University of California Berkeley
Regional Oral History Office University of California
The Bancroft Library Berkeley, California
Western Mining in the Twentieth Century Oral History Series
Simon David Strauss
MARKET ANALYST FOR NON-FERROUS METALS AND NON-METALLIC MINERALS,
JOURNALIST, MINING CORPORATION EXECUTIVE, 1927-1994
With an Introduction by
Charles F. Barber
Interviews Conducted by
Eleanor Swent
in 1994
Copyright 1995 by The Regents of the University of California
Since 1954 the Regional Oral History Office has been interviewing leading
participants in or well-placed witnesses to major events in the development of
Northern California, the West, and the Nation. Oral history is a modern research
technique involving an interviewee and an informed interviewer in spontaneous
conversation. The taped record is transcribed, lightly edited for continuity and
clarity, and reviewed by the interviewee. The resulting manuscript is typed in
final form, indexed, bound with photographs and illustrative materials, and
placed in The Bancroft Library at the University of California, Berkeley, and
other research collections for scholarly use. Because it is primary material,
oral history is not intended to present the final, verified, or complete
narrative of events. It is a spoken account, offered by the interviewee in
response to questioning, and as such it is reflective, partisan, deeply involved,
and irreplaceable.
****** * * * * * * * * * * * * * * * * * * * * * * * * * *****
All uses of this manuscript are covered by a legal agreement
between The Regents of the University of California and Simon David
Strauss dated August 23, 1994. The manuscript is thereby made
available for research purposes. All literary rights in the
manuscript, including the right to publish, are reserved to The
Bancroft Library of the University of California, Berkeley. No part
of the manuscript may be quoted for publication without the written
permission of the Director of The Bancroft Library of the University
of California, Berkeley.
Requests for permission to quote for publication should be
addressed to the Regional Oral History Office, 486 Library,
University of California, Berkeley 94720, and should include
identification of the specific passages to be quoted, anticipated
use of the passages, and identification of the user. The legal
agreement with Simon Strauss requires that he be notified of the
request and allowed thirty days in which to respond.
It is recommended that this oral history be cited as follows:
Simon David Strauss, "Market Analyst for
Non-ferrous Metals and Non-metallic
Minerals, Journalist, Mining Corporation
Executive, 1927-1994," an oral history
conducted in 1994 by Eleanor Swent ,
Regional Oral History Office, The Bancroft
Library, University of California,
Berkeley, 1995.
Copy no.
Simon David Strauss, 1991
Photograph by Emily Kent
Cataloging information
STRAUSS, Simon David (b. 1911) Metals market analyst
Market Analyst for Non-ferrous Metals and Non-metallic Minerals,
Journalist. Mining Corporation Executive, 1927-1994. 1995, xv, 387 pp.
Childhood in Peru, schooling in Chile, New York City; journalist: 1927-
1932, metals market reporter, assistant editor, Engineering and Mining
Journal; 1932-1934, editor, Madison, NJ, Eagle, Prohibition, the mob, Morro
Castle fire; 1935-1941, mining securities analyst, Standard Statistics Co.;
WWII: vice president, Metals Reserve Co. (Reconstruction Finance Corp.),
procurement of strategic minerals, incompatibility of Henry Wallace and
Jesse Jones, Combined Raw Materials Board, Premium Price Plan and
committee, U.S. Commercial Corp., black markets, new field of mineral
economics; 1946-1988, American Smelting & Refining Co. (ASARCO) , vice
president, director, vice chairman: marketing non-ferrous metals and non-
metallic minerals internationally, forming Southern Peru Copper Corp.,
maintaining LIFO inventory, Mt . Isa Mine, 1967-68 copper miners strike,
Pennzoil takeover attempt; from 1989, director, Magma Copper Corp.;
discussion of: American Mining Congress, 1951 Paley Commission report,
nationalist movements, price stabilization efforts, trade associations,
commodity cartels, environmentalist!!; wife Elaine Mandel Strauss and polio,
Albert Gore, Sr.'s germanium mine, friend Mauricio Hochschild.
Introduction by Charles F. Barber, Chairman (retired), ASARCO.
Interviewed in 1994 by Eleanor Swent for Western Mining in the Twentieth
Century Oral History Series. Regional Oral History Office, The Bancroft
Library, University of California, Berkeley.
TABLE OF CONTENTS- -Simon D. Strauss
PREFACE i
INTRODUCTION- -by Charles Barber x
INTERVIEW HISTORY- -by Eleanor Swent xiii
BIOGRAPHICAL INFORMATION xv
I CHILDHOOD IN PERU AND CHILE, 1911-1921 1
Parents, Lester and Bertha Miller Strauss 1
Birth in Lima, Peru, and a Naming Decision 2
Move to Chile, 1914; Father a Consultant Mining Engineer 4
The Guggenheim Relatives, Straus with One "S" 6
Father's Work with the Guggenheims in Northern Peru 7
Examination of Rio Blanco-Andina Mine 8
Early Days at Morococha 8
The Mackay School, Valparaiso 8
World War I: Mother and the Red Cross 11
The Strauss-Allen Process for Nitrate Ores 12
Thanksgiving Day, 1919, Dinner on a Battleship with an Admiral 13
II SCHOOL IN NEW YORK AND BEGINNING A CAREER IN JOURNALISM 16
P.S. 165 16
Townsend Harris Hall High School 16
Editor of The Family News 17
III REPORTER AND ASSISTANT EDITOR FOR THE ENGINEERING AND MINING
JOURNAL, 1927-1932 20
Covering the Metals Markets 20
E&MJ Prices the Official Prices for Metals 21
The New School for Social Research 22
The Great Depression; Leaving E&MJ 22
IV EDITOR OF THE MADISON, NEW JERSEY, EAGLE, 1932-1934 24
The Political Realities of Prohibition and the Mob 24
Voting in the 1932 Election 26
The Morro Castle Fire and the Captain's Cat 28
V MINING SECURITIES ANALYST FOR STANDARD STATISTICS COMPANY,
1935-1941 31
Getting a Thorough Grounding in the Mineral Industry 31
Father's Death; a Pioneer in Andean Aviation 32
A Plunge With The Thompson Prospecting Syndicate 35
Predicting the Success of Phelps Dodge and ASARCO 37
Metals Prices During the Late 1930s; European Rearmament 39
Pre-War Metals Trade with Japan 41
The Fall of France; a Dramatic Change in Latin American Metals
Markets 41
VI THE RECONSTRUCTION FINANCE CORPORATION, 1941-1945 42
Roosevelt Expands Hoover's Plan: Four Subsidiaries 42
Rubber Reserve Company 42
Metals Reserve Company 43
Defense Supplies Corporation 43
Defense Plant Corporation 43
Consultant to Gabriel Heatter, Radio Commentator 44
Meeting Will Clayton, Chairman of the RFC Subsidiaries 45
The Labor Union Picture 46
Selective Service and Deferment 46
Vice President, Metals Reserve Company 48
Buying and Selling Manganese and Chrome 48
The Texas City Tin Smelter 49
Expanding Aluminum Production 50
Flake Graphite and Amber Mica from Madagascar: International
Drama 53
Washington in Wartime 55
A Bizarre Episode with Block Talc 56
Personalities and Philosophies Influence Decisions 56
Henry Wallace and Jesse Jones, Incompatible 57
Scrutinizing for Democratic Ideals 58
Protecting Brazilian Diamond Supplies 59
Ike Hirsch, an Honest Patriot 59
The Combined Raw Materials Board 61
Pearl Harbor Day, December 7, 1941 62
Ban on Imports of Strategic Critical Materials 63
The Premium Price Plan and Committee; Plato Malozemoff et al. 63
Meeting Influential People; the Marching & Chowder Club 65
Preparing for Postwar Work 66
Elaine Contracts Polio and Life Changes 68
Reflection on Government Service; Legacy of Price Controls and
the Resentment of Supplier Nations 74
Minimal Black Markets 77
Preclusive Control of Materials: U.S. Commercial Corporation 79
Silver Provided to Allies for Coinage in their Colonies 80
Strategic Military Use of Silver: Photographic Film,
Desalination 81
Securities Analysis and Mineral Economics: A New Field 82
VII AMERICAN SMELTING AND REFINING COMPANY [ASARCO] , 1946-1981 84
AS&R at 120 Broadway 84
Mt . Isa Mine, Australia 85
Marketing Copper from Mt . Isa 87
The Buchans Lead-Zinc Mine, Newfoundland 89
AS&R's Federated Metals Division 90
Rising to Be Vice President and Director of ASARCO; Director of
Revere Copper and Brass and General Cable Corporation 91
Some Antitrust Litigation 92
The Glover, Missouri, Smelter 93
The Omaha Smelter 95
Improved Recovery of Zinc and Lead from Slag in the 1960s 97
Silver and Cadmium as Byproducts 98
The Complexity of Custom Smelting and Refining 99
The Devaluation of the British Pound; the Marshall Plan 102
Shortcomings of the Paley Commission Report, 1951 103
The Korean War and Metals Markets: Copper and Zinc 105
Developing the Silver Bell Mine, Arizona 107
Serving on the Defense Materials Procurement Commission 109
Vice President in Charge of Sales 111
Abortive Efforts to Get Into the Nickel Business 112
Investment in an Asbestos Deposit in Quebec 114
Asbestosis and Environmental Overkill 115
Making a Biennial Study of Metal Markets 117
VIII SOUTHERN PERU COPPER CORPORATION, 1959-1981 118
Development of the Toquepala Mine by Northern Peru Company,
an Asarco Subsidiary 118
Requesting a Loan from the Export-Import Bank 119
Asking Phelps Dodge to Join the Venture 120
Adding Newmont and Cerro de Pasco as Partners; the Cuajone Mine 121
Building a Railroad and a First-Class Town Site 123
Plato Malozemoff is Outvoted on the Transport System 124
Ed Tittmann, President and General Manager 125
Marketing to Satisfy Both the Department of Justice and Peru 125
The Quellaveco and Michiquillai Mines Are Nationalized 128
The Quirivilca Mine 130
Frank Archibald's Skillful Management 130
Financing the Cuajone Mine 131
Tailing Disposal and Other Environmental Concerns 132
IX VICE PRESIDENT IN CHARGE OF SALES, 1949-1973 135
The Complexity of Pricing and Maintaining LIFO Inventory;
Asarco is the Industry Pioneer 135
The Foreign Sales Representatives: a Superior Network 138
Roger Hecht in Brussels 139
Hugo Haines in Germany; Rene Dieppedalle in France 140
Giovanni Vaciago in Italy 140
Torsten Johnke, Sweden; Harald Astrup, Norway; Prosper
Franck, Switzerland 140
International Metal Company of Belgium; Jean Cortier 141
An Unfortunate Incident in Copper Marketing in the Early 1960s 142
Organizing the Mt. Isa Sales Office in London 144
Changes in the French and Italian Offices 144
Annual Sales Meetings on the Continent 145
Agents in Japan and Latin America 147
X THE EFFECTS OF NATIONALIST MOVEMENTS IN THE 1960S 149
Bolivia Nationalizes the Tin Mines 149
Nationalization in Cuba, Africa, Indonesia, Latin America 150
Asarco 's Mexican Operations are Squeezed; Industrial Minera
Mexico is Formed 151
XI ASARCO 'S MANAGEMENT STRUCTURE 156
Personnel Changes 156
John Mackenzie, Chairman and President 157
Opening the Mission Mine; Selling the Garfield Smelter 158
XII SILVER 160
Increase in Industrial Consumption in the 1950s 160
A 1959 Address to the MMSA Predicting Rise in Silver Price 160
Change in Silver Coins 161
The American Mining Congress Silver Committee 162
XIII THE GOVERNMENT STOCKPILE PROGRAM IN THE 1950S AND 1960S 164
Acceleration of Base Metal Acquisitions 164
The Quota Import Plan in Response to a Glut 165
Mexican Fabrication of Lead to Evade the Quotas 166
XIV THE COPPER MARKET IN THE EARLY 1960S 168
An African Attempt to Stabilize Prices, 1961-1964 168
A Prescient Man-of-the-Year Speech to the Copper Club 169
Demand Outruns Supply; Stabilization Efforts Fail 170
The Strike of 1967-68 171
A Look and a Pull-out at Shar Cheshmeh in Iran 173
Granduc in British Columbia 174
Other Ventures: Black Cloud, Coeur, Mission, Pima Mines 175
XV RESISTING ATTEMPTED TAKEOVERS 177
Pennzoil Fails in an Attempt to Acquire Asarco, 1969 177
Defining New Scrap, with Help from Mayflower Donuts 179
Mr. Holmes a'Court Attempts a Takeover 181
Comparing the Copper and Oil Industries 182
XVI MARKETING ISSUES OF THE EARLY 1970S 184
1970, Addressing the London Metal Exchange on Two-Tier Pricing 184
LME and NY Commodity Exchange Prices Revolve Around Each Other 186
Trade Associations: Role in Research and Marketing 186
The Lead Industries Association Pioneered Health Research 188
Forming the First Silver Institute 189
Chairing the American Mining Congress Committee on Minerals
Availability 190
Importance of Stockpiling Platinum and Palladium 192
Advisor to the International Lead-Zinc Study Group 195
A Committee to Update the Paley Report 198
Lecturing to the War College on the Nonferrous Metals Industry 198
Asarco 's Involvement with Uranium 199
XVII THE TUMULTUOUS 1970S 202
Nixon's Price Freeze and the Rocketing Copper Market 202
The Energy Crisis and Unparalleled Price Fluctuation 206
Consequences of the Freed Gold Price 208
The Ten-Dollar Brown Tweed Suit and the Silver Market 210
OPEC, CIPEC, and Why Commodity Cartels Don't Work 212
Author of Trouble in the Third Kingdom 214
Lecturer on Mineral Economics at MIT and Elsewhere 215
The Example of the International Tin Agreement 217
XVIII MINING AND ENVIRONMENTALIST! 221
Diminishing Markets for Lead 221
Arsenic Fears and the Closing of the Tacoma Smelter 223
Treating Sulfur Emissions and Using Sulfuric Acid in Solvent
Extraction 224
Cost of Restoring Old Mine Sites 226
XIX VICE CHAIRMAN OF THE ASARCO BOARD AND CONSULTANT TO OTHERS, 1979
TO THE PRESENT 228
Making Policy in Troubled Times 228
Advisor to Broken Hill on the Ok Tedi Mine 230
An Office with Behre-Dolbear and Company 233
Speaking to International Conferences 234
Serving as an Expert Witness 235
Helping Senator Gore to Profit from Germanium Mined on His Land 236
Neptune Mining Company, Nicaragua 241
The Saudi Arabian Mining Syndicate 242
Mines in Ghana and Nigeria 243
XX MAGMA COPPER CORPORATION, 1989 TO THE PRESENT 244
Board Representative for Warburg Pincus 244
Magma's Management History 247
Marketing Challenges at Magma 249
Magma's Operations 250
A Successful Labor-Management Collaboration 251
Development of the Kalamazoo Ore Body 253
Magma Nevada 254
Expansion of the San Manuel Smelter 255
Potential Expansion in Latin America 256
Changes in the Mining Community: Loss of the Mining Club 258
XXI PERSONAL ITEMS 262
Wife Elaine Mandel Strauss 262
Helper Arteal 264
Son Peter Strauss 269
Daughter Susan Strauss Orr 271
Grand-Daughter Katie Orr Thomas 273
Grandson David Orr 274
Wife Janet McCloskey Robbins Strauss 274
International Metal Tycoon Mauricio Hochschild 279
TAPE GUIDE 291
APPENDICES--a selection of writings and speeches made by Simon
D. Strauss 292
A. "The Way it Was," from South American Explorer, May 1989 293
B. "Graphite, Mica and the Blockade of Madagascar During World War
II," Mining History International Meeting, June 1994 301
C. "The World Situation in Zinc," Metals magazine, April 1948 311
D. "SilverMonetary Metal or Industrial Raw Material," meeting
of the Mining and Metallurgical Society of America, December
1959 313
E. Meeting of the London Metal Exchange, October 1970 322
F. "Why Commodity Cartels Won't Work," Business Week, June 30, 1975 332
G. "AMC Proposes New Stockpile Formula," Mining Congress Journal,
December 1976 334
H. "Competition in the Non-ferrous Metal Markets," annual meeting of
the American Institute of Mining, Metallurgical and Petroleum
Engineers, March 1977 341
I. "Influences that Determine Metal Prices," Eleventh Commonwealth
Mining and Metallurgical Congress, May 1978 349
J. "A View of Commodity Agreements," joint conference of the
AusIMM-AIME, May 1978 354
K. Statement before the Trade Policy Committee, United States Trade
Representative, April 1980 361
L. "Gold and Silver as Stores of Value," 1981 Henry Krumb Lecture
of the AIME 374
INDEX 383
PREFACE
The oral history series on Western Mining in the Twentieth Century
documents the lives of leaders in mining, metallurgy, geology, education
in the earth and materials sciences, mining law, and the pertinent
government bodies. The field includes metal, non-metal, and industrial
minerals, but not petroleum.
Mining has changed greatly in this century: in the technology and
technical education; in the organization of corporations; in the
perception of the national strategic importance of minerals; in the labor
movement; and in consideration of health and environmental effects of
mining .
The idea of an oral history series to document these developments in
twentieth century mining had been on the drawing board of the Regional
Oral History Office for more than twenty years. The project finally got
underway on January 25, 1986, when Mrs. Willa Baura, Mr. and Mrs. Philip
Bradley, Professor and Mrs. Douglas Fuerstenau, Mr. and Mrs. Clifford
Heimbucher, Mrs. Donald McLaughlin, and Mr. and Mrs. Langan Swent met at
the Swent home to plan the project, and Professor Fuerstenau agreed to
serve as Principal Investigator.
An advisory committee was selected which included representatives
from the materials science and mineral engineering faculty and a
professor of history of science at the University of California at
Berkeley; a professor emeritus of history from the California Institute
of Technology; and executives of mining companies.
We note with much regret the death of three members of the original
advisory committee, all of whom were very much interested in the project.
Rodman Paul, Professor Emeritus of History, California Institute of
Technology, sent a hand-written note of encouragement just a few weeks
before his death from cancer. Charles Meyer, Professor Emeritus of
Geology, University of California at Berkeley, was not only an advisor
but was also on the list of people to be interviewed, because of the
significance of his recognition of the importance of plate tectonics in
the genesis of copper deposits. His death in 1987 ended both roles.
Langan Swent delighted in referring to himself as "chief technical
advisor" to the series. He abetted the project from its beginning,
directly with his wise counsel and store of information, and indirectly
by his patience as the oral histories took more and more of his wife's
time and attention. He completed the review of his own oral history
transcript when he was in the hospital just before his death in 1992.
ii
Thanks are due to other members of the advisory committee who have
helped in selecting interviewees, suggesting research topics, and raising
funds .
Unfortunately, by the time the project was organized several of the
original list of interviewees were no longer available and others were in
failing health; therefore, arrangements for interviews were begun even
without established funding.
The project was presented to the San Francisco section of the
American Institute of Mining, Metallurgical, and Petroleum Engineers
(AIME) on "Old-timers Night," March 10, 1986, when Philip Read Bradley,
Jr., was the speaker. This section and the Southern California section
provided initial funding and organizational sponsorship.
The Northern and Southern California sections of the Woman's
Auxiliary to the AIME (WAAIME), the California Mining Association, and
the Mining and Metallurgical Society of America (MMSA) were early
supporters. Several alumni of the University of California College of
Engineering donated in response to a letter from Professor James Evans,
the chairman of the Department of Materials Science and Mineral
Engineering. Other individual and corporate donors are listed in the
volumes. The project is ongoing, and funds continue to be sought.
Some members of the AIME, WAAIME, and MMSA have been particularly
helpful: Ray Beebe, Katherine Bradley, Henry Colen, Ward Downey, David
Huggins, John Kiely, Noel Kirshenbaura, and Cole McFarland.
The first five interviewees were all born in 1904 or earlier.
Horace Albright, mining lawyer and president of United States Potash
Company, was ninety-six years old when interviewed. Although brief, this
interview will add another dimension to the many publications about a man
known primarily as a conservationist.
James Boyd was director of the industry division of the military
government of Germany after World War II, director of the U.S. Bureau of
Mines, dean of the Colorado School of Mines, vice president of Kennecott
Copper Corporation, president of Copper Range, and executive director of
the National Commission on Materials Policy. He had reviewed the
transcript of his lengthy oral history just before his death in November,
1987. In 1990, he was inducted into the National Mining Hall of Fame,
Leadville, Colorado.
Philip Bradley, Jr., mining engineer, was a member of the California
Mining Board for thirty-two years, most of them as chairman. He also
founded the parent organization of the California Mining Association, as
well as the Western Governors Mining Advisory Council. His uncle,
Frederick Worthen Bradley, who figures in the oral history, was in the
iii
first group inducted into the National Mining Hall of Fame, Leadville,
Colorado, in 1988.
Frank McQuiston, metallurgist, vice president of Newmont Mining
Corporation, died before his oral history was complete; thirteen hours of
taped interviews with him were supplemented by three hours with his
friend and associate, Robert Shoemaker.
Gordon Oakeshott, geologist, was president of the National
Association of Geology Teachers and chief of the California Division of
Mines and Geology.
These oral histories establish the framework for the series;
subsequent oral histories amplify the basic themes.
Future researchers will turn to these oral histories to learn how
decisions were made which led to changes in mining engineering education,
corporate structures, and technology, as well as public policy regarding
minerals. In addition, the interviews stimulate the deposit, by
interviewees and others, of a number of documents, photographs, memoirs,
and other materials related to twentieth century mining in the West.
This collection is being added to The Bancroft Library's extensive
holdings .
The Regional Oral History Office is under the direction of Willa
Baum, division head, and under the administrative direction of The
Bancroft Library.
Interviews were conducted by Malca Chall and Eleanor Swent .
Willa K. Baum, Division Head
Regional Oral History Office
Eleanor Swent, Project Director
Western Mining in the Twentieth
Century Series
December 1993
Regional Oral History Office
University of California, Berkeley
iv
Western Mining in the Twentieth Century Oral History Series
Interviews Completed, August 1995
Horace Albright, Mining Lawyer and Executive. U.S. Potash Company,
U.S. Borax. 1933-1962, 1989
Samuel S. Arentz, Jr., Mining Engineer, Consultant, and Entrepreneur in
Nevada and Utah. 1934-1992. 1993
James Boyd, Minerals and Critical Materials Management: Military
and Government Administrator and Mining Executive, 1941-1987.
1988
Philip Read Bradley, Jr., A Mining Engineer in Alaska, Canada, the
Western United States, Latin America, and Southeast Asia, 1988
Catherine C. Campbell, Ian and Catherine Campbell, Geologists;
Teaching, Government Service, Editing, 1989
William Clark, Reporting on California's Gold Mines for the State
Division of Mines and Geology, 1951-1979, 1993
Norman Cleaveland, Dredge Mining for Gold, Malaysian Tin. Diamonds.
1921-1966; Exposing the 1883 Murder of William Raymond Morley.
1995
James T. Curry, Sr., Metallurgist for Empire Star Mine and Newmont
Exploration, 1932-1955; Plant Manager for Calaveras Cement
Company, 1956-1975. 1990
J. Ward Downey, Mining and Construction Engineer, Industrial Management
Consultant, 1936 to the 1990s, 1992
Hedley S. "Pete" Fowler, Mining Engineer in the Americas, India, and
Africa. 1933-1983. 1992
James Mack Gerstley, Executive, U.S. Borax & Chemical Corporation;
Trustee, Pomona College; Civic Leader, San Francisco Asian Art
Museum, 1991
Robert M. Haldeman, Managing Copper Mines in Chile: Braden, CODELCO,
Minerec, Pudahuel; Developing Controlled Bacterial Leaching of
Copper from Sulfide Ores; 1941-1993. 1995
John F. Havard, Mining Engineer and Executive, 1935-1981, 1992
Wayne Hazen, Plutonium Technology Applied to Mineral Processing; Solvent
Extraction; Building Hazen Research; 1940-1993, 1995
George Heikes, Mining Geologist on Four Continents, 1924-1974. 1992
Helen R. Henshaw, Recollections of Life with Paul Henshaw: Latin
America, Homestake Mining Company, 1988
Homestake Mine Workers, Lead, South Dakota. 1929-1993. interviews with
Clarence Kravig, Wayne Harford, and Kenneth Kinghorn, 1995
Lewis L. Huelsdonk, Manager of Gold and Chrome Mines, Spokesman
for Gold Mining, 1935-1974, 1988
James Jensen, Chemical and Metallurgical Process Engineer: Making
Deuterium, Extracting Salines and Base and Heavy Metals, 1938-
1990s. 1993
Arthur I. Johnson, Mining and Metallurgical Engineer in the Black Hills:
Pegmatites and Rare Minerals, 1922 to the 1990s. 1990
Evan Just, Geologist: Engineering and Mining Journal, Marshall Plan,
Cyprus Mines Corporation, and Stanford University, 1922-1980, 1989
Robert Kendall, Mining Borax, Shaft-Freezing in Potash Mines, U.S.
Borax. Inc.. 1954-1988. 1994
Plato Malozemoff, A Life in Mining: Siberia to Chairman of Newmont
Mining Corporation. 1909-1985, 1990
James and Malcolm McPherson, Brothers in Mining, 1992
Frank Woods McQuiston, Jr., Metallurgist for Newmont Mining Corporation
and U.S. Atomic Energy Commission. 1934-1982. 1989
Gordon B. Oakeshott, The California Division of Mines and Geology,
1948-1974. 1988
James H. Orr, An Entrepreneur in Mining in North and South America,
1930s to 1990s. 1995
Vincent D. Perry, A Half Century as Mining and Exploration Geologist
with the Anaconda Company, 1991
Carl Randolph, Research Manager to President, U.S. Borax & Chemical
Corporation, 1957-1986, 1992
John Reed, Pioneer in Applied Rock Mechanics, Braden Mine, Chile, 1944-
1950; St. Joseph Lead Company, 1955-1960; Colorado School of Mines.
1960-1972. 1993
Joseph Rosenblatt, EIMCO, Pioneer in Underground Mining Machinery and
Process Equipment, 1926-1963, 1992
vi
Eugene David Smith, Working on the Twenty-Mule Team: Laborer to Vice
President. U.S. Borax & Chemical Corporation, 1941-1989.
1993
Simon Strauss, Market Analyst for Non-ferrous Metals and Non-metallic
Minerals, Journalist, Mining Corporation Executive, 1927-1994,
1995
Langan W. Swent , Working for Safety and Health in Underground Mines:
San Luis and Homestake Mining Companies, 19A6-1988, 1995
James V. Thompson, MininR and Metallurgical Engineer: the Philippine
Islands; Dorr, Humphreys, Kaiser Engineers Companies; 19AO-1990s,
1992
Interviews In Process
Donald Dickey, Oriental Mine
Warren Fenzi, Phelps Dodge
Frank Joklik, Kennecott
Marian Lane, mine doctor's wife
John Livermore, geologist
Mclaughlin Mine, model for resource development
vii
ADVISORS TO THE SERIES, WESTERN MINING IN THE TWENTIETH CENTURY
Professor Douglas Fuerstenau, Principal Investigator
Plato Malozemoff Professor, Department of Materials Science and
Mineral Engineering, University of California, Berkeley
Robert R. Beebe
Senior Vice President (retired),
Homestake Mining Company
Philip R. Bradley
Former Chairman, California State
Mining and Geology Board
Henry Colen
President, San Francisco Mining
Associates
Professor Neville G. Cook
Department of Materials Science and
Mineral Engineering, University of
California, Berkeley
J. Ward Downey
Engineering and Industrial
Management Consultant
Professor Roger Hahn, Department of
History, University of California,
Berkeley
*John Havard
Senior Vice President (retired),
Kaiser Engineers, Inc.
Clifford Heimbucher, C.P.A.
Consultant, Varian Associates, Inc.
John R. Kiely
Senior Executive Consultant
(retired), Bechtel, Inc.
Noel Kirshenbaum
Manager, Mineral Products
Development, Placer Dome U.S.
Plato Malozemoff
Chairman Emeritus, Newmont Mining
Corporation
Joseph P. Matoney
Vice President (retired)
Coal, Kaiser Engineers, Inc.
Mrs. Donald H. McLaughlin
Founder, Save San Francisco Bay
Association
Professor Malcolm McPherson
Massey Professor of Mining
Engineering, Virginia Polytechnic
Institute and State University
*Professor Emeritus Charles Meyer,
Department of Geology, University of
California, Berkeley
Professor H. Frank Morrison
Department of Materials Science and
Mineral Engineering, University of
California, Berkeley
Professor Joseph A. Pask
Department of Materials Science and
Mineral Engineering, University of
California, Berkeley
"Professor Emeritus Rodman Paul,
Department of History, California
Institute of Technology
*Langan W. Swent
Vice President (retired), Homestake
Mining Company
* Deceased during the period of the
project
viii
The Regional Oral History Office
would like to express its thanks to the organizations
and individuals whose encouragement and support have made possible
The Western Mining in the Twentieth Century Series.
DONORS TO
THE WESTERN MINING IN THE TWENTIETH CENTURY
ORAL HISTORY SERIES
1986-1995
Organizations
American Institute of Mining, Metallurgical, and Petroleum Engineers,
San Francisco, Southern California, and Black Hills Sections
Woman's Auxiliary to the AIME, Southern California and Northern California
Sections
California Mining Association
The Jackling Fund of the Mining and Metallurgical Society of America
South Dakota School of Mines and Technology
Corporations
ASARCO
Bechtel Group Incorporated
Cyprus Amax Minerals Company
Chemical Lime Company
EIMCO Process Equipment Company
E. M. Warburg, Pincus & Co., Inc.
Freeport-McMoRan
Hazen Research, Inc.
Hecla Mining Company
Homestake Mining Company
Kennecott Corporation
Krebs Engineers
Magma Copper Company
Newmont Mining Corporation
Phelps Dodge Corporation
United States Borax & Chemical Corporation
Wharf Resources, Limited
Patrons
Bechtel Foundation
James Boyd
Arthur C. Bradley
Catherine C. Campbell
Barbara H. and James T. Curry, Jr.
Donald Dickey
Wayne Dowdey
J. Ward and Alberta P. Downey
James M. Gerstley
Robert M. Haldeman
The Hearst Foundation, Inc.
Mrs. Paul C. Henshaw, in memory of
her husband, Paul C. Henshaw
William A. Humphrey
ix
James H. Jensen
Arthur I. Johnson
Arthur H. Kinneberg
Dean A. McGee
Mrs. Frank W. McQuiston, Jr., in
memory of Frank W. McQuiston, Jr.
Gordon B. Oakeshott
Vincent D. Perry
Plato Malozemoff Foundation
Public Resource Foundation
Carl L. Randolph
Joseph Rosenblatt
Berne Schepman
Langan and Eleanor Swent
Individuals
Claude J. Artero
Charles and Lois Barber
Rebecca Bender
Marjorie Bjorlo
Bruce A. Bolt
Clemence DeGraw Jandrey Boyd
James Brown Boyd, Harry Bruce Boyd,
Douglas Cane Boyd, and Hudson
Boyd in memory of James Boyd
Philip and Katherine Bradley
Albert T. Chandler
William B. Clark
Stanley Dempsey
John and Dagmar Dern
Elisabeth L. Egenhoff
Christine Finney
H. S. Pete Fowler
Mr. and Mrs. Douglas Fuerstenau
Louis R. Goldsmith
Jayne K. Haldane
Bonnie, Russell, and Steve Harford
Mason L. and Marie J. Hill
Gael Hodgkins
Mrs. Bruce S. Howard, in memory of
Henry Harland Bradley
Lewis L. Huelsdonk
Ruth B. Hume
Howard Janin
Jack M. Jones
Alfred Juhl
Evan Just
Sheila Kelley
James C. Kimble
Noel W. Kirshenbaum
Nancy H. Landwehr
Carl F. Love
Plato Malozemoff
Sylvia C. McLaughlin, in memory
Jay Kimpston Swent
Frances B. Messinger
L. Arthur Norman, Jr.
Patrick O'Neill
Richard W. Rees
Jane A. Rummel
Richard M. Stewart
Simon D. Strauss
John R. Struthers
Virginia Bradley Sutherland, in
memory of Helen R. Henshaw
James V. Thompson
John J. Trelawney
William I. Watson
Barbara A. Whitton in memory of
William B. Whitton
William B. Whitton
Judy D. Woodward
of
INTRODUCTION- -by Charles F. Barber
For more than fifty years, Simon D. Strauss has been the
fountainhead of informed comment, the gifted analyst of the non-ferrous
metals markets, and the valued friend of mining and metals people the
world around.
Mining and metals are in Simon's blood. He was born in Lima, Peru.
At the time, his father, Lester Strauss, a graduate of the School of
Mines, Columbia University and a consulting mining engineer, had his
office in Lima. I will never forget the day in 1977 when together we
made our first visit to the renowned Inca ruins at Macchu Pichu. As we
followed the path leading to the ruins, we come upon a placque recording
the discovery of the ruins on July 24, 1911, by Hiram Bingham, the noted
archeologist from Yale University. "My birthday!" Simon exclaimed, and
he told how his father had worked with Dr. Bingham on the planning for
the excavations which followed.
In his library Simon has a copy of Herbert and Lou Henry Hoover's
translation of De Re Metallica by Georgius Agricola, the classic work on
the art and science of mining first published in 1556. This translation
from the Latin published in London in 1912 was a labor of love by the
Hoovers begun in 1906, when Mr. Hoover, then a consulting mining
engineer, had his office in London. The copy was personally endorsed by
Herbert Hoover to his friend Lester Strauss, Simon's father. Herbert
Hoover received the first gold medal awarded by the Mining and
Metallurgical Society for "conspicuous public service for the advancement
of the science of mining and metallurgy"; Simon Strauss became the 21st
gold medalist of the Society in 1984.
In 1927, when Simon entered City College of New York, his objective
was to become a journalist. Then Arthur W. Allen, a British engineer and
family friend who had recently been appointed editor of the Engineering
and Mining Journal, learned of the young man's ambition. "The best way
to learn to write is to write," he advised, and he offered Simon a job.
So it was that Simon began his career in mining and metals. Later, in
1935, he joined the Standard Statistics Company as a financial analyst
covering the mining and coal industries.
In 1941, Simon went to Washington and served the government in the
wartime agencies concerned with the availability, procurement, and
allocation of metals and other materials in support of the war effort.
In the final years of the war he served as a vice president and a
director of the Metals Reserve Company and as a director of the Combined
Raw Materials Board which was responsible for the allocation of available
raw materials between the United States and the United Kingdom.
xi
Following the war, in 1946, he joined Asarco, then known as American
Smelting and Refining Company. I first met Simon in 1956, when I joined
the company as general counsel. He was then vice president (sales) and a
director of the company. I found a warm and generous man, always
available and willing to help me find my way in the world of metals. It
soon became apparent to me that he knew and had at his fingertips the
relevant current information about metals, their sources, means of
production, prices and markets, and the history of and relationships
among the people, companies, and nations involved. I soon appreciated
his stature in the industry. Journalists sought his comments on markets
and industry concerns. Leaders in the industry made it a point to seek
him out at meetings in the United States and abroad and to meet with him
when they were in New York. I admired the extent to which he was called
upon to present his views in speeches, in testimony before congressional
committees and in meetings with government officials concerned with the
availability of minerals and metals and related national security
matters. An incident in the early 1960s is illustrative. It became
apparent that the value of the silver contained in U.S. coins would soon
exceed the monetary value of the wartime nickels, and the dimes,
quarters, half dollars and silver dollars then in circulation. The
government then faced, in an urgent context, the necessity of replacing
the U.S. silver coinage. One Saturday morning, the responsible House
committee held a hearing in New York City and invited Mr. Strauss to
testify. Their questions ranged over all aspects of this daunting
problem. When the committee excused Simon, the members all stood and
applauded--a tribute, the spirit of which was evident time and again over
the course of his career.
Simon Strauss had a splendid career with Asarco. All the while, he
served the U.S. government on numerous advisory boards and as a lecturer
on minerals policy at the Army War College. He served the metals
industry in leadership positions in national and international
associations concerned with research and the development of markets for
copper, lead, zinc and silver. He has been honored as few before him for
his contributions in the field. Following retirement from Asarco, Mr.
Strauss conducted courses on minerals policy at Columbia University, MIT,
the University of California at Berkeley, Penn State, the University of
Arizona, and the Polytechnic Institute of New York.
Then in Trouble in the Third Kingdom, a book published in 1986 by
Mining Journal Books of London, he presented his views "based on almost
sixty years of following the markets for minerals under widely different
circumstances." Always generous, he added in the acknowledgements that
the book "reflects experiences shared with others, knowledge absorbed
from others and opinions influenced by others."
I have written about his career, but there is much more in my heart.
Simon Strauss is one of those warm and very special people, sensitive
Xll
knowledgeable, and compassionate who, with his kitbag of stories and
interest in people, brings joy to the lives of his friends and
acquaintances. My wife and I recall the gracious hospitality he and his
wife Elaine extended so frequently to international visitorseven though
Elaine was confined to a wheelchair as a consequence of a severe attack
of infantile paralysis in 1945. We remember too the loving support he
gave Elaine to the end of her days and the joy he felt as she shared her
life experience in order to encourage others who were physically
impaired. This she did on regular visits with patients of the Burke
Rehabilitation Hospital in White Plains, New York, and through her book
In My Heart I'm Still Dancing. We now rejoice to see the happiness he
has experienced with his second wife, Janet, a family friend since both
were young. They have travelled to Alaska, Peru, and Chile; London,
Hamburg, and South Africa; and to Papua New Guinea and Australia
responding to invitations to speak and share his experience and current
insights on the world of minerals and metals.
I think of Simon D. Strauss as the generous and thoughtful person
who has enriched the lives of the many throughout the world who have been
touched by his presence. I commend his reminiscences to the reader.
Charles F. Barber
Chairman, ASARCO Incorporated (1971-
1982)
April 1995
Greenwich, Conneticut
xiii
INTERVIEW HISTORY- -by Eleanor Swent
Simon D. Strauss was one of the first recommended interviewees for
the Western Mining in the Twentieth Century Oral History Series.
Although not a mining engineer, he has had a pervading influence on the
industry because of his writing, speaking, and analysis of the metals
markets and industry. He is the only non-technical member of the elite
group who have been named Copper Man of the Year. He has also received
the gold medal of the Mining and Metallurgical Society of America. His
career has spanned the universe of the mineral industry not only
geographically but intellectually.
Our first conversation regarding the oral history series took place
in 1986 when Strauss was a guest lecturer at the University of California
and visited his good friend James Boyd in Carmel during the period when
Boyd was being interviewed. (Strauss later wrote the introduction for
the Boyd oral history.) From then on, the challenge was to find an
appropriate time and place for this extremely busy man to sit down with
me and a tape recorder. His homes are in the East and his trips to the
West Coast were brief. Then in June, 199A, we both attended the Mining
History International Conference in Golden, Colorado, where he presented
a paper, "Graphite, Mica, and the Blockade of Madagascar During World War
II," which is included in the appendix to this volume. His wife Janet
invited me to interview him at their summer home in Lenox, Massachusetts,
for a week in August.
Before I interviewed him, Simon wanted me to read his first wife
Elaine's book, In My Heart I'm Still Dancing, which tells of her
courageous life as a polio survivor. It is poignant and inspiring,
written to encourage other disabled people and recalling a time when
polio was feared and access to public places was denied to the disabled.
It also attests to Simon's loyalty and adaptability. His own book,
Trouble in the Third Kingdom, published in 1986 by Mining Journal Books
of London, is one I have frequently turned to as a reference; it is a
clear and comprehensive study of the minerals industry in this century.
I read it again in preparation for his interview.
Simon met me at the Hartford airport and we drove to their simple
one-story house, nestling in pretty flower beds planted by Janet, with a
lawn extending to the shore of the lake called Stockbridge Bowl. The
wall motto which greets guests, and which they use as a table grace
before dinner, sets the tone of their hospitality: "The place to be happy
is here; the time to be happy is now; the way to be happy is to make
others happy." Neighbors of forty years come in and out like members of
the family.
xiv
It was an idyllic setting for exploring a career which began in Peru
and Chile where Strauss 's father was a noted mining engineer. In New
York City he finished school and briefly attended university before
becoming a journalist and editor with the Engineering and Mining Journal.
He then edited a small-town newspaper, and later was a metals market
analyst for the predecessor of Standard & Poor's. He served in World War
II with the Reconstruction Finance Corporation in Washington as vice
president of Metals Reserve Company, assuring supplies of critical
metals. At the end of the war, he began his long association with
American Smelting and Refining Company, now ASARCO, beginning in the
sales division and becoming vice chairman of the board. At present, he
still serves on the board of Magma Copper Corporation as well as doing
consulting work.
Simon Strauss has a brilliant mind, melodious voice, and great
personal charm, all of which have contributed to his success as an
advisor to corporations, universities, and governments. He can grasp the
complexities of world metals markets and interpret them to others in
vivid and understandable terms. In his oral history he tells of using
his brown tweed suit, bought on sale, to illustrate a lecture on silver
pricing and inflation. In a difficult court case, he demonstrated the
concept of scrap metal by explaining what happens to the hole when
doughnuts are made.
Strauss spoke from minimal notes, with his topics well organized so
the interview progressed smoothly for five days, August 23 through 27,
1994. There were interludes to visit some of the famed "cottages" of the
area, to attend concerts at Tanglewood, and to relax with friends. When
the transcript was sent to him, he made very few changes, correcting some
spelling and punctuation and clarifying a phrase here and there. As
befits a professional editor, changes were clearly indicated and the
transcript was promptly returned. This oral history will be valued by
researchers in economic and business history as well as in the history of
mining.
Charles Barber, retired chairman of ASARCO, wrote the introduction
to his friend and colleague.
The sixteen tapes of the interview are available at The Bancroft
Library for study.
Eleanor Swent,
Interviewer \Editor
July 1995
Regional Oral History Office
The Bancroft Library
University of California, Berkeley
XV
Regional Oral History Office University of California
Room 486 The Bancroft Library Berkeley, California 94720
BIOGRAPHICAL INFORMATION
(Please write clearly. Use black ink.)
Your full SIMON D*VID STRRUSS
Date of birth July 24 1911 Birthplace
Lima ' Peru
Father's full name LESTER WALLACK STRAUSS
Occupation Mining Engineer Birthplace
New York ' NY ' USA
Mother's full name BERTHA MILLER
Occupation Housewife Birthplace Plattsburgh, NY, USA
Your spouse
JANET ANN McCLOSKEY; second spouse
Occupation
Social worker; administifttefeiace
New York, NY, USA
Your children
^ eter Lester Strauss -
lawyer, university professor
Susan Dee Strauss Or*? - art therapist
Where did you grow up?
Lima, Peru; Valparaiso, Chile; New York, NY, USA
Present community
NeW ^helle, NY, USA
Education Mackay School, Valparaiso, Chile; public schools, NY City;
one year, College of City of New York
Occupation(s) Journalist; financial securities and commodity analyst;
official of government war-time corporation; marketing executive
with mining corporation; visiting lecturer at universities
Areas of expertise Economics of the mineral industries;
in particular knowledge of markets for minerals and metals
Other interests or activities Author of books and articles dealing with
mineral industry problems; classical music; golf; travel;
reading -
particularly history and biography; politics
Organizations in which you are active Trustees of Reservations (A Massachusetts
conservancy) ; National Mining Hall of Fame and Museum; other mining
professional organizations; Manhattan School of Music (former vice chairm
I CHILDHOOD IN PERU AND CHILE, 1911-1921
[Interview 1: August 23, 1994]
'
Parents, Lester and Bertha Miller Strauss
Swent: Simon, let's begin by having you tell us where and when you were
born.
Strauss: I was born in Lima, Peru, on the 24th of July, 1911. My father,
Lester W. Strauss, was a mining engineer, graduate of Columbia,
School of Mines, class of 1900. My mother, Bertha Miller
Strauss, was a native of Plattsburgh, New York, who had met my
father while he was a mining school student. They became
engaged, but they did not actually get married until 1907. My
father had gone to Peru in 1904 to work at the Morococha mine in
the Peruvian Andes, and had promised to come back to New York to
marry my mother, but his work kept him in Peru.
Finally, some time in 1906, the Peruvian Congress enacted
legislation establishing the right to have civil ceremonies.
Previously, all marriages performed in the Republic of Peru had
to be performed by Catholic priests. My parents were both
Jewish, so that was not an option for them.
Following the enactment of this legislation, my father sent
my mother a cable, and she made the long trip from Plattsburgh to
New York City, took a ship that went to the port of Colon on the
northern side of the Isthmus of Panama, took the train across
from Colon to Panama City, because the canal was not in existence
yet. It was under construction. Sat in Panama City for a week,
and finally caught a ship going down the West Coast from San
Francisco by way of Panama to Callao, the port in Peru.
'M This symbol indicates a tape or tape segment has begun or ended.
A guide to the tapes follows the transcript.
My father met her on the 26th of March, and on the 27th of
March, the two of them were married in a civil ceremony presided
over by the mayor of the city of Lima, and with the presence of
the American Consul. For a long time, I was under the impression
that it was the first civil ceremony ever performed by the
Republic of Peru, but subsequently I have learned that it was in
fact number thirteen. I have a copy of my parents' wedding
certificate, and it has the number thirteen on it.
I have an older sister, Ruth, who was born in May of 1910.
Late that year, my mother decided to take the baby up to New York
so that the grandparents could see this first grandchild either
in the Strauss or Miller families. When she was in New York, she
did not feel very well, and she consulted a doctor, who explained
that her temporary malaise was the result of the fact that she
was once again pregnant. Her mother and her mother-in-law both
urged her to stay in New York until the baby was born, but Mother
was determined to return to Peru to be with her husband. As a
consequence, I had the rather unique experience of having
traveled 10,000 miles before being born. [laughter]
Birth in Lima, Peru, and a Naming Decision
Strauss: I was born at home in Lima. My parents had discussed the
question of selecting a name for the child in the event it was a
boy. My father preferred the name of Simon, which was his
father's name. His father was already dead. My mother thought
that a more appropriate name would be David, which was her
father's name, and her father also was already dead. The issue
had not been resolved when I appeared on the scene. Actually,
although Mother had returned to Peru to be with her husband when
the baby arrived, her husband had an assignment to examine tin
properties in Bolivia, and he was not on hand at the time of my
actual birth.
When friends came to see my mother, they asked what the
baby's name was going to be. My mother said his name would be
David Simon Strauss. However, when it came to the filing of the
birth certificate, my father was approached by the authorities,
and he filled the papers out, "Simon David Strauss."
I've already indicated I had an older sister, Ruth. She was
fourteen months old when I was born, and she was just beginning
to speak. She was told that she had a baby brother. In her
effort to say "baby brother," she came up with sounds which
eventually my mother decided were "bubby" or "buddy," and so I
became known as "Buddy." The truly peculiar thing about all this
is that, although my father died in 1935, when I was twenty-four
years old, and my mother died in 1949, when I was thirty-eight
years old, not once in speaking to me do I ever recall having
either of them call me either Simon or David. They always called
me Buddy.
I have concluded from this that they were never willing
really to face up to the issue as to what my name was, and were
not prepared to have a controversy on the matter. So in family
circles, I was always known as Buddy.
However, my mother was the person who first took me to
school, and whether it was in South America or later in New York,
inevitably she either registered my name as David S. Strauss or
S. David Strauss.
Swent : She didn't want to give up the David!
Strauss: She did not want to give up the David. She never recognized the
Simon.
Swent:
Strauss :
My first employment was by a great friend of my father's,
Arthur Allen, the editor of the Engineering and Mining Journal,
so of course, I was Simon at McGraw-Hill when I went to work
there. This ambivalence has surrounded my name until my career
was well launched. In the industry, I certainly have always been
known as Simon. But there are personal friends who call me Buddy
or Bud, and there has been a certain uncertainty about just
exactly who I am as a result of this.
Were you ever called by a Spanish name?
No, not really, except my Chilean friends would call me Simon or
David. I've also been called Steamship, because of the initials
S. S. My first wife sometimes referred to me as Peter, because
of "Simon called Peter." She didn't like the name Simon very
much. And my son is called Peter as a result of this. So it's
been--
Swent :
Strauss ;
A lot of names.
A lot of names.
Move to Chile, 1914; Father a Consultant Mining Engineer
Swent : Did you live in Peru very long?
Strauss: We lived in Peru from 1911, when I was born, until 1914. With
the outbreak of the First World War in the middle of 19 14, the
demand for two products coming out of Chile enormously
accelerated: namely, copper and nitrate. My father found
himself traveling so frequently to Chile that he decided to move
his office from Lima to the port of Valparaiso in Chile.
Swent: Was your father an independent engineer always?
Strauss: By that time, he was. He had originally gone down under contract
to work at the Morococha mine. There was in those days a very
real opportunity for independent consulting engineers due to the
difficulties and length of time involved in travel. Mining
companies in New York, London, Paris, or other financial centers
who were approached to finance mining deposits in South America
found that if they sent their own engineers out to examine these
deposits, it would take three to four weeks for them to reach the
site of the deposit, then three or four weeks for the return
trip, during which there was little work for the engineers to do.
And rather than set up offices until they had a viable property,
they felt that it was more economic to use the services of a
reputable consulting engineer.
And this was what my father did. At one time or another I
think he examined mineral deposits on behalf of almost every
major mining organization in the United States, Great Britain,
and some of the European countries. They would employ him by
cable communication. He would prepare a preliminary report. If
it was favorable, then the companies might send out their own
engineers to confirm the results of his examination. But he
operated on this basis from 1904, or 1906 perhaps, after he
finished his Morococha engagement, until 1927, when he finally
returned to the United States. So he had a long career at this.
He was very well known, and he worked with many of the really
large companies that examined most of the major deposits in South
America.
Swent: Tell me about the communication by cable. Where did the cables
go? How did cables go from Lima or Santiago to New York, London,
Paris--?
Strauss: There were actualby that time, there had been international
cable lines strung for the news organizations and for business
enterprises. I often think about the reaction in the telegraph
Swent :
Strauss :
Swent :
Strauss :
Swent:
Strauss
Swent :
Strauss ;
office in Plattsburgh, New York, when my father's cable arrived
suggesting that my mother come down to Peru to marry him.
[laughing] That must have been a very amusing thing. No, it was
quite feasible in those days to cable back and forth. These were
copper cables strung on the ocean bed, they were across the
Atlantic and across the Pacific.
So you could get word in a day easily?
Oh, sure. But it was expensive.
I'm sure.
And as a consequence, it was only used really for major
communications. Communication by regular surface mail took an
incredible length of time. A letter written in New York would be
delivered in Lima sixteen to eighteen days later at the best, and
then by the time you got a reply, it would be almost two months.
Air mail was of course not known then.
They moved, then, to Valparaiso--
Because of the fact that air travel was not known, all travel to
the West Coast of South America was by ship. Valparaiso is the
principal port of Chile, and within a short distance of Santiago.
It was in fact the commercial center of Chile until the
development of international air travel. Santiago was the
political capital of the country, but Valparaiso was the
commercial center. The stock exchange was in Valparaiso, not in
Santiago, and it was the logical place for my father to have his
office, because when you went to examine a property in northern
Chile or in one of the other South American countries, he would
travel by steamer.
There was a train, railroad service, from Valparaiso through
Santiago and then on across into Argentina, and he would travel
by train to do that. But most of his examinations were in
northern Chile.
What mines were developed? Chuquicamata, of course.
Chuqui was just
The Braden mine,
being developed
of both of those
first manager of
William Braden,
and in fact the
being developed when my father went to Chile.
or El Teniente, as it's now identified, was also
at that time. He had a role in the development
He worked with Herman Bellinger, who was the
the Chuquicamata enterprise, and he worked with
who was the developer of the El Teniente mine,
company that operated the El Teniente mine
originally was called Braden Copper Company, later was absorbed
by Kennecott, and became a fully owned subsidiary.
When Chuquicamata was developed, it was developed by the
Guggenheim brothers. It did not become an Anaconda property
until the 1920s.
The Guggenheim Relatives, Straus with One "S"
Swent :
Strauss :
Swent :
Strauss :
Swent :
Strauss :
Are you in any way related to the Guggenheims?
No. There is a Straus family that is related, but that is a one
"s" family. Roger W. Straus, who was the son of Oscar Straus, a
well known political figure and great friend of Theodore
Roosevelt's. Roger Straus married Florence Guggenheim, the
daughter of Daniel Guggenheim, who was one of the seven
Guggenheim brothers and was perhaps the most active of the seven
in running the mining business. So after graduating from
college, Roger Straus joined American Smelting and Refining
Company [Asarco] , but he spells his name with one "s" at the end
of it; we spell it with two "s's."
I'm sure you're frequently asked that question,
better clarify it.
I thought we '
d
Yes. Well, further down the road, perhaps, when we talk about my
employment by American Smelting and Refining Company after the
end of the Second World War, there was an amusing aspect of this
that I might mention, or perhaps I'll tell you now.
Why not just do it now, while we think of it?
All right. I had met Roger Straus while I was in government
employ; we were good friends. But the person I knew best at
American Smelting and Refining Company was Kenneth Brownell, who
was in charge of sales for American Smelting and Refining
Company. As World War II came to a conclusion and it was clear
that the work of the Metal Reserve Company was coming to an end,
Kenneth Brownell approached me about whether I would be
interested in working for American Smelting and Refining Company,
and I was interested. A number of other people were kind enough
to suggest that I might join them.
But because American Smelting and Refining Company handled
so many different commodities, and because it was geographically
so widespread with properties in Peru, Mexico, Canada, and a
Swent :
Strauss
major interest in Australia, I was much attracted to the company.
I indicated to Kenneth Brownell that I was quite interested. He
thought I ought to come to New York and have a talk with Roger
Straus, who by then was president of American Smelting and
Refining Company.
Mr. Straus, not entirely seriously, said to me, "You know,
people refer to our company as AS&R, and some people say that
AS&R stands for ~A11 Sons and Relatives.' As a result, a lot of
people will probably think you're related to me. I wonder if you
would consider changing your last name?" [laughter]
I didn't take the suggestion too seriously, and of course,
never considered changing my last name. But it is quite true
that after I joined the company and I traveled around, it was
widely assumed when I visited the mines and smelters that I was
related to Roger.
One more of the relatives.
Yes. In fact, at the same time that I joined the company,
Roger's son, Oscar II, also joined the company in the financial
side of the business, and we're roughly the same age, more or
less the same size, and both have dark, curly hair. So many
people assumed that I really was part of the family, and I had to
disabuse them of that when I went around. But we are very good
friends .
Father's Work with Guggenheims in Northern Peru
Swent: Your father had also done some work, then, with the Guggenheims
in Chile?
Strauss: Yes, he had. He had not only in Chile but in Peru. He did a lot
of work on what later became the Northern Peru Mining and
Smelting Company up at Quirulvilca.
Swent: And that's in Peru?
Strauss: That's in northern Peru, near the town of Trujillo. And he knew
Roger Straus quite well, so there was that connection. But my
father worked not only for them but, as indicated, he worked with
the Kennecott organization.
Examination of Rio Blanco-Andina Mine
Strauss: He did a major examination of the property in central Chile,
which was then called the Rio Blanco mine, for the Nichols Copper
Company, which later became a fully owned subsidiary of Phelps
Dodge. This deposit in later years was examined by Cerro de
Pasco and eventually developed by them as the Andina mine, which
is now part of Corporacion del Cobre--that '
s CODELCO, the Chilean
state company. But it was originally developed by Cerro de Pasco
and then expropriated in the [Salvador] Allende years.
Early Days at Morococha
Swent : Morococha is a Cerro de Pasco property, isn't it?
Strauss: Yes, that is right. But at the time my father worked for it, it
was owned by a company called Backus and Johnson. It was before
the Cerro company was consolidated. And it's still in operation;
it's one of the longest-lived mines in Peru. Never been a huge
operation. I have a wonderful picture of a group of llamas--most
Americans call them "lamas"--carrying ore. It was a high-grade
deposit, and the processing mill was located down in the valley
some distance from the mine, which was, I think, somewhere
between 15,000, 16,000 feet elevation. Actually, the llamas were
used to carry the ore in sacks from the mine adit down to the
processing plant. My father was a superb photographer, and I
have a number of the pictures that he took of the mines in the
early 1900s.
The Mackay School, Valparaiso
Swent: Did you start to school, then, in Valparaiso?
Strauss: Yes. I first went to a kindergarten for English-speaking
children called Tia Edy's Kindergarten. I say that because it
was a very well known institution, actually, in Valparaiso, but
in 1919, I transferred to the Mackay School, which was a school
founded in the 1840s by a Scotsman in Chile, a private school.
The curriculum was largely in English, but several courses were
given in Spanish. The effort was made to make it completely
bilingual, and it was considered one of the best schools on the
entire West Coast of South America. More than half of the pupils
were boarding pupils who came from northern Chile.
Sir Ronald Prain, who was head of the Rhodesian Selection
Trust and who had been born in the Chilean port of Iquique in the
nitrate regions up north, went to the Mackay School, and many
years later, during the Second World War, when I met Sir Ronald
Prain for the first time, we learned to our surprise that we had
attended the same small school in Chile. Sir Ronald left school
about a year before I entered it.
And as a further indication of how vital a commercial center
Valparaiso was in those days, the first time I was in Germany
after the end of World War II, I had dinner with the officers of
the largest Germany company, Metallgesellschaft . One of them was
a gentleman named Herbert Mooyer, and he proposed a toast in
Spanish. When I asked him about it, I discovered that he had
learned his Spanish in Chile, because he lived in Valparaiso,
Chile, during the same years that I did. Needless to say, he did
not attend the Mackay School, but we did become quite good
friends .
Here was the unusual situation that, in the immediate
postwar years, there were three of us in the copper business, one
in London, Sir Ronald Prain; one in Frankfurt, Herbert Mooyer;
and I in New York, who had all been boys in Valparaiso at the
same time.
Swent : That's interesting.
Strauss: Yes. So Valparaiso was a wonderful place to live. It is a port,
not unlike San Francisco. In fact, it had an earthquake the same
year as San Francisco, 1906, which was almost equally disastrous.
It is built on hills overlooking a bay, not as sheltered a bay as
San Francisco's bay, but crowded with shipping.
So my first thoughts as a boy in Valparaiso were to make a
career as a seaman, and in particular, I was tempted to go to the
sea because a friend of my father's had given me Southey's Life
of Nelson, It was one of the first serious books that I read. I
became very familiar with Nelson's exploits, and I determined
that I was going to be an admiral when I grew up.
Swent: And of course, in Chile the navy is--
Strauss: The navy is very important. Chile has more coast in relation to
its area than any other country in the world, more than 3,000
miles from the north end to the Straits of Magellan. The harbor
at Valparaiso, as I said before, was crowded with ships. One of
10
Swent :
Strauss:
the really curious things is that during the war, a number of
German cargo ships were interned in Valparaiso Harbor. Of these,
one, the Peking, is now in the South Street Museum in New York.
The peculiar thing is that every day, as I would walk to school
and I would look on my left at the harbor, I would see the Peking
anchored there. Sixty years later in New York, my office at
American Smelting and Refining Company was four blocks from the
pier where the Peking was anchored.
[laughs] You couldn't get away from it.
No, I couldn't.
But the Mackay School was an excellent school.
Swent: What did you study?
Strauss: We studied the history of England, the history of Chile, the
geography of Europe, the geography of South America. Needless to
say, the history of Chile and the geography of South America were
studied in Spanish; the history and geography of England and
North America were studied in English. The only subject that we
consistently studied in one language was arithmetic. That was
always in English. As a consequence, if two of the Mackay School
students, whether Chileans, English, or Americans, were
discussing the outcome of a sporting match, almost inevitably
when it came to discussing the score, it would be stated in
English, even if the previous description had been in Spanish.
One would say about a match between Chile and Uruguay on the
soccer field, you might say, "Chile gano facilmente, five to
two." [Chile won easily...] [laughter]
Swent: So you were all really bilingual.
Strauss: Yes, entirely so.
Swent: That seldom happens.
Strauss: That's correct. But an interesting aspect of my parents'
adaptation to life in South America was that, although my father
lived in South America much longer than my mother did, he never
lost his New York accent in speaking Spanish. My mother, on the
other hand, spoke Spanish without a trace of accent, even though
she had not known a word when she arrived in Peru. She was
extremely fluent in Spanish, and grammatically correct in every
respect. She had a great skill for language.
11
Swent : And did they have social friends among the Chileans as well as
the Americans?
Strauss: Oh, yes, absolutely. Valparaiso was a cosmopolitan city, very
much, as I said before, like San Francisco in that regard. My
mother's best friend was a Chilean lady who had married a lawyer
who was of American descent, actually of Calif ornian descent.
Their last name was Ward. But Lucha Ward, the Chilean wife, was
my mother's best friend. A wonderful lady.
World War I: Mother and the Red Cross
Strauss: During the war years, there was a great deal of activity on the
part of the English and subsequently the American community for
assistance. My mother became very active with the American Red
Cross, which had a branch in Valparaiso. She used to bake the
pies that were served as dessert at the weekly meeting of the
Valparaiso Chamber of Commerce, and raised money that way to give
to the Red Cross. She even wore a Red Cross uniform, and
eventually my sister Ruth also had to have a Red Cross uniform.
Swent: The nitrates were particularly strategic at that time, weren't
they?
Strauss: That's correct, because synthetic nitrogen had not been
developed. Nitrates were used both as a fertilizer and as an
explosive. I recall one fundraising effort that my mother was
involved in where there was a sort of a fair, and the children
were all dressed in costumes. I was dressed as a carrot, believe
it or not, and I had a real carrot, which I held in my right
hand. I was supposed to be a carrot. The slogan draped across
my body was, "After using nitrate." [laughter] In contrast with
the carrot that I held in my hand, which was before using
nitrate .
Swent: Before then, the Germans had bought the nitrates from Chile; is
that right?
Strauss: Yes, they had, but they developed synthetic nitrogen during the
war. That was one of the ways in which they got around the
British blockade which denied them access to Chilean nitrate.
But the Chilean nitrate business was a booming business during
the war .
12
Swent :
Strauss:
Swent :
Strauss :
Swent :
Strauss;
The Strauss-Allen Process for Nitrate Ores
Did your father get involved in that at all?
Yes. In fact, I referred earlier to Arthur Allen, who was my
first boss at McGraw-Hill. Arthur Allen was a British engineer,
educated at Cambridge, and pretty much a metallurgist. He and my
father worked on methods for processing nitrate ores, and
developed one which was quite similar to the one that was
eventually adopted by the Anglo-Chilean Consolidated Nitrate,
incidentally another Guggenheim company, which was developed by a
Norwegian engineer named Cappelen Smith. There was a lot of
rivalry as to patent rights between the process that my father
and Mr. Allen developed and the one developed by Cappelen Smith.
But all over northern Chile, there were these large nitrate
deposits, and the ports of Antafogasta, Tocopilla, Iquique, and
Arica were busy shipping millions of tons of nitrate to the
United States and to England and France during the First World
War.
Do you remember hearing of the end of the war? Was that an
exciting event?
Yes. Actually, I happened at the end of the war to be in New
York. My mother decided in May of 1918 that it was time that our
grandparents got a look at not only my sister Ruth and me, but
also by that time, I had a younger sister, Frances; that we
should go up to the States. And we did make a trip to New York.
That must have been hard.
It was very hard. There was no problem sailing up the West Coast
of South America, but after we transited the Panama Canal, we
sailed through the Caribbean in blackout. I have a very distinct
recollection of getting up in the middle of the night to go out
on the stern of the deck, everything absolutely black, to look at
the phosphorescent fish in the water; the dolphins can be seen in
the water. But the ship sailed without lights.
But we made the transit safely. We arrived in New York at
the beginning of June of '18, and we stayed in the States until
January, 1919. So in the fall term of 1918, I was enrolled for
the first time in a school in the United States. I went to
Public School 165 on 109th Street in New York City, and I think
it was the third grade. I remember the excitement on Armistice
Day, when we all paraded around the streets. I recall having a
13
large tin can and rattling drumsticks on it, saying, "Down with
the Kaiser." Which was the big slogan.
In January, 1919, we returned to Valparaiso, and remained
there for the next two and a half years.
Swent : And then you moved back?
Strauss: Then, although the Mackay School was excellent, there was not
comparable education available for English-speaking girls in
Valparaiso, and my parents decided my sisters needed a better
education than they were likely to get. So we sailed to New
York. My father, however, remained in Chile, occasionally
visiting us, until 1927. Those were difficult years for my
mother, I'm sure, because of the length of time required for
exchange of correspondence and everything.
Perhaps the most notable experience I had after our return
to Chile in 1919 was at Thanksgiving time of that year. The
Pacific fleet of the United States had been on station in the
Atlantic during the war, because there was no fighting in the
Pacific area. The German navy had been bottled up by the
British, and the only problem was the submarine threat. So all
of the U.S. Pacific fleet had been taken from its normal bases in
Honolulu and San Diego and transferred to the Atlantic. They
remained there after the end of the war during the early days of
the peace negotiation.
But in the middle of 1919, President Wilson decided that the
Pacific fleet should return to its normal stations. Instead of
going directly through the Panama Canal, the fleet was instructed
to make the circuit around South America, in order to improve
relations between the United States and the countries of South
America, some of which, Brazil and Argentina, I believe, had
actually joined the Allies toward the end of the war. So the
fleet went first to Venezuela, then to the Guyanas, then to
Brazil, then to Uruguay, then to Argentina, sailed around Cape
Horn, and came up the West Coast.
Thanksgiving Day, 1919, Dinner on a Battleship with an Admira 1
Strauss: They arrived in Valparaiso harbor in the middle of November,
1919. The admiral decided to remain in Valparaiso for a couple
of weeks, because it was an attractive port, and he thought the
crew needed relaxation and rest. Since it was going to be there
on Thanksgiving Day, he consulted with the American consul, who
was willing to advise the American residents of Valparaiso,
Santiago, and the general vicinity that any boys, sons of
American citizens, between the ages of six and sixteen, were
invited to have Thanksgiving dinner on board one of the war
ships .
I qualified for this privilege. I was told to go down to
the wharf to board the admiral's launch to go out to the ship.
The admiral had no idea of how many people might show up. There
were actually only three of us. Two brothers from the El
Teniente Mine at Rancagua had come down by train for this
privilege. The three of us were the only American boys. There
were lots of American girls, but we were the only boys, sons of
American citizens.
Swent: That's surprising.
Strauss: In fact, I was the only one at the Mackay School at that time.
So it was a great thrill--! was eight years old to have
Thanksgiving dinner with the enlisted men on their mess on a real
battleship. But what was even more thrilling was that before it
was time for us to return to shore, a Spanish cruiser steamed
into the port with the crown prince of Spain on board, and it
became necessary to fire a twenty-one gun salute in his honor.
So we were given wads of cotton to stick in our ears, and were
allowed to stand next to the five-inch gun while it was firing
twenty-one salvoes. That was really the high point of my life.
In fact, I'm not sure that it hasn't all gone downhill since
then! [laughter]
Swent: The biggest excitement there could be.
Strauss: Right. You can imagine that my sisters were green with envy
about this when I returned. And as I've commented since then,
they both in later life became ardent feminists, and perhaps it
was because of this discrimination against them on that occasion,
[laughter] But it was a great experience for me, particularly
since at that time I had decided that I was going to be an
admiral when I grew up.
Swent: Well, of course.
Strauss: However, when it came time to return to the United States in
1921, we came up during the summer, and it was during the
hurricane season. After a very peaceful and interesting ride up
the West Coast of South America, through the canal, and into the
Caribbean, by the time we reached the coast of the United States,
we ran into an extremely heavy storm. I had been accorded the
privilege of sharing a cabin with the ship's purser. The ship
15
was very crowded; it was one of the Grace Line boats. My mother
and my two sisters had a cabin down in the passenger quarters,
but I was on the officers' deck. And of course, that was also a
big thrill for me, to share the purser's cabin.
I woke up in the morning; the ship was listing heavily. The
mirror over the washbasin was heavily coated with salt from the
spray, even though we were on the top deck of the ship. I felt
violently ill. I managed to get downstairs to my mother's cabin,
crept into her bed, and I said, "I'm not going to be a sailor."
I was so violently seasick! So my decision to succeed Lord
Nelson ended--
Swent: Right there.
Strauss: Right there and then. [laughs]
Swent : That must be terrifying.
Strauss: Yes, it is, when you get so nauseated.
I don't know what else I can tell you about our life in
South America, except that it was very pleasant. We would spend
our vacations up in the mountains. We had a seashore at Vina del
Mar, a wonderful place to go billing in the ocean.
Swent: And you have been able to go back on occasion, too, haven't you?
Strauss: Yes, since then. In fact, I've revisited the Mackay School on
one of ray recent trips. It has changed a lot since I was there.
The curriculum is now 75 percent in Spanish and only 25 percent
in English. But it is still considered a very good private
school in Chile, and most Chileans are quite familiar with it.
16
II SCHOOL IN NEW YORK AND BEGINNING A CAREER IN JOURNALISM
P.S. 165
Swent : Did you have trouble when you came back and went into American
school, then, in adjusting to the difference?
Strauss: Not really. Actually, I was ahead of my age, because I had had,
of course, far more language studies, but also in subjects like
geography and history and arithmetic, I was ahead of other
children my age. So I was actually--! returned to P.S. 165, but
even though I was just ten years old, I was put in with a class
of mostly eleven- and twelve-year-olds.
Swent: But you had girls in class then too?
Strauss: No. At that time, only the first four grades in the New York
schools were co-ed, and from the fifth grade on up, it was
separate. My sisters had to go to a different school.
Swent: Oh, really? I didn't know that.
Townsend Harris Hall High School
Strauss: Yes. In my subsequent education after I graduated from
elementary school, I went to a high school called Townsend Harris
Hall, which was a three-year high school. It was for people with
advanced grades, and I was able to graduate from high school
while I was still fifteen years old. I studied French and German
in high school, and I was known as David Strauss, because my
mother had registered me there. [laughter]
17
Swent : Did you live with relatives, or did your mother have her own
home?
Strauss: We first moved in with my grandmother until my mother found an
apartment. We lived on the west side of New York City, between
Broadway and Riverside Drive, close to Columbia University campus
on 114th Street. The Townsend Harris Hall High School was on
137th Street, so I usually walked, but I could take the subway
when the weather was bad to go to high school.
Editor of The Family News
Strauss: It was at this time that I decided to be a journalist. A friend
of my aunt's had a spare typewriter which he gave me, and I
taught myself how to type while I was twelve years old. Needing
pocket money, I launched a business enterprise, a family
newspaper, which had the unusual name of The Family News, I put
it out once a week, every Friday, and made carbon copies, because
I wasn't prosperous enough to have a mimeograph machine, and that
was the method of duplication then. I charged five cents a copy,
and I eventually had something like twenty subscribers among
aunts, cousins, the like, grandparents. So I earned a dollar a
week by putting out this newspaper. My mother subsidized the
enterprise by paying for the paper and the carbon copies.
I did this for about three years. I still have a few copies
of The Family News around, if I can find them. It recorded
important events in the family. I had a bachelor uncle; I
carefully in the gossip column traced his various affairs with
young women. And other things that I considered notable.
While I was in high school, I had a friend who was something
of an artist, and he used to do drawings for me for The Family
News, so that it wouldn't just be unrelieved text.
Swent: Good practice.
Strauss: Yes. So while in high school, I became an editor of the school
magazine, and I was determined to become an editor.
On graduation from high school, I enrolled at the College of
the City of New York with the intention after two years of
transferring to the Columbia School of Journalism to become an
editor of the New York Times, as I saw it. But about halfway
through my freshman year at college, my father's friend, Arthur
Allen, came up from Chile. My father was then still in Chile.
18
He called on my mother to bring her the latest news of my father.
And because he was an Englishman, my mother offered him tea. He
had great difficulty making up his mind whether he would take
lemon or cream with his tea. So Mother said to him, "I must show
you something my son has written on this subject."
I had, in addition to doing The Family News, I had become
the editor of a bulletin put out by a group of young people
affiliated with the synagogue that my family belonged to, Temple
Emanu-El. We had a junior society. The junior society, in
addition to having dances and doing plays and things of that
sort, once a month they had a lecture, which was open to the
public, a forum. And we invited fairly prominent speakers. On
one Sunday, the speaker was a professor of history from Smith
College, Harry Elmer Barnes. And to our surprise, we got an
enormous attendance of people, because he was a rather
controversial speaker.
After the lecture, it was the custom to serve tea to the
people present. Usually this was done by the girls who belonged
to the society, but on this particular Sunday, with the large
crowd and not very many girls present, I was persuaded to help
with the tea service. I found to my horror that the tea tray was
large enough for the teapot, the hot water, the sugar, and either
the cream pitcher or the lemon dish, but not both. Inevitably,
if I had the cream, people wanted lemon; if I had the lemon,
people wanted cream. This struck me as being very inefficient.
So, as the editor of the bulletin of the junior society, I
wrote a stirring editorial calling for larger and better tea
trays. This was the essay that my mother called to the attention
of Mr. Allen. He was amused by it. And this showed how
ridiculous my career has been, really.
A week or two later, McGraw-Hill asked him to be the editor
of the Engineering and Mining Journal, and he agreed.
Swent: He had been living in Chile?
Strauss: He had been living in Chile, but he wanted to take up residence
in the United States, and he was offered this job. Possibly he
made the trip in order to have the interview; I really don't
know. But at any rate, he did become the editor of the
Engineering and Mining Journal, and he decided to make some staff
changes, or add to the staff. Recalling my article which had
amused him, and my mother's informing him that I intended to go
to the school of journalism at Columbia, he gave me a call. He
said, "I understand from your mother that you're interested in
being a journalist."
19
I said, "Yes, I am."
He said, "Well, I know you'll learn a lot at school, but I
think you'd learn more by coming to work for us at McGraw-Hill."
And he offered me a job at the salary of twenty-five dollars a
week, which in 1927 for a sixteen-year-old was more money than I
had thought existed. He said, "If you don't like it, you can
always quit and go back to school, but I really need somebody
fairly promptly."
20
III REPORTER AND ASSISTANT EDITOR FOR THE ENGINEERING AND MINING
JOURNAL, 1927-1932
Covering the Metals Markets
Swent : And he could hire a sixteen-year-old at that time.
Strauss: He could hire a sixteen-year-old at that time.
Swent: Couldn't do it today.
Strauss: No. So I thought it over, and decided to take him up on it,
because I was anxious to be a writer, and that's how I got
involved with the mining industry. I really had not intended up
to that time to have anything particularly to do with my father's
profession, but I left school. I started work on November 15,
1927, at the age of sixteen. Because I was not an engineer, as
most members of the staff were, I was not considered a suitable
editor for the technical articles. The obvious fields where I
could be useful were to proofread and to improve the ^.anguage a
little bit here and there, or, alternatively, to report the news
or report about the metal markets. That is how I got involved in
the economics of the minerals business.
Swent: E&MJ was a monthly?
Strauss: No, at that time, it was a weekly.
Swent: And Metals Week was--?
Strauss: It did not exist.
21
E&MJ Prices the Official Prices for Metals
Swent : I see, so E&MJ covered the whole- -
Strauss: --thing. Every Wednesday, it was the custom for the editors to
call on the principal sellers and buyers of copper, lead, and
zinc, and to ascertain from them at what prices business had been
transacted. We would be given in confidence by all of the
leading sellers, and by many of the buyers, details of what they
had bought or what they had sold, quantities, and prices actually
paid. We would return to the office. We would tabulate it, we
would calculate an average price, and those prices were known as
the E&MJ prices at that time. Now they're called the Metals Week
prices. But those prices were used in the settlement of most of
the ore contracts.
**
Strauss: The changes of those days would seem minute today. In other
words, the price of copper would be 13.45 cents a pound, or the
changes were on the basis of .05 of a cent. These prices were
used in the settlement of contracts between buyers and sellers of
ores and concentrates, and buyers and sellers of metal. The
courts recognized these as being the legal prices, because
contracts specified the Engineering and Mining Journal price.
Swent: How long had this been the accepted--?
Strauss: Oh, since before the First World War. McGraw-Hill had
established a reputation for confidentiality and absolute
accuracy. So, in addition to Mr. Allen, the other members of the
staff were all much older men than I. The two that were
reporting the markets when I joined E&MJ were Arthur Parsons, who
later became the secretary of the AIME, and Edward H. Robie, who
subsequently also became secretary of the AIME, succeeding Mr.
Parsons. They were fine gentlemen, and I would accompany them on
their trips in order to find out how to do this, and eventually I
was allowed to go around and talk to people.
I became absolutely fascinated with the economics of the
mineral industry and what caused prices to rise and fall. And
while Mr. Allen had suggested that I could drop out any time and
go back to college, I never did. I took a few night courses at
an institution called the New School for Social Research, which--
22
The New School for Social Research
Swent: Oh, that was a very exciting place, wasn't it?
Strauss: It was an extremely exciting place on 23rd Street in New York. I
learned a lot, but the courses I took, of course, were not at all
concerned with mining or metals. They were broad discussions of
political and economic trends. But it was
Swent: And I'm sure you got exposed to liberal thought.
Strauss: And I got exposed to liberal thought there. And it was a very
stimulating thing to do in the evenings.
Swent: Who were some of your teachers?
Strauss: Well, Alvin Johnson was the head of the New School at that time.
I can't recall any longer the individuals that taught the courses
I took.
Swent: Nobody in particular?
Strauss: No.
Swent: But the New School was a hotbed, wasn't it?
Strauss: Well, it waswell, I did take one course there with yes, I
recall now with Professor Dewey, who was a great philosopher and
thinker.
Swent: Education research.
Strauss: Yes. I used to do a few freelance pieces at the time for the New
Republic, which was a liberal journal, based on what I knew about
the mining business.
Swent: This issue of the pricing always amazes me. That's a tremendous
responsibility, isn't it, to keep that confidentiality?
The Great Depression; Leaving E&MJ
Strauss: It is. Eventually, what happened was that the E&MJ became a
monthly and they put out a weekly which was called the Metal and
Mineral Market News, and later changed to Metals Week. The two
staffs gradually split apart, but while I was at McGraw-Hill, it
23
was really all just one staff. When I left in 1932, the cause of
my leaving was the change from a weekly to a monthly, and the
need to, in the heart of the Depression, to economize. Because
my salary was much the lowest of any member of the staff--
Swent : I presume it was over twenty-five dollars by then.
Strauss: Oh, yes. But interestingly, it had increased from twenty-five
all the way up to fifty, but then during the Depression, McGraw
put into effect three successive 10 percent wage cuts, which cut
across board. Everybody took those wage cuts. So I was back
down to some figure in the thirties. But it wasn't the salary
that caused me to resign; it was the fact that I was the only
unmarried member of the staff, by far the youngest. The others
all had wives and children to look after, and I knew that
somebody was going to be laid off. So I decided that I would
leave.
The week after I left, the New York Times had only one help
wanted ad for editorial help of any kind. It was for a suburban
weekly newspaper, didn't identify which newspaper. I wrote a
letter giving my background at McGraw-Hill. I thought, well, now
I'll get into the mainstream of journalism. The newspaper
involved happened to be a weekly published in Madison, New
Jersey, a prosperous suburban town just outside Morristown. It
happened that Mr. James McGraw of McGraw-Hill lived in Madison.
So the publisher of the Madison Eagle called up Mr. McGraw and
asked him if he could get any information about young Strauss who
had written applying for the job. Mr. McGraw was good enough to
give me a good reference.
24
IV EDITOR OF THE MADISON, NEW JERSEY, EAGLE, 1932-1934
Strauss: So for two and a half years, I was the editor of a suburban
weekly newspaper and lived in Madison, became the official
scorekeeper for the local semi-pro baseball team, attended all
the meetings of the board of education and the town council, and
so on. I enjoyed it. I wrote the whole paper. I was the editor
and the only member of the staff. It was normally an eight-page
publication, but sometimes ten or twelve pages. 1 wrote between
30,000 and 40,000 words a week, covering all the local news. We
didn't try to cover news other than local news. It was a
prosperous community, and I had a great experience there.
The Political Realities of Prohibition and the Mob
Swent: It would be wonderful training.
Strauss: I found out a lot of things about life. Two particular stories I
covered indicate what life was like in those days. This was
still during Prohibition. After Mr. Roosevelt's election,
eventually Prohibition was repealed. But while Prohibition was
on, of course, there was a flourishing trade in speakeasies.
Madison had its share of speakeasies.
One of the great social distinctions in Madison was to be a
member of the volunteer fire department. It was eagerly sought
after by young men. Anybody was eligible. But the only people
who ever actually got to be members of the volunteer fire
department were people of Irish descent. One Friday evening, a
group of volunteer fire department were in one of the local
speakeasies, and this speakeasy was run by an Italian gentleman.
There was a rather lively discussion about who were the better
Catholics, Irish or Italians. When the volunteer fire department
members got ready to leave and went to their car, they discovered
25
that somebody had thoughtfully inserted an ice pick into all four
of their tires.
They immediately thought it was the Italians with whom they
had had this somewhat heated discussion. So they went across the
street to the police department and swore out a complaint against
the speakeasy, even though they'd been drinking there. They
swore out a complaint. Captain O'Farrell had a big problem,
because he had a certain relationship with the owner of the
speakeasy [laughter]. On the other hand--
Swent: A little supplementary income, perhaps?
Strauss: Yes. On the other hand, these were his Irish friends. So what
to do?
He finally decided he couldn't ignore the complaint, and he
conducted a raid. The raid was on the police blotter when I went
around in the morning, so of course I wrote an item about it,
including the fact that the police, in addition to seizing the
liquor on the premises, had seized two slot machines.
The local police recorder, as he was called in New Jersey in
those days, had a hearing, allowed the speakeasy owner--didn' t
hold him in jail--to be freed on the basis of $500 bail, which he
posted. To everybody's surprise, the speakeasy proprietor
skipped town, was never heard or seen from again. He would have
just been fined probably $100. Discreet inquiries and I never
published this storyrevealed that his problem was "Dutch"
Schultz, who then controlled northern New Jersey, had only
licensed him to have one slot machine, and I had published the
fact that he had two. He was scared for his life. That gives
you a little flavor of what the Mafia--
Swent: They were very powerful, even then.
Strauss: The other story is equally amusing. Madison and the adjoining
town of Chatham had a joint sewage treatment plant. It was one
of the first sewage treatment plants in the country. Most sewage
was just dumped in the rivers, but they had a chemical plant for
the treatment of sewage. The superintendent of the plant, a
fellow named Paul Molitor, was a good friend of mine. We were
both members of the Madison Kiwanis Club. He told me that one
day, to his amazement, the sewage plant didn't work, because the
bacteria that were counted on to do the work of purifying were
not in the sewage. He couldn't imagine what was killing these
bacteria.
26
Swent :
Strauss ;
Swent :
Strauss :
So, being a careful man, he went from manhole to manhole,
dipping buckets in to analyze the sewage. He found where the
problem was, where the bacteria were dying. Madison was known as
the Rose City. There were a large number of greenhouses there
where roses were grown for sale in the New York market. An
abandoned greenhouse had been converted into a distillery to make
bourbon. The mash that came out of this that was dumped into the
sewer was so powerful, it was killing all the bacteria!
[laughter] So of course, the distillery was put out of business,
and the chemical treatment process was restored to its normal
operation.
Were you allowed to write a story about this?
I wrote it.
You could do a feature on that?
Yes. [laughter] So those are only two of the amusing episodes
that happened while I was the editor of the Madison Eagle.
Voting in the 1932 Election
Swent: I asked you earlier about your first voting experience. That was
before you went to Madison?
Strauss: It was while I was in Madison.
Swent: While you were there, the election?
Strauss: Yes. I went to Madison in March of 1932. My first election was
in November of 1932. I was twenty-one in July of 1932. But 1
did not vote in Madison, because I retained my residency in my
parents' home. By then, my father was in New York, and my
parents were living in New York City, and I used their address,
voted in New York.
Swent: And your first vote was cast for--?
Strauss: Was cast for Norman Thomas, who was the Socialist candidate for
president.
Swent: Did you feel excited about that?
Strauss: Oh, sure.
27
Swent: Were your parents voting for Norman Thomas?
Strauss: Oh, no. I have no idea who they voted for. I didn't ask them.
Swent: Your family didn't discuss politics?
Strauss: Not to any great extent. I think my mother tended to be a
Republican, my father to be a Democrat. Hoover was a close
friend of my father 's--by correspondence, because they were both
mining engineers. And in fact, my proudest possession is an
original edition of Hoover's translation of De Re Metallica,
signed by Hoover, with a letter of transmittal from Mr. Hoover
dated in 1913, the year after publication, to my father, sending
him a copy of the book. So my guess is that both of them voted
for Mr. Hoover. My mother knew Mrs. Hoover well through work in
the WAAIME [Woman's Auxiliary to the American Institute of Mining
and Metallurgical Engineers].
Swent: Oh, did she?
Strauss: Yes.
Swent: Did they live in New York then?
Strauss: No. My parents lived in New York, but the Hoovers lived in
Washington. But the New York section of the WAAIME went to the
White House on several occasions to meet with Mrs. Hoover.
Swent: That was exciting.
Strauss: Yes.
Swent: And the Depression in Madison must have been--?
Strauss: It was horrendous, as it was everywhere, except Madison was a
prosperous town. The day that Mr. Roosevelt took office, you may
recall, he closed the banks. There was a banking crisis. This
was over a weekend, as I recall, that the banks were closed. One
of the stories I reported was an attempt--successful--to remove
the safe from the local movie theater. Burglars broke into the
theater, took out the safe. There was probably more cash in that
safe, because of people who had gone to the movies that week,
than any other place in the town. And undoubtedly, that was why
it became the object, because the banks were all closed.
The safe was later found. It had been blown open some
distance from town in an open field.
Swent : Did you have any money in the bank?
28
Strauss: I had a little money in the bank. But everybody was in the same
boat. You couldn't cash a check. It lasted a few days until--.
But the banks were gradually reopened.
The Morro Castle Fire and the Captain's Cat
Strauss: Another story that I just recalled that you might like to know:
I had intended to become the editor of the New York Times. I
never made it, but I was the correspondent for the New York Times
in Morris County, where Madison is located. One morning in 1934,
I think--! '11 get the exact date for you--I was awakened early by
a phone call from the city desk at New York Times asking me to go
to an adjoining little town called Green Village to interview a
Mrs. Warms. Mrs. Warms' husband had been the first mate on board
the liner Morro Castle. This was a ship that plied between New
York and Havana. The Morro Castle was on fire.
The captain of the Morro Castle had died shortly after the
ship left Havana, and Warms as the first officer had taken over
as the acting captain. The Times learned that he lived in Green
Village. They were anxious to find out if his wife knew where he
was; would I go down and interview his wife? This was about six
o'clock in the morning that I got the call.
So I promptly got up, went down to Green Village, rang the
bell. A lady answered the door; she was obviously just getting
dressed. She said, "What can I do for you, Sonny?"
I said, "Are you Mrs. Warms?"
She said, "Yes."
I said, "Have you heard from your husband?" not wanting to
talk about the ship being on fire.
She said, "I heard from the Ward line. I'm not to tell
nothin' to nobody." She spoke with a pronounced Georgia accent;
I think he must have met her in Savannah or some such place.
I said, "Well, are you sure you can't tell me about your
husband?"
She said, "Sonny, I'm in a big hurry, and I'm going to have
to leave." It was obvious she was going to meet him somewhere,
assuming that he was alive. She said, "I'm worried about my
cat."
29
Swent :
Strauss :
Swent :
Strauss :
I said, "What's the problem with the cat?"
She said, "Well, I don't know when I'm comin' back, and my
cat's got to be fed. Here's two dollars," which she gave me.
"Would you buy a can of salmon and feed my cat twice a day?"
So my role in the great Aforro Castle disaster, in which over
200 people died, was to feed the captain's cat. [laughter] I
was conscientious about it. It was a nice cat. I went back.
The house was locked up, but the cat stayed outside. She had
given me a dish to give him the salmon in.
A week later, I got a report of an automobile accident. The
car had run off the run on Shunpike Road coming in to Green
Village, hit a telephone pole. The occupants of the car were not
badly hurt. It was Captain Warms and his wife. I think they
were intoxicated. They must have--he'd been sequestered
somewhere to keep him away from the press for a full week, and I
think his wife had joined him. I think they had been drinking
the whole time.
It was a terrible accident [the Morro Castle accident].
Most of the people needlessly lost their lives, because the ship
eventually drifted to shore at Asbury Park in New Jersey, and
they could have jumped into shallow water at that point. But
instead, many of them jumped off the ship while it was burning
while it was still at sea.
And he got off somehow?
Yes, he got off. Other members of the crew--the crew panicked.
This was a ship that just went from New York down to Havana and
back. It was a week cruise. Many people got off and stayed for
a week in Havana and then caught the next one back. Havana was
the nearest place to New York where you could gamble freely in
those days.
So your role was pretty important, I guess. [laughter]
That's right. But shortly after that, I left the Madison Eagle,
because I thought I'd learned all there was. There seemed to be
an opportunity to get a job working in Toronto for the Financial
Post. They had a mining page, for me to be the editor of the
mining news. My father was friendly with the editor of the
Financial Post. By then, my father was stationed in Canada. He
was an exploration engineer with Anaconda at the time, and he was
stationed at a place called Kirkland Lake. He had met Mr.
Chalmers, the editor, and thought I might get a job.
30
Well, I won't go into all the details of that, but it didn't
work out. So I'd given up the job in Madison, and there weren't
many jobs. It was 193A, and things were tough. So I did a
little freelance writing, not too successfully. Eventually I got
a job--or I thought I got a jobworking with a fellow who was
going to give a series of lectures across the country about
Alaskan grizzly bears. I was to be his secretary, help get him
publicity and so on. That was a complete frost. I won't go into
that, because to tell the whole story would take more than a
tape.
We wound up--he thought he could get lecture assignments in
the South- -we wound up in Florida. My mother was in Florida then
recovering from an accident. She was well enough so that we
didn't need to keep a nurse any more. So I stayed with her for
three months in St. Petersburg. We returned to New York on April
10, I think, 1935, by ship. When we got to the apartment --my
younger sister was alone there she reported that Mr. A. B.
Parsons, secretary of the AIME, had been trying to reach me.
31
MINING SECURITIES ANALYST FOR STANDARD STATISTICS COMPANY,
1935-1941
Getting a Thorough Grounding in the Mineral Industry
Strauss: I called him. He said, "Standard Statistics Company is looking
for an analyst on mining securities, and I suggested you might be
the man for them." Gave me the name of the man to go see.
1 went down, I saw a fellow named Ken Heston, who was in
charge of hiring the security analyst, and two hours after
returning to New York from Florida without a job, no prospect for
a job, I had a job at Standard Statistics as their mining
securities analyst. Standard Statistics Company was the
predecessor of today's Standard & Poor's Corporation. They do
bond ratings, and they publish a lot of material, different
kinds, including separate sheets on each company listed on the
major exchanges.
So it fit in very well with what I had learned at the E&MJ ,
and I remained with Standard Statistics from April of 1935 until
March of 1941, six years. Eventually they added--! started off
just covering the metal mines eventually they added the coal
industry and later the construction industry to the areas that I
was covering.
Swent : Did you just deal with information that the companies gave you?
Strauss: No, I went and interviewed the companies, and I got to know--
Swent : Still doing investigative reporting.
Strauss: Right. And of course, I had met many of them when I had worked
for the E&MJ. But I got to know many others quite well, and it
was a very interesting assignment. Not terribly profitable, but
gradually my remuneration was increased. Salaries were modest in
32
Swent :
those days. I remember I started at fifty-two dollars a week,
and then I got up to sixty dollars, and when I got married I got
a big boost to seventy dollars a week. We thought that was a
pretty good salary.
That was.
Strauss: And I learned enough about the securities, and I began doing a
little investing on the side. I didn't do too badly in the stock
market, so that was good. But I did get to know a lot about all
the mining companies listed, and not just the copper, lead, zinc,
silver, and gold companies, but iron ore, vanadium, the
nonmetallics companies, and it gave me a very thorough grounding
in the industry, simply by studying and talking to people.
I got married during that period, as I've indicated. My
first child was born while I was employed at Standard Statistics
Company.
Swent: Were you living back in New York City then?
Strauss: We were living in New York City. I should report on a dramatic
experience during those years. I indicated I started working for
Standard Statistics in April. Happy to get a job, and my parents
had an apartment where I could have lived, but it would have been
crowded, I looked around for an apartment of my own. 1 found a
little place in Greenwich Village on Barrow Street, which was a
short distance away from where Standard Statistics had its
office.
