(The information is as follows:). Manganese program-Estimated costs per budget calculations, May 5, 1951 SUBCOMMITTEE NOTE.-The "Expected or contract production" units are contained in finished concen trates of specification grade ready for shipment and use and represent recovered units. For instance, the announced manganese programs for the Butte, Philipsburg, and Deming districts provide for the purchase of low-grade ores or concentrates containing 12,000,000 long ton units of manganese, from which 8,920,000 units are expected to be recovered as shown above. STATUS OF BATESVILLE PROJECT Present consideration is of a project treating not less than 4,000 tons per day of clay of less than 2 percent manganese content from a very large area in which such ore may occur under a barren cover at Batesville, Ark. The estimated production will be 40,000 tons of ferro-grade ore per year. A. Applicant's proposals: 1. Revised application asks for overmarket price contract and for loan of about $2,400,000. 2. Applicant has agreed to contract stripping, mining, and hauling, eliminating certain equipment requirements and reducing the loan requirements to above $1,600,000. B. Within DMA: 3. Price of product is to be negotiated. Obviously it will depend on 5. The United States Bureau of Mines, on April 30 or thereabouts, com- 6. This sampling will extend the mineralized zone. If the grade is no poorer than that already assumed, the Supply Division will recommend favorably. 7. The decision should be forthcoming within 6 weeks. MAY 10, 1951. P. R. BRADLEY, Jr. Mr. REGAN. Any more questions before Dr. Boyd leaves? Mr. BUDGE. Doctor, in the light of our discussion on this one particular mine, I would like to just call your attention to this publication of the Department of the Interior, under date of 1950. In this publication about two-thirds of it is devoted to the particular mine we have been discussing and the mines to which you have sent two or three field crews since the first of the year. Dr. BOYD. May I have the number of that please, sir? Mr. BUDGE. This is geological survey, No. 229, complete with pictures, charts, maps, and the whole works of this particular mine. Dr. BOYD. Thank you. Mr. REGAN. Mr. Bennett, do you have a question? Mr. Martin? Mr. MARTIN. No questions. MEXICAN MANGANESE ORE DEPOSITS Mr. REGAN. Doctor, you will be excused in a moment. Before you go off, I want to ask you one last question on my own part. I referred to the two or three publications on manganese which you said you read and are familiar with, and that aside from satisfying yourself further that that mountain of ore is still there, by sending a man down to the ground to see it, you are ready to start buying Mexican ore, pronto? Dr. BOYD. That is right. Mr. REGAN. As soon as you get the money from the Senate this afternoon? Dr. BOYD. That is right. Mr. REGAN. I never knew there was any question of an American going to Mexico. They seemed to be coaxing you to go over there. Dr. BOYD. This is a little different question we had to get clearance with the Mexican Government to allow him to examine a deposit. I was told he had not been cleared, and therefore, he couldn't go in. I don't know what the holdup was. Mr. REGAN. Is that about to be cleared, or don't you know? Dr. BOYD. I am not convinced we need to do it. I have a feeling that the information is enough. Mr. REGAN. It seems to me you have all the information necessary, but I wondered if you had to have a last minute inspection to see if that hill of ore is still there. Dr. BOYD. I am not convinced we still have to do that. Mr. REGAN. I hope you have success in having the Senate see you get this money. Mr. Gumbel, will you proceed? GROSS CONTINGENT LIABILITY INTERPRETATION BY GENERAL ACCOUNTING OFFICE HAS UPSET FINANCING MINERALS PROGRAMS UNDER DEFENSE PRODUCTION ACT Mr. GUMBEL. I was just coming to this thorny question of financing these projects. When the Defense Production Act of 1950 was first passed it was the intent of Congress and the Administration that as much of this development would be done by private enterprise with private funds as would be possible, and it was conceived that the Government would simply stand back and make agreements which would to some extent limit the possibility of loss, such as the accelerated amortization, or these contracts, which we have entered into putting a floor price under. In other words, those contracts simply provide that the man will go ahead and expand his facilities, spend his own money, sell his product in the open market, but if the demand disappeared and the market fell that the Government