' A CONSPICUOUSLY SUCCESSFUL CASE' STATEMENT BY GEORGE M. HUMPHREY HONORARY CHAIRMAN THE M. A. HANNA COMPANY BEFORE THE SENATE ARMED SERVICES STOCKPILING SUBCOMMITTEE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP64B00346R000100170001-6
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 19
• Document Creation Date: December 15, 2016
• Document Release Date: December 8, 2003
• Sequence Number: 1
• Content Type: STATEMENT

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`A Conspicuously
Successful Case'
Statement by
George M. Humphrey
Honorary Chairman
The M. A. Hanna Company
Before the
Senate Armed Services
Stockpiling Subcommittee
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For Additional Copies, Please Write To:
The Hanna Mining Company
1300 Leader Building
Cleveland 14, Ohio
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THE abrupt adjournment on August 17 of the Senate
Stockpiling Subcommittee hearing left questions, and some
degree of confusion, in the minds of many outside observers.
Since only partial reports of our initial testimony were
published in the news media, we have printed Mr.
Humphrey's opening statement before the Committee on
August 16. This contains the basic information regarding
the nickel transaction, of which, as Mr. Humphrey char-
acterized it, both Hanna and the Government should be
justly proud. We believe you will find his statement inter-
esting and informative.
Sincerely yours,
W. A. Marting, President
August 24, 1962 The Hanna Mining Company
Statement by
George M. Humphrey
Before Senate Armed Services
Stockpiling Subcommittee
I appreciate the opportunity to make this statement to
you today, setting forth the facts with respect to Hanna's
connection with the sale of nickel to the Government.
I would like to begin my statement with a short summary
of exactly where both the Government and Hanna stand
today as a result of this transaction, and then I would like
to go back to the beginning and explain in detail just how
this result came about and my own connection with it.
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The net result of all of the transactions between the
United States Government and all of the Hanna companies
relating to all of the nickel contracts can be summarized as
follows:
When the contracts are all completed, the Government
will have on hand an inventory of 94,700,000 pounds of
nickel at a total cost to it of $67,200,000, which is a cost of
71? per pound, as compared with the current market price
of about 750 per pound.
Included in this total cost are the amounts used to repay
in full to the Government its advances of $25,600,000 for
the construction cost of the smelter plant and for working
capital, and $4,800,000 of interest at 5% on these advances.
This total cost also reflects the cash bonus of $1,722,000
paid to the Government by Hanna when the operation of
the nickel plant was taken over for its account as well as
the profit of $4,200,000 realized in cash by the Government
from the sale of 30,300,000 pounds of Hanna nickel to
others.
In addition to the foregoing items reflected in the cost of
nickel, the Government has also received income taxes paid
to it by Hanna of $5,800,000, withholding taxes of
$2,000,000 for its employees at the nickel operation, and
approximately $7,000,000 for power from the Bonneville
Dam.
As compared with this, Hanna has sold one-quarter of
its best nickel ore reserves, has realized a total net profit of
$7,535,000 from all sources for the seven years of operation.
Hanna now owns and is operating the smelting plant, the
cost of which has been repaid to the Government in full
with interest and cash bonus.
