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Act, the American Smelting & Refining Co., which has sold half of the silver purchased under the Pittman Act, has filed a statement showing metal losses of only two-fifths of 1 per cent. This company therefore is contending that it has 993 per cent remaining from the silver purchased from the miner after deducting all metal losses. It is insisting that the Government pay it $1 an ounce under the terms of the Pittman Act for 993 per cent of the silver that it purchased from the miner. This same smelter has always purchased silver from the miner on the basis that there was an average loss of 5 per cent in treating such ore, and that there would only remain after such treatment 95 per cent of the silver so purchased. (Addenda, pp. 10, 11, 11, 12, 13; Tr. pp. 56, 57, 57, 57, 58, 59, 59, 60.)

Mr. Kelley, president of the Anaconda Copper Mining Co., testified:

“On certain classes of ore it has been determined practically over a period of years that 95 per cent or 90 per cent represents the average of a safe return for the smelter to make on that class of ore." (Tr. p. 74.)

Again, Mr. Kelley testified at the hearing as follows:

" Mr. KELLEY. * * I can cite you many cases in the customs smelting business where our contracts were based upon a 95 per cent return. I can cite you cases where they were based on 90 per cent return, and where we could not, with the best established metallurgical practice, make the recovery that we had agreed to give the miner, and where we had to pocket the losses on particular contracts running over periods of years. You have got to average it all up

“ Senator PITTMAN. That is exactly what the intelligent metallurgist that you have criticized knows. He knows where you could not save anything on a 90 per cent basis on some ores, as you have just stated.

"Mr. KELLEY. Yes; there are some cases.

* Senator PITTMAN. He knows that. But he does not know all of your transaction. He does not know how many lots there are upon which you can not save 90 per cent in smelting, and how many lots there are where you can save 97 per cent, and he has taken 5 per cent as an average loss, on the theory that the average miner delivers to you, after treatment, 95 per cent. That average has been established by the experience that you have just narrated, and undoubtedly the miners have accepted that average

" Mr. KELLEY. As a fair basis, knowingly.” (Tr. pp. 74, 75.)
Again, Mr. Kelley testified as follows:
" Mr. KELLEY.

over a period of years customs have grown up in the business. We have been returning 95 per cent to some of our shippers, and we settle with some as high as 98 per cent, and with some as low as 72 per cent, depending on the character of the ore, and what could be done with it. But we have always recognized, as nearly as we could figure it, we figure on the safe basis." (Tr. p. 91.)

Again, when I was interrogating Mr. Kelley with regard to the change in his contract with miners after the Pittman Act went into effect and was attempting to bring out that the miner got paid just exactly for the same amount of silver before the Pittman Act went into effect as afterwards, the following testimony was given :

* Senator PITTMAN. In one case you deducted 5 per cent from the quantity of silver?

" Mr. KELLEY. From the quantity of silver; yes, sir.

“ Senator PITTMAN. Because custom had shown there was a loss of silver, and you concluded the mint regulation meant you could not do that, so instead of deducting 5 per cent from the metal, you paid the full price for the metal, and then deducted 5 per cent from the purchase price?

" Mr. KELLEY. Yes; after a full understanding with the miner and the Treasury Department that is what we were going to do." (Tr. p. 91.)

The American Smelting & Refining Co. continued this basis of settlement with the miner under the operations of the Pittman Act commencing January 17, 1920, until January 1, 1921. During that period it also treated any gains or savings made by it over the 5 per cent as foreign silver and not subject to sale under the Pittman Act. In other words, the miner, not having received any benefits from such saving, the American Smelting & Refining Co. sold to the Government only 95 per cent of the gross silver in the ore purchased from the miner. The silver remaining from such purchases over and above 95 per cent, if any, was sold in the open market at less than $1 an ounce. (Addenda, pp. 13, 13; Tr. pp. 60, 65, 65.)

Mr. Brownell, of the American Smelting & Refining Co., testified that his company would have been compelled to charge an additional treatment charge unless it was permitted to sell to the Government at $1 an ounce all savings of silver made by it over and above the fixed average deduction of 5 per cent. Yet such company did not find it necessary to increase the treatment charges between January 17, 1920, and January 1, 1921, when, according to Mr. Brownell's testimony, it was selling such gains in the open market as foreign silver and at less than $1 an ounce.

