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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for
the fiscal year ended December 31, 2004.
 OR o
    
    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 1-13053 STILLWATER MINING COMPANY  DELAWARE
    
    81-0480654(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 1321 DISCOVERY DRIVE, BILLINGS, MONTANA 59102
(Address of principal executive offices and zip code) (406) 373-8700
(Registrants telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS
    
    NAME OF EACH EXCHANGE
ON WHICH REGISTEREDCommon Stock, $0.01 par value
    
    The New York Stock ExchangePreferred Stock Purchase Rights
    
    The New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act: None 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.
þ YES   o 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. þ Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2). þ YES   o NO As of March 23 2005, assuming a price of $10.31 per share, the closing sale price on the New York
Stock Exchange, the aggregate market value of shares of voting and non-voting common equity held by
non-affiliates was approximately $419,874,369
             
.. As of March 23, 2005, the company had outstanding 90,538,185 shares of common stock, par value
$0.01 per share.




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DOCUMENTS INCORPORATED BY REFERENCE Certain information required in Part III of this Annual Report onForm 10-Kis incorporated
herein by reference to the registrants Proxy Statement for its 2005 Annual Meeting of
Stockholders. 2




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TABLE OF CONTENTS GLOSSARYPART IITEMS 1 AND 2 BUSINESS AND PROPERTIES
    
    
    7ITEM 3 LEGAL PROCEEDINGS
    
    
    36ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    36PART IIITEM 5 MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    36ITEM 6 SELECTED FINANCIAL DATA
    
    
    37ITEM 7 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    45ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    59ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    60ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    90ITEM 9A CONTROLS AND PROCEDURES
    
    
    90ITEM 9B OTHER INFORMATION
    
    
    91PART IIIITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    91ITEM 11 EXECUTIVE COMPENSATION
    
    
    92ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    92ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    93ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES
    
    
    93PART IVITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES
    
    
    93SIGNATURES
    
    
    97Preferablity letter from KPMG, LLPConsent of KPMG LLPConsent of Behre Dolbear & Company, Inc.Certification of CEOCertifcation of Vice President and CFOSection 1350 CertificationSection 1350 Certification




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GLOSSARY OF SELECTED MINING TERMS The following is a glossary of selected mining terms used in the Form 10-K that may be
technical in nature: Adit
    
    A horizontal tunnel or drive, open to the surface at one end, which is used as an entrance to a mine.Anorthosite
    
    Igneous rock composed almost wholly of the mineral plagioclase feldspar.Assay
    
    The analysis of the proportions of metals in ore, or the testing of an ore or mineral for
composition, purity, weight, or other properties of commercial interest.Catalysts
    
    The catalytic converter used in an automobiles exhaust and pollution control system.Close-spaced drilling
    
    The drilling of holes designed to extract representative samples of rock in a target area.Concentrate
    
    A mineral processing product that generally describes the material that is produced after crushing
and grinding ore and then effecting significant separation of gangue (waste) minerals from the metal
and/or metal minerals, discarding the waste and minor amounts of metal and/or metal minerals leaving
a concentrate of metal and/or metal minerals with a consequent order of magnitude higher content
of metal and/or metal minerals than the beginning ore material.Crystallize
    
    Process by which matter becomes crystalline (solid) from a gaseous, fluid or dispersed state. The
separation, usually from a liquid phase on cooling, of a solid crystalline phase.Cut-off grade
    
    The lowest grade of mineralized material that qualifies as ore in a given deposit. The grade above
which minerals are considered economically mineable considering the following parameters: estimates
over the relevant period of mining costs, ore treatment costs, general and administrative costs,
smelting and refining costs, royalty expenses, by-product credits, process and refining recovery
rates and PGM prices.Decline
    
    A gently inclined underground excavation constructed for purposes of moving mobile equipment,
materials, supplies or personnel from surface openings to deeper mine workings or as an alternative
to hoisting in a shaft for mobilization of equipment and materials between mine levels.Dilution
    
    An estimate of the amount of waste or low-grade mineralized rock which will be mined with the ore as
part of normal mining practices in extracting an orebody.Drift
    
    A major horizontal access tunnel used for the transportation of ore or waste.Ductility
    
    Property of solid material that undergoes more or less plastic deformation before it ruptures. The
ability of a material to deform plastically without fracturing.Fault
    
    A fracture or a zone of fractures along which there has been displacement of the sides relative to
one another parallel to the fracture.Filter cake
    
    The PGM-bearing product that is shipped from the refinery for the next step in the refining process.Footwall
    
    The underlying side of a fault, orebody, or mine working; especially the wall rock beneath an
inclined vein, fault, or reef.Gabbro rocks
(See Mafic/Ultramafic)
    
    A group of dark-colored igneous rocks composed primarily of the minerals plagioclase feldspar and
clinopyroxene, with minor orthopyroxene.Grade
    
    The average assay of a ton of ore, reflecting metal content. With precious metals, grade is
expressed as troy ounces per ton of rock.Hoist
    
    See shaftLenticular-shaped
    
    Resembling in shape the cross section of a double-convex lens.Lode claims
    
    Claiming the mineral rights along a lode (vein) structure of mineralized material on Federal
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land; typically lode claims are 1,500 feet in length along the trend of the mineralized
material, the claim width typically being 600 feet wide.Mafic rocks
    
    Igneous rocks composed chiefly of dark, ferromagnesian minerals in addition to
lighter-colored feldspars.Matrix
    
    The finer-grained material between the larger particles of a rock or the material
surrounding mineral particles.Mill
    
    A processing plant that produces a concentrate of the valuable minerals or metals contained
in an ore. The concentrate must then be treated in some other type of plant, such as a
smelter, to effect recovery of the pure metal. Term used interchangeably with concentrator.Millsite claims
    
    Claiming of Federal land for millsite purposes or other operations connected with mining
lode claims. Used for nonmineralized land not necessarily contiguous with the vein or lode.Mineral beneficiation
    
    A treatment process separating the valuable minerals from the host material.Mineralization
    
    The concentration of metals and their compounds in rocks, and the processes involved therein.Mineralized material
    
    A mineralized body which has been delineated by appropriately spaced drilling and/or
underground sampling to support a sufficient tonnage and average grade of metals. Such a
deposit does not qualify as a reserve until a comprehensive evaluation based upon unit cost,
grade, recoveries, and other material factors conclude legal and economic feasibility.Net smelter royalty
    
    A share of revenue paid by the company to the owner of a royalty interest. At Stillwater,
the royalty is calculated as a percentage of the revenue received by the company after
deducting treatment, refining and transportation charges paid to third parties, and certain
other costs incurred by Stillwater in connection with processing the concentrate at the
Columbus smelter.Norite
    
    Coarse-grained igneous rock composed of the minerals plagioclase feldspar and orthopyroxene.Ore
    
    That part of a mineral deposit which could be economically and legally extracted or produced
at the time of reserve determination.Outcrop
    
    The part of a rock formation that appears at the earths surface often protruding above
the surrounding ground.PGM
    
    The platinum group metals collectively and in any combination of platinum, palladium,
rhodium, ruthenium, osmium, and iridium. Reference to PGM grades for the companys
operations means measured quantities of palladium and platinum only.PGM rich matte
    
    Matte is an intermediate product of smelting; an impure metallic sulfide mixture made by
melting sulfide ore concentrates. PGM rich matte is a matte with an elevated level of
platinum group metals.Probable
(indicated)
reserves
    
    Reserves for which quantity and grade and/or quality are computed from information similar
to that used for proven (measured) reserves, but the sites for inspection, sampling, and
measurements are farther apart or are otherwise less adequately spaced.
The degree of assurance, although lower than that for proven (measured)
reserves, is high enough to assume continuity between points of observation.Proven (measured)
reserves
    
    Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches,
workings or drill holes; grade and/or quality are computed from the results of detailed
sampling; and (b) the sites for inspection, sampling and measurement are spaced so closely
and the geologic character is so well defined that size, shape, depth and mineral content
of reserves are well established.Recovery
    
    The percentage of contained metal extracted from ore in the course of processing such ore.
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Reef
    
    A layer precipitated within the Stillwater Layered Igneous Complex enriched in platinum
group metal-bearing minerals, chalcopyrite, pyrrhotite, pentlandite, and other sulfide
materials. The J-M Reef, which the company mines, occurs at a regular stratigraphic
position within the Stillwater Complex. Note: this use of reef is uncommon and originated
in South Africa where it is used to describe the PGM-bearing Merensky, UG2, and other
similar layers in the Bushveld Complex.Refining
    
    The final stage of metal production in which residual impurities are removed from the metal.Reserves
    
    That part of a mineral deposit which could be economically and legally extracted or
produced at the time of the reserve determination.Secondary Materials
    
    Spent PGM-bearing materials collected for reprocessing from auto, petroleum, chemical and medical,
food and other catalysts. Additionally, PGMs are sourced from scrap electronics, and thermocouples old jewelry and materials
used in manufacturing glass.Shaft
    
    A vertical or steeply inclined excavation for the purposes of opening and servicing an
underground mine. It is usually equipped with a hoist at the top which lowers and raises a
conveyance for handling personnel and materials.Silica oxide rich slag
    
    Slag is a nonmetallic product resulting from the mutual dissolution of flux and nonmetallic
impurities during smelting. A silica rich slag is a smelting slag that contains a relatively high
level of silica.Sill
    
    (1) With respect to a mine opening, the base or floor of the excavated area (stope); (2)
With respect to intrusive rock, a tabular intrusive unit that is conformable with
surrounding rock layers.Slusher
    
    (1) An electric double-drum winch with two steel ropes attached to an open-bottomed scoop, that
transports ore from the rock face to a loading point, where the ore is discharged. (2) A very
selective mining method in which small ore stopes are mined using a slusher.Smelting
    
    Heating ore or concentrate material with suitable flux materials at high temperatures
creating a fusion of these materials to produce a melt consisting of two layers with a slag
of the flux and gangue (waste) minerals on top and molten impure metals below. This
generally produces an unfinished product (matte) requiring refining.Sponge
    
    A form of metal characterized by a porous condition, which is the result of extraction by
decomposing or reducing a compound of the metal without fully melting it. The resulting metal has
the appearance of a sponge due to high porosity. (PGMs are normally sold either as sponge or in
ingot form.)Stope
    
    A localized area of underground excavation from which ore is extracted.Strike
    
    The course, direction or bearing of a vein or a layer of rock.Tailings
    
    That portion of the mined material that remains after the valuable minerals have been extracted.Troy ounce
    
    A unit measure used in the precious metals industry. A Troy ounce is equal to 31.10 grams.
The amounts of palladium and platinum produced and/or sold by the company are reported in
troy ounces. There are 12 troy ounces to a troy pound.Ultramafic rocks
    
    Igneous rocks composed chiefly of dark, ferromagnesian minerals in the absence of
significant lighter-colored feldspars.Vein
    
    A mineralized zone having regular development in length, width and depth that clearly
separates it from neighboring rock.Wall rock
    
    The rock adjacent to, enclosing, or including a vein, layer, or dissemination of ore minerals.
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PART I 
 ITEMS 1 AND 2
BUSINESS AND PROPERTIES INTRODUCTION AND 2004 HIGHLIGHTS Stillwater Mining Company (the company) is engaged in the development, extraction, processing,
refining and marketing of palladium, platinum and associated metals (platinum group metals or PGMs)
from a geological formation in southern Montana known as the J-M Reef. The J-M Reef is the only
known significant source of platinum group metals inside the United States and one of the
significant resources outside South Africa and Russia. Associated by-product metals at the
companys operations include minor amounts of gold, silver, nickel and copper. The J-M Reef is a
narrow but extensive mineralized zone containing PGMs, which has been traced over a strike length
of approximately 28 miles. The company conducts mining operations at the Stillwater Mine near Nye, Montana and at the
East Boulder Mine near Big Timber, Montana. Both mines are located on the J-M Reef. The company
operates concentrating plants at both mining operations to upgrade mined production to a
concentrate form. The company operates a smelter and refinery at Columbus, Montana at which it
further upgrades the mined production to a PGM-rich filter cake. Refined filter cake is sent to
third-party custom refineries for final refining before being sold to third parties. The company also recycles spent catalyst material to recover PGMs at the smelter and refinery.
The company has a long-term secondary metal sourcing agreement and spot contracts with other
suppliers who ship spent catalysts to the company for processing to recover PGMs. The company
smelts and refines the secondary metals utilizing the same process as for the mined production. The company has long-term sales agreements with auto companies under which it sells its mined
production. The company also has long-term sales agreements under which it sells palladium from
the inventory received in the 2003 Norilsk Nickel transaction. PGMs are rare precious metals with unique physical properties that are used in diverse
industrial applications and in jewelry. The largest use for PGMs is in the automotive industry for
the production of catalysts that reduce harmful automobile emissions. Palladium is also used in the
production of electronic components for personal computers, cellular telephones, and facsimile
machines, as well as in dental applications and other devices. Platinums largest use after
catalytic converters is for jewelry. Industrial uses for platinum, in addition to automobile and
industrial catalysts, include the manufacturing of data storage disks, glass, paints, nitric acid,
anti-cancer drugs, fiber optic cables, fertilizers, unleaded and high-octane gasoline and fuel
cells. At December 31, 2004, the company had proven and probable ore reserves of approximately 41.6
million tons with an average grade of 0.57 ounce of PGMs per ton containing approximately 23.9
million ounces of palladium plus platinum at an in-situ ratio of about 3.6 parts palladium to one
part platinum. See Business and Properties  Ore Reserves. 7




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2004 Highlights:  
    The companys revenues, in terms of dollars and ounces sold, for 2004, 2003 and 2002 were: Ounces of
    
    
    Ounces of
    
    
    Ounces ofYear ended December 31, (in thousands)
    
    $ of Palladium
    
    
    $ of Platinum
    
    
    $ of Other
    
    
    Palladium
    
    
    Platinum
    
    
    Other2004Mine production
    
    $
    162,209
    
    
    $
    104,475
    
    
    $
    
    
    
    
    432
    
    
    
    125
    
    
    
    Secondary processing
    
    
    9,548
    
    
    
    56,512
    
    
    
    10,328
    
    
    
    43
    
    
    
    69
    
    
    
    10Sales of Palladium received in Norilsk Nickel
transaction and other
    
    
    85,952
    
    
    
    6,132
    
    
    
    12,371
    
    
    
    375
    
    
    
    8
    
    
    
    11Total
    
    $
    257,709
    
    
    $
    167,119
    
    
    $
    22,699
    
    
    
    850
    
    
    
    202
    
    
    
    212003Mine production
    
    $
    161,624
    
    
    $
    78,782
    
    
    $
    
    
    
    
    459
    
    
    
    131
    
    
    
    Secondary processing
    
    
    1,036
    
    
    
    5,085
    
    
    
    2,745
    
    
    
    5
    
    
    
    8
    
    
    
    Other
    
    
    
    
    
    
    6,551
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    1Total
    
    $
    162,660
    
    
    $
    90,418
    
    
    $
    2,745
    
    
    
    464
    
    
    
    149
    
    
    
    12002Mine production
    
    $
    202,861
    
    
    $
    72,738
    
    
    $
    
    
    
    
    469
    
    
    
    143
    
    
    
    Secondary processing
    
    
    3,328
    
    
    
    7,832
    
    
    
    4,017
    
    
    
    10
    
    
    
    19
    
    
    
    3Other
    
    
    
    
    
    
    1,535
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    206,189
    
    
    $
    82,105
    
    
    $
    4,017
    
    
    
    479
    
    
    
    162
    
    
    
    3
  
    The company reported net income of $29.8 million, or $0.33 per diluted share in 2004
compared to a net loss of $323.3 million, or $4.77 per diluted share in 2003. The 2003 net
loss included a $390.3 million asset impairment charge and a charge of $70.3 million to record
a deferred tax asset valuation allowance. See Managements Discussion and Analysis of
Financial Condition and Results of Operations  Year Ended December 31, 2004 Compared to Year
Ended December 31, 2003.  
    In 2004, the company produced a total of 569,000 ounces of palladium and platinum compared to
584,000 ounces in 2003. Total consolidated cash cost per ounce (a non-GAAP measure) was $297 in
2004, compared with $283 in 2003. The slightly higher consolidated total cash cost per ounce was
due to lower 2004 production volumes, costs associated with a labor strike, and expenses for
rebricking the smelter. (See Selected Financial and Operating Data for further discussion of
non-GAAP measures.)    
    On August 3, 2004, the company entered into a new $180 million
credit facility, which replaced the companys previous credit
facility. The new credit facility consists of a $140 million
six-year term loan maturing July 30, 2010, and bearing interest at
a variable rate plus a margin (London Interbank Offer Rate
(LIBOR) plus 325 basis points, or approximately 5.50% at December
31, 2004) and a $40 million five-year revolving credit facility
expiring July 31, 2009 and bearing interest when drawn at a
variable rate plus a margin (LIBOR plus 300 basis points, or
approximately 5.25% at December 31, 2004).
    Following a review of its filings by the Securities and Exchange Commission (SEC), the
company recently determined it would change its method of accounting for capitalized mine
development costs. Unamortized costs of the shaft at the Stillwater Mine and the initial
development at the East Boulder Mine will continue to be treated as life-of-mine
infrastructure costs, to be amortized over total proven and probable reserves at each
location. All ongoing development costs of footwall laterals and ramps, including similar
development costs incurred before 2004, are to be amortized over the ore reserves in the
immediate and relevant vicinity of the development. The effect of this change in
accounting method was to reduce previously reported earnings for the nine months ended
September 30, 2004 by $10.2 million, including a benefit of $ 6.0 million attributable to
the cumulative effect adjustment and a charge of $16.2 million attributable to additional
amortization for the period. See Note 3 to the companys consolidated financial
statements. For a discussion of certain risks associated with the companys business, please read
Business and PropertiesCurrent Operations, and Risk Factors and Managements Discussion and
Analysis of Financial Condition and Results of Operations. 8




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HISTORY OF THE COMPANY Palladium and platinum were discovered in the J-M Reef by Johns Manville Corporation
(Manville) geologists in the early 1970s. In 1979, a Manville subsidiary entered into a
partnership agreement with Chevron U.S.A. Inc. (Chevron) to develop PGMs discovered in the J-M
Reef. Manville and Chevron explored and developed the Stillwater property and commenced underground
mining in 1986. The company was incorporated in 1992 and on October 1, 1993, Chevron and Manville transferred
substantially all assets, liabilities and operations at the Stillwater property to the company,
with Chevron and Manville each receiving a 50% ownership interest in the companys stock. In
September 1994, the company redeemed Chevrons entire 50% ownership. The company completed an
initial public offering in December 1994, and Manville sold a portion of its shares through the
offering reducing its ownership percentage to approximately 27%. In August 1995, Manville sold its
remaining ownership interest in the company to institutional investors. The companys common stock
is publicly traded on the New York Stock Exchange (NYSE) under the symbol SWC. On June 23, 2003, the company completed a stock purchase transaction with MMC Norilsk Nickel
(Norilsk Nickel), whereby a subsidiary of Norilsk Nickel became a majority stockholder of the
company. On that date, the parties entered into a Stockholders Agreement, providing among other
things that:  
    The companys board of directors must be composed of a majority of
directors who meet certain independence requirements, including
the requirements of the NYSE.
    Norilsk Nickel is able to elect a number of directors based on its
proportionate ownership of the companys voting shares. No
director designated by Norilsk Nickel may be an officer, employee
or director of Norilsk Nickel or any of its affiliates.
    At all times there must be a number of directors on the board who
are elected and replaced in a manner designed to protect their
independence from Norilsk Nickel (the Public Directors).
    Without the prior approval of a majority of the Public Directors,
the company may not enter into any agreement or transaction with
Norilsk Nickel or any of its affiliates or which otherwise
benefits Norilsk Nickel or its affiliates in an advantageous
manner over the interests of other stockholders.
    Norilsk Nickel and its affiliates may not acquire additional
 shares of the company, subject to certain exceptions. Norilsk
Nickel and its affiliates may make an offer to acquire all or part
of the companys shares with the prior written consent of a
majority of the Public Directors after the Public Directors have
received an opinion from an independent financial advisor
regarding the fairness of the purchase to the companys other
stockholders.
    Other than transfers to an affiliate under certain conditions,
Norilsk Nickel is restricted from transferring its shares without
the prior written consent of a majority of the Public Directors if
the transfer will result in any person beneficially owning 5% or
more of the companys voting shares. After the third anniversary
of the Stockholders Agreement, these transfers will be permitted
if certain conditions are met. GEOLOGY OF THE J-M REEF The Stillwater Complex, which hosts the J-M Reef ore deposit, is located in the Beartooth
Mountains in south central Montana. It is situated along the northern edge of the Beartooth Uplift
and Plateau, which rise to elevations in excess of 10,000 feet above sea level. The plateau and
Stillwater Complex have been deeply incised by the major drainages and tributaries of the
Stillwater and Boulder Rivers down to elevations at the valley floor of approximately 5,000 feet. Geologically, the Stillwater Layered Igneous Complex is composed of a succession of ultramafic
to mafic rocks derived from a large complex magma body emplaced deep in the Earths crust an
estimated 2.7 billion years ago. The molten mass was sufficiently large and fluid at the time of
emplacement to allow its chemical constituents to crystallize slowly and sequentially, with the
heavier mafic minerals settling more rapidly toward the base of the cooling complex. The lighter,
more siliceous suites crystallized more slowly and also settled into layered successions of norite,
gabbroic and anorthosite suites. This systematic process resulted in mineral segregations being
deposited into extensive and uniform layers of varied mineral concentrations. The uniquely PGM-enriched J-M Reef and its characteristic host rock package represent one such
layered sequence. The 9




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geosciences community believes that the PGM-enriched suite and other minerals characterizing
the J-M Reef accumulated at the same time and by the same mechanisms of formation as the rocks
enclosing them. Over time, the orientation of a portion of the original horizontal reef and layered
igneous complex was faulted an estimated 20,000 feet to the northeast and was tilted upward at
angles of 50 to 90 degrees to the north by the Beartooth Uplift. Localized faulting and intrusive
mafic dikes are also evident along the 28-mile strike length of exposed Stillwater Complex. The
impact of these structural events is localized along the J-M Reef and may affect the percent
mineable tonnage in an area, create additional dilution, or result in below cut-off grade and
barren zones. The impacts on ore reserves of these events are quantified in the percent mineable
discussion under Ore Reserves. The upper portion and exposed edge of the reef complex were eroded
forming the lenticular-shaped surface exposure of the Stillwater Complex and J-M Reef package
evident today. The J-M Reef package has been traced at its predictable geologic position and with unusual
overall uniformity over considerable distances within the Stillwater Complex. The surface outcrops
of the reef have been examined, mapped and sampled for approximately 28 miles along its
east-southeasterly course and over a known expression of over 8,200 feet vertically. That
predictability of the J-M Reef has been further confirmed in subsurface mine workings of the
Stillwater and East Boulder Mines and by over 21,000 drill hole penetrations. The PGMs in the J-M Reef consist primarily of palladium, platinum and a minor amount of
rhodium. The reef also contains significant amounts of iron, copper and nickel, and trace amounts
of gold and silver. Five-year production figures from the companys mining operations on the J-M
Reef are summarized in Part II, Item 6, Selected Financial and Operating Data. ORE RESERVES As of December 31, 2004, the companys total proven and probable palladium and platinum ore
reserves were approximately 41.6 million tons at an average grade of 0.57 ounce per ton, containing
approximately 23.9 million ounces of palladium plus platinum, an increase of 1% in contained ounces
from December 31, 2003. Methodology The company utilizes statistical methodologies to calculate ore reserves based on
interpolation between and projection beyond sample points. Interpolation and projection are
limited by certain modifying factors including geologic boundaries, economic considerations and
constraints to safe mining practices. Sample points consist of variably spaced drill core
intervals through the J-M Reef obtained from drill sites located on the surface and in underground
development workings. Results from all sample points within the ore reserve area are evaluated and
applied in determining the ore reserve. For proven ore reserves, distances between samples range from 25 to 100 feet but are typically
spaced at 50-foot intervals both horizontally and vertically. The sample data for proven ore
reserves consists of survey data, lithological data and assay results. This data is entered into a
3-dimensional modeling software package. The data is analyzed to produce a 3-dimensional solid
block model of the resource. The assay values are further analyzed by a geostatistical modeling
technique (kriging) to establish a grade distribution within the 3-dimensional block model.
Dilution is then applied to the model and a diluted thickness and grade is calculated for each
block. Ore and waste tons, contained ounces and grade are then calculated and summed for all
blocks. A percent mineable factor based on historic geologic unit values is applied and the final
proven reserve tons and grade are calculated. Probable ore reserves are based on longer projections, up to a maximum radius of 1,000 feet
beyond the limit of existing drill hole sample intercepts of the J-M Reef obtained from surface and
underground drilling. Statistical modeling and established continuity of the J-M Reef as
determined from results of mining activity to date support the companys technical confidence in
estimates of tonnage and grade over this projection distance. Where appropriate, projections for
the probable reserve determination are constrained by any known or anticipated restrictive geologic
features. The probable reserve estimate of tons and grade is based on the projection of factors
calculated from adjacent proven reserve blocks or from diamond drilling data where available. The
factors consist of a probable area, average thickness, average grade and percent mineable. The
area is calculated based on the 1,000-foot projections, the thickness and grade is calculated based
on long-term proven reserve results in adjacent areas and the percent mineable is calculated based
on long-term mine production results from proven areas. Contained ounces are calculated based on
area (square feet) times thickness (feet) times grade (ounces per ton) times percent mineable (%)
divided by density (expressed as cubic feet per ton). The company reviews its methodology for calculating ore reserves on an annual basis.
Conversion, an indicator of the success in upgrading probable ore reserves to proven ore reserves,
is evaluated annually as part of the reserve process. The annual review examines the effect of new
geologic information, changes implemented or planned in mining practices and mine economics on
factors used for the estimation of probable ore reserves. The review includes an evaluation of the
companys rate of conversion of probable reserves to proven reserves. 10




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The proven and probable ore reserves are then modeled as a long-term mine plan and additional
factors including recoveries, metal prices, mine operating costs and capital estimates are applied
to determine the overall economics of the ore reserves. SEC Guidelines The United States Securities and Exchange Commission (SEC) has established guidelines
contained in Industry Guide No. 7 to assist registered companies as they estimate ore reserves.
These guidelines set forth technical, legal and economic criteria for determining whether the
companys ore reserves can be classified as proven and probable. The SECs economic guidelines have not historically constrained the companys ore reserves,
and did not constrain the ore reserves at December 31, 2004. Under these guidelines, ore may be
classified as proven or probable if extraction and sale result in positive cumulative undiscounted
cash flow. The company utilizes the historical trailing 12-quarter average combined PGM market
price and the current PGM market price in ascertaining these cumulative undiscounted cash flows.
In testing ore reserves at December 31, 2004, the company applied the trailing 12-quarter combined
average PGM market price of $357 per ounce, based upon the 12-quarter average palladium price of
$256 per ounce and the 12-quarter quarter average platinum price of $693 per ounce. Results The December 31, 2004, ore reserves were reviewed by Behre Dolbear & Company, Inc. (Behre
Dolbear), independent consultants, who are experts in mining, geology and ore reserve
determination. The company has utilized Behre Dolbear to carry out independent reviews and
inventories of the companys ore reserves since 1990. Behre Dolbear has consented to be a named
expert herein. See Business and Properties  Risk Factors  Ore reserves are very difficult to
estimate and ore reserve estimates may require adjustment in the future; changes in ore grades,
mining practices and economic factors could materially affect the companys production and reported
results. The East Boulder Mine ore reserves at year-end 2004 increased by 3% in contained ounces from
those reported at year-end 2003. However, the Stillwater Mine ore reserves at year-end 2004
remained almost unchanged in terms of contained ounces from those reported at year-end 2003.
Overall the companys estimated ore reserves based on contained ounces increased by 1% during 2004.
The companys ore reserve determination for 2004, calculated at December 31, 2004, was ultimately
bounded by geologic certainty and largely unaffected by price. Proven and Probable Ore Reserves The companys proven ore reserves are generally expected to be extracted utilizing the existing
mine infrastructure. Additional capital expenditures will be required to extract the companys
probable ore reserves. Based on current mining rates, the 2004 proven
ore reserves of 1.97 million tons at the Stillwater Mine and 1.23
million tons at the East Boulder Mine represent approximately 2.8
years of production (1,900 tons per day) and 2.44 years of production
(1,375 tons per day) respectively. As of December 31, 2004, 2003 and 2002, the companys proven and probable
ore reserves were as follows: DECEMBER 31, 2004
    
    
    DECEMBER 31, 2003
    
    
    DECEMBER 31, 2002AVERAGE
    
    
    CONTAINED
    
    
    
    
    
    
    AVERAGE
    
    
    CONTAINED
    
    
    
    
    
    
    AVERAGE
    
    
    CONTAINEDTONS
    
    
    GRADE
    
    
    OUNCES
    
    
    TONS
    
    
    GRADE
    
    
    OUNCES
    
    
    TONS
    
    
    GRADE
    
    
    OUNCES(000s)
    
    
    (OUNCE/TON)
    
    
    (000S)
    
    
    (000s)
    
    
    (OUNCE/TON)
    
    
    (000S)
    
    
    (000s)
    
    
    (OUNCE/TON)
    
    
    (000S)Stillwater Mine (2)Proven Reserves
    
    
    1,971
    
    
    
    0.65
    
    
    
    1,279
    
    
    
    2,052
    
    
    
    0.68
    
    
    
    1,387
    
    
    
    2,490
    
    
    
    0.71
    
    
    
    1,777Probable Reserves
    
    
    16,108
    
    
    
    0.63
    
    
    
    10,138
    
    
    
    15,428
    
    
    
    0.65
    
    
    
    10,073
    
    
    
    17,443
    
    
    
    0.68
    
    
    
    11,803Total Proven and Probable
Reserves (1)
    
    
    18,079
    
    
    
    0.63
    
    
    
    11,417
    
    
    
    17,480
    
    
    
    0.66
    
    
    
    11,460
    
    
    
    19,933
    
    
    
    0.68
    
    
    
    13,580East Boulder Mine (2)Proven Reserves
    
    
    1,225
    
    
    
    0.46
    
    
    
    558
    
    
    
    660
    
    
    
    0.43
    
    
    
    285
    
    
    
    648
    
    
    
    0.48
    
    
    
    308Probable Reserves
    
    
    22,302
    
    
    
    0.53
    
    
    
    11,886
    
    
    
    22,248
    
    
    
    0.53
    
    
    
    11,854
    
    
    
    21,359
    
    
    
    0.53
    
    
    
    11,386Total Proven and Probable
Reserves (1)
    
    
    23,527
    
    
    
    0.53
    
    
    
    12,444
    
    
    
    22,908
    
    
    
    0.53
    
    
    
    12,139
    
    
    
    22,007
    
    
    
    0.53
    
    
    
    11,694Total Company Reserves (2)Proven Reserves
    
    
    3,196
    
    
    
    0.57
    
    
    
    1,837
    
    
    
    2,712
    
    
    
    0.62
    
    
    
    1,672
    
    
    
    3,138
    
    
    
    0.66
    
    
    
    2,085Probable Reserves
    
    
    38,410
    
    
    
    0.57
    
    
    
    22,024
    
    
    
    37,676
    
    
    
    0.58
    
    
    
    21,927
    
    
    
    38,802
    
    
    
    0.60
    
    
    
    23,189Total Proven and Probable
Reserves (1)
    
    
    41,606
    
    
    
    0.57
    
    
    
    23,861
    (3)
    
    
    40,388
    
    
    
    0.58
    
    
    
    23,599
    (3)
    
    
    41,940
    
    
    
    0.60
    
    
    
    25,274
    (3)
   (1)
    
    Reserves are defined as that part of a mineral deposit which could be economically and
legally extracted or produced at the time of 11




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the reserve determination. Proven ore reserves
are defined as ore reserves for which (a) quantity is computed from dimensions revealed in
outcrops, trenches, workings or drill holes; grade and/or quality are computed from the
results of detailed sampling and (b) the sites for inspection, sampling and measurement are
spaced so closely and the geologic character is so well defined that size, shape, depth and
mineral content of ore reserves are well-established. Probable ore reserves are defined as ore
reserves for which quantity and grade and/or quality are computed from information similar to
that used for proven ore reserves, but the sites for inspection, sampling, and measurement are
farther apart or are otherwise less adequately spaced. The degree of assurance, although lower
than that for proven ore reserves, is high enough to assume continuity between points of
observation. The proven and probable ore reserves reflect variations in the PGM content and
structural impacts on the J-M Reef. These variations are the result of localized depositional
and structural influences on the distributions of economic PGM mineralization. Geologic
domains within the reserve boundaries of the two mines include areas where as little as 0% and
up to 100% of the J-M Reef is economically mineable. The ore reserve estimate gives effect to
these assumptions. See Business and Properties  Risk Factors and Managements Discussion
and Analysis of Financial Condition and Results of Operations  Factors That May Affect Future
Results and Financial Condition.(2)
    
    Expressed as palladium plus platinum in-situ ounces at a ratio of approximately 3.6 parts
palladium to 1 part platinum. Stillwater Mine is at a 3.4 to 1 ratio and the East Boulder
Mine is 3.7 to 1.(3)
    
    Average mining and processing losses of approximately 23% must be deducted to arrive at the
estimated recoverable ounces. Discussion The companys proven and probable ore reserves at December 31, 2004, shown above indicated a 1%
increase in contained ounces from December 31, 2003. The increase is due to the net effect of
several factors:  
    Additions from new drilling to convert probable to proven ore reserves, more than offsetting 2004 production,
    Additions from development drilling to convert mineralized inventory to probable ore reserves,
    Additions and deletions from adjustments to ore reserve estimation factors and mine planning criteria. The companys proven and probable ore reserves at December 31, 2003, shown above indicates a 7%
decrease in contained ounces from December 31, 2002. The decrease is due to the net effect of
several factors:  
    A net increase of 4% in contained ounces of ore reserves at the East Boulder Mine due to
favorable definition drilling and development activities during 2003, offset by,
    A 16% decrease in contained ounces of ore reserves at the Stillwater Mine related to:  
    Adjustments in probable estimation factors, mine planning and economic factors
resulting in reductions or reclassification of peripheral areas to mineralized
material coupled with a net reduction in mined production versus ore reserve
additions from drilling and development activities during 2003.
    Modifications to the method used in estimating mineable ore tons and grade. In
2003, the company began using a full three-dimensional model to define the orebody.
The company believes this is a more accurate method of extrapolating drill hole and
geologic information.
    Additional minor reductions due to changes in reserve estimation techniques. The economic analysis with respect to 2004 included testing the potential ore reserves at
various commodity prices. The results of this analysis identified the relationships
shown in the following chart between prices and ore reserves as of December 31, 2004. Such relationship may vary with future
ore reserves determinations. The analysis shows that at a combined average price for palladium and platinum above
approximately $342 per ounce; ore reserves are bounded by geologic certainty and do not continue increasing.
The company has not tested the ore reserves beyond the level shown because of the expense of
access and drilling to establish ore reserves and because of the extensive life of a 23.9 million
ounce reserve. At a combined long-term average price for palladium and platinum below
approximately $342 per ounce, ore reserves are constrained by economics and are estimated to
decrease as shown. (PERFORMANCE GRAPH) 12




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IMPAIRMENT OF LONG-LIVED ASSETS The company follows Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. The company reviews and evaluates its long-lived
assets for impairment when events or changes in circumstances indicate that the related carrying
amounts may not be recoverable. Impairment is considered to exist if total estimated future cash
flows on an undiscounted basis are less than the carrying amount of the asset. Future cash flows
include estimates of recoverable ounces, PGM prices (considering current and historical prices,
long-term sales contract prices, price trends and related factors), production levels, and capital
and reclamation expenditures, all based on life-of-mine plans and projections. If the assets are
impaired, a calculation of fair market value is performed, and if fair market value is lower than
the carrying value of the assets, the assets are reduced to their fair market value. Ore reserves are determined on an annual basis, and concurrently, mine plans and operating
budgets are updated. At year-end 2003, the East Boulder Mine ore reserve had increased 4% in
contained ounces from that reported at year-end 2002. However, the Stillwater Mine ore reserve at
year-end 2003 had decreased 16% in contained ounces from that reported at year-end 2002. Overall
the companys estimated contained ounces had declined by 7% between the end of 2002 and the end of
2003. The 16% decrease in ore reserves during 2003 at the Stillwater Mine was considered a change
in circumstances that prompted an impairment review of the carrying values of the companys mine
properties. The significant assumptions in determining the future undiscounted cash flows at
December 31, 2003, included estimated long-term palladium and platinum prices of $250 and $530 per
ounce, respectively. The review determined that company investments in property, plant and
equipment at the Stillwater Mine and East Boulder Mine were impaired. Consequently, the company
engaged Behre Dolbear to perform a fair market value assessment of the assets at December 31, 2003,
and based on that assessment recorded an asset impairment charge of $390.3 million, reducing the
carrying value of the properties to their fair market value, as required. The impairment charge
consisted of a $176.7 million reduction in asset value at the Stillwater Mine, a $178.0 million
reduction at the East Boulder Mine and a $35.6 million in 2003 reduction at the companys processing and
other facilities. As a result, the carrying value of Stillwater Mine was reduced to $228.6
million, East Boulder Mine to $150.0 million and the processing and other facilities to $40.9
million. The independent appraiser, Behre Dolbear, utilized conventional mine valuation techniques
including discounted cash flow analysis for purposes of determining fair market value. The company evaluated key factors in its business at December 31, 2004, to determine if there
were any events or changes in circumstances that would indicate that the carrying value of the
companys assets would not be recoverable. These factors include ore reserves, PGM prices,
forecasted production rates, recurring current or future operating losses, significant legal
exposures, major development cost overruns, and anticipated sales of principal assets. None of
these factors at December 31, 2004, indicated that an impairment existed. Consequently, the
company has concluded that there is no asset impairment as of December 31, 2004, at any of its
operations. The net carrying value of the companys mining assets as of December 31, 2004 and 2003 is as
follows: 2004
    
    
    2003BeforeImpairment
    
    
    Impairment(in thousands)
    
    Net Book Value
    
    
    Charge
    
    
    Charge
    
    
    Net Book ValueStillwater Mine
    
    $
    186,388
    
    
    $
    405,331
    
    
    $
    176,739
    
    
    $
    228,592East Boulder Mine
    
    
    200,611
    
    
    
    328,053
    
    
    
    178,036
    
    
    
    150,017Processing Assets
    
    
    43,604
    
    
    
    71,343
    
    
    
    34,761
    
    
    
    36,582Other Assets
    
    
    4,321
    
    
    
    5,096
    
    
    
    759
    
    
    
    4,337$
    434,924
    
    
    $
    809,823
    
    
    $
    390,295
    
    
    $
    419,528
 Due to the companys change in accounting method for the
amortization of capitalized mine development costs effective January
1, 2004 (see Note 3 of the companys consolidated financial
statements), the company recorded the cumulative effect of applying
the new method retroactively to all prior periods which would have
been affected. The cumulative effect adjustment is reflected in the
companys net income for the year ended December 31, 2004 and
resulted in a reallocation of the 2003 impairment charge among
individual mining assets as of January 1, 2004. Assumptions underlying future cash flows are subject to risks and uncertainties. Any
differences between projections and actual outcomes for key factors such as PGM prices, recoverable
ounces, and/or the companys operating performance could have a
material effect on the companys ability to recover the carrying amounts of its long lived assets and
so could potentially lead to additional impairment charges in the future. CURRENT OPERATIONS The companys original long-term deposit development strategy and certain elements of its
current planning and mining practices on the J-M Reef were founded upon initial feasibility and
engineering studies conducted in the 1980s. Initial mine designs and 13




