Stillwater Mining (SWC) 10-Q 2005 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2005.

OR

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

For the transition period from                    to                    

Commission file number 1-13053

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: YESo NOþ

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

At August 2, 2005, the Company had outstanding 90,753,738 shares of common stock, par value $0.01 per share.

STILLWATER MINING COMPANY

FORM 10-Q

QUARTER ENDED JUNE 30, 2005

INDEX

PART I — FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and
Results of Operations	16
Item 3. Quantitative and Qualitative Disclosure About Market Risk	39
Item 4. Controls and Procedures	41
PART II — OTHER INFORMATION	42
Item 1. Legal Proceedings	42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3. Defaults Upon Senior Securities	42
Item 4. Submission of Matters to a Vote of Security Holders	43
Item 5. Other Information	43
Item 6. Exhibits	43
SIGNATURES	44
Contract
Certification - Chief Executive Officer
Certification - Vice President and Chief Financial Officer
Section 1350 Certification
Section 1350 Certification

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

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

	Three months ended						Six months ended
	June 30,						June 30,
	2005			2004			2005			2004
Revenues:
Mine production	$	75,845		$	44,345		$	140,034		$	116,647
PGM Recycling		16,849			12,026			41,958			28,186
Sales of palladium received in the Norilsk Nickel transaction and other		32,716			27,836			70,821			40,067
Total revenues		125,410			84,207			252,813			184,900
Costs and expenses:
Cost of metals sold:
Mine production		53,231			19,504			95,546			66,799
PGM Recycling		15,857			10,775			39,321			26,144
Sales of palladium received in Norilsk Nickel transaction and other		30,382			18,572			65,627			26,424
Total cost of metals sold		99,470			48,851			200,494			119,367
Depreciation and amortization:
Mine production		19,895			14,910			40,741			29,907
PGM Recycling		14			12			27			23
Total depreciation and amortization		19,909			14,922			40,768			29,930
Total costs of revenues		119,379			63,773			241,262			149,297
General and administrative		4,948			3,926			9,888			7,649
Total costs and expenses		124,327			67,699			251,150			156,946
Operating income		1,083			16,508			1,663			27,954
Other income (expense)
Interest income		1,178			386			2,192			671
Interest expense		(2,876	)		(3,360	)		(5,678	)		(7,261	)
Income (loss) before income taxes and cumulative effect of change in accounting		(615	)		13,534			(1,823	)		21,364
Income tax provision (see Note 10)		—			—			(3	)		—
Income (loss) before cumulative effect of change in accounting		(615	)		13,534			(1,826	)		21,364
Cumulative effect of change in accounting					—			—			6,035
Net income (loss)	$	(615	)	$	13,534		$	(1,826	)	$	27,399
Other comprehensive income (loss)		(2,218	)		3,397			(1,957	)		2,914
Comprehensive income (loss)	$	(2,833	)	$	16,931		$	(3,783	)	$	30,313

See notes to consolidated financial statements

3

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

	Three months ended					Six months ended
(Continued)	June 30,					June 30,
	2005			2004		2005			2004
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
Income (loss) before cumulative effect of change in accounting	$	(615	)	$	13,534	$	(1,826	)	$	21,364
Cumulative effect of change in accounting		—			—		—			6,035
Net income (loss)	$	(615	)	$	13,534	$	(1,826	)	$	27,399
Weighted average common shares outstanding
Basic		90,608			90,146		90,550			90,022
Diluted		90,608			90,541		90,550			90,293
Basic earnings (loss) per share
Income (loss) before cumulative effect of change in accounting	$	(0.01	)	$	0.15	$	(0.02	)	$	0.23
Cumulative effect of change in accounting		—			—		—			0.07
Net income (loss)	$	(0.01	)	$	0.15	$	(0.02	)	$	0.30
Diluted earnings (loss) per share
Income (loss) before cumulative effect of change in accounting	$	(0.01	)	$	0.15	$	(0.02	)	$	0.23
Cumulative effect of change in accounting		—			—		—			0.07
Net income (loss)	$	(0.01	)	$	0.15	$	(0.02	)	$	0.30

See notes to consolidated financial statements

4

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

				December 31,
	June 30, 2005			2004
ASSETS
Current assets
Cash and cash equivalents	$	141,316		$	96,052
Restricted cash		2,685			2,650
Investments		—			13,150
Inventories		116,924			159,942
Accounts receivable		23,005			18,186
Deferred income taxes		3,801			6,247
Other current assets		11,685			7,428
Total current assets		299,416			303,655
Property, plant and equipment, net		434,147			434,924
Other noncurrent assets		5,800			6,139
Total assets	$	739,363		$	744,718
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	14,537		$	15,029
Accrued payroll and benefits		15,700			13,395
Property, production and franchise taxes payable		5,863			9,183
Current portion of long-term debt and capital lease obligations		1,940			1,986
Portion of debt repayable upon liquidation of finished palladium in inventory		18,916			19,076
Fair value of derivative instruments		6,922			4,965
Other current liabilities		4,651			3,604
Total current liabilities		68,529			67,238
Long-term debt and capital lease obligations		135,303			143,028
Deferred income taxes		3,801			6,247
Other noncurrent liabilities		19,401			15,476
Total liabilities		227,034			231,989
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;90,705,229and 90,433,665 shares issued and outstanding		907			904
Paid-in capital		608,428			604,177
Accumulated deficit		(85,743	)		(83,918	)
Accumulated other comprehensive loss		(6,922	)		(4,965	)
Unearned compensation — restricted stock awards		(4,341	)		(3,469	)
Total stockholders’ equity		512,329			512,729
Total liabilities and stockholders’ equity	$	739,363		$	744,718

See notes to consolidated financial statements

5

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

	Three months ended						Six months ended
	June 30,						June 30,
	2005			2004			2005			2004
Cash flows from operating activities
Net income (loss)	$	(615	)	$	13,534		$	(1,826	)	$	27,399
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		19,909			14,922			40,768			29,930
Cumulative effect of change in accounting		—			—			—			(6,035	)
Stock issued under employee benefit plans		1,191			1,038			2,318			2,096
Amortization of debt issuance costs		159			286			319			566
Share-based compensation		666			274			1,055			274
Changes in operating assets and liabilities:
Inventories		21,606			(11,112	)		43,018			882
Accounts receivable		(3,819	)		8,585			(4,819	)		(14,014	)
Accounts payable		9			1,504			(492	)		1,312
Other		(4,167	)		(4,448	)		(73	)		(2,727	)
Net cash provided by operating activities		34,939			24,583			80,268			39,683
Cash flows from investing activities
Capital expenditures		(22,755	)		(20,317	)		(40,222	)		(34,892	)
Purchases of investments		(6,440	)		(4,250	)		(22,671	)		(11,000	)
Proceeds from sale of investments		24,670			1,000			35,821			8,200
Net cash used in investing activities		(4,525	)		(23,567	)		(27,072	)		(37,692	)
Cash flows from financing activities
Payments on long-term debt and capital lease obligations		(7,488	)		(517	)		(7,941	)		(965	)
Issuance of common stock, net of stock issue costs		1			2,428			9			2,471
Net cash provided by (used in) financing activities		(7,487	)		1,911			(7,932	)		1,506
Cash and cash equivalents
Net increase		22,927			2,927			45,264			3,497
Balance at beginning of period		118,389			36,231			96,052			35,661
Balance at end of period	$	141,316		$	39,158		$	141,316		$	39,158

See notes to consolidated financial statements

6

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 financial position of the Stillwater Mining Company (the “Company”) as of June 30, 2005, and the results of its operations and its cash flows for the three and six month periods ended June 30, 2005 and 2004. Certain prior-period amounts in the consolidated statements of cash flows related to cash equivalents and investments have been reclassified to conform with the current period’s presentation. The results of operations for the three and six 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 2004 Annual Report on Form 10-K.

Note 2 — Share-Based Payments

     Prior to 2005, the Company 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 were granted at fair market value, no compensation expense had been recognized for stock options issued under the Company’s stock option plans. The Company had adopted the disclosure-only provisions of Statement of Financial Accounting Standard (SFAS) No. 123,Accounting for Stock-Based Compensation.

     Effective January 1, 2005, the Company elected early adoption of SFAS No. 123 (revised 2004),Share-Based Payment(SFAS No. 123 (R)). SFAS No. 123 (R) replaces SFAS No. 123 and supersedes APB Opinion No. 25. SFAS No. 123 (R) requires that the cost resulting from all share-based payment transactions be recognized in the financial statements and determined on a fair-value-based measurement method. The fair values for stock options and other stock-based compensation awards issued to employees are estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:

Three months ended June 30,	2005			2004
Weighted average expected lives (years)		3.7			3.8
Average interest rate		3.8	%		2.4	%
Volatility		62	%		64	%
Dividend yield		—			—

     The Company has elected to use the modified version of prospective application allowable under the transition provisions of SFAS No. 123 (R). Using this modified transition method, compensation cost is recognized for (1) all awards granted, modified, cancelled, or repurchased after the date of adoption and (2) the unvested portion of previously granted awards for which the requisite service has not yet been rendered as of the date of adoption, based on the fair value of those awards on the grant-date. The compensation cost, including options and restricted stock, was approximately $0.6 million and $1.1 million for the three and six month periods ended June 30, 2005, respectively.

     Pro forma information regarding net income (loss) and earnings (loss) per share is required by SFAS No. 123(R) for awards granted in prior periods and has been determined as if the Company had accounted for its stock options and other stock-based compensation awards under the fair value method of SFAS No. 123(R). Had the Company accounted for its stock options and other stock-based compensation awards under the fair value method in prior periods, the results would have been:

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(in thousands except per share data)

	Three months			Six months
	ended June 30,			ended June 30,
	2004			2004
Net income (loss), as reported	$	13,534		$	27,399
Add: Stock-based employee compensation expense included in reported net income (loss), net of tax		274			274
Deduct: Stock-based employee compensation expense determined under fair value based method, net of tax		(445	)		(603	)
Pro forma net income (loss)	$	13,363		$	27,070
Earnings (loss) per share
Basic — as reported	$	0.15		$	0.30
Basic — pro forma	$	0.15		$	0.30
Diluted — as reported	$	0.15		$	0.30
Diluted — pro forma	$	0.15		$	0.30

Note 3 — Change in Amortization Method for Mine Development Assets

     Effective January 1, 2004, the Company changed its accounting method for amortizing capitalized mine development costs. These mine development costs include initial costs incurred to gain primary access to the ore reserves, plus 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 write-down at the end of 2003, the Company revisited its assumptions and estimates for amortizing capitalized mine development costs. As a result, the Company determined it would change its method of accounting for 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.

