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In 1890 Texas, Treasury Agent Steve Ransom, alias The Durango Kid, is assigned to break the silver smuggling ring of the notorious Jonathan Cole. Fellow agent Tom Mallory infiltrates Cole's gang, posing as a former pugilist, The Kid from Amarillo. With Mallory's inside help, Steve learns that Cole runs a large penal colony just north of the Mexican border, were the prisoners build roads. Frustrated by his inability to gather tangible evidence of Cole's smuggling operation, Steve is puzzled to find out that the prisoners wear chains on their way to work, but never on their return. Despite Steve's warning, well-meaning but blundering fellow agent Smiley Burnette also investigates Cole, but is eventually found out by the gang. Upon discovering Mallory's real identity, Cole holds both Smiley and Mallory prisoner in his Mexican camp. There the agents witness silver being melted into ingots that are made into the chains used by Cole's prisoners. In the guise of The Durango Kid, Steve intercepts a wagon bringing the chains across the border and forces Cole's man to lead him back to the Mexican hideout, where he frees Smiley and Mallory. With the assistance of the local Mexican authorities, The Durango Kid, Smiley and Mallory round up all of the smugglers. Steve then goes on to Cole's ranch, where he finds the gang leader melting down silver chains, which he intends to ship northward in sacks of feed. Steve arrests Cole and the remainder of the men, bringing an end to the smuggling ring.