UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

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

Commission file number 1-13053

STILLWATER MINING COMPANY

(Exact name of registrant as specified in its charter)

Delaware		81-0480654
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1321 Discovery Drive Billings, Montana		59102
(Address of principal executive offices)		(Zip Code)

(406) 373-8700
(Registrant’s telephone number, including area code)

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 þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one).

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES o NO þ

At October 19, 2010 the Company had outstanding 97,899,036 shares of common stock, par value $0.01 per share.

 

 

STILLWATER MINING COMPANY

FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2010

INDEX

PART I — FINANCIAL INFORMATION
Item 1.		Financial Statements			3
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3.		Quantitative and Qualitative Disclosure About Market Risk			40
Item 4.		Controls and Procedures			41
PART II — OTHER INFORMATION
Item 1.		Legal Proceedings			41
Item 1A.		Risk Factors			41
Item 5.		Other Information			42
Item 6.		Exhibits			42
SIGNATURES					42
CERTIFICATIONS					43
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

ITEM 1
FINANCIAL STATEMENTS

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Revenues
Mine production		$	88,222			$	85,552			$	275,991			$	226,691
PGM recycling			54,650				26,207				130,591				60,166
Other			—				245				4,622				5,752
Total revenues			142,872				112,004				411,204				292,609
Costs and expenses
Costs of metals sold
Mine production			58,203				55,816				171,046				156,754
PGM recycling			51,686				24,698				121,937				55,608
Other			—				243				4,622				5,741
Total costs of metals sold			109,889				80,757				297,605				218,103
Depletion, depreciation and amortization
Mine production			17,951				18,504				52,997				52,667
PGM recycling			129				45				212				134
Total depletion, depreciation and amortization			18,080				18,549				53,209				52,801
Total costs of revenues			127,969				99,306				350,814				270,904
Marketing			404				367				1,679				1,602
General and administrative			8,042				6,404				21,714				18,770
(Gain)/loss on disposal of property, plant and equipment			29				402				(179	)			602
Total costs and expenses			136,444				106,479				374,028				291,878
Operating income			6,428				5,525				37,176				731
Other income (expense)
Other			(20	)			27				(11	)			76
Interest income			636				386				1,569				1,471
Interest expense			(1,633	)			(1,724	)			(4,902	)			(5,182	)
Income (loss) before income tax benefit			5,411				4,214				33,832				(2,904	)
Income tax benefit			472				—				—				—
Net income (loss)		$	5,883			$	4,214			$	33,832			$	(2,904	)
Other comprehensive income (loss), net of tax			(200	)			92				(378	)			139
Comprehensive income (loss)		$	5,683			$	4,306			$	33,454			$	(2,765	)
Weighted average common shares outstanding
Basic			97,809				94,579				97,531				94,257
Diluted			99,022				95,401				98,685				94,257
Basic earnings (loss) per share
Net income (loss)		$	0.06			$	0.04			$	0.35			$	(0.03	)
Diluted earnings (loss) per share
Net income (loss)		$	0.06			$	0.04			$	0.34			$	(0.03	)

See accompanying notes to financial statements

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

		September 30,				December 31,
		2010				2009
ASSETS
Cash and cash equivalents		$	56,692			$	166,656
Investments, at fair market value			202,260				34,515
Inventories			95,456				88,967
Trade receivables			6,016				2,073
Deferred income taxes			18,951				18,130
Other current assets			7,893				8,680
Total current assets			387,268				319,021
Property, plant and equipment, net of $363,396 and $311,449 of accumulated depletion, depreciation and amortization			340,596				358,866
Restricted cash			38,070				38,045
Other noncurrent assets			12,304				9,263
Total assets		$	778,238			$	725,195
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable		$	15,432			$	8,901
Accrued compensation and benefits			25,057				26,481
Property, production and franchise taxes payable			9,011				10,405
Other current liabilities			2,903				3,689
Total current liabilities			52,403				49,476
Long-term debt			196,002				195,977
Deferred income taxes			18,951				18,130
Accrued workers compensation			7,360				4,737
Asset retirement obligation			6,608				6,209
Other noncurrent liabilities			6,580				3,855
Total liabilities			287,904				278,384
Stockholders’ equity
Preferred stock, $0.01 par value, 1,000,000 shares authorized; none issued			—				—
Common stock, $0.01 par value, 200,000,000 shares authorized; 97,867,420 and 96,732,185 shares issued and outstanding			978				967
Paid-in capital			684,927				674,869
Accumulated deficit			(195,103	)			(228,935	)
Accumulated other comprehensive loss			(468	)			(90	)
Total stockholders’ equity			490,334				446,811
Total liabilities and stockholders’ equity		$	778,238			$	725,195

See accompanying notes to financial statements

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Cash flows from operating activities
Net income (loss)		$	5,883			$	4,214			$	33,832			$	(2,904	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depletion, depreciation and amortization			18,080				18,549				53,209				52,801
Lower of cost or market inventory adjustment			—				982				—				6,613
(Gain)/loss on disposal of property, plant and equipment			29				402				(179	)			602
Accretion of asset retirement obligation			136				153				399				450
Amortization of debt issuance costs			244				264				734				793
Stock based compensation and other benefits			4,083				3,167				9,571				8,479
Changes in operating assets and liabilities:
Inventories			13,754				3,865				(6,425	)			(9,689	)
Trade receivables			279				162				(3,943	)			212
Accrued compensation and benefits			(976	)			35				(1,432	)			1,094
Accounts payable			1,148				(4,791	)			6,531				(4,877	)
Property, production and franchise taxes payable			690				1,420				1,331				1,070
Workers compensation			874				(1,101	)			2,623				(2,024	)
Restricted cash			—				2,100				(25	)			(350	)
Other			228				2,248				(909	)			(589	)
Net cash provided by operating activities			44,452				31,669				95,317				51,681
Cash flows from investing activities
Capital expenditures			(10,935	)			(7,094	)			(35,522	)			(32,282	)
Purchases of long-term investments			(2,941	)			—				(2,941	)			—
Proceeds from disposal of property, plant and equipment			192				149				457				195
Purchases of short-term investments			(61,111	)			—				(187,743	)			(20,947	)
Proceeds from maturities of short-term investments			6,989				1,995				19,962				20,781
Net cash used in investing activities			(67,806	)			(4,950	)			(205,787	)			(32,253	)
Cash flows from financing activities
Principal payments on debt			—				—				—				(97	)
Issuance of common stock			65				—				506				—
Net cash provided by (used in) financing activities			65				—				506				(97	)
Cash and cash equivalents
Net increase (decrease)			(23,289	)			26,719				(109,964	)			19,331
Balance at beginning of period			79,981				154,407				166,656				161,795
Balance at end of period		$	56,692			$	181,126			$	56,692			$	181,126

See accompanying notes to financial statements

Stillwater Mining Company
Notes to Financial Statements
(Unaudited)

NOTE 1
GENERAL

     In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of Stillwater Mining Company (the “Company”) as of September 30, 2010, and the results of its operations and its cash flows for the three- and nine- month periods ended September 30, 2010 and 2009. The results of operations for the first nine months of 2010 are not necessarily indicative of the results to be expected for the full year. The accompanying financial statements in this quarterly report should be read in conjunction with the financial statements and notes thereto included in the Company’s previously filed 2010 Quarterly Reports on Form 10-Q and in the Company’s 2009 Annual Report on Form 10-K.

     The preparation of the Company’s financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these 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 fair value of derivatives and other financial instruments. Actual results could differ from these estimates.

     The Company evaluates subsequent events through the date the financial statements are issued. No subsequent events were identified that required additional disclosure in the financial statements through the date of this filing.

NOTE 2
SALES

Mine Production

     The Company mines and processes ores containing palladium, platinum, rhodium, gold, silver, copper and nickel into intermediate and final products for sale to customers. Palladium, platinum, rhodium, gold and silver are sent to third party refineries for final processing from where they are sold to a number of consumers and dealers with whom the Company has established trading relationships. Refined platinum group metals (PGMs) of 99.95% purity (rhodium of 99.9%) in sponge form are transferred upon sale from the Company’s account at third party refineries to the account of the purchaser. By-product precious metals are normally sold at market prices to customers, brokers or outside refiners. By-products of copper and nickel are produced by the Company at less than commercial grade, so prices for these metals typically reflect a quality discount. By-product sales are included in revenues from mine production.

     The Company has a sales agreement with Ford Motor Company covering a portion of production from the mines, that contains guaranteed floor and ceiling prices for metal delivered. Metal sales under the agreement when not affected by the guaranteed floor or ceiling prices, are priced at a slight discount to market. Under this sales agreement, the Company currently has committed 80% of its palladium production and 70% of its platinum production from mining through December 31, 2010. None of the Company’s platinum or palladium production after 2010 is currently committed.

     The sales agreement contains termination provisions that allow Ford Motor Company to terminate in the event the Company breaches certain provisions of the agreement and the Company does not cure the breach within specified periods ranging from 10 to 30 days of notice.

PGM Recycling

     The Company purchases spent catalyst materials from third parties and processes these materials in its facilities in Columbus, Montana to recover palladium, platinum and rhodium for sale. It also accepts material supplied from third parties on a tolling basis, processing it for a fee and returning the recovered metals to the supplier. The Company has entered into sourcing arrangements for catalyst material with several suppliers. Under these sourcing arrangements as currently structured, the Company in some cases may advance cash against a shipment of material shortly before actually receiving the physical shipment. These advances are included in Other assets on the Company’s balance sheet until such time as the material has been physically received and title has transferred to the Company. The Company holds a security interest in materials procured by its largest supplier that have not been received by the Company. Once the material is physically received and title has transferred, the associated advance is reclassified from Other assets into Inventories. Finance charges collected on advances and inventories prior to being earned are included in Other current liabilities on the Company’s balance sheet. Finance charges are reclassed from Other current liabilities to Interest income ratably from the time the advance was made until the outturn date of the inventory.