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practices were established in response to available technologies and the particular characteristics and challenges of the J-M
Reef ore deposit. The companys current development plans, mining methods and ore extraction
schedules are designed to provide systematic access to and development of the ore deposit within
the framework of current and forecast economic, regulatory and technological considerations as well
as the specific characteristics of the J-M Reef ore deposit. Some of the challenges specific to the
development of the J-M Reef include:  
    Surface access limitations (property ownership and environmental sensitivity);
    Topographic and climatic extremes involving rugged mountainous terrain and substantial elevation differences;
    Specific characteristics of the mineralized zone (narrow  average width 5 feet, depth  up to 1.5 miles of vertical
extent, and long  approximately 28 miles in length);
    Downward angle of mineralized zone dipping from near vertical to 38 degrees;
    A deposit which extends both laterally and to depth from available mine openings; and
    Probable ore reserves extending for a lateral distance of approximately 34,000 feet at the Stillwater Mine and
approximately 17,000 feet at the East Boulder Mine  a combined distance of approximately 9.7 miles. STILLWATER MINE The company wholly owns and performs underground mining operations at the Stillwater Mine,
near Nye, Montana. The mining operation accesses, extracts and processes PGM ores from the eastern
portion of the J-M Reef using mine openings located in the Stillwater Valley. In addition, the
company owns and maintains ancillary buildings that contain the concentrator, shop and warehouse,
changing facilities, headframe, hoist house, paste plant, water treatment, storage facilities and
office. All structures and tailings management facilities are located within a 2,450 acre
Stillwater Mine Operating Permit area. Ore reserves developed at the Stillwater Mine are controlled
by patented mining claims either leased or owned outright by the company. The mine is located
approximately 85 miles southwest of Billings, Montana, and is accessed by a paved road. The mine
has adequate water and power from established sources. See Business and Properties  Risk
Factors. The Stillwater Mine accesses and has developed a 5.8-mile-long segment of the J-M Reef,
between the elevations of 2,500 and 7,000 feet above sea level. Access to the ore at the Stillwater
Mine is accomplished by means of a 1,950-foot vertical shaft and by a system of horizontal adits
and drifts driven parallel to the strike of the J-M Reef at vertical intervals of between 150 feet
and 300 feet. Seven main adits have been driven from surface portals on the west and east slopes of
the Stillwater Valley at various elevations between 5,000 and 5,900 feet above sea level. Five
principal levels have been developed below the valley floor by ramping down from the 5,000-foot
level to extract ore from the reef down to the 3,800-foot elevation. Five additional major levels
below the 5,000-foot level are accessed principally from a vertical shaft and shaft ramp system.
The company is currently developing a decline system from the 3,200-foot elevation to access and
develop deeper areas in the central part of the mine below those currently serviced by the existing
shaft. At the end of 2004, this decline system extended down to the 2,500 foot elevation. The 1,950-foot vertical shaft was constructed between 1994 and 1997 as part of the companys
plan to increase output from 1,000 to 2,000 tons of ore per day and was sunk adjacent to the
concentrator to increase efficiency of the operation. Ores and any waste rock to be transported to
the surface from the off-shaft and deeper areas of the mine are crushed prior to being hoisted up
the shaft. The production shaft and underground crushing station reduced haulage times and costs,
improved the material handling of ore and waste and improved the grinding capabilities of the
concentrator. Ore from those areas above the 5,000-foot west elevation is hauled to the surface by
train. Waste not used for backfill in underground excavations is transported to the surface and
placed in permitted waste rock disposal sites. The Stillwater Mine currently uses its 29 footwall laterals and 6 primary ramps and vertical
excavations to provide personnel and equipment access, supply haulage and drainage, intake and exhaust ventilation systems, muck
haulage, backfill plant access, powder storage and/or emergency egress. The footwall lateral and
primary ramp systems will continue to provide support of production and ongoing development
activities. In addition, certain mine levels are required as an integral component of the
ventilation system and serve as required intake and or exhaust levels, or as parallel splits to
maintain electrical ventilation horsepower balance and to meet Mine Safety and Health
Administration (MSHA) requirements. MSHA regulations contain requirements for alternate
(secondary) escapeways from mine workings. These levels, in addition to comprising critical
functional components of the ventilation and escapeway system, serve as permanent mine service and
utility infrastructure for road and rail transportation, dewatering and backfill 14




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pumping facilities designed and intended to be used for the life of the mine. Prior to 1994, almost all of the companys mining activities utilized captive cut-and-fill
stoping methods. This method extracts the orebody in eight-foot high horizontal cuts, accessed from
vertical raises and mined with conventional jackleg drills and slushers. 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. Commencing in 1994, the company
introduced two mechanized mining methods: ramp-and-fill and sub-level stoping. Ramp and-fill is
a mining method in which a succession of horizontal cuts are extracted from the orebody using
mobile equipment. Access to the orebody is from ramps driven in or adjacent to the orebody allowing
the use of hydraulic drills and load-haul-dump equipment. Sub-level stoping is a mining method in
which blocks of the reef approximately 50 feet high and up to 75 feet in length are extracted in
30-foot intervals utilizing mobile electric hydraulic long-hole drills and remote control rubber
tired load-haul-dump equipment. The reef is mined in a retreat sequence and mined out areas are
filled with development waste. Mechanized mining accounted for approximately 94% of total tons
mined in 2004. The company determines the appropriate mining method to be used on a stope-by-stope
basis. The company processes ore from the Stillwater Mine through a concentrator plant (mill)
adjacent to the Stillwater Mine shaft. The mill has an approximate capacity of 3,000 tons per day.
Ore is fed into the concentrator, mixed with water and ground to a slurry in the concentrators
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 this circuit, the sulfide minerals are floated, recycled, reground and refloated to
produce a concentrate suitable for further processing. The flotation concentrate, which represents
approximately 1.5% of the original ore weight, is filtered and transported in bins approximately 46
miles to the companys metallurgical complex in Columbus, Montana. Approximately 55% of the
tailings material from the mill is returned to the mine and used as fill material to provide
support for additional mining activities. The balance is placed in tailings containment areas on
the surface. No additional steps are necessary to treat any tailings placed back into the mine or
into the impoundments. Tailings placed into the impoundment areas are disposed of pursuant to the
companys operating permits. Mill recovery of PGMs was 92%, 91% and 90% in 2004, 2003 and 2002,
respectively. In 1998, the company received an amendment to its existing operating permit providing for the
construction of a lined surface tailings impoundment that would serve the Stillwater Mine for
approximately the next 30 years. Construction commenced on the tailings impoundment in 1999, and
it was completed and placed into operation in late 2000. See Business and Properties  Current
Operations  Regulatory and Environmental Matters  Permitting and Reclamation. During 2004, the Stillwater Mine produced approximately 405,000 ounces of palladium and
platinum, compared to approximately 428,000 ounces in 2003. See Selected Financial and Operating
Data. The Stillwater Mines total cash costs (a non-GAAP measure) were $278 per ounce in 2004
compared to $262 per ounce in 2003. See Selected Financial and Operating Data for further
discussion of non-GAAP measures. EAST BOULDER MINE The East Boulder Mine is located in Sweet Grass County, Montana, and provides access to the
western portion of the J-M Reef. The mine is fully permitted independently of the Stillwater Mine
and serves as a second access to the J-M Reef. Surface facilities for the East Boulder Mine are
situated on unpatented mill site claims maintained on federal lands administered under the Gallatin
National Forest. All facilities are wholly owned and operated by the company. Proven and probable
ore reserves for the mine are controlled by patented mining claims owned by the company. The mine
is located approximately 32 miles southeast of Big Timber, Montana, and is accessed by a public
road. All surface facilities including the tailings management complex are located within a
977-acre operating permit area. Development of the mine commenced in 1998 and consists of
underground mine development and surface support facilities, including a concentrator, shop and
warehouse, changing facilities, storage facilities, office and tailings management facility. The
mine commenced commercial production effective January 1, 2002. The J-M reef is accessed at East Boulder by two 18,500-foot, 15-foot diameter tunnels. The
access tunnels intersect the orebody at an elevation 6,450 feet above sea level. The orebody is
currently developed by four levels of footwall lateral drives parallel to the orebody totaling
approximately 26,000 feet, and by two primary ramps totaling approximately 11,250 feet. The
orebody is accessed vertically by ramp systems driven approximately every 1,200 feet along the length of the
deposit. The predominant mining methods are sub-level stoping and ramp-and-fill mining methods.
During the first half of 2002, an underground sand fill plant was constructed and commissioned to
facilitate the application of the cut-and-fill mining method to portions of the orebody. The ore is transported by rail haulage to the surface and processed through a concentrator
plant, which has a capacity of 2,000 tons per day. In the concentrator, the ore is mixed with water
and ground to a slurry in the concentrators mill circuit to liberate the PGM bearing sulfides from
the rock matrix. Similarly to the process at the Stillwater Mine, reagents are then added to the
slurry to separate 15




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the valuable sulfide from the waste rock in a flotation circuit. The sulfide
minerals are floated, recycled, reground and refloated to produce a concentrate. The flotation
concentrate, which represents 1.8% of the original ore weight, is filtered and transported in bins
approximately 90 miles to the companys metallurgical complex in Columbus, Montana. In 2004,
approximately 57% of the tailings material from this process was returned to the mine and used for
backfill to provide a foundation upon which additional mining activities can occur. The balance
was placed in surface tailings containment areas. No additional steps are necessary to treat any
tailings placed back into the mine or into the impoundments. Tailings placed into the impoundment
areas are disposed of pursuant to the companys operating permits. The impoundment area has an
estimated life of approximately 20 years at the original planned production and processing rate of
2,000 tons per day. Mill recovery of PGMs was 88%, 89% and 88% in 2004, 2003 and 2002,
respectively. During 2004, the East Boulder Mine produced approximately 164,000 ounces of palladium and
platinum, compared to approximately 156,000 ounces in 2003. The East Boulder Mines total cash
costs (a non-GAAP measure) were $344 per ounce in 2004 compared to $343 per ounce in 2003. See
Selected Financial and Operating Data for further discussion of non-GAAP measures. EXPLORATION AND DEVELOPMENT ACTIVITIES The J-M Reef has been explored from the surface along its entire 28-mile strike length by
surface sampling and drilling. Surface exploration drilling consists of an array of over 900 drill
holes with a maximum horizontal spacing between holes of 1,000 feet. Exploration activities have
also included driving and underground drilling from two exploratory adits, the West Fork Adit and
the Frog Pond Adit. Comprehensive evaluation of PGM mineralization encountered in the J-M Reef has
allowed delineation of indicated ore reserves adjacent to the Stillwater and East Boulder Mines and
confirmation of the existence of mineralized material over much of the remaining strike length.
Exploration to date has defined sufficient probable ore reserves to sustain mining for a number of
years in the future. It is the companys practice to systematically convert its established
probable ore reserves to the proven ore category coincident with planned advances of underground
development. The companys exploration focus is on its currently delineated PGM ore reserves and
adjacent mineralization along the J-M Reef within the companys mining claims rather than the
exploration of other mineral occurrences within the Stillwater Complex or at other prospective
mineral properties. Consequently, exploration does not at this time represent a significant
expenditure for the company. As part of the companys ongoing development activities, it continues to convert its
established probable ore reserves to proven ore reserves through the lateral and vertical
development of the Stillwater and East Boulder Mines. These ongoing activities involve the
construction of mine development workings to access established ore reserves and the continuous
advancement of definition drilling, engineering and mine plans to replace depleted ore reserves.
During 2004, 2003, and 2002, $62.3 million, $48.8 million and $43.9 million respectively, were
incurred in connection with capitalized mine development and are included in total capital
expenditures. 16




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Diagrams of the Stillwater and East Boulder Mines as currently developed and as planned to be
developed in the future are shown below: (MAP) (MAP) 17




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##### Table of Contents



METALLURGICAL COMPLEX Smelter. The company owns a smelter plant and associated real estate located in
Columbus, Montana. Concentrates from the mine sites are transported to the smelter, dried, and fed
into a 5.0-megawatt electric furnace, where the concentrates are melted and separated into a silica
rich slag and a PGM rich matte. The matte is tapped from the furnace and granulated. This
granulated furnace matte is then processed in a top blown rotary converter (TBRC), which separates
iron from the converter matte. The converter matte is poured from the TBRC, granulated and
transferred to the refinery for further processing. The granulated converter matte, approximately
10% of the original smelter feed by weight, consists of copper and nickel sulfides containing about
1.5% PGMs. The gasses released from the smelting operations are routed through a gas/liquid scrubbing
system, which removes approximately 99.8% of the sulfur dioxide. Spent scrubbing solution is
treated in a process that converts the sulfur dioxide to gypsum, or calcium sulfate, and
regenerates clean scrubbing solution. The gypsum is used by local farmers as a soil amendment. The smelting facility consists of an electric furnace, two TBRCs, a granulator and gas
handling and solution regeneration systems. Smelter capacity is 100 tons of concentrate per day. Base Metals Refinery. The companys refinery is on property it owns adjacent to the
smelter in Columbus, Montana. The refinery utilizes the patented Sherritt Process, whereby
sulfuric acid is used to dissolve the nickel, copper, cobalt and residual iron from the converter
matte. This process upgrades the converter matte product substantially from 1.5% PGMs to 50-55%
PGMs. In the refinery, copper, nickel, cobalt, and other metals are separated from the PGM-bearing
converter matte and marketed as by-products. Iron is precipitated from an
iron-copper-nickel-cobalt solution and is returned to the smelter to be processed and removed in
the slag. A nickel crystallizer circuit produces a crystalline nickel sulfate by-product
containing minor amounts of cobalt which is marketed into sales contracts with various companies. A
copper electrowinning circuit removes copper from solution as cathode copper which is marketed
under sales contracts with companies in the U.S. The refinery produces a platinum- and palladium-rich filter cake, which also contains minor
amounts of gold, rhodium and silver. This filter cake is shipped to third-party precious metals
refineries in New Jersey and California under tolling agreements that provide the company with
finished metal. The platinum and palladium metals are returned to the companys account as 99.95%
purity sponge; gold, silver and rhodium are also returned to the companys account. The refined
metal is then available for delivery to the companys customers. The company pays its refiners a
per-ounce refining charge for the toll processing of the refinery filter cake. During 2004, 2003 and 2002, total by-product (copper, nickel, gold and silver) sales were
approximately $15.8 million, $12.1 million and $10.6 million, respectively, and were credited
against production costs. During the second-quarter of 2004, the company shut down its smelter and base metals refinery
for about five weeks for routine smelter re-bricking and other refurbishing. This planned shutdown
reduced second-quarter earnings and cash flow, although sales from the palladium inventory
continued, partially mitigating the financial effects of the outage. Production at the mines was
unaffected by this shutdown. The mine concentrates produced were stockpiled at the smelter and
processed once the facility came back up. The companys processing of these stockpiles was
essentially complete in third quarter and the metal shipped for final refining. The companys significant repair and maintenance costs in connection with planned major
maintenance activities are expensed as incurred. The company does not accrue in advance for major
maintenance activities, but, whenever practicable, discloses in advance in its public filings any
planned major maintenance activities that may affect operations. SECONDARY MATERIALS PROCESSING PGM metals contained in spent catalytic converter materials are processed by the company
through its metallurgical complex. A sampling facility for secondary materials is used to crush
and sample spent catalysts prior to their being blended for smelting in the electric furnace. The
spent catalytic material is sourced by others, primarily from automobile repair shops and
automobile yards that disassemble old cars for the recycling of their parts. Spent petroleum
refining catalysts are also processed by the company. The company has been processing small spot shipments of spent catalysts since 1997. In
October 2003, the company entered into a long-term metal sourcing agreement with Power Mount
Incorporated of Somerset, Kentucky, under which it contractually purchases secondary metals for
recycling. The commercial terms of this agreement are confidential. However, in the event of a
change in business circumstances, the company can terminate this agreement upon ninety days
notice. 18




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##### Table of Contents



The company records revenue and cost of metals sold for the processing of these secondary
materials. Revenues were $76.4 million, $8.9 million and $15.2 million for 2004, 2003 and 2002,
respectively. Cost of Metals Sold was $71.3 million, $8.0 million and $14.1 million for 2004, 2003
and 2002, respectively. For purposes of calculating total cash costs per ounce and per ton, total
operating cash costs per ounce and per ton and production costs per ounce and per ton (these are
all non-GAAP measures), the company accounts for the net proceeds from secondary processing
activities as an operating credit. The net proceeds from the processing of recycled catalysts in
2004, 2003 and 2002 reduced production costs by approximately $6.1 million, $0.9 million and $1.0
million, respectively. OTHER PROPERTIES The company owns a 17,600 square foot warehouse facility and also leases 10,100 square feet of
office space in buildings in Columbus as well as 11,000 square feet of office space in Billings,
Montana. The company relocated its headquarters offices to Billings in early 2005. The annual
lease expense for the offices in Columbus, Montana, is approximately $71,000 per year. The annual
lease expense for the companys headquarters in Billings is approximately $225,000 per year. The
company also owns parcels of rural land in Stillwater and Sweet Grass Counties, Montana, near its
mine sites totaling approximately 3,364 acres and additional properties in the communities of
Columbus and Big Timber, Montana, which are used as support facilities. All of the companys fee
properties are subject to a mortgage in favor of the companys credit facility CREDIT AGREEMENT On August 3, 2004, the company entered into a new $180 million credit facility with a
syndicate of financial institutions that replaced the companys previous $250 million credit
facility. The new credit facility consists of a $140 million six-year term loan facility maturing
July 30, 2010, bearing interest at a variable rate plus a margin (London Interbank Offer Rate
(LIBOR) plus 325 basis points, or 5.50% at December 31, 2004) and a $40 million five-year revolving
credit facility bearing interest when drawn at a variable rate plus a margin (LIBOR plus 300 basis
points, or 5.25% at December 31, 2004) expiring July 31, 2009. The revolving credit facility
includes a letter of credit facility. Undrawn amounts under the letters of credit issued through
this facility as of December 31, 2004, carry an annual fee of 3.125%. Both the margin on the
revolving credit facility and the letter of credit fee adjust contractually based on the companys
leverage ratio, as defined, beginning after the first quarter of 2005. The remaining unused
portion of the revolving credit facility bears an annual commitment fee of 0.75%. Amortization of
the term loan facility commenced on August 31, 2004. As of December 31, 2004, the company has $131.5 million outstanding under the term loan
facility. During 2004, the company obtained a letter of credit in the amount of $7.5 million as
surety for its long-term reclamation obligation at East Boulder Mine, which reduces amounts
available under the revolving credit facility to $32.5 million at December 31, 2004. The new credit facility requires as prepayments 50% of the companys annual excess cash flow
(as defined in the credit agreement), plus any proceeds from asset sales and the issuance of debt
or equity securities, subject to specified exceptions. Such prepayments are to be applied first
against the term loan facility balance, and once that is reduced to zero, against any outstanding
revolving credit facility balance. The companys term loan facility allows the company to choose
between LIBOR loans of various maturities plus a spread of 3.25% or alternate base rate loans plus
a spread of 2.25%. The alternate base rate is a rate determined by the administrative agent under
the terms of the credit facility, and has generally been equal to the prevailing bank prime loan
rate, which is 5.25% at December 31, 2004. The alternate base rate applies only to that portion of
the term loan facility in any period for which the company has not elected to use LIBOR contracts.
Substantially all the property and assets of the company are pledged as security for the new credit
facility. In accordance with the terms of the new credit facility, the company is required to offer 25%
of the net proceeds from sales of palladium received in the Norilsk Nickel transaction to prepay
its term loan facility. The companys new credit facility contains a provision that defers each
prepayment related to the sales of palladium received in the Norilsk Nickel transaction until the
accumulated amount due reaches a specified level. The company prepaid $7.8 million in
connection with such sales and deferred $1.9 million as of December 31, 2004. As
of December 31, 2004, $19.1 million of the companys
long-term debt was classified as
a current liability representing that portion of the term loan facility expected to be prepaid
under this arrangement during the next twelve months, which includes the deferred prepayment amount. Covenants in the new credit facility include restrictions on the companys ability to: (1)
incur additional indebtedness; (2) pay dividends or redeem capital stock; (3) grant liens; (4) make
investments, acquisitions, dispositions or enter into mergers; (5) enter into transactions with
affiliates; (6) make capital expenditures; (7) refinance or prepay subordinated debt; (8) change
the nature of the companys business or cease operations at the principal operating properties; and
(9) enter into commodity hedging. The company is also subject to financial covenants including a
debt to EBITDA (i.e., earnings before interest, taxes, depreciation and amortization) 19




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##### Table of Contents



ratio, a debt service coverage ratio and a minimum liquidity requirement. Events of default under the terms of the new credit facility include: (1) a cross-default
linked to other indebtedness of the company; (2) any material modification to the life-of-mine
plans, absent lender consent; (3) a change of control of the company, subject to certain
exceptions, and (4) any material breach by a counterparty to a material sales contract or any
unapproved modification or termination of such a sales contract. The company is in compliance with
its covenants under the new credit facility at December 31, 2004. The following is a schedule by year of required principal payments to be made in quarterly
installments on the amounts outstanding under the term loan facility, as of December 31, 2004,
without regard to the expected prepayments required to be offered from sales of palladium received
the Norilsk Nickel transaction or out of excess cash flow: Year ended (in thousands)
    
    Term facility2005
    
    $
    1,3222006
    
    
    1,3222007
    
    
    1,3222008
    
    
    1,3212009
    
    
    1,3212010
    
    
    124,895Total
    
    $
    131,503
 PGM SALES AND HEDGING ACTIVITIES Mine Production: Palladium, platinum, rhodium and gold are sold to a number of consumers and dealers with whom
the company has established trading relationships. Refined PGMs in sponge-form are transferred upon
sale from the companys account at third-party refineries to the account of the purchaser.
By-product metals are purchased at market price by customers, brokers or outside refiners. During 1998, the company entered into three long-term sales contracts with its customers that
contain guaranteed floor prices for metal delivered from mine production. In late 2000 and in
2001, the company amended these contracts to extend the terms and to modify the pricing mechanisms.
One of these contracts applies to the companys production through December 2010, one through
December 2006 and the other contract, based on a fixed cumulative volume, is estimated to be
completed in early 2008. Under the contracts, the company has committed between 80% and 100% of
its palladium production and between 70% and 80% of its platinum production through 2010. Metal
sales are priced at a slight discount to market. The remaining mine production is not committed
under these contracts and remains available for sale at prevailing market prices. The following table summarizes the floor and ceiling price structures for the three long-term
sales contracts related to mine production. The first two columns for each commodity represent the
percent of total mine production that is subject to floor prices and the weighted average floor
price per ounce. The second two columns for each commodity represent the percent of total mine
production that is subject to ceiling prices and the weighted average ceiling price per ounce. PALLADIUM
    
    
    
    PLATINUMSubject to
    
    
    
    Subject to
    
    
    
    Subject to
    
    
    
    Subject toFloor Prices
    
    
    
    Ceiling Prices
    
    
    
    Floor Prices
    
    
    
    Ceiling Prices% of Mine
    
    
    Avg. Floor
    
    
    
    % of Mine
    
    
    
    Avg. Ceiling
    
    
    
    % of Mine
    
    
    Avg. Floor
    
    
    
    % of Mine
    
    
    Avg. CeilingYear
    
    
    Production
    
    
    Price
    
    
    
    Production
    
    
    
    Price
    
    
    
    Production
    
    
    Price
    
    
    
    Production
    
    
    Price2005
    
    
    
    100
    %
    
    $
    355
    
    
    
    
    31
    %
    
    
    $
    702
    
    
    
    
    80
    %
    
    $
    425
    
    
    
    
    16
    %
    
    $
    8562006
    
    
    
    100
    %
    
    $
    339
    
    
    
    
    31
    %
    
    
    $
    703
    
    
    
    
    80
    %
    
    $
    425
    
    
    
    
    16
    %
    
    $
    8562007
    
    
    
    100
    %
    
    $
    339
    
    
    
    
    16
    %
    
    
    $
    975
    
    
    
    
    70
    %
    
    $
    425
    
    
    
    
    14
    %
    
    $
    8502008
    
    
    
    85
    %
    
    $
    376
    
    
    
    
    20
    %
    
    
    $
    975
    
    
    
    
    70
    %
    
    $
    425
    
    
    
    
    14
    %
    
    $
    8502009
    
    
    
    80
    %
    
    $
    380
    
    
    
    
    20
    %
    
    
    $
    975
    
    
    
    
    70
    %
    
    $
    425
    
    
    
    
    14
    %
    
    $
    8502010
    
    
    
    80
    %
    
    $
    375
    
    
    
    
    20
    %
    
    
    $
    975
    
    
    
    
    70
    %
    
    $
    425
    
    
    
    
    14
    %
    
    $
    850
 20




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The volumes of platinum and palladium to be delivered under these sales contracts vary
according to actual mine production. The contracts also contain termination provisions that allow
the purchasers to terminate in the event the company breaches certain provisions of the contract
and the breach is not cured within periods ranging from 10 to 30 days of notice by the purchaser.
The long-term sales contracts qualify for the normal sales exception provided in SFAS No. 138 and
so are not subject to the hedge accounting requirements of SFAS No. 133 because they do not settle
net and require physical delivery. The floors and ceilings embedded within the long-term sales
contracts are treated as part of the host contract, not as separate derivative instruments, and
therefore also are not subject to the requirements of SFAS No. 133. The company has historically entered into hedging agreements from time to time to manage the
effect of fluctuation in the price of palladium and platinum from mine production on the companys
cash flow. Hedging activities consist of fixed forwards for future deliveries of specific
quantities of PGMs at specific prices, the sale of call options and the purchase of put options and
financially settled forwards. Gains or losses can occur as a result of hedging strategies. Hedging
losses of $1.3 million were realized in 2004; in 2003, no hedging gains or losses were realized;
and hedging gains of $9.2 million were realized 2002. The unrealized loss related to financially
settled forwards for mine production was $4.8 million at year-end 2004. All such transactions open
at December 31, 2004, will settle at various periods through October 2006 (see Note 16 to the
companys consolidated financial statements). Secondary Processing The company regularly enters into fixed forwards and financially settled forwards relating to
secondary processing of catalysts. These transactions are accounted for as cash-flow hedges.
Metals from processing secondary materials are sold forward at the time the catalysts are received,
and they are delivered against the cash flow hedges when the ounces are recovered. All of these
open transactions at December 31, 2004, will settle at various periods through April 2005 (see Note
16 to the companys consolidated financial statements). The unrealized loss on these instruments
due to changes in metal prices at December 31, 2004 and 2003 was $0.2 million and $0.9 million
($0.5 million, net of tax), respectively. The company has credit agreements with its major trading
partners that provide for margin deposits in the event that forward prices for metals exceed the
companys hedge contract prices by a predetermined margin limit. Because these hedges are highly
effective, at settlement any cumulative gain or loss on these financially settled forwards will be
fully offset by changes in the value of the underlying metal. Palladium acquired in connection with Norilsk Nickel transaction: The company entered into sales agreements during the first quarter of 2004 to sell the
palladium received in the 2003 stock purchase transaction with Norilsk Nickel. Under these
agreements, the company sells approximately 36,500 ounces of palladium per month, ending in the
first quarter of 2006, at a slight volume discount to market price. Additionally, under one of
these agreements, the company is required to provide 3,250 ounces of platinum and 1,900 ounces of
rhodium per month, also at a slight discount to market price. TITLE AND ROYALTIES The company holds 995 patented and unpatented lode or millsite claims covering approximately
16,000 acres along the J-M Reef mineral zone and on adjacent federal lands utilized for the
companys operations facilities. The company believes that approximately 130 of these claims cover
100% of the known apex of the J-M Reef. The remainder of the companys unpatented claims either
adjoin the apex of the J-M Reef or secure sites for surface operations. Prior to the federal
moratorium on processing new applications for mining claim patents, the company had leasehold
control on one patented claim under the Mouat Agreement, had been granted patents on 34 of its own
claims (a combined total of 735 acres), and had 33 patent applications pending on 135 additional
mining claims covering an area of 2,249 acres. The applications included claims owned directly by
the company or held by the company in leasehold. During the fourth quarter of 2001, 31 new patents
were issued to the company for 126 mining claims covering 2,126 acres. At year-end 2001, patents
had been issued for all submitted applications involving the claims owned directly by the company.
In a decision dated April 30, 2002, the Montana State Office of the Bureau of Land Management
rejected two mineral patent applications submitted prior to July 13, 1993 covering 123 acres in 9
mining claims held by the company in leasehold under the Mouat Agreement. The company has joined
with the Mouat interests in appealing the decision to the U.S. Department of the Interior Board of
Land Appeals (IBLA). In the event the decision is upheld, the 9 original claims will revert to
unpatented mining claim status. The company does not believe that the final decision will have any
adverse affect on the companys operations or interest under the Mouat Agreement. During 2004, two
patented mining claims were conveyed by the company to the Mouat interests pursuant to the Mouat
Agreement. Conveyance of those claims had no material affect on the companys operations, royalty
position or the pending IBLA appeal. The company presently maintains 825 active unpatented mining
and millsite claims. Unpatented mining claims may be located on lands open to mineral appropriation
and are generally considered to be subject to greater title risk than other real property interests
because the validity of unpatented mining claims is often uncertain and claims are more
commonly subject to challenges of third parties, regulatory or statutory changes, or contests by
the federal government. The validity of an unpatented mining claim or millsite 21




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##### Table of Contents



claim, in terms of establishing and maintaining possessory rights, depends on strict compliance with a complex body of
federal and state statutory and decision law regarding the location, qualifying discovery of
valuable minerals, occupancy and beneficial use by the claimant. Of the companys 995 controlled claims, 869 are subject to royalties, including 711 subject to
a 5% net smelter royalty payable to Newmont Capital Limited, 56 subject to a 0.35% net smelter
royalty payable to the Mouat family, and 102 subject to both royalties. During 2004, 2003 and 2002,
the company incurred royalty expenses of approximately $8.7 million, $6.0 million and $6.9 million,
respectively. At December 31, 2004, 100% of the companys proven and probable ore reserves were
secured by either its control of 161 patented mining claims or the 9 first-half certified claims
pending the appeal ruling by the IBLA. Processing facilities at the East Boulder Mine are situated
on 127 validated unpatented millsite claims. SAFETY Mining operations are conducted at the Stillwater Mine and at the East Boulder Mine and
involve the use of heavy machinery and drilling and blasting in confined spaces. The pursuit of
safety excellence at the company continues with the implementation since 2001 of the companys
G.E.T. (Guide, Educate and Train) Safe safety and health management systems. Efforts are focused on
accident prevention, seeking opportunities for safer mining methods and increased employee
awareness and training. Areas of specific focus include enhanced work place examinations, joint
union and management safety committees, critical task analysis, loss control representatives who
are part of the mining workforce and implementation of measurable safety standards. Employee-led
focus teams have been successful in solving many safety related challenges. The company continues
to utilize focus teams to address specific safety and health related issues. The company has
partnered with MSHA on several occasions for purposes of education, training, research, and
technology sharing. As a result of this partnership, several breakthrough results have been
created. Most noteworthy are the completion of a jointly created training seminar for MSHA
inspectors and Stillwater supervisors as well as study and research efforts for reducing employee
exposures to noise and diesel particulate matter. During 2004, continued focus to improve company safety performance resulted in an incidence
rate reduction of 34% from 2003. This equates to a 42% reduction in incidence rates since the
inception of the G.E.T. Safe safety management systems in 2001. The Assistant Secretary of Labor
for Mine Safety and Health visited the Stillwater Mine during 2004 and presented the workforce with
an award for Most Improved Mine in the Rocky Mountain District. This award acknowledged the
mines reduction in injury incidence rates, of accidents and of injuries. The metallurgical complex in Columbus, Montana, continued to maintain a low incidence rate
while being recognized by the Montana Department of Labor and OSHA as a leader in workplace safety.
The smelter was the recipient of its eleventh SHARP Award and the refinery received its
seventh. The SHARP program recognizes employers who have demonstrated exemplary achievements in
workplace safety and health. By meeting the SHARP inspection requirements, these facilities may be
exempt from general Occupational Safety and Heath Administration (OSHA) inspections for one year. In 2005, attention to further employee participation and involvement will be enhanced through
hourly loss control representatives and the implementation of internal safety auditing processes. EMPLOYEES As of December 31, 2004 and 2003, the company had 1,575 and 1,540 employees, respectively, in
the following areas: NUMBER OFEMPLOYEES ATSITE
    
    DECEMBER 31,2004
    
    
    2003Stillwater Mine
    
    
    972
    
    
    
    990East Boulder Mine
    
    
    408
    
    
    
    370Smelter and Refinery Complex
    
    
    142
    
    
    
    131Columbus Administration and Support
    
    
    53
    
    
    
    49Total
    
    
    1,575
    
    
    
    1,540
 All of the companys hourly employees at the Stillwater Mine, the East Boulder Mine, the
smelter and refinery are represented by the Paper, Allied Industrial, Chemical and Energy Workers
International Union (PACE). On July 1, 2004, a three-year contract was negotiated which covers
substantially all hourly workers at the Stillwater Mine, the smelter and the refinery and calls for
an annual average wage increase of approximately 3% per annum. The new contract was ratified by union
members on July 19, 2004 following a ten-day work stoppage. Separately, the three-year contract
covering all hourly workers at the East Boulder Mine will expire on July 22




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##### Table of Contents



1, 2005. See Business and Properties  Risk Factors. REGULATORY AND ENVIRONMENTAL MATTERS General. The companys business is subject to extensive federal, state and local
government controls and regulations, including regulation of mining and exploration which could
involve the discharge of materials and contaminants into the environment, disturbance of land,
reclamation of disturbed lands, associated potential impacts to threatened or endangered species
and other environmental concerns. In particular, statutes including, but not limited to, the Clean
Air Act, the Clean Water Act, the Solid Waste Disposal Act, the Emergency Planning and Community
Right-to-Know Act, the Endangered Species Act and the National Environmental Policy Act, impose
permit requirements, effluent standards, air emission standards, waste handling and disposal
restrictions and other design and operational requirements, as well as record keeping and reporting
requirements, upon various aspects of mineral exploration, extraction 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 become more stringent in
the future. The company is aware that federal regulation under the Solid Waste Disposal Act
governing the manner in which secondary materials and by-products of mineral extraction and
beneficiation are handled, stored and reclaimed or reused are subject to frequency review by the
agencies which could affect the companys facility design, operations, and permitting requirements.
See Business and Properties  Risk Factors. The Stillwater Mine and East Boulder Mine are located on the northern edge of the
Absaroka-Beartooth wilderness, about 30 miles north of Yellowstone National Park. Due to the
proximity of the companys operations to Yellowstone National Park and a wilderness area, the
companys operations are subject to stringent environmental controls that may adversely impact the
companys operations. For example, increasingly stringent requirements may be adopted under the
Clean Water Act, Clean Air Act or Endangered Species Act which could require installation of
environmental controls not required of competitors located overseas. See Business and Properties 
Risk Factors. The companys past and future activities may also cause it to be subject to liabilities under
provisions of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (CERCLA), and analogous state law. Such laws impose strict liability on certain categories
of potentially responsible parties including current property owners for releases or threatened
releases of hazardous substances into the environment that result in cleanup and other remediation
costs. Generally, compliance with the above statutes requires the company to obtain permits issued by
federal, state and local regulatory agencies and to file various reports and keep records of its
operations affecting the environment. 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. See Business And Properties  Risk Factors. The company believes that its operations and facilities comply in all material respects with
current federal, state and local permits and regulations, and that it holds all necessary permits
for its operations at the Stillwater and East Boulder Mines and to complete all of its planned
expansion projects, including at the East Boulder Mine. 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 permitting and proposed construction
schedules for such facilities. Under certain circumstances, facility construction may be delayed
pending regulatory approval. The cost of complying with future laws and regulations may render
currently operating or future properties less profitable and could adversely affect the level of
the companys ore reserves and, in the worst case, render its mining operations uneconomic. Permitting and Reclamation. Operating Permits 00118 and 00149 issued by the Montana
Department of State Lands encompass approximately 2,453 acres at the Stillwater Mine located in
Stillwater County, Montana and 977 acres at the East Boulder Mine located in Sweet Grass County,
Montana. The permits delineate lands that may be subject to surface disturbance. At present,
approximately 420 acres have been disturbed at the Stillwater Mine, and 180 acres have been
disturbed at the East Boulder Mine. The company employs concurrent reclamation wherever feasible. Reclamation regulations affecting the companys operations are promulgated and enforced by the
Hard Rock Bureau of the Montana Department of Environmental Quality (DEQ). Additional reclamation
requirements may be imposed by the United States Forest Service (USFS) during the permitting
process. For regulatory purposes, reclamation does not mean restoring the land to its pre-
mining state. Rather, it means 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 23




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rock dumps, removal of
roads and structures, neutralization or removal of process solutions, treatment of mine water prior
to discharge and visual aesthetics. See 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 DEQ, which
has been delegated such authority by the federal government. Operating permits issued to the
company by the Montana DEQ and the USFS do not have an expiration date but are subject to periodic
reviews. The reviews evaluate bonding levels, monitor reclamation progress, and assess compliance
with all permit requirements and mitigation measures. In April 1996, the company submitted a permit amendment application for the expansion of the
Stillwater Mine. This expansion proposal included selection and construction of a new tailings
impoundment and removal of the 2,000 tons of ore per day production cap. During 1997, as a result
of this application, the Montana DEQ began preparation of an Environmental Impact Statement in
order to assess the environmental impacts of the amendment. The Montana DEQ issued the final
Environmental Impact Statement in 1998, subsequent to review of draft issuances and a public
hearing. In November 1998, the Record of Decision was issued by the Montana DEQ and the USFS. There
were no material changes from the original application. In the first quarter of 1999, an environmental group filed a complaint against the Montana DEQ
challenging the adequacy of the Environmental Impact Statement and reclamation provisions developed
in connection with the amendment to the permit. The company was not named in the complaint. In
mid-2000, the company signed an agreement with the group and its affiliates (the Councils). Under
the terms of the agreement, the Councils withdrew litigation against the Montana DEQ. The Councils
also agreed not to file a protest against the renewal of the companys water quality permit at the
East Boulder Mine. For its part, the company agreed to programs that reduce traffic flows to both
the Stillwater Mine and the East Boulder Mine. In addition, the company is funding expanded
monitoring programs and the development of a watershed partnership for the Boulder River basin to
assist residents in improving the quality of surface and ground water. Included in this is the
funding of a long-term fishery study. The company estimates the total cost of all the environmental
programs associated with the implementation of the agreement to be approximately $350,000 to
$400,000 annually. The companys environmental expenses were $1.7 million, $1.7 million and $1.8 million, for
2004, 2003 and 2002, respectively. The company had capital expenditures for environmental
facilities during 2004, 2003 and 2002 of $7.7 million, $6.3 million and $0.3 million, respectively.
The companys ongoing operating expenditures for environmental compliance are expected to exceed
approximately $2.5 million per year and will be expensed as incurred. STOCK PURCHASE AGREEMENT TRANSACTION WITH MMC NORILSK NICKEL On June 23, 2003, the company and Norilsk Nickel completed a stock purchase transaction
whereby the company issued 45,463,222 new shares of its common stock to Norimet, a wholly-owned
subsidiary of MMC Norilsk Nickel, a Russian company. The company received consideration from
Norimet consisting of $100.0 million in cash and 877,169 ounces of palladium valued at $148.2
million as of June 23, 2003. The aggregate value of the consideration was $248.2 million. The
company was required to use one-half of the cash proceeds to prepay its term loans and was required
to offer one-half of the cash proceeds received from the sale of the ounces as a prepayment of the
previous credit facility. The previous credit facility was replaced in August of 2004, and
currently the company is required to offer 25% of the cash proceeds received from the sale of these
palladium ounces as a prepayment of the new credit facility. See Credit Agreement above. On September 3, 2003, Norimet completed a cash tender offer to acquire 4,350,000 shares of the
companys outstanding common stock. Following completion of the cash tender offer, Norimet owned
49,813,222 shares or 55.5% of the companys then outstanding common stock. As of March 23, 2005
Norimet owned 49,813,222 shares or 55.0% of the companys outstanding common stock. COMPETITION: PALLADIUM AND PLATINUM MARKET GENERAL Palladium and platinum are rare precious metals with unique physical qualities that are used
in diverse industrial applications and in the jewelry industry. The 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 operations. 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. New mines may open over the next several 24




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years, increasing supply. 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 Risk
Factors and Managements Discussion and Analysis of Financial Condition and Results of
Operations. GLOBAL DEMAND Palladium demand increased or remained relatively stable for the period 1994 through 2000 and
then dropped in 2001 and 2002 before starting to recover in 2003, (see palladium chart below).
During 2004, demand for palladium continued to recover and for the year increased approximately 14%
as compared to 2003. However, demand remains approximately 34% below the high established in 1999,
according to Johnson Mattheys Platinum 2004 Interim Review Reportpublished in November 2004
(Johnson Matthey or the Johnson Matthey report). The Johnson Matthey report forecasts that the
recovery in palladium demand will continue due to Chinese jewelers moving into the production of
palladium jewelry, coupled with increased purchases by the auto industry. According to Johnson
Matthey, demand or purchases of palladium had grown from 4.9 million ounces in 1994 to 9.4 million
ounces in 1999, thereafter decreasing to 6.8 million ounces in 2001, 4.8 million ounces in 2002,
recovering to 5.4 million ounces in 2003 and an estimated 6.1 million ounces in 2004. The huge
drop in demand between 1999 and 2002 was driven by high palladium prices, as consumers switched to
alternative materials, including platinum, engaged in thrifting (obtaining the same or better
performance results with less material), and began to use safety stocks accumulated prior to 2001. (BAR GRAPH)
    
    (BAR GRAPH)
 Charts reproduced from the Johnson Matthey Platinum 2004 Interim Review. Permission to
reproduce was neither sought nor obtained. Johnson Matthey also reported that platinum demand has increased from 4.6 million ounces in
1994 to 6.5 million ounces in 2004, a 41% increase and that demand for platinum exceeded supply in
2004 by only 40,000 ounces, moving closer to being in balance, (see platinum chart below). 25




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(BAR GRAPH) Chart reproduced from the Johnson Matthey Platinum 2004 Interim Review. Permission to
reproduce was neither sought nor obtained. The unique physical qualities of PGMs include: (1) a high melting point; (i2) excellent
conductivity and ductility; (3) a high level of resistance to corrosion; (4) strength and
durability; and (5) strong catalytic properties. The largest application for palladium is in automotive catalytic converters. This industry
represented approximately 56% of the worldwide palladium demand in 2003, but decreased to
approximately 51% of the worldwide demand in 2004 as demand in other applications grew, especially
for jewelry. According to Johnson Matthey, demand for palladium in the next several years is
expected to continue growing, driven primarily by its use in catalytic converters which reduce
harmful automobile emissions. Auto industry demand for palladium is forecasted to continue rising
steadily in 2005, growing faster than 2004. In the U.S., the automobile industry is required to
comply with National Low Emission Vehicle standards that progressively decrease permitted
automotive emission levels. Europe and Japan have adopted more stringent standards for the future
as well. With growing concern for cleaner air, it is expected that greater attention to automobile
emissions will continue. This will have an undetermined effect on palladium and platinum demand.
During 2004, the price of platinum strengthened, exceeding a weakening palladium price as
inventories of palladium have acted to keep its price in check. Johnson Matthey estimated that approximately 15% of 2004 palladium demand was consumed in the
production of electronic components for personal computers, cellular telephones, facsimile machines
and other devices. Johnson Matthey also reported that dentistry continues to be a major user of
palladium for gold-based dental alloys, and represented approximately 14% of the palladium demand
for 2004. Prior to 2004, the principal use of palladium in jewelry was to make white gold jewelry, but
during the first quarter of 2004 when the platinum price went above $900 per ounce Chinese jewelers
began fabricating significant volumes of palladium jewelry. Johnson Matthey estimated that in 2004
with the introduction of palladium jewelry in China that demand for palladium for jewelry
fabrication was 740,000 ounces or approximately 12% of the total palladium demand for 2004, an
increase of almost 500,000 ounces from 2003. According to Johnson Matthey, approximately 66% 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. 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 gasoline and fuel cells. The
balance of current platinum demand is for the production of jewelry, such as gem settings for
rings, and for investment/collector coins. Johnson Matthey also reported that demand for platinum
exceeded supply in 2004 by only 40,000 ounces. See Business and Properties  Risk Factors. 26




