Representative HOLIFIELD. I am directing it to the term of years and not the price. Mr. JOHNSON. It now extends to March 31, 1962. That is a published ore price, a price at which the Commission will purchase ore delivered to its Monticello, Utah, ore-buying station, and it is also the price at which private millers under their concentrate contract with the Commission are obligated to pay the independent miners for ore delivered to the mills or, to be precise, the independent mills must pay prices no less favorable to the producer than the Commission's published ore-buying schedule. For the period of Representative HOLIFIELD. Seven years. Mr. JOHNSON. That is correct, provided the mill contracts run for that period. Many of our earlier milling contracts Representative HOLIFIELD. The published price is for a 7-year period and that obligates the mills as well as the AEC to pay a specified price both for ore and yellow cake for the period of that contract? Mr. JOHNSON. That is correct with respect to ore prices. Representative HOLIFIELD. We are speaking of the domestic con tracts? Mr. JOHNSON. Yes, sir. Representative HOLIFIELD. What are your cancellation terms on those contracts? Mr. JOHNSON. With regard to the published ore-buying schedules, there is no cancellation provision. Also, we do not have cancellation provisions in our contracts with the domestic mills. Representative HOLIFIELD. For yellow cake? Mr. JOHNSON. For yellow cake. Representative HOLIFIELD. So there is no cancellation. Now, let us go to the foreign contracts for the purchase of ore and the purchase of yellow cake, if any yellow cake is bought abroad. Are they also for the same number of years, or are they for longer terms? Mr. JOHNSON. There are various terms on the foreign contracts. But there is one point-we do not purchase ore from foreign producers with one exception, and that was in the case of the Congo, where much of the early shipments of the rich Congo ore was in the form of handpicked pitchblende ore that averaged in excess of 50 percent uranium oxide, and in some cases 65. Representative HOLIFIELD. Was that on the basis of a longer term than 7 years? Mr. JOHNSON. The Congo contract has been a series of extensions. The time period generally has been less than 5 years for each of the particular segments of that contract. Representative HOLIFIELD. Have any of those contracts been renewed since 1955? Mr. JOHNSON. I am not sure as to the exact date of the renewal of the Congo contract with the Union Minere. It may have been in 1956. But the arrangement was concluded on a governmental basis for the contract with the Government of Belgium and the Government of the United Kingdom and the United States at the end of 1954. I believe that is the date. My memory may be a little in error. I think it was the date of the bilateral. I think it was the end of 1954. Representative HOLIFIELD. Was that for a 7-year period or a longer period? Mr. JOHNSON. That arrangement, as I recall, ran to 1960, subject to an option to extend in the event that the material was not desired by the Belgian Government. It was on the basis of that arrangement, which was preliminary to extending the existing contract with Union Minere, that discussions took place in 1955, and finally I believe the contract was dated and signed in 1956. However, the arrangements with the Belgian Government for the contract were made in 1954. The mining company could only make a contract if there was approval on the part of the Belgian Government. Representative HOLIFIELD. That extended to 1960 at that time? Representative HOLIFIELD. Since that time it has been extended to 1963 ? Mr. JOHNSON. No. Representative HOLIFIELD. It expires in 1960 and this applies to ore? Mr. JOHNSON. Mainly concentrate. Representative HOLIFIELD. You are now speaking of yellow cake? Mr. JOHNSON. Yellow cake? There is a combination of yellow cake and mechanical concentrate. Representative HOLIFIELD. That was a noncancellable contract to 1960. Mr. JOHNSON. That is correct. Representative HOLIFIELD. In relation to your Canadian contracts, I believe some of them go as long as 1963 or 1965. Mr. JOHNSON. No. Our Canadian contracts originally all extended only to March 31, 1962. Representative HOLIFIELD. Is that for ore or yellow cake? Mr. JOHNSON. That is only for yellow cake. In 1956, I believe, a number of the mines having letters of intent were not able to meet their production schedule, and in those cases the Commission agreed that the delivery date might be extended, but not later than March 31, 1963. In the meantime, prior to this, we had established a domestic uranium price that extended to December 31, 1962. I mean 1966. Representative HOLIFIELD. Was that a noncancellable contract? Mr. JOHNSON. They are noncancellable. The contracts run to Eldorado, the Government crown company, for each of the individual mining projects, and our contract with Eldorado is essentially the same as the Government