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EX-95 - MINE SAFETY DISCLOSURES - STILLWATER MINING CO /DE/swc-09x30x15x10xqex95.htm
EX-32.1 - SECTION 1350 CERTIFICATION - STILLWATER MINING CO /DE/swc-09x30x15x10xqex321.htm
EX-31.2 - CERTIFICATION OF CFO, PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002 - STILLWATER MINING CO /DE/swc-09x30x15x10xqex312.htm
EX-31.1 - CERTIFICATION OF CEO, PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002 - STILLWATER MINING CO /DE/swc-09x30x15x10xqex311.htm
EX-32.2 - SECTION 1350 CERTIFICATION - STILLWATER MINING CO /DE/swc-09x30x15x10xqex322.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

ý Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2015
OR
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to             
Commission file number 1-13053
STILLWATER MINING COMPANY
(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.)
26 West Dry Creek Circle, Suite 400, Littleton Colorado 80120
(Address of principal executive offices and 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  ý    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  ý    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):

Large Accelerated Filer
 
ý
  
Accelerated Filer
 
¨
 
 
 
 
Non-Accelerated Filer
 
¨
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
YES  o    NO  ý
At October 29, 2015, the Company had outstanding 120,996,146 shares of common stock, par value $0.01 per share.



STILLWATER MINING COMPANY
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2015
INDEX
 

2


PART I – FINANCIAL INFORMATION
ITEM 1
CONSOLIDATED FINANCIAL STATEMENTS
Stillwater Mining Company
Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands, except per share data)
2015
 
2014
 
2015
 
2014
REVENUES
 
 
 
 
 
 
 
Mine Production
$
86,359

 
$
137,067

 
$
331,065

 
$
409,967

PGM Recycling
81,982

 
109,509

 
222,980

 
305,760

Other
100

 
5,490

 
300

 
5,725

Total revenues
168,441

 
252,066

 
554,345

 
721,452

COSTS AND EXPENSES
 
 
 
 
 
 
 
Costs of metals sold
 
 
 
 
 
 
 
Mine Production
69,004

 
85,240

 
229,676

 
252,730

PGM Recycling
78,928

 
106,801

 
216,074

 
297,773

Other

 
5,278

 

 
5,357

Total costs of metals sold (excludes depletion, depreciation and amortization)
147,932

 
197,319

 
445,750

 
555,860

Depletion, depreciation and amortization
 
 
 
 
 
 
 
Mine Production
15,132

 
16,923

 
48,943

 
49,373

PGM Recycling
230

 
258

 
738

 
761

Total depletion, depreciation and amortization
15,362

 
17,181

 
49,681

 
50,134

Total costs of revenues
163,294

 
214,500

 
495,431

 
605,994

Exploration
827

 
659

 
2,667

 
2,379

Reorganization
1,658

 

 
1,658

 
6,045

General and administrative
8,911

 
10,051

 
27,652

 
28,017

Loss on long-term investments
151

 
59

 
204

 
59

Impairment of non-producing mineral properties

 

 
46,772

 

(Gain) loss on disposal of property, plant and equipment
(219
)
 
39

 
(216
)
 
(262
)
Total costs and expenses
174,622

 
225,308

 
574,168

 
642,232

OPERATING (LOSS) INCOME
(6,181
)
 
26,758

 
(19,823
)
 
79,220

OTHER INCOME (EXPENSE)
 
 
 
 
 
 
 
Other
17

 
785

 
918

 
849

Loss on extinguishment of debt, net
(4,010
)
 

 
(4,010
)
 

Interest income
766

 
931

 
2,192

 
2,750

Interest expense
(5,097
)
 
(6,018
)
 
(15,713
)
 
(17,737
)
Foreign currency transaction gain, net
12

 
998

 
149

 
5,359

(LOSS) INCOME BEFORE INCOME TAX BENEFIT (PROVISION)
(14,493
)
 
23,454

 
(36,287
)
 
70,441

Income tax benefit (provision)
2,464

 
(5,619
)
 
8,127

 
(15,909
)
NET (LOSS) INCOME
$
(12,029
)
 
$
17,835

 
$
(28,160
)
 
$
54,532

Net loss attributable to noncontrolling interest
(151
)
 
(313
)
 
(11,808
)
 
(1,083
)
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
$
(11,878
)
 
$
18,148

 
$
(16,352
)
 
$
55,615

Other comprehensive (loss) income, net of tax
 
 
 
 
 
 
 
     Net unrealized (loss) / gain on investments available-for-sale
(34
)
 
(183
)
 
149

 
(42
)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
$
(11,912
)
 
$
17,965

 
$
(16,203
)
 
$
55,573

Comprehensive loss attributable to noncontrolling interest
(151
)
 
(313
)
 
(11,808
)
 
(1,083
)
TOTAL COMPREHENSIVE (LOSS) INCOME
$
(12,063
)
 
$
17,652

 
$
(28,011
)
 
$
54,490

Weighted average common shares outstanding
 
 
 
 
 
 
 
Basic
120,960

 
120,067

 
120,746

 
119,849

Diluted
120,960

 
156,391

 
120,746

 
156,045

Basic (loss) earnings per share attributable to common stockholders
$
(0.10
)
 
$
0.15

 
$
(0.14
)
 
$
0.46

Diluted (loss) earnings per share attributable to common stockholders
$
(0.10
)
 
$
0.14

 
$
(0.14
)
 
$
0.43


See accompanying notes to consolidated financial statements

3


Stillwater Mining Company
Consolidated Balance Sheets
(Unaudited)
 
September 30,
 
December 31,
(In thousands, except share and per share data)
2015
 
2014
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
133,956

 
$
280,286

Investments, at fair value
326,344

 
251,254

Inventories
126,963

 
130,307

Trade receivables
723

 
1,277

Deferred income taxes
16,642

 
21,055

Prepaid expenses
4,220

 
2,546

Other current assets
21,744

 
14,671

Total current assets
630,592

 
701,396

Mineral properties
112,480

 
159,252

Mine development, net
452,110

 
409,754

Property, plant and equipment, net
112,827

 
118,881

Deferred debt issuance costs
4,367

 
6,032

Other noncurrent assets
4,811

 
4,012

Total assets
$
1,317,187

 
$
1,399,327

LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable
$
25,850

 
$
26,806

Accrued compensation and benefits
29,911

 
29,973

Property, production and franchise taxes payable
13,890

 
15,828

Current portion of long-term debt and capital lease obligations
1,185

 
2,144

Other current liabilities
6,625

 
7,288

Total current liabilities
77,461

 
82,039

Long-term debt and capital lease obligations
254,684

 
294,023

Deferred income taxes
48,907

 
68,896

Accrued workers compensation
6,092

 
6,060

Asset retirement obligation
10,805

 
9,401

Other noncurrent liabilities
9,307

 
7,200

Total liabilities
407,256

 
467,619

EQUITY
 
 
 
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; issued and outstanding 120,995,912 and 120,381,746 at September 30, 2015 and December 31, 2014, respectively
1,210

 
1,204

Paid-in capital
1,097,374

 
1,091,146

Accumulated deficit
(195,491
)
 
(179,139
)
Accumulated other comprehensive income
166

 
17

Total stockholders’ equity
903,259

 
913,228

Noncontrolling interest
6,672

 
18,480

Total equity
909,931

 
931,708

Total liabilities and equity
$
1,317,187

 
$
1,399,327

See accompanying notes to consolidated financial statements

4


Stillwater Mining Company
Consolidated Statements of Cash Flows
(Unaudited)
 
 
Nine Months Ended
 
 
September 30,
(In thousands)
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Net (loss) income
 
$
(28,160
)
 
$
54,532

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
 
 Depletion, depreciation and amortization
 
49,681

 
50,134

 Loss on long-term investments
 
204

 
59

      Loss on extinguishment of debt, net
 
4,010

 

 Impairment of non-producing mineral properties
 
46,772

 

      Amortization/accretion on investment premium/discount
 
1,688

 
1,441

 Gain on disposal of property, plant and equipment
 
(216
)
 
(262
)
 Foreign currency transaction gain, net
 
(149
)
 
(5,359
)
 Deferred income taxes
 
(12,192
)
 
(3,229
)
 Accretion of asset retirement obligation
 
589

 
554

 Amortization of deferred debt issuance costs
 
1,665

 
1,929

 Accretion of convertible debenture debt discount
 
12,985

 
12,746

 Share based compensation and other benefits
 
9,489

 
10,238

 Non-cash capitalized interest
 
(2,809
)
 
(2,381
)
Changes in operating assets and liabilities:
 
 
 
 
 Inventories
 
2,280

 
2,657

 Trade receivables
 
554

 
7,744

 Prepaid expenses
 
(1,674
)
 
(564
)
 Accrued compensation and benefits
 
(62
)
 
(986
)
 Accounts payable
 
413

 
(7,088
)
 Property, production and franchise taxes payable
 
170

 
3,102

 Income taxes payable
 

 
788

 Accrued workers compensation
 
32

 
136

 Other operating assets
 
(7,607
)
 
559

 Other operating liabilities
 
(1,982
)
 
4,943

NET CASH PROVIDED BY OPERATING ACTIVITIES
 
75,681

 
131,693

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 Capital expenditures
 
(83,386
)
 
(87,038
)
 Proceeds from disposal of property, plant and equipment
 
387

 
323

 Purchases of investments
 
(230,392
)
 
(174,941
)
 Proceeds from maturities of investments
 
153,902

 
131,441

NET CASH USED IN INVESTING ACTIVITIES
 
(159,489
)
 
(130,215
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 Payments on debt and capital lease obligations
 
(62,582
)
 
(31,536
)
 Proceeds from issuance of common stock
 
60

 
988

NET CASH USED IN FINANCING ACTIVITIES
 
(62,522
)
 
(30,548
)
CASH AND CASH EQUIVALENTS
 
 
 
 
 Net decrease
 
(146,330
)
 
(29,070
)
 Balance at beginning of period
 
280,286

 
286,687

BALANCE AT END OF PERIOD
 
$
133,956

 
$
257,617

See accompanying notes to consolidated financial statements

5


Stillwater Mining Company
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1
GENERAL
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of Stillwater Mining Company (the “Company”) at September 30, 2015, and the results of its operations and cash flows for the nine-month periods ended September 30, 2015 and 2014, respectively. The results of operations for the first nine months of 2015 are not necessarily indicative of the results to be expected for the 2015 year. The accompanying consolidated financial statements in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2014 Annual Report on Form 10-K (Form 10-K). All intercompany transactions and balances have been eliminated in consolidation.
The preparation of the Company’s consolidated financial statements in conformity with United States generally accepted accounting principles (U. S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. The more significant areas requiring the use of management’s estimates relate to mineral reserves, reclamation and environmental obligations, valuation allowance for deferred tax assets, useful lives utilized for depreciation, amortization and accretion calculations, future cash flows from long-lived assets, and fair value of derivatives and other financial instruments. Actual results could differ from these estimates.
The Company reclassified Marketing expenses into General and administrative for the period ended September 30, 2014, to be consistent with the current presentation in the Company's Consolidated Statements of Comprehensive (Loss) Income.
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 a third-party refiner for final processing from which they are sold to several customers with whom the Company has established trading relationships. Refined platinum group metals (PGMs) in sponge form are transferred upon sale from the Company’s account at the third-party refiner to the account of the purchaser. By-product metals are normally sold at market price to customers, brokers or outside refiners. Sales of copper and nickel by-products typically reflect a discount from market prices. By-product sales (gold, nickel, mined rhodium, copper and silver) are included in revenues from Mine Production. During each of the three-month periods ended September 30, 2015 and 2014, total by-product sales were $5.0 million and $6.9 million, respectively. For the nine-month periods ended September 30, 2015 and 2014, by-product sales totaled $18.7 million and $22.2 million, respectively.
In July 2014, the Company executed five-year supply and refining agreements with Johnson Matthey. Under the terms of these agreements, Johnson Matthey has an exclusive five-year right to refine all of the PGM filter cake the Company produces at its Columbus, Montana facilities. Johnson Matthey also has the right to purchase all of the Company's mine production of palladium and platinum at competitive market prices (except for platinum sales under the Company's sales agreement with Tiffany & Co., which are specifically excluded from the Johnson Matthey agreements) and has the right to bid for any recycling volumes the Company has available. Other provisions of the agreements include a good-faith effort by Johnson Matthey to assist in growing the Company's recycling volumes and the sharing of market intelligence to the extent permitted by law. The Company has the right to exit the Johnson Matthey PGM supply arrangement in return for the payment of a nominal fee. In addition, the Company, in its sole discretion, may elect to terminate the refining arrangement after four years.
In accordance with the terms of the Johnson Matthey PGM supply agreement, for the nine-month period ended September 30, 2015, all Company sales of mined PGMs, other than the platinum sales under the Company's sales agreement with Tiffany & Co., were to Johnson Matthey. In the first half of 2014, all Company sales of mined PGMs were either in the spot market or under mutually agreed short-term (one year or less) supply agreements.

6


PGM RECYCLING
The Company purchases spent catalyst materials from third-parties for recycling and processes these materials within its facilities in Columbus, Montana to recover palladium, platinum and rhodium for sale. The Company has entered into sourcing arrangements for catalyst materials with various suppliers. Under these sourcing arrangements as currently structured, the Company may advance cash as general working capital or against a shipment of material shortly before actually receiving the physical shipment at the Company's processing facility in Columbus, Montana. These advances are included in Other current assets on the Company’s Consolidated Balance Sheets until such time as the material has been physically received and title has transferred to the Company, at which time the advance is reclassified into Inventories. Finance charges collected on advances and inventories prior to being earned are included in Other current liabilities on the Company’s Consolidated Balance Sheets. Finance charges are reclassified from Other current liabilities to Interest income ratably from the time the cash advance was made until the out-turn date of the inventory from the final refiner.
The Company also accepts material supplied from third-parties on a tolling basis, processes it for a fee and returns the recovered metals to the supplier.
OTHER
Periodically, the Company acquires PGMs in the open market for resale to third parties. The Company recognized no revenues from PGMs acquired in the open market and simultaneously resold to third parties during the quarter ended September 30, 2015. However, the Company recognized $5.3 million of revenues from PGMs during the same period in 2014. This revenue is shown as Other revenues and the associated acquisition cost is shown as Other costs of metals sold in the Consolidated Statements of Comprehensive (Loss) Income.
TOTAL SALES
Total sales to significant customers as a percentage of total revenues for the three- and nine-month periods ended September 30, 2015 and 2014 were as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2015 (1)
 
2014
 
2015 (1)
 
2014 (1)
Customer A
 
70
%
 
67
%
 
75
%
 
45
%
Customer B
 

 
10
%
 

 
16
%
 
 
70
%
 
77
%
 
75
%
 
61
%
(1)    The “—” symbol represents less than 10% of total revenues.
NOTE 3
ASSET IMPAIRMENT
In accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification 360, Property Plant and Equipment (ASC 360-10), the Company reviews and evaluates its long-lived assets for impairment when events and changes in circumstances indicate that the related carrying amounts of such assets may not be recoverable and may exceed their fair value. For purposes of determining impairment, assets are grouped at the lowest level for which identifiable cash flows (including estimated future cash flows from non-operating properties) are largely independent of the cash flows of other groups of assets and liabilities.
In the third quarter of 2015, the Company recorded an increase of $1.1 million in estimated reclamation costs at the Stillwater Mine, related to the Benbow portal.
As a result of inquiries relating to the Marathon project received during the second quarter of 2015 the Company concluded that there was evidence to suggest that there had been a significant decrease in the fair value of the Marathon mineral properties. Accordingly, the Company performed an analysis that indicated the carrying value of the Marathon mineral properties exceeded its recoverable amount at June 30, 2015. The Company undertook an assessment of the fair value of its Marathon mineral properties, which included the examination of recent comparable transactions. During the second quarter of 2015, the Company recorded an impairment charge of $46.8 million (before-tax) against the carrying value of the Marathon mineral properties in Canada, reducing its carrying value to an estimated fair value of $8.6 million.

7


The Company determined at December 31, 2014, that certain real estate properties owned by the Company in the town of Marathon that previously were associated with the Marathon project should be segregated and considered separately for impairment. The Company obtained an estimate of fair value from a real estate firm in the Marathon area and impaired those properties by approximately $0.5 million at December 31, 2014.
NOTE 4
NONCONTROLLING INTEREST
In 2012, the Company entered into an agreement with Mitsubishi Corporation (Mitsubishi) in which a Mitsubishi subsidiary acquired a 25% interest in the Company's then wholly-owned subsidiary, Stillwater Canada Inc (SCI) which held the Marathon PGM-copper project and related properties, for $81.25 million in cash. Mitsubishi also contributed an additional $13.6 million to satisfy its portion of the venture's initial cash call. The agreement provides that Mitsubishi is responsible for funding 25% of the operating, capital and exploration expenditures on the Marathon properties and will cooperate and support efforts to secure financing for Marathon. Under a related supply agreement, Mitsubishi also will have an option to purchase up to 100% of any future Marathon PGM production at a discount to market. The change in the Company's equity as a result of the sale of the noncontrolling interest in SCI was an increase to Paid-in capital of $42.5 million, offset in part by expenses incurred of $1.1 million.
Mitsubishi's 25% interest in the SCI net loss in each period is shown as Net loss attributable to noncontrolling interest in the Company's Consolidated Statements of Comprehensive (Loss) Income. The amount of this loss is added back to the Company's reported Net (loss) income in each period in arriving at Net (loss) income attributable to common stockholders. The reported Net loss attributable to noncontrolling interest for the three-months ended September 30, 2015 and 2014 was $0.2 million and $0.3 million, respectively, and $11.8 million and $1.1 million, for the nine-months ended September 30, 2015 and 2014, respectively.
Mitsubishi's share of the equity in SCI is reflected as Noncontrolling interest in the Company's Consolidated Balance Sheets and totaled $6.7 million and $18.5 million at September 30, 2015 and December 31, 2014, respectively. The noncontrolling interest balance at September 30, 2015 reflects Mitsubishi's share of the impairment loss taken during the second quarter of 2015 on the carrying value of the Marathon mineral properties. The noncontrolling interest portion of the impairment loss was $11.7 million (net of tax).
In the third quarter of 2015, the Company entered into an agreement with Mitsubishi to purchase Mitsubishi's 25% interest in SCI and related properties for a total cash consideration of $5.2 million. The total cash consideration is comprised of $1.0 million in cash and the equivalent of 25% of the total cash and cash equivalents held by SCI at October 16, 2015. The transaction closed subsequent to the end of the third quarter on October 26, 2015.
NOTE 5
DERIVATIVE INSTRUMENTS
The Company uses various derivative financial instruments to manage its exposure to changes in PGM market commodity prices.
COMMODITY DERIVATIVES
PGM Recycling
The Company customarily enters into fixed forward sales relating to PGM recycling of catalyst materials. Under these 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 to set in advance the pricing for metals acquired and processed in its recycling segment. The metals from PGM recycled materials are sold forward at the time of purchase and delivered against the fixed forward contracts when the ounces are recovered. Because this forward price is also used to set the acquisition price the Company pays for recycling materials, this arrangement significantly reduces exposure to PGM price volatility. The Company believes such transactions qualify for the exception to derivative accounting treatment and so has elected to account for these transactions as normal purchases and normal sales.
All of the Company's fixed forward sales contracts open at September 30, 2015, will settle at various periods through March 2016. 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 prices by a predetermined margin limit. At September 30, 2015, and December 31, 2014, no margin deposits were outstanding or due.

