It is not going to be on the magnitude of the investment that it is going to be at the production stage.

In other words, is there something that could be worked out in terms of insurance which would give you the incentive to go forward, during this 2- to 3- year period, and the option that you would stop at that point and decide whether it is worth it to your company to proceed?

Mr. ARY. I would like to think about it a little while, but just kind of quick like, none of us want to go into a venture just to get our money back, because we can divert the money to expand into other areas where the return is greater than just getting our money back. The separation of (a) and (b) was an attempt to indicate that in the case of (b) we are looking for protection for the loss of the rights, exclusive rights that are granted, and in the case of (a), that we want protection in the event the international regime provides for more burdensome requirements than is under the act.

Now, I do not think it would be good business if we agreed to pay a premium to insure ourselves against the poor negotiating ability or lack of finesses of somebody we have no control over.

I would prefer to think about it, rather than to give an answer off the top of my head right now.

Mr. SHAROOD. Thank you.

Mr. DOWNING. Mr. Mills?

Mr. MILLS Thank you very much, Mr. Ary. You made an excellent witness.

I have no questions, Mr. Chairman.

Mr. DOWNING. Thank you again, Mr. Ary.

Mr. DOWNING. Our third and final witness is Mr. C. H. Burgess, vice president, exploration, Kennecott Copper Corp., appearing on behalf of the American Mining Congress.

STATEMENT OF C. H. BURGESS, VICE PRESIDENT, EXPLORATION, KENNECOTT COPPER CORP., APPEARING ON BEHALF OF THE AMERICAN MINING CONGRESS

Mr. BURGESS. Mr. Chairman, my name is C. H. Burgess. I am vice president for exploration of Kennecott Copper Corp. I am also a member of the Undersea Mineral Resources Subcommittee of the American Mining Congress.

Mr. Chairman, I too have a prepared statement, but propose to make some insertions as I go along.

For more than a decade Kennecott has been investigating the possibilities of a profitable mining operation on the nodules of the deep seabed. From the inception it has been clear that if the technical findings should be promising, the existing legal regime would not provide the security of tenure of a minesite that would be required by the investors of the large sums needed for an integrated mining and processing operation. The investigative work has proceeded in the expectation that a satisfactory legal regime would be available when needed.

The Government has been aware of this need. Six years and one week have passed since a meeting on ocean mining was held at the

Department of State for the purpose of obtaining industry views on ocean mining at that time and forecasts of future developments. Nineteen members of the executive branch attended and 23 from industry. The discussion was directed to these heading: Technical forecasts, economic aspects, legal-political aspects, and special subject as desired. It was explained that the State Department was under pressure from the United Nations and other sources to participate in the formation of definite rules for ocean mining which would provide for sharing in the proceeds by the Emerging Nations which tended to believe in the prospective values and returns that had been indicated in the preceding year by Ambassador Pardo of Malta.

A guesstimate was made at the meeting that the total being spent by North American companies in exploration in the deep oceans at that time was about $1 million a year. The industry representatives were polled for forecasts of work in the oceans. The estimates varied widely. The shortest range expectation of important progress was that within from 5 to 10 years (from that time-March 1968) someone somewhere in the world was going to attempt a commercial-sized undertaking to mine the nodules, although the prediction did not include economically successful operation within that period. The most remote was that 25 to 30 years away, and exploitation, of course, still more remote. Several industry representatives emphasized_the need of security of tenure of a mining area, and stated that a U.S. company would not have security at that time on the high seas.

In discussion of protection by the U.S. Navy under the flag nation approach, one of the State Department representatives cited the Pueblo Incident, which was fresh in our minds at that time. The recent seizure of U.S. fishing boats by Peru was cited as an indication that the then-current regime would not grant the protection required for a major mining undertaking.

If such a meeting were called today, what could be reported?

On the technological side, it would be noted that Deep Sea Ventures has spent $20 million in the field, and has demonstrated ocean mining with its own vessel. Other United States and foreign companies have participated with the Japanese in tests of a Japanese dredging system for the nodules in the Pacific. West German companies are operating an oceanographic vessel in the Pacific which is sampling and surveying nodule fields, among other activities.

The French and Russians are also exploring ocean mineral occurrences and resources.

