845A.10/4–1951: Despatch

The Consul General at Johannesburg ( Redecker ) to the Department of State

secret
No. 239

Subject: Conclusion of Financial Agreement for Uranium Production in South Africa

Wilson L. Townsend, General Counsel of Export–Import Bank; A. A. Wells, Special Assistant to the General Counsel of the Atomic Energy Commission, and R. L. Faulkner, Assistant to the Director of the Division of Raw Materials, arrived as scheduled in Johannesburg on the evening of April 12, 1951. They were met at the airport by Consul General Redecker and Vice Consul Davis and escorted to the Carlton Hotel, where accommodations had been reserved for them. The following evening they attended a large dinner party, which had been previously arranged at the home of Consul General and Mrs. Redecker, in honor of Mrs. Elisabeth Schumann, famous Austrian-American concert singer who has been on a concert tour in South Africa.

The three officials had come to South Africa primarily to finalize financial arrangements for the uranium agreement with South Africa, the technical and commercial aspects of which had been agreed upon in September, 1950.1

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Negotiations have now taken place between the American officials, United Kingdom officials, and representatives of the South African mining companies concerned, for completing arrangements for the financing of the uranium project. Although some slight initial difficulties were encountered in the negotiations and representatives of the mining companies again showed a certain aversion to the uranium project and, especially, its financing by the United States, the anticipated agreement nevertheless has been reached and it is expected that this will find expression in a formal agreement to be concluded within the next week or ten days.

The essential details of this agreement are as follows:

The Export–Import Bank, jointly with the U.K. Ministry of Supply, undertake to grant loans for financing the entire uranium extraction project. The Export–Import Bank will be responsible for two-thirds of the loans and the U.K. Ministry of Supply will be responsible for the remaining one-third.

The loans will run for ten years, equal to the duration of the basic uranium production agreement, and will draw interest at the rate of 4 per cent, compounded quarterly. The South African Reserve Bank will serve as intermediary, will convert dollar loans into South African currency for transfer on behalf of the mining companies, and will be responsible for the transfer of payments of interest and principal to the lenders. The loans will be directly to the several mining companies assuming responsibility for the recovery of the uranium and on whose properties and in conjunction with whose mines the uranium extraction plants will be established.

The agreement initially contemplates that a combined loan (U.S. and U.K.) of £ 10 to £ 12 million pounds will be granted, based upon the premise of the installation of four uranium extraction plants at four separate mines on the Rand. However, as it is now contemplated that six uranium plants at six mines will be established, the total amount of the combined loan may possibly be increased a further £ 5 million pounds to a total of £ 15 to £ 17 million pounds. Thus, the total American share of the loan, in dollars, may reach as high as $30 million.2

It is understood that the South African mining companies, and notably the Anglo-American group (in which, despite its name, there is little or no American financial participation) showed displeasure not only at the uranium project, but, more particularly, its financing by American capital. This attitude is in keeping with the basic policy of the entire Rand gold mining industry to discourage American or any other non-British affiliation with it and to look to Great Britain exclusively for necessary financial assistance, support and guidance.

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The development of the uranium project, closely affiliated with the United States, therefore, marks a completely new era and a new departure in financial affiliations of the major Rand mining companies.

It is clear that the mining companies were opposed to accepting an American loan for the uranium project and much preferred to finance the enterprise themselves entirely independently from their own abundant sterling resources. However, the South African Government intervened and required that the project be financed by a foreign loan, repayable over a long period, rather than by the mining companies privately, since the Government was opposed to the mining companies asking for large amounts of still scarce dollar exchange required for the importation of the necessary uranium plant equipment. It apparently was also feared that, under a blanket foreign exchange authorization, the mining companies might seek to import equipment for purposes other than the production of uranium. By the Anglo-American loan agreement, the mining companies will also lose the possibility of themselves earning large amounts of interest on the heavy capital investment and which they might otherwise charge against the cost of producing the uranium. The foreign loan agreement thus greatly facilitates the heavy payment in dollars for urgent imports of necessary uranium-extraction equipment by enabling payment in foreign exchange to be made over a period of years, rather than immediately, as would be necessary were the plant to be financed by the mining companies in local currency.

The pressure of the Government was thus also evident as regards the financing of the uranium project just as it was in the beginning in causing the mining companies reluctantly to agree to become actively interested in uranium extraction for American and British account. For years the mining companies had shied away from the project, so that pressure from the Government, together with the prospect of reasonable remunerative returns, assured by the agreement with the U.S.–U.K., concluded under the Government’s auspices, were necessary to effect the companies positive interest and cooperation. It is generally felt that the uranium agreement, as finalized last year, is reasonable for all parties, and that while the financial returns to the mining companies will not be especially high, still they will be sufficient to sustain the mining companies’ interest in and to make the enterprise well worth while for them.

It is understood that at the beginning, at least, only current gold ore production will be processed for uranium extraction as this will amply suffice for the full capacity of the uranium plants. There will, therefore, be no occasion, for the present, to process the vast mine dumps of already processed ore, some of which also contain uranium. It would appear that the uranium-extraction plants will be operated in synchronization with and as extensions of the mines’ regular ore [Page 1445] processing plants. However, the processed ore dumps will be available for uranium extraction whenever a larger uranium supply, than is possible by current ore production, may be desired.

Equipment for the uranium plants has already arrived on the Rand, and it is hoped that the first plant may be in regular operation within one year. The others will be brought into operation as rapidly as possible thereafter. All of the production of uranium will be delivered to the South African Atomic Energy Board, which has a national monopoly on uranium in all its aspects, including mineral rights, prospecting, production, trade, etc. The Board will then make deliveries to the U.S. Atomic Energy Commission and U.K. Ministry of Supply at prices established by the basic uranium agreement concluded last year.

All of the now projected six uranium extraction plants will be situated on the Rand. However, it would be possible to extend production to the new large gold mines now in course of development in the Orange Free State, about 225 miles to the south of Johannesburg. The first of these new mines will come into production in 1952 and additional mines progressively in succeeding years. When fully developed, the Orange Free State mines may approximate the current production of gold of the Rand mines, accounting for up to 50 per cent of the present world gold supply. The gold ore in the Orange Free State, like that of the Rand, contains a small percentage of uranium. However, owing to the immense tonnages of ore processed for gold, the total amount of uranium which may be extracted is important. Indeed, it is reported that, when all the projected uranium extraction plants are in full operation, the Rand will rank as one of the leading, if not the leading, at least potentially, source of uranium in the world.

The U.S.-South African uranium agreement accords with a number of other major economic and financial developments, involving American capital and interests, occurring in South Africa during the last year. Others include an £18 million pound contract awarded to an American company for the construction of a large synthetic motor fuel plant at Coalbrook, Transvaal; a $15 million dollar petroleum refinery to be built and operated by an American company at Durban; an $80 million dollar loan by the IBRD and several private American banks to South Africa for financing basic economic developments, such as railways, electric power, etc.; new capital investments by various American companies in branch industrial plants, etc.3 These developments have greatly strengthened the economic ties between South Africa and the United States and, by causing South Africa to look increasingly to the United States for financial assistance and industrial [Page 1446] guidance and support, are harbingers of ever-closer economic relations between the two countries in the future.

Action Requested:

That this report be distributed to all agencies of the Government interested in the specific subject discussed and in general industrial developments in South Africa affecting the United States.

Sydney B. Redecker
  1. Presumably the reference here is to the agreement of November 23, 1950, between representatives of the Combined Development Trust and the South African Atomic Energy Board on the procurement of uranium. For documentation on the agreement, see Foreign Relations, 1950, vol. i, pp. 493 ff.
  2. Export Import Bank of Washington: Twelfth Semiannual Report to Congress for the Period January–June 1951, p. 50, indicates that on June 28, 1951, the Bank authorized credits of $35 million to various mining companies in the Union of South Africa for mining equipment, materials, and services. Further documentation has not been found in Department of State files regarding these credits.
  3. The “$80 million loan” referred to here presumably is the same as the $60 million in credits authorized by the IBRD in January 1951 and described in footnote 4, p. 1439.