Stillwater Mining (SWC) 10-Q 2003 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

[X]	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2003.
	OR
[   ]	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 0-25090

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.)

536 East Pike Avenue Columbus, Montana	59019
(Address of principal executive offices)	(Zip Code)

(406) 322-8700
(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: YES X NO    

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2): YES X NO    

At July 22, 2003 the company had outstanding 89,625,911 shares of common stock, par value $0.01 per share.

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TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosure About Market Risk
	Item 4. Controls and Procedures
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATION
EXHIBIT INDEX
EX-99.1 Section 906 Certifications

STILLWATER MINING COMPANY

FORM 10-Q

QUARTER ENDED JUNE 30, 2003

INDEX

		PAGE
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements		3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		20
Item 4.	Controls and Procedures		21
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings		21
Item 2.	Changes in Securities and Use of Proceeds		22
Item 3.	Defaults Upon Senior Securities		22
Item 4.	Submission of Matters to a Vote of Security Holders		22
Item 5.	Other Information		22
Item 6.	Exhibits and Reports on Form 8-K		22
SIGNATURES			23
CERTIFICATION			24

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

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

				June 30,			December 31,
				2003			2002
ASSETS
	Current assets
		Cash and cash equivalents		$	66,267		$	25,913
		Restricted cash equivalents			2,250			2,250
		Inventories			189,574			52,058
		Accounts receivable			6,359			18,647
		Deferred income taxes			2,231			5,779
		Other current assets			5,645			7,828
			Total current assets		272,326			112,475
	Property, plant and equipment, net				801,279			794,019
	Other noncurrent assets				6,740			7,720
			Total assets	$	1,080,345		$	914,214
LIABILITIES and STOCKHOLDERS’ EQUITY
	Current liabilities
		Accounts payable		$	18,946		$	14,310
		Accrued payroll and benefits			7,618			10,071
		Property, production and franchise taxes payable			6,566			10,998
		Current portion of long-term debt and capital lease obligations			1,976			21,461
		Long-term debt secured by finished goods inventory			74,106			—
		Accrued restructuring costs			1,709			1,926
		Other current liabilities			3,815			7,017
			Total current liabilities		114,736			65,783
	Long-term debt and capital lease obligations				86,448			198,866
	Deferred income taxes				86,718			80,615
	Other noncurrent liabilities				13,447			9,736
			Total liabilities		301,349			355,000
	Commitments and Contingencies
	Stockholders’ equity
		Preferred stock, $0.01 par value, 1,000,000 shares authorized; none issued			—			—
		Common stock, $0.01 par value, 100,000,000 shares authorized;89,558,666and 43,587,107 shares issued and outstanding			896			436
		Paid-in capital			590,665			351,605
		Retained earnings			188,488			209,504
		Accumulated other comprehensive loss			(1,053	)		(1,405	)
		Unearned compensation – restricted stock awards			—			(926	)
			Total stockholders’ equity		778,996			559,214
			Total liabilities and stockholders’ equity	$	1,080,345		$	914,214

See notes to consolidated financial statements.

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

				Three months ended						Six months ended
				June 30,						June 30,
				2003			2002			2003			2002
Revenues				$	58,910		$	75,007		$	121,530		$	150,984
Costs and expenses
	Cost of metals sold				46,227			44,125			92,683			87,664
	Depreciation and amortization				10,464			10,315			20,443			19,576
		Total cost of sales			56,691			54,440			113,126			107,240
	General and administrative expenses				3,235			3,159			6,867			6,725
	Norilsk Nickel transaction related expenses				3,043			—			3,043			—
	Restructuring costs (reversal)				—			339			—			(5,938	)
		Total costs and expenses			62,969			57,938			123,036			108,027
Operating income (loss)					(4,059	)		17,069			(1,506	)		42,957
Other income (expense)
	Interest income				68			264			179			482
	Interest expense				(4,684	)		(4,103	)		(9,595	)		(8,528	)
Income (loss) before income taxes and cumulative effect of accounting change					(8,675	)		13,230			(10,922	)		34,911
Income tax benefit (provision)					3,393			(2,170	)		4,292			(7,286	)
Reduction of net operating loss deferred tax asset resulting from ownership change					(13,979	)		—			(13,979	)		—
			Total income tax provision		(10,586	)		(2,170	)		(9,687	)		(7,286	)
Income (loss) before cumulative effect of accounting change					(19,261	)		11,060			(20,609	)		27,625
Cumulative effect of change in accounting for asset retirement obligations, net of $264 income tax benefit					—			—			(408	)		—
Net income (loss)				$	(19,261	)	$	11,060		$	(21,017	)	$	27,625
Other comprehensive income (loss), net of tax					321			(2,432	)		352			(3,877	)
Comprehensive income (loss)				$	(18,940	)	$	8,628		$	(20,665	)	$	23,748
Basic earnings (loss) per share
Income (loss) before cumulative effect of accounting change				$	(0.40	)		0.26		$	(0.45	)	$	0.65
Cumulative effect of accounting change								—			(0.01	)		—
Net income (loss)				$	(0.40	)	$	0.26		$	(0.46	)	$	0.65
Diluted earnings (loss) per share
Income (loss) before cumulative effect of accounting change				$	(0.40	)	$	0.26		$	(0.45	)	$	0.65
Cumulative effect of accounting change					—			—			(0.01	)		—
Net income (loss)				$	(0.40	)	$	0.26		$	(0.46	)	$	0.65
Weighted average common shares outstanding
		Basic			47,921			43,155			45,799			42,401
		Diluted			47,921			43,370			45,799			42,632

     See notes to consolidated financial statements.

