existent, and he will either have to find a seller in the United States that will accommodate him with credit, without a credit rating, or he will be forced to go to Europe.

Senator BENNETT. Turning that around, and looking at the position of the seller in the United States, he must find a way of meeting the price and credit competition of his European competitor or decide that he will have to give up the Venezuelan market. There are two sides to that problem.

The extent to which the Federal Government should enter into that basic situation is one that concerns this committee.

Mr. MACHADO. May I explain that the Government guaranty is not actually helping the Export-Import Bank. I am talking basically about a sound credit proposition for desirable enterprises. We can refer to what you a few minutes ago called project loans. In those instances the Export-Import Bank has the ability and the facilities to investigate the project and the financial position of the customer. He could also accept a commercial bank's guaranty which can be obtained instead of a Government guaranty. The point I am driving at is that the risk of the bank is not great and will not be greater by not having a Government guaranty. The point is that the complexity of obtaining it makes it undesirable from a customer's standpoint.

Senator BENNETT. That is another of these elements that are involved in this final decision as to whether the purchase will be made here or elsewhere, and I assume the officers of the Export-Import Bank are conscious of that problem. I do not know. If there is a representative of the Export-Import Bank here, maybe at this point I might ask him the question: Is it the basic policy of the ExportImport Bank to require a Government guaranty on all its loans to private capital?

STATEMENT OF LYNN U. STAMBAUGH, DEPUTY DIRECTOR, EXPORT-IMPORT BANK-Resumed

Mr. STAMBAUGH. No, sir; quite the contrary.

Senator BENNETT. This is a case of a decision made on the basis of the facts involved in each particular loan?

Mr. STAMBAUGH. That is correct.

Senator BENNETT. That leaves us with the question, Mr. Machado, of the judgment of the Export-Import Bank with relation to its Venezuelan loans. You feel they might be well advised not to require that guaranty to the extent to which they have been doing?

Mr. MACHADO. I must point it out because I thought it was a matter of strict policy. I was not informed of any credit extended to foreign individuals in foreign countries without guaranties. I may be misinformed on the subject.

Senator BENNETT. We have that straight now for the record, that the bank is prepared to make direct loans without Government guaranties under some circumstances; is that right?

Mr. STAMBAUGH. To private enterprise on the credit of that enterprise itself; that is correct.

Senator BENNETT. Since I am not an officer of the bank and am not familiar with the basis on which some of these guaranties in Venezuela have been required, I cannot discuss it with any particular knowledge.

Mr. Machado, I appreciate your testimony very much. The latter part of your testimony, which discusses the question of tariff and restrictions, is a terrible temptation to me but I am going to resist it. Thank you.

Mr. MACHADO. Thank you, Mr. Chairman.

Senator BENNETT. At this point, without objection, we will place in the record your letter of October 8, 1953, in replay to the committee questionnaire.

(The material referred to follows:)

COMPANIA ANONIMA LA ELECTRICIDAD DE CARACAS,
Caracas, October 8, 1953.

Mr. HOMER E. CAPEHART,

Chairman, United States Senate Committee on Banking and Currency,

Washington, D. C.

DEAR SIR: With reference to your kind letter of September 3, regarding the business carried by this company with the Export-Import Bank of Washington, we are glad to advise you as follows:

1. This company had contact with the Export-Import Bank, in connection with the financing of generating and distribution equipment required to supply the increased load of our customers.

2. We have carried correspondence with the bank in a most normal manner, without any complaint whatsoever on our part.

3. As stated in (1) above, we were granted 2 loans from the bank, 1 directly to us in 1948 for the purchase of 4 diesel electric sets, and for a total of $1,850,000, and another, distinguished as contract No. 244, with the cooperation of the International General Electric Co., for the purchase of one 30,000-kilowatt turbine generating unit, and a sizable amount of distribution material, amounting to $9,494,440, of which the bank contributed $5,158,000.

4 and 5. As above, the applications were granted, and the handling was also again in a most satisfactory manner.

6. Upon approval and signature of the Tripartite agreement between the bank, the International General Electric Co., and ourselves, we have had not a single instance of complaint or difficulty between the bank and ourselves.

7. At the time of our applying for both loans, the help of the bank was most adequate, since otherwise we would have encountered a number of difficulties to raise the money required for expansion. In one instance, the Government of Venezuela insisted that the material of the subject contract should be transported by ships of the Venezuelan lines. The contract with the bank called for such freight to be handled by American lines. An agreement was reached by which a split of the freight was possible, and we sincerely feel this was a very adequate gesture on the part of the bank.