I can speak with more familiarity of Kennecott's work in this field. Ten cruises since 1961 have yielded thousands of samples from farflung sites in the Pacific. Several favorable areas for mining have been identified and tested more thoroughly. Feasibility studies by four consulting firms and by our own staff have led to a current program of critical testing of key components in a mining system. We are starting up a pilot plant this month to test a metallurgical process that gives strong promise of good recoveries and economics of extraction of the metals in the nodules.

In summary, it can be said that technical progress by U.S. industry has been good. Problems remain, but there is confidence that they will be solved. There is great momentum in the advances being made.

What could be reported as progress on the legal regime in these 6 years? Does it match the technological progress?

According to Mr. John Moore, U.S. Representative to the Committee on the Peaceful Uses of the Seabed and the Ocean Floor Beyond the Limits of National Jurisdiction, Subcommittee I, in a statement of March 19, 1973,

Many of the members of the Seabed Committee have increasingly expressed their concern that progress in the law of the sea negotiations has not been adequate to keep abreast of the rapid advances in technology for ocean space.

Mr. Moore and others of the executive branch anticipate that the schedule of the proposed Law of the Sea Conference will be kept, in which case an all-nation treaty would be open for signature in 1974 or 1975. It has been suggested that provisional entry into force of the treaty pending ratification would give desired expedition.

The executive branch would regard such accomplishments as "timely," although it does not relate "timeliness" to the present state of technology or the prospective state several years hence when the treaty would come into force, or to the financial problems or the strategic supply interests of the United States. Timeliness appears to mean only adherence to the proposed schedule of the Law of the Sea Conference. The Conference was supposed to have been held in 1973, but will not be.

To U.S. entrepreneurs in ocean mining, timely in this matter means that a satisfactory legal regime is assured when the major sums have to be committed, and this commitment must be made several years in advance of commercial production, because of the leadtime for construction and commissioning.

It is pertinent here that Mr. Moore also stated on March 19 that seabed mining technology has now advanced to a stage where commercial exploitation of manganese nodules can, and no doubt will, occur within the next three to five years. In anticipation of commercial production, U.S. companies, and presumably the companies of other countries, will shortly invest large sums of money in order to continue their development work and to begin constructing production facilities.

Although I concur with Mr. Moore's view of the imminence of exploitation plans, I have strong doubts that such investments will be made by U.S. companies, as Mr. Moore suggests, unless there is almost immediate passage of a satisfactory new legal regime. An essential condition of the financing will be security of the right to mine in a defined area long enough to return the investment; this condition is lacking now.

President Nixon, in his statement on U.S. Oceans Policy of May 23, 1970, recognizing that negotiation of a complex treaty on ocean matters might take some time, called on other nations to join the United States in an interim policy. The executive branch continues to espouse the all-nations treaty course in the United Nations, however, despite the divisions, obstructions, contrary objectives, and other impediment that abound. Mr. Brower acknowledges that "it could conceivably become clear during the negotiations that we have no reasonable basis for expecting a timely and successful Law of the Sea Conference." What objective criteria are to be used in the "continuing assessment of the negotiations," and by what date? Unless objective

standards and dates are established in advance and observed in practice, we may be well drawn into a greatly prolonged period in which developing countries opposed to ocean mining will frustrate indefinitely a generally approved regime. Much time would then have been lost that could have been gained in an interim regime.

Mr. Ratiner has stated to you that:

It is, therefore, encumbent upon us to assure that corporate initiative and technological achievement are not stifled by our own actions. Indeed, it is important that corporate initiative be encouraged. If it is, we may begin to see production from ocean nodules as early as 1976 and substantial commercial production under way not later than 1980.

As noted above in connection with Mr. Moore's prediction of early commercialization, I believe that achievement of Mr. Ratiner's forecasts will require much more prompt provision of a satisfactory legal regime than will be made by the Law of the Sea Conference. The "stifling by our own actions" will be set in if such regime is delayed, and corporate initiative will be discouraged.

In summary, it is clear that the past and prospective achievements of a satisfactory all-nation treaty under the auspices of the United Nations will not meet the time objectives required to match the technical developments and to expedite attainment of U.S. national interests. These interests include a new strategic supply of metals which would improve our balance of payments, growth of maritime industries, establishment of new industries which will provide addi tional employment, additional markets for equipment, and, to the extent that the metals were processed in the United States and then explored, an additional source of foreign exchange.