The United States Smelting, Refining & Mining Co. followed exactly the same course as the American Smelting & Refining Co. Until January 1, 1921, it sold any gains that it made of silver over and above the fixed average 5 per cent deduction as foreign silver and at the market price, and only sold to the Government under the Pittman Act 95 per cent of the silver content of the ore purchased from the miner.

Now, let us examine this method now used by all of the smelters in estimating their metal treatment losses in dealing with the Government under the Pittman Act. This method can only be understood by taking some particular example and following it through its various stages and computations. Each of the smelters was required to file with the Treasury Department a monthly statement showing for the period each operating plant, stocks on hand, purchases of foreign silver, purchases of domestic silver, tolls, treatment gains, as well as treatment losses.

In addition, each of such smelters was required to file with the Treasury Department a quarterly statement of metal losses. As the last quarterly statement filed by the American Smelting & Refining Co. was for the quarter ending March 31, 1923, I will use such statement, and also the monthly statement of that company ending on the same date, as an illustration of the method now being used by the smelting companies in determining their metal losses in their effort to sell as much silver as possible to the Government at $1 an ounce. The quarterly statement referred to reads as follows:

Quarterly report of the American Smelting & Refining Co., January 17, 1920,

to March 31, 1922, shoicing their losses.

Received from the American Smelting & Refining Co. to March 31, 1923, as per recapitulation by Bureau of the Mint:

Ounces. Ounces. Philadelphia.

50, 539, 121 50, 537, 811 Denver.--.

17, 099, 586 17, 099, 587 San Francisco

26, 310, 562 25, 995, 223

93, 949, 269 93, 632, 621 Domestic purchases (47.60 per cent of total purchases).

102, 213, 870. 93 Foreign purchases.

112, 520, 244. 06

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685, 884 We must next turn to the monthly statement to ascertain how the losses and gains contained in the foregoing quarterly statement were estimated. This monthly statement is too long to incorporate in this letter, but a photostatic copy is hereto attached and set out in the addenda for the purpose of this analysis. It is entitled : “ Corrected statement. American Smelting & Refining Co. and subsidiary companies. Silver stocks, purchases, and sales for the month and period ending March 31, 1923." In such monthly statement the following silver metal treatment losses are shown at the following plants for such monthly period: Arkansas Valley, 9,921; Perth Amboy, 1,250,000; Tacoma, 3,846 ; Garfield, 22,975; Baltimore, 21,247; Blende, 3,884; Henryetta, 11,271 ; New York office, 2,883.36; total this month, 1,326,027.36.

In the same statement the following treatment gains are shown at the following plants: Durango, 1,204; Murray, 8,648; East Helena, 4,945; El Paso, 6,429 ; Hayden, 527 ; Omaha, 2.15; Perth Amboy, 930; Selby, 5,384.35; total this month, 28,069.50.

This statement also showns that the total metal treatment losses reported in prior monthly statements was 2,582,015.83, and that the total losses to March 31, 1923, were 3,908,043.19.

The same monthly statement also shows that the total metal treatment gains reported in prior monthly statements was 3,183,252.77, and that the total gains to March 31, 1923, were 3,211,322.27.

It will be observed that the smelting company shows the foregoing totals of metal treatment losses and gains in their quarterly statement hereinbefore set out in this letter—that is, in such quarterly statement the smelting company bas deducted the gains reported as 3,211,322.27 from the total reported metal treatment losses amounting to 3,908,043.19, leaving as a result 796,720.92. The smelting company then computes that this results in two-fifths of 1 per cent total metal treatment loss on all transactions under the Pittman Act up to March 31, 1923.

How did it arrive at the losses and gains at the various plants as set out in said monthly report and similar prior monthly reports? In interrogating Mr. Brownell, vice president of the American Smelting & Refining Co., as to how such computations were arrived at, I asked him this question :

* Senator PITTMAN. * I see here, for instance, that at the El Paso smelter you have treatment gains of 6,429 ounces. How did you arrive at that?

* Mr. Bow NELL. Well, I don't know." ( Tr. p. 77.) Again, I asked Mr. Brownell this question :

** Let me get at this proposition: During that period of time did you take the total number of ounces of silver that went into the smelter and the total number of ounces of silver that came out of the smelter, during that period of time?” (Tr. p. 79.)

To which Mr. Brownell replied:

" If you want to ask that, would you mind substituting Mr. Hills for me a moment?" (Tr. p. 79.)