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

		Three months ended						Six months ended
		June 30,						June 30,
		2003			2002			2003			2002
Cash flows from operating activities
Net income (loss)		$	(19,261	)	$	11,060		$	(21,017	)	$	27,625
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization		10,464			10,315			20,443			19,576
	Deferred income taxes		10,795			1,385			9,652			3,949
	Cumulative effect of change in accounting for asset retirement obligations		—			—			672			—
	Provision for (reversal of) restructuring costs		—			339			—			(5,938	)
	Cash paid on accrued restructuring costs		(110	)		(1,419	)		(217	)		(2,501	)
	Stock issued under employee benefit plans		831			991			1,862			1,550
	Amortization of debt issuance costs		2,158			252			2,516			503
	Amortization of restricted stock compensation		652			171			670			425
Changes in operating assets and liabilities:
	Inventories		5,706			(807	)		10,696			(3,237	)
	Accounts receivable		(1,807	)		(5,831	)		12,288			(5,598	)
	Accounts payable		8,370			(1,242	)		4,636			(10,222	)
	Other		(5,067	)		(7,875	)		(6,193	)		678
Net cash provided by operating activities			12,731			7,339			36,008			26,810
Cash flows used in investing activities
	Capital expenditures		(11,662	)		(11,795	)		(26,196	)		(23,198	)
	Proceeds from sale/leaseback transactions		—			—			—			1,282
Net cash used in investing activities			(11,662	)		(11,795	)		(26,196	)		(21,916	)
Cash flows from financing activities
	Issuance of common stock, net of issue costs(1)		90,817			(355	)		90,284			56,033
	Payment on long-term debt and capital lease obligations		(52,783	)		(8,791	)		(58,136	)		(34,129	)
	Payments for debt issuance costs		(152	)		—			(1,606	)		—
Net cash provided (used) by financing activities			37,882			(9,146	)		30,542			21,904
Cash and cash equivalents
	Net increase (decrease)		38,951			(13,602	)		40,354			26,798
	Balance at beginning of period		27,316			55,311			25,913			14,911
Balance at end of period		$	66,267		$	41,709		$	66,267		$	41,709
(1) Non-cash Financing activities:
	Fair value of issuance of common stock (net of issue costs)	$	239,030			—		$	238,497			—
	Inventory received in connection with the Norilsk Nickel transaction		(148,213	)		—			(148,213	)		—
	Net cash received in Norilsk Nickel transaction	$	90,817			—		$	90,284			—

See notes to consolidated financial statements.

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Stillwater Mining Company
Notes to Consolidated Financial Statements
(Unaudited)

Note 1 – General

     In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the company’s financial position as of June 30, 2003 and the results of its operations and its cash flows for the three-month and six-month periods ended June 30, 2003 and 2002. Certain prior period amounts have been reclassified to conform with the current year presentation. The results of operations for the three-month 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 2002 Annual Report on Form 10-K.

Note 2 – MMC Norilsk Nickel transaction

     On June 23, 2003, The Company and MMC Norilsk Nickel (“Norilsk Nickel”), a Russian mining company, completed a stock purchase transaction whereby the company issued 45,463,222 shares of its common stock to Norimet Limited (Norimet), a wholly-owned subsidiary of Norilsk Nickel, representing a 50.8% of the company’s outstanding shares. The company received consideration from Norimet consisting of $100 million in cash and approximately 877,000 ounces of palladium valued at $148.2 million as of June 23, 2003 (see Note 5). The aggregate value of the consideration was approximately $248.2 million as of June 23, 2003.

     Norimet commenced a cash tender offer on July 22, 2003, to acquire up to 4,350,000 shares of Stillwater at $7.50 per share. The additional share purchase could increase Norimet’s ownership in Stillwater to approximately 56%.

Stock issuance costs attributed to the Norilsk Nickel transaction

     The company incurred approximately $10.3 million in legal, accounting and underwriting fees related to the Norilsk Nickel transaction. The amounts have been charged directly to additional paid in capital.

Norilsk Nickel transaction related expenses

     The write-off of other transaction related expenses which are not directly related to the issuance of stock and accordingly have been charged to operations consist of approximately $1.8 million of unamortized debt issuance costs related to the pay down of the Term A Loan (see Note 6), $0.6 million in compensation expense, related to officer and employee awards, and $0.6 million in compensation expense related to the acceleration of vesting of restricted stock awards.

Reduction of net operating loss deferred tax asset resulting from ownership change

     Under the United States Internal Revenue Code, if more than 50% of the stock of a company changes hands within a specified period, future utilization of existing net operating loss carry forward (NOLs) of the company may be limited. The Norilsk Nickel transaction triggered an “ownership change” which limits the future utilization of NOLs to offset income earned in tax years following the closing of the transaction. The annual limitation is generally equal to the product of (i) a statutorily prescribed interest rate (approximately 4.5%) and (ii) the company’s equity value at the time of closing. The company recorded a charge of $14.0 million for the three-month period ended June 30, 2003 to reduce previously recorded deferred tax assets related to NOLs for the effect of the NOLs limitation.

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Note 3 – New Accounting Standards

     In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 143,Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and normal use of the asset.

     SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be reflected 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 increased at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, the company will recognize a gain or loss on settlement.

     SFAS No. 143 was adopted on January 1, 2003. Upon adoption, the company increased its post-closure reclamation liability by approximately $1.9 million, increased the carrying value of its assets by approximately $1.2 million and recorded a cumulative effect adjustment to decrease income by $0.7 million ($0.4 million net of tax). If this new accounting method was applied retroactively, the impact on the consolidated statements of operations for the three and six-month periods ended June 30, 2002 would not be material.

Note 4 – Comprehensive Income

     Comprehensive income consists of net income and other gains and losses affecting stockholders’ equity that, under generally accepted accounting principles, are excluded from net income. For the company, such items consist of unrealized gains and losses on derivative financial instruments related to commodity instruments and interest rate swaps (see Note 10).

     The net of tax balance in other accumulated comprehensive loss at June 30, 2003 and December 31, 2002 was $1.1 million and $1.4 million, respectively.

     The company had no commodity instruments outstanding during the second quarter of 2003. The unrealized losses of $1.7 million ($1.1 million net of tax) existing at June 30, 2003 relating to interest rate swaps are being deferred and are expected to be reclassified to interest expense over the remaining term of the swaps (8 months).

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

(in thousands)
Balance at December 31, 2002		$	(2,318	)
	Reclassification to earnings		1,161
	Change in value		(579	)
Balance at June 30, 2003		$	(1,736	)

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Note 5 – Inventories

     Inventories consisted of the following:

			June 30,		December 31,
(in thousands)			2003		2002
Metals inventory
	Raw ore		$	841	$	783
	Concentrate and in-process			14,959		14,090
	Finished goods			162,038		25,630
		Total Metal Inventory		177,838		40,503
Materials and supplies				11,736		11,555
			$	189,574	$	52,058

     Inventories are stated at the lower of current market value or average unit cost. Production inventory costs include cost of direct labor and materials, depreciation and amortization, as well as overhead costs relating to mining and processing activities. Approximately 877,000 ounces of palladium received in connection with the Norilsk Nickel transaction (see Note 2) were valued at $169 per ounce determined based on the current market value of the palladium of $179 per ounce on June 23, 2003 less an estimated discount for disposal and marketing expenses. If the palladium price declines below $169, the company will be required to write down the unsold palladium to market and to charge such write down to earnings in future periods. Furthermore, if the price of the palladium increases following the closing, any increase in value will only be recognized when the palladium is sold.

