The Ambassador in Mexico (Daniels) to the Secretary of State

No. 3260

Sir: Referring to the Department’s telegrams No. 12 of January 24, 1936, 6 p.m., and No. 16 of January 29, 1936, 8 a.m.,72 stating that Mr. Henry P. Smith, representative of the Bondholders’ Protective Committee of the Guanajuato Reduction and Mines Company, would call at the Embassy for the purpose of advising me of serious labor troubles which threaten the existence of the Company, I have the honor [Page 771] to report that Mr. Smith called yesterday. He was for a long time in Guanajuato directing the affairs of the Company in question, and his brother-in-law, Mr. MacDonald, is now in charge. He says that the Guanajuato mines operate on low grade ore and that the labor troubles arose because the workers, having signed a contract which does not expire until next March, made a demand last fall for an increase in wages and other changes which the Company could not grant because to do so would require the owners of the mines to take money out of their pockets to meet what he calls excessive demands. However, he says, the Company discussed the demands and conferred with the Governor of the State of Guanajuato. Without waiving their right to the carrying out of the contract during its life, he said they were willing to reach any proper agreement within the limits of the income from the operation of the property. But, he says, the labor leaders were unreasonable and ordered a strike which closed down the mines last fall. This put approximately 1200 men out of work.

Mr. Smith says he was accompanied to this city by Mr. MacDonald, who, after a conference with the Subsecretary of Gobernación, who expressed a desire to see an agreement reached, had arranged for an appointment to discuss the matter with the Labor Department. Mr. Smith said he would keep the Embassy informed as to the result of the conference and discuss the situation that might develop.

It seems from Mr. Smith’s conversation that the reason he was substituted for Mr. MacDonald to bring the matter to the attention of the Embassy is that Mr. MacDonald is the responsible officer of the Company which has agreed under Mexican law to abide by decisions of the Mexican authorities and not call upon our Government, in line with the principle in the Calvo clause. Therefore, he, Mr. Smith, had come, not as a representative of the Company but as the representative of the Bondholders’ Protective Committee. They hold a mortgage on all the property of the Guanajuato Reduction and Mines Company, and the bondholders are the same people who own the stock in the Company. “The bondholders could at any time carry out a foreclosure”, he said. This situation shows that in essence, if not in law, the bondholders and the stockholders are one. If Mr. MacDonald asked the good offices of the Embassy, he would be violating his signed pledge not to call upon the Embassy but to submit to the ruling of the Mexican authorities. Since the stockholders and the bondholders are the same persons, I do not see how our Government could separate them or their obligations, but, of course, I did not indicate this opinion to Mr. Smith. I only requested him to report the continued status of the negotiations with the authorities.

If there is an impasse, steps will be taken to secure a report on the situation from the proper authorities as directed in the Department’s [Page 772] telegram No. 12, above mentioned. It is to be hoped that, in view of the unemployment of so many miners, and the consequent distress to the city, as well as to the end of securing just treatment of the Company, the Government will find a way of approachment by which the mines may be reopened. The Embassy will seek to lend its good offices in some proper way to that end when and if it becomes necessary.

Respectfully yours,

Josephus Daniels
  1. Neither printed.