Father's Death; a Pioneer in Andean Aviation
Strauss: My father had gone off to Colombia to look at gold properties.
One day on my way to work I picked up the New York Times and
casually glanced at the headlines as I was walking to work.
There was a report of an airplane accident in Medellin, seventeen
people killed. I immediately knew my father was on that
airplane. Whether my eye had caught his name or not, I can't
say, but I had the immediate reaction. And he was.
He had been in Medellin looking at some gold properties for
Anaconda, and had decided that one of them was of sufficient
interest that he should go to the capital, Bogota, and talk to
the government people about it. He booked passage on this
airplane. It was standing next to the runway warming up when
another plane took off the wrong way down the runway, with the
33
wind in back. A gust of wind blew it off the runway. It
collided with my father's plane. Everybody in both planes was
killed.
An effort had been made to reach my mother, but because ray
father was away, she was staying with my older sister, who was
married. There was nobody at my parents' apartment to answer the
phone. So we all learned about my father's death from the
newspaper.
Swent :
Oh, my.
Strauss: It was rather fitting, in a way, if death is ever fitting, that
he died on an airplane, because he had been a pioneer in the use
of airplanes for the mining industry.
Swent: I was thinking, people didn't fly casually in those days.
Strauss: Well, in 1919 or 1920, he had accepted an assignment to examine a
deposit in Argentina and had planned to take the Trans-Andean
Railway from Chile to Argentina. But there had been an
avalanche, and the railway was knocked out of service. He had
two options, he thought: one was to take a ship. There was a
ship service, believe it or not, between Valparaiso and Buenos
Aires going down through the Straits of Magellan and back up.
That trip took about two weeks.
The alternative would have been to have hired a guide,
Indian guide, and take a burro train through the mountains, which
he was quite prepared to do. It was long, and this was in the
period when there was heavy snows. So he was reluctant to do
that.
Swent :
Strauss :
Then an Italian aviator named, I think, Balbontini, decided
to try to fly from Chile to Argentina. First time it had ever
been done. He said to my father that he heard that my father was
trying to get to Argentina. It was a two-seater plane, open
cockpit, biplane. He was going to fly through the Upsallata
Pass, lowest point, 14,000 feet above sea level, no oxygen.
Would my father care to go with him?
My father went along.
[ laughs ]--
No oxygen bags.
No stewardesses with coffee,
No oxygen, nothing. They made the trip successfully. The first
crossing of the Andes by air from Santiago to Mendoza. So he was
a great pioneer.
Swent :
Strauss :
Swent:
Strauss :
Swent :
Strauss :
Swent :
Strauss :
When Anaconda sent hi 1
-!
up to Canada, he spent a lot of time
flying around on those lit ie amphibian planes, landing in lakes
to examine remote mining properties. So he had no concern about
flying.
What a tragedy.
Yes. And what a shock for my mother, because they were very
close. Under Colombian rule, the remains cannot be shipped out
of the country for six months because of disease problems. So I
suggested to her, and my sisters agreed, that we make no effort
to bring back my father's body, so he's interred in the local
Protestant cemetery in Medellin.
On the other plane, one of the passengers was the most
famous Latin American movie star, a fellow named Carlos Gardel,
an Argentinian, a singer and dancer. Anybody in Colombia, not
just of our age but even younger, knows about that accident
because of Carlos Gardel having been on that plane. The other
plane was clearly at fault, but it was a government-owned
airline. The board of inquiry decided this was an act of God, so
there were no damages. We didn't even get a refund of my
father's airplane ticket.
Did you have to tell your mother? Were you the one who had to go
and tell?
My sister told her. My sister had read it in the paper. By the
time I got to a phone and called, my mother had already known.
Oh, how terrible. But he was working for Anaconda?
He was working for Anaconda at the time. My father's class at
Columbia included a student who later became the very well known
Anaconda geologist, Reno Sales. They were classmates and good
friends. That's how--and there was a chap named Bill Wraith who
was also at Anaconda who was a good friend of my father's. So
when my father came north from Chile, after an interval of a few
months, Anaconda offered him this post and he worked for them,
mostly in Canada. But he made several trips to Latin America for
them. He went down to Venezuela to look at gold properties.
You must have missed him terribly,
consultant for your job.
He would have been a good
Yes. Well, actually, of course, I had just started. I remember
our last lunch together. We lunched at a restaurant downtown
near the Anaconda office shortly after I had joined Standard
Statistics Company, and then he sailed a few days later. So my
35
job at Standard Statistics lasted only a short time before his
death.
Among my father's very good friends were a couple of
geologists named Hoffman, Bob and Arnie Hoffman. I don't know if
you've run across their names.
Swent : No, I haven't.
Strauss: They were very successful geologists, particularly up in Canada.
But my father became friendly with them, and he had done a good
deal of work with them in Venezuela in the early 1930s. After my
father's death, I used to talk to them a lot, because they knew a
lot about what was going on, and they were very helpful to me.
A Plunge With The Thompson Prospecting Syndicate
Strauss: One of my more exotic financial adventures came about through the
Hoffmans. In 1936 or 1937, they decided that prospects were
pretty good for finding gold deposits in the Northwest
Territories of Canada, and they decided to form a little
syndicate called the Thompson Prospecting Syndicate. It was
called the Thompson Prospecting Syndicate because they were going
to hire a fellow named Freddy Thompson to actually do the
preliminary work up there. They sold units in the syndicate for
fifty dollars. Well, fifty dollars was almost a week's salary
for me, but I decided to plunge, and I bought a unit.
In all, they sold eighty-nine units, so they raised $4,450,
and with that, they leased a plane and sent Freddy Thompson up
there. He was flying over these lakes, and he looked over the
edge, and he saw what looked like a promising prospect. So he
had the pilot land. After they landed, he went ashore, and he
found an outcrop with gold. He had a partner named Lundmark, and
we formed the Thompson-Lundmark Mining Company. Each member of
the original syndicate got A, 500 shares of Thompson-Lundmark
stock, but it was in escrow. You couldn't sell it until the
property got into production.
A couple of years later, it started producing. It produced
for several years. Never made enough profit to pay a dividend,
but it did produce. It was listed on the Toronto Mining Exchange
for many years. They acquired other properties. The Hoffmans
were fairly ingenious; they kept the thing going for years. So
eventually I was able to sell off the shares; I sold a little
from time to time.
36
However, in 1953, when I decided to buy this house in Lenox,
Massachusetts, I still had about 2,000 shares of Thompson-
Lundmark stock left. I had to put up cash for the house. I was
getting a good salary, but I was really strapped, because of my
wife's illness. I had to put up cash to buy this place. I sold
my 2,000 shares of Thompson-Lundmark stock for a little over a
dollar a share to make the $2,500 down payment on this. I got a
mortgage for $7,000. The total price was $9,500 for this house.
So in a sense, I parlayed my fifty-dollar investment in the
Thompson Prospecting Syndicate into this house. [laughter]
That's the most profitable investment I've ever made. According
to the town of Stockbridge, the assessed value of this property
now--raostly the land, but including the houseis $280,000.
Swent: Oh, my! [laughter]
Strauss: Of course, I have no intention of ever selling the house.
Swent: So your fifty-dollar unit was a good investment.
Strauss: It was a good investment. I had confidence in the Hoffmans.
Arnold Hoffman was an author. He wrote a book- -a number of
novelsunder a pseudonym. But in addition, he wrote a book on
gold which was quite successful in the fifties and sixties, and
they were extremely successful. Very aggressive, sometimes
offensively so, with people. But they certainly knew their
geology. Do you know a fellow named Thayer Lindsay?
Swent: I've certainly heard the name, yes.
Strauss: Well, they were associated with Thayer Lindsay for a while, and
they were in on many of his major developments, like
Falconbridge .
Swent: Yes, Canada was where he operated.
Strauss: Canada, and the Treadwell Mine,
[tape interruption]
Swent: We're continuing on August 23 after a lunch break. We thought
that we had been a little cursory in our discussion of Standard,
and I think so, because you were there for several years. Do you
want to talk in a little more detail about exactly what it was
you were doing there?
Strauss: Very good. Standard Statistics Company, as it was then
constituted, was a major financial advisory service. It had
thousands of subscribers all over the country. It provided
37
detailed analysis of all the important corporations whose shares
were listed on the major exchanges, including, I think, the over-
the-counter stocks. These analyses were prepared by individual
analysts who concentrated on particular industries. In addition
to the individual stock analyses, a weekly review of the
financial markets and the outlook for the economy as a whole was
the issue, called The Outlook. Also, periodically for most
industry groups, there was a quarterly analysis of the outlook
for an entire industry.
My duties were concerned with the production of the
individual security analyses of the individual companies, with
the preparation of the overall mining industry outlook on a
quarterly basis, and with making contributions to the weekly
Outlook publication. When significant developments occurred in
the industry, I covered them. As I said earlier, I started out
as the analyst for the metal mining securities, but later this
was expanded to cover the coal mining industry, the nonmetallic
minerals industry, and eventually the construction industry.
Actually, about 1938 or '39, I'm not sure of the year, the
company published a book, which was issued by Harper and Company,
called Two Cycles of Corporation Profits. This was a book that
purported to describe what had happened to the major industry
groups during the Great Depression and to discuss the outlook for
the future. I wrote the chapters on the nonferrous metals
industry, on the coal industry, and on the construction industry.
One of my colleagues, who did the analysis on the steel industry,
covered the iron ore mining companies, so I did not write that
chapter.
Predicting the Success of Phelps Dodge and Asarco
Strauss: It is quite interesting to look back and read that report in the
light of the perspective of more than fifty years.
Significantly, in my discussion of the outlook for the nonferrous
metals industry, I picked two securities as companies that in my
opinion would show the best return to investors over the period
of the next business cycle. The two companies I selected were
Phelps Dodge and American Smelting and Refining Company. I did
not pick Aluminum Company of America, which I suspect probably
has had the best record over this period of time. And I
particularly avoided either Anaconda or Kennecott because I was
concerned about their exposure to their risks in Latin America.
That book, of course, is ancient history now.
38
Swent: But you've been proved right, certainly.
Strauss: Yes. It's ancient history now; I don't know that many people
have read it, but it's sort of amusing once in a while to read
that chapter once again.
Swent: Did you confer with anybody else, or were you all on your own in
making these analyses?
Strauss: Well, no, because I reported to the gentlemen who were
responsible for securities analysis, a Mr. Ken Heston and a Mr.
Schmutz, a very unfortunate name but a very nice man. His name
was Charles Schmutz. And then the editor of the book as a whole
was the company's leading economist, who was a much respected
economist by the name of Lawrence Sloane, and he's credited as
being the principal author as well as the editor of this book.
They had an input, but the selection of the companies that I
thought were the best was really my responsibility. They
challenged some of my assumptions, but it was my responsibility,
as it was for the other industry analysts in their selections.
I can't say that the book was a best-seller. In fact, I
don't believe I've ever come across anybody in recent years who
has read the book.
Swent: Why did you particularly like Phelps Dodge and AS&R?
Strauss: Well, I felt the AS&R had a diversified group of assets that were
very significant. I was particularly impressed at the time with
the prospects for its investments in Australia, the Mount Isa
Mine. And I liked Phelps Dodge because it was almost entirely
domestic. It had excellent plants, and in my opinion very good
management .
Swent: Well, you were right.
Strauss: But they at least survived--
Swent: Over time.
Strauss: --over time, which was not true of many of the other companies in
the industry.
The work at Standard Statistics was extremely challenging,
and I enjoyed it. I spent a lot of time talking with securities
analysts of the individual brokerage companies who would call me
and ask me questions, or try to exchange opinions with me. Some
of the major investing organizations, like the pension funds and
insurance companies, would talk to me about whether I considered
39
it was appropriate for them to invest in such and such a
security.
Swent : Of course, they had analysts who specialized also.
Strauss: They had analysts, that's right, and we exchanged opinions, but
when they were putting millions of dollars at risk, they wanted
more than one opinion.
Swent: Who were some of the other analysts who were specialists in
mining at that time?
Strauss: None of them are still alive. There was a very nice fellow for
Shields and Company whose name escapes me. There was a fine
fellow named Heinbecker who was responsible for investments at
Continental Insurance, now Continental Corp. Well, I can't think
of them at the moment, the names. We had a very good group at
Standard Statistics, and I was proud to be one of them.
One of my close friends at Standard Statistics was a
gentleman by the name of Howard Trueblood. Howard was one of the
editors of the weekly Outlook.
Swent: And that still exists.
Strauss: That still exists, yes. Howard left Standard Statistics and went
to work in the economics department of the State Department
sometime about 1939 or 1940.
Metals Prices During the Late 1930s; European Rearmament
Swent: I'm just trying briefly to thinkof course, the gold price was
fixed at that time.
Strauss: It had been fixed in 1933.
Swent: At thirty-five?
Strauss: At thirty-five dollars an ounce. The price of silver was fairly
constant during this period because of the program that President
Roosevelt had initiated to purchase silver of domestic origin at
a fixed price, which turned out to be above the world price
during the time. So that the domestic miners, in essence, sold
all of their silver to the government, went into treasury
holdings, a program that was very much criticized at the time by
the financial press in the East the New York Times, Harper's
AO
magazine I recall wrote a highly critical article. Silver
consumers were unhappy because, by taking all the domestic silver
off the market, they felt that the United States was subsidizing
silver producers and keeping the price that they had to pay for
silver higher than they needed to.
Swent : What was the situation with the nonferrous metals?
Strauss: Well, the price of copper had a period of very sharply rising
prices during 1936 and '37 due to rearmament programs announced
by the British and the French. President Roosevelt made a very
critical statement about the copper price, to the best of my
recollection, in either late 1937 or early 1938, and as a result
of that, the price actually dropped for a while.
But then, with the outbreak of war in 1939, the complexion
of all the markets changed completely.
Swent: How much in advance of our getting into the war was it affecting
the metals markets? It was affecting from Europe, of course.
Strauss: Yes, but these were world prices. The actual developments in
Europe had very curious effects on the world market. For a
while, from September of 1939, when the war started, until June
of 1940, at the time of the fall of France, the markets tended to
be quite strong, because it was assumed that there would be large
requirements for metals in connection with the fighting. The
British government, through its Ministry of Supply, had arranged
to buy the production of metals from its own Commonwealth,
principally Canada, Australia, and Africa, not only South Africa
but also northern Rhodesia. This supplied the British pretty
well.
But the French and their potential allies--Scandinavia,
Belgium, Holland, and so forthhad to buy materials from Latin
America, from the United States. So there was good demand for
metal. The Germans were cut off by the British navy from access
to these markets. Italy had not entered the war until 1940, and
endeavored to purchase materials. But the mining enterprises
controlled by American or British capital were very chary about
selling to Italian buyers, because of their alliance with Hitler
in Germany.
Pre-War Metals Trade with Japan
Strauss: The Japanese were anxious buyers, but there was a good deal of
pressure from the British and U.S. governments on British- and
U.S. -controlled companies not to sell excessive quantities to
Japan.
Swent :
They were selling scrap, I remember.
Strauss: There was a lot of publicity about the sale of scrap, but
generally speaking, a close eye was kept on the amount of
business being done with Japan, in view of the fact that they
were being very aggressive in China and we were concerned about
that. However, there was no outright prohibition of trade.
Swent: Had the Spanish Civil War affected markets at all?
Strauss: Not to any great extent. Spain had a small amount of production.
The consumption of metals in the Spanish Civil War wasn't of
major amount. They did not tend to buy metals; they bought
armaments where they could. But the volume of demand- -their
ability to finance such purchases on both sides, both the
Republicans and the Falange, was limited. They were supplied by
Germany and Italy with materials under their first program to
assist the Falange.
The Fall of France; a Dramatic Change in Latin American Metals
Markets
Strauss: The dramatic change came with the fall of France, because with
the fall of France, it meant in effect that the producers of
metals in Latin America no longer had access to the European
continent. It meant that they had lost their customers in
France, Belgium, Holland, and Scandinavia. And as a consequence,
in Mexico, Peru, and Chile, stocks of metal began to accumulate.
Demand in the United States was rising, but not to the extent
that it absorbed the stuff that had previously been going to
Europe .
In the fall of 1940, President Roosevelt took dramatic steps
arising out of the fall of France. With regard to raw materials,
he decided that the old-fashioned methods of government
procurement through the Treasury Department were too
bureaucratic, too time-consuming.
42
VI THE RECONSTRUCTION FINANCE CORPORATION, 1941-1945
Roosevelt Expands Hoover's Plan; Four Subsidiaries
Strauss: He [Roosevelt] decided that perhaps the United States might be
drawn into the war. He didn't say that publicly, because there
was a strong isolationist sentiment in the country at the time.
But he did say to Congress that the protection of the country was
important, and that it might be necessary to act quickly. He
recommended that the Reconstruction Finance Corporation, which
had been established in 1933, actually under the Hoover
administration, before Mr. Roosevelt took office, to help offset
the effects of the Depression, to make funds available for
financial industrial projects, that this corporation should now
form four subsidiary corporations. I would like to describe what
those corporations were.
Rubber Reserve Company
Strauss: First of all, there was the Rubber Reserve Company. There was
great concern about the availability of rubber in the event that
the war should spread to the Pacific. Synthetic rubber processes
were being researched at the time, but a successful process had
not yet been developed. There was a strong feeling on the part
of people in the rubber trade that we should accumulate as much
natural rubber as possible, since the transportation of the
defense forces and the civilian population depended on rubber for
tires .
Swent: There was no plastic yet, or almost none.
Strauss: No.
Metals Reserve Company
Strauss: Secondly, a company called Metals Reserve Company was established
to ensure adequate supplies of minerals and metals.
Defense Supplies Corporation
Strauss: Thirdly, a company called Defense Supplies Corporation was formed
to supply other scarce and critical materials of vegetable or
animal origin: such things as the raw materials for the
production of rope; Pharmaceuticals needed various rare elements
like quinine, rotenone. If we were to be engaged in a war effort
that involved fighting in Arctic climes, and before the present
developments of textile materials to provide warmth, goose
feathers and down were considered to be strategic materials. Hog
bristles from China were said by the navy to be the best product
for making paintbrushes to paint battleships. So Defense
Supplies Corporation covered this wide array of nonmineral
strategic materials.
Defense Plant Corporation
Strauss: And finally, there was an outfit established called Defense Plant
Corporation. Defense Plant Corporation was a government
corporation that would build facilities to produce weapons, or
munitions, or other materials deemed essential in the event that
private industry was not prepared to risk money, because after
all, war requirements are ephemeral. Once the war is over, a
plant built to build tanks is no longer a useful asset. Defense
Plant Corporation was to build facilities actually owned by the
government but operated by private companies that would be
licensed to run them.
So this legislation was proposed by Mr. Roosevelt in the
fall of 1940, and was enacted more or less at the same time that
the legislation was enacted for the Lend-Lease of materials to
the British.
Swent : I was just going to ask when Lend-Lease came, if it wasn't about
that time.
44
Strauss: It was at that time. So there was this heightened recognition of
the fact that the British were almost alone in facing the Axis
powers. The Germans had not only overrun France, Belgium,
Norway, and Denmark, but they were threatening Yugoslavia and
Greece, and by June of 1941, of course, there was the concern
about a possible invasion of Russia, which in fact did develop.
On Washington's birthday weekend of 1941, my wife and I went
down to Washington. Our son was not quite a year old, but we
went down to Washington to spend a holiday with friends who were
living in Washington. I took advantage of that occasion to call
on my friend Howard Trueblood at the State Department.
Consultant to Gabriel Heatter, Radio Commentator
Strauss: Mr. Trueblood introduced me to the chief economist at the State
Department, Herbert Feis, and both of them discussed the minerals
situation with me. I had been doing, with the knowledge and
consent of the people at Standard, some work for a radio program
by a commentator called Gabriel Heatter, who did a nightly
analysis of developments in the war and who wanted some
background on what the significance of various developments were
with regard to strategic considerations of raw materials supply.
I had been regularly talking with Mr. Heatter, keeping him posted
on the significance of various military developments, what
territories were favorable, what weren't favorable.
For example, when France fell, some of the French Colonial
Empire acceded to the standard of General Charles de Gaulle, who
formed the Free French Movement. Others of the French Colonial
Empire had decided to remain loyal to the government in Vichy
established by Marshal Petain. As the history books show, the
British were very concerned about this development with regard to
the French colonies, and since some of them were significant
producers of raw materials, Gabriel Heatter was anxious to know
which ones produced what, and I was his source of information on
this.
It was all very interesting, and I recounted this to Dr.
Feis and Mr. Trueblood when I met them in Washington. They said
to me, "You better go over to the RFC building and see Mr. Will
Clayton," who was in charge of the four wartime subsidiaries that
President Roosevelt persuaded Congress to create. They called
Mr. Clayton and he asked them to send me right over.
45
Meeting Will Clayton, Chairman of the RFC Subsidiaries
Strauss: When I saw Mr. Clayton, he asked about my background, and I
explained that I had worked as a journalist for McGraw-Hill
covering the metals industry, and then subsequently I had become
a securities analyst covering the metal industry. His background
was entirely outside minerals and metals, but he was an
exceptionally able negotiator and businessman, and because his
fortune had been made in cotton trading, he understood the
mechanics of world markets very well. But he did not know the
details. He said, "I need you. You're just the man I need,
because I want somebody who understands how these markets operate
but where there's no conflict of interest. I see from what you
tell me that you've never worked for any of the major metal
producing companies."
I said no, I had not; my father had had association with
them, but I had not.
He said, "Can you give me some references?" I named two
gentlemen who I knew very well, because they were friends of my
father from Latin America. Purely by chance, they were waiting
outside Mr. Clayton's office at the time I was talking to him.
One was Will Flatow who worked for W. R. Grace Company, which was
a major importer of the mineral raw materials at the time, and
the other was George Easley, who had operated tin mines in
Bolivia.
Mr. Easley and Mr. Flatow were there to see Mr. Clayton in
connection with the project to build a tin smelter at Texas City,
which would be built by Defense Plant Corporation, operated by
Metals Reserve Company, with the consulting aid of a group of
people from the Dutch firm of Billiton. The point being that
there was no American company that had any experience in tin
smelting at that time. So Mr. Clayton, after I mentioned these
two gentlemen's names, he said, "Well, they're waiting for me
now; let me talk to them." [laughter] And they confirmed the
fact that I had knowledge of the industry.
So he said, "How soon can you start to work for me?"
I said, "Mr. Clayton, I would like to come and be useful to
the government, but I don't feel I can really leave my employers
without giving them adequate notice."
He said, "Who do you report to?" And I gave him Mr.
Schmutz's name. He said, "Do you mind if I call Mr. Schmutz?"
46
Swent :
Strauss ;
I said, "No, not at all."
So he called him up, and he said, "Mr. Schmutz, this is Will
Clayton, the deputy federal loan administrator of the RFC. I'm
working on the government's programs for procuring strategic
materials, and I have in my office with me one of your employees,
Simon Strauss. I think I need his background to help me in this
program, and I'd like him to come to work as rapidly as
possible." I think the date was the 26th or 27th of February. I
started work on the 15th of March. Mr. Schmutz agreed.
So that was it.
So that changed my life rapidly.
The Labor Union Picture
Swent: Drastically, yes. Before we go on to that, you haven't said
anything about labor at that point. Were the unions a factor in
your analysis of these various industries or companies?
Strauss: Well, n -.urally. At the time, the mining union was allegedly
somewhai communist-infiltrated. Let me see if I can remember the
name of it. It later became the Steelworkers , but before it
became--oh, it was the Mine, Mill, and Smelter Workers Union.
They were a rather radical group, and there were periodic labor
disturbances .
Swent: I guess the Depression kept them subdued.
Strauss: But the Depression kept any strike to a limited extent. There
had not been extended labor interruptions. And of course, once
we got into war, which was ten months down the road, the whole
picture changed dramatically.
Selective Service and Deferment
Strauss: Incidentally, of course, at this time, in late 19AO, early 1941,
Selective Service was already in effect. Everybody between
eighteen and thirty-five years had to register. I had registered
with my local Selective Service board. But because I was a
father, I was not quite as likely to be drafted as people who did
not have children or who didn't have family obligations. Very
shortly after that, the government did enact a regulation that
people in the nonferrous metals businessnot the precious
metals, but the copper-lead-zinc-bauxite mining business, should
be exempted from draft unless they volunteered to go, because of
the need to maintain production in the domestic mines and
smelters.
Swent: So you were considered in an essential capacity?
Strauss: Well, I wasn't working in the mines or smelters; I just mention
that in connection with your question about labor.
Swent: Right. But this didn't affectyou were deferred, I presume?
Strauss: Once I started government service, I was immediately deferred,
yes. I had a complete deferment.
Swent: You were also analyzing the industrial minerals; which one of
these corporations did they come under?
Strauss: Metals Reserve. Anything metals or minerals was Metals Reserve.
In fact, as the war developed, the list of materials that Metals
Reserve got interested in was steadily expanded. In all, sixty-
two different minerals, including the metals, were in the Metals
Reserve program, including such nonmetallic ones as specifically
industrial diamonds, graphite, quartz crystals, corundum, which
is an abrasive material, ambligonite, which is a mineral used for
the production of lithium. We went from aluminum and antimony
and asbestos to zinc and zirconium, was the way I liked to put
it. In fact, a year later not a year later, but about ten
months later, when my daughter was about to be born, and for a
while we thought we might have twins, I suggested that we should
call the twins Abaca and Zirconium, because that was as far as
one could go with the alphabet. [laughter]
Swent: So you moved from New York to Washington with the new baby?
Strauss: In March, yes. Well, my wife didn't come down until the first of
May. I finally found a house for her. I commuted weekends by
train to New York to be with her. Air travel was limited. I
shared, for those months of March and April, quarters of a very
good friend, Mark McCloskey, whose daughter, Janet, I
subsequently married. So I frequently tease my present wife,
Janet, by saying that her father was my roommate before she was,
and I haven't made up my mind which was the better roommate,
[laughter] But I did share quarters with him. He was in
Washington working on matters of troop morale under the
leadership of Governor McNutt dealing with USD and other
organizations of that kind.
Swent : And you had known him, he was a friend of Elaine, your first
wife?
Strauss: Yes. He was a friend of my first wife's, and we were neighbors
in Riverdale. We were very close friends.
So Washington was a heady place to come to in March of '41.
We didn't know whether we were going to get into the war or not,
but we had an awful lot of things to do. Right off, among the
major programs I was immediately involved in with Mr. Clayton,
who was a wonderful boss--
Vice President, Metals Reserve Company
Swent: What exactly was your title? What was your job?
Strauss: My first title was assistant to the deputy federal loan
administrator, Mr. Clayton. Subsequently, I was designated an
assistant vice president of Metals Reserve Company, and about six
months later I was made vice president of Metals Reserve Company,
so that I could sign contracts.
Buying and Selling Manganese and Chrome
Strauss: We were buying; we were also selling, because much of the
material that we were purchasing was already beginning to be in
fairly short supply. Two such commodities were manganese and
chrome. The principal sources of manganese and chrome at that
time were South Africa and the Soviet Union.
Swent: We don't produce any domestically.
Strauss: There was no production, but there were plans for producing from
low-grade materials, and before the war was over, we produced
some of each, both manganese and chrome. But the steel industry
couldn't wait until we got these domestic things going. We had
to be assured that they were supplied, and while the steel
industry had normally procured directly from these sources, they
were finding increasing difficulties in getting shipping space,
because shipping space was at a premium. The German submarines
were sinking cargo vessels at a very high rate. The steel
companies actually preferred having the government do the buying.
We got more access to shipping space, better insurance rates,
it was a very active program.
So
The Texas City Tin Smelter
Strauss: The construction of the tin smelter in Texas City was under the
aegis of the Defense Plant Corporation, but Metals Reserve
Company had to start buying the raw materials to put in the plant
when it would get into operation.
Swent : We had no domestic production of tin.
Strauss: There was a very small production in Alaska, a few tons a year.
Nothing to speak of. There was also a limited production in
Mexico. But the rest of the world's tin supply came either from
Africa or, the most important source, Southeast Asia--Malaya,
Thailand, and what is now Indonesia, then the Netherlands East
Indies, or from Bolivia. Bolivia at that time was the only
significant producer in Latin America.
The Bolivian ore had traditionally gone to Europe to be
smelted, the reason being that the Bolivian ore contained lots of
impurities, and the European smelters mixed the impure Bolivian
concentrates with highgrade concentrates from Southeast Asia and
Africa. The United States didn't have access to the highgrade
concentrates. The Dutch owned the material coming from the East
Indies; the British controlled the supply from Malaya and
Nigeria; the Belgians controlled the supply from what was then
the Belgian Congo, now Zaire. So they built smelters to treat
this material, and we were in the position that we bought refined
tin, not tin ore. We had no access, other than the material in
Bolivia.
One of the things we started talking with the British about
immediately was, with all of Europe under German domination, the
Dutch could no longer use the material from the East Indies. We
were building this smelter. We wanted to buy as much of the tin
ore production from the East Indies as we could. We even
persuaded the British that we should buy some of the Malayan
material. Much of the Malayan material was smelted either in
Singapore or Malaya; the balance had been smelted in England.
But the risk of losing those concentrate imports to enemy action
was very great, by shipping it into England. If we shipped it to
the United States, it would be better. So we were busy buying
this tin concentrate even though the smelter wasn't yet going.
Swent :
Strauss :
Swent :
Strauss :
50
Then was the anticipation that we would use the tin, or get it
somehow to England?
Yes. Well, we would use the tin, because we were the world's
largest consumers of tin. We were having to import tin from
Europe, from Singapore, or from England, as tin. Now we wanted
to import enough of the highgrade concentrates to make the
smelting of the Bolivian concentrates viable. We could not have
run the tin smelter on 100 percent feed of the Bolivian ore
because of the impurities; it would not have been possible to get
good quality tin.
In all of this, we had the counsel and advice of the Dutch.
A number of the Dutch engineers had gotten out of Holland before
the fall of Holland. Others had been in the East Indies at the
time. So the Billiton Company was asked to be the technical
managers of the Texas City tin smelter, and they worked very
closely and very well with the Metals Reserve Company and the
Defense Plant Corporation in that regard throughout the war.
Unfortunately, looking at it in retrospect today, because so
much of the feed was still the impure material from Bolivia
containing undesirable products like antimony, bismuth, and even
some tungsten and cadmium, the waste slag from the tin smelter,
because there were no facilities to recover these impurities
originally, resulted in some contamination of the waters of
Galveston Bay. But under the pressure of wartime needs, the
environmental considerations were not even looked at, I think, at
the time.
People didn't even think of it then, did they?
No, they did not. But in the long run, the shrimp fishermen who
harvested the shrimp crops in that area were very upset about
toxic elements. Holding ponds were built into which to dump this
material, but there still were occasions when weather conditions
resulted in some of this material escaping into the bay. But the
Texas City tin smelter was a big project.
Expanding Aluminum Production
Strauss: Another one was expansion of aluminum production. President
Roosevelt had set a target that this country had to build 25,000
war planes a year. He thought anything less than that would be
inadequate, and in fact, that goal was considerably exceeded
during the war. But since aluminum was the principal raw
51
material used in the construction of airplanes, it was clear that
the aluminum industry, which prior to World War II was really a
very small industrywe know now that aluminum consumption is
almost twice that of copper. In those days, aluminum consumption
was a quarter of the consumption of copper.
Swent: And the airplane production was very small.
Strauss: Very limited.
Swent: We really started from zero.
Strauss: That's right. So we had to gear up aluminum production, and much
of the expansion of aluminum production occurred in the United
States. The plants were built by Aluminum Company of America for
Defense Plant Corporation, with Defense Plant Corporation money.
But because of the Justice Department's concern about Alcoa's
monopoly position, the operation of these plants was not
entrusted to Alcoa, even though they designed and built the
plants .
The operation was turned over to two other companies:
Reynolds Metals, which was a major aluminum consumer; and Kaiser,
which had been formed by the famous Henry Kaiser, who had shown
his talent for organization in managing almost anything. Kaiser
formed what later became the Kaiser Aluminum Company. They ran
the new plants built in the United States, many of them in the
Pacific Northwest, where they took advantage of cheap electric
power from Bonneville and Grand Coulee. Some plants were built
in the Gulf area. So the operators became Reynolds and Kaiser.
And after the war had ended and the government disposed of
these plants, that was the basis of Kaiser and Reynolds becoming
important aluminum producers. A, they had run the plants during
the war, and b, they were able to buy the plants which they knew
so well.
Swent: And Alcoa was left-
Strauss: Well, Alcoa had expanded its own plants considerably. But Alcoa
no longer had what appeared to be a monopoly of the aluminum
business .
Strauss: However, in addition to this expansion of domestic production,
there was a lot of electric power available in Quebec. The
Aluminum Company of Canada, which had been split off from Alcoa,
presented a project for expanding their aluminum capacity very
52
Swent :
Strauss ;
considerably, including the construction of a big power plant in
a place called Shipshaw. Defense Plant Corporation was not
empowered to build plants outside the United States. So, to
achieve the expansion in Canada--Alcan was already supplying the
British with all the aluminum they thought they neededbut to
supply more metal to the U.S. market, Alcan needed to expand.
But Defense Plant couldn't build the plants.
Alcan said they would be glad to expand, but they didn't
have the money. We worked out an ingenious arrangement under
which Metals Reserve Company negotiated an agreement to buy
1,700,000,000 pounds of aluminum, I'm sure the largest contract
for a nonferrous metal ever negotiated up to that time. And
Metals Reserve Company agreed to advance five cents a pound, or
$85 million, which was the money that Alcan needed to complete
the expansion program.
It was just an advance on a purchase?
That's right. So it was a purchase with a down payment in
advance for the materials to be delivered at some future date.
Swent :
Strauss ;
Swent :
Strauss :
When we came to negotiating the price, there was a serious
obstacle, which was that the aluminum would have to be produced
from bauxite imported from British Guyana, where Alcan had mines
that could supply the additional bauxite. No question about
that. But freight rates, and in particular, war risk insurance
rates, were constantly changing. So we had to negotiate a very
complex escalator clause. My recollection is that the basic
price was fifteen cents a pound for the aluminum. We had
advanced five cents a pound, so we would owe at least ten cents a
pound when the aluminum was delivered. But under the terms of
the contract, if the freight rates and the war risk insurance
increased, the price would be increased to cover the escalation
of chose costs. And it was very difficult to write an
appropriate clause.
Who shipped these? Who was getting the freight money? Were they
shipped in private-
Yes, by private shipping lines. But of course, their costs of
doing business were expanding enormously, and they had to insure
their ships just as Alcan had to insure the bauxite. So nobody
knew what the future was going to hold.
You had no control over those things.
And in fact, once we got in the war, the rates went through the
roof. In the year 1942, the first full year we were in the war,
53
25 percent of all the [shipping] bottoms coming to the United
States from the Guyanas were sunk by submarines in the Caribbean.
One out of every four ships .
Swent : We forget so soon how awful it was.
Strauss: It was terrible. And you had to deal with all of these
contingencies. So that was a major contract that Mr. Clayton had
me immediately working on. I had lawyers to negotiate with.
Here I had never bought a pound of aluminum in my life, and I was
about to negotiate the largest contract ever made for the
purchase of any nonferrous metal.
Flake Graphite and Amber Mica from Madagascar:
Drama
International
Strauss: Another deal that I've described in some detail in a paper I
presented at the Mining History Association conference in June,
1994,' was the importation of mica and graphite from Madagascar,
and I won't repeat all of that. But the essence of it was that
Madagascar had opted to become a colony loyal to Vichy France.
The British were scared stiff that Vichy would permit Madagascar
to be used as a refueling base for German submarines operating in
the Indian Ocean. That would threaten all of the imports the
British were getting from Australia, from India, and many of
their imports from South Africa, the three principal sources of
British raw materials, other than Canada. They couldn't
contemplate that.
So, in spite of the fact that with the fall of France, the
British navy was strung very tight, they spared enough naval
craft to maintain a complete embargo on all shipping in and out
of the island of Madagascar, which is several hundred miles long,
parallel to the east coast of Africa. It was a major
undertaking, but from June of 1940 until after Pearl Harbor, the
British navy refused access to Madagascar to any shipping, other
than one single freighter which was permitted to trade between
Madagascar and what was then called French Indochina, now
Vietnam.
That not only caused a cessation of imports into Madagascar,
it also prevented exports. Madagascar is the source of two
unique materials which American industry felt they had to have.
One was flake graphite, and the other was amber mica, sometimes
called phlogopite.
'See Appendix B.
54
Swent : What were these used for?
Strauss: The amber mica was used by General Electric and other major
electrical producers of highly sensitive electrical equipment for
various insulation purposes. It was considered far superior to
the other type of mica, which is much more common, which is the
clear mica, the white mica. The graphite was used by the
manufacturers of crucibles used in the metals industry for
pouring molten metal. Apparently, Madagascar flake graphite
adhered to the lining of the vessels better and provided better
insulation.
So there was a big premium put on getting access to
Madagascar graphite and mica, and Mr. Clayton, with the help of
the State Department, negotiated an agreement with the British to
let one American vessel through the blockade to pick up graphite
and mica. The French insisted that they had to have supplies in
response. Well, the negotiation of these agreements took a lot
of time. I was involved indirectly at start, but once an
agreement had been reached, the actual administration, the
arrangements for the shipping line and so on, were entrusted in
part to me.
I got to know all of the players involved. We succeeded in
getting a vessel in in June of 1941, the first American ship in a
year to call at Madagascar. It loaded some of the graphite, but
President Roosevelt, without thinking about graphite and mica,
decided to intern all French shipping in U.S. ports. We were
terribly concerned that our ship, the Lone Star, would be
interned, so we had to call it home under the bizarre
circumstances related in my paper. We had got none of the mica.
So then we started all over again, and this time, the French
were much harder to deal with, but we finally reached an
agreement under which we would put a second American ship into
Madagascar and the French would divert a freighter from Indochina
into Manila, and there would be simultaneous loading of the two
vessels. The French would be loading the supplies they needed in
Manila while we would be loading the supplies we needed in
Madagascar. There would be consular officials on board--a U.S.
official on the French vessel, a French official on the U.S.
vessel.
They exchanged cables at the end of November, 1941. The
loading began on the first of December. On the 8th of December,
the first ship sunk by the Japanese bombardment of Manila Harbor
was the French ship, but in spite of that, the French permitted--
they recognized we weren't responsible they permitted the
55
American ship to complete its loading, and we got the graphite
and mica out.
So that was illustrative of the kind of problems we were
running into. We were working terribly hard, twelve hours a day
minimum, most weeks seven days a week.
Swent: Where were you working? What building?
Strauss: A building called the Lafayette Building, which faces Lafayette
Square on Vermont Avenue in Washington, two blocks from the White
House.
Swent: Is it still there?
Strauss: It is still there. It is now the building used by the Export-
Import Bank. The Export-Import Bank was in the building then,
but it only had two or three floors. The RFC had the balance of
the building. A very pleasant place to work, and right close to
the people that we needed to see at the State Department, which
was then in the old Army-Navy Building, so-called, next to the
White House. We were close to the Treasury. The War Production
Board was a little further downtown.
Washington in Wartime
Strauss: One of the things that was extraordinary about working in
Washington in wartime, as far as I was concerned, was the
excellence of the relationships between the various departments.
We had a common goal. There was none of the bickering and turf-
building problems that I see in Washington today. I shouldn't
say there was none; I observed none. Maybe there was some
somewhere else that I wasn't aware of. The War Production
Board's mandate was to see that the munitions, weapons, and
essential civilian products went forward. Once we were in the
war, they allocated everything that was consumed in the form of
strategic materials.
Metals Reserve Company was their business agent. We had the
stockpiles of the materials, we saw that the people that they
said should get copper or corundum or zirconium or whatever got
the material. The Office of Price Administration decided the
prices. We didn't negotiate prices.
56
A Bizarre Episode with Block Talc
Strauss: One of the most bizarre episodes of the war came out of this fact
that we adhered so strictly to the mandates of the Office of
Price Administration. Block talc was considered a strategic
material because it was used in the radio and electronics
industries, but it's also used in the production of talcum
powder. The best quality talc comes from the island of Sardinia,
part of Italy. Obviously, we had no access to that until after
Sardinia was occupied by our forces, which I think occurred in
late 1943.
Suddenly, block talc became available, and Metals Reserve
Company succeeded in securing supplies of block talc, brought
them in, and we said to the War Production Board, "We've got X
tons of block talc; to whom shall we distribute it?" They drew
up a list of allocations for us. One of the leading cosmetic
companies was among those to receive it. The contract was sent
out to them, so many tons of block talc at whatever the price
was. My offhand recollection was it was around seventy dollars a
metric ton.
I got a call from the purchasing manager:
see me? I said, "Of course."
When he came, he said, "About our contract:
you an extra ten dollars."
could he come and
I'd like to pay
I said, "That's not legal. The Office of Price
Administration says we have to charge this price, and only this
price. Why would you want to pay an extra ten dollars?"
He said, "Our advertising says that we use the highest
priced raw materials. I want truth in advertising." [laughter]
Ten dollars a ton for talcum powder selling at several dollars
for a seven-ounce can. Obviously, it made no difference to them
what price they paid for it. They wanted to be truthful in
advertising. And that shows how government regulation and
interposition into the ordinary tides of commerce raises all
kinds of amusing and unexpected results.
Personalities and Philosophies Influence Decisions
Swent : I was thinking that you or somebody must have been under pressure
on some of these decisions, for instance, to cut Alcoa out of
57
Strauss :
Swent :
Strauss:
Swent :
Strauss :
operating; there were decisions made along the way here that were
partly political, I would assume.
Yes, sure.
Where to locate the tin smelter, for instance,
lobbyists and--?
Were there
If so, they never got to me.
But there must have been tremendous pressures in certain--
The people who made the decisions were basically the War
Production Board. The Metals Reserve Company could advise what
it thought was desirable. The Army-Navy Munitions Board would
tell us where they wanted these materials stockpiled. The
question that you first raised about Alcoa, that operating--!
think the Justice Department just said this to the Defense Plant
Corporation, "You cannot have Aluminum Company of America as the
operator of this plant. We have had them on the carpet for years
as a monopoly. It's all right to let them help you to build the
plant so that it's an efficient operation, but you've got to find
somebody else to run it."
Henry Wallace and Jesse Jones, Incompatible
Strauss: One of the things that happened as the war went on, after Pearl
Harbor, was that a big conflict developed between Vice President
[Henry] Wallace, who was a liberal and very interested in human
rights issues and things of that sort, and Jesse Jones, who was a
down-to-earth banker type, who was really the force behind not
only the Department of Commerce, of which he was secretary, but
the Reconstruction Finance Corporation, which he had headed for a
long period of time. And they didn't like each other.
Henry Wallace put so much pressure on President Roosevelt
that something called the Foreign Economic Administration was
formed, and then later it became the Board of Economic Warfare
[BEW], headed by Mr. Wallace or by some of his friends. They
were to monitor all MRC contracts to make sure that we were
protecting the rights of the Bolivian workers when we bought
Bolivian tin ores, or other standards that they had as to what
was appropriate behavior.
58
Scrutinizing for Democratic Ideals
Strauss: The BEW had as the head of its mineral operations Dr. Alan
Bateman, who was a well known professor at Yale, a geologist. In
addition, they had a chap named Morris Rosenthal who came out of
a New York trading outfit who was a sort of philosopher-general.
And a chap named Paul Nietze, who later became very well known in
Washington in the Defense Department and in negotiations with the
Russians. These three gentlemen were scrutinizing everything we
did as to whether it was consistent with democratic ideals, human
rights, et cetera.
An individual lawyer was assigned to come over each day and
read all of our correspondence, and read every contract that we
were signing. The lawyer that was assigned to monitor my
activities for quite a few months, later was switched to somebody
else, was a man named Willard Wirtz. Willard became secretary of
Labor in the Kennedy administration. We were fast friends. He
never changed a word in any letter I wrote, not once. We
understood each other very well.
At the top, between Wallace and Jones and some of the other
chief people, there was a good deal of rivalry. Down the line,
we worked very well together, but to be quite frank, I think this
duplication of effort tended to delay things, use manpower,
require excessive initialing of everything. But we struggled
through it. It worked.
One of the things that I'm proudest about my association
with Metals Reserve Company, I have never heard anybody allege
that anything we did was improper, that there was any corruption,
that anybody was favored. We didn't have too much scope to favor
people. The War Production Board told us who to sell to, and the
Office of Price Administration told us what to sell for. On the
buying side, of course, we had to use our negotiation skills to
buy as cheaply as possible.
Swent : Had you wanted to, there probably would have been room for--
Strauss: There might have been. But we didn't look at it. We had an
exceptional group of able people, and I mentioned some of them in
our private conversation before, at Metals Reserve Company. Our
morale was very high, and we got the materials. There was never
a time when a defense plant was shut down for lack of raw
materials, that I know of, during the whole war, and it took a
lot of doing.
59
And there were some unusual examples of outstanding
integrity. Let me mention one. Before Pearl Harbor, there was
great concern on the part of the British about a possible leakage
of industrial diamonds out of Brazil to Germany. Industrial
diamonds are very essential for the drawing of fine wire and
other purposes. They're the hardest material used by man. So
the British were anxious to make sure that the Germans didn't get
diamonds. Of course, the British knew the Germans couldn't get
diamonds from South Africa or from the Belgian Congo at the time;
that was out of the question. But Brazil in 194 1 was not a
combatant, and while the Brazilians were probably favorable to
the Allied cause, there was nothing to prevent the Germans from
buying diamonds in Brazil, shipping them out by diplomatic pouch.
German submarines regularly came into Rio Harbor. In fact, I
think there have been some movies about that. But they regularly
came into Rio Harbor to pick up messages, and it was easy for the
embassy to get diamonds out.
Protecting Brazilian Diamond Supplies
Strauss: So at the request of the British, Metals Reserve Company early in
1941 negotiated a bilateral agreement with the Brazilians
covering a number of materials quartz crystals was one, and
industrial diamonds was another, and there were several others.
But I recall particularly the diamond purchase, because we wound
up--we asked the Brazilians what they thought their total output
of diamonds would be, not just industrial diamonds but all
diamonds, and they estimated 600,000 carats. We agreed to pay a
price of twenty dollars a carat, which we felt at the time was
above the market, so that they would have an incentive to honor
their agreement. So we bought the 600,000 carats for $12
million. It was shipped to the United States, and was in the
stockpile.
Ike Hirsch, an Honest Patriot
Strauss: About 1943 or 1944 when the Brazilians had joined the Allies, it
was clear we didn't need to do any further preclusive buying, as
it was called. The diamond dealer who had been advising us--his
name was Ike Hirsch--came to me and he said, "You know that
600,000 carats that we bought in 1941. I think there were quite
a few items in there that are of gem quality. If you would allow
me to sort it out, I think the government could sell the gem
60
quality," (which had no price ceilings on it), "in the open
market, and we could get our $12 million back." I discussed the
matter with the War Production Board; they saw no objection to
it. The supply of diamonds was quite adequate.
So Mr. Hirsch went to work and made up parcels of what he
thought were gem quality diamonds. He auctioned them off. The
government realized $20 million selling one-third of the
diamonds. We had 400,000 carats of diamonds left, and we had
made $8 million against the cost of our total original purchase.
Nobody in the government could be paid enough money to be an
honest diamond appraiser. You couldn't! I mean, and certainly
none of us on the staff at Metals Reserve could appraise those
diamonds. Mr. Hirsch, if he had wanted to, could have sorted the
diamonds in some way, tipped off his friends to bid for item C or
item G, but he made an $8 million profit for the government in
the middle of the war by making his appraisal. It was an
extraordinary episode.
Swent : Where physically did you keep these kinds of things?
Strauss: Diamonds were kept in the treasury vaults.
Swent: I see. And the stockpiles-
Strauss: Most of the stockpiles were in military establishments, barracks
or whatever. The really bulk commodities, manganese and chrome,
for instance, were largely stored at the Camden Yards in
Baltimore, because Baltimore provided the shortest rail haul into
the Pittsburgh and Cleveland steel plants; there was ample room
there, the B&O had lots of room.
Swent: Were they just in box cars, just left in the box cars?
Strauss: No, the material was dumped on the ground. We couldn't afford to
tie up the box cars. We're talking millions of tons that was
stored on the ground. Some of it is still there.
Swent: But wouldn't it wash away in the rain?
Strauss: No, there were retaining boards. Most of it was lumpy material,
wasn't fines. Some of it would blow away over time, yes. Most
of the metals were stored indoors, but in mammoth warehouses,
mostly on military grounds.
61
The Combined Raw Materials Board
Swent: And how did you meet with these people? You mentioned that the
Dutch were here, but the English, the Brazilianswere you
communicating by phone, by letter; did people come?
Strauss: We negotiated the Brazilian bilateral agreement by talking with
the Brazilian ambassador, who communicated with his government by
cable. He actually carried out the negotiation. The
negotiations on the Madagascar mica and graphite, the British had
a Ministry of Supply group in Washington. They were some very
able people. There was a fellow named Clive Baillieu who later
became a high official in the government, in the cabinet. Clive
Baillieu was in charge of that office. He was the British head
of something called the Combined Raw Materials Board. And
William L. Batt, the retired head of Timken Roller Bearing, was
the U.S. head of the Combined Raw Materials Board.
Swent :
We had regular meetings in which we discussed common issues
of supplies of raw materials, to make sure that both countries
were dealt with equitably. On quartz crystals, for instance,
most of which originated in Brazil, the British agreed that if
both countries were down there buying, we'd just bid the prices
up against each other. They agreed the U.S. should do all the
buying, and then allocate from the materials we bought according
to the requirements of the two countries.
The British raw materials controller was Ronald Prain. It
was when he came over to Washington to discuss some of the issues
of allocation of raw materials that I suddenly discovered that he
and I had gone to the same school in Valparaiso. But there were
not too many--
**
You were just beginning to mention a negotiation which you made
with Mexico.
Strauss: Yes. Now, there was an agreement made with the Mexicans covering
all their minerals, and that was negotiated in Mexico City. We
sent a member of the Douglas family, Walter Douglas it wasn't
Lewis Douglas, who was ambassador to England. Walter Douglas,
who was coached by Mr. Clayton and by the staffs of the RFC
companies. He went to Mexico City and negotiated the agreement.
Alan Bateman on behalf of FEA [Foreign Economic Administration]
sat at his right hand. They negotiated an agreement face to
face. But in most cases, the agreements were negotiated in
Washington by the representatives of the countries.
62
Pearl Harbor Day. December 7, 1941
Swent: Would you like to just recall December 7?
Strauss: Yes. My daughter Susan had been born in New York on November 18,
1941. She was born in New York because there had been some
problems in the Washington hospitals, and our doctor in
Washington advised us that it would be better if Elaine had the
baby in a New York hospital.
Swent : And you thought it might be twins .
Strauss: Yes. But it wasn't; it was a very nice little girl. A close
friend of Elaine's family was the head of the obstetrical
services at the Brooklyn Jewish Hospital in Brooklyn, so that's
where Elaine went to have the baby. And for about a month, she
wanted to stay in New York. She was living with her parents in
their comfortable apartment. A good friend of hers was scheduled
to be married on December 21, so she wanted to stay in New York
until after this wedding. She wanted to attend the wedding,
understandably .
So on Sunday, December 7, I had come up from Washington to
spend the weekend with her and with my children at my in-laws'
apartment. I decided to go across town, from Park Avenue, where
my in-laws had their apartment, to West End Avenue, where my Aunt
Amy was living, because I was anxious to see my aunt and uncle.
I hadn't seen them in a long time.
After having a visit with them that Sunday morning, I got on
the bus, and there was somebody on the bus that had the radio
going. The radio said, "The Japanese have attacked Pearl
Harbor." That's how I knew, of course. I had planned to return
to Washington on Monday, but instead of that, I decided I had
better go back immediately.
My brother-in-law, Elaine's brother, who was in officers'
candidate school at Fort Belvoir in Virginia, had also come up
that weekend to see his new niece. He and 1 traveled back
together. Here he was, a costume jewelry salesman who had been
inducted into the armed services and was now going to be an
engineer, [laughs] suddenly faced with the reality that he might
very well be going overseas, and in fact he did. He went
overseas very shortly thereafter. He was in the North African
landings. He went all through the campaign in Italy. He then
went to England. He landed in Normandy a week after the Normandy
invasion. He was wounded slightly when his truck went over a
63
buried mine on the roads of France, and he came back after V-E
Day. So he saw the whole war.
Ban on Imports of Strategic Critical Materials
Strauss: But it was really frantic in Washington those days in December.
One of the first things that Mr. Roosevelt decided, and it was a
very wise decision: no strategic critical materials were to be
imported by private industry after the first of January. All
imports had to be through the RFC agencies. Metals and minerals
through Metals Reserve; the strategic critical materials other
than metals and minerals either through Rubber Reserve or Defense
Supplies Corporation.
Swent :
Why was that?
Strauss: Because he wanted to end competitive bidding for materials by
American consumers abroad, so they could not buy and ship to
themselves. There might have been somebody who was tempted to
say, "Well, if I can buy some extra zinc in Mexico, it will
supplement my allocation from the War Production Board." The
customs houses were notified. Strategic minerals had to be
shipped to the Metals Reserve Company, Defense Supplies
Corporation, or Rubber Reserve. That put an end to what might
have been a lot of black marketing, probably. I think it was an
extremely wise decision.
It meant the volume of work we did was enormously expanded,
of course. But it also meant that the War Production Board knew
when it made an allocation that the material was there and
available .
The Premium Price Plan and Committee; Plato Malozemoff et al.
Strauss: One of the other interesting things that happened during the war
was the famous Premium Price Plan, of which I'm sure you heard
something from Mr. [Plato] Malozemoff when you interviewed him. 1
'Plato Malozemoff, A Life in Mining: Siberia to Chairman of Newmont
Mining Corporation, 1909-1985, Western Mining in the Twentieth Century
series, Regional Oral History Office, University of California, Berkeley,
1990.
64
Swent : A little bit, yes, but please--
Strauss: Well, the problem was as follows: the OPA said the price of
copper was to be twelve cents a pound; the price of zinc was to
be eight and a quarter cents a pound; and the price of lead was
to be six and a half cents a pound. That was the most you could
charge. If you chose to charge less, okay, but that was the
most. At the time of Pearl Harbor, the prices seemed adequate
for the maintenance of domestic production of these three metals,
particularly since the deferment of labor working in the mines
meant that they should have reasonably adequate labor sources.
Then later, the controversial measure closing down the gold mines
came along on the theory that those miners would go to work in
the base metal mines. I won't enter into the pros and cons of
that, because that's a very lengthy debate.
And theoretically, everything else was price controlled.
But mines wear out. Highgrade ore bodies drop out. Companies
that had cut back in order to be able to live through the
terrible Depression on their exploration and development work
began to run out of ores that were developed. And it was clear
that domestic production of these three metals would start to
drop unless some way was found to provide a little additional
revenue to those mines that needed it.
So the Premium Price Plan provided, as I recall it, up to
five cents a pound extra for copper, and up to two and three
quarters cents a pound extra for lead and zinc at these mines,
where government engineers would certify that costs were in
excess of the price ceilings. The premiums were not paid for all
production; far from it. Much of the production went on without
any subsidy. The mines that did receive the premiums had to
submit a monthly statement of expenditures and revenues, which
was audited by the government.
The actual implementation of this complex arrangement was
given to an interagency group, the Premium Price Committee, on
which Metals Reserve, which paid out the money, War Production
Board, and Office of Price Administration were represented.
Metals Reserve's representative on the Premium Price Plan was
DeWitt Smith. I believe that Howard Young was the War Production
Board representative, and Plato Malozemoff was the Office of
Price Administration's representative.
Of course, these gentlemen couldn't always be present at
every meeting, because there were meetings almost daily. So
there were various alternates, and I was Mr. Smith's alternate
delegate to go to these sessions. And it was very interesting.
We went over the figures carefully, we had orders to--
65
Swent: Was that where you first met Plato?
Strauss: That was where I first met Plato Malozemoff. The other two
gentlemen I had known previously, but that was when I first met
Plato.
Swent: That was a pretty high-powered group.
Strauss: Yes. And we spent a lot of money. But the object was achieved;
production was maintained.
Swent: Were new mines brought in as a result of this?
Strauss: No new mines were started. No, this was to keep existing mines
going. There were special contracts made for some new mines. I
recall particularly I negotiated an agreement with Newmont for a
small copper mine in California called the Gray Eagle, but it
didn't survive very long after the war. I negotiated that not
with Fred Searls but with his brother, Carroll Searls. Do you
know about Carroll Searls?
Swent: Well, I've heard the name.
Strauss: Yes. And A. J. McNab. They were the Newmont representatives who
came to negotiate that agreement.
Swent: Why do I think that the Resurrection Mine had something to with
that?
Strauss: It may have been. I didn't negotiate that agreement. Dave Irwin
may have negotiated that. I just can't say. We had so many
contracts, we couldn't know all of them.
Meeting Influential People; the Marching & Chowder Club
Swent: Yes, I'm sure. Were you working at all with Jim Boyd?
1
Strauss: Yes. Of course, Jim Boyd was overseas during the latter part of
the war, but I met Jim when he was in the copper division working
with a fellow named John Church. Then Boyd went into the Army-
!
James Boyd, Minerals and Critical Materials Management: Military and
Government Administrator and Mining Executive, 1941-1987, Western Mining in
the Twentieth Century series, Regional Oral History Office, University of
California, Berkeley, 1988.
66
Navy Munitions Board and became a colonel, and I knew him well.
John Gustafson, who we mentioned before, came to Metals Reserve,
and his specialty was in dealing with the contracts on
fluorspars. Hugh McKinstry was in the Board of Economic Warfare.
That's where I met him earlier.
Swent: It must have been an exciting time.
Strauss: Exciting time, and a lot of people, because of course, there was
very little for them to do at their home offices. A lot of the
things that they would have normally been doing had been taken
over by the government, so it was natural for them to come and
work at the government. There was a wonderful spirit of
camaraderie. At Metals Reserve Company, we used to have lunch
with people from the other agencies or with people from industry
who came to Washington from time to time. But every Friday,
Metals Reserve people would have lunch together at the Carlton
Hotel it's now the Sheraton Carlton--in the Grill Room. They
had a wonderful lunch for seventy-five cents. [laughs] Which we
all enjoyed. We called ourselves the Marching and Chowder Club.
It was just a very enjoyable interlude in the midst of very hard
work.
And many of us, I particularly because of my age, felt the
occasional twinge of guilt that my contemporaries, like my
brother-in-law, were over there risking their lives, and I was
having a lot of hard work and a lot of responsibility, but at the
same time, an unparalleled education. I had Mr. Clayton for a
teacher; there was none better.
Preparing for Postwar Work
Swent: Was there a time at which you sort of saw that things were that
you had reached the top and things were organized, and the war
was being won, and it was getting better?
Strauss: That was clear by the end of '44, before V-E Day. Many of the
programs began to wind down. It was clear, for example, that we
had all the aluminum that we wanted, and there were some cutbacks
made on aluminum production in the United States because of that.
This is partially in answer to a question you asked earlier: we
did not cut back the program with the Aluminum Company of Canada,
because we hadn't gotten our five cents back on that. [laughs]
So we allowed that contract to run on.
67
That caused some querying on the part of the senators from
Oregon and Washington. I remember Senator [Warren] Magnusson was
just new on the scene. There were hearings held; I had to
testify as to the details of the Alcan contract, and why we felt
we should continue to perform that, even though production in
Washington and Oregon was being somewhat reduced.
Many fewer new contracts were being made. But it was clear
that some of us had to hang around to tidy up, even after the war
ended. So I didn't have a company to go back to--oh, I'm sure
Standard Statistics would have offered me my job, but after my
experience I'd had in Washington, I didn't think I wanted to be a
securities analyst any longer. And a lot of people were dropping
hints about, "When you're ready to leave Washington, be sure to
talk to us." So I had a list of companies to talk to, including
American Smelting and Refining Company. By the middle of 1945,
before V-J Day but after V-E Day, they had actually approached me
about coming to work for them.
Swent: It was a time for making lots of wonderful contacts, too, wasn't
it?
Strauss: Oh, it was. I had met everybody in the industry. The St. Joe
Lead CompanyDrew Fletcher, who was then treasurer, later became
the president, was a very good friend of mine. He was very
anxious for me to come to work for him, and I was tempted,
because I liked Mr. Fletcher very much. The famous metals and
ores trader, Mauricio Hochschild--does that name mean anything to
you?
Swent: I've heard it, yes.
Strauss: Yes. With whom I'd had a lot of contacts in connection with tin,
tungsten, and so on, he was anxious for me to join him. And he
was a good friend, and I had known him since I was a boy in South
America. He was a friend of my father's. But his methods of
doing business were notwere a little different, let's say, than
mine. He was a very shrewd, hard trader, and I didn't feel I
would be happy there, although we became very good friends and
remained very good friends. So that was clear.
But one thing Mr. Clayton, I should say, by this time had
left the RFC and he was by now assistant secretary of state,
working on problems likehe was the delegate at the famous
Bretton Woods Conference, working on post-war monetary problems.
But he made it clear to me in his capacity as assistant secretary
of state that once the war was ended, he did want me to go to
England to tidy up a lot of the contracts that we had had with
people in the Empire, and that asking them to come to Washington
68
would put us in a poorer negotiating position than if I went over
to talk to them over there. So I knew that I had that assignment
ahead of me.
So I tentatively figured the end of 1945 was when I would
leave.
Swent : Did you consider remaining in government service at all?
Strauss: My wife was very anxious for me to switch over to the State
Department. She was sure that Mr. Clayton would want me to work
in his economics group. And it was tempting. There were people
who suggested I would make a good ambassador to Peru or Chile, if
there was a job. But I felt that I wanted a future in private
industry.
So I made this tentative agreement to go to work for
American Smelting and Refining Company.
Swent: Yo\i did make the trip to England?
Strauss: After I had already agreed to go to Asarco, but only as of
January 1, 1946. I made the trip to England in September of '45.
Mostly in connection with Indian mica, which had been a big
problem for us. We had a lot of Indians who couldn't understand
why we still didn't want to take delivery of mica that we no
longer needed.
Swent: So you were trying to sort of close off some of your contracts?
Strauss: Yes, that's right. Not to be unfair, but to wind up contracts
that had been negotiated. Nobody knew when the war was going to
end.
Elaine Contracts Polio and Life Changes
Swent: Yes. Perhaps you might want to mention Elaine's polio. You were
in Europe at that point.
Strauss: I was in England, on that trip to England--
Swent: Was that that same trip?
Strauss: Yes. I left New York on the 18th of September. I should say
first that that summer, after V-E Day--
69
Swent : That must have been an exciting day.
Strauss: That was a very exciting day, particularly for our British
colleagues. We went up, a group of us, from Washington, the War
Production Board, Mr. Batt, Mr. Baillieu, and others, we went up
to Alcan just before V-E Day to see the plant at Shipshaw that we
had contracted for. I had made an interesting trip in April of
'45 to Cuba to visit the Nicaro nickel operations, because
Freeport was operating that property. This was a contract Mr.
Clayton had negotiated directly with the Freeport Sulphur people.
We built the first plant for treating lateritic nickel ores in
Cuba.
And as was the case with the Shipshaw, Defense Plant
Corporation couldn't own a plant in Cuba. So there was a very
complicated deal which Mr. Clayton had originally negotiated with
Freeport. They were going to produce nickel oxide, not nickel
metal. The steel industry was reluctant to consume nickel oxide.
They had never used it. Since then, they've learned how to use
it quite well. But they couldn't understand why the government
wouldn't go to the expense of converting the oxide into metal.
First of all, it would have taken time; second, it would have
required additional investment, and we decided that we had to
force nickel oxide down their throats.
But anyway, the Nicaro people thought I ought to come to
Cuba and see the operation before talking with the steel
industry, so I did. That was an interesting experience, the only
time I've ever been in Cuba.
Swent :
Strauss :
But this is a bit of a digression. What I really started to
say was in the summer of '45, the war in Europe being at an end;
the war in Japan, which seemed to be going pretty well, Elaine
and the two children went up to the Berkshires. They stayed at
Great Barrington, which is not far from here, at a little resort
called Tahone, and they had a wonderful summer there. I came up
the weekend of V-J Day, so we had our celebration here in the
Berkshires. It was a day or two after the airplane ran into the
Empire State Building--you remember that accident?
Yes--I had forgotten that.
And one of the people who were at this resort worked in the
Empire State Building, and was still shaking with the thought of
it, although she wasn't in the building when the accident
occurred. But the dramatic effect of that was enormous.
So Elaine had a wonderful summer there and was very active,
a lot of swimming, a lot of canoeing. The two children were
70
three and five, and seemed to be thriving. They came back. On
the way back, Elaine spent a couple of days with her mother in
New York, and started looking at housing. She went out to New
Jersey to look at a place where a friend of ours had a home in
one of the suburbs, to see how she would take to the suburban
living. She had made up her mind she wanted to live in the
suburbs post-war, and not in an apartment which her mother had
considered was the only suitable way to live. Because when we
were in Washington, she'd enjoyed having a garden and space for
the children to run around, and she decided that's what we should
do.
So she came back to Washington in early September. We had
our ninth anniversary. She seemed to be fine. I remember we
bought a bushel basket of peaches, and she was busy cooking those
during the two or three days before I left on the 18th of
September to go to England for these negotiations. She was
disappointed she couldn't go with me- -obviously she couldn't; the
children were too small, and we had nobody to leave them with.
So I expected to be gone two and a half weeks.
Mails were dreadful in those days. So we understood that we
weren't going to communicate. I promised I'd keep a record of
everything I did so that I could tell her what had happened. And
off I went. I had two and a half very busy weekswell, three
weeks --in London. Saw a great many people, many of whom I had
met during the war on and off in one capacity or another.
Then on Friday, I was ready to come back. In those days,
you had to take a DC-3, only the British called them Dakotas,
from London to Ireland, and then in Ireland you got on the
amphibian Clippers which flew from Shannon to New York.
Swent : Didn't stop at Gander?
Strauss: We stopped not only at Gander, we stopped usually in New
Brunswick, as well, and sometimes in Iceland.
The trip from London to Shannon was unexceptional. We
arrived; we were put up in a very nice place in the little town
of Adare. And suddenly, the Pan Am representative met with us
and said, "I have bad news. There is a gale on the Atlantic.
Tonight's flight will have to contend with icing. We can't
possibly take everybody that's booked. We're going to have to
leave some of you behind, and you will remain here until we have
a flight for you." Well, that was a disappointment. I had the
priority rating of a colonel; only generals made it. So I was
among the group left behind. They were mostly government
71
service, military people, and two or three businessmen, but very
few.
The next two days we spent in Ireland, sightseeing. We had
a very good time. There was a diamond dealer from Antwerp whom I
had met casually in Washington who was a crackerjack bridge
player. There was another fellow in the soft commodities who
worked for Defense Supplies, and I forget who the fourth was. We
played endless rubbers of bridge.
Finally, we were told on Monday that we would leave, and we
did. It was an overnight flight, and we arrived in La Guardia
Tuesday morning, having stopped in Gander and I think also in St.
Johns, New Brunswick, on the way. I was met by my brother-in-law
with the news that Elaine was in the hospital in Washington with
polio, that they had tried to get hold of me. Fortunately they
hadn't, because I would have just worried and been unable to do
anything. They had an American Airlines flight to Washington
standing by, so I was rushed through Customs and Immigration and
put on the flight to Washington.
Strauss: When I got to Washington, two of our friends were there to meet
me. They took me directly to the hospital. The doctors had
said--in fact, my brother-in-law had said that there was only a
fifty-fifty chance that she would survive, and that perhaps if
she saw me, it might help. So they put me in a mask and gown. I
don't know that she saw me or knew me. She was really out of it.
She was stretched out on this gurney, and she had all kinds of
needles stuck into her. Her head was shaking. I spoke to her.
I thought I saw a flicker of recognition, but I'm not sure. She
would have had trouble anyway--her eyes were affected-
distinguishing me, because I had to have a mask on. Then I went
home .
My mother and sister were with my children in our house in
Chevy Chase. Everything was done that could be done, I think,
under what was known then about polio. My colleagues in Metals
Reserve were very cooperative. They contributed--
[tape interruption]
Strauss: --quarts of blood, because she needed enormous transfusions. I
was shuttled back and forth from the office to the hospital two
and three times a day. She was on intravenous for a long time-
hot packs, cold packs, all kinds of treatment. But she had no
use of any of her four limbs. She really lost the use of her
eyes to a considerable extent. She could barely move her head;
72
that was about the only muscular function that she had. But she
could breathe. The doctors were very unsure what would happen.
A Mr. Bransome, who was the head of the Vanadium Corporation
of America, called me as soon as he knew I was back, wanted to
know what he could do to help anything. Mr. Clayton had
indicated that if I needed help--. [voice breaks with emotion;
long pause]
Swent : Those are the times when your friends really come through, aren't
they?
Strauss: [with emotion] And that if I needed help, I should let him know.
Well, I said to him, "Mr. Bransome, there's a doctor, Dr.
Stinson, Philip Stinson." He was the brother of the Stinson who
was secretary of war, and he was supposed to be the polio expert.
So I said to him, "Well, if he could come down, I'm sure the
doctors would appreciate his looking at Elaine and seeing what
should be done."
Mr. Clayton arranged for a government plane to bring Stinson
down. Stinson said he could come down, but it had to be just one
evening. He had to fly back the same evening, so he was flown
down. I met him at the army airport, not at the commercial
airport. He went to the hospital and spent about an hour looking
at Elaine, talking to her doctor. He confirmed that everything
was being done that could be done.
Swent: There wasn't much they could do.
Strauss: No. These hot packs were supposed to be the thing to relax the
muscles. So he wished me luck, and said it would be long and
difficult, and of course, it was.
So she remained at Gallinger, which was the only hospital in
Washington that would take polio patients, fromshe was admitted
the 12th of October and she left there at the end of January.
Then 1 had been in touch with the Warm Springs people in part
through Mr. Clayton, in part through Janet's father, Mark
McCloskey, and Mrs. Roosevelt. They agreed to take Elaine.
Swent: Of course, you must have been worried about your children or you
getting it, too, because we didn't know at that time how it was
spread.
Strauss: No. That's why they required you to wear a mask and everything.
A lot- -the medical opinion was that my son might have had a very
mild episode. He had a little fever one day. My daughter didn't
have any. But where she [Elaine] contracted it, one theory was
73
that she did so much swimming up at Great Barrington during the
summer, she might have picked up a bug in the water.
Swent: It was just such a terrifying thing at that time.
Strauss: It was just really awful.
Swent: We didn't know where it came from or anything about it.
Strauss: No.
So she went to Warm Springs at the end of January and
remained there until November, except for an episode that she
describes in her book 1
when she had to have kidney stones
removed, and that was done in Duke Hospital in Durham, North
Carolina. Transporting her was a big problem. She was so stiff,
she had to be handed in through the train window. She couldn't
be bent in the corridor to get into her berth.
But she survived.
Swent: And she did regain some motion?
Strauss: She regained some mobility. She was able to sit up. At first,
the doctors weren't sure she'd ever sit up again. She was able
to sit up; she was able to stand in water. She loved the pool at
Warm Springs. She regained enough use of her left arm and left
hand so that she was able to use the IBM typewriter that had been
designed for quadriplegics and of which we managed to get a copy.
She could turn pages of a book with her left hand, so she could
read.
Swent: Her vision was impaired, though, as I recall?
Strauss: Yes, but not too badly. After a while, it came back. She had
double vision and she had all kinds of trouble, but eventually it
came back, and she was a big reader. She enjoyed going to
movies.
Swent: And she could speak?
Strauss: Oh, yes. Her speech was never really affected, interestingly
enough. But one of her lungs was out, and that's what eventually
led to her death, was a respiratory infection. Other than that,
her health was reasonably good. The kidney stones were the
'Elaine M. Strauss, In My Heart I'm Still Dancing, New Rochelle, New
York, 1979.
74
result of immobility. So it became very important to turn her
constantly and get her up as much as possible. And the nostrum
was, drink lots of cranberry juice. It apparently combats--
Swent : It was available then?
Strauss: Yes. Only pure cranberry. Now you can get cran-apple, cran-
raspberry, all the others. It was available, and she drank a
quart of cranberry juice every day of her life for thirty-seven
years .
Swent: She lived for thirty-seven years after that?
Strauss: Yes.
Swent: That's a long time.
Strauss: She got sick in October of '45 and died in May of '82. It wasn't
quite thirty-seven years; thirty-six plus.
Swent: She had to have a lot of excellent care to live that long.
Strauss: Yes, she did. With a very strong spirit as well.
Swent: And a very strong helpmate.
Strauss: Well.
Swent: That certainly was a long, hard time for you.
Strauss: Yes. Well, I had to change jobs, find a house in New York, make
sure the children were taken care of.
Swent: I had heard that your wife was an invalid, but I had never known
the extent of her disability.
Reflection on Government Service; Legacy of Price Controls and
the Resentment of Supplier Nations
[Interview 2: August 24, 1994]
Swent: We're continuing now; we had stopped yesterday as you were just
ending your government service and going to work for AS&R, but
perhaps you'd like to do a retrospective of government service.
I had asked you whether you'd considered continuing in government
75
service, and you said no, but you didn't explore it, and perhaps
you'd like to go into that a little more.
Strauss: Right. Well, I had the feeling that government service in
wartime was very different from government service in peacetime.
Swent : I imagine you're very right.
Strauss: For example, at no time, even in March of '41, when I joined the
effort in Washington, did anybody ever ask me whether I was a
Republican or a Democrat. To this day, there's no record, as far
as I know, in Washington as to what, if any, political
affiliations I had. It was considered irrelevant. The country
was in peril, and eventually at war, and the objectives were
clear: win the war. Do it in the way that would cost the least
money, and certainly cost the least lives.
This spirit accounted for the lack of friction, as far as I
could observe--! cited the rivalry between Jesse Jones and Henry
Wallace earlierbut this was really an incidental matter. The
people who were in Washington on the civilian end of the war
effort worked extremely hard with a minimum of bickering and
animosity of any kind toward each other. There was a great
spirit of camaraderie certainly in the RFC and its subsidiaries.
We all liked each other; we helped each other wherever and
however we could. This makes me very proud of my experiences in
Washington, as well as extremely grateful because of all that I
learned by working as I did with a group of intelligent and able
people.
One other conclusion that really has struck me in the years
since the war ended, and that was that during the war, it was
astonishing how well the price controls worked. There have been
efforts since the war to effect price controls, both under
President Johnson and under President Nixon, and they were
abysmal failures. Thinking about it, I have decided that perhaps
the reason that price controls worked so well during World War II
and not subsequently was that during World War II, in effect, at
least as far as raw materials were concerned, there was such a
clean dividing line between the area under Allied control and the
area under Axis control.
In the area under Allied control, there were really only two
governments involved that represented major consuming nations of
raw materials: the United States and Great Britain. We were the
only two large markets for raw materials. Both governments were
intent on making price controls effective, with the consequence
that the sellers of raw materials, for example, producers of
Chilean copper or of Mexican lead, if they wanted to sell their
76
products, had no alternative except to sell to the United States
and to Great Britain, and to sell at the prices which the sellers
named.
This worked very well for the two combatant countries during
the war. But a resentment built up in many of the developing
countries about the fact that they had no voice, really, in
determining the prices for their raw materials during the war,
because they only had two buyers, and those two buyers were
united against them. That resentment accounts in part for the
fact that in the postwar period, I think, the developing
countries made these determinations to try to take over the
control of the marketing of their own materials, and to if not
absolutely control the prices at which they were sold, at least
to greatly influence them.
It also accounts, probably, for some of the episodes such as
the nationalization of properties owned by foreign investors.
Swent : That didn't come until really much later.
Strauss: It came much later, but the resentment was very deep and lasted.
In the case of Chilean copper, for example, the concept in Chile
was that Anaconda and Kennecott, the two big American companies
operating there, deliberately kept the price of copper down
because they were in the fabricating business as well as in the
mining business, and they wanted cheap supplies of copper for the
purpose of producing their fabricated products.
Overlooked was the fact that the price of copper was
dictated not by Anaconda and Kennecott, but by the United States
government. Indeed, from the standpoint of the mining companies,
the profits that they earned in the fabricating end of the trade
were never a significant part of their overall profits. The real
profitability of Anaconda and Kennecott over the years came from
the earnings of their mines, and they would have been far better
off during the war had the price of copper been much higher than
it was. The fact that the price was low was due to the controls
imposed by the government.
This was not understood in Chile. But I had repeatedly read
statements made by Chilean politicians attacking Anaconda and
Kennecott for deliberately keeping the price of copper low in
order to obtain more profits out of their fabricating
enterprises. When finally in 1970 Allende nationalized or
expropriated the American-owned copper mines in Chile, one of the
things he said was that he was not going to pay the companies
anything for their mines because they had made such enormous
profits as a result of it. It was felt in those countries that
77
the prices of raw materials had been manipulated to be kept below
the true value in order to enrich the consuming countries, which
were also the countries which had provided the investment.
So my conclusion about this entire question of price control
is that price controls of raw materials will only work under the
kind of conditions that prevailed in World War II, which were in
a sense unique: namely, that the number of buyers is limited,
the number of sellers is large, and the sellers are at the mercy
of one or two buyers.
Minimal Black Markets
Swent: And there wasn't any black market possibility.
Strauss: There was nobody in a position to buy materials and use them on a
large scale in place of the two governments. As I said earlier,
the two governments became in effect the sole importers in that
market. Nowhere else--
Swent: And they were in agreement.
Strauss: And they were in agreement. And nowhere else in the area
physically available to the exporting countries were there large
fabricating plants to use the raw materials. So they had no
alternative markets, and the black markets did not develop during
the war.
Interestingly enough, and perhaps we'll discuss this a
little later when we come to the period of the Korean War, the
situation there was very different, because by the time of the
Korean War, the European countries were on the road to recovery,
helped by the Marshall Plan. France, Germany, the Scandinavian
countries, Switzerland, Holland, Italy, Belgium, were already
large consumers of metals once again. They were actively seeking
supplies of materials. They bid against each other. And so the
efforts to control raw material prices during the Korean War
didn't work. There were too many buyers.
But during World War II, at least after the United States
entered the war, as I said, there really were only two buyers
available to the producing, exporting countries of Africa and
Latin America, not to mention Canada, Australia, and the
dominions .
78
Swent :
So World War II was perhaps unique in this respect, both
with regard to price controls and with regard to the absence of
sizeable black markets. I think around the fringes in the United
States, there was perhaps a little black marketing, grey
marketing, consumers who received War Production Board
allocations; perhaps some of them may have cheated a little bit.
I heard from my wife's family in the costume jewelry trade that
in spite of the regulations limiting the use of metals in costume
jewelry, some of the smaller manufacturers were able to get
additional supplies, whether from scrap or from metal that was
resold to them by people who were supposedly using the metal for
war-approved purposes.
But I think this was de minimis. I don't think that we
really had in the raw material field any substantial diversion of
materials into more profitable channels by black marketers. It
worked extremely well during World War II.
The populace, too, was pretty much united in its attitude.
Strauss: That's right, exactly.
Swent: It was a war that we all agreed was necessary.
Strauss: Yes. And one of the things that was emphasized repeatedly to the
general public was the importance of turning in materials for
recycling in the form of scrap. Toward the middle of our entry
into the war, there was a separate corporation set up, the name
of which escapes me at the moment, which was headed by Mr. C. W.
Nichols, who had been the head of the Nichols Refining Company,
which was actually by then a part of Phelps Dodge. But it made
an effort to get the public to contribute materials that weren't
in active use to be melted down and used in the war effort.
This made a lot of people feel very good. I recall one
quotation, I think in the press or on the radio, was that of a
lady who operated a beauty salon and had contributed the aluminum
head piece used by her clients when their hair was being dried
under the dryer, and she was quoted as having said that as she
looked up in the sky and saw the B-25's sailing overhead, she
thought to herself, "There goes my aluminum hair dryer."
It was the kind of thing that made people feel good, but in
fact, much of this material was still on hand when the war ended.
It had never been converted into refined metals, simply because
the capacity wasn't there to cope with these huge volumes that
were turned over. But I think from the standpoint of the public
morale, it made people feel good to think that they were
contributing something that might be useful in the war effort.
79
Preclusive Control of Materials; U.S. Commercial Corporation
Strauss: One other aspect of dealing with the war was the so-called
preclusive effort involved in trying to keep materials out of the
hands of the Axis powers. A fifth company was added to the list
of the RFC wartime subsidiaries called U.S. Commercial
Corporation. The name Commercial was sort of ironic, because in
fact, what U.S. Commercial Corporation did was to go into areas
such as Spain, Portugal, and Turkey, where there were certain
supplies of mineral products in particular being produced, and
pay fantastic prices to buy them in order to keep Spanish lead or
Portuguese tungsten or Turkish chrome from falling into the hands
of the Axis powers. This was a sort of a cloak-and-dagger
operation, similar to some of the activities of the CIA [Central
Intelligence Agency], and it was reasonably successful at
diverting materials from the Axis.
Swent : Were these negotiations also done in Washington?
Strauss: No, they were not. People were sent to those countries to do the
buying. They reported back to Washington. They had wide
discretion as to what they paid, and probably in some cases they
paid more than they needed to, but it was considered desirable to
keep the material out of Axis hands.
In the enthusiasm for promoting the war, some suggestions
were made that were quite ridiculous, from a commercial
standpoint. For example, Metals Reserve Company had bought small
quantities of beryl ore in Brazil. Beryl ore is used to produce
beryllium, and beryllium copper and beryllium aluminum alloys,
and had significant military applications. So in an effort to
assure adequate supplies, we did buy beryl ore in Brazil.
As I earlier mentioned, during the years '42 and early 'A3,
there was a good deal of apprehension about the rate at which the
freight-carrying ships were being sunk in the Caribbean.
Strauss: So we decided that rather than risk losing it at sea, since for
the time being there was an adequate supply in the United States,
the Brazilian purchases would be kept on the ground in Brazil
rather than shipped to the United States.
One advocate of the use of airplanes for carrying cargo
suggested that we ship the beryl ore by air from Brazil, by
commercial airliner. At that time, Pan American Airways did
operate a service out of Brazil. They quoted us a dollar and a
80
half a pound in other words, $3,000 a ton--to ship this material
by air. At the RFC, we felt that this was a somewhat excessive
price to pay for transportation of a product that we had bought
for seventy dollars a ton. But when I made this observation at a
meeting, this one advocate of air transport told me that I was
putting dollars ahead of the blood of our fighting men. Of
course, there was no issue about putting it ahead of the blood of
the fighting men, because the beryl-consuming industries were
getting all the beryl they needed without having to fly this
material.
I cite this simply to show that, for some people, any
reference to commercial considerations was considered
unpatriotic. Money should be spent regardless of cost to
accomplish whatever the person had in mind. This was not the
spirit of the RFC, but we had occasionally to overcome somewhat
overzealous suggestions such as the one about the beryl ore.
Silver Provided to Allies for Coinage in their Colonies
Swent: One thing that I wanted to explore it was mentioned in a couple
of the papers that you sent rae--was the use of silver during the
war in colonial areas; we gave silver to the Allies?
Strauss: Yes. One of the interesting programs that was undertaken early
in the war was to provide silver for coinage in areas which were
threatened particularly by the Japanese. After the fall of
Burma, there was great concern that the Japanese might go on and
take all of India. In India, silver has long been regarded with
great respect as the traditional storer of value. The Indian
population knew that when the Japanese came into an area, such as
Burma or Thailand, they immediately declared all circulating
currencies to be invalid and put their own paper money into
circulation. This meant that the British currency then
circulating in India was looked on with some distrust by the
Indian population. The British felt that perhaps if they could
issue silver coinage, which had not been circulating in India
during the immediate prewar period, that this would restore
confidence in the currency.
So the United States Treasury, under the purchase program
that I discussed earlier, had very large quantities of silver on
hand. Several hundred million ounces of silver was provided to
the British under the Lend-Lease program, minted into rupees, put
into circulation in India, and began to restore confidence on the
part of the Indian population in currency. Because obviously, if
81
they had silver coins, those silver coins would have some
intrinsic value which paper currency or base metal coins would
not have. The Indian program was the major program; there were
several other much smaller ones.
Swent: I thought some in Africa.
Strauss: Saudi Arabia, I think, was the case. I forget, but I could look
it up, what the others were. But this Lend-lease program was
effective, and after the war, in fact, much of the silver was
repaid to the U.S. Treasury. It simply was a way of restoring
confidence in currency.
Strategic Military Use of Silver;
Desalination
Photographic Film.
Strauss: Silver had quite a few intrinsic roles in the war effort which
are not appreciated. For example, most of the war planes were
fitted with automatic camera devices by which whenever the guns
of a fighter plane were in action, photographs were taken, and
this accounts for the very dramatic pictures of the fighting in
the air with which the public is familiar. Millions of ounces of
silver went into the production of the film for this purpose.
Another essential war use was that the lifeboats of the
merchant vessels and the naval craft had to carry desalination
kits as part of their essential equipment. These were kits which
enabled the conversion of sea water into potable drinking water
for anybody who was adrift in a lifeboat. Those desalination
kits operated with silver as the means of removing the salt from
the water. So this was quite a significant military use of
silver during World War II. Many millions of ounces of silver
were used for that.
Swent: Was there any comparable use of gold?
Strauss: Not to that extent, no, because this was before the days of the
satellites. The big use of gold in government programs for
purposes other than monetary has been in gold plating of the
space exploration vehicles. No, there wasn't, but silver did
play a significant role, and there was a good deal of concern
about the available supply of silver. While the war was on, as
I've said previously, the U.S. mines were all selling their
silver at a price determined by the legislation. It was half of
the monetary value, sixty-four cents an ounce. The world price,
the price paid to silver producers outside the United States, had
82
been around forty or forty-five cents an ounce and I believe rose
during the war to about fifty or fifty-five cents an ounce, but
never quite got up to the level that was paid to the U.S. mines.
Well, these are just a few thoughts about some of the
aspects of the mining industry during World War II.
Securities Analysis and Mineral Economics: A New Field
Swent :
Strauss :
Swent:
Strauss :
Swent :
Strauss:
r
I did have one other question about your securities analyst work:
you were working for Standard Statistics as an analyst of mining
stocks. There must have been other analysts--! don't know who
existed at that time, Value Line didn't come on the scene until
later, but there were--
Our principal competition at the time, there was Moody 's, which
is still in existence, and Poor's, which later merged with
Standard Statistics to form Standard and Poor's. Those were the
three comparable services. Of course, the individual brokerage
houses had their own analyst staffs.
And they all must h^ve had analysts who were specialists in these
same stocks.
Yes, they did, and I got to know them fairly well. I never did
meet the Moody 's or Poor's people. I don't think they did as
comprehensive a job in dealing directly with the industry. But
in general, securities analysis then was much less sophisticated
than it is today. Today, a person with my limited educational
background would never be hired as a securities analyst, because
I hadn't gone to a school of business administration and been
taught to analyze balance sheets, understand the finer points of
various types of securities. I was in effect self-taught on
this. I learned by doing. But today, that would not be
adequate .
You'd have to have a Ph.D. in economics or finance.
Something comparable to that. It's very interesting that today,
a number of mining schools have courses in mineral economics,
Penn State and Colorado School of Mines being the outstanding
examples, and a very high proportion of those trained in mineral
economics never work for a mining company. They go to work for a
bank or for a securities firm on graduation. As we will discuss
later on, I've taught courses at some of these schools, and most
of my former students are now working for banks, or for brokerage
83
houses, or for these analytic services such as Commodities
Research Unit, which didn't exist then.
Swent : You were in a new field, in a sense.
Strauss: Yes. It was an emerging field.
VII AMERICAN SMELTING AND REFINING COMPANY [ASARCO] ,
1946-1981
AS&R at 120 Broadway
Swent: All right. Are we ready to go to AS&R now?
Strauss: I think so.
Swent: Which was at that time known still as ASStR.
Strauss: AS&R, American Smelting and Refining. Very rarely referred to
then as Asarco. It was a major company with a very interesting
and diversified group of operations.
Swent: Let's just get the date--we have it earlier but this is 19--?
Strauss: Yes. I went to work January 1, 19A6.
Swent: And their head offices are in New York City?
Strauss: Their head offices then were at 120 Broadway in New York, as they
had been since 1913. The company was the largest tenant in that
building, which is known as the Equitable Building, and had been
there continuously since the building was opened. So that
sometimes, when people wanted to discuss developments, they would
cryptically refer to the company not as AS&R or as American
Smelting but as 120 Broadway. Anybody in the metals trade, if
somebody said, "Well, 120 Broadway is selling zinc for seven and
a half cents a pound," they knew that that meant that it was
American Smelting and Refining Company that was selling.
The company had long been dominated by the Guggenheim
family, but by the time I joined it in 1946, the only persons of
the Guggenheim family who were connected were Mr. Roger Straus,
whom I referred to earlier, who was president, and his son,
85
Swent:
Strauss:
Oscar, who was in the financial department and eventually became
vice president and treasurer.
The operations of American Smelting and Refining Company
included a very large number of copper, lead, and zinc smelters
in the United States; two lead smelters, a zinc smelter, and a
copper smelter in Mexico, together with a lead refinery in
Mexico. It included directly owned mines in the United States,
principally lead-zinc-silver operations in Idaho, Colorado,
Arizona, New Mexico-
Tennessee?
At that time, they did not operate in Tennessee. It included a
copper mine in Peru, and about nine or ten major mines in Mexico,
principally silver and lead and zinc. Copper mine production was
not a significant part of the company's operation at that time,
but it had a number of interesting copper prospects which came
into play in the postwar era while I was with the company, so
that it eventually became a very significant copper producer.
Mt. Isa Mine, Australia 1
Strauss: The most valuable single investment was the ownership of an
interest in Mount Isa Mines in Australia. At that time, the
ownership was through an English company called Mining Trust.
Subsequently, Mining Trust was dissolved and Asarco became a
direct owner of Mount Isa. The percentage of Mount Isa owned by
the company has varied greatly from time to time. It got up to a
maximum of 52 or 53 percent during the fifties and sixties.
Mount Isa mine was recognized then as a major lead-zinc
producer and a potential copper producer, but the extent of the
copper resources of Mount Isa was not clear when I joined Asarco.
It was only in the drilling that occurred during the immediate
postwar years, from '46 to '52, that it became recognized that in
fact the copper resources at Mount Isa were as great as, if not
greater, than the lead-zinc-silver resources. It's a unique
property in the sense that I'm not aware of any other comparable
situation in the world where a major copper deposit containing no
lead or zinc lies within really just a few hundred feet of major
'For more on Mt. Isa, see interviews with Frank Joklik and John
Turney, Western Mining in the Twentieth Century series, Regional Oral
History Office, University of California, Berkeley, in process 1995.
86
lead-zinc-silver deposits with little or no copper in them. It
has developed to not only one of Australia's largest mining
enterprises but perhaps in the world. It has become at times one
of the largest copper producers, one of the largest zinc
producers. For many years, it's been the largest single lead-
producing mine in the world, and the largest silver-producing
mine in the world. So that was a major holding of Asarco.
Swent : And this was an old--this was not new at that time.
Strauss: No. It went back to 1931, when American Smelting and Refining
Company put up money which the original promoters had been unable
to raise, either in Australia or in England. The cost of
bringing the mine into production was great.
Swent: So they'd been in on it from the beginning?
Strauss: Yes. The first real manager of the Mount Isa enterprise was a
man named Julius Kruttschnitt . Julius Kruttschnitt had been in
charge of the Southwest mining division of Asarco with his base
in Tucson. When Asarco came to the financial rescue of the
enterprise which was struggling to raise enough money to get into
production, it was stipulated that the management of the mine
should be in the hands of Asarco, and Mr. Kruttschnitt was
nominated to go out there.
He was a wonderful man. He did a remarkable job. And
symptomatic of his early connections with the Southwestern United
States is when he built his manager's house at Mount Isa. He
called it Casa Grande. It was a beautiful house built in
Southwestern U.S. styles in the middle of the Australian desert,
and is still there. It's no longer the manager's house; it's the
guest house for important visitors to the Mount Isa enterprise.
The Queen of England has stayed in the Casa Grande when she
visited Mount Isa in the late fifties or early sixties.
Swent: Where is Mount Isa? Which state is it in?
Strauss: Mount Isa is in Queensland on the east coast of Australia.
