Foreign Relations of the United States, 1952–1954, Africa and South Asia, Volume XI, Part 1

Atomic Energy files, lot 57 D 688, “South Africa, Negotiations”

Report by the Director of Raw Materials (Johnson), Atomic Energy Commission²

secret

[Washington,] January 4, 1952.

Proposed Supplementary Heads of Agreement (Including Addendum) Between the Atomic Energy Board of the Union of South Africa and the Combined Development Agency

the problem

1. To consider approval by the Commission of the proposed Supplementary Heads of Agreement (including an Addendum) (AEC 101/60) modifying the Heads of Agreement entered into between the Atomic Energy Board of the Union of South Africa and the Combined Development Agency on November 23, 1950.³

discussion

2. The 1950 Agreement provided for a uranium production programs from South Africa gold mines and the sale of the uranium produced to the Agency. The program now in effect covers the construction of uranium recovery facilities at six mines and an annual production estimated at 1200 tons of U3O8 per year.

3. In accordance with the Terms of Reference (AEC 101/49) approved by the Commission and the Agency, negotiations were undertaken to expand South African uranium production by 1,000 to 1,500 tons of U3O8 annually. In oral discussions a production goal of 3,000 tons per year was generally considered desirable and probably feasible on the basis of available information. It was recognized from reports received from South Africa that any major expansion of the 1950 program would create serious problems for the South Africans and that higher prices and other inducements might have to be offered if negotiations were to be successful. Negotiations began early in November and members of the American Side returned to Washington about December 17.⁴

4. At the request of the Agency, the mining industry had its technical staff make a thorough study of the feasibility of a major uranium expansion program. The study covered all phases of the program, such as the potential uranium producers, construction problems and time-table, operating problems, labor supply, power and material requirements and the over-all impact on the South African economy. On the basis of the engineering and technical report, the mining industry and the South African Government representatives agreed that a production rate of 3,000 tons of U3O8 per year was feasible and could be reached in 1955 or 1957 depending upon whether the favorable or unfavorable contingencies materialized. It was their judgment that the end of 1956 was a reasonable safe target date.

5. The Supplemental Heads of Agreement and Addendum as now drafted cover an undertaking on the part of the South African Atomic Energy Board to take steps immediately “to expand the previously agreed programme of production with a view to achieving, from sources within the Union of South Africa, an output of 3,000 short tons of uranium per year by the end of 1956.” A condition to his undertaking on the part of South Africa was an increase in the 1950 price schedule⁵ and the limitation of capital risk to uranium production and the assumption of this risk by the Agency under certain conditions described subsequently in this paper.⁶ Also involved was a commitment to assist the South African Electricity Supply Commission (ESCOM) in arranging a loan to finance a power supply equivalent to the requirement of the uranium program. This would be a public utility loan and would not be tied to, or a charge against, uranium production.⁷ The Agency’s responsibility for arranging loans for uranium production plants remains unchanged.

[Here follows a detailed, technical discussion of the abovementioned provisions of the proposed Supplementary Heads of Agreement.]

16. The Supplementary Heads of Agreement and Addendum were agreed upon and initialled by representatives of the Agency and the South African Atomic Energy Board but are subject to review and approval by the three Governments—the Union of South Africa, the United Kingdom, and the United States. Since the Chairman of the South African Atomic Energy Board and the representatives of the U.K. Ministry of Supply were prepared to sign in South Africa, it would appear that final approval is now a matter for decision by the Commission and such other U.S. Government agencies as may be concerned. Formal approval will involve signature of the documents by the authorized representative of the Agency and the Chairman of the South African Atomic Energy Board.

staff judgments

17. It is the understanding of the Office of General Counsel and the Division of Finance that the ore procurecent contemplated in the proposed modification of the Heads of Agreement is justified as being in furtherance of the presently authorized United States atomic energy program. On this basis the Office of General Counsel has no legal objection, and the Division of Finance has no fiscal objection to the recommended action.