Note 6 – Long-Term Debt

Credit Facility

     The company has a credit facility with a syndicate of financial institutions. The credit facility provided for a $65 million five-year term loan facility (Term A), a $135 million seven-year term loan facility (Term B) and a $25 million revolving credit facility. Amortization of the term loan facilities commenced on March 31, 2002.

     Pursuant to the term of the credit facility the company was required to use $50 million of the $100 million cash proceeds received in the Norilsk Nickel transaction to prepay its term loans. Consequently, the Term A loan was paid in full on June 23, 2003. In addition, in accordance with the terms of the credit agreement, the company must use 50% of the net proceeds from the sale of palladium received in the Norilsk Nickel transaction to prepay its term loans. Accordingly, $74.1 million of the long-term debt has been classified as a current liability. The Term B facility final maturity date is December 31, 2007.

     As of June 30, 2003, the company has $129.1 million outstanding under the Term B facility, bearing interest at 7.25%. The schedule of principal payments on the amounts outstanding as of June 30, 2003, without regard to the sale of the inventory received in connection with the Norilsk Nickel transaction are as follows:

(in thousands)
Year ended	Term B facility
2003	$	675
2004		1,350
2005		1,350
2006		60,750
2007		65,002
Total	$	129,127

     The company has obtained a letter of credit in the amount of $7.5 million, which reduces amounts available under the revolving credit facility at June 30, 2003, bearing interest at 4.0%. The revolving credit facility requires an annual commitment fee of 0.5% on the remaining unadvanced amount. Of the $25 million revolving credit facility,

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     $17.5 million remains available to the company at June 30, 2003. The final maturity of the revolving credit facility is December 30, 2005.

Note 7 – Earnings per Share

     Outstanding options to purchase 2,577,604 and 2,009,315 shares of common stock were excluded from the computation of diluted earnings per share for the three-month periods ended June 30, 2003 and 2002, respectively, because the effect would have been antidilutive using the treasury stock method. The effect of outstanding stock options on diluted weighted average shares outstanding was 161,634 shares for the three-month periods ending June 30, 2002.

     Outstanding options to purchase 2,574,704 and 1,931,002 shares of common stock were excluded from the computation of diluted earnings per share for the six-month periods ended June 30, 2003 and 2002, respectively, because the effect would have been antidilutive using the treasury stock method. The effect of outstanding stock options on diluted weighted average shares outstanding was 174,031 shares for the six-month periods ending June 30, 2002.

     The effect of outstanding restricted stock on diluted weighted average shares outstanding was 1,059 shares for the six-month period ending June 30, 2003. The 58,237 shares of restricted stock vested on June 23, 2003 when the Norilsk Nickel transaction was complete.

Note 8 – Stock-Based Compensation Costs

     The company has elected to account for stock options and other stock-based compensation awards using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25,Accounting for Stock Issued to Employees. Accordingly, because stock options are granted at fair market value, no compensation expense has been recognized for stock options issued under the company’s stock option plans. The company records compensation expense for other stock-based compensation awards over the vesting periods. The company has adopted the disclosure only provisions of SFAS No. 123,Accounting for Stock-Based Compensation. Accordingly, the following pro forma disclosures illustrate the effect on net income (loss) and earnings (loss) per share as if the fair value based method of accounting, as set forth in SFAS No. 123, had been applied.

		Three months ended						Six months ended
(in thousands)		June 30,						June 30,
		2003			2002			2003			2002
Net income (loss), as reported		$	(19,261	)	$	11,060		$	(21,017	)	$	27,625
Add: Stock based compensation expense recognized			652			171			670			425
Deduct: Stock based compensation expense determined under fair value based method for stock options, net of tax			(1,213	)		(903	)		(1,494	)		(1,889	)
Pro forma net income (loss)		$	(19,822	)	$	10,328		$	(21,841	)	$	26,161
Earnings (Loss) Per Share:
	Basic – as reported	$	(0.40	)	$	0.26		$	(0.46	)	$	0.65
	Basic – pro forma	$	(0.41	)	$	0.24		$	(0.48	)	$	0.62
	Diluted – as reported	$	(0.40	)	$	0.26		$	(0.46	)	$	0.65
	Diluted – pro forma	$	(0.41	)	$	0.24		$	(0.48	)	$	0.61

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Restricted Stock

     During the first quarter of 2002, the company granted 135,119 shares of restricted stock to certain of its officers and employees. The market value of restricted stock award totaled approximately $2.6 million on the grant date and was recorded as a separate component of stockholders’ equity. In connection with the completion of the Norilsk Nickel transaction, the remaining 58,237 outstanding shares were vested and the $559,075 of unamortized compensation was recognized as compensation expense in the second quarter of 2003.

Note 9 – Long-Term Sales Contracts

     The company has entered into long-term sales contracts with General Motors Corporation, Ford Motor Company and Mitsubishi Corporation. The contracts provide for floor and ceiling price structures as summarized below:

PALLADIUM								PLATINUM
	Avg. Floor		% of			Avg. Ceiling		% of			Avg. Floor		% of			Avg. Ceiling		% of
Year	Price		Production			Price		Production			Price		Production			Price		Production
2003	$	357		95	%	$	400		28	%	$	401		100	%	$	555		32	%
2004	$	371		100	%	$	644		39	%	$	425		80	%	$	856		16	%
2005	$	355		100	%	$	702		31	%	$	425		80	%	$	856		16	%
2006	$	339		100	%	$	981		16	%	$	425		80	%	$	856		16	%
2007	$	400		80	%	$	975		20	%	$	425		70	%	$	850		14	%
2008	$	385		80	%	$	975		20	%	$	425		70	%	$	850		14	%
2009	$	380		80	%	$	975		20	%	$	425		70	%	$	850		14	%
2010	$	375		80	%	$	975		20	%	$	425		70	%	$	850		14	%

Note 10 – Financial Instruments

     The company utilizes the following types of derivative financial instruments: fixed forwards, cashless put and call option collars, financially settled forwards and interest rate swaps. For derivative instruments, the company designates derivatives as a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge). Changes in fair value of derivatives that are highly effective as hedges and that are designated and qualified as a cash-flow hedge are reported in other comprehensive income until the related specific firm commitments or forecasted transactions occur.

