Senator MALONE. Is there any other provision that they might deliver it elsewhere? Mr. FORD. None that I can recall. Senator MALONE. Is there a provision that if the company exercises option to deliver it to the Government, it shall be f. o. b. oceangoing vessel at Port of Tampico, Mexico. Mr. FORD. I am not familiar with that in detail. Mr. FREDELL. That was in the second arrangement. The price was adusted f. o. b. Tampico. Senator MALONE. Instead of United States. Mr. FREDELL. He will not be able to complete his smelting facilities in Guatemala, so he plans to ship his concentrate to Mexico to produce the crude bullion there, and then ship the crude bullion to the States for refining. Senator MALONE. Is there any provision in the contract that we take delivery at the Mexico smelter? Mr. FREDELL. I believe it is at Tampico that we take delivery. The price is based on Tampico with references back to differences in freight costs as referred back to the American smelter price. Senator MALONE. That was not the testimony of Mr. Ford. Mr. FREDELL. Mr. Ford apparently was not aware of this detail. Mr. FORD. Senator, I believe there is an amendment to the contract that I was not familiar with. Senator MALONE. Now, we must take delivery if they so desire at Tampico, Mexico. Mr. FREDELL. The price arrangement is to take care of the freight differential. Senator MALONE. And they would take care of the freight differential. Mr. FREDELL. The refining costs and freight are taken account of in the settlement. I do not recall the exact wording of that phrase. Senator MALONE. You put in extra paragraphs when you extended the contract; is that right? Mr. FREDELL. As a part of the arrangement in extending the contract. Also, the price differential, dropping the price a quarter of a cent. Senator MALONE. That quarter of a cent difference was their contribution to the freight from Tampico, Mexico, to here? Mr. FREDELL. No; that was the difference in the base price that was established in the original contract. The floor and ceiling prices were reduced by a quarter of a cent. Senator MALONE. That would be 17.1 cents per pound approximately. Mr. FREDELL. That is right. Senator MALONE. What was that reduction for? Mr. FREDELL. That was something that we asked them for for repayment in writing them in. He had full rights to have such an amendment giving him an extension of time according to the first contract, due to the force majeur. But in our discussions with him, we asked for a little bit quid pro quo. The Government should get something out of it, and we got a part of the cutback. Senator MALONE. What part of the quid pro quo was it that the company can exercise its op or to our Government f. o. b. ocean-going vessel at Tampico, Mexico, when it was first to be delivered to a smelter in this country? Mr. FREDELL. I do not have the details of the calculation in mind. The freight differential was taken into account and refining costs in arriving at the price they will be paid as compared to the original contract. Senator MALONE. You did change the contract for the point of delivery. It is now delivered in old Mexico at port of Tampico, instead of to a United States smelter. Mr. FREDELL. Because they cannot complete their furnace facilties. Senator MALONE. Let me ask you once more. You have a floor price on your contract of 17.1 cents, approximately, per pound. You have a ceiling price of 20.092 in the original. Is that changed in the final contract? Mr. FREDELL. That was also dropped a quarter of a cent. Senator MALONE. Then it would be 19.8 something cents as a ceiling. Mr. FREDELL. Yes, sir. Senator MALONE. What determines the actual price? Who determines the actual price and upon what is it based? Mr. FREDELL. My interpretation of that would be that if the price was below that floor price, he would offer it to the Government, and the Government would buy it at that floor price. If the market at the time of delivery was above the floor price, he would offer it to the Government. If the Government saw fit to take it, they could buy it at the market price. Senator MALONE. But they could not buy it at any lower than the market price. He would not need to sell it to you. Mr. FREDELL. He would not need to sell it to us as I remember the contract. Senator MALONE. Are you sure that is the way it is worded, or does he have something to say about what the final price is going to be without regard to the market price? Mr. FORD. Sir, I have possession of a copy of the contract. Mr. FORD. I have both the original and the amended. Senator MALONE. Read the amended copy, and let us see what it says. Mr. FORD. The price in the amendment is that