-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SnkDhcG5X7CAHee9qza6WbUdDPIHkm7vpTDdgqxt/H0zZrHEkmmkHv3wRCis/g9Z Nb7f7udP90aZeuVnUWJZpg== 0000927356-98-000499.txt : 19980401 0000927356-98-000499.hdr.sgml : 19980401 ACCESSION NUMBER: 0000927356-98-000499 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: STILLWATER MINING CO /DE/ CENTRAL INDEX KEY: 0000931948 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS METAL ORES [1090] IRS NUMBER: 810480654 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13053 FILM NUMBER: 98582669 BUSINESS ADDRESS: STREET 1: 536 E PIKE AVENUE STREET 2: P O BOX 1330 CITY: COLUMBUS STATE: MT ZIP: 59019 BUSINESS PHONE: 3039782525 MAIL ADDRESS: STREET 1: 536 E PIKE AVENUE STREET 2: P O BOX 1330 CITY: COLUMBUS STATE: MT ZIP: 59019 10-K405 1 FORM 10-K405 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1997. [_] 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 0-25090 STILLWATER MINING COMPANY (Exact name of registrant as specified in its charter) Delaware 81-0480654 -------- ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 717 Seventeenth Street, Suite 1480, Denver, CO 80202 ----------------------------------------------------- (Address of principal executive offices and zip code) (303) 978-2525 ---------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common stock, $.01 par value The American Stock Exchange Preferred Stock Purchase Rights The American Stock Exchange 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. [X] YES [_] NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 2, 1998, assuming a price of $21.50 per share, the closing sale price on the American Stock Exchange, the aggregate market value of shares of voting and non-voting common equity held by non-affiliates was approximately $438,179,611. As of March 2, 1998, the Company had outstanding 20,380,447 shares of common stock, $.01 par value. Documents Incorporated by Reference: Part III, Items 10, 11, 12 and 13 incorporate by reference portions of Stillwater Mining Company's Proxy Statement for the registrant's 1998 Annual Meeting of Stockholders. TABLE OF CONTENTS ----------------- PART I Items 1 and 2 BUSINESS AND PROPERTIES 1 Item 3 LEGAL PROCEEDINGS 19 Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 19 PART II Item 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 20 Item 6 SELECTED FINANCIAL DATA 21 Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 23 Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 29 Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 49 PART III Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 49 Item 11 EXECUTIVE COMPENSATION 49 Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 49 Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 49 PART IV Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 50 ITEMS 1 AND 2 BUSINESS AND PROPERTIES ----------------------- INTRODUCTION AND 1997 HIGHLIGHTS Stillwater Mining Company (the "Company"), a Delaware corporation, is engaged in the exploration, development, extraction, processing and refining of platinum, palladium and associated metals from the J-M Reef located in Stillwater and Sweet Grass Counties, Montana. Associated by-product metals include rhodium, gold, nickel and copper. The Company conducts its current mining operations at the Stillwater Mine, in Nye, Montana. Future expansion is planned at the East Boulder site, located at the western end of the J-M Reef. The J-M Reef is the only significant source of platinum group metals ("PGMs") outside the Republic of South Africa and Russia. The J-M Reef is an extensive mineralized zone containing PGMs, which has been traced over a strike length of approximately 28 miles and which extends downward over one mile to unknown depths. The Company holds the rights to claims covering substantially all of the presently identified PGM mineralized zone of the J-M Reef. At December 31, 1997, the Company had proven and probable reserves of approximately 29.5 million tons of ore with approximately 23.4 million contained ounces of platinum and palladium in a ratio of approximately 3.3 parts palladium to one part platinum. Highlights of the 1997 year included: . Production increased to 355,000 ounces of platinum and palladium in 1997 from 255,000 ounces in 1996. . Cash costs per ounce produced decreased to $174 in 1997 from $184 in 1996, and total costs per ounce produced decreased to $207 in 1997 from $219 in 1996. . Recovery rates improved to 89% in 1997 from 88% in 1996, and mining dilution was reduced to 25% in 1997 from 40% in 1996. . Mechanized mining increased to 80% in 1997 from 60% in 1996, and tons mined increased to 580,000 in 1997 from 424,000 in 1996. . The Company completed the expansion plan (the "Expansion Plan") begun in 1994 designed to double output from 1,000 tons per day (TPD) to 2,000 TPD. The production rate goal was reached in the fourth quarter of 1997 when the Company's mine production reached 2,000 TPD, a 46% increase over mine production in the fourth quarter of 1996. . Other key elements of the Expansion Plan were also completed during the year, including the commissioning of the 1,950-foot vertical production shaft to improve ore haulage, construction of an underground crushing system, increasing capacity in the concentrator facility and smelter modifications. 1 . Revenues increased to $76.9 million in 1997 compared to $56.2 million in 1996, but the Company had a net loss of $5.4 million in 1997 compared to a net loss of $2.8 million in 1996. The Company's profitability was adversely affected by hedging positions that resulted in realization of below market prices for platinum of $388 per ounce and palladium of $144 per ounce. The average market prices for these metals in 1997 were $395 and $178 per ounce, respectively. . The Company recently announced a long term goal to triple production over the next five years. The key elements are to complete a second expansion of at the Stillwater Mine and to develop the East Boulder Project. A feasibility study is underway to determine the optimum level of production at the Stillwater Mine, and in November 1997 the Company made the decision to resume the East Boulder Project. The Company plans to drive an 18,500 foot tunnel into the western section of the J-M Reef and complete a feasibility study and cost estimate for the East Boulder Project. For further discussion of these matters and certain associated risks, see "Business and Properties--Current Operations", "--Future Expansion", and "--Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations". HISTORY OF THE COMPANY Platinum and palladium were discovered in the J-M Reef by Manville Corporation ("Manville") geologists in the early 1970s. In 1979, a Manville subsidiary entered into a joint venture agreement with Chevron U.S.A. Inc. ("Chevron") to develop PGMs discovered in the J-M Reef. Manville and Chevron explored and developed the Stillwater property and commenced underground mining in 1986. 2 In 1992, the Company was incorporated and on October 1, 1993, Chevron and Manville transferred substantially all assets, liabilities and operations at Stillwater to the Company, with Chevron and Manville each receiving a 50% ownership interest in the Company's stock. In September 1994, the Company redeemed Chevron's entire 50% ownership. The Company completed its initial public offering in December 1994, and Manville also sold shares reducing its record ownership percentage to approximately 27%. In August 1995, Manville sold its remaining ownership interest in the Company to institutional investors. The Company's common stock is publicly traded on the American Stock Exchange under the symbol "SWC." GEOLOGY OF THE J-M REEF The J-M Reef is located in the Beartooth Mountains in southern Montana. It is situated along the northern edge of the Beartooth Plateau, which rises to elevations of over 10,000 feet in places within the reef. This plateau is deeply dissected by several rivers and their tributaries including the Stillwater River, towards the eastern end and the Boulder River, near the western end of the reef. Both of these rivers have eroded their valley floors resulting in deep valleys cut into the gently undulating elevated plateau. Geologically, the J-M Reef is composed of an assemblage of basic and ultrabasic rocks derived from a single, large, buried magma body emplaced an estimated 2.7 billion years ago. The molten rock was sufficiently fluid at the time of emplacement to allow individual minerals to crystallize sequentially, the heavier, more basic, darker minerals crystallizing first, sinking towards the bottom, and leaving the lighter, more siliceous light-colored minerals to crystallize out later to produce bands of norite, gabbro and anorthosite which can be traced across most of the strike length of the complex. Over time the original horizontal orientation of the reef was changed as the reef was tilted at an angle of 50 to 90 degrees to the north. The upper portion of the reef was eroded away to produce the essentially lenticular-shaped exposure of the reef evident today, which has been identified for 28 miles in an east-southeasterly direction and has a maximum width of nearly 4.5 miles near the East Boulder valley. The PGMs, consisting of platinum, palladium and a small amount of rhodium, along with small amounts of nickel, copper and gold, are concentrated in one principal layer. The J-M Reef appears to form a continuous layer which is exposed from the highest ridges over 9,500 feet above sea level to the deepest valleys almost a mile below the surface of the plateau. The zone of mineralization has also been intersected in a drill hole at an elevation of 3,020 feet above sea level demonstrating vertical continuity exceeding 6,000 feet. Geological and geophysical evidence suggests that the J-M Reef extends downward beyond the limits of currently available mining practice. Geological mapping and gravity surveys also suggest that the dip of the J-M Reef flattens gently and may extend 30 miles or more to the north. The J-M Reef is similar to South Africa's Bushveld Complex which contains the well-known platiniferous Merensky Reef which is currently mined in many localities. The in situ PGM grade of the J-M Reef is significantly higher than that of the Merensky Reef and its economically recoverable portion is significantly thicker, making the J-M Reef generally amenable to a wider variety of gravity assisted, mechanized mining methods. The Merensky Reef, however, has a substantially longer surface strike length compared to the known 28-mile strike length of the J-M Reef. The Company believes that the J-M Reef constitutes a qualifying lode or vein for purposes of the General Mining Law of 1872, as amended (the "General Mining Law"), but is not aware of any administrative or legal determination on this point. The Company is not relying solely on down dip (or "extralateral") rights to secure possession of the J-M Reef, but has the rights to mining claims vertically overlying the portions of the down dip extensions needed for mining in the foreseeable future. See "--Mining Claims". 3 PGM ORE RESERVES The following table sets forth the Company's proven and probable platinum and palladium ore reserves and platinum and gold equivalent reserves as of December 31, 1997 and 1996. The reserves reflected below are based on a cut-off grade of 0.40 ounces of platinum plus palladium per ton, and assume the following prices for economic production: $375 and $155 per ounce for platinum and palladium, respectively. Proven and probable reserves are after average mining dilution of 10% at zero grade based on actual mining experience. The December 31, 1997 ore reserves were affirmed and verified by Behre Dolbear & Company, Inc. ("Behre Dolbear"), independent consultants, who are experts in mining, geology and ore reserve determination. The Company has utilized Behre Dolbear to carry out independent reviews and inventories of the Company's ore reserves since 1990. The ore reserves have been affirmed and verified by Behre Dolbear in alternating years. The December 31, 1996 proven and probable platinum and palladium ore reserves, although not independently verified by Behre Dolbear in 1996, were determined by the Company using the same technical methods and criteria which were previously reviewed and verified by Behre Dolbear. ORE RESERVES(*)
DECEMBER 31, 1997 DECEMBER 31, 1996 - ------------------------------------------------------------------------------------------------------------------------------ AVERAGE CONTAINED(2) AVERAGE CONTAINED(2) Tons(1) GRADE(2) OUNCES TONS(1) GRADE(2) OUNCES (000'S) (OUNCES/TON) (000's) (000'S) (OUNCES/TON) (000'S) - ------------------------------------------------------------------------------------------------------------------------------ Proven Mining Reserves 1,379 0.86 1,184 1,365 0.85 1,166 Probable Mining Reserves 28,130 0.79 22,183 25,764 0.79 20,448 - ------------------------------------------------------------------------------------------------------------------------------ Total Proven and Probable Reserves 29,509 0.79 23,367 27,129 0.80 21,614 - ------------------------------------------------------------------------------------------------------------------------------ Total Platinum Equivalent Proven and Probable Reserves(3) 15,462 10,246 - ------------------------------------------------------------------------------------------------------------------------------ Total Gold Equivalent Proven and Probable Reserves(3) 19,354 10,265
(*) Reserves are defined as that part of a mineral deposit that can be economically and legally extracted or produced at the time of determination and is customarily stated in terms of "ore" when dealing with metals. The term "economic" implies that profitable extraction or production has been established, analytically demonstrated or assumed with reasonable certainty. The term need not signify that extraction facilities are in place and operative. The proven reserves are computed from dimensions revealed in workings or drill holes and from the results of detailed sampling. The sites for inspection, sampling and measurement are spaced at intervals of 25 to 50 feet, and the geologic character is so defined, that the size , shape, depth and mineral content of the reserve blocks are established. The probable reserves are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are between 50 and 1,000 feet apart. The degree of assurance, although lower than that for proven reserves, is sufficient to predict the geological regularity of the reef between points of observation. See "-- Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Factors That May Affect Future Results and Financial Condition." (1) Total proven and probable reserves include 11,510,000 tons in the area of East Boulder. Significant capital investments will be required to access the East Boulder reserves. See "-- East Boulder Project." (2) Expressed as platinum plus palladium ounces per ton at a ratio of 3.3 parts palladium to one part platinum, before processing losses of approximately ten percent (10%). 4 (3) Platinum and gold equivalent ounces of proven and probable reserves at December 31, 1997 are presented solely for purposes of illustration and are calculated using the London P.M. Fix of $363 per ounce of platinum, $290 per ounce of gold and $203 per ounce of palladium on December 30, 1997. Platinum and gold equivalent ounces of proven and probable reserves at December 31, 1996 were calculated using the London A.M. Fix of $370 per ounce of platinum, $370 per ounce of gold and $117 per ounce of palladium on December 31, 1996. Reserves are consumed during mining operations and the Company generally replaces reserves by drilling mineralized material which has been identified geologically but not yet established as proven and probable reserves. Because of the expense of the close-spaced drilling necessary to generate proven mining reserve estimates, the Company generally only attempts to prove up only sufficient reserves to support its mine development objective of approximately 18 months of production. CURRENT OPERATIONS STILLWATER MINE The Company's current mining operations consist of the Stillwater Mine, an underground mine located within the J-M Reef in Nye, Montana. The Company holds a 100% interest in and operates the Stillwater Mine. The mine is located approximately 85 miles southwest of Billings, Montana and is accessed by a paved road. The mine has adequate water and power from established sources. MINING The Stillwater Mine accesses only a small segment of the J-M Reef, approximately five miles long, between the elevations of 6,700 and 3,100 feet above sea level. Deep exploration drill holes have confirmed the structure and mineralization of the J-M Reef down to the 2,000 foot elevation, but currently is open at depth to be further verified by additional drilling. Access to the ore at the Stillwater Mine is by means of horizontal adits and drifts driven parallel to the strike of the J-M Reef at vertical intervals of about 200 feet. The Company is currently evaluating the economics of developing drifts at vertical intervals of about 300 feet. Increasing the interval spacing could result in reduced development costs. Adits have been driven from the surface in the Stillwater Valley at elevations of 5,000 feet above sea level or more. Five drifts have been developed below the valley floor by ramping down from the 5,000 foot level to extract ore from the reef down to the 4,000 foot elevation. Three levels below the 5,000 foot level can now be accessed from the shaft. The 1,950 foot vertical shaft, which was commissioned in 1997 as part of the Expansion Plan, was sunk adjacent to the concentrator. Development is continuing on two drifts at 3,200 and 3,800 feet above sea level, both of which are only accessible from the shaft. The crushing station was commissioned during 1997 and is located on the 3,100 foot level. All ore hoisted up the shaft is crushed. The commissioning of the production shaft and underground crushing station has reduced haulage time and costs, improved the material handling of ore and waste and improved the grinding capabilities of the concentrator. During the fourth quarter of 1997, approximately 56% of ore production was crushed and hoisted up the shaft. The Company expects this percentage to increase as more stopes are developed off the shaft. For the foreseeable future, ore from those areas above the 5,000 foot west elevation will continue to be hauled to the surface by train. Ore from those areas below the 5,000 foot level and those that are not currently connected to the shaft are transported to the surface by 15-ton underground trucks. The portion of waste that cannot be used for backfill in underground excavations is hauled to the surface or hoisted up the shaft, depending on its location, and used in the rock embankment of the tailings dam or is placed in the permitted waste disposal site. 5 Prior to 1994, almost all of the Company's mining activities utilized "cut- and-fill" stoping methods. This method extracts the ore body in ten-foot high horizontal cuts. The open space created by the extraction of each cut is filled with waste rock and coarse concentrator tailings and becomes the floor for the next level of mining as the process moves upward. Since 1994, the Company has introduced two mechanized mining methods: "ramp-and-fill" and "sub-level" stoping. Ramp-and-fill is a mining method in which a succession of horizontal cuts are extracted from the ore body using mobile equipment. Access to the ore body is from ramps driven in or adjacent to the ore body allowing the use of hydraulic drills and load haul dump (LHD) equipment. The Company believes that mechanized mining methods are safer, less expensive and more productive than traditional "cut and fill" stoping. Mechanized mining increased from 60% in 1996 to 80% in 1997. Currently, direct costs per ton mined for ramp-and-fill stoping is 40% less than cut-and-fill stoping and is more productive by one ton per man- hour. However, not all areas of the reef are amenable to ramp-and-fill mining, and the Company will continue to select the appropriate mining method on a stope-by-stope basis. PRODUCTION During 1997, the Company produced 355,000 ounces of platinum and palladium, up from 255,000 ounces in 1996. See "Selected Financial and Operating Data." In the fourth quarter of 1997, the Company attained its Expansion Plan production goals: mine production increased from approximately 1,370 TPD in the fourth quarter of 1996 to approximately 2,000 TPD in the fourth quarter of 1997, a 46% increase. Variations in production above and below 2,000 TPD can be expected in future periods. To accomplish the Expansion Plan's production goals, the Company hired experienced rockbreakers (see "Employees") and invested in mobile mining equipment. In conjunction with the acquisition of the new equipment, the Company undertook several initiatives to reduce maintenance costs, including a reduction in the number of sizes and types of equipment used in the mine, formation of an additional maintenance crew to permit maintenance activities to be carried out on a 24-hour, seven day per week basis and development of a computerized scheduled maintenance system. Additionally, the focus on underground development increased on both existing levels as well as new levels accessed from the shaft. Surface facilities were also completed, including a new maintenance shop and warehouse and an extension of the site offices and change house. Site services were expanded and upgraded and appropriate pre-investments in infrastructure were made to accommodate future plans. The Expansion Plan's positive impact on the Company's cash costs of production occurred in 1996. Cash costs of production were $215 per ounce in 1995, $184 per ounce in 1996 and $174 per ounce in 1997. During 1994 through 1997, the Company's total capital expenditures for the expansion of the Stillwater Mine and facilities were approximately $70 million, excluding capital costs for sustaining and rehabilitating the existing mine. Of the $70 million, $2.9 million was expended in 1997. CONCENTRATION The Company maintains a concentrator plant adjacent to the Stillwater Mine. Ore is defined as material with a 0.4 cut-off grade. Ore is fed into the concentrator, mixed with water and ground to a slurry in a mill circuit to liberate the PGM-bearing sulfide minerals from the rock matrix. Various reagents are added to the slurry to separate the valuable sulfides from the waste rock in a flotation circuit. In the flotation circuit, the sulfide minerals are floated, recycled, reground and refloated to produce a concentrate suitable for further processing. The flotation concentrate, which represents approximately 1% of the original ore weight, is filtered, dried and transported in trailers approximately 46 miles to the Company's metallurgical complex in Columbus, Montana. Approximately 60% of the material discarded from this process is used for backfill in the mine, with the balance stored in an onsite tailings containment area. As part of the Expansion Plan, the capacity of the concentrator was expanded with the addition of a large ball mill grinding unit, additional flotation capacity and ancillary equipment. During 1997, the Company continued to improve the recovery performance from the new flotation circuit. Recovery improved to 90% at December 31, 1997 from 86% at December 31, 1996. The Company expects that the installation of twenty additional 300 cubic foot flotation cells, expected to be completed during the second 6 quarter of 1998, will increase the concentrator's recovery to approximately 92%. These cells are also expected to increase the concentrate grade, resulting in potential cost reductions of downstream processing. Waste rock from the mine is currently being used to build the impoundment embankment. In 1996, the Company submitted an application to the Montana Department of Environmental Quality ("Montana DEQ") requesting an amendment to its Operating Permit. The Company's proposal contemplates the construction of a lined tailings impoundment that would serve the Stillwater Mine for the next thirty years. See "Regulatory and Environmental Matters". Currently, the concentrator has a capacity of 2,000 TPD. In 1998, the Company will be modifying the concentrator. Changes include the installation of metal lifters and grates in the semi-autogenous (SAG) grinding mill and installation of a particle size monitor (PSM), to control the particle size in the grinding circuit. The PSM should provide a more uniform sized product for the flotation circuit and reduce labor requirements. The Company expects that modifying the SAG mill and installing the PSM should provide the concentrator with increased capacity. SMELTING The Company's metallurgical complex is located in Columbus, Montana and consists of the precious metals smelter and base metals refinery (BMR). Concentrate from the mine site is fed to a 1.5 megawatt electric furnace, where it is melted and separated into a silica oxide rich slag and a PGM rich furnace matte. The slag is drained through the side of the furnace, cooled and provided to outside parties for use as road base. The furnace matte is remelted in one of two top blown rotary converters (TBRC), which separates iron from the matte. The converter matte is poured from the TBRC, granulated and transferred to the BMR in two ton bags. The matte, approximately 10% of the original smelter feed weight, is primarily copper and nickel sulfides containing about 2% PGMs. The gases released from the smelting operations are routed through a gas/liquid scrubbing system, which removes approximately 99.8% of the sulfur dioxide. Spent scrubbing solution is treated in a process that converts the sulfur dioxide to gypsum, or calcium sulfate, and regenerates clean scrubbing solution. The gypsum is used by local farmers as a soil amendment. The smelter's expansion was completed in 1997, increasing the daily smelting capacity from 22 TPD to 32 TPD. Feed and power control systems for the existing furnace were modified, a second TBRC was added and the gas handling and solution regeneration systems were upgraded. Additionally during 1997, the furnace was rebricked, a process that occurs every two to three years. The furnace modifications resulted in significant power savings due to increased furnace efficiency. At 2,000 TPD of mine production, the smelter processes approximately 25-30 TPD of concentrate. REFINING In 1996, the Company constructed and commissioned the BMR, which utilizes the patented Sherritt Process, whereby sulfuric acid is used to dissolve the nickel, copper, cobalt and iron from the smelter matte. This process upgrades the smelter product over 25-30 times (from 2% Pt+Pd to 55-60% Pt+Pd). The BMR has a capacity equivalent to more than 4,000 tons per day of mine production. The present plant is operated one shift per day, five days per week. Even though mine production ramped up during 1997, the BMR was able to increase efficiencies and maintain the same five day schedule. The iron is precipitated out of the solution and returned to the smelter to be processed and removed as slag. The dissolved nickel, copper and cobalt is shipped via truck, as a sulfate solution, to an outside refiner located in Canada. The Company is paid for a portion of the nickel and cobalt content of the 7 solution. During the first and second quarters of 1998, the Company plans to complete a project evaluation for a copper/nickel refinery for the sulfate solution. The resulting PGM rich filter cake is shipped via air freight to Union Miniere ("UM") in Belgium, or Johnson Matthey ("JM") in New Jersey and is returned to the account of the Company after 20 days (UM), or 35 days (JM), as 99.95% PGM sponge. Currently, the Company is shipping approximately 70% of its filter cake to UM and approximately 30% to JM and should remain at these levels through the expiration of the refining contracts on December 31, 2000 and February 5, 2001, respectively. The Company pays UM and JM a refining charge in United States dollars per ounce for the toll processing of the BMR filter cake. SECONDARY MATERIALS PROCESSING A sampling facility for secondary materials was completed in late 1997. The facility was designed to accept spent catalysts that can be crushed and added to the electric furnace. Several test lots were processed during 1997, and it was determined that the spent auto catalysts are suitable for processing at the Company's facilities. Processing of secondary materials was suspended in mid- 1997 to assess the results of the test lots and to improve the performance of the system. The Company expects to process shipments of spent auto catalysts during 1998. EXPLORATION ACTIVITIES Major portions of the J-M Reef have yet to be exposed to drilling and development sufficient to allow for the delineation of additional reserves. However, given the magnitude of its current proven and probable reserves, the Company's exploration activities are limited. The Company's current plans are to continue to focus on its current PGM reserves at the Stillwater Mine and East Boulder Project rather than exploring for or attempting to acquire additional developed or undeveloped ore reserves. Consequently, exploration does not represent a significant expenditure for the Company. EAST BOULDER PROJECT The East Boulder Project provides western access to the J-M Reef, from Sweet Grass County, Montana and is the second fully permitted site on the J-M Reef. In 1996, the Company began work on the initial exploration phase of the East Boulder Project, including site preparation, construction of a power line and procurement of a tunnel boring machine ("TBM"). During the second half of 1996, the Company invested $7.8 million in the East Boulder Project. These capital investments were primarily for construction of the TBM and providing electrical power supply to the mine portal site. In October 1996, the project was deferred, primarily due to a downturn in platinum and palladium prices. However, permitting and environmental activities continued at East Boulder, with approximately $1.1 million expended during 1997. In November 1997, with the achievement of the Expansion Plan's production goals and higher prices for platinum and palladium, the Company announced plans to restart the East Boulder Project. This entails completion of the TBM which will provide access to the western section of the J-M Reef. The Company anticipates delivery of the TBM in the second quarter of 1998, with development work to begin in the third quarter of 1998. Independent contractors will be working with the Company to drive the 18,500-foot long, 15 foot diameter tunnel. This is expected to take approximately 18 months and cost approximately $20 million. During this period, the Company will complete a feasibility study and cost estimate for the East Boulder Project. The Company will make a decision on proceeding with further development of the East Boulder Project once the feasibility study is completed and the grade and continuity of the reef have been confirmed. The preliminary feasibility study, completed in 1992, estimated the total cost of the project to be $250 million, including $50 million for contingencies. 8 OTHER PROPERTIES The Company owns and maintains a 55,000 square foot building containing the concentrator plant, changing facilities and offices and a recently constructed 29,200 square foot shop and warehouse, both located within its 1,340 acre operating permit area at the Stillwater Mine. In Columbus, Montana, the Company owns and maintains a 23,200 square foot smelter plant and a 17,000 square-foot base metals refinery on property leased from the Town of Columbus. None of these properties is currently subject to any mortgage or other encumbrance. The Company also leases a 10,100 square foot office building in Columbus from a third party. The Company believes that its existing facilities are adequate to service current production levels. The Company also owns six parcels of land totaling 2,473 acres in Stillwater County, Montana. Certain of these parcels are leased to ranch operators, and one has been subdivided for the lease or sale of residential lots. About 60 acres of one property is within the Company's operating permit boundaries. Some of these properties also include residential rental units. Non-mining properties are subject to a mortgage in favor of Chevron and Manville to support the Company's indemnification obligations to such parties. SALES AND HEDGING ACTIVITIES Platinum, palladium, rhodium and gold are sold to a number of dealers and consumers with whom the Company has established trading relationships. Refined PGMs of 99.95% purity in sponge form are transferred upon sale from the Company's account at UM and JM to the account of the purchaser. By-product metals are purchased at market price by brokers or outside refiners. The Company enters into hedging instruments from time to time to manage the effect of price changes in platinum and palladium on the Company's cash flow. Hedging activities typically consist of spot deferred contracts for future deliveries of specific quantities of PGMs at specific prices and the sale of call options and the purchase of put options. During the first quarter of 1997, the Company entered into significant hedging positions, particularly in palladium, for both 1997 and 1998 sales. The Company delivered against these hedge contracts throughout 1997, incurring substantial palladium hedging losses of approximately $10.1 million, due to the sharp rise in palladium spot prices in mid-1997. At December 31, 1997, the Company had sold forward under spot deferred contracts 213,165 ounces of palladium at $134 per ounce and 4,255 ounces of platinum at $369 per ounce. The London A.M. Fix prices for palladium and platinum at December 31, 1997 were $204 and $362 per ounce, respectively. The hedged palladium quantities represent about sixty percent of expected 1998 production and more than half of these contracts will be settled during the first half of the year. Stillwater Mining has no platinum or palladium hedged for 1999. The Company has credit agreements with its major trading partners that provide for margin deposits in the event that forward prices for platinum and palladium exceed the Company's hedge contract prices and their credit lines. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." TITLE AND ROYALTIES The Company holds 995 patented and unpatented lode or millsite claims covering approximately 16,000 acres of the J-M Reef. The Company believes that approximately 130 of these claims cover 100% of the known apex of the J-M Reef. Applications for patents covering 172 of these unpatented claims, for a total area of 2,876.9 acres, have been submitted. Patents to 34 claims covering an area of 574.8 acres have been granted; 138 claims covering 2,302.1 acres have had first half final certificates issued. The Company is currently working with the U.S. Forest Service (USFS) to ensure the allocation of personnel and other resources required for the USFS to complete the patent documentation process on the 138 claims which have first half final certificates issued. The Company expects that this process will take another year or more to complete. The patents will then undergo several levels of review within the U.S. Department of the Interior before submission to the Secretary for signature. Another Company claim leased from the Mouat family and acquired through the agreement with Anaconda Minerals Inc. 9 was patented many years ago. The remaining claims either adjoin the apex of the J-M Reef or provide sites for surface operations. Unpatented mining claims may be located on U.S. federal public lands open to appropriation, and are generally considered to be subject to greater title risk than other real property interests because the validity of unpatented mining claims is often uncertain and is always subject to challenges of third parties or contests by the federal government. The validity of an unpatented mining claim, in terms of its location and its maintenance, is dependent on strict compliance with a complex body of federal and state statutory and decisional law. In addition, there are few public records that definitively control the issues of validity and ownership of unpatented mining claims. Of the Company's 995 controlled claims, 869 are subject to royalties, including 711 subject to a 5% net smelter royalty payable to Manville, 56 subject to a 0.35% net smelter royalty payable to the Mouat family, and 102 subject to both royalties. During 1997, the Company paid royalties of approximately $2.2 million. SAFETY Underground mining is, by its nature, a hazardous occupation. Current mine operations extend over five miles horizontally into the Stillwater Complex and involve the use of heavy machinery and drilling and blasting in confined spaces. The Company's recent safety performance has been in line with that of similar mines in terms of its Lost Time Accident Rate ("LTA rate"); however, six fatalities have occurred at the Company's mine since operations began in 1986. The Company's LTA rate in 1992 was 12.9 and decreased to a low of 2.8 in 1996. Although the Company's Accident Severity Rate remained the same as reported in 1996, the LTA rate increased to 3.3 in 1997. In response to this unfavorable increase, management has implemented additional safety training programs and has rejuvenated the application of the "Neil George Five-Point Safety System," which is well known to the underground hard rock mining industry. This program encourages daily interaction between employees and supervisors with a specific focus on safety and requires subsequent documentation of that interaction. Management believes that continued reductions in accident frequency are achievable. Safety is a primary concern of the Company, and the Company believes that training is a key element in accident prevention. Forty hours of safety training are required before inexperienced employees may start working underground, and yearly retraining in first aid, accident prevention techniques and equipment handling are mandatory for each mining employee. The metallurgical complex in Columbus, Montana maintained an exemplary safety record with zero lost time accidents and once again became the recipient of the Governor's Safety Award. The complex is the first ever two-time recipient of this Award. The smelter (for the fifth consecutive year) and the BMR were granted the Sharp's Award, which exempts the complex from routine Occupational Safety and Health Association inspections. 