COLUMBUS, MT, Nov. 5, 2009 (Marketwire) --
COLUMBUS, MT -- (Marketwire) -- 11/05/09 -- STILLWATER MINING COMPANY (NYSE: SWC) today reported net profit for the 2009 third quarter of $4.4 million, or $0.05 per diluted share, on revenues of $112.0 million. This compares to third quarter 2008 net income of $0.1 million, or less than $0.01 per diluted share, on revenues of $254.2 million. Although the 2009 third quarter reflects sharply lower PGM prices and much lower recycling volumes processed than last year's third quarter, the significant improvements in costs of production have contributed significantly towards the profitability.
For the first nine months of 2009, Stillwater Mining Company (the "Company") reported a net loss of $3.0 million, or $0.03 per diluted share, on revenues of $292.6 million. In the first nine months of 2008, the Company reported net income of $19.2 million, or $0.21 per diluted share, on revenues of $673.7 million. On the whole, the first nine months of 2009 were characterized by much lower PGM prices and lower volume in the Company's recycling segment than in the same period last year, again offset in part by significant improvements in costs of production.
Operations at both of the Company's mines were restructured in late 2008 in response to the worldwide financial crisis and falling PGM prices in order to reduce costs and improve productivity. Reflecting the Company's restructuring efforts, production of palladium and platinum at the Company's Stillwater Mine increased to 95,100 ounces in the third quarter of 2009 at a total cash cost of $344 per ounce(1), compared to 83,800 ounces in the same quarter of 2008 at a total cash cost of $331 per ounce. Stillwater Mine's higher production benefited from a restructuring plan that redeployed miners from the East Boulder Mine, with offsetting reductions in support manpower which overall held the total workforce there essentially flat. East Boulder Mine production in this year's third quarter decreased by about 6% to 34,000 ounces at a total cash cost of $391 per ounce from 36,200 ounces at a total cash cost of $392 per ounce in last year's third quarter. The lower East Boulder Mine output reflects a roughly 50% manpower reduction, as well as a more cost-driven focus centered around optimizing the site workforce within consolidated mining areas and at the same time adjusting support manpower to a level appropriate for these optimized mining areas. As a result, productivity has improved at both operations in 2009. With regard to sales, the average combined sales realization on mined palladium and platinum ounces, including the effect of contractual floor and ceiling prices, declined to $574 per ounce in this year's third quarter from $652 per ounce in the same period last year, driven by the decline in PGM market prices between the two periods.
Commenting on the Company's performance, Francis R. McAllister, Stillwater Chairman and CEO, noted, "I am very pleased to report that the Company is making significant strides forward in redesigning its operations and improving mining efficiency. While the Company's financial performance certainly has been aided by the recovery in prices for palladium and platinum during 2009, we also have seen the benefit of improving productivity and declining production costs. This restructuring of the way we operate is an urgent priority, particularly in view of the expiration of our supply agreement with Ford at the end of next year. In the past, the floor prices in the automotive contracts have protected us during periods of low PGM prices. The expiration of the floor prices will require us to be more resilient in responding to any downward pricing cycles. While there is still progress to be made in this area, I am particularly encouraged by the broad support within our Company for these efforts and by the successes demonstrated to date.
"In our third quarter 10-Q we have included a table that demonstrates this progress at both mines. The table compares total cash costs per ounce at each mine with the same costs last year. While on the surface the costs appear almost flat, when credits for by-products and recycling margins are excluded, we see significant progress in improving efficiency at both operations. The table is reproduced below. Note that, before taking the benefit of these credits into account, at the East Boulder Mine total cash costs for the third quarter of 2009 are more than $150 per ounce lower than for the same period last year. Progress at the Stillwater Mine is only slightly less, with total cash costs per ounce improved by about $125 per ounce (before credits) for the same periods. Importantly, our year-to-date progress is comparable to the third-quarter improvement.