contract with the mining company. Representative HOLIFIELD. So at this time we are faced with noncancellable contracts in the case of Belgium, to 1960, and in the case of Canada, to 1963; is that true? Mr. JOHNSON. Most of the Canadian contracts, as far as the Commission is concerned, will expire on March 31, 1962. We will be purchasing but little uranium from Canada under the existing contracts during the period March 31, 1962, to March 31, 1963. So most of our Canadian deliveries will be completed under existing contracts by March 31, 1962. Then we have an option to extend the contracts to the end of 1966 at the domestic price of $8. Representative HOLIFIELD, Are there any commitments at this time to extend the contracts? Mr. JOHNSON. No, sir. Representative HOLIFIELD. So we are faced at this time with contracts for a certain amount of ore with foreign nations which are noncancellable, as I understand. Mr. JOHNSON. That is correct. Representative HOLIFIELD. In other words, they are firm. The Government has not reserved to itself the right of cancellation, is that right? Mr. JOHNSON. That is correct, sir. Representative HOLIFIELD. In basing our negotiated price on these foreign contracts, I understood your testimony to be that they were on the estimated cost of production plus a reasonable profit. Mr. JOHNSON. That is correct. Representative HOLIFIELD. Did the cost of production that you considered include amortization of the capital investment? Mr. JOHNSON. Yes. Representative HOLIFIELD. How many years' amortization? Mr. JOHNSON. Five years' amortization. Representative HOLIFIELD. So, in the case of contracts that will expire in 1962, it is assumed that would take care of mills that were built years previously, and in production 5 years previously. Mr. JOHNSON. That will be amortized by 1962. Representative HOLIFIELD. 1963 will also take care of the other mill that was slower in coming into production? Mr. JOHNSON. Yes, sir. Representative HOLIFIELD. Was that same provision extended to our domestic mills? Mr. JOHNSON. Yes. Representative HOLIFIELD. The same formula of amortization of 5 years? Mr. JOHNSON. That is correct, unless we made a contract that was for a longer period than 5 years, but not less than a 5 year period. Representative HOLIFIELD. The point I am seeking to establish is that these contracts that we have are not cancelable and that they will cover the private capital investment in those plants by the end of the contract. Mr. JOHNSON. That is correct. Representative HOLIFIELD. So the Government, as far as foreign contracts are concerned, has discharged its financial obligation by that time and has no further obligation, as far as an amortization liability on the part of the company is concerned, after the years you have decided. Mr. JOHNSON. That is correct. Representative HOLIFIELD. If at that time you felt it was in the national interest to cancel foreign contracts and take care of our domestic producers with an accelerated program, there is no reason why we should do that? Mr. JOHNSON. There is no contractual reason. Representative HOLIFIELD. There is no contractual reason? Mr. JOHNSON. That is correct. Representative HOLIFIELD. As far as you know, there is no diplomatic understanding on this point? Mr. JOHNSON. There is no understanding. On the other hand, the Canadian Government is concerned about the possibility of the con tracts not being extended. The Canadian uranium program was undertaken by the Canadian Government at the request of the United States, at the request of the Commission, and our contacts have been parallel up until the extension of our domestic concentrate price to March 31, 1966. In other words, the Canadians have, following our practice and in agreement with us, established, generally, a program of encouraging private industry similar to our own. Representative HOLIFIELD. That is true. We are not going to feel liable for their program of encouragement past 1966 when we are stopping ours as of the present, are we? Mr. JOHNSON. The Canadians stop at 1962, and ours was extended to 1966. Representative HOLIFIELD. Our encouragement of additional exploration stops now, over and above that which the mills have been designed to handle in terms of quantities of ore. Your speech effectively set a curtailment upon any present encouragement for new development or exploration or new mills, did it not? Mr. JOHNSON. New mills, not new exploration, I would say. Representative HOLIFIELD. New exploration on the basis of any hope of selling the newly discovered minerals by companies not now dealing with the mills. Mr. JOHNSON. There are a number of areas where it will be necessary to carry on additional exploration and development if the mills are to operate through 1966. As I mentioned earlier, the domestic uranium industry will be on the order of $200 million or $300 million a year. I know that most of the producers today are looking forward to the future atomic-power