     At the same time the Company purchases recycling material, it typically enters into a fixed forward contract for future delivery of the PGMs contained in the recycled material at a price consistent with the purchase cost of the recycled material. The contract commits the Company to deliver finished metal on a specified date that normally corresponds to the expected out-turn date for the metal from the final refiner. The purpose of this arrangement is to eliminate the Company’s exposure to fluctuations in market prices during processing, while at the same time creating an obligation for the Company to deliver metal at a future point in time that could be subject to operational risks. If the Company were unable to complete the processing of the recycled material by the contractual delivery date, it could be required to purchase finished metal in the open market to cover its delivery commitments, and then would bear the cost (or benefit) of any change in the market price relative to the price stipulated in the delivery contract.

Other

     The Company makes other open market purchases of PGMs from time to time for resale to third parties. The Company made no open market purchases in the three- month period ended September 30, 2010. The Company recognized revenue of $0.2 million on 400 ounces of PGMs that were purchased in the open market and resold for the three- month period ended September 30, 2009. Approximately 10,000 ounces and 15,500 ounces of PGMs were bought and resold at cost for the nine- month periods ended September 30, 2010 and 2009, respectively, resulting in revenue of $4.6 million and $5.8 million, respectively.

Total Sales

     Total sales to significant customers as a percentage of total revenues for the three- and nine- month periods ended September 30, 2010 and 2009 were as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Customer A			43	%			50	%			48	%			53	%
Customer B			19	%			23	%			19	%			21	%
Customer C			16	%			*				11	%			*
Customer D			*				12	%			*				*
			78	%			85	%			78	%			74	%

NOTE 3
DERIVATIVE INSTRUMENTS

     The Company uses various derivative instruments to manage its exposure to changes in interest rates and PGM market commodity prices. Some of these derivatives are designated as hedges. 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 customarily enters into fixed forward contracts and on occasion it also enters into financially settled forward contracts to offset the price risk in its PGM recycling activity. From time to time, it also enters into these types of contracts on portions of its mine production. Under these customary fixed forward transactions, the Company agrees to deliver a stated quantity of metal on a specific future date at a price stipulated in advance. The Company uses fixed forward transactions primarily to price in advance the metals acquired for processing in its recycling segment. Under the occasional financially settled forward transactions, 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. These financially settled forward contracts are settled in cash at maturity and do not require physical delivery of metal at settlement. The Company will typically use financially settled forward contracts with third parties to reduce its exposure to price risk on metal it is obligated to deliver under long-term sales agreements.

Mine Production

     At present the Company has not entered into derivative instruments to hedge its mined production.

PGM Recycling

     The Company customarily enters into fixed forward sales relating to PGM recycling of catalyst materials. The metals from PGM recycled materials are typically sold forward at the time of purchase and delivered against the fixed forward contracts when the ounces are recovered. All of these fixed forward sales contracts open at September 30, 2010, will settle at various periods through January 2011. 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 hedged prices by a predetermined margin limit. As of September 30, 2010, no such margin deposits were outstanding or due.

     Occasionally, the Company also enters into financially settled forward contracts on recycled materials for which it hasn’t entered into a fixed forward sale. Such contracts are utilized when the Company wishes to establish a firm forward price for recycled metal on a specific future date. No financially settled forward contracts were entered into during the third quarter of 2010. The Company generally has not designated these contracts as cash flow hedges, so they are marked to market at the end of each accounting period. The change in the fair value of the derivatives is reflected in the income statement.

     The following is a summary of the Company’s commodity derivatives as of September 30, 2010:

PGM Recycling:

Fixed Forwards

		Platinum								Palladium								Rhodium
Settlement Period		Ounces				Avg. Price				Ounces				Avg. Price				Ounces				Avg. Price
Fourth Quarter 2010			12,398			$	1,549				15,216			$	495				2,892			$	2,261
First Quarter 2011			1,235			$	1,630				1,455			$	548				696			$	2,216

     The following is the Effect of Derivative Instruments on the Statements of Operations and Comprehensive Income (Loss) for the Three- and Nine-month periods Ended September 30, 2010 and 2009:

(in thousands)

		Location of				Amount of Gain or (Loss) Recognized in Income
Derivatives Not		Gain/(Loss)				Three months ended								Nine months ended
Designated as Cash		Recognized in				September 30,								September 30,
Flow Hedges		Income				2010				2009				2010				2009
Fixed forward contracts		Other revenue				$	—			$	—			$	—			$	5
Fixed forward contracts		Other revenue				$	—			$	—			$	—			$	(2	)
Fixed forward contracts		PGM recycling revenue				$	—			$	—			$	—			$	243
Fixed forward contracts		PGM recycling revenue				$	—			$	—			$	—			$	(47	)

Fair Value of Derivative Instruments

(in thousands)

As of September 30,

Derivatives Not		Asset Derivatives												Liability Derivatives
Designated as Cash		Balance Sheet				Fair Value								Balance Sheet				Fair Value
Flow Hedges		Location				2010				2009				Location				2010				2009
Fixed forward contracts						$	—			$	—			Other current liabilities				$	—			$	(3	)

NOTE 4
SHARE-BASED COMPENSATION

Stock Plans

     The Company sponsors stock option plans (the “Plans”) that enable the Company to grant stock options or nonvested shares to employees and non-employee directors. The Company has options outstanding under three separate plans: the 1994 Incentive Plan, the General Plan and the 2004 Equity Incentive Plan. The 1994 Incentive Plan and the General Plan have been terminated. While no additional options may be issued under the two terminated plans, options issued prior to plan termination remain outstanding. Authorized shares of common stock have been reserved for options that were issued prior to the expiration of the 1994 Incentive Plan and the General Plan. At inception of the plans, approximately 7.8 million shares of common stock were authorized for issuance under the Plans, including approximately 5.2 million, 1.4 million and 1.2 million shares were authorized for the 2004 Equity Incentive Plan, the General Plan and the 1994 Incentive Plan, respectively. Options for approximately 1.5 million shares were available and reserved for grant under the 2004 Equity Incentive Plan as of September 30, 2010.

     The Compensation Committee of the Company’s Board of Directors administers the Plans and determines the exercise period, vesting period and all other terms of instruments issued under the Plans. Directors’ options vest over a six-month period after date of grant. Employees’ options vest ratably over a three-year period after date of grant. 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. The Company received $0.1 million and $0.5 million in cash from the exercise of stock options in the three- and nine- month periods ended September 30, 2010, respectively. No stock options were exercised in the three- and nine- month periods ended September 30, 2009.

Stock Options

     The Company recognizes compensation expense associated with its stock option grants based on their fair market value on the date of grant using a Black-Scholes option pricing model. Stock option grants to employees generally vest in annual installments over a three year period. The Company recognizes stock option expense ratably over the vesting period of the options. If options are canceled or forfeited prior to vesting, the Company stops recognizing the related expense effective with the date of forfeiture. The compensation expense, recorded in general and administrative expense, related to the fair value of stock options during the three- month periods ended September 30, 2010 and 2009, was $38,400 and $49,300, respectively, and $112,300 and $197,200 during the nine- month periods ended September 30, 2010 and 2009, respectively. Total compensation expense related to nonvested stock options not yet recognized is $36,200, $81,100, $27,500 and $6,600 for the remaining three months of 2010 and for years 2011, 2012 and 2013, respectively.

Nonvested Shares

     Nonvested shares granted to non-management directors, certain members of management and other employees as of September 30, 2010 and 2009, along with the related compensation expense are detailed in the following table:

														Compensation Expense								Compensation Expense
						Nonvested				Market				Three Months Ended								Nine Months Ended
						Shares				Value on				September 30,								September 30,
Grant Date		Vesting Date				Granted				Grant Date				2010				2009				2010				2009
April 27, 2006		April 27, 2009					288,331			$	4,731,512			$	—			$	—			$	—			$	421,524
February 22, 2007		February 22, 2010					426,514			$	5,433,788			$	—			$	353,144	(2)		$	234,618	(1)		$	1,051,521	(2)
February 4, 2008		February 4, 2011					16,741			$	225,000			$	43,933	(1)		$	18,828			$	81,589	(1)		$	56,484
March 6, 2008		March 6, 2011					287,592			$	5,283,065			$	383,631	(1)		$	427,288	(2)		$	1,232,434	(1)		$	1,271,990	(2)
December 9, 2008		June 9, 2009					12,987			$	40,000			$	—			$	—			$	—			$	33,333
January 26, 2009		July 26, 2009					9,852			$	40,000			$	—			$	5,714			$	—			$	40,000
May 7, 2009		November 7, 2009					55,656			$	320,022			$	—			$	176,457	(3)		$	—			$	270,685	(3)
March 14, 2009		March 14, 2012					642,000			$	1,964,520			$	348,692	(1)		$	163,625			$	675,942	(1)		$	359,513
April 16, 2009		March 14, 2012					328,819			$	1,624,366			$	178,578	(1)		$	139,403			$	447,778	(1)		$	254,570
April 16, 2009		March 14, 2010					375,404			$	1,854,496			$	—			$	547,942	(2)		$	369,223	(1)		$	962,552	(2)
August 5, 2009		February 5, 2010					5,857			$	40,000			$	—			$	12,174			$	7,827			$	12,174
September 21, 2009		March 21, 2010					5,070			$	40,000			$	—			$	1,989			$	17,680			$	1,989
February 18, 2010		February 18, 2013					604,775			$	7,106,106			$	1,665,420	(1)		$	—			$	2,522,372	(1)		$	—
April 13, 2010		February 12, 2011					17,118			$	260,536			$	68,852	(1)		$	—			$	133,738	(1)		$	—
April 13, 2010		February 12, 2013					73,535			$	1,119,203			$	152,663	(1)		$	—			$	235,589	(1)		$	—
May 4, 2010		November 4, 2010					27,384			$	400,080			$	200,040			$	—			$	324,509			$	—
Total compensation expense of nonvested shares														$	3,041,809			$	1,846,564			$	6,283,299			$	4,736,335