Three months Nine months
ended ended
September 30, September 30,
-------------- --------------
2009 2008 2009 2008
------ ------ ------ ------
Stillwater Mine
Total Cash Costs per Ounce before
credits $ 407 $ 531 $ 403 $ 529
Less recycling and by-product credits (63) (200) (54) (178)
------ ------ ------ ------
Total Cash Costs per Ounce as reported $ 344 $ 331 $ 349 $ 351
East Boulder Mine
Total Cash Costs per Ounce before
credits $ 467 $ 619 $ 469 $ 614
Less recycling and by-product credits (76) (227) (65) (182)
------ ------ ------ ------
Total Cash Costs per Ounce as reported $ 391 $ 392 $ 404 $ 432
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"The sharp reduction in by-product and recycling credits that also is evident in the preceding table is attributable to at least two factors -- first, to the lower market prices for commodities generally experienced during the past year and, second, to the associated reduction in recycling volumes coming to market as lower PGM values have reduced the economic incentive to collect and recycle spent catalytic converters. The economic loss to our operations as a consequence of these lower credits is real and important. Without the benefit of the much improved mining efficiencies achieved in 2009, our total cash costs per ounce today (even including the remaining benefit of the credits) otherwise would be much more exposed to any downturn in PGM market prices.
(1) Total cash cost per ounce, a non-GAAP measure of extraction efficiency, is discussed in more detail below.
Performance Highlights
-- Third-quarter and year-to-date performance overall remains on track to
meet or exceed previous 2009 annual guidance;
-- Year-to-date total cash costs at $363 per ounce are significantly
better than the earlier guidance for the year of $399 per ounce;
-- The Company's available cash and other highly liquid securities
increased by $24.7 million during the third quarter to $200.1 million due
to higher PGM prices and significantly improved cost performance at the
mines; mine production at 391,600 ounces through nine months is ahead of
the rate needed to meet the previous 2009 guidance of 495,000 ounces;
-- As a result of the General Motors Corporation bankruptcy filing, the
Company has lost the benefit of its PGM supply agreement with GM which
otherwise would have expired on December 31, 2012; however, in the 2009
third quarter, stronger PGM prices have offset the financial impact of
losing the favorable floor prices in the GM agreement;
-- Market prices for palladium and platinum have increased fairly
steadily since the beginning of 2009;
-- Recycle volumes improved somewhat during the third quarter but remain
well below plan and substantially below the levels experienced in prior
years; and
-- Following the end of the third quarter, the Company completed the
exchange of approximately 1.8 million newly issued common shares for $15
million principal amount of its outstanding convertible debentures thereby
modestly reducing its leverage; the transaction will result in a non-cash
transaction charge to earnings in the fourth quarter of about $8.1 million.
The Company's smelting and refining complex in Columbus, Montana processes concentrates from the Company's mines as well as recycled catalyst materials purchased from or processed on behalf of third parties. Including both purchased and tolled material, the Company processed recycling material containing a total of 60,800 ounces of platinum, palladium and rhodium through the smelter during the third quarter 2009, slightly less than half the 126,100 ounces fed into the smelter during the same period last year. Recycling activities contributed $1.7 million to the Company's operating margin (before corporate overhead and financing charges) during the third quarter of 2009, compared to $17.8 million in the third quarter of 2008. Volumes of material available for recycling have dropped off sharply with the decline in PGM prices, reflecting the market's reduced incentive to recycle at lower prices, as well as the steep losses incurred by many collectors in the industry as the value of their inventories declined. Further, with new car sales sharply lower, existing vehicles are being driven longer reducing the number being recycled. Volumes available for recycling have strengthened somewhat during 2009 from their earlier lows, but remain far below the robust levels seen during 2008.
"Prices for palladium and platinum have improved substantially since the end of 2008, although they still remain well below their 2008 highs. As of September 30, 2009, the afternoon posted price for platinum as quoted on the London Bullion Market Association (LBMA) was $1,287 per ounce, up from $898 per ounce at December 31, 2008. By comparison, however, in March of 2008 the price of platinum on the LBMA peaked at $2,273 per ounce. Similarly, palladium ended the 2009 third quarter quoted at $294 per ounce on the LBMA, up from $183 per ounce at the end of 2008. But during April 2008, palladium had reached a price on the LBMA of $582 per ounce. Prices of some of our other significant by-products, including rhodium, nickel and copper, also have strengthened since their lows in late 2008 but remain well below their earlier peaks.