The results of these transactions are further summarized
in the following table:
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SUMMARY OF FACTS RELATING TO HANNA NICKEL
CONTRACTS
Amount
Sales to Government to Aug-
ust 14, 1962
Cash payments to Hanna . . . . . . . . . . $72.6 Million
Credited against loans to Hanna . . . . . . . 25.6
Total cost for 108.0 million pounds
of nickel . . . . . . . . . . . . . . . . . $98.2 Million
Less following amounts received by
Government:
Sales to others of 30.3 million
pounds at a profit of $4.2
Million . . . . . . . . . . $34.5 Million
Cash from Hanna-bonus pay-
ment for plant . . . . . . . 1.7
Interest on advances credited . . 4.8 41.0 Million
Price paid for present inventory of
77.7 million pounds of nickel . . . . . . . . $57.2 Million
17 million pounds to be delivered
before June 30, 1965 . . . . . . . . . 10.0 Million
Total price paid by Government for
94.7 million pounds of nickel* . . . . . . . $67.2 Million
Cost per Lb.-$.7102
Other amounts received by the Government
Federal income and withholding
taxes paid by Hanna . . . . . . . . . . . . $ 7.8 Million
Sales to Hanna of power from
Bonneville Dam . . . . . . . . . . . . . . 7.0 Million
$14.8 Million
Net profit to Hanna from entire
transaction . . . . . . . . . . . . . . . . $ 7,535,000
*Sources: Report on Borrowing Authority dated December 31, 1961,
submitted to the Congress by the General Services Administration pur-
suant to Section 304 (b) of the Defense Production Act as amended,
and, Audit Report of Comptroller General of The United States dated
April, 1961, covering Contracts DMP 49, 50, and 51.
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Personal Participation Limited,
Mistrusted Crash Program
I will now return to the history of the transaction and my
connection with it.
My own personal participation in the nickel undertaking
was very limited. The fact is that during the latter months
of the Truman Administration, while the Hanna nickel
contracts were being negotiated, I personally was engrossed
in the negotiation and development of a very much larger
project, embracing the building of a 360-mile railroad,
opening of several iron mines, building of a shipping port,
and construction of two good-sized towns, involving a total
expenditure of something over $300,000,000 in Quebec
and Labrador. Under these circumstances, I had very little
time to spend personally on this nickel project of so much
lesser importance, and the part I played was to advise from
time to time with my associates who were conducting the
negotiations. As a matter of fact, I was always doubtful
about Hanna's undertaking the project in the way the
Government proposed. The Labrador development, which
was many times larger and more important to the national
economy to supplement the dwindling iron ore supplies
from the Mesabi Range, was straining the executive and
technical capacity of our organization to the full, and I did
not want that interfered with in any way. I also mistrusted
the wisdom and practicability of the crash basis on which
the Government felt it must go ahead with the nickel plant.
And I am sure now that if we had proceeded on our own
in an orderly, businesslike way without acceding to the
Government's urging for a crash program, we would have
been able to supply nickel in greater quantity at an even
earlier time. The contracts were under negotiation by my
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associates long before I had the slightest idea I might ever
become an officer of the Government, and they were finally
signed and delivered just before I took office.
When I was nominated as Secretary of the Treasury in
January, 1953, I brought out, in my confirmation hearing
in the Senate Finance Committee, the fact that these con-
tracts had been negotiated and recently signed with repre-
sentatives of the Truman Administration (see Print of
Hearing before the Committee on Finance, United States
Senate, Jan. 19, 1953, p. 22). As Secretary of the Treasury
I had of course no occasion to take and did not take any
action affecting them. As I told the Senate Committee (see
Hearings p. 6) one of the first things I did when entering the
Treasury was to issue a flat order that any questions of any
kind that might thereafter arise affecting in any way any
company with which I had been previously associated
should go directly to an Under Secretary for attention,
with full power to act without any reference of it to me.
When I left the Treasury in July, 1957, I returned to the
Hanna Company only as a director, without salary, and
not as an operating officer of Hanna, and have had only
general familiarity with the project since then until the
hearings of your Committee prompted my recent, very
careful review of the entire matter, on which I have just
spent a good deal of time and effort.
This statement is based, therefore, upon my general
familiarity with the origins and development of the nickel
project and the careful review I have just made, and there
are here today responsible officers of The Hanna Mining
Company, who participated in the negotiations and directed
the operations, to answer your detailed questions as to both.
For more than thirty years, the Hanna Company has
spent an average of more than a million dollars a year in
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geological and geophysical work, in drilling, and in research
into metallurgy and into various methods of beneficiation,
to find, seek out, acquire and develop metal mining projects
anywhere in the western hemisphere and in a number of
other, more distant places. Over the years there has been a
high percentage of failures and losses, but there have been
sufficient successes with profit enough to offset them so that,
by and large, the Company has been repaid for its large
expenditures, and grown and prospered.
