Stillwater Mining (SWC) 10-Q/A 2004 Q3 Quarterly report (amended)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

AMENDMENT No. 1 to FORM 10-Q

þQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2004.

OR

oTransition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _________to _________

Commission file number1-13053

STILLWATER MINING COMPANY

(Exact name of registrant as specified in its charter)

Delaware	81-0480654
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1321 Discovery Drive Billings, Montana	59102
(Address of principal executive offices)	(Zip Code)

(406) 373-8700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YESþ NOo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2): YESþ NOo

At October 28, 2004 the company had outstanding 90,362,209 shares of common stock, par value $0.01 per share.

STILLWATER MINING COMPANY

AMENDMENT NO. 1 to FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2004

INDEX

	PAGE
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements		3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3. Quantitative and Qualitative Disclosures About Market Risk		40
Item 4. Controls and Procedures		43
PART II – OTHER INFORMATION
Item 1. Legal Proceedings		44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		44
Item 3. Defaults Upon Senior Securities		44
Item 4. Submission of Matters to a Vote of Security Holders		45
Item 5. Other Information		45
Item 6. Exhibits		45
SIGNATURES		46
CERTIFICATION		48
Rule 13a-14(a)/15d-14(a) Certification - CEO
Rule 13a-14(a)/15d-14(a) Certification - VP and CFO
Section 1350 Certification
Section 1350 Certification

2

PART 1 — FINANCIAL INFORMATION

Item 1. Financial Statements

Stillwater Mining Company
Consolidated Statements of Operations and Comprehensive (Loss) Income
(Unaudited)
(in thousands, except per share amounts)

	Three months ended						Nine months ended
	September 30,						September 30,
	2004			2003			2004			2003
	(as revised -						(as revised -
	see Note 2)						see Note 2)
Revenues:
Mine production	$	88,034		$	58,398		$	204,681		$	179,928
Secondary processing		23,824			1,696			52,010			4,331
Sales of palladium received in Norilsk Nickel transaction and other		32,707			6,550			72,774			6,550
Total revenue		144,565			66,644			329,465			190,809
Costs and expenses:
Cost of metals sold:
Mine production		65,406			40,932			132,280			134,062
Secondary processing		22,062			1,489			48,206			3,679
Sales of palladium received in Norilsk Nickel transaction and other		28,313			6,727			54,737			6,727
Total costs of metals sold		115,781			49,148			235,223			144,468
Depreciation and amortization:
Mine production		13,635			10,063			43,541			30,372
Secondary processing		12			18			35			54
Total depreciation and amortization		13,647			10,081			43,576			30,426
Total costs of revenues		129,428			59,229			278,799			174,894
General and administrative		6,674			3,377			14,323			10,340
Loss on disposal of property, plant and equipment		2,017			—			1,942			—
Norilsk Nickel transaction related expenses		—			—			—			3,043
Total costs and expenses		138,119			62,606			295,064			188,277
Operating income		6,446			4,038			34,401			2,532
Other income (expense)
Interest income		488			136			1,159			315
Interest expense		(7,875	)		(4,021	)		(15,137	)		(13,616	)
Income (loss) before income taxes and cumulative effect of accounting change		(941	)		153			20,423			(10,769	)
Income tax (provision) benefit		(3	)		(590	)		(3	)		3,702
Reduction of net operating loss deferred tax asset resulting from ownership change		—			(1,191	)		—			(15,170	)
Total income tax provision		(3	)		(1,781	)		(3	)		(11,468	)
Income (loss) before cumulative effect of accounting change		(944	)		(1,628	)		20,420			(22,237	)
Cumulative effect of change in accounting for asset retirement obligations, net of $264 income tax benefit in 2003		—			—			6,035			(408	)
Net income (loss)	$	(944	)	$	(1,628	)	$	26,455		$	(22,645	)
Other comprehensive income, net of tax		(5,103	)		390			(2,189	)		742
Comprehensive income (loss)	$	(6,047	)	$	(1,238	)	$	24,266		$	(21,903	)

See notes to consolidated financial statements

3

Stillwater Mining Company
Consolidated Statements of Operations and Comprehensive (Loss) Income
(Unaudited)
(in thousands, except per share amounts)
(Continued)

	Three months ended						Nine months ended
	September 30,						September 30,
	2004			2003			2004		2003
	(as revised -						(as revised -
	see Note 2)						see Note 2)
BASIC AND DILUTED EARNINGS PER SHARE
Income (loss) before cumulative effect of accounting change	$	(944	)	$	(1,628	)	$	20,420	$	(22,237	)
Cumulative effect of accounting change		—			—			6,035		(408	)
Net income (loss)	$	(944	)	$	(1,628	)	$	26,455	$	(22,645	)
Weighted average common shares outstanding
Basic		90,288			89,662			90,111		60,399
Diluted		90,288			89,662			90,372		60,399
Basic earnings (loss) per share
Income (loss) before cumulative effect of accounting change	$	(0.01	)	$	(0.02	)	$	0.22	$	(0.36	)
Cumulative effect of accounting change		—			—			0.07		(0.01	)
Net income (loss)	$	(0.01	)	$	(0.02	)	$	0.29	$	(0.37	)
Diluted earnings (loss) per share
Income (loss) before cumulative effect of accounting change	$	(0.01	)	$	(0.02	)	$	0.22	$	(0.36	)
Cumulative effect of accounting change		—			—			0.07		(0.01	)
Net income (loss)	$	(0.01	)	$	(0.02	)	$	0.29	$	(0.37	)

See notes to consolidated financial statements.

4

Stillwater Mining Company
Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share amounts)

	September 30,			December 31,
	2004			2003
	(as revised -
	see Note 2)
ASSETS
Current assets
Cash and cash equivalents	$	101,690		$	47,511
Restricted cash equivalents		2,650			2,650
Inventories		169,282			202,485
Accounts receivable		18,521			3,777
Deferred income taxes		3,770			4,313
Other current assets		7,503			4,270
Total current assets		303,416			265,006
Property, plant and equipment, net		429,465			419,528
Other noncurrent assets		6,320			6,054
Total assets	$	739,201		$	690,588
LIABILITIES and STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	12,508		$	9,781
Accrued payroll and benefits		10,838			10,654
Property, production and franchise taxes payable		8,063			8,504
Current portion of long-term debt and capital lease obligations		1,990			1,935
Portion of debt repayable upon liquidation of finished palladium in inventory		15,421			74,106
Other current liabilities		6,796			5,290
Total current liabilities		55,616			110,270
Long-term debt and capital lease obligations		154,888			85,445
Deferred income taxes		3,770			4,313
Other noncurrent liabilities		15,088			11,263
Total liabilities		229,362			211,291
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par value, 1,000,000 shares authorized; none issued		—			—
Common stock, $0.01 par value, 200,000,000 shares authorized;90,339,770and 89,849,239 shares issued and outstanding		903			899
Paid-in capital		603,099			592,974
Accumulated deficit		(87,300	)		(113,756	)
Accumulated other comprehensive loss		(3,009	)		(820	)
Unearned compensation - restricted stock awards		(3,854	)		—
Total stockholders’ equity		509,839			479,297
Total liabilities and stockholders’ equity	$	739,201		$	690,588

See notes to consolidated financial statements

5

Stillwater Mining Company
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)

	Three months ended						Nine months ended
	September 30,						September 30
	2004			2003			2004			2003
	(as revised -						(as revised -
	see Note 2)						see Note 2)
Cash flows from operating activities
Net income (loss)	$	(944	)	$	(1,628	)	$	26,455		$	(22,645	)
Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization		13,647			10,081			43,576			30,426
Deferred income taxes		—			2,034			—			11,685
Cumulative effect of change in accounting for asset retirement obligations		—			—			(6,035	)		672
Stock issued under employee benefit plans		755			924			2,842			2,786
Amortization and write-off of debt issuance costs		4,258			273			4,700			2,789
Amortization of restricted stock compensation		412			—			686			670
Loss on disposal of property, plant and equipment		2,017			—			1,942			—
Changes in operating assets and liabilities:
Inventories		38,356			(478	)		39,238			10,219
Accounts receivable		(730	)		902			(14,744	)		13,190
Accounts payable		1,415			(9,075	)		2,727			(4,439	)
Other		1,331			(2,281	)		(1,115	)		(8,594	)
Net cash provided by operating activities		60,517			752			100,272			36,759
Cash flows from investing activities
Capital expenditures		(20,905	)		(14,780	)		(55,797	)		(40,975	)
Net cash used in investing activities		(20,905	)		(14,780	)		(55,797	)		(40,975	)
Cash flows from financing activities
Proceeds from long-term financing, net		140,000			—			140,000			—
Payments on long-term debt and capital lease obligations		(128,241	)		(492	)		(129,205	)		(58,628	)
Issuance of common stock, related to Norilsk Nickel transaction(1)		—			—			—			100,000
Stock issuance cost, related to Norilsk Nickel transaction		—			—			—			(9,716	)
Issuance of common stock, net of stock issue costs		267			64			2,747			64
Payment for debt issuance costs		(3,756	)		—			(3,838	)		(1,606	)
Net cash provided used in financing activities		8,270			(428	)		9,704			30,114
Cash and cash equivalents
Net increase (decrease)		47,882			(14,456	)		54,179			25,898
Balance at beginning of period		53,808			66,267			47,511			25,913
Balance at end of period	$	101,690		$	51,811		$	101,690		$	51,811
Non-cash Financing activities:
(1) Fair value of common stock issued	$	—		$	—		$	—		$	248,213
Inventory received in connection with the Norilsk Nickel transaction		—			—			—			(148,213	)
Issuance of common stock, related to Norilsk Nickel transaction	$	—		$	—		$	—		$	100,000

See notes to consolidated financial statements.

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EXPLANATORY NOTE

     This Amendment No. 1 to the Stillwater Mining Company (the company) Quarterly Report on Form 10-Q/A for the quarterly period ended September 30, 2004, amends and supplements the Quarterly Report on Form 10-Q filed by the registrant with the Securities and Exchange Commission (SEC) on November 2, 2004 (the “Original Form 10-Q”). This Amendment No. 1 amends Part I, Item 1 – Financial Statements, to reflect a change in the company’s method of amortizing capitalized mine development costs, effective January 1, 2004. As a result of the change in accounting method the net income set forth in the Consolidated Statements of Operations and Comprehensive Income (Loss) was decreased approximately $5.3 million and $10.2 million for the three and nine months ended September 30, 2004, respectively. A discussion of the change in accounting method is set forth in Note 2 to the Consolidated Financial Statements included in this Amendment No. 1.

     This Amendment No. 1 reflects certain amounts that have been reclassified, including the 2003 amounts for revenues, cost of metals sold, and depreciation and amortization.

     The Amendment No. 1 does not reflect events that have occurred after November 2, 2004, the date the Quarterly Report on Form 10-Q was originally filed. Information with respect to those events has been or will be set forth, as appropriate, in the Company’s subsequent periodic filings, including its Quarterly Reports on Form 10-Q, as revised, and Current Reports on Form 8-K and Annual Report on Form 10-K. Any reference to facts and circumstances at a “current” date refer to such facts and circumstances as of such original filing date.

Stillwater Mining Company
Notes to Consolidated Financial Statements
(Unaudited)

Note 1 – General

     In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the company’s financial position as of September 30, 2004 and the results of its operations and its cash flows for the quarter and nine-month periods ended September 30, 2004 and 2003. Certain prior period amounts have been reclassified to conform with the current year presentation. The results of operations for the quarter and nine-month periods are not necessarily indicative of the results to be expected for the full year. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the company’s 2003 Annual Report on Form 10-K and Form 10-K/A.

Note 2 – Change in Amortization Method for Mine Development Assets

     Prior to 2004, the company amortized all such capitalized development costs at its mines over all proven and probable reserves at each mine. Following the asset impairment write-down at the end of 2003, the company revisited its assumptions and estimates for amortizing capitalized mine development costs. The company concluded to continue amortizing the cost of all of the mine development that had been placed in service through 2003 over all proven and probable reserves, because in management’s view these remaining unamortized costs related to infrastructure that would be used for the entire life of the mine. However, for development placed in service after 2003, the company concluded to use a shorter life, amortizing the cost of this new development over only the ore reserves in the immediate and relevant vicinity of the new development. This approach was reflected in the company’s net income as previously reported in the company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004.

     Following a review of its filings by the SEC, the company recently determined it would change its method of accounting for mine development costs as follows:

•     Unamortized costs of the shaft at the Stillwater Mine and the initial development at the East Boulder Mine will continue to be treated as life-of-mine infrastructure costs, to be amortized over total proven and probable reserves at each location, and

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•     All ongoing development costs of footwall laterals and ramps, including similar development costs incurred before 2004, are to be amortized over the ore reserves in the immediate and relevant vicinity of the development.

     The change in accounting method has been applied retroactively to January 1, 2004. The effect of this change in accounting method was to reduce previously reported earnings for the three and nine months ended September 30, 2004 by $5.3 million ($0.06 per share) and $10.2 million ($0.12 per share), including a charge of $5.3 million and $16.2 million attributable to additional amortization for the three and nine months ended September 30, 2004 and a benefit of $6.0 million for the nine months ended September 30, 2004 attributable to the cumulative effect adjustment on January 1, 2004.