NOTE 5
INCOME TAXES

     The Company determines income taxes using the asset and liability approach which results in the recognition of deferred tax assets and liabilities 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. At September 30, 2010, the Company has net operating loss carryforwards (NOLs), which expire at various times in years 2010 through 2030. 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. As of September 30, 2010, the Company has no accrual for its estimated alternative minimum tax (“AMT”) obligations associated with earnings for the three-month and nine-month periods ended September 30, 2010. Based on the new tax legislation, alternative minimum tax provisions accrued in the first and second quarters of 2010 were reversed at September 30, 2010. The Company now projects all of the 2010 AMT income will be offset with AMT NOLs. No income tax provision was recognized for the comparable periods ended September 30, 2009. Changes in the Company’s net deferred tax assets and liabilities have been offset by a corresponding change in the valuation allowance.

     The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in Income tax provision in the Statements of Operations and Comprehensive Income (Loss). There was no interest or penalties for the three- and nine-month periods ended September 30, 2010 and 2009. The tax years subject to examination by the taxing authorities are the years ending December 31, 2009, 2008, 2007 and 2006.

NOTE 6
COMPREHENSIVE INCOME (LOSS)

     Comprehensive income (loss) consists of earnings items and other gains and losses affecting stockholders’ equity that are excluded from current net income (loss). As of September 30, 2010 and 2009, such items consisted of unrealized losses on available-for-sale marketable securities.

     The following summary sets forth the changes in Accumulated other comprehensive income (loss) in stockholders’ equity for the first nine months of 2010 and 2009:

		Accumulated Other
Nine Months Ended September 30, 2010		Comprehensive Income (Loss)
Balance at December 31, 2009		$	(90	)
Reclassification to earnings			—
Change in value			(194	)
Comprehensive income (loss)		$	(194	)
Balance at March 31, 2010		$	(284	)
Reclassification to earnings			—
Change in value			16
Comprehensive income (loss)		$	16
Balance at June 30, 2010		$	(268	)
Reclassification to earnings			—
Change in value			(200	)
Comprehensive income (loss)		$	(200	)
Balance at September 30, 2010		$	(468	)

		Accumulated Other
Nine Months Ended September 30, 2009		Comprehensive Income (Loss)
Balance at December 31, 2008		$	(160	)
Reclassification to earnings			—
Change in value			(34	)
Comprehensive income (loss)		$	(34	)
Balance at March 31, 2009		$	(194	)
Reclassification to earnings			—
Change in value			81
Comprehensive income (loss)		$	81
Balance at June 30, 2009		$	(113	)
Reclassification to earnings			—
Change in value			92
Comprehensive income (loss)		$	92
Balance at September 30, 2009		$	(21	)

NOTE 7
DEBT

Convertible Debentures

     On March 12, 2008, the Company issued and sold $181.5 million aggregate principal amount of senior convertible debentures due March 15, 2028 (“debentures”). The debentures pay interest at 1.875% per annum, payable semi-annually on March 15 and September 15 of each year, and commenced on September 15, 2008. The debentures will mature on March 15, 2028, subject to earlier repurchase or conversion. Each $1,000 principal amount of debentures is initially convertible, at the option of the holders, into approximately 42.5351 shares of the Company’s common stock, at any time prior to the maturity date. The conversion rate is subject to certain adjustments, but will not be adjusted for accrued interest or any unpaid interest. The conversion rate initially represents a conversion price of $23.51 per share. Holders of the debentures may require the Company to repurchase all or a portion of their debentures on March 15, 2013, March 15, 2018 and March 15, 2023, or at any time before March 15, 2028 upon the occurrence of certain events including a change in control. The Company may redeem the debentures for cash beginning on or after March 22, 2013.

     In October 2009, the Company undertook the exchange of $15 million face amount of the convertible debentures for 1.84 million shares of the Company’s common stock. The debentures so acquired were retired. There is $166.5 million face value of the debentures outstanding as of September 30, 2010.

     Amortization expense related to the issuance costs of the debentures was $0.2 million and $0.3 million for the three- month periods ended September 30, 2010 and 2009, respectively, and $0.7 million and $0.8 million for the nine- month periods ended September 30, 2010 and 2009, respectively. The interest expense on the debentures was $0.8 million and $0.9 million, respectively, for the three- month periods ended September 30, 2010 and 2009, and $2.3 million and $2.6 million, respectively, for the nine- month periods ended September 30, 2010 and 2009. The Company made cash payments of $1.6 million and $1.7 million for interest on the debentures during the three- month periods ended September 30, 2010 and 2009, respectively. The Company made cash payments of $3.1 million and $3.4 million for interest on the debentures during the nine- month periods ended September 30, 2010 and 2009, respectively.

NOTE 8
SEGMENT INFORMATION

     The Company operates two reportable business segments: Mine Production and PGM Recycling. These segments are managed separately based on fundamental differences in their operations.

     The Mine Production segment consists of two business components: the Stillwater Mine and the 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 agreements, through derivative financial instruments and in open PGM markets. The financial results of the Stillwater Mine and the East Boulder Mine have been aggregated, as both have similar products, processes, customers, distribution methods and economic characteristics.

     The PGM Recycling segment is engaged in the recycling of spent catalyst material to recover the PGMs contained in the material. The Company allocates costs of the smelter and base metal refinery to both the Mine Production segment and to the PGM Recycling segment for internal and segment reporting purposes because the Company’s smelting and refining facilities support the PGM extraction of both business segments.

     The All Other group primarily consists of assets, revenues, and expenses of various corporate and support functions.

     The Company evaluates performance and allocates resources based on income or loss before income taxes. The following financial information relates to the Company’s business segments:

		Mine				PGM				All
Three Months Ended September 30, 2010		Production				Recycling				Other				Total
Revenues		$	88,222			$	54,650			$	—			$	142,872
Depreciation and amortization		$	17,951			$	129			$	—			$	18,080
Interest income		$	—			$	314			$	322			$	636
Interest expense		$	—			$	—			$	1,633			$	1,633
Income (loss) before income taxes		$	12,046			$	3,149			$	(9,784	)		$	5,411
Capital expenditures		$	9,006			$	1,800			$	129			$	10,935
Total assets		$	386,343			$	40,093			$	351,802			$	778,238

		Mine				PGM				All
Three Months Ended September 30, 2009		Production				Recycling				Other				Total
Revenues		$	85,552			$	26,207			$	245			$	112,004
Depreciation and amortization		$	18,504			$	45			$	—			$	18,549
Interest income		$	—			$	242			$	144			$	386
Interest expense		$	—			$	—			$	1,724			$	1,724
Income (loss) before income taxes		$	10,832			$	1,705			$	(8,323	)		$	4,214
Capital expenditures		$	7,053			$	32			$	9			$	7,094
Total assets		$	417,193			$	19,340			$	285,971			$	722,504

		Mine				PGM				All
Nine Months Ended September 30, 2010		Production				Recycling				Other				Total
Revenues		$	275,991			$	130,591			$	4,622			$	411,204
Depreciation and amortization		$	52,997			$	212			$	—			$	53,209
Interest income		$	—			$	973			$	596			$	1,569
Interest expense		$	—			$	—			$	4,902			$	4,902
Income (loss) before income taxes		$	52,134			$	9,415			$	(27,717	)		$	33,832
Capital expenditures		$	30,574			$	4,742			$	206			$	35,522
Total assets		$	386,343			$	40,093			$	351,802			$	778,238

		Mine				PGM				All
Nine Months Ended September 30, 2009		Production				Recycling				Other				Total
Revenues		$	226,691			$	60,166			$	5,752			$	292,609
Depreciation and amortization		$	52,667			$	134			$	—			$	52,801
Interest income		$	—			$	534			$	937			$	1,471
Interest expense		$	—			$	—			$	5,182			$	5,182
Income (loss) before income taxes		$	16,714			$	4,956			$	(24,574	)		$	(2,904	)
Capital expenditures		$	32,171			$	32			$	79			$	32,282
Total assets		$	417,193			$	19,340			$	285,971			$	722,504

NOTE 9
INVENTORIES

     For purposes of inventory accounting, the market value of inventory is generally deemed equal to the Company’s current cost of replacing the inventory, provided that: (1) the market value of the inventory may not exceed the estimated selling price of such inventory in the ordinary course of business less reasonably predictable costs of completion and disposal, and (2) the market value may not be less than net realizable value reduced by an allowance for a normal profit margin. No adjustments were made to the inventory value in the three- and nine- month periods ended September 30, 2010. In accounting for inventory costs that exceeded market values, the Company reduced the aggregate inventory carrying value of certain components of its in-process and finished goods inventories by $1.0 million and $6.6 million, respectively, for inventory associated with mine production for the three- and nine- month periods ended September 30, 2009, respectively.

