SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1996.
[ ] 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
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
536 Pike Ave., Columbus, Montana 59019
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(Address of principal executive offices and zip code)
(303) 978-2525
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Name Of Each Exchange
Title Of Each Class On Which Registered
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Common stock, $.01 par value The Nasdaq National Market
Preferred Stock Purchase Rights The Nasdaq National Market
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. [X] YES [ ] NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X] YES [ ] NO
As of March 3, 1997, assuming a price of $23.25 per share, the closing sale
price on the Nasdaq National Market, the aggregate market value of shares held
by non-affiliates was approximately $468,332,120.
As of March 3, 1997, the Company had outstanding 20,187,867 shares of common
stock, $.01 par value.
Documents Incorporated by Reference: Part III, Items 10, 11, 12 and 13
incorporate by reference portions of Stillwater Mining Company's Proxy Statement
for the registrant's 1997 Annual Meeting of Stockholders.
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TABLE OF CONTENTS
PART I
Item 1 BUSINESS 1
Item 2 PROPERTIES 20
Item 3 LEGAL PROCEEDINGS 20
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 20
PART II
Item 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 21
Item 6 SELECTED FINANCIAL DATA 22
Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 24
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 38
Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 59
PART III
Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 59
Item 11 EXECUTIVE COMPENSATION 59
Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 59
AND MANAGEMENT
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 60
PART IV
Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 60
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PART I
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NOTE: SOME OF THE STATEMENTS CONTAINED IN THIS REPORT ARE FORWARD-LOOKING IN
NATURE. THE ACCURACY OF THESE STATEMENTS CANNOT BE GUARANTEED AS THEY ARE
SUBJECT TO A VARIETY OF RISKS, INCLUDING, BUT NOT LIMITED TO, CHANGES IN
PLATINUM AND PALLADIUM PRICES, FLUCTUATION IN ORE GRADES, TONS MINED OR MILLED
FROM THOSE EXPECTED, THE TIMING, COSTS AND SCOPE OF THE EXPANSION PLAN, THE
LEVEL OF PRODUCTION AFTER COMPLETION OF THE EXPANSION PLAN, ANTICIPATED
REDUCTION IN OPERATING COSTS FROM THE EXPANSION PLAN, AND OTHER RELATED FACTORS
WHICH MAY BE DETAILED UNDER THE SECTION "FACTORS THAT MAY AFFECT FUTURE RESULTS
AND FINANCIAL CONDITION".
ITEM 1
BUSINESS
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GENERAL DEVELOPMENT OF BUSINESS
Stillwater Mining Company (the "Company") is engaged in the exploration,
development, mining and production of platinum, palladium and associated metals
from the Stillwater Complex in southern Montana, which the Company believes is
the only significant primary source of platinum and palladium outside the
Republic of South Africa. The Stillwater Complex includes an extensive
mineralized zone containing platinum group metals ("PGMs") known as the J-M Reef
which has been traced on surface for approximately 28 miles and which extends
downward over one mile to unknown depths. The Stillwater Complex has been
prospected for gold, copper, nickel and chromium since the late 1880s. The
Company currently owns or has the rights to 995 claims covering substantially
all of the presently identified PGM mineralized zone.
The Company began mining operations in 1986 with an underground mine
located in the Stillwater Valley. The Stillwater Mine currently accesses only a
small segment of the ore body approximately five miles long between the
elevations of 6,700 and 3,100 feet above sea level. The physical configuration
of the J-M Reef with its 50 degree to 90 degree dip and relatively wide mining
widths in comparison with South Africa's Bushveld Complex makes it amenable to
various gravity assisted, mechanized mining methods. At December 31, 1996, the
Stillwater Mine had 31 active stopes, all of which are accessed by horizontal
adits and drifts. At December 31, 1996, the Company had proven and probable
reserves of approximately 27.1 million tons of ore with approximately 21.6
million contained ounces of platinum and palladium (or approximately 10.1
million total gold equivalent ounces) in a ratio of approximately 3.5 parts
palladium to one part platinum. In 1996, the Company produced approximately
59,000 ounces of platinum and 196,000 ounces of palladium (or approximately
127,000 total gold equivalent ounces) from mining and processing 446,000 tons of
ore at its one developed underground mine.
As part of the Company's long-term strategy to expand its operations and
improve its operating economics, in 1994 the Company undertook an expansion plan
(the "Expansion Plan") designed to significantly increase production at the
Stillwater Mine and associated processing facilities. The Company has completed
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construction work for minesite surface facilities, concentrator and smelter
modifications, a base metals refinery and a vertical production shaft. See
"Expansion Plan."
BACKGROUND
Platinum and palladium were discovered in the Stillwater Complex by
Manville Corporation geologists in the early 1970s. In 1979, Manville Mining
Company ("Manville"), a wholly-owned subsidiary of Manville Corporation, since
renamed Schuller Corporation ("Schuller"), entered into a joint venture
agreement with Chevron U.S.A. Inc. ("Chevron") to develop PGMs discovered in the
Stillwater Complex, forming the Stillwater PGM Resources partnership ("SPGMR")
which leased from Manville all its claims held in the Stillwater area. In 1984,
Chevron and Manville entered into the Stillwater Mining Company partnership
("SMC") with Anaconda Minerals, Inc. ("Anaconda") covering a 30,000 foot section
traversing the Stillwater Valley towards the eastern end of the Stillwater
Complex. Each partner owned an undivided one-third interest in this partnership.
In 1986, Anaconda sold its one-third interest in SMC to LAC Minerals Ltd.
("LAC"), and in late 1988, LAC sold its interest back to Chevron and Manville,
each company taking half of LAC's one-third interest, which brought their
respective ownership up to a 50% interest in both partnerships.
In 1992, the Company was incorporated as a Delaware corporation, and as of
October 1, 1993, Chevron and Manville transferred substantially all assets,
liabilities and operations of SPGMR and SMC to the new Company. The Company was
formed to continue the exploration, development, mining and production of PGMs
from the Stillwater Complex and to become an independently operated and financed
entity. On September 16, 1994, the Company redeemed Chevron's entire 50%
ownership interest for $44 million, the funding for which was raised in a
private placement of 7,500,000 shares of common stock at $5.87 per share and a
$25 million subordinated credit facility with warrants. The credit facility was
terminated and the warrants were exercised upon the Company's initial public
offering of common stock which closed on December 22, 1994. In the initial
public offering, the Company received net proceeds of $53.7 million from the
sale of 4,500,000 shares of common stock at $13 per share. Manville also sold
2,112,500 shares in the initial public offering, reducing its ownership
percentage to approximately 27% of the issued and outstanding common stock. On
August 23, 1995, Manville sold its remaining ownership interest in the Company
to a group of institutional investors. See Item 13, "Certain Relationships and
Related Transactions."
On April 29, 1996 the Company sold $50 million of its 7% Convertible
Subordinated Notes Due 2003 (the "Convertible Notes"), maturing on May 1, 2003.
On May 14, 1996, the initial purchaser exercised its over-allotment option and
purchased an additional $1.45 million of Convertible Notes. The Convertible
Notes are unsecured, subordinated obligations. As of December 31, 1996, $51.5
million is classified as long-term debt.
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The Convertible Notes will be redeemable, in whole or in part, at the
option of the Company beginning on May 1, 1999. The Convertible Notes will be
convertible, subject to prior redemption, at the option of holders at any time
after 90 days following the date of original issuance and prior to maturity,
into shares of the Company's stock at a conversion price of $26.80 per share,
subject to adjustment in certain events.
In connection with the offering of the Convertible Notes, the Company has
filed a shelf registration statement on Form S-3 under the Securities Act of
1933, as amended, relating to the resale of the Convertible Notes and the common
stock issuable upon conversion. This registration was declared effective by the
Securities and Exchange Commission on December 19, 1996.
GEOLOGY OF THE STILLWATER COMPLEX
The Stillwater Complex is located in the Beartooth Mountains in southern
Montana. It is situated along the northern edge of the Beartooth Plateau which
rises to elevations of over 10,000 feet in places within the complex. This
plateau is deeply dissected by several rivers and their tributaries including
the Stillwater River towards the eastern end and the Boulder River near the
western end of the complex. Both of these rivers have eroded their valley floors
resulting in deep valleys cut into the gently undulating elevated plateau.
Geologically, the Stillwater Complex is composed of an assemblage of basic
and ultrabasic rocks derived from a single, large, buried magma body emplaced an
estimated 2.7 billion years ago. The molten rock was sufficiently fluid at the
time of emplacement to allow individual minerals to crystallize sequentially,
the heavier, more basic, darker minerals crystallizing first, sinking towards
the bottom, and leaving the lighter, more siliceous light-colored minerals to
crystallize out later to produce bands of norite, gabbro and anorthosite which
can be traced across most of the strike length of the complex. Over time the
original horizontal orientation of the complex was changed as the complex was
tilted at an angle of 50 to 90 degrees to the north. The upper portion of the
complex was eroded away to produce the essentially lenticular-shaped exposure of
the complex evident today which has been identified for 28 miles in an
east-southeasterly direction and has a maximum width of nearly 4.5 miles near
the East Boulder valley.
The PGMs, together with small amounts of nickel, copper and gold, are
concentrated in one principal layer of the complex referred to as the J-M Reef.
This reef appears to form a continuous layer which is exposed from the highest
ridges over 9,500 feet above sea level to the deepest valleys almost a mile
below. The zone of mineralization has also been intersected in a drill hole at
an elevation of 3,020 feet above sea level demonstrating vertical continuity
exceeding 6,000 feet. Geological and geophysical evidence suggests that the
complex and the enclosed J-M Reef extend downward beyond the limits of currently
available mining practice. Geological mapping and gravity surveys also suggest
that the dip of the complex and the J-M Reef flatten gently and may extend 30
miles or more to the north.
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The Stillwater Complex is similar to South Africa's Bushveld Complex which
contains the well-known platiniferous Merensky Reef which is currently mined in
many localities. The in situ PGM grade of the J-M Reef is significantly higher
than that of the Merensky Reef and its economically recoverable portion is
significantly thicker, making the J-M Reef generally amenable to a wider variety
of gravity assisted, mechanized mining methods. The Merensky Reef, however, has
a substantially longer surface strike length compared to the known 28-mile
strike length of the Stillwater Complex.
The Company believes that the J-M Reef constitutes a qualifying lode or
vein for purposes of the General Mining Law of 1872, as amended (the "General
Mining Law"), but is not aware of any administrative or legal determination on
this point. The Company is not relying solely on down dip (or "extralateral")
rights to secure possession of the J-M Reef, but also owns or has the rights to
mining claims vertically overlying the portions of the down dip extensions
needed for mining in the foreseeable future.
MINING CLAIMS
The Company now owns or has the rights to 995 claims covering approximately
16,000 acres. The Company believes that approximately 130 of these claims cover
100% of the known apex of the J-M Reef.
Applications for patents covering 172 of these claims for a total area of
2,876.9 acres have been submitted. Patents to 34 claims covering an area of
574.8 acres have been granted; 138 claims covering 2,302.1 acres have had first
half final certificates issued. The Company is currently in negotiations with
the U.S. Forest Service (USFS) to ensure the allocation of personnel and other
resources required for the USFS to complete the patent documentation process on
the 138 claims which have first half final certificates issued. The Company
expects that this process will take two years to complete. The patents will then
undergo several levels of review within the U.S. Department of the Interior
before submission to the Secretary for signature. Another Company claim leased
from the Mouat family and acquired through the agreement with Anaconda Minerals,
Inc. ("Anaconda") was patented many years ago. The Company's remaining
controlled claims either adjoin the apex of the J-M Reef or provide sites for
surface operations.
Of the Company's 995 controlled claims, 869 are subject to royalties,
including 711 subject to a 5% net smelter royalty payable to Manville, 56 are
subject to a 0.35% net smelter royalty payable to the Mouat family, and 102 are
subject to both royalties. The Manville royalty was consideration for leasing of
all its Stillwater Complex claims to the Company. The Mouat royalty stems from
claims staked by the Mouat's forebears in 1876. For 1996, the Company incurred
royalties of $1.3 million payable to Manville and $200,000 payable to the Mouat
family.
Because the Company's controlled claims lie substantially within national
forests, the United States Forest Service may impose reasonable conditions upon
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the Company's activities on these claims through annual exploration and
development permits to protect the environment and minimize disturbance on
Forest Service lands.
PGM ORE RESERVES
The following table sets forth the Company's total proven and probable
platinum and palladium ore reserves and platinum and gold equivalent reserves as
of December 31, 1996 and 1995. The reserves reflected below are based on a
cut-off grade of 0.60 ounces of platinum and palladium per ton for cut-and-fill
stopes and 0.40 ounces per ton for certain sub-level mining areas and assumed
prices per ounce of $376 and $125 for platinum and palladium, respectively.
Proven and probable reserves include an average mining dilution of 10% at zero
grade based on actual mining experience. The December 31, 1995 ore reserves were
affirmed and verified by Behre Dolbear & Company, Inc. ("Behre Dolbear"),
independent consultants, who are experts in mining, geology and ore reserve
determination. The Company has utilized the firm of Behre Dolbear to carry out
independent reviews and inventories of the Company's mineral reserves and
resources since 1990. The ore reserves are affirmed and verified by Behre
Dolbear in alternating years. The December 31, 1996 proven and probable platinum
and palladium ore reserves, although not independently verified by Behre Dolbear
in 1996, were determined by the same technical methods and criteria which were
previously reviewed and verified by Behre Dolbear.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
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TONS(1) GRADE(2) CONTAINED(2) TONS(1) GRADE(2) CONTAINED(2)
(000'S) (OUNCES/TON) OUNCES (000'S) (000'S) (OUNCES/TON) OUNCES (000'S)
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<S> <C> <C> <C> <C> <C> <C>
Proven Mining Reserves 1,365 0.85 1,166 846 0.82 694
Probable Mining Reserves 25,764 0.79 20,448 21,736 0.80 17,492
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Total Proven And Probable Reserves 27,129 0.80 21,614 22,582 0.80 18,186
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Total Platinum Equivalent Proven and
Probable Reserves (3) 10,093 8,548
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Total Gold Equivalent Proven and
PROBABLE RESERVES (3) 10,112 8,897
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</TABLE>
(1) Total proven and probable reserves include 11,510,000 tons in the area of
East Boulder. Significant capital investments will be required to access
these reserves.
(2) Expressed as platinum and palladium ounces per ton at a ratio of 3.5 parts
palladium to one part platinum, before processing losses of approximately
ten percent (10%).
(3) Platinum and gold equivalent ounces of proven and probable reserves at
December 31, 1996 are calculated using the London A.M. Fix of $370.25 per
ounce of platinum, $369.55 per ounce of gold and $116.50 per ounce of
palladium on December 31, 1996. Platinum and gold equivalent ounces of
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proven and probable reserves at December 31, 1995 were calculated using the
London P.M. Fix of $402.50 per ounce of platinum, $386.70 per ounce of gold
and $128.25 per ounce of palladium on December 29, 1995.
Mining reserve is that part of a mineral deposit that can be economically
and legally extracted or produced at the time of determination and is
customarily stated in terms of "ore" when dealing with metals. The term
"economic" implies that profitable extraction or production has been
established, analytically demonstrated or assumed with reasonable certainty. The
term need not signify that extraction facilities are in place and operative. The
mining reserve is determined after the application of a cut-off grade which is
derived from consideration of the method and cost of production, the recovery in
processing and the sales price of the resultant commodities. To reflect varying
degrees of geologic certainty, mining reserves are subdivided into proven and
probable. The proven quantity is computed from dimensions revealed in workings
or drill holes; grade or quality is computed from the results of detailed
sampling. The sites for inspection, sampling and measurement are spaced at
intervals of 25 to 50 feet, and the geologic character is so defined, that the
size, shape, depth and mineral content of the reserve blocks are established.
The probable quantity and grade or quality are computed from information similar
to that used for proven reserves, but the sites for inspection, sampling and
measurement are between 50 and 1,000 feet apart. The degree of assurance,
although lower than that for proven reserves, is sufficient to predict the
geological regularity of the reef between points of observation. At the
Stillwater Mine, the sites of measurement are laterally no greater than 1,000
feet apart, and the reserve is extended vertically to a maximum of twice the
depth of any particular data point. The categorization of probable reserves is
based on the geologic character of the deposit, the apparent regularity and
overall general predictability of economic mineralization, and the demonstration
that drilling at intervals more widely spaced than those used for the
determination of proven reserves provides a reasonable prediction of mining
results. See Item 7, "Factors That May Affect Future Results and Financial
Condition" at pages 32-37.
Reserves are consumed during mining operations and are generally replaced
by development from mineralized material which has been identified geologically
but not yet raised to the level of proven and probable mining reserves. Because
of the expense of the close-spaced drilling necessary to generate proven mining
reserve estimates, the Company attempts to prove up only sufficient reserves to
support its mine development objective of approximately 18 months of production.
CURRENT OPERATIONS
MINING
The Company's current mining operations are confined to a single
underground mine located within the Stillwater Complex. The Stillwater Mine
accesses only a small segment of the J-M Reef, approximately five miles long,
between the elevations of 6,700 and 3,100 feet above sea level. Access to the
ore at the Stillwater Mine is by means of horizontal adits and drifts driven
parallel to the strike of the J-M Reef at vertical intervals of about 200 feet.
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The adits have been driven from the surface in the Stillwater Valley at
elevations of 5,000 feet above sea level or more. Four drifts have been
developed below the valley floor by ramping down from the 5,000 level to extract
ore from the reef down to the 4,200 foot elevation. As a result of the
commissioning of a 1,950-foot vertical shaft in 1996, development has begun on
two new drifts at 3,200 and 3,800 feet above sea level. In addition, deep
exploration drill holes from the current workings have confirmed the structure
and mineralization of the J-M Reef down at the 3,020-foot elevation.
Prior to 1994, almost all of the Company's stoping activities utilized
"cut-and-fill" extraction methods to remove ore from the mine. This method
extracts the ore body in a succession of ten-foot high horizontal slices or
cuts. The open space created by the extraction of each cut is filled with waste
rock and coarse concentrator tailings and becomes the floor for the next level
of mining as the process moves upward. Since 1994, the Company has introduced
two mechanized mining methods called "sub-level" and "ramp-and-fill" stoping
which the Company believes are safer and less expensive than traditional
"cut-and-fill" stoping.
Currently, most of the production from above the 5,000-foot level is
transferred through various raise systems to the 5,000-foot level and hauled by
train to the surface. Production from below the 5,000-foot level is transported
to the surface by 15-ton underground trucks. Waste, which cannot be stored in
underground excavations, is hauled to the surface and used to increase the
height of the rock embankment of the tailings dam or is destined for other
surface disposal. During 1996, development on the east side of the mine
encountered more structurally complex conditions than had been anticipated.
Accordingly, development was switched to the west side of the mine to known
areas of high development yields. However, this concentration of mining on the
west side of the mine lead to hauling and ore/waste storage inefficiencies which
were reflected in third quarter 1996 head grade dilution. In December 1996, the
Company commissioned a waste transfer raise between the 4,400-foot elevation and
the shaft loading station. This raise allows waste which was previously trucked
to surface to be hoisted up the shaft. When the shaft ore/waste handling system
is fully commissioned, presently scheduled for April 1997, all ore mined below
the 5,000-foot elevation on the west side of the Stillwater valley will be
hoisted to the surface and delivered directly to the ore storage silo near the
concentrator. West side ore from above the 5,000-foot elevation will be
transported to the shaft system in late 1997. The Company anticipates that this
new shaft system will improve efficiency and reduce operating costs. Ore and
waste from the east side of the mine will continue to be hauled to the surface
by 15-ton trucks until the east side is connected to the shaft by a horizontal
adit under the Stillwater River.
The Company has a large fleet of mobile mining equipment, the majority of
which was replaced in 1995 and 1996. In conjunction with the acquisition of the
new equipment the Company undertook several initiatives to reduce its
maintenance costs, including a reduction in the variety of sizes and types of
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equipment used in the mine to reduce parts inventory and simplify maintenance,
formation of an additional maintenance crew to permit maintenance activities to
be carried out on a 24 hour, seven day per week basis, and development of a
computerized system for scheduled maintenance.