10 EMPLOYEES As of December 31, 1997, the Company had 675 employees in the following areas: ------------------------------------- Number of Area Employees ------------------------------------- Mining 435 Processing 63 Maintenance 89 Technical Services 36 Safety and Environmental 15 Administration 37 ------------------------------------- Total Employees 675 ------------------------------------- Prior to 1995, the Company's employees were non-union. In an election held in July 1995, 50.6% of those voting favored the appointment of the Oil, Chemical and Atomic Workers Union (OCAW) as exclusive bargaining representative for substantially all hourly workers. The union was certified by the National Labor Relations Board in January 1996. On June 30, 1996, members of Local 2-1 of the OCAW ratified their first contract agreement with the Company, which became effective on July 1, 1996. The contract has a term of three years and provides for a cumulative increase in wages and benefits of 5.86% over the contract term. This contract was negotiated using an interest-based bargaining approach that has resulted in cooperative and stable labor relations. Management believes its employee relations are good and believes its wages, benefits and working conditions are competitive with other mining operations. The Company competes for individuals skilled in underground hard rock mining techniques and has experienced a shortage of qualified miners. The number of such persons is limited, and significant competition exists to obtain their skills. During 1997, the Company added a net total of 156 hourly employees to the workforce. The Company has instituted a training program to bring new employees up to the status of qualified, experienced underground miners. Approximately 67 skilled miners will be required during 1998 and the Company may find it difficult to attract and retain sufficient numbers of these skilled individuals to achieve the anticipated production for its expansion. As a result of the downturn in the gold industry, the Company has been the beneficiary of layoffs by gold companies. The Company has hired 34 experienced underground miners from the gold industry, and will continue to recruit these miners to meet the demands of the Company's increased production goals. REGULATORY AND ENVIRONMENTAL MATTERS GENERAL. The Company's business is subject to extensive federal, state and -------- local government controls and regulations, including regulation of mining and exploration operations involving the discharge of materials and contaminants into the environment, disturbance of land, reclamation of disturbed lands, associated potential impacts to threatened or endangered species and other environmental concerns. In particular, statutes including, but not limited to, the Clean Air Act, the Clean Water Act, the Solid Waste Disposal Act, the Emergency Planning and Community Right-to-Know Act, the Endangered Species Act and the National Environmental Policy Act, impose permit requirements, effluent standards, air emission standards, waste handling and disposal restrictions and other design and operational requirements, as well as record keeping and reporting requirements, upon various aspects of mineral exploration, extraction and processing. In addition, the Company's existing mining operations may become subject to additional environmental control and mitigation requirements if applicable federal, state and local laws and regulations governing environmental protection, land use and species protection are amended or become more stringent in the future. For example, effective July 1, 1998 for the 1997 calendar year, the Company will for the first time be required to annually report the volume of its release of certain toxic materials into the environment, including such constituents that are placed within engineered tailings impoundments. Such reporting is required by 11 the Emergency Planning and Community Right-to-Know Act, noted above. Additionally, the Company is aware that federal regulation under the Solid Waste Disposal Act governing the manner in which secondary materials and by-products of mineral extraction and benefication are handled, stored and reclaimed or reused are pending final revision which could affect the Company's facility design, operations, and permitting requirements. The Company's past and future activities may also cause it to be subject to liabilities under provisions of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (CERCLA), and analogous state law. Such laws impose strict liability on certain categories of potentially responsible parties for their actions resulting in releases or threatened releases of hazardous substances into the environment which cause the incurrence of cleanup costs. Generally, compliance with the above statutes requires the Company to obtain permits issued by federal, state and local regulatory agencies and to file various reports and keep records of its operations affecting the environment. Certain permits require periodic renewal or review of their conditions. The Company cannot predict whether it will be able to renew such permits or whether material changes in permit conditions will be imposed. Non-renewal of permits or the imposition of additional conditions could have a material adverse effect on the Company's financial condition and results of operations. The Company believes that its operations and facilities comply in all material respects with current federal, state and local permits and regulations. However, compliance with existing and future laws and regulations may require additional control measures and expenditures which cannot be estimated at this time. Compliance requirements for new mines and mills may require substantial additional control measures that could materially affect permitting and proposed construction schedules for such facilities. Under certain circumstances, facility construction may be delayed pending regulatory approval. The cost of complying with future laws and regulations may render currently operating or future properties less profitable and could adversely affect the level of the Company's reserves and, in the worst case, render its mining operations uneconomic. The Company has agreed to indemnify each of Chevron and Manville for all claims related to environmental damage or hazards. PERMITTING AND RECLAMATION. Operating Permit 00118 issued by the Montana --------------------------- Department of State Lands encompasses approximately 1,340 acres at the Company's Stillwater Mine located in Stillwater County, Montana. The permit delineates lands that may be subject to surface disturbance. At present, approximately 150 acres have been disturbed, 18 of which are occupied by the tailings impoundment. The remaining acreage consists of buildings, roads and portal sites. The Company employs concurrent reclamation wherever feasible. Reclamation regulations affecting the Company's operations are promulgated and enforced by the Hard Rock Bureau of the Montana DEQ. Additional reclamation requirements may be imposed by the USFS during the permitting process. For regulatory purposes, reclamation does not mean restoring the land to its pre- mining state. Rather, it is returning the post-mining land to a state which has stability and utility comparable to pre-mining conditions. Reclamation concerns include stabilization and vegetation of disturbed lands, controlling drainage from portals and waste rock dumps, removal of roads and structures, neutralization or removal of process solutions and visual aesthetics. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Environmental Obligations." Permits governing air and water quality are issued to the Company by the Montana DEQ, which has been delegated such authority by the federal government. Operating permits issued to the Company by the Montana DEQ and the USFS do not have an expiration date but are subject to periodic reviews. The reviews evaluate 12 bonding levels, monitor reclamation progress, and assess compliance with all permit requirements and mitigation measures. In April 1996, the Company submitted a permit amendment application for the expansion of the Stillwater Mine. This expansion proposal includes selection and construction of a new tailings impoundment and removal of the arbitrary 2,000 TPD production cap. During 1997, as a result of this application, the Montana DEQ began preparation of an Environmental Impact Statement (EIS) in order to assess the environmental impacts of the amendment. The Montana DEQ is expected to issue the final EIS in 1998, subsequent to review of draft issuances and a public hearing. The Company currently does not foresee any material changes from its application. Capital outlay for the proposed long term tailings site is estimated to be $25 million. The current tailings facility, located adjacent to the Stillwater Mine, has an expected life through the year 2003, assuming 2,000 TPD of mine production. A pipeline will connect the current and proposed tailings impoundments. While the Company believes that its proposal represents a sound environmental solution to long-term tailings disposal, there is no assurance that the necessary permits will be granted. The East Boulder Project has been fully permitted with the necessary environmental permits and with an operating permit to produce 2,000 TPD. POSSIBLE REFORM OF THE GENERAL MINING LAW. During the 1997 legislative ------------------------------------------ session, legislation was introduced into the United States Congress which proposed a number of modifications to the General Mining Law, which governs the location and maintenance of unpatented mining claims and related activities on federal lands. Among those modifications were proposals which would have (i) imposed a royalty on production from unpatented mining claims, (ii) increased the cost of holding such claims, and (iii) imposed more specific federal reclamation requirements on operations on such claims. None of those proposed modifications were enacted into law. The same or similar proposals may be considered by Congress in 1998 as well. The potential impact on the Company as a result of congressional action is difficult to predict, but legislation amending the General Mining Law could adversely affect the Company's ability to economically develop the J-M Reef, virtually all of which is comprised of unpatented mining claims on federal lands, and would, in the case of imposed production royalties, generally reduce the profitability of the Company and, in the worst case, render its mining operations uneconomic. FUTURE EXPANSION The Company has adopted a long term goal to triple production in five years and is currently establishing the steps necessary to achieve this goal. The two key components will be increasing output at the Stillwater Mine substantially and moving the East Boulder Project through feasibility and development and into production. The Company has retained an independent engineering firm familiar with the Stillwater Mine to conduct a feasibility study to determine the optimum size of the Stillwater Mine operation. The study is expected to be delivered by mid-year 1998. Possible approaches to further increase production include deepening the existing 1,950 foot production shaft or increasing lateral development around the shaft. Final decisions regarding approaches, timing and costs await delivery of the feasibility study. Preliminary estimates for costs associated with expansion at the Stillwater Mine are $75 million, including $25 million for the proposed long term tailings site. The East Boulder Project is the other key to reaching the Company's long term goal. As discussed above, the East Boulder Project recently has been resumed after being put on hold in late 1996. At this point the Board of Directors has authorized completion of the TBM that will be used to drive an 18,500 foot tunnel to give access to the western portion of the J-M Reef. Current estimates call for commencement of boring in the second half of 1998, with completion of the tunnel approximately 18 months thereafter. During this 18 month 13 period, the Company plans to complete a detailed feasibility study. The detailed feasibility study will also update anticipated project costs, which were estimated at $250 million (including a $50 contingency factor) in a 1992 prefeasibility study. In addition, achieving these goals will require significant modifications at the concentrator, the smelter and the BMR. Decisions regarding the various steps in implementing this growth plan will be made as the results of development work and feasibility studies are obtained, and at this stage no assurance can be given that the Company's goal will be achieved. See "--Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Factors that May Affect Future Results." COMPETITION: PLATINUM AND PALLADIUM MARKET The following description of recent events relating to the platinum and palladium markets is not intended to be complete, and readers are advised to obtain their own information and advice regarding the commodities markets. GENERAL Platinum and palladium are rare precious metals characterized by unique physical qualities and are used in diverse industrial applications and in the jewelry industry. The Company knows of no economically viable replacements for PGMs in a number of key technological and industrial applications. The development of a less expensive alternative alloy or synthetic material which has the same characteristics as PGMs could have a material adverse effect on the Company's revenues. Although the Company is unaware of any such alloy or material, there can be no assurance that none will be developed. The Company competes with other suppliers of PGMs, some of which are significantly larger than the Company and have access to greater mineral reserves and financial and commercial resources. See "Supply" below. In addition, new mines may open over the next several years, increasing supply. Furthermore, in certain industrialized countries, an industry has developed for the recovery of PGMs from scrap sources, mostly from spent automotive and industrial catalysts. There can be no assurance that the Company will be successful in competing with these existing and emerging PGM producers. See "--Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." DEMAND Demand for both palladium and platinum has increased, but the increased demand for palladium has been much more dramatic. Demand for palladium has grown from 3.9 million ounces in 1992 to 7.4 million ounces in 1997 - almost double in five years. Platinum demand has increased from 3.8 million ounces in 1992 to 5.1 million ounces in 1997 - a 34% increase. PGM's unique physical qualities include: (i) a high melting point; (ii) superior conductivity and ductility; (iii) a high level of resistance to corrosion; (iv) strength and durability; and (v) strong catalytic properties. Palladium, like platinum, has numerous industrial applications and when combined with silver, provides an extremely conductive material. The largest and fastest growing application for palladium is in the automotive industry, which represented nearly 40% of the palladium demand for 1997. Demand for palladium in the next several years is projected to increase significantly, driven primarily by automotive catalysts. In the U.S., the automobile industry has made the decision to comply with standards that will decrease automotive emissions to National Low Emission Vehicle standards beginning with the 1999 model year. Europe and Japan have adopted more stringent standards for the future as well. With growing concern for cleaner air, it is expected that concern over automobile emissions will continue to spread. This will have a marked effect on palladium usage and to a lesser extent, platinum. 14 Approximately one-third of the palladium supply is consumed in the production of electronic components for personal computers, cellular telephones, facsimile machines and other devices. There are also indications that demand from the electronic and semiconductor industries will continue to be strong. Dentistry has also been a major use for palladium due to the substitution of palladium alloys for gold-based dental alloys, representing approximately 18% of the palladium demand for 1997. Approximately 60% of current world platinum production is used for industrial and manufacturing processes, most significantly for the manufacture of catalytic converters for the global auto industry. In addition to catalytic converters, industrial uses of platinum include the production of data storage disks, glass, paints, nitric acid, anti-cancer drugs, fiber optic cables, fertilizers, unleaded and high octane gasolines and fuel cells. The balance of current platinum demand is for the production of jewelry, such as gem settings for rings, and for investment/collector coins. Supply and demand for platinum are essentially in balance and are expected to remain this way for the foreseeable future. If higher prices for palladium do cause some of the growth to be taken up by platinum, then the outlook for platinum will be enhanced. SUPPLY The primary production sources of palladium and platinum are mines located in the Republic of South Africa, which industry sources believe provided approximately three-fourths of the platinum and one-fourth of the palladium worldwide during 1997. The principal PGM mining companies in the Republic of South Africa are Anglo American Platinum Corporation, Ltd., Impala Platinum Holdings, Ltd. and Western Platinum, Ltd. The second largest source of platinum and palladium is Russia, which industry sources believe provided approximately two-thirds of the palladium and approximately one-eighth of the platinum worldwide in 1997. Approximately half of this supply is believed to have come from stockpiles. Small amounts of platinum and palladium are also produced in Canada principally as a by-product of nickel and copper mining. Supply of palladium is projected to be flat and may, in fact, decline materially in the future. In the past, the primary producer of palladium, Russia, has supplied over 60% of what is now a seven million ounce world market. Russia is believed to produce roughly 2.0 million ounces a year as a by-product of a nickel mine, and the remaining supply has come from stockpiles accumulated over the years. The general consensus in the western markets is that the Russian stockpiles of both palladium and platinum have declined significantly and will be exhausted within the next few years. However, if it were to be determined that Russia's stockpiles of palladium and platinum were extensive and if they disposed of them in the market, the supply scenario would drastically change. It is possible to recover PGMs from automotive catalytic converters acquired from scrap yards. A small but growing industry has developed, predominantly in North America, in the collection and recovery of PGMs from scrap sources, including automotive catalytic converters and electronic and communications equipment, which could provide additional feedstock for the Company's metallurgical complex in Columbus, Montana. 15 PRICES The Company's revenue and earnings are dependent upon world platinum and palladium prices which fluctuate widely and over which the Company has no control. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Revenue" and "--Factors That May Affect Future Results and Financial Condition." The volatility of platinum and palladium prices is illustrated in the following table of the annual high, low and average prices per ounce. - -------------------------------------------------------------------------- PLATINUM PALLADIUM - -------------------------------------------------------------------------- Year High Low Average High Low Average - -------------------------------------------------------------------------- 1993 $414 $345 $376 $142 $100 $123 1994 431 380 406 163 124 144 1995 459 403 424 178 128 151 1996 433 368 398 146 116 130 1997 525 340 395 245 115 178 - -------------------------------------------------------------------------- All subsections under "Business and Properties" are qualified in their entirety by reference to "--Risk Factors" and " Managements's Discussion and Analysis of Financial Condition and Results of Operations--Factors That May Affect Future Results and Financial Condition." RISK FACTORS Set forth below are certain risks faced by the Company. See also "Management's Discussion and Analysis of Financial Condition and Results of Operations--Factors That Could Affect Future Results." MINING AND PROCESSING The Company's business operations are subject to risks and hazards inherent in the mining industry, including but not limited to unanticipated variations in grade and other geological problems, water conditions, underground conditions, metallurgical and other processing, smelting or refining problems, mechanical equipment and facility performance problems, the unavailability of materials and equipment, accidents, labor force and force majeure factors, any of which can materially and adversely affect, among other things, production quantities and rates, costs and expenditures, the development or expansion of properties, and production commencement dates. RISKS OF PGM PRICE FLUCTUATIONS, BACKWARDATION AND HEDGING The Company's results of operations are directly related to the market price of PGMs. Prices for PGMs are subject to volatile price movements over short periods of time and are influenced by numerous factors over which the Company has no influence or control, including, for example, complex issues of global supply and demand, expectations regarding Russian and South African supplies, decisions by automobile, electronics and other industrial users, global and regional political or economic factors, speculation, and sales by holders and producers in response to such factors. This volatility was evident during 1997, when apparent tightness in PGM markets led to multi-year highs for current delivery contracts and "backwardation," a condition where delivery prices for metals in the near term have higher prices than metals to be delivered in the future. See "--Competition: Platinum and Palladium Market." During 1997, the Company was unable to realize a substantial portion of high current PGM prices because it had entered into hedging contracts that were uneconomic to roll forward due to the backwardation in the PGM markets. As a result, the Company realized $144 per ounce for palladium and $388 per ounce of platinum sold in 1997, while average current delivery prices were $178 per ounce for palladium and $395 per ounce platinum. Thus, while hedging transactions are intended to reduce the negative effects of volatility of prices, hedging can limit potential gains from increases in prices and could expose the Company to material losses in certain events. See "Note 9 of Notes to Financial Statements." 16 RISKS REGARDING EXPANSION GOALS The Company's achievement of its long term expansion goal depends upon its ability to increase production substantially at the Stillwater Mine and related facilities and to complete exploration and development successfully and to achieve its production goals at the East Boulder Project. Although the Company believes its goals and its preliminary estimates are based upon reasonable assumptions, at this time there can be no assurance that these goals can be achieved. See "--East Boulder Project" and "--Expansion Plans." The feasibility study to determine the optimum production level at the Stillwater Mine is not yet available, and its results may differ materially from preliminary production and cost analyses by the Company. To increase production at the Stillwater Mine, the Company must receive permit approval to increase tons processed and to construct a new long-term tailings facility, which are subject to the completion of environmental impact analyses and public review processes. Other facilities, including the concentrator, smelter and BMR, will also have to be expanded or modified. In addition, design, construction and operation at full capacity of new and expanded facilities must be achieved, each of which can be expected to be time-consuming and complex and to involve important elements that are beyond the Company's control. The Company has also not yet completed a final feasibility study or cost estimate for the East Boulder Project. Prior to obtaining a feasibility study at East Boulder, construction of the TBM must be finished, the 18,500 foot tunnel must be completed, results of geologic and metallurgical analyses must be obtained, and studies estimating capital expenditures, cash operating costs and recovery rates must be finalized. As a result, the feasibility of proceeding with East Boulder or the projects' capital costs, operating costs and economic returns may differ materially from the Company's current analysis. The Company will decide whether to proceed with further development of the East Boulder Project only after the feasibility study is completed and the grade and continuity of the reef have been confirmed. Based on the complexity and uncertainty involved in major projects, such as the second expansion at the Stillwater Mine and exploration, development and attainment of production goals at East Boulder, estimates of time and funding required at this early stage are extremely difficult to provide with certainty. No assurance can be given that either project will be completed on time or at all or that funding will be available from internal and external sources in necessary amounts or on acceptable terms. Finally, the Company's pursuit of its expansion goals and its ability to finance them could be materially adversely affected by changes in PGM prices. INSURANCE AND MINING RISKS The business of mining is generally subject to a number of risks and hazards, including environmental conditions, industrial accidents, labor disputes, encountering unusual or unexpected geological conditions, ground or slope failures, cave-ins, and other events or conditions that could result in damage to, or destruction of, mineral properties or production facilities, personal injury or death, environmental damage to properties or the properties of others, delays in mining, monetary losses and possible legal liability. The Company maintains insurance against certain risks that are typical in the mining industry and in amounts that the Company believes to be reasonable, but which may not provide adequate coverage. However, insurance against certain other risks (including certain liabilities for environmental pollution or other hazards as a result of exploration and operations) are not insured, and losses from such events could have a material adverse affect on the Company. RISK OF GOVERNMENT REGULATION OF MINING ACTIVITIES The Company's operations and exploration activities are subject to extensive regulation governing development, production, labor standards, occupational health, waste disposal, use of toxic substances, environmental regulations, mine safety, and other matters in all jurisdications in which they operate. Changes in regulations can have material impacts on anticipated levels of production, costs and profitability. There can be no assurance that all required permits and government approvals can be secured and maintained on an economic basis. See "--Current Operations--Regulatory and Environmental Matters." 17 EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below is certain information concerning the individuals who are executive officers of the Company. Name Age Position - -------------------------------------------------------------------------------- William E. Nettles 54 Chairman of the Board and Chief Executive Officer John E. Andrews 51 President and Chief Operating Officer James A. Sabala 43 Vice President and Chief Financial Officer Chris Allen 48 Vice President, Safety and Government Affairs Gil Clausen 41 Vice President, Nye Operations Gina Wilson 51 Vice President, Investor Relations and Corporate Communications The following are brief biographies of the above individuals: - -------------------------------------------------------------------------------- WILLIAM E. NETTLES is currently Chairman of the Board and Chief Executive Officer of the Company. He joined the Company in August 1997 after fifteen years with Engelhard Corporation. Most recently, Mr. Nettles served as Chief Financial Officer for Engelhard. He had previously served as Engelhard's Vice President and General Manager for the Chemical Catalyst Group and the Specialty Minerals & Colors Group and Vice President and Business Director for the Performance Minerals Group. Prior to Engelhard, Mr. Nettles was with The Dow Chemical Company from 1965 to 1982 serving in various position of increasing responsibility. Mr. Nettles has a Bachelor of Science in Industrial Management from the Georgia Institute of Technology and a Master of Business Administration from the University of Michigan. - -------------------------------------------------------------------------------- JOHN E. ANDREWS is currently President and Chief Operating Officer of the Company. He joined the Company in 1993 after serving four years as the Director of International Mining Operations of Phelps Dodge Corporation. From 1979 to 1989, Mr. Andrews held various positions with Exxon Corporation and its affiliates, including Operations Support Division Manager of Exxon Coal and Minerals Company and Plans Coordination and Evaluation Manager of Exxon Minerals Company. Prior to joining Exxon, Mr. Andrews was a Consulting Mining Engineer with David S. Robertson & Associates from 1977 to 1979. From 1969 to 1977 he served in a variety of mining capacities with Union Corporation, Ltd. in the Republic of South Africa. He received a Bachelor of Science with honors from the Royal School of Mines, Imperial College, England in 1969. - -------------------------------------------------------------------------------- JAMES A. SABALA was appointed Vice President and Chief Financial Officer of the Company effective April 1, 1998. Prior to joining the Company, Mr. Sabala was with Coeur d'Alene Mines Corporation from 1981 to 1998, most recently as Senior Vice President and Chief Financial Officer. Prior to joining Coeur d'Alene Mines, Sabala was with Price Waterhouse & Co. as a Certified Public Accountant. He received a Bachelor of Science in Business, Major--Accounting from the University of Idaho. - -------------------------------------------------------------------------------- CHRIS ALLEN is currently Vice President, Safety and Government Affairs. He joined the Company in 1993. Prior to joining the Company, he was Manager of Health and Safety for P.T. Freeport Indonesia Incorporated from 1991 to 1993, and prior to that he was with FMC Gold Corporation and FMC Corporation from 1986 to 1991 in a number of roles with increasing responsibility in the areas of safety and environmental affairs. He received a Bachelor of Science in Public Health from Utah State University. - -------------------------------------------------------------------------------- GIL CLAUSEN is currently Vice President, Nye Operations. Clausen joined the Company in 1995 after six years with Placer Dome Inc. in a number of positions, including General Manager of the Detour Lake Mine and the Endako Mines Division. Prior to that he was employed by Cleveland-Cliffs, Fording Coal and Noranda Mines 18 Limited. Clausen received his Bachelor of Science and Master of Science degrees from Queen's University in Kingston, Canada. He also holds a Diploma in Civil Engineering from Ryerson Polytechnical University. - -------------------------------------------------------------------------------- GINA WILSON is currently Vice President, Investor Relations and Corporate Communications. She joined the Company in 1996 after serving three years with Santa Fe Pacific Gold Corporation as Director of Investor Relations and Corporate Communications. Prior to that she was employed by Amax Gold Inc. as Manager, Investor and Public Relations from 1988 to 1993. She received her Bachelor of Science degree, summa cum laude, from Regis University and her Master of Business Administration from the University of Colorado. - -------------------------------------------------------------------------------- ITEM 3 LEGAL PROCEEDINGS ----------------- Not applicable ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- Not applicable 19 PART II - -------------------------------------------------------------------------------- ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS --------------------------- The Company's common shares were traded on the NASDAQ National Market under the symbol PGMS from December 16, 1994 to June 4, 1997. Effective June 5, 1997, the Company began trading on the American Stock Exchange, Inc. (AMEX) under the trading symbol SWC. For the period from January 1, 1996 through December 31, 1997 the high and low sales prices for the Company's common stock for each quarter as reported by NASDAQ or AMEX, as applicable, were: - ----------------------------------------------------------------------------- 1997 HIGH LOW - ----------------------------------------------------------------------------- FIRST QUARTER $ 24-7/8 $16-1/2 SECOND QUARTER 25-9/16 19-1/2 THIRD QUARTER 22-1/2 19 FOURTH QUARTER 23 15-1/4 - ----------------------------------------------------------------------------- 1996 HIGH LOW - ----------------------------------------------------------------------------- FIRST QUARTER $ 24-1/2 $18-1/4 SECOND QUARTER 29-5/8 19-3/4 THIRD QUARTER 25-3/4 18 FOURTH QUARTER 19-1/2 14-7/8 - ----------------------------------------------------------------------------- STOCKHOLDERS. As of February 28, 1998, the Company had 381 stockholders ------------ of record and an estimated 12,100 additional beneficial holders whose stock was held in street name by brokerage houses. DIVIDENDS. The Company has never paid any dividends on its common stock --------- and expects for the foreseeable future to retain all of its earnings from operations for use in expanding and developing its business. Any future decision as to the payment of dividends will be at the discretion of the Company's Board of Directors and will depend upon the Company's earnings, financial position, capital requirements, plans for expansion, loan covenants and such other factors as the Board of Directors deems relevant. 20 ITEM 6 SELECTED FINANCIAL AND OPERATING DATA -------------------------------------
