Stillwater down, but not out

Carrying the load of a second mine without the aid of similar metal prices, Stillwater Mining (SWC-N) earned half as much in the second quarter as it did in the comparable period of 2001.

Net earnings topped US$11 million (or 26 per fully diluted share) in the three months ended June 30 as revenue held steady at US$75 million. The miner turned a profit of US$21 million (54 per share) in the corresponding period of 2001 despite having to record four times as many provisions for income tax.

Cash flow from operations was off by a staggering 81%, at just over US$7 million. After investment and financing activities, the company ended the recent period relatively richer, with US$42 million in the till.

Stillwater churned out 165,000 oz. combined palladium and platinum at its namesake and East Boulder mines in Montana. Production was higher and costs per ton were lower than a year earlier, but since the company realized considerably less for its metals, cash costs actually rose by 8% to US$239 per oz. and total production costs increased by 9% to US$333 per oz.

The flagship Stillwater mine had a mixed quarter, producing 134,000 oz. at a total production cost of US$300 per oz. Both figures are better than in the second quarter of 2001, but head grades were noticeably lower.

Recovery rates remained unchanged at 90%.

The East Boulder mine, which began life earlier this year, accounted for 24,000 oz. palladium and 7,000 oz. platinum of quarterly output. Total production costs averaged US$135 per ton milled, or US$470 per oz.

About 1,150 tons of ore were fed to the mill daily, and recovery rates averaged 87%. Head grades were down slightly from the first quarter but are expected to rebound now that an underground backfill plant has been finished.

“The ore grades we had projected are not going to be achieved, and we’re now trying to figure out exactly what we will achieve,” says Chairman Frank McAllister.

East Boulder is expected to produce 75,000 oz. in the second half and the Stillwater mine, 275,000 oz.. This would put 2002 production at 680,000 oz. — 29% more than in 2001 but still shy of original forecasts.

For the first half of this year, Stillwater recorded a profit of US$28 million (65 per fully diluted share) on US$151 million, compared with US$51 million ($1.29 per share) on US$165 million in the first half of 2001.

Cash flow was more than halved to US$27 million.

Stillwater has reduced its overhead costs by 35%. The miner also has taken various steps to increase metal production and reduce expenses.

Stillwater has budgeted US$76 million for capital projects over the remainder of the year and US$55 million for next year. On June 30, it had US$68 million in working capital.

As expected, reserves in the J-M reef have been lowered to 28 million tons at a grade of 0.53 oz. per ton. The revision, which is 10% less than the original estimate, was ordered by the U.S. Securities and Exchange Commission.

Several class action lawsuits are pending against Stillwater.