What I have asked of the Interior Department is not to present us with Mr. Spence's bill, which we cannot consider in this committee and which I do not think the committee would vote out if it was before this committee, but to examine the legislation which is being considered, with a view to determining whether or not there are any modifications along the line which they think they should have which would make it acceptable to them and which we could then proceed with on some assurances that we would not be faced with all sorts of administration opposition from the floor of the House and on the Senate side. That is a matter I now refer to you, Dr. Boyd. Have you given close study to these two bills with any view to suggesting possible changes which might be more in line with the thinking of your agency? I am referring to H. R. 976 and H. R.

2031.11

Mr. BOYD. Mr. Chairman, Mr. Barrett asked a question which I think I should answer. We are looking at this thing from the administrative point of view. It has been suggested that the Bureau of Mines administer such a plan if it comes out of Congress; consequently we wish to examine it carefully. I would be very pleased if the committee would hear Mr. Olund, who has made a thorough study of this project in the Bureau. Mr. Olund worked under the premiumprice plan, and has also been a small-mine operator. He came to Washington to help in the administering of it, and he wound up as Acting Director. He is sympathetic toward the problem of the small and marginal producer.

We thought he was the best man to make an analysis of it. He is here in the room and I think it would be helpful in answering Mr. Barrett's question to have Mr. Olund go through his studies to tell you how he felt administration could be done and how best it could be done.

Mr. ENGLE. We will be glad to hear the gentleman.
Please state your full name.

STATEMENT OF HENNING E. OLUND, MINING ENGINEER, BUREAU OF MINES

Mr. OLUND. I was for 2 years and a half in the Premium Price Staff of the Copper, Lead, and Zinc Division of the branch of the War Production Board.

Mr. ENGLE. You may be seated, if you care, to Mr. Olund.

Mr. OLUND. During the last 6 months, I was Acting Director of the Office of Premium Plan under the Department of Commerce, during the liquidation period.

Prior to that, I was manager of the Darwin mines in California, operated under the premium price plan, and had direct experience under the operations of the plan. That was during the war until we sold out the property to Anaconda in 1945. I may say that the premiums from the premium price plan have full credit for developing that mine into probably the fifth largest individual producer of lead

11 SUBCOMMITTEE NOTE. Neither the Bureau of Mines nor the Department of the Interior had made an analysis of H. R. 976 or H. R. 2031. At approximately this point in the hearing, on inquiry by the committee, the witness presented the committee with the four brief comparative statements included in the appendix as exhibit 22, on p. 338, and stated that no analysis or comparison of the bills had been made by the Department.

in the United States because we spent every bit of the premium money for exploration. That is what we required.

This opened up a very big mine. I am therefore sympathetic with the premium price plan.

During the first 2 years I was with the plan, and up until June 30, 1946, we operated under ceiling prices for metals, controlled labor prices, and controlled supply, and so forth. It was easy to administer. It was very ably administered under those conditions and was quite simple. I have heard some comment during my operating period and afterward from many operators that we were dictatorial, that is, in the administration of the plan. They resented having to turn in detailed monthly reports and account for their expenditures, and so forth, and they did not like it. Many of the companies did not like it at all. I think that is where we have been accused of being dictatorial more or less. That was not the truth.

I had direct experience with all the members of the quota committee. They were all mining engineers. They were very sympathetic, did all they could to assist the operators and help them in the best way within the limitations of the directives and rules under which they had to operate. I do not think they discriminated against anybody or tried to. It was just the opposite.

During the last year, after the controls went off, we got into difficulties, many difficulties. Many of the large operators, who produced most of the metal went clear off the premium price plan. Under the analysis of their operations, they could not earn their margin or get a premium, so they went off. The smaller ones and the medium-sized ones remained on. It was necessary for them to come in with requests for revisions every month to maintain their operations. As labor costs and supply costs went up, and freight rates went up, they had to have revisions within the limits of the premiums available. Many of them were not earning the total amount of premium that was available for them so most of them went clear up to the limits under those conditions. Then beyond that, many of them could not operate because they could not get premiums beyond that limit. They were worse off than they were before, due to market price increases.