CONCENTRATION
The Company maintains a concentrator plant directly adjacent to the
Stillwater Mine which performs the initial processing of the ore that is removed
from the mine. Ore is fed into the concentrator, mixed with water and ground to
a slurry in a mill circuit to liberate the PGM-bearing sulfide minerals from the
rock matrix. Various reagents are added to the slurry to separate the valuable
sulfides from the waste rock in a flotation circuit. In the flotation circuit
the sulfide minerals are floated, recycled, reground and refloated to produce a
concentrate suitable for further processing. The flotation concentrate, which
represents approximately 1% of the original ore weight, is filtered, dried and
transported in trailers approximately 46 miles to the Company's smelter in
Columbus. Approximately sixty percent of the residue from this process is used
for backfill in the mine with the balance stored in an onsite tailings
containment area. The Company worked throughout 1996 to bring the new flotation
circuit recovery performance up to an acceptable level. These efforts are
continuing during the first quarter of 1997 with significant assistance from the
flotation cell designer and manufacturer.
SMELTING
The flotation concentrate is fed to a 15 megawatt electric furnace
("Furnace") at the Company's smelter where it is melted and separated into a
silica oxide rich slag and a PGM rich matte. The slag is drained through the
side of the Furnace, cooled and provided to outside parties for use as road
base.
The Furnace matte is remelted in one of two top blown rotary converters
("TBRC") which separates iron from the PGMs. The converter matte, or white
metal, is poured from the TBRC, granulated and transferred to the base metals
refinery ("BMR"). The white metal, approximately 10% of the original smelter
feed weight, is primarily copper and nickel sulfides containing approximately 2%
PGMs.
The gases released from the smelting operations are routed through a
gas/liquid scrubbing system, which removes approximately 99.8% of the sulfur
dioxide. Used scrubbing solution is treated in a closed-loop chemical process
that converts the sulfur dioxide to gypsum and regenerates clean scrubbing
solution. The gypsum is used by local farmers as a soil amendment.
BASE METALS REFINING
In 1996, the Company successfully constructed and commissioned a BMR
adjacent to the precious metals smelter in Columbus, Montana. The BMR utilizes
the patented Sherritt Process, whereby sulfuric acid is used to dissolve the
nickel and copper from the smelter white metal. This process upgrades the
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smelter product over 25 times (from 2% Pt+Pd to 55% Pt+Pd). The resulting PGM
rich filter cake is shipped for toll refining by either Union Miniere ("UM") in
Belgium, or Johnson Matthey ("JM") in New Jersey. The dissolved nickel and
copper is shipped, as a sulfate solution, and sold for its nickel value.
The BMR has a capacity equivalent to 4,000 tons per day of mine production.
The present plant is operated one shift per day, five days per week. As mine
production is ramped up, the BMR will increase throughput by adding operating
shifts to achieve the most cost effective schedule.
REFINING
Since May 1996, the Company has contracted with both UM and JM to toll
refine the filter cake from its BMR. The filter cake is shipped via air freight
to Hoboken, Belgium and West Deptford, New Jersey and is returned to the account
of the Company 20 days (UM), or 35 days (JM), after receipt as 99.95% sponge.
Currently, the Company is shipping approximately 90% of its filter cake to UM
and approximately 10% to JM. These percentages are expected to change to 70% UM
and 30% JM in July, 1997 and should remain at these levels through the
expiration of the refining contracts in 2001. The Company pays both UM and JM a
fixed refining charge in United States dollars per ounce of payable or
returnable metal for the toll processing of the BMR filter cake. The
nickel/copper solution from the BMR is shipped via truck to the Westaim
(formerly Sherritt) facilities in Fort Saskatchewan, Alberta. The Company is
paid for 97% of the nickel content of the solution with the remaining values
kept by Westaim as their processing fee.
SECONDARY MATERIALS PROCESSING
With the economics provided by the BMR and the new refining contracts, the
Company believes that it possesses a PGM processing complex that could process
suitable spent automotive and industrial catalysts at terms competitive with any
other North American processor.
In the first quarter of 1997, the Company plans to have constructed and
commissioned a dedicated secondary materials sampling facility. Current plans
call for the precious metals smelter to begin continuous processing of secondary
materials by the third quarter of 1997. At that time, the Company expects to
have capacity available to process three to five tons per day of secondary
materials. The Company experienced some unplanned buildup of platinum in the
smelter during the fourth quarter from processing secondary materials, but the
Company believes that sampling controls will allow corrective actions to be
taken to alleviate this problem in the future. However, there can be no
assurance that other problems from secondary materials will not occur from time
to time.
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EXPLORATION ACTIVITIES
Major portions of the J-M Reef have yet to be exposed to drilling and
development sufficient to allow for the delineation of additional reserves.
However, given the magnitude of its current proven and probable reserves, the
Company's exploration activities in recent years have been limited. The Company
will continue to focus on developing and bringing into production its current
PGM reserves rather than exploring for or attempting to acquire additional
developed or undeveloped ore reserves. Consequently, exploration does not
represent a significant expenditure for the Company.
SALES AND HEDGING ACTIVITIES
Platinum, palladium, rhodium and gold are sold to a number of dealers and
consumers 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 UM and JM to the account of the purchaser. By-product
metals are purchased at the average market price by the refiners.
The Company employs a platinum and palladium hedging strategy with the
objective of mitigating the impact of downturns in PGM prices while maintaining
the potential to benefit from price upturns. Hedging activities consist of
short-term spot deferred contracts for future deliveries of specific quantities
of PGMs at specific prices and the sale of call options and the purchase of put
options. Most of the Company's outstanding hedging contracts were satisfied or
expired at the end of 1996. During the first quarter of 1997, the Company placed
significant hedging positions, particularly in palladium, for both 1997 and 1998
sales. Specifically, at February 28, 1997, the Company had 186,500 ounces of
palladium sold forward under spot deferred contracts at $135 per ounce and
37,900 ounces of platinum sold under spot deferred contracts at $382 per ounce.
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
SAFETY
Underground mining can be, by its nature, a hazardous occupation. Current
mine operations extend over five miles horizontally into the Stillwater Complex
and involve the use of heavy machinery and drilling and blasting in confined
spaces. The Company's recent safety performance has been in line with that of
similar mines in terms of its Lost Time Accident Rate; however, the number of
fatalities over the life of the Stillwater Mine has been unacceptably high. Six
fatalities have occurred at the Company's mine since operations began in 1986,
the latest occurring in August 1995. The Company's Lost Time Accident Rate in
1992 was 12.9. The Company's safety program resulted in a Lost Time Accident
Rate of 2.8 in 1996. Management believes that continued reductions in accident
frequency are achievable and, if accomplished, can result in a safer work
environment for the Company's employees, as well as resulting in cost savings to
the Company.
10
<PAGE>
Safety is a primary concern of the Company, and the Company believes that
training is a key element in accident prevention. Forty hours of safety training
are required before any employee may start working underground, and yearly
retraining in first aid, accident prevention techniques and equipment handling
are mandatory for each mining employee.
EMPLOYEES
As of December 31, 1996, the Company had 621 employees at all locations in
the following areas:
----------------------------------------------------
NUMBER OF
AREA EMPLOYEES
----------------------------------------------------
Mining 402
Processing 58
Maintenance 80
Technical Services 34
Safety and Environmental 12
Administration 35
----------------------------------------------------
TOTAL EMPLOYEES 621
----------------------------------------------------
Prior to 1995, the Company's employees were non-union. In an election held
on July 20 and 21, 1995, 50.6% of those voting favored the appointment of the
Oil, Chemical and Atomic Workers Union as exclusive bargaining representative
for substantially all hourly workers. The union was certified by the National
Labor Relations Board on January 19, 1996. On June 30, 1996, members of Local
2-1 of the Oil, Chemical and Atomic Workers Union (OCAW) ratified their first
contract agreement with the Company, which became effective on July 1, 1996. The
contract has a term of three years and provides for a cumulative increase in
wages and benefits of 5.86% over the contract term. This agreement was
negotiated using an interest-based bargaining approach that has resulted in
cooperative and stable labor relations. Management believes its employee
relations are good and believes its wages, benefits and working conditions are
competitive with other mining operations in Montana.
The Company competes for individuals skilled in the operation and
development of precious metals mining properties. The number of such persons is
limited, and significant competition exists to obtain their skills. During 1996,
the Company added a net total of 107 hourly employees to the workforce. However,
additional skilled rockbreakers will be required during 1997 and the Company may
find it difficult to attract and retain sufficient numbers of these skilled
individuals to achieve the anticipated production from the Expansion Plan.
REGULATORY AND ENVIRONMENTAL MATTERS
GENERAL. The Company's business is subject to extensive Federal, state and local
government controls and regulations, including regulation of the mining and
exploration operations, discharge of materials into the environment, disturbance
11
<PAGE>
of land, reclamation of disturbed lands, threatened or endangered species and
other environmental matters. In particular, legislation including, but not
limited to, the Clean Air Act, the Clean Water Act, the Endangered Species Act
and the National Environmental Policy Act, requires analyses and/or imposes
effluent standards, new source performance standards, air quality and emission
standards and other design or operational requirements upon various aspects of
exploration, mining and processing. In addition, the Company's existing mining
operations may become subject to additional environmental control and mitigation
requirements if applicable Federal, state and local laws and regulations
governing environmental protection, land use and species protection are amended
or enforcement policies become more stringent in the future. The Company's
activities may cause it to be subject to liabilities in the future under
provisions of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), and analogous state law. Such laws
impose liability on certain categories of potentially responsible parties for
releases or threatened releases of hazardous substances into the environment,
which may result in the incurrence of cleanup costs.
Generally, compliance with the above regulations requires the Company to
obtain permits issued by federal, state and local regulatory agencies. Certain
permits require periodic renewal or review of their conditions. The Company
cannot predict whether it will be able to renew such permits or whether material
changes in permit conditions will be imposed. Non-renewal of permits or the
imposition of additional conditions could have a material adverse effect on the
Company's financial condition and results of operations.
The Company believes that its operations and facilities comply in all
material respects with current federal, state and local permits and regulations.
However, compliance with existing and future laws and regulations may require
additional control measures and expenditures which cannot be estimated at this
time. Compliance requirements for new mines and mills may require substantial
additional control measures that could materially affect proposed permitting and
construction schedules for such facilities. Under certain circumstances,
facility construction may be delayed pending regulatory approval. The cost of
complying with existing and future laws and regulations may render currently
operating or future properties less profitable and could adversely affect the
level of the Company's reserves and, in the worst case, render its mining
operations uneconomic.
PERMITTING AND RECLAMATION. Operating Permit 00118 issued by the Montana
Department of State Lands encompasses approximately 1,340 acres at the Company's
Stillwater Mine. This permit delineates lands that may be subject to surface
disturbance. At present, 117 acres have been disturbed, 54 of which are occupied
by the tailings impoundment. The remaining acreage consists of buildings, roads
and portal sites. The Company employs concurrent reclamation wherever feasible.
Reclaimed land is removed from the disturbed acreage inventory.
12
<PAGE>
Reclamation regulations affecting the Company's operations are promulgated
and enforced by the Hard Rock Bureau of the Montana Department of State Lands.
Additional reclamation requirements may be imposed by the United States Forest
Service during the permitting process. For regulatory purposes, reclamation does
not mean restoring the land to its pre-mining state. Rather, it is returning the
post-mining land to a state which has stability and utility comparable to
pre-mining conditions. Reclamation concerns include stabilization and vegetation
of disturbed lands, controlling drainage from portals and waste rock dumps,
removal of roads and structures, neutralization or removal of process solutions
and visual aesthetics. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Environmental Obligations."
Permits governing air and water quality are issued to the Company by the
Montana Department of Health and Environmental Sciences. These permits must be
reviewed and renewed at periodic intervals. Operating permits issued to the
Company by the Montana Department of State Lands and the United States Forest
Service do not have an expiration date but are subject to periodic reviews. The
reviews evaluate bonding levels and monitor reclamation progress.
The Company believes, but cannot assure, that it has successfully complied
with all permitting requirements for the planned expansion of its production at
the Stillwater Mine to 2,000 tons per day ("TPD").
As part of the Company's redemption in 1994 of the common stock held by
Chevron, the Company agreed to indemnify each of Chevron and Manville for all
claims related to environmental damage or hazards caused by or arising out of
any acts or omissions of any entity other than Chevron or Manville, or any acts
or omissions of Chevron or Manville while acting on behalf of or for the benefit
of the Company, subsequent to September 30, 1993. The Company is indemnified by
Chevron and Manville each for claims relating to environmental damage or hazards
that existed as of September 30, 1993 and which arose out of activities of the
predecessor partnerships based on certain representations and warranties given
to the Company by each of Chevron and Manville, although these representations
and warranties expired on September 30, 1996. No claims were made by the Company
against these warranties as of September 30, 1996. As such, the Company is fully
responsible for all environmental liabilities.
POSSIBLE REFORM OF THE GENERAL MINING LAW. During the 1995 legislative session,
the United States Congress considered a number of proposed amendments to the
General Mining Law, which governs the location and maintenance of mining claims
and related activities on Federal lands. Among those amendments were proposals
which would have imposed a royalty on production from certain mining claims and
increased the cost of holding such claims. None of these amendments were enacted
into law. It is likely that Congress will consider similar proposed amendments
in the future. The potential impact on the Company as a result of congressional
action is difficult to predict, but could adversely affect the Company's ability
to economically develop the J-M Reef, virtually all of which is on Federal
13
<PAGE>
lands, and would, in the case of imposed royalties, generally reduce the
profitability of the Company and in the worst case, render its mining operations
uneconomic.
EXPANSION PLAN
The Company believes its current operations are sub-scale in relation to
its major South African competitors and in relation to the magnitude of its
current reserve base, which contributes materially to the Company's relatively
high operating costs. In addition, vast portions of the J-M Reef have yet to be
exposed to drilling and development sufficient to allow for the delineation of
additional proven and probable reserves. The relatively small scale of the
Company's operations impedes the realization of the full potential of its
mineral assets. Consequently, the Company has adopted a long-term strategy of
expanding its operations to the extent that economics and permitting allow.
The Company has completed the first three years of its four-year Expansion
Plan, which is intended to significantly increase production at the Stillwater
Mine and related processing facilities. The Expansion Plan included the sinking
of a 1,950 foot vertical shaft, underground development on new levels accessed
by the shaft, increasing the capacity of the concentrator, adding a second
converter to the smelter, constructing a base metals refinery and replacement
and standardization of the mine equipment fleet. Construction work for this
expansion began in May 1994 and the Company has substantially completed all
minesite surface facilities, concentrator and smelter modifications,
construction of a base metals refinery and the vertical shaft.
The principal step in the Expansion Plan yet to be completed is underground
development on new levels accessed by the vertical shaft. Underground
development on new levels began in the third quarter of 1996, with the
assistance of a contractor, and production from these new levels is expected to
begin in early 1997.
The Company anticipates the Expansion Plan will be completed and production
capacity will have reached 2,000 TPD in the second half of 1997, a doubling from
1994 levels. These anticipated results assume, among other things, the
identification of sufficient proven reserves in close proximity to the vertical
shaft and the hiring and retention of sufficient numbers of individuals skilled
in underground mining. No assurance can be given that the Expansion Plan will be
completed on a timely basis or that the expanded operations will achieve the
anticipated production levels. See Item 7, "Factors That May Affect Future
Results and Financial Condition."
In 1996, the Company began work on the initial access phase of the proposed
East Boulder mine, including site preparation, construction of a power line and
procurement of a tunnel boring machine. In October this activity was deferred
primarily due to a downturn in platinum and palladium prices. Re-commencing work
on the initial access phase is contingent upon numerous factors, including an
improvement in metals prices and successful completion of the Expansion Plan.
Upon completion of the initial access phase, the Company would need to
demonstrate economic feasibility and arrange financing in order to proceed with
the East Boulder project.
14
<PAGE>
MINE PLAN
Underground development has been increased in the Stillwater Mine on the
existing levels and in 1996 development was initiated from new levels accessed
by a 1,950 foot vertical shaft which was sunk adjacent to the concentrator. The
shaft provides access to down dip extensions of reef areas mined during the past
eight years. Levels accessed by the production shaft are being driven using
rubber-tired jumbo drills and LHD vehicles.
As new levels are established from the shaft, raises are being developed to
allow transfer of ore and waste to selected levels for transport by rail to the
shaft. In 1997, the Company plans to have all ore and waste on the west side of
the Stillwater Valley transferred through raises to the shaft. Over the longer
term, ore and waste produced in the Company's operations on the east side of the
Stillwater Valley will be transferred underground to the shaft when a crossing
on the 4,400 foot level is completed. During 1997, ore and waste from the east
side of the mine will be hauled to the surface through the current system of
ramps and horizontal adits.
Additional surface facilities have been completed including a new
maintenance shop and warehouse and extension of the current site offices and
change house. Site services including access, employee parking, and electric,
water and sewer facilities were expanded and upgraded and appropriate
pre-investments in infrastructure have been made to accommodate future plans.
CONCENTRATOR, SANDFILL AND TAILINGS
The Company's existing concentrator was expanded by the addition of a large
ball mill grinding unit, additional flotation capacity and ancillary equipment.
Sandfill for stoping areas will continue to be provided from coarse concentrator
tailings pumped underground using existing pumps and pipelines. As the distance
to mining areas increases, booster sandfill pumping stations are proposed to be
installed.
Tailings will continue to be deposited in the current impoundment area
immediately adjacent to the concentrator through the year 2003 under the
Expansion Plan. Waste rock from the mine is currently being used to increase the
height of the impoundment embankment for tailings storage.
The Company has submitted an application to the Montana Department of
Environmental Quality ("DEQ") requesting an amendment to its Operating Permit.
The Company's proposal contemplates the construction of a large, lined tailings
impoundment on the Hertzler Ranch seven miles north of the existing impoundment.
A pipeline will connect the current and proposed tailings impoundments. The
Hertzler Ranch site has a thirty year design life at a production level of 2,000
tons per day. In addition, the Company has asked the DEQ to analyze impacts
associated with further expanding mine production. While the Company believes
that its proposal represents a sound environmental solution to long-term
tailings disposal, there is no assurance that the necessary permits will be
granted.
15
<PAGE>
SMELTER
The Expansion Plan provides that the Company's daily smelting capacity will
be increased by modifying the power systems for the existing furnace, by the
addition of a second TBRC and by upgrades to the gas handling and solution
regeneration systems. This expansion was accomplished by upgrading and
replicating currently installed technologies and is scheduled to be operational
during the first half of 1997.
CAPITAL EXPENDITURES AND OPERATING COSTS
The Company's total projected capital expenditures for the Expansion Plan,
during the years 1994 through 1997 were revised in 1996 and are currently
estimated at approximately $90 million, of which $35.9 million was expended in
1996. These estimated expenditures are higher than original estimates due to a
change in the method of accounting for certain mine development costs adopted
January 1, 1996, to the capitalization of interest on the Company's Convertible
Notes and to minor scope changes and cost overruns. However, the current
estimate is less than last year's estimate of $101 million due to a reduction in
1997's planned underground development program. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources" and "Factors That May Affect Future
Results and Financial Condition" at pages 29-37.
The Company's cash operating costs per returnable ounce of platinum and
palladium are expected to be reduced significantly after completion of the
Expansion Plan. These cost savings are expected to be substantially derived from
economies of scale, improved mine infrastructure and operating efficiencies and
changes in mining method from cut-and-fill to more mechanized methods. These
cost efficiencies began to appear in 1996 results, with a 15% reduction in mine
maintenance cost per ounce and a 28% reduction in refining/transportation cost
per ounce, as a result of the BMR being operational by mid-1996. No assurance
can be given that the expected operating cost reductions will be achieved.
During the second half of 1996, the Company made $7.8 million in capital
investments toward developing the East Boulder mine. This investment was
primarily towards purchasing a tunnel boring machine and providing an electrical
power supply to the mine portal site. See Item 7, "Factors That May Affect
Future Results and Financial Condition."
