New GM shuns Stillwater on palladium contract

Stillwater Mining (SWC-N), the only palladium producer in the United States, is objecting to post-bankruptcy General Motors’ decision terminate their supply contract yet buy palladium from sources in South Africa and Russia.

Under the bankruptcy code, GM has sold all of its best assets to a new company, and in the process it could choose to reject any existing contracts. It’s GM’s intention to become more competitive and pay back its massive US$50-billion government loan as soon as it can.

GM spokesman, Dan Flores, says GM terminated the agreement with Stillwater because the cost structure was uncompetitive.

“We couldn’t continue on these terms and although we met and discussed with Stillwater over several months, we couldn’t jointly come to an agreement that worked for both parties,” Flores says. “Our main focus with New GM company is to repay our loans as quickly as we can to prove to the U.S. taxpayers that their investment in us is a worthwhile investment and the way to that is to run our business as competitive as possible.”

But John Beaudry, public affairs manager for Stillwater, says that because new GM is 61% owned by the U.S. government, (as well as 17.5% by the United Auto Workers union and 11.7% by the Canadian government) the company should honour its existing contracts with American suppliers.

“Are we investing federal dollars to the tune of US$50 billion for the larger public good and economic recovery or are we doing it for the benefit of one company, that seems to be the debate,” Beaudry said during an interview.

Losing the GM contract will mean losing about US$5-10 million in revenue for Stillwater, which also has a much larger contract with Ford. The company reported mining revenue of US$356 million and platinum group metal recycling revenue of about US$475 million for 2008 and, hit hard by the dramatic drop in PGM prices, a net loss of US$112 million.

Since last year, the company has been trying to cut costs to become a low cost producer of PGMs. Its supply contracts with GM included price floors and volume requirements.

Stillwater wants the bankruptcy court to reconsider – it would like to continue its existing contract with GM or at least negotiate a new contract.

“It’s not a free market situation when you’ve got federal money going into a company to the tune of billions of dollars,” Beaudry says. “And then to take the tax dollars and turn around and buy your materials from South Africa or Russia when there is a supplier in north America … that’s our issue- taking tax dollars and working against a tax payer.”