     The costs of mined PGM inventories as of any date are determined based on combined production costs per ounce and include all inventoriable production costs, including direct labor, direct materials, depreciation and amortization and other overhead costs relating to mining and processing activities incurred as of such date.

     The costs of recycled PGM inventories as of any date are determined based on the acquisition cost of the recycled material and include all inventoriable processing costs, including direct labor, direct materials and third party refining costs which relate to the processing activities incurred as of such date.

     Inventories reflected in the accompanying balance sheets consisted of the following:

		September 30,				December 31,
		2010				2009
Metals inventory
Raw ore		$	1,366			$	1,163
Concentrate and in-process			38,479				23,985
Finished goods			37,787				45,537
			77,632				70,685
Materials and supplies			17,824				18,282
Total inventory		$	95,456			$	88,967

NOTE 10
EARNINGS (LOSS) PER SHARE

     Basic earnings (loss) per share is computed by dividing net earnings (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if the Company’s dilutive outstanding stock options or nonvested shares were exercised or vested and the Company’s convertible debt was converted. No adjustments were made to reported net income (loss) in the computation of basic earnings (loss) per share or diluted earnings (loss) per share for the three- and nine- month periods ended September 30, 2010, and 2009. The Company currently has only one class of equity shares outstanding.

     A total of 41,596 and 45,964 stock option weighted shares of common stock were included in the computation of diluted earnings (loss) per share for the three- and nine- month periods ended September 30, 2010, respectively. Outstanding options to purchase 480,244 and 485,156 of weighted shares of common stock were excluded from the computation of diluted earnings (loss) per share for the three- and nine- month periods ended September 30, 2010, respectively, because the market price at the end of the period was lower than the exercise price, and therefore the effect would have been antidilutive.

     Outstanding options to purchase 8,206 shares were included in the computation of diluted earnings per share in the three- month period ended September 30, 2009. Outstanding options to purchase 768,998 of weighted shares of common stock were excluded from the computation of diluted earnings per share for the three- month period ended September 30, 2009, because the market price at the end of the period was lower than the exercise price, and therefore the effect would have been antidilutive. All of the outstanding options to purchase 745,180 shares were excluded from the computation of diluted earnings (loss) per share for the nine- month period ended September 30, 2009, because the Company reported a net loss so the effect would have been antidilutive because inclusion of these options would have reduced the net loss per share.

     The effect of outstanding nonvested shares was to increase diluted weighted average shares outstanding by 1,172,068 and 1,108,121 shares for the three- and nine- month periods ended September 30, 2010, respectively. Outstanding nonvested shares of 813,817 were included in the computation of diluted earnings (loss) per share for the three- month period ended September 30, 2009. All outstanding nonvested shares of 546,806 were excluded from the computation of diluted earnings (loss) per share for the nine- month period ended September 30, 2009, because the Company reported a net loss and inclusion of any of these nonvested shares would have reduced the net loss per share amounts.

     All shares of common stock applicable to the outstanding convertible debentures were excluded from the computation of diluted weighted average shares in the three- and nine- month periods ended September 30, 2010, and 2009 because the net effect of assuming all the debentures were converted would have been antidilutive.

NOTE 11
REGULATIONS AND COMPLIANCE

     At September 30, 2010, the Company believes all underground operations are in compliance with Mine Safety and Health Administration (MSHA) limits on diesel particulate matter (DPM) exposure for underground miners through the use of blended bio-diesel fuels, post exhaust treatments, power train advances and high secondary ventilation standards. No assurance can be given that any lack of compliance will not impact the Company in the future.

     Nitrogen concentrates in groundwater have been elevated above background levels at both the Stillwater Mine and the East Boulder Mine as a result of operational activities and discharges currently authorized under permit. Noncompliance with standards have occurred in some instances and are being addressed by the Company through action plans approved by the appropriate federal and state regulatory agencies. Additionally, an Administrative Order on Consent (AOC) has been approved in response to exceedances at the East Boulder Mine which modifies enforcement limits and provides for Agency approval of remedial actions under the compliance plan. In view of its efforts to comply and progress to date in implementing remedial and advanced treatment technologies, the Company does not believe that failure to be in strict compliance will have a material adverse effect on the Company’s financial position, results of operations and cash flows.

NOTE 12
FAIR VALUE MEASUREMENTS

     Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants and also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy distinguishes three levels of inputs that may be utilized when measuring fair value: Level 1 inputs (using quoted prices in active markets for identical assets or liabilities), Level 2 inputs (using external inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability) and Level 3 inputs (unobservable inputs supported by little or no market activity based on internal assumptions used to measure assets and liabilities). The classification of each financial asset or liability within the above hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

     Financial assets and liabilities measured at fair value on a recurring basis at September 30, 2010 and December 31, 2009, consisted of the following:

		Fair Value Measurements
At September 30, 2010		Total				Level 1				Level 2				Level 3
Mutual funds		$	948			$	948			$	—			$	—
Investments		$	202,260			$	202,260			$	—			$	—

		Fair Value Measurements
At December 31, 2009		Total				Level 1				Level 2				Level 3
Mutual funds		$	749			$	749			$	—			$	—
Investments		$	34,515			$	34,515			$	—			$	—

     The fair value of mutual funds and investments is based on market prices which are readily available. Unrealized gains or losses on mutual funds and investments are recorded in Accumulated other comprehensive income (loss).

     Financial assets and liabilities measured at fair value on a nonrecurring basis at September 30, 2010 and December 31, 2009, consisted of the following:

		Fair Value Measurements
At September 30, 2010		Total				Level 1				Level 2				Level 3
Convertible debentures		$	171,495			$	—			$	171,495			$	—
Exempt facility revenue bonds		$	27,241			$	—			$	—			$	27,241

		Fair Value Measurements
At December 31, 2009		Total				Level 1				Level 2				Level 3
Convertible debentures		$	139,028			$	—			$	139,028			$	—
Exempt facility revenue bonds		$	25,619			$	—			$	—			$	25,619

     The Company used implicit interest rates of comparable unsecured obligations to calculate the fair value of the Company’s $30 million 8% Series 2000 exempt facility industrial revenue bonds at September 30, 2010 and December 31, 2009. The Company used its current trading data to determine the fair value of the Company’s $166.5 million 1.875% convertible debentures at September 30, 2010 and December 31, 2009.

ITEM 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

     The commentary that follows should be read in conjunction with the financial statements included in this quarterly report, in the Company’s previously filed 2010 Quarterly Reports on Form 10-Q and in the Company’s 2009 Annual Report on Form 10-K.

Overview

     Stillwater Mining Company (the “Company”) is a Delaware corporation, headquartered in Billings, Montana and listed on the New York Stock Exchange under the symbol SWC. The Company mines, processes, refines and markets palladium and platinum ores from two underground mines situated within the J-M Reef, an extensive trend of PGM mineralization located in Stillwater and Sweet Grass Counties in south central Montana. Ore produced from each of the mines is crushed and concentrated in a mill at each mine site. The resulting concentrates are then trucked to the Company’s smelting and refining complex in Columbus, Montana which processes the mine concentrates and also recycles spent catalyst materials received from third parties. A portion of the recycling material is purchased for the Company’s own account and the balance is toll processed on behalf of others. The finished product of the refinery is a PGM-rich filter cake which is shipped to third parties for final refining into finished metal.

     For the third quarter of 2010, the Company reported net income of $5.9 million, or $0.06 per share, higher than the $4.2 million, or $0.04 per share, reported in the third quarter 2009. Stronger realized prices in the 2010 third quarter for the Company’s primary products, palladium and platinum, more than offset lower ounce production compared to the third quarter of 2009. The Company’s combined average realized price for each metal differs from equivalent average market prices as the result of various contractual provisions, which include ceiling prices that apply to a portion of the Company’s mined platinum, floor prices that during the third quarter of 2009 benefited most of the Company’s mined palladium, small contractual discounts on those volumes not subject to floors or ceilings, and selling prices based on monthly averages which generally lag the market price by one month. The Company’s average realized price on sales of mined palladium and platinum was $687 per ounce in the third quarter of 2010, lower than the $725 per ounce realized in the second quarter of 2010 but higher than the $574 per ounce realized in the third quarter of 2009.

     Mine production of palladium and platinum totaled 122,400 ounces in the 2010 third quarter, an 8.7% improvement over the 112,600 ounce production in the second quarter of 2010, still a 5.2% decrease from the 129,100 total ounces produced during the third quarter of 2009; the lower production in the third quarter of 2010 was primarily attributable to operational and grade issues in the off-shaft area of the Stillwater Mine. The

Company’s total available liquidity, expressed as cash plus short-term investments, continued to increase during the quarter, and at September 30, 2010, was $259.0 million, up from $228.1 million at June 30, 2010, and $201.2 million at the end of 2009. Net working capital (including cash and investments) also increased over the quarter to $334.9 million at September 30, 2010, up from $316.9 million at the end of second quarter 2010 and $269.5 million at year end 2009.