(in thousands, except per share amounts) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------ INCOME STATEMENT DATA Revenues (11) $ 76,877 $ 56,214 $ 51,335 $ 54,934 $50,186 - ------------------------------------------------------------------------------------------------------------ Costs and expenses Cost of metals sold 67,948 50,175 45,864 46,041 42,098 Depreciation and amortization 11,658 8,699 5,749 5,232 4,910 - ------------------------------------------------------------------------------------------------------------ Total cost of sales 79,606 58,874 51,613 51,273 47,008 Administrative expenses 2,887 1,760 1,974 768 732 Other costs and expenses 592 772 - - - - ------------------------------------------------------------------------------------------------------------ Total costs and expenses 83,085 61,406 53,587 52,041 47,740 - ------------------------------------------------------------------------------------------------------------ Operating income (loss) (6,208) (5,192) (2,252) 2,893 2,446 Interest income 1,073 2,138 2,795 221 79 Interest expense, net of capitalized interest (10) (3,608) (1,461) (431) (320) (141) - ------------------------------------------------------------------------------------------------------------ Income (loss) before income taxes, extraordinary loss and cumulative effect of accounting change (8,743) (4,515) 112 2,794 2,384 Income tax benefit (provision) (1) 3,366 1,736 (44) (243) (8,014) - ------------------------------------------------------------------------------------------------------------ Income (loss) before extraordinary loss and cumulative effect of accounting change (5,377) (2,779) 68 2,551 (5,630) Extraordinary loss on early extinguishment of debt, net of tax benefit of $357 (2) - - - (568) - - ------------------------------------------------------------------------------------------------------------ Income (loss) before cumulative effect of accounting change (5,377) (2,779) 68 1,983 (5,630) Cumulative effect of accounting change, net of income tax provision of $8,677 - 13,861 - - - - ------------------------------------------------------------------------------------------------------------ Net income (loss) $ (5,377) $ 11,082 $ 68 $ 1,983 $(5,630) ============================================================================================================ Pro forma information (unaudited) (3) Historical income before income taxes and extraordinary loss $ 2,384 Pro forma provision for income taxes (921) - ----------------------------------------------------------------------------------------------------------- Pro forma income before extraordinary loss 1,463 Extraordinary loss - - ----------------------------------------------------------------------------------------------------------- Pro forma net income $ 1,463 - ----------------------------------------------------------------------------------------------------------- Basic and diluted income (loss) per common share (4) Income (loss) before extraordinary loss and cumulative effect of accounting change $ (0.27) $ (0.14) $ - $ 0.17 $ 0.10 Extraordinary loss - - - (0.04) - - ----------------------------------------------------------------------------------------------------------- Income (loss) before cumulative effect of accounting change (0.27) (0.14) - 0.13 0.10 Cumulative effect of accounting change - 0.69 - - - - ----------------------------------------------------------------------------------------------------------- Net income (loss) per share $ (0.27) $ 0.55 $ - $ 0.13 $ 0.10 Weighted average common shares outstanding Basic and diluted 20,290 20,093 20,068 15,133 15,000 =========================================================================================================== CASH FLOW DATA Net cash provided by (used in) operations $ (1,297) $ 14,464 $ 6,009 $ 9,220 $ 4,484 Capital expenditures (5) 15,820 58,413 46,133 9,315 2,039 BALANCE SHEET DATA Current assets $ 35,303 $ 49,061 $ 44,974 $ 77,234 $22,073 Total assets 229,219 239,910 162,175 153,498 92,460 Current liabilities 12,249 15,833 10,370 9,427 6,803 Long-term debt and capital lease obligations 61,513 62,563 8,713 1,715 1,790 Shareholders' equity 141,392 143,666 132,305 132,171 74,144 Working capital 23,054 33,228 34,604 67,807 15,270 - ------------------------------------------------------------------------------------------------------------- (footnotes on following page)
21 SELECTED FINANCIAL AND OPERATING DATA (Continued) -------------------------------------------------
1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------- OPERATING DATA (thousands of ounces and tons unless otherwise noted) Tons milled (6) 577 446 398 373 363 Head grade (combined Pt+Pd ounces per ton) 0.70 0.67 0.67 0.80 0.87 Ounces of platinum produced (7) 84 59 51 63 66 Ounces of palladium produced (7) 271 196 169 207 218 - -------------------------------------------------------------------------------------------------------------- Total ounces produced 355 255 220 270 284 ============================================================================================================== Ounces of platinum sold 91 62 54 63 66 Ounces of palladium sold 288 214 180 216 203 - -------------------------------------------------------------------------------------------------------------- Total ounces sold 379 276 234 279 269 ============================================================================================================== Platinum equivalent ounces produced (8) 206 123 111 136 137 Gold equivalent ounces produced (8) 246 127 123 144 143 PRICE AND COST DATA (9) Average realized price per platinum ounce $ 388 $ 410 $ 425 $ 399 $ 376 Average realized price per palladium ounce 144 144 157 138 125 Combined average realized price per ounce 203 204 219 197 187 Cash costs per ton milled $ 107 $ 105 $ 119 $ 124 $ 128 Cash costs per ounce produced 174 184 215 173 165 Total costs per ounce produced 207 219 240 191 182 - --------------------------------------------------------------------------------------------------------------
(1) The net loss for the year ended December 31, 1993 includes a one-time provision for income taxes pursuant to Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, of $7.9 million to record deferred income taxes arising out of the reorganization from the Chevron/Manville partnerships into the Company. (2) Upon early extinguishment of notes issued in connection with the 1994 private placement, the unamortized balance of deferred debt issue costs of $925,000 ($568,000 net of taxes) was charged against income as an extraordinary item. (3) Pro forma information is presented for purposes of comparability assuming the Company was a taxable entity for all periods presented. (4) In 1997, the Company adopted SFAS NO. 128, Earning per Share, which requires the presentation of basic and diluted earnings per share. All prior period per share data presented have been restated to conform with the provisions of this statement. Income (loss) per common share is calculated based on weighted average common shares outstanding and is presented on a pro forma basis for 1993 for purposes of comparability. The Company's historical capital structure and taxable status are not indicative of its current structure and, accordingly, historical earnings per share have not been presented for 1992. (5) In 1997, 1996, 1995 and 1994, $2.9 million, $35.9 million, $39.5 million and $9.3 million, respectively, were capitalized in connection with the Expansion Plan. (6) Tons milled represents the number of grade-bearing short tons of ore fed to the concentrator. (7) Ounces produced is defined as the number of ounces produced from the concentrator during the period reduced by losses expected to be incurred in subsequent smelting and refining processes. Differences in ounces produced and ounces sold are caused by the length of time required by the smelting and refining processes. (8) Platinum and gold equivalent ounces have been calculated by dividing the total market value of platinum and palladium produced during the given period by the average market prices of platinum and gold, respectively, for each period. (9) A combined realized price of platinum and palladium is reported at the same ratio as ounces are produced from the Base Metals Refinery. Cash costs of production include cash costs of mining, processing and general and administrative expenses at the mine site (including overhead, taxes other than income, royalties and credits for metals produced other than platinum and palladium.) 22 Total costs of production include cash costs plus depreciation and amortization. Income taxes and interest income and expense are not included in either total or cash costs per ounce produced. (10) Capitalized interest for the years ended December 31, 1997 and 1996 totaled $1.5 million and $2.2 million, respectively. No interest was capitalized for the years ended December 31, 1993 through 1995. (11) Revenues consist of the sales revenue for platinum and palladium, including any hedging gain or loss. By-product metals revenue and secondary materials processing revenue are included as a reduction of cost of metals sold. ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ----------------------------------- The following discussion should be read in conjunction with the Company's Consolidated Financial Statements and Notes, included elsewhere in this report, and the information contained in "Selected Financial and Operating Data." PRODUCTION The Company's production of platinum and palladium is determined by the ore tons mined, the mill head grade (ounces of precious metal per ton of ore) and mill recovery. Processing facilities have historically been able to handle all ore mined in a timely manner, and production statistics subsequent to the recent completion of the Stillwater Mine expansion indicate that this should continue to be the case going forward. The Company defines its mine production as those ounces contained in concentrate when it is shipped to the Company's smelter, which generally occurs within four days of the ore being mined. The Company records revenue when partially-refined ounces are shipped from its base metal refinery (BMR) to a third-party refiner for final processing. Shipment from the BMR to a third-party refiner generally occurs within fifteen to eighteen days of mining. Approximately 40 days elapse between the time ore is extracted from the Stillwater Mine and the time ounces of precious metal contained in that ore are made available to the Company by a third-party refiner. Because of the length of the processing cycle and the different cutoff points for identifying production and sales, production may not always correspond to sales in a particular accounting period. However, any production not shipped from the BMR at the end of an accounting period is generally shipped during the first two weeks of the subsequent period. In 1994, the Company commenced a major expansion project designed to double ore throughput at its Nye, Montana operation to 2,000 tons per day (TPD). This expansion effort was completed in mid-1997, and during the fourth quarter of that year, the Company successfully attained its 2,000 TPD goal. Increases in ore tonnage were achieved as the Company began hoisting ore to the surface via a newly-completed shaft. In addition, start-up of the underground crusher and conveyor system allowed for a more uniform size of crushed material to be fed to the mill, which increased throughput by about fifteen tons per hour. Also, the Company added manpower, increased the number of active stopes and improved productivity, principally through the increase of mechanized mining methods. The grade of ore mined by the Company in a given period depends on the particular areas of the J-M Reef from which the ore is extracted. Overall, the ore grade of the J-M Reef is generally consistent; however, the grade does vary from stope to stope and is also affected by the mix of production methods used during the period. Now that the expansion project has been completed, the Company intends to focus on developing more stopes in order to better manage the mix of stopes it mines and, consequently, the resulting grade of ore delivered to the concentrator (mill head grade). The average mill head grade of ore processed through the concentrator in 1997 was 0.70 ounce of metal per ton of ore (OPT), which was in line with the Company's expectations. This was an improvement over the 1996 average mill head grade of 0.67 OPT. This improvement resulted primarily from the successful implementation of controls designed to minimize mine dilution, along with material handling and material processing efficiencies, which resulted from commissioning of the production shaft in June 1997. 23 In November 1997, the Company announced plans for the next phase of its expansion strategy. This phase entails completion of a tunnel boring machine, which will provide access to the East Boulder section of the J-M Reef. The East Boulder project, thirteen miles west of the Nye, Montana operation, is the second fully permitted site on the J-M Reef. This project has the potential to equal the production of the recently expanded Stillwater Mine, i.e., 450,000 to 500,000 ounces annually. The current phase of this development effort includes a final engineering study and cost estimate for the project and is expected to take approximately eighteen months to complete at a cost of about $20 million. REVENUE The Company's revenue depends entirely on the number of ounces of platinum and palladium sold and the price per ounce it receives for those sales. Ounces of metal are recorded as sold when shipments are made from the Company's BMR to a third-party refiner. The Company's revenue and earnings are significantly influenced by worldwide prices of palladium and platinum, which can be volatile and over which the Company has no control. Sales to three customers represented approximately 90%, 98% and 92% of total revenues for the years ended December 31, 1997, 1996 and 1995, respectively. The Company sells its metals to a small number of customers and brokers; however, the Company is not economically dependent upon these customers since palladium and platinum can be readily sold in numerous markets throughout the world. Beginning in October 1993 and continuing through the first quarter of 1997, the Company used basic hedging techniques involving spot deferred forward contract commitments to lock in prices for its production. In addition, the Company also used put and call options from time to time to improve the opportunity to benefit from upward price movements while protecting against downside price risk. Under the terms of spot deferred forward contracts, the Company has the option of deferring delivery against these contracts. However, due to severe backwardation in palladium markets (where spot prices for metal exceed future prices), the Company was unable to defer delivery on these contracts on favorable terms. As a result, 1997 revenues were unfavorably impacted, with the combined average 1997 realized price falling about 12% below the average 1997 market price. The Company reports the combined realized price per ounce of palladium and platinum at the same ratio of palladium and platinum produced from the BMR, i.e., 3.2:1. The same ratio is applied to determine the average spot market price. As of December 31, 1997, the Company has spot deferred forward sales contracts for deliveries of future production in 1998 of 4,255 ounces of platinum and 213,165 ounces of palladium at prices averaging $369 and $134 per ounce, respectively. The London A.M. Fix prices for platinum and palladium at December 31, 1997 were $362 and $204 per ounce, respectively. The hedged palladium quantities represent about sixty percent of expected 1998 production and more than half of these contracts will be settled during the first half of the year. Stillwater Mining has no platinum or palladium hedged for 1999. COST STRUCTURE The Company's current operating costs per ounce have improved significantly as a result of completion of the Stillwater Mine expansion. Cash costs of production include cash costs of mining, processing, general and administrative expenses at the minesite and are net of metals revenue other than palladium and platinum. Mine site general and administrative expenses include overhead, taxes other than income, and royalties. Operating efficiencies were achieved through economies of scale as production increased to 2,000 TPD of ore mined, up from about 1,200 TPD in 1996. In addition, material handling and material processing efficiencies were realized once the underground shaft was commissioned in June 1997, as the shaft provided a more automated method for transporting ore and waste underground. Finally, the successful implementation of controls to minimize mine dilution also had a favorable impact on the Company's cost structure in 1997. Management expects these operating efficiencies will continue to be realized in the future. 24 RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 PGM PRODUCTION. Total ore tons mined in the year ended December 31, 1997 - -------------- increased 37% to 580,000 tons, from 424,000 tons for the year ended December 31, 1996. Tons milled in 1997 averaged about 1,600 TPD compared with an average of 1,200 TPD milled in 1996. Increases in ore tonnage were achieved as a result of the mine expansion, primarily through operating efficiencies gained by commencing underground ore crushing, adding mine manpower, and improving stoping productivity. Enhanced stoping productivity was driven by an increase in mechanized mining to almost 80% of 1997 tons mined, up from 60% in 1996. The average head grade of ore delivered to the mill was 0.70 OPT in 1997, an increase over the 0.67 OPT achieved in 1996. The mill head grade increased primarily due to successful implementation of controls to minimize mining dilution. Additionally, commissioning of the production shaft in June 1997 produced greater efficiencies in material handling and subsequent material processing through the mill. Platinum and palladium production increased 39% to 355,000 ounces for the year ended December 31, 1997 from 255,000 ounces in 1996. Once again, this substantial improvement in production was primarily the result of the mine expansion and, more specifically, was driven by the increase in tons milled during 1997 and a higher average mill head grade, coupled with an improvement in the recovery rate resulting from the installation of three additional flotation cells earlier in the year. REVENUE. Revenues were $76.9 million for the year ended December 31, ------- 1997 compared with $56.2 million in 1996, an increase of 37%. Platinum sales increased to 91,000 ounces in 1997 from 62,000 ounces in 1996. Palladium sales increased to 288,000 ounces in 1997 from 214,000 ounces in 1996. Total sales of metal increased 37% to 379,000 ounces in 1997 from 276,000 ounces in 1996, primarily due to significantly higher production levels achieved in 1997 as a result of the mine expansion. Effective January 1, 1997, the Company changed its method of revenue recognition whereby revenue is recognized when product is shipped from the Company's BMR to an external refiner. This change made the Company's revenue recognition policy more comparable with other precious metals producers. The cumulative effect of this change as of January 1, 1997 was to increase revenue by approximately $2.7 million in the first quarter of 1997; the effect on net income was not material. The combined average realized price per ounce of platinum and palladium sold in 1997 was $203, roughly the same as 1996, while the combined average spot price rose about 20% to $230 in 1997, compared with $191 in 1996. The average realized price per ounce of platinum sold was $388 in 1997, a decline of 5% compared with $410 in 1996. The platinum spot price remained about the same in both years at $395. The average realized price per ounce of palladium remained constant at $144 for both 1997 and 1996, while the average spot price increased 39% to $178 in 1997 from $128 in 1996. The Company was unable to realize the average spot price for palladium in 1997 because of its inability to defer delivery upon favorable terms on its spot deferred palladium forward contracts due to continued severe backwardation in the palladium markets during 1997. COSTS. Cash costs per ounce of metal produced in the year ended December ----- 31, 1997 decreased $10 to $174 per ounce from $184 per ounce in the year ended December 31, 1996, primarily the result of a 39% increase in metal production. Total costs per ounce of metal produced in the year ended December 31, 1997 decreased $12 to $207 per ounce from $219 per ounce in the year ended December 31, 1996. This decrease is also primarily due to increased metal production. 25 OPERATING INCOME (LOSS). The Company incurred an operating loss of $6.2 ----------------------- million for the year ended December 31, 1997, compared with an operating loss of $5.2 million for 1996. The higher operating loss was mainly the result of a $1.1 million increase in general and administrative costs. For 1997, general and administrative costs were $2.9 million compared with $1.8 million in 1996. The $2.9 million of expenses for 1997 included approximately $1.6 million of non- recurring severance costs and professional fees related to changes in the Company's business processes and management structure and the reorganization of the Company's Board of Directors. The decrease in costs per ounce for the current year was driven by significantly higher production in 1997, about 39% more than in 1996. Operating efficiencies also contributed to the lower cost per ounce. NET INCOME (LOSS). The Company realized a net loss of $5.4 million for the ----------------- year compared with net income of $11.1 million in 1996, when results included the cumulative effect of an accounting change. Absent this accounting change, the net loss for 1996 was $2.8 million. The larger net loss in 1997 was driven by lower realized platinum prices, reduced interest income on lower cash balances and increased net interest expense. YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 PGM PRODUCTION. Platinum and palladium production increased to 59,000 ounces -------------- and 196,000 ounces, respectively, for the year ended December 31, 1996 from 51,000 ounces and 169,000 ounces, respectively, in 1995. PGM production for 1996 resulted from milling 446,000 tons with an average mill head grade of 0.67 OPT. In comparison, PGM production for 1995 resulted from milling 398,000 ounces per ton with an average mill head grade comparable to 1996. The average mill head grade in 1996 was lower than the average historical mill head grade for the Stillwater Mine because of dilution which resulted from the increased use of mechanized mining techniques. Also, material handling constraints led to the mixing of waste into the ore stockpiles in 1996. A new mining width control system reduced mining dilution significantly in the fourth quarter of 1996 and a new waste tracking system significantly reduced ore/waste mixing. The average mill head grade for 1995 was lower than the average historical mill head grade due to milling large volumes of low grade material throughout 1995 and the lack of sufficient quantities of high grade ore in the second and third quarters of that year. REVENUE. Revenues were $56.2 million for the year ended December 31, 1996, ------- compared with $51.3 million in 1995, an increase of 10%. Platinum sales increased to 62,000 ounces in 1996 from 54,000 ounces in 1995. Palladium sales increased to 214,000 ounces in 1996 from 180,000 ounces in 1995. Combined sales of these metals increased 18% to 276,000 ounces in 1996 from 234,000 ounces in 1995, primarily due to increased production in 1996 and the commissioning of the BMR, which reduced the time period from mine production to third-party refinery release of metals by nearly two months. This resulted in nearly two months' additional production being made available for sale during 1996. Average realized prices per ounce sold for both platinum and palladium decreased in 1996, reflecting a decrease in the market price for both metals. The average spot price of platinum decreased to $397 in 1996 from $424 in 1995; the average realized price per ounce declined to $410 in 1996 from $425 in 1995. The average spot price of palladium decreased to $128 in 1996 from $151 in 1995; the average realized price per ounce decreased to $144 in 1996 from $157 in 1995. Because the spot prices for both metals trended down during late 1995 and into 1996, the Company entered into hedging contracts in 1996 for a portion of its annual production. These contracts resulted in average realized prices that were higher than spot prices. The average realized price per ounce of platinum sold exceeded the average spot price by 3%, while the average realized price per ounce of palladium sold exceeded the average spot price by 12%. 26 OPERATING INCOME (LOSS). The Company incurred an operating loss of $5.2 ----------------------- million for the year ended December 31, 1996, compared with an operating loss of $2.3 million for 1995. The higher loss in 1996 was the result of lower prices, partially offset by lower costs per ounce. The decrease in costs per ounce for 1996 was primarily driven by a 16% increase in ounces produced in 1996. The lower cost per ounce was also impacted by a change in accounting for capitalized underground development expense, which more than offset the effect of increased depreciation and amortization and a $0.8 million write-off of assets. NET INCOME (LOSS). The Company realized net income in 1996 of $11.1 million ----------------- after the cumulative effect of the accounting change for capitalized underground development expenses, compared with $0.1 million of net income for 1995. Excluding the cumulative effect of the accounting change, the net loss for 1996 was $2.8 million. The higher net loss in 1996 was primarily the result of lower metal prices and lower net interest income. LIQUIDITY AND CAPITAL RESOURCES The Company derives revenue from the sale of PGMs to independent brokers and consumers at either spot market prices or contract prices. Excess cash is invested in interest-bearing, investment-grade securities according to a short- term investment policy approved by the Board of Directors, which requires maturities of less than two years with an average portfolio duration of less than one year. The Company has established an unsecured working capital line of credit with NM Rothschild and Sons, Ltd., with a maximum borrowing capacity of $15 million, which expires on April 30, 1999. As of December 31, 1997, there were no borrowings against this credit line, and the Company could borrow up to $7.4 million based upon quarterly borrowing calculations under the terms of the agreement. During 1997, the Company executed its fifth five-year equipment-leasing agreement with Senstar Capital Corporation (Senstar) for $0.8 million. This agreement was preceded by a $7.5 million leasing agreement with Senstar signed in October 1995 and by three additional agreements executed in 1996 for $0.8 million, $1.5 million, and $1.5 million. The latest contract brings the total capitalized lease transactions with Senstar to $12.1 million. Each of the agreements covers new underground mining equipment and contains a two-year renewal option that can be exercised at the end of five years. In 1996, the Company sold $51.5 million of 7% Convertible Subordinated Notes Due 2003 (the "Notes"), maturing on May 1, 2003. The Notes are unsecured, subordinated obligations and will be redeemable, in whole or in part, at the option of the Company beginning on May 1, 1999. The Notes are convertible, subject to prior redemption or repurchase, at the option of holders prior to maturity, into shares of the Company's common stock at a conversion price of $26.80 per share. At December 31, 1997, the Company had working capital of $23.1 million, cash and cash equivalents of $4.2 million, short-term investments of $13.5 million and long-term debt and capital leases of $61.5 million. Total liquidity available to the Company at December 31, 1997 represented by cash, short-term investments and credit availability was $25.1 million. Net cash provided by operations before changes in working capital for the year ended December 31, 1997 was $3.5 million, compared with $5.4 million in 1996, a decrease of $1.9 million. This decrease was primarily due to lower net earnings in 1997. Net cash provided by operations before changes in working capital for the year ended December 31, 1996 was $5.4 million, a decrease of $0.3 million compared with 1995. The decrease in 1996 was primarily due to lower net earnings in 1996. Capital expenditures for 1997 were $15.8 million, with approximately $6.5 million related to mine development, $2.9 million related to the completion of the Expansion Plan and about $1.1 million related to East 27 Boulder. The remaining capital expenditures were for process improvements and $1.5 million in capitalized interest. Capital expenditures of $58.4 million and $46.1 million were made in 1996 and 1995, respectively, principally for the Expansion Plan. The Company plans to spend approximately $30 million in 1998 on capital items, with about half related to the East Boulder project. Cash flow from operating activities is not expected to be sufficient to cover 1998 capital expenditures. Based on cash and short-term investments on hand and expected cash flows from operations, along with additional equipment lease facilities and the availability of funds under the Company's line of credit, Management believes there is sufficient liquidity to fund current development activities at East Boulder and to meet 1998 operating and capital needs. The Company may, from time to time, also seek to raise additional capital from the public or private securities markets or from other sources for general corporate purposes and for investments beyond the scope of the current phase of development on the East Boulder project. ENVIRONMENTAL OBLIGATIONS The Company currently has one significant environmental project in process. This project involves securing an amendment to the Company's existing permit from the Montana Department of Environmental Quality which would provide for a substantial increase in throughput at the Stillwater mine site and construction of a tailings facility on a tract of land owned by the Company in Stillwater County, Montana. The costs associated with this permitting effort were $0.3 million in 1997 and $0.2 million in 1996. The Company expects to incur additional costs of about $0.4 million in 1998 to complete the project. With the exception of the costs of this project, the Company does not anticipate incurring any significant capital or unusual operating expenditures for other environmental compliance within the next 12 months. In 1997, the Company's environmental expenses were $0.5 million and capital expenditures for environmental equipment were $0.4 million. The Company incurred $1.0 million in environmental-related costs during 1996, of which half were expensed and half were for purchases of environmental equipment. The Company's ongoing operating expenditures for environmental compliance are expected to be approximately $0.5 million per year. The Company is presently required to post surety bonds with the State of Montana in the amount of $4.2 million, which also represents the Company's best estimate of mine closure and reclamation costs for current operations. The Company does not believe that costs will materially exceed this estimate. The Company is accruing for reclamation costs over the life of the Stillwater Mine based on current production levels and estimated proven and probable reserves. On December 31, 1997 and 1996, the accrued liability was $0.7 million and $0.6 million, respectively. The Company periodically reviews the adequacy of its reclamation and mine closure obligations in light of current laws and regulations and will adjust its estimate as necessary. YEAR 2000 ISSUES The Company does not believe that the cost of addressing Year 2000 issues will be material to its business, operations or financial condition. In May 1996, the Company began the implementation of new information technology infrastructure that will render the Company fully compliant with Year 2000 issues. This implementation is expected to be completed during 1998. FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION Some statements contained in this report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and, therefore, involve uncertainties or risks that could cause actual results to differ materially. Such statements include comments regarding expansion plans, costs, grade, dilution, production and recovery rates, permitting, anticipated cash flows, financing needs and capital expenditures, increases in processing capacity, cost reduction measures, safety, timing for feasibility studies, environmental permitting and exploration work, and the palladium and platinum market. Factors that could cause actual results to differ materially include (i) economic and political events affecting supply and demand of palladium and platinum, (ii) price volatility of PGM's, (iii) amounts and prices of the Company's forward metals sales, (iv) fluctuations in ore grade, tons mined, crushed or milled, (v) variations in concentrator, smelter or refinery operations, (vi) geological, technical, permitting, mining or processing problems, (vii) availability of experienced employees, (viii) financial market conditions and (ix) the other factors discussed under "Business and Properties -- Risk Factors." The Company disclaims any obligation to update forward-looking statements. 28 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- REPORT OF MANAGEMENT Management is responsible for the preparation of the accompanying financial statements and for other financial and operating information in this report. Management believes that its accounting systems and internal accounting controls, together with other controls, provide assurance that all accounts and records are maintained by qualified personnel in requisite detail, and accurately and fairly reflect transactions of Stillwater Mining Company in accordance with established policies and procedures. The Board of Directors has an Audit Committee, none of whose members are officers or employees of the Company or its affiliates. The Audit Committee recommends independent accountants to act as auditors for the Company; reviews the Company's financial statements; confers with the independent accountants with respect to the scope and results of their audit of the Company's financial statements and their reports thereon; reviews the Company's accounting policies, tax matters and internal controls; and oversees compliance by the Company with the requirements of federal regulatory agencies. Access to the Audit Committee is given to the Company's financial and accounting officers and independent accountants. William E. Nettles Chairman of the Board and Chief Executive Officer John E. Andrews President and Chief Operating Officer 29 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Stillwater Mining Company In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of cash flows and of changes in shareholders'equity present fairly in all material respects, the financial position of Stillwater Mining Company and its subsidiary at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 2, the Company changed its method of accounting for mine development expenditures in 1996. PRICE WATERHOUSE LLP Denver, Colorado February 28, 1998 30 STILLWATER MINING COMPANY ================================================================================ CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
December 31, 1997 1996 - ------------------------------------------------------------------------------------------- ASSETS - ------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents $ 4,191 $ 16,389 Short-term investments 13,468 17,060 Inventories 7,380 13,522 Accounts receivable 6,926 71 Other current assets 1,349 1,221 Deferred income taxes 1,989 798 - ------------------------------------------------------------------------------------------- Total current assets 35,303 49,061 - ------------------------------------------------------------------------------------------- Property, plant and equipment, net 191,254 187,802 Other noncurrent assets 2,662 3,047 - ------------------------------------------------------------------------------------------- Total assets $229,219 $239,910 =========================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------- CURRENT LIABILITIES Current portion of long-term debt and capital lease obligations $ 1,982 $ 1,463 Accounts payable 2,709 5,039 Accrued payroll and benefits 1,972 2,289 Property, production and franchise taxes payable 3,682 3,120 Other current liabilities 1,904 3,922 - ------------------------------------------------------------------------------------------- Total current liabilities 12,249 15,833 - ------------------------------------------------------------------------------------------- LONG-TERM LIABILITIES Long-term debt and capital lease obligations 61,513 62,563 Other noncurrent liabilities 2,283 2,528 Deferred income taxes 11,782 15,320 Commitments and contingencies (Note 10) -- -- - ------------------------------------------------------------------------------------------- Total liabilities 87,827 96,244 - ------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued -- -- Common stock, $.01 par value, 50,000,000 shares authorized, 20,377,623 and 20,135,912 shares issued and outstanding in 1997 and 1996, respectively 204 201 Paid-in capital 141,193 138,093 Accumulated earnings (deficit) (5) 5,372 - ------------------------------------------------------------------------------------------- Total shareholders' equity 141,392 143,666 - ------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $229,219 $239,910 ===========================================================================================
The accompanying notes are an integral part of these financial statements. 31 STILLWATER MINING COMPANY ================================================================================ CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share data)
Year ended December 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------ REVENUES $76,877 $56,214 $51,335 - ------------------------------------------------------------------------------------------------------ COSTS AND EXPENSES Cost of metals sold 67,948 50,175 45,864 Depreciation and amortization 11,658 8,699 5,749 - ------------------------------------------------------------------------------------------------------ Total cost of sales 79,606 58,874 51,613 General and administrative expenses 2,887 1,760 1,974 Other costs and expenses 592 772 -- - ------------------------------------------------------------------------------------------------------ Total costs and expenses 83,085 61,406 53,587 - ------------------------------------------------------------------------------------------------------ OPERATING LOSS (6,208) (5,192) (2,252) OTHER INCOME (EXPENSE) Interest income 1,073 2,138 2,795 Interest expense, net of capitalized interest of $1,535, $2,218, and $0 (3,608) (1,461) (431) - ------------------------------------------------------------------------------------------------------ INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE (8,743) (4,515) 112 INCOME TAX BENEFIT (PROVISION) 3,366 1,736 (44) - ------------------------------------------------------------------------------------------------------ INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (5,377) (2,779) 68 CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF INCOME TAX PROVISION OF $8,677 - 13,861 - - ------------------------------------------------------------------------------------------------------ NET INCOME (LOSS) $(5,377) $11,082 $ 68 ====================================================================================================== BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE Loss before cumulative effect of accounting change $ (0.27) $(0.14) $ - Cumulative effect of accounting change - 0.69 - - ------------------------------------------------------------------------------------------------------ Net income (loss) $ (0.27) $0.55 $ - ====================================================================================================== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic and diluted 20,290 20,093 20,068