8


The following is a summary of the Company's outstanding commodity derivatives in its Recycling Business Segment at September 30, 2015:
PGM Recycling:
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Forward Contracts
 
Platinum
 
Palladium
 
Rhodium
Settlement Period
 
Ounces
 
Average
Price/Ounce
 
Ounces
 
Average
Price/Ounce
 
Ounces
 
Average
Price/Ounce
Fourth Quarter 2015
 
34,967

 
$
1,003

 
49,347

 
$
630

 
6,194

 
$
841

First Quarter 2016
 
3,247

 
$
968

 
4,632

 
$
607

 
1,195

 
$
764

NOTE 6
STOCK-BASED COMPENSATION
EQUITY PLANS
The Company sponsors equity plans (the Plans) that enable the Company to grant equity based compensation to employees and non-employee directors. The Company's current practice is to issue cash awards and / or restricted stock units as incentive compensation to employees and non-employee directors. The Company continues to have previously issued stock options that remain outstanding under the General Employee Plan and the 2004 Equity Incentive Plan. In April 2012, stockholders approved the 2012 Equity Incentive Plan. Approximately 11.6 million shares of common stock were originally authorized under the Plans, including approximately 5.0 million, 5.2 million, and 1.4 million shares authorized under the 2012 Equity Incentive Plan, 2004 Equity Incentive Plan and the General Employee Plan, respectively. Approximately 4.4 million shares were available and reserved for issuance under the 2012 Equity Incentive Plan at September 30, 2015.
The Compensation Committee of the Company’s Board of Directors administers the Plans and determines the type of equity awards to be issued, the exercise period, vesting period and all other terms of instruments issued under the Plans. Employees’ restricted stock units typically vest in equal annual installments over a three-year period after date of grant. Stock options expire ten years after the date of grant.
NONVESTED SHARES
Time-Based Restricted Stock Unit (RSU) Awards
Time-based RSU awards provide the participant with the right to receive a number of shares of the Company's common stock upon vesting of the awards provided the participant is employed by the Company on the vesting date. Time-based awards are valued using the Company's common stock price on the date of grant. Time-based awards are not entitled to any dividend equivalents with respect to the RSUs unless otherwise determined by the Board, nor any dividends on stock that may be delivered in settlement of the RSUs unless and until the stock is issued in settlement of the RSUs.

9


Nonvested time-based RSU activity during the first nine months of 2015, is detailed in the following table:
 
 
Nonvested  Shares
 
Weighted-Average Grant-Date Fair Value
Nonvested time-based RSUs at January 1, 2015
 
184,747

 
$
13.80

Granted
 
120,715

 
14.29

Vested
 
(35,030
)
 
13.75

Forfeited
 
(4,480
)
 
13.91

Nonvested time-based RSUs at March 31, 2015
 
265,952

 
$
14.03

Granted
 
3,668

 
13.88

Vested
 
(1,586
)
 
14.63

Forfeited
 
(66
)
 
13.11

Nonvested time-based shares at June 30, 2015
 
267,968

 
$
14.02

Granted
 
1,480

 
10.02

Vested
 
(1,509
)
 
14.15

Forfeited
 
(6,624
)
 
14.35

Nonvested time-based shares at September 30, 2015
 
261,315

 
$
13.99

Total compensation expense related to grants of nonvested time-based RSUs was $0.4 million in each of the three-month periods ended September 30, 2015 and 2014, and $1.2 million and $1.4 million, for the nine-month periods ended September 30, 2015 and 2014, respectively. Compensation expense is recorded in General and administrative in the Company's Consolidated Statements of Comprehensive (Loss) Income.
Performance-Based Restricted Stock Unit Awards
A performance-based RSU award provides the participant with the right to receive a number of shares of the Company's common stock depending on achievement of specific measurable performance criteria. The number of shares earned is determined at the end of each performance period, generally three years, based on the actual performance criteria predetermined by the Compensation Committee at the time of grant. In the period that it becomes probable that the performance criteria will be achieved, the Company recognizes expense for the proportionate share of the total fair value of the grant related to the vesting period that has already lapsed. The remaining cost of the grant is expensed over the balance of the vesting period.
The Company has granted performance-based RSU awards under the Plans. The payouts of the awards are dependent upon three distinct components with five separate sub-targets. Two of the sub-targets are market-based and equity classified; one sub-target is market-based and liability classified; and two sub-targets are performance-based and equity classified. The market-based sub-targets are valued using a Monte Carlo simulation valuation model on the date of grant. The fair value of the liability classified sub-target is remeasured each reporting period. The existence of a market condition requires recognition of compensation cost for the performance RSU awards over the requisite period regardless of whether the market condition is satisfied. Total compensation expense, included within General and administrative in the Company's Consolidated Statements of Comprehensive (Loss) Income, related to grants of performance-based RSUs for the three-month periods ended September 30, 2015 and 2014 was $0.3 million and $0.2 million, respectively, and for the nine-month periods ended September 30, 2015 and 2014, was $1.0 million and $0.8 million, respectively.
Performance-based RSU awards are not entitled to any dividend equivalents with respect to the RSUs unless otherwise determined by the Board, nor any dividends on stock that may be delivered in settlement of the RSUs unless and until the stock is issued in settlement of the RSUs.

10


Nonvested performance-based RSU activity during the first nine months of 2015 is detailed in the following table:
 
 
Nonvested
Shares
 
Weighted-Average Grant-Date Fair Value
Nonvested performance-based RSUs at January 1, 2015
 
214,236

 
$
15.69

Granted *
 
170,078

 
14.92

Vested
 

 


Forfeited *
 
(2,071
)
 
15.34

Nonvested performance-based RSUs at March 31, 2015
 
382,243

 
$
15.35

No activity
 

 
 
Nonvested performance-based RSUs at June 30, 2015
 
382,243

 
$
15.35

Forfeited
 
(2,966
)
 
$
15.34

Nonvested performance-based RSUs at September 30, 2015
 
379,277

 
$
12.28

* The number of performance-based RSUs granted and forfeited is based on the target award amounts in the related performance-based RSU grant agreements.
The following table presents the compensation expense of the nonvested RSUs outstanding at September 30, 2015, to be recognized over the remaining vesting periods:
(In thousands)
 
Time-based shares
 
Performance -based shares
Remaining 2015
 
$
426

 
$
384

2016
 
1,516

 
1,536

2017
 
628

 
824

2018
 
8

 

Total
 
$
2,578

 
$
2,744


11


NOTE 7
INCOME TAXES

The Company determines income taxes using the asset and liability method, which results in the recognition of deferred tax assets and liabilities. These assets and liabilities reflect the expected future tax consequences of temporary differences between the carrying amount and the tax basis of those assets and liabilities, as well as operating loss and tax credit carryforwards, using enacted tax rates in effect in the years in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets and liabilities are recorded on a jurisdictional basis.
At September 30, 2015, the Company has approximately $104.8 million of regular federal tax net operating loss carryforwards in the U.S. expiring from 2020 through 2028. Usage of $80.9 million of these net operating losses is limited to approximately $10.2 million annually as a result of the change in control of the Company that occurred in connection with the Norilsk Nickel transaction in 2003. The Company has $31.6 million of alternative minimum tax credit carryforwards which will not expire and $1.6 million in general business credits expiring during 2029 to 2034. The Company has approximately $3.3 million of state tax net operating loss carryforwards expiring during 2020 through 2029. The Company also has $51.6 million of foreign net operating loss carryforwards. The foreign net operating losses expire as follows: $18.1 million during 2016 to 2019 and $25.4 million during 2024 to 2035. Currently, $8.1 million of foreign net operating losses have an indefinite life.
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The Company has a valuation allowance in 2015 and 2014 to reflect the estimated amount of deferred tax assets which may not be realized, which principally relate to foreign and state net operating losses, capital losses, and certain tax credits.
The provision for income taxes for the three- and nine-month periods ended September 30, 2015 consists of U.S. Federal income tax, state tax, as well as deferred tax benefits from certain foreign jurisdictions. Changes in the Company’s net deferred tax assets and liabilities have been partially offset by a corresponding change in the valuation allowance.
The Company recognized an income tax benefit / (provision) for the three-month periods ended September 30, 2015 and 2014, of $2.5 million and $(5.6) million, respectively. The Company recognized an income tax benefit / (provision) for the nine-month periods ended September 30, 2015 and 2014, of $8.1 million and $(15.9) million, respectively. The partial restructure of internal operations and the creation of a separate metal sales and trading subsidiary is primarily responsible for a discrete income tax benefit of $10.6 million recognized for the nine-month period ending September 30, 2015. Of this discrete income tax benefit, $8.3 million is associated with the partial restructure results from a re-measuring of the Company’s deferred state tax associated with deferred tax assets and liabilities from a blended deferred rate of 10.6% at December 31, 2014 to 4.0% at September 30, 2015.
The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in Income tax benefit (provision) in the Company's Consolidated Statements of Comprehensive (Loss) Income. The Company does not have any uncertain benefits at September 30, 2015. There were no interest or penalties accrued at September 30, 2015 and for the comparable period in 2014, interest and penalties accrued were $0.8 million. The Company made income tax payments of $13.1 million and $14.2 million in the nine-month periods ended September 30, 2015 and 2014, respectively. Tax years still open for examination by the taxing authorities are the years ended December 31, 2014, 2013, 2012 and 2011, although net operating loss and credit carryforwards from all years are subject to examination and adjustment for the three years following the year in which the carryforwards are utilized.
NOTE 8
DEBT AND CAPITAL LEASE OBLIGATIONS
1.75% CONVERTIBLE DEBENTURES
In October 2012, the Company issued $396.75 million aggregate principal amount of 1.75% senior unsecured convertible debentures due October 15, 2032 (1.75% debentures). Each $1,000 principal amount of these 1.75% debentures is initially convertible, under certain circumstances and during certain periods, into 60.4961 shares (subject to customary anti-dilution adjustments) of the Company's common stock, which represents an initial conversion price of $16.53 per share. The 1.75% debentures also include an embedded conversion enhancement feature that is equivalent to including each debenture with a warrant initially exercisable for 30.2481 shares at an exercise price of $16.53 per share (also subject to customary anti-dilution adjustments). The Company, at its election, may settle conversions of the 1.75% debentures in cash, shares of its common stock or any combination of cash and shares of its common stock.

12


Holders have the right to redeem their 1.75% debentures at face value plus accrued and unpaid interest on October 15th, of each of 2019, 2024, 2029, and upon the occurrence of certain corporate events. The Company will have the right to call the 1.75% debentures at any time on or after October 20, 2019.
The 1.75% debentures were bifurcated under U.S. GAAP into separate debt and equity components, and reflect an effective maturity (to the first optional redemption date) of seven years. The residual amount of $141.6 million recorded in equity is treated for accounting purposes as additional debt discount and accreted as an additional non-cash interest charge to earnings over the expected life. Debt and equity issuance costs totaling approximately $12.4 million were deducted from the gross proceeds of the offering of the 1.75% debentures, and the debt portion is being amortized ratably over seven years. Net proceeds of $384.3 million from the offering were used in part to retire $164.3 million of the Company's 1.875% convertible debentures upon their redemption in March 2013 with the remainder being used for general corporate purposes.
In the third quarter of 2015, the Company repurchased $61.6 million of the outstanding principal of the 1.75% debentures, due 2032, paying cash of $59.4 million. The Company reduced the debt component by $50.7 million, which includes a reduction of the debt discount by $10.9 million. The difference between the book value and the fair value (including $0.7 million of debt and equity issuance costs) of the debt component resulted in a $4.2 million loss, recorded in Loss on extinguishment of debt, net in the Company's Consolidated Statements of Comprehensive (Loss) Income.
The 1.75% debentures have an effective interest rate of 8.50% and a stated interest rate of 1.75% with interest paid semi-annually. The balance outstanding at September 30, 2015 and December 31, 2014, was approximately $254.2 million and $291.1 million, respectively, which is net of unamortized discount of $81.0 million and $105.6 million, respectively.
1.875% CONVERTIBLE DEBENTURES
Holders of the remaining $0.5 million of outstanding 1.875% debentures may require the Company to redeem their 1.875% debentures at face value on March 15, 2018 or March 15, 2023, or at any time before March 15, 2028 upon the occurrence of certain events including a change in control. Effective March 22, 2013, the Company has the right at its discretion to redeem the remaining $0.5 million of outstanding 1.875% debentures for cash at any time prior to maturity. The outstanding balance at September 30, 2015 and December 31, 2014, of $0.5 million aggregate principal amount, is reported as a long-term debt obligation.
In the third quarter of 2015, the Company repurchased $1.7 million of the outstanding principal of the 1.875% debentures, due 2028, paying cash of $1.6 million and recording a gain of approximately $0.1 million, recorded in Loss on extinguishment of debt, net the Company's Consolidated Statements of Comprehensive (Loss) Income.
ASSET-BACKED REVOLVING CREDIT FACILITY
In December 2011, the Company signed a $100.0 million asset-backed revolving credit agreement incurring debt issuance costs of $1.1 million. In January 2012, the Company completed the syndication of this facility and simultaneously expanded its maximum line of credit to $125.0 million, incurring additional debt issuance costs of $0.2 million. Borrowings under this working capital credit facility are limited to a borrowing base equal to the sum of 85% of eligible accounts receivable and 70% of eligible inventories. Terms of the credit agreement state that the borrowings will be secured by the Company's accounts receivable, metals inventories and other accounts. The asset-backed revolving credit facility includes a single fixed-charge coverage covenant that only takes effect when less than 30% of the total borrowing capacity under the facility remains available. The facility includes a $60.0 million letter of credit sub-facility. Outstanding borrowings under the facility accrue interest at a spread over the London Interbank Offer Rate that varies from 2.25% to 2.75%, decreasing progressively as the percentage drawn under the facility increases. The Company also pays a commitment fee on committed but un-utilized borrowing capacity available under the facility at a rate per annum of 0.375% or 0.5%, depending on the amount of the facility drawn.
At September 30, 2015 and 2014, there were no outstanding borrowings under this revolving credit facility, and approximately $17.5 million in undrawn irrevocable letters of credit had been issued under this facility as collateral for sureties, which reduce the amount available for borrowing under the facility on a dollar-for-dollar basis.

13


The following table reflects the amortization of debt issuance costs, interest expense and cash payments on the Company's outstanding debt for the three- and nine-month periods ended September 30, 2015 and 2014:
 
 
Three months ended
 
Nine months ended
 
 
September 30,
 
September 30,
(In thousands)
 
2015
 
2014
 
2015
 
2014
1.75% Convertible Debentures
 
 
 
 
 
 
 
 
    Amortization of debt issuance costs
 
$
240

 
$
287

 
$
714

 
$
852

    Interest expense
 
$
6,262

 
$
6,074

 
$
18,860

 
$
17,931

    Cash payments for interest
 
$
423

 
$

 
$
3,894

 
$
3,472

 
 
 
 
 
 
 
 
 
1.875% Convertible Debentures
 
 
 
 
 
 
 
 
    Interest expense
 
$
9

 
$
11

 
$
30

 
$
32

    Cash payments for interest
 
$
21

 
$
21

 
$
42

 
$
42

 
 
 
 
 
 
 
 
 
Asset-Backed Revolving Credit Facility
 
 
 
 
 
 
 
 
    Amortization of debt issuance costs
 
$
69

 
$
69

 
$
204

 
$
204

    Fees
 
$
253

 
$
260

 
$
839

 
$
765

The Company's total current and long-term debt balances at September 30, 2015 and December 31, 2014 were as follows:
 
 
September 30, 2015
 
December 31, 2014
(In thousands)
 
Current
 
Long-Term
 
Current
 
Long-Term
1.75% Convertible Debentures
 
 
 
 
 
 
 
 
    Aggregate principal
 
$

 
$
335,150

 
$

 
$
396,750

    Debt discount
 

 
(80,990
)
 

 
(105,634
)
      Debt balance
 

 
254,160

 

 
291,116

1.875% Convertible Debentures
 

 
524

 

 
2,245

Capital Lease Obligation
 
1,107

 

 
2,067

 
580

Small Land Purchase
 
78

 

 
77

 
82

      Total debt balances
 
$
1,185

 
$
254,684

 
$
2,144

 
$
294,023

EXEMPT FACILITY REVENUE BONDS
During 2000, the Company completed a $30.0 million offering of 8.0% Exempt Facility Revenue Bonds, Series 2000. These bonds were issued by the State of Montana Board of Investments to finance a portion of the costs of constructing and equipping certain sewage and solid waste disposal facilities at both the Stillwater Mine and the East Boulder Mine. The bonds were scheduled to mature on July 1, 2020, and had a stated interest rate of 8.0% per annum with interest paid semi-annually. Net discounted proceeds from the offering were $28.7 million, yielding an effective rate of 8.57%.
In July 2014, the Company redeemed the entire $30.0 million of 8.0% Exempt Facility Revenue Bonds, Series 2000, which included the payment of accrued and unpaid interest of $40,000.