     A summary of the aggregate effect of this change in method of amortizing capitalized mine development costs shown below:

	As of September 30, 2004
				As previously
Changes to the Consolidated Balance Sheet	As revised			reported
Inventories	$	169,282		$	167,530
Propery, plant and equipment, net	$	429,465		$	441,374
Total assets	$	739,201		$	749,358
Accumulated deficit	$	(87,300	)	$	(77,143	)
Total stockholders’ equity	$	509,839		$	519,996

	For the three-months ended September 30, 2004
Changes to the Consolidated Statement of Operations				As previously
and Comprehensive Income (Loss):	As revised			reported
Cost of metals sold	$	115,781		$	113,574
Depreciation and amortization	$	13,647		$	10,571
Total cost of revenues	$	129,428		$	124,145
Net income (loss)	$	(944	)	$	4,365
Comprehensive income (loss)	$	(6,047	)	$	(738	)
Basic earnings (loss) per share	$	(0.01	)	$	0.05
Diluted earnings (loss) per share	$	(0.01	)	$	0.05

	For the nine-months ended September 30, 2004
Changes to the Consolidated Statement of Operations			As previously
and Comprehensive Income (Loss):	As revised		reported
Cost of metals sold	$	235,223	$	230,938
Depreciation and amortization	$	43,576	$	31,695
Total cost of revenues	$	278,799	$	262,633
Net income	$	26,455	$	36,613
Comprehensive income	$	24,266	$	34,424
Basic earnings per share	$	0.29	$	0.41
Diluted earnings per share	$	0.29	$	0.41

Note 3 – Stock-Based Compensation Costs

     The company has elected to account for stock options and other stock-based compensation awards using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25,Accounting for Stock Issued to Employees. Accordingly, because stock options are granted at fair market value, no compensation expense

8

has been recognized for stock options issued under the company’s stock option plans. The company records compensation expense for other stock-based compensation awards ratably over the vesting periods. The company has adopted the disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 123,Accounting for Stock-Based Compensation. The following pro forma disclosures illustrate the effect on net income (loss) and earnings (loss) per share as if the fair value based method of accounting, as set forth in SFAS No. 123, had been applied.

	Three months ended						Nine months ended
	September 30,						September 30,
(in thousands)	2004			2003			2004			2003
	(as revised						(as revised -
	- see Note 2)						see Note 2)
Net income (loss), as reported	$	(944	)	$	(1,628	)	$	26,455		$	(22,645	)
Add: Stock based employee compensation expense included in reported net income (loss), net of tax		412			—			686			670
Deduct: Stock based compensation expense determined under fair value based method, net of tax		(602	)		(176	)		(1,206	)		(1,681	)
Pro forma net income (loss)	$	(1,134	)	$	(1,804	)	$	25,935		$	(23,656	)
Earnings (loss) per share
Basic - as reported	$	(0.01	)	$	(0.02	)	$	0.29		$	(0.37	)
Basic - pro forma	$	(0.01	)	$	(0.02	)	$	0.29		$	(0.39	)
Diluted - as reported	$	(0.01	)	$	(0.02	)	$	0.29		$	(0.37	)
Diluted - pro forma	$	(0.01	)	$	(0.02	)	$	0.29		$	(0.39	)

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Note 4 – Comprehensive Income

     Comprehensive income consists of earnings items and other gains and losses affecting stockholders’ equity that, under accounting principles generally accepted in the United States (GAAP), are excluded from current net income. For the company, such items consist of unrealized gains and losses on derivative financial instruments related to commodity price and interest rate hedging activities.

     The net of tax balance in accumulated other comprehensive loss at September 30, 2004 and December 31, 2003 was $3.0 million and $0.8 million, respectively.

     The company had commodity instruments relating to fixed forward metal sales and financially settled forwards outstanding during the first nine-months of 2004. The net unrealized loss on these instruments, $3.0 million at September 30, 2004, will be reflected in other comprehensive income until these instruments are settled. All commodity instruments outstanding at September 30, 2004 are expected to be settled within the next twenty-four months (see Note 9).

     The company’s interest rate swaps, which were accounted for as hedging instruments, matured on March 4, 2004 (see Note 9).

     The following summary sets forth the changes in other comprehensive loss accumulated in stockholders’ equity:

	Interest			Commodity
(in thousands)	Rate Swaps			Instruments			Total
Balance at December 31, 2003	$	(269	)	$	(551	)	$	(820	)
Reclassification to earnings		269			(115	)		154
Change in value		—			(2,343	)		(2,343	)
Balance at September 30, 2004	$	—		$	(3,009	)	$	(3,009	)

Note 5 – Inventories

     Inventories consisted of the following:

	September 30,		December 31,
(in thousands)	2004		2003
	(as revised -
	see Note 2)
Metals Inventory	$	579	$	661
Raw ore	$	579	$	661
Concentrate and in-process		18,588		17,393
Finished goods		139,162		173,715
		158,329		191,769
Materials and supplies		10,953		10,716
	$	169,282	$	202,485

     Inventories are stated at the lower of current market value (taking into consideration the company’s long-term sales contracts), or average unit cost. Metal inventory costs include direct labor and materials, depreciation and amortization, and overhead costs relating to mining and processing activities.

Note 6 – Long-Term Debt

Credit Agreement

     On August 3, 2004, the Company entered into a new $180 million credit facility with a syndicate of financial institutions that replaced the Company’s previous $250 million credit facility. The new credit facility consists of a

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$140 million six-year term loan facility maturing July 30, 2010, bearing interest at a variable rate plus a margin (London Interbank Offer Rate (LIBOR) plus 325 basis points, or about 5.13% at September 30, 2004) and a $40 million five-year revolving credit facility bearing interest when drawn at a variable rate plus a margin (LIBOR plus 300 basis points, or 4.88% at September 30, 2004) expiring July 31, 2009. The revolving credit facility includes a letter of credit facility; undrawn letters of credit issued under this facility carry an annual fee of 3.13%. The remaining unused portion of the revolving credit facility bears an annual commitment fee of 0.75%. Amortization of the term loan facility commenced on August 31, 2004.

     As of September 30, 2004, the company has $139.7 million outstanding under the term loan facility. During 2004, the company obtained a letter of credit in the amount of $7.5 million as surety for its long-term reclamation obligation at East Boulder Mine, which reduces amounts available under the revolving credit facility to $32.5 million at September 30, 2004.

     The new credit facility requires as prepayments 50% of the company’s annual excess cash flow, plus any proceeds from asset sales and the issuance of debt or equity securities, subject to specified exceptions. Such prepayments are to be applied first against the term loan facility balance, and once that is reduced to zero, against any outstanding revolving credit facility balance. Proceeds of the term loan facility were used to refinance the company’s previous credit facility and for general corporate purposes. Proceeds of the new revolving credit facility may be used for general corporate and working capital needs. The company’s term loan facility allows the company to choose between LIBOR loans of various maturities plus a spread of 3.25% or alternate base rate loans plus a spread of 2.25%. The alternate base rate is a rate determined by the administrative agent under the terms of the credit facility, and has generally been equal to the prevailing bank prime loan rate, which is 4.75% at September 30, 2004. The alternate base rate applies only to that portion of the term loan facility in any period for which the company has not elected to use LIBOR contracts. Substantially all the property and assets of the company are pledged as security for the new credit facility.

     In accordance with the terms of the new credit facility, the company is required to offer 25% of the net proceeds from sales of palladium received in the Norilsk Nickel transaction to prepay its term loan facility. Accordingly, $15.4 million of the long-term debt has been classified as a current liability representing that portion of the term loan facility expected to be prepaid under this arrangement during the next twelve months. The company’s new credit facility contains a provision that exempts the company from offering prepayments related to the sales of palladium received in the Norilsk Nickel transaction until a certain cumulative level of palladium sales is met. As of September 30, 2004, the company has not offered, and has not been required to offer any prepayments on the new credit facility in connection with the sales of palladium received in the Norilsk Nickel transaction.

     Covenants in the new credit facility include restrictions on the company’s ability to: (1) incur additional indebtedness; (2) pay dividends or redeem capital stock; (3) grant liens; (4) make investments, acquisitions, dispositions or enter into mergers; (5) enter into transactions with affiliates; (6) make capital expenditures; (7) refinance or prepay subordinated debt; (8) change the nature of the company’s business or cease operations at the principal operating properties; and (9) enter into commodity hedging. The company is also subject to financial covenants including a debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio, a debt service coverage ratio and a minimum liquidity requirement.

     Events of default under the terms of the new credit facility include: (1) a cross-default linked to other indebtedness of the company; (2) any material modification to the life-of-mine plans; (3) a change of control of the company subject to exceptions, and (4) any material breach by a counterparty to a material sales contract or any termination of such a sales contract. The company is in compliance with its covenants under the new credit facility at September 30, 2004.

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     The following is a schedule by year of required principal payments to be made in quarterly installments on the amounts outstanding under the term facility at December 31, 2004 without regard to the prepayments required to be offered from sales of palladium received the Norilsk Nickel transaction or out of excess cash flow:

Year ended, (in thousands)	Term facility
2004 (Oct – Dec)	$	350
2005		1,400
2006		1,400
2007		1,400
2008		1,400
2009		1,400
2010		132,300
Total	$	139,650

Note 7 – Earnings per Share

     All stock options were antidilutive for the three months ending September 30, 2004 and 2003 because the company reported a net loss and inclusion of any of these options would have reduced the net loss per share amounts. Outstanding options to purchase 1,736,727 and 2,726,710 shares of common stock were excluded from the computation of diluted earnings per share for the three-month periods ended September 30, 2004 and 2003, respectively, because the effect would have been antidilutive using the treasury stock method.

     Similarly, outstanding options to purchase 1,671,381 and 2,726,710 shares of common stock were excluded from the computation of diluted earnings per share for the nine-month periods ended September 30, 2004 and 2003, respectively. At September 30, 2004 certain stock options were excluded as antidilutive for purposes of calculating earnings per share using the treasury stock method because the exercise price of the options was greater than the average market price of the common shares during the nine-month period. All stock options were antidilutive at September 30, 2003 because the company reported a net loss and inclusion of any of these options would have reduced the net loss per share amounts.

     The effect of outstanding stock options on diluted weighted average shares outstanding was an increase of 65,346 and 0 shares for the nine-month periods ended September 30, 2004 and 2003, respectively.

     On April 29, 2004, 6,816 shares of restricted stock were granted to the non-management directors serving on the company’s Board of Directors. These shares of restricted stock will vest on October 29, 2004. On May 7, 2004, 348,170 shares of restricted stock were granted to members of management. These shares of restricted stock are scheduled to vest on May 7, 2007. During 2002, the company granted 135,119 shares of restricted stock to certain officers and employees which shares vested during 2003 and 2002. The effect of outstanding restricted stock on diluted weighted average shares outstanding was an increase of 354,986 and 0 shares for the three-month periods ended September 30, 2004 and 2003, respectively. The effect of outstanding restricted stock on diluted weighted average shares outstanding was an increase of 190,648 and 3,098 shares for the nine-month periods ending September 30, 2004 and 2003, respectively. Amortization expense for restricted stock compensation of $0.4 million and $0 was recorded for the three-month periods ended September 30, 2004 and 2003, respectively. Amortization expense for restricted stock compensation of $0.7 million and $0.7 million was recorded for the nine-month periods ended September 30, 2004 and 2003.

Note 8 – Long-Term Sales Contracts

     During 1998, the company entered into three platinum group metals (PGM) supply contracts with its customers that contain guaranteed floor and ceiling prices for a portion of the metal delivered. The company has since amended these contracts to extend the terms and to modify the pricing mechanisms. One of these contracts applies to the company’s production through December 2010, one to the company’s production through December 2006 and the third is expected to be fulfilled in 2007. Under these supply contracts, the company has committed 80% to 100% of its mined palladium production and 70% to 80% of its mined platinum production annually through 2010. Metal sales are priced at a small volume discount to market, subject to floor and ceiling prices. The company’s remaining production is not committed under these contracts and remains available for sale at prevailing market prices.

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     The following table summarizes the floor and ceiling price structures for the three PGM supply contracts related to mine production. The first two columns for each commodity represent the percent of total mine production that is subject to floor prices and the weighted average floor price per ounce. The second two columns for each commodity represent the percent of total mine production that is subject to ceiling prices and the weighted average ceiling price per ounce.

	PALLADIUM											PLATINUM
		Subject to					Subject to						Subject to					Subject to
		Floor Prices					Ceiling Prices						Floor Prices					Ceiling Prices
		% of Mine			Avg. Floor		% of Mine			Avg. Ceiling			% of Mine			Avg. Floor		% of Mine			Avg. Ceiling
Year		Production			Price		Production			Price			Production			Price		Production			Price
2004			100	%	$	371		39	%	$	644			80	%	$	425		16	%	$	856
2005			100	%	$	355		31	%	$	702			80	%	$	425		16	%	$	856
2006			100	%	$	339		29	%	$	721			80	%	$	425		16	%	$	856
2007			100	%	$	344		17	%	$	975			70	%	$	425		14	%	$	850
2008			80	%	$	385		20	%	$	975			70	%	$	425		14	%	$	850
2009			80	%	$	380		20	%	$	975			70	%	$	425		14	%	$	850
2010			80	%	$	375		20	%	$	975			70	%	$	425		14	%	$	850

     The sales contracts provide for adjustments to ounces committed based on actual production. These contracts contain termination provisions that allow the purchasers to terminate in the event the company breaches certain provisions of the contract and the purchaser does not cure the breach within periods ranging from 10 to 30 days of notice. The long-term sales contracts qualify for the normal sales exception from hedge accounting rules provided in SFAS No. 138“Accounting for Certain Derivative Instruments and Certain Hedging Activities”because they will not settle net and will result in physical delivery. The floors and ceilings embedded within the long-term sales contracts are treated as part of the host contract, not as a separate derivative instrument, and are therefore also not subject to the requirements of SFAS No. 133“Accounting for Derivative Instruments and Hedging Activities.”

     The company entered into sales agreements during the first quarter of 2004 to sell the palladium received in the transaction with Norilsk Nickel. Under these agreements, the company will sell approximately 36,500 ounces of palladium per month, ending in the first quarter of 2006, at a slight volume discount to market prices. Separately, under one of these agreements, the company also will sell 3,250 ounces of platinum and 1,900 ounces of rhodium per month, also at a slight volume discount to market price. At its discretion, the company may elect to purchase metal in the open market to meet these sales commitments rather than supplying the metal from inventory. The company has supplied a portion of its platinum and rhodium commitments through open market purchases.

Note 9 – Financial Instruments

     The company from time to time uses various derivative financial instruments to manage the company’s exposure to market prices associated with changes in palladium, platinum and rhodium commodity prices and in interest rates. The company accounts for its derivatives in accordance with SFAS No. 133, which requires that derivatives be reported on the balance sheet at fair value and, if the derivative is not designated as a hedging instrument, changes in fair value must be recognized in earnings in the period of change. Because the company hedges only with instruments that have a high correlation with the value of the underlying exposures, changes in the derivatives’ fair value are expected to be offset by changes in the value of the hedged transaction.