Queensland is an enormous state. It is much larger than Texas;
it's almost as large as Alaska. Mount Isa is situated 500 miles
or so from the ocean, due west of the town of Townsville, to
which it is connected by rail. It is almost 1,000 miles in a
straight line from Brisbane, which is the capital of Queensland.
I referred to it as being in the desert; it's a very parched
country. I think the rainfall is ten or twelve inches a year.
Extremely hot in the summertime. As a result of the Mount Isa
development, several large reservoirs have been created to dam up
the water when it does come during the rainy season. There are
87
two so-called lakes now in existence, one of which,
interestingly, is named Lake Julius, that having been Mr.
Kruttschnitt 's first name.
And it has transformed the countryside. There has been all
kinds of vegetation brought in. The residents of the town of
Mount Isa, which today has a population of about 25,000, are
given unrestricted access to water in the desert, and they grow
fruitoranges, grapefruit, lemons in an area where there was
previously desert, and it's really become a sort of a jewel in
the desert.
Swent: When did you first go there?
Strauss: My first visit was in 1956. After Mount Isa recognized the
extent of their copper resources, they not only built a copper
smelter at the mine but they built the copper refinery at
Townsville, and Julius Kruttschnitt '
s successor, Sir George
Fisher, who was then the manager, asked me to come out to talk
with them about how to go about marketing their copper. Because
it was understood, to recognize the Australian wishes to control
their own destiny, that they would do their own marketing. But
they always did it with the advice of and discussions with
Asarco. We had a very collegial relationship at the time, so we
discussed the various alternatives for marketing Mount Isa's
copper on my first visit.
Swent: What were thesewe're jumping ahead, but as long as we're on
this, let's
Strauss: Yes.
Marketing Copper from Mt . Isa
Swent: What were the decisions to be made?
Strauss: First of all, at the time, the internal consumption of copper in
Australia was growing, so there was the home market to be
considered.
Swent: The refineries refined to the point where it could be used?
Strauss: Yes. The refinery at Townsville produced very highgrade, good
quality copper, and it was equipped to make all of the shapes
that were then used by industry: not only wirebars, which are
used by the wire and cable business, but also we made provision--
88
I say "we"; the company made provisionto produce cake and
billet. Cake are big square chunks of copper which can be rolled
into sheet, and billets are used usually for extrusion into
tubing, since the plumbing use of copper is considerable. And of
course, the first step in producing refined copper is to produce
copper cathode. That was done, but in addition, there were these
facilities for casting into the three additional products that I
mentioned.
So Mount Isa was going to supply the home market in
Australia. There was a small copper smelter and refinery, very
small, in New South Wales, which had handled the quite limited
production of copper concentrate in Australia and also recycled
scrap. But Mount Isa was clearly going to be the biggest source
of copper for Australia.
In addition to that, the logical markets for Mount Isa were
Japan and Western Europe. The question was what shapes to
produce, how to ship the material, and so on, which I discussed
when I went out there in '56. And after that, I made trips about
once every three or four years, not only to discuss the marketing
of the copper but also such questions as whether or not Mount Isa
should build a zinc smelter. They never did until after my
retirement, when instead of building a smelter in Australia, they
took an interest in a major zir .
plant in Germany. Also
questions about lead, silver.
Australia is so far geographically removed from the rest of
the world although today with air transport being as efficient
as it is, it's much less remote than it was at that time, when
planes were slower and took much longer to get there that the
Australian managers welcomed a chance to have face-to-face
discussions with somebody who was in touch with metal markets in
the world, just to find out what was going on. After all, they
were exporting these products to the world markets, and they
needed to know what was going on.
So we've gotten sort of diverted into Mount Isa.
talking about Asarco.
I was
Swent: Let me ask one more question: these smelters and refineries in
the United States and Mexico were wholly owned by AS&R?
Strauss: Absolutely, all of them, at that time. Later there were changes,
Swent: But at that time, they completely owned those?
Strauss: Yes.
89
Swent: And in Peru, the mine was completely owned?
Strauss: By Asarco.
The Buchans Lead-Zinc Mine, Newfoundland
Strauss: Then there was a significant mine in Canada, the Buchans lead-
zinc mine, actually in Newfoundland. Newfoundland had been
independent, a separate colony of the British Empire, prior to
the war. But after the war, Newfoundland was joined to Canada
and became part of Canada. So if you look at the statistics, in
the prewar period you'll see Newfoundland as one of the countries
producing lead and zinc concentrates, but then after the war it's
just part of the Canadian picture.
The Buchans mine was not owned outright by Asarco. It was
jointly owned with a paper company on whose forest lands the
property had been discovered. Incidentally, one of the
interesting things about the Buchans mine is that it is probably
the first major base metal deposit to have been located by
geophysical methods, and that had happened in the 1920s.
Swent: By Asarco people?
Strauss: By Asarco explorations. The location of Newfoundland is such-
it's one-third of the way from North America to Europethat the
logical place for Buchans concentrates, the logical place to sell
the zinc concentrates there was a mill but no smelter in
Newfoundland- -was to sell the concentrates in Western Europe,
primarily in Belgium but also they shipped to France on occasion
and to Germany.
Swent: When you say there's a mill but no smelter, how did they
concentrate them then?
Strauss: In the mill.
Swent: By gravity?
Strauss: No, flotation process. And during the war, Buchans had been cut
off from its normal market. They therefore had to sell
concentrates either in Canada, the United States, or Great
Britain, and it was partially as a result of the availability of
the Buchans concentrates that Asarco decided to build its
electrolytic zinc plant at Corpus Christi in Texas. In fact,
curiously, my first real dealings with Roger Straus of American
90
Smelting and Refining Company were when I was at Metals Reserve
Company and we made a contract under which we agreed to buy the
production of the new Corpus Christi zinc smelter for two years,
in order to encourage the company to build the smelter during the
war, which was done. And on its part, American Smelting and
Refining Company agreed to supply the smelter with concentrates
from the Buchans mine.
Swent: How did they ship them from Buchans to Corpus Christi?
Strauss: By boat.
II
Strauss: The transit along the East Coast, the Atlantic Coast of the
United States, was never as hazardous as the Caribbean. There
were some sinkings by German submarines along the Atlantic Coast
of the U.S. during the war, but they were not nearly to the
extent of what was occurring in the Caribbean.
Buchans had no alternative but to ship them. Newfoundland
is an island; they had to put the material on a ship to get it
anyplace, and it was less risky to ship the concentrates to the
United States than to ship them across the Atlantic to Great
Britain, where there were zinc smelters at Avonmouth. So that
Buchans mine was a significant asset of Asarco's at the time that
I joined the company.
AS&R's Federated Metals Division
Strauss: Now, in addition to all of these operations that I've described,
which are really basically base metal mining and smelting and
refining operations, when I joined Asarco, a significant activity
was its so-called Federated Metals Division, which was a chain of
recycling, scrap recycling plants, across the United States, that
had been acquired by the company in the 1930s. There were
significant plants in New Jersey at Newark and Trenton, in Texas
in Houston, just outside Chicago at Whiting, and in the San
Francisco Bay Area, the so-called Army Street Plant in San
Francisco.
These plants treated copper, lead, zinc, made various alloy
products like the bearing metal solder, brass and bronze ingots.
Federated dealt directly with scrap dealers as well as with the
large industrial corporations that generated quantities of scrap
in the course of their operations: for example, the copper
91
Swent :
Strauss :
fabricators, brass mills, and wire mills. It was a distinct,
separate division that had its own commercial activities. The
sales department of Asarco, which I joined, did not handle
Federated 's products. Federated had its own sales organization;
it had its own scrap buying organization.
Since some of the primary plants of Asarco also bought scrap
as feed, particularly clean copper scrap to go to the copper
smelters or refineries, or discarded lead batteries to go to the
lead refineries, there was a company scrap committee which would
meet once a week, where representatives of the Asarco 's ore
department, Asarco 's sales department, and the Federated
departments would meet and discuss the state of the scrap market,
what prices we should be paying, what we should be doing. We met
weekly, and those were very lively sessions, because there were
wide differences of opinion.
So in effect, one division was buying from another?
At times, there were transactions between the two. Federated, in
order to produce some products, like solder, would have to buy
tin, because the company didn't produce tin, but they might
require pure lead rather than scrap lead for production. So they
would buy from the sales department. And like all large
companies which have transactions between separate divisions,
there were great differences of opinion at times between the
parties involved. But we managed to get along.
Rising to Be Vice President and Director of Asarco; Director of
Revere Copper and Brass and General Cable Corporation
Swent: We haven't said specifically what your job was.
title?
What was your
Strauss: When I joined, I was simply a member of the sales department of
AS&R. Mr. Kenneth Brownell, who had interviewed me and asked me
to come with the company, was then the vice president in charge
of sales. It was never explicitly said, but I understood that
Mr. Brownell would probably be leaving his post to go into the
top management of the company. He became executive vice
president and then later president and chairman. In our
discussions, it was indicated to me, although no promises were
made, that I stood in line, would be considered to be either the
manager of sales or vice president of sales, and in fact, I
joined, as I said, on January 1, '46; January 1, '47, I was made
sales manager. And in 1949, I was made a vice president, and in
92
1952, I was elected to the board of directors of the company. So
I was offered--
Swent : It was a rapid rise, wasn't it?
Strauss: A fairly rapid advance. And not only was I a member of the board
of Asarco, but among the company's major investments, it had
interests in two fabricating companies. Anaconda and Kennecott
had 100-percent-owned fabricating divisions; Asarco, as a major
refiner of copper, had acquired a substantial interest in two of
the major fabricating companies: Revere Copper and Brass, and
General Cable Corporation. They were not in competition with
each other; Revere Copper and Brass produced what are called
brass mill products; General Cable produced wire and cable
products .
And because of its substantial holdings in these two
companies, which amounted to about 35 or 40 percent of each of
the companies, Asarco had the right to nominate several people to
the boards of those companies. In due course, I joined the
boards of both Revere and General Cable. They had completely
independent management other than the presence of Asarco people
on the board. They bought copper from Asarco, but only on
competitive terms with what other copper producers were able to
maRe. We had good relations with the purchasing managers of the
two companies, but we had no real edge. We dealt on a
competitive basis against other suppliers. Kennecott was a large
supplier to both of those companies; Anaconda was not, because
Anaconda's production of copper, large as it was, was almost
totally absorbed by its own fabricators, so it was not a major
seller of copper in the United States. They did not to any great
extent buy from Phelps Dodge, but they did buy from many of the
other sellers, including imported sources such as Noranda.
Some Antitrust Litigation
Strauss: So our presence on the board was really to protect our interest.
That was later challenged by the Justice Department; that was
some years down the way after I joined the company.
Swent : It was considered a conflict of interest?
Strauss: Well, it was. The curious thing was that Justice Department
officials were more interested in Asarco 1
s partial ownership of
these two companies than they were in Anaconda and Kennecott 's
total ownership of their fabricating subsidiaries, a conundrum
93
that I never quite understood. There were hearings. The cases
never came to trial, with regard to General Cable and Revere. We
made settlements, and in due course, Asarco eventually disposed
of its interests in both of those companies. But that was many
years later. I remained on the boards of those two companies
well into the sixties, possibly even the early seventies.
Swent: Were you involved in the hearings? Did you have to testify?
Strauss: Oh, yes. I have been involved in a lot of hearings. [laughter]
One of the most protracted litigations we were involved in was an
allegation by the antitrust division of the Justice Department
against Asarco and St. Joe Lead.
Swent: When was this?
Strauss: This was in the fifties; I don't remember the precise date. The
Justice Department believed that these two companies, which were
in fact the largest suppliers of the U.S. market, were conspiring
to control the lead market, and they pointed to the fact that the
Asarco lead smelter at Alton, Illinois, was fed primarily with
concentrates produced from St. Joe's mines. St. Joe at the time
did not have adequate smelting capacity to handle all of its
output. This arrangement was considered to be an effort by the
two companies to control the lead market.
The case actually never came to trial, but we did talk at
great length with the judge who had been assigned to the case.
We explained the pluses and minuses, and there was finally a
consent decree under which the arrangement for Asarco to smelt
St. Joe concentrates was terminated at some point within a couple
of years, as I remember it. I may be wrong about that, but I
think it was that. And so the Alton lead smelter was eventually
closed down as a result of this, and St. Joe expanded its own
smelter.
The Glover, Missouri, Smelter
Strauss: Later on, Asarco did build a new smelter in the area at a small
town called Glover, as production of lead in Missouri increased.
Swent: When was that big boom? It was not too long after that.
Strauss: In the sixties, yes, that's right. The so-called Viburnum Trend.
Swent: But the Alton smelter had already closed down and wasn't revived?
94
Strauss: It was not revived. Instead, a new smelter was built closer to
the area where the new developments were taking place, and it was
fed primarily by ore from a mine developed by Kennecott, a lead
mine. Kennecott didn't want to get into the business of smelting
and refining and selling the lead; they were quite content to
sell concentrates. So that was the principal source for the
Glover plant, but there were other people who were producing lead
in the area. Plus the fact that from time to time, we would ship
in lead concentrates from Mexico or from mines in the West or
from Australia, and treat them at the Glover plant.
Swent : I'm not quite clear on the difference. Why is some ore smelted--
is it either smelted or refined, or is the refining after the
smelting?
Strauss: No, it's both that is correct. The product of the smelter is
something called lead bullion. The lead bullion still contains
the silver, if there is any in the ore, and other minor contents,
perhaps antimony or bismuth. To make the lead usable by
industry, these metallic impurities had to be removed from the
bullion, and that is what is called the refining. It's not a
terribly complex step unless the impurities are of very
detrimental elements.
Swent: So you can sometimes sell things directly from the smelter?
Strauss: No.
Swent: It always needs further refining.
Strauss: As far as I can recall, there is no market for lead bullion as
such. The value of the silver is such that in any case, you do
want to get it out of the lead.
Swent: So then essentially, everything is smelted and refined.
Strauss: And refined, that's correct.
Swent: But the smelter and the refinery are not always next to each
other?
Strauss: No. In fact, usually they are not.
Swent: Not. So the shipping gets into the picture.
Strauss: Yes, that's right.
95
The Omaha Smelter
Swent: The location of your smelter is close to the mine?
Strauss: It is closer to the mines. The refinery tends to be closer to
the market, or on the way to the market. Asarco's largest
refinery for years has been the Omaha refinery, which was built
to refine all the bullion produced at Asarco smelters in Montana,
Colorado, Utah, or other Western states.
In addition to its own bullion, Asarco for a while was
refining lead bullion from the Anaconda organization. Anaconda
had some interests in lead mining in Montana and Utah, and in
fact operated a lead smelter at a place called Tooele in Utah.
But they did not have a refinery. So Asarco would refine their
lead for them on what's called a toll basis, the lead being
returned to Anaconda. Anaconda's smelter was operated by a
subsidiary called International Smelting and Refining, and they
asked us to cast the refined lead for them at Omaha to brand as
International Smelting and Refining lead. The reason was that
their fabricating subsidiaries, particularlywell, as a matter
of fact, both of them, both American Brass, which produced brass
mill products, and Anaconda Wire and Cable, which produced wire
and cable, used lead. The wire and cable plant used lead as a
sheathing for the cable. The American Brass used lead in
conversion of copper into various brass alloys, many of which
contained as much as 5 percent lead.
So Anaconda was anxious that its fabricating subsidiaries
used lead with the IS&R label, but of course, it was sort of a
travesty, because at Omaha the Tooele bullion was not refined
separately, but was comingled with lead bullion from the East
Helena, Montana, or from Leadville, Colorado, or Asarco's other
Western lead smelters. I tried for years to get Anaconda to
agree that we could deliver lead for their account against the
toll arrangement from our lead refinery at Perth Amboy to their
fabricating plants located in the New York or Connecticut areas,
because freight costs were much less, instead of shipping it all
the way from Omaha. Anaconda had some fabricating facilities in
the Middle West, and Omaha was the logical source. I said to
them, "If you'll let us deliver Perth Amboy lead to, say,
Hastings-on-Hudson or Waterbury, Connecticut, we'll be glad to
split the freight savings with you."
"No, no, no, no, no, we've got to have our own lead," they
said. [laughter] Which sort of struck me as being very
childish.
96
Swent: That's interesting.
Strauss: It's different when you have manufactured products with brand
names on them, and differences in styling or facilities, like
automobiles, for instance. But when you're talking about a basic
commodity like lead or copper, you're really talking about a
standardized item. It doesn't make any difference what brand is
put on it, provided it meets the specifications of the American
Society for Testing Materials or other organizations. I mean,
you delivered the specifications. That's a sidelight.
Swent: The lead and the zinc, were they smelted at the same place?
Strauss: There are some smelters, but Asarco doesn't have one, that handle
what is called the bulk concentrates. At some lead-zinc mines
ore is not separated by differential flotation to make separate
lead and zinc concentrates; instead, they produce a bulk
concentrate. In the sixties, the Imperial Smelting Company,
which was a subsidiary of what is now the RTZ, the Rio Tinto
Zinc--Imperial Smelting developed a process for handling bulk
concentrates. There are some of these facilities around the
world, including such a smelter at Avonmouth in England--! think
maybe my Welsh friends would say Wales. And in fact, Mount Isa
is now opening a new mine in the Northern Territories of
Australia, which will produce a bulk concentrate from the
McArthur project where the lead and the zinc will be smelted in a
single plant to be separated by the Imperial process. But Asarco
did not operate any such facilities, and the lead smelters and
the zinc smelters were at separate locations.
Swent: And the copper facilities were also separate?
Strauss: Were also separate. Although at El Paso, Texas, Asarco operated
a plant that had both a lead smelting and a copper smelting
facility. They were at the same location, but they were totally
separate operations.
Swent: What was Tacoma?
Strauss: Tacoma was purely copper.
Swent: And Selby was purely lead?
Strauss: Selby was purely lead, that's right.
97
Improved Recovery of Zinc and Lead from Slag in the 1960s
Strauss: One of the developments that was an important factor in the metal
markets in the sixties and seventies was in the production of
zinc fume from the lead smelters. Because of the high zinc
content of some lead concentrates, there was a substantial zinc
content in the lead smelter slag that might run 10, 12, 15
percent. A process was developed whereby the zinc in this slag
was recovered. The zinc was recovered in the form of a highgrade
zinc oxide running 60 or 70 percent, which would then go to a
zinc smelter to be recovered as zinc.
This for a time was a very important factor in the economics
of some of the major lead smelters. The El Paso lead smelter,
for example, shipped its zinc fume resulting from the treatment
of the slag to the Corpus Christi zinc smelter.
Swent : So the zinc fume was a solid?
Strauss: Yes. A fume sort of implies smoke, but it was a fuming process,
and then the metal content was condensed out of the smoke, and it
was a product which you could really call a zinc oxide.
Swent: But they called it zinc fume?
Strauss: Yes. Conversely, the opposite also happened. Anaconda and its
zinc smelters in Montana, because they had two very large
electrolytic zinc smelters in Montana, had very substantial lead
content in their slag from the zinc operation, and an operation
quite similar, from the technical standpoint, was devised. I
think it was started at Anaconda, or possibly in Australia, one
or the other place, for recovery of lead residue from the zinc
slag, which could then be shipped to a lead smelter. Anaconda
regularly shipped that product to Asarco's lead smelter at East
Helena, Montana, which was close by.
So as metallurgy improved, as the technology was better
understood, in effect the mining industry was achieving a major
conservation. Instead of wasting thousands of tons of metal
contained in slag, which might be used for railroad ballast or
mineral wool or something, these slags were being retreated and
substantial quantities of both lead and zinc were being made
available.
Swent: Would the price determine whether an ore was considered a zinc
ore or a lead ore?
98
Strauss: No, it would be primarily what the percentage content was. Well,
of course, the price plays a role in it.
Swent : Whether or not you ship it to a zinc smelter and recover lead
from the slag, or to a lead smelter and recover zinc from it.
Strauss: No, you make the concentrate first. You don't ship ore to the
smelter. You take the ore, mill it, and produce a concentrate.
Swent: Right. But the decision as to what you call the concentrate-
Strauss: Was based on the content of the concentrate. Because a zinc
smelter couldn't treat a--could not efficiently handle a
concentrate that was very high in lead.
Swent: But your price would determinemaybe not.
Strauss: No.
Swent: The price had nothing to do with this decision.
Strauss: No. It was the decision the price had a decision as to whether
you operated the mine at all, but once you were operating the
mine, because the prices were attractive, the ore was taken to
the mill, and two products were made: a lead concentrate and a
zinc concentrate, silver being usually a constituent of these
lead-zinc ores. The silver tended to go mostly into the lead
concentrate. The lead concentrate was then shipped to a lead
smelter. If the smelter was owned by a different company than
the mining company, payment was made for both the lead and the
silver content, but rarely for the zinc content, because for many
years, the zinc content wasn't recovered.
Silver and Cadmium as Byproducts
Strauss: The zinc concentrate would be shipped to a zinc smelter. It
would contain some lead and some silver, but much less silver
than the lead concentrate would contain. Payment was made
usually just for the zinc content. In time, particularly after
1964 when the price of silver started to increase, some of the
zinc smelters began to pay for the silver content if they had
facilities for making these lead residues that I spoke about.
Payment often for zinc concentrates included a payment for the
cadmium content of the zinc concentrate, because most zinc
smelters during the postwar era were equipped with facilities to
recover cadmium from the production stream as it went through the
99
smelting, and cadmium for a while was a very valuable
constituent. Currently, the price of cadmium is low, but there
were times when cadmium was selling for five, six, seven, and as
high as ten dollars a pound. A zinc concentrate that contained,
let's say, 0.4 percent cadmium- -in other words, eight pounds of
cadmium in a tonthat obviously was a valuable constituent and
it was recovered and paid for.
Swent: And when you paid for these things, you say paid, you were
primarily selling, AS&R was selling?
Strauss: Yes. But we were buying the concentrates from independent
miners, and we were paying them--
Swent: Did you pay just money? You wrote a check?
Strauss: Yes. After making all the elaborate calculations that are
necessary to be made.
Swent: Well, in some cases, you gave them bars of--
Strauss: That was if it was in a toll arrangement. But for most small
mines, they didn't have sales organizations. The toll
arrangements are relatively few. They're usually made with large
companies that have other sources of refined product and want to
add to the refined product available for sale, and have enough
material to afford a sales department. A smaller independent
mining company will have maybe one person who will handle the
negotiations for the sale of concentrates to a custom smelter.
They can't afford to staff themselves with a sales organization.
The Complexity of Custom Smelting and Refining
Swent: So if you have a buying arrangement, you were buying concentrates
from a small company. What would be an example?
Strauss: Well, an example would be Hecla Mining.
Swent: You would have, I suppose, a relationship with these people that
would continue for years and years and years. Did you have to
renegotiate periodically, and how often, and how was this done?
Strauss: It varies, and it depends on what the individual mining company
wants to do. If they want to have flexibility and be able to
deal with other custom smelters and refineries as well as Asarco,
100
they would typically negotiate maybe a contract for one or two
years.
Swent: But prices go up and down quite a lot, don't they?
Strauss: Yes. But there's no obligation for the mining company to
deliver. They say that they will ship to your smelter, provided
they're running the mine. But if they choose to shut the mine
down, they have no obligation to deliver the material. So their
decision as to whether they continue to operate is based on the
prices going up and down, and if the price goes down, then they
close the mine, in which case the smelter loses the source of its
feed. This whole question of the custom smelting and refining is
quite a complex one.
Swent: It must be very complex.
Strauss: And there are people who will have a mine that starts off as a
producer of concentrate, which they sell, but then as time goes
on, if the mine is profitable and begins to accumulate cash, they
begin to think about building their own facilities. A good
example would be to cite the San Manuel copper mine in Arizona
opened by Newmont for Magma Copper. From the start, they knew
they had a big enough proposition to justify a smelter. But
originally, they did not want to have a sales organization, so
they made an arrangement with Phelps Dodge to sell the blister,
which is the intermediate product of a copper smelter, comparable
with bullion, the intermediate product of a lead smelter.
So Magma sold its blister to Phelps Dodge, which had a large
refinery in El Paso. But after a few years, and as the
production of the San Manuel mine seemed assured, Newmont, as the
owner of the Magma mine at the time, decided to build a refinery,
which they did immediately adjacent to the smelter,
incidentally, in that particular case. And Phelps Dodge lost
that source. So when the contract between Newmont and Phelps
Dodge for the refining of the San Manuel blister was about to
expire, Newmont very properly advised Phelps Dodge that it would
build its own refinery and it would not require Phelps Dodge's
facilities any more. This sort of thing does happen.
So as companies look at their prospects, they decide how
long the contract should be. Currently, because of the very high
cost of opening up major new copper projects, the tendency is to
open up a mine with a concentrator, but not to make the
additional investment in a smelter and a refinery. This is
particularly true of projects located in the developing
countries, where the company is concerned about investing too
much capital in what may be an unstable political situation or
101
currency risks or whatever the future may be. But after a few
years of operation, if the deposit is large enough, they may
conclude, "Well, it's time that we had our own smelter and
refinery."
Most of the major new copper projects that have been opened
recently around the world, and there are many of them, have only
gone as far as the stage of the concentrator. Now, they have to
raise a lot of money, so in order to get that money, they have to
persuade the banks that they have an outlet for their
concentrate. The result is that these new projects, what people
refer to as greenfields projects, do tend to make long-term
contracts. Ten years is the typical term. So they'll make a
ten-year contract for smelting and possibly refining. It may
contain particular agreement as to the costs to be charged during
the first two years, with the understanding that the parties will
renegotiate after two years. Or it may contain escalator clauses
similar to what I described when I was talking about Alcan during
the war, to protect against unforeseen contingencies such as
sharp changes in labor costs, power costs, transport costs, or
whatever.
So this question of the relationship between the miner and
the processor is a very complex one, is constantly shifting, and
it is one reason why in the mining business the companies that
started out primarily as custom smelters, like American Smelting
and Refining Company and American Metal Company, developed
greater, if I may say so, market expertise and sophistication
than the straight mining companies. The latter, with their own
facilities, didn't have to take into consideration risks involved
in buying others' concentrates. Anaconda particularly, but
Kennecott also, are examples of companies that were
straightforward miners. Even if they treated concentrates
produced by others, it was on a toll basis. Their marketing
staffs were less aware of the finer points of, say, trading on
the commodity exchanges or other forms of hedging.
Today, in the light of the upheavals in currency rates that
have occurred since the energy crisis of 1974, however,
everybody's getting more sophisticated. There are a lot more
people in the business of trading metals on commodity exchanges,
and they are anxious to develop clientele. Thus mining companies
are becoming much more sophisticated than was the case when I
joined Asarco in 1946. They have much more knowledge of risks-
price risks, currency risks, political risks, which are certainly
with us to an enormous extent these days.
Swent : Yes. Those factors are much more important now, aren't they?
102
Strauss: Yes, they are. They're perceived, because in '46, when I joined,
after all, most of Africa, much of Asia, was still colonial. The
countries of South America had not yet exerted their political
independence; they were dependent on foreign investors for
capital, and they had not undertaken their own marketing or
operation.
Swent : And the environmental costs were--
Strauss: The environmental question hadn't really surfaced in the way it
did in the late sixties and early seventies.
The Devaluation of the British Pound; the Marshall Plan
Swent: Before we get into that, you just briefly touched on the Korean
War. I'm assuming that was the first sort of crisis that hit
after you joined AS&R?
Strauss: Well, no. There were a lot of interesting developments. One was
the change in the status of the British pound, the relationship
of the value of the round to the dollar. For many years, it was
almost taken for g: ted that $4.86 represented the value of a
pound sterling. Tl. -, was considered sort of immutable. It went
through the period when the prices of gold rose from $20.67 an
ounce to $35 an ounce, and it was still in place when the Bretton
Woods Conference was held in 1994.
But it was clear in the postwar period that the effects of
the war on the British economy, the debt that Britain had
undertaken as a result of fighting that war, its changed position
with regard to its empire all of these things were undermining
the value of the British pound. London, which had been the
traditional capital of the world's financial structure, was
gradually giving way to New York. So the pound dropped below
$4.86. I think the drastic cut came in '48 or '49 to $2.80 a
pound, and that really was a major process of readjustment.
It was just about that time also that the Marshall Plan was
launched, and this began slowly at first, but eventually to
change the complexion of the things.
1
'For more about the Marshall Plan and strategic materials, see Evan
Just, Geologist: Engineering and Mining Journal, Marshall Plan, Cyprus
Mines Corporation, and Stanford University, 1922-1980, Western Mining in
the Twentieth Century series, Regional Oral History Office, University of
California, Berkeley, 1990.
103
Swent : I was thinking the Marshall Plan was earlier than that, but I
guess you're right, it was several years-
Strauss: Maybe late '47 at the earliest.
Swent: It was a few years before we got organized for that.
Strauss: Yes. It took time to get organized. But it began to really
influence the markets and revive the economies of Western Europe,
and somewhat later, the economy of Japan.
One of the most interesting things that happened was the
change in the perception of the position of the United States.
During the war, although we were in the war, we didn't suffer war
damage to our industrial plant at all. There had been concern
about sabotage, there had been concern about submarine attacks on
both coasts, and there were a few efforts, but nothing that had
any real consequence.
Shortcomings of the Paley Commission Report, 1951
Strauss: So when we emerged from the war, this country had two thirds of
the world's monetary gold in its supply. It had 50 percent of
the industrial production of the Western world, that is, outside
the communist countries. So it consumed 50 percent of the raw
materials. When the Paley Commission report came out in 1951, it
had--
Swent: Let's just identify it; this was a report on strategic materials.
Strauss: The official name was the President's Materials Policy
Commission. It was selected by President Truman, and it was
headed by William Paley of the Columbia Broadcasting System, so
it became known shortly as the Paley Commission. Their report
published in 1951 analyzed the prospects, with respect to natural
resources, not just minerals, but basic products such as lumber,
cotton, for the world, over the ensuing quarter century, from
1950 to 1975.
And in the first volume of a five-volume report, there was
this map showing that, with 6 percent of the area and I think 9
percent of the population--! may have gotten those figures
reversed the United States consumed 50 percent of all the raw
104
Swent :
Strauss :
materials consumed. The Paley Commission then estimated what
would be consumed in 1975, and although the percentages for the
United States were shown as somewhat diminished, it was not a
radical change.
In fact, however, a radical change did occur.
The Paley prediction was not--
Was not correct, no. The actual consumption by the United States
by 1975 was about 25 percent of the world total, instead of 50.
Swent: And yet, they're still quoting those Paley Commission figures.
Strauss: Yes, some people do.
The other thing was, the Paley Commission, after making its
estimates of what the requirements for vital resources would be
in 1975, expressed grave concern over whether those requirements
could be met. They used the expression that shortages in the
past had been met by price adjustments and proved temporary, but
they felt that shortages in the future would be much longer
lasting.
And they were quite wrong about that, because their estimate
as to what might be produced was even more wrong than their
estimates of what was going to be consumed. They underestimated
the potential to produce by a substantial amount.
So this was already beginning to emerge in the immediate
postwar period. One of the things that I think was most striking
was that very few significant mineral discoveries had been made
during the thirties. I think this conditioned the Paley
Commission into thinking that most of the world's mineral
resources had already been identified. They failed to recognize
that you can't find things unless you look for them, and that
exploration had been cut back very sharply, first by the
financial stringency of the Depression, and second by the
manpower demands of the war. So you had a period really from
1930 to 19A5 when exploration was at a minimum.
But as price ceilings came off after the war and the prices
started to respond, as companies began to show some confidence in
the future demand for materials, and particularly as demand
revived in the war-damaged areas of Western Europe and Japan,
much more exploration was undertaken. We began to have enormous
finds .
105
Swent: There were also these new technological developments, like the
geophysical-
Strauss: Exactly. Just as I said the marketing has become more
sophisticated, in the same way, the theories of geology have
become much more sophisticated and people are no longer just
looking for outcrops. They study soil contents and stream
sediments, and they begin to understand that there may be
significant resources which don't come to the surface.
Swent: Some of these I guess were spin-offs of war technology, too?
Strauss: That is correct.
Swent: Aerial maps.
Strauss: Right, true. I always think about the area south of Tucson,
which the Geological Survey had dismissed as a potential source
of copper, and now you have major mines, Sierrita and Mission,
and others, which have been developed in that area, with deposits
which did not come to the surface, did not outcrop. And yet, you
have very significant copper resources.
This is a long way of saying that the Paley Commission had
estimated that the United States' production of copper from its
own mines at best by 1975 would be 800,000 tons of copper a year.
Instead of that, it is currently running more than twice that
amount, as a result of new discoveries in a country where people
thought in 1980 that every copper deposit that could be found,
had been found. It wasn't true.
The Korean War and Metals Markets: Copper and Zinc
Strauss: So these were developments that were beginning to emerge even
before Korea broke out. When the Korean War started, there was a
lot of concern that it might in fact develop into another world
war, that Russia and China might come to the assistance of North
Korea, and then we would eventually be fighting a world conflict
again. So the government did slap on price controls. I think it
was in--the war started in the middle of 1950, and the price
controls came into effect in January of 1951. I believe I'm
correct about that.
By that time, prices had already moved up substantially.
Copper was twenty- four cents a pound, I think lead and zinc were
in the raid-teens. These price ceilings were put into effect.
106
But to enforce them proved much more difficult than had been the
case during World War II, because the Germans were busy buying
lead and zinc and copper, the French were buying, the Italians
were buying, and there was no way that we could say to the
Chileans, "You've got to sell your copper to us at twenty-four
and a half cents," when they could get much better prices in
Europe.
In the case of copper, actually, a compromise was found, and
the ridiculous position was developed that consumers were allowed
to pay twenty-seven and a half cents for foreign copper but could
only pay twenty-four and a half cents for domestic copper.
Swent : This was a government regulation?
Strauss: Yes, during the war in Korea. And scrap became almost
uncontrollable. There was talk of putting on export controls on
scrap, but in fact, they were not. And of course, the price
offered by foreign buyers was higher than domestic buyers of
scrap could afford. So the Korean War was quite different.
Swent: What was AS&R's position on this?
Strauss: We had to live with the regulations with regard to our domestic
production. At that time, we were not significant miners of
domestic copper. We sold a lot of domestic copper that we had
smelted or refined for other people, although our biggest source
of copper at that time was Kennecott. We ran the smelters;
Kennecott ran the mines. But we returned the copper to Kennecott
and they sold their own copper. So we were not huge copper
sellers, but we were suppliers of refined copper.
Swent: Were you faced with the decision whether to sell abroad or to the
United States?
Strauss: No, we sold our domestic copper in the United States, because we
wanted to maintain the goodwill of our domestic customers, among
other things. And because we were paying the domestic price to
the miners that did ship to our smelters and refineries. So we
were careful to sell at least that quantity of copper in the
United States that we had purchased as the basis of the United
States price.
The situation became very critical in zinc. In fact, zinc
was considered to be one of the most difficult of all the raw
materials during the Korean War. The prime minister of England
at the time was [Clement] Attlee; he came over and visited Mr.
Truman to see whether Mr. Truman would agree to let the British
have some zinc out of the stockpile which had been created by
107
congressional law in 1946. But the law was very strict with
regard to releases from the stockpile, and so nothing was done
with the Attlee request. I think sulphur, elemental sulphur, was
also on Mr. Attlee 's list. There were four commodities; those
are the only two that I recall at the moment that he was
particularly concerned about.
Developing the Silver Bell Mine, Arizona
Strauss: Jim Boyd, who you've interviewed earlier, was then director of
the Bureau of Mines, and I recall his asking me to come down to
Washington to talk with him about what Asarco could do to
increase copper and zinc supplies. I said, "Well, of course, we
have some resources." Mr. Straus and Mr. Brownell had advised me
to reply in this regard. "But they're marginal, and we don't
know how long this situation is going to last."
"Well," he said, "you ought to do what you can to get them
going." The outcome of that was that we did make a contract with
the government to open the Silver Bell mine in Arizona. This had
been discussed during World War II, but it was discussed too
late, and it never materialized. Asarco agreed to equip and
develop the Silver Bell mine to produce a minimum of 12,000 tons
of copper a year in exchange for the government undertaking to
buy two years' production from us at the ceiling price of twenty-
four cents a pound. We went ahead with investing our own money,
developed the mine. As I recall, by the time we got it going,
the Korean crisis was pretty well over.
The other significant developments that occurred then were
that the government arranged to loan money to Copper Range
Company for the opening of the White Pine mine in Michigan, and
to loan money to Newmont for the opening of the San Manuel mine
in Arizona. Kennecott agreed to expand the production from its
Ruth mine in Nevada, part of the Nevada Consolidated] operation,
in exchange for a contract similar to the one that we had. And
Phelps Dodge opened the Sacramento pit at Bisbee, Arizona, also
under a similar type of arrangement. So the government made two
loans and four purchase contracts to expand copper production.
There were some deals made to expand zinc mine production.
I think the ceiling price for zinc was seventeen and a half cents
a pound. The steel companies were so concerned about zinc at
that time that U.S. Steel made a contract with American Zinc,
Lead, and Smelting, agreeing to a fixed price of seventeen and a
half cents a pound for four years.
108
Swent : That's a long time.
Strauss: Before the four years had expired, the Korean crisis was over,
the price of zinc had dropped. Howard Young, who was then the
head of American Zinc, in a conversation with me told me that
U.S. Steel said, "We'll live up to the contract, we signed it,
and we'll pay you seventeen and a half cents, even though we can
buy zinc much more cheaply. But we'll have to let you know that
at the end of that contract, you're no longer our supplier." So
they were really sort of blackmailed into agreeing to take a
lesser price, even though they had a firm contract.
And that experience taught me something: don't make long-
term firm price contracts with customers, because they may not
live up to them, or if they do live up to them, they will
threaten you with later discontinuing the relationships with
them. Sell at the market price.
Swent: It's just too volatile to--
Strauss: Yes. Nobody can read the future with certainty. There are
examples, of course, where firm prices have been offered and have
been lived up to, the outstanding example being the uranium
program of the AEC that you and I talked about, where they
offered a price of, I think it was ten dollars a pound, for
uranium concentrates.
Swent: That was again an artificial situation.
Strauss: That was an artificial situation, and it was a government which
had a program and could have put this uranium in stockpile. They
weren't in the competitive market as U.S. Steel was. U.S.
Steel's point with Mr. Young was valid, and that is that they
have to sell galvanized steel in competition with other people
who were paying lower prices for zinc, so if Howard Young
insisted on their paying seventeen and a half cents, they would
be stuck, and so--. The firm price contracts are not what
they're touted to be.
Well, this is a sort of disorganized discussion of the
events in the Korean War. Early on--
109
Serving on the Defense Materials Procurement Commission
Strauss :
Swent :
Strauss :
Early on, a gentleman by the name of John Weinberg, who was a
senior partner of Goldman, Sachs and Company, and who had been
called down to Washington to help the government recruit industry
people for the Korean effort, asked me to come down to see him,
which I did. He said he was aware of what I had done in Metals
Reserve during the Second World War, and would I come back to
Washington to undertake similar activities during the Korean War.
I explained to Mr. Weinberg the position of my wife, and
that I really couldn't move her to Washington, and that I
couldn't undertake to live away from her; she needed me to be
with her most of the time. But I did agree to be a consultant
and come down to Washington one day a week, which I did
throughout the Korean War period. I was a consultant to
something, I think the name was Defense Materials Procurement
Commission, and it was headed by an Oklahoma lawyer by the name
of Jess Larson, a very able gentleman. I would come down every
Thursday, I think it was.
That must have been hard--by train?
No. By that time, there was good air.
mornings and fly home in the evenings.
I would fly down in the
And there was an amusing incident as a result of this
commuting of mine. It must have been about 1953. I had been in
Washington with the DMPC during the day, and I was scheduled to
return to New York on a 5:45 flight out of National Airport. Got
out to the airport in time, and I'm standing waiting there, when
along came a diminutive Chinaman named K. C. Li. Mr. Li is
probablywas then probably the foremost expert on tungsten in
the world, and we had gotten to know each other very well during
World War II. We saw a lot of each other, because he was very
helpful in advising the government on meeting the procurement
problems of tungsten and a number of the other alloying elements.
"Oh, Simon," he said when he saw me.
you on?"
And I said, "I'm on the 5:45."
"What fright [sic] are
;
For more on DMPC, see George Heikes, Mining Geologist on Four
Continents, Western Mining in the Twentieth Century series, Regional Oral
History Office, University of California, Berkeley, 1992.
110
Swent:
Strauss :
Swent :
Strauss :
Swent :
He said, "Oh, I have a ticket on the 6:15. Let me see
whether I can get on your prane." So he went over to the
American Airlines counter. American then operated New York-
Washington flights. He came back and he said, "No seats on your
fright."
So I said, "I'm sorry. We probably could get on a later
plane together, but my wife has made a dinner engagement for us
in New York, and I'm anxious to get back."
He understood. We stood there chatting. There was an
announcement over the loudspeaker that for some reason, the 5:45
flight was indefinitely delayed. So Mr. Li whipped out his
ticket for the 6:15 flight and he said, "Here. You go on my
prane. I am in no hurry. I can take later."
I said, "Thank you very much, K. C."
which left almost immediately.
I got on the 6:15,
In those days, the stewardess came around and asked you your
name and destination, because most of the planes either went on
to Albany or to Boston. So when she came to me, I had his
ticket. I said, "Li," and "La Guardia," and of course, it caused
no comment.
The next morning, Mr. Li called me up laughing. He said,
"Simon, you know what happened? I got on your prane, and when
the stewardess came around and asked me my name, I said,
"Stlauss. 1
She looked at me, she said, "You don't look like
Stlauss.'" [laughter] In those days, they used to have the name
of the pilot and the flight attendants on the door leading to the
cockpit, and he had seen that her name was Mulligan. He said,
"Well, you don't look like Murrigan to me." [laughter]
And from that day on, I used to run into him frequentlyhis
office was in the Woolworth Building not far from where the
Asarco offices were and we would occasionally have lunch
together. Whenever we met, he would say to me, "You know me? My
name Stlauss." [laughter]
Funny .
So I was very much obliged to him for letting me have his ticket.
Well, you certainly don't look like Mr. Li!
Not L-i, but L-double-e is a possibility.
No, you could pass for that, but not L-i.
Ill
Strauss: She didn't look at the ticket, she just heard the word.
Swent: So how long did this Defense Minerals-
Strauss: Oh, I continued to be their advisor for about three years, I
think. And then it was replaced by an office of something or
other based in the White House headed by a very nice gentleman
named Arthur Fleming, and he asked me to continue, but it didn't
involve going down once a week, just from time to time when they
had problems with regard to the stockpile.
Swent: We're continuing now after a break for lunch. We had just
finished your work with the Defense Minerals Procurement
Commission. So we'll get back to what you were doing for AS&R.
Strauss: Right. After I took over from Kenneth Brownell as the vice
president in charge of sales, my principal duties were not so
much to do any selling myself as to ascertain what amounts of
minerals we needed to sell and where to sell them.
Vice President in Charge of Sales
Swent: You were getting up into policy, in other words.
Strauss: That is correct. For each of the principal materials, we had a
salesman with an assistant assigned to cover them. We had a
copper salesman with an assistant, a lead sales manager with an
assistant, a zinc sales manager with an assistant, a silver and
gold salesman, and we had a byproducts salesman, who would have
been responsible for disposing of bismuth, cadmium, antimony,
selenium, tellurium, indium, and any other byproducts that were
produced by the company's refineries.
Swent: Was there any question of expanding, say, to aluminum?
Strauss: We were not in the aluminum business.
Swent: You never ever got into aluminum?
Strauss: There was a lot of discussion about getting into aluminum, and at
one point, when the Defense Materials plant facilities were put
up for sale by the government--! had referred to the fact earlier
that they had been built by Alcoa and that they had actually been
operated during the war by Reynolds and Kaiser--after the war,
the government wanted to dispose of these, put these plants,
properties, up for sale. Asarco did bid on some of the aluminum
112
facilities in the Northwest in the hope of getting into the
business. But the Kaiser organization outbid us, and so we did
not get those plants, and subsequently we made no real effort to
get into aluminum production.
A number of our competitors in the copper-lead-zinc business
did consider doing this. Amax, the former American Metal
Company, eventually became a significant producer of aluminum.
The Anaconda organization went into aluminum production, but
without any conspicuous success. Within Asarco, our feeling was
that the amount of capital investment required to become a
successful competitor in aluminum was very large, and we had many
other uses for the capital available to us, so we never did
really go into aluminum.
Abortive Efforts to Get Into the Nickel Business
Swent : Nickel was another thing that you--
Strauss: Yes. We made at least two efforts to get into the nickel
business in which I played a part. One was the Thayer Lindsay
organization that I referred to earlier, seemed to be receptive
to disposing of its holdings in Falconbridge Nickel, the second-
largest Canadian producer. Asarco took a very serious look at
this. We made a bid. It wasn't high enough to interest the
organization. There were no other bidders. And they finally
decided to remain in the business. In a sense, it was too bad.
If we had been a little more aggressive in going after it,
because Falconbridge had a very sound business, and in the long
run it would have been a profitable investment.
Swent: Were you involved in any of these decisions?
Strauss: Yes, because I was being consulted by top management as to the
outlook for various metals. One of my jobs was to make
projections as to what the future prices of metals were likely to
be, what the level of consumption of metals was likely to be. I
was very favorably disposed toward going into the nickel
business, but here again, it would have required quite a bit of
capital.
During the Korean War, the government made a real effort to
dispose of the Nicaro nickel project in Cuba, which I mentioned
earlier, and which I had visited. The Nicaro project had been
closed down at the end of the Second World War. But with Korea
underway, it was decided that perhaps it should be reactivated.
113
Swent :
Strauss;
Swent :
Strauss ;
Bear in mind that this was in the period before Castro took over
Cuba. Batista was then the ruler of Cuba.
Freeport approached us whether we would be willing to be a
partner to bid for the Nicaro project. We had a lengthy
consultation on it. We did a lot of work. One of Asarco's
associate general counsels, a chap named Lyman Tondel, who later
became a leading figure in the New York Bar Association, and I
were assigned the job of dealing with Freeport, dealing with the
government, deciding what our bid should be. We submitted a bid,
but we were outbid this time by the National Lead Company, which
went in in association with the Dutch firm of Billiton and
Company. They succeeded in getting the contract to operate the
Nicaro project from the government and with some kind of an
arrangement under which they would eventually take it over.
However, a few years down the pike, Mr. Castro came along,
the Nicaro project was seized as rightfully belonging to the
Cuban people, and it has been operated since then by the Cuban
communist regime. So those were our two real efforts to get into
nickel, although we did have some joint exploration ventures with
Freeport in Indonesia, but they didn't turn out too well.
You didn't ever get into sulphur?
Well, bear in mind that all of our smelters were recovering
quantities of sulphur in the form of sulfuric acid, so in a
sense, we were really in that business. But we did not explore
for sulphur, primary sulphur resources.
I remembered now, there was also a venture for exploring for
nickel in the extreme north of Quebec in the area called Ungava.
A sizeable deposit was located, but the economics did not look
attractive. We did not go forward with that. I believe that
now, some thirty years later, Falconbridge is making an effort to
bring that property into production.
What about molybdenum?
We became producers of molybdenum as a byproduct in our copper
properties. In the 1970s, we had a major exploration program on
a molybdenum property in Idaho, but that was in an area close to
wilderness. The governor of Idaho, who later became secretary of
the Interior, [Andrus] was not favorably disposed toward us, our
operating the property, and we did not go through with that.
114
Investment in an Asbestos Deposit in Quebec
Strauss: One other commodity that we did diversify into and made a large
investment, and for many years it was a successful undertaking,
was asbestos. There was a deposit of asbestos under a lake in
Quebec called Black Lake. The area around the lake belonged to
the Asbestos Corporation of Canada, but they had not taken any
steps to claim the land under the lake. A Canadian geologist by
the name of Malouf did some drilling through the ice in the
winter, determined that there was a sizeable deposit of asbestos
under it, lacked the capital to bring it into operation, came to
us as to whether we had any interest.
The people in the mining department asked me to do a survey
of the outlook for asbestos, which I did. This was in the early
1950s. Asbestos was then a strong and growing industry. In
particular, the demand for asbestos cement products was growing.
Asbestos cement pipe was being used as a competitor of cast iron
for water systems in major municipalities. Asbestos cement roofs
and other construction of asbestos cement was going forward. Not
so much in the United States as in tropical countries that lacked
timber access, needed cheap materials, had plenty of cement on
hand but needed the strength of asbestos to go ahead with it. It
seemed to me that this was a growth industry. The traditional
uses of asbestos for flameproof ing, for insulation, for brake
linings in automobiles all seemed like growth industries to me.
So I urged the mining department to go forward with this, and--
Swent : There wasn't any talk of asbestosis?
Strauss: Not at that time. I shouldn't say there wasn't any talk; there
was one professor who was already beginning to express concern,
but he did not have wide support.
So the company made a deal with Mr. Malouf. We took over
the property from him. We didn't pay outright cash; I think he
was given some kind of a carried interest in it. It was
necessary to convince the authorities in Quebec that what needed
to be done was to divert the waters of the streams flowing into
Black Lake and to relocate the state highways, to dredge the
lake, redirect the flow of the waters, and get at the underlying
deposit.
Swent: You were actually going to mine through the lake?
Strauss: Well, we were going to eliminate the lake--
Swent : Move the lake--
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Strauss: Move the water. There would no longer be a lake. The lake would
be the foundation for an open pit. Our mining people were very
ingenious on this. We put a dredge on, because there was this
oozy slime on the bottom of the lake accumulated over the
centuries that could be better handled with dredging equipment
than it could with shovels or other excavators.
Swent: How large a lake was it?
Strauss: It was sizeable, several hundred acres. Possibly comparable with
Lake Mah Kee Nac that we're looking at at the moment.
In total, the investment was some $30 or $40 million. We
got the property into production in the mid or later fifties,
maybe '56 or '57.
Swent: No controversy from any environmentalists over moving the lake?
Strauss: No, not at that time. There was some opposition from the
Asbestos Corporation of Canada, who had overlooked the fact that
there might be a deposit there. But in general, the authorities
in Quebec were very supportive, because there was high
unemployment and this promised to create several hundred jobs.
Swent: And nobody in your company objected to this?
Strauss: No. We built a very modern mill, employed people with a lot of
experience in asbestos processing, and eventually we got into
production. As I said earlier, I did not anticipate that we
would do much selling in the United States, but our sales agents
outside the United States, who were already handling metals for
us, some of them boned up on sale of asbestos and were eager to
handle it for us. Others, who felt that they didn't know enough
about the material, were less sanguine, and then we found other
people to be our agents. We enlisted agents in Belgium, which
was an important consuming area, Holland, France, Germany, and
Italy. We had a sales manager, a French Canadian, who had
previously worked for other companies in the asbestos industry,
to be the sales manager in Canada, and he took care of any sales
in either Canada or the United States.
Asbestosis and Environmental Overkill
Strauss: And the business was profitable from the start. It went very
well. The market did continue to expand for a number of years
until the concern about asbestosis became so rampant. I believe
116
that Asarco has now completely disposed of its interest in Lake
Asbestos, but it was a successful investment. Unlike a lot of
people, I believe that the concern about the medical effects of
asbestos has been greatly overstressed. Certainly the workers in
Quebec who mined and processed this material did not have the
excessive experience with lung cancer that is supposed to have
been.
Swent :
Apparently, the greatest number of injuries were people in
the brake linings business who had to cut, grind, and reshape the
textiles containing the asbestos. Apparently, that brought out a
lot of dust. And the people working in insulation with asbestos.
For instance, it had been the practice when buildings were being
erected to insulate the steel girders with asbestos.
The pluses of asbestos have been very much overlooked.
Thousands of lives have been saved because of the effective use
of brake linings to stop vehicles before hitting pedestrians or
other vehicles. Thousands of lives have been saved in fires,
because of the retarding effects of asbestos on the spread of
flames. It's unfortunate that the material has gotten such a bad
name. Above all, I think one of the most ridiculous and
unnecessary expenditure of public funds has been the expenditure
of billions of dollars to remove asbestos from school buildings
in this country. Those dollars could much better have been spent
to improve the level of education, to increase teachers'
salaries. I have yet to hear of a single case of asbestosis that
was contracted by a school child, not one. While I understand
people's concerns with the environment, and I certainly agree
that we should assure ourselves of a safe world, I think that
asbestos is an example of environmental overkill.
Was a suit like the one at Johns-Manville ever brought against
Asarco?
Strauss: Most of the suits against Johns-Manville, Eagle-Picher , and other
companies, arose out of disease that was traced to exposure to
asbestos during World War II. Asarco was not in business then,
was not selling it then.
Swent: It was in the ships, wasn't it?
Strauss: In the ship insulation, particularly on naval ships where
asbestos was used for insulating the electrical cable
installations of the ship. That accounted for a large part of
it. I think Lake Asbestos was named in some suits, and I'm not
aware, because when I retired, up to that time there had been no
major findings against Asarco. But the bulk of Lake asbestos was
sold outside of the United States, and it's in the United States
117
that this explosion of asbestos litigation has occurred. Plus
the fact that we got into the business when we did, Asarco did
not have the kind of exposure that Johns -Manvi lie, who had been
in the business from the start, was really the initiator of it,
and Eagle-Picher, who had been very active in the business during
the war years. I think that helps to explain why Asarco has
suffered less on this litigation.
Making a Biennial Study of Metal Markets
Strauss: Your questioning about these various other commodities and
Asarco 's interest in them reminds me, one of my major
responsibilities at Asarco was to do biennial studies, that is,
once every two years, of the metal markets. I had to try to get
together as much information as possible with regard to the
outlook for production, the trends of consumption, and what the
balance would be between the two, and what the likely effect was
on prices.
The principal purpose of this was to provide guidance to the
exploration people in the mining department as to which metals
they should particularly emphasize in their exploration, and to
help them in their feasibility studies. Because when you are
studying a potential new mine and you're trying to calculate
whether or not it would be worthwhile to develop it, you have to
make some assumptions as to the price you will get for the
product of that mine.
One of the real difficulties is that when the deposit has
first been identified, one can assume that it will take anywhere
from five to ten years to complete the exploration, to equip it
for production, to prepare the mine, to build the processing
plants, and the result is that you're not really trying to
forecast the price for the next month or the next year or even
the next two or three years. You're looking down the road and
trying to see what prices are likely to be five, ten, fifteen, or
twenty years hence.
Swent: That must be so hard.
Strauss: Which is a difficult thing to do. But just to make this
concrete, to show, the Mount Isa Mine, one of the greatest and
most profitable metal deposits ever located, was found in 1923.
It actually began production in 1933, ten years later.
118
VIII SOUTHERN PERU COPPER CORPORATION, 1959-1981
Development of the Toquepala Mine by Northern Peru Company, an
Asarco Subsidiary
Strauss: Toquepala, one of the major mines of Southern Peru Copper
Company, was first identified perhaps when the Spaniards arrived
in Peru. The modern phase of exploration began in the early
thirties, when the Cerro de Pasco Copper Company took an option
on the Toquepala deposit, did some exploration work, identified
the nature of the deposit--
Swent : You were just beginning to discuss the Toquepala, Southern Peru
Copper Corporationwell, it wasn't Southern Peru Copper
Corporation yet, but the Toquepala project in southern Peru.
Strauss: That's correct. When Cerro de Pasco failed to make a deal for
the property, the owner went to the Northern Peru Company--
Swent : Which was Asarco?
Strauss: Which was a subsidiary of Asarco, and suggested that Asarco might
be interested. Asarco did a little exploration before the war,
but during the war, that work was suspended. It was resumed in
1946. The outcome of the exploration convinced our people that
we had a viable, major copper deposit in Toquepala.
By 1951, we decided to apply to the Export-Import Bank for a
loan to help us develop the deposit. It was clear at that time
that at least $100 million would be needed to develop this
deposit, because it was located at an altitude of 9,000 feet in
the Peruvian Andes, roughly 100 miles from the seacoast. The
logical way to develop the mine was as an open pit mine with a
concentrator there, and concentrates would have to be transported
119
down the mountains to the seashore where it would seem
appropriate to build a smelter.
Swent: There were no roads going in there, of course.
Strauss: There were no roads going in. There was virtually no population
in this arid, mountain area. The only sizeable community was the
little fishing village of Ho, which seemed appropriate for a
smelter site if we went ahead. So it was going to be a huge
investment, and while Asarco was happy at the time with the
political situation in Peru, it did not have the resources to put
up all of the cash required. It was clear we would have to
borrow it from someone.
Requesting a Loan from the Export-Import Bank
Strauss: During the very early days of the Korean conflict, Export-Import
Bank indicated it was receptive to making loans for development
of additional copper production, and so the preliminary
discussions were had with Ex-Im Bank. However, before these had
gotten very far, the Korean crisis began gradually to look less
ominous. The administration's eagerness for additional copper
production cooled off somewhat. The fact that it would take a
long time to build the facilities indicated slowed the
negotiations down.
Then, following Mr. Eisenhower's election in 1952, he got a
new secretary of treasury, Mr. Humphrey from the M. A. Hanna
Company, I believe.
Swent: This is not Hubert Humphrey?
Strauss: No, George Humphrey. George Humphrey was not too sympathetic to
the idea of lending U.S. taxpayers' money for construction of
foreign projects abroad, and he declared a halt to any such loan.
Swent: Was the Ex-Im Bank still in your building?
Strauss: Well, I wasn't in that building any longer, but it was in the
building that I had worked in during the war, yes. I had worked
in that building in the war, but when I left the government, I
didn't work there.
Swent: I was wondering if you had friends--
120
Strauss: Oh, I knew very well the former chairman of the Ex-Im Bank, a
fellow named Warren Pearson, who had been chairman during the war
years and with whom I'd had lot of negotiations. But Pearson had
left the Ex-Im Bank. I knew some of the personnel there. But
this was not an issue that was determined by who you knew; this
was a major policy decision for any government.
So the negotiations were put on hold for a while. However,
as the Cold War developed and other factors, and as Mr.
Eisenhower had some interest in promoting better relations with
Latin America, Ex-Im Bank indicated that perhaps they should
resume discussions on this.
Because it was a major project, they sent their own
engineers down to examine the deposit, to consider the
advisability of the location of smelting facilities, whether a
road should be built or whether a railroad should be built.
Obviously, we needed some form of transport. And whether there
was adequate water supply. It was a major undertaking in an area
where there was no existing industrial activity of any kind.
Finally, we got an indication from the Export-Import Bank
that they would be willing to put up between 50 and 60 percent of
the cost of such a project if we were prepared to put up the
balance. This created a very interesting situation, because up
to that point, Asarco had had no experience in open pit mining.
Swent :
By "we" do you mean you and Cerro together, or just Asarco?
Strauss: No, no, Cerro wasn't in the thing. They had turned the property
down. We had the property.
Asking Phelps Dodge to Join the Venture
Swent: So it was only Asarco.
Strauss: Right. So the question was, without real expertise in open pit
mining, what should we do? Roger Straus and Kenneth Brownell
decided that we needed a partner with a lot of expertise. Two
American companies were the obvious candidates. One was
Kennecott, the other was Phelps Dodge, as a joint venturer with
us in the Toquepala venture. We talked about it. There was one
handicap with inviting Kennecott to be our partner, and that was
that Kennecott was already operating a major project in Chile.
Peru and Chile had fought a war in 1879, and while that war was
long past, nevertheless the two countries were not overly
121
friendly. It seemed to us that to have a partner who was also
operating in Chile might create problems.
For example, in the event of a severe recession in the
demand for copper, if both properties were operating at normal
rates, it might seem desirable to avoid flooding the market with
copper, to curtail production somewhat. Where to curtail? If
curtailed in Chile, the Chilean government will be upset.
They'll be particularly angry if the Peruvian facility is running
at full tilt. Vice versa, if output is curtailed in Peru, the
Peruvian government will be unhappy. So it seemed to us that by
including Kennecott there might be an unnecessary burden because
of this latent hostility between Peru and Chile.
Therefore, Mr. Straus and Mr. Brownell went to see Louis
Gates, who was then the head of Phelps Dodge. Mr. Gates was very
interested.
Swent: Their headquarters were in New York also?
Strauss: They were in New York. Mr. Gates was very interested. He said,
"I will send my engineers down to look at this deposit. I'll
look at all of your data. I'm interested in being a partner."
But he said, "I know that while you have been developing the
Toquepala deposit, Cerro de Pasco and Newmont have had a joint
venture to explore another deposit called Cuajone. I hear that
they have had pretty good results."
Adding Newmont and Cerro de Pasco as Partners; the Cuajone Mine
Swent: And this was not far away?
Strauss: Twenty-five miles away. He said, "I think it would be a grave
mistake to set up a situation in Peru like the situation in
Chile, where Anaconda and Kennecott are sort of played off one
against the other by the government. And that is likely to
happen if Cuajone is actually brought forward by Cerro and
Newmont .
"
Incidentally, we were well aware by this time that Cerro and
Newmont had also approached the Export-Import Bank for a loan,
but we had approached Ex-Im Bank earlier, so Ex-Im Bank said to
them, "We're not about to finance two copper projects in Peru at
the same time. We're working on a deal with Asarco. If that
doesn't go through, we'll be glad to talk to you." But in
122
effect, "Asarco was here first, and we feel in all fairness we've
got to take care of them."
So Mr. Gates said, "Let's form a joint venture with all four
companies involved--Asarco, Phelps Dodge, Newmont, and Cerro.
We'll go forward with the Toquepala project, because that's the
one that has had the most study by the Ex-Im Bank. And the
Cuajone project can wait down the stream."
Swent : Gates suggested this after investigating it?
Strauss: After the preliminary talk. He said it right at the outset. He
said he knew about Cuajone, and he just didn't want to go further
with us until this issue was settled. Well, you can imagine, we
had four different companies headed by very strong-minded people.
By that time, Bob Koenig was the CEO at Cerro. Malozemoff had
just taken over as CEO at Newmont. Gates was at Phelps Dodge.
Straus and Brownell were in Asarco. And these were all strong-
minded people, and each one knew of reasons why his company was
entitled to lead the venture. It took a long time to work out a
deal.
Finally, a deal was worked out under which Asarco would have
slightly more than half of the shares, because we had the
commitment from Ex-Im Bank; because we would be the operators of
the smelter, which was important; because we were prepared to put
up the management for the construction of the plant. Cerro felt
they had a very strong claim. They felt they had looked at
Toquepala first. They had found Cuajone. They took about 20
percent. Phelps Dodge put in about 16 percent, and Newmont a
little over 10. Those percentages have altered slightly over the
years, but it's still roughly the basis of ownership of Southern
Peru. So we went back to the Ex-Im Bank with this deal.
Meanwhile, the estimated cost of the project had increased,
because it was clear that we should operate it at a somewhat
higher rate than originally thought, which meant more capacity.
Furthermore, if Cuajone was going to be available, you could
exhaust the Toquepala mine more rapidly, because you'd have the
other one to fall back on, which would use the same transport and
smelter facilities as Toquepala would use. We were going to
develop a major water source fifty-three miles away at a lake,
Suche, at an altitude of 15,000 feet above sea level. We had to
put in a pipeline to bring in enough water not only for the
processing in the mill but for the community that was going to be
built.
123
Building a Railroad and a First-Class Town Site
Strauss: So it was a vast undertaking, really. In today's dollars, it
would probably have run a billion dollars. But the final figure
came in at slightly over $200 million to produce 160,000 tons of
copper a year, with a railroad rather than a haul road.
Malozemoff argued strongly for use of trucks rather than rail.
Phelps Dodge--
Swent: That is, to the port?
Strauss: To the port. Well, and we'd need a rail connection between the
mine and the concentrator, which would be close by, but
nevertheless, the transport--
Swent: But they used trucks in the mine?
Strauss: They used trucks on the levels of the mine, but as at Bingham
[Kennecott's mine in Utah] at that time, the trucks emptied into
rail cars and the rail cars went down to the concentrator.
Bingham was in a sense a sort of a general model for this
project. The smelter would be at the coast. We needed power
plant facilities; that would be built at the coast. There was
nothing: no electricity, no water, nothing.
It was enormous, in an area that had never had an industrial
undertaking of any kind. And of course, we had to bring town
sites. We had to provide facilities not only for the staff, that
is, the professionals, but for the workers, both at the mine and
mill and down at the smelter site, because the town of Ilo was a
miserable collection of run-down fishermen's shacks.
Swent : We visited there in the early seventies, so I did see it. It was
a very nice town site when they were through.
Strauss: You were both at Ilo and Toquepala?
Swent: We went to Toquepala, and Lang [Langan Swent] went down to Ilo,
but I didn't get to Ilo. It was, I think, 1972.
Strauss: Yes. Which was before Cuajone was--
Swent :
Cuajone was being-
Strauss: It was under construction.
Swent: But there was no camp there yet.
124
Strauss: The Cuajone camp is even better than the Toquepala camp.
Swent: I understand it is.
Strauss: And the medical facilities and schoolseverything was far and
above anything that the typical Peruvian worker was accustomed
to.
Swent: First class.
Plato Malozemoff is Outvoted on the Transport System
Strauss: And the railroad was very efficient, although Plato may have been
right, that we would have been better off with trucks. Nobody
will know.
Swent: Why was he so much in favor of trucks?
Strauss: Well, because he felt that the rail facilities were sort of a
permanent location. If you used trucks, if there was a problem
with the road, you could have divergence. He just thought the
truck transport would prove in the long run to be less expensive.
Swent: And he was outvoted?
Strauss: He was outvoted. That's to say, P-D had had operations with rail
between their mines and smelters. For instance, they didn't
truck their concentrates from Bisbee to Douglas; they shipped by
rail. And of course, the interesting thing about it was that,
this was very efficient rail, because the heavy traffic was from
the mine down to the port. There was a lot of return traffic in
the form of supplies and fuel and so on, but in effect, you were
helped by gravity.
I often used to joke, some of the tees on the golf course at
Toquepala were 9,000 feet above sea level. If you hit the ball
right, it would roll all the way down to the Pacific Ocean,
[laughter) And one of the interesting things about the project
was the use of seashells to provide the lime that was required in
the smelter. Did you know about that?
Swent: No, I didn't.
Strauss: There was a major mining operation of digging up the centuries of
seashells that were deposited up the coast not very far from the
smelter, to be used for the--
125
Swent: Lovely pure lime.
Strauss: --coquina.
Well, it was 1955 before all of this was hammered out, the
money raised, the contracts placed for the equipment.
Construction started late '55, early '56. The first general
manager was a chap named Doerr who had been running one of the
smelters in the United States. But some of the partners were
dissatisfied, he wasn't pushing things aggressively enough.
Ed Tittmann. President and General Manager
Strauss: So in his place, he was replaced by E. M. Tittmann, who
later became chairman of the board of Asarco, and he was a
dynamo. Ed went down--Ed was the first president and general
manager of Southern Peru Copper Company. The board consisted of
six Asarco executives plus two representatives of each of the
three other companies, and Ed Tittmann--a total of thirteen. We
made it clear from the start that if the board of directors got
involved in questions of marketing policy, we would run athwart
of the Justice Department. They would say, "You are using
Southern Peru as a way of collaborating to create price controls
that might spin off into the U.S. market." So it was agreed by
everybody that Asarco would handle the marketing of the copper.
Marketing to Satisfy Both the Department of Justice and Peru
Strauss: Originally, we were to produce blister copper in Ilo and ship
blister copper to refineries in the United States or in Europe.
Some of the partners wanted all of the blister to come to the
United States. Phelps Dodge had a refinery at Laurel Hill, New
York, in those days. Asarco had refineries at Baltimore and
Perth Amboy, which were logical places to handle the blister.
Neither Newmont nor Cerro de Pasco had refineries in the United
States, but they had strong ties at that time with the American
Metal Company, that operated the refinery at Carteret, and they
made arrangements with American Metal under which any blister
that was assigned to them by Southern Peru would be refined at
American Metal's facilities.
However, I felt very strongly that some of the blister,
perhaps the majority of the blister, ought to go to Europe. The
126
Peruvians would start to feel about Southern Peru, perhaps, the
way the Chileans had felt about the Chilean copper that came up
to the United States, was refined here, and fabricated by
subsidiaries of the owning company in Chile. I felt that we
should be selling blister in the open market. There were two
large refineries in Europe. One was the plant at Hamburg, owned
by Nord Deutsche, and the other was a plant at Olen in Belgium,
operated by the Societe Generale des Minerals , or its affiliate,
the name of which escapes me at the moment.
First of all, by dealing with these European refineries, we
would get processing terms which could be considered arms-length
terms. Whereas, if the blister were sold to the parent companies
for treatment in their own refineries, or in the case of Newmont
and Cerro, the Amax refinery, there would always be the suspicion
on the part of the Peruvians that the charges for refining were
excessive and dominated by the desire of the owners to earn
profits outside of Peru from what was basically a Peruvian
product.
So that broad policy issue was agreed to, but beyond that,
it was agreed by all the partners, and as far as I know has never
been deviated from, that the determination of the pricing methods
to be used, where the sales are to be made when you have copper
blister refined on a toll basis, so that the copper is returned
to you for sale, that that determination should be in the hands
of one of the partners, but not in the hands of the four. And
since Asarco was the biggest partner, and also had the best sales
organization in Europe --Newmont and Phelps Dodge had none, Cerro
had a rudimentary sales organization, basically the sales
representative of American Metal--so it was agreed that American
Smelting and Refining Company would handle the marketing, and
that was consistently the case until the military junta came to
power and took over marketing. Currently Southern Peru has its
own marketing department in Lima and in 1994 bought the
government refinery in Ilo.
American Smelting and Refining Company appointed somebody in
the organization on behalf of Southern Peru to negotiate the
refining terms with the other partners, so that they would be
uniform. We wouldn't allow Phelps Dodge to charge more than
Asarco or Amax to charge more than Asarco or Phelps Dodge. We
wanted uniform refining rates in the United States on the part of
the United States partners. There may have been--
Swent : So some was sold in the States?
127
Strauss: Some was sold in the United States or converted on toll in the
United States, but it did come to the United States. But for a
long time, the bulk went to Europe.
Swent: How do you go about is this sold through the commodity exchange,
or direct-
Strauss: No. It may be sold on the basis of commodity exchange prices,
but it's sold to consumers. The refined copper is sold to
consumers. The price named may be the price prevailing, and here
we're getting into a very vast subject. But it may either be the
price prevailing on a given day on the commodity exchange this
is in Europeor the average price for a month. I always
preferred to sell on the basis of the average price. I don't
think that you can pick specific dates. If you start picking
specific dates, the customer will want the option of deciding
which dates, and then you get into all kinds of controversy. So
the average price for the month should be fair to both the buyer
and the seller, and most of the copper has been sold on that
basis .
Now, in the United States, there have been periods when the
price in the United States has been quite different from in the
world market. That has always been sort of a tangled question,
because the Peruvian government obviously wants the best price.
They don't care whether it's in the United States or in Europe,
but they want the higher of the two, whatever it might be. In
the United States, until after 1974, the domestic producers of
copper selling to domestic consumers did not use commodity
exchange prices. They nominated their own prices, which might be
roughly the same as the commodity exchange prices, but at times
were very different. We'll get into discussion of that issue
subsequently when we talk about some of the price control issues.
The Toquepala negotiation was very lengthy, very difficult,
but proved in the long run to have a quite successful outcome.
Actual production started in the end of 1959. The first year of
full production was the year 1960. Toquepala operated at all
times at capacity. The tons of copper produced gradually
retreated as the better grade ores close to the surface were
exhausted and we got into lower-grade ores. The first few years,
the material treated had a higher copper content than the average
of the ore body, so the production gradually diminished from
160,000 tons this is short tons more or less a year to the
present level of 100,000 to 120,000 tons. There have been some
labor strikes, but except for that, Toquepala has operated
continuously at or close to capacity over all this period.
Swent : It's been a fantastic mine.
128
Strauss: It began in 1960. The bulk of the Export-Import Bank debt was
retired within the first three or four years. I don't remember
any longer, but I think the loan was either a fifteen- or twenty-
year period. About $5 million of that debt was kept in place
over the life of the contract simply because we wanted, in
talking to the Peruvian government, to be able to say, "Well, you
know, a United States government agency, the Export-Import Bank,
is a lender to this organization, and we mustn't do anything
which will get them too upset." Well, many things were done that
did get them and got us upset, but that was some political
developments.
Swent : So it was not taken over?
Strauss: No. After Mr. Tittmann returned to New York, which was about
1961 or '62--
Swent: Perhaps I was wrong about when I was there,
there in '69.
I think we were
Strauss: Yes. That was shortly after the military junta had taken over in
Peru, '69. Well, whatever the case is, after Mr. Tittmann
returned to the United States, the CEO of the operations in Peru
was Frank Archibald, who had been with Asarco at the Tacoma
smelter and elsewhere. He was a marvel at handling relations
with the Peruvian government. It was largely because of Mr.
Archibald and the advice of people in the New York office,
principally Charles Barber and Alexander Gillespie, the general
counsel, that Southern Peru steered a course of action which
prevented the Peruvian government from taking over.
The Quellaveco and Michiquillai Mines Are Nationalized
Strauss: We did lose one property of Southern Peru, and we lost another
property that Asarco had found in northern Peru. In addition to
Cuajone and Toquepala, which were major ore bodies, during the
exploration period after the war Asarco engineers had identified
a third deposit in the general area called Quellaveco.
Quellaveco was lower grade than either Toquepala or Cuajone, and
it was somewhat smaller. There was over 200 million tons,
however, of material running--
Swent : And in the same region?
129
Strauss: In the same region. To describe their locations, Cuajone is to
the east of Toquepala about twenty-five miles. Quellaveco is
about fifteen miles northeast of Toquepala, and about the same
distance northeast of Cuajone, so they formed a sort of rough
triangle. We identified the Quellaveco deposit, but we had no
plans to bring it into production soon, because it was lower
grade. It's a resource which we thought over the years would
eventually be available, probably for treatment at the Toquepala
concentrator when the Toquepala production began to ebb. The
railroad would be extended up there, or a road would be extended
up there, and the ore would be brought down and processed at
Toquepala.
However, when the military junta took over in Peru in 1969
or '68--I think it was '68--they said that it was not appropriate
for mining companies to own large deposits indefinitely. These
resources belonged to the Peruvian people. If the companies were
not prepared to go ahead with the development of those resources,
then they would revert to the state. Rather than get into an
argument about Quellaveco, we did say that we already were making
studies about bringing Cuajone into production, but we were not
prepared to invest money also in Quellaveco. So the government
took over Quellaveco, and only within the last few months, they
put it up for sale. Southern Peru made an offer for it, but was
outbid by the Anglo-American interests through Minorco--you know
that name?
Swent: Yes.
Strauss: Which already had property in Chile, the Mantos Blancos copper
mine in Chile. So they now have the Quellaveco property and
they're looking at ways to get it into production. I can
anticipate that perhaps, because of the logistics, in the long
run a deal will be worked out between Anglo-American and Southern
Peru to make the transport facilities Southern Peru has, the
water supply Southern Peru has, the milling capacity Southern
Peru has, available for Quellaveco.
Swent: It would be logical, wouldn't it?
Strauss: Because it's the logical thing to do. It would be ridiculous to
invest money in building a separate facility, considering the
proximity of these deposits.
The other deposit in which Asarco had an interest (not
Southern Peru) was in the north of Peru near the town of
Cajamarca. It had the amusing name of Michiquillai. This,
unlike the Southern Peru properties, is in an area that is farmed
by the local Indians. There would be problems about displacing
130
them if Michiquillai was brought into production. It is fairly
low grade, very large tonnage. Probably 500 million tons, but
well under 1 percent copper. Asarco was not prepared to go ahead
with that, particularly not with the political situation in 1968.
So the government took it over, said they'd find somebody
else to develop it. Countless Japanese, Finnish, and other
people have taken a look at it, but nobody has yet ventured to
put up the huge sums of money that would be necessary. This is a
very historic area in Peru, because it was at Cajamarca that the
Spanish explorer Francisco Pizarro first met the Incas. It will
be interesting to see what eventually happens to Michiquillai.
But it's one of literally dozens of Peruvian deposits which
contain substantial quantities of metal, but the logistics, the
difficulties of transportation, the climate, other problems
just--
The Quirivilca Mine
Swent : And as you mentioned, the political situation sometimes is even
more important than the supply and demand.
Strauss: That is correct. However, as an indication of Asarco' s ability
to get along with governments that take over other people's
mines, Northern Peru has continued to operate a small copper-
lead-zinc operation up at the Quirivilca mine. What has actually
happened there is that a minority interest, 20 percent, has been
sold to private Peruvian investors. It seemed desirable to us to
have a Peruvian investor in this small mine. But it continues to
operate, it produces copper, lead, zinc, and silver. It has a
substantial potential for expansion at some future date when the
feeling is that this is an appropriate time to invest more.
Frank Archibald's Skillful Management
Swent: You might be a little more specific about what Frank Archibald
did that was so skillful.
Strauss: Well, it was simply that he understood first of all, he spoke
Spanish well. He was originally born in Texas, I believe, but
very close to the Mexican border, had a lot of business, I think
lived for a time in Mexico. He understood the Latin temperament.
A lot of Americans from a cultural standpoint don't understand
131
really how to deal with Latins. Frank did. He always had very
good relationships, for example, with the military officers who
represented the southern region of Peru. There was always a
small army detachment assigned to Toquepala or Cuajone. He got
along very well with them. He knew how to talk to the labor
leaders without getting them offended, and with the local
politicians. He kept in touch with the minister of mines, the
minister of treasury, the people with whom the company had to
deal. He never lost his cool. He never threatened. And he was
well liked there.
When I was arranging the annual the fiftieth anniversary
celebration of the Copper Club last year, recognizing that Frank
Archibald, who had since died, had been a copper man years and
years ago, we managed to find a picture showing Frank being
decorated by a general of the Peruvian army with the highest
decoration that the Peruvian government gives to any foreign
citizen. And this was after the junta had taken over and after
the Cerro de Pasco operations and the W. R. Grace operations and
Exxon's oil properties had all been taken over by the government.
Swent : That was a real compliment to him, then.
Financing the Cuaione Mine
Strauss: It was a compliment to him. Of course, one thing that helped a
great deal was that when the junta came into power in the late
sixties, we said we would go ahead with Cuajone. They knew they
would have trouble raising the amount of money that was necessary
to bring Cuajone into production, and so it was sort of a carrot
that we were dangling in front of them. And we went ahead with
it. The financing of Cuajone was very difficult, extremely
complex, and quite successful.
Swent: It wasn't the same as Toquepala?
Strauss: No. First of all, we had to have $700 million instead of $200
million, not because it was a bigger project, but simply because
inflation had changed the value of money in the interim. What
was needed to bring in Cuajone were three principal investments.
One was the development of the mine and the construction of the
mill. The second was the expansion of the Ilo smelter so that it
could handle twice as much material as it had. And the third was
the extension of the railroad from Toquepala through the
mountains to Cuajone.
132
Swent :
Strauss :
In theory, there could have been a railroad built that would
have gone from Cuajone directly down to Ilo down a different
valley, but it would have meant that we had twice as much track
to maintain and twice as much rolling stock, in effect. So
instead of that, what was decided was to build a railroad from
Toquepala to Cuajone, but there were intervening mountains, and I
think something like two-thirds of that distance is tunnels.
This was a mammoth engineering job, a huge investment, to dig
those tunnels through the mountain. It's twenty-five miles, as I
said.
But what mountains!
And what mountains. And the experience, which I have had, of
riding on the caboose of an ore train from Cuajone to Toquepala
is quite interesting, because you're in the dark most of the
time. But it's well worth doing.
Tailing Disposal and Other Environmental Concerns
Strauss: And incidentally, in the tunnel, there is provision for bringing
some of the tailings from the Cuajone mill running in a ditch
alongside the track over to Toquepala, where it joins the
Toquepala tailings. Those are eventually disposed of in a
riverbed which is dry most of the year. And they come all the
way down the river to the mouth on the Pacific Ocean.
One interesting project: a nephew of Mauricio Hochschild,
who is a very enterprising young man in the- -he's not so young- -
but enterprising man in the metals business, mining business, in
Peru, actually built a plant at the mouth of the river to recover
copper concentrates, because the action of rolling down that
mountain apparently creates sort of a natural concentration of
the copper content of the tailings. The tailings, of course,
carry some copper but not very much, when you consider that the
ore originally only contained a little over 1 percent.
Nevertheless, he recovered several thousand tons of copper
concentrates a year from the tailings as they reach the ocean.
The fishermen in the area have had some problems with this.
They think that the tailings have discouraged the fish. I
understand that studies have indicated that on the contrary, the
tailings raised the temperature of the water around the mouth of
the river sufficiently so the fish congregate there that want to
warm themselves. I don't know whether that's true or not.
133
Swent: Depends on which side you want to believe.
Strauss: But so far as I know, Southern Peru is still disposing of its
tailings in that fashion.
Up to now, the Ilo smelter has had no facilities for the
recovery of sulfuric acid from the smelter gases, most of which
blow out to sea. There are some olive groves in the neighborhood
of Ilo. That's virtually the only agricultural activity. But
there have been complaints from them regarding the effect of the
sulphur on their crops. So as a result of the general movement
toward improving the environment, Southern Peru recently has
arranged financing and will be recovering sulfuric acid at the
Ilo smelter beginning, I suspect, within the next year or two.
Swent: What will they do with that?
Strauss: There is a large phosphate deposit which has not been actively
mined in Peru, and it's thought perhaps the outcome of that is
that the acid will be used in part for fertilizer. But there is
another outlet, and that is that as a result of installing this
facility for producing acid, Southern Peru is going forward with
plants at both Cuajone and Toquepala to recover copper by the SX-
EW [solvent extraction, electro-winning] process which requires
sulfuric acid. 1
So there will be some internal use of the acid.
The acid will have to be shipped back up to the mines where it
will be used--the process involves dumping copper ores with oxide
. content and trickling acid through those dumps and precipitating
copper.
Swent: So that would be a change in the technology up there.
Strauss: Yes. Well, it will provide additional copper that is not now
being used.
Swent: Mr. Hochschild will lose out.
Strauss: Well, no, because it isn't the tailings that will be used. This
will be used for the waste material which previously went on the
dump because the copper content was too low or too oxidized to
justify milling.
Swent: I see. So this is solvent-extraction, electro-winning.
'See Wayne Hazen, Plutonium Technology Applied to Mineral Processing;
Solvent Extraction; Building Hazen Research; 1940 to 1993, Western Mining
in the Twentieth Century series, Regional Oral History Office, University
of California, Berkeley, 1995.
134
Strauss: Yes. As you probably know, in the United States, for instance at
the Morenci Mine currently, Phelps Dodge is producing more than
half of all the copper it produces by SX-EW. That process has
grown like wildfire in the last ten, fifteen years. And I'm sure
we will see a lot of expansion of SX-EW operations in Latin
America. They've been virtually unknown there. They're just
coming in to focus in Chile, and there will be many more. 1
Swent : That will be a happy solution to the problem, then.
Strauss: Unless it so overburdens the copper market that the price goes to
the bottom. [laughter)
Swent: There's always a problem in marketing, isn't there?
Strauss: Yes.
'See Robert Halderaan, Managing Copper Mines in Chile: Braden,
CODELCO, Minerec, Pudahuel; Developing Controlled Bacterial Leaching of
Copper from Sulphide Ores; 1941 to 1993, Western Mining in the Twentieth
Century series, Regional Oral History Office, University of California,
Berkeley, 1995.
135
IX VICE PRESIDENT IN CHARGE OF SALES, 1949-1973
The Complexity of Pricing and Maintaining LIFO Inventory; Asarco
is the Industry Pioneer
Strauss: So a good deal of ray time was really, other than just supervising
what the sales policy of Asarco should be with regard to its own
production, a good deal of my time was spent on projects like
Lake Asbestos and Southern Peru. But one of the important things
that anybody handling sales policy for a custom smelter has to do
is he has to keep one eye always on what the custom smelter calls
intake. That is, the amount of metal that the smelter is buying.
In Asarco's case, that's determined month by month. We try to
estimate how much material will be arriving at our smelter, let's
say, in the month of June.
If the contract for the purchase of that material specifies
that we pay for the copper contained in the concentrates at the
average price for the month of June, we try to calculate how much
that quantity will be, for each of the mines that ship to us.
Whether they are our own mines, that is, Asarco's own mines, or
whether they are mines belonging to someone else. Because the
smelters and the mines, even though owned by the same company,
have to deal with each other at arm's length on this for many
reasons, one of them being tax purposes. When a U.S. company
claims the depletion allowance, it has to be based on an
assumption as to what the value of the copper is in the material
as it leaves the mine and/or mill, because really the mill is
considered by the IRS as part of the mine. So you have to know
what the value of the concentrates is.
Theoretically, if an organization owning a smelter wanted to
exaggerate its depletion allowance claims, the smelter would pay
a lot for the concentrates and keep very little for its own
processing charge. That would mean that the value of the
136
concentrates would be higher, and the 15 percent depletion
allowance would apply against the large amount.
On the other hand, if the smelter operator wants to make a
big profit, of course, he charges a lot for the processing of the
ore. So the IRS looks with great care at the contract between,
let us say, the Mission mine belonging to Asarco and the Hayden
smelter belonging to Asarco. What is the transfer price between
the Mission mine and the smelter--is it too high or too low, or
is it right? The tendency is by custom smelters, such as Asarco,
to apply the same processing charges to its own mines as they
apply to an outside shipper. Let's say that Phelps Dodge is
shipping some concentrates to the Hayden smelter, which has
happened from time to time. Well, Phelps Dodge is going to
negotiate the highest price it can, and of course, Asarco is
going to try to charge the highest fee it can. They eventually
arrive at a deal. So that arrangement has been arrived at as the
result of two people serving their own self-interest arriving at
a negotiated price.
Consequently, if the Hayden smelter charges the Mission mine
the same processing fee as it has charged Phelps Dodge, that
tends to satisfy the tax people that it's an appropriate charge.
I've gone into great length to explain that to you, but it is a
very important part of the custom smelting business.
But the most important part from the standpoint of the sales
department is not that we sell a lot, but that we sell everything
for which we are paying that month's price. In other words, in
the month of June, the best thing to do is to sell as much copper
as we are buying in the month of June. We try to balance it; we
neither add to nor subtract from inventory. If we sell more, if
a customer comes in and pleads with us he has to have more, if we
sell more to the customers than we are buying from the suppliers,
then the next month, if the price of copper has gone up, we have
lost.
Because at the end of the year, the effort is always to have
the same inventory on hand that the smelter had at the beginning
of the year. If the smelter has a different inventory, if it has
more inventory on hand at the end of the year than it had at the
beginning of the year, then the stockholders have more capital
tied up. If there is less inventory on hand at the end of the
year, that means a sale out of what Asarco has called its "iron"
inventories, that means the inventories necessary to carry the
business. Because a smelter can't run the business with no
inventory. There's always material going through the plant. It
takes three months, roughly, from the time concentrates arrive at
a smelter before refined copper is sold from the refinery. That
137
three months is roughly equivalent to the inventory that the
company has to be carrying.
Some of the inventory carried by a custom smelter such as
Asarco may in fact date back on a cost basis as far as the pre
war period during the Depression. There may be some copper that
is on the books at nine cents a pound, because that was the cost
when the inventory was first put into place. Under the LIFO
method last in, first out method of inventory, if in a given
year Asarco has sold more copper than it purchased, that excess
is deemed to have cost Asarco whatever price it is carried on the
books, and the company pays income tax on that profit. Let's say
that the copper was bought at fifty cents a pound and we sold it
at eighty cents a pound. That's thirty cents a pound of profit,
and you pay 30 percent or whatever the tax rate is in income tax.
It can be an extremely expensive thing to oversell, for somebody
who's in the custom smelting business and uses LIFO.
Swent : I read somewhere that when Asarco had made this LIFO inventory it
was a big breakthrough, that they were the first ones-
Strauss: They were among the first to use it in the industry.
Swent: Were you involved in this change?
Strauss: No, this was before I came with the company. Asarco 's inventory
situation is watched by the management like hawks.
Swent: But this was in place before you came in?
Strauss: Yes. The procedure was in place. I got to know all about it in
talking with the controllers and other people in the tax
department. So it was almost the first thing when I was
recruiting young people to come into the sales department which
really surprised them. I said, "Don't expect me to pat you on
the back if you sell more than our target figure for the month,
because it could be very expensive for the company for you to
oversell. And on the other hand, I'm not going to pat you on the
back either if you sell less than we have taken in for the month.
What we try to do each month is to sell the amount of material
that we are pricing each month. It's like walking on a tightrope
to do this. It's a juggling act."
Now, some things can be done to balance the books if we
oversell to please a customer. We can perhaps go to the
commodity exchanges and buy back an equivalent amount at the same
price that we have oversold, if we had the physical metal and it
makes the customer happy. But these are the finer points of
sales management that one has to deal with. As you will recall
138
Swent :
Strauss :
that I commented, I think it was yesterday, that in effect, the
custom smelting business requires a greater degree of
sophistication than just a company that is a straight producer.
This is one of the reasons, the fact that you're constantly
looking at the cost of materials on hand month by month and year
by year.
Fascinating.
Yes, it is.
The Foreign Sales Representatives: a Superior Network
Strauss: So we had a very good sales organization at Asarco, in my
judgment. The individual commodity managers were good. But what
I took the greatest pride in really in many ways was the skill of
our foreign sales representatives. When I assumed the sales
responsibility, all Asarco' s Mexican production was sold abroad,
and it was very large in lead and zinc, small in copper, very
substantial in silver. We were also selling some material for
Peru, and eventually this other Peru sales problem came along.
At times Asarco 's sales representatives might be selling under
instructions from Southern Peru management or from Mount Isa
management; in effect the sales agents in the major European
countries represented not just Asarco, but Mount Isa, Southern
Peru, the Mexican operations after Mexicanization, which happened
in the late fifties, early sixties, when the control of Asarco' s
Mexican properties passed to Mexican investors and Asarco became
a minority stockholder.
Nevertheless, for a long time, the marketing operation
continued under the general guidance of the New York office, and
the
Swent: You were just discussing your foreign marketing staff that you
were so pleased with.
Strauss: Yes.
Swent: And in Mexico, just for the record, what were the operations?
Strauss: Well, the smelting operations, the lead smelters were at
Chihuahua and San Luis Potosi. The zinc smelter was at Rosita in
the state of Coahuila. The copper smelter was in San Luis
139
Potosi, and the lead refinery was at Monterrey. The significant
mines were the Parral and Santa Barbara mines in the state of
Chihuahua; the Charcas mine, which was in San Luis Potosi; the
Taxco mine, primarily silver, but some lead and zinc, which was
south of Mexico in the state of--I can't recall.
Swent: Guerrero, I think.
Strauss: We had a copper operation in a place called Michoacan. Later, a
very substantial zinc-lead-copper mine was developed at San
Martin, which I think is also in Chihuahua. So the operations
were quite widespread through Mexico, and actually, when Asarco
was operating 100 percent in Mexico, there were more employees in
Mexico than there were in the United States. Well, the
productivity wasn't quite as great. Many of the properties down
there were less mechanized. They tended to be underground,
highgrade operations where you needed a large number of people.
Swent: They've been there a long, long time.
Strauss: Yes. The Taxco, Parral, and Santa Barbara mines dated back to
the days when the Spanish first arrived in Mexico in the
sixteenth century. So they were old mines, but very productive.
I would like to revert to the question of the [sales]
agents. Prior to the war, Kenneth Brownell had made a close
arrangement with an outfit in London called Metal Traders,
Limited. Metal Traders was a ring-dealing member of the London
Metal Exchange. It was headed by a gentleman named Frank Baer,
and his number-one assistant was Walter Stern, both extremely
capable operators on the London Metal Exchange. A third part of
the organization was Brigadier Henry Crosland. The brigadier was
the financial man and the one who exercised caution on his
somewhat more speculatively-minded associates.
Roger Hecht in Brussels
Strauss: Through Metal Traders, Kenneth had made the acquaintance of a
gentleman by the name of Roger Hecht in Brussels. Although
Belgium is a much smaller country than Germany, France, or
England, in fact Belgium has traditionally been a center of metal
trading. It was important to have somebody in Brussels to keep
an eye on the market.
