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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 MARCH 31, 2001.
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 (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
737 PALLADIUM PLACE
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 __
AT APRIL 12, 2001, 38,700,956 SHARES OF COMMON STOCK, $0.01 PAR VALUE PER SHARE,
WERE ISSUED AND OUTSTANDING.
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STILLWATER MINING COMPANY
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
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
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...................................................... 22
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
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STILLWATER MINING COMPANY
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except share and per share amounts)
MARCH 31, December 31,
2001 2000
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 13,484 $ 18,219
Funds held in escrow 45,487 2,636
Inventories 38,366 42,625
Accounts receivable 27,360 --
Deferred income taxes 7,981 7,732
Other current assets 2,543 2,943
------------ ------------
Total current assets 135,221 74,155
PROPERTY, PLANT AND EQUIPMENT, NET 645,681 602,110
OTHER NONCURRENT ASSETS 6,600 2,761
------------ ------------
Total assets $ 787,502 $ 679,026
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 17,327 $ 21,710
Accrued payroll and benefits 7,788 6,431
Property, production and franchise taxes payable 7,387 8,068
Current portion of long-term debt and capital lease
obligations 3,202 1,970
Metals repurchase agreements payable 6,520 9,386
Current income taxes payable 3,467 97
Other current liabilities 10,541 11,533
------------ ------------
Total current liabilities 56,232 59,195
Long-term debt and capital lease obligations 230,348 157,256
Deferred income taxes 63,677 55,457
Other noncurrent liabilities 6,970 6,504
------------ ------------
Total liabilities 357,227 278,412
------------ ------------
SHAREHOLDERS' 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; 38,698,742 and 38,645,886 shares
issued and outstanding, respectively 387 386
Paid-in capital 289,096 288,212
Retained earnings 141,418 112,016
Accumulated other comprehensive loss (626) --
------------ ------------
Total shareholders' equity 430,275 400,614
------------ ------------
Total liabilities and shareholders' equity $ 787,502 $ 679,026
============ ============
See notes to consolidated financial statements.
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STILLWATER MINING COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
THREE MONTHS ENDED
MARCH 31,
----------------------------
2001 2000
------------ ------------
REVENUES $ 89,864 $ 42,135
COSTS AND EXPENSES
Cost of metals sold 38,245 17,496
Depreciation and amortization 5,613 4,302
------------ ------------
Total cost of sales 43,858 21,798
General and administrative expenses 5,452 2,055
------------ ------------
Total costs and expenses 49,310 23,853
------------ ------------
OPERATING INCOME 40,554 18,282
OTHER INCOME (EXPENSE)
Interest income 568 280
Interest expense, net of capitalized interest of
$4,215 and $2,656 -- --
------------ ------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 41,122 18,562
INCOME TAX PROVISION (11,720) (5,197)
------------ ------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 29,402 13,365
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR REVENUE
RECOGNITION, NET OF INCOME TAX BENEFIT OF $2,503 -- (6,435)
------------ ------------
NET INCOME $ 29,402 $ 6,930
============ ============
BASIC EARNINGS PER SHARE
Income before cumulative effect of accounting change $ 0.76 $ 0.35
Cumulative effect of accounting change -- (0.17)
------------ ------------
NET INCOME $ 0.76 $ 0.18
============ ============
DILUTED EARNINGS PER SHARE
Income before cumulative effect of accounting change $ 0.75 $ 0.34
Cumulative effect of accounting change -- (0.16)
------------ ------------
NET INCOME $ 0.75 $ 0.18
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 38,671 38,271
Diluted 39,406 39,305
See notes to consolidated financial statements.
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STILLWATER MINING COMPANY
STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands)
THREE MONTHS ENDED
MARCH 31,
---------------------------
2001 2000
------------ ------------
NET INCOME $ 29,402 $ 6,930
OTHER COMPREHENSIVE INCOME:
Realized and unrealized gain on derivative financial
instruments, net of tax of $2,596 6,514 --
------------ ------------
COMPREHENSIVE INCOME $ 35,916 $ 6,930
============ ============
See notes to consolidated financial statements.
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STILLWATER MINING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
THREE MONTHS ENDED
MARCH 31,
----------------------------
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 29,402 $ 6,930
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,613 4,302
Deferred income taxes 8,220 (306)
Cumulative effect of change in accounting
for revenue recognition -- 6,435
Changes in operating assets and liabilities:
Inventories 4,259 (6,103)
Accounts receivable (27,360) --
Accounts payable (4,383) (3,609)
Other 3,152 1,382
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,903 9,031
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (49,184) (42,314)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (49,184) (42,314)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 157,149 23,100
Payments on long-term debt and capital lease
obligations (125,676) (651)
Payments for debt issuance costs (3,946) --
Net metals repurchase agreement transactions (2,866) 10,054
Issuance of common stock 885 8,826
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 25,546 41,329
------------ ------------
CASH AND CASH EQUIVALENTS
Net increase (decrease) (4,735) 8,046
Balance at beginning of period 18,219 2,846
------------ ------------
BALANCE AT END OF PERIOD $ 13,484 $ 10,892
============ ============
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 March 31, 2001 and the results of its operations for the
three-month periods ended March 31, 2001 and 2000 and cash flows for the
three-month periods ended March 31, 2001 and 2000. Certain prior year amounts
have been reclassified to conform with the current year presentation. The
results of operations for the three-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 2000 Annual
Report on Form 10-K.
NOTE 2 - NEW ACCOUNTING STANDARDS
Effective January 1, 2001, the company adopted the Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standard (SFAS) No.
133, Accounting for Derivative Instruments and Hedging Activities and SFAS No.
138, Accounting for Derivative Instruments and Certain Hedging Activities, an
amendment to SFAS No. 133. SFAS Nos. 133 and 138 require 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 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 earnings when the
offsetting hedged transaction occurs. The company primarily uses derivatives to
hedge metal prices.