Government Pressed Hanna
To Open Nickel Deposit
In 1948, a mining prospect known as Nickel Mountain,
near Riddle, Oregon, was brought to Hanna's attention.
It was prospected and drilled, and enough ore proved to
warrant a mining operation, but there was no known way
of working out the metallurgy. Control of the property was
acquired, and Hanna technicians went to work with their
research. By the spring of 1952, Hanna's research and
laboratory work indicated that a satisfactory process to
make ferronickel out of this ore might be worked out, and
Hanna was prepared to carry the project to the pilot plant
stage of development.
The United States was then in a shooting war in Korea.
The economy was controlled under wartime powers. Jet
propulsion fighter planes were just coming into greater use
and were of rapidly growing importance in the strategy of
our defense effort. The construction of a great fleet of jet
fighters would require substantially increased use of nickel,
which was already in extremely short supply. There was
then no nickel production within the borders of the United
States. It all had to be imported. Small and large nickel
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users were almost desperate in their search for nickel and
were paying as much as $2.25 or more per pound in order
to maintain their supply of this very essential element. The
Government had been for some time pressing Hanna to
open the only known domestic source of supply. For
example, on February 3, 1951, then Senator Lyndon B.
Johnson, Chairman of the Preparedness Subcommittee of
the Committee on Armed Services wrote me as follows:
Dear Mr. Humphrey:
In its report on nickel, the Subcommittee recom-
mended that the appropriate Government agencies,
in cooperation with private industry, intensify efforts
to develop American nickel ore deposits such as those
in Douglas County, Oregon.
I note from recent press reports that your company
has taken an option on nickel deposits near Riddle in
Douglas County, Oregon.
I should greatly appreciate receiving from you a
report on your program for the development of these
deposits, including an estimate of the time which may
be required for both the development of the mining
processes and the treatment of the ores, an estimate of
the amount of nickel recovery which you presently
expect to be available, and what aid, if any, you may
require from the Government.
Sincerely,
/s/ Lyndon B. Johnson
Lyndon B. Johnson
Chairman
Preparedness Subcommittee
As a matter of interest, I attach a series of statements on
the subject of the urgency of the nickel shortage from reports
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of various Congressional Committees from this time until
the end of 1957. (See reports following this statement.)
Risks Not Justified
For Commercial Development
The Government wanted crash action. But Hanna was
being asked to enter a business that was entirely new and
wholly untried, and Hanna was reluctant to go forward
without pilot plant proof of the feasibility and economics
of its process and a test of the marketability of its product
in an orderly, businesslike way. This would have taken at
least a year or more, but the greatest speed is often made by
proven practical methods. The risks involved in a crash
program were justified only for defense requirements,
which might suddenly be changed. They were not justified
for a commercial development. I was insistent with our
own people that Hanna should not take the risks involved
in an unbusinesslike crash program and in the immediate
expenditure for the development of a mine and the con-
struction of a plant under those circumstances. Through
negotiations to overcome this situation, a plan was pro-
posed which was finally accepted by both parties:
Hanna agreed to immediately invest, in addition to
all past expenditures for acquisition, drilling, re-
search and proving of the mining property and its
process, up to $3,800,000 of Hanna's own money to
open, equip and develop its own mine with no Govern-
ment assistance of any kind. Hanna then agreed to
meet the Government's request and make a plain,
straight, firm sale under a long-term contract to the
Government of the entire production of nickel ore from
its own mine for a period of nine years estimated at
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about 4,000,000 tons of ore at an agreed fixed price of
$6 per ton subject to adjustment for nickel content
and escalation.