     Revenues from PGM recycling more than doubled between the third quarter of 2009 and the third quarter of this year, increasing to $54.7 million in the third quarter of 2010 from $26.2 million for the same period in 2009. The increase in PGM recycling revenues is a combination of higher prices realized for PGM sales thus far in 2010 as compared to 2009, and higher volumes sold. The Company’s combined average realization on recycling sales (which include palladium, platinum and rhodium) was $1,099 per ounce in the third quarter of 2010, up 60.2% from $686 per ounce realized in the third quarter of last year. Recycled ounces sold increased to 48,900 ounces in the third quarter of this year from 37,000 ounces in the third quarter of 2009. Recycled ounces, including ounces processed on a toll basis, increased to 78,500 ounces in the third quarter of 2010 from 60,800 ounces in the third quarter of 2009.

     On September 7, 2010, the Company announced that it had entered into a Plan of Arrangement to acquire the PGM-copper assets of Marathon PGM Corporation (“Marathon”), a Canadian exploration company listed on the Toronto Stock Exchange. (A copy of the Plan of Arrangement, as amended, is provided as an exhibit to this quarterly report). Marathon holds a number of PGM-copper assets that are of particular interest to the Company, including a resource, as defined by a feasibility study, known as the Marathon project in Ontario, Canada located near the town of Marathon at the northern extremity of Lake Superior. The feasibility study for this property contemplates producing about 200,000 ounces per year of palladium and platinum, along with about 39 million pounds per year of copper, from an open-pit operation expected to be in production by 2014. Cost of constructing the mine is estimated to be about $400 million, to be funded out of the Company’s internally generated cash flow and supplemental external financing. The feasibility study anticipates an active mine life of approximately 12 years, although there may be resource potential to extend the mine life. The Company made a $2.9 million investment in Marathon PGM Corporation in conjunction with the signing of the Marathon transaction in order to fund Marathon liquidity needs.

Mining Operations

     The Company’s operating objectives for the full year of 2010 initially included targeted mine production of 515,000 combined ounces of palladium and platinum, which was lowered in the second quarter of 2010 to 490,000 combined ounces of palladium and platinum at a total consolidated cash cost per ounce of $385, and capital expenditures of about $57 million. These forecasts are being updated directionally to reflect continuing production challenges at both mines. The new guidance is a full year production objective of between 480,000 to 490,000 ounces at a total consolidated cash cost of between $395 and $400 per ounce. (Total consolidated cash cost per ounce is a non-GAAP measure of extraction efficiency — please see “Reconciliation of non-GAAP measures to Costs of Sales” below for a discussion of how this measure is derived). Capital expenditure guidance remains targeted at $57 million. After a strong start this year, mine production declined somewhat during the second and third quarters, largely as a result of operational challenges at the Stillwater Mine. During the third quarter of 2010, the Company’s two operating mines produced 122,400 ounces of palladium and platinum at a total consolidated cash cost of $402 per ounce — up from $357 per ounce in the third quarter of 2009. Year to date in 2010, combined mine output of palladium and platinum has totaled 364,000 ounces at an average total cash cost per ounce of $386; that compares to 391,600 ounces through nine months of 2009 at a total cash cost of $363 per ounce. The higher total cash costs per ounce experienced this year reflects in part the effect on royalties and taxes of higher PGM prices, but mostly are the result of lower overall realized ore grades at the Stillwater Mine. Capital spending in the third quarter of 2010 was $10.9 million, bringing year-to-date 2010 spending to $35.5 million. Capital to date is lagging the planned level of spending, mainly reflecting the under-budget final cost of constructing the Company’s new recycle crushing and sampling facility in Columbus.

     Third quarter 2010 palladium and platinum production at the Stillwater Mine totaled 89,600 ounces, an improvement over the 79,200 ounces in the second quarter of 2010, but remained below the 95,100 ounces produced in the third quarter of 2009. As discussed in the Company’s previous filings, the lower third quarter production was not unexpected, as the Company has diverted additional resources from production into mine development particularly at the Stillwater Mine. In part because of lower mine development spending in 2009, this year the mine has had limited flexibility to balance production among alternate mining areas — consequently the Company has diverted resources into mine development during the second and third quarters of 2010 in an effort to realize stronger performance going forward.

     Stillwater Mine’s total cash costs of $374 per ounce for the third quarter of 2010 were higher than originally planned and above the $344 per ounce for the third quarter of 2009, driven by increased royalties and taxes resulting from higher prices, and by the lower mine production. However, looking instead at total cash cost per ton (another non-GAAP measure), for the 2010 third quarter Stillwater Mine incurred $170 per ore ton milled, compared to $167 per ore ton milled in the same period last year. Likewise, year to date in 2010 Stillwater Mine total cash costs per ton have been $168, a little lower than the $175 per ore ton for the first nine months of 2009.

The relatively flat cash costs per ore ton milled and rising cash costs per ounce are consistent with the lower average ore grade realized at the Stillwater Mine during 2010. A higher than usual proportion of mining stopes in the off-shaft area of the mine are currently either early or late in their production life — and ore grades tend to be more variable at those points in the life cycle than on average. Also, a higher proportion of Stillwater Mine production has come out of the upper west area of the mine this year, and ore grades in the upper west tend to be lower than in the off-shaft area.

     Capital expenditures at the Stillwater Mine have totaled $24.1 million year to date, slightly above plan and a little ahead of the $21.7 million spent during the first nine months of 2009. Primary development year to date at the Stillwater Mine has advanced about 14,400 feet, about 15% ahead of plan, but to some extent this has been at the expense of secondary development, which at about 10,000 feet is behind plan. Diamond drilling footages to date in 2010 at the Stillwater Mine total about 218,000 feet, about 8% better than planned.

     Mining production at the East Boulder Mine through the third quarter has continued on plan, with combined palladium and platinum production of 32,800 ounces; however, total cash costs of $480 per ounce are higher than plan. In comparison, during the third quarter of 2009 the East Boulder Mine produced 34,000 ounces of palladium and platinum at a total cash cost of $391 per ounce. Capital expenditures at the mine were $0.9 million in the third quarter of 2010 compared to $1.3 million in the third quarter of 2009. Actual primary development at the East Boulder Mine has advanced about 2,000 feet year to date, while secondary development has advanced 9,500 feet to date in 2010. In total, development footage at the East Boulder is about 6% behind plan. Diamond drilling footage has totaled about 71,200 feet so far this year, also close to plan.

     Recognizing the challenges facing the Stillwater Mine in particular during 2010, the Company is updating directionally its production guidance for the full year of 2010 from 490,000 ounces of mined palladium and platinum to be in the range of between 480,000 to 490,000 combined ounces. As a result, average combined total cash costs for the full year 2010 are now projected to increase to between $395 and $400 per ounce from the $385 per ounce guidance. Capital spending for the full year of 2010 remains targeted at $57 million, consistent with our earlier guidance of $50 million, reflecting additional infrastructure development and some tactical opportunities to strengthen operations modestly in 2011 and 2012.

     Engineering assessments of mining conditions for the balance of 2010 suggest that ore grades are likely to remain lower on average than projected previously. These lower realized ore grades are believed to be primarily a consequence of timing and area of the mine. In conjunction with its customary review of reserves at year end, the Company intends to examine ore grade changes to determine if there is any long-term trend.

     The Company’s sales agreement with Ford Motor Company, which expires at the end of 2010, currently has committed 80% of the Company’s palladium production and 70% of its platinum production from mining through the end of 2010 and contains certain guaranteed floor and ceiling prices for metal delivered. Metal sales under the agreement, when not affected by the guaranteed floor or ceiling prices, are priced at a slight discount to market. None of the Company’s mined palladium or platinum production after 2010 is currently under contract. If the Ford agreement were not replaced, the Company believes it could sell all of its production on a spot basis into terminal markets with virtually no detrimental effect on market prices. Nevertheless, the Company is engaged in discussions at this time with various potential customers for its mined palladium and platinum and expects ultimately to enter into new supply agreements for its metal production, likely absent floor or ceiling price provisions as in past contracts. The likely absence of floor prices in any successor contract to the Ford agreement after 2010 will increase the Company’s financial exposure to low PGM prices. The absence of the ceiling prices in any successor contracts also will increase the Company’s opportunity to realize fully on higher prices. In the current rising market the Company believes the elimination of contractual floor and ceiling prices will benefit its shareholders as it is the equivalent of eliminating forward hedges.

PGM Recycling

     Along with its mine concentrates, the Company also processes spent catalyst material through its smelting and refining facilities in Columbus, Montana, ultimately recovering palladium, platinum and rhodium from these materials. For the third quarter of 2010, the Company earned $3.1 million from recycling operations on revenues of $54.7 million, reflecting a combined average realization (including rhodium) of $1,099 per sold ounce. By comparison, in the third quarter of 2009 the Company’s net income from recycling operations was $1.7 million on revenues of $26.2 million, a combined average realization of $686 per sold ounce. Total tons of recycling material processed during the third quarter of 2010, including tolled material, averaged 13.8 tons per day, up from 9.6 tons per day in the third quarter of 2009. Higher PGM prices have created a stronger incentive for suppliers to collect material, and this year the Company has been able to enter into new sourcing arrangements for catalyst material with several suppliers. Total ounces recycled in the third quarter of 2010, including toll ounces processed, was 78,500 ounces compared to 60,800 ounces in the third quarter of 2009. Total ounces recycled in the first nine months of 2010, including toll ounces, was 297,000 ounces compared to 160,100 in the first nine months of 2009.