140
Hugo Haines in Germany; Rene Dieppedalle in France
Strauss: In Germany, through Mr. Hecht, the contact was a chap named Hugo
Haines. Hugo had worked in Brussels with Hecht before the war,
but after the war, he was in the city of Cologne. In France, the
traditional representative for many years for Asarco--directly ,
not through Metal Traderswas a gentleman named Rene
Dieppedalle. He was a wonderful character who wore the same kind
of hats that Buster Keaton used to wear; I think they call them
porkpie hats. He spoke virtually no English, and dealing with
Mr. Dieppedalle helped to develop my French enormously.
Giovanni Vaciago in Italy
Strauss: In Italy prior to the war, the agent for many years had been
Giovanni Vaciago. He was a gentleman primarily in the textile
trade, then he had suddenly developed an interest in metal and he
had worked not only with Asarco but also with Kennecott since the
time that the Braden mine was brought into production in about
1916 to 1917. He was a wonderful gentleman.
Torsten Johnke, Sweden; Harald Astrup, Norway; Prosper
Franck, Switzerland
Strauss: So this was the network that I inherited from Kenneth Brownell.
It became clear to me that we needed additional people. We found
a chap in Sweden named Torsten Johnke, and in Norway a gentleman
called Harald Astrup. Oh, I overlooked one who was inherited
from Kenneth Brownell: in Switzerland, in Basel, our agent was
named Prosper Franck.
When I joined Asarco in 1946, and in spite of my wife's
problems, I managed to find three weeks when I could go to Europe
with Kenneth Brownell to visit London, Brussels, and Paris.
Those were the three places that we went, and we met with many of
these gentlemen there. Thereafter, I developed the procedure of
going to Europe once a year to meet with our agents. For a long
time, I made an individual trip around the circuits. I would not
go to the smaller markets like Norway or Switzerland every year,
but I would make it my business always to go to Brussels, Paris,
London, and either Frankfurt or Cologne in Germany, and Milan in
Italy.
141
Roger Hecht died quite unexpectedly in 1957. I had to find
somebody to run the Brussels office in his place, because by that
time, Hecht had changed his association. He was no longer an
employee of Metal Traders but worked directly as Asarco's agent.
He maintained contact with Metal Traders. There was a chap in
Hecht 's office who carried on for two or three years, but he was
an older man, not very quick, and anxious to retire.
International Metal Company of Belgium; Jean Cortier
Strauss: So I looked around, and in Holland I found a Belgian named Jean
Cortier who was employed by a Dutch trading firm. He was one of
the best contacts I ever made in regard to personnel. I
persuaded him to move back to Belgium, which he was very glad to
do, and to take over our office in Brussels. By that time, we
had incorporated it as the International Metal Company of
Belgium, and he was a direct employee of Asarco's. He was more
or less the command center for our European sales operations.
Swent: Did the Common Market influence you at all?
Strauss: Yes.
Swent: Because Brussels was the head of that.
Strauss: Exactly. Brussels was neutral. One of the problems of having
our central office in a large market like Italy, France, or
Germany on the Continent would have been that whoever was the
agent there would have wanted in times of shortage to take care
of his home customers as much as he could. I wanted a fair
distribution of sales, and to maintain good contacts with all of
our European customers. By having the office in Brussels, since
we sold little material directly in Belgium, it was possible to
administer the program in an equitable fashion. Actually, the
Brussels office took care of the Dutch market as well as the
Belgian market, since as you know, Belgium and the Netherlands
are both part of Benelux. We had an excellent customer in
Holland, the cableworks at the town of Delft, which was probably
Asarco's most faithful customer over the years.
142
An Unfortunate Incident in Copper Marketing in the Early 1960s
Strauss: About 1964, we had to make a change in our arrangements with
Metal Traders in London. An unfortunate incident occurred, which
was not Metal Traders' fault, but it made it clear to me that to
continue to use Metal Traders as our principal agency for sales
even in the United Kingdom might lead to unfortunate
consequences. Let me explain, because it shows the problems of
public relations at a time of shortage in metal supply.
The copper market was very tight at the time that this
incident occurred. Prices were high, consumers were screaming
for additional supplies, producers were turning out every ton of
copper they could, but they still couldn't satisfy the demand.
Mount Isa unfortunately went on strike. The unions felt that
this was a good time to improve their trading position. And as a
result, there was a severe shortage of copper metal in Australia,
because Mount Isa was by then the principal supplier to the
Australian market. It was necessary for the Australian consumers
to go into the world market and import copper.
A shipment of Tacoma copper arrived in Australia.
Immediately, the union seized on this to say that Mount Isa was
being instructed by the New York office to be intransigent in
settling the strike in order that New York could sell copper at
high prices to Australian consumers. The facts were that that
particular shipment of copper had been sold by the New York
office of Metal Traders. It represented copper that we had
smelted on a toll basis for a Philippine copper mine which
shipped to the Tacoma smelter, and was entitled to get the copper
back as refined copper. This Philippine mine employed Metal
Traders in New York, as they had every right to do, to sell their
copper for them. And Metal Traders, not thinking about the
strike at all--and I don't blame them in the slightest they knew
there was a good market in Australia, the prices were high.
Tacoma was the place from which you could ship copper to
Australia much better than to ship it from Europe, so they sold
the copper there.
The union screamed bloody murder, the Australian government
got very upset that Asarco was encouraging Mount Isa management
to continue the strike. So I went to the Metal Traders people in
London and I said, "I'm terribly sorry about this; this whole
thing is a misunderstanding resulting from an innocent
transaction on your part, but it's very embarrassing for us, and
I think that we cannot continue to have the same relationship
with you as we have had. We are going to have to open our own
office in London."
143
Well, when I said our own office, it was really going to be
Mount Isa's office in London. They were already having their
lead refined in England, and they had a small sales organization,
but it was necessary to expand that. So from that time on--
Swent : And this was when?
Strauss: This was in the early sixties, at a time of high copper prices.
It was an unfortunate example, but it shows how people
extrapolate from a set of circumstances, and how innocently you
can create an impression of trying to control the market. But it
also indicates how complex the business of marketing metals can
be, because the unions were watching Mount Isa like a hawk. The
strike was eventually settled. Actually, Mount Isa's labor
relations since then have been quite good. They have had the
occasional slow-down or work stoppages, but not to any great
extent .
The union then believed or at least claimed that New York
dictated the labor policies of the Mount Isa organization in
Australia, which of course it didn't. It was strictly the
responsibility of the management to deal with the union as they
saw fit. While I was at Asarco there had never been an Asarco
person on the board of Mount Isa, even though at one time we
owned more than 50 percent of the Mount Isa shares. We've always
given the Mount Isa management -- "we ", I should say, Asarco--had
always given Mount Isa management its head.
Swent : But you've done the marketing for them.
Strauss: We did some of the marketing for them, but as the years have
passed, that too has disappeared and Mount Isa now markets pretty
much on its own. They still use some of the same agents that we
--that Asarco had used. I keep saying "we"; I am no longer part
of Asarco. I shouldn't be using that, and when we edit the text,
maybe we'll make changes, because I don't want to offend my
friends at Asarco by presuming to speak for them.
Swent: Well, but you're talking of times when you were.
Strauss: When I was in a position, yes.
So it's very tricky, when you have foreign investments. I
gave you the examples of Peru and Australia. Mexico is equally
sensitive. One always has to bear in mind what it is that the
local government perceives, not necessarily what the facts are,
but what their perceptions are of the facts. Just like the
Chileans had a perception about Anaconda and Kennecott that was,
in my opinion, quite mistaken. It was equally true with respect
144
to Mexico. Time and again, something that had been done in the
best of faith was misinterpreted in Mexico as to be something to
benefit the New York office and harm the Mexican employees or
partners. It's one of the handicaps of an operation outside the
country.
Organizing the Mt. Isa Sales Office in London
[Interview 3: August 25, 1994]
Swent: This is Thursday now, August 25, and we're continuing the
interview. You said that you wanted to say a little bit more
about your international marketing system, or people.
Strauss: Yes. As indicated, we came to the decision, with some
reluctance, that we had to break the tie with the Metal Traders
organization in London. Mount Isa mines undertook the
organization of a sales office of considerably greater scope than
they had previously had. Their previous office had really
limited itself to the sale of lead and silver within the United
Kingdom.
The chap that was in charge of this was a man named Henry
Sewell with whom I had excellent relations. William Foster was
the senior person representing Mount Isa in London. He was a
member of the Mount Isa board of directors. He and I recruited
for the London sales office two people out of the Metal Traders
organization, with the full understanding and consent of the
Metal Traders people. These were a chap named Richard Toller,
who had handled matters relating to copper, and another one named
John Bendit, who would be responsible for lead sales. They
continued to be responsible for the sale of these metals during
the entire balance of my career with Asarco, and they were
extremely capable.
Changes in the French and Italian Offices
Strauss: Two other significant changes occurred. One was that Mr.
Dieppedalle in France was getting older and needed a junior
partner. He found an exceptionally capable young man named
Claude Seailles. Claude had worked in procurement of copper for
the French government, was very familiar with the market, spoke
145
excellent English, unlike his senior partner, and proved to be an
outstanding addition to our group.
Finally, in 1959, I had to have a chat with Mr. Vaciago, our
Italian agent, because in addition to representing Asarco, he was
also selling copper in Italy for Kennecott. With Southern Peru
coming onstream, it did not seem advisable to have one agent
selling both Peruvian and Chilean copper in Italy, simply because
the governments back in South America might be suspicious that he
was favoring one country over the other.
He recommended, and I accepted his recommendation, that we
consider engaging his son-in-law, whose name was Prince Fabrizio
Ruffo di Calabrias. Fabrizio was a most engaging person, a
former pilot in the Italian Air Force. His sister, Paola, was
one of the reigning beauties of Europe and had married Prince
Albert of Belgium just shortly before Fabrizio joined our sales
organization. As a consequence, we found ourselves at times
involved in aristocratic preferences [laughs] on the part of our
customers. People in Italy almost scrambled over each other in
an effort to do business with Prince Ruffo.
But he did not simply take advantage of his social
connections and his prestige. He turned out to be an extremely
effective trader, particularly in copper, but also in other
metals. He did a fine job in the sale of asbestos.
Annual Sales Meetings on the Continent
Strauss: So by the early sixties, we had an exceptionally well qualified
group of people representing us in Europe, and it struck me that
instead of meeting individually with them in their home
countries, it would be appropriate to organize an annual sales
meeting somewhere on the European Continent. Over the years, the
meeting places varied between London, Paris, and Brussels
basically. We would spend two or three days together. Many of
the agents brought their wives to these meetings, and so, for
that matter, did our English associates who represented Mount
Isa. The marketing people from Southern Peru and our Mexican
operations were invited to join us. So we had a truly
international meeting.
Swent : Were you the chairman of these meetings?
Strauss: I was the chairman of the discussion of the state of the metal
markets. But it was a very useful exchange of ideas, and since
146
Swent :
Strauss :
Swent :
Strauss ;
Swent :
Strauss:
Swent :
Strauss :
many of these people did business in other fields unrelated to
Asarco, they formed sort of a brotherhood and found it was very
advantageous to have the opportunity to meet their colleagues
from the other countries. I'm sorry to say that I believe over
the last few years this has sort of died down. Mount Isa and the
Mexicanized group, which I will discuss later, tended to want to
go their own ways, and this practice of having an annual sales
meeting I believe no longer takes place. But while I was
responsible for Asarco 's marketing, we did have the meeting every
year, and it was a stimulating occasion.
Must have been.
The proceedings were basically in English, but there was a good
deal of French, German, and Spanish around the fringes of our
sessions .
What languages are you fluent in or capable in?
I speak good Spanish and reasonable French,
inadequate.
My German is quite
I mentioned earlier that our Swiss representative was
Prosper Franck. In the late sixties, unfortunately, Prosper
died, and it was necessary for us to find another representative
in Switzerland. However, I happened to be in Geneva attending a
meeting a few months after his death, and I persuaded John Bendit
from England and a Mount Isa marketing man, John Morgan, from
Brisbane, to go with me from Geneva up to Basel to talk to Mrs.
Franck and explain to her why we felt we had to do business
otherwise, since she was unfamiliar with the business, and I
think would have been quite incapable of carrying on.
Mrs. Franck turned out to be a very nice little lady, but
she spoke no English and only fragmentary French.
Was she in business with her husband?
No, she hadn't been really, but I felt that, her husband's
business having ended, that I owed it to her to talk to her.
He had no associate who would naturally take over?
He did not have any really. He had had one, but that gentleman
had died earlier. So we really needed to find somebody else, but
first of all, I thought it was appropriate to pay sort of a
condolence call, but secondly I wanted to make sure that she was
happy and understood what we were doing.
147
H
Strauss: In Switzerland, it's customary for a lawyer who specializes in
estate matters also to be an accountant, and fortunately, Mrs.
Franck had an accountant who spoke splendid English, and also
French as well as GermanBasel, you know, is in the German-
speaking part of Switzerland. Nevertheless, I felt I owed Mrs.
Franck an apology for not being able to speak German with her,
since she spoke no English and very little French, and I said to
her that really the only German word I knew well was
Constantinopalischendudelsacpfeifer [laughter]. This means, "a
bagpipe player from Constantinople." I said I found it difficult
to work that into our conversation. She was very amused when her
accountant translated for her.
A few months later, I got a letter from my friend John
Bendit in England who had listened to this, and he said, "I have
found another word for you that is the equivalent to
Constantinopalischendudelsacpfeifer," and I'll spell that out for
you.
Swent :
Yes, I'm not attempting that.
Strauss: He said, "It's Hottentotenpotentatentantetotentater .
"
What that
means is "the assassin of the aunt of an African chieftain." As
a consequence, I now feel that in the event an African
chieftain's aunt is assassinated by a bagpipe player from
Constantinople, [laughter] I can describe the situation in full.
Which, of course, is a side remark and has not too much to do
with Asarco's business.
Swent : That's one of the problems with the German language.
Strauss: Yes. But we did have a very smooth working organization in
Europe .
Agents in Japan and Latin America
Strauss: In Japan, which was also a market for Asarco and particularly for
Mount Isa, we were represented by the local office of Metal
Traders. It did not seem to us that any of the types of conflict
that had troubled us in Australia would arise by continuing this
association. In fact, the Japanese were not large buyers of
metal. They preferred to buy the raw materials, the ores and
concentrates, rather than metal. So it was not a major market
for us, but we did want to keep in touch with the Japanese
1A8
situation, particularly in view of the significant expansion of
the Japanese consumption of base metals and the severe
competition which Asarco was undergoing from the expansion of
Japanese smelting and refining capacities. So it was important
to have a listening post in Japan.
In Latin America, there were a number of agents representing
us in Brazil and in Argentina, but the volume of consumption of
refined metal in those countries for the most part was not large.
The Brazilian market grew rather rapidly; the Argentinean market
was more or less static, because their economy was not expanding.
Swent : Did you have to make any commitment to provide a certain amount
to Peru?
Strauss: No, because in Peru, in addition to Southern Peru Copper, the
Cerro de Pasco organization operated not only mines and smelters
but had a lead refinery, copper refinery, and a zinc smelter, and
they were fully able to take care of the very limited consumption
of metals in Peru.
In Mexico, however, the Mexican organization had very
substantial sales of both lead and zinc to domestic consumers,
and that was handled out of the Mexico City office. I would go
to Mexico once a year to confer with the gentleman in charge, who
first was somebody named Lott Taylor and later Walter Hurley.
They did a very conscientious and good job of taking care of the
Mexican market.
Swent: Didn't have Mexicans doing it?
Strauss: Yes, they had Mexican assistants, and eventually when the company
became thoroughly Mexicanized, the American employees retired and
were replaced by Mexicans.
U9
X THE EFFECTS OF NATIONALIST MOVEMENTS IN THE 1960S
Bolivia Nationalizes the Tin Mines
Strauss: This is an appropriate time to talk about not only Mexico but
about the whole trend of nationalism that developed in the
sixties. The first of the Latin American countries to
expropriate foreign or even domestically owned mining properties
was Bolivia. In the early 1950s, the Bolivian government took
over the holdings of what were called the three tin kings of
Bolivia, namely, Patino, Aramayo, and Mauricio Hochschild.
Patino and Aramayo were Bolivians, although Patino 's company
shares were actually traded on the New York Stock Exchange, so
that there were some American shareholders. The leftist
government in office at the time of the nationalization felt that
the mines were being mismanaged and that the profits were not
being made available to the impoverished Bolivian population, so
they took these mines over.
Parenthetically, one might say that Bolivia's tin industry
has always been somewhat marginal, although it's the chief earner
of foreign exchange for that country.
A government corporation called Comibol was formed. The
labor unions were able to enforce demands for increased wages,
enforced staffing, which resulted in many thousands more workers
being employed than was really necessary. As a result Bolivian
costs rose sharply and Bolivia was constantly pressing the
International Tin Council of which it was a member for higher and
higher floor prices on tin. I won't go into the details of that,
because it's a very involved story. So this was the first step.
150
Nationalization in Cuba, Africa, Indonesia. Latin America
Strauss: By 1960, however, things were in full cry in terms of
nationalization of foreign mining investments in the developing
world. You mentioned Cuba. The principal operations taken over
there were some iron ore properties--! think Bethlehem Steel had
property there and the nickel operations. There had been a
copper mine in western Cuba owned by American Metal, but I
believe it was already closed down at the time that Castro took
over.
What had previously been called the Belgian Congo became an
independent country named Zaire. Shortly after independence, the
government took over the very extensive copper, cobalt, and zinc
operations of Union Miniere.
In the neighboring country of Northern Rhodesia, when it
gained independence its name was changed to Zambia. The Zambian
government did not expropriate the copper properties completely,
but they took a majority interest in those properties after
lengthy negotiations with the Selection Trust and Anglo-American
Companies, which were the previous British and South African
operators of the mines. Because the Zambians recognized their
lack of trained people, they continued to employ large numbers of
what were called expatriates, mostly British and South African
engineers. And the mines were reasonably well maintained.
In Indonesia, the former Netherlands East Indies, the tin
operations had been taken over also by the government.
In Chile, there had been some developments toward government
partnership with the American companies under the Frei
administration, which was in office in the sixties, but when the
leftist Allende government came to office in 1970, they
expropriated the large American-owned copper properties outright.
This included the Salvador and Chuquicamata mines of Anaconda,
the El Teniente mine of Kennecott, and the newly opened Andina
mine of Cerro de Pasco. Andina had just started up at the time
that Allende took office. Allende refused to make any payment
whatever for the Anaconda and Kennecott properties,
1
but he did
'See Robert Haldeman, Managing Copper Mines in Chile: Braden,
CODELCO, Minerec, Pudahuel; Developing Controlled Bacterial Leaching of
Copper from Sulphide Ores; 1941 to 1993, Western Mining in the Twentieth
Century series, Regional Oral History Office, University of California,
Berkeley, 1995.
151
negotiate a modest payment to Cerro de Pasco for Andina,
recognizing that they had not earned any profits from the mine.
In Peru, the military junta that came into power in 1968
started off by expropriating the oil properties of Exxon and
other American companies in Peru. They nationalized the Marcona
iron ore mine, which had been developed by Utah Mining [and
Construction] , and they also expropriated properties of W. R.
Grace and Company. They permitted Cerro de Pasco to continue to
operate for a while, but after a year or two, the conditions
became so difficult for this extremely complex operation that
Cerro de Pasco negotiated a transfer of the properties to the
Peruvian government. The conditions were such that they were
unable to earn a profit.
This left Southern Peru Copper as the only privately owned
major foreign investment in the country. There may have been one
or two relatively small mines. I think there was a Japanese
copper-zinc operation that continued.
Asarco's Mexican Operations Are Squeezed; Industrial Minera
Mexico Is Formed
Strauss: So this was really a trend of governments taking over mining
operations in the developing world, and Mexico was not immune.
The Mexican peso had gone through a series of devaluations. Each
time the peso was devalued, it meant, of course, an immediate
reduction in the operating costs of export industries such as the
nonferrous mining activities, and the Mexican government regarded
this as a form of windfall profits. To offset that, they had
imposed export taxes. Asarco's operations in Mexico eventually
found themselves paying a tax equivalent to about 24 percent of
the gross value of the productnot the profit, but the gross
value of the productwhen they exported it. If they sold the
product in Mexico, it was required that the product be sold to
the Mexican consumer at the world price, usually the price on the
London Metal Exchange, less this 24 percent. In other words, it
was the equivalent of saying to us that our revenue was going to
be 24 percent below the world price because our costs had dropped
so sharply. Well, of course, the costs did not stay low. As a
result of the devaluation of the peso, the unions would press for
increased wages, all imported supplies cost much more in terms of
Mexican pesos, and gradually our costs increased, with the result
that the industry was being squeezed by the export tax.
152
The Mexican government in power in the late fifties and
early sixties came upon an unusual strategy for accomplishing
Mexicanization of the mining industry. They said that any
Mexicanized company would not be subject to the export tax.
Swent : And what did this mean?
Strauss: A Mexicanized company would be a company in which at least 51
percent of the ownership was in the hands of genuine resident
citizens of Mexico. One couldn't incorporate a dummy corporation
in Mexico to hold 51 percent of the stock, because that would be
obviously just a strategy for getting around this situation.
As a result, the foreign-owned mining companies in Mexico,
Asarco included, were faced with the situation that they could
make more money owning 49 percent of their companies than owning
100 percent. We all set about finding partners. Charles Barber
and our then controller, whose name was Howard Goodenough, went
to Mexico, spent a long period of time negotiating with Mexican
capital to try to find someone who would pay us something for 51
percent ownership of these valuable assets, and they succeeded.
A group of Mexican capitalists was found.
Swent: Were all of Asarco 's Mexican holdings in one group, or did you
have several corporations?
Strauss: We had a number of corporations, but they were basically all 100
percent owned by American Smelting and Refining. So a company
was formed, the name of which changed at various times. It was
first Asarco Mexicana, and then the Asarco connotation became a
handicap, at least politically, so that name was changed.
Eventually it was called Industrial Minera Mexico.
Swent: By then, Asarco was Asarco?
Strauss: No, it was still American Smelting and Refining Company.
Swent: Industrial?
Strauss: Yes. But the Asarco acronym was being used too a great deal.
Industrial Minera Mexico, IMM. There have been other corporate
changes since then, but I won't go through them, because it's not
really relevant.
The Mexican partners who had 51 percent insisted on taking
over management, which was certainly appropriate, to accomplish
the results the Mexican government wanted. For a time, as I
think I said earlier, the market for Mexican mineral products
outside of Mexico continued to be handled through the sales
153
office of Asarco in New York. We were paid a very modest
commission by IMM to compensate us for the work we were doing for
them, and to cover the cost of the commissions we in turn were
paying our agents in overseas markets. But in the long run,
eventually the Mexican management decided to take over direct
sale, including sale of their lead and zinc in the United States.
So we had a new competitor, which was our affiliate.
This was not unique to Asarco; the same thing happened with
American Metal's operations in Mexico, which were taken over by
the Penoles organization. There were a lot of problems in
educating our Mexican partners in the realities of the
marketplace. We weren't always successful in making them
understand the basic problems involved in dealing in metals, but
of course, over the years they have gradually gotten to know what
the problems are. One by one, the American engineers and
financial and sales people who had been employed in Mexico were
replaced by Mexicans, which I'm sure is appropriate. Many of
these Mexicans were extremely able.
Eventually the chief of the Mexican organization became a
gentleman named Jorge Larrea, who had been very successful as a
contractor, particularly on government projects like road-
building, dam-building, and construction, and so forth. A very
skillful negotiator, a man with very good standing with some of
the U.S. banks, particularly those on the Pacific Coast. So he
was able to finance a lot of his undertakings quite successfully.
Eventually, he pulled off a ten strike in being able to get
the Caridad copper deposit in Sonora for a joint venture with the
government. It's gone through a lot of changes; most recently,
the government has sold out its interest, but for a while it was
a joint operation with partial government ownership. And that
has been a very successful undertaking, and the financing was
brilliant. My recollection is that the Caridad mine started up
in 1979 or 1980.
On the whole, the properties which Asarco once had in Mexico
are all still in operation. There have been some changes in the
metallurgical plants, but the Mexicans have achieved their
objective: they have obtained Mexican control of their mineral
resources. However, it's interesting to note that within the
last two or three years under President Salinas's administration,
there's been a change of heart. Foreign capital is being invited
back into Mexico. The limitations on Mexican ownership are no
longer cited. The export taxes are long since forgotten.
So one doesn't know what the long-term future will be with
Mexico, but for the time being, there is a good deal of foreign
154
capital going back into Mexico, and I assume that- -although I
don't know thisthat Asarco is active there. The company I'm
now associated with, Magma, has a man in Mexico looking around
for possible projects that Magma might be involved in, and the
climate for foreign mining investment in Mexico now is comparable
with what it used to be in the early part of the century. So
it's a curious turn of the wheel.
Swent: This may be a very stupid question, but when you're marketing
copper, Asarco's copper and Kennecott's copper and Anaconda's
copper are virtually the same?
Strauss: Correct.
Swent: So you're negotiating--
Strauss: The word that is used in the trade is "fungible." In other
words, they're exchangeable one for the other.
Swent: Okay. So there's no question of the purity of one or the
chemical content being any different?
Strauss: No. Right.
Swent: So you're negotiating simply on the basis of costs and profits
and--?
Strauss: Well, and also on the basis of the record of service with a
particular customer. Have you always met your commitments on
time, and are your credit terms acceptable to him? Do you
require advance payment, which sometimes happens. Those are the
factors .
Swent: It's not a question of plugging a superior product.
Strauss: No. And at some point, we are going to have to have quite a
discussion about the trade associations, because this is the
thing that sets basic commodities apart from manufactured
products. Mr. Ford can say that he has a better car than Mr.
General Motors. There may be slight differences in the impurity
content, but basically, copper is copper, and if it is produced
in a refinery by experienced metallurgists, the wire mills that
use that copper wouldn't know whether they're putting copper from
Asarco or Phelps Dodge or Kennecott through the plant at any
given time. It performs equally well. We cannot claim superior
advantages for our metal over other people's metal. That is
certainly true, and as I say--.
155
Swent: I think there have been great changes in the fabrication,
however, haven't there?
Strauss: Well, in the fabricating processes. But here again, the product
turned out by the wire mills or the brass mills are generally
comparable. But this whole question of promotion and market
share is a fascinating one that I do want to go into, but I'd
rather now continue the chronology on the production side, if I
may.
Swent: Yes. This tape is about to end, so this might be a good place to
change the tape.
156
XI ASARCO'S MANAGEMENT STRUCTURE
Personnel Changes
Strauss: I think it's appropriate to talk a little bit about changes in
the management of Asarco during this period that we've been
talking about. Roger Straus had been chairman of the board in
the early fifties, and the chief executive officer. He was a man
who believed very strongly in the importance of having people
retire, even though perhaps they might have all the mental
capacity and physical figure to carry on with their office. But
he saw that an organization might have difficulty in attracting
younger people if they felt their way to advancement was blocked
by older people. So promptly when he reached his sixty-fifth
year, he retired as chairman, and was succeeded by Kenneth
Brownell .
I'm sorry to say that Roger Straus lived only a year or two
after his retirement. It was too bad.
Kenneth Brownell did not even live to his retirement. He
developed high blood pressure, kidney problems, and he died
prematurely in the summer of 1958. This was a great blow to the
organization, because he had the confidence and cooperation of
everyone in the organization.
The president when Kenneth died was the former general
counsel of the company, R. Worth Vaughan, who was general counsel
of the company. Worth was a brilliant negotiator and a fine
lawyer, but he was not really an administrator and a group
leader, and this was recognized by the directors.
157
John Mackenzie, Chairman and President
Strauss: So they looked around among the other senior executives and chose
Mr. John Mackenzie to be chairman. Mr. Mackenzie had been the
head of the smelting and refining department; he was vice
president in charge of it. He was a member of the board of
directors, was known to the directors, and they felt that he
could be an effective leader of the company.
He decided that he wanted to be both chairman and president,
and he changed Mr. Vaughan's title from president to vice
chairman. Mr. Mackenzie's name indicates that he was Scots, and
he had the traditional Scots sense of frugality and thrift. As a
consequence, he was very careful about costs. As an example, in
I think it was 1961 or '62, when the domestic market for metals
was poor but the European market was fairly good, he told me that
I could not make my annual trip to Europe because my job was to
sell metals in the domestic market. It was true that we needed
to push our sales in the U.S. where business was poor, but it was
equally true that for a company in the international metals
business, keeping in touch with what was going on in Europe by
meeting people both among the producers and the consumers face to
face was essential information.
But he did not place great strength on having information.
He was more interested in productivity, tons per man-hour, and
such issues. So of course, since he was my superior, I had to
accede to his wishes, although I thought he was mistaken. I cite
this as an instance that applied personally to me, but there were
repeated examples of this throughout the organization.
Also, it was troubling, particularly to the people in the
mining department, that Mr. Mackenzie chose as his two chief
subordinates Bob Bradford, who had been a very able smelter
operator, and Ed Tittmann, whose background also was in smelting
and refining rather than in mining. So we had a somewhat
lopsided organization while Mr. Mackenzie was in office. The
financial, legal, sales organizations were considered merely
service outfits. Their input into decision-making was not
emphasized. There was some restlessness in the company as a
result.
158
Opening the Mission Mine; Selling the Garfield Smelter
Strauss: One major achievement during the Mackenzie years was the opening
of the Mission copper mine south of Tucson. The Silver Bell at
that point was our only other domestic copper mine, and it was
fairly small. Mission had a much greater potential. It was
brought into production in 1960 or 1961 with an equipped capacity
to produce about 45,000 tons of copper a year at a capital cost
of about $40 million for the mine and the mill, which was really
a splendid achievement, and reflects that Mr. Mackenzie's
frugality in certain directions paid off.
The $40 million that was spent to bring the Mission project
into operation curiously almost exactly matched the proceeds of
the sale of the Garfield smelter in Utah to Kennecott. For many
years, Asarco had done the smelting, Kennecott had done mining
and milling, not just in Utah but also in New Mexico and in
Arizona. Because of the large volume of production from
Kennecott, it was treated on a toll basis, so the copper was
returned to Kennecott and Kennecott sold it. The volume was so
large that Kennecott, of course, was in a position to negotiate
very tough terms. Hence Asarco 's margins were not overly
generous, and the profits from operating the smelters on
Kennecott 's behalf were not great.
However, the thing that made Charles Cox- -who had become the
head of Kennecott a few years earlier after a plane crash killed
a number of Kennecott executives the thing that caused Mr. Cox
to insist that either he would buy the Garfield smelter or he
would build his own, in which case Garfield would just be worth
scrapping, was the fact that Mr. Cox thought Asarco was too tough
in its labor negotiation. We had a number of strikes. If Asarco
had a strike, Kennecott had no place to get its concentrate
smelted. So he said he wanted to have his own smelter so he
could control his production right through and decide what were
the appropriate labor arrangements.
One can well understand his point of view, and since we
weren't making too much money on smelting for Kennecott anyway,
we negotiated the best deal we could. We actually received about
$40 million for the Garfield smelter. Kennecott had a refinery
that it had built at Salt Lake City which took some feed away
from our East Coast copper refineries at Baltimore and Perth
Amboy. So that was a real plus during the Mackenzie years. We
had the Mission mine in place of the Garfield plant.
159
Also during that period, Lake Asbestos developed into a very
profitable business, and there were a number of other irons in
the fire.
Swent: You didn't sell the other smelters that were serving Kennecott?
Strauss: No, but Kennecott built its own smelter in Arizona across the
river from the Hayden Smelter. But we had developed the Mission
mine, so the Mission supplied Hayden, and Ray had its own
independent smelter. In New Mexico, Chino, which had previously
shipped concentrates to Asarco's El Paso smelter, Chino had built
a smelter some years before.
So by the time the Garfield plant was sold and the new plant
of Kennecott 's at Hayden was built, in effect Asarco was no
longer treating any material for Kennecott.
Swent: So it didn't bother you greatly.
Strauss: No, because we had other sources of feed, including and this
will come into play a little laterthe fact that the Duval
Mining Company, a subsidiary of Pennzoil, was developing a number
of mining properties in Arizona, and they shipped their
concentrates either to Hayden or to El Paso. So the flow of feed
was adequate. The copper business was expanding in the United
States in spite of the Paley forecast, and our smelting capacity
was needed.
So that pretty much tells the story about the management
changes that occurred at that time. Eventually, Mr. Mackenzie
retired--! think it was in 1963 or '6A--and he was succeeded by
Mr. Tittmann. Although a smelting man, Mr. Tittmann had a great
interest in mining properties, and as a result, the feeling of
many of the people in the mining department that mining was being
sort of downplayed in the organization, didn't have a proper
voice, was overcome.
From ASARCO report, February 26, 1974. Ralph L. Hennebach, President; Forrest G.
Hamrick, Executive Vice President; Simon D. Strauss, Executive Vice President; Charles
F. Barber, Chairman of the Board and Chief Executive Officer.
160
XII SILVER
Increase in Industrial Consumption in the 1950s
Strauss: I'd like now to speak about one other factor as the fifties ended
and the sixties began, on which I spent a lot of time, and that
was the question of silver. 1
I've mentioned earlier that the
United States government had in effect a law which provided for
the purchase of domestically mined silver at a fixed price at
sixty-four cents an ounce. This was frowned on by the financial
communities; they thought it was an unnecessary subsidy. The
world market prices had been for years in the neighborhood of
forty-five, fifty cents an ounce.
But as the fifties developed, there was a steady increase in
the consumption of silver for industrial purposes, having nothing
to do with jewelry or silverware that consumption was
maintained, but it wasn't particularly growing. The big growth
was in the photographic industry and in the electrical and
electronic applications of silver. And as a consequence, the
world price began to edge up toward the domestic price of sixty-
four cents.
A 1959 Address to the MMSA Predicting Rise in Silver Price
Strauss: In late 1959, at the request of the Mining and Metallurgical
Society of America, I gave a talk in New York dealing with this
issue, and predicting something which most people thought I was
fantasizing. This was that the price of silver inevitably had to
increase, and that the Treasury was making a mistake, because in
addition to buying from the domestic producers at sixty-four
cents, it would sell to any consumer without limit at roughly the
same price. Now, this was silver that had been accumulated as a
'See Appenidx D.
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Swent :
Strauss :
result of purchases under the legislation during the Roosevelt
era, and also as a result of the return to the Treasury of some
of the lend-lease silver that we spoke about earlier that had
been used for coinage in India and for other purposes during the
war. That silver was being returned to the Treasury.
But in spite of that, I perceived a steady erosion in the
Treasury holdings of silver, and there would be a day when
Treasury would not have any more silver available for sale under
the terms of the legislation. And I thought it was a great
mistake that Treasury did not gradually take steps to accustom
the consuming trade to the fact that the price inevitably would
have to rise.
As a consequence of my strong belief that the price of
silver would rise, on a personal basis I began to accumulate
silver coinage, believing that at some future date, the price of
silver would be above the statutory value of silver. The
statutory value was $1.29 an ounce.
And this had been set in 17--
In 1792 by Alexander Hamilton; never changed. I say it's the
statutory value: it's the result of requiring that a silver
dollar contain 0.77 ounces of silver. So I began to accumulate
silver coinage. Some other people who shared my view, and at
that time there were relatively few, began to accumulate one-
dollar bills that were redeemable in silver. In the early
sixties, this accumulation began to mount. The silver dealers in
London were very well aware of the situation. They began to
accumulate silver dollars. The price of silver rose, I think it
was to ninety or ninety-one cents an ounce. The domestic miners
were paid the higher price, but the consumers were allowed to buy
their silver at this price also.
Change in Silver Coins
Strauss: Finally, in 1962 or 1963, a real run began on the Treasury
holdings of silver, and it was clear that they were going to be
out of silver. At that point, the Treasury recognized that it
might have to change the coinage, that it could not continue
coinagenot the silver dollars, because they weren't coining
silver dollars any morebut the dimes, quarters, and half-
dollars containing silver would be worth more as silver than the
face value on them. They couldn't risk a situation developing
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Swent :
Strauss ;
where there would not be enough coins in circulation for retail
merchants to continue their trade.
So during the early sixties, there were hearings held in the
Congress as to what the new coinage should be. The Treasury made
various changes and suggestions. I think it was 1963 or '64, the
final decision was to go to the present basis of coinage, which
is the subsidiary coinage the dime, the quarter, and the half-
dollarshould be made of a nickel-copper alloy. Instead of
having a pure alloy content, the so-called sandwich coin was
developed by the Olin Company, one of the leading metal
fabricators, under which an underlying core of copper was coated
with a nickel-copper alloy which somewhat resembled silver in
appearance.
One of the big problems in all this was the position of the
vending machines.
The telephones
And the telephones. They had to be able to operate with
something that would have properties similar to silver, and
that's why Olin did this work and developed this alloy which in
fact was compatible with the vending machines and with the
telephones .
The American Mining Congress Silver Committee
Strauss: This problem occupied a great deal of my time. I was active with
a group of silver producers, and eventually a silver committee
was formed by the American Mining Congress. I was the spokesman
for the industry in hearings before the various congressional
committees. I got to know the silver consumers who were on the
opposite side of the fence. They did not at all accept the idea
that silver has any intrinsic value or that it was at all
appropriatethey were very pleased that the Treasury was going
to stop the use of silver, because that meant the Treasury wasn't
a competitor of theirs for available supplies. They were very
pleased about that, but they didn't buy the idea that silver had
any special value.
But although on opposite sides of the fence, we were really
quite good friends. I organized a trip for silver consumers out
to Idaho to go underground at the Coeur d'Alene operations of
Asarco so that some of these silver manufacturers who had used
millions of ounces of silver making teaspoons and forks and
163
knives could see how difficult and how involved the production of
silver was, what substantial capital investments were necessary
to get their raw materials for them.
And of course, the eventual change came about in an orderly
fashion. The price of silver was held down by the Treasury; it
continued to sell from its stocks for a while, until they had
minted enough coins of the base-metal sandwich. Because if they
had stopped selling silver, its price might have risen so sharply
that the coins would have disappeared from circulation.
Swent: Was that Hunt episode at the same time?
Strauss: No, that was several years later, and we will talk about that.
That was in 1979-1980.
The half-dollar, incidentally, originally when they decided
on a tribute to the recently slain President Kennedy, to make the
fifty-cent coin with his profile on it, for a while that was
minted with some silver in the coating. The core was still
copper, but there was I think 40 percent silver content. But
they had to stop that eventually when the price of silver rose
sharply.
Swent: When did they call in the silver certificates?
Strauss: Those were called in--
Swent: That was all part of this same--?
Strauss: That's right. The silver certificates were called in about 1975
or 1976. And what was interesting about that was that you could
take just a few dollars, and you would get not a silver bar,
because you had to have at least $1,300 for a silver bar, you got
silver crystals in a little plastic bag. Mr. Tittmann, who by
then was the head of the company, used to get a great kick out of
going and exchanging his silver certificates for these glassine
envelopes .
.
So that occupied a great deal of time. As a consequence of
the loss of this major market for silver, namely coinage, we
decided to form an organization called the Silver Institute to
promote the uses of silver, and I'll discuss that later when I go
into the whole field of the trade associations.
164
XIII THE GOVERNMENT STOCKPILE PROGRAM IN THE 1950S AND 1960S
Acceleration of Base Metal Acquisitions
Strauss: One other Washington-related activity that's worth mentioning:
the stockpile, and some of the incidental consequences of
stockpiling.
Swent :
Yes, I wanted to ask about that.
Strauss: During the Korean War, the stockpiles were held more or less
inviolate, although I mentioned that Mr. Atlee wanted to get some
zinc out of the stockpile. As a result of the Korean experience,
the Eisenhower administration, which was in office in the mid-
fifties, decided to accelerate the accumulation of the
stockpiles, particularly for lead and zinc, which was sort of
curious, because one doesn't think of those as being too
strategic and critical. 1
A program was inaugurated in '52 or '53
--'53, I think it wasunder which there was a monthly purchase
of domestic lead and zinc for the stockpile. Quotas were
assigned to the smelters and refineries that sold the product,
and this tended to keep the price of lead and zinc to the levels
at which they had risen when the Korean war broke out.
About 1955, however, they had accumulated so much lead and
zinc under the purchase program, in addition to what they had
purchased directly from foreign producers, that the program was
called to a halt. The prices of lead and zinc promptly fell very
sharply. This caused a lot of distress to the domestic industry,
and there was agitation for some form of relief, because
Australia, Canada, Mexico, and Peru, the principal foreign
producers of lead and zinc, were expanding their production
rapidly and shipping large quantities of lead and zinc into the
U.S. market.
'See Appendix C.
165
The Quota Import Plan in Response to a Glut
Strauss: So something called the quota import plan was put into effect by
the Eisenhower administration in I think either '58 or "59.
Quotas were assigned to each of these four major import sources,
and then there was also a quota for miscellaneous countries under
the heading of "other countries."
II
Strauss: The quantities specified were quarterly imports. The result was
something like the land rush when Oklahoma was opened to the
settlers. At the beginning of every quarter, importers rushed to
bring in as much material as possible, and the quotas were filled
well before the month was up. It must have been a terrible
headache for the Customs Department to administer this.
For instance, the Mexican quota. There were two importers
from Mexico. One was American Metal representing Penoles; the
other was Asarco. This was before Mexicanization had really
taken hold. And it was really a shambles, but it took a lot of
time, once again, to try to get the maximum quota we could at the
expense of our competitor, Amax.
Swent: Who were you dealing with? Which agency of the government
actually bought these?
Strauss: No, the imports were not bought by the government. These were
imports for sale to consumers.
Swent: I see, but you had to get your quota from the government?
Strauss: I think I've confused you between two quotas.
Swent: I want to be sure I'm right about this.
Strauss: Yes. Earlier, I was talking about the stockpile. That was sales
to the government. There were quotas for that. The stockpile
program ended. The markets dropped. Then this import regulation
set in, and there were quotas for that. Those are entirely
different from the quotas assigned to us as producers for sale to
the stockpile. I'm now talking about quotas for the right to
import metal into the United States. We had to bring in
materials as quickly as we could.
166
Mexican Fabrication of Lead to Evade the Quotas
Strauss: Now, the quotas only applied to refined metal or to ores from
concentrates. They did not apply to fabricated articles made of
lead and zinc. Well, there are very few fabricated articles that
are pure lead or pure zinc. However, a group of ingenious
Mexican fabricators suddenly decided to go into the business of
manufacturing what they called agricultural grinding wheels.
They cast large, round cakes of lead which they said could be
used for grinding wheat. You can imagine what the
environmentalists would think about that today, to use lead, a
toxic element, for the purpose of grinding food.
However, it was all a sham. As Mexican fabricators, they
had the privilege of buying lead in Mexico from the producers,
either American Metal or Asarco, at the world price less the
export taxes. So they got their lead very cheap. They exported
it and told the Mexican government that it was a fabricated
product. They told the U.S. Customs official that this was
scrap, which also was not subject to the import quotas. So they
paid the lower import tax that applied to scrap, and they shipped
the material into the United States. It was promptly melted down
and sold in competition with our refined lead. It was just pure
lead cast in these round wheels.
I cite this because it shows how ingenious people are in
dealing with government regulation, and why in trying to control
things, the government will often create the opportunities for
people not exactly to black market, but to take advantage. As
producers of lead from Mexico, obviously Asarco was compelled to
sell to the Mexican fabricator. The Mexican government wouldn't
hear of us turning down any fabricator who wanted to buy lead
from us. We were compelled to sell to him. He turns around,
takes advantage of these government regulations not to pay export
tax in Mexico, to pay a lower customs import duty in the United
States, and to compete with us with the final product when it's
melted down.
That only was possible as long as these import quotas were
in effect. It soon disappeared.
Swent: You didn't corner the agricultural grinding wheel business
yourself?
Strauss: No, we wouldn't have been allowed to by the Mexican government,
[laughter] It would have been prohibited for us to do that,
because we would be competing with Mexican--.
167
Swent: So. [laughter]
Strauss: These issues were debated in meetings of the American Mining
Congress, and we--
Swent : It's a joke now, but it was very serious then.
Strauss: Yes, that's right. We spent a lot of time dealing with this
problem.
Swent: So the import quotas were finally taken off?
Strauss: Yes. I think they were put in for a four-year period or
something like that, but then they were forgotten. It was a
completely artificial, mistaken way of helping the domestic
producers. It didn't really help them; it annoyed all the
foreign governments, and they argued about whether the quota was
large enough, it wasn't justified. It was a great headache while
it was in existence.
Swent : Yes, I'm sure.
168
XIV THE COPPER MARKET IN THE EARLY 1960S
An African Attempt to Stabilize Prices, 1961-1964
Strauss: Now, speaking of the early sixties, I think it's appropriate then
to talk about the copper market and what happened between 1961
and 1964. The major African producers of copper this was prior
to the nationalizationshad been Union Miniere in Zaire, Belgian
Congo, and Selection Trust and Anglo-American in Northern
Rhodesia, now Zambia. The three companies were very concerned
about the sharp fluctuations in price on the London Metal
Exchange. There had been a severe run-up in the mid-fifties at
the time the U.S. government was stockpiling. Prices had risen
from the twenty-four- to thirty-cent range in the early part of
the Korean War in '55. I think the LME [London Metal Exchange]
price got well above fifty cents a pound.
This was at a time when the aluminum industry was expanding
rapidly. It was challenging copper in a lot of different market
applications, and these three companies, led by Ronald Prain,
whom I've mentioned previously, concluded that the instability in
price was going to cause further loss of copper markets to
aluminum. So they thought something ought to be done to
stabilize the price.
What they hit upon was a scheme of actually intervening in
the trading of the London Metal Exchange. They chose a price of
thirty-one cents a pound, the equivalent in pounds sterling.
When the price seemed to soften, because supplies were being
offered freely, they bought. They, as producers, bought copper
on the London Metal Exchange and held it off the market. When
the price went above thirty-one cents a pound, they sold. This
was a price stabilization scheme operated not by governments but
by three private producers.
Swent: That wouldn't be allowed here, would it?
169
Strauss: No, it would be strictly illegal. The American companies
operating in Chile and Peru were not a party to this scheme. But
they were sympathetic to it, in the sense that they liked the
idea of a stabilized price.
It worked for three years, from early 1961 until early 1964.
Swent: How did you become aware of this? Just when it started
happening?
Strauss: Well, you could see the price didn't change. You made inquiries,
why isn't it changing? Well, it was common knowledge on the
floor of the London Metal Exchange. It was one of the things
that I learned when I went over to London, but--
Swent: You were in touch with people from all of these--
Strauss: Yes, and if they came to New York, they would come call me. We
were well aware of what they were doing. We didn't participate.
Swent: Were you aware of it before they did it, that they were planning
it?
Strauss: No, only after they had started the operation.
A Prescient Man-of-the-Year Speech to the Copper Club
Strauss: In 1963, the Copper Club did me the honor of designating me as
the copper man of the year. They had only started this the
previous year, when they had picked Mr. Clyde Weed of Anaconda to
be the first copper man of the year. The theory was that the
person selected was doing something on behalf of the copper
industry as a whole, not just for his company, and since I had
been the spokesman for the industry on stockpile issues and other
matters, they chose me. And they expected me to make a few
remarks .
I discussed this scheme, this rigidity of price. I said,
"Certainly, consumers and producers both find extreme
fluctuations in price very difficult, because it's hard to plan
when the price is changing sharply from day to day. On the other
hand, to try to fix the price at any one level for any length of
time is dangerous, because how do you fix the exact right price?
And does it overstimulate supply, or does it overstimulate
demand, or does it discourage demand? And I would think that the
people that are running this would do well to try a little more
170
flexible approach instead of being so rigid." That was all that
I said at that time. That was February of '63.
In February of '64, the demand for copper became so
insistent that the African producers sold out. They had no
inventory of copper left to meet the demand. What was happening
was we were beginning to get involved in Vietnam. Japan's
reconstruction was going along. Business in Europe was very
good. Everybody was buying automobiles. And the demand was
beginning to outrun the supply.
Demand Outruns Supply; Stabilization Efforts Fail
Strauss: Within months, the price went through the roof. It got from
thirty-one cents, it climbed above forty, and then it climbed
above fifty, and it climbed above sixty cents a pound, within a
matter of a few months. The Chileans had been selling at a
producer price, which was the thirty-one-cent price. Even though
they weren't part of the schemes, they had been selling at that
price because that was the price on the London exchange.
I think Anaconda and Kennecott were probably prepared to
continue to exercise some restraint, but by May or June of that
year, the Chilean government decided that it could not ignore the
London Metal Exchange any more, and they instructed Anaconda and
Kennecott that they were not to sell at a producer price, they
were to sell at the equivalent of the London Metal Exchange
price, and that broke down the scheme. That was the end of the
African effort to stabilize the copper price.
Now, the domestic producers, and I mentioned this earlier,
also were concerned about volatile prices. During that sharp run
up that I mentioned earlier in the fifties, the domestic price
had not risen to nearly the same extent. The custom smelters,
Asarco and American Metal, had to increase our price because we
were paying more for scrap and also because the small mines that
shipped to us wanted the better price. But the large producers--
Phelps Dodge, Anaconda, and Kennecott--had pretty much stuck to
the price. I forget now what the prices were; I could look it up
sometime. But they had had a price well below the London Metal
Exchange equivalent.
This time in 1964, our price had been thirty-four cents a
pound when the London price was thirty-one because of the import
duty and the cost of transport. We did make an increase in the
spring of 1964 to thirty-six cents a pound. A couple of months
171
later, with the London price in the high forties or low fifties,
one producer, and I think it was Jim Boyd at Copper Range,
decided to move the price from thirty-six to thirty-eight cents.
At that point, Lyndon Johnson balked. He issued a tirade; this
was taking advantagebecause he was concerned about the Vietnam
War and the costs of munitions and everything. So the domestic
producers did not raise their prices beyond thirty-eight cents.
We had this enormous spread between London and New York, huge.
The Strike of 1967-68
Strauss: This was the foundation of the industry-wide copper strike that
you asked me about in '67 and '68. The contracts had been
renewed in '64; I think there had been just a minor shutdown for
a few days. But as the time went on, and the foreign price was
at this enormous premium over the U.S. price, the market became
extremely difficult. Mr. Johnson insisted that we had to sell at
thirty-eight cents. It was a form of verbal price control, in
effect. We did sell our domestic copper at that price, rather
than get in trouble with the government.
Swent: Well, buyers would be only too happy, wouldn't they?
Strauss: Oh, of course. They were happy. But they began to complain
because they weren't getting enough of the low price and they
were having to buy additional imported copper at the much higher
price. Any copper of foreign origin, and we always made the
distinction in keeping our books, because copper of foreign
origin that we smelted and refined in this country was usually
priced on the basis of the London Metal Exchange quotations. So
we ran two accounts in copper, one of domestic origin, one of
foreign origin. The foreign origin copper, we told the
government, "If you don't want us to sell it at the world price
in the United States, we'll just have to export it." And of
course, that began to create pressures on the domestic consumer.
You can imagine that an independent fabricator was very
concerned that he was having to pay the world price for an
increasing share of his supply. It's natural that this
engendered the suspicion that the companies with their integrated
fabricating operation were feeding all of their domestic low-
price copper to their own fabricators, and not selling a fair
amount to others. So they went to the Justice Department, and
that was the beginning of an investigation of the whole pricing
system by the Justice Department.
172
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Strauss ;
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Strauss
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Strauss ;
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Strauss :
Swent:
So you had an anomalous situation. One part of the
government was saying we were discriminating against our
customers by not giving them their fair share of the low-priced
copper, and forcing them to buy high-priced copper, and another
part of the United States government was saying, "Keep the price
of copper down, we've got a war on." It was a very, very
difficult position.
And what was the issue that led to the strike, then?
basis did they--
On what
Well, the workers were aware of the world price, and they decided
they wanted a big increase in wages, and we said, "Mr. Johnson
won't let us pay more, and so we've got to--we can't afford to
pay more .
"
We can't afford
Charge more.
Well, we can't afford to pay the workers more,
to increase salaries.
Because your selling price was kept low.
That's right. So the st-lke started in July of 1967, and lasted
until March of '6F. Acf... "ly, I'm abbreviating a lot here. You
have to almost follow this thing on a month-to-month basis. By
'66, the London price had started to come down a bit, but the
minute the strike developed, of course, it shot back up again.
And in fact, the differentials became even greater. There was a
little domestic production that continued, but most of the U.S.
production was shut down for nine months, the longest strike ever
in the history of the country.
There was another big strike, though, of yours in the late
fifties, early sixties, wasn't there?
Nothing of the same dimensions.
San Manuel had a big-
Yes. But it might have been three months, but it wasn't seven.
No, it was '67-'68 that was the big strike.
Was the major strike.
And that was the one that Phelps Dodge- -was that the one that
crippled Phelps Dodge?
173
Strauss: No. That strike was later on. That was the one that Mr. Moolick
was involved in when he was president. That was in the early
eighties.
Swent : But this one, you were personally involved.
Strauss: Oh, very much, and dealing with the customers was so difficult.
Of course, Southern Peru did very well in the '64 to '68 period,
and that was--
Swent: They were using the LME price.
Strauss: Yes. And that was when we decided to go ahead with Cuajone, and
then we had the revolutionary situation that we discussed earlier
in Peru, and the threat of government takeover. But up until
that junta takeover, there had been no threat to our operation,
other than that the union officials would put out propaganda
about the foreigners making excessive profits and taking Peru's
patrimony. That's the great phrase they like to use in Latin
America, for the benefit of foreigners.
Throughout, you see this tendency of politicians always to
work on people's xenophobic, I think is the word, feeling. In
fact, my earlier discussion about the trends in Latin America,
this spread to Australia and Canada as well. There were
restrictions on foreign investment in mining in those countries.
Asarco sold part of its Mount Isa holdings to get below 50
percent, and then gradually over the years it's been reduced
further to placate the Labor government, the Whitlam government.
Australia was very anti-foreign investors for a while.
So the sixties was a very turbulent period, not just on the
college campuses. It was a very turbulent period in the metal
markets. There were these great changes going on, and strains on
the economy. But at Asarco, Mr. Tittmann provided very good
leadership. Mr. Barber was president while Mr. Tittmann was
chairman, and Ralph Hennebach was brought along in senior
management. We had an era of considerable growth and expansion.
A Look and a Pull-out at Sar Cheshmeh in Iran
Strauss: In addition to the Cuajone project, which was a major one, we
were actually approached by Ex-Im Bank about the Sar Cheshmeh
property in Iran, and Tittmann made a trip over there with our
chief financial officer, Forrest Hamrick, and was convinced that
it was a major property. But when discussing it with Shah's
174
minister of minesbecause the Shah was still in power in Iran at
the time there were indications that it would be advantageous to
us if we were serious about investing, about making an under-the-
table payment of $3 million. That ended our interest in Iran.
We didn't want to go into a country where public officials
blatantly asked for bribes, so we pulled out.
Later Anaconda came in, but not as an investor, but only to
provide management for the construction of that project, which
has never really fulfilled expectations. It was the same size as
Cuajone. The investment was twice what the Cuajone investment
was. Construction was started at the same time. Cuajone started
up on schedule in 1976. I think Sar Cheshmeh got going about
1980. Part of it was the political turbulence in the country,
but in addition to that, there was, I think, a great deal of
corruption throughout in the construction, purchasing of the
equipment, every aspect.
So toward the end of the decade of the sixties, Newmont
approached us whether we would be interested in a development of
the Granduc deposit in British Columbia. I don't know how
familiar you are with that.
Granduc in British Columbia 1
Swent: Well, a little bit.
Strauss: It's in the snowbelt of northwestern British Columbia. The
snowfall is something like 600 inches a year. It was necessary
to drive a tunnel from the west side under the mountain range to
hit the deposit. There was talk even of putting the mill
underground. Eventually, it was built on the surface, but we
knew that we had to sweep the snow off the roof regularly, or we
would be in trouble. [laughs)
'For more about Granduc, see Frank Woods McQuiston, Jr., Metallurgist
for Newmont Mining Corporation and U.S. Atomic Energy Commission, 1934-
1982, Western Mining in the Twentieth Century series, Regional Oral History
Office, University of California, Berkeley, 1989; Plato Malozemoff, A Life
in Mining: Siberia to Chairman of Newmont Mining Corporation, 1909-1985,
Western Mining in the Twentieth Century series, Regional Oral History
Office, University of California, Berkeley, 1990; John Livermore, interview
in process , 1995 .
175
Although the property would ship out of a port, I think
actually in Alaska, there would be convenient access to the
Tacoma smelter. In fact, from the start, it was recognized that
the Japanese were offering such low treatment charges that
shipment would be to Japan. We were 50-50 partners with Newmont.
The arrangement was that each of the partners would handle the
sale of its own 50 percent share of the production.
The costs were in excess of what had been expected. In
driving the tunnel, they ran into some very bad ground.
Swent: And wasn't there a disastrous avalanche, too?
Strauss: That happened after Asarco and Newmont shut the project down.
Exxon took it over, and they forgot to take the snow off the
roof.
Other Ventures; Black Cloud, Coeur, Mission, Pima Mines
Strauss: We were talking about the Granduc project. So it represented a
considerable loss to both companies. Newmont and Asarco have
been collaborators in other ventures, Southern Peru of course,
but also the so-called Black Cloud mine of Resurrection Mining in
Colorado, in Leadville, is jointly owned by the two companies.
It's actually operated by Asarco, but Newmont is kept fully
abreast of everything that goes on. It's been operated
continuously for some thirty years and it's still running. It's
the only lead-zinc mine running in Colorado, that I know of, of
any consequence. Has rather good silver and gold contents.
Another new undertaking during this period in the sixties
was the development of the Coeur mine in Idaho. Asarco had
previously developed the Galena mine, owned by Callahan, which is
primarily a silver producer with some byproduct copper and some
potential for byproduct lead, since the early 1950s. The Coeur
property immediately adjoined Callahan 1
s property, and it seemed
that the ore bodies might well extend into Coeur ground. The
exploration had to be done from a shaft, because the ore bodies
are narrow, and you can do all the drilling you want from the
surface, but you may miss the ore bodies. A shaft was sunk, and
some of the workings from the Callahan operation were extended.
In fact, we did find substantial deposits of highgrade silver
ore. That was brought into production. Our confidence with
regard to the outlook for silver prices during the period when
the government had been sitting on the market contributed to the
decision to go ahead with the Coeur mine.
176
Incidentally, I have been talking about Callahan. The
actual name of the mine is the Galena mine, but it belonged to
Callahan, which is now part of--is it Hecla? No, Coeur d'Alene
Mines, I think.
So the Coeur mine was owned by Coeur d'Alene Mines, but
Asarco put up the capital, and under the arrangement, the capital
was returned first, and after return, the profits were shared
with Coeur. This has been a profitable mine for most of its
existence, although I believe it's currently closed down due to
the temporary weakness in the silver market.
The Mission mine was expanded toward the end of the period.
Subsequently, the adjoining Pima mine, which Cyprus Mines had
opened, has been acquired, and also some of the ground owned by
Duval Sulphur or Duval Mining and Anaconda in the joint project
they had. So Mission has steadily grown in size. It's now one
of the major mines in the country.
177
XV RESISTING ATTEMPTED TAKEOVERS
Pennzoil Fails in an Attempt to Acquire Asarco, 1969
Strauss: One of the major developments, I think it was 1969--might have
been 1970--was the fact that Asarco' s attractive holdings on a
worldwide basis in mineral resources caught the attention of
people who were interested in making acquisitions. An early
approach had been made to Asarco by the old Studebaker company.
Do you remember the automobile?
Swent : Sure.
Strauss: Nothing came of that. Then the Worthington Pump people had some
discussions, but they were discouraged.
However, a very serious attempt was made by one of the oil
companies, Pennzoil. The head of Pennzoil, Hugh Liedtke, came to
see Mr. Tittmann and told him that Pennzoil was prepared to buy
Asarco shares at ninety-five dollars a share. This was a quite
high price, and Mr. Liedtke was quite confident that Asarco would
be tempted.
Mr. Tittmann told him he was not interested. There was
evidence that Pennzoil nevertheless would persist, and in fact, I
think it was at Christmas of 1969, maybe two or three days before
the holiday, that they published in the papers--Wall Street
Journal, New York Times an advertisement offering to buy Asarco
shares at that price.
We had to devise a strategy to combat this offer. Pennzoil
had a subsidiary named Duval, which was in the copper mining
business. Although in the past, Asarco had denied being involved
in antitrust activities, it seemed reasonable now to raise the
issue of whether a combination of Asarco with Duval, Pennzoil' s
178
Swent :
Strauss :
Swent :
Strauss:
Swent :
Strauss ;
Swent :
Strauss:
subsidiary, would create an antitrust problem in copper mining.
Therefore--
Were you a director at this time?
Yes.
You had become a director.
I had become a director in '53, so I was a director quite a few
years. Therefore, application was made to the federal district
court in Wilmington, Delaware, for an injunction against the
Pennzoil offer on the grounds that there might be an antitrust
problem.
You--Asarco brought this?
Asarco brought that action in the courts,
Why Delaware?
The judge to whom--
Because Asarco is incorporated in Delaware. Therefore, as a
Delaware corporation, we were operating under Delaware law. But
this was federal district court, because antitrust is a federal
matter.
The judge to whom the matter was referred promptly asked
both Asarco and Pennzoil for their comments, indicating why there
was or was not an antitrust problem. Asarco's counsel's office
asked me to prepare an analysis of the copper market indicating
the shares that Pennzoil, as a miner of copper, and Asarco, as a
miner of copper, had in the copper market, the domestic copper
market. I prepared such an analysis covering a period of years
showing growing production on the part of both companies. If
this had been 1950, there would have been no case, but by 1969-
1970, both companies were significant domestic miners of copper,
and I said so, and I gave the percents.
179
Defining New Scrap, with Help from Mayflower Donuts
Strauss: Pennzoil had a statement prepared by Evan Just of Stanford, and
it showed what their interpretation was as to the shares of the
market. Naturally, we were furnished with a copy of this
statement, and I immediately noticed that in defining the market,
they had included everything except the kitchen stove, to make
the market as large as possible and our shares as small as
possible. It was the normal reaction, obviously, that they would
have done this. Included in the market, as Just defined it, was
not only all of the domestic scrap supply, in addition to the
mine supply, but scrap supply included what is called new scrap.
New scrap represents the clippings and other scrap engendered in
fabricating of copper products. New scrap has therefore never
been consumed, and in my view, should not be included in any
definition of a market.
The judge read these two statements, noted the differences,
and decided he had to have a hearing. The hearing was held in
Wilmington, as I remember it, in early February. I was Asarco's
witness. Pennzoil did not choose to have a witness; they rested
on Mr. Just's analysis.
When I took the stand, I immediately made the point that the
Pennzoil analysis was deficient because it included new scrap,
and that new scrap was copper that had never been consumed and
therefore was not part of the market. The judge indicated that
he understood what I was saying. The attorney for Pennzoil was a
very distinguished lawyer, Whitney North Seymour, who had been
president of the American Bar Association the year before. Mr.
Seymour said, "I don't really see what you're talking about, Mr.
Strauss. New scrap is usable, isn't it?"
I said, "It is usable. But you have forgotten the slogan of
the Mayflower Donut Shops."
He said, "What are you talking about? What possible
relevance does that have to these proceedings?"
I said, "Mr. Seymour, as you perhaps know, the slogan of the
Mayflower Donut Shops is, "As you ramble on through life,
Brother, whatever be your goal, keep your eye upon the donut, and
not upon the hole.'"
180
Swent :
Strauss:
Swent :
Strauss :
He said, "How does that apply in this case?"
I said, "Mr. Seymour, if Mrs. Seymour goes to the corner
grocery shop intending to make donuts and buys a five-pound bag
of Pillsbury flour and brings it home, adds the other
ingredients, rolls out the dough, takes her little cookie cutter
and stamps out the donuts, there's stuff in the middle and stuff
around the edges. I'm sure she's a thrifty housewife.
Therefore, she takes that dough that she has extracted and rolls
that out, and stamps that, and continues doing that until she has
used all of the dough. Has she used five pounds of flour or five
pounds plus the weight of the stuff in the middle and the stuff
around the edges? Because if you're including new scrap, that's
what it is. It's the stuff in the middle and the stuff around
the edges."
His next question was about molybdenum.
The judge came out with his statement later, and said that
whether or not there is an antitrust problem would require
investigation, and "until this has been investigated, I am
granting the request of Asarco for an injunction."
So the case was decided. Pennzoil couldn't stand there
offering ninety-five dollars a share for Asarco stock until an
antitrust investigation was completed. That might be five years
down the road. So they withdrew their offer, and the merger
never went through. That was one of the most amusing episodes
I've ever been connected with in my career, and I'll always be
grateful to the Mayflower Donut Shop. It suddenly struck me, how
can I make this clear to this lawyer, what new scrap really is?
You can't add it. Sure, it is eventually consumed, but when it
is in scrap form it has never reached the ultimate user and is
not part of the market. So we won the case, and I think this is
a good time to stop.
Had you and Evan Just worked together at E&MJ at all?
No, he came to E&MJ long after I was there. He was postwar at
E&MJ. He had previously been the secretary of, I think, the
Lead-Zinc Producers Association in the Tri-State district. We
were very good friends, and still are. When I sent him a copy of
my book, he wrote me a very nice letter.
Your book, Trouble in the Third Kingdom [Mining Journal Books
Ltd., London, 1986]?
Yes. So we are good friends. And I know that he-- [laughs] for
that matter, George Atwood--! don't know whether you're planning
181
ever to do an oral history of him--he'd be a good one. He was
the head of Duval. He was present during the hearing. He grins
every time I see him, and we talk about donuts. [laughing] He
knew perfectly well that the facts supported the Asarco position
rather than the Pennzoil position.
Swent : Your position was that it would have been a violation of
antitrust?
Strauss: Well, it might have been. We didn't say it was. We just said
that there was a question here, the merger should not be allowed
to proceed until the question had been resolved. Just like on
this recent Amax merger with Cyprus, you know the molybdenum
problem raised its head, and Cyprus was required to dispose of
their Thompson Creek mine up in Idaho, which they sold to a
former employee, and I don't know whether there aren't some
strings behind the scene, but apparently, it's been approved by
the Justice Department.
Swent: You have to be careful.
Strauss: Yes.
Mr. Holmes a 'Court Attempts a Takeover
Swent: We're continuing now after the lunch break.
Strauss: There have been other attempts to take over Asarco. One in fact
occurred after I retired when an Australian financier whose name
was Holmes a 'Court made the effort. We don't believe his
objective was really so much to acquire Asarco. He was probably
interested in Mount Isa, and our guess is that if he had been
successful, after acquiring Asarco, he would have transferred
Mount Isa's shares to one of his other companies and then spun
off the remainder of Asarco. That's just a theory; nobody really
knows what was in his mind. But his effort was stopped, and in
fact, to make sure it would be stopped, Mount Isa took on a
substantial quantity of Asarco shares, about 25 percent of
Asarco' s capitalization.
So Asarco is one of the few companies that survived the
takeover of the copper industry, which curiously enough was
largely on the part of the oil industry. The first transaction
was when, sometime in the fifties, the Cities Service Company
bought the Miami Copper Company and its affiliate, Tennessee
Copper Corporation. Subsequently, Pennzoil, through Duval,
182
entered copper mining. Later on, Louisiana Land and Exploration
acquired Copper Range and the White Pine mine. Then there was
the celebrated takeover of Anaconda by Atlantic Richfield, and
Kennecott was taken over by Standard of Ohio, which later was
absorbed by its parent, British Petroleum.
The only company that really tried to get in the copper
business by going directly into copper exploration and production
was Exxon. I mentioned the Granduc mine. They also acquired a
property in Chile, the Disputada, and they made efforts to find
copper and zinc deposits in Wisconsin and elsewhere.
Comparing the Copper and Oil Industries
Strauss: It is interesting that in the final analysis, oil and copper
didn't mix just like oil and water don't mix. The industries are
very dissimilar, even though they both are based on mineral
resources. The exploration tool for an oil company is the drill
hole which it puts down in the hope of finding oil. If oil is
discovered, that drill hole becomes actually the vehicle for the
production of oil. But when a copper company puts down a drill
hole, if it hits a copper ore body, it will take, as I said
earlier, five, ten, or fifteen years before that copper deposit
is in production.
Another basic difference between the two industries is that
the oil industry's product, oil, is consumed. Very little of it
ever comes back; a small amount of lubricating oil is recycled,
but basically, oil, whether used for heating or for operating a
vehicle, or whether used for generating electricity, is consumed
in the process of fulfilling its task. Copper is one of the most
enduring of all metals. Copper objects that were made at the
time of the Egyptians or at the time of the pre-Columbian Indians
are still around, and most copper, after its useful life as one
particular object has been completed, is subsequently recycled.
This makes for a quite different atmosphere in the whole
marketing and development effort. Perhaps one would say that the
copper industry, which has been around so long, has learned how
to exercise patience, to understand that copper as basically a
capital-goods raw material, is very much subject to the swings of
the industrial cycle, the economic cycle, whereas oil is used for
purposes which by and large persist. There may be some effect on
oil consumption if there is a severe recession, but it won't be
more than 2 or 3 percent in the course of a year, and in most
183
Swent :
Strauss :
Swent :
occasions, even when there is a recession, the consumption of oil
steadily rises.
So we have two very different products here, and it appears
that the oil industry executives finally recognized that copper
was not something that they could cope with readily, because one
way or another, almost every one of the deals that I have
mentioned has finally been undone. The properties that Pennzoil
took over are now run by Cyprus Minerals. There's another one
that I forgot: Amoco Oil acquired Cyprus Minerals years ago,
only to spin it off. The Anaconda properties have either been
sold or shut down. Atlantic Richfield is not in the copper
business. British Petroleum first sold off some of the Kennecott
properties and then took its remaining one, the largest, Utah,
and sold that to RTZ. Copper Range was acquired first by Echo
Bay Mining from Louisiana Land, and more recently became the
property of the German company, Metallgesellschaft . And so it
goes down the list.
The only one that is still in the business is the only one
that did not actually go into the business by acquiring an
existing domestic copper producer: namely, Exxon. They have had
a fair amount of success with their Disputada operation in Chile.
They've expanded production there considerably. The Granduc
venture was a disaster for them as it had been for Newmont and
Asarco.
Newmont was never taken over by oil people.
No. 1 didn't say that all copper companies were taken over by
oil companies. Asarco, Newmont, and Phelps Dodge were never
taken over by oil people. One company that was almost taken over
by an oil company was Amax, or American Metal. Chevron, Standard
Oil of California, acquired a 20 percent interest in Amax and at
one point tried to buy it, offered a very generous price, which
the management turned down. And that's really the list of the
domestic copper industry. So the story is clear: oil and copper
don't mix.
Well, let's shift to some other aspect.
We're coming into the seventies. We get into a lot of
complicated issues.
Strauss: We certainly do.
ISA
XVI MARKETING ISSUES OF THE 1970S
1970, Addressing the London Metal Exchange on Two-Tier Pricing
Swent : Where would you like to begin?
Strauss: I was going to suggest, as I've discussed several times, the
discrepancies that have existed at times in the past between the
United States price of copper and the foreign price of copper.
In May of 1970, which is really just coming in to the seventies,
I was in England, and my associate John Bendit seemed to have
something on his mind. He cleared his throat several times.
But finally, he spoke up the day I was scheduled to return
to New York. He said to me, "Simon, I don't know quite how to
say this to you, but the committee of the London Metal Exchange
have made a request of me. They have invited Prince Philip to be
the speaker at the annual banquet of the exchange," which was to
be held in October as is traditional. "The prince has explained
that he doesn't know whether he will be able to make it or not,
and he will let them know probably in August. The committee
feels that if it waits until August to line up someone as a
speaker, they may have trouble finding someone. So they wondered
if you would be good enough to reserve that time, and in the
event Prince Philip is not able to make the speech, would you do
so?"
I said, "Well, John, I think that probably you can tell the
committee that I'd be glad to be the standby for the prince. Of
course, should it be that the prince can't make it and I am
invited to be the speaker, I would expect to spend the night at
Buckingham Palace."
John said, "I think you'd really be better off at St. James'
with Princess Margaret Rose."
185
I said, "Well, let's see how it works out."
In August, John called me on the phone to let me know that
Prince Philip had told the committee that he would not be able to
make the speech, and consequently the committee would be
delighted if I would be the speaker. I said I would be glad to
do that, and of course, it occurred to me in 1970 with this very
hot issue about what was then laughingly called the two-price
systemit wasn't a system at all, because a system is an
organized effort, and this was the result of disorganization if
anything. But it did occur to me that that would be a good
subject for my discussion, and in fact, that was the presentation
that I made in October of 1970 to the exchange.
1
I was flattered, because this was only the second time that
anybody from the United States had been asked to be the speaker
at the exchange banquet, the previous speaker from the United
States having been Robert Koenig of Cerro de Pasco.
My associate and in fact later boss, Charles Barber, made
the trip with me. Charles had been a Rhodes scholar and had made
a lot of friends while he was at Oxford. He called one of his
classmates and friends at Oxford, Admiral Lefanu
Strauss: --who was delighted to hear that Charles was in London, and
invited him for dinner on Friday night. The LME banquet had been
on Tuesday night. Charles explained that he was traveling with
me, and the admiral was kind enough to extend the invitation to
me as well.
We went to the admiral's home for dinner on Friday night,
and as we sat around drinking sherry before dinner, the admiral
was full of comments about the lunch he had had on Wednesday at
Buckingham Palace. It appeared that the queen had greatly
enjoyed the world premiere of the movie Waterloo, about the
famous battle of Waterloo, which she had seen on Tuesday night.
Prince Philip explained that he was not nearly as enthusiastic as
his wife about the movie, according to the admiral.
I turned to Charles and said, "You see, I got to make the
speech at the LME banquet because Prince Philip had to take his
wife to the movies." [laughter] That was one of the more
amusing episodes of my life in the metals business.
Well, to proceed now with more serious matters oh,
incidentally, in my speech I expressed the opinion that the
market seemed to be able to operate with two different pricing
'See Appendix E.
186
systems in effect, and while there were advantages to the LME
system of pricing copper, there were also some minuses in that
domestic producers felt that it was better to try to have a
somewhat more stable price, and I didn't see why the two couldn't
exist side by side. In fact, they persisted, the two-price
system persisted until late in the 1970s, when following the
energy crisis, the domestic producers finally decided to abandon
any effort to establish their own prices. And since the late
seventies, in effect, the price of copper has been the price
either as determined on the London Metal Exchange or, in the case
of the United States, as determined on the New York Commodity
Exchange.
LME and NY Commodity Exchange Prices Revolve Around Each Other
Swent : And are those prices generally about the same?
Strauss: Yes, but they revolve around each other like the moons of
Jupiter. There are times when the London price tends to be
higher than the New York price, but that's not the usual
relationship. Usually, the New York price is higher than the
London price by a fraction of a cent a pound. But in general,
they do work together.
Perhaps this is a good time to talk at some length about the
role of trade associations or in some cases even semigovernmental
institutions in the marketing of metals.
Trade Associations; Role in Research and Marketing
Swent: All right, let's talk about trade associations.
Strauss: One of the characteristics of the commodity business is that the
sellers of a commodity meeting stipulated specifications, which
is the case with the nonferrous metals, cannot claim that their
product is really basically different from the product offered by
their competitors. Unlike manufactured goods, where a difference
in models or difference in the actual functioning of the product,
copper is copper, whether sold by one producer or another,
provided it meets the specifications set forth by the American
Society of Testing Materials or other bodies.
187
Swent :
Strauss:
This has the effect of discouraging individual copper
producers, or producers of other metals, from spending a great
deal of money on research and market development to try to
develop new uses, because if a copper producer does succeed in
finding some new application for copper as a result of
expenditure of funds, his competitors will benefit from it to the
same extent as he will. There have been exceptions in the past.
When the Aluminum Company of America was the only primary
producer of aluminum in this country, it obviously was in a
position to reap the benefits of any research or development
program it undertook on behalf of aluminum, largely for itself,
rather than for its competitors.
In the same way, when International Nickel Company, now
Inco, was producing 80 percent of the Western world's supply of
nickel, they had a very extensive research program and tried to
develop new uses of nickel, with great success, incidentally, and
it was understandable that they felt that the expenditure of
those funds was justified.
Today, when Alcoa has half a dozen other domestic producers
of aluminum, sizeable ones, its research expenditures have been
sharply cut back, and International Nickel, or Inco, has actually
closed its research laboratories, because whatever it does is
going to benefit Falconbridge Nickel, Western Mining, and all the
other nickel producers that are in the field.
This is where trade associations come into the picture. In
the case of copper, lead, and zinc, I devoted a great deal of my
time to the work of these trade associations. I was at one time
or another president of both the Lead Industries Association and
the Zinc Institute. I was the head of the so-called operating
committee of the Copper Development Association. I was a
director of the International Copper Research Association. I was
one of the founders of the International Lead-Zinc Research
Organization. I mention this because a great deal of my time
went into working with these associations.
These are all associations of producers?
Of producers. Except that in the case of the Copper Development
Association, the fabricators did take a share in the budget.
Actually, they had had an association called the Copper and Brass
Research Association, which was the predecessor of the Copper
Development Association, but the fabricators by and large had
less in the way of financial resources than the copper producers,
and so the proportion of the budget of the Copper Development
Association carried by the producers is very substantial in
relation to the contributions of the fabricators.
188
I made a misstatement just now: the Lead Industries
Association also included many of the principal battery users,
and when lead was being used as a component of refined gasoline,
the consumers of lead were active members of the Lead Industries
Association.
Swent : And what is their main goal in this?
Strauss: Their main goal is to help develop the markets, define consumers,
to advertise, prepare literature indicating why copper is
superior to other products for certain uses. The boards of these
associations are usually made up of representatives from the
member companies. There is a professional staff engaged which
makes a career out of working full time on the job.
Just as an example, the Copper Development Association has
built several model homes in which copper is widely used for
roofing, flashing, obviously for all the electrical wiring in the
house, for the decorative hardware, and with the development of
solar power, installations which featured the use of copper in
connection with capturing the sun's rays and transmitting it to
heat. And the same thing applies to the Lead Industries, Zinc
Institute, and the other trade associations.
Swent: Do they do governmental lobbying too, legislative work?
Strauss: It varies. Some of the associations strictly keep hands-off,
feeling that the American Mining Congress, as an example, and
other organizations can take care of that. Once one undertakes
the field of lobbying governments, you're subject to registration
with the authorities and the kinds of--
The Lead Industries Association Pioneered Health Research
Swent: There are indirect ways to--
Strauss: Well, a good example of the kind of things that may be done by a
trade association to influence government thinking on subjects is
the work that the Lead Industries Association had done for many
years on lead and health problems. Whether this has changed
anybody's mind or not, I am not prepared to say, but the fact was
that the effort was made. The whole question of blood testing of
children to determine the levels of lead in the blood, that was
really pioneered years ago by the LIA before the environmental
issues became as important or as much in the public consciousness
as they are today.
189
I said that I gave a lot of time to the work of these
associations. I don't mean to imply that others didn't make
equal contributions. Usually in these organizations, the chief
executive officer may be the member of the board of directors of
the association, but the work tends to fall into the lap of the
people engaged in marketing. Because the real objective of
having the trade association is to expand the market for the
material.
And we have to deal very often with minor issues like, for
example, new plumbing codes in municipalities. Is lead solder
permitted or is it not permitted? Are there advantages being
given to plastic tubing for plumbing as compared with copper
tubing? So there's a great deal of nitty-gritty detail work
which the staff has to count on, and it's only right that this
should be done on an industry-wide basis rather than by the
individual producers, because if each of the individual producers
is attempting to accomplish something in this field, there will
be a great duplication of effort. There may even be
inconsistencies developed in the approach, which will confuse the
consumers .
Forming the First Silver Institute
Strauss: So I'm a great believer in the trade association approach to
certain of the problems facing our industries. So much so that
after the events that I've described earlier in regard to silver
in coinage and the recognition that the silver industry would
have to develop other outlets for silver production, I, together
with I think it was either eight or ten other representatives of
other silver-producing companies, caused the formation--! think
the year was 1971--of the Silver Institute. There had never been
a trade association of silver producers prior to that.
The example of the Silver Institute was such that in time
the gold producers decided they needed a Gold Institute. I had
not been active in that regard, because Asarco at that time was
not a major gold producer. And there are even trade associations
which have carried on efforts for such minor metals as selenium
and tellurium. There frequently are people who work for these
associations that eventually are offered jobs in industry by
individual companies, or there have been other occasions when
people working for companies have continued their careers as
association employees. There is a lot of exchange of ideas and
cooperation between the individual companies and the association.
190
Chairing the American Mining Congress Committee on Minerals
Availability
Strauss: One organization that I spent a lot of time with was the American
Mining Congress. Most of my work there was concerned with the
question of government relations with the mining industry in
regard to the problems of supplies of strategic materials in
times of national emergency.
1
I mentioned earlier that the
stockpiles were enacted into law following the end of World War
II when Congress passed a bill that set up a stockpile program to
be handled originally by the Army-Navy Munitions Board; later it
was transferred to the Federal Emergency Management Agency. That
isn't exactly the right name, but it's changed so often that I've
lost track how it--.
The stockpile objectives, however, were established
primarily by interdepartmental committees, including
representatives from Agriculture, Treasury, State, Interior, and
the military services. The thought was that the stockpiles
should contain sufficient quantities of scarce materials so that
this country could face a war or other emergency of an agreed
length of time. The length of time has varied from three years
to five years to one year, and there has been constant
manipulation of the stockpile objectives.
The phrase that was devised by the industry originally and
agreed to by the Congress was that the stockpile should be locked
up and the key should be thrown away, or put away, and only be
used in times of genuine emergency. There are frequent occasions
when temporary shortages occur and people in industry want to get
access to those stockpiles because of sharp increases in the
commercial prices. And the debate about the value of the
stockpiles has been fierce and continuing.
What is often overlooked is that the value of the stockpiles
is not only in that the materials themselves are physically
available in time of emergency, but that the possession of a
stockpile permits a government to save transportation, manpower,
and energy in times of war or other national crisis. I've
referred several times in the course of our discussions to the
heavy loss of shipping during World War II. Had there been a
large stockpile of bauxite in this country, much less shipping
would have been devoted to bringing the bauxite up from South
America through the Caribbean.
We've referred to the fact that the people working in the
domestic copper, lead, and zinc industries were deferred. This
meant that truck drivers, shovel operators, engineers, who were
'See Appendix G.
191
employed by the mining industry, who had the skills that the army
engineers and the navy seabees really needed, were deferred from
service, and instead people like my brother-in-law, who was a
jewelry salesman, were trained to be engineers. Had the military
services been secure in the knowledge that there was a reasonable
supply of these materials in the stockpile, they would have been
able to use people who were already trained to do the jobs that
were needed by the seabees and the army engineers.
Swent: And have been mobilized a lot faster.
Strauss: Exactly. Lives might have been saved. And with respect to
energy, it takes seven to eight kilowatts of electrical energy to
produce a pound of aluminum. If we had a stockpile of aluminum
in place, so my argument goes, in times of war, instead of facing
possible brownouts or shortages of electrical power, we wouldn't
have had to push as hard as we did to increase aluminum
production. So these are the arguments for having a stockpile.
The arguments against it are, well, we don't know what kind
of a war we're going to fight. If it's a nuclear war, it may be
over in a matter of months. Why have a three-year stockpile?
Another argument is that we're tying up a great deal of money in
commodities, and therefore it's a burden to the taxpayer. Some
people see the stockpiles as a sort of a subsidy to the minerals
and other industries, although the bulk of the commodities in the
stockpile are minerals.
All of these considerations are valid, and the weighting of
them changes.
Swent: It can also be used as a political weapon.
Strauss: Yes.
Swent: Or maybe not weapon; lever may be a better word.
Strauss: Lever, exactly. I think a great mistake was made in setting the
original objectives for the tin stockpile. Much too much tin was
put into the stockpile. Since the middle fifties, tin has been
coming out of the stockpile. This has annoyed Malaya, Bolivia,
Indonesia, because that's competing with their current production
and they feel that it has unfairly undermined the price. So it
does become very much of a weapon in international relations.
Swent: The Soviet Union has definitely used theirs, haven't they?
Strauss: Yes, they have. So it's not a black and white situation. There
are arguments for and arguments against, and the public feeling
192
about it today is certainly much different from what it was in
1946, when Congress enacted the bill right after the end of the
war. It was clear to everybody then how advantageous it might be
to have large quantities of materials on hand. The bill went
through with no opposition in 1946. No one said, "Well, we're at
peace and we won't need a stockpile."
And one final thing which I think in regard to the minerals
in the stockpile is interesting, and that is from the national
standpoint, if --and perhaps this will not happen now that the
Russian empire has dissolved, Soviet empire has dissolvedbut
one thing that the stockpiles do is they create reserves of
minerals above ground, which are here to serve the country at a
future date. Unlike agricultural commodities, minerals are not
really going to deteriorate. There may be some problems in that,
for example, some of the metals may oxidize to a certain extent,
you may have to clean them up to make them usable at a time of
emergency. But basically, they will be on hand, and they will be
an asset for future generations.
The Paley Commission report that I referred to before
stressed the question of whether we weren't depleting the
resources and our grandchildren were not going to have them.
Well, the resources in the stockpile in a sense are a legacy for
future generations. So it's an interesting discussion and one
that I'm sure is going to continue indefinitely. Currently, the
stockpile objectives have been greatly reduced. Some stockpiles
have been eliminated or are expected to be completely eliminated.
All of the silver in the stockpile is scheduled to be used, but
it will be used primarily in the production of commemorative
coinage rather than sold in the open market in competition with
current silver production.
Importance of Stockpiling Platinum and Palladium
Swent: What has been your advice on this? How have you felt about it?
Strauss: Well, I have felt that on the whole, there are more arguments for
having a stockpile than for not having one. I think it is more
important to stockpile those materials where there is little or
no production in the United States than to stockpile materials
that are produced in the United States. So I would give relative
weight to that. Instead of having the stockpile objectives
fluctuate depending on momentary technical developments, which is
the way it's happened for the most part for example, platinum
and palladium are important in connection with the control of
193
Swent :
Strauss;
Swent :
Strauss :
vehicle exhausts. There are catalysts in cars now that deal with
the noxious elements in the exhaust, and they contain platinum
and palladium. As a result, the platinum and palladium
objectives have been greatly increased.
But there are other times when they have been cut. Now,
platinum and palladium seem to me to be peculiarly desirable for
stockpiling, because the two principal sources are the Soviet
Union, or what was the Soviet Unioncurrently Russiaand South
Africa. The political uncertainties in both those countries
persist today. Even though we're no longer in the Cold War, the
fact is that the Russian economy is in a very uncertain state.
And certainly South Africa, while it has emerged now as a
multiracial society, who is to say whether its future road is
going to be tranquil or whether there won't be serious problems,
possibly civil war, revolution, racial conflict, which would
interfere with the production of those essential elements. So I
think it's a real asset to this country to have them on hand.
I cited early on the example of the industrial diamond
experience where an honest and patriotic diamond expert assisted
the government by making it possible to liquidate a portion of
the stockpile, and reap from those sales a sum of money that was
substantially in excess of the original cost. The stockpiles
that were acquired during and in the few years immediately after
the war cost a fraction of what the prices of those commodities
are today. Now, partly this is of course the result of
inflation, but it does show that these items have a value that is
retained there, and for that reason, I don't think it is in the
best interest of the taxpayers to liquidate the stockpiles in
such a way as to depress prices of the materials while they're
being sold.
What do you think would be a reasonable goal?
years, one year?
Three years, five
Oh, I think it varies. I would certainly have three years of
materials where we're more than 50 percent import-dependent. I
think materials where we are more self-sufficient, a one-year
stockpile would be adequate. But it's very hard to take a
rational view of this question.
To whom have you been able to communicate all this?
pressed where you could?
Have you
I have communicated this to literally hundreds of members of
Congress and scores of senators who sat on the committees that
have had hearings on stockpiles.
Swent :
Strauss :
Swent :
Strauss :
194
Have you had any effect, do you think?
I think modest. The Armed Services Committee of the House was
for years chaired by a remarkable congressman by the name of
Charles Bennett who came from Florida. Charles Bennett had a
genuine interest in this question, and he has the remarkable
record of never missing a vote while he was in the Congress. He
repeatedly refused my suggestions that he come out and give a
speech at the American Mining Congress meeting, because he said,
"Congress will be in session, and I can't be away from my desk."
Whereas many other members of Congress did come out and did make
speeches .
Anyway, Mr. Bennett is retired. I think he and I saw eye to
eye on many of these issues, but it's like a drop of water on a
stone once an hour. It takes a long time to make a real
impression on this issue.
And new congressmen coming in all the time.
All the time, they will have to be reeducated. They weren't
around during World War II and don't realize the enormous effort
that was made, which I saw first-hand as an executive of Metals
Reserve Company, the lives that were put at risk in order to get
access to strategic materials. So it will continue to be an item
for debate, I'm sure. My connection with it--
Swent : You were saying that for many years you chaired the committee of
the American Mining Congress on minerals availability.
Strauss: That's correct, and the stockpile issue was in its--. I am no
longer a member of that committee. The organization has kindly
given me the title of chairman emeritus, and on occasion I do
meet with the committee, but the occasions are not many, and I
have not testified on the issue in, I would say, about ten years.
So I am on the sidelines on that issue today, but--
Swent: It's hardly a moot issue, though.
Strauss: Yes. Correct. I was very active, I suppose I made forty or
fifty appearances before congressional committees on the
stockpile issue during the years that I was at Asarco.
Swent: That's why a tape recorder doesn't scare you now.
Strauss: That is correct. I also spoke for the Mining Congress on some
other issues like trade issues, and I think I said earlier on the
195
silver coinage issue, I represented silver producers and later
the Mining Congress in regard to that matter. So I tried to be
helpful to the Mining Congress and prepared some of their
pamphlets. That took up a good deal of time.
Swent : Are there other nations that stockpilewe know the Soviet Union
did, but do the nations of Europe, for example?
Strauss: They've had debates. The French had very modest stockpiles. The
British used to talk about it, but never did. They don't have
the national resources to do it. The Japanese have had some
stockpiles, but while they cover most of the essential materials,
they tend to be for three months or six months. I think the
Japanese don't regard them as necessary or defense related. I
think they're there to guard against interruptions of supply if
there were shipping strikes or something of that sort. So those
are the principal ones. I think Sweden had some stockpiles for a
while, and the Swiss. The Swiss, of course, are very close-
mouthed about what they do and what they don't do, but my
impression is that they have, since they're totally import-
dependent; there is virtually no mineral production of
significance in Switzerland.
Advisor to the International Lead-Zinc Study Group
Strauss: So perhaps a logical matter to move on to after this discussion
of stockpiles is my connection with governmental organizations of
various kinds. Perhaps my most enduring and interesting
assignment was as a member of the advisory committee to the U.S.
delegation to the International Lead-Zinc Study Group.
I have earlier referred to the U.S. import quotas on lead
and zinc that caused a good deal of fuss. Sometime in the
sixties, the principal producing countries concerned with lead
and zinc and many of the principal consuming countries agreed
that it would be useful to have an international group under the
wing of the United Nations to discuss the problems of lead and
zinc. The pressure for this came primarily from the four big
lead-zinc exporting countries: Canada, Peru, Mexico, and
Australia. But the United States indicated it was willing to
join. The United Kingdom, which is primarily a consuming nation,
France, Western Germany, Japan, all agreed.
And so several meetings were held in New York at the U.N. to
discuss what, if anything, could be done to cope with the
problems of surpluses and deficits or shortages of these two
196
metals. There was a general consensus on one problem, and that
was that the lead and zinc statistics weren't as good as they
might be, and that actually this group, after it was formally
chartered by the U.N. as an international study group, set up a
monthly statistical bulletin. All the member countries were
asked to contribute their official statistics.
This is fine, except that some of the countries are a little
more careful in compiling their statistics than some of the
others. But once a year, the group meets, usually in Geneva, but
it has also met in such places as Munich, Mexico City, Tokyo,
Malaga in Spain, and there may be others that I don't recall.
Once a year, there is a meeting. The official delegates to the
study group are always government employees. In the case of the
United States, it is usually someone from the State Department
with the advice of somebody from Interior and somebody from
Commerce, but also with the advice of a group of industry people.
There was some concern about Asarco's being represented in
the group because Asarco was not only a lead and zinc producer in
the United States, but it had the Buchans lead-zinc mine in
Canada, it had its operations in Mexico, which were subsequently
Mexicanized, and it had its large interest in Mount Isa in
Australia. I think some people said, "Well, you know, if Asarco
is here, they're going to be conferring with the Mexicans, the
Peruvians, Canadians, and Australians, and maybe things that we
want kept confidential aren't going to be quite so confidential."