     The company had no commodity instruments outstanding during the second quarter of 2003. Hedging gains on commodity instruments of $2.0 million and $4.8 million related to financially settled forwards were recognized as an adjustment to revenue for the three-month and six-month periods ended June 30, 2002.

     The company has entered into two identical interest rate swap agreements which fixed the interest rate on $100 million of the company’s debt. The interest rate swap agreements were effective March 4, 2002 and mature on March 4, 2004. The agreements require the company to pay interest at a fixed rate of 3.67% and receive interest at a variable rate based on London Interbank Offered Rate (LIBOR), which is adjusted on a quarterly basis. The adjusted quarterly rate at June 30, 2003 was 1.28%. The interest rate swap agreements qualify as a cash flow hedge and are considered to be highly effective since the change in the value of the interest rate swap will offset changes in the future cash flows related to interest payments on the company’s debt three months. The three-month period ending June 30, 2003 and 2002, hedging losses of $0.6 million and $0.5 million, respectively, were recognized as additional interest expense. During the six-month periods ended June 30, 2003 and 2002, hedging losses of $1.2 million and $0.6 million, respectively, were recognized as additional interest expense.

Note 11 – Restructuring Costs

     In the fourth quarter of 2001, the company began implementing a revised operating plan, which included a reduction of the company’s previously planned capital expenditures and production levels. In accordance with the plan, the company terminated certain contracts related to ongoing mine development and accrued a pre-tax charge of approximately $11 million for early contract termination costs. The accrual was based on the termination provisions of the related contracts. During the first quarter of 2002, the company reduced its accrued restructuring costs resulting in a gain of $6.3 million primarily as a result of negotiations of certain termination clauses of the construction contracts. Any adjustments to the original estimate of the accrual have been included in the company’s results of operations when determined.

10

     The following summary sets forth the changes of the restructuring accrual during the first six months of 2003:

		Contract			Employee			Total Restructuring
(in thousands)		Terminations			Terminations			Accrual
Balance at December 31, 2002		$	1,659		$	267		$	1,926
	Cash paid		(10	)		(207	)		(217	)
Balance at June 30, 2003		$	1,649		$	60		$	1,709

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

Stillwater Mining Company
Key Factors
(Unaudited)

				Three months ended				Six months ended
				June 30,				June 30,
				2003		2002		2003		2002
OPERATING DATA
Consolidated:
Ounces produced (000)
	Palladium				112		127		224		255
	Platinum				33		38		67		76
		Total			145		165		291		331
Tons mined (000)					305		348		595		673
Tons milled (000)					301		349		591		674
Mill head grade (ounce per ton)					0.52		0.53		0.54		0.55
Sub-grade tons milled (000)(1)					19		3		40		10
Sub-grade mill head grade (ounce per ton)					0.18		0.12		0.21		0.27
Total tons milled (000)(1)					320		352		631		684
Combined mill head grade (ounce per ton)					0.50		0.52		0.52		0.54
Total mill recovery (%)					91		90		91		90
Stillwater Mine:
Ounces produced (000)
	Palladium				81		103		165		213
	Platinum				24		31		50		64
			Total		105		134		215		277
Tons mined (000)					185		241		368		497
Tons milled (000)					181		244		366		497
Mill head grade (ounce per ton)					0.62		0.60		0.63		0.61
Sub-grade tons milled (000)(1)					19		3		40		10
Sub-grade mill head grade (ounce per ton)					0.18		0.12		0.21		0.27
Total tons milled (000)(1)					200		247		406		507
Combined mill head grade (ounce per ton)					0.58		0.60		0.59		0.61
Total mill recovery (%)					92		91		91		90

(1) Sub-grade tons milled includes reef waste material only. Total tons milled includes ore tons and sub-grade tons only. Prior period amounts have been adjusted to conform with the current year presentation.

12

Stillwater Mining Company
Key Factors
(Unaudited)

			Three months ended				Six months ended
			June 30,				June 30,
			2003		2002		2003		2002
OPERATING DATA (Continued)
East Boulder Mine:
Ounces produced (000)
	Palladium			31		24		59		42
	Platinum			9		7		17		12
		Total		40		31		76		54
Tons mined (000)				120		107		227		176
Tons milled (000)				120		105		225		177
Mill head grade (ounce per ton)				0.38		0.34		0.38		0.36
Sub-grade tons milled (000)(1)				—		—		—		—
Sub-grade mill head grade (ounce per ton)				—		—		—		—
Total tons milled (000)(1)				120		105		225		177
Combined mill head grade (ounce per ton)				0.38		0.34		0.38		0.36
Total mill recovery (%)				88		87		89		88
SALES AND PRICE DATA
Ounces sold (000)
	Palladium			117		127		236		251
	Platinum			34		38		68		79
		Total		151		165		304		330
Average realized price per ounce(2)
	Palladium		$	341	$	442	$	353	$	449
	Platinum		$	565	$	511	$	572	$	502
	Combined(3)		$	391	$	458	$	401	$	461
Average market price per ounce(2)
	Palladium		$	170	$	355	$	208	$	371
	Platinum		$	646	$	543	$	654	$	513
	Combined(3)		$	280	$	398	$	311	$	404

(1)	Sub-grade tons milled includes reef waste material only. Total tons milled includes ore tons and sub-grade tons only. Prior period amounts have been adjusted to conform with the current year presentation.
(2)	The company’s average realized price represents revenues which include the impact of contract floor and ceiling prices and hedging gains and losses realized on commodity instruments and exclude contract discounts, divided by ounces sold. The average market price represents the average London PM Fix for the actual months of the period.
(3)	Stillwater Mining reports a combined average realized and market price of palladium and platinum at the same ratio as ounces are produced from the refinery.

13

Stillwater Mining Company
Key Factors (continued)
(Unaudited)

			Three months ended				Six months ended
			June 30,				June 30,
			2003		2002		2003		2002
COST DATA
	Consolidated:
		PER TON MILLED(4)(5)
		Cash operating costs	$	112	$	112	$	116	$	116
		Royalties and taxes		15		14		14		14
		Total cash costs	$	127	$	126	$	130	$	130
		Depreciation and amortization		33		30		32		29
		Total production costs	$	160	$	156	$	162	$	159
		PER OUNCE PRODUCED(4)
		Cash operating costs	$	248	$	239	$	251	$	239
		Royalties and taxes		33		31		30		30
		Total cash costs	$	281	$	270	$	281	$	269
		Depreciation and amortization		73		63		71		60
		Total production costs	$	354	$	333	$	352	$	329
	Stillwater Mine:
		PER TON MILLED(4)(5)
		Cash operating costs	$	122	$	118	$	122	$	119
		Royalties and taxes		16		16		14		15
		Total cash costs	$	138	$	134	$	136	$	134
		Depreciation and amortization		33		29		33		27
		Total production costs	$	171	$	163	$	169	$	161
		PER OUNCE PRODUCED(4)
		Cash operating costs	$	233	$	219	$	230	$	218
		Royalties and taxes		29		28		27		27
		Total cash costs	$	262	$	247	$	257	$	245
		Depreciation and amortization		63		53		61		51
		Total production costs	$	325	$	300	$	318	$	296

(4)	Income taxes, corporate general and administrative expense and interest income and expense are not included in total cash costs or total production costs.
(5)	Sub-grade material is included in calculating the costs per ton milled.