Of course, that caused a lot of extra work. We had to increase our staff, I think we almost doubled our staff, and then we could not keep up with the work load.12 It was like multiplying the number of applicants or holders of premium companies by maybe 10 or 11 or 12 times. It increased the load that much. Then there were lots of other things.

They sent their enginers, accountants, and lawyers here to see if they could work out some way to get more premiums. They did not think we were giving them all they were entitled to. We were. They would go through our files. They took up a lot of our time. It was much more difficult to handle the work, especially with the addition of the exploration program to the premium price plan. However, I will say this, that the exploration program was not hard to administer. It did not require too many men. I think we only had about four men that practically took care of that whole job, but we did need field engineers in the worst way.

12 See subcommittee note No. 10 on p. 322, which contains information contrary to this statement.

We could not sit here in Washington and tell people, or operators, what we should allow them, and so forth, in the way of development programs. It was a necessary thing to have field engineers and we did not have them. We were criticized for that, too, and were accused of being arbitrary in what we allowed. However, it proved in the final analysis that we were not so far wrong in our judgment.

We were really closer in our judgment of the mines than some of the operators themselves.

I think that the mechanics of handling the exploration under a premium price plan or a contract system are exactly the same. In fact, they are much simpler under the contract system. In getting a basis for a contract and the amount of money you are going to give them, it is the same. You send your engineers out to size up the property and the operation and you negotiate with the operator on what ground looks favorable, and what he wants to develop or explore, and that work will be done by competent mining engineers.

I have heard some remarks about discrimination or arbitrary discrimination against small operators under that plan. I do not think that is true at all. I think the mining engineers would go out out to determine if the operator has a legitimate exploration program. He may have a property where is not a chance to find anything no matter what you spend on it, and even private industry would not undertake to work in such a property. These mining engineers who will administer it are competent, experienced engineers and they understand their business, and they are not arbitrary.

I think if there were a possibiilty of a chance to develop ore they would give anybody that asked for a contract, a contract. I do not think it is true that it would be an arbitrary thing at all in any way, or discriminatory against small operators or anybody else.

I think it could be much better administered and with less personnel under the contract system than under premium price plan.

Mr. ENGLE. Mr. Olund, what would be the basic difference between an application for a premium quota under H. R. 976, for instance, and an application for a contract which would be made under a selective contracting system?

Mr. OLUND. There is absolutely none. The same procedure and same thing is done in both cases. There is not a bit of difference. They are done exactly the same way.

Mr. ENGLE. There is this difference, though, is there not, that if you have a premium-price plan, as provided in H. R. 976, under which a man files an application for a quota, his entitlement to that quota is established in a formula written into the law, whereas if you have a selective contracting system, then somebody can turn him down solely for the reason they do not like the way he combs his hair.

Mr. OLUND. I think the same formula should be incorporated in a contract plan. I do not think it would be any different. I think the same limitations, the same directives should be in both cases and could be operated in both cases. I do not think there would be any difference and I think the same system would be used. It is just a method, the way you administer your program.

Now, you take in the case of operating premiums under a premiumprice plan. You are going to have a lot of strategic metals. It will increase the load maybe 25 or 30 times what we had under the copper, lead, and zinc plan, and they are going to be constantly under varying

conditions of prices and costs, and so forth. There will be continual request for revision. In every request, the analysts have to go through the same procedure.

You have files full of correspondence and monthly operating reports and the big disadvantage under any premium-price plan is that they would have to submit monthly reports and records of their operations, if you are going to administer it properly.

Under a contract system, all you have is the initial examination. You set up the program in the same sort of a way. You agree with the operator that he is to have a certain price and it is to be varied according to certain formulas automatically.

Mr. ENGLE. Now wait a minute. When you got down to the escalator clauses in your contract, which would have to be reviewed from time to time to determine whether or not the escalator provisions become effective, you would be doing precisely the same thing that you would do under the quota system; would you not?

