Stillwater Mining Reports Record Earnings of $144.3 Million or $1.30 per Diluted Share for 2011
- Mined production volume totaled 517,900 PGM ounces for the year
- Recycling volume reached 486,700 PGM ounces for 2011
- Project and capital expenditures being closely monitored
- Blitz and Graham Creek PGM expansion projects being advanced as priority expenditures
- Engineering and permitting continues at Marathon project
Stillwater Mining Company today reported 2011 net income of $144.3 million, or $1.30 per diluted share, compared to $50.4 million or $0.51 per diluted share earned in 2010. Revenues for 2011 totaled $906.0 million, up from $555.9 million for 2010. The 2011 earnings benefitted from strong selling prices for palladium and platinum, the Company's primary products, and from improved mining productivity and growth in recycling volumes during the year.
The Company's reported net income for the fourth quarter of 2011 was $24.7 million, or $0.21 per diluted share, on revenues of $259.7 million. For the fourth quarter of 2010, the Company reported net income of $16.5 million, or $0.16 per diluted share, on revenues of $144.7 million. The 2011 fourth quarter results were constrained by turmoil in the European financial markets that led to a stronger U.S. dollar, putting downward pressure on commodity prices in general and on palladium and platinum prices in particular. Sales volumes of mined palladium and platinum also declined during the 2011 fourth quarter.
Commenting on the Company's consolidated 2011 results, Frank McAllister, the Company's chairman and CEO, noted, "2011 was a very important year for Stillwater. The Company benefitted financially from strong PGM prices through most of the year, enabling us to make progress in strengthening the developed state of our mines after the challenges of 2008 and 2009. Of particular importance to Stillwater's financial results is the continuing convergence of the market price of palladium toward the price of platinum. In 2008, the market price of palladium, our principal product, averaged just 22% of the price of platinum; today that price is in the range of 40% to 45% of the platinum price. We prepared an analysis to measure the benefit of this convergence on 2011 results: if palladium had still averaged 22% of the platinum price (assuming a steady platinum price) in 2011 instead of the actual average ratio of 43.5%, the Company's EBITDA for 2011 would have been reduced by about $130.0 million.
"Of course, as we discussed at length in last year's annual report, this stronger palladium price performance is no accident. Palladium and platinum each enjoy remarkable catalytic properties of vital importance to cleaning up auto emissions. Both metals are in limited supply and are experiencing growing demand worldwide. Because the two metals are largely interchangeable on a one-for-one basis in many automotive applications, in the face of the growing demand and limited supply we would expect the prices of the two metals to converge further yet.
"While our financial results certainly have benefitted from stronger PGM prices (palladium prices in particular), the Company's operating mines also both exhibited strong mine production results during 2011, in line with our 2011 plans. Efficient execution within our existing mining operations continues as a key focus, and our teams performed very well during 2011. I believe it is a tribute to our dedicated workforce that during the labor negotiations in May and June at the Stillwater Mine and Columbus processing facilities, when I normally would have expected production to lag, we saw excellent productivity at all our operations. Combined total cash costs, a non-GAAP measure that we use to assess our extraction efficiency, came in at $420 per ounce for the full year, well under our guidance of $430 per ounce.
"While our safety performance in general improved during 2011, we unfortunately experienced a tragic fatal accident during the fourth quarter at the Stillwater Mine, in a single-vehicle collision underground. The safety of our employees is our highest priority, so an incident like this is very disturbing for everyone. We spend a lot of time investigating the root cause of all work-related injuries and accidents and we carefully track accident trends. The Company-wide reportable incident rate in 2011 improved to 3.3 per 200,000 hours worked, down from a 3.7 rate in 2010. However, the fatality in the fourth quarter reminds us that statistics are never the whole story and that our work on safety is never done."
"The Company recognizes that its income and cash flow can be subject to wide variations due to factors beyond its control. In 2011 price volatility affected the Company, as did the earthquake/tsunami in Japan, the European financial crises and the Company's limited access to the financial markets. With factors such as these in mind, the Company has taken a cautious attitude with respect to expenditures and projects undertaken in an effort to control spending and maintain sufficient liquidity. In addition to having approximately $158.6 million in available cash and cash equivalents and highly liquid short-term investments (excluding restricted cash) at year end 2011, the Company also recently put into place a $125.0 million working capital revolving line of credit (with a borrowing base of approximately $81.0 million at year end) which will provide backup liquidity. The Company also anticipates the possibility that it will be required to redeem its outstanding convertible debentures in March 2013 ($166.5 million) and if the appropriate opportunity exists, we expect to refinance this issue during 2012.