14

Stillwater Mining Company
Key Factors (continued)
(Unaudited)

			Three months ended				Six months ended
			June 30,				June 30,
			2003		2002		2003		2002
COST DATA (Continued)
	East Boulder Mine:
		PER TON MILLED(4)(5)
		Cash operating costs	$	96	$	93	$	103	$	105
		Royalties and taxes		13		12		14		12
		Total cash costs	$	109	$	105	$	117	$	117
		Depreciation and amortization		32		30		33		32
		Total production costs	$	141	$	135	$	150	$	149
		PER OUNCE PRODUCED(4)
		Cash operating costs	$	290	$	324	$	308	$	348
		Royalties and taxes		40		40		42		41
		Total cash costs	$	330	$	364	$	350	$	389
		Depreciation and amortization		98		106		98		106
		Total production costs	$	428	$	470	$	448	$	495

(4)	Income taxes, corporate general and administrative expense and interest income and expense are not included in total cash costs or total production costs.
(5)	Sub-grade material is included in calculating the costs per ton milled.

Results of Operations

Recent Events

     On June 23, 2003, the company and Norilsk Nickel, a Russian mining company, completed a stock purchase transaction whereby the company issued 45,463,222 shares of its common stock to Norimet, a wholly-owned subsidiary of Norilsk Nickel, representing a 50.8% of the company’s outstanding shares. The company received consideration from Norimet consisting of approximately $100 million in cash and approximately 877,000 ounces of palladium valued at $148.2 million as of June 23, 2003 (see Note 5). The aggregate value of the consideration was approximately $248.2 million as of June 23, 2003.

     Norimet commenced a cash tender offer on July 22, 2003, to acquire up to 4,350,000 shares of Stillwater at $7.50 per share. The additional share purchase could increase Norimet’s ownership in Stillwater to approximately 56%.

Three months ended June 30, 2003 compared to three months ended June 30, 2002

     PGM Production. During the second quarter of 2003, the company produced approximately 112,000 ounces of palladium and 33,000 ounces of platinum compared with approximately 127,000 ounces of palladium and 38,000 ounces of platinum in the second quarter of 2002. The decrease was primarily due to a 22% decrease in production at the Stillwater Mine, which produced approximately 81,000 ounces of palladium and approximately 24,000 ounces of platinum in the second quarter of 2003 compared to approximately 103,000 ounces of palladium and approximately 31,000 ounces of platinum in the second quarter of 2002. The planned 16% decrease in tonnage milled at the Stillwater Mine is the result of implementing a long-range operating plan which changes the mine’s plan from a production-driven to a cost-driven emphasis. The decrease in production at the Stillwater Mine was partially

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offset by a 29% increase in production at the East Boulder Mine which produced approximately 31,000 ounces of palladium and approximately 9,000 ounces of platinum in the second quarter of 2003 compared to approximately 24,000 ounces of palladium and approximately 7,000 ounces of platinum in the second quarter of 2002 as a result of ramping up production.

     Revenues. Revenues were $58.9 million for the second quarter of 2003 compared with $75.0 million for the second quarter of 2002, a 22% decrease, which is the result of a 15% decrease in combined realized palladium and platinum prices and a 9% decrease in the quantity of metal sold.

     Palladium sales decreased to approximately 117,000 ounces during the second quarter of 2003 compared to 127,000 ounces for the second quarter of 2002. Platinum sales decreased to approximately 34,000 ounces during the second quarter of 2003 compared to approximately 38,000 for the same period of 2002. As a result, the total quantity of metal sold decreased 9% to approximately 151,000 ounces during the second quarter of 2003 compared with 165,000 for the same period of 2002.

     The company’s combined average realized price per ounce of palladium and platinum sold in the second quarter of 2003 decreased 15% to $391, compared to $458 in the second quarter of 2002. The combined average market price, as determined in the PGM markets, decreased 30% to $280 per ounce in the second quarter of 2003, compared to $398 per ounce in the second quarter of 2002. The company’s average realized price per ounce of palladium sold was $341 in the second quarter of 2003, compared to $442 in the second quarter of 2002, while the average market price of palladium was $170 per ounce in the second quarter of 2003 compared to $355 per ounce in the second quarter of 2002. The company’s average realized price per ounce of platinum sold was $565 in the second quarter of 2003, compared to $511 in the second quarter of 2002, while the average market price of platinum was $646 per ounce in the second quarter of 2003 compared to $543 per ounce in the second quarter of 2002.

     Production Costs. Total consolidated cash costs per ounce produced in the second quarter of 2003 increased $11 or 4% to $281 per ounce from $270 per ounce as compared to the same period of 2002. The increase in total consolidated cash costs per ounce is attributed to a $9 per ounce increase in operating costs primarily related to lower production and higher mining costs per ounce at the Stillwater Mine and a $2 per ounce increase in royalties and taxes. Total consolidated production costs per ounce produced in the second quarter 2003 increased $21, or 6%, to $354 per ounce from $333 per ounce as compared to the same period of 2002. The increase is due to the increase in operating costs and an increase in depreciation and amortization costs of $10 per ounce, primarily related to a higher fixed asset base and changes in reserve estimates used in calculating depreciation and amortization which occurred in the second quarter of 2002.

     Expenses. General and administrative expenses in the second quarter of 2003 were comparable to the same period of 2002. The increase of $3.0 million in other transaction related expenses were attributed to the Norilsk Nickel transaction (see Note 2 for further details).

     Interest expense increased $0.6 million primarily due to higher interest rates on the company’s credit facility. The higher interest rates are due to higher margins in calculating interest under the credit facility as a result of obtaining amendments to the credit agreement.