     The effect of this change in accounting method is included in the reported amounts for the comparative three and six month periods ended June 30, 2004. The six month period ended June 30, 2004, includes a cumulative effect benefit of approximately $6.0 million relating to this change in accounting method.

Note 4 — Comprehensive Income

     Comprehensive income consists of earnings items and other gains and losses affecting stockholders’ equity that are excluded from current net income. As of June 30, 2005 and 2004, such items consist of unrealized gains and losses on derivative financial instruments related to commodity price hedging activities.

     The Company had commodity instruments relating to fixed forward metal sales and financially settled forwards outstanding during the second quarter of 2005. The net unrealized loss on these instruments, $6.9 million at June 30, 2005, will be reflected in other comprehensive income until these instruments are settled. All commodity

8

instruments outstanding at June 30, 2005, are expected to be settled within the next twenty-three 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 accumulated other comprehensive loss in stockholders’ equity:

(in thousands)	Interest		Commodity
As of June 30, 2005	Rate Swaps		Instruments			Total
Balance at December 31, 2004	$	—	$	(4,965	)	$	(4,965	)
Reclassification to earnings		—		2,377			2,377
Change in value		—		(4,334	)		(4,334	)
Balance at June 30, 2005	$	—	$	(6,922	)	$	(6,922	)

(in thousands)	Interest			Commodity
As of June 30, 2004	Rate Swaps			Instruments			Total
Balance at December 31, 2003	$	(269	)	$	(551	)	$	(820	)
Reclassification to earnings		269			11			280
Change in value		—			2,634			2,634
Balance at June 30, 2004	$	—		$	2,094		$	2,094

Note 5 — Inventories

     Inventories consisted of the following:

(in thousands)	June 30,		December 31,
	2005		2004
Metals Inventory
Raw ore	$	1,303	$	672
Concentrate and in-process		21,353		20,512
Finished goods		34,188		42,777
Palladium inventory from Norilsk Nickel transaction		47,774		84,835
		104,618		148,796
Materials and supplies		12,306		11,146
	$	116,924	$	159,942

Note 6 — Long-Term Debt

Credit Agreement

     On August 3, 2004, the Company entered into a $180 million credit facility with a syndicate of financial institutions. The 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 (London Interbank Offer Rate (LIBOR) plus 325 basis points, or 6.375% at June 30, 2005) and a $40 million five-year revolving credit facility bearing interest, when drawn, at a variable rate plus a margin (LIBOR plus 225 basis points, or 5.375% at June 30, 2005) expiring July 31, 2009. The revolving credit facility includes a letter of credit facility; undrawn letters of credit issued under this facility currently carry an annual fee of 2.375%. The remaining unused portion of the revolving credit facility bears an annual commitment fee of 0.75%. Amortization of the term loan facility commenced in August 2004.

     As of June 30, 2005, the Company has $123.9 million outstanding under the term loan facility. During 2004, the Company obtained letters of credit in the amount of $7.5 million as surety for its long-term reclamation obligation at East Boulder Mine. During the second quarter of 2005, the Company obtained letters of credit in the amount of $6.6

9

million as collateral for surety bonds. These letters of credit reduce amounts available under the revolving credit facility to $25.9 million at June 30, 2005.

     The 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. 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 was 6.0% at June 30, 2005. 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 credit facility.

     In accordance with the terms of the credit facility, the Company is required to remit 25% of the net proceeds from sales of palladium received in the Norilsk Nickel transaction to prepay the Company’s term loan facility. As of June 30, 2005, $20.2 million of the Company’s long-term debt has been classified as a current liability, including approximately $18.9 million expected to be prepaid during the next twelve months out of the net proceeds from palladium sales under this arrangement. The Company’s credit facility contains a provision that defers each prepayment related to the sales of palladium received in the Norilsk Nickel transaction until the accumulated amount due reaches a specified level. The accumulated amount at June 30, 2005, of approximately $5.3 million is included on the Company’s consolidated balance sheet as a current liability in the portion of long-term debt repayable upon liquidation of finished palladium in inventory.

     The following is a schedule of required principal payments to be made in quarterly installments on the amounts outstanding under the term loan facility at June 30, 2005, without regard to any prepayments required to be offered from sales of palladium received in the Norilsk Nickel transaction or out of excess cash flow:

Year ended (in thousands)	Term facility
2005 (July -December)	$	626
2006		1,251
2007		1,251
2008		1,251
2009		1,252
2010		118,266
Total	$	123,897

Under the provisions of the credit facility, all unscheduled prepayments against the outstanding term loan balance (whether from sales of palladium received in the Norilsk Nickel transaction, out of excess cash flow, or voluntarily at Company discretion) are applied pro rata to reduce the amount of each future scheduled prepayment in the table above.

     The Company is in compliance with its covenants under the credit facility at June 30, 2005.

Note 7 — Earnings per Share

     Basic earnings per share is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In accordance with the provisions of SFAS No. 128,Earnings per Share, antidilutive securities are excluded in computing diluted earnings per share. No adjustments were made to reported net income in the computation of earnings per share.

     All stock options (1,605,623 options) and all restricted stock (584,420 shares) were antidilutive for the three months and six months ended June 30, 2005, because the Company reported a net loss for the respective periods and inclusion of any of these options and shares would have reduced the net loss per share.

10

     Outstanding options to purchase 1,402,915 shares of common stock were excluded from the computation of diluted earnings per share for the three-month period ended June 30, 2004, because the effect would have been antidilutive using the treasury stock method as the exercise price of the options was greater than the average market price of the common shares. The effect of outstanding stock options on diluted weighted average shares outstanding was an increase of 178,143 shares for the three-month period ended June 30, 2004. Similarly, outstanding options to purchase 1,470,460 shares of common stock were excluded from the computation of diluted earnings per share for the six-month period ended June 30, 2004, because the effect would have been antidilutive using the treasury stock method since the exercise price of the options was greater than the average market price of the common shares. The effect of outstanding stock options on diluted weighted average shares outstanding was an increase of 160,695 shares for the six-month period ended June 30, 2004.

     On May 3, 2005, 10,904 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 November 2, 2005. On May 3, 2005, 225,346 shares of restricted stock were granted to members of management. These shares of restricted stock are scheduled to vest on May 2, 2008. On April 29, 2004, the Company granted 6,816 shares of restricted stock to non-management directors; these shares vested on October 29, 2004. On May 7, 2004, the Company granted 348,170 shares of restricted stock to certain members of management; these shares will vest on May 7, 2007. The effect of outstanding restricted stock on diluted weighted average shares outstanding was an increase of 215,151 shares for the three-month period ended June 30, 2004. The effect of outstanding restricted stock on diluted weighted average shares outstanding was an increase of 107,576 shares for the six-month period ended June 30, 2004. There is no effect for 2005 because the Company reported a net loss for the second quarter and first six months of 2005 and inclusion of any of these shares would have reduced the net loss per share.

Note 8 — Long-Term Sales Contracts

Mine Production:

     The Company has entered into three long-term sales contracts with its customers that contain guaranteed floor and ceiling prices for metals delivered, expiring in 2006, 2007 and 2010. Under these long-term 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.

     The following table summarizes the floor and ceiling price structures for the three Platinum Group Metals (“PGM”) long-term sales 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
2005		100	%	$	355		31	%	$	702		80	%	$	425		16	%	$	856
2006		100	%	$	339		29	%	$	729		80	%	$	425		16	%	$	856
2007		100	%	$	345		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

Palladium acquired in connection with the Norilsk Nickel transaction and other activities:

     The Company entered into three sales agreements during the first quarter of 2004 to sell the palladium received in the transaction with Norilsk Nickel. Under these agreements, the Company is selling approximately 36,500 ounces

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of palladium per month at a slight volume discount to market prices. At this sales rate, the palladium received in the Norilsk Nickel transaction will all have been sold by the end of the first quarter of 2006. Under one of these sales agreements, the Company also sells 3,250 ounces of platinum and 1,900 ounces of rhodium per month 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. During the three months and six months ending June 30, 2005, the Company supplied approximately 8,000 and 21,000 ounces, respectively, of these commitments through open market purchases of platinum and rhodium.

Note 9 — Financial Instruments

     The Company from time to time uses various derivative financial instruments to manage the Company’s exposure to interest rates and market prices associated with changes in palladium, platinum and rhodium commodity prices. Because the Company hedges only with instruments that have a high correlation with the value of the underlying exposures, changes in the fair value of each derivative are expected to be offset by changes in the value of the corresponding 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 PGM recycling activity and mine production. In the fixed forward transactions, metals contained in the spent catalytic materials are normally sold forward at the time the material is received for processing and subsequently are delivered against the fixed forward contracts when the finished ounces are recovered. Financially settled forwards may be used as a mechanism to hedge against fluctuations in metal prices associated with future mine 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 if the market price is above the forward price. The Company’s financially settled forwards are settled in cash at maturity.

     As of June 30, 2005, the Company was party to financially settled forward agreements covering approximately 61% of its anticipated platinum sales from mine production from July 2005 through May 2007. These transactions are designed to hedge a total of 162,300 ounces of platinum sales from mine production for the next twenty-three months at an overall average price of approximately $830 per ounce. The unrealized loss on financially settled forwards on mine production due to changes in metals prices at June 30, 2005, was approximately $6.4 million.

     As of June 30, 2005, the Company was party to fixed forward agreements, which settle at various periods through October 2005 on metals to be recovered through the Company’s PGM recycling activities. The unrealized loss on these instruments due to changes in metal prices at June 30, 2005, was $0.5 million. The Company has credit agreements with its major trading partners that provide for margin deposits in the event that forward prices for metals exceed the Company’s hedge contract prices by a predetermined margin limit. The Company had no margin deposits outstanding or required at June 30, 2005.

     Until these forward contracts mature, any net change in the value of the hedging instrument due to changes in metal prices is reflected in stockholders’ equity in accumulated other comprehensive income. A net unrealized loss of $6.9 million on these hedging instruments, existing at June 30, 2005, is reflected in accumulated other comprehensive income (See Note 4). 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 June 30, 2005, are expected to be settled within the next twenty-three months.

     A summary of the Company’s derivative financial instruments as of June 30, 2005, is as follows:

12

Mine Production:
Financially Settled Forwards

	Platinum		Average
	Ounces		Price		Index
Third Quarter 2005		23,200	$	810	Monthly London PM Average
Fourth Quarter 2005		23,200	$	801	Monthly London PM Average
First Quarter 2006		24,400	$	818	Monthly London PM Average
Second Quarter 2006		25,500	$	823	Monthly London PM Average
Third Quarter 2006		21,000	$	823	Monthly London PM Average
Fourth Quarter 2006		21,000	$	862	Monthly London PM Average
First Quarter 2007		16,000	$	870	Monthly London PM Average
Second Quarter 2007		8,000	$	876	Monthly London PM Average

PGM Recycling: Fixed Forwards

	Platinum		Average		Palladium		Average		Rhodium		Average
	Ounces		Price		Ounces		Price		Ounces		Price
Third Quarter 2005		17,192	$	877		3,801	$	185		1,780	$	1,911
Fourth Quarter 2005		3,286	$	889		—		—		—		—

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 were accounted for as a cash flow hedge. During six months ended June 30, 2004, a hedging loss of $0.3 million was recognized in interest expense. The Company had no interest rate derivatives outstanding at June 30, 2005, or June 30, 2004.