"With respect to the Marathon and Altar projects, during 2012 we anticipate continuing with our environmental assessment and permitting activities at Marathon, while additional delineation drilling is now in progress at Altar. The construction and development of each of these projects will require long-term planning and substantial funding. We will only proceed to develop these projects once they are determined to be economically sound and adequate financing is in place. We anticipate that access to the financial markets and/or partnering with a third party will be necessary to complete each project.
"I would like to emphasize that for the foreseeable future, the Company remains solely a primary PGM producer and continues to direct most of its investment focus into PGMs. Beyond Marathon and the two projects in the J-M Reef, the Company has not identified any other compelling, available PGM opportunities that meet its investment criteria. In total, the Company expects to direct far more of its economic resources into these PGM projects over the next several years than into Altar."
Mined production of palladium and platinum totaled 517,900 ounces for the full year 2011, including 398,900 ounces of palladium and 119,000 ounces of platinum. This result slightly exceeds the Company's most recent 2011 production guidance of 515,000 ounces. Following strong production results during the first half of the year, the Company chose to reallocate some of its mining resources from production into mine development during the second half in order to maintain the developed state of the mines. Coupled with certain fourth quarter operational issues, the result was lower PGM production during the second half of the year.
2011 Production by Quarter
First Second Third Fourth
(Produced Ounces) Quarter Quarter Quarter Quarter Year 2011
---------- ---------- ---------- ---------- ---------
Stillwater Mine 98,600 108,900 96,800 82,600 386,900
Palladium 75,800 83,500 74,400 63,600 297,300
Platinum 22,800 25,400 22,400 19,000 89,600
East Boulder Mine 32,600 33,800 33,200 31,400 131,000
Palladium 25,300 26,300 25,700 24,300 101,600
Platinum 7,300 7,500 7,500 7,100 29,400
Company Total 131,200 142,700 130,000 114,000 517,900
Palladium 101,100 109,800 100,100 87,900 398,900
Platinum 30,100 32,900 29,900 26,100 119,000
By comparison, total mined production for 2010 totaled 485,100 ounces, including 374,100 ounces of palladium and 111,000 ounces of platinum, with 351,700 total ounces from the Stillwater Mine and 133,400 ounces from the East Boulder Mine. Total mine output in 2010 was impaired by lower than planned ore grades realized in the off-shaft portion of the Stillwater Mine.
Mining costs, on a per-ounce basis, increased in 2011 compared to 2010. Total cash costs per ounce (a non-GAAP measure explained in the Company's quarterly filings with the U.S. Securities and Exchange Commission), after by-product and recycling credits, averaged $420 in 2011, 5.8% above 2010 total cash costs per ounce of $397. By-product and recycling credits increased in 2011 as a result of stronger PGM prices and recycling volumes. If total cash costs are considered before the benefit of by-product and recycling credits, 2011 total cash costs as adjusted would be $526 per ounce, or 9.6% above the comparable $480 per ounce for 2010. Stillwater Mine's total cash costs (with the benefit of credits) averaged $401 per ounce in 2011 or 5.5% more than the $380 per ounce achieved in 2010. East Boulder mine costs (with the benefit of credits) averaged $475 per ounce in 2011, 7.5% more than $442 per ounce in 2010. The year-over-year rise in cash costs per ounce is primarily attributable to increased labor and materials costs, as well as higher royalties and metal taxes as a result of higher PGM prices. Combined sales realizations for mined palladium and platinum ounces averaged $953 per ounce for 2011, up 32.2% from $721 per ounce realized in 2010. Fourth quarter 2011 sales realizations averaged $866 per ounce, compared to $844 per ounce averaged during the fourth quarter of 2010.
During 2011, the Company processed a total of 486,700 ounces of recycled PGM catalysts, an increase from 399,400 ounces of recycled material processed during 2010. Volumes available for recycling declined during the fourth quarter of 2011, reflecting the market response to lower PGM prices in that period. Recycling volumes sold peaked for the fourth quarter as high third-quarter in-process inventories of purchased recycling materials completed processing and came available for sale during the fourth quarter. In the fourth quarter of 2011, the Company fed 112,400 recycling ounces to the smelter, compared to 102,400 ounces fed in the same period of 2010. The Company's recycling business had pre-tax net income for 2011 of $18.8 million (including associated financing income) compared to earnings of $11.5 million in 2010.
