incidental thereto should be carried out by private interests. In the second place, transactions for loans require closer scrutiny and more complex provisions for the protection of the Government than do other transactions under the act. In the case of loans, questions arise as to the title of the subject property, the sufficiency of leasehold interests, collateral for repayment, suitable interest rates and repayment provisions. On the other hand, the authority to make loans is extremely broad, and it may be desirable for the Government to enter into loan transactions that private banks and financing institutions would not be willing to consider. (v) Participation in exploration and research projects.-This apparently refers to section 303 (a) (2) of the act which provides "for the encouragement of exploration, development, and mining of critical and strategic minerals and metals." The moving word in the act is "encouragement" and the history of the act does not help much in determining what was meant. However, the language has been construed as authorizing money contribution by the Government to promote exploration projects. A program for this purpose has been fully prepared and will be put into operation as soon as the money is made available. By the terms of the regulations upon which this program is based, the Government will contribute 50 percent, 75 percent, or 90 percent, of the costs of individual exploration projects, depending upon the particular metal or mineral that is the subject of exploration. The Government will require repayment of its contribution only from the net earnings from the sale of production from new ore bodies that are discovered as a result of the exploration. There will be no personal liability on the part of the operator to repay the money except if and when commercial production is made from such newly discovered ore bodies. Lessors and encumbrancers will be required to subordinate their interests to the claim of the Government for repayment from such newly discovered deposits. (vi) Access roads. It would be possible to finance construction of an access road under the provisions of the Defense Production Act, but it is more likely to be done under the provisions of section 12 of the Federal Aid Highway Act of 1950. The Secretary of the Interior has been authorized by the President to certify to the necessity for access roads under the Federal Aid Highway Act of 1950 with respect to exploration and development of deposits of strategic and critical metals and minerals. (vii) Advances against future production. This apparently refers to section 303 (b) of the act which authorizes without regard purchases and commitments to purchase and sales * to the limitations of existing law, for such quantities, and on such terms and conditions, including advance payments as the President deems necessary. Under this provision, advance payments may be made under procurement contracts to aid the contractor in financing his necessary operations under the contract. DESCRIPTION OF EXTENT AND LIMITATIONS OF ASSISTANCE AVAILABLE; QUALIFICATIONS REQUIRED; TERMS AND CONDITIONS IMPOSED; AND GENERAL CRITERIA EMPLOYED IN EVALUATION OF PROJECTS (Annex (c)) A brief description of the extent and limitations of assistance available, the qualifications required before an application is approved, the terms and conditions under which assistance is granted, and the general criteria which are employed in the evaluation of a project, follows: Each applicant is obliged to submit a formal application for assistance in written form. The applicant must be a bona fide operator, either individual or corporation, and must possess the property which is the subject of the request, either by ownership or leasehold which is in good standing. All types of assistance listed under (c) are available to any persons who can produce strategic metals or minerals of acceptable grades, provided that the commodity is included in the approved supply and requirements program and is thereby considered essential for the defense effort. Upon compliance with these simple rules of eligibility, the following additional considerations are employed: (a) Procurement contracts.-The granting of a procurement contract is one of the most effective methods of encouraging the production of critical materials. Its fundamental purpose is to guarantee the producer a market for a sufficient number of years, at a predetermined price, which will justify the undertaking of the expansion program. The prime elements of all procurement contracts are the extent to which the amortization of the investment should be guaranteed, the floor price which is necessary to accomplish that end, and the length of the contract in terms of years. It is the policy to fix guaranteed floor prices at, or less than, the current market prices, in order to avoid encouragement of inflationary trends. It is also the policy to employ certain approved percentage factors which govern the extent to which the amortization of invested capital will be guaranteed. These two factors, therefore, become the pivots of all contract terms and determine the term of the contract which, as presently employed, is the flexible element in the determination of all procurement contracts. It is the policy of the Administration to avoid all long-term contracts, both from the standpoint of limiting Government obligations and, on the other hand, to free, as early as practicable, Government participation in the field of private enterprise. Although it be contemplated that the strategic metals and minerals which are to be produced under a procurement contract will be marketed through normal trade channels, all contracts grant the Government the option to purchase any or all of the production to the market price or the agreed guaranteed price, whichever is higher. On the other hand, the contractor is granted the option to require the Government to purchase that part of his production which cannot be sold at or above the agreed guaranteed price. It is the established policy to include termination clauses in all long-term contracts in order to relieve the Government obligation to purchase excessive quantities of materials at prices higher than those then prevailing. The Gov ernment's right to terminate a contract is usually not effective until the expansion program has been under way for several years, and provision is made to repay the contractor for unretired invested capital. Additional criteria are that (a) the management is competent to complete the project in an efficient and responsible manner, (b) that there is a sound basis for expecting that the delivery schedule will be met, (c) that the project is technically sound and economically feasible, and (d) that the supply of the material involved could not be effectively obtained at lower prices or in terms more favorable to the Government. A general outline of terms and conditions of procurement contracts follows: Subject: DMA No. Name and address of contractor. Metal or mineral. Strategic and critical mineral Statement concerning need and shortage of metal or mineral. (1) Definitions: Various terms and words defined. (2) Expansion of facilities: Statement as to present facilities and business of contractor with statement