stood ready to buy the product. We also assumed at that time in each of these contracts we put what we would consider accrued reserve to take care of the risk of the stuff that we might have to take. Mr. REGAN. Be called upon to buy. Mr. GUMBEL. Be called upon to buy. We naturally didn't figure when we had to buy material at 50 cents a pound that it would then immediately become waste also. We would assume if the market went down, it might go down to the pre-Korean price of, say, 25 cents, and therefore, we would set aside a reserve of the difference between what we had to buy, and what it would probably be worth to the extent that we might have to buy this material. But then there came an interpretation of the act, which said that when we entered into one of these contracts we would have to have appropriations to cover gross amount of the possible contingent liability. That is to say, when we enter into this tungsten program, and put a floor price of $63 a unit, that we had to figure and we had to get as much money to cover all the tungsten that would be produced for 5 years. For the tungsten program, that amounts to about $185 million. Well, in the first place, the $600 million which we thought would be ample, during this fiscal year, to take care of all our obligations, disappeared overnight practically when we got this interpretation. Furthermore, when we went to General Harrison, or now Mr. Gibson, and told him we want to operate a little tungsten program, and everybody knows that tungsten is a small program, and told him it was going to cost $185 million, he would be less than human if he didn't back away for a minute and didn't want to take a look at it. The whole point of it is this, Mr. Chairman, that no business, no individual could operate anywhere in the world on this principle of the gross contingent liability. That means that when you sign a 20-year lease you have got to have the rent for 20 years in the bank. That means when an aluminum company builds a smelter to smelt aluminum, it is going to need electric power in large quantities, and since the contract is with Bonneville Power Administration for power for 20 years, they have to put aside that money. As a result of this, this aluminum program, which we don't expect will ever cost the Government a dime, except for such aluminum as we are going to require the manufacturers to deliver for the stockpile, we have to appropriate $600 million. Mr. REGAN. Right there, Mr. Gumbel, this $600 million that has already been allocated to rubber, tungsten, and to aluminum, and so forth, of that $600 million that has been allocated, do you have any estimate of how much you will be called upon to put out? Mr. GUMBEL. A pure guess, Mr. Congressman, I would say a maximum of 75 to 100 million dollars. Let Mr. Medley speak on that. Mr. REGAN. All right, Mr. Medley, do you have the figures on that? Mr. MEDLEY. Well, there are two types of programs that have been financed from this borrowing authority of $600 million, Mr. Chairman. The first, the type that Mr. Gumbel just mentioned, that is the socalled underwriting contracts. Mr. REGAN. Yes. Mr. MEDLEY. And then the other type is the purchase and resale program, as we referred to it, such as your rubber program, where the Government has gone into the exclusive importation of rubber. In those instances, sufficient funds have been allocated to take care of the time the rubber is bought until it is resold. In other words, how much money you have got tied up in inventory. So, pursuing your question of Mr. Gumbel, of the $600 million, as of today, $432,340,000 has been allocated to the General Services Ádministration, and I am a little bit reluctant to put the individual figures for the individual programs into the record. I would be glad to make copies of this statement available to the committee. Mr. REGAN. It is just the over-all idea here, that we authorize $600 million, and already that $600 million is frozen, it is gone, and yet, you do not actually need more than 75 to 100 million of that. Mr. MEDLEY. Sir, of the funds allocated to us, let's say roughly 200 million, or say $225 million are used on these revolving-fund-type programs, to purchase and resale, the second category, and the balance, of $200 million, is strictly underwriting which, frankly, we don't expect to spend hardly any of it. Mr. REGAN. That 200 million, that revolving fund, that is just a working capital. Mr. MEDLEY. That is right, exactly. Mr. GUMBEL. Mr. Chairman, I would like to give you a specific example of how this works. Mr. REGAN. I would be interested. Mr. GUMBEL. You take the