"At the beginning of 2009, facing a sharp deterioration in the worldwide economic climate, much lower market prices for our principal products, and the uncertain results of some significant restructuring efforts then underway internally, we advised that for the year 2009 the Company would manage toward maintaining a stable cash position rather than toward maximizing earnings. To date in 2009, we have achieved the objective of maintaining cash stability, and in the third quarter of 2009 saw our ending cash position increase by $26.7 million to $181.1 million. If we include highly liquid securities holdings along with cash, our resulting liquidity increased by $24.7 million in the third quarter to $200.1 million at September 30, 2009. We also have reported positive earnings now for the second and third quarters of the year.
"Although a portion of this success to date has derived from improved operating efficiencies and higher market prices for PGMs than we originally forecasted, the cash stability also has been achieved by increased attention given to our capital programs. Capital investment in 2009 at the Stillwater Mine was reduced marginally, but at the East Boulder Mine it was trimmed back sharply to below the level necessary to maintain the reserve base and the mine infrastructure. It is important to recognize that we had been spending more than the minimum necessary reinvestment during 2004 through 2008 in order to advance the developed state of the two mines, so all of the 2009 cutbacks can be accommodated without lasting damage. The 2009 capital spending reductions have played a key role in helping to stabilize our cash position. As the year has progressed, with the successful implementation of the operating changes at the East Boulder Mine, we have been able to introduce a modestly expanded development program there, accomplishing this additional effort within the original budget constraints. Nevertheless, if the economic environment permits, we expect to increase our capital spending somewhat at both mines in 2010, although not necessarily back to the levels seen in earlier years."
Regarding the Company's recycling business segment, Mr. McAllister observed, "Along with the sharp decline in PGM prices during the second half of 2008, we also saw a steep reduction in the volume of recycling material arriving at our processing facilities. It appears to us that many of the businesses that collect old catalytic converters and supply them to the market experienced painful inventory losses as the value of their material on hand dropped in value, and some even exited the business altogether. The business now seems to be slowly recovering. Total PGM recycling feed to our smelter increased very slightly to 60,800 PGM ounces of platinum, palladium and rhodium in the 2009 third quarter from 60,600 ounces in this year's second quarter; that compares to 126,100 ounces fed in the third quarter of 2008. Despite the downturn, our recycling activities have remained profitable, although at much lower levels of profit than previously. Earnings from the Company's recycling business segment, including financing income, totaled $1.9 million in the 2009 third quarter, down sharply from $19.9 million in the third quarter of 2008. However, the balance sheet working capital employed to run our recycling business also has declined significantly to $18.9 million at September 30, 2009, from $138.2 million a year earlier."
Commenting on the loss of the Company's supply contract with General Motors in July, Mr. McAllister continued, "We announced previously the loss of our PGM supply agreement with General Motors Corporation. The contract was rejected at the request of GM under an order by the bankruptcy court with effect from July 7, 2009. We indicated in our second-quarter release that the effect of the contract loss, based on PGM prices in effect during the 2009 second quarter, would likely be to reduce the Company's earnings and cash flow by between $5 million and $10 million per year. In fact, with some continued strengthening of PGM prices during the third quarter, the financial effect of the contract loss in this year's third quarter was negligible. However, the loss of the floor price provisions in the GM agreement does increase the Company's exposure to any fresh downturn in PGM prices in the future. In response to the GM announcement, we certainly have appreciated the many letters of support and other efforts to intervene on our behalf by local, state and federal officials as well as by our shareholders and interested members of the general public. These efforts are continuing, although the likelihood appears small at this point of any reconsideration by General Motors."