Commodity Derivatives

     The company enters into fixed forwards and financially settled forwards that are accounted for as cash-flow hedges to hedge the price risk in its secondary recycling activity and mine production. In the fixed forward transactions, metals in the recycled material are sold forward at the time of receipt and delivered against the fixed forward contracts when the ounces are recovered. Financially settled forwards may be used as a mechanism to hedge against fluctuations in metal prices associated with future production. Under financially settled forwards, at each settlement date the company receives the difference between the forward price and the market price if the market price is below the forward price, and the company pays the difference between the forward price and the market price

13

if the market price is above the forward price. The company’s financially settled forwards are settled in cash at maturity.

     As of September 30, 2004, the company was party to financially settled forward agreements covering approximately half of its anticipated platinum sales out of mine production from October of 2004 through September of 2006. These transactions are designed to hedge a total of 150,800 ounces of platinum sales from mine production for the next twenty-four months at an overall average price of approximately $806 per ounce.

     Until these contracts mature, any net change in the value of the hedging instrument is reflected in stockholders equity in accumulated other comprehensive income (AOCI). A net unrealized loss of $3.0 million on these hedging instruments existing at September 30, 2004, will be reflected in AOCI. When these instruments are settled, any remaining gain or loss on the cash flow hedges will be offset by losses or gains on the future metal sales and will be recognized at that time in operating income. All commodity instruments outstanding at September 30, 2004 are expected to be settled within the next twenty-four months.

     A summary of the company’s derivative financial instruments as of September 30, 2004 is as follows:

Mine Production:

Financially Settled Forwards

	Platinum		Average
	Ounces		Price		Index
Fourth Quarter 2004		20,500	$	809	Monthly London PM Average
First Quarter 2005		19,900	$	809	Monthly London PM Average
Second Quarter 2005		20,000	$	807	Monthly London PM Average
Third Quarter 2005		19,200	$	798	Monthly London PM Average
Fourth Quarter 2005		20,200	$	794	Monthly London PM Average
First Quarter 2006		19,000	$	810	Monthly London PM Average
Second Quarter 2006		18,000	$	811	Monthly London PM Average
Third Quarter 2006		14,000	$	812	Monthly London PM Average

Autocatalyst Recycling:

Fixed Forwards

	Platinum				Palladium				Rhodium
	Ounces		Price		Ounces		Price		Ounces		Price
Fourth Quarter 2004		19,884	$	833		8,512	$	214		529	$	1,073
First Quarter 2005		5,445	$	844		—	$	—		300	$	1,190

Financially Settled Forwards

	Platinum
	Ounces		Price		Index
Fourth Quarter 2004		1,900	$	1,164	Johnson Matthey North American

Interest Rate Derivatives

     The company entered into two identical interest rate swap agreements fixing the interest rate on $100.0 million of the company’s debt, which were effective March 4, 2002 and matured on March 4, 2004. These interest rate swap agreements qualified as a cash flow hedge and were considered to be highly effective since the change in the value of the interest rate swap offset changes in the future cash flows related to interest payments on the company’s debt. During the nine-month periods ended September 30, 2004 and 2003, hedging losses of $0.3 million and $1.8 million, respectively, were recognized as additional interest expense.

Note 10 – Income Taxes

     The company computes income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” SFAS No. 109 requires an asset and liability approach which results in the recognition of deferred tax liabilities and assets

14

for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of those assets and liabilities, as well as operating loss and tax credit carryforwards, using enacted tax rates in effect in the years in which the differences are expected to reverse. The company has net operating loss carryforwards (NOL’s), which expire in 2009 through 2023. The company has reviewed its net deferred tax assets and has provided a valuation allowance to reflect the estimated amount of net deferred tax assets which management considers more likely than not will not be realized. Except for statutory minimum payments required under certain state tax laws, the company has not recognized any income tax provision or benefit for the quarter ended September 30, 2004, as any changes in the net deferred tax assets and liabilities have been offset by a corresponding change in the valuation allowance.

Note 11 – Subsequent Events

     Subsequent to the end of the third quarter the company has entered into financially settled forward contracts covering an additional 9,000 ounces of platinum for the period of February 2006 through October 2006 at an overall average price of about $823 per ounce.

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Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations

     The following commentary provides management’s perspective and analysis regarding the financial and operating performance of Stillwater Mining Company (the “company”) for the quarter and nine-month period ended September 30, 2004. It consists of the following subsections:

•   “Overview”– a brief summary of the company’s consolidated results and financial position, the primary factors affecting those results, and some issues of continuing interest that may affect performance in the future.

•   “Key Factors”– indicators of profitability and efficiency at the company’s various operations individually and, where relevant, on a consolidated basis.

•   “Results of Operations”– a discussion and analysis of the specific operating and financial results for the three- and nine-month periods ended September 30, 2004 as compared to the same periods in 2003.

•   “Liquidity and Capital Resources”– a discussion of the company’s cash flow and liquidity, investing and financing activities, and significant contractual obligations.

•   “Critical Accounting Policies”– a review of accounting policies the company considers critical because they involve assumptions that could have a material effect on the company’s reported assets, liabilities, income or cash flow and that require difficult, subjective or complex judgments by management.

     These items should be read in conjunction with the consolidated financial statements and accompanying notes thereto included in this quarterly report and in the company’s 2003 annual report on Form 10-K and Form 10-K/A.

Amendment of Financial Statements

     The company revised its consolidated financial statements for the three and nine-months ended September 30, 2004 to reflect the change in its method of amortizing capitalized mine development costs and to add certain other disclosure. See Note 2 to the Consolidated Financial Statements for discussion of this change in the accounting method.

Overview

     Two overriding factors heavily influence the company’s profitability: the volatility of PGM prices and the company’s cost structure. Metal prices are dictated by market forces and so are beyond the direct control of the company, although market effects can be mitigated through long-term sales agreements and at times through hedging activities. Several other major producers in the mining industry either produce PGMs as a byproduct of other refining, or enjoy ores with a substantially higher proportion of (higher-priced) platinum to palladium. The company does not enjoy these advantages and has a higher cost structure than most of its competitors, putting it at a disadvantage. The company’s unit costs generally are affected by the level of ore production, by the consistency and quality of the ore mined, by the choice of mining method, and by overall operating efficiency. The company spends substantial amounts of development capital each year in the mines to sustain ongoing production. Despite these challenges, minimizing unit costs in a safe and efficient manner is the principal operating focus of the company.

     In 1998, the company entered into three long-term sales contracts that commit most of the mines’ production through 2010. These contracts have floor prices (see Note 8) that, in the recent low price environment for palladium, have been of significant benefit in allowing the company to continue operating profitably. Unless extended or modified, as to which there can be no assurance, these contracts will all expire by 2010. At that time, the company could be fully exposed to market prices and the absence of these contracts after 2010 could negatively affect the company’s operating results.

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     As of September 30, 2004, the company had locked in platinum prices in the forward market by entering into financially settled forward transactions covering approximately half of the company’s anticipated platinum mine production for the period from October of 2004 through September of 2006. The company believes that the current wide spread between palladium and platinum prices may narrow if consumers switch from using platinum to palladium, driven by the lower price of palladium, for existing and new applications. The company believes the price of platinum could weaken if this switching occurs and has locked in the price on a portion of future sales. The second and third quarter 2004 transactions lock in the price for 150,800 ounces of platinum sales from mine production for the next twenty-four months at an overall average price of about $806 per ounce. Subsequent to the end of the third quarter the company has entered into financially settled forward contracts covering an additional 9,000 ounces of platinum for the period of February 2006 through October 2006 at an overall price of about $823 per ounce. The hedges are expected to modestly reduce the overall volatility of the company’s earnings and cash flow.

     Volatility of PGM prices has caused the company significant concerns in the past. The decision to build the second mine, known as East Boulder, along the J-M Reef was made in 1998, at a time when the palladium price was rising and widely expected to continue higher. The East Boulder facilities were largely financed through available cash and through bank borrowings that were expected to be repaid as mine production came on line. However, as the project proceeded, the cost of construction far exceeded initial estimates and at the same time palladium prices dropped, leaving the company over-leveraged. Ultimately, in the fall of 2001, the company was forced to slow down development at East Boulder in order to avoid depleting its available cash.

     Following this slowdown, for a time the company’s financial position remained precarious. On eight separate occasions since February of 2001, the company was obliged to amend its previous credit facility or obtain covenant waivers. In early 2002, Stillwater secured $60 million of additional equity funding through a private offering of its common stock. The company revised its mining plans several times in an effort to optimize production and minimize costs in light of financial limitations. Recognizing these challenges, the company considered strategic options, including seeking a financial partner that could infuse additional equity and bring Stillwater’s capital structure back into balance. This process led to the stock purchase transaction, announced in November 2002 and closed in June 2003, whereby Norilsk Nickel acquired 50.8% of the company for $100 million in cash and 877,169 ounces of palladium, through the purchase of newly issued Stillwater common shares. Norilsk Nickel subsequently completed a public cash tender offer for additional shares, increasing their ownership interest to 55.5%.

     The company was obligated by its banks to utilize $50.0 million of the cash proceeds from the Norilsk Nickel transaction to pay down bank debt. During the first quarter of 2004, the company entered into contracts to sell the 877,169 ounces of palladium received from Norilsk Nickel to DaimlerChrysler, Mitsubishi and Engelhard Corporation. The palladium is being sold in equal monthly quantities over the next two years at a slight volume discount to market prices at the time of sale. During 2004, the company has sold approximately 266,000 ounces of this palladium, leaving approximately 611,000 ounces remaining in inventory at September 30, 2004.

     On August 3, 2004, the company completed the refinancing of its previous credit facility. The new credit facility consists of a $140 million six-year term loan facility maturing July 30, 2010, bearing interest at a variable rate plus a margin (LIBOR plus 325 basis points, or approximately 5.13% at September 30, 2004) and a $40 million five-year revolving credit facility expiring July 31, 2009. The revolving credit facility, when drawn, bears interest at a variable rate (LIBOR) plus a margin of 300 basis points. Proceeds of the new term loan facility were applied to pay off the previous credit facility and the remainder for general corporate purposes. The $40 million revolving credit facility includes a letter of credit facility that has been partially utilized to secure a $7.5 million letter of credit provided as surety for certain of the company’s reclamation obligations. The letter of credit carries an annual fee of 3.13%. The remaining unused portion of the revolving credit facility, $32.5 million at September 30,2004, carries an annual commitment fee of 0.75%.

     The new credit facility contains customary financial and other covenants; however, unlike the previous credit facility it does not include a minimum production covenant. For the first and second quarters of 2004, the company secured waivers of the minimum production covenant from the lenders under the previous credit facility. The new credit facility requires that the company offer 25% of the proceeds from sales of the palladium inventory received in the Norilsk Nickel transaction as prepayment against the new credit facility once a certain cumulative level of such sales is reached. As of September 30, 2004, the company has not offered, and has not yet been required to offer any

17

prepayments on its new credit facility related to sales of palladium received in the Norilsk Nickel transaction. The company projects that these prepayments will start in December 2004. The new credit facility also requires that 50% of the company’s annual excess cash flow (as defined in the new credit facility) be offered as prepayments against the new credit facility.

     The company’s primary focus will remain on profitability. Reducing production costs will continue to be a priority. One opportunity to reduce unit production costs may be to increase the production rate at the East Boulder mine. As previously disclosed, the company is gradually increasing production at East Boulder to 1,650 tons of ore per day. While the company had planned to achieve this daily rate by the end of 2004, several issues have been identified which will extend the ramp-up period into 2006. The issues have centered on recognition that the developed state of the mine must be further advanced in order to achieve and maintain the higher production level. The work on improving the developed state will include:

•   additional primary development to increase the number of ramp systems and working faces

•   additional diamond drilling to more accurately identify changes in structure

•   development of a ventilation raise to surface to support a larger amount of equipment while improving underground air quality related to diesel particulate matter (DPM).

     Ore production levels at East Boulder have averaged just over 1,315 tons of ore per day so far this year, up slightly from approximately 1,230 tons of ore per day for the first nine-months of 2003. Full utilization of equipment at the mine will not be attained until after the completion of two new ventilation shafts, which are expected in late 2005 or early 2006.

     The company had also planned to increase production rates at the Stillwater Mine modestly during 2004. The loss of production during the strike and about a 5% reduction in mill head grade realized during the third quarter have eliminated this possibility in 2004. Production and mill head grade at Stillwater have since returned to normal levels and we expect fourth quarter mine production to improve. However, conversion of probable ore reserves to proven at the Stillwater Mine during 2004 to date is below our historical experience and will likely hold down production increases in the near term that might otherwise have been possible. This also may result in lowering the proven portion of the Stillwater Mine ore reserves at year-end 2004.

     The company’s financial results for the nine-months ended September 30, 2004 improved compared to the same period in 2003. Earnings for the first nine months of 2004 totaled $26.5 million, as revised, compared to a loss of $22.6 million for the first nine-months of 2003. This improvement is largely due to increased realized prices and additional sales volume of PGMs during the first nine-months of 2004 as compared to the same period in 2003 offset by an increase in depreciation and amortization expense as a result of the company’s change in accounting method for amortizing capitalized mine development in 2004. The increase in sales volumes has resulted from sales in 2004 of palladium received in the Norilsk Nickel stock purchase transaction and from a new contract for secondary processing (i.e. recycling) of catalysts. The 2003 loss also included a one-time deferred tax adjustment related to the Norilsk Nickel transaction that reduced earnings by $15.2 million. Cash flow from operations increased to $100.3 million in the first nine months of 2004, up from $36.8 million in the first nine-months of 2003.

     The company continually reviews ways to increase demand for its products in order to improve profitability. Stillwater has undertaken a promotional effort to establish a palladium council that would coordinate industry efforts to strengthen demand and foster new applications for palladium. Stillwater also has entered into a third-party agreement to produce and market palladium coins and is exploring ways to increase jewelry demand for palladium.

