Another important factor considered in arriving at the estimate for 1962 is the increasing need for Government assistance in exploration. New deposits of minerals are increasingly difficult and more expensive to locate. Financial assistance for exploration projects is one way by which the Government may aid in the search for mineral deposits to assure a continuing domestic supply of essential mineral commodities.

Results to date from the DMEA program demonstrate the effectiveness of the Government's financial assistance in exploration projects. As of December 31, the Government had spent nearly $23,303,000 on DMEA contracts, and the net recoverable value of ore reserves found on 394 certified projects was approximately $1 billion estimated at current market prices. This amounts to a return of $43 in ore found for every dollar spent by the Government on contracts. In addition, royalties from production on DMEA projects have already returned more than $3,748,000, and repayment from production on certified projects will continue for years to come. Even the unsuccessful projects provide important geological information for future use.

Still another aspect of this assistance is that it goes directly to the mining communities where the exploration work is done. Not only does it double the amount of exploration work which the contractors can do and thereby increase the effectiveness of their searches, but it also doubles their capacities to pay for wages, services, and supplies in the mining communities, many of which are suffering from severe economic depression. Finally, with an adequate and competent staff of mining engineers and geologists in the field, the OME can provide the needed technical assistance which is not otherwise available to most small operators within their limited means.

To administer the OME program for 1962, and to provide technical assistance, $300,000 is needed. This amount will enable the OME to fill nine positions for fieldwork placing one or more full-time engineers or geologists and one secretary in each of the four regions. It will provide adequate funds for the extensive travel necessary for them to reach prospective and operating projects, and it will enable us to pay the Bureau of Mines and the Geological Survey for the facilities and services which are required for the field operations.

The limited funds ($200,000) available for the current year for administrative and technical services have prevented us from staffing these field positions in the Western United States. Instead, we are using two engineers assigned from the Bureau of Mines and a geologist from the Geological Survey to do OME work on a part-time basis. This arrangement is unsatisfactory because the men involved cannot give their full attention to OME business. As a consequence, the processing of applications is delayed, the administration of active contracts suffers, and certified projects receive inadequate attention. Furthermore, this field staff cannot respond adequately to the numerous requests for information on the OME program and cannot provide the needed technical assistance to the small operators which should be a significant part of OME service.

THE OME PROGRAM

The Office of Minerals Exploration, under Public Law 85-701, offers financial assistance to firms and individuals who desire to explore their properties or claims for 1 or more of the 32 mineral commodities listed in the OME regulations. This help is offered to applicants who ordinarily would not undertake the exploration under present conditions or circumstances at their sole expense and who are unable to obtain funds from commercial sources on reasonable terms.

The Government will contract with an eligible applicant to pay up to one-half of the cost of approved exploration work as it progresses. Each contract

specifies the work to be performed in a described area at costs estimated on an actual or fixed unit cost basis but limited in total amount. The work, based upon sound engineering and geological principles, is approved by the Government only after careful investigation. Ordinarily, contracts will not be approved for work which will require more than 2 years to complete; however, the time limit for most projects is fixed for a much shorter period.

Funds contributed by the Government are repaid with interest by a royalty on production from the property. If nothing is produced, there is no obligation to repay. A 5-percent royalty is paid on any production during the period the contract is in effect, and if the Government certifies that production may be possible from the property, the royalty obligation continues until the Government's contribution is repaid with interest, or for the 10-year period usually specified in the contract.

Simple interest is calculated at a rate not less than the rate which the Department would be required to pay if it borrowed from the Treasury, plus a 2 percent interest charge in lieu of the actual cost to the Government of administering the contract.

OME ORGANIZATION

The Office of Minerals Exploration is a separate agency of the Department of the Interior, functioning under the supervision of the Assistant Secretary for Mineral Resources.

As formerly organized, the technical and clerical staffs of the Bureau of Mines and the Geological Survey were utilized for all on-site field examinations, work inspections, interim reports, checking and paying monthly vouchers for the amounts of the Government's share of the costs, field administration of exploration contracts, final reports, and inspecting and reporting on certified projects. This work is now performed by OME field officers.

With the exception of the field officers, all OME employees are headquartered in Washington. The organization consists of the Director's Office, Division of Field Operations, Division of Minerals, Division of Contract Administration and Audit, Division of Administrative Management, and a Review Committee. All contract actions are reviewed by this committee composed of the Chiefs of Field Operations, Division of Minerals, and Division of Contract Administration and Audit for conformance with OME standards and policy. Legal services are performed by the Solicitor's Office of the Department.

