buy the oxide at the market price for cathode nickel which exceeds the powdered oxide price by about 5 cents a pound.

The proposal also contained other less usual features dealing with the preferred stock which the United States has owned in the Nicaro Nickel Co. since the beginning of the first operation. The Government had aided in the acquisition of mineral rights with an investment of $1,100,000 from the Reconstruction Finance Corporation. The stock, providing for dividends at 4 percent per annum, was in exchange. Under the proposal the Government would be required to waive accrued dividends and discount its value.

Freeport Sulphur Co., parent corporation of the Nicaro Nickel Co., also figured directly in the proposal. It appeared as an operating partner of the American Smelting & Refining Co.

Lastly, the proposal was tentative subject to and dependent upon success in negotiating tax concessions and labor contracts in Cuba within 60 days.

Basis of selection

In broad outline these were the proposals which the Magnesium and Nickel Committee analyzed. It recommended the Billiton proposal on five counts:

1. It was for an immediate start. The alternative proposed a delay up to 60 days with the possibility that the search for an operator would have to be renewed if the Cuban negotiations were fruitless.

2. It was pointed toward the production of more nickel, by the present process and by process improvements.

3. It offered the likelihood of the eventual separate extraction of cobalt, a more valuable metal also in critical supply.

4. It proposed a management-fee operation as a means of acquiring valid information on costs for the protection of the substantial public investment in Nicaro.

5. It was more economical for the United States. By analysis, the complicated pluses and minuses of the alternative indicated that it, in spite of being for a lease by which the operator would accept a degree of risk, would cost the Government substantially more than the accepted proposal. In fact, at the end of 1952, after 12 months of partial and full operation, the alternative would have left the United States out of pocket by about $800,000. This amount excludes the savings from transfers of Nicaro nickel to the Government stockpile at less than market prices and the income for amortization which have accrued to the United States under the accepted proposal.

Final arrangements

In recommending acceptance, the Magnesium and Nickel Committee coupled its findings with modifications which Billiton accepted.

These were

1. That plans I and II, taken together, should become the working basis for Nicaro.

In plain terms, the committee's attitude was that the first task was the earliest delivery of nickel. Rehabilitation and operation would be undertaken with the process and equipment used in the first run with whatever mechanical improvements that would enhance efficiency.

Meanwhile, by a pilot plant to be built at Nicaro, the process improvements embodied in plan II would be tested for installation to increase the nickel output and produce cobalt. The Government commitment, with respect to alterations in the process, was limited to proving their value.

The process improvements had been invented by Dr. M. H. Caron of The Hague, Holland, who had developed the original process as well. Both are technically Caron-type processes. Dr. Caron, moreover, would be retained as a consultant on the use of the improvements.

2. That an American metallurgical firm should become a partner in the operating company.

1

The committee set forth this condition in recognition of the reservation which had prompted the Munitions Board originally to hesitate at certifying the Billiton Co. The committee further suggested that either certified company would be welcomed but left to Billiton the task of finding its own American partner.

Parallel with the second condition, all three approved companies had been asked in the letter of December 14 if they would enlist Cuban capital in the operation. Billiton had replied in the affirmative even though the letter had specified that willingness to bring Cuban participation into the venture was not a condition for selection.

So at the outset the Dutch firm began negotiations which eventually transformed the Nickel Processing Corp. into a Dutch-American-Cuban company. Billiton completed its negotiations in June 1951 and submitted the prospective three-way ownership to the General Services Administration for approval. The contractor selected and negotiated with the new participants, both American and Cuban, on its own initiative.

As its American partner, Billiton brought in the National Lead Co. after the other approved companies had declined invitations. National Lead's ownership represented 30 percent of the capital, and it further agreed to furnish technical operating personnel to the project.

Fomento de Minerales Cubanos, S. A., became the Cuban partner, with the purchase of 20 percent of the stock. This agreement was approved by the General Services Administration in July after consulting with the Department of State. At the request of GSA the Cuban group had submitted a statement identifying its several owners and setting forth that they could contribute "knowledge of local labor problems *** especially in the zone where the plant is located." "extensive knowledge and experience in handling * * * any problems *** with the central government or municipal administrations," and "knowledge of economic, fiscal and administrative problems."

The ownership of Fomento, a newly formed Cuban corporation, was held by Rafael Laureano Gonzalez Cardenas, a landowner, cattleman, and sugarcane grower in Oriente Province; Miguel Adolfo Garcia y Garcia, director of public relations of Cia. Cubana de Electricidad, Cuba's largest power company, and Jose A. Alvarez Cabrera, a certified public accountant and former economic counselor to Cuban governments. Interestingly, all three had long evinced an interest in returning Nicaro to operation and had, in fact, shared in the ownership of the American Nicaro group which had put forward an abortive offer for the plant in 1950. Dr. Oscar Garcia Montes, professor emeritus of the Univer sity of Havana and a former Cuban Secretary of the Treasury, was secretary of Fomento.