COMPETITION: PLATINUM AND PALLADIUM MARKET
GENERAL
Platinum and palladium are rare precious metals characterized by unique
physical qualities and are used in diverse industrial applications and in the
jewelry industry. The Company knows of no economically viable replacements for
PGMs in a number of key technological and industrial applications. The
16
<PAGE>
development of a less expensive alternative alloy or synthetic material which
has the same characteristics as PGMs could have a material adverse effect on the
Company's revenues. Although the Company is unaware of any such alloy or
material, there can be no assurance that none will be developed.
The Company competes with other suppliers of PGMs, some of which are
significantly larger than the Company and have access to greater mineral
reserves and financial and commercial resources. See "Supply" below. Additional
mines may open over the next several years, such as the Hartley Platinum project
on the Great Dyke in Zimbabwe resulting in increased production. Furthermore, in
certain industrialized countries, an industry has developed for the recovery of
PGMs from scrap sources, mostly from spent automotive and industrial catalysts.
There can be no assurance that the Company will be successful in competing with
these existing and emerging PGM producers. See Item 7, "Factors That May Affect
Future Results and Financial Condition."
In 1996, the Company began work on the initial access phase of the proposed
East Boulder mine, including site preparation, construction of a power line and
procurement of a tunnel boring machine. In October this activity was deferred
primarily due to a downturn in platinum and palladium prices. Recommended work
on the initial access phase is contingent on numerous factors, including an
improvement in metals prices and successful completion of the Expansion Plan.
Upon completion of the initial access phase, the Company would need to
demonstrate economic feasibility and arrange financing in order to proceed with
the East Boulder project.
DEMAND
Platinum's unique physical qualities include: (i) a high melting point
(3,215 degrees Fahrenheit); (ii) superior conductivity and ductility; (iii) a
high level of resistance to corrosion; (iv) strength and durability; and (v)
strong catalytic properties. Approximately one-half of current world platinum
production is used for industrial and manufacturing processes, most
significantly for the manufacture of catalytic converters for the global auto
industry. Autocatalyst demand is dependent upon growth in new vehicle sales in
countries where legislation requires specific exhaust emission standards; new
vehicle sales are, in turn, dependent to a significant degree upon general
economic conditions. The first autocatalysts were fitted to American cars in the
early 1970's following approval of the initial United States government-mandated
emission standards. Legislation requiring autocatalyst usage has since been
enacted in many other markets, including Japan and Europe. In addition, emission
standards in the United States have continued to become more stringent and
comprehensive, requiring autocatalysts with higher PGM loadings.
In addition to catalytic converters, industrial uses of platinum include
the production of data storage disks, glass, paints, nitric acid, anti-cancer
drugs, fiber optic cables, fertilizers, unleaded and high octane gasolines and
fuel cells. The balance of current platinum demand is for the production of
17
<PAGE>
jewelry, such as gem settings for rings, and for investment/collector coins. In
1996, Japan accounted for a substantial majority of platinum jewelry demand.
Palladium, like platinum, has numerous industrial applications and when
combined with silver, provides an extremely conductive material. Today, nearly
half of the palladium supply is consumed in the production of electronic
components for personal computers, cellular telephones, facsimile machines and
other devices. The second largest and fastest growing application for palladium
is in the automotive industry with the commercialization of a palladium-only
catalytic converter. Demand for palladium-based catalysts has been so strong
that it has retarded the growth of platinum consumption in major automobile
markets. Dentistry has long been a major use for palladium due to the
substitution of palladium alloys for gold-based dental alloys.
SUPPLY
The primary production sources of platinum and palladium are mines located
in the Republic of South Africa, which provided approximately two-thirds of the
platinum and one-fourth of the palladium worldwide in 1996. The principal PGM
mining companies in the Republic of South Africa are Rustenburg Platinum
Holdings, Ltd., Impala Platinum Holdings, Ltd.
and Western Platinum, Ltd.
The second largest source of platinum and palladium is Russia, which
provided approximately two-thirds of the palladium and one-fourth of the
platinum worldwide in 1996. Approximately half of this supply is believed to
have come from stockpiles. Russian PGM output is a by-product of nickel and
copper production from the Noril'sk complex in Northern Siberia.
Small amounts of platinum and palladium are produced in Canada principally
as a by-product of nickel and copper mining.
It is possible to recover PGMs from old automotive catalytic converters
acquired from scrap yards. A small but growing industry has developed,
predominantly in North America, in the collection and recovery of PGMs from
scrap sources, including automotive catalytic converters and electronic and
communications equipment, which could provide additional feedstock for the
Company's metallurgical complex in Columbus, Montana. Recovered PGMs are sold to
industrial customers, in some cases the same parties who provided the scrap.
18
<PAGE>
PRICES
The Company's revenue and earnings are dependent upon world platinum and
palladium prices which fluctuate widely and over which the Company has no
control. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Revenue" and "Factors That May Affect Future
Results and Financial Condition" at pages 32-37. The volatility of platinum and
palladium prices is illustrated in the following table of the annual high, low
and average prices per ounce.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PLATINUM PALLADIUM
- ----------------------------------------------------------------------------------------------------------------------------
YEAR HIGH LOW AVERAGE HIGH LOW AVERAGE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1992 $ 385 $ 341 $ 364 $ 96 $ 81 $ 88
1993 414 345 376 142 100 123
1994 431 380 406 163 124 144
1995 459 403 424 178 128 151
1996 433 368 398 146 116 130
- ----------------------------------------------------------------------------------------------------------------------------
Source: Johnson Matthey
</TABLE>
All subsections under Item 1, "Business" are qualified in their entirety by
reference to Item 7, "Factors That May Affect Future Results and Financial
Condition" at pages 32-37.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information concerning the individuals who are
executive officers of the Company.
Name Age Position
------------------------------------------------------------------------
John E. Andrews 50 President and Chief Operating Officer
R. Daniel Williams 49 Vice President And Chief Financial Officer
------------------------------------------------------------------------
The following are brief biographies of the above individuals:
- --------------------------------------------------------------------------------
JOHN E. ANDREWS is currently President and Chief Operating Officer of the
Company. He joined the Company in 1993 after serving four years as the Director
of International Mining Operations of Phelps Dodge Corporation. From 1979 to
1989, Mr. Andrews held various positions with Exxon Corporation and its
affiliates, including Operations Support Division Manager of Exxon Coal and
Minerals Company and Plans Coordination and Evaluation Manager of Exxon Minerals
Company. Prior to joining Exxon, Mr. Andrews was a Consulting Mining Engineer
with David S. Robertson & Associates from 1977 to 1979. From 1969 to 1977 he
served in a variety of mining capacities with Union Corporation, Ltd. in the
Republic of South Africa. He received a B.Sc. with honors from the Royal School
of Mines, Imperial College, England in 1969.
- --------------------------------------------------------------------------------
R. DANIEL WILLIAMS is Vice President and Chief Financial Officer of the Company.
Before joining the Company in 1995, he held the same position for five years at
Independence Mining Company Inc., a wholly owned subsidiary of Minorco (USA)
Inc. Mr. Williams was also Controller of Freeport-McMoRan Gold Company, and a
senior internal auditor at both Gulf Oil Corporation and Freeport-McMoRan, Inc.
He received his B.S. in Business Administration from West Virginia State
College, and a B.A. in Psychology from Morris Harvey College. Mr. Williams is a
Certified Public Accountant and a Certified Internal Auditor.
- --------------------------------------------------------------------------------
19
<PAGE>
OTHER MATTERS
On February 20, 1997, Charles R. Engles, Chairman and Chief Executive
Officer, resigned from the Company. Mr. Engles was the architect behind taking
the Company from a partnership to a stand-alone, publicly-traded Company. Ray
Ballmer, a Director, was appointed Chairman on an interim basis until Mr.
Engles' replacement is found.
Also, on February 20, 1997, Carl McSpadden, Controller, resigned from the
Company.
ITEM 2
PROPERTIES
----------
The Company's principal mineral properties are described in Item 1 above.
In addition to the Company's controlled mining claims and the plant and
equipment located within the mine, the Company owns and maintains a 55,000
square foot building containing the concentrator plant, changing facilities and
offices and a recently constructed 29,200 square foot shop and warehouse, both
located within its 1,340 acre operating permit area at the Stillwater Mine. In
Columbus, Montana, the Company owns and maintains a 23,200 square foot smelter
plant and a 17,000 square-foot base metals refinery on property leased from the
Town of Columbus. None of these properties is currently subject to any mortgage
or other encumbrance. The Company also leases a 10,100 square foot office
building in Columbus from a third party. The Company believes that its existing
facilities are adequate to service current production levels. See Item 1,
"Business-Expansion Plan."
The Company also owns six parcels of land totaling 2,473 acres in
Stillwater County, Montana. Certain of these parcels are leased to ranch
operators, and one has been subdivided for the lease or sale of residential
lots. About 60 acres of one property is within the Company's operating permit
boundaries. Some of these properties also include residential rental units. Each
of these properties is subject to a mortgage in favor of Chevron and Manville to
support the Company's indemnification obligations to such parties. See Item 13,
"Certain Relationships and Related Transactions."
ITEM 3
LEGAL PROCEEDINGS
-----------------
NOT APPLICABLE
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
20
<PAGE>
NOT APPLICABLE
PART II
- --------------------------------------------------------------------------------
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
---------------------------
The Company's common shares have been traded on the Nasdaq National Market
under the symbol PGMS since December 16, 1994. For the period from January 1,
1996 through December 31, 1996 and December 16, 1994 through December 31, 1995
the high and low closing sales prices for the Company's common stock for each
quarter as reported by NASDAQ were:
- -------------------------------------------------------------------------
1996 High Low
- -------------------------------------------------------------------------
First Quarter $24 $18 1/4
Second Quarter 29 1/4 20 1/4
Third Quarter 25 1/2 18 3/4
Fourth Quarter 19 1/2 16
- -------------------------------------------------------------------------
1995
- -------------------------------------------------------------------------
First Quarter $17 3/4 $13 1/4
Second Quarter 27 13/16 17 3/4
Third Quarter 28 5/8 20 5/8
Fourth Quarter 20 3/4 15
- -------------------------------------------------------------------------
STOCKHOLDERS. As of March 3, 1997, the Company had 372 stockholders of record
and an estimated 10,022 additional beneficial holders whose stock was held in
street name by brokerage houses.
DIVIDENDS. The Company has never paid any dividends on its common stock and
expects for the foreseeable future to retain all of its earnings from operations
for use in expanding and developing its business. Any future decision as to the
payment of dividends will be at the discretion of the Company's Board of
Directors and will depend upon the Company's earnings, financial position,
capital requirements, plans for expansion and such other factors as the Board of
Directors deems relevant.
21
<PAGE>
<TABLE>
<CAPTION>
ITEM 6
SELECTED FINANCIAL DATA
-----------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues (11) $ 56,214 $ 51,335 $ 54,934 $ 50,186 $ 40,485
- ----------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of metals sold 50,175 45,864 46,041 42,098 40,251
Depreciation and amortization 8,699 5,749 5,232 4,910 4,767
Administrative expenses 1,760 1,974 768 732 779
Write-down of asset 772 - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 61,406 53,587 52,041 47,740 45,797
- ----------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (5,192) (2,252) 2,893 2,446 (5,312)
Interest income 2,138 2,795 221 79 45
Interest expense, net of capitalized interest (10) (1,461) (431) (320) (141) (147)
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes, extraordinary
loss and cumulative effect of accounting change (4,515) 112 2,794 2,384 (5,414)
Income tax benefit (provision) (1) 1,736 (44) (243) (8,014) -
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary loss and
cumulative effect of accounting change (2,779) 68 2,551 (5,630) (5,414)
Extraordinary loss on early extinguishment of
debt, net of tax benefit of $357 (2) - - (568) - -
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of
accounting change (2,779) 68 1,983 (5,630) (5,414)
Cumulative effect of accounting change, net
of income tax provision of $8,677 13,861 - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 11,082 $ 68 $ 1,983 $ (5,630) $ (5,414)
============================================================================================================================
Pro forma information (unaudited) (3)
Historical income before income
taxes and extraordinary loss $ 2,384
Pro Forma Provision For Income Taxes (921)
- ------------------------------------------------------------------------------------------------------------
Pro forma income before extraordinary loss 1,463
Extraordinary Loss -
- ------------------------------------------------------------------------------------------------------------
Pro forma net income $ 1,463
- ------------------------------------------------------------------------------------------------------------
Income (loss) per common share (4)
Income (loss) before extraordinary loss and
cumulative effect of accounting change $ (0.13) - $ 0.16 $ 0.09
Extraordinary loss - - (0.04) -
- ------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect
of accounting change (0.13) - 0.12 0.09
Cumulative effect of accounting change 0.67 - - -
- ------------------------------------------------------------------------------------------------------------
Net income per common share
Primary $ 0.54 - $ 0.12 $ 0.09
Fully diluted $ 0.51 n/a n/a n/a
Weighted average common and common
equivalent shares outstanding 20,555 20,501 15,772 15,651 n/a
============================================================================================================
CASH FLOW DATA
Net cash provided by operations $ 14,464 $ 6,009 $ 9,220 $ 4,484 $ 807
Capital expenditures (5) 58,413 46,133 9,315 2,039 2,441
BALANCE SHEET DATA
Current assets $ 49,061 $ 44,974 $ 77,234 $ 22,073 $ 16,101
Total assets 239,910 162,175 153,498 92,460 89,449
Current liabilities 15,833 10,370 9,427 6,803 6,374
Long-term debt and capital lease obligations 62,563 8,713 1,715 1,790 1,850
Stockholders' equity 143,666 132,305 132,171 74,144 80,310
Working capital 33,228 34,604 67,807 15,270 9,727
- ---------------------------------------------------------------------------------------------------------------------------
(footnotes on following page)
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA (CONTINUED)
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING DATA
(THOUSANDS OF OUNCES UNLESS OTHERWISE NOTED)
<S> <C> <C> <C> <C> <C>
Tons milled (thousands of tons)(6) 446 398 373 363 345
Head grade (combined Pt+Pd ounces per ton) 0.67 0.67 0.80 0.87 0.73
Ounces of platinum produced (7) 59 51 63 66 53
Ounces Of palladium produced (7) 196 169 207 218 175
- ---------------------------------------------------------------------------------------------------------------------------
Total ounces produced 255 220 270 284 228
===========================================================================================================================
Ounces of platinum sold 62 54 63 66 62
Ounces Of Palladium Sold 214 180 216 203 205
- ---------------------------------------------------------------------------------------------------------------------------
Total ounces sold 276 234 279 269 267
===========================================================================================================================
Platinum equivalent ounces produced (8) 123 111 136 137 95
Gold equivalent ounces produced (8) 127 123 144 143 101
PRICE AND COST DATA (9)
Average realized price per platinum ounce $ 410 $ 425 $ 399 $ 376 $ 360
Average realized price per palladium ounce 144 157 138 125 89
Combined average realized price per ounce 204 219 197 187 152
Cash costs per ounce $ 184 $ 215 $ 173 $ 165 $ 166
Total costs per ounce 219 240 191 182 192
Cash costs per ton milled 105 119 124 128 110
Total costs per ton milled 125 132 138 142 127
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net income (loss) for 1992 includes no income tax effects, as the Company
operated as two partnerships, Stillwater PGM Resources partnership
("SPGMR") which was owned equally by Manville Mining Company, a
wholly-owned subsidiary of Manville Corporation and Chevron U.S.A. Inc.
and the Stillwater Mining Company partnership ("SMC") which was owned
equally by Manville Mining Company and Chevron U.S.A. Inc., (non-taxable)
during that year. The net loss for the year ended December 31, 1993
includes a one-time provision for income taxes pursuant to Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES, of
$7.9 million to record deferred income taxes arising out of the
reorganization from the Chevron/Manville partnerships into the Company.
See Item 1, "Business-Background."
(2) Upon early extinguishment of notes issued in connection with the 1994
private placement, the unamortized balance of deferred debt issue costs
of $925,000 ($568,000 net of taxes) was charged against income as an
extraordinary item.
See Item 1, "Business-Background."
(3) Pro forma information is presented for purposes of comparability assuming
the Company was a taxable entity for all periods presented. No pro forma
benefit from income taxes has been presented for 1992 because the
23
<PAGE>
partnerships, SPGMR and SMC, incurred losses in that year which could
never be utilized by the Company.
(4) The Company's historical capital structure and taxable status are not
indicative of its current structure and, accordingly, historical earnings
per share have not been presented for 1992. Income (loss) per common
share is calculated based on common and common equivalent shares
outstanding and is presented on a pro forma basis for 1993 for purposes
of comparability.
(5) In 1996, 1995 and 1994, $35.9 million, $39.5 million and $9.3 million,
respectively, were capitalized in connection
with the Expansion Plan.
(6) Tons milled represents the number of grade-bearing short tons of ore fed
to the concentrator.
(7) Ounces produced is defined as the number of ounces produced from the
concentrator during the period reduced by losses expected to be incurred
in subsequent smelting and refining processes. Differences in ounces
produced and ounces sold are caused by the length of time required by the
smelting and refining processes.
(8) Platinum and gold equivalent ounces have been calculated by dividing the
total market value of platinum and palladium produced during the given
period by the average market prices of platinum and gold, respectively,
for each period.
(9) Realized prices include hedging gains and losses. Total costs per ounce
consist of all current operating costs including mining and processing
costs less revenue received from by-product metals. Depreciation and
amortization as well as gains (losses) on the sale of assets are removed
from total costs per ounce to compute cash costs per ounce. Income taxes
and interest income and expense are not included in either total or cash
costs per ounce.
(10) Capitalized interest as of December 31, 1996, 1995 and 1994 totaled $2.2
million, $0 and $0, respectively.
(11) Revenues consist of the sales revenue for platinum and palladium,
including any hedging gain or loss. By-product metals revenue and
secondary materials processing revenue are included as an offset to cost
of metals sold.
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
The following discussion should be read in conjunction with
"Business-Background," "Factors That May Affect Future Results and Financial
Condition," the financial statements of the Company and notes thereto and
"Selected Financial Data" and the notes thereto included elsewhere in this Form
10-K.
PRODUCTION
The Company's production of platinum and palladium is substantially
determined by the tonnage of ore mined and its head grade (ounces per ton of
ore). Processing facilities have historically been able to handle all ore mined
in a timely manner with consistent recoveries.
Approximately 40 days elapse between the production of ore at the
Stillwater Mine and the release of the platinum and palladium contained therein
by a contract refiner. Because of this processing cycle, changes in mine
production may not result in corresponding changes in sales in a particular
24
<PAGE>
accounting period. The Company calculates production as the payable ounces in
concentrate shipped by the Company's concentrator to its smelter, which usually
occurs within seven days of the ore being mined.
The Stillwater Mine is permitted to operate at 2,000 tons-per-day (TPD). In
1993 the mine operated at 1,000 TPD for the first time. Tonnage has increased
steadily since then and in 1996, 446,000 tons of ore were processed through the
concentrator, equivalent to 1,219 TPD. Increases in ore tonnage are achieved
through increasing the number and quality of developed stopes, adding manpower
and improving stoping productivities, principally through the introduction of
mechanized mining methods.
The grade of the ore mined by the Company in a given period depends on the
particular areas of the J-M Reef from which the ore is extracted in that period.
The grade of ore mined varies considerably from stope to stope and the grade
realized during a particular period depends on the mix of production during that
period. When the Expansion Plan is completed, the Company intends to develop
more stopes than are needed for current mining operations in order to better
manage the mix of stopes it mines and the resulting grade delivered to the
concentrator (head grade).
The average head grade of ore processed through the concentrator in 1996
was 0.67 ounces per ton, which was the same as the head grade in 1995.