The Government agreed to advance to a corporation
formed for the purpose by Hanna but wholly financed
by the Government sufficient funds (approximately
twenty-two million dollars) to immediately build a full-
scale commercial plant of Hanna's design, but with no
profit to Hanna, and thus gain time, which the Govern-
ment desired. If the process turned out not to be
feasible, Hanna could convey the plant to the Govern-
ment in satisfaction of the advances. And in considera-
tion of turning over all its research and technical
knowledge to the Government without any payment
to Hanna, Hanna had the right at any time to acquire
full title to the plant by paying off all unpaid Govern-
ment advances, plus a bonus of 7%% of the original
cost. Hanna agreed to not only design and construct,
but also to operate the plant to produce ferronickel
for sale to the Government at cost, with no profit to
Hanna from its operation until the plant had produced
the full tonnage of nickel then desired by the Govern-
ment and contracted for at cost. Hanna received a
flat fee of $100,000 a year toward the expense of
providing the salaries and costs of its organization.
Both parties realized that the plant had no value except
to operate on ore from this particular mine.
The Results - For the Government
Now, how did this work out, for the Government and
for Hanna? The Government acted here in three capacities
-first, as banker, advancing the funds to build the smelting
plant and the working capital to run it; second, as customer,
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purchasing the ore from the mine to run the plant to make
nickel for the stockpile through operation of the plant at
cost; and third, as the agency responsible for national
defense, to broaden the mobilization base by creating the
one and only source of domestic capacity to produce a
material in critically ? short supply.
First, as banker, the Government advanced approximately
$22,300,000 to build the smelter and $3,300,000 for work-
ing capital and has been repaid the whole amount, plus
5% interest.
Nickel Cost Government Less
Than Present Market Price
Second, as customer, the Government has now bought
108 million pounds of nickel, has 17 million more due
under contract at less than market, and has sold 30 million
pounds at a profit of $4,153,000 during the period of acute
shortage. When deliveries are completed, the Government
will have acquired an inventory of 95 million pounds of
nickel for the stockpile at a cost per pound of about 710.
This cost per pound reflects the Government's total outlay,
reduced by the $4,153,000 of profit which the Government
got for the 30 million pounds it sold and by the $1,700,000
of bonus that Hanna paid it on transfer of the smelter,
and also by the $4,799,000 of interest already paid to the
Government on its loans. For purposes of comparison, the
market price of ferronickel has ranged recently from 770
to 750 per pound.
Third, toward its objective of broadening our mobiliza-
tion base, the Government has by this transaction stimu-
lated the creation of the only United States facility for the
production of nickel, with a capacity of 20-22 million
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pounds per year. The Government's total net outlay to
accomplish this is the acquisition of the 95 million pound
inventory at a cost per pound less than the present market
price, with every cent of additional Government expenditure
fully repaid with interest. There was an obvious strategic
advantage in creating the capacity in the United States;
but the economic advantages were also very important.
The Government's alternatives were limited to Cuba and
Canada. Any Cuban capacity would now be lost to us. If a
contract of the same dimensions had been made with a
Canadian company, more than $100 million would have
been spent outside instead of inside the United States for
the purchase of nickel, with an adverse effect of that
amount on our balance of payments, and the loss of millions
in taxes, payrolls, and other benefits to our own economy.
Those familiar with the nickel expansion program, I am
sure, will agree that, of all the transactions the Government
made for this purpose, the Hanna contracts involved the
most efficient use of the least Government money, either
per pound of nickel bought or per pound of capacity
created, and it is surely one of the comparatively few cases
where every cent of its expenditure has already been fully
repaid to the Government with interest.
The Results - For Hanna
The result from Hanna's standpoint is this: In addition
to all of its previous exploration expense, Hanna has
invested $3.6 million of its own money in its own mine,
and during the period to April 1, 1961, it has produced
and sold to the Government 4.4 million tons of its best
ore. It also designed and built the smelter, perfected the
process, and operated the smelter at cost. During this
period, it made a net profit on the operation of its own
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mine of $7,535,000 over a period of seven years, after
paying Federal taxes. of $5,820,000 to the Government.
In addition, Hanna has taken over for its account opera-
tion of the smelter, having repaid the Government loans
and having made the additional payment of $1,722,000 of
bonus in cash on the basis provided for in the original
contract.