The accompanying notes are an integral part of these financial statements. 32 STILLWATER MINING COMPANY ================================================================================ CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)
Year Ended December 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (NOTE 11) $ (1,297) $ 14,464 $ 6,009 - ------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures, including capitalized interest (15,820) (58,413) (46,133) Purchase of short-term investments (11,497) (48,290) (189,183) Proceeds from sale and maturity of short-term investments 15,089 55,163 165,250 Proceeds from sale of assets 118 118 433 - ------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (12,110) (51,422) (69,633) - ------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common stock 1,740 414 56 Exercise of stock warrants -- -- 2 Redemption of common stock -- (134) (101) Proceeds from capital lease and debt issue, net of debt issue costs 855 53,206 7,460 Payments on long-term debt and capital lease obligations (1,386) (853) (73) - ------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,209 52,633 7,344 - ------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS Net increase (decrease) (12,198) 15,675 (56,280) Balance at beginning of year 16,389 714 56,994 - ------------------------------------------------------------------------------------------------------- Balance at end of year $ 4,191 $ 16,389 $ 714 =======================================================================================================
The accompanying notes are an integral part of these financial statements. 33 STILLWATER MINING COMPANY ================================================================================ STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (in thousands)
Accumulated Shares Common Paid-in Earnings Total Outstanding Stock Capital (Deficit) Equity - ---------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1994 20,070 $201 $137,748 $(5,778) $132,171 Common stock redeemed (5) -- (101) -- (101) Common stock issued under stock plan -- -- 109 -- 109 Other -- -- 58 -- 58 Net income -- -- -- 68 68 - ---------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1995 20,065 $201 $137,814 $(5,710) $132,305 Common stock redeemed (7) -- (134) -- (134) Common stock issued under stock plan 78 -- 455 -- 455 Other -- -- (42) -- (42) Net income -- -- -- 11,082 11,082 - ---------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1996 20,136 $201 $138,093 $ 5,372 $143,666 Common stock issued under stock plan 242 3 1,772 -- 1,775 Income tax benefits from stock options exercised -- -- 1,363 -- 1,363 Other -- -- (35) -- (35) Net loss -- -- -- (5,377) (5,377) - ---------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1997 20,378 $204 $141,193 $ (5) $141,392 ======================================================================================================================
The accompanying notes are an integral part of these financial statements. 34 STILLWATER MINING COMPANY ================================================================================ NOTES TO FINANCIAL STATEMENTS NOTE 1 NATURE OF OPERATIONS Stillwater Mining Company (the "Company"), a Delaware corporation, is engaged in the exploration, development, extraction, processing and refining of platinum, palladium and associated minerals from the J-M Reef located in Stillwater and Sweet Grass Counties, Montana. The J-M Reef is a twenty-eight (28) mile long ore body containing the highest known grade deposit of platinum group metals in the world. In Stillwater County, the Company operates the Stillwater Mine located in Nye, Montana. The Stillwater Mine encompasses one fully permitted minesite on the J- M Reef. It also houses the Company's concentrator facilities. In Columbus, Montana, the Company operates a precious metals smelter and a base metals refinery. The second fully permitted site on the J-M Reef is the East Boulder Project, which is located in Sweet Grass County, Montana. In November 1997, the Company restarted development activities at East Boulder. This phase entails completion of a tunnel boring machine that will provide access to the East Boulder section of the J-M Reef. The Company's operations can be significantly impacted by risks and uncertainties associated with the mining industry as well as those specifically related to its operations. The risks and uncertainties that can impact the Company include but are not limited to the following: price volatility of palladium and platinum, economic and political events affecting supply and demand for these metals, reserve estimation, exploration and development, environmental obligations, government regulations and ownership of and access to mineral reserves. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Stillwater Mining Company and its wholly owned subsidiary (collectively referred to as the "Company"). All intercompany transactions and balances have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform with current year presentation. USE OF ESTIMATES The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles 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 for depreciation and amortization, and future cash flows from long-lived assets. Actual results could differ from these estimates. CASH EQUIVALENTS The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. SHORT-TERM INVESTMENTS Short-term investments consist primarily of corporate bonds and commercial paper with original maturities of less than two years. Under Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, these securities are carried at amortized cost, which approximates fair value, as the Company has the ability and intent to hold to maturity. 35 STILLWATER MINING COMPANY ================================================================================ NOTES TO FINANCIAL STATEMENTS REVENUE RECOGNITION Revenues consist of the sales revenue for platinum and palladium, including any hedging gain or loss. By-product metals revenue and secondary materials processing revenue are included as a reduction to the cost of metals sold. Effective January 1, 1997, the Company changed its method of revenue recognition whereby revenue is recognized when product is shipped from the Company's base metals refinery (BMR) to an external refiner. Sales and receivables are provisionally valued and later adjusted when sales prices are finalized and weight and assay calculations are completed. This change made the Company's revenue recognition policy more comparable with other precious metals producers. The cumulative effect of this change as of January 1, 1997 was to increase revenue by approximately $2.7 million in the first quarter of 1997; the effect on net income was not material. Prior to 1997, the Company recognized revenue when product was delivered and transferred to the buyer. HEDGING PROGRAM The Company enters into forward sales contracts and option contracts from time to time to manage the effect of price changes in palladium and platinum on the Company's sales. The results of these transactions are included in sales revenue at the same time as the hedged production. INVENTORIES Metals inventories are valued at the lower of average cost or net realizable value. Production costs include the cost of direct labor, raw materials, depreciation and amortization, as well as administrative expenses relating to mining and processing activities. Materials and supplies inventories are valued at the lower of average cost or replacement value. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost and depreciated using the straight-line method over estimated useful lives ranging from five to twenty years or, for capital leases, the term of the related leases. Maintenance and repairs are charged to expense as incurred. Mine development expenditures incurred to increase existing production, develop new ore bodies, or develop property substantially in advance of production are capitalized and amortized using the units-of-production method. Interest is capitalized on expenditures related to construction or development projects and amortized using the same basis of depreciation as the related asset. Capitalization is discontinued when the asset enters commercial operation or development ceases. Exploration costs are expensed as incurred. Effective January 1, 1996, the Company changed its method of accounting for mine development expenditures whereby certain direct and indirect costs related to development activities, which were previously expensed as incurred, are now capitalized. This change is believed to better present current income from mining activities because it results in a better matching of expenses with the revenue generated as a result of those expenses. The effect of the accounting change on 1996 results was to increase net income by approximately $5.2 million ($0.25 per share). Assuming the accounting change had been applied retroactively, the unaudited pro forma effect would have been an increase in net income of $3.0 million ($0.15 per share) in 1995. Annually, or more frequently as circumstances require, the Company applies SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of, in determining the carrying value of its mining assets. In the event that estimated undiscounted future net cash flows are less than the carrying amount of the asset, an impairment loss is recognized. 36 STILLWATER MINING COMPANY ================================================================================ NOTES TO FINANCIAL STATEMENTS EARNINGS PER SHARE In 1997, the Company adopted SFAS No. 128, Earnings per Share, which requires the presentation of basic and diluted earnings per share. All prior-period earnings per share data presented have been restated to conform with the provisions of this Statement. Basic earnings per share excludes dilution and is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Outstanding options to purchase 1.2 million shares of common stock and 1.9 million shares of common stock issuable under the terms of the Company's Convertible Subordinated Notes were not included in the computation of diluted earnings per share because to do so would have been antidilutive. STOCK-BASED COMPENSATION The Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, in 1996 and, as permitted by SFAS No. 123, the Company continues to measure compensation cost using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees, and has made pro forma disclosures of net income and earnings per share as if the fair value based method of accounting, as defined in SFAS No. 123, had been applied. CAPITALIZATION OF FINANCING COSTS Financing costs related to the issuance of debt securities are capitalized and amortized over the life of the indebtedness. MINE CLOSURE AND RECLAMATION Minimum standards for mine closure and reclamation costs have been established by various governmental agencies. Such costs are accrued over the life of the mine using the units-of-production method. Expenditures related to ongoing reclamation programs are expensed as incurred. As of December 31, 1997, the Company has posted $4.2 million in reclamation bonds for state and federal requirements, which also represents the Company's best estimate of future reclamation and mine closure costs under existing environmental legislation and the future operations plan. The accrued reclamation liability was $0.7 million and $0.6 million at December 31, 1997 and 1996, respectively. INCOME TAXES Income taxes are determined using the asset and liability approach in accordance with the provisions set forth in SFAS No. 109, Accounting for Income Taxes. This method gives consideration to the future tax consequences of temporary differences between the financial reporting basis and the tax basis of assets and liabilities based on currently enacted tax rates. SIGNIFICANT CUSTOMERS Sales to significant customers represented approximately 90%, 98% and 92% of total revenues for the years ended December 31, 1997, 1996 and 1995, respectively. The Company sells its metals to a small number of customers and brokers; however, the Company is not economically dependent upon these customers since platinum and palladium can be readily sold in numerous markets throughout the world. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist primarily of cash and short-term investments, accounts receivable and debt. The carrying amounts of cash, short- term investments and accounts receivable approximate fair value 37 STILLWATER MINING COMPANY ================================================================================ NOTES TO FINANCIAL STATEMENTS due to their short maturities. At December 31, 1997 and 1996, based on rates available for similar types of obligations, the fair values of long-term debt and capital lease obligations were not materially different from their carrying amounts. NOTE 3 INVENTORIES Inventories consisted of the following (in millions): December 31, 1997 1996 - --------------------------------------------------------------------------- Raw ore $ 0.5 $ 0.3 Concentrate and in-process 3.6 6.6 Matte and finished goods -- 3.5 - --------------------------------------------------------------------------- 4.1 10.4 Materials and supplies 3.3 3.1 - --------------------------------------------------------------------------- $ 7.4 $13.5 =========================================================================== As described in Note 2, palladium and platinum revenue is now recognized when product is shipped from the base metals refinery, thereby essentially eliminating all finished goods inventory. NOTE 4 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following (in millions): December 31, 1997 1996 - --------------------------------------------------------------------------- Equipment $ 23.2 $ 22.1 Leased equipment 12.1 11.1 Facilities 67.5 54.5 Mine development 127.5 94.9 Land 2.2 2.2 Construction-in-process 12.6 46.6 - --------------------------------------------------------------------------- 245.1 231.4 Less accumulated depreciation and amortization (53.8) (43.6) - --------------------------------------------------------------------------- $191.3 $187.8 =========================================================================== NOTE 5 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS SPECIAL INDUSTRIAL EDUCATION IMPACT REVENUE BONDS These bonds were issued by the Company in 1989 in three series to finance impact payments to local school districts. The bonds bear interest at varying rates between 6.5% and 7.8% and mature in increasing annual principal amounts through 2009. The balance outstanding at December 31, 1997 and 1996 was $1.6 million, of which approximately $0.1 million was classified as current in each year. The bonds, which are collateralized by the Company's real estate, are secured by guarantees from Chevron Corporation. Scheduled principal repayments during the years 1998 through 2002 are approximately $0.1 million in each year. Scheduled principal repayments subsequent to 2002 total $1.1 million. 38 STILLWATER MINING COMPANY ================================================================================ NOTES TO FINANCIAL STATEMENTS CONVERTIBLE SUBORDINATED NOTES On April 29, 1996, the Company sold $50 million of 7% Convertible Subordinated Notes Due 2003 (the "Convertible Notes"), maturing on May 1, 2003. On May 14, 1996, the initial purchaser exercised its over-allotment option and purchased an additional $1.5 million of Convertible Notes. The Convertible Notes are unsecured, subordinated obligations. As of December 31, 1997 and 1996, $51.5 million is classified as long-term debt. The Convertible Notes will be redeemable, in whole or in part, at the option of the Company beginning on May 1, 1999. The Convertible Notes will be convertible, subject to prior redemption, at the option of holders at any time after 90 days following the date of original issuance and prior to maturity, into shares of the Company's common stock at a conversion price of $26.80 per share. In connection with the offering of the Convertible Notes, the Company filed a shelf registration statement on Form S-3 under the Securities Act of 1933, as amended, relating to the resale of the Convertible Notes and the common stock issuable upon conversion. This registration statement was declared effective by the Securities and Exchange Commission on December 19, 1996. EQUIPMENT LEASE AGREEMENTS During 1997, pursuant to the terms of the 1995 Senstar Capital Corporation Master Lease Agreement, the Company entered into its fifth five-year equipment leasing agreement for $0.8 million. This agreement was preceded by a $7.5 million leasing agreement with Senstar, signed in October 1995, and by three additional agreements executed in 1996 totaling $3.8 million. The latest contract brings the total capitalized lease transactions with Senstar to $12.1 million. These agreements cover new underground mining equipment and each contains a two-year renewal option that can be exercised at the end of five years. Based upon the provisions of the leasing agreement, all leases are capital leases, and the renewal options qualify as extensions of the base lease term. As a result, all leased equipment has been capitalized and is being depreciated over seven years. Future minimum payments under the equipment leases are as follows (in millions): Year Ending December 31, - ------------------------------------------------------------------------- 1998 $ 2.7 1999 3.0 2000 2.9 2001 2.1 2002 1.5 Subsequent to 2002 0.5 - ------------------------------------------------------------------------- Total minimum lease payments 12.7 Less amount representing interest (2.3) - ------------------------------------------------------------------------- Present value of net minimum lease payments 10.4 Less current portion (1.9) - ------------------------------------------------------------------------- Total capital lease obligation $ 8.5 ========================================================================= CREDIT AGREEMENT As of April 19, 1994, the Company established an unsecured working capital line of credit with N M Rothschild & Sons Limited, having a maximum borrowing capacity of $15 million, subject to a borrowing base computation. The line of credit is scheduled to expire on April 30, 1999. Interest on amounts drawn is payable at 1.5% per annum over the prevailing London Interbank Offered Rate or 0.5% over the prevailing prime rate. Fees of 1.5% per annum are levied on the aggregate amount of any letters of credit issued under the facility and a 39 commitment fee of 0.5% per annum is payable on available but unused amounts. These fees were $0.1 million in 1997, 1996 and 1995. As of December 31, 1997, the Company has approximately $7.4 million available, is in compliance with all financial covenants and has no debt outstanding under this facility. NOTE 6 EMPLOYEE BENEFIT PLANS On June 1, 1993, the Company established the Stillwater Mining Company 401(k) Plan and Trust (the "existing plan"). From June 1, 1993 through September 30, 1996, all eligible employees could participate in this plan. On October 1, 1996, the Company established the Stillwater Mining Company 401(k) Plan and Trust for Bargaining Unit Employees ("the new plan"). All bargaining unit employees' assets were transferred to the new plan, while all non-bargaining unit employees continue participation under the existing plan. All current employees of the Company with at least six months of consecutive service are eligible to participate in their appropriate plan. Other than the differentiation between bargaining unit employees and non-bargaining unit employees, the plans are identical. The Company matches employee contributions at a 2:1 ratio up to 3% of the employee's gross wages. Both plans have a three- year cliff vesting period. Monthly contributions are made to separate trust funds administered by an independent investment manager. Company contributions to the plans totaled $1.0 million, $0.9 million and $0.7 million in 1997, 1996 and 1995, respectively. NOTE 7 COMMON AND PREFERRED STOCK PLANS AND AGREEMENTS STOCK PLAN In September 1994, the Company adopted the Stillwater Mining Company 1994 Stock Plan (the "Stock Plan"), which enables the Company to grant stock options or restricted stock to employees, non-employee directors and consultants. The options are in the form of either incentive stock options or non-qualified stock options and may be granted with stock appreciation rights (SARs). SARs permit holders to receive either cash or shares of common stock with value equal to the excess of the market price over the grant price in exchange for the surrender of the SARs. Shares issuable under the Stock Plan may be newly issued or shares purchased on the open market. The Stock Plan is administered by the Compensation Committee of the Company's Board of Directors, which determines the exercise price, exercise period, vesting period and all other terms. Unexercised options expire ten years after the date of grant. The Stock Plan covers 1,500,000 shares of common stock. Furthermore, on January 21, 1998, the Board of Directors adopted a general employee stock plan which covers an additional 200,000 shares of common stock. Combined, there is approximately 161,575 shares available for grant as of December 31, 1997. Stock option activity for the years ended December 31, 1997, 1996 and 1995 is summarized as follows: 40 STILLWATER MINING COMPANY ================================================================================ NOTES TO FINANCIAL STATEMENTS
Weighted Average Weighted Average Fair Value of Shares Exercise Price Options Granted - ------------------------------------------------------------------------------------------------------------ Options outstanding at December 31, 1994 (150,000 exercisable) 635,625 $ 5.87 - 1995 Activity: Options granted 219,250 $19.83 $ 7.31 Options exercised (400) $ 5.87 - Options canceled (9,275) $ 5.87 - - ------------------------------------------------------------------------------------------------------------ Options outstanding at December 31, 1995 (303,688 exercisable) 845,200 $ 9.49 - 1996 Activity: Options granted 278,775 $21.40 $ 9.47 Options exercised (77,595) $ 5.87 - Options canceled (40,575) $18.56 - - ------------------------------------------------------------------------------------------------------------ Options outstanding at December 31, 1996 (674,592 exercisable) 1,005,805 $12.70 - 1997 Activity: Options granted 486,275 $19.90 $10.53 Options exercised (239,881) $ 7.59 - Options canceled (31,650) $20.86 - - ------------------------------------------------------------------------------------------------------------ Options outstanding at December 31, 1997 (940,198 exercisable) 1,220,549 $16.40 - ============================================================================================================
The following table summarizes information concerning currently outstanding and exercisable options:
Options Outstanding Options Exercisable -------------------------------- --------------------------------- Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Price Outstanding Contract Life Exercise Price Exercisable Exercise Price --------------- ----------- ------------- -------------- ----------- -------------- $ 5.87 337,174 6.72 $ 5.87 337,174 $ 5.87 $13.44 - $20.00 444,025 8.63 $18.40 398,012 $18.39 $20.10 - $28.13 439,350 8.79 $22.50 205,012 $23.15 --------- ------- 1,220,549 940,198 ========= =======
The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (APB 25) and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123, Accounting for Stock-Based Compensation, (SFAS 123) requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS 41 STILLWATER MINING COMPANY ================================================================================ NOTES TO FINANCIAL STATEMENTS 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: Year ended December 31, 1997 1996 1995 - ------------------------------------------------------------------------------- Weighted average expected lives (years) 5.9 5.9 5.8 Interest rate 5.7-6.7% 5.2-6.2% 5.9-7.9% Volatility 47% 45% 42% Dividend yield - - - =============================================================================== Option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro information follows (in millions, except for per share amounts): 1997 1996 1995 - ------------------------------------------------------------------------------- Pro forma net income (loss) $ (8.0) $ 9.7 $ (0.3) Pro forma income (loss) per share: Basic and diluted $(0.39) $0.48 $(0.01) =============================================================================== Additionally, 9,950 shares and 30,000 shares of restricted stock were granted in 1997 and 1994, respectively. Deferred compensation related to restricted stock was recorded as a component of paid-in capital and is amortized over the two-year vesting period. SHAREHOLDERS' RIGHTS AGREEMENT In October 1995, the Board of Directors of the Company adopted a Rights Agreement under which Stillwater shareholders of record as of November 15, 1995 received a dividend in the form of Preferred Stock Purchase Rights (the "Rights"). The Rights permit the holder to purchase one one-thousandth of a share (a unit) of Series A Preferred Stock at an initial exercise price of $80 per share under certain circumstances. The purchase price, the number of units of Preferred Stock and the type of securities issuable upon exercise of the Rights are subject to adjustment. The Rights expire on October 26, 2005 unless earlier redeemed or exchanged. Until a Right is exercised, the holder thereof has no rights as a shareholder of the Company, including the right to vote or receive dividends. Subject to certain conditions, the Rights become exercisable ten business days after a person or group acquires or commences a tender or exchange offer to acquire a beneficial ownership of 15% or more of the Company's outstanding common stock. 42 STILLWATER MINING COMPANY ================================================================================ NOTES TO FINANCIAL STATEMENTS NOTE 8 INCOME TAXES The total income tax provision (benefit) has been allocated as follows (in millions): Year ended December 31, 1997 1996 1995 - ----------------------------------------------------------------------------- Income tax provision (benefit) $ (3.4) $ (1.7) $ 0.1 Cumulative effect of accounting change - 8.7 - - ----------------------------------------------------------------------------- Total income tax provision (benefit) $ (3.4) $ 7.0 $ 0.1 ============================================================================= The components of the income tax provision (benefit) consisted of the following (in millions): Year ended December 31, 1997 1996 1995 - ----------------------------------------------------------------------------- Current federal $ - $ 0.2 $ (0.1) Current state - - - - ----------------------------------------------------------------------------- Total current - 0.2 (0.1) - ----------------------------------------------------------------------------- Deferred federal (3.1) (2.1) 0.5 Deferred state (0.3) 0.2 (0.3) - ----------------------------------------------------------------------------- Total deferred (3.4) (1.9) 0.2 - ----------------------------------------------------------------------------- Income tax provision (benefit) $ (3.4) $ (1.7) $ 0.1 ============================================================================= The deferred tax (assets) liabilities are comprised of the tax effect of the following (in millions): December 31, 1997 1996 - ----------------------------------------------------------------------------- Property and equipment $ 6.9 $ 6.6 Mine development costs 26.6 26.5 - ----------------------------------------------------------------------------- Total deferred tax liabilities 33.5 33.1 - ----------------------------------------------------------------------------- Capital lease obligations (1.0) (0.5) Noncurrent liabilities (0.9) (1.4) Current liabilities (1.2) (0.3) Inventory (0.1) - State tax deduction (1.2) (1.3) Net operating loss carryforwards (19.3) (15.1) - ----------------------------------------------------------------------------- Total deferred tax assets (23.7) (18.6) - ----------------------------------------------------------------------------- Net deferred tax liabilities $ 9.8 $ 14.5 ============================================================================= 43 STILLWATER MINING COMPANY ================================================================================ NOTES TO FINANCIAL STATEMENTS The following is a reconciliation between the tax provision determined by applying the federal statutory income tax rate of 35% in 1997, 1996 and 1995 to pre-tax income, and the Company's tax provision (benefit) (in millions): Year ended December 31, 1997 1996 1995 - ----------------------------------------------------------------------------- Income (loss) before income taxes and cumulative effect of accounting change $ (8.7) $ (4.5) $ 0.1 ============================================================================= Income taxes at statutory rate $ (3.1) $ (1.6) $ 0.1 State income taxes, net of federal benefit (0.3) (0.1) - - ----------------------------------------------------------------------------- Income tax provision (benefit) $ (3.4) $ (1.7) $ 0.1 ============================================================================= At December 31, 1997, the Company had approximately $46.6 million of regular tax net operating loss carryforwards expiring during 2009 through 2012. NOTE 9 PRECIOUS METALS HEDGING CONTRACTS Precious metals hedging contracts at December 31, 1997, consist of spot deferred forward sales contracts. Realization under these contracts is dependent upon the counterparties performing in accordance with the terms of the contracts. The Company does not anticipate nonperformance of the counterparties. Forward sales contracts require the future delivery of metals at a specific price. At December 31, 1997, the Company's outstanding hedge contracts are as follows: 1998 ------------------- Average Hedged Price Ounces Per Ounce - ----------------------------------------------------------------------------- PLATINUM Forward sales contracts (spot deferred) 4,255 $ 369 - ----------------------------------------------------------------------------- PALLADIUM Forward sales contracts (spot deferred) 213,165 $ 134 - ----------------------------------------------------------------------------- The Company has credit agreements with its major trading partners that provide for margin deposits in the event that forward prices for platinum and palladium exceed the Company's hedge contract prices and their credit lines. NOTE 10 COMMITMENTS AND CONTINGENCIES REFINING AGREEMENTS The Company has contracted with two separate entities to refine its filter cake production. These contracts contain termination clauses upon adequate notice but may require a substantial payment in the form of a cancellation fee. The Company currently has no plans to terminate these contracts within the next twelve months. 44 STILLWATER MINING COMPANY ================================================================================ NOTES TO FINANCIAL STATEMENTS ELECTRIC SERVICE AGREEMENT During 1996, Montana Power Company (MPC) upgraded the Company's transmission line and substation facilities. The cost of this upgrade to MPC totaled approximately $2.9 million. In a contract between MPC and the Company dated June 1, 1996, the Company agrees to reimburse MPC for these costs through additional electrical revenues produced from the Company's increased load in excess of 8,000 kilowatts. At the completion of the five-year agreement, if the total additional revenues, as defined in the contract between MPC and the Company, have not met or exceeded MPC's investment cost, the Company will be required to pay MPC the difference. 45 STILLWATER MINING COMPANY ================================================================================ NOTES TO FINANCIAL STATEMENTS NOTE 11 CASH FLOW INFORMATION Reconciliation of net income (loss) to net cash provided (used in) operating activities is as follows (in millions): Year ended December 31, 1997 1996 1995 - ----------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $(5.4) $ 11.1 $ 0.1 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11.7 8.7 5.7 Deferred income taxes (3.4) (1.7) (0.3) Cumulative effect of accounting change, net of income tax provision of $8.7 - (13.9) - Loss on disposition of fixed assets 0.6 1.0 - Other - (0.5) 0.2 Changes in operating assets and liabilities: Decrease in inventories 6.1 4.9 0.2 Increase in accounts receivable (6.8) (0.1) - Decrease (increase) in other current assets (0.2) -- (0.6) Decrease (increase) in other noncurrent assets 0.4 0.3 (0.6) Increase (decrease) in accounts payable (2.3) 0.3 0.9 Increase (decrease) in other current liabilities (1.8) 4.2 (0.3) Increase (decrease) in noncurrent liabilities (0.2) 0.2 0.7 - ----------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1.3) 14.5 6.0 ============================================================================= SUPPLEMENTAL INFORMATION Cash paid (received) during the year for: Interest expense $ 3.3 $ 0.8 $ 0.1 Income taxes $ - - $(0.3) - ------------------------------------------------------------------------------ 46 STILLWATER MINING COMPANY ================================================================================ NOTES TO FINANCIAL STATEMENTS NOTE 12 QUARTERLY DATA (UNAUDITED) Quarterly earnings data for the years ended December 31, 1997 and 1996 were as follows (in millions, except per share data): First Second Third Fourth - ------------------------------------------------------------------------------- 1997 QUARTERS - ------------------------------------------------------------------------------- Revenue $ 16.0 $ 22.3 $ 17.0 $ 21.6 Operating income (loss) (3.3) 0.1 (1.7) (1.3) Net loss (2.2) (0.7) (1.7) (0.8) Net loss per share (0.11) (0.04) (0.08) (0.04) - ------------------------------------------------------------------------------- 1996 QUARTERS - ------------------------------------------------------------------------------- Revenue $ 13.6 $ 10.7 $ 16.5 $ 15.4 Operating income (loss) -- (1.3) (1.6) (2.3) Net income (loss) 13.8 (0.6) (0.8) (1.3) Net income (loss) per share 0.69 (0.04) (0.04) (0.06) - ------------------------------------------------------------------------------- Note 13 MINERAL RESERVES AND PRODUCTION DATA (UNAUDITED) Proven and probable palladium and platinum reserves (1) consisted of the following: December 31, 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------- STILLWATER MINE Ore reserves (thousands of tons) 17,999 15,619 11,072 10,797 10,561 Grade (2) 0.79 0.80 0.82 0.82 0.82 Contained metal (thousands of ounces) Palladium (3) 10,940 9,595 7,058 6,918 6,751 Platinum (3) 3,315 2,907 2,016 1,976 1,929 - ------------------------------------------------------------------------------- Total contained metal 14,255 12,502 9,074 8,894 8,680 =============================================================================== EAST BOULDER Ore reserves (thousands of tons) 11,510 11,510 11,510 11,510 11,510 Grade (2) 0.79 0.79 0.79 0.79 0.79 Contained metal (thousands of ounces) Palladium (3) 6,992 6,992 7,087 7,087 7,087 Platinum (3) 2,120 2,120 2,025 2,025 2,025 - ------------------------------------------------------------------------------- Total contained metal 9,112 9,112 9,112 9,112 9,112 =============================================================================== 47 STILLWATER MINING COMPANY ================================================================================ NOTES TO FINANCIAL STATEMENTS Summary operating information was as follows: Year Ended December 31, 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------- Ounces produced (in thousands) Palladium 271 196 169 207 218 Platinum 84 59 51 63 66 Average realized price per ounce Palladium $ 144 $ 144 $ 157 $ 138 $ 125 Platinum $ 388 $ 410 $ 425 $ 399 $ 376 - ------------------------------------------------------------------------------- (1) Derived from mineral reserve estimates prepared by independent consultants as of December 31, 1997, December 31, 1995 and July 1, 1992 and adjusted for production, additional drilling and development. The increases in reserves can be attributed to additional drilling and development, the use of a lower cut-off grade and adjustment for historical mining experience. (2) Expressed in contained ounces of platinum and palladium per ton. (3) Based on the ratio of 1.0 part of platinum to 3.3 parts of palladium for 1996 and 1997 and 1.0 part of platinum to 3.5 parts of palladium for 1993 through 1995. 