2011 Recycling Activity by Quarter
First Second Third Fourth
Quarter Quarter Quarter Quarter Year 2011
--------- --------- --------- --------- ---------
Tons fed per day 18.3 21.0 22.2 19.7 20.3
PGM ounces fed 115,600 125,200 133,500 112,400 486,700
PGM ounces sold 42,677 61,300 86,731 115,299 306,007
PGM toll oz. returned 59,858 56,708 30,375 19,845 166,786
Capital expenditures for the full year 2011 totaled $104.1 million (of which $2.2 million was included in payables at December 31, 2011), below the Company's 2011 guidance of $115 million, but significantly higher than the $50.3 million spent in 2010 on existing operations. The Company's 2011 capital expenditure program primarily funded development efforts at the existing mining operations, but also included up-front spending on the Blitz, Graham Creek and Marathon projects. At the Graham Creek project, situated to the west of the East Boulder Mine, recent diamond drilling results have demonstrated mineable PGM ore grades following development of the first 1,200 feet of tunnel-boring machine (TBM) drift earlier in 2011. The TBM has now resumed operation there, with an additional 7,000 feet of development planned to be driven and evaluated over the coming years. The Company expects to take delivery of a refurbished TBM for the Blitz project, situated to the east of the Stillwater Mine, in the first half of 2012 and anticipates placing it into operation by year-end. The Blitz project is designed ultimately to extend underground access by approximately 20,000 feet on each of two levels to a point about 26,000 feet east of the Stillwater Mine shaft.
Guidance for 2012
The Company's Montana mining operations seem to function most efficiently at a current production rate of approximately 500,000 combined ounces of palladium and platinum per year. Mine plans once again have been structured to achieve that level of production in 2012. It is anticipated that total cash cost per ounce (a non-GAAP measure) for the two Montana mines will average approximately $500 per ounce for 2012, 19% higher than the 2011 average of $420 per ounce. The projected year-on-year increase in total cash costs per ounce reflects expected 2012 general inflation in supply costs, settlements under union contracts at both mines that include a 5% wage rate increase in 2012 plus adjustments to incentive programs, an expanded and enhanced miner training program involving about 50 people at any point in time, increased manpower for maintenance and support, a rising cost trend due to receding face and increased travel distances underground, higher costs at Stillwater Mine from production on the east side, and the overall effect of slightly lower anticipated 2012 mine production.
Capital expenditures are budgeted to total approximately $135.0 million for 2012, up from $104.1 million spent in 2011. The increase is attributable primarily to additional capital requirements at the Blitz and Marathon projects. Development spending plans have been established for 2012 at approximately $20.0 million for the Blitz project and $25.0 million for the Marathon PGM-copper project. An additional $27.0 million in exploration spending is planned in 2012 for Altar and other exploration drilling targets. Exploration costs are expensed as incurred and are reflected separately in the Company's consolidated statement of operations. Lower metal prices, higher mining costs and the need to expense exploration costs are expected to affect net income.
The Company has evaluated its 2012 capital and exploratory budgets in light of lower metals prices and has concluded that the timing of longer-term spending on development projects will be restricted unless and until prices recover and/or additional financing is arranged. At recent metals prices, the Company concludes its available liquidity and cash flow from operations are adequate to support its capital and exploratory spending plans for 2012. However, the Company also maintains significant discretion in its spending plans and can adjust the allocation and, to a reasonable extent, the timing of spending as necessary. The Company currently has several capital intensive development projects in its pipeline. While all of these projects are considered important to the organization, the Company has prioritized these efforts during its budgeting process. The Company's first priority is clearly to sustain the developed state of its current mining operations. This includes the Graham Creek project, which is essentially an extension of the East Boulder Mine and is relatively low cost as well as the Blitz project which is designed ultimately to extend underground access at the Stillwater Mine.
Cash Flow and Liquidity
At December 31, 2011, the Company's total available liquidity was $158.6 million including consolidated available cash and cash equivalents of $109.1 million and available-for-sale investments of $49.5 million. During October of 2011 the Company expended $166.4 million (net of cash acquired) and issued 12.0 million new common shares in completing its purchase of Peregrine Metals Ltd., the Canadian exploration company that holds the Altar property in Argentina. Working capital associated with the Company's recycling business, constituting marketable inventories and related recycling advances, increased to $64.5 million at December 31, 2011, from $41.5 million at the end of 2010. As announced recently, the Company has put in place a syndicated $125.0 million senior revolving credit facility, secured by accounts receivable, inventories and certain other accounts. At December 31, 2011, the Company's borrowing base was approximately $81.0 million; however there was no drawn balance under this revolving credit facility at December 31, 2011.