Now, what of the future for Hanna? Hanna has now
mined and sold about one-fourth of its best ore. The balance
remains. It owns the mine and the plant. Through Hanna's
own successful efforts, plus the loan from the Government,
which has been fully repaid with interest, Hanna has
introduced ferronickel, a product previously new to the
American steel industry, for which Hanna is proceeding to
try to develop a broadened market. If its efforts continue
successful, a new commercial operation has been created
that gives employment, pays taxes, supplies a needed
material, and continues as the only source of nickel produc-
tion within the borders of the United States.
Government Should Never
Speculate In Commodities
Now, what is the real value of the Government's nickel
stockpile? That is wholly dependent upon what the Govern-
ment itself does from now on. The original purpose was
to cover a deficiency in the supply of nickel required to
meet the Government's essential requirements for war and
for defense.
If the Government now changes its mind and wishes to
dispose of its stockpile, it can sell it on the market, disturb
normal nickel prices, operations and employment, and
cause great losses, both to the Government itself and to
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the entire nickel industry. That is one reason why in a
strong, free-market economy, the Government should
never speculate in commodities.
If, however, this stockpile or any part of it is to be resold
in spite of the possible consequences involved, some plan
should be worked out for long-range, orderly, careful
distribution when market demands are strong and com-
mercial requirements are high, in ways and under circum-
stances that will least affect normal market operations. That
is the only way in which the Government's own values in
the stockpile can be protected and preserved.
In recent weeks, one foreign nickel producer has already
cut the price of refined nickel two cents per pound. The
market is sensitive, and the Government's own action will
affect the degree of pressure placed upon it.
But that is only part of the story. Beginning during a
shooting war the Congress and three successive Administra-
tions have approved and carried on this strategic stockpile
program. The Truman Administration started it and con-
tracted for the greater part of the total now in stockpile.
The Eisenhower Administration carried it on with vigor
and belief in its desirability, and the Kennedy Administra-
tion has continued to increase it right up to this day.
Whether it was really wise to start it or not is no longer
debatable. We have it on hand, paid for during the past
decade.
Those commodities now in stock which will not deterior-
ate, which must be imported and are not available in this
country when required and which in the event of world
disturbance are essential to our economic life or safety,
should be kept intact. They are assets we should hold on
to for Government use when needed. They were bought to
protect our national safety. They may well be required
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again for that same purpose, and they should not be
frittered away now, either to help the current budget or
possibly disturb sensitive commodity markets. They should
remain tightly held as a matter of permanent policy, subject
only to considered Congressional control in the event any
of them become clearly useless for Government use or
national protection as time goes on if obsolescence should
develop.
Conspicuously Successful Case;
Both Parties Should Be Proud
In conclusion, this entire arrangement with Hanna was
carried forward, not under the provisions of the Strategic
Materials Stockpile Act, but under the terms of the Defense
Production Act of 1950 which authorized the President to
make commitments to purchase metals, minerals or other
raw materials, and had as one of its purposes, as stated in
its declaration of policy "the expansion of productive
facilities . . . " Thus, through the Government's proper
participation, as clearly designed and provided for by the
Defense Production Act, and through Hanna's successful
efforts, the Government is now protected not only with a
stockpile of essential material for future use in any emer-
gency, but a new industry has been created which may be
successfully carried forward commercially and help to
provide employment, taxes, and additional protection for
the Government's possible future critical requirements in
case of another emergency.
This is a conspicuously successful case, in which the
objectives of the Congress have been fully realized, of
which both Hanna and the Government should be justly
proud.
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FOURTH REPORT OF
THE PREPAREDNESS SUBCOMMITTEE
OF THE SENATE COMMITTEE ON ARMED SERVICES
January 8, 1951
"The current shortage has resulted from the collision of
a rapidly increasing civilian and military demand for nickel
with the relatively fixed supply produced by Inco. The
foreseeable shortage, however, is even more serious. Nickel
has important alloying qualities which are indispensable in
steel making and the production of certain types of aircraft
engines. The large increases in the production of these
industries, which have now become basic to our survival
as a free nation, depend substantially on a similar increase
in nickel production." (page 1).