     The Company believes it enjoys certain competitive advantages in the recycling business. The smelting and refining complex in Columbus, Montana already processes mined PGM concentrates, which contain not only PGMs, but also significant quantities of nickel and copper as by-products. Consequently, the Company is able to recycle catalyst material within its system at an incremental cost which is lower than other processor’s. In addition, the nickel and copper in the mine concentrates act metallurgically as natural collectors of the PGMs, improving PGM recoveries significantly. Moreover, the Company also believes the physical location of its processing facilities provides a logistical advantage over smelters in Europe and South Africa. And as described below, the Company is incorporating certain technological innovations that may contribute further benefit.

     The Company has taken steps over the past year or so to reposition itself in the recycling business. In May 2009, the Company commissioned a new electric furnace in the Columbus smelter, increasing throughput capacity and creating backup furnace capacity in the event of planned or unforeseen outages. During the third quarter 2010, the Company commissioned a dedicated catalyst processing and sampling plant that allows for the segregation and handling of multiple batches of recycling material simultaneously. During the fourth quarter 2010 the Company plans to commission a state-of-the-art assay laboratory utilizing an automated x-ray facility that will provide accurate results with faster turnaround times than conventional fire assay methods. New laboratory software will support this automated x-ray system as well as other laboratory processes. All of these new capabilities are expected to be in place and operational by the end of 2010.

     In acquiring recycled automotive catalysts, the Company sometimes advances funds to its suppliers ahead of actually receiving material in order to facilitate procurement efforts. Such outstanding procurement advances that were not backed up by inventory on hand at September 30, 2010 and 2009, totaled $1.8 million and $2.6 million, respectively.

Marathon PGM Corporation Acquisition

     On September 7, 2010, the Company announced that it had entered into a Plan of Arrangement to acquire the PGM-copper assets of Marathon PGM Corporation (“Marathon”), a Canadian exploration company listed on the Toronto Stock Exchange. (A copy of the Plan of Arrangement, as amended, is provided as an exhibit to this quarterly report). Marathon holds a number of PGM-copper assets that are of particular interest to the Company, including a resource, as defined by a feasibility study, known as the Marathon project in Ontario, Canada located near the town of Marathon at the northern extremity of Lake Superior. The feasibility study for this property contemplates producing about 200,000 ounces per year of palladium and platinum, along with about 39 million pounds per year of copper, from an open-pit operation expected to be in production by 2014. Cost of constructing the mine is estimated to be about $400 million, to be funded out of the Company’s internally generated cash flow and supplemental external financing. The feasibility study anticipates an active mine life of approximately 12 years, although there may be resource potential to extend the mine life.

     The Plan of Arrangement contemplates a transaction in which Marathon will first spin out certain gold exploration properties to its existing shareholders, through a new company, Marathon Gold Corporation.

The Company will then acquire the outstanding shares of Marathon in return for cash and Company shares. The agreement provides that Marathon shareholders will receive 0.112 Company common shares plus Cd$1.775 in cash and 0.5 shares of Marathon Gold in exchange for each Marathon share. In total, the Company expects to issue about 3.9 million new common shares and Cd$61.7 million in cash to the Marathon shareholders in completing the acquisition for a total acquisition cost of $118.0 million at the time of the announcement. Closing of the transaction is contingent upon a favorable vote of the Marathon shareholders and securing various regulatory approvals in Canada. The Company made a $2.9 million investment in Marathon PGM Corporation in conjunction with the signing of the Marathon transaction in order to fund Marathon liquidity needs.

     The Marathon transaction fits well into the Company’s long-term strategy to diversify its mining activities. The size of this transaction is manageable financially, and the location is politically stable and logistically accessible. The Marathon area is well developed with extensive infrastructure already established, and there is other active mining in the general vicinity of the project. The new mine will create a significant number of jobs in an area with relatively high unemployment.

Outlook for PGM Prices and Supply

     Platinum and palladium market prices generally trended up during the 2010 third quarter, with both metals closing on their highs for the quarter of $1,662 and $573 per ounce, respectively. Second quarter 2010 market prices averaged somewhat higher than third quarter prices, but had declined during May and June in response to European economic uncertainty and associated strengthening of the U.S. dollar. The third-quarter 2010 upward trend in PGM prices was likely driven by several factors, including a weakening U.S. dollar in anticipation of additional “quantitative easing” in the U.S. economy, uncertainties regarding the timing and extent of economic recovery, and some investor movement into commodities as a store of value. The Company expects that as the world economy gradually recovers, there will be continued strong demand from Asia for PGMs and raw materials, a steady recovery in automotive demand, and resulting investor interest in platinum group metals. With respect to supply, there appears to have been a substantial reduction in palladium exports from the Russian government stockpiles in 2010. These supply and demand factors have combined to support PGM prices this year. As discussed in the Company’s 2009 Annual Report, the Company believes that longer-term market fundamentals also appear favorable for PGMs.

     However, this market view also encompasses certain risks. PGM trading volumes are relatively thin and their markets have limited liquidity, particularly in comparison to markets for other precious metals and the major industrial metals. Consequently, PGM prices historically have been volatile and difficult to forecast. PGM prices may be affected — favorably or unfavorably — by numerous factors, including the level of industrial demand, particularly from the automotive sector; supply factors that include changes in mine production and inventory activity; and by shifts in investor sentiment. Recent PGM prices are comparatively high by historical standards, and to some extent these price levels are likely driven by investor sentiment that could shift away from precious metals if other markets become more attractive. The Company attempts to manage this market volatility in several ways, including by entering into long-term supply agreements, in some cases through metal hedging, by investing in the developed state of the mines, attention to cost controls and monitoring liquidity to bridge periods when PGM prices are low.

     Automotive demand has generally continued to strengthen worldwide during 2010 after a difficult year in 2009. Production of vehicles in North America reportedly reached 9.1 million units in the first nine months of 2010, up sharply from about 5.9 million units in the same period last year. Reports from China suggest that auto production growth there has remained strong this year, although perhaps slowing a little in the third quarter, following a record pace of growth that continued in China even during the worst of the economic downturn. Despite measures taken to slow the exuberant Chinese economy, gross domestic product (“GDP”) there still grew at about 9.4% in the first nine months of 2010. Analysts have projected that the world wide vehicle build rate during the third quarter 2010 exceeded the build rate prior to the 2008 financial collapse due to the surging Chinese vehicle production.

     For the past 20 years, a key supplementary source of palladium supply to the market has been sales out of the Russian government’s Cold War strategic stockpiles. In many of those years, such sales have made the difference between surplus and deficit in the palladium market. Because the size of the stockpile and the volumes of stockpile sales are not disclosed by the Russian government, stockpile sales of Russian palladium generally are tracked by monitoring international trade statistics, including Russian exports of metal in particular to Switzerland, but also to the U.S. and Hong Kong. For the past two decades such exports have typically averaged between one and two million ounces annually. However, the volumes appear to have declined during 2009 and 2010, thus potentially constraining a key source of swing palladium supply.

     Mine production of palladium and platinum worldwide, which has fallen significantly since peaking in 2006, appears to be strengthening slightly in 2010 after declining modestly during 2009. North American Palladium’s Lac des Iles Mine in Canada, which was shut down for about 18 months, reopened during the 2010 second quarter, bringing about 140,000 ounces per year of palladium production back onto the market. MMC Norilsk Nickel, the large Russian mining company that produces about 50% of the world’s annual palladium output and is also the majority shareholder of the Company, has indicated its 2010 palladium production likely will be equal to or slightly above its output in 2009. And the South African producers collectively seem to be projecting small increases in their output year-on-year, although recent operational issues there may make those increases difficult to achieve. Overall, it appears that PGM supplies remain relatively constrained, even in the face of fairly significant increases in PGM prices.

     The introduction of new platinum- and palladium-based exchange-traded-funds (“ETFs”) into the U.S. market in January of this year provided a new investment vehicle for accessing these metals. Shares in these ETFs are fully collateralized by platinum and palladium held in bank vaults, and so are essentially surrogates for owning the metals themselves. At the end of the third quarter of 2010, the various PGM ETFs worldwide reportedly held in aggregate about a million ounces of platinum and 1.8 million ounces of palladium. Growth in worldwide platinum and palladium ETF holdings generally flattened out after May of this year as PGM prices softened in the face of a stronger dollar. However, with the subsequent weakening of the U.S. dollar against the euro in late September and October of 2010, sales of EFTs appeared to be strengthening again. Interestingly, experience to date has shown very little net liquidation of ETF holdings when PGM prices weaken — even during the steep price decline in the second half of 2008.

Strategic Areas of Emphasis

     The Company’s management has identified and focused on three broad strategic areas of emphasis. While specific initiatives have varied as markets have shifted and the Company has progressed, these fundamental strategic directions continue to provide a basic framework for management’s efforts to strengthen performance.

1. Be a Safe, Low-Cost Operator

     The Company maintains that companies with safe operations also tend to be well managed and efficient in other important areas. The Company measures safety performance using several criteria, including the frequency and severity of medical reportable incidents and lost-time accidents in comparison to the Company’s own historical performance and relative to other mining operations in the industry. Safety is also assessed in terms of the number and severity of citations issued by MSHA inspectors during their regular visits to the minesites. Both measures — accident frequency and regulatory compliance — are critical elements of the Company’s safety efforts. Various internal programs support these safety efforts, including annual refresher training and other training programs, pre-shift employee inspections of each work area, regular workgroup discussions of current safety issues and incidents, detailed accident investigations to identify core causes, reporting of near misses that had the potential of resulting in injuries, and more rarely so-called “safety stand-downs” to re-emphasize safety principles as necessary. The Company also responds promptly to correct issues identified by MSHA inspectors and to eliminate unsafe work practices.