Net cash provided by operating activities (which includes changes in working capital) totaled $219.7 million for the full year 2011 and $91.8 million in the 2011 fourth quarter. This compares to $123.9 million of cash provided by operations for the full year 2010 and $28.6 million in the fourth quarter of 2010. The increase in cash from operations during 2011 resulted principally from higher average market prices for palladium and platinum in 2011.
Outstanding debt at December 31, 2011, was $196.0 million, unchanged from the $196.0 million at the end of 2010. The Company's total debt includes $166.5 million outstanding in the form of convertible debentures due in 2028 (convertible debentures will reach their date of first call in March 2013) and $29.5 million of Exempt Facility Revenue Bonds due in 2020.
Fourth Quarter Results - Details
In the fourth quarter of 2011, the Company's mining operations produced 114,000 ounces of palladium and platinum, including 82,600 ounces from the Stillwater Mine and 31,400 ounces from the East Boulder Mine. For the comparable quarter of 2010, Stillwater Mine produced 86,600 ounces and East Boulder Mine produced 34,500 ounces of palladium and platinum. The 6.2% decrease in total output between 2011 fourth quarter and the same period in 2010 is mostly the result of relocating some of the mining resources from production into mine development.
In the 2011 fourth quarter, total cash costs, (a non-GAAP measure) after by-product and recycling credits, averaged $422 per ounce, a 2.3% decrease from the fourth quarter 2010 average of $432 per ounce. Excluding the benefit of by-product and recycling credits, total cash costs in the fourth quarter of 2011 averaged $595 per ounce, up 17.6% compared to the $506 per ounce averaged in the fourth quarter of 2010. The rise in cash costs per ounce is primarily attributable to increased labor and materials costs, higher royalties and metal taxes as a result of higher PGM prices, as well as lower production volumes.
Sales from mine production totaled 126,700 ounces in the fourth quarter of 2011 at an overall average realization of $866 per ounce, compared to 117,100 ounces at $844 per ounce in the fourth quarter of 2010. The Company's average realization on palladium sales from mine production was $644 per ounce in the 2011 fourth quarter, compared to $619 per ounce in the same period of 2010. The comparable average realization on platinum was $1,518 per ounce in the fourth quarter of 2011, down from $1,557 per ounce in the 2010 fourth quarter.
During the fourth quarter of 2011, the Company processed about 112,400 ounces of PGMs from recycled catalytic materials. By comparison, in the fourth quarter of 2010, the Company processed about 102,400 ounces of recycled material. The Company processes both recycled material it purchases from third parties and material it toll processes on behalf of others for a fee. Volumes of material available for recycling continued to increase in 2011 in response to higher PGM prices.
Revenues for the fourth quarter 2011 totaled $259.7 million, up 79.5% from $144.7 million realized in the fourth quarter of 2010. Proceeds from sales of mined PGMs totaled $121.3 million in the 2011 fourth quarter, up from $105.1 million in the same quarter of 2010, reflecting higher PGM prices during the fourth quarter 2011. Recycling revenues increased to $138.4 million in the fourth quarter of 2011 from $38.0 million in the 2010 fourth quarter because of the higher sales volumes and realized prices in 2011. There were no re-sales of finished metal purchased in the open market during the fourth quarter of 2011.
Costs of metals sold (before depletion, depreciation and amortization expense) increased to $203.7 million in the 2011 fourth quarter from $96.1 million in the fourth quarter of 2010. Mining costs included in costs of metals sold increased to $73.2 million in the 2011 fourth quarter from $58.9 million in the 2010 fourth quarter, reflecting some cost inflation and increased royalties and taxes on the higher sales revenues. Recycling costs, largely comprised of the cost to purchase spent catalytic materials for processing, totaled $130.5 million in the fourth quarter of 2011, compared to $35.4 million in the fourth quarter of 2010, reflecting both the greater volume of material recycled and higher metal values in the fourth quarter 2011.
Depletion, depreciation and amortization expense decreased to $15.0 million in the 2011 fourth quarter from $18.4 million in the same period of 2010.
General and administrative ("G&A") costs increased to $19.9 million in the fourth quarter of 2011 from $12.7 million in the 2010. The increase was primarily driven by additional marketing and exploration expenses.
The Company recorded a foreign currency transaction gain of $3.2 million during the fourth quarter of 2011, compared to $0.1 million during the fourth quarter of 2010. Most of the 2011 gain was related to remeasurement in U.S. dollars of the deferred tax liability recorded in association with the purchase of Peregrine Metals Ltd.