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GLOBAL SUPPLY The leading global sources of palladium and platinum production are mines located in the
Republic of South Africa and the Russian Federation. The Johnson Matthey report estimated that
South Africa provided approximately 36% of the palladium and 77% of the platinum sold worldwide
during 2004. Johnson Matthey noted that the principal PGM mining companies in the Republic of South
Africa are Anglo-American Platinum Corporation, Ltd., Impala Platinum Holdings, Ltd. and Lonmin
Ltd. The Johnson Matthey report estimated that the Russian Federation, as a by-product of nickel
production from Norilsk Nickel, provided approximately 46% of the palladium and approximately 13%
of the platinum worldwide in 2004 (see charts below). (BAR GRAPH)
    
    (BAR GRAPH)
 Charts reproduced from the Johnson Matthey Platinum 2004 Interim Review. Permission to
reproduce was neither sought nor obtained. Supply numbers provided by Johnson Matthey are for metals entering the market and do not
necessarily represent metals produced during the years shown. For palladium this constitutes a
significant year-to-year difference due to substantial inventories held by the Russian Government,
at times by auto companies and by speculators. For platinum this is less significant, as
inventories held by governments or private institutions have not been as material. Annual
worldwide mine production of palladium for 2004 is estimated at 6.8 million ounces. Annual
worldwide production of platinum for 2004 is estimated at 6.4 million ounces. Johnson Matthey expects the supply of palladium will continue to rise in 2005 as a result of
increased PGM production from South Africa as platinum expansion projects are completed. Johnson
Matthey estimates that Norilsk Nickel in Russia produced approximately 2.9 million ounces of
palladium in 2004 as a by-product of nickel mining, and that portions of Russian government
stockpiles accumulated over the years also were exported during the year but at a lower level than
in 2003. If Russian government stockpiles of palladium and platinum still exist and are extensive,
and if they are disposed of in the market in significant quantities, the increased supply could
depress palladium prices. To the companys knowledge, no official information on Russian
inventories of palladium has been publicly disclosed. In addition to these sources, PGMs are recovered from automotive catalytic converters acquired
from scrap dealers. A small but growing industry has developed in the collection and recovery of
PGMs from scrap sources, including automotive catalytic converters, electronic and communications
equipment and petroleum catalysts. 27




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PRICES The companys revenue and earnings depend in part upon world palladium and platinum market
prices. The company has no direct control over these prices, which tend to fluctuate widely. The
company does have the ability to hedge prices, however, and is working to increase demand by
encouraging new uses for its products. See Managements Discussion and Analysis of Financial
Condition and Results of Operations-Revenue and Factors That May Affect Future Results and
Financial Condition. The volatility of palladium and platinum prices is illustrated in the
following table of the London PM Fix of annual high, low and average prices per ounce. PALLADIUM
    
    
    PLATINUMYEAR
    
    HIGH
    
    
    LOW
    
    
    AVERAGE
    
    
    HIGH
    
    
    LOW
    
    
    AVERAGE1996
    
    $
    144
    
    
    $
    114
    
    
    $
    128
    
    
    $
    432
    
    
    $
    367
    
    
    $
    3971997
    
    $
    239
    
    
    $
    118
    
    
    $
    177
    
    
    $
    497
    
    
    $
    343
    
    
    $
    3961998
    
    $
    419
    
    
    $
    201
    
    
    $
    284
    
    
    $
    429
    
    
    $
    334
    
    
    $
    3721999
    
    $
    454
    
    
    $
    285
    
    
    $
    358
    
    
    $
    457
    
    
    $
    342
    
    
    $
    3772000
    
    $
    970
    
    
    $
    433
    
    
    $
    680
    
    
    $
    622
    
    
    $
    414
    
    
    $
    5442001
    
    $
    1,090
    
    
    $
    315
    
    
    $
    604
    
    
    $
    640
    
    
    $
    415
    
    
    $
    5292002
    
    $
    435
    
    
    $
    222
    
    
    $
    338
    
    
    $
    607
    
    
    $
    453
    
    
    $
    5392003
    
    $
    269
    
    
    $
    148
    
    
    $
    201
    
    
    $
    840
    
    
    $
    603
    
    
    $
    6912004
    
    $
    333
    
    
    $
    178
    
    
    $
    230
    
    
    $
    936
    
    
    $
    767
    
    
    $
    8462005*
    
    $
    208
    
    
    $
    178
    
    
    $
    188
    
    
    $
    883
    
    
    $
    844
    
    
    $
    864
    AVAILABLE INFORMATION The companys Internet Website is http://www.stillwatermining.com. The company makes
available, free of charge, through its Internet Website, its annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, as soon as
reasonably practicable after the company electronically files such materials with, or furnishes
them to, the Securities & Exchange Commission. These documents will also be provided in print,
upon request. RISK FACTORS Set forth below are certain risks faced by the company. VULNERABILITY TO METALS PRICE VOLATILITYCHANGES IN SUPPLY AND DEMAND COULD REDUCE MARKET PRICES Because the companys sole source of revenue is the sale of platinum group metals, changes in
the market price of platinum group metals significantly affect profitability. Many factors beyond
the companys control influence the market prices of these metals. These factors include global
supply and demand, speculative activities, international political and economic conditions,
currency exchange rates, and production levels and costs in other PGM-producing countries,
principally Russia and South Africa. Over the last few years, the market price of palladium has been extremely volatile. After
reaching a record high price level of $1,090 per ounce in January 2001, the price of palladium
declined over a 27-month period until bottoming at a low of $148 per ounce in April 2003.
Thereafter, the price gradually recovered, posting a high of $333 per ounce in April of 2004 and
then declined again, closing 2004 at $184 per ounce. At March 23 2005, the market price of
palladium was approximately $195 per ounce. 28




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(LINE GRAPH) The market price of platinum increased from $480 per ounce early in 2002 to approximately $600
per ounce by December 31, 2002, and continued to increase through 2003 to approximately $815 per
ounce at December 31, 2003. During 2004, the price of platinum ranged from a high of $936 in April
to a low of $767 per ounce in mid-May, and ended the year at about $859 per ounce. On March 23,
2005, the market price of platinum was approximately $859 per ounce. (LINE GRAPH) A prolonged or significant economic contraction in the United States or worldwide could lead
to further volatility in market prices of PGMs, particularly if demand for PGMs falls in connection with reduced automobile and
electronics production. If other producers dispose of substantial amounts of platinum group metals
from stockpiles or otherwise, the increased supply could reduce the prices of palladium and
platinum. Reductions in PGM prices would adversely impact the companys revenues, profits and cash
flows. Protracted periods of low 29




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metals prices could significantly reduce revenues and the availability of required development funds, particularly after the companys supply contracts
expire, to levels that could cause portions of the companys ore reserves and production plan to
become uneconomic. This could cause substantial reductions to PGM production or suspension of
mining operations. See Business and Properties  Competition: Palladium and Platinum Market for
further explanation of these factors. THE COMPANY DEPENDS UPON A FEW CUSTOMERS AND ITS SALES AND OPERATIONS COULD SUFFER IF IT LOSES ANY
OF THEM The company is party to long-term sales contracts with General Motors Corporation, Ford Motor
Company and Mitsubishi Corporation for palladium and platinum produced from its mines. The company
also enters into fixed forward and financially settled forward contracts for metal produced from
secondary processing of catalysts, at the time the catalyst material is received. The company has
also entered into long-term sales contracts with DaimlerChrysler, Mitsubishi Corporation and
Engelhard Corporation to sell palladium received in the Norilsk Nickel transaction. The companys
revenues, as of December 31, 2004, were comprised of 60% from mine production, 17% from secondary
processing and 23% from sales of palladium received in the Norilsk Nickel transaction and other.
For more information about these sales contracts, see Business and Properties  Current Operations
 Sales and Hedging Activities. As a result of these long-term sales contracts, the company is subject to the customers
compliance with the terms of the contracts, their ability to terminate or suspend the contracts and
the customers willingness and ability to pay. The loss of any of these customers or contracts
could require the company to sell at prevailing market prices, which might expose it to lower metal
prices as compared to the floor price structures under the sales contracts. In the event the
company becomes involved in a disagreement with one or more of its customers, their compliance with
these contracts may be at risk. In such an event, the companys operating plans could be
threatened. In addition, under the companys syndicated credit facility, a default or modification
of the sales contracts could prohibit additional loans or require the immediate repayment of
outstanding loans. Thus, termination or breach by a customer could adversely impact the companys
operations and financial results. For the companys fixed forwards and financially settled forwards related to secondary
processing of catalysts, the company is subject to the customers compliance with the terms of the
contracts, their ability to terminate or suspend the contracts and their willingness and ability to
pay. The loss of any of these contracts or failure of a counterparty to perform could require the
company to sell or purchase the metal in the open market, which could have a negative effect on the
company. During the first quarter of 2004, the company entered into long-term sales contracts with
three customers to sell the 877,169 ounces of palladium received from Norilsk Nickel transaction.
As a result of these sales contracts, the company is subject to the customers compliance with the
terms of the contracts, their ability to terminate or suspend the contracts and the customers
willingness and ability to pay. The loss of any of these sales agreements would require the
company to sell the metal in the open market, which might result in a lower price. Alternatively,
the company might choose not to sell the metal or seek alternative contracts. In such an event the
companys revenues, earnings and cash flows could be negatively affected. See Business and
Properties  Current Operations  Sales and Hedging Activities for additional information about
the sales contracts. FAILURE TO RENEW LONG-TERM SALES CONTRACTS FOR OUNCES PRODUCED FROM MINE PRODUCTION COULD RESULT IN
CURTAILMENT OR CLOSURE OF OPERATIONS During 1998, the company entered into long-term sales contracts with General Motors
Corporation, Ford Motor Company and Mitsubishi Corporation, which, when combined, represented about
60% of the companys 2004 revenues. The contracts apply to ounces produced from the companys mine
production through December 2010. Under the contracts, the company has committed between 80% and
100% of its mined palladium production and between 70% and 80% of its mined platinum production.
Metal sales are priced at a modest discount to market, with floor and ceiling prices that apply to
all or a portion of the sales. Accordingly, the company benefits if the market price drops below
the floor price of the contract but is unable to realize the full market price if the market price
exceeds the ceiling price of the contract. These long-term sales contracts will expire in 2006, in
2008 and in 2010. Once these contracts expire, the company will be directly dependent on PGM
market prices, without the price protection or risk due to the floors and ceilings of the long-term
contracts. If the company is unable to extend or renew these contracts beyond 2010 with similar
floor prices and the market price of PGMs remains below the companys total cash funding
requirements to produce PGMs, then operations may have to be curtailed, suspended or closed. THE COMPANY HAS ONLY TWO PRINCIPAL SOURCES OF REVENUES FROM ITS MINING OPERATIONS In 2004, 43% and 17% of the companys revenues were derived from its mining operations at the
Stillwater Mine and East Boulder Mine, respectively. Prolonged interruption in operations at
either location would have a negative impact on the companys 30




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ability to generate revenues, profits and cash flow in the future. Material factors that could cause an interruption in operations at
either mine are outlined in the Risk Factors  Mining risks and potential inadequacy of insurance
coverage  the companys business is subject to significant risks that may not be covered by
insurance. THE COMPANY IS A RELATIVELY HIGH COST PRIMARY PRODUCER The companys products compete in a global market place with the products of other primary
producers of PGMs. In many cases, these primary producers mine ore reserves with a higher ratio of
platinum to palladium than the company and as a result enjoy higher average realizations per ounce
than Stillwater Mining Company. The company also competes with mining companies who produce PGMs
as a by-product of their primary commodity, principally nickel. The companys cash cost of production and associated annual capital investment required to
maintain its production are high relative to several other primary producers of PGMs. Most primary
producers of PGMs are located in South Africa. In 2003 and 2004, the South African rand has been
particularly strong relative to the U.S. dollar; this has increased the relative production costs
of South African producers and consequently has improved the companys competitive cost position.
However, should the rand weaken in the future, this production cost advantage could diminish or
reverse. Because of the companys comparatively high cost structure, in periods of low PGM prices the
companys competitors may still operate profitably, while the company may not. Furthermore, the
non-primary producers of PGMs will generally continue to produce and sell PGMs when prices are low,
as PGMs are not their principal commodity. ACHIEVEMENT OF THE COMPANYS PRODUCTION GOALS IS SUBJECT TO UNCERTAINTIES Based on the complexity and uncertainty involved in operating underground mines, it is
difficult to provide accurate production and cost forecasts. The company cannot be certain that
either the Stillwater or East Boulder Mines will achieve the production levels forecasted or that
the expected operating cost levels will be achieved or that funding will be available from internal
and external sources in necessary amounts or on acceptable terms to continue the necessary
development work. Failure to achieve the companys production forecast would negatively affect the
companys revenues, profits and cash flows. The reduction in financial performance could also
impact certain covenants under the companys credit facility. As the extent of underground
operations continues to expand at depth and horizontally, it is likely that operating costs will
increase unless employee productivity is increased. Also, as additional underground infrastructure
is constructed, amortization expense will increase unless additional ore reserves are identified.
The change in amortization method following the 2003 impairment charge also is expected to result
in higher amortization expense in future periods (See Property, Plant and Equipment in Note 2 to
the companys consolidated financial statements). Such increased costs could adversely affect the
companys profitability. New mining operations often experience unexpected problems during initial years of operation,
which can result in substantial delays in reaching commercial production. The East Boulder Mine
commenced commercial operations in 2002, has not yet reached its original planned 2,000 ton-per-day
operating rate and has an operating history of only three years. As a result, estimates of future
cash operating costs at East Boulder Mine are based largely on the companys limited experience at
the East Boulder Mine and on operating experience in the Stillwater Mine portion of the J-M Reef.
Actual production, cash operating costs and economic returns may differ significantly from those
currently estimated or those established in future studies and estimates. At the East Boulder
Mine, the total cash costs per PGM ounce (a non-GAAP measure) increased from $343 in 2003 to $344
in 2004. ORE RESERVES ARE VERY DIFFICULT TO ESTIMATE AND ORE RESERVE ESTIMATES MAY REQUIRE ADJUSTMENT IN THE
FUTURE; CHANGES IN ORE GRADES, MINING PRACTICES AND ECONOMIC FACTORS COULD MATERIALLY AFFECT THE
COMPANYS PRODUCTION AND REPORTED RESULTS Ore reserve estimates are necessarily imprecise and depend to some extent on statistical
inferences drawn from limited drilling, which may prove unreliable. Reported ore reserves are
comprised of a proven component and a probable component. (See Glossary for definitions.) For
proven ore reserves, distances between samples range from 25 to 100 feet, but are typically spaced
at 50-foot intervals both horizontally and vertically. The sample data for proven ore reserves
consists of survey data, lithological data and assay results. This data is entered into a
3-dimensional modeling software package. The data is analyzed to produce a 3-dimensional solid
block model of the resource. The assay values are further analyzed by a geostatistical modeling
technique (kriging) to establish a grade distribution within the 3-dimensional block model. Dilution is then applied to the
model and a diluted thickness and grade is calculated for each block. Ore and waste tons,
contained ounces and grade are then calculated and summed for all blocks. A percent mineable
factor based on historic geologic unit values is applied and the final proven ore reserve tons and
grade are calculated. Probable ore reserves are based on longer projections, up to a maximum radius of 1,000 feet
beyond the limit of existing drill hole 31




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sample intercepts of the J-M Reef obtained from surface and underground drilling. Statistical modeling and established continuity of the J-M Reef as
determined from results of mining activity to date support the companys technical confidence in
estimates of tonnage and grade over this projection distance. Where appropriate, projections for
the probable ore reserve determination are constrained by any known or anticipated restrictive
geologic features. The probable ore reserve estimate of tons and grade is based on the projection
of factors calculated from adjacent proven ore reserve blocks or from diamond drilling data where
available. The factors consist of a probable area, average thickness, average grade and percent
mineable. The area is calculated based on the 1,000-foot projections, the thickness and grade is
calculated based on long-term proven ore reserve results in adjacent areas and the percent mineable
is calculated based on long-term mine production results from proven areas. Contained ounces are
calculated based on area (square feet) times thickness (feet) times grade (ounces per ton) times
percent mineable (%) divided by density (expressed as cubic feet per ton). As a result, probable
ore reserve estimates are less reliable than estimates of proven ore reserves. Both proven and
probable ore reserve projections are limited by certain modifying factors, including geologic
evidence, economic criteria and mining constraints. Actual period-to-period conversion of probable ore reserves to proven ore reserves may result
in increases or decreases to the total reported amount of ore reserves. Conversion, an indicator
of the success in upgrading probable ore reserves to proven ore reserves, is evaluated annually as
described under Ore Reserves on page 11. For the years 1997 through 2004 at the Stillwater Mine the conversion rates of probable to proven ore reserve tons were 163%, 150%, 66%,
111%, 104%, 71%, 52% and 62%, respectively. At the East Boulder Mine, where production has been
under way since 2001, conversion rates of probable ore reserves to proven ore reserves were 88% in
2001, 91% in 2002, 86% in 2003, and 125% in 2004. Conversion rates are affected by a number of
factors, including geological variability, applicable mining methods, changes in safe mining
practices, economic factors and new regulatory requirements. Ore reserve estimates are expressions of professional judgment based on knowledge, experience
and industry practice. The company cannot be certain that its estimated ore reserves are accurate,
and future conversion and 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 its
operations. Declines in the market prices of platinum group metals may render the mining of some
or all of the companys ore reserves uneconomic. The grade of ore may vary significantly from time
to time and between the Stillwater Mine and the East Boulder Mine, as with any mining operation.
The company cannot assure that any particular level of metal may be recovered from the ore
reserves. Moreover, short-term factors relating to the ore reserves, such as the availability of
production workplaces, the need for additional development of the orebody or the processing of new
or different ore types or grades, may impair the companys profitability in any particular
accounting period. AN EXTENDED PERIOD OF LOW PGM PRICES COULD RESULT IN A REDUCTION OF ORE RESERVES AND A FURTHER
ASSET IMPAIRMENT WRITEDOWN The company reviews and evaluates its long-lived assets for impairment when events and changes
in circumstances indicate that the related carrying amounts of its assets may not be recoverable.
Impairment is considered to exist if the total estimated future cash flows on an undiscounted basis
are less than carrying amount of the asset. Future cash flows include estimates of recoverable
ounces, PGM prices (considering current and historical prices, long-term sales contracts prices,
price trends and related factors), production levels and capital and reclamation expenditures, all
based on life of mine plans and projections. If impairment exists then a calculation of fair value must be made. If fair value is lower
than the carrying value of the assets, then the carrying value must be adjusted down to the fair
value. In the future, were the company to experience a prolonged period of low PGM prices adversely
affecting the determination of ore reserves, the company could face an impairment calculation.
Assumptions underlying future cash flows are subject to risks and uncertainties. Any differences
between projections and actual outcomes for key factors such as PGM prices, recoverable ounces,
and/or the companys operating performance could have a material effect on the companys ability to
recover the carrying amounts of its long-lived assets, potentially resulting in further impairment
charges in the future. The company has estimated that the combined long-term PGM market price
level below which ore reserves start to be constrained economically is about $342 per ounce. (See
Business and Properties  Ore Reserves  Discussion for a chart demonstrating this.) USERS OF PGMS MAY SUBSTITUTE OTHER MATERIALS FOR PALLADIUM AND PLATINUM High PGM prices may lead users of PGMs to substitute other materials for palladium and
platinum or to reduce the amounts they consume. The automobile, electronics and dental industries
are the three largest sources of palladium demand. In response to supply concerns and high market
prices for palladium, some automobile manufacturers in the past have sought alternatives to
palladium and so reduced their palladium purchases. There has been some substitution of other
metals for palladium in the automobile, electronics 32




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and dental applications. High platinum prices likewise tend to reduce demand by driving users toward alternative metals. The principal demand for
platinum is in the automobile and chemical industries and for jewelry. Substitution in all of
these industries may increase significantly if the PGM market prices rise or if supply becomes
unreliable. Significant substitution for any reason, in the absence of alternative uses for PGMs
being identified, could result in a material PGM price decrease, which would negatively affect the
companys revenues and profitability. IF THE COMPANY IS UNABLE TO OBTAIN SURETY BONDS TO COLLATERALIZE ITS RECLAMATION LIABILITIES,
OPERATING PERMITS MAY BE IMPACTED The company is required to post surety bonds, letters of credit, cash or other acceptable
financial instruments to guarantee performance of reclamation activities at the Stillwater and East
Boulder Mines. As a result of a significant reduction of liquidity in the surety bond market, the
total bonding capacity of the U.S. insurance industry has been severely reduced. In addition, the
State of Montana has been requiring higher bonding levels at mining operations throughout the
state. The surety amount at the East Boulder Mine was $11.5 million during 2004, comprised of $4.0
million of surety bonds and a $7.5 million letter of credit. At December 31, 2004, the Stillwater
Mine carried reclamation bonds totaling $8.9 million, an amount which could increase substantially
in the future. The company expects that the Stillwater Mine bonding status will be reviewed and
adjusted by certain government agencies during 2005, and in all likelihood, the required bond
amount will be increased. In the event that increased bonding requirements are imposed and the
company is unable to obtain the required bonds or otherwise provide acceptable surety, the ability
to operate under existing operating permits could be adversely affected, which could have a
significant adverse affect on the companys operations. MINING RISKS AND POTENTIAL INADEQUACY OF INSURANCE COVERAGE  THE COMPANYS BUSINESS IS SUBJECT TO
SIGNIFICANT RISKS THAT MAY NOT BE COVERED BY INSURANCE Underground mining and milling, smelting and refining operations involve a number of risks and
hazards, including:  
    unusual and unexpected rock formations affecting ore or wall rock characteristics,
    ground or slope failures,
    cave-ins, ground water influx and other mining or ground-related problems,
    environmental hazards,
    industrial accidents,
    organized labor disputes or work slow-downs,
    metallurgical and other processing, smelting or refining problems,
    wild fires, flooding and periodic interruptions due to inclement or hazardous weather conditions or other acts of God,
    mechanical equipment failure and facility performance problems, and
    the availability and cost of critical materials and equipment. 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. Several fatal accidents have occurred at the companys mines since
operations began in 1986. Future industrial accidents could have a material adverse effect on its
business and operations. The company cannot be certain that its insurance will cover certain of
the risks associated with mining or that it will be able to maintain insurance to cover these risks
at economically feasible premiums. Furthermore, the cost of insurance has dramatically increased as a result of worldwide economic conditions. The company might also
become subject to liability for environmental damage or other hazards which may be uninsurable or
for which it may elect not to insure because of premium costs or commercial impracticality. Losses
from such events could have a negative impact on the companys business, financial condition and
results of operations. 33




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HEDGING AND LONG-TERM SALES CONTRACTS COULD LIMIT THE REALIZATION OF HIGHER METAL PRICES The company enters into hedging contracts from time to time in an effort to reduce the
negative effect of price changes on its cash flow. These hedging activities typically consist of
contracts that require the company to deliver specific quantities of metal, or to financially
settle the obligation in the future at specific prices. The company may also hedge pricing through
the sale of call options and the purchase of put options. See Business and Properties  Current
Operations  Sales and Hedging Activities for a discussion of the companys hedge positions.
While hedging transactions are intended to reduce the negative effects of price decreases, they can
also prevent the company from benefiting fully from price increases. If PGM prices are above the
price at which future production has been hedged, the company would have an opportunity loss upon
settlement. The company has entered into long-term sales contracts that provide a floor price and a
ceiling price for sales of a portion of its production. To the extent PGM prices exceed the
ceiling price of the sales contracts, the company will not receive full market price at the time of
sale. For a description of these contracts, see Business and PropertiesCurrent OperationsPGM
Sales and Hedging Activities. CHANGES TO REGULATIONS AND COMPLIANCE WITH REGULATIONS COULD INCREASE COSTS AND CAUSE DELAYS The companys business is subject to extensive federal, state and local environmental controls
and regulations, including regulations associated with the implementation of the Clean Air Act,
Clean Water Act, Resource Conservation and Recovery Act, Metals Mines Reclamation Act and numerous
permit stipulations as documented in the Record of Decision for each operating entity. These laws
are continually changing and, as a general matter, are becoming more restrictive. 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 eliminate or severely restrict the companys ability to conduct its operations. See Business
and Properties  Regulatory and Environmental Matters. Compliance with existing and future environmental laws and regulations may require additional
control measures and expenditures which the company cannot reasonably predict. Environmental
compliance requirements for new mines may require substantial additional control measures that
could materially affect permitting and proposed construction schedules for such facilities. Under
certain circumstances, facility construction may be delayed pending regulatory approval. Expansion
may require new environmental permitting at the Stillwater Mine and mining and processing
facilities at the East Boulder Mine. Private parties may pursue legal challenges of the companys
permits. See Business and Properties  Regulatory and Environmental Matters. 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, smelting and refining operations and taxes.
Compliance with these and other laws and regulations, including new requirements implemented under
guidance of the Department of Homeland Security, could require additional capital outlays, which
could negatively impact the companys cash flow. THE COMPANY IS SUBJECT TO COVENANTS IN ITS CREDIT AND LEASE AGREEMENTS WHICH IT MAY NOT ALWAYS BE
ABLE TO MEET The companys agreement with a syndicate of financial institutions provides a credit facility
that contains covenants relating to meeting certain specific financial objectives and limits on
annual capital expenditures. The credit facility consists of a term loan and a revolving credit
facility. The company also is party to certain lease agreements which contain financial covenants.
If significant operational problems are incurred or company performance is otherwise impaired, the
company may breach one of its covenants and require a covenant amendment or waiver. Under such
circumstances, if the necessary amendments or waivers are not granted by the respective financial
institutions, the loans will be in default and could be declared immediately due and payable. For
further information on the credit facility, see Business and Properties  Current Operations -
Credit Agreement. LIMITED AVAILABILITY OF ADDITIONAL MINING PERSONNEL AND UNCERTAINTY OF LABOR RELATIONS MAY AFFECT
THE COMPANYS ABILITY TO ACHIEVE ITS PRODUCTION TARGETS The companys operations depend significantly on the availability of qualified miners.
Historically, the company has experienced high turnover with respect to its miners. In addition,
the company must compete for individuals skilled in the operation and development of mining
properties. The number of such persons is limited, and significant competition exists to obtain
their skills. 34




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The company cannot be certain that it will be able to maintain an adequate supply of miners
and other personnel or that its labor expenses will not increase as a result of a shortage in
supply of such workers. The company currently employs 433 miners. Failure to maintain an adequate
supply of miners could limit the companys ability to meet its contractual requirements. The
company had approximately 1,575 employees at December 31, 2004, of which about 785 located at the
Stillwater Mine and 105 at the Columbus facilities are covered by a collective bargaining agreement
with PACE Local 8-001, expiring June 30, 2007. On July 1, 2002, employees at the East Boulder Mine
became covered by a collective bargaining agreement with PACE Local 8-001, expiring June 30, 2005.
About 330 employees were covered under this agreement at December 31, 2004. A strike or other work
stoppage by the companys represented employees could result in a significant disruption of the
companys operations and higher ongoing labor costs. UNCERTAINTY OF TITLE TO PROPERTIES  THE VALIDITY OF UNPATENTED MINING CLAIMS IS SUBJECT TO TITLE
RISK The company has a number of unpatented mining claims. See Business and Properties  Current
Operations  Title and Royalties. The validity of unpatented mining claims on public lands, which
constitute most of the companys property holdings, is often uncertain and possessory rights of
claimants subjected to challenge. Unpatented mining claims may be located on lands open to
appropriation of mineral rights, and are generally considered to be subject to greater title risk
than other real property interests because the validity of unpatented mining claims is often
uncertain and the vulnerability to challenges of third parties or the federal government. The
validity of an unpatented mining claim or millsite, in terms of its location and its maintenance,
depends on strict compliance with a complex body of federal and state statutory and decisional law
and, for unpatented mining claims, the existence of a discovery of valuable minerals. In addition,
few public records exist to definitively control the issues of validity and ownership of unpatented
mining claims or millsites. While the company pays annual maintenance fees and has obtained
mineral title reports and legal opinions for some of the unpatented mining claims or millsites in
accordance with the mining laws and what the company believes is standard industry practice, the
company cannot be certain that the mining laws will not be changed nor that the companys
possessory rights to any of its unpatented claims may not be deemed defective and challenged. RELIANCE ON THIRD PARTIES FOR SOURCING OF SECONDARY PROCESSING MATERIALS The company has excess smelter and refinery capacity and purchases catalyst materials from
third parties for recycling activities to recover PGMs. The company has entered into a long-term
sourcing agreement for catalyst material with one vendor. This vendor provides the primary source
of catalyst material for the companys secondary processing activities. As a result of this
agreement, the company is subject to the vendors compliance with the terms of the agreement and
their ability to terminate or suspend the agreement. Should the sourcing agreement be terminated,
the company could suffer a loss of revenue as a result of the termination. This loss of revenue
could have a negative impact on the companys business, financial condition and results of
operations THE COMPLEXITY OF PROCESSING PLATINUM GROUP METALS POSES OPERATIONAL AND ENVIRONMENTAL RISKS IN
ADDITION TO TYPICAL MINING RISKS The companys processing facilities include concentrators at each mine site to grind the ore
and extract the contained metal sulfides and a smelter and base metals refinery located in
Columbus, Montana. These processes ultimately produce a PGM filter cake that is shipped for final
refining to third party refiners. The Columbus operations involve pyrometallurgical and
hydrometallurgical processes that utilize high temperatures and pressures and caustic chemicals to
extract PGMs and other metals from the concentrator matte. These processes also generate waste
gases that are scrubbed to eliminate sulfur dioxide emissions. While the environmental and safety
performance of these facilities to date has been outstanding, there can be no assurance that
incidents such as solution spills, sulfur dioxide discharges, accidents involving hot metals and
product spills in transportation will not occur in the future. Such incidents potentially could
result in more stringent environmental or operating restrictions on these facilities and additional
expenses to the company, which could have a negative impact on its results of operations and cash
flows. 35




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ITEM 3 LEGAL PROCEEDINGS The company is involved in various claims and legal actions arising in the ordinary course of
business, including employee injury claims. In the opinion of management, the ultimate disposition
of these matters will not have a material adverse effect on the companys consolidated financial
position, results of operations or liquidity, and the likelihood that a loss contingency will occur
in connection with these claims is remote. STOCKHOLDER SUITS In 2002, nine lawsuits were filed against the company and certain senior officers in United
States District Court, Southern District of New York, purportedly on behalf of a class of all
persons who purchased or otherwise acquired common stock of the company from April 20, 2001 through
and including April 1, 2002. They assert claims against the company and certain of its officers
under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Plaintiffs challenge the
accuracy of certain public disclosures made by the company regarding its financial performance and,
in particular, its accounting for probable ore reserves. In July 2002, the court consolidated
these actions, and in May 2003, the case was transferred to federal district court in Montana. In
May 2004, defendants filed a motion to dismiss plaintiffs second amended complaint, and in June
2004, plaintiffs filed their opposition and defendants filed their reply. Defendants have reached
an agreement in principle with plaintiffs to settle the federal class action subject to
documentation and court approval. Under the proposed agreement, any settlement amount will be paid
by the companys insurance carrier and will not involve any out-of-pocket payment by the company or
the individual defendants. In light of the proposed settlement, the parties requested and the
court has ordered that the hearing on defendants motion to dismiss be continued from February 3,
2005 to April 22, 2005. On June 20, 2002, a stockholder derivative lawsuit was filed against the company (as a nominal
defendant) and certain of its current and former directors in state court in Delaware. It arises
out of allegations similar to those in the class action and seeks damages allegedly on behalf of
the stockholders of Stillwater for breach of fiduciary duties by the named directors. No relief is
sought against the company, which is named as a nominal defendant. 
 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable 
 PART II 
 ITEM 5 MARKET FOR
REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER
 PURCHASES OF EQUITY SECURITIES Not Applicable 36




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ITEM 6 SELECTED FINANCIAL DATA (in thousands, except per share and current ratio data)
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000INCOME STATEMENT DATARevenue(1)Mine production
    
    $
    266,684
    
    
    $
    240,406
    
    
    $
    275,599
    
    
    $
    277,381
    
    
    $
    225,232Secondary processing
    
    
    76,388
    
    
    
    8,866
    
    
    
    15,177
    
    
    
    29,202
    
    
    
    17,706Sales of palladium received in Norilsk Nickel
transaction and other
    
    
    104,455
    
    
    
    6,551
    
    
    
    1,535
    
    
    
    
    
    
    
    Total revenue
    
    $
    447,527
    
    
    $
    255,823
    
    
    $
    292,311
    
    
    $
    306,583
    
    
    $
    242,938Costs and ExpensesCost of metals sold: (1)Mine production
    
    
    171,324
    
    
    
    173,960
    
    
    
    172,071
    
    
    
    136,538
    
    
    
    105,141Secondary processing
    
    
    71,326
    
    
    
    7,988
    
    
    
    14,122
    
    
    
    27,087
    
    
    
    16,467Sales of palladium received in Norilsk Nickel
transaction and other
    
    
    82,402
    
    
    
    6,728
    
    
    
    2,033
    
    
    
    
    
    
    
    Total cost of metals sold
    
    
    325,052
    
    
    
    188,676
    
    
    
    188,226
    
    
    
    163,625
    
    
    
    121,608Depreciation and amortization (1)Mine production
    
    
    59,568
    
    
    
    40,700
    
    
    
    38,722
    
    
    
    23,649
    
    
    
    17,556Secondary processing
    
    
    48
    
    
    
    71
    
    
    
    71
    
    
    
    72
    
    
    
    67Total depreciation and amortization
    
    
    59,616
    
    
    
    40,771
    
    
    
    38,793
    
    
    
    23,721
    
    
    
    17,623General and administration (1)
    
    
    19,737
    
    
    
    14,700
    
    
    
    13,903
    
    
    
    22,342
    
    
    
    9,753Impairment of property, plant and equipment
    
    
    
    
    
    
    390,295
    
    
    
    
    
    
    
    
    
    
    
    Operating income (loss)
    
    $
    39,480
    
    
    $
    (380,696
    )
    
    $
    57,327
    
    
    $
    84,229
    
    
    $
    93,954Total income tax benefit (provision)
    
    $
    (3
    )
    
    $
    74,939
    
    
    $
    (8,945
    )
    
    $
    (20,325
    )
    
    $
    (27,150
    )Net income (loss)
    
    $
    29,838
    
    
    $
    (323,260
    )
    
    $
    31,684
    
    
    $
    65,804
    
    
    $
    61,464Other comprehensive income (loss), net of tax
    
    $
    (4,145
    )
    
    $
    585
    
    
    $
    (7,139
    )
    
    $
    12,872
    
    
    $
    Comprehensive income (loss)
    
    $
    25,693
    
    
    $
    (322,675
    )
    
    $
    24,545
    
    
    $
    78,676
    
    
    $
    61,464Pro-forma
net income (loss) assuming the new amortization
method is applied retroactively
(2)
    
    $
    23,803
    
    
    $
    (241,729
    )
    
    $
    15,058
    
    
    $
    54,491
    
    
    $
    52,403Weighted average common shares outstandingBasic
    
    
    90,180
    
    
    
    67,807
    
    
    
    42,900
    
    
    
    38,732
    
    
    
    38,507Diluted
    
    
    90,540
    
    
    
    67,807
    
    
    
    43,004
    
    
    
    39,214
    
    
    
    39,250Basic earnings per shareNet income (loss)
    
    $
    0.33
    
    
    $
    (4.77
    )
    
    $
    0.74
    
    
    $
    1.70
    
    
    $
    1.60Diluted earnings per shareNet income (loss)
    
    $
    0.33
    
    
    $
    (4.77
    )
    
    $
    0.74
    
    
    $
    1.68
    
    
    $
    1.57Pro-forma amounts assuming the new amortization
method is applied retroactively (2)Basic earnings per shareNet income (loss)
    
    $
    0.26
    
    
    $
    (3.56
    )
    
    $
    0.35
    
    
    $
    1.41
    
    
    $
    1.36Diluted earnings per shareNet income (loss)
    
    $
    0.26
    
    
    $
    (3.56
    )
    
    $
    0.35
    
    
    $
    1.39
    
    
    $
    1.34CASH FLOW DATANet cash provided by operating activities
    
    $
    136,840
    
    
    $
    47,215
    
    
    $
    52,138
    
    
    $
    106,792
    
    
    $
    117,674Net cash used in investing activities
    
    $
    77,801
    
    
    $
    54,156
    
    
    $
    68,837
    
    
    $
    195,648
    
    
    $
    191,481Net cash provided by financing activities
    
    $
    1,352
    
    
    $
    29,639
    
    
    $
    14,751
    
    
    $
    85,548
    
    
    $
    89,180
   (1)
    
    The 2003, 2002, 2001 and 2000 amounts for revenues, cost of metals sold, depreciation
and amortization, and general and administration have been reclassified to conform with
current year presentation. See Note 2 to the companys consolidated financial statements.(2)
    
    See Note 3 to the companys consolidated financial statements. 37




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ITEM 6 SELECTED FINANCIAL DATA (Continued) (in thousands, except per share and current ratio data)
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000BALANCE SHEET DATACash and cash equivalents
    
    $
    96,052
    
    
    $
    35,661
    
    
    $
    12,963
    
    
    $
    14,911
    
    
    $
    18,219Inventories
    
    $
    159,942
    
    
    $
    202,485
    
    
    $
    52,058
    
    
    $
    42,944
    
    
    $
    42,625Total current assets
    
    $
    303,655
    
    
    $
    265,006
    
    
    $
    112,475
    
    
    $
    85,790
    
    
    $
    74,155Property, plant and equipment
    
    $
    434,924
    
    
    $
    419,528
    
    
    $
    794,019
    
    
    $
    774,036
    
    
    $
    602,110Total assets
    
    $
    744,718
    
    
    $
    690,588
    
    
    $
    914,214
    
    
    $
    868,221
    
    
    $
    679,026Current portion of long-term debt and capital lease obligations
    
    $
    1,986
    
    
    $
    1,935
    
    
    $
    21,461
    
    
    $
    9,008
    
    
    $
    1,970Portion of debt repayable upon liquidation of finished
palladium in inventory
    
    $
    19,076
    
    
    $
    74,106
    
    
    $
    
    
    
    $
    
    
    
    $
    Total current liabilities
    
    $
    67,238
    
    
    $
    110,270
    
    
    $
    65,783
    
    
    $
    63,507
    
    
    $
    59,195Long-term debt and capital lease obligations
    
    $
    143,028
    
    
    $
    85,445
    
    
    $
    198,866
    
    
    $
    246,803
    
    
    $
    157,256Total liabilities
    
    $
    231,989
    
    
    $
    211,291
    
    
    $
    355,000
    
    
    $
    393,098
    
    
    $
    278,412Stockholders equity
    
    $
    512,729
    
    
    $
    479,297
    
    
    $
    559,214
    
    
    $
    475,123
    
    
    $
    400,614Working capital
    
    $
    236,417
    
    
    $
    154,736
    
    
    $
    46,692
    
    
    $
    22,283
    
    
    $
    14,960Current ratio
    
    
    4.5
    
    
    
    2.4
    
    
    
    1.7
    
    
    
    1.4
    
    
    
    1.3
 38




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OPERATING
AND COST DATA(in thousands, except per ounce and per ton costs)
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Consolidated:Ounces produced:Palladium
    
    
    439
    
    
    
    450
    
    
    
    476
    
    
    
    405
    
    
    
    330Platinum
    
    
    130
    
    
    
    134
    
    
    
    141
    
    
    
    121
    
    
    
    100Total
    
    
    569
    
    
    
    584
    
    
    
    617
    
    
    
    526
    
    
    
    430Tons milled
    
    
    1,212
    
    
    
    1,185
    
    
    
    1,257
    
    
    
    829
    
    
    
    678Mill head grade (ounce per ton)
    
    
    0.51
    
    
    
    0.53
    
    
    
    0.54
    
    
    
    0.66
    
    
    
    0.69Sub-grade tons milled (1)
    
    
    58
    
    
    
    84
    
    
    
    74
    
    
    
    65
    
    
    
    78Sub-grade mill head grade (ounce per ton)
    
    
    0.22
    
    
    
    0.20
    
    
    
    0.17
    
    
    
    0.21
    
    
    
    0.23Total tons milled (1)
    
    
    1,270
    
    
    
    1,269
    
    
    
    1,331
    
    
    
    894
    
    
    
    756Combined mill head grade (ounce per ton)
    
    
    0.50
    
    
    
    0.51
    
    
    
    0.52
    
    
    
    0.63
    
    
    
    0.64Total mill recovery (%)
    
    
    91
    
    
    
    91
    
    
    
    90
    
    
    
    90
    
    
    
    89Total operating costs per ounce (Non-GAAP)(2), (3)
    
    $
    254
    
    
    $
    249
    
    
    $
    256
    
    
    $
    230
    
    
    $
    223Total cash costs per ounce (Non-GAAP)(2), (3)
    
    $
    297
    
    
    $
    283
    
    
    $
    287
    
    
    $
    264
    
    
    $
    264Total production costs per ounce (Non-GAAP)(2), (3)
    
