249, 179.89

Expansion and research

In spite of the commanding first call for rehabilitation, operation, and production, expansion and research have been given increasing attention and effort from the beginning of the restoration.

Out of this has come three important decisions, the first two of which are in execution and the third is awaiting the final developments. These were—

1. To establish a process development plant at Nicaro for thorough investigation of the utilization of lateritic ores. It evolved from plans for a pilot installation to test phases of the process improvements. The finished plant cost $575,000. 2. To undertake research aimed at product improvement and economies in production.

3. To expand the capacity of the metallurgical plant by 75 percent.

These decisions, particularly the last two, have influenced the letter contract with the Nickel Processing Corp.

Under its original terms the operator was obligated to propose and the Government to take an acceptable lease within 11 months after full operation had begun. This clause became operative July 16, 1952, with reactivation of the last tier of reduction furnaces.

Almost simultaneously the General Services Administration proposed an amendment to the letter agreement by which research would become a specific duty of the contractor. The amendment was accepted. It was aimed especially at product improvement although other research targets were within its general intent. The revision provided for no increase in fee for the operation.

Shortly thereafter the General Services Administration and the Defense Materials Procurement Agency, acting in concert, began to examine Nicaro as a potential source of a larger volume of nickel. This study led to a decision in mid-December 1952 for a 75 percent expansion. Its execution was made contingent upon the proving of sufficient ore reserves to feed an expanded plant, the technical and economic value of the process in use at Nicaro compared with other processes, a continuing shortage of nickel, and the availability of construction funds.

Meanwhile, the Government and the operator had entered into exploratory conferences to find out whether an acceptable lease could be negotiated in view of the probable expansion. Finally, however, General Services Administration concluded that, with nickel still in overall stringent supply, a lease would be contrary to the public interest. This decision rested upon considerations wholly separated from the acceptability of any lease proposal reasonably in prospect. The basis of this reasoning was largely the fact that an expansion would replace known costs with imponderable costs. The unpredictables would occur during the expansion, in view of its uncertain effect on the present operation, and in the operation of the expanded plant. The costs of an improved product likewise could not be fastened down at the time. Moreover, there was a distinct probability that as long as the Nicaro product continued to be nickel oxide powder the output of at least the expanded capacity would move into the national stockpile. Thus, in effect, an expanded plant would be producing in a major degree directly for the Government's account.

In these uncertainties, the General Services Administration amended the original letter contract to extend the management fee arrangement through the life of the agreement. By the amendment the contractor and the Government alike were released from the lease obligations of the original contract. The revision extended the management fee operation, left both parties free to propose a lease, and added incentives to the operator's fee. Other provisions spelled out an expanded research program, discussed in detail later, for an aggressive attack on the problems of improving the product and reducing operating costs.

As one of the new incentives, the contractor is receiving an additional fee of one-fourth cent a pound for the nickel-cobalt production. It was designed to compensate the contractor for greater research effort. The basic fee of 1 cent a pound for nickel-cobalt oxide remained.

It became, in effect, a base for a scale of fees designed to encourage the contractor to put the finished product in superior forms. When the original fee was devised oxide powder was the expected product. While it has attained acceptance in the steel industry, the range of usefulness is narrower than for oxide in sintered or briquetted forms or for nickel in metallic form. Solid forms reduce the risk of loss in steel furnaces. Moreover, both sintered oxide and metallic nickel are preferred for stockpiling.

For these reasons the contractor may now claim a progressively higher fee for turning out a product in progessively higher form. The new scale: 1 cent a pound for powder, 12 cents for sintered oxide, and 2 cents for metal.

So far the contractor has not realized upon the new product scale. But with the recent perfection of a sintering process, construction of a sintering plant is underway at Nicaro at an estimated cost of $757,000. It is expected to be in operation at the beginning of 1954.

Contributions

In carrying out its responsibility for Nicaro the General Services Administration has had cooperation from many quarters, in this country and in Cuba.

Chief among the contributors has been the Defense Materials Procurement Agency. After its organization in the fall of 1951 it gave its active assistance. In a very real sense the project has been a joint GSA-DMPA operation.