machine tool program. That was carried on by the RFC during the last war. They signed contracts for $450 million. Those contracts were for the machine tool manufacturers to go ahead and build machine tools, and if he couldn't sell them to anybody else, he could sell them to the Government. It was a guaranteed market. Actually, in carrying out that program, the RFC suffered loses of about $5 million out of the $440 million. Mr. REGAN. Do you have any figures Mr. GUMBEL. They had to buy about $30 million. Mr. GUMBEL. They had to buy about $30 million. Mr. REGAN. So out of the $450 million on tooling, they actually invested $30 million? Mr. GUMBEL. Yes. Mr. REGAN. And got back from that $25 million, leaving them a loss of $5 million on a $450 million program? Is that what we are up against in this program? Mr. GUMBEL. In this program, we have to have $450 million appropriated. Mr. REGAN. Did the RFC keep $450 million in their hip pocket ready to pay out during that period? Mr. GUMBEL. They had unlimited borrowing authority. Mr. ENGLE. Couldn't it be done by getting Congress to give you authority to make commitments? Mr. REGAN. That seems to be the answer, if we had that program or interpretation under the present program, you would not be out of money today. Mr. GUMBEL. That is right. To go a little further, take this aluminum program; these plants will not be built before another 18 months. Obviously, they can't deliver any aluminum to us before the plants are built, so we have no liability for the next 18 months, and a very slight liability thereafter. Mr. REGAN. In other words, it would be another year before they actually turn out a product for you to buy, if you wanted to buy it? Mr. GUMBEL. Yes, sir. Mr. ENGLE. How do you get around that? Mr. MEDLEY. I was going to say this, the interpretation, Mr. Congressman, has been an informal one, by the general counsel of the General Accounting Office. Mr. ENGLE. Probably a lawyer down there? Mr. GUMBEL. They are the last word on the interpretations of laws. Mr. ENGLE. They are just one notch below an economist, which is way down. Mr. GUMBEL. It would appear there would have to be a modification in the law before a change in financing could be brought about. Mr. ENGLE. When we reenact it, if we do reenact the Defense Production Act of 1950, that is one thing we ought to be sure to take care of, isn't it? Mr. GUMBEL. Yes. Mr. REGAN. I think we better get that same attorney you have down there to give us some language, and then see that he stays on that same job, so that he can interpret his own language in such a way that he wouldn't take it up. Mr. MEDLEY. I wouldn't know for certain, about this point, Mr. Chairman, but it was my understanding there was some consultation with the staff of the Appropriations Committee of the House also. Mr. ENGLE. Have you been a party to those conversations at all, Mr. Medley? Mr. MEDLEY. Yes. Mr. ENGLE. Can you submit the language to us? Mr. MEDLEY. If the committee so directs, yes, sir. Mr. ENGLE. Mr. Chairman, I would like to request the chairman make the request for the language, and some of us who are interested in this matter will follow up on it. Mr. REGAN. Without objection, we will look to you, Mr. Medley, to furnish some language that your lawyer will approve. Dr. MORGAN. In amplification of the point Mr. Gumbel made, just assume that for the next year, for 1 year, we decided to support the price of copper, lead, and zinc, at the present prices. Assuming that the total production of copper, lead, and zinc, for 1 year, would be around 3 million tons, and that the average price of all three would be about $500 a ton, in order for us to guarantee the current prices of copper, lead, and zinc, for 1 year, under this system, we would have to set aside $500 times 3 million tons, which would be $1,500 million. Mr. REGAN. Just for those three items. Dr. MORGAN. That is right. Prudent engineering judgment based on our knowledge of the defense production program in the coming year would say that at best we would have to buy only a few percent of the total supply of copper, lead, or zinc, for 5 years to come. Now, it was this budgetary inhibition that resulted in our overcertification, as I explained to the committee yesterday. Starting out on the one basis we were certifying all sorts of programs to the GSA to the extent that we had certified about $900 million worth, and then we came upon that interpretation, and that just stopped the program. Moreover, the estimate of $1 billion for supplemental appropriation for fiscal year 1951 was not made under this policy of having to set |