    $
    402
    
    
    $
    354
    
    
    $
    351
    
    
    $
    311
    
    
    $
    305Total operating costs per ton milled (Non-GAAP)(2), (3)
    
    $
    114
    
    
    $
    115
    
    
    $
    119
    
    
    $
    130
    
    
    $
    127Total cash costs per ton milled (Non-GAAP)(2), (3)
    
    $
    133
    
    
    $
    130
    
    
    $
    133
    
    
    $
    149
    
    
    $
    150Total production costs per ton milled (Non-GAAP)(2), (3)
    
    $
    180
    
    
    $
    163
    
    
    $
    163
    
    
    $
    175
    
    
    $
    173Stillwater Mine:Ounces produced:Palladium
    
    
    311
    
    
    
    328
    
    
    
    379
    
    
    
    388
    
    
    
    330Platinum
    
    
    94
    
    
    
    100
    
    
    
    113
    
    
    
    116
    
    
    
    100Total
    
    
    405
    
    
    
    428
    
    
    
    492
    
    
    
    504
    
    
    
    430Tons milled
    
    
    728
    
    
    
    730
    
    
    
    892
    
    
    
    829
    
    
    
    678Mill head grade (ounce per ton)
    
    
    0.59
    
    
    
    0.62
    
    
    
    0.60
    
    
    
    0.66
    
    
    
    0.69Sub-grade tons milled(1)
    
    
    58
    
    
    
    84
    
    
    
    55
    
    
    
    65
    
    
    
    78Sub-grade mill head grade (ounce per ton)
    
    
    0.22
    
    
    
    0.20
    
    
    
    0.16
    
    
    
    0.21
    
    
    
    0.23Total tons milled(1)
    
    
    786
    
    
    
    814
    
    
    
    947
    
    
    
    894
    
    
    
    756Combined mill head grade (ounce per ton)
    
    
    0.56
    
    
    
    0.58
    
    
    
    0.58
    
    
    
    0.63
    
    
    
    0.64Total mill recovery (%)
    
    
    92
    
    
    
    91
    
    
    
    90
    
    
    
    90
    
    
    
    89Total operating costs per ounce (Non-GAAP)(2), (3)
    
    $
    238
    
    
    $
    231
    
    
    $
    235
    
    
    $
    230
    
    
    $
    223Total cash costs per ounce (Non-GAAP)(2), (3)
    
    $
    278
    
    
    $
    262
    
    
    $
    263
    
    
    $
    264
    
    
    $
    264Total production costs per ounce (Non-GAAP)(2), (3)
    
    $
    366
    
    
    $
    322
    
    
    $
    318
    
    
    $
    311
    
    
    $
    305Total operating costs per ton milled (Non-GAAP)(2), (3)
    
    $
    123
    
    
    $
    121
    
    
    $
    122
    
    
    $
    130
    
    
    $
    127Total cash costs per ton milled (Non-GAAP)(2), (3)
    
    $
    143
    
    
    $
    138
    
    
    $

    137
    
    
    $
    149
    
    
    $
    150Total production costs per ton milled (Non-GAAP)(2), (3)
    
    $
    189
    
    
    $
    169
    
    
    $
    165
    
    
    $
    175
    
    
    $
    173East Boulder Mine:Ounces produced:Palladium (4)
    
    
    128
    
    
    
    122
    
    
    
    97
    
    
    
    17
    
    
    
    Platinum (4)
    
    
    36
    
    
    
    34
    
    
    
    28
    
    
    
    5
    
    
    
    Total (4)
    
    
    164
    
    
    
    156
    
    
    
    125
    
    
    
    22
    
    
    
    Tons milled (4)
    
    
    484
    
    
    
    455
    
    
    
    365
    
    
    
    85
    
    
    
    Mill head grade (ounce per ton)(4)
    
    
    0.39
    
    
    
    0.39
    
    
    
    0.39
    
    
    
    0.31
    
    
    
    Sub-grade tons milled (1)
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    Sub-grade mill head grade (ounce per ton)
    
    
    
    
    
    
    
    
    
    
    0.20
    
    
    
    
    
    
    
    Total tons milled (1), (4)
    
    
    484
    
    
    
    455
    
    
    
    384
    
    
    
    85
    
    
    
    Combined mill head grade (ounce per ton)(4)
    
    
    0.39
    
    
    
    0.39
    
    
    
    0.38
    
    
    
    0.31
    
    
    
    Total mill recovery (%) (4)
    
    
    88
    
    
    
    89
    
    
    
    88
    
    
    
    92
    
    
    
    Total operating costs per ounce (Non-GAAP)(2), (3)
    
    $
    294
    
    
    $
    299
    
    
    $
    335
    
    
    $
    
    
    
    $

    Total cash costs per ounce (Non-GAAP)(2), (3)
    
    $
    344
    
    
    $
    343
    
    
    $
    381
    
    
    $
    
    
    
    $
    Total production costs per ounce (Non-GAAP)(2), (3)
    
    $
    491
    
    
    $
    441
    
    
    $
    478
    
    
    $
    
    
    
    $
    Total operating costs per ton milled (Non-GAAP)(2), (3)
    
    $
    100
    
    
    $
    103
    
    
    $
    110
    
    
    $
    
    
    
    $
    Total cash costs per ton milled (Non-GAAP)(2), (3)
    
    $
    117
    
    
    $
    118
    
    
    $
    125
    
    
    $
    
    
    
    $
    Total production costs per ton milled (Non-GAAP)(2), (3)
    
    $
    167
    
    
    $
    151
    
    
    $
    156
    
    
    $
    
    
    
    $
    
 39




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##### Table of Contents



(in thousands, where noted)
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000SALES AND PRICE DATAOunces sold (000)Mine production:Palladium
    
    
    432
    
    
    
    459
    
    
    
    469
    
    
    
    391
    
    
    
    324Platinum
    
    
    125
    
    
    
    131
    
    
    
    143
    
    
    
    114
    
    
    
    100Total
    
    
    557
    
    
    
    590
    
    
    
    612
    
    
    
    505
    
    
    
    424Other PGM activities(7)Palladium
    
    
    418
    
    
    
    5
    
    
    
    10
    
    
    
    11
    
    
    
    7Platinum
    
    
    77
    
    
    
    18
    
    
    
    19
    
    
    
    22
    
    
    
    17Rhodium
    
    
    21
    
    
    
    1
    
    
    
    3
    
    
    
    4
    
    
    
    2Total
    
    
    516
    
    
    
    24
    
    
    
    32
    
    
    
    37
    
    
    
    26Average realized price per ounce(5)Palladium
    
    $
    376
    
    
    $
    352
    
    
    $
    436
    
    
    $
    570
    
    
    $
    560Platinum
    
    $
    839
    
    
    $
    603
    
    
    $
    511
    
    
    $
    498
    
    
    $
    481Combined(6)
    
    $
    480
    
    
    $
    408
    
    
    $
    454
    
    
    $
    554
    
    
    $
    541Other PGM activities(7)Palladium
    
    $
    231
    
    
    $
    216
    
    
    $
    348
    
    
    $
    689
    
    
    $
    599Platinum
    
    $
    817
    
    
    $
    666
    
    
    $
    485
    
    
    $
    555
    
    
    $
    481Rhodium
    
    $
    1,032
    
    
    $
    512
    
    
    $
    816
    
    
    $
    1,748
    
    
    $
    1,661Average market price per ounce(5)Palladium
    
    $
    230
    
    
    $
    201
    
    
    $
    338
    
    
    $
    604
    
    
    $
    680Platinum
    
    $
    846
    
    
    $
    691
    
    
    $
    539
    
    
    $
    529
    
    
    $
    544Combined(6)
    
    $
    368
    
    
    $
    309
    
    
    $
    385
    
    
    $
    586
    
    
    $
    648
   (1)
    
    Sub-grade tons milled includes reef waste material only. Total tons milled
includes ore tons and sub-grade tons only. Amounts for 2002 and 2001 have been adjusted to
conform with the current year presentation.(2)
    
    Total operating costs include costs of mining, processing and administrative
expenses at the mine site (including mine site overhead and credits for metals produced
other than palladium and platinum from mine production). Total cash costs include total
operating costs plus royalties, taxes other than income tax and other. Total production
costs include total cash costs plus asset retirement costs and depreciation and
amortization. Income taxes, corporate general and administrative expenses, asset
impairment writedowns, gain or loss on disposal of property, plant and equipment,
restructuring costs, Norilsk Nickel transaction expenses and interest income and expense
are not included in total operating costs, total cash costs or total production costs.(3)
    
    Operating cost per ton, operating cost per ounce, cash cost per ton, cash cost
per ounce, production cost per ton and production cost per ounce represent non-U.S.
Generally Accepted Accounting Principles (GAAP) measurements that management uses to
monitor and evaluate the efficiency of its mining operations.
See table Reconciliation of Non-GAAP measures to cost of revenue and accompanying discussion.(4)
    
    The ounces recovered and tons milled from the East Boulder Mine during 2001 were
generated from construction and development activities. Proceeds generated from the
ounces during 2001 were credited against capital mine development in 2001. Costs
incurred for the mining of these tons during 2001 were charged to capital mine
development in 2001.(5)
    
    The companys average realized price represents revenues, which include the
effect of contract floor and ceiling prices and hedging gains and losses realized on
commodity instruments and exclude contract discounts, divided by ounces sold. The
average market price represents the average London PM Fix for the actual months of the
period.(6)
    
    The company reports a combined average realized and market price of palladium and
platinum at the same ratio as ounces that are produced from the refinery.(7)
    
    Ounces sold and average realized price per ounce from other PGM activities are
primarily relate to ounces produced from secondary processing of catalyst material and
palladium received in the Norilsk Nickel transaction. 40




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##### Table of Contents



Reconciliation of Non-GAAP measures to cost of revenues The company utilizes certain non-GAAP measures as indicators in assessing the performance of
its mining and processing operations during any period. Because of the processing time required to
complete the extraction of finished PGM products, there are typically lags from one to three months
between ore production and sale of the finished product. Sales in any period include some portion
of material mined and processed from prior periods as the revenue recognition process is completed.
Consequently, while cost of revenues (a GAAP measure included in the companys Consolidated
Statement of Operations and Comprehensive Income/(Loss)) appropriately reflects the expense
associated with the materials sold in any period, the company has developed certain non-GAAP
measures to assess the costs associated with its producing and processing activities in a
particular period and to compare those costs between periods. While the company believes that these non-GAAP measures may also be of value to outside
readers, both as general indicators of the companys mining efficiency from period to period and as
insight into how the company internally measures its operating performance, these non-GAAP measures
are not standardized across the mining industry and in most cases will not be directly comparable
to similar measures that may be provided by other companies. These non-GAAP measures are only
useful as indicators of relative operational performance in any period, and because they do not
take into account the inventory timing differences that are included in cost of revenues, they
cannot meaningfully be used to develop measures of profitability. A reconciliation of these
measures to cost of revenues for each period shown is provided as part of the following tables, and
a description of each non-GAAP measure is provided below. Total Cost of Revenues: For the company on a consolidated basis, this measure is equal to
consolidated cost of revenues, as reported in the Consolidated Statement of Operations and
Comprehensive Income/(Loss). For the Stillwater Mine, East Boulder Mine, and other PGM activities,
the company segregates the expenses within cost of revenues that are directly associated with each
of these activities and then allocates the remaining facility costs included in consolidated cost
of revenues in proportion to the monthly volumes from each activity. The resulting total cost of
revenues measures for Stillwater Mine, East Boulder Mine and other PGM activities are equal in
total to consolidated cost of revenues as reported in the companys Consolidated Statement of
Operations and Comprehensive Income/(Loss). Total Production Costs (Non-GAAP): Calculated as total cost of revenues (for each mine or
consolidated) adjusted to exclude gains or losses on asset dispositions, costs and profit from
secondary recycling, and changes in product inventories. This non-GAAP measure provides an
indication of the total costs incurred in association with production and processing in a period,
before taking into account the timing differences resulting from inventory changes and before any
effect of asset dispositions or secondary recycling activities. It is used by the company as a
comparative measure of the level of total production and processing activities in a period, and may
be compared to prior periods or between the companys mines. As noted above, because this measure
does not take into account the inventory timing differences that are included in cost of revenues,
it cannot be used to develop meaningful measures of earnings or profitability. When divided by the total tons milled in the respective period, Total Production Cost per Ton
Milled (Non-GAAP)- measured for each mine or consolidated  provides an indication of the cost per
ton milled in that period. Because of variability of ore grade in the companys mining operations,
production efficiency underground is frequently measured against ore tons produced rather than
contained PGM ounces. And because ore tons are first actually weighed as they are fed into the
mill, mill feed is the first point at which production tons are measured precisely. Consequently,
Total Production Cost per Ton Milled (Non-GAAP) is a general measure of production efficiency, and
is affected both by the level of Total Production Costs (Non-GAAP) and by the volume of tons
produced and fed to the mill. When divided by the total recoverable PGM ounces from production in the respective period,
Total Production Cost per Ounce (Non-GAAP)- measured for each mine or consolidated  provides an
indication of the cost per ounce produced in that period. Recoverable PGM ounces from production
are an indication of the amount of PGM product extracted through mining in any period. Because
extracting PGM material is ultimately the objective of mining, the cost per ounce of extracting and
processing PGM ounces in a period is a useful measure for comparing extraction efficiency between
periods and between the companys mines. Consequently, Total Production Cost per Ounce (Non-GAAP)
in any period is a general measure of extraction efficiency, and is affected by the level of Total
Production Costs (Non-GAAP), by the grade of the ore produced and by the volume of ore produced in
the period. Total Cash Costs (Non-GAAP): This non-GAAP measure is calculated by excluding the
depreciation and amortization and asset retirement costs from Total Production Costs (Non-GAAP) for
each mine or consolidated. The company uses this measure as a comparative indication of the cash
costs related to production and processing in any period. As noted above, because this measure
does not take into account the inventory timing differences that are included in cost of revenues,
it cannot be used to develop meaningful measures of earnings or profitability. 41




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##### Table of Contents



When divided by the total tons milled in the respective period, Total Cash Cost per Ton Milled
(Non-GAAP)- measured for each mine or consolidated- provides an indication of the level of cash
costs incurred per ton milled in that period. Because of variability of ore grade in the companys
mining operations, production efficiency underground is frequently measured against ore tons
produced rather than contained PGM ounces. And because ore tons are first weighed as they are fed
into the mill, mill feed is the first point at which production tons are measured precisely.
Consequently, Total Cash Cost per Ton Milled (Non-GAAP) is a general measure of production
efficiency, and is affected both by the level of Total Cash Costs (Non-GAAP) and by the volume of
tons produced and fed to the mill. When divided by the total recoverable PGM ounces from production in the respective period,
Total Cash Cost per Ounce (Non-GAAP)- measured for each mine or consolidated- provides an
indication of the level of cash costs incurred per PGM ounce produced in that period. Recoverable
PGM ounces from production are an indication of the amount of PGM product extracted through mining
in any period. Because ultimately extracting PGM material is the objective of mining, the cost per
ounce of extracting and processing PGM ounces in a period is a useful measure for comparing
extraction efficiency between periods and between the companys mines. Consequently, Total Cash
Cost per Ounce (Non-GAAP) in any period is a general measure of extraction efficiency, and is
affected by the level of Total Cash Costs (Non-GAAP), by the grade of the ore produced and by the
volume of ore produced in the period. Total Operating Costs (Non-GAAP): This non-GAAP measure is derived from Total Cash Costs
(Non-GAAP) for each mine or consolidated by excluding royalty, tax and insurance expenses from
Total Cash Costs (Non-GAAP). Royalties, taxes and insurance costs are contractual or governmental
obligations outside of the control of the companys mining operations, and in the case of royalties
and most taxes, are driven more by the level of sales realizations rather than by operating
efficiency. Consequently, Total Operating Costs (Non-GAAP) is a useful indicator of the level of
production and processing costs incurred in a period that are under the control of mining
operations. As noted above, because this measure does not take into account the inventory timing
differences that are included in cost of revenues, it cannot be used to develop meaningful measures
of earnings or profitability. When divided by the total tons milled in the respective period, Total Operating Cost per Ton
Milled (Non-GAAP)- measured for each mine or consolidated- provides an indication of the level of
controllable cash costs incurred per ton milled in that period. Because of variability of ore
grade in the companys mining operations, production efficiency underground is frequently measured
against ore tons produced rather than contained PGM ounces. And because ore tons are first
actually weighed as they are fed into the mill, mill feed is the first point at which production
tons are measured precisely. Consequently, Total Operating Cost per Ton Milled (Non-GAAP) is a
general measure of production efficiency, and is affected both by the level of Total Operating
Costs (Non-GAAP) and by the volume of tons produced and fed to the mill. When divided by the total recoverable PGM ounces from production in the respective period,
Total Operating Cost per Ounce (Non-GAAP)- measured for each mine or consolidated- provides an
indication of the level of controllable cash costs incurred per PGM ounce produced in that period.
Recoverable PGM ounces from production are an indication of the amount of PGM product extracted
through mining in any period. Because ultimately extracting PGM material is the objective of
mining, the cost per ounce of extracting and processing PGM ounces in a period is a useful measure
for comparing extraction efficiency between periods and between the companys mines. Consequently,
Total Operating Cost per Ounce (Non-GAAP) in any period is a general measure of extraction
efficiency, and is affected by the level of Total Operating Costs (Non-GAAP), by the grade of the
ore produced and by the volume of ore produced in the period. 42




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##### Table of Contents



(in thousands, except per ounce and per ton data)
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Consolidated:Total operating costs (Non-GAAP)
    
    $
    144,589
    
    
    $
    145,452
    
    
    $
    157,649
    
    
    $
    116,097
    
    
    $
    94,637Total cash costs (Non-GAAP)
    
    $
    168,915
    
    
    $
    165,528
    
    
    $
    177,175
    
    
    $
    132,810
    
    
    $
    112,100Total production costs (Non-GAAP)
    
    $
    228,940
    
    
    $
    206,570
    
    
    $
    216,405
    
    
    $
    156,749
    
    
    $
    129,848Divided by total ounces
    
    
    569
    
    
    
    584
    
    
    
    617
    
    
    
    504
    
    
    
    430Divided by total tons milled
    
    
    1,270
    
    
    
    1,269
    
    
    
    1,331
    
    
    
    894
    
    
    
    756Total operating cost per ounce (Non-GAAP)
    
    $
    254
    
    
    $
    249
    
    
    $
    256
    
    
    $
    230
    
    
    $
    223Total cash cost per ounce (Non-GAAP)
    
    $
    297
    
    
    $
    283
    
    
    $
    287
    
    
    $
    264
    
    
    $
    264Total production cost per ounce (Non-GAAP)
    
    $
    402
    
    
    $
    354
    
    
    $
    351
    
    
    $
    311
    
    
    $
    305Total operating cost per ton milled (Non-GAAP)
    
    $
    114
    
    
    $
    115
    
    
    $
    119
    
    
    $
    130
    
    
    $
    127Total cash cost per ton milled (Non-GAAP)
    
    $
    133
    
    
    $
    130
    
    
    $
    133
    
    
    $
    149
    
    
    $
    150Total production cost per ton milled (Non-GAAP)
    
    $
    180
    
    
    $
    163
    
    
    $
    163
    
    
    $
    175
    
    
    $
    173Reconciliation to consolidated cost of revenues:Total operating costs (Non-GAAP)
    
    $
    144,589
    
    
    $
    145,452
    
    
    $
    157,649
    
    
    $
    116,097
    
    
    $
    94,637Royalties, taxes and other
    
    
    24,326
    
    
    
    20,076
    
    
    
    19,526
    
    
    
    16,713
    
    
    
    17,463Total cash costs (Non-GAAP)
    
    $
    168,915
    
    
    $
    165,528
    
    
    $
    177,175
    
    
    $
    132,810
    
    
    $
    112,100Asset retirement costs
    
    
    457
    
    
    
    342
    
    
    
    508
    
    
    
    290
    
    
    
    192Depreciation and amortization
    
    
    59,568
    
    
    
    40,700
    
    
    
    38,722
    
    
    
    23,649
    
    
    
    17,556Total production costs (Non-GAAP)
    
    $
    228,940
    
    
    $
    206,570
    
    
    $
    216,405
    
    
    $
    156,749
    
    
    $
    129,848Change in product inventory
    
    
    78,260
    
    
    
    13,844
    
    
    
    (4,636
    )
    
    
    922
    
    
    
    (10,113
    )Costs of secondary recycling
    
    
    71,325
    
    
    
    7,988
    
    
    
    14,122
    
    
    
    27,087
    
    
    
    17,706Secondary recycling depreciation
    
    
    48
    
    
    
    71
    
    
    
    71
    
    
    
    72
    
    
    
    67Add: Profit from secondary recycling
    
    
    6,105
    
    
    
    881
    
    
    
    984
    
    
    
    2,043
    
    
    
    1,172Loss on sale of assets and other costs
    
    
    
    
    
    
    93
    
    
    
    73
    
    
    
    473
    
    
    
    551Total consolidated cost of revenues
    
    $
    384,678
    
    
    $
    229,447
    
    
    $
    227,019
    
    
    $
    187,346
    
    
    $
    139,231Stillwater Mine:Total operating costs (Non-GAAP)
    
    $
    96,381
    
    
    $
    98,722
    
    
    $
    115,561
    
    
    $
    116,097
    
    
    $
    94,637Total cash costs (Non-GAAP)
    
    $
    122,463
    
    
    $
    111,938
    
    
    $
    129,355
    
    
    $
    132,810
    
    
    $
    112,100Total production costs (Non-GAAP)
    
    $
    148,365
    
    
    $
    137,670
    
    
    $
    156,391
    
    
    $
    156,749
    
    
    $
    129,848Divided by total ounces
    
    
    405
    
    
    
    428
    
    
    
    492
    
    
    
    504
    
    
    
    430Divided by total tons milled
    
    
    786
    
    
    
    814
    
    
    
    947
    
    
    
    894
    
    
    
    756Total operating cost per ounce (Non-GAAP)
    
    $
    238
    
    
    $
    231
    
    
    $
    235
    
    
    $
    230
    
    
    $
    223Total cash cost per ounce (Non-GAAP)
    
    $
    278
    
    
    $
    262
    
    
    $
    263
    
    
    $
    264
    
    
    $
    264Total production cost per ounce (Non-GAAP)
    
    $
    366
    
    
    $
    322
    
    
    $
    318
    
    
    $
    311
    
    
    $
    305Total operating cost per ton milled (Non-GAAP)
    
    $
    123
    
    
    $
    121
    
    
    $
    122
    
    
    $
    130
    
    
    $
    127Total cash cost per ton milled (Non-GAAP)
    
    $
    143
    
    
    $
    138
    
    
    $
    137
    
    
    $
    149
    
    
    $
    150Total production cost per ton milled (Non-GAAP)
    
    $
    189
    
    
    $
    169
    
    
    $
    165
    
    
    $
    175
    
    
    $
    173
 43




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##### Table of Contents



(in thousands, per ounce and per ton data)
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Stillwater Mine continued:Reconciliation to cost of revenues:Total operating costs (Non-GAAP)
    
    $
    96,381
    
    
    $
    98,722
    
    
    $
    115,561
    
    
    $
    116,097
    
    
    $
    94,637Royalties, taxes and other
    
    
    16,082
    
    
    
    13,216
    
    
    
    13,794
    
    
    
    16,713
    
    
    
    17,463Total cash costs (Non-GAAP)
    
    $
    112,463
    
    
    $
    111,938
    
    
    $
    129,355
    
    
    $
    132,810
    
    
    $
    112,100Asset retirement costs
    
    
    305
    
    
    
    280
    
    
    
    322
    
    
    
    290
    
    
    
    192Depreciation and amortization
    
    
    35,597
    
    
    
    25,452
    
    
    
    26,714
    
    
    
    23,649
    
    
    
    17,556Total production costs (Non-GAAP)
    
    $
    148,365
    
    
    $
    137,670
    
    
    $
    156,391
    
    
    $
    156,749
    
    
    $
    129,848Change in product inventory
    
    
    (3,764
    )
    
    
    6,156
    
    
    
    (287
    )
    
    
    922
    
    
    
    (10,113
    )Add: Profit from secondary recycling
    
    
    4,274
    
    
    
    659
    
    
    
    738
    
    
    
    2,043
    
    
    
    1,172Loss on sale of assets and other costs
    
    
    
    
    
    
    70
    
    
    
    74
    
    
    
    473
    
    
    
    551Total cost of revenues
    
    $
    148,875
    
    
    $
    144,555
    
    
    $
    156,916
    
    
    $
    160,187
    
    
    $
    121,458East Boulder Mine:(1)Total operating costs (Non-GAAP)
    
    $
    48,208
    
    
    $
    46,730
    
    
    $
    42,088
    
    
    $
    
    
    
    $
    Total cash costs (Non-GAAP)
    
    $
    56,452
    
    
    $
    53,590
    
    
    $
    47,820
    
    
    $
    
    
    
    $
    Total production costs (Non-GAAP)
    
    $
    80,575
    
    
    $
    68,900
    
    
    $
    60,014
    
    
    $
    
    
    
    $
    Divided by total ounces
    
    
    164
    
    
    
    156
    
    
    
    125
    
    
    
    
    
    
    
    Divided by total tons milled
    
    
    484
    
    
    
    455
    
    
    
    384
    
    
    
    
    
    
    
    Total operating cost per ounce (Non-GAAP)
    
    $
    294
    
    
    $
    299
    
    
    $
    335
    
    
    $
    
    
    
    $
    Total cash cost per ounce (Non-GAAP)
    
    $
    344
    
    
    $
    343
    
    
    $
    381
    
    
    $
    
    
    
    $
    Total production cost per ounce (Non-GAAP)
    
    $
    491
    
    
    $
    441
    
    
    $
    478
    
    
    $
    
    
    
    $
    Total operating cost per ton milled (Non-GAAP)
    
    $
    100
    
    
    $
    103
    
    
    $
    110
    
    
    $
    
    
    
    $
    Total cash cost per ton milled (Non-GAAP)
    
    $
    117
    
    
    $
    118
    
    
    $
    125
    
    
    $
    
    
    
    $
    Total production cost per ton milled (Non-GAAP)
    
    $
    167
    
    
    $
    151
    
    
    $
    156
    
    
    $
    
    
    
    $
    Reconciliation to cost of revenues:Total operating costs (Non-GAAP)
    
    $
    48,208
    
    
    $
    46,730
    
    
    $
    42,088
    
    
    $
    
    
    
    $
    Royalties, taxes and other
    
    
    8,244
    
    
    
    6,860
    
    
    
    5,732
    
    
    
    
    
    
    
    Total cash costs (Non-GAAP)
    
    $
    56,452
    
    
    $
    53,590
    
    
    $
    47,820
    
    
    $
    
    
    
    $
    Asset retirement costs
    
    
    152
    
    
    
    62
    
    
    
    186
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    23,971
    
    
    
    15,248
    
    
    
    12,008
    
    
    
    
    
    
    
    Total production costs (Non-GAAP)
    
    $
    80,575
    
    
    $
    68,900
    
    
    $
    60,014
    
    
    $
    
    
    
    $
    Change in product inventory
    
    
    (379
    )
    
    
    960
    
    
    
    (6,382
    )
    
    
    
    
    
    
    Add: Profit from secondary recycling
    
    
    1,831
    
    
    
    222
    
    
    
    246
    
    
    
    
    
    
    
    Loss or (gain) on sale of assets and other costs
    
    
    
    
    
    
    23
    
    
    
    (1
    )
    
    
    
    
    
    
    Total cost of revenues
    
    $
    82,027
    
    
    $
    70,105
    
    
    $
    53,877
    
    
    $
    
    
    
    $
    Other PGM activities(2)Reconciliation to cost of revenues:Change in product inventory
    
    $
    82,402
    
    
    $
    6,728
    
    
    $
    
    
    
    $
    
    
    
    $
    Secondary recycling depreciation
    
    
    48
    
    
    
    71
    
    
    
    71
    
    
    
    72
    
    
    
    67Costs of secondary recycling
    
    
    71,325
    
    
    
    7,988
    
    
    
    14,122
    
    
    
    27,087
    
    
    
    17,706Total cost of revenues
    
    $
    153,775
    
    
    $
    14,787
    
    
    $
    14,193
    
    
    $
    27,159
    
    
    $
    17,773
   (1)
    
    The East Boulder Mine commenced commercial production activities at the beginning
of 2002.(2)
    
    Other PGM activities include secondary processing and sales of palladium received
in the Norilsk Nickel transaction and other. 44




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ITEM 7 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the companys Consolidated
Financial Statements and Notes, included elsewhere in this report, and the information contained in
Selected Financial and Operating Data. EXECUTIVE SUMMARY Stillwater Mining Company mines, processes, refines and markets palladium, platinum and minor
amounts of other metals from the J-M Reef, an extensive trend of PGM mineralization located in
Stillwater and Sweet Grass Counties in south central Montana. The company operates two mines -
Stillwater and East Boulder  within the J-M Reef, each with substantial underground operations and
a surface mill and concentrator. Concentrates produced at the two mines are shipped to the
companys smelter and base metals refinery at Columbus, Montana, where they are further processed
into a PGM filter cake that is sent to third-party refiners for final processing. Most finished
platinum and palladium produced from mining is sold under contracts with three major automotive
manufacturers for use in automotive catalytic converters. Catalytic converters are a principal application for PGMs. In late 2003, the company entered
into a long-term agreement to more fully utilize surplus capacity in the companys processing and
refining facilities by extracting and recycling PGMs from spent catalytic converters. The company
also has spot purchase and tolling arrangements with other suppliers of spent catalytic materials.
This recycling activity expanded significantly during 2004, and by year-end the company was
processing these secondary materials at a rate of about nine tons per day. In February 2004, the company entered into sales agreements to sell the 877,169 ounces of
finished palladium that it received in June 2003 as partial payment for a purchase of company
shares by Norilsk Nickel. These palladium sales will take place ratably over a two-year period
ending in the first quarter of 2006. Two overriding factors heavily influence the companys profitability: the volatility of PGM
prices and the companys cost structure. Metal prices are dictated by market forces and so are
beyond the direct control of the company, although market effects can be mitigated through
long-term sales agreements and at times through hedging activities. Several other major PGM
producers in the mining industry either produce PGMs as a byproduct of other refining or enjoy ores
with a substantially higher proportion of the historically higher-priced platinum over palladium.
The company does not enjoy these advantages and has a higher cost structure than many of its
competitors, putting it at a disadvantage when prices are low. The companys unit costs generally
are affected by the level of ore production, by the consistency and quality of the ore mined, by
the mining method, and by overall operating efficiency. The company spends substantial amounts of
development capital each year in the mines to sustain ongoing production. In view of these
challenges, minimizing unit operating costs in a safe and efficient manner is the principal
operating focus of the company. In 1998, the company entered into three long-term sales contracts with automobile
manufacturers that commit most of the mines platinum and palladium production through 2010. While
two of these contracts will expire before 2010, the terms of the third contract provide for it to
absorb the share of production made available by the expiring agreements. These contracts all have
floor prices (see Note 15 to the companys consolidated financial statements) that, in the recent
low price environment for palladium, have been of significant benefit in allowing the company to
continue operating profitably. Unless these contracts are extended or modified, as to which there
can be no assurance, all three contracts will have expired by the end of 2010. At that time, the
company could be fully exposed to market prices and the absence of these contracts after 2010 could
materially affect the companys operating results. As of December 31, 2004, the company had secured platinum prices in the forward market by
entering into financially settled forward transactions covering over half of the companys
anticipated platinum mine production for 2005 and 2006 (specifically involving the period from
January 2005 through October 2006). The company believes that the current disparity between
palladium and platinum prices may narrow if consumers switch from using platinum to palladium,
driven by the historically high platinum price, for existing and new applications. The company
notes that the price of platinum could weaken if this switching occurs and has secured the price on
a portion of future sales. As of December 31, 2004, the company had open financially settled
forward contracts covering a total of 143,300 ounces of platinum at an overall average price of
about $808 per ounce. The hedges are expected to modestly reduce the overall volatility of the
companys earnings and cash flow. Under these hedging arrangements, in return for protection
against downward movements in the platinum price, the company gives up the benefit of increases in
the platinum price on the hedged ounces. The company realized losses on financially settled
forward sales of its mined platinum during 2004 of $1.3 million. 45




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Volatility of PGM prices has caused the company significant concerns in the past. The
decision to build the second mine, known as East Boulder, along the J-M Reef was made in 1998, at a
time when the palladium price was rising and widely expected to continue higher. The East Boulder
facilities were largely financed through available cash and through bank borrowings that were
expected to be repaid as mine production came on line. However, as the project proceeded, the cost
of construction overran initial estimates and at the same time palladium prices dropped, leaving
the company over-leveraged. Ultimately, in the fall of 2001, the company was forced to slow down
development at East Boulder in order to avoid depleting its available cash. Following this slowdown, for a time the companys financial position remained precarious. In
early 2002, Stillwater secured $60 million of additional equity funding through a private offering
of its common stock. The company also revisited its mining plans in an effort to optimize
production and minimize costs in light of financial limitations. Recognizing that these efforts
alone would not be sufficient to resolve the companys financial problems, the companys Board of
Directors considered various strategic options. This process led to the transaction, announced in
November 2002 and closed in June 2003, whereby Norilsk Nickel acquired 50.8% of the company for
$100 million in cash and 877,169 ounces of palladium, through the purchase of newly issued
Stillwater common shares. During the third quarter of 2003, Norilsk Nickel subsequently completed
a public cash tender offer for additional shares, increasing its ownership interest to 55.5%. The company was obligated by its banks to utilize $50.0 million of the cash proceeds from the
Norilsk Nickel transaction to reduce bank debt. During the first quarter of 2004, the company
entered into contracts to sell the 877,169 ounces of palladium received from Norilsk Nickel to
DaimlerChrysler, Mitsubishi and Engelhard Corporation. The palladium is being sold in equal
monthly quantities over two years at a slight volume discount to market prices at the time of sale.
During 2004, the company sold approximately 375,000 ounces of this palladium, leaving
approximately 502,000 ounces remaining in inventory at December 31, 2004. As discussed below, the
company expects to utilize a portion of the cash proceeds from these sales to reduce its long-term
debt. On August 3, 2004, the company entered into a new $180 million credit facility, which replaced
the companys previous credit facility. The new credit facility consists of a $140 million
six-year term loan facility maturing July 30, 2010, bearing interest at a variable rate plus a
margin (LIBOR plus 325 basis points, or approximately 5.50% at December 31, 2004) and a $40 million
five-year revolving credit facility expiring July 31, 2009. The revolving credit facility, when
drawn, bears interest at a variable rate (LIBOR plus 300 basis points or approximately 5.25% at
December 31, 2004). The margin on the revolving credit facility adjusts contractually, based on
the leverage ratio, as defined, beginning after the first quarter of 2005. Proceeds of the new
term loan facility were applied to pay off the previous credit facility and the remainder was used
for general corporate purposes. The $40 million revolving credit facility includes a letter of
credit facility that has been partially utilized to secure a $7.5 million letter of credit provided
as surety for certain of the companys reclamation obligations. The undrawn amounts through the
letter of credit facility carry a fee at an annual rate equal to the revolving credit margin (3.00%
as of December 31, 2004) plus 0.125%. The remaining unused portion of the revolving credit
facility ($32.5 million at December 31, 2004) carries an annual commitment fee of 0.75%. The new credit agreement contains customary financial and other covenants; however, unlike the
companys previous credit facility it does not include a minimum production covenant. For the
first and second quarters of 2004, the company secured waivers of the minimum production covenant
from the lenders under the previous credit facility. The new credit facility requires that the
company remit 25% of the proceeds from sales of the palladium inventory received in the Norilsk
Nickel transaction as prepayment against the new credit facility each time a certain cumulative
level of such sales is reached. As of December 31, 2004, the company had prepaid $7.8 million
related to sales of palladium received in the Norilsk Nickel transaction and had accumulated $1.9
million toward the next prepayment. The new credit facility also requires that 50% of the
companys annual excess cash flow (as defined in the new credit agreement) be offered as prepayment
against borrowing under the new credit facility. The company did not have excess cash flow and was
not required to make any prepayments under this provision for 2004. The labor agreement covering the companys union employees at the Stillwater Mine and the
Columbus metal processing facilities expired at noon on July 1, 2004. The company and the union
reached tentative agreement on a new labor agreement just prior to expiration and extended the
contract expiration until noon on July 12, 2004, in order to allow time for the union membership to
vote on the contract. On July 11, 2004, the union leadership notified the company that a vote of
their membership had rejected the proposed agreement, and accordingly the bargaining unit went on
strike effective at noon on July 12, 2004. On July 19, 2004, the members of the union voted to
approve a three-year contract, which provides for a 3% annual salary increase and a contract
renewal cash bonus. Employees returned to work beginning with the day shift on July 21, 2004.
Costs directly associated with the union strike were approximately $2.4 million. In addition, the
company estimates the production loss due to the strike at approximately 25,000 ounces of PGMs.
Despite the resolution of this strike, the company cannot assure that it will not encounter
additional strikes or other types of conflicts with labor unions or employees in the future. The
labor agreement covering the companys union employees at the East Boulder Mine is scheduled to
expire on June 30, 2005. 46




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The companys primary focus will remain on improving profitability. While this is largely a
matter of reducing costs, management believes that there also may be opportunities to foster new
demand, in particular for palladium. During 2004 the company initiated the establishment of a
palladium industry marketing effort made up of palladium producers and consumers to encourage
research, provide education and develop new markets for palladium. Similar organizations already
exist for platinum and other precious metals. The company also collaborated in setting up a
website, www.stillwaterpalladium.com, designed to provide information to industry and the
general public. Management has met with various fabricators of palladium jewelry to encourage the
growth of that business. And the company has earmarked funds in 2005 to support a modest program
of palladium research. PRODUCTION As previously disclosed, the company is gradually increasing production at East Boulder to
1,650 tons of ore per day. While the company had planned to achieve this daily rate by the end of
2004, several issues have been identified which will extend the ramp-up period into 2006. The
issues have centered on recognition that the developed state of the mine must be further advanced
in order to achieve and maintain the higher production level. The work on improving the developed
state at the East Boulder Mine will include:  
    additional primary development to increase the number of ramp systems and working faces;
    additional diamond drilling associated with increased primary development; and
    development of a ventilation raise to surface to support a larger amount of
equipment while improving underground air quality related to diesel particulate matter
(DPM). Ore production levels at East Boulder averaged 1,326 tons of ore per day in 2004, up 6% from
the 1,251 tons of ore per day average for 2003. Full utilization of equipment at the mine will not
be attained until after the completion of two new ventilation shafts, which is expected in early
2006. Modest increases in production rates were planned at the Stillwater Mine during 2004.
However, the loss of production during and immediately following the union strike more than offset
any such gains. The companys production levels for palladium and platinum are driven by the number of ore
tons mined, the mill head grade of the ore and the metallurgical recovery percentages. The company
measures its net mine production in terms of the number of ounces contained in the mill
concentrate, adjusted for subsequent processing losses expected to be incurred in smelting and
refining. The company defines an ounce of metal as produced at the time it is shipped from the
mine site. Produced ounces also are adjusted for downstream estimated metal losses incurred in the
smelting and refining processes. Depreciation and amortization costs are inventoried at each stage
of production. The grade of the companys ore reserves, measured in combined platinum and palladium ounces
per ton, is a composite average of samples in all reserve areas. As is common in underground
mines, the grade mined and the recovery rate achieved varies depending on the area being mined. In
particular, mill head grade varies significantly between the Stillwater and East Boulder mines, as
well as within different areas of each mine. During 2004, 2003 and 2002, the average mill head
grade for all tons processed from the Stillwater Mine was 0.56, 0.58, and 0.58 PGM ounces per ton
of ore, respectively. The East Boulder Mine commenced commercial production at the beginning of
2002. During 2004, 2003 and 2002 the average mill head grade for all tons processed from the East
Boulder Mine was 0.39, 0.39 and 0.38 PGM ounces per ton of ore, respectively. During 2004, the companys mining operations produced a total of 569,000 ounces of platinum
and palladium, which included 439,000 ounces of palladium and 130,000 ounces of platinum. PGM
production decreased 2.5% from 2003, and was 8% below the companys planned PGM production for
2004. The small decline in PGM production between 2004 and 2003, is attributable to the production
lost due to the brief labor strike the Stillwater Mine experienced in July 2004. The shortfall
compared to the plan for 2004 resulted primarily from the strike and from the delay in increasing
the East Boulder production rate to 1,650 ore tons per day, as discussed above. The company is
targeting total mine production of between 550,000 and 570,000 PGM ounces for 2005, reflecting a
continuation through 2005 of the delay in expanding East Boulder and a heavy emphasis at both mines
on new development and reserve conversion during the year. Management believes this investment
during 2005 will result in more efficient and productive mining operations over the longer term. CAPITALIZED MINE DEVELOPMENT Mine development expenditures incurred to increase existing
production, develop new orebodies or develop mineral property substantially in advance of
production were capitalized and amortized using a units-of-production
method.
Mine development expenditures
include shafts, surface adits and underground infrastructure development including footwall
laterals, ramps rail and transportation, electrical and 47