Mr. F. W. Hills is the comptroller of the American Smelting & Refining Co. What did he testify to with regard to this subject? Mr. Hills said:

"The only way you can tell exactly is to take the difference between the weight of silver on hand at the first of any given period; the total weight purchased at any one plant, or at all plants, and deduct from that the weight produced and sold, and deduct the weight which we estimate to be on hand at the end of the period, and the difference is your metallurgical gain or loss. The weight on hand at the beginning of a period and at the end of a period at any one plant and in the aggregate, are estimates pure and simple; they can not in the nature of the business be accurate and final. There are so many factors which must be estimated, and with one estimated figure you can not get an accurate result, it does not make any difference how you put it. Any loss is an estimated loss in this business ; it is not an actual loss. As Mr. Brownell has explained, there are many factors that must be estimated and you can not give an actual result. In other words, you can not take any one smelter or any one plant and say that the loss shown by the books at that plant is an actual loss or actual gain, for the reason that the product which is shipped from the smelting plant to the refining plant-the two plants belong to the same company, and the assay of the product is arrived at by our own employees.

One manager may generally be very high in his assay estimate; higher than the other manager. Very likely we will say that one is trying to fudge something on the receiving plant. And we will cut his down from the receiving plant or vice versa." (Tr. pp. 80, 80.)

" Senator PITTMAN. And do you estimate your so-called gains the same way?

“Mr. Hills. The reports as rendered there are all supported by managers' affidavits; the men who make the figures. “ Senator PITTMAN. By what?

Mr. Hills. The managers' affidavits. The managers of the individual plants, however, giving the fact at the beginning and at the end; the inventory at the beginning and the inventory at the end are more or less estinates. The balance of the figures are covered by the estimates of the operating men giving the figures." (Tr. pp. 81, 81.) Again, Mr. Hills testified as follows:

Mr. Hills. May I ask how far the auditor will want to verify those figures represented each month regularly; to what extent? Of course, there is no verification of them except by access to the plant books at the plants all over the United States. There is no verification can be made of the figures that are represented by that statement right there, except at the plant by the names appearing on that statement. There is no further basis, or no other way of verifying that, except at the plant; because those figures are all covered by affidavits of the managers and the affidavits of the officers of the company appearing on those statements. The only way to verify them, other than by affidavits, is by the detailed statements on the affidavits." (Tr. pp. 94, 94.)

One of the sources of gain of silver by the smelters is described by Mr. Brownell as follows:

"Most contracts provide, and I think it is the general custom that once the silver content of an ore reaches a certain limit, generally 1 ounce a ton, and compounds as low as half an ounce a ton of silver is not paid for. Some minimum must occur in all metals. Whether paid for or not, the comptroller's instructions are that all silver content shall be taken up on our books." (Tr. p. 76.)

This silver is not sold or paid for. It is always simply a by-product of some other ore. A shipment of copper or lead ore is made to a smelter. It is chiefly valuable for such lead or copper content. It carries, however, an ounce or less of silver. No accounting is made to the miner for this silver. Where does it come from? Does it come from foreign or domestic ores? There is no proof. It could not come from the purchase of silver under the Pittman Act hecause it lacks two requisites; it was not paid for, and there is no affidavit of its origin or proof by affidavit of the miner of its domestic origin.

And yet, under the method of estimating now being practiced by the smelt. ing companies in their dealings with the Government under the Pittman Act, they are selling this silver to the Government at $1 an ounce instead of in the open market at less than $1 an ounce. It is counted in the metallurgical gains, and under the present method of the smelters such gains are deducted from the metallurgical losses. It even counts a metallurgical gain in those plants that show a metallurgical loss, because the metallurgical loss in such plants must necessarily be reduced by the amount of such silver therein contained. So all of this silver for which the smelters paid nothing is counted both in losses and gains so as to increase the amount of silver that the smelters would apparently have left out of the purchases from the miner.

What are the reasonable conclusions that must be drawn from all of the evidence so far submitted? That all of these so-called treatment losses and gains are based upon estimates made by employees and managers of indi. vidual plants who sometimes fudge in their desire to show greater gains or smaller losses; that there are no facts in the possession of the Treasury Department, or even the main offices of these companies where such statements are prepared, upon which to test or check up such estimates; that nothing but a detailed examination of those who actually make the tests should constitute competent evidence as to the accuracy or inaccuracy of such estimates; that even such evidence would be vague and uncertain, as many of the metallurgical conditions upon which the estimates were based have ceased to exist.