From its revolving funds DMPA advanced the last installments of capital needed to drive the rehabilitation through on time. The same funds have furnished operating capital for the mines and the plant (see table 2). Moreover, DMPA presently has in progress systematic explorations for additional ore reserves for an expanded operation. The Bureau of Mines of the Department of the Interior is giving the survey technical direction as well as experimenting with the problem of producing nickel metal.

Other Federal agencies which have materially aided in the project include the Munitions Board, National Security Resources Board, Defense Production Administration, and Office of Defense Mobilization. The last two threw their weight into the struggle to reactivate Nicaro when there was imminent danger of serious delay.

In this connection the Department of the Navy made outstanding contributions. By air ferry, it moved badly needed supplies from Norfolk, Va., to Nicaro. Supplies also were loaned from its stocks at the Guantanamo Naval Base. The Navy also alleviated a troublesome housing problem by recommissioning a mothballed barrack ship and laying it into Levisa Bay where Nicaro fronts on Atlantic waters. With construction and operating crews at work at the same time in the final rehabilitation stage, Nicaro community had become overcrowded.

The Department of State has been a constant source of advice and assistance. Its helpful counsel has contributed to the solution of the many problems to be expected in a unique international operation of Nicaro's character. The Department, through the American Embassy at Havana, has been a direct channel for communication and consultation with the Government of Cuba.

The Republic of Cuba has been most generous with its cooperation, by tax relief and by participating in phases of the project. This assistance reflects nickel's strategic value to the free world as well as the Cuban National Government's recognition of the nonprofit, noncommercial aspects of the project while its permanent position in the Cuban economy is being ascertained.

Tax relief has been furnished in the form of a customs decree issued in April 1951 and a tax decree of May 1953. The first, effective from early in the rehabilitation, has released the United States from import duties on materials and supplies delivered for its account at Nicaro. The more recent decree applies to internal taxes. Both represent material contributions to the project by exempting it from taxes which would otherwise be payable by the United States Government.

In addition, the Cuban Government has arranged post office and customs facilities at Nicaro and borne nearly half the cost of an all-weather road connecting the plant with Mayari, the nearest Cuban town. The national Government, moreover, has opened its public lands for ore explorations.

Private industry-Cuban, Dutch, and American-was instrumental in executing the task. Cuban labor has added its cooperation.

In addition to the work of the prime contractors and their labor forces, the project has had the cooperation of the United Fruit Co. and Bethlehem Steel Co., which own neighboring installations. They have been particularly helpful to the ore explorations. Bethlehem, which holds substantial reserves for their iron as well as nickel content, loaned aerial negatives of the area and thereby save the United States the cost of new photography.

By recommendations in its industrial survey report aided at raising plant efficiency, Freeport Sulfur Co. likewise contributed to the project's advancement. The report was delivered ahead of schedule, and Freeport returned to the Government $12,703.62 of its fee of $75,000, retaining only out-of-pocket costs.

The project has benefited, moreover, from the special experience, high skills, and forward-looking policies which the contracting firms brought to their work. Snare has long been a builder in Cuba. Its labor policy makes full use of Cuban capabilities, in professional as well as work requiring lesser training. The Nickel Processing Corp has employed the full talents which its international CubanAmerican ownership has made available.

National Lead Co., owner of the majority interest, has demonstrated its diversified metallurgical experience by the steady expansion in recent decades of its interest in metals other than lead. An example is the company's operations at Fredericktown, Mo., where the ore contains nickel, cobalt, and copper, as well as lead, and the processing thereof requires broad metallurgical experience.

Uncommon metals in which National Lead has had production experience are antimony, zirconium, and uranium. The company produces iron in the form of magnetite and operates a full-size commercial plant for the production of titanium. Produced in limited quantities a few years ago, it is the most widely acclaimed new metal of the present era. This emphasis on exploring the production and use of such materials, unknown or unwanted until recently, testifies to National Lead's metallurgical enterprise.