     The labor agreement covering the company’s union employees at the Stillwater Mine and the Columbus metal processing facilities expired at noon on July 1, 2004. The company and the union reached tentative agreement on a new labor agreement just prior to expiration and extended the contract expiration until noon on July 12, 2004, in order to allow time for the union membership to vote on the contract. On July 11, 2004, the union leadership notified the company that a vote of their membership had rejected the proposed agreement, and accordingly the bargaining unit went on strike effective at noon on July 12, 2004. On July 19, 2004, the members of the union voted to approve a three-year contract, which provides for a 3% annual salary increase and a contract renewal cash bonus. Employees returned to work beginning with the day shift on July 21, 2004. Costs directly associated with the union strike were approximately $2.4 million. In addition, the company estimates the production loss during the strike at

18

approximately 15,000 ounces of PGMs. Despite the resolution of this strike, we cannot assure that we will not encounter additional strikes or other types of conflicts with labor unions or employees in the future. The labor agreement covering the company’s union employees at the East Boulder Mine is scheduled to expire on June 30, 2005.

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Stillwater Mining Company
Key Factors
(Unaudited)

	Three months ended				Nine months ended
	September 30,				September 30,
	2004		2003		2004		2003
	(as revised)				(as revised)
OPERATING AND COST DATA FOR MINE PRODUCTION
Consolidated:
Ounces produced (000)
Palladium		93		113		321		337
Platinum		28		33		95		100
Total		121		146		416		437
Tons milled (000)		271		289		887		879
Mill head grade (ounce per ton)		0.49		0.55		0.51		0.54
Sub-grade tons milled (000) (1)		16		23		42		64
Sub-grade tons mill head grade (ounce per ton)		0.18		0.17		0.22		0.19
Total tons milled (000) (1)		287		312		929		943
Combined mill head grade (ounce per ton)		0.47		0.52		0.50		0.52
Total mill recovery (%)		90		91		91		91
Total operating costs per ounce (Non-GAAP) (2)	$	293	$	245	$	252	$	249
Total cash costs per ounce (Non-GAAP) (2), (3)	$	354	$	284	$	297	$	282
Total production costs per ounce (Non-GAAP) (2), (3), (4)	$	468	$	354	$	403	$	353
Total operating costs per ton milled (Non-GAAP) (2)	$	123	$	115	$	113	$	115
Total cash costs per ton milled (Non-GAAP) (2), (3)	$	149	$	133	$	133	$	131
Total production costs per ton milled (Non-GAAP) (2), (3), (4)	$	197	$	166	$	180	$	163
Stillwater Mine:
Ounces produced (000)
Palladium		61		82		225		247
Platinum		19		24		68		75
Total		80		106		293		322
Tons milled (000)		145		180		526		545
Mill head grade (ounce per ton)		0.58		0.63		0.59		0.63
Sub-grade tons milled (000) (1)		16		23		42		64
Sub-grade tons mill head grade (ounce per ton)		0.18		0.17		0.22		0.19
Total tons milled (000) (1)		161		203		568		609
Combined mill head grade (ounce per ton)		0.54		0.57		0.57		0.58
Total mill recovery (%)		92		92		92		91
Total operating costs per ounce (Non-GAAP) (2)	$	281	$	224	$	237	$	228
Total cash costs per ounce (Non-GAAP) (2), (3)	$	341	$	260	$	280	$	258
Total production costs per ounce (Non-GAAP) (2), (3), (4)	$	437	$	319	$	369	$	318
Total operating costs per ton milled (Non-GAAP) (2)	$	138	$	117	$	123	$	121
Total cash costs per ton milled (Non-GAAP) (2), (3)	$	168	$	136	$	145	$	136
Total production costs per ton milled (Non-GAAP) (2), (3), (4)	$	216	$	167	$	190	$	168

20

Stillwater Mining Company
Key Factors (continued)
(Unaudited)

	Three months ended				Nine months ended
	September 30,				September 30,
	2004		2003		2004		2003
	(as revised)				(as revised)
OPERATING AND COST DATA FOR MINE PRODUCTION (Continued)
East Boulder Mine:
Ounces produced (000)
Palladium		32		31		96		90
Platinum		9		9		27		25
Total		41		40		123		115
Tons milled (000)		126		109		361		334
Mill head grade (ounce per ton)		0.38		0.42		0.39		0.39
Sub-grade tons milled (000) (1)		—		—		—		—
Sub-grade tons mill head grade (ounce per ton)		—		—		—		—
Total tons milled (000) (1)		126		109		361		334
Combined mill head grade (ounce per ton)		0.38		0.42		0.39		0.39
Total mill recovery (%)		87		88		88		89
Total operating costs per ounce (Non-GAAP) (2)	$	317	$	302	$	287	$	306
Total cash costs per ounce (Non-GAAP) (2), (3)	$	378	$	351	$	339	$	350
Total production costs per ounce (Non-GAAP) (2), (3), (4)	$	525	$	449	$	484	$	448
Total operating costs per ton milled (Non-GAAP) (2)	$	104	$	110	$	98	$	106
Total cash costs per ton milled (Non-GAAP) (2), (3)	$	125	$	128	$	115	$	120
Total production costs per ton milled (Non-GAAP) (2), (3), (4)	$	173	$	163	$	165	$	154

(1) Sub-grade tons milled includes reef waste material only. Total tons milled includes ore tons and sub-grade tons only.

(2) Total operating costs include costs of mining, processing and administrative expenses at the mine site (including mine site overhead and credits for metals produced other than palladium and platinum from mine production). Total cash costs include total operating costs plus royalties, taxes other than income tax and other. Total production costs include total cash costs plus asset retirement costs and depreciation and amortization. Income taxes, corporate general and administrative expenses, asset impairment writedowns, gain or loss on disposal of property, plant and equipment, restructuring costs, Norilsk Nickel transaction expenses and interest income and expense are not included in total operating costs, total cash costs or total production costs.

(3) Operating cost per ton, operating cost per ounce, cash cost per ton, cash cost per ounce, production cost per ton and production cost per ounce represent non-U.S. Generally Accepted Accounting Principles (GAAP) measurements that management uses to monitor and evaluate the performance efficiency of its mining operations. Management believes cash costs per ounce and per ton provide an indicator of profitability and efficiency at each location and on a consolidated basis, as well as provide a meaningful basis to compare our results with those of other mining companies and other operating mining properties. See table “Reconciliation of Non-GAAP measures to cost of revenues” and accompanying discussion

(4) A summary of the aggregate effect of the change in the accounting method (see Note2 to the consolidated financial statements) is shown below:

	Three months ended				Nine months ended
	September 30, 2004				September 30, 2004
			As previously				As previously
	As revised		reported		As revised		reported
Consolidated:
Total production costs	$	56,460	$	53,377	$	167,596	$	155,716
Total production cost per ounce	$	468	$	442	$	403	$	374
Total production cost per ton milled	$	197	$	186	$	180	$	168
Stillwater Mine:
Total production costs	$	34,694	$	33,905	$	108,159	$	102,926
Total production cost per ounce	$	437	$	428	$	369	$	351
Total production cost per ton milled	$	216	$	211		190		181
East Boulder Mine:
Total production costs	$	21,766	$	19,472	$	59,437	$	52,790
Total production cost per ounce	$	525	$	470	$	484	$	430
Total production cost per ton milled	$	173	$	155	$	165	$	146

21

Stillwater Mining Company
Key Factors (continued)
(Unaudited)

	Three months ended				Nine months ended
	September 30,				September 30,
	2004		2003		2004		2003
SALES AND PRICE DATA
Ounces sold (000)
Mine Production:
Palladium		140		112		329		348
Platinum		44		32		96		99
Total		184		144		425		447
Other PGM activities:
Palladium		121		1		292		2
Platinum		24		11		51		13
Rhodium		10		—		14		—
Total		155		12		357		15
Total ounces sold		339		156		782		462
Average realized price per ounce (5)
Mine Production:
Palladium	$	372	$	353	$	377	$	353
Platinum	$	821	$	590	$	844	$	578
Combined (6)	$	479	$	405	$	483	$	402
Other PGM activities:
Palladium	$	219	$	173	$	241	$	228
Platinum	$	839	$	662	$	809	$	655
Rhodium	$	1,013	$	479	$	944	$	556
Average market price per ounce (5)
Palladium	$	216	$	189	$	237	$	201
Platinum	$	835	$	693	$	845	$	667
Combined (6)	$	363	$	306	$	375	$	309

(5)   The company’s average realized price represents revenues, including the effect of contractual floor and ceiling prices and hedging gains and losses realized on commodity instruments, but excluding contract discounts, all divided by total ounces sold. The average market price represents the average monthly London PM Fix for palladium, platinum and combined prices and Johnson Matthey quotation for rhodium prices for the actual months of the period.

(6)   The company reports a combined average realized and market price of palladium and platinum based on actual sales of mine production ounces. Prior period amounts have been adjusted to conform to the current year presentation.

22

     Reconciliation of Non-GAAP measures to cost of revenues

     The company utilizes certain non-GAAP measures as indicators in assessing the performance of its mining and processing operations during any period. Because of the processing time required to complete the extraction of finished PGM products, there are typically lags from one to three months between ore production and sale of the finished product. Sales in any period include some portion of material mined and processed from prior periods as the revenue recognition process is completed. Consequently, while cost of revenues (a GAAP measure included in the company’s Consolidated Statement of Operations and Comprehensive Income/(Loss)) appropriately reflects the expense associated with the materials sold in any period, the company has developed certain non-GAAP measures to assess the costs associated with its producing and processing activities in a particular period and to compare those costs between periods.

     While the company believes that these non-GAAP measures may also be of value to outside readers, both as general indicators of the company’s mining efficiency from period to period and as insight into how the company internally measures its operating performance, these non-GAAP measures are not standardized across the mining industry and in most cases will not be directly comparable to similar measures that may be provided by other companies. These non-GAAP measures are only useful as indicators of relative operational performance in any period, and because they do not take into account the inventory timing differences that are included in cost of revenues, they cannot meaningfully be used to develop measures of profitability. A reconciliation of these measures to cost of revenues for each period shown is provided as part of the following tables, and a description of each non-GAAP measure is provided below.

     Total Cost of Revenues: For the company on a consolidated basis, this measure is equal to consolidated cost of revenues, as reported in the Consolidated Statement of Operations and Comprehensive Income/(Loss). For the Stillwater Mine, East Boulder Mine, and other PGM activities, the company segregates the expenses within cost of revenues that are directly associated with each of these activities and then allocates the remaining facility costs included in consolidated cost of revenues in proportion to the monthly volumes from each activity. The resulting total cost of revenues measures for Stillwater Mine, East Boulder Mine and other PGM activities are equal in total to consolidated cost of revenues as reported in the company’s Consolidated Statement of Operations and Comprehensive Income/(Loss).

     Total Production Costs (Non-GAAP): Calculated as total cost of revenues (for each mine or consolidated) adjusted to exclude gains or losses on asset dispositions, costs and profit from secondary recycling, and changes in product inventories. This non-GAAP measure provides an indication of the total costs incurred in association with production and processing in a period, before taking into account the timing differences resulting from inventory changes and before any effect of asset dispositions or secondary recycling activities. It is used by the company as a comparative measure of the level of total production and processing activities in a period, and may be compared to prior periods or between the company’s mines. As noted above, because this measure does not take into account the inventory timing differences that are included in cost of revenues, it cannot be used to develop meaningful measures of earnings or profitability.

     When divided by the total tons milled in the respective period,Total Production Cost per Ton Milled (Non-GAAP) – measured for each mine or consolidated – provides an indication of the cost per ton milled in that period. Because of variability of ore grade in the company’s mining operations, production efficiency underground is frequently measured against ore tons produced rather than contained PGM ounces. And because ore tons are first actually weighed as they are fed into the mill, mill feed is the first point at which production tons are measured precisely. Consequently, Total Production Cost per Ton Milled (Non-GAAP) is a general measure of production efficiency, and is affected both by the level of Total Production Costs (Non-GAAP) and by the volume of tons produced and fed to the mill.

     When divided by the total recoverable PGM ounces from production in the respective period,Total Production Cost per Ounce (Non-GAAP) – measured for each mine or consolidated – provides an indication of the cost per ounce produced in that period. Recoverable PGM ounces from production are an indication of the amount of PGM product extracted through mining in any period. Because extracting PGM material is ultimately the objective of mining, the cost per ounce of extracting and processing PGM ounces in a period is a useful measure for comparing extraction efficiency between periods and between the company’s mines. Consequently, Total Production Cost per

23

Ounce (Non-GAAP) in any period is a general measure of extraction efficiency, and is affected by the level of Total Production Costs (Non-GAAP), by the grade of the ore produced and by the volume of ore produced in the period.

     Total Cash Costs (Non-GAAP): This non-GAAP measure is calculated by excluding the depreciation and amortization and asset retirement costs from Total Production Costs (Non-GAAP) for each mine or consolidated. The company uses this measure as a comparative indication of the cash costs related to production and processing in any period. As noted above, because this measure does not take into account the inventory timing differences that are included in cost of revenues, it cannot be used to develop meaningful measures of earnings or profitability.

     When divided by the total tons milled in the respective period,Total Cash Cost per Ton Milled (Non-GAAP) – measured for each mine or consolidated– provides an indication of the level of cash costs incurred per ton milled in that period. Because of variability of ore grade in the company’s mining operations, production efficiency underground is frequently measured against ore tons produced rather than contained PGM ounces. And because ore tons are first weighed as they are fed into the mill, mill feed is the first point at which production tons are measured precisely. Consequently, Total Cash Cost per Ton Milled (Non-GAAP) is a general measure of production efficiency, and is affected both by the level of Total Cash Costs (Non-GAAP) and by the volume of tons produced and fed to the mill.

     When divided by the total recoverable PGM ounces from production in the respective period,Total Cash Cost per Ounce (Non-GAAP) – measured for each mine or consolidated– provides an indication of the level of cash costs incurred per PGM ounce produced in that period. Recoverable PGM ounces from production are an indication of the amount of PGM product extracted through mining in any period. Because ultimately extracting PGM material is the objective of mining, the cost per ounce of extracting and processing PGM ounces in a period is a useful measure for comparing extraction efficiency between periods and between the company’s mines. Consequently, Total Cash Cost per Ounce (Non-GAAP) in any period is a general measure of extraction efficiency, and is affected by the level of Total Cash Costs (Non-GAAP), by the grade of the ore produced and by the volume of ore produced in the period.

