While two years of initial research and development by the U.S. Mint into coinage metals and alloys offer some promising composition alternatives, some factors have to be examined further to ensure a seamless transition should changes be approved, says Deputy U.S. Mint Director Richard A. Peterson.

Peterson said the U.S. Mint has an active plan in place to continue its research and development efforts in 2013.

Along with the experimental striking of test pieces thus far, significant precautions are being taken to ensure that none of the experimental strikes and planchets end up in collector hands, Peterson confirmed.

Identifying suppliers

In a Dec. 20 interview with Coin World, Peterson said of primary importance is to identify and confirm the existence of a viable supply chain for any metallic alternatives for coinage that might be selected. The U.S. Mint must establish from whom it could buy strip, blanks or finished planchets, Peterson said.

Peterson’s comments suggest that the U.S. Mint appears to be leaning toward acquiring finished, ready-to-strike planchets, like it receives for the Lincoln cent — the denomination with the highest mintage for circulation — rather than planchet strip from which the Mint would punch planchets. Currently, the Mint produces many of its own planchets using strip supplied by vendors.

Peterson added that the Mint wants to have more than one supplier for each composition and denomination. He said the U.S. Mint does not want to be put in the same position as the Bureau of Engraving and Printing, which has a single supplier — Crane & Company — for its security paper to print Federal Reserve notes.

As part of continuing experimentation with alternative compositions, trial strikes will have to be struck not just in the hundreds or thousands of pieces (as has already occurred), but in full production runs in the millions of pieces to flush out complete production issues and confirm precise costs, Peterson said.

Also, the U.S. Mint has to address any issues with its stakeholders — primarily the vending machine, coin dispensing and counting and transit industries —and determine how any switch to alternative metals will affect their operations, Peterson said.

Peterson said U.S. Mint officials want any transition to be seamless. In part, that means the Mint prefers that any new compositions have the same electromagnetic signatures for electronic recognition as existing compositions, and that the current diameter and weight be retained for any denominations produced in new compositions.

However, it’s likely that while the diameter may be retained, the weight and thickness would change depending on the density of the metals selected, which might also result in a needed change in electromagnetic signatures.

Currently, Peterson noted, the 5-cent coin, the dime and the quarter dollar all have electromagnetic signatures based on copper (the dominant metal in the copper-nickel alloys used for the three coins). Substituting alternative compositions with different electromagnetic signatures for denominations that would co-circulate with the same denominations in their current metallic configurations would have major cost ramifications for those industries using the coins, he said.

The top contenders for an alternative composition to replace that for the 5-cent coins are copper-based, but the alloys identified as promising would result in a coin of a yellowish hue instead of the current silver-gray appearance.

Peterson said if Congress wants significant savings from production of 5-cent coins for circulation, legislators may embrace the idea of a color change for the denomination.

Peterson said if the U.S. Mint opted for multi-ply-plated steel for one of its alternatives, it would likely have to compensate the Royal Canadian Mint for its patented process.

Total recall?

U.S. Mint and Treasury officials have not broached the subject of seeking a recall of coins of current composition to melt them for metal reclamation and replace the recalled coins with the alternative compositions, Peterson said. The Royal Canadian Mint, which in recent years has introduced new compositions for its coins, is following a metal reclamation process by reclaiming and melting older coins.

Peterson noted that it is against U.S. federal law for the public to melt cents and 5-cent coins to reclaim the metal.

Peterson said the U.S. Mint is not equipped to implement a recall and has a “general distaste” to do so.

In addition, the U.S. Mint is in the business of selling its coins to the Federal Reserve for circulation distribution, not in the business of harvesting coins by buying them from the public, Peterson said.

Once a new composition is identified and approved, implementation of the changes would take three to four years to complete it correctly, Peterson said.

Rising costs

The U.S. Mint has been wrestling with the overall production costs above face value for the Lincoln cent (made of copper-plated zinc) and the Jefferson 5-cent coin (made of copper-nickel) for the past six years.

The last time total costs were below face was 2006, when it cost 0.097 cent to produce a cent and 4.84 cents for the 5-cent denomination.

In 2007, the costs climbed to 1.21 cents for the cent and 5.97 cents for the 5-cent coins. Production costs have remained above the two coins’ face value since 2007.

Total production costs for the Lincoln cent reported in March 2012 were 2.25 cents, down from 2.41 cents in 2011.

Total production costs for the 5-cent coin were 9.95 cents as reported by the Mint for March 2012, down from 11.18 cents in 2011.

Even with a switch to a new composition, overall production costs for the cent will never ever again fall below the coin’s face value, Peterson said.

Peterson said half of the cost of the cent is in metals acquisition, with the other half being production and distribution.

Congressional attention

The continual losses generated by the production of each cent and 5-cent coin drew the attention of Congress, which subsequently passed the Coin Modernization, Oversight, and Continuity Act of 2010. The act requires the Mint to conduct extensive research and development into alternative metals and alloys not only for the cent and 5-cent coin, but for all circulating coin denominations.

The act also requires the Mint to biennially report to Congress the findings and recommendations of any ongoing research.

The first biennial report, a 400-page document compiled by Concurrent Technologies Corp., Johnstown, Pa., was submitted Dec. 13, and released publicly the following day.

U.S. Mint officials did not make any direct recommendations to Congress supporting any of the findings for compositional changes.

Tight security

U.S. Mint and Concurrent Technologies Corp. technical personnel jointly conducted the alternative metals research and testing in a dedicated area in the basement level of the Philadelphia Mint. The production testing was overseen by the U.S. Mint.

Peterson said the restricted area is under tight security, fitted with surveillance cameras for continued monitoring.

Peterson said all test strikes are accounted for, recorded and kept secure at the Philadelphia Mint.

Examples from the testing will eventually be forwarded to the National Numismatic Collection at the Smithsonian Institution’s Museum of American History for historical safekeeping and possible public display, Peterson said.

The U.S. Mint has also kept a tight rein over any experimental strikes it shipped to outside vendors for use in testing vending, coin-sorting and dispensing equipment capabilities, Peterson said. The chain of possession of each of the experimental strikes has been maintained, he said.

On occasion, experimental strikes from earlier Mint testing have entered the collector marketplace. ¦