the Government shall pay the contractor the New York price for common desilverized lead, grade A, which is defined as the price for the calendar week in which the lead is delivered to the Government, less the ocean freight per pound from Tampico, Mexico, to New York, N. Y., paid by the Government with respect to such delivery, and the actual cost incurred by the Government in connection with unloading, assaying, and weighing the lead after arrival in the United States. Senator MALONE. That doesn't say anything in there about a floor price. Mr. FORD. The floor price is further described: Notwithstanding the foregoing provisions, the price per pound of refined lead delivered by the contractor to the Government shall be in no event greater than 20.092 cents for lead bullion, plus the cost of refining paid by the contractor, nor less than 17.092 cents for lead bullion, plus the cost of refining paid by the contractor. Senator MALONE. What is the cost of refining that the contractor is going to pay? Mr. FORD. In no event shall the refining cost exceed the cost to the Government for refining lead bullion by the American Metal Co. at Carteret, N. J., or such other company as may be acceptable to the Government. Senator MALONE. What is the normal cost of refining lead? Mr. FORD. I do not know. Senator MALONE. Who does? Do any of you fellows know? (No response.) Senator MALONE. It is not a nominal cost. That is quite a considerable cost. Mr. FREDELL. I imagine in the neighborhood of 3 cents a pound for smelting and refining. Senator MALONE. În each case the contractor will be paying 3 cents a pound. Mr. FREDELL. One cent of that would be refining costs. Senator MALONE. Refining and smelting, but that is to be added to the 20 cents or the 17 cents. Mr. FREDELL. The refining cost. Senator MALONE. Read it again. What I think we had better have you fellows study some of these contracts and come back again. We ought to get less than 3 cents a pound as to what it is going to cost. We ought to get within that anyway. You are only giving me just a little bit of this at a time, and it is taking too much time for me to drag it out of you. Are you satisfied to add 3 cents to the 17 cents, or the 20 cents, or whatever this amount it? Mr. FREDELL. This is just a bullion refining charge. Senator MALONE. What is that normal bullion refining charge? These smelters do not work for their health. Do you understand it, Mr. Ford? Mr. FORD. Sir? Senator MALONE. Do you understand that the smelting and refining is added to the price you have been giving us for the record? Mr. FORD. That is apparently what that amendment says. I am sorry that I am not familiar with that amendment. I would like to read it carefully. Perhaps Mr. Greene can tell you. Senator MALONE. Who is responsible for the amendment? Did you make it, Mr. Greene? Mr. GREENE. No, I did not. Senator MALONE. Did you approve it? Mr. GREENE. I think it was drafted in my office, though, Senator. Senator MALONE. You must have someone over there working on these contracts that understands what he is doing. Mr. GREENE. Mr. Fredell worked on this contract: Mr. FREDELL. I worked on this contract, but I do not remember the details or the figures. Senator MALONE. Will you read again what you are to pay for here, the refining plus these costs? Mr. FREDELL. It will be the published price less the ocean freight per pound Senator MALONE. I understand that. Skip that. That is in the record. Go down to where you are going to pay them in addition. Mr. FREDELL. The cost shall in no event be greater than 20.092 for lead bullion plus the cost of refining paid by the contractor. Senator MALONE. Who is the contractor? Mr. FREDELL. The company that we mentioned before. Senator MALONE. Whatever they pay for refining is added to the cost of 20.092? Mr. GREENE. I think that is right. Senator Malone. Approximately what would that be? Cor Mr. FREDELL. Approximately in the neighborhood of 1 cent. Senator MALONE. Instead of arguing about a quarter of a cent that you are getting for a quid pro quo, it costs you at least three-quarters of a cent to talk to these people. That was not in the original contract. I would not be surprised from the way that contract reads that you people understand your business. I would not advise you to revise the contract any more unless you have someone sitting with you. We have a memorandum here that may be interesting for the record. The memo is to the files, April 12 of this year, 1953, from Fredell, Elson and Morin, "Re: Proposed amendment to contract discussed at conference with Corzelius." This is, of course, not the wording of any memo you have in your files, but it is a