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SEC Issues FAQs on Conflict Minerals and Payments by Resource Extraction Issuers

On May 30, the Division of Corporation Finance of the Securities and Exchange Commission issued responses to frequently asked questions regarding the disclosure of conflict mineral usage and payments by resource extraction issuers that is required by rules adopted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (including certain disclosure on new Form SD).

With respect to disclosure of the use of conflict minerals from the Democratic Republic of the Congo or adjoining countries, the Division of Corporation Finance provided the following guidance: 

  • Conflict minerals disclosure requirements apply to every issuer that files reports with the SEC under Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), even if the issuer is a voluntary filer;

  • Conflict minerals disclosure requirements apply to an issuer and each of its consolidated subsidiaries;

  • An issuer that engages only in activities customarily associated with mining, including crushing, mixing and smelting ore, is not considered to be “manufacturing” those materials for the purposes of Form SD;

  • An issuer that specifies that its logo be etched into a generic product manufactured by a third party is not considered to be “contracting to manufacture” that product;

  • An issuer is required to conduct a reasonable country of origin inquiry with respect to conflict minerals included in the products that it manufactures or contracts to manufacture, including with respect to conflict minerals included in generic components purchased for inclusion in such products;

  • Packaging or a container sold with a product is not considered to be a part of the product in an issuer’s conflict minerals disclosure analysis, even if the packaging or container is necessary to preserve the usability of the product following its purchase (although the packaging or container would be considered a product for an issuer that manufactures and sells packaging or containers independent of the product);

  • Services are not considered products for purposes of the conflict minerals disclosure rules, and the equipment used to provide such services is not considered a product;

  • Tools, machines and equipment containing conflict minerals that are used in the manufacturing of products of an issuer are not considered products of that issuer, even if the issuer later resells such tools, machines and equipment; and

  • Following an initial public offering, an issuer must begin reporting conflict minerals disclosure for its first reporting calendar year that begins no sooner than eight months following the effective date of its initial public offering registration statement.

With respect to the disclosure of payments by resource extraction issuers to foreign governments or the US federal government for the purpose of the commercial development of oil, natural gas or minerals, the Division of Corporation Finance provided the following guidance:

  • Resource extraction disclosure rules require disclosure of payments made to governments by the issuer, the issuer’s subsidiaries and any entity under the control of the issuer;

  • An issuer that only provides services associated with the exploration, extraction, processing and export of a resource is generally not considered to be a resource extraction issuer;

  • An issuer that only provides transportation of a resource across an international border without an ownership interest in the resource as an export would generally not be considered to be a resource extraction issuer;

  • Penalties and fines related to resource extraction paid to governmental agencies are not reportable as fees on Form SD;

  • A resource extraction issuer is required to report payment information on an unaudited, cash basis for the year in which the payments are made, and is not permitted to report this information on an accrual basis; and

  • A resource extraction issuer is required to disclose payments made to governments to further its commercial development activities, but not other payments made to those governments, including taxes.

With respect to disclosure rules pertaining to each of conflicts minerals and payments by resource extraction issuers, the failure to timely file a Form SD will not cause an issuer to lose its eligibility to use Form S-3.

The SEC’s disclosure rules on conflict minerals and resource extraction remain subject to lawsuits challenging their validity. Oral arguments are scheduled for July 1 in the suit brought by the National Association of Manufacturers against the SEC in the US District Court for the District of Columbia regarding the conflict minerals rules. With respect to the resource extraction rules, the American Petroleum Institute, the Chamber of Commerce and other plaintiffs brought suit against the SEC in the US District Court for the District of Columbia, and the district court’s decision on the plaintiffs’ motion for summary judgment is currently pending.

For additional information on conflict minerals, click here.

 For additional information on extraction issues, click here.

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About this Author

Mark D. Wood, corporate securities lawyer Katten Muchin Chicago Law firm

Mark D. Wood is head of Katten's Securities practice and concentrates in corporate and securities law. Mark represents public companies, issuers and investment banks in initial public offerings (IPOs) and other public offerings, private investment in public equity (PIPE) transactions, debt securities and other securities matters.

Mark also represents clients in complex corporate transactions, including tender offers, mergers, acquisitions, dispositions, going-private transactions, private equity investments, joint ventures and...

David S. Kravitz, Corporate Legal Specialist, Katten Muchin Law firm

David S. Kravitz concentrates his practice on a broad range of transactional, securities and general corporate matters. He regularly advises private equity sponsors, public and privately held companies and their boards of directors and committees of independent directors in a variety of transactions such as mergers and acquisitions, corporate financings, joint ventures, unsolicited takeovers, proxy contests and other contested transactions, including auctions and leveraged buyouts. His experience spans a broad range of asset classes and industries, including pharmaceutical, fashion, Great Lakes shipping, technology, energy, gaming, restaurants and insurance, among others.

David also serves as general counsel for a number of his public and private clients, providing advice on a wide range of matters including growth initiatives, capital formation, securities and regulatory matters. For his public company clients, he also regularly advises on corporate governance issues and Securities and Exchange Commission reporting and disclosure.