Note 10 — Income Taxes

     The Company computes income taxes using the asset and liability approach as defined in SFAS No. 109,Accounting for Income Taxes, which results in the recognition of deferred tax liabilities and assets 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. At June 30, 2005, the Company has net operating loss carryforwards (NOL’s), which expire in 2009 through 2024. 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 the Company 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 three- and six-month periods ended June 30, 2005, and 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 — Segment Information

     The Company operates two reportable business segments: Mine Production and PGM Recycling. These segments are managed separately based on fundamental differences in their operations. The Mine Production segment consists of two business components: the Stillwater Mine and the East Boulder Mine. The Mine Production segment is engaged in the development, extraction, processing and refining of PGMs. The Company sells PGMs from mine production under long-term sales contracts, through derivative financial instruments and in open PGM markets. The Stillwater Mine and East Boulder Mine have been aggregated, as both have similar products, processes, customers, distribution methods and economic characteristics. The PGM Recycling segment is engaged in the recycling of spent catalytic materials to recover the PGMs contained in those materials. The Company allocates the costs of the Smelter and Refinery to both the Mine Production segment and to the PGM Recycling segment for internal and segment reporting purposes because the Company’s smelting and refining facilities support the PGM extraction activities of both business segments.

     The All Other group primarily consists of total assets, revenues and costs associated with the palladium received

13

in the Norilsk Nickel transaction, along with assets and costs of other corporate and support functions.

     The Company evaluates performance and allocates resources based on income or loss before income taxes and the cumulative effect of accounting changes.

14

     The following financial information relates to the Company’s segments:

(in thousands)	Mine		PGM		All
Three months ended June 30, 2005	Production		Recycling		Other			Total
Revenues	$	75,845	$	16,849	$	32,716		$	125,410
Depreciation and amortization	$	19,895	$	14	$	—		$	19,909
Interest income	$	—	$	224	$	954		$	1,178
Interest expense	$	—	$	—	$	2,876		$	2,876
Income (loss) before income taxes and cumulative effect of change in accounting	$	2,718	$	1,203	$	(4,536	)	$	(615	)
Capital expenditures	$	22,546	$	37	$	172		$	22,755
Total assets	$	476,747	$	20,817	$	241,799		$	739,363

(in thousands)	Mine		PGM		All
Three months ended June 30, 2004	Production		Recycling		Other		Total
Revenues	$	44,345	$	12,026	$	27,836	$	84,207
Depreciation and amortization	$	14,910	$	12	$	—	$	14,922
Interest income	$	—	$	274	$	112	$	386
Interest expense	$	—	$	—	$	3,360	$	3,360
Income before income taxes and cumulative effect of change in accounting	$	9,931	$	1,513	$	2,090	$	13,534
Capital expenditures	$	20,094	$	25	$	198	$	20,317
Total assets	$	481,986	$	18,889	$	220,603	$	721,478

(in thousands)	Mine		PGM		All
Six months ended June 30, 2005	Production		Recycling		Other			Total
Revenues	$	140,034	$	41,958	$	70,821		$	252,813
Depreciation and amortization	$	40,741	$	27	$	—		$	40,768
Interest income	$	—	$	493	$	1,699		$	2,192
Interest expense	$	—	$	—	$	5,678		$	5,678
Income (loss) before income taxes and cumulative effect of change in accounting	$	3,744	$	3,103	$	(8,673	)	$	(1,826	)
Capital expenditures	$	39,996	$	29	$	197		$	40,222
Total assets	$	476,747	$	20,817	$	241,799		$	739,363

(in thousands)	Mine		PGM		All
Six months ended June 30, 2004	Production		Recycling		Other			Total
Revenues	$	116,647	$	28,186	$	40,067		$	184,900
Depreciation and amortization	$	29,907	$	23	$	—		$	29,930
Interest income	$	—	$	459	$	212		$	671
Interest expense	$	—	$	—	$	7,261		$	7,261
Income (loss) before income taxes and cumulative effect of change in accounting	$	19,941	$	2,478	$	(1,055	)	$	21,364
Capital expenditures	$	34,665	$	25	$	202		$	34,892
Total assets	$	481,986	$	18,889	$	220,603		$	721,478

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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 three and six month periods ended June 30, 2005. It consists of the following subsections:

• “Overview”— a brief summary of the primary financial position, the primary factors affecting the Company’s results.

• “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 six months ended June 30, 2005, as compared to the same periods in 2004.

• “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 2004 Annual Report on Form 10-K.

Overview

     Stillwater Mining Company mines, processes, refines and markets palladium, platinum and minor amounts of other metals from the J-M Reef, an extensive trend of Platinum Group Metal (PGM) mineralization located in Stillwater and Sweet Grass Counties in south central Montana. The Company operates two mines: Stillwater and East Boulder, within the J-M Reef, each with substantial underground operations and a surface mill and concentrator. Concentrates produced at the two mines are shipped to the Company’s smelter and base metals refinery at Columbus, Montana, where they are further processed into a PGM filter cake that is sent to third-party refiners for final processing. Substantially all finished platinum and palladium produced from mining is sold under contracts with three major automotive manufacturers for use in automotive catalytic converters. The Company also recycles spent catalyst material to recover PGMs through its processing facilities in Columbus, Montana.

     Two 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. Although Stillwater is the only primary producer of PGMs in the United States, several international mining companies either produce PGMs as a byproduct of other refining or enjoy ores with a substantially higher proportion of the historically higher-priced platinum over palladium. The Company does not enjoy these advantages and has a higher cost structure than many of its competitors. The level of ore production generally affects the Company’s unit costs, and is driven by the consistency and quality of the ore mined, by the mining method used, and by overall operating efficiency. The Company spends substantial amounts of development capital each year in the mines to sustain ongoing production. In view of these challenges, minimizing unit operating costs in a safe and efficient manner continues to be the principal operating focus of the Company.

     In 1998, the Company entered into three long-term sales contracts with automobile manufacturers that commit most of the mines’ platinum and palladium production through 2010. While two of these contracts will expire before 2010, the terms of the third contract provide for it to absorb the share of production made available by the expiring agreements. These contracts all have floor prices (see Note 8 to the Company’s consolidated financial statements)

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that, in the recent low price environment for palladium, have been of significant benefit in allowing the Company to continue operating profitably. Unless these contracts are extended or modified, as to which there can be no assurance, all three contracts will have expired by the end of 2010. At that time, the Company could be fully exposed to market prices and the absence of these contracts after 2010 could materially affect the Company’s operating results.

     In February 2004, the Company entered into three sales agreements to sell the 877,169 ounces of finished palladium that it received in June 2003 as partial payment for a purchase of Company shares by Norilsk Nickel. These palladium sales are taking place ratably over a two-year period that will conclude in the first quarter of 2006. As of June 30, 2005, the Company had sold in total approximately 595,000 of the ounces received from Norilsk Nickel. During the three- and six-month periods ended June 30, 2005, the Company recognized $32.7 million and $70.8 million, respectively, in revenues from the sale of approximately 110,000 and 219,000 ounces, respectively, of this palladium and from other related sales activity.

     The Company reported a net loss of $0.6 million, or $0.01 per diluted share for the second quarter of 2005, compared to net income of $13.5 million, or $0.15 per diluted share for the second quarter of 2004. The second-quarter 2005 net loss reflects higher non-cash depreciation and amortization expense primarily due to capital development placed in service during 2005 and the amortization of the those assets over a shorter period due to the Company’s change in accounting for the amortization of capital mine development costs (see Note 3 to the Company’s consolidated financial statements). The Company generated positive cash flow during the second quarter of 2005 and had cash and cash equivalents of $141.3 million at June 30, 2005.

     The Company reported a net loss of $1.8 million, or $0.02 per diluted share in the first six months of 2005, compared to net income of $27.4 million, or $0.30 per diluted share in the first six months 2004. The year-to-date 2005 net loss reflects higher non-cash depreciation and amortization expense primarily due to capital development placed in service during 2005 and the amortization of the those assets over a shorter period due to the Company’s change in accounting for the amortization of capital mine development costs (see Note 3 to the Company’s consolidated financial statements). Results for the six-month period ended June 30, 2004, include the benefit of approximately $6.0 million related to the cumulative effect of this accounting change. The Company generated positive cash flow during the first six months of 2005 and had cash and cash equivalents of $141.3 million at June 30, 2005, up from $96.1 million at year end 2004. If highly liquid short-term investments available for sale at December 31, 2004, are included, the Company’s liquidity increased by $32.1 million during the first six months of 2005 to $141.3 million of liquidity at June 30, 2005, from $109.2 million as of December 31, 2004.

     The Company’s primary activities during 2005 and 2004 consist of mine production, recycling of PGM catalysts, and the sale of palladium received in the 2003 Norilsk Nickel transaction.

Mine Production

     The Company’s production of palladium and platinum is driven by ore tons mined, grade of the ore and metallurgical recovery. The Company reports net mine production as ounces contained in the mill concentrate, adjusted for processing losses expected to be incurred in smelting and refining. The Company considers an ounce of metal “produced” at the time it is shipped from the mine site. Depreciation and amortization costs are inventoried at each stage of production.

     Ore production at the Stillwater Mine averaged 1,951 and 2,067 tons of ore per day during the second quarter and the first six months of 2005, respectively, a 2% decrease and 4% increase over the 1,995 tons of ore per day averaged during 2004, reflecting a focus in 2005 on improving the developed state of the Stillwater Mine rather than on expanded production.

     The Company continues its efforts to increase production at the East Boulder Mine. The increased rate of production at the East Boulder Mine was originally planned for early 2005. The mine is being further developed in order to achieve a higher production level through the following initiatives:

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

• additional diamond drilling associated with increased primary development; and

• development of two new ventilation raises to surface to support a larger amount of equipment while

17

improving underground air quality related to diesel particulate matter (DPM).

     The development of the new ventilation raises has progressed more slowly than planned, most likely delaying achievement of 1,650 tons per day of ore production at East Boulder. In the meantime, the Company is utilizing the delay to expand its drill definition program and to implement more selective mining methods at East Boulder. The rate of ore production at the East Boulder Mine averaged 1,273 and 1,294 tons of ore per day during the second quarter and the first six months of 2005, respectively, a decrease of 4% and 2% from the 1,326 tons of ore per day averaged during 2004. In 2005, some of the productive capacity of the mine has been diverted into mine development efforts that are expected to improve productivity and reduce unit costs over the longer term.

