Relationship of tonnage, cost, and price of premium metal to total production. Note slight change in output when premiums ended. How effective were the measures taken to increase wartime production of copper, lead, and zinc? Studies like this may provide the answer.

92987-49-ser. 14- -21

As shown in the chronology on these pages, Leon Henderson (Price Stabilization Commissioner, Advisory Commissioner to the Council of National Defense) began the move toward the plan, when he announced on September 27, 1940, that he saw no justification for the unstable price situation in copper, lead, and zinc. He said the Government might take action if markets continued to rise.

Thereafter, in one step after another, the system of assistance for nonferrousmetal miners known as the premium price plan was worked out. Under what might be considered the highest expression of its growth, the plan was operated by a method set up on November 23, 1944, by General Administrative Order No. 2-147, which defined the responsibilities for the administration of the plan and prescribed the functions of the Premium Price Plan Quota Committee.

Under this order, the vice chairman for metals and minerals (War Production Board), was made responsible for managing the plan. Quotas for mines were fixed by agreement between the vice chairman and the Office of Price Administration. Premiums were, of course, to be paid for over-quota production of copper, lead, and zinc.

The Premium Price Plan Quota Committee was designated to be composed of a nonvoting chairman appointed by the vice chairman for metals and minerals (WPB). Also one representative for the Copper Division, WPB; two representatives for the Tin, Lead, and Zinc Divisions, WPB; and three representatives from corresponding organizational units for the OPA.

The Quota Committee was authorized to administer the premium price plan. All production quotas were established and assigned subject to the approval of a review board composed of the vice chairman for Metals and Minerals, a representative of OPA, and a representative of the Metals Reserve Company.

This organization stayed in authority until termination of the WPB, the Civilian Production Administration (successor to WPB), and the OPA, and the transference of the premium price plan to the Office of Temporary Controls, Office of War Mobilization and Reconversion, on January 1, 1947.

In addition to the voting members of the Quota Committee, all Committee meetings were attended by the executive secretary of the Quota Committee, the attorney for the Premium Price Plan Division of the OPA, and very often by one or more analytical mining engineers from either the OPA or the WPB Premium Price Plan Divisions.

Representatives of mining companies having special problems to place before the Committee were invited to appear personally to present data and to discuss questions of rules or procedure in assigning quotas.

When Gen. Philip Fleming, Administrator, Office of Temporary Controls, issued an order, effective January 16, 1947, establishing the Office of Premium Price Plan for copper, lead, and zinc, five major changes were made in the administrative procedure hitherto followed.

1. The Office of Premium Price Plan became part of the Office of War Mobilization and Reconversion, and all the plan's personnel, records, files, and equipment were consolidated there.

2. The Plan Office was modified to include a Director, a Premium Review Board, and the necessary analytical, technical, and clerical staff. The Quota Committee, as a deliberative body, was eliminated.

3. The Director had responsibility for operation of the plan under policies laid down by the Premium Review Board and approved by the Commissioner of the OWMR. The Director issued all quotas in his own name.

4. The Premium Review Board included three members-one appointed by the Board of Directors of the RFC, one by the Commissioner of the OPA, and one by the Commissioner of the CPA.

5. The Director's decisions could be appealed, first to the Premium Review Board, then to the Commissioner of the OWMR, whose decision was final.

Under this new arrangement, the Office of Premium Price Plan was divided into six branches-Exploration, Tri-State Mines, East-West Lead-Zinc Mines, Copper Mines, Statistics Section, and Secretary's Office. The staff of about 50 included mining engineers, geologists, statisticians, and clerical employees.

The premium price plan ended on June 30, 1947, with President Truman's veto of the Allen bill, which had been passed by Congress on July 26, 1947.

ESTABLISHING QUOTAS

During the last year of the plan, quotas were fixed by the methods outlined in the following discussion.

The word "quota" in this report refers to a basic quantity of copper, lead, or zinc that each operator was regarded as being able to produce without benefit of

premium. All metal produced over that figure won a premium per pound of metal for the operator, the amount depending on market prices, operating costs, and other variables. For established mines, the basic quota was the mine's output during 1941. For new mines, quotas were fixed by estimate.