     Total Operating Costs (Non-GAAP): This non-GAAP measure is derived from Total Cash Costs (Non-GAAP) for each mine or consolidated by excluding royalty, tax and insurance expenses from Total Cash Costs (Non-GAAP). Royalties, taxes and insurance costs are contractual or governmental obligations outside of the control of the company’s mining operations, and in the case of royalties and most taxes, are driven more by the level of sales realizations rather than by operating efficiency. Consequently, Total Operating Costs (Non-GAAP) is a useful indicator of the level of production and processing costs incurred in a period that are under the control of mining operations. As noted above, because this measure does not take into account the inventory timing differences that are included in cost of revenues, it cannot be used to develop meaningful measures of earnings or profitability.

     When divided by the total tons milled in the respective period,Total Operating Cost per Ton Milled (Non-GAAP) – measured for each mine or consolidated– provides an indication of the level of controllable cash costs incurred per ton milled in that period. Because of variability of ore grade in the company’s mining operations, production efficiency underground is frequently measured against ore tons produced rather than contained PGM ounces. And because ore tons are first actually weighed as they are fed into the mill, mill feed is the first point at which production tons are measured precisely. Consequently, Total Operating Cost per Ton Milled (Non-GAAP) is a general measure of production efficiency, and is affected both by the level of Total Operating Costs (Non-GAAP) and by the volume of tons produced and fed to the mill.

     When divided by the total recoverable PGM ounces from production in the respective period,Total Operating Cost per Ounce (Non-GAAP) – measured for each mine or consolidated– provides an indication of the level of controllable cash costs incurred per PGM ounce produced in that period. Recoverable PGM ounces from production are an indication of the amount of PGM product extracted through mining in any period. Because ultimately extracting PGM material is the objective of mining, the cost per ounce of extracting and processing PGM ounces in a period is a useful measure for comparing extraction efficiency between periods and between the company’s mines. Consequently, Total Operating Cost per Ounce (Non-GAAP) in any period is a general measure of extraction efficiency, and is affected by the level of Total Operating Costs (Non-GAAP), by the grade of the ore produced and by the volume of ore produced in the period.

24

Key Factors (contined)

	Three months ended				Nine months ended
	September 30,				September 30,
(in thousands, except per ounce and per ton data)	2004		2003		2004		2003
	(as revised)				(as revised)
Consolidated:
Total operating costs(Non-GAAP)	$	35,386	$	35,842	$	104,788	$	108,667
Total cash costs(Non-GAAP)	$	42,731	$	41,582	$	123,778	$	123,271
Total production costs(Non-GAAP)(4)	$	56,460	$	51,732	$	167,596	$	153,897
Divided by total ounces		121		146		416		437
Divided by total tons milled		287		312		929		943
Total operating cost per ounce(Non-GAAP)	$	293	$	245	$	252	$	249
Total cash cost per ounce(Non-GAAP)	$	354	$	284	$	297	$	282
Total production cost per ounce(Non-GAAP)(4)	$	468	$	354	$	403	$	353
Total operating cost per ton milled(Non-GAAP)	$	123	$	115	$	113	$	115
Total cash cost per ton milled(Non-GAAP)	$	149	$	133	$	133	$	131
Total production cost per ton milled(Non-GAAP)(4)	$	197	$	166	$	180	$	163
Reconciliation to consolidated cost of revenues:
Total operating costs(Non-GAAP)	$	35,386	$	35,842	$	104,788	$	108,667
Royalities, taxes and other		7,345		5,740		18,990		14,604
Total cash costs(Non-GAAP)	$	42,731	$	41,582	$	123,778	$	123,271
Asset retirement costs		94		87		277		254
Depreciation and amortization		13,635		10,063		43,541		30,372
Total production costs(Non-GAAP) (4)	$	56,460	$	51,732	$	167,596	$	153,897
Change in product inventory		48,829		5,732		58,420		16,559
Costs of secondary recycling		22,062		1,489		48,206		3,679
Secondary recycling depreciation		12		18		35		54
Add: Profit from secondary recycling		2,065		189		4,542		599
(Gain) or loss on sale of assets and other costs		—		69		—		106
Total consolidated cost of revenues	$	129,428	$	59,229	$	278,799	$	174,894
Stillwater Mine:
Total operating costs(Non-GAAP)	$	22,263	$	23,862	$	69,574	$	73,458
Total cash costs(Non-GAAP)	$	27,064	$	27,669	$	82,182	$	83,010
Total production costs(Non-GAAP)(4)	$	34,694	$	33,935	$	108,159	$	102,340
Divided by total ounces		80		106		293		322
Divided by total tons milled		161		203		568		609
Total operating cost per ounce(Non-GAAP)	$	281	$	224	$	237	$	228
Total cash cost per ounce(Non-GAAP)	$	341	$	260	$	280	$	258
Total production cost per ounce(Non-GAAP)(4)	$	437	$	319	$	369	$	318
Total operating cost per ton milled(Non-GAAP)	$	138	$	117	$	123	$	121
Total cash cost per ton milled(Non-GAAP)	$	168	$	136	$	145	$	136
Total production cost per ton milled(Non-GAAP)(4)	$	216	$	167	$	190	$	168

25

Key Factors (contined)

	Three months ended					Nine months ended
	September 30,					September 30,
(in thousands, except per ounce and per ton data)	2004		2003			2004		2003
	(as revised)					(as revised)
Stillwater Mine (continued):
Reconciliation to cost of revenues:
Total operating costs(Non-GAAP)	$	22,263	$	23,862		$	69,574	$	73,458
Royalities, taxes and other		4,801		3,807			12,608		9,552
Total cash costs(Non-GAAP)	$	27,064	$	27,669		$	82,182	$	83,010
Asset retirement costs		77		71			227		208
Depreciation and amortization (4)		7,553		6,195			25,750		19,122
Total production costs(Non-GAAP)	$	34,694	$	33,935		$	108,159	$	102,340
Change in product inventory		11,735		(100	)		2,435		8,720
Add: Profit from secondary recycling		1,351		137			3,149		455
(Gain) or loss on sale of assets and other costs		—		52			—		79
Total cost of revenues	$	47,780	$	34,024		$	113,743	$	111,594
East Boulder Mine:
Total operating costs(Non-GAAP)	$	13,123	$	11,980		$	35,214	$	35,209
Total cash costs(Non-GAAP)	$	15,667	$	13,913		$	41,596	$	40,261
Total production costs(Non-GAAP)(4)	$	21,766	$	17,797		$	59,437	$	51,557
Divided by total ounces		41		40			123		115
Divided by total tons milled		126		109			361		334
Total operating cost per ounce(Non-GAAP)	$	317	$	302		$	287	$	306
Total cash cost per ounce(Non-GAAP)	$	378	$	351		$	339	$	350
Total production cost per ounce(Non-GAAP)(4)	$	525	$	449		$	484	$	448
Total operating cost per ton milled(Non-GAAP)	$	104	$	110		$	98	$	106
Total cash cost per ton milled(Non-GAAP)	$	125	$	128		$	115	$	120
Total production cost per ton milled(Non-GAAP)(4)	$	173	$	163		$	165	$	154
Reconciliation to cost of revenues:
Total operating costs(Non-GAAP)	$	13,123	$	11,980		$	35,214	$	35,209
Royalities, taxes and other		2,544		1,933			6,382		5,052
Total cash costs(Non-GAAP)	$	15,667	$	13,913		$	41,596	$	40,261
Asset retirement costs		17		16			50		46
Depreciation and amortization		6,082		3,868			17,791		11,250
Total production costs(Non-GAAP) (4)	$	21,766	$	17,797		$	59,437	$	51,557
Change in product inventory		8,781		(895	)		1,248		1,112
Add: Profit from secondary recycling		714		52			1,393		144
(Gain) or loss on sale of assets and other costs		—		17			—		27
Total consolidated cost of revenues	$	31,261	$	16,971		$	62,078	$	52,840
Other PGM activities:
Reconciliation to cost of revenues:
Change in product inventory	$	28,313	$	6,727		$	54,737	$	6,727
Secondary recycling depreciation		12		18			35		54
Costs of secondary recycling		22,062		1,489			48,206		3,679
Total cost of revenues	$	50,387	$	8,234		$	102,978	$	10,460

26

Results of Operations

     The company reported net loss of $0.9 million for the third quarter of 2004 on revenue of $144.6 million, compared to a net loss of $1.6 million for the third quarter of 2003 on revenue of $66.6 million. The 2004 third-quarter results reflect higher revenues as a result of the sale of mine production that was stockpiled due to the smelter re-bricking during the second quarter, higher realized PGM prices, sales from the palladium inventory received in the Norilsk Nickel transaction and contractual sourcing and sale of platinum and rhodium; offset by increased depreciation and amortization expense due to the change in accounting method (see Note 2 to the company’s consolidated financial statements). Included in the 2004 third quarter results is the effect of ten days’ lost production from the strike at the Stillwater Mine and Columbus metal processing facilities and $2.4 million of costs directly associated with the strike and its settlement, a charge of $5.2 million in conjunction with refinancing the company’s previous credit facility, and a charge of $2.1 million, related to the buyout of the lease on a tunnel boring machine at the East Boulder Mine. The 2003 third quarter results include a non-cash charge for income tax of $1.2 million relating to a portion of the Company’s tax losses, which could not be utilized as a result of the ownership change from the issuance of shares to Norilsk Nickel.

     For the first nine months of 2004, the Company reported net income of $26.5 million, on revenue of $329.5 million compared to a net loss of $22.6 million on revenue of $190.8 million for the first nine months of 2003. The 2004 results include the effect of ten days’ lost production due to a strike at the Stillwater Mine and Columbus metal processing facilities and $2.4 million of costs directly associated with the strike and its settlement, a charge of $5.2 million related to the refinancing of the Company’s previous credit facility, a charge of $2.1 million related to the buyout of the lease on a tunnel boring machine at the East Boulder Mine and an increase in depreciation and amortization due to the change in accounting method (see Note 2 to the company’s consolidated financial statements). The 2003 results included certain charges related to the issuance of shares to Norilsk Nickel, the Company’s largest stockholder. These charges were a $15.2 million non-cash charge to deferred income tax relating to tax loss carryforwards which no longer can be utilized, and $3.0 million of transaction costs charged to income.

Three-month period ended September 30, 2004 compared to the three-month period ended September 30, 2003

     Production. During the third quarter of 2004, the company’s consolidated mining operation’s production decreased, as compared to the third quarter of 2003, as follows:

	Consolidated Mining Production
	Three months ended
	September 30,							Percentage
(in ounces)	2004		2003		(Decrease)			(Decrease)
Palladium (000)		93		113		(20	)		(18	%)
Platinum (000)		28		33		(5	)		(15	%)
Total (000)		121		146		(25	)		(17	%)

     The decrease was primarily due to a 25% decrease in ounces produced at the Stillwater Mine related to ten days’ lost production due to the union strike and a 5% decrease in mill head grade realized during the third quarter of 2004. Stillwater Mine produced approximately 61,000 ounces of palladium and 19,000 ounces of platinum in the third quarter of 2004, compared to approximately 82,000 ounces of palladium and 24,000 ounces of platinum in the third quarter of 2003.

27

     Revenues. Revenues were $144.6 million for the third quarter of 2004 compared to $66.6 million for the third quarter of 2003. The following discussion covers key factors contributing to the increase in revenues:

	Revenues and PGM ounces sold
	Three months ended
	September 30,						Percentage
(in thousands)	2004		2003		Increase		Increase/
Revenues	$	144,565	$	66,644	$	77,921		117	%
Mine Production Ounces Sold:
Palladium		140		112		28		25	%
Platinum		44		32		12		38	%
Total		184		144		40		28	%
Other PGM Activities Ounces Sold:
Palladium		121		1		120		N.M.
Platinum		24		11		13		N.M.
Rhodium		10		—		10		N.M.
Total		155		12		143		N.M.
Total Ounces Sold		339		156		183		117	%
Not meaningful (N.M.)

     The $77.9 million, or 117%, increase is primarily due to the third quarter of 2004 processing and sale of mine production that was stockpiled during a smelter re-bricking that took place in the second quarter of 2004, to higher realized PGM prices, the sale of approximately 110,000 ounces of palladium inventory received from Norilsk Nickel, the inclusion of revenues from recycling of catalysts as a result of the new autocatalyst processing agreement and the contractual sourcing and sale of platinum and rhodium. The sale of 110,000 ounces of the palladium inventory contributed $23.4 million to revenue for the third quarter of 2004, sales of 36,000 ounces of PGMs from recycling of catalysts contributed $23.8 million to revenues, and the sourcing and sale of 9,000 ounces of platinum and rhodium contributed $9.3 million to revenue.

     Palladium sales from mine production were 140,000 ounces during the third quarter of 2004 compared to 112,000 ounces for the third quarter of 2003. Platinum sales from mine production were approximately 44,000 ounces during the third quarter of 2004 compared to approximately 32,000 for the same period of 2003.

28

	PGM Prices
	Three months ended
	September 30,						Percentage
	2004		2003		Increase		Increase
Average realized price per ounce
Mine Production:
Palladium	$	372	$	353	$	19		5	%
Platinum	$	821	$	590	$	231		39	%
Combined	$	479	$	405	$	74		18	%
Other PGM Activities:
Palladium	$	219	$	173	$	46		27	%
Platinum	$	839	$	662	$	177		27	%
Rhodium	$	1,013	$	479	$	534		111	%
Average market price per ounce
Palladium	$	216	$	189	$	27		14	%
Platinum	$	835	$	693	$	142		20	%
Combined	$	363	$	306	$	57		19	%

     The company’s combined average realized price per ounce of palladium and platinum sold from mine production in the third quarter of 2004 increased 18% to $479, compared to $405 in the third quarter of 2003, largely reflecting the trend in PGM prices over the same period. The combined average market price increased 19% to $363 per ounce in the third quarter of 2004, compared to $306 per ounce in the third quarter of 2003. The average realized price per ounce of palladium sold from mine production was $372 in the third quarter of 2004, compared to $353 in the third quarter of 2003 (benefiting in both periods from the contractual price floors), while the average market price of palladium was $216 per ounce in the third quarter of 2004 compared to $189 per ounce in the third quarter of 2003. The company’s average realized price per ounce of platinum sold from mine production was $821 in the third quarter of 2004, compared to $590 in the third quarter of 2003. The average market price of platinum was $835 per ounce in the third quarter of 2004 compared to $693 per ounce in the third quarter of 2003. The average realized prices received for palladium, platinum and rhodium from the company’s other PGM activities (catalyst recycling and sales of palladium inventory from Norilsk Nickel) during the third quarter of 2004 were $219, $839 and $1,013 per ounce, respectively.