     The grade of the Company’s ore reserves, measured in combined platinum and palladium ounces per ton, is a composite average of samples in all ore reserve areas. As is common in underground mines, the grade of ore mined and the recovery rate realized varies from area to area. In particular, mill head grade varies significantly between the Stillwater and East Boulder mines, as well as within different areas of each mine. For the three month and six month periods ended June 30, 2005, the average mill head grade for all tons processed from the Stillwater Mine was 0.53 and 0.54 PGM ounces per ton of ore, respectively, a 12% and 5% decrease, respectively, from the same periods in 2004. For the three month and six month periods ended June 30, 2005, the average mill head grade for all tons processed from the East Boulder Mine was 0.38 PGM ounces per ton of ore in each period, a 0% and 3% decrease, respectively, from the grade for the same periods in 2004.

     During the three- and six-month periods ended June 30, 2005, the Company’s mining operations produced a total of 138,581 and 283,081 ounces of PGMs, respectively, slightly ahead of the 2005 plan in each period. The Company expects total mine production of between 550,000 and 570,000 PGM ounces for 2005, approximately the same production level as in 2004.

     As a result of the need to improve the developed state of the mines, the Company has increased development spending in 2005 at both mines. For the second quarter of 2005, primary development totaled 10,509 feet at the Stillwater Mine and 4,525 feet at the East Boulder Mine. These numbers represent 30% and 46% increases from the average quarterly feet of advance in 2004, respectively. Management believes this investment in mine development during 2005 will result in more efficient and productive mining operations over the longer term. Capital spending requirements are expected to decline in future years following completion of the expanded 2005-2006 development program.

     The Company shut down its smelting and refining facilities in Columbus, Montana for approximately five weeks during the second quarter of 2004 for rebricking of the smelter furnace and other refurbishment. Production at the mines was not interrupted during the shutdown, but mill concentrates were stockpiled until the Columbus facilities came back on line. As a result, final processing of a substantial portion of second-quarter 2004 mine output was delayed until the third and fourth quarters of 2004, affecting second-quarter 2004 financial and operating results.

     A new three-year labor agreement covering represented employees at the Company’s East Boulder facility has been ratified by the union membership. The new agreement took effect on July 10, 2005, extends until July 1, 2008, and provides for 3% wage increases in each year of the agreement. The corresponding labor agreement covering the Company’s represented employees at the Stillwater Mine and the Columbus metal processing facilities expired on June 30, 2004. In July of 2004, following a ten-day labor action, a new three-year contract was ratified. That agreement also provides for 3% annual wage increases and is scheduled to expire on July 1, 2007.

     On January 1, 2006, new federal regulations will take effect, tightening diesel particulate matter (DPM) exposure limits from the current maximum permissible level of 308 µg/m3 of elemental carbon to a new limit of 160 µg/m3 of total carbon. Appropriate measurement methods and emission control technologies do not yet exist that will ensure compliance in our mining environment with these new regulations. The Company is aggressively exploring existing technologies to reduce DPM exposures to the lowest levels currently achievable and is actively working with MSHA, NIOSH and various other companies in the mining industry to share best practices and consider compliance alternatives. However, the Company does not expect to be in compliance with the new standard at January 1, 2006. While the federal agencies charged with enforcing the tighter limits are aware of these industry concerns, there can be no assurance that after January 1, 2006, the Company will not be held in violation of the new standard and be subject to the penalties prescribed by regulation.

PGM Recycling

     PGMs contained in spent catalytic converter materials are recycled and processed by the Company through its metallurgical complex. A sampling facility for the recycled materials is used to crush and sample spent catalysts prior to their being blended for smelting in the electric furnace. The spent catalytic material is sourced by third parties, primarily from automobile repair shops and automobile yards that disassemble old cars for the recycling of their parts.

     The Company has been processing small spot shipments of spent catalysts since 1997. In October 2003, the

18

Company entered into a metal sourcing agreement with a major supplier under which the Company contractually purchases spent catalytic materials for recycling. The Company amended this agreement in June 2005 to increase the volume of material available for recycling. While the commercial terms of this agreement are confidential, in the event of a change in business circumstances, the Company can terminate the agreement upon ninety days’ notice. In addition to volumes under this supply agreement, the Company from time to time accepts certain other shipments of catalytic material for processing, both for its own account and on a tolling basis.

     PGM recycling allows the Company to utilize surplus capacity in its processing and refining facilities. The Company’s recycling activity has expanded significantly since 2003. During the three- and six-month periods ended June 30, 2005, the Company processed spent catalytic materials at a rate of about 9.6 and 9.5 tons per day, respectively. Revenues from PGM recycling were $16.8 million and $42.0 million for the three- and six-month periods ended June 30, 2005, respectively, compared to $12.0 million and $28.2 million in the corresponding periods of 2004.

Ore Reserves

     The Company updates its proven and probable ore reserves annually, following the guidelines for ore reserve determination contained in the SEC’s Industry Guide No. 7. Ore reserves are modeled from a long-term mine plan and are based on the twelve-quarter rolling average market price for each final product, adjusted for specific contractual arrangements and other externalities. Ore may be classified as proven or probable and reported as reserves in the Company’s financial statements and other public filings only if extraction and sale results in positive cumulative, undiscounted cash flow.

     In the Company’s 2004 Annual Report on Form 10-K, the Company included a chart illustrating the sensitivity of the Company’s proven and probable reserves to the combined long-term average price for palladium and platinum. As shown in the chart, at a combined long-term average price below approximately $342 per ounce, the ore reserves begin to be constrained by economics and a reduction in reported ore reserves may become necessary. At December 31, 2004, the twelve-quarter trailing average price for palladium and platinum that is used in the Company’s reserve determinations was $357 per ounce. As of June 30, 2005, the Company’s combined twelve-quarter rolling average price had declined to about $349 per ounce, still above the threshold for economic constraint but reflecting a downward drift in palladium prices during the first half of the year. If combined PGM prices were to continue to decline and the 2004 economic model remains unchanged, the Company believes that an economic adjustment to ore reserves might be required as early as the end of 2005.

     At December 31, 2003, when the Company last incurred a reserve writedown, it also triggered an impairment analysis under SFAS 144,Accounting for the Impairment or Disposal of Long-Lived Assets, that resulted in a substantial valuation adjustment to the Company’s assets. The Company is unable to predict at this time whether or not any economic adjustment to ore reserves at December 31, 2005, would result in an additional adjustment to the carrying value of the Company’s assets.

Other Matters

     As of June 30, 2005, the Company has secured platinum prices in the forward market by entering into financially settled forward transactions covering approximately 61% of the Company’s anticipated platinum mine production for delivery during the period from July 2005 through May 2007. The Company believes that the current wide spread between palladium and platinum prices may narrow if consumers, driven by unusually high platinum prices, switch from using platinum to palladium for existing and new applications. The Company notes that the price of platinum could weaken if this switching occurs and so has entered into derivative contracts on a portion of future sales. At June 30, 2005, the Company has open financially settled forward contracts covering a total of 162,300 ounces of platinum at an overall average price of about $830 per ounce. The hedges are expected to modestly reduce the overall future volatility of the Company’s earnings and cash flow. Under these hedging arrangements, in return for protection against downward movements in the platinum price, the Company gives up the benefit of increases in the platinum price on the hedged ounces. The Company realized losses on financially settled forward sales of its mined platinum during the three and six months ended June 30, 2005 of $1.3 million and $2.4 million, respectively.

19

     Effective May 3, 2005, the Company’s Board of Directors implemented the Stillwater Mining Company Non-Employee Directors’ Deferral Plan, which allows non-employee members of the Board of Directors to defer all or any portion of their director compensation, in accordance with the provisions of Section 409A of the Internal Revenue Code and associated Treasury regulations. The plan permits the deferral of cash or stock compensation and provides a 20% match for any cash compensation deferred into the Company’s common shares. At June 30, 2005, six members of the Board of Directors have elected to defer a portion of their compensation under the plan.

20

Stillwater Mining Company
Key Factors
(Unaudited)

	Three months ended				Six months ended
	June 30,				June 30,
	2005		2004		2005		2004
OPERATING AND COST DATA FOR MINE PRODUCTION
Consolidated:
Ounces produced (000)
Palladium		107		114		218		228
Platinum		32		34		65		67
Total		139		148		283		295
Tons milled (000)		296		302		609		616
Mill head grade (ounce per ton)		0.50		0.53		0.50		0.52
Sub-grade tons milled (000)(1)		24		11		37		26
Sub-grade tons mill head grade (ounce per ton)		0.16		0.28		0.17		0.24
Total tons milled (000)(1)		320		313		646		642
Combined mill head grade (ounce per ton)		0.48		0.52		0.49		0.51
Total mill recovery (%)		91		91		91		91
Total operating costs (000) (Non-GAAP)(2)	$	38,022	$	33,805	$	76,814	$	69,401
Total cash costs (000) (Non-GAAP) (2)	$	44,561	$	38,930	$	89,998	$	81,048
Total production costs (000) (Non-GAAP) (2)	$	64,604	$	53,933	$	130,969	$	111,137
Total operating costs per ounce (Non-GAAP)(3)	$	274	$	230	$	271	$	235
Total cash costs per ounce (Non-GAAP)(3)	$	322	$	264	$	318	$	274
Total production costs per ounce (Non-GAAP)(3)	$	466	$	366	$	463	$	376
Total operating costs per ton milled (Non-GAAP)(3)	$	119	$	108	$	119	$	108
Total cash costs per ton milled (Non-GAAP)(3)	$	139	$	124	$	139	$	126
Total production costs per ton milled (Non-GAAP) (3)	$	202	$	172	$	203	$	173
Stillwater Mine:
Ounces produced (000)
Palladium		76		84		156		165
Platinum		23		25		48		49
Total		99		109		204		214
Tons milled (000)		178		186		374		381
Mill head grade (ounce per ton)		0.59		0.62		0.58		0.60
Sub-grade tons milled (000) (1)		24		11		37		26
Sub-grade tons mill head grade (ounce per ton)		0.16		0.28		0.17		0.24
Total tons milled (000)(1)		202		197		411		407
Combined mill head grade (ounce per ton)		0.53		0.60		0.54		0.57
Total mill recovery (%)		92		92		92		92
Total operating costs (000) (Non-GAAP)(2)	$	26,073	$	22,639	$	52,844	$	47,310
Total cash costs (000) (Non-GAAP) (2)	$	30,591	$	26,061	$	61,871	$	55,118
Total production costs (000) (Non-GAAP)(2)	$	43,794	$	35,212	$	89,166	$	73,466
Total operating costs per ounce (Non-GAAP)(3)	$	264	$	209	$	259	$	221
Total cash costs per ounce (Non-GAAP)(3)	$	309	$	240	$	303	$	258
Total production costs per ounce (Non-GAAP)(3)	$	443	$	324	$	437	$	343
Total operating costs per ton milled (Non-GAAP)(3)	$	129	$	115	$	129	$	116
Total cash costs per ton milled (Non-GAAP) (3)	$	152	$	132	$	151	$	135
Total production costs per ton milled (Non-GAAP)(3)	$	217	$	178	$	217	$	180