In accordance with the transition provisions of SFAS No. 133, the
company recorded a net-of-tax cumulative-effect-type loss adjustment of $7.1
million in accumulated other comprehensive loss to recognize at fair value all
derivatives that are designated as cash-flow hedging instruments at January 1,
2001. The company expects to reclassify as earnings during the next twelve
months $7.1 million from the transition adjustment that was recorded in
accumulated other comprehensive loss.
Effective January 1, 2000, the company changed its method of accounting
for revenue recognition. Pursuant to the guidance in Staff Accounting Bulletin
(SAB) No. 101, Revenue Recognition for Financial Statements, the company now
recognizes revenue as title passes to the customer. In accordance with accepted
industry practice, the company previously recognized revenue when product was
shipped from the company's metal refinery to an external refiner. The company
implemented SAB No. 101 during the fourth quarter of 2000. The implementation
was treated as a change in accounting principle with the cumulative effect of
the change on retained earnings at the beginning of 2000 included in restated
net income of the first quarter of 2000. The first quarter 2000 financial
statements were restated to reflect the change in accounting for revenue
recognition. The effect of the accounting change on the first quarter of 2000
was to decrease net income by approximately $13.5 million ($0.35 per basic and
$0.34 per diluted share), which includes the cumulative effect of $6.4 million
($0.17 per basic and $0.16 per diluted share). The $6.4 million cumulative
effect adjustment includes $26 million of revenue previously recognized in 1999,
which is reflected as revenue in 2000 under the company's new method of
accounting.
Effective January 1, 2000, the company also implemented Issue No. 00-14
of the Financial Accounting Standards Board's (FASB) Emerging Issues Task Force
(EITF), Accounting for Certain Sales Incentives. The consensus reached by the
FASB EITF requires a company to classify any cash sales discounts as a reduction
in revenue. Prior to the implementation of EITF 00-14, the company classified
sales discounts associated with long-term sales contracts as a component of cost
of metals sold. The
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company implemented EITF No. 00-14 during the fourth quarter of 2000. Pursuant
to the consensus, the first quarter 2000 financial statements have been
reclassified.
NOTE 3 - COMPREHENSIVE INCOME
In accordance with SFAS No. 130, Reporting Comprehensive Income, the
company reports comprehensive income and its components in the financial
statements. Comprehensive income consists of net income and other gains and
losses affecting shareholders' 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.
The following summary sets forth the components of other comprehensive
income (loss) accumulated in shareholders' equity (in thousands):
DERIVATIVE
FINANCIAL INSTRUMENTS
---------------------
Balance at December 31, 2000 $ --
Cumulative effect on adoption (9,985)
Reclassification to earnings 4,222
Change in value due to change in metals prices 4,888
------------
(875)
Tax benefit 249
------------
Balance at March 31, 2001 $ (626)
============
NOTE 4 - INVENTORIES
Inventories consisted of the following (in thousands):
MARCH 31, December 31,
2001 2000
------------ ------------
Metals inventory
Raw ore $ 961 $ 1,086
Concentrate and in-process 15,511 13,971
Finished goods 15,463 21,864
------------ ------------
31,935 36,921
Materials and supplies 6,431 5,704
------------ ------------
$ 38,366 $ 42,625
============ ============
NOTE 5 - LONG-TERM DEBT
CREDIT FACILITY
In February 2001, the company obtained a $250 million credit facility
(the "Credit Facility") from a syndicate of financial institutions. The Credit
Facility provides for a $65 million five-year term loan facility (Term A), a
$135 million seven-year term loan facility (Term B) and a $50 million revolving
credit facility. Amortization of the term loan facilities will commence on March
31, 2002. The final maturity of the Term A and the revolving credit facility is
December 30, 2005 while the Term B facility final maturity date is December 31,
2007. Of the term loan facility proceeds, $125 million was used to repay
borrowings under the prior credit facility with the remaining proceeds to be
used to fund the company's expansion plans as required. Proceeds of the
revolving credit facility are being used for general corporate and working
capital needs. As of March 31, 2001, the company had $200 million outstanding
under the term loan facilities, bearing interest at 7.75% and 8.50% for the Term
A and Term B facilities, respectively.
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The loans are required to be prepaid from excess cash flow as defined
in the Credit Facility, proceeds from asset sales and the issuance of debt or
equity securities, subject to specified exceptions. At the company's option, the
Credit Facility bears interest at the London Interbank Offered Rate (LIBOR) or
an alternate base rate, in each case plus a margin of 2.0% to 3.25% which is
adjusted depending upon the company's ratio of debt to operating cash flow.
Substantially all the property and assets of the company and its subsidiaries
and the stock of the company's subsidiaries are pledged as security for the
Credit Facility.
Covenants in the Credit Facility restrict: (1) additional indebtedness;
(2) payment of dividends or redemption of capital stock; (3) liens; (4)
investment, acquisitions, dispositions or mergers; (5) transactions with
affiliates; (6) capital expenditures (other than those associated with the
expansion plan); (7) changes in the nature of business conducted or ceasing
operations at the principal operating properties; and (8) commodities hedging to
no more than 90% of annual palladium production and 75% of annual platinum
production (excluding the sales covered by the company's marketing contracts and
similar agreements). The company is also subject to financial covenants
including a debt to operating cash flow ratio, a debt service coverage ratio and
a debt to equity ratio.
Events of default include: (1) a cross-default to other indebtedness of
the company or its subsidiaries; (2) any material modification to the
life-of-mine plan for the Stillwater Mine; (3) a change of control of the
company; (4) the failure to maintain agreed-upon annual PGM production levels;
or (5) any breach or modification of any of the sales agreements.
The company is in compliance with all aspects of the credit agreement,
including all financial covenants as of March 31, 2001. As of March 31, 2001,
$45.5 million of the proceeds were held in escrow pending the expenditure for
allowable costs.