8. As above, we feel that we derived a very definite help from the bank's loans. It is only to be regretted that the bank has not seen its way clear to make more direct loans to private companies, without a direct guaranty from a Venezuelan Government organization, such as the Corporacion Venezolana de Fomento, whose endorsement has been required in those instances.

9. As above, we feel that there might be a number of sound industries or projects, whose financing by the bank would definitely open new markets for American goods, and improve the purchasing capacity from the United States. 10. It is our sincere feeling that the Export-Import Bank could materially expand the trade between the United States of America and these countries, but, unfortunately, in the past we know of only 4 loans from the bank to Venezuela, 2 of them have been outlined above, a third we know of was in connection with the Compania Anonima Venezolana de Cementos, which we understand had been very helpful, the fourth was to a construction company of American capital, of which we don't know the practical results. Although individually important, the number of loans has been very small and the ultimate benefits are not easily felt. If a way could be found, by which the bank could make direct loans to industries, without the guaranty from the Venezuelan Government agency, we feel certain it would permit a number of new industries to be financed, permitting at the same time, the improvement of living conditions and consequently the increase of the purchasing power of basic foreign goods.

I must apologize for not answering sooner, but unaccountably, your letter was delayed in the mail. We have just been advised that 28 members of the United

States Senate Committee on Banking and Currency will be visiting Venezuela on December 2d, and some of the members are planning to visit our Arrecifes powerplant.

We take pleasure in enclosing a copy of the letter addressed to Mr. Lynn U. Stambaugh, Deputy Director of the Export-Import Bank of Washington, whereby we invite the committee to visit the plant and to have lunch in a club nearby. We would feel very much honored to have the pleasure of your visit.

Regarding the possibility of testifying in person before your committee, naturally, I would be glad to do so, however, on account of the distance and engagements in Venezuela, I would hesitate accepting a firm commitment at this date. Very truly yours,

OSCAR A. MACHADO,
General Manager.

Senator BENNETT. Our next witness if Mr. Gordon Watson, general counsel of the Steep Rock Iron Mines, Ltd., of Ontario, Canada. Mr. Watson, do you have a prepared statement?

STATEMENT OF GORDON WATSON, GENERAL COUNSEL, STEEP ROCK IRON MINES, LTD., STEEP ROCK LAKE, ONTARIO, CANADA

Mr. WATSON. I do not, Mr. Chairman.

Senator BENNETT. Will you proceed in your own way.

Mr. WATSON. My name is Gordon Watson. I am general counsel of Steep Rock Iron Mines, Ltd. That is a Canadian company carrying on a business of operating mining properties in Canada. The company is a privately owned company with approximately 12,000 to 13,000 shareholders of whom approximately one-half are persons living in the United States and the other half are persons living in Canada.

The respective shareholdings are divided almost equally between Canadian and American shareholders.

The mining properties which the company operates are located approximately 140 miles west of the west end of Lake Superior and roughly 40 miles north of the border between the United States and

Canada.

In 1943 the original financing of the company was greatly assisted by a $5 million loan from the Reconstruction Finance Corporation. Five years later it was ascertained that in order to get the company into efficient and economical operation it would be necessary that substantial further funds be provided. Careful investigation was made of available sources both in Canada and in the United States. After exhaustive inquiry it narrowed down to the finding that unless funds could be made available by the Export-Import Bank it was unlikely that the project could continue on the anticipated basis. In 1948, approximately $3 million of junior capital was raised with very considerable difficulty, and the Export-Import Bank provided an additional $5 million. The loan was made by the way of a direct loan by the Export-Import Bank to the limited company without Government intervention. Very careful investigation was made by engineers and financial experts on the staff of the Export-Import Bank, and it was of great assistance to the Steep Rock Co. to have the advantage of the opinions and the assistance of the experts from the bank in planning the future of the company.

substantially expanded and plans for opening new ore bodies were With the assistance of the loan the mining operations were very

gotten under way. In 1951, however, complications in connection with the development of the mine arose. Some expenditures which had not been anticipated were brought forward at an earlier date than had been counted upon, with the result that further funds then had to be made available.

Again, with the cooperation of the officials of the bank, approximately $3 million of maturities of the bonds were postponed and $700,000 that had been repaid on the mortgage was again advanced to the company, making the total loan $10 million.

With the funds available the company has been able to go ahead with its development plans and is now in a very sound operating position.