Historically, the mill head grade at the Stillwater Mine has averaged
approximately 0.77 ounces per ton. The average head grade for 1995 was lower
than the historical average because of the decision to process subgrade material
through the concentrator in the absence of sufficient quantities of ore. In
1996, the introduction of additional mechanized stoping methods resulted in more
mine dilution and a reduction in mining grade from historical averages. Also
contributing to lower head grades in 1996 were material handling and hauling
constraints which developed in 1996 when a larger percentage of ore had to be
extracted and hauled from the west side of the mine after east side stopes were
unable to be developed as planned. Stringent controls such as measuring the ore
face width both before and after each blast, separating underground ore and
waste storage areas, introducing colored markers into underground waste
stockpiles, and monitoring ore and waste haulage resulted in improved grade in
the fourth quarter of 1996. New infrastructure currently under development,
particularly infrastructure associated with the production shaft, is expected to
alleviate many of these material handling constraints in 1997.
REVENUE
The Company's revenue depends entirely on the number of ounces of platinum
and palladium sold and the price per ounce realized. Prior to the completion of
the BMR, ounces of metal sold were generally tied to mine production
approximately three months earlier. The commissioning of the BMR reduced the
delay to approximately 40 days and accelerated the availability of nearly 40,000
additional ounces for sale, principally in the third quarter of 1996, from
in-process inventories. The Company's revenue and earnings are significantly
25
<PAGE>
influenced by worldwide prices of platinum and palladium, which fluctuate
continuously and over which the Company has no control. Sales to three customers
represented approximately 98%, 92% and 96% of total revenues for the years ended
December 31, 1996, 1995 and 1994, respectively. The Company sells its metals to
a small number of customers and brokers; however, the Company is not
economically dependent upon these customers since platinum and palladium can be
readily sold in numerous markets throughout the world.
The Company currently uses a simple hedging program involving spot deferred
forward sales commitments. The use of forward sales may result in a reduction in
potential revenue if the contract price is less than the market price at the
time of sale, although the Company has the option to defer delivery against spot
deferred contracts and sell at the market price. The Company has also, from time
to time, bought put options and sold call options in order to improve the
Company's opportunities to benefit from upward price movements within certain
parameters while still protecting against downside price risk.
As of December 31, 1996, the Company had entered into sales contracts for
deliveries of future production through May 30, 1997 of 5,920 ounces of platinum
and 31,930 ounces of palladium at prices averaging $388.55 and $121.28 per
ounce, respectively. The London A.M. Fix prices for platinum and palladium at
December 31, 1996 were $370.25 and $116.50 per ounce, respectively. During the
first quarter of 1997, the Company was able to purchase additional spot deferred
forward sale contracts such that as of February 28, 1997, the Company had
entered into sales contracts on 1997 production of 186,500 ounces of palladium
at $135 per ounce and 37,900 ounces of platinum at $382 per ounce. See Item 1,
"Business-Current Operations-Sales and Hedging Activities."
COST STRUCTURE
Management believes the Company's current and historical operating costs
are higher than those of comparable primary platinum and palladium producers.
Average annual cash costs per ounce since 1990 have ranged from a low of $165 in
1993 to a high of $215 in 1995. The Company attributes its higher costs to a
number of factors including (i) mining wages and benefits in the Republic of
South Africa that are about one-eighth of the United States level; (ii) the
relatively small scale of its operations; (iii) inefficient overall mine design;
(iv) prior to 1996, its reliance on mining by the labor-intensive overhand
cut-and-fill stoping; (v) prior to 1996, older mine haulage equipment; and (vi)
prior to the BMR commissioning, no refining capability. The Company's Expansion
Plan is designed to mitigate most of these factors and lower the Company's
operating costs to a more competitive level. The Expansion Plan began to
mitigate some of the Company's production costs in 1996 as reflected by a 15%
reduction in mine maintenance cost per ounce and a 28% reduction in
refining/transportation costs per ounce as a result of the BMR being operational
by mid-1996. The remainder of the cost efficiencies will be achieved through
economies of scale at 2,000 TPD production rates and underground production
26
<PAGE>
efficiencies from full utilization of the vertical shaft system and large scale
stope production near the shaft. The first full year of these Expansion Plan
efficiencies will be in 1998.
Since 1990, exploration expenses have declined because most of the ore body
near the surface has already been defined.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
PGM PRODUCTION. Platinum and palladium production increased to 59,000 ounces and
196,000 ounces, respectively, for the year ended December 31, 1996 from 51,000
ounces and 169,000 ounces, respectively, in 1995. PGM production for 1996
resulted from milling 446,000 tons with an average head grade of 0.67 ounces per
ton. In comparison, PGM production for 1995 resulted from milling 398,000 tons
with an average head grade of 0.67 ounces per ton.
Average head grade in 1996, although lower than the historical average for
the Stillwater Mine, was the same as for 1995. Average head grade for 1995 was
lower than the historical average due to milling large volumes of low grade
development material throughout the year and from the lack of sufficient
quantities of high grade ore in the second and third quarters. The head grade
for 1996 was lower than the average historical head grade due to mining dilution
resulting from additional mechanized mining and from material handling
constraints which led to the introduction of some waste into ore stockpiles. A
new mining width control system reduced mining dilution significantly in the
fourth quarter and a new waste tracking system significantly reduced ore/waste
mixing, resulting in a 0.74 head grade in the fourth quarter of 1996.
REVENUE. Revenues were $56.2 million for the year ended December 31, 1996
compared to $51.3 million in 1995, an increase of 10%.
Platinum sales volumes increased from 54,000 ounces in 1995 to 62,000
ounces in 1996. Palladium sales volumes increased from 180,000 ounces in 1995 to
214,000 ounces in 1996. Combined sales volumes increased 18% from 234,000 ounces
in 1995 to 276,000 ounces in 1996 primarily due to increased production in 1996
and the commissioning of the BMR, which reduced the time period from mine
production to refinery return of metals by nearly two months and thereby made
nearly two months' additional production available for sale during the year.
Average realized prices per ounce for both platinum and palladium decreased
in 1996 reflecting a decrease in the market prices for both metals. The average
spot price of platinum decreased from $424 in 1995 to $397 in 1996; realized
prices decreased from $425 in 1995 to $410 in 1996. The average spot price of
palladium decreased from $151 in 1995 to $128 in 1996; realized prices decreased
from $157 in 1995 to $144 in 1996. Because spot prices for both metals trended
27
<PAGE>
down during the year, the Company's hedging contracts resulted in realized
prices that were higher than spot prices. Average realized prices for platinum
exceeded average spot prices for platinum by 3% while average realized prices
for palladium exceeded average spot prices by 12%.
OPERATING INCOME. The Company incurred an operating loss of $5.2 million for the
year ended December 31, 1996, compared to an operating loss of $2.3 million for
1995. The higher loss resulted from lower prices and was partially offset by
lower cost per ounce. The decrease in costs per ounce for the current year
resulted primarily from a 16% increase in ounces produced. The lower cost per
ounce was also the result of the positive effect from the change in accounting
for capitalized underground development expense which more than offset the
impact of increased depreciation and amortization and the $772,000 write-down of
assets.
NET INCOME. The Company realized net income of $11.1 million after the
cumulative effect of the accounting change for 1996 compared to net income of
$68,000 for 1995. The net loss before the cumulative effect of the accounting
change for 1996 was $2.8 million. The greater net loss before the cumulative
effect of the accounting change for the current period was almost entirely the
result of the previously discussed greater operating loss for 1996, as well as a
reduction of $1.7 million in net interest earned in 1996 compared to 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
PGM PRODUCTION. Platinum and palladium production decreased to 51,000 ounces and
169,000 ounces, respectively, for the year ended December 31, 1995 from 63,000
ounces and 207,000 ounces, respectively, in 1994. PGM production for 1995
resulted from milling 398,000 tons with a head grade of 0.67 ounces per ton. In
comparison, PGM production for 1994 resulted from milling 373,000 tons with a
head grade of 0.80 ounces per ton.
Head grade in 1995 was considerably lower than the historical average for
the Stillwater Mine. This resulted primarily from milling large volumes of low
grade development material throughout the year and from a lack of sufficient
quantities of high grade ore in the second and third quarters. As additional
high grade stopes were brought into production in the third and fourth quarters
and tighter operating controls were implemented, head grade recovered to 0.74
ounces per ton in the fourth quarter.
REVENUE. Revenues were $51.3 million for the year ended December 31, 1995
compared to $54.9 million in 1994, a decrease of 7%.
Platinum sales volume decreased from 63,000 ounces in 1994 to 54,000 ounces
in 1995. Palladium sales volume decreased from 216,000 ounces in 1994 to 180,000
ounces in 1995. Sales volumes of platinum and palladium decreased from 1994 in
line with the reduction in production of both metals. Overall sales volume
decreased 16% to 234,000 ounces in 1995 from 279,000 ounces in 1994.
28
<PAGE>
Average realized prices per ounce for both platinum and palladium increased
in 1995 reflecting an increase in the market prices of both metals. The average
spot price of platinum increased to $424 in 1995 from $406 in 1994; realized
prices increased to $425 from $399. The average spot price of palladium
increased to $151 in 1995 from $144 in 1994; realized prices increased to $157
from $138. Because spot prices for platinum and palladium were trending down in
the last half of 1995, the Company's use of forward sales contracts resulted in
realized prices that were higher than spot prices.
OPERATING INCOME. The Company incurred an operating loss of $2.3 million for the
year ended December 31, 1995, compared to operating income of $2.9 million for
1994. This was the result of lower sales volume and higher costs per ounce of
metals sold in 1995, partially offset by higher realized prices per ounce in
1995. The higher costs per ounce of metal sold are primarily attributable to the
lower head grade experienced in 1995. Costs per ton milled decreased by 6% to
$139 in 1995 from $148 in 1994. The 6% decrease in costs per ton milled was more
than offset by the 16% decrease in head grade and resulted in higher costs per
ounce in 1995.
NET INCOME. The Company realized net income of $68,000 for 1995 compared with
$2.0 million for 1994. The decrease of $1.9 million is due to the decrease in
operating income partially offset by interest income received in 1995 on the
remaining net proceeds from the Company's initial public offering and by the
absence of the 1994 extraordinary loss in 1995. In addition, net income for 1994
includes a favorable non-recurring tax adjustment of $810,000.
LIQUIDITY AND CAPITAL RESOURCES
Since October 1, 1993, the Company has been responsible for its own metals
sales, cash management and financing activities. Revenues are derived from the
sale of PGMs to independent brokers and consumers at either spot market prices
or contract prices. See Item 1, "Business-Current Operations-Sales and Hedging
Activities." Excess cash is invested in interest-bearing, investment-grade
securities pursuant to a short-term investment policy approved by the Board of
Directors, which requires maturities of less than two years with an average
portfolio duration of less than one year.
On April 19, 1994, the Company established an unsecured working capital
line of credit with NM Rothschild and Sons, Ltd. in a maximum amount of $15
million maturing on December 31, 1996. The term of this facility was
subsequently extended to April 30, 1998. As of December 31, 1996, the Company
had $5.8 million of net availability.
On October 6, 1995, the Company entered into a $7.5 million leasing
agreement with Senstar Capital Corporation. During 1996, the Company entered
into three additional five-year equipment leasing agreements with Senstar
Capital Corporation, for the following amounts: $790,000, $1.5 million, and $1.5
million, bringing the total capitalized lease transactions with Senstar Capital
to $11.3 million. The Agreements cover new underground mining equipment acquired
29
<PAGE>
in 1995 or 1996 and each contain a two-year renewal option at the end of five
years.
On April 29, 1996, the Company sold $50 million of its 7% Convertible
Subordinated Notes Due 2003 (the "Convertible Notes"), maturing on May 1, 2003.
On May 14, 1996, the initial purchaser exercised its over-allotment option and
purchased an additional $1.45 million of Convertible Notes. The Convertible
Notes are unsecured, subordinated obligations.
The Convertible Notes will be redeemable, in whole or in part, at the
option of the Company beginning on May 1, 1999. The Convertible Notes are
convertible, subject to prior redemption or repurchase, at the option of holders
prior to maturity, into shares of the Company's common stock at a conversion
price of $26.80 per share, subject to adjustment in certain events.
At December 31, 1996, the Company had working capital of $33.2 million,
cash and cash equivalents of $16.4 million, short-term investments of $17.1
million and long-term debt and capital leases of $62.6 million. Total liquidity
available to the Company at December 31, 1996 represented by cash, short-term
investments and credit availability was $39.2 million.
Net cash provided by operations for the year ended December 31, 1996 was
$14.5 million, an increase of $8.5 million from 1995. This increase was due
primarily to an increase in current liabilities of $4.2 million, a decrease in
inventories of $4.9 million because of the reduction of the period of time metal
is held in inventory resulting from the completion of the BMR and partially
offset by the net loss realized for 1996. Net cash provided by operations for
the year ended December 31, 1995 was $6.0 million, a decrease of $3.2 million
from 1994. The decrease in 1995 was due primarily to a $2.5 million reduction in
income before extraordinary loss in 1995, and a reduction in current liabilities
of $314,000 in 1995 compared to a $953,000 increase in 1994.
Capital expenditures for 1996 were $58.4 million, with $39.5 million in
expenditures related to the Expansion Plan, $7.4 million in capitalized
underground development and $7.8 million in development at East Boulder. The
remaining capital expenditures were for process improvements and $2.2 million in
capitalized interest. Capital expenditures of $46.1 million and $9.3 million
were made in 1995 and 1994, respectively, principally for the Expansion Plan in
1995 and minimum equipment and facility needs in 1994.
With the Expansion Plan substantially complete the Company expects capital
expenditures to be significantly lower in 1997. The Company plans to spend
approximately $15 million in 1997 on capital items with approximately half of
that amount on capitalized underground development and the remainder on the
Expansion Plan, completion of power supply to the East Boulder minesite and
final tunnel boring machine progress billing, and general plant and equipment.
Cash flows from operating activities are not expected to be sufficient to cover
30
<PAGE>
1997 capital expenditures and the Company expects to fund the difference with
the cash on hand at the end of 1996.
During 1996, Montana Power Company (MPC) upgraded their transmission line
and substation facilities and as a result of these upgrades the Company
renegotiated their power supply contract for the Stillwater Minesite Expansion
Plan with MPC. These power supply upgrades totaled approximately $2.9 million
and are to be recovered by the MPC through additional electric power sales over
the next five years. At the completion of the five-year agreement (or at such
earlier date if the Company terminates operations), if the total additional
revenues (as defined in the contract between MPC and the Company) have not met
or exceeded MPC's investment cost, the Company will be required to pay MPC the
difference.
The Company intends to retain its working line of credit for reclamation
bonding and other surety obligations that require collateralization and for
working capital.
Based on cash and short-term investments on hand, expected cash flows from
operations and the availability of funds under the Company's line of credit,
management believes there is sufficient liquidity to complete the Expansion Plan
and to meet operating and capital needs in the foreseeable future. The Company
may 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 Expansion Plan.
ENVIRONMENTAL OBLIGATIONS
The Company currently has no significant environmental projects under
development and does not anticipate incurring any significant capital or unusual
operating expenditures for environmental compliance within the next 12 months.
In 1996, the Company's environmental expenses were $536,000 and capital
expenditures for environmental equipment were $461,000. The Company incurred
$541,000 in environmental-related costs during 1995, of which $495,000 was
expensed and $46,000 was for purchases of environmental equipment. The Company's
ongoing operating expenditures for environmental compliance are expected to be
approximately $500,000 per year. See Item 1, "Business-Current
Operations-Regulatory and Environmental Matters."
The Company is presently required to post surety bonds with the State of
Montana in the amount of $4.2 million, which also represents the Company's best
estimate of mine closure and reclamation costs for current operations. The
Company does not believe that costs will materially exceed this estimate
subsequent to implementation of the Expansion Plan. The Company is accruing for
reclamation costs over the life of the Stillwater Mine based on current
production levels and estimated proven and probable reserves. On December 31,
1996 and 1995, the accrued liability was $556,000 and $490,000, respectively.
The Company periodically reviews the adequacy of its reclamation and mine
closure obligations in light of current laws and regulations and will adjust its
liability as necessary.
31
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
Throughout this Annual Report on Form 10-K, the Company has made certain
estimates and projections relating to, among other things, the timing, costs and
scope of the Expansion Plan, the level of production after completion of the
Expansion Plan and the anticipated reduction in operating costs from the
Expansion Plan. These forward-looking statements are principally located in this
Form 10-K in the following sections: Item 1, "Business" and Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." While sometimes presented with numerical specificity, such
forward-looking statements are based upon a variety of assumptions relating to
the business of the Company, which, although considered reasonable by the
Company, may not be realized, and are subject to significant uncertainties and
contingencies that are beyond the control of the Company. Consequently, the
inclusion of forward-looking statements should not be regarded as a
representation by the Company or any other person that these estimates and
projections will be realized, and actual results may vary materially. These
forward-looking statements are based on current expectations, and the Company
assumes no obligation to update this information. The Company cautions investors
that its business is subject to significant risks and uncertainties.
METAL PRICE VOLATILITY
Since the Company's sole source of revenue is the sale of PGMs, the
profitability of the Company's operations can be significantly affected by
changes in the market prices of PGMs. For 1991, 1992, 1995, and 1996, the market
prices of PGMs were below the Company's total costs of production and the
Company experienced operating losses. PGM prices fluctuate widely and are
influenced by numerous factors beyond the Company's control, including such
factors as expectations for inflation, global demand, consumption patterns,
speculative activities, international economic trends, political and economic
conditions and production amounts and costs in the other PGM producing
countries, including the Republic of South Africa and Russia. Since some of the
world supply of platinum and palladium is a by-product of the mining of nickel
and copper, a portion of the worldwide production of platinum and palladium is
unrelated to the demand for such metals; as a result, ordinary market balancing
mechanisms may be less effective. In order to mitigate some of the risks
associated with fluctuating PGM prices, the Company has utilized various price
hedging techniques to lock in forward delivery prices on a portion of its
production. However, there are no assurances that the use of price hedging
techniques will always benefit the Company. There is the possibility that the
Company will lock in forward deliveries at prices lower than the market price at
the time of delivery. The market prices of PGMs could fall below the Company's
production costs and remain at such levels for a sustained period, causing the
Company to experience operating losses and to curtail or suspend some or all of
its mining activities. See Item 7, "Management's Discussion and Analysis of
32
<PAGE>
Financial Condition and Results of Operations" and Item 1,
"Business-Competition; Platinum and Palladium Market."
RESERVE ESTIMATES
While the Company's December 31, 1996 ore reserves increased over 1995,
such increase has not been affirmed and verified by independent consultants. The
ore reserve estimates presented in this report for December 31, 1996 are based
on the Company's best estimates and are necessarily imprecise and depend to some
extent on statistical inferences drawn from limited drilling, which may, on
occasion, 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, there can be no assurance 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 PGMs may render the mining of some or all of the Company's ore
reserves uneconomic. No assurance can be given that any particular level of PGMs
may be recovered from the ore reserves and the grade of ore may vary
significantly from time to time. Moreover, short-term factors relating to the
ore reserves, such as the need for additional development of the ore body or the
processing of new or different grades, may impair the profitability of the mine
in any particular accounting period.
EXPANSION PLAN RISK
Although the Company anticipates that the Expansion Plan will be
successfully completed and that the resulting operations will reach full
production by late 1997, no assurance can be given that the remainder of the
Expansion Plan will be completed on a timely basis, that the expanded operations
will achieve the anticipated production capacity or that the expected operating
cost reductions will be achieved. The anticipated timing and production results
of the Expansion Plan assume, among other things, (i) the identification of
sufficient proven reserves in close proximity to the vertical shaft and (ii) the
recruitment and maintenance of sufficient numbers of individuals skilled in
underground mining. See Item 1, "Business, PGM Ore Reserves."
The construction of expanded mining operations involves a number of
uncertainties, including factors beyond the Company's control. Failure to
complete the Expansion Plan on a timely basis or unexpected cost increases or
sales price decreases could have a material adverse effect on future results of
operations and financial condition. If the capital expenditures required to
complete the Expansion Plan or to achieve the anticipated production capacity
are significantly higher than expected, there is no assurance that the Company's
capital resources would be sufficient to cover such costs or that the Company
33
<PAGE>
would be able to obtain alternative sources of financing to cover such costs.