It was a tricky issue. But finally, the State Department
indicated they did want somebody from Asarco to go, and for the
first ten or fifteen years, I was the person. There were also
representatives from St. Joe, American Zinc, National Zinc,
American Metal, and other companies.
The meetings were very interesting because you had an
opportunity to talk to everybody from around the world during a
brief week in Geneva or wherever it might be. And I think some
useful work was done, but I can't say that it has really
revolutionized the lead and zinc business.
Swent : A lot of fun for the delegates.
Strauss: It was a certain amount of enjoyment.
Swent: It must have been very interesting.
Strauss: Yes. Speeches were made. The Peruvian delegate for years was
the Peruvian ambassador to the United States, Fernando
Berckemeyer. His wife was a lady from San Francisco, I believe.
Fernando was a very good friend of mine, and he didn't really
197
have much of a feel for the lead and zinc statistics, so he used
to lean fairly heavily on me to explain to him what was being
said and why. In fact, if truth be told, he spent as much time
reading the daily Racing Form, because he was a great follower of
racing, as he did listening to the proceedings. But when he
spoke, it was as a result of instructions that he got from Lima.
There were a number of very distinguished people who were
involved in the organization. The U.S. delegate, the first
delegate was a chap named Nichols. When he was replaced in the
commodities end of the State Department, the next man was I think
Harlan Branson, if I remember correctly. I recall his being the
leader at our meeting in Mexico City.
And then eventually the official delegate was Charles
Carlisle. Charles Carlisle was a particularly effective
spokesman. Eventually, he left government service and worked
first as the head of the domestic U.S. Lead-Zinc Producers
Committee, and later became a vice president of St. Joe Lead.
When St. Joe Lead was acquired by Fluor, he left to return first
to government servicehe worked in the ITO, the trade that
isn't the correct initialsbut the office of international
trade, being given the rank of ambassador. And most recently,
until last year in fact, he was the number two man, the deputy
secretary general, of the Conference of the General Agreement on
Trade and Tariffs, GATT.
So his judgment and his abilities were widely recognized,
not just in the metals business but in the broad international
trade business. I think he's now a consultant on trade matters
with offices in New York. Charles didn't have much of a
background when he started on this in metal production, and he
depended on his industry advisors to a great extent.
There was talk for many years about forming a similar study
group on copper. It started while I was still at Asarco. It's
finally materialized about two years ago. In this case, for
reasons which I don't know, the official U.S. delegate is not
from the State Department but from the Commerce Department, a
gentleman by the name of Bob Riley. They're just beginning to
talk about improving statistics and so forth. It will probably
be a useful way of exchanging information about copper
developments, but like lead and zinc, I think the net effect is
not going to be substantially changing the nature of the trade.
So I have played no role at all in this copper study group.
198
A Committee to Update the Paley Report
Strauss: I was asked during the Carter administration to serve on a
commission, and we met for two years. It was the Commission on
National Growth Policies, one of these fancy government--
Swent :
They all begin to sound alike, don't they?
Strauss: They all begin to sound alike. The purpose of this was to really
bring up to date the kind of considerations that the Paley
Commission had had in 1950, and was there a big problem, wasn't
there a big problem. We issued a report which, as usual, is
gathering dust somewhere. But these things all took a lot of
time and effort, and could not be ignored, because if people who
are knowledgeable will not participate, then the results of some
of these studies could really be quite damaging.
Lecturing to the War College on the Nonferrous Metals Industry'
Strauss: For quite a few years, I was asked by the War College in
Washington to give an annual lecture on the nonferrous metals
industry to the people at the War College, who are people at the
rank of majors or colonels, or lieutenant commanders and
commanders in the case of the navy. It was an assignment I
really enjoyed because the problems were new to most of the
colonels, but they asked very good questions.
Swent : And that's, of course, where the question of metal supplies
becomes most acute.
Strauss: That's right. Because they have some weird ideas about metal.
This is going back to the days of World War II. I never will
forget the day that the fellow in charge of producing galvanized
pipe at Bethlehem Steel told me that he'd had a hurry-up call
from the colonel who was in charge of construction of a barracks
somewhere, and Bethlehem was a little late in making delivery of
the pipe to this barracks site,
holding it up?"
The colonel said, "What's
The Bethlehem chap said, Well, the pipe had been produced,
but it hadn't been threaded yet.
He said, "Well, ship the pipe now, you can ship the thread
later." [laughter]
'See Appendix H.
199
Swent: Oh, no! How could he be so ignorant?
Strauss: I just mention that you sometimes have to deal with things as
basic--.
On another occasion, an army officer asked me to give him
the location of the country's major brass mines. [laughter]
Swent: Oh, for heaven's sake. So there was some fundamental education
to be done.
Strauss: Yes. Also, I was used by Asarco on many occasions to deal with
people at the World Bank, at Ex-Im Bank, and at the State
Department with regard to problems we had with some of our
overseas operations or in connection with financing. But the
main burden of that was actually handled by people in Asarco 's
legal office.
Swent: Did the CIA ever try to use your offices overseas?
Strauss: They used to ask me questions.
Swent: As a listening post?
Strauss: They never asked me to go overseas, but they would talk to me
about issues from time to time. So I'm trying to explain to you
what occupied my days at Asarco.
Asarco 's Involvement with Uranium
Strauss: But perhaps we ought to go back to a question you asked me, which
was Asarco 's involvement in uranium.
Swent: Yes.
Strauss: When the AEC made its fateful decision to institute a program to
offer a firm price, which as I recall may have been eight dollars
to start with, but eventually became ten dollars a pound of U308 ,
it was clear that they were going to have to establish buying
stations close to the areas where uranium was developed, and it
was clear to me then that originally, the AEC thought of this as
a political gesture to satisfy the Western congressmen that
everything was being done to encourage domestic uranium
production, but they did not expect much in the way of results.
Swent : This was about, when, late forties?
200
Strauss: Late forties, I think.
Swent : After the war?
Strauss: After the war. They knew that they were going to be producing a
lot of atom bombs. They also believed that there was going to be
development of atomic power, and that therefore, substantial
amounts of uranium would be needed, and there was big pressure
from Congress where members said, "We can't allow ourselves to be
dependent on imported uranium, we've got to do everything we can
to develop domestic uranium." So this decision was made to offer
a guaranteed price for a considerable period of time. Ten years
is a long time.
From ray limited conversations on the subject with AEC
personnel--
Swent : AEC was the Atomic Energy Commission-
Strauss: Yes.
Swent: --which was set up to handle this whole thing.
Strauss: Yes. You may remember my namesake, Louis Strauss [pronounces
"Straws"], as he called himself, was the head of that for many
years .
I had the feeling from talking to AEC personnel they didn't
really expect much to happen. They were skeptical that there was
going to be much uranium found, and as you remember, everybody
and his uncle rushed out and bought geiger counters and started
heading for the hills, and the results far exceeded their
expectation. But they did know that they had to be ready with
buying stations scattered around the country, and they came to
Asarco--not to me, but to the people in the ore department in
Asarco--and said, "You have to help us, because you have more
expertise in how to go about buying ore than anybody else in the
country," which was true. We bought from very small miners. For
example, we'd have people who shipped one carload of handpicked
gold ore a year to our East Helena smelter, and we'd make
contracts with them, and we understood how to deal with them,
what arrangements should be made in regard to payment, weighing,
sampling, assaying, and so forth. AEC needed guidance on that,
and they asked Asarco to provide the guidance.
In order to insure that there would be no conflict of
interest, they also said to Asarco, "We will appreciate very much
your guidance, for which we will not pay you anything, but you're
not going to be permitted to go into the uranium exploration
201
Swent :
Strauss ;
Swent :
Strauss:
Swent :
Strauss ;
Swent :
Strauss;
business yourself, because it would be a conflict." So Asarco
abstained from exploring for uranium.
And you weren't paid for your consultation?
No. The individuals, several people who either were Asarco
employees or who were retired Asarco employees, I believe went to
work for them. One I remember in particular was a chap named
Martin Gaines, who I think had been an ore buyer in Colorado, and
he became an AEC employee.
But you were closed out, then?
Yes, we were closed out, and we didn't consider going into
uranium, until several years later when the program was well
established, and AEC indicated that there wouldn't be any
objection if we wanted to. But the exploration department wasn't
particularly eager to join the hunt. Other people had gotten so
far ahead of us.
So you never did any?
No, we did not. The head of the raw materials division of AEC
for years was a man named Jesse C. Johnson. He and I had worked
together at Metals Reserve, and we were good friends. I used to
see Jesse on occasion when I was in Washington, and he was good
enough to invite me to attend the ceremony at Columbia University
where he was presented with the Monel Medal--you know about that?
I remember the term, and that's all.
It was not given out very frequently. When he was given the
prize, he was the guest of honor at a very nice dinner in the
Columbia library, and my wife and I were invited to attend. But
that was on a personal basis because we had been such good
friends. He was a great fellow, and he did a wonderful job. I
have been trying to drum up some support for electing him to the
National Mining Hall of Fame, but I don't think I'm getting very
far.
So that's the story on uranium.
202
XVII THE TUMULTUOUS 1970S
Nixon's Price Freeze and the Rocketing Copper Market
Strauss: With regard to the seventies, I would say that that decade was
split in two. The first four years, which were years of great
expansion in business, more perhaps in Japan than anywhere else
in the world. Those were the days when the Japanese were really
beginning to feel their oats and spreading their wings, building
automobiles, building copper smelters and refineries, developing
their transistor business, developing their computer business--
Swent: Shipping.
Strauss: --and shipping. They were everywhere. And they dragged up the
rest of the world economy with them, because they were
experiencing a 10 percent growth annually in gross national
product, which is fantastic. The United States was doing very
well.
And then in late 1973, early 197A, the oil crisis developed.
So the rest of the decade was really almost totally devoted to
dealing with the question of the energy crisis, how were we going
to cope with it, and of course, in the background, the issue that
you mentioned, the environment, was heating up month by month,
year by year. So the metal markets were very strong in the early
seventies and extremely volatile in the latter part of the
decade .
In the early part of that period, you may recall that
President Nixon in 1971 had cut off the tie between gold and the
dollar at thirty-five dollars an ounce. He had seen the steady
diminution in the gold reserves of the United States, he was
fearful that the dollar was being adversely affected in
international trade by our continuing to tie ourselves so tightly
203
to gold, and he made that change. Then he followed it almost
immediately by a price freeze. Do you recall that?
Swent: I had forgotten the price freeze.
Strauss: Yes. And the price freeze--
Swent: That was '72.
Strauss: Actually, late '71.
Swent: Yes, I've got it here.
Strauss: That price freeze revived the whole issue of the two-price system
in copper, for example, because the copper market took off like a
rocket in the middle of '73. Under the Nixon formula, the
domestic producers were held to the highest price in 1970, which
had been sixty cents a pound. By the end of 1973, the London
Metal Exchange was a dollar a pound, and the distortions were
just enormous. Obviously, foreign copper was selling at the LME
price whether brought to the United States or anywhere else. The
consumers were screaming for cheap copper. Obviously, they took
all the copper they could get at sixty cents a pound. There were
no problems in selling the commodity.
But the scrap dealers began to export in droves. For a
while, the government talked about imposing embargoes on scrap,
and the scrap dealers said, "You can't do that to us, we can't
get the scrap unless we can pay the world price for it." And
finally, scrap was exempted from the price freeze so that scrap
could be sold to consumers at world prices, and foreign copper
could be sold to consumers in the United States at world prices.
The only people who couldn't sell copper at world prices were the
domestic producers. The situation wasn't as aggravated in lead
and zinc, but in copper, it was horrific.
Swent: Then had the nationalization in Chile-
Strauss: Had taken effect. Part of the reason that the LME was as strong
was that under the Allende administration, the production of
copper by the government-owned operations had gone straight down.
Allende had adopted the communist system. There was a political
representative assigned to every production unit of everything,
but particularly for the copper industry, and the decisions were
made by the political representative and not by the marketing
people or the engineers. Chilean engineers by the droves left
the country. The quality of Chilean copper deteriorated. 1 said
that copper is fungible, but there were some customers in Europe
who told me that under no condition would they take Chilean
204
copper, because the wire bars looked like a horseshoe. Instead
of being nice straight bars, they drooped at both ends, the
casting was so poor. So naturally, this caused a scramble for
good copper, Chilean production being as important as it is in
the market.
Swent: Of course, costs went up astronomically at the same time.
Strauss: Yes, right. So this was a very difficult period, but a
prosperous period for the industry, because the production was
being so--. One of our customers had installed a facility for
the production of continuous cast rod, which is--
Swent: That was the big new development in technology.
Strauss: That's right. That was beginning to replace the wire bar as the
standard refinery shape. This fabricator had installed his rod
unit in Utah close to Kennecott.
Swent: Do you want to name the consumer?
Strauss: No. He had put into effect a process, no longer actively used,
for producing a continuous rod called the dip forming process.
It had been developed by General Electric. You fed a copper wire
into a bath of molten copper, and the copper adhered to the wire
as it traveled through that bath, and that created the rod.
Obviously, there were some oxygen inclusions which had to be
taken off, and it was also necessary to ensure a uniform
diameter. So a certain amount of scrap was inevitable.
However, this chap was not interested in rod; he was
interested in scrap. He was buying copper for sixty cents but
taking off as much of the rod as possible as scrap. Of course,
he had to produce some rod, otherwise Kennecott would stop
supplying him. But the more material he took off as scrap due to
alleged imperfections, the more copper he could sell for a dollar
a pound without ever bothering to produce wire. You see, because
scrap wasn't controlled. And once again, this is an illustration
of how attempts to regulate markets result in all kinds of
peculiar things because people are ingenious and they figure out
ways how to get around regulations. It was comparable in a way
with the agricultural wheels that I told you about for Mexico.
So the effort continued to impose these price ceilings. As
I remember it, the government at this point was authorized to
sell copper from the stockpile. The Federal Emergency Management
Agency, FEMA--
205
Swent: They're the ones who come in after floods-
Strauss: And earthquakes, yes. But they also had the stockpile under
their control at the time. The FEMA officials were authorized to
sell 120,000 tons, something like that, of copper that they had
in the stockpile. This was in late 1973 and early 1974 when Mr.
Nixon's price controls were still in effect. However, FEMA said
they were not a domestic producer, therefore they were not
subject to the controls. They put the stuff up for auction, and
here's the government on the one hand telling producers they
cannot sell copper for more than sixty cents a pound, and selling
the copper at--I think the peak price it got was something like
$1.15--
Swent : From the stockpile.
Strauss: Stockpiled copper sold to consumers at $1.15 a pound. I
accumulated all the facts there, and Senator Goldwater made a
little speech about that on the floor of the Senate. But that
was outrageous, for the United States government on the one hand
to say that to combat inflation, we have to control the prices,
and on the other hand, to auction off its own product and get a
price almost double what the producers were allowed to get.
Well, I think it was in December of '73 or maybe early in
'74, I forget the name of the professorwas it Sawhill? Yes,
John Sawhill--who was in charge of this price control effort for
Nixon, agreed with great reluctance that the domestic copper
producers could raise their price from sixty cents a pound to
sixty-eight cents a pound. So we moved up that far, but no
further.
Finally, I think in either the end of March--yes--the price
controls lapsed, the authority to continue them, and they were so
unpopular by then that there wasn't any possibility of getting
Congress to extend them. The domestic industry was in a position
to raise the price. The price was raised; there were labor
negotiations underway, and it was a big problem. If we raised
the price, the union was going to want more and more share of it.
If we don't raise the price, we're not taking advantage of what
we've been asking for all along. So the prices were raised, I
think perhaps the price increase came on May 1 or June 1, for
domestic producers.
206
The Energy Crisis and Unparalleled Price Fluctuation
Strauss: By July, the London Metal Exchange, because the energy crisis was
beginning to take off, suddenly started to quote lower prices.
By September or October, the U.S. price, which had been so much
lower than the world price, was now above the world price,
[laughs] It was the most absurd situation that the domestic
copper industry was in.
By the end of the year, the London priceif 1 recall
correctly, at the beginning of 1973, the price of copper in
London had been something like fifty cents a pound. By the end
of 1973, it was well over a dollar a pound. It got up to maybe
$1.20 a pound in the spring, and by December 31, 1974, when it
was clear that a full-scale recession was setting in, it was back
down to fifty-seven cents. And this is just like the king of
France marching his troops up the hill and then marching them
down again. It was the most dramatic episode in all the years
I've been in the copper business, I've seen a lot of
fluctuations, but that two-year period was just unparalleled.
The other metals also changed a lot, but not anything like that.
Now, one of the interesting consequences of the energy
crisis was that it wasn't just the price of oil went up. In
time, the price of coal went up, the charges for hydroelectric
power, which theoretically shouldn't have had to change at all,
began to move up, the aluminum companies, whose principal cost
was power, seven or eight cents per pound of metal, suddenly
found themselves forced to increase prices in the face of a
recession.
Swent: And that affects the copper market.
Strauss: That affected and helped the copper market, because the big price
advantage that aluminum had had over copper began to disappear.
An even more drastic effect came from the fact that the
London Metal Exchange, which had never traded in aluminum,
started trading in aluminum. You'll find the year in my book, I
specify the date when it started. And suddenly, aluminum began
to look more and more like copper. In the past, copper consumers
had always said, "Why can't you be more like aluminum?" But as a
result of the energy crisis, the rise in costs, the increasing
number of aluminum producers, many of whom were government
organizations in the Middle East and in Latin America, and
finally the decision to trade aluminum on the LME, it was no
longer, "Why can't copper be more like aluminum," rather it was,
"Why is aluminum becoming so much like copper?"
207
And that has been the case ever since 1974. The growth in
aluminum consumption since 1974 is roughly the same as the growth
in copper consumption, whereas in the period from 1950 to 1974,
consumption of aluminum on a world basis had risen more than 8
percent a year, compounded, as against 4 percent a year
compounded for copper. Copper began to recover some of the uses
that it had lost through substitution to aluminum. My advice to
customers was, "Use the best metal. Forget about the price,
because from now on, you're not going to find the aluminum price
any more predictable than the copper price."
Swent: Copper is a better conductor, isn't it?
Strauss: It's a better conductor of electricity and a better conductor of
heat. Aluminum has advantages. It's lighter, it's far more
abundant. There's little likelihood that we'll ever have a
shortage of aluminum. Someday, perhaps, we'll have a shortage of
copper, although with the success geologists have had in recent
years in finding new copper deposits, that day is pretty far off,
in my judgment .
So it's been a fascinating reversal of roles, and I've
commented in my book repeatedly, not only aluminum, but nickel
and molybdenum, the two other metals which like aluminum were
dominated by a major producer Climax in the case of moly, Inco
in the case of nickel--were researched and resulted in a big
growth in the consumption patterns where prices had been kept
quite stable, they're now in the same category that there no
longer is price stability. They no longer have what the
economists call oligopoly-dominated markets, they have
competitive markets as we do. So it's been a fascinating change,
really.
How are we doing on time?
Swent: It's ten after four.
Strauss: We can go on for another half -hour or so.
Swent: The environmental movement, and then the big strike, those would
be a couple of things we might try to get to.
Strauss: Yes. Well, the big strike--
Swent: Wasn't there one in late '70 also?
Strauss: Well, not nearly of the same extent. There was the strike at
Phelps Dodge, but that wasn't industry-wide, and that was the
208
strike I think you were thinking about where the troops were
called on, and I'll talk a little bit more--
Swent: But that was just Phelps Dodge.
Strauss: Yes.
Another subject is going to be Bunker Hunt and the gold and
silver situation. And then we'll talk about Magma and my post-
Asarco career, but that can all come after we've dealt with these
issues while I was still at Asarco.
Consequences of the Freed Gold Price
Strauss: I think we ought to say a little about gold now, because we've
talked about silver at some length. When Mr. Nixon cut the tie
between the dollar and gold at thirty-five dollars an ounce,
there were people who said, "Gold is not an industrial material.
If gold is not going to be tied to money any longer, the price of
gold is going to drop." The New York Times said this in an
editorial. They really believed that people would not be willing
to pay as much as thirty-five dollars an ounce any longer for a
commodity that was not in demand from industry, to any major
extent. There are some industrial uses of gold, but the big use
is jewelry, which can hardly be described as an industrial use.
Most or much of the jewelry use is tied in with people's
perception of gold as a store of value. 1
If it was truly felt
that the U.S. decision to stop buying gold at thirty-five dollars
an ounce meant that gold was no longer to have a monetary role,
would people feel, well, there's no use holding on to gold? It
isn't tied in with money.
Of course, the reverse of that happened. Right from the
start, the price of gold started to rise. For a while, the rise
was very modest. But then Congress, recognizing the inevitable,
repealed the restrictions on the ownership of gold by U.S.
individuals, restrictions that had applied since 1935 or '34,
when the thirty-f ive-dollar-an-ounce price came in. When that
was repealed, a lot of American citizens began to think, well, it
wouldn't be bad to have some gold. And more than that, people in
other countries began to think that. We saw gold coins being
offered to the public as the holding of gold coins became legal.
To show how stringent the restrictions had been, I had had
an interesting experience returning from a trip to Japan shortly
after the Olympics were held in Tokyo. I had been given by the
'See Appendix L.
209
Japanese manufacturer of the Olympic medals a little plastic box
containing a gold, silver, and a bronze medal, as if I had won
the hurdles. It was very nice of them to do it. They gave it to
me because Asarco had been their principal source of silver for
the manufacture of these medals.
On my return from Tokyothis was in the middle sixties--!
had to call on one of the officials of the Treasury, Leland
Howard, to discuss the silver coinage issue with him. 1
mentioned that I'd been in Japan, and I mentioned that I had
brought a gold medal back. He said, "That's illegal. You can't
have that medal unless you won something."
"Well," I said, "didn't you read that I won?" [laughs] But
that was a fact. I had apparently innocently contravened the law
by bringing--. He didn't inform anybody about it--
Swent: Didn't prosecute you.
Strauss: No. Nobody's ever taken my medal away from me. But that was a
fact.
At Asarco, we could only sell gold to people who had
licenses from the Treasury to hold gold. They had to account to
the Treasury for how much gold they had on hand and what they
used it for and so forth. It was very strictly controlled.
Well, Congress recognized that it was ridiculous to keep this
restriction on, after the Treasury said in essence that gold has
nothing to do with our money, so that bill was repealed, and
people were in a position to start owning gold coins, gold
medals, or whatever form of gold they chose to have. And the
demand increased, in spite of the severe recession throughout the
world, because there is this mystical link between people and
gold that no amount of legislation can gainsay.
Swent: You can't convince a billion Chinese not to want gold.
Strauss: No, no. It's in our culture; it's certainly in their culture.
It's been in every civilization that you can mention, that gold
has been prized and valued. So the price gradually started to
rise, but it didn't really take off in a big way until the end of
the decade, when Nelson Bunker Hunt began to speculate in silver,
and it sort of rubbed off on gold. The rise in the price of
silver was much sharper than in the price of gold, and it had
weird effects.
Swent: That must have been a real shock to you.
210
Strauss: I had expected silver to go to five, six dollars an ounce. That
it would go to fifty dollars an ounce I had not expected. I
think I told you earlier that I had accumulated silver coins,
expecting that eventually they would be worth more than the face
value, so I had a lot of dimes and quarters and half-dollars that
I kept put away in a drawer. I never went into a bank and
changed money for coins. I saved coins when they came into my
hands through ordinary transactions.
But when the Hunt operation started the price began to
escalate, it was around September or October of '79, and by the
end of the year, it was up around twenty dollars an ounce. Then
in January it was absolutely fantastic. I made a decision that I
would sell ten dollars face value of coins each week to a coin
dealer, just to see what was going on in the coin shops. It was
a way for me to go in there and not just stand around and perhaps
be suspected of planning to hold the place up or something. So
once a week, I would walk in, either with 100 dimes or forty
quarters or twenty half-dollars, and exchange them for money.
The Ten-Dollar Brown Tweed Suit and the Silver Market
Strauss: The best exchange I made was in January of 1980, when I took
forty quarters of no numismatic value and got a check for $300.
My ten dollars worth of coins gave me $300. There was about
seven ounces of silver in them. That week, a local men's
clothing store in New Rochelle had its annual January clearance
sale. I was about to leave to spend the month of February and
most of March in Tucson lecturing at the university. I decided I
needed a suit to travel in. They had a brown tweed suit that I
liked very much that had been knocked down in price. I bought it
for $299.
When the Rotary Club in Tucson asked me to talk about gold
and silver at their weekly luncheon meeting, I wore this suit. I
said, "There's no way I can explain to you what's going on in
gold and silver better than by telling you that I am wearing a
ten-dollar suit," and I explained that I had exchanged my ten
dollars in silver coins for $300 in cash, and then used $299 of
it to buy that suit.
Swent: Pretty dramatic illustration, isn't it?
Strauss: There was a drug store in the building where I had had my office
when 1 was in Washington that I passed by on one of my visits to
the American Mining Congress. The store was on the corner of
211
Vermont Avenue and 15th Street. They served breakfast, they had
a fountain; in the window a large sign said, "Orange juice, two
eggs any style, toast, coffee, ten cents," and underneath in
small letters it said, "in silver coin."
Swent :
[laughs] They knew.
Strauss: They knew. So that was the effect of the Hunts.
What the Hunts didn't realize, what I could observe as I
sold ray coins each week, that pushing the price up had the
classic effect it always does it encouraged supply and it
reduced demand. It encouraged supply, I particularly remember
one little mousy sort of Irish woman that was standing in front
of me. She went to the counter, she had three or four silver
spoons in hand. She said, "Will you buy these?"
He said, "Of course." He saw the sterling mark, he weighed
them, he paid her for the spoons. She was probably somebody's
cook and had stolen three pieces of sterling ware.
And what she was doing on a small scale was being done on a
major scale throughout the country by professional thieves.
Swent: You heard stories of people stealing and melting silver-
Strauss: Yes, they ran around in vans and had pizza ovens in them in which
they melted down the sterling silverware as they stole it,
because they didn't want the marks on it. And of course, the
insurance rates on sterling silverware skyrocketed, and people
began to say to themselves, "Why do I keep this stuff around
here? It costs too much, the insurance is too high." They
either put it in their safe deposit boxes or they sold it to be
melted.
Swent: And brides turned to stainless steel instead.
Strauss: Exactly. As I think I say in ray book, the consumption of silver
for sterling ware in the United States the year before--! forget
whether it was '78 or '79--but it was something like 27 million
ounces. It's currently at about 5 million ounces. That's a
market that was actually killed by what speculation in silver
did.
So consumption was cut drastically. The only ones who
didn't cut were the Eastman Kodak people. They tried to
economize as much as they could. They raised their prices for
their film so they got the money back, and when the price of
212
Swent :
Strauss ;
Swent :
Strauss :
silver subsequently dropped, I don't think their prices dropped
quite as much as the price of silver.
But supply rose dramatically from secondary sources,
consumption was cut, and the stage was set for the subsequent
problems that we've had with silver, which have been compounded
in the last few years because so many of the new gold mines have
very substantial silver byproduct. There's a mine that Echo Bay
has in Nevada called the McCoy Cove mine that's producing 10
million ounces of silver a year. And Placer Dome has a mine in
Chile called Coipa which is turning out 12 to 15 million ounces.
It's primarily a gold mine, but they have all this silver along
with it.
So silver production has risen sharply as a result of the
increase in gold production, offsetting whatever loss there's
been in silver production from straight silver mines.
Consumption was badly affected. It's beginning to come back now,
and I think the prices of silver are quite likely to show fairly
good strength over the next few years. Not, I hope, ever to go
back to forty or fifty dollars an ounce.
Or gold to $800.
Well, gold is more likely to recover to $800 than silver to forty
or fifty an ounce.
Is that a good place to stop?
Yes, I think so.
OPEC, CIPEC, and Why Commodity Cartels Don't Work
[Interview A: August 26, 199A] ##
Swent: When we stopped yesterday, you had talked about aluminum becoming
more like copper in its marketing, and then there was some
discussion of gold. Perhaps you'd like to talk more about these
metals and the attempts that were made to control the prices and
so on.
Strauss: Yes. The energy crisis was really the result first of the
decision by the Arab oil exporting countries to embargo exports
to countries that they thought were favoring Israel. This
happened in late 1973. Then, in February of 1974, OPEC, that is,
213
the Organization of Petroleum Exporting Countries, startled the
world by announcing a major increase in the price of oil. I
forget the exact amount, but overnight the price was doubled or
tripled.
At the time, there was a widespread belief that the world
was going to run out of oil supplies in a matter of fifteen or
twenty years. Many people spoke of the fact that after the year
2000, oil might become an obsolete commodity.
Swent: We were going to be in darkness.
Strauss: We would be in darkness. There was also at that time in
circulation a study by a group of economists that called
themselves the Club of Rome who put out a book called Limits to
Growth, in which they argued that expansion of the world's
economy was proceeding at such a rate that exhaustion of
nonrenewable mineral resources, not just oil but many others, was
a real possibility, and that even if not exhausted, supplies
would become so scarce and so expensive that economic growth
would be greatly hampered.
So this was the climate in the mid-seventies, and it gave
rise to a belief on the part of many of the mineral exporting,
developing countries, that all they had to do was to alter the
terms of trade, to stop the practice of making raw materials
available at low prices to the developed, consuming countries,
and instead to reap the benefits of their ownership of precious
resources. Actually, in 1967, the copper exporting countries had
organized themselves under the acronym of CIPEC, and endeavored
to stabilize the price of copper with little or no success.
This organization was dominated by Chile, Peru, Zambia, and
Zaire, but in time, some other countries joined with them--
Indonesia, and even Australia expressed some interest in becoming
an allied nation to CIPEC.
The success of OPEC emboldened the thought that perhaps
CIPEC could become equally potent, and indeed in June of 1975, I
was asked to contribute an article to the magazine Business Week,
published by my old employers, McGraw-Hill, on this broad
subject, and the article appeared under the heading, "Why
Commodity Cartels Won't Work." 1
I was in the minority at the
time. There really was an atmosphere that commodity cartels
would take over.
In sessions of the United Nations, repeated speeches were
made on the floor of the United Nations about the fact that the
commodity exporting countries were going to get together to
'See Appendix F.
214
Swent :
Strauss
effect the change in the terms of trade that I have referred to.
And a committee was formed by the United Nations to consider the
establishment of what was called a common fund. This common fund
would be used to finance commodity agreements covering a host of
commodities, most of them agricultural, but including manganese,
bauxite, copper, and tin among the minerals, which would buy
surplus supplies in times of surplus and feed out from the
accumulated stocks to meet the times of shortage.
The idea was examined at length over a period of several
years. The amounts of money to effectively finance the
accumulation of such inventories would obviously be very great,
and the financing of it was the rock on which the idea foundered.
But it was very prevalent through the decade of the seventies,
and I was concerned about it, because it seemed to me that the
developing countries simply did not understand the nature of the
market operations.
This would be a mega-stockpile.
It would be a mega-stockpile on an international basis,
presumably with the backing of the United Nations. And the
majority of the commodities to be covered were not going to be
minerals, but agricultural commodities like wheat, cocoa, coffee,
cotton, the stockpiling of which presents many physical problems
that don't occur with respect to minerals.
Author of Trouble in the Third Kingdom
Strauss: My preoccupation with the lack of sophistication on the part
particularly of government officials in the developing countries
became so great that I first conceived of the idea of writing a
book on this subject. It took me a long time to get the book
written, but it was finally published in 1986 under the heading
of Trouble in the Third Kingdom [Mining Journal Books Limited,
London] . The purpose of the book was really to explain in
layman's terms how commodity markets, and in particular how
mineral markets really work, and why efforts to stabilize or
control prices, however well meant the intentions are for
undertaking this, were unlikely to be successful in the long run.
As part of this preoccupation of mine with the need for
educating people, I also conceived of the thought of volunteering
to give courses of lectures on the broad subject of the economics
of the mineral market at the mining schools. I knew the mining
schools were doing an excellent job of educating students on how
215
to sink shafts, how to crush rock, how to recover metals from the
ores, how to find mineral deposits. But I had a feeling that at
most mining schools, there was not too much attention paid to the
realities of the marketplace which the mineral industries were
serving.
I discussed this issue with a friend of mine who was a
professor of nuclear engineering at Massachusetts Institute of
Technology. I had known him well over many years.
Swent : Do you want to name him?
Strauss: His name was Manson Benedict, and he was the brother of a young
man who had worked with me at the Engineering and Mining Journal,
William Benedict, that had simply taken a summer job with McGraw-
Hill. I had subsequently visited them at their home in the upper
peninsula of Michigan, where their father, C. H. Benedict, was
the distinguished director of metallurgy for the Calumet and
Hecla Consolidated Copper Company.
So Manson had a background in minerals, and he arranged for
me to come to Cambridge and meet with a group of his colleagues
in the Materials Engineering Department of MIT. The mining
school as such no longer existed.
Lecturer on Mineral Economics at MIT and Elsewhere
Strauss: The outcome was that I agreed to give a series of twelve lectures
as a visiting lecturer at MIT. The first year that I did this
was 1977, and I subsequently gave the course at MIT on five
different occasions.
Word about these lectures spread, apparently, in the mining
school circles, so in due course, I gave similar lectures at the
Krumb School of Mines at Columbia, at Penn State, at the
University of Arizona, and at the Polytechnic University in New
York, and a concentrated week of lectures at the Colorado School
of Mines. The last time that I conducted such a course was at
Berkeley at the University of California in -1986.
Giving these lectures helped sharpen my thoughts about my
projected book, and in fact, the book subsequently has been used
as a textbook in mineral economics courses at some of the schools
mentioned .
216
A further aspect of my attempt to bring reality to the
discussion of stabilizing and/or controlling mineral prices was a
number of lectures given at industry meetings. For example, in
1978 I was invited first to Hong Kong to address the Commonwealth
Mining and Metallurgical Congress. This was an event that
happened once every five years and included delegates from all of
the principal countries involved in mining within the British
Commonwealth. '
Swent: That must have been a tremendous honor, to be invited to speak to
them.
Strauss: Yes. And then a few weeks later, I went to Canberra in Australia
to present a paper before a joint session of the Australian
Institution of Mining and Metallurgy and the American Institute
of Mining and Metallurgy. Incidentally, Jim Boyd was among the
other Americans present at that session at Canberra.
In time, of course, not due to my efforts but due to the
realities of the marketplace, there was recognition that efforts
to control mineral prices to reach international commodity
agreements were not as simple as most laymen and politicians
believed. One of the factors that made any effort to reach
commodity agreements particularly difficult at that time was the
wide fluctuation in the values of the individual currencies.
Prior to 1971, when the Bretton Woods Agreement was in full force
and effect, the principal currencies of the large industrial
countries remained in more or less fixed relationship with each
other, with only occasional changes.
But after 1971, the rate of exchange between the dollar and
the pound, between the yen and the mark, between the franc and
the dollar, changed so dramatically and so frequently that it was
clear that any effort to stabilize international commodity prices
faced one major handicap: in what currency should the price, the
stabilized price, be stated?
'See Appendix I.
217
The Example of the International Tin Agreement 1
Strauss: This difficulty was already faced by the International Tin
Agreement. When it had started, the prices within which the
price of tin was to be stabilized, that is, a floor price and a
ceiling price, had been stated in terms of pounds sterling per
metric ton. But with the changes in the value of the pound, the
tin miners decided that they needed another benchmark. There was
talk of using the dollar, but for a long time, the problem was
that the United States was not even a member of the International
Tin Agreement.
Finally, the agreement was based on the value of the Malayan
currency, sometimes called the Malay dollar but more frequently
the ringgit, and it was measured in ringgits per picul. This is
a unit of weight known only to Malayans, I believe.
Swent: But that's where most of the tin was.
Strauss: At the time, Malaya was the principal producer of tin, and a
picul, I found out, was the number of pounds of tin ore that the
coolies engaged in washing the tin from the placer deposits in
Malaya could carry on their shoulders, something like 140 pounds.
So to have an international commodity price for a major commodity
like tin expressed in terms of ringgits per picul did not make
for easy understanding on the part of the man in the street.
Swent: No. [laughter]
Strauss: So currency problems were--
Swent: But the tin agreement was still in effect in those days?
Strauss: It was still in effect. The tin agreement had been negotiated
over a period of years, first came into effect I believe in the
year 1956 for a five-year term. The second agreement was carried
on, and so on. The last of the tin agreements was the one for
the sixth agreement, and it collapsed in 1985 as the result of
inability to finance the growing burden of stocks needed to shore
the price of tin up to a level which was satisfactory to the
producers.
'For more on this subject, see Norman Cleaveland, Dredge Mining for
Gold, Malaysian Tin. Diamonds. 1921-1966; Exposing the 1883 Murder of
William Raymond Morley, Western Mining in the Twentieth Century series,
Regional Oral History Office, University of California, Berkeley, 1995.
218
This again brings up the point that I made before, that when
political considerations enter into the determination of prices,
markets become unreal. 1
Swent: The United States had finally come in on this--
Strauss: The United States was a member of the fifth agreement, but did
not participate in the negotiation of the sixth agreement. It
was only a member for the term of the fifth agreement. The price
of tin had been pegged at a level which would satisfy the high
cost producers, notably Bolivia, as a minimum, but it was higher
than was justified by the market. It tended to discourage
consumption on the one hand, and above all, it tended to
encourage production. Two producing countries, Brazil and China,
were not members of the tin agreement, were not bound by the
restrictions on production in times of surplus of supply that
applied to the member countries, such as Malaya, Bolivia,
Indonesia, and therefore, Brazil and China took advantage of the
high level at which the price was being held to greatly increase
their production.
And in the long run, this created the surpluses. The effort
to finance those surpluses led the manager of the tin buffer
stocks to borrow money in order to buy more stocks, putting up
the tin for security, and eventually the value of the collateral
simply wasn't enough to permit further borrowing. When the banks
and the brokerage houses that carried on the transactions were
not willing to undertake any more transactions, the whole thing
came crashing to the ground.
Incidentally, for anybody that's interested, there is a very
good book describing what happened when the tin agreement
collapsed. It is The Tin Men: A Chronicle of Crisis by Ralph
Kestenbaum, published by the Metal Bulletin in 1991. I read and
reviewed this book for a United Nations publication. It's very
convincing as to the difficulties.
Who took the staggering losses that were involved? The
governments that subscribed to the tin agreement, including the
consuming countries such as the United Kingdom and Germany, tried
to distance themselves from any responsibility for loans that had
been made to the tin buffer stock. But in the long run, the
courts actually worked out a settlement so that the collapse of
the agreement did not have to be shouldered entirely by the
persons who had made the loans.
Swent: But in the meanwhile, people had been thinking that these
agreements like CIPEC and others, would work.
See Appendix K.
219
Strauss: That's right. And while the price of tin has fluctuated since,
it has never re-attained the levels that they were trying to
maintain in the heart of the period of slack business such as we
had in the mid-eighties.
So here was the one case where a commodity agreement was
worked out on a mineral--tin--and where in fact it managed to
struggle through for almost thirty years, with a lot of good will
and a lot of good intentions, but because decisions as to the
proper price support levels were based more on political grounds,
of compassion for the high cost Bolivian mines, et cetera, in the
long run, it didn't work. I am therefore very skeptical about
any kind of commodity agreements working in the long run, because
whether run by governments or run by corporations, the motives
eventually lose sight of the realities of the market.
Swent: How long did CIPEC last?
Strauss: CIPEC is still, I believe, nominally in existence, but it has
never really been effective, and never actually succeeded, for
example, in getting agreement on cutbacks in production when
there was a period of surplus supply. It did accomplish some
things. It brought a lot of Zambians, Zaireans, Chileans, and
Peruvians to Paris and London for meetings. I think a lot of
people were educated by it, but it never accomplished the motive,
for the reason that copper is very different from oil, as I've
mentioned earlier. One of the things that CIPEC could not change
is that, thanks to the durable and recyclable nature of copper,
scrap supplies are always going to have a major influence on the
price of copper, and controlling the supplies of primary copper
won't necessarily succeed in controlling the market.
It was an understandable effort on the part of the
developing countries to control the price, but today, I think
everyone in the copper business recognizes that copper prices
cannot really be managed. Every effort to do so has in the long
run collapsed. The market will operate best if the producers
bear in mind that demand for their product is going to fluctuate
considerably, and that therefore prices are likely to fluctuate.
If they are prepared to go through the periods of slack times,
almost inevitably, there will be periods when demand is good and
prices will be firm, and the business will be remunerative.
As I said earlier, aluminum, nickel, and molybdenum are now
facing up to the same factors, and copper's competitive position
today is probably stronger than it's been in the entire post-
World War II era, for the reason that the substitute materials
are now being governed by the same market forces as govern the
copper market. Consumption is good, and with the developing
220
world expanding its industrial production and its consumption at
a high rate, I think the outlook for copper is quite good. But
the fears that the world is going to run out of copper have been
proven groundless. The number of new copper deposits being
identified all over the world, but particularly in Latin America,
is such that it is clear that there will be abundant supplies of
copper for many years to come.
221
XVIII MINING AND ENVIRONMENTALISM
Diminishing Markets for Lead
Swent : Another big development that happened in the early seventies was
the real flowering of environmental consciousness, the
environmental movement. That had a tremendous impact, too, on
mining.
Strauss: Yes, it did. At American Smelting and Refining Company, or
Asarco as it was called by the seventies, it was particularly
severe, because Asarco was: a major producer of several
comr.odities that were singled out for their potential threat to
health. I am thinking specifically of asbestos, which we've
already discussed in a limited way; lead; cadmium--all of which
were significant products for Asarco. I think I mentioned
earlier that the Lead Industries Association had been aware of
the problems of lead toxicity and monitored such issues as blood
levels in young children, and had taken steps to--
Strauss: And had taken steps to ensure that its members were aware of the
risks .
Swent: The issue of lead in gasoline was--
Strauss: That was a new issue. In fact, the lead industry had prided
itself on the fact that the tetraethyl lead had enabled a
reduction in the costs of refining petroleum into gasoline, and
in fact, resulted in a substantially greater recovery of gasoline
from the crude materials being refined than was possible without
the addition of tetraethyl lead. It had been the most rapidly
growing market for lead during the immediate postwar period, as
automobile engines became more sophisticated and required
gasoline with higher octane ratings.
222
Swent :
Strauss :
Swent :
Strauss :
So the loss of that market was a major blow for the lead
industry. At first, the restriction was on the amount of lead
that could be added, but eventually many countries adopted
regulations requiring automobile manufacturers to produce
vehicles that would operate only on lead- free gasoline. A market
which had been absorbing several hundred thousand tons of lead a
year gradually evaporated. Today, the amount of lead going into
gasoline refining is very small indeed.
Similar restrictions applied to lead in paints, to lead in
solder. The influence of lead-containing solders on water
supplies has been emphasized in the last few years, and measures
have been taken to either restrict or abolish the use of lead-
bearing solders for plumbing. A sharp contrast with the days of
the Roman Empire, when in fact the pipes that the Romans used
were made of lead.
Indeed, in the early part of this century, lead pipes were
in fairly broad use in the United Kingdom, and perhaps other
parts of Europe. They were never really used in the United
States to any great extent. But lead solders were used to join
galvanized or copper and brass pipes in connection with water
supply. So even though the amount of lead was much smaller,
nevertheless there was some lead present in the water supply
system, and the allegation is that this gradually dissolves and
affects the health of people.
Lead in pewter was a problem, supposedly, too, wasn't it?
Yes, but pewter never represented a large market.
The consequence of all this is that the lead market now is
enormously dependent on a single application, which is the
storage battery used for the lighting and ignition systems of
automotive vehicles. Lead batteries are used for other purposes
also, but this is the predominant use. Lead for batteries now
represents perhaps 70 to 80 percent of the total consumption of
lead in the United States. It's somewhat lower in other
countries.
Lead is used, however, interestingly enough, in other ways
in which it is a protection of health rather than a menace to
health. For example, lead is used as a protective measure in x-
ray operation.
For shielding.
And for shielding against nuclear radiation in atomic energy
installations. One of the many uses of lead that has been either
223
prohibited or restricted is use of lead for shot for people who
hunt, the theory being that the lead pellets are either swallowed
by wild fowl or act as a poison in streams, when they fall into
the bottoms of lakes or brooks.
One other material that Asarco produced, was the chief
producer in the United States, actually, was arsenic, and I
failed to enumerate that.
Arsenic Fears and the Closing of the Tacoma Smelter
Swent :
Right, we haven't mentioned that at all. Please tell about it.
Strauss: The arsenic content of the copper ores treated at most copper
smelters in the United States creates something of a problem for
all of them, but at none was the problem more severe than at
Asarco 's Tacoma smelter, because the Tacoma plant for years
handled copper concentrates from the Philippines with a very high
arsenic content, as well as copper concentrates from Peru running
high in arsenic. There were extended hearings during the
seventies in connection with the health of people in the Puget
Sound area because of the operation of the Tacoma smelter. In
fact, this was one of the factors that in the long run led to the
closing down of the Tacoma operation, which had been there since
the very inception of the company.
Swent: Was the problem air pollution, or water, or both?
Strauss: Well, both, and also the alleged threat to the health of the
Tacoma workers, although in fact the records did not sustain the
thought that there was a higher rate of lung cancer or other
diseases that might be attributable to the presence of arsenic
among the workers at Tacoma. The Columbia Broadcasting System
did produce a television show about industrial threats to
workers' health that included a segment dealing with the Tacoma
plant, and part of the show included an interview with one of the
Tacoma workers who was in the hospital suffering from lung
cancer, from which he eventually died.
Omitted from this discussion was the fact that this
particular worker did not operate in the section of the plant
that handled arsenic, and secondly that he had a record of
smoking an average of four packs of cigarettes a day. There was
no reference to either of those facts in the telecast, and Asarco
management made vigorous representations to CBS News about the
fact that this was not brought out in the course of the
224
presentation. We never got any satisfaction from CBS on this
issue. They simply ignored our representations.
Swent: CBS has been particularly bad in that respectparticularly
biased, I should say.
Strauss: That's right. They tend to be very one-sided in many of their
presentations of these issues. So that caused a lot of concern
at the time.
Treating Sulfur Emissions and Using Sulfuric Acid in Solvent
Extraction
Swent: And higher costs-
Strauss: Yes. The costs of dealing with the broad environmental issue,
particularly, of course, the cost of dealing with the sulfur
emissions from smelters, was very high. It was necessary, as a
result of regulations by the EPA and other government agencies,
to install facilities to recover much more of the sulfur than had
been the case previously. The Hayden [Arizona] plant, the
largest of the company's copper smelters, was one of the first to
be retrofitted, and recovery of sulphur improved significantly as
a consequence of putting this in.
But once the sulfur has been recovered in the form of
sulfuric acid, there then ensued the problem of what to do with
the acid. Much of the acid had to be shipped to consumers
located at geographically remote areas at high cost, and resulted
in substantial losses per ton of acid sold. This, in turn, of
course increased the costs of operating the facility.
Broadly speaking, while every effort was made by the company
to meet the environmental requirements of the government, the
capital invested in improving added nothing to the effective
capacity of the plants. In other words, there was no additional
revenue stream resulting from the environmental expenditures.
The American nonferrous metals industry as a whole, and Asarco in
particular, felt that we were being placed at an increasing
disadvantage to producers located in countries that did not have
similar environmental standards. I think today, there is
beginning to be a movement in countries such as Chile, Mexico,
Peru, to impose environmental standards, but they lag far behind
the United States, and therefore the capital required and the
operating costs involved are much lower in the developing
countries than they are in the developed countries.
225
There have been offsets, perhaps partly due to the
prevalence of the abundant supplies of sulfuric acid at locations
in the West, and partly due to technological advance and
recognition of a new method of producing copper. An increasing
share of the domestic production of copper is coming from
lowgrade oxide copper ores that can be treated by the solvent
extraction electro-winning process.
This process requires the use of sulfuric acid in the
leaching out of the copper from the rock, and it has become a
very substantial market. So that gradually, an adjustment has
been made there. This is currently in the United States the
lowest cost of the U.S. copper production, as compared with the
copper being produced by the traditional milling, flotation,
smelting, and electrolytic refining process. Costs are fifteen,
twenty, or up to twenty-five cents a pound lower with SX-EW.
Swent : And you can use the sulfuric acid that you're producing from your
smelter in the SX-EW.
Strauss: Yes. Right now, the largest single copper-producing mine in the
country is the Morenci mine of Phelps Dodge, and based on the
most recent announcement they've made of a further increase in
their SX-EW capacity, more than half of the production of that
mine will be from SX-EW, whereas twenty years ago, it was all the
result of conventional milling and concentration and smelting.
So it is a spin-off, perhaps accelerated somewhat by the
environmental concerns, although the first application of the SX-
EW process was really by a very small company called Ranchers
Exploration that operated in New Mexico and Arizona. Ranchers
Exploration was in the business before the environmental movement
had really started.
Swent: We're just completing the oral history of Wayne Hazen, who
developed the solvent extraction process for Ranchers. 1
Strauss: Right, together with Mr. Maxie Anderson.
Swent: Yes. And that's where they developed this.
'Wayne Hazen, Plutonium Technology Applied to Mineral Processing;
Solvent Extraction; Building Hazen Research; 1940 to 1993, Western Mining
in the Twentieth Century series, Regional Oral History Office, University
of California, Berkeley, 1995.
226
Strauss: Incidentally, interestingly enough, I believe I'm right that
Maxie Anderson is now in the National Mining Hall of Fame as a
result of his participation in the SX-EW process.
Swent: Oh, really? He met a tragic end in a ballooning accident in
Germany.
Strauss: Yes. But probably, given his choice of methods of dying, that
probably would have been his top choice, because he was a
terrific enthusiast, and in fact was the first person to have
flown across the Atlantic in a hot air balloon.
Swent: He was a real adventurer, wasn't he?
Strauss: With two partners, I might add. But he was a real adventurer; he
was a real character.
Cost of Restoring Old Mine Sites
Strauss: In addition to the application of the environmental restrictions
to the processing of minerals, of course, there are now a lot of
measures being taken with respect to the mining. There are a lot
of requirements being placed, sometimes as a result of measures
adopted by the federal government, and a lot of them on the part
of individual states, about restoration of mining sites,
particularly open pit mining sites. There are increasingly
stringent concerns about abandoned mining sites. The Superfund
problems of treating industrial wastes have included many areas
where there are predominantly slag or waste materials from old
mining operations, and companies are being asked to contribute to
the costs of treatment of these sites.
Asarco within the last two or three years, I believe, has
had a severe cost imposed on it in regard to the operations it
had at Leadville in Colorado and also in the Denver metropolitan
area at its Globe cadmium plant. These are not negligible
settlements; they have run into the eight- figure category.
Swent: And those go back long years, don't they?
Strauss: Yes, that's right. As in the case of Tacoma, the Globe plant I
think was one of the original operations that was taken in to
form the American Smelting and Refining Company in the 1890s.
Environmental concerns also, of course, greatly affected the
asbestos operation in Canada, as previously discussed, and Asarco
eventually pulled out of that operation entirely, although it had
227
been a profitable and worthwhile enterprise while the investment
was held.
228
XIX VICE CHAIRMAN OF THE ASARCO BOARD AND CONSULTANT TO OTHERS,
1979 TO THE PRESENT
Making Policy in Troubled Times
Swent :
By now, you were a director and then you were vice chairman of
the board.
Strauss: Yes. That occurred during the seventies.
Swent: This must have changed your job.
Strauss: Yes. My normal retirement date would have fallen on my sixty-
fifth birthday, which was in 1976. So I would normally have
retired as an employee at the annual meeting in 1977. However,
Mr. Barber asked me to stay on, and I was continued as an
employee for two additional years, and finally retired as an
employee in April of 1979, the annual meeting of April 1979, I
stepped down as an employee. I was made--my status as an
employee changed from being executive vice president in charge of
sales in 1975, and at that time I was elected vice chairman of
the company. The day-to-day marketing responsibilities were then
transferred from me to James Buck, who had been manager of sales
under my overall direction. My new responsibilities as vice
chairman- -
Swent: This was a big change, I presume.
Strauss: Well, not all that great, really, but it was a change. Mr.
Barber felt that I should be helpful in regard to broad policy
matters in the company for another three years, rather than
continue my direct responsibilities for the marketing end. More
of my time was spent frankly in Washington because of such things
as the growing concern about the environment and growing concern
about the general economic situation.
229
There had been three or four really rather poor years, 1975
through '77. In "78, there was a mild improvement beginning, but
it was still a difficult environment for the company. In 1979,
there was a very brief period of improvement in the market, and
it was at that very time that the Hunt speculation in gold and
silver was occurring. It seemed to pull up interest in other
commodities, particularly copper. So the price of copper rose
during '79 to a level that was once again remunerative to the
domestic copper producers, including Asarco. We had good years
in 1979 and even in 1980, in spite of the collapse of the
speculative boom in the precious metals which occurred in March
of 1980, as I remember it. But copper had a fairly good year in
1980.
So I was in a sort of elder statesman capacity for the
company at the time. I'm trying to recall specific examples, and
they don't come to mind at the moment, of things that happened.
I had spent February and most of March actually of '79 in Tucson,
where I was giving a series of lectures for the university, and I
repeated that again in 1980. You may recall, I gave the example
of my ten-dollar suit.
Swent: Right. Arizona was just devastated. Particularly I think of
Arizona as being just devastated by the environmental
restrictions.
Strauss: Right. Well, of course, it forced the closing of many of the
copper smelters in the state. The Hayden and San Manuel
smelters, and to a limited extent the Inspiration smelter, were
the only ones that operated continuously. The Morenci smelter
was a sort of an off-and-on proposition. The smelters at Douglas
were closed down, and also, I believe, Ajo. So it was a
difficult period in Arizona on the processing. The mining
continued because that was when mines started exporting some of
their concentrates to Japan, because of the lack of market.
Swent: It was not a booming business at that point.
Strauss: No, it was not. What else can I tell you about?
Well, even though I retired as vice chairman in March of
'79, I was asked to remain on the board, and an arrangement was
made under which I was retained as a consultant to the company.
Swent: You actually stayed on until 1989, didn't you?
Strauss: 1981, as a director. I remained as a consultant until 1988 or
1989. So it was a transition period. But during this period,
after I stepped down as vice chairman, I was free to accept
230
consulting arrangements with other companies provided they were
not in conflict with anything that Asarco was doing, and of
course, I was careful not to at any time disclose any
confidential information that came to me as a result of being a
director of Asarco.
Advisor to Broken Hill on the Ok Tedi Mine
Strauss: One of the arrangements that began early, in 1980 as a matter of
fact, was advising Broken Hill Proprietary with respect to
possible marketing strategies should they proceed with the
development of the Ok Tedi copper deposit in Papua New Guinea.
That arrangement with Broken Hill actually continued in effect
until 1987, after Ok Tedi was in full production. I did not make
any marketing arrangements for them; I simply suggested
strategies for them, who to approach, where to go, and I kept
them advised on a periodic basis with respect to my views of what
was happening in the copper market.
Swent: How did this connection with Broken Hill come about?
Strauss: I got a telephone call one day from their representative who had
his office in New York. He asked if he could come to see me, and
I said I'd be glad to.
Swent: Who was it?
Strauss: I've forgotten his name now.
Swent: It wasn't an old friend.
Strauss: No, no. He was somebody who'd heard me give a speech about the
metal markets at some point. He said Broken Hill Proprietary was
one of several partners in the Ok Tedi venture. One of the other
partners was Metallgesellschaft , the German company. He said,
"We know that they know a lot about the metal markets, but we
feel we need to have other sources than our partner, because we
want to get various views on it, and we believe that you can be
of assistance to us."
I said, "Fine," and there was actually a meeting in San
Francisco in early 1980. The other major partner in the
enterprise was Amoco, or the old Standard Oil of Indiana Company.
Amoco was by that time already somewhat interested in copper,
because they had taken over Cyprus Minerals and had the Pima mine
in Arizona, among other things, as--
231
it
Swent: This whole development in the South Pacific was a new thing at
that point.
Strauss: Yes. Actually, the Ok Tedi deposit was originally found by
Kennecott, but Kennecott and the Papua New Guinea government
couldn't come to agreement on the basis on which Kennecott might
go forward with the development, so Kennecott dropped out. Then
Broken Hill Proprietary, which was an Australian steel company
that was beginning to look into the nonferrous industry, and
Amoco formed a joint venture to take it over, invited the Germans
to join them. By the time the project was ready to go into
production, the government of Papua New Guinea had a 20 percent
interest. Amoco and BHP each had 30 percent, and a German
consortium including not only Metallgesellschaft but Degussa and
the German government itself had the other 20 percent.
It was a difficult undertaking in remote and wild country in
the western part of Papua New Guinea with great logistic
problems. But the thing that eventually decided them to proceed
with this project was the fact that overlying the copper deposit
was a deposit of fairly good grade gold ore. In order to strip
the copper orebody, the gold ore had to be removed anyway, and it
lent itself to easy processing. And for the first four years of
operation, from '83 to '87, they were a gold producer, and then
went into copper production.
Swent: So when you advise a company like this, what sort of thing do you
do?
Strauss: We talked about first of all, is it desirable to build your own
processing facilities, meaning smelting or refining, or should
you limit yourself to the production of concentrates? The pros
and cons of that. Secondly, if you are a concentrate seller,
where do you sell? To whom should you talk? How long should the
terms of the initial smelting contract be for? Should you sell
everything you expect to produce, or should you sell only part of
what you expect to produce to guard against unexpected delays or
difficulties, or in order to retain freedom of action with regard
to some of your production. What are the political risks
involved in tying up with smelters in various countries?
Located as it was in Papua New Guinea, if they decided to
sell, the closest market obviously would be Japan. Was it wise
to sell everything in Japan? Were there advantages in shipping
concentrates to Europe or to the United States or to Canada?
These are some of the broader issues on which they wanted advice.
232
Also, once you were reasonably close to production, should
you hedge by selling forward on the commodity exchanges? What
should be done?
Swent : Do you recall what advice you gave them, and whether they
followed it?
Strauss: Well, they followed it, but I will not try to be too specific
about the advice. [laughs] But principally, they did want to
be--and I made a major study for them about every second year of
what had happened in the copper market, what seemed likely to be
happening in the copper market, the kind of thing that's done by
Brook Hunt and Company, by Commodities Research Unit, and by
other analysts of the metal markets. But they wanted an
individual report from somebody who wasn't distributing the
report to a wide number of people.
So it was a very pleasant relationship, and it was capped
off finally with a trip that Janet and I made to Papua New Guinea
in 1987, just as production was being started, and they were very
gracious hosts. I still have very good relationships with the
organization. The gentleman who eventually took over the U.S.
representation is a gentleman named Everett Horgan, who was an
American who had been in Australia during the war, was a lawyer,
and married an Australian lady, and had lived for some years in
Melbourne, but he was shipped back to the United States to run
the New York office. He has since retired from his association
with BHP, but he and his wife are very good friends of ours, and
they were here in this cottage two weeks before you were.
[laughs]
Swent: Oh, really?
Strauss: Yes. So Asarco was extremely kind to me. They provided me with
an office during the period that I remained as a director, and I
had the services of my secretary available to me for those two
years. But then when I stepped down from the board, I felt that
I should no longer be going to the Asarco office. Partially,
this was to suit my own convenience. The Asarco office was in
downtown New York; I lived in Westchester. 1 commuted by train
to Grand Central. I then had to take the subway or a taxi or
walk, which I did on occasion when there were subway strikes, all
the way down to the bottom of the city.
233
An Office with Behre-Dolbear and Company
Strauss: So I looked around for a possible arrangement in Midtown, close
to Grand Central. I finally wound up making my office for two or
three years with Behre-Dolbear and Company, a well known
consulting mining firm. They had an office at Park Avenue and
45th Street, which was an extremely convenient location. I was
not actually an employee of Behre-Dolbear or an associate, but I
made my office with them, and in exchange for their making the
office available to me and some assistance from their office
staff, I gave them a certain amount of my time when there were
economic issues involved in some of the reports they were making.
I suspect you're familiar with them; they're a very well-known
firm of mining engineering consultants.
Swent: Yes.
Strauss: They were extremely busy at that time with a lot of the new gold
projects that were underway.
That was also a very happy association. Mr. Hans Schrieber,
who was the head of Behre-Dolbear--was then and still is--and I
got along famously. So I continued commuting to and from New
York for a period of time.
But eventually, when I decided to seriously buckle down to
the job of writing my book, I decided I didn't want to commute to
New York, that I could write the book better if I was at home and
not disturbed by people dropping in at unexpected times to ask
questions. So eventually, I gave up the arrangement with Behre-
Dolbear, although I've done some work with them on occasion, when
they have specific--. So since then, my business address is the
same as the place where I sleep.
Swent: And you wrote your book at home?
Strauss: I wrote my book at home. I had looked around with various
organizations that I thought might be interested, and I finally
made a very happy choice of Mining Journal Books. Michael West,
who was the senior director of Mining Journal, was an old friend.
I met him frequently when he came over to meetings of the
American Mining Congress. He used to call on me in New York, and
in fact, at times I wrote the silver chapter for their annual
mining review. So we were good friends, and he expressed
interest in the book. He was an extremely helpful editor, made a
lot of valuable comments, and I think helped improve the quality
of the book considerably.
234
Speaking to International Conferences
Swent: It's a very fine book.
Strauss: Yes. Writing the book was sort of fun. But even though I was in
New Rochelle and no longer in New York, I was still being asked
from time to time to give talks to various groups. One of the
happier occasions was when the International Wrought Copper
Council--IWCC--met . It's a group of European fabricators--!
shouldn't say European, because the Japanese are members--non-
U.S. copper fabricators that's been in existence for a long time.
They have annual meetings at which the outlook for copper is
discussed.
While I was at Asarco and an Asarco employee, the general
counsel of Asarco warned against any attendance by Asarco
employees at meetings of the IWCC, because it was believed that
there was a lot of price discussion there which it would be
unwise for us to participate in, and we might hear things that we
shouldn't hear, a hint that it might be a cartel, et cetera. So
I never did participate, and in fact, none of the American copper
companies participated, with the exception of American Metal.
Because of its investment in northern Rhodesian copper, Zambian
copper later on, they felt free to, and apparently their counsel
was less disturbed about their attending. So some of their
people did attend, and I believe once or twice, Anaconda sent a
representative because of Chilean copper. I'm not sure of that.
Eventually, of course, after the Chilean properties were taken
away from Anaconda and Kennecott, the Chileans became very active
participants in the meetings of the IWCC.
The IWCC used to arrange for producers to attend. Producers
had no vote in the proceedings. Canadian companies like Noranda
would regularly attend. The German Norddeutsche Afinerie would
participate. And these were extremely interesting sessions held
in different places.
Well, in 198A, the meeting was held in Hamburg, and it was a
time when the U.S. copper industry had appealed to the
International Trade Commission for restrictions on imports of
copper. The price was very low. The Chileans had just expanded
their production, and it was felt that there should be some kind
of restriction, the kind that the steel industries have invoked
in the past, and the automobile industries have invoked, limiting
the number of Japanese cars. And there was talk of similar
copper restrictions.
235
Swent :
Strauss :
Swent :
Strauss:
So Keith Hendrick of Noranda called me up and said that the
IWCC had asked him to try and find somebody from the United
States who could try to discuss not the U.S. point of view on
these political issues, but the outlook for production and
consumption of copper in the United States, and Keith thought of
me. So I called Asarco and I said, "I am still your consultant
but I'm not your employee any longer." I spoke to the general
counsel. I said, "Do you see any objection to my going as an
individual member? I'm not in a position to conspire with
anybody on the price of copper, and I really would like to go and
give this talk."
After hemming and hawing a little bit, the Asarco general
counsel said, "Well, use your own judgment. If you really want
to go, use your own judgment." So I went and gave a talk.
And the American Mining Congress asked me to give a speech
at their meeting in Phoenix for the financial officers in 1983.
I spoke to the Battery Council, which represents lead, on lead
issues at Las Vegas.
Would you use some of the same material for different speeches,
or some of the same research?
No, each speech was tailored to the audience. Janet and I had a
very enjoyable trip to Alaska, and that was in September of '83
at the invitation of a group which is called the Commonwealth
Club of the North, just to talk about broad issues in the
minerals industry, particularly with respect to relationship to
the communist countries, because of their proximity to Russia or
Siberia. So we went up, we spent a week based in Anchorage as
guests of the club. I gave my speech, but we also made trips to
Prudhoe Bay, to Nome, to Fairbanks, and we had a great time in
Alaska.
Prudhoe is exciting, isn't it?
Yes, very much so.
S erv ing as an Expert Witness
Strauss: So my time was well occupied. I had various clients. I was used
as an expert witness in a number of legal proceedings. I was a
witness for the AT&T system in an antitrust suit brought against
them because they had built a copper refinery in South Carolina
to handle their own scrap. This was something that went on in
236
St. Louis. A scrap dealer had brought this antitrust action
against them on the grounds that their deciding to build a copper
refinery had hurt his business.
I was a witness at a proceeding in Colorado, a question
about participation by CoCa Mines in profits made by Occidental
Minerals, a subsidiary of Occidental Petroleum, in trading silver
on the commodity exchange during the Hunt episode. This suit was
brought sometime later. CoCa Mines is now part of Hecla, but it
was then an independent company.
They had the underlying lease on the Candelaria silver mine
which Occidental had arranged to bring into production, and
Occidental decided when the prices of silver were high, a very
astute decision, to hedge by selling silver forward at extremely
high prices against production that they hadn't even begun yet.
CoCa felt that they were entitled to part of that, and it was all
based on correspondence. The arbitrators needed to hear
something about how the commodity exchange works, so CoCa engaged
me as a witness to discuss that.
And there were similar examples; I won't try to enumerate
them all. So that my background of knowledge about the metal
markets was valuable where there were issues.
Helping Senator Gore to Profit from Germanium Mined on His Land
Swent : Your knowledge was constantly being used.
Strauss: Yes. But the most significant one of those, from the standpoint
of interest, was the proceeding by Senator Albert Gore, Sr., and
his wife in which the Senator Albert Gore, Jr., not yet vice
president, and his wife were also involved, although not active
participants, against Jersey Miniere, the operator of zinc
properties in Tennessee.
This all arose from the fact that, curiously enough,
Occidental Minerals, a subsidiary of Occidental Petroleum, had
done some drilling on farm lands owned by the Gore family in
central Tennessee, had identified the existence of the zinc
deposit, had written a lease arrangement to deal with those zinc
ores, but had then decided not to go into the zinc business.
With the consent of the Gores, the leases were transferred to
Jersey Miniere, which had started out as a joint venture between
Union Miniere, the Belgian company, and New Jersey Zinc.
237
But by the time this issue arose, New Jersey Zinc had backed
out of the venture, and in fact, Union Miniere was the only owner
of Jersey Miniere. Jersey Miniere was operating on leased lands
in central Tennessee, extracting zinc ores. Although the leases
dated back to the early eighties, it was not until 1987 that they
began to extract ore from the Gore farm area. Before that, they
had had minimum lease payments, the kind that are in vogue, that
people pay an annual lease rental of so much until the property
gets in production, and those payments apply against future
actual royalties. When actual production begins, the royalties
are calculated.
As Senator Gore, Sr., explained to me when he spoke to me on
the telephone, he had been referred to me by Paul Baillie, the
well-known geologist based in Denver, who had been the head of
Occidental Minerals when the lease was originally made. Paul is
no longer connected with Occidental, but he has an active
practice in Colorado.
The senator had called Mr. Baillie to complain that he
didn't think he was getting the appropriate royalty under the
terms of the lease agreement. Mr. Baillie sympathized with him
but said that this involved issues that he was not too familiar
with, and suggested that he call me. Mr. Baillie knew me because
I'd been on the other side in the proceedings in Colorado some
years earlier. [laughs]
So the senator asked me if I had any conflict of interest,
and I said 1 did not, and he then outlined to me what was the
crux of his problem, which was that the zinc ores from central
Tennessee are concentrated at the mine and then shipped to the
smelter at Clarkesville, Tennessee, where zinc and cadmium is
recovered. But a residue is produced high in germanium, and that
residue is shipped to Belgium, where it is further processed by
an affiliated company at the Hoboken smelting and refining
operations.
According to Senator Gore, very few details were given to
him with regard to how his royalty payments were calculated.
When he pressed the issue, he discovered that no recognition was
given to the value of the germanium, and that was really the
issue.
Well, I won't go into all the details. Senator Gore was
represented by a very able lawyer, but he took me on as an expert
consultant, and I had meetings--f irst, of course, I read all the
papers that the senator forwarded, and then I talked with various
people. I went down to Nashville and met with the senator and
238
his lawyer, and it seemed to me that the senator had a very
strong case.
The Jersey Miniere position was that zinc smelters did not
pay for germanium, and therefore, that they were simply following
trade practice in only paying for the zinc and cadmium. Well,
the facts are that most zinc ores don't contain germanium, and
that's why zinc smelters don't pay for them.
Swent : It's very rare.
Strauss: And furthermore, that even if the ores contained germanium, most
zinc smelters don't have facilities by which germanium can be
recovered. But the Belgians did have such facilities. So that
was really the crux of the issue. Eventually, the lawyers for
both sides agreed that there would be hearings in Nashville
before a board of arbitrators, not taken into court. This
accounts for the fact that the issue was not widely reported in
the press or anything; it was privately heard before a three-man
panel selected with the agreement of the participants by the
American Arbitration Association. There were two from Alabama
and one from Georgia, none from Tennessee. And they were very
capable people. You could tell from their questions they knew
how to proceed on this issue.
Swent: So did we win?
Strauss: We won. We won because we had no data whatever on the value of
germanium other than the limited material published in the press,
but based on that limited material I had made some assumptions,
some calculations as to how much of the germanium was actually
recovered. Obviously, it was present in such small amounts that
much of it would be lost to processing. There would be costs of
shipping the material and so on. But I made some assumptions as
to what I thought perhaps the value of the germanium was, against
which the A percent royalty would apply, worked back to the mill.
The lease agreement was plain on that: it was the value at the
mill, so you had to take all subsequent costsprocessing,
transportation, processing losses into account.
So we had a big chart, and I had made all these assumptions.
I was candid with the arbitrators. I said, "I can't say that
these are the real figures, but the defendants refuse to give us
any information whatever, and I am using the best information
available and advice." Obviously, I didn't lean back in favor of
the defendants.
When their principal witness was put on the stand, Senator
Gore's lawyer said, "What is the transfer price at which this
239
Strauss :
Swent :
Strauss:
material is paid when the shipper," namely, Jersey Miniere,
"delivers it to the processor," the Belgian company that actually
processed it. These were two independent companies. There had
to be a price.
The witness said, "I am not going to tell you that."
Senator Gore's lawyer said, "You have to tell us that; it's
the crux of the issue."
"No," he said, "I won't tell you."
The arbitrators called a recess. They got the two lawyers
together and they said to the lawyer for Jersey Miniere, "If your
witness persists in refusing to give the information that Senator
Gore's lawyer is seeking, we will have to assume that Mr.
Strauss' assumptions are correct." Well, they couldn't take
that, because I had not been overly generous in estimating the
costs, of course. [laughs]
So they said, "We will, but we cannot give it in open court,
highly confidential, and there are only a few people in the
germanium business around the world, and we can't let this
information become public."
So everybody in the room, which was onlythere was no
public present, there were just the witnesses, the lawyers, and
the principals. So everybody--
II
--they showed that there was substantial value in the material.
Was it near the figure you had?
It was lower, but not too far out of line. But of course, it had
fluctuated, and that was what I didn't know. It wasn't a
constant over all the years from '87 to '92 when the hearing was
held. And in fact, in '91 and '92, the price of germanium had
dropped to the point where there was no net value worked back to
the mill. But prior to that, there was net value.
So the final decision, which was handed down by the
arbitrators after the course of a week, was that the Gores were
entitled to 4 percent of those values, calculated month by month,
with interest compounded at 10 percent per year, from the time
when it should have been paid until the time it was actually
paid. The amount really wasn't huge, but it was a great moral
victory for the senator, who didn't want to be cheated.
240
And the spinoff was, of course, that there was germanium in
the ores taken from all the other farms around, going all the way
back to 1980 or "82. So these poor Tennessee farmers got a
windfall. There had been some discussion as to whether this
should be a class-action suit, but the Gores calculated that if
they tried to represent the maybe thirty or forty other
principals involved who had leases with the company, there would
be infinite delays: What lawyer do we use, what do we pay the
expert witnesses, and so on. They wanted to get the thing over
with, so they had proceeded on their own. But it was like a
class-action suit in that the spinoff was that Jersey Miniere had
to pay back royalties to everybody else. You can imagine from a
political standpoint, that hasn't done the Gore families any
harm.
Swent : No, not at all.
Strauss: In this whole thing, I never understood why the Belgians were so
intransigent on this question, dealing with somebody with the
political influence of the Gore family. An American company, I
think, would have been delighted to have acceded to the Gores'
request. It wouldn't have been a bribe, but it would have been a
way of communicating with people who could have significance on
air pollution and water pollution problems, labor problems, tax
problems. At least you'd get a sympathetic ear, instead of being
at cross purposes with them. To me, it was--it's still a
mystery, of why they were so absolutely intransigent. Every time
any request was made, if it even mentioned the word germanium,
the lawyer would write back, "No, no, you're not entitled to that
information, period."
Swent: Different approach.
Strauss: A different approach.
Well, we spent a week in Nashville. I took Janet down with
me. The senior senator and his wife were at the same hotel. We
had dinner together every evening; we became very good friends as
a result of that. In particular, Janet has a very warm feeling
for Mrs. Gore, Sr. She's a wonderful woman. Just in February of
this year, we got a phone call from them, or March, I forget
which. The senior senator had been asked to give the annual
Lehman lecture at Lehman College in the Bronx. The college was
named for Senator Herbert Lehman who represented New York in the
United States Senate in the early fifties.
Well, Senator Gore is perhaps the last remaining colleague
of Senator Lehman, and they happened to have been very good
friends. So this was the twenty-fifth anniversary of the naming
241
of Lehman College, and Senator Gore was asked to come up and give
the speech, which he did. We had dinner with them the night
before he gave the speech, and then we went to the college to
hear his speech, which was excellent. So we are good friends.
Swent : Isn't that nice.
Strauss: Yes. And the vice president actually I met on two occasions.
The second occasion when I flew down to Nashville, his father was
waiting for me at the gate, and as we walked toward the exit, he
said, "Have you ever had a senator be your chauffeur before?"
I said, "Yes. Senator McClure of Idaho and I were very good
friends on the silver issue, and Senator McClure has driven me on
several occasions."
"Well," he said, "Senator Gore of Tennessee is waiting for
us outside the gate." This was just before he was nominated to
be vice president. So he drove us into town and sat with us in
the lawyer's office. So that's the Gore story.
Swent: We haven't talked about Magma yet.
Strauss: Before we get to Magma, I think we need to talk a little bit
about some other Asarco operations you and I talked about off the
tape.
Neptune Mining Company, Nicaragua
Swent: Right. We've completely omitted mention of some that were
important .
Strauss: Yes. When I was enumerating at the very start of this interview
the countries where Asarco operated, I mentioned the investments
in Canada, Australia, Mexico, and Peru, which were the principal
countries for foreign investment. But in fact, Asarco 's
operations were more far-flung than that. For many years, Asarco
was the largest stock holder in the Neptune Mining Company
operating in Nicaragua. Its partner in this was the company
called Rosario Resources, which had significant operations in the
neighboring country of Honduras. In the Sandinista uprising
against General Somoza, the Neptune properties were eventually
expropriated. But up until that time, it had been a substantial
producer of gold, silver, and even some base metals, zinc
principally.
242
It was a relatively small operation, but quite successful,
and several of the people who managed the Neptune operation
eventually became senior officers at Asarco. I am thinking
particularly of Clarence Nelson, who was eventually named vice
president in charge of mining in New York. He was well known in
the industry as "Swede" Nelson.
The Saudi Arabian Mining Syndicate
Strauss: Another country in which Asarco had had operations was Saudi
Arabia. In the thirties, during the gold boom that followed the
increase in price to thirty-five dollars an ounce, a geologist
involved in the oil industry named Carl Twichell had spotted a
curious formation on the surface near the port of Jiddah.
Investigation showed that this was an accumulation dating back to
the B.C. era of ancient tailings of gold ores that had been
extracted that had accumulated on the surface there. The
tailings ran over one ounce per ton in gold, incredibly rich by
modern standards, but obviously in prehistoric times less so.
The deposit was situated close to an oasis, and over the
centuries, the various camel trains had paused there for camping
overnight, securing water supplies. The consequence was that the
retreating of these tailings presented a unique metallurgical
problem, because so far as I know, this is the only deposit
treated for recovery of gold in which the presence of camel dung
was a major consideration. [laughter]
Exploration of the area proved that there was a large gold
deposit remaining that had not been exploited by the ancients, so
the Saudi Arabian Mining Syndicate was formed in which Asarco was
the majority holder, but there were other participants, including
some of the reigning Saudi family. The mine operated quite
successfully prior to World War II, and then again after World
War II. My impression is that it was finally closed down
sometime in the 1950s.
But I recall with some amusement that once a year, members
of the Saudi royal family would come to New York, and the mining
department would tender a dinner party for them at the Waldorf-
Astoria. One feature was that to pass the food and drink around,
a toy train was installed on the tabletop, because one of the
Saudi aristocrats was very fond of starting and stopping the
train. He could get his cream, sugar, salt and pepper, or other
goodies by dispatching a freight train around the table surface,
[laughter]
243
That property was shut down, as I said, in the fifties, but
I believe it's being revived or perhaps has now been revived and
is once again in production.
Mines in Ghana and Nigeria
Strauss: Another gold operation Asarco had during the thirties boom was
the Taquah and Abosso mine in what used to be called the Gold
Coast, what is now known as Ghana. During the Korean crisis,
Asarco undertook an exploration program and for a short time
operated a small lead-zinc mine in Nigeria. 1 mention all of
this just to indicate that the company was on the lookout for
mining properties all over the world.
Swent :
They had their own exploration department?
Strauss: That is correct. The exploration department was headed for a
considerable period of time by a geologist named Clement Pollock,
who had come out of the silver belt in Idaho. He had been
responsible for the development of the Galena mine. After Mr.
Pollock's retirement, Thomas C. Osborne took over the direction
of the exploration efforts. When he was promoted to executive
vice president, he was succeeded by Richard C. Brown.
Swent: The two Osbornes are not related, I guess?
Strauss: The two Osbornes are not related, but since one of them is named
Tom and the other is Dick, it was fortunate that we were able to
find that a timekeeper at the Deming operation in New Mexico was
named Harry Osborne. So we had Tom and Dick and Harry on the
company books. So that takes care of the miscellaneous
countries.
244
XX MAGMA COPPER CORPORATION, 1989 TO THE PRESENT
Board Representative for Warburg Pincus
Swent: So we're continuing now after our delightful lunch break at the
Stockbridge Country Club. Lovely lunch and pleasant time, and
now we're back hard at work, coining now to the next career, which
was with Magma Copper Company. How did you get involved with
Magma? Through friends, contacts you'd had through many years?
Strauss: Well, in December, 1988, I'd been out. When I came back, Janet
told me that Donald Donahue had been trying to reach me. Donald
Donahue had been president of AMAX, formerly American Metal, at
the time that Ian McGregor was the chairman. He had left AMAX
for a career with Continental Can Company, but following the
merger-takeover of Continental Can, so far as I knew, he was more
or less retired, until I heard that Newmont had asked Don to
become chairman of Magma Copper. Newmont was in the process of
spinning off Magma Copper, which for twenty- five years or so had
been a wholly owned subsidiary of Newmont. But the major stock
holders at Newmont, Consolidated Goldfields in London, had
apparently decided some time in 1985 or 1986 to convert Newmont
more or less into a straight gold mining company and to dispose
of their copper assets, of which Magma was one of the principal
ones .
It was decided by the Newmont board that Magma's stock would
be distributed to Newmont share holders. However, Newmont did
retain about 15 percent, as I recall it, of the Magma shares, and
also, in order to help the company in its newly-found
independence, had bought some preferred stock, which gave Magma
some cash with which to deal with their major replacement
program. They had to rebuild the smelter at the San Manuel site
in order to bring it into compliance with the strict
environmental rules. I knew that they were almost completed with
this rebuilding job at the time of the spinoff. In fact, I think
245
the new smelter started operation some time in 1988. The spinoff
had occurred in March of 1987.
Apparently, Newmont's retention of some shares of the
preferred stock meant that Newmont was still taking a very active
role in connection with Magma operations, and there was beginning
to be friction on the part of the operating people at Magma with
the Newmont people who were trying to tell them what to do and
when to do it. There were reports about this circulating in the
trade.
Mr. Donahue took his assignment as chairman of the company
very seriously. He felt he was under obligations to his share
holders, most of whom were independent of Newmont, and he came to
the conclusion that it would be best if, in some manner, Magma
raised enough money to buy back the shares still held by Newmont,
including the preferred stock. Magma had heavy capital
expenditures, and it also had debt. To do that financing would
not necessarily be easy.
Mr. Donahue approached the firm of Warburg Pincus and
Company, with which he had good relations. Warburg Pincus is an
investment banking firm that manages several billion dollars in
assets on behalf of clients. The vice chairman of Warburg Pincus
was John Vogelstein, whose father had been the president of AMAX
before Mr. Donahue was president. So Donahue knew John
Vogelstein very well. I had heard, though it was common
knowledge, that in return for raising the necessary money, which
Warburg Pincus did, Warburg Pincus asked for the right to name
three directors to the Magma board.
When I called Mr. Donahue back, after Janet reported that he
had been trying to reach me, he explained that two of the Warburg
Pincus partners were going to go on the Magma board, or in fact,
perhaps had already been named to the Magma board. One was John
Vogelstein. The other was Christopher Brody. Mr. Donahue asked
me if I would consider accepting nomination to be the third
representative for Warburg Pincus on the Magma board, and whether
there would be any conflict with whatever arrangements I had with
Asarco.
I told Mr. Donahue that I would have to speak to Richard
Osborne, who by then was chairman of Asarco, because I certainly
did not want to do anything that would in any way make Asarco
uncomfortable. I suspected then, as indeed proved to be the
case, that Asarco would raise no objections to my joining the
Magma board, but would require that I give up my consulting
arrangement with Asarco. I did indicate that the idea of joining
the Magma board was attractive to me, because I knew that as a
246
new-found independent company, there were problems, and that they
would need, for example, once free from the affiliation with
Newmont, to do their own marketing. I thought perhaps I might be
useful.
So I called Mr. Osborne the following day, had a very
pleasant conversation with him, said that I did not want in any
way to create any feeling of rancor if I did accept the
assignment to the Magma board, that it was by no means certain
that I would be nominated, that I still had to interview Mr.
Vogelstein and Mr. Brody, but I thought it well to talk to him
before I did so, that I was prepared to give up my Asarco
consultancy arrangement, which was already almost ten years old,
following my retirement in '79.
Mr. Osborne said that he would speak to his general counsel
and would call me back and let me know what conditions, if any,
they'd apply.
When he called back, he advised me that there would be no
problem about my joining Magma, provided I gave up my Asarco
consultancy, and further provided that if I was making a speech
to a group or writing an article for publication, I should not
identify myself as being associated with Asarco, even as being
the former vice chairman of Asarco, although of course everybody
knew that I had been a vice chairman. But it was simply that the
appearance of my name as being affiliated with Asarco might raise
questions of conflict of interest.
This was very understandable, and I assured Mr. Osborne that
this would be so.
With a slight chuckle, he told me that I did not need to
alter my biography or resume and excise all references to Asarco,
and I said of course. He said, "We know those are the facts."
At any rate, I have continued to be on excellent terms with
Mr. Osborne. There has never been any problem about the fact
that I am now advising a competitor of Asarco' s.
So in the course of a day or two, I went down to the Warburg
Pincus office, and Mr. Vogelstein recalled that when he was much
younger, his father had in fact introduced me to him, but we had
lost track of each other. His father had long since died. His
father was an exceptionally able gentleman, and one of his keen
interests was silver, as mine had been, and we had many occasions
to exchange views about the silver market. So 1 left a copy of
my resume with Mr. Vogelstein, as well as a copy of Trouble in
the Third Kingdom, which he had not previously seen. He said he
247
would look this material over and could we meet the next week for
lunch.
When we met for lunch, he had Mr. Brody also present, and a
third Warburg Pincus gentleman, a considerably younger man named
Stewart Gross, who was to be more or less the point man in
following Magma affairs in detail. We had a very good luncheon
meeting, and talked about the copper market at some length, and
then the following week Mr. Vogelstein called up and said, "We
have advised Magma that we would like you to be named to the
board."
My election to the board was at the February meeting of the
board, which was in early February--
Magma's Management History
Swent: That would have been 1989?
Strauss: That's correct.
When I joined the Magma board, although Mr. Donahue was
chairman, the chief executive officer was Mr. J. Burgess Winter,
who was president of the company. Mr. Winter had himself only
joined Magma in August of 1988, a few months earlier. It
happened that the previous president of Magma, who was in charge
of operations at the time of the spinoff, was a gentleman named
Brian Woolfe. Mr. Woolfe was an experienced operating man who
had been in the Newmont organization for several years and had
been asked to take over Magma at the time of the spinoff.
He died very suddenly as the result of a heart attack when
he returned to Tucson, where the Magma offices were located, from
a visit to Denver, where he had been conferring with Newmont
people. His death in May of 1988 was a great shock. Newmont had
temporarily assigned one of their other key executives to be
acting president.
n
Swent: You were saying that when Brian Woolfe died, an acting president
had been named.
Strauss: Had been named by Newmont to take over, and then a committee was
appointed by Mr. Donahue, of which Mr. Donahue himself was a
member, to search for a new president, whether from within the
248
Magma organization or outside. At that time, although the
refinancing that I referred to had not yet been completed, the
affiliation with Warburg Pincus had already been made, and so Mr.
Vogelstein was one of the people on this search for a new man. I
forget who the other members of the committee might have been.
I'm sure that Mr. Donahue took an active part.
As I said, Woolfe's death occurred in May. A number of
people were interviewed, but by July, the committee had made up
its mind who the new president of Magma should be. They had
interviewed Mr. Winter, who at that time was number two in the
chain of command at the Kennecott operation in Utah, reporting
directly to Frank Joklik, who was the CEO of Kennecott. 1
Mr. Winter was born in Northern Ireland. He went to school
in Ireland, but shortly after graduation as an engineer accepted
a post with the Anglo-American organization in South Africa. His
duties down there had included active participation in a nickel-
copper property that Anglo had in Botswana, as well as work at
the head office in Johannesburg. He rose very rapidly within the
large Anglo-American organization, so that when a few years later
the Anglo management decided to branch out into North America and
actually arranged to purchase Inspiration operations in Arizona,
which had been partially owned by Anaconda but were then part of
Atlantic-Richf ield, the oil company, Mr. Winter was sent to the
United States to play a role at Inspiration, where I believe he
was also second in command.
He worked at Inspiration for several years, did very well,
and was recruited by Kennecott when they embarked on their
mammoth modernization and rebuilding of the whole Utah structure,
new concentrator, redesign of the pit, and all of the other
things that they did.
As a consequence, he attracted a lot of attention in the
mining community, because while Mr. Joklik was in charge, the
real responsibility for managing the rebuilding rested on
Burgess Winter's shoulders, and it was a good job completed on
time, within budget.
When he got the opportunity to come to Magma as CEO, he was
very eager to proceed because he felt that he would like to be in
full charge of something, and this was a real challenge. He was
exceptionally well qualified because of his experience in regard
'Frank Joklik, interview in process, Western Mining in the Twentieth
Century series, Regional Oral History Office, University of California,
Berkeley, 1995.
249
to smelting, and here was the new Outokumpu flash smelter at San
Manuel, about to be started up. The smelter is in fact the
largest smelter using the Outokumpu process in the world, and it
represented a significant challenge. Magma was a very large
producer of copper, but it was also high cost, and from the
start, Burgess realized that his major job was to get the costs
reduced to make it competitive under any conditions.
Marketing Challenges at Magma
Strauss: Actually, when he took over in late 1988, the copper market was
strong, the price was high, and Magma was in a position to make a
profit. But the Warburg Pincus people knew, and Mr. Winter knew,
that the price of copper would not necessarily always be high,
and to prepare for possible adverse conditions in the market, it
was important to control costs and, if possible, to reduce them
sharply.
On the marketing side, both Mr. Vogelstein, as an outside
director, and Mr. Winter when he took over, felt that Magma
should no longer continue to use Newmont to market its copper,
even though Newmont had a contract in place that ran for another
year, year and a half. The feeling was that Newmont had not done
the best of jobs in this respect. Therefore, one of Mr. Winter's
first undertakings was to find a new director of marketing. And
it is probable that because of this interest of his in marketing,
that both he and Warburg Pincus people felt it would be well to
get a director with experience in the marketing of copper. None
of the other members of the board had really been involved in
copper marketing.
Their search for an employee, a marketing manager, soon
centered on a gentleman named John Champagne, spelled like
champagne wine. He had been in charge of nonferrous metals
trading for a large trading firm based in Minneapolis, Cargill,
which had absorbed the major metals trading outfit of C. Tennant
and Sons. John had originally been an employee of Tennant 's, and
then had moved to Cargill.
However, by the end of 1988, Cargill had decided to step out
of the metals trading business, and John therefore had been on
the lookout for a job. He was quite young at the time- -he's
still only about forty years old as we speak--but very
knowledgeable, very quick, well acquainted with everybody in the
metals trading fraternity, and aggressive and he yearned for
expanded responsibilities. Mr. Vogelstein told me as I joined
250
the board that I was to work closely with John Champagne, to hold
his hand, to try to make sure that he wouldn't indulge in any
reckless speculation, which in fact he never has tried. He has
been very shrewd, very careful in what he has done. From the
start, John and I have gotten along very well, still do very
well. We communicate frequently by telephone, by letter. We
keep each other posted on things that we hear in the market that
seem to be worthwhile. And Magma's marketing is in excellent
hands under his direction.
I had visited Magma's operations before joining the board,
but I took the first opportunity I could to go out to Arizona to
see what was going on. Let me now define what is involved in the
Magma operations.
Magma's Operations
Strauss: At San Manuel, there is the largest underground copper mine in
the United States.
Swent : This is just a little bit north of Tucson, isn't it?
Strauss: It is thirty miles north and slightly east of Tucson, not far
from the town of Oracle, which is well known. There is obviously
a mill and a smelter. In addition to the underground production
at the time I joined, some oxide ore on the surface was being
mined to be treated by the SX-EW process that we have already
referred to. There was a separate facility for conversion of
oxide ores to cathode copper by the SX-EW process. It was working
well; its costs were much lower than the costs for the sulfide
ores treated in the flotation concentrator and then smelted.
In addition to this operation at San Manuel, where
incidentally there is a quite attractive town site that was built
in the 1950s by the Webb organization, the other major operation
of Magma's at the time was the Pinto Valley mine near Miami in
Arizona. Pinto Valley had originally been developed by Cities
Service, then bought by Newmont from Cities Service when Cities
Service, like other oil companies, decided to go out of the
copper business. The Pinto Valley operation was lowgrade but
open pit, big concentrator, and its production of copper was
marginally less than that of San Manuel, but it was a substantial
producer.
In addition to the Pinto Valley deposit, Magma through
Newmont had acquired all the old Miami Copper workings, which was
251
one of the first porphyry copper deposits to be brought into
production in the United States. While reopening of the old mine
workings is not to be expected, there were masses of tailings
around, some of which lent themselves to the SX-EW process.
There was some SX-EW production from some of the material in
Pinto Valley. And furthermore, there was the possibility of
recovering copper by In situ leaching, in place, of lowgrade
copper oxide ores and pumping the liquids to the surface and then
treating by SX-EW.
A third operation was located at Superior, Arizona. It
consisted of the Magma underground mine. Unlike San Manuel and
Pinto Valley, the Superior operations were on narrow veins but
carrying fairly highgrade copper ores, running 4 to 6 percent
copper. Superior operations had been shut down some years
before, but with the price of copper recovered, Mr. Winter at the
time had them under study with respect to possible reopening.
So that was the picture in early 1989. Since then, the
Magma operations have been enormously improved with respect to
both the costs of production, the recoveries of copper from the
ores treated, and today, Magma's costs are second only to Phelps
Dodge among American copper producers.
