profitable work, in land development we have experienced little or no loss on completed projects. Sometimes the size of the profit has not been to our liking, but in other cases it has exceeded our expectations. In a sense, land development, like mining, deals in "wasting" assets. Land reserves, like ore reserves, are depleted by sales and must be replenished if operating inventory levels are to be maintained. Utah will continue to acquire undeveloped land which is well located, subject to substantial enhancement in value through intelligent planning, and having good profit potential. We believe that over the years this policy, coupled with the quality of our present holdings, will produce profits from our land development operations. Iron Ore Mining still provides the major part of the Company's earnings, with iron ore as our largest single source of profits. Our principal iron ore interest is in the high grade deposits in Peru, mined by our affiliate Marcona Mining Company, of which Utah owns 42 1/4%. Events of the past four years have not favored producers of iron ore selling in world markets. The relationship of supply and demand in the international iron ore business has changed significantly. While the demand for iron ore has increased, it has not increased as fast as had been anticipated based upon the earlier forecasts of the steel industries in the United States, Europe and Japan. On the other hand, the supply of iron ore, stimulated by the fear of possible worldwide shortage, has increased more rapidly than demand and has put pressure on profit margins. The impact of this change has particularly been felt by those of us who are independent iron ore producers in contrast with the captive mining operations whose market is virtually assured. But Marcona's position has several advantages. It has tremendous high-grade reserves; its mines are very close to deepwater ports, with a minimum mine-to-port haul and with low-cost shipping in large carriers replacing higher-cost overland freight incurred by many of its competitors; and it is an early entrant into the promising market for pellets, having long since established a strong position with buyers for foreign steel mills. The Marcona deposit located near the seacoast in Peru has abundant reserves, rich in iron but having excess sulphur as the ore runs to depth. Until the last 4 few years Marcona produced direct shipping ore which was sold largely for blast furnace use or as sinter feed with little in the way of processing. As the exportable reserves of direct shipping ore became depleted, Marcona has invested an additional $50 million in facilities to expand capacity and to beneficiate the ore and make useable the vast reserves that do not qualify as direct shipping ore. Sales this year will be around five million tons, with Japan and Europe the major markets. Included in this capital improvement program is a pellet plant of one million ton capacity, the output of which is already substantially committed for the next six years. While we have had the usual start-up difficulties with the new plant, the Marcona pellet is high grade and commands a premium price. As a matter of fact, the iron ore market's progressive switch to pellets has become so general and so swift that strong pressure is already felt for an expansion of Marcona's facilities to meet the demand, and plans are in motion for the installation of an additional two million tons of pellet capacity. Since the profit margin on pellets is more attractive that the products produced from the ore it displaces, the consummation of an expansion in Marcona's pellet production should benefit its earnings in future years. Discussion of Marcona necessarily involves consideration of Cia. San Juan, S. A., an affiliate also owned 42 1/4% by Utah and engaged chiefly in the marketing and ocean transportation of Marcona ores. San Juan Carriers, Ltd., a wholly owned subsidiary of Cia. San Juan, owns and operates 7 ships having a total capacity of 375,000 deadweight tons which transport Marcona ores to markets throughout the world. Three of these vessels, of about 71,000 deadweight tons each, are the largest dry cargo vessels ever constructed. A new vessel of 60,000 deadweight tons, authorized this year for delivery in early 1966, will increase the San Juan fleet to 8 vessels having an aggregate of 435,000 deadweight tons. Supplementing the existing fleet, in 1963 San Juan chartered an additional 124 vessels, some of them on a time charter basis. Most of the San Juan vessels are designed as ore-oil carriers. In the course of their movement of Marcona ore some of them operate on return voyages with backhaul cargoes of crude oil. This pattern of operations has obvious added profitability which permits the acceleration of ship loan retirement. 5