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ventilation systems, shop facilities, material handling areas, ore handling facilities,
dewatering and pumping facilities. These facilities are required not only for current operations,
but also as continuing infrastructure in support of all future planned operations. In accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets, the company recorded an impairment charge of $390.3 million at December 31,
2003. The carrying values of the Stillwater Mine, the East Boulder Mine and processing facilities
in Columbus, Montana were each reduced to their fair market value. As provided in SFAS No. 144,
this adjusted carrying amount became the new cost basis for depreciation and amortization
calculations as of December 31, 2003. The company calculates amortization of capitalized mine development costs by the application
of an amortization rate to current production. The amortization rate is based upon un-amortized
capitalized mine development costs, and the related ore reserves. Capital expenditures are added
to the un-amortized capitalized mine development costs as the related assets are placed into
service. In the calculation of the amortization rate, changes in ore reserves are accounted for,
as a prospective change in estimate. Ore reserves and the further benefit of capitalized mine
development costs are based on significant management assumptions. Any changes in these
assumptions, such as a change in the mine plan or a change in estimated proven and probable ore
reserves, could have a material effect on the expected period of benefit resulting in a potentially
significant change in the amortization rate and/or the valuations of related assets. The companys
proven ore reserves are generally expected to be extracted utilizing its existing mine development
infrastructure. Additional capital expenditures will be required to access the companys estimated
probable ore reserves. These anticipated capital expenditures are not included in the current
calculation of depreciation and amortization. The company changed its accounting method for amortizing capitalized mine development costs in
the fourth quarter of 2004. These mine development costs include the initial costs incurred to
gain primary access to the ore reserves, plus the ongoing development costs of footwall laterals
and ramps driven parallel to the reef that are used to access and provide support for the mining
stopes in the reef. Prior to 2004, the company amortized all such capitalized development costs at its mines over
all proven and probable reserves at each mine. Following the asset impairment write-down at the end
of 2003, the company revisited its assumptions and estimates for amortizing capitalized mine
development costs. The company concluded to continue amortizing the cost of all of the mine
development that had been placed in service through 2003 over all proven and probable reserves,
because in managements view these remaining unamortized costs related to infrastructure that would
be used for the entire life of the mine. However, for development placed in service after 2003,
the company concluded to use a shorter life, amortizing the cost of this new development over only
the ore reserves in the immediate and relevant vicinity of the new development. This approach was
reflected in the companys consolidated financial statements for the first three quarters of 2004. Following a review of its filings by the SEC, the company recently determined it would change
its method of accounting for development costs as follows:  
    Unamortized costs of the shaft at the Stillwater Mine and the
initial development at the East Boulder Mine will continue to be
treated as life-of-mine infrastructure costs, to be amortized over
total proven and probable reserves at each location, and  
    All ongoing development costs of footwall laterals and ramps,
including similar development costs incurred before 2004, are to
be amortized over the ore reserves in the immediate and relevant
vicinity
of the development. This change in accounting method required the company to measure the effect of the change at
January 1, 2004, as if the new method of amortization had been used in all prior years. The credit
for the cumulative effect of the change for all years prior to 2004 of $ 6.0 million, is shown as
the Cumulative Effect of Accounting Change in the Consolidated Statement of Operations and
Comprehensive Income (Loss) for the year ended December 31, 2004. The company also has reflected
the effect of the new accounting method of amortization on the Companys quarterly financial
statements for each of the first three quarters of 2004 by amending its previously filed Form
10-Qs. Because the change in accounting method is effective from January 1, 2004, the company is
not required to amend its 2002 and 2003 annual reports. The Companys financial statements also
include the pro-forma effect of the accounting change on its 2003 and 2002 financial results. The effect of this change in accounting method was to reduce previously reported earnings for the
nine months ended September 30, 2004 by $ 10.2 million, including a benefit of $ 6.0 million
attributable to the cumulative effect adjustment, and a charge of $16.2 million attributable to
additional amortization for the period. Expenditures incurred to sustain existing production and to access specific reserve blocks or
stopes provide benefit to ore reserve production over limited periods of time (secondary
development) and are charged to operations as incurred. These costs include ramp and stope access
excavations from primary haulage levels (footwall laterals), stope material rehandling/laydown
excavations, stope ore and waste pass excavations and chute installations, stope ventilation raise
excavations and stope utility and pipe raise excavations. During 2004, depreciation and amortization rates were affected by (1) the impairment charge in
2003 that reduced the carrying value of the East Boulder Mine, the Stillwater Mine and the
processing and other facilities, which in turn reduced their depreciation and amortization bases,
and (2) by the change in the accounting method, used to amortize capitalized mine development costs.
Due to the change in accounting method certain capitalized mine development costs will be
amortized over a shorter period, which the company expects to result in a higher amortization
expense than the company has experienced in the past. REVENUE Under the terms of sales contracts and purchase orders received from customers, the company
recognizes revenue when the product is in a refined and saleable form and title passes, which is
typically when the product is transferred from the account of the company to the account of the
customer. 48




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The companys revenue and earnings are significantly influenced by worldwide market prices of
palladium and platinum, which can be volatile and over which the company has little or no control.
Sales to significant customers represented approximately 73%, 88% and 81% of total revenues for
the years ended December 31, 2004, 2003 and 2002, respectively. Although the company sells its
metals to a small number of customers and brokers, the company could, if the need were to arise,
readily sell its metal on a spot basis  and at spot prices  in any of various commodity markets
throughout the world. From time to time, the company has used basic hedging techniques involving fixed forwards,
cashless put and call option collars and financially settled forwards. The objective of such metals
hedging transactions has been to secure firm prices for the companys PGM production, to benefit
from price increases or to protect against price decreases on that portion of production that falls
outside the range of the floor or ceiling prices embedded in the long-term auto company contracts.
Such hedging contracts also may preclude the company from obtaining the full benefit of increased
market prices for its contracted metals. Hedging losses of $0.8 million ($1.3 million loss on mine
production and $0.5 million gain on secondary processing) were realized in 2004; in 2003 no metals
hedging gains or losses were realized; and hedging gains of
$9.2 million on mine production were realized 2002. See
Business and Properties  Sales and Hedging Activities. The company uses forward contracts and financially settled forwards to manage the potential
negative effects of metal price volatility on its financial results. During 2004, the company
entered into various fixed forwards and financially settled forward contracts that were accounted
for as cash flow hedges. At December 31, 2004, the company had hedging contracts in place covering
143,300 ounces of metal sales through October 2006. The company has credit agreements with its
major trading partners that provide for margin deposits in the event that forward prices for metals
exceed the companys hedge contract prices by a predetermined margin limit. The companys revenues and ounces sold were as follows for the years ended December 31: Ounces of
    
    
    Ounces of
    
    
    Ounces of(in thousands)
    
    $ of Palladium
    
    
    $ of Platinum
    
    
    $ of Other
    
    
    Palladium
    
    
    Platinum
    
    
    Other2004Mine production
    
    $
    162,209
    
    
    $
    104,475
    
    
    $
    
    
    
    
    432
    
    
    
    125
    
    
    
    Secondary processing
    
    
    9,548
    
    
    
    56,512
    
    
    
    10,328
    
    
    
    43
    
    
    
    69
    
    
    
    10Sales of Palladium received in Norilsk Nickel
transaction and other
    
    
    85,952
    
    
    
    6,132
    
    
    
    12,371
    
    
    
    375
    
    
    
    8
    
    
    
    11Total
    
    $
    257,709
    
    
    $
    167,119
    
    
    $
    22,699
    
    
    
    850
    
    
    
    202
    
    
    
    212003Mine production
    
    $
    161,624
    
    
    $
    78,782
    
    
    $
    
    
    
    
    459
    
    
    
    131
    
    
    
    Secondary processing
    
    
    1,036
    
    
    
    5,085
    
    
    
    2,745
    
    
    
    5
    
    
    
    8
    
    
    
    Other
    
    
    
    
    
    
    6,551
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    1Total
    
    $
    162,660
    
    
    $
    90,418
    
    
    $
    2,745
    
    
    
    464
    
    
    
    149
    
    
    
    12002Mine production
    
    $
    202,861
    
    
    $
    72,738
    
    
    $
    
    
    
    
    469
    
    
    
    143
    
    
    
    Secondary processing
    
    
    3,328
    
    
    
    7,832
    
    
    
    4,017
    
    
    
    10
    
    
    
    19
    
    
    
    3Other
    
    
    
    
    
    
    1,535
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    206,189
    
    
    $
    82,105
    
    
    $
    4,017
    
    
    
    479
    
    
    
    162
    
    
    
    3
 RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003 Revenues. Revenues were $447.5 million in 2004, compared to $255.8 million in 2003,
a 75% increase. Revenues from mine production were $266.7 million in 2004, compared to $240.4 million in 2003,
an 11% increase. The increase in mine production revenues was primarily due to a combined average
realized PGM price per ounce of $480 in 2004, compared to $408 in 2003, an 18% increase, offset by
a 6% decrease in the quantity of metals sold of 557,000 ounces in 2004 compared to 590,000 ounces
in 2003 attributable to lower production. Revenues from secondary processing were $76.4 million in 2004, compared to $8.9 million in
2003 primarily due to an increase in 49




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the quantity of PGMs sold of 122,000 ounces in 2004, compared
to 13,000 ounces in 2003. The increase was due to the companys long-term sourcing agreement for
spent catalytic materials entered into during the fourth quarter of 2003. Revenues from sales of palladium received in the Norilsk Nickel transaction and other
activities were $104.5 million in 2004, compared to $6.6 million in 2003. Sales of palladium
received in the Norilsk Nickel transaction generated $86.0 million in revenues during 2004, due to
the sale of approximately 375,000 ounces of palladium at an average realized palladium price of
$229 per ounce. The company has approximately 502,000 ounces of palladium received in the Norilsk
Nickel transaction remaining in inventory at December 31, 2004, that is expected to be sold monthly
through the first quarter of 2006. There were no such sales during 2003. During 2004, the company entered in certain sales contracts providing for the company to sell
the palladium ounces received in the Norilsk Nickel transaction, along with certain quantities of
platinum and rhodium purchased on the open market or produced from the companys mining operations.
Excluding sales of palladium received in the Norilsk Nickel transaction, during 2004 the company
recognized revenue of $18.5 million under these sales contracts. During 2003, the company
recognized revenues of $6.6 million for metals purchased for resale under other contractual sale
arrangements. Cost of Metals Sold. Cost of metals sold was $325.1 million in 2004,compared to
$188.7 million in 2003, a 72% increase. The cost of metals sold from mine production was $171.3 million in 2004, compared to $174.0
million in 2003, a 2% decrease. The decrease was primarily due to the 6% decrease in ounces sold
offset in part by an increase in the companys cost of metals sold per ounce. The increase in the
companys cost of metals sold per ounce was primarily due to 1) higher direct mining costs as
result of production losses from the union strike at the Stillwater Mine and processing facilities
during the third quarter of 2004 and 2) higher royalty costs as a result of higher realized PGM
prices in 2004 compared to those in 2003. These higher costs were offset by higher by-product credits in 2004. The cost of metals sold from secondary processing was $71.3 million in 2004, compared to $8.0
million in 2003. The increase was primarily due to the cost of acquiring and processing the
increased ounces generated from the companys long-term sourcing agreement for spent catalytic
materials entered into during the fourth quarter of 2003. The cost of metals sold from sales of palladium received in the Norilsk Nickel transaction and
other activities was $82.4 million in 2004, compared to $6.7 million in 2003. The total cost of
palladium sold from just those ounces received in the Norilsk Nickel transaction was $63.3 million
in 2004, representing the sale of approximately 375,000 ounces of palladium at an average cost of
$169 per ounce. There were no such sales during 2003. As
discussed in Revenues, the company entered into sales contracts in
2004 which required it to purchases
metal from third parties in order to fulfill delivery commitments. The cost of metals sold
from activities under these contracts, excluding sales of palladium received in the Norilsk Nickel
transaction, was $19.1 million in 2004. During 2003, the company incurred $6.7 million in costs
for the metals re-sold under other contractual obligations. During 2004, the companys mining operations produced approximately 569,000 ounces of PGMs,
which included approximately 439,000 and 130,000 ounces of palladium and platinum, respectively, compared with
approximately 584,000 ounces of PGMs in 2003, which included approximately 450,000, and 134,000
ounces of palladium and platinum, respectively, a 3% year-on-year decrease in total PGM production.
The production decrease in 2004 is primarily due to the union strike at the Stillwater Mine and a
2% decrease in consolidated mill head grade, partially offset by an increase in tons mined at the
East Boulder Mine due to development efforts as the company continues to ramp-up production to a
planned rate of 1,650 ore tons per day. The Stillwater Mine produced approximately 405,000 ounces of PGMs in 2004, compared with
approximately 428,000 ounces of PGMs in 2003, a 5% decrease. The East Boulder Mine produced
approximately 164,000 ounces of PGMs in 2004, compared with approximately 156,000 ounces of PGMs in
2003, a 5% increase. Depreciation and amortization Depreciation and amortization expense was $59.6 million in
2004, compared to $40.8 million in 2003, a 47% increase. The increase is primarily due to the
change in accounting method for the amortization of capitalized mine development costs (see Note 3
to the companys consolidated financial statements). As a result of the change, unamortized costs
of the shaft at the Stillwater Mine and the initial development at the East Boulder Mine will
continue to be treated as life-of-mine infrastructure costs, to be amortized over total proven and
probable reserves at each location, and all ongoing development costs of footwall laterals and
ramps, including similar development costs incurred before 2004, will be amortized over the ore
reserves in the immediate and relevant vicinity of the development. 50




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General and administration. General and administrative costs were $19.7 million in
2004, compared to $14.7 million in 2003, a 34% increase. The increase was primarily due to
security and settlement costs associated with the union strike at the Stillwater Mine and
processing facilities in the third quarter of 2004. Loss on disposal on property, plant and equipment. During 2004, the company exercised
a buyout option of an operating lease for a tunnel boring machine. The company simultaneously
disposed of the asset resulting in a loss of $2.1 million. Other gains and losses on
property, plant and equipment disposed of during 2004 and 2003 were not significant. Impairment of property, plant andequipment. During 2003, the company
recorded an impairment of its property, plant and equipment of $390.3 million. There was no
corresponding asset impairment during 2004. Interest income. Interest income was $2.2 million in 2004, compared to $0.5 million
in 2003. The increase was primarily due to $1.1 million in interest income from prepayments made
to a vendor under the companys long-term sourcing agreement for spent catalytic materials and an
increase in average cash and cash equivalent balances during 2004 compared to 2003. Total income tax benefit (provision). The
company has not recorded any income tax
expense in 2004, other than for certain state minimum taxes paid.
Changes in the companys net deferred tax assets have been
offset by the change in the related valuation allowance.
 In 2003, the company recorded a
tax benefit of $161.9 million, offset by a provision for valuation allowance for net deferred tax
assets of $70.3 million and a $16.7 million reduction of deferred tax assets for net operating loss
carry forwards not expected to be utilized as a result of the Norilsk Nickel transaction during
2003. YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002 Revenues. Revenues were $255.8 million in 2003, compared to $292.3 million in 2002, a
12% decrease. Proceeds from secondary processing for 2003 and 2002 have been reclassified as
revenues to conform to the 2004 presentation. Revenues from mine production were $240.4 million in 2003, compared to $275.6 million in 2002,
a 13% decrease. The decrease in mine production revenues was primarily due to a combined average
realized PGM price per ounce of $408 in 2003, compared to $454 in 2002, an 10% decrease, and a 4%
decrease in the quantity of metals sold from 612,000 ounces in 2002 to 590,000 ounces in 2003,
attributable to lower production. Revenues from secondary processing were $8.9 million in 2003, compared to $15.2 million in
2002, a 41% decrease, primarily due to a decrease in the quantity of recycled PGMs sold from 32,000
ounces in 2002 to 13,000 ounces in 2003. Cost of metals sold. Cost of metals sold was $188.7 million in 2003, essentially
unchanged from $188.2 million in 2002. Costs from secondary processing for 2003 and 2002 have been
reclassified to conform to the 2004 presentation. The cost of metals sold from mine production was $174.0 million in 2003 compared to $172.1
million in 2002, a 1% increase.


The increase was primarily due to an increase in the companys cost of metals sold per ounce
partially offset by the 4% decrease in ounces sold The cost of metals sold from secondary processing was $8.0 million in 2003, compared to $14.1
million in 2002, a 43% decrease, primarily resulting from the decrease in ounces sold. During 2003, the companys mining operations produced approximately 584,000 ounces of PGMs,
which included approximately 450,000 and 134,000 ounces of palladium and platinum, respectively,
compared with approximately 617,000 ounces of PGM, which included approximately 476,000, and
141,000 ounces of palladium and platinum, respectively, during 2002, or a 5% year-on-year decrease
in total PGM production. The Stillwater Mine produced approximately 428,000 ounces of PGMs in 2003, compared with
approximately 492,000 ounces of PGMs in 2002, a 13% decrease. The East Boulder Mine produced
approximately 156,000 ounces of PGM in 2003, compared with approximately 125,000 ounces of PGM in
2002, a 25% increase. Depreciation and amortization. Depreciation and amortization was $40.8 million in
2003, compared to $38.8 million in 2002, a 5% increase. The increase was primarily due to capital
expenditures added to property, plant and equipment in 2003. Impairment of property, plant and equipment. The company follows SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. The company reviews and evaluates
its long-lived assets for impairment when events or changes in circumstances 51




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indicate that the
related carrying amounts may not be recoverable. Impairment is considered to exist if total
estimated future cash flows on an undiscounted basis are less than the carrying amount of the
asset. Future cash flows include estimates of recoverable ounces, PGM prices (considering current
and historical prices, long-term sales contract prices, price trends and related factors),
production levels, capital and reclamation expenditures, all based on life-of-mine plans and
projections. The company disclosed in its quarterly report on Form 10-Q for the quarter ended September 30,
2003, that a continuation of palladium prices, at then low levels, would lead to asset impairment
writedowns and a reduction of ore reserves which could be material. The company disclosed that the
timing of such writedown or reduction in ore reserves would be evaluated in light of palladium
prices and other matters. Ore reserves are determined on an annual basis, and concurrently, mine plans and operating
budgets are updated. At year end 2003, the East Boulder Mine ore reserve had increased 4% in
contained ounces from that reported at year-end 2002. However, the Stillwater Mine ore reserve at
year-end 2003 had decreased by 16% in contained ounces from that reported at year-end 2002.
Overall the companys estimated contained ounces declined by 7%. The
year-end 2003 decrease in ore reserves at the Stillwater Mine was
viewed as a change in circumstances that prompted an impairment
review of the carrying values of the companys mine properties. The review determined that company
investments in property, plant and equipment at the Stillwater Mine and East Boulder Mine were
impaired. Consequently, the company engaged Behre Dolbear, independent valuation consultants, to
perform a fair market value assessment of the assets at December 31, 2003. As a result, the
company recorded an asset impairment charge of $390.3 million reducing the carrying value of the
properties to their fair market value, as required under SFAS No. 144. The impairment charge
consists of $176.7 million at the Stillwater Mine, $178.0 million at the East Boulder Mine and
$35.6 million at the processing and other facilities, reducing the carrying value of Stillwater
Mine to $228.6 million, East Boulder Mine to $150.0 million and the processing and other facilities
to $40.9 million at December 31, 2003. Behre Dolbear utilized conventional mine valuation
techniques including discounted cash flow analysis for purposes of determining fair market value. The resulting net carrying value of the companys mining assets as of December 31, 2003 and
2002 is as follows: 2003
    
    
    2002BeforeImpairment
    
    
    Impairment(in thousands)
    
    Charge
    
    
    Charge
    
    
    Net Book Value
    
    
    Net Book ValueStillwater Mine
    
    $
    405,331
    
    
    $
    176,739
    
    
    $
    170,110
    
    
    $
    385,317East Boulder Mine
    
    
    328,053
    
    
    
    178,036
    
    
    
    198,894
    
    
    
    328,974Processing Assets
    
    
    71,343
    
    
    
    34,761
    
    
    

    45,694
    
    
    
    76,049Other Assets
    
    
    5,096
    
    
    
    759
    
    
    
    4,830
    
    
    
    3,679$
    809,823
    
    
    $
    390,295
    
    
    $
    419,528
    
    
    $
    794,019
 Assumptions underlying future cash flows are subject to risks and uncertainties. Any
differences between projections and actual outcomes for key factors such as PGM prices, recoverable
ounces, and/or the companys operating performance could have a material
effect on the companys determination of ore reserves, or its ability to recover the carrying
amounts of its long lived assets, possibly resulting in additional impairment charges in the
future. Norilsk Nickel transaction related expenses. Norilsk Nickel transaction related
expenses of $3.0 million represent costs incurred for professional services associated with the
Norilsk Nickel transaction. Restructuring costs, net. During 2003, the company revised its estimate of accrued
restructuring costs as a result of negotiations regarding certain termination clauses in
construction contracts which had been cancelled. The company made adjustments to reduce the
accrual by $1.0 million and $7.0 million during 2003 and 2002, respectively. During 2002, the
company increased its restructuring accrual by $1.1 million to reflect the decision to eliminate
six management positions. Income taxes. The company reported an income tax benefit of $74.9 million or 18.8% of
pre-tax loss for the year ended December 31, 2003, compared to an income tax provision of $8.9
million for the year ended December 31, 2002. The 2003 tax benefit is comprised of a $161.9 million
benefit offset by a $70.3 million provision for a valuation allowance of the amount of the
companys net deferred tax assets. The tax benefit is further offset by a reduction of deferred
tax asset of $16.7 million resulting from a limitation on the companys net operating loss carry
forwards attributed to the ownership change resulting from the Norilsk Nickel transaction (see Note
14 to the companys consolidated financial statements). This compares to an income tax provision
of $8.9 million, or 22.0% of pre-tax earnings for the year ended December 31, 2002. The change in
the effective tax rate was primarily due to a reduction in taxable income from mining that limits
the companys statutory depletion for tax purposes. 52




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Other comprehensive income (loss), net of tax. For the year 2003, other
comprehensive income (loss), net of tax, included a decline in the market value of commodity
instruments of $0.5 million and a decline in the market value of the interest rate swaps of $0.3
million, offset by reclassification adjustments to interest expense of $1.5 million. For 2002, other comprehensive loss of $7.1 million net of tax included a decline in the
market value on commodity instruments of $0.2 million and a decline in the market value of the
interest rate swaps of $2.3 million. Other comprehensive loss in 2002 also includes
reclassification adjustments to earnings of $5.6 million associated with deferred gains on
commodity instruments offset by $0.9 million associated with losses on interest rate swaps. LIQUIDITY AND CAPITAL RESOURCES Working
capital at December 31, 2004 was $236.4 million, compared to $154.7 million at
December 31, 2003. The ratio of current assets to current liabilities was 4.5 at December 31,
2004, compared to 2.4 at December 31, 2003. For 2004, Net cash provided by operating activitieswas $136.8 million compared to $47.2 and
$52.1 million for 2003 and 2002. The changes were primarily a result of: Year ended December 31,in thousands
    
    2004
    
    
    2003
    
    
    2002Cash collected from customers
    
    $
    433,118
    
    
    $
    271,093
    
    
    $
    295,437Cash paid to suppliers, employees, etc.
    
    
    (285,461
    )
    
    
    (209,852
    )
    
    
    (227,705
    )Interest received
    
    
    2,218
    
    
    
    500
    
    
    
    903Interest paid
    
    
    (13,035
    )
    
    
    (14,526
    )
    
    
    (16,497
    )Net cash provided by operating activities
    
    $
    136,840
    
    
    $
    47,215
    
    
    $
    52,138
 The companys net cash flow from operating activities is affected by several key factors,
including net realized prices for its products, cash costs of production, and the level of PGM
production from the mines. At the PGM price levels prevailing at December 31, 2004, absent
separate hedging arrangements, a change in the price of platinum generally would flow through
almost dollar-for-dollar to cash flow from operations, subject only to price ceilings on a small
portion of the companys long-term sales contracts, and certain costs  severance taxes and
royalties on mine production  which adjust upward or downward with market prices. Under the
companys long-term sales contracts for mined production, a change in the market price of
palladium, at prices prevailing on

December 31, 2004, would not flow through to cash flow from operations, unless it was a large
increase, as the market price for palladium was well below the price floors in the those contracts.
Sales out of the palladium inventory received in conjunction with the Norilsk Nickel transaction
are not subject to price floors, and therefore price changes related to sales of that inventory
would directly affect cash flow from operations. The company hedges the selling price of PGMs in
its recycling activity, so a change in the market price of platinum and palladium on sales of
secondary recycling materials would have only a modest effect on margins earned from this activity
and on cash flow from operations. Changes in the cash costs of production generally flow through
dollar-for-dollar into cash flow from operations. A reduction due to grade in total mine
production of 10%, or about 56,000 ounces per year, would reduce cash flow from operations by an
estimated $26 million per year at the price and cost levels prevailing at December 31, 2004. The
companys forecasts indicate that such a 10% reduction in mine production would not impair the
companys ability to repay its outstanding debt or to maintain its planned level of capital
expenditures, although a significantly larger reduction in mine production could adversely affect
the companys financial position. Net cash used in investing activitieswas $77.8 million, $54.2 million and $68.8 million in
2004, 2003 and 2002, respectively. The companys investing activities are primarily for capital
expenditures of $76.7 million, $55.3 million and
$57.2 million in 2004, 2003 and 2002, respectively,
(See Note 6 to the companys consolidated financial statements). Net cash provided by financing activitieswas $1.4 million, $29.6 million and $14.8 million in
2004, 2003 and 2002, respectively. Net cash provided by financing activities in 2004 is primarily
due to the issuance of $140 million in long-term debt under the new $180 million credit facility,
offset by $137.5 million in payments of long-term debt under the companys previous credit
facility, and capital lease payments. During 2003, the company made payments of $59.2 million
under the previous credit facility and received $100.0 million for common stock issued related to
the Norilsk Nickel transaction, net of $9.8 million paid for stock issuance costs. During 2002,
the company repaid long-term debt of $38.6 million, offset by $56.0 million received from common
stock issuance, net of issue costs. 53




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At December 31, 2004, the companys available cash was $96.1 million and it had $131.5
million outstanding under its term loan facility. Letters of credit of $7.5 million were
outstanding under the revolving credit facility. During 2005, the company will be required to make
total payments of approximately $2.0 million for principal reductions on its debt, excluding
anticipated prepayments related to proceeds received in the sale of palladium received in the
Norilsk Nickel transaction (see below). The $2.0 million of required payments includes $1.3
million in scheduled principal payments on the outstanding borrowings under the new credit facility
agreement. The company will also be required to pay approximately $9.8 million in total interest
payments. At December 31, 2004, the company owned approximately 502,000 ounces of the palladium
inventory received on June 23, 2003, in the Norilsk Nickel transaction. The inventory is carried
on the balance sheet at $169 per ounce, which results in a carrying value of $85 million. At
December 31, 2004, the palladium market price was $184 per ounce. In the first quarter of 2004,
the company announced that it had entered into contracts under which all of the palladium will be
sold at a slight volume discount to market price at the time of sale. Under these contracts, the
company expects to sell the remaining 502,000 ounces in approximately equal monthly deliveries
ending in February of 2006. Under the terms of the new credit agreement, the company is required
to remit 25% of the proceeds from the sale of the inventory to repay loans. The company is only
required to make payments on the credit facility with the 25% of the proceeds received when a
certain cumulative level of such sales is reached. As of December 31, 2004, the company has
prepaid $7.8 million from palladium inventory proceeds and has accumulated $1.9 million toward the
next prepayment. CREDIT AGREEMENT On August 3, 2004, the company entered into a new $180 million credit facility with a
syndicate of financial institutions that replaced the companys previous $250 million credit
facility. The new credit facility consists of a $140 million six-year term loan facility maturing
July 30, 2010, bearing interest at a variable rate plus a margin (London Interbank Offer Rate
(LIBOR) plus 325 basis points, or 5.50% at December 31, 2004) and a $40 million five-year revolving
credit facility bearing interest when drawn at a variable rate plus a margin (LIBOR plus 300 basis
points, or 5.25% at December 31, 2004) expiring July 31, 2009. The revolving credit facility
includes a letter of credit facility. Undrawn amounts under the letters of credit issued under
this facility as of December 31, 2004, carry an annual fee of 3.125%. Both the margin on the
revolving credit facility and the letter of credit fee adjust contractually based on the companys
leverage ratio, as defined, beginning after the first quarter of 2005. The remaining unused
portion of the revolving credit facility bears an annual commitment fee of 0.75%. Amortization of
the term loan facility commenced on August 31, 2004. As of December 31, 2004, the company has $131.5 million outstanding under the term loan
facility. During 2004, the company obtained a letter of credit in the amount of $7.5 million as
surety for its long-term reclamation obligation at East Boulder Mine, which reduces amounts
available under the revolving credit facility to $32.5 million at December 31, 2004. The new credit facility requires as prepayments 50% of the companys annual excess cash flow
(as defined in the credit agreement), plus any proceeds from asset sales and the issuance of debt
or equity securities, subject to specified exceptions. Such prepayments are to be applied first
against the term loan facility balance, and once that is reduced to zero, against any outstanding
revolving credit facility balance. The companys term loan facility allows the company to choose
between LIBOR loans of various maturities plus a spread of 3.25% or alternate base rate loans plus
a spread of 2.25%. The alternate base rate is a rate determined by the administrative agent under
the terms of the credit facility, and has generally been equal to the prevailing bank prime loan
rate, which is 5.25% at December 31, 2004. The alternate base rate applies only to that portion of
the term loan facility in any period for which the company has not elected to use LIBOR contracts.
Substantially all the property and assets of the company are pledged as security for the new credit
facility. In accordance with the terms of the new credit facility, the company is required to offer 25%
of the net proceeds from sales of palladium received in the Norilsk Nickel transaction to prepay
its term loan facility. The companys new credit facility contains a provision that defers each
prepayment related to the sales of palladium received in the Norilsk Nickel transaction until the
accumulated amount due reaches a specified level. During 2004, the company prepaid $7.8 million in
connection with such sales and deferred $1.9 million as of December 31, 2004. As of December 31, 2004, $19.1 million of the companys long-term debt has been classified as
a current liability representing that portion of the term loan facility expected to be prepaid
under this arrangement during the next twelve months which includes the deferred prepayment amount. Covenants in the new credit facility include restrictions on the companys ability to: (1)
incur additional indebtedness; (2) pay dividends or redeem capital stock; (3) grant liens; (4) make
investments, acquisitions, dispositions or enter into mergers; (5) enter into transactions with
affiliates; (6) make capital expenditures; (7) refinance or prepay subordinated debt; (8) change
the nature of the companys business or cease operations at the principal operating properties; and
(9) enter into commodity hedging. The company is also subject to financial covenants including a
debt to EBITDA (i.e., earnings before interest, taxes, depreciation and amortization) ratio, a debt
service coverage ratio and a minimum liquidity requirement. 54




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Events of default under the terms of the new credit facility include: (1) a cross-default
linked to other indebtedness of the company; (2) any material modification to the life-of-mine
plans, absent lender consent; (3) a change of control of the company, subject to certain
exceptions, and (4) any material breach by a counterparty to a material sales contract or any
unapproved modification or termination of such a sales contract. The company is in compliance with
its covenants under the new credit facility at December 31, 2004. The following is a schedule by year of required principal payments to be made in quarterly
installments on the amounts outstanding under the term loan facility at December 31, 2004, without
regard to the prepayments required to be offered from sales of palladium received the Norilsk
Nickel transaction or out of excess cash flow: Year ended (in thousands)
    
    Term facility2005
    
    $
    1,3222006
    
    
    1,3222007
    
    
    1,3222008
    
    
    1,3212009
    
    
    1,3212010
    
    
    124,895Total
    
    $
    131,503
 CONTRACTUAL OBLIGATIONS The company is obligated to make future payments under various contracts such as debt and
capital lease agreements. The following table represents significant contractual cash obligations
and other commercial commitments as of December 31, 2004: (in thousands)
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    TotalTerm debt facility
    
    $
    1,322
    
    
    $
    1,322
    
    
    $
    1,322
    
    
    $
    1,321
    
    
    $
    1,321
    
    
    $
    124,895
    
    
    $
    131,503Capital lease obligations
    
    
    519
    
    
    
    483
    
    
    
    464
    
    
    
    458
    
    
    
    519
    
    
    
    14
    
    
    
    2,457Special Industrial Education ImpactRevenue Bonds
    
    
    153
    
    
    
    165
    
    
    
    178
    
    
    
    190
    
    
    
    96
    
    
    
    
    
    
    
    782Exempt Facility Revenue Bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    30,000Operating leases
    
    
    2,131
    
    
    
    554
    
    
    
    456
    
    
    
    429
    
    
    
    160
    
    
    
    802
    
    
    
    4,532Other noncurrent liabilities
    
    
    
    
    
    
    8,684
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,732
    
    
    
    62,416Total
    
    $
    4,125
    
    
    $
    11,208
    
    
    $
    2,420
    
    
    $
    2,398
    
    
    $
    2,096
    
    
    $
    209,443
    
    
    $
    231,690
 Debt obligations referred to in the table are presented as due for repayment under the
terms of the loan agreements, and before any effect of the sale of palladium acquired in the
Norilsk Nickel transaction or payments of excess cash flow (see Note 14 to the companys
consolidated financial statements). Under the terms of the new credit facility, the company is
required to offer 25% of the net proceeds of the sale of palladium received in the Norilsk Nickel
transaction to repay borrowings under its credit facility. The company is not required to make
prepayments until the amount accumulated reaches a specified level. As of December 31, 2004,
approximately $1.9 million of proceeds have been accumulated but not yet paid.
 Assuming no early extinguishments of
debt and no changes in interest rates, the estimated total interest payments associated with
the companys term debt facility
 will be approximately $9.8 million, $9.7 million, $9.6 million, $9.5 million, $9.3
million and $29.2 million for 2005, 2006, 2007, 2008, 2009 and the years thereafter, respectively. Amounts included in
other noncurrent liabilities that are anticipated to be paid in 2006 include workers compensation
costs, property taxes and severance taxes. Amounts included in other noncurrent liabilities that
are anticipated to be paid after 2009 represent undiscounted asset retirement obligation costs (see
Note 9 to the companys consolidated financial statements). 55




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FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION Some statements contained in this report are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and, therefore, involve uncertainties or risks that could cause actual
results to differ materially. These statements may contain words such as believes, anticipates,
plans, expects, intends, estimates or similar expressions. These statements are not
guarantees of the companys future performance and are subject to risks, uncertainties and other
important factors that could cause our actual performance or achievements to differ materially from
those expressed or implied by these forward-looking statements. Such statements include, but are
not limited to, comments regarding expansion plans, costs, grade, production and recovery rates,
permitting, financing needs, the terms of future credit facilities and capital expenditures,
increases in processing capacity, cost reduction measures, safety, timing for engineering studies,
and environmental permitting and compliance, litigation and the palladium and platinum market.
Additional information regarding factors which could cause results to differ materially from
managements expectations is found in the section entitled Risk Factors above. CRITICAL ACCOUNTING POLICIES Mine Development Expenditures  Capitalization and Amortization Mining operations are inherently capital intensive, generally requiring substantial capital
investment for the initial and concurrent development and infrastructure of the mine. Many of
these expenditures are necessarily incurred well in advance of actual extraction of ore.
Underground mining operations such as those conducted by the company require driving tunnels and
sinking shafts that provide access to the underground orebody and construction and development of
infrastructure, including electrical and ventilation systems, rail and other forms of
transportation, shop facilities, material handling areas and hoisting systems. Ore mining and
removal operations require significant underground facilities used to conduct mining operations and
to transport the ore out of the mine to processing facilities located above ground. Contemporaneously with mining, additional development is undertaken to provide access to
ongoing extensions of the orebody, allowing more ore to be produced. In addition to the
development costs that have been previously incurred, these ongoing development expenditures are
necessary to access and support all future mining activities. Mine development expenditures incurred to date to increase existing production, develop new
orebodies or develop mineral property substantially in advance of production are capitalized. Mine development expenditures consist of a vertical shafts, multiple surface adits and
underground infrastructure development including footwall laterals, ramps, rail and transportation,
electrical and ventilation systems, shop facilities, material handling areas, ore handling
facilities, dewatering and pumping facilities. Many such facilities are required not only for
current operations, but also for all future planned operations. Expenditures incurred to sustain existing production and access specific ore reserve blocks or
stopes provide benefit to ore reserve production over limited periods of time (secondary
development) and are charged to operations as incurred. These costs include ramp and stope access
excavations from primary haulage levels (footwall laterals), stope material rehandling/laydown
excavations, stope ore and waste pass excavations and chute installations, stope ventilation raise
excavations and stope utility and pipe raise excavations. The company calculates amortization of capitalized mine development costs by the application
of an amortization rate to current production. The amortization rate is based upon un-amortized
capitalized mine development costs, and the related ore reserves. Capital expenditures are added
to the un-amortized capitalized mine development costs as the related assets are placed into
service. In the calculation of the amortization rate, changes in ore reserves are accounted for as
a prospective change in estimate. Ore reserves and the further benefit of capitalized mine
development costs are based on significant management assumptions. Any changes in these
assumptions, such as a change in the mine plan or a change in estimated proven and probable ore
reserves, could have a material effect on the expected period of benefit resulting in a potentially
significant change in the amortization rate and/or the valuations of related assets. The companys
proven ore reserves are generally expected to be extracted utilizing its existing mine development
infrastructure. Additional capital expenditures will be required to access the companys estimated
probable ore reserves. These anticipated capital expenditures are not included in the current
calculation of depreciation and amortization. 56




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The company changed its accounting method for amortizing capitalized mine development costs in
the fourth quarter of 2004. These mine development costs include the initial costs incurred to
gain primary access to the ore reserves, plus the ongoing development costs of footwall laterals
and ramps driven parallel to the reef that are used to access and provide support for the mining
stopes in the reef. Prior to 2004, the company amortized all such capitalized development costs at its mines over
all proven and probable reserves at each mine. Following the asset impairment write-down at the end
of 2003, the company revisited its assumptions and estimates for amortizing capitalized mine
development costs. The company concluded to continue amortizing the cost of all of the mine
development that had been placed in service through 2003 over all proven and probable reserves,
because in managements view these remaining unamortized costs related to infrastructure that would
be used for the entire life of the mine.
However, for development placed in service after 2003, the company concluded to use a shorter
life, amortizing the cost of this new development over only the ore reserves in the immediate and
relevant vicinity of the new development. This approach was reflected in the companys
consolidated financial statements for the first three quarters of 2004. Following a review of its filings by the SEC, the company recently determined it would change
its method of accounting for development costs as follows:  
    Unamortized costs of the shaft at the Stillwater Mine and the
initial development at the East Boulder Mine will continue to be
treated as life-of-mine infrastructure costs, to be amortized over
total proven and probable reserves at each location, and  
    All ongoing development costs of footwall laterals and ramps,
including similar development costs incurred before 2004, will
be amortized over the ore reserves in the immediate and relevant
vicinity of the development. This change in accounting method required the company to measure the effect of the change at
January 1, 2004, as if the new method of amortization had been used in all prior years. The credit
for the cumulative effect of the change for all years prior to 2004 of $ 6.0 million, is shown as
the Cumulative Effect of Accounting Change in the Consolidated Statement of Operations and
Comprehensive Income (Loss) for the year ended December 31, 2004. The company also has reflected
the effect of the new accounting method of amortization on the Companys quarterly financial
statements for each of the first three quarters of 2004 by amending its previously filed Form
10-Qs. Because the change in accounting method is effective from January 1, 2004, the company is
not required to amend its 2002 and 2003 annual reports. The Companys financial statements also
include the pro-forma effect of the accounting change on its 2003 and 2002 financial results. The effect of this change in accounting method was to reduce previously reported earnings for the
nine months ended September 30, 2004 by $ 10.2 million, including a benefit of $ 6.0 million
attributable to the cumulative effect adjustment, and a charge of $16.2 million attributable to
additional amortization for the period. The calculation of the amortization rate, and therefore the annual amortization charge to
operations, could be materially impacted to the extent that actual production in the future is
different from current forecasts of production based on proven and probable ore reserves. This
would generally occur to the extent that there were significant changes in any of the factors or
assumptions used in determining ore reserves. These factors could include: (1) an expansion of
proven and probable ore reserves through development activities, (2) differences between estimated
and actual costs of mining due to differences in grade or metal recovery rates, and (3) differences
between actual commodity prices and commodity price assumptions used in the estimation of ore
reserves. Asset Impairment The company follows SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets.The company reviews and evaluates its long-lived assets for impairment when events and
changes in circumstances indicate that the related carrying amounts of its assets may not be
recoverable. Impairment is considered to exist if the total estimated future cash flows on an
undiscounted basis are less than carrying amount of the asset. Future cash flows include estimates
of recoverable ounces, PGM prices (considering current and historical prices, long-term sales
contracts prices, price trends and related factors), production levels and capital and reclamation
expenditures, all based on life of mine plans and projections. If the assets are impaired, a
calculation of fair market value is performed, and if fair market value is lower than the carrying
value of the assets, the assets are reduced to their fair market value. Assumptions underlying future cash flows are subject to risks and uncertainties. Any
differences between projections and actual outcomes for key factors such as PGM prices, recoverable
ounces, and/or the companys operating performance could have a material effect on the companys
determination of ore reserves, or its ability to recover the carrying amounts of its long lived
assets, possibly resulting in additional impairment charges in the future (see Note 10 to the
companys consolidated financial statements). The company has reviewed the requirements of SFAS No. 144 in conjunction with preparing its
year-end financial statements at December 31, 2004. This review included consideration of the
companys reserve position, current prices for platinum and palladium, and the current state of
operations at each of its mines. The company concluded that as of December 31, 2004, there are no
events or changes in circumstances indicating that the carrying amounts of the companys assets may
not be recoverable. Income Taxes Income taxes are determined using the asset and liability approach in accordance with the
provisions of 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. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. In assessing the realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be realized. Each
quarter, management considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. A valuation allowance has
been provided at December 31, 2004, and December 31, 2003, for the portion of the companys net
deferred tax assets for which it is more likely than not that they will not be realized (see Note
13 to the companys consolidated financial statements). Based on the companys current financial
projections, and in view of the level of tax depreciation and depletion deductions available, it
appears unlikely that the company will owe any income taxes for the foreseeable future. However, if
average realized PGM prices were to increase substantially in the future, the company could owe
income taxes prospectively on the resulting higher taxable income. 57




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Post-closure Reclamation Costs Effective January 1, 2003, the company adopted SFAS No. 143, Accounting for Asset Retirement
Obligations, which addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement costs. The standard
applies to legal obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and normal use of the asset. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate of fair value can be
made. The fair value of the liability is added to the carrying amount of the associated asset and
this additional carrying amount is depreciated over the life of the asset. The liability is
accreted at the end of each period through charges to operating expense. If the obligation is
settled for other than the carrying amount of the liability, the company will recognize a gain or
loss on settlement. Under SFAS No. 143, accounting for reclamation obligations requires management to make
estimates for each mining operation of future costs the company will incur to complete final
reclamation work required to comply with existing laws and regulations. Actual costs incurred in
future periods could differ from amounts estimated. Additionally, future changes to environmental
laws and regulations could increase the extent of reclamation and remediation work required to be
performed by the company. Any such increases in future costs could materially impact the amounts
charged to operations for reclamation and remediation.