14


CAPITAL LEASE OBLIGATIONS
The Company is party to a lease agreement with General Electric Capital Corporation covering the acquisition of a tunnel-boring machine (TBM) for use on the Blitz development adjacent to the Stillwater Mine. The transaction is structured as a capital lease with a four-year term maturing in 2016; lease payments are due quarterly in advance. The Company made cash payments of $0.5 million on its capital lease obligations in each of the three-month periods ended September 30, 2015 and 2014, respectively, and cash payments of $1.6 million on its capital lease obligations in each of the nine-month periods ended September 30, 2015 and 2014, respectively. The cash payments in each of the three- and nine-month periods ended September 30, 2015 and 2014, included interest of less than $0.1 million. At September 30, 2015, and December 31, 2014, the outstanding balance under the capital lease was $1.1 million and $2.6 million, respectively.
The following is a schedule by year of the future minimum lease payments for the capital lease together with the present value of the net minimum lease payments:
(In thousands)    
 
 
2015
 
$
542

2016
 
589

Total minimum lease payments
 
1,131

  Interest at rates ranging from 5.21% to 5.46% (before-tax)
 
(24
)
Net minimum lease payments
 
$
1,107

CAPITALIZED INTEREST
The Company capitalizes interest incurred on its various debt instruments as a cost of specific and identified areas under development. For the three-month periods ended September 30, 2015 and 2014, the Company capitalized interest of $1.5 million and $1.4 million, respectively. For the nine-month periods ended September 30, 2015 and 2014, the Company capitalized interest of $4.2 million and $3.6 million, respectively. Capitalized interest is recorded as a reduction to Interest expense in the Company's Consolidated Statements of Comprehensive (Loss) Income.
NOTE 9
MINERAL PROPERTIES AND MINE DEVELOPMENT
Mineral properties and mine development reflected in the accompanying balance sheets consisted of the following:
 
 
September 30,
 
December 31,
(In thousands)
 
2015
 
2014
Mineral Properties:
 
 
 
 
Montana, United States of America
 
 
 
 
     Stillwater Mine
 
$
1,950

 
$
1,950

Ontario, Canada
 
 
 
 
Marathon properties
 
8,560

 
55,332

San Juan, Argentina
 
 
 
 
Altar property
 
101,970

 
101,970

Mine Development:
 
 
 
 
Montana, United States of America
 
 
 
 
Stillwater Mine
 
681,443

 
616,872

East Boulder Mine
 
216,232

 
204,483

 
 
1,010,155

 
980,607

Accumulated depletion and amortization
 
(445,565
)
 
(411,601
)
Total mineral properties and mine development, net
 
$
564,590

 
$
569,006




15


NOTE 10
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment reflected in the accompanying consolidated balance sheets consisted of the following:
 
 
September 30,
 
December 31,
(In thousands)
 
2015
 
2014
Machinery and equipment
 
$
159,792

 
$
152,421

Buildings and structural components
 
173,265

 
169,609

Land
 
11,740

 
9,488

Construction-in-progress:
 
 
 
 
Stillwater Mine
 
953

 
2,633

East Boulder Mine
 
569

 
1,539

Marathon
 
148

 
148

Processing facilities and other
 
1,918

 
1,994

 
 
348,385

 
337,832

Accumulated depreciation
 
(235,558
)
 
(218,951
)
Total property, plant, and equipment, net
 
$
112,827

 
$
118,881


The Company's total capital expenditures for mine development and property, plant and equipment for the nine-month periods ended September 30, 2015 and 2014 were as follows:
 
 
September 30,
 
September 30,
(In thousands)
 
2015
 
2014
Stillwater Mine
 
$
70,172

 
$
69,513

East Boulder Mine
 
13,548

 
21,189

Other
 
4,599

 
2,993

Total U.S. capital expenditures
 
88,319

 
93,695

Foreign capital expenditures
 
46

 
2

  Non-cash capitalized interest / depreciation
 
(6,756
)
 
(6,228
)
  Change in accounts payables for capital expenditures
 
1,777

 
(431
)
Cash capital spend for the period
 
$
83,386

 
$
87,038



16


NOTE 11
SEGMENT INFORMATION
The Company operates five reportable business segments: Mine Production, PGM Recycling, Canadian Properties, South American Properties and All Other. These segments are managed separately based on fundamental differences in their operations and geographic separation.
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 short-term and long-term sales agreements. The financial results for the Stillwater Mine and the East Boulder Mine have been consolidated, as both have similar products, processes, customers, distribution methods and economic characteristics.
The PGM Recycling segment is engaged in the recycling of spent catalyst materials to recover the PGMs contained in the materials. The Company purchases the majority of catalyst materials processed by the PGM Recycling segment from third-party suppliers for its own account and sells the recovered metals directly, and it also accepts catalyst materials from third-parties on a tolling basis, processing it for a fee and returning the recovered metals to the supplier. The Company allocates costs of the Company's smelting and base metal refining facilities to both the Mine Production segment and to the PGM Recycling segment for internal and segment reporting purposes because these facilities support the PGM extraction requirements of both business segments.
The Canadian Properties segment consists of the Marathon mineral property assets. The exploration-stage Marathon mineral properties include a large PGM and copper deposit located near the town of Marathon, Ontario, Canada as well as additional mineral properties located adjacent to the Marathon properties.
The South American Properties segment consists of the Peregrine Metals Ltd. assets. The principal Peregrine property is the Altar property, an exploration-stage copper-gold resource located in the San Juan province of Argentina.
The All Other group primarily consists of assets, including investments, 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:
(In thousands)
 
 
 
 
 
 
 
South American Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2015
 
Mine
Production
 
PGM
Recycling
 
Canadian
Properties *
 
 
All Other
 
Total
Revenues
 
$
86,359

 
$
81,982

 
$

 
$

 
$
100

 
$
168,441

Depletion, depreciation and amortization
 
$
15,132

 
$
230

 
$

 
$

 
$

 
$
15,362

General and administrative expenses
 
$

 
$

 
$
275

 
$
100

 
$
8,536

 
$
8,911

Interest income
 
$

 
$
437

 
$
1

 
$
4

 
$
324

 
$
766

Interest expense
 
$

 
$

 
$

 
$

 
$
5,097

 
$
5,097

Income (loss) before income taxes
 
$
2,224

 
$
3,261

 
$
(577
)
 
$
(339
)
 
$
(19,062
)
 
$
(14,493
)
Capital expenditures
 
$
24,661

 
$
57

 
$

 
$

 
$
450

 
$
25,168

Total assets
 
$
608,198

 
$
3,390

 
$
27,078

 
$
104,265

 
$
574,256

 
$
1,317,187

* Total assets includes cash and cash equivalents of $17.1 million.

17


(In thousands)
 
 
 
 
 
 
 
South American Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2014
 
Mine
Production
 
PGM
Recycling
 
Canadian
Properties
 
 
All Other
 
Total
Revenues
 
$
137,067

 
$
109,509

 
$

 
$

 
$
5,490

 
$
252,066

Depletion, depreciation and amortization
 
$
16,923

 
$
258

 
$

 
$

 
$

 
$
17,181

General and administrative expenses *
 
$

 
$

 
$
794

 
$
17

 
$
9,240

 
$
10,051

Interest income
 
$

 
$
681

 
$
1

 
$
13

 
$
236

 
$
931

Interest expense
 
$

 
$

 
$

 
$

 
$
6,018

 
$
6,018

Income (loss) before income taxes
 
$
34,904

 
$
3,131

 
$
(1,205
)
 
$
748

 
$
(14,124
)
 
$
23,454

Capital expenditures
 
$
32,604

 
$
28

 
$

 
$
2

 
$
624

 
$
33,258

Total assets
 
$
584,538

 
$
88,411

 
$
76,678

 
$
107,909

 
$
526,923

 
$
1,384,459

* The Company reclassified Marketing expenses into General and administrative for All Other for the three-month period ended September 30, 2014, for presentation purposes.
(In thousands)
 
 
 
 
 
 
 
South
American
Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
Mine
Production
 
PGM
Recycling
 
Canadian
Properties *
 
 
All Other
 
Total
Revenues
 
$
331,065

 
$
222,980

 
$

 
$

 
$
300

 
$
554,345

Depletion, depreciation and amortization
 
$
48,943

 
$
738

 
$

 
$

 
$

 
$
49,681

General and administrative expenses
 
$

 
$

 
$
790

 
$
454

 
$
26,408

 
$
27,652

Interest income
 
$

 
$
1,256

 
$
7

 
$
23

 
$
906

 
$
2,192

Interest expense
 
$

 
$

 
$

 
$

 
$
15,713

 
$
15,713

Income (loss) before impairment charge and income taxes
 
$
52,446

 
$
7,424

 
$
(1,364
)
 
$
(1,216
)
 
$
(46,805
)
 
$
10,485

Impairment charge
 
$

 
$

 
$
46,772

 
$

 
$

 
$
46,772

Income (loss) after impairment charge, before income taxes
 
$
52,446

 
$
7,424

 
$
(48,136
)
 
$
(1,216
)
 
$
(46,805
)
 
$
(36,287
)
Capital expenditures
 
$
77,370

 
$
221

 
$

 
$
46

 
$
5,749

 
$
83,386

Total assets
 
$
608,198

 
$
3,390

 
$
27,078

 
$
104,265

 
$
574,256

 
$
1,317,187

* Total assets includes cash and cash equivalents of $17.1 million.
(In thousands)
 
 
 
 
 
 
 
South
American
Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2014
 
Mine
Production
 
PGM
Recycling
 
Canadian
Properties
 
 
All Other
 
Total
Revenues
 
$
409,967

 
$
305,760

 
$

 
$

 
$
5,725

 
$
721,452

Depletion, depreciation and amortization
 
$
49,373

 
$
761

 
$

 
$

 
$

 
$
50,134

General and administrative expenses *
 
$

 
$

 
$
2,783

 
$
339

 
$
24,895

 
$
28,017

Interest income
 
$

 
$
1,998

 
$
3

 
$
44

 
$
705

 
$
2,750

Interest expense
 
$

 
$

 
$

 
$

 
$
17,737

 
$
17,737

Income (loss) before income taxes
 
$
107,864

 
$
9,225

 
$
(3,843
)
 
$
2,841

 
$
(45,646
)
 
$
70,441

Capital expenditures
 
$
84,335

 
$
155

 
$

 
$
2

 
$
2,546

 
$
87,038

Total assets
 
$
584,538

 
$
88,411

 
$
76,678

 
$
107,909

 
$
526,923

 
$
1,384,459

* The Company reclassified Research and development and Marketing expenses into General and administrative for All Other for the nine-month period ended September 30, 2014, for presentation purposes.

18


NOTE 12
INVESTMENTS
The Company classifies the marketable securities in which it invests as available-for-sale securities. These securities are measured at fair value in the financial statements with unrealized gains or losses recorded in Other comprehensive income in the Company's Consolidated Statements of Comprehensive (Loss) Income. At the time the securities are sold or otherwise disposed of, gross realized gains and losses are included in Net (loss) income. Gross realized gains and losses are based on the carrying value (cost, net of discounts or premiums) of the sold investment. The amounts reclassified out of Other comprehensive income during the nine-month periods ended September 30, 2015 and 2014, were insignificant. All of the marketable securities amounts are available to satisfy current obligations.
The amortized cost, gross unrealized gains, gross unrealized losses, and fair value of available-for-sale investment securities by major security type and class of security at September 30, 2015, and December 31, 2014 were as follows:
 
 
 
Investments
(In thousands)
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair value
2015

 
 
 
 
 
 
 
 
 
 
Federal agency notes
 
$
286,220

 
$
106

 
$
(34
)
 
$
286,292

 
Commercial paper
 
40,097

 

 
(45
)
 
40,052

 
Mutual funds
 
419

 
205

 

 
624

 
  Total
 
$
326,736

 
$
311

 
$
(79
)
 
$
326,968

 
 
 
 
 
 
 
 
 
 
2014

 
 
 
 
 
 
 
 
 
 
Federal agency notes
 
$
143,132

 
$
40

 
$
(33
)
 
$
143,139

 
Commercial paper
 
108,371

 
1

 
(257
)
 
108,115

 
Mutual funds
 
344

 
279

 

 
623

 
  Total
 
$
251,847

 
$
320

 
$
(290
)
 
$
251,877

The mutual funds included in the investment table above are included in Other noncurrent assets on the Company's Consolidated Balance Sheets.
The maturities of available-for-sale securities at September 30, 2015 were as follows:
(In thousands)
 
Amortized cost
 
Fair value
Federal agency notes
 
 
 
 
Due in one year or less
 
$
237,658

 
$
237,764

Due after one year through two years
 
48,562

 
48,528

Total
 
$
286,220

 
$
286,292

 
 
 
 
 
Commercial paper
 
 
 
 
Due in one year or less
 
$
26,612

 
$
26,567

Due after one year through two years
 
13,485

 
13,485

Total
 
$
40,097

 
$
40,052

The Company has long-term investments in several Canadian junior exploration companies, recorded on the Company's Consolidated Balance Sheets at cost. The Company determined that certain of its long-term investments were other than temporarily impaired and recorded a loss of approximately $0.2 million for the three- and nine-month periods ended September 30, 2015 and 2014. These long-term investments totaled approximately $0.7 million at September 30, 2015 and $0.9 million at December 31, 2014, and are recorded in Other noncurrent assets on the Company's Consolidated Balance Sheets.

19


NOTE 13
INVENTORIES
The Company carries items in its inventories at the lower of cost or market value. If market value in any period falls below the carrying value, the carrying value of the inventory item is reduced to its market value.
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 reduction to inventory value was necessary in the first nine months of 2015 or 2014.
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, depletion, depreciation and amortization and other overhead costs relating to mining and processing activities incurred as of such date. Costs are aggregated and averaged for mined material carried in inventory.
The costs of PGM recycling 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, depreciation and third-party refining costs which relate to the processing activities incurred as of such date. Costs incurred are allocated and tracked separately for each specific lot of recycling material (including material tolled on behalf of others).
Inventories reflected in the accompanying balance sheets consisted of the following:
 
 
September 30,
 
December 31,
(In thousands)
 
2015
 
2014
Metals inventory
 
 
 
 
Raw ore
 
$
4,215

 
$
4,984

Concentrate and in-process
 
59,803

 
48,712

Finished goods
 
40,493

 
49,885

   Total metals inventory
 
104,511

 
103,581

Materials and supplies
 
22,452

 
26,726

   Total inventory
 
$
126,963

 
$
130,307



20


NOTE 14
EARNINGS PER SHARE
Basic earnings per share attributable to common stockholders is computed by dividing net earnings available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share attributable to common stockholders reflects the potential dilution that could occur if the Company’s dilutive outstanding stock options or nonvested shares were exercised or vested, the contingently issuable shares were issued and the Company’s convertible debt was converted. The Company currently has only one class of shares of capital stock outstanding.
No adjustment was made to reported net loss attributable to common stockholders when calculating diluted loss per share attributable to common stockholders during the three- and nine-month periods ended September 30, 2015, because the effect would have been anti-dilutive. There was no effect of outstanding nonvested shares on diluted weighted average shares outstanding for the three- and nine-month periods ended September 30, 2015 because the Company reported a consolidated net loss attributable to common stockholders and inclusion of these shares would have been anti-dilutive. Potential dilutive common shares include those associated with outstanding stock options, restricted stock units, performance shares and convertible debentures.
The following table shows the shares that were excluded from the computation of diluted earnings per share, for the three- and nine-month periods ended September 30, 2015 and 2014:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In thousands)
 
2015
 
2014
 
2015
 
2014
Stock options
 
6

 

 
6

 

Nonvested shares
 
44

 

 
50

 

Contingently issuable
 
218

 
111

 
218

 
125

1.875% Convertible debentures, net of tax
 
22

 

 
22

 

1.75% Convertible debentures, net of tax
 
30,413

 

 
30,413

 

In calculating earnings per share attributable to common stockholders for the three- and nine-month periods ended September 30, 2014, reported consolidated net income attributable to common stockholders was adjusted for interest expense, net of capitalized interest (including amortization expense of deferred debt fees), a related income tax effect and the loss attributable to the noncontrolling interest in computing basic and diluted earnings per share attributable to common stockholders.
Reconciliations showing the computation of basic and diluted shares and the related impact on income for the three - and nine-month periods ended September 30, 2014, are provided in the following table:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30, 2014
 
September 30, 2014
(In thousands, except per share amounts)
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
Amount
 
Income
(Numerator)
 
Weighted
Average
Shares
(Denominator)
 
Per Share
Amount
Basic EPS
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to common stockholders
 
$
18,148

 
120,067

 
$
0.15

 
$
55,615

 
119,849

 
$
0.46

Effect of Dilutive Securities
 
 
 
 
 
 
 
 
 
 
 
 
Stock options
 

 
6

 
 
 

 
31

 
 
Nonvested shares
 

 
113

 
 
 

 
22

 
 
Contingently issuable shares
 

 
107

 
 
 

 
45

 
 
1.875% Convertible debentures, net of tax
 

 
95

 
 
 

 
95

 
 
1.75% Convertible debentures, net of tax
 
4,060

 
36,003

 
 
 
12,229

 
36,003

 
 
Diluted EPS
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to common stockholders and assumed conversions
 
$
22,208

 
156,391

 
$
0.14

 
$
67,844

 
156,045

 
$
0.43


21


NOTE 15
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. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. This hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The classification of each financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The three levels of inputs used to measure fair value are as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices included in Level 1 such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or inputs that are observable or can be corroborated by observable market data.
Level 3 - Unobservable inputs supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Financial assets and liabilities measured at fair value on a recurring basis at September 30, 2015, and December 31, 2014, consisted of the following:
(In thousands)
 
Fair Value Measurements
At September 30, 2015
 
Total
 
Level 1
 
Level 2
 
Level 3
Mutual funds
 
$
624

 
$
624

 
$

 
$

Investments
 
 
 
 
 
 
 
 
Federal agency notes
 
$
286,292

 
$

 
$
286,292

 
$

Commercial paper
 
$
40,052

 
$

 
$
40,052

 
$

 
(In thousands)
 
Fair Value Measurements
At December 31, 2014
 
Total
 
Level 1
 
Level 2
 
Level 3
Mutual funds
 
$
623

 
$
623

 
$

 
$

Investments
 
 
 
 
 
 
 
 
Federal agency notes
 
$
143,139

 
$

 
$
143,139

 
$

Commercial paper
 
$
108,115

 
$

 
$
108,115

 
$

The fair value of the mutual funds is based on market prices that are readily available and are recorded in Other noncurrent assets on the Company's Consolidated Balance Sheets. The balance of the money market funds at September 30, 2015 and December 31, 2014, was $45.9 million and $120.0 million, respectively, and is classified as Level 1. The money market funds are recorded in Cash and cash equivalents on the Company's Consolidated Balance Sheets. The fair value of the investments is valued indirectly using observable data, quoted prices for similar assets or liabilities in active markets. Unrealized gains or losses on mutual funds and investments are recorded in Accumulated other comprehensive income on the Company's Consolidated Balance Sheets.
Assets and liabilities measured at fair value on a nonrecurring basis at September 30, 2015, and December 31, 2014, consisted of the following:
(In thousands)
 
Fair Value Measurements
At September 30, 2015
 
Total
 
Level 1
 
Level 2
 
Level 3
Marathon mineral properties
 
$
8,560

 
$

 
$

 
$
8,560

1.875% Convertible debentures
 
$
524

 
$

 
$
524

 
$

1.75% Convertible debentures
 
$
302,684

 
$

 
$
302,684

 
$

Long-term investments
 
$
692

 
$

 
$
692

 
$


22


(In thousands)
 
Fair Value Measurements
At December 31, 2014
 
Total
 
Level 1
 
Level 2
 
Level 3
Certain Marathon real estate properties
 
$
754

 
$

 
$

 
$
754

1.875% Convertible debentures
 
$
2,245

 
$

 
$
2,245

 
$

1.75% Convertible debentures
 
$
303,108

 
$

 
$
303,108

 
$

Long-term investments
 
$
896

 
$

 
$
896

 
$

The Company determined in the second quarter of 2015, that the Marathon mineral properties owned by the Company in northern Ontario, Canada should be considered for impairment. The Company prepared an estimate of fair value and impaired those properties in the second quarter of 2015. An impairment charge of $46.8 million (before-tax) was taken on the Marathon mineral properties, reflecting an estimated fair value of $8.6 million.
The Company used its current trading data to determine the fair value of its $0.5 million of outstanding 1.875% debentures. The Company determined the fair value of the liability component of its $335.15 million and $396.75 million of outstanding 1.75% debentures at September 30, 2015 and December 31, 2014, respectively, by using observable market based information for debt instruments of similar amounts and duration.
The Company determined at December 31, 2014, that certain real estate properties owned by the Company in the town of Marathon should be considered for impairment. The Company obtained an estimate of fair value and impaired those properties.
The fair value of the Company's long-term investments in certain Canadian junior exploration companies at September 30, 2015 and December 31, 2014, was based on market prices for similar assets.