     Cost of metals sold. Cost of metals sold was $115.8 million for the third quarter of 2004, as revised, compared to $49.1 million for the third quarter of 2003, a 136% increase.

     The cost of metals sold from mine production was $65.4 million for the third quarter of 2004, as revised, compared to $40.9 million for the third quarter of 2003, a 60% increase. The increase was primarily due to the 28% increase in ounces sold and an increase in the cost of metals sold per ounce. The increase in ounces sold is primarily attributable to the processing and sale of mine production stockpiles in the third quarter of 2004 that were built up during the shutdown of the smelter and base metals refinery during the second quarter of 2004.

     Total consolidated cash costs per ounce produced, a non-GAAP measure, in the third quarter of 2004 increased $70 or 25% to $354 per ounce from $284 per ounce in the third quarter of 2003. The increase was primarily attributed to decreased production at the Stillwater Mine due to the union strike, a 5% decrease in mill head grade realized and an increase in royalties and production taxes due to the higher PGM prices during the third quarter of 2004.

     The cost of metals sold from secondary processing activates was $22.1 million in the third quarter of 2004, compared to $1.5 million in the third quarter of 2003. The increase was primarily due to the cost of acquiring and processing the increased ounces generated from the company’s long-term sourcing agreement for spent catalytic

29

materials entered into during the fourth quarter of 2003.

     The cost of metals sold from palladium received in the Norilsk Nickel transaction and other activities was $28.3 million in the third quarter of 2004 primarily due to the sale of approximately 110,000 ounces of palladium at an average cost of $169 per ounce. There were no sales of palladium received in the Norilsk Nickel transaction in the third quarter of 2003.

     Depreciation and amortization. Depreciation and amortization was $13.6 million for the third quarter of 2004, as revised, compared to $10.1 million for the third quarter of 2003, a 35% increase. The increase was due to a change in the company’s method of amortizing capitalized mine development costs (see Note 2 to the company’s consolidated financial statements). As a result of the change, certain capitalized mine development costs are amortized over a shorter period, which results in higher amortization expense than the company has experienced in previous periods.

     Expenses. General and administrative expenses in the third quarter of 2004 were $6.7 million, compared to $3.4 million during the third quarter of 2003. The increase is primarily due to security and settlement costs associated with the union strike and amortization of restricted stock.

     Losses on disposal of property, plant and equipment in the third quarter of 2004 were approximately $2.0 million. Theses costs primarily relate to a charge of $2.1 million for the buyout of a lease on a tunnel boring machine at the East Boulder mine. There were no gains or losses on disposal of property, plant and equipment in the third quarter of 2003.

     Interest expense of $7.9 million in the third quarter of 2004 increased approximately $3.9 million from $4.0 million in the third quarter of 2003. The increase is primarily due to the write off of deferred debt fees and a prepayment penalty, all related to the credit facility refinancing during the third quarter of 2004, offset in part by a reduction in interest expense due to lower interest rates in the third quarter of 2004 as compared to the same period in 2003.

     Income Taxes. The company had no income tax provision or benefit except for statutory minimum state tax obligations for the quarter ended September 30, 2004, compared to an income tax provision of $1.8 million for the quarter ended September 30, 2003. The third quarter of 2003 net tax provision included a $1.2 million write-off of net operating loss carryforwards as a result of the Norilsk Nickel transaction. Except as noted above, the company has not recognized any income tax provision or benefit for the quarter ended September 30, 2004 as any changes in deferred tax liabilities and assets have been offset by changes in the valuation allowance provided for the company’s net deferred tax assets.

     Other Comprehensive Income. For the third quarter of 2004, other comprehensive income includes a change in fair value of $5.2 million offset by a reclassification to earnings of $0.1 million, for commodity hedging instruments. For the same period of 2003, other comprehensive income, net of tax, included reclassification adjustments to interest expense of $0.4 million.

     Nine-month period ended September 30, 2004 compared to nine-month period ended September 30, 2003

     PGM Production. During the first nine-months of 2004, the company’s consolidated mining operations’ production decreased, as compared to the first nine-months of 2003, as follows:

30

	Consolidated Mining Production
	Nine months ended
	September 30,							Percentage
(in ounces)	2004		2003		(Decrease)			(Decrease)
Palladium (000)		321		337		(16	)		(5	%)
Platinum (000)		95		100		(5	)		(5	%)
Total (000)		416		437		(21	)		(5	%)

     The decrease was primarily due to a decrease in ounces produced at the Stillwater Mine during the third quarter of 2004 due to ten days’ lost production from a strike and a 2% decrease in mill head grade realized. This decrease at Stillwater Mine was slightly offset by an increase in production at the East Boulder Mine, which produced approximately 96,000 ounces of palladium and approximately 27,000 ounces of platinum in the first nine-months of 2004, compared to approximately 90,000 ounces of palladium and approximately 25,000 ounces of platinum in the first nine-months of 2003.

     Revenues. For the first nine-months of 2004 revenues were $329.5 million compared to $190.8 million for the first nine-months of 2003. The following discussion covers key factors contributing to the increase in revenues:

		Revenues and PGM ounces Sold
		Nine months ended							Percentage
		September 30,				Increase/			Increase/
(in thousands)	2004			2003		(Decrease)			(Decrease)
Revenues		$	329,465	$	190,809	$	138,656			73	%
Mine Production Ounces Sold:
Palladium			329		348		(19	)		(5	%)
Platinum			96		99		(3	)		(3	%)
Total			425		447		(22	)		(5	%)
Other PGM Activities Ounces Sold:
Palladium			292		2		290			N.M.
Platinum			51		13		38			N.M.
Rhodium			14		—		14			N.M.
Total			357		15		342			N.M.
Total Ounces Sold			782		462		320			69	%
Not meaningful (N.M.)

     The $138.7 million, or 73%, increase in 2004 nine-month revenues is primarily due to: (1) a 20% increase in the average combined realized palladium and platinum prices from sales of mine production (see average realized price discussion below), (2) the sale of approximately 266,000 ounces out of the palladium inventory received from the Norilsk Nickel transaction, (3) inclusion of recycling revenues as a result of the new auto-catalyst processing agreement, and (4) sourcing and sale of contractual platinum and rhodium. Sales from the palladium inventory contributed $63.5 million to revenue for the first nine-months of 2004, sales of 82,000 ounces of PGMs from recycling of catalysts contributed $52.0 million to revenues for the same period and contractual sourcing and sales of rhodium and platinum contributed $9.3 million to revenue.

     Palladium sales from mine production decreased to approximately 329,000 ounces during the first nine-months of

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2004 compared to 348,000 ounces for the first nine-months of 2003. Platinum sales from mine production decreased to approximately 96,000 ounces during the first nine-months of 2004 compared to approximately 99,000 for the same period of 2003. This decrease in sales of mine production is due to a decrease in mill head grade realized and lost production from the union strike during the third quarter of 2004. Altogether, the total quantity of PGMs sold increased 69% to approximately 782,000 ounces during the first nine-months of 2004 compared with 462,000 ounces for the same period of 2003.

	PGM Prices
	Nine months ended
	September 30,						Percentage
	2004		2003		Increase		Increase
Average realized price per ounce
Mine Production:
Palladium	$	377	$	353	$	24		7	%
Platinum	$	844	$	578	$	266		46	%
Combined	$	483	$	402	$	81		20	%
Other PGM Activities:
Palladium	$	241	$	228	$	13		6	%
Platinum	$	809	$	655	$	154		24	%
Rhodium	$	944	$	556	$	388		70	%
Average market price per ounce
Palladium	$	237	$	201	$	36		18	%
Platinum	$	845	$	667	$	178		27	%
Combined	$	375	$	309	$	66		21	%

     The company’s combined average realized price per ounce of palladium and platinum sold from mine production in the first nine months of 2004 increased by 20% to $483, compared to $402 in the first nine months of 2003, largely driven by higher platinum prices. The combined average market price increased by 21% to $375 per ounce in the first nine-months of 2004, compared to $309 per ounce in the first nine-months of 2003, reflecting the trend in both platinum and palladium prices over the same period. The company’s average realized price per ounce of palladium sold from mine production was $377 in the first nine-months of 2004, compared to $353 in the first nine-months of 2003 (benefited in both years by the contractual floor prices for palladium), while the average market price of palladium was $237 per ounce in the first nine-months of 2004 compared to $201 per ounce in the first nine-months of 2003. The company’s average realized price per ounce of platinum sold from mine production was $844 in the first half of 2004, compared to $578 in the first nine-months of 2003 (reflecting certain ceiling prices for platinum which expired at the end of 2003), while the average market price of platinum was $845 per ounce in the first nine-months of 2004 compared to $667 per ounce in the first nine-months of 2003. The average realized palladium, platinum and rhodium prices received from the company’s other PGM activities during the first nine-months of 2004 were $241, $809 and $944, respectively.

     Cost of metals sold. Cost of metals sold was $235.2 million for the first nine months of 2004, as revised, compared to $144.5 million for the first nine months of 2003, a 63% increase.

     The cost of metal sold from mine production was $132.3 million in the first nine months of 2004, as revised, compared to $134.1 million in the same period of 2003, a 1% decrease. The decrease was primarily due to the 5% decrease in ounces sold offset by an increase in the cost of metals sold per ounce. The decrease in ounces sold is primarily attributable to a decrease in mill head grade realized and lost production from the union strike during the third quarter of 2004.

     Total consolidated cash costs per ounce produced, a non-GAAP measure, for the first nine months of 2004 increased $15 or 5% to $297 per ounce from $282 per ounce for the same period of 2003. The increase was

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primarily attributed to decreased production at the Stillwater Mine due to the union strike, a 2% decrease in mill head grade realized and an increase in royalties and production taxes due to the higher PGM prices during the third quarter of 2004. The increase was partially offset by a decrease in operating costs per ounce at the East Boulder Mine as a result of higher production.

     The cost of metals sold from secondary processing activates was $48.2 million in the first nine months of 2004, compared to $3.7 million in the first nine months of 2003. The increase was primarily due to the cost of acquiring and processing the increased ounces generated from the company’s long-term sourcing agreement for spent catalytic materials entered into during the fourth quarter of 2003.

     The cost of metals sold from palladium received in the Norilsk Nickel transaction and other activities was $54.7 million in the first nine months of 2004 primarily due to the sale of approximately 266,000 ounces of palladium at an average cost of $169 per ounce. There were no sales of palladium received in the Norilsk Nickel transaction in the first nine months of 2003.

     Depreciation and amortization. Depreciation and amortization was $43.6 million for the first nine months of 2004, as revised, compared to $30.4 million for the same period of 2003, a 43% increase. The increase was due to a change in the company’s method of amortizing capitalized mine development costs (see Note 2 to the company’s consolidated financial statements). As a result of the change, certain capitalized mine development costs are amortized over a shorter period, which results in higher amortization expense than the company has experienced in previous periods.

     Expenses. General and administrative expenses increased $4.0 million, or 39%, in the first nine-months of 2004 as compared to the same period of 2003. The increase is primarily due to security and settlement costs associated with the union strike and amortization of restricted stock.

     Losses on disposal of property, plant and equipment in the first nine months of 2004 were approximately $1.9 million. These costs primarily relate to a charge of $2.1 million for the buyout of the lease on a tunnel boring machine at the East Boulder mine. There were no gains or losses on disposal of property, plant and equipment in the first nine months of 2003.

     Interest expense increased period on period by $1.5 million primarily due to the write off of deferred financing costs related to the credit facility that was refinanced during the third quarter of 2004, offset by decreases in interest expense in 2004 due to repayment of a portion of the company’s credit facility during the second quarter of 2003.

     Income Taxes. The company had no income tax provision or benefit, except for the statutory minimum obligations under certain state tax laws, for the nine-months ended September 30, 2004, compared to an income tax provision of $11.5 million for the nine-months ended September 30, 2003. The net tax provision for the first nine months of 2003 includes a $15.2 million write-off of net operating loss carryforwards associated with the Norilsk Nickel transaction. Except as noted above, the company has not recognized any income tax provision or benefit for the period ended September 30, 2004 as any changes in deferred tax liabilities and assets have been offset by changes in the valuation disposition allowance provided for the company’s net deferred tax assets (see Note 10).

     Other Comprehensive Income. For the first nine-months of 2004, other comprehensive income, net of tax, includes a decrease in the fair value of commodity instruments of $2.6 million, offset by a reclassification to earnings of $0.4 million, and a reclassification to interest expense on interest rate swaps of $0.3 million. There were no open interest rate swaps remaining at September 30, 2004. For the same period of 2003, other comprehensive income, net of tax, reflects a decline in the fair value of the interest rate swaps of $0.6 million offset by reclassification adjustments to interest expense of $1.8 million.