Consolidated net income of $24.7 million recorded for the fourth quarter of 2011 included, by business segment, $33.3 million of incoming from mining operations and $8.1 million income from recycling activities (including associated financing income), less corporate costs including $19.9 million of G&A expense, a $3.2 million foreign currency transaction gain and about $1.6 million of unallocated net interest expense. Consolidated net income of $16.5 million recorded for the fourth quarter of 2010 included, by business segment, $27.9 million of income from mining operations and $2.7 million income from recycling activities (including associated financing income), less corporate costs including $12.7 million of G&A expense and about $1.3 million of unallocated net interest expense.
Year End Results - Details
For the full year 2011, Stillwater Mining Company produced 517,900 ounces of palladium and platinum from its mining operations, including 386,900 ounces from the Stillwater Mine and 131,000 ounces from the East Boulder Mine. In 2010, the Company's mines produced 485,100 ounces -- 351,700 ounces at Stillwater and 133,400 ounces at East Boulder.
Palladium and platinum sold from mine production during 2011 totaled 516,300 ounces at an overall average realization of $953 per ounce, compared to 489,400 ounces sold during 2010 at a combined average realization of $721 per ounce. Broken out by metal, total sales from mine production in 2011 included 402,000 ounces of palladium at an average realization of $739 per ounce and platinum sales of 114,300 ounces at an average realization of $1,705 per ounce. In 2010, sales of mined palladium totaled 377,600 ounces at an average realized price of $495 per ounce and platinum sales totaled 111,800 ounces at an average price, net of the price ceiling, of $1,488 per ounce in 2010.
The level of recycling activity increased during 2011, with a total of 486,700 ounces of spent catalytic material processed, up from 399,400 ounces processed in 2010. The Company processes both recycling material purchased from third parties and material tolled on behalf of third parties for a fee. The higher volumes processed in 2011 reflected the overall increase in PGM prices that incentivized more catalyst recycling worldwide.
Total Company revenues for 2011 equaled $906.0 million, up substantially from $555.9 million of revenue in the previous year, as higher PGM prices and higher recycling volumes prevailed in 2011. Sales of mined PGM ounces contributed $528.0 million to 2011's total revenue and $381.0 million to 2010's revenue, with the difference driven primarily by price. Recycling revenues more than doubled to $376.8 million in 2011 from $168.6 million in 2010, as the volume of recycled materials processed increased, coupled with higher PGM market prices. Other sales, mostly of metal purchased to meet resale obligations, contributed $1.1 million to 2011 revenue, down from $6.2 million in 2010.
Costs of metals sold, excluding depletion, depreciation and amortization expense, increased by 59.8% to $629.3 million for 2011 from $393.7 million in 2010, driven mostly by the growth in recycling activity. The costs of mining operations included here increased by 17.2% to $269.6 million in 2011 from $230.0 million in 2010, reflecting 2011 increases in labor and materials costs, along with higher royalties and taxes on the increased revenue. Recycling costs of metals sold increased by 128.0% to $358.6 million in 2011 from $157.3 million in 2010, mirroring the higher sales volumes. Most of the costs of recycling represent costs to purchase the spent catalyst material, as the actual processing is a relatively small portion of the total cost. Costs of other miscellaneous metals purchased for resale totaled $1.1 million in 2011, a decrease from $6.4 million the year before.
Depletion, depreciation and amortization expense decreased to $62.4 million in 2011 from $71.6 million in 2010. The decline in expense was primarily the result of the decrease in the depreciable base in 2011, as a large portion of the Company's mining fleet reached the end of its depreciable life in 2010 and the Company has concentrated its capital spending on mine development over the recent years.
The Company expanded its market development efforts for palladium during 2011. The Company spent $11.8 million in support of marketing programs during 2011, up from $2.4 million in 2010.
Excluding marketing expenses discussed above, general and administrative costs were $47.3 million in 2011, compared to $35.8 million in 2010, a 32.1% increase, including $4.7 million in financing expenses and $4.3 million in expenses related to the acquisition of Peregrine. The Company recognized $2.5 million in exploration expenses related to its mineral properties in both Canada and South America and $2.2 million in research and development expense in 2011. No related exploration or research and development expenses were recognized in 2010.
The Company's consolidated net income for the full year 2011 was $144.3 million. Broken out by business segment, mining operations contributed $197.3 million and recycling contributed $18.8 million earnings (including associated financing income). At the corporate level, G&A expense totaled $59.1 million, foreign currency gain equaled $3.2 million and unallocated net interest expense equaled $5.3 million.
The Company's consolidated net income for the full year 2010 was $50.4 million. Broken out by business segment, mining operations contributed $80.0 million and recycling contributed $11.5 million of earnings (including associated financing income). At the corporate level, G&A expense totaled $35.5 million and unallocated net interest expense equaled $5.6 million.
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