NOTE 16
RELATED PARTIES

At September 30, 2015, Mitsubishi Corporation owned a 25% interest in SCI, which owns Marathon and its related properties located in northern Ontario, Canada. The Company made PGM sales of $15.2 million and $24.9 million to Mitsubishi in the three-month periods ended September 30, 2015 and 2014, respectively, and $38.7 million and $118.7 million, respectively, for the nine-month periods ended September 30, 2015 and 2014, respectively.

23


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 consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and with the information provided in the Company's Form 10-K.
OVERVIEW
Stillwater Mining Company (the “Company”) is a Delaware corporation, and is listed on the New York Stock Exchange under the symbol SWC. The Company extracts and processes ores containing palladium and platinum (along with by-product metals) from two underground mines situated within the J-M Reef, an extensive trend of platinum group metal (PGM) mineralization located in Stillwater and Sweet Grass Counties in south-central Montana. Ore produced from the mines is crushed and concentrated in mills located at each mine site. Mine concentrates are then trucked to the Company’s processing complex in Columbus, Montana, where they are smelted and partially refined. In addition to the mine concentrates, the Company also recycles spent automotive catalyst and other materials containing PGMs it receives from third parties at the processing complex. A portion of this recycling activity is material the Company’s purchases for its own account; while the remainder is toll processed on behalf of others. After being processed through the Company's processing facilities in Columbus, the final product, a PGM-rich filter cake, is shipped to Johnson Matthey (JM) in New Jersey for final refining and then delivered as finished metal into the Company's account.
As previously disclosed, the Company has set a two-year internal goal to reduce its All-in Sustaining Costs (AISC) (a non-GAAP financial measure defined in more detail below - please see "Reconciliation of Costs of Revenues to Non-GAAP Financial Measures") by approximately $100 per ounce from the 2013 cost levels of $813 per ounce.
THIRD QUARTER 2015 SUMMARY RESULTS
For the third quarter of 2015, the Company reported a consolidated net loss attributable to common stockholders of $11.9 million, or $0.10 per diluted share, as compared to the consolidated net income attributable to common stockholders of $18.1 million, or $0.14 per diluted share, for the third quarter of 2014. During the third quarter of 2015, the Company repurchased $1.7 million principal amount of its 1.875% convertible debentures due 2028 in open market transactions for cash of $1.6 million and $61.6 million principal amount of its 1.75% convertible debentures due 2032 for cash of $59.4 million. The repurchases resulted in a net pre-tax loss of $4.0 million. Refer to "Note 8 - Debt and Capital Lease Obligations", in the consolidated financial statements for a more complete discussion on the repurchase of a portion of the Company's convertible debentures. While the Company's mine production was broadly similar to the third quarter of 2014, results were impacted by lower sales volumes and lower realized prices, which were partially offset by lower costs.
As a result of the deteriorating PGM market environment, the Company reduced its workforce by 159 employees during the third quarter of 2015, primarily consisting of employees located at the Stillwater Mine and Columbus processing facilities, resulting in a $1.7 million charge to earnings. In addition, the Company modified its mine plan to focus on the most profitable mining areas within the Stillwater Mine and continued efforts to maximize production from the East Boulder Mine.
Segment earnings from the Company's mining operations (before income taxes) totaled $2.2 million for the third quarter of 2015, compared to $34.9 million for the same period in 2014. Volumes of mined palladium and platinum sold in the third quarter decreased to 117,300 ounces from 132,400 ounces in the third quarter of 2014. The average combined realized price on sales of mined palladium and platinum was $693 per ounce in the third quarter of 2015, 29.5% lower than the $983 per ounce realized in the third quarter of 2014. Consolidated total cash costs, net of credits, per mined ounce for the Company’s mining operations averaged $465 per ounce in the third quarter of 2015, which was 16.1% lower than the $554 per ounce in the third quarter of 2014, mostly resulting from higher production rates at the East Boulder Mine and labor cost reductions at the Stillwater Mine. (“Total cash costs, net of credits, per mined ounce” is a non-GAAP financial measure further defined below in Reconciliation of Costs of Revenues to Non-GAAP Financial Measures).

24


Segment earnings from the Company's recycling activities (before income taxes) were $3.3 million in the third quarter of 2015, up from $3.1 million in the third quarter of 2014. Earnings in the recycling segment typically lag corresponding volume processed by approximately two to three months. The share of total recycling ounces toll processed on behalf of others increased relative to recycling ounces purchased for the Company's own account in the third quarter of 2015. Total recycling ounces of palladium, platinum and rhodium fed to the smelter, including both purchased ounces and ounces processed on a toll basis, increased to 161,000 ounces in the third quarter of 2015 from 117,700 ounces in the third quarter of 2014. The higher recycling volumes fed in the second quarter of 2015 resulted in recycling earnings of $3.3 million in the third quarter of 2015, which was a 60.2% increase as compared to earnings of $2.0 million (before income taxes) in the second quarter of 2015. Recycling volumes sold during the third quarter of 2015 totaled 88,800 ounces (including palladium, platinum and rhodium) at an average realization of $881 per ounce, as compared to 101,400 ounces sold during the third quarter of 2014 at an average realization of $1,068 per ounce. In addition, the Company delivered 73,700 recycled tolled ounces during the third quarter of 2015, up from 22,900 recycled tolled ounces delivered in the third quarter of 2014.
The Company's cash and cash equivalents balance was $134.0 million at September 30, 2015, as compared to $222.8 million and $280.3 million at June 30, 2015 and December 31, 2014, respectively. Total outstanding liquidity, which includes highly liquid investments as well as available cash and cash equivalents, was $460.3 million at September 30, 2015, as compared to $531.2 million and $531.5 million reported at June 30, 2015 and December 31, 2014, respectively. Net working capital (including cash and cash equivalents and highly liquid investments) decreased to $553.1 million at September 30, 2015, from $622.5 million at June 30, 2015 and $619.4 million at December 31, 2014. During the first nine months of 2015, gross working capital in the PGM Recycling segment increased to $65.8 million at September 30, 2015 from $61.5 million at December 31, 2014.
MINING OPERATIONS
Mine production of palladium and platinum totaled 128,100 ounces for the third quarter of 2015, an increase of 4.1% from the 123,000 ounces produced in the third quarter of 2014. Production increased slightly from the 127,000 ounces produced during the second quarter of 2015.
The Company’s measurement of total cash costs per mined ounce includes the benefit of credits for by-product sales and PGM Recycling segment income (before income taxes). The table below illustrates the effect of applying these credits to the average cash costs per mined ounce for the combined Montana mining operations, (details for the individual mines follow later in the discussion). The reduction in total cash costs per ounce is largely attributable to a 22.5% reduction in cash costs at the Stillwater Mine and a 10.8% increase in production from the East Boulder Mine in the third quarter of 2015 when compared to third quarter of 2014.
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
Cash Costs Per Mined Ounce
Combined Montana Mining Operations
 
2015
 
2014
 
2015
 
2014
Reported Total Cash Costs per Mined Ounce net of Credits *
 
$
465

 
$
554

 
$
511

 
$
557

By-Product Revenue Credit
 
39

 
56

 
48

 
59

PGM Recycling Income Credit
 
25

 
25

 
19

 
24

Total Cash Costs per Mined Ounce before Credits *
 
$
529

 
$
635

 
$
578

 
$
640

* These are non-GAAP financial measures. For a full description and reconciliation of these and other non-GAAP financial measures to GAAP financial measures, see Reconciliation of Costs of Revenues to Non-GAAP Financial Measures below.
For assessing the overall operating efficiency of the Company's Montana operations, the Company utilizes a comprehensive non-GAAP financial measure, All-in Sustaining Costs per mined ounce. This metric is an indication of the total cash capital and operating cost per ounce (including corporate general and administrative costs) required to sustain the Company's current level of mining activities. For the third quarter of 2015, all-in sustaining costs averaged $677 per ounce, compared to $837 per ounce in the third quarter of 2014, reflecting lower total cash costs, lower corporate costs and lower capital spending incurred to sustain operations during the third quarter of 2015. For a more complete discussion of this measure, see -- "Reconciliation of Costs of Revenues to Non-GAAP Financial Measures."

25


Stillwater Mine
At the Stillwater Mine, palladium and platinum production third quarter of 2015 totaled 77,000 ounces, in line with the 76,900 ounces produced in the third quarter of 2014. Ore grade averaged approximately 0.46 combined ounces of palladium and platinum per ton in the quarter ended September 30, 2015, as compared to 0.48 ounces per ton in the quarter ended September 30, 2014. Mined ore and subgrade (i.e., reef waste) volumes fed to the Stillwater Mine concentrator during the third quarter of 2015 totaled 181,900 tons, an increase of 3.4% over the 175,900 tons fed in the same quarter of 2014.
The following table illustrates the effect of applying the by-product and PGM Recycling segment credits to the total cash costs per mined ounce at the Stillwater Mine:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
Cash Costs Per Mined Ounce - Stillwater Mine
 
2015
 
2014
 
2015
 
2014
Reported Total Cash Costs per Mined Ounce net of Credits *
 
$
441

 
$
570

 
$
507

 
$
550

By-Product Revenue Credit
 
34

 
50

 
43

 
51

PGM Recycling Income Credit
 
25

 
25

 
19

 
24

Total Cash Costs per Mined Ounce before Credits *
 
$
500

 
$
645

 
$
569

 
$
625

* These are non-GAAP financial measures. For a full description and reconciliation of these and other non-GAAP financial measures to GAAP financial measures, see Reconciliation of Costs of Revenues to Non-GAAP Financial Measures below.
Stillwater Mine’s total cash costs per mined ounce, net of credits (a non-GAAP financial measure), decreased by 22.5% in the third quarter of 2015 compared with the same period in 2014. The lower costs for the third quarter of 2015 are principally the result of a reduced labor force at the Stillwater Mine as well as other cost saving initiatives.
Capital expenditures at the Stillwater Mine totaled $20.9 million for the third quarter of 2015, including $6.0 million for the Blitz development. This compares to the $26.8 million of capital expenditures at the Stillwater Mine during the third quarter of 2014, of which $4.9 million was for the Blitz development. The reduction in capital expenditures was primarily due to reduced infrastructure spending in the mine. Primary and secondary development footages for the third quarter of 2015 decreased relative to the comparable footages for the third quarter of 2014, with primary and secondary development together advancing approximately 12,200 feet in the third quarter of 2015 and 15,600 feet in the third quarter of 2014. Diamond drilling footage decreased for the third quarter of 2015, totaling approximately 85,600 feet, compared to 91,500 feet drilled in the third quarter of 2014. Ongoing mine development efforts, including diamond drilling, are part of a continuing effort to maintain the developed state of the mine.
East Boulder Mine
Mine production at the East Boulder Mine was 51,100 combined ounces of palladium and platinum for the third quarter of 2015, an increase of 10.8% from 46,100 ounces produced in the third quarter of 2014. Mined ore and subgrade (i.e., reef waste) volumes fed to the East Boulder Mine concentrator during the third quarter of 2015 increased to 154,400 tons from 136,100 tons in the third quarter of 2014, reflecting the Graham Creek development area coming on-line and the benefit of adding an extra crew at the East Boulder mill in late 2014.
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
Cash Costs Per Mined Ounce - East Boulder Mine
 
2015
 
2014
 
2015
 
2014
Reported Total Cash Costs per Mined Ounce net of Credits *
 
$
500

 
$
527

 
$
517

 
$
572

By-Product Revenue Credit
 
47

 
68

 
57

 
72

PGM Recycling Income Credit
 
26

 
25

 
20

 
24

Total Cash Costs per Mined Ounce before Credits *
 
$
573

 
$
620

 
$
594

 
$
668

* These are non-GAAP financial measures. For a full description and reconciliation of these and other non-GAAP financial measures to GAAP financial measures, see Reconciliation of Costs of Revenues to Non-GAAP Financial Measures below.

26


Total cash costs per mined ounce, net of credits, (a non-GAAP financial measure) for the third quarter of 2015 decreased approximately 7.6% from the same period in 2014. The improvement in cash costs per ounce reflects the increased mine output, offset in part by a 4% contractual hourly workforce wage increase that took effect at the beginning of 2015.
Capital expenditures at the East Boulder Mine totaled $3.7 million in the third quarter of 2015, as compared to $8.7 million in the third quarter of 2014 due to higher levels of infrastructure spend in the third quarter of 2014. Actual primary and secondary development advanced approximately 5,100 feet during the third quarter of 2015 while the comparable development advance in the third quarter of 2014 was 5,400 feet. Diamond drilling footage for the third quarter of 2015 totaled approximately 47,700 feet compared to the 53,200 feet drilled in the third quarter of 2014.

27


PGM RECYCLING SEGMENT
Volumes of recycling materials processed through the smelter increased 21.4% during the third quarter of 2015 to 22.7 tons per day of furnace feed from the 18.7 tons per day in the third quarter of 2014. PGM loadings in the fed material in the third quarter of 2015 increased 36.8% to 161,000 ounces of palladium, platinum and rhodium compared to 117,700 ounces in the third quarter of 2014.
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
Average tons of catalyst fed per day
 
22.7

 
18.7

 
21.9

 
18.7

Total tons processed
 
2,087

 
1,717

 
5,987

 
5,100

    Tolled tons
 
794

 
309

 
2,420

 
804

    Purchased tons
 
1,293

 
1,408

 
3,567

 
4,296

PGM ounces fed
 
161,000

 
117,700

 
421,300

 
353,500

PGM ounces sold
 
88,800

 
101,400

 
231,500

 
296,400

PGM tolled ounces returned
 
73,700

 
22,900

 
150,300

 
53,900

During the third quarter of 2015, the Company earned $3.3 million in income (before income taxes) from its PGM Recycling operations on revenues of $82.0 million. For the third quarter of 2014, the recycling operations earned $3.1 million in income on revenues of $109.5 million. Earnings during the third quarter of 2015 were 65% higher than the $2.0 million earned in the second quarter of 2015.
For the third quarter of 2015, PGM Recycling revenues decreased by 25.1% compared to the same period in 2014. The cost of metals sold from the PGM Recycling segment was $78.9 million in the third quarter of 2015, as compared to $106.8 million in the third quarter of 2014, a decrease of 26.1%. A majority of the cost of metals sold from recycling in each period is attributable to the cost of purchasing recyclable materials for the Company's own account; therefore, the aggregate cost of metals sold from the PGM Recycling segment is driven mostly by the value of the PGMs in the materials purchased by the Company. Tolling revenues increased by 267% in the third quarter of 2015 to $2.2 million, as compared to $0.6 million in the third quarter of 2014, reflecting the continuing change in product mix for the recycling business.
Sold ounces of recycled PGMs decreased by 12.4% to 88,800 ounces in the third quarter of 2015 from 101,400 ounces in the third quarter of 2014. The combined average recycling sales realization (including palladium, platinum and rhodium) was $881 per sold ounce in the third quarter of 2015, down from $1,068 per sold ounce in the same quarter of 2014. In addition, the Company delivered 73,700 recycled tolled ounces during the third quarter of 2015, up from 22,900 recycled tolled ounces delivered in the third quarter of 2014. A total of 162,500 combined ounces were delivered to customers in the third quarter of 2015, as compared to 124,300 ounces delivered in the third quarter of 2014.
For its PGM Recycling segment, the Company customarily enters into fixed forward sales contracts that set the selling price for most of the PGMs recovered from recycled materials. Because the selling price of recycling materials held by the Company is fixed up front by these forward sales contracts, day-to-day changes in the market price of palladium and platinum have little effect on the percentage margins earned from processing these materials or on cash flow from recycling operations. However, as PGM prices rise or fall over time, the total volume of materials available in the market also may rise or fall, which can affect the total profitability of the Company's recycling activities. On average, it takes two to three months from the date of receipt to process and deliver metal from purchased lots of recycling materials.
The Company has arrangements in place with many of its recycling suppliers to provide advance payments to the suppliers prior to the release of finished metal from the final refiner. These advances may include general working capital advances, advances against materials in transit to the Company's processing facilities, and payments for materials in process. Outstanding advances for general working capital and materials in transit not backed up by inventory physically in the Company’s possession totaled $4.9 million at September 30, 2015, as compared to $5.0 million and $7.3 million at June 30, 2015 and December 31, 2014, respectively. In addition, recycling segment materials physically in inventory totaled $60.9 million at September 30, 2015, as compared to $60.1 million and $54.3 million at June 30, 2015 and December 31, 2014, respectively. In total, net working capital in the recycling segment increased to $65.8 million at September 30, 2015, as compared to $65.1 million and $61.5 million at June 30, 2015 and December 31, 2014, respectively.

28


EXPLORATION AND DEVELOPMENT
The Company is continuing to develop the Blitz area, which is expected to provide extensive new mining infrastructure along the J-M Reef in Montana. This development includes constructing underground and surface access to an area extending approximately 23,000 feet to the east from the existing Stillwater Mine operations on two separate levels. The lower of these underground development headings, on the 5000 East level, is being driven with a tunnel-boring machine (TBM) and to date has advanced approximately 8,900 feet. In the first half of 2015, the TBM advance was slowed by poor ground conditions however, the TBM has now progressed through this unstable area and its rate of advance has significantly increased.
A second, parallel underground heading at Blitz, the 5600 East, is being driven approximately 600 feet above the TBM using conventional drill and blast methods. Approximately 13,200 feet of ramp and infrastructure development has been completed along the 5600 East heading to date. Development continues on schedule along this heading and has not been held up by the type of ground conditions the TBM has faced.
The permitting process for the proposed Benbow access portal was completed in the third quarter of 2015, ahead of schedule. The Benbow access portal to be developed at the far end of the two primary Blitz tunnels, is designed to intersect the two tunnels from the surface, and will provide ventilation and emergency egress for the Blitz development area. The construction of the surface facilities has now commenced.
The Blitz development began in late 2010, and to date, the Company has spent approximately $72.8 million (net of capitalized interest and capitalized depreciation) of an estimated $205 million of capitalized expenditures for Blitz infrastructure. Once the Blitz development is completed and mining commences, it is intended to replace declining production from the Stillwater Mine in the medium term and to contribute future growth to annual palladium and platinum production rates from the Stillwater complex over the longer term.
In addition to the Company's Montana operations, the Company held a 75% interest in Marathon, an undeveloped PGM-copper property situated near the north shore of Lake Superior in the province of Ontario, Canada at the end of the third quarter of 2015. Administrative costs at Marathon for the third quarters of 2015 and 2014 totaled $0.3 million and $0.8 million, respectively, on a 100% ownership basis. Exploration expense at Marathon totaled approximately $0.3 million in each of the third quarters of 2015 and 2014, on a 100% ownership basis. In the third quarter of 2015, the Company entered into an agreement with Mitsubishi to purchase Mitsubishi's 25% interest in the Marathon PGM-copper project and related properties for a total cash consideration of $5.2 million. The total cash consideration is comprised of $1.0 million in cash and the equivalent of 25% of the total cash and cash equivalents held by SCI at October 16, 2015. The transaction closed subsequent to the end of the third quarter on October 26, 2015. While a modest exploration program continues at Marathon, development plans remain suspended until the project can demonstrate an economic return greater than the returns available on the Company's other assets.
The Company also owns Altar, an exploration-stage property in the San Juan province of Argentina where drilling has demonstrated the presence of a large copper-gold porphyry deposit. Cash carrying costs at Altar totaled approximately $0.3 million in the third quarter of 2015, including administrative costs of less than $0.1 million and exploration expense of approximately $0.2 million. For the third quarter of 2014 cash carrying costs totaled $0.4 million, including less than $0.1 million in administrative costs and approximately $0.3 million of exploration expense.