To repeat, the reason why we must continue to press for a legal regime under H.R. 9 rather than to wait a generally agreed treaty under the U.N. is, first, that the nearest proposed date of a generally agreed treaty-1975-plus a period when the treaty would come into force even with the provisional entry, will clearly arrest the plans and progress of some U.S. nodule miners; and, secondly, there is no certitude that that timing will be met, despite the executive branch's "expectation" and "anticipation" that it will. If it is not-if we come to 1975 with no treaty-then there may be a plea to grant another year, or two, for its completion; or, if all hope for a treaty is gone, a period of several years may be required to produce interim legislation.

The contribution of the nodules to these national interests could be substantial, Mr. Chairman. In my testimony before your committee on May 16, 1972, I discussed the need of the United States of the nodules as an alternative source of the metals contained, as well as the imminent need for a legal regime. Rather than repeat in full the currently pertinent portions of that testimony, I should like to request that it be reintroduced as part of my presentation today, if that meets with your approval.

I should like to comment briefly, however, on a point of strategy in the supply position of the nodules. Mr. Ratiner discussed the benefits to our balance-of-payments position that would accrue from U.S. production of metals from the nodules. He indicated the possibility of gross value of production as almost $160 million a year

initially; this would certainly increase with time. We estimate that the gross value from a single major operation would be in the order of $200 million. Mr. Hood, president and board chairman of the Shipbuilders Council of America, last week described to you the large increase in business for ports and shipyard facilities that would be generated in ocean mining.

It seems clear that the best hope for a new legal regime lies in the prompt passage of H.R. 9. It would provide rights that would be exclusive as against other U.S. parties and against the citizens of reciprocating states; it would provide insurance against loss from another person, and would grant relief from more burdensome requirements that might be imposed under an international regime later agreed to by the United States. With such assurances, exploitation could go forward under its own impetus. If uncertainties continue because of our exclusive reliance on the United Nations, exploitation will be inhibited. It is essential in our national interest to proceed expeditiously. Great concern is expressed lest H.R. 9. appear as unilateral action and therefore disturb some other countries, notably the developing nations. Passage of H.R. 9 would perhaps precipitate a rush to action, on the other hand, either to reciprocate or to get on with a generally agreed treaty. Rather than disturb the negotiating atmosphere in the United Nations, as we have been warned, passage of H.R. 9 would clear the air by indicating that the United States means business and stimulate other states to get on with the job of producing a generally agreed treaty. I urge prompt passage of H.R. 9.

Thank you, Mr. Chairman.

Mr. Chairman, that completes my formal statement.

I would ask that at this point in the record that my testimony given before your committee on May 16, 1972, appear in its entirety. Mr. DOWNING. Without objection, so ordered.

(The testimony referred to follows:)

STATEMENT OF C. H. BURGESS, VICE PRESIDENT-EXPLORATION, KENNECOTT
COPPER CORP., ON BEHALF OF THE AMERICAN MINING CONGRESS

Mr. Chairman, my name is C. H. Burgess and I am Vice President-Exploration of Kennecott Copper Corporation. I also am a member of the Ad Hoc Committee on Undersea Mineral Resources of the American Mining Congress. My statement today is on behalf of the American Mining Congress, but the statement also has the support of Kennecott Copper Corporation.

I very much appreciate this opportunity, on behalf of the American Mining Congress, to appear before the Committee on Merchant Marine and Fisheries to present testimony on H.R. 13904, referred to as the "Deep Seabed Hard Mineral Resources Act." Mr. Ary has testified on the background and specific provisions of the bill. I will discuss basic reasons for supporting this legislation.

The stated purpose of this bill is "to promote the conservation and orderly development of the hard mineral resources of the deep seabed, pending adoption of an international regime therefor." Our support of this legislation is based on the immediate and long-range significance of the development of these natural resources to the United States: the pressing need, because of the rapid advance of technology, for the immediate creation of a legal-political climate conducive both to undertaking the increasing financial risks of ocean resource development and to making the resulting very large capital investments required for commercialization; and the uncertainty of achieving a satisfactory international regime in this decade or soon thereafter.

There has appeared to be no important disagreement by United States citi