 The company reviewed its SFAS No.
143 assumptions at December 31, 2004, and has increased its asset retirement obligation asset and
liability in view of the current regulatory climate. The companys accrued reclamation liability
was approximately $6.8 million at December 31, 2004 (see Note 9 to the companys consolidated
financial statements).

Any differences between the estimated amounts and actual
post-closure reclamation and site restoration costs could have a material effect on the companys
estimated liability resulting in a change in the recorded amount. Derivative Instruments From time to time, the company enters into derivative financial instruments, including fixed
forwards, cashless put and call option collars and financially settled forwards to manage the
effect of changes in the prices of palladium and platinum on the companys revenue.
The company accounts for its derivatives in accordance with SFAS No. 133, Accounting for Derivative Instruments and hedging activities which requires that
derivatives be reported on the balance sheet at fair value and, if the derivative is not designated
as a hedging instrument, changes in fair value must be recognized in earnings in the period of
change. If the derivative is designated as a hedge and to the extent such hedge is determined to
be effective, changes in fair value are either (a) offset by the change in fair value of the hedged
asset or liability (if applicable) or (b) reported as a component of other comprehensive income in
the period of change, and subsequently recognized in the determination of net income in the period
the offsetting hedged transaction occurs. The company primarily uses derivatives to hedge metal
prices and manage interest rate risk. As of December 31, 2004, the outstanding derivatives
associated with commodity instruments are valued at an unrealized loss of $5.0 million, and are
reported as a component of accumulated other comprehensive income. As of December 31, 2004, there
were no outstanding interest rate swaps (see Note 16 to the companys consolidated financial
statements). 58




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ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 The company is exposed to market risk, including the effects of adverse changes in metal
prices and interest rates as discussed below. COMMODITY PRICE RISK The company produces and sells palladium, platinum and associated by-product metals directly
to its customers and also through third parties. As a result, financial risks are materially
affected when prices for these commodities fluctuate. In order to manage commodity price risk and
to reduce the impact of negative fluctuation in prices, the company enters into long-term contracts
and uses various derivative financial instruments. Because the company hedges only with
instruments that have a high correlation with the value of the hedged transactions, changes in the
fair value of the derivatives are expected to be offset by changes in the value of the underlying
commodities. The company has entered into long-term sales contracts with General Motors Corporation, Ford
Motor Company and Mitsubishi Corporation. The contracts apply to the portions of the companys
production over the period through December 2010 and include certain floor and ceiling price
structures. In the first quarter of 2004 the company also entered into sales agreements, under
which all of the 877,169 ounces of palladium received in the Norilsk Nickel transaction will be
sold, at a slight volume discount to market price at the time of delivery, over a period of two
years, primarily for use in automobile catalytic converters. See Business and Properties- PGM
Sales and Hedging Activities and Note 15 to the companys consolidated financial statements for a
more detailed discussion of the companys open positions at December 31, 2004. From time to time, the company enters into fixed forwards and financially settled forward
contracts that are accounted for as cash-flow hedges. Under financially settled forwards, at each
settlement date, the company receives the difference between the forward price and the market price
if the market price is below the forward price and the company pays the difference between the
forward price and the market price if the market price is above the forward price. The companys
financially settled forwards are settled at maturity. Metal produced from recycling spent
catalytic material is sold forward at the time of receipt and delivered against cash flow hedges
when the ounces are recovered. During 2004, the company also entered into financially settled
forwards covering over covering approximately one-half of its estimated mine production of platinum
through October 2006, at an overall average platinum price of about $808 per ounce. The unrealized
loss on these instruments due to changes in metal prices at December 31, 2004 was $4.8 million.
Losses realized on commodity instruments related to mine production during 2004 totaled $1.3
million. A summary of the companys derivative financial instruments as of December 31, 2004, is as follows: Mine Production:Financially Settled Forwards Platinum
    
    
    AverageOunces
    
    
    Price
    
    
    IndexFirst Quarter 2005
    
    
    19,900
    
    
    $
    809
    
    
    Monthly London PM AverageSecond Quarter 2005
    
    
    20,000
    
    
    $
    807
    
    
    Monthly London PM AverageThird Quarter 2005
    
    
    20,200
    
    
    $
    801
    
    
    Monthly London PM AverageFourth Quarter 2005
    
    
    23,200
    
    
    $
    801
    
    
    Monthly London PM AverageFirst Quarter 2006
    
    
    21,000
    
    
    $
    812
    
    
    Monthly London PM AverageSecond Quarter 2006
    
    
    21,000
    
    
    $
    813
    
    
    Monthly London PM AverageThird Quarter 2006
    
    
    17,000
    
    
    $
    814
    
    
    Monthly London PM AverageFourth Quarter 2006
    
    
    1,000
    
    
    $
    823
    
    
    Monthly London PM Average
 Catalyst Recycling:



Fixed Forwards Platinum
    
    
    Palladium
    
    
    RhodiumOunces
    
    
    Price
    
    
    Ounces
    
    
    Price
    
    
    Ounces
    
    
    PriceFirst Quarter 2005
    
    
    18,703
    
    
    $
    850
    
    
    
    5,695
    
    
    $
    200
    
    
    
    2,178
    
    
    $
    1,257Second Quarter 2005
    
    
    2,178
    
    
    $
    862
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
 A period of continuous low commodity prices could have a material adverse effect on the
calculation of the companys ore reserves as well as on the companys financial performance. INTEREST RATE RISK As of December 31, 2004, the company had $131.5 million outstanding under its $180 million
credit facility, bearing interest at a variable rate of 5.50% based upon LIBOR (2.25% at December
31, 2004) plus a 3.25% margin (see Note 7 to the companys consolidated financial statements). At
the current LIBO rate, this represents an interest cost of approximately $7.3 million per year.
Although the margin on this debt is fixed, the LIBO rate is subject to short-term fluctuations in
market interest rates. Each 1% increase in LIBO rate increases the companys estimated annual
interest cost by approximately $1.3 million. As of December 31, 2004 the company has elected not
to hedge its interest rate exposures, leaving the company fully exposed should short-term interest
rates increase significantly. 59




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ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders
Stillwater Mining Company: We have audited the accompanying consolidated balance sheets of Stillwater Mining Company and
subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of
operations and comprehensive income (loss), changes in stockholders equity, and cash flows for
each of the years in the three-year period ended December 31, 2004. These consolidated financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards 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. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Stillwater Mining Company and subsidiaries as of
December 31, 2004 and 2003, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2004, in conformity with U.S. generally
accepted accounting principles. As discussed in note 3 to the consolidated financial statements, the Company changed its
method of accounting for the amortization of capitalized mine development costs effective January
1, 2004. As discussed in note 9 to the consolidated financial statements, the Company adopted Statement
of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, as of
January 1, 2003. We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Stillwater Mining Companys internal control
over financial reporting as of December 31, 2004, based on the criteria established in Internal
Control-Integrated Framework issued by the Committee of the Sponsoring Organizations of the
Treadway Commission, and our report dated March 15, 2005 expressed an unqualified opinion on
managements assessment of, and the effective operation of, internal control over financial
reporting. /s/ KPMG LLP
Denver, Colorado
March 29, 2005 60




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders
Stillwater Mining Company: We have audited managements assessment, included in the accompanying Managements Report on
Internal Control Over Financial Reporting (Item 9A(a)), that Stillwater Mining Company
maintained effective internal control over financial reporting as of December 31, 20X4, based on
criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Stillwater Mining Companys management is
responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility is
to express an opinion on managements assessment and an opinion on the effectiveness of the
Companys internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion. A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate. In our opinion, managements assessment that Stillwater Mining Company maintained effective
internal control over financial reporting as of December 31, 2004, is fairly stated, in all
material respects, based on criteria established in Internal ControlIntegrated Framework issued by
the COSO. Also, in our opinion, Stillwater Mining Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2004, based on criteria
established in Internal ControlIntegrated Framework issued by the COSO. We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Stillwater Mining Company and
subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of
operations and comprehensive income (loss), changes in stockholders equity, and cash flows for
each of the years in the three-year period ended December 31, 2004, and our report dated March 29,
2005 expressed an unqualified opinion on those consolidated financial statements.. /s/ KPMG
LLP

Denver, Colorado
March 29, 2005 61




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STILLWATER MINING COMPANY 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share data) Year ended December 31,
    
    2004
    
    
    2003
    
    
    2002REVENUESMine production
    
    $
    266,684
    
    
    $
    240,406
    
    
    $
    275,599Secondary processing
    
    
    76,388
    
    
    
    8,866
    
    
    
    15,177Sales of palladium received in Norilsk Nickel transaction and other
    
    
    104,455
    
    
    
    6,551
    
    
    
    1,535Total revenue
    
    
    447,527
    
    
    
    255,823
    
    
    
    292,311COSTS AND EXPENSESCost of metals sold:Mine production
    
    
    171,324
    
    
    
    173,960
    
    
    
    172,071Secondary processing
    
    
    71,326
    
    
    
    7,988
    
    
    
    14,122Sales of palladium received in Norilsk Nickel transaction and other
    
    
    82,402
    
    
    
    6,728
    
    
    
    2,033Total costs of metals sold
    
    
    325,052
    
    
    
    188,676
    
    
    
    188,226Depreciation and amortization:Mine production
    
    
    59,568
    
    
    
    40,700
    
    
    
    38,722Secondary processing
    
    
    48
    
    
    
    71
    
    
    
    71Total depreciation and amortization
    
    
    59,616
    
    
    
    40,771
    
    
    
    38,793Total costs of revenues
    
    
    384,668
    
    
    
    229,447
    
    
    
    227,019General and administrative
    
    
    19,739
    
    
    
    14,700
    
    
    
    13,903Loss on disposal of property, plant and equipment
    
    
    3,640
    
    
    
    
    
    
    
    Impairment of property, plant and equipment
    
    
    
    
    
    
    390,295
    
    
    
    Norilsk Nickel transaction related expenses
    
    
    
    
    
    
    3,043
    
    
    
    Restructuring costs (credits), net
    
    
    
    
    
    
    (966
    )
    
    
    (5,938
    )Total costs and expenses
    
    
    408,047
    
    
    
    636,519
    
    
    
    234,984OPERATING INCOME (LOSS)
    
    
    39,480
    
    
    
    (380,696
    )
    
    
    57,327OTHER INCOME (EXPENSE)Interest income
    
    
    2,218
    
    
    
    500
    
    
    
    903Interest expense
    
    
    (17,892
    )
    
    
    (17,595
    )
    
    
    (17,601
    )INCOME
(LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE
    
    
    23,806
    
    
    
    (397,791
    )
    
    
    40,629Income tax
benefit (provision) before provision for valuation allowance
 and reduction of deferred tax assets
    
    
    (3
    )
    
    
    161,921
    
    
    
    (8,945
    )Provision for valuation allowance for net deferred tax assets
    
    
    
    
    
    
    (70,304
    )
    
    
    Reduction of deferred tax asset for net operating loss carry forwards resulting from ownership change
    
    
    
    
    
    
    (16,678
    )
    
    
    Total income tax benefit (provision)
    
    
    (3
    )
    
    
    74,939
    
    
    
    (8,945
    )INCOME
(LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES
    
    
    23,803
    
    
    
    (322,852
    )
    
    
    31,684CUMULATIVE EFFECT OF ACCOUNTING
CHANGES, NET OF INCOME TAX BENEFIT OF $264 IN 2003
    
    
    6,035
    
    
    
    (408
    )
    
    
    NET INCOME (LOSS)
    
    
    29,838
    
    
    
    (323,260
    )
    
    
    31,684Other comprehensive income (loss), net of tax
    
    
    (4,145
    )
    
    
    585
    
    
    
    (7,139
    )COMPREHENSIVE INCOME (LOSS)
    
    $
    25,693
    
    
    $
    (322,675
    )
    
    $
    24,545Pro-forma amounts assuming the new amortization method is applied retroactively (see Note 3):NET INCOME (LOSS)
    
    $
    23,803
    
    
    $
    (241,729
    )
    
    $
    15,058
 The accompanying notes are an integral part of the consolidated financial statements. 63




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STILLWATER MINING COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share data) (Continued) Year ended December 31,
    
    2004
    
    
    2003
    
    
    2002BASIC AND DILUTED EARNINGS PER SHAREIncome (loss) before cumulative effect of accounting change
    
    $
    23,803
    
    
    $
    (322,852
    )
    
    $
    31,684Cumulative effect of accounting change
    
    
    6,035
    
    
    
    (408
    )
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    29,838
    
    
    $
    (323,260
    )
    
    $
    31,684Weighted average common shares outstandingBasic
    
    
    90,180
    
    
    
    67,807
    
    
    
    42,900Diluted
    
    
    90,540
    
    
    
    67,807
    
    
    
    43,004Basic earnings (loss) per shareIncome (loss) before cumulative effect of accounting change
    
    $
    0.26
    
    
    $
    (4.76
    )
    
    $
    0.74Cumulative effect of accounting change
    
    
    0.07
    
    
    
    (0.01
    )
    
    
    Net income (loss)
    
    $
    0.33
    
    
    $
    (4.77
    )
    
    $
    0.74Diluted earnings (loss) per shareIncome (loss) before cumulative effect of accounting change
    
    $
    0.26
    
    
    $
    (4.76
    )
    
    $
    0.74Cumulative effect of accounting change
    
    
    0.07
    
    
    
    (0.01
    )
    
    
    Net income (loss)
    
    $
    0.33
    
    
    $
    (4.77
    )
    
    $
    0.74Pro-forma amounts assuming the new amortization method is applied retroactively (see Note 3):Basic earnings (loss) per shareNet income (loss)
    
    $
    0.26
    
    
    $
    (3.56
    )
    
    $
    0.35Diluted earnings (loss) per shareNet income (loss)
    
    $
    0.26
    
    
    $
    (3.56
    )
    
    $
    0.35
 The accompanying notes are an integral part of the consolidated financial statements. 64




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STILLWATER MINING COMPANY 
 CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) December 31,
    
    2004
    
    
    2003
    
    
    2002ASSETSCash and cash equivalents
    
    $
    96,052
    
    
    $
    35,661
    
    
    $
    25,913Restricted cash equivalents
    
    
    2,650
    
    
    
    2,650
    
    
    
    2,250Investments
    
    
    13,150
    
    
    
    11,850Inventories
    
    
    159,942
    
    
    
    202,485
    
    
    
    52,058Accounts receivable
    
    
    18,186
    
    
    
    3,777
    
    
    
    18,647Deferred income taxes
    
    
    6,247
    
    
    
    4,313
    
    
    
    5,779Other current assets
    
    
    7,428
    
    
    
    4,270
    
    
    
    7,828Total current assets
    
    
    303,655
    
    
    
    265,006
    
    
    
    112,475Property, plant and equipment, net
    
    
    434,924
    
    
    
    419,528
    
    
    
    794,019Other noncurrent assets
    
    
    6,139
    
    
    
    6,054
    
    
    
    7,720Total assets
    
    $
    744,718
    
    
    $
    690,588
    
    
    $
    914,214LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIESAccounts payable
    
    $
    15,029
    
    
    $
    9,781
    
    
    $
    14,310Accrued payroll and benefits
    
    
    13,395
    
    
    
    10,654
    
    
    
    10,071Property, production and franchise taxes payable
    
    
    9,183
    
    
    
    8,504
    
    
    
    10,998Current portion of long-term debt and capital lease obligations
    
    
    1,986
    
    
    
    1,935
    
    
    
    21,461Portion of debt repayable upon liquidation of finished palladium in inventory
    
    
    19,076
    
    
    
    74,106
    
    
    
    Fair value of derivitive instruments
    
    
    4,965
    
    
    
    1,353Accrued restructuring costs
    
    
    577
    
    
    
    680
    
    
    
    1,926Other current liabilities
    
    
    3,027
    
    
    
    3,257
    
    
    
    7,017Total current liabilities
    
    
    67,238
    
    
    
    110,270
    
    
    
    65,783Long-term debt and capital lease obligations
    
    
    143,028
    
    
    
    85,445
    
    
    
    198,866Deferred income taxes
    
    
    6,247
    
    
    
    4,313
    
    
    
    80,615Other noncurrent liabilities
    
    
    15,476
    
    
    
    11,263
    
    
    
    9,736Total liabilities
    
    
    231,989
    
    
    
    211,291
    
    
    
    355,000Commitments
and contingencies (Note 18)STOCKHOLDERS EQUITYPreferred stock, $0.01 par value, 1,000,000 shares authorized, none issued
    
    
    
    
    
    
    
    
    
    
    Common stock, $0.01 par value, 200,000,000 shares authorized, 90,433,665and
89,849,239 shares issued and outstanding
    
    
    904
    
    
    
    899
    
    
    
    436Paid-in capital
    
    
    604,177
    
    
    
    592,974
    
    
    
    351,605Accumulated deficit
    
    
    (83,918
    )
    
    
    (113,756
    )
    
    
    209,504Accumulated other comprehensive loss
    
    
    (4,965
    )
    
    
    (820
    )
    
    
    (1,405
    )Unearned compensation  restricted stock awards
    
    
    (3,469
    )
    
    
    
    
    
    
    (926
    )Total stockholders equity
    
    
    512,729
    
    
    
    479,297
    
    
    
    559,214Total liabilities and stockholders equity
    
    $
    744,718
    
    
    $
    690,588
    
    
    $
    914,214
 The accompanying notes are an integral part of the consolidated financial statements. 65




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STILLWATER MINING COMPANY 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year ended December 31,
    
    2004
    
    
    2003
    
    
    2002CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    29,838
    
    
    $
    (323,260
    )
    
    $
    31,684Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    59,616
    
    
    
    40,771
    
    
    
    38,793Deferred income taxes
    
    
    
    
    
    
    (74,733
    )
    
    
    4,453Cumulative effect of accounting change
    
    
    (6,035
    )
    
    
    672
    
    
    
    Restructuring costs (credits), net
    
    
    
    
    
    
    (966
    )
    
    
    (5,938
    )Cash paid on accrued restructuring costs
    
    
    (103
    )
    
    
    (280
    )
    
    
    (3,110
    )Impairment of property, plant and equipment
    
    
    
    
    
    
    390,295
    
    
    
    Loss on disposal of property, plant and equipment
    
    
    3,640
    
    
    
    
    
    
    
    Stock issued under employee benefit plans
    
    
    3,934
    
    
    
    3,456
    
    
    
    3,407Amortization of debt issuance costs
    
    
    4,857
    
    
    
    3,069
    
    
    
    1,104Amortization of restricted stock compensation
    
    
    1,071
    
    
    
    670
    
    
    
    464Changes in operating assets and liabilities:Inventories
    
    
    48,578
    
    
    
    (2,214
    )
    
    
    (9,114
    )Accounts receivable
    
    
    (14,409
    )
    
    
    14,870
    
    
    
    3,126Accounts payable
    
    
    5,248
    
    
    
    (4,529
    )
    
    
    (7,229
    )Restricted cash
    
    
    
    
    
    
    (400
    )
    
    
    (2,250
    )Other
    
    
    605
    
    
    
    (206
    )
    
    
    (3,252
    )NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    136,840
    
    
    
    47,215
    
    
    
    52,138CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures
    
    
    (76,739
    )
    
    
    (55,256
    )
    
    
    (57,169
    )Proceeds from sale/leaseback transactions
    
    
    
    
    
    
    
    
    
    
    1,282Proceeds from disposal of property, plant and equipment
    
    
    238
    
    
    
    
    
    
    
    Purchases of investments
    
    
    (40,650
    )
    
    
    (18,775
    )
    
    
    (18,350
    )Proceeds from sale of investments
    
    
    39,350
    
    
    
    19,875
    
    
    
    5,400NET CASH USED IN INVESTING ACTIVITIES
    
    
    (77,801
    )
    
    
    (54,156
    )
    
    
    (68,837
    )CASH FLOWS FROM FINANCING ACTIVITIESIssuance of long-term debt
    
    
    140,000
    
    
    
    
    
    
    
    Payments on long-term debt and capital lease obligations
    
    
    (137,544
    )
    
    
    (59,191
    )
    
    
    (38,570
    )Issuance of common stock related to Norilsk Nickel transaction (1)
    
    
    
    
    
    
    100,000
    
    
    
    Stock issuance costs related to Norilslk Nickel transaction
    
    
    
    
    
    
    (9,801
    )
    
    
    Issuance of common stock, net of stock issue costs
    
    
    2,734
    
    
    
    175
    
    
    
    56,047Payments for debt issuance costs
    
    
    (3,838
    )
    
    
    (1,606
    )
    
    
    (1,613
    )Other
    
    
    
    
    
    
    62
    
    
    
    (1,113
    )NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    1,352
    
    
    
    29,639
    
    
    
    14,751CASH AND CASH EQUIVALENTSNet increase (decrease)
    
    
    60,391
    
    
    
    22,698
    
    
    
    (1,948
    )Balance at beginning of year
    
    
    35,661
    
    
    
    12,963
    
    
    
    14,911BALANCE AT END OF YEAR
    
    $
    96,052
    
    
    $
    35,661
    
    
    $
    12,963(1) Non-cash financing activitiesFair value of common stock issued
    
    $
    
    
    
    $
    248,213
    
    
    $
    Inventory received in connection with the Norilsk Nickel transaction
    
    
    
    
    
    
    (148,213
    )
    
    
    Issuance of common stock related to Norilsk Nickel transaction
    
    $
    
    
    
    $
    100,000
    
    
    $
    
 The accompanying notes are an integral part of the consolidated financial statements. 66




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STILLWATER MINING COMPANY 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (in thousands) Shares
    
    
    
    
    
    
    
    
    
    
    Retained Earnings
    
    
    Accumulated Other
    
    
    Unearned Compensation
    
    
    Total StockholdersOutstanding
    
    
    Common Stock
    
    
    Paid-in Capital
    
    
    (Accumulated Deficit)
    
    
    Comprehensive Income (Loss)
    
    
    Restricted Stock
    
    
    EquityBALANCE AT DECEMBER 31, 2001
    
    
    38,771
    
    
    $
    388
    
    
    $
    291,182
    
    
    $
    177,820
    
    
    $
    5,733
    
    
    $
    
    
    
    $
    475,123Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,684
    
    
    
    
    
    
    
    
    
    
    
    31,684Change in net unrealized gains on derivative
financial instruments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,138
    )
    
    
    
    
    
    
    (7,138
    )Issuance of shares pursuant
to a private placement
    
    
    4,286
    
    
    
    43
    
    
    
    53,938
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,981Common stock issued under employee
benefit plans
    
    
    354
    
    
    
    3
    
    
    
    3,404
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,407Common stock issued under stock plans
    
    
    58
    
    
    
    1
    
    
    
    731
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    732Tax benefit from stock options exercised
    
    
    
    
    
    
    
    
    
    
    87
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87Restricted shares of common stock
granted to officers and employees
    
    
    135
    
    
    
    1
    
    
    
    2,593
    
    
    
    
    
    
    
    
    
    
    
    (2,594
    )
    
    
    Amortization of unearned restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,338
    
    
    
    1,338Forfeiture of unearned restricted stock
    
    
    (17
    )
    
    
    
    
    
    
    (330
    )
    
    
    
    
    
    
    
    
    
    
    330
    
    
    
    BALANCE AT DECEMBER 31, 2002
    
    
    43,587
    
    
    $
    436
    
    
    $
    351,605
    
    
    $
    209,504
    
    
    $
    (1,405
    )
    
    $
    (926
    )
    
    $
    559,214Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (323,260
    )
    
    
    
    
    
    
    
    
    
    
    (323,260
    )Change in net unrealized gains on derivative
financial instruments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    585
    
    
    
    
    
    
    
    585Common stock issued under employee
benefit plans
    
    
    769
    
    
    
    8
    
    
    
    3,448
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,456Common stock issued under stock plans
    
    
    45
    
    
    
    
    
    
    
    175
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    175Tax benefit from stock options exercised
    
    
    
    
    
    
    
    
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63Amortization of unearned restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    670
    
    
    
    670Forfeiture of unearned restricted stock
    
    
    (13
    )
    
    
    
    
    
    
    (256
    )
    
    
    
    
    
    
    
    
    
    
    256
    
    
    
    Repurchase and retirement of
common stock
    
    
    (2
    )
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18
    )Common stock issued in connection with
Norilsk Nickel transaction (see Note 12)
    
    
    45,463
    
    
    
    455
    
    
    
    237,957
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    238,412BALANCE AT DECEMBER 31, 2003
    
    
    89,849
    
    
    $
    899
    
    
    $
    592,974
    
    
    $
    (113,756
    )
    
    $
    (820
    )
    
    $
    
    
    
    $
    479,297Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,838
    
    
    
    
    
    
    
    
    
    
    
    29,838Change in net unrealized gains on derivative
financial instruments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,145
    )
    
    
    
    
    
    
    (4,145
    )Common stock issued under employee
benefit plans
    
    
    300
    
    
    
    3
    
    
    
    3,931
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,934Common stock issued under stock plans
    
    
    278
    
    
    
    2
    
    
    
    2,732
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,734Restricted shares of common stock
granted to officers and employees
    
    
    7
    
    
    
    
    
    
    
    4,540
    
    
    
    
    
    
    
    
    
    
    
    (4,540
    )
    
    
    Amortization of unearned restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,071
    
    
    
    1,071BALANCE AT DECEMBER 31, 2004
    
    
    90,434
    
    
    $
    904
    
    
    $
    604,177
    
    
    $
    (83,918
    )
    
    $
    (4,965
    )
    
    $
    (3,469
    )
    
    $
    512,729
 The accompanying notes are an integral part of the consolidated financial statements. 67




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STILLWATER MINING COMPANY 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1
NATURE OF OPERATIONS Stillwater Mining Company, a Delaware corporation, is engaged in the exploration, development,
extraction, processing and refining of palladium, platinum and associated minerals from the J-M
Reef located in Stillwater and Sweet Grass Counties, Montana. The J-M Reef is a twenty-eight (28)
mile long geologic formation containing one of the largest deposits of platinum group metals (PGMs)
in the world. The companys mining operations consist of the Stillwater Mine located on the J-M Reef in Nye,
Montana, the East Boulder Mine, which commenced commercial production during 2002, located at the
western end of the J-M Reef in Sweet Grass County, Montana and a smelter and refinery located in
Columbus, Montana. The company recycles catalyst material to recover PGMs at the smelter and
refinery. The company also sells the palladium received in the Norilsk Nickel transaction. 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: price
volatility of palladium and platinum, economic and political events affecting supply and demand for
these metals, mineral reserve estimation, environmental obligations, government regulations,
ownership of and access to mineral reserves and compliance with credit agreement covenants. 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 the current year presentation including (1) the 2003
and 2002 amounts for revenues, cost of metals sold, depreciation and amortization and general and
administration related to secondary processing activities and (2) the 2003 amounts for cash and
cash equivalents and investments related to auction-rate securities. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of all cash balances and all highly liquid investments
purchased with an original maturity of three months or less. RESTRICTED CASH EQUIVALENTS Restricted cash equivalents consist of cash equivalents which have been pledged as collateral
on two letters of credit issued during 2004. The restrictions on the balances lapse upon
expiration of the letters of credit, which currently have terms of less than one year. INVESTMENTS All marketable securities are deemed by management to be available for sale and are reported
at fair value with net unrealized gains or losses reported within stockholders equity. These
investments are typically auction-rate securities that contain short-term repricing features;
therefore, the carrying values of these investments approximate their fair values (see Note 4). INVENTORIES Metals inventories are carried at the lower of current market value taking into consideration
the companys long-term sales contracts or average unit cost. Production costs include the cost of
direct labor and materials, depreciation and amortization, and overhead costs relating to
mining and processing activities. Materials and supplies inventories are valued at the lower of
average cost or fair market value. The 877,169 ounces of palladium received in connection with the Norilsk Nickel transaction
(see Note 14) were valued at $169 per 68




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ounce. The value was determined based on the market price of palladium of $179 per ounce on
June 23, 2003 (the closing date of the transaction) less an estimated discount for disposal and
marketing expenses. If the palladium price were to decline below $169 per ounce, the company would
be required to write down the unsold palladium to market with a charge to earnings. The company
had in inventory approximately 502,000 ounces of palladium received in the Norilsk Nickel transaction and the
market price of palladium was $184 per ounce, on December 31, 2004. RECEIVABLES Accounts receivable and other receivable balances recorded in other current assets are
reported at outstanding principal amounts, net of an allowance for doubtful accounts. Management
evaluates the collectibility of receivable account balances to determine the allowance, if any.
Management considers the other partys credit risk and financial condition, as well as current and
projected economic and market conditions in the determination of an allowance amount. As of
December 31, 2004 and 2003, the company has determined that an allowance against its receivables
was not necessary. During 2004, the company paid approximately $0.5 million for certain administrative costs on
behalf of Norilsk Nickel. The amounts paid have been recorded as a receivable in other current
assets. PROPERTY, PLANT AND EQUIPMENT Plant and equipment are recorded at cost and depreciated using the straight-line method over
estimated useful lives ranging from three to seven years or, for capital leases, the term of the
related leases if shorter. Maintenance and repairs are charged to cost of revenues as incurred. Capitalized mine development costs are capital expenditures incurred to increase existing
production, develop new orebodies or develop mineral property substantially in advance of
production. Capitalized mine development costs include a vertical shaft, multiple surface adits
and underground infrastructure development including footwall laterals, ramps, rail and
transportation, electrical and ventilation systems, shop facilities, material handling areas, ore
handling facilities, dewatering and pumping facilities. For 2004, these expenditures are capitalized and
amortized over the life of the mine or over a shorter mining period, depending on the period
benefited by those expenditures, using a units-of-production method. The company utilizes total
proven and probable ore reserves, measured in tons, as the basis for determining the life of mine
and uses the ore reserves in the immediate and relevant vicinity as the basis for determining the
shorter mining period.
Prior to 2004, the company amortized all capitalized mine development costs over total proven and
probable ore reserves at each mine. See Note 3 for discussion of the companys change in
accounting method for the amortization of capitalized mine development costs. The company calculates amortization of capitalized mine development costs by the application
of an amortization rate to current production. The amortization rate is based upon un-amortized
capitalized mine development costs and the related ore reserves. Capital expenditures are added
to the un-amortized capitalized mine development costs as the related assets are placed into
service. In the calculation of the amortization rate, changes in ore reserves are accounted for
as a prospective change in estimate. Ore reserves and the further benefit of capitalized mine
development costs are based on significant management assumptions. Any changes in these
assumptions, such as a change in the mine plan or a change in estimated proven and probable ore
reserves, could have material effect on the expected period of benefit resulting in a potentially
significant change in the amortization rate and/or the valuations of related assets. The companys
proven ore reserves are generally expected to be extracted utilizing its existing mine development
infrastructure. Additional capital expenditures will be required to access the companys estimated
probable ore reserves. These anticipated capital expenditures are not included in the current
calculation of depreciation and amortization. 69




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Expenditures incurred to sustain existing production and access specific ore reserve blocks or
stopes provide benefit to ore reserve production over limited periods of time (secondary
development) and are charged to operations as incurred. These costs include ramp and stope access
excavations from primary haulage levels (footwall laterals), stope material rehandling/laydown
excavations, stope ore and waste pass excavations and chute installations, stope ventilation raise
excavations and stope utility and pipe raise excavations. Interest is capitalized on expenditures related to construction or development projects and is
amortized using the same method as the related asset. Interest capitalization is discontinued when
the asset is placed into operation or when development and construction cease. ASSET IMPAIRMENT The company follows Statement of Financial Accounting Standard (SFAS) No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets.The company reviews and evaluates its long-lived
assets for impairment when events and changes in circumstances indicate that the related carrying
amounts of its assets may not be recoverable. Impairment is considered to exist if the total
estimated future cash flows on an undiscounted basis are less than carrying amount of the asset.
Future cash flows include estimates of recoverable ounces, PGM prices (considering current and
historical prices, long-term sales contracts prices, price trends and related factors), production
levels and capital and reclamation expenditures, all based on life of mine plans and projections.
If the assets are impaired, a calculation of fair market value is performed, and if the fair market
value is lower than the carrying value of the assets, the assets are reduced to their fair market
value. Assumptions underlying future cash flows are subject to risks and uncertainties. Any
differences between significant assumptions and market conditions such as PGM prices, lower than
expected recoverable ounces, and/or the companys operating performance could have a material
effect on the companys determination of ore reserves, or its ability to recover the carrying
amounts of its long lived assets resulting in potential additional impairment charges. FAIR VALUE OF FINANCIAL INSTRUMENTS The companys non-derivative financial instruments consist primarily of cash equivalents,
accounts receivable, investments, debt and capital lease obligations. The carrying amounts of cash
equivalents and accounts receivable approximate fair value due to their short maturities. The
carrying amounts of investments approximate fair value due to their short-term repricing features.
The carrying amounts of long-term debt approximate fair values as interest rates on these debt
instruments are variable. At December 31, 2004 and 2003, based on rates available for similar types
of leases, the fair values of capital lease obligations were not materially different from their
carrying amounts. REVENUE RECOGNITION Revenue is comprised of mine production revenue, secondary processing revenue and sales of
palladium received in the Norilsk Nickel transaction and other revenue. Mine production revenue
consist of the sales of palladium and platinum, including any realized hedging gains or losses, and
are reduced by sales discounts associated with long-term sales contracts. Secondary processing
revenue consists of the sales of recycled platinum, palladium and rhodium, including any realized hedging
gains or losses. Sales of palladium received in the Norilsk Nickel transaction and other revenue
consists of palladium sales of under sales contracts related to palladium
received in the Norilsk Nickel transaction during 2003 and PGM metals
purchased and resold
under an existing sales contracts. Pursuant to the guidance in Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition,
revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred
through an irrevocable transfer of metals to customers accounts or physical delivery of metals,
the price is fixed or determinable, no obligations remain and collectibility is probable. Under
the terms of sales contracts and purchase orders received from customers, the company recognizes
revenue when the product is in a refined and saleable form and title passes, which is typically
when the product is transferred from the account of the company to the account of the customer.
Under certain of its sales agreements, the company instructs a third-party refiner to transfer
metal from the companys account to the customers account; at this point, the companys account at
the third party refinery is reduced and the purchasers account is increased by the number of
ounces of metal sold. These transfers are irrevocable and the company has no further
responsibility for the delivery of the metals. Under other sales agreements, physical conveyance
occurs by the company arranging for shipment of metal from the third party refinery to the
purchaser. In these cases, revenue is recognized at the point when delivery occurs and title
passes to the purchaser. Sales discounts are recognized when the related revenue is recorded. The
company classifies any cash sales discounts as a reduction in revenue. 70




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HEDGING PROGRAM From time to time, the company enters into derivative financial instruments, including fixed
forwards, cashless put and call option collars and financially settled forwards to manage the
effect of changes in the prices of palladium and platinum on the companys revenue and to
manage interest rate risk. The company
accounts for its derivatives in accordance with SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, SFAS No. 138 Accounting for Derivative Instruments and Certain Hedging
Activities, andSFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities,which require that derivatives be reported on the balance sheet at fair value and, if
the derivative is not designated as a hedging instrument, changes in fair value must be recognized
in earnings in the period of change. If the derivative is designated as a hedge, and to the extent
such hedge is determined to be effective, changes in fair value are either (a) offset by the change
in fair value of the hedged asset or liability (if applicable) or (b) reported as a component of
other comprehensive income in the period of change, and subsequently recognized in the
determination of net income in the period the offsetting hedged transaction occurs. If an
instrument is settled early, any gains or losses are immediately recognized as adjustments to the
revenue recorded for the related hedged production. As of December 31, 2004, the outstanding
derivatives associated with commodity instruments are recorded at fair value and the unrealized
loss of $5.0 million, net of tax, is reported as a component of accumulated other comprehensive
income. As of December 31, 2004, there were no interest rate hedges outstanding (see Note 16). METALS REPURCHASE TRANSACTIONS The company may enter into transactions for the sale and repurchase of excess metals held in
the companys account at third party refineries. Under these transactions, the company will enter
into an agreement to sell a certain number of ounces to counterparties at the prevailing current
market price. The company will simultaneously enter into a separate agreement with the same
counterparty, to repurchase the same number of ounces at the same price at the repurchase date.
The company records a liability for the amount to be paid to repurchase the metals upon entering
into the agreement. In accordance with SFAS No. 49, Accounting for Product Financing Arrangements,
no sales revenue or inventory is effectively recognized on these transactions; the net financing
proceeds of the sale and repurchase transactions are recorded as interest income in the period
earned. RECLAMATION AND ENVIRONMENTAL COSTS The company accounts for its obligations associated with the retirement of tangible long-term
assets and the associated asset retirement costs with SFAS No. 143, Accounting for Asset Retirement
Obligations.The standard applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development and normal use of the
asset. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate of fair value can be
made. The fair value of the liability is added to the carrying amount of the associated asset and
this additional carrying amount is depreciated over the life of the asset. The liability is
accreted at the end of each period through charges to operating expense. If the obligation is
settled for other than the carrying amount of the liability, the company will recognize a gain or
loss on settlement. Under SFAS No. 143, accounting for reclamation obligations requires management to make
estimates for each mining operation of the future costs the company will incur to complete final
reclamation work required to comply with existing laws and regulations. Actual costs incurred in
future periods could differ from amounts estimated. Additionally, future changes to environmental
laws and regulations could increase the extent of reclamation and remediation work required to be
performed by the company. Any such increases in future costs could materially impact the amounts
charged to operations for reclamation and remediation. INCOME TAXES Income taxes are determined using the asset and liability approach in accordance with the
provisions of 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. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. In assessing the realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be realized. Each
quarter, management considers the scheduled reversal of deferred tax 71




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liabilities, projected future taxable income, and tax planning strategies in making this
assessment. A valuation allowance has been provided at December 31, 2004 and 2003, for the portion
of the companys net deferred tax assets for which it is more likely than not that they will not be
realized (see Note 13). Based on the companys current financial projections, and in view of the
level of tax depreciation and depletion deductions available, it appears unlikely that the company
will owe any income taxes for the foreseeable future. However, if average realized PGM prices were
to increase substantially in the future, the company could owe income taxes prospectively on the
resulting higher taxable income. STOCK-BASED COMPENSATION The company has elected to account for stock options and other stock-based compensation awards
using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees. Accordingly, because stock options are granted at
fair market value, no compensation expense has been recognized for stock options issued under the
companys stock option plans. The company records compensation expense for other stock-based
compensation awards over the vesting periods. The company has adopted the disclosure only
provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Pro forma information regarding net income and earnings per share is required by SFAS No. 123
and has been determined as if the company had accounted for its stock options under the fair value
method of SFAS No. 123. Had the company accounted for its stock options under the fair value
method of SFAS No. 123, the results would have been: (in thousands)
    
    2004
    
    
    2003
    
    
    2002Net income (loss), as reported
    
    $
    29,838
    
    
    $
    (323,260
    )
    
    $
    31,684Add stock-based employee compensation
expense included in reported net
income (loss), net of tax
    
    
    1,071
    
    
    
    670
    
    
    
    464Deduct total stock-based employee
compensation expense determined under
fair-value based method for all
rewards, net of tax
    
    
    (1,787
    )
    
    
    (1,836
    )
    
    
    (3,393
    )Pro forma net income (loss)
    
    $
    29,122
    
    
    $
    (324,426
    )
    
    $
    28,755Earnings (loss) per share, as reported:Basic
    
    $
    0.33
    
    
    $
    (4.77
    )
    
    $
    0.74Diluted
    
    $
    0.33
    
    
    $
    (4.77
    )
    
    $
    0.74Pro forma earnings (loss) per share:Basic
    
    $
    0.32
    
    
    $
    (4.78
    )
    
    $
    0.67Diluted
    
    $
    0.32
    
    
    $
    (4.78
    )
    
    $
    0.67
 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,
    
    2004
    
    
    2003
    
    
    2002Weighted average expected lives (years)
    
    
    3.7
    
    
    
    3.8
    
    
    