29


CAPITAL EXPENDITURES
The Company incurred cash capital expenditures of $25.2 million during the third quarter of 2015 and $83.4 million for the first nine months of 2015. This compares to consolidated capital cash expenditures of $33.3 million in the third quarter of 2014 and $87.0 million during the first nine months of 2014.
Capital Expenditures
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In thousands)
 
2015
 
2014
 
2015
 
2014
Sustaining capital:
 
 
 
 
 
 
 
 
        Stillwater Mine
 
$
11,978

 
$
15,558

 
$
43,560

 
$
44,228

        East Boulder Mine
 
3,121

 
5,974

 
11,115

 
13,731

        Processing and Other
 
433

 
1,035

 
1,691

 
2,490

    Total sustaining capital
 
$
15,532

 
$
22,567

 
$
56,366

 
$
60,449

Project capital:
 
 
 
 
 
 
 
 
        Blitz
 
$
8,338

 
$
7,245

 
$
18,931

 
$
16,413

        Graham Creek
 

 
421

 

 
1,585

        Hertzler Tailings Expansion
 
2,322

 
3,434

 
5,940

 
7,708

        Other
 
950

 
2,878

 
7,082

 
7,540

    Total project capital
 
$
11,610

 
$
13,978

 
$
31,953

 
$
33,246

        Total U.S. capital expenditures
 
$
27,142

 
$
36,545

 
$
88,319

 
$
93,695

  Foreign capital expenditures
 

 
2

 
46

 
2

  Non-cash capitalized interest / depreciation
 
(2,360
)
 
(2,293
)
 
(6,756
)
 
(6,228
)
  Change in accounts payables for capital expenditures
 
386

 
(996
)
 
1,777

 
(431
)
Cash capital spend for the period
 
$
25,168

 
$
33,258

 
$
83,386

 
$
87,038


SUPPLY AND DEMAND COMMENTARY FOR PGM MARKETS
The following discussion reflects management’s assessment of the recent state of the PGM markets, based on discussion with industry analysts and the Company’s own observations of market dynamics. There can be no assurance that the Company’s conclusions reflect a complete or accurate picture of supply and demand trends or other market considerations. However, management’s view of market conditions and the outlook for PGM supply and demand may influence its decisions on mining activities, future acquisitions, expansions or divestitures, capital investment, financing, hiring and various other factors.
The primary suppliers of PGMs worldwide are limited to a few large producers in South Africa and Zimbabwe, significant PGM by-product output from Norilsk Nickel in Russia, plus output from the Company’s operations in Montana and a few mostly by-product producers in Canada.
It is estimated by Johnson Matthey (JM) that 76% of palladium demand and 44% of platinum demand will come from the automotive catalyst market in 2015 (net of investment supply and demand), a percentage that has steadily grown over recent years for both metals. During the first nine months of 2015, the automotive market was strong across all major regions.
Both the U.S. and European car markets remained strong during the third quarter 2015. U.S. sales accelerated to the fastest pace in more than a decade, climbing to a seasonally adjusted annual rate of 18.17 million vehicles according to Autodata Corp. Automobile sales in Europe through August also are up 8.6% to 9.38 million units from the same period in 2014.
The passenger vehicle market in China rebounded in September 2015 after a three month slump, as sales improved 2.1% to 17.1 million units for the first nine months of the year. China sales are expected to be boosted by a recent announcement from China’s State Council to reduce the purchase tax on small cars from 10% to 5% for the fourth quarter of 2015 and for 2016.

30


During the third quarter of 2015, the price for platinum continued its downward trend, finishing the quarter at a six-year low of $908 per ounce. However, platinum prices have improved since the end of the third quarter of 2015. After trading well above the price of gold from mid-2013 through most of 2014, the platinum price has trailed gold throughout 2015. Several factors have impacted the price decline. First, the relative strength of the U.S. dollar against the euro and other foreign currencies during the first half of the year has put downward pressure on nearly all commodity prices. Also, the corresponding weakness of the South African rand translates into higher prices for platinum in the local currency, taking pressure off of the South African producers' balance sheets. Recently, Volkswagen admitted it installed software in diesel vehicles that activated certain emissions controls only during emissions testing. The Volkswagen admission and the announcement by France that it will increase its diesel fuel tax may result in consumers switching from diesel to gasoline. Platinum is primarily used in diesel-fueled engines, while palladium is used in gasoline engines. With these recent announcements, the premium for platinum prices over palladium prices has fallen to its lowest amount in 13 years.
The price of palladium decreased 2.3% over the third quarter of 2015 to close at $661 on September 30, 2015. After hitting a two-year low during the third quarter of 2015, the price of palladium at the end of the third quarter recovered 9.8% from the low during the quarter and upward momentum continued into October 2015.
Annual world-wide platinum and palladium supply is driven by a combination of current mine production, recycling and draw-down of existing platinum and palladium stocks held by governments and financial investors. The prices of these metals are volatile and are affected by numerous factors, including, but not limited to, the sale or purchase of the metals by various central banks and financial institutions, inflation, recession, fluctuation in the relative values of the U.S. dollar and foreign currencies (particularly the South African rand and Russian ruble), changes in global and regional demand and political and economic conditions throughout the world. The price of palladium is thought to be more closely tied to industrial demand and the rate of underlying world economic growth, particularly in automotive production.
SALES AND CUSTOMERS
As previously disclosed, the Company and JM entered into a five-year PGM supply agreement and a refining agreement during 2014. The supply agreement gives JM the right to purchase all of the Company's mine production of palladium and platinum at competitive market prices (with the exception of platinum sales under the Company’s sales agreement with Tiffany & Co.) and the right to bid for any recycling volumes that the Company has available.
The Company aims to sell forward all recycling material at the time the purchase is made, essentially fixing the sales margin on the material. Forward sales of recycled ounces are customarily offered to any of several counterparties whom the Company believes are able to take future physical delivery of the underlying metal. Such forward sales are regarded as "normal sales" transactions for accounting purposes and therefore are not accounted for as derivatives.
During the third quarter of 2015, JM purchased all of the Company's mined PGM production (excluding the platinum ounces delivered under a separate agreement with Tiffany & Co.).

31


STRATEGIC CONSIDERATIONS
The following discussion of corporate strategic efforts is intended to update matters discussed in previous filings. For a discussion of the Company's strategic decisions regarding exploration and development and capital expenditures, see the previous sections of this Item 2 entitled Exploration and Development and Capital Expenditures.
The Company's safety performance is of paramount importance to every employee and is the Company's primary consideration in all aspects of its operations. The Company normally assesses its safety performance using two broad sets of measures - incidence rates and regulatory compliance. Incidence rates in the U.S. usually are measured as the number of medically reportable events per 200,000 man hours. Regulatory compliance is measured in terms of the number and severity of citations issued to the Company and its contractors on site by Mine Safety and Health Administration (MSHA) inspectors.
The Company's overall incidence rate per 200,000 man hours for its Montana operations, (excluding contractors) for the first nine months of 2015 was 2.95, having favorably declined by 6.0% from the comparable period of 2014. For further detail, see Exhibit 95 - Mine Safety Disclosures, which is included as an exhibit to this filing.
The Company continues to focus on environmental excellence and works closely with governmental agencies and the local communities to ensure its strict compliance with environmental regulations and address its neighbors' environmental concerns. Beginning in 2014, the Company invested in the installation of underdrains on its East Boulder Mine tailings facilities embankment, in an effort to capture and treat meteorological water that was infiltrating through the embankment and increasing the nitrate levels observed in the adjacent groundwater. The elevated groundwater nitrate levels are the result of explosives residue containing nitrogen, within the waste rock from the mines, which was then being solubilized and mobilized via the meteorological water. As part of the effort to reduce the groundwater nitrate levels and due to lower solubility levels, the Company had switched its blasting agent from ammonium nitrate-fuel oil (ANFO) to stick powder, at substantial additional costs, when these conditions were initially observed. However, based on the observed success of the installed underdrain system at the East Boulder Mine, which now allows for the capture and treatment of the infiltrated meteorological water, the Company recently made the switch back to ANFO as its primary blasting agent, at a substantial cost savings.
Cost containment remains a key focus throughout the Company's operations. The Company utilizes a non-GAAP financial measure of overall cost efficiency, All-in Sustaining Costs (AISC), to assess the performance of its Montana operations. (see the later section of this Item 2 entitled All-in Sustaining Costs (A Non-GAAP Financial Measure) for a more detailed explanation of AISC). For the three-months ended September 30, 2015, the Company's AISC averaged $677 per ounce, as compared to $837 per ounce in the third quarter of 2014.
The Company's represented workforce is covered under two separate collective bargaining agreements. One of these agreements, covering employees located at the Stillwater Mine and the Company's processing facilities in Columbus, expired on June 12, 2015. Following the expiration of this agreement, employees located at these sites voted twice, and twice rejected, a tentative labor agreement reached on May 27, 2015 that was recommended by the United Steel Workers (USW) International Union Local 11-0001. Following the votes, employees continued to work under the terms of the previously expired contract. On July 30, 2015, the Company notified the union that negotiations had reached an impasse and that it would implement its last, best and final contract offer, which was the same agreement previously rejected by the represented employees. The Company implemented the new agreement on September 1, 2015, which included:
no increase in base wages for each of the first two years of the agreement; and
simplification of the incentive program and the introduction of metrics in the incentive program that align employee activities and shareholder outcomes
The second collective bargaining agreement, covering employees at the East Boulder Mine, expires on December 31, 2015.
The Company's total workforce at September 30, 2015, was comprised of 1,442 employees, including 1,432 located in Montana and Colorado and 10 located in Canada and South America. This compares to 1,641 employees at September 30, 2014, of which 1,628 were Montana-based and 13 were located in Canada and South America.
Capital and exploration expenditures remain scaled back at Marathon and Altar in 2015, pending appropriate opportunities to realize value from those assets. In the existing Montana operations, the developed state of the mines is now sufficiently advanced that development spending can be reduced in some areas of the mines. Company-wide capital expenditures through the first nine months of 2015 totaled $83.4 million.
The Company seeks to maintain significant balance-sheet liquidity on hand in order to manage against cyclical price risk in the mining industry and against downturns in the broader economy. The Company's liquidity at September 30, 2015 totaled $460.3 million, including cash and cash equivalents of $134.0 million and highly liquid investments of $326.3 million. The Company also has approximately $53.5 million of borrowing capacity available under its revolving line of credit. Total principal outstanding (before discounts) under the Company's long-term convertible debt obligations at September 30, 2015, totaled $335.7 million.

32


The Company continues to evaluate options to maximize shareholder value and the long-term health of its business, particularly in light of volatility in commodity prices. The Company regularly considers the deployment of cash for acquisitions, internal growth projects, dividends, buyback of outstanding convertible debentures and share repurchases. The Board has authorized management to repurchase a portion of the Company's outstanding convertible debentures when market conditions are appropriate. In the third quarter of 2015, the Company repurchased $61.6 million principal amount of its 1.75% convertible debentures due 2032 in open market transactions for $59.4 million in cash and $1.7 million principal amount of its 1.875% convertible debentures due 2028 for $1.6 million in cash. Refer to "Note 8 - Debt and Capital Lease Obligations", in the consolidated financial statements for a more complete discussion on the repurchase of a portion of the Company's convertible debentures. During the third quarter of 2015 the Company also incurred $1.7 million of reorganization costs.
Based on the current PGM market environment, the Company reduced its total workforce by 159 employees during the third quarter of 2015, primarily consisting of employees located at the Stillwater Mine and Columbus processing facilities, which will result in annual savings of $10 to $12 million. In addition, the Company further modified its mine plan in an effort to focus on the most profitable mining areas within the Stillwater Mine and continue to maximize production from the East Boulder Mine.
The Company currently has available capacity in its mine concentrators and in its Columbus processing facilities. Similarly, the Company has been exploring various opportunities to increase throughput at its processing facilities in Columbus, primarily through growing its recycling business and potentially through other processing arrangements with third parties. The auto catalyst recycling business is very competitive and, following the significant increase in volumes fed in the second quarter of 2015, attaining further significant growth while maintaining margins may prove to be challenging.

33


RESULTS OF OPERATIONS
Comparison of Three-Month Periods Ended September 30, 2015 and 2014
The Company’s total revenues decreased by 33.2% to $168.4 million in the third quarter of 2015 compared to $252.1 million for the third quarter of 2014. The following analysis provides comparative detail for key factors contributing to the decrease in revenues:
SALES AND PRICE DATA
 
 
Three Months Ended
 
 
 
 
 
 
September 30,
 
Increase
 
Percentage
(In thousands, except for average prices)
 
2015
 
2014
 
(Decrease)
 
Change
Revenues
 
$
168,441

 
$
252,066

 
$
(83,625
)
 
(33.2
)%
Ounces Sold:
 
 
 
 
 
 
 
 
Mine Production:
 
 
 
 
 
 
 
 
Palladium (oz.)
 
92

 
103

 
(11
)
 
(10.7
)%
Platinum (oz.)
 
25

 
29

 
(4
)
 
(13.8
)%
Total
 
117

 
132

 
(15
)
 
(11.4
)%
PGM Recycling: (1)
 
 
 
 
 
 
 
 
Palladium (oz.)
 
53

 
58

 
(5
)
 
(8.6
)%
Platinum (oz.)
 
30

 
36

 
(6
)
 
(16.7
)%
Rhodium (oz.)
 
6

 
7

 
(1
)
 
(14.3
)%
Total
 
89

 
101

 
(12
)
 
(11.9
)%
Other: (5)
 
 
 
 
 
 
 
 
Palladium (oz.)
 

 
6

 
(6
)
 
(100.0
)%
By-products from Mine Production: (2)
 
 
 
 
 
 
 
 
Rhodium (oz.)
 
1

 
1

 

 

Gold (oz.)
 
3

 
3

 

 

Silver (oz.)
 
2

 
2

 

 

Copper (lb.)
 
221

 
173

 
48

 
27.7
 %
Nickel (lb.)
 
342

 
289

 
53

 
18.3
 %
Average realized price per ounce (3)
 
 
 
 
 
 
 
 
Mine Production:
 
 
 
 
 
 
 
 
Palladium ($/oz.)
 
$
611

 
$
859

 
$
(248
)
 
(28.9
)%
Platinum ($/oz.)
 
$
987

 
$
1,421

 
$
(434
)
 
(30.5
)%
Combined ($/oz.) (4)
 
$
693

 
$
983

 
$
(290
)
 
(29.5
)%
PGM Recycling: (1)
 
 
 
 
 
 
 
 
Palladium ($/oz.)
 
$
737

 
$
821

 
$
(84
)
 
(10.2
)%
Platinum ($/oz.)
 
$
1,111

 
$
1,453

 
$
(342
)
 
(23.5
)%
Rhodium ($/oz.)
 
$
1,027

 
$
1,078

 
$
(51
)
 
(4.7
)%
Combined ($/oz.) (4)
 
$
881

 
$
1,068

 
$
(187
)
 
(17.5
)%
Other: (5)
 
 
 
 
 
 
 
 
Palladium ($/oz.)
 
$

 
$
882

 
$
(882
)
 
(100.0
)%
By-products from Mine Production: (2)
 
 
 
 
 
 
 
 
Rhodium ($/oz.)
 
$
808

 
$
1,320

 
$
(512
)
 
(38.8
)%
Gold ($/oz.)
 
$
1,136

 
$
1,266

 
$
(130
)
 
(10.3
)%
Silver ($/oz.)
 
$
15

 
$
19

 
$
(4
)
 
(21.1
)%
Copper ($/lb.)
 
$
2.20

 
$
2.96

 
$
(0.76
)
 
(25.7
)%
Nickel ($/lb.)
 
$
2.92

 
$
6.79

 
$
(3.87
)
 
(57.0
)%
Average market price per ounce (3)
 
 
 
 
 
 
 
 
Palladium ($/oz.)
 
$
617

 
$
863

 
$
(246
)
 
(28.5
)%
Platinum ($/oz.)
 
$
987

 
$
1,435

 
$
(448
)
 
(31.2
)%
Combined ($/oz.) (4)
 
$
698

 
$
989

 
$
(291
)
 
(29.4
)%


34


(1)
Ounces sold and average realized price per ounce from PGM Recycling relate to ounces produced from processing of spent catalyst from catalytic converters and other industrial sources.
(2)
By-product metals sold reflect contained metal. Realized prices reflect net values (discounted due to product form and transportation and marketing charges) per unit received.
(3)
The Company’s average realized price represents revenues, which include the effect of hedging gains and losses realized on commodity instruments and agreement discounts, divided by ounces sold. The average market price represents the average London market for the actual months of the period.
(4)
The Company reports a combined average realized and market price of palladium and platinum at the same ratio as ounces that are produced from the base metal refinery.
(5)
Ounces sold and average realized price per ounce from Other relate to ounces acquired periodically in the open market and simultaneously resold to third parties.
Net revenues from sales of Mine Production (including proceeds from the sale of by-products) were $86.4 million and $137.1 million during the third quarters of 2015 and 2014, respectively. The decrease in Mine Production revenues reflects both lower volumes sold and lower average realized prices in the third quarter of 2015, as compared to the third quarter of 2014. An inventory build of mined ounces in the third quarter of 2015 resulted in less mined ounces sold in the quarter than produced in the quarter. The Company expects to see this build up of inventory sold in the fourth quarter of 2015.
The costs of metals sold from Mine Production totaled $69.0 million for the third quarter of 2015, compared to $85.2 million for the third quarter of 2014, a decrease of 19.0%. Royalties and severance taxes on the lower sales ounces contributed to the decrease in cost of metals sold.
Total recycling ounces of palladium, platinum and rhodium fed to the smelter, including both purchased ounces and ounces processed on a toll basis, increased to 161,000 ounces in the third quarter of 2015 from 117,700 ounces in the third quarter of 2014. Total sales revenues from PGM Recycling of $82.0 million in the third quarter of 2015 were down 25.1% from the $109.5 million reported for the third quarter of 2014. Tolling revenues in the third quarter of 2015 rose to $2.2 million on 73,700 tolled ounces of palladium, platinum and rhodium processed and returned to customers, compared to $0.6 million on 22,900 ounces processed and returned to customers in the third quarter of 2014. However, revenues from sales of purchased recycling materials declined 28.1% in the third quarter of 2015 to $78.3 million on 88,800 ounces of palladium, platinum and rhodium sold, from $108.9 million on 101,400 ounces sold in the third quarter of 2014. The Company’s combined average realization on recycling sales of palladium, platinum and rhodium decreased to $881 per ounce in the third quarter of 2015, compared to $1,068 per ounce realized in the third quarter of 2014.
The costs of metals sold from PGM Recycling totaled $78.9 million in the third quarter of 2015, compared to $106.8 million in the third quarter of 2014, a decrease of 26.1%. This decrease was mainly due to the decrease in the total cost of acquiring recycling material for processing as well as a lower volumes of purchased material.
In addition to Mine Production and PGM Recycling metal sales, on occasion the Company will acquire metal in the open market and simultaneously resell it to third parties. There were no open market purchases or sales during the third quarter of 2015. For the third quarter of 2014, the Company recognized other revenues of $5.3 million for metal acquired in the open market and simultaneously resold to third parties. The cost of metals sold in the open market for the third quarter of 2014 totaled $5.3 million.