PREPARED STATEMENT

Mr. JOHNSON. I have a statement which I should like to have placed in the record. I should also like to comment briefly.

(The statement referred to follows:)

Mr. Chairman and members of the committee, thank you for this opportunity to discuss with the committee the appropriation needed by the Office of Minerals Exploration for the fiscal year 1962.

Under Public Law 85-701, the OME conducts a program which provides financial assistance on a participating basis to private industry in the exploration for domestic mineral reserves. This participation is limited to $250,000 for any single contract. Repayment is made to the Government by a royalty of 5 percent on any production during the progress of the exploration work. If the Secretary considers that production may be possible as a result of the exploration, the royalty obligation continues until the amount contributed by the Government is repaid with interest or until the usual 10-year period for repayment expires. The royalty payment applies to both interest and principal, but it never exceeds 5 percent.

From the inception of the program Government participation has been limited to 50 percent of the exploration cost. This limitation has been in accordance with the view expressed by the Senate and House conferees on the 1959 supplemental appropriation bill (H.R. 13450) in their conference report (H. Rept. 2677) that participation by the Federal Government in exploration contracts should not exceed 50 percent of the actual project costs.

Since our appearance before the House Subcommittee on Appropriations, the Secretary has proposed changes in the program to stimulate further exploration for new sources of minerals to meet new and expanding demands and changing conditions in our domestic mining industry. In this respect the Secretary wrote on March 27, 1961, to the chairmen of Senate and House Appropriations Committees proposing to amend the program to increase to 75 percent the Government's participation in the cost of exploration for 18 critical mineral commodities and to add bismuth, gold, iron ore, silver, sulfur, and tellurium to the list of commodities eligible for exploration assistance. The proposal was published in the Federal Register (26 F.R. 2799) on April 4, 1961. Public response to the proposal has been enthusiastic and favorable.

$1,100,000 needed for fiscal year 1962

To enable OME to effectively carry out the objectives of the program, we estimate that $1,100,000 will be required for the fiscal year 1962. Of this amount, $800,000 will be required for financial assistance for new exploration projects. The remaining $300,000 will be needed for technical appraisals and administrative expenses, including the cost of administering contracts still in force and projects certified as discoveries or developments under the program of the former Defense Minerals Exploration Administration.

This is an increase of $550,000 in funds over the amount appropriated this year. It is needed for the augmented workload anticipated as a result of the steady increase shown each year in the value of contracts executed, improvement in market conditions for minerals, the growing need for Government assistance to the mining industry in exploration, and the interest generated by the Secretary's announcement of proposed changes in the program.

The House of Representatives, by Committee Report No. 233 and H.R. 6345. set the 1962 OME appropriation at $750,000-$350,000 less than requested—and limited funds for administrative and technical services to $213,600.

We respectfully petition the restoration of the entire $350,000 deducted by the House action. The loss of these funds will deprive many applicants of the opportunity to participate in the program and will seriously hamper its effective ness by delaying operations and preventing proper administration of the OME program including continuing operations of the DMEA program.

We urgently request the removal of the limitation on the allowance for administrative and technical services (object class 11 through 26, and 31). The reduction of $86,400 for this activity would deprive OME of an adequate staff, especially in the field, necessary to process applications, administer contracts, and inspect certified projects. The limitation of $213,600 for fiscal year 1961 has prevented the establishment of the effective organization contemplated when OME was reorganized in April 1960. Substitute arrangements for one part

time field officer in each region obtained from the Bureau of Mines or the Geological Survey are woefully inadequate even for the present volume of work.

We ask that the $263,600 eliminated from "Investment and loans" (object class 33) be restored. The reduction of this amount will prevent exploration assistance from being extended to many worthwhile properties.

Status of operations on March 31, 1961

On March 31, 1961, the status of operations was as follows:

Approximately 3,600 requests for information about the OME program had been received. Since March 31 more than 500 requests have been received or more than 10 times the number received in March.

One hundred and sixteen applications had been received for OME projects totaling $9,093,773 for 20 minerals in 23 States.

Twelve applications for approximately $1,122,000 were in process. Twenty-nine OME contracts had been executed for $1,278,000 total value. Ten of these contracts were executed during this fiscal year, obligating $241,000 of the $520,000 available. Two proposed contracts for approximately $50,000 Government participation are pending execution.

Seventeen OME contracts for $1,000,246 were in force.

The first royalties received from OME projects totaled $3,665.