21

Stillwater Mining Company
Key Factors (continued)
(Unaudited)

	Three months ended				Six months ended
	June 30,				June 30,
	2005		2004		2005		2004
OPERATING AND COST DATA FOR MINE PRODUCTION
(Continued)
East Boulder Mine:
Ounces produced (000)
Palladium		31		30		62		63
Platinum		9		9		17		18
Total		40		39		79		81
Tons milled (000)		118		116		235		235
Mill head grade (ounce per ton)		0.38		0.38		0.38		0.39
									��
Sub-grade tons milled (000)(1)		—		—		—		—
Sub-grade tons mill head grade (ounce per ton)		—		—		—		—
Total tons milled (000)(1)		118		116		235		235
Combined mill head grade (ounce per ton)		0.38		0.38		0.38		0.39
Total mill recovery (%)		89		88		89		89
Total operating costs (000) (Non-GAAP)(2)	$	11,949	$	11,166	$	23,970	$	22,091
Total cash costs (000) (Non-GAAP) (2)	$	13,970	$	12,869	$	28,127	$	25,930
Total production costs (000) (Non-GAAP) (2)	$	20,810	$	18,721	$	41,803	$	37,671
Total operating costs per ounce (Non-GAAP)(3)	$	301	$	289	$	303	$	271
Total cash costs per ounce (Non-GAAP)(3)	$	352	$	333	$	356	$	318
Total production costs per ounce (Non-GAAP) (3)	$	524	$	484	$	529	$	463
Total operating costs per ton milled (Non-GAAP)(3)	$	101	$	96	$	102	$	94
Total cash costs per ton milled (Non-GAAP) (3)	$	119	$	111	$	120	$	110
Total production costs per ton milled (Non-GAAP)(3)	$	177	$	162	$	178	$	160

(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, insurance and taxes other than income taxes. 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, and interest income and expense are not included in total operating costs, total cash costs or total production costs. These measures of cost are not defined under U.S. Generally Accepted Accounting Principles (GAAP). Please see “Reconciliation of Non-GAAP Measures to Cost of Revenues” below for additional detail.
(3)	Operating costs per ton, operating costs per ounce, cash costs per ton, cash costs per ounce, production costs per ton and production costs per ounce are non-GAAP measurements that management uses to monitor and evaluate the efficiency of its mining operations. Please see “Reconciliation of Non-GAAP Measures to Cost of Revenues” below and the accompanying discussion.

22

Stillwater Mining Company
Key Factors (continued)
(Unaudited)

	Three months ended				Six months ended
	June 30,				July 30,
	2005		2004		2005		2004
SALES AND PRICE DATA
Ounces sold (000)
Mine Production:
Palladium		121		70		229		188
Platinum		40		20		71		52
Total		161		90		300		240
Other PGM activities:
Palladium		121		118		241		171
Platinum		14		10		39		27
Rhodium		9		2		22		5
Total		144		130		302		203
Total ounces sold		305		220		602		443
Average realized price per ounce(4)
Mine Production:
Palladium	$	355	$	386	$	355	$	380
Platinum	$	832	$	859	$	827	$	861
Combined	$	472	$	490	$	466	$	485
Other PGM activities:
Palladium	$	189	$	253	$	188	$	254
Platinum	$	865	$	833	$	857	$	783
Rhodium	$	1,588	$	796	$	1,523	$	785
Average market price per ounce(4)
Palladium	$	192	$	256	$	190	$	249
Platinum	$	871	$	832	$	867	$	850
Combined	$	359	$	382	$	350	$	380

(4) The Company’s average realized price represents revenues, including the effect of contractual floor and ceiling prices, hedging gains and losses realized on commodity instruments, and contract discounts, all divided by total ounces sold. Prior period amounts have been adjusted to conform to the current period presentation. 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.

23

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 of 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 earnings or 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 PGM recycling activities, and timing differences resulting from changes in product inventories. This non-GAAP measure provides a comparative measure of the total costs incurred in association with production and processing activities in a period, and may be compared to prior periods or between the Company’s mines.

     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 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

24

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.

     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.

     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.

25

Reconciliation of Non-GAAP Measures to Cost of Revenues

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands,)	2005			2004			2005			2004
Consolidated:
Reconciliation to consolidated cost of revenues:
Total operating costs(Non-GAAP)	$	38,022		$	33,805		$	76,814		$	69,401
Royalties, taxes and other		6,539			5,125			13,184			11,647
Total cash costs(Non-GAAP)	$	44,561		$	38,930		$	89,998		$	81,048
Asset retirement costs		148			93			230			182
Depreciation and amortization		19,895			14,910			40,741			29,907
Total production costs(Non-GAAP)	$	64,604		$	53,933		$	130,969		$	111,137
Change in product inventory		37,720			(2,460	)		67,830			9,589
Costs of PGM recycling		15,857			10,775			39,321			26,144
PGM recycling depreciation		14			12			27			23
Add: Profit from PGM recycling		1,203			1,513			3,103			2,478
(Gain) or loss on sale of assets and other costs		(19	)		—			12			(74	)
Total consolidated cost of revenues	$	119,379		$	63,773		$	241,262		$	149,297
Stillwater Mine:
Reconciliation to cost of revenues:
Total operating costs(Non-GAAP)	$	26,073		$	22,639		$	52,844		$	47,310
Royalties, taxes and other		4,518			3,422			9,027			7,808
Total cash costs(Non-GAAP)	$	30,591		$	26,061		$	61,871		$	55,118
Asset retirement costs		107			76			149			149
Depreciation and amortization		13,096			9,075			27,146			18,199
Total production costs(Non-GAAP)	$	43,794		$	35,212		$	89,166		$	73,466
Change in product inventory		8,210			(11,439	)		3,048			(9,302	)
Add: Profit from PGM recycling		861			1,112			2,243			1,798
(Gain) or loss on sale of assets and other costs		(19	)		—			(10	)		(2	)
Total cost of revenues	$	52,846		$	24,885		$	94,447		$	65,960
East Boulder Mine:
Reconciliation to cost of revenues:
Total operating costs(Non-GAAP)	$	11,949		$	11,166		$	23,970		$	22,091
Royalties, taxes and other		2,021			1,703			4,157			3,839
Total cash costs(Non-GAAP)	$	13,970		$	12,869		$	28,127		$	25,930
Asset retirement costs		41			17			81			33
Depreciation and amortization		6,799			5,835			13,595			11,708
Total production costs(Non-GAAP)	$	20,810		$	18,721		$	41,803		$	37,671
Change in product inventory		(872	)		(9,593	)		(844	)		(7,533	)
Add: Profit from PGM recycling		342			401			859			680
(Gain) or loss on sale of assets and other costs		—			—			22			(72	)
Total cost of revenues	$	20,280		$	9,529		$	41,840		$	30,746
Other PGM activities:
Reconciliation to cost of revenues:
Change in product inventory	$	30,382		$	18,572		$	65,627		$	26,424
PGM recycling depreciation		14			12			27			23
Costs of PGM recycling		15,857			10,775			39,321			26,144
Total cost of revenues	$	46,253		$	29,359		$	104,975		$	52,591

26

Results of Operations

     The Company reported a net loss of $0.6 million for the second quarter of 2005 compared to net income of $13.5 million for the second quarter of 2004, a $14.1 million decrease. The decrease in net income is primarily due to an increase in depreciation and amortization expense in 2005, as compared to 2004, of approximately $5.0 million as a result of additional capital placed in service during 2005. The remainder of the decrease in net income resulted from lower average realized prices and higher costs for raw materials in 2005.

     The Company reported a net loss of $1.8 million for the first six months of 2005 compared to net income of $27.4 million for the same period in 2004, a $29.2 million decrease. The decrease in net income is primarily due to an increase in depreciation and amortization expense in 2005, as compared to 2004, of approximately $10.8 million resulting from additional capital placed in service during 2005, and the approximately $6.0 million cumulative benefit of a change in accounting method recorded in 2004. The remainder of the decrease in net income resulted from lower mine production ounces sold, lower average realized prices and higher costs for raw materials in 2005.

     Three-month period ended June 30, 2005, compared to the three-month period ended June 30, 2004

     Revenues. Revenues were $125.4 million for the second quarter of 2005 compared to $84.2 million for the same period of 2004. The following discussion covers key factors contributing to the increase in revenues:

27

	Revenues, PGM ounces sold and PGM prices
	Three months ended
	June 30,
								Percentage
(in thousands)	2005		2004		Increase			Change
Revenues	$	125,410	$	84,207	$	41,203			49	%
Mine Production Ounces Sold:
Palladium		121		70		51			73	%
Platinum		40		20		20			100	%
Total		161		90		71			79	%
Other PGM Activities Ounces Sold:
Palladium		121		118		3			3	%
Platinum		14		10		4			40	%
Rhodium		9		2		7			350	%
Total		144		130		14			11	%
Total Ounces Sold		305		220		85			39	%
Average realized price per ounce
Mine Production:
Palladium	$	355	$	386	$	(31	)		(8	%)
Platinum	$	832	$	859	$	(27	)		(3	%)
Combined	$	472	$	490	$	(18	)		(4	%)
Other PGM Activities:
Palladium	$	189	$	253	$	(64	)		(25	%)
Platinum	$	865	$	833	$	32			4	%
Rhodium	$	1,588	$	796	$	792			99	%
Average market price per ounce
Palladium	$	192	$	256	$	(64	)		(25	%)
Platinum	$	871	$	832	$	39			5	%
Combined	$	359	$	382	$	(23	)		(6	%)

     Revenues from mine production were $75.8 million in the second quarter of 2005, compared to $44.3 million for the same period in 2004, a 71% increase. The increase in mine production revenues was due to an increase in the quantity of metals sold — 161,000 ounces in the second quarter of 2005 compared to 90,000 ounces in the same period of 2004. During the second quarter of 2004, the Company’s smelting and refining facilities were shut down for about a month for smelter rebricking and other refurbishment. This 2005 increase in ounces sold was offset by a decrease in combined average realized PGM price per ounce of $472 in the second quarter of 2005, compared to $490 in the same period of 2004, a 4% decrease.

