ventory at the beginning and the inventory at the end are more or less estimates. 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 because 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 smelting 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 individual 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 is 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. "I don't know how it happened. American Smelting & Refining Co. started off by tendering 95 per cent But it was not at the suggestion of the The American Smelting & Refining Co. of the silver it had paid for." (Tr. p. To show the impracticability, if not the impossibility, of the Government checking up upon the estimated losses and gains at the individual plants, I quote the following from the testimony: "Mr. FRANTZ. Wouldn't an audit require months to go back and determine all the losses they have had? Mr. KELLEY. An audit would have to go back to our plants and take in the plant records. I haven't any idea about it. How long do you say, Mr. Sowerwine? "Mr. SOWERWINE (auditor for the Anaconda Copper Mining Co.) I would estimate, if you go into the Anaconda Copper Mining Co. and its subsidiaries alone, a force of a dozen very competent clerks would take the assay sheets and calculate the silver content of each lot, it would take several months. "Senator PITTMAN. Does not this disclose to you the total impossibility of this process proving what is American silver?" (Tr. p. 107.) The smelting companies rely upon the regulation of the Treasury Department, approved December 2, 1921, wherein it states: 66 # and all silver lost in process must be apportioned between domestic and foreign silver for the purposes of settlements on account of silver purchased hereunder according to the amounts of domestic and foreign silver received for reduction as shown by the records filed under paragraphs (3) and (4) of these regulations." This regulation does not say actual losses. It does not prescribe any method of determining losses. It does not even permit estimated losses. Mr. R. T. Baker, then Director of the Mint, knew what losses were deducted by the smelters in their purchases from the miner. He knew that such deduction was an arbitrary fixed average based upon the custom of the trade. He could have meant only one thing, and that was that the 5 per cent deduction should also be proportioned between the foreign and domestic silver purchased. That is the way that the American Smelting & Refining Co. interpreted it. That is the way the American Smelting & Refining Co. conducted its business with the Government from the beginning of the operations of the Pittman Act, on January 17, 1920. That is the way the United States Smelting, Refining & Mining Co. interpreted the act and the original regulations. Under such interpretation that company dealt with the Government until January, 1921. How can the smelting companies be injured by holding them to their original interpretation of the act and the regulations? If they have any gains over the 5 per cent deductions charged the miner they have the open market of the world to sell such gains on. They were satisfied with such arrangement up to January 1, 1921. Why should they not be satisfied with it now? Is the Treasury Department going to follow the requirements in checking up these estimated losses and gains as suggested by Mr. Kelley and the auditor of his company? If not, will the Treasury Department have used every precaution to protect the Government in the administration of the Pittman Act? There is only one answer to this thought, and that is that the Government has either got to check up these individual plants or hold the smelting companies to the same estimated loss upon which they dealt with the miner in making the purchases of this silver. In my opinion there are several reasons why the Government should not be required to go to the expense of attempting to check up the estimates coming from the individual plants. My reasons for this opinion are as follows: It would entail great expense upon the Government and long delay the adjustment of these accounts; the result, of necessity, would be uncertain and unsatisfactory, because many of the conditions upon which the estimates were originally based have ceased to exist; there would be no way of checking the amount of that silver which went into treatment losses and gains and which was obtained as a by-product of copper, lead, and other ores, and which was not paid for; and in any event it would only be an estimate. The representatives of the smelting companies by their actions in the past, by their customs in purchasing from miners, and by their own testimony at these hearings have pointed out clearly that no less deduction than 5 per cent of metal loss is a safe basis upon which to buy silver in ores. This expert testimony is more reliable than any other that could be obtained. If the Treasury Department holds the vendors to settlement on the universal and accepted basis of 5 per cent metal loss, then transactions can be closed almost immediately. Respectfully submitted. KEY PITTMAN, Vice Chairman Senate Commission of Gold and Silver Inquiry ADDENDA. CAN NOT IDENTIFY AMERICAN SILVER. Senator PITTMAN. Why was it, if you had certain smelting plants which were handling purely American-produced silver, that you could not tender that identical silver to the United States Government? Mr. BROWNELL. Because we have no refining plant which can handle exclusively United States bullion. If they are not mixed at the smelter, they must be mixed at the refinery. (Tr. p. 56.) COULD NOT DELIVER MIXED SILVER. Mr. BROWNELL. When the act went into effect in May, 1920, the first question that arose was how could this problem be treated. Here were smelting companies that were handling ultimately about 95 per cent of the silver of the United States, and all but one of them, or two of them, were handling foreign silver. We were handling then, roughly, about 50 per cent of the silver of the United States. We could not sell an ounce under the Pittman Act, and our customers could not sell an ounce under the Pittman Act except by going somewhere else, unless this problem of the mixture in the course of the business was taken care of. That was laid before the then Director of the Mint and the Undersecretary of the Treasury, and they ruled that the matter of the mixture of foreign with domestic ore and foreign with domestic bullion was immaterial, so far as the Pittman Act was concerned, provided that no more resultant silver was delivered to the United States than came from the United States mines. They therefore laid great stress on the miner's affidavit as to the origin of this silver. And the whole plan of the Pittman Act was worked out so that no more silver could be bought under the Pittman Act than was represented by affidavits of the miners as having been produced within the United States. Otherwise there would have been chaos and the act would have been nonoperative for the larger proportion of the silver output of the United States. (Tr. pp. 63, 64.) PRODUCTION OF SILVER, MONTHLY PURCHASES. Average monthly silver production; purchases under Pittman Act received by United States mint and tenders for sale to United States mint 1913 to March 31, 1923.1 1 Compiled and computed from United States mint reports and records by H. N. Lawrie, assistant to commission. * Estimate United States mint. * Average for January, February, March, and April, 1923. Actual monthly purchases of silver under the Pittman Act received at the United States mint and tenders to the mint, May 17, 1920, to April 30, 1923.1 1 Compiled and computed from mint records by H. N. Lawrie, assistant to commission. CAN NOT DETERMINE ACTUAL METAL LOSS. Senator PITTMAN. Are you able to tell a certain mine producer what the actual loss is in smelting his particular ore? Mr. BROWNELL. No; that is absolutely impossible. Senator PITTMAN. Why? Mr. BROWNELL. Because his ore is always mixed with other ores at the smelter to get the necessary flux, and it must be mixed with other ores even if the ore is self-fluxing-there are mines that have a self-fluxing ore to get volume of business. That is because the costs of a smelter go down very, very greatly with the increased running capacity of the plant. Second, when we get the bullion out of a smelter and send it to a refinery, our refineries are all operated with the idea, and were erected originally with the idea, of combining at that particular refinery the resultant bullion from a certain number of plants, and we have to get volume there to get cheap costs. (Tr. p. 56.) Mr. BROWNELL. * * * CUSTOM TO DEDUCT 5 PER CENT. None the less the custom has prevailed of paying for 95 per cent of the silver only. (Tr. p. 57.) Mr. BROWNELL. * * the trade has maintained now uniformly this custom of paying for 90 per cent of the lead and 95 per cent of the silver. (Tr. p. 57.) |