"It is reported that the M. A. Hanna Co. is engaged in
a metallurgical study of certain ores in Douglas County,
Oreg. According to a report by the Geological Survey,
published in 1942, these deposits contain some 6,600,000
tons of ore, most of which have a nickel content of 1
percent or more. The report concluded as follows:
The deposit can be mined by power shovels at low
cost, but a new method of treating silicate ores or a
great increase in the price of nickel would be required
to make mining of the deposit profitable.
"In the present emergency, this deposit should not be
overlooked and, accordingly, the subcommittee recommends
that the Bureau of Mines and other interested agencies
expedite efforts to develop this source." (page 14).
FOURTH ANNUAL REPORT OF
THE ACTIVITIES OF THE JOINT COMMITTEE ON
DEFENSE PRODUCTION
January 5, 1955
"At the suggestion of Arthur S. Flemming, Director of
ODM, the committee held an executive hearing on March
8, 1954, to review the nickel situation and discuss its effect
on our national defense and to the domestic economy as a
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whole. The committee also invited Charles S. Thomas,
Assistant Secretary of Defense for Supply and Logistics,
to present the latest military requirements; Edmund F.
Mansure, Administrator GSA, to report on the actions
being taken under the nickel resources expansion program
to speed up new development and production; and Sinclair
Weeks, Secretary of Commerce, to discuss the impact
which the stockpile acquisitions is having on the civilian
economy.
"While most of the information and data discussed at
this meeting is `classified for security reasons', it was made
crystal clear by each of the responsible officials that the
most serious problem facing this Nation today in its
preparedness program, is to develop new nickel deposits
and at the same time substantially increase the production
capacity at existing sources.
"Your committee strongly urged each agency to make a
further effort to explore every potential source and technical
process to overcome this critical bottleneck. In view of the
essential use of this metal in the production of certain top
priority items, it was further agreed that costs should be
considered secondary to our Government's security until
such time as the projected needs for both the military and
civilian economy were more definitely in sight." (page 15).
FIFTH ANNUAL REPORT OF
THE ACTIVITIES OF THE JOINT COMMITTEE ON
DEFENSE PRODUCTION
January 25, 1956
"In view of the supply-demand imbalance that is cur-
rently forecast for months to come, and the strategic need
for meeting stockpile objectives, your committee continues
to urge that ODM and other Government agencies exert
every effort to expedite the Nicaro expansion, increase the
productive capacity of all other sources of supply available
to the United States, and to make acquisitions of nickel at
an aggressive rate for delivery to the stockpile until our
defense position with respect to nickel is substantially
improved." (page 38).
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SIXTH ANNUAL REPORT OF
THE ACTIVITIES OF THE JOINT COMMITTEE ON
DEFENSE PRODUCTION
January 22, 1957
"In view of the critical shortage of nickel which currently
exists, and the anticipated shortage which is forecast for
many months ahead, your committee urges that the re-
sponsible Government agencies make a determined effort
to increase the nickel supply as has been recommended by
your committee repeatedly." (page 37).
SEVENTH ANNUAL REPORT OF
THE ACTIVITIES OF THE JOINT COMMITTEE ON
DEFENSE PRODUCTION
January 16, 1958
"With respect to supply, use, and distribution of nickel,
the Department of Commerce made the findings which
follow:
"1. The supply of primary nickel available to the
United States will not meet the Nation's full require-
ments for several years. Expansion of the free-world
supply now underway or definitely planned, may not
meet fully the needs of the United States by 1960-65,
when such expansions are due to materialize. If audi-
tional projects for expansion of the total supply now
under discussion with the General Services Administra-
tion with respect to governmental assistance are actually
undertaken in the near future, it appears that the supply
that would be available at the end of 5 or 6 years will be
adequate for our needs at that time." (page 14).
Approved For Release 2004/01/15 : CIA-RDP64B00346R000100170001-6