Initial quotas, or premium assignments, were issued only on an operator's application. Likewise, quotas were cut (meaning an increase in premiums) only on an operator's application. In both cases, the assignment took effect on the 1st day of the month in which the application was made.

Quotas could be increased (meaning a cut in premiums) by the plan staff, if a mine's earnings rose excessively over an adequate margin.

When an application came in from a new mine, the staff mailed out the appropriate information forms and an affidavit form. When these were returned properly filled out, an initial quota was assigned at once, pending calculation of the proper premium assignment.

An application for revision of quotas required a forecast of the productioncost-revenue status of the mine during the next 3 months. Also, detailed information was called for on the reasons why a quota revision should be made.

No retroactive quota revision was permitted for the purpose of making up for margin deficiencies or for amortization deficiencies in previous quota periods. Likewise, excess-over-margin earnings in previous quota periods were not considered, or deducted, in calculating a revised quota. However, provision was made in calculating margins for a revised quota for additional premium to liquidate the unamortized balance of the originally approved capital investment.

All applications for new or revised premium assignments were handed to an analyst who studied the data presented, called for more information if need be, and compared the application's forecast with previous production records if these were available. If the analyst found that some of the estimated expenses were too high, he modified them according to his best judgment. If some of them seemed too low, or if some item were missing, the analyst corrected for them with a "contingency" allowance.

An approved production-cost-revenue schedule was thus built up. It carried the following items:

1. Tous ore milled or shipped monthly.

2. Assays: Gold, silver, copper, lead, zinc, sometimes cadmium.

3. Copper, lead, zinc produced, pounds per month.

4. Operating costs, per ton of ore.

5. Amortization cost, per ton.

6. "Normal" development cost, per ton.

7. Royalty, per ton.

8. Depreciation, per ton.

(Complex ores, 10 cents. Simple lead or zinc

ores, 7 cents. Tri-State ores, 5 cents. Copper ores, 0.1 cents per pound.) 9. Depletion, per ton. (Allow 25 percent of net smelter payment for all metals paid for in addition to copper, lead, and zinc.)

The recovery factors applied to copper, lead, and zinc ores in calculating premiums appear in table I. The amounts of the premiums available, in cents per pound of recoverable metal, appear in table II. Tri-State premiums were calculated in dollars per ton of lead or zinc concentrates.

With removal of ceilings, premium assignment had to be revised so that RFC agents could automatically determine premium payments according to market prices prevailing when the ore was delivered to the treatment plant.

The method devised was to add the ceiling price per pound of metal to the maximum premium paid for that metal. The so-called Steelman penny was then added (see footnote, table III), and the result was the total maximum payment that could be given for each metal.

On each lot of overquota ore, the current market price was subtracted from this "maximum assignment" for each metal, and the difference was paid as the premium. This method took effect on November 1, 1946, and all assignments were reissued in this form. The quantities of payments appear in table III.

Normal development costs were assumed to be the cost of replacing 1 ton of current ore production. This item was determined usually from the average cost of development at the mine from 1936 to the date of premium assignment.

See footnote 2 on p. 310.

Any normal development funds unspent, because inability to get labor, equipment, or for other reasons, could be carried in a deferred-development account for future use.

Amortization on approved capital investments made solely for war production after January 1, 1942, could be made at a rate calculated to liquidate the investment by the end of the premium-price plan. After April 14, 1945, such investments had to be approved for amortization by the Lead-Zinc Branch of the WPB. Royalties paid by operators for working mines or dumps as leasers were regulated under the plan. In general, the maximum royalty permissible was that in effect on December 31, 1942. Royalties set up after that date had to be approved by the OPA Administrator and in no case could exceed the A premiums on copper, lead, and zinc. After November 10, 1946, a new directive limited royalty payments to those in effect on that date, or to the general level of royalties in effect in the same general area on that date.

"Other costs" was an item usually applied to small mines with no previous production experience or ore reserves of consequence. These were unable to submit information from which an accurate quota assignment could be calculated. When it was clear that some cost items had been overlooked by the operator, or were too low, a "contingency factor" was used to supply enough premium to cover costs.