memo we have. Corzelius is the contractor. Čontractor said to have invested 1 million dollars as a result of contract. Changing conditions in Guatemala may force contractor not to ship lead bullion as per contract. zelius stated Young had agreed to the proposed amendment. Mertz, Internal Audit, states some question might be raised as to price in contract as amended, when compared to present-day prices. Elson and Fredell both answered to the effect that basic prices are set forth in a valid and existing contract, and if this amendment is not executed, the original contract be continued in force and effect and Government costs increased accordingly. Morin commented about obtaining documentation to justify proposed action in view of possibility of subsequent investigation and criticism as to such basic prices and Fredell stated that inasmuch as the one-quarter of 1 cent per pound reduction in the ceiling price had already been negotiated and agreed upon, that Young had concurred therein, no further documentation or data as to actual cost of contractor from utilization of the Mexican refining operations would be appropriate. Corzelius stated refining costs in Mexico would run from $14 to $16 per ton. Inasmuch as the Government's refining costs at Carteret, N. J., average $18 per ton, the Government would benefit to this extent, plus saving resulting from reduction in ceiling and floor prices of one-fourth of 1 cent per pound. What it seems there on the face of it is that you got a reduction of a quarter of a cent, and raised the price 1 cent, so you are just about three-quarters of a cent in the red on your negotiations. Mr. GREENE. Wait a minute, Senator. I am not an engineer, sir, but I notice in the original contract-I am only a lawyer Senator MALONE. You lawyers write the contracts. Engineers do not do that. Mr. GREENE. We write the legal provisions of the contract, but we take our technical information from the engineers and the negotiators. Senator MALONE. Good. Mr. GREENE. I think you will find, though, Senator, in reviewing that, the original contract called for unrefined lead bullion at that price. The amendment calls for refined bullion and that is the difference of this refining cost as written in the amendment. Senator MALONE. And the difference in the point of delivery. Mr. GREENE. I do not know about the point of delivery. I was just checking, and I notice in the basic contract reading from the original contract dated August 29, 1952, it says: The lead bullion sold to the Government hereunder shall be unrefined lead bullion. The amendment that we are speaking about is talking about refined bullion, and that is where the penny comes in or the price paid by the American Metal Co. Mr. FREDELL. There is no increase to the Government under this amendment. Senator MALONE. If that is the explanation, then it would be helpful if we had said that in the beginning. Go ahead, Mr. Ford. Mr. FORD. Is there any further question on this contract? Senator MALONE. No, except we are paying a long-range contract about 4 to 6 cents more than the market price, and we have signed up for how long? Mr. FORD. To June 30, 1960, with this extension. Senator MALONE. About 7 years. Mr. FORD. Yes, sir. Senator MALONE. Go on to the next contract. Mr. FORD. The other contract that we have for lead is a domestic contract with Gibbonsville Mining & Exploration Co. in Idaho. Senator MALONE. We are through with all foreign contracts now. Mr. FORD. Yes, sir. Senator MALONE. Do we have any foreign contracts Mr. GREENE. We are not through with foreign contracts. Mr. WALSH. On lead. Mr. FORD. Were there any others on lead? Mr. GREENE. I am sorry. I was thinking of zinc. Senator MALONE. Let us go through with the foreign contracts now. You have finished with lead and zinc? Mr. FORD. We have finished with the foreign lead contracts. Senator MALONE. Then let us take the zinc foreign contracts. Mr. FORD. We have a contract that was entered into September 24, 1951, with Volcan Mines, of Ticlio, Peru. The contract provided for them to double the capacity of their existing facilities in Peru, and in consideration of that, we agreed to buy the excess or the increased production and the total amount was 13,680 tons. The material was to be delivered over a period of 32 years at the rate of approximately 4,500 tons a year. Production was required to commence on April 30, 1953. They were to be in production by April 30. They did in fact get in production and they produced a 60 percent zinc concentrate down there which is shipped to the United States for smelting. As of July 30, they had produced 6,000 tons and there was no advance by the Government. |