EXEMPT FACILITY REVENUE BONDS
On July 6, 2000, the company completed a $30 million offering of Exempt
Facility Revenue Bonds, Series 2000, through the State of Montana Board of
Investments. The bonds were issued by the State of Montana Board of Investments
to finance a portion of the costs of constructing and equipping certain sewage
and solid waste disposal facilities at both the Stillwater Mine and the East
Boulder Project. The bonds mature on July 1, 2020 and have an interest rate of
8.00% with interest paid semi-annually. The bonds have an effective interest
rate of 8.57%. Net proceeds from the offering were $28.7 million.
NOTE 6 - EARNINGS PER SHARE
The company follows SFAS No. 128, Earnings per Share, which requires
the presentation of basic and diluted earnings per share.
The effect of outstanding stock options on diluted weighted average
shares outstanding was 735,064 and 1,033,754 shares for the three-month periods
ending March 31, 2001 and 2000, respectively. Outstanding options to purchase
329,625 and 4,725 shares of common stock were excluded from the computation of
diluted earnings per share for the three-month periods ended March 31, 2001 and
2000, respectively, because the effect of inclusion would have been antidilutive
using the treasury stock method.
NOTE 7 - INCOME TAXES
Income taxes for the three-month periods ended March 31, 2001 and 2000
have been provided at the expected annualized rate of 28.5% and 28.0%,
respectively.
NOTE 8 - COMMODITY INSTRUMENTS
The company maintains long-term sales contracts with General Motors,
Ford Motor Company and Mitsubishi Corporation. The contracts are not subject to
the requirements of SFAS No. 133 as the contracts qualify for the normal sales
exception provided in SFAS No. 138. The floors and ceilings embedded within
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the long-term sales contracts are treated as part of the host contract, not a
separate derivative instrument and are therefore also not subject to the
requirements of SFAS No. 133.
In addition to the long-term sales contracts, the company may also
enter into transactions for the sale and repurchase of metals held in the
company's account at third party refineries. Under these transactions, the
company will enter into an agreement to sell a certain number of ounces at the
then current market price. The company will simultaneously enter into a separate
agreement with the same counter party, to repurchase the same number of ounces
at the same price at the repurchase date.
The company utilizes the following types of derivative financial
instruments: fixed forwards, cashless put and call option collars and
financially settled forwards. For derivative instruments outstanding as of March
31, 2001, the company has designated the derivative as a hedge of a forecasted
transaction ("cash flow" hedge). Currently, all derivatives have been assessed
as highly effective cash-flow hedges of forecasted transactions. 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 forecasted transactions occur.
From time to time, the company may enter into cashless put and call
option collars under which the company receives the difference between the put
price and the market price only if the market price is below the put price and
the company pays the difference between the call price and the market price only
if the market price is above the call price. The company's put and call options
are financially settled at maturity. Since the put/call instruments hedge
forecasted transactions, they qualify for cash flow hedge accounting. They are
considered to be highly effective since the intrinsic value of the put/call will
offset the change in value associated with future production not subject to the
long-term sales contract. During the first quarter of 2001, the company
reclassified a loss of $2.4 million to reduce revenues and earnings for cashless
put and call option collars that were recorded in accumulated other
comprehensive loss at January 1, 2001. The company has no cashless put and call
option collars outstanding at March 31, 2001.
The company may enter into fixed forward contracts to sell metals at a
future date and at a fixed price in order to reduce the risk associated with
future metals prices for ounces produced in excess of the company's long-term
sales contracts. These instruments are considered to be highly effective
derivatives that will qualify for cash flow hedge accounting since they are an
"all-in-one-hedge" instrument, meaning that all of the components (ounces,
delivery date, and price) are fixed as part of the original commitment. The
company has no fixed forward contracts outstanding.
The company also enters into financially settled forwards. They differ
from fixed forwards in that the net gain or loss is settled at maturity. The
company uses the financially settled forwards as a mechanism to hedge the
fluctuations in metal prices associated with future production not subject to
the long-term sales contracts. The financially settled forwards qualify as a
cash flow hedge and are considered to be highly effective, since the change in
the value of the financially settled forward will offset changes in the expected
future cash flows related to future production not subject to the long-term
sales contracts. During the first quarter of 2001, the company reclassified a
realized loss of $1.8 million to reduce revenues and earnings for financially
settled forwards that were recorded in accumulated other comprehensive loss at
January 1, 2001.
A summary of the company's derivative financial instruments as of March
31, 2001 is as follows.
Palladium
Ounces Sales Price
--------- -----------
2001 Financially settled forwards 22,500 $ 696
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In November 2000 and March 2001, the company renegotiated certain of
its long-term sales contracts. The new arrangements establish higher floor and
ceiling prices on a portion of the current contracts, extend the term of the
contracts through 2010 with new floors and ceilings and increase the amount of
platinum committed. The contracts provide for floor and ceiling price structures
as summarized below:
PALLADIUM PLATINUM
------------------------------------------------- -------------------------------------------------------
% of Avg. Floor % of Avg.Ceiling % of Avg. Floor % of Avg. Ceiling
Year Production Price Production Price Production Price Production Price
- ---------------- ----------- ----------- ----------- ------------- ------------- ------------- ------------- -------------
2001 90% $347 30% $400 87% $402 39% $556
2002 100% $363 30% $400 92% $407 36% $591
2003 100% $350 30% $400 90% $408 20% $601
2004 100% $371 39% $644 80% $425 16% $856
2005 100% $355 16% $981 80% $425 16% $856
2006 80% $400 20% $980 80% $425 16% $856
2007 80% $400 20% $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
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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
MARCH 31,
-----------------------
2001 2000
---------- ----------
OUNCES PRODUCED (000)(2)
Palladium 96 86
Platinum 28 26
---------- ----------
Total 124 112
TONS MINED (000) 199 169
TONS MILLED (000) 200 169
MILL HEAD GRADE (OUNCE PER TON) 0.68 0.73
TOTAL MILL RECOVERY (%) 90 91
SUB-GRADE TONS MILLED (000) 18 14
SUB-GRADE MILL HEAD GRADE (OUNCE PER TON) 0.21 0.12
TOTAL TONS MILLED (000) 218 183
COMBINED MILL HEAD GRADE (OUNCE PER TON) 0.64 0.68
OUNCES SOLD (000)(2)
Palladium 109 67
Platinum 28 27
---------- ----------
Total 137 94
AVERAGE REALIZED PRICE PER OUNCE(2)
Palladium $ 704 $ 467
Platinum $ 529 $ 441
Combined(1) $ 668 $ 460
AVERAGE MARKET PRICE PER OUNCE
Palladium $ 930 $ 589
Platinum $ 602 $ 479
Combined(1) $ 853 $ 563
(1) Stillwater Mining reports a combined average realized and market price of
palladium and platinum at the same ratio as ounces are produced from the
base metals refinery. The combined average realized price represents
revenues of the company excluding contract discounts divided by ounces
sold. The combined average market price represents the London PM Fix for
the actual months of the period.