Margin was calculated by a formula developed to compensate operators for taxes, depreciation on mine and mill plant, depletion, interest on capital investment, and so on. This margin was added to the more direct operating costs. The margin formula was based upon information derived from the pre-1942 financial records of a great many representative mines.

This formula was an incentive to efficient operation because the higher the operating costs, or the lower the grade of ore, the smaller the calculated margin became.

The formula applied to lead and zinc mines except the Tri-State mines, where uniform operating conditions permitted use of a table of standard margins that varied according to recoverable grade of zinc sulphide equivalent metal. For copper mines, special margin curves were developed, one for major mines and one for minor mines. (Complete details on margin calculation appear in the author's Information Circular already cited.)

Final calculation of premium needed was made as follows:

Operating costs per ton of ore

Amortization cost___.

Normal development cost_

Royalty-.

Other costs___.

Margin (calculated).

Total costs_.

Less net smelter returns.

Premium needed___.

Premiums per pound of copper, lead, or zinc required to satisfy the total monthly premium needed were determined by consideration of the metal predominating in the ore and the market prices of the metals.

For instance, if the market price for lead was higher than the maximum market price plus premium (15.75 cents) available, the copper or zinc metal would have to satisfy the total premium needed. It was possible that market prices on all three metals could be so high, and yet the needed premium be so high, that the maximum market-price-plus-premium assignment for each metal would not satisfy the needed premium.

When a premium recommendation was completed, it was checked for errors, then submitted to the director, who, with the assistance of his chief aides, made any changes deemed advisable. The recommendation then went to the board of three reviewing officers for final approval, revision, or rejection. Data on the plan's operation appear in tables IV to IX.

RESULTS OF PLAN

It is seen from these tables that 13 percent of the total mines receiving premiums were paid 93 percent of the total premiums, and 7 percent of the total premiums paid out was spread over 87 percent of the total number of mines.

Over 3,000 of the quotas assigned went to small leasers and prospectors, who operated anywhere from 1 month to a year and whose production was small and erratic.

On the other hand, very few of the mines receiving premiums over $100,000 could be classed as very large mines. Many of them were old properties, idle for many years, but revived under the encouragement of premium subsidies.

Stringent manpower, equipment, and supply restrictions during the whole life of the plan prevented normal new development and exploration ventures. The whole purpose of the plan was to obtain maximum production at low cost from submarginal ores known to exist in currently operating mines, or in dormant mines, or in mine or tailing dumps. From this standpoint, the plan was most successful.

The total market-price-plus-premium cost of copper, lead, and zinc produced by premium mines during the life of the plan certainly did not exceed the following limits, in cents per pound:

The total over-all metal production of all United States mines during the life of the plan was: Copper, 9,994,000,000 pounds; lead, 4,562,000,000 pounds; zinc, 7,498,000,000 pounds. Based on these figures, the average costs of these metals from February 1, 1942, to June 30, 1947, were, in cents per pound:

The legislation extending the plan from July 1, 1946, to June 30, 1947, provided for premiums, exploration work, and for additional allowances for depreciation of mine plant and depletion of metals paid for by the smelters not already provided for under the plan's margin formula. The exploration premiums were paid on production of copper, lead, and zinc ores from producing mines and on projects from which there was reasonable hope for production by December 31, 1947.

Two classes of exploration premiums were offered: "limited" premiums went to mines producing less than 600 tons of combined metals per year: "project" premiums went to mines producing more than 600 tons of metals per year.

Limited exploration premiums paid a flat 1 cent per pound of metal, to be spent within 2 months after receipt, and not to exceed $1,000 per month. No monthly reports were required, but an accounting had to be submitted to the RFC after the funds were spent.

Project exploration premiums were not available to mines earning adequate margins without other premiums. They were assigned only for specific projects fully justified by detailed data. One mine could, however, apply for several separate projects not related to each other.

All exploration premium funds not used by December 31, 1947, were to be refunded.

The difference between exploration and normal development work (provided for in production premiums) remained vague despite a general statement issued to define it. In many instances judgment had to be exercised in deciding what to approve as exploration work.

There was no limit to the total amount of exploration work that could be approved for any one applicant, except that the work had to be completed by December 31, 1947. Likewise, there was no limit in cents per pound of metal