See Item 1, "Business-Competition; Platinum and Palladium Market."
COMPETITION
The Company competes with other suppliers of PGMs, some of which are
significantly larger than the Company and have access to greater mineral
reserves and financial and commercial resources. These suppliers include
Rustenburg Platinum Holdings, Ltd., Impala Platinum Holdings, Ltd. and other
South African producers who mine the Bushveld Complex in the Republic of South
Africa, which is the world's principal source of PGMs. PGMs are also produced as
a by-product of large nickel and copper operations in Russia and Canada. The
vast majority of the world's 1995 supply of PGMs came from the Republic of South
Africa or Russia. Additional mines may open in the Republic of South Africa or
elsewhere over the next several years, including the Hartley Platinum and Mimosa
projects on the Great Dyke in Zimbabwe, resulting in increased global
production. Furthermore, in certain industrialized countries, an industry has
developed for the recovery of PGMs from scrap sources, mostly from spent
automotive and industrial catalysts. There can be no assurance that the Company
will be successful in competing with these existing and emerging PGM producers.
Moreover, there can be no assurance that a less expensive alternative alloy or
synthetic material which has the same characteristics as PGMs will not be
developed to replace PGMs in a number of key technological or industrial
applications.
EXPLORATION AND DEVELOPMENT RISKS
The degree of profitability of the Company's operations will be affected by
the costs and results of its continued exploration and development programs. The
Company is seeking to expand its reserves only through exploration and
development within its controlled claims which are located in the Stillwater
Complex. Mineral exploration, particularly for platinum and palladium, is highly
speculative in nature, involves many risks, and frequently is nonproductive.
There can be no assurance that the Company's mineral exploration efforts will be
successful. Once mineralization is discovered, it usually takes a number of
years from the initial phases of exploration until production is possible,
during which time the economic feasibility of production may change. Substantial
expenditures are required to establish ore reserves through drilling, to
determine metallurgical processes to extract the metal from the ore and, in the
case of new properties, to construct mining and processing facilities. As a
result of these uncertainties, no assurance can be given that the Company's
exploration programs will result in the replacement of existing reserves, some
of which are being depleted by current production.
Depending upon the success of the Expansion Plan, the Company will evaluate
further expansion of the Stillwater Mine by possibly extending mining operations
to depths below those currently contemplated. The Company began the East Boulder
34
<PAGE>
expansion project during the second quarter of 1996. During the fourth quarter
of 1996, primarily as a result of the lower platinum and palladium prices, the
Company decided to defer further work on the project. The Company made $7.8
million in capital investments toward the East Boulder expansion project during
1996. During 1997, environmental baseline studies, construction activities on
the power line to the minesite, and completion of progress payments on the
tunnel boring machine are expected to require approximately $2.0 million of
additional capital expenditures. Additional development projects, such as East
Boulder, have no operating history upon which to base estimates of future cash
operating costs. Particularly for development projects, estimates of reserves
and cash operating costs are, to a large extent, based upon the interpretation
of geologic data obtained from drill holes and other sampling techniques, and
feasibility studies which derive estimates of cash operating costs based upon
anticipated tonnage and grades of ore to be mined and processed, the
configuration of the ore body, expected recovery rates of the PGMs from the ore,
comparable facility and equipment operating costs, anticipated climatic
conditions and other factors. As a result, it is possible that actual cash
operating costs and economic returns on such development projects may differ
significantly from those currently estimated. It is not unusual in new mining
operations to experience unexpected problems during the start-up phase.
There are a number of uncertainties inherent in any PGM development
program, including the location of an economic reef package, development of
appropriate metallurgical processes, receipt of necessary governmental permits
and the construction of mining and processing facilities. In addition,
substantial expenditures may be required to pursue such development activities.
The Company has been accelerating its development efforts with the objective of
establishing a developed reserve equivalent to a minimum of 18 months of
production at 2,000 tons per day production rates. Currently, reserves are
developed and available to support production at the 2,000 tons per day rate for
approximately 15 months.
MINING RISKS AND INSURANCE
Underground mining and the Company's milling and smelter operations involve
a number of risks and hazards, including environmental hazards, industrial
accidents, unusual and unexpected rock formations, cave-ins, flooding and
periodic interruptions due to inclement or hazardous weather conditions or other
acts of God. 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. The Mine
Safety and Health Administration completes periodic safety inspections of the
Company. Six fatalities have occurred at the Company's mine since operations
began in 1986, the latest occurring in August 1995. There can be no assurance
that industrial accidents or new safety regulations by state, Federal or local
authorities will not have a material adverse effect on the Company's business
and operations. Although the Company believes that it maintains insurance within
35
<PAGE>
ranges of coverage consistent with industry practice, there can be no assurance
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.
ENVIRONMENTAL RISKS
The Company's business is subject to extensive Federal, state and local
controls and regulations related to the environment, including the regulation of
discharge of materials into the environment, disturbance of lands, threatened or
endangered species and other environmental matters. Generally, compliance with
these regulations requires the Company to obtain permits issued by Federal,
state and local regulatory agencies. Certain permits require periodic renewal or
review of their conditions. The Company cannot predict whether it will be able
to renew such permits or whether material changes in permit conditions will be
imposed. Nonrenewal of permits or the imposition of additional conditions could
have a material adverse effect on the Company's financial condition or results
of operations.
REGULATIONS AND MINING LEGISLATION
The Company's activities are also subject to extensive Federal, state and
local laws and regulations governing matters relating to mine safety,
occupational health, labor standards, prospecting, exploration, production,
exports and taxes. The Company has not experienced any material difficulty
emanating from these extensive laws and regulations in the past, nor does it
have any basis to expect any material difficulty relating to existing laws and
regulations in the future. The Company believes that it has successfully
complied in all material respects with all Federal, state and local requirements
for the current operations and planned expansion of its mining activities at the
Stillwater Mine. Compliance with these and other laws and regulations could
require significant capital outlays. New laws and regulations, amendments to
existing laws and regulations, or more stringent enforcement of existing laws
and regulations, could have a material adverse impact on the Company's results
of operations and financial condition and, in the worst case, could render the
Company's mining operations uneconomic. See Item 1, "Business-Mining Claims" and
"Business-Current Operations-Regulatory and Environmental Matters."
DEPENDENCE ON A SINGLE MINE
All of the Company's revenues are currently derived from its mining and
milling operations at the Stillwater Mine. Although the Company has not
experienced any serious production interruption since production began in 1987,
if the operations at the Stillwater Mine or at any of the Company's processing
facilities were to be reduced, interrupted or curtailed, the Company's ability
36
<PAGE>
to generate revenues and profits in the future would be materially adversely
affected.
TITLE TO PROPERTIES
The validity of unpatented mining claims on public lands, which constitute
most of the property holdings of the Company, is often uncertain and may be
contested and subject to title defects. While the Company has obtained various
reports, opinions and certificates of title with respect to certain of the
claims it owns or to which it has the rights in accordance with what the Company
believes is industry practice, there can be no assurance that the title to any
of its claims may not be defective. See "Business-Mining Claims" and
"Business-Current Operations-Regulatory and Environmental Matters."
WORKERS' COMPENSATION
The Company has been allowed by the Employment Relations Division of the
Montana Department of Labor and Industry to self-insure its obligations under
the Montana Workers' Compensation Act through July 31, 1997, by posting a letter
of credit in the amount of $1.5 million. The Employment Relations Division has
the authority to grant, deny or revoke applications to be self-insured for
workers' compensation obligations, and there can be no assurance that the
company will be allowed to maintain its self-insured status indefinitely.
Failure to maintain its self-insured status for workers' compensation
obligations would have a material adverse impact on the Company and could render
the Company's operations uneconomic.
37
<PAGE>
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
REPORT OF MANAGEMENT
Management is responsible for the preparation of the accompanying
financial statements and for other financial and operating information in the
annual report. Management believes that its accounting systems and internal
accounting controls, together with other controls, provide assurance that all
accounts and records are maintained by qualified personnel in requisite detail,
and accurately and fairly reflect transactions of Stillwater Mining Company in
accordance with established policies and procedures.
The Board of Directors has an Audit Committee, none of whose members
are officers or employees of the Company or its affiliates. The Audit Committee
recommends independent accountants to act as auditors for the Company; reviews
the Company's financial statements; confers with the independent accountants
with respect to the scope and results of their audit of the Company's financial
statements and their reports thereon; reviews the Company's accounting policies,
tax matters and internal controls; and oversees compliance by the Company with
the requirements of Federal regulatory agencies. Access to the Audit Committee
is given to the Company's financial and accounting officers and independent
accountants.
John E. Andrews PRESIDENT
R. Daniel Williams CHIEF FINANCIAL OFFICER
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Stillwater Mining Company
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of cash flows and of changes in
stockholders' equity present fairly in all material respects, the financial
position of Stillwater Mining Company and its subsidiary at December 31, 1996
and 1995, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2, the Company changed its method of accounting
for mine development expenditures in 1996.
PRICE WATERHOUSE LLP
Denver, Colorado
March 14, 1997
38
<PAGE>
<TABLE>
<CAPTION>
STILLWATER MINING COMPANY
- ----------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31, 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 16,389 $ 714
Short-term investments 17,060 23,933
Inventories 13,522 18,450
Other current assets 1,292 1,237
Deferred income taxes 798 640
- ---------------------------------------------------------------------------------------------------------------------
Total current assets 49,061 44,974
- ---------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 187,802 115,784
Other noncurrent assets 3,047 1,417
- ---------------------------------------------------------------------------------------------------------------------
Total assets $239,910 $162,175
=====================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt and capital lease obligations $ 1,463 $ 460
Accounts payable 5,039 4,751
Accrued payroll and benefits 2,289 1,909
Property, production and franchise taxes payable 3,120 2,272
Other current liabilities 3,922 862
Amounts payable to affiliates - 116
- ---------------------------------------------------------------------------------------------------------------------
Total current liabilities 15,833 10,370
- ---------------------------------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term debt and capital lease obligations 62,563 8,713
Other noncurrent liabilities 2,528 2,346
Deferred income taxes 15,320 8,441
Commitments and contingencies (Note 13) - -
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 96,244 29,870
- ---------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued - -
Common stock, $.01 par value, 50,000,000 shares
authorized, 20,135,912 and 20,065,232 shares issued and
outstanding in 1996 and 1995, respectively 201 201
Paid-in capital 138,093 137,814
Accumulated earnings (deficit) 5,372 (5,710)
- ---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 143,666 132,305
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $239,910 $162,175
=====================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
STILLWATER MINING COMPANY
- ----------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES $56,214 $51,335 $54,934
- -----------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of metals sold 50,175 45,864 46,041
Depreciation and amortization 8,699 5,749 5,232
Administrative expenses 1,760 1,974 768
Write-down of asset 772 - -
- -----------------------------------------------------------------------------------------------------------------------
Total costs and expenses 61,406 53,587 52,041
- -----------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (5,192) (2,252) 2,893
OTHER INCOME (EXPENSE)
Interest income 2,138 2,795 221
Interest expense, net of capitalized interest of $2,218, $0, and $0 (1,461) (431) (320)
- -----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY LOSS AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (4,515) 112 2,794
INCOME TAX BENEFIT (PROVISION) 1,736 (44) (243)
- -----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (2,779) 68 2,551
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT, NET OF INCOME TAX BENEFIT OF $357 - - (568)
- -----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (2,779) 68 1,983
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET
OF INCOME TAX PROVISION OF $8,677 13,861 - -
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME $11,082 $ 68 $ 1,983
=======================================================================================================================
PRIMARY INCOME (LOSS) PER COMMON SHARE
Income (loss) before cumulative
effect of accounting change $ (0.13) $ -
Cumulative effect of accounting change 0.67 -
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 0.54 $ -
=======================================================================================================================
FULLY DILUTED INCOME (LOSS) PER COMMON SHARE
Income (loss) before cumulative effect of
accounting change $ (0.12)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 0.63
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 0.51
=======================================================================================================================
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Primary 20,555 20,501
Fully diluted 21,847 20,501
The accompanying notes are an integral part of these financial statements.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
STILLWATER MINING COMPANY
- ----------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 11,082 $ 68 $ 1,983
Adjustments to reconcile net income
to net cash provided by operating activities:
Extraordinary loss on early extinguishment
of debt, net of income tax benefit of $357 - - 568
Depreciation and amortization 8,699 5,749 5,232
Deferred income taxes (1,736) (257) (128)
Cumulative effect of accounting change,
net of income tax provision of $8,677 (13,861) - -
Write-down of asset 772 - -
Other 212 153 322
Changes in operating assets and liabilities:
Decrease in inventories 4,928 223 410
Increase in other current assets (55) (344) (439)
(Decrease) increase in current liabilities 4,241 (314) 953
Increase in noncurrent liabilities 182 731 319
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,464 6,009 9,220
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, including capitalized interest (58,413) (46,133) (9,315)
Purchase of short-term investments (48,290) (189,183) -
Proceeds from sale and maturity of short-term investments 55,163 165,250 -
Proceeds from sale of assets 118 433 118
- -----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (51,422) (69,633) (9,197)
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 414 56 95,676
Exercise of stock warrants - 2 3,483
Redemption of common stock (134) (101) (44,000)
Proceeds from capital lease and debt issue, net of debt issue costs 53,206 7,460 4,424
Payments on long-term debt and capital lease obligations (853) (73) (5,065)
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 52,633 7,344 54,518
- -----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
Net increase (decrease) 15,675 (56,280) 54,541
Balance at beginning of year 714 56,994 2,453
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 16,389 $ 714 $ 56,994
=======================================================================================================================
SUPPLEMENTAL INFORMATION
Cash paid (received) during the year for:
Interest expense, net of capitalized interest $ 828 $ 132 $ 304
Income taxes $ - $ (301) $ 265
The accompanying notes are an integral part of these financial statements.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
STILLWATER MINING COMPANY
- ----------------------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
ACCUMULATED
SHARES COMMON PAID-IN EARNINGS TOTAL
OUTSTANDING STOCK CAPITAL (DEFICIT) EQUITY
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 20,070 $201 $137,748 $(5,778) $132,171
Common stock redeemed (5) - (101) - (101)
Common stock issued for employee benefit plans - - 109 - 109
Other - - - 58 - 58
Net income - - - 68 68
- -----------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 20,065 $201 $137,814 $(5,710) $132,305
Common stock redeemed (7) - (134) - (134)
Common stock issued for employee benefit plans 78 - 455 - 455
Other - - - (42) - (42)
Net income - - - 11,082 11,082
- -----------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 20,136 $201 $138,093 $5,372 $143,666
=======================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
42
<PAGE>
STILLWATER MINING COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1
NATURE OF OPERATIONS
Stillwater Mining Company (the "Company"), a Delaware corporation, is
engaged in the exploration, development, mining and production of platinum,
palladium and associated minerals from properties located in Stillwater and
Sweet Grass Counties, Montana.
Prior to October 1, 1993, the Company consisted of Stillwater Mining
Company (SMC) and Stillwater PGM Resources (SPGMR) which were both Colorado
general partnerships equally owned by Chevron U.S.A. Inc. ("Chevron"), a
subsidiary of Chevron Corporation, and Manville Mining Company ("Manville"), a
subsidiary of Manville Corporation. The partners shared equally in all of the
Company's profits, losses and funding. In 1993, the partners approved the
reorganization of SMC and SPGMR into a single corporation effective October 1,
1993. The Company issued 6.75 million shares of common stock to SMC and 675,000
shares to SPGMR and all assets and liabilities of SMC and SPGMR were transferred
to the new corporation. In addition, Manville and Chevron contributed land and
other property at historical cost of $294,000 in return for the issuance of
37,500 shares of common stock each to Manville and Chevron. SMC and SPGMR
subsequently transferred all of their shares in the Company equally to Manville
and Chevron and were dissolved. The Company had previously issued 7.5 million
shares of common stock to SMC upon incorporation in December 1992.
The reorganization was accounted for as a reorganization of entities under
common control, using historical cost, in a manner similar to a pooling of
interests. The Company restated all historical financial information to reflect
the reorganization. Earnings and losses prior to October 1, 1993 were treated as
constructive distributions or capital returns to the partners and were included
in paid-in capital.
On September 16, 1994, the Company redeemed Chevron's entire 50% interest
for $44 million. In December 1994, Manville, in connection with the Company's
initial public offering of common stock, sold 2,112,500 shares reducing its
ownership to approximately 27%. In August 1995, Manville sold its remaining
interest in the Company to a group of institutional investors.
The Company's operations can be significantly impacted by risks and
uncertainties associated with the mining industry as well as those specifically
related to its operations. The risks and uncertainties that can impact the
Company include but are not limited to the following: metals price volatility,
dependence on a single mine, expansion plan completion, reserve estimation,
exploration and development, competition, environmental obligations, limited
refining sources, governmental regulations and ownership of and access to
mineral reserves.
43
<PAGE>
STILLWATER MINING COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Stillwater Mining Company and its wholly owned subsidiary (collectively referred
to as the "Company"). All intercompany transactions and balances have been
eliminated in consolidation. Certain prior year amounts have been reclassified
to conform with current year presentation.
USE OF ESTIMATES
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in these
consolidated financial statements and accompanying notes. The more significant
areas requiring the use of management's estimates relate to certain inventory
quantities, mineral reserves, reclamation and environmental obligations,
valuation allowance for deferred tax assets, useful lives for depreciation and
amortization, and future cash flows from long-lived assets.
Actual results could differ from these estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
SHORT-TERM INVESTMENTS
Short-term investments consist primarily of corporate bonds and commercial
paper with maturities of less than two years from the date of settlement. Under
Statement of Financial Accounting Standards (SFAS) No. 115, ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, these securities are carried
at amortized cost, which approximates fair value, as the Company has the ability
and intent to hold to maturity.
REVENUE RECOGNITION
Revenue is recognized when the product is delivered and title transfers to
the buyer. Revenues consist of the sales revenue for platinum and palladium,
including any hedging gain or loss. By-product metals revenue and secondary
materials processing revenue are included as an offset to cost of metals sold.
44
<PAGE>
STILLWATER MINING COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
HEDGING PROGRAM
The Company enters into forward sale contracts and put and call option
contracts from time to time to reduce the effect of price changes in platinum
and palladium on the Company's sales. The results of these transactions are
included in sales revenue at the time the hedged production is sold.
INVENTORIES
Metals inventories are valued at the lower of average cost or net
realizable value. Production costs include the cost of direct labor, raw
materials, depreciation and amortization, as well as administrative expenses.
Materials and supplies inventories are valued at the lower of average cost or
replacement value.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment are stated at cost and depreciated using the
straight-line method over estimated useful lives ranging from five to 20 years,
or for capital leases, the term of the related leases. Maintenance and repairs
are charged to expense as incurred. Mine development expenditures incurred to
increase existing production, develop new ore bodies, or develop property
substantially in advance of production are capitalized and amortized using the
units-of-production method. Interest is capitalized on expenditures related to
construction or development projects actively being prepared for their intended
uses and amortized using the same basis of depreciation as the related asset.
Capitalization is discontinued when the asset enters commercial operation or
development ceases. Exploration costs are expensed as incurred.
Effective January 1, 1996, the Company changed its method of accounting for
mine development expenditures whereby certain direct and indirect costs related
to development activities, which were previously expensed as incurred, are now
capitalized. This change is believed to better present current income from
mining activities because it results in a better matching of expenses with the
revenue generated as a result of those expenses. The effect of the accounting
change on 1996 was to increase net income by approximately $5.2 million ($0.25
per share). Assuming the accounting change had been applied retroactively, the
unaudited pro forma effect would have been an increase in net income of $3.0
million ($0.15 per share) in 1995.
In 1995, the Company adopted SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 121
requires that an impairment loss be recognized in the event that facts and
circumstances indicate the carrying amount of an asset may not be recoverable,
and estimated undiscounted future net cash flows are less than the carrying
amount of the asset. The effect of adopting SFAS No. 121 was not material.