A Successful Labor-Management Collaboration
Strauss: This improvement is the result of a revolution that has been
achieved in relations with the labor unions. Like other copper
companies, Magma had been plagued by bad relations with the
unions, headed by the United Steelworkers, which represented most
of the underground workers, but there were also other unions
involved, like the Electrical Workers, the Carpenters, and so
forth. Magma had had periodic strikes, as other copper producers
had had. The union workers were hostile toward management.
In '89, it was necessary to renew the then-existing labor
union contracts, and negotiations were not pleasant. However,
the negotiations were concluded without a strike. Mr. Winter and
his director of human relations, Marsh Campbell, set about having
a dialogue with the union leaders to ensure that future
negotiations could be conducted in a better fashion and, more
importantly, to secure their cooperation in making Magma a viable
proposition no matter what happened to the copper price.
I won't attempt to summarize all the details of the
discussions back and forth. The outcome was that Magma set up
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Swent :
what are called joint union-management committees. The union
stewards in the individual units sit down with the managers or
superintendents of the particular unit and jointly establish what
are reasonable targets for worker activity. The unions have been
convinced that unless they cooperate in this way, the future
livelihood of the workers is threatened because Magma perhaps
would not survive a severe recession, absent a sharp reduction in
cost. It took a lot of talking to get them to accept this point
of view, but I believe they accept it now.
The carrot that is dangled in front of the workers in
exchange for participating in this real effort to improve
productivity is that if the goals are met, bonuses are paid which
are not contingent on the company's profits, only contingent on
meeting the targets which have been mutually agreed to with
respect to production or, say, in the concentrator, with respect
to recoveries. There are various targets that are set. It's not
just tons per man-hour. There are a variety of targets.
In 1993, which was a year of declining copper prices and
generally difficult conditions in the industry, targets were met
at most of the divisions. The targets are separate for San
Manuel from Pinto Valley, and they're separate for the smelter
from the mines, and so forth. The targets generally were met in
1993, and the average Magma day's pay worker received during the
year an average of better than $2,000 in addition to his wages.
That meant over a dollar an hour worked, because the average
worker works roughly 2,000 hours in the course of a year. [tape
interruption]
Slight interruption here while we both talked on the telephone to
Plato Malozemoff for a few minutes. He has just arrived in Lenox
for a brief vacation.
Strauss: Well, I was saying about the meeting of the goals.
The morale of the workers has completely reversed. The
relations between management and labor are now excellent, and I
really credit Mr. Winter with most of this improvement.
Swent: Is this done at any other mining companies that you know of?
Strauss: I think it will be done now, because people will see that this
works. Actually, it is so impressive that the secretary of
Labor, Mr. Reich, has come to Magma to see it. The union
officials, some of them at times have appeared at board of
directors' meetings, which is unheard of in an American
corporation. Burgess has been invited to speak at the
253
conventions of the United Steelworkers, and the whole atmosphere
is a different atmosphere.
Development of the Kalamazoo Ore Body
Strauss: The most significant single factor that demonstrates the success
of this is the following. In the original San Manuel orebody,
there remains only enough ore to continue production for another
four or five years at most. Adjoining the original orebody and
accessible by the same shaft is another deposit which Magma, when
owned by Newmont, acquired twenty or twenty-five years ago called
the Kalamazoo orebody. The Kalamazoo orebody is somewhat deeper,
its grade is more or less the same, if anything slightly higher
than the grade of the San Manuel orebody, but to reach it would
require massive investment.
Mr. Winter convinced the workers that if Kalamazoo could be
developed, some 1,200 to 1,500 jobs would be saved that would
otherwise be lost when San Manuel shut down. He also got them to
accept the fact, which was a fact, that given the volatility of
the copper market and the uncertainty about price, the company's
directors were unlikely to vote the capital expenditure, which
may run as high as $200 million, to develop the Kalamazoo
orebody. That to justify that development, certain targets had
to be met. There was a reduction in operating costs of roughly
30 percent per ton of ore mined at San Manuel.
Swent :
My !
Strauss: That was the target. It was accomplished. The directors then
did their part. The money has been voted for the work on
Kalamazoo. Work has already started. One of the amazing
features about this is that in place of a shaft, some of the ore
extraction will be by means of incline. You know that this is
becoming fairly common in the mining industry. And a mammoth
tunnel boring machine was contracted for by Magma to speed up the
work of driving this decline, which will be several miles in
extent. That work is underway now, and the workers, some of whom
had to face the possibility that they would have to leave San
Manuel and find underground work elsewhere, are now looking
forward to the probability of many years of further employment.
Assuming that Kalamazoo is operated as it probably will be,
at roughly the same rate as San Manuel, the life of the mine has
been extended from, say, 1998 or thereabouts to well beyond the
year 2010. This is a victory for the management, for the
254
company, but it's also a victory for the workers. It's an
assurance that I consider that in all probability would not have
been accomplished without Mr. Winter's leadership.
Magma Nevada
Strauss: A second major project that Magma now has underway is in the
Nevada properties formerly owned and operated by Kennecott.
Kennecott shut these down, my recollection is some time in the
1970s. At the surface around some of the copper deposits, there
was material fairly high in gold. With the rise in gold price, a
small Utah-based mining company called Alta Gold had made an
arrangement with Kennecott under which it took a lease with an
option to buy the Nevada properties in order to mine this gold.
They were mining gold, but they found after a few years that they
lacked the financial resources to do it on the proper scale.
Eventually, they put the operation on the market. Magma
made the best proposition to them for a joint venture. Magma
took over the operation, subsequently bought out Alta Gold, and
then even later used Alta Gold's call to acquire the properties
from Kennecott, convinced that it was still a viable copper
deposit if properly operated. There has been some exploration
which indicates the ore deposits are more extensive than was on
the books when Kennecott closed down. Application has been made
for operating rights to the authorities, both the federal and
state authorities. The last I knew was that after a quite
expensive environmental impact statement, which delayed the
procedure by well over a year and a half, we are getting the go-
ahead to proceed with the development. This will be known as
Magma Nevada.
Swent: And where is this?
Strauss: This is close to the town of Ely. Kennecott had a smelter which
we will not attempt to rehabilitate. The mill had been pretty
much dismantled, the equipment had been sold off, so it will be
necessary to build a new mill. Some of the mines have to be
unwatered. Even though they're in the desert, there is some
rainfall.
Swent: And a lot of underground water.
Strauss: And underground water. But unless something totally unexpected
happens, the property will be brought back into production in the
year 1996, and the rate of production will be minimum of 65,000
255
tons of copper a year, and it may be more than that. The
concentrates will be shipped down to the San Manuel smelter.
Expansion of the San Manuel Smelter
Strauss: The third major capital expenditure which this company, formerly
almost bankrupt, has undertaken, thanks to the financial
assistance of our bankers and thanks also to the fact that the
copper price has held up far better than most people expected, is
a further expansion of the San Manuel smelter. The Outokumpu
flash furnace came into production in 1988, as I said. Now, six
years later, there has yet to be a shutdown for major overhaul.
This is the longest continuous operation of a plant of this size,
so far as we know, in the history of copper smelting. The people
who operate the smelter have been very ingenious in making minor
repairs well in advance of the need for or well in advance of the
danger of any shutdown. The plant obviously needs to have such
repairs and these have been made.
it
Strauss: So the company has been operating this major furnace without an
interruption of any consequence a few hours at a time. The
production has been in excess of the alleged rated capacity. The
percentage recovery of copper from the material has been well
above target. There have been no significant emissions of
sulphur into the air that have violated EPA standards, and now
underway is the installation of an additional acid recovery unit
and other facilities which will enable some increase in the
plant's capacity.
While Asarco, my old company, has been gradually retreating
from the custom smelting business, Magma has been reaching out
for material because the capacity is more than ample to handle
the combined production of the San Manuel and Pinto Valley mines.
The reopened Superior mines are adding some concentrates, but
there is still room for more. Concentrates have been purchased
from the Cananea mine, which is in northern Mexico and which can
make deliveries to the San Manuel smelter with very little
difficulty. The material is trucked across the border.
Swent: And of course, in Cananea, they don't have the environmental
restrictions.
Strauss: They don't have, but they have a very poor smelter which is
giving them all kinds of troubles. And there is pressure on the
256
management to bring about some environmental controls. So
material from Cananea has come.
Codelco in Chile has actually shipped concentrates to San
Manuel. There has been some material come from the Ertsberg mine
in Indonesia, and there have been other lots of material from
some of our competitors. The company that now calls itself
Cyprus-Amax, which was previously Cyprus Minerals, had a toll
contract for a period of years, but they've revised their smelter
at Inspiration now so that they are not any longer regular
shippers. But both Phelps Dodge and Asarco have at times shipped
concentrates into San Manuel. So it has become a major
metallurgical facility with adequate resources to cope with
copper-containing materials, one might almost say from anyplace
in the world.
Potential Expansion in Latin America
Strauss: Magma currently has no foreign operations. However, last year
the decision was made to open exploration offices in Mexico and
in Chile, and with some consideration being given also to Peru,
with the thought that we might develop sources of feed in those
areas. Like everybody else, the Magma management is very much on
the lookout for materials suitable for SX-EW treatment, but
sulfide concentrates would be fine. If imported by water, one of
the things that is being actively considered is working with the
Mexican authorities to greatly improve the facilities at the port
of Guaymas in Sonora, because actually, it would be the closest
geographically to the San Manuel location, and the truck haul
from Cananea has convinced us that there would be no problems
about bringing material in from Guaymas to be treated in the San
Manuel smelter.
[the following paragraph was added by Simon Strauss in February 1995]
In October 1994, two months after the
interview, Magma succeeded in being the winning
bidder for the Tintaya mine in Peru, offered at
auction by the Peruvian government under its
campaign of privatization of government -owned
facilities. Tintaya has been operating since the
early eighties, producing about 50,000 to 55,000
tons of copper in concentrates. These have been
treated in smelters overseas as well as in Peru.
If the logistics of transporting concentrates to
the San Manuel smelter can be developed on a cost-
257
basis that is competitive with the present
outlets, this could be a valuable source of feed
for San Manuel. The Guaymas project might prove a
major factor in making this feasible. Because of
favorable geological indications, Magma is
undertaking exploration at Tintaya that may lead
to expansion in the mine's output. The mine is
located at an altitude of 14,000 feet in the Andes
between the cities of Arequipa and Cusco.
Swent: So this would be something that NAFTA would facilitate.
Strauss: Yes, exactly. And you know that there's a chance that there will
be a CHAFTA-- there's talk now of a bilateral agreement with
Chile. So who knows. This is all in the future. But this gives
you some flavor of the complete revival and turnaround that has
occurred at Magma since it became an independent company.
Swent: It's really a new company, isn't it?
Strauss: Yes. And largely due to the leadership of Donahue and Winter,
with the financial resources of Warburg Pincus to help out.
Swent: It's exciting.
Strauss: It is. It's been very rewarding. Now, when I joined the Magma
board, I was already seventy-seven years old, on my way to being
seventy-eight. I'm now eighty-three. I was reelected in '92 for
another three-year term which will lapse in '95. My colleagues
are very kind in suggesting that I am being very useful to the
company, but I think there does come a time when perhaps one has
to consider whether age should not be taken into account when
nominating directors. Magma has no restrictions now in its
bylaws or constitution as to the age of the directors that are on
the board, but I think very probably that when May of '95 rolls
around, which is the next Magma stockholders meeting, I will have
terminated my service with the company.
But it's been something that I've greatly enjoyed, not only
because of the success that has attended our efforts but also
because of the real collegial atmosphere that exists between
management and the board.
Swent: That's encouraging.
Strauss: Mr. Winter has an unusually able team of relatively young people.
Most of his key executives are in the forty to fifty age range.
They bring a lot of enthusiasm and ability to their work, and it
really is paying off. So that's the Magma story.
258
Changes in the Mining Community; Loss of the Mining Club
Swent: I have one question: you've mentioned several times things that
were known in the industry, or "it was common knowledge", or "we
all knew this", and "we met for lunch" and so on. Where were
your meeting places? Was there a club in New York, or a golf
course? Where were these things happening?
Strauss: In New York for years, the mining community did have a good place
to meet for lunch, which was the Mining Club. At first it was
located downtown, very close to the building in which Anaconda
had its offices. It had a very lively and devoted membership,
one might say. For my part, I would go there once or twice a
week and run into people. One of the traditions at the Mining
Club was that there was a long table where people who had no
specific luncheon engagement with a specific person could sit
down, and there was a lot of exchange of industry gossip and
knowledge there. As you know, the mining industry is one where
people do share information, not like other perhaps higher-tech
industries, where there's a tendency to be very closed-mouthed.
I'm not suggesting that people don't keep confidences, because
there are such things, but--
Swent: There is an unusual amount of exchange of information, I think.
Strauss: There is.
As a number of the mining companies--Phelps Dodge, Newmont ,
Cerro--moved their offices uptown, the Mining Club opened an
uptown branch. Eventually, when--
Swent : Where was this?
Strauss: Well, it's been in several locations. The last one was in the
Bankers Trust building on Park Avenue between 48th and 49th
Streets. Gradually, over the years, virtually all the mining
companies moved uptown. New Jersey Zinc, Kennecott moved uptown.
Anaconda never did, but then Anaconda was swallowed up by
Atlantic Richfield and really disappeared from the New York
scene.
As a consequence, I think the last really active affair at
the downtown Mining Club was in July of 1976, when there was a
gala lunch at the club for members so that they could get up on
the roof and watch the tall ships sail by. You may remember that
at the Bicentennial, one of the real features was that tall
sailing ships from all over the world came to New York. They
entered the harbor on the Fourth of July, and the Mining Club had
259
a lunch on that day, attended by many of the people you've
interviewed, I'm sure. I was not there; I was here in Lenox on
that day, so I did not participate.
But the Mining Club in uptown New York continued in
existence I would say until '83 or "84. Then when Phelps Dodge
and Newmont both moved out of townthey were the last two major
companies that were uptown. Asarco continued in New York, but it
was downtown, and the length of time involved in coming uptown to
the Mining Club made it a rather rare occasion when any Asarco
person would show up there.
With Newmont and Phelps Dodge moving out of town, the core
of the people who attended was lost. The vice presidents in
charge of mining loans or whatever of the banks, some of the
security analysts, independent consultants like the Behre-Dolbear
people, would continue to go there, but there was not a large
enough group to draw on to keep the club alive.
So a decision was made to close down the Park Avenue club,
and to get privileges for Mining Club members at the Chemists'
Club, which was then situated at A 1st Street between Madison and
Park Avenues. The Chemists' Club was an old building. The
facilities for lunch were a little bit on the antiquated side.
The food was quite good, but--. The management of the Chemists'
Club about six years ago made a deal with a British firm, sold
their building they had a building that was, I think, ten or
eleven stories high, had a number of bedrooms in it so out of
town members could stay overnight, or for that matter, suburban
members like myself if we were coming in to a late dinner or a
theatre or something, if we wanted to stay in town, we could get
lodging there. But as I say, it was quite antiquated.
So a deal was made with this British firm to sell the
building to them. The Chemists' Club actually owned the
building. This outfit undertook to completely modernize the
facilities, and then lease back most of the building to the
Chemists' Club. During that interim, we were given reciprocal
privileges at the Princeton Club and a number of other clubs in
the city.
Well, the building is still there. The British ran out of
money, apparently, and it's shuttered. It's sort of pitiful.
One block from Grand Central Station; a superb location. Only
this last year did the Chemists' Club reopen in a new area. The
new facility is on 45th Street, at 40 West 45th Street, between
5th and 6th Avenues. It's an old hotel which has been
beautifully modernized. It's called Club Quarters, but the
Chemists' Club is the principal occupant. It has an attractive
260
dining facility, very modern and very convenient also, the
location.
So when I want to see people, I usually arrange to meet them
at the Chemists' Club. But there is no long table. There's no
place where the mining fraternity can meet on an informal basis
like that. I run into an occasional mining man at the Chemists'
Club, but only very occasionally. I have encouraged two people
from Magma's management to become out-of-town members, because
there are sleeping facilities. They often have to come in to New
York on very short notice. The room rates are lower than in the
midtown hotels of equal quality, and it's a very good place for
somebody like John Champagne, for instance, if he comes to New
York to see one of his customers in the metropolitan area, to
take that customer to lunch.
The problem with lunching in a commercial facility for a
marketing man is, when the check arrives, there's always an
argument about who pays it. If you invite somebody to meet you
at your club, there is no argument. The situation is clear, and
it avoids any possible difficulty.
Swent: When the Warburg Pincus people- -Vogelstein- -had you for lunch,
for instance, where did you have lunch?
Strauss: Well, we had lunch at a place called the Board Room, which was a
well known lunching club, but it wasn't devoted to any particular
trade. It was just for senior executives.
Swent: It seems to me it has been a loss not to have the Mining Club as
a kind of central "village well" type of place.
Strauss: That's true. But of course, the loss is due to the fact that New
York has ceased to be, as it used to be, mining headquarters for
the country. Denver, San Francisco, Tucson, and even Salt Lake
come closer to filling that role today, or Phoenix, where Phelps
Dodge is. There's the Southwest Mining Club, which is now a
foundation. I'm not sure what eating facilities they have. I
think there is an arrangement at Denver for the mining people.
So it is too bad.
Swent: Because those exchanges of information are vital.
Strauss: Yes, they're veryparticularly , I think it's useful to the
people who are in the exploration end of the business. The
exchange of gossip, "Have you heard what the new regulations are
in Peru with respect to currency exchange?" Or, the new mining
regulations, or, "Have you heard about the great new find of
diamonds up in the Northwest Territories in Canada?" There's a
261
lot of gossip of that kind which is very useful for mining people
to be able to learn, other than just reading the trade press.
Swent: Well, the trade press always has a little bit of a lag.
Strauss: Yes, it has a lag. And also, if a geologist has just returned,
let's say from the new diamond fields in the Northwest
Territories, for another geologist to be able to ask him what's
really going on, you get something that you won't get from the
trade press. So it's a miss.
Incidentally, during the interim, when the Chemists' Club
had these exchange privileges at the Princeton Club, that worked
out beautifully for me, and my wife even. It's on 43rd Street
between 5th and 6th Avenues. If we were going to the theatre in
the afternoon, it was a great place to meet and have lunch and go
off there. It's a very well run club with first class food.
Incidentally, the Cobb salad is one of the specialties.
Swent: Oh, good. [laughs] Well, those things are important, the little
personal exchanges.
Strauss: Yes.
Swent: Has golf been of importance to you?
Strauss: Well, when the Mining Club was really active, we used to have an
annual golf tournament. It was usually at the Sleepy Hollow Golf
Club near Tarrytown, New York, because George Krueger, originally
of the Chase Bank, and a gentleman named Charlie Moore--he was
the head of the International Copper Research Association before
Bill Dresher--were both members of Sleepy Hollow. They would
arrange for some weekday afternoon to have a tournament there.
There would be fifty or sixty mining people teamed up in groups
of four, and there were all kinds of ridiculous arrangements with
regard to handicaps and so on so everybody had a chance to win.
Followed after the end of the golf by a dinner, so that you got
to see people that you hadn't actually played with.
Those were very pleasant affairs. I made it a point to go
to every one of those that I could. It wasn't always at Sleepy
Hollow. Incidentally, one time when I played at Sleepy Hollow
with a group of Japanese metal people, one of them said to me,
"Mr. Stlauss, great golf course! Sreepy Horror." [laughter]
262
XXI PERSONAL ITEMS
Swent :
Strauss :
Do you think we've reached the time for a little retrospective on
your family? We haven't caught up with your family.
Yes, I think it's appropriate,
to Janet.
I've made a number of references
Wife Elaine Mandel Strauss
Swent: The last we heard of Elaine, you were just moving to New
Rochelle.
Strauss: That's right. Well, Elaine, as I've said, became ill in '45.
She died in 1982. She had almost thirty-seven years of living in
a wheelchair, and adapted to it extremely well. One of my
preoccupations when she was first ill was the reaction of our two
children, Peter, then age five-plus, and Susan, then age three-
plus. I was really concerned that perhaps they would ignore
their mother because of her physical limitations, and that this
would have a terribly adverse effect on her frame of mind. I'm
glad I worried about it, because it proved to be a completely
fruitless worry.
Perhaps because after she finally came to New Rochelle,
having spent more than a year in hospitals, she was always home.
This meant that the children always had somebody to run to with
their problems, to get advice, to seek comfort for any perceived
problems or difficulties they had with their friends or with
school. At any rate, both of them grew up to be very considerate
of their mother and very helpful.
Susan was too young to be involved in public school, but
when Peter came to New Rochelle in 1946, he was already well past
263
his sixth birthday, and he had been going to school in
Washington, kindergarten. The person that took him, at my
request, up to school and registered him for class was none other
than Mrs. Mark McCloskey, the mother of my second wife. The
principal of the school, on hearing the details that Peter's
mother was ill and that Peter was just being moved into New York,
that Mrs. McCloskey was not his grandmother but was a great
friend of the family, that he was a very bright boy, said, "Well,
he's not yet seven, so we'll start him in kindergarten."
Mrs. McCloskey said to him, "You're making a great mistake.
This boy is well advanced." He was reading quite voluminously at
the time, he had started to write, he could do arithmetic sums
quite well.
Well, Mr. Jenney, the principal, said, "You'll have to leave
that to us to judge." So Peter spent three days in kindergarten
and was then promoted to first grade.
Susan went to a play school for two years and then also
registered at the same school, which was really a splendid
elementary school called the Roosevelt Schoolnot Franklin,
Theodore Roosevelt. It had been named long before Franklin
became president.
We lived about three quarters of a mile from school. Many
of the children were motored to the school by their mothers.
School busing was not as prominent then as it is now. Our
children walked, except when the weather was poor.
It was difficult for us to make certain kinds of
arrangements. One real concern of mine was when I was home, I
could lift Elaine out of her hospital bed and put her in her
wheelchair so she could come to the table for meals. At any
rate, the doctor had indicated and her therapist had indicated
the more time she could spend sitting upright, the better off she
was. But what to do when I was not at home?
Then we hit on sort of a unique solution. I'm not sure it
was fully legal. The one male that we could count on to come to
the house every day during the week--I was home on weekendswas
the postman. So I waited around one day until the postman
arrived, and I asked him if he would be willing to do that. He
was a very nice man; I've forgotten his name. Every day when he
came, roughly at eleven-thirty, by which time Elaine was about
ready to get up, he would pick her up and put her in her chair.
And then he'd come back at two-thirty or three and put her back
in bed. Eventually, the need for doing that disappeared because
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Swent :
automatic mechanical lifters were put on the market, and we
bought one.
But they didn't have them in those days?
Strauss: They did not have them in '47 and '48.
One of the biggest problems we had was help. We had to have
not only an attendant for Elaine but somebody to keep house. We
searched around, we hired couples, we had various nurses, some of
whom were very good, others were not. Some of them were adept at
doing physiotherapy; others of the nurses couldn't. So we made
an arrangement with the New Rochelle hospital that one of their
physiotherapists would come to the house three times a week and
give Elaine treatment.
There were lots of other problems that were met--
Swent: You were traveling, of course.
Strauss: My traveling was particularly difficult. At the start when I had
to travel for an extended period, Elaine's mother might come and
stay in the house. My mother by then was not well enough to do
that. Elaine's mother would come. But in time, we found a
person who was fully competent to carry on when I was away on
trips, and Elaine preferred not to have her mother or anyone else
come to the house if she could get along without them. This was
the nurse that's referred to in Elaine's book, In My Heart I'm
Still Dancing, as Arteal.
Helper Arteal
Strauss: She was a black woman, very strong, with a wonderful character,
and very able. She started out with us as a cook and
housekeeper, but she observed what the nurses were doing for
Elaine, and one day she came to me and she said, "I think I can
do this myself. I've been watching." Elaine didn't need
medications as such; she did take some pills, but anybody can
administer pills. But there was nothing that required any kind
of trained nursing care. It was just a matter of giving her a
bath in bed, making sure her face and hands were washed. Mostly
it was a matter of getting her dressed and undressed. And Arteal
was very adept at that. She was really the answer to our
prayers, not only because of her ability to deal with Elaine but
because both our children liked her so much. They accepted her
discipline .
265
The house we had was a two-story house. The children and
the attendants slept upstairs; Elaine and I slept on the ground
floor. Because we had stairs, no elevator or escalator, Elaine
never got up, or very rarely got up to see what was going on
upstairs. So she relied on Arteal to make sure that the children
were taking proper care of their things and their rooms weren't
too untidy, et cetera. She was a big asset to us.
Swent: How many years was she with you?
Strauss: She was with us on and off for well over twenty-five years, but
she was constantly with us for thirteen years. Then she got
married, and by that time the children were grown, and we were
able to find other people to live in to take care of Elaine.
a
Strauss: Both children went away to summer camp. Peter started earlier,
but then the two of them went to the same camp in the Adirondacks
for a couple of summers. I took Elaine there to see them. The
drive was too long for her. I was able to fly her up to Saranac
Lake. She loved flying, incidentally. And it was always a
problem, because I had to carry her into and out of the plane.
Swent: Good thing you're big and strong.
Strauss: Yes. But Arteal would drive the car up and meet us there, so I
would take my two-weeks' vacation there. Later, as the children
got older and Peter went off to Europe on the Experiment for
International Living, and Susan did different things for summers,
Elaine and Arteal in 1952--well, I guess Peter hadn't gone off to
Europe yet--but anyway, in the summer of '52, Elaine and Arteal
came up for two weeks at a little inn in Sheffield,
Massachusetts, just south of Lenox.
When I came up during the intervening weekend, Elaine had
arranged to get tickets for the concert at Tanglewood. Because
she was in a wheelchair, we were given the privilege to park in
what was then called the box parking lot, and the pass we had on
the back had instructions as to how we would reach the lot. It
involved our coming along what I now know to be Stockbridge Bowl.
Elaine was enchanted when she saw the lake, because she loved
lakes. She had been a strong swimmer and very fond of canoeing
before her illness.
So that fall, I came up to Stockbridge Bowl, drove around
the lake, found a sign indicating that there were some cottages
for sale or rent, made arrangements which resulted in our renting
the cottage for one year. Later, we bought it. I didn't want to
266
buy it that first year, because I didn't know whether Arteal, a
black woman, would enjoy living in relative isolation up here.
She was not fond of classical music, so Tanglewood per se meant
nothing to her. But she did like it.
So we bought the cottage in 1953. We've owned it now for
forty-one years, and it has turned out to be probably the best
investment I ever made.
Swent : An ideal location.
Strauss: Yes.
As she grew older, Elaine reached out for activities. She
was surprisingly successful, considering her limitations. Once a
week, an artist friend of hers would come to the house and
conduct a painting class. With the limited use of her left hand,
Elaine could work on a canvas roughly twelve by eighteen inches,
and she got great satisfaction out of trying to paint some
pictures, some of which we still have.
Her brother, Robert, had married a French lady shortly after
the war, Simone. Simone had come to this country, and Robert and
Simone lived not too far from where we lived in New Rochelle. So
Simone would come to the house once a week, and various of our
friends would come, and there would be a weekly French class. I
can't say that any of the ladies really became skilled in the use
of French, but they enjoyed laughing at each other's mistakes
during the afternoons. The friendships that Elaine and Simone
made then with these women have persisted ever since.
Still later, a group of parents who had children who had had
polio in Westchester County decided to form something called the
Polio Parents Club. Elaine enlisted in that and was very active
and very interested. The principal thing she could do was to do
the telephoning for the meetings and talk to people who had
problems to encourage them. The club used to have an annual
Christmas party and an annual spring party, and we had directors'
meetings, usually in our house, to save her the difficulty of
getting to a distant location at night.
I think that perhaps the most amusing thing that happened
one year, for the Christmas party, Elaine was responsible to
enlist a clergyman to say the Christmas prayer for us. In
previous years ministers of various faiths had performed this
function. Elaine approached the rabbi that we knew best in
Westchester, Rabbi Shankman, who was extremely fond of her. He
said, "Elaine, you can't be serious!"
267
She said, "Yes, this is an ecumenical event." [laughter]
He said, "Well, it's a Christmas party."
She said, "Well, you can convert it if you want to into a
Hanukkah party."
So he came, and gave a really very--I shouldn't say amusing
--but very relevant blessing.
Still later, Elaine developed an interest in a
rehabilitation center that was built in Westchester County, where
New Rochelle is, in the town of White Plains, the county seat.
It was largely financed by the Burke Foundation. Mr. Burke had
been one of the founders of the big department store of B. Altman
and Company. And so it was known as the Burke Institute.
The physiotherapist who was treating Elaine by that time was
a gentleman named Anthony DiRosa. Mr. DiRosa told Elaine that
many of the people at the rehabilitation institute were in
despair when they learned that they were faced with having to
adjust to living in a wheelchair. These were not just polio
people; in fact, following the Salk vaccine, the number of polio
victims was dropping off. These were people who had had strokes
or who had had accidents that involved their spine, including
diving into empty swimming pools, which children have been known
to do, motorcycle accidents and the like.
One of the patients was a woman whose husband was a
policeman, and in the course of an argument, he shot her in the
spine. She would have preferred at that point to have died, but
she was faced with living with permanent paralysis in the lower
body.
So Mr. DiRosa said to Elaine, "You've learned how to adjust
to living in a wheelchair. Why don't you come up to Burke and
visit some of these people?" By that time we had a lifter
attached to the top of our car so if I wasn't present, she could
be lifted out of her wheelchair and into the car, and the
wheelchair folded and put in the back of the station wagon.
Then, when reaching the destination, the reverse could happen.
So her attendant would drive her up to Burke, and she would spend
an hour and a half or so at Burke, talking to patients.
The Burke staff considered her advice so valuable that
finally they made available to her a battery-operated chair which
she could operate herself with her one useful hand. She could
make it go forward, go back, or turn. She got enormous enjoyment
out of whizzing around the halls of the Burke Institute in that,
268
except once in a while she got herself locked into a room and
wasn't able to reach the door. But she was always rescued.
Swent: She must have been a wonderful inspiration to people.
Strauss: The result of her doing this work, for example with this woman
that I talked about with the spinal injury, who was absolutely
autistic for a while, refused to speak to people, wouldn't speak
to Elaine when she first came. Elaine thought about it and came
home, and with the help of a typewriter specially devised for
quadraplegics by IBM, which had a keyboard that she was able to
hold on her lap so that she could bring enough pressure with her
one hand to operate it, she decided to write out some ideas about
wheelchair living to hand to this woman, which she did.
The woman took it. The next time Elaine came, she was not
in her room, she was out in the hallway, quite--. She had
started to speak.
Swent: That was a transforming experience.
Strauss: So it was the consequence of this experience at Burke that made
Elaine decide to do what her mother had been urging her to do
from the time when she first got the typewriter, and that is to
write a book about her experiences. And that book, which you
have seen, called In My Heart I'm Still Dancing, was actually
accepted for publication by a major publishing firm that made an
advance. But after reading it, they proposed to make some major
changes in the text. They assigned one of their ghost writers to
work with Elaine. The product of that was a soap opera and not
at all the book that Elaine had intended, which was to advise
people on how to cope with wheelchair living.
She was very discouraged and upset about it, and she told me
she didn't really want the revised version to appear. I said,
"Well, in that case, it won't appear. We'll publish your book as
you have written it." And we had the help of Eleanor Furman,
whom you've met, in putting the document together. My secretary
was kind enough to retype it all for her. Another friend of
ours, a lawyer, had a son-in-law who was the head of a major
publishing firm, and through him, we were introduced to a
printer. We had the book printed in exactly Elaine's language,
with the type and the color and the size of pages and type that
Elaine wanted.
It would turn out not to be too expensive. By that time,
Elaine's mother had died and left her some money, so she had
ample funds to pay for the printing of her book. It has been
distributed for the most part to rehabilitation hospitals and to
269
organizations for the disabled. We've had wonderful reviews from
such publications as the journal of the Easter Seal people. Dr.
Jonas Salk wrote her a beautiful letter. And it was a great
success .
It finally appeared in print in 1979. The letters that she
got after we distributed the book were, I think, the best tonic
she could have had.
However, in the spring of 1982, she developed a respiratory
infection. We took her to the Portchester hospital; it's called
the United Hospital, an excellent suburban hospital, where she
received very good care. She was put in the emergency unit,
because she developed pneumonia, and as I think I said earlier,
she really had only one effective lung.
The doctors did their best to save her. By the end, in
order to enable her to breathe, they had to perform a tracheotomy
in her throat. That only lasted about two or three days.
I got in touch with our daughter, who was living in Nevada.
Our son by then was living in Westchester County, so he was
immediately at hand. Susan took the plane and arrived. We went
to see Elaine in the morning, and it was that evening that our
doctor stopped by the house to tell us she had died. It was a
peaceful death.
Son Peter Strauss
Strauss: I haven't said too much about the children. I'll just touch
briefly on their careers. Our son, Peter, was valedictorian of
his high school class. He went to Harvard. At the time he went,
he thought he wanted to be a research scientist. He majored in
physics and chemistry. He graduated summa cum laude from
Harvard, a member of Phi Beta Kappa.
But I had been convinced from the start since I had a lot of
dealing with people in the scientific field that the relative
isolation he would have if he lived in laboratories was not for
his temperament, and I had encouraged him to think about law as
an alternate. Halfway through Harvard, he took a course with
Judge Freund, which convinced him that I was right. So he
applied for admission to Yale Law School.
270
He was made editor of the Yale Law Review the year before he
graduated, and he graduated as valedictorian of his class at Yale
Law School.
His first job was working as a clerk for a judge of the
court of appeals in Washington, Judge Bazelon, but the following
year, he was a clerk for Justice Brennan of the Supreme Court, a
man he admired greatly. By the time he became Justice Brennan 's
clerk, he had been married to a young woman he had met when she
was a freshman like him at the Yale Law School. She had not
persisted in the Yale Law School, however. Her name was Joanna
Burnstine. Joanna dropped out of law school, and eventually went
into social work.
After Peter's service with Justice Brennan, he accepted an
appointment from the Ford Foundation to go to Haile Selassie
University in Addis Ababa. The Ford Foundation was spending a
lot of money on the law school in Ethiopia on the theory that the
law schools in other African countries, which had formerly been
either French or British colonies, would be unduly influenced by
French or British law, and that it was a good idea to stimulate
the growth of a law school which would be indigenous to Africa.
Since Ethiopia had never been a colony, they thought that was the
place to have such a school. This was before the revolution that
deposed Haile Selassie.
Peter spent two very happy years teaching criminal law in
Ethiopia. He got to know the emperor. He did the editing of a
book that was translated from an obsolete African language called
Geez into English by a scholar of Geez. Peter, of course, could
not do the translation, but he could bring this book into the
concepts of modern law, so that was what he was asked to do as
the editor. It's an interesting book, because like the Koran and
the Bible, it contains a lot of regulations and ordinances about
the conduct of human life in it, and from an Ethiopian
standpoint, that was the beginning of their legal system. It's
sort of a unique document. Peter's own copy of the document is
signed by the emperor.
Following his return from Ethiopia with Joanna, he served
for three years with the solicitor general in Washington, trying
cases before the Supreme Court. He then accepted an appointment
as a member of the faculty of the Columbia Law School, where he
still is. But for two years, he was granted a leave of absence
to serve as general counsel for the Atomic Energy Commission.
Swent : An outstanding career.
271
Strauss: His specialty is administrative law and he's the current editor
of a textbook on administrative law originally written by
Professor Walter Gellhorn. It's a standard textbook used in law
schools.
He and Joanna have two children, the older of whom,
Benjamin, is about to graduate from Yale, the younger of whom,
Bethany, is still in high school.
Daughter Susan Strauss Orr
Strauss: Our daughter, Susan, following graduation from New Rochelle High
went to Oberlin College in Ohio, met a young man there with what
she described as "chocolate brown eyes" in the letter she wrote
her mother. So desperately in love. He was ahead of her. The
year he was about to graduate, they got married. That was 1962.
Their first child, a daughter, who calls herself Katie now but
who was named Katherine Louise, was born later that year.
Susan's husband, Sam Orr, following graduation, enlisted.
You will recognize that 1962 was at the start of the military
problems that later led to Vietnam. However, because he had
language skills, the army assigned him to the Fort Ord language
school outside Monterey, California. He learned Czech, and
consequently in due course, he was assigned to duty in Germany
close to the Czech border, monitoring Czech radio broadcasts and
other languages.
While they were in Germany, their second child, David Orr,
was born. That was in 196A.
In 1966, I guess it was, Sam had completed his tour of duty.
They returned to the United States. Sam then took graduate work
at the University of Chicago, hoping to use his knowledge of
Czech to develop skills that would make him useful either in the
foreign service or in business dealing with Czech industry.
However, he got waylaid on that, and became interested in
politics, never quite got his master's degree, although he was on
the threshold of it.
Instead, he linked up with a gentleman, a politician from
New Hampshire whose name escapes me, who had just been elected to
the Congress, went to Washington, worked very briefly in the
Congress, and then got a job working for the weekly publication
published in Washington that covers all government affairs like a
tent.
272
Swent: Federal Register?
Strauss: No, it's not a government publication; it's an independent
publication published weekly. It's quite well known: the
National Journal. He was made, for no particular reason, their
reporter on the Defense Department and military.
They remained in Washington until 1970 or '71. Susan at the
time was mostly a housewife looking after her two young children,
but she was also very interested in political affairs,
particularly in women's organizations. She met a lady named Maya
Miller. Maya Miller decided to run for the Democratic nomination
for the Senate from Nevada and asked Susan to come out the
following summer to work on her campaign. In return for this,
she offered Susan a free scholarship for one of the children at
the summer camp which Maya and her husband operated. We said
that we would pay the tuition for the other one.
Swent: This was in Nevada?
Strauss: In Nevada. It was on a ranch on the side of Washoe Lake south of
Reno. Beautiful area; really beautiful area.
Swent: Sounds like fun.
Strauss: The principal activity for the campers, as far as I found out
from my grandchildren, was horseback riding, for which they both
developed a great taste.
So Susan agreed to that. In the fall, when she returned to
Washington to rejoin her husband, she found out that he and she
were no longer as sympathetic. He had decided to go live in New
Mexico. So when Maya Miller asked her to returnthis was maybe
a month after she had gone back to Washingtonto Nevada to help
run the ranch and with other things she had admired Susan's
skills Susan accepted. They spent one or two years, I'm not
sure which, living on the ranch. Susan was working there.
One of the reasons that Susan felt that was good was that
the children would be closer to their father in New Mexico, and
they could get to see him. For a while, the daughter lived with
her father and the son lived with Susan, and then there would be
an exchange. I have to say for both Sam and Susan, they were
extremely careful never to say anything about the other to the
children that would in any way create problems, and the children
remained in good relationship with both parents. Susan stayed on
in Nevada, buying a house close to Washoe Lake.
273
Swent :
Strauss :
Susan had not completed her college course, as I told you,
at Oberlin, so as long as she was living in the Reno area, she
began studying at the University of Nevada. Her big interest was
art. Then she became interested in the field that's known as art
therapy. So she majored both in art and in psychology. And as
the years passed, she enrolled in an organization called Vermont
College that offered summer courses in art therapy during the
summers, and then during the winters she did practical
application.
Eventually, she got her master's degree in art therapy. She
has worked with disturbed children, and disturbed adults, for
that matter, to learn to express themselves through art. She has
recently been lecturing on art therapy at Sacramento State
University. She has some assignments with institutions, such as
hospitals or even jails. She has other assignments with private
patients. And she's made a very nice life for herself out of art
therapy.
Wonderful.
Currently, she has a gentleman friend. She was fully divorced
from Sam Orr. They live together in Sacramento, California.
They're not married. She still owns her place in Reno on Washoe
Lake, and rents it out to people. Her children, of course, are
grown.
Granddaughter Katie Orr Thomas
Strauss: The older one, Katie, was with her father in Los Angeles and
studying at Santa Monica Community College and earning some money
by waitressing in various eateries when she met a young singer
named Randy Thomas. They fell in love; they were married in
early 1983. They've had two children as a result of that
marriage, but I'm sorry to say that that marriage also did not
last. About four years ago, Katie became very dissatisfied with
living conditions in Los Angeles. They could only afford a very
small apartment, and it was too confining for the children. She
was worried about the crime and drug scene in Los Angeles, and
visiting her mother in Sacramento, she saw a much more placid
community.
So she moved to Sacramento, where she has a nice little
house, and the two girls are going to school. I've encouraged
Katie to finish her education, as well as to take care of her
children, so for the time being, I am supporting them until the
274
Swent :
children are old enough so that she can take full-time
employment .
Just this spring, Katie, who like her mother is big on art,
got a very interesting assignment. The Sacramento Airport chose
her to select art work done by school children for display in the
airport. The display is changed once a month, and Katie goes
around to all the schools, not just in Sacramento but in the
metropolitan area, talking to the art teachers, looking over the
art work, picking out the things to display. It's part-time
work, but it's something she really enjoys. It will be a great
forerunner for her whether later on she works in an art gallery
or an art museum.
It sounds as if she's made a nice life for herself.
Grandson David Orr
Strauss: The story of my grandson, David Orr, is a sad one. In many ways,
of all my grandchildren, and I love them all, he was the one who
was closest to me. For some reason that I will never understand,
he underwent a change in character, he became very depressed. He
was institutionalized on two or three occasions. Released from
one institution in Los Angeles, he was sent to a halfway house
where he could continue to go to college, but would be observed.
But one morning when the bed check was made, he wasn't there.
That was, I think, five years ago, and all efforts to trace what
has happened to him have been fruitless. He completely
disappeared. You can imagine what a burden it is for his mother
and his sister, and for me.
Swent: Yes.
Strauss: He was a wonderful young man. We don't have a clue.
So that's the story of my family, except for my present
wife.
Wife Janet McCloskey Robbins Strauss
Swent: That will be a happier note.
275
Strauss: Yes. Janet McCloskey I first met when she was twelve years old
when I went to a summer camp for underprivileged children in New
York State, outside Newburgh. Elaine was working there as a
counselor, but she had Saturdays free, so on a Saturday I picked
her up. We were to go canoeing, but before we set off, she
introduced me to the lady who ran the camp, whose name was Mrs.
Mark McCloskey, and I met also Mrs. McCloskey's husband, Mark,
and I met Mrs. McCloskey's three daughters, Barbara, Janet, and
Winnie. Barbara was thirteen, Janet was twelve, Winnie was ten.
I have known those girls ever since.
Elaine was extremely fond of the McCloskey family, so that
when our first son, Peter, was going to be born, we moved into
Riverdale--! may have said that earlier.
Swent: I don't believe it's been on the tape. You told me.
Strauss: Yes. We moved into an apartment in Riverdale about three or four
blocks from the house that the McCloskeys had. After the baby's
birth, Elaine, under instructions from the doctor that he was to
have plenty of fresh air, used to take the baby carriage over to
the McCloskey home so he could breathe in the fresh air that was
abundantly available in their garden, and she would sit inside
talking with Mrs. McCloskey, who was her great friend. About
three o'clock every afternoon, Janet and Winnie, who then were
still in high school, would come home, entranced with the baby,
never having seen one as close up as they saw young Peter,
insisted on helping Elaine take care of him. As a consequence,
Janet has known both my children ever since they were born.
Janet subsequently went to Swarthmore College, and on
graduation in 1943, took a job in Washington with what was then
called UNRRA, the United Nations Relief and Rehabilitation
Administration.
In 1945, after V-E Day, Janet accepted a post of going
across the ocean to Europe to serve in one of the UNRRA forward
camps in Germany helping emigres. There were thousands and
thousands of refugees. She had two sessions with UNRRA in
Germany covering most of the following four years, and lived
there under very primitive conditions in the war-shattered
country.
When she returned to the United States, she had a brief
period of executive training with R. H. Macy and Company, but
decided that that was not for her. She then had a job with the
Girl Scouts of America where she had an administrative post that
involved a lot of travel.
276
After about two years of that, she resumed an acquaintance
with a friend of her parents named Ira S. Robbins. Ira was
younger than her parents, but quite a bit older than Janet. He
had been divorced and was living a bachelor's life. They saw a
lot of each other, fell in love, and in due course, were married.
I'm not sure of the year; I think it might have been '52 or '53.
Elaine and I were present at the wedding.
We saw Janet regularly at Christmas Eve parties at her
parents' home. She and Ira came up and visited us in Lenox one
year. Occasionally they came to our home on a visit. We
remained very good friends.
Ira was a lawyer, was one of the first public housing
commissioners appointed after New York City set up its Public
Housing Commission, served on that for many years. After he
retired, he returned to private practice.
As I said earlier, he was a good deal older than Janet. In
1978--he had not been well for yearshe died, at a time when
Janet herself was suffering from back problems.
In the following four years, Elaine and I made a point of
seeing a good bit of Janet, because she was a widow and she
needed friends. Janet was our guest the weekend that we had the
book party, when Elaine's book was introduced to our friends.
At Elaine's death, she and her two sistersher parents had
died in the meanwhile- -Barbara and Winnie as well as Janet came
to the services for Elaine, returned to the house with us, were
very supportive and helpful to me. I saw Janet two or three
times after Elaine's death before she went to Europe for a month
and visited her niece, who was then temporarily in England, and
also to have a two-weeks trip in Wales. When she returned, we
saw each other more frequently.
My son, who was quite free with gratuitous advice, put an
arm around me one day, aware that I was seeing a number of
ladies, and said, "Dad, if you're going to marry anyone, for
goodness sake, marry Janet." I tease Janet now by telling her
that I married her on my son's instructions.
At any rate, by September we had pretty well made up our
minds that we would get married. My thought was that we would
marry the following spring and take a trip to Europe as a
consequence. However, my children had said to me very firmly
that I was not to spend Christmas alone, that they proposed that
they and their children, and Joanna as Peter's spouse, should all
spend Christmas together in some warm place of my choice. I
277
don't like Florida, and a trip to California would have been
excessive.
I chose New Orleans. First of all, apart from Peter, none
of the others had ever been in New Orleans. I thought they would
enjoy it at Christmastime. Also, it was about halfway between
Nevada and New York, and so it would be easy for Susan and her
children to come to New Orleans. Peter had a friend who was dean
of the law school at Tulane. He called him up, got the name of a
hotel in the French Quarter, and booked the suitable rooms for
us: a single for me, a single for Susan, a double room for
himself and Joanna, a double room for the two male grandchildren,
and a double room for the two female grandchildren, although
there was a great disparity in age between Katie Orr and Bethany
Strauss. So we were all set for Christmas.
As Peter became aware that I was really seeing a lot of
Janet, he said, "You ought to bring Janet to New Orleans."
I said, "Peter, we're not married."
"Oh," he said, "that doesn't make any difference."
I said, "Peter, it may not make any difference to you, but
neither Janet nor I are willing to share quarters in the presence
of our grandchildren. I think it would be a very bad example for
them."
So that's how it came about that Janet and I were married
not in the spring of '83, but in December of '82.
So the reservations were good for the twenty-third of
December through the thirtieth, I think was the date, or the
twenty-ninth, something like that. So we had to call up the
hotel and change one of the singles to another double,
[laughter] Which presented no problem.
Swent: So when were you married?
Strauss: We were married on the nineteenth of December. We were married
at the home of our good friends and Lenox neighbors, Fred and
Ruth Friendly. When Fred and Ruth were aware that 1 was thinking
about marrying, they had said to me, "Who is it?" At that point,
I hadn't told the children yet, so I told them I wouldn't tell
them. They said, "Well, whoever it is, get married in our
house. "
They little realized how appropriate it was, because their
home is also in Riverdale about five blocks from where Janet had
278
lived as a schoolgirl and about eight blocks from where I had
lived with Elaine and Peter.
The ceremony, although I am Jewish, I don't have strong
religious convictions; Janet does. She is an Episcopalian. She
was very close to the rector of her church, Thomas Pike. We had
lunch with Tom Pike one day during the fall. He indicated he was
more than willing to perform the ceremony. 1 think my daughter-
in-law, Joanna, would have liked to have had a rabbi also present
to perform the ceremony jointly, but I did not share that
feeling, so I pleased myself rather than her, and Tom Pike did a
beautiful service.
Swent:
Strauss :
Swent :
Strauss :
Swent :
Bethany Strauss, aged four, was the bride's flower girl, and
Benjamin Strauss, aged twelve at the time, was my best man. We
had just the immediate family present, both of Janet's sisters,
of course, some cousins of mine. By then, both my sisters were
dead. And Joanna's parents, because we were very good friends.
And two or three couples who were Janet's close friends, plus her
sisters and three or four of her nephews and nieces.
It sounds lovely.
It was very nice. The Friendlys have a daughter-in-law who has a
beautiful voice. She played the piano and sang.
And promptly, as soon as the service was over, my new
sister-in-law, Winifred McCloskey Edelson, and my grandson,
Benjamin Henry Strauss, darted out of the room to go to the
television set in the adjoining room to watch the Washington
Redskins, because they played football on Sundays, and Winnie
Edelson cannot stand it if she can't watch it. In fact, she
reproached Janet for having picked a day to be married when the
Redskins were playing. [laughter] But it was a very happy
occasion.
The thing I admire greatly in Janet is that she was willing
to go on a honeymoon with all those in-laws! We rented a van so
that we could all travel around New Orleans together. We really
had a very good time.
It's obviously a very happy situation for both of you.
So that's really the story to date.
Brings us up to the present,
active and busy and happy.
You're both still healthy and
279
Strauss: Yes. And as I have indicated in the discussions about some of my
travels, Janet has been traveling with me. We've been to South
Africa; I was invited there in '84 also to celebrate the fiftieth
anniversary of Mintech. Mintech is the South African equivalent
of the U.S. Bureau of Mines, and it was fifty years old. They
had a big international meeting, and they wanted various people
to give talks, so we went to that in South Africa.
We went to Hamburg. We went to Peru to inspect the
operations of Southern Peru Copper. We went to Australia and
Papua New Guinea to see Mount Isa and Ok Tedi. She's been in the
Pacific Northwest with me to see the Coeur d'Alene and Troy
mines. We went to eastern Nevada to see Freeport
'
s mine now
owned by Independence Mining Company, the Jerritt Canyon mine.
We went up to Alaska, as I said earlier, for me to give the talk
there.
Swent: Chile?
Strauss: We've been on two trips to Chile. The first was to take part in
a joint conference of the Canadian and Chilean Mining Engineering
Societies, where I presented a paper. So we've covered a lot of
miles, plus the fact that we spend every Christmas in Bermuda.
We've gone to most of the Mining Congress meetings. We've been
to every one of the banquets of the National Mining Hall of Fame.
So we're well traveled.
Swent: You certainly are.
Strauss: I think that's it.
Swent: I think we've covered everything just beautifully. I certainly
thank you. It's been a real pleasure.
International Metal Tycoon Mauricio Hochschild
[Interview 5: August 27, 1994] ##
Swent: You had mentioned Mauricio Hochschild. Was there a connection
with the other Hochschilds in the mining field?
Strauss: Yes. Mauricio was a cousin of the Hochschilds who were very
prominent in the management of American Metal Company in the
early part of the century. I believe the one who came over to
the United States from Germany was named Berthold Hochschild. It
was his two sons, Harold and Walter, who were very well known in
280
the mining and metals business for many years, right up until the
1960s.
Berthold Hochschild was sent to the United States from
Frankfurt by Metallgesellschaft, the large German mining and
metals trading organization. Simultaneously, Metallgesellschaft
had also opened an office in London under the name of British
Metal Corporation, and the ties between the Frankfurt office and
the offices in London and New York were extremely close prior to
World War I. The war, of course, changed all that, and it was
necessary for the ties to be broken. The alien property
custodians in both countries insisted that these corporations be
divested of their German corporate ownership.
However, following the peace in 1918, business connections
did resume. As an example, I had mentioned the Norddeutsche
copper refinery in Germany. The ownership of that refinery was
for a long time shared between Metallgesellschaft and either
British Metal Corporation or an affiliated company it had formed
called Amalgamated Metal Corporation. There were, I'm sure, many
tax or other corporate reasons for having this multitude of
companies, but the ties in terms of doing business together were
restored. However, Metallgesellschaft as a German corporation,
so far as I know, had no further stock investment in either
American Metal Company or British Metal.
Swent: Were there several family connections, though?
Strauss: There were some family connections, I'm sure, and I don't know
enough to give you details. But the management of American Metal
Company for many years was in the hands of people who had
emigrated to the United States from Germany, including Ludwig
Vogelstein, and subsequently his nephew, Hans Vogelstein. There
was Dr. Otto Sussman, who was president of American Metal for
years, and then there were the Loeb brothers. There was Carl and
Julius Loeb.
The Loebs left American Metal management during the
Depression of the thirties. Carl Loeb then went into the
securities business and founded the very successful stock
brokerage firm of Loeb, Rhodes & Company, which has since been
absorbed in Wall Street's multitudinous amalgamations and
mergers. But Carl Loeb's son, John Loeb, was considered one of
the leaders of Wall Street during the forties, fifties, and
sixties.
So the influence of the original German connection persisted
in the American Metal Company for many years. It began to change
in the fifties when American Metal was merged with the Climax
281
Molybdenum Company. American Metal had played a role originally
in the development of the Climax mine, but it was for many years
run by a separate corporation, Climax Molybdenum Corporation, in
which American Metal had a stock interest but in which there was
also broad public participation. The exact date of the merger
between American Metal and Climax I don't remember, but after
that merger, the name of the company was changed from American
Metal to Amax.
Swent : Were any of these people connected with the Guggenheims?
Strauss: No. There was no connection whatever. The Guggenheims were not
of German origin; they were Swiss. Meyer Guggenheim, who was the
progenitor, let us say, of the whole Guggenheim clan, was a lace
merchant from Switzerland who settled in Philadelphia, and had
had no previous experience in the metals business until he was
persuaded by someone to make an investment in silver mines in
Leadville, Colorado.
Swent: But these others had been in metal trading maybe for long-
centuries?
Strauss: For a long time. Well, Metallgesellschaft goes back to the early
part of the nineteenth century, and I think many of them had been
involved in metal trading.
But the most colorful of them all was certainly Mauricio
Hochschild, and since you are interested in anecdotes, let me
tell you one of the really amusing anecdotes about Mauricio
Hochschild .
Swent: Did you know him well?
Strauss: I knew him very well. I had met him as a child, because he was a
friend of my father's when he first came to South America.
Born in Germany, educated at Freiberg, the very well known
mining school in Germany, Mauricio first went to Russia and then
later to western Australia, but in 1911, the year I was born, he
came to South America, and thereafter, that was the center of his
activities. In due course, he established a firm foothold not
only as a metal trader but as an operator of tin mines in
Bolivia, and from there he branched out until he had mining
operations in Brazil, Argentina, Peru, and Chile, as well as in
Bolivia. He had trading companies also in Colombia and possibly
elsewhere in Latin America. He was a very impressive gentleman.
With the rise of Hitler in Germany, Mauricio Hochschild, who
was not a practicing Jew, but nevertheless of Jewish descent, was
282
one of the leaders in rescuing Jews from the German dominion.
And more than that, he resolved not to do business with Germany.
He used to travel frequently to Europe, nevertheless, to
participate in discussions with people in the metals business,
since he sold ores and concentrates, plus tin metal, in Europe.
In June of 1940, when the Germans broke through the Maginot
Line and were threatening to take over Paris, Mauricio Hochschild
was actually staying at the Meurice Hotelno connection- -in
Paris, where he was a frequent visitor, well known to the staff,
extremely generous in terms of gratuities. When it appeared that
Paris was about to fall, Mauricio recognized that if he was still
there when the Germans entered the city, he would face the
probability of being executed, because of not only the fact that
he was Jewish, but that he had refused to do business with the
Germans .
So he went to the concierge at the hotel and said that he
understood that that afternoon, there was an airplane flight out
of Paris to London, and he wanted a seat on that plane if it was
at all possible, no matter at what the cost. The concierge, who
was very friendly toward Mauricio, said, "Come back in an hour
and I'll let you know."
When he returned, the concierge said, "I managed to get you
a seat," and although Hochschild had been prepared to pay
hundreds or thousands of dollars for a seat, the extra cost
turned out to be ten dollars over the nominal price.
That afternoon, he went out to the airport, Le Bourget, to
get on his plane. The departure was being delayed because in all
the confusion, some cargo was being loaded into the cargo
department. Being of a very curious frame of mind, and assuming
that these wooden boxes contained the gold reserves of the Bank
of France, Mauricio asked one of the workmen what was in the
boxes.
You will be astonished at the reply. Bear in mind that this
is June.
The cargo was wild strawberries, consigned to the Claridge
Hotel in London. Undoubtedly, the Claridge Hotel had a standing
order with some fruit dealer for shipment of wild strawberries
every June, which are a delicacy, and people pay great prices to
enjoy their wild strawberries. So the order had probably been
repeated at the end of the previous June, when the world was at
peace, and the routines had gone forward. Nobody had
countermanded it.
283
So, on the last commercial flight out of Paris to London, on
the fateful day before the Germans occupied the city, Mauricio
Hochschild, the international metal trader, successfully got out
of Paris, sitting in a plane loaded with wild strawberries.
Swent: Oh, my word. [laughter) Vive la France.
Strauss: Vive the Claridge Hotel!
Swent: Yes. He told that story?
Strauss: Oh, yes, he told me that story, and he told me a lot of others
that were very amusing. He was a great raconteur. He was
extremely fond of my wife, Elaine, and he was very concerned
about her limited health.
Swent: What happened to him?
Strauss: He died in the late sixties, early seventies.
Swent: A peaceful death?
Strauss: A peaceful death in his eightieth or eighty-third year.
Swent: Where?
Strauss: In Paris, as it turned out, although he spent most of his time in
South America or the United States. After the war, with all the
complications of exchange controls and taxes, he had formed a
holding company based in the Bahamas in order to avoid a lot of
the complications that existed. He had companies in each of the
countries in which he operated, and most of them maintained their
accounts in pounds sterling, but the shares were quoted in terms
of par in Swiss francs, and most of the products were sold in
dollars. He was an expert at dealing with all these problems.
Swent: Did he have heirs who took over the business?
Strauss: He had a son.
But what I wanted to tell you to show you the kind of
generous and compassionate man he was as an individual, although
as a metals trader he was merciless in dealing with the people
with whom he dealt: he had an apartment at Cable Beach in Nassau
in the Bahamas which stood empty most of the year. He used it
when they had to have their semiannual board meetings in the
Bahamas in order to comply with Bahamian regulations.
284
Swent :
Strauss :
Swent :
Strauss :
He said to me one day, "You know, your wife would really be
very comfortable and happy in the apartment that I have in Cable
Beach, and it's at your disposal whenever you and she would like
to go there."
I said, "Oh, Mauricio, that's a very generous offer, but the
fact is that Elaine sleeps only in a hospital bed, and she's not
comfortable in an ordinary bed, and it's very hard to take care
of her except in a hospital bed."
He said, "Well, how do I go about getting a hospital bed?"
I said, "Well, I'm not familiar with Nassau, but perhaps if
one of your people would make inquiries at the hospital, they
might have a spare bed that they could rent."
A few weeks later, he said to me, "We got in touch with the
hospital. There were tears in their eyes when they described how
desperately short they are of hospital beds. So I agreed that I
would give them a hospital bed, but I thought I would buy it in
the United States, ship it down and let Elaine use it first
before turning it over to the hospital." So in fact, one of the
--I guess the onlyvacations that Elaine had outside the United
States after her illness were in Nassau. On one occasion we
spent two weeks in the apartment that he had fully staffed.
This was the kind of thing that he did. He established what
he called the University in Exile in connection with the New
School for Social Research in New York, and arranged to have
numbers of German and French academics who fled from Hitler
brought to the United States and teach at the university. So he
was a quite remarkable man.
That's wonderful. Were any of these people relatedwere the
Vogelsteins, for instance, and the Hochschilds, you mentioned--
The Loebs.
The Loebs and the Vogelsteins were related?
I'm not sure. There may have been some intermarriage between
them. I have a sense, and I can't offer this as fact, but I have
a sense that in fact, the Hochschilds in the American Metal and
the Loebs did not get along all that well. I think there was
some dissension about the Climax mine at one point. And I
believe when the Loebs left American Metal management in 1929-
1930, I'm not sure of the date, they may well have been forced
out by the Hochschilds.
285
Swent :
Strauss:
Swent :
Strauss :
Swent :
Strauss :
Swent :
Strauss :
Swent :
Strauss :
Swent :
Strauss :
Hochschilds or Vogelsteins?
The Hochschilds. A Vogelstein was the president at the time, but
the Hochschilds were the big shareholders.
They had interests in it.
As I say, I can't assert that this is so; it's just an impression
that I have.
You might want to mention, too, there were a couple of things
that we had talked about that you wanted to say about Mr. Haines.
Oh, yes. I mentioned that in the postwar period, Asarco's
representative in Germany was Hugo Haines.
He stayed in Germany all through the war?
No, he was actually in Brussels when the war broke out. He had
been working with Roger Hecht in Brussels, and when the Germans
invaded Belgium and Holland, Roger Hecht, his wife, and his small
children were able to escape. They made their way first to
France, and then under great difficulty to Portugal, and
eventually sailed to the United States, where--
They were Jewish?
They were Jewish. --where Roger became affiliated with the U.S.
office of Metal Traders, and worked there during the war.
However, Roger's brother Guido and his mother were still in
Brussels when the Germans came through. Roger told me in the
postwar era that Hugo Haines, who had been associated with him
and who had kept the office open for a time, played a key role in
saving his mother and his brother's life. In spite of the fact
that he did so at great risk, the kind of thing that was
described so movingly in The Diary of Anne Frank. It was a
similar situation. So we had no problem in Asarco in being
represented by Mr. Haines. There was no hint of his ever having
any kind of Nazi connections.
The people that Hochschild helped to get out:
Latin America or to North America?
did he get them to
Both. Most, because of the quotas in effect, most of the Jewish
emigrants he helped settled in Bolivia, Peru, Chile. Many of
them went to work in his organizations, and in due course, they
rose to be the managers of his organization. He had been married
to two different ladies on three occasions. That is to say, he
286
married one lady twice. His second wife, the one that I knew,
was of Belgian origin, and a charming woman. For a while, they
lived on Long Island, or had a house on Long Island, and she
lived there more or less year-round, but of course, he was
constantly traveling, and would come home.
I remember very vividly the occasion of his seventy-fifth
birthday party, because his wife arranged to use the ballroom of
the Ritz-Carlton Hotel. It was the last social function held at
the Ritz-Carlton Hotel, which was then on 43rd or 44th Street,
before it was torn down. The group that were there were
primarily Dr. Hochschild's friends in the mining and metals
industry. There may have been 100 people at this black-tie
affair with orchestra and dancing and professional entertainment.
Elaine and I went down and stayed overnight at the hotel, because
it would have been too late for her to go home. And it was a
fine occasion. He was in great spirits.
Mrs. Hochschild died shortly thereafter. He gave up the
house on Long Island, but maintained a suite in the Ambassador
Hotel on Park Avenue, which is, I think, where the Seagrams
Building is now. We would come in to have dinner with him every
so often.
Swent :
Strauss :
He had taken a great interest in a fellow named Dr. Ross,
who was a magician, and every time we came to have dinner with
him, there would be Dr. Ross taking cards out of our sleeves or
confusing us with all kinds of magic tricks. [laughing] I don't
think that Dr. Hochschild really was so interested in magic,
except that he felt sorry for this gentleman, and he would take
him on as an evening's entertainer for a group of eight or ten
people. That would be all there would be there, and we would be
exposed to the kind of performance that usually you'd see in the
theater with hundreds of people watching.
His business still exists?
His business still exists, but following his death, he left his
estate basically to his associates. His only son, who lived in
London, had been in the business for a short time but was not
very adept at it, and managed to annoy or harass many of the
other people in the business to the extent that Dr. Hochschild
recognized that it wasn't working. So he suggested to Gerald--
that '
s the son's name- -that he find something else to do, and
paid him several million dollars as a sort of a severance pay or
an advance on his inheritance.
So following his death, when the will was read and it was
discovered that he had left only a fraction to his estate to
287
Gerald, Gerald decided to challenge it in the court on the
grounds that he had died in France, and that French law should
prevail, and that under French law you cannot disinherit your
children. They're entitled to, I don't know, a third of the
estate or something like that.
I offered my good services, since I had no interest in the
matter one way or the other, to try to intervene between Gerald
and the people who were really running the business. I had a
most unsatisfactory talk with him. He was not interested in any
kind of compromise. So I haven't seen him since that one meeting
that I had with him.
But eventually, the business continued with the partner who
was in charge of the Buenos Aires office, I think, as sort of pro
chairman for a period of time, and then when Anglo-American
decided to become interested in the Western Hemisphere, they made
an offer for and actually took over much of the business. Not
all of it. I think a nephew still runs the Peruvian end of the
business .
Swent: It was called Hochschild?
Strauss: Yes. It had various names, various names. The Brazilian office,
which represented Asarco for our sales of refined metals in
Brazil, was run by a very nice gentleman named Rolf Weinberg. I
think perhaps the name was Brasimet. But it was part of this
Hochschild group, and the umbrella Bahamian corporation still
existed. It was called South American Mines Consolidated, or
some such name. But it was that corporation that was bought by
Anglo-American, except that apparently some deal was worked out,
I'm not familiar with the details, under which the Peruvian
business continued as an independent under the administration of
Dr. Hochschild' s nephew, Luis Hochschild, or, as he was called by
his friends, Lucho.
I haven't seen Lucho in the last few years, but the last I
knew, he was doing quite well. He's the one that worked out the
treatment of the tailings as they came down the stream from
Toquepala. You'll remember my talking about that.
Swent: Yes.
Strauss: So you can see how everything gets intermeshed and interwoven in
the industry.
Swent: Yes. It's a small network.
288
Strauss: But I greatly enjoyed my contacts with Dr. Hochschild, even
though, as I said, when I left Washington and he wanted me to
join his organization, I felt 1 would be happier at Asarco. But
we often traveled together. I would see him when I was in Paris
if he happened to be there, and we met frequently in both New
York and London.
it
Strauss: Recently I heard from a former employee of his, Helmut Waszkis,
who wrote to say that he was going to undertake the writing of a
biography of Mauricio Hochschild. He asked if he could meet me,
and I of course replied I'd be glad to meet him. When that's
going to happen and whether it will materialize, who knows. But
his life was a fascinating one. He was a truly international
person. He eventually became a citizen of Argentina, yet he had
his corporations scattered all over South America. He was much
of the time in Europe or the United States, and occasionally in
Japan.
I sometimes have said, and often to his face, that he was
the Basil Zaharoff of the mining business. Do you know who Basil
Zaharoff was?
Swent: No, 1 don't think I do.
Strauss: Basil Zaharoff was a mysterious businessman who reportedly made a
fortune during World War I dealing in munitions. Now, Mauricio
never dealt in munitions, but his methods of doing business were
in some ways somewhat similar to Basil Zaharoff 's, having a lot
of different corporate names under which to operate. I'm not
suggesting that Don Mauricio did anything that was illegal, but
he took advantage of every available tax loophole or currency
regulation he could.
At one time in his life, he was in Bolivia. The Bolivian
government accused him of traitorous behavior with respect to
currency dealings. He was imprisoned in La Paz, and for a while,
it was thought that he might well be executed. But he managed to
escape. His associates found ways of getting him released. I'm
not sure that he ever went back to Bolivia after that.
Yet he had some wonderful, fantastic ideas about Bolivia.
You may know, there's a lake called Lake Titicaca on the border
between Peru and Bolivia, and it's the largest lake at that
elevation, 12,000 feet or something. Mauricio Hochschild was
fascinated with the possibility of generating power by building
dams and releasing some of the water of Titicaca to generate
electric power. He spent a lot of time on that project.
289
One of the causes to which he gave a lot of money and a
great deal of time: after the European Economic Union was set
up, he proposed that Latin America do the same thing. He engaged
a former president of Chile, paid him a salary, and had him
travel around to work on this idea. So he was a true visionary,
a man of great strength, physical and mental.
Swent: Apropos of the fact that I recently read a very interesting book
about the Mafia, I was just wondering, was there ever any
entrance of the Mafia into the international metal business that
you know of?
Strauss: Not that I know of. I'm not aware of anything. My guess is that
if they had, it probably would have been in scrap trading. But
I'm not aware of it with regard to primary metal production.
Swent: I'm sure you wouldn't have been approached directly yourself!
Strauss: No, no.
Swent: But I just wondered if there were ever rumors of Mafia pressure
involvement .
Strauss: After the price of silver rose above the melting point, the
Treasury--
Swent : That's the point at which melting the coins down is more--?
Strauss: Yes, the face value of the coin was less than the value of the
contained silver. There was for a time a Treasury regulation
making it illegal to melt coins. This remained on the books for
maybe three or four years, and there were rumors of possible
criminal elements that were carrying on illegal melting. The
Canadians, because they also had silver coins, they had adopted
similar measures. It was illegal to melt down U.S. coins in the
United States, but it wasn't illegal to melt down Canadian coins
in the U.S., nor was it illegal to melt down U.S. coins in
Canada. There were various rumors of groups that were carrying
coins across the border, melting Canadian coins in this country,
melting U.S. coins in Canada. It may very well have happened,
but that's as close as I--
Swent : But not on a very large scale?
Strauss: Well, there was a lot of money. Once silver got to three or four
dollars an ounce, a coin was worth two or more times as much dead
as alive. And of course, one of the interesting things about the
melting of coins is, the more coins get melted down, the more the
numismatic value of the surviving coin becomes. I still have the
290
bulk of the coins that I put aside years ago, and every now and
then, I look at them and wonder what I ought to do with them.
Swent: Of course, gold smuggling has been an industry of a number of
countries.
Strauss: Right. And probably there were some illicit dealings in gold in
the days when it was illegal for private citizens to hold gold in
the United States. There may well have been. But in today's
freer markets, there wouldn't be any point in smuggling. You
don't need to.
Transcribed and Final Typed by Shannon Page
291
TAPE GUIDE--Simon Strauss
Interview 1: August 23, 1994
Tape 1, Side A 1
Tape 1, Side B 10
Tape 2, Side A 21
Tape 2, Side B 32
Tape 3, Side A 42
Tape 3, Side B 51
Tape 4, Side A 61
Tape 4, Side B 71
Interview 2: August 24, 1994
Continuation of Tape 4, Side B 74
Tape 5, Side A 79
Tape 5, Side B 90
Tape 6, Side A 99
Tape 6, Side B 109
Tape 7, Side A 118
Tape 7, Side B 128
Tape 8, Side A 138
Interview 3: August 25, 1994
Continuation of Tape 8, Side A 144
Tape 8, Side B 147
Tape 9, Side A 156
Tape 9, Side B 165
Tape 10, Side A 175
Tape 10, Side B 185
Tape 11, Side A 194
Tape 11, Side B 204
Interview 4: August 26, 1994
Tape 12, Side A 212
Tape 12, Side B 221
Tape 13, Side A 231
Tape 13, Side B 239
Tape 14, Side A 247
Tape 14, Side B 255
Tape 15, Side A 265
Tape 15, Side B 273
Interview 5: August 27, 1994
Tape 16, Side A 279
Tape 16, Side B 288
292
APPENDICES--a selection of writings and speeches made by Simon D. Strauss
A. "The Way it Was," from South American Explorer, May 1989 293
B. "Graphite, Mica and the Blockade of Madagascar During World
War II," Mining History International Meeting, June 1994 301
C. "The World Situation in Zinc," Metals magazine, April 1948 311
D. "SilverMonetary Metal or Industrial Raw Material," meeting
of the Mining and Metallurgical Society of America,
December 1959 313
E. Meeting of the London Metal Exchange, October 1970 322
F. "Why Commodity Cartels Won't Work," Business Week,
June 30, 1975 332
G. "AMC Proposes New Stockpile Formula," Mining Congress
Journal, December 1976 334
H. "Competition in the Non-ferrous Metal Markets," annual
meeting of the American Institute of Mining, Metallurgical
and Petroleum Engineers, March 1977 341
I. "Influences that Determine Metal Prices," Eleventh
Commonwealth Mining and Metallurgical Congress, May 1978 349
J. "A View of Commodity Agreements," joint conference of the
AusIMM-AIME, May 1978 354
K. Statement before the Trade Policy Committee, United States
Trade Representative, April 1980 361
L. "Gold and Silver as Stores of Value," 1981 Henry Krumb
Lecture of the AIME 374
NUMBER 21 J\^J\J I I I
AMERICAN EXPLORER
I
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May 1989
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294
Vie author, Simon D. Strauss, is a
geologist and Governor of the National
Mining Hall of Fame and Museum
located in Leadville, Colorado. The
following is a chapter from his book
Miner Incidents.
My First Memory
At is dusk on a desolate landscape.
The carriage in which we have been
riding comes to a halt. Our coachman
unhitches the horses and throws sad
dles over their backs. My father leaps
onto one horse; my mother handicap
ped by long skirts, mounts the second
more slowly, helped by the coachman.
She sits sidesaddle. The coachman lifts
me out of the carriage and places me in
front of my father. Then he reaches
for my sister Ruth, 14 months older
than I, and puts her with my mother.
Our parents hold us with their left
arms, keeping the reins in their right
hand.
Some words are exchanged with the
coachman and governess who remain
with the coach. And then we are off
the horses plodding slowly but steadily
through the soft desert sands. After a
time, indeterminate to my infant mind,
we arrive at an adobe and brick house
standing on a slight rise, amid rocks
and sand. The only vegetation is 'a lone
tree to one side of a stone-paved patio.
We dismount. Inside the house, lit
feebly by oil lamps, we are offered cups
of hot, sweet tea before we are taken
to a bedroom which my sister and I are
to share. My father instructs a man on
the premises take the horses back to
the carriage.
N,
low, more than 70 years later, I
like to think of this as true recollection.
But I am able to reconstruct a more
complete account out of the fog of the
past based on conversations with my
parents and from an examination of
faded photographs. An engineer,
father was meticulous about noting
places and dates on the pictures he
snapped.
The time was September, 1914, three
18 SOUTH AMERICAN EXPLORER
years and two months after my birth in
Lima, Peru, one month after the out
break of World War I. The place is the
tiny hamlet of Carrizal Alto in the vast
expanse of the Alacama Desert of
northern Chile - reputedly the driest
as
By Simon D. Strauss
place on earth.
Chile then held a world monopoly
in the production of nitrate of soda --
essential for both fertilizer and
explosives. The process for making
synthetic nitrogen had only recently
THE author and his sister on horseback with their mother near mine shaft, 1914.
: ; '** "
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295
been developed in Germany. The only
large deposits of nitrate were in Chile.
Since Great Britain and its Allies were
unable to produce synthetic nitrogen, a
protracted war would mean a soaring
demand. Recognizing this, there was a
scramble to develop deposits in Chile.
My father, a Columbia graduate in
mining engineering, had established a
consulting practice in Lima where he
had been engaged to examine a deposit
at Carrizal Alto. His investigation
would take several months. Rather
than be separated from his wife and
two small children, he made arrange
ments to take them and their German
fraulein/ governess with him to live in a
ramshackle house in the mining village.
:
Our trip took us by coastal steamer
from Lima's port of Callao to a port in
northern Chile (either Antofogasta or
Chanaral) and then by rail to the in
terior and finally by open carriage to
Carrizal Alto.
One of the faded photos shows us
seated in the heavily laden coach,
barely discernible amidst mountains of
baggage required by my mother's Ed
wardian standards of dress which called
for frequent changes of clothing that
covered us from head to toe. And, of
course, there were the professional
tools of my father's work.
Traversing the roadless waste of the
! desert must have been heavy work for
the two horses. With night approach
ing, my parents apparently decided it
would be best to unhitch the horses
and taking the youngsters, proceed by
horseback the last few kilometers,
leaving behind the fraulein, the
coachman, the carriage and the luggage
Mother, vaguely aware of
nitrate's explosive properties,
expected me to explode.
for later retrieval.
The family remained in Carrizal
Alto for nearly three months. Contact
with the world outside was severely
limited. My sister Ruth and I, thrown
on our own resources, developed our
games in the midst of the desert. In
ABOVE This is the Victoria in which we rode
after taking the train. That is probably my
father standing behind the piles of luggage. My
mother was big on hats. BELOW: Our house
in Carrizal Alto, Chile. My mother kept the fig
tree alive with our old bath water.
later years, my mother would frequent
ly recall these activities. I have a
particularly vivid impression of the day
that Ruth threw a tea party. Ruth was
a most decisive, impulsive and authori
tative older sister. So, of course, she
was the hostess and I the compliant
guest at this affair. When Ruth made
decisions, I
meekly followed suit. In
one of the basement rooms, she had
located an interesting glass jar and
proclaimed the contents preserved
pears. She poured some of these into a
saucer for me to sample. It tasted
awful. I spat it out and ran screaming
'
296
LIMA-Oroya
Railroad
crossing
the Rimac
River.
to my mother.
The "pears" turned out to be one of
my father's rock samples, in a mildly
acidic solution. Mother, vaguely aware
of nitrate's explosive properties, ex
pected me to explode. I retched and
vomited a lot but survived.
In the midst of the desert, Ruth and
I tried our hand at boating. A photo
graph in the family album shows the
two of us seated in a wooden crate
wielding brooms for oars to row us
across the flagged stone patio. Pro
bably this was after the remarkable
rainstorm that occurred during our stay
the first precipitation, my mother
said, in more than 20 years.
The effect was spectacular. Over
the years, seeds blown across the
Andes from Argentina lay fallow,
spread over the desert and perfectly
Supposedly a fig tree,
perhaps it one day bore
cakes of soap.
preserved in the dry climate. With the
rain, they germinated. Within three
weeks, my mother remembered, plants
had grown so high that when Ruth and
I went outside to play, she had trouble
seeing us. If true, it was a remarkable
demons!rat ion of the nutrient power of
nitrate.
That my father's profession made a
strong impression on my three year old
mind is evident from another old
photo. I am standing on the stone
patio in pajamas. On my head is the
broad-brimmed, stiff engineer's hat my
father invariably wore on his explora
tion trips. I am looking down with an
BELOW: My parents camping out in a cave en
route to a copper prospect. OPPOSITE
ABOVE: Chorrillos, residential district and
summer resort of Lima. OPPOSITE BELOW:
View of Lima from Cerro San Cristobal. Note
Rimac River and Acho Bullring.
Tetting water was a major problem
in Carrizal Alto. Once a week, a tank
car arrived at the nearest railroad
station where its contents were pumped
into a wagon and transported to the
village. Supplies were carefully
rationed out to each household. Once
the weekly quota was doled out to us,
mother would bathe Ruth and me in
the hogshead that served as a bathtub.
After we had been dried, she would
immerse herself in the same sudsy
water, followed by \\\c fraulein and last
of all by father. When we had finished,
the contents were carried outside and
carefully poured around the lonely tree
outside our house. Supposedly a fig
tree, perhaps it one day bore cakes of
soap for fruit.
20 SOUTH AMERICAN EXPLORER
.
297
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MOROCOCHA, Peru:
Loading llamas with
our packs.
enigmatic smile at the object in my
right hand a miner's pick. Behind
me is an unpainted wooden fence;
above me the branches of the lone fig
tree.
As I grew older, I
developed other
interests and ambitions. For a time,
living in the busy port of Valparaiso
and bewitched by reading Southe/s
Life of Nelson, I decided to become a
sailor, rising perhaps to the rank of
admiral. Later still, I decided I would
be a journalist and eventually the editor
of The New York Times. But in the
long run, the omen of the picture came
to pass. Though lacking a formal
engineering education, it was in the
mining industry that I earned my
livelihood.
What became of my father's exami
nation of the nitrate deposits in
Carrizal Alto I do not know, but during
the war, he focused his attention pri
marily on nitrate and copper. Under
the circumstances, he decided to move
his office from Lima, his headquarters
since 1904, to Valparaiso, the chief port
and, at that time, the commercial cen
ter of Chile. Thus, before my fourth
birthday, I became a resident of that
lovely country
- strung out like a snake
between the mountains and the sea for
3,000 miles along the west coast of
South America.
t3outh America seemed a remote
and improbable place for a young
American couple with Jewish antece
dents to settle. My father, Lester W.
Strauss, had been born in New York's
lower East Side. My mother, Bertha
Miller, was born in the small town of
Pittsburgh, New York, on beautiful
Lake Champlain.
For young men of my father's back
ground, a career as a merchant, lawyer,
doctor or banker would have been
Bertha urged him to accept,
promising marriage on return.
It was an era of long
engagements.
more traditional. Instead, he wound up
poking around for mineral deposits in
the desert and mountainous wilderness
of distant countries with strange
languages and customs.
As for mother, she had a brief
career as an elementary school teacher
in upstate New York. It would have
been normal to marry one of the boys
next door and settle down to child
rearing in a comfortable and familiar
environment. But the fates would
intervene.
While a student at Columbia School
of Mines shortly before the turn of the
century, Lester underwent some minor
surgery. In the hospital, he shared a
semi-private room with Isaac "Ike"
Miller. Because Ike had just arrived in
New York to seek his fortune in the
clothing trade, he had few visitors. But
my paternal grandmother came daily,
bringing with her copious supplies of
chicken soup, calfs foot jelly and other
22 SOUTH AMERICAN EXPLORER
-
298
time-tested comestibles which my fa
ther shared with Ike. The two patients
became fast friends, and on their
release, Lester readily accepted Ike's
invitation to hasten his recuperation by
taking in the bracing air of the Cham-
plain Valley. There he met Ike's sister
Bertha. The attraction was immediate
and mutual.
Later at the Columbia School of
Mines, Lester persuaded his faculty
advisor to allow him to spend his final
year of field work examining iron ore
deposits in the Adirondacks a few
miles southwest of Plattsburgh. During
this second visit, the romance blos
somed, but when they became engaged,
I do not know.
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LEFT: My parents liked to share the adventure
of new places and people. BELOW: Clearing a
rockslide on the Lima-Oroyas central railway.
After graduation, Lester took a job
in Dahloncga, Georgia, at a gold mine.
Contrary to the widespread belief that
gold mining began in the United States
with the famous discovery at Sutler's
Mill in California in 1848, gold mining
had been common practice in the
southern Appalachian region of Geor
gia, the Carolinas and Virginia since
the early 19th century. From Dahlonc
ga, the young graduate went on to Flat
River, Missouri, to work in the assay
offices of a large lead mining company.
An active exchange of letters took
place between Flat River and Platts
burgh. Ike, now a traveling salesman
dealing in men's clothing, found time to
spend a weekend in Flat River, follow
ing business calls in St. Louis. Sixty
years later, he told me what a wild and
woolly town Flat River was in the early
1900s. He claimed all the men walked
around with handguns stuck between
their shirt and trousers.
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MY mother, sister, me and our German nanny next to a Chilean train in 1914. We're on our way to
Carrizal Alto in the Atacama Desert.
An accident ended Lester's career in
Flat River. An explosion of molten
lead caused minor injuries to his eyes.
After this he shunned office and
laboratory work, preferring to work
outdoors. Returned to New York, he
applied for assignments as an explora
tion engineer, but when an offer came
through to work in the distant land of
Peru, he was torn - it would mean too
many miles between him and a certain
girl with auburn hair. Bertha, however,
urged him to accept, promising mar
riage on return. It was an era of long
engagements.
So, in 1904, Lester booked a ship
for the three-week trip to Peru ~
sailing to Panama, traveling by rail
across the isthmus and then by ship
down the west coast to Callao, Lima's
port city. Lacking airmail or long
distance telephones, communication
between the couple was infrequent and
often subject to tedious delays. If
Lester were to urgently inquire of
Bertha whether she loved him still, her
answer might take six weeks or more.
Yet, faithful they both remained.
When Lester's first Peru assign
ment came to an end, he launched out
on his own. There were excellent
opportunities in independent consult
ing. Mining companies and investment
bankers based in the US or Europe
could, of course, send out their own
engineers to check out South American
mineral deposits, but this meant paying
considerable sums for idle time spent
on ship.
Lester received many offers, and
this delayed his return to the States.
Bertha waited patiently in Pittsburgh.
24 SOUTH AHERICAN EXPLORER
B,
tut then something happened. Ro
man Catholicism was Peru's state reli
gion in the years following indepen
dence from Spain in 1824. This meant
only marriages performed by Catholic
priests were recognized. But in 1906,
the Peruvian Parliament established
the legality of civil marriages.
Myfather immediately sent a cable to
his beloved. One can imagine the
excitement this caused hi sleepy
Plattsburgh.
Bertha did not hesitate, despite
circumstances at home. Her father,
David Miller, had died in the 1890s,
leaving his widow with six children.
Bertha's five brothers were all younger
than she, and only two were gainfully
So even before my birth
in 1911, 1 had traveled
well over 10,000 miles.
employed at that time. Money was
tight. Bertha would have to make the
trip alone ~ a most unusual under
taking for a well brought up young
woman in 1906.
Her trousseau packed in an enor
mous steamer trunk and tickets in
hand, Bertha set off for Peru. Apart
from Lester Strauss, she knew no one
in that mysterious, far off land where
she could not speak the language. It
would be her first experience on an
ocean steamer.
In Col6n, the port on Panama's
north coast, work was underway on the
Panama Canal. From Col6n, she took
the train to Panama City. There she
stayed a week in a wretched hotel,
waiting for a southbound ship to
Callao. Finally, after 27 days, she
reached Callao on March 26th. And
there at dockside stood Lester, eager
and beaming.
The following day, March 27th, in a
ceremony jointly performed by the Ma
yor of Lima and the U.S. Consul Gen
eral, Bertha Miller and Lester Strauss
became husband and wife. It was the
first civil ceremony performed in Peru's
82 years as a republic.
J. hirty years later in March 1941, I
was in Washington, DC. I had just
taken a position working for the
national defense effort. France had
fallen, and we realized the United
States would soon be involved in the
war. A meeting had been called to
discuss the construction of a tin smelter
in Texas City, Texas. The head of the
tin/lead branch of the Office of Pro
duction Management was there. His
name was Erwin Vogelsang. When we
were introduced, he looked at me
carefully.
"Are you Lester Strauss' son?" he
asked. I said I was. "Well," said he, "I
was a witness at your parent's wedding
in Lima in 1906."
My mother died in 1949. Going
through her personal effects, Ruth
found a picture neither of us had ever
seen. It was the wedding party just
five women and six men. Dressed in
formal clothes (the men wore white
tie), all were seated around a flower-
strewn table at the Gran Hotel Mauri,
then Lima's best. Obviously, these had
to be business acquaintances of my
father. He had not been in Peru long
enough to form close personal ties, and
the nearest relatives were thousands of
miles away. Partially obscured by my
mother's hat, topped by a huge feather,
stood a man clearly recognizable as the
young Erwin Vogelsang. A native of
Germany and a naturalized United
States citizen, he had been sent to Peru
as the commercial representative of a
large New York metal firm.
Despite the conventional wedding,
my parents were true pioneers in spirit.
They adapted readily to the culture
they found in Peru and learned to
speak Spanish quickly and well.
- -
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.
.
300
LAKE Huacracocha, Morococha, Peru. Note the Churruca Mine at lower left.
Though father never lost his nasal New
York accent, mother spoke a Spanish
both grammatically correct and pro
nounced with a true Cast ilian lilt.
My parents loved life out-of-doors,
spending long hours in the saddle
riding horseback through the Andean
wilderness. They put up cheerfully
with the crudest accommodations in
mining camps. For my father, the lack
of creature comforts went with his
choice of careers. For my mother,
making do with little was a challenge.
Nothing compelled her to go with
father into the mountain fastnesses.
She chose to. She wanted to be with
him, took an interest in his profession,
and liked to share in the adventure of
strange places and peoples.
o,
"n one such trip, she went along
despite doubts expressed by father's
associate. A Swedish engineer, he
could not understand why a young
bride of a few months would volun
tarily undertake a trip involving back
breaking days of horseback riding.
What made her give up the luxuries of
Lima where she could spend the day
reading novels, eating chocolates, being
waited on hand and foot by Indian
domestics? "She wants the experience,"
my father explained.
As mother told the story, it was
their second day on the trail. They
were riding single file along a path no
more than a meter wide etched into the
side of the mountain. On the left, it
dropped off thousands of feet to the
valley below. On the right rose a sheer
rock face up to the mountain peak.
Suddenly, they heard piercing
screams, followed by a sharp knocking
sound. More screams. More knocks.
Rounding a bend in the trail, they
encountered an Indian woman lying in
the trail. She was giving birth and
screaming. The knocking sound came
from a man who, lacking a knife, was
trying to sever the umbilical cord by
pounding it between two rocks.
The Swedish engineer, first in line,
turned around. Speaking of my
mother, he said to my father, "I think
she gets plenty of experience."
Mother made several more trips
with father into the isolated mining
regions. But then came the children.
In May, 1910, Ruth arrived. Since she
was the first grandchild, mother
decided to take this remarkable infant
back to the States to be admired by the
relatives. As the Canal was not yet in
operation, this called for a steamship
ride, transit across the Panama isthmus
by train and another long ocean trip.
Undaunted, she took a Peruvian nurse
with her, leaving father to stay behind
to look at more mines.
Arriving in New York, mother felt
unwell. She consulted a doctor who ex
plained a second child was on the way.
The families endeavored to persuade
her to remain, arguing that New York's
medical establishment was superior to
Lima's. Mother would hear none of
this. She wanted to be near Lester.
So, even before mybirth in July, 1911,
I had traveled well over 10,000 miles.
And, as fate would have it, when I did
arrive, father was not in Lima, but
looking at a tin deposit near Oruro,
Bolivia.
SOUTH AMERICAN EXPLORER 25
.
301
Appendix B
Mining History International Meeting
Golden, CO June 6-10, 199^
GRAPHITE, MICA AND THE BLOCKADE OF MADAGASCAR
DURING WORLD WAR II
Among sea-faring vessels Lone Star and West Hardaway are
hardly household names like Queen Elizabeth or Titanic .Yet these
two unknown freighters played a vital role in a bizarre episode of
the struggle to assure adequate supplies of strategic and critical
minerals for Allied Forces during World War II.
It all began when Germany over-ran France in June, 1940. The
administrators of the huge island of Madagascar, a French colony
lying east of the African
'
coast in the Indian Ocean, chose to
remain loyal to the Petain Administration i. /ichy rather than
to pledge allegiance to the Free French forces under General Charles
de Gaulle.
This made the British government very uneasy. If feared that
the Petain regime might cave in to pressure from the German Nazi
leaders to use Madagascan ports as supply and fuel bases for
German submarines in the Indian Ocean. This, in turn, would put in
jeopardy British imports of raw materials from Australia, India and
South Africa - as well as men and munitions for the very active
front in Egypt.
Therefore, even though they could ill spare the required naval
forces, the British put in place a naval blockade of all Madagascan
ports plus its hundreds of miles of coastline. No vessels were
permitted to sail into or out of those ports, with the single
exception of one modest freighter that linked ^r-*
^ci
to what
302
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was then called French Indo-China. That country, now the three
nations of Vietnam, Laos and Cambodia, had no surplus of fuels
and no munitions industries. Imports into Madagascar from Indo
China would not assist in provisioning Nazi submarines.
The blockade proved extremely effective. Not only were
imports denied, but Madagascan exports came to a full stop.
This meant that two unique Madagascan mineral products were no
longer available in overseas markets - flake graphite and phlogopite
mica. Madagascan graphite was the preferred material for crucible
linings for the iron and steel industry. Phlogopite mica sheets
were considered essential for electronics and electrica 1 applications
because of their electrical properties and high heat stability.
By early 1941 the steel and electrical equipment industries
were pleading with the Roosevelt administration in the United States
to arrange access to Madagascan graphite and mica. British
manufacturers made similar requests to their government. When I
joined the staff of the Metals Reserve Co., a government corporation
set up the previous year to procure strategic minerals, negotiations
were underway with Vichy's representatives in Washington as well as
with the British Embassy . In April a tri-partite agreement was
reached- The British government would allow an American-flag vessel
through the blockade to load several thousand tons each of graphite
and mica. When that vessel had departed Madagascar, a shipment of
carefully screened goods would be allowed through the blockade for
Madagascan destinations. The French pledged that these imports would
be used locally and none would be made available to any German
submarines that might elude the British blockade.
The ship selected to load the graphite and mica was the Lone Star.
-3-
based in Houston. It reached the port of Tamatave, in Madagascar,
in late May, 1941. This was the first U.S. flag vessel to arrive
at a Madagascan port in more than a year.
Local French officials were delighted. To mark the occasion, the
Governor General advised the American consul in Tananarive, the
Madagascan capital, that he would like to tender an official reception
for the Lone Star's captain at his official residence. The consul,
whose name was Carter, one of only three African-Americans then in
U.S. foreign service, urged the captain to make the 90-mile trip
from Tamatave to Tananarive. The captain, never having previously
been involved in a diplomatic function, was pleased to accept.