48 ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE -------------------------------------------------- Not applicable PART III ================================================================================ ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- For information concerning the Company's executive officers, reference is made to the information set forth under the caption "Executive Officers of the Registrant" located in Item 1 of this Form 10-K. For information concerning the Company's directors and compliance by the Company's directors, executive officers and significant stockholders with the reporting requirements of Section 16 of the Securities Exchange Act of 1934, as amended, reference is made to the information set forth under the captions "Election of Directors" and "Compliance with Section 16(a) - Beneficial Ownership Reporting Compliance," respectively, in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 15, 1998, to be filed pursuant to Regulation 14A, which information is incorporated herein by reference. ITEM 11 EXECUTIVE COMPENSATION ---------------------- Reference is made to the information set forth under the caption "Executive Compensation and Other Information" in the Company's Proxy Statement for the Annual Meeting of Stockholders, to be held on May 15, 1998, to be filed pursuant to Regulation 14A, which information (except for the Report of the Compensation Committee of the Board of Directors and the Performance Graph) is incorporated herein by reference. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT --------------------- Reference is made to the information set forth under the caption "Security Ownership of Principal Stockholders and Management" in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 15, 1998, to be filed pursuant to Regulation 14A, which information is incorporated herein by reference. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- Reference is made to the information contained under the caption "Certain Transactions" contained in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 15, 1998, to be filed pursuant to Regulation 14A, which information is incorporated herein by reference. 49 PART IV ================================================================================ ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ----------------------- (a) Documents filed as part of this Form 10-K 1. Financial Statements See Item Report of Management 29 Report of Independent Accountants 30 Balance Sheet 31 Statement of Operations 32 Statement of Cash Flows 33 Statement of Changes in Stockholders' Equity 34 Notes to Financial Statements 35 2. Financial Statement Schedules (not applicable) (b) Reports on Form 8-K On November 3, 1997 the Company filed a Form 8-K announcing the resignation of R. Daniel Williams, Vice President and Chief Financial Officer (c) Exhibits. EXHIBITS Number Description 2.1 Exchange Agreement for 10,000 shares of common stock dated October 1, 1993 (incorporated by reference to Exhibit 2.1 to the Registrant's Registration Statement on Form S-1 (File No. 33-85904) as declared effective by the Commission on December 15, 1994 (the "1994 S-1")). 3.1 Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.4 to the 1994 S-1). 3.2 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the 1994 S-1). 4.1 Form of Indenture, dated April 29, 1996, between the Company and Colorado National Bank with respect to the Company's 7% Convertible Subordinated Notes Due 2003 (incorporated by reference to Exhibit 4.1 of the Company's Form 8-K dated April 29, 1996). 4.2 Rights Agreement, dated October 26, 1995 (incorporated by reference to Form 8-A filed on October 30, 1995). 10.1 1994 Stock Plan (incorporated by reference to Exhibit 10.1 to the 1994 S-1), as amended by First Amendment to 1994 Stock Plan dated May 12, 1997 10.2 Employment Agreement with John E. Andrews dated as of September 19, 1994 (incorporated by reference to Exhibit 10.4 to the 1994 S-1). 10.3 Credit Agreement between Stillwater Mining Company as borrower and N M Rothschild & Sons Limited as Lender, dated as of April 19, 1994 (incorporated by reference to Exhibit 10.7 to the 1994 S-1). 10.4 Mining and Processing Agreement dated March 16, 1984 regarding the Mouat family; and Compromise of Issues Relating to the Mining and Processing Agreement (incorporated by reference to Exhibit 10.8 to the 1994 S-1). 10.5 Conveyance of Royalty Interest and Agreement between the Company and Manville Mining Company, dated October 1, 1993 (incorporated by reference to Exhibit 10.9 to the 1994 S-1). 10.6 Agreement for Electric Service between the Montana Power Company and Stillwater Mining Company dated June 1, 1996 (incorporated by reference to Exhibit 10.8.1 of the Registrant's 1996 10-K). 10.7 Stock Redemption Agreement by and between the Company and Chevron USA Inc. and Manville Mining Company, dated July 28, 1994 (incorporated by reference to Exhibit 10.11 to the 1994 S-1). 10.8 Registration Rights Agreement dated August 23, 1995, amending Shareholders Agreement (incorporated by reference to Exhibit 4.1 to Form 8-K filed on August 28, 1995). 10.9 Employment Agreement with R. Daniel Williams dated August 1, 1995 (incorporated by reference to Exhibit 10.15 to the Registrant's 1995 10-K). 50 10.10 Residue Refining Agreement between Stillwater Mining Company and Johnson Matthey, dated as of February 8, 1996 (incorporated by reference to Exhibit 10.16 of the Registrant's 1995 10-K). 10.11 Equipment Lease Agreement between Stillwater Mining Company and Senstar Capital Corporation dated October 5, 1995. (incorporated by reference to Exhibit 10.17 of the Registrant's 1995 19-K). 10.12 Purchase Agreement between Stillwater Mining Company and Senstar Capital Corporation dated October 5, 1995 (incorporated by reference to Exhibit 10.17.1 of the Registrant's 1995 10-K). 10.13 Purchase Agreement between Stillwater Mining Company and The Westaim Corporation, dated October 14,1996 (incorporated by reference to Exhibit 10.16 of the Registrant's 1996 10-K). 10.14 Employment Agreement with William E. Nettles dated August 13, 1997. 10.15 PGM Concentrate Refining Agreement between the Company and Union Miniere dated May 8, 1996. 10.16 Articles of Agreement between the Company and Oil, Chemical and Atomic Workers International Union dated July 1, 1996. 23.1 Consent of Price Waterhouse LLP. 23.2 Consent of Behre Dolbear & Company, Inc. 27 Financial Data Schedule 51 SIGNATURES ---------- Pursuant to the requirements of Section 13 OR 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. STILLWATER MINING COMPANY ("Registrant") Dated: March 27, 1998 By: /s/ William E. Nettles ----------------------- William E. Nettles Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant, in the capacities, and on the dates, indicated. Signature and Title Date - ---------------------------------------------------------------------------- /s/ William E. Nettles March 27, 1998 - ------------------------------------ William E. Nettles Chairman and Chief Executive Officer (Principal Executive and Financial Officer) /s/ Tammy R. Cosgrove March 27, 1998 - ------------------------------------ Tammy Cosgrove Controller (Principal Accounting Officer) /s/ Ray W. Ballmer March 27, 1998 - ------------------------------------ Ray W. Ballmer, Director /s/ Douglas Donald March 27, 1998 - ------------------------------------ Douglas Donald, Director /s/ John W. Eschenlohr March 27, 1998 - ------------------------------------ John W. Eschenlohr, Director /s/ Lawrence Glaser March 27, 1998 - ------------------------------------ Lawrence Glaser, Director /s/ Pete Ingersoll March 27, 1998 - ------------------------------------ Pete Ingersoll, Director /s/ Ted Schwinden March 27, 1998 - ------------------------------------ Ted Schwinden, Director /s/ Peter Steen March 27, 1998 - ------------------------------------ Peter Steen, Director 52 EXHIBIT INDEX Number Description 2.1 Exchange Agreement for 10,000 shares of common stock dated October 1, 1993 (incorporated by reference to Exhibit 2.1 to the Registrant's Registration Statement on Form S-1 (File No. 33-85904) as declared effective by the Commission on December 15, 1994 (the "1994 S-1")). 3.1 Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.4 to the 1994 S-1). 3.2 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the 1994 S-1). 4.1 Form of Indenture, dated April 29, 1996, between the Company and Colorado National Bank with respect to the Company's 7% Convertible Subordinated Notes Due 2003 (incorporated by reference to Exhibit 4.1 of the Company's Form 8-K dated April 29, 1996). 4.2 Rights Agreement, dated October 26, 1995 (incorporated by reference to Form 8-A filed on October 30, 1995). 10.1 1994 Stock Plan (incorporated by reference to Exhibit 10.1 to the 1994 S-1), as amended by First Amendment to 1994 Stock Plan dated May 12, 1997 10.2 Employment Agreement with John E. Andrews dated as of September 19, 1994 (incorporated by reference to Exhibit 10.4 to the 1994 S-1). 10.3 Credit Agreement between Stillwater Mining Company as borrower and N M Rothschild & Sons Limited as Lender, dated as of April 19, 1994 (incorporated by reference to Exhibit 10.7 to the 1994 S-1). 10.4 Mining and Processing Agreement dated March 16, 1984 regarding the Mouat family; and Compromise of Issues Relating to the Mining and Processing Agreement (incorporated by reference to Exhibit 10.8 to the 1994 S-1). 10.5 Conveyance of Royalty Interest and Agreement between the Company and Manville Mining Company, dated October 1, 1993 (incorporated by reference to Exhibit 10.9 to the 1994 S-1). 10.6 Agreement for Electric Service between the Montana Power Company and Stillwater Mining Company dated June 1, 1996 (incorporated by reference to Exhibit 10.8.1 of the Registrant's 1996 10-K). 10.7 Stock Redemption Agreement by and between the Company and Chevron USA Inc. and Manville Mining Company, dated July 28, 1994 (incorporated by reference to Exhibit 10.11 to the 1994 S-1). 10.8 Registration Rights Agreement dated August 23, 1995, amending Shareholders Agreement (incorporated by reference to Exhibit 4.1 to Form 8-K filed on August 28, 1995). 10.9 Employment Agreement with R. Daniel Williams dated August 1, 1995 (incorporated by reference to Exhibit 10.15 to the Registrant's 1995 10-K). 10.10 Residue Refining Agreement between Stillwater Mining Company and Johnson Matthey, dated as of February 8, 1996 (incorporated by reference to Exhibit 10.16 of the Registrant's 1995 10-K). 10.11 Equipment Lease Agreement between Stillwater Mining Company and Senstar Capital Corporation dated October 5, 1995. (incorporated by reference to Exhibit 10.17 of the Registrant's 1995 19-K). 10.12 Purchase Agreement between Stillwater Mining Company and Senstar Capital Corporation dated October 5, 1995 (incorporated by reference to Exhibit 10.17.1 of the Registrant's 1995 10-K). 10.13 Purchase Agreement between Stillwater Mining Company and The Westaim Corporation, dated October 14,1996 (incorporated by reference to Exhibit 10.16 of the Registrant's 1996 10-K). 10.14 Employment Agreement with William E. Nettles dated August 13, 1997. 10.15 PGM Concentrate Refining Agreement between the Company and Union Miniere dated May 8, 1996. 10.16 Articles of Agreement between the Company and Oil, Chemical and Atomic Workers International Union dated July 1, 1996. 23.1 Consent of Price Waterhouse LLP. 23.2 Consent of Behre Dolbear & Company, Inc. 27 Financial Data Schedule EX-10.1 2 FIRST AMENDMENT TO 1994 STOCK PLAN 5/12/1997 EXHIBIT 10.1 STILLWATER MINING COMPANY FIRST AMENDMENT TO 1994 STOCK PLAN This First Amendment to 1994 Stock Plan (the "Amendment") of Stillwater Mining Company (the "Company") is made as of this 12th day of May, 1997 pursuant to the approval of the Board of Directors of the Company on the same date. WHEREAS, the Board of Directors of the Company recognizes that the Securities and Exchange Commission has adopted amendments to Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and believes that it is in the best interest of the Company, its employees and directors to amend the 1994 Stock Plan (the "Original Plan") to reflect such amendments to Rule 16b-3 and to make certain other changes to the Plan in order to allow the Board of Directors or the Compensation Committee of the Board of Directors to grant Awards to persons who make significant contributions to the Company but who are not Employees or Directors of the Company. NOW, THEREFORE, pursuant to the authorization granted by the Board of Directors of the Company, the Plan is hereby amended as set forth below. Capitalized terms used herein and not otherwise defined, have the meaning ascribed to such terms in the Original Plan. 1. Purposes. Section 1 of the Original Plan is hereby amended to read in -------- its entirety as follows: "SECTION 1. Purposes. The purposes of this Stillwater Mining Company 1994 -------- Stock Plan as amended by the First Amendment to 1994 Stock Plan dated April 24, 1997, (the "First Amendment") and as further amended from time to time (the "Plan"), are to promote the interests of Stillwater Mining Company and its stockholders by (i) attracting and retaining personnel, including executive and other key employees, consultants, and directors of the Company and its Affiliates, as defined below; (ii) motivating such employees by means of performance-related incentives to achieve longer- range performance goals, and (iii) enabling such employees, consultants and directors to participate in the long-term growth and financial success of the Company." 2. Definitions. ----------- (a) Section 2 of the Original Plan is hereby amended to add the following definition: "Consultant" shall mean any Person who is engaged by the Company or any Affiliate to render consulting or advisory services as an independent contractor and is compensated for such services." (b) The following definitions in Section 2 of the Original Plan are hereby amended to read as follows: "Committee" shall mean (i)the Board, or (ii) a committee of the Board designated by the Board to administer the Plan and composed of not less than the minimum number of Persons from time to time required by Rule 16b-3, each of whom, to the extent necessary to comply with 16b-3 only, is a "Non-Employee Director" within the meaning of Rule 16b- 3(b)(3)(i). "Non-Employee Director" (i) shall have the meaning set forth in Rule 16b-3(b)(3)(i) for purposes of the definition of "Committee" set forth in the Plan, and (ii) shall mean a director who is not an Employee of the Company for all other purposes, including, but not limited to, Section 6(a)(iv). "Participant" shall mean any Employee, Non-Employee Director or Consultant selected by the Committee to receive an Award under the Plan." 3. Awards. ------ (a) Clause (i) of Section 6(a)(iv) of the Original Plan is hereby amended to read in its entirety as follows: "(i) the term of each such Option shall be the lesser of ten (10) years after the date of grant or, if a Non- Employee Director is removed for cause, one year after the termination of services as a director,..." Such amendment to the Plan set forth in the immediately preceding sentence shall be deemed to amend and apply to all Award Agreements relating to any Options granted to any Non-Employee Director prior to the date of this Amendment or hereafter. (b) Section 6 of the Original Plan is hereby amended to add a new paragraph (a)(v) to read in its entirety as follows: "(v) Consultants. Subject to the provisions of the Plan, the ----------- Committee shall have the authority to determine the Consultants to whom options shall be granted, the number of Shares to be covered by each Option, the option price therefor and the conditions and limitations applicable to the exercise of the Option. The Committee shall have the authority to only grant Non-Qualified Stock Options to Consultants. The exercise price of the Option granted shall not be less than 100% of the per share Fair Market Value of the Shares on the date of grant. Each Option shall be exercisable at such times and subject to such conditions as the Committee shall specify in the applicable Award Agreement or thereafter. The Committee may impose such conditions with respect to the exercise of Options, including without limitation, any relating to the application of federal or state securities laws, as it may deem necessary or advisable." (c) Section 6(e)(iii) of the Original Plan is hereby amended to read in its entirety as follows: "(iii) Limited on Transfer Awards. Awards (other than Incentive -------------------------- Stock Options) shall be transferable to the extent provided in any Award Agreement. Incentive Stock Options may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Participant, only by the Participant; provided, however, that the Participant may designate a beneficiary of the Participant's Incentive Stock Option in the event of the Participant's death on a beneficiary designation form provided by the Company. EX-10.14 3 EMPLOYMENT AGREEMENT WITH WILLIAM E. NETTLES Exhibit 10.14 EMPLOYMENT AGREEMENT THIS AGREEMENT, dated as of August 13, 1997, is by and between STILLWATER MINING COMPANY, a corporation duly organized and existing under the laws of the State of Delaware (the "Company"), and William E. Nettles ("Employee"). WHEREAS, the Company desires to employ Employee and Employee desires to be employed by the Company pursuant to the terms and conditions of this Agreement; and WHEREAS, the Company has heretofore determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company; and WHEREAS, the Company has determined it is imperative to diminish the inevitable distraction of the Employee by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control, to encourage the Employee's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control and to provide the Employee with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits to be paid to the Employee are at least as favorable as those in effect at the time of the Change of Control and which are competitive with those of other corporations. NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the parties agree as follows: ARTICLE 1 EMPLOYMENT The Company hereby employs Employee, and Employee agrees to serve, as Chief Executive Officer for the Company. ARTICLE 2 BOARD MEMBERSHIP Employee shall initially be appointed as Chairman of the Board of Directors, and the Company shall nominate and shall use its reasonable efforts to cause Employee to be elected to serve as a member of the Board of Directors. Failure by the Company to cause Employee to continue in office as Chairman of the Board of Directors or to be elected to serve as a member of the Board of Directors shall not be a breach of this Agreement. Failure by the Company to cause Employee to continue in office as Chairman of the Board of Directors shall be "Good Reason" (as defined in Section 6.1 below) for Employee to terminate this Agreement. ARTICLE 3 TERM The term of this Agreement shall be for a period of three (3) years commencing August 13, 1997, unless sooner terminated as hereinafter provided. The Agreement shall thereafter continue for subsequent two (2) year terms unless altered or terminated as hereinafter provided; provided, however, that following a Change of Control, as defined in Section 6.4, the Employment Term shall continue for no less than an additional two (2) years. The period of Employee's employment hereunder, including any extension or extensions pursuant to the foregoing sentence, from the date of commencement until the date of expiration or termination of this Agreement, is referred to hereinafter as the "Employment Term." ARTICLE 4 DUTIES AND AUTHORITY Employee agrees, unless otherwise specifically authorized by the Company, to devote substantially all of his business time and effort to do his duties for the profit, benefit and advantage of the business of the Company, except that Employee may serve on the boards of directors of other business corporations that have no business relationship with the Company and which do not compete with the Company. In performing his duties hereunder, Employee shall have the authority customarily held by others holding positions similar to do those assigned to Employee in similar businesses, subject to the general and customary supervision of the Company's Board of Directors. ARTICLE 5 COMPENSATION 5.1 Base Salary. The Company agrees to pay Employee a base salary of Two ----------- Hundred Seventy-five Thousand Dollars ($275,000.00) per year, payable at the usual times for the payment of the Company's executive employees, subject to adjustment as provided herein. Employee's base salary shall be reviewed at least annually and may be increased, but not decreased, consistent with general salary increases for the Company's executive employees or as appropriate in light of the performance of Employee and the Company. Notwithstanding anything herein to the contrary, Employee's base salary may be reduced in the event of an across-the-board salary reduction for all executive officers; provided, however, that the percentage reduction of Employee's base salary shall not exceed the highest percentage reduction in base salary of any other executive officer. 5.2 Incentive Compensation. Employee shall participate in the Company's ---------------------- incentive compensation plans for executive officers of the Company, which plans will be in effect during the Employment Term. The Company will provide for a performance based cash bonus in an amount to be determined by the Board of Directors of the Company (the target of which shall be 65% of Employee's base salary and the maximum of which shall not exceed 130% of Employee's base salary). For the first year of employment, Employee shall be guaranteed a bonus of no less than 65% of Employee's base salary. -2- 5.3 Employee Benefits. Employee shall be eligible to participate in such ----------------- other of the Company's employee benefit plans and to receive such benefits for which his level of employment makes him eligible, in accordance with the Company's policies as in effect from time to time during the Employment Term; provided, however, that Employee shall be entitled to four weeks of vacation per year during the initial term of this Agreement and during the term of each extension hereof. In the event that Employee is ineligible to participate in the Company's existing health plan, either in general or with respect to any pre-existing condition, the Company shall provide Employee with comparable health care benefits. 5.4 Options. The Company shall grant to Employee the right and option to ------- purchase from the Company all or any part of an aggregate amount of 100,000 shares of the Common Stock of the Company under the Company's 1994 Stock Plan pursuant to the Stock Option Agreement attached hereto as Exhibit A. --------- ARTICLE 6 TERMINATION 6.1 Termination by the Company Without Cause; Termination by Employee for --------------------------------------------------------------------- Good Reason. - ----------- (a) The Company shall have the right to terminate this Agreement without Cause (as defined below) upon ninety (90) days' notice to Employee. If Employee's employment hereunder is terminated by the Company without Cause or by Employee for "Good Reason" (as defined below) (other than a termination involving a Change of Control or by reason of death or disability), the Company shall pay Employee at the time of such termination the following severance benefits for a three (3) year period following the date of termination, if such termination occurs within the initial Employment Term, and for a two (2) year period following the date of termination if such termination occurs after the initial Employment Term (the "Termination Period"): (i) Annual base salary at the rate in effect immediately prior to the termination date; (ii) Bonus payable in such amount as would be payable to Employee had he been employed by the Company for the full Termination Period, at the target level in effect immediately prior to the termination date, assuming the Company had achieved targeted performance objectives for such period; (iii) During the Termination Period, the Company shall timely pay or provide to Employee any other amounts or benefits required to be paid or provided or which Employee is eligible to receive under any plan or policy of the Company to the same extent that Employee would be eligible therefor if he were employed on a full-time basis by the Company in the capacity provided for herein during the Termination Period (the "Other Benefits"); provided, however, that should Employee -3- be employed by another employer during the Termination Period and become entitled to receive Other Benefits from such employer, the Company's obligation to provide such Other Benefits hereunder shall be terminated; (iv) The Company shall make available to Employee post- placement services for corporate executives at levels customary for executives in Employee's position in the Company's industry; and (v) All of the then outstanding Options (to the extent not then exercisable) shall immediately become exercisable and Employee may exercise the Options in full in accordance with Section 7 of the Stock Option Agreement attached hereto as Exhibit A. (b) For purposes of this Agreement, other than Section 6.4 hereof, "Good Reason" shall mean: (i) A substantial and material alteration in the nature or status of the Employee's responsibilities, or the assignment of duties inconsistent with, or a substantial and material alteration in the nature or status of, the Employee's responsibilities; (ii) Failure by the Company to cause Employee to continue in office as Chairman of the Board of Directors; (ii) Employee's job is eliminated other than by reason of termination for Cause; (iv) The Company fails to pay Employee any amount otherwise vested and due hereunder or under any plan or policy of the Company, which failure is not cured within ten (10) business days of receipt by the Company of written notice from Employee which describes in reasonable detail the amount which is due; (v) A material reduction in Employee's base salary except in the event of an across-the-board salary reduction for all executive officers; (vi) A material reduction in Employee's aggregate level of benefits under the Company's pension, life insurance, medical, health and accident, disability, deferred compensation or savings or similar plans, except in the event of an across-the-board reduction in such benefits for all executive officers; (vii) A material reduction in Employee's reasonable opportunity to earn incentive compensation under any plan in which Employee is a participant; -4- (viii) Employee's office is relocated outside of a 50-mile radius of Denver, Colorado, without his written consent; (ix) The Company and its successor(s) (as described in subparagraph (x) below) shall discontinue the business of the Company; (x) The failure of the Company to obtain an agreement to expressly assume this Agreement from any successor to the Company (whether such succession is direct or indirect by purchase, merger, consolidation or otherwise, to substantially all of the business and/or assets of the Company or a controlling portion of the Company's stock); or (xi) After August 13, 1998, failure by the Company to grant on an annual basis stock options to purchase at least 80,000 shares of Common Stock, assuming performance targets are satisfied, or to provide that such options will vest on death or disability of Employee. 6.2 Termination by the Company for Cause; Voluntary Termination by -------------------------------------------------------------- Employee. Employee's employment hereunder may be terminated by the Company for - -------- "Cause." For purposes of this Agreement, other than Section 6.4 hereof, "Cause" shall mean: (i) Misfeasance or nonfeasance of duty by the Employee intended to injure or having the effect of injuring the reputation, business or business relationships of the Company or any officers, directors or employees; (ii) The wilful and continued failure of Employee to perform substantially Employee's duties under this Agreement (except by reason of physical or mental incapacity) after a written demand for substantial performance is delivered to Employee by the Board of Directors which specifically identifies the manner in which the Board believes that Employee has not substantially performed Employee's duties which is not remedied or reasonable steps to effect such remedy are not commenced within fifteen (15) days after such demand is received by Employee and diligently pursued to completion; (iii) Employee's dishonesty in the performance of his duties hereunder, or (iv) Employee's conviction of a felony, any crime involving moral turpitude, or any crime which could reflect unfavorably upon the Company. Employee shall have the right to voluntarily terminate this Agreement upon ninety (90) days' notice to the Company. If Employee is terminated for Cause, or if Employee voluntarily terminates employment hereunder other than for Good Reason, he shall be entitled to receive his base salary through the date of termination. All other benefits, if any, payable to Employee following such -5- termination of Employee's employment shall be determined in accordance with the plans, policies and practices of the Company. 6.3 Termination by Death or Disability. Upon termination of Employees' ---------------------------------- employment due to death of Employee, Employee shall be entitled to his base salary at the rate in effect at the time of Employee's death through the end of the month in which his death occurs, as well as the target annual bonus prorated through the end of the month in which death occurs. Employee's employment hereunder may be terminated by the Company if Employee becomes physically or mentally incapacitated and (i) is unable for a period of one hundred eighty (180) consecutive days to perform his duties and (ii) a determination is made regarding Employee's disability by a physician appointed by the chief administrator of University Hospital, Denver, Colorado, or another health professional agreed upon by the Company and Employee (such incapacity is hereinafter referred to as "Disability"). Upon any such termination for Disability, Employee shall be entitled to receive his base salary, as well as the target annual bonus, prorated in each case through the date on which Employee is first eligible to receive payment of disability benefits in lieu of salary under the Company's employee benefit plans as then in effect. 6.4 Termination Following a Change of Control; Benefits. --------------------------------------------------- (a) In the event there is a Termination Following a Change of Control, the Agreement shall terminate and Employee shall be entitled to the following severance benefits: (i) 300 percent of Employee's annual base salary at the rate in effect immediately prior to the Change of Control or on the Termination Date, whichever is higher, payable in a lump sum within sixty (60) days after the Termination Date; (ii) 300 percent of Employee's target bonus in effect immediately prior to the Change of Control or on the Termination Date, whichever is higher, payable at the same time as the payment in (a)(i) above; (iii) To the extent not theretofore paid or provided, the Company shall timely pay or provide to Employee any other amounts or benefits required to be paid or provided or which Employee is eligible to receive under any plan, program, policy, practice, contract or agreement of the Company (other than severance pay) to the same extent that Employee would be eligible therefor if he were employed on a full-time basis by the Company in the capacity provided for herein for a period of 36 months after the Termination Date, including receiving the full benefit of three (3) years of employment at the income levels provided for herein for purposes of any retirement plan utilizing years of service as a criteria in the provision of benefits (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); provided, however, that to the extent Employee, following the Termination Date, becomes employed by another employer and becomes entitled to -6- receive health insurance benefits from such employer, the Company's obligation to provide such health insurance benefits hereunder shall be decreased; (iv) If the Employee receives any payments hereunder or under any other plan or agreement (the "Total Payments") which are subject to an excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, as amended, or any similar tax imposed under federal, state or local law (collectively, "Excise Taxes"), the Company shall pay to the Employee (on or before the date which the Employee is required to pay such Excise Taxes) an additional amount such that the net amount retained by the Employee after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the additional payment made under this Section 6.4(a)(iv) shall be equal to the Total Payments. For purposes of calculating the amount payable to Employee under this Section, the federal and state income tax rates used shall be the highest marginal federal and state rates applicable to ordinary income in Employee's state of residence, taking into account any federal income tax deductions or credits available to Employee for state income taxes. The Company shall cause its independent auditors to calculate such amount and provide Employee a copy of such calculation at least ten (10) days prior to the date specified above for payment of such amount; and (v) All accrued compensation and unreimbursed expenses through the Termination Date. Such amounts shall be paid to Employee in a lump sum in cash within thirty (30) days after the Termination Date. (vi) The Employee shall be free to accept other employment during such period, and, except as provided herein, there shall be no offset of any employment compensation earned by the Employee in such other employment during such period against payments due Employee hereunder, and there shall be no offset in any compensation received from such other employment against the continued salary set forth above. (b) For purposes of this Section 6.4, the following terms shall have the meanings set forth below: (i) A "Change in Control" of the Company shall mean and shall be deemed to have occurred if any of the following events shall have occurred: (a) Any person (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) is or becomes the beneficial owner (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates) representing 30% or more of the -7- combined voting power of the Company's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (i) of paragraph (3) below; or (b) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (c) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 55% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates) representing 30% or more of the combined voting power of the Company's then outstanding securities; or (d) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the -8- common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions. (ii) "Termination Date" shall mean, if the Employee's employment is terminated by the Company pursuant to a Termination Following a Change of Control, the date of receipt of a notice of termination or any later date specified therein, as the case may be; (iii) "Termination Following a Change of Control" shall mean a Termination of the Employee without Cause by the Company in connection with or within two years following a Change of Control or a termination by the Employee for Good Reason of the Employee's employment with the Company within two years following a Change of Control. (iv) "Good Reason" shall mean: (a) A substantial and material alteration in the nature or status of the Employee's responsibilities, or the assignment of duties inconsistent with, or a substantial and material alteration in the nature or status of, the Employee's responsibilities; (b) Employee's job is eliminated other than by reason of termination for Cause (c) The Company fails to pay Employee any amount otherwise vested and due hereunder or under any plan or policy of the Company, which failure is not cured within ten (10) business days of receipt by the Company of written notice from Employee which described in reasonable detail the amount which is due; (d) A reduction in Employee's base salary except in the event of an across-the-board salary reduction for all executive officers, including the executive officers of the entity, if any, controlling the Company following the Change of Control; (e) A reduction in Employee's aggregate level of benefits under the Company's pension, life insurance, medical, health and accident, disability, deferred compensation or savings or similar plans, except in the event of an across-the-board reduction in such benefits for all executive officers, including the executive officers of the entity, if any, controlling the Company following the Change of Control; -9- (f) A reduction in Employee's reasonable opportunity to earn incentive compensation in at least the amounts contemplated in Section 5.2 under any plan in which Employee is a participant; (g) Employee's office is relocated outside of a 50-mile radius of Denver, Colorado without his written consent; (h) The Company and its successor(s) (as described in paragraph (9) below) shall discontinue the business of the Company; (i) The failure of the Company to obtain an agreement to expressly assume this Agreement from any successor to the Company (whether such succession is direct or indirect by purchase, merger, consolidation or otherwise, to substantially all of the business and/or assets of the Company or a controlling portion of the Company's stock); or (j) After August 13, 1998, failure by the Company to grant on an annual basis stock options to purchase no less than 80,000 shares of Common Stock, assuming performance targets are satisfied, or to provide that such options will vest on death or disability of Employee. (v) "Cause" shall mean: (a) Misfeasance or nonfeasance by the Employee in the performance of his duties under this Agreement intended to injure the Company which has a material adverse effect on the Company's business or operations, if such failure is not remedied or reasonable steps to effect such remedy are not commenced within thirty (30) days after written notice of such violation; or (b) Employee's conviction of a felony or any crime involving moral turpitude. ARTICLE 7 INSURANCE 7.1 Key Man Insurance. Employee agrees that the Company may, from time to ----------------- time, apply for and take out in its own name and at its own expense, life, health, accident, or other insurance upon Employee that the Company may deem necessary or advisable to protect its interests hereunder; and Employee agrees to submit to any medical or other examination necessary for such purposes and to assist and cooperate with the Company in preparing such insurance; and Employee agrees that he shall have no right, title, or interest in or to such insurance. -10- 7.2 Directors' and Officers' Insurance. The Company shall use ---------------------------------- commercially reasonable efforts to obtain and maintain directors' and officers' liability insurance coverage in an amount equivalent to that of a well-insured, similarly situated company; provided, however, that the failure to obtain and maintain such insurance after the Company has exercised such commercially reasonable efforts shall not be a breach of the Company's obligations under this Agreement. Any directors' and officers' liability insurance covering Employee shall continue to apply following the period in which the Employee is serving as officer or director of the Company for actions or omissions during the period in which Employee was acting as officer or director. ARTICLE 8 FACILITIES AND EXPENSES The Company shall make available to Employee such office space, secretarial services, office equipment and furnishings as are suitable and appropriate to Employee's title and duties. The Company shall promptly reimburse Employee for all reasonable expenses incurred in the performance of his duties hereunder, including expenses for entertainment, travel, management seminars and use of the telephone, subject to the Company's reasonable requirements with respect to the reporting and documentation of such expenses. ARTICLE 9 NONCOMPETITION 9.1 Necessity of Covenant. The Company and Employee acknowledge that: --------------------- (a) The Company's business is highly competitive; (b) The Company maintains confidential information and trade secrets as described in Article 10, all of which are zealously protected and kept secret by the Company; (c) In the course of his employment, Employee will acquire certain of the information described in Article 10, and in the event of the termination of Employee's employment, the Company would be adversely affected if such information is used for the purposes of competing with the Company; (d) The Company transacts business throughout the world; and (e) For these reasons, both the Company and Employee further acknowledge and agree that the restrictions contained herein are reasonable and necessary for the protection of their respective legitimate interests and that any violation of these restrictions would cause substantial injury to the Company. 