My own company has just run a figure, which includes only actual operating costs, amortization of capital costs and interest, which came out about 10 cents a pound but did not include added costs we have incurred by having to shut the smelters down occasionally to maintain standards, which both reduced our throughput and increased the cost of operating the smelter. So it is something over 10 cents for us and I think the 10 to 15 cent figures used can be validated.

Now in terms of our foreign competitors, we regard Chile as probably the most efficient producer, at least as a general statement; there may be individual mines that are lower. To the best of our knowledge the difference between Phelps Dodge's cost of producing and the average cost of Chilean production is essentially that 10 to 15 cents environmental cost.

So we feel that though we have lower grade ores we have other advantages in this country which would enable us to compete head to head with foreign competition were it not for these special burdens that are imposed on us and are not imposed on most of our foreign competition.

Senator HART. How much of that is eaten up by transportation cost in this market?

Mr. MUNROE. I don't know if I could put a cents per pound figure on it. Transportation is not too high when you get close to tidewater. Senator HART. One other question on the demand side. Your statement talks about in time that excess supply will be consumed. Could you comment just on the trends in copper demand particularly in relation to new technologies, fiber optics and things of that sort?

Mr. MUNROE. Yes. Over the period since World War II the demand for copper in the non-Communist world has grown roughly 4 percent a year on average. Not every year is an average year, of course. I would expect that perhaps that growth rate will be somewhat lower in future due to rising energy costs and other limitations on industrial development, including environmental restraints.

However, I think that the use of copper clearly will continue to grow. If you want to use 3 percent, that would seem to me as good a horseback estimate as any. Three percent year is over 200,000 tons of additional copper capacity needed a year, since our current consumption is 72 million tons worldwide.

With not a great excess of productive capacity now, at some point it seems to me that quite clearly the demand will require new facilities to be brought into being and at that point, if a decision to invest is based on investment criteria, the price will have to improve to justify it, and improve substantially.

I might just mention, if I may there, Senator, we are somewhat concerned with the possibility that there may be premature development of new capacity abroad, perhaps aided by U.S. Government financing agencies or institutions like the World Bank. I know there is a lot of talk-again in my opinion generated out of the 1973-74 period-about incipient shortages, and there are programs in OPIC and the World Bank to try and stimulate development of productive capacity abroad, particularly in the LDCs, and I have no objection to this in the long term, but I certainly would deplore premature panicking over shortages until we can see some kind of abatement of the current glut.

Senator HART. Your demand projections do calculate new trends in new technology and so forth.

Mr. MUNROE. Well, as best we can. There are many, many fronts on which copper is competing with other materials. Fiber optics has had a great deal of publicity. We do not regard it as a major tonnage threat to copper, which I could explain. Both of us are nontechnical people, I think; I could probably explain to you what I understand about it, but it might not be too valid, except I think there are limitations on the usages of that particular item, which would be used in some areas but not in the main copper using areas.

Senator HART. Did your company or any of the other principal domestic producers operate internationally?

Mr. MUNROE. Yes. A number of the U.S. copper producers have some interest in copper mines abroad. Of course, that is a good deal less than it was before the Chilean nationalization of Kennecott and Anaconda. The production at those foreign mines in which U.S. companies have a voice has been curtailed in areas such as Canada, South Africa, and Australia where the companies still control what is done. In cases such as Zambia and Peru, where there are major interests, the government is really controlling policy there.

Senator HART. That is where the international problem is located? Mr. MUNROE. Well, the four principal LDC's-Chile, Zambia, Zaire, and Peru, in that order.

Senator HART. And they share the bulk of the production in that order.

Mr. MUNROE. Yes.

Senator HART. Thank you very much. We appreciate your statement. It will be extremely helpful to us.

Mr. MUNROE. Thank you.

Senator HART. I would like to welcome Scott Dial who represents the Clayton Brokerage Co.

Mr. Dial.

STATEMENT OF SCOTT DIAL, CLAYTON BROKERAGE CO.