45
<PAGE>
STILLWATER MINING COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
EARNINGS PER SHARE
Primary earnings per share are determined by dividing net income by the
weighted average number of common shares and common stock equivalents
outstanding. Fully diluted earnings per share are determined by dividing net
income by the weighted average number of common shares, common stock equivalents
and other dilutive shares (non-common stock equivalents) outstanding. Earnings
per share has not been presented for 1994, since the Company completed its
initial public offering in December, 1994.
STOCK-BASED COMPENSATION
The Company elected SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
in 1996 and, as permitted by SFAS No. 123, the Company will continue to measure
compensation cost using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and
has made pro forma disclosures of net income and earnings per share as if the
fair value based method of accounting, as defined in SFAS No. 123, had been
applied.
CAPITALIZATION OF FINANCING COSTS
Financing costs related to the issuance of debt securities are capitalized
and amortized over the life of the indebtedness.
MINE CLOSURE AND RECLAMATION
Minimum standards for mine closure and reclamation costs have been
established by various governmental agencies. Such costs are accrued and charged
over the life of the mine using the units-of-production method. Expenditures
related to ongoing reclamation programs are expensed as incurred. As of December
31, 1996, the Company has posted $4.2 million in reclamation bonds for state and
federal requirements, which also represents the Company's best estimate of
future reclamation and mine closure costs under existing environmental
legislation and the current operations plan. The accrued reclamation liability
was $556,000 and $490,000 at December 31, 1996 and 1995, respectively.
INCOME TAXES
Income taxes are determined using the asset and liability approach in
accordance with the provisions set forth in SFAS No. 109, ACCOUNTING FOR INCOME
TAXES. This method gives consideration to the future tax consequences of
temporary differences between the financial reporting basis and the tax basis of
assets and liabilities based on currently enacted tax rates.
46
<PAGE>
STILLWATER MINING COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
SIGNIFICANT CUSTOMERS
Sales to three customers represented approximately 98%, 92% and 96% of
total revenues for the years ended December 31, 1996, 1995 and 1994,
respectively. The Company sells its metals to a small number of customers and
brokers; however, the Company is not economically dependent upon these customers
since platinum and palladium can be readily sold in numerous markets throughout
the world.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
other current assets, accounts payable, other current liabilities, long-term
debt, capital lease obligations and other noncurrent liabilities. The carrying
amounts of cash and cash equivalents, other current assets, accounts payable,
and other current liabilities approximate fair value due to their short
maturities. At December 31, 1996 and 1995, based on rates available for similar
types of obligations, the fair values of long-term debt, capital lease
obligations and other noncurrent liabilities were not materially different from
their carrying amount. Other financial instruments as of December 31, 1996
consist of a letter of credit for $100,000, backed by a certificate of deposit.
NOTE 3
INVENTORIES
Inventories consisted of the following (in thousands):
DECEMBER 31, 1996 1995
- -------------------------------------------------------------------------------
Raw ore $ 273 $ 551
Concentrate and in-process 6,570 1,976
Matte and finished goods 3,529 12,718
- -------------------------------------------------------------------------------
10,372 15,245
Materials and supplies 3,150 3,205
- -------------------------------------------------------------------------------
$ 13,522 $ 18,450
===============================================================================
47
<PAGE>
STILLWATER MINING COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 4
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
DECEMBER 31, 1996 1995
- --------------------------------------------------------------------------------
Equipment $ 22,067 $ 21,768
Leased equipment 11,088 7,485
Facilities 54,522 28,656
Mine development 94,900 54,827
Land 2,221 2,159
Construction-in-process 46,642 37,571
- --------------------------------------------------------------------------------
231,440 152,466
Less accumulated depreciation and amortization (43,638) (36,653)
- --------------------------------------------------------------------------------
$ 187,802 $ 115,813
================================================================================
NOTE 5
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
SPECIAL INDUSTRIAL EDUCATION IMPACT REVENUE BONDS
These bonds were issued in 1989 in three series by the Company to finance
impact payments to local school districts. The bonds bear interest at varying
rates between 6.5% and 7.8% and mature in increasing annual principal amounts
through 2009. Balances outstanding at December 31, 1996 and 1995 were $1.6
million and $1.7 million, respectively, of which $75,000 and $75,000 were
classified as current, respectively. The bonds are secured by guarantees from
Chevron Corporation, which are collateralized by the Company's real estate.
Scheduled principal repayments during the years 1997 through 2001 are $75,000,
$85,000, $92,500, $105,000 and $110,000, respectively. Scheduled principal
repayments subsequent to 2001 total $1.2 million.
CONVERTIBLE SUBORDINATED NOTES
On April 29, 1996, the Company sold $50 million of its 7% Convertible
Subordinated Notes Due 2003 (the "Convertible Notes"), maturing on May 1, 2003.
On May 14, 1996, the initial purchaser exercised its over-allotment option and
purchased an additional $1.45 million of Convertible Notes. The Convertible
Notes are unsecured, subordinated obligations. As of December 31, 1996, $51.5
million is classified as long-term debt.
The Convertible Notes will be redeemable, in whole or in part, at the
option of the Company beginning on May 1, 1999. The Convertible Notes will be
convertible, subject to prior redemption, at the option of holders at any time
after 90 days following the date of original issuance and prior to maturity,
into shares of the Company's common stock at a conversion price of $26.80 per
share, subject to adjustment in certain events.
48
<PAGE>
STILLWATER MINING COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
In connection with the offering of the Convertible Notes, the Company filed
a shelf registration statement on Form S-3 under the Securities Act of 1933, as
amended, relating to the resale of the Convertible Notes and the common stock
issuable upon conversion. This registration statement was declared effective by
the Securities and Exchange Commission on December 19, 1996.
EQUIPMENT LEASE AGREEMENTS
In October 1995, the Company entered into a five-year, $7.5 million
equipment leasing agreement with Senstar Capital Corporation. During 1996, the
Company entered into three additional five-year equipment leasing agreements
with Senstar Capital Corporation, for the following amounts: $790,000, $1.5
million, and $1.5 million. The agreements cover new underground mining equipment
acquired in 1995 or 1996 and each contain a two-year renewal option at the end
of five years. Based upon the provisions of the leasing agreements, all leases
qualify as capital leases, and the renewal options qualify as an extension of
the base lease term. As a result, all leased equipment has been capitalized and
is being depreciated over seven years. Future minimum payments under the
equipment leases are as follows (in thousands):
YEAR ENDING DECEMBER 31,
- --------------------------------------------------------------------------------
1997 $ 2,212
1998 2,547
1999 2,826
2000 2,680
2001 1,865
Subsequent to 2001 1,653
- --------------------------------------------------------------------------------
Total minimum lease payments 13,783
Less amount representing interest (2,924)
- --------------------------------------------------------------------------------
Present value of net minimum lease payments 10,859
Less current portion (1,388)
- --------------------------------------------------------------------------------
Total capital lease obligation $ 9,471
================================================================================
CREDIT AGREEMENT
As of April 19, 1994, the Company entered into a credit agreement with N M
Rothschild & Sons Limited for an unsecured working capital line of credit up to
a maximum of $15 million, subject to a borrowing base computation. The line of
credit was scheduled to expire on December 31, 1997 but subsequent to December
31, 1996 has been extended to April 30, 1998. Interest on amounts drawn is
payable at 1.5% per annum over the prevailing London Interbank Offered Rate or
0.5% over the prevailing prime rate. Fees of 1.5% per annum are levied on the
aggregate amount of any letters of credit issued under the facility and a
commitment fee of 0.5% per annum is payable on available but undrawn amounts.
Such fees totaled $58,000, $80,000 and $50,000 in 1996, 1995 and 1994,
49
<PAGE>
STILLWATER MINING COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
respectively. The Company has granted a negative pledge on its inventory during
the term of the credit agreement, and the Company is required to abide by
certain financial covenants. As of December 31, 1996, the Company has
approximately $5.8 million available, is in compliance with all financial
covenants and has no debt outstanding under this facility.
NOTE 6
EMPLOYEE BENEFIT PLANS
On June 1, 1993, the Company established the Stillwater Mining Company
401(k) Plan and Trust (the "existing plan"). From June 1, 1993 through September
30, 1996, all eligible employees could participate in this plan. On October 1,
1996, the Company established the Stillwater Mining Company 401(k) Plan and
Trust for Bargaining Unit Employees ("the new plan"). All bargaining unit
employees' assets were transferred to the new plan, while all non-bargaining
unit employees continue participation under the existing plan. All current
employees of the Company with at least six months of consecutive service are
eligible to participate in their appropriate plan. Other than the
differentiation between bargaining unit employees and non-bargaining unit
employees, the plans are identical. The Company matches employee contributions
at a 2:1 ratio up to 3% of the employee's gross wages. Both plans have a
two-year cliff vesting period. Monthly contributions are made to separate trust
funds administered by an independent investment manager. Company contributions
to the plans totaled $858,000, $749,000 and $672,000 in 1996, 1995 and 1994,
respectively.
NOTE 7
COMMON AND PREFERRED STOCK PLANS AND AGREEMENTS
STOCK PLAN
In September 1994, the Company adopted the Stillwater Mining Company 1994
Stock Plan (the "Stock Plan"), which enables the Company to grant stock options
or restricted stock to employees and non-employee directors. The options are in
the form of either incentive stock options or non-qualified stock options and
may be granted with stock appreciation rights (SARs). SARs permit holders to
receive either cash or shares of common stock with value equal to the excess of
the market price over the grant price in exchange for the surrender of the SARs.
Shares issuable under the Stock Plan may be newly issued or shares purchased on
the open market.
The Stock Plan is administrated by the Compensation Committee of the
Company's Board of Directors which determines the exercise price, exercise
period, vesting period and all other terms. Unexercised options expire ten years
after the date of grant.
50
<PAGE>
STILLWATER MINING COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
The Stock Plan covers a total of 1,500,000 shares of common stock with
approximately 432,000 shares available for grant as of December 31, 1996. Stock
option activity for the years ended December 31, 1996, 1995 and 1994 is
summarized as follows:
Weighted Average
Shares Exercise Price
------ --------------
Options granted in 1994 635,625 $5.87
- --------------------------------------------------------------------------------
Options outstanding at December 31, 1994
(150,000 exercisable) 635,625 $5.87
1995 Activity:
Options granted 219,250 $19.83
Options exercised (400) $5.87
Options canceled (9,275) $5.87
- --------------------------------------------------------------------------------
Options outstanding at December 31, 1995
(303,688 exercisable) 845,200 $9.49
- --------------------------------------------------------------------------------
1996 Activity:
Options granted 278,775 $21.40
Options exercised (77,595) $5.87
Options canceled (40,575) $18.56
- --------------------------------------------------------------------------------
Options outstanding at December 31, 1996
(674,592 exercisable) 1,005,805 $12.70
================================================================================
51
<PAGE>
STILLWATER MINING COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Price Outstanding Contract Life Exercise Price Exercisable Exercise Price
-------------- ----------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$5.87 548,355 7.75 $5.87 548,355 $5.87
$13.44 - $20.00 213,475 8.76 $19.17 101,737 $19.25
$20.50 - $28.12 243,975 9.20 $23.02 24,500 $22.25
--------- -------
1,005,805 674,592
========= =======
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
Statement No. 123, "Accounting for Stock-Based Compensation," (SFAS 123)
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions:
YEAR ENDED DECEMBER 31, 1996 1995
- --------------------------------------------------------------------------------
Expected life (years) 4-10 4-10
Interest rate 5.2% - 6.2% 5.9% - 7.9%
Volatility 44.87% 41.51%
Dividend yield - -
================================================================================
Option valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's employee
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands, except for per share amounts):
52
<PAGE>
STILLWATER MINING COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1996 1995
- --------------------------------------------------------------------------------
Pro forma net income (loss) $9,697 $(254)
Pro forma income (loss) per share:
Primary $0.47 $(0.01)
Fully diluted $0.44 n/a
================================================================================
Additionally, 30,000 shares of restricted stock were granted in September
1994. Deferred compensation related to restricted stock was recorded as a
component of paid-in capital and is amortized over the two-year vesting period.
STOCKHOLDERS' RIGHTS AGREEMENT
In October 1995, the Board of Directors of the Company adopted a Rights
Agreement under which Stillwater stockholders of record as of November 15, 1995
received a dividend in the form of Preferred Stock Purchase Rights (the
"Rights"). The Rights permit the holder to purchase one one-thousandth of a
share (a unit) of Series A Preferred Stock at an initial exercise price of $80
per unit under certain circumstances. The purchase price, the number of units of
Preferred Stock and the type of securities issuable upon exercise of the Rights
are subject to adjustment. The Rights expire on October 26, 2005 unless earlier
redeemed or exchanged. Until a Right is exercised, the holder thereof has no
rights as a stockholder of the Company, including the right to vote or receive
dividends. Subject to certain conditions, the Rights become exercisable ten
business days after a person or group acquires or commences a tender or exchange
offer to acquire a beneficial ownership of 15% or more of the Company's
outstanding common stock.
53
<PAGE>
STILLWATER MINING COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 8
INCOME TAXES
The total income tax provision (benefit) has been allocated as follows (in
thousands):
YEAR ENDED DECEMBER 31, 1996 1995 1994
- ------------------------------------------------------------------------------
Income tax provision (benefit) $ (1,736) $ 44 $ 243
Extraordinary loss - - (357)
Cumulative effect in accounting change 8,677 - -
- -------------------------------------------------------------------------------
Total income tax provision (benefit) $ 6,941 $ 44 $ (114)
===============================================================================
The components of the income tax provision (benefit) consisted of the
following (in thousands):
YEAR ENDED DECEMBER 31, 1996 1995 1994
- -------------------------------------------------------------------------------
Current federal $ 220 $ (117) $ 233
Current state - - (28)
- -------------------------------------------------------------------------------
Total current 220 (117) 205
- -------------------------------------------------------------------------------
Deferred federal (2,137) 498 (33)
Deferred state 181 (337) 71
- -------------------------------------------------------------------------------
Total deferred (1,956) 161 38
- -------------------------------------------------------------------------------
Income tax provision (benefit) $ (1,736) $ 44 $ 243
===============================================================================
The deferred tax (assets) liabilities are comprised of the tax effect of
the following (in thousands):
DECEMBER 31, 1996 1995
- -------------------------------------------------------------------------------
Property and equipment $ 6,638 $ 7,997
Mine development costs 17,797 8,382
- -------------------------------------------------------------------------------
Total deferred tax liabilities 24,435 16,379
- -------------------------------------------------------------------------------
Capital lease obligations (521) (2,950)
Noncurrent liabilities (1,400) (881)
Current liabilities (248) (475)
Inventory (35) (39)
State tax deduction (1,245) (485)
Net operating loss carryforwards (15,141) (3,748)
- -------------------------------------------------------------------------------
Total deferred tax assets (18,590) (8,578)
- -------------------------------------------------------------------------------
Net deferred tax liability $ 5,845 $ 7,801
===============================================================================
54
<PAGE>
STILLWATER MINING COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
The following is a reconciliation between the tax provision determined by
applying the federal statutory income tax rate of 35% in 1996 and 1995 and 34%
in 1994 to pre-tax income, and the Company's tax provision (benefit) (in
thousands):
YEAR ENDED DECEMBER 31, 1996 1995 1994
- ------------------------------------------------------------------------------
Income (loss) before income taxes,
extraordinary loss and cumulative
effect of accounting change $ (4,515) $ 112 $ 2,794
==============================================================================
Income taxes at statutory rate $ (1,580) $ 39 $ 950
State income taxes, net of federal benefit (134) 5 120
Adjustment to prior year's tax provision - - (810)
Other (22) - (17)
- ------------------------------------------------------------------------------
Income tax provision (benefit) $ (1,736) $ 44 $ 243
==============================================================================
The adjustment of the 1994 tax provision relates to the tax basis in
development costs that were originally thought to be accounted for by the
partners separately, leaving no tax basis for the Company.
At December 31, 1996, the Company had approximately $39.7 million of
regular tax net operating loss carryforwards expiring during 2009 through 2011.
NOTE 9
PRECIOUS METALS HEDGING CONTRACTS
Precious metals hedging contracts at December 31, 1996 consist of spot
deferred forward sales contracts. Realization under these contracts is dependent
upon the counterparties performing in accordance with the terms of the
contracts. The Company does not anticipate nonperformance of the counterparties.
Forward sales contracts require the future delivery of metals at a
specified price.
On December 31, 1996, the London A.M. Fix was $370.25 per ounce of platinum
and $116.50 per ounce of palladium. At December 31, 1996, the Company's
outstanding hedge contracts covering anticipated 1997 sales volumes are as
follows:
1997
------------------------
Average
Hedged Price
Ounces Per Ounce
- ----------------------------------------------------------------------------
PLATINUM
Forward sales contracts (spot deferred) 5,920 $388.55
- ----------------------------------------------------------------------------
PALLADIUM
Forward sales contracts (spot deferred) 31,930 $121.28
- ----------------------------------------------------------------------------
55
<PAGE>
STILLWATER MINING COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 10
COMMITMENTS AND CONTINGENCIES
REFINING AGREEMENTS
The Company has contracted with two separate entities to refine its filter
cake production. These contracts contain termination clauses upon adequate
notice but may require a substantial payment in the form of a cancellation fee.
The Company currently has no plans to terminate these contracts within the next
twelve months.
ELECTRIC SERVICE AGREEMENT
During 1996, Montana Power Company ("MPC") upgraded the Company's
transmission line and substation facilities. The cost of this upgrade to MPC
totaled approximately $2.9 million. In a contract between MPC and the Company
dated June 1, 1996, the Company agrees to reimburse MPC for these costs through
additional electrical revenues produced from the Company's increased load in
excess of 8,000 kilowatts. At the completion of the five-year agreement, or at
such earlier date if the Company terminates operations, if the total additional
revenues, as defined in the contract between MPC and the Company, have not met
or exceeded MPC's investment cost, the Company will be required to pay MPC the
difference.
56
<PAGE>
STILLWATER MINING COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 11
QUARTERLY DATA (UNAUDITED)
Quarterly earnings data for the years ended December 31, 1996 and 1995 were
as follows (in thousands, except per share data):
FIRST SECOND THIRD FOURTH
- -----------------------------------------------------------------------------
1996 QUARTERS
- -----------------------------------------------------------------------------
Revenue $13,649 $10,650 $16,482 $15,433
Operating income (loss) 18 (1,336) (1,550) (2,324)
Net income (loss) 13,851 (635) (812) (1,322)
Net income (loss) per share 0.67 (0.03) (0.04) (0.06)
- -----------------------------------------------------------------------------
1995 QUARTERS
- -----------------------------------------------------------------------------
Revenue $12,523 $17,891 $10,168 $10,753
Operating income (loss) 495 (1,209) (1,675) 137
Net income (loss) 777 (259) (722) 272
Net income (loss) per share 0.04 (0.01) (0.04) 0.01
NOTE 12
MINERAL RESERVES (UNAUDITED)
<TABLE>
<CAPTION>
Proven and probable platinum and palladium reserves (1) consisted of the
following:
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STILLWATER MINE
Ore reserves (thousands of tons) 15,619 11,072 10,797 10,561 8,099
Grade (2) 0.80 0.82 0.82 0.82 0.77
Contained metal (thousands of ounces)
Platinum (3) 2,907 2,016 1,976 1,929 1,392
Palladium (3) 9,595 7,058 6,918 6,751 4,873
- ---------------------------------------------------------------------------------------------------------------------------
Total contained metal 12,502 9,074 8,894 8,680 6,265
===========================================================================================================================
EAST BOULDER
Ore reserves (thousands of tons) 11,510 11,510 11,510 11,573 11,535
Grade (2) 0.79 0.79 0.79 0.79 0.79
Contained metal (thousands of ounces)
Platinum (3) 2,025 2,025 2,025 2,025 2,034
Palladium (3) 7,087 7,087 7,087 7,087 7,118
- ---------------------------------------------------------------------------------------------------------------------------
Total contained metal 9,112 9,112 9,112 9,112 9,152
===========================================================================================================================
</TABLE>
57
<PAGE>
STILLWATER MINING COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Summary operating information was as follows:
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
Ounces produced (in thousands)
Platinum 59 51 63 66 53
Palladium 196 169 207 218 175
Average realized price per ounce
Platinum $410 $425 $399 $376 $360
Palladium $144 $157 $138 $125 $ 89
- --------------------------------------------------------------------------------
(1) Derived from mineral reserve estimates prepared by independent consultants
as of December 31, 1995 and July 1, 1992 and adjusted for production,
additional drilling and development. The increase in reserves in 1993 can
be attributed to additional drilling and development, the use of a lower
cut-off grade and adjustment for historical mining experience. The increase
in reserves in 1996 and 1995 can be attributed to additional drilling and
development.