Referring to the Company's 2009 business objectives, Mr. McAllister continued: "Mine production in this year's third quarter was 129,100 ounces, bringing year-to-date production to 391,600 ounces, or 79% of our full-year target, well ahead of the production rate required to meet our 2009 full-year production guidance. Consequently, we have updated our earlier full-year 2009 mine production guidance from 495,000 PGM ounces previously to 515,000 PGM ounces. With combined total cash costs for the third quarter at $357 per ounce and year-to-date total cash costs at $363 per ounce, we also have improved our 2009 guidance for average combined total cash costs to $375 per ounce from $399 per ounce earlier."
Turning to the Company's longer-term strategy, Mr. McAllister noted, "The Company's three primary strategic initiatives -- mine transformation, market development efforts, and corporate diversification -- remain in force, although we have adjusted the resources allocated to each of them in light of the current market environment.
"Over the past several years, we have made substantial progress at both mines in our efforts to strengthen safety performance, restore and expand the developed state, and rationalize our mining methods. We now have shifted our operating focus in the current pricing environment toward minimizing costs rather than necessarily maximizing mine production. Although one strategy for reducing the cost per ounce produced is to ramp up production and thereby benefit from economies of scale, in practice we have found that the incremental cost of added production at times may more than offset any benefit from economies of scale. That is particularly true when PGM prices are relatively low. Consequently, our focus during 2009 has been to optimize costs at current production levels, rather than trying to ramp up output at the mines. To date, anyway, this effort appears to have served us very well at both mines, with mining costs (before credits) down very substantially from their year-earlier levels, accompanied by an opportunity to fit in additional capital development without any increase in total cash spending and by some unplanned growth in production volumes. However, recognizing that the reduced economic benefit from the by-product and recycling credits has largely offset the benefits of our cost cutting, it is critical that we continue our focus on further reducing costs and increasing efficiency at both mines.
"Regarding market development, we are continuing to monitor PGM demand in China through our contacts in Shanghai, Beijing and Shenzhen, particularly with regard to palladium jewelry manufacturing and marketing. Despite the economic downturn, it appears that the popularity of palladium as a jewelry metal in China has continued strong, with Chinese demand still projected at nearly one million ounces for 2009. The Chinese automobile market also has continued its strong growth, with automobile sales projected to be on track for a 10% increase during 2009, probably surpassing the United States as the largest automobile market. Chinese investment demand also has remained strong for PGMs this year.
"With regard to our third strategic objective, corporate diversification, we continue to be concerned with our primary reliance on palladium and platinum. As we look to the future, we recognize our need to be opportunistic with regard to the potential for growth in order to serve the best interests of our shareholders. We continue to monitor opportunities in various mineral development projects, as well as potential merger or acquisition candidates. This effort to diversify the Company's operating risk has continued despite the worldwide recession on the theory that additional attractive investment opportunities may open up when market conditions are difficult.
"On balance," McAllister concluded, "I believe we are on track to achieve and exceed most of the operational objectives we set for ourselves for 2009. As we had planned, to date our cash position is not only stable, but actually growing; our capital and operating expenditures remain at or better than targeted levels; mine production should meet or exceed annual guidance; and morale at our operations continues to be positive. Despite the anguish associated with our earlier employee cutbacks and restructuring, our workforce has come through magnificently and I commend their initiative and resolve in response to these difficult adjustments."
Cash Flow and Liquidity
At September 30, 2009, the Company's available cash and cash equivalents (excluding $35.9 million of restricted cash) totaled $181.1 million, up $26.7 million from June 30, 2009, and up $19.3 million from December 31, 2008. If we include the Company's available-for-sale investments, total available cash and investments at September 30, 2009, was $200.1 million, up $24.7 million from June 30, 2009 and up $19.3 million from $180.8 million at the end of last year. Net working capital, comprised of total current assets including available cash, less current liabilities, increased during the third quarter of 2009 to $258.0 million, from $235.9 million at June 30, 2009, and from $230.4 million at December 31, 2008. Recycling inventories and advances decreased by $2.5 million during the quarter.