     The Company’s safety performance, measured in terms of reportable incidents per 200,000 hours worked, resulting in a year to date rate of 4.1 at the end of the third quarter of 2010, slightly better than the 4.2 rate reported for the comparable nine-month period last year.

     The significance of aiming to be a low-cost operator deserves some elaboration. Ore grades at the Company’s operations are some of the best in the world, and consequently total cash costs per ounce for the Company’s mining operations also rank among the lowest of any primary PGM producer in the industry. However, because the Company’s ore contains about 3.4 times as much palladium as platinum and South African ores typically have about twice as much platinum as palladium, the Company’s average revenues per ounce are lower and operating margins may be tighter than for South African producers. Other significant PGM producers, including Norilsk Nickel and the Canadian nickel operations, produce PGMs as by-products, assigning them almost zero cost. Consequently, the Company measures its performance as a low-cost operator in competitive terms, both relative to its own historical cost performance and relative to historical market prices for its products.

     The importance of low-cost operations takes on particular significance in view of the forthcoming expiration of the Ford Motor Company supply agreement at the end of 2010. While the Company has had various conversations during 2010 with Ford and other potential customers, it is unlikely in today’s market that the Company will replicate the existing floor prices in any new or replacement sales agreement. With the loss or restructuring of the palladium floor prices in its sales contracts, the Company will lose the pricing cushion such floors have provided when and if prices cycle downward. To date, the Company has not entered into any long-term replacement PGM sales agreement for its mine production after 2010 although a number of potential customers have expressed interest. Absent such an agreement, spot volumes of platinum and palladium equivalent to the Company’s rate of mine production are traded regularly in terminal PGM markets, and if necessary, the Company believes it could sell all its mine production on a spot basis without adversely affecting the market.

     As noted previously, the Company is updating its production guidance for 2010 from 490,000 ounces at a cash cost per ounce of $385 to between 480,000 and 490,000 ounces with a corresponding total cash cost per ounce of $395 to $400. The reduced production relative to 2009 is driven by production challenges during the second quarter in the so-called “off-shaft” area of the Stillwater Mine and by recognition of the need to divert some additional production resources into mine development. Given the reduction in new development spending during 2009, there has been less flexibility to shift mining into other areas when operational problems arise. Overall at the Stillwater Mine, total ore tonnage produced year-to-date is essentially on plan, but with a higher percentage of ore coming out of the “upper-west” portion of the mine, which is lower grade than in the “off-shaft” area, total ounces of palladium and platinum produced to date are behind 2009 levels.

     Management has identified a number of the current challenges limiting mining flexibility and is addressing these challenges. The installation of the Kiruna electric trucks for accessing the deeper portions of the off shaft area — a long-term project — is now nearly complete and will open up more mining alternatives in that part of the mine. Development through a nearly barren zone to the west in the Stillwater Mine also is now being completed, providing access to another new area of the mine, the “lower west” area. The Company also plans to resume some mining on the east side of the mine during 2011.

     Capital spending for 2010 also has been increased from the originally budgeted $50 million to about $57 million, primarily to augment development efforts at both mines. The intent is to strengthen the developed state of the mines and also, particularly in view of stronger PGM prices, to position the mines over time for a modest expansion of production rates going forward. Two distinct long-term strategic projects have been identified, one on the far eastern side of the Stillwater Mine and the other on the far western side of the East Boulder Mine. Both appear to have attractive economics at current PGM prices. The planned up-front work at the Stillwater Mine involves rehabilitating some old headings on the east side of the mine, while at East Boulder the tunnel boring machine will be used to extend existing headings further to the west. In both instances, new ventilation raises, which will take several years to complete, will be needed before any mining efforts can proceed. As a result, only minimal spending on these two strategic projects is feasible in 2010 and 2011, but the required up-front work is being started. Several other, shorter-term opportunities also have been identified that have been incorporated into the existing mine plans.

     Although manpower on site remains adequate to meet the updated 2010 guidance, the Company will need to add manpower to support the additional development in 2011 for all of these future initiatives. While it may be a challenge to add all of the new miners needed, the Company has now resumed some recruiting efforts in an effort to meet the increased requirements.

     Ore production at the Stillwater Mine averaged 2,136 and 2,115 tons of ore per day during the third quarter and first nine months of 2010, respectively; this compares to an average of 2,133 and 2,122 ore tons per day produced during the same periods of 2009, respectively. The rate of ore production at the East Boulder Mine averaged 1,093 and 1,098 tons per day during the third quarter and first nine months of 2010, respectively compared to an average of 1,136 and 1,116 ore tons per day during the same periods of 2009, respectively.

     During the third quarter of 2010, the Company’s mining operations produced a total of 94,500 ounces of palladium, and 27,900 ounces of platinum. This compares to 99,200 ounces of palladium and 29,900 ounces of platinum produced during the third quarter of 2009. For the first nine months of 2010, the mines produced 280,600 ounces of palladium and 83,400 ounces of platinum, compared to 300,900 ounces of palladium and 90,700 ounces of platinum in the same period last year.

2. Palladium Market Development

     Significant sums have been spent each year for many years by a consortium of South African producers on marketing platinum. However, palladium historically has never enjoyed a comparable level of marketing support. The Company stepped into this void beginning in 2004, putting forward a comparatively modest marketing program that focused on providing technical support to manufacturers and bench jewelers and image advertising at the industry level. This effort continued until the economic downturn of late 2008 and 2009, at which time it was cut back sharply, but in 2010 and 2011 the Company is reinstituting these efforts, anticipating marketing expense of $4.0 million in 2011 related to market development with particular emphasis on China.

     Company representatives in China provide first-hand insight into palladium activity there and maintain contact with key palladium consumers. The Company also sponsors palladium image advertising in Chinese media. China first led the recent trend toward using palladium in jewelry and remains the largest market for it. About one million ounces of palladium are consumed each year worldwide in palladium jewelry. Palladium jewelry is now available in all major markets worldwide, and in January of 2010 the U.K. mandated the hallmarking of all palladium jewelry, formally recognizing it, along with gold, silver and platinum, as a precious jewelry metal.

     Automotive applications for palladium in catalytic converters are well established for gasoline engines, but diesel engine catalytic technologies generally have been based on platinum. In recent years, driven mostly by economics, research efforts in the auto industry have focused on how to substitute less expensive palladium for platinum in these applications. The Company has encouraged this research and closely monitored its progress. Reportedly, it is now possible in the laboratory to replace about 50% of the platinum in a diesel system with palladium on nearly a one-for-one basis, although the average proportion of palladium in vehicles now in production is estimated to be closer to 25%.

     Other industrial applications for palladium include refinery catalysts, electronics, hydrogen generation and dentistry. Electronic uses that take advantage of palladium’s unique characteristics include multi-layered ceramic capacitors, high-end television screens, and compact discs. Palladium in thin films has a unique ability to pass hydrogen molecules while blocking other impurities, allowing relatively inexpensive production of high-purity hydrogen for chemical processes and fuel cells. Palladium alloys used in dental fillings wear well and have an expansion coefficient that closely matches that of the teeth themselves, although other materials tend to be substituted for palladium when its price rises.

3. Growth and Diversification

     The Company regularly monitors diversification opportunities in various mineral development projects, as well as potential merger or acquisition candidates and other business ventures. It also is continually seeking appropriate opportunities to diversify its existing mining and processing operations.

     Recognizing the need to broaden its base, the Company over the past several years has successfully expanded its recycling operations into a distinct business segment that has become a meaningful source of income, reducing the Company’s captive reliance financially on the performance of the mines. The recycling business has utilized

surplus capacity within the Company’s smelting and refining facilities to generate an additional income stream, requiring relatively little incremental investment in facilities. As already noted, over the past year or so the Company has invested in some new dedicated recycling facilities that are intended to increase the Company’s capacity to handle recycled material and sharply reduce turnaround times for settlement with suppliers.

     The Company holds minority investments in two small exploration companies that target PGMs and other precious metals. Although in the past the Company has participated with these companies in specific exploration programs, at present the Company is not involved in any such programs. In 2011, the Company intends to establish a small exploration program aimed at evaluating opportunities to invest in various emerging mineral projects and perhaps to partner with other exploration teams.

     The Company carefully monitors various later-stage mineral development projects, as well as potential merger and acquisition candidates in an effort to diversify the Company’s financial and operating risk and perhaps add scale. Management believes that the acquisition of Marathon PGM Corporation, as described previously, will provide an excellent entry into a development-stage project that will utilize the Company’s resources effectively and establish a strong presence in an attractive North American PGM district and diversify the Company’s operations as to geography and product with its copper endowment.

RESULTS OF OPERATIONS

Comparison of Three- Month Periods Ended September 30, 2010 and 2009.

