UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

OR

[   ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 0-25090

STILLWATER MINING COMPANY

(406) 322-8700

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: YES [X] NO [   ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2): YES [X] NO [   ]

At April 30, 2004 the company had outstanding 90,102,570 shares of common stock, par value $0.01 per share.

STILLWATER MINING COMPANY

FORM 10-Q

QUARTER ENDED MARCH 31, 2004

INDEX

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PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

Stillwater Mining Company
Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
(in thousands, except per share amounts)

See notes to consolidated financial statements.

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Stillwater Mining Company
Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share amounts)

See notes to consolidated financial statements

4

Stillwater Mining Company
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)

See notes to consolidated financial statements

5

Stillwater Mining Company
Notes to Consolidated Financial Statements
(Unaudited)

Note 1 - General

     In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the company’s financial position as of March 31, 2004 and the results of its operations and its cash flows for the three-month periods ended March 31, 2004 and 2003. Certain prior period amounts have been reclassified to conform with the current year presentation. The results of operations for the three-month periods are not necessarily indicative of the results to be expected for the full year. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the company’s 2003 Annual Report on Form 10-K.

Note 2 – Stock-Based Compensation Costs

     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 provisions of SFAS No. 123, Accounting for Stock-Based Compensation. The following pro forma disclosures illustrate the effect on net income (loss) and earnings (loss) per share as if the fair value based method of accounting, as set forth in SFAS No. 123, had been applied.

     In meetings held in conjunction with the company’s April 29, 2004 Annual Meeting of Shareholders, the Board of Directors of the company granted deferred incentive compensation awards to the officers of the company and to the members of the Board of Directors in the form of restricted stock. Approximately 6,800 shares of company stock were awarded to the Board of Directors, and approximately 350,000 shares were awarded to the officers of the company. The restricted shares awarded to members of the Board will vest in six months, while those awarded to the officers of the company will vest at the end of three years. Because these awards all were granted after March 31, 2004, no provision for them is included in the first quarter 2004 financial statements.

Note 3 – Comprehensive Income

     Comprehensive income consists of earnings items and other gains and losses affecting stockholders’ equity that, under accounting principles generally accepted in the United States, are excluded from current net income. For the company, such items consist of unrealized gains and losses on derivative financial instruments related to commodity and interest rate hedging.

     The net of tax balance in accumulated other comprehensive loss at March 31, 2004 and December 31, 2003 was $1.3 million and $0.8 million, respectively.

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     The company had commodity instruments relating to fixed forward metal sales and financially settled forwards outstanding during the first quarter of 2004. The unrealized losses relating to these instruments, $1.3 million at March 31, 2004, will be reflected in other comprehensive income until these instruments are settled. All commodity instruments outstanding at March 31, 2004 are expected to be settled within the next six months.

     The company’s interest rate swaps, which were accounted for as a hedging instrument, matured on March 4, 2004.

     The following summary sets forth the changes in other comprehensive loss accumulated in stockholders’ equity:

Note 4 - Inventories

     Inventories consisted of the following:

     Inventories are stated at the lower of current market value (taking into consideration the company’s long-term sales contracts), or average unit cost. Metal inventory costs include direct labor and materials, depreciation and amortization, and overhead costs relating to mining and processing activities.

Note 5 – Long-Term Debt

Credit Facility

     In February 2001, the company entered into a $250 million credit facility with a syndicate of financial institutions which replaced a previous $175 million bank facility. The credit facility has been amended or waivers have been obtained eight times with the most recent waiver effective March 31, 2004. The credit facility provided for a $65 million five-year term loan facility (Term A), a $135 million seven-year term loan facility (Term B) and a $25 million revolving credit facility (reduced from $50 million at the company’s request as of March 20, 2003). Amortization of the term loan facilities commenced on March 31, 2002.

     During 2003, the company obtained a letter of credit in the amount of $7.5 million, carrying an annual fee of 4.0%. This letter of credit reduced by $7.5 million the amount available under the revolving credit facility at March 31, 2004. The revolving credit facility requires an annual commitment fee of 0.5% on the remaining unadvanced amount.

     In accordance with the terms of the credit agreement, the company is required to offer 50% of the net cash proceeds from the sale of the 877,169 ounces of palladium inventory received in the Norilsk Nickel transaction to

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prepay its term loans. In accordance with the scheduled delivery of this palladium under the sales agreements in place as of March 31, 2004, $37.0 million of the long-term debt has been classified as a current liability. The lenders are not obligated to accept any prepayment offer. If the lenders do not accept the prepayment, the company retains the cash but the availability under the revolving credit facility is reduced by the amount of the prepayment not accepted. As of March 31, 2004, the company has offered $1.2 million of cash proceeds from sales of palladium received in the Norilsk Nickel stock purchase for prepayment of the Term B facility. (These prepayment offers are made as cash is actually received, which normally lags behind recognition of sales revenue.) This offer was not accepted and the availability to borrow under the revolving credit facility as of March 31, 2004 has been reduced accordingly by $1.2 million to $16.3 million. The Term B facility final maturity date is December 31, 2007. The final maturity date of the revolving credit facility is December 30, 2005.