Long before its international pattern was fixed the Nickel Processing Corp. had entered on the task spelled out in basic letter of intent. The contract ran for 5 years with a management fee in the early stages. The contractor was obligated to come forward, within 11 months after full operation had been attained, with a lease suitable to the Government for the remainder of the contract. There was a balancing obligation on the Government to accept the lease. Thirty days of grace were allowed for negotiating differences.

As its interim management fee the operator first received $20,000 a month in addition to reimbursement for all approved costs necessary to carry out the contract. In the productive period the fee became 1 cent a pound for the nickelcobalt content of the oxide and remained at that level until an incentive factor was added early in 1953.

Rehabilitation

Like the Nickel Processing Corp., the Frederick Snare Corp. held a prime contract from the General Services Administration.

The contractor's task was broadly the rehabilitation of the nickel facility, the mining equipment, the railroad connecting mines and plant, the metallurgical plant and its buildings, roadways, piers, and utilities, and the Nicaro community. For its service Snare received a fixed fee based on the estimated rehabilitation costs, which were incurred for the account of the United States Government.

Snare was at work by January 26, 1951, a week and a day after the letter of intent was issued.

Early expectations that the rehabilitation would approximate the industrial survey estimate of $6,620,000 were short of the mark. By the end of fiscal year 1953, the total outlay approached $12,155,000. The expenditures through Snare amounted to $11,628.100, including the contractor's fees of $362,900, about 3 percent of the value of the contracted work.

Originally, the rehabilitation was scheduled for a swift advance to production in January 1952. By midyear 1951, with the project 6 months in trajectory, there were signs that the timetable was severely tight. One of the chief handicaps was the lack of priorities matching the vital character of the plant. Upon review the General Services Administration set a new date for the reopening, in April 1952, with full operation expected in January 1953.

The Magnesium and Nickel Committee, moreover, took action to aid the construction contractor to gain time. The committee required the operator, Nickel

Processing Corp., to put a construction engineer on the job to tie together the plans, designs, and specifications of both prime contractors. Solicited for help, Government defense and mobilization agencies gave their assistance. Out of these efforts came the designation of Clay P. Bedford to act for the Office of Defense Mobilization and the Defense Production Administration as a top-level expediter to bring Nicaro home on time.

By the early fall of 1951 the General Services Administration had advanced the reopening to March 1952. With the accelerated momentum continuing to pick up time, the project, by winter, was back nearly on its original schedule. Initial production came on January 31, 1952, in the month first calendared for the reopening.

Four of the 12 huge Herreshoff furnaces were in operation when the plant returned to production. The remaining eight were scheduled to be fired in a stepby-step plan in the succeeding months. By mid-July, 1952, Nicaro was in full operation.

NPC reconstituted

Prior to full operation, however, the ownership of the Nickel Processing Corp. was altered by voluntary action on the part of the three separate corporations which shared the enterprise.

The operating corporation had been asked in February 1952, shortly after the second run had gotten under way, to install a new general manager at Nicaro. The General Services Administration left the choice to the operator. The request was premised upon a conviction, supported by an inspection of the operation, that superior administrative talent was required in that position at Nicaro. The decision was reached reluctantly and with no intent to reflect adversely on the firm or its personnel. At that time Nicaro was considered the Nation's No. 1 defense plant, and its full output of nickel was deemed essential for industry to meet production contracts with the defense agencies.

From the viewpoint of the Billiton firm, which owned the largest share of the operating company, the request was regarded as interference in company affairs. Upon Billiton's failure to select a replacement within what GSA considered a reasonable time, the resignation of another official in the executive management of NPC was requested to secure more rapid cooperation. Thereupon Billiton voluntarily decided to withdraw from the subsidiary it had set up.

In the result, without objection from the Government, Billiton sold its half interest in the Nickel Processing Corp. to the other partners. The National Lead Co. purchased sufficient shares to raise its ownership to 60 percent of the stock. The balance was bought by Fomento de Minerales Cubanos, S. A., which thereby lifted its holdings to 40 percent. By the transaction, which took place in April 1952, both partners doubled their original holdings.

Production

Since July 1952 Nicaro has had a stretch of 12 months of full operation. Its production is set forth below (table 1) for the first 18 months of the second run, with subtotals for partial and full operation.

TABLE 1.—Production of nickel-cobalt content of nickel oxide at Nicaro, Cuba, Jan. 31, 1952-June 1953, inclusive

TABLE 1.-Production of nickel-cobalt content of nickel oxide at Nicaro, Cuba, Jan. 31, 1952-June 1953, inclusive-Continued

For the 12 months of full operation, Nicaro's trendline has been marked in many instances by pronounced oscillations in production from month to month similar to the experience in the first operation. In spite of these ups and downs, it has moved in a generally upward direction. At the same time there has been a tendency for the fluctuations to become somewhat smaller in the latter part of the period pointing to a degree of increased stability.

Taken on a quarterly basis, Nicaro's production for the 12 months has approximated these annual rates:

These annual rates reveal fully the pattern of production at Nicaro; the fluctuations, the upward trend, and the tendency for the oscillations to move within a narrower are in later months.