Again referring to the monthly statement sheet of the American Smelting & Refining Co. for the period ending March 31, 1923, and contained in the addenda, I call attention to the item of 1,250,000 ounces set out as a treatment loss at the Perth Amboy plant. It will be observed that the statement 18 marked in the caption “ Corrected Statement." How was said item of 1,250,000 ounces reported in the original statement? It was reported as a treatment gain. With regard to this item, Mr. Brownell testified in part as follows:

“ It was figured in on some earlier statements, and the Director and Mr. Frantz (the Mint auditor) objected to it, and a hearing was had upon it, and it was corrected, I presume, in a later statement." (Tr. p. 84.)

If this enormous claim of gains had not been discovered and corrected and had it continued in the estimates, the American Smelting & Refining Co. would have shown no losses whatever, and under the plan now proposed by it, if accepted by the Treasury Department, it would have been able to sell to the Government every ounce of silver that it could show by miners' affidavits that it had purchased. In other words, its statement would have shown that it suffered no losses of metal whatever through the processes of smelting and refining the ore it purchased. The absurdity of such a situation would appeal to anyone. It is natural that this item of enormous gains included in the original monthly statement for March 31, 1923, should have been noticed by the auditor for the Mint.

The question naturally arises, How the Treasury Department is to know that similar, though smaller, items have not been included in the reports of managers of individual plants in making their estimates of treatment gains? The Treasury Department, as far as the commission has been able to ascertain, has not even copies of the reports made by the managers of the individual plants to the main offices of their companies from which the monthly and quarterly statements are compiled that are filed with the Treasury Department. These uncertainties and inaccuracies must apply to plants exclusively treating American-produced silver ores just the same as they apply to plants treating mixed foreign and domestic ores.

And yet there is still another element of uncertainty. Remember that all silver sold by these plants to the Government is derived from mixed foreign and domestic ores or from mixed foreign and domestic bullion. How can it be determined whether the metal-treatment loss or the metal-treatment gain was greater in the foreign ores or in the domestic ores? Mr. Kelley, president of the Anaconda Copper Mining Co., testified that “There are no two ores upon which exactly the same saving can be made." (Tr. p. 74.) And yet over half of the ores and silver treated by the American Smelting & Refining Co. is of foreign origin.

It is evident from the testimony so far submitted that there can be no determination of actual metal-treatment losses under the practices of smelting and reducing silver that have been and are now pursued by these smelting companies. The result arrived at can only be an estimate based upon many estimates made by many persons of many factors under constantly varying conditions. The smelting companies have admitted this fact. They have stated that it was necessary to fix an arbitrary average of 5 per cent estimated loss, so as to be on the safe side. They did fix and use this arbitrary fixed average in purchasing ore from the miners. Would the Government be safe in accepting any lower estimates in buying ore from the smelters than the smelters are willing to fix in buying ore from the miners? Is there any reason why the Government should take any more chances than the smelters? Has the Treasury Department any right to take any chances? Is not the Treasury Department commanded by the law to require proof of the American origin of the silver? And in the absence of absolute proof is it not the duty of the Treasury Department to fix an estimated metallurgical loss that will insure that the Government does not purchase foreign silver?

Let us see what the Anaconda Copper Mining Co. says that the Treasury Department should do with regard to the deduction of metallurgical losses. I quote from the hearings:

* Mr. KELLEY. What other way on earth could you do it? “Senator PITTMAN. There is no way on earth you could do it, except to settle with the Government on the same basis as you settle with the miner. That is exactly what the Director of the Mint should have said. He should have said, Gentlemen, you have been settling on the basis of 95 per cent with the miner; you continue to settle with him on a 95 per cent basis, and with me on 95 per cent. I thought that is what it meant all the time. And we take that arbitrary proposition that you buy on, and fix it as the arbitrary price at which you sell.

" Mr. KELLEY. That would have suited us fine; we urged it.
* Senator PITTMAN. You did urge it?
" Mr. KELLEY. Yes, strenuously.
" Senator PITTMAN. It is an unfortunate thing it was not done.
“Mr. KELLEY. We urged it very strenuously.” (Tr. p. 100.)
Mr. Brownell testified:

“I don't know how it happened. But it was not at the suggestion of the American Smelting & Refining. Co. The American Smelting & Refining Co. started off by tendering 95 per cent of the silver it had paid for."

(Tr. p. 102.)

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