    3.7Interest rate
    
    
    2.8
    %
    
    
    2.4
    %
    
    
    3.1
    %Volatility
    
    
    64
    %
    
    
    64
    %
    
    
    58
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
 72




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EARNINGS PER SHARE Basic earnings per share is computed by dividing net earnings available to common stockholders
by the weighted average number of common shares outstanding during the period. Diluted earnings per
share reflect the potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. No adjustments were made to reported
net income in the computation of earnings per share. The effect of outstanding stock options on diluted weighted average shares outstanding was
132,426; 0; and 74,248 shares for 2004, 2003, and 2002 respectively. Outstanding options to
purchase 1,599,237; 2,754,938; and 2,416,238 shares of common stock were excluded from the
computation of diluted earnings per share for the years ended December 31, 2004, 2003 and 2002,
respectively, because the effect of inclusion would have been antidilutive. In 2004 and 2002,
certain stock options were excluded as antidilutive for purposes of calculating earnings per share
using the treasury stock method because the exercise price of the options was greater than the
average market price of the common are during the twelve-month period. All stock options were
antidilutive in 2003 because the company reported a net loss and inclusion of any of these options
would have reduced the net loss per share amounts. The effect of outstanding restricted stock was to increase diluted weighted average shares
outstanding by 227,357; 0; and 29,661 shares for 2004, 2003 and 2002, respectively. COMPREHENSIVE INCOME Comprehensive income includes net income, as well as other changes in stockholders equity
that result from transactions and events other than those with stockholders. The companys only
significant element of other comprehensive income is unrealized gains and losses on derivative
financial instruments. START-UP COSTS The costs of start-up activities, including organization costs, are expensed as incurred. DEBT ISSUANCE COSTS Costs associated with the issuance of debt are included in other noncurrent assets and are
amortized over the term of the related debt using the effective interest method. STOCK ISSUANCE COSTS Payment of specific costs directly attributable to a proposed issuance of the companys common
stock are capitalized and included in other current assets. Upon issuance of the common stock, the
capitalized costs are reclassified to equity as an offset to the proceeds received from the
issuance of the shares. USE OF ESTIMATES The preparation of the companys consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America 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 mineral reserves, reclamation and environmental obligations, valuation
allowance for deferred tax assets, useful lives utilized for depreciation, amortization and
accretion calculations, future cash flows from long-lived assets and accruals for restructuring
costs. Actual results could differ from these estimates. 73




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NOTE 3 CHANGE IN AMORTIZATION METHOD FOR MINE DEVELOPMENT ASSETS
 The company changed its accounting method for amortizing capitalized mine development costs in
the fourth quarter of 2004. These mine development costs include the initial costs incurred to
gain primary access to the ore reserves, plus the ongoing development costs of footwall laterals
and ramps driven parallel to the reef that are used to access and provide support for the mining
stopes in the reef. Prior to 2004, the company amortized all such capitalized development costs at its mines over
all proven and probable reserves at each mine. Following the asset impairment write-down at the end
of 2003, the company revisited its assumptions and estimates for amortizing capitalized mine
development costs. The company concluded to continue amortizing the cost of all of the mine
development that had been placed in service through 2003 over all proven and probable reserves,
because in managements view these remaining unamortized costs related to infrastructure that would
be used for the entire life of the mine. However, for development placed in service after 2003,
the company concluded to use a shorter life, amortizing the cost of this new development over only
the ore reserves in the immediate and relevant vicinity of the new development. This approach was
reflected in the companys consolidated financial statements for the first three quarters of 2004. Following a review of its filings by the SEC, the company recently determined it would change
its method of accounting for development costs as follows:  
    Unamortized costs of the shaft at the Stillwater Mine and the
initial development at the East Boulder Mine will continue to be
treated as life-of-mine infrastructure costs, to be amortized over
total proven and probable reserves at each location, and  
    All ongoing development costs of footwall laterals and ramps,
including similar development costs incurred before 2004, are to
be amortized over the ore reserves in the immediate and relevant
vicinity of the development. The change in accounting method has been applied retroactively to January 1, 2004. The effect
of this change in accounting method was to reduce previously reported earnings for the nine months
ended September 30, 2004 by $ 10.2 million, including a benefit of $ 6.0 million attributable to
the cumulative effect adjustment, and a charge of $16.2 million attributable to additional
amortization for the period (see Note 19). Pro forma net income (loss) and earnings (loss) per share, shown on the companys consolidated
statement of operations and comprehensive income (loss) for the years ended 2004, 2003 and 2002,
have been adjusted for the effect of retroactive application, as if the newly adopted accounting
method had been utilized in prior periods. NOTE 4
INVESTMENTS The company held $13.2 million and $11.9 million of available for sale marketable securities
at December 31, 2004 and 2003, respectively. These investments are auction-rate
securities that contain a short-term repricing feature; therefore, the carrying values of these
investments approximate their fair values. There have been
no realized gains or losses on these investments during 2004, 2003 or 2002. NOTE 5 INVENTORIES
 (in thousands)
    
    2004
    
    
    2003Metals inventoryRaw ore
    
    $
    672
    
    
    $
    661Concentrate and in-process
    
    
    20,512
    
    
    
    17,393Finished goods
    
    
    127,612
    
    
    
    173,715148,796
    
    
    
    191,769Materials and supplies
    
    
    11,146
    
    
    
    10,716$
    159,942
    
    
    $
    202,485
 74




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NOTE 6
PROPERTY, PLANT AND EQUIPMENT (in thousands)
    
    2004
    
    
    2003Machinery and equipment
    
    $
    40,224
    
    
    $
    83,443Leased equipment
    
    
    2,766
    
    
    
    1,700Buildings and structural components
    
    
    142,115
    
    
    
    31,932Mine development
    
    
    238,132
    
    
    
    264,813Land
    
    
    7,721
    
    
    
    7,325Construction-in-progress:Stillwater Mine
    
    
    43,217
    
    
    
    7,453East Boulder Mine
    
    
    20,095
    
    
    
    22,318Other construction-in-progress
    
    
    460
    
    
    
    544494,730
    
    
    
    419,528Less accumulated depreciation and amortization
    
    
    (59,806
    )
    
    
    $
    434,924
    
    
    $
    419,528
 As of December 31, 2003, the company recorded an asset impairment charge of $390.3 million,
thereby reducing the carrying value of these assets to their
estimated fair values. The companys capital expenditures for the years ended December 31, were as follows: (in thousands)
    
    2004
    
    
    2003
    
    
    2002Stillwater Mine
    
    $
    47,052
    
    
    $
    41,985
    
    
    $
    38,166East Boulder Mine
    
    
    25,095
    
    
    
    13,037
    
    
    
    19,215Other construction-in-progress
    
    
    4,712
    
    
    
    571
    
    
    
    1,452Other
    
    
    
    
    
    
    (6
    )
    
    
    140Total net asset additions
    
    
    76,859
    
    
    
    55,587
    
    
    
    58,973Acquired by capital lease transactions
    
    
    (120
    )
    
    
    (331
    )
    
    
    (1,804
    )Total capital expenditures
    
    $
    76,739
    
    
    $
    55,256
    
    
    $
    57,169
 75




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NOTE 7
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS CREDIT AGREEMENT On August 3, 2004, the company entered into a new $180 million credit facility with a
syndicate of financial institutions that replaced the companys previous $250 million credit
facility. The new credit facility consists of a $140 million six-year term loan facility maturing
July 30, 2010, bearing interest at a variable rate plus a margin (London Interbank Offer Rate
(LIBOR) plus 325 basis points, or 5.50% at December 31, 2004) and a $40 million five-year revolving
credit facility bearing interest when drawn at a variable rate plus a margin (LIBOR plus 300 basis
points, or 5.25% at December 31, 2004) expiring July 31, 2009. The revolving credit facility
includes a letter of credit facility. Undrawn amounts under the letters of credit issued through
this facility as of December 31, 2004, carry an annual fee of 3.125%. Both the margin on the
revolving credit facility and the letter of credit fee adjust contractually based on the companys
leverage ratio, as defined, beginning after the first quarter of 2005. The remaining unused
portion of the revolving credit facility bears an annual commitment fee of 0.75%. Amortization of
the term loan facility commenced in August 2004. As of December 31, 2004, the company has $131.5 million outstanding under the term loan
facility. During 2004, the company obtained a letter of credit in the amount of $7.5 million as
surety for its long-term reclamation obligation at East Boulder Mine, which reduces amounts
available under the revolving credit facility to $32.5 million at December 31, 2004. The new credit facility requires as prepayments 50% of the companys annual excess cash flow
(as defined in the credit agreement), plus any proceeds from asset sales and the issuance of debt
or equity securities, subject to specified exceptions. Such prepayments are to be applied first
against the term loan facility balance, and once that is reduced to zero, against any outstanding
revolving credit facility balance. The companys term loan facility allows the company to choose
between LIBOR loans of various maturities plus a spread of 3.25% or alternate base rate loans plus
a spread of 2.25%. The alternate base rate is a rate determined by the administrative agent under
the terms of the credit facility, and has generally been equal to the prevailing bank prime loan
rate, which is 5.25% at December 31, 2004. The alternate base rate applies only to that portion of
the term loan facility in any period for which the company has not elected to use LIBOR contracts.
Substantially all the property and assets of the company are pledged as security for the new credit
facility. In accordance with the terms of the new credit facility, the company is required to offer 25%
of the net proceeds from sales of palladium received in the Norilsk Nickel transaction to prepay
its term loan facility. The companys new credit facility contains a provision that defers each
prepayment related to the sales of palladium received in the Norilsk Nickel transaction until the
accumulated amount due reaches a specified
level. During 2004, the company prepaid $7.8 million in connection with such sales and
deferred $1.9 million as of December 31, 2004. As of December 31, 2004, $19.1 million of the companys long-term debt has been classified as
a current liability representing that portion of the term loan facility expected to be prepaid
under this arrangement during the next twelve months which includes the deferred prepayment amount. Covenants in the new credit facility include restrictions on the companys ability to: (1)
incur additional indebtedness; (2) pay dividends or redeem capital stock; (3) grant liens; (4) make
investments, acquisitions, dispositions or enter into mergers; (5) enter into transactions with
affiliates; (6) make capital expenditures; (7) refinance or prepay subordinated debt; (8) change
the nature of the companys business or cease operations at the principal operating properties; and
(9) enter into commodity hedging. The company is also subject to financial covenants including a
debt to EBITDA (i.e., earnings before interest, taxes, depreciation and amortization) ratio, a debt
service coverage ratio and a minimum liquidity requirement. Events of default under the terms of the new credit facility include: (1) a cross-default
linked to other indebtedness of the company; (2) any material modification to the life-of-mine
plans, absent lender consent; (3) a change of control of the company, subject to certain
exceptions, and (4) any material breach by a counterparty to a material sales contract or any
unapproved modification or termination of such a sales contract. The company is in compliance with
its covenants under the new credit facility at December 31, 2004. 76




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The following is a schedule by year of required principal payments to be made in quarterly
installments on the amounts outstanding under the term loan facility at December 31, 2004, without
regard to the prepayments required to be offered from sales of palladium received the Norilsk
Nickel transaction or out of excess cash flow: Year ended (in thousands)
    
    Term facility2005
    
    $
    1,3222006
    
    
    1,3222007
    
    
    1,3222008
    
    
    1,3212009
    
    
    1,3212010
    
    
    124,895Total
    
    $
    131,503
 EQUIPMENT LEASE AGREEMENTS The company leases certain underground mining equipment under leasing agreements containing
purchase options that can be exercised at the end of the original lease terms. The duration of
these leases range from three to seven years. The following is a schedule by year of future minimum
lease payments under capital leases together with the present value of the net minimum lease
payments: Year ended December 31, (in thousands)2005
    
    $
    6692006
    
    
    6092007
    
    
    5592008
    
    
    5182009
    
    
    5362010 and thereafter
    
    
    14Total minimum lease payments
    
    
    2,905Less amount representing interest
    
    
    450Present value of net minimum lease payments
    
    
    2,455Less current portion
    
    
    519Total long-term capital lease obligation
    
    $
    1,936
 EXEMPT FACILITY REVENUE BONDS During 2000, the company completed a $30 million offering of Exempt Facility Revenue Bonds,
Series 2000, through the State of Montana Board of Investments. The bonds were issued by the State
of Montana Board of Investments to finance a portion of the costs of constructing and equipping
certain sewage and solid waste disposal facilities at both the Stillwater Mine and the East Boulder
Mine. The bonds mature on July 1, 2020 and have a stated interest rate of 8.00% with interest paid
semi-annually. The bonds have an effective interest rate of 8.57%. Net proceeds from the offering
were $28.7 million. The balance outstanding at December 31, 2004 and 2003, was $29.3 million,
which is net of unamortized discount of $0.7 million. SPECIAL INDUSTRIAL EDUCATION IMPACT REVENUE BONDS These bonds were issued by the company in 1989 in three series 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. The balance outstanding at December 31, 2004
and 2003 was $0.8 million and $0.9 million, respectively, of which approximately $0.1 million was
classified as current in each year. The bonds, which are collateralized by the companys real
estate, are secured by guarantees from Chevron Corporation and Manville Corporation. Scheduled
principal repayment during the years 2006 through 2008 are approximately $0.2 million in each year.
Scheduled principal repayment in 2009 is approximately $0.1 million. 77




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##### Table of Contents



CASH PAID FOR INTEREST The company made cash payments for interest of $13.4 million, $16.2 million and $15.4 million
for the years ended December 31, 2004, 2003, and 2002, respectively. NOTE 8
RESTRUCTURING COSTS In the fourth quarter of 2001, the company began implementing a revised operating plan, which
included a reduction of the companys previously planned capital expenditures and production
levels. In accordance with the plan, the company terminated certain contracts related to ongoing
mine development and accrued a pre-tax charge of approximately $11.0 million for early contract
termination costs. The accrual was based on the termination provisions of the related contracts.
There were no adjustments to the restructuring costs during 2004. During 2003 and 2002, the
company reduced its accrued restructuring costs resulting in a net gain of approximately $1.0
million and $7.0 million, primarily as a result of negotiations of certain termination clauses of
the construction contracts. Any adjustments to the original estimate of the accrual have been included in the companys
results of operations when determined. In accordance with the revised operating plan, during the second quarter of 2002, the company
eliminated six management positions and recorded an addition to the restructuring accrual of $1.1
million. There were no additions to the restructuring accrual during 2003 or 2004. The following summary sets forth the changes of the restructuring accrual during 2002, 2003
and 2004: Contract
    
    
    Employee
    
    
    Total Restructuring(in thousands)
    
    Terminations
    
    
    Terminations
    
    
    AccrualBalance at January 1, 2002
    
    $
    10,974
    
    
    $
    
    
    
    $
    10,974Additional accurals
    
    
    
    
    
    
    1,089
    
    
    
    1,089Cash paid
    
    
    (2,288
    )
    
    
    (822
    )
    
    
    (3,110
    )Accrual adjustments
    
    
    (7,027
    )
    
    
    
    
    
    
    (7,027
    )Balance at December 31, 2002
    
    $
    1,659
    
    
    $
    267
    
    
    $
    1,926Cash paid
    
    
    (13
    )
    
    
    (267
    )
    
    
    (280
    )Accural adjustments
    
    
    (966
    )
    
    
    
    
    
    
    (966
    )Balance at December 31, 2003
    
    $
    680
    
    
    $
    
    
    
    $
    680Cash paid
    
    
    (103
    )
    
    
    
    
    
    
    (103
    )Balance at December 31, 2004
    
    $
    577
    
    
    $
    
    
    
    $
    577
 NOTE 9
ASSET RETIREMENT OBLIGATION The company adopted SFAS No. 143 on January 1, 2003. Upon adoption, the company increased its
post-closure reclamation liability by approximately $1.9 million, increased the carrying value of
its assets by approximately $1.2 million and recorded a cumulative effect adjustment to decrease
income by $0.7 million ($0.4 million net of tax). During
2004, the company recorded a $1.3 million net adjustment related
to the Stillwater Mine.
This adjustment consists of an increase of $2.0 million related to estimated additional reclamation
costs, offset by a reduction of $0.7 million due to a change in
the Stillwater Mine life. During 2004, the company recorded a $0.9 million increase due to a revision of estimated cash
flows related to East Boulder Mine. This was a result of a change in
the East Boulder Mine life. 78




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##### Table of Contents



The accrued reclamation liability, included in other noncurrent liabilities, was approximately
$6.8 million, $4.1 million and $1.9 million, respectively at December 31, 2004, 2003 and 2002. Had
SFAS No. 143, been applied during 2002 the accrued reclamation liability would have been
approximately $3.8 million at December 31, 2002. At December 31, 2004, the company was required to post surety bonds with the State of Montana
in the amount of $13.2 million, and has obtained a letter of credit of $7.5 million to satisfy the
current bonding requirements determined by the regulatory agencies. The following summary sets forth the changes of the asset retirement obligations: East Boulder(in thousands)
    
    Stillwater Mine
    
    
    Mine
    
    
    TotalBalance at January 1, 2003
    
    $
    3,093
    
    
    $
    681
    
    
    $
    3,774Accretion expense
    
    
    280
    
    
    
    62
    
    
    
    342Revision of estimated cash flows
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2003
    
    $
    3,373
    
    
    $
    743
    
    
    $
    4,116Liabilities incurred
    
    
    1,987
    
    
    
    
    
    
    
    1,987Accretion expense
    
    
    305
    
    
    
    151
    
    
    
    456Revision of estimated cash flows
    
    
    (689
    )
    
    
    922
    
    
    
    233Balance at December 31, 2004
    
    $
    4,976
    
    
    $
    1,816
    
    
    $
    6,792
 NOTE 10
ASSET IMPAIRMENT The company follows SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. The company reviews and evaluates its long-lived assets for impairment when events or
changes in circumstances indicate that the related carrying amounts may not be recoverable.
Impairment is considered to exist if total estimated future cash flows on an undiscounted basis are
less than the carrying amount of the asset. Future cash flows include estimates of recoverable
ounces, PGM prices (considering current and historical prices, long-term sales contract prices,
price trends and related factors), production levels, capital and reclamation expenditures, all
based on life-of-mine plans and projections. There was no impairment during 2004. Ore reserves are determined on an annual basis, and concurrently, mine plans and operating
budgets are updated. The East Boulder Mine ore reserve at year-end 2003 increased 4% in contained
ounces from that reported at year-end 2002. However, the Stillwater Mine ore reserve at year-end
2003 decreased 16% in contained ounces from that reported at year-end 2002. Overall the companys
contained ounces reduced by 7%. The companys ore reserve determination for 2003 calculated at
December 31, 2003, was ultimately bounded by geologic certainty and largely unaffected by price. The
2003 changes were adjustments for material mined, additions for extension of mine workings and
drilling during 2003 and changes in mine plans. The year-end 2003 decrease in ore reserves at the Stillwater Mine prompted an impairment
review of the carrying values of the companys mine properties. The review determined that the
carrying amount of the companys investments in property, plant and equipment at the Stillwater
Mine and East Boulder Mine were impaired. Consequently, the company performed a fair market value
assessment of the assets and recorded an asset impairment charge of $390.3 million, reducing the
carrying value of the properties to their fair market value, as required. The impairment charge
consisted of $176.7 million at the Stillwater Mine, $178.0 million at the East Boulder Mine and
$35.6 million at the processing and other facilities, reducing the carrying value of Stillwater
Mine to $228.6 million, East Boulder Mine to $150.0 million and the processing and other facilities
to $40.9 million. The company engaged an independent appraiser, Behre Dolbear, who utilized
conventional mine valuation techniques including discounted cash flow analysis for purposes of
determining fair market value. NOTE 11
EMPLOYEE BENEFIT PLANS The company has adopted two savings plans, which qualify under section 401(k) of the U.S.
Internal Revenue Code covering all non-bargaining and bargaining employees. Effective January 1,
2002, the company amended the provisions of these plans. Under the amended provisions, employees
may elect to contribute up to 20% of their cash compensation, subject to the Employee Retirement
Income Security Act of 1974 (ERISA) limitations. The company is required to make matching
contributions equal to 100% of the employees contribution up to 6% of the employees compensation.
Matching contributions can be paid with common stock of the company. During 2004, 2003 and 2002,
the company issued 300,286; 769,222; and 353,976 shares of common stock, respectively, with a
market value of approximately $3.9 million, $3.4 million and $3.4 million, respectively, to match
employees contributions. 79




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##### Table of Contents



There were no cash contributions made to the plans in 2004 and 2003.
Cash contributions made to the plans were $0.4 million in 2002. NOTE 12
COMMON STOCK PLANS AND AGREEMENTS STOCK PLANS The company sponsors stock option plans that enable the company to grant stock options or
restricted stock to employees and non-employee directors. During 2004, the 1994 Incentive Plan
terminated. Authorized shares of common stock have been reserved for options that were issued prior
to the expiration of the plan. In April 2004, stockholders approved the 2004 Equity Incentive
Plan. As of December 31, 2004, there were approximately 7,801,000 shares of common stock
authorized for issuance under the plans, including approximately 5,250,000, 1,400,000 and 1,151,000
authorized for the 2004 Equity Incentive Plan, the General Plan and the 1994 Incentive Plan,
respectively. Options for approximately 5,413,000 and 2,388,000 shares were available and reserved
for grant as of December 31, 2004, respectively. Awards granted under the plans may consist of incentive stock options (ISOs) or non-qualified
stock options (NQSOs), stock appreciation rights (SARs), restricted stock or other stock-based
awards, with the exception that non-employee directors may not be granted SARs and only employees
of the company may be granted ISOs. The plans are administered by the Compensation Committee of the companys Board of Directors,
which determines the exercise price, exercise period, vesting period and all other terms. Officers
and directors options expire ten years after the date of grant. All other options expire five to
ten years after the date of grant, depending upon the original grant date. On April 29, 2004, 6,816 shares of restricted stock were granted to the non-management
directors serving on the companys Board of Directors. These shares of restricted stock vested on
October 29, 2004. On May 7, 2004, 348,170 shares of restricted stock were granted to certain
members of management. These shares of restricted stock are scheduled to vest on May 7, 2007. The
market value of the restricted stock totaled approximately $4.5 million on the grant dates and was
recorded as a separate component of stockholders equity. During 2004, approximately $1.1 million
was recognized as compensation expense. During 2002, the company granted 135,119 shares of restricted stock to certain of its officers
and employees, of which 58,237 and 46,344 shares vested during 2003 and 2002, respectively. The
market value of the restricted stock awarded totaled approximately $2.6 million on the grant date
and was recorded as a separate component of stockholders equity. During 2003 and 2002, 13,333 and
17,205 shares of restricted stock were forfeited, respectively. During 2003 and 2002,
approximately $0.7 million and $0.5 million, respectively, was recognized as compensation expense.
During 2002 approximately $0.9 million was amortized against a liability that had been recorded at
December 31, 2001. 80




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##### Table of Contents



Stock option activity for the years ended December 31, 2004, 2003, and 2002 is summarized
as follows: Weighted Average FairWeighted Average
    
    
    Value of OptionsShares
    
    
    Exercise Price
    
    
    GrantedOptions outstanding at January 1, 2002
    
    
    2,245,030
    
    
    $
    23.55
    
    
    
    (1,664,652 exercisable)2002 Activity:Options granted
    
    
    558,179
    
    
    
    18.18
    
    
    $
    7.10Options exercised
    
    
    (58,125
    )
    
    
    12.83
    
    
    
    Options canceled
    
    
    (148,221
    )
    
    
    25.37
    
    
    
    Options outstanding at December 31, 2002(1,954,633 exercisable)
    
    
    2,596,863
    
    
    $
    22.54
    
    
    
    2003 ActivityOptions granted
    
    
    252,075
    
    
    
    5.08
    
    
    $
    2.16Options exercised
    
    
    (42,797
    )
    
    
    4.11
    
    
    
    Options canceled
    
    
    (51,203
    )
    
    
    24.00
    
    
    
    Options outstanding at December 31, 2003(2,440,332 exercisable)
    
    
    2,754,938
    
    
    $
    22.53
    
    
    
    2004 ActivityOptions granted
    
    
    445,561
    
    
    
    13.98
    
    
    $
    6.62Options exercised
    
    
    (284,111
    )
    
    
    9.71
    
    
    
    Options canceled
    
    
    (836,555
    )
    
    
    24.08
    
    
    
    Options outstanding at December 31, 2004(1,521,329 exerciseable)
    
    
    2,079,833
    
    
    $
    17.42
    
    
    
    
 The following table summarizes information for outstanding and exercisable options as of
December 31, 2004: Options Outstanding
    
    
    Options ExercisableAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRange of
    
    Number
    
    
    Remaining
    
    
    Average
    
    
    Number
    
    
    AverageExercise Price
    
    Outstanding
    
    
    Contract Life
    
    
    Exercise Price
    
    
    Exercisable
    
    
    Exercise Price$4.66
    
    
    398,979
    
    
    
    4.8
    
    
    $
    0.35
    
    
    
    10,391
    
    
    $
    2.98$  4.66
- $  9.33
    
    
    156,018
    
    
    
    8.3
    
    
    $
    6.48
    
    
    
    102,517
    
    
    $
    6.23$  9.33 - $13.99
    
    
    152,196
    
    
    
    2.9
    
    
    $
    12.75
    
    
    
    127,378
    
    
    $
    12.88$13.99 - $18.65
    
    
    382,898
    
    
    
    4.1
    
    
    $
    15.89
    
    
    
    317,638
    
    
    $
    16.12$18.65 - $23.31
    
    
    320,942
    
    
    
    6.5
    
    
    $
    19.37
    
    
    
    294,605
    
    
    $
    19.39$23.31 - $27.98
    
    
    232,600
    
    
    
    3.8
    
    
    $
    26.53
    
    
    
    232,600
    
    
    $
    26.53$27.98 - $32.64
    
    
    195,975
    
    
    
    2.8
    
    
    $
    30.32
    
    
    
    195,975
    
    
    $
    30.32$32.64 - $37.30
    
    
    127,700
    
    
    
    5.4
    
    
    $
    34.55
    
    
    
    127,700
    
    
    $
    34.55$37.30 - $41.97
    
    
    109,800
    
    
    
    3.7
    
    
    $
    38.22
    
    
    
    109,800
    
    
    $
    38.22$41.97 - $46.63
    
    
    2,725
    
    
    
    0.2
    
    
    $
    43.73
    
    
    
    2,725
    
    
    $
    43.732,079,833
    
    
    
    4.7
    
    
    $
    17.42
    
    
    
    1,521,329
    
    
    $
    22.34
 The company has elected to follow the intrinsic value method of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in accounting for its stock
options. Under APB Opinion No. 25, because the exercise price of the companys stock options equals
the market price of the underlying stock on the date of grant, no compensation expense is
recognized (see Note 2). 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, par value $0.01 per share (the
Preferred Stock), at a purchase price of $53 per unit, subject to adjustment. All outstanding
Rights may be redeemed by the company at any time until such time as the Rights become exercisable. Until a Right is exercised, the holder
thereof has no rights as a stockholder of 81




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##### Table of Contents



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. The company amended the Rights Agreement
effective November 20, 2002, so that the transaction with Norilsk Nickel would not cause the Rights
to become exercisable. The Rights expire on October 26, 2005 unless earlier redeemed or exercised. NOTE 13
INCOME TAXES The components of the provision (benefit) for income taxes are as follows: Year ended December 31, (in thousands)
    
    2004
    
    
    2003
    
    
    2002Current federal
    
    $
    
    
    
    $
    
    
    
    $
    Current state
    
    
    3
    
    
    
    
    
    
    
    Total current
    
    
    3
    
    
    
    
    
    
    
    Deferred federal
    
    
    
    
    
    
    (60,620
    )
    
    
    7,447Deferred state
    
    
    
    
    
    
    (14,583
    )
    
    
    1,498Total deferred
    
    
    
    
    
    
    (75,203
    )
    
    
    8,945Total income tax provision (benefit)
    
    
    3
    
    
    
    (75,203
    )
    
    
    8,945Less: Income tax allocated to cumulative effect adjustment
    
    
    
    
    
    
    264
    
    
    
    Net income tax provision (benefit)
    
    $
    3
    
    
    $
    (74,939
    )
    
    $
    8,945
 The components of the companys deferred tax liabilities (assets) are comprised of the
following temporary differences and carryforwards: December 31, (in thousands)
    
    2004
    
    
    2003Mine development costs
    
    $
    57,647
    
    
    $
    59,437Capital lease obligations
    
    
    
    
    
    
    1,209Total deferred tax liabilities
    
    
    57,647
    
    
    
    60,646Noncurrent liabilities
    
    
    (4,552
    )
    
    
    (3,973
    )Property and equipment
    
    
    (23,132
    )
    
    
    (43,913
    )Current liabilities
    
    
    (5,075
    )
    
    
    (2,696
    )Derivative financial instruments
    
    
    
    
    
    
    (533
    )Inventory
    
    
    (1,172
    )
    
    
    (1,258
    )Net operating loss and other carryforwards
    
    
    (86,043
    )
    
    
    (78,577
    )Total deferred tax assets
    
    
    (119,974
    )
    
    
    (130,950
    )Valuation allowance
    
    
    62,327
    
    
    
    70,304Net deferred tax assets
    
    
    (57,647
    )
    
    
    (60,646
    )Net deferred tax liabilities
    
    $
    
    
    
    $
    
 In assessing the realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be realized.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. The company provided a valuation
allowance in 2004 and 2003, to reflect the estimated amount of deferred tax assets which may not be realized
principally due to the expiration of the net operating loss carry forwards (NOLs) as management
considers it more likely than not that the NOLs will not be realized based upon projected future
taxable income. There was no valuation allowance recorded in 2002. 82




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##### Table of Contents



A reconciliation from the federal income tax provision at the applicable statutory income tax
rate to the effective rate is as follows: Year ended December 31, (in thousands)
    
    2004
    
    
    2003
    
    
    2002Income (loss) before income taxes and cumulative
effect of accounting change
    
    $
    23,806
    
    
    $
    (397,791
    )
    
    $
    40,629Income tax (benefit) at statutory rate of 35%
    
    $
    8,332
    
    
    $
    (139,227
    )
    
    $
    14,220State income tax benefit, net of federal benefit
    
    
    1,044
    
    
    
    (17,453
    )
    
    
    989Excess percentage depletion
    
    
    
    
    
    
    
    
    
    
    (6,372
    )Adjustments to prior years tax provisions
    
    
    (92
    )
    
    
    (3,333
    )
    
    
    Reduction of net operating losses resulting from ownership change
    
    
    
    
    
    
    16,678
    
    
    
    Change in valuation allowance
    
    
    (7,977
    )
    
    
    70,304
    
    
    
    Other
    
    
    (1,304
    )
    
    
    (1,908
    )
    
    
    108Net income tax provision (benefit)
    
    $
    3
    
    
    $
    (74,939
    )
    
    $
    8,945
 At December 31, 2004, the company had approximately $235 million of regular tax net operating
loss carryforwards expiring during 2009 through 2024. Usage of $189 million of these net operating
losses is limited to approximately $9.5 million annually as a result of the change in control of
the company that occurred in connection with the Norilsk Nickel transaction in 2003 (see Note 14).
Usage of net operating losses incurred after the change in control is not subject to this
limitation. Cash payments for income taxes for the years ended December 31, 2004, 2003 and
2002, were $3,000, zero and $0.4 million, respectively. NOTE 14
CAPITAL TRANSACTIONS On June 23, 2003, the company and Norilsk Nickel, a Russian mining company, completed a stock
purchase transaction whereby the company issued 45,463,222 shares of its common stock to Norimet, a
wholly-owned subsidiary of Norilsk Nickel, representing 50.8% of the companys then outstanding
shares. The company received consideration from Norimet consisting of $100.0 million in cash and
877,169 ounces of palladium valued at $148.2 million as of June 23, 2003. The aggregate value of
the consideration was $248.2 million as of June 23, 2003. As contemplated by the stock purchase
transaction on September 3, 2003, Norimet completed a cash tender offer at $7.50 per share to
acquire 4,350,000 shares of the companys outstanding common stock. Following completion of the
tender offer, Norimet owned 49,813,222 shares or 55.5% of the then outstanding common stock. On October 23, 2003, the stockholders approved an increase in the common stock authorized from
100,000,000 to 200,000,000. NOTE 15
LONG-TERM SALES CONTRACTS Mine Production: Palladium, platinum, rhodium and gold are sold to a number of consumers and dealers 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 third party refineries to the account of the
purchaser. By-product metals are purchased at market price by customers, brokers or outside
refiners. During 1998, the company entered into three long-term sales contracts with its customers that
contain guaranteed floor prices for metal delivered. In late 2000 and in 2001, the company amended
these contracts to extend the terms and to modify the pricing mechanisms. One of these contracts
applies to the companys production through 2006, one through 2008 and one through 2010. Under the
contracts, the company has committed between 80% and 100% of its palladium production and between
70% and 80% of its platinum production through 2010. Metal sales are priced at a slight discount to market. The
remaining production is not committed under these contracts and remains available for sale at
prevailing market prices. 83




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##### Table of Contents



The following table summarizes the floor and ceiling price structures for the three long-term
sales contracts related to mine production. The first two columns for each commodity represent the
percent of total mine production that is subject to floor prices and the weighted average floor
price per ounce. The second two columns for each commodity represent the percent of total mine
production that is subject to ceiling prices and the weighted average ceiling price per ounce. PALLADIUM
    
    
    
    PLATINUMSubject to
    
    
    
    Subject to
    
    
    
    Subject to
    
    
    
    Subject toFloor
Prices
    
    
    
    Ceiling Prices
    
    
    
    Floor Prices
    
    
    
    Ceiling Prices% of Mine
    
    
    Avg. Floor
    
    
    
    % of Mine
    
    
    Avg. Ceiling
    
    
    
    % of Mine
    
    
    Avg. Floor
    
    
    
    % of Mine
    
    
    Avg. CeilingYear
    
    
    Production
    
    
    Price
    
    
    
    Production
    
    
    Price
    
    
    
    Production
    
    
    Price
    
    
    
    Production
    
    
    Price2005
    
    
    
    100
    %
    
    $
    355
    
    
    
    
    31
    %
    
    $
    702
    
    
    
    
    80
    %
    
    $
    425
    
    
    
    
    16
    %
    
    $
    8562006
    
    
    
    100
    %
    
    $
    339
    
    
    
    
    31
    %
    
    $
    703
    
    
    
    
    80
    %
    
    $
    425
    
    
    
    
    16
    %
    
    $
    8562007
    
    
    
    100
    %
    
    $
    339
    
    
    
    
    16
    %
    
    $
    975
    
    
    
    
    70
    %
    
    $
    425
    
    
    
    
    14
    %
    
    $
    8502008
    
    
    
    85
    %
    
    $
    376
    
    
    
    
    20
    %
    
    $
    975
    
    
    
    
    70
    %
    
    $
    425
    
    
    
    
    14
    %
    
    $
    8502009
    
    
    
    80
    %
    
    $
    380
    
    
    
    
    20
    %
    
    $
    975
    
    
    
    
    70
    %
    
    $
    425
    
    
    
    
    14
    %
    
    $
    8502010
    
    
    
    80
    %
    
    $
    375
    
    
    
    
    20
    %
    
    $
    975
    
    
    
    
    70
    %
    
    $
    425
    
    
    
    
    14
    %
    
    $
    850
 The long-term sales contracts provide for adjustments to ounces committed based on actual
production. The long-term sales contracts contain termination provisions that allow the purchasers
to terminate in the event the company breaches certain provisions of the contract and the breach is
not cured within periods ranging from 10 to 30 days of notice by the purchaser. The long-term
sales contracts are not subject to the requirements of SFAS No. 133 as the contracts qualify for
the normal sales exception provided in SFAS No. 138 since they will not settle net and will result
in physical delivery. The floors and ceilings embedded within the long-term sales contracts are
treated as part of the host contract, not a separate derivative instrument and are therefore also
not subject to the requirements of SFAS No. 133. The company has historically entered into hedging agreements from time to time to manage the
effect of price changes in palladium and platinum from mine production on the companys cash flow.
Hedging activities consist of fixed forwards for future deliveries of specific quantities of PGMs
at specific prices, the sale of call options and the purchase of put options and financially
settled forwards. Gains or losses can occur as a result of hedging strategies. Hedging losses
related to mine production of $1.3 million were realized in 2004; in 2003, no hedging gains or
losses related to mine production were realized; and hedging gains related to mine production of
$9.2 million were realized in 2002. The unrealized losses related to financially settled forwards for
mine production was $4.8 million in 2004. There were no unrealized gains or losses on financially
settled forwards for mine production in 2003. All of these open transactions settle at various
periods through October 2006 (see Note 16). Secondary Processing During 2004, the company entered into fixed forwards and financially settled forwards relating
to secondary processing of catalysts materials. These transactions were accounted for as cash-flow
hedges. These sales of metals from processing secondary materials are sold forward at the time of
receipt and delivered against the cash flow hedges when the ounces are recovered. All of these
open transactions settle at various periods through April 2005 (see Note 16). Hedging gains
related to secondary processing of $0.5 million were realized in 2004. There were no hedging gains
or losses related to secondary processing realized in 2003 or 2002. The unrealized loss on these
instruments related to secondary processing due to changes in metal prices at December 31, 2004 and
2003 was $0.2 million and $0.9 million ($0.2 million and $0.5 million, net of tax), respectively. The company has
credit agreements with its major trading partners that provide for margin deposits in the event
that forward prices for metals exceed the companys hedge contract prices by a predetermined margin
limit. Palladium acquired in connection with Norilsk Nickel transaction: The company entered into sales agreements during the first quarter of 2004, to sell the
palladium received in the stock transaction with Norilsk Nickel. Under these agreements, the
company sells approximately 36,500 ounces of palladium per month, ending in the first quarter of
2006, at a slight volume discount to market price. Additionally, under one of these agreements,
the company sells 3,250 ounces of platinum and 1,900 ounces of rhodium per month, also at a slight
discount to market price. 84




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NOTE 16
DERIVATIVE INSTRUMENTS The company from time to time uses various derivative financial instruments to manage the
companys exposure to market prices associated with changes in palladium, platinum and rhodium
commodity prices and in interest rates. The company accounts for its derivatives in accordance
with SFAS No. 133, which requires that derivatives be reported on the balance sheet at fair value
and, if the derivative is not designated as a hedging instrument, changes in fair value must be
recognized in earnings in the period of change. Because the company hedges only with instruments
that have a high correlation with the value of the underlying exposures, changes in the
derivatives fair value are expected to be offset by changes in the value of the hedged
transaction. Commodity Derivatives The company enters into fixed forwards and financially settled forwards that are accounted for
as cash-flow hedges to hedge the price risk in its secondary recycling activity and mine
production. In the fixed forward transactions, metals in the recycled material are sold forward at
the time of receipt and delivered against the fixed forward contracts when the ounces are
recovered. Financially settled forwards may be used as a mechanism to hedge against fluctuations
in metal prices associated with future production. Under financially settled forwards, at each
settlement date the company receives the difference between the forward price and the market price
if the market price is below the forward price, and the company pays the difference between the
forward price and the market price if the market price is above the forward price. The companys
financially settled forwards are settled in cash at maturity. As of December 31, 2004, the company was party to financially settled forward agreements
covering approximately 60% of its anticipated platinum sales out of mine production from January of
2005 through October of 2006. These transactions are designed to hedge a total of 143,300 ounces
of platinum sales from mine production for the next twenty-two months at an overall average price
of approximately $808 per ounce. Until these contracts mature, any net change in the value of the hedging instrument is
reflected in stockholders equity in accumulated other comprehensive income (AOCI). A net
unrealized loss of $5.0 million ($4.8 million related to financially settled forwards related to
mine production and $0.2 million related to fixed forwards related to secondary processing of
catalysts) on these hedging instruments existing at December 31, 2004, is reflected in AOCI. When
these instruments are settled, any remaining gain or loss on the cash flow hedges will be offset by
losses or gains on the future metal sales and will be recognized at that time in operating income.
As of December 31, 2004, the unrealized loss for hedges that mature in 2005, was $3.9 million ($3.8
million related to financially settled forwards relating to mine production and $0.1 million
related to fixed forwards related to secondary processing of catalysts). All commodity instruments
outstanding at December 31, 2004, are expected to be settled within the next twenty-two months. A summary of the companys derivative financial instruments as of December 31, 2004, is as
follows: Mine
Production:  Financially Settled
Forwards
 Platinum
    
    
    AverageOunces
    
    
    Price
    
    
    IndexFirst Quarter 2005
    
    
    19,900
    
    
    $
    809
    
    
    Monthly London PM AverageSecond Quarter 2005
    
    
    20,000
    
    
    $
    807
    
    
    Monthly London PM AverageThird Quarter 2005
    
    
    20,200
    
    
    $
    801
    
    
    Monthly London PM AverageFourth Quarter 2005
    
    
    23,200
    
    
    $
    801
    
    
    Monthly London PM AverageFirst Quarter 2006
    
    
    21,000
    
    
    $
    812
    
    
    Monthly London PM AverageSecond Quarter 2006
    
    
    21,000
    
    
    $
    813
    
    
    Monthly London PM AverageThird Quarter 2006
    
    
    17,000
    
    
    $
    814
    
    
    Monthly London PM AverageFourth Quarter 2006
    
    
    1,000
    
    
    $
    823
    
    
    Monthly London PM Average
 Catalyst
Recycling:  Fixed Forwards
 Platinum
    
    
    Palladium
    
    
    RhodiumOunces
    
    
    Price
    
    
    Ounces
    
    
    Price
    
    
    Ounces
    
    
    PriceFirst Quarter 2005
    
    
    18,703
    
    
    $
    850
    
    
    
    5,695
    
    
    $
    200
    
    
    
    2,178
    
    
    $
    1,257Second Quarter 2005
    
    
    2,178
    
    
    $
    862
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
 85




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##### Table of Contents



Interest Rate Derivatives The company entered into two identical interest rate swap agreements fixing the interest rate
on $100.0 million of the companys debt, which were effective March 4, 2002, and matured on March
4, 2004. These interest rate swap agreements were accounted for as a cash flow hedge. During 2004 and 2003,
hedging losses of $0.4 million and $2.4 million, respectively, were recognized as additional
interest expense. During 2004, the company entered into fixed forwards and financially settled forwards that
were accounted for as cash-flow hedges. These transactions settle at various periods through
October 2006. The unrealized loss on these instruments due to changes in metal prices at December
31, 2004, was $5.0 million. The following summary sets forth the changes in other comprehensive
income (loss) accumulated in stockholders equity during 2002, 2003 and 2004: Total DerivativeCommodity
    
    
    
    
    
    
    Financial(in thousands)
    
