A little-known provision of the sweeping Dodd-Frank financial reform law that passed the U.S. Congress last year has aggravated a growing shortage of a critical metal used in a wide range of products vital for defense and aerospace.
Beginning in April 2011, the “Conflict Minerals Act” tucked inside the massive bill significantly increases the reporting requirements for U.S. companies. They must demonstrate the tantalum they buy directly or that is included in components used in final assembly do not contain any metal sourced from the Democratic Republic of the Congo.
That nation has been linked to widespread violence and atrocities that include the murder of millions of civilians and the mass rape of women. In an attempt to address civil war and violence in the Congo, the United Nations Security Council in recent years approved nearly 60 conflict mineral resolutions.
The idea behind Dodd-Frank and the U.N. resolutions is to cut off tantalum sales used to finance both Congolese government troops and guerrilla fighters from neighboring Rwanda. The legislation and resolutions also seek to disrupt the Congolese government’s use of forced labor at tantalum mines.
For the last several years, the Congo has served as a major tantalum source. It is estimated that the West’s advanced economies supplied virtually all their own tantalum in the year 2000. But competing in part through lower prices, the Congo accounted for 50 percent of global supplies by 2008, the last year for which good statistics are available, industry analysts say.
Currently, the U.S. has no appreciable domestic supplies of tantalum. No significant mine production has been reported since 1959. Moreover, analysts note, the U.S. Defense Logistics Agency sold off the last of its tantalum supplies in 2007.
Under Dodd-Frank, U.S. corporations must report the sources of their tantalum to the Securities and Exchange Commission, the federal agency that regulates publicly traded companies. Industry observers say this provision applies to all major electronics suppliers, such as Dell, Cisco, Hewlett-Packard and Research-in-Motion, maker of the popular Blackberry smart phone.
Discovered in 1802, tantalum is a rare, hard metal that is blue-gray in color and known for its exceedingly high melting point. Tantalum also possesses excellent capacity to store and release an electrical charge, is highly corrosion-resistant and is a great conductor for electricity.
Thus, it finds its way into a wide range of electronics products such as personal computers and smart phones. It also is widely employed in nuclear reactors, jet engines, automotive and truck navigation systems, missile parts and radar antennas.
Tantalum is often incorrectly lumped in with rare earths, a group of 17 elements also used for defense, aerospace and electronics applications. Nevertheless, analysts say both tantalum and rare earths will face enormous buying pressures for at least the next five years.
Indeed, several major tantalum suppliers have exited the market rather than deal with the increased reporting requirements or the bad publicity surrounding the “conflict mineral.” For instance, Talison Tantalum of Australia and Tanco of Canada, who together accounted for 45 percent of global supplies, quit producing tantalum in roughly the past two years.
As a result, the stock market has rewarded small exploration companies with access to large tantalum deposits. Perhaps the best example of this phenomenon is Commerce Resources Corp., headquartered in Vancouver, Canada.
Since 2005, Commerce Resources geologists have drilled more than 150 exploration holes and discovered what are referred to as “indicated and inferred resources” of more than 23 million tons of tantalum. That would make the Blue River deposits among the largest in North America, analysts say.
As a result, the stock price of Commerce Resources has skyrocketed in the past year. Recently trading at about $0.80 a share, the stock provided investors with a one-year return of more than 100 percent.