(2) Effective January 1, 2000, the company changed its method of accounting for
revenue recognition. The company now recognizes revenue as title passes to
the customer. Ounces sold and average realized prices for the first quarter
of 2000 have been restated accordingly. The differences in ounces produced
and ounces sold are caused by the length of time required by the smelting
and refining processes and the specified delivery dates under the long-term
sales contracts. The differences between the realized prices and market
prices occur due to contract obligations and hedge positions.
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STILLWATER MINING COMPANY
KEY FACTORS (CONTINUED)
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
-----------------------
2001 2000
---------- ----------
PER TON MILLED
CASH OPERATING COSTS $ 123 $ 120
Royalties and taxes 28 22
---------- ----------
TOTAL CASH COSTS (1) $ 151 $ 142
Depreciation and amortization 26 23
---------- ----------
TOTAL PRODUCTION COSTS (1) $ 177 $ 165
========== ==========
PER OUNCE PRODUCED
CASH OPERATING COSTS $ 217 $ 196
Royalties and taxes 48 36
---------- ----------
TOTAL CASH COSTS (1) $ 265 $ 232
Depreciation and amortization 45 39
---------- ----------
TOTAL PRODUCTION COSTS (1) $ 310 $ 271
========== ==========
(1) Income taxes, corporate general and administrative expense and interest
income and expense are not included in either total cash costs or total
production costs.
RESULTS OF OPERATIONS
Three months ended March 31, 2001 compared to three months ended March 31, 2000
PGM Production. During the first quarter of 2001, the company produced
approximately 96,000 ounces of palladium and approximately 28,000 ounces of
platinum compared with production of approximately 86,000 ounces of palladium
and 26,000 ounces of platinum in the first quarter of 2000. The increase was due
to a 19% increase in tons milled in the first quarter of 2001 compared to the
first quarter of 2000, offset by a 6% decrease in the average grade of material
milled. The increase in tons milled is the result of additional mine production
and the processing of additional lower grade material which has become economic
as a result of higher metal prices.
Revenues. Revenues were $89.9 million for the first quarter of 2001
compared with $42.1 million for the first quarter of 2000, an increase of 114%
and were the result of a 45% increase in realized PGM prices and a 46% increase
in the quantity of metal delivered to customers.
Palladium sales increased to approximately 109,000 ounces in the first
quarter of 2001 from approximately 67,000 ounces in the first quarter of 2000.
Platinum sales increased to approximately 28,000 ounces in the first quarter of
2001 from approximately 27,000 ounces in the first quarter of 2000.
The combined average realized price per ounce of palladium and platinum
sold in the first quarter of 2001 increased 45% to $668 per ounce, compared to
$460 per ounce in the first quarter of 2000. The combined average market price
rose 52% to $853 per ounce in the first quarter of 2001, compared with $563 per
ounce in the first quarter of 2000. The average realized price per ounce of
palladium was $704 in the first quarter of 2001, compared to $467 per ounce in
the first quarter of 2000, while the average market price of palladium was $930
per ounce in the first quarter of 2001 compared to $589 per ounce in the first
quarter of 2000. The average realized price per ounce of platinum was $529 in
the first quarter of 2001,
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compared to $441 per ounce in the first quarter of 2000, while the average
market price of platinum was $602 per ounce in the first quarter of 2001
compared to $479 per ounce in the first quarter of 2000.
Costs and Expenses. Total cash costs per ounce in the quarter ended
March 31, 2001 increased $33 or 14 %, to $265 per ounce from $232 per ounce in
the quarter ended March 31, 2000. The increase in per ounce operating costs is
primarily a result of higher royalties and taxes associated with higher metal
prices of $12 per ounce and higher mine operating costs of $28 per ounce, offset
by lower support services of $8 per ounce. The higher mine operating costs are
primarily the result of increased throughput tonnage. Total production costs per
ounce in the quarter ended March 31, 2001 increased $39, or 14% to $310 per
ounce from $271 per ounce in the quarter ended March 31, 2000. This increase is
due to the above factors as well as an increase in depreciation relating to
completed expansion assets. General and administrative costs increased $3.4
million primarily as a result of $2.4 million of increased administrative
support required to transition the company from a single site producer to a
multi-location producer and $1.4 million attributable to a management
realignment.
Operating Income. The company reported operating income of $40.6
million for the quarter ended March 31, 2001, compared with operating income of
$18.3 million for the quarter ended March 31, 2000. The higher operating income
was mainly the result of higher realized prices.
Net Income Before Cumulative Effect of Accounting Change. In its first
quarter of 2001, the company has provided for income taxes of $11.7 million or
28.5% of income before taxes compared to a provision of $5.2 million, or 28% of
pretax income for the first quarter of 2000. The company reported net income
before the cumulative effect of an accounting change of $29.4 million, or $0.75
per diluted share compared with net income of $13.4 million, or $0.34 per
diluted share in the first quarter of 2000.
Cumulative Effect of Change in Accounting for Revenue Recognition.