     The Company’s total revenues increased by 27.6% to $142.9 million in the third quarter of 2010 compared to $112.0 million for the third quarter of 2009. The following analysis covers key factors contributing to the increase in revenues:

SALES AND PRICE DATA

		Three Months Ended
		September 30,								Increase				Percentage
(in thousands, except for average prices)		2010				2009				(Decrease)				Change
Revenues		$	142,872			$	112,004			$	30,868				28	%
Ounces Sold:
Mine Production:
Palladium (oz.)			94				101				(7	)			(7	%)
Platinum (oz.)			26				36				(10	)			(28	%)
Total			120				137				(17	)			(12	%)
PGM recycling: (1)
Palladium (oz.)			25				20				5				25	%
Platinum (oz.)			20				15				5				33	%
Rhodium (oz.)			3				3				—				—
Total			48				38				10				26	%
By-products from mining: (2)
Rhodium (oz.)			—				1				(1	)			(100	%)
Gold (oz.)			3				3				—				—
Silver (oz.)			1				1				—				—
Copper (lb.)			132				216				(84	)			(39	%)
Nickel (lb.)			239				240				(1	)			—
Average realized price per ounce (3)
Mine Production:
Palladium ($/oz.)		$	471			$	360			$	111				31	%
Platinum ($/oz.)		$	1,448			$	1,174			$	274				23	%
Combined ($/oz.) (4)		$	687			$	574			$	113				20	%
PGM recycling: (1)
Palladium ($/oz.)		$	490			$	244			$	246				101	%
Platinum ($/oz.)		$	1,622			$	1,161			$	461				40	%
Rhodium ($/oz.)		$	2,690			$	1,385			$	1,305				94	%
By-products from mining: (2)
Rhodium ($/oz.)		$	2,150			$	1,581			$	569				36	%
Gold ($/oz.)		$	1,239			$	973			$	266				27	%
Silver ($/oz.)		$	19			$	16			$	3				19	%
Copper ($/lb.)		$	3.10			$	2.44			$	0.66				27	%
Nickel ($/lb.)		$	8.32			$	9.35			$	(1.03	)			(11	%)
Average market price per ounce (3)
Palladium ($/oz.)		$	495			$	272			$	223				82	%
Platinum ($/oz.)		$	1,553			$	1,230			$	323				26	%
Combined ($/oz.) (4)		$	728			$	525			$	203				39	%

     Net revenues from sales of mine production (includes by-products) were $88.2 million in the third quarter of 2010, compared to $85.6 million for the same period in 2009, a 3.0% increase. The increase in mine production revenues reflects higher market prices which more than offset the lower volumes sold in the third quarter of 2010 than in the third quarter of 2009. The third quarter of 2009 yielded a higher number of ounces sold, due to the

timing of sales deliveries between the quarters in 2009, while at lower PGM prices. The Company’s average combined realized price on sales of palladium and platinum from mining operations was $687 per ounce in the third quarter of 2010, compared to $574 per ounce in the same quarter of 2009. The total quantity of mined platinum and palladium sold decreased by 12.3% to 120,500 ounces in the third quarter of 2010 compared to 137,400 ounces sold during the same time period in 2009.

     Revenues from PGM recycling more than doubled between the third quarter of 2009 and the third quarter of this year, increasing to $54.7 million in the third quarter of 2010 from $26.2 million for the same period in 2009. The increase in PGM recycling revenues is a combination of higher prices realized for PGM sales thus far in 2010 as compared to 2009, and higher volumes sold. The Company’s combined average realization on recycling sales (which include palladium, platinum and rhodium) was $1,099 per ounce in the third quarter of 2010, up 60.2% from $686 per ounce realized in the third quarter of last year. Recycled ounces sold increased to 48,900 ounces in the third quarter of this year from 37,000 ounces in the third quarter of 2009. Recycled ounces, including ounces processed on a toll basis, increased to 78,500 ounces in the third quarter of 2010 from 60,800 ounces in the third quarter of 2009.

     The Company also purchases PGMs for resale from time to time to accommodate customer requirements. No open market purchases were made in the third quarter of 2010 for resale. In the third quarter of 2009, revenue totaled $0.2 million on the resale of 400 ounces of palladium, platinum and rhodium purchased in the open market and resold at cost.

     The Company’s total costs of metals sold (before depletion, depreciation, amortization, and corporate overhead expenses) increased to $109.9 million in the third quarter of 2010 from $80.8 million in the third quarter of 2009, a 36.0% increase. The higher cost in 2010 was driven primarily by higher volumes of recycling material purchased (and the related higher value of the contained metals) despite lower levels of mine production.

     The costs of metals sold from mine production totaled $58.2 million for the third quarter of 2010, compared to $55.8 million for the third quarter of 2009, a 4.3% increase. The increase reflected higher labor and contracting costs between the two periods.

     Total consolidated cash costs per ounce produced, a non-GAAP measure of extraction efficiency, in the third quarter of 2010 rose by 12.6% to $402 per ounce, compared to $357 per ounce in the third quarter of 2009. This increase reflected higher total operating costs, amplified by the 5.2% decrease in mined ounces produced due to lower average ore grades between the two periods.

     The costs of metals sold from PGM recycling were $51.7 million in the third quarter of 2010, compared to $24.7 million in the third quarter of 2009. This increase was due both to higher recycling volumes processed and sold and the related higher market value of the materials acquired for processing.

     The costs of metals sold from purchasing 400 ounces of palladium, platinum and rhodium in the third quarter of 2009 was $0.2 million. There were no comparable purchases during the third quarter of 2010.

     During the third quarter of 2010, the Company’s mining operations produced 122,400 ounces of PGMs, an 8.7% improvement over the 112,600 ounce production in the second quarter of 2010, and a 5.2% decrease from the 129,100 total ounces produced during the third quarter of 2009. Production in the third quarter of 2010 included 94,500 ounces of palladium and 27,900 ounces of platinum. This level of production is below the 129,100 ounces of PGMs produced in the third quarter of 2009, which included 99,200 palladium ounces and 29,900 platinum ounces. Production at the Stillwater Mine increased to 89,600 ounces, an improvement over the 79,200 ounces produced in the second quarter of 2010, but down 5.8% from the 95,100 ounces produced in the third quarter of 2009, and production at the East Boulder Mine decreased 3.5% to 32,800 ounces from 34,000 ounces in the same period last year. The production decline at the Stillwater Mine was attributable to several factors, including lower average realized ore grades as a result from the mix of stopes being mined and diversion of some production resources into development work. The smaller production decline at East Boulder reflected normal variability in mining conditions.

     Total marketing, general and administrative expenses in the third quarter of 2010 were $8.4 million, compared to $6.8 million during the third quarter of 2009, a 23.5% increase. During the third quarter of 2010, the Company incurred higher than planned expenses for business development and employee severance. In the third quarter of 2009, the Company recorded a loss on its trade receivables of $0.3 million. No comparable valuation adjustments were recorded in the third quarter of 2010.

     Total interest income for the third quarter of 2010 increased to $0.6 million from $0.4 million in the corresponding quarter of 2009, mostly reflecting the Company’s increased balance of cash, cash equivalents and short-term investments. Interest earned on recycling volumes in the third quarter of 2010 contributed $0.3 million to net income in comparison to $0.2 million in the third quarter of 2009. Interest expense in the third quarter of 2010 was $1.6 million, compared to $1.7 million in the third quarter of 2009.

     In the third quarters of 2010 and 2009, other comprehensive income (loss) included a total change in the fair value of available-for-sale investment securities and long-term mutual fund investments of $0.2 million and $0.1 million, respectively.

Comparison of Nine- Month Periods Ended September 30, 2010 and 2009.

     The Company’s total revenues increased by 40.5% to $411.2 million for the first nine months of 2010 compared to $292.6 million for the same period in 2009. The following analysis covers key factors contributing to the increase in revenues:

SALES AND PRICE DATA

		Nine Months Ended
		September 30,								Increase				Percentage
(in thousands, except for average prices)		2010				2009				(Decrease)				Change
Revenues		$	411,204			$	292,609			$	118,595				41	%
Ounces Sold:
Mine Production:
Palladium (oz.)			288				293				(5	)			(2	%)
Platinum (oz.)			84				94				(10	)			(11	%)
Total			372				387				(15	)			(4	%)
PGM recycling: (1)
Palladium (oz.)			62				38				24				63	%
Platinum (oz.)			49				29				20				69	%
Rhodium (oz.)			10				7				3				43	%
Total			121				74				47				64	%
Other: (2)
Palladium (oz.)			10				12				(2	)			(17	%)
Platinum (oz.)			—				3				(3	)			(100	%)
Total			10				15				(5	)			(33	%)
By-products from mining: (3)
Rhodium (oz.)			2				3				(1	)			(33	%)
Gold (oz.)			7				7				—				—
Silver (oz.)			4				4				—				—
Copper (lb.)			610				604				6				1	%
Nickel (lb.)			894				669				225				34	%
Average realized price per ounce (4)
Mine Production:
Palladium ($/oz.)		$	456			$	362			$	94				26	%
Platinum ($/oz.)		$	1,465			$	1,089			$	376				35	%
Combined ($/oz.) (5)		$	683			$	540			$	143				26	%
PGM recycling: (1)
Palladium ($/oz.)		$	439			$	280			$	159				57	%
Platinum ($/oz.)		$	1,534			$	1,107			$	427				39	%
Rhodium ($/oz.)		$	2,382			$	2,282			$	100				4	%
Other: (2)
Palladium ($/oz.)		$	462			$	213			$	249				117	%
Platinum ($/oz.)		$	—			$	1,040			$	(1,040	)			(100	%)
By-products from mining: (3)
Rhodium ($/oz.)		$	2,503			$	1,379			$	1,124				82	%
Gold ($/oz.)		$	1,177			$	941			$	236				25	%
Silver ($/oz.)		$	18			$	14			$	4				29	%
Copper ($/lb.)		$	3.06			$	1.94			$	1.12				58	%
Nickel ($/lb.)		$	8.64			$	7.41			$	1.23				17	%
Average market price per ounce (4)
Palladium ($/oz.)		$	477			$	236			$	241				102	%
Platinum ($/oz.)		$	1,580			$	1,143			$	437				38	%
Combined ($/oz.) (5)		$	725			$	456			$	269				59	%