market, and I would assume that they would follow what is normal practice in the mining industry and in the oil industry of attempting to maintain ore reserves so that they do not mine out all their ore and reach a point where they have no future. They will look to the market after 1966. The immediate problem is the question of additional mills and additional expansion of production. I would assume that there will be limitations on further mill construction. Representative HOLIFIELD. Then your anticipation of additional exploration is really from those mining companies that are now established and who have contracts to supply the mills or to obtain the milling facilities, rather than to new producers in the market? Mr. JOHNSON. Or new producers in areas where there is ample market for independent ore. Representative HOLIFIELD. Where there is adequate milling capacity. Mr. JOHNSON. All of our milling contracts provide that a certain percentage of the mill capacity must be reserved for ore produced by independent miners, miners that are not associated with the milling operation. These contracts will continue to provide a substantial market, and it is a growing market. There will be a major increase by the end of 1959 for the market for the independent ore. I would expect independent production to continue to increase to supply that available capacity. Representative HOLIFIELD. Then I must ask you this question: What percentage have you set aside for independent production? Mr. JOHNSON. In 1957 I think 39 percent of all of the ore sold in the United States was by independent producers. We anticipate that will be on the order of about 30 percent when all the new mills are in operation, but our contract limitation provides for a minimum of 20 percent. Some of the mills operate entirely on custom ores, and many of them by necessity have to buy considerably more custom ore than the minimum contract requirement. So that the minimum contract requirement is 20 percent I believe that is the correct figure-but it is expected that the purchases will be on the order of 30 percent of the total ore production. For calendar year 1957, it was about 39 percent. Representative HOLIFIELD. Then we could depend upon the fact that, when your milling capacity which is now built was running to capacity, there would be no domestic market, and no foreign market at this time for any of these people who are now exploring, but who do not have contracts with the mills to handle such ore as they produce? Mr. JOHNSON. Much of the independent ore is not sold on longterm contracts. Many of the independent miners are operating relatively small mines, and many are exhausted each year; many more are found. So it is not a static situation, but an ever-changing one in which one producer mines out his deposit, somebody else or the same producer finds another and starts mining. That has been the history in the Urivan area in Colorado for a matter of 30 years or more. Representative HOLIFIELD. Your limitation of 20 percent, then, would apply in case the big mines can produce the 80 percent. Your limitation of 20 percent set aside for the purchase of independent ore, that is. Mr. JOHNSON. The 80 percent does not necessarily apply to the ore that is owned by the milling company but includes the ore that is dedicated, so to speak, to the mill. As Mr. Dempsey is aware in the Ambrosia Lake, for example, a company like Homestake with a mill may derive its ore, from 3 or 4 independent holdings which may be operated by the Homestake under operating agreements but the properties still are owned by the group that originally acquired and explored them. So in a sense we are dealing, when we speak of the ore belonging to the mill, of ore that from several independently owned properties-in some cases a number of properties-but it is ore that is dedicated to the mill, as the term is used, and has a certain part of the mill capacity for the life of the milling contract. Whereas the other ore is from independent producers who have no association with the milling company at all. Representative HOLIFIELD. Let me ask this question: As I see it, according to your contractual arrangements, you have certain obligations which you have to carry out in the foreign field for a certain number of years, and those years can be limited mostly to 1963, as far as legal contractual liability is concerned, unless they are extended. Would it be the policy of the Commission-and I will direct this to the Chairman of the Commission-to discuss this matter with the committee before extension or would we be presented as a fait accompli in the nature of an agreement to extend that time on into the future? The reason I ask this question is that it is an executive obligation on your part to do this, but we are concerned with the domestic mining situation, and we in the Congress have to appropriate the money to buy this ore from year to year. I think we should work together on |