Effective January 1, 2000, the company changed its method of accounting for
revenue recognition. Pursuant to the guidance in Staff Accounting Bulletin (SAB)
No. 101, Revenue Recognition for Financial Statements, the company now
recognizes revenue as title passes to the customer. The change was implemented
during the fourth quarter of 2000 and was treated as a change in accounting
principle with the $6.4 million ($0.17 per basic and $0.16 per diluted share)
cumulative effect of the change on retained earnings at the beginning of 2000
included in restated net income of the first quarter of 2000. See Note 2 to the
financial statements attached for a description of new accounting standards
applicable to the company.
Net Income. The company reported net income of $29.4 million or $0.75
per diluted share for its first quarter of 2001 compared with net income of $6.9
million, or $0.18 per diluted share for the first quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
The company's working capital at March 31, 2001 was $79.0 million
compared to $15.0 million at March 31, 2000. The ratio of current assets to
current liabilities was 2.4 at March 31, 2001, compared to 1.3 at March 31,
2000.
Net cash provided by operations for the three months ended March 31,
2001, was $18.9 million compared with $9.0 million for the comparable period of
2000, an increase of $9.9 million. The increase was primarily a result of
increased net income of $22.5 million and an increase in non-cash expenses of
$3.4 million offset by a change in net operating assets and liabilities of $16.0
million in the first quarter of 2001 compared to the first quarter of 2000,
primarily due to an increase in accounts receivable of $27.4 million.
A total of $49.2 million of cash was used in investing activities in
the first three months of 2001 compared to $42.3 million in the same period of
2000. The capital expenditures incurred in the first three months of 2001 relate
to the development of the East Boulder Mine, the Stillwater Mine and the
company's Columbus ancillary facilities.
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For the three months ended March 31, 2001, cash provided by financing
activities was $25.5 million compared to $41.3 million for the comparable period
of 2000. The financing activities in the first quarter of 2001 were primarily
attributed to borrowings of $200 million under the company's $250 million Credit
Facility offset by repayment of $125 million on the prior credit facility and
placement of $45.5 million of these funds into escrow pending completion of the
company's capital expenditures program.
As a result of the above, cash and cash equivalents decreased by $4.7
million for the first three months of 2001 compared with an increase of $8.0
million for the comparable period of 2000.
Based on cash on hand, the funds held in escrow and expected cash flows
from operations, along with the remaining credit of $50 million available at
March 31, 2001 under the existing Credit Facility, management believes there is
sufficient liquidity to meet 2001 operating and capital needs. See Note 5 to the
financial statements for a description of the company's credit facility. In
addition, the company may, from time to time, also seek to raise additional
capital from the public or private securities markets or from other sources for
general corporate purposes and for investments beyond the scope of the current
phase of the current expansion plans.
FORWARD LOOKING STATEMENT; 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 include comments regarding expansion plans, costs,
grade, production and recovery rates, permitting, financing needs, 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. Factors that could cause
actual results to differ materially from those anticipated include:
o worldwide economic and political events affecting the supply and demand
of palladium and platinum;
o price volatility of PGMs;
o potential cost overruns, difficulty in making reliable estimates in
connection with expansion, uncertainties involved in developing a new
mine and other factors associated with a major expansion;
o fluctuations in ore grade, tons mined, crushed or milled;
o variations in concentrator, smelter or refinery operations;
o geological, technical, permitting, mining or processing problems;
o availability of experienced employees;
o financial market conditions;
o compliance of the company and significant customers with marketing
contracts; and
o the other factors discussed under "Risk factors", below and in
"Business and Properties -- Risk Factors" in the company's annual
report on Form 10-K for the year ended December 31, 2000.
Investors are cautioned not to put undue reliance on forward-looking
statements. The company disclaims any obligation to update forward-looking
statements.
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RISK FACTORS
Set forth below are certain risks faced by the company. See also
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Forward Looking Statements; Factors That May Affect Future Results
and Financial Conditions" above.
VULNERABILITY TO METALS PRICE VOLATILITY--CHANGES IN SUPPLY AND DEMAND COULD
REDUCE MARKET PRICES.
Since the company's sole source of revenue is the sale of platinum
group metals, changes in the market price of platinum group metals significantly
impact profitability. Many factors beyond the company's control influence the
market prices of these metals. These factors include global supply and demand,
speculative activities, international political and economic conditions and
production levels and costs in other platinum group metal producing countries,
particularly Russia and South Africa.
Current economic and political events in Russia could result in
declining market prices. If Russia disposes of substantial amounts of platinum
group metals from stockpiles or otherwise, the increased supply could reduce the
market prices of palladium and platinum. Financial, economic, or political
instability in Russia and economic problems could make Russian shipments
difficult to predict and the risk of sales from stockpiles more significant.
Volatility was evident during 1997 through 2000 when apparent tightness in the
market for platinum group metals led to high prices for current delivery
contracts and "backwardation," a condition in which delivery prices for metals
in the near term are higher than delivery prices for metals to be delivered in
the future. See "Business and Properties - Competition: Palladium and Platinum
Market" in the company's annual report on Form 10-K for the year ended December
31, 2000 for further explanation of these factors.
The company enters into hedging contracts from time to time in an
effort to reduce the negative effect of price changes on the company's cash
flow. These hedging activities typically consist of contracts that require the
company to deliver specific quantities of metal, or to financially settle the
obligation in the future at specific prices, the sale of call options and the
purchase of put options. At April 12, 2001, the market prices for palladium and
platinum were $650 and $596 per ounce, respectively. See Note 8 to the financial
statements attached hereto for a discussion of the company's outstanding hedge
obligations. Thus, while hedging transactions are intended to reduce the
negative effects of price decreases, they can also prevent the company from
benefiting from price increases. The company has entered into long-term sales
contracts that provide a floor price for sales of a portion of the company's
production. During first quarter 2001 and 2000, respectively, the company
reported hedging losses of approximately $4.2 million and $3.0 million,
respectively. For additional discussion of the marketing contracts, see Note 8
to the financial statements attached hereto.