9.2 Covenant Not to Compete. Employee agrees that from and after the date ----------------------- hereof during the Employment Term and for a period of one (1) year after cessation of employment with the Company, he will not, without the express written permission of the Company, which may be -11- given or withheld in the Company's sole discretion, directly or indirectly own, manage, operate, control, lend money to, endorse the obligations of, or participate or be connected as an officer, director, 5% or more stockholder of a publicly-held company, stockholder of a closely-held company, employee, partner, or otherwise, with any enterprise or individual engaged in a business which is competitive with the business conducted by the Company at the time of cessation of employment with the Company. It is understood and acknowledged by both parties that, inasmuch as the Company transacts business worldwide, this covenant not to compete shall be enforced throughout the United States and in any other country in which the Company is doing business as of the date of Employee's cessation of employment. 9.3 Disclosure of Outside Activities. Employee, during the term of his -------------------------------- employment by the Company, shall at all times keep the Company informed of any outside business activity and employment, and shall not engage in any outside business activity or employment which may be in conflict with the Company's interests. 9.4 Survival. The terms of this Article 9 shall survive the expiration or -------- termination of this Agreement for any reason. ARTICLE 10 CONFIDENTIAL INFORMATION AND TRADE SECRETS 10.1 Nondisclosure of Confidential Information. Employee has acquired and ----------------------------------------- will acquire certain "Confidential Information" of the Company. "Confidential Information" shall mean any information that is not generally known, including trade secrets, outside the Company and that is proprietary to the Company, relating to any phase of the Company's existing or reasonably foreseeable business which is disclosed to Employee by the Company including information conceived, discovered or developed by Employee. Confidential Information includes, but shall not be limited to, business plans, financial statements and projections, operating forms (including contracts) and procedures, payroll and personnel records, marketing materials and plans, proposals, software codes and computer programs, project lists, project files, price information and cost information and any other document or information that is designated by the Company as "Confidential." The term "trade secret" shall be defined as follows: A trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business, and which provides to the holder an opportunity to obtain an advantage over competitors who do not know or use it. Accordingly, employee agrees that he shall not, during the Employment Term and for three (3) years after cessation of employment with the Company, use for his own benefit such Confidential Information or trade secrets acquired during the term of his employment by the Company. Further, during the Employment Term and for three (3) years after cessation of employment with the Company, Employee shall not, without the written consent of the Board of Directors of the Company or a person duly authorized thereby, which consent may be given or withheld in the Company's sole discretion, disclose to any person, other than an employee of the Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the -12- performance by Employee of his duties, any Confidential Information or trade secrets obtained by him while in the employ of the Company. 10.2 Return of Confidential Information. Upon termination of employment, ---------------------------------- Employee agrees to deliver to the Company all materials that include Confidential Information or trade secrets, and all other materials of a confidential nature which belong to or relate to the business of the Company. 10.3 Exceptions. The restrictions and obligations in Section 10.1 shall ---------- not apply with respect to any Confidential Information which: (i) is or becomes generally available to the public through any means other than a breach by Employee of his obligations under this Agreement; (ii) is disclosed to Employee without an obligation of confidentiality by a third party that is not an affiliate of the Company who has the right to make such disclosure; (iii) is developed by Employee independent of his performance of duties hereunder without use of or benefit from the Confidential Information; (iv) was in possession of Employee without obligations of confidentiality prior to receipt under this Agreement; (v) is required to be disclosed to enforce rights under this Agreement; or (vi) is required to be disclosed by Law. 10.4 Survival. The terms of this Article 10 shall survive the expiration -------- or termination of this Agreement for any reason. ARTICLE 11 JUDICIAL CONSTRUCTION Employee believes and acknowledges that the provisions contained in this Agreement, including the covenants contained in Articles 9 and 10 of this Agreement, are fair and reasonable. Nonetheless, it is agreed that if a court finds any of these provisions to be invalid in whole or in part under the laws of any state, such finding shall not invalidate the covenants, nor the Agreement in its entirety, but rather the covenants shall be construed and/or blue-lined, reformed or rewritten by the court as if the most restrictive covenants permissible under applicable law were contained herein. ARTICLE 12 RIGHT TO INJUNCTIVE RELIEF Employee acknowledges that a breach by Employee of any of the terms of Articles 9 or 10 of this Agreement will render irreparable harm to the Company; and that in the event of such breach the Company shall therefore be entitled to any and all equitable relief, including, but not limited to, injunctive relief, and to any other remedy that may be available under any applicable law or agreement between the parties. -13- ARTICLE 13 CESSATION OF CORPORATE BUSINESS This Agreement shall cease and terminate if the Company shall discontinue its business, and all rights and liabilities hereunder shall cease, except as provided in Section 6.4 and Article 14. ARTICLE 14 ASSIGNMENT 14.1 Permitted Assignment. Subject to the provisions of Section 6.4, the -------------------- Company shall have the right to assign this contract to its successors or assigns, and all covenants or agreements hereunder shall inure to the benefit of and be enforceable by or against its successors or assigns. 14.2 Successors and assigns. The terms "successors" and "assigns" shall ---------------------- mean any person or entity which buys all or substantially all of the Company's assets, or a controlling portion of its stock, or with which it merges or consolidates. ARTICLE 15 FAILURE TO DEMAND, PERFORMANCE AND WAIVER The failure by either party to demand strict performance and compliance with any part of this Agreement during the Employment Term shall not be deemed to be a waiver of the rights of such party under this Agreement or by operation of law. Any waiver by either party of a breach of any provision of this Agreement shall not operate as or be construed as a waiver of any subsequent breach thereof. ARTICLE 16 ENTIRE AGREEMENT The Company and Employee acknowledge that this Agreement contain the full and complete agreement between and among the parties, that there are no oral or implied agreements or other modifications not specifically set forth herein, and that this Agreement supersedes any prior agreements or understandings, if any, between the Company and Employee, whether written or oral. The parties further agree that no modifications of this Agreement may be made except by means of a written agreement or memorandum signed by the parties. ARTICLE 17 GOVERNING LAW The parties hereby agree that his Agreement and the Exhibit hereto shall be construed in accordance with the laws of the State of Colorado, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Colorado or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Colorado. -14- ARTICLE 18 ATTORNEYS' FEES Prior to a Change of Control, if either party shall commence any action or proceeding against the other that arises out of the provisions hereof, or to recover damages as the result of the alleged breach of any of the provisions hereof, the prevailing party therein shall be entitled to recover all reasonable costs incurred in connection therewith, including reasonable attorneys' fees. Following a Change of Control, should a dispute arise under this Agreement, or any action or proceeding be commenced to recover damages as a result of an alleged breach of the terms of this Agreement, the Company shall be required to pay the costs of Employee incurred in connection therewith, including reasonable attorneys' fees. ARTICLE 19 COUNTERPARTS This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. IN WITNESS WHEREOF, the Company has hereunto signed its name and Employee hereunder has signed his name, all as of the day and year first-above written. STILLWATER MINING COMPANY By: /s/ RAY BALLMER ___________________________ Name: RAY BALLMER ______________________ Title: CHAIRMAN _____________________ EMPLOYEE /s/ WILLIAM E. NETTLES ______________________________ William E. Nettles -15- EX-10.15 4 PGM CONCENTRATE REFINING AGREEMENT W/ UNION MINIERE EXHIBIT 10.15 PGM CONCENTRATE REFINING AGREEMENT THIS PGM CONCENTRATE REFINING AGREEMENT (this "Agreement") is made as of the 8th day of May, 1996, by and between S.A. UNION MINIERE N.V. Business Unit Hoboken, incorporated under the laws of Belgium ("Union Miniere"), and STILLWATER MINING COMPANY, a Delaware corporation authorized to conduct business in the State of Montana ("SMC"). WITNESSETH: WHEREAS, Union Miniere owns certain facilities in Belgium (the "Facility") capable of treating PGM Concentrate (as such term is defined herein); WHEREAS, SMC intends to mine, mill and process minerals from its present mine in Nye, Montana as described herein (the "Stillwater Mine"); and WHEREAS, SMC desires Union Miniere to treat and refine the PGM Concentrate produced by SMC from the Stillwater Mine, and Union Miniere desires to treat and refine the PGM Concentrate at its Facility. NOW, THEREFORE, for and in consideration of the premises and of the several and mutual agreements herein contained, value and sufficiency being hereby acknowledged, the Parties agree as follows: 1. DEFINITIONS ----------- Throughout this Agreement, the following terms shall mean: 1.1 AGREED CONTENT means the concentration of a metal found in the PGM Concentrate as set forth in the Final Assay determined in accordance with Section 12 hereof. 1.2 DATE OF DELIVERY means the date the PGM Concentrate is received by Union Miniere as acknowledged in accordance with Section 6.3 hereof. 1.3 FACILITY means Union Miniere's Belgian facilities capable of treating and refining PGM Concentrate. 1.4 FINAL ASSAY means the determination of the concentrations of metals in the PGM Concentrate on which the return of metals by Union Miniere to SMC will be based under this Agreement. 1.5 FINAL VALUE means the market value of returnable and payable metals less payable charges. 1.6 G means gram, i.e., 0.001 Kg. 1.7 HEREOF, HEREIN, HERETO, HEREUNDER refers to this Agreement as a whole and not solely to a particular subdivision thereof in which the same appear. 1.8 KG means kilogram, i.e., 1,000g, or 32.1507 tr oz. 1.9 LOT means a quantity of PGM Concentrate delivered to Union Miniere in one shipment of approximately 200 to 400 pounds per shipment. 1.10 PARTY OR PARTIES means Union Miniere and SMC, individually or collectively as the context implies, and the successors and assigns of any Party which shall have become a Party hereto in accordance with the terms hereof. 1.11 PLATINUM GROUP METALS OR PGM means, collectively, platinum, palladium and rhodium. 1.12 PGM CONCENTRATE means materials produced by SMC and containing principally platinum, palladium and rhodium and generally having the composition as described in Section 5 hereof. 1.13 PROVISIONAL INVOICE means an invoice for charges by Union Miniere to SMC based on the lowest results of the assays performed in accordance with Section 12. 1.14 RETURNABLE METALS means the metals contained in the PGM Concentrate to be refined and returned to SMC's account by Union Miniere in the quantities, at the purity levels and otherwise as required by Section 10.1 hereof. 1.15 SMC ACCOUNT means the account for Returnable Metals established with Union Miniere in accordance with Section 10.4 hereof. 1.16 STILLWATER MINE means SMC's present mine in Nye, Montana. 1.17 TR OZ means ounce, i.e., 31.1035 grams. 1.18 U.S. means United States dollars, the lawful currency of the United States of America. 2. DELIVERY OF PGM CONCENTRATE; REFINING; RETURN OF METALS ------------------------------------------------------- 2.1 DELIVERY BY SMC SMC shall deliver to Union Miniere PGM Concentrate in the quantities and with the composition and otherwise in accordance with the terms and conditions of this Agreement. 2.2 REFINING OF PGM CONCENTRATE; RETURN OF METALS Union Miniere shall take delivery of the PGM Concentrate provided by SMC under this Agreement, and shall treat and refine the PGM Concentrate and return certain metals contained in the PGM Concentrate upon the terms and conditions of this Agreement. 3. TERM AND TERMINATION -------------------- 3.1 TERM This Agreement will remain in force and effective until December 31, 2000, unless extended or terminated by written agreement of the Parties, or terminated according to the provisions of this Agreement. 3.2 OPTIONAL EARLY TERMINATION At its option, SMC may terminate this Agreement by notifying Union Miniere in writing at least one hundred and eighty (180) days in advance of the date of such termination. In the event of such optional termination as provided in this Section 3.2, SMC shall pay to Union Miniere (in addition to payment of charges due in accordance with Section 11 for processing already performed), as liquidated damages and not as a penalty, an amount of money indicated for the respective period during which the date of such termination occurs as follows: Period during which Amount Date of Termination Occurs ($US) -------------------------- --------- Effective date through December 31, 1996 3,500,000 January 1, 1997 through December 31, 1997 2,800,000 January 1, 1998 through December 31, 1998 2,000,000 January 1, 1999 through December 31, 1999 1,400,000 January 1, 2000 through December 31, 2000 700,000 The liquidated damages provided for herein shall be Union Miniere's sole and exclusive remedy for SMC's optional early termination of this Agreement in accordance with this Section 3.2. 3.3 EXTRAORDINARY EARLY TERMINATION Notwithstanding the provisions of Section 3.2 hereof, SMC may terminate this Agreement by notifying Union Miniere in writing at least thirty (30) days in advance of the date of such termination, without payment of the liquidated damages set forth in Section 3.2 or any penalty or other amounts except payment of charges due in accordance with Section 11 for processing already performed, under the following circumstances: 3.3.1 Force Majeure. A condition or conditions of force ------------- majeure continue for the applicable periods set forth in Section 15.2 hereof; or 3.3.2 Change in Law. An order, statute, rule, regulation, ------------- executive order, injunction, stay, decree or restraining order shall have been enacted, entered, promulgated or enforced by any governmental or regulatory authority or instrumentality or court of competent jurisdiction that materially adversely affects the transactions contemplated by this Agreement, the market conditions thereof or the economic benefits to SMC thereof; or 3.3.3 Default by Union Miniere. Union Miniere defaults in ------------------------ the performance of its obligations hereunder in accordance with Section 13.2 hereof. 4. QUANTITIES ---------- In each calendar year of this Agreement, SMC shall ship to Union Miniere under this Agreement, and Union Miniere will treat, PGM Concentrate in quantities which shall be the lesser of the (i) ounces of platinum group metals or (ii) percentage of total calendar -3- year production from the Stillwater Mine in accordance with the following schedule for the respective calendar years: PRODUCTION RANGES ----------------- Calendar PGM Percentage of Total Year Ounces Calendar Year Production -------- --------- ------------------------ 1996 291,600 90% 1997 338,100 70% 1998 350,000 70% 1999 350,000 70% 2000 350,000 70% --------- 1,679,700 5. QUALITY ------- 5.1 HISTORICAL AVERAGE QUALITY OF PGM CONCENTRATE The PGM Concentrate is expected to have the following approximate composition, based on average composition of PGM Concentrate produced by SMC at its pilot plant in 1994: 1994 AVERAGE COMPOSITION OF PGM CONCENTRATE ------------------------------------------- Average Average Component % Component % --------- ---- --------- ---- Pt 10.5 Ni 3.2 Pd 34.0 S 6.0 Rh 0.3 Pb 2.3 Au 0.6 As 0.2 Ag 0.2 Si 0.1 Co 0.1 Se 1.1 Cu 7.5 Te 0.04 Fe 3.3 5.2 MATERIAL CHANGES IN PGM CONCENTRATE COMPOSITION In the event that the composition of PGM Concentrate delivered hereunder departs materially from the composition described in Section 5.1 above, Union Miniere and SMC will negotiate in good faith with full disclosure to overcome any significant economic hardships or technical difficulty which either Union Miniere or SMC may suffer as a result thereof. 6. SHIPMENT AND DELIVERY; RECEIPT ------------------------------ 6.1 SHIPMENT Shipment shall be made at a regular rate during the term of this Agreement. The PGM Concentrate will be dispatched in Lots which will be packed and sealed in 55 kg drums. More than one Lot may be shipped by SMC to Union Miniere at a time. 6.2 DELIVERY -4- Delivery shall be free of all charges Brussels Airport, at which time possession of the PGM Concentrate shall transfer to Union Miniere. 6.3 RECEIPT Union Miniere shall promptly notify SMC in writing when it has received PGM Concentrate at the Brussels Airport. Acknowledgment by Union Miniere of delivery, on carrier's receipt, will not constitute agreement as to description, weight or composition of the PGM Concentrate received. 7. RISK OF LOSS ------------ All risk of loss or damage to the PGM Concentrate and contained metals from all causes shall be assumed by the Party in possession of such PGM Concentrate and contained metals. Risk of loss of the PGM Concentrate and contained metals shall pass to Union Miniere upon receipt and acceptance of the PGM Concentrate by Union Miniere. Risk of loss shall remain with Union Miniere through the refining process and will continue thereafter as to any and all Returnable Metals which have been returned to SMC's account established in Section 10.4 hereof until such time as such Returnable Metals have been transferred or exported at the written direction of SMC in accordance with Section 14 hereof. 8. INSURANCE --------- Union Miniere shall acquire and maintain adequate insurance to cover 100% of the value of the PGM Concentrate and contained metals while in Union Miniere's possession. 9. WEIGHING; SAMPLING; MOISTURE ---------------------------- 9.1 PROCEDURES Except as provided in Section 9.4, weighing, sampling and moisture determinations as to each Lot shall be conducted by Union Miniere at the Facility in accordance with the procedures set forth in Exhibit A attached hereto and by this reference incorporated herein. Union Miniere shall provide to SMC and retain for themselves four (4) sealed samples per Lot: three (3) for it's own assays and one (1) to be set aside for purposes of an umpire assay in accordance with Section 12.4 hereof. Union Miniere shall treat the PGM Concentrate only after executing and delivering to SMC a weighing and sampling report which certifies compliance with the procedures set forth in Exhibit A. 9.2 SMC REPRESENTATIVE SMC shall be entitled to be represented at weighing, sampling and moisture determinations, at its own cost, by a supervising company whose nomination shall be subject to Union Miniere's approval which approval shall not be unreasonably withheld. An unexhaustive list of representatives approved by Union Miniere as of the date hereof is attached hereto as Exhibit B. SMC shall nominate any such representative by providing written notice to Union Miniere which indicates the name of the representative and the particular Lot or Lots which it is supervising on behalf of SMC. If no representative has been so nominated by SMC within a -5- reasonable time after SMC has received notice from Union Miniere of the date and time for sampling as provided in Section 9.1, then SMC will not be represented. 9.3 SEPARATE TREATMENT OF LOTS Each Lot shall be considered complete and separate for all accounting purposes under this Agreement. 9.4 ALTERNATIVE PROCEDURES Weighing, sampling and moisture determinations as to each Lot shall be conducted by Union Miniere in accordance with Section 9.1, except that SMC may hereinafter notify Union Miniere in writing of certain alternative procedures to be followed for such weighing, sampling and moisture determinations as to each Lot, including but not limited to procedures involving performance of certain of such determinations by SMC at the Stillwater Mine facilities, which alternative procedures shall, after approval by the Parties, be incorporated herein and thereafter implemented for Lots delivered under this Agreement. 10. RETURNABLE METALS ----------------- 10.1 PERCENTAGE OF METAL RETURNS; PURITY Union Miniere shall return to SMC, in accordance with this Agreement, the respective percentages of the Agreed Content of the metals contained in the PGM Concentrate, in the form of minimum purity sponge conforming to ASTM specification B561-84 in the respective percentages of minimum purity, as set forth in Exhibit C. SMC may, upon written notice, direct Union Miniere to provide Returnable Metals in the form of solution rather than sponge with the same respective minimum purity levels as set forth in Exhibit C. 10.2 RETURN OF METALS Union Miniere shall make available to SMC or credit to the SMC account, within the time periods set forth in Section 10.3, the Returnable Metals. Said Returnable Metals shall be returned unpackaged, ex Facility, unless otherwise requested by SMC. SMC shall bear any costs of such packaging. 10.3 TIME FOR RETURN OF THE METALS Platinum, palladium, silver and gold shall be made available by Union Miniere to SMC or credited to the SMC account no later than twenty (20) days after the Date of Delivery. Rhodium shall be made available by Union Miniere to SMC or credited to the SMC account no later than fifty (50) days after the Date of Delivery. 10.4 SMC ACCOUNT In order to establish proper accounting for the Returnable Metals due to SMC under this Agreement, Union Miniere shall establish an account in the name of SMC which will reflect the accurate amounts of each element of Returnable Metal so held by Union Miniere, subject to the further orders of SMC. Union Miniere shall store, safeguard and insure all precious metals accounted for in said account, at no charge to SMC. SMC may require physical delivery of Returnable Metals held in the SMC account, or it may draw upon its account to transfer to other third party accounts held by Union Miniere upon written direction to Union Miniere in accordance with Section 14 hereof. -6- 11. CHARGES ------- 11.1 TREATMENT AND REFINING CHARGES SMC shall pay to Union Miniere the charges set forth in Exhibit D which shall be adjusted only in accordance with Section 11.2 hereof and shall be the total amount due to Union Miniere for its treatment and refining of the PGM Concentrate and the contained metals therein under this Agreement. Such charges shall be calculated based on the ounces of each element of Returnable Metals determined by the Agreed Content to be present in the PGM Concentrate and shall apply pro rata to fractional amounts. No other charges shall be made by SMC to Union Miniere under this Agreement. 11.2 ADJUSTMENT OF CHARGES The charges payable in accordance with Section 11.1 shall remain fixed at the levels specified in such Section 11.1 for a period of thirty-six (36) months, commencing January 1, 1996. Thereafter, such charges may be adjusted for the succeeding twenty-four (24) calendar months only after the Parties have agreed in writing as to the charges to be imposed for such twenty-four (24) calendar month period. Prior to the end of the first period of thirty-six (36) months, Union Miniere shall provide in writing to SMC a proposal for any adjustment to charges for such subsequent twenty-four (24) calendar month period, which proposal shall include documentation to demonstrate that such proposed adjustment to charges directly results from an increase in actual costs to Union Miniere in performing the services under this Agreement; provided, however, that in no event shall Union Miniere propose to increase any of the charges by an amount exceeding 5% of any such charge as set forth in Exhibit D. Until agreement as to adjusted charges has been reached, the charges in Section 11.1 shall be payable. Upon the establishment of any new charges pursuant to this Section 11.2, such new charges shall apply to all deliveries of PGM Concentrate made to Union Miniere after the end of the thirty- sixth (36th) calendar month described above, but shall have no application to deliveries of PGM Concentrate made to Union Miniere before such date. 11.3 PAYMENT OF CHARGES SMC SHALL PAY TO UNION MINIERE THE TOTAL AMOUNT OF THE CHARGES PAYABLE UNDER THIS AGREEMENT. SUCH AMOUNT SHALL BE PAID BY SMC IN U.S. DOLLARS NO LATER THAN TWENTY (20) DAYS AFTER RECEIPT BY SMC OF THE PROVISIONAL INVOICE OR FINAL INVOICE FROM UNION MINIERE. When provisional invoicing and payment have been made, a final accounting shall follow as soon as all necessary data are available. 12. ASSAYS ------ 12.1 ASSAY PROCEDURES -7- The samples of PGM Concentrate, by Lot, shall be analyzed by each Party independently to assay the content therein of precious metals. Such assays of platinum, palladium gold and silver shall be performed using fire assay lead collection procedures and assays of rhodium shall be performed using nickel sulfide collection procedures. 12.2 EXCHANGE OF ASSAYS The results of the assays of samples performed as described in Section 12.1 shall be exchanged simultaneously by registered airmail between SMC and Union Miniere on a date to be agreed upon in advance, but in no event later than a date sixty (60) days after the Date of Delivery of the respective Lot. 12.3 SPLITTING DIFFERENCE IN PARTIES' ASSAYS Should the difference between the results of the assays of both Parties be not more than: For Pt.: 0.50% relative; For Pd.: 0.50% relative; For Au.: 1.00% relative; For Rh.: 1.00% relative; For Ag.: 5.00% relative; then the exact mean of the two results shall be taken as the Final Assay for the purpose of final accounting. 12.4 UMPIRE ASSAY 12.4.1 Rotation Among Umpires. In the event of a greater ---------------------- difference between the Parties' assays than the amounts specified in Section 12.3 above, an umpire assay shall be made by one of the following umpires, acting in rotation, sampled Lot by sampled Lot: Laboratoire D' Analyse Bachelet Rue due Val Benoit, 129 B-4900 Angleur, Belgium A.H. Knight International Ltd Eccleston Grange, Prescot Rd. GB-WA 10 3BA St. Helens - Merseyside Great Britain Inspectorate Griffith Ltd 2 Perry Road, Witham Essex, CM8 3TU England, Great Britain Allex Stewart Assay Caddish Road, Knowsley Industrial Estate - Merseyside Great Britain -8- 12.4.2 Umpire Assay between Parties' Assays. Should the umpire ------------------------------------ assay fall between the results of the two Parties or coincide with either, the arithmetical mean of the umpire assay and the assay of the Party which is nearer to the umpire assay shall be taken as the Final Assay. In the event that the umpire assay is exactly between the assay of the two Parties, the umpire assay shall be taken as the Final Assay. 12.4.3 Umpire Assay Outside Exchanged Results. Should the -------------------------------------- umpire assay fall outside the exchanged results, the assay of the Party which is nearer to the umpire assay shall be taken as the Final Assay. 12.4.4 Cost of Umpire Assay. The cost of the umpire assay shall -------------------- be borne by the Party whose result is further from the umpire's. However, if the umpire assay is the exact mean of the assays exchanged by the Parties, such cost shall be borne equally by the Parties. 12.4.5 Replacement of Existing Umpire. Either Party may ------------------------------ recommend that an existing umpire be replaced. Any such replacement shall be subject to unanimous agreement of the Parties. 13. DEFAULT ------- 13.1 DEFAULT IN PAYMENT OF CHARGES Subject to thirty (30) days advance written notification, and a reasonable time to cure upon the failure of SMC to pay the charges as required by Section 11 hereof, Union Miniere may retain or sell Returnable Metals for an amount equivalent to the total amount of charges due plus interest for the applicable period, which shall be at the one-month LIBOR rate ruling at the due date of the payment, as published in the Wall Street Journal. Returnable Metals retained or sold by Union Miniere under the terms of this Section 13.1 shall be valued and/or sold at the fair market value on the date of retention and/or sale. 13.2 DEFAULT BY UNION MINIERE Subject to thirty (30) days advance written notification, and a reasonable time to cure, the failure of Union Miniere to satisfy any of its obligations hereunder, including its failure to satisfy the minimum purity levels for Returnable Metals, shall constitute a default hereunder. A default by Union Miniere hereunder shall furthermore exist in the event Union Miniere shall make or offer to make any arrangement with creditors or commit any act of bankruptcy. Upon such a default by Union Miniere, SMC may terminate this Agreement as provided in Section 3.3.3 and all future obligations of SMC shall cease. 13.3 SUSPENSION OF PERFORMANCE Default of performance by either Party under this Agreement shall give to the non-defaulting Party the right to suspend its further performance under this Agreement. 14. EXPORT OF RETURNABLE METALS --------------------------- -9- The Returnable Metals shall be exported from Belgium within twelve (12) months of the Date of Delivery. SMC shall require any of its purchasers of such Returnable Metals to comply with the requirements of this Section 14. Detailed instructions (country of destination, forwarding agent, agent, means of transportation, etc.) regarding the removal of the Returnable Metals shall be given by SMC or SMC's assignee so as to reach Union Miniere at least five (5) business days before the date of the removal. Any such instructions of SMC or its assignee, in their entirety, must be written. Notwithstanding the provisions of this Section 14, transfers between the account of SMC at Union Miniere and /or third party accounts at Union Miniere shall occur on the same day as the receipt of detailed written instructions from the designated person of SMC; provided that, if such instructions are received on a day which is not a business day in Belgium, then such account transfers shall be accomplished on the next succeeding business day. 15. FORCE MAJEURE ------------- 15.1 EXTENSION OF TIME If, at any time, either Party is delayed in or prevented from exercising its rights or performing its obligations under this Agreement (other than payment of money), which delays or preventions are caused by any cause beyond the reasonable control of such Party including, without limiting the generality of the foregoing, acts of God, accidents, strikes, insurrections, lockouts or other labor or industrial disturbances, actions of any competent governmental authority or court orders, future orders of any regulatory body having jurisdiction, acts of the public enemy, wars (declared or undeclared), riots, sabotage, blockades, embargoes, shortages of or inability to secure fuel, power, contractors, labor, raw materials, railroad or transport facilities, failure of and damage to or destruction of machinery, plant and equipment, snowslides, landslides, lightning, weather conditions materially preventing or impairing work, fires, storms, floods, washouts and explosions, and any other causes beyond the reasonable control of the Party in question, whether of the kind enumerated herein or otherwise, such Party shall not be liable for any such failure or delay by it to perform its obligations hereunder and the period of all such delays or preventions resulting from such causes or any of them shall be excluded in computing and shall extend the time within which Party may exercise its rights or perform its obligations hereunder for a period equal to the total duration of all such instances. 15.2 NOTICE REQUIRED; OPTION TO TERMINATE Neither Party's performance shall be excused or extended under this Section 15, unless the Party claiming force majeure shall give the other immediate notice of the occurrence of such event and the expected duration thereof. The non-claiming Party shall be entitled to terminate this Agreement without further liability upon notice to the other Party in the event that a condition or conditions of force majeure shall continue for more than three (3) consecutive months. In the condition or conditions of force majeure continue for a period in excess of twelve (12) consecutive months, then either Party may terminate this Agreement, without further liability, by written notice to the other Party. In the event of termination for reasons of force majeure affecting SMC, the liquidated damages set forth in Section 3.2 shall not apply. -10- 15.3 ALLOCATION OF RESOURCES In the event of a claim of force majeure, Union Miniere shall have an obligation to allocate its available refining services or other resources among all of its customers, including SMC, on a pro rata basis in accordance with its obligations thereto. 