     Revenues from PGM recycling were $16.8 million in the second quarter of 2005, compared to $12.0 million for the same period in 2004. This increase in revenues from PGM recycling was primarily due to an increase in the quantity of recycled PGMs sold of 26,000 ounces in the second quarter of 2005, compared to 20,000 ounces in the same period of 2004, again reflecting the smelter shutdown for rebricking during the second quarter of 2004. The processing of spent catalytic materials generally ramped up during 2004. The increase in revenue is also due to higher prices for platinum and rhodium in the second quarter of 2005 as compared to the same period of 2004.

     During the first quarter of 2004, the Company entered into three sales agreements providing for the Company to sell the palladium ounces received in the Norilsk Nickel transaction. Under these agreements, the Company is selling approximately 36,500 ounces of this palladium per month, at a slight volume discount to market prices. Revenues

28

from sales of palladium received in the Norilsk Nickel transaction and other sales activities were $32.7 million for the second quarter of 2005, compared to $27.8 million for the same period of 2004. Sales of approximately 110,000 ounces of palladium received in the Norilsk Nickel transaction in each of the respective periods generated $20.7 million in revenues during the second quarter of 2005, at an average realized palladium price of approximately $189 per ounce, and $27.8 million in revenues during the second quarter of 2004, at an average realized palladium price of $253 per ounce. Under one of the sales agreements, the Company also has agreed to sell 3,250 ounces of platinum and 1,900 ounces of rhodium per month, either purchased on the open market or produced from the Company’s mining operations. The Company recognized revenue (included above) of $12.0 million on approximately 2,000 ounces of platinum and 10,000 ounces of rhodium that were purchased in the open market and re-sold under this sales agreement for the three months ended June 30, 2005; no comparable sales revenues from purchased metal were recorded during the second quarter of 2004.

     The Company has approximately 282,750 ounces of palladium received in the Norilsk Nickel transaction remaining in inventory at June 30, 2005.

     Cost of metals sold. Cost of metals sold was $99.5 million for the second quarter of 2005, compared to $48.9 million for the same period of 2004, a 104% increase; the difference is driven primarily by production costs incurred and inventoried during the second quarter 2004 shutdown of the Company’s smelter and refinery for rebricking and other refurbishment.

     The cost of metals sold from mine production was $53.2 million for the second quarter of 2005, compared to $19.5 million for the same period of 2004, a 173% increase. This increase reflects the 39% increase in ounces sold between the two quarters, again, as a result of the smelter rebricking in the second quarter of 2004.

     Total consolidated cash costs per ounce produced, a non-GAAP measure, in the second quarter of 2005 increased $58 or 22% to $322 per ounce from $264 per ounce in the same period of 2004. The increase is primarily due to the postponement of processing costs as a result of the smelter rebricking in the second quarter of 2004, as well as period-on-period increased labor costs associated with the new union contract at the Stillwater Mine, increased employee benefit and health care costs and increased material costs associated with higher prices for certain key raw materials in 2005.

     The cost of metals sold from PGM recycling activities was $15.9 million in the second quarter of 2005, compared to $10.8 million in the second quarter of 2004. The increase was primarily due to the shutdown for refurbishment of the Company’s processing facilities during the second quarter of 2004, along with the cost of acquiring and processing the increased ounces generated from the Company’s long-term sourcing agreement for spent catalytic materials.

     The cost of metals sold from sales of palladium received in the Norilsk Nickel transaction and other sales activities was $30.4 million in the second quarter of 2005, compared to $18.6 million for the same period of 2004. The total cost of palladium sold from just those ounces received in the Norilsk Nickel transaction was $18.6 million in both the second quarter of 2005 and the second quarter of 2004, all at an average cost of $169 per ounce sold. As discussed under “Revenues” above, the Company entered into a sales agreement in 2004 that requires it to purchase rhodium and, at times, platinum from third parties in order to fulfill delivery commitments. The cost of metals purchased and subsequently resold to fulfill these contractual requirements, excluding sales of palladium received in the Norilsk Nickel transaction, was $11.8 million in the second quarter of 2005; no comparable resales of purchased metal were recorded during the second quarter of 2004.

     Production. During the second quarter of 2005, the Company’s mining operations produced approximately 139,000 ounces of PGMs, including approximately 107,000 and 32,000 ounces of palladium and platinum, respectively. This compares with approximately 148,000 ounces of PGMs produced during the second quarter of 2004, including approximately 114,000 and 34,000 ounces of palladium and platinum, respectively, a 6% quarter-on-quarter decrease in total PGM production. The overall production decrease is primarily due to the allocation of production resources in 2005 toward further improving the developed state of the mines.

     The Stillwater Mine produced approximately 99,000 ounces of PGMs in the second quarter of 2005, compared with approximately 109,000 ounces of PGMs for the same period of 2004, a 9% decrease. The East Boulder Mine

29

produced approximately 40,000 ounces of PGMs in the second quarter of 2005, compared with approximately 39,000 ounces of PGMs for the same period of 2004, a 3% increase.

     Depreciation and amortization. Depreciation and amortization expense was $19.9 million for the second quarter of 2005, compared to $14.9 million for the same period of 2004, a 33% increase. The increase was primarily due to the additional depletion for capital development placed into service during 2005.

     Other expenses. General and administrative expenses in the second quarter of 2005 were $4.9 million, compared to $3.9 million during the same period of 2004. The increase is primarily due to increased professional fees associated with Sarbanes-Oxley compliance and other regulatory requirements, and to higher compensation costs.

     Interest expense of $2.9 million in the second quarter of 2005 decreased approximately $0.5 million from $3.4 million in the same period of 2004, reflecting substantially higher market rates of interest in 2005.

     Other comprehensive income. For the second quarter of 2005, other comprehensive income includes a change in the fair value of derivatives of $3.5 million offset by a reclassification to earnings of $1.3 million, for commodity hedging instruments. For the same period of 2004, other comprehensive income included a change in value of $3.4 million for commodity instruments.

     Six-month period ended June 30, 2005, compared to the six-month period ended June 30, 2004

     Revenues. Revenues were $252.8 million for the first six months of 2005 compared to $184.9 million for the same period of 2004. The following discussion covers key factors contributing to the increase in revenues:

30

	Revenues, PGM ounces sold and PGM prices
	Six months ended
	June 30,
								Percentage
(in thousands)	2005		2004		Increase			Change
Revenues	$	252,813	$	184,900	$	67,913			37	%
Mine Production Ounces Sold:
Palladium		229		188		41			22	%
Platinum		71		52		19			37	%
Total		300		240		60			25	%
Other PGM Activities Ounces Sold:
Palladium		241		171		70			41	%
Platinum		39		27		12			44	%
Rhodium		22		5		17			340	%
Total		302		203		99			49	%
Total Ounces Sold		602		443		159			36	%
Average realized price per ounce
Mine Production:
Palladium	$	355	$	380	$	(25	)		(7	%)
Platinum	$	827	$	861	$	(34	)		(4	%)
Combined	$	466	$	485	$	(19	)		(4	%)
Other PGM Activities:
Palladium	$	188	$	254	$	(66	)		(26	%)
Platinum	$	857	$	783	$	74			9	%
Rhodium	$	1,523	$	785	$	738			94	%
Average market price per ounce
Palladium	$	190	$	249	$	(59	)		(24	%)
Platinum	$	867	$	850	$	17			2	%
Combined	$	350	$	380	$	(30	)		(8	%)

     Revenues from mine production were $140.0 million in the first six months of 2005, compared to $116.6 million for the same period in 2004, a 20% increase. The increase in mine production revenues was due to an increase in the quantity of metals sold - 300,000 ounces in the first six months of 2005 compared to 240,000 ounces in the same period of 2004. Lower 2004 sales were attributable to production that was stockpiled for processing during the shutdown of the Company’s processing facilities for refurbishment during the second quarter of 2004. The resulting 2005 sales increase was partially offset by a decrease in the Company’s combined average realized PGM price per ounce of $466 for the first six months of 2005, compared to $485 for the same period of 2004, a 4% decrease.

     Revenues from PGM recycling were $42 million for the first six months of 2005, compared to $28.2 million for the same period in 2004. This increase in revenues from PGM recycling was primarily due to an increase in the quantity of recycled PGMs sold of 61,000 ounces in the first six months of 2005, compared to 47,000 ounces in the same period of 2004. Lower revenues in 2004, again, reflected the shutdown of the smelter and refinery for rebricking and other refurbishment during the second quarter of 2004. Recycling revenue also benefited modestly from higher prices for platinum and rhodium in the first six months of 2005 as compared to the same period of 2004.

     During the first quarter of 2004, the Company entered into three sales agreements providing for the Company to sell the 877,169 palladium ounces received in the Norilsk Nickel transaction ratably over a two-year period. Under

31

these agreements, the Company is selling approximately 36,500 ounces of palladium per month, at a slight volume discount to market prices. Revenues from sales of palladium received in the Norilsk Nickel transaction and other sales activities were $70.8 million for the first six months of 2005, compared to $40.1 million for the same period of 2004. Sales of approximately 219,000 ounces of palladium received in the Norilsk Nickel transaction generated $41.1 million in revenues during the first six months of 2005, compared to $40.1 million in revenues on approximately 156,000 ounces of palladium sold during the same period of 2004. The average realized price on these palladium sales was approximately $188 per ounce for the first six months of 2005, compared to $257 per ounce for the same period in 2004. Under one of the sales agreements, the Company also has agreed to sell 3,250 ounces of platinum and 1,900 ounces of rhodium per month, either purchased on the open market or produced from the Company’s mining operations. The Company recognized revenue of $29.7 million (included above) on approximately 5,000 ounces of platinum and 16,000 ounces of rhodium that were purchased in the open market and re-sold during the first six months of 2005; no comparable resales of purchased metal were recorded during the first six months of 2004.

     Cost of metals sold. Cost of metals sold was $200.5 million for the first six months of 2005, compared to $119.4 million for the same period of 2004, a 68% increase. Lower production costs for 2004 arose primarily from production costs incurred and inventoried during the second quarter 2004 shutdown of the Company’s smelter and refinery for rebricking and other refurbishment.

     The cost of metals sold from mine production was $95.5 million for the first six months of 2005, compared to $66.8 million for the same period of 2004, a 43% increase. The increase was primarily due to the 36% increase in ounces sold in the first six months of 2005, again reflecting the impact of the second-quarter 2004 smelter rebricking.

     Total consolidated cash costs per ounce produced, a non-GAAP measure, in the first six months of 2005 increased $44 or 16% to $318 per ounce from $274 per ounce in the same period of 2004. The increase is primarily due to the postponement of processing costs as a result of the smelter rebricking in the second quarter of 2004, along with 2005 increased labor costs associated with the new union contract at the Stillwater Mine, increased employee benefit and health care costs and increased material costs associated with higher prices for certain basic raw materials.