    Instruments
    
    
    Interest Rate Swaps
    
    
    InstrumentsBalance at January 1, 2002
    
    $
    9,458
    
    
    $
    
    
    
    $
    9,458Reclassification to earnings
    
    
    (9,158
    )
    
    
    1,545
    
    
    
    (7,613
    )Change in fair value
    
    
    (300
    )
    
    
    (3,863
    )
    
    
    (4,163
    )Balance at December 31, 2002
    
    $
    
    
    
    $
    (2,318
    )
    
    $
    (2,318
    )Reclassification to earnings
    
    
    
    
    
    
    2,425
    
    
    
    2,425Change in fair value
    
    
    (910
    )
    
    
    (550
    )
    
    
    (1,460
    )Balance at December 31, 2003
    
    $
    (910
    )
    
    $
    (443
    )
    
    $
    (1,353
    )Reclassification to earnings
    
    
    844
    
    
    
    443
    
    
    
    1,287Change in fair value
    
    
    (4,899
    )
    
    
    
    
    
    
    (4,899
    )Balance at December 31, 2004
    
    $
    (4,965
    )
    
    $
    
    
    
    $
    (4,965
    )
 The net of tax balances in other accumulated comprehensive loss at December 31, 2004 and 2003
were $5.0 million and $0.8 million, respectively. NOTE 17
SEGMENT INFORMATION The company operates two reportable business segments: Mine Production and Secondary
Processing. These segments are managed separately based on fundamental differences in their

operations. During 2003, the company entered into a long-term metal sourcing agreement which
substantially increased revenues and cost of revenues from secondary processing activities in 2004
(see Note 18). Due to the increase in revenues and a change in
managements view of these activities during 2004, the secondary processing activities
met the quantitative and qualitative thresholds for a reportable segment.
The company has restated the segment information for 2003 and 2002 to
report the secondary processing activities as a seperate segment. The Mine Production segment consists of two business components: Stillwater Mine and East
Boulder Mine. The Mine Production segment is engaged in the development, extraction, processing
and refining of PGMs. The company sells PGMs from mine production under long-term sales contracts,
through derivative financial instruments and in open PGM markets. The Stillwater Mine and East
Boulder Mine have been aggregated as both have similar products, processes, customers,
distributions methods and economic characteristics. The company allocates costs of the Smelter and
Refinery to the Mine Production segment to and the Secondary Processing segment for internal reporting
purposes. The Secondary Processing segment is engaged in the recycling of secondary materials, primarily
catalysts, for recovering PGMs. The company primarily sells these PGMs through derivative
financial instruments. The All Other group primarily consists of revenues and costs generated from the sale of
palladium received in the Norilsk Nickel transaction and costs of other corporate and support
functions. The company evaluates performance and allocates resources based on income or loss before
income taxes and cumulative effect of accounting changes. The following detail the financial
information relating to the companys segments: 86




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##### Table of Contents



(in thousands)
    
    Mine
    
    
    Secondary
    
    
    AllYear ended December 31, 2004
    
    Production
    
    
    Processing
    
    
    Other
    
    
    TotalRevenues
    
    $
    266,684
    
    
    $
    76,388
    
    
    $
    104,455
    
    
    $
    447,527Depreciation and amortization
    
    $
    59,568
    
    
    $
    48
    
    
    $
    
    
    
    $
    59,616Interest income
    
    $
    
    
    
    $
    1,082
    
    
    $
    1,136
    
    
    $
    2,218Interest expense
    
    $
    
    
    
    $
    
    
    
    $
    17,892
    
    
    $
    17,892Income (loss) before income taxes and
cumulative effect of accounting change
    
    $
    32,152
    
    
    $
    6,096
    
    
    $
    (14,442
    )
    
    $
    23,806Capital expenditures
    
    $
    75,962
    
    
    $
    272
    
    
    $
    505
    
    
    $
    76,739Total assets
    
    $
    479,014
    
    
    $
    18,638
    
    
    $
    247,066
    
    
    $
    744,718
 Year ended December 31, 2003Revenues
    
    $
    240,406
    
    
    $
    8,866
    
    
    $
    6,551
    
    
    $
    255,823Depreciation and amortization
    
    $
    40,700
    
    
    $
    74
    
    
    $
    
    
    
    $
    40,771Interest income
    
    $
    
    
    
    $
    74
    
    
    $
    426
    
    
    $
    500Interest expense
    
    $
    
    
    
    $
    
    
    
    $
    17,595
    
    
    $
    17,595Income (loss) before income taxes and
cumulative effect of accounting change
    
    $
    (364,549
    )
    
    $
    81
    
    
    $
    (34,123
    )
    
    $
    (397,791
    )Capital expenditures
    
    $
    55,166
    
    
    $
    
    
    
    $
    90
    
    
    $
    55,256Total assets
    
    $
    454,256
    
    
    $
    10,649
    
    
    $
    225,683
    
    
    $
    690,588
 Year ended December 31, 2002Revenues
    
    $
    275,599
    
    
    $
    15,177
    
    
    $
    1,535
    
    
    $
    292,311Depreciation and amortization
    
    $
    38,722
    
    
    $
    71
    
    
    $
    
    
    
    $
    38,793Interest income
    
    $
    
    
    
    $
    
    
    
    $
    903
    
    
    $
    903Interest expense
    
    $
    
    
    
    $
    
    
    
    $
    17,601
    
    
    $
    17,601Income (loss) before income taxes and
cumulative effect of accounting change
    
    $
    64,806
    
    
    $
    984
    
    
    $
    (25,161
    )
    
    $
    40,629Capital expenditures
    
    $
    57,030
    
    
    $
    
    
    
    $
    139
    
    
    $
    57,169Total assets
    
    $
    821,202
    
    
    $
    1,688
    
    
    $
    91,324
    
    
    $
    914,214
 NOTE 18
COMMITMENTS AND CONTINGENCIES The company believes that the likelihood that a material loss will occur in connection with
the following claims and contingencies is remote. The company manages risk through insurance
coverage, credit monitoring, and diversification of suppliers and customers. REFINING AGREEMENTS The company has contracted with two entities to refine its filter cake production. Even though
there is a limited number of PGM refiners, the company believes that it is not economically
dependent upon any one refiner. PURCHASE COMMITMENT During 2003, the company entered into a long-term metal sourcing agreement with PowerMount
Incorporated of Somerset Kentucky under which it must purchase spent
catalysts delivered to the
company at prices based on market prices. The company can terminate this
agreement upon ninety days notice. OPERATING LEASES In September 1998, the company completed the sale and leaseback of a tunnel boring machine and
miscellaneous other mining equipment. 87




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##### Table of Contents



The lease is non-cancelable with a term of five years and is classified as an operating lease
for financial reporting purposes. In December 2001, the company entered into an additional
operating lease through the sale and leaseback of mining equipment. The lease is cancelable after
one year with a term of seven years and is classified as an operating lease for financial reporting
purposes. Rental expense amounted to approximately $4.8 million, $4.6 million, and $5.0 million in
2004, 2003, and 2002, respectively. Future minimum lease payments for non-cancelable operating leases with terms in excess of one
year are as follows: Minimum LeaseYear ended (in thousands)
    
    Payment2005
    
    $
    2,1312006
    
    
    5542007
    
    
    4562008
    
    
    4292009
    
    
    1602010 and thereafter
    
    
    802Total
    
    $
    4,532
 SIGNIFICANT CUSTOMERS Sales to significant customers as a percentage of total revenues for the years ended December
31, were as follows: 2004
    
    2003
    
    2002Customer A
    
    
    43
    %
    
    
    65
    %
    
    
    57
    %Customer B
    
    
    *
    
    
    
    23
    %
    
    
    24
    %Customer C
    
    
    15
    %
    
    
    *
    
    
    
    *Customer D
    
    
    15
    %
    
    
    *
    
    
    
    *73
    %
    
    
    88
    %
    
    
    81
    %
 LABOR UNION CONTRACT As of December 31, 2004, the company had approximately 20% and 57% of its labor forces covered
by collective bargaining agreements expiring in June 30, 2005, and June 30, 2007, respectively. LEGAL PROCEEDINGS The company is involved in various claims and legal actions arising in the ordinary course of
business, primarily employee lawsuits. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the companys consolidated financial
position, results of operations or liquidity. 88




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##### Table of Contents



NOTE 19
QUARTERLY DATA (UNAUDITED) Quarterly earnings data for the years ended December 31, 2004 and 2003, were as follows: (in thousands, except per share data)
    

2004 Quarter EndedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31As revised for change in accounting method: (1)Revenue
    
    $
    100,693
    
    
    $
    84,207
    
    
    $
    144,565
    
    
    $
    118,062Depreciation and amortization
    
    $
    15,008
    
    
    $
    14,922
    
    
    $
    13,647
    
    
    $
    16,040Operating income
    
    $
    11,446
    
    
    $
    16,508
    
    
    $
    6,446
    
    
    $
    5,080Income (loss) before cumulative effect of accounting change
    
    $
    7,830
    
    
    $
    13,534
    
    
    $
    (944
    )
    
    $
    3,383Cumulative effect of accounting change, net
    
    $
    6,035
    
    
    $
    
    
    
    $
    
    
    
    $
    Net income (loss)
    
    $
    13,865
    
    
    $
    13,534
    
    
    $
    (944
    )
    
    $
    3,383Comprehensive income (loss)
    
    $
    13,382
    
    
    $
    16,931
    
    
    $
    (6,047
    )
    
    $
    1,427Basic earnings per share (loss)
    
    $
    0.15
    
    
    $
    0.15
    
    
    $
    (0.01
    )
    
    $
    0.04Diluted earnings per share (loss)
    
    $
    0.15
    
    
    $
    0.15
    
    
    $
    (0.01
    )
    
    $
    0.042004 Quarter EndedMarch 31
    
    
    June 30
    
    
    September 30As previously reported: (1)Revenue
    
    $
    100,693
    
    
    $
    84,207
    
    
    $
    144,565Depreciation and amortization
    
    $
    10,489
    
    
    $
    10,634
    
    
    $
    10,571Operating income
    
    $
    19,373
    
    
    $
    19,465
    
    
    $
    11,755Income before cumulative effect of accounting change
    
    $
    15,757
    
    
    $
    16,491
    
    
    $
    4,365Cumulative effect of accounting change, net
    
    $
    
    
    
    $
    
    
    
    $
    Net income
    
    $
    15,757
    
    
    $
    16,491
    
    
    $
    4,365Comprehensive income (loss)
    
    $
    15,274
    
    
    $
    19,888
    
    
    $
    (738
    )Basic earnings per share
    
    $
    0.18
    
    
    $
    0.18
    
    
    $
    0.05Diluted earnings per share
    
    $
    0.17
    
    
    $
    0.18
    
    
    $
    0.052003 Quarter EndedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Revenue
    
    $
    64,154
    
    
    $
    60,011
    
    
    $
    66,645
    
    
    $
    65,013Depreciation and amortization
    
    $
    9,979
    
    
    $
    10,482
    
    
    $
    13,647
    
    
    $
    10,344Operating income (loss)
    
    $
    2,552
    
    
    $
    (4,059
    )
    
    $
    4,038
    
    
    $
    (383,227
    )Loss before cumulative effect of accounting change
    
    $
    (1,349
    )
    
    $
    (19,261
    )
    
    $
    (1,628
    )
    
    $
    (300,614
    )Cumulative effect of accounting change, net
    
    $
    (408
    )
    
    $
    
    
    
    $
    
    
    
    $
    Net loss
    
    $
    (1,757
    )
    
    $
    (19,261
    )
    
    $
    (1,628
    )
    
    $
    (300,614
    )Comprehensive loss
    
    $
    (1,726
    )
    
    $
    (18,940
    )
    
    $
    (1,238
    )
    
    $
    (300,771
    )Basic loss per share (2)
    
    $
    (0.04
    )
    
    $
    (0.40
    )
    
    $
    (0.02
    )
    
    $
    (3.35
    )Diluted loss per share (2)
    
    $
    (0.04
    )
    
    $
    (0.40
    )
    
    $
    (0.02
    )
    
    $
    (3.35
    )
   (1)
    
    During the fourth quarter of 2004, the company changed its accounting method for
amortizing capitalized mine development costs. (see Note 3). The quarterly earnings data
for 2004 have been revised to give retroactive effect to the change in accounting method
as of January 1, 2004..(2)
    
    The sum of the quarterly basic and diluted earnings (loss) per share
does not agree to the year-to-date basic and diluted earnings (loss) per share due to the
effect of stock transactions during the periods on determining the weighted average shares
outstanding each quarterly and annual period. 89




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ITEM 9
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. 
 ITEM 9A
CONTROLS AND PROCEDURES  (a)
    Managements report on internal control over financial
reporting Management of the company is responsible for establishing and
maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rule 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934, as amended
Exchange Act, as a process designed by, or under the supervision of,
the companys principal executive and principal financial officers and
effected by the companys board of directors, management and other
personnel to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles and includes those policies and procedures that:  
    pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and dispositions
of the assets of the company;
    provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
    provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the financial
statements. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the risks
that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate. Management assessed the effectiveness of the companys internal
control over financial reporting as of December 31, 2004. In making
this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework. Based on our assessment, management believes that, as of December 31,
2004, the companys disclosure controls and procedures are effective
in recording, processing, summarizing and reporting, on a timely
basis, information required to be disclosed by the company in the
reports that it files or submits under the Exchange Act and are
effective in ensuring that information required to be disclosed by the
company in the reports that it files or submits under the Exchange Act
is accumulated and communicated to the companys management, including
the companys Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure. The companys independent auditors have issued an audit report on our
assessment of the companys internal control over financial reporting.
This report appears on page 62.  (b)
    Internal Control Over Financial Reporting. There have not been any changes in the companys internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the fourth quarter of 2004 to which
this report relates that have materially affected, or are reasonably
likely to materially affect, the companys internal control over
financial reporting. 90




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ITEM 9B
Other Information Not Applicable 
 PART III 
 ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT With regard to directors reference is made to the information set forth under the caption
Nominees for Election in the companys Proxy Statement for the 2005 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A, which information is incorporated herein by
reference. Set forth below is certain information concerning the individuals who were executive officers
of the company as of December 31, 2004. Name
    
    Age
    
    PositionFrancis R. McAllister
    
    
    62
    
    
    Chairman of the Board and Chief Executive OfficerStephen A. Lang
    
    
    49
    
    
    Executive Vice President and Chief Operating OfficerJohn R. Stark
    
    
    52
    
    
    Vice President, Human Resources, Secretary and Corporate CounselTerrell I. Ackerman
    
    
    51
    
    
    Vice President, Planning and Process OperationsGregory A. Wing
    
    
    55
    
    
    Vice President, and Chief Financial Officer
 The following are brief biographies of the companys executive officers and directors: EXECUTIVE OFFICERS Francis R. McAllister (age 62)was appointed Chairman of the Board and Chief Executive Officer
of the company effective February 12, 2001. Mr. McAllister was appointed a Director of the company
on January 9, 2001. Prior to his appointment to the Board, Mr. McAllister served with ASARCO
Incorporated from 1966 to 1999, most recently as Chairman and Chief Executive Officer in 1999, as
Chief Operating Officer from 1998 to 1999, as Executive Vice President  Copper Operations from
1993 to 1998, as Chief Financial Officer from 1982 to 1993 and in various professional and
management positions from 1966 to 1982. He currently serves on the Board of Directors of Cleveland
Cliffs, Incorporated, an iron ore mining company. Mr. McAllister received his MBA from New York
University, his Bachelor of Science - Finance from the University of Utah, and attended the
Advanced Management Program at Harvard Business School. Stephen A. Lang (age 49)became the companys Executive Vice President and Chief Operating
Officer effective September 2, 2003. Mr. Lang was employed with Barrick Gold Corporation from 2001
to 2003 as Vice President and General Manager of Barrick Golds Goldstrike/ Meikle operation. Prior
to joining Barrick Gold, Mr. Lang served as Vice President of Engineering and Project Development
of Rio Algom, Limited in Santiago, Chile from 1999 to 2001. From 1996 to 1999, Mr. Lang served as
Vice President and General Manager of Kinross Gold Corporation/ Amax Gold Corporations Fort Knox
Mine in Fairbanks, Alaska. From 1981 to 1996, he held various positions with Santa Fe Pacific Gold
Minerals Corporation, including General Manager of the Twin Creeks Mine in Golconda, Nevada. Mr.
Lang earned a Bachelors of Science in Mining Engineering from the University of Missouri-Rolla and
a Masters Degree in Mining Engineering from the University of Missouri-Rolla. John R. Stark (age 52)was appointed Vice President, Human Resources on September 21, 1999,
and was subsequently appointed Secretary and Corporate Counsel on May 29, 2001 and July 17, 2001,
respectively. Mr. Stark has a varied background in corporate administration and human resources. He
was previously with Molycorp, Inc. in 1996 as Manager of Sales and Administration; Western Mobile,
Inc., an international construction material supplier, from 1992 to 1996; and with AMAX Inc. for 13
years until 1992. Mr. Stark received his Juris Doctor degree from the University of Denver School
of Law and holds a Bachelor of Arts degree in economics from the University of Montana. Terrell I. Ackerman (age 51)is currently Vice President, Planning and Process Operations. Mr.
Ackerman joined the company in March 2000 as Director of Corporate Planning after 2 years as an
independent consultant. During 1998 and 1999 Mr. Ackerman conducted feasibility studies,
operational and mine planning reviews for various underground operations. Prior to this time, Mr.
Ackerman was VP and General Manager of BHP Coppers San Manuel Operation in Arizona. Mr. Ackerman
held increasing roles of accountability for Magma Copper Company starting as an underground
engineer in training in 1976. Mr. Ackerman received a 91




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Bachelor of Science degree in Mine Engineering from the University of Idaho College of Mines. Gregory A. Wing (age 55)became the companys Vice President and Chief Financial Officer
effective March 22, 2004. Previously, Mr. Wing served as the Vice President and Chief Financial
Officer of Black Beauty Coal Company from 1995 through 2003. Prior to joining Black Beauty, Mr.
Wing was with The Pittsburg and Midway Coal Mining Company, a subsidiary of Chevron Corporation, as
Manager of Financial Planning and Analysis. From 1986 to 1989, he was employed by Chevron
Corporation as Senior Analyst in Corporation Planning, and from 1980 to 1986, he was with Arabian
American Oil Company in Dhahran, Saudi Arabia. Mr. Wing received a Bachelor of Arts in Physics and
an M.B.A in Accounting and Finance, both from the University of California at Berkeley 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
2004 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A, which information is
incorporated herein by reference. Audit Committee Financial Expert Newly created federal regulations and New York Stock Exchange listing requirements require the
board to determine if a member of its audit committee is an audit committee financial expert.
According to these new requirements, an audit committee member can be designated an audit committee
financial expert only when the audit committee member satisfies five specified qualification
requirements, such as experience (or experience actively supervising others engaged in)
preparing, auditing, analyzing, or evaluating financial statements presenting a level of accounting
complexity comparable to what is encountered in connection with the companys financial statements.
The regulations further require such qualifications to have been acquired through specified means
of experience or education. While the board has confidence in the ability and the effectiveness of
its audit committee, the board has determined that no current audit committee member qualifies as
an audit committee financial expert. The board believes that the current members of the audit
committee are qualified to carry out the duties and responsibilities of the audit committee. In
the event of a vacancy on the board, the board desires to fill it with a person satisfying the
requirements for an audit committee financial expert, assuming that such individual satisfies such
other criteria that the board believes are important for an individual to make a meaningful
contribution to the deliberations of the board as a whole. Code of Ethics The company has adopted a code of ethics that requires honest and ethical conduct; avoidance
of conflicts of interest; compliance with applicable governmental laws, rules and regulations;
full, fair, accurate, timely, and understandable disclosure in reports and documents filed with the
SEC and in other public communications made; and accountability for adherence to the code. The
code of Ethics can be accessed via the companys internet website is
http://www.stillwatermining.com. Printed copies will be provided upon request. Corporate Governance The companys corporate governance principles, corporate governance and nominating committee
charter, compensation committee charter and audit committee charter can be accessed via the companys internet website
is http://www.stillwatermining.com 
 ITEM 11
EXECUTIVE COMPENSATION Reference is made to the information set forth under the caption Executive Compensation in
the companys Proxy Statement for the 2005 Annual Meeting of Stockholders to be filed pursuant to
Regulation 14A, which information is incorporated herein by reference. 
 ITEM 12 92




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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS 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 2005 Annual Meeting
of Stockholders to be filed pursuant to Regulation 14A, which information is incorporated herein by
reference. 
 ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Reference is made to the information set forth under the caption Certain Relationships and
Related Transactions in the companys Proxy Statement for the 2005 Annual Meeting of Stockholders
to be filed pursuant to Regulation 14A, which information is incorporated herein by reference. 
 ITEM 14
PRINCIPAL ACCOUNTING FEES AND SERVICES Reference is made to the information set forth under the caption Principal Accounting Fees
and Services in the companys Proxy Statement for the 2005 Annual Meeting of Stockholders to be
filed pursuant to Regulation 14A, which information is incorporated herein by reference. 
 PART IV 
 ITEM 15
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, (a) Documents filed as part of this Form 10-K 1. Financial Statements and Supplementary Data PageReport of Independent Accountants
    
    
    61Statements of Operations and Comprehensive Income
    
    
    63Balance Sheets
    
    
    65Statements of Cash Flows
    
    
    66Statements of Changes in Stockholders Equity
    
    
    67Notes to Financial Statements
    
    
    68
 2. Financial Statement Schedules (not applicable) (b) See Exhibit Index below (c)Not applicable 93




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EXHIBITS Number
    
    Description2.1
    
    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
    
    Restated Certificate of Incorporation of Stillwater Mining Company,
dated October 23, 2003 (incorporated by reference to Exhibit 3.1 to
the Form 10-Q for the quarterly period ended September 30, 2003,
filed on October 27, 2003).3.2
    
    Amended and Restated By-Laws of Stillwater Mining Company,
(incorporated by reference to Exhibit 3.2 to the Form 8-K filed on
December 29, 2004).4.1
    
    Form of Indenture, dated April 29, 1996, between Stillwater Mining Company and Colorado National Bank
with respect to the companys 7% Convertible Subordinated Notes Due 2003 (incorporated by reference to
Exhibit 4.1 of the Registrants Form 8-K, dated April 29, 1996).4.2
    
    Rights Agreement, dated October 26, 1995 (incorporated by reference to Form 8-A, filed on October 30,
1995).4.3
    
    Amendment No. 1, dated as of November 20, 2002, to the Rights Agreement between Stillwater Mining
Company and Computershare Trust Company, Inc. (incorporated by reference to Exhibit 4.1 of the
Registrants Form 8-K, dated November 21, 2002).10.1
    
    1998 Equity Incentive Plan (incorporated by reference to Appendix A to the Proxy statement, dated April
6, 1998).10.2
    
    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).10.3
    
    Conveyance of Royalty Interest and Agreement between Stillwater Mining Company and Manville Mining
Company, dated October 1, 1993 (incorporated by reference to Exhibit 10.9 to the 1994 S-1).10.4
    
    Palladium Sales Agreement, made as of August 13, 1998, among Stillwater Mining Company and Ford Motor
Company (portions of the agreement have been omitted pursuant to a confidential treatment request)
(incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K, dated July 21, 1998).10.5
    
    Palladium and Platinum Sales Agreement, made as of August 17, 1998, among Stillwater Mining Company and
General Motors Corporation (portions of the agreement have been omitted pursuant to a confidential
treatment request) (incorporated by reference to Exhibit 10.3 to the Registrants Form 8-K, dated July
21, 1998).10.6
    
    Palladium and Platinum Sales Agreement, made as of August 27, 1998, among Stillwater Mining Company and
Mitsubishi Corporation (portions of the agreement have been omitted pursuant to a confidential treatment
request) (incorporated by reference to Exhibit 10.4 to the Form 8-K, dated July 21, 1998).10.7
    
    Employment Agreement between Francis R. McAllister and Stillwater Mining Company, dated July 23, 2001
(incorporated by reference to Exhibit 10.1 to the Form 10-Q for the quarterly period ended September 30,
2001).10.8
    
    Employment agreement between John R. Stark and Stillwater Mining Company dated July 23, 2001
(incorporated by reference to Exhibit 10.18 to the Form 10-K for the year ended December 31, 2001).10.9
    
    First Amendment Agreement to Palladium Sales Agreement between Stillwater Mining Company and Ford Motor
Company, dated October 27, 2000 (incorporated by reference to Exhibit 10.20 of the Registrants 2000
10-K) (portions of the agreement have been omitted pursuant to a confidential treatment request).10.10
    
    Second Amendment Agreement to Palladium and Platinum Sales Agreement between Stillwater Mining Company
and Ford Motor Company, dated March 27, 2001 (incorporated by reference to Exhibit 10.1 to the Form 10-Q
for the quarterly period ended March 31, 2001) (portions of the agreement have been omitted pursuant to
a confidential treatment request).10.11
    
    First Amendment Agreement to Palladium and Platinum Sales Agreement between Stillwater Mining Company
and General Motors Corporation, dated November 20, 2000 (incorporated by reference to Exhibit 10.21 of
the Registrants 2000 10-K) (portions of the agreement have been omitted pursuant to a confidential
treatment request).10.12
    
    Refining Agreement between Stillwater Mining Company and Catalyst and Chemicals Division of Johnson
Matthey Inc. dated July 27, 2000 (incorporated by reference to Exhibit 10.22 of the Registrants 2000
10-K) (portions of the agreement have been omitted pursuant to a confidential treatment request).10.13
    
    Second Amendment Agreement to Palladium and Platinum Sales Agreement between Stillwater Mining Company
 94




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Number
    
    Descriptionand General Motors Corporation, dated February 14, 2001 (incorporated by reference to Exhibit 10.24 of
the Registrants 2001 10-K).10.14
    
    First Amendment Agreement to Palladium and Platinum Sales Agreement between Stillwater Mining Company,
Mitsubishi Corporation and Mitsubishi International Corporation, dated April 1, 2001 (incorporated by
reference to Exhibit 10.2 to the Form 10-Q, for the quarterly period ended March 31, 2001) (portions of
the agreement have been omitted pursuant to a confidential treatment request).10.15
    
    Second Amendment Agreement to Palladium, Platinum and Rhodium Sales Agreement between Stillwater Mining
Company and Mitsubishi International Corporation, dated November 30, 2001(incorporated by reference to
Exhibit 10.26 of the Registrants 2001 10-K).10.16
    
    Third Amendment to Palladium and Platinum Sales Agreement between Stillwater Mining Company and Ford
Motor Company, dated March 13, 2002 (incorporated by reference to Exhibit 10.33 of the Registrants 2002
10-K) (portions of the agreement have been omitted pursuant to a confidential treatment request).10.17
    
    Employment Agreement between Terrell I. Ackerman and Stillwater Mining Company dated May 8, 2002
(incorporated by reference to Exhibit 10.34 of the Registrants 2002 10-K).10.18
    
    Amended and Restated General Employee Stock Plan, dated October 23, 2003 (incorporated by reference to
Exhibit 10.1 to the Form 10-Q for the quarterly period ended September 30, 2003).10.19
    
    Employment Agreement between Stephen A. Lang and Stillwater Mining Company dated September 1, 2003
(incorporated by reference to Exhibit 10.2 to the Form 10-Q for the quarterly period ended September 30,
2003).10.20
    
    Stock Purchase Agreement between Stillwater Mining Company and MMC Norilsk Nickel and Norimet Ltd. dated
June 23, 2003. (incorporated by reference to Exhibit 10.1 to the Form 8-K, dated June 23, 2003)10.21
    
    Registration Rights Agreement, Stillwater Mining Company and Norimet Ltd. dated June 23, 2003.
(incorporated by reference to Exhibit 10.2 to the Form 8-K dated June 23, 2003)10.22
    
    Palladium Sales Agreement, made as of February 1, 2004, among Stillwater Mining Company and Mitsubishi
Corporation (incorporated by reference to Exhibit 10.38 to the Form 10-K filed on March 15,
2004(portions of this agreement have been omitted pursuant to a confidential treatment request) (filed
herewith).10.23
    
    Palladium Sales Agreement, made as of March 3, 2004, among Stillwater Mining Company and Engelhard
Corporation (incorporated by reference to Exhibit 10.39 to the Form 10-K filed on March 15,
2004(portions of this agreement have been omitted pursuant to a confidential treatment request) (filed
herewith).10.24
    
    Employment Agreement between Gregory A. Wing and Stillwater Mining Company dated as of March 22, 2004
(incorporated by reference to Exhibit 10.40 to the Form 10-K filed on March 15, 2004).10.25
    
    Articles of Agreement between Stillwater Mining Company (East Boulder) Paper, Allied Industrial,
Chemical and Energy Workers International Union, ratified July 2002 (incorporated by reference to
Exhibit 10.41 to the Form 10-K filed on March 15, 2004).10.26
    
    Amendment No. 1 to Stockholders Agreement, dated as of March 19, 2004, made by and among Stillwater
Mining Company and MMC Norilsk Nickel (incorporated by reference to Exhibit 2.1 to the Form 10-Q filed
on May 7, 2004).10.27
    
    Palladium, Platinum, Rhodium Sales Agreement, dated as of March 1, 2004, among Stillwater Mining Company
and DaimlerChrylser Corporation (portions of this agreement have been omitted due to confidentiality
provision). (incorporated by reference to Exhibit 10.1 to the Form 10-Q filed on May 7, 2004)10.28
    
    Articles of Agreement between Stillwater Mining Company (Stillwater Mine & Mill, and the Processing and
Warehouse facilities) Paper, Allied Industrial, Chemical and Energy Workers International Union,
ratified July 19, 2004 ((incorporated by reference to Exhibit 10.1 to the Form 10-Q filed on August 5,
2004).10.29
    
    Credit Agreement, dated August 3, 2004, between Stillwater Mining Company and TD Securities (USA), Ltd.
(incorporated by reference to Exhibit 10.2 to the Form 10-Q filed on August 5, 2004)10.30
    
    Fourth Amendment to Palladium and Platinum Sales Agreement between Stillwater Mining Company and Ford
Motor Company, dated February 20, 2003 (incorporated by reference to Exhibit 10.1 to the Form 10-Q filed
on November 2, 2004).10.31
    
    Fifth Amendment to Palladium and Platinum Sales Agreement between Stillwater Mining Company and Ford
Motor Company, dated May 4, 2004 ((incorporated by reference to Exhibit 10.1 to the Form 10-Q filed on
November 2, 2004).
 95




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Number
    
    Description18.1
    
    Preferability letter from KPMG, LLP
on accounting change (filed herewith)23.1
    
    Consent of KPMG LLP (filed herewith).23.2
    
    Consent of Behre Dolbear & Company, Inc. (filed herewith).31.1
    
    Rule 13a-14(a)/15d-14(a) Certification  Chief Executive Officer, dated March 30, 200531.2
    
    Rule 13a-14(a)/15d-14(a) Certification  Vice President and Chief Financial Officer, dated March 30, 200532.1
    
    Section 1350 Certification, dated March 30, 200532.2
    
    Section 1350 Certification, dated March 30, 2005
 96




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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 30, 2005
    By:
    /s/ Francis R. McAllisterFrancis R. McAllisterChairman and Chief Executive 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/ Francis R. McAllister

Francis R. McAllister
    
    March 30, 2005Chairman, Chief Executive Officer and Director(Principal Executive Officer)/s/ Gregory A. Wing

Gregory A. Wing
    
    March 30, 2005Vice President and Chief Financial Officer(Principal Accounting Officer)/s/ Craig L. Fuller

Craig L. Fuller, Director
    
    March 30, 2005/s/ Patrick M. James

Patrick M. James, Director
    
    March 30, 2005/s/ Steven S. Lucas

Steven S. Lucas, Director
    
    March 30, 2005/s/ Joseph P. Mazurek

Joseph P. Mazurek, Director
    
    March 30, 2005/s/ Sheryl K. Pressler

Sheryl K. Pressler, Director
    
    March 30, 2005/s/ Donald Riegle Jr.

Donald Riegle Jr., Director
    
    March 30, 2005/s/ Todd D. Schafer

Todd D. Schafer, Director
    
    March 30, 2005/s/ Jack E. Thompson

Jack E. Thompson, Director
    
    March 30, 2005
 97




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EXHIBIT INDEX Number
    
    Description2.1
    
    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
    
    Restated Certificate of Incorporation of Stillwater Mining Company,
dated October 23, 2003 (incorporated by reference to Exhibit 3.1 to
the Form 10-Q for the quarterly period ended September 30, 2003,
filed on October 27, 2003).3.2
    
    Amended and Restated By-Laws of Stillwater Mining Company,
(incorporated by reference to Exhibit 3.2 to the Form 8-K filed on
December 29, 2004).4.1
    
    Form of Indenture, dated April 29, 1996, between Stillwater Mining Company and Colorado National Bank
with respect to the companys 7% Convertible Subordinated Notes Due 2003 (incorporated by reference to
Exhibit 4.1 of the Registrants Form 8-K, dated April 29, 1996).4.2
    
    Rights Agreement, dated October 26, 1995 (incorporated by reference to Form 8-A, filed on October 30,
1995).4.3
    
    Amendment No. 1, dated as of November 20, 2002, to the Rights Agreement between Stillwater Mining
Company and Computershare Trust Company, Inc. (incorporated by reference to Exhibit 4.1 of the
Registrants Form 8-K, dated November 21, 2002).10.1
    
    1998 Equity Incentive Plan (incorporated by reference to Appendix A to the Proxy statement, dated April
6, 1998).10.2
    
    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).10.3
    
    Conveyance of Royalty Interest and Agreement between Stillwater Mining Company and Manville Mining
Company, dated October 1, 1993 (incorporated by reference to Exhibit 10.9 to the 1994 S-1).10.4
    
    Palladium Sales Agreement, made as of August 13, 1998, among Stillwater Mining Company and Ford Motor
Company (portions of the agreement have been omitted pursuant to a confidential treatment request)
(incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K, dated July 21, 1998).10.5
    
    Palladium and Platinum Sales Agreement, made as of August 17, 1998, among Stillwater Mining Company and
General Motors Corporation (portions of the agreement have been omitted pursuant to a confidential
treatment request) (incorporated by reference to Exhibit 10.3 to the Registrants Form 8-K, dated July
21, 1998).10.6
    
    Palladium and Platinum Sales Agreement, made as of August 27, 1998, among Stillwater Mining Company and
Mitsubishi Corporation (portions of the agreement have been omitted pursuant to a confidential treatment
request) (incorporated by reference to Exhibit 10.4 to the Form 8-K, dated July 21, 1998).10.7
    
    Employment Agreement between Francis R. McAllister and Stillwater Mining Company, dated July 23, 2001
(incorporated by reference to Exhibit 10.1 to the Form 10-Q for the quarterly period ended September 30,
2001).10.8
    
    Employment agreement between John R. Stark and Stillwater Mining Company dated July 23, 2001
(incorporated by reference to Exhibit 10.18 to the Form 10-K for the year ended December 31, 2001).10.9
    
    First Amendment Agreement to Palladium Sales Agreement between Stillwater Mining Company and Ford Motor
Company, dated October 27, 2000 (incorporated by reference to Exhibit 10.20 of the Registrants 2000
10-K) (portions of the agreement have been omitted pursuant to a confidential treatment request).10.10
    
    Second Amendment Agreement to Palladium and Platinum Sales Agreement between Stillwater Mining Company
and Ford Motor Company, dated March 27, 2001 (incorporated by reference to Exhibit 10.1 to the Form 10-Q
for the quarterly period ended March 31, 2001) (portions of the agreement have been omitted pursuant to
a confidential treatment request).10.11
    
    First Amendment Agreement to Palladium and Platinum Sales Agreement between Stillwater Mining Company
and General Motors Corporation, dated November 20, 2000 (incorporated by reference to Exhibit 10.21 of
the Registrants 2000 10-K) (portions of the agreement have been omitted pursuant to a confidential
treatment request).10.12
    
    Refining Agreement between Stillwater Mining Company and Catalyst and Chemicals Division of Johnson
Matthey Inc. dated July 27, 2000 (incorporated by reference to Exhibit 10.22 of the Registrants 2000
10-K) (portions of the agreement have been omitted pursuant to a confidential treatment request).10.13
    
    Second Amendment Agreement to Palladium and Platinum Sales Agreement between Stillwater Mining Company




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##### Table of Contents



Number
    
    Descriptionand General Motors Corporation, dated February 14, 2001 (incorporated by reference to Exhibit 10.24 of
the Registrants 2001 10-K).10.14
    
    First Amendment Agreement to Palladium and Platinum Sales Agreement between Stillwater Mining Company,
Mitsubishi Corporation and Mitsubishi International Corporation, dated April 1, 2001 (incorporated by
reference to Exhibit 10.2 to the Form 10-Q, for the quarterly period ended March 31, 2001) (portions of
the agreement have been omitted pursuant to a confidential treatment request).10.15
    
    Second Amendment Agreement to Palladium, Platinum and Rhodium Sales Agreement between Stillwater Mining
Company and Mitsubishi International Corporation, dated November 30, 2001(incorporated by reference to
Exhibit 10.26 of the Registrants 2001 10-K).10.16
    
    Third Amendment to Palladium and Platinum Sales Agreement between Stillwater Mining Company and Ford
Motor Company, dated March 13, 2002 (incorporated by reference to Exhibit 10.33 of the Registrants 2002
10-K) (portions of the agreement have been omitted pursuant to a confidential treatment request).10.17
    
    Employment Agreement between Terrell I. Ackerman and Stillwater Mining Company dated May 8, 2002
(incorporated by reference to Exhibit 10.34 of the Registrants 2002 10-K).10.18
    
    Amended and Restated General Employee Stock Plan, dated October 23, 2003 (incorporated by reference to
Exhibit 10.1 to the Form 10-Q for the quarterly period ended September 30, 2003).10.19
    
    Employment Agreement between Stephen A. Lang and Stillwater Mining Company dated September 1, 2003
(incorporated by reference to Exhibit 10.2 to the Form 10-Q for the quarterly period ended September 30,
2003).10.20
    
    Stock Purchase Agreement between Stillwater Mining Company and MMC Norilsk Nickel and Norimet Ltd. dated
June 23, 2003. (incorporated by reference to Exhibit 10.1 to the Form 8-K, dated June 23, 2003)10.21
    
    Registration Rights Agreement, Stillwater Mining Company and Norimet Ltd. dated June 23, 2003.
(incorporated by reference to Exhibit 10.2 to the Form 8-K dated June 23, 2003)10.22
    
    Palladium Sales Agreement, made as of February 1, 2004, among Stillwater Mining Company and Mitsubishi
Corporation (incorporated by reference to Exhibit 10.38 to the Form 10-K filed on March 15,
2004(portions of this agreement have been omitted pursuant to a confidential treatment request) (filed
herewith).10.23
    
    Palladium Sales Agreement, made as of March 3, 2004, among Stillwater Mining Company and Engelhard
Corporation (incorporated by reference to Exhibit 10.39 to the Form 10-K filed on March 15,
2004(portions of this agreement have been omitted pursuant to a confidential treatment request) (filed
herewith).10.24
    
    Employment Agreement between Gregory A. Wing and Stillwater Mining Company dated as of March 22, 2004
(incorporated by reference to Exhibit 10.40 to the Form 10-K filed on March 15, 2004).10.25
    
    Articles of Agreement between Stillwater Mining Company (East Boulder) Paper, Allied Industrial,
Chemical and Energy Workers International Union, ratified July 2002 (incorporated by reference to
Exhibit 10.41 to the Form 10-K filed on March 15, 2004).10.26
    
    Amendment No. 1 to Stockholders Agreement, dated as of March 19, 2004, made by and among Stillwater
Mining Company and MMC Norilsk Nickel (incorporated by reference to Exhibit 2.1 to the Form 10-Q filed
on May 7, 2004).10.27
    
    Palladium, Platinum, Rhodium Sales Agreement, dated as of March 1, 2004, among Stillwater Mining Company
and DaimlerChrylser Corporation (portions of this agreement have been omitted due to confidentiality
provision). (incorporated by reference to Exhibit 10.1 to the Form 10-Q filed on May 7, 2004)10.28
    
    Articles of Agreement between Stillwater Mining Company (Stillwater Mine & Mill, and the Processing and
Warehouse facilities) Paper, Allied Industrial, Chemical and Energy Workers International Union,
ratified July 19, 2004 ((incorporated by reference to Exhibit 10.1 to the Form 10-Q filed on August 5,
2004).10.29
    
    Credit Agreement, dated August 3, 2004, between Stillwater Mining Company and TD Securities (USA), Ltd.
(incorporated by reference to Exhibit 10.2 to the Form 10-Q filed on August 5, 2004)10.30
    
    Fourth Amendment to Palladium and Platinum Sales Agreement between Stillwater Mining Company and Ford
Motor Company, dated February 20, 2003 (incorporated by reference to Exhibit 10.1 to the Form 10-Q filed
on November 2, 2004).10.31
    
    Fifth Amendment to Palladium and Platinum Sales Agreement between Stillwater Mining Company and Ford
Motor Company, dated May 4, 2004 ((incorporated by reference to Exhibit 10.1 to the Form 10-Q filed on
November 2, 2004).




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##### Table of Contents



Number
    
    Description18.1
    
    Preferability letter from KPMG, LLP
on accounting change (filed herewith)23.1
    
    Consent of KPMG LLP (filed herewith).23.2
    
    Consent of Behre Dolbear & Company, Inc. (filed herewith).31.1
    
    Rule 13a-14(a)/15d-14(a) Certification  Chief Executive Officer, dated March 30, 200531.2
    
    Rule 13a-14(a)/15d-14(a) Certification  Vice President and Chief Financial Officer, dated March 30, 200532.1
    
    Section 1350 Certification, dated March 30, 200532.2
    
    Section 1350 Certification, dated March 30, 2005