilians, have been killed, maimed and displaced in conflicts funded by ill-gotten coltan, the ground source of tantalum, and even more so by gold and other valuable minerals looted from the Democratic Republic of the Congo.

In the mineral-rich DRC, smugglers and opportunistic neighboring countries have managed to exploit with impunity a primitive supply chain to fund militias and criminal gangs for indiscriminate civil wars and illicit profit.

In 2007, when humanitarian groups attacked the mobile phone industry for irresponsible sourcing of material, image-sensitive companies such as Motorola, Nokia and Sony boycotted tantalum from the DRC, creating an economic crisis where coltan was mined and causing even greater unrest.

Adding to the pressure, the 2010 Dodd-Frank financial reform act requires publicly traded companies to publicly disclose what materials in their products came from conflict-affected areas in Central Africa. AVX and KEMET were taking steps to address the issue well before that legislation was passed.

“In 2009, we started exploring how to get around effectively what is an embargo of material from the DRC and bring back into the supply chain validated conflict-free material,” said Peter Collis, vice president for AVX Tantalum. Collis and William Millman, technical and quality director, were interviewed by phone from their United Kingdom office.

Rather than dealing with the problem, many international corporations simply walked away, making matters on the ground worse, AVX and KEMET officials said.

“When the trade dropped by 70 or 80 percent, you had a large number of artisanal miners who had no income, and they started to drift into the towns. They drifted into the militias. They were going to survive no matter what. There was an awful lot of social disruption that was caused by the embargo.”

Choosing to “responsibly engage,” Millman spent two years working with international agencies, federal and regional governments in the DRC and electronics manufacturers to replace the supply chain that was easy and profitable to exploit.

This spring, AVX delivered the world’s first validated conflict-free tantalum capacitors with minerals from a certified conflict-free mine in the DRC’s Katanga region and smelted into tantalum in China by a smelter certified to process conflict-free ore only.

KEMET also was involved “very early on,” despite being warned “not to get involved in the Congo, that it was fraught with opportunity for failure,” said Daniel Persico, KEMET’s vice president for strategic marketing and business development.

“Our answer was if we don’t do this, we have people in the Congo whose livelihoods were taken away from them, and we have an opportunity to put their livelihoods back together. No. 2, we have an opportunity to take a leading place in the industry by saying this is the way it needs to be done,” he said.

Both companies quickly discovered that the indigenous system of multiple layering of traders and speculators – from the point artisanal workers get hired to dig ore to the point the ore is smelted – had become a sieve for smuggling, worker exploitation and market manipulation.

“The last thing the traders wanted to participate in was anything that involved transparency and traceability,” said Millman.

Both companies decided take direct control, buying only from mines willing to undergo rigorous conflict-free audits, compensate workers fairly through cooperatives, pay government taxes, reinvest in the mines and villages and follow strict rules for “bagging and tagging” ore.

“These mining materials are bag-by-bag recorded by government officials at the site, and they take their rightful taxes at that point,” explained Millman. “Now the government has skin in this game. They can see a revenue stream of taxation, so they invest in security.”

Working conditions have also improved. In the traditional system, Millman said agents of the traders “would go out with cash in their pockets and negotiate on a miner-by-miner basis. They would beat the price back to the very lowest level: ‘Do you want your cash for food today or don’t you?’”

AVX and KEMET, working with the concession-holders of the mines, added mechanization to increase production without destroying the livelihoods of the hand-miners.

“The jobs are set up so everyone gets paid every day based on the total output versus what an individual effort might produce,” Persico explained.

He said KEMET will spend $150,000 annually, “which is a lot of money in the DRC, for sustainable projects on the ground, which includes schools, medical clinics, wells with clean water, solar street lighting … teaching them to be self-sufficient from an agrarian perspective.”

Millman said AVX made clear from the outset “that we would pay world-market price for the materials. We wanted to send a message to the world that our interest was not to facilitate low price material from Africa because of the working conditions.”

Both companies found that by eliminating middlemen, costs are lower or neutral even as they pour more money into improving and upgrading working conditions and investing in preserving security of the conflict-free supply chain from start to finish.

“We paid world price to the trader, and in that regard nothing has changed,” said Millman. “The difference was with the trader, the profits went into a Swiss bank account and now it goes back into reinvestment on the ground in changing the artisanal mining into a semi- industrial one.”

Another major benefit, said Persico, is by taking “all the speculators out of the picture,” KEMET will cut from 300 to 150 days the time it takes to turn raw ore out of a mine into a completed capacitor.

While KEMET and AVX are “addressing it a little differently, it is important we are both addressing it for the right reasons,” Persico said. “It is important they are successful, also.”

With the two companies on the same page, they set the standard for other producers and ensure the electronics industry of a reliable supply of conflict-free tantalum from the DRC.

Said Persico, “We require hundreds of thousands of pounds. AVX requires hundreds of thousands of pounds. You could throw a blanket over AVX and KEMET, which are the largest in the world.”

While they have created a model of how to do it, there is no guarantee your smartphone is free of minerals from conflict-funded sources because the capacitor industry is the only one that has taken concrete action to ensure its materials are out of reach of smugglers who sell to armed groups.

“Tantalum was not the funder of conflict,” said AVX’s Collis. “It is gold.”

Nongovernment humanitarian organizations “highlighted phones because they were so ubiquitous, but actually there is 10 times more value of gold in the mobile phone than tantalum, but we didn’t spend time pointing at others. We got on with it.”

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