Net cash provided by operating activities (which includes changes in working capital) totaled $31.7 million in this year's third quarter, compared to $47.9 million of cash provided by operations in the third quarter of 2008. During the third quarter of 2008, growth in working capital associated with recycling largely offset the stronger earnings contribution in that period. Capital expenditures were $7.1 million in the third quarter of 2009, while capital spending in the third quarter of 2008 totaled $21.7 million. Capital spending was cut back in 2009 as a result of lower PGM prices.
Outstanding debt at September 30, 2009, was $211.0 million, unchanged from June 30, 2009, and December 31, 2008. Subsequent to the end of the 2009 third quarter, the Company concluded a transaction with an unaffiliated third-party bondholder for the exchange of approximately 1.8 million newly issued common shares for $15 million principal amount of its outstanding 1.875% convertible debentures maturing in 2028. The repurchased debentures have been retired. Although the exchange was economically advantageous, the Company accounted for the transaction as an "induced conversion," which will result in a fourth quarter non-cash transaction loss of approximately $8.1 million. An induced conversion is a transaction in which the conversion privileges in a convertible debt instrument are changed or additional consideration is paid to debt holders for the purpose of inducing prompt conversion of the debt to equity securities.
Third quarter Results - Details
For the third quarter of 2009, the Company's mine production was 129,100 PGM ounces including 95,100 ounces from the Stillwater Mine and 34,000 ounces from the East Boulder Mine. For the comparable quarter of 2008, the mines produced 120,000 ounces including 83,800 ounces at the Stillwater Mine and 36,200 ounces at the East Boulder Mine. Stillwater Mine's production benefited from the additional miners transferred in from the East Boulder Mine in conjunction with the fourth quarter 2008 restructuring. The lower production at the East Boulder Mine reflected the reduced workforce there as the Company has limited production areas to those that can be most efficiently mined and supported in the current low-price environment.
Sales out of mine production totaled 137,400 ounces in the third quarter of 2009 at an overall average realization of $574 per ounce, up from 111,400 ounces at $652 per ounce in the third quarter of 2008. Mine revenues increased to $85.6 million in the 2009 third quarter from $78.0 million in the same quarter of 2008. The higher 2009 mine revenues resulted from higher sales volumes in 2009, offset by lower realized prices. The Company's average realization on palladium sales from mine production was $360 per ounce in the 2009 third quarter, reflecting the average floor price in the automotive contracts, compared to $409 per ounce for the same period in 2008. The Company's average net realization on platinum (after losses in 2008 on forward sales and the effect of contractual ceiling prices) was $1,174 per ounce in the third quarter of 2009 and $1,569 per ounce in the 2008 third quarter. Comparing these prices to the market, the London Metals Exchange afternoon posted prices per ounce for palladium and platinum were $294 and $1,287, respectively, on September 30, 2009, and $199 and $1,004, respectively, on September 30, 2008.
In its recycling activities, the Company processes material purchased from third parties and toll material that is processed on behalf of others for a fee, normally recovering platinum, palladium and rhodium. During the third quarter of 2009, the Company processed 60,800 total ounces of PGMs from recycled catalytic materials, including both purchased and tolled material. By comparison, in the third quarter of 2008, the Company processed 126,100 ounces of recycled material. The Company delivered for sale a total of 37,000 ounces of platinum, palladium and rhodium from recycled inventories during the third quarter 2009 at an overall average price of $686 per ounce; for the third quarter of 2008, the Company sold 84,300 recycled ounces at an average realization of $2,008 per ounce. The reduced level of activity in the third quarter of 2009 reflected a much lower level of PGM recycling activity worldwide as a result of lower metals prices and continued economic challenges for recycling collectors.
Revenues for the third quarter of 2009 were $112.0 million, down 55.9% from the $254.2 million recorded in the third quarter of 2008. Proceeds from sales of mined PGMs and by-products totaled $85.6 million in the 2009 third quarter, 9.7% higher than the $78.0 million in the same quarter of 2008, again resulting from higher production volumes and offset by lower PGM prices in the third quarter of 2009. Recycling revenues declined to $26.2 million from $169.8 million in last year's third quarter.