Some two years later on a visit to Washington, consul Carter
provided me with a detailed account of the reception and subsequent
events. The captain, a courteous .Southern gentleman, went out of his
way to compliment his host and hostess. He told the Governor General
that his Scotch and soda was delicious. The Governor General sighed
as he responded: "Alas, due to the abominable British blockade, this
marks the end of my whiskey supplies. I shall have to wait till war's
end to replace them."
"No problem," replied the captain."! have several cases of
whiskey on the Lone Star . I'll be glad to leave them on the dock for
you at Tamatave when we sail. We'll be stoppirS to refuel in Durban
and I can replenish my liquor locker then."
Later, while chatting with the Governor General's wife, the
captain commented the hors d'ouevres she had provided were ap.erb.o".-;
"Do you know, captain, "the lady replied, "that was the last can of
anchovies on the island, and my supplies of truffles and caviar
are also exhausted. Because of the blockade, I do not know when i
304
-4-
can obtain replacements .
"
Gallantly the captain replied "Madam, whatever delicacies
I can find in the Lone Star '
s larder will be left for you in
Tamatave, along with the whiskey I have already promised your husband."
The reception ended in this aura of cordiality, the consul
escorted the captain back to his train for Tamatave, and all
seemed well. Back at the port loading of graphite proceeded smoothly
with the intention of sailin g the following week to Fort Dauphin,
where the mica cargo was to be taken on board.
But two days later the situation took a dramatic turn.
Listening to the radio in Washington early one morning as our carpool of
Metals Reserve employees was on the way to work, we heard the dramatic
news that President Roosevelt had decided to take over al 1 French
ships then in United States ports, including the famous liner Nor .andie .
Following the fall of France, much of the country's me.rchant fleet
had been interned in neutral ports.. Heavy losses of British cargo
vessels due to attacks by German submarines had created a shipping
squeeze. To keep export movements from the U.S. flowing, President'
Roosevelt had decided to take over the French vessels.
When our group heard the news we immediately thought of the
Lone Star. Would the Madagascar regime, with its ties to Vichy,
decide in retaliation to take her over? A quick consultation with
instruct
our counterparts in the State Department resulted in a decision to /
Lone Star to sail immediately from Madagascar with whatever cargo she
had loaded, rather than risk losing her and her cargo. But how to
get word to her? It seemed best to communicate with consul Carter
in Tananarive and let him issue instructions to the captain.
305
-5-
When the coded message arrived, Consul Carter had a problem.
He was 90 miles from the port. He believed the French administration
had a tap on his telephone line. A straight telephone message might
alert the officials. On the other hand he had no idea what
telegraphic codes, if any, were available to the Lone Star
operator. And then he had a brilliant idea. He would use the
phone but resort to American slang that would puzzle the French.
He phoned the dock in Tamatave , the only dock in that port.
It turned out that Lone Star had been moved out to anchor in the
harbor to make room at the dock for the freighter from Indo China,
which had arrived the night before and needed to discharge some
perishable items immediately.
A launch was sent out to get Lone Star '
s captain, who
immedtiately returned to the dock. Precious minutes had e lapsed, but
the consul waited patiently. When he heard the captain's voice he
said "Captain, I have a message from your people for you. Can't
understand why they sent it to me rather than directly to you, but
I thought I'd best relay it to you. It's a single word. The word
is ''Scram. ' "
"I read you loud and clear.- consul," the captain replied.
"Thanks very much. Give my regards to the governor general and
his lovely wife."
The captain returned to his ship. The tide was flowing
out of the harbor. To avoid attracting attention, the captain
didn't have the engines started but simply floated out of Tamatave
with the tide. About 3,000 tons of graphite was on board - more
than half the targetted amount - but of course none of the mica.
306
-6-
Missing were three members of the crew. They had been granted
shore leave and were doubtless enjoying sue h distractions as
Tamatave had to offer. The captain did not dare to send others of
his crew ashore to round them up -that would take precious time.
He felt certain Consul Carter would do what he could for them.
Lone Star , once out of the harbor, headed straight for Durban.
After the ship's departure, Consul Carter was busy. First he
received a telephone call from an indignant Governor General.
"My dear Carter," that dignitary said, "I have learned of
the unceremonious departure of Lone Star . I know why that happened.
Your people may have thought we would try to take the ship over.
But that would not have been possible. We have only a single operative
cannon left in the fort guarding Tamatave harbor and it has not been
fired in years. No way could we have held Lone Star against its will.
What really troubles me is that the captain sailed off without leaving
behind the whiskey he had promised me or the delicacies he had
promised my wife. That is not becoming in someone who was our
honored guest two days ago."
The consul did what he could to smooth the ruffled feathers,
but the resentment was obvious.
In due course he heard from the three stranded crew members.
They pointed out that under U.S. merchant marine regulations,
crew members stranded in foreign ports through failure to receive
notice of changed sailing plans were entitled to full pay until
returning to their home ports.
Consul Carter felt if he advanced the men all the pay to
which they were entitled the internal economy of Madagascar might
307
-7-
be disrupted by their spending - U.S. seamen's wages being far
in excess of prevailing Madagascan wages. He compromised by
advancing half of the sum due them, with the assurance that their
employer, Lykes Steamship, would make up the balance when they
eventually returned home.
The date of that return was obviously a question mark.
With nothing but their own amusement to consider, the three men
settled down happily in Tamatave, where they became well-known
and welcome visitors. Doubtless they did not lack for female
companionship and they could leisurely bask on the beaches, travel
about the tropical countryside, sample the local cuisine and
imbibe the local beverages.
Meanwhile Lone Star made its way safely back to the United
States to discharge its graphite cargo. Even though less than had
been hoped for, it alleviated the immediate shortage. A long-term
problem pessistedT
~~
The failure to obtain any mica caused anxiety
among electrical manufacturers who were revving up production to
meet American defense requirements and heavy demands for Lend-Lease
shipments to the British and later to the Soviet Union, that had been
drawn into the war in the same month of June.
American officials reopened conversations with the French and
the British. They proposed that a second vessel should proceed to
Madagascar to obtain graphite and mica. This time the Vichy representa
tives raised the ante. They insisted they would ship no more of either
mineral unless simultaneously with those shipments they could obtain
the materials they desperately needed for Madagascar. The British were
kept apprised of these conversations, which proceeded with what - in
another context - the Supreme Court once characterised as
308
-8-
due deliberate speed.
Agreement was reached by September. The plan was for the
United States to dispatch a freighter to Madagascar. At the same
time the French would divert their Indo-Chinese vessel to Manila in
the Philippines. A French diplomat would be on board the U.S.
vessel and an American diplomat would be on board the French ship.
The list of goods to be imported into Madagascar was carefully
vetted by the British. The materials to be exported from Madagascar
included not only flake graphite and phlogopite mica but, in addition,
quantities of vanilla beans and raffia - two Madagascan products
that were as unique as their graphite and mica. The vanilla beans were
wanted by U.S. ice cream manufacturers, who asserted they were
essential for the production of genuine French vanilla ice cream. The
carrot growers of Texas asserted that Madagascan raffia provided the
best means of tying bunches of carrots.
The American diplomat selected for the assignment aboard the
French ship was a young consular officer named Moore, who had been
serving as vice-consul in the port of Mazatlan, on Mexico's west
coast. He visited me in Washington that fall to learn the details of
his new assignment. I told him he would board the French vessel in
Manila, exchange signals with his French counterpart aboard the
U.S. vessel in Madagascar, and remain on board to supervise all loading
of cargo -
making sure that only agreed items were placed in the vessel
holds. No doubt a young French diplomat was being similarly coached as
to his duties .
West Hardaway , a Liberty freighter built during World War I, was
the U.S. ship chosen for the second Madagascan trip. For most of the
309
-9-
intervening years it had been quietly rusting away at anchorage
with other Liberty ships near West Point on the Hudson River in
New York State. After the outbreak of World War II, however,
demand for ship tonnage intensified and it had been restored to
service. It was not a speedy vessel - 8 knots an hour was its
cruising speed- Because it would be flying the American flag and
the United States was not at war, the expectation was that Axis
naval vessels would not undertake hostile action.
By the end of November, 1941, both vessels were in place
at their loading stations. The consular officers were on board.
They exchanged the stipulated messages. In Fort Dauphin, the
Madagascan mica port, and in Manila the task of loading began.
And then the Japanese bombs fell - first in Honolulu and next
in Manila.
The first ship to be hit in the bombardment of Manila was
the ship from Indo China. She sank at dockside. All the crew
survived, including Consul Moore. However, when the Japanese
captured Manila on January 2, 1945, he was still trapped in that
city. He was imprisoned at San Tomas, with other United States
civilians, and remained there for more than three years until
the liberation of the city in February, 1945.
The French on Madagascar recognized that the United States
was not responsible for the loss of their ship. Having been assured
that in due course they would receive the specified goods originally
for shipment from Manila, they agreed to the prompt loading
December
of the cargoes of mica, graphite, vanilla beans and raffia. By mid-/
310
-lo
west Hardaway sailed from Madagascar for Durban not only with
its highly valuable freight but also with three passengers - the
castaways from Lone Star .
By this time the United States was fully engaged in war with
Germany and Italy as well as Japan. In Washington nervousness about
West Hardaway
'
s ability to evade hostile submarines prompted a
decision to transfer its Madagascan cargos to three swift Navy
transports that were returning to the United States after having
discharged Lend-Lease supplies for the British in Egypt. Dividing the
risk and reducing transport time was seen as sensible insurance.
And so it turned out. All three Navy transports made their
way safely back to U.S. Atlantic ports. West Hardaway had replaced
graphite, mica, vanilla beans and raffia with tonnages of South
African chrome and manganese ores. These were also strategic but
not nearly so scarce as the Madagascan commodities.
Two or three days out of Durban, having rounded the Cape of
Good Hope, and started northwestward on the Atlantic, West Hardaway
was spotted by a German U-boat, torpedoed, and went to the bottom of
the sea. Most of its crew survived.
The outcome of the voyages of these two pedestrian f reightEors :
*'
the Allies secured badly needed supplies of graphite and mica, Consul
Carter displayed unique resourcefulness, the Governor General of
Madagascar and his wife had to wait many months to replenish their
supplies of liquor and exotic canned goods, three American sailors had
an unexpected tropical vacation for six months at full pat/, and Consul
Moore spent more than three years in a Manila prison instead of dealing
with trade and passport problems in a Mexican port.
SIMON D. STRAUSS
311
Appendix C
* LJ UVuUA V-1
^^^^f
The World Situation in Zinc
Needs of Western World Placed at 1,500,000 Tons a Year;
Russian Bloc May Have Had 300,000 Tons Available in 1947
By SIMON D. STRAUSS*
Sales Manager
American Smelting & Refining: Co.
THE
topic that has been assigned
to me for discussion this morn
ing is "The World Situation in
Zinc". Like the schoolboy who was
asked to give his opinion of the fu
ture of the gold standard and cor
rectly answered thjt he had none,
I could very properly complete this
assignment by informing you that
there is no such thing as a world
situation in zinc and, possibly to
our mutual relief, sit down.
For the fact is that the situation in
zinc, at least in so far as it is ascer-
tainable from an office chair in New
York, is a very different matter in
some parts of the world than it is
in other parts of the world. For
all practical purposes the "Iron Cur
tain" that separates Eastern Europe
and the northern two-thirds of Asia
from the rest of the world is not only
an effective barrier against dissemi
nation of information on matters
political and military, but it is also
almost entirely effective with respect
to data on the production, consump
tion, and stocks of zinc.
As this is a very important part
of the world today, my inability to
give you more than fragmentary in
formation regarding what is hap
pening in that area obviously de
tracts from the value of this study.
We do know that the Polish Gov
ernment, which is now the operator
of the zinc-lead mines and metal
lurgical plants in Upper Silesia, has
Address presented at 30th Annual Meet
ing American Zinc Institute, Inc., St. Louts,
Missouri. Aoril 16. 1948.
SIMON D. STRAUSS
announced with some chagrin that
production of zinc in 1947 was only
93 per cent of the objective. The
American Bureau of Metal Statistics
has reported the Polish production
as 79,000 short tons, indicating that
the objective was approximately 85,-
000 tons. Apparently a portion of
this metal was obtained from im
ported concentrates, presumably
largely from Yugoslavia, another
Russian vassal state. After satisfy
ing home demand, Poland exported
zinc to Russia, Scandinavia, Hol
land, and Czechoslovakia.
Zinc Behind the Iron Curtain
As to the production of zinc con
centrates in Yugoslavia, very little
is known. Some concentrates from
that country have gone to smelters
in Belgium and The Netherlands
for treatment in addition to the ex
ports to Poland mentioned before.
Prior to the war the Yugoslav pro
duction was in the order of 30,000
to 40,000 tons of zinc contained in
concentrates per year. The current
production may be as great as that;
it seems unlikely that it has been
expanded beyond that level. In
Czechoslovakia the two zinc smelt
ers, as far as is known, have not
resumed operations. During 1947
Czechoslovakia apparently imported
about 25,000 tons of zinc metal. As
for Russia itself, there is no report
of any direct zinc purchase from
any seller in the United States, Can
ada, Mexico, Australia or the United
Kingdom. Presumably a fair por
tion of the Polish production, pos
sibly 20 per cent or 30 per cent, went
to Russia. For the rest, the Soviet
Union appears to have been depen
dent on its own resources and those
of the Russian zone in Germany,
but as to what these amounted to,
one cannot say. Prior to the war,
Russia was an importer of zinc and
its home production at that time
was thought to be in the order of
80,000 or 90,000 tons a year. This
was probably expanded during the
war and there have been many re
ports to that effect.
Of the other countries in the Rus
sian bloc, none are known to have
zinc smelters or to be producers of
zinc ores in any volume. Further
more, apart from Czechoslovakia,
the only country within the Russian
orbit that has been importing zinc
in volume is Finland.
In sum it
appears that the Rus
sian bloc at most may have had
available to it during 1947 some
thing like 300,000 to 350,000 tons ol
zinc, and it is
probable that the ac
tual figure was less than that
say 200,000 tons.
Zinc in Western World
Having dealt first with the phase
of the subject of which least i:
known, let us now deal with thi
rest of the world, which I proposi
to identify as the "Western" world
even though my geography indicate
that this is not a strictly accurate
designation. Even in this fragmen
of the globe it is difficult to spcal
in any broad generalizations regard
ing the position of zinc. The ex-
312
for the purpose of building up the
stockpile.
1 would like to venture a sugges
tion as to how such a plan for ac
quiring stockpile copper at over-mar
ket prices might be advantageously
carried out. We believe that the best
results would be obtained, both as
to the amount of copper which could
be acquired and as to the cost of
the operation both in money and in
manpower, if
procurement for the
stockpile were placed in the hands
of a single administrator with some
experience in the mining industry
and with a knowledge of metal mar
kets. He ought to be empowered to
buy copper for the stockpile from
the domestic market when it is avail
able without interference with the
domestic economy, and to act
promptly without going through the
present complicated Treasury pro
curement procedures. He ought to
be empowered to purchase foreign
copper on a long-term contractual
basis if necessary. As regards prem
ium prices here, he ought to be em
powered to make contracts on a
mine-to-mine basis and for a long
enough period of tkre to induce the
operators to go ahead, and, where
necessary, the price which he should
be willing to pay ought to include
enough to amortize any initial de
velopment that may be necessary.
We think also that such individual
mine contracts ought to be made
with due regard to cost to the Gov
ernment of the metal, and to man
power considerations; unless due
consideration is
given to those fac
tors, particularly the manpower pro
blem, the over-all effect of the pro
gram might mean actually very little
increase in production.
We think such a program would
be apt to work better than any plan
along the lines of the Premium Price
Plan of the last war; under any such
Premium Price Plan we fear that
the maximum results in the way
of production will not be obtained.
I want to emphasize that it is
my
understanding that under any such
proposal the over-market-priced cop
per produced would be placed in
the stockpile, and that we are not
talking about a proposal under
which the copper produced at over-
market prices would be marketed
in competition with copper sold at
the market, as to which quite dif
ferent considerations are involved.
METALS, APRIL, IMS
313
Appendix D
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322
Appendix E
For Presentation at the London Metal Exchange
Annual Dinner, Grosvenor House Hotel, London,
October 27, 1970, by Simon D. Strauss,
Vice President, American Smelting and Refining Company
Mr. Chairman -- Gentlemen:
It is a great honor to appear before this distinguished
group, particularly since you have chosen as your speaker for
the second consecutive year a representative from your former
North American colony. This is an outstanding example of British
magnanimity. Here you are, prepared to listen to a rebel from a
territory that revolted against your rule less than two hundred
years ago. How few other nationalities would practice such
forbearance !
In thinking over subjects that might interest you, it
occurred to me that perhaps it would be appropriate for someone
who is directly involved in selling copper at a price other than
that quoted on the London Metal Exchange to offer some thoughts
on the so-called two-price system for copper. First, I looked
in the dictionary to see precisely what the word "system" means.
According to the dictionary a system is "an ordered and compre
hensive assemblage of facts, principles, doctrines, or the like
in a particular field of knowledge or thought."
I think you will agree that the two or more prices prevailing
in the copper market are hardly the result of an ordered and
- 1 -
323
- 2 -
comprehensive assemblage of anything. On the contrary copper is
sold by different people on different pricing bases precisely
because the market has not been ordered and certainly has not
been assembled.
I am not suggesting that this is a bad thing. On the con
trary there is much to be said in favor of the mild form of
anarchy which frequently appears to prevail in the copper market.
This theory is advanced in spite of thoughts to the contrary
advanced by students such as Dr. Houthakker of President Nixon's
Economic Council and the opinion frequently expressed by my
friends of the London Metal Exchange who emphatically state that
obviously there should be only one price for copper and that
should be the price on the London Metal Exchange.
Ever since the price of copper on the L.M.E. began its
rise in early 1964, the U. S. copper producers have been over
whelmed with advice as to what they should do. This came from
producers outside the United States, from the consumers in the
United States, from the press and from the government. Much of
the advice was conflicting. You will all recall that President
Johnson and his economic advisers scolded the copper industry
for attempting a modest 2C a pound increase in the price of copper,
in the fall of 1965, when the London Metal Exchange price was
almost double that quoted by domestic producers. More recently
the industry has been rebuked by President Nixon's administration
324
- 3 -
for selling copper to consumers on the basis of the producer
price because that price at the time was less than the outside
market price which certain consumers had to pay.
This is very much like the ancient Spanish legend of the
miller who with his son was taking a mule to market. When both
the miller and the son rode on the mule, they were criticized
for abusing the animal. When only the miller rode and the son
had to walk, the miller was criticized for injuring his son.
When the son rode and the father walked, the son was cited for
not respecting his parent. When both walked behind the mule,
they were laughed at for being foolish.
Most United States copper producers, somewhat punch-drunk
from all the advice they have received, recognize that there is
no possibility of pleasing everyone and perhaps that they may not
please anyone. Nevertheless, there is a widely held view in the
United States that prices that change twice a day are not a de
sirable means of marketing a basic industrial raw material that
must compete with products whose prices change infrequently.
The principal elements with which copper must compete are
aluminum, or to translate it into English, aluminium, the price
of which changes rarely more than once or twice a year; stain
less steel, the price of which changes perhaps once a year;
fiber glass, the price of which rarely changes; and various types
of plastics, the prices of which change quite infrequently.
325
- 4 -
When a manufacturer in the United States considers whether
or not he will use copper for a given purpose, he is concerned
not only with the absolute level of price but also with the fre
quency with which the cost of the material to him may vary during
the period of his manufacture. As you know, the U. S. automobile
industry makes model changes once a year. Prices for these models
are likewise set once a year. Consequently the car manufacturer
in selecting his raw materials wants to be able to estimate with
reasonable certainty how much the components going into his vehicle
will cost during the period of production. Changes of 30 to 40%
in those costs during the model year disturb him considerably.
I am well aware that Dr. Houthakker has suggested that
the copper industry in the United States should adopt a com
modity exchange basis for establishing its prices not
necessarily the L.M.E. possibly the New York Commodity Exchange.
I know, also, that one of the leading members of your Exchange
ventured the opinion, when he was in the United States last year,
that within three years the producers in the United States would
adopt something akin to the L.M.E. price.
Furthermore, a distinguished executive of one of our smaller
copper companies has expressed similar sentiments.
I assume, therefore, that the gracious thing for me to do
on this occasion would be to tell you that the U. S. industry
326
- 5 -
has at last seen the true light and these predictions are about
to come true. You would all be extremely pleased if the American
copper producers would at long last adhere to the true gospel
according to Whittington Avenue.
I must make it clear that I cannot speak for any one other
than myself. The laws of the United States are very specific as
to price agreements between competitors. However, speaking only
for myself I must tell you that I think it unlikely that in the
foreseeable future the major U. S. producers will alter their
pricing methods -- unless required by law and this is only a
remote possibility.
Parenthetically I would like to take my hat off in admiration
to the inventor of that delicious phrase "the foreseeable future".
World history of the last few years makes it abundantly clear
that the future is not foreseeable. In making predictions for
the foreseeable future one seems to be saying something significant
and yet one is completely absolved of any specific responsibility
over any defined period of time.
The reason that I do not expect a significant change in the
U. S. copper pricing structure is that the large buyers and the
large sellers do not want it. The producers feel that they should
name the price at which they sell and not turn this function over
to a third party -- whether it be the government, a commodity
exchange or any one else. The majority of the consumers -- at
- o -
327
least in the U. S. have a strong preference for a producer
price as compared with a price which changes twice daily and
which seems to them to exaggerate every twist and turn in the
copper market.
Supporters of the London Metal Exchange copper price as a
mechanism claim as a virtue the fact that it is so sensitive.
They say that only in this way can the industry detect the need
for increasing production or cutting it.
Frankly, I am skeptical as to the value of the L.M.E. prices
as a guide to production policies over any short period of time.
For example, at October 1, 1969, the prompt wirebar quotation was
660-15-0 per long ton. It rose steadily to reach a high of 748-10-0
per metric ton on March 26, 1970. It had fallen back to 509-10-0 per
metric ton as of October 1, 1970. As you can see within one year
the price rose by 13% and then fell by 32%.
The L.M.E. copper price unquestionably represents each day
a freely expressed consensus of that day's world opinion on the
value of copper. It brings together in one place and at one time
a wide cross-section of buyers and sellers. But to say that this
price -- and only this price is a correct indicator of the basis
on which copper producers should sell their metal seems to me a
considerable exaggeration. And as a guide to long-term planning
of either production or consumption, a price that has fluctuated
within one year by the percentages cited leaves a lot to be desired.
328
- 7 -
Steel and aluminum producers also major metal industries --
appear to be able to set their production schedules and establish
their investment programs without a commodity exchange price to
guide them.
It has been suggested that when the non-U. S. producers of
copper made their short-lived attempt to establish a producer
price in the European market between the years 1964 and 1966,
two years were lost in encouraging the production of copper from
new deposits because the price was being artificially held down.
I cannot accept this theory. New copper production facilities
require a vast amount of capital. They take from five to ten
years to bring into operation. They are financed on the basis
of long-term projections of price and demand not on short-term
and erratic movements of copper prices on commodity exchanges.
The more violent the fluctuation the greater the uncertainty in
the minds of potential investors.
In fact, during the two years when the producers outside the
United States were attempting to establish a European producer
price many of the projects now coming into production were launched
by the very sellers who had temporarily declared their independence
of the L.M.E. price. Time was not lost in expanding production
because of the two-year effort to establish a European producer
price.
On the contrary, a number of major projects for copper expansion
were delayed in financing and construction during the late '
50s and
329 - 8 -
early '60s because of inability of private management to arrive at
understandings with the governments of the countries involved on
questions such as foreign exchange, security of the investment,
tax concessions and similar relevant considerations.
The shortage of copper which developed in 1964 and 1965 might,
in fact, have been avoided if these delays had not occurred.
Managements of the major copper-producing enterprises readily
recognize that the market is growing at an average rate of between
4 and 5% a year. If they succeed in finding new deposits, they
are quite prepared to make the necessary investment without the
stimulus of short periods of high but erratic prices. But they
do need assurances as to the political climate in which they will
operate.
Moreover, it is interesting to observe that almost simultaneously
with the decision of the copper sellers to revert to the L.M.E.
price in the European market -- for a variety of reasons with
which you are all familiar -- the European producer price for zinc
was brought into existence. This has, over a period of more than
four years, operated with reasonable success. Infrequent changes
have been made in the zinc producer price -- on average less than
two a year. The L.M.E. has continued to operate -- its zinc
prices at times have been higher than those quoted by the producers;
at other times they have been lower. No one can deny that each of
these prices has had an influence on the other -- and properly so.
330 - 9 -
The L.M.E. zinc price during this period has been considerably
less volatile than the L.M.E. copper p:rice partly because there
has been a producer price with which to compare it and partly
because zinc has not been subject to the political pressures and
government interventions which have characterized copper.
Personally I know of no reason why a producer price for
copper cannot exist side by side with the L.M.E. price or the
New York Commodity Exchange price. The so-called two-price
system admittedly causes complications and difficulties. But
this is true of all the economic arrangements by which industry
operates. There is no single foolproof arrangement that meets
all situations and all contingencies. It is a natural human
desire to oversimplify and to assume that a single panacea can
meet the complex requirements of modern society. Frequently we
are told that we must choose between one alternative or another
because there can be only one answer to a problem.
For example, let me cite a current advertising program
carried on by one of the more enterprising tobacco firms in my
country. For years this manufacturer has exhorted the public to
buy his product because "It tastes good like a cigarette should."
Even in the United States, where we are perhaps less sensitive
than you are in this country to grammatical niceties, this flagrant
abuse of the language has drawn considerable criticism. Bending
to the storm, the cigarette manufacturer is now busily engaged
with a program which asks the public "What do you want -- good
grammar or good taste?"
331 - 10 -
The implication here is that a choice has to be made and
it is not possible to have both good grammar and good taste.
I think you will agree both should be quite possible. The same
holds true for the copper market. There can be more than one
pricing system or one method of selling. Despite the criticism
heaped upon the existence of multiple copper prices, in my judgment
they will continue. Hopefully the differences will be less
extreme than they have been at times in the last few years.
I would ask that you gentlemen of the London Metal Exchange
in looking at the U. S. producer price for copper should echo
Voltaire's famous advice and say "We may not agree with what you
are doing but we will defend to the death your right to do it."
oooOooo
332
Suppliers of
other raw
materials find
price-fixing
harder than
it was
for the oil
producers
Ideas and trends
Appendix F
By Simon D. Strauss
Why commodity cartels won't work
&mon 0. Strauss E. executive vce-preadenl
. me
It wasn't supposed to happen that way, but the
high prices set arbitrarily by oil-exporting coun
tries have been undermining both demand for
and prices of other industrial commodities pro
duced by the less-developed countries.
The plan, as visualized by the Third World
countries, was that once oil exporters had estab
lished the pattern, it could be followed by ex
porters of other raw materials. When the U. N.
General Assembly held its special session last
spring, resolutions were adopted embodying the
concept of a new order in which the raw-mate
rials sellers would call the tunes to which the in
dustrial world would dance.
But since that session of the U.N. was ad
journed, the tide has been flowing the other
way. There have been some exceptions, sugar
being one that most housewives will clearly rec
ognize. However, in most commodities-partic-
ularly those that depend for their markets on
the construction and durable goods industries-
demand has dropped precipitously, and prices
have come under heavy pressure.
The changed outlook for industrial commodi
ties stems directly from the recession now un
der way in industrialized countries even while
inflation, caused in part by rising oil prices, is
still endemic throughout Western Europe, the
U. S., and Japan. Industrial activity has fallen,
unemployment has risen, and all these countries
have serious balance-of-payments problems as
they struggle to pay for imported oil. The more
oil costs, the less they can spend on other goods.
The situation is not unlike a giant inter
national poker game, in which the oil exporters
hold the winning cards and are rapidly gather
ing most of the chips. Also playing in this game
are the Third World countries that export other
basic commodities. They want winning cards,
too, and expect to collect plenty of chips. Where
are these chips to come from?
Imitators. Copper provides one good example of
the difficulties faced by exporters of industrial
raw materials other than oil. And these diffi
culties are at least partly caused by the dra
matic increase in the cost of oil.
Four developing countries-Chile, Zambia,
Zaire, and Peru are major exporters of copper.
As early as 1967, they decided to take a leaf
from the OPEC book by forming a copper export
ers' organization-known as CIPEC.
These four countries account for about 37% of
current world production of newly mined copper
outside the collective economies. Four developed
oountries-the U. S., Canada, South Africa, and
Australia-produce slightly more than 40%. All
the rest of the free world (including Western
Europe and Japan) accounts for only about 20%.
The four CIPEC countries are the principal sup
pliers to Western Europe and Japan.
This pattern of highly concentrated supply is
not unlike that for oil, although the U. S., which
imports only 5% to 10% of its copper require
ments, is more nearly self-sufficient in copper
than in oil.
A different problem. After the 1973 Arab oil em
bargo and the subsequent sharp price boost, the
public reaction was to anticipate that similar
developments might occur in other basic com
modities. In two commodity exchanges where
copper is traded-London and New York-buy
ers eagerly absorbed all offerings. The prices in
these open markets had been about 50< a Ib. at
the beginning of 1973. By April, 1974, they
reached $1.50 a Ib. in London.
But there are basic differences between oil
and copper. Oil has shown a pattern of steady
growth as world energy needs have risen at a
rate exceeding population growth. Copper con
sumption rises sharply in periods of prosperity
and dips sharply when business falters. This
sensitivity to the business cycle arises from cop
per's dependence for its markets on durable
consumer goods, construction, and industrial
capital investments.
Once consumed, oil is not recyclable, with the
exception of minor quantities of oil used in lu
brication. Copper's uses, on the other hand, lend
themselves to a high degree of recycling. Scrap
currently accounts for roughly 40% of total U. S.
supply.
The production of copper is more labor-inten
sive than that of oil. Thus, copper-exporting
countries are not so free to restrict supplies by
cutting back production, because to do this to
any significant extent could cause serious unem
ployment and social unrest.
Equally important, the financial position of
the governments of the copper-exporting coun
tries is such that they must produce, export, and
sell copper or face severe fiscal problems. The
oil-exporting countries embarked on their price
escalation from a strong financial position, and
today their financial strength is formidable.
April, 1974, proved the high-water mark for
the copper boom. The direct and indirect effects
of the quadrupling of oil prices by the OPEC
countries resulted in a sharp drop in demand for
copper. The tide began to turn during the sec
ond quarter of 1974. Japan, experiencing severe
economic dislocations caused by rampant infla
tion and the high cost of importing energy
fuels, was the first place where this became evi
dent.
Japanese copper consumption fell sharply,
and Japanese buyers found that they had
bought more copper than was needed. Japan,
normally a net importer of refined copper, sud
denly emerged as a net exporter, with a severe
effect on prices.
In other countries, demand for copper also be
gan to decline in mid-1974. One major influence
in reduced use of copper was the sharp drop in
sales of new automobiles worldwide. If fewer
Peonnted from June 30
333
Technology
has increased
copper reserves
by making it
possible to
use the lower
grade ores
Ideas and trends
Robvl p van Nun
cars are built, less copper is needed for radi
ators, electrical systems, and hardware.
Concerned over the unexpected reversal in
the copper market, the four C1PEC governments
held meetings in Zambia, Peru, and France in
June, October, and November. A fourth meeting
was held in France this April. After the last two
meetings, communiques announced that the
four participating governments had agreed to
reduce shipments first by 10% and then by 15%
from the level of mid-1974.
If the CJPEC authorities expected these moves
to strengthen copper prices, they were doomed
to disappointment. The price fell from 65C a Ib.
just prior to the November meeting to 57C a Ib.
by yearend. The probable surplus of supply over
demand in 1974 is estimated at as much as
400,000 or 500,000 tons of copper.
This year, the price of copper has been 52C to
62? a Ib., only slightly higher than it was at the
end of 1973, while costs of producing copper
have soared. Higher oil prices have played a ma
jor part in this increased cost, but wages, sup
plies, and transportation costs are also up.
It seems clear that copper exporters have
many more obstacles to overcome than oil ex
porters in their attempts to establish market
control-and that they have not done so.
The situation with other minerals and raw
materials is similar to that of copper. On the
whole, events of the last year do not support the
thesis that raw-material-exporting countries
can now unilaterally impose their will on raw-
material-importing countries with respect to all
commodities. The more successful the effort on a
particular commodity basic to the industrial
economy-such as oil-the more that success
may militate against early similar success with
other commodities. By drastically altering the
world balance of trade, oil prices have contrib
uted to a sharp decline in world industrial activ
ity. This decline, in turn, impinges heavily on
demand for other industrial commodities and
thereby causes significant weakening of their
prices.
Inevitable rises. Over the long run, will this situ
ation change? Eventually attrition will cut
down copper supply as mines are forced to dose.
Demand will reflect the general rate of indus
trial activity. Thus, in time, copper prices will
rise to reflect higher costs. No one can overlook
the fact that although known reserves of copper
are large, it is like oil a wasting resource.
Some studies in recent years have suggested
that the world's resources probably cannot sup
port the present rates of economic and popu
lation growth much longer and that as mate
rials become scarce-even without conscious
collusion by materials producers-their prices
are bound to rise in relative terms.
Certainly no one can gainsay that some non-
renewable resources will eventually become
scarce. The question is how scarce and when.
The painstaking study of the materials situ
ation by the Paley Commission in the early
1950s forecast that U. S. domestic mine produc
tion of copper in the mid-1970s was unlikely to
exceed 800,000 tons a year-whereas in fact the
present domestic mine capacity is close to 2-mil-
lion tons annually, and reserves are being
steadily increased-thanks to technology that
permits the mining of lower-grade ores.
Increased attention is being given to the po
tential of mineral deposits under the deep
ocean. Legal and technological problems remain
to be solved, but many knowledgeable experts
believe these problems will be overcome.
In the case of at least two major metals-iron
and aluminum-their abundance in the earth's
crust is so great that it is difficult to envisage a
time within many centuries when they will be
come scarce. And while oil resources are rela
tively limited, coal reserves plus resources of so
lar, thermal, and nuclear energy promise to
provide adequate, although perhaps more costly,
power for generations to come.
Bigger supplies. One other factor frequently
overlooked is that the so-called nonaligned
countries are actually less important sources of
supply of most metals and minerals than the de
veloped countries-if one ranks Australia, Can
ada, South Africa, and Poland as developed
countries together with the U. S. and Russia.
To revert to the example of copper, Poland is
now expanding its copper output to a level com
parable to the scale of the CIPEC countries; Can
ada is a larger producer than either Chile or
Zambia; and Australia and South Africa are
both considerable sources. The U. S. remains by
far the world's premier copper producer.
The developed countries, even though raw-
material exporters, have shown no interest in
joining exporter clubs modeled along OPEC lines.
They have, however, indicated interest in par
ticipating in commodity agreements embracing
both producers and consumers.
The International Tin Agreement, which has
been in existence for about 20 years, represents
the type of arrangement that is more likely to
enlist their support. It includes a buffer-stock
plan and provides for periodic reviews of mini
mum and maximum prices within which the
buffer-stock plan operates. The Tin Agreement
has been able to moderate price swings at
times, but it has not been able to prevent occa
sional sharp fluctuations when the business
cycle abruptly changes course.
On the whole, there appears to be little pros
pect of many successful duplications of the OPEC
example in other commodities. The more likely
prospect is that if prices are to be less subject to
violent fluctuations, what will be needed is col
laboration between producers and consumers-
bilateral effort, not unilateral decree.
334
Appendix G
AMC Proposes New
Stockpile Formula
Simon Strauss, testifying on behalf of the American Mining
Congress, details the extreme fluctuations in stockpile levels of
selected minerals since enactment of the Stockpile Act of 1946
Reprinted from
ihe December 1976 issue of Mining Congress Journal
335
AMC Proposes New
Stockpile Formula
The Joint Congressional Committee on Defense
Production held hearings Nov. 24 to investigate the
sweeping revisions in objectives recently announced
by the administration for items held in the national
strategic stockpile.
The new policy has two parts. First, a new set of
assumptions and a new methodology for calculating
objectives, and second the annual revision of stock
pile objectives to account for changes in the variety
of economic and political factors. A new stockpile
acquisition and disposal plan would be submitted an
nually to Congress for the necessary appropriations.
Testifying on behalf of the American Mining Con
gress was Simon Strauss, executive vice president
of Asarco Inc. and chairman of the AMC Minerals
Availability Committee. Strauss expressed the mining
industry's support for the concept of a strategic
stockpile but pointed out that the constant shift in
objectives has caused the stockpile to be an extreme
ly disruptive influence in the markets for metals and
minerals.
He suggested that, if there is going to be a stock
pile, perhaps objectives should be based on the
actual record of imports of materials instead of as
sumptions. This would insure a gradual, rather than
abrupt, alteration of stockpile objectives, resulting
in reasonable stability and lower cost to the U.S.
taxpayer. He also suggested that if Congress is un
willing to assume this responsibility, perhaps con
sideration should be given to a quasi-governmental
agency similar to the Federal Reserve Board or
Comsat to take over the policy functions. Strauss's
full statement follows:
My name is Simon D. Strauss. I
appear on behalf of the
American Mining Congress, an organization representing
the mining industry of the United States. I serve as chair
man of the Committee on Minerals Availability of the
American Mining Congress. In addition I am executive
vice president of Asarco Inc.. a large producer of metals
and minerals.
I welcome the opportunity to discuss the new goals for
strategic materials recently announced by the Federal
Preparedness Agency. During the years 1941 through
1945. I served as an officer of the Metals Reserve Co.. a
subsidiary of the Reconstruction Finance Corp.. which
handled procurement of metals and minerals for the U.S.
government throughout those difficult years. Following
the end of the second World War. substantial quantities
of materials were transferred to the strategic stockpiles
by the Metals Reserve Co.
Since leaving government service. I have been contin
uously employed by Asarco. Because my responsibilities
are concerned with the company's commercial activities.
I have closely followed development of the stockpile pro
gram.
Stockpile Act passed in 1946
When World War II ended, the U.S. Administration.
the Congress and the public at large all felt that the coun
try's security had been imperiled during the war by pro
spective shortages of critical and strategic materials. To
avoid similar jeopardy in future military emergencies, the
Stockpile Act of 1946 was enacted without serious dis
sent.
This act created the ground rules for acquiring reserves
of all materials deemed essential to the country's secu
rity. They were to be accumulated with public funds and
to be used only to meet a serious national emergency.
The executive departments of the government were to
designate the materials and determine the quantities to be
acquired. Congress appeared ready and willing to appro
priate necessary funds.
Four years later, the Korean War broke out, just as the
economies of the industrialized countries of Western Eu
rope and Japan were being reestablished. A new materi
als crunch developed, further strengthening U.S. belief in
the need for strategic stockpiles of critical materials.
The U.S. nonferrous mining industry did not actively
promote stockpiles. The records of Congressional hear
ings and other governmental proceedings in the late '40s
and early '50s show no evidence of a concerted mining
lobby to create strategic stockpiles. The strongest public
support for the stockpile concept came from the Presi
dent's Material Policy Commission headed by William S.
Paley of the Columbia Broadcasting System. Of his four
associates on the commission, only one was a mining
man. The commission studied materials problems in 1950
and 1951. Its voluminous report strongly endorsed stock
piles for security purposes as in the best interests of the
nation.
Goals set without industry consultations
It should be emphasized that industry has never been
consulted in the establishment of stockpile goals for indi
vidual commodities. Until 1962, stockpile goals were
treated as confidential information. Industry had no way
of ascertaining either the goals or the quantities actually
held by the government. We knew only that the goals
were arrived at on the basis of elaborate calculations by
representatives of a number of government depart
ments including Defense. Interior. State, Treasury and
Commerce. Assumptions were made as to the prospec
tive duration of a military conflict, the degree of security
of certain sources of imported supplies, the likely nature
of the conflict itself, the extent of essential civilian needs
as well as military needs and similar matters.
In the early '60s, President Kennedy concluded that
the stockpile objectives had been set at too high a level.
Many objectives were sharply reduced in 1963 and some
completely eliminated. Extensive hearings were held un
der the chairmanship of Senator Symington as to the op
erations by which the stockpiles had been accumulated.
Legislative proposals were put forward for disposal of
stockpile materials surplus to the new goals and a process
of liquidating the stockpiles began.
Stockpile metals sold during Viet Nam War
During the Viet Nam War. with demand soaring, sub
stantial amounts of metals were sold by the stockpile au
thorities. Arrangements were made to liquidate most of
the aluminum stockpile. Sales of copper were made at the
direction of President Johnson at a time when he felt that
copper producers had unjustifiably increased the domes
tic price from 36? to 38c a pound. At that time, although
the market price outside the United States was in excess
of 50c a pound, domestic producers did roll their prices
back to the 36c level in response to the President's ac
tion.
This particular occurrence confirmed an impression
held in the mining industry that stockpiles might be used
for purposes other than strictly military reasons i.e. to
influence prices.
Ironically, some years later a government investigation
of the copper industry's pricing practices castigated the
copper producers for selling at alleged administered
prices and suggested instead that copper should be sold
on the basis of prices prevailing on commodity ex
changes.
Had this practice been in effect in 1965, when President
Johnson was exercised about the 2p increase in the do
mestic price, consumers would have in fact paid much
higher prices.
Reduced objectives announced in 1973
In early 1973 President Nixon announced another new
approach to stockpile objectives.
He stated that a one-year target would be adequate for
stockpile goals because a military conflict was unlikely to
last longer than one year. In the unlikely event of a longer
interruption, he declared that the country's security
could be protected adequately either by substitution of
other materials or increases in production. Under these
new definitions the stockpile target for many com
modities was reduced to zero.
President Nixon clearly indicated that he hoped to use
.^stockpile
sales as a means of keeping prices down in a pe
riod of rampant inflation. It seemed probable then that an
other, although unstated, reason was the desire to raise
revenue to help balance the budget.
The new Nixon policy disregarded past experience
with respect to substitution of one material for another
under emergency circumstances. In a complex tech
nological society, substitutions can and have occurred
but long lead times are required to permit retooling. As
for expansion of mineral production, this can rarely be ac
complished in less than two years and a normal project is
likely to require at least three to five years for com
pletion.
Congress apparently shared industry's misgivings with
respect to the adequacy of the Nixon program and the
new stockpile surpluses it created. Efforts by the adminis
tration to obtain Congressional approval for disposal of
materials from the stockpile were blocked on a number of
occasions by requests from the legislature for additional
information as to the adequacy of the new stockpile
goals.
The new goals on which you are holding hearings are,
in effect, the outgrowth of these misgivings. The official
statement made in October by the Federal Preparedness
Agency declares that the materials stockpile should be ca
pable of supporting U.S. defense requirements during a
major war. over a three-year period, assuming large scale
industry mobilization and providing for a broad range of
basic civilian economic needs.
Industry supports strategic stockpile concept
The mining industry strongly supports the concept of a
strategic stockpile. However, the constant shift in stock
pile goals has caused the stockpile to be an extremely dis
ruptive influence in the markets for metals and minerals.
To cite an example, during the 1950's the stockpile ac
quired 1.900.000 tons of aluminum. This large purchase
program caused expansion in the capacity of the alumi
num industry over and above what was necessary to
meet normal market requirements.
In 1963 the aluminum stockpile goal was sharply re
duced and in 1972 it was completely eliminated. All the
aluminum in the stockpile has been resold principally
through the companies that had originally supplied metal
to the government. This obligation to buy back metal
tended to inhibit normal expansion of aluminum capacity
during the '60s and early '70s just as expansion in the '50s
had been overstimulating. Thus, the government's com
plete about-face in regard to stockpile requirements for
aluminum played a significant role in the unsatisfactory
price/cost relationships that have prevented the alumi
num industry from earning a fair return on invested capi
tal during much of the last 25 years.
New goals look illogical
In the light of this past experience with shifting targets,
the mining industr> approached the new goals with con
siderable skepticism. When the new figures are examined,
some of them seem illogical.
The mining industry does not pretend to forecast or
make assumptions about duration of military conflicts.
We only know that the three most recent major military
operations in which this country has been involved have 337
all been longer than three years that is to say, the sec
ond World War, the Korean War and the Viet Nam War.
Various assumptions have been made as to direct milita
ry requirements, indirect military requirements and es
sential civilian needs. In our judgment, these are simply
assumptions. The complex interrelationships that exist in
an industrialized economy such as that of the United
States do not readily fall into such distinct watertight
compartments. A material which is not used in munitions
or armaments may. nevertheless, be absolutely essential
to the prosecution of a military effort.
I have said that the new stockpile goals appear to be
illogical. Let me illustrate this rather strong statement by
examining the new goals for two major metals copper
and tin.
The previous stockpile goal for copper under the Nix
on directive of 1973 was set at zero. The new objective is
1,299,000 tons.
Of all major metals, the United States is most nearly
self-sufficient with respect to domestic supplies of cop
per. This is in contrast with the position in steel, alumi
num, lead, zinc, nickel and tin. In the five years, 1971 to
1975 inclusive, net imports of copper averaged 209.000
short tons a year this represents about 10 percent of the
annual consumption of primary refined copper in this
country. The new stockpile objective is. therefore,
equivalent to average net imports in 1971-1975 of prima
ry copper for 6-1/2 years. There has been a sharp increas*
in imports in 1976, largely the result of heavy shipment:
from Zambia a country that has not previously been ;
significant supplier to this market. The increase this year
however, should not be regarded as representing greate:
U.S. dependence on imports but rather as a consequent
of Zambian desire for funds at a time when its normal Eu
ropean outlets are depressed.
Tin needs met through imports
In the case of tin, the United States has virtually no do
mestic sources of supply. It must import all of its need
for primary tin and these imports come largely from over
seas developing nations. Under the previous one-yea
program, the stockpile objective for tin had been set a
40.500 long tons. Under the new program for a three-yea
period the stockpile objective is reduced to 32.499 tons
During the five years 1971-1975. net imports of primar
tin averaged 46.700 tons per year. Imports would havi
been even greater had there not been heavy stockpili
sales during this period. Therefore the new objective i
equivalent to about an eight-month coverage of U.S. im
port requirements for a metal which this country does no
itself produce.
The copper industry is currently experiencing de
Stockpile Objectives for Selected Minerals over th
pressed prices. Large stocks of copper have been accu
mulated in the warehouses of the London Metal Ex
change and the New York Commodity Exchange. A gov
ernment purchasing program which would absorb these
stocks would be extremely helpful to copper producers at
this time.
Still, one must wonder how the national interest can be
served by accumulating a reserve equivalent to 6-1/2
years of imports of a metal in which this country is 90
percent self-sufficient while holding a reserve equivalent
to only eight months' supply of a metal for which this
country is totally dependent on imports from overseas
sources.
The argument might be made that tin is not an impor
tant factor in the military effort. The largest single use of
tin is in the production of tinplate and the largest use of
tinplate is for the packaging of food. Substitute materials.
such as aluminum, glass and plastics, can be used as food
containers under certain circumstances but neither the
container nor the food processing industry could accom
plish such substitution in a short period of time.
There is a serious risk that a shortage of tinplate could
cause enormous dislocations in the distribution of food
supplies during a military conflict. One must assume that
feeding not only the military forces but the general popu
lation is an essential part of any war effort. The neu goal
for tin seems clearly inadequate.
Silver objective eliminated
I have discussed copper and tin in some detail. One
could raise similar questions with regard to the new objec
tives for other materials for example, the complete elim
ination of a stockpile objective for silver, a metal which
has high technology applications in the photographic and
electrical industries and which during World War II was
used in enormous quantities. The U.S. imports well over
half of its silver requirements currently. It is true that
there are large stocks of silver in this country but these
stocks are privately held. Under wartime conditions, if
the government is prepared to expropriate private hold
ings of silver at predetermined prices, a procedure which
would hardly be compatible with democratic principles,
the likelihood is that prices for silver would rise very
sharply.
This brings up one of the most troublesome aspects of
the constant shifting in stockpile objectives namely,
that by liquidating holdings in the past at low prices, the
government is now faced under the new program with the
cost of replacing metal at far higher prices.
Copper objective changed 1 1 times since 1944
Submitted with this statement is a tabulation of
changes in the objectives for many of the important met
als and minerals over the life of the stockpiling program.
For example, in the case of copper, the original objec
tive of 1,250,000 tons set on Nov. 20, 1944. has been
changed no less than ) 1 times. Now the goal is back to
1,299,000 tons. At one time the stockpile held something
in excess of 1.100,000 tons all of which has been sold
during the '60s and early '70s.
In the case of tin, the original objective was 210.000
tons and it has been changed 13 times and is now 32.499
tons.
Comparable fluctuations have occurred with respect to
the other major metals and minerals. I will not recount
them now but I would particularly suggest that the com
mittee direct its attention to the changes in objectives for
metallurgical chrome, platinum and palladium. The major
sources of these three highly important industrial materi
als are in southern Africa and the Union of Soviet Social
ist Republics. It seems almost redundant to point out the
possibility of large-scale civil war in southern Africa
would cut off access to supplies of these three elements
from that continent, leaving the United States largely de
pendent on the Soviet Union for its feed stocks of these
essential raw materials.
Targets based on import record suggested
The mining industry would like to submit a suggestion
to the Congress for its consideration with respect to
stockpile objectives. The experience of the last 30 years
indicates that placing this responsibility within the execu
tive department has resulted in frequent shifts of objec
tives based on considerations other than the country's
security. If the Congress believes that there is value in
having a reserve of materials to insure the nation's contin
ued defense capability in times of emergency, perhaps it
should consider a formula that would not be based on as
sumptions but rather on actual experience. The figures on
foreign trade compiled by the Bureau of theVensus
clearly show the extent of U.S. dependence on imports of
strategic materials. Although some parts of the public
may believe that certain minerals and metals are primari
ly used for military purposes and others are primariK
used for peacetime purposes, actual experience shows
that the major materials are equally vital to the nation
whether in war or in peace.
Why not then set the targets based on the actual record
of imports of these materials? If the objective is protec
tion against a three-year emergency, a stockpile objective
equivalent to three years' imports would not be unreason
able.
As time goes on conditions do change. Domestic
339 sources of supply may be developed in which case U.S.
imports will diminish. If domestic sources become deplet
ed or marginal. U.S. imports will expand. By a periodic
review of the import record, stockpile objectives would
gradually be altered but they would not change from a
minimum of zero to a maximum of 3.500.000 tons as has
been the case with the copper stockpile goals.
Reasonable stability in stockpile objectives will mean a
lower cost to the U.S. taxpayer than has been the case
with the frenetic activity in buying and selling materials
which has been observed in the last 30 years. It will also
mean that the stockpile will not interfere with the normal
operations of the market in the unfortunate way that has
been the case in recent vears.
Every transaction affects market
The present stockpile law instructs the administration
to minimize market disruption in its programs of purchas
ing and selling strategic materials. The General Services
Administration has certainly made every effort to mini
mize such disruptions. Nevertheless, the fact remains
that every transaction affects the market every pur
chase adds to the demand; every sale adds to the supply.
Of course, there have been some cases where the stock
pile has been deliberately used to affect markets as in
the cases of aluminum and copper already cited.
When the stockpile program was initiated, the mining
industry expressed concern that the stockpiles might
prove to be a "Sword of Damocles" hanging over its
head. Unfortunately, events have proved these fears
were justified.
We ask you now in considering the new stockpile ob
jectives submitted to you by the administration to give se
rious study to a drastic change in the method of establish
ing stockpile goals. We urge the Congress to give thought
to enacting legislation directing the administration to a
stockpile program in which the goals will be directly re
lated to the degree of U.S. import dependence as shown
by facts not assumptions. And perhaps, if Congress it
self is unwilling to assume the direct responsibility for
enunciating the principles on which stockpile targets will
be set. consideration should be given to a quasi-govern
mental agency similar to the Federal Reserve Board or
Comsat to take over the policy functions. The mining in
dustry feels strongly that 30 years of constant shifting of
stockpile goals indicates the need for a new approach, di
vorced as far as possible from short-term political or fi
nancial considerations.
340
Following Strauss' testimony. Sen. Proxmire
asked Strauss if he would agree to representation of
all viewpoints on the quasi-public corporation he
had suggested to run the stockpile. Strauss replied
affirmatively, but Sen. Proxmire expressed concern
that this might not be realistic since we would be
getting into the situation of managing the economy.
Strauss reiterated his view that industry should be
consulted on some aspects of stockpile policy apart
from defense considerations.
Asked how the new objectives would affect the
mining industry. Strauss replied that it would put
pressure on price and that this would be in an upward
direction. The new goals will affect the markets, he
said. Strauss was questioned as to why an import
figure would be a good indicator for stockpile ob
jectives since uses of various materials would prob
ably rise in a wartime situation. Strauss pointed out
that he felt it was a valid indicator since, in his experi
ence, uses for various minerals had changed but the
volume remained fairly constant between a wartime
and peacetime economy.
Sen. Proxmire asked if the mining industry h.id
received benefits from the stockpile program, to
w hich Strauss replied that the only instance he could
recall where it had benefitted the industry was in the
mid-1950's when the federal government purchased
lead and zinc from what was then a struggling indus
try. The biggest effect, he said, has been from dis
posals in the 1960'sand 1970' s whereby the stockpile
was used to keep down prices of minerals. "We
don't want 'benefits' if a new set of definitions makes
stockpile materials surplus." Most in the mining
industry would prefer no stockpile, said Strauss, but
national security considerations make it
imperative
that it be maintained.
In closing the hearings, the Senator stated that he
felt there was reason for concern over the newly
established stockpile policy. He recounted "horror"
stories from the past program and stated there
was always the possibility of corruption in stockpile
dealings. He expressed concern with the lack of
information available from the General Services Ad
ministration and the lack of challenge of the creden
tials of those who had determined the new objectives.
341
Appendix H
Presented before the Annual Meeting of the
American Institute of Mining, Metallurgical and
Petroleum Engineers, Atlanta, Georgia
March 9, 1977
Competition in the Non-Ferrous Metal Markets
by
Simon D. Strauss, ASARCO Incorporated
ABSTRACT
Because of the huge investments now neces
sary to create an integrated enterprise in the
non-ferrous metals industry, there is a wide
spread impression that competition in non-fer
rous metals is being increasingly restricted.
This paper examines the history of the five
major non-ferrous metals in the period 1970 to
1975. The study shows that for each of these
five metals aluminum, copper, zinc, lead and
nickel there is today a larger number of
significant producers and the geographic spread
of sources of these metals has been substan
tially increased.
This paper concludes with the concept that
metal prices will continue to be determined by
the forces of supply and demand but that because
of inflation in the cost of bringing in new
projects, prices will tend to rise as demand in
creases. Thus the possibility looms that there
will be a lag in expanding capacity with the
consequence that periodic shortages can be ex
pected in times of high economic activity. To
repeat, shortages will be due to bottlenecks
in capacity not to shortage of known re
serves. For each of these five metals there
are known deposits, as yet unexploited, with
reserves adequate to meet probable expansion
in demand over the balance of the century.
Government officials, professional econo
mists and the public at large in recent years
have visualized the non-ferrous metal markets as
economic areas in which competition is dominated
by a few large monolithic sellers. Government
officials -- particularly those charged with the
enforcement of the laws regarding competition
sniff the air at frequent intervals for scent
of monopoly. Professional economists refer to
the non-ferrous metal markets as oligopolistic,
a word with dark semantic overtones of unde
sirable dominance. And the public is admonished
by consumer advocates that they are being ex
ploited unfairly by a few huge greedy corpora
tions that manipulate prices in their own
Interest.
How accurate is this view? Is it true that
the number of sellers is diminishing as the large
producers force the small ones out of the market?
To answer these questions the record of the last
twenty -five years has been examined. By for
tunate coincidence a monumental study of the re
source Industries of the United States was pub
lished in 1951 -- the report of the President's
Materials Policy Commission, the so-called
Paley Report. It took a forward look at the
quarter-century from 1950 to 1975, analyzed each
of the leading resource industries, and made
158 COMPETITION IN THE NON-FERROUS METAL MARKETS
BOOK forecasts as to the production and cons\jnp-
tlon of each of the principal materials.
This paper will deal with the five non-fer
rous metals that rank highest in tonnage and
value --
aluminum, copper, zinc, lead and nickel.
Before examining these commodities indi
vidually, some general observations appear to be
in order. The non-ferrous metals are highly
capital-intensive industries. Under today's
conditions, to be an integrated producer of any
one of them requires an Investment of hundreds
of millions of dollars.
Those who like to remember the good old days
will bark back to the period a hundred years or
so ago when the great wide open spaces of the
West were being explored and populated by the
white man, when the rich bonanza discoveries of
California, Arizona, Montana, Idaho, Colorado
and Nevada brought overnight wealth to the
skilled or lucky prospector. Minee were opened
from the grassroots then and the number of Indi
vidual operations was very large. Why can't It
be like that now?
For the obvious reason that the surface of
this country -- and of most others for that mat
ter has been scoured by professionals. The
chances of finding a rich surface outcrop are
minimal. This is not to say that new finds are
not being made on the contrary in the de
tailed references to the individual metals,
numerous examples will be cited of major finds.
But these discoveries are of deposits that for
the most part are hidden from the naked eye.
They have been made as a result of tenacious
geological deductions -- and at great expense.
The lone prospector with burro and pick-axe Is
unlikely to spot them, although the rare excep
tion does occur. Today exploration is a team
effort using the tools of modern man costly
tools.
Moreover most of the new discoveries are
large tonnage and low-grade -- not small tonnage
and high grade as was the case In the last half
of the nineteenth century. It is worth noting,
furthermore, that a single large mine a
Chuquicamata, Bingham Canyon, or Tlmoins will
alone produce as much copper or zinc In a single
year as the whole world produced in a single year
during the eighties and nineties of the last
century.
There still are small mines. Some of them
will grow into big mines. Others will remain
small. If conditions are sufficiently favorable
In terms of ore grade, ease of extraction, and
proximity to processing capacity, small mines may
remain active and profitable producers of metal
contained in concentrates for scores of years.
But the bulk of the world's requirements of
non-ferrous metals must come from the big-ton
nage, low-grade, capital intensive operations.
That phrase "capital -Intensive" has been re
peated advisedly -- because in today's market
It is this characteristic of the industry that
must be accepted by any one who makes a serious
study of Its market structure. If metal* are
to be made available to mankind at minimum cost,
huge amounts of capital must be marshalled to
bring the metal content of low-grade deposits
to the marketplace.
Given this enormous requirement for Invest
ment, it would not be surprising if the number
of major producers of metals had tended to
diminish in the last quarter century. Yet, as
will be shown, precisely the opposite has hap
pened. There are more active sellers of each
of these five metals today than there were 25
years ago. More countries are today signifi
cant sources of these metals than was the case
when the Paley study was made. The competition
within the market for each of these metals Is
keener as a consequence. And, In addition and
not to be overlooked, the competition In the
marketplace for applications among the metals
has greatly intensified.
Throughout this study the data for produc
tion are stated In short tons. The figures for
world output do not include Russia, China, North
Korea, or the Communist countries of Eastern
Europe. The one exception is Yugoslavia which
has published data throughout this 25 -year
period. While "guesstimates" have been pub-
liahed for the other countries and Poland IE
now reporting statistics on a regular basis,
on the whole it seemed advisable to exclude
these "centrally planned economies" from the
totals, except for Yugoslavia. That country
Is engaged in extensive trade In metals with
Western Europe and the United States. To in
clude it in a study of the changes that have
occurred therefor* appears appropriate.
It is time now to take a look at the Indi
vidual commodities. In doing so the comparison
is between the year 1950, which is the year when
the Paley Commission Study was started, and
either the year 1973 or 197^. The Paley projec
tions were for the quarter century to 1975, but
1975 was a year of recession and restriction in
production for all metals. The peak production
for all five of these metals was reached either
in 1973 or 197!* and, therefore, It seems appro
priate to indicate the changes that have
occurred between the year 1950 and the best year
thus far in this decade.
Aluminum is the metal with the largest vol
ume of production In the non-ferrous industry.
In the year 1950 the world production of alumi
num was approximately 1,350,000 tons. Of this,
719,000 tons was produced in the United States
AIME 77-18
34 3
SIMON D. STRAUSS 159
and 397,000 tons in Canada. Thus these two
countries accounted for approximately 00% of
the world supply.
Only two other countries outside the "cen
trally planned economies" produced as much as
50,000 tons of aluminum in 1950 France with
67,000 tons and Norway with 52,000 tons.
Three companies --
Alcoa, Reynolds and
Kaiser accounted for the entire U. S. pro
duction with about half of the total being pro
duced by Alcoa. The two other companies were
each responsible for about one -quarter of the
U. S. output. The entire Canadian production
came from a single producer Alcan. In 1950
the U. S. imported 176,000 tons of aluminum and
exported less than 1,000 tons. The bulk of the
imports came from Canada. Thus it is a fair
conclusion that the U. S. market in primary
aluminum in 1950 was dominated by four sellers.
Before World War II there had been only two
major sellers -- Alcoa and Alcan although
some metal of European origin was imported into
this country.
The peak production of aluminum in this
decade was in 197^ when the U. S. produced
4,903000 tons. World output outside the
"centrally planned economies
"
amounted to
12,167,000 tons. You will note that the U. S.
production had expanded almost seven-fold but
its share of the world total had slipped from
well over half to about
Outside the United States the largest pro
ducer of aluminum was Japan with an output of
1,239,000 tons while Canada produced 1,110,000
tons.
Thirteen countries in Western Europe each
produced over 100,000 tons of metal Germany
with 759,000 tons and Norway with 731,000 tons
being the leaders. In addition to Western
Europe and Japan, there were significant pro
ducers of aluminum in Australia, India, Ghana,
New Zealand and Bahrain each of which had an
output of over 120,000 tons of aluminum. Thus
each of these countries had production in 197^
roughly equivalent to 10% of what the whole
world had produced in 1950. Within the United
States where three companies had produced alumi
num in 1950, twelve companies were producing
aluminum in 1974. These twelve companies opera
ted a total of 32 plants.
Alcoa was still the largest single producer
of aluminum in the United States in 1974, but
its share of the market had fallen to somewhat
less than one-third. On a capacity basis,
Reynolds had 19% and Kaiser lk%. More than one-
third of the capacity in the United States was
in the bands of the nine new companies in the
field Alumax, Anaconda, Conalco, Howmet,
Martin Marietta, National Southwire, Noranda,
Ormet and Revere. There were two producers in
Canada, 29 separate corporate producers in
Europe and five producers in Japan.
The U. S. imported 508,000 tons of aluminum
in 1974 but it exported 208,000 tons. The
foreign producers competed with the 12 domestic
producers in the U. S. market and the U. S. pro
ducers had a significant outlet for a share of
their production outside this country.
If one looks beyond aluminum at bauxite,
the industry's basic raw material, a similar
proliferation of sources has developed.
In 1950 bauxite requirements of the
Canadian and U. S. aluminum industries were met
from three sources the United States itself,
British Guiana, now called Guyana, and Surinam.
Europe's requirements were met primarily from
France and Hungary and the only substantial
producer in Africa and Asia was Indonesia.
Neither Jamaica nor Australia produced bauxite
in 1950.
In 1974, of a world production outside the
Communist sphere of 78,000,000 tons, Australia
accounted for 22,000,000 tons and Jamaica for
16,800,000 tons. Thus these two countries,
which had not produced in 1950, accounted for
half the 1.97k world's supply outside the Com
munist Bloc. U. S. production was approximately
the same in 1974 as in 1950 but because of the
enormous expansion in its metal production U. S.
dependence on imports had increased dramatical
ly. Jamaica was the largest single source for
this country in 1974 but there were a number
of other major sources. Guyana and Surinam
continued to be significant producers yet both
of them had been outstripped by a new African
source the Republic of Guinea. Greece,
which in 1950 had only a very limited production,
now rivals France as the largest source on the
European continent. The Dominican Republic,
India and Malaysia are other substantial pro
ducers. Brazil is expected shortly to be in
the first rank among world bauxite sources.
Because of metallurgical problems not all
bauxite is freely Interchangeable. Neverthe
less, few industries have undergone such a
major change with respect to the geographical
source of significant productions as has the
bauxite industry.
The copper industry in 1950 was highly
concentrated. Seven companies operating in six
different countries were major miners of copper
in the Free World. These seven companies were
Anaconda, operating in the United States, Mexico
and Chile; Kennecott, operating in the United
States and Chile; Phelps Dodge, operating in the
United States alone; Rhodesian Selection Trust,
operating in what was then known as Northern
Rhodesia; Rhodes ian Anglo-American, also
160 COMPETITION IN THE NON-FERROUS METAL MARKETS AIME 77-18
operating In Northern Rhodesia; Union Miniere,
operating in what was then known as the Belgian
Congo; and International Nickel, operating in
Canada. The seven companies had an aggregate
production of 1,710, COO tons in 1950, roughly
of the vorld production of 2,535,000 tons.
Within th United States the three major
companies Kennecott, Phelps Dodge and Ana
conda -- produced 713,000 tons or J&f> of the
country's total mine output of 915,000 tons.
The copper industry's 197^ figures are not
representative because a strike occurred in the
United States during the third-quarter and
business activity declined sharply in the
second -half of that year. Therefore, 1973 is
a more significant year to compare with 1950.
Free World mine production of copper in 1973
had risen to 6,664,000 tons of which 1,718,000
tons was mined in the United States. The in
crease in world production was 161$ while the
increase in U. S. production was 88$. As pro
duction rose, the number of organizations in
volved in mine production increased signifi
cantly .
The Anaconda and Kennecott properties in
Chile were taken over by the Chilean government
in two stages partially under President Frei
and then completely under President Allende.
The 1973 mine production was in the hands of the
government -owned Corporacion del Cobre, which
thereby became the world's largest single pro
ducer and seller of copper. In addition to
the Anaconda and Kennecott mines it also ac
quired the Andina mine developed by Cerro Corpo
ration in the late '60s.
The independent government of Zambia now
rules in the former British colony of Northern
Rhodesia. A majority ownership in both large
mining enterprises in Zambia was held in 1973
by the Zambian government under the corporate
titles of Roan Consolidated and Nchanga Consoli
dated.
The independent Republic of Zaire has suc
ceeded the Belgian Congo and the Union Miniere
mines there have been taken over by a Zairean
company, Gecamines .
International Nickel continued to produce
copper in Canada but whereas its 1950 production
accounted for about k&j> of the national total,
in 1973 INCO's output of 173,000 tons was less
than 20$ of the Canadian production of 908,000
tons. No other single operation in Canada pro
duced as much as 100,000 tons in 1973 but the
aggregate output of the Noranda group, including
Gaspe, GECO, Noranda itself and a number of
operations in British Columbia in the aggregate
accounted for a very substantial tonnage.
Hudson Bay was a large producer in Canada both
in 1950 and 1973. Canadian companies that pro
duced no copper in 1950, but that had very sub
stantial productions in 1973, included Bethlehem
Copper, Craigmont, Texas gulf, Falconbridge
Copper, Gibraltar, Lornex and Utah Mines Ltd.
In the United States the three major pro
ducers who had mined 701,300 tons in 1950 had
an aggregate 1973 output of 992,000 tons.
But there were six other companies that had
become substantial miners. Magma Copper, which
operated a small mine in Arizona in 1950, had
developed into a major source. Its mine output
in 1973 was 168,000 tons. The Duval Company,
which mined no copper in 1950, produced over
130,000 tons in 1973 from four mines. Asarco,
which operated no U. S. copper mines in 1950,
had a 1973 mine output of 75,000 tons from four
mines. Cyprus at Pima had an output of 88,000
tons and the company had also absorbed the
Bagdad production which accounted for an
additional 19,000 tons. White Pine Copper,
which began production in the mid -'50s, had a
1973 output of 78,000 tons.
In 1950 there were only two large integra
ted U. S. copper producers with mines, smelters
and refineries. These two were Anaconda and
Phelps Dodge. By 1973 Kennecott had become an
integrated producer through the construction or
purchase of smelters and refineries. Asarco had
integrated backward through the development of
copper mines. Inspiration had become an inte
grated producer by purchasing a smelter and
building a refinery. Magma had become an
integrated producer by building a second smelter
and later building a refinery. The White Pine
operation in Michigan was compJetely integrated
from mining through refined production.
Three major miners of copper, which did not
operate smelting or refining facilities, never
theless played a significant competitive role
in the market in 1973 because their output was
processed for them on toll. These three com
panies were Cyprus, Duval and Cities Service.
Finally AMAX (Formerly American Metal) had pur
chased a half interest in the Anamax mine,
which produced 64,000 tons in 1973. AMAX con
tinued to operate a refinery but had no smelter.
This rather lengthy enumeration makes clear
that the seven companies, which dominated the
world copper scene in 1950 with two-thirds of
the Free World total mine supply, have had their
position radically altered by political, techno
logical and economic developments in the six
countries in which they had operated.
In addition, however, world mine production
of copper in 1973 included substantial output
from countries that were not major sources in
1950. These countries include Peru, the
Philippines, the Republic of South Africa,
Australia, Papua-New Guinea and Indonesia.
AIME 77-18 SIMON D. STRAUSS 161
From a corporate standpoint these new sources
are not controlled by any of the seven companies
which dominated the industry in 1950.
Peruvian mine production of copper in 1973
was 241, 000 tons and will rise sharply in the
future. More than half the Peruvian production
in 1973 came from the Toquepala mine of Southern
Peru Copper, in which Asarco is the largest
shareholder but in which Cerro -Manaon, Phelps
Dodge and Newmont also hold interests. The
Peruvian Government through Centromin now oper
ates the former Cerro properties which in 1950
accounted for the bulk of Peru's reported pro
duction of 33,000 tons.
The Philippines had a mine production of
244,000 tons of copper in 1973 derived from
some 11 or 12 operations, the largest of which
was Atlas Consolidated with an output of 91,000
tons. In 1950 the Philippine production was
only 11,000 tons.
The Republic of South Africa produced
19^,000 tons in 1973 compared with only 37,000
tons in 1950. The largest South African pro
duction is from the Palabora mine which yielded
106,000 tons in 1973. Palabora is controlled
by Rio Tinto Zinc; Newmont Mining is a minority
shareholder. O'okiep, controlled by Newmont,
the second largest South African producer in
19T3 was the principal source of the country's
copper production in 1950. Palabora had not
been developed in 1950.
Australia produced 232,000 tons of copper
in 1973 compared with only 19,000 tons in 1950.
M.I.M. Holdings, in vhich Asarco has a >-9%
interest, accounted for 144,000 tons in 1973.
It had no production of copper in 1950.
Papua -New Guinea produced 201,500 tons of
copper in 1973 and none in 1950. The entire
production of this country comes from the
Bougainville mine, controlled by Rio Tinto Zinc
through its Australian affiliate, CRA.
Indonesia had no production of copper in
1950. In 1973 it had an output of 42,000 tons
from the Ertzberg mine. This production has
expanded further since then.
Still further geographical diversification
of copper mine production is in prospect. The
Iranian Government is bringing a very large
mine, Sar Chesmeh, into operation this year.
Mexican production, which was 89,000 tons in
1973 compared with 65,000 tons in 1950, will be
substantially increased when the Caridad mine
of Mexicana de Cobre is brought into production
in the course of the next two or three years.
A major copper deposit has been identified in
Panama, where the Panamanian Government in
conjunction with Texasgulf is now undertaking
a feasibility study.
This detailed enumeration shows that whereae
In 1950 world copper supplies were dominated by
seven companies there are today well over 20
companies and/or governments which play a sig
nificant role in the world primary copper supply
and the number is increasing.
In 1950 mine production of zinc outside the
"centrally planned economies" was 1,993,000 tons
of which 623,000 tons or 32$ was mined in the
United States. In 1973 mine production outside
the "centrally planned economies" was 4, 788, 000
tons an increase of 1kO% but in the United
States 1973 mine output was only 479,000 tons
-- a decline of 23$.
The big increase in world mine production
during this 23 -year span was in Canada. In 1950
Canada had mined 313,000 tons of zinc, most of
which had come from four mines the Sullivan
mine of Consolidated Mining & Smelting (now
Cominco); the Flin Flon mine of Hudson Bay
Mining & Smelting; the Buchans mine operated by
American Smelting and Refining (now ASARCO); and
the Waite Amulet mine, controlled by Noranda.
There were, in 1950, a large number of smaller
operations which exported their concentrates
to Europe or the United States .
In 1973 Canadian mine production of zinc
had risen to 1,352,000 tons. The Sullivan, Flin
Flon and Buchans mines were still producing
although Buchans output had dropped considerably
The Waite Amulet mine had closed down. In its
place there were a host of new producers. The
Timmins mine of Texasgulf had been established
as the largest single zinc mine operation in the
world. Other major new producers were the
Brunswick mine, controlled by Noranda; the GECO
mine owned outright by Noranda; Mattagami Lake,
a Noranda affiliate; Cyprus Anvil Mining, con
trolled by Cyprus Mines; Pine Point, a Cominco
affiliate; and the Heath Steele mine, owned by
AMAX and International Nickel. In 1950 two
companies operated zinc refineries in Canada --
Cominco and Hudson Bay. By 1973 two new pro
ducers of slab had been added -- Valleyfield of
the Noranda group and Texasgulf.
The other countries that were substantial
miners of zinc in 1950 were Mexico with 207,000
tons; Australia with 186,000 tons; Peru with
97,000 tons; the Belgian Congo with 82,000 tons;
Italy with 78,000 tons; and Western Germany with
76,000 tons. All these countries had larger
outputs in 1973 -~ production had more than
quadrupled in Peru to 456,000 tons and had more
than doubled in Australia to 488,000 tons.
Peruvian production includes one large group of
mines, formerly operated by Cerro de Pasco
and now in the hands of Centromin, a government
agency, and a large number of smaller operations
predominantly in private hands, though marketing
is handled through a government organization,
Minpeco.
102
COMPETITION IN THE NON-FERROUS METAL MARKETS AIMS 77-16
Australian production has increased largely
through expansion of existing mines -- notably
at Mount Isa and Broken Hill. Whereas in 1950
only one company, Electrolytic Zinc, produced
slab zinc, In 1973 there vere two additional zinc
refiners Broken Hill Associated Smelters and
Sulphide Corporation.
A similar development occurred in Mexico.
The Rosita plant of American Smelting -was the
only Mexican slab zinc producer in 1950; in 1973
this plant was operated by Asarco Mexicana (now
Industrial Minera Mexico), controlled by private
Mexican investors. In addition in 1973 there
were two new Mexican producers of slab Penoles
and Zinc Industrial.
Just as Canada led the world in expanding
zinc mine production, so Japan led the world in
expansion of zinc smelter production. In 1950
Japan had produced 57,000 tons of zinc from its
mines and 5^,000 tons from its smelters and
refineries. In 1973 Japanese mine production
had risen to 291,000 tons and its slab output to
929,000 tons, making it the non-Communist world's
leader in terms of metal recovered.
Two companies
-- Mitsui and Mitsubishi --
operated three small electrolytic zinc plants
and two horizontal retort smelters in 1950. In
1973 there were eight electrolytic plants opra-
ted by six compojiies and four retort plants
operated by four companies.
Expansion of zinc mine production includes
a number of countries that were relatively small
miners in 1950 but are nov major sources
Sweden, Spain, Zambia (formerly Northern Rhodesia
and Southwest Africa. In addition countries
that were not listed as zinc miners in 1950 but
that now produce substantial quantities include
Ireland, Greenland, the Republic of South Africa,
Finland and Korea. Iran and Thailand are two
Asian countries that are expected to become majo:
suppliers. Brazil is taking steps that it ex
pects will lead to a greatly increased role in
the zinc industry.
In the face of all this, zinc producers in
the United States have lost ground. In 1950
Anaconda was a major miner and the largest slab
producer of zinc; today Its role in the industry
is limited to 60$ control of a small lead -zinc
mining operation in Utah. In 1950 the famous
Tri-State district of Oklahoma -Kansas -Missouri
was the country's second largest source of ore
and the largest miner there, Eagle-Picher, ranke
third among the country's zinc producers. Eagle
Picher also operated a retort smelter. Now the
smelter is shut rtown and so are the mines. U. S
Smelting operated a large mine in Utah -- now
closed. In 1950 American Zinc had mines in the
Tri-State district, Tennessee, Washington and
Wisconsin and two operating smelters. One of
these plants is closed and the other has been
acquired by AMAX, while the mines in Tennessee
ere now owned by Asarco. Mattiessen & Hegeler,
Athletic Mining & Smelting, and U. S. Steel
all of which operated zinc smelters in 1950 are
now out of the zinc business.
In place of fourteen plants producing slab
in the United States in 1950, today there are
only six with prospects that one or two new
plants nay be built. No horizontal retort
smelters remain in operation. There are four
electrolytic zinc plants, one electro -thermic,
and one vertical retort smelter in the reduced
roster of U. S. slab producers.
But although the list of domestic sellers
of primary zinc has been drastically reduced,
the competitive situation has certainly not
lessened. In 1950 the United States imported
156,000 tons of slab and exported 13,000 tons.
In 1973 it imported 589,000 tons of slab and
exported 15,000 tons. To bring the story up
to date, last year, 1976, imports rose to over
700,000 tons, exports were only 3,000 tons; and
domestic slab output was but 53^,000 tons.
From 85^t self-sufficiency in slab supply in 1950
the United States has dropped to kO% self-
sufficiency in 1976.
Because lead and zinc are so frequently
mined together, there is a tendency to think of
these two metals as if they were Siamese twins,
whose fate is indissolubly linked the one to
the other. Yet over the span of the last
quarter century, the experience of the two in
dustries in the United States has been striking
ly dissimilar.
In 1950 world mine production of lead out
side the "centrally planned economies" was
1,63!*, 000 tons of which 1*31,000 tons or 26^,
was mined in the United States. In 1971* mine
production outside the "centrally planned
economies" was 2,707,000 tons -- an increase of
66%. In the United States mine production was
66^,000 tons --an increase of 5^- Thus wherea
U. S. mine production of zinc declined during
this quarter century while mine production else
where was rising strongly, U. S. mine production
of lead almost kept pace with the expansion of
output elsewhere.
The divergence can be explained by the de
cline in zinc production in the Rocky Mountain
and Tri-State areas, where the lead content of
ores was relatively low, and by the successful
development of major new lead-rich deposits in
central Missouri, where the by-product zinc
content Is much lower than the lead content.
Six sizable mines have been brought into pro
duction in the central Missouri belt -- three
by St. Joe Minerals, long the largest lead miner
in the country. The three others include two
joint ventures, one between AMAX and Homestake
and the other between Cominco and Dresser
AIME 77-18
347
SIMON D. STRAUSS
163
Industries. A third mine belongs to Kennecott,
acting on Its own. Thus five strong companies
vbicb had not previously been involved substan
tially In domestic lead mines are now major pro
ducers in central Missouri.
U. S. production of primary refined lead is
currently in the hands of five companies --St.
Joe, Bunker Hill, ASARCO and the AMAX -Homestake
Joint venture. In 1950 the first three companies
also produced refined lead. Two other companies
that were then refiners U. S. Smelting and
Eagle-Picher are no longer in the business.
Domestic refined output has risen from 508,000
tons in 1950 to 712,000 tons in 1974, a gain
of
Imports of refined lead In 1950 were 442,000
tons; in 1974 these Imports were only 118,000
tons. The sum of domestic primary output plus
imports was thus less in 197** (830,000 tons) than
in 1950 (952,000 tons) even though meanwhile cur
rent consumption had risen. The explanation for
this discrepancy lies both in increased recycling
of secondary lead and in the operations of the
strategic stockpile. In 1950 the stockpile was
buying --in 1974 It was selling.
Clearly the United States today is less de
pendent on Imports than it was a quarter century
ago thanks to greater domestic mine production
and improved scrap recovery. Of course a part
of domestic refinery output in both years was
obtained from imported ores 90,000 tons in
1950 and 93,000 tons In 1974 -- but as can be
seen such imports have remained fairly constant.
Indeed, some U. S. mine production has been
shipped as lead concentrate for smelting and
refining abroad in recent years .
Changes In lead mine production outside the
United States have been less dramatic than the
experience in zinc. Canadian mine production
Increased more than four -fold in zinc but Just
about doubled in lead. The major new sources
Timmins, Brunswick, Anvil, and Pine Point all
represent deposits in which the zinc content is
substantially greater than the lead content.
Similarly in Peru, Australia, Mexico and
Japan lead mine production has increased but in
lesser proportions than the gains in zinc. As
in zinc, Ireland, Greenland, Spain, Southwest
Africa, Morocco and Sweden have become signifi
cant sources of lead mine production in recent
years with Spain, Southwest Africa, and Sweden
marketing their productions as refined metal.
Japan, which plays such a significant role in
the zinc market, where it is today the leading
marketer of slab, has a much more modest role in
lead. Its 1974 output of 251,000 tons of re
fined metal contrasted with only 18,000 tons in
1950. Nevertheless the United States, Germany
and Australia each produced more refined lead
than Japan -- which thus ranked fourth outside
the "centrally planned economies". Moreover
Mexico, France, and Canada each have refined
output almost equal in magnitude to the Japanese
volume.
Of the five metals considered in this paper
lead has perhaps shown the least dramatic
changes in the competitive situation since 1950,
but that is not to say the situation has re
mained static. There are several new producers;
some of those that produced in 1950 are no
longer In the market; the United States has be
come more self-sufficient. However, the huge
secondary output and the dependence on some
Imports mean that U. S. primary producers re
main sensitive to changes in the international
picture, as recent price movements of the metal
clearly demonstrate.
And now to turn to the last of the five
metals, the one with the smallest tonnage and
the highest price of the five namely, nickel.
In 1950 nickel came closer to being a one-
country one -company metal than any other of the
base metals. World production outside the
"centrally planned economies" was about 135,000
tons and of this 124,000 tons was produced in
Canada. Almost 90$ of the Canadian production
was accounted for by a single producer, Inter
national Nickel. The United States had no
mine production; a small amount of nickel
sulphate was recovered from copper refining
operations. New Caledonia, with 7,000 tons of
mine output, was the only producer of conse
quence outside Canada.
By 1974 world mine production of nickel had
increased to 647,000 tons -- more than four
times the level in 1950. Thus the rise in de
mand for nickel had caused an expansion in mine
production much greater than for copper, zinc
or lead. Canadian 1973 nickel production was
more than double the 1950 level but Canada's
share of the world total had shrunk from 90% to
of the total.
International Nickel, now called INCO, con
tinued to account for the greatest part of the
Canadian output. Precise production data were
not published by INCO but its deliveries of
nickel in 1974 amounted to 250,000 tons or
five -sixths of the Canadian output. Falcon-
bridge reported delivering 45,000 tons and
Sherritt Gordon, faced with imminent exhaustion
of its Lynn Lake properties, produced only
3,000 tons.
Whereas in 1950 only New Caledonia had been
a substantial producer of nickel, in 1974 there
were seven countries other than Canada each of
which had a production in excess of 10,000 tons
New Caledonia with 143,000 tons remained the
second largest source of the nickel. Societe
164
COMPETITION IN THE NON-FERROUS METAL MARKETS ATMF. 77-18
le Nickel accounted for somewhat more than half
of the New Caledonia production with an output
of 7^,000 tons. The balance came from mines
which shipped ore to smelters in Japan.
Australia, which had no production in
1950, was the world's third largest source in
197U with an output of 1*5,000 tons, most of
vhich came from Western Mining's Kambalda mine.
At the end of the year Greenvale, a property
in Queensland controlled by Freeport Minerals,
began production. It has a capacity of 23,000
tons annually from lateritic ores. A third
large Australian enterprise is now under devel
opment
-- the Agnev mine, controlled by
Selection Trust and M.I.M. Holdings.
The Dominican Republic occupied fourth
place in 197^ with a production of 33,000 tons
from the Falconbridge Domini cana property,
two -thirds owned by Falconbridge of Canada.
In the Republic of South Africa the two
platinum producers, Rustenburg and Impala,
recover substantial amounts of nickel as a by
product from their platinum operations. In
the United States, Hanna Mining has been opera
ting a property in Oregon for almost 20 years
from which it produced 13,000 tons in 197^.
Indonesia, Greece and Southern Rhodesia are
all producing nickel in substantial amounts.
Most of their output is shipped as ores or
concentrate to Japan or Germany for processing.
Tvo sizable nickel investments which began
production in 197^ were the Marlnduque property
in the Philippines and Botswana RST Ltd. in
Africa. Marinduque has a capacity of 36,000
tons and Botswana one of 20,000 tons. Metal
lurgical problems have thus far prevented these
two mines from reaching full capacity. Guatemala
is expected to become a sizable producer from
a deposit now under development by INCO.
This recital makes clear that both from
the corporate and geographic point of viev
nickel production today is far less concentrated
than the situation that existed a quarter of
a century ago.
It bears repeating that capital costs of
new projects for each of these five metals
have increased by a staggering amount due to
worldwide Inflation. Operating costs have
also risen apace, primarily because of higher
energy costs and wage rates. Prices of all
five metals today are well above those that
existed in 1950. This trend results from the
underlying economic forces. Competitive
Influences in each of these five metals are
greater today than they were 25 years ago.
In the long run metal prices are deter
mined by supply and demand. As demand rises
further, prices will also rise. The cost of
bringing in new project is inhibiting new
investments at prices prevailing currently.
Thus the possibility looms that there will be
a lag in expanding capacity with the conse
quence that periodic shortages can be expected
in times of high economic activity. To repeat,
shortages will be due to bottlenecks in
capacity not to shortage of known reserves.
For each of these five metals there are known
deposits, as yet unexploited, with reserves
adequate to meet probable expansion in demand
over the balance of the century.
Eleventh
Commonwealth
Mining and
Metallurgical
Congress
Appendix I
Hong Kong
May 1978
The Institution
of Mining and
Metallurgy
Paper 66
Influences that determine metal prices
Simon D. Strauss
This preprint has been prepared for distribution to registrants for the Eleventh Commonwealth
Mining and Metallurgical Congress, Hong Kong, May. 1978 All papers that are presented at the
Congress will be included, together with discussion, authors' replies, name and subject indexes,
in the volume Proceeding! of the Eleventh Commonwealth Mining and Metallurgical Congress,
Hong Kong, 1978. The volume, which will be published in December, 1978 January, 1979.
may be obtained from The Institution of Mining and Metallurgy, 44 Portland Place, London
WIN 4BR, England.
Influences that determine metal prices
350
Simon D. Sirauss
Asarco, Inc.. Hew York. A'. Y., U.S.A.
Synopsis
The influence of the three factors supply, demand and cost
on metal prices is considered. Brief discussion of the
problems that have arisen because of the recent (since
1971) fall in the value of the U.S. dollar as compared,
for example, with German, Japanese and Swiss currency
precedes a review of the special conditions that obtain
in the minerals industry. Outstanding among these is the
long lead time that is required to bring a new venture to
the production stage.
The differing behaviour of mineral commodities in the
context of supply, demand and cost is outlined, particular
attention being paid to trading on the commodity ex
changes, as well as to political, environmental and energy
considerations.
Prices of all commodities, including metals, are
influenced by three major factors supply,
demand and costs. Some commodities are like
chameleons, their prices responding with almost
dazzling speed to even the slightest change. Others
are sluggish in their price reactions - like a reptile
awakening from a long period of hibernation.
This paper proposes to examine some of the
reasons for the disparate price behaviour that is
so evident in the metals industry. The constraints
of time and space necessarily make these remarks
anything but a complete study.
It is, of course, overly simplistic to speak of
supply, demand and costs as if these were straight
forward categories. They are not. Each of these
major factors is itself responsive to a host of
influences. And perhaps the most baffling aspect
of a discussion of prices is that there is no constant
yardstick by which to measure price changes.
Engineers are accustomed to precise measure
ments. Production can be defined readily in terms
of weight of product - tons, pounds, kilogrammes,
ounces or grammes - it can be reported in units
that are constant - so many automobiles or houses
or kegs of nails or feet of wire. Measurements of
time and distance are also precise
- output per day
or per man-shift ; haulage over so many miles or
kilometres.
But in discussing prices one must use units of
currency
- dollars, pounds. Deutsche marks, Swiss
francs. Japanese yen - and these currencies are
anything but constant. In recent years, with the
advent of floating exchange rates, they have been
constantly shifting in relation to one another -
like the various planets within the solar system and
the solar system itself within the universe. Unfor
tunately, these shifting relationships involve a far
less predictable course for the economist or central
banker than the planets and the stars involve for
the astronomer.
To put it another way, over the last seven years,
since the devaluation of the dollar in 1971, the
price of copper in marks or yen looks quite differ
ent from the price of copper in pounds or United
States dollars. Copper producers consider the price
of about 55-70^/lb that has prevailed in the
copper market since mid-1974 as a low price. And
yet, in terms of dollars, it is higher than any price
that prevailed prior to 1960 and well above the
average price of the 1 960s. The point is. of course,
that the dollar has lost value.
Because the Western Hemisphere produces well
over 60^ of the copper supply outside the
Communist bloc, it has been usual to describe
copper prices primarily in terms of U.S. dollars.
Professional economists, in describing price
trends, prefer to adjust historical prices by a
deflator that is supposed to eliminate the effects
of inflation or currency devaluation. This is con
fusing to the man in the street and perhaps to the
engineer. They prefer to describe prices in terms of
actual quotations as expressed in a given currency.
For example, the dollar equivalent of the
London Metal Exchange prompt price for copper
wirebars on 30 December, 1 977. of 666 per
metric ton was 57'/2^/lb. The quotation for prompt
wirebars on 31 December, 1974, had been 536
per metric ton. then equivalent to 57^/lb. Hence,
the man in the street and, in fact, the dealer in
copper would say that the 1977 price in U.S.
money was roughly equal to the 1 974 price, even
though the price had risen in terms of U.K.
currency. But the professional economist would
say that the price was lower at least by the equiva
lent of the approximate 1 89? that represents cumu
lative inflation in the United States during the
three intervening years.
The German or Japanese copper consumer
would have still another view. He would convert
the dollar equivalent back into marks or yen. It
took 1 3% fewer marks and 207r fewer yen to buy
a given quantity of dollars at the end of 1 977
than it had taken to buy that amount of dollars
at the end of 1974. The German or the Japanese
view of the copper price trend at the end of 1 977
would therefore differ both from those of the
U.S. man in the street and the economist. In their
opinion copper prices at the end of 1977 were well
below the prices at the end of 1974.
It is all somewhat confusing, this absence of a
constant yardstick. For about 26 years
- from the
Bretton Woods monetary conference at the end of
the second world war until the official steps taken
1
in 1971 to untie the dollar both from gold and
from other currencies - despite some inflation,
the trading world had felt quite happy to measure
prices in dollar terms because, for most of the
major trading currencies, the exchange rate for the
dollar had been relatively constant. Since 1971,
however, it has been fluctuating. With a heavy
trade deficit, the prospect for restoring stability
to the value of the dollar in the early future does
not look promising.
Let us now return to the supply-demand-cost
influences that affect price and try to analyse why
it is that different commodities behave in such
very different ways.
On the supply side the outstanding characteri
stic of the mineral industries is the long lead time
that is required to bring new ventures into opera
tion. Even when supply is expanded through
increasing the capacity of existing ventures, the
capital-intensive nature of the industry and the
complex equipment required (much of which must
be specially ordered from the manufacturer rather
than purchased off-the-shelf) indicate a minimum
period of about two years for any significant
increase in throughput. When green field projects
are involved, the length of time may vary from
three or four years for new properties in existing
mining districts (where the infrastructure of
housing, transport and power supply is already
available ) to as much as 8 1
years for projects
that are located in areas that lack infrastructure.
This is a very different proposition from the pro
duction of most agricultural commodities. If
demand rises, annual crops can be readily
expanded by devoting more acreage during the
planting season, wejther permitting.
In the case of a few minerals the supply side
may also be augmented by drawing on the
accumulations of previous years. This is parti
cularly true of the traditional monetary metals
gold and silver. Very large quantities of these
precious metals exist, but they are held by indivi
duals who are only tempted to part with them at
what appears to be attractive prices. The rate of
availability to the market of such retained-value
materials is therefore unpredictable.
For the industrial materials high prices may
tempt out somewhat larger than normal quantities
of salvageable metal. It is often said, for example,
that under the streets of such large cities as
London, New York and Tokyo there exist copper
mines of vast magnitude primarily in the form of
wire and cable. It should be quite obvious that
economic activity would be adversely affected if
the decision were made to mine these deposits
while the wire and cable still perform a useful
function. In extreme shortages some entrepeneurs
have actually done some mining of copper wire
or tube while still in use, but the practice tends
to be frowned on by the police!