EXPANSION PLAN RISKS - ACHIEVEMENT OF THE COMPANY'S LONG-TERM GOALS IS SUBJECT
TO SIGNIFICANT UNCERTAINTIES.
The company's achievement of its long-term expansion goals depends upon
its ability to increase and sustain production at the Stillwater Mine and its
related facilities and its ability to develop and bring into production the East
Boulder Mine. Each of these tasks will require the company to construct mine and
processing facilities and to commence and maintain production within budgeted
levels. Although the company believes its goals and estimates are based upon
reasonable assumptions, the company has previously and may need to further
revise its plans and cost estimates for the Stillwater Mine and East Boulder
Mine as the projects progress. See "Business and Properties - Current Operations
- - East Boulder Project" and "Business and Properties - Expansion Plans" in the
company's annual report on Form 10-K for the year ended December 31, 2000 for
further discussion of the company's expansion plans. Among the major risks to
successful completion of the Expansion Plan are:
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o potential cost overruns during development of new mine operations and
construction of new facilities;
o possible delays and unanticipated costs resulting from difficulty in
obtaining the required permits; and
o the inability to recruit sufficient numbers of skilled underground
miners.
Based on the complexity and uncertainty involved in development
projects at this early stage, it is extremely difficult to provide reliable time
and cost estimates. The company cannot be certain that either the Stillwater
mine expansion or the development of East Boulder will be completed on time or
at all, that the expanded operations will achieve the anticipated production
capacity, that the construction costs will not be higher than estimated, that
the expected operating cost levels will be achieved or that funding will be
available from internal and external sources in necessary amounts or on
acceptable terms.
During the fourth quarter of 1999, the company contracted with two
independent engineering firms, Bechtel Corporation and MRDI, USA, a division of
AMEC-Simons, to conduct a project review of the project parameters for the East
Boulder project. The study analyzed the project's development schedule, mine
planning, capital and operating cost requirements. The project's capital costs,
operating costs and economic returns may differ materially from the company's
current analysis. During the fourth quarter of 2000, a diamond drilling program
of 132 holes was completed to delineate ore reserves in the initial mining area.
The information from the drilling program will be utilized to design the initial
mining plan including development plans, production profile and operating and
capital cost estimates. The company will proceed with further development of
East Boulder as the engineering studies are completed and the grade and
continuity of the reserves are confirmed.
The grade that is indicated from the limited drill program is
comparable to the previously calculated undiluted resource grade of 0.63 ounce
per ton with horizontal widths of 6.8 feet, compared to 7.2 feet at the
Stillwater Mine. The drill program also indicates that mill feed grades from the
initial mining area, which represents approximately 70,000 tons or ore, will be
in the range of 0.51 ounce per ton, compared to the probable reserve average of
0.71 ounce per ton for the entire East Boulder deposit. If this grade were to
persist as development proceeds, it would limit annual PGM production to 330,000
ounces at the permitted 2,000 tons of ore per day.
The drill program does indicate a high degree of continuity in the
orebody at East Boulder making available 140 tons of ore per foot of footwall
lateral, compared to 70 tons at the Stillwater Mine. This higher tonnage yield
will have a beneficial effect on mine productivity and the cost of production.
The higher yield may also allow for the selection of more mechanized mining
methods and also reduce sustaining development necessary to maintain a given
production rate.
These limited drill results are instructive but not necessarily
indicative of results that will be realized from continuing mine development and
drilling. Ongoing sill excavation, diamond drilling and a test stope planned for
the second half of 2001 will provide additional data for planning analysis. The
total effect of these results will be better understood when the additional
drilling, together with the work to refine the detailed mine plan and the test
stoping is completed later in 2001.
During 2001, the company expects to continue underground development,
detailed engineering and commissioning of the concentrator and ancillary
facilities at East Boulder. The East Boulder Mine is expected to begin
commercial production during 2002. The company currently estimates the cost of
developing the project to enable it to commence initial production at
approximately $370 million, compared to the previous estimate of $270 million.
Of the $100 million increase, $41 million is attributable to changes in project
scope, $27 million is due to additional ground supports and schedule slippage
due to unforeseen ground conditions in the tunnel driving process, $23 million
is attributable to the use of mining contractors rather than Stillwater crews
for mine development and construction and the remaining $9 million is a
management reserve for unforeseen project risks. Additional sustaining capital
expenditures will be necessary to achieve and maintain the mine's initial design
capacity of 2,000 tons of ore per day. This estimated cost and schedule may
change based upon the results of the mining planning work to be completed during
2001.
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East Boulder is a development project and has no operating history.
Thus, estimates of future cash operating costs at East Boulder are based largely
on the company's years of operating experience at the Stillwater Mine portion of
the J-M Reef. Actual cash operating costs and economic returns may differ
significantly from those currently estimated or those established in future
studies and estimates. Although the company anticipates that the operating
characteristics at East Boulder will be similar to the Stillwater Mine, new
mining operations often experience unexpected problems during the development
and start-up phases, which can result in substantial delays in reaching
commercial production.
COMPLIANCE WITH BANK CREDIT AGREEMENT - THE RESTRICTIONS IMPOSED BY OUR DEBT
AGREEMENTS COULD NEGATIVELY AFFECT OUR ABILITY TO ENGAGE IN CERTAIN ACTIVITIES.
The company's agreement with the syndicate of financial institutions,
led by TD Securities (USA) Inc., provides a credit facility that is being used
to finance a portion of the expansion plan and contains certain covenants
relating to the accomplishment of certain production objectives, capital cost
and financial targets. In the event the company was not able to comply with the
debt covenants, the company would seek to amend the existing contract or to seek
alternative financing.
DEPENDENCE ON AGREEMENTS WITH SIGNIFICANT CUSTOMERS - WE DEPEND UPON A FEW
CUSTOMERS AND OUR SALES AND OPERATIONS COULD SUFFER IF WE LOSE ANY OF THEM.