(2) Expressed in contained ounces of platinum and palladium per ton.
(3) Based on the ratio of 1.0 part of platinum to 3.5 parts of palladium.
58
<PAGE>
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------------------
NOT APPLICABLE
PART III
- --------------------------------------------------------------------------------
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
For information concerning the Company's executive officers, reference is
made to the information set forth under the caption "Executive Officers of the
Registrant" located in Item 1 of this Form 10-K. For information concerning the
Company's directors and compliance by the Company's directors, executive
officers and significant stockholders with the reporting requirements of Section
16 of the Securities Exchange Act of 1934, as amended, reference is made to the
information set forth under the captions "Election of Directors" and "Compliance
with Section 16(a) - Beneficial Ownership Reporting Compliance," respectively,
in the Company's Proxy Statement for the Annual Meeting of Stockholders to be
held on April 25, 1997, to be filed pursuant to Regulation 14A, which
information is incorporated herein by reference.
ITEM 11
EXECUTIVE COMPENSATION
----------------------
Reference is made to the information set forth under the caption "Executive
Compensation and Other Information" in the Company's Proxy Statement for the
Annual Meeting of Stockholders, to be held on April 25, 1997, to be filed
pursuant to Regulation 14A, which information (except for the Report of the
Compensation Committee of the Board of Directors and the Performance Graph) is
incorporated herein by reference.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
---------------------
Reference is made to the information set forth under the caption "Security
Ownership of Principal Stockholders and Management" in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 25, 1997,
to be filed pursuant to Regulation 14A, which information is incorporated herein
by reference.
59
<PAGE>
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Reference is made to the information contained under the caption "Certain
Transactions" contained in the Company's Proxy Statement for the Annual Meeting
of Stockholders to be held on April 25, 1997, to be filed pursuant to Regulation
14A, which information is incorporated herein by reference.
PART IV
- --------------------------------------------------------------------------------
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
-----------------------
(a) Documents filed as part of this Form 10-K
1. Financial Statements See Item 8
Report of Independent Accountants 27
Report of Management 27
Balance Sheet 28
Statement of Operations 29
Statement of Cash Flows 30
Statement of Changes in Stockholders' Equity 31
Notes to Financial Statements 32
2. Financial Statement Schedules. (not applicable)
(b) Reports on Form 8-K - None
(c) Exhibits.
EXHIBITS
Number Description
2.1 Exchange Agreement for 10,000 shares of common stock dated October 1,
1993 (incorporated by reference to Exhibit 2.1 to the Registrant's
Registration Statement on Form S-1 (File No. 33-85904) as declared
effective by the Commission on December 15, 1994 (the "1994 S-1")).
3.1 Amended and Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.4 to the 1994 S-1).
3.2 Amended and Restated Bylaws of the Registrant (incorporated by
reference to Exhibit 3.2 to the Registrant's Registration Statement on
Form S-1 (File No. 33-85904) as declared effective by the Commission on
December 15, 1994 (the "1994 S-1")).
10.1 1994 Stock Plan (incorporated by reference to Exhibit 10.1 to the 1994
S-1).*
10.2 Employment Agreement with John E. Andrews dated as of September 19,
1994 (incorporated by reference to Exhibit 10.4 to the 1994 S-1).*
10.3 Description of Incentive Program of John M. Sharratt, John E. Andrews
and Charles R. Engles (incorporated by reference to Exhibit 10.5 to the
Registrant's 1995 Form 10-K).*
10.4 Matte Toll Refining and Purchase Agreement dated May 2, 1989 (incor-
porated by reference to Exhibit 10.6 to the 1994 S-1).
10.5 Credit Agreement between Stillwater Mining Company as borrower and N M
Rothschild & Sons Limited as Lender, dated as of April 19, 1994
(incorporated by reference to Exhibit 10.7 to the 1994 S-1).
10.6 Mining and Processing Agreement dated March 16, 1984 regarding the
Mouat family; and Compromise of Issues Relating to the Mining and
Processing Agreement (incorporated by reference to Exhibit 10.8 to the
1994 S-1).
10.7 Conveyance of Royalty Interest and Agreement dated October 1, 1993
(incorporated by reference to Exhibit 10.9 to the 1994 S-1).
60
<PAGE>
10.8 Agreement for Electric Service between the Montana Power Company and
Stillwater Mining Company dated July 1, 1990 (incorporated by reference
to Exhibit 10.10 to the 1994 S-1).
10.8.1 Agreement for Electric Service between the Montana Power Company and
Stillwater Mining Company dated June 1, 1996.
10.9 Stock Redemption Agreement dated July 28, 1994 (incorporated by
reference to Exhibit 10.11 to the 1994 S-1).
10.10 Note and Warrant Purchase Agreement dated September 16, 1994
(incorporated by reference to Exhibit 10.12 to the 1994 S-1).
10.11 Shareholders Agreement dated September 16, 1994 (incorporated by
reference to Exhibit 10.13 to the 1994 S-1).
10.11.1 Registration Rights Agreement dated August 23, 1995, amending
Shareholders Agreement (incorporated by reference to Exhibit 4.1 to
Form 8-K filed on August 28, 1995).
10.12 Stock Purchase Agreement dated September 16, 1994 (incorporated by
reference to Exhibit 10.14 to the 1994 S-1).
10.13 Employment Agreement with R. Daniel Williams dated August 1, 1995
(incorporated by reference to Exhibit 10.15 to the Registrant's 1995
10-K).
10.14 Residue Refining Agreement between Stillwater Mining Company and
Johnson Matthey, dated as of February 8, 1996 (incorporated by
reference to Exhibit 10.16 of the Registrant's 1995 10-K).
10.15 Equipment Lease Agreement between Stillwater Mining Company and
Senstar Capital Corporation dated October 5, 1995. (incorporated by
reference to Exhibit 10.17 of the Registrant's 1995 19-K).
10.15.1 Purchase Agreement between Stillwater Mining Company and Senstar
Capital Corporation dated October 5, 1995 (incorporated by reference to
Exhibit 10.17.1 of the Registrant's 1995 10-K).
10.16 Purchase Agreement between Stillwater Mining Company and The Westaim
Corporation, dated October 14,1996.
23.1 Consent of Price Waterhouse LLP.
27 Financial Data Schedule
* Constitutes an executive compensation plan or arrangement of the Registrant.
61
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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")
Dated: March 25, 1997 By: /S/ John E. Andrews
--------------------
John E. Andrews
President and Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant, in
the capacities, and on the dates, indicated.
Signature And Title Date
- --------------------------------------------------------------------------------
/s/ John E. Andrews March 25, 1997
- -------------------
John E. Andrews
President and
Chief Operating Officer
(Principal Executive Officer)
/s/ R. Daniel Williams March 25, 1997
- ----------------------
R. Daniel Williams
Vice President and
Chief Financial and Accounting Officer
(Principal Financial and Accounting Officer)
/s/ Ray W. Ballmer March 25, 1997
- ------------------
Ray W. Ballmer, Chairman and Director
/s/ John W. Eschenlohr March 25, 1997
- ----------------------
John W. Eschenlohr, Director
/s/ Sharon M. Meadows March 25, 1997
- ---------------------
Sharon M. Meadows, Director
/s/ Ted Schwinden March 25, 1997
- -----------------
Ted Schwinden, Director
/s/ Peter Steen March 25, 1997
- ---------------
Peter Steen, Director
/s/ W. Thomas Stephens March 25, 1997
- -----------------------
W. Thomas Stephens, Director
/s/ Richard B. Von Wald March 25, 1997
- -----------------------
Richard B. Von Wald, Director
62
AGREEMENT FOR ELECTRIC SERVICE
BETWEEN
THE MONTANA POWER COMPANY
AND
STILLWATER MINING COMPANY
<PAGE>
INDEX TO AGREEMENT PROVISIONS
Section 1: SERVICE TO BE PROVIDED
Section 2: INSTALLATION AND REMOVAL OF FACILITIES
Section 3: METERING FACILITIES
Section 4: PAYMENT
Section 5: REGULATORY JURISDICTION
Section 6: AGREEMENT TERM, MINIMUM BILL AND EXIT FEES
Section 7: INDEMNITY
Section 8: FORCE MAJEURE
Section 9: CUSTOMER REVENUE OBLIGATION
Section 10: ASSIGNMENT
Section 11: NOTICE
Section 12: EFFECT OF TITLES
Section 13: APPLICABLE LAW
Section 14: INTEGRATION
<PAGE>
AGREEMENT FOR ELECTRIC SERVICE
This Agreement for Electric Service ("Agreement"), effective on the 1st day of
June, 1996 ("Effective Date"), is entered into by and between STILLWATER MINING
COMPANY, a Delaware corporation whose address is HC 54, Box 365, Nye, Montana
59061, and THE MONTANA POWER COMPANY, a Montana corporation whose address is 40
East Broadway, Butte, Montana 59701.
RECITALS
WHEREAS, Stillwater Mining Company ("Customer") has received from The
Montana Power Company ("Company") and the Company has provided to the Customer,
electric utility service subject to the jurisdiction of the Montana Public
Service Commission ("Commission"); and
WHEREAS, Customer is changing facilities which is increasing its usage
of electric energy warranting a special contract for electric service and the
Company has heretofore indicated that it will provide such electric utility
service; and
WHEREAS, the parties desire to continue their relationship as seller
and buyer of electric energy under the terms of a new agreement;
NOW THEREFORE, the parties agree as follows:
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Section 1: SERVICE TO BE PROVIDED
----------------------
1.1 Subject to the terms and conditions of this Agreement, the Company
will supply, on a firm basis, and the Customer will take and pay for, electric
power (demand and energy) required for the operation of Customer's mining and
milling operation located near Nye, Montana ("Electric Service").
1.2 The Company is not obligated to provide, and the Customer agrees
not to take in excess of 15,000 kilowatts of demand, which then becomes the
effective Contract Demand. Demand measured in excess of the Contract Demand
limitation, if served, will be billed and paid for at a rate equal to five times
the applicable demand rate.
1.3 Should Customer desire to increase its Contract Demand, Customer
may request such increase in writing to the Company specifying the amount of
increase requested, the date Customer wishes the increase to become effective
and its duration. The Company shall, within 90 days of such written request,
respond in writing to what extent Company has the electric power available to
satisfy the requested increase. If such request is authorized, the newly
established demand shall become the Contract Demand specified in Subsection 1.2.
If Company is unable or does not agree to make such increase available, Customer
may acquire such electric power from another provider, and Company shall
negotiate terms and conditions in good faith for delivery of such power at a
reasonable price.
1.4 The Electric Service provided shall be three-phase, sixty-hertz,
alternating current at approximately 13.2 kilovolts, four (4) wire, grounded
center wye.
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1.5 The point of delivery of the electric service shall be at the
terminals of the Company's 13.2 kV disconnect switch in the substation.
Section 2: INSTALLATION AND REMOVAL OF FACILITIES
--------------------------------------
2.1 The location of power lines and substations shall be designated by
mutual agreement of the Customer and the Company, with every effort made to
locate them outside the area of present or probable mining operations and where
they will not be interfered with or affected by the mining or other activities
of the Customer. In the event the Company is required to alter, relocate or
remove such electric lines, equipment or substations, the Customer will pay 100
percent of the removal costs and new installation costs incurred, less the
salvage value of the electric plant removed, unless such alterations, relocation
or removal is made necessary by the negligence of the Company, its officers,
agents or employees, in which case Company shall bear such costs. However, if
the Company, for its own purposes, chooses to alter, relocate or remove such
electric lines, equipment or substations, the Company will pay 100 percent of
the costs incurred.
Section 3: METERING FACILITIES
-------------------
3.1 The Electric Service shall be metered for billing purposes by
equipment recording the kilowatt-hours consumed and the maximum combined
fifteen-minute interval kilowatt demand at the delivery voltage. The metering
equipment will be installed at the point of delivery and owned and maintained by
the Company.
3
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3.2 METERING AND MEASUREMENT. Company will meter the electrical power
(demand and energy) delivered to Customer at the point of delivery. In addition,
the parties agree to the following testing and corrective procedures:
3.2.1 CUSTOMER'S METER - Customer may install, operate
and maintain, at its sole expense, equipment for the purpose of
measuring the amount of electric energy delivered over any measurement
period (Customer meter), provided the equipment shall not interfere
with such delivery or with the Company's metering equipment. Under no
circumstances shall Customer be allowed access to the Company's
secondary metering circuits.
3.2.2 ALTERNATIVE MEANS OF MEASUREMENT - In the event
the Company's metering equipment is out of service or registers
inaccurately, measurement shall be determined in the following sequence
by:
a. Using back-up metering installed by
Company, if installed; or
b. Using the reading of the Customer's
meter, if installed and accurately registering, in which
case, Customer will promptly provide data from its meter as
requested by Company. Customer's meter shall not be
considered accurate unless it has been tested in accordance
with the testing intervals and procedures in Subsection
3.2.3; or
c. To the extent the methods described
above cannot be utilized, performing a mathematical
calculation or estimating by reference to Customer's
operating records for the period in question.
4
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3.2.3 TESTING - At no greater than sixty (60) month
intervals, the Company's meters shall be replaced with meters that have
been recently tested and calibrated in the Customer's presence, if
Customer so desires. These meters shall have an accuracy at time of
test of plus or minus 1/2 of 1 percent (0.5%) at both 10 percent (10%)
and 100 percent (100%) of the rated Test Amperes (T.A.) of the
Watt-hour Meter at 100 percent (100%) of nameplate voltage, rated
frequency, and ambient temperature of 23(Degree)C +/- 5(Degree)C. When
the replacement meter is installed, the meter being replaced shall be
tested under the same procedure as the new meter. If the meter is
inaccurate by more than plus or minus 1/2 of 1 percent (0.5%),
adjustments to prior meter readings and resulting bills will be made as
outlined in Subsection 3.2.5 CORRECTIONS OF METERING ERRORS. In the
event that either party notifies the other that it desires a test of
the accuracy of its own or of the other party's metering equipment, the
parties shall cooperate to secure a prompt verification of the accuracy
of such equipment. Notice shall be addressed to the electrical
engineering contact at Customer's mining and milling operation or to
Company's Manager of Industrial Services in Butte, Montana and shall be
in writing at least fourteen days in advance of said testing.
3.2.4 COST OF TESTING - Company shall bear the cost of
normally scheduled testing and any required adjustment of the Company's
meter. In the event that Customer requests a testing of Company's meter
at other than normal intervals, Customer shall bear the cost of the
testing, including meter removal and replacement, unless such equipment
is found to be inaccurate by greater than 1/2 of 1 percent (0.5%)
(either high or low).
5
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3.2.5 CORRECTIONS OF METERING ERRORS - If, upon
testing, the Company's meter removed from service is found to be
inaccurate by less than or equal to 1/2 of 1 percent (0.5%) (either
high or low), previous recordings of such equipment shall be considered
accurate in computing deliveries of electrical energy hereunder. If,
upon testing, Company's meter shall be found to be inaccurate by
greater than 1/2 of 1 percent (0.5%) (either high or low), any previous
recordings by such Company meter shall be corrected to zero error, to
the extent possible, and Company shall promptly send to Customer a
report based on such corrected recordings. If no reliable information
exists as to when the Company meter became inaccurate, it shall be
assumed for correction purposes hereunder that such inaccuracy began at
the point in time midway between the testing date and the last previous
date on which the Company meter was tested and found to be accurate or
adjusted to be accurate, with the adjustment period not to exceed six
(6) months.
a. The provisions of Subsection 1.2
pertaining to billing Customer five times the applicable
demand rate for demand exceeding the Contract Demand will
not apply in the event that metering inaccuracies prevent
Customer from having knowledge of such potential exposure.
3.2.6 MAINTENANCE - Each party shall have the right to
be present whenever the other party changes or tests its meter. Each
party shall give timely notice to the other party in advance of taking
any such actions. Notice shall be addressed to the electrical
engineering contact at Customer's mining and milling operation or to
Company's Manager of Industrial Services in Butte, Montana. Each party
shall give at least 24 hours notice to the other party prior to
undertaking the above described activity.
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3.3 BILLING ADJUSTMENTS -
a. If meter tests as described above indicate that meter
has been more than 1/2 of 1 percent (0.5%) high, correct billing will
be determined according to Subsection 3.2.2 and the Customer will be
credited for the difference.
b. If meter tests as described above indicate that
meter has been more than 1/2 of 1 percent (0.5%) low, correct billing
will be determined according to Subsection 3.2.2 and the Customer will
be billed for the difference.
Section 4: PAYMENT
-------
4.1 The Customer shall pay the Company for the Electric Service in
accordance with the terms of the applicable rate schedule for such service in
effect from time to time. The applicable rate in effect at the time of execution
of this Agreement is GS-2 which is attached as Exhibit A and by this reference
made a part hereof. The Company will propose to implement other forms of
electric rates in the near future (i.e., Real Time Pricing, Time Of Use) which
will be included in tariffs and will be available for the Customer if approved
by the Commission.
4.2 All rate adjustments to the applicable rate schedule, whether
temporary, interim or final authorized by the Commission or its successor with
respect to the Electric Service rendered under this Agreement, shall be deemed
amendments to this Agreement.
4.3 Statements for amounts due under this Section 4 shall be rendered
monthly and shall be due and payable in immediately available funds at the
general offices of the Company in Butte, Montana fifteen (15) days after the
receipt of invoice.
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4.4 If payments are not made in full within the fifteen (15) days
following the receipt of such statements, the Company may, upon fifteen (15)
days written notice and without incurring any liabilities to Customer,
discontinue in full, or in part, Electric Service hereunder until such payments
are made in full, unless the Customer informs the Company in writing of a bona
fide dispute with respect to an amount due and pays the undisputed portion. A
discontinuance of service under this section shall not be deemed a termination
of this Agreement. Amounts due but not paid hereunder shall bear interest from
the due date at an annual rate equal to the Prime Rate established by the Morgan
Guaranty Trust Company of New York in effect at the time these amounts become
due and payable.
Section 5: REGULATORY JURISDICTION
-----------------------
5.1 All Electric Service provided by the Company is subject to the
jurisdiction of the Commission or its successor.
Section 6: AGREEMENT TERM, MINIMUM BILL AND EXIT FEES
------------------------------------------
6.1 This Agreement shall be effective for Electric Service provided by
Company to Customer from and after its Effective Date and shall continue in
effect for a period of five (5) years unless extended for a specific term by
mutual agreement of the parties before the termination date. No "exit fees" or
"stranded costs" are provided for by this Agreement; however, the parties agree
that such exclusion should not be construed either to prohibit or to support the
imposition of such fees by law. Customer shall have no obligation to take its
energy requirements from Company and Company shall have no obligation to provide
Customer its energy requirements after termination of this Agreement, provided
8
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both parties have acceptable options which are allowed by law. If the Company is
required to provide Electric Service at the end of the initial term because of
lack of market access by the Customer, the Company shall provide Electric
Service to Customer at prices to then be determined by tariff or contract, as
may be appropriate.
6.2 Customer and Company recognize that significant changes may occur
in the availability and cost of electric power generation, in wholesale power
purchase opportunities, and in retail electric service caused by changes in fuel
costs, electric power markets, and transmission regulation. With the potential
for such changes and their impact on the Agreement and if a signed offer as
specified in Section 6.2.1 below is presented, the parties agree to renegotiate
this Agreement after March 1, 1999, not more often than once during any
consecutive twelve-month period.