     As of March 31, 2004, the company has $128.1 million outstanding under the Term B facility, bearing interest at a variable rate plus a margin, which is reset quarterly (7.25% at March 31, 2004). The schedule of principal payments on the amounts outstanding as of March 31, 2004, without regard to possible prepayments from sales of the inventory received in connection with the Norilsk Nickel transaction, is as follows:

     (in thousands)

     During the first quarter of 2004, as a result of lower production from its mine operations, the company did not meet the production covenant under the credit facility, which is based on a trailing four-quarter average. The bank syndicate has granted a waiver of this covenant that is effective for the first and second quarters of 2004. The company believes it will be in compliance with its production covenant for the third quarter of 2004. In addition, the company is currently seeking to renegotiate, refinance or replace the credit facility. The company is in compliance with all other provisions of the credit facility as of March 31, 2004.

Note 6 – Earnings per Share

     Outstanding options to purchase 1,329,119 and 2,577,479 shares of common stock were excluded from the computation of diluted earnings per share for the three-month periods ended March 31, 2004 and 2003, respectively, because the effect would have been antidilutive using the treasury stock method. The effect of outstanding stock options on diluted weighted average shares outstanding was 271,373 shares for the three-month period ended March 31, 2004.

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Note 7 – Long-Term Sales Contracts

     During 1998, the company entered into three PGM supply contracts with its customers that contain guaranteed floor prices for metal delivered. The company has since 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 to the company’s production through December 2006 and the third is expected to be fulfilled in 2007. As the following table illustrates, the company has committed between 80% to 100% of its palladium production and between 70% to 80% of its platinum production annually through 2010. Metal sales are priced at a modest discount to market. The remaining production is not committed under these contracts and remains available for sale at prevailing market prices. The contracts provide for floor and ceiling price structures as summarized below:

     The sales contracts provide for adjustments to ounces committed based on actual production. These 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 qualify for the normal sales exception from hedge accounting rules provided in SFAS No. 138 because 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 as a separate derivative instrument, and are therefore also not subject to the requirements of SFAS No. 133.

     The company has 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 will sell approximately 37,000 ounces of palladium per month, ending in the first quarter of 2006, at close to market prices. Separately, under one of these agreements, the company also will sell 3,000 ounces of platinum and 2,000 ounces of rhodium per month also at prices close to market.

Note 8 – Financial 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 and platinum commodity prices and in interest rates. 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. Fixed forward 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. 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. While the price risk is managed by such instruments, accounting rules do not allow the change in values of the metals protected to be reported, but require the change in value of the hedging instrument to be reflected in stockholders equity as other comprehensive income. The unrealized loss of $1.3 million existing at March 31, 2004 relating to these instruments will be reflected in other

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comprehensive income until these instruments are settled and will be offset by metal inventory gains largely equal in size which will be reported in operating income. All commodity instruments outstanding at March 31, 2004 are expected to be settled within the next six-months. There were no outstanding fixed forward and financially settled forward commodity instruments settled during the first quarter of 2004.

Interest Rate Derivatives

     The company entered into two identical interest rate swap agreements which fixed the interest rate on $100.0 million of the company’s debt, effective March 4, 2002 and maturing on March 4, 2004. These interest rate swap agreements qualified as a cash flow hedge and were considered to be highly effective since the change in the value of the interest rate swap offset changes in the future cash flows related to interest payments on the company’s debt. During the three-month periods ended March 31, 2004 and 2003, hedging losses of $0.4 million and $0.6 million, respectively, were recognized as additional interest expense.

Note 9 – Income Taxes

     The Company computes income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” SFAS No. 109 requires an asset and liability approach which results in the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of those assets and liabilities, as well as operating loss and tax credit carryforwards, using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company has net operating loss carryforwards (NOL’s), which expire in 2009 through 2022. The Company has reviewed its net deferred tax assets and has provided a valuation allowance to reflect the estimated amount of net deferred tax assets which management considers more likely than not will not be realized. The company has not recognized any income tax provision or benefit for the quarter ended March 31, 2004 as any changes in deferred tax liabilities and assets have been offset by changes in the valuation allowance.

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Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations

     The following discussion provides information that management believes is relevant to an assessment and understanding of the consolidated financial condition and results of operations of Stillwater Mining Company (the company).