With this help the General Services Administration was able to reactivate the plant on schedule and bring it to full operation. As a result, Nicaro has had an uninterrupted operation at an increasingly high level of productivity.

PERFORMANCE FOR THE FUTURE

Nicaro is today a going operation.

It was reactivated on its original schedule, and it has been producing nickel with greater efficiency ever since.

The degree to which the recommendations of the Preparedness Subcommittee have been carried out is set forth below. Performance, insofar as practical yardsticks are available, has been measured or appraised in the light of the subcommittee report.

The first operation, spanning 40 war and postwar months (1943-47), has provided a convenient means for measuring the present performance. In fact, in view of the worldwide lack of other documented experience with the novel task of extracting nickel from lateritic ores, Nicaro's first run is also the only available yardstick.

Fortunately, in fact, the first venture, in wartime project of emergency character, has been ably and thoroughly described. A report, Review of the Nicaro Nickel Project, was completed in January 1948, a year after the shutdown, for the Office of Defense Plants which had primary responsibility for the operation. It was written by the projects principal and senior engineers, Henry A. Tobelmann and Harry L. Morgan, and runs to one-hundred-and-sixty-odd typewritten pages. As the review makes clear, the project was beset in its first run by wartime shortages as well as by inexorable wartime demand for more nickel at whatever sacrifice and by whatever improvisation. As a result, the project was handicapped at times from the lack of thorough preoperation investigations, inadequate engineering designs, and equipment failures.

For this perspective-setting reason, operating data developed during the first and second runs may not be fully comparable. In any event they probably should be weighed in some degree to reflect the sizable difficulties which were encountered and to a large degree surmounted in the first operation. Whatever improvements were discernible in the second operation, by the same token, reflect the benefit of experience in the pioneer operation as well as the somewhat more moderate scale of the problems which have continued to surround the present venture at Nicaro.

Production

In the present operation, production has risen above the rate achieved in 1946, high year in the first run. This comparison is set forth in table 3. Actual performance for each month of full operation has been compared on an index basis with the average monthly rate necessary to reach the annual output recorded in 1946. This rate has been given a value of 100 percent.

TABLE 3.-Production of nickel-cobalt at Nicara, Cuba, from July 1, 1952, through June 30, 1953, compared with the average monthly rate of production for 1946.

1 Actual production in 1946 was 24,782,800 pounds of nickel-cobalt. The average monthly rate for this volume is 2,055,244.

2 Adjustment of February 1953 production to an average month increases the percentage to 103.5. Recovery rates

Another index pointing to improved efficiency is a higher recovery rate in the second run. This is shown in table 4 which compares monthly averages for 1945-46 with July 1, 1952 to April 30, 1953.

TABLE 4.—Comparison of rates of nickel recovery at Nicaro, Cuba, for average months in the first and second operation

Improved rates of production and recovery suggest that production costs may be less in the present operation.

This conclusion is offered, of necessity, on a tentative basis in the absence of cost data which are exactly comparable in every respect. In any event, inflation in price levels since the end of the 1943-47 period would necessitate economic adjustments to bring cost figures to a real dollar basis. Therefore, comparison derived from the wealth of data in the official report to the Office of Defense Plants have limited usefulness. At best they are only rough measurements. One example is the reported cost of 24.3 cents a pound for the nickel-cobalt produced in 1945, the first operation's best year, according to the report. This figure covered only Cuban operating costs.

In the present operation, the Cuban costs believed to be most nearly comparable amounted to 29.497 cents a pound for the 12 months of full operation. This is the manufacturing cost less ore royalty, management fee, pilot plant expenses, and administrative expenses in the United States. Neither figure, of course, includes capital charges of any kind.

To the extent that these cost figures are comparable, they show the cost per pound for the present operation higher than the first by 22 percent. However, base wage rates and the cost to the major raw materials have increased by equal or larger percentages since 1945, according to information from the Nickel Processing Corp. With the differences in data and in economic conditions taken into account, there is good reason for an opinion that production costs are lower in the second operation.

Research program

In accordance with the recommendations of the Preparedness Subcommittee, the General Services Administration has underway an intensive research attack