Mr. OLUND. No; the operator would not have to. I am now talking about production premium, for instance, under a contract system. The operator would not have to submit monthly reports even under the exploration plan. He would not have to send in monthly reports and records we required under the premium-price plan, and would have to be required again.

From time to time in the contract, there is provision made, if he discovered a big ore body or improved his mining methods, and so forth, there should be, say every year, or every 9 months, or whatever time they decided for a review, a visit by the mining engineers, and renegotiation possibly, of that contract.

All this extra administration business would be cut out. I think that under a contract system, operating or production premiums, the staff would be probably not over 25 percent of the staff you would need under the premium price plan. It would be as effective and attain exactly the same end.

Mr. ENGLE. If you wrote into a selective contracting provision the formula under which they were to be granted and under which they would have to be granted in the event that an applicant for a contract complied with those specifications

Mr. OLUND. Yes. And in the case of exploration, if the property warranted an exploration program. You would not want to throw away money on a property that was hopeless by allowing an exploration project.

Mr. ENGLE. But then you would have the premium price plan because the Supreme Court has held that the granting of a premium quota by the Federal Government was, in effect, a contract between the mine operator and the Federal Government.

Mr. OLUND. The only difference in the two is the method of administration, and men with money-I have had contacts with men during this past year who have lots of money and are anxious to mine, and they hesitate. They do not want to go ahead. They have good properties to work on. They say, "We have no guaranteed price. We will get our money spent and get set to produce and then the bottom will drop out of the market and we are not protected." What they want is an assurance and I think the fact that they had a contract with a guaranteed price over a certain period of time is really more important than anything else. It is of more importance to them than

anything else and then with the assistance they get from exploration and the other assistance currently given by the Bureau of Mines in the way drilling and metallurgical assistance, and so forth, I think it is adequate.

I think they are getting all they are entitled to. The operator himself is on his own. He does not have to depend on anybody else, after one thing is set, he is on his own and he has to perform under it. I do not think that is an unfair demand either.

Mr. ENGLE. Let us take a natural case, Mr. Olund. Let us take the case, for instance, of a man who has a copper property. The price of copper today is 2312 cents, is it not?

Mr. OLUND. Yes.

Mr. ENGLE. Let us assume he says he can get ore out of his property if he has a 25-cent price.

Mr. OLUND. Yes.

Mr. ENGLE. If he files under the selective contracting system for a contract at a 25-cent price, you will put an escalator provision in the contract, providing that if he hits better ore, or if he can lower his costs so that he can actually produce at the market price, he would not get the 25-cent price. Is that the case?

Mr. OLUND. He will get the price agreed on in the contract, whatever it is, regardless of the market price. I should say for escalators, on the labor board price index schedule, you might have escalator clauses in there or a premium based on a percentage of a certain market price back and forth, too, but that would be automatic. That would be an automatic adjustment.

Mr. ENGLE. How would you control the contract in the event that the operator got the mine open and going, it developed he could actually produce copper for 15 cents?

Mr. OLUND. I think provision should be in the contract for review and renegotiations under those conditions. I think there should be provisions and I think it is easily done.

Mr. ENGLE. In the event you do that, what you have, in effect, is the premium-price plan, do you not?

Mr. OLUND. I am not saying that. It probably does. I am just trying to give my reaction and my experience in this thing from my study and contact with it, what I think is the best plan for administering it, regardless of other considerations.

Mr. ENGLE. The point I am making, though, is that if you write a contract containing escalator clauses and provisions for review, then, in effect, you have the premium-price plan on a selective basis.

Mr. OLUND. Yes; but more easily administered and more cheaply administered and, I think, more satisfactory to the operator himself because he is relieved of giving you detailed monthly reports 13 and giving you the inside of his operations.

Mr. ENGLE. The Interior Department, under this proposal, would have the Bureau set up regulations which would determine the actual mechanics of the operation of the plan, and they could make those as detailed as they want, or as general as they want, but it is hard for me to believe that you can have the same thing in each instance and claim that the administrative problem would be different.

13 SUBCOMMITTEE NOTE.-The bills do not require monthly or any periodic reports from the operators. The matter is left to the discretion of the administrator.