     This discussion addresses matters management considers important for an understanding of the company’s financial condition and results of operations as of and for the three months ended March 31, 2004. It consists of the following subsections:

x		“Overview” which provides a brief summary of the company’s consolidated results and financial position and the primary factors affecting those results.
x		“Key Factors” which provides indicators of profitability and efficiency at each mine location and on a consolidated basis and includes other PGM activities.
x		“Results of Operations” which includes a discussion and an analysis of the operating and financial results for the three months ended March 31, 2004 as compared to the same period in 2003.
x		“Liquidity and Capital Resources” which contains a discussion of the company’s cash flows and liquidity, investing and financing activities, and contractual obligations.
x		“Critical Accounting Policies” which provides an analysis of the accounting policies the company considers critical because of their effect on the reported amounts of assets, liabilities, income and/or expense on the consolidated financial statements and because they require difficult, subjective or complex judgments by management.

     These items should be read in conjunction with our consolidated financial statements and the notes thereto included in this quarterly report and in the company’s 2003 annual report on Form 10-K.

Overview

     Two overriding factors have heavily influenced the company’s profitability in recent years and will continue to affect the company for the foreseeable future: the volatility of PGM prices and the company’s high unit cost structure. Metal prices are dictated by market forces and so are beyond the control of the company. As to its unit cost structure, in the past the company has often experienced difficulty meeting its production targets, achieving planned cost efficiencies and realizing anticipated ore grades. In addition, the company must spend significant amounts of capital annually to maintain sufficient developed areas in the mines to sustain ongoing production. Despite these challenges, reducing unit 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 that commit the majority of the mines’ production through 2010. These contracts have floor prices which, in recent years, have been of significant benefit to the company, particularly in light of low PGM prices, and have allowed the company to continue to generate operating profits in low pricing environments. Unless extended or modified, as to which there can be no assurance, these contracts will all expire by 2010. At that time, the company could be fully exposed to market prices and the absence of these contracts after 2010 could negatively affect the company’s operating results.

     The determination to build a second mine at East Boulder was made in 1998, at a time when palladium prices were rising, and forecasted to go higher. The financing of East Boulder was largely done through available cash and bank borrowings, which ultimately put a financial strain on the company when low PGM prices were combined with higher than anticipated capital costs for construction and development. In recent years the company has been obliged to amend its credit agreement or obtain waivers on eight occasions, to seek additional funding through a private placement and to revise its mining plans several times in an effort to optimize its production in light of financial

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limitations. Ultimately, the company sought a financial partner and considered numerous alternatives. This process led to the stock purchase transaction in June of 2003 whereby Norilsk Nickel acquired 50.8% of the company through the purchase of newly-issued common shares for $100 million in cash and 877,169 ounces of palladium. Norilsk Nickel subsequently completed a cash tender offer for additional shares thereby increasing their ownership interest to 55.5%. The company was obligated to utilize $50.0 million of proceeds from the Norilsk Nickel transaction to pay down its bank debt. Consequently the Term A facility was paid in full on June 30, 2003. In the first quarter of 2004, the company entered into contracts to resell such palladium to DaimlerChrylser, Mitsubishi and Engelhard Corporation over a two year period.

     The company believes that it now has adequate liquidity for its contemplated needs in view of the cash and palladium received in connection with the share issuance in the Norilsk Nickel transaction. The palladium will be sold in equal monthly quantities over the next two years, at close to market prices at the time of sale. The company’s banks have the option under the credit agreement to apply 50% of the cash proceeds to reduce the company’s outstanding debt. If the banks decline to accept these proceeds, the availability under the company’s revolving credit line is reduced by an equal amount. The stock purchase agreement provided that the parties intended to negotiate an agreement to buy from Norilsk Nickel at least one million ounces of palladium annually. The company and Norilsk Nickel have recently decided to not pursue such an agreement at this time.

     The $390 million asset impairment charge taken at the end of 2003 was precipitated by a decline in reported proven and probable ore reserves. The assets were written down to a value which reflects lower PGM prices, the high cost structure of the company and uncertainty about the company’s ability to obtain favorable long-term sales contracts beyond 2010.

     In looking to the future, the company’s primary focus will be on profitability. Reducing production costs will continue to be a priority. The company expects to continually review alternative opportunities to increase demand for its products in order to improve profitability.

     The company’s financial results for the three months ended March 31, 2004 have improved compared to the same period in 2003. This is largely due to increased PGM prices and higher metal sales volume during the first quarter of 2004 as compared to the same period in 2003. The incremental sales volumes resulted from other PGM activities including sales of palladium received in the Norilsk Nickel stock purchase and secondary processing of autocatalysts.

     During the second quarter of 2004, the company will shut down its smelter and base metals refinery for a period of four to six weeks for routine smelter re-bricking and other refurbishing. The shutdown will reduce second quarter earnings and cash flow, although sales out of the palladium inventory will continue, which are expected to mitigate the effect of the shutdown. Production at the mines will continue during the shutdown, and concentrate will be stockpiled at the smelter for processing later in the year. The company expects to complete processing of these stockpiles by the end of 2004.

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Key Factors
(Unaudited)