35


Mining operations PGM ounce production for the third quarters of 2015 and 2014 is shown in the following table:
 
 
Three Months Ended
 
 
September 30,
Mined PGM Ounces Produced
 
Platinum
 
Palladium
 
Total
Stillwater Mine
 
 
 
 
 
 
     2015
 
17,700

 
59,300

 
77,000

     2014
 
17,500

 
59,400

 
76,900

         Percentage change
 
1.1
%
 
(0.2
)%
 
0.1
%
East Boulder Mine
 
 
 
 
 
 
     2015
 
11,400

 
39,700

 
51,100

     2014
 
10,300

 
35,800

 
46,100

         Percentage change
 
10.7
%
 
10.9
 %
 
10.8
%
Totals
 
 
 
 
 
 
     2015
 
29,100

 
99,000

 
128,100

     2014
 
27,800

 
95,200

 
123,000

         Percentage change
 
4.7
%
 
4.0
 %
 
4.1
%
The Company's corporate general and administrative costs decreased by approximately $1.2 million to $8.9 million in the third quarter of 2015 from $10.1 million for the same period of 2014. During the third quarter of 2015, the Company incurred $1.7 million of reorganization costs.
Total interest income for the third quarter of 2015 decreased to $0.8 million from $0.9 million in the corresponding quarter of 2014, mostly reflecting lower financing income on recycling balances in 2015. Interest expense in the third quarters of 2015 and 2014 was $5.1 million and $6.0 million, respectively, net of capitalized interest of $1.5 million and $1.4 million, respectively.

36


Comparison of Nine-Month Periods Ended September 30, 2015 and 2014
The Company’s total revenues decreased by 23.2% to $554.3 million in the first nine months of 2015 compared to $721.5 million in the first nine months of 2014. The following analysis covers key factors contributing to the decrease in revenues:
SALES AND PRICE DATA
 
 
Nine Months Ended
 
 
 
 
 
 
September 30,
 
Increase
 
Percentage
(In thousands, except for average prices)
 
2015
 
2014
 
(Decrease)
 
Change
Revenues
 
$
554,345

 
$
721,452

 
$
(167,107
)
 
(23.2
)%
Ounces Sold:
 
 
 
 
 
 
 
 
Mine Production:
 
 
 
 
 
 
 
 
Palladium (oz.)
 
302

 
315

 
(13
)
 
(4.1
)%
Platinum (oz.)
 
85

 
93

 
(8
)
 
(8.6
)%
Total
 
387

 
408

 
(21
)
 
(5.1
)%
PGM Recycling: (1)
 
 
 
 
 
 
 
 
Palladium (oz.)
 
137

 
171

 
(34
)
 
(19.9
)%
Platinum (oz.)
 
78

 
103

 
(25
)
 
(24.3
)%
Rhodium (oz.)
 
17

 
22

 
(5
)
 
(22.7
)%
Total
 
232

 
296

 
(64
)
 
(21.6
)%
Other: (5)
 
 
 
 
 
 
 
 
Palladium (oz.)
 

 
6

 
(6
)
 
(100
)%
By-products from Mine Production: (2)
 
 
 
 
 
 
 
 
Rhodium (oz.)
 
3

 
3

 

 

Gold (oz.)
 
8

 
8

 

 

Silver (oz.)
 
5

 
5

 

 

Copper (lb.)
 
744

 
655

 
89

 
13.6
 %
Nickel (lb.)
 
1,131

 
1,066

 
65

 
6.1
 %
Average realized price per ounce (3)
 
 
 
 
 
 
 
 
Mine Production:
 
 
 
 
 
 
 
 
Palladium ($/oz.)
 
$
723

 
$
809

 
$
(86
)
 
(10.6
)%
Platinum ($/oz.)
 
$
1,107

 
$
1,435

 
$
(328
)
 
(22.9
)%
Combined ($/oz.) (4)
 
$
807

 
$
951

 
$
(144
)
 
(15.1
)%
PGM Recycling: (1)
 
 
 
 
 
 
 
 
Palladium ($/oz.)
 
$
771

 
$
768

 
$
3

 
0.4
 %
Platinum ($/oz.)
 
$
1,181

 
$
1,431

 
$
(250
)
 
(17.5
)%
Rhodium ($/oz.)
 
$
1,130

 
$
1,019

 
$
111

 
10.9
 %
Combined ($/oz.) (4)
 
$
935

 
$
1,018

 
$
(83
)
 
(8.2
)%
Other: (5)
 
 
 
 
 
 
 
 
Palladium ($/oz.)
 
$

 
$
882

 
$
(882
)
 
(100.0
)%
By-products from Mine Production: (2)
 
 
 
 
 
 
 
 
Rhodium ($/oz.)
 
$
1,020

 
$
1,167

 
$
(147
)
 
(12.6
)%
Gold ($/oz.)
 
$
1,181

 
$
1,284

 
$
(103
)
 
(8.0
)%
Silver ($/oz.)
 
$
16

 
$
20

 
$
(4
)
 
(20.0
)%
Copper ($/lb.)
 
$
2.42

 
$
2.95

 
$
(0.53
)
 
(18.0
)%
Nickel ($/lb.)
 
$
4.20

 
$
6.83

 
$
(2.63
)
 
(38.5
)%
Average market price per ounce (3)
 
 
 
 
 
 
 
 
Palladium ($/oz.)
 
$
719

 
$
808

 
$
(89
)
 
(11.0
)%
Platinum ($/oz.)
 
$
1,100

 
$
1,437

 
$
(337
)
 
(23.5
)%
Combined ($/oz.) (4)
 
$
802

 
$
951

 
$
(149
)
 
(15.7
)%

(1)
Ounces sold and average realized price per ounce from PGM Recycling relate to ounces produced from processing of spent catalyst from catalytic converters and other industrial sources.
(2)
By-product metals sold reflect contained metal. Realized prices reflect net values (discounted due to product form and transportation and marketing charges) per unit received.

37


(3)
The Company’s average realized price represents revenues, which include the effect of hedging gains and losses realized on commodity instruments and agreement discounts, divided by ounces sold. The average market price represents the average London market for the actual months of the period.
(4)
The Company reports a combined average realized and market price of palladium and platinum at the same ratio as ounces that are produced from the base metal refinery.
(5)
Ounces sold and average realized price per ounce from Other relate to ounces acquired periodically in the open market and simultaneously resold to third parties.
For the first nine months of 2015, net revenues from sales of Mine Production (including proceeds from the sale of by-products) totaled $331.1 million, a decrease of 19.2% compared to $410.0 million in the first nine months of 2014. This decrease in Mine Production revenues reflects lower realized PGM prices in the first nine months of 2015 as compared to the first nine months of 2014, as well as reduced sales volumes in 2015.
The cost of metals sold from Mine Production totaled $229.7 million in the first nine months of 2015, compared to $252.7 million in the first nine months of 2014, a decrease of 9.1%, driven largely by lower royalties and severance taxes on the lower volumes of ounces sold, as well as overall lower utilities and maintenance costs.
Revenues from PGM Recycling reflected a decrease of 27.1% during the first nine months of 2015, to $223.0 million from $305.8 million in the first nine months of 2014. Recycling ounces sold during the first nine months of 2015 totaled 231,500 ounces, a decrease of 21.9% compared to the 296,400 ounces sold in the first nine months of 2014. The Company’s combined average realization on recycling sales (which include palladium, platinum and rhodium) decreased to $935 per ounce in the first nine months of 2015 from $1,018 per ounce in the first nine months of 2014. The decrease in recycling earnings during the first nine months of 2015 is attributable to several factors, including a weak market in the first nine months of 2015 due to lower commodity prices and the draw-down of inventories in the first nine months of 2014 contributing to higher ounces sold.
Overall, recycling costs of metals sold decreased by 27.4% to $216.1 million in the first nine months of 2015 from $297.8 million in the first nine months of 2014, mostly the result of lower volumes of ounces sold and lower PGM prices.
In addition to Mine Production and PGM Recycling metal sales, on occasion the Company will acquire metal in the open market and simultaneously resell it to third parties. There were no open market purchases or sales in the first nine months of 2015. For the first nine months of 2014, the Company recognized other revenues of $5.3 million for metal acquired in the open market and simultaneously resold to third parties. The cost of metals sold in the open market for the first nine months of 2014 totaled $5.3 million.
During the first nine months of 2015, the Company’s mining operations produced 388,400 ounces of PGMs, compared to 380,100 ounces in 2014 as shown in the following table:
 
 
Nine Months Ended
 
 
September 30,
Mined PGM Ounces Produced
 
Platinum
 
Palladium
 
Total
Stillwater Mine
 
 
 
 
 
 
     2015
 
54,500

 
183,000

 
237,500

     2014
 
57,600

 
193,000

 
250,600

         Percentage change
 
(5.4
)%
 
(5.2
)%
 
(5.2
)%
East Boulder Mine
 
 
 
 
 
 
     2015
 
33,400

 
117,500

 
150,900

     2014
 
28,800

 
100,700

 
129,500

         Percentage change
 
16.0
 %
 
16.7
 %
 
16.5
 %
Totals
 
 
 
 
 
 
     2015
 
87,900

 
300,500

 
388,400

     2014
 
86,400

 
293,700

 
380,100

         Percentage change
 
1.7
 %
 
2.3
 %
 
2.2
 %

38


General and administrative costs decreased to $27.7 million in the first nine months of 2015, from $28.0 million in the first nine months of 2014, a decrease of approximately 1.1%. In the first nine months of 2015, the Company incurred $1.7 million of reorganization costs compared to $6.0 million in the same period in 2014. The Company recognized $2.7 million in exploration expenses primarily related to its mineral properties in Canada and South America in the first nine months of 2015, compared to $2.4 million in the first nine months of 2014.
During the first nine months of 2015, the Company recorded a net foreign currency transaction gain of $0.1 million, compared to a net gain of $5.4 million in the first nine months of 2014. Essentially all of these net gains related to the re-measurement into U.S. dollars of the deferred taxes recorded in association with the acquisition of Peregrine Metals Ltd. During 2015, the rate of Argentine peso inflation has declined significantly, reducing the Company's currency gains. The gain in 2014 was a result of the strength of the U.S. dollar relative to a rapidly depreciating Argentine peso. The gains reflect the impact of a high inflation rate in Argentina as the deferred tax obligation is remeasured from Argentine pesos into U.S. dollars.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities (which includes changes in working capital) was $75.7 million and $131.7 million for the nine-month periods ended September 30, 2015 and 2014, respectively. The Company’s net cash flow from operating activities is affected by several key factors, including net realized prices for its products, the level of PGM production from its mines, cash operating costs, the volume of activity in its PGM Recycling segment, changes in inventory balances and the timing of cash receipts from final customers. Mining productivity rates and ore grades affect both PGM production and cash costs of production. The reported net cash provided from operating activities for the first nine months of 2015 reflected lower realized PGM prices and lower PGM sales ounces from mining activity along with weaker recycling earnings offset by lower cash costs per mined ounce.
Changes in the cash costs and revenues per ounce of Mine Production generally flow through dollar-for-dollar into cash flow from operations. Using metals market prices at September 30, 2015, a 10% reduction in annual mined production due to grade would reduce annual cash flow from operations by an estimated $33.9 million.
Net cash used in investing activities for the nine-month period ended September 30, 2015, was approximately $159.5 million, comprised of $83.4 million of cash capital expenditures, $76.5 million of net purchases of short-term investments and proceeds of $0.4 million from the disposal of property, plant and equipment. For the nine-month period ended September 30, 2014, net cash used by investing activities was $130.2 million, comprised of $87.0 million of cash capital expenditures and approximately $43.5 million of net purchases of short-term investments offset by approximately $0.3 million in proceeds from disposal of property, plant and equipment.
Net cash used in financing activities in the nine-month period ended September 30, 2015, was $62.5 million, mostly comprised of repurchasing of portions of the Company's convertible debt and principal payments on capital leases. Financing activities in 2015 included the repurchase of $61.6 million principal amount of the 1.75% Senior notes due 2032 and $1.7 million principal amount of the 1.875% Senior notes due 2028 for total consideration of $61.0 million. Refer to "Note 8 - Debt and Capital Lease Obligations", in the consolidated financial statements for a more complete discussion of the repurchase of a portion of the Company's convertible debentures. For the nine-month period ended September 30, 2014, the net cash used in financing activities was $30.5 million reflecting the redemption of the 8% Exempt Facility Revenue Bonds, offset in part by $1.0 million of cash received from stock option exercises.
At September 30, 2015, the Company’s cash and cash equivalents balance was $134.0 million, compared to $280.3 million at December 31, 2014. If highly liquid investments are included with available cash, the Company’s balance sheet liquidity was $460.3 million at September 30, 2015, a decrease of $71.2 million from $531.5 million at December 31, 2014 largely reflecting the repurchase of the 1.75% and 1.875% convertible debentures. The September 30, 2015, cash and liquidity balances include $17.1 million of cash held in Canada that is dedicated as funding for Marathon (and other related properties) and is not available to the Company for its general corporate purposes. Net working capital (including cash and cash equivalents and highly liquid investments) was $553.1 million at September 30, 2015, as compared to $619.4 million at December 31, 2014.

39


Outstanding balance sheet debt (current and long-term debt and capital leases) reported at September 30, 2015, was approximately $255.9 million, down from the $296.2 million at December 31, 2014; the decrease was primarily related to the repurchase of a portion of the Company's 1.875% and 1.75% convertible debentures, which was partially offset by the accretion of the equity component on the Company's outstanding convertible debentures. The Company’s total principal debt includes approximately $254.2 million of 1.75% convertible debentures, $0.5 million of 1.875% convertible debentures, less than $0.1 million of financing for a land purchase in 2012 and $1.1 million due under a capital lease. The $254.2 million of 1.75% convertible debentures represents the net discounted value of the 1.75% notes first redeemable in 2019 valued against a borrowing rate of 8.5%; the gross principal amount originally borrowed was $396.75 million. The total gross principal outstanding (before discounts) under the Company's long-term convertible debt obligations was $335.7 million at September 30, 2015.
The Company expects to make cash payments of $2.9 million for interest during the remaining three months of 2015 related to its outstanding debt obligations. The Company made cash payments for interest of $4.0 million for the nine-month period ended September 30, 2015, compared to $4.9 million for the same period of 2014.
The Company has in place a $125.0 million asset-backed revolving credit facility with a group of banks. Net available capacity under the borrowing base was approximately $53.5 million at September 30, 2015, after taking into account $17.5 million utilized for undrawn irrevocable letters of credit under the facility, which reduce available borrowing capacity on a dollar-for-dollar basis.
CONTRACTUAL OBLIGATIONS
The Company's contractual obligations at September 30, 2015, are summarized in Item 7, "Management's Discussion and Analysis - Liquidity and Capital Resources - Contractual Obligations" of the Company's Form 10-K, filed with the Securities and Exchange Commission on February 20, 2015.
During the third quarter of 2015, the Company repurchased $1.7 million principal amount of its 1.875% convertible debentures due 2028 in open market transactions for cash of $1.6 million and $61.6 million principal amount of its 1.75% convertible debentures due 2032 for cash of $59.4 million. The total outstanding convertible debentures obligation (excluding debt discounts) was $335.7 million at September 30, 2015. Refer to "Note 8 - Debt and Capital Lease Obligations," in the consolidated financial statements for a more complete discussion on the repurchase of a portion of the Company's convertible debentures.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
Some statements contained in this report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), and, therefore, involve uncertainties or risks that could cause actual results to differ materially from management's expectations. These statements may contain words such as “believes,” “anticipates,” “plans,” “expects,” “intends,” “hopes,” “estimates,” “forecasts,” “predicts,” “projects,” “future,” “opportunity,” “likely,” “should,” “will,” “will continue,” “may” or similar expressions. Such statements also include, but are not limited to, comments regarding growing profitability; controlling costs; improving the efficiency of our operations; strengthening financial and operating performance; managing the business through volatile metal prices; estimated 2015 production, cash costs per mined ounce, AISC, general and administrative expenses, exploration expense and capital expenditures; potential liabilities and the usefulness of non-GAAP financial measures. The forward-looking statements in this report are based on assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions, expected future developments, and other factors that are deemed appropriate. These statements are not guarantees of the Company’s future performance and are subject to risks, uncertainties and other important factors that could cause its actual performance or achievements to differ materially from those expressed or implied by these forward-looking statements. Additional information regarding factors that could cause results to differ materially from management’s expectations is found in the Company’s Form 10-K (on file with the United States Securities and Exchange Commission, and available on the Company’s website at www.stillwatermining.com).
The Company intends that the forward-looking statements contained in this report be subject to the above-mentioned statutory safe harbors. Investors are cautioned that forward-looking statements are not guarantees of future performance and that actual results of performance may be materially different from those expressed or implied in the forward-looking statements. Investors should not to rely on forward-looking statements. The forward-looking statements in this report speak only as of the filing date of this report. Although the Company may from time to time voluntarily update its forward-looking statements, the Company disclaims any obligation to update forward-looking statements, except as required by applicable securities laws.

40


CRITICAL ACCOUNTING POLICIES
The Company’s critical accounting policies are discussed in detail in the Company’s Form 10-K.