Monthly production fluctuations reflect in part general mining experience with ores of which the metal content varies with the progress of mine headings along veins of variable richness. At Nicaro the nickel content of the dry ore has ranged as low as 1.311 percent to a high of 1.497 percent on a monthly average basis. This variation represents a difference of 12 to 14 percent in the nickel in a ton of ore delivered for processing.

Aside from this normal mining variable, the reported monthly outturn has been influenced by the operation of a calcining kiln at the very end of the Nicaro process. Since the startup in January 1952 the kiln has been out of operation about 10 percent of the time. As the kiln's capacity exceeds the plant's capacity, the repaired kiln catches up with the unbroken, around-the-clock production of the rest of the plant, but monthly production reports sometimes show an uneven pattern in the result.

Originally designed for 800° Fahrenheit, the kiln turned out off-grade nickel oxide in the first operation. Increasing the heat improved the product but corroded the kiln shell. In the rehabilitation, it was lined with refractory bricks to prevent further corrosion. The increased weight, however, has induced a weaving movement which loosens the bricks, and shutdowns are necessary to replace them. As the breakdowns do not interfere with basic production, a replacement has been avoided as uneconomical. Recently stiffener rings designed to help hold the refractories were shipped to Nicaro.

Plant capacity

An annual outturn of about 31 million pounds of nickel (nickel-cobalt) was anticipated at the inception of both operations. In neither, however, has this rate been sustained although in the first 12 months of full operation after rehabilitation it was approximated twice (in December 1952 and again in March 1953) and approached in a third month (November 1952).

Twelve months of practical experience, with the facility in full operation, points to a conclusion that the working capacity, with the present equipment, ranges between 27 and 28 million pounds a year. This is less than the designed capacity which, in both operations, was a reflection of metallurgical estimates based on laboratory and pilot-plant experience.

Operating variations at the mines and the plant account in the main for the lesser rate in large-scale operations. These variations are under study with a

view to bringing working capacity nearer designed capacity, possibly by adding equipment with a relatively small capital outlay. The targets are outlined later in a discussion of the research program. Until experimentation has made a further advance on the problems underlying the operation variables, the project should be considered to be still in the shakedown stage of operations.

Income and costs

In the first 12 months of full operation after rehabilitation, the fiscal year which ended June 30, 1953, the total cost of operating Nicaro exceeded net income from sales. The excess of costs over income was equal to 2 percent of all the charges borne by the year's operations, including amortization. Income and costs for the fiscal period are shown in table 2.

The significant points are

1. The total cost of operating the nickel facility amounted to $12,214,000. This included the charge necessary to amortize the total capital investment within the estimated lifetime of the ore reserves from which the plant is supplied.

2. The total income from sales amounted to $11,965,000. This included the return from transfers of nickel to the Government stockpile at less than market prices. A saving of approximately $725,000 resulted from the lower price.

3. The excess of costs over income amounted to $249,000. The deficit thus accrued represented 2 percent of the total operating costs. It was also less than 10 percent of the charge of $2,785,000 for the amortization of capital value.

Costs. The total operating cost is composed of (1) certain costs derived from expenditures made from appropriated Government funds prior to the current operation; and (2) additional costs to the Government resulting from expenditures made from the revolving fund of the Defense Materials Procurement Agency. The former costs consist of (a) amortization of the capital value of the Nicaro facility as reflected in the accounts of the General Services Administration; (b) certain supplies remaining from preceding operations of this and other Government-owned plants and from the rehabilitation of the Nicaro plant. Special items of cost were as follows:

Ore royalties, $1,648,259.40.-These were paid to the Nicaro Nickel Co., owner of the ore reserve, at the rate of 6.301 cents per pound of the nickel-cobalt content of the oxide obtained from ore.

Start-up expense, $264,041.78.-Costs incurred in getting the plant to full operation totaled $1,046,155.10. This amount is being charged to manufacturing costs prorated over the estimated production for the first half of the current operating contract.

Amortization, $2,784,579.75.-Amortization of the capital value of the facility, including capital value acquired with DMPA funds, is on the basis of the estimated life of the ore deposits. The amortization period extends until 1966. The amortization charge is based upon the retirement of the following capital values:

Management fee, $305,817.72.-This represents payments to the Nickel Processing Corp. based on production of nickel oxide.

Costs do not include (a) charges for administrative services furnished by the General Services Administration and its associate agency, Defense Materials Procurement Agency; (b) interest on DMPA funds advanced to finance operations; and (c) provisions for eventual shutdown and layaway costs.

Income. All income results from sales of nickel oxide. For the fiscal year, net operating receipts amounted to $11,964,443.75 and consisted of (a) sales to private industry at market prices which during the year ranged from 50.75 to 61.75 cents per pound; and (b) transfers of the finished product to the Government stockpile at 41.5 cents per pound which represented out-of-pocket costs paid from the DMPA revolving fund.