Except during periods of recovery from a reces
sion, when substantial unused capacity is available,
expansion of supply of metals is necessarily a
sluggish business.
On the demand side much greater variations
exist in the characteristics of various metal indu
stries. Generally speaking, metals are industrial
raw materials and demand is heavily influenced
by the business cycle. Some metals - lead and tin,
for instance - enter primarily into consumer
goods, such as storage batteries or food containers.
The year-to-year variation in consumption of lead
and tin tends to be relatively limited. Since the end
of the second world war the growth in their con
sumption has been gradual, and responds chiefly
to the curve of population growth.
Other metals are primarily used in the capital
goods industries. Consumption of these metals
shows sharp shifts from year to year, depending
on the rate of construction and capital investment.
In the post-war era the aluminium industry has
averaged a growth of about 8/ annually, but
between 1972 and 1973 it rose by almost 20%,
whereas between 1974 and 1975 it dropped by
more than 20'/. Thus, the aluminium producer
in planning capacity expansion has learned the
difficulties of timing new plant capacities so as to
synchronize with the tides in demand for his
product. This is equally true for steel, copper,
nickel and zinc.
More importantly, it must be understood that
demand cannot be equated with consumption. In
times when shortage is feared, demand will exceed
consumption as users build up stocks to assure
themselves of adequate supplies. In times when
surpluses develop, demand will lag behind con
sumption as consumers draw on their inventories
in anticipation of lower prices, revelling in a com
fortable feeling that suppliers will be able to deliver
metal on very short notice.
Certain metals are traded on commodity
exchanges - copper, lead, zinc, tin, silver, gold
and platinum. For these metals there is always the
possibility that swings in demand will be magnified
through the activities of investors and speculators.
Although the members of the commodity
exchanges like to assure public authorities that
there is a minimum of speculative influence on
commodity prices through the commodity
exchange, my own observations are distinctly to
the contrary.
Recently, a young man who cuts my wife's
hair asked me if I did not think he could make
some money through the purchase of copper. He
had been called on the telephone by a broker,
previously unknown to him, who had apparently
picked his name at random from the telephone
book. I
explained to the hairdresser the com
plexities of the copper situation - all of which
were new to him - and the grave risks that are
involved in trading in commodities. He decided
against trie undertaking, but how many others
have been induced to deal in commodities on
the word-of-mouth assurance of someone, not
necessarily an expert, who is interested in making
commissions through commodity trading by
others.
The cumulative effect of these purchases - and
Ol suDsequem !>aic:> ii> ejiunnuus. v_m. nas> merely
to recall the dizzy climb in sugar prices in 1974
and the equally spectacular gains in coffee prices
in early 1977 to recognize the strain that is placed
on commodity prices when large numbers of
people, not directly involved in the business,
decide to take flyers in a commodity situation in
which they perceive a chance for a quick profit.
The movements of copper and aluminium prices
over the entire post-war period make this point
clear: the swings in consumption of these two
metals are basically similar, although, of course,
aluminium has had a much greater long-term
expansion in its market. This is a matter of secular
growth, which has little effect on the day-to-day
or month-to-month price pattern for aluminium.
It is true that the published price of aluminium
is not always the actual price at which aluminium
is traded. The deviation from the published price
is sometimes fairly significant. Yet, even allowing
for this difference between transaction prices and
published prices, at no time has aluminium
exhibited the kind of pattern that has characteri
zed copper in years of great economic change.
Between 1
January, 1973, and 31 December. 1974,
a period of just two years, the price of copper on
the London Metal Exchange rose from 454 (then
equivalent to 48.45^/lb) to a peak of 1 350
(equivalent to almost ?1 .50/lb) at the beginning
of April, 1974, only to fall back to end 1974 at
536 (equivalent to 57tf/lb). During the same two
years the published price of aluminium in London
rose from the equivalent of 24.5^/lb to a peak of
39tf/lb without any erratic day-to-day fluctuations.
The increase in aluminium prices was, of course,
directly related to the sharp increase in energy
costs, which, in turn, reflected the quadrupling of
oil prices.
One needs to stress the difference between
demand and consumption - and yet this is fre
quently forgotten by government planners and
academic economists who indulge themselves in
the perilous sport of charting future price trends
for metals. Consumption is difficult to forecast
for those metals sensitive to the business cycle,
because it is so heavily influenced by capital
spending. But demand is almost impossible to
forecast - particularly for commodities traded on
exchanges.
Trading in commodities on exchanges is in
fluenced by other factors than either professional
hedging by actual consumers and producers or the
speculative plunges by traders, many quite un
sophisticated, who are anxious to pick up quick
profits. Commodities are sometimes used by those
who would hedge themselves not against their
commodity needs but against perceived currency
risks. When sale of one currency to buy another
is frowned on by the monetary authorities - or
even actually banned taking a position in a
commodity such as copper, gold or silver may be
a subtler but equally effective way of getting out
of a currency until the crisis has been passed. And
when the currency danger is considered over, this
Kino 01 neager liquidates nis position, tnereoy
affecting the price for both the producer and
consumer.
Still another role that the commodity exchanges
play which has little or nothing to do with the
demand, supply or costs of the commodity is as
a haven for surplus cash. So long as futures
command a contango (that is, a premium for
futures over spot) equal to the going bank interest
rates, a purchase of spot hedged by a sale of the
forward position will be attractive to the banker
or the insurance company with surplus funds.
When the trading is done on the London Metal
Exchange this means a transaction every 90 days,
or slightly more than four times a year.
A bank that is long of spot copper and short of
forward is quite happy to stay long of the spot
provided that it can continue to sell the forward
position at a sufficient premium four times a year.
True, the bank is financing the inventories for the
producer and consumer, but by doing its
refinancing four times a year it is putting great
pressure on the price to maintain its position.
Some of my colleagues in the business say that
this function justifies the existence of the com
modity exchanges. But, in my eyes, the ease with
which a producer can sell his output even in times
of obvious surplus (such as the entire period from
mid-1974 to early 1978) has encouraged the
maintenance of production i.e. supply
- at
excessive levels when the production is not really
needed. Had this financing not been available, the
Chilean and Zambian Governments, which have
boasted that they had their entire output sold at
all times, might instead have recognized the\ were
placing pressure on the market by continuing to
run at capacity. Precisely because the aluminium
industry did not have this financing facility
available to it, aluminium producers reduced pro
duction in 1975 and 1976 when inventories
mounted, and they had a far happier time in 1977
than did the copper industry.
Economists generally agree that consumption
of metals, as distinct from demand, is not parti
cularly price-sensitive. A high price will not im
mediately cause a switch from one metal to
another because the user is not sure how long the
condition will last and his cost of changing over is
considerable. Equipment has to be modified and
products need to be redesigned. Sometimes a long
period of testing is involved. Questions of perfor
mance and safety arise. But a long-term price trend
undoubtedly does eventually affect consumption
and, hence, demand. The substitution of
aluminium for copper in certain uses, of plastics
for zinc and of titanium dioxide for white lead
offers classic examples in which price has played
a role, but is by no means the only cause, in a
switch.
On the supply side the major factors are very
familiar. The long lead time in bringing in new
plant makes for little flexibility in supply over the
short term, once available capacity has been
reached. The rate of discovery of new mineral
3
353
resources is an unpredictable business, despite the
enormous advances in geological knowledge
and prospecting techniques. In the last quarter
century the rate of discovery of all major metals
has more than kept pace with the increase in
demand.
The troublesome factors in expanding supply
may be categorized as ( 1 ) political problems in
access to promising geological provinces; (2)
rising investment needs as the industry becomes
increasingly capital-intensive; (3) effects of world
wide inflation on capital requirements; and (4)
uncertainties about future provision of energy.
Obviously, these factors all impinge on the third
leg of the triangle costs. The political problem
has become exceedingly acute since the early
1960s. It has been characterized by growing
nationalism in the less developed countries. This
tends to frighten investors in the capital-exporting
countries who might otherwise be tempted. And in
the developed countries there has been a pot
pourri of restrictive environmental measures; of
cordoning off huge chunks of territory for recrea
tional purposes, where mining is not permitted no
matter how great the mineral wealth: and of savage
increases in taxation to accomplish laudable social
goals. Whether society can afford to undercut its
output of basic materials and still meet these social
goals is a question that politicians should ask.
The increasingly capital-intensive nature of the
metals business is a reflection of the lower grades
of ore being exploited. It also results from more-
complex metallurgy and the necessity to meet
demanding environmental standards. Despite a
sincere desire to reduce the use of energy in pro
ducing metals, in many instances the energy load
has been increased as more pumps, fans and venti
lators are used to meet stringent emission
regulations.
And inflation is reflected in the soaring prices
attached to the equipment purchased. To produce
a ton of refined copper per annum now requires
an investment generally estimated at $7000 a short
ton, compared with SI 500 a short ton 20 years
ago. For a ton of nickel the required investment
now seems to be in the order of $1 5 000 - S20 000
a ton. This has put a severe strain on the finances of
enterprises that were considered gilt-edged a few
years ago.
As to the availability of energy, this is of great
importance to all metal enterprises, but to none
more than the aluminum business. It has been sug
gested that further growth in U.S. aluminum
production will be inhibited by the fact that the
energy required to employ one man in new
aluminum facilities could provide the energy needs
of a less energy -intensive business employing five
or six men.
In regard to costs and prices, il is the dream of
every businessman to sell his product at a price that
fully covers his total costs (including the cost of
money) plus a profit. In some industries prices are
indeed established on the basis of current costs.
These industries do not include those whose
products are traded on commodity exchanges
as the wheat farmers who have been picketing
President Carter in the White House have learned
quite clearly in recent months. Among the metals,
the three major industries that most nearly fill
this formula for establishing prices based on cost
plus profit are those of steel, nickel and alumi
num. That is how they initiate price formulation.
Time and again prices of these metals have been
raised in the face of faltering or somnolent de
mand because costs are up.
But even for these industries, not subject to the
rigours of public trading in their commodities, the
sharp influence of the law of supply and demand
moderates the use of costs as the major price deter
minant. Sellers anxious to move a few extra tons
find ways by which the published price can be
modified in the buyer's favour when there is a
surplus of supply over demand. Sometimes such
imbalance brings about the kind of disorganized
price structure that prevailed in nickel in 1977 -
when price advances posted early in the year had to
be rescinded. Later, sizable discounts developed
even from these lower prices. Of course, the reverse
happens when demand soars, far exceeding supply.
Then one hears about grey or black markets in steel,
nickel and aluminum at prices well above the
published quotations.
The commodity exchange traded metals are
keenly sensitive to the supply demand equation
over the short term. Yet. in the long run their prices
must conform to trends in costs. The experience
may be a long and painful one. as has been the case
with copper and zinc since mid- 19 74; eventually,
however, the inexorable realities will force the
closing of a part of the supply that has been
produced at costs greater than price. The melan
choly roster of closing mines in late 1977 and early
1978 bears witness to this truth. In time, and after
much hardship, a new balance is struck.
This paper has not dealt with the current debates
about commodity agreements as a means of ameli
orating price swings - that is a subject which
merits a full discussion on its own. But. in closing.
one must observe that international agreements
as to what constitute proper price levels are hard
to come by and even harder to enforce. I
point to
the International Tin Agreement as a demonstra
tion of that unpalatable truth.
tveryone would like stable and remunerative
prices based on clearcut choices. Yet in this brief
look at the factors that influence prices, one can
see clearly how complex and sensitive the pricing
mechanism is and how multitudinous are the causes
of price behaviour.
354
Appendix J
JOINT CONFERENCE 1978
Aus.l.M.M. A.I.M.E.
May 1978
Canberra Australia
INTERNATIONAL RESOURCE MANAGEMENT
Session 4: Producer Groups and Commodity Agreements
Keynote Address: A view of commodity agreements
Simon D. Strauss
The Aus.l.M.M. A.I.M.E. Joint Conference Australia 1978
C/- The Australasian Institute of Mining and Metallurgy,
Clunies Ross House, 191 Royal Parade,
Parkville, Victoria, Australia 3052
355
SIMON D. STRAUSS
Vice Chairman.
ASARCO Incorporated
120 Broadwav. New York. N.Y. 10005. USA
Simon D Strauss was born in Lima. Peru, and was
educated in Chile and New York City.
His professional career began as a member of
the editorial staff of the Engineering and Mining
JonriKil in New York. Subsequent assignments in
cluded editorship of a suburban weekly newspaper,
a time as investment securities analyst for Standard
Statistics Company (predecessor of Standard 8-
Poor's) and almost 5 years in government service
in Washington during World War II assisting in
procuremem of strategic materials for the war effort.
Mr. Strauss joined the American Smelting and
Refining Company (now ASARCO Incorporated) in
1946 in its sales organization. He has served succes
sively as Sales Manager. Vice Presidenl in charge of
sales. Executive Vice President, and is currently Vice
Chairman of the company. He has been on the board
of the compam since 1953.
Mr. Strauss also served on the boards of two
issociated companies Industrie Minera Mexico.
S.A. and Southern Peru Copper Corporation.
He has been active in trade association work and
has been President of the Lead Industries Associa
tion, the Sil.er Institute, and the Zinc Institute. He
has served on the boards of the International Lead
Zinc Research Organisation and the International
Copper Research Association. He retired in 1977 as
Chairman of the American Bureau of Metal Statistics.
In 1963 he was awarded Copper Man of the Year by
The Copper Club and subsequently served as its
President.
Mr. Strauss has lectured on minerals economics
at the Massachusetts Institute of Technology and
Pennsvlvania State University.
356
A View of Commodity Agreements
SIMON D. STRAUSS
Vice Chairman. ASARCO Incorporated
For the last 4 years political leaders have
found a new subject on which they can safely
generalize wihout creating opposition. That sub
ject is commodity prices. Since the four-fold
increase in OPEC crude oil prices, public atten
tion has focussed as never before on the subject
of commodity prices. To advocate stabilizing com
modity prices is akin to supporting motherhood
or peace or better schooling. Everyone gives lip
service to the concept that stable commodity
prices are desirable.
It is easier to state the principle than to achieve
it. Prices that are stable in terms of one currency
may be clearly unstable in terms of a different
currency. This has become a troublesome matter
since 1971, when the world's leading trading
currencies were set free to float in relation to
each other.
To illustrate: consider copper prices in the
interval between the end of 1974 and the end
of 1977. During those 3 years, the copper price
in pounds sterling on the London Metal Exchange
rose by 25 per cent. During that period, however,
in terms of the USA dollar equivalent, the price
was unchanged. And during that period, in terms
of the German mark equivalent the price shrank
by 13 per cent while the Japanese yen equivalent
fell by 20 per cent.
Thus a price that appears stable in dollars,
rose in terms of pounds sterling and fell in terms
of marks and yen. Had this result been achieved
as a consequence of an international effort to
stabilize prices, an American would have said
the effort was successful. An Englishman would
have said it had failed to prevent a price rise.
And a German or a Japanese consumer would
have been happy to have covered his copper needs
at a lower cost in terms of his own currency.
From the standpoint of copper-exporting
countries, stability of price for these 3 years
would not have been an acceptable outcome.
The price at the end of 1974 had been consider-
Manuscript received 23rd March 1978
ed inadequate. And with unabated world-wide
inflation having prevailed between 1974 and
1977, the same price at the end of 1977 was
definitely still more unsatisfactory. The financial
reports of most copper producers and the state
ments made by political leaders in the copper-
exporting countries make this matter very clear
indeed.
Thus regardless of the numerous statements
made about the need for commodity price
stability, obviously there are vexing problems in
arriving at the answer to two questions.
1. Stability in terms of what currency or what
other standard?
2. Stability at what level of price in relation
to the differing concepts of producers and
consumers?
These two troublesome problems largely
account for the inordinate amount of time and
effort consumed in discussions of possible com
modity agreements between producers and con
sumers.
Arrangements such as those made by OPEC
are of an entirely different character. And, to
revert to the problem of how a stable price is to
be measured, note current dissatisfaction on the
part of oil producers with a price expressed in
USA dollars at a time when the dollar is under
pressure in current markets. OPEC decisions are
made by producers alone. It would be inappro
priate to argue that consumers" interests are not
considered. The OPEC people are too sophisticat
ed to enter into arrangements which ignore the
effect of price structure on their customers. But
the point is that their decisions are made in the
light of a producer interpretation of market
effects. Primary weight is given to maximizing
revenue and profits for the oil producers. The
prevailing rule is what the traffic will bear; and
differences of opinion among the producers
largely arise from differences in the stress placed
The Aus IMM/AIME Joint Conference Australia 1978 1
357
on near-term benefits versus possible long term
adverse consequences.
In the 4 years since the oil price rise, most in
formed commentators have come to the conclu
sion that the oil exporters have strengths greater
than those of exporters of other commodities. Oil
production is readily controlled without wide
spread adverse impact on employment. Oil con
sumption, while somewhat responsive to economic
cycles, is less sensitive to sudden drops in demand
than most industrial commodities. Oil is not
readily recycled, so the salvage factor which is
of prime importance to metal exporters counts
for little in oil. Oil exporting countries have, on
the whole, a stronger financial position (in some
cases an apparently impregnable financial posi
tion) than countries dependent on exports of
other commodities for their foreign-exchange
earnings.
In late 1974 and early 1975, many predicted
that the OPEC example would be widely followed
in other commodities. Events have not supported
that belief. Perhaps the closest approximation of
an OPEC programme has occurred in bauxite.
Prices of bauxite have risen sharply, due in large
measure to radical increases in taxes by bauxite-
exporting countries. But those increases have been
from a very low base. They have thus far not
been a major component in increasing the cost
of aluminium, which has strengthened primarily
because of the impact of higher energy costs, the
general inflationary trend, and the relatively good
balance between supply and demand for this
metal.
Despite frequent meetings, the principal
copper-exporting countries have thus far not
been able to effect a co-operative marketine
arrangement to ameliorate the wide swings in
copper prices that have been a thorn in the side
for producers and consumers. In fact. CIPEC, as
the copper exporters' organization is known, has
been a leading advocate of a producer-consumer
co-operative effort.
Efforts to maintain a so-called European-pro
ducer zinc price have run into problems, primarily
as a result of a severe excess of supplies over de
mand. Discussions among mercury producers
resulted in a tentative floor price arrangement,
which, however, has not prospered. A uranium
cartel has been the subject of investigation by the
USA Department of Justice and the organization
appears no longer to be active. A similar investi
gation into the potash market has aroused a con-
S. D. STRAUSS
troversy between the Canadian and USA govern
ments. Meanwhile, in practical terms, the potash
market has been weak. The leading phosphate
exporter, Morocco, did arrange an abrupt increase
in phosphate prices 3 years ago but competitive
forces appear to have eroded much of the price
gains since then.
The record indicates that for most minerals a
unilateral undertaking by a small group of pro
ducers cannot successfully maintain stable and
remunerative prices for an extended period. True,
under favorable market conditions, prices of cer
tain commodities show minimal fluctuations
particularly when the number of significant pro
ducers is relatively limited but this situation is
rarely enduring.
The nickel market for many years was an
example of apparent stability. A single producer
had so large a market share that its price deci
sions were in fact controlling. However, now that
the number of nickel sellers has increased and
the demand for nickel has faltered, this market
appears today to be in a state of disarray.
To those for whom producer-dictated price
arangements are unpalatable, a preferred alter
native is an international agreement involving
governments of the leading producing and con
suming countries. The developing countries have
been pressing hard for such agreements or under
standings. Under the banner of UNCTAD, pro
posals have been made that a Common Fund be
established which would support buffer stocks for
some 18 leading commodities each of which
would be the subject of a separate commodity
agreement. Copper, tin. iron ore, bauxite, and
manganese are in the designated group of com
modities to be considered.
For the last 2 years there have been protracted
discussions of these proposals. A chicken-and-egg
situation appears to be emerging. The less devel
oped countries favour establishment of the Com
mon Fund with arrangements to raise up to 56
billion for buffer stocks even before the com
modity agreements have evolved.
On the other hand, the industrialized countries
are fearful of a Common Fund which mighi
develop into a new form of international bureau
cracy. They urge rather that the individual com
modity discussions should be completed first.
Price instability arises from inbalances between
supply and demand. In boom times supph
appears inadequate. In periods of recession
demand falters. Equating supply and demand is
The Aus IMM/AIME Joint Conference Australia 1978
A VIEW OF COMMODITY AGREEMENTS
not easy. Forecasts of demand can be accurate
over the long term, but extremely unreliable over
the short term. In the case of the minerals, a long
period of gestation is required to expand produc
tive capacity. Unstable prices can make the financ
ing of expansion schemes difficult, as has been
clearly evidenced by the virtual halt in new non-
ferous metal projects since about 1975. Various
projects, financed prior to 1975, are approaching
completion but once these have been brought into
production, a protracted hiatus will occur before
further significant expansion of capacity is avail
able.
Given this history of erratic cyclical experience,
it is small wonder that there should be such keen
interest in what one might call the Joseph-
Pharaoh syndrome. Joseph, an early forecaster
based on his own vivid dreams, convinced
Pharaoh to finance stockpiles during a period of
7 fat years so that Egypt could survive a subse
quent 7 lean years. The Bible is silent on the
question of price. It appears that Pharaoh was
able to finance the stockpiling effort presumably
thanks to his unchallenged capacity to levy taxes.
The experiment proved successful.
On an international basis, the one sustained
effort by mineral producers and consumers to
balance the fat years with the lean years has been
in tin. Discussions about tin began shortly after
the end of World War II and an international
agreement was reached in 1956. to last 5 years.
There have been four subsequent 5-year agree
ments, the most recent, the fifth, having been
ratified in 1976 to last until 1981. The tin effort
merits study, therefore, as a continuing pioneer
effort to stabilize the price ot a commodity
through joint action by producers and consumers.
The agreement currently involves seven tin-
producing governments and 22 tin-consuming
governments. The International Tin Council
(ITC) is operated on a basis of equal voting
strength 1,000 votes for producers and 1.000
votes for consumers. The votes are distributed
among the members in proportion to their pro
duction or consumption.
The Council sets floor and ceiling prices for
tin, currently stated in terms of Malaysian cur
rency, even though the price in world markets
is
customarily expressed either in pounds sterling
per metric ton or USA currency per pound. To
try to keep prices in the range between floor and
ceiling, the tin agreement has two weapons. In
periods of excess supply, producing members are
358
expected to limit exports to percentages of agreed
export quotas. In addition, a buffer stock is
expected to defend the floor price by buying when
the market is weak and to defend the ceiling price
by selling when the market is strong.
The buffer stock is financed through required
contributions from producer members plus volun
tary contributions by consumer members. Pro
ducer contributions are equivalent to 20,000 tons
of tin at the floor price. The voluntary contribu
tions from consumers are equated to an addi
tional 20,000 tons. Until the fifth agreement the
consumer contributions had been small.
In theory tin seems ideal for a stabilizing
arrangement. The seven producing members
account for about 90 per cent of non-Communist
world production of tin. Apart from Australia,
they consume very little. The 22 consuming
members now include all the major users of tin
and have little indigenous output of primary tin.
Thus almost the entire output moves across an
international boundary on its way to market. The
United States only became a member with the
fifth agreement, but was an observer at Tin Coun
cil meetings under the previous four agreements.
During this period it did consult with the ITC
in regard to USA stockpile disposal programmes.
Despite their long existence, the tin agreements
have not been notably successful in stabilizing
prices. On one occasion the price fell below the
then current floor due to heavy exports by
Russia, which was not then a member of the
agreement but which has since joined. On many
occasions, the price has risen above the ceiling
in fact it has been above the ceiling uninter
ruptedly for more than a year since early 1977.
Floor and ceiling prices have been subject to
constant review and have been frequently chang
ed. In 1974, for example, they were changed so
drastically that the new floor was set substantially
above the previously prevailing ceiling.
Since the floor price has been successfully de
fended on all but one occasion, one would think
that at least producer members would be happy
with the agreements. Not so. They complain that
floor prices have been inadequate to stimulate
production. It is a fact that tin production has
shown the lowest growth rate of any major metal.
Consumers are unhappy because ceiling prices,
set to insure access to adequate supplies at rea
sonable prices, have been so often and so per
sistently exceeded.
One explanation offered for failure to achieve
The Aus IMM/AIME Joint Conference Australia 1978
359
S. D. STRAUSS
greater success has been that the buffer stock
has been too small and that export quotas have
been involved too soon when surpluses developed.
It is argued that if more money had been avail
able to buy surpluses, control of supplies through
quotas would have been unnecessary. Further,
larger stock, it is claimed, would have helped
prevent sudden price increases.
Yet in a sense, the tin agreement had more
than the buffer stock available to it.
Large
amounts of USA stockpile tin have been sold
since 1963 and these sales had the same market
effect as if they had been made by the buffer
stock manager. The USA stockpile contained
350.000 tons of tin in 1963 more than 17 times
the amount of stock financed by producer con
tributions. This huge reserve equal to 2 years'
production in the Free World had been accumu
lated by purchases during the 1940s and 1950s.
Without the stimulus of that buying, tin prices
would doubtless have been weaker and tin pro
duction less prior to 1963.
Liquidation of the tin stockpile began in the
mid-1960s. By the end of 1977 almost 150.000
tons had been sold. Of this amount, the largest
sale in any 12-month period was between 1st
July 1973. and 30th June 1974. when 40.000
tons were sold. During that same period the
buffer stock was completely liquidated. And
during that same period the price of tin like
the price of some other commodities more than
doubled to an all-time high.
This experience must give pause to any one
who argues that if only the buffer stock had been
larger than 20.000 tons of tin. the agreement
would have stabilized the price.
In my view, a major handicap in operating a
single international buffer stock to regulate prices
particularly prices of commodities traded on a
commodity exchange is the fact that by its very
nature, an international agreement must be a
matter of public record. When 29 nations sit
around a table discussing tin floor and ceiling
prices, the size of the buffer stock to be accumu
lated, the way in which purchases for or sales from
the buffer are to be made, all this becomes known
to the general public. Wisdom about tin or
copper or sugar or coffee or any other com
modity is not confined to the participants in these
discussions. There are other keen students who
are aware of the trend of events of the forces
that may impel demand upward or may restrict
supply. These individuals know more or less
exactly what the international agreement man
agers can do or will do in any given set of cir
cumstances. They can judge when the buffer stock
will probably be exhausted through sales required
to protect the ceiling price. That is what happened
in tin in 1973 and again in 1976. And they know
quite well that once the ceiling price has been
penetrated, enormous profits may be made by the
shrewd speculator.
In answer to this argument, one is told that,
but for the buffer stock, prices might have gone
higher still. Perhaps so. But for the record it is
a fact that the price of tin rose more sharply
than the prices of some comparable commodities
in the 1973-74 commodities boom, while the
supply of tin has increased less.
Several explanations are put forward to indi
cate why despite the existence of a floor price
that has been violated only once and a strong
upward trend in the long-term market price, tin
supply has not expanded. High taxes on the part
of several major producing countries have skim
med off much of the benefit of higher prices.
Costs have risen and grade of ore exploited has
dropped, but these factors apply equally to the
other major non-ferrous metals. A more subtle
explanation is that investment in new tin mining
projects is deterred by the existence of export
quotas. Investors are said to be fearful of putting
money into ventures in which control over their
rate of sales is lodged in an international body.
In fact some observers suggest the tin agree
ment would have worked better without any
restraints on production or exports that a buffer
stock should be constituted large enough to
absorb whatever excess develops in periods of
low demand. This would mean all producers
could run at full capacity and consumers would
be assured of an abundance of supplies at all
times.
This is an interesting concept. Apply it to the
copper situation since mid-1974. Assume for the
sake of argument that in fact there had been a
copper buffer stock in place. Assume further that
it was designed to protect a floor price of 75c/lb,
USA currency, for copper a price well below
the 1974 high but bearing a reasonable relation
ship to the then prevalent cost of producing much
of the equipped world copper capacity.
Since mid- 1974, visible stocks of copper have
increased by between 1.250,000 and 1.500,000
short tons. This has occurred even though world
prices since mid- 1974 have for the most part been
The Aus IMM/AIME Joint Conference Australia 1978
A VIEW OF COMMODITY AGREEMENTS
at 60c/lb, USA currency, or below. These low
prices have caused some producers to suspend
operations, others to curtail operations, and still
others to defer plans for expansion. Had a buffer
stock been in operation, soaking up excess out
put at the price of 75c/lb, most producers would
surely have continued to run at normal operating
rates. The excess of supply over demand in this
period of nearly 4 years, instead of being
1.250,000 to 1,500,000 short tons, would prob
ably have been well in excess of 2,000,000 tons.
And at 75c/lb, it would have cost $3 billion to
finance the buffer stock thus far with the end not
yet in sight.
Moreover, bear in mind that a floor price of
75c/lb would by now have been subjected to
severe criticism by high-cost producers as clearly
inadequate. Pressure would certainly have devel
oped for still higher floor prices, particularly
since the current wisdom is that to launch a new
copper venture at today's inflated capital and
operating costs, a price of better than Sl/lb is
required.
There is a serious dilemma here. If the tin ex
perience suggests that export or production con
trols may have adverse implications, and if the
copper experience points to a very high cost for
an international buffer stock, what should be
done?
Erratic prices constitute a grave problem. Yet,
nowhere is it written thai for every problem there
is a perfect solution. Perhaps those who would
solve the riddle of international commodity prices
should satisfy themselves with something less than
a comprehensive all-embracing scheme. In my
own view and the suggestion is put forward with
360
diffidence a system of loosely co-ordinated
national buffer stocks is more likely to mitigate
violent swings in commodity prices than is a
single monolithic international buffer stock. Japan
and France have made modest starts in this direc
tion. The principal consuming countries, acting
in their own enlightened self-interest, should con
sider programmes similar to that which Joseph
outlined for Pharaoh. Without binding themselves
to hard-and-fast price floors and ceilings (which
will always provoke arguments between sellers
and buyers), these countries could undertake that
they would buy commodities when the inter
national statistics clearly indicate there is a sur
plus. And they could undertake that they will
sell from their buffer stocks only when there is a
clear signal that demand is outstripping supply.
Perhaps the consultative producer-consumer
forums that are now being discussed could be
entrusted with the determination as to when there
is a surplus and when there is a shortage. For
example, ihe figures of the International Lead-
Zinc Study Group not their forecasts of the
future but their statistics of the past would in
the last few years have on occasion signalled the
desirability of zinc purchases by national stock
piles. And at times during the same period statis
tics would have signalled the wisdom of some
sales of lead from any national buffer stocks pre
viously accumulated.
This is just a suggestion. But it is worth con
sidering. Multir... national stocks would come
closer to emulating the workings of the market
place than does a unilateral buffer stock such as
that established under the International Tin
Agreement.
The Aus IMM/AIME Joint Conference Australia 1978
361
Appendix K
ERICAN
NING
pNGRESS
)UNDED1897
[NG BUILDING
ASfflNGTON
C. 20036
2 861 2800
iVX 710 822 0126
A I.I .EN OVERTON, JR.
RESIDENT Statement of
Simon D. Strauss
Chairman
American Mining Congress
Minerals Availability Committee
and
Director, ASARCO Incorporated
before the
Trade Policy Staff Committee
United States Trade Representative
April 11, 1980
362
I am appearing on behalf of the American Mining Congress,
an association of the principal domestic producers of non-fuel
minerals and coal. My name is Simon D. Strauss and I am Chairman
of the Minerals Availability Committee of the American Mining
Congress. I am a Director and former Vice Chairman of ASARCO
Incorporated, a major producer of non-ferrous metals. Its subsid
iary, Federated Metals Corporation, is one of the country's leading
consumers of tin.
This hearing has been called to give an opportunity to
interested parties to present their views with respect to the
current negotiations looking to a new International Tin Agreement,
which would be the sixth of a series of five-year agreements dating
back to 1956. You are also soliciting views with respect to the
desirability of an international agreement on copper.
Both of these commodities are traded on a world basis. The
prices change frequently and sometimes violently. These price
changes are disturbing both to producers and to consumers. They
make it difficult to plan for orderly expansion of future capacity
to meet growing needs. They have severe impact on the foreign ex
change earnings of a number of developing countries which are major
exporters of one or the other of these metals. Ultimate consumers,
who are for the most part manufacturers of finished goods, find it
difficult to accommodate the violent swings in the prices of these
raw materials when their own prices are customarily changed with
relative infrequency.
For these and many other reasons the desire to work out an
orderly international arrangement to stabilize prices is under
standable and the intentions of the governments which have participated
_ >_363
in these discussions are laudable. Looked at from the vantage
[joint of the United States, a stable price and adequate supply of
tin are significant both for the country's economy and for national
security.
In the case of copper, the United States is the world's
largest producer and consumer of this metal. The copper industry
is a significant employer of labor and it is an essential ingredient
in the Gross National Product. Stable copper prices would help to
steady the level of economic activity in this country and mitigate
some of the violent swings in the business cycle which have charac
terized recent years.
Because the tin agreement has a long history it is well to
begin by an analysis of how it has operated. Each of the five agree
ments which have been put in place since 1956 provide for a buffer
stock operation intended to keep the price of tin above an agreed
floor and below an agreed ceiling. Supplementing this buffer stock
arrangement, which for the most part has been financed by the producing
countries, the agreements have also called for supply-management.
This means that in periods when the market is weakening and a surplus
of tin inventories develop, the producing countries limit their
exports by an agreed percentage of a base quota -- which, in turn,
is adjusted to their normal historical level of production.
Discussions looking to an International Tin Agreement began
in the late '40s shortly after the end of World War II. The U.S.
government was a party to these discussions. It was not until 1955
that an agreement was reached by a scheme which became effective in
1956. Seven major tin producing countries and more than 20 major
tin consuming countries ratified the initial agreement. The United
States, however, abstained. While representatives of U.S. govern
ment and industry regularly attended meetings of the International
Tin Council, it was not until the Fifth Agreement, which became ef
fective in 1976, that the United States became a member. The change
in U.S. policy was apparently a reflection of a conviction within
the administration at that time that it was desirable to inhibit the
formation of producer associations for major export commodities, such
as the Organization of Petroleum Exporting Countries. U.S. policy
came down hard in favor of inter-governmental agreements involving
both producers and consumers and the Tin Agreement obviously qualified
under that score. In meetings with industry leaders and later in
appearances before the Senate Foreign Relations Committee, whose
consent was necessary for ratification of the agreement, the advan
tages of our membership were cited as two. One, we would be in a
better position to engage in dialogue with the Third World since
all but one of the producer members are developing countries of the
Third World. The second argument advanced for adherence was that
U.S. consumers would be assured of tin supplies at reasonable prices.
Because of rampant inflation and other causes the International
Tin Council has made a substantial number of adjustments in both the
floor and ceiling prices over the years. The first of a series of
truly dramatic changes occurred in 1974. Tin prices had been rela
tively stable in the years 1970 to 1972 at a level of approximately
$1.75 a pound. Beginning in early 1973, reflecting a worldwide
economic boom, the price of tin rose steadily and exceeded $3 a
pound by the end of the year, far in excess of the then existing
price ceiling under the agreement of approximately $2.25 a pound.
The frenzy in commodity markets which characterized the first
half of 1974 carried tin prices to $4.70 a pound or more than double
the ceilinq price. Under these conditions of course the buffer stock
had been completely sold by the buffer stock management.
This stock amounted to the equivalent of 20,000 long tons of
tin which compared with the level of world tin consumption of about
200,000 tons. Thus the stock was equivalent to about 10% of a year's
consumption. At that time an additional source of tin available to
the market was the U.S. strategic stockpile. Because the quantities
of tin in the stockpile were substantially in excess of the then
existing stockpile objective, Congress had authorized the disposal
of very large quantities of tin. As the price moved up stockpile
sales became very substantial. Between July 1, 1973 and June 30, 1974
about 40,000 tons of tin were sold by the stockpile authorities.
Thus, even though the United States was then not a member of
the Tin Agreement, it contributed from its strategic stockpile an
amount of tin more than double the maximum buffer stock holdings.
Despite this large additional supply from non-current production
the price moved above the then current ceiling. As a consequence
the International Tin Council made drastic changes in its floor and
ceiling prices. These are regularly reviewed. The new floor price
was in excess of the previous ceiling price thus creating a dis
continuity. Floor and ceiling prices are normally stated in terms
of Malayan currency because Malaysia is the world's leading producer
of tin.
As 1975 was a recession year the price of tin for the r.cst
part remained within the new ceiling price range but early in 1976
a recovery set in. In May 1976 the International Tin Council dropped
-5- 366
export quotas and revised its floor and ceiling prices. Based on
then current exchange rates the new floor price was equal to $2.94
a pound and the new ceiling price to $3.53 a pound.
In July 1977 another change was made. The new floor price
was $3.87 a pound and the ceiling price was $4.84 a pound. One
year later in July 1978 still another change was made. The new
floor price was $4.35 a pound and the new ceiling price was $5.48
a pound. And in July of 1979 still another change was made in this
now regular annual update escalation. The new floor price was $5.25
a pound and the new ceiling price was $6.83 a pound. And on March 13,
1980, still another increase was made of 10% above the former levels.
In particular, Bolivia, normally characterized as the highest cost
producer of tin, keeps pressing for still further price increases.
With few exceptions since 1976 the actual market price has
been in excess of the agreed range. The modest buffer stock accumu
lated in 1975 has long since been liquidated. The buffer stock
arrangement exists on paper only.
Some of the discussions looking to a Sixth Tin Agreement, to
be effective in 1981, will center around the desire of Bolivia and
possibly other producing countries to cut back on the U.S. voting
power within the International Tin Council. Bolivia is particularly
incensed about the fact that the U.S. delegates have repeatedly
opposed the upward adjustments of the floor and ceiling prices for
tin. Although the U.S. strategic stockpile has been relatively in
active, both the Ford and Carter administrations have sought authority
to sell additional quantities of tin from the stockpile. Finally,
at the last session of Congress authority was voted for a sale of up
to 35,000 tons but no sales have yet been made. It has been indicated
367
-6-
that the intention is to sell tin at a rate of about 10,000 tons
a year. Despite earlier indications that sales might have started
in March of this year, it is now indicated that sales will only
begin as of July 1. The reasons for this delay have been variously
interpreted by the press but there appears to be a general assumption
that it is not unrelated to a Bolivian election scheduled to take
place in June.
I will submit for the record a tabulation contrasting the
prices for the leading metals as of March 31, 1980 with the ceiling
prices that prevailed during World War II. This tabulation shows
that among these major base metals by far the greatest increase in
price has occurred in tin -- despite the fact that of all these netals
tin is the only one subject to an international agreement intended to
stabilize prices. It is also relevant to point out that the produc
tion and consumption of tin have shown the smallest increase of any
of these base metals during the entire post-war period. Consumption
has undoubtedly been adversely affected by the substantial rise in
prices but there is an anomaly about the failure of production to
respond to the incentives provided by these sharp price advances .
One possible explanation would of course be a failure to
develop new tin deposits to add to the available reserves. However,
two other observations appear pertinent. One is that in the case
of two of the major producers -- Bolivia and Indonesia -- the tin
industries were nationalized and production in these two countries
has not reattained the levels achieved under private ownership. By
contrast, production in Malaysia and Thailand has made mere favorable
comparisons with previous levels of output and the industry in both
these countries remains in private hands. A further fact is that
imposed by the producing governments have risen sharply.
-7-368
These include taxes on production and exports rather than on
profits. So severe are the export taxes that there appears to
have developed a well documented substantial export trade in
smuggling tin concentrates out of some of the producing countries
to avoid tax payments.
An objective appraisal of the tin agreement cannot avoid the
conclusion that it has not brought price stability. On the contrary,
the markets both in Penang in Malaysia and in London are subject to
sharp day-to-day fluctuations. Nor has it improved the U.S. dialogue
with the Third World if one is to judge by the statements made by
political leaders in the producing countries critical of U.S. policy.
The only way in which U.S. consumers can look forward to ob
taining their tin supplies at reasonably stable prices would be if
tin production were to be expanded. This should certainly be high
on the agenda for discussion by U.S. delegates in the forthcoming
meetings regarding the Sixth Agreement. The producing countries
should be asked to provide incentives for increased production.
Without the U.S. government selling any tin from the stock
pile, it appears that production and consumption are at present in
approximate balance. The argument is frequently made that the tin
agreement would have worked better if the buffer stock had been
larger but if one looks back to the 1973-74 experience, it appears
from that that a buffer stock three times the size of the previous
20,000 ton limit did not prevent a dramatic price increase at a
time of excited demand. How can a buffer stock now be accumulated
to provide a measure of stability?
Clearly even if new price ranges are agreed to by the Coun
cil, an active buffer stock buying program will drive the price still
higher. The U.S. stockpile, which is perhaps going to provide some
369
-8-
measure of elasticity to the supply situation over the coming years,
is after all a finite resource. It has met the supply gap in the
post. It cannot continue to do so ad JnTinitum.
Unless real efforts are made to expand tin production, one
must be very skeptical of the effectiveness of a new tin agreement
in stabilizing prices.
While the price of copper has by no means risen to the same
extent as tin has risen, price movements in this commodity in recent
months have been extremely erratic. Compared with the current U.S.
producer price of slightly in excess of 9(K a pound, the average
price quoted by a leading publication as recently as mid-February
was $1.43. At the end of 1978 the comparable price was 73C a pound.
The copper industry is a far larger one than the tin industry
Primary production in the Western World, excluding the centrally
planned economies, is in the order of 7,500,000 tons a year. At a
conference on copper held in Geneva last year the U.S. delegation
suggested discussion of a possible copper agreement involving a
buffer stock of 1,000,000 tons to be used to try to modify the
sharp price swings, the intention being, of course, to purchase
copper in periods of market weakness and to sell it in periods of
market strength. The suggestion was qualified as not being a firm
proposal but simply a starting point for discussion. Because the
U.S. administration has a philosophical aversion to arrangements
which involved what is loosely called "supply-management" -- that
is controls over production and exports -- the U.S. delegation
made it clear that this suggestion was for a pure buffer stock
arrangement .
-9- 370
At the end of 1973 the reported refined stock of copper by
the American Bureau of Metal Statistics, both within the United
States and in other reporting countries of the Free World , amounted
to 305,000 tons an abnormally low level. At the end of 1977
after four years of consistent production in excess of demand, the
same stocks were reported to have been 1,672,000 tons -- an increase
of 1,300,000 tons.
Had a copper agreement been in place, clearly it would not
have been able to absorb this entire surplus. It is relevant to
point out that in fact during the years 1975 through 1977 a number
of producers either curtailed production or shut down mines. Had
a price-supporting mechanism been in place -- without supply-management
measures as indicated by the U.S. government -- production would have
been considerably greater and consequently the growth in stocks
would also have been greater. If a buffer stock (including
sales from the U.S. strategic stockpile) of 60,000 tons of tin
failed to arrest a significant increase in tin prices, then one
must come to the conclusion that a comparable figure to deal with
copper would be 30% of 7,500,000 tons or 2,250,000 tons.
One has no way of knowing of course at what price an inter
national copper agreement would endeavor to support the market. It
is not unreasonable to suggest that this price would hardly be less
than 750 a pound or $1,500 a ton. Thus we are talking of figures
well in excess of $3 billion for a stockpile of 2,250,000 tons or
even of $1.5 billion for a buffer stock of 1,000,000 tons. The
global discussions which have been held under the aegis of UNCTAD
for a so-called Common Fund began with an initial recommendation
for a fund of $6 billion to cover 18 commodities. According to the
New York Times on May 20, 1979, industrialized and developing
countries in Geneva agreed that day on the fundamental principles
of a $750,000,000 fund "to stabilize Third World earnings for raw
materials." At today's prices that fund would barely cover the
cost of the tin buffer stock and would be a fraction of the cost
of a copper buffer stock. There are sixteen other commodities to
be considered.
Before closing I feel I should point out that international
commodity agreements by their very nature become public documents.
This has great relevance to commodities traded on commodity ex
changes. Astute persons who make their living by trading in commodi
ties will be quick to perceive when the limits of any published
commodity agreement have been reached. This seems to have been the
case with the tin agreement. Once it was clear that the buffer
stock was completely liquidated, the tin agreement became a meaning
less paper document.
I can conceive of circumstances under which prices of
mineral commodities not traded on commodity exchanges could in fact
be stabilized through international agreements, but for those mineral
commodities that are traded, the task is far more difficult.
Let me point out, for example, that in the year 1979 alone
the volume of trading in copper on the New York Commodity Exchange
was equivalent to more than six times the total consumption of
copper in the United States. For a variety of reasons a great deal
of money has flowed into the commodity exchanges that was formerly
invested in securities or banking institutions. The perceptions
of those who control that money will in many cases overwhelm the
normal ebb and flow of buying and selling between the actual
producers and the actual users of the commodity.
-1
It is hoped that these observations will make clear the
enormous difficulties involved in trying to control prices of
commodity through inter-governmental buffer stock agreements. The
objective of stabilization may appear desirable but the likelihood
of achieving the objective unfortunately is low.
Thank you for your attention. I will be pleased to respond
to any questions.
373
COMPARATIVE PRICES
World War II Price Increase
(a) Wall Street Journal of April 1, 1980
ASARCO
Metais & Minerals
374
Appendix L
ASARCO Incorporated
1 20 Broadway
New York, NY 10271
Gold and SUver as Stores of Value
An Historical Perspective by
Simon D. Strauss
Former Vice Chairman
and Consultant to
ASARCO Incorporated
1981 Henry Krumb Lecture of the
American Institute of Mining.
Metallurgical and Petroleum Engineers (AIME)
375
Simon D Strauss, former vice chairman and now a consultant
to Asarco. is one of ihc world's leading authorities on metal
markets Born in Lima. Peru, the son of a United States mining
engineer, he began his career as a journalist prior to becoming
a financial analyst covering the metal and coal industries. Dur
ing World War II he served as an officer of Metals Reserve
Company . a government agency. He joined ASARCO Incor
porated in 1^4(1 in the sales department and quickly rose to the
executive ranks ol the company His many industry, business
and academic credits include membership on the Materials Ad-
sisory Committee. Office of Technology Assessment of (he
U.S. Congress; chairman of the Committee on Minerals Avail
ability of ihe American Mining Congress; chairman emeritus
of the Silver Institute; former president of the Lead Industries
Association and the Zinc Institute, and a director ol the Inter
national Copper Research Association and the American Bu
reau of Metal Statistics Mr. Strauss has been a visiting lecturei
at Massachusetts Institute ol"Technology and a visiting prolcs-
sor in mineral economics at Pennsylvania State University .
Polytechnic Institute of New York and the University of Ar
izona
Gold and Silver as Stores of Value
A funny thing happened on ihe way lo the supermarket in the
lute nineteen sixties Silver coins disappeared from circula
tion not only in the United States but also in Canada. Su it/-
erland. The Netherlands. Austria. Germany. France and other
countries where they had been pan of the circulating media
used for commercial transactions. Gold coins, although still
being minted, had disappeared from the marketplace in most
countries during the nineteen thirties
Thus, though many countries today continue to mint and issue
precious metal coins, no longer is money w ith intrinsic value
used in shops, restaurants, hotels, or other marketplaces as a
means of payment A tradition of more than twenty -seven hun
dred years (he use of silver and gold coins to pas for goods
and services has conic to an end. except perhaps lor the rare
cases of desperate emigres seeking refuge Ironi w ar or rc\ olu-
lion who offer their precious metal hoards in exchange toi sate
transit
The Value of Money
Today the world's commerce is carried on w ith paper money .
with token coins minted in base metals, and ol course with
checks, plastic cards, and other evidences of credit standing
This is noi necessarily a choice by the vast majority ol the
world's population F
:
or many the preferred alternative is still
hard money money h.iseJ on content ol precious metal and
not on value attributed to it
by a government
That this is so is clear from the eagerness w ith which current is
sues ol gold and silver coins arc snapped up by the public to
be put aw. iy
in vaults or other sate havens, as a means ol pre
serving wealth These coins pay no interest Yet in the minds
ot their ow ners they will retain their v alue w hen other mea
surcs of wealth are deteriorating Paper money .
they leel. is
subiect to the r.iv
.igcs of inflation Gold and silv er coins, they
believe, will rise in value as the worth of paper money de
clines
Since time immemorial gold and silver have been treasured by
mankind KL'V pi . Greece and Rome are considered to hav e
been the cradles of modern European civ iliration. But w hen
Europeans traveled lo distant lands in other continent' to
China. India. Tibet. Mexico. Peru. Colombia 01 the African
West Coast invariably they found ornaments and artifacts ol
gold and silver as priced possessions
376
A Barbarous Relic
In the Twentieth Century a profound thinker on economics.
John Maynard Keynes. declared that gold as money was a bar
barous relic The head of the U.S Federal Reserve Board, Wil
liam McChesney Martin, repeated the epithet some twenty
years later. U.S Treasury policy for years was to denigrate and
eventually to try to sever the link between gold and money.
In learned academic circles this view is widely held. Money,
the savants say. should be linked to the full faith and credit of
the issuing governments not to the uncertain supply of pre
cious metals But the> have not convinced the billions of peo
ple, less learned in economics bul more steeped in tradition,
who view paper money with distrust and who still regard "hard
money" in gold and silver as desirable assets.
What accounts for the fascination these metals hold for man
kind'
1
\Vhy were they the first almost universal choices for
money
1
Why and how were these metals displaced from their
historic role
'
An Historical Perspective
To find answers one need not look far My research has been
based primarily on the Old Tegument, the Oxford Universal
Da. nonar\ . the Columbia Encyclopedia, and the Encyclopedia
Briiannu'it. Millions have played pans in this engrossing his
tory but to my mind the principal actors include Abraham.
Moses. Croesus of Lydia. the Kings of Bohemia and the Em
perors of Austria. Sir Isaac Newton. Alexander Hamilton. Wil
liam Jennings Bryan, ihe already mentioned John Maynard
Kcyncs. Franklin D Roosevelt. John F. Kennedy. Richard
Nixon, and perhaps Bunker Hunt
Gold and silver share certain attributes They arc rare: they
cannot be duplicated or counterfeited (although alchemists
have made a valiant try I:
they appeal to the eye: they are dura
ble
Three Billion Golden Ounces
Experts agree that most of the gold and silver produced since
the dawn of history (and they, along with copper, were the first
metals to be produced) is still around A recent estimate by a
distinguished French miner. Pierre Gerin-Jean. places existing
stocks throughout the world at over 3 billion ounces of gold
and 25 billion ounces of silver These metals are treasured and
closelv guarded as bullion bars, as coins, as jewels or as ob
jects of art.
In this century some important industrial uses have been devel
oped Gold and silver required for these purposes may not al-
wavs be readily identifiable but those who know do not
overlook their inherent value. Recently The Wall Street Jour
nal reported that a prominent doctor had listed his library of X-
ray films as part of his estate because of the silver content of
the films
And now for history
The first reference to gold in the Old Testament is at its outset
In Chapter Tw o of Genesis it is stated that a river went out of
Eden to the land of Havilah "where there is gold; and the gold
of that land is good: there is bdellium and the onyx stone." The
Oxford Diiliiman defines bdellium as any of several trees
yielding a gum-resin But parenthetically the dictionary states
that the rabbis explained bdellium as pearls. So it
appears thai
Eden and its environs were rich in gold, pearls, and onyx. All
of this before Jehovah, deciding it was not good that man
should be alone, removed a rib from Adam, and created the
woman later named Eve
A Thousand Pieces of Silver
Enter Abraham, the Hebrew patriarch In the course of his tra
vels w ith his w ifc. Sarah, and his followers he came to the land
of Gcrat. of which Abimclcch was king. Fearing he might be
slam for his wife's sake. Abraham said Sarah was his sister and
Abimclech took her into his quarters. But in a dream God told
Abimclcch he was a dead man because Sarah was another
man's w Me Abimelech had not yet to use the Biblical
phrase "come near her." Earh next morning Abimclcch re
proached Abraham, who confessed the truth. In a remarkable
act of contrition. Abimclcch then gave Abraham sheep, oxen,
men-sen ants and women-servants and a thousand pieces of sil
ver The weight of the silver pieces is not stated
In a subsequent episode. Abraham was looking for a burying
place for his beloved wife. Sarah Ephron. the son of Zohar.
sold him a field containing the cave of Machpclah for four hun
dred shekels of silver. As the Bible puts it. Abraham "weighed
to Ephron the silver which he had named in the audience of the
children of Heth. four hundred shekels of silver, current moncv
w ith the merchant
' '
That is the first reference to money and a
specific amount of silver, since the shekel was a unit of weight
It is believed that originally the shekel weighed 16 .3 grams
Subsequently the shekel was reduced to the equivalent of 8
grams The shekel was not a com at that time, as the first coins
were minted many years later But it was a specific amount and
that is why the Bible states that Abraham "weighed to Ephron
the silver." One can readily calculate that 400 shekels at 16.3
grams w as equivalent to 208 ounces of silver and that at $ 1 5 an
ounce the burying place cost the equivalent in today's currency
of S3. 130.
377
city-states, to its plentiful supply of silver. The Athenian coin
was stamped with an owl's head. Perhaps it was from the wide
circulation of this famous coin that owls derived their reputa
tion for wisdom. The modem unit of weight the dram owes
its name to the drachma. Throughout the Mediterranean areas
and the Mid-Easi coins have been named drachma or dirhem or
dirhan all words thai dome from this Greek origin.
In Rome the basic coin was the denarius, weighing one-twenti
eth of a troy ounce. The Romans initially minted both a gold
denarius and a silver denarius The value of the gold coin was
established as equal to 2? ot the silver coins. This ratio of
twenty-fix e to one reflected a growing abundance of silver not
only from Greece but also from Spain and other mining areas
exploited by the Romans
The ratio had been different in more ancient times. The famous
king of Babylon. Hammurabi, about the year 1900 B.C had
established the ratio of silver to gold as six to one. This \\a- in
recognition of the relume scarcity ol silver at the time and the
relative abundance of gold The explanation for the difference
has been well put by John Poss in hi-, book Sttnn-\ ot [)f\nn\
from which I
quote.
"Silver in the torni ol name metal occurs only in small
amounts and rather sp.irselv over the world, and it
quickly cor
rodes to form a black, oxn.1i/cd coating By contrast name
gold and native copper arc rather more plentiful It was not un
til the Greeks began to exploit the rich galena deposit-, of
Launum and recover silver in association with lead that silver
became truly plentiful in relation to gold.
"
Adulterated Roman Coins
When ihc Roman Empire was over-run by the Goths and other
northern tribes, the Romans had already begun to adulterate
their coinage by lowering the weight ol contained metal On
occasion coins were minted in lead w Jth a gold plating to de
ceive the public.
Dunne the Dark Ages a period of monetary instability ensued
In time the practice of using actual weights of precious metal in
trade was rev ived. A good example is attordcd by the \ ikmgs.
the fierce Scandmav lan w amors who swept over much of
western Europe in the eighth, ninth, and tenth centuries A.D
An article in the September. 1980 issue of Smithsonian maga
zine describes the Viking use of silver:
". . . The British Museum's superb silver (Viking) hoard, dis
covered in Cucrdalc in Lancashire by workmen repairing a
nver bank in 1840. (was) undisturbed since the day it was hid
den in the tenth century The massive weight of this silver
hoard. 88 pounds, is made up of bracelets, brooches, chains
and foreign coins, and odds and ends of 'hack silver'. This
hoard reveals that, in a culture without its own coinage, trans
actions were paid for w ith weighed silver perhaps two brace
lets, a brooch and a jumble of foreign coins, and if the weight
was a little short, a lump would be hacked off the arm ring the
dealer was wearing to bring n up to scratch."
One of the major tools of the Viking traders was a set of col
lapsible scales for weighing precious metals. Decorated lead
weights were used in operating the scales.
A Chinese Tael
And in a totally separate and then isolated civilization, the Chi
nese, one finds a similar use of a specific weight of silver as the
basic unit for commercial transactions The Chinese unit was
know n as the tael or hang These names applied both to a com
and lo a specific weight about 1
'
j
troy ounces.
Modern European currencies began to develop in the eleventh
century AD The best known was the English pound When
the Normans conquered England in 1066 A.D they brought
wiih them a silver penny minted of an alloy of 92-'':
r
/; silver
and 7-
1
:' copper and decorated with a small siai The Saxons
called the com a sterling a corruption of the word "starling",
because 240 of these coins weighed a troy pound, as the need
tor a more valuable item of currency arose the British came to
^pcak ol the pound sterling.
Pounds, Shillings and Pence
Some 400 years later King Henry VII w iscly decided that the
.-ap between the penny and the pound was too great An inter
mediate unit was required He designated a new com to be
known as the shilling sterling, equal to 12 pence and in turn
one-twentieth of j pound Just as talent, originally a weight,
had become a word to denote quality, so too in time the word
"sterling", onuinally an alloy, acquired its present sense ol
meaning excellent and known value
Note the parallel between the English system of pounds, shil
lings, and pence and the early Roman denarius. The denarius
was one-twentieth of a trov ounce. Thus a trov pound, contain-
in i; twelve troy ounces, was equivalent to 240 denarii while the
English pound sterling was equivalent to 240 pence As an ab
breviation the English used the letter "d" for denarius 10 de
note pence. And. of course. South African gold miners have
consistently identified the gold content of their ores in penny
-
weights by the abbreviation "dwt"
To most people, the mark is the standard unit of currency in
Germany and other countries. But. like the British pound, n
was originally a unit of weight. The mark was defined as equal
to eight troy ounces or two-thirds of a troy pound in the elev -
378
cnth and twelfth centuries Trade in England then was earricd
on in terms of marks as well as of pounds Transactions took
place in both gold and silver marks
The Mark of a King
When Richard the Lion Heaned. the famous English king who
fought the Saracens in the Holv Land, was reluming home
from the Crusades in 1 193. he was captured by the Emperor of
Austria. Henry VI. and held for ransom. The Encyclopedia
Britannica states that the ransom w as I 50.000 marks but
does not spccily whether these w ere gold or silver marks.
Mv authority tor belie\ ing the ransom was gold marks is Errol
Flynn. In (he mov ic Rohin Hiimi Errol Flynn as the hero way
lays a troop of soldiers conveying tax returns in gold which had
been collected by Richard's brother. Prince John Robin
Hood that is to say . Errol Flv nn claims that Prince John in
tends to line his own pockets w ith this gold treasure but Robin
Hood will use it to ransom Richard History tells us that in fact
the ransom was paid (perhaps not quite in lull). Richard was
released, and shortly thereafter was killed fighting his former
ally. Phillip II of France
A ransom of 150.000 gold marks would have been equivalent
lo 1. 200.000 ounces. Clearlv . Henrv VI of Austria ranked
right up there with Avatollah Khomeini of Iran when it came to
ransoms.
The Almighty Joachimsthaler
What about the origin ol the dollar
'
The most prolific silver
mines in Europe in ihe Middle Ages were at Joachimsthal. a
village in what was then the Kingdom of Bohemia In the early
filtecnth century the King-, ol Bohemia used this silver to mini
a com which became know n as a Joachimsthaler because of its
place ol origin It contained e ight -tenths of an ounce of silver,
or one-tenth of the eight-ounce English silver mark Joachims
thaler was rather a mouthful for merchants quoting prices on
their goods. Thus eventually the name lor this beautiful coin
was abbreviated to thaler When Bohemia was absorbed into
the Austrian Empire, the Austnans adopted the thaler as their
standard com
The Austrian Empire was ruled by the Hapsburg family . Cha
rles V of Austria married a Spanish princess and also became
Charles I of Spain With the Hapsburg family in charge of both
Empires, it
proved convenient indeed that the basic Spanish
currency unit was the real meaning royal containing one-
tenth of an ounce of silver Eight Spanish reales. equiv alent to
one Austrian thaler, became known as the Spanish thaler
These are the legendary pieces of eight, made famous in
Stevenson's Treasure Island bs Long John Silver's parrot
The Spanish had established mints in Mexico and Peru locoin
the huge silver output of those colonial possessions. As the
treasure ships sailed back to Spain from the New World many
of them were raided by pirates and by enterprising American
colonists who called themselves privateers.
Thanks to this somewhat unorthodox custom, pieces of eight or
Spanish thalcrs circulated freely in the Colonies. When inde
pendence from England was achieved. Alexander Hamilton
proposed to Congress that the United States currency be de
nominated in dollars an obvious corruption of the word "tha
ler
"
The Colonists had called the small Spanish real "a bit."
Two reales equal to the U.S. quarter was "two bits."
Austrian Mni'iti Theresa thaler I
left I: Spanish ihnler or
eighl-retil piece: United Suites silver dollar.
A Long-Held Standard
The new dollar wjv approximately the size of the Austrian and
Spanish thalers Because U.S. mintage was based on an alloy
ot'901
"; silver and I0 r;
copper, the precious metal content of
the dollar was 0.77 ounces of silver rather than the 0.8 ounces
contained in the Austrian thaler and the Spanish eight-real
piece As SI contained 77 ounces, the monetary value of sil
ver on the basis of Hamilton's proposal was $1 .29 an ounce a
standard set in Congressional legislation in 1792 and not
changed until the mid-1960s
Although the monetary value of silver was $1 .29 an ounce, the
country was not on a "silver standard." Silver for coinage was
bought in the open market at prevailing prices Except for rare
instances, the price remained well below SI .29 an ounce until
1968 The difference between the market price of silver and its
monetary value represented a profit to the Mint This is called
seigniorage a word of French origin meaning the take real
ized in miming coins by the lord of (he manor the seigneur
379
To revert lo the Austrian thaler the most famous coin of that
denomination was the Maria Theresa thaler of 1780. displaying
a handsome bust of that buxom Empress. Austria dominated
trade in the Middle East and on the east coast of Africa through
the famous trading port of Venice . which was then pan of the
Austrian Empire. The merchants of that flourishing seaport
paid for the goods they bought with Maria Theresa thalcrs
An International Means of Payment
This coin soon became the universal standard for trade in the
Middle East and East Africa So deep-rooted has its acceptance
been, that to this dd\ the Austrian Mint coins Maria Theresa
silver thalers. each containing 0.8 ounces of silver. These are
not for use in Austria but for circulation in countries where il
literate but shrewd merchants and farmers consider it the most
acceptable means of payment Meanwhile in Austria the thaler
has been replaced b> the schilling as the standard unit of cur
rency.
Other coins are also known by names tlut have their origins m
units of weight. The French li\re and Italian lira are words de
noting a weight equivalent lo one pound M.m> ol the Hispanic
countries today call their standard monetary unit "the rx>o"-
a word which means weight In Spain the peseta is a word
meaning a small weight.
One cannot escape the fact that money was identified originally
as a specific quantity of precious metal of given purity, hut as
previously stated, in time government found it convenient to
debase their currencies This wa> accomplished either by re
ducing the weight of metal or diminishing its punly
The Shrinking Pound
For example, the British did not long persist in equating the
monetary pound w ith a pound of sterling alloy By the nine
teenth century the crown or five-shilling piece -contained
about 0.8 ounces of silver. Thus tour of these coins, equal to
one pound in currency, contained only slightly over three
ounces of silver, one-fourth of the original content Alter
World War I the silver content of the coin was reduced trom
92'.:<J to about 50' < . This meant only 1
'
: ounces in a pound
sterling. After World War II silver was entirely eliminated
from British coinage, except tor commemorative issues
The British example is not unique The original norm was a
gold coin issued in 1 252 in Florence w ith a content of 58
grams almost two ounces. The Netherlands call their com.
equivalent to two British shillings, a florin When minted in
silver it had a content of about three-tenths of an ounce. Almost
every
1
country has had a history of reducing the precious metal
content of its coins The US has had a better record than most
the composition of its coins was unaltered from 1792 to 1968
What is the origin of the ratio of sixteen-to-one for silver to
gold, advocated by William Jennings Bryan?
Most people think of Sir Isaac Newton in terms of falling ap
ples and the law of gravity He has another claim to fame In
1703 as Master of the Royal Mint in England he set the value
of gold at 84'/: shillings an ounce Although the United States
did not adopt an official gold standard until the Currency Act
of 1900. parity between the British pound and the U.S. dollar
for many years was S4.8h to the pound At that rate of ex-
chance the equivalent to 84' :
shillings was S20. 67 an ounce.
This was 16 times the silver value of SI. 29 an ounce based on
0.77 ounces of silver in the silver dollar. Thus between them
Isaac Newton and Alexander Hamilton established the ratio
that was to become the Democratic battle cry in the Presiden
tial election of I89(v
A Variable Ratio
To recapitulate: Hammurabi set the silver-gold ratio at six lo
one; the Romans adiusied this to twenty-five to one. Sir Isaac
Newton and Alexander Hamilton combined to establish a mon
etary (but not a market valuel ol sixteen toone. During the
depths ot the Depression in 1931 and 1932 the ratio slipped to
about eighty to one a* silver sold at 25c an ounce while gold
held .11 its monetary value of S20 d" an ounce until 1933. What
is the correct ratio
'
V* ho can say In my judgment the prices of
these tw o metals will constantly shift in relation to each other
Their supplv and demand differ greatly Accidents of discov
ery of deposits or scientific advances based on the quite differ
ing properties of the two elements are certain to cause changes
in people's evaluation of their worth Change is as normal in
this ratio a^ it is in mo-t element-, ot the human drama.
Value by Weight
What iv
significant is that until the Industrial Revolution and
until the development of paper currency .
gold and silver coins
were valued for their weight of contained metal regardless ol
the names by w hich they were called or the identity of the issu
ing nations Persons travelling from one country to another did
not have to change their monies The Austrian thaler for many
years was eood currency throughout the trading world because
its silver content was known and accepted True, the insidious
habit of chppinc coins to remove a fraction of their precious
metal content had caused mints to adopt the practice of milling
the edges of the coins The man in the street and particularly
the merchant knew the true ring of the noble metals
In daily life, before paper currencies evolved, silver coins
played a far more active role than gold coins. The intrinsic
value of silver corresponded more closely to the sums involved
in daily commercial transactions by the average citizen Thus
380
in many languages silver became synonymous with money.
The French call money argent, the Spanish call money plata.
Both these words mean silver. And in English-speaking na
tions, even though silver coins arc no longer in circulation, a
merchant when he makes change will frequently say to his cus
tomer. "Here's your silver" even though the coins are made
of a cupro-mckel alloy Eating utensils arc referred to as silver
ware, though today many are made of stainless steel or other
non-silver materials
The Interchangeable Crown
In the nineteenth century . most of the leading industrialized na
tions had coinage of comparable size and silver content The
British crown the five-shilling piece had roughly the same
size and silver content as the French. Swiss and Belgium five-
franc pieces, the Italian fixe lira, the German five mark, the
Dutch 2'-': guilder, the Scandinavian five kronors. and the
United States silver dollar In my possession as an example is a
five-mark coin issued in 1852 by the Grand Duchv of Baden
prior to the unification of Germans . On the face of the com the
denomination is slated as five marks. 3 1
/: gulden, or two (ha-
Icrs take your pick When a coin collector speaks of a
"crown" coin he means coins ol this size and these denomina
tions.
Grand Din h\ oj Baden coin issiu'J in 1852 itfnuiniiniU'd
an 5 murks. 2 thulcrs or 3' : gulden.
The origin of this uniformity among nineteenth century Euro
pean coins was the so-called Napoleonic standard of conform-
itv adopted b> the French in 1803. Belgium. Switzerland and
Italy subsequent!) adopted it In 1862 an agreement known as
(he Latin Monetary Union was negotiated and more than
twenty governments subscribed to the L M.U. standards The
ratio of silver to gold was set by the L M.U. at 15.5 to 1 . close
to the implied ratio of the monetary values in the United States
Gold coins were minted in a fineness of 900 pans gold to 100
pans alloying metal roughly 21 .6 carat gold. The British did
not adhere to this the fineness of their coins was 916 66 parts
gold or 22 carats However. U.S. coinage was based on 900
fineness beginning in 1837.
Paper Money Enters Trade
The growth of world trade, spurred bv science and the Indus
trial Revolution, had made it
increasingly difficult to carry on
trade exclusively with coins Paper money was a development
of the seventeenth century . Events such as the revolt of the
American colonies, the French Revolution, and the American
Civil War provided ample evidence that paper money not
backed by precious metal could become virtually worthless. At
such times the public preferred "hard money" which would
retain its value
The 1914-1918 World War undermined almost all the curren
cies of Europe. The British struggled to restore the value of the
post-War pound but in 1931 they finally went off the gold
standard In 1933 Franklin Roosevelt, faced by the Great De
pression, severed the U.S. tie to gold at 520.67 an ounce.
It was then that John Maynard Keyncs. plumping for managed
currencies, applied the epithet "barbarous relic" to gold. His
views gained w ide support among those w ho believe that infi
nite w isdom can be found in government officials and their ec
onomic advisers These supporters think that bv studying the
ebb and flow of economic statistics national leaders can make
the adjustments necessary to preserve the value of money. In
theory perhaps they can. hut do they .'
Experience has demonstrated that the needed adjustments are
unlikely to be popular If they arc not popular they become not
politically palatable to officials Inflation inevitably follows,
the printing presses run overtime, and the purchasing power of
the currency declines
U.S. Drops the Gold Standard
When President Roosevelt took the United States off the gold
standard in 1933 he was motivated bv the fact that if the Trea
sury had continued to issue gold in exchange for gold certifi
cates at the S20.6? price the country's gold reserves would
have soon been exhausted After a few weeks of fluctuating
prices he fixed the new value of gold at $35 an ounce He made
the private ownership of gold illegal and required that citizens
turn in to the Treasury any gold coins or gold bars in their pos
session. Coin collectors were exempted from the order. But
U.S. currency was no longer backed bv a specified gold con
tent.
Under these new conditions the nation's gold reserve was to be
used only for settlement of international balances of payment
or for sale to licensed industrial consumers. Domestic gold
producers were obligated to sell their output to the government
at S35 an ounce. The United States also stood ready to absorb
any gold offered to it
by foreign producers or by foreign Cen
tral Banks at the S35 price
381
Many governments other than the United Styles took similar
measures but the private ownership of gold was not proscribed
in the Middle and Far East or in such European countries as
France and Switzerland
In 1944 at the Bretton Woods conference the tic between mild
and the dollar on the basis ol S?5 an ounce w as made a key ele
ment in the new International Monetary Fund Cold and the
U.S. dollar were accorded equal ranking as reserve assets lor
Central Banks of the member nations
The Silver Purchase Act
President Roosevelt had also turned his attention to silver The
Great Depression had plunged the price ol silver to very low
IcvoN. This was causing problems in India and China, two
countries where silver had a quasi -monetary status Alter tail
ing to negoiiale an international agreement on si!\cr. President
Roosevelt prevailed on the Congress to pass legislation known
as i he Silver Purchase Act. Under this Act the US gov ern
ment was empowered to purchase silver in the open market ai
prev ailing prices until such time as the value ot its silver hold
ings, based on ihe monetary price of SI 29 an ounce, was
equal to one-third ol the value ol its gold holdings, valued a!
S35 an ounce
Undei the Act. domestic miners ol sihei were guaranteed a
lived return because they were permitted to delivci silver to the
Mini lor coinage based on the government retaining 50', ol the
monei.uv value as seigniorage This meant domestic miners re-
ali/ed Wo cents an ounce on their silver a premium over the
open market price. Thanks to this two-pronged program lor sil
ver. all domestic mine production, much foreign mine produc
tion, and substantial amounts ol Chinese and Indian coins wete
acquired
By the time Vsorld \\ ar II broke out. the Treasury had acquired
about 3 billion ounces. AS the Treasury s
gold holdings also
rose very sharply follow ing adoption of the S?5 price, the three
to one ratio between gold and silver was never attained. Alter
several years of active buy ing. Treasury ollicials gradually lost
interest in acquiring silver of foreign origin When war broke
out in 1939 the world market price was about 40 cents an
ounce
Silver and the War Effort
During the war the Treasury "s silver holdings proved of great
value Large amounts were lend- leased to Allied governments
thai found they could belter maintain confidence of colonial
populations under war-time conditions by circulating coins ol
intrinsic value containing: silver Substantial quantilics of silver
were used as a substitute for copper busbars in government-
owned defense plants Additional amounts were sold to indus
try for war-related purposes including photographic film,
bearings for aircraft engines, and desalting kits for use on life
boats.
After the end of the war Allied governments returned most of
the lend-leasc silver. The silver used in the government plants
was recovered. Nevertheless, government bullion stocks did
not reattain the peak levels reached jusl prior to U.S involve
ment in the war. as much of the Treasury holdings was minted
as coins
Industrial demand for silver rose rapidly post-war while new
mine production lagged behind In 1946 the government re
duced Us seigniorage on domestic mined silver to 359r (i.c im
proved the price realized by the miners) and as a political offset
agreed to sell silver to consumers at that same price (91 cents
an ounce) should they need the metal.
Erosion of Silver Stocks
In the late '50s government stocks of silver began to erode. By
late 1961 President Kennedy suspended all sales to consumers
at 91 c an ounce, as he was entitled to do under the weirding of
the Act Thus, the price of silver was free to rise but a prompt
rise above SI 29 an ounce would have had serious repercus
sions by spurring the hoarding or melting of coins So the gov
-
cmmem willingly redeemed silver certificates, backed by
silver at SI 29 an ounce, to hold the price in cheek.
In the early '60s the U.S. Mint worked full lilt to mini enough
silver coins to meet the demands of the business community.
Coins were beginning to disappear from circulation because
some observers correctly anticipated their intrinsic value might
in time exceed their lace value. By 1964 the Mint decided to
replace silver w ith base metals for subsidiary coinage The last
90Q subsidiary silver coins to be minted bore the date 1964
172 years after Congress first established the SI .29 monetary
value of silver. Once an adequate supply of non-silver coins
was m circulation the government ended its effort to control the
price. In 1967 the price rose above SI .29 an ounce and has re
mained above that benchmark ever since.
Today the government holds a few million ounces of silver for
use of the U.S. Mini in commemorative coins or medals
About 140 million ounces is held in the strategic stockpile
This is all that is left of the vast quantities acquired by the gov
ernment under the 1934 legislation during the Roosevelt era
Gold Holdings Take a Dip
The gold holdings ot the U.S government remain large but arc
well below the high-water mark achieved in ihe immediate
382
post-war era Adverse balances of payment in recent years
caused a net outflow of gold from U.S. holding 10 the Central
Banks of our trading partners.
In the immediate post-war era many Central Banks had opted
for U.S. dollars rather than gold in settlement of favorable
trade balances Dollars were then preferred to gold by the aca
demics As lime wore on. however. Central Bank holdings of
U.S. dollars became very large By the late '60s several Cen
tral Banks began to indicate a preference for gold over dollars.
c\en though the International Monetary Fund rated them as
equally valid reserve assets
At Ihe same time as this was happening students of gold statistic^
observed that in the aggregate Centr.il Banks were no longer
acquiring gold. This meant that world mine production was
being entirely absorbed by industrial requirements or by invest -
ment demand in those countries permuting gold holdings by
private citi/ens who legarded gold as j desirable stoic ol \jluc
The Dollar is Devalued
The events ol the Vietnam War undoubtedly greatly simiulalcd
such private investment demand lor gold lndusm.il demand as
such is considerably less than the world's gold mine pioduc
tion. Inllalionary pressures and adverse trade balances Con
vinced President Nixon in mid- 197 I that the dollar should be
devalued in relation to gold His act ion. taken in August. IV" I .
was accompanied by .1 iree/e on wages and pnecs uiidci Con
grcssional authority In Japan this ov ci -night dev elopnient be-
cai; . know n as (he "Nixon Shock
I inie does not permit a detailed description ol the events that
ensued lemporary cllorts to lnut a new somewhat highei
lived price lor gold proved uiisui\cssiul An abortive ellon
was made to csiahlish two-tier prices lor gold one a fluctuat
ing price lor private dealings and the other a lived price lor in
tergovernmental transaction^ This s\ siem did not prov e
feasible.
Restriction* on private ow nership ol gold were eventually re
moved in the United States, deal Britain and those other
countries that had previously prohibited such ownership The
dramatic developments in the energy field, particularly actions
by OPbC on oil pricing, enormously atlected the gold price It
rose dramatically to levels prev lously considered unthinkable
in terms of U.S. dollars
The silver price had risen sharply to establish all-time highs in
February. 1974 It fell back later and then for several years
moved in a range of S4 to So an ounce while gold prices lluctu
ated tar more dramaticalK
Metals Safeguard Wealth
From 1974 to 1979 inflation continued unabated in all the in
dustrial nations of the world Persons of even modest means,
worried by the loss of purchasing power of their paper money,
increasingly looked to precious metals as one way of safe
guarding their wealth
The Iranian hostage crisis and the Soviet invasion of Afghani
stan in late 1 979 galvanized gold and silver markets into dra
matic activity
Nelson Bunker Hunt and members of his family had tor several
years been know n to take an extremely bullish v iew of the
prospects for silver Presumably this was based on the continu
ing gap between new mine supply and industrial demand for
silver clearly reflected, in all Ihe available statistics When the
silver market rose above S4(l an ounce in January and Febru
ary . 19X0. and then fell back in late March to below SI 2 an
ounce, the Hum involvement in the market was widely consid
ered to be a major (actor in these v iolent movements
Paper Money Loses Faith
\\ ithout try ing to minimize Mr Hunt's influence, one may
doubt thai he could have pushed the market as far and as fast as
it went had it not been for a w idcspread loss of faith on the pan
ol huge segments ol the population in the value of paper
money
I o dcscube a price is
always difficult because prices are mea
sured by a denominator which is not itself a constant namely .
a unit ol currency . At this point which is the more accurate de-
sen pi ion that the prices of gold and silver have risen or that
the value ol paper money has lallen?
I he events ol the last lew years have made a lot of people
question the underly ing v alue of an asset based on the faith and
credit ol the issuing governments namely .
paper money
That they should, in this situation, have turned to two metals
which have traditionally been regarded as wealth since Ihe
dawn ol historv is hardlv stranse
1 1981 ASARCO Incorporated
383
INDEX--Simon D. Strauss
a 'Court, Holmes, 181
Allen, Arthur, 3, 12, 17-21
Allende, Salvador, 150-151, 203
Alta Gold Company, 254
aluminum, 50-52, 66-67, 111-112,
168, 191, 206-207, 219
Aluminum Company of America
(Alcoa), 51, 57, 187
Aluminum Company of Canada
(Alcon), 52, 66-67, 69
American Metal Company, 125-126,
165, 170
American Mining Congress, 162,
188, 190, 194-195, 235
American Smelting and Refining
Company (Asarco) , 6, 7, 37-38,
67, 68, 84-102, 106-107, 111-
148, 151-159, 162-166, 170-180,
189, 194, 196, 199-200, 209,
221, 223, 226, 228, 228, 234-
235, 241-243, 245-246, 255-256
antitrust issues, 92-93, 178-
181; corporate management, 84,
86, 91-92, 111, 125, 156-159,
173, 228-229; environmental
concerns, 221-226; Federated
Metals Division, 90-91; labor
relations, 142-143, 158, 172-
173; LIFO inventory, 137;
marketing, 87-89, 91, 111-112,
114-115, 117, 125-127, 134-148,
152-155, 157, 165-166, 178, 182-
189, 199; operations, 85-102,
106-107, 114-115, 118-133, 138-
139, 142-143, 158-159, 162, 174-
176, 196, 224, 226, 241-243;
takeover attempts, 177-181
American Zinc, Lead and Smelting
Company, 107-108
Amoco, 230-231
Anaconda, 76, 92, 95, 97, 101,
112, 170, 174, 182-183
Anderson, Maxie, 225-226
Anglo-American Corporation, 129,
248
anti-trust concerns, 93, 178-181
Archibald, Frank, 128, 130-131
Arizona, environmental
restrictions in, 229
Arteal, _, 264-266
asbestos, 114-116
Atomic Energy Commission, 199-201
Baillie, Paul, 237
Barber, Charles, 128, 185, 228
Behre-Dolbear and Company, 233
Bellinger, Herman, 5
Benedict, Manson, 215
Bennett, Charles, 194
beryl ore, 79-80
bloc talc, 56
Board of Economic Warfare, 57-58
Boyd, James, 65
Braden, William, 5
Brody, Christopher, 246-247
Broken Hill Proprietary Company,
230-232
Brownell, Kenneth, 6, 7, 91, 120,
122, 139-140, 156
Burke Institute, 267-268
cadmium, 98-99
Callahan Mining Company, 175-176
Campbell, Marsh, 251
Cargill Company, 249
Carlisle, Charles, 197
Gates, Louis, 121-122
CBS (Columbia Broadcasting
System), 223-224
Cerro de Pasco, 8, 118, 121-122,
126, 148, 150-151
Champagne, John, 249-250
Chemists' Club, 259-260
Chevron (Standard Oil of
California), 183
CIPEC (Copper Exporting
Companies) , 213
Clayton, Will, 44-46, 48, 54, 66,
67, 68, 72
Club of Rome, 213
384
CoCa Mines Company, 236
Combined Raw Materials Board, 61
copper
antitrust problems, 177-181;
copper study group, 197;
exploration and development, A,
105, 107, 118-125, 128, 158-159,
187, 220, 230-231, 253-254;
marketing, 87-88, 92, 101, 106,
125-127, 134, 142-145, 154, 168,
179, 186-189, 203-207, 213, 231-
235, 249-250, 252; oil company
takeovers, 181-183; prices,
40, 76, 105-107, 126-127, 135,
168-172, 184-186, 203-207, 213,
229, 234, 249, 255; production,
85-88, 101, 106-107, 125-127,
129-132, 158-159, 168, 170, 224-
225, 231-232, 249-256
Copper Club, 169
Copper Development Association,
187-188
Cortier, Jean, 141
Cyprus Amax, 181, 256
Defense Materials Procurement
Commission, 109, 111
Degussa, 231
Depression, the, 23, 27, 37, 42,
46, 64
diamonds, 59
Dieppedalle, Rene, 140, 144
Donahue, Donald, 244-245, 247-
248, 257
Duval Company, 177, 181
Eastman Kodak Company, 211
"Economics of the mineral market"
lectures, 214, 216
energy crisis, 202, 206, 212-213
Engineering and Mining Journal,
3, 18-23, 180
environmental issues, 50, 229
arsenic, 223; asbestos, 115-
116, 121, 126; lead, 188, 221-
223; sulfur emissions, 224;
sulfuric acid, 133, 224-225;
tailings disposal, 132
Export-Import Bank, 118-122, 128,
173
Exxon, 182-183
Falconbridge Nickel Company, 112,
113
Federal Emergency Management
Agency (FEMA) , 204
flake graphite and amber mica,
53-55
Franck, Prosper, 140, 146
Friendly, Fred and Ruth, 277-278
General Cable Corporation, 92-93
germanium, 236-240
Gillespie, Alexander, 128
gold, 39, 208-209, 212, 231, 254
Gore, Albert, Sr., and family,
236-241
Gustafson, John, 66
Haines, Hugo, 140, 285
Hazen, Wayne, 225
Heatter, Gabriel, 44
Hecht, Roger, 139-141, 285
Hirsch, Ike, 59
Hochschild, Mauricio, 279-289
Hoffman, Arnold and Bob, 35-36
Hoover, Herbert, 27
Horgan, Everett, 232
Hunt, Nelson Bunker, 209-210, 229
Industrial Minera Mexico, 152-153
International Copper Research
Association, 187
International Lead-Zinc
Organization, 187
International Lead-Zinc Study
Group, 195-197
International Nickel Company
(Inco), 187
International Tin Agreement, 217-
218
International Wrought Copper
Council, 234-235
Jersey Miniere, 236-240
Johnson, Jesse C., 201
385
Johnson, Lyndon, 171
Joklik, Frank, 248
Jones, Jesse, 57
Just, Evan, 179, 180
Kaiser Aluminum Company, 51, 112
Kennecott Company, 76, 92, 94,
101, 107, 120-121, 145, 158-159,
170, 182-183, 204, 231, 248, 254
Koenig, Robert, 122
Korean War, 77, 105-109, 112,
119, 164
Krusttschnitt , Julius, 86, 87
labor relations, 46, 142-143,
158, 172-173, 251-254
Larrea, Jorge, 153
lead, 85-86, 93-98, 164-166, 187,
195-197
Lead Industries Association, 187-
188, 221
Lehman, Herbert, 240
Li, K. C., 109-110
Loeb family, 280, 284
London Metal Exchange, 168-171,
184-186, 203
Mackay School, Valparaiso, Chile,
8-10, 15
Mackenzie, John, 157-159
Madison, New Jersey Eagle, 23-26,
29
Magma Copper Corporation, 154,
244-257, 260
corporate management, 247-250,
257; labor relations, 251-254
Malozemoff, Plato, 63-65, 122-
124, 252
Mandel, Robert and Simone, 266
manganese and chrome, 48
Marshall Plan, 102-103
McCloskey family, 47, 275-278
Metal Traders, Limited, 139, 141,
142, 144, 147
Metallgesellschaft, 230-231, 280
Metals Week, 20, 21, 22
mines, mills, smelters, and/or
refineries
Andina, Chile, 150-151;
Bingham, Utah, 123; Black
Cloud, Colorado, 175; Black
Lake, Canada (Lake Asbestos),
114-116; Buchans, Newfoundland,
89-90; Cananea, Mexico, 255;
Caridad, Mexico, 153;
Chuquicamata, Chile, 5; Coeur
d'Alene, Idaho, 162, 175-176;
Cuajone, Peru, 121-124, 128-
129, 131-133, 174; Disputada,
Chile, 183; El Teniente,
Chile, 5; Garfield smelter,
Utah, 158; Globe plant,
Colorado, 226; Glover smelter,
Missouri, 93-94; Granduc,
British Columbia, 174-175,
183; Hayden smelter, Arizona,
224; Inspiration, Arizona,
248; Kalamazoo ore body,
Arizona, 253; Lake Asbestos,
Canada, 114-116, 135, 159;
Magma, Nevada, 254; McCoy
Cove, Nevada, 212;
Michiquillai, Peru, 128-129;
Mission, Arizona, 158, 159,
176; Morena, Arizona, 134, 225
Morococha, Peru, 8; Mt. Isa,
Australia, 85-88, 117, 142-
144, 147, 173, 181; Nicaro
nickel project, Cuba, 113; Ok
Tedi, Papua New Guinea, 230-
232; Omaha smelter, Nebraska,
95; Pinto Valley, Arizona,
250-252, 255; Quellaveco, Peru,
128-129; Quirivilca, Peru,
130; Rio Blanco-Andina, 150-
151; San Manuel, Arizona, 100,
107, 229, 244, 249-257; Shar
Cheshmeh, Iran, 173-174;
Silver Bell, Arizona, 107,
158; Superior, Arizona, 251,
255; Tacoma smelter,
Washington, 223; Tintaya,
Peru, 256-257; Toquepala,
Peru, 118-133
Mining Club, New York, 258-261
Minorco, 129
386
molybdenum, 113, 207, 219
nationalization, 76, 112, 149-
153, 173, 203
Neptune Mining Company, Nicaragua,
241-242
New School for Social Research,
21-22
New York Commodity Exchange, 186
Newmont Mining Corporation, 100,
107, 121, 122, 126, 174-175,
183, 244-253
nickel, 112-113, 207, 219
nitrate, 4, 11, 12
Nixon, Richard, 202-203
Occidental Minerals, 236-237
Office of Price Administration,
55-56, 58, 64
oil crisis, 202, 212-213
oil industry, 181-183
Organization of Petroleum
Exporting Countries (OPEC), 213
Orr, David (grandson), 274, 277
Orr, Katie (granddaughter), 273-
274, 277
Orr, Sam (son-in-law), 271-273
Orr, Susan. See Strauss, Susan.
Osborne, Richard, 245-246
Outlook, The, 37
Outokumpu flash furnace, 249, 255
Paley Commission (President's
Materials Policy Commission) ,
103-105, 192, 198
Pennzoil, 177-181
Phelps Dodge Company, 37-38, 100,
107, 120-126, 134, 170, 183,
207, 225, 251, 256
Philip, Prince, 184-185
platinum and palladium, 192
Polio Parents Club, 266
Prain, Sir Ronald, 9
Premium Price Plan, 63-64
prices, metal market. See also
under individual minerals.
government controls, 75-77,
105-107, 171-172, 202-210
World War II, 40, 75-76;
Korean War, 105-107, 168;
Vietnam War, 171-172; oil
crisis, 202-205
Princeton Club, 261
Prohibition, 24-26
quota import plan, 165-166
Reconstruction Finance
Corporation, 42-46, 55, 63, 75
Defense Plant Corporation, 43,
45, 49-51; Defense Supplies
Corporation, 43, 63; Metals
Reserve Company, 43, 45, 47-
50, 52, 55-59, 63, 66, 71, 90;
Rubber Reserve Company, 42,
63-64; U.S. Commercial
Corporation, 79
Revere Copper and Brass Company,
92-93
Reynolds Metals Company, 51
Ruffo di Calabrias, Fabrizio, 145
Saudi Arabian Mining Syndicate,
242-243
Schmutz, Charles, 38, 46
Schrieber, Hans, 233
Schultz, "Dutch," 25
Seailles, Claude, 144
Seymour, Whitney North, 179-180
silver, 39-40, 80-82, 85-86, 98,
160-163, 175, 192, 209-212,
236, 289
Silver Institute, 163, 189
Sleepy Hollow Golf Club, 261
solvent extraction, electro-
winning process (SX-EW) , 133-
134, 225, 250, 256
Southern Peru Copper Corporation,
118, 125, 126-129, 135, 148,
151, 173
St. Joe Lead Company, 93
Standard Statistics Company, 31-
32, 35, 37-39, 67, 82
stockpiling, 164, 190-195, 205,
214
387
Straus, Roger, 6, 7, 84, 89, 120,
122, 156
Strauss, Benjamin (grandson),
271, 278
Strauss, Bertha Miller (mother),
1-3, 10-16, 17, 27, 30, 33-34
Strauss, Bethany (granddaughter),
271, 278
Strauss, Elaine Mandel (wife),
32, 36, 44, 47, 48, 68-74, 109,
262-269, 275-276, 284, 286
Strauss, Frances (sister), 12,
13, 14-15, 16
Strauss, Janet McCloskey Robbins
(wife), 47, 232, 235, 240, 261,
263, 274-279
Strauss, Joanna Burnstine
(daughter-in-law), 270, 278
Strauss, Lester (father), 1-6, 7,
8, 10, 12, 13, 27, 29, 32-35
Strauss, Peter (son), 32, 44, 69,
70, 72, 74, 262, 265, 269-271,
275-277
Strauss, Ruth (sister), 2, 3, 11,
13, 14-15, 16
Strauss, Susan (daughter), 47,
69, 70, 71, 72, 74, 262-265,
269, 271-274, 277
Thomas, Katie. See Orr, Katie.
Thompson Prospecting Syndicate,
35
Thompson-Lundmark Mining Company,
35-36
tin, 49-50, 149, 191, 217-219
Tittman, Ed, 125, 128, 157, 159,
163, 173
trade associations, 186-189
United Nations, 195, 213
United States Steel Company, 107-
108
uranium, 108, 199-200
Vaciago, Giovanni, 140, 145
Vaughan, R. Worth, 156
Vietman War, 171
Vogelstein, John, 245-249, 285
Wallace, Henry, 57-58
War Production Board, 57-58, 63-
64
Warburg Pincus and Company, 245-
249, 257
West, Michael, 233
Winter, J. Burgess, 247-249, 251-
254, 257
Wirtz, Willard, 58
Woolfe, Brian, 247
World War I, 11-13
World War II, 40-69, 75-78, 103,
190
Zinc Institute, 187
Eleanor Herz Swent
Born in Lead, South Dakota, where her father became chief
metallurgist for the Homestake Mining Company. Her
mother was a high school geology teacher before marriage.
Attended schools in Lead, South Dakota, Dana Hall School,
and Wellesley College, Massachusetts. Phi Beta Kappa.
M.A. in English, University of Denver. Assistant to the
President, Elmira College, New York. Married to Langan
Waterman Swent, mining engineer.
Since marriage has lived in Tayoltita, Durango, Mexico;
Lead, South Dakota; Grants, New Mexico; Piedmont,
California .
Teacher of English as a Second Language to adults in the
Oakland, California public schools. Author of an
independent oral history project, Newcomers to the East
Bay, interviews with Asian refugees and immigrants. Oral
historian for the Oakland Neighborhood History Project.
Interviewer, Regional Oral History Office since 1985,
specializing in mining history.
7