Three hundred and ninety-six DMEA projects had been certified as discoveries or developments. The estimated net recoverable value of ore reserves found on these projects was more than $1 billion at current market prices. This is equivalent to a return of about $33 in ore found for each dollar spent by the Government on the program. Royalties on production from DMEA projects totaled $3,860,466.

Fifty-nine DMEA projects had repaid the entire amount contributed by the Government.

Four of the 1,159 DMEA contracts for $1,453,236 remained in force on which Government expenditures were $306,173.

Expected workload, fiscal year 1962

During fiscal year 1962 we anticipate the following workload:

One hundred and twenty new applications for exploration assistance, each requiring an on-site field examination and report by an OME field officer.

Sixty contract negotiations, each requiring agreement between the Government and the applicant on all details, yielding 42 new exploration contracts averaging approximately $20.000 Government participation.

An average of 33 OME and 3 DMEA contracts in force, requiring inspection of the work in progress, voucher checking, and reporting once a month of each active project, or about 150 inspections for the year.

Four hundred and fifteen DMEA projects presently certified or under royalty agreements, requiring a check on production at least once during the year. About 250 field inspections of the properties will be required.

Sixty DMEA projects certified for a 10-year period will reach the end of the certification period during fiscal year 1962. Each will require a final inspection to assure payment of all royalties due the Government.

Administrative and technical services

These active projects are located in 24 of the 50 States, and we expect that 4 full-time field engineers or geologists and 3 full-time secretaries will be required to do the fieldwork in our three western regions. We plan to continue to cover the eastern region from the Washington office. The entire staff will not exceed 28 and will average only 26.

The $213,600 allowed for administrative and technical services under the 1961 appropriation was inadequate for proper servicing and administration of the program. The limitation imposed on administrative funds forced us to use Bureau of Mines and Geological Survey personnel only part time to do the fieldwork. This has reduced efficiency, delayed examinations, and hampered control of operations.

Need for the exploration program

Adequate supplies of raw material are of vital importance to our national economy. We must search continuously for new sources of these materials to replace those being used at an ever-growing rate. If this country is to produce substantial portions of its own requirements and have reserves available for emergencies, more encouragement must be given for domestic mineral exploration. The OME program is one way in which the Government's responsibilities in this area are being carried out.

The proposed changes in the program are of special interest to small operators, many of whom have asked for an expanded exploration program because of their need to find new ore deposits to enable them to continue operations and because of their present economic difficulties. The proposals will increase employment opportunities in distressed mining areas. They will enable us to place more emphasis on exploration for those mineral commodities in short supply in the United States and those required in ever-increasing quantities for defense, missile, and space activities.

In summary, we are convinced that the volume of work in fiscal year 1962 will increase and that the funds requested will be required for an effective OME program. We earnestly recommend that this request receive your favorable consideration.

If you have any questions, I shall do my best to answer them.

RESTORATION REQUESTED

Mr. JOHNSON. Mr. Chairman, our chief purpose in this appearance is to seek restoration of the entire $350,000 deducted from our estimate by the House appropriation bill and to request elimination of the language limiting our administrative funds to $213,600.

As you know, we asked for $1,100,000, $800,000 for financial assistance to participants in exploration projects and $300,000 for administrative and technical services. The House bill appropriates only $750,000 and limits administrative and technical services to $213,600. The loss of these funds will deprive many applicants of the opportunity to participate in the program and will seriously hamper its effectiveness by delaying operations and preventing proper administration of the OME program including the continuing operations of the DMEA program.

NEW BUSINESS ANTICIPATED

We believe that our estimate was warranted by the 1962 business anticipated under the regulations as they stood when we appeared before the House Appropriations Committee. But the enthusiastic public response to Secretary Udall's recent proposal to expand the OME program assures us that every dollar made available for new contracts will be obligated, including the $800,000 requested and any carryover from this year.

EFFECT OF PRESENT LIMITATION

Chairman HAYDEN. If the present limit is retained, what will be the effect?

Mr. JOHNSON. Not as many would be able to participate in the program.

Inquiries began coming in the very day the press carried the announcement proposing that financial assistance be extended to 6 more minerals and that OME pay up to 75 percent of the authorized cost of exploration work for 18 of the more critical commodities. Between April 3 and 21 more than 500 inquiries were received in our Washington and field offices. And even before the changes become effective, many interested firms and individuals are preparing to apply. A conservative estimate of new 1962 business under the expanded program leads us to expect at least 120 applications yielding about 42 new contracts averaging about $20,000 in Government participation per contract. Contracts in force throughout the year will average about 36, and there are 415 DMEA projects certified or under royalty agreements.