     The cost of metals sold from PGM recycling activities was $39.3 million in the first six months of 2005, compared to $26.1 million in the same period of 2004. The increase was primarily due to the shutdown for refurbishment of the Company’s processing facilities during the second quarter of 2004, along with the cost of acquiring and processing the increased ounces generated from the Company’s long-term sourcing agreement for spent catalytic materials.

     The cost of metals sold from sales of palladium received in the Norilsk Nickel transaction and other sales activities was $65.6 million in the first six months of 2005, compared to $26.4 million for the same period of 2004. The total cost of sales for palladium ounces received in the Norilsk Nickel transaction was $37.2 million in the first six months of 2005 (on about 219,000 ounces sold), compared to $26.4 million in the same period of 2004 (on about 156,000 ounces sold), both at an average cost of $169 per ounce. As discussed under “Revenues” above, the Company entered into a sales agreement early in 2004 that requires it to purchase rhodium and, at times, platinum from third parties in order to fulfill delivery commitments. The cost of metals purchased and resold, excluding sales of the palladium received in the Norilsk Nickel transaction, was $28.4 million for the first six months of 2005. There were no comparable resales of purchased metal recorded for the first six months of 2004.

     Production. During the first six months of 2005, the Company’s mining operations produced approximately 283,000 ounces of PGMs, including approximately 218,000 and 65,000 ounces of palladium and platinum, respectively. This compares with approximately 295,000 ounces of PGMs in the first six months of 2004, including approximately 228,000 and 67,000 ounces of palladium and platinum, respectively, a 4% period-on-period decrease in total PGM production. The overall production decrease is primarily due to the allocation of production resources in 2005 toward further improving the developed state of the mines.

     The Stillwater Mine produced approximately 204,000 ounces of PGMs in the first six months of 2005, compared with approximately 214,000 ounces of PGMs in the same period of 2004, a 5% decrease. The East Boulder Mine produced approximately 79,000 ounces of PGMs in the first six months of 2005, compared with approximately 81,000 ounces of PGMs for the same period of 2004, a 2% decrease.

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     Depreciation and amortization. Depreciation and amortization was $40.8 million for the first six months of 2005, compared to $29.9 million for the same period of 2004, a 36% increase. The increase was primarily due to the additional depletion expense for capital development placed into service during 2005.

     Other expenses. General and administrative expenses in the first six months of 2005 were $9.9 million, compared to $7.6 million during the same period of 2004. The increase is primarily due to increased professional fees associated with Sarbanes-Oxley compliance and other regulatory responses, and to higher compensation costs, including amortization of restricted stock awards granted during the second quarter of 2004.

     Interest expense of $5.7 million in the first six months of 2005 decreased approximately $1.6 million from $7.3 million in the same period of 2004. Although interest rates are significantly higher in 2005 than in 2004, the first quarter of 2004 included the cost of certain compliance waivers under the Company’s financing covenants.

     Other comprehensive income. For the first six months of 2005, other comprehensive income includes a change in the fair value of derivatives of $4.3 million partially offset by a reclassification to earnings of $2.4 million, for commodity hedging instruments. For the same period of 2004, other comprehensive income included a change in value of $2.6 million for commodity instruments and a reclassification adjustment to interest expense of $0.3 million.

Liquidity and Capital Resources

     The Company’s net working capital at June 30, 2005, was $230 million compared to $236.4 million at December 31, 2004. The ratio of current assets to current liabilities was 4.4 at June 30, 2005 down from 4.5 at December 31, 2004. The decrease in net working capital resulted primarily from an increase in the Company’s cash and cash equivalents, offset by a net decrease in operating assets and liabilities of $37.6 million, primarily due to sales of palladium from inventory.

     In managing its cash, the Company from time to time utilizes certain short-term investments that management deems to be available for sale. These investments are typically auction-rate securities that contain short-term repricing features and, therefore, are highly liquid. For the comparable three and six month periods ended June 30, 2004, the Company has reclassified these short-term investments to conform to current-period presentation. The Company had no corresponding short-term investments at June 30, 2005.

     For the quarter ended June 30, 2005,net cash provided by operating activitieswas $34.9 million, compared to $24.6 million for the comparable period of 2004. The increase in cash provided by operations of $10.3 million, was primarily a result of:

	Three months ended
	June 30
in thousands	2005			2004
Cash collected from customers	$	121,591		$	92,792
Cash paid to suppliers, employees and other		(85,113	)		(65,235	)
Interest received		1,178			386
Interest paid		(2,717	)		(3,360	)
Net cash provided by operating activities	$	34,939		$	24,583

     Net cash used in investing activitieswas $4.5 million during the second quarter of 2005 compared to $23.6 million in the same period in 2004. The Company’s investing activities are capital expenditures for property, plant, equipment, and purchases and sales of investments.

     Net cash used in financing activitieswas $7.5 million for the second quarter of 2005, compared to cash provided of $1.9 million for the same period in 2004. The cash used in the second quarter of 2005 was primarily related to payments on long-term debt and capital lease obligations, including term loan prepayments associated with the proceeds from sales of palladium received in the Norilsk Nickel transaction.

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     Cash and cash equivalents increased by $22.9 million during the second quarter of 2005, compared to $2.9 million for the second quarter of 2004. A significant share of second-quarter 2004 ore production was retained in inventory until the refurbishment of the processing facilities was completed and processing capacity became available.

     For the six months ended June 30, 2005,net cash provided by operating activitieswas $80.3 million, compared to $39.7 million for the comparable period of 2004. The increase in cash provided by operations of $40.6 million, was primarily a result of:

	Six months ended
	June 30,
in thousands	2005			2004
Cash collected from customers	$	247,994		$	170,886
Cash paid to suppliers, employees and other		(164,240	)		(124,613	)
Interest received		2,192			671
Interest paid		(5,678	)		(7,261	)
Net cash provided by operating activities	$	80,268		$	39,683

     Net cash used in investing activitieswas $27.1 million during the first six months of 2005 compared to $37.7 million in the same period in 2004. The Company’s investing activities are capital expenditures for property, plant, equipment, and purchases and sales of investments.

     Net cash used in financing activitieswas $7.9 million, compared to cash provided of $1.5 million for the same period in 2004. The cash used in 2005 was primarily related to payments on long-term debt and capital lease obligations, again, including term loan prepayments associated with the proceeds from sales of palladium received in the Norilsk Nickel transaction.

     Cash and cash equivalents increased by $45.3 million during the first six months of 2005, compared to $3.5 million for the first six months of 2004. As noted above, a significant share of second-quarter 2004 ore production was retained in inventory until the refurbishment of the processing facilities was completed and processing capacity became available.

Credit Facility

     On August 3, 2004, the Company entered into a $180 million credit facility with a syndicate of financial institutions. The 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 (London Interbank Offer Rate (LIBOR) plus 325 basis points, or 6.375% at June 30, 2005) and a $40 million five-year revolving credit facility bearing interest, when drawn, at a variable rate plus a margin (LIBOR plus 225 basis points, or 5.375% at June 30, 2005) expiring July 31, 2009. The margin on the revolving credit facility adjusts quarterly according to a leverage ratio defined in the credit agreement. The revolving credit facility includes a letter of credit facility; undrawn letters of credit issued under this facility currently carry an annual fee of 2.375%. The remaining unused portion of the revolving credit facility bears an annual commitment fee of 0.75%. Amortization of the term loan facility commenced in August 2004.

     As of June 30, 2005, the Company has $123.9 million outstanding under the term loan facility. During 2004, the Company obtained letters of credit in the amount of $7.5 million as surety for its long-term reclamation obligation at East Boulder Mine. During 2005, the Company obtained additional letters of credit in the amount of $6.6 million as collateral for surety bonds. These letters of credit reduce amounts available under the revolving credit facility to $25.9 million at June 30, 2005.

     The 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

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revolving credit facility balance. 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 was 6.0% at June 30, 2005. 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 credit facility.

     In accordance with the terms of the credit facility, the Company is required to remit 25% of the net proceeds from sales of palladium received in the Norilsk Nickel transaction to prepay its term loan facility. The Company’s credit facility contains a provision that defers each prepayment related to the sales of palladium received in the Norilsk Nickel transaction until the accumulated amount due reaches a specified level. As of June 30, 2005, $20.2 million of the long-term debt has been classified as a current liability, including approximately $18.9 million expected to be prepaid based on palladium sales under this arrangement during the next twelve months.

Contractual Obligations

     The Company is obligated to make future payments under various contracts such as debt and capital lease agreements. The following table represents significant contractual cash obligations and other commercial commitments as of June 30, 2005:

in thousands	2005(1)		2006		2007		2008		2009		Thereafter		Total
Term loan facility	$	626	$	1,251	$	1,251	$	1,251	$	1,252	$	118,266	$	123,897
Capital lease obligations, net of interest		263		483		464		458		547		15		2,230
Special Industrial Education Impact Revenue Bonds		80		165		178		190		97		—		710
Exempt Facility Revenue Bonds, net of discount		—		—		—		—		—		29,359		29,359
Operating leases		881		554		456		429		160		803		3,283
Other noncurrent liabilities		—		12,378		—		—		—		12,874		25,252
Total	$	1,850	$	14,831	$	2,349	$	2,328	$	2,056	$	161,317	$	184,731

(1) Amounts represent cash obligations for July — December 2005.

     Debt obligations referred to in the table are presented as due for repayment under the terms of the loan agreements, and before any prepayments from the proceeds of the sale of palladium acquired in the Norilsk Nickel transaction or out of excess cash flows. Under the provisions of the term loan facility, the Company is required to offer 25% of the net proceeds of the sale of palladium received in the Norilsk Nickel transaction to prepay borrowings under its credit facility. The Company’s credit facility contains a provision that defers each prepayment related to these sales of palladium received in the Norilsk Nickel transaction until the accumulated amount due reaches a specified level. As of June 30, 2005, the Company had approximately $18.9 million expected to be prepaid under this arrangement during the next twelve months. The credit facility also requires that 50% of the Company’s annual excess cash flow (as defined in the credit facility) be applied as prepayments of the credit facility. Amounts included in other noncurrent liabilities that are anticipated to be paid in 2006 include workers’ compensation costs, property taxes, and severance taxes. Noncurrent liabilities that are anticipated to be paid after 2009 are undiscounted asset retirement obligation costs. Assuming no early extinguishments of debt and no changes in interest rates from their levels at June 30, 2005, the estimated total interest payments will be approximately $5.2 million, $10.4 million, $10.3 million, $10.2 million, $10.0 million and $29.6 million for 2005 (July — December), 2006, 2007, 2008, 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 expense being reported.

