On May 30, 2013 the SEC released 12 FAQs relating to disclosure regarding the use of conflict minerals, and nine FAQs relating to disclosure of payments by resource extraction issuers. Disclosure of the use of conflict minerals is required under Exchange Act Section 13(p), SEC Rule 13p-1 and Item 1.01 of Form SD. Disclosure of certain payments made by resource extraction issuers to foreign governments or the U.S. government is required by Exchange Act Section 13(q), SEC Rule 13q-1 and Item 2.01 of Form SD. The guidance provided in the FAQs is summarized below.

Conflict Minerals:

  1. Voluntary filers are required to file Form SD; however, registered investment companies that file under Investment Company Act Rule 30d-1 are not required to file Form SD.
  2. As indicated in Form SD, Item 1.01, Instruction 1, mining activities are not included in the definition of "manufacturing." The exception for mining activities applies to all activities normally associated with mining, including gold mining of lower grade ore, smelting and transporting.
  3. Each issuer is required to determine the origin of conflict minerals and make all required disclosures for both the issuer and all consolidated subsidiaries.
  4. Etching a logo onto a product manufactured by a third party is not considered manufacturing for purposes of disclosure.
  5. Each issuer using generic component parts purchased from third parties in the manufacture of the issuer’s products is required to engage in reasonable country of origin inquiry regarding the materials used in the generic component parts.
  6. Packaging is generally not considered "necessary to the functionality of the product" even if such packaging is necessary to preserve the usability of the product up until and following the product’s purchase. If packaging or containers are sold by issuers independent of the product, then such packaging or containers would be subject to disclosure.
  7. Equipment used to provide a service is not a product. This is true even if such equipment is manufactured by an issuer or contracted by an issuer to be manufactured and used for the service provided by the issuer, provided that any such equipment is retained by the service provider, is required to be returned to the service provider, or is intended the be abandoned by the customer following the term of service.
  8. Tools, machines and other equipment that an issuer manufactures or contracts to manufacture for use in the manufacture of other products are not products, even if the issuer later sells the tools, machines or equipment.
  9. An issuer producing products that are "DRC conflict undeterminable" is not required to describe its products using model numbers, provided that the description in the Conflict Minerals Report filed with form SD uses terms commonly understood within the industry and such report contains the language "have not been found to be 'DRC conflict free'" or "DRC conflict undeterminable," as applicable.
  10. If an issuer determines that its product contains conflict minerals from the Democratic Republic of Congo or adjoining country but the minerals are "DRC conflict free," then the issuer is not required to disclose the products containing the conflict minerals but the issuer is, however, required to: (i) file a Form SD with a Conflict Minerals Report, and (ii) obtain an independent private sector audit of its Conflict Minerals Report.
  11. Following an IPO, Issuers may begin reporting for the first reporting calendar year that begins no sooner than eight months following the effective date of the IPO registration statement.
  12. Failure to timely file Form SD will not affect an issuer’s eligibility to file on Form S-3.


Resource Extraction:

  1. A reporting issuer that is not engaged in commercial development activities 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.
  2. Companies that only provide services associated with exploration, extraction, processing and export generally are not considered resource extraction issuers. For example, the guidance notes that companies are not subject to disclosure as a result of providing hardware and logistics to other companies for the purpose of exploring for or extracting minerals. Additionally, companies engaged by an operator to provide hydraulic fracturing services or drilling services for the operator are not themselves considered resource extracting issuers. However, if a service provider makes a payment which falls within the definition of "payment" to a government on behalf of a resource extraction issuer, the resource extraction issuer must disclose such payment.
  3. For purposes of disclosure on Form SD, a "mineral" is any substance commonly understood to be a mineral, including any material for which disclosure is required (or could be required without regard to materiality) under Industry Guide 7, "Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations."
  4. Issuers engaged in transporting a resource from one country to another are generally not considered to be engaged in "commercial development," which includes in its definition "export" of the resource, provided that any such issuer does not have an ownership interest in the resource being transported.
  5. Payments made to majority-owned government transportation services to supply people or materials to an extractive job site are considered ancillary or preparatory and not subject to disclosure.
  6. Penalties and fines paid to government agencies are not subject to disclosure.
  7. Payment information must be presented on an unaudited, cash basis for the year in which the payments are made.
  8. A resource extraction issuer is not required to segregate income earned in resource extraction activities and disclose taxes paid on such segregated income. However, when disclosing payments made to governments to further commercial development activities in a particular country, an issuer may elect to segregate income earned in exploration, extraction, processing and export from other income earned in that country and disclose income taxes paid solely on the income generated by the commercial development activities.
  9. Failure to timely file Form SD will not affect an issuer’s eligibility to file on Form S-3.