Mr. DIAL. My name is Scott Dial and I am here to talk about silver in the strategic stockpile. As a silver specialist with one of the Nation's largest commodity futures companies, my father, brother, and I handle a large investment and commercial clientele in silver.

Additionally, as the silver committe chairman of the International Precious Metals Institute, I am involved with coordinating that organization's dissemination of, and research into, the subject of silver for an international membership of educators, businessmen, and scientists. I appear here today to represent my own views on silver, a subiect in which I am the third generation of my family to deal.

Mr. Chairman, as there are some 93 commodities that make up the strategic stockpile, it is crucial that I make very clear just why it is important that silver be spotlighted in these stockpile discussions, particularly since the entire stockpile holding of 140 million ounces of silver was declared excess as recently as 1976. Today, as so often in recent years, a bill is before Congress to sell some or all of this silver. Let me develop my case in opposition to this as follows:

First, the stockpile was established to insure that our economy will have available the necessary raw materials to support military and basic civilian requirements during periods of war, national emergency, and when required for the common defense.

Second, with the virtual exhaustion of the U.S. Treasury silver stockpile by 1971, the United States has been a net importer of over half a billion ounces of silver for an average of almost 70 million ounces a year, or 43 percent of annual industrial consumption.

To underscore the degree of our import dependence, the United States requires net imports of 41 percent of its petroleum needs from primarily four foreign nations and requires net imports of 43 percent of its silver needs from primarily three foreign nations. Last September, Senator, you reiterated the original purpose of the Strategic and Critical Materials Stockpiling Act of 1946 as

to decrease and prevent wherever possible a dangerous dependence of the United States upon foreign nations for supplies of these materials in times of national emergency.

Our one-half billion ounce net import requirement has cost the United States over those years almost $2 billion.

Third, the foregoing has not dealt with United States' military needs for silver. Proposed new weapons systems alone have indicated requirements for the cruise missile, the MX missile, and the Trident submarine that run to many times the amount of silver in the stockpile. It was reported last week that because of this a bill will shortly be introduced by Representative Larry McDonald of Georgia to buy additional silver for the stockpile.

It is at this point that a crucial question begs to be asked: In view of these facts, why was silver ever declared as excess to stockpile needs? Mr. Ronald Royal of the Federal Preparedness Agency answered the question broadly in written response to questions submitted at the September 9 hearing: "Technological obsolescence constitutes the principal reason why these materials are no longer suitable to support our industrial and defense sectors in a national emergency."

This is a most questionable statement when applied to silver. Regarding the new weapons system mentioned, the indicated silver usage, primarily in batteries, hardly suggests any technological obsolescence. In fact, Westinghouse Research, in announcing just last fall the development of a silver battery reported as being ideally designed for such weapons systems, said, "This battery system provides a combination of the highest presently available specific energy content with high-power capability and long deep-discharge life." This new usage, coupled with increasing industrial import dependence, casts grave doubt upon the idea of any technological obsolescence regarding silver.

On the other hand, the excess label could have been used, as various Congressmen have suggested, as a means for an administration, by a subsequent silver sale, to augment budget reserves. Certainly, as the value of the stockpiled silver is over $700 million, this might be an

answer.

One must also consider the efforts of the Silver Users Association in its active support of various silver disposal bills. Located here in Washington, it has, understandably, been most anxious to aid its mem

bership in acquiring a large supply of relatively low-priced silver, and disposal would have the effect of temporarily causing a decline in the price of silver.

Contrary to Mr. Ronald Royal's prepared statement to the Silver Users Association in January that, from 1968 to 1971, Treasury silver was sold without market disruption. In fact, the ensuing market volatility resulted in a price range during these years that was greater than that of any previous consecutive 4-year period in the history of the United States and saw the price cut in half.

Thus, while such sales might have monetary benefit for some, the excess label for silver seems ill-applied in view of the recognized stockpile purpose and current, as well as future, U.S. silver needs.

