Vancouver — By investing more on development this year and next,
During a recent conference call, Stillwater Chairman Francis McAllister told analysts and shareholders that the company’s goal is to boost productivity and reduce unit costs in the future by increasing development and introducing more selective mining methods.
McAllister noted that new primary development totalled 10,509 ft. at Stillwater and 4,525 ft. at East Boulder during the second quarter. “These numbers represent 30% and 46% increases, respectively, from the average quarterly feet of advance achieved in 2004,” he added. “Our capital spending requirements should decline in future years following the completion of the expanded 2005-2006 development program.”
Capital spending at both mines during the latest quarter totalled US$22.8 million, with US$18.6 million of this directed to mine development.
Year-to-date capital spending totalled US$40.2 million, with US$35.2 million for capitalized mine development. Stillwater accounted for about US$21.7 million of first-half development spending, while East Boulder consumed US$13.5 million.
The company is pushing hard to boost throughput at the newer (and still struggling) East Boulder mine to its target rate of 1,650 tons per day. The mine averaged 1,294 tons in the first half of this year, well below Stillwater’s daily average of 2,067 tons.
Stephen Lang, chief operating officer, acknowledged that achieving a sustainable increase in production rates is “crucial” to the long-term viability of the East Boulder operation. Toward that end, the company is adding ventilation capacity to allow for increased mechanization. Development is being accelerated to allow for increased selective mining, which in turn is expected to boost head-grades and production while lowering mining costs.
Stillwater’s decision to amortize capital mine-development costs over a shorter period than originally planned pushed it into the red to the tune of US$600,000 on revenue of US$125.4 million in the latest quarter ended June 30. For comparison purposes, the company posted net earnings of US$13.5 million on revenue of US$84.2 million a year earlier. The second quarter loss was also attributed to lower metal prices and higher costs for raw materials.
Second quarter production from both mines totalled 139,000 oz., consisting of 107,000 oz. palladium and 32,000 oz. platinum, compared with 148,000 oz. (114,000 oz. palladium and 34,000 oz. platinum) a year earlier. The bulk of production, 99,000 oz., came from Stillwater, though this represents a 9% drop from a year earlier. Production at East Boulder was steady year-over-year, at about 40,000 oz.
Total consolidated cash costs rose 22% to US$322 per oz. combined palladium-palladium in the latest quarter from a year earlier. The US$58 increase was attributed to higher costs for labour and raw materials, and to smelter upgrades and maintenance.
Stillwater reported a net loss of US$1.8 million on revenue of US$252.8 million in the first half of this year, compared to net income of US$27.4 million on revenue of US$184.9 million a year earlier.
The company’s mines produced 283,000 oz. palladium and platinum in the first half of 2005, down from 295,000 oz. a year earlier.
Realized prices for mine production averaged US$355 per oz. for palladium and US$827 for platinum in the first half of 2005, compared with US$380 and US$861, respectively, for the same period of 2004. The combined realized price for both metals averaged US$466 per oz., US$19 per oz. lower than in the first half of 2004. Without price floors and ceilings and forward contracts, the price for both metals would have averaged only about US$350 per oz. in the two latest quarters.
Despite the increased capital spending, Stillwater generated positive cash flow from its operations and ended the second quarter of this year with cash and equivalents of US$141.3 million, up from US$136.6 million at the end of the previous quarter.
As for PGM markets, company officials expressed concern over the “unusually wide spread” between market prices of palladium and platinum, which ranged from about US$650 to US$700 per oz. in the second quarter of this year.
The fear is that the spread could narrow as consumers substitute palladium for platinum, particularly in jewelry markets. Chinese jewelers are already making the switch in a big way, and at present consume about 20% of world palladium production for jewelry.
— Stillwater Chairman Francis McAllister
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