Palladium, platinum, rhodium and gold are sold to a number of consumers
and dealers with whom the company has established trading relationships. Refined
PGMs of 99.95% purity in sponge form are transferred upon sale from the
company's account at third party refineries to the account of the purchaser.
By-product metals are purchased at market price by customers, brokers or outside
refiners.
During 1998, the company entered into long-term sales contracts with
General Motors Corporation, Ford Motor Company and Mitsubishi Corporation, each
of whom represent more than 10% of the company's revenues. The contracts apply
to the company's production over the five-year period from January 1999 through
December 2003. Under the original contracts, the company committed between 90%
to 100% of its palladium production and 20% of its platinum production. Metal
sales were priced at a discount to market. The remaining production is not
committed under these contracts and remains available for sale at prevailing
market prices.
In November 2000 and March 2001, the company renegotiated certain of
its long-term sales contracts. The new arrangements establish higher floor and
ceiling prices on a portion of the current contracts, extend the term of the
contracts through 2010 with new floors and ceilings and increase the amount of
platinum committed. See Note 8 to the financial statements attached hereto for
additional information about sales contracts.
The company, therefore, is subject to the customers' compliance with
the terms of the contracts, their ability to terminate or suspend the contracts
and the customers' willingness and ability to pay. The loss of any of these
customers could have a material adverse effect on the company. In the event the
company becomes involved in a disagreement with one or more of its customers,
their compliance with these contracts may be at risk. For example, the company
has negotiated floor prices that are well above historical low prices for
palladium and platinum. In the event of a substantial decline in the market
price of palladium or platinum, one or more of these customers could seek to
renegotiate the prices or fail to honor the contracts. In such an event, the
company's expansion plans could be threatened. In addition, under the company's
syndicated credit facility, a default or modification of the sales contracts
could prohibit additional loans or require the repayment of outstanding loans.
Although the company believes it has adequate legal remedies if a customer fails
to perform, termination or breach could have a material adverse effect on the
company's expansion plans and results of operations. The contracts are designed
to limit the downside risk of metal prices at the risk of foregoing a portion of
upside price potential should market prices exceed the price ceilings. During
first quarter 2001, the price ceilings reduced the average price realized by
$153 per ounce. See Note 8 to the financial statements attached hereto for
additional information about the sales contracts.
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SUBSTITUTION OF MATERIALS - USERS OF PGM'S MAY SUBSTITUTE OTHER MATERIALS FOR
PALLADIUM AND PLATINUM IF PGM PRICES CONTINUE TO RISE.
Continued high PGM prices may lead users of PGMs to substitute other
materials for palladium and platinum. The automobile, electronics and dental
industries are the three largest sources of palladium demand. In response to
supply questions and high market prices for palladium, some automobile
manufacturers may seek alternatives to palladium and may reduce their PGM
purchases. Recently, a representative of one automobile manufacturer indicated
that such manufacturer would seek to reduce PGM loading quantities per vehicle
by up to 30% over the next 12 to 18 months as engineers continue to design more
efficient exhaust systems. There has been some substitution of other metals for
palladium in electronics and dental applications. Substitution in all of these
industries may increase significantly if the PGM market price continues to rise.
Significant substitution for any reason could result in a material price
decrease.
LIMITED AVAILABILITY OF ADDITIONAL MINING PERSONNEL AND UNCERTAINTY OF LABOR
RELATIONS - OUR OPERATIONS DEPEND SIGNIFICANTLY UPON THE AVAILABILITY OF
QUALIFIED MINERS, AND IF WE ARE NOT ABLE TO ATTRACT AND RETAIN THESE MINERS, OUR
PRODUCTION TARGETS MAY NOT BE MET.
The operations of the company depend significantly on the availability
of qualified miners. Historically, the company has experienced high turnover
with respect to its miners. In addition, the company must compete for
individuals skilled in the operation and development of mining properties. The
number of such persons is limited, and significant competition exists to obtain
their skills. The company cannot be certain that it will be able to maintain an
adequate supply of miners and other personnel or that the company's labor
expenses will not increase as a result of a shortage in supply of such workers.
The company currently employs 393 miners and expects to require an additional
250 miners within the next five years. Failure to maintain an adequate supply of
miners could adversely effect the company's expansion plans and results of
operations. The company currently has approximately 1,431 employees, about 1,081
of whom are covered by a collective bargaining agreement with PACE Local 8-001,
expiring June 30, 2004. The company expects to employ approximately 1,800
persons by the end of first quarter 2002. In the event the company's employees
were to engage in a strike or other work stoppage, the company could experience
a significant disruption of its operations and higher ongoing labor costs, which
could have a material adverse effect on the company's business, financial
condition and results of operations.
AVAILABILITY OF ELECTRICITY - IF WE ARE UNABLE TO NEGOTIATE SATISFACTORY
LONG-TERM CONTRACTS FOR ELECTRICAL ENERGY, WE COULD EXPERIENCE A SIGNIFICANT
INCREASE IN OPERATING COSTS OR PRODUCTION DISRUPTION.
The company uses significant amounts of electrical energy at its
operations. The total cost of electricity in 2000 for the Stillwater Mine, the
East Boulder Mine and at the smelter/refinery complex was $6.5 million. The
company purchases energy at regulated rates from Montana Power for the
Stillwater Mine and the smelter/refinery and purchases energy from Park Electric
Cooperative Inc. under a long-term contract for the East Boulder Mine. Park
Electric receives the bulk of its energy supply under long-term contracts from
Bonneville Power at an average cost to Stillwater Mining of $0.026 per kWh.
Actual total energy costs at the mine site are a function of power factors,
transmission and distribution costs and administrative costs and will average
$0.047 per kWh in 2001. Energy purchased from Montana Power is covered by
regulated rates through June 30, 2002. The energy portion of the rate will
average $0.028 per kWh for 2001 and the total rate, including transmission and
distribution, etc., will average $0.037 per kWh. The requirement for the company
to move to deregulated supply is currently June 2005; however, regulated rates
have not been set beyond June 2002. Should the company be required to move to
market prices or be unable to negotiate satisfactory long-term contracts for
electrical energy, it could experience a significant increase in operating costs
or production disruptions.