6.2.1 To commence renegotiations after March 1, 1999, Customer
must present to Company a signed offer by a third party offering to
sell power and energy to Customer at Customer's mining and milling
operation at a total delivered price equal to or less than ninety
percent (90%) of the rates contained in the then-current applicable
rate schedule, presently Electric Tariff Schedule No. GS-2 that was
approved by the Commission for service on and after March 1, 1996. If
Customer can provide a reasonable demonstration that the offered power
and energy can be delivered at the price offered above by the third
party to the Customer's mining and milling operation, Customer shall
inform Company thereof and give Company an opportunity to make a
comparable price offer.
6.2.2 If Company does not meet the offered prices and if
existing law and/or regulation then authorizes the wheeling of
electricity for retail customers, Company shall negotiate terms and
conditions in good faith for the delivery of such offered power to the
9
<PAGE>
Customer's mining and milling operation. The Company shall execute the
necessary wheeling agreements to enable electric energy to be delivered
to the Customer's operation at wheeling rates, terms and conditions
approved by the Federal Energy Regulatory Commission or other
appropriate regulatory body and the Agreement shall then be terminated.
6.2.3 If Company does not meet the third party's offer within
thirty (30) business days of notification by Customer, the Customer's
mining and milling operation shall have no further obligation to
purchase its Electric Service from Company. If Customer elects to
contract for Electric Service from a third party, thereafter, the
Company shall have no further obligation to supply such Electric
Service, and this Agreement shall be terminated. However, Customer
shall be obligated to pay the following costs:
a. A payment of the balance of the Company's actual
investment, as defined in Subsection 9.1, less Total
Additional Revenue, as defined in Subsection 9.2, and any
associated surcharges (see Commission-authorized Rule No.
6-10) on that difference; and
b. A payment of Customer's Minimum Bill Obligation.
The Minimum Bill Obligation recovers any investment in power
supply, transmission or distribution system solely
attributable to Customer which is made by Company to serve
Customer, except the investment covered in Subsection
6.2.3(a). The Company will attempt to mitigate this amount to
the extent possible. If Customer remains on Company's system
as a transmission and/or distribution customer, investment in
transmission and/or distribution will not be included in the
Minimum Bill.
10
<PAGE>
Section 7: INDEMNITY
---------
7.1 Each party hereto expressly agrees to indemnify and hold harmless
and defend the other against all claims, demands, costs or expense for loss,
damage or injury to persons or property, in any manner directly or indirectly
connected with or growing out of the presence or use of electric capacity and
energy on its own side of the delivery point hereunder, unless such claim or
demand shall arise out of or result from the sole negligence or willful
misconduct of the other party, its agents, servants or employees; provided,
however, that neither party hereby assumes responsibility for damage or injury
to employees of the other party.
Section 8: FORCE MAJEURE
-------------
8.1 Company shall not be liable to Customer for failure to supply any
part of Customer's electric requirements hereunder when such failure results
from or is due to any act of God or any other cause not reasonably within the
control of the Company such as but not limited to extreme weather, lightning,
storms, floods, washouts, earthquakes, fires, explosions, breakage, failure of
or accident to appliances or equipment (specifically not including, however,
outages of equipment, appliances or facilities in connection with routine
maintenance, wear out or other foreseeable occurrences) , strikes, lockouts
(including those by Company), labor disputes, acts of the public enemy, war,
riots, insurrections, epidemics, arrests or restraints, rules, regulations or
orders of any court, commission or other governmental agency having
jurisdiction, or any other cause not reasonably within control of the Company,
whether of the kind herein enumerated or otherwise, but not including loss of
markets by Company or other economic conditions; provided, however, that Company
11
<PAGE>
shall use all reasonable diligence to remove any and all such causes and shall
resume deliveries when such cause or causes cease to be operative.
8.2 Customer shall not be liable to Company for failure to take
electric service hereunder when such failure results from or is due to any act
of God or any other cause not reasonably within the control of the Customer such
as but not limited to failure of equipment due to extreme weather, lightning,
storms, floods, washouts, earthquakes, fires, explosions, breakage, failure of
or accident to appliances or equipment (specifically not including, however,
outages of equipment, appliances or facilities in connection with routine
maintenance, wear out or other foreseeable occurrences), acts of the public
enemy, war, riots, insurrections, epidemics, arrests or restraints, rules,
regulations or orders of any court, commission or other governmental agency
having jurisdiction, strikes, lockouts (including those by Customer), labor
disputes or any other cause not reasonably within control of the Customer,
whether of the kind herein enumerated or otherwise, but not including loss of
markets by Customer or other economic conditions.
Section 9: CUSTOMER REVENUE OBLIGATION
---------------------------
9.1 Company will upgrade its transmission line and substation
facilities to serve Customer's Stillwater Mining Complex. Company's actual
investment attributed to Customer (estimated to be $2,920,000) must be recovered
through Total Additional Revenues produced from Customer's increased load in
excess of 8,000 kW. Company shall advise Customer of its Total Additional
Revenue obligation within three (3) months of the project's completion.
12
<PAGE>
9.2 Company shall calculate Total Additional Revenues by using the
demand greater than 8,000 kW and the associated energy (kWh), based on the
monthly load factor, at the effective GS-2 rates to determine additional monthly
revenues {i.e., If a particular month's load was 12,000 kW with a load factor of
80 percent for 720 hours, the associated energy would be 2,304,000 kWh (4,000 kW
x 720 hours x .80) and the associated demand would be 4,000 kW (12,000 kW -
8,000 kW)}. If fifty percent (50%) of the accumulated Total Additional Revenues
have not met or exceeded Company's actual investment after five years from the
Effective Date, or upon termination of operations by Customer, whichever occurs
first, Customer shall pay Company the difference between (1) Company's total
investment and (2) Total Additional Revenues, along with any associated
surcharges (as specified by Commission-authorized Rule No. 6-10) on the
difference between (1) and (2), in accordance with Subsection 4.3. Customer's
obligation to the Company for Company's investment shall be relieved at any time
during the first five (5) years of this Agreement that fifty percent (50%) of
the cumulative Total Additional Revenues exceed Company's actual investment.
Section 10: ASSIGNMENT
----------
10.1 This Agreement shall be binding upon the parties and their
respective successors and assigns, but no assignment by either party shall be
binding upon the other party until accepted in writing by the other party.
Such written acceptance shall not be unreasonably withheld.
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<PAGE>
Section 11: NOTICE
------
11.1 Any notice required or authorized by this Agreement shall be
sufficient if served in person or by certified mail with return receipt
requested to the other party. Notice to Customer is to be directed to:
Stillwater Mining Company
Attention: President and Chief Operating Officer
HC 54, Box 365
Nye, MT 59061
Notice to the Company is to be directed to:
The Montana Power Company
Attention: Manager, Industrial Services/Economic Development
40 East Broadway
Butte, MT 59701
11.2 Receipt shall be deemed to be the date of actual delivery in
person or the date the certified mail receipt is returned, as the case may be.
Section 12: EFFECT OF TITLES
----------------
12.1 The titles or captions of the sections of this Agreement are
inserted for convenience and shall not be construed or interpreted as
expressions of intent or obligations hereunder.
Section 13: APPLICABLE LAW
---------------
13.1 This Agreement shall be construed in accordance with the laws of
the State of Montana.
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Section 14: INTEGRATION
-----------
14.1 This instrument embodies the whole Agreement of the parties. There
are no agreements, terms, conditions or obligations other than those contained
herein; and this Agreement shall supersede all previous communications,
representations or agreements, either verbal or written, between the parties
hereto. Effective June 1, 1996, this Agreement supersedes and replaces the
current Agreement for Electric Service dated July 1, 1990 pertaining to
Customer's mining operations near Nye, Montana.
IN WITNESS WHEREOF, the parties hereto have caused their corporate
names to be hereunto subscribed by their officers in their behalf duly
authorized, the day and the year first above written.
STILLWATER MINING COMPANY
By /s/ J. ANDREWS
-----------------------------------------
President and Chief Operating Officer
THE MONTANA POWER COMPANY
By /s/ P.J. COLE
-----------------------------------------
Vice President, Business Development
and Regulatory Affairs
15
THIS AGREEMENT made as of the 1st day of June 1995
BETWEEN: Stillwater Mining Company
a Company duly incorporated under the laws of Montana
(hereinafter referred to as "Stillwater")
AND: The Westaim Corporation
a Corporation duly incorporated under
the laws of Alberta (hereinafter
referred to as "Westaim )
WHEREAS the Parties hereto wish to enter into an Agreement
whereby Stillwater agrees to deliver and sell the Product as herein defined, and
Westaim agrees to accept and buy the Product in accordance with the terms arid
conditions herein set forth:
NOW THEREFORE in consideration of the mutual convenants of the
parties, this Agreement witnesseth that Stillwater and Westaim have agreed as
follows:
1.0 DEFINITIONS
For the purposes of this Agreement
1.1 "ACCOUNTABLE NICKEL" means 97% of the contained nickel plus
cobalt.
1.2 "AGREEMENT" means this agreement and all amendments agreed to in
writing by the parties.
1.3 "LOT" means three truckloads of product.
1.4 "QUOTATIONAL PERIOD" for Accountable nickel in Product deliveries
in each calendar month means the month of receipt of the Product
at the The Delivery Point
1.6 "REFERENCE PRICE FOR NICKEL" means the monthly average of the LME
Cash Price for Nickel as quoted in Metals Week for the relevant
Quotational Period less US $0.15 per pound.
1.7 DELIVERY POINT" means specific point of delivery for solution at
or near Westaim's facilities in Fort Saskatchewan, Alberta,
Canada.
1.8 "TONNE" means 2204.6 pounds avoirdupois
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2.0 QUANTITY
2.1 Stillwater shall sell and deliver to Westaim the entire output of
Product, during the term of this Agreement from their plant,
which is estimated to be initially about 90 tonnes (three
truckloads) per week.
2.2 The quantity of nickel-copper sulphate solution is expected to
increase in proportion to the future matte treatment plant
capacity. Stillwater will evaluate the production of a dry
product, such as a mixed nickel-copper sulphate, as an
alternative to continued shipment of solution.
3.0 QUALITY
3.1 Westaim reserves the right to reject Product which does not
conform to the following specifications.
Typical Assay g/L Minimum/Maximum
Ni 50 to 60 50/gL(min)
Co 0.5 to 1.0
Cu 35 to 40
S 63 to 10
Fe <1.0 <2.0 g/L(max)
Pb <20.0
Mg <20.0
Mn <20.0 <50 mg/L
Cr <20.0
Zn <20.0
As 1.0 mg/L
Sb 0.1 to 10 mg/L
Se 5 to 10 mg/L <20 mg/L
Te 5 to 10 mg/L
pH 3.0
Except as noted, the solution should be free of any other
deleterious elements or materials.
3.2 If Stillwater produces a dry product such as a mixed
nickel-copper sulphate in lieu of solution, it is expected that
the elements shown on the previous page would be in similar
proportions in the dry product.
2
<PAGE>
4.0 DELIVERY
4.1 Stillwater shall deliver the Product to the Delivery Point in
tank trucks of at least 30 tonnes each.
4.2 Delivery of Product to Westaim shall be made DDP (Incoterms 1991)
the Delivery Point. Title to and risk of loss of Product shall
pass to Westaim upon delivery of product by Stillwater at the
Delivery Point.
4.3 All freight and insurance cost payable for delivery to the
Delivery Point shall be borne by Stillwater.
5.0 PRODUCT WEIGHING AND SAMPLING
Westaim shall weigh and sample the Product in Lots as follows:
5.1 The weight of each Lot shall be determined by Westaim at the
Delivery Point in accordance with standard commercial methods,
and such weight will be final for all purposes of this Agreement.
Promptly after the weighing of each Lot, Westaim shall deliver to
Stillwater two copies of Westaim's sworn weight certificate for
each such Lot.
5.2 The sampling of each Lot delivered hereunder shall be done by
Westaim at the Delivery Point according to standard commercial
methods.
5.3 Stillwater may at its request and expense have its
representatives present at the weighing and sampling, and sample
preparation of any Lot, provided however that the time for
weighing and sampling shall be decided by Westaim.
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<PAGE>
6.0 PRODUCT ASSAYING
6.1 Each sample prepared in accordance with this Section 6.0 shall be
divided into four portions for analysis:
i) One for Stillwater
ii) One for Westaim
iii) One for umpire
iv) One to be held in reserve.
6.2 Stillwater and Westaim shall each analyze its portion for nickel
plus cobalt using standard commercial methods and shall exchange
its analysis with the other by cross-mailing on a mutually agreed
date. If Stillwater and Westaim's analyses are within the
splitting limit, the average shall be used for settlement. The
splitting for nickel plus cobalt shall be 0.3 g/L.
6.3 If Stillwater and Westaim's analyses are not within the splitting
limit and differences are not settled in a manner mutually
acceptable to Stillwater and Westaim, the parties may from time
to time appoint an umpire to analyze the umpire sample portion.
6.4 In the case of samples sent to umpire, if the umpire's analysis
falls between Westaim's analysis and Stillwater's analysis, or
outside by no more than the splitting limit, the arithmetic mean
of the umpire's analysis and the like analysis of Westaim or
Stillwater, whichever analysis shall be closer to the umpire's
analysis, shall govern for settlement purposes. If the umpire's
analysis falls outside Westaim's analysis and Stillwater's
analysis by more than the splitting limit, the arithmetic means
of Westaim's analysis and StilIwater's analysis shall govern. The
cost of the umpire assay shall be borne by the party whose result
is furthest from the umpire's. This cost shall be borne equally
by both parties when die umpire assay is the exact mean of the
exchanged assays.
The umpires shall be:
Loring Laboratories
629 Beaver Dam Road, N.E.
Calgary, Alberta
Canada. T2K 4W2
or
Energy Laboratory
1107 South Broadway
Billings, Montana.
USA 59101
Tel: (406) 232 - 6325
acting in rotation, on an exchange by exchange basis, starting
with Loring Laboratories.
6.5 In the event payment for copper is made to Stillwater in respect
of Section 7.2, the splitting limit for copper shall be 0.3 g/L.
4
<PAGE>
6.6 All notification and correspondence shall be directed to:
Stillwater Mining Company
HC 54 Box 365
Nye, Montana
USA 59061
Attention: Gregg Hodges
Telefax: (406) 328-8506
Telephone: (406) 328-6400
or
The Westaim Corporation
Suite 20l, P.O. Box 106
9405- 50th Street
Edmonton, Alberta
Canada T6B 2T4 or in the case of assay exchange
Attention: Mark Benz Attention: Charlene Tamura
Telefax: (403) 440-7949 Telefax: (403) 992-7091
Telephone: (403)440-7918 Telephone: (403)992-5141
7.0 PRICE AND PAYMENT TERMS
7.1 Subject to the terms of this Agreement, Westaim shall pay
Stillwater for Accountable Nickel delivered in any month an
amount equal to the Reference Price for Nickel for the applicable
Quotational Period less US $0.84 per pound, if such Reference
Price for Nickel is US $3.36 or less and if the Reference Price
for Nickel is greater than US $3.36 per pound an amount equal to
75% for the Reference Price for Nickel.
7,3 Payments to Stillwater shall be made by telegraphic transfer in
US currency by the end of the month following the Quotational
Period.
7.3 No payment will be made for copper in the Product until such time
as the US embargo on materials of Cuban origin is removed. At
that time Westaim will reopen discussions with Stillwater for
payment of the contained copper, subject to the terms under which
Westaim is able to sell its copper sulphide by product to another
party. For indicative purposes, the Accountable Copper would be
90% of contained and the payment for Accountable Copper would be
at the average LME Settlement price for copper for the second
month following delivery less US $0.50 per pound.
5
<PAGE>
8.0 TERM
8.1 This Agreement shall be for a term commencing on June 1, 1995 and
terminating on December 31, 1998.
9.0 FORCE MAJAURE
9.1 The term "force majeure", as employed in this Agreement, shall
mean an Act of God, strike, interference of trade union,
industrial dispute, lockout, act of the public enemy, war
(whether declared or not), blockade, revolution, riot,
insurrection, civil commotion, lightning, storm, flood,
explosion, fire, breakdown of machinery or equipment,
governmental restraint, restriction, or other action, embargoes,
unavailability of highway or railway freight facilities, and any
other cause, whether of the kind specifically enumerated above or
otherwise, which is not reasonably within the control of the
effected patty and which is of such a nature as to delay,
curtail, or prevent timely action by the affected party.
9.2 If either party is rendered unable, wholly or in part by force
majeure, to carry out its obligations under this Agreement, that
party shall give to the other party prompt written notice of the
force majeure, with reasonable full particulars thereof,
whereupon the obligations of the party declaring the force
majeure shall be suspended during, but no longer than, the
continuance of the force majeure. The declaring party shall use
all reasonable diligence to remedy the force majeure as quickly
as practicable.
9.3 No right of a party shall be affected for failure or delay of the
party declaring to meet the conditions of this Agreement, which
failure is caused by one of the events of the force majeure
herein referred to.
9.4 The requirement that any force majeure shall be remedied with all
reasonable diligence shall not require the settlement of strikes,
lockouts, or other labour difficulty by the affected party on
terms not acceptable to it. How all such difficulties shall be
handled is entirely within the discretion of the affected party.
9.5 This clause shall provide relief only as long as the condition of
Force Majeure shall continue, except that it shall not relieve
Westaim from its obligation to pay Stillwater for Product
delivered prior to the commencement of the Force majeure.
10.0 GOVERNING LAW
10.1 The provisions of this Agreement and the conduct of the parties
in the performance of this Agreement shall be exclusively
governed by and construed in accordance with the laws in force in
the Province of Ontario, including all applicable federal laws of
Canada.
10.2 Any provisions of this Agreement that are contrary to, rendered
unenforceable by, the governing law shall be deemed to be
modified to the extent required to comply with such law or, if
necessary deleted without affecting the validity of the remaining
provisions of this Agreement
6
<PAGE>
11.0 WAIVER
No waiver of any breach under this Agreement, or of any available
remedy, shall be effective unless stated In writing and signed by
the party granting such waiver. Unless otherwise expressly
provided, the extent of any waiver granted shall be restricted w
the specific circumstances concerned and shall not extend to Any
other occurrence of such circumstances nor to any other
circumstances
12.0 ENTIRE AGREEMENT
This Agreement if the entire agreement between the parties hereto
with respect to the subject matter hereof and cancels and
supersedes any prior understandings and agreements with respect
thereto. There are no representations, warranties, terms,
conditions, undertakings or collateral agreements, express,
implied or statutory, between the parties other than as expressly
set forth in this Agreement. Variation of amendments hereto must
be specifically agreed upon in writing by both parties and no
variation or amendments shall be affected by the acknowledgment
or acceptance of purchase or shipping orders containing
provisions contradictory or supplementary to the provisions
hereof
13.0 NOTICES
All notices shall be given in writing by fax, telex, or other
electronic communication confirmed by registered air mail of the
same date. Notices shall be directed to:
Stillwater Mining Company
Processing Department
P.O. Box 1330
Columbus, Montana
USA 59019
Attention: Gregg Hodges
Telefax: (406) 322-9985
Telephone: (406) 322-9702
and notices to Westaim shall be directed to:
The Western Corporation
Suite 201, P.O. Box 106
9405 50th Street
Edmonton, Alberta T6B 2T4
Attention: Mark Benz
Telephone: (403)440-7918
Tele fax: (403)440-7949
7
<PAGE>
Any such notice shall be deemed to have been given on the date of
sending (if transmitted during normal business hours and, if not, on the
following business day) of such fax, telex, or other form of electronic
communication.
IN WITNESS WHEREOF the parties hereto have executed this Agreement.
THE WESTAIM CORPORATION
By:_____________________________
Title:__________________________
STILLWATER MINING COMPANY
Title:___________________________
This Agreement has been duly executed on the 14th day of October 1996.
8
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (nos. 333-12455 and
333-12419) and in the Registration on Form S-8 (no. 33-97358) of Stillwater
Mining Company of our report dated March 14, 1997 appearing on page 38 of this
Form 10-K.
PRICE WATERHOUSE LLP
Denver, Colorado
March 28, 1997
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