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Ore Reserve Estimates

     Certain accounting policies of the Company depend on its estimate of proven and probable ore reserves including depreciation and amortization of capitalized mine development expenditures, income tax valuation allowances, post-closure reclamation costs and asset impairment. The Company updates its proven and probable ore reserves annually, following the guidelines for ore reserve determination contained in the SEC’s Industry Guide No. 7.

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. 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’s 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 write-down at the end of 2003, the Company revisited its assumptions and estimates for amortizing capitalized mine development costs. Thereafter, the Company determined it would change its method of accounting for mine

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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, will 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 years. The credit for the cumulative effect of the change for all years 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 six months ended June 30, 2004.

     The calculation of the amortization rate, and therefore the annual amortization charge to operations, could be materially affected to the extent that actual production in the future is different from current forecasts of production based on proven and probable ore reserves. This would generally occur to the extent that there were significant changes in any of the factors or assumptions used in determining ore reserves. These factors could include: (1) an expansion of proven and probable ore reserves through development activities, (2) differences between estimated and actual costs of mining due to differences in grade or metal recovery rates, and (3) differences between actual commodity prices and commodity price assumptions used in the estimation of ore reserves.

Derivative Instruments

     From time to time, the Company enters into derivative financial instruments, including fixed forwards 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,Accounting for Derivative Instruments and Hedging Activities (together with subsequent accounting guidance for derivative instruments and hedging activities in SFAS No. 138 and No. 149), 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 June 30, 2005, the net unrealized loss on outstanding derivatives associated with commodity instruments is valued at $6.9 million, and 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 changes in the value of the corresponding hedged transaction.

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 June 30, 2005, for the portion of the Company’s net deferred tax assets, which, more likely than not, will not be realized (see Note 10 to the Company’s consolidated financial statements). Based on the Company’s current financial projections, and in view of the level of tax

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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.

Post-closure Reclamation Costs

     In accordance with SFAS No. 143,Accounting for Asset Retirement Obligations, the Company recognizes the fair value of a liability for an asset retirement obligation 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.

     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. 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.

Asset Impairment

     As required by 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 the 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.

     The Company evaluated key factors in its business at December 31, 2004, to determine if there were any events or changes in circumstances that would indicated that the carrying value of the Company’s assets would not be recoverable. No factors were identified that, as of December 31, 2004, indicated that an impairment existed. Consequently, the Company concluded that there was no asset impairment as of December 31, 2004. A review of these key factors as of June 30, 2005, also did not indicate any asset impairment.

Deferred Compensation

     Effective May 3, 2005, the Company’s Board of Directors implemented the Stillwater Mining Company Non-Employee Directors’ Deferral Plan, which allows non-employee directors to defer all or any portion of their director compensation, in accordance with the provisions of Section 409A of the Internal Revenue Code and associated Treasury regulations. All amounts deferred under this plan are fully vested, and the deferral period under the plan and form of the deferral (in cash or as Company shares) is elected by each participant individually. In accounting for this plan, the Company follows the provisions of APB Opinion No. 12 on accounting for deferred compensation plans other than post-retirement plans. Under APB 12, other deferred compensation contracts shall be accounted for individually on an accrual basis in accordance with the terms of the underlying contract. Because all of the deferred compensation is fully vested, the Company recognizes the full amount deferred in any year as compensation expense in that year.

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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 2004 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.

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 together 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 three new sales contracts under which palladium volumes equal to 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. 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. The Company from time to time may need to purchase platinum and rhodium in the open market to fulfill this monthly delivery obligation.

     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 PGM recycling and mine production activities. In the fixed forward transactions, normally metals contained in the spent catalytic materials are sold forward at the time the materials are received and are delivered against the fixed forward contracts when the finished 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

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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.

     As of June 30, 2005, the Company was party to financially settled forward agreements covering approximately 61% of its anticipated platinum sales from mine production for the period from July 2005 through May 2007. These transactions are designed to hedge a total of 162,300 ounces of platinum sales from mine production for the next twenty-three months at an overall average price of approximately $830 per ounce.

     The Company enters into fixed forwards and financially settled forwards relating to PGM recycling of catalyst materials. These transactions are accounted for as cash-flow hedges. These sales of metals derived from processing spent catalytic materials are sold forward at the time of receipt and delivered against the cash flow hedges when the ounces are recovered. All of these open transactions will settle at various periods through October 2005 (see Note 9 to the Company’s consolidated financial statements). The unrealized gain on these instruments related to PGM recycling due to changes in metal prices at June 30, 2005, was $0.5 million. The corresponding unrealized gain on these instruments was $2.1 million at June 30, 2004. The Company has credit agreements with its major trading partners that provide for margin deposits in the event that forward prices for metals exceed the Company’s hedge contract prices by a predetermined margin limit. The Company had no margin deposits outstanding or required at June 30, 2005, or June 30, 2004.

     Until these contracts mature, any net change in the value of the hedging instrument due to changes in metal prices is reflected in stockholders’ equity in accumulated other comprehensive income. A net unrealized loss of $6.9 million on these hedging instruments ($6.4 million unrealized loss related to financially settled forwards for mine production and a $0.5 million unrealized gain related to fixed forwards for PGM recycling), existing at June 30, 2005, is reflected in accumulated other comprehensive income (see Note 4 to the Company’s consolidated financial statements). Because these hedges are highly efficient, 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 June 30, 2005, are expected to be settled within the next twenty-three months.

     A summary of the Company’s derivative financial instruments as of June 30, 2005, is as follows:

Mine Production:
Financially Settled Forwards

	Platinum		Average
	Ounces		Price		Index
Third Quarter 2005		23,200	$	810	Monthly London PM Average
Fourth Quarter 2005		23,200	$	801	Monthly London PM Average
First Quarter 2006		24,400	$	818	Monthly London PM Average
Second Quarter 2006		25,500	$	823	Monthly London PM Average
Third Quarter 2006		21,000	$	823	Monthly London PM Average
Fourth Quarter 2006		21,000	$	862	Monthly London PM Average
First Quarter 2007		16,000	$	870	Monthly London PM Average
Second Quarter 2007		8,000	$	876

Secondary Processing:
Fixed Forwards

	Platinum				Palladium				Rhodium
	Ounces		Price		Ounces		Price		Ounces		Price
Third Quarter 2005		17,192	$	877		3,801	$	185		1,780	$	1,911
Fourth Quarter 2005		3,286	$	889		—	$	—		—	$	—

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

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swap agreements and consequently is exposed to the full effect on earnings and cash flow of fluctuations in interest rates.

     As of June 30, 2005, the Company had $123.9 million outstanding under the term loan facility, bearing interest based on a variable rate plus a margin (LIBOR plus 325 basis points, or 6.375% at June 30, 2005). As of June 30, 2005, the Company’s 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 6.0% at June 30, 2005. The final maturity of the term loan facility is July 30, 2010.

     As of June 30, 2005, the Company had a $40 million revolving credit facility. This revolving credit facility includes a letter of credit facility. The Company has obtained letters of credit in the amount of $14.1 million, which reduces the amounts available under the revolving credit facility to $25.9 million at June 30, 2005. The letters of credit carry an annual fee of 2.25% at June 30, 2005. 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 $1.2 million annually.

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 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 in May 2003, the case was transferred to federal district court in Montana. In May 2004, defendants filed a motion to dismiss plaintiffs’ second amended complaint, and in June 2004, plaintiffs filed their opposition and defendants filed their reply. Defendants have reached an agreement in principle with plaintiffs to settle the federal class action subject to documentation and court approval. Under the proposed agreement, any settlement amount will be paid by the Company’s insurance carrier and will not involve any out-of-pocket payment by the Company or the individual defendants. In light of the proposed settlement, the parties have requested that the hearing on defendants’ motion to dismiss be taken off calendar, without prejudice to their right to reinstate the motion in the event the parties are not successful in negotiating the terms of the final settlement papers.

     On June 20, 2002, a stockholder derivative lawsuit was filed against the Company (as a nominal defendant) and certain of its current and former directors in state court in Delaware. It arises out of allegations similar to those in the class action and seeks damages allegedly on behalf of the stockholders of Stillwater for breach of fiduciary duties by the named directors. No relief is sought against the Company, which is named as a nominal defendant.

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

     The Company’s annual meeting of stockholders was held on May 3, 2005. The following table sets forth the proposals presented at the annual meeting and the votes cast in connection with each proposal. Further information regarding these proposals was included in the Company’s proxy statement filed with the Securities and Exchange Commission on April 6, 2005.

Proposal	For		Against		Abstain		Withheld
1. To elect nine directors to the Company’s Board of Directors
Craig L. Fuller		81,267,531						5,528,741
Patrick M. James		85,040,338						1,755,934
Steven S. Lucas		84,958,094						1,838,178
Joseph P. Mazurek		80,343,541						6,452,731
Francis R. McAllister		84,950,250						1,846,022
Sheryl K. Pressler		84,891,451						1,904,821
Donald W. Riegle		84,129,680						2,666,592
Todd D. Schafer		84,610,549						2,185,723
Jack E. Thompson		84,982,408						1,813,864
2. To ratify the appointment of KPMG LLP as the Company’s independent accountants for 2005		86,777,570		76,202		42,500

Item 5.Other Information

None

Item 6.Exhibits

EXHIBITS

Number	Description
10.1	Contract between Stillwater Mining Company and USW International Union, Local 1, East Boulder Unit, effective July 10, 2005.
31.1	Rule 13a-14(a)/15d-14(a) Certification — Chief Executive Officer, dated August 8, 2005.
31.2	Rule 13a-14(a)/15d-14(a) Certification — Vice President and Chief Financial Officer, dated August 8, 2005.
32.1	Section 1350 Certification, dated August 8, 2005.
32.2	Section 1350 Certification, dated August 8, 2005.

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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: August 8, 2005	By:	/s/ Francis R. McAllister
		FRANCIS R. McALLISTER
		Chairman and Chief Executive Officer (Principal Executive Officer)
Date: August 8, 2005	By:	/s/ Gregory A. Wing
		GREGORY A. WING
		Vice President and Chief Financial Officer (Principal Financial Officer)

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EXHIBIT INDEX

Number	Description
10.1	Contract between Stillwater Mining Company and USW International Union, Local 1, East Boulder Unit, effective July 10, 2005.
31.1	Rule 13a-14(a)/15d-14(a) Certification — Chief Executive Officer, dated August 8, 2005.
31.2	Rule 13a-14(a)/15d-14(a) Certification — Vice President and Chief Financial Officer, dated August 8, 2005.
32.1	Section 1350 Certification, dated August 8, 2005.
32.2	Section 1350 Certification, dated August 8, 2005.