of proposed expansion and expenditures. (3) Amortization of facilities: Statement relating to certificate of necessity for accelerated amortization. (4) Material and quantity: Kind, type, and total quantity of material involved. (5) Term: Duration of contract; months or years. Dates of start and termination of contract. (6) Quality: Grade, analysis, and specifications for the material to be delivered. (7) Price: Purchase price if Government exercises option to purchase. Floor price that Government will pay if contractor is unable to sell to industry. (8) Delivery: CIF, FOB, location of delivery point. Rate of delivery, tons per month or year. (9) Storage: Term, price, and conditions of material to be stored. (10) Inspection, weighing, sampling, analysis, and acceptance: GSA clause. (11) Payments: GSA clause. (12) Shipment: GSA clause. (13) Buy-American Act: GSA clause. (14) Assignment of claims: GSA clause. (15) Assignment of contract; GSA clause. No assignment of contract to other party without Government's prior approval. (16) Federal, State, and local taxes: GSA clause. (17) Force majeure: GSA clause. (18) Other standard GSA clauses. (19) Title: GSA clause. (20) Cancellation: Statement as to various provisions under which contract may be cancelled. (21) Special conditions. (b) Purchase programs.-Comprehensive studies have been made for the establishment of ore-purchasing depots in various locations of the United States for the purchase of small lots of chrome, manganese, and tungsten ores. Schedules which govern the prices to be paid for these ores have been based on anticipated recovery factors in the place of assay contents, as was employed during World War II. It is considered that the recovery approach is the more practicable since it favors the producer who can furnish ores that may easily be beneficiated for marketable quality, and at the same time minimizes the Government's risk of purchasing materials which may not be economically recovered. In the determination of price schedules to be paid for crude ores, consideration is given to factors entering the costs of production, transportation, and future beneficiation. The necessary order for the announcement of these purchase programs, the price schedules to be posted, and other necessary forms have been prepared and will shortly be made the subject of a formal recommendation. It is proposed that the purchase programs will be established for a period of 5 years and cancellable after 3 years, and then only upon 12 months' notice. All small operators will then be able to sell their ores under the posted schedule without further formality, and those producers who find it impossible to operate under the adopted schedules, or are large producers, may request special consideration in the form of individual procurement contracts. (c) Incentive payments or subsidies for production.-The types of assistance outlined above under "Procurement contracts" and "Purchase programs" are direct price incentives for the production expansion of critical metals and minerals. The determination of a guaranteed floor price which assures expanded production may be considered as an indirect subsidy to encourage the production which is the subject of the contract. The overmarket prices which have been granted in the case of domestic manganese and cobalt projects may be considered as a direct subsidy required to produce those commodities. Additional contracts will be made on an individual basis at prices in excess of market when it is necessary that such actions be taken in the interest of national defense and consistent with the purposes of the Defense Production Act. (d) Exploration and research projects.-The complete rules and regulations governing the granting of Government assistance for defense exploration projects is now awaiting approval of the Bureau of the Budget. A copy of the proposed regulations, MO-5, which sets forth the criteria which are to be followed, the percentages of Government participation, provisions for repayment, etc., is appended hereto. (The proposed regulation is as follows:) Pending Bureau of the Budget approval UNITED STATES DEPARTMENT OF THE INTERIOR, DEFENSE MINERALS ADMINISTRATION TITLE 32A-NATIONAL DEFENSE, APPENDIX Chapter XII-Defense Minerals Administration REGULATIONS GOVERNING GOVERNMENT AID IN DEFENSE EXPLORATION PROJECTS This regulation is found to be necessary and appropriate to carry out the provisions of the Defense Production Act of 1950 with reference to the encouragement of exploration, development, and mining of critical and strategic minerals and metals pursuant to section 303 (a) (2) of the Act. In the formulation of this regulation there has been consultation with industry representatives, includ ing trade association representatives, and consideration has been given to thei recommendations. Sec. EXPLANATORY PROVISIONS 1. What this regulation does. 2. Government aid. AUTHORITY: Secs. 1 to 14 issued under sec. 704, Pub. Law 774, 81st Cong.; E. O. 1016). Sept. 9. 1950, 15 F. R. 6105; E. O. 10200, Jan. 3, 1951, 16 F. R. 61; Order of the Secretary of the Interior No. 2605, Dec. 4, 1950, as amended; delegation of the Defense Production. Administrator to the Secretary of the Interior, Feb. 28, 1951. Interpret or apply sec. 303 (a) (2), Pub. Law 774, 81st Cong. EXPLANATORY PROVISIONS SEC. 1 What this regulation does. This regulation sets forth procedures under which Government aid may be obtained in financing the cost of projects for exploration for unknown or undeveloped sources of strategic or critical metals and minerals. SEC. 2 Government aid. The Government, in suitable cases, will aid in an exploration project for strategic or critical metals and minerals by providing some part of the costs of the project, the Government's contribution to be repayable from the net returns from any ore, concentrates, or metal produced as a result of the exploration project. APPLICATIONS AND CONTRACTS SEC. 3 Forms and filing. Application for Government aid in any specified exploration project shall be submitted in quadruplicate on Form No. MF-103, either to The Defense Minerals Administration or to the nearest Defense Minerals Administration field executive officer as indicated by the following addresses: IV. V VI VII. VIII. Arizona, New Mexico, Colorado, Utah, and Wyo- North Dakota, South Dakota, Nebraska, Minne- Tennessee, North Carolina, South Carolina, Geor- Address Federal Bldg., P. O. Box 2990, Juneau, South 157 Howard St., Spokane, Wash.. 224 New Customhouse Bldg., Denver2, Colo. 426 Plymouth Bldg., Minneapolis,. Minn. P. O. Box 431, Joplin, Mo. Room 13, Post Office Bldg., Knoxville, Eastern Experiment Station, College- Applications filed prior to the effective date of this regulation, if sufficient, will be treated as though filed on the prescribed form. Applications must be filed at least 30 days prior to the expiration of the authority granted by the Defense Production Act of 1950, which at the time of issuing these regulations, is June 30, 1951. SEC. 4 Scope of application. Each application shall relate to a single exploration project which shall be fully described and justified by detailed substantiating: data as called for by the application form. The Administrator may require the 82354-52 |