Another possible reason for the excess label and attempted disposal of silver could be the position recently taken by the administration and the Silver Users' Association that as the United States depends upon three allies for the bulk of its silver imports-Canada, Mexico, and Peru-our own silver stockpile is unnecesary. Yet, to make the silver-petroleum comparison once more, among the four principle suppliers of petroleum in the United States Canada, Venezuela, Saudi Arabia, and Nigeria-no belligerents are evident, and our two geographical neighbors, Canada and Venezuela, afforded us very little relief during the oil crisis of recent years.

In short, traditional goodwill and proximity of foreign suppliers were not to be counted on in a crisis. The Stockpile Act charges Congress with responsibility to maintain an adequate and available stockpile in crisis situations, freeing the United States from costly foreign dependence. I cannot see how the current status of silver in the stockpile is consistent with this responsibility.

What about the future? The U.S. Geological Survey warned in 1973, silver is a critical element in our national economy and one in which our Nation and the Free World are confronted with a longrange problem of serious imbalance between consumption and new production.

A World Bank research publication repeated this warning just last year by finding, among significant minerals the only ones whose reserves are assuredly tight or critical are silver and tin. Once again, the excess status of silver must be seriously challenged.

Mr. Chairman, there are various pieces of stockpile legislation that will be considered by the committee. I close with the sincere hope that the critical and increasing importance of silver in the strategic stockpile will be fully realized and incorporated into whatever legislation this committee and Congress ultimately establishes.

My sincere thanks to you, Mr. Chairman, and to the committee. I welcome any questions.

I have one other comment; it sounds like an 11th hour development but in talking with my office this morning something that regards development of batteries I think is particularly pertinent. It has been brought up about batteries being used in these various missile programs. In various phone calls to people involved with this the Defense Department, probably the main competitor for silver-based batteries and lithium-based batteries, this morning according to the wire report that I was given the Canadian Transport Authority has

banned lithium batteries as a result of the fact that two of them have exploded recently in testing.

So as we do have administration witnesses here today, I think it is very crucial that we discuss this among other things.

Thank you.

Senator HART. Thank you, Mr. Dial.

Could you give this committee information regarding the amount of silver imported from Canada, Mexico, and Peru?

Mr. DIAL. Basically, as I said, the United States does import about 41 percent and virtually all of that import requirement comes from these nations. I might tie this to a degree to bridge it all together with the copper. In the United States of the production of silver the majority of that silver is produced as a byproduct of copper and whereas the copper industry here has certainly been hurt by foreign copper production in fact there is very little silver produced in foreign nations as a byproduct of copper production.

The point that I am making here is that these nations-Canada, Mexico, and Peru-provide us with the bulk of our silver, we cannot go elsewhere to look for it.

Senator HART. Understanding your interest in the specific issue of silver, do you have any comments on the overhaul legislation represented both by S. 2575, S. 1810, and/or H.R. 4895 on the administration stockpile?

Mr. DIAL. NO. There are gentlemen here more knowledgeable on conner and tin than I am but, again, if I can apply logic here I am talking about the silver because it is a very logical commodity in many respects. In the case of the Government, they cannot use it but we have enough that we sell it as surplus silver and the other commodities it is very simplistic and logical that if we have during the peacetime an established dependence that it is only reasonable to assume that under a wartime category that we are going to be using that. As was mentioned by Mr. Strauss, we used to use Cuba for nickelit was awfully close to use and now it is seemingly millions of miles away so now we have Canada, Mexico, and Peru. Mexico is beginning production of silver coins again. I guess to me the logic and simplicity appeals to me as far as Senator McClure's bill and I certainly agree with that and any other similar legislation.

Senator HART. I believe that is all the questions we have. If you want to supplement your remarks while the record stays open, you are certainly welcome to.

Mr. DIAL. Thank you, Senator. I appreciate it.

Senator HART. Thank you, Mr. Dial.

Senator HART. Walter L. Frankland, Jr., Silver Users Association, Incorporated.

STATEMENT OF WALTER L. FRANKLAND, JR., SILVER USERS

ASSOCIATION, INC.

Mr. FRANKLAND. Senator Hart, I would request that the entire statement be introduced for the record.

Senator HART. Without obiection, it will be introduced. [The prepared statement follows:]