I think it might be important, Mr. Chairman, to stress the importance to the company of the flexibility which was found in dealing with the bank as the development of the mining operation occurred. As you can well appreciate, Mr. Chairman, in the development of a mining range things happen unexpectedly and expenditures in very substantial figures are encountered which have not been counted on. If one is depending on private banking arrangements, as you know, it is necessary to know beforehand what the expenditures will be, and it is very difficult to change them afterward.

In dealing with the Export-Import Bank we found we were able to bring our problems to the bank, explain to them what the difficulties were, and find a flexibility of operation in the advancing of funds which in our opinion would have been utterly impossible in the case of private banking.

Ône other circumstance which illustrates that is a situation which arose in connection with the Inland Steel Co. They made an arrangement with the Steep Rock Co. to explore a substantial part of the Steep Rock Range under an option agreement, and subsequently arranged to take up that option and are now engaged in a mining operation of their own adjacent to the Steep Rock property.

In connection with that development, it was first necessary to discuss with the Export-Import Bank the possibility of so arranging the security of the bank loan so that the new mining operation could be safely undertaken. Subsequently, the Inland Steel Co. itself arranged to make an advance against anticipated royalties in a very substantial sum of money about a year ago. There again it was necessary that careful and intelligent cooperation take place between bank officials and the company officials so that the bank loan could be adequately secured and yet permit the Inland Steel operation to go ahead without prejudicing the security of the investment which Inland was making.

In those cases we had the fullest cooperation of bank officials in a manner which, in our judgment, would not have been possible if it was necessary to deal with the wider holdings by individuals or corporations.

The result of the investment in Steep Rock has been that approximately 9/21⁄2 million tons of high-grade ore have been made available in the past 10 years. Roughly, 95 percent or more of that tonnage has gone to steel consumers on your side of the line, in the United States.

It is anticipated that the production from the Steep Rock area, which last year was 1,300,000 tons, will in the case of the Steep Rock operated mines be increased to 51⁄2 million tons, and that, too, will be

42493-54-pt. 1-20

augmented by a further production from the same range of 3 to 4 million tons from the Inland operated properties.

Of course, the 3 to 4 million tons of Inland ore will go to American consumers. It is anticipated that almost the entire tonnage from the Steep Rock mine will continue to funnel to United States consumers.

From the Canadian side of the picture, the result of the investment which has been made in the Steep Rock mine has been to make available United States dollars to feed into the Canadian economy. At the present time you will appreciate the problem is not so acute as it was at the time the loan was made. At that time the significance of available United States dollars to Canadians to stimulate the activities of the best customer of the United States was very significant.

Of the funds which will be made available from the United States for the purchase of Steep Rock ore, I think it may be safely counted that a very substantial amount will flow back into the United States for the purchase of United States goods and services.

It might be of interest to the committee to know that when the Steep Rock mine started up the community in the district was simply a little town or hamlet of 300 people. At the present time there is a thriving community of 4,500 people and the best estimate is that within a few years there will be a city of 20,000 people located in what was the wilderness some years back.

The community has all the amenities that one could hope for, hospitals, theaters, hotels, and all things that are necessary to make a happy life in a wilderness.

Those of us who are associated with the Steep Rock Co. are very happy to have this opportunity of appearing before this committee and expressing our appreciation of the consideration, and our acknowledgment that the advance we received from the Export-Import Bank, and the amendments and further advances from them, made possible the development of this community and the commercial enterprise which is now thriving.

May I say in conclusion, Mr. Chairman, that in our experience with the Export-Import Bank the correspondence we had with them has been handled promptly and satisfactorily and that the investigation of our problems has been thorough and efficient. The loan application and the amendment thereto were at all times handled expeditiously and efficiently, and through the activities of the Steep Rock loan we feel that the Export-Import Bank has aided in financing and facilitating the export-import trade of Canada and the United States, and has assisted in developing and expanding the economy of our country and the trade between our country and yours. Thank you, Mr. Chairman.

Senator BENNETT. Senator Payne, do you have any questions?
Senator PAYNE. No.

Senator BENNETT. I have just one or two questions. As I listened to your explanation, I assume that the Steep Rock Iron Mines, Ltd., particularly in the Steep Rock area, is, as we might say, over the hump?

Mr. WATSON. I think that is so, Mr. Chairman.

Senator BENNETT. That the development is now on a sound and secure basis and you do not anticipate at this point requesting any additional funds from the Export-Import Bank?