     Income Taxes. The company has provided a total income tax provision of $10.6 million for the quarter ended June 30, 2003, caused by the Norilsk Nickel transaction compared to an income tax provision of $2.2 million for the quarter ended June 30, 2002. The tax provision is comprised of a $3.4 million tax benefit or 39% of pre tax loss for the quarter ended June 30, 2003 offset by a reduction of deferred tax asset of $14.0 million resulting from a net operating loss (NOL) limitation attributed to the ownership change caused by the Norilsk Nickel transaction (see Note 2). This compares to an income tax provision of $2.2 million, or 16% of pre tax earnings for the quarter ended June 30, 2002. The increase in the effective rate is primarily due to a reduction in taxable income from mining that limits the company’s statutory depletion for tax purposes. The NOL limitation attributed to ownership change is in accordance with Internal Revenue Code (IRC) Section 382 as it applies to change in control of the company that occurred in connection with the Norilsk Nickel transaction.

     Other Comprehensive Income (Loss). For the second quarter of 2003, other comprehensive income, net of tax, includes a reclassification adjustments to interest expense of $0.3 million. For the same period of 2002, other

16

comprehensive loss, net of tax, includes reclassification adjustments to revenue of $1.4 million resulting from commodity derivative instruments and a decrease in the fair value of the interest rate swaps of $1.3 million, partially offset by a reclassification adjustment to interest expense of $0.3 million.

Six months ended June 30, 2003 compared to six months ended June 30, 2002

     PGM Production. During the first half of 2003, the company produced approximately 224,000 ounces of palladium and 67,000 ounces of platinum compared with approximately 255,000 ounces of palladium and 76,000 ounces of platinum in the first half of 2002. The decrease was primarily due to a 22% decrease in production at the Stillwater Mine, which produced approximately 165,000 ounces of palladium and approximately 50,000 ounces of platinum in the first half of 2003 compared to approximately 213,000 ounces of palladium and approximately 64,000 ounces of platinum in the first half of 2002, as a result of a 3% planned decrease in the combined mill head grade and a 20% planned decrease in tonnages milled. The decrease in production at the Stillwater Mine is the result of implementing a long-range operating plan which changes the mine plan from a production-driven to a cost-driven emphasis. The decrease in production at the Stillwater Mine was partially offset by a 41% increase in production at the East Boulder Mine which produced approximately 59,000 ounces of palladium and approximately 17,000 ounces of platinum in the first half of 2003 compared to approximately 42,000 ounces of palladium and approximately 12,000 ounces of platinum in the first half of 2002 as a result of ramping up production.

     Revenues. Revenues were $121.5 million for the first half of 2003 compared with $151.0 million for the first half of 2002, a 20% decrease, which is the result of a 13% decrease in combined realized palladium and platinum prices and a 8% decrease in the quantity of metal sold.

     Palladium sales decreased to approximately 236,000 ounces during the first half of 2003 compared to 251,000 ounces for the first half of 2002. Platinum sales decreased to approximately 68,000 ounces during the first half of 2003 compared to approximately 79,000 for the same period of 2002. As a result, the total quantity of metal sold decreased 8% to approximately 304,000 ounces during the first half of 2003 compared with 330,000 for the same period of 2002.

     The company’s combined average realized price per ounce of palladium and platinum sold in the first half of 2003 decreased 13% to $401, compared to $461 in the first half of 2002. The combined average market price, as determined in the PGM markets, decreased 23% to $311 per ounce in the first half of 2003, compared to $404 per ounce in the first half of 2002. The company’s average realized price per ounce of palladium sold was $353 in the first half of 2003, compared to $449 in the first half of 2002, while the average market price of palladium was $208 per ounce in the first half of 2003 compared to $371 per ounce in the first half of 2002. The company’s average realized price per ounce of platinum sold was $572 in the first half of 2003, compared to $502 in the first half of 2002, while the average market price of platinum was $654 per ounce in the first half of 2003 compared to $513 per ounce in the first half of 2002.

     Production Costs. Total consolidated cash costs per ounce produced in the first half of 2003 increased $12 or 5% to $281 per ounce from $269 per ounce as compared to the same period of 2002. The increase in total consolidated cash costs per ounce is attributed to a $12 per ounce increase in operating costs primarily related to higher mining costs per ounce at the Stillwater Mine as a result of lower production ounces due to the company transitioning to its new long-range operating plan. Total consolidated production costs per ounce produced increased $23, or 7%, to $352 per ounce from $329 in the first half of 2003 as compared to the same period of 2002. The increase is due to the increase in operating costs and an increase in depreciation and amortization costs of $11 per ounce, primarily related to a higher fixed asset base and changes in reserve estimates used in calculating depreciation and amortization which occurred in the first half of 2002.

     Expenses. General and administrative expenses increased $0.1 million, or 2%, in the first half of 2003 as compared to the same period of 2002. The increase of $3.0 million in other transaction related expenses are attributed to the Norilsk Nickel transaction.

     During the first half of 2003, the company did not record any adjustments to its estimate of accrued restructuring costs. During the six months ended June 30, 2002, the company revised its accrued restructuring costs resulting in a $5.9 million gain as a result of successful negotiations of certain termination clauses of construction contracts cancelled during the fourth quarter of 2001.

17

     Interest expense increased $1.1 million primarily due to higher interest rates on the company’s credit facility. The higher interest rates are due to higher margins in calculating interest under the credit facility as a result of obtaining amendments to the credit agreement.

     Income Taxes. The company has provided a total income tax provision of $9.7 million for the six months ended June 30, 2003 caused by the Norilsk Nickel transaction compared to an income tax provision of $7.3 million for the six months ended June 30, 2002. The tax provision is comprised of a $4.3 million benefit or 39% of pre tax loss for the six months ended June 30, 2003, offset by a reduction of deferred tax asset of $14 million resulting from an NOL limitation attributed to the ownership change caused by the Norilsk Nickel transaction (see Note 2). This compares to an income tax provision of $7.3 million, or 21% of pre tax earnings for the six months ended June 30, 2002. The increase in effective rate is primarily due to a reduction in taxable income from mining that limits the company’s statutory depletion for tax purposes. The NOL limitation attributed to the ownership change is in accordance with IRC Sec. 382 as it applies to the change in control of the company that occurred in connection with the Norilsk Nickel transaction.

     Other Comprehensive Income (Loss). For the first half of 2003, other comprehensive income, net of tax, includes a decline in the market value of the interest rate swaps of $0.4 million offset by reclassification adjustments to interest expense of $0.7 million. For the same period of 2002, other comprehensive loss, net of tax, includes reclassification adjustments to revenue of $3.1 million resulting from commodity derivative instruments and a decrease in the fair value of the interest rate swaps of $1.2 million, partially offset by a reclassification adjustment to interest expense of $0.4 million.