recommendations

18. In view of the urgent need for expanding uranium production to meet the Commission’s presently authorized program, including stockpiling uranium ore if possible, it is recommended that the Atomic Energy Commission:

a. Approve the Supplementary Heads of Agreement and Addendum (AEC 101/60) and request the concurrence of the Combined Policy Committee in this action.

b. Authorize on behalf of the United States the signing of these documents by the Chairman of the Combined Development Agency after the concurrence of the Combined Policy Committee has been obtained.⁸

c. Note that decision at the earliest possible date is important because the proposed program not only involves new sources of production but an expansion of uranium production facilities now under construction; that the present program is being held up as construction has reached a stage where a decision on expansion must be made immediately to avoid serious delays in completing the plants; and that orders for U.S. steel and equipment must be placed soon in order to assure 1952 deliveries.

2. This report is attached to a memorandum by the American Secretary, Combined Development Agency (John A. Hall) to the American Secretary, Combined Policy Committee (R. Gordon Arneson). Also attached as Enclosures “A” and “B” are respectively the text of the “Supplementary Heads of Agreement” and the text of the “Addendum” to the “Supplementary Heads of Agreement.” Neither is printed.

   The function of the Combined Development Agency (CDA), whose membership included the Governments of Canada, the United Kingdom, and the United States, was to secure control and insure development of uranium and thorium supplies located outside the jurisdiction of the member States. The CDA operated under the direction of the Combined Policy Committee composed of representatives from the member States. For further documentation on U.S. atomic energy policy, see volume ii. For previous documentation on U.S. atomic energy policy and the Union of South Africa, see Foreign Relations, 1951, vol. i, pp. 685 ff.

   Jesse C. Johnson headed the U.S. part of the U.S.–U.K. team which negotiated the Supplementary Heads of Agreement described in this report.

3. Not printed. (Atomic Energy files, lot 57 D 688, “South Africa”)
4. Documentation on these negotiations is located in file 103 AEC.
5. The proposed price increase ranged from 7 to 18 schillings per pound of U3O8, roughly equivalent to $1.00 to $2.50. This would raise the cost of an average pound of U3O3 from $9.10 to $10.50, excluding the cost of calcining, packaging, and transportation to the United States.
6. The proposed agreement retained the 100-schilling or $14.00 per pound ceiling price, but allowed that, whenever the price of uranium reached the 100-schilling ceiling level, the mining company could notify the Combined Development Agency of its desire to discontinue production. The Agency could then negotiate with the mining company (through the Union Government’s Atomic Energy Board) for a special price arrangement. If a new arrangement could not be reached, then at the Agency’s request the mining company was required to continue operations on the basis of cost of production (as defined in the Heads of Agreement of 1950) plus a margin of 10 schillings or $1.40 per pound. The Agency retained the authority to terminate such an arrangement at any time upon 3 months’ written notice. Upon termination by the Agency, the mining company could either repay the unamortized balance of the capital loan and acquire the uranium production facilities, or it could transfer ownership of the facilities acquired by the loan to the Agency and thereby be relieved of the obligation for repayment. The Agency would then assume responsibility for loan repayment. Also, under the proposed agreement, the Agency agreed to purchase a greater quantity of uranium than it had under the 1950 Heads of Agreement.
7. Export–Import Bank of Washington: Fifteenth Semiannual Report to Congress for the Period July–December 1952, p. 60, indicates that on July 10, 1952 the Board of Directors of the Export–Import Bank authorized a credit of $19,600,000 for the Electricity Supply Commission of the Union of South Africa.
8. On Jan. 7, 1952, the American Secretary of the Combined Policy Committee forwarded a copy of the Supplementary Heads of Agreement to the members of the Committee for their concurrence. On Jan. 21, 1952, the American Secretary of the Combined Policy Committee informed the American Secretary of the Combined Development Agency that unanimous concurrence had been obtained. (Atomic Energy files, lot 57 D 688, “South Africa, Negotiations”)