15.4 EFFECTS ON PARTIES Upon receipt of notice from Union Miniere of termination as a result of force majeure in accordance with Section 15.2, SMC shall be immediately entitled to ship PGM Concentrate to an alternative treatment facility and divert any shipment already in route. Union Miniere shall cooperate with SMC as necessary or appropriate to facilitate such diversion and alternative facility treatment and the orderly transition back to Union Miniere upon cessation of the condition of force majeure. Union Miniere shall be excused for the duration of any cause of force majeure from accepting further deliveries of PGM Concentrate from SMC. 15.5 BEST EFFORTS REQUIRED The Party claiming force majeure shall use all reasonable best efforts to eliminate such event insofar as possible with a minimum of delay; provided, however, neither Party shall be required to settle a labor dispute or strike against its best interest, such settlement and negotiations being totally within such Party's discretion. 16. RESOLUTION OF DISPUTES ---------------------- 16.1 GOOD FAITH, FAIR DEALING The Parties hereto confirm that the spirit of mutual cooperation and goodwill underlie this Agreement, and that the Parties shall perform the transactions contemplated hereunder based on principles of mutual cooperation. It is therefore agreed and understood that if one of the Parties has been put into an excessively inequitable or unreasonable position due to unforeseen conditions or circumstances beyond the control of either Party, then both Parties shall upon request by the Party affected by such change enter into good faith negotiations to arrive at an equitable solution. 16.2 ARBITRATION All disputes arising under this Agreement, which cannot be settled by mutual consent and negotiations within a period of one hundred eight (180) days after commencement of such negotiations (or within such other period as specifically specified herein for the applicable dispute), shall be finally settled by way of arbitration under the rules of Conciliation and Arbitration of the International Chamber of Commerce. The Parties hereto agree that each Party shall nominate an arbitrator and the two arbitrators nominated by them shall agree on a third arbitrator within 30 days after their nomination. The decision of the arbitrators shall be final and binding upon the Parties thereto and may be enforced by any court of competent jurisdiction over its person and venue in such court. The place of arbitration shall be New York, New York USA, in any event and the -11- language of the arbitration shall be English. Costs of arbitration shall be charged or apportioned as directed by the arbitrators. Either Party on behalf of the Parties hereto shall have the right to commence any such arbitration procedure. 17. APPLICABLE LAW -------------- THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY AND SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE "CODE SUISSE DES OBLIGATIONS." 18. CONFIDENTIALITY --------------- Each Party shall consider all information, documents and other materials provided hereunder (collectively, "Confidential Information") as confidential and proprietary information of the disclosing Party, and the receiving Party agrees to maintain in confidence all such Confidential Information and not to divulge such Confidential Information in whole or in part to any third party and not to make use of such Confidential Information other than in relation to meeting its obligations under this Agreement. This obligation shall not apply to: (i) Confidential Information which at the time of disclosure is in the public domain; or (ii) Confidential Information which, after disclosure, becomes part of the public domain by publication or otherwise, other than by an unauthorized act or omission of the receiving Party; or (iii) Confidential Information which the receiving party is required by law or at the request of any governmental organization to make public. 19. MODIFICATIONS ------------- Neither this Agreement nor any terms or provisions hereof may be changed, waived, discharged, or terminated orally, but only by an instrument in writing specifically purporting so to do and signed by the Parties hereto. 20. SUCCESSORS AND ASSIGNS ---------------------- This Agreement and all of its provisions shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties hereto. 21. ASSIGNMENT ---------- This Agreement may not be assigned by any Party without the prior written consent of the other Party. Such consent shall not be unreasonably withheld. 22. NOTICES ------- All notices shall be given by telex or telecopier and shall be deemed received upon receipt of electronic confirmation of the same. Notices to Union Miniere shall be directed as follows: -12- S.A. Union Miniere N.V. Telephone 32 3 8217624 A. Grienerstraat 14 Telecopier 32 3 8217807 2660 Hoboken, Belgium Telex 34004 UM B Notices to SMC shall be directed as follows: Stillwater Mining Company Telephone (406) 328-6400 HC 54 Box 365 Telecopier (406) 328-8506 Nye, Montana 59061 - USA 23. ENTIRE AGREEMENT ---------------- This Agreement represents the complete agreement between the Parties hereto and supersedes all prior or contemporaneous oral or written agreement of the Parties to the extent they relate in any way to the subject matter hereof. 24. COUNTERPARTS ------------ This Agreement may be executed by the Parties hereto in two or more counterparts, each of which when so executed and delivered shall be an original, and it shall not be necessary in making proof of this Agreement, as to any Party hereof, to produce or account for more than one such counterpart executed by such Party. 25. WAIVER ------ The waiver of any breach of this Agreement by either Party hereto shall in no way constitute a waiver of any future breach, whether similar or dissimilar in nature. 26. HEADINGS AND TABLE OF CONTENTS ------------------------------ The headings to all sections, subsections and exhibits, and the table of contents contained in this Agreement, shall not form a part of this Agreement or of its exhibits, but shall be regarded as having been used for the convenience of reference only. -13- IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly authorized officers effective from and after the day and year first above written. S.A. UNION MINIERE N.V., BUSINESS UNIT HOBOKEN WILLY FIERAIN By: PAUL VAN NEGEN _____________________________________ Title: VICE PRESIDENT __________________________________ STILLWATER MINING COMPANY, A DELAWARE CORPORATION By: /s/ JOHN ANDREWS _____________________________________ Title: PRESIDENT __________________________________ -14- EX-10.16 5 ARTICLES OF AGREEMENT W/ O, C & A INTERNATIONAL UNION EXHIBIT 10.16 ARTICLES OF AGREEMENT BETWEEN STILLWATER MINING COMPANY AND OIL, CHEMICAL AND ATOMIC WORKERS INTERNATIONAL UNION, AFL-CIO, AND ITS LOCAL 2-1 JULY 1, 1996 ARTICLES OF AGREEMENT This Agreement dated July 1, 1996, made and entered into by and between Stillwater Mining Company (hereinafter referred to as the "Company") and the Oil, Chemical and Atomic Workers International Union, AFL-CIO, and its Local 2-1 (hereinafter referred to as the "Union"). The general purpose of this Agreement is to foster and promote stable and cooperative labor relations between the Company and its represented employees and to promote the mutual interests of the Company and the Union, by setting forth mutual promises and obligations herein assumed, the parties agree as follows: ARTICLE I - RECOGNITION SECTION 1. The Company recognizes the Union as the sole and exclusive bargaining representative for the purpose of collective bargaining with respect to rates of pay, wages, benefits, hours of employment and other conditions of employment pertaining to all Stillwater Mining Company employees employed by the Company at the facilities at Nye, Montana; and the facilities at Columbus, Montana, to wit: All hourly production and maintenance employees, including warehouse employees and custodians; but excluding all temporary student summer hires, professional employees, technical and laboratory employees, office clerical employees, guards, dispatchers and supervisors, and those above the rank of supervisor, as defined in the act; National Labor Relations Board case number 27-RC-7563, Certification dated December 19, 1995. SECTION 2. The Company recognizes that the Union's Workers' Committee is the duly selected body which represents Union interests to the Company. The Workers' Committee shall be selected by the Union, and consist of seven (7) members, including the Local Union President who shall be Chair. The six (6) remaining members of the Workers' 1 Committee shall consist of three (3) from the mine, one (1) from the Concentrator, one (1) from the Smelter/BMR, and one (1) from maintenance. Alternates may be selected to replace members of the Committee who may be absent. The Local Union President shall promptly notify the Company, in writing, of the names of the members of the Workers' Committee and such stewards as it may select. The Company will be notified, in writing, of any changes and shall not be required to recognize the above until notified in writing. The Company recognizes the Workers' Committee as the bargaining committee for purposes of collective bargaining; as representatives in the Management-Union Committee meetings as set forth in Article VI; and as stewards as set forth in Article VII. The Company recognizes the role of the International Union Representative. As such, the International Union Representative may be present at meetings between Management and the Union, provided notice is given in advance. The Union agrees that such activities will not result in any disruption of the Company's operations, and employees will not neglect their duties and responsibilities. SECTION 3. The provisions of this Agreement shall be binding upon the Company and the Union, and its successors and assigns. The provisions of this Agreement constitute the sole procedure for the processing and settlement of any claim under this Agreement. SECTION 4. There shall be no strikes, work stoppages or work slowdowns by the Union, or lockouts by the Company, during the term of this Agreement. ARTICLE II - TERM OF AGREEMENT This agreement shall remain in effect through 12 noon July 1, 1999, and if not terminated at the end of that period by sixty (60) days written notice by one party to the other prior to this date, shall continue in effect thereafter until terminated by either party upon ninety (90) days written notice of its desire to terminate or modify this Agreement. ARTICLE III - MANAGEMENT RIGHTS The Union recognizes that management retains all the general and traditional rights to manage the business as well as any rights under law or agreed to by the parties. These rights rest exclusively in the management who are the sole decision makers regarding the operation of the business. The following listing of specific management rights is not intended to be all- inclusive, but simply sets forth some of those rights considered to be general rights of management. The fact that a particular management right is not included in the following listing does not mean the right does not exist: The right to determine the number of employees required by the Company at any place from time to time, for any and all operations; to determine the jobs, content of jobs and to modify, combine or cease any job, department or operation; to hire, classify, transfer, promote, demote and layoff employees; to determine qualifications, evaluate performance and assign and direct the workforce; to maintain order and discipline; to make, alter and amend reasonable rules of conduct and procedures for employees; to reprimand, suspend, discharge and otherwise discipline for just cause. 2 The right to determine the number and types of facilities and working places; the kinds and locations of machines, tools and equipment to be used; and the right to schedule production; to maintain efficiency; to introduce new or improved research methods, materials, machinery and equipment; to set the standards of productivity and the products to be produced; to determine the working schedules of employees, including the number of hours and shifts to be worked; to determine the amount and form of incentive and/or bonus compensation to be paid in addition to wages set forth in Appendix A; to use independent contractors to perform any work or services provided such contracting does not result in the layoff of employees covered by this Agreement. The Company's failure to exercise any right or function reserved to it, or the exercise of a management right in a particular way, shall not prevent the Company from exercising any of its rights in the future or in some other way not in conflict with the express provisions of this Agreement. The only restrictions on management rights are those expressly provided for in this Agreement. The exercise of these rights alleged to be in conflict with any other provision of this Agreement shall be subject to the grievance and arbitration procedures herein. ARTICLE IV - NON-DISCRIMINATION SECTION 1. There shall be no discrimination or harassment by the Company, its officers, or agents, or the Union, or its members against any employee because of membership or non-membership in any lawful union, participation or non- participation in any lawful union activity, or because any employee has exercised or failed to exercise any right specifically provided under this Agreement. The Company and the Union agree there shall be no discrimination against any employee because of religion, race, color, creed, age, sex, national origin, or disability as set forth in the Americans with Disabilities Act. ARTICLE V - UNION SECURITY SECTION 1. Every employee covered by this Agreement must, for the life of this Agreement after the grace period described below, satisfy a financial obligation to the Union as the exclusive bargaining representative. Under this Agreement, the financial obligation for union members is an amount equivalent to monthly dues, and for non-members a fee amount, as determined by the Union, to perform the duties as exclusive representative under this Agreement. This financial obligation is a condition of continued employment and is in consideration for the cost of representation and collective bargaining and is not contingent upon present or future membership in the Union. The grace period for this Agreement is thirty (30) calendar days following the completion of the employee's probationary period as set forth in Article X, or by the thirtieth (30th) calendar day following the effective date of this Agreement, whichever is later. Neither the Union or Company, nor any of their officers, agents or members shall intimidate or coerce employees about membership or non-membership in the Union. If any dispute arises as to whether there has been any violation of this provision (or whether an employee affected by this Agreement has failed to meet the financial obligation), the dispute shall be submitted directly to the arbitration clause found in this Agreement for determination. The Union shall indemnify and save the Company harmless against any and all claims, demands, suits or other forms of liability that shall arise out of or by reason of action taken by the Company in complying with the provisions of this Article. 3 SECTION 2. For employees in the bargaining unit, the Company agrees to deduct the Union dues for the month from the wages due each month, providing each employee from whose check Union dues are to be deducted has on file a signed payroll deduction authorization, as stated in Appendix B. ARTICLE VI - MANAGEMENT-UNION COMMITTEE SECTION 1. The Company and the Union recognize the benefits of an open forum where information, mutual concerns, interests, and complaints (not covered under Article VII) affecting the workplace can be freely discussed, with a view to exploring possible solutions which are acceptable and beneficial to employees, the Union and the Company. Without limiting the opportunity for the Union and the Company to meet informally at the Nye or Columbus facilities, the parties agree to establish a Management-Union Committee (MUC) as set forth below. SECTION 2. The Workers' Committee will serve as representatives for the Union at MUC meetings. The Company representatives will be comprised of Senior Management personnel. MUC meetings will normally be held during regular business hours, as necessary, on at least a quarterly basis. Logistics for the meeting will be mutually agreed upon, and coordinated through the Human Resources Department. Senior Management from the Nye and Columbus facilities will discuss agenda items with the Local Union President prior to the meeting. A formal meeting agenda will be given to all committee members at least five (5) days prior to the meeting, whenever possible. For employees on their regularly scheduled shifts, time spent at MUC meetings will be considered as time worked and will be paid at employee's normal base rate. The Company will make every reasonable effort to schedule the MUC members on shift during MUC meetings. SECTION 3. The Union and the Company agree that the Management-Union Committee is limited to joint discussion and consultation, and it is in no way intended to limit or restrict the rights reserved to the Union or the Company by this Agreement. The Committee is not intended to take the place of normal communication between employees and the Company, or to serve as an alternative to the grievance and arbitration provisions of this Agreement, or to interfere with or attempt to renegotiate any of the provisions of this Agreement, except as set forth in Article XXIII, Section 4. ARTICLE VII - GRIEVANCE AND ARBITRATION SECTION 1. It is recognized that, from time to time, dispute(s) between the Company and its employees may occur. Employees are encouraged to settle these differences as quickly as possible with their immediate foreman or supervisor. If desired, the employee may be accompanied and assisted by a steward or grievance committee member. A "grievance" is a dispute as to the interpretation, application, or alleged violation of any of the provisions of this Agreement. 4 SECTION 2. The Union will establish a grievance committee for dealing with grievances for each of the following departments: Mine, Concentrator Operations, Maintenance and Smelter/BMR. The Union will select up to three (3) employees to serve on such grievance committees from each of the above departments for the purpose of processing grievances which are not resolved in Step 2. The Local Union President, or designee, shall be a member of each of the above grievance committees. The Union will notify the Company, in writing, of the names of the employees serving on the above grievance committees, and such stewards as it may select, and of any changes in membership of same. SECTION 3 - GRIEVANCE PROCEDURE. Should a grievance arise that is not verbally settled with the immediate supervisor, an earnest effort will be made to settle such grievance in the following manner: Step 1: Within fifteen (15) calendar days from the time the grievance arose, - ------- the employee (or steward or grievance committee member) will present the grievance, in writing, using the standard grievance form, to the immediate supervisor, with a copy to the Human Resources Manager and the Local Union President. The employee may be assisted by a member of the grievance committee or a steward, if so desired. The supervisor will give a written reply within seven (7) calendar days of said meeting. Step 2: Failing satisfactory resolution at Step 1, the matter may be presented - ------ to the grievant's Department Head, with a copy to the Human Resources Manager, within ten (10) calendar days of the immediate supervisor's decision. The Department Head will convene a meeting with the employee, a steward or grievance committee member, and Human Resources Representative, within ten (10) calendar days of notification from the Union, for the purpose of resolving said grievance. The Department Head will give a written reply within seven (7) calendar days of said meeting. Step 3: Failing satisfactory resolution at Step 2, the matter may be presented - ------ to the Director of Operations at Nye or Director of Processing at Columbus (as appropriate), with a copy to the Human Resources Manager, within ten (10) calendar days of the Department Head's decision, with a request that a meeting be held with said Director, or designee, for the purpose of resolving said grievance. The Director will convene a meeting with the grievance committee, a representative from the Human Resources Department and another management person. The meeting shall be held within fourteen (14) calendar days from the time the matter is submitted to said Director. The Director will render a written decision to the Local Union President within ten (10) calendar days of the meeting. SECTION 4 - ARBITRATION PROCEDURE. If the Union disagrees with the decision rendered by the Director, it may within thirty (30) calendar days from the date of the decision, refer the grievance to the Federal Mediation and Conciliation Service for handling according to the voluntary labor arbitration rules then pertaining. The parties shall request the Federal Mediation Service to submit a panel of seven (7) arbitrators. Each party shall have the right to reject one panel of arbitrators. Strike of the first name shall be determined by the flip of a coin and then the parties shall alternately strike a name until one arbitrator is left. The arbitrator shall be notified of selection by a letter from the parties requesting that the arbitrator set a time for the hearing, subject to the availability of the Company and the Union representative. Arbitration hearings shall be held in Billings, Montana. The arbitrator is restricted to interpreting, applying, and determining any violation of the provisions of this Agreement and cannot add to, modify, delete, or otherwise change any provision of this Agreement. The decision of the Arbitrator shall be final and binding upon the Company, the Union, and the employee as it applies to the issue submitted for decision; and shall conclusively determine the same issue for the life of this Agreement. The Company and the Union shall bear the costs of their respective expenses, and shall share equally the costs of the arbitrator. 5 SECTION 5. Any employee, if they so desire, shall have the right to have a steward or a grievance committee member present if they are called into a meeting with any foreman or supervisor, which the employee believes may result in disciplinary action. The steward or grievance committee member so utilized by the employee, will request the permission of their immediate supervisor to leave their assigned work and shall report back to their supervisor immediately after completing said meeting. Permission to leave will not be unreasonably withheld. SECTION 6. A. For the purpose of counting "days", the day immediately following the incident giving rise to the grievance, or the day immediately following the day the employee learned, or should have learned, of the incident giving rise to the grievance, shall be the first day. B. The time limits set forth in this Article may be extended by mutual agreement. C. Failure by the Union to transmit a grievance to the next higher step within the time limit provided will constitute a settlement of that grievance on the basis of the last answer received. If the Company's decision at any step of this procedure is not given within the time limit specified, the grievance may be immediately processed to the next step, including arbitration. D. The Human Resources Department will coordinate the scheduling of the meetings required beyond Step 1 of the grievance procedure. E. Grievance meetings will, as far as possible, be carried out during the regular hours of work of the employee and/or steward or grievance committee member involved in the grievance. Where a grievance meeting occurs during the working hours of an employee and/or steward or grievance committee member in attendance, the Company will pay for the time spent by said participants which falls within their working hours. SECTION 7. If it is necessary for a steward or grievance committee member to take time off during their regularly scheduled shift to investigate or resolve a grievance, they shall request the permission of their immediate supervisor, which permission shall not be unreasonably withheld. When a steward or grievance committee member enters an area other than their normal work area, they shall inform the supervisor of that area of their presence and reason for being there. As well, a steward or grievance committee member shall inform their supervisor when returning to their normal work area or duties. SECTION 8. In the event of discharge of an employee, a grievance may be presented by either the employee or the Union no later than fourteen (14) calendar days after the effective date of the discharge. The grievance must be presented, in writing, to the Human Resources Manager, or designee, and shall be moved directly to Step 3 of the grievance procedure. Employees who have been discharged shall be provided either personally or by certified mail, a letter stating the reason(s) for the discharge. A copy of said letter will be provided to the Local Union President. SECTION 9. The Union, by not exercising any functions thus reserved to it or by exercising any such function in a particular way, shall not be deemed to have waived its right to exercise such function as set forth in this Agreement. ARTICLE VIII - MEDICAL ARBITRATION 6 In the event a dispute arises concerning the physical fitness of an employee to return to work or to continue to work, an attempt to resolve the dispute by conference or consultation between a licensed physician selected by the Company and a licensed physician selected by the Union, shall first be made. If no satisfactory conclusion is reached by the above, and the Union so elects, a Board of three (3) licensed physicians shall be selected, one by the Company, one by the Union, and one by the two so-named, who shall decide the case. The decision of the Board shall be final and binding on both parties to this Agreement and retroactive to the date the dispute arose. The Company shall bear the expense of the physician of its choice, and the Union shall bear the expense of the physician of its choice. The expense of the third physician shall be paid by the losing party. In the event that the decision of the Board does not result in a clear-cut losing party, the expense of the third physician shall be borne equally by the parties. ARTICLE IX - SAFETY AND HEALTH SECTION 1. The Company and the Union believe an effective safety and health program is essential for employee morale and well-being, as well as the long- term viability of the Company. Accordingly, the Company recognizes its obligation to prevent, correct and eliminate all unhealthy and unsafe working conditions and practices. Employees are also expected to recognize, address and report unhealthy or unsafe working conditions. Further, employees shall follow all Company safety and health rules and procedures and comply with applicable State and Federal regulations. SECTION 2. The Company will recognize one (1) Safety and Health Committee for the Nye facilities and one (1) Safety and Health Committee for the Columbus facilities. The respective Safety and Health Committees shall consist of representatives elected annually by members of each work group at each location. These Committees shall meet monthly to discuss safety and health issues, recommend corrective actions, and communicate safety and health information back to employees. SECTION 3. A Joint Safety and Health Review Committee (JSHRC) will be established and will meet at least quarterly to review: the activities of the Safety and Health Committees; the overall safety program; accident investigations and near misses (as defined by MSHA); and to make appropriate training and other safety and health related recommendations to the Company. The Union will notify the Company in writing of the names of four (4) representatives selected as members of the JSHRC. One (1) JSHRC member will be selected from each of the following areas: Concentrator Operations, Maintenance, Mine, and Processing. There shall be equal representation of Company and Union appointees on the JSHRC. Time spent in JSHRC meetings and approved activities will be considered as time worked. All matters considered and handled by the JSHRC will be reduced to writing, and the joint minutes shall be maintained and communicated at the monthly Safety and Health Committee meetings. SECTION 4. The Company will conduct occupational health and medical monitoring to measure exposures in the workplace as appropriate, or upon the recommendation of the JSHRC. Results will be distributed to the appropriate Safety and Health Committees and the Local Union President, to the extent that employee confidentiality is not compromised. 7 SECTION 5. The Company will pay for required medical examinations and the results will be kept in the employee's confidential medical file. Upon request, a copy of such records will be provided to the affected employee. SECTION 6. Personal protective equipment required by statute or for special tasks not regularly performed shall be provided by the Company at no cost to the employee. Upon employment, the Company will provide a one-time allocation of other Company required personal protective equipment. The Company will allow employees to purchase subsequent or additional personal protective equipment through the warehouse at Company cost. Employees whose personal protective equipment is damaged or destroyed through abnormal conditions, not attributed to abuse, will receive replacement personal protective equipment through the warehouse at Company expense. Prescription safety glasses will be provided at a rate of one (1) pair per year. Employees will bear the cost of the eye examination for prescription. Replacement non-prescription safety glasses will be available for purchase at a price of $1.00 per pair. SECTION 7. The Company will provide for an ongoing safety and health training program meaningful to operating requirements. The Company agrees to review the content of health and safety training courses with the JSHRC prior to selecting the course and/or personnel for the training. Time spent on Company approved training will be considered as time worked. The cost of Company approved training shall be paid by the Company and expenses reimbursed based on current Company policy. SECTION 8. No employee shall perform unsafe work, or be required to perform unsafe work. Employees performing unsafe work or unsafe practices will be subject to disciplinary action, up to and including discharge. Refusal to perform unsafe work will not warrant or justify any present or future disciplinary action. SECTION 9. No employee shall lose pay, benefits or any other rights provided for under this Agreement for fulfilling any obligation consistent with this Article and/or for exercising any right under any federal or state regulation. ARTICLE X - SENIORITY, JOB BIDDING SECTION 1. Company seniority shall be determined by an employee's date of ----------------- original employment with the Company, or predecessor companies Chevron or Manville, if there has been no service break. Company seniority shall apply only for purposes of applicable benefit plans and earned vacation. SECTION 2. Plant seniority shall be determined from the employee's date of --------------- original employment with the Company at its facilities covered by this Agreement, or date of reemployment if there had been a break in service. An employee's plant seniority shall be lost if: A. The employee quits. 8 B. The employee is discharged for just cause. C. Layoff in excess of two (2) years, or length of service, whichever is less. D. Failure to return to work within ninety (90) days after discharge from military service. E. Failure to return to work upon termination of a leave of absence or extension thereof. F. Promotion to a full-time non-bargaining unit position for a period in excess of one (1) year. If a former employee is re-employed subsequent to termination for an above stated cause, said employee shall be considered a new employee for plant seniority purposes. SECTION 3. Department seniority shall be determined by the date on which the -------------------- employee begins continuous service in one of the following departments: A. Mine B. Concentrator and surface C. Maintenance D. Warehouse E. Processing (Smelter/BMR) The employee will lose department seniority in any previous department once department seniority is established in any other department. SECTION 4. Seniority lists shall be compiled and revised as necessary, but no less often than every three (3) months. The current seniority list will be posted, with a copy to the Local Union President. SECTION 5. All new employees (including persons who have broken prior service) shall be considered probationary employees for a period of seven hundred eighty (780) hours worked. The probationary period may be extended by five hundred twenty (520) hours worked, upon mutual agreement of the Company and the Union. Probationary employees shall be subject to transfer, promotion, demotion, layoff and/or discipline including discharge, at the sole discretion of the Company. Employees continued in employment after the end of the probationary period shall become full-time employees and shall be credited with continuous service from the original date of hire. SECTION 6. In the event there is a tie based on seniority dates, seniority shall, in each application, be decided by the flip of a coin. SECTION 7. Whenever the Company determines a vacancy, other than a temporary vacancy, exists in any biddable job classification, or a new job becomes available, the Company will post a job bulletin covering such classification on the bulletin boards. The bid will remain posted for ten (10) consecutive days. Employees desiring to bid on the vacancy shall apply in writing to the Human Resources Department within the allotted ten (10) days. Upon request, a copy of the job posting and of all bids shall be provided to the Local Union President. At the end of ten (10) days, the Company will determine the successful candidate based on qualifications to perform the job concerned and plant seniority. If no qualified candidate applies or no bid is received, the job may be filled by the Company from any other source. No employee shall be required to accept a permanent job classification change, except in the case of demotion. 9 For purposes of this Article, it is understood that an employee's qualifications to perform a job will be based on any relevant job-related criteria, including performance appraisal, work history, tests, licenses or certifications, and the requisite skills, knowledge and ability. Laid off employees, who have seniority rights, shall be eligible to bid on all job postings. SECTION 8. From time to time, temporary vacancies of less than ninety (90) calendar days, may occur due to illness, injury or an abnormal increase in workload. Vacancies of this nature will be filled at the Company's discretion. Full-time job assignments so filled shall be open for bidding within forty-five (45) calendar days as set forth above. SECTION 9. In the event that the successful bidder proves unsatisfactory after a thirty (30) calendar day break-in period, or chooses not to continue in the new position within the thirty (30) calendar day break-in period, the employee shall be returned to the position last held with no loss of seniority. The Company shall then fill the position with the next most qualified candidate from the original posting. SECTION 10. An employee accepting a job posting outside their department must remain in the new department for a period of one (1) year before bidding for a job posting in any other department. An employee must remain in a new job for a period of four (4) months before bidding on another job posting within the department. ARTICLE XI - HOURS OF WORK, OVERTIME SECTION 1. A. The normal workweek shall begin at 12:01 a.m. each Monday and end at 12:00 midnight the following Sunday. B. The normal workday shall start at 12:01 a.m. and end at 12:00 midnight each calendar day. C. Overtime shall be paid for all hours worked in excess of forty (40) hours during a normally scheduled workweek. D. Eight (8) hours per day shall constitute the normal workday for some employees; ten (10) hours per day shall constitute the normal workday for some employees; and twelve (12) hours per day shall constitute the normal workday for some employees. Changes in working schedules (other than temporary incidental changes) shall be discussed at a Management-Union Committee (MUC) meeting prior to implementation. SECTION 2. An employee who is called back for immediate work after leaving Company property or who is called for immediate work outside their scheduled working hours, and actually begins working, shall be paid time and one-half (1 1/2) for work actually performed or a minimum of four (4) hours at the straight- time rate, whichever is greater. Employees will be compensated for call out travel at the current Company mileage rate, up to a maximum of fifty (50) miles each way. SECTION 3. 