41


KEY OPERATING FACTORS
Stillwater Mining Company
Key Operating Factors
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In thousands, except where noted)
 
2015
 
2014
 
2015
 
2014
OPERATING AND COST DATA FOR MINE PRODUCTION
 
 
 
 
 
 
 
 
Consolidated:
 
 
 
 
 
 
 
 
Ounces produced
 
 
 
 
 
 
 
 
Palladium
 
99

 
95

 
300

 
294

Platinum
 
29

 
28

 
88

 
86

Total
 
128

 
123

 
388

 
380

Tons milled
 
300

 
281

 
907

 
845

Mill head grade (ounce per ton)
 
0.45

 
0.47

 
0.45

 
0.48

Sub-grade tons milled (1)
 
33

 
27

 
88

 
61

Sub-grade tons mill head grade (ounce per ton)
 
0.14

 
0.14

 
0.15

 
0.16

Total tons milled (1)
 
333

 
308

 
995

 
906

Combined mill head grade (ounce per ton)
 
0.42

 
0.44

 
0.43

 
0.46

Total mill recovery (%)
 
92

 
92

 
92

 
92

Total mine concentrate shipped (tons) (3)
 
7,716

 
6,997

 
23,738

 
21,201

Platinum grade in concentrate (ounce per ton) (3)
 
3.93

 
4.11

 
3.89

 
4.44

Palladium grade in concentrate (ounce per ton)  (3)
 
13.18

 
13.95

 
13.05

 
14.59

Total cash costs per ounce - net of credits (Non-GAAP) (2)
 
$
465

 
$
554

 
$
511

 
$
557

Total cash costs per ton milled - net of credits (Non-GAAP) (2)
 
$
179

 
$
221

 
$
199

 
$
234

Stillwater Mine:
 
 
 
 
 
 
 
 
Ounces produced
 
 
 
 
 
 
 
 
Palladium
 
60

 
59

 
183

 
193

Platinum
 
17

 
18

 
54

 
58

Total
 
77

 
77

 
237

 
251

Tons milled
 
160

 
161

 
500

 
506

Mill head grade (ounce per ton)
 
0.50

 
0.51

 
0.49

 
0.53

Sub-grade tons milled (1)
 
22

 
15

 
57

 
28

Sub-grade tons mill head grade (ounce per ton)
 
0.16

 
0.18

 
0.18

 
0.22

Total tons milled (1)
 
182

 
176

 
557

 
534

Combined mill head grade (ounce per ton)
 
0.46

 
0.48

 
0.46

 
0.51

Total mill recovery (%)
 
92

 
92

 
93

 
93

Total mine concentrate shipped (tons) (3)
 
3,858

 
3,694

 
12,563

 
11,838

Platinum grade in concentrate (ounce per ton) (3)
 
4.91

 
5.00

 
4.68

 
5.40

Palladium grade in concentrate (ounce per ton)  (3)
 
16.00

 
16.66

 
15.23

 
17.33

Total cash costs per ounce - net of credits (Non-GAAP) (2)
 
$
441

 
$
570

 
$
507

 
$
550

Total cash costs per ton milled - net of credits (Non-GAAP) (2)
 
$
187

 
$
249

 
$
216

 
$
258







42


Stillwater Mining Company
Key Operating Factors (Continued)
(Unaudited) 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In thousands, except where noted)
 
2015
 
2014
 
2015
 
2014
OPERATING AND COST DATA FOR MINE PRODUCTION
 
 
 
 
 
 
 
 
East Boulder Mine:
 
 
 
 
 
 
 
 
Ounces produced
 
 
 
 
 
 
 
 
Palladium
 
39

 
36

 
117

 
101

Platinum
 
12

 
10

 
34

 
28

Total
 
51

 
46

 
151

 
129

Tons milled
 
140

 
120

 
407

 
339

Mill head grade (ounce per ton)
 
0.40

 
0.42

 
0.40

 
0.42

Sub-grade tons milled (1)
 
11

 
12

 
31

 
33

Sub-grade tons mill head grade (ounce per ton)
 
0.10

 
0.10

 
0.10

 
0.10

Total tons milled (1)
 
151

 
132

 
438

 
372

Combined mill head grade (ounce per ton)
 
0.38

 
0.39

 
0.38

 
0.39

Total mill recovery (%)
 
91

 
91

 
91

 
90

Total mine concentrate shipped (tons) (3)
 
3,858

 
3,303

 
11,175

 
9,363

Platinum grade in concentrate (ounce per ton) (3)
 
2.96

 
3.13

 
3.01

 
3.24

Palladium grade in concentrate (ounce per ton)  (3)
 
10.36

 
10.93

 
10.59

 
11.12

Total cash costs per ounce - net of credits (Non-GAAP) (2)
 
$
500

 
$
527

 
$
517

 
$
572

Total cash costs per ton milled - net of credits (Non-GAAP) (2)
 
$
169

 
$
184

 
$
178

 
$
199

(1)
Sub-grade tons milled includes reef waste material only. Reef waste material is PGM-bearing mined material below the cutoff grade for proven and probable reserves but with sufficient economic value to justify processing it through the concentrator along with the mined ore. Total tons milled includes ore tons and sub-grade tons only. See “Proven and Probable Ore Reserves – Discussion” in the Company’s Form 10-K for further information.
(2)
Total cash costs include total operating costs plus royalties, insurance and taxes other than income taxes. Total cash costs per ounce, net of credits, is a non-GAAP financial measure that management uses to monitor and evaluate the efficiency of its mining operations. This measure of cost is not defined under U.S. Generally Accepted Accounting Principles (GAAP). Please see “Reconciliation of Costs of Revenues to Non-GAAP Financial Measures” and the accompanying discussion for additional detail.
(3)
The concentrate tonnage and grade values are inclusive of periodic re-processing of smelter slag and internal furnace brick PGM bearing materials.


43


Stillwater Mining Company
Key Operating Factors (Continued)
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In thousands, except for average prices)
 
2015
 
2014
 
2015
 
2014
SALES AND PRICE DATA
 
 
 
 
 
 
 
 
Ounces sold
 
 
 
 
 
 
 
 
Mine Production:
 
 
 
 
 
 
 
 
Palladium (oz.)
 
92

 
103

 
302

 
315

Platinum (oz.)
 
25

 
29

 
85

 
93

Total
 
117

 
132

 
387

 
408

PGM Recycling: (1)
 
 
 
 
 
 
 
 
Palladium (oz.)
 
53

 
58

 
137

 
171

Platinum (oz.)
 
30

 
36

 
78

 
103

Rhodium (oz.)
 
6

 
7

 
17

 
22

Total
 
89

 
101

 
232

 
296

Other: (5)
 
 
 
 
 
 
 
 
Palladium (oz.)
 

 
6

 

 
6

By-products from Mine Production: (2)
 
 
 
 
 
 
 
 
Rhodium (oz.)
 
1

 
1

 
3

 
3

Gold (oz.)
 
3

 
3

 
8

 
8

Silver (oz.)
 
2

 
2

 
5

 
5

Copper (lb.)
 
221

 
173

 
744

 
655

Nickel (lb.)
 
342

 
289

 
1,131

 
1,066

Average realized price per ounce (3)
 
 
 
 
 
 
 
 
Mine Production:
 
 
 
 
 
 
 
 
Palladium ($/oz.)
 
$
611

 
$
859

 
$
723

 
$
809

Platinum ($/oz.)
 
$
987

 
$
1,421

 
$
1,107

 
$
1,435

Combined ($/oz) (4)
 
$
693

 
$
983

 
$
807

 
$
951

PGM Recycling: (1)
 
 
 
 
 
 
 
 
Palladium ($/oz.)
 
$
737

 
$
821

 
$
771

 
$
768

Platinum ($/oz.)
 
$
1,111

 
$
1,453

 
$
1,181

 
$
1,431

Rhodium ($/oz)
 
$
1,027

 
$
1,078

 
$
1,130

 
$
1,019

Combined ($/oz) (4)
 
$
881

 
$
1,068

 
$
935

 
$
1,018

Other: (5)
 
 
 
 
 
 
 
 
Palladium ($/oz.)
 
$

 
$
882

 
$

 
$
882

By-products from Mine Production: (2)
 
 
 
 
 
 
 
 
Rhodium ($/oz.)
 
$
808

 
$
1,320

 
$
1,020

 
$
1,167

Gold ($/oz.)
 
$
1,136

 
$
1,266

 
$
1,181

 
$
1,284

Silver ($/oz.)
 
$
15

 
$
19

 
$
16

 
$
20

Copper ($/lb.)
 
$
2.20

 
$
2.96

 
$
2.42

 
$
2.95

Nickel ($/lb.)
 
$
2.92

 
$
6.79

 
$
4.20

 
$
6.83

Average market price per ounce (3)
 
 
 
 
 
 
 
 
Palladium ($/oz.)
 
$
617

 
$
863

 
$
719

 
$
808

Platinum ($/oz.)
 
$
987

 
$
1,435

 
$
1,100

 
$
1,437

Combined ($/oz) (4)
 
$
698

 
$
989

 
$
802

 
$
951


44


(1)
Ounces sold and average realized price per ounce from PGM Recycling relate to ounces produced from processing of spent catalyst from catalytic converters and other industrial sources.
(2)
By-product metals sold reflect contained metal. Realized prices reflect net values (discounted due to product form and transportation and marketing charges) per unit received.
(3)
The Company’s average realized price represents revenues, hedging gains and losses realized on commodity instruments and agreement discounts, divided by ounces sold. The average market price represents the average London market for the actual months of the period.
(4)
The Company reports a combined average realized and market price of palladium and platinum at the same ratio as ounces that are produced from the base metal refinery.
(5)
Ounces sold and average realized price per ounce from Other relate to ounces acquired periodically in the open market and simultaneously resold to third parties.
RECONCILIATION OF COSTS OF REVENUES TO NON-GAAP FINANCIAL MEASURES
The Company utilizes certain non-GAAP financial measures as indicators in assessing the performance of its mining and processing operations during any period. Because of the processing time required to complete the extraction of finished PGM products, there are typically lags of one to three months between ore production and sale of the finished product. Sales in any period include some portion of material mined and processed from prior periods as the revenue recognition process is completed. Consequently, while costs of revenues (a GAAP measure included in the Company’s Consolidated Statements of Comprehensive (Loss) Income) appropriately reflects the expense associated with the materials sold in any period, the Company has developed certain non-GAAP financial measures to assess the costs associated with its producing and processing activities in a particular period and to compare those costs between periods.
While the Company believes that these non-GAAP financial measures may also be of value to outside readers, both as general indicators of the Company’s mining efficiency from period to period and as insight into how the Company internally measures its operating performance, these non-GAAP financial measures are not standardized across the mining industry and in most cases will not be directly comparable to similar measures that may be provided by other companies. These non-GAAP financial measures are only useful as indicators of relative operational performance in any period, and because they do not take into account the inventory timing differences that are included in costs of revenues, they cannot meaningfully be used to develop measures of earnings or profitability. A reconciliation of these measures to costs of revenues, the most comparable measure under GAAP, for each period shown is provided as part of the following tables, and a description of each non-GAAP financial measure is provided below.
Total Consolidated Costs of Revenues: For the Company as a whole, this measure is equal to total costs of revenues, as reported in the Company's Consolidated Statements of Comprehensive (Loss) Income. For the Stillwater Mine, the East Boulder Mine, and other PGM activities, the Company segregates the expenses within total costs of revenues that are directly associated with each of these activities and then allocates the remaining facility costs included in total cost of revenues in proportion to the monthly volumes from each activity. The resulting total costs of revenues measures for the Stillwater Mine, the East Boulder Mine and PGM Recycling and Other are equal, in the aggregate, to total consolidated costs of revenues as reported in the Company’s Consolidated Statements of Comprehensive (Loss) Income.
Total Cash Costs (Non-GAAP): This non-GAAP financial measure is calculated as total costs of revenues adjusted to exclude costs of metals sold from PGM Recycling, depletion and depreciation and amortization for Mine Production and PGM Recycling, asset retirement costs, and timing differences resulting from changes in product inventories to arrive at Total Cash Costs before by-product and recycling credits. From this calculation, the Company deducts by-product and recycling income credits to arrive at Total Cash Costs, net of by-product and recycling credits. Total Cash Costs is a measure of extraction efficiency. The Company uses this measure as a comparative indication of the cash costs related to production and processing in its mining operations in any period.
When divided by the total tons milled in the respective period, Total Cash Costs per Ton Milled (Non-GAAP), measured for each mine or combined, provides an indication of the level of cash costs incurred per ton milled in that period. Because of variability of ore grade in the Company’s mining operations, production efficiency underground is frequently measured against ore tons produced rather than contained PGM ounces. Because ore tons are first weighed as they are fed into the mill, mill feed is the first point at which production tons are measured precisely. Consequently, Total Cash Costs per Ton Milled (Non-GAAP) is a general measure of production efficiency, and is affected both by the level of Total Cash Costs (Non-GAAP) and by the volume of tons produced and fed to the mill.

45


When divided by the total recoverable PGM ounces from production in the respective period, Total Cash Costs per Ounce (Non-GAAP), measured for each mine or combined, provides an indication of the level of cash costs incurred per PGM ounce produced in that period. Recoverable PGM ounces from production are an indication of the amount of PGM product extracted through mining in any period. Because ultimately extracting PGM material is the objective of mining, the cash cost per ounce of extracting and processing PGM ounces in a period is a useful measure for comparing extraction efficiency between periods and between the Company’s mines. Consequently, Total Cash Costs per Ounce (Non-GAAP) in any period is a general measure of extraction efficiency, and is affected by the level of Total Cash Costs (Non-GAAP), by the grade of the ore produced and by the volume of ore produced in the period.
Stillwater Mining Company
Reconciliation of Costs of Revenues to Non-GAAP Financial Measures
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In thousands, except per ounce and per ton data)
 
2015
 
2014
 
2015
 
2014
Consolidated:
 
 
 
 
 
 
 
 
Reconciliation from costs of revenues:
 
 
 
 
 
 
 
 
Total costs of revenues
 
$
163,294

 
$
214,500

 
$
495,431

 
$
605,994

Costs of metals sold
 
 
 
 
 
 
 
 
   PGM Recycling
 
(78,928
)
 
(106,801
)
 
(216,074
)
 
(297,773
)
Depletion, depreciation and amortization
 
 
 
 
 
 
 
 
   Mine Production
 
(15,132
)
 
(16,923
)
 
(48,943
)
 
(49,373
)
   PGM Recycling
 
(230
)
 
(258
)
 
(738
)
 
(761
)
Depletion, depreciation and amortization (in inventory)
 
(813
)
 
1,508

 
1,063

 
1,848

Change in product inventories
 
(241
)
 
(13,686
)
 
(5,735
)
 
(16,090
)
Asset retirement costs
 
(202
)
 
(184
)
 
(589
)
 
(554
)
Total cash costs, before by-product and recycling credits (Non-GAAP)
 
$
67,748

 
$
78,156

 
$
224,415

 
$
243,291

By-product credit
 
(5,004
)
 
(6,929
)
 
(18,663
)
 
(22,238
)
Recycling income credit
 
(3,261
)
 
(3,114
)
 
(7,424
)
 
(9,207
)
Total cash costs, net of by-product and recycling credits (Non-GAAP)
 
$
59,483

 
$
68,113

 
$
198,328

 
$
211,846

 
 
 
 
 
 
 
 
 
Divided by platinum/palladium ounces produced
 
128

 
123

 
388

 
380

 
 
 
 
 
 
 
 
 
Total cash costs, before by-product and recycling credits, per ounce Pt/Pd produced (Non-GAAP)
 
$
529

 
$
635

 
$
578

 
$
640

By-product credit per mined ounce produced
 
(39
)
 
(56
)
 
(48
)
 
(59
)
Recycling income credit per mined ounce produced
 
(25
)
 
(25
)
 
(19
)
 
(24
)
Total cash costs, net of by-product and recycling credits, per mined ounce produced (Non-GAAP)
 
$
465

 
$
554

 
$
511

 
$
557

 
 
 
 
 
 
 
 
 
Divided by ore tons milled
 
333

 
308

 
995

 
906

 
 
 
 
 
 
 
 
 
Total cash costs, before by-product and recycling credits, per ore ton milled (Non-GAAP)
 
$
204

 
$
253

 
$
225

 
$
269

By-product credit per ore ton milled
 
(15
)
 
(22
)
 
(19
)
 
(25
)
Recycling income credit per ore ton milled
 
(10
)
 
(10
)
 
(7
)
 
(10
)
Total cash costs, net of by-product and recycling credits, per ore ton milled (Non-GAAP)
 
$
179

 
$
221

 
$
199

 
$
234


46


Stillwater Mining Company
Reconciliation of Costs of Revenues to Non-GAAP Financial Measures (Continued)
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In thousands, except per ounce and per ton data)
 
2015
 
2014
 
2015
 
2014
Stillwater Mine:
 
 
 
 
 
 
 
 
Reconciliation from costs of revenues:
 
 
 
 
 
 
 
 
Total costs of revenues
 
$
50,926

 
$
67,367

 
$
174,656

 
$
202,449

Depletion, depreciation and amortization
 
 
 
 
 
 
 
 
   Mine Production
 
(10,636
)
 
(12,273
)
 
(34,603
)
 
(36,934
)
Depletion, depreciation and amortization (in inventory)
 
(443
)
 
1,386

 
770

 
2,207

Change in product inventories
 
(1,133
)
 
(6,753
)
 
(5,274
)
 
(10,482
)
Asset retirement costs
 
(194
)
 
(175
)
 
(564
)
 
(520
)
Total cash costs, before by-product and recycling credits (Non-GAAP)
 
$
38,520

 
$
49,552

 
$
134,985

 
$
156,720

By-product credit
 
(2,599
)
 
(3,812
)
 
(10,131
)
 
(12,854
)
Recycling income credit
 
(1,939
)
 
(1,944
)
 
(4,479
)
 
(6,067
)
Total cash costs, net of by-product and recycling credits (Non-GAAP)
 
$
33,982

 
$
43,796

 
$
120,375

 
$
137,799

 
 
 
 
 
 
 
 
 
Divided by platinum/palladium ounces produced
 
77

 
77

 
237

 
251

 
 
 
 
 
 
 
 
 
Total cash costs, before by-product and recycling credits, per ounce Pt/Pd produced (Non-GAAP)
 
$
500

 
$
645

 
$
569

 
$
625

By-product credit per mined ounce produced
 
(34
)
 
(50
)
 
(43
)
 
(51
)
Recycling income credit per mined ounce produced
 
(25
)
 
(25
)
 
(19
)
 
(24
)
Total cash costs, net of by-product and recycling credits, per mined ounce produced (Non-GAAP)
 
$
441

 
$
570

 
$
507

 
$
550

 
 
 
 
 
 
 
 
 
Divided by ore tons milled
 
182

 
176

 
557

 
534

 
 
 
 
 
 
 
 
 
Total cash costs, before by-product and recycling credits, per ore ton milled (Non-GAAP)
 
$
212

 
$
282

 
$
242

 
$
293

By-product credit per ore ton milled
 
(14
)
 
(22
)
 
(18
)
 
(24
)
Recycling income credit per ore ton milled
 
(11
)
 
(11
)
 
(8
)
 
(11
)
Total cash costs, net of by-product and recycling credits, per ore ton milled (Non-GAAP)
 
$
187

 
$
249

 
$
216

 
$
258


47


Stillwater Mining Company
Reconciliation of Costs of Revenues to Non-GAAP Financial Measures (Continued)
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In thousands, except per ounce and per ton data)
 
2015
 
2014
 
2015
 
2014
East Boulder Mine:
 
 
 
 
 
 
 
 
Reconciliation from costs of revenues:
 
 
 
 
 
 
 
 
Total costs of revenues
 
$
33,210

 
$
34,796

 
$
103,963

 
$
99,654

Depletion, depreciation and amortization
 
 
 
 
 
 
 
 
   Mine Production
 
(4,496
)
 
(4,650
)
 
(14,340
)
 
(12,439
)
Depletion, depreciation and amortization (in inventory)
 
(370
)
 
122

 
293

 
(359
)
Change in product inventories
 
892

 
(1,655
)
 
(461
)
 
(251
)
Asset retirement costs
 
(8
)
 
(9
)
 
(25
)
 
(34
)
Total cash costs, before by-product and recycling credits (Non-GAAP)
 
$
29,228

 
$
28,604

 
$
89,430

 
$
86,571

By-product credit
 
(2,405
)
 
(3,117
)
 
(8,532
)
 
(9,384
)
Recycling income credit
 
(1,322
)
 
(1,170
)
 
(2,945
)
 
(3,140
)
Total cash costs, net of by-product and recycling credits (Non-GAAP)
 
$
25,501

 
$
24,317

 
$
77,953

 
$
74,047

 
 
 
 
 
 
 
 
 
Divided by platinum/palladium ounces produced
 
51

 
46

 
151

 
129

 
 
 
 
 
 
 
 
 
Total cash costs, before by-product and recycling credits, per ounce Pt/Pd produced (Non-GAAP)
 
$
573

 
$
620

 
$
594

 
$
668

By-product credit per mined ounce produced
 
(47
)
 
(68
)
 
(57
)
 
(72
)
Recycling income credit per mined ounce produced
 
(26
)
 
(25
)
 
(20
)
 
(24
)
Total cash costs, net of by-product and recycling credits, per mined ounce produced (Non-GAAP)
 
$
500

 
$
527

 
$
517

 
$
572

 
 
 
 
 
 
 
 
 
Divided by ore tons milled
 
151

 
132

 
438

 
372

 
 
 
 
 
 
 
 
 
Total cash costs, before by-product and recycling credits, per ore ton milled (Non-GAAP)
 
$
194

 
$
217

 
$
204

 
$
232

By-product credit per ore ton milled
 
(16
)
 
(24
)
 
(19
)
 
(25
)
Recycling income credit per ore ton milled
 
(9
)
 
(9
)
 
(7
)
 
(8
)
Total cash costs, net of by-product and recycling credits, per ore ton milled (Non-GAAP)
 
$
169

 
$
184

 
$
178

 
$
199

 
 
 
 
 
 
 
 
 
PGM Recycling and Other: (1)
 
 
 
 
 
 
 
 
Cost of open market acquisitions
 
$

 
$
(5,278
)
 
$

 
$
(5,357
)
Cost of metals sold
 
 
 
 
 
 
 
 
   PGM Recycling
 
(78,928
)
 
(106,801
)
 
(216,074
)
 
(297,773
)
Depletion, depreciation and amortization
 
 
 
 
 
 
 
 
   PGM Recycling
 
(230
)
 
(258
)
 
(738
)
 
(761
)
Total costs of revenues
 
$
(79,158
)
 
$
(112,337
)
 
$
(216,812
)
 
$
(293,177
)
(1) PGM Recycling and Other include PGM recycling and metal acquired periodically in the open market and simultaneously resold to third parties.