Liquidity and Capital Resources

     The company’s net working capital at September 30, 2004, was $247.8 million compared to $154.7 million at December 31, 2003. The ratio of current assets to current liabilities was 5.5 at September 30, 2004, and 2.4 at December 31, 2003. The increase in net working capital resulted primarily from an increase in the company’s cash

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balance and from adjusting the current portion of long-term debt to reflect the provisions of the new credit facility and the contracts for sale of the palladium received in the Norilsk Nickel transaction. With the receipt of 877,169 ounces of palladium as part of the Norilsk Nickel transaction in 2003, the company’s previous credit facility was amended to require that 50% of the proceeds from the sale of that inventory be applied to prepay long-term debt. The company’s new credit facility provides that only 25% of the proceeds from the sale of that inventory be offered to prepay long-term debt. Absent an agreement for the liquidation of that inventory, at September 30, 2003, the company reflected as a current liability the portion of long-term debt subject to repayment (based on the palladium value on the transaction date) under the terms of the previous credit facility. During the first quarter of 2004 the company entered into sales agreements for the disposition of this inventory. The term of these sales agreements is two years, and as such only the portion of the long-term debt expected to be repaid during the next twelve months, contingent upon liquidation of the palladium inventory, is reflected as a current liability. The company’s new credit facility exempts the company from offering prepayments related to these sales of palladium received in the Norilsk Nickel transaction until a certain cumulative level of palladium sales is met. As of September 30, 2004, the company has not offered, and has not been required to offer prepayment on its new credit facility in connection with the sales of palladium received in the Norilsk Nickel transaction. The company projects that such prepayments will begin in December of 2004.

     For the quarter and nine-months ended September 30, 2004, net cash provided by operating activities was $60.5 million and $100.3 million respectively, compared to $0.8 million and $36.8 million respectively, for the comparable periods of 2003. The increase in cash provided by operations of $59.7 million and $63.5 million respectively, was primarily driven by the following factors:

	Three months ended						Nine months ended
	September 30						September 30
in thousands	2004			2003			2004			2003
	(as amended)						(as amended)
Ounces sold multiplied by respective realized price	$	144,969		$	65,871		$	329,904		$	189,037
Cash costs		(42,712	)		(41,582	)		(123,772	)		(123,271	)
Change in product inventory included in cost of revenues		(48,829	)		(5,723	)		(58,420	)		(16,558	)
Cost of secondary recycling		(22,062	)		(1,489	)		(48,206	)		(3,679	)
General and administrative expenses		(6,674	)		(3,377	)		(14,322	)		(10,340	)
Interest expense		(7,875	)		(4,021	)		(15,137	)		(13,616	)
Source (use) of cash from changes in operating assets and liablilites		40,372			(10,932	)		26,106			10,376
Other		3,328			2,005			4,119			4,810
Net cash provided by operating activities	$	60,517		$	752		$	100,272		$	36,759

Three-month period ended September 30, 2004 compared to the three-month period ended September 30, 2003

     Cash flows from the change in operating assets and liabilities resulted in a source of cash of $40.4 million compared to a use of cash of $10.9 million for the same period last year. The change in working capital is primarily related to a decrease in inventory of $38.4 million attributed to the processing and sale during the third quarter of inventory that was stockpiled during the smelter rebricking and sale of palladium received in the Norilsk Nickel transaction.

     Net cash used in investing activities was $20.9 million during the third quarter of 2004 compared to $14.8 million in the same period in 2003. The company’s investing activities are capital expenditures for property, plant, equipment and mine development.

     Net cash provided by financing activities was $8.3 million compared to a use of cash of $0.4 million for the same period in 2003. The cash provided by financing activities during the third quarter of 2004 is primarily due to the net proceeds received in the debt refinancing.

     Cash and cash equivalents increased by $47.9 million and decreased by $14.5 million for the third quarter of 2004 and 2003, respectively.

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Nine-month period ended September 30, 2004 compared to nine-month period ended September 30, 2003

     Cash flows from the change in operating assets and liabilities resulted in a source of cash of $26.1 million compared to $10.4 million for same period last year. This change in working capital is primarily related to a $39.2 million decrease in inventory levels attributed to the sale of a portion of the palladium inventory received from Norilsk Nickel, offset by an increase in metal sales receivables of $14.7 million due to the increased volume of catalyst recycling, sales from the palladium inventory received in the Norilsk Nickel transaction, and higher average prices for PGMs in 2004.

     Net cash used in investing activities was $55.8 million in the first nine-months of 2004 compared to $41.0 million in the same period in 2003. The company’s primary investing activities are capital expenditures for property, plant, equipment and mine development.

     Net cash provided by financing activities was $9.7 million compared to $30.1 million for the comparable period in 2003. The cash provided by financing activities during the first nine-months of 2004 is primarily due to the net proceeds received in the debt refinancing and the issuance of common stock related to stock option exercises, offset by payments on long-term debt and capital lease obligations. Financing activities in the first nine-months of 2003 included full repayment of the Term A facility in conjunction with the closing of the Norilsk Nickel transaction offset by net cash received in connection with the Norilsk Nickel transaction.

     Cash and cash equivalents increased by $54.2 million and $25.9 million for the first nine months of 2004 and 2003, respectively. At September 30, 2004, the company’s available cash was $101.7 million.

     Credit Facility

     The company’s previous credit facility was refinanced and replaced with the new credit facility described below on August 3, 2004. As provided in the previous credit facility, during 2004 the company had offered a total of $16.5 million, representing 50% of proceeds from sales out of the palladium inventory received in the Norilsk Nickel transaction, to the banks as prepayments against the Term B facility. The banks declined these prepayment offers, and therefore the $16.5 million uncommitted amount under the revolving credit facility had been reduced to zero. Thereafter, 50% of additional palladium sales proceeds, or $2.5 million, was provided to the banks as cash collateral against the letters of credit outstanding under the previous revolving credit facility. This cash collateral subsequently was refunded to the company in conjunction with the completion of the new credit facility.

     On August 3, 2004, the company entered into a $180 million credit facility with a syndicate of financial institutions which replaced the previous $250 million bank facility. The new credit facility provides for a $140 million six-year term loan facility and a $40 million five year revolving line of credit. Amortization of the term loan facilities commenced on August 31, 2004.

     As of September 30, 2004, the company has $139.7 million outstanding under the term loan facility, bearing interest at a variable rate plus a margin (LIBOR plus 325 basis points, or 5.13% at September 30, 2004). The revolving credit facility includes a letter of credit facility. During 2004, the company obtained a letter of credit in the amount of $7.5 million as surety for its long-term reclamation obligation at East Boulder Mine, which reduces amounts available under the revolving credit facility to $32.5 million at September 30, 2004. The letter of credit carries an annual fee of 3.13%. The remaining unused portion of the revolving credit facility bears an annual commitment fee of 0.75%.

     The term loan facility requires as prepayments 50% of the company’s annual excess cash flow, plus any proceeds from asset sales and the issuance of debt or equity securities, subject to specified exceptions. Proceeds of the term loan facility were used to refinance the company’s previous credit facility and for general corporate purposes. Proceeds of the new revolving credit facility may be used for general corporate and working capital needs. The company’s term loan facility allows the company to choose between LIBOR loans plus a spread of 3.25% or alternate base rate loans plus a spread of 2.25%. The alternate base rate is a rate determined by the administrative agent under the terms of the credit facility, and has generally been equal to the prevailing bank prime loan rate, which is 4.75% at September 30, 2004. The alternate base rate applies only to that portion of the term loan facility in any period for which the company has not elected to use LIBOR contracts. Substantially all the property and assets of the

35

company are pledged as security for the new credit facility.

     In accordance with the terms of the new credit facility, the company is required to offer 25% of the net proceeds from sales of palladium received in the Norilsk Nickel transaction to prepay its term loan facility. Accordingly, $15.4 million of the long-term debt has been classified as a current liability at September 30, 2004, representing that portion of long-term debt expected to be prepaid under this arrangement during the next twelve months. The company’s new credit facility contains a provision that exempts the company from offering prepayment related to the sales of palladium received in the Norilsk Nickel transaction until a certain level of palladium sales is met. As of September 30, 2004, the company has not offered, and has not been required to offer any prepayments on the new credit facility in connection with the sales of palladium received in the Norilsk Nickel transaction.

     Covenants in the new credit facility include restrictions on the company’s ability to: (1) incur additional indebtedness; (2) pay dividends or redeem capital stock; (3) grant liens; (4) make investments, acquisitions, dispositions or enter into mergers; (5) enter into transactions with affiliates; (6) make capital expenditures; (7) refinance or prepay subordinated debt; (8) change the nature of the company’s business or cease operations at the principal operating properties; and (9) enter into commodity hedging. The company is also subject to financial covenants including a debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio, a debt service coverage ratio and a minimum liquidity requirement.

Contractual Obligations

     The company is obligated to make future payments under various contracts, including debt agreements and capital lease agreements. The following table represents the company’s principal contractual debt obligations and other commercial commitments as of September 30, 2004:

in thousands	2004		2005		2006		2007		2008		Thereafter		Total
Term loan facility	$	350	$	1,400	$	1,400	$	1,400	$	1,400	$	133,700	$	139,650
Capital lease obligations, net of interest		114		479		443		424		458		532		2,450
Special Industrial Education Impact Revenue Bonds		73		153		165		178		190		96		855
Exempt Facility Revenue Bonds, net of discount		—		—		—		—		—		29,344		29,344
Operating leases		860		2,679		339		242		242		—		4,362
Other noncurrent liabilities		—		9,436		—		—		—		4,392		13,828
Total	$	1,397	$	14,147	$	2,347	$	2,244	$	2,290	$	168,064	$	190,489

     Debt obligations referred to in the table are presented as due for repayment under the terms of the loan agreements and before any effect of sales of palladium acquired in the Norilsk Nickel transaction or of annual excess cash flows. Under the provisions of the term loan facility, the company is required to apply 25% of the net proceeds from the sale of palladium received in the Norilsk Nickel transaction as prepayments of its new credit facility. As of September 30, 2004, the company has not offered, nor has it been required to offer any repayments related to the proceeds received in the sale of palladium acquired in the Norilsk Nickel transaction. The new credit facility also requires that 50% of the company’s annual excess cash flow (as defined in the new credit facility) be applied as prepayments of the new credit facility. Amounts included in other noncurrent liabilities that are anticipated to be paid in 2005 include workers’ compensation costs, property taxes and severance taxes. Amounts that are anticipated to be paid after 2008 are asset retirement obligation costs. Assuming no early extinguishments of debt and no changes in interest rates, the estimated total interest payment will be approximately $2.5 million, $9.7 million, $9.6 million $9.5 million $9.4 million and $38.4 million for 2004, 2005, 2006, 2007, 2008 and 2009 and the years thereafter, respectively.

Critical Accounting Policies

     Listed below are the accounting policies that the company believes are critical to its financial statements due to the degree of uncertainty regarding estimates or assumptions involved and the magnitude of the liability, revenue or

36

expense being reported.

Mine Development Expenditures — Capitalization and Amortization

     Mining operations are inherently capital intensive, generally requiring substantial capital investment for the initial and concurrent development and infrastructure of the mine. Many of these expenditures are necessarily incurred well in advance of actual extraction of ore. Underground mining operations such as those conducted by the company require driving tunnels and sinking shafts that provide access to the underground orebody and construction and development of infrastructure, including electrical and ventilation systems, rail and other forms of transportation, shop facilities, material handling areas and hoisting systems. Ore mining and removal operations require significant underground facilities used to conduct mining operations and to transport the ore out of the mine to processing facilities located above ground.

     Contemporaneously with mining, additional development is undertaken to provide access to ongoing extensions of the orebody, allowing more ore to be produced. In addition to the development costs that have been previously incurred, these ongoing development expenditures are necessary to access and support all future mining activities.

     Mine development expenditures incurred to date to increase existing production, develop new orebodies or develop mineral property substantially in advance of production are capitalized and amortized using a units-of-production method based upon the associated proven and probable ore reserves. Mine development expenditures consist of vertical shafts, multiple surface adits and underground infrastructure development including footwall laterals, ramps, rail and transportation, electrical and ventilation systems, shop facilities, material handling areas, ore handling facilities, dewatering and pumping facilities. Many such facilities are required not only for current operations, but also for all future planned operations.

     Expenditures incurred to sustain existing production and access specific ore reserve blocks or stopes provide benefit to ore reserve production over limited periods of time (secondary development) and are charged to operations as incurred. These costs include ramp and stope access excavations from primary haulage levels (footwall laterals), stope material rehandling/laydown excavations, stope ore and waste pass excavations and chute installations, stope ventilation raise excavations and stope utility and pipe raise excavations.

     The company calculates amortization of capitalized mine development costs by the application of an amortization rate to current production. The amortization rate is based upon un-amortized capitalized mine development costs, and the related ore reserves. Capital expenditures are added to the un-amortized capitalized mine development costs as the related assets are placed into service. In the calculation of the amortization rate, changes in ore reserves are accounted for as a prospective change in estimate. Ore reserves and the further benefit of capitalized mine development costs are based on significant management assumptions. Any changes in these assumptions, such as a change in the mine plan or a change in estimated proven and probable ore reserves, could have a material effect on the expected period of benefit resulting in a potentially significant change in the amortization rate and/or the valuations of related assets. The company’s proven ore reserves are generally expected to be extracted utilizing its existing mine development infrastructure. Additional capital expenditures will be required to access the company’s estimated probable ore reserves. These anticipated capital expenditures are not included in the current calculation of depreciation and amortization.

     The company changed its accounting method for amortizing capitalized mine development costs in the fourth quarter of 2004. These mine development costs include the initial costs incurred to gain primary access to the ore reserves, plus the ongoing development costs of footwall laterals and ramps driven parallel to the reef that are used to access and provide support for the mining stopes in the reef.

     Prior to 2004, the company amortized all such capitalized development costs at its mines over all proven and probable reserves at each mine. Following the asset impairment writedown at the end of 2003, the company revisited its assumptions and estimates for amortizing capitalized mine development costs. The company concluded to continue amortizing the cost of all of the mine development that had been placed in service through 2003 over all proven and probable reserves, because in management’s view these remaining unamortized costs related to infrastructure that would be used for the entire life of the mine. However, for development placed in service after

37

2003, the company concluded to use a shorter life, amortizing the cost of this new development over only the ore reserves in the immediate and relevant vicinity of the new development. This approach was reflected in the company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004.

     Following a review of its filings by the SEC, the company recently determined it would change its method of accounting for mine development costs as follows:

•   Unamortized costs of the shaft at the Stillwater Mine and the initial development at the East Boulder Mine will continue to be treated as life-of-mine infrastructure costs, to be amortized over total proven and probable reserves at each location, and

•   All ongoing development costs of footwall laterals and ramps, including similar development costs incurred before 2004, are to be amortized over the ore reserves in the immediate and relevant vicinity of the development.