Liquidity and Capital Resources

     The company’s working capital at June 30, 2003 was $157.6 million compared to $46.7 million at December 31, 2002. The ratio of current assets to current liabilities was 2.4 at June 30, 2003, as compared to 1.7 December 31, 2002. The increase was primarily due to the closing of the Norilsk Nickel transaction.

     On June 23, 2003, the company and Norilsk Nickel, a Russian mining company, completed a stock purchase transaction whereby the company issued 45,463,222 shares of its common stock to Norimet, a wholly-owned subsidiary of Norilsk Nickel, to acquire 50.8% of the company’s outstanding shares. The company received consideration from Norimet consisting of approximately $100 million in cash and approximately 877,000 ounces of palladium valued at $148.2 million as of June 23, 2003 (see Note 5). The aggregate value of the consideration was approximately $248.2 million as of June 23, 2003.

     Pursuant to the credit facility the company was required to use $50 million of the $100 million cash proceeds received in the Norilsk Nickel transaction to prepay its term loans. Consequently, the Term A loan was paid in full on June 23, 2003. In addition, in accordance with the terms of the credit agreement, the company must use 50% of the net proceeds from the sale of palladium received in the Norilsk Nickel transaction to prepay its term loans. Accordingly, $74.1 million of the long-term debt has been classified as a current liability in anticipation of selling the inventory. The Term B facility final maturity date is December 31, 2007.

     On June 30, 2003 the company’s available cash was $66.3 million and it had $129.1 million outstanding under its Term B Loan Facility and $7.5 million outstanding as letters of credit under the revolving credit facility. The company has $17.5 million available under its revolving credit facility.

     Cash and cash equivalents increased by $39.0 million and $40.4 million for the second quarter and the first six months of 2003 respectively, compared with a decrease of $13.6 million and an increase of $26.8 million, respectively, for the comparable periods of 2002.

     For the quarter ended June 30, 2003, net cash provided by operations was $12.7 million compared to $7.3 million for the comparable period of 2002, an increase of $5.4 million. The increase was primarily a result of changes in net operating assets and liabilities of $23.0 million, an increase in non-cash expenses of $12.7 million, offset by a decrease in net income of $30.3 million. A total of $11.7 million of cash was used in investing activities in the

18

second quarter of 2003 compared to a net total of $11.8 million in the same period of 2002, a decrease of $0.1 million. For the quarter ended June 30, 2003, cash provided by financing activities was $37.9 million compared to a net cash outflow of $9.1 million for the comparable period of 2002. Cash provided by financing activities during the second quarter of 2003 was primarily attributed to the issuance of common stock (net of stock issuance costs) related to the Norilsk Nickel transaction, offset by the payment of $50 million against the Term A facility.

     For the first six months ended June 30, 2003, net cash provided by operations was $36.0 million compared to $26.8 million for the same period of 2002, an increase of $9.2 million. The increase was primarily a result of changes in net operating assets and liabilities of $39.8 million, an increase in non-cash expenses of $18.0 million, offset by a decrease in of net income of $48.6 million. A total of $26.2 million of cash was used in investing activities in the first six months of 2003 compared to a net total of $21.9 million in the same period of 2002, an increase of $4.3 million. The increase is primarily a result of increased capital leasing activities in 2002. For the first six months ended June 30, 2003, cash provided by financing activities was $30.5 million compared to $21.9 million for the comparable period of 2002. Cash provided by financing activities during the first six months of 2003 was primarily attributed to the issuance of common stock (net of stock issuance costs) related to the Norilsk Nickel transaction, offset by the payment of $50 million against the Term A facility. For the same period of 2002, net cash flow from financing activities of $21.9 million was primarily attributed to net proceeds from a $60 million stock offering, offset by repayment of $25 million on the revolving credit facility

CONTINUED LOW PALLADIUM PRICES MAY RESULT IN ASSET IMPAIRMENT WRITEDOWNS

     The company follows Statement of Financial Accounting Standard (SFAS) No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets. The company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment is considered to exist if total estimated future cash flows on an undiscounted basis are less than the carrying amount of the asset. An impairment loss is measured as the amount by which the asset-carrying value exceeds fair value. Fair value is determined using estimated discounted future cash flow analysis. Future cash flows include estimates of recoverable ounces, platinum and palladium prices (considering current and historical prices, price trends and related factors), production levels, capital and reclamation expenditures, all based on detailed life-of-mine plans. In estimating future cash flows, assets are grouped together at each individual mine property which is the lowest level for which there are identifiable cash flows that are largely independent of cash flows from other asset groups. Assumptions underlying future cash flows are subject to risks and uncertainties. Any differences between significant assumptions and market conditions such as declining PGM prices, lower than expected recoverable ounces, and/or the company’s performance could have a material effect on the company’s ability to recover the carrying amounts of its long lived assets resulting in potential impairment charges. In addition, a significant asset writedown could impact certain of the financial covenants in the company’s credit facility.

     As of June 30, 2003, the twelve-quarter trailing combined PGM price average is $495 per ounce. During the first six months of 2003, based upon the average combined PGM market prices of $280 per ounce and giving effect to the company’s marketing contracts, it realized a combined PGM price of $401 per ounce sold

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. Such statements relate to matters including, but not limited to expansion plans, costs, grade production and recovery rates, permitting, financing needs, the terms of future credit facilities, adequacy of bank covenants, 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 is found in the section entitled “Risk Factors” in the company’s 2002 Annual Report on Form 10-K. Management recommends that you read the Form 10-K which can be accessed on the company’s website at www.stillwatermining.com.

19

     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 risks are 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 apply to portions of the company’s production over the period through December 2010 and provide for a floor and ceiling price structure. See Note 9 to the consolidated financial statements for additional information about sales contracts.

     As of June 30, 2003, the company had no metal committed for future delivery under either forward delivery contracts or under put and call option strategies. The company utilizes financially settled forwards and cashless put and call option collars. 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 at maturity. Under cashless put and call option collars, at each settlement, the company receives the difference between the put price and the market price if the market price is below the put price and the company pays the difference between the call price and the market price if the market price is above the call price. See Note 10 to the consolidated financial statements for additional information about transactions related to commodity instruments that the company has entered into.