10 If an employee's regularly scheduled shift is canceled, then at Company discretion, the employee will: A. Be paid for four (4) hours, or B. Be paid for hours actually worked, with a minimum of four (4) hours. Employees will receive no pay for a canceled shift if they are notified of the cancellation at least ninety (90) minutes prior to the start of their shift. Notification may be by telephone or word of mouth. SECTION 4. Upon prior approval of the supervisor(s) involved, employees may mutually agree to exchange shifts or days off provided such exchange does not cause any disruption or increased cost to the Company, and that the exchange does not cause the employee to be on duty more than sixteen (16) hours in any twenty-four (24) hour period. Such requests may not be unreasonably withheld. SECTION 5. No employee shall be rescheduled during any work week for the purpose of avoiding the payment of overtime. SECTION 6. The Company agrees that overtime will be distributed as uniformly and equally as possible and practical within each classification. Employees shall not be forced to work overtime as long as there are employees in their classification who are qualified and willing to work such overtime. If no qualified employee(s) volunteer to accept requested overtime, the Company will assign the overtime to a qualified employee, based on reverse order of department seniority. Employees who decline offered overtime will be charged for the overtime offered as if it has been worked for the purpose of overtime allocation. SECTION 7. Any employee who has worked sixteen (16) consecutive hours shall be compensated at double (2) time for all hours worked over sixteen (16). Any employee who has worked sixteen (16) hours, or more, shall be allowed a rest period of at least eight (8) hours with no loss of overtime pay. SECTION 8. Pyramiding of overtime paid for the same hours worked shall be prohibited under this Agreement. In cases where more than one overtime rate may be payable for the same hours worked, only that rate which is higher shall be paid. SECTION 9. For the purpose of computing weekly overtime (only), the following shall be considered as time worked: Sick/personal leave, hours for holidays, jury/witness service as per Article XXI, union business involving contract administration as defined in this Agreement or negotiations for the purpose of renewing this Agreement, which fall on an employee's regularly scheduled work day; or meetings, training and conferences required by the Company. Such hours shall not exceed the number of hours in the employee's normal work day. However, time paid for sick/personal leave will not count as time worked for overtime purposes if an employee does not work the last scheduled full work day of the week in which the overtime occurs. SECTION 10. Except for the first shift worked for each work rotation, an employee shall be given twenty-four (24) hours notice of a change in shift. In the event that such twenty-four (24) hours notice is not given, the employee shall 11 receive one and one-half (1 1/2) times their base rate for all hours worked on the first shift of the change. This does not apply to employees requesting a change of rotation. SECTION 11. Employees working eight (8) hour shifts shall be paid a shift differential of twenty-five cents (25c) per hour over the rate of the classification on which they are working for all hours worked on the evening shift, and fifty cents (50c) per hour over the rate of the classification on which they are working for all hours worked on the midnight shift. Employees working ten (10) hour shifts will be paid a shift differential of thirty-five cents (35c) per hour over the rate of the classification on which they are working for all hours worked on the evening or night shift. Employees working twelve (12) hour shifts shall be paid a shift differential of fifty cents (50c) per hour over the rate of the classification on which they are working for all hours worked on the evening or night shift. ARTICLE XII - LAY-OFF, RECALL, SEVERANCE PAY SECTION 1. For the purpose of lay-off and recall, qualifications to perform the job(s) concerned and plant seniority shall apply. The last qualified full time employee hired in each department shall be the first full time employee laid off in each department, and so on. In the event of a layoff, a senior employee in one department shall have the right to displace a junior employee in another department, providing such employee is qualified to perform the job in question. Upon recall, the last full time employee laid off will be the first full time employee recalled, providing such employee is qualified to perform the job in question. Full time employees will continue to accrue seniority, for bidding purposes only, while on layoff. Full time employees will not be laid off until all temporary employees have been laid off. SECTION 2. Any employee on layoff who has kept their address on file with the Company will, for a period of two (2) years as provided in Article X, be given notice at the address on file of a vacancy to be filled for which the employee is eligible. The Company, if necessary, will fill such vacancy immediately on a temporary basis. If the former employee cannot be located or does not respond to the Company within ten (10) calendar days after a reasonable attempt to notify has been made, the former employee shall lose seniority rights over other employees on the layoff list and the next eligible employee shall be offered such vacancy. If within the above ten (10) calendar day period, the laid-off employee notifies the Company of their intention to accept such vacancy, the Human Resources Department will coordinate return to work arrangements. A recalled employee shall be allowed up to fourteen (14) days from the date of such notice-of-acceptance to report for work without loss of seniority rights, unless there is a documented temporary medical reason hindering reporting for duty, or at Company request. Reinstatement shall be granted if the employee is physically able to return to the previously held classification (or other classification which the employee is eligible to return to), as determined by a Company-paid physical examination (at the Company's discretion). If a laid-off employee with recall rights refuses a reinstatement offer at said employee's last classification, or refuses more than one reinstatement offer outside their last classification, the employee forfeits all recall rights. SECTION 3. Any full time employee who is laid off as a result of a long-term reduction-in-force (over 90 days), and having been in continuous full-time service of the Company for at least one (1) year immediately prior to such lay- off shall be given one (1) week's pay for each year of service with the Company at the employee's present base rate up to a maximum of twelve (12) weeks' pay. Any full-time employee who is laid off and granted severance pay pursuant to this section, if re-employed and subsequently laid off through a reduction-in-force, shall be denied a second severance pay allowance unless 12 continuous service since re-employment has been one year or more. Any employee who is laid off or whose employment is severed and granted severance pay pursuant to this Section, if re-employed within a length of time which is less than that paid as severance, shall reimburse the Company the excess severance pay within sixty (60) days of recall. Any excess severance pay repaid to the Company as set forth above, shall be paid to the employee in the event of a subsequent lay-off. If a full time employee with one or more years of continuous service with the Company is laid off because of force reduction after January 1st of any year in which the employee has not taken vacation and/or used sick/personal leave previously earned, shall receive, upon lay-off, vacation and/or sick/personal leave pay equal to vacation and/or sick/personal leave pay earned under this Agreement, plus pro rata pay for the vacation and/or sick/personal leave being earned the year in which the lay-off occurs. SECTION 4. The Company will meet with the MUC Committee to discuss any layoffs or reduction-in-force prior to implementation. The Company shall notify the Union of any pending layoff or reduction-in-force as far in advance as possible. In the event of a short-term layoff (less than ninety (90) days duration) the Company will maintain its portion of the cost to maintain Company benefits during said layoff. ARTICLE XIII - CLASSIFICATION AND WAGES SECTION 1. The classifications and rates of pay attached hereto as Appendix "A" shall be made a part of this Agreement and shall continue in effect for the duration of this Agreement. SECTION 2. The proposed creation of a new classification(s), or the elimination or change of an existing classification(s), shall first be discussed at a meeting of the MUC committee. If the parties are unable to agree on such new classification(s) or changes, the Union may file a grievance as set forth in this Agreement. SECTION 3. Any work peculiar to a classification that requires special skills or experience will normally be done by employees assigned to that classification. SECTION 4. Employees assigned to work in a classification above their current classification will be paid the higher rate of pay while working in the higher classification, unless such work in the higher classification is for the purposes of training and qualifying for the higher classification. SECTION 5. Employees assigned to a higher classification from the Laborer classification will be upgraded to the rate of pay of the job they are working after completion of the probation period as set forth in Article X, unless the Company documents that said employee is not qualified for the higher job. SECTION 6. If a full-time employee is assigned temporarily to a classification paying a lower wage than their regularly assigned classification, no reduction in wages shall be made. 13 SECTION 7. If a full-time employee is demoted, through no fault of their own, from their regular classification, the employee shall receive the higher rate of pay for a period one (1) week for each full year of service at the previous classification, at the time assigned to the lower classification. There shall be no pyramiding of rate retention under this provision. SECTION 8. Supervisory or other management personnel shall not perform work which is normally performed by bargaining unit personnel, except for training or instruction, investigation, testing, emergencies, and situations in which no qualified bargaining unit employee is available to do the job required. ARTICLE XIV - MEAL POLICY SECTION 1. A. Employees will be provided sufficient time to eat during their regularly scheduled shift. B. Any employee required to work more than two (2) hours beyond the normal quitting time shall be provided with a meal. An additional meal will be furnished for each additional four (4) hours of continuous work. It is understood that the meals herein provided shall be furnished by the Company at its expense. The employee shall be given sufficient time to eat the meal so furnished and such time shall be considered as time worked. The Company may, with the agreement of the involved employee(s), in lieu of a meal and time to eat the meal, compensate the employee by the payment of one additional hour at time and one-half (1 1/2). ARTICLE XV - HOLIDAYS SECTION 1. The following days shall be considered holidays: New Year's Day Good Friday Memorial Day Independence Day Labor Day Thanksgiving Day after Thanksgiving Christmas Eve Christmas Day Personal Holiday** ** Personal Holiday: Any day during the calendar year which the employee elects to take with advance notice to, and approval from, the Company as set forth in Section 6 of this Article. SECTION 2. Employees who are required to work on any of the above holidays shall receive pay at the rate of time and one-half (1 1/2) for all hours worked, plus holiday pay for the normal scheduled shift on such holidays. Each full time employee not required to work on these holidays shall receive eight (8) hours pay for such holidays at their regular rate of pay. Employees scheduled to work on a holiday who fail to report to work will not receive holiday pay. SECTION 3. 14 When a Saturday or Sunday holiday is observed on a weekday (Monday through Friday), the holiday pay shall apply on that weekday. Employees scheduled to work seven (7) days per week rotating shift, will be paid holiday pay on the calendar day on which the holiday occurs. The actual holiday schedule shall be posted each year, as soon as practical. SECTION 4. An employee absent on either the scheduled workday before or after the holiday will not receive pay if the absence is not approved by the Company. An employee who is receiving disability benefits on both the scheduled workday before and after the holiday will not receive pay for the holiday. SECTION 5. An employee who works on a higher rated job than their regular job on the last scheduled shift immediately preceding and the first scheduled shift following an unworked holiday will receive holiday pay for such holiday at the rate of the higher rated job. An employee who works on a higher rated job than their regular job on a holiday shall be paid for such holiday at the holiday rate for the higher rated job. SECTION 6. Employees will be entitled to one (1) personal holiday which may be taken after the employee has completed their probationary period, provided at least one (1) week's notice is given to the Company. Scheduled annual vacation shall take precedence over the scheduling of personal holidays. In the case where more than one employee per crew requests to take a personal holiday on the same day, department seniority will govern if the personal holiday had been scheduled between January 1 and March 31 of any year. Personal holidays will be allocated on a first come, first serve basis if scheduled after April 1 of any year. Personal holidays will be allocated and granted based on operational needs and the wishes of the employee, not unreasonably denied. No more than one (1) person per crew shall be allowed off on personal holiday on any particular day, except at Company discretion. When an employee takes the personal holiday immediately prior to or immediately after a holiday, such employee shall be paid in accordance with Section 2 and Section 4 of this Article, provided that the employee works the last scheduled shift prior to and the next scheduled shift after the holiday and the personal holiday. If the personal holiday is not scheduled to be taken in the calendar year, the employee will be paid for eight (8) hours for the personal holiday at their base rate. Personal holidays may not be banked or carried over into the next year. ARTICLE XVI - SICK-PERSONAL LEAVE/VACATION SECTION 1 - SICK-PERSONAL. A. Employees will accrue 3.33 hours per month, to be utilized for sick-personal leave. Hours so accrued may not be taken until an employee has completed their probationary period. Personal leave may be taken with the approval of the supervisor, based on operating requirements. Approval of the supervisor will not be unreasonably withheld. At the beginning of each calendar year, an employee who has completed one (1) full year of continuous service, will be credited with forty (40) hours sick-personal leave. At the end of each calendar year amounts of 15 unused sick-personal leave may be banked, up to a maximum of one hundred twenty (120) hours. Unused sick-personal leave that is not banked will be paid to the employee. The Company may require an employee absent due to non-occupational illness or injury to bring a physician's statement to use banked sick-personal leave. B. Each employee must make every reasonable effort to provide the supervisor with as much advance notice as possible for pre-scheduled events for which the employee requests a sick-personal time off. Employees are encouraged to schedule personal business during their scheduled time off. Any unscheduled absence in which the employee misses three or more scheduled shifts due to illness requires a statement from the employee's physician. Sick-personal pay is calculated at the employee's base rate in effect at the time the absence is taken. C. Upon termination of employment (including retirement), employees will be paid for any banked sick-personal leave. D. Sick-personal leave accruals for employees who retire, are laid off or terminate employment will be as follows: For each complete calendar month worked during the current year, employees will receive 1/12 (one-twelfth) of their sick-personal leave allotment. This is in addition to the vacation earned during the prior year as set forth in this Article. Vacation - -------- Employees will be eligible for paid vacation time in accordance with the following provisions. Employees are eligible to borrow up to forty (40) hours vacation leave when they have completed six (6) months continuous service. IN EACH CALENDAR YEAR IN AMOUNT OF PAID WHICH AN EMPLOYEE COMPLETES VACATION AVAILABLE --------------------------- ------------------ 1st through 4th year of service 80 hours ** 5th through 9th year of service 120 hours 10th through 19th year of service 160 hours 20th through 29th year of service 200 hours 30th and later years of service 240 hours ** Less any Vacation leave used between the completion of the probationary period and the one-year anniversary date. A. At the beginning of the calendar year, each full time employee who has completed six (6) months continuous service will be credited with vacation based on length of service. Employees must use a minimum of eighty (80) hours of their vacation leave annually. Vacation must be taken in full- shift increments, unless shift scheduling dictates otherwise. Vacation may, at Company request, be "carried over" into the next calendar year. All unused vacation will be paid to the employee. Vacation requests must be pre-authorized by the supervisor at least one calendar week in advance. B. Vacation schedules shall be posted or circulated among employees during the month of January of each year for employees to indicate their vacation preference. Vacation request forms will be utilized, with a copy of the approved form returned to the employee. Vacation will be scheduled to meet the preference of employees whenever possible. In case of conflict over any vacation period, vacation will be granted in order of department seniority. Where an employee elects to split vacation, that employee's seniority rights shall prevail only for the first choice until all other employees in the vacation unit have had their first choice. It is understood that the Company retains the right to schedule vacations as operational conditions dictate; however, no employee shall be forced to take vacation which has already been approved at a time undesirable to the employee. C. Holidays falling during an employee's vacation will be compensated for by holiday pay or by a one-day extension of the vacation, as the employee elects. 16 D. Employees who do not take unused vacation at Company request may be paid in lieu of, in addition to the amount earned by the employee based on time actually worked. If, due to an extreme situation, the Company requires an employee to work during a previously scheduled vacation, the Company will make the employee whole for any verifiable, non-refundable expenses incurred by the employee. E. An employee may request their vacation date be changed and the Company may grant such request, based on operating needs and the existing approved vacation schedule. F. An employee terminating service with the Company, for any reason, who has not taken the vacation due that year shall be paid for the same at the time of termination. In the event part of the vacation has been taken, the employee will be paid for the unused portion not taken. In addition, for each complete calendar month worked during the current year, employees will receive 1/12 (one-twelfth) of their earned vacation allotment. ARTICLE XVII - UNION LEAVES OF ABSENCE SECTION 1 - UNION LEAVE, SHORT TERM. The Company may grant a leave of absence, without pay, for Union officials or members to attend Union functions. Such leaves shall be granted based on operating requirements of the Company, but shall not be unreasonably withheld. Employees shall retain service, seniority and benefits during such leaves of absence. Requests for such leaves must be made by the Union to the Company, and should be made with as much advance notice as possible, but not less than fourteen (14) calendar days except in extenuating circumstances. SECTION 2 - UNION LEAVE, LONG TERM. Upon thirty (30) days written notice from the Union, a leave of absence to perform work for the Union will be granted for one (1) employee for a period of time of up to one (1) year. The employee may elect to return to the employee's previous classification with a thirty (30) day written notice for reinstatement from the Union to the Company. Such employee will hold and accumulate seniority and continuous service for all purposes during such leave. Upon request, the employee will be allowed to continue Company Group Health Plan, and Long and Short Term Disability Plans, by paying the full cost of such benefits during the period of leave. Reinstatement shall be granted if the employee is physically able to return to the previously held classification, as determined by a Company paid physical examination. If such employee is physically unable to return to the previously held classification, the employee will be allowed to return to a job the employee is qualified to perform, if such job exists. ARTICLE XVIII - OTHER LEAVES OF ABSENCE SECTION 1 - FAMILY AND MEDICAL LEAVE. Employees who have been employed for at least one (1) year and worked at least 1250 hours during the preceding twelve (12) month period, shall be granted a leave of absence in the event of the birth or adoption of an employee's child or the serious health condition of an employee's child, spouse or parent, as set forth under the Family and Medical Leave Act (FMLA). Such leave will be granted for up to a maximum of twelve (12) calendar weeks in a rolling twelve (12) month period. Request for such leave shall be made through the employee's immediate supervisor. When the need for leave is foreseeable, the employee shall provide at least thirty (30) days advance notice. An employee may request 17 more than one (1) family leave within a twelve (12) month period, but the total time on leave within that period may not exceed twelve (12) calendar weeks. The employee will provide medical certification to the Company confirming the need for family and medical leave. The request for such leave must be renewed and new medical certification submitted to the Company every thirty (30) days. Credited service for all purposes under this Agreement will accrue during the period covered by the family and medical leave of absence. The employee returning from family and medical leave will be reinstated to the position held prior to the leave, or a comparable position. Any absence under this provision will not be considered an occurrence under the Excessive Absenteeism Policy. There will be no requirement for the employee to use vacation for an absence covered under this provision. However, the Company will waive the seven (7) day advance vacation notice requirement for an employee electing to use paid vacation for this leave. Employees whose absences are covered under FMLA are required to utilize all available current year sick/personal leave. Under this provision, an employee who has exhausted vacation and other paid leave will be granted up to three (3) days paid leave, in a calendar year. Employees will not perform work for pay while on family and medical leave, except with written permission of the Company. All other requirements and conditions under the FMLA shall apply. SECTION 2 - EMERGENCY LEAVE. An employee may request a leave of absence without pay for a period not to exceed twenty-four (24) hours to handle an emergency in the immediate family and such request shall be granted. The Company may require an employee given such leave to provide evidence of such emergency situation. Any legitimate absence under this provision will not be considered an occurrence under the Excessive Absenteeism Policy. SECTION 3 - PERSONAL LEAVE WITHOUT PAY. Personal Leave Without Pay may be granted for the purpose of conducting legitimate personal matters when operating conditions permit and the employee has no available Paid Leave. Such leave must be approved in writing by the Department Manager. The Company makes no guarantee to reinstate any employee beyond the first thirty-one (31) days of such leave. SECTION 4 - ELECTION TO POLITICAL OFFICE. Upon written application, an employee who has been elected or appointed to a Federal, State or Local political office, may be granted an unpaid leave of absence for the period of time necessary to fulfill the required responsibilities of the position, or as required by law. Approval will not be unreasonably refused. Employee(s) on such a leave will hold and accumulate seniority and continuous service for all purposes during such leave, and may be allowed to continue all Company benefits by paying the employees' cost of such benefits during the period of leave. The Company will make arrangements for the employee(s) on leave to pay such costs. ARTICLE XIX - MILITARY SERVICE SECTION 1. The Company shall accord to each employee who leaves active employment to enter military service of the United States or Reserve or National Guard, such rights as the employee shall be entitled to under the Uniform Services and Reemployment Rights Act (USERRA). 18 SECTION 2. Any employee who is required to attend an encampment of the Reserve of the Armed Forces or the National Guard shall be paid, for a period not to exceed seventeen (17) days, and such pay shall be the excess of the employee's base wages over Government pay for the period of military leave. ARTICLE XX - BEREAVEMENT LEAVE SECTION 1. In the event of the death of an employee's spouse, children or step- children, and upon notification and application to the employee's immediate supervisor, an unpaid bereavement leave of up to five (5) days shall be granted to the employee. Additional unpaid bereavement leave may be granted with approval by the department head. In the event of death in an employee's immediate family, and upon notification and application to the employee's immediate supervisor, an unpaid bereavement leave of up to three (3) days shall be granted to the employee. Additional unpaid bereavement leave may be granted with approval by the department head. Immediate family is limited to the employee's parents, step- parents, brothers, sisters, grandparents and grandchildren, and the parents and grandparents of the employee's spouse. To offset the expenses associated with attending the funeral, any employee who has completed the probationary period shall be paid the equivalent of five (5) days base wages in the event of the death of spouse, children or step-child, or three (3) days base wages in the event of the death of an immediate family member. ARTICLE XXI - JURY, WITNESS SERVICE SECTION 1. Employees selected for jury duty or subpoenaed for witness service are expected to report for such jury duty or witness service, and will be allowed the necessary time off to perform such service. Employees shall contact their immediate supervisor prior to reporting for jury duty or subpoenaed witness service. An employee who reports and is then released from such service shall immediately contact the employee's supervisor to coordinate return to work. The Company will make reasonable allowances for travel and shift schedules. Permanent employees who are absent because of jury duty, government subpoena where the Company is not a party, or Company subpoena, will be paid the difference between the jury duty or specified witness pay and their normal base wages for scheduled shifts missed. Employees will be required to provide documentation of such service to receive applicable pay. ARTICLE XXII - CONTRACTING OUT SECTION 1. The Company, having the availability of equipment, skills, manpower, or the time to do the work, shall not contract out classified work now being done by employees of the Company as long as there are qualified employees or qualified former employees with re-employment rights. This shall not apply to the installation of equipment or construction or any other activities not ordinarily done by employees of the Company. SECTION 2. 19 Before commencing any major contract job to be performed on the premises, the Company will notify the Local Union President or designee, in writing, describing the nature, scope, and expected duration of the work to be performed. The Company further agrees that it will meet, as necessary, with the Local Union President or designee, to discuss information concerning contracting out. Requests for such meetings shall not be unreasonably denied. ARTICLE XXIII - MISCELLANEOUS SECTION 1 - COPIES OF AGREEMENT. The Company and the Union desire every employee to be familiar with the provisions of the Collective Bargaining Agreement and employee's rights and duties under it. The Company shall print and provide a copy of this Agreement in booklet form to each employee, plus twenty-five (25) extra copies for the Union. SECTION 2 - BULLETIN BOARDS. The Company shall provide for secure bulletin boards, one at the Smelter and one at the main entrance to the Nye operation, to accommodate otherwise lawful official Union notices and announcements. The Union is responsible for all postings on Union bulletin boards. SECTION 3 - PERSONNEL RECORDS. Employees in the bargaining unit shall have access to their own personnel file, by appointment with the Human Resources Manager, for the purpose of reviewing it in person. A Union representative may accompany the employee, with the employee's permission. Entries placed in an employee's permanent personnel file shall be in writing. A copy of such entries shall, upon request, be given to the involved employee. An employee may elect to provide a copy to their Union representative. The employee may also make a written reply to any disciplinary action and have same placed in the permanent personnel file. The Company will provide, upon request, relevant and necessary information, to the Union, in order to administer the contract during its term. SECTION 4 - AMENDMENTS. This Agreement during its life may be amended only by mutual consent of the parties hereto. Any amendments made to this Agreement shall be reduced to written form and shall be duly signed by the authorized representatives of the Company and the Union. SECTION 5 - BOOT ALLOWANCE. The Company shall provide a safety shoe/boot allowance of up to $100.00 per contract year per employee, when the employee provides a receipt for same. SECTION 6 - COMPANY POLICIES. The following Company Policies are included in this Agreement by reference: 1. Conflict of Interest 2. Discipline 3. Drug and Alcohol 4. Employee Parking 20 5. Environmental Compliance 6. Equal Employment Opportunity 7. Excessive Absenteeism 8. Maintenance Tool Replacement 9. Reporting Accident/Injury 10. Reporting Off or Late 11. Returning to Work after Illness or Injury 12. Ride Share Program 13. Safety and Health 14. Security 15. Sexual Harassment 16. Solicitation 17. Weapons It is understood that in the case of any conflict between this Agreement and Company Policy, this Agreement prevails. SECTION 7 - SERVICE OF NOTICE. Whenever provision is made herein for service of notice, such notice shall be served: A. By Personal Service: COMPANY: Manager of Human Resources, Stillwater Mining Company, or designee in the Manager's absence. UNION: President (Chair, Worker's Committee), or in the President's absence, to the Financial Secretary-Treasurer of Local 2-1. B. By Certified Mail, Return Receipt Requested: COMPANY: Manager of Human Resources, Stillwater Mining Company, HC 54, Box 365, Nye, MT 59061. UNION: President (Chair, Worker's Committee), Local 2-1 OCAWIU, P. O. Box 69, Absarokee, MT 59001, with a copy to International Representative, OCAWIU, P. O. Box 21635, Billings, MT 59104. C. Date of service shall be the date of personal service or the date the notice is posted by the certified mail receipt, properly addressed to the party being served. ARTICLE XXIV - MINE/PLANT CLOSURE The Company agrees it will notify the Union in writing at least ninety (90) days in advance of shutdown of any of the facilities covered by the Bargaining Unit which involve permanent transfer or layoff of employees in the Bargaining Unit. The Company and the Union shall meet within fifteen (15) days thereafter to bargain in good faith regarding the effect and possible options for employees and the Company. ARTICLE XXV - VALIDITY SECTION 1. Nothing contained in this Agreement shall be construed in any way as interfering with the obligation of the parties hereto to comply with any and all State and Federal laws, or any rules, regulations, and orders of duly constituted authorities pertaining to matters covered herein, and such compliance shall not constitute a breach of this Agreement. SECTION 2. If any court shall hold any part of this Agreement invalid, such decision shall not invalidate the entire Agreement. 21 ARTICLE XXVI - BENEFITS SECTION 1. The Company agrees that it will not withdraw or reduce any of the present benefit plans or benefits, namely: 401(k) Savings Plan Health Benefit Plan (Blue Cross/Blue Shield) Wellness Program (if available) Dental Plan Prescription Drug Plan Life Insurance Supplemental Life Insurance Accidental Death & Dismemberment Insurance Sick/Personal Leave Short-term Disability Plan Long-term Disability Plan Employee Assistance Plan SECTION 2. In the event the Company desires during the term of this Agreement to add, change or amend any such plans, it will present such changes to the Union at least thirty (30) days prior to the proposed effective date of such changes, with a complete explanation of the reasons for such changes. Within fourteen (14) days after the Company gives the Union such notice, the Union will notify the Company whether it has any objections to such changes. If the Union objects to such changes or amendments, then the Company and the Union will meet to negotiate the objections and attempt to settle the questions raised by the Union. If the parties are unable to agree on the proposed amendments or changes, they may not be implemented during the term of the Agreement. 22 IN WITNESS WHEREOF the parties have caused this instrument to be executed by their duly authorized representatives this first day of July, 1996: EFFECTIVE JULY 1, 1996 OIL, CHEMICAL & ATOMIC WORKERS STILLWATER MINING COMPANY: INTERNATIONAL UNION - LOCAL 2-1: /s/ D. EDWARDS /s/ GIL CLAUSEN __________________________________ _________________________________ Dan C. Edwards Gil Clausen International Union Representative Director of Operations /s/ BRUCE KELLEY /s/ GREGG J. HODGES __________________________________ _________________________________ Bruce Kelley, Local President Gregg Hodges, Director of Processing /s/ DICK CAMPBELL /s/ T. J. MCNEILL __________________________________ _________________________________ Dick Campbell, Mine T. J. McNeill, Maintenance Superintendent /s/ JOHN F. EISENBRAUN /s/ LINDA M. SPRATT __________________________________ _________________________________ John Eisenbraun, Smelter/BMR Linda Spratt, Human Resources Manager /s/ BILL EVANS /s/ JOHN E. THOMPSON __________________________________ _________________________________ Bill Evans, Mill John Thompson, Project Manager East Boulder /s/ FARREL LIEN __________________________________ Farrel Lien, Maintenance /s/ BENJAMIN S. PALIN __________________________________ Ben Palin, Mine /s/ DENNIS A. STORCK __________________________________ Dennis Storck, Mine 23 EX-23.1 6 CONSENT OF PRICE WATERHOUSE LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statements on Form S-3 (Nos. 333-12455 and 333-12419) and in the Registration Statement on Form S-8 (No. 33-97358) of Stillwater Mining Company of our report dated February 28, 1998 appearing on page 30 of this Form 10-K. PRICE WATERHOUSE LLP Denver, Colorado March 27, 1998 EX-23.2 7 CONSENT OF BEHRE DOLBEAR & COMPANY, INC. Exhibit 23.2 [LETTERHEAD OF BEHRE DOLBEAR & COMPANY, INC.] March 27, 1998 Stillwater Mining Company 717 Seventeenth Street Suite 1480 Denver, CO 80202 Ladies and Gentlemen: We hereby authorize the reference to Behre Dolbear & Company, Inc. ("Behre Dolbear") and the Mineral Inventory of Stillwater Mining Company as of January 1, 1998 prepared by Behre Dolbear, in the Annual Report on Form 10-K of Stillwater Mining Company, to be filed with the United States Securities and Exchange Commission. We also confirm that we have read the description of the Stillwater Mining Company ore reserves as contained in the Annual Report on Form 10-K and have no reason to believe that there is any misrepresentation in the information contained therein that is derived from our report or known to us as a result of services we performed in connection with the preparation of such report. Sincerely, BEHRE DOLBEAR & COMPANY, INC. /s/ BERNARD J. GUARNERA By: Bernard J. Guarnera Title: President, Chief Executive Officer and Chief Operating Officer EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 4,191 13,468 6,926 0 7,380 35,303 245,017 (53,763) 229,219 12,249 61,513 0 0 204 141,188 229,219 76,877 76,877 67,948 83,085 0 0 3,608 (8,743) 3,366 (5,377) 0 0 0 (5,377) (0.27) (0.27) Net of capitalized interest of $1,535.
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