48


All-In Sustaining Costs (Non-GAAP): This non-GAAP financial measure is used as an indicator from period to period of the level of total cash required by the Company to maintain and operate the existing mines, including corporate administrative costs and replacement capital. The measure is calculated beginning with total cash costs, net of by-product and recycling credits (another non-GAAP financial measure, described above), and adding to it the recycling income credit, domestic corporate overhead and marketing costs (excluding any depreciation, research and development, and reorganization costs included in corporate overhead costs) and that portion of total capital expenditures associated with sustaining the current level of mining operations. (capital expenditures for Blitz, Graham Creek and certain other one-time projects are not included in the calculation).
When divided by the total recoverable PGM ounces in the respective period, All-In Sustaining Costs per Mined Ounce (Non-GAAP) provides an indication of the level of total cash required to maintain and operate the mines per PGM ounce produced in the period. Recoverable PGM ounces from production are an indication of the amount of PGM product extracted through mining in any period. Because the objective of PGM mining activity is to extract PGM material, the all-in cash costs per ounce to produce PGM material, administer the business and sustain the operating capacity of the mines is a useful measure for comparing overall extraction efficiency between periods. This measure is affected by the total level of spending in the period and by the grade and volume of mined ore produced.
All-In Sustaining Costs (Non-GAAP Financial Measure)
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In thousands, except $/oz.)
 
2015
 
2014
 
2015
 
2014
All-In Sustaining Costs
 
 
 
 
 
 
 
 
Total cash costs net of by-product and recycling credits (Non-GAAP)
 
$
59,483

 
$
68,113

 
$
198,328

 
$
211,846

Recycling income credit
 
3,261

 
3,114

 
7,424

 
9,207

 
 
$
62,744

 
$
71,227

 
$
205,752

 
$
221,053

 
 
 
 
 
 
 
 
 
Consolidated Corporate General & Administrative costs *
 
$
8,911

 
$
10,051

 
$
27,652

 
$
28,017

Corporate depreciation and R&D included in Consolidated Corporate General & Administrative costs
 
(125
)
 
(109
)
 
(377
)
 
(364
)
General & Administrative Costs - Foreign Subsidiaries
 
(375
)
 
(811
)
 
(1,244
)
 
(3,122
)
 
 
$
8,411

 
$
9,131

 
$
26,031

 
$
24,531

 
 
 
 
 
 
 
 
 
Total capitalized costs
 
$
27,142

 
$
36,545

 
$
88,319

 
$
93,695

Capital associated with expansion
 
(11,610
)
 
(13,978
)
 
(31,953
)
 
(33,246
)
Total Capital incurred to sustain existing operations
 
$
15,532

 
$
22,567

 
$
56,366

 
$
60,449

 
 
 
 
 
 
 
 
 
All-In Sustaining Costs (Non-GAAP)
 
$
86,687

 
$
102,925

 
$
288,149

 
$
306,033

 
 
 
 
 
 
 
 
 
Mined ounces produced
 
128.0

 
123.0

 
388.3

 
380.1

 
 
 
 
 
 
 
 
 
All-In Sustaining Costs per Mined Ounce ($/oz.) (Non-GAAP)
 
$
677

 
$
837

 
$
742

 
$
805

For a full description and reconciliation of this non-GAAP financial measure to a GAAP financial measure, see Reconciliation of Costs of Revenues to Non-GAAP Financial Measures section.
* Consolidated Corporate General & Administrative costs (three-month and nine-month periods ended September 30, 2014) have been restated to conform with current year presentation.


49


ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, including the effects of adverse changes in metal prices, interest rates and foreign currencies as discussed below.
COMMODITY PRICE RISK
The Company sells its mined palladium, platinum and associated by-product metals to its customers at prices approximating current market prices. As a result, the Company's financial performance is sensitive to fluctuations in the market prices for these materials. In order to ensure demand for its products persists throughout pricing cycles, the Company has entered into supply agreements with customers covering sales of its mine production. The Company also attempts to maintain adequate liquidity on hand and in undrawn credit facilities to sustain its operations through downturns in PGM prices.
In its PGM recycling activities, the Company customarily enters into fixed forward sales to mitigate its pricing exposure. The terms of a fixed forward sales transaction commit the Company to deliver a specified number of metal ounces on a particular future date at a stipulated price. At the time it enters into the forward sales commitment, the Company also utilizes the price offered in the forward markets to determine the price it is willing to pay to purchase the recycled materials. Because the forward price is used simultaneously to determine both the acquisition price and the ultimate selling price of the recycled ounces, this arrangement significantly reduces the Company's exposure to PGM price volatility in its recycling activities. The Company believes such transactions qualify for the normal purchase / normal sale exception to derivative accounting treatment and so does not account for these transactions as derivatives. For further information regarding the Company's fixed forward contracts, see "Note 5 - Derivative Instruments" in the notes to the Company's consolidated financial statements included in this document.
INTEREST RATE RISK
At September 30, 2015, all of the Company’s outstanding long-term debt obligations bore fixed rates of interest that are not subject to adjustment as current market interest rates change. Financing income earned on advance payments the Company makes to its recycling suppliers is generally linked to short-term inter-bank rates, which do fluctuate with market interest rates. Undrawn letters of credit issued under the Company's revolving credit facility carry a fixed contractual rate of interest, although any cash borrowings against the facility would be subject to a floating interest rate. There were no such cash borrowings outstanding at September 30, 2015 and 2014.
The Company’s convertible debentures do not contain financial covenants. The Company’s asset-backed revolving credit facility includes a single fixed-charge coverage covenant that only takes effect when less than 30% of the total borrowing capacity under the line remains available. Because there are currently no cash borrowings under the asset-backed revolving credit facility, the Company is not constrained by these financial covenants at this time. The Company projects that the total cash cost to service its debt in the last quarter of 2015, including payments of principal and interest, will be approximately $3.5 million. The Company believes it has adequate liquidity available to meet its outstanding debt service obligations, both currently and in the future.
The Company customarily invests its excess cash balances in short-term instruments, which it classifies as "available-for-sale." The Company prioritizes its objectives for these investments in order of (1) preservation of principal, (2) maintenance of liquidity, and (3) return on investment, with the first two objectives taking precedence. In the current low interest rate environment, the Company has determined to restrict its investment of these cash balances to instruments backed by the full faith and credit of the United States government. Although this should adequately secure the invested principal, there can be no guarantee that future changes in interest rates or other market disruptions will not have a negative effect on the value and liquidity of investments made by the Company.
The Company is indirectly exposed to interest rate risk to the extent changes in interest rates may affect the value of its products. Historically, periods of low U.S. dollar interest rates have tended to benefit precious metal prices, as the opportunity cost to investors of foregoing interest on other types of investments is correspondingly reduced. Precious metals also may benefit as a perceived store of value during periods when high U.S. dollar interest rates reflect significant inflationary risk. However, to the extent attractive or rising U.S. dollar interest rates tend to strengthen the U.S. currency in relation to other major currencies, higher interest rates can tend to weaken precious metal prices in U.S. dollar terms and so reduce the prices the Company receives for its products.

50


FOREIGN CURRENCY RISK
The Company has some nominal exposure to Canadian, Argentine and other foreign currencies. These exposures currently are limited to foreign cash deposits and expenses incurred for the services of foreign-based employees and contractors, along with some associated support costs. The Company does not specifically hedge this exposure.
For the third quarter of 2015, the Company experienced a foreign currency transaction gain of less than $0.1 million which was attributable to the Argentine peso stabilizing during the period. During the third quarter of 2014, the Company recorded a foreign currency transaction gain of $0.2 million on peso-denominated deferred tax balances recorded in conjunction with the acquisition of Peregrine Metals Ltd., the Company's Argentine subsidiary.
ITEM 4
CONTROLS AND PROCEDURES
(a)
Disclosure Controls and Procedures.
The Company’s management, with the participation of the Company’s President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s President and Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.
In designing and evaluating the Company’s disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and well operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, the Company’s management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The Company also designed disclosure controls and procedures based in part upon assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
(b)
Internal Control Over Financial Reporting.
In reviewing internal control over financial reporting based upon the framework in Internal Control Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) at September 30, 2015, management determined that during the third quarter of 2015 there have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

51


PART II – OTHER INFORMATION
ITEM 1
LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the ordinary course of business, primarily consisting of employee lawsuits and employee injury claims. In the opinion of management, the ultimate disposition of these types of matters is not expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.
ITEM 1A
RISK FACTORS
The Company filed its Form 10-K with the Securities and Exchange Commission on February 20, 2015, which sets forth certain risk factors associated with the Company in Item 1A, Risk Factors therein. As a result of a subsequent development, the Company has expanded its discussion of risk factors to include the following:
Certain participants in the Company’s 401(k) plan may have rescission rights with respect to shares of the Company’s common stock purchased by such participants.
In October 2015, the Company learned that transactions in Stillwater Common Stock in the Stillwater Mining Company 401(k) Plan and the Stillwater Mining Company Bargaining Unit 401(k) Plan (together, the “401(k) Plans”) may have exceeded the number of shares the Company had registered with the SEC on Form S-8 for such transactions and may not have qualified for an available exemption from registration requirements. Transactions in Stillwater Common Stock in the 401(k) Plans include: (i) initial investment of salary reduction contributions from employees, (ii) fixed matching source funds from Stillwater and (iii) intra-plan transfers of funds by participants out of other investments into Stillwater Common Stock. In addition, the Company inadvertently failed to deliver certain disclosures required to be delivered to participants in its 401(k) Plans. At October 1, 2015, the Company has frozen Stillwater Common Stock as an investment option under the 401(k) Plans, and eliminated it as a means of funding the employer matching contribution under the 401(k) Plans.
Federal securities laws generally provide for a one-year rescission right for an investor who acquires unregistered securities in a transaction that is subject to registration and for which no exemption was available. As such, an investor successfully asserting a rescission right during the one-year time period has the right to require an issuer to repurchase the securities acquired by the investor at the price paid by the investor for the securities (or if such security has been disposed of, to receive damages with respect to any loss on such disposition), plus interest from the date of acquisition. These rights may apply to certain participants in the 401(k) Plans and the Company may incur liability to participants in the 401(k) Plans. Based on the Company’s current stock price, the Company believes that its current potential liability for rescission claims is not material to the Company’s financial condition, results of operations or cash flows; however, the Company’s potential liability could become material in the future if the Company’s stock price were to fall significantly during the one-year period following the unregistered acquisitions. The Company is currently exploring various options to limit this potential liability.
The collective bargaining agreement covering employees located at the Stillwater Mine and the Columbus processing facilities has expired.
The Company's represented workforce is covered under two separate collective bargaining agreements. One of these agreements, covering employees located at the Stillwater Mine and the Company's processing facilities in Columbus, expired on June 12, 2015. Following the expiration of this agreement, employees located at these sites voted twice, and twice rejected, a tentative labor agreement reached on May 27, 2015 that was recommended by the United Steel Workers (USW) International Union Local 11-0001. Following the votes, employees continued to work under the terms of the previously expired contract. On July 30, 2015, the Company notified the union that negotiations had reached an impasse and that it would implement its last, best and final contract offer, which is the same agreement previously rejected by the represented employees. The Company implemented the new agreement on September 1, 2015, which included:
no increase in base wages for each of the first two years of the agreement; and
simplification of the incentive program and the introduction of metrics in the incentive program that align employee activities and shareholder outcomes.

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While no work stoppage has occurred, the Company has an increased risk of a temporary work stoppage at these locations until a new contract is ratified. The second agreement, covering employees at the East Boulder Mine, expires on December 31, 2015. While the Company focuses on maintaining positive relationships with its represented employees and their respective unions, any labor disputes or disruptions, such as strikes, work stoppages or slowdowns, could have a significant adverse effect on the Company. The associated loss of production and resulting revenues for even a short time could have a material adverse effect on the Company’s financial results.
Additionally, if the Company enters into a new labor agreement with any union that significantly increases the Company's labor costs relative to its competitors, the Company’s ability to compete may be materially and adversely affected.
ITEM 2
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In October 2015, the Company learned that transactions in Stillwater Common Stock in the Stillwater Mining Company 401(k) Plan and the Stillwater Mining Company Bargaining Unit 401(k) Plan (together, the “401(k) Plans”) may have exceeded the number of shares the Company had registered with the SEC on Form S-8 for such transactions and may not have qualified for an available exemption from registration requirements. Transactions in Stillwater Common Stock in the 401(k) Plans include: (i) initial investment of salary reduction contributions from employees, (ii) fixed matching source funds from Stillwater and (iii) intra-plan transfers of funds by participants out of other investments into Stillwater Common Stock. In addition, the Company inadvertently failed to deliver certain disclosures required to be delivered to participants in its 401(k) Plans. At October 1, 2015, the Company has frozen Stillwater Common Stock as an investment option under the 401(k) Plans, and eliminated it as a means of funding the employer matching contribution under the 401(k) Plans.
Federal securities laws generally provide for a one-year rescission right for an investor who acquires unregistered securities in a transaction that is subject to registration and for which no exemption was available. As such, an investor successfully asserting a rescission right during the one-year time period has the right to require an issuer to repurchase the securities acquired by the investor at the price paid by the investor for the securities (or if such security has been disposed of, to receive damages with respect to any loss on such disposition), plus interest from the date of acquisition. These rights may apply to certain participants in the 401(k) Plans and the Company may incur liability to participants in the 401(k) Plans. Based on the Company’s current stock price, the Company believes that its current potential liability for rescission claims is not material to the Company’s financial condition, results of operations or cash flows; however, the Company’s potential liability could become material in the future if the Company stock price were to fall significantly during the one-year period following the unregistered acquisitions. The Company is currently exploring various options to limit this potential liability.
ITEM 4
MINE SAFETY DISCLOSURES
Valuing the people in the Company's workforce means being committed to their safety and well-being at all times. The Company's goal is that “Everyone Goes Home Safe - Every Day”. The Company's Safety & Health Management System, G.E.T. Safe, promotes a safety culture based on safety leadership and teamwork to improve safety performance. G.E.T. Safe includes incidence tracking and analysis, near miss reporting, hazard recognition, workplace inspections, pre-operational equipment inspections, team safety meetings, annual refresher training, task training, standard operating procedures training, safety sweeps, audits, stand-downs and employee engagement activities focused on working safely. The Company works closely with Mine Safety and Health Administration (MSHA) inspectors to act on their findings and incorporate their suggestions. Management also strives to maintain a consistent “tone at the top” that working safely every day is paramount to the overall success of the Company.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), each operator of a coal or other mine is required to include certain mine safety results within its periodic reports filed with the Securities and Exchange Commission. In accordance with the reporting requirements included in Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K (17 CFR 229.104), the required mine safety results regarding certain mining safety and health matters for each of the Company’s mine locations that are covered under the scope of the Dodd-Frank Act are included in Exhibit 95 - Mine Safety Disclosures of the Company's Form 10-K. In the third quarter of 2015, the Company received a total of 15 violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a coal or other mine safety or health hazard under Section 104 of the Federal Mine Safety and Health Act. See Exhibit 95 - Mine Safety Disclosures of this Quarterly Report on Form 10-Q for more information.

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ITEM 6
EXHIBITS
See attached exhibit index, which is incorporated by reference herein.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
STILLWATER MINING COMPANY
 
 
 
 
 
(Registrant)
 
 
 
 
 
 
Date:
October 30, 2015
 
 
 
 
 
 
 
By:
 
/s/ Michael J. McMullen
 
 
 
 
 
Michael J. McMullen
 
 
 
 
 
President and Chief Executive Officer
 
 
 
 
 
 
 
 
 
 
 
 
Date:
October 30, 2015
 
 
 
 
 
 
 
By:
 
/s/ Christopher M. Bateman
 
 
 
 
 
Christopher M. Bateman
 
 
 
 
 
Chief Financial Officer
 
 
 
 
 
 

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EXHIBITS
Number
 
Description
 
 
 
3.1

 
Restated Certificate of Incorporation of Stillwater Mining Company, dated October 23, 2003 (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 10-Q for the quarterly period ended September 30, 2003, filed on October 27, 2003).
 
 
3.2

 
Amended and Restated By-Laws of Stillwater Mining Company, as amended, dated May 21, 2013 (incorporated by reference to Exhibit 3.2 to the Registrant's Current Report on Form 8-K filed on May 22, 2013).
 
 
 
31.1

 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 (filed herewith).
 
 
31.2

 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 (filed herewith).
 
 
32.1

 
Section 1350 Certification (filed herewith).
 
 
32.2

 
Section 1350 Certification (filed herewith).
 
 
95.0

 
Mine Safety Disclosures
 
 
101.INS

 
XBRL Instance Document
 
 
 
101.SCH

 
XBRL Schema Document
 
 
 
101.CAL

 
XBRL Calculation Linkbase Document
 
 
 
101.DEF

 
XBRL Definition Linkbase Document
 
 
 
101.LAB

 
XBRL Labels Linkbase Document
 
 
 
101.PRE

 
XBRL Presentation Linkbase Document

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