20

Interest Rate Risk

     During the second quarter of 2002, the company entered into two identical interest rate swap agreements. These swaps fixed the interest rate on $100 million of the company’s debt. The interest rate swap agreements were effective March 4, 2002 and mature on March 4, 2004. The agreements require the company to pay interest at a fixed rate of 3.67% and receive interest at a rate based on London Interbank Offered Rate (LIBOR), which is adjusted on a quarterly basis. The adjusted quarterly rate at June 30, 2003 was 1.28%. Therefore, the company is exposed to changes in interest rates on the portion of its credit facility in excess of $100 million, since the credit facility carries a variable interest rate based upon LIBOR. As of June 30, 2003, the company had $129.1 million outstanding under the Term B loan facilities, bearing interest at 7.25%.

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 Principal Accounting 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 Principal Accounting 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.

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. 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.

Stockholder Litigation

     During the second quarter of 2002, seven lawsuits were filed against Stillwater Mining Company and certain senior officers in United States District Court, Southern District of New York. These actions purport to be a class action filed on behalf of all persons who purchased or otherwise acquired common stock of the company between April 20, 2001 through and including April 1, 2002, and 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. On September 23, 2002, an amended complaint was filed which has consolidated the cases and lead counsel was appointed to represent the plaintiff. In October 2002, defendants moved to dismiss the complaint and to transfer the case to federal district court in Montana. These motions are pending.

     On June 24, 2002, a stockholder derivative lawsuit was filed against Stillwater Mining Company and its directors in state court in Delaware. It arises out of allegations similar to the class actions for the period from April 20, 2001 through and including April 20, 2002 and seeks damages allegedly on behalf of the stockholders of Stillwater for breach of fiduciary duties by the directors. The parties have agreed to suspend activity in this matter pending the outcome of the motion to dismiss in the above referenced class action suit.

     The company considers the lawsuits without merit and intends to vigorously defend itself in both of these actions.

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Item 2. Changes in Securities and Use of Proceeds

     On June 23, 2003, the company and Norilsk Nickel, a Russian mining company, completed a stock purchase transaction whereby the company issued 45,463,222 shares of its common stock to Norimet, a wholly-owned subsidiary of Norilsk Nickel, representing a 50.8% of the company’s outstanding shares. The company received consideration from Norimet consisting of approximately $100 million in cash and approximately 877,000 ounces of palladium valued at $148.2 million as of June 23, 2003 (see Note 5). The aggregate value of the consideration was approximately $248.2 million as of June 23, 2003.

     Norimet commenced a cash tender offer on July 22, 2003, to acquire up to 4,350,000 shares of Stillwater at $7.50 per share. The additional share purchase could increase Norimet’s ownership in Stillwater to approximately 56%.

Item 3. Defaults Upon Senior Securities

     None

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

(a)	A special meeting of stockholders was held on June 16, 2003.
(b)	Stockholders approved and adopted the stock purchase agreement, dated as of November 20, 2002, by and among the company MMC Norilsk Nickel and Norimet. Votes were cast at the meeting as follows: 22,320,960 FOR, 4,589,104 AGAINST and 404,990 ABSTAINING. The company issued 45,463,222 shares of common stock to Norimet in exchange for $100.0 million in cash and approximately 877,000 ounces of palladium.
(c)	In connection with the closing of the Norilsk Nickel transaction, the following five designees of Norimet were elected to the Company’s Board of Directors on June 23, 2003: Craig L. Fuller, Steven S. Lucas, The Honorable Donald W. Riegle, Jr., Todd D. Schafer and Jack E. Thompson. In connection with the closing, Richard E. Gilbert, Apolinar Guzman and Stephen V. Kearney resigned from the Board on June 23, 2003. Francis R. McAllister, Patrick M. James, Joseph P. Mazurek and Sheryl K. Pressler, directors prior to the closing, remain on the Board.

Item 5. Other Information

     None

Item 6. Exhibits and Reports on Form 8-K

     (a)  Exhibits:

     99.1 Section 906 Certificates

     (b)  Reports on Form 8-K:

     The company filed a Form 8-K on June 23, 2003 reporting:

     1. Stockholders Agreement, dated as of June 23, 2003, among Stillwater Mining Company, MMC Norilsk Nickel and Norimet Ltd.

     2. Registration Rights Agreement, dated as of June 23, 2003 among Stillwater Mining Company and Norimet Ltd.

     3. Press Release issued on June 23, 2003 regarding closing of stock purchase transaction with MMC Norilsk Nickel and Norimet Ltd.

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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: July 25, 2003	By:	/s/ FRANCIS R. McALLISTER Francis R. McAllister Chairman and Chief Executive Officer (Principal Executive Officer)
Date: July 25, 2003	By:	/s/ THOMAS T. ANGELOS Thomas T. Angelos Controller (Principal Accounting Officer)

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CERTIFICATION

I,Francis R. McAllistercertify that;

1.	I have reviewed this quarterly report on Form 10-Q of Stillwater Mining Company (Stillwater),
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of Stillwater as of, and for, the periods presented in this quarterly report;
4.	Stillwater’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for Stillwater and we have:

a)	designed such disclosure controls and procedures to ensure that material information relating to Stillwater, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of Stillwater’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. Stillwater’s other certifying officer and I have disclosed, based on our most recent evaluation, to Stillwater’s auditors and audit committee of Stillwater’s Board of Directors:

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect Stillwater’s ability to record, process, summarize and report financial data and have identified for Stillwater’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in Stillwater’s internal controls; and

6. Stillwater’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: July 25, 2003
/s/ FRANCIS R. McALLISTER
Francis R. McAllister
Chairman and Chief
Executive Officer

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CERTIFICATION

I,Thomas T. Angeloscertify that;

1.	I have reviewed this quarterly report on Form 10-Q of Stillwater Mining Company (Stillwater),
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of Stillwater as of, and for, the periods presented in this quarterly report;
4.	Stillwater’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for Stillwater and we have:

a)	designed such disclosure controls and procedures to ensure that material information relating to Stillwater, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of Stillwater’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. Stillwater’s other certifying officer and I have disclosed, based on our most recent evaluation, to Stillwater’s auditors and audit committee of Stillwater’s Board of Directors:

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect Stillwater’s ability to record, process, summarize and report financial data and have identified for Stillwater’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in Stillwater’s internal controls; and

6. Stillwater’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: July 25, 2003
/s/ THOMAS T. ANGELOS
Thomas T. Angelos
Controller and Principal
Accounting Officer

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EXHIBIT INDEX

Exhibit No.	Description
99.1	99.1 Section 906 Certifications