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SEC Issues FAQs on Conflict Minerals & Resource Extraction

Posted in SEC News

On May 30, 2013, the Securities and Exchange Commission (“SEC”) issued 12 Frequently Asked Questions (“FAQs”) providing guidance on various aspects of Securities Exchange Act of 1934 (“Exchange Act”) Section 13(p), Rule 13p-1 and Item 1.01 of Form SD relating to disclosure regarding the use of conflict minerals from the Democratic Republic of the Congo or adjoining countries.

The Guidance offered by the Conflict Minerals FAQs includes:

  • The conflict mineral rule applies to all issuers that file reports with the SEC under Exchange Act Sections 13(a) or 15(d), whether or not the issuer is required to file such reports.
  • An issuer that only engages in those activities customarily associated with mining, including gold mining of lower grade ore, is not considered to be “manufacturing” those minerals.
  • An issuer must determine the origin of conflict minerals, and make any required disclosures regarding conflict minerals, for itself and all of its consolidated subsidiaries.
  • An issuer that specifies that its logo be etched into a generic product that is manufactured by a third party is not considered to be “contracting to manufacture” the product.
  • An issuer is required to conduct a reasonable country of origin inquiry with respect to conflict minerals included in generic components included in products it manufactures or contracts to manufacture. There is no distinction between the components of a product that an issuer directly manufactures or contracts to manufacture and the “generic” ones it purchases to include in a product.
  • The packaging or container that contains a conflict mineral sold with a product is not considered to be part of the product.
  • An issuer that manufactures or contracts for the manufacturing of equipment they use in providing a service they sell is not required to report on the conflict minerals in that equipment. 
  • An issuer that manufactures or contracts for the manufacturing of any tools, machines, or other equipment that contain conflict minerals for it to use in the manufacture of products, are not considered products, even if such tools, machines, or other equipment are later sold.
  • Following an initial public offering, the issuer must start providing conflict mineral reporting for the first reporting calendar year that begins no sooner than eight months after the effective date of its initial public offering registration statement.
  • The failure to timely file a Form SD regarding conflict minerals does not cause an issuer to lose eligibility to use Form S-3.

On the same day, the SEC issued 9 FAQs providing guidance on various aspects of Exchange Act Section 13(q), Rule 13q-1 and Item 2.01 of Form SD, which require disclosure of certain payments made by resource extraction issuers to foreign governments or the U.S. federal government for the purpose of the commercial development of oil, natural gas or minerals.

The Guidance offered by the Resource Extraction FAQs includes:

  • A reporting issuer that is not engaged in commercial development of oil, natural gas or minerals itself but whose subsidiary or entity under its control engages in those activities would be considered a resource extraction issuer and would be subject to the disclosure requirement.
  • A company that provides services associated with the exploration, extraction, processing and export of a resource will not be considered a “resource extraction issuer.”
  • A company providing transport services will not generally be considered to be a resource extraction issuer unless the activities are directly related to the export of the resource.
  • Penalties and/or fines related to resource extraction paid to government agencies are not reportable as fees.
  • A resource extraction issuer is not permitted to provide the payment information on an accrual basis, but rather on an unaudited, cash basis for the year in which the payments are made.
  • If a resource extraction issuer has many sources of income in a particular country and pays corporate level income tax on the consolidated amount, the issuer does not have to segregate income to report the amount corresponding solely to resource extraction activities. A resource extraction issuer may elect to segregate income from exploration, extraction, processing and export from income earned on other business activities in a particular country and disclose income taxes paid solely on the income generated by the commercial development activities.
  • The failure to timely file a Form SD regarding payments by resource extraction issuers does not cause an issuer to lose eligibility to use Form S-3.