     This change in accounting method required the company to measure the effect of the change at January 1, 2004, as if the new method of amortization had been used in all prior periods. The credit for the cumulative effect of the change for all periods prior to 2004 of $ 6.0 million is shown as the “Cumulative Effect of Accounting Change” in the Consolidated Statement of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2004, as revised. Because the change in accounting method is effective from January 1, 2004, the company is not required to amend quarterly and annual reports prior to 2004. The effect of this change in accounting method was to reduce previously reported earnings for the three and nine months ended September 30, 2004 by $5.3 million ($0.06 per share) and $10.2 million ($0.12 per share), including a charge of $5.3 million and $16.2 million attributable to additional amortization for the three and nine months ended September 30, 2004 and a benefit of $6.0 million for the nine months ended September 30, 2004 attributable to the cumulative effect adjustment on January 1, 2004.

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Asset Impairment

     The company follows Statement of Financial Accounting Standard (SFAS) No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets. The company reviews and evaluates its long-lived assets for impairment when events and changes in circumstances indicate that the related carrying amounts of its assets may not be recoverable. Impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than carrying amount of the asset. Future cash flows include estimates of recoverable ounces, PGM prices (considering current and historical prices, long-term sales contracts prices, price trends and related factors), production levels and capital and reclamation expenditures, all based on life-of-mine plans and projections. If the assets are impaired, a calculation of fair market value is performed, and if fair market value is lower than the carrying value of the assets, the assets’ carrying value is reduced to their fair market value. There has been no impairment during 2004.

     Assumptions underlying future cash flows are subject to risks and uncertainties. Any differences between significant assumptions and market conditions, such as PGM prices, lower than expected recoverable ounces, and/or the company’s operating performance, could have a material effect on the company’s determination of ore reserves, or its ability to recover the carrying amounts of its long-lived assets, resulting in potential additional impairment charges.

Income Taxes

     Income taxes are determined using the asset and liability approach in accordance with the provisions of SFAS No. 109,Accounting for Income Taxes. This method gives consideration to the future tax consequences of temporary differences between the financial reporting basis and the tax basis of assets and liabilities based on currently enacted tax rates. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

     In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Each quarter, management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. A valuation allowance has been provided at September 30, 2004 for the portion of the company’s net deferred tax assets, which, more likely than not, will not be realized. Based on the company’s current financial projections, and in view of the level of tax depreciation and depletion deductions available, it appears unlikely that the company will owe any income taxes for the foreseeable future. However, if average realized PGM prices were to increase substantially in the future, the company could owe income taxes prospectively on the resulting higher than projected taxable income (see Note 10).

Reclamation and Environmental Costs

     Effective January 1, 2003, the company adopted SFAS No. 143,Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and normal use of the asset.

     SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation ultimately is settled for other than the carrying amount of the liability, the company will recognize a gain or loss at the time of settlement.

     Under SFAS No. 143, accounting for reclamation obligations requires management to make estimates for each mining operation of the future costs the company will incur to complete final reclamation work required to comply with existing laws and regulations. Actual costs incurred in future periods could differ from amounts estimated.

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Additionally, future changes to environmental laws and regulations could increase the extent of reclamation and remediation work required to be performed by the company. Any such increases in future costs could materially impact the amounts charged to operations for reclamation and remediation.

     The company’s current reclamation bonding requirements in place total approximately $20.7 million at September 30, 2004. The current bond amount is an estimate of reclamation and closure costs. The regulatory agencies review the bonding requirements and reclamation estimates on a 5-year rotation or whenever a major amendment to the operating permits is approved. The company expects that the Stillwater Mine bond will be reviewed and adjusted by the regulatory agencies during 2004. Any differences between the estimated amounts and actual post-closure reclamation and site restoration costs could have a material effect on the company’s estimated liability, resulting in a change in the recorded amount. The accrued reclamation liability was approximately $4.4 million at September 30, 2004.

Hedging Program

     From time to time, the company enters into derivative financial instruments, including fixed forwards, cashless put and call option collars and financially settled forwards to manage the effect of changes in the prices of palladium and platinum on the company’s revenue. The company accounts for its derivatives in accordance with SFAS No. 133, which requires that derivatives be reported on the balance sheet at fair value, and, if the derivative is not designated as a hedging instrument, changes in fair value must be recognized in earnings in the period of change. If the derivative is designated as a hedge, and to the extent such hedge is determined to be highly effective, changes in fair value are either (a) offset by the change in fair value of the hedged asset or liability (if applicable) or (b) reported as a component of other comprehensive income in the period of change, and subsequently recognized in the determination of net income in the period the offsetting hedged transaction occurs. The company primarily uses derivatives to hedge metal prices and interest rates. As of September 30, 2004, the company’s net unrealized loss from outstanding derivatives was valued at $3.0 million, which is reported as a component of accumulated other comprehensive income. Because these hedges are highly effective, the company expects any ultimate gains or losses on the hedging instruments will be largely offset by corresponding changes in the value of the hedged transaction.

FORWARD LOOKING STATEMENTS; FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION

     Some statements contained in this report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and, therefore, involve uncertainties or risks that could cause actual results to differ materially. These statements may contain words such as “ believes,” “anticipates,” “plans,” “expects,” “intends,” “estimates” or similar expressions. These statements are not guarantees of the company’s future performance and are subject to risks, uncertainties and other important factors that could cause our actual performance or achievements to differ materially from those expressed or implied by these forward-looking statements. Such statements include, but are not limited to, comments regarding expansion plans, costs, grade, production and recovery rates, permitting, labor matters, financing needs, the terms of future credit facilities and capital expenditures, increases in processing capacity, cost reduction measures, safety, timing for engineering studies, and environmental permitting and compliance, litigation and the palladium and platinum market. Additional information regarding factors which could cause results to differ materially from management’s expectations is found in the section entitled “Risk Factors” above in the company’s 2003 Annual Report on Form 10-K.

     The company intends that the forward-looking statements contained herein be subject to the above-mentioned statutory safe harbors. Investors are cautioned not to rely on forward-looking statements. The company disclaims any obligation to update forward-looking statements.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

     The company is exposed to market risk, including the effects of adverse changes in metal prices and interest rates as discussed below.

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Commodity Price Risk

     The company produces and sells palladium, platinum and associated byproduct metals directly to its customers and also through third parties. As a result, financial performance can be materially affected when prices for these commodities fluctuate. In order to manage commodity price risk and to reduce the impact of fluctuation in prices, the company enters into long-term contracts and from time to time uses various derivative financial instruments. Because the company hedges only with instruments that have a high correlation with the value of the hedged transactions, changes in the fair value of the derivatives are expected to be offset by changes in the value of the hedged transaction.

     The company has entered into long-term sales contracts with General Motors Corporation, Ford Motor Company and Mitsubishi Corporation. The contracts cover significant portions of the company’s mined PGM production through December 2010 and stipulate floor and ceiling prices for some of the covered production. In the first quarter of 2004 the company also entered into new sales contracts under which all of the 877,169 ounces of palladium received in the Norilsk Nickel stock purchase transaction will be sold over a period of two years, primarily for use in automobile catalytic converters. Under these agreements, the company will sell approximately 36,500 ounces of palladium per month, ending in the first quarter of 2006, at a slight volume discount to the market price at the time of delivery. Separately, under one of these agreements, the company also will sell 3,250 ounces of platinum and 1,900 ounces of rhodium per month also at a slight discount to market prices.

     From time to time, the company utilizes financially settled forwards, fixed forward contracts and cashless put and call option collars. During the second and third quarters of 2004, the company entered into fixed forwards and financially settled forwards that were accounted for as cash-flow hedges. Fixed forward contracts for the sale of metals from recycling catalysts are entered into at the time the material is received for recycling. The metal is delivered against these forward contracts when the ounces are recovered. Under financially settled forwards, at each settlement date, the company receives the difference between the forward price and the market price if the market price is below the forward price, and the company pays the difference between the forward price and the market price if the market price is above the forward price. The company’s financially settled forwards are settled in cash at maturity. The company expects all of these transactions to settle during the next twenty-four months. The net unrealized loss on these instruments due to changes in metal prices at September 30, 2004 was $3.0 million. There were no outstanding fixed forward and financially settled forward commodity instruments settled during the third quarter of 2003.

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     A summary of the company’s derivative financial instruments as of September 30, 2004 is as follows:

Mine Production:

Financially Settled Forwards

	Platinum		Average
	Ounces		Price		Index
Fourth Quarter 2004		20,500	$	809	Monthly London PM Average
First Quarter 2005		19,900	$	809	Monthly London PM Average
Second Quarter 2005		20,000	$	807	Monthly London PM Average
Third Quarter 2005		19,200	$	798	Monthly London PM Average
Fourth Quarter 2005		20,200	$	794	Monthly London PM Average
First Quarter 2006		19,000	$	810	Monthly London PM Average
Second Quarter 2006		18,000	$	811	Monthly London PM Average
Third Quarter 2006		14,000	$	812	Monthly London PM Average

Autocatalyst Recycling:

Fixed Forwards

	Platinum				Palladium				Rhodium
	Ounces		Price		Ounces		Price		Ounces		Price
Fourth Quarter 2004		19,884	$	833		8,512	$	214		529	$	1,073
First Quarter 2005		5,445	$	844		—	$	—		300	$	1,190

Financially Settled Forwards

	Platinum
	Ounces		Price		Index
Fourth Quarter 2004		1,900	$	1,164	Johnson Matthey North American

Interest Rate Risk

     During the first quarter of 2002, the company entered into two identical interest rate swap agreements. These swaps fixed the interest rate on $100.0 million of the company’s debt. The interest rate swap agreements were effective March 4, 2002 and matured on March 4, 2004. The company has not replaced or renewed the interest rate swap agreements and consequently is exposed to the full effect on earnings and cash flow of fluctuations in interest rates.

     As of September 30, 2004, the company had $139.7 million outstanding under the term loan facility, bearing interest based on a variable rate plus a margin (LIBOR plus 3.25%, or 5.13% at September 30, 2004). As of September 30, 2004, the company’s new credit facility allows the company to choose between loans based on LIBOR plus a spread of 3.25% or alternative base rate loans plus a spread of 2.25%. The alternative base rate is a rate determined by the administrative agent under the new credit facility, and has generally been equal to the prevailing bank prime loan rate, which was 4.75% at September 30, 2004. The final maturity of the term loan facility is July 30, 2010.

     As of September 30, 2004, the company had a $40 million revolving credit facility. This revolving credit facility includes a letter of credit facility. The company has obtained a letter of credit in the amount of $7.5 million, which reduces the amounts available under the revolving credit facility to $32.5 million at September 30, 2004. The letter of credit carries an annual fee of 3.13%. The remaining unused portion of the revolving credit facility carries an annual commitment fee of 0.75%.

     If the annual effective interest rate of the variable rate debt increases or (decreases) by 1%, the effect on interest expense would be an increase or a (decrease) of approximately $1.35 million annually.

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Item 4. Controls and Procedures

     (a) Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

     (b) Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.Legal Proceedings

     The company is involved in various claims and legal actions arising in the ordinary course of business, including employee injury claims. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the company’s consolidated financial position, results of operations or liquidity and that the likelihood that a loss contingency will occur in connection with these claims is remote.

Stockholder Litigation

     In 2002, nine lawsuits were filed against the company and certain senior officers in United States District Court, Southern District of New York, purportedly on behalf of a class of all persons who purchased or otherwise acquired common stock of the company from April 20, 2001 through and including April 1, 2002. They assert claims against the company and certain of its officers under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Plaintiffs challenge the accuracy of certain public disclosures made by the company regarding its financial performance and, in particular, its accounting for probable ore reserves. In July 2002, the court consolidated these actions and appointed lead plaintiff and lead counsel. Plaintiffs filed an amended consolidated complaint in September 2002. In October 2002, defendants moved to dismiss the complaint and to transfer the case to federal district court in Montana. The motion to transfer the case was granted on May 9, 2003, and the case is now pending in the federal district court in Montana. On January 30, 2004, the court held a status conference at which time the plaintiffs were given until March 30, 2004 to file a second amended complaint, which the plaintiffs subsequently filed. Pursuant to a briefing schedule set by the court, defendants filed a motion to dismiss plaintiffs’ second amended complaint on May 14, 2004, and plaintiffs filed their opposition on June 14, 2004. Defendants filed their reply on June 28, 2004. The hearing on the motion to dismiss has been continued from July 22, 2004 to February 3, 2005. The company considers the lawsuit without merit and intends to vigorously defend itself in the action.

     On June 20, 2002, a stockholder derivative lawsuit was filed against the company (as a nominal defendant) and its directors in state court in Delaware. It arises out of allegations similar to the class actions and seeks damages allegedly on behalf of the stockholders of Stillwater for breach of fiduciary duties by the directors. No relief is sought against the Company, which is named as a nominal defendant. The parties have agreed to suspend activity in this matter pending the outcome of the motion to dismiss in the above referenced class action suit.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3.Defaults Upon Senior Securities

None

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Item 4.Submission of Matters to a Vote of Security Holders

None

Item 5.Other Information

None

Item 6.Exhibits

Exhibits: See attached exhibit index

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		STILLWATER MINING COMPANY
		(Registrant)
Date: March 31, 2005	By:	/s/ Francis R. McAllister
		Francis R. McAllister
		Chairman and Chief Executive Officer
		(Principal Executive Officer)
Date: March 31, 2005	By:	/s/ Gregory A. Wing
		Gregory A. Wing
		Vice President and Chief Financial Officer
		(Principal Financial Officer)

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EXHIBITS

Number	Description
31.1	Rule 13a-14(a)/15d-14(a) Certification – Chief Executive Officer, dated March 31, 2005.
31.2	Rule 13a-14(a)/15d-14(a) Certification – Vice President and Chief Financial Officer, dated March 31, 2005.
32.1	Section 1350 Certification, dated March 31, 2005.
32.2	Section 1350 Certification, dated March 31, 2005.

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