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MINING RISKS AND POTENTIAL INADEQUACY OF INSURANCE COVERAGE - OUR BUSINESS IS
SUBJECT TO SIGNIFICANT RISKS THAT MAY NOT BE COVERED BY INSURANCE.
Underground mining and the company's milling, smelting and refining
operations involve a number of risks and hazards, including unusual and
unexpected rock formations, ground or slope failures, cave-ins and other mining
or ground-related problems, environmental hazards, industrial accidents, labor
disputes, metallurgical and other processing, smelting or refining problems,
flooding and periodic interruptions due to inclement or hazardous weather
conditions or other acts of God, mechanical equipment and facility performance
problems and the availability of materials and equipment. Such risks could
result in damage to, or destruction of, mineral properties or production
facilities, personal injury or death, environmental damage, delays in mining,
monetary losses and possible legal liability. Fatalities have occurred at the
company's mine since operations began in 1986. Industrial accidents could have a
material adverse effect on the company's business and operations. Although the
company believes that it maintains insurance within ranges of coverage
consistent with industry practice, it cannot be certain that this insurance will
cover the risks associated with mining or that the company will be able to
maintain insurance to cover these risks at economically feasible premiums. The
company might also become subject to liability for pollution or other hazards
which it cannot insure against or which it may elect not to insure against
because of premium costs or other reasons. Losses from such events could have a
material adverse effect on the company.
DIFFICULTY OF ESTIMATING RESERVES ACCURATELY - RESERVES ARE VERY DIFFICULT TO
ESTIMATE AND RESERVE ESTIMATES MAY REQUIRE ADJUSTMENT IN THE FUTURE; CHANGES IN
ORE GRADES COULD MATERIALLY IMPACT OUR PRODUCTION.
While the company's 2000 ore reserves have been reviewed by independent
consultants, the ore reserve estimates are necessarily imprecise and depend to
some extent on statistical inferences drawn from limited drilling, which may
prove unreliable. Reserve estimates are expressions of judgment based on
knowledge, experience and industry practice. Although the company believes its
estimated ore reserves are well established, it cannot be certain that its
estimated ore reserves are accurate, and future production experience could
differ materially from such estimates. Should the company encounter
mineralization or formations at any of its mines or projects different from
those predicted by drilling, sampling and similar examinations, reserve
estimates may have to be adjusted and mining plans may have to be altered in a
way that might adversely affect the company's operations. Declines in the market
prices of platinum group metals may render the mining of some or all of the
company's ore reserves uneconomic. The grade of ore may vary significantly from
time to time and between the Stillwater Mine and the East Boulder Mine, as well
as with any operation. The company cannot give any assurances that any
particular level of metal may be recovered from the ore reserves. Moreover,
short-term factors relating to the ore reserves, such as the need for additional
development of the orebody or the processing of new or different grades, may
impair the profitability of the company in any particular accounting period.
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
by-product 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
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 derivatives' fair value are expected to be offset by
changes in the value of the hedged transaction.
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The company has entered into long-term sales contracts with General
Motors Corporation, Ford Motor Company and Mitsubishi Corporation. The contracts
apply to the portions of the company's production over the ten-year period
through December 2010 and provide for a floor and ceiling price structure. See
Note 8 to the financial statements attached hereto for additional information
about sales contracts.
As of March 31, 2001, the company had sold forward 22,500 ounces of
palladium for delivery in 2001 at an average price of $696 per ounce. Under a
financially settled forward, 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. The fair value
of the company's financially settled forwards was a loss of approximately $0.9
million at March 31, 2001.
INTEREST RATE RISK
At the present time, the company has no financial instruments in place
to manage the impact of changes in interest rates. Therefore, the company is
exposed to changes in interest rates on the portion of its credit facility which
carries a variable interest rate based upon LIBOR. At March 31, 2001, no amounts
were outstanding under the revolving credit portion of the facility. At March
31, 2001, approximately $200 million had been borrowed under the term loan
portion of the facility. The credit facility provides for a $65 million
five-year term loan facility (Term A), a $135 million seven-year term loan
facility (Term B) and a $50 million revolving credit facility. The final
maturity of the Term A and revolving credit facility is December 30, 2005, while
the Term B facility final maturity date is December 31, 2007. As of March 31,
2001, the company had $200 million outstanding under the term loan facilities,
bearing interest at 7.75% and 8.5% for the Term A and Term B facilities,
respectively.
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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. 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.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 - Second Amendment Agreement to Palladium and Platinum Sales
Agreement between Stillwater Mining Company and Ford Motor Company
dated March 27, 2001 (filed herewith) (portions of the agreement have
been omitted pursuant to a confidential treatment request).
10.2 - First Amendment Agreement to Palladium and Platinum Sales
Agreement between Stillwater Mining Company, Mitsubishi Corporation and
Mitsubishi International Corporation dated April 1, 2001 (filed
herewith) (portions of the agreement have been omitted pursuant to a
confidential treatment request).
(b) Reports on Form 8-K:
None
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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: April 20, 2001 By: /s/ Francis R. McCallister
-----------------------------------------
Francis R. McCallister
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: April 20, 2001
By: /s/ James A. Sabala
------------------------------------------
James A. Sabala
Vice President and Chief Financial Officer
(Principal Financial Officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------
10.1 - Second Amendment Agreement to Palladium and Platinum Sales
Agreement between Stillwater Mining Company and Ford Motor
Company dated March 27, 2001 (filed herewith) (portions of the
agreement have been omitted pursuant to a confidential treatment
request).
10.2 - First Amendment Agreement to Palladium and Platinum Sales
Agreement between Stillwater Mining Company, Mitsubishi
Corporation and Mitsubishi International Corporation dated April
1, 2001 (filed herewith) (portions of the agreement have been
omitted pursuant to a confidential treatment request).