338. Memorandum From Secretary of Defense McNamara to the President’s Special Assistant for National Security Affairs (Bundy)0

SUBJECT

  • Purchases of Uranium from Foreign Countries

Attached is a copy of a letter to the President from the Acting Chairman of the Atomic Energy Commission, dated 7 February 1961, which [Page 759]reviews projected U.S. uranium purchases from foreign governments through 1966. I believe the letter adequately covers the points which the President, at the 1 February 1961 NSC meeting, asked me to investigate with the AEC, as indicated in your National Security Action Memorandum No. 4.1

You will note that most of the uranium purchases, involving a net dollar outlay of $700 million, will be made from Canada and the Union of South Africa, countries now having foreign exchange problems; that the contracts with these countries have recently been renegotiated to obtain the maximum benefit for the U.S.; and that there is no reasonable expectation that further deferment in purchases or payments can be negotiated, although the possibility of bartering surplus commodities for some South African uranium is being explored by the AEC.

Robert S. McNamara

Attachment2

Letter From the Acting Chairman of the Atomic Energy Commission (Graham) to President Kennedy

Dear Mr. President: This is to inform you of the situation with respect to foreign uranium purchases. The Atomic Energy Commission is obligated to purchase approximately 36,000 tons of uranium oxide between July 1, 1961 and December 31, 1966, involving a net dollar outlay of $700 million. Most of these purchases will be made from Canada and the Union of South Africa, countries now having foreign exchange problems. Both contracts have recently been renegotiated to obtain the maximum benefit for the United States. There is no reasonable expectation that further deferment in purchases or payments could be negotiated. Barter of surplus commodities for some South African uranium is a possibility.

As shown on the attached tabulation,3 the net payments for Canadian uranium will total $370 million for deliveries under a contract with [Page 760]Eldorado Mining and Refining Limited, a Canadian Government corporation, and $325 million for uranium from the Union of South Africa under a contract with the South African Atomic Energy Board. In each case the Government agency with which AEC has its contract has underlying contracts with private uranium producers. The balance of the uranium (less than one percent, costing about $5 million) will come from small operations in Australia and Portugal.

The Canadian contracts were recently revised to provide for a stretch-out in uranium production and deliveries. Delivery of approximately $140 million worth of uranium which would have been delivered in 1961 and 1962 has been deferred to later years. All deliveries are to be completed by the end of 1966. Had it not been for the stretch-out, Canadian deliveries to the U.S. would have been largely completed at the end of calendar 1962 with only minor deliveries coming in 1963. Prior to the time the stretch-out arrangement was agreed upon, the U.S. had notified the Canadian Government that it did not intend to exercise its options to purchase additional quantities of uranium and proposed that a stretch-out be considered which would involve no additional costs and no increase in the quantity of uranium being purchased. The Commission’s decision not to exercise its options, as well as the stretch-out arrangement, posed major economic and political problems for the Canadian Government. Although operations will continue over a longer period, the stretch-out arrangement has cut the Canadian industry roughly in half with many of the mines being closed. Under the circumstances there is no reasonable prospect that further deferrals could be obtained.

South African purchases were formerly made under a joint United States-United Kingdom contract with the South African Atomic Energy Board running through 1966. The U.S. bought two-thirds of the production and the U.K. one-third. This arrangement has also been recently revised to provide for separate AEC-South African and U.K. Atomic Energy Authority-South African contracts, the quantities remaining unchanged. The revised AEC-South African contract provides for a $20 million reduction in total cost and in a minor deferral of deliveries which would have been made in F.Y. 1961 and 1962 totalling $7 million. Under the new arrangement the U.K. will take most of its material after 1966 but, because South Africa also has a foreign exchange problem, will make substantial advances for each pound deferred. No advances are involved in the AEC-South African contract and all deliveries are to be completed by December 31, 1966. The Commission decided not to extend South African deliveries beyond 1966 because of possible problems with domestic producers. Our present domestic uranium program terminates December 31, 1966.

It is unlikely that a further stretch-out of South African deliveries and payments can be negotiated. There is a possibility, however, that [Page 761]some portion of the South African uranium could be paid for with surplus commodities, provided the U.S. is willing, as an incentive, to purchase additional quantities of uranium which it does not need. In prior conversations, Commodity Credit Corporation indicated that the amount of surplus commodities which might be involved in a barter arrangement probably would not exceed $20 million annually. Part of this would go to pay for the additional quantity of uranium which might be involved.

The problems in attempting barter relate, first, to displacement of U.S. cash sales of the commodities and, second, to displacement of sales by friendly governments which also export the commodities involved. The proposed barter program would undoubtedly cause resentment on the part of Canada, particularly if it involved additional uranium purchases—purchases which we refused to make from Canada. Canada has already raised objections to this country’s agricultural barter program. Domestic producers also are likely to raise objections to additional foreign uranium purchases since the domestic program has been cut back.

Notwithstanding the problems, we propose to explore the matter with Commodity Credit Corporation and possibly the South Africans to see what kind of arrangement might be worked out and to better define any problems which may be involved.

Respectfully yours,

John S. Graham4
  1. Source: Kennedy Library, National Security Files, Meetings and Memoranda Series,NSAM 4, Uranium Purchase. Confidential.
  2. Document 335.